As filed with the Securities and Exchange Commission May 7, 1998
Registration No. 333-________
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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
--------------------
FORM S-4
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
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BANKFIRST CORPORATION
(exact name of registrant as specified in its charter)
Tennessee 6712 58-1790903
(State or other (Primary Standard (I.R.S. Employer
jurisdiction of Industrial Classification Identification Number)
incorporation or Code Number)
organization)
Fred R. Lawson, President and
Chief Executive Officer
625 Market Street BankFirst Corporation
Knoxville, TN 37902 625 Market Street
(423) 595-1100 Knoxville, TN 37902
(Address, including zip code, (423) 595-1100
and telephone number,including area (Name,address,including zip code,and
code, of registrant's principal telephone number,including area
executive office) code,of agent for service)
--------------------
Copies To:
Kathryn Reed Edge L.A. Walker, Jr., Robert G. McCullough
Miller & Martin LLP Chairman and Chief Baker, Donelson,
Suite 2325, Executive Officer Bearman & Caldwell, P.C.
SunTrust Center First Franklin Bancshares, Inc. 511 Union Street
424 Church Street 204 Washington Avenue Suite 1700
Nashville, TN 37219 Athens, TN 37371 Nashville, TN 37219
(615) 244-3119 (423) 745-2452 (615) 726-5600
Approximate date of commencement of proposed sale of securities to public:
As soon as practicable after the effective date of this Registration Statement.
If any of the securities being registered on this Form are to be offered
on a delayed or continuous basis pursuant to Rule 415 under the Securities Act
of 1933, check the following box. [ ]
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
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Proposed Maximum
Title of Each Proposed Maximum Aggregate
Class of Securities Amount to be Offering Price Offering Amount of
to be Registered (1) Registered(2) Per Share(3) Price(3) Registration Fee
- ---------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Common Stock, $2.50 par value 723,791 $60 $43,427,460 $12,811.10
===============================================================================================================
</TABLE>
(1) This Registration Statement relates to securities of the Registrant
issuable to holders of common stock of First Franklin Bancshares, Inc.
("FFBS"), in connection with the merger of FFBS into BankFirst
Corporation, ("BFC").
(2) Based on the number of shares of Registrant's common stock, $2.50 par
value per share, that could be issued in the Merger.
(3) Pursuant to Rule 457(f), and solely for the purpose of calculating the
registration fee, the proposed maximum offering price was based upon the
agreed purchase price of $60 per share.
The Registrant hereby amends this Registration Statement on such date
or dates as may be necessary to delay its effective date until the Registrant
shall file a further amendment which specifically states that this Registration
Statement shall thereafter become effective in accordance with Section 8(a) of
the Securities Act of 1933 or until the Registration Statement shall become
effective on such date as the Commission, acting pursuant to said Section 8(a),
may determine.
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<PAGE>
BANKFIRST CORPORATION
Cross Reference Sheet pursuant to Rule 404(a) of the Securities Act of
1933 and Item 501(b) of Regulation S-K showing the location or heading in the
Joint Proxy Statement/Prospectus of the information required by Part I of Form
S-4.
Location or Heading in
S-4 Item Number and Caption Joint Proxy Statement/Prospectus
--------------------------- --------------------------------
A. Information about the Transaction
1. Forepart of Registration
Statement and Outside
Front Cover Page of Prospectus.... Facing Page; Cross Reference Sheet;
Outside Front Cover Page of Joint
Proxy Statement/Prospectus.
2. Inside Front and Outside Back
Cover Pages of Prospectus......... Available Information; Inside Front
Cover Page of Joint Proxy
Statement/Prospectus; Table of
Contents.
3. Risk Factors, Ratio of Earnings to
Fixed Charges and Other
Information....................... Summary; Pro Forma Financial
Information; Risk Factors; BFC
Management's Discussion and
Analysis of Financial Condition and
Results of Operations; FFBS
Management's Discussion and
Analysis of Financial Condition and
Results of Operations; Index to
Financial Information.
4. Terms of the Transaction.......... Summary; The Merger; The Merger
Agreement; Certain Federal Income
Tax Consequences; Description of
BFC Capital Stock; Comparison of
Certain Rights of Shareholders.
5. Pro Forma Financial Information... Summary; Pro Forma Financial
Information.
6. Material Contacts with the
Company Being Acquired............ Not applicable.
7. Additional Information Required
for Reoffering by Persons and
Parties Deemed to be
Underwriters...................... Not applicable.
8. Interests of Named Experts and
Counsel........................... Experts.
9. Disclosure of Commission
Position on Indemnification for
Securities Act Liabilities........ Not applicable.
<PAGE>
B. Information about the Registrant
10. Information with Respect to S-3
Registrants....................... Not applicable.
11. Incorporation of Certain
Information by Reference.......... Not applicable.
12. Information with Respect to S-2 or
S-3 Registrants.................. Not applicable.
13. Incorporation of Certain
Information by Reference.......... Not applicable.
14. Information with Respect to
Registrants Other Than S-3 or S-2
Registrants....................... Summary; The Merger; BFC
Management's Discussion and
Analysis of Financial Condition and
Results of Operations; Business of
BFC; Management of BFC; Description
of BFC Capital Stock; Index to
Financial Information.
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 Companies.................... Not applicable.
17. Information with Respect to
Companies Other Than S-2 or S-3
Companies......................... Summary; The Merger; FFBS
Management's Discussion and
Analysis of Financial Condition and
Results of Operation; Business of
FFBS; Description of FFBS Capital
Stock; Index to Financial
Information.
D. Voting and Management Information
18. Information if Proxies, Consents
or Authorizations are to be
Solicited ........................ Summary; The Special Meetings; The
Merger, Cover Page of the Joint
Proxy Statement/Prospectus;
Management of BFC.
19. Information if Proxies, Consents
or Authorizations are not to be
Solicited in an Exchange Offer.... Not applicable.
<PAGE>
BANKFIRST CORPORATION
625 Market Street, Knoxville, TN 37902
June __, 1998
Dear Shareholder:
You are cordially invited to attend a Special Meeting of Shareholders of
BankFirst Corporation ("BFC"), to be held on Friday, June 26, 1998, on the 15th
floor of the main office of BankFirst at 625 Market Street, Knoxville, Tennessee
37902 at 8:00 a.m., Eastern Daylight Savings Time (the "BFC Meeting").
At this meeting, you will be asked to consider and vote upon a proposal to
approve an Agreement and Plan of Merger, dated as of March 19, 1998 (the "Merger
Agreement"), between First Franklin Bancshares, Inc. ("FFBS") and BFC, which
provides for the merger of FFBS with and into BFC (the "Merger"), with BFC to be
the surviving corporation. The proposed Merger is more fully described in the
accompanying Joint Proxy Statement/Prospectus.
If the Merger is approved and consummated, the Merger Agreement provides
that (i) each issued and outstanding share of common stock of FFBS, $5.00 par
value per share ("FFBS Common"), other than shares of FFBS Common held as
treasury stock, will be converted into the right to receive 4.410 shares of
common stock of BFC, $2.50 par value per share (the "BFC Common") and cash in
lieu of fractional shares, and (ii) each issued and outstanding share of BFC
Common Stock will remain issued and outstanding, unaffected by the Merger.
As a result of the Merger, the separate existence of FFBS will cease and
First National Bank and Trust Company of Athens, a wholly-owned subsidiary of
FFBS, will become a wholly-owned subsidiary of BFC and will continue in
operation serving its current markets as a national banking association.
At the BFC Meeting, shareholders will also consider and vote on (i) the
election of L. A. Walker, Jr., W. D. Sullins, Jr., and C. Scott Mayfield, Jr. to
fill three additional positions on the Board of Directors of BFC which will be
created upon the effectiveness of the Merger; such nominees were chosen from the
current Board of Directors of FFBS and (ii) an amendment to the BFC Charter
authorizing a four for one stock split of BFC Common, to be effective on June
30, 1998 or immediately after the Merger, whichever is later.
The enclosed Notice of Special Meeting of Shareholders and Joint Proxy
Statement/Prospectus explain the Merger and provide specific information
relative to the BFC Meeting. Please carefully read these materials and
thoughtfully consider the information contained in them.
The Board of Directors of BFC believes that the Merger and the Merger
Agreement are fair to, and in the best interests of, BFC and its shareholders.
The Boards of Directors of both FFBS and BFC have approved the Merger Agreement.
The Board of Directors of BFC recommends that you vote FOR approval of the
Merger Agreement, election of the director nominees and approval of the Charter
amendment.
Your vote is important since approval of the Merger requires the
affirmative vote of a majority of the outstanding shares of BFC Common. Whether
or not you plan to attend the BFC Meeting, you are urged to promptly complete,
sign, date and return the accompanying Proxy in the enclosed envelope, so that
your shares may be represented at the BFC Meeting. All shareholders are invited
to attend the BFC Meeting in person, and you may, if you wish, vote personally
on all matters brought before the BFC Meeting, even if you have previously
returned your Proxy.
Sincerely,
Fred R. Lawson,
President and Chief Executive Officer
<PAGE>
FIRST FRANKLIN BANCSHARES, INC.
204 Washington Avenue, Athens, TN 37371
June __, 1998
Dear Shareholder:
You are cordially invited to attend a Special Meeting of Shareholders of
First Franklin Bancshares, Inc. ("FFBS"), to be held on Friday, June 26, 1998,
at the operations center of The First National Bank and Trust Company ("Athens")
at 3 South Hill Street, Madison Park Center, Athens, Tennessee 37371 at 10:00
a.m., Eastern Daylight Savings Time (the "FFBS Meeting").
At this meeting, you will be asked to consider and vote upon a proposal to
approve an Agreement and Plan of Merger, dated as of March 19, 1998 (the "Merger
Agreement"), between FFBS and BankFirst Corporation ("BFC"), which provides for
the merger of FFBS with and into BFC (the "Merger"), with BFC to be the
surviving corporation. The proposed Merger is more fully described in the
accompanying Joint Proxy Statement/Prospectus.
If the Merger is approved and consummated, the Merger Agreement provides
that (i) each issued and outstanding share of common stock of FFBS, $5.00 par
value per share ("FFBS Common"), other than shares of FFBS Common held as
treasury stock, will be converted into the right to receive 4.410 shares of
common stock of BFC, $2.50 par value per share ("BFC Common"), and cash in lieu
of fractional shares and (ii) each issued and outstanding share of BFC Common
will remain issued and outstanding, unaffected by the Merger. With respect to
BFC Common received in the transaction by FFBS shareholders, the Merger
Agreement provides for a tax-free exchange.
BFC anticipates that a four for one stock split of BFC Common will occur
on June 30, 1998 or immediately after the Merger, whichever is later. As a
result of that stock split, each share of BFC Common received by FFBS
shareholders in the Merger will become four shares of BFC Common.
As a result of the Merger, the separate existence of FFBS will cease and
Athens, a wholly-owned subsidiary of FFBS, will become a wholly-owned subsidiary
of BFC and will continue in operation serving its current markets as a national
banking association.
The enclosed Notice of Special Meeting of Shareholders and Joint Proxy
Statement/Prospectus explain the Merger and provide specific information
relative to the FFBS Meeting. Please carefully read these materials and
thoughtfully consider the information contained in them.
The Board of Directors of FFBS believes that the transactions contemplated
by the Merger Agreement are fair to and in the best interests of FFBS and its
shareholders. The Boards of Directors of both FFBS and BFC have approved the
Merger Agreement. The Board of Directors of FFBS recommends that you vote FOR
approval of the Merger Agreement.
Your vote is of great importance since approval of the Merger requires the
affirmative vote of a majority of the outstanding shares of FFBS Common. Whether
or not you plan to attend the FFBS Meeting, you are urged to promptly complete,
sign, date and return the accompanying Proxy in the enclosed envelope, so that
your shares may be represented at the FFBS Meeting. All shareholders are invited
to attend the FFBS Meeting in person, and you may, if you wish, vote personally
on all matters brought before the FFBS Meeting, even if you have previously
returned your Proxy.
Sincerely,
L.A. Walker, Jr.,
Chairman and Chief Executive Officer
<PAGE>
BANKFIRST CORPORATION
------------------------------------------
NOTICE OF SPECIAL MEETING OF SHAREHOLDERS
To Be Held on June 26, 1998
------------------------------------------
NOTICE IS HEREBY GIVEN that a Special Meeting of Shareholders of BankFirst
Corporation ("BFC") will be held on Friday, June 26, 1998 on the 15th floor of
the main office of BankFirst at 625 Market Street, Knoxville, Tennessee 37902 at
8:00 a.m., Eastern Daylight Savings Time, for the following purposes:
1. To consider and vote upon the approval and adoption of an Agreement
and Plan of Merger dated as of March 19, 1998 (the "Merger
Agreement") between First Franklin Bancshares, Inc. ("FFBS") and
BFC, a copy of which is set forth as Appendix A to the attached
Joint Proxy Statement/Prospectus. The Merger Agreement provides for,
among other things, the proposed merger of FFBS with and into BFC
(the "Merger"), with BFC to be the surviving corporation of the
Merger;
2. To consider and vote upon the election of L. A. Walker, Jr., W. D.
Sullins, Jr., and C. Scott Mayfield, Jr. to fill three additional
positions on the Board of Directors of BFC which will be created
upon the effectiveness of the Merger; such nominees will serve as
members of the board until the next annual meeting or until their
successors are duly elected and qualified;
3. To consider and vote upon an amendment to the BFC Charter which
authorizes a four for one stock split of BFC Common to be effective
June 30, 1998 or immediately after the Merger, whichever is later.
4. To transact such other business as may properly come before the
meeting. The Board of Directors of BFC is not aware of any other
business to come before the meeting.
The foregoing items of business are more fully described in the Joint
Proxy Statement/Prospectus accompanying this Notice.
Only shareholders of record at the close of business on May 15, 1998 are
entitled to notice of, and to vote at, the meeting and any adjournments thereof.
Approval of the Merger Agreement requires the affirmative vote of a
majority of the outstanding shares of BFC common stock. Approval of the director
nominees and Charter amendment require the affirmative vote of a majority of the
common stock of BFC which is represented at the meeting. The Board of Directors
of BFC recommends that shareholders vote FOR approval of the Merger Agreement,
the director nominees and the Charter amendment.
BY ORDER OF THE BOARD OF DIRECTORS
Secretary
Knoxville, Tennessee
June __, 1998
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YOUR VOTE IS IMPORTANT
To ensure your representation at the meeting, you are urged to mark, sign, date
and return the enclosed proxy as promptly as possible in the postage-prepaid
envelope enclosed for that purpose. To revoke a proxy, you must submit to the
Secretary of BFC, prior to voting, either a signed instrument of revocation or a
duly executed proxy bearing a date or time later than the proxy being revoked.
If you attend the meeting, you may vote in person even if you previously
returned a proxy.
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<PAGE>
FIRST FRANKLIN BANCSHARES, INC.
------------------------------------------
NOTICE OF SPECIAL MEETING OF SHAREHOLDERS
To Be Held on June 26, 1998
------------------------------------------
NOTICE IS HEREBY GIVEN that a Special Meeting of Shareholders of First
Franklin Bancshares, Inc. ("FFBS") will be held on Friday, June 26, 1998 at the
operations center of The First National Bank and Trust Company ("Athens") at 3
South Hill Street, Madison Park Center, Athens, Tennessee 37371 at 10:00 a.m.,
Eastern Daylight Savings Time, for the following purposes:
1. To consider and vote upon the approval and adoption of an Agreement
and Plan of Merger dated as of March 19, 1998 (the "Merger
Agreement") between FFBS and BankFirst Corporation ("BFC"), a copy
of which is set forth as Appendix A to the attached Joint Proxy
Statement/Prospectus. The Merger Agreement provides for, among other
things, the merger of FFBS with and into BFC (the "Merger"), with
BFC to be the surviving corporation of the Merger;
2. To transact such other business as may properly come before the
meeting. The Board of Directors of FFBS is not aware of any other
business to come before the meeting.
The foregoing items of business are more fully described in the Joint
Proxy Statement/Prospectus accompanying this Notice.
Only shareholders of record at the close of business on May 15, 1998 are
entitled to notice of, and to vote at, the meeting and any adjournments thereof.
Approval of the Merger Agreement requires the affirmative vote of the
holders of a majority of the outstanding shares of FFBS common stock. The Board
of Directors of FFBS recommends that shareholders vote FOR approval of the
Merger Agreement.
BY ORDER OF THE BOARD OF DIRECTORS
Secretary
Athens, Tennessee
June __, 1998
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YOUR VOTE IS IMPORTANT
To ensure your representation at the meeting, you are urged to mark, sign, date
and return the enclosed proxy as promptly as possible in the postage-prepaid
envelope enclosed for that purpose. To revoke a proxy, you must submit to the
Secretary of FFBS, prior to voting, either a signed instrument of revocation or
a duly executed proxy bearing a date or time later than the proxy being revoked.
If you attend the meeting, you may vote in person even if you previously
returned a proxy.
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<PAGE>
JOINT PROXY STATEMENT
BANKFIRST CORPORATION FIRST FRANKLIN BANCSHARES, INC.
Proxy Statement for Proxy Statement for
Special Meeting of Shareholders Special Meeting of Shareholders
To Be Held on June 26, 1998 To Be Held on June 26, 1998
PROSPECTUS
BANKFIRST CORPORATION
Common Stock
This Joint Proxy Statement/Prospectus relates to the proposed merger of
First Franklin Bancshares, Inc. ("FFBS") with and into BankFirst Corporation
("BFC") upon the terms and subject to the conditions set forth in the Agreement
and Plan of Merger, dated as of March 19, 1998, by and between FFBS and BFC (the
"Merger Agreement").
This Joint Proxy Statement/Prospectus is being furnished in connection
with the solicitation of proxies by the Board of Directors of BFC (the "BFC
Board") to be used at the Special Meeting of Shareholders of BFC to be held on
June 26, 1998 (the "BFC Meeting") and by the Board of Directors of FFBS (the
"FFBS Board") to be used at the Special Meeting of Shareholders of FFBS to be
held on June 26, 1998 (the "FFBS Meeting," and together with the BFC Meeting,
the "Meetings").
At the Meetings, shareholders of BFC and FFBS will consider and vote upon
the approval and adoption of the Merger Agreement. In addition, at the BFC
Meeting, the BFC shareholders will consider and vote on (i) nominees to fill
three additional BFC Board positions which will be created upon the
effectiveness of the Merger; such nominees will be chosen from the current FFBS
Board and (ii) a Charter amendment authorizing a four for one stock split of
BFC's outstanding common stock to be effective June 30, 1998 or immediately
after the Merger, whichever is later.
The Merger Agreement provides that (i) each issued and outstanding share
of common stock of FFBS, $5.00 par value per share ("FFBS Common"), other than
shares of FFBS Common held as treasury stock, will be converted into the right
to receive 4.410 shares of common stock of BFC, $2.50 par value per share ("BFC
Common"), and cash in lieu of fractional shares, and (ii) each issued and
outstanding share of BFC Common will remain issued and outstanding, unaffected
by the Merger. As a result of the Merger, the separate existence of FFBS will
cease, and the First National Bank and Trust Company ("Athens"), a wholly-owned
subsidiary of FFBS, will become a wholly-owned subsidiary of BFC and will
continue in operation serving its current markets as a national banking
association.
This Joint Proxy Statement/Prospectus also serves as a Prospectus under
the Securities Act of 1933, as amended (the "Securities Act"), relating to a
maximum of 723,791 shares of BFC Common issuable to holders of FFBS Common
pursuant to the Merger. This Joint Proxy Statement/Prospectus and the
accompanying forms of proxy are first being mailed to the shareholders of BFC
and FFBS on or about June __, 1998.
There is no established trading market for either BFC Common or FFBS
Common. The exchange ratio was arrived at by arms-length negotiation between the
BFC Board and the FFBS Board. See "The Merger." To management of BFC's knowledge
and management of FFBS' knowledge, the most recent transactions with respect to
the BFC Common and the FFBS Common were at $50.00 per share and $167.00 per
share, respectively.
See "Risk Factors" on page 10 for a summary of certain material risks and
considerations relating to an investment in BFC Common.
THE SHARES OF BFC COMMON 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.
THE SECURITIES TO BE ISSUED IN THE MERGER 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 JOINT PROXY STATEMENT/PROSPECTUS.
ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
------------------
The date of this Joint Proxy Statement/Prospectus is ________, 1998.
<PAGE>
TABLE OF CONTENTS
AVAILABLE INFORMATION..........................................................3
SUMMARY........................................................................4
FORWARD LOOKING STATEMENTS....................................................10
RISK FACTORS..................................................................10
THE SPECIAL MEETINGS..........................................................14
THE MERGER ...................................................................16
PRO FORMA FINANCIAL INFORMATION...............................................31
BFC MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS.............................38
BUSINESS OF BFC...............................................................59
MANAGEMENT OF BFC ............................................................68
DESCRIPTION OF BFC CAPITAL STOCK .............................................74
FFBS MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS.......................................75
BUSINESS OF FFBS..............................................................91
DESCRIPTION OF FFBS CAPITAL STOCK ............................................97
EFFECT OF THE MERGER ON RIGHTS OF SHAREHOLDERS................................97
VALIDITY OF COMMON STOCK......................................................98
EXPERTS ...................................................................99
INDEX TO FINANCIAL INFORMATION...............................................F-1
2
<PAGE>
NO PERSON IS AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY REPRESENTATION
OTHER THAN THOSE CONTAINED IN THIS JOINT PROXY STATEMENT/PROSPECTUS, AND IF
GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATION SHOULD NOT BE RELIED UPON AS
HAVING BEEN AUTHORIZED. THIS JOINT PROXY STATEMENT/PROSPECTUS DOES NOT
CONSTITUTE AN OFFER TO SELL, OR A SOLICITATION OF AN OFFER TO PURCHASE, THE
SECURITIES OFFERED BY THIS JOINT PROXY STATEMENT/PROSPECTUS, OR THE SOLICITATION
OF A PROXY, IN ANY JURISDICTION IN WHICH SUCH OFFER OR SOLICITATION MAY NOT
LAWFULLY BE MADE. NEITHER THE DELIVERY OF THIS JOINT PROXY STATEMENT/PROSPECTUS
NOR ANY DISTRIBUTION OF SECURITIES PURSUANT TO THIS JOINT PROXY
STATEMENT/PROSPECTUS SHALL, UNDER ANY CIRCUMSTANCES, CREATE AN IMPLICATION THAT
THERE HAS BEEN NO CHANGE IN THE INFORMATION SET FORTH HEREIN SINCE THE DATE OF
THIS JOINT PROXY STATEMENT/PROSPECTUS.
-------------------------
AVAILABLE INFORMATION
All information concerning BFC included in this Joint Proxy
Statement/Prospectus and the attached Appendices has been furnished by BFC and
all information concerning FFBS included in this Joint Proxy
Statement/Prospectus and the attached Appendices has been furnished by FFBS.
BFC has filed with the Securities and Exchange Commission ("SEC") a
Registration Statement on Form S-4 (the "Registration Statement") under the
Securities Act of 1933, as amended (the "Securities Act") covering the
securities described herein. This Joint Proxy Statement/Prospectus does not
contain all of the information set forth in the Registration Statement, certain
parts of which are omitted in accordance with the rules and regulations of the
SEC. Statements contained herein or incorporated herein by reference concerning
the provisions of documents are summaries of such documents, and each statement
is qualified in its entirety by reference to the applicable document if filed
with the SEC or attached as an appendix hereto. For further information,
reference is hereby made to the Registration Statement and the exhibits filed
therewith. The Registration Statement and any amendments thereto, including
exhibits filed as a part thereof, are available for inspection and copying as
set forth below.
BFC will become subject to the information filing requirements of the
Securities Exchange Act of 1934, as amended (the "Exchange Act"), and in
accordance therewith will file reports and other information with the SEC. Such
reports and other information will be available for copying and inspection at
the Public Reference Section of the SEC, 450 Fifth Street, N.W., Washington,
D.C. 20549, at prescribed rates, as well as at the following Regional Offices of
the SEC: Seven World Trade Center, New York, New York 10048; and Citicorp
Center, 500 West Madison Street, Suite 1400, Chicago, Illinois 60661-2511. Such
material will also be accessible electronically by means of the SEC's home page
on the Internet at http://www.sec.gov through the SEC's Electronic Data
Gathering Analysis and Retrieval ("EDGAR") System.
In addition, BFC intends to furnish its shareholders with annual reports
containing financial statements audited by BFC's independent accountants and to
make available to its shareholders quarterly reports for the first three
quarters of each fiscal year containing unaudited financial statements.
3
<PAGE>
- --------------------------------------------------------------------------------
SUMMARY
The following is a summary of certain information contained elsewhere in
this Joint Proxy Statement/Prospectus. Reference is made to, and this summary is
qualified in its entirety by, the more detailed information contained elsewhere
in this Joint Proxy Statement/Prospectus and in the attached Appendices.
Shareholders of BFC and FFBS are urged to carefully read this Joint Proxy
Statement/Prospectus and the attached Appendices in their entirety.
The Companies
BFC, incorporated in Tennessee in 1988, is a bank holding company
registered under the Bank Holding Company Act of 1956, as amended (the "BHCA").
BFC's principal asset is the capital stock of BankFirst, a Tennessee banking
corporation. At March 31, 1998, BFC had consolidated total assets of $517
million and shareholders' equity of $40 million. BFC's principal offices are
located at 625 Market Street, Knoxville, Tennessee 37902 and its telephone
number is (423) 595-1100. See "BUSINESS OF BFC."
FFBS, incorporated in Tennessee in 1982, is a bank holding company
registered under the BHCA. FFBS' principal asset is the capital stock of Athens,
a national banking association. At March 31, 1998 FFBS had consolidated total
assets of $185 million and stockholders' equity of $22 million. FFBS' principal
offices are located at 204 Washington Avenue, Athens, Tennessee 37371-0100 and
its telephone number is (423) 745-2452. See "BUSINESS OF FFBS."
Special Meetings of Shareholders
The BFC Meeting will be held on Friday, June 26, 1998, on the 15th floor
of the main office of BankFirst at 625 Market Street, Knoxville, Tennessee 37902
at 8:00 a.m., Eastern Daylight Savings Time. Only holders of record of BFC
Common at the close of business on May 15, 1998 (the "BFC Record Date") will be
entitled to vote at the BFC Meeting. On the BFC Record Date, there were issued
and outstanding 1,275,893 shares of BFC Common held by approximately 250 holders
of record. Each such share is entitled to one vote on each matter which comes up
at the BFC Meeting. See "THE SPECIAL MEETINGS."
At the BFC Meeting, shareholders of BFC will be asked to consider and vote
upon a proposal to approve and adopt the Merger Agreement, which provides for
the merger of FFBS with and into BFC, with BFC to be the surviving corporation.
In addition, if the Merger is approved, shareholders will consider and vote upon
election of nominees to fill three additional positions on the BFC Board which
will be created upon the effectiveness of the Merger; such nominees will serve
as members of the BFC Board until the next annual meeting or until their
successors are duly elected and qualified and will be chosen from the current
members of the FFBS Board. The BFC shareholders will also be asked to consider
and vote upon a charter amendment to authorize a four for one stock split of BFC
Common. Approval of the Merger requires the affirmative vote of a majority of
the outstanding shares of BFC Common. Election of each of the nominees and
approval of the Charter amendment require the affirmative vote of a majority of
the shares of BFC Common which are represented at the BFC Meeting. See "THE
SPECIAL MEETINGS."
The FFBS Meeting will be held on Friday, June 26, 1998, at the operations
center for Athens at 3 South Hill Street, Madison Park Center, Athens, Tennessee
37371 at 10:00 a.m., Eastern Daylight Savings Time. Only holders of record of
FFBS Common at the close of business on May 15, 1998 (the "FFBS Record Date")
will be entitled to vote at the FFBS Meeting. On the FFBS Record Date, there
were issued and outstanding 164,125 shares of FFBS Common held by approximately
300 holders of record. Each share is entitled to one vote on each matter to come
up at the FFBS Meeting. See "THE SPECIAL MEETINGS."
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At the FFBS Meeting, shareholders of FFBS will be asked to consider and
vote upon a proposal to approve and adopt the Merger Agreement, which provides
for the merger of FFBS with and into BFC, with BFC to be the surviving
corporation. Approval of the Merger Agreement requires the affirmative vote of a
majority of the outstanding shares of FFBS. See "THE SPECIAL MEETINGS."
Terms of the Merger
Upon the effectiveness of the Merger (the "Effective Time"), each share of
FFBS Common outstanding prior to the Effective Time will be converted into a
right to receive 4.410 fully paid and non-assessable shares of BFC Common.
Shareholders of FFBS, who do not exercise dissenters' rights, will receive BFC
Common in exchange for their shares of FFBS Common. No fractional shares of BFC
Common will be issued in connection with the Merger. In lieu of fractional
shares, BFC will make a cash payment for the fractional interest based on a
value of $60 per share. See "THE MERGER--Terms of the Merger." As promptly as
practicable after the Effective Time, BFC will provide letters of transmittal to
shareholders of FFBS for the purpose of exchanging their certificates of FFBS
Common for certificates of BFC Common. See "THE MERGER--Surrender of
Certificates."
As a result of the Merger, the separate existence of FFBS will cease and
Athens, a wholly owned subsidiary of FFBS, will become a wholly-owned subsidiary
of BFC and will continue in operation serving its current markets as a national
banking association. After the Merger, BFC will continue to be managed by its
existing board of directors and officers. However, three new directors, chosen
from the existing FFBS Board, will be added to the BFC Board. See "THE
MERGER--Management After the Merger."
Subsequent Events
Subsequent to the signing of the Merger Agreement and with the approval of
FFBS, the BFC Board proposed to amend the BFC Charter to (i) increase the number
of authorized shares of BFC Common from 3,000,000 to 15,000,000; (ii) remove the
provision authorizing 1,000,000 shares of non-voting common stock, par value
$2.50 per share (there were no shares of such non-voting common stock issued and
outstanding); and (iii) change the name of BFC from "Smoky Mountain Bancorp,
Inc." to "BankFirst Corporation." All three charter amendments were approved and
adopted by the BFC shareholders on April 27, 1998.
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, FFBS' receipt of a fairness opinion, receipt of an opinion
of counsel regarding certain tax aspects of the Merger, receipt of an
accountant's letter stating that the Merger can be accounted for as a pooling of
interests, 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
Federal Deposit Insurance Corporation (the "FDIC"), the Tennessee Department of
Financial Institutions (the "TDFI"), and the Board of Governors of the Federal
Reserve (the "FRB"). Applications have been submitted for such approvals. There
can be no assurances as to when, if, or with what conditions such approvals will
be granted. See "THE MERGER--Conditions to Consummation of the Merger," and
"--Regulatory Approvals."
Certain Differences in Shareholders' Rights
As a result of the Merger, shareholders of FFBS will become shareholders
of BFC. Both FFBS and BFC are Tennessee corporations registered as bank holding
companies pursuant to the BHCA. Therefore, the statutory provisions governing
the rights of FFBS shareholders will not change as a result of the Merger.
However, at the Effective Time, FFBS shareholders will become subject to the
provisions of BFC's charter and bylaws. The rights
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5
<PAGE>
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of shareholders of FFBS currently differ from rights of shareholders of BFC with
respect to certain important matters, including authorized capital stock, number
and qualification of directors, indemnification of officers and directors, and
dividend policy. For a summary of these differences, see "EFFECT OF THE MERGER
ON RIGHTS OF SHAREHOLDERS."
Dissenters' Rights
Under the Tennessee Business Corporation Act ("TBCA"), holders of BFC
Common and holders of FFBS Common who vote against the Merger and who deliver to
BFC or FFBS, respectively, the required written demand and who otherwise comply
with the requirements of the TBCA will be entitled to receive the value of their
shares in cash as determined under the provisions of the TBCA. Such right will
be lost, however, if the procedural requirements of the TBCA are not fully and
precisely satisfied. See "THE MERGER--Dissenters' Rights."
Certain Federal Income Tax Consequences
FFBS has received an opinion of counsel 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, and,
accordingly, for federal income tax purposes, shareholders of FFBS Common will
not recognize gain or loss upon the receipt of BFC Common, 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 FFBS of an opinion of counsel
substantially to this effect. See "THE MERGER--Certain Federal Income Tax
Consequences."
FFBS 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.
Market Prices of Common Stock
Neither BFC Common nor FFBS Common is listed, traded or quoted on any
securities exchange or in the over-the-counter market, and no dealer makes a
market in either stock, although isolated transactions between individuals occur
from time to time. To BFC management's knowledge, the most recent transaction
with respect to BFC Common was at $50 per share; and to FFBS management's
knowledge, the most recent transaction with respect to FFBS Common was at $167
per share. The shares of BFC Common to be issued hereunder are registered under
the Securities Act.
Initial Public Equity Offering; Stock Split
BFC presently intends to effect an initial public offering of BFC Common
after the Merger, if market conditions are favorable. Neither such offering nor
the Merger is conditioned on the closing of the other. In preparation for the
offering, BFC anticipates that a four for one stock split of BFC Common will
occur soon after the Merger. If the stock split is consummated, the number of
issued and outstanding shares of BFC Common will increase from approximately 2
million (including the shares to be issued in the Merger) to approximately 8
million.
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SUMMARY PRO FORMA CONSOLIDATED FINANCIAL INFORMATION
(In thousands, except share and per share data)
The following tables set forth (a) summary pro forma financial information
for BFC and FFBS combined as of and for the three months ended March 31, 1998,
and as of and for each of the five years in the period ended December 31, 1997,
and (b) historical, pro forma and equivalent pro forma net income and cash
dividends of BFC and FFBS on a per share basis as of such dates and for such
periods, and the historical and the pro forma book value of BFC and the
historical and the equivalent pro forma book value of FFBS on a per share basis
as of March 31, 1998 (as adjusted). This information is derived from and should
be read in conjunction with the historical financial statements of BFC and FFBS
that appear elsewhere in this Joint Proxy Statement/Prospectus and with the pro
forma consolidated condensed financial statements of BankFirst, which give
effect to the Merger and which appear in this Joint Proxy Statement/Prospectus
under the caption "Pro Forma Financial Information." The pro forma consolidated
condensed financial information has been prepared based on the pooling of
interest method of accounting on the assumptions that 723,791 shares of BFC
common stock will be issued and that no FFBS shareholder will dissent. This
information will vary if any FFBS shareholders dissent to the proposed merger.
The equivalent pro forma per share information for FFBS has been determined by
multiplying BFC pro forma per share information by 4.41 (the Exchange Ratio).
<TABLE>
<CAPTION>
Three Months
Ended Years Ended
-------------- -----------------------------------------------------------------------
March 31, 1998 1997 1996 1995 1994 1993
-------------- ----------- ----------- ------ ---- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
Summary of operations
Interest income - tax equivalent $ 14.484 $ 51,893 $ 47,311 $ 42,677 $ 34,317 $ 29,301
Interest expense 6,000 22,652 21,238 19,082 13,357 11,963
----------- ----------- ----------- ----------- ----------- -----------
Net interest income 8,484 29,241 26,073 23,595 20,780 17,338
Tax equivalent adjustment (1) (688) (606) (613) (558) (600) (623)
----------- ----------- ----------- ----------- ----------- -----------
Net interest income 7,796 28,635 25,460 23,037 20,180 16,715
Provision for loan losses (534) (2,935) (667) (553) (703) (924)
Noninterest income 1,959 5,657 5,243 4,369 4,382 3,916
Noninterest expenses (2) (6,638) (21,323) (20,799) (19,157) (17,201) (14,013)
----------- ----------- ----------- ----------- ----------- -----------
Income before income taxes 2,583 10,034 9,237 7,696 6,657 5,694
Income tax expense 880 3,406 3,188 2,517 1,727 1,828
----------- ----------- ----------- ----------- ----------- -----------
Net earnings $ 1,703 $ 6,628 $ 6,049 $ 5,179 $ 4,929 $ 3,866
----------- ----------- ----------- ----------- ----------- -----------
Basic earnings per share $ 0.83 $ 3.27 $ 3.15 $ 3.15 $ 3.31 $ 2.65
Diluted earnings per share 0.78 3.05 2.95 2.97 3.04 2.60
Dividends per common share -- 0.61 0.47 0.71 0.77 0.71
Cash dividends declared - common $ -- $ 1,214 $ 876 $ 1,152 $ 1,133 $ 1,039
Cash dividends declared - preferred 39 161 162 74 73 --
Book value per common share 30.87 30.00 31.35 27.79 23.03 20.54
Average common shares
outstanding 1,997,357 1,974,919 1,869,117 1,619,206 1,468,873 1,458,380
</TABLE>
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7
<PAGE>
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<TABLE>
<CAPTION>
Three Months
Ended Years Ended
-------------- ---------------------------------------------------------
March 31, 1998 1997 1996 1995 1994 1993
-------------- --------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
Selected year-end balances
Total assets $701,432 $650,717 $595,284 $545,718 $480,687 $418,337
Earning assets 63,838 604,031 559,927 504,430 444,866 388,644
Total Securities 130,740 128,402 135,407 136,216 121,979 117,440
Loans - net of unearned income 479,330 464,967 412,793 350,652 306,905 253,692
Allowance for loan losses 6,411 6,098 4,723 4,690 4,526 4,054
Total deposits 567,228 549,769 516,339 480,346 430,407 376,838
Repurchase agreements 28,275 16,302 5,966 7,632 1,363 --
Long-term debt 27,351 12,121 12,154 8,407 8,416 3,657
Stockholders' equity 61,724 59,894 53,826 42,512 34,074 29,958
Selected average balances
Total assets $662,988 $621,719 $566,616 $527,495 $467,616 $399,080
Earning assets 600,526 578,347 529,151 489,619 419,005 367,538
Total Securities 131,604 129,965 137,572 136,294 121,352 106,584
Loans - net of unearned income 472,844 442,296 379,930 339,989 282,812 243,431
Allowance for loan losses 6,348 4,796 4,802 4,541 4,384 3,747
Total deposits 547,480 529,820 492,435 468,068 416,426 343,359
Stockholders' equity 60,554 56,430 47,787 38,282 31,195 28,686
Ratios based on average balances
Loans to deposits 86.37% 83.48% 77.15% 72.64% 67.91% 70.90%
Allowance to year end loans 1.34% 1.31% 1.14% 1.34% 1.47% 1.60%
Equity to assets 9.13% 9.08% 8.43% 7.26% 6.67% 7.19%
Leverage capital ratio 8.82% 9.73% 9.78% 8.35% 7.50% 8.60%
Return on assets 1.04% 1.07% 1.07% 0.98% 1.05% 0.97%
Return on equity 11.24% 11.74% 12.66% 13.53% 15.80% 13.48%
Dividends payout ratio (3) 18.77% 14.88% 22.56% 23.33% 26.88%
</TABLE>
- ---------
(1) Tax equivalent basis was calculated using a 38% tax rate for all periods
presented.
(2) Noninterest expenses for three months ended March 31, 1998 include
nonrecurring merger expenses of $54, which had the effect of reducing net
income by $34.
(3) Dividends declared on common shares divided by net income available to
common shareholders.
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8
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Historical Pro Forma Per Share Data
<TABLE>
<CAPTION>
Three Months Year ended December 31,
Ended --------------------------------------
March 31, 1998 1997 1996 1995
--------------- -------- -------- --------
<S> <C> <C> <C> <C>
BASIC EARNINGS PER SHARE
Historical
BankFirst $ 0.94 $ 3.12 $ 3.06 $ 3.07
First Franklin 2.87 15.62 14.40 14.15
Pro forma combined 0.83 3.27 3.15 3.15
Equivalent amount of First Franklin 3.66 14.42 13.89 13.89
DILUTED EARNINGS PER SHARE
Historical
BankFirst $ 0.84 $ 2.80 $ 2.77 $ 2.76
First Franklin 2.87 15.62 14.40 14.15
Pro forma combined 0.78 3.05 2.95 2.96
Equivalent amount of First Franklin 3.44 13.45 13.01 13.05
DIVIDENDS PER COMMON SHARE
Historical
BankFirst $ -- $ -- $ -- $ 0.34
First Franklin -- 7.40 5.30 5.10
Pro forma combined -- 0.61 0.47 0.71
Equivalent amount of First Franklin -- -- -- 3.13
BOOK VALUE PER COMMON SHARE
Historical
BankFirst $ 31.36
First Franklin 30.03
Pro forma combined 30.87
Equivalent amount of First Franklin 136.15
</TABLE>
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9
<PAGE>
FORWARD LOOKING STATEMENTS
This Joint Proxy Statement/Prospectus includes "forward-looking
statements" within the meaning of Section 27A of the Securities Act and Section
21E of the Exchange Act. All statements other than statements of historical
facts included in this Joint Proxy Statement/Prospectus, including, without
limitation, statements under "SUMMARY," "RISK FACTORS," "BFC MANAGEMENT'S
DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS," "FFBS
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS," "BUSINESS OF BFC" and "BUSINESS OF FFBS," regarding planned capital
expenditures, financial position, business strategies and other plans and
objectives for future operations, are forward looking statements. BFC and FFBS
wish to caution readers that all forward-looking statements are necessarily
speculative and not to place undue reliance on any such forward-looking
statements, which speak only as of the date made, and to advise readers that
various risks and uncertainties, including regional and national economic
conditions, changes in levels of market interest rates, credit risks of lending
activities, and competitive and regulatory factors, could affect financial
performance and could cause actual results for future periods to differ
materially from those anticipated or projected. Although BFC and FFBS believe
that the expectations reflected in such forward-looking statements are
reasonable, it can give no assurance that such expectations will prove to have
been correct.
RISK FACTORS
Shareholders of BFC and FFBS are urged to consider carefully the following
Risk Factors, as well as the other information contained in this Joint Proxy
Statement/Prospectus.
Absence of Existing Public Market; Market Prices
There is no existing market for BFC Common. BFC currently contemplates
effecting an initial public offering of BFC Common after the Merger, subject to
registration with the SEC and favorable market conditions. In connection with
the proposed initial public offering, management expects to apply to list BFC
Common on the NASDAQ National Market and certain underwriters have indicated an
intention to make a market in BFC Common. There can be no assurance that the
public offering will be consummated. In addition, even if the public offering is
consummated, there can be no assurance that an active and liquid trading market
for BFC Common will develop. Further, market prices of BFC Common will depend on
many factors including, among other things, the operating results and financial
condition of BFC and the market for similar securities. There can be no
assurance as to the market price for BFC Common.
No Cash Dividends on BFC Common
BFC has not paid a cash dividend on BFC Common since 1995 and has no
current plan to do so in the future. The ability of the Company to pay dividends
is restricted by federal laws and regulations applicable to bank holding
companies, and by Tennessee laws relating to the payment of dividends by
Tennessee corporations. Because substantially all of its operations are
conducted through its subsidiaries, BFC's ability to pay dividends depends on
the ability of its subsidiaries to pay dividends to it. The ability of Athens
and BankFirst (the "Banks") to pay dividends is also restricted by applicable
regulations of the TDFI, the Office of the Comptroller of Currency ("OCC") and
the FDIC. As a result, BFC may not be able to declare and pay a dividend to
holders of BFC Common even if BFC's current dividend policy were to change.
Ability of BFC to Integrate Operations
The future financial performance of BFC will depend, in part, on its
ability to successfully integrate the operations and management of the Banks.
There can be no assurance that BFC will be able to effectively and profitably
integrate the operations and management of the Banks.
10
<PAGE>
Government Regulations and Monetary Policy
The banking industry is subject to extensive federal and state supervision
and regulation. Such regulation limits the manner in which BFC, BankFirst and
Athens conduct their respective businesses, undertake new investments and
activities, and obtain financing. This regulation is intended primarily for the
protection of the deposit insurance fund and consumers, and not to benefit the
holders of BFC's securities. Financial institution regulation has been the
subject of significant legislation in recent years, and may be the subject of
further significant legislation in the future, none of which is in the control
of BFC. Significant new laws or changes in, or repeal of, existing laws may
cause BFC's results to differ materially. Further, federal monetary policy,
particularly as implemented through the Federal Reserve System, significantly
affects credit conditions for BFC, primarily through open market operations in
United States government securities, the discount rates for bank borrowings, and
bank reserve requirements. A material change in these conditions would be likely
to have a material impact on BFC's results of operations.
Economic Conditions and Geographic Concentration
The Banks' operations are located and concentrated primarily in Knox,
Sevier, Blount, Loudon, Jefferson, and McMinn Counties in East Tennessee. As a
result of this geographic concentration, the Banks' results depend largely upon
economic conditions in these areas. A deterioration in economic conditions in
these market areas could have a materially adverse impact on the quality of loan
portfolios and demand for products and services, and, accordingly, the results
of operations. In addition, a significant amount of the business of BankFirst,
totaling 115% of its capital and loan loss reserves and 16% of its loan
portfolio, is derived from the lodging industry, particularly in Sevier County,
Tennessee which is adjacent to the Great Smoky Mountains National Park. A
deterioration in the market for lodging generally, or for lodging in Sevier
County specifically, could have a materially adverse impact on BFC's results of
operations.
Competition
The banking and financial services business in the East Tennessee area
generally, and in the Banks' market areas specifically, is highly competitive.
The increasingly competitive environment is a result, primarily, of changes in
regulation, changes in technology and product delivery systems, and the
accelerating pace of consolidation among financial service providers. The Banks
compete for loans, deposits, customers and delivery of financial services with
other commercial banks, savings and loan associations, securities and brokerage
companies, mortgage companies, insurance companies, finance companies, money
market funds, credit unions, and other non-bank financial service providers.
Many of these competitors are much larger in terms of total assets and
capitalization, have greater access to capital markets and offer a broader array
of financial services than either BankFirst or Athens. There can be no assurance
that the Banks will be able to compete effectively and the results of operations
of each could be adversely affected if circumstances affecting the nature or
level of competition change.
Dependence on Key Personnel
After the Merger, BFC's success will depend substantially on certain
members of senior management of BankFirst, in particular Fred R. Lawson, R.
Stephen Hagood and David Allen and the senior management of Athens, including L.
A. Walker, Jr., John W. Perdue and Michael L. Bevins. BFC's business and
financial condition could be materially, adversely affected by the loss of the
services of any of such individuals. BFC does not carry key person insurance.
Credit Quality
A significant source of risk for the Banks arises from the possibility
that losses will be sustained because borrowers, guarantors and related parties
may fail to perform in accordance with the terms of their loans. Both BankFirst
and Athens have adopted underwriting and credit monitoring procedures and credit
policies, including the
11
<PAGE>
establishment and review of the allowance for credit losses that management of
each believes are appropriate to minimize this risk by assessing the likelihood
of nonperformance, tracking loan performance and diversifying each company's
credit portfolio. Such policies and procedures, however, may not prevent
unexpected losses which could materially adversely affect the Banks' results of
operations.
Reserve for Loan Losses
Management of the Banks maintains an allowance for loan losses based upon,
among other things, historical experience, and evaluation of economic conditions
and regular reviews of delinquencies and loan portfolio quality. Based upon such
factors, management makes various assumptions and judgments about the ultimate
collectibility of the respective loan portfolios and provides an allowance for
potential loan losses based upon a percentage of the outstanding balances and
for specific loans when their ultimate collectibility is considered
questionable. Although management of BFC and FFBS believe that allowances for
loan losses at each of their respective Banks are adequate, there can be no
assurance that such allowances will prove sufficient to cover future losses.
Future adjustments may be necessary if economic conditions differ or adverse
developments arise with respect to non-performing or performing loans of the
Banks. Material additions to the allowance for loan losses of the Banks would
result in a material decrease in BFC's net income, and possibly its capital, and
could result in a material decrease in BFC's net income, and possibly its
capital, and could result in its inability to pay dividends, among other adverse
consequences.
Voting Control
Following the Merger, James L. Clayton, Chairman of the BFC Board, and his
wife will have the power to vote 44.8% of the outstanding shares of BFC Common.
In addition, Mr. Clayton's relatives and affiliates will have the power to vote
an additional 4.2% of the outstanding shares of BFC Common. Accordingly, Mr.
Clayton will have the ability to exercise significant influence over the
management and policies of BFC, as well as the outcome of all matters requiring
shareholder vote, including the election of directors, adoption or amendment of
BFC's Charter, and approval of mergers or similar transactions, such as the sale
of substantially all of the BFC's assets.
Potentially Adverse Impact of Interest Rates and Economic and Industry
Conditions
The results of operations of banking institutions are materially affected
by general economic conditions, the monetary and fiscal policies of the federal
government and the regulatory policies of governmental authorities and other
factors that affect market rates of interest. The results of operations of
banking institutions depend to a large extent on their level of "net interest
income," which is the difference between interest income on interest-earning
assets, such as loans and investments, and interest expense on interest-bearing
liabilities, such as deposits and borrowings. A significant portion of the
assets of most banking institutions consists of long-term residential mortgages
and loans with shorter terms to maturity. The repricing periods of these assets
are generally longer than those of the banking institution's interest-bearing
liabilities. As a result, the yield on interest-earning assets of most banking
institutions adjusts to changes in interest rates at a slower rate than the cost
of their interest-bearing liabilities. Banking institutions in recent years have
experienced fluctuations in net interest income due to changing interest rates
and to differences in the repricing characteristics of their interest-earning
assets and interest-bearing liabilities. Because most banking institutions
continue to hold assets which reprice more slowly than their liabilities, any
significant increase in interest rates would be expected to have an adverse
impact on net interest income.
Risks Associated with Acquisitions
BFC has experienced growth as a result of mergers and acquisitions of
businesses or assets that complement or expand its existing business, such as
the recent acquisition of Curtis Mortgage Company, Inc. BFC may engage in
selected acquisitions or strategic mergers in the future. Acquisitions involve a
number of special risks, including the time associated with identifying and
evaluating potential acquisitions; BFC's ability to finance the acquisition and
associated costs; the diversion of management's attention to the integration of
the assets, operations and personnel of
12
<PAGE>
the acquired businesses; the introduction of new products and services into
BFC's business; possible adverse short-term effects on BFC's results of
operations; possible amortization of goodwill associated with an acquisition;
and the risk of loss of key employees of the acquired businesses. BFC may issue
equity securities and other forms of common stock-based consideration in
connection with future acquisitions, which could cause dilution to existing
shareholders of BFC. BFC has no present agreements, arrangements or commitments
with respect to any acquisition. See "BUSINESS OF BFC."
Interests of Certain Persons in the Transaction
Directors and officers of BFC and FFBS (and certain of their family
members and related interests) have personal interests in the Merger that may
present them with conflicts of interest in connection with the Merger. The BFC
Board and the FFBS Board are aware of this and have considered the personal
interests disclosed in this Joint Proxy Statement/Prospectus in their evaluation
of the Merger. See "THE MERGER Background of and Reasons for the Merger" and
"THE MERGER Interests of Certain Persons in the Merger."
Restrictions on Resale of BFC Common
Affiliates of FFBS who receive BFC Common pursuant to the Merger will be
restricted on the resale of such stock pursuant to Rule 145 under the Securities
Act. Additionally, individuals who are not affiliates of FFBS but who will be
affiliates of BFC after the Merger will be restricted on the resale of any BFC
Common, whether or not received in the Merger, pursuant to Rule 144 under the
Securities Act. An affiliate of FFBS who will also be an affiliate of BFC after
the Merger will be subject to the restrictions on resale contained in both Rule
145 and Rule 144. An "affiliate" is generally a person that, directly or
indirectly, controls an entity and generally includes all officers, directors
and 10% shareholders of such entity.
13
<PAGE>
THE SPECIAL MEETINGS
Meetings of Shareholders
This Joint Proxy Statement/Prospectus is being furnished to the holders of
BFC Common in connection with the solicitation of proxies by and on behalf of
the BFC Board for use at the BFC Meeting to be held at 8:00 a.m., Eastern
Daylight Savings Time, on Friday, June 26, 1998, on the fifteenth floor of the
main office of BankFirst at 625 Market Street, Knoxville, Tennessee, and at any
adjournments thereof. The BFC Board has fixed the close of business on May 15,
1998 as the BFC Record Date for determining the shareholders of BFC entitled to
vote at the BFC Meeting. This Joint Proxy Statement/Prospectus and the enclosed
proxy are first being sent to holders of BFC Common on or about June __, 1998.
This Joint Proxy Statement/Prospectus is also being furnished to the
holders of FFBS Common in connection with the solicitation of proxies by and on
behalf of the FFBS Board for use at the FFBS Meeting to be held at 10:00 a.m.,
Eastern Daylight Savings Time, on Friday, June 26, 1998, at the operations
center of Athens at 3 South Hill Street, Madison Park Center, Athens, Tennessee
and at any adjournments thereof. The FFBS Board has fixed the close of business
on May 15, 1998 as the FFBS Record Date for determining the shareholders of FFBS
entitled to vote at the FFBS Meeting. This Joint Proxy Statement/Prospectus and
the enclosed proxy are first being sent to holders of FFBS Common on or about
June __, 1998.
Purpose of Meetings
At the BFC Meeting, BFC shareholders will consider and vote upon (i)
approval and adoption of the Merger Agreement; (ii) election of L. A. Walker,
Jr., W. D. Sullins, Jr., and C. Scott Mayfield, Jr. to fill three additional
positions on the BFC Board which will be created upon the effectiveness of the
Merger; such nominees were chosen from the current member of the FFBS Board and
will serve as members of the BFC Board until the next annual meeting or until
their successors are duly elected and qualified; (iii) approval and adoption of
an amendment to the BFC Charter authorizing a four for one stock split of BFC
Common to be effective on June 30, 1998 or immediately after the Merger,
whichever is later; and (iv) such other business as may properly come before the
BFC Meeting or any adjournments thereof.
At the FFBS Meeting, FFBS shareholders will consider and vote upon (i)
approval and adoption of the Merger Agreement and (ii) such other business as
may properly come before the FFBS Meeting or any adjournments thereof.
Voting Requirements at Meetings
At the BFC Meeting, approval and adoption of the Merger Agreement will
require the affirmative vote of the holders of a majority of the outstanding
shares of BFC Common. The election of each of the three nominees to serve on the
BFC Board and the approval and adoption of the Charter amendment will require
the affirmative vote of a majority of the outstanding shares of BFC Common
represented at the BFC Meeting. The presence at the BFC Meeting, in person or by
proxy, of the holders of a majority of the total number of outstanding shares of
BFC Common on the BFC Record Date will constitute a quorum for the transaction
of business by such holders at the BFC Meeting. On the BFC Record Date, there
were 1,275,893 outstanding shares of BFC Common, each holder of which is
entitled to one vote per share with respect to each matter to be voted on at the
BFC Meeting. BFC has no class or series of stock outstanding, other than BFC
Common, which is entitled to vote at the BFC Meeting.
As of the BFC Record Date, directors and executive officers of BFC
beneficially owned an aggregate of 1,017,205 shares of BFC Common or
approximately 80% of the shares of BFC Common outstanding on such date.
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At the FFBS Meeting, approval and adoption of the Merger Agreement will
require the affirmative vote of the holders of a majority of the outstanding
shares of FFBS Common. The presence at the FFBS Meeting, in person or by proxy,
of the holders of a majority of the total number of outstanding shares of FFBS
Common on the FFBS Record Date will constitute a quorum for the transaction of
business by such holders at the FFBS Meeting. On the FFBS Record Date, there
were 164,125 outstanding shares of FFBS Common, each holder of which is entitled
to one vote per share with respect to each matter to be voted on at the FFBS
Meeting. FFBS has no class or series of stock outstanding other than FFBS Common
which is entitled to vote at the FFBS Meeting.
As of the FFBS Record Date, directors and executive officers of FFBS
beneficially owned an aggregate of 7,962 shares of FFBS Common, or approximately
4.89% of the shares of FFBS Common outstanding on such date.
At the Meetings, abstentions will be counted as 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. A "broker non-vote" refers to shares
represented at the Meetings in person or by proxy by a broker or nominee where
such broker or nominee (i) has not received voting instructions on a particular
matter from the beneficial owners or persons entitled to vote and (ii) the
broker or nominee does not have the discretionary voting power on such matter.
Proxies
All proxies that are properly executed by holders of BFC Common and
received by BFC prior to the BFC Meeting will be voted in accordance with the
instructions noted thereon. Any proxy that does not specify to the contrary will
be voted in favor of the approval and adoption of the Merger Agreement. Any
holder of BFC Common who submits a proxy will have the right to revoke it, at
any time before it is voted, by filing with the Secretary of BFC written notice
of revocation or a duly executed later-dated proxy, or by attending the BFC
Meeting and voting such BFC Common in person.
All proxies that are properly executed by holders of FFBS Common and
received by FFBS prior to the FFBS Meeting will be voted in accordance with
instructions noted thereon. Any proxy that does not specify to the contrary will
be voted in favor of approval and adoption of the Merger Agreement. Any holder
of FFBS Common who submits a proxy will have the right to revoke it, at any time
before it is voted, by filing with the Secretary of FFBS written notice of
revocation or a duly executed later-dated proxy, or by attending the FFBS
Meeting and voting such FFBS Common in person.
All costs relating to the solicitation of proxies of holders of BFC Common
and FFBS Common will be borne by BFC and FFBS, respectively. Proxies may be
solicited by officers, directors and regular employees of BFC and BankFirst and
FFBS and Athens personally, by mail, by telephone or otherwise. Although there
is no formal agreement to do so, BFC and FFBS may reimburse banks, brokerage
houses and other custodians, nominees and fiduciaries holding shares of stock in
their names or those of their nominees for their reasonable expenses in sending
solicitation material to their principals.
It is important that proxies be returned promptly. Shareholders who do not
expect to attend the respective Meetings of BFC and FFBS in person are urged to
mark, sign and date the respective accompanying proxy and mail it in the
enclosed postage pre-paid envelope so that their votes can be recorded.
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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. BFC and FFBS shareholders are urged to carefully
read the Merger Agreement.
Background of and Reasons for the Merger
Background. In order to provide liquidity for shareholders of FFBS Common,
the FFBS Board determined that it would be advantageous for FFBS to be acquired
by a larger financial institution whose securities are more freely traded. To
this end, in February 1997, FFBS began discussions with a bank holding company
headquartered in southeastern Tennessee. These discussions continued
intermittently, but without success, until September 1997 when they terminated.
BFC pursues a strategy of enhancing long-term shareholder value through
both internal and external growth, while still maintaining a community banking
philosophy. To implement this strategy, BFC has opened new branches, provided
additional services to customers, and pursued acquisition opportunities
involving compatible community banks. In June 1997, Fred R. Lawson, President
and Chief Executive Officer of BFC and BankFirst, learned that FFBS might be
seeking a strategic alliance or other transaction. Mr. Lawson then contacted
L.A. Walker, Jr., Chairman and Chief Executive Officer of FFBS, about a possible
merger between BFC and FFBS.
During its discussions with the bank holding company headquartered in
southeastern Tennessee, FFBS was approached by three other Tennessee financial
institutions concerning proposed business combinations. The first potential
acquiror was rejected because it was deemed to be too small, and its securities
were not sufficiently liquid. The second potential acquiror was deemed to be
undesirable because of perceived regulatory problems in that there was
significant overlap between the geographic markets of FFBS and the financial
institution. The third potential acquiror was BFC whose philosophy of community
banking was attractive to the FFBS Board. BFC offered more autonomy to Athens
after the proposed merger and BFC offered three seats on its board of directors
to former FFBS directors.
After FFBS negotiations with the bank holding company headquartered in
southeastern Tennessee were terminated in September 1997, Mr. Walker contacted
Mr. Lawson to see if BFC was still interested in expansion opportunities. There
followed an exchange of information and discussions between representatives of
BFC and FFBS relative to the possibility of a business combination.
The first discussions concerning merger pricing occurred on January 14,
1998 when Mr. Lawson proposed an initial exchange ratio of 4.33 shares of BFC
Common for each share of FFBS Common. At this point, the FFBS Board requested
that Professional Bank Services, Inc. ("PBS"), which had earlier been retained
to advise FFBS with respect to the intended merger discussion, analyze the
proposed business combination and assist it in negotiations.
On Thursday, February 5, 1998, Messrs. Perdue and Bevins met with the BFC
Board and representatives of two investment banking firms, who discussed the
Merger in the context of a potential public offering of shares of BFC Common.
On Monday, February 9, 1998, Mr. Lawson met with Messrs. Walker, Perdue
and Bevins in Athens, Tennessee and further discussion was had concerning the
appropriate exchange ratio for FFBS Common. Negotiations concerning the
appropriate exchange ratio continued until February 23, 1998 when the parties
agreed to an exchange ratio of 4.41 and a $60 per share price for BFC Common.
This exchange ratio was then approved by the executive committee of BFC and was
subsequently approved by the board of directors of FFBS on February 25, 1998.
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In early March 1998, negotiating teams from FFBS and BFC met to discuss
the details of the transaction. During the following weeks, attorneys
representing both sides worked to document the proposed agreement and plan of
merger.
On March 17, 1998, the FFBS Board, after presentations by its legal
counsel and PBS, unanimously approved the Merger Agreement and recommended its
approval to FFBS' shareholders. The BFC Board unanimously approved the Merger
Agreement and recommended its approval to BFC's shareholders on March 17, 1998.
The Merger Agreement was signed by FFBS and BFC on March 19, 1998.
Reasons for the Merger -- BFC. In reaching its determination that the
Merger and Merger Agreement are fair to, and in the best interest of, BFC and
its shareholders, the BFC Board consulted with its legal and financial advisers,
as well as with BFC management, and considered a number of factors. Without
assigning any relative or specific weights to the factors, the BFC Board
considered without limitation, the following:
-- the BFC Board's belief that the merger is consistent with BFC's
strategy for enhancing long-term shareholder value through both internal and
external growth, while still maintaining a community banking philosophy;
-- the BFC Board's review, based in part on the presentation by BFC
management regarding its due diligence of FFBS, of (i) the business, operations,
earnings and financial condition of FFBS on both a historical and prospective
basis; (ii) the enhanced opportunities for operating efficiencies (particularly
in terms of integration of operations, data processing and support functions,
although the BFC Board did not quantify such anticipated operating efficiencies)
that could result from the Merger; (iii) the enhanced opportunities for growth
that the Merger would make possible; and (iv) the respective contributions the
parties would bring to a combined institution;
-- the BFC Board's belief, based upon an analysis of the anticipated
financial effects of the Merger, that upon consummation of the Merger, BFC and
its banking subsidiaries would be well capitalized institutions, the financial
positions of which would be in excess of all applicable regulatory capital
requirements;
-- the current and prospective economic and regulatory environment and
competitive constraints facing the banking and financial institutions in BFC's
market area;
-- the recent business combinations involving financial institutions,
either announced or completed, during the past year in the United States, the
State of Tennessee and contiguous states and the effect of such combinations on
competitive conditions in BFC's market area; and
-- the BFC Board's belief that the Merger provides an opportunity to
expand in BFC's East Tennessee market and to provide a broader array of
financial services to the community while still maintaining a community bank.
Recommendation of the BFC Board. For the reasons described above, the BFC
Board unanimously approved the Merger Agreement and believes that the Merger is
fair to, and is in the best interest of, its shareholders. ACCORDINGLY, THE BFC
BOARD UNANIMOUSLY RECOMMENDS THAT THE BFC SHAREHOLDERS VOTE FOR ADOPTION OF THE
MERGER AGREEMENT.
Reasons for the Merger -- FFBS. In reaching its determination that the
Merger and Merger Agreement are fair to, and in the best interest of, FFBS and
its shareholders, the FFBS Board consulted with its legal and financial
advisers, as well as with FFBS management, and considered a number of factors.
Without assigning any relative or specific weights to the factors, the FFBS
Board considered, without limitation, the following:
-- the review by the FFBS Board with its legal and financial advisors of
the terms and conditions of the Merger Agreement;
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-- the determination by PBS that the Merger is fair from a financial
perspective to the FFBS shareholders;
-- the FFBS Board's belief that the consideration to be received by the
FFBS shareholders in the Merger offers a much higher value than the current
trading value of FFBS Common and will be more liquid than FFBS Common,
particularly in the event that a public offering of BFC Common is consummated;
-- the expectation that the Merger will generally be a tax-free
transaction to FFBS and its shareholders and will qualify for
pooling-of-interests accounting treatment;
-- the Merger will allow FFBS and Athens to remain part of a community
bank institution dedicated to the service of its traditional market and will
allow Athens to maintain its autonomy;
-- the FFBS Board's belief that the Athens trust department can be
marketed successfully in BankFirst's market areas;
-- the recent business combinations involving financial institutions,
either announced or completed, during the past year in the United States, the
State of Tennessee and contiguous states and the effect of such combinations on
competitive conditions in BFC's market area; and
-- the geographic compatibility and lack of substantial overlap in FFBS'
and BFC's markets and BFC's strong commitment to the communities it serves.
Recommendation of the FFBS Board. For the reasons described above, the
FFBS Board unanimously approved the Merger Agreement and believes that the
Merger is fair to, and is in the best interest of, its shareholders.
ACCORDINGLY, THE FFBS BOARD UNANIMOUSLY RECOMMENDS THAT THE FFBS SHAREHOLDERS
VOTE FOR ADOPTION OF THE MERGER AGREEMENT.
Each member of the FFBS Board has entered into a letter agreement with BFC
which provides that the director will vote all shares of FFBS Common which he
owns in favor of the Merger and will recommend approval of the Merger to other
FFBS shareholders.
Opinion of PBS
PBS was engaged by FFBS to advise the FFBS Board as to the fairness from a
financial perspective of the consideration to be paid by BFC to FFBS
shareholders as set forth in the Merger Agreement.
PBS is a bank consulting firm with offices in Louisville, Atlanta,
Chicago, Nashville and Washington, D.C. As part of its investment banking
business, PBS is regularly engaged in reviewing the fairness of financial
institution acquisition transactions from a financial perspective and in the
valuation of financial institutions and other businesses and their securities in
connection with mergers, acquisitions, estate settlements, and other
transactions. Neither PBS nor any of its affiliates has a material financial
interest in FFBS or BFC. PBS was selected to advise the FFBS Board based upon
its familiarity with Tennessee financial institutions and knowledge of the
banking industry as a whole.
PBS performed certain analyses described herein and presented the range of
values for FFBS resulting from such analyses to the Board of Directors of FFBS
in connection with its advice as to the fairness of the consideration to be paid
by BFC.
A fairness opinion of PBS was delivered to the Board of Directors of FFBS
on March 17, 1997, at a meeting of the FFBS Board and has been updated as of the
date of this Joint Proxy Statement/Prospectus. A copy of the fairness opinion,
which includes a summary of the assumptions made and information analyzed in
deriving the fairness opinion, is attached as Appendix B to this Joint Proxy
Statement/Prospectus and should be read in its entirety.
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In arriving at its fairness opinion, PBS reviewed certain publicly
available business and financial information relating to FFBS and BFC. PBS
considered certain financial and market data of FFBS and BFC, compared that data
with similar data for certain publicly-held bank holding companies and
considered the financial terms of certain other comparable bank transactions in
the states of Tennessee, Alabama and Georgia that had recently been effected.
PBS also considered such other information, financial studies, analyses and
investigations and financial, economic and market criteria that it deemed
relevant. In connection with its review, PBS did not independently verify the
foregoing information and relied on such information as being complete and
accurate in all material respects. Financial forecasts prepared by PBS were
based on assumptions believed by PBS to be reasonable and to reflect currently
available information. PBS did not make an independent evaluation or appraisal
of the assets of FFBS or BFC.
As part of preparing the fairness opinion, PBS performed a due diligence
review of BFC. As part of the due diligence, PBS reviewed the following items:
minutes of the Board of Directors meetings of the subsidiary bank, BankFirst,
from January 1997 through January 1998; reports of independent auditors and
management letters and responses thereto, for the years ending December 31, 1996
and 1997; the most recent analysis and calculation of allowance for loan and
lease losses for the subsidiary bank; internal loan review reports; investment
portfolio activity reports; asset/liability management reports; asset quality
reports; Uniform Holding Company Report for BFC as of December 31, 1996 and
September 30, 1997; December 31, 1997 report of Condition and Income and
September 30, 1997 Uniform Bank Performance Report for the subsidiary bank; and
discussions of pending litigation and other issues with senior management of
BFC.
PBS reviewed and analyzed the historical performance of FFBS and FFBS'
wholly-owned subsidiary, Athens, contained in: audited Annual Reports and
financial statements dated December 1996 and 1997 of FFBS; June 30, 1997 and
December 31, 1997, FR Y-9C Consolidated Financial Statements filed by FFBS with
the Federal Reserve; September 30, 1997 Uniform Bank and Holding Company
Performance Reports; historical common stock trading ac tivity of FFBS; and the
premises and other fixed assets. PBS reviewed and tabulated statistical data
regarding the loan portfolio, securities portfolio and other performance ratios
and statistics. Financial projections were prepared and analyzed as well as
other financial studies, analyses and investigations as deemed relevant for the
purposes of this opinion. In its review of the aforementioned information, PBS
took into account its assessment of general market and financial conditions, its
experience in other similar transactions, and its knowledge of the banking
industry generally.
In connection with rendering the fairness opinion and preparing its
written and oral presentation to the FFBS Board, PBS performed a variety of
financial analyses, including those summarized herein. The summary does not
purport to be a complete description of the analyses performed by PBS in this
regard. The preparation of a fairness opinion involves various determinations as
to the most appropriate and relevant methods of financial analysis and the
application of these methods to the particular circumstances and therefore, such
an opinion is not readily susceptible to summary description. Accordingly,
notwithstanding the separate factors summarized below, PBS believes that its
analyses must be considered as a whole and that selecting portions of its
analyses and of the factors considered by it, without considering all analyses
and factors, could create an incomplete view of the evaluation process
underlying its opinion. In performing its analyses, PBS made numerous
assumptions with respect to industry performance, business and economic
conditions and other matters, many of which are beyond FFBS' or BFC's control.
The analyses per formed by PBS are not necessarily indicative of actual values
or future results, which may be significantly more or less favorable than
suggested by such analyses. In addition, analyses relating to the values of
businesses do not purport to be appraisals or to reflect the process by which
businesses actually may be sold.
Acquisition Comparison Analysis. In performing this analysis, PBS reviewed
all bank acquisition transactions in the states of Tennessee, Alabama and
Georgia (the "Regional Area") since 1990. There were 193 bank acquisition
transactions in the Regional Area announced since 1990 for which detailed
financial information was available. The purpose of the analysis was to obtain
an evaluation range based on these Regional Area bank acquisition transactions.
Median multiples of earnings and book value implied by the comparable
transactions were utilized in obtaining a range for the acquisition value of
FFBS. In addition to reviewing recent Regional Area bank transactions, PBS
performed separate comparable analyses for acquisitions of banks which, like
FFBS, had an equity-to-asset ratio between 10.00%
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and 12.00%, had total assets between $100.0 - $250.0 million, had a return on
average equity ("ROAE") between 11.0% and 13.0%, and bank transactions effected
in the state of Tennessee. In addition, median values for the 193 Regional Area
acquisitions expressed as multiples of both book value and earnings were 1.75
and 16.20, respectively. The median multiples of book value and earnings for
acquisitions of Regional Area banks which, like FFBS, had an equity-to-asset
ratio between 10.00% and 12.00% were 1.84 and 18.38, respectively. For
acquisitions of Regional Area banks with assets between $100.0 - $250.0 million
the median multiples were 1.99 and 15.62, respectively. Regional Area
acquisitions of banks with a ROAE between 11.0% and 13.0%, the median multiples
were 1.78 and 16.58, respectively. The median multiples of book value and
earnings for acquisitions of banks located in the state of Tennessee were 1.63
and 14.83, respectively.
In the proposed transaction, FFBS shareholders will receive 723,791 shares
of BFC Common for all 164,125 FFBS Common outstanding, as further defined in the
Merger Agreement. The most recent sales of BFC Common took place on February 27,
1998, when 1,785 shares were sold at $50.00 per share. At the negotiated price
of $60.00 per share of BFC Common, the consideration to be received by FFBS
shareholders represents an aggregate value of $43,427,460 or $264.60 per share
of FFBS Common. The $43,427,460 aggregate value represents a multiple of FFBS'
December 31, 1997 book value and a multiple of FFBS' year end December 31, 1997
adjusted earnings of 2.07 and 17.54, respectively.
Utilizing the negotiated price of $60.00 per share of BFC Common, the
market value of the proposed transaction's percentile ranking was prepared and
analyzed with respect to the above Regional Area comparable group. Compared to
all Regional Area bank transactions, the acquisition value ranked in the 73rd
percentile as a multiple of book value and in the 57th percentile as a multiple
of earnings. Compared to Regional Area bank transactions where the acquired
institution had an equity-to-asset ratio between 10.00% and 12.00%, the
acquisition value ranked in the 73rd percentile as a multiple of book value and
the 46th percentile as a multiple of earnings. For Regional Area bank
acquisitions where the acquired institution had between $100.0 - $250.0 million
in assets, the acquisition value ranked in the 58th percentile as both a
multiple of book value and a multiple of earnings. For Regional Area bank
transactions where the acquired institution had a ROAE between 11.0% and 13.0%,
the acquisition value ranked in the 76th percentile as a multiple of book value
and the 54th percentile as a multiple of earnings. For bank transactions in the
state of Tennessee, the acquisition value ranked in the 77th percentile as a
multiple of book value and in the 65th percentile as a multiple of earnings.
Adjusted Net Asset Value Analysis. PBS reviewed FFBS' balance sheet data
to determine the amount of material adjustments required to the stockholders'
equity of FFBS based on differences between the market value of FFBS' assets and
their value reflected on FFBS' financial statements. PBS determined that two
adjustments were warranted. Equity was reduced by $85,000 to reflect goodwill on
FFBS' balance sheet. Secondly, PBS also reflected a value of the non-interest
bearing demand deposits of approximately $6,903,000. The aggregate adjusted net
asset value of FFBS was determined to be $27,835,000 or $169.60 per share of
FFBS Common.
Discounted Earnings Analysis. A dividend discount cashflow analysis was
performed by PBS pursuant to which a range of values of FFBS was determined by
adding (i) the present value of estimated future dividend streams that FFBS
could generate over a five-year period and (ii) the present value of the
"terminal value" of FFBS' earnings at the end of the fifth year. The "terminal
value" of FFBS' earnings at the end of the five-year period was determined by
applying a multiple of 16.20 times the projected terminal year's earnings. The
16.20 multiple represents the median price paid as a multiple of earnings for
all bank transactions in the Regional Area since 1990.
Dividend streams and terminal values were discounted to present values
using a discount rate of 12%. This rate reflects assumptions regarding the
required rate of return of holders or buyers of FFBS' common stock. The
aggregate value of FFBS, determined by adding the present value of the total
cash flows, was $38,184,000 or $232.65 per share. In addition, using the
five-year projection as a base, a twenty-year projection was prepared assuming
that an annual growth rate of 6.0% and a consistent return on assets of 1.50%
would remain in effect for the entire period, beginning in year two. Dividends
were assumed to increase from 40.0% of income in years one through five to 60%
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of income for years six through twenty. This long-term projection resulted in an
aggregate value of $31,659,000 or $192.90 per share of FFBS Common.
Specific Acquisition Analysis. PBS valued FFBS based on an acquisition
analysis assuming a "break-even" earnings scenario to an acquiror as to price,
current interest rates and amortization of the premium paid. Based on this
analysis, an acquiring institution would pay in aggregate $34,548,000, or
$210.50 per share, assuming they were willing to accept no impact to their net
income in the initial year. This analysis was based on a funding cost of 7.0%,
adjusted for taxes and amortization of the acquisition premium over 15 years.
This analysis was repeated assuming a potential acquiror would attain
non-interest expense reductions of 10% in the transaction. Based on this
analysis, an acquiring institution would pay in aggregate $37,753,000 or $230.03
per share of FFBS Common.
Pro Forma Merger Analysis. PBS compared the historical performance of FFBS
to that of BFC and other regional holding companies. This included, among other
things, a comparison of profitability, asset quality and capital measures. In
addition, the contribution of FFBS and BFC to the income statement and balance
sheet of the pro forma combined company was analyzed.
The effect of the affiliation on the historical and pro forma financial
data of FFBS was prepared and analyzed. FFBS' historical financial data was
compared to the pro forma combined historical and projected earnings, book value
and dividends per share.
PBS prepared analyses examining the pro forma impact, on BFC, of the
proposed public stock offering. PBS also took into consideration in its various
analyses the dilutive effects of BFC's common stock options outstanding.
The fairness opinion is directed only to the question of whether the
consideration to be received by FFBS' shareholders under the Merger Agreement is
fair and equitable from a financial perspective and does not constitute a
recommendation to any FFBS shareholder to vote in favor of the affiliation. No
limitations were imposed on PBS regarding the scope of its investigation or
otherwise by FFBS.
Based on the results of the various analyses described above, PBS
concluded that the consideration to be received by FFBS' shareholders under the
Merger Agreement is fair and equitable from a financial perspective to the
shareholders of FFBS.
PBS will receive fees in the amount of approximately $59,285 for all
services performed in connection with the sale of FFBS and the rendering of the
Fairness Opinion. In addition, FFBS has agreed to indemnify PBS and its
directors, officers and employees, from liability in connection with the
transaction, and to hold PBS harmless from any losses, actions, claims, damages,
expenses or liabilities related to any of PBS' acts or decisions made in good
faith and in the best interest of FFBS.
Terms of the Merger
At the Effective Time, FFBS will merge with and into BFC with BFC to be
the surviving corporation. All FFBS Common held by FFBS as treasury stock will
be canceled and retired and shall cease to exist. Each share of FFBS Common,
other than treasury stock and shares with respect to which dissenters' rights
have been perfected, will be converted into and exchanged for the right to
receive 4.410 fully paid and non-assessable shares of BFC Common. No fractional
shares of BFC Common will be issued in connection with the Merger. In lieu of
fractional shares, BFC will make a cash payment equal to the fractional interest
which a FFBS shareholder would otherwise receive based on a per share price of
$60, before adjustments for any BFC stock splits. The fractional interest will
be determined by combining all shares owned by such FFBS shareholder.
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Effective Time
The Effective Time of the Merger will be the later to occur of the
acceptance for filing by the Secretary of State of Tennessee of Articles of
Merger filed in accordance with the TBCA, or on such later date as the Articles
of Merger may specify. Unless otherwise mutually agreed upon in writing by FFBS
and BFC, the Merger will close at 10:00 a.m. on June 30, 1998 at the offices of
BankFirst, 625 Market Street, Knoxville, Tennessee. If the required regulatory
approvals have not been received, the Merger will close on the last business day
of the month after the regulatory approvals are obtained.
Surrender of Certificates
As promptly as practicable after the Effective Time of the Merger,
BankFirst, acting in the capacity of exchange agent, will mail to each former
holder of record of FFBS Common a form of letter of transmittal, together with
instructions for the exchange of such holder's certificates representing shares
of FFBS Common for certificates representing shares of BFC Common.
HOLDERS OF FFBS COMMON SHOULD HOLD THEIR CERTIFICATES UNTIL THEY RECEIVE
THE LETTER OF TRANSMITTAL FORM AND INSTRUCTIONS FROM THE EXCHANGE AGENT.
Upon surrender to BankFirst, as exchange agent, of one or more
certificates for FFBS Common together with a properly completed letter of
transmittal, there will be issued and mailed to the holder of FFBS Common
surrendering such items a certificate or certificates representing the number of
shares of BFC Common to which such holder is entitled.
No dividend or other distribution payable after the Merger with respect to
BFC Common will be paid to the holder of any unsurrendered 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 Merger, there will be no transfers on FFBS' or BFC's stock
transfer books of shares of FFBS Common issued and outstanding at the Effective
Time. If certificates representing shares of FFBS Common are presented for
transfer after the Merger, they will be canceled and exchanged for the shares of
BFC Common deliverable in respect thereof as determined in accordance with the
provisions of the Merger Agreement.
Conditions to Consummation of the Merger
The respective obligations of BFC and FFBS to effect the Merger are
subject to the satisfaction prior to the Merger of the following conditions: (a)
all regulatory approvals shall have been received, and no such approval shall be
conditioned or restricted in a manner which, in the opinion of the FFBS or BFC
Boards, has a material adverse impact on the Merger so as to render it
inadvisable; (b) the Merger Agreement has been duly adopted and approved by the
shareholders of FFBS and BFC; (c) FFBS and BFC shall have received a letter from
Crowe, Chizek & Company LLP, stating that, in their opinion, no conditions exist
with respect to either company which would preclude accounting for the Merger as
a pooling of interests; and (d) the Registration Statement shall have become
effective under the Securities Act, and no stop order suspending the
effectiveness of the Registration Statement shall have been issued and no
proceeding for that purpose shall have been commenced.
The obligation of FFBS to effect the Merger shall be subject to the
satisfaction, prior to the Merger, of the following additional conditions: (a)
the representations and warranties of BFC in the Merger Agreement shall have
been true when made and at the Effective Time; (b) the obligations and
agreements and covenants of BFC in the Merger Agreement shall have been
performed and complied with by the effective Time; (c) there shall not have been
any material, adverse change in BFC between the date of the Merger Agreement and
the Effective Time; (d) FFBS shall have obtained from PBS a fairness opinion
indicating that the Merger is fair to the shareholders of FFBS from
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a financial point of view; (e) to the extent that any lease, contract, or
agreement to which FFBS or Athens is a party or by which any of them is bound or
to which any of their properties is subject shall require the consent of any
other person or entity to the merger transactions, such consent shall have been
obtained by the Effective Time; (f) BFC shall have delivered to FFBS an opinion
of its counsel as provided in the Merger Agreement; (g) BFC shall have delivered
to FFBS such supplements as may be necessary or appropriate to ensure the
accuracy and completeness of the information disclosed by BFC; (h) FFBS shall
have obtained an opinion of counsel that the Merger shall be treated for federal
income tax purposes as a tax-free reorganization with respect to FFBS
shareholders; (i) no more than 1,275,079 shares of BFC Common and 218,508 shares
of preferred stock of BFC shall be outstanding immediately prior to the
Effective Time unless options are exercised or preferred shares are converted;
and (j) FFBS shall have received a letter from Crowe, Chizek & Company LLP with
respect to certain financial information as of the mailing of the Joint Proxy
Statement/Prospectus and as of the Effective Time.
The obligation of BFC to effect the Merger is subject to the satisfaction
at or prior to the Merger of the following additional conditions: (a) the
representations and warranties of FFBS in the Merger Agreement shall have been
true when made and at the Effective Time; (b) the agreements and covenants of
FFBS in the Merger Agreement shall have been performed and complied with by the
effective Time; (c) to the extent that any lease, contract, or agreement to
which FFBS or Athens is a party or by which any of them is bound or to which any
of their properties is subject shall require the consent of any other person or
entity to the merger transactions, such consent shall have been obtained by the
Effective Time; (d) there shall not have been any material, adverse change in
FFBS between the date of the Merger Agreement and the Effective Time; (e) FFBS
shall have delivered to BFC an opinion of its counsel as provided in the Merger
Agreement; (f) BFC shall have delivered to FFBS such supplements as may be
necessary or appropriate to ensure the accuracy and completeness of the
information disclosed by BFC; (g) no more than 164,125 shares of FFBS Common
shall be outstanding immediately prior to the Effective Time; (h) the directors
of FFBS shall have submitted their resignations, effective as of the Effective
Time; (i) FFBS shall have delivered to BFC such other documents or instruments,
and shall have taken such other actions as may reasonably have been requested by
BFC or its counsel with respect to the Merger; and (j) BFC shall have received a
letter from G.R. Rush & Company, P.C. with respect to certain financial
information as of the mailing of the Joint Proxy Statement/Prospectus and as of
the Effective Time.
Conduct of Business Pending Merger
The Merger Agreement contains certain restrictions on the conduct of FFBS'
and BFC's businesses pending consummation of the Merger. In general, the
business of FFBS and its subsidiaries and of BFC and its subsidiaries shall be
conducted only in the usual, regular and ordinary course and in substantially
the same manner as prior to the signing of the Merger Agreement. FFBS and BFC
must each preserve its business organization, goodwill, and relationships with
depositors, customers and employees.
In particular, the Merger Agreement provides that neither party may,
without the prior written consent of the other, among other things, (a) issue
any shares of capital stock; declare, set aside, or pay any dividend or other
distribution with respect to its outstanding capital stock; make any change in
its capital stock by split, reverse split, reclassification, reorganization,
subdivision or otherwise; acquire any shares of its capital stock; amend its
charter or bylaws; or merge or consolidate with or into any other association,
corporation, trust or entity; (b) grant any stock options, warrants, rights or
other securities convertible into capital stock; (c) incur any obligations in
excess of its legal lending limit or having a maturity of more than one year,
other than in the course of business; (d) enter into any supply contracts,
leases or other agreements that cannot be terminated without substantial penalty
and/or notice of not more than 30 days; (e) change any loan, investment, or
management policies or make any material alteration in the manner of keeping its
books, accounts, and records; (f) grant any salary increase or bonus or enter
into any new employment or employee benefit contract or arrangement except in
the ordinary course of business; (g) sell or otherwise dispose of any assets
other than in the ordinary course of business; (h) take any action that would
adversely affect the ability of any party to obtain the required approvals of
any governmental authorities; (i) authorize or permit anyone to initiate contact
with any person or entity in an effort to solicit, initiate, or encourage a
takeover proposal;
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<PAGE>
(j) not take or fail to take any action that would cause any of the
representations or warranties made in this Merger Agreement to be or become
untrue; and (k) extend credit or accept any deposit other than on substantially
the same terms as those prevailing at the time for comparable transactions by
other banks in the same geographic area.
Subsequent Events
Subsequent to the signing of the Merger Agreement and with the approval of
FFBS, the Charter was amended to (i) increase the number of authorized shares of
BFC Common from 3,000,000 to 15,000,000; (ii) remove the provision authorizing
1,000,000 shares of non-voting common stock, par value $2.50 per share (no
shares of such non-voting common stock were issued and outstanding); and (iii)
change the name of BFC from "Smoky Mountain Bancorp, Inc." to "BankFirst
Corporation."
Regulatory Approvals
The Merger is subject to the prior approval of the Board of Governors of
the Federal Reserve System ("FRB") under Section 3 of the BHCA. Application for
approval of the Merger was filed with the FRB on April 27, 1998. The FRB has
notified the FDIC and TDFI have the right to comment on the Merger. In
evaluating the Merger, the FRB must consider, among other factors, the financial
and managerial resources and future prospects of the institutions and the
conveniences and needs of the communities to be served. The relevant statutes
prohibit the FRB from approving the Merger if (i) it would result in a monopoly
or would be in furtherance of any combination or conspiracy to monopolize or
attempt to monopolize the business of banking in any part of the United States
or (ii) its effect in any section of the country may be to substantially lessen
competition or to tend to create a monopoly, or if it would be a restraint of
trade in any other manner, unless the FRB finds that any anti-competitive
effects are outweighed clearly by the public interest and the probable effect of
the transaction in meeting the convenience and needs of the communities to be
served. The Merger may not be consummated until the 30th day (which the United
States Department of Justice may reduce to 15 days) following the date of the
FRB approval, during which time the Department of Justice may challenge the
transaction on antitrust grounds. The commencement of any antitrust action would
stay the effectiveness of the approval of the FRB, unless a court of competent
jurisdiction specifically orders otherwise.
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.
No Solicitation
BFC and FFBS are prohibited by the Merger Agreement from soliciting or
knowingly encouraging inquiries or proposals with respect to, or furnishing any
information relating to or participating 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 the Merger Agreement. BFC and
FFBS have agreed to notify each other immediately if any inquiries or proposals
as described above are received by, any such information is requested from, or
any such negotiations or discussions are sought to be initiated with, BFC or
FFBS.
Waiver; Amendment; Termination
Any amendment, modification or waiver of any provision of the Merger
Agreement must be set forth in writing and duly executed by the party against
whom enforcement of the amendment, modification or waiver is sought.
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<PAGE>
The Merger Agreement may be terminated at any time prior to the Merger,
either before or after its approval by the shareholders of FFBS and/or BFC, as
follows: (a) by the mutual consent of the FFBS and BFC Boards; (b) by either
FFBS or BFC upon delivery of written notice of termination, if any event occurs
which renders satisfaction of any of the conditions precedent to the Merger
impossible, unless the condition is waived; (c) by either the FFBS Board or the
BFC Board if the Effective Time has not occurred by September 30, 1998 and no
further approvals are necessary; and (d) by either the FFBS Board or the BFC
Board, if any court of competent jurisdiction or other governmental body shall
have taken any action prohibiting the Merger and such action has become final
and non-appealable.
In the event of termination of the Merger Agreement, the Merger Agreement
shall become void and have no effect except that: (a) the confidentiality
requirements shall survive, and (b) if the Merger Agreement is terminated by
either board because some act, condition or omission of the non-terminating
party has rendered impossible the satisfaction of one or more the conditions to
the obligation of the terminating party to effect the Merger, the terminating
party shall be entitled to reimbursement from the non-terminating party for the
costs and expenses actually and reasonable incurred by it in connection with the
Merger. If the Merger Agreement is terminated without cause after approval by
the shareholders of BFC and FFBS, the terminating party shall pay $4,000,000 to
the non-terminating party as liquidated damages.
Management After the Merger
After the Merger, BFC and BankFirst will continue to be managed by its
current officers and directors, except that three additional positions will be
added to the BFC Board. BFC will use its best efforts to have the three
additional positions filled by L. A. Walker, Jr., W. D. Sullins, Jr., and C.
Scott Mayfield, Jr., who are three of the current directors of FFBS. Athens will
continue to be managed by its current officers and directors. The Athens board
will be expanded to include Fred R. Lawson, who is President, Chief Executive
Officer and a director of BFC.
Interests of Certain Persons in the Merger
All of the current directors of BFC and three current directors of FFBS
will serve as directors of BFC after the Effective Time. The current officers
and directors of BankFirst and Athens will continue to serve after the Effective
Time. For a description of the compensation received by certain executive
officers of BFC, BankFirst and Athens, see "MANAGEMENT OF BFC" and "BUSINESS OF
FFBS."
In the normal course of business, BankFirst and Athens make loans to
directors and officers of BFC and FFBS, including loans to certain related
persons and entities. Such loans are made on substantially the same terms,
including interest rates and collateral, as those prevailing at the time for
comparable transactions with other customers, and in the opinion of management
of both FFBS and BFC, do not involve more than the normal risk of
collectibility. As of March 31, 1998, the amount of these loans (including
amounts available under lines of credit) by BankFirst to BFC directors and
officers was 1.22% of BankFirst's total loans and the amount of these loans
(including amounts available under lines of credit) by Athens to FFBS directors
and officers was 1.28% of Athens' total loans.
Dissenters' Rights
If the Merger is consummated, holders of record of FFBS Common or BFC
Common who follow the procedures specified by Chapter 23 of the Tennessee
Business Corporation Act ("TBCA") will be entitled to determination and payment
in cash of the "fair value" of their stock immediately before the Effective
Time, excluding value resulting from the anticipation of the Merger but
including interest thereon. FFBS and BFC shareholders who elect to follow such
procedures are referred to as "Dissenting Shareholders" and, for purposes of the
discussion in this section only, BFC and FFBS are jointly referred to as the
"Corporation."
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<PAGE>
A VOTE IN FAVOR OF THE MERGER AGREEMENT BY A HOLDER OF FFBS COMMON OR BFC
COMMON WILL RESULT IN THE WAIVER OF THE SHAREHOLDER'S RIGHT TO DISSENT.
The following is a summary of the provisions of the TBCA which govern the
rights of shareholders to dissent. It is not intended to be a complete statement
of such provisions and is qualified in its entirety by reference to Appendix C.
Shareholders electing to exercise dissenters' rights must not vote in
favor of the Merger Agreement and must file a written notice of their intent to
demand payment for their shares (the "Objection Notice") with the Secretary of
the Corporation before the vote is taken at the meeting. The Objection Notice
must state that the shareholder intends to demand payment for his or her shares
of common stock if the Merger is effected. A vote against approval of the Merger
Agreement will not, in and of itself, constitute an Objection Notice. A failure
to vote will not constitute a waiver of dissenters' rights as long as the
requirements of Chapter 23 of the TBCA are complied with. However, any
shareholder who executes a proxy card and who desires to effect his or her
appraisal rights must mark the proxy card "Against" the proposal relating to the
Merger because if the proxy card is left blank, it will be voted "For" the
proposal relating to the Merger.
If the Merger Agreement is approved, each shareholder who has filed an
Objection Notice will be notified by the Corporation of such approval within 10
days of the Special Meeting (the "Dissenters' Notice"). Within the time
prescribed in the Dissenters' Notice, shareholders electing to dissent must make
a demand for payment (the "Payment Demand"), certify whether they acquired
beneficial ownership of the shares before March 20, 1998 (the date of the first
public announcement of the principal terms of the Merger Agreement), and deposit
their certificates in accordance with the terms of the Dissenters' Notice. Upon
filing the Payment Demand and depositing the certificates, the shareholder will
retain all other rights of a shareholder until these rights are canceled or
modified by consummation of the Merger. A Payment Demand may not be withdrawn
unless the Corporation consents. Failure to comply with these procedures will
cause the shareholder to lose the right to payment for the shares. Consequently,
any shareholder who desires to exercise dissenters' rights is urged to consult
his or her legal adviser before attempting to exercise such rights.
As soon as the Merger is consummated, or upon receipt of a Payment Demand,
the Corporation shall pay to each Dissenting Shareholder who has complied with
the requirements of TBCA the amount that the Corporation estimates to be the
fair value of the shares of common stock, plus accrued interest.
If the Merger is not consummated within two months after the date set for
demanding payment and depositing certificates, the Corporation shall return the
deposited certificates and release the transfer restrictions imposed on
uncertificated shares. If, after returning deposited certificates and releasing
transfer restrictions, the Merger is consummated, the Corporation must send a
new Dissenters' Notice and repeat the payment demand procedure.
If a Dissenting Shareholder believes that the amount paid or offered by
the Corporation is less than the fair value of his or her shares or that the
interest due is calculated incorrectly, or if the Corporation fails to make
payment, the Dissenting Shareholder may, within one month after (i) the
Corporation made or offered payment for the shares or failed to pay for the
shares or (ii) the Corporation failed to return deposited certificates or
release restrictions on uncertificated shares timely, notify the Corporation in
writing of his or her own estimate of the fair value of such shares (including
interest due) and demand payment of such estimate (less any payment previously
received). Failure to notify the Corporation in writing of a demand for payment
within one month after the Corporation made or offered payment for such shares
will constitute a waiver of the right to demand payment.
If the Corporation and the Dissenting Shareholder cannot agree on a fair
price two months after the Corporation receives such a demand for payment, the
statute provides that the Corporation will institute judicial proceedings in a
court of record with equity jurisdiction, (the "Court") to fix (i) the fair
value of the shares immediately before consummation of the Merger, excluding any
appreciation or depreciation in anticipation of the
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<PAGE>
Merger, and (ii) the accrued interest. The Court is required to issue a judgment
for the amount, if any, by which the fair value of the shares, as determined by
the Court, plus interest, exceeds the amount paid by the Corporation, or for the
fair value, plus accrued interest, of the Dissenting Shareholder's
after-acquired shares for which the Corporation elected to withhold payment. If
the Corporation does not institute such proceeding within such two-month period,
the Corporation shall pay each Dissenting Shareholder whose demand remains
unsettled the respective amount demanded by each shareholder.
The Court will, generally, assess the court costs and expenses of such
proceedings against the Corporation, unless the Court finds that any or all of
the Dissenting Shareholders' demand for additional payment was arbitrary,
vexatious or otherwise not in good faith. The Court may assess fees and expenses
of counsel and experts in amounts the Court finds equitable: (i) against the
Corporation if the Court finds that the Corporation did not comply with the TBCA
or (ii) against either the Corporation or any Dissenting Shareholder, if the
Court finds that they acted arbitrarily, vexatiously or not in good faith. If
the Court finds that the services of counsel for any Dissenting Shareholder were
of substantial benefit to other Dissenting Shareholders, the Court may award
reasonable fees to such counsel be paid out of amounts awarded to benefitted
Dissenting Shareholders.
Certain Federal Income Tax Consequences
The following discussion summarizes certain material federal income tax
considerations of the Merger that are generally applicable to holders of FFBS
Common. This discussion is based on currently existing provisions of the
Internal Revenue Code of 1986, as amended (the "Code"), existing and proposed
Treasury Regulations promulgated thereunder and current administrative rulings
and court decisions, all of which are subject to change. Any such change, which
may or may not be retroactive, could alter the tax consequences to BFC, FFBS or
the FFBS shareholders as described herein.
As a condition to the obligation of FFBS to consummate the Merger, FFBS
must receive an opinion from Miller & Martin LLP, tax counsel for FFBS, to the
effect that the Merger will be treated for federal income tax purposes as a
reorganization within the meaning of Section 368(a) of the Code. This opinion
will be based upon facts existing at the Effective Time, and, in rendering the
opinion referred to in this section, such counsel will rely upon
representations, made as of the Effective Time, by BFC, FFBS and certain
management shareholders of FFBS, which counsel will assume to be true, correct
and complete, including representations as to the intent of the historic
shareholders of FFBS to retain ownership of the BFC Common that they receive in
the Merger. If such representations are untrue, incorrect or incomplete, the
opinion could be adversely affected. No ruling has been or will be sought from
the Internal Revenue Service (the "IRS") as to the United States federal income
tax consequences of the Merger, and the opinion of counsel set forth herein is
not binding upon the IRS or any court.
Subject to the limitations and qualifications referred to herein, and
assuming the Merger is treated as a reorganization under Section 368(a) of the
Code, the following U.S. federal income tax consequences should result:
a. FFBS and BFC will each be "a party to a reorganization" as that term
is defined in Section 368(b) of the Code.
b. No gain or loss will be recognized by an FFBS shareholder upon the
exchange in the Merger of his or her FFBS Common solely for BFC
Common (except with respect to cash received in lieu of a fractional
share interest in BFC Common).
c. The tax basis in the BFC Common received in the Merger by an FFBS
shareholder (including the basis of a fractional share interest in
BFC Common) will be the same as such shareholder's tax basis in the
FFBS Common surrendered in exchange therefor.
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d. The holding period of the BFC Common received by an FFBS shareholder
in the Merger will include the period during which the FFBS Common
surrendered in exchange therefor was held (provided that such FFBS
Common was held by such FFBS shareholder as a capital asset at the
Effective Time).
e. An FFBS shareholder who receives cash proceeds in lieu of a
fractional share interest in BFC Common will recognize gain or loss
equal to the difference between such proceeds and the tax basis
allocated to the fractional share interest. Such gain or loss will
constitute capital gain or loss if such shareholder's FFBS Common is
held as a capital asset at the Effective Time and will be long-term
capital gain or loss if shares of FFBS Common have been held for
more than one year at the Effective Time. Capital gain on assets
held for more than one year that is recognized by certain
non-corporate shareholders is subject to federal income tax at
preferential tax rates. If such gain is recognized with respect to
assets held for more than 18 months, it is generally subject to
income tax at further reduced tax rates.
f. An FFBS shareholder who exercises dissenters' rights under any
applicable law with respect to a share of FFBS Common and receives
payments for such stock in cash should recognize capital gain or
loss (if such stock was held as a capital asset at the Effective
Time of the Merger) measured by the difference between the amount of
cash received and the shareholder's basis in such shares, provided
such payment is neither essentially equivalent to a dividend within
the meaning of Section 302 of the Code nor has the effect of a
distribution of a dividend within the meaning of Section 356(a)(2)
of the Code (collectively, a "Dividend Equivalent Transaction"). A
sale of FFBS Common incident to an exercise of dissenters' rights
will generally not be a Dividend Equivalent Transaction if, as a
result of such exercise, the dissenting stockholder owns no shares
of FFBS Common (either actually or constructively within the meaning
of Section 318 of the Code) immediately after the Merger.
g. No gain or loss will be recognized by FFBS as a result of the
Merger.
A successful challenge by the IRS to the status of the Merger as a
reorganization under Section 368(a) of the Code would result in significant
adverse tax consequences to the FFBS shareholders. An FFBS shareholder would
recognize gain or loss with respect to each share of FFBS Common surrendered
equal to the difference between the shareholder's basis in such share and the
fair market value, as of the Effective Time, of BFC Common received in exchange
therefor. In such event, a shareholder's aggregate basis in the BFC Common so
received would equal its fair market value, and the stockholder's holding period
for such stock would begin the day after the Closing Date.
Certain noncorporate FFBS shareholders may be subject to backup
withholding at a rate of 31% on cash payments received in lieu of a fractional
share interest in BFC Common. Backup withholding will not apply, however, to a
stockholder who furnishes a correct taxpayer identification number ("TIN") and
certifies that he, she or it is not subject to backup withholding on the
substitute Form W-9 included in the Transmittal Letter, who provides a
certificate of foreign status on Form W-8, or who is otherwise exempt from
backup withholding. A stockholder who fails to provide the correct TIN on Form
W-9 may be subject to a $50 penalty imposed by the IRS.
Each FFBS shareholder also will be required to retain records and file
with such holder's U.S. federal income tax return a statement setting forth
certain facts relating to the Merger.
THE FOREGOING DISCUSSION IS INTENDED ONLY AS A SUMMARY OF CERTAIN MATERIAL
UNITED STATES FEDERAL INCOME CONSEQUENCES OF THE MERGER AND OF HOLDING BFC
COMMON AND DOES NOT PURPORT TO BE A COMPLETE ANALYSIS OR LISTING OF ALL
POTENTIAL TAX EFFECTS RELEVANT TO A DECISION WHETHER TO VOTE IN FAVOR OF
APPROVAL OF THE MERGER AND APPROVAL AND ADOPTION OF THE MERGER AGREEMENT. THE
DISCUSSION DOES
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NOT ADDRESS THE UNITED STATES FEDERAL INCOME TAX CONSEQUENCES THAT MAY BE
RELEVANT TO A PARTICULAR FFBS SHAREHOLDER SUBJECT TO SPECIAL TREATMENT UNDER
CERTAIN FEDERAL INCOME TAX LAWS, SUCH AS: (i) PERSONS SUBJECT TO THE ALTERNATIVE
MINIMUM TAX, (ii) PERSONS WHO ACQUIRED THEIR FFBS COMMON AS PART OF A
"STRADDLE," "CONVERSION TRANSACTION," "HEDGING TRANSACTION" OR OTHER RISK
REDUCTION TRANSACTION, (iii) PERSONS WHO ARE DEALERS IN SECURITIES, FINANCIAL
INSTITUTIONS, INSURANCE COMPANIES, TAX-EXEMPT ORGANIZATIONS, OR FOREIGN PERSONS
AND (iv) PERSONS WHO ACQUIRED FFBS COMMON PURSUANT TO THE EXERCISE OF STOCK
OPTIONS OR RIGHTS OR OTHERWISE AS COMPENSATION. THIS DISCUSSION ALSO DOES NOT
ADDRESS ANY CONSEQUENCES ARISING UNDER THE LAWS OF ANY STATE, LOCALITY OR
FOREIGN JURISDICTION. THE DISCUSSION OF UNITED STATES FEDERAL INCOME TAX
CONSEQUENCES IS BASED UPON THE CODE, TREASURY REGULATIONS PROMULGATED THEREUNDER
AND ADMINISTRATIVE RULINGS AND COURT DECISIONS AS OF THE DATE HEREOF. ALL OF THE
FOREGOING ARE SUBJECT TO CHANGE AND ANY SUCH CHANGE COULD AFFECT THE CONTINUING
VALIDITY OF THIS DISCUSSION. FFBS SHAREHOLDERS ARE URGED TO CONSULT THEIR OWN
TAX ADVISORS CONCERNING THE FEDERAL, STATE, LOCAL AND FOREIGN TAX CONSEQUENCES
OF THE MERGER TO THEM.
Accounting Treatment
BFC will account for the Merger as a pooling-of-interests transaction in
accordance with generally accepted accounting principles, which, among other
things, require that the number of shares of FFBS Common acquired for cash
pursuant to the exercise of dissenters' rights or in lieu of fractional shares
not exceed 10% of the outstanding shares of FFBS Common. Under this accounting
treatment, assets and liabilities of FFBS will be added to those of BFC at their
recorded book values, and the shareholders' equity of the two companies will be
combined in BFC's consolidated balance sheet. Financial statements of BFC issued
after the Effective Time of the Merger will be restated to reflect the
consolidated operations of BFC and FFBS as if the Merger had taken place prior
to the periods covered by the financial statements. A condition to the
consummation of the Merger is BFC's and FFBS' receipt of a letter from Crowe,
Chizek & Company, LLP, stating that, in their opinion, no conditions exist with
respect to either company which would preclude accounting for the Merger as a
pooling of interests.
Resales of BFC Common
The shares of BFC Common issued to FFBS shareholders pursuant to the
Merger Agreement will be freely transferrable under the Securities Act, except
for shares issued to any shareholder who may be deemed to be an "affiliate"
(generally including, without limitation, directors, certain executive officers
and beneficial owners of 10% or more of a class of capital stock ) of FFBS for
purposes of Rule 145 under the Securities Act ("Rule 145") as of the date of the
FFBS Meeting. Affiliates may not sell their shares of BFC Common acquired in the
Merger except pursuant to an effective registration statement under the
Securities Act covering such shares or in compliance with Rule 145 or another
applicable exemption from the registration requirements of the Securities Act
and until such time as financial results covering at least 30 days of combined
operations of FFBS and BFC after the Merger have been published. BFC may place
restrictive legends on certificates representing BFC Stock issued to persons who
are deemed "affiliates" of FFBS under Rule 145. This Joint Proxy
Statement/Prospectus does not cover resales of BFC Common received by any person
who may be deemed to be an affiliate of FFBS.
Stock Split
In order to facilitate an initial public offering of BFC Common, BFC
shareholders are voting to approve a four for one stock split of BFC Common to
be effective on June 30, 1998 or immediately after the Effective Time of the
Merger, whichever is later. As a result of such a stock split, each share of BFC
Common which a FFBS shareholder is entitled to receive in the Merger will become
four shares of BFC Common. If both the Merger and
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the four for one stock split are consummated the number of issued and
outstanding shares of BFC Common will increase to approximately eight million.
Initial Public Equity Offering
BFC presently intends to effect an initial public offering of BFC Common
after the Merger, if market conditions are favorable. Neither such offering nor
the Merger is conditioned on the closing of the other. In preparation for the
offering, BFC anticipates that a four for one stock split of BFC Common will
occur soon after the Merger. If the stock split is consummated, the number of
issued and outstanding shares of BFC Common will increase from approximately two
million (including the shares to be issued in the Merger) to approximately eight
million.
Expenses
The Merger Agreement provides, in general, that BFC and FFBS will each pay
its own expenses in connection with the Merger Agreement and the transactions
contemplated thereby. But see, "THE MERGER Waiver; Amendment; Termination.
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PRO FORMA FINANCIAL INFORMATION
The following unaudited pro forma consolidated balance sheets as of March
31, 1998, and December 31, 1997, and the unaudited pro forma condensed
consolidated statements of income for the three months ended March 31, 1998, and
for the years ended December 31, 1997, 1996 and 1995, have been prepared to
reflect the proposed acquisition of FFBS. BFC's proposed acquisition of First
Franklin is presented as if the acquisition had occurred on December 31, 1997,
with respect to the balance sheet and as of January 1, 1995, with respect to the
statements of income for the three months ended March 31, 1998, and for the
years ended December 31, 1997, 1996 and 1995 in each case after providing the
effect to the pro forma adjustments described in the accompanying notes. BFC is
also undertaking a public offering of its common stock, which is contemplated to
occur subsequent to the merger with FFBS. These pro formas do not reflect the
effect of the proposed public offering, from which the proposed net proceeds to
BFC are expected to be $13 million. Both transactions are contemplated, but
neither is a condition nor dependent upon the other. The pro forma adjustments
are based on estimates made for the purposes of preparing these pro forma
financial statements. The actual adjustments to the accounts of BFC will be made
based on the underlying historical financial data at the time of the
transaction. BFC's management believes that the estimates used in these pro
forma financial statements are reasonable under the circumstances. The pro forma
information gives effect to the proposed merger of BFC and FFBS under the
pooling-of-interest method of accounting, which as discussed previously, is a
condition of the merger. No adjustments to these pro forma financial statements
were necessary to conform accounting methods as contemplated by APB Opinion No.
16.
These pro forma financial statements should be read in conjunction with
the historical financial statements and related notes presented elsewhere in
this Joint Proxy Statement/Prospectus. The unaudited pro forma condensed
consolidated balance sheet as of December 31, 1997 and March 31, 1998 are not
necessarily indicative of the combined financial position had the transactions
been effective at those dates. The unaudited pro forma condensed consolidated
statements of income are not necessarily indicative of the results of operations
that would have occurred had the acquisition of FFBS been effective at the
beginning of the periods indicated, or of the future results of operations of
BFC.
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PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET
(Dollars in thousand, except per share data)
(Unaudited)
<TABLE>
<CAPTION>
As of March 31, 1998
-------------------------------------------------
First Pro Forma Pro Forma
BankFirst Franklin Adjustments Consolidated
--------- -------- ----------- ------------
<S> <C> <C> <C> <C>
ASSETS
Cash and cash equivalents $ 23,711 $ 11,104 $ -- $ 34,815
Investment in subsidiary -- -- 21,105(1) --
(21,105)(2)
Securities available for sale 75,206 55,534 -- 130,740
Loans held for sale 19,969 -- -- 19,969
Loans, net 361,029 111,890 -- 472,919
Premises and equipment, net 19,202 2,703 -- 21,905
Mortgage servicing rights 6,992 -- -- 6,992
FHLB and FRB stock 2,422 677 -- 3,099
Intangible assets 2,120 76 -- 2,196
Accrued interest receivable and
other assets 6,176 2,621 -- 8,797
--------- --------- --------- ---------
Total assets $ 516,827 $ 184,605 $ -- $ 701,432
========= ========= ========= =========
LIABILITIES
Deposits $ 410,125 $ 157,103 $ -- $ 567,815
Federal funds purchased 14,500 -- -- 14,500
Repurchase agreements 19,175 1,100 -- 20,275
Federal Home Loan Bank advances 25,000 2,351 -- 27,351
Accrued interest payable and other
liabilities 6,280 2,329 -- 8,609
--------- --------- --------- ---------
Total liabilities 475,080 162,883 -- 637,963
Employee Stock Ownership Plan 1,745 -- -- 1,745
SHAREHOLDERS' EQUITY
Common Stock 3,105 821 1,809(1) 4,914
(821)(2)
Noncumulative preferred stock 1,079 -- -- 1,079
Additional paid-in capital 19,938 3,218 2,230(1) 22,168
(3,218)(2)
Retained earnings 15,206 17,066 17,066(1) 32,272
(17,706)(2)
Unrealized gain (loss) on securities
available for sale 674 617 -- 1,291
--------- --------- --------- ---------
Total shareholders' equity 40,002 21,722 -- 61,724
--------- --------- --------- ---------
Total liabilities and shareholders'
equity $ 516,827 $ 184,605 $ -- $ 701,432
========= ========= ========= =========
</TABLE>
(1) Issuance of 723,791 shares of BankFirst in exchange for the 164,125 common
shares of First Franklin.
(2) To eliminate investment in First Franklin.
32
<PAGE>
PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET
(Dollars in thousand, except per share data)
(Unaudited)
<TABLE>
<CAPTION>
As of December 31, 1997
------------------------------------------------
First Pro Forma Pro Forma
BankFirst Franklin Adjustments Consolidated
--------- -------- ----------- ------------
<S> <C> <C> <C> <C>
ASSETS
Cash and cash equivalents $ 24,363 $ 6,927 $ -- $ 31,290
Investment in subsidiary -- -- 20,618(1) --
(20,618)(2)
Securities available for sale 71,912 55,824 -- 127,736
Loans, net 345,564 113,305 -- 458,869
Premises and equipment, net 18,737 2,729 -- 21,466
FHLB and FRB stock 2,380 666 -- 3,046
Accrued interest receivable and
other assets 5,794 2,516 -- 8,310
--------- --------- --------- ---------
Total assets $ 468,750 $ 181,967 $ -- $ 650,717
========= ========= ========= =========
LIABILITIES
Deposits $ 395,152 $ 154,617 $ -- $ 549,769
Borrowed funds 16,511 1,750 -- 18,261
Federal Home Loan Bank advances 10,000 2,121 -- 12,121
Accrued interest payable and other
liabilities 6,672 2,462 -- 9,134
--------- --------- --------- ---------
Total liabilities 428,335 160,950 -- 589,285
Employee Stock Ownership Plan 1,536 -- -- 1,536
SHAREHOLDERS' EQUITY
Common stock 3,099 820 1,809(1) 4,908
(820)(2)
Noncumulative preferred stock 1,093 -- -- 1,093
Additional paid-in capital 20,112 3,203 2,214(1) 22,326
(3,203)(2)
Retained earnings 14,013 16,595 16,595 30,608
(16,595)(2)
Unrealized gain (loss) on securities
available for sale 562 399 -- 961
--------- --------- --------- ---------
Total shareholders' equity 38,879 21,017 -- 59,896
--------- --------- --------- ---------
Total liabilities and shareholders'
equity $ 468,750 $ 181,967 $ -- $ 650,717
========= ========= ========= =========
</TABLE>
(1) Issuance of 723,791 shares of BankFirst in exchange for the 164,125 common
shares of First Franklin.
(2) To eliminate investment in First Franklin.
33
<PAGE>
PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF INCOME
(Dollars in thousands, except per share data)
(Unaudited)
Three Months Ended March 31, 1998
--------------------------------------
Pro Forma
BankFirst First Franklin Consolidated
--------- -------------- ------------
INTEREST INCOME
Interest and fees on loans $ 9,088 $ 2,734 $11,822
Taxable securities 1,089 351 1,440
Nontaxable securities 57 397 454
Other 46 34 80
------- ------- -------
Total interest income 10,280 3,516 13,796
INTEREST EXPENSE
Deposits 3,774 1,547 5,321
Short term borrowings 628 15 643
Long term borrowings -- 36 36
------- ------- -------
Total interest expense 4,402 1,598 6,000
------- ------- -------
NET INTEREST INCOME 5,878 1,918 7,796
PROVISION FOR LOAN LOSSES 225 309 534
------- ------- -------
NET INTEREST INCOME AFTER
PROVISION FOR LOAN LOSSES 5,653 1,609 7,262
OTHER INCOME
Service charges and fees 466 301 767
Loan servicing income, net 325 -- 325
Gain on sale of loans 206 -- 206
Trust department income 24 161 185
Other income 452 24 476
------- ------- -------
Total Other Income 1,473 486 1,959
OTHER EXPENSE
Salaries and employee benefits 2,820 826 3,646
Occupancy expense 434 107 541
Equipment expense 496 167 663
Other operating expense 1,398 390 1,788
------- ------- -------
Total other expense 5,148 1,490 6,638
------- ------- -------
INCOME BEFORE INCOME TAXES 1,978 605 2,583
INCOME TAXES 746 134 880
------- ------- -------
NET INCOME $ 1,232 $ 471 $ 1,703
======= ======= =======
EARNINGS PER SHARE:
Basic $ 0.94 $ 2.87 $ 0.83
Diluted $ 0.84 $ 2.87 $ 0.78
34
<PAGE>
PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF INCOME
(Dollars in thousands, except per share data)
(Unaudited)
Year-Ended December 31, 1997
----------------------------------------
Pro Forma
BankFirst First Franklin Consolidated
--------- -------------- ------------
INTEREST INCOME
Interest and fees on loans $32,769 $10,111 $42,880
Taxable securities 4,513 2,361 6,874
Nontaxable securities 122 1,051 1,173
Other 221 139 360
------- ------- -------
Total interest income 37,625 13,662 51,287
INTEREST EXPENSE
Deposits 15,044 6,060 21,104
Short term borrowings 744 118 862
Long term borrowings 686 -- 686
------- ------- -------
Total interest expense 16,474 6,178 22,652
------- ------- -------
NET INTEREST INCOME 21,151 7,484 28,635
PROVISION FOR LOAN LOSSES 2,250 685 2,935
------- ------- -------
NET INTEREST INCOME AFTER
PROVISION FOR LOAN LOSSES 18,901 6,799 25,700
OTHER INCOME
Service charges and fees 2,640 1,171 3,811
Other income 780 1,066 1,846
------- ------- -------
Total other income 3,420 2,237 5,657
OTHER EXPENSE
Salaries and employee benefits 7,986 3,124 11,110
Occupancy expense 1,312 404 1,716
Equipment expense 2,028 509 2,537
Other operating expense 4,458 1,502 5,960
------- ------- -------
Total other expense 15,784 5,539 21,323
------- ------- -------
INCOME BEFORE INCOME TAXES 6,537 3,497 10,034
INCOME TAXES 2,471 935 3,406
------- ------- -------
NET INCOME $ 4,066 $ 2,562 $ 6,628
======= ======= =======
EARNINGS PER SHARE:
Basic $ 3.12 $ 15.62 $ 3.27
Diluted $ 2.80 $ 15.62 $ 3.05
35
<PAGE>
PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF INCOME
(Dollars in thousands, except per share data)
(Unaudited)
Year-Ended December 31, 1996
-----------------------------------------
Pro Forma
BankFirst First Franklin Consolidated
--------- -------------- ------------
INTEREST INCOME
Interest and fees on loans $28,227 $ 9,362 $37,589
Taxable securities 4,815 2,473 7,288
Nontaxable securities 172 1,016 1,188
Other 370 263 633
------- ------- -------
Total interest income 33,584 13,114 46,698
INTEREST EXPENSE
Deposits 14,108 5,989 20,097
Short term borrowings 562 50 612
Long term borrowings 529 -- 529
------- ------- -------
Total interest expense 15,199 6,039 21,238
------- ------- -------
NET INTEREST INCOME 18,385 7,075 25,460
PROVISION FOR LOAN LOSSES 517 150 667
------- ------- -------
NET INTEREST INCOME AFTER
PROVISION FOR LOAN
LOSSES 17,868 6,925 24,793
OTHER INCOME
Service charges and fees 2,615 1,181 3,796
Other income 782 665 1,447
------- ------- -------
Total other income 3,397 1,846 5,243
OTHER EXPENSE
Salaries and employee benefits 7,392 3,147 10,539
Occupancy expense 1,724 405 2,129
Equipment expense 1,884 498 2,382
Other operating expense 4,412 1,337 5,749
------- ------- -------
Total other expense 15,412 5,387 20,799
------- ------- -------
INCOME BEFORE INCOME TAXES 5,853 3,384 9,237
INCOME TAXES 2,189 999 3,188
------- ------- -------
NET INCOME $ 3,664 $ 2,385 $ 6,049
======= ======= =======
EARNINGS PER SHARE:
Basic $ 3.06 $ 14.40 $ 3.15
Diluted $ 2.77 $ 14.40 $ 2.95
36
<PAGE>
PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF INCOME
(Dollars in thousands, except per share data)
(Unaudited)
Year-Ended December 31, 1995
------------------------------------------
Pro Forma
BankFirst First Franklin Consolidated
--------- -------------- ------------
INTEREST INCOME
Interest and fees on loans $24,628 $ 9,171 $33,799
Taxable securities 4,049 2,565 6,614
Nontaxable securities 200 874 1,074
Other 372 260 632
------- ------- -------
Total interest income 29,249 12,870 42,119
INTEREST EXPENSE
Deposits 12,640 5,576 18,216
Short term borrowings 177 90 267
Long term borrowings 599 -- 599
------- ------- -------
Total interest expense 13,416 5,666 19,082
------- ------- -------
NET INTEREST INCOME 15,833 7,204 23,037
PROVISION FOR LOAN LOSSES 378 175 553
------- ------- -------
NET INTEREST INCOME AFTER
PROVISION FOR LOAN LOSSES 15,455 7,029 22,484
OTHER INCOME
Service charges and fees 2,181 1,124 3,305
Other income 508 556 1,064
------- ------- -------
Total other income 2,689 1,680 4,369
OTHER EXPENSE
Salaries and employee benefits 6,746 3,003 9,749
Occupancy expense 1,142 401 1,543
Equipment expense 1,213 472 1,685
Other operating expense 4,744 1,436 6,180
------- ------- -------
Total other expense 13,845 5,312 19,157
------- ------- -------
INCOME BEFORE INCOME TAXES 4,299 3,397 7,696
INCOME TAXES 1,474 1,043 2,517
------- ------- -------
NET INCOME $ 2,825 $ 2,354 $ 5,179
======= ======= =======
EARNINGS PER SHARE:
Basic $ 3.07 $ 14.15 $ 3.15
Diluted $ 2.76 $ 14.15 $ 2.96
37
<PAGE>
BFC MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
The following discussion and analysis is presented to facilitate the
understanding of the consolidated financial position and results of operations
of BFC. The consolidated financial information discussed herein primarily
reflects the activities of BFC's wholly-owned subsidiary, BankFirst. The
discussion identifies trends and material changes that occurred during the
reported periods and should be read in conjunction with the consolidated
financial statements of BFC and the accompanying notes. The periods included
within this discussion are the years 1997 and 1996 with respect to financial
position, and 1997, 1996 and 1995 with respect to results of operations.
General
BFC is a community banking organization, headquartered in Knoxville,
Tennessee, which generates loans and deposits through its 23 offices in Knox,
Blount, Sevier, Loudon and Jefferson Counties. BFC provides each of the
communities it serves with a variety of financial services, including commercial
and retail banking products, focusing primarily on funding commercial loan
growth through deposits and borrowings.
At year-end 1997, BFC had $468.8 million in assets, was well capitalized
with an 8.6% leverage ratio, and had 1997 net income of $4.1 million. BFC
reached this financial position over a five-year period through internal growth
combined with selected mergers. Acquisitions have been a component of the BFC's
growth since 1996 and may be utilized in the future if suitable opportunities
arise, such as acquisition candidates that complement geographic position and
the mix of products and services, and that provide expertise in new lines of
business. The following information about BFC is important to understanding this
discussion and analysis.
In the fall of 1992, James Clayton and a group of investors acquired a
majority interest in BankFirst, formerly known as First Heritage, and installed
a local bank management team the following year. Drawing upon existing
relationships with loan and deposit customers who followed management from their
previous bank, BankFirst increased its assets from approximately $60 million in
1993 to approximately $230 million in 1996. These customers, while new to
BankFirst, were mature relationships representing lower than normal lending risk
because of their seasoned performance history. During 1996, Clayton acquired
control of Smoky Mountain Bancorp, Inc. ("Smoky Mountain") and its wholly-owned
subsidiary, First National Bank of Gatlinburg. At year-end 1996 these entities
were combined with BankFirst in a share exchange accounted for in a manner
similar to a pooling of interests. Following the combination, BFC had total
assets of $423 million. The combined entity continued to grow in 1997, primarily
through commercial and commercial real estate lending financed through deposit
growth.
In January 1998, BankFirst purchased Curtis Mortgage Co., Inc. ("Curtis
Mortgage") for $7.5 million as an opportunity to enhance mortgage origination,
which had not been a significant line of business, and as an opportunity to
diversify revenues through loan servicing. Curtis Mortgage is a 53 year old
mortgage company which originates and purchases mortgage loans for sale and
servicing. Curtis Mortgage generally has not retained loans for its portfolio,
although its servicing portfolio was approximately $451 million at the date of
acquisition. This transaction was accounted for as a purchase, and accordingly,
is not reflected in the 1997 historical financial statements of BFC.
BFC changed its name from "Smoky Mountain Bancorp, Inc." to "BankFirst
Corporation" at the April 27, 1998 shareholder meeting. Management expects to
continue growing through expansion of retail locations, through expansion of
products and services, such as mortgage servicing opportunities though Curtis
Mortgage, and possible future mergers or acquisitions. At the current time, BFC
has no present agreements, arrangements or commitments with respect to any
acquisition, other than the Merger Agreement.
The major components of BFC's financial position and operating results for
the past five years are summarized in the following table.
38
<PAGE>
FIVE-YEAR FINANCIAL SUMMARY
(Dollar amounts in thousands, except share and per share data)
<TABLE>
<CAPTION>
For the years ended December 31,
---------------------------------------------------------------------------
1997 1996 1995 1994 1993
----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
Summary of operations
Interest income - tax equivalent $ 37,688 $ 33,673 $ 29,352 $ 22,549 $ 17,928
Interest expense 16,474 15,199 13,416 9,242 7,877
----------- ----------- ----------- ----------- -----------
Net interest income 21,214 18,474 15,936 13,307 10,051
Tax equivalent adjustment (1) (63) (89) (103) (72) (55)
----------- ----------- ----------- ----------- -----------
Net interest income 21,151 18,385 15,833 13,235 9,996
Provision for loan losses (2,250) (517) (378) (503) (624)
Noninterest income 3,420 3,397 2,689 2,475 2,026
Noninterest expenses (15,784) (15,412) (13,845) (12,146) (9,230)
----------- ----------- ----------- ----------- -----------
Income before income taxes 6,537 5,853 4,299 3,060 2,168
Income tax expense 2,471 2,189 1,474 663 826
----------- ----------- ----------- ----------- -----------
Net earnings $ 4,066 $ 3,664 $ 2,825 $ 2,397 $ 1,342
=========== =========== =========== =========== ===========
Basic earnings per share $ 3.12 $ 3.06 $ 3.07 $ 3.12 $ 1.83
Diluted earnings per share 2.80 2.77 2.76 2.68 1.758
Dividends per common share -- -- 0.34 0.40 0.33
Cash dividends declared - common -- -- 305 298 241
Cash dividends declared - preferred 161 162 74 73 --
Book value per common share 30.53 34.37 30.23 24.91 20.31
Average common shares outstanding 1,251,556 1,145,754 895,843 745,510 735,017
Selected year-end balances
Total assets $ 468,750 $ 422,993 $ 374,789 $ 317,784 $ 271,264
Earning assets 431,858 397,449 346,283 290,886 250,522
Total securities 71,912 76,474 79,874 58,817 55,316
Loans - net of unearned income 350,566 315,249 253,471 222,504 182,001
Allowance for loan losses 5,002 3,570 3,407 3,282 2,949
Total deposits 395,152 366,351 329,913 285,050 247,346
Repurchase agreements 16,302 5,966 7,632 1,363 --
Long-term debt 10,000 12,000 8,244 8,244 3,477
Stockholders' equity 38,879 34,154 24,076 18,834 14,931
Selected average balances
Total assets $ 446,524 $ 397,678 $ 363,948 $ 314,132 $ 257,187
Earning assets 412,508 369,529 335,558 275,214 235,320
Total securities 71,650 78,842 79,865 58,946 47,867
Loans- net of unearned income 337,390 284,163 246,805 205,253 174,211
Allowance for loan losses 3,683 3,500 3,245 3,210 2,698
Total deposits 378,678 344,372 324,286 281,188 217,874
Stockholders' equity 36,327 29,276 21,263 16,061 14,504
Ratios based on average balances
Loans to deposits 89.10% 82.52% 76.11% 72.99% 79.96%
Allowance to year end loans 1.43% 1.13% 1.34% 1.48% 1.62%
Equity to assets 8.14% 7.36% 5.84% 5.11% 5.64%
Leverage capital ratio 8.60% 8.25% 6.85% 6.74% 6.04%
Return on assets 0.91% 0.92% 0.78% 0.76% 0.52%
Return on equity 11.19% 12.52% 13.28% 14.93% 9.25%
Dividends payout ratio (2) -- -- 11.09% 12.82% 17.96%
</TABLE>
- ----------------
(1) Tax equivalent basis was calculated using a 38% tax rate for all periods
presented.
(2) Dividends declared on common shares divided by net income available to
common shareholders.
39
<PAGE>
Financial Position
The most significant change in the makeup of BFC's financial position from
1995 to 1997 has been loan growth, funded primarily with deposits and
supplemented with borrowings and/or increases in equity through common and
preferred stock sales. Earning assets were 92% of 1997 total assets and were
approximately at this level during 1996.
Lending
The Loans Outstanding Table reflects the primary earning asset, the loan
portfolio. Total loans were $350.6 million at year-end 1997 and $315.2 million
at year-end 1996. Loan growth was $35.3 million, or 11%, during 1997, and $61.8
million, or 24%, during 1996. Loan growth from 1993 through 1996 was accelerated
from loan customers following management from their previous banking
relationships. All loan categories continued growth during 1997, primarily from
commercial lending, as BFC expanded the loan portfolio in Eastern Tennessee.
Even though loan growth has been experienced in each of the last five years, the
rate of growth slowed during 1997 as management completed refinancing their
previous customer relationships. Management expects loan growth to continue.
Commercial lending will continue to be the primary focus, although management
will work to diversify loan products to consumers, such as increased residential
mortgage loans through Curtis Mortgage.
A banking company's credit risk profile is generally reflected in the
level and types of loans held, since loans are usually the highest risk assets
owned. Even though the majority of BFC's loans are commercial, which is
typically the highest risk loan type, management believes that BFC's credit risk
exposure is lower than other similar commercial loan portfolios. Two factors
mitigate credit risk in this portfolio: first 69.5% of total loans are secured
by real estate, and second the early growth was generated through seasoned loan
relationships. BFC's low levels of charge-offs and non-performing loans further
illustrate the lower credit risk.
Lending activities are under the direct supervision of BankFirst's Board
of Directors and Senior Management. BankFirst operates a loan policy which
states among other things, guidelines for underwriting, credit criteria, loan
composition, concentrations, and administration. Commercial loans are generally
underwritten with a life of 15 years; mortgage loans retained are generally
variable rate and have an average term of five years; and installment loans are
underwritten for a maximum of five years. Loan to value guidelines are generally
80% for commercial real estate, 50% for equipment, and 80% for residential real
estate.
LOANS OUTSTANDING
(Dollar amounts in thousands)
<TABLE>
<CAPTION>
at December 31,
-----------------------------------------------------------
1997 1996 1995 1994 1993
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Commercial, financial, and
agricultural $ 65,681 $ 50,286 $ 39,171 $ 31,202 $ 22,751
Commercial real estate 144,876 140,048 102,233 91,983 79,563
Real estate-construction 18,082 20,894 18,184 16,822 9,984
Residential real estate 81,235 72,471 64,915 56,789 53,875
Installment 39,092 30,782 28,614 25,544 15,757
Other 2,355 1,640 1,447 1,585 666
--------- --------- --------- --------- ---------
Total loans 351,321 316,121 254,564 223,925 182,596
Unearned income (755) (872) (1,093) (1,421) (595)
--------- --------- --------- --------- ---------
Total loans, net $ 350,566 $ 315,249 $ 253,471 $ 222,504 $ 182,001
========= ========= ========= ========= =========
</TABLE>
40
<PAGE>
Securities
BankFirst uses its securities portfolio primarily as a source of liquidity
and a base from which to pledge assets for repurchase agreements. Securities are
not a primary focus of BFC, and represent only 15.3% of total assets. Total
securities were $71.9 million at year-end 1997, which is slightly lower than the
$76.5 million balance in 1996. BankFirst's investment strategy is to maintain a
portfolio of acceptable risk at sufficient levels to provide pledging for
deposits and borrowings. BankFirst's policy guidelines are designed to minimize
credit, market, or liquidity risk, and securities generally must have a rating
of Aa or better to be purchased. All securities are classified as available for
sale to provide the most flexibility for asset liability management. U.S.
Government and Agency securities represented 88.4% of the 1997 total portfolio.
Mortgage-backed securities were only $1.8 million, or 2.5%, of total securities
at 1997. Approximately 87% of 1997 securities were pledged for public deposits
and repurchase agreements.
SECURITIES
(Dollar amounts in thousands)
at December 31,
-------------------------------
1997 1996 1995
---- ---- ----
Available for sale
U.S. Government & Agencies $63,853 $73,303 $76,251
States and political subdivisions 6,236 2,712 3,325
Mortgage-backed and asset-backed 1,823 459 298
------- ------- -------
Total available for sale $71,912 $76,474 $79,874
======= ======= =======
Securities Maturity Schedule
(Dollar amounts in thousands)
<TABLE>
<CAPTION>
1 Year and Less 1 to 5 Years 5 to 10 Years Over 10 Years Total
------------------- ----------------- ------------------ ---------------- --------------------
Balance Rate Balance Rate Balance Rate Balance Rate Balance Rate
------------------- ----------------- ------------------ ---------------- --------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Available for sale
U.S. Government &
Agencies $ 7,990 6.103% $ 31,424 6.48% $ 24,439 6.58% $ -- $ 63,853 6.47%
State and municipal 211 6.570% 2,732 8.72% 2,401 5.77% 892 7.93% 6,236 7.40%
Mortgage-backed and
asset-backed 1,823 6.92%
------- -------- -------- ----- --------
Total available for sale $ 8,201 $ 34,156 $ 26,840 $ 892 $ 71,912
======= ======== ======== ===== ========
</TABLE>
Deposits and Borrowings
Deposits have been BFC's primary source of funding for loans. The Deposit
Information Table reflects BFC's deposit information for 1995, 1996, and 1997.
Total deposits have continued to grow during this period to a level of $395.2
million at year-end 1997. The growth rate of deposits was 8% during 1997 and 11%
during 1996. BFC's deposit strategy has been to remain competitive in its
markets, although not to pay the highest yield. The Company has demonstrated a
consistent ability to raise deposits quickly within its market areas by slightly
raising interest rates. Banking companies experience competition for deposits
with other banks and brokerage houses. As a result of this competition, BFC's
1997 deposit mix was only 17% noninterest bearing, 37% lower yielding demand and
savings, and 46% time deposits. Deposit growth is expected to continue to be
facilitated through marketing efforts and new retail locations. The cost of
these fundraising activities is expected to be relative to costs historically
incurred.
41
<PAGE>
The loan to deposit ratio increased to 89.1% at 1997, from 82.5% at 1996.
Loan growth out paced the growth of deposit sources. To supply the needed
funding, BFC increased its repurchase agreements from $5.6 million in 1996 to
$16.3 million in 1997. BFC actively solicits customer repurchase agreement
accounts. These accounts are considered volatile under regulatory requirements,
although BFC has found them to be a steady source of funding. BFC has also
utilized the Federal Home Loan Bank of Cincinnati ("FHLB") as a borrowing
source. FHLB borrowings declined from $12 million in 1996 to $10 million in
1997, all of which mature during 1998. The FHLB will continue to be a source for
funding loan growth in the future, as management intends to draw additional
borrowings to fund the Curtis Mortgage warehouse line of credit and for other
loan growth.
While more costly than deposit funding, repurchase agreements and FHLB
advances are typically the lowest cost borrowed funds available in the
marketplace, and are utilized by management to raise identified amounts of funds
with more precision than deposit solicitations. Although management expects to
continue using repurchase agreements, short-term borrowings and FHLB advances as
secondary funding sources, core deposits will continue to be BFC's primary
funding source. See further discussion of deposits and borrowings in the
liquidity and interest rate sensitivity sections.
DEPOSIT INFORMATION
(Dollar amounts in thousands)
Deposits at December 31,
------------------------------------
1997 1996 1995
---- ---- ----
Noninterest bearing $ 66,426 $ 47,301 $ 48,938
Interest bearing demand 131,210 120,713 107,482
Savings deposits 15,669 15,468 18,235
Time 181,847 182,869 155,258
-------- -------- --------
Total deposits $395,152 $366,351 $329,913
======== ======== ========
Maturity Ranges of Time Deposits
with Balances of $100 or More at December 31,
--------------------------------------------
1997 1996 1995
---- ---- ----
3 months or less $21,780 $25,681 $19,626
3 through 6 months 11,679 9,058 11,790
6 through 12 months 18,189 15,048 8,928
over 12 months 10,289 5,985 6,937
------- ------- --------
$61,937 $55,772 $47,281
======= ======= =======
Equity and Capital Resources
BFC was classified as "well capitalized" during 1997 and 1996. The
leverage capital ratio increased during both periods, from 8.25% in 1996 to 8.6%
in 1997, with total stockholders' equity of $38.9 million. BFC has issued stock
as a result of the exercise of stock options, conversion of preferred stock to
BFC Common, and a five-for-four common stock split in 1997. During 1996, $4.5
million was raised from sales of BFC Common and $1.8 million was raised from
sales of preferred stock. These stock sales were primarily motivated by the
desire to increase operating capital and to maintain well capitalized levels
while supporting asset growth. To further support equity growth, no cash
dividends were paid on BFC Common.
42
<PAGE>
BFC had three million shares of BFC Common authorized. Authorized shares
were increased to 15 million to accommodate the Merger and the proposed public
offering.
Items that represent common stock equivalents include 218,508 shares of 5%
preferred stock, $5.00 par value per share ("BFC Preferred"), and 172,886 common
stock options outstanding at year-end 1997. BFC Preferred is convertible into
.6175 shares of common stock, adjustable for any subsequent stock splits. There
are one million shares of BFC Preferred authorized; management currently has no
plans to issue additional shares. There are 423,961 additional shares of BFC
Common available for grant under the stock option plan. BFC plans to continue
granting stock options to selected officers, directors and other key employees.
Capital adequacy in the banking industry is evaluated primarily by the use
of three required capital ratios: leverage capital (Tier I capital divided by
average assets less intangible assets and unrealized security gains/losses);
Tier I risk-based capital (Tier I capital divided by risk-weighted assets); and
total risk-based capital (Tier I capital plus Tier II capital divided by
risk-weighted assets). Tier I capital is shareholders' equity less intangible
assets plus/less unrealized losses/gains. Tier II capital consists of the
allowance for loan losses limited to 1.25% of risk-weighted assets. Risk weights
are assigned to on-and off-balance sheet items in arriving at risk-adjusted
total assets. Because BFC's consolidated assets exceed $150 million, BFC is
required to meet the capital regulations on a consolidated basis, and BankFirst
is required to meet the regulations on a bank-only basis.
The regulatory capital ratios for BFC and BankFirst are present in Note 12
to the accompanying consolidated financial statements. BFC meets the
requirements to be considered "well capitalized" under regulatory guidelines.
The Merger with FFBS, if approved, is not expected to affect the capital
category of BFC.
Asset growth is the primary factor which creates a need for capital.
Management's current policy is to retain all earnings in order to increase
capital levels to support growth; therefore, cash dividends on BFC Common have
not been paid. Current common shareholders also have the ability to increase
their investment levels, and have historically demonstrated a willingness to do
so when business conditions warranted such additional investments. Management
also believes that public capital markets could be successfully accessed to meet
BFC's capital needs.
Results of Operations
Net income for 1997 was $4.1 million, representing an 11% increase over
1996. Net income for 1996 was $3.6 million, or 30% higher than 1995, and the
1995 net income was $2.8 million, or 18% higher than 1994. The return on average
assets for 1997 was .91%, slightly lower than .92% in 1996, and up from .78% in
1995. Net income has grown in each of these periods; however, the 1997 growth
rate was lower primary because of the $2.2 million provision for loan losses,
which was $1.7 million higher than the previous year. This variance is further
explained with the discussion about the provision for loan losses.
BFC's basic and dilutive earnings per share remained even from 1995 to
1996, and increased to 1997. Earnings per share were flat during 1996 primarily
due to issuance of additional BFC Common during the year and the 1996 merger.
The difference between basic and dilutive earnings per share was approximately
$.30 for each of the years 1997, 1996 and 1995. The dilution results from the
common stock equivalents from the preferred stock and the stock option plan.
Further dilution is anticipated to occur during 1998 from the additional shares
issued in the public offering.
BFC has paid 5% dividends on its preferred stock in the past, but has
generally not paid cash dividends on BFC Common. Dividends on BFC Common were
paid by Smoky Mountain Bancorp, Inc. before Clayton acquired a controlling
interest. BFC currently does not have plans to pay cash dividends on BFC Common.
43
<PAGE>
Net Interest Income
Net interest income is the difference between interest and fees earned on
earning assets, principally loans and investments, and the interest paid on
deposits and other interest bearing funds. It is the major component of earnings
for a financial institution. For analytical purposes, the interest earned on
loans and investments is measured and expressed on a fully tax equivalent (FTE)
basis. Tax-exempt interest income is increased to an amount comparable to
interest subject to federal income taxes in order to properly evaluate the
effective yields earned on earning assets. The tax equivalent adjustment is
based on a combined federal and state tax rate of 38%.
Net interest income is influenced primarily by market interest rates,
changes in the balance and mix of earning assets and interest-bearing
liabilities, the proportion of earning assets that are funded by demand deposits
and equity capital, and the relative repricing periods for earning assets and
interest-bearing liabilities. Some of these factors are controlled to a certain
extent by management. Conditions beyond management's control may have a
significant impact on changes in net interest income from one period to another.
Examples of such external factors are Federal Reserve Board monetary policy,
introduction of new loan or deposit products by bank and non-bank financial
competitors, and the fiscal and debt management policies of the federal
government.
The following table details the key determinants of net interest income:
the average daily balance sheet for each year (including the components of
earning assets and supporting liabilities), the related interest income on an
FTE basis, interest expense, and the average rates earned and paid on these
assets and liabilities.
44
<PAGE>
AVERAGE BALANCE SHEETS AND INTEREST RATES
(Dollar amounts in thousands)
<TABLE>
<CAPTION>
Years ended December 31,
-----------------------------------------------------------------------------------------------------
1997 1996 1995
--------------------------------- --------------------------------- ------------------------------
Average Average Average Average Average Average
Balance Interest Rate Balance Interest Rate Balance Interest Rate
--------------------------------- --------------------------------- ------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
ASSETS
Interest earning assets
Securities
Taxable $ 69,014 $4,513 6.54% $ 74,769 $ 4,815 6.44% $ 75,103 $4,049 5.39%
Tax-exempt (1) 2,552 196 7.68% 3,883 277 7.13% 4,388 323 7.36%
Unrealized gain on A.F.S. 84 190 374
--------------------------------- -------------------------------- ------------------------------
Total securities 71,650 4,709 6.57% 78,842 5,092 6.46% 79,865 4,372 5.47%
Loans (2) 337,390 32,769 9.71% 284,163 28,227 9.93% 246,805 24,628 9.98%
Federal funds sold and other 3,468 221 6.37% 6,524 370 5.67% 8,888 372 4.19%
--------------------------------- -------------------------------- ------------------------------
Total earning assets 412,508 37,699 9.14% 369,529 33,689 9.12% 335,558 $ 29,372 8.75%
------- ------- -------
Noninterest earning assets
Allowance for loan losses (3,683) (3,500) (3,245)
Premises and equipment 17,019 14,051 14,484
Cash and due from banks 15,088 11,810 11,686
Accrued interest and other
assets 5,592 5,788 5,465
------------ ----------- -----------
Total assets $ 446,524 $ 397,678 $ 363,948
------------ ----------- -----------
LIABILITIES AND
SHAREHOLDERS' EQUITY
Interest-bearing liabilities
Deposits
Interest-bearing demand
deposits 122,730 $4,500 3.67% $ 109,431 $ 4,689 4.28% $ 106,689 $4,345 4.07%
Savings deposits 14,989 387 2.58% 16,173 461 2.85% 18,091 488 2.70%
Time deposits 185,310 10,157 5.48% 169,851 8,958 5.27% 155,498 7,807 5.02%
--------------------------------- --------------------------------- -----------------------------
Total interest-bearing deposits 323,029 15,044 4.66% 295,455 14,108 4.78% 280,278 12,640 4.51%
Borrowed funds
Repurchase agreements 9,110 438 4.81% 7,346 347 4.72% 4,839 276 5.70%
Other borrowings 6,034 350 5.80% 3,823 213 5.57% 3,744 149 3.98%
Long-term borrowings 11,243 642 5.71% 8,385 531 6.33% 5,000 351 7.02%
--------------------------------- --------------------------------- -----------------------------
Total borrowed funds 26,387 1,430 5.42% 19,554 1,091 5.58% 13,583 776 5.71%
--------------------------------- --------------------------------- -----------------------------
Total interest-bearing
liabilities 349,416 16,474 4.71% 315,009 15,199 4.82% 293,861 13,416 4.57%
------------------- ------------------ ---------------
Noninterest-bearing liabilities
Employee stock ownership plan 1,536 1,389 1,710
Noninterest-bearing demand 55,649 48,917 44,008
deposits
Other liabilities 4,480 3,087 3,106
Shareholders' equity 35,443 29,276 21,263
------------ ----------- -----------
Total liabilities and
shareholders' equity $ 446,524 $ 397,678 $ 363,948
------------ ----------- -----------
Interest margin recap
Net interest income and
interest rate spread $21,225 4.43% $ 18,490 4.30% $ 15,956 4.18%
=========== ------- ========= ------- ========= -----
Net interest income margin 5.15% 5.00% 4.76%
======= ======= =====
</TABLE>
(1) Interest income on tax-exempt securities has been adjusted to a tax
equivalent basis using a marginal federal income tax rate of 38% for all
years. Tax equivalent adjustments were $74 for 1997, $105 for 1996, and
$123 for 1995.
(2) Nonaccrual loans are included in average loan balances and loan fees are
included in interest income. Loan fees were $704 for 1997, $987 for 1996,
and $693 for 1995.
45
<PAGE>
An analysis of the changes in net interest income from period to period is
presented in the following table. Information is provided in each category with
respect to (i) changes attributable to changes in volume (changes in volume
multiplied by prior rate), (ii) changes attributable to changes in rate (changes
in rate multiplied by prior volume), and (iii) the net change. The changes
attributable to the combined impact of volume and rate have been allocated
proportionately to the changes due to volume and the changes due to rate.
VOLUME/RATE ANALYSIS
(Dollar amounts in thousands)
<TABLE>
<CAPTION>
1997 change from 1996 due to 1996 change from 1995 due to
---------------------------- ----------------------------
Volume Rate Total Volume Rate Total
------ ---- ----- ------ ---- -----
<S> <C> <C> <C> <C> <C> <C>
Interest income
Loans $ 5,392 $ (850) $ 4,542 $ 3,744 $ (145) $ 3,599
Securities
Taxable (363) 61 (302) (18) 784 766
Tax-exempt (86) 5 (81) (36) (10) (46)
Total securities interest (449) 66 (383) (54) 774 720
Federal funds sold (144) (5) (149) (204) 202 (2)
------- ------- ------- ------- ------- -------
Total interest income 4,799 (789) 4,010 3,486 831 4,317
Interest expense
Interest-bearing demand deposits 607 (796) (189) 114 230 344
Savings deposits (45) (29) (74) (45) 18 (27)
Time deposits 838 361 1,199 744 407 1,151
Repurchase agreements 85 6 91 161 (90) 71
Other borrowings 128 9 137 3 61 64
Long-term borrowings 195 (84) 111 258 (78) 180
------- ------- ------- ------- ------- -------
Total interest expense 1,808 (533) 1,275 1,235 548 1,783
------- ------- ------- ------- ------- -------
Net interest income $ 2,991 $ (256) $ 2,735 $ 2,251 $ 283 $ 2,534
======= ======= ======= ======= ======= =======
</TABLE>
Net interest income (FTE) increased $2.7 million from 1996 to 1997, and
$2.5 million from 1995 to 1996, or approximately 15% each year. Net interest
margin also improved each period, moving from 4.76% in 1995, to 5.00% in 1996
and 5.15% in 1997. The strong increase in net interest income and steady
improvement in net interest margin are primarily attributable to an increase in
the level of earning assets and a change in the makeup of those assets.
Average earning assets increased 11.6% from 1996 to 1997, and 10.1% from
1995 to 1996. This strong growth is a result of management's focus on lending
activities. The pace of growth in loans, 18.7% in 1997 and 15.1% in 1996, drove
the overall growth in earning assets. Management has been able to achieve this
growth in loans because of long term relationships developed by current
management while at other financial institutions, an aggressive calling program,
and opportunities for relationship development arising from the acquisitions of
other community based institutions by banking companies not headquartered in
BankFirst's primary market area. Management expects loan growth to continue,
although the rate of growth recently experienced may not be sustained.
The strong growth in loans has improved the net interest rate spread and
net interest margin. Loans are the highest yielding earning assets. During 1995,
loans represented 73.6% of earning assets. During 1996 this ratio increased to
76.9%, and in 1997 it increased further to 81.8%. So, even though the average
rate earned on loans has decreased in each of the last two years, the yield on
total interest earning assets has increased in each period. The increased yield
on securities has also supported the increase in average yield on earning
assets. While the increase in yield from 1995 to 1996 was consistent with
general market rate increases, in 1997 management engaged an outside
46
<PAGE>
advisor, Martin & Company, with the intent of improving investment yields.
Average yields on investments increased in 1997, while general market rates
declined to some extent.
Net interest income and net interest margin have also been helped by
several factors related to funding. Most importantly, most of BFC's asset growth
has continued to be funded with deposits, the least costly source of funding.
Average interest-bearing deposits grew 9.3% from 1996 to 1997, almost keeping
pace with the growth in earning assets. Even with this strong deposit growth,
the average rate paid on deposits fell from 4.78% in 1996 to 4.66% in 1997. BFC
is generally asset driven, managing funding to support assets gathered.
The portion of assets funded by non-interest bearing deposits, other
liabilities, and equity has increased from 12.4% in 1995, to 14.8% in 1996, to
15.3% in 1997. These sources of funding do not carry an interest cost, and thus
the amount of interest earning assets supported by noninterest-bearing
liabilities has increased. This factor does not impact net interest spread, but
has a positive impact on net interest margin.
The increase in deposits plus non-interest bearing sources of funding has
not quite kept pace with the growth in earning assets. As a result, borrowed
funds have increased from 4.0% of average earning assets in 1995 to 5.3% in 1996
and 6.4% in 1997. These funds are more costly than deposits and their increase
relative to total funding has put some downward pressure on net interest margin
and spread. In 1995, the average cost of borrowing exceeded the average cost of
deposits by 120 basis points ("bp"). In 1996 this fell to 80 bp, and in 1997 it
decreased further to 76 bp. The merger with FFBS may permit BFC to moderate its
use of other borrowed funds.
Provision for Loan Losses and Asset Quality
The provision for loan losses represents charges made to earnings to
maintain an adequate allowance for loan losses. The allowance is maintained at
an amount believed to be sufficient to absorb losses in the loan portfolio.
Factors considered in establishing an appropriate allowance include a careful
assessment of the financial condition of the borrower; a realistic determination
of the value and adequacy of underlying collateral; the condition of the local
economy and the condition of the specific industry of the borrower; a
comprehensive analysis of the levels and trends of loan categories; and a review
of delinquent and classified loans. A monthly analysis of the allowance is
prepared to determine a specific allocation for loans which represent
significant loss exposure and an allocation based on historical loan loss
experience and other factors and trends.
Activity in the allowance for loan losses is reflected in the Analysis of
Allowance for Loan Losses Table. The recorded values of loans actually removed
from the consolidated balance sheets are referred to as charge-offs and, after
netting out recoveries on previously charged-off assets, become net charge-offs.
BankFirst's policy is to charge off loans when, in management's opinion, the
loan is deemed uncollectible, although concerted efforts are made to maximize
recovery. BFC's level of net charge-offs to average loans, .24% in 1997, .12% in
1996, and .10% in 1995, is quite low. Charge-offs have been relatively
immaterial through 1996 and increased to $878 in 1997 substantially due to two
commercial credits.
47
<PAGE>
ANALYSIS OF ALLOWANCE FOR LOAN LOSSES
(Dollar amounts in thousands)
<TABLE>
<CAPTION>
1997 1996 1995 1994 1993
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Balance at beginning of year $ 3,570 $ 3,407 $ 3,282 $ 2,949 $ 2,447
Loans charged off
Commercial, financial, and
agricultural (501) (129) (179) (215) (160)
Commercial real estate (128) -- -- -- --
Real estate-construction -- -- -- -- --
Residential real estate (22) (10) (44) -- --
Installment (213) (300) (177) (73) (69)
Lease financing (14) -- -- -- --
--------- --------- --------- --------- ---------
Total charge-offs (878) (439) (400) (288) (229)
--------- --------- --------- --------- ---------
Charge-offs recovered
Commercial, financial, and
agricultural 30 41 130 102 87
Commercial real estate 2 -- -- -- --
Real estate-construction -- -- -- -- --
Real estate-residential 17 -- -- -- --
Installment 11 44 17 15 20
Lease financing -- -- -- -- --
--------- --------- --------- --------- ---------
Total recoveries 60 85 147 117 107
--------- --------- --------- --------- ---------
Net loans charged off (818) (354) (253) (171) (122)
Current year provision 2,250 517 378 504 624
--------- --------- --------- --------- ---------
Balance at end of year $ 5,002 $ 3,570 $ 3,407 $ 3,282 $ 2,949
========= ========= ========= ========= =========
Loans, net at year end $ 350,566 $ 315,249 $ 253,471 $ 222,504 $ 182,001
Ratio of allowance to loans
at year end 1.43% 1.13% 1.34% 1.48% 1.62%
Average loans $ 337,390 $ 284,163 $ 246,805 $ 205,253 $ 174,211
Ratio of net loans charged off
to average loans 0.24% 0.12% 0.10% 0.08% 0.07%
</TABLE>
The level of non-performing loans is an important element in assessing
asset quality and the relevant risk in the credit portfolio. Non-performing
loans include non-accrual loans, restructured loans and loans delinquent 90 days
or more. Loans are classified as non-accrual when management believes that
collection of interest is doubtful, but for which principal is considered
collectible. Another element associated with asset quality is other real estate
owned (OREO), which represents properties acquired through loan defaults by
customers. The Nonperforming Assets Table presents the amount and type of
non-performing assets from 1993 through 1997. Non-performing loans were higher
in 1997 and 1996 than in previous years; however, were still only .62% of loans
in 1997 and .65% of loans in 1996, which is low compared to the banking industry
in general. The dollar increase during 1997 is due to the maturing portfolio,
and is less attributable to conditions in the marketplace. The allowance for
loan losses is more than double the amount of non-performing loans at year-end
1997. BFC considers commercial loans on nonaccrual or classified as doubtful
under the internal grading system to be impaired. For these loans, a specific
reserve, if any, is computed using discounted expected cash flows or conversion
of collateral. There were no material impaired loans at year-end 1997.
48
<PAGE>
Even though BFC has low levels of non-performing loans and has experienced
low charge-offs, management maintains the allowance for loan losses at a level
adequate to cover credit losses inherent in the portfolio. Management's judgment
as to the adequacy of the allowance is based upon a number of assumptions about
future events which it believes to be reasonable, but are likely to change.
There can be no assurance that charge-offs in future periods will not exceed the
allowance or that additional increases in the allowance will not be required.
During 1997, BankFirst recorded a provision for loan losses of $2.3 million,
which was substantially higher than the two preceding years. This provision
reflects the increased risks associated with the commercial real estate
portfolio acquired in the merger with Smoky Mountain.
NONPERFORMING ASSETS
(Dollar amounts in thousands)
as of December 31,
-----------------------------------------------
1997 1996 1995 1994 1993
---- ---- ---- ---- ----
Principal balance
Nonaccrual $ 642 $ 625 $ 298 $ 568 $ 96
90 days or more past due
and still accruing 1,533 1,423 272 228 125
------ ------ ------ ------ ------
Total nonperforming loans $2,175 $2,048 $ 570 $ 796 $ 221
====== ====== ====== ====== ======
Nonperforming as a percent
of loans 0.62% 0.65% 0.22% 0.36% 0.12%
Other real estate owned $ 500 $ 216 $ 770 $ 317 $ 396
OREO as a percent of loans 0.14% 0.07% 0.30% 0.14% 0.22%
Allowance as a percent of
nonperforming loans 229.98% 174.32% 597.72% 412.31% 1334.39%
The 1997 loan portfolio was 60% commercial and commercial real estate
loans, which represent higher risk than residential mortgage and consumer loans
based on their size and more dependency on cash flow. BankFirst also has a
concentration of commercial real estate loans to the hospitality industry,
substantially in Sevier County, Tennessee. Management has determined that an
allowance level of 1.43% at 1997 is adequate for this risk. Future provisions
for loan losses will be dependent on loan growth, loan mix, portfolio credit
risk and actual losses incurred. Provisions during 1998 are not expected to be
at 1997 levels.
LOAN COMPOSITION AND ALLOWANCE
(Dollar amounts in thousands)
Composition of loan portfolio
by type at December 31,
----------------------------------------------
1997 1996 1995 1994 1993
---- ---- ---- ---- ----
Commercial, financial,
and agricultural 18.70% 15.91% 15.39% 13.93% 12.46%
Commercial real estate 41.24% 44.30% 40.16% 41.08% 43.57%
Real estate-construction 5.15% 6.61% 7.14% 7.51% 5.47%
Residential real estate 23.12% 22.93% 25.50% 25.36% 29.51%
Installment 11.13% 9.74% 11.24% 11.41% 8.63%
Other 0.67% 0.52% 0.57% 0.71% 0.36%
------ ------ ------ ------ ------
Total 100.0% 100.0% 100.0% 100.0% 100.0%
====== ====== ====== ====== ======
49
<PAGE>
Allocation of allowance for loan
losses at December 31,
-----------------------------------------
1997 1996 1995 1994 1993
---- ---- ---- ---- ----
Commercial, financial,
and agricultural $1,078 $ 741 $ 659 $ 589 $ 605
Commercial real estate 1,715 1,304 1,244 1,153 1,048
Real estate-construction 214 260 217 208 132
Residential real estate 666 602 552 481 412
Installment 423 361 332 317 211
Unallocated 906 302 403 534 541
------ ------ ------ ------ ------
Total $5,002 $3,570 $3,407 $3,282 $2,949
====== ====== ====== ====== ======
Noninterest Income and Expense
The following tables reflect the significant components and percent
changes of noninterest income and expense from 1995 through 1997.
NONINTEREST INCOME
(Dollar amounts in thousands)
% change % change
1997 from '96 1996 from '95 1995
---- -------- ---- -------- ----
Noninterest Income
Deposit service charges
and fees $2,640 0.96% $2,615 19.90% $2,181
Other 379 (34.99)% 583 129.53% 254
------ -------- ------ -------- ------
3,019 (5.60)% 3,198 31.33% 2,435
Realized gain on sale
of loans 226 13.57% 199 9.94% 181
Security gains/(losses) 175 100.00% -- (100.00)% 73
------ -------- ------ -------- ------
Total noninterest income $3,420 0.68% $3,397 26.33% $2,689
====== ======== ====== ======== ======
NONINTEREST EXPENSE
(Dollar amounts in thousands)
% change % change
1997 from '96 1996 from '95 1995
---- -------- ---- -------- ----
Noninterest Expense
Salaries and employee
benefits $ 7,986 8.04% $ 7,392 9.58% $ 6,746
Occupancy expenses 1,312 (23.90)% 1,724 50.96% 1,142
Equipment expenses 2,028 7.64% 1,884 55.32% 1,213
Office expenses 625 68.46% 371 (35.59)% 576
Data processing expenses 981 33.47% 735 37.38% 535
FDIC assessments 48 (64.18)% 134 (73.47)% 505
Other 2,804 (11.60)% 3,172 1.41% 3,128
------- ------- ------- -------- -------
Total noninterest
expense $15,784 2.41% $15,412 11.32% $13,845
======= ======= ======= ======== =======
50
<PAGE>
While net interest income is the primary source of income for BFC,
noninterest income is also an important source of income. The primary recurring
source of noninterest income is service charges on deposit accounts. Service
charges on deposit accounts increased .95% from 1996 to 1997, and increased
19.9% from 1995 to 1996.
Another component of noninterest income is gains on sales of securities
and loans. BFC classifies all of its securities as "available for sale," to
maximize its ability to sell securities for interest rate risk management,
income enhancement, etc. Security sales were $13.9 million in 1997, generating
$175,000 in gains. There were no security sales in 1996, and the $73,000
security gains in 1995 were on $8.2 million sales of trading securities.
Management discontinued trading securities during 1995, and current policies do
not permit trading. Gains from loan sales of $226,000 in 1997, $199,000 in 1996,
and $181,000 in 1995 were solely gains realized from sales of mortgage loans
servicing released to private investors. Proceeds from sales of these mortgage
loans were $15.5 million during 1997. BFC generally has not retained mortgage
loans in the portfolio. With the acquisition of Curtis Mortgage, BFC expects to
utilize its various retail locations as a source for expanded mortgage loan
origination volume. Curtis Mortgage, through increased volume, is expected to
provide a significant increase in gains on loan sales as well as enhance
earnings from loan servicing income.
Noninterest expense increased only 2.4% in 1997 from 1996. Increases in
office administration and data processing costs were offset by declines in
occupancy and FDIC assessments. BankFirst's FDIC insurance rate is at the lowest
level charged by the FDIC, which is currently close to zero. Noninterest
expenses increased 11.3% from 1995 to 1996, primarily from occupancy and
equipment expenses, also offset by a decline in FDIC assessments. Future
occupancy expenses are expected in increase as a result from new branch
locations currently being constructed, and the 1997 purchase of additional main
office space. Data processing expenses are expected to increase with growth and
from new software purchased by BankFirst's data processing service bureau. Other
identified contributors to 1998 noninterest expense will be the costs associated
with the proposed merger with FFBS, which are estimated to be $350,000.
Income Taxes
BFC's effective income tax rate was approximately 37% in 1997 and 1996,
and 34% in 1995. The increase from 1995 is primarily due to lower tax exempt
income. BFC had deferred tax liabilities of $295,000 at year-end 1997 and
$227,000 at year-end 1996. Note 9 to the consolidated financial statements
contains additional analysis of income taxes.
Liquidity and Interest Rate Sensitivity
Liquidity. Liquidity management is both a daily and long-term
responsibility of management. BFC adjusts its investments in liquid assets and
long and short term borrowing based upon management's expectations of expected
loan demand, expected deposit flows, and securities sold under agreements to
repurchase (which are generally deposit equivalents arising from a corporate
cash management program offered by BankFirst). Management maintains a liquidity
ratio which, on average, is lower than its peer institutions, because of its
ready access to significant funding sources. Management looks to deposits and
other borrowings as its primary sources of liquidity. The Asset/Liability
Committee evaluates funding sources on a quarterly basis, sets funding policy
and evaluates repricing and maturity of BFC's assets and liabilities in order to
diminish the potential adverse impact that changes in interest rates could have
on BFC's net interest income.
51
<PAGE>
Interest Rate Sensitivity. A key element in the financial performance of
financial institutions is the level and type of interest rate risk assumed. The
single most significant measure of interest rate risk is the relationship of the
repricing periods of earning assets and interest-bearing liabilities. The more
closely the repricing periods are correlated, the less interest rate risk
assumed by BFC. In general, community bank customer preferences tend to push the
average repricing period for interest-bearing liabilities to a shorter time
frame than the average repricing period of earning assets, resulting in a net
liability sensitive position in time frames less than one year. Because most of
BFC's commercial real estate loans are based on the prime rate and can reprice
daily, BFC's asset repricing structure is shorter than most community based
institutions. A summary of BFC's repricing GAP at December 31, 1997 follows:
LIQUIDITY AND INTEREST RATE SENSITIVITY
(Dollar amounts in thousands)
<TABLE>
<CAPTION>
at December 31, 1997
-------------------------------------------------------------
1 - 90 91 - 365 1 - 5 Over 5
Days Days Years Years Total
--------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
Interest earning assets
Loans, net $ 164,234 $ 37,013 $ 119,806 $ 29,513 $ 350,566
Securities available for sale
Taxable 999 7,077 32,903 26,261 67,240
Tax-exempt -- 125 1,254 3,293 4,672
--------- --------- --------- --------- ---------
Total securities 999 7,202 34,157 29,554 71,912
Federal funds sold 7,000 -- -- -- 7,000
--------- --------- --------- --------- ---------
Total interest earning assets $ 172,233 $ 44,215 $ 153,963 $ 59,067 $ 429,478
========= ========= ========= ========= =========
Interest bearing liabilities
Interest-bearing demand deposits $ 131,211 $ -- $ -- $ -- $ 131,211
Savings deposits 15,668 -- -- -- 15,668
Time Deposits 50,967 98,280 32,275 325 181,847
Repurchase agreements and other
borrowed funds 15,553 458 500 -- 16,511
Long-term borrowings -- 10,000 -- -- 10,000
--------- --------- --------- --------- ---------
Total interest bearing liabilities $ 213,399 $ 108,738 $ 32,775 $ 325 $ 355,237
========= ========= ========= ========= =========
Rate sensitive gap (41,166) (64,523) 121,188 58,742 74,241
Rate sensitive cumulative gap (41,166) (105,689) 15,499 74,241
Cumulative gap as a percentage of
earning assets (9.59)% (24.61)% 3.61% 17.29%
</TABLE>
As demonstrated in the table, BFC has a cumulative negative GAP of
approximately 10% and 25% at the end of 90 days and one year, respectively.
Management believes that this level of negative GAP is appropriate since many of
the liabilities which are contractually immediately repricable can be
effectively repriced more slowly than the contractual asset repricing in a
rising rate environment. Conversely, those liabilities can often be repriced
downward more rapidly than contractually required asset repricing in a downward
rate environment. The degree to which management can control the rate of change
in deposit liabilities which are contractually immediately repricable
52
<PAGE>
is affected to a large extent by the speed and amount of interest rate
movements. Management's estimates regarding the actual repricing of
contractually immediately repricable liabilities is incorporated into BFC's
earnings simulation model.
BFC uses an earnings simulation model to analyze net interest income
sensitivity. Potential changes in market interest rates and their subsequent
effect on interest income is then evaluated. The model projects the effect of
instantaneous movements in interest rates of 100 and 200 basis points.
Assumptions based on the historical behavior of BFC's deposit rates and balances
in relation to interest rates are also incorporated in the model. These
assumptions are inherently uncertain and, as a result, the model cannot
precisely measure net interest income or precisely predict the impact of
fluctuations in market interest rates on net interest income. Actual results
will differ from the model's simulated results due to timing, magnitude and
frequency of interest rate changes, as well as changes in market conditions and
the application of various management strategies.
The following table illustrates BFC's estimated annualized earnings
sensitivity profile as of December 31, 1997.
INTEREST RATE SENSITIVITY
(Dollar amounts in thousands)
Decrease in Rates Increase in Rates
----------------- -----------------
200 100 100 200
Basis Basis Level Basis Basis
Points Points Rates Points Points
------ ------ ----- ------ ------
Projected Interest Income
Loans 31,931 34,077 36,223 38,369 40,515
Investments 5,126 5,212 5,297 5,382 5,468
Federal funds sold 16 16 16 16 16
------- ------- ------- ------- -------
Total interest income 37,073 39,305 41,536 43,767 45,999
Projected Interest Expense
Deposits 13,587 14,853 15,989 17,240 18,491
FHLB term advances 554 611 668 725 782
Federal funds purchased 611 818 1,025 1,232 1,439
------- ------- ------- ------- -------
Total interest expense 14,752 16,282 17,682 19,197 20,712
------- ------- ------- ------- -------
Net interest income 22,321 23,023 23,854 24,570 25,287
Change from level rates (1,533) (831) 716 1,433
% change from level rates (6.43)% (3.48)% 3.00% 6.01%
In the event of an immediate 100 bp upward shift in the yield curve,
it is estimated that net interest income would increase by approximately
$700,000 compared to an increase of $1.4 million in the event of a similar 200
bp rate movement. These changes represent 3% and 6% of net interest income,
respectively. Downward rate movements result in estimated decreases in net
interest income of similar amounts and percentages.
Even though BFC's cumulative GAP at one year is negative, the earnings
simulation model indicates that an increase in interest rates of 100 bp and 200
bp would result in increased net interest income. This occurs because
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management believes that if overall market interest rates increase modestly, the
market would not require an immediate, corresponding repricing of non-term
deposit liabilities.
FUNDING USES AND SOURCES
(Dollar amounts in thousands)
<TABLE>
<CAPTION>
1997 1996
-------------------------------- ------------------------------
Average Increase/(decrease) Average Increase/(decrease)
Balance Amount Percent Balance Amount Percent
------- ------ ------- ------- ------ -------
<S> <C> <C> <C> <C> <C> <C>
Funding Uses
Loans, net of unearned
income $337,390 $ 53,227 18.73% $284,163 $ 37,358 15.14%
Taxable securities 69,066 (5,703) (7.63)% 74,769 (334) (0.44)%
Tax exempt securities 2,584 (1,299) (33.45)% 3,883 (505) (11.51)%
Federal funds sold 3,468 (3,056) (46.84)% 6,524 (2,364) (26.60)%
-------- -------- ----- -------- -------- ------
Total Uses $412,508 $ 43,169 11.69% $369,339 $ 34,155 10.19%
======== ======== ====== ======== ======== ======
Funding Sources
Noninterest bearing deposits $ 55,649 $ 6,732 13.76% $ 48,917 $ 4,909 11.15%
Interest bearing demand 122,730 13,299 12.15% 109,431 2,742 2.57%
Savings deposits 14,989 (1,184) (7.32)% 16,173 (1,918) (10.60)%
Time deposits 185,310 15,459 9.10% 169,851 14,353 9.23%
Repurchase agreements 9,110 1,764 24.01% 7,346 2,507 51.81%
Other borrowings 6,034 2,211 57.83% 3,823 79 2.11%
Long-term borrowings 11,243 2,858 34.08% 8,385 3,385 67.70%
-------- -------- ----- -------- -------- ------
Total Sources $405,065 $ 41,139 11.30% $363,926 $ 26,057 7.71%
======== ======== ====== ======== ======== ======
</TABLE>
BFC has demonstrated a consistent ability to raise deposits quickly within
its market area by slightly raising interest rates, and has been able to achieve
deposit growth without paying above market interest rates. The current strategy
calls for BFC to be no higher than second highest in its pricing as compared to
its primary competitors. Deposit growth has funded most of the significant asset
growth in the past several years, but has decreased modestly as a percent of
total funding. BFC does not solicit brokered deposits, but does have more
certificates greater than $100,000 than its peer institutions. Because of the
other sources of liquidity discussed below, management does not consider this to
be a significant liquidity or interest rate risk. BFC does not actively seek out
these deposits, and the average interest rate paid on these deposits is less
than peer. Included in certificates of deposit over $100,000 at year-end 1997
are $9 million in deposits from the State of Tennessee. During 1998, management
intends to reduce this relationship at the pace of $1 million per month,
replacing this financing with other sources of funds.
BFC actively solicits customer cash management and repurchase agreement
accounts. These accounts are considered volatile under regulatory requirements,
although BFC has found them to be a steady source of funding. BFC has been able
to increase customer relationships in this areas because of its strong business
lending program. While more costly than deposit funding, these deposit
equivalents are typically the lowest cost borrowed funds available in the
marketplace.
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Although it had no borrowings of this type outstanding at year-end 1997,
BFC maintains significant federal funds lines of credit with other financial
institutions. At that date total borrowing capacity under those lines amounted
to $31.2 million under agreements with five commercial banks and the FHLB.
Federal funds borrowing are available on demand and reprice on a daily basis.
BFC also has substantial additional borrowing capacity available from the
FHLB. Under the terms of its advances agreement with the FHLB, BFC can borrow
approximately $40 million without purchasing additional FHLB stock. BFC had $10
million in borrowings at year-end 1997.
Another source of liquidity is the sale of equity securities. The primary
shareholders of BFC have historically had an ability and willingness to supply
capital, in the form of both preferred and common stock, when necessary.
Although the primary basis for providing capital is to meet regulatory capital
requirements discussed below (see "Capital Adequacy"), sales of such securities
by the holding company provide additional funds which can be used to finance
activities of either the holding company or the bank. Proceeds from such sales
have exceeded $7.5 million since January 1, 1995.
Sales and maturities of assets are another source of liquidity. Proceeds
from maturities of securities were $24.2 million, $73.4 million, and $36.6
million in 1997, 1996 and 1995, respectively. While management is currently
extending the average maturity of its securities for interest rate risk
purposes, substantial liquidity is available from normal maturities of
securities. BFC also had $72.0 million in securities classified as available for
sale at December 31, 1997. The ability to sell such securities, which are
essentially quite liquid, is another potential source of liquidity, although
management does not use this source of funding frequently. To the extent such
securities are pledged to outstanding borrowings, they are not available for
liquidity purposes. Proceeds from the maturities of loans are another steady
source of funding, although on a net basis the demands for new loans and renewal
have exceeded funds provided by maturing loans. An additional source of
liquidity for BFC is cash generated by operations, which amounted to $10.9
million, $5.5 million, and $4.2 million in 1997, 1996, and 1995, respectively.
LOAN LIQUIDITY
(Dollar amounts in thousands)
Loan Maturities at December 31, 1997
-----------------------------------------
1 year 1 - 5 Over 5
and less years years Total
-------- ----- ----- -----
Commercial, financial, and
agricultural $ 34,973 $ 22,968 $ 7,740 $ 65,681
Commercial real estate 20,452 27,034 97,390 144,876
Real estate - construction
and residential 25,088 36,577 37,652 99,317
Installment and other 10,252 26,104 5,091 41,447
-------- -------- -------- --------
Total selected loans $ 90,765 $112,683 $147,873 $351,321
======== ======== ======== ========
Loans maturing after 1 year with:
Fixed interest rates $120,703
Floating interest rates 139,853
--------
$260,556
========
The liquidity discussion above has described BFC's liquidity needs on a
consolidated basis. In general, the deposit and borrowing capacity described
above is at the bank level, while the equity based sources of funding are at the
holding company level. Substantial liquidity can be moved between the bank and
the holding company, although there are certain regulatory restrictions on such
flows, particularly from the bank to the holding company, as described in note
12 to the financial statements. At year-end 1997, the bank had the ability to
transfer approximately $6.2 million to the holding company without special
regulatory approval. The holding company currently has no borrowings, and
management's current policy is not to pay dividends on BFC Common; rather,
earnings are retained
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to provide capital to support BFC's growth. As a result, the holding company's
independent liquidity needs are only related to holding company only expenses,
which are quite small in relationship to its sources of liquidity.
As of and for the Three Months Ended March 31, 1998
The following section provides additional selected discussion of the
financial condition and results of operations of BFC as of and for the three
months ended March 31, 1998. This discussion should be read in conjunction with
the unaudited consolidated financial statements of BFC.
General. On January 16, 1998, BankFirst acquired a mortgage loan
origination and servicing company, Curtis Mortgage, for $7.5 million in a
purchase transaction. The primary asset acquired included a $451.0 million loan
servicing portfolio with a mortgage servicing right asset valued at $7.0
million. Since Curtis Mortgage does not retain mortgage loans for its portfolio,
the amount of loans in process and loans held for sale at purchase were $6.2
million. The mortgage servicing right assets are being amortized on a
level-yield basis over the life of the underlying mortgage loans, an average
life estimated to be approximately eight years. The excess of the purchase price
over the fair value of net assets acquired resulted in $1.9 million of goodwill,
which is being amortized on a straight-line basis over 15 years.
Financial Position. Total assets grew from $468.8 million at year-end 1997
to $516.8 million at March 31, 1998, a $48.0 million increase. The primary
changes in assets were attributed to a $19.6 million increase in loans held for
sale, a $15.5 million increase in net loans, a $6.9 million of mortgage
servicing assets, and intangible assets recorded from the purchase. For the
period from January 16, 1998 purchase date to March 31, 1998, Curtis Mortgage
purchased and originated $42.9 million of loans held for sale and had sales
totaling $29.8 million. Total intangible assets at march 31, 1998 included
goodwill from the Curtis Mortgage purchase and approximately $200,000 of
intangibles from previous transactions.
Total liabilities grew from $428.3 million at year-end to $475.1 million
at March 31, 1998, an increase of $46.8 million. Of this growth, deposits
accounted for $15 million, federal funds purchased were $14.5 million,
repurchase agreements accounted for $2.9 million and BankFirst borrowed $15
million of overnight FHLB advances. Federal funds purchased and the additional
FHLB advances were used to fund mortgage loans in process and held for sale.
Equity grew $1.1 million primarily from retained net income. The leverage
capital ratio fell from 8.6% at year-end 1997 to 7.8% at March 1998 resulting
from asset growth and goodwill recorded in the purchase transaction. This ratio
still maintains BFC in the well capitalized category.
Results of Operations. Net income from the three months ended March 31,
1998 was $1.2 million versus $1.1 million for the comparable period in 1997.
Interest and fees on loans was $1.3 million higher than the prior year period,
primarily from $30.0 million growth in the loan portfolio. Interest expense on
deposits increased $80,000 from the prior year period also due to an increase in
outstanding deposits. Interest expense on borrowings increased $291,000 from the
prior year period resulting from increases in short-term borrowings associated
with funding mortgage loans in process and held for sale as discussed above.
The largest changes in noninterest expense from the three months ended
March 1998 versus March 1997 is $325,000 of mortgage loan servicing income, net
of amortization, and $154,000 increase in gains on sale of loans associated with
Curtis Mortgage. Noninterest expenses increased $1.2 million from the same
periods, primarily from an $832,000 increase in salaries from additional staff
employed by BFC during its growth and salaries associated with Curtis Mortgage.
The March 1998 period reflects $39,000 of nonrecurring expenses associated with
the merger with FFBS. Other increases in noninterest expense categories were
attributed to growth of BFC.
Year 2000
BFC has implemented plans to address Year 2000 compliance. The issue
arises from the fact that many existing computer programs use only a two digit
field to identify the year. These programs were designed without
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considering the impact once the calendar rolls over to "00". If not corrected,
computer applications could fail or create inaccurate results by or at the Year
2000. BankFirst must not only evaluate and test its own Year 2000 readiness, it
must also coordinate with other entities with which it routinely interacts such
as suppliers, creditors, borrowers, customers, and other financial service
organizations.
BFC has initiated an implementation plan providing for Year 2000 readiness
by the end of 1998. All systems have been identified that directly or indirectly
have Year 2000 risk including the EDP service bureau, payroll, courier, armored
car, and personal computer software. Major borrowers of BankFirst that have Year
2000 exposure are currently being identified and surveyed of their preparedness.
BFC anticipates spending significant internal personnel resources to
become Year 2000 compliant; however, management does not anticipate incurring
significant costs on consulting fees or capital expenditures. BFC estimates that
1998 Year 2000 related expenditures will be $106,000 for systems upgrades,
documentation and training. BankFirst's primary EDP system is provided by an
independent service bureau. The service bureau's software existing at year-end
1997 was not Year 2000 compliant; however, the service bureau has converted to
new software which has been Year 2000 certified. BFC was converted to new
software in April 1998. BFC is in the process of obtaining Year 2000
certification on the remaining supporting operating software.
Effects of Inflation
The accompanying consolidated financial statements have been prepared in
accordance with generally accepted accounting principles, which require the
measurement of financial position and operating results in terms of historical
dollars without considering the change in the relative purchasing power of money
over time due to inflation. The impact of inflation is reflected in the
increased cost of BFC's operations. Nearly all of the assets and liabilities of
BFC are financial, unlike most industrial companies. As a result, BFC's
performance is directly impacted by changes in interest rates, which are
indirectly influenced by inflationary expectations. BFC's ability to match the
interest sensitivity of its financial assets to the interest sensitivity of its
financial liabilities in its asset/liability management may tend to minimize the
effect of change in interest rates on BFC's performance. Changes in interest
rates do not necessarily move to the same extent as changes in the prices of
goods and services.
New Accounting and Reporting Requirements
Statement of Financial Accounting Standards ("SFAS") No. 130, "Reporting
Comprehensive Income." This Statement establishes standards for reporting and
display of comprehensive income and its components (revenues, expenses, gains
and losses) in a full set of general-purpose financial statements. Comprehensive
income is defined as all changes in equity other than those resulting from
investments by owners or distributions to owners. The most common items of other
comprehensive income include unrealized gains or losses on securities available
for sale. This Statement requires that all items that are required to be
recognized under accounting standards as components of comprehensive income be
reported in a financial statement that is displayed with the same prominence as
other financial statements. Statement No. 130 is effective for 1998. The only
item of comprehensive income for BFC is changes in unrealized gains on
securities, which was $493,000 in 1997 and $(518,000) in 1996.
SFAS No. 131, "Disclosures About Segments of an Enterprise and Related
Information." SFAS No. 131 is effective for public companies interim and
year-end financial statements for reporting periods following the first required
full fiscal year disclosure. This Statement establishes new guidance for the way
that public business enterprises report information about operating segments in
annual financial statements and requires that those enterprises report selected
information about reportable operating segments in interim financial reports
issued to shareholders. SFAS No. 131 supersedes the industry approach to segment
disclosures previously required by SFAS No. 14, "Financial Reporting for
Segments of a Business Enterprise", replacing it with a method of segment
reporting which is based on the structure of an enterprise's internal
organization reporting. The Statement also establishes standards for related
disclosures about products and services, geographic areas and major customers.
BankFirst plans to include segment reporting in the year-end 1998 financial
statements.
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FDIC Improvement Act (FDICIA) of 1991. The FDICIA stipulates many
responsibilities of financial institutions, its boards of directors, and
accountants. Many of the provisions have already been effective for BankFirst;
however, there are certain filing requirements which are only applicable to
banks with assets over $500,000. This threshold is measured on an individual
bank basis, not on consolidated assets. BankFirst had total year-end 1997 assets
of $468.8 million and is expected to exceed $500 million during 1998. As a
result, BankFirst will be required to comply with the FDICIA reporting
requirements during 1999.
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BUSINESS OF BFC
General
BFC is a bank holding company which was incorporated in Tennessee in 1988.
Its principal asset is the capital stock of BankFirst. At March 31, 1998 BFC had
total assets of $517 million and stockholders' equity of $40 million. BankFirst,
BFC's wholly-owned subsidiary, is a community bank which provides a variety of
banking and financial services to businesses and individuals. BankFirst's
headquarters is located at 625 Market Street, Knoxville, Tennessee 37902.
BankFirst has 22 additional branch offices and 38 ATMs located in Blount, Knox,
Loudon, Sevier and Jefferson Counties.
BankFirst has two wholly-owned subsidiaries: Eastern Life Insurance
Company ("Eastern") and Curtis Mortgage Company ("Curtis Mortgage"). Eastern is
a credit life, accident and disability reinsurance company, formed in 1993.
BankFirst acquired Curtis for $7.5 million in a cash purchase in early 1998.
Curtis Mortgage is a Tennessee corporation regulated by the TDFI, which both
originates and services mortgages.
Employees
BFC does not have any employees who are not also employees of BankFirst.
As of March 31, 1998, BFC had approximately 258 full-time equivalent employees.
The employees are not represented by a collective bargaining unit. BFC believes
its relationship with its employees to be good.
Customers
It is the opinion of management that there is no single customer or
affiliated group of customers whose deposits, if withdrawn, would have a
materially adverse affect on the business of BFC.
Properties
BFC's principal and executive offices are located at 625 Market Street,
Knoxville, Tennessee 37902. BankFirst currently conducts business at 23 offices.
BFC owns the land and building on which its executive offices are located and
also owns 17 of its branch locations. BFC leases either the land, the building
or both in connection with the operation of its other 5 branch offices.
BankFirst operates eight offices in Knox County:
Market Street Office Farragut Office Knoxville Center Office
625 Market Street 11140 Kingston Pike 3031-A Mall Road North
Knoxville, TN 37902 Knoxville, TN 37922 Knoxville, TN 37924
Bearden Office Halls Office Cedar Bluff Office
4611 Kingston Pike 7108 Maynardville Hwy 330 Cedar Bluff Rd. North
Knoxville, TN 37919 Knoxville, TN 37918 Knoxville, TN 37923
Rocky Hill Office Weisgarber Office
7710 Northshore 1235 Weisgarber Rd.
Knoxville, TN 37902 Knoxville, TN 37909
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Four branches in Loudon County:
Loudon Office Philadelphia Office Tellico Village Office
406 Grove Street 22730 West Lee Hwy 302 Village Square
Loudon, TN 37774 Philadelphia, TN 37846 Loudon, TN 37774
Lenoir City Office
391 Highway 321
Lenoir City, TN 37771
Two branches in Jefferson County:
Jefferson City Office Dandridge Office
263 E. Broadway Blvd. 858 S. Hwy 92
Jefferson City, TN 37760 Dandridge, TN 37725
Six branches in Sevier County:
Gatlinburg Office Dudley Creek Office Pigeon Forge Office
811 Parkway 912 E. Parkway 3416 South River Road
Gatlinburg, TN 37738 Gatlinburg, TN 37738 Pigeon Forge, TN 37863
Sevierville Office Dolly Parton Parkway Office Kodak Office
430 Forks of the River Pkwy 710 Dolly Parton Pkwy 2950 Winfield Dunn Pkwy
Sevierville, TN 37862 Sevierville, TN 37862 Kodak, TN 37764
Three branches in Blount County:
Maryville Office Alcoa Office Seymour Office
710 South Foothills Plaza Dr. 1109 Associates Blvd. 10232 Chapman Hwy
Maryville, TN 37801 Alcoa, TN 37801 Seymour, TN 37865
Legal Proceedings
The nature of its business generates a certain amount of litigation
against BFC and BankFirst involving matters arising in the ordinary course of
business. Other than the ECC litigation, discussed below, none of the legal
proceedings currently pending or threatened to which BFC or BankFirst is a party
or to which any of their properties are subject will have, in the opinion of
management of BFC, a material effect on the business or financial condition of
BFC or BankFirst.
On November 24, 1997, BankFirst filed a lawsuit in the Chancery Court for
Sevier County, Tennessee against Electronic Communications Corporation ("ECC")
and Steve Newland, bearing Case No. 97-11-328 (the "Lawsuit"), which was later
amended to join Paymentech Merchant Services, Inc. ("Paymentech") as a
defendant. The lawsuit alleges that Paymentech made unauthorized and unreported
deletions from wire transfers to BankFirst in the aggregate amount of $544,393.
Paymentech has filed a counterclaim and a cross-claim against ECC in the
lawsuit, alleging that Paymentech inadvertently overpaid BankFirst the total sum
of $3,967,908. On March 18, 1998, the parties reached a partial settlement in
which Paymentech agreed to reduce its counterclaim to $544,393 and BankFirst
agreed to transfer $3,423,515 to Paymentech which had been retained by
BankFirst. With respect to the matters not settled, BFC Management expects to
proceed to trial in 1998. BFC Management has established certain reserves
against possible losses.
Banking
BankFirst conducts its business as a commercial bank, with special
emphasis on retail banking, including the acceptance of checking and savings
deposits and the making of commercial, real estate, personal, home improvement,
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automobile and other installment and term loans. It also offers trusts, notary
public services, safe deposit box rentals, and other customary bank services to
its customers.
Competition
BankFirst has substantial competition in attracting and retaining deposits
and in lending funds. The primary factors in competing for deposits are the
range and quality of financial services offered, the ability to offer attractive
rates, and the availability of convenient office locations. There is direct
competition for deposits from credit unions and commercial banks and savings
institutions. Additional significant competition for savings deposits comes from
other investment alternatives, such as money market mutual funds and corporate
and government securities. The primary factors in competing for loans are the
range and quality of lending services offered, interest rates and loan
origination fees. Competition for the origination of real estate loans normally
comes from other savings and financial institutions, mortgage companies,
commercial banks, credit unions and insurance companies.
Supervision and Regulation
The following summary of statutes and regulations affecting banks and bank
holding companies does not purport to be complete and is qualified in its
entirety by reference to the statutes and regulations described.
Bank Holding Company Act of 1956. BFC is a bank holding company registered
under the provisions of the BHCA, and consequently, will be subject to
examination by the Board of Governors of the Federal Reserve ("FRB").
A bank holding company is required to file with the FRB annual reports and
other information regarding its business operations and those of its
subsidiaries. It is also subject to examination by the FRB and is required to
obtain FRB approval prior to acquiring, directly or indirectly, ownership or
control of any voting shares of any bank, if, after such acquisition, it would
own or control, directly or indirectly, more than 5% of the voting stock of such
bank unless it already owns a majority of the voting stock of such bank.
Furthermore, a bank holding company is, with limited exceptions, prohibited from
acquiring direct or indirect ownership or control of any voting stock of any
company which is not a bank or a bank holding company, and must engage only in
the business of banking or managing or controlling banks or furnishing services
to or performing services for its subsidiary banks. One of the exceptions to
this prohibition is the ownership of shares of a company the activities of which
the FRB has determined to be so closely related to banking or management or
controlling banks as to be proper incident thereto.
A bank holding company and its subsidiaries are also prohibited from
engaging in certain tie-in arrangements in connection with the extension of
credit or provision of any property or service. Thus, an affiliate of a bank
holding company may not extend credit, lease, sell property, or furnish any
services or fix or vary the consideration for these on the condition that the
customer (i) must obtain or provide some additional credit, property, or
services from or to its bank holding company or subsidiaries thereof or (ii)
must not obtain some other credit, property, or services from a competitor,
except to the extent reasonable conditions are imposed to assure the soundness
of the credit extended. Proposals to allow some exceptions to these rules
recently have been enacted, and additional regulatory relief on this issue is
pending.
In approving acquisitions by bank holding companies of banks and companies
engaged in the banking-related activities, the FRB considers a number of
factors, including the expected benefits to the public such as greater
convenience, increased competition, or gains in efficiency, as weighed against
the risks of possible adverse effects such as undue concentration of resources,
decreased or unfair competition, conflicts of interest, or unsound banking
practices. The FRB is also empowered to differentiate between new activities and
activities commenced through the acquisition of a going concern.
The Attorney General of the United States may, within 15 days after
approval of an acquisition by the FRB, bring an action challenging such
acquisition under the federal antitrust laws, in which case the effectiveness of
such approval is stayed pending a final ruling by the courts. Failure of the
Attorney General to challenge an acquisition does not, however, exempt the
holding company from complying with both state and federal antitrust laws after
the
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acquisition is consummated or immunize the acquisition from future challenge
under the anti-monopolization provisions of the Sherman Act.
Tennessee Banking Act; Federal Deposit Insurance Act. BankFirst is
incorporated under the banking laws of the State of Tennessee and, as such, is
subject to the supervision of the TDFI and to regular examination by that
department. BankFirst's deposits are insured by the FDIC through the Bank
Insurance Fund ("BIF"), and, therefore, it is subject to the provisions of the
Federal Deposit Insurance Act ("FDIA") and to examination by the FDIC.
Tennessee statutes and the FDIA regulate a variety of the banking
activities of BankFirst, including required reserves, investments, loans,
mergers and consolidations, issuance of securities, payment of dividends, and
establishment of branches. There are certain limitations under federal and
Tennessee law on the payment of dividends by banks. Under Tennessee law, the
directors of a state bank, after making proper deduction for all expenditures,
expenses, taxes, losses, bad debts, and any write-offs or other deductions
required by the TDFI, may credit net profits to the bank's undivided profits
account, and may quarterly, semi-annually, or annually declare a dividend in
such amount as they shall judge expedient after deducting any net loss from the
undivided profits account and transferring to the bank's surplus account (i) the
amount (if any) required to raise the surplus ("Additional Paid-in-Capital
Account") to 50% of the capital stock and (ii) the amount required (if any), but
not less than 10% of net profits, until the paid-in-surplus account equals the
capital stock account, provided that the bank is adequately reserved against
deposits and such reserves will not be impaired by the declaration of the
dividend.
A state bank, with the approval of the TDFI, may transfer funds from its
surplus account to the undivided profits (retained earnings) account or any part
of its paid-in-capital account. The payment of dividends by any bank is
dependent upon its earnings and financial condition and, in addition to the
limitations referred to above, is subject to the statutory power of certain
federal and state regulatory agencies to act to prevent what they deem unsafe or
unsound banking practices. The payment of dividends could, depending upon the
financial condition of the Bank, be deemed to constitute such an unsafe or
unsound practice. Tennessee law prohibits state banks from paying dividends
other than from undivided profits, and when the surplus account is less than the
capital stock account, imposes certain other restrictions on dividends. The FDIA
prohibits a state bank, the deposits of which are insured by the FDIC, from
paying dividends if it is in default in the payment of any assessments due the
FDIC.
In addition to the foregoing restrictions, the FRB has the power to
prohibit dividends by bank holding companies if their actions constitute unsafe
or unsound practices. The FRB has issued a policy statement on the payment of
cash dividends by bank holding companies which expresses the FRB's view that a
bank holding company experiencing earnings weaknesses should not pay cash
dividends that exceed its net income or that could only be funded in ways that
weaken the bank holding company's financial health, such as by borrowing.
BankFirst is also subject to regulation respecting the maintenance of
certain minimum capital levels, and it will be required to file annual reports
and such additional information as the Tennessee Banking Act and FDIC
regulations require. BankFirst is also subject to certain restrictions on loan
amounts, interest rates, "insider" loans to officers, directors and principal
shareholders, tie-in arrangements, and transactions with affiliates, as well as
many other matters. Strict compliance at all times with state and federal
banking laws will be required.
Tennessee law contains limitations on the interest rates that may be
charged on various types of loans. The operations of banks are also affected by
various consumer laws and regulations, including those relating to equal credit
opportunity and regulation of consumer lending practices. All Tennessee banks
must become and remain insured banks under the FDIA. (See 12 U.S.C. ss. 1811, et
seq.)
There are various legal restrictions on the extent to which BFC and its
nonbank subsidiaries can borrow or otherwise obtain credit from BankFirst. There
are also legal restrictions on BankFirst's (i) purchase of or investment in BFC
securities; (ii) purchase of assets from BFC and its nonbank subsidiaries; (iii)
loans or extensions of credit to third parties collateralized by the securities
or obligations of BFC and its nonbank subsidiaries; (iv) issuance of guaranties,
acceptances and letters of credit on behalf of BFC and its nonbank subsidiaries;
(v) transactions with BFC and its nonbank subsidiaries; and (vi) transactions
with respect to which BFC and its nonbank subsidiaries act as agent, participate
or have a financial interest. Subject to certain limited exceptions, BankFirst
(including for purposes of this
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<PAGE>
paragraph all subsidiaries of such bank) may not extend credit to BFC or to any
other affiliate (other than another bank and certain exempted affiliates) in an
amount which exceeds 10% of BankFirst's capital stock and surplus and may not
extend credit in the aggregate to all such affiliates in an amount which exceeds
20% of its capital stock and surplus. Further, there are legal requirements as
to the type, amount and quality of collateral which must secure such extensions
of credit by BankFirst to BFC or to such other affiliates. Also, extensions of
credit and other transactions between BankFirst and BFC or such other affiliates
must be on terms and under circumstances, including credit standards, that are
substantially the same or at least as favorable to such bank as those prevailing
at the time for comparable transactions with nonaffiliated companies. Also, BFC
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.
The Financial Institutions Reform, Recovery and Enforcement Act of 1989
("FIRREA") provides that a depository institution insured by the FDIC can be
held liable for any loss incurred by, or reasonably expected to be incurred by,
the FDIC after August 9, 1989 in connection with (i) the default of a commonly
controlled FDIC insured depository institution or (ii) any assistance provided
by the FDIC to a commonly controlled FDIC insured depository institution in
danger of default. FIRREA provides that certain types of persons affiliated with
financial institutions can be fined, by the federal regulatory agency having
jurisdiction over a depository institution with federal deposit insurance (such
as BankFirst), up to $1 million per day for each violation of certain
regulations related to transactions with executive officers, directors, and
principal shareholders. Other violations may result in civil money penalties of
$5,000 to $25,000 per day or in criminal fines and penalties. In addition, the
FDIC has been granted enhanced authority to withdraw or to suspend deposit
insurance in certain cases.
The Federal Deposit Insurance Corporation Improvement Act of 1991
("FDICIA") which substantially revised the depository institution regulatory and
funding provisions of the FDIA requires the federal banking regulators to take
"prompt corrective action" with respect to FDIC-insured depository institutions
that do not meet minimum capital requirements. FDICIA establishes five capital
tiers: "well capitalized," "adequately capitalized," "undercapitalized,"
"significantly undercapitalized"and "critically undercapitalized." Under
applicable regulations, a FDIC-insured depository institution is defined to be
well capitalized if it maintains a Leverage Ratio of at least 5%, a risk
adjusted Tier I Capital Ratio of at least 6% and a Total Capital Ratio of at
least 10% and is not subject to a directive, order or written agreement to meet
and maintain specific capital levels. An insured depository institution is
defined to be adequately capitalized if it meets all of its minimum capital
requirements as described above. An insured depository institution will be
considered undercapitalized if it fails to meet any minimum required measure,
significantly undercapitalized if it is significantly below such measure and
critically undercapitalized if it fails to maintain a level of tangible equity
equal to not less than 2% of total assets. An insured depository institution may
be deemed to be in a capitalization category that is lower than is indicated by
its actual capital position if it receives an unsatisfactory examination rating.
FDICIA generally prohibits an FDIC-insured depository institution from
making any capital distribution (including payment of dividends) or paying any
management fee to its holding company if the depository institution would
thereafter be undercapitalized. Undercapitalized depository institutions are
subject to restrictions on borrowing from the Federal Reserve System. In
addition, undercapitalized depository institutions are subject to growth
limitations and are required to submit capital restoration plans. A depository
institution's holding company must guarantee the capital plan, up to an amount
equal to the lesser of 5% of the depository institution's assets at the time it
becomes undercapitalized or the amount of the capital deficiency when the
institution fails to comply with the plan. The federal banking agencies may not
accept a capital plan without determining, among other things, that the plan is
based on realistic assumptions and is likely to succeed in restoring the
depository institution's capital. If a depository institution fails to submit an
acceptable plan, it is treated as if it is significantly undercapitalized.
Significantly undercapitalized depository institutions may be subject to a
number of requirements and restrictions, including orders to sell sufficient
voting stock to become adequately capitalized, requirements to reduce total
assets and cessation of receipt of deposits from correspondent banks. Critically
undercapitalized depository institutions are subject to appointment of a
receiver or conservator.
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<PAGE>
FDICIA contains numerous other provisions, including new accounting, audit
and reporting requirements, termination of the "too big to fail" doctrine except
in special cases, limitations on the FDIC's payment of deposits at foreign
branches, new regulatory standards in such areas as asset quality, earnings and
compensation, and revised regulatory standards for, among other things, powers
of state banks, real estate lending and capital adequacy. FDICIA also requires
that a depository institution provide 90 days prior notice of the closing of any
branches.
Various other legislation, including proposals to revise the bank
regulatory system and to limit or expand the investments that a depository
institution may make with insured funds, is from time to time introduced in
Congress. The TDFI and the FDIC examine the Bank periodically for compliance
with various regulatory requirements. Such examinations, however, are for the
protection of the BIF and for depositors and not for the protection of investors
and shareholders.
Interstate Act. The Reigle-Neal Interstate Banking and Branching
Efficiency Act of 1994 ("Interstate Act") permits (i) bank holding company
acquisitions of banks of a minimum age of up to five years as established by
state law, (ii) mergers of national and state banks across state lines unless
the home state of either bank has opted out of the interstate bank merger
provision, (iii) branching de novo by national and state banks into other states
if the state has opted-in to this provision of the Interstate Act, and (iv)
certain interstate bank agency activities. Regulations have not yet been issued
under the Interstate Act. A bill has been enacted by the Tennessee legislature
which repeals the Tennessee Reciprocal Banking Act, amends the Tennessee Bank
Structure Act of 1974, and amends Tennessee's bank branching laws by opting in
to the Interstate Act. Management cannot predict the extent to which the
business of BankFirst may be affected.
FDIC Insurance Premiums. BankFirst is required to pay semiannual FDIC
deposit insurance assessments to the BIF. As required by FDICIA, the FDIC
adopted a risk-based premium schedule which increased the assessment rates for
most FDIC-insured depository institutions. Under the schedule, the premiums
initially ranged from $.23 to $.31 for every $100 of deposits.
Based upon certain requirements of FDICIA, an institution's premium
assessment is based on the probability that the deposit insurance fund will
incur a loss with respect to the institution, the likely amount of any such
loss, and the revenue needs of the deposit insurance fund. Any change in these
rates and the category of risk into which BankFirst falls could have an adverse
effect on BankFirst's earnings.
Under the FDIA, insurance of deposits may be terminated by the FDIC upon a
finding that the institution has engaged in unsafe and unsound practices, is in
an unsafe or unsound condition to continue operations or has violated any
applicable law, regulation, rule, order or condition imposed by a federal bank
regulatory agency.
The thrift industry is paying a one-time assessment of $4.5 billion to
capitalize the Savings Association Insurance Fund ("SAIF"), and banks bear part
of the cost of the Financing Corporation ("FICO") bonds sold from 1987-89 in an
effort to shore up the former Federal Savings and Loan Insurance Corporation.
BIF-member institutions, such as the BankFirst, will pay one-fifth the rate paid
by SAIF members until January 1, 2000. After such date, BIF and SAIF members
will share the FICO payments on a pro-rata basis.
Capital Requirements. The state and federal regulatory agencies use
capital adequacy guidelines in their examination and regulation of banks. If
capital falls below the minimum levels established by these guidelines, a bank
may be denied approval to acquire or establish additional banks or non-bank
businesses, to open facilities, or may be subject to other regulatory
restrictions or actions.
Banking organizations historically were required to maintain a minimum
ratio of primary capital to total assets of 5.5%, and a minimum ratio of total
capital to total assets of 6.0%. The primary and total capital ratio
requirements have been replaced by the adoption of risk-based and leverage
capital requirements.
Risk-Based Capital Requirements. The risk-based capital guidelines are
designed to make regulatory capital requirements more sensitive to differences
in risk profile among banks to account for off-balance sheet exposure and to
minimize disincentives for holding liquid assets. Assets and off-balance sheet
items are assigned to broad risk
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<PAGE>
categories each with appropriate weights. The resulting capital ratios represent
capital as a percentage of total risk-weighted assets and off-balance sheet
items. The ratios are minimums. The guidelines require all federally regulated
banks to maintain a minimum risk-based total capital ratio of 8%, of which at
least 4% must be Tier I capital (see the description of Tier I capital and Tier
II capital below).
A banking organization's qualifying total capital consists of two
components: Tier I capital (core capital) and Tier II capital (supplementary
capital). Tier I capital is an amount equal to the sum of: (i) common
shareholders' equity (including adjustments for any surplus or deficit); (ii)
non-cumulative perpetual preferred stock; and (iii) the company's minority
interests in the equity accounts of consolidated subsidiaries. Intangible assets
generally must be deducted from Tier I capital, subject to limited exceptions
for goodwill arising from certain supervisory acquisitions. Other intangible
assets may be included in an amount up to 25% of Tier I capital, provided that
the asset meets each of the following criteria: (i) the asset must be able to be
separated and sold apart from the banking organization or the bulk of its
assets; (ii) the market value of the asset must be established on an annual
basis through an identifiable stream of cash flows and there must be a high
degree of certainty that the asset will hold this market value notwithstanding
the future prospects of the banking organization; and (iii) the banking
organization must demonstrate that a liquid market exists for the asset.
Intangible assets in excess of 25% of Tier I capital generally are deducted from
a banking organization's regulatory capital. At least 50% of the banking
organization's total regulatory capital must consist of Tier I capital.
Tier II capital is an amount equal to the sum of (i) the allowance for
possible credit losses in an amount up to 1.25% of risk-weighted assets; (ii)
cumulative perpetual preferred stock with an original maturity of 20 years or
more and related surplus; (iii) hybrid capital instruments (instruments with
characteristics of both debt and equity), perpetual debt and mandatory
convertible debt securities; and (iv) in an amount up to 50% of Tier I capital,
eligible term subordinated debt and intermediate-term preferred stock with an
original maturity of five years or more, including related surplus. The
inclusion of the foregoing elements of Tier II capital are subject to certain
requirements and limitations of the banking regulators.
Investments in unconsolidated banking and finance subsidiaries,
investments in securities subsidiaries and reciprocal holdings of capital
instruments must be deducted from capital. The federal banking regulators may
require other deductions on a case-by-case basis.
Under the risk-weighted capital guidelines, balance sheet assets and
certain off-balance sheet items, such as standby letters of credit, are assigned
to one of four risk weight categories (0%, 20%, 50%, or 100%) according to the
nature of the asset and its collateral or the identity of any obligor or
guarantor. For example, cash is assigned to the 0% risk category, while loans
secured by one-to-four family residences are assigned to the 50% risk category.
The aggregate amount of such asset and off-balance sheet items in each risk
category is adjusted by the risk weight assigned to that category to determine
weighted values, which are added together to determine the total risk-weighted
assets for the banking organization. Accordingly, an asset, such as a commercial
loan, which is assigned to a 100% risk category is included in risk-weighted
assets at its nominal face value, whereas a loan secured by a single-family home
mortgage is included at only 50% of its nominal face value. The application
ratios are equal to capital, as determined, divided by risk-weighted assets, as
determined.
Leverage Capital Requirements. The banking regulators have issued a final
regulation requiring certain banking organizations to maintain additional
capital of 1% to 2% above a 3% minimum Tier I Leverage Capital Ratio (Tier I
capital, less intangible assets, to total assets). In order for an institution
to operate at or near the minimum Tier I leverage capital requirement of 3%, the
banking regulators expect that such institution would have well-diversified
risk, no undue rate risk exposure, excellent asset quality, high liquidity and
good earnings. In general, the bank would have to be considered a strong banking
organization, rated in the highest category under the bank rating system and
have no significant plans for expansion. Higher Tier I leverage capital ratios
of up to 5% will generally be required if all of the above characteristics are
not exhibited, or if the institution is undertaking expansion, seeking to engage
in new activities, or otherwise faces unusual or abnormal risks.
The rule provides that institutions not in compliance with the regulation
are expected to be operating in compliance with a capital plan or agreement with
the regulator. If they do not do so, they are deemed to be engaging
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<PAGE>
in an unsafe and unsound practice and may be subject to enforcement action.
Failure to maintain capital of at least 2% of assets constitutes an unsafe and
unsound practice and may be subject to enforcement action Failure to maintain
capital of at least 2% of assets constitutes an unsafe and unsound condition
justifying termination of FDIC insurance.
Year 2000 Compliance. The Year 2000 poses serious challenges to the
banking industry. Many experts believe that even the most prepared organizations
may encounter some implementation problems. The federal banking agencies are
concerned that financial institutions avoid major disruptions to service and
operations. All banks are required to have an action plan to address Year 2000
issues which must include an indication of management awareness of the problems
and the commitment to solutions, identification of external risks, and
operational issues that are relevant to a bank's Year 2000 planning.
On May 5, 1997, the Federal Financial Institutions Examination Council
("FFIEC") issued a directive to all federally-insured financial institutions
which outlined comprehensive guidance for banks in effecting a Year 2000
complaint system. The FFIEC directive established the following target time
frames to accomplish critical actions concerning Year 2000 compliance:
* By September 30, 1997, all existing banks should have identified
affected applications and databases. Mission critical applications
should be identified and an action plan set for Year 2000 work.
* By December 31, 1998, code enhancements and revisions, hardware
upgrades, and other associated changes should be largely completed
by all banks. In addition, for mission critical applications,
programming changes should be largely completed and testing should
be well underway.
* Between January 1, 1999 and December 31, 1999, banks should be
testing and implementing their Year 2000 conversion programs.
Effect of Governmental Policies
BankFirst's earnings will be affected by the difference between the
interest earned on its loans and investments and the interest paid on its
deposits or other borrowings. The yields on its assets and the rates paid on its
liabilities are sensitive to changes in prevailing market rates of interest.
Thus, the earnings and growth of BankFirst will be influenced by general
economic conditions, fiscal policies of the federal government, and the policies
of regulatory agencies, particularly the FRB, which establishes national
monetary policy. The nature and impact of any future changes in fiscal or
monetary policies cannot be predicted.
Commercial banks are affected by the credit policy of various regulatory
authorities, including the FRB. An important function of the FRB is to regulate
the national supply of bank credit. Among the instruments of monetary policy
used by the FRB to implement these objections are open market operations in U.S.
Government securities, changes in reserve requirements on bank deposits, changes
in the discount rate on bank borrowings, and limitations on interest rates that
banks may pay on time and savings deposits. The FRB uses these means in varying
combinations to influence overall growth of bank loans, investments and
deposits, and also to affect interest rates charged on loans, received on
investments or paid for deposits.
The monetary and fiscal policies of regulatory authorities, including the
FRB, also affect the banking industry. Through changes in the reserve
requirements against bank deposits, open market operations in U.S. Government
securities and changes in the discount rate on bank borrowings, the FRB
influences the cost and availability of funds obtained for lending and
investing. No prediction can be made with respect to possible future changes in
interest rates, deposit levels or loan demand or with respect to the impact of
such changes on the business and earnings of the BankFirst.
From time to time, legislation is enacted which has the effect of
increasing the cost of doing business, limiting or expanding permissible
activities, or affecting the competitive balance between banks and other
financial institutions. For example, the Depository Institutions Deregulation
and Monetary Control Act of 1980 (the "Deregulation Act")
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provided for the phasing out of restrictions on deposit interest rate ceilings,
the authorization of new accounts and related services, and the expansion of the
lending authority of savings and loan associations. The Deregulation Act has
altered, to a certain extent, the competitive relationship that previously
existed among financial institutions, and it may result in a substantial
reduction in the historical distinction between the services offered by banks,
savings and loan associations, and other financial institutions.
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<PAGE>
MANAGEMENT OF BFC
Directors and Executive Officers
The following table provides certain information regarding directors of
BFC.
<TABLE>
<CAPTION>
Director Principal Occupation for
Name Age Positions Since previous 5 years
- ------------------------------- ----- ---------------------------- ------------ -------------------------------
<S> <C> <C> <C>
James L. Clayton 64 Chairman of the Board 1996 Chairman - Clayton Homes, Inc.
Director
Fred R. Lawson 62 President, Director 1996 Bank President
C. Warren Neel 59 Director 1996 Dean - University of Tennessee
School of Business Administration
Charles Earl Ogle, Jr 58 Director 1994 Real Estate Investor
Geoffrey A. Wolpert 42 Director 1990 Restauranteur
</TABLE>
No director is related to any other director. No current director of BFC
is a director or executive officer of another bank holding company, bank,
savings and loan association, or credit union; however, James L. Clayton, C.
Warren Neel and director nominee W. D. Sullins, Jr. serve as directors for
publicly traded companies. Mr. Clayton is on the board of directors of Clayton
Homes, Inc., Dollar General Corporation and Chateau Communities, Inc. Mr. Neel
is a director of Clayton Homes Inc., American Healthcorp, Inc., O'Charley's
Inc., Promus Companies, Inc. and Proffitts, Inc. Mr. Sullins serves on the board
of directors of TLC The Laser Center, Inc.
Directors of BFC are elected annually and each director holds office until
his or her successor is elected and qualified. The following provides certain
information regarding the nominees for election of the BFC Board.
L.A. Walker, Jr., age 62, has been Chairman, Chief Executive Officer and a
director of FFBS since its formation in 1983. Mr. Walker has also served as
Chairman of the Athens board of directors and as Chief Executive Officer of
Athens since 1980.
W.D. Sullins, Jr., age 55, has been a director of FFBS since 1987 and has
been an optometrist in Athens and Madisonville, Tennessee since 1965.
C. Scott Mayfield, Jr., age 47, has been a director of FFBS since 1988 and
has been President of Mayfield's Dairy since 1995, and an executive officer of
Mayfield's Dairy prior to that time.
The following is a brief description of the business experience of the
executive officers of BFC.
Fred R. Lawson. Mr. Lawson is the President of BFC and has been the
President and Chief Executive Officer of BankFirst since 1993. Prior to joining
BankFirst, Mr. Lawson was the President of Bank of East Tennessee, the President
of Blount National Bank and the President of Tennessee National Bancshares.
R. Stephen Hagood. Mr. Hagood joined BankFirst in 1993 as Executive Vice
President. Prior to joining BankFirst, Mr. Hagood was employed by Bank of East
Tennessee as Senior Vice President of Commercial Lending and Mortgage Banking in
Knoxville.
C. David Allen. Mr. Allen joined BankFirst as Vice President in 1990 and
has served as Senior Vice President and Chief Financial Officer since 1993.
Prior to joining BankFirst, Mr. Allen was employed by Third National Bank in
Loudon County as Vice President and Cashier.
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<PAGE>
Jerry L. French. Mr. French joined BankFirst in 1993 as Senior Vice
President of Operations. Prior to joining BankFirst, Mr. French served as
Regional President of Bank of East Tennessee in Hamblen County and Regional Vice
President of the Murfreesboro District of First American Bank.
Leigh G. Sterling. Ms. Sterling joined BankFirst in 1997 as Senior Vice
President of Information Systems. Prior to joining BankFirst, Ms. Sterling
worked as an information systems consultant for three years after serving as
Senior Vice President of Operations and Information Systems at Bank of East
Tennessee in Knoxville.
Sharon O. Woods. Ms. Woods joined BankFirst in 1996 as Senior Vice
President of Marketing, assuming responsibility for Retail Banking in 1997.
Prior to joining BankFirst, Ms. Woods was Vice President and Director of
Marketing for First National Bank of Gatlinburg beginning in 1991.
Directors' Compensation
During 1997, each non-employee director of BFC received $500 per board
meeting attended.
Executive Compensation
The following table sets forth the cash compensation paid by BankFirst for
services rendered in all capacities during the fiscal year ended December 31,
1997 to the President and Chief Executive Officer of BankFirst and each other
executive officer of BankFirst whose annual salary and bonus for such fiscal
year was in excess of $100,000 (each, a "Named Executive Officer"). No
compensation is paid to the officers of BFC for their services to BFC. Neither
BFC nor BankFirst have any employment agreements with their executive officers.
1997 ANNUAL COMPENSATION
<TABLE>
<CAPTION>
Securities
Fiscal Other Annual Underlying All Other
Name Position Salary Bonus Compensation Options(#) Compensation
- ---- -------- ------ ----- ------------ ---------- ------------
<S> <C> <C> <C> <C> <C> <C>
Fred R. Lawson President, Chief Executive $209,349 $25,000 $498,213 (1) 6,875 $4,912 (2)
Officer
R. Stephen Hagood Executive Vice President 110,619 11,000 105,251 (1) 1,250 1,217 (2)
Jerry L. French Senior Vice President of 90,480 10,000 -- 625 2,068 (2)
Operations
</TABLE>
- ----------
(1) Earnings on sale of stock from options exercised in 1997.
(2) Contributions by BankFirst to 401(k) Plan.
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<PAGE>
The following table sets forth certain information with respect to the
grant of stock options under BFC's Option Plans to the named executive officers
for the year ended December 31, 1997.
INDIVIDUAL OPTION GRANTS IN 1997
<TABLE>
<CAPTION>
Number of Percent of Total
Securities Options Granted Exercise
Underlying to Employees of Base Expiration Grant Date
Name Options Granted in Fiscal Year Price ($/Sh) Date Present Value (1)
- ---- ----------------- ---------------- -------------- ----------- ------------------
<S> <C> <C> <C> <C> <C>
Fred R. Lawson 6,250 19.01% $ 38.40 1/25/2007 $ 40,555
625 1.90% 38.40 3/21/2007 11,102
R. Stephen Hagood 1,250 3.80% 38.40 3/21/2007 22,204
Jerry L. French 625 1.90% 38.40 3/21/2007 11,102
</TABLE>
(1) The fair value of the option grants is estimated on the date of the grant
using the Black-Scholes option pricing model with the following assumptions:
risk free interest rate of 6.90% for March 21, 1997 grants and 6.17% for January
25, 1997 grant, and expected years until exercise of nine years and three years,
respectively, based on management's estimate.
The following table sets forth certain information with respect to options
exercised during 1997 and the value of unexercised options held by the Named
Executive Officers of BFC.
AGGREGATED OPTION EXERCISES IN 1997
AND 1997 YEAR END OPTION VALUES
<TABLE>
<CAPTION>
Number of Securities
Underlying Unexercised Value of Unexercised
Number of Options at Fiscal In-the-Money Options
Shares Year-End at Fiscal Year-End
Acquired Value Exercisable/ Exercisable/
Name on Exercise Realized Unexercisable Unexercisable
- ---- ----------- --------- --------------------- ------------------------
<S> <C> <C> <C> <C>
Fred R. Lawson 17,535 $498,213 41,365/27,250 $1,144,196/396,450 (1)
R. Stephen Hagood 3,501 105,021 9,667/2,100 290,411/21,100 (1)
Jerry L. French -- -- 644/1,600 8,265/19,383 (1)
</TABLE>
- ----------
(1) Value based on $50 per share, which is the last known transaction price.
BankFirst's compensation decisions are made by the Executive Committee of
the BankFirst Board of Directors. The Executive Committee is composed of James
L. Clayton, Fred R. Lawson, C. Warren Neel, Charles Earl Ogle, Jr. and Geoffrey
A. Wolpert. The Executive Committee does not use any formal compensation
policies or standards in making its compensation decisions.
Certain Benefit Plans and Agreements
Retirement Plans. BankFirst has a 401(k) profit sharing plan which covers
substantially all employees. Employee contributions are voluntary and employer
contributions are discretionary. Employee contributions are fully vested and
employer contributions are fully vested after five years. Expenses were $135,000
and $75,000 for 1997 and 1996, respectively.
Employee Stock Ownership Plan. BFC has an Employee Stock Ownership Plan
(ESOP) which enables employees who have met minimum service and age requirements
to acquire shares of BFC's common stock. The cost
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of the Plan is borne by BFC through discretionary contributions to an employee
stock ownership trust. Shares of common stock are allocated to each
participating employee and are held in trust until the employee's termination,
retirement or death. BFC made no contribution to the ESOP in 1997. BFC
contributed $30,000 to the ESOP in 1996. No contribution was made to the ESOP in
1995.
Stock Option Plans. As of December 31, 1997, BFC has an incentive stock
option plan for officers, directors and key employees (the "ISO Plan") within
the meaning of Section 422A of the Internal Revenue Code of 1986, as amended.
The ISO Plan was approved by the BFC shareholders on April 27, 1998. A total of
500,000 shares of BFC Common have been reserved for issuance under the ISO Plan.
Under the terms of the ISO Plan, options are granted at market value as
determined by the BFC Board on the date of grant. Options granted under the ISO
are exercisable at the option of the holder upon vesting. Twenty percent of the
shares covered by the option vest on the first anniversary date of the grant of
the option and on each of the next four anniversary dates of the grant of the
option an additional 20% of the covered shares vest. Options under the ISO Plan
expire 10 years from the date of the grant. On January 2, 1988, BFC granted
28,400 shares under the ISO Plan.
BFC has granted stock options under two previous stock option plans dated
March 14, 1995 and October 11, 1995. The exercise price of each option under
each plan is the market value of BFC's common stock on the date of the grant as
determined by the BFC Board. The maximum term of the options under both plans is
10 years from the date of the grant. The options are exercised at the election
of the holder after vesting. The options under the October 11, 1995 plan vest at
an annual rate of 20%. Options granted under the March 14, 1995 plan were
immediately exercisable on issuance. Management does not expect to issue any
additional options under the March 14, 1995 and October 11, 1995 plans.
As of March 31, 1998, BFC had a total of 201,286 outstanding options,
97,628 of which are currently exercisable.
Transactions with Management
BFC has and expects to have in the future banking and other business
transactions in the ordinary course of its banking business with directors,
officers, and 10% beneficial owners of BFC and their affiliates, including
members of their families or corporations, partnerships, or other organizations
in which such officers or directors have a controlling interest, on
substantially the same terms (including price, or interest rates and collateral)
as those prevailing at the time for comparable transactions with unrelated
parties. Any such banking transactions will not involve more than the normal
risk of collectibility nor present other unfavorable features to BFC. As of
March 31, 1998, the amount of these loans (including amounts available under
lines of credit) by BankFirst to BFC affiliates was 1.22% of BankFirst's total
loans.
BFC engaged in certain transactions regarding its Knoxville headquarters
in 1997. BankFirst was a 50% partner in Heritage-Clayton Partnership with CMH
Services, a subsidiary of Clayton Homes, Inc., the purpose of which was to own
and operate the building at 625 Market Street, Knoxville, Tennessee. James L.
Clayton, Chairman of the BFC Board and BFC's majority shareholder, is the
controlling shareholder and Chairman of Clayton Homes, Inc. The Company's main
offices occupy a portion of this building. During 1997, BankFirst purchased CMH
Services' interest in the building at its fair market value of $923,817. The
market value of the building was established by an independent appraisal. The
partnership dissolved upon BankFirst purchase of CMH Services' interest. Clayton
Homes, Inc. will continue to lease eight floors of the building and have
discretionary access to an additional floor through May 31, 1998 at an average
rate of $7.98 per square foot, for a total of $209,568 per year. Management
believes that neither the sale price nor the lease rate is more favorable than
market rates.
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Securities Law Limitations
Insofar as indemnification for liabilities arising under the Securities
Act may be permitted to directors, officers and controlling persons of BFC, BFC
has been advised that, in the opinion of the SEC, such indemnification is
against public policy as expressed in the Securities Act and is, therefore,
unenforceable.
Ownership of BFC Common Stock
As of March 31, 1998, BFC's records indicated the following number of
shares were beneficially owned by (i) all persons who own beneficially 5% or
more of BFC Common; (ii) each person who is a director, a Named Executive
Officer or a director nominee of BFC; and (iii) all directors and executive
officers as a group.
<TABLE>
<CAPTION>
Amount and Nature
of Beneficial Ownership Percent
Name of Beneficial Owner Address of Beneficial Owner (Number of Shares)(1) of Class(2)
- ------------------------ --------------------------- ----------------------- -----------
<S> <C> <C> <C>
James L. Clayton c/o Clayton Homes, Inc. 1,012,261(3) 67.0%
P.O. Box 15169
Knoxville, TN 37901
Fred R. Lawson BankFirst 79,855(4) 5.3%
P. O. Box 10
Knoxville, TN 37901
Charles Earl Ogle, Jr. c/o HMO, Inc./ILM 14,107(5) *
644 Parkway, Suite 1
Gatlinburg, TN 37738
Geoffrey A. Wolpert 1110 Parkway 36,899(6) 3.5%
Gatlinburg, TN 37738
C. Warren Neel University of Tennessee 59,173(7) 3.9%
College of Business Administration
716 Stokely Management Center
Knoxville, TN 37996
R. Stephen Hagood BankFirst 21,510(8) 1.4%
P. O. Box 10
Knoxville, TN 37901
Jerry L. French BankFirst 5,407(9) *
P. O. Box 10
Knoxville, TN 37901
L.A. Walker, Jr. First National Bank & Trust Co. -- --
204 Washington Avenue
Athens, TN 37371
W.D. Sullins, Jr. P.O. Box 666 -- --
Athens, TN 37371-0666
72
<PAGE>
C. Scott Mayfield, Jr. P.O. Box 310 -- --
Athens, TN 37371-0310
Directors and Executive
Officers as a Group (10 1,229,212(10) 81.6%
persons)
</TABLE>
- ----------
* Less than one percent.
(1) Under the rules of the Securities and Exchange Commission, a person is
deemed to be a "beneficial owner" of a security if that person has or
shares "voting power," which includes the power to vote or direct the
voting of such security, or "investment power," which includes the power
to dispose or direct the disposition of such security. A person is also
deemed to be a beneficial owner of any securities of which that person has
the right to acquire beneficial ownership within 60 days. Under these
rules, more than one person may be deemed to be a beneficial owner of the
same securities and a person may be deemed to be a beneficial owner of
securities as to which he has no beneficial interest. For purposes of
calculating the percent of Common Stock beneficially owned, all shares
that are subject to options that are exercisable within 60 days are deemed
to be presently outstanding.
(2) Percentages based on a total class of 1,506,781 shares, including
1,275,893 issued and outstanding shares of BFC Common, 215,805 shares of
convertible preferred stock, which is presently convertible into 133,260
shares of BFC Common, and 97,628 shares of BFC Common for which there are
vested options presently exercisable at the option of the holders.
(3) Includes 12,443 shares owned by Mr. Clayton's sons, daughter-in-law and
grandson, as to which Mr. Clayton disclaims any beneficial interest, and
includes 77,110 shares held in three separate trusts which benefit Mr.
Clayton's family and grandchildren, of which Mr. Clayton's son serve as
trustee, as to which Mr. Clayton also disclaims any beneficial interest.
Also includes 23,366 shares that Mr. Clayton has the right to acquire upon
the conversion of the 37,839 shares of BFC Preferred owned by him, and
includes 5,370 shares that Mr. Clayton's wife and son have the right to
acquire upon conversion of the 8,696 shares of BFC Preferred owned by
them, the latter as to which Mr. Clayton disclaims any beneficial
interest. Also includes 3,866 shares that Mr. Clayton has the right to
purchase upon the exercise of stock options owned by him.
(4) Includes 100 shares owned by Mr. Lawson's wife. Also includes 41,365
shares that Mr. Lawson has the right to purchase upon the exercise of
stock options and 33,524 shares that Mr. Lawson has the right to acquire
upon the conversion of the 54,289 shares of BFC Preferred owned by him.
(5) Includes 10,062 shares owned by Mr. Ogle's father, mother and daughter, as
to which Mr. Ogle disclaims any beneficial interest. Also includes 322
shares owned by ILM Rentals, L.P., in which Mr. Ogle has an ownership
interest, and 1,375 shares that Mr. Ogle has the right to purchase upon
exercise of stock options owned by him.
(6) Includes 34,915 shares in BFC's ESOP, of which Mr. Wolpert serves as one
of three trustees. Also includes 257 shares owned by Steaks, Inc., which
is owned by Mr. Wolpert and 750 shares that he has the right to purchase
upon the exercise of stock options.
(7) Includes 4,160 shares beneficially owned, directly or indirectly, by Mr.
Neel's brothers, as to which Mr. Neel disclaims any beneficial interest.
Also includes 26,811 shares that Mr. Neel has the right to purchase upon
the exercise of stock options owned by hm and 16,762 shares that Mr. Neel
has the right to acquire upon the conversion of the 27,144 shares of BFC
Preferred owned by him.
(8) Includes 9,667 shares that Mr. Hagood has the right to purchase upon the
exercise of stock options owned by him and 6,712 shares that Mr. Hagood
has the right to acquire upon the conversion of the 10,870 shares of BFC
Preferred owned by him.
(9) Includes 644 shares that Mr. French has the right to purchase upon the
exercise of stock options owned by him and 3,338 shares that Mr. French
has the right to acquire upon the conversion of the 5,405 shares of BFC
Preferred owned by him.
(10) Includes beneficial ownership for all directors and officers listed above
and incorporates Notes 3 through 9.
73
<PAGE>
DESCRIPTION OF BFC CAPITAL STOCK
General. The total amount of authorized capital stock of BFC consists of
15,000,000 shares of common stock $2.50 par value per share ("BFC Common") of
which 1,275,893 shares were outstanding as of the BFC Record Date; and 1,000,000
shares of preferred stock, $5.00 par value per share ("BFC Preferred") of which
219,059 shares were outstanding as of the BFC Record Date. The following summary
describes certain material provisions of BFC's stock, but does not purport to be
complete and is subject to and qualified in its entirety by, the Charter and the
Bylaws of BFC that are included as exhibits to the Registration Statement of
which this Joint Proxy Statement/Prospectus forms a part and by the provisions
of applicable law.
Common Stock. The issued and outstanding shares of BFC Common are validly
issued, fully paid and nonassessable. Subject to the prior rights of any BFC
Preferred, the holders of outstanding shares of BFC Common are entitled to
receive ratably dividends out of assets legally available therefor at such times
and in such amounts whether in cash or stock as the BFC Board may from time to
time determine. The declaration and payment of dividends by the BFC Board is
subject to the rules and regulations of the FRB governing the amount of
dividends which may be paid to shareholders, the manner in which dividends are
paid, and the methods, if any, by which capital stock and surplus may be retired
and reduced.
The shares of BFC Common are not redeemable or convertible, and the
holders thereof have no preemptive or subscription rights to purchase any
securities of BFC. Upon liquidation, dissolution or winding up of BFC, the
holders of BFC Common are entitled to receive pro rata the assets of BFC which
are legally available for distribution after payment of all debts and other
liabilities and subject to the prior rights of any holders of BFC Preferred then
outstanding. Each outstanding share of BFC Common is entitled to one vote on all
matters submitted to a vote of shareholders. BFC has applied for quotation of
its BFC Common on the NASDAQ National Market under the symbol "BKFR."
Convertible Preferred Stock. Holders of BFC Preferred may receive
noncumulative dividends at an annual rate of 5% of the initial sale price at the
option of the BFC Board and subject to the rules and regulations of the FRB
regarding dividends. BFC Preferred is convertible at any time at the option of
the holder into BFC Common at a conversion rate of 0.6175 shares of BFC Common
for each share of BFC Preferred. Holders of BFC Preferred have no voting,
redemption, or preemptive rights.
74
<PAGE>
FFBS MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
The following discussion and analysis is presented to facilitate the
understanding of the financial position and results of operations of FFBS. It
identifies trends and material changes that occurred during the reported periods
and should be read in conjunction with the consolidated financial statements and
accompanying notes.
Overview of Operations
FFBS is a community banking organization located in Athens, Tennessee. The
Company is well capitalized, with an equity to assets ratio of 11.55% at year
end 1997. FFBS reported earnings of $2.6 million, or $15.62 per share, in 1997,
an increase of $177,000, or $1.22 per share, reported in 1996. The net increase
in earnings was attributed to an increase in both interest income and
noninterest income which were reduced by the increase in the provision for loan
losses. These components are further discussed below.
The Five-Year Financial Summary Table reflects FFBS' performance in terms
of key industry ratios. The 1997 ratios reflect FFBS' increased earnings and
capital position. The 1997 return on average assets was 1.46%, an increase from
1.41% in 1996. Return on average equity was 12.74%, a decrease from 12.88% in
1996. Average equity to average assets was 11.47%, slightly above the prior
year. The dividend payout ratio was 47.36% in 1997, an increase from 36.81% in
1996. The Board of Directors has elected to retain at least half of the annual
profits to strengthen the capital position.
Assets increased $9.7 million during 1997 primarily as a result of an
increase in the loan portfolio. The loan portfolio grew as a result of better
cash flow management and increased deposits and other borrowings.
FFBS manages its credit risk and interest rate risk, the two most
significant risks in commercial banking. FFBS' credit risk is its most
significant risk because, in recent years, it has experienced higher than
historical average levels of problem loans and loan losses. The current level of
nonperforming loans is higher than previous levels; however, management devotes
significant attention to managing problem loans and minimizing loan losses.
FFBS' interest rate risk exposure is not unlike its community bank peers. FFBS'
asset-liability strategy is based on management's expectations concerning
interest rate movement and a balancing of liquidity flexibility with yield.
75
<PAGE>
FIVE-YEAR FINANCIAL SUMMARY
(Dollar amounts in thousands, except per share data)
<TABLE>
<CAPTION>
For the years ended December 31,
-----------------------------------------------------------------
1997 1996 1995 1994 1993
--------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
Summary of operations
Interest income - tax equivalent $ 14,205 $ 13,638 $ 13,325 $ 11,768 $ 11,373
Interest expense 6,178 6,039 5,666 4,295 4,086
--------- --------- --------- --------- ---------
Net interest income 8,027 7,599 7,659 7,473 7,287
Tax equivalent adjustment (1) (543) (524) (455) (528) (568)
--------- --------- --------- --------- ---------
Net interest income 7,484 7,075 7,204 6,945 6,719
Provision for loan losses (685) (150) (175) (200) (300)
Noninterest income 2,237 1,846 1,680 1,907 1,890
Noninterest expenses 5,539 5,387 5,312 5,056 4,783
--------- --------- --------- --------- ---------
Income before income taxes 3,497 3,384 3,397 3,596 3,526
Income tax expense 935 999 1,043 1,064 1,002
--------- --------- --------- --------- ---------
Net income $ 2,562 $ 2,385 $ 2,354 $ 2,532 $ 2,524
========= ========= ========= ========= =========
Per share data
Basic earnings $ 15.62 $ 14.40 $ 14.15 $ 15.12 $ 15.03
Cash dividends declared $ 7.40 $ 5.30 $ 5.10 $ 5.00 $ 4.75
Average common shares outstanding 163,982 165,660 166,325 167,461 167,949
Selected year-end balances
Total assets $ 181,967 $ 172,291 $ 170,929 $ 162,903 $ 147,073
Earning assets 172,173 162,478 158,147 153,980 138,122
Total securities 56,490 58,933 56,342 63,162 62,124
Loans - net of unearned income 114,401 97,544 97,181 84,401 71,691
Allowance for loan losses 1,096 1,153 1,283 1,244 1,105
Total deposits 154,617 149,988 150,433 145,357 129,492
Long-term borrowings 2,121 154 163 172 180
Shareholders' equity 21,017 19,672 18,436 15,240 15,027
Selected average balances
Total assets $ 175,195 $ 168,938 $ 163,547 $ 153,484 $ 141,893
Earning assets 165,839 159,622 154,061 143,791 132,218
Securities 58,315 58,730 56,429 62,406 58,717
Loans- net of unearned income 104,906 95,767 93,184 77,559 69,220
Allowance for loan losses 1,113 1,302 1,296 1,174 1,049
Total deposits 151,142 148,063 143,782 135,238 125,485
Long-term borrowings 971 159 553 175 78
Shareholders' equity 20,103 18,511 17,019 15,134 14,182
Ratios based on average balances
Loans to deposits 69.41% 64.68% 64.81% 57.35% 55.16%
Equity to assets 11.47% 10.96% 10.41% 9.86% 9.99%
Return on average assets 1.46% 1.41% 1.44% 1.65% 1.78%
Return on average equity 12.74% 12.88% 13.83% 16.73% 17.80%
Dividends as a percent of net income 47.36% 36.81% 36.03% 33.07% 31.61%
</TABLE>
(1) Tax equivalent basis was calculated using a 34% tax rate for all periods
presented.
76
<PAGE>
Net Interest Income
Net interest income is the most significant component of FFBS' earnings.
Net interest income is the excess of interest income earned on assets, such as
loans and securities, over the interest paid for funds to support those assets,
such as deposits and borrowings. Net interest income is affected by volume and
rate of average interest earning assets and interest-bearing liabilities. The
change in net interest income is typically measured by net interest spread and
net interest margin. The interest spread is the difference between the average
yield on interest earning assets and the average cost of interest-bearing
liabilities. The net interest margin is determined by dividing net interest
income by average interest earning assets.
The following table represents the major components of interest earning
assets and interest-bearing liabilities. For analytical purposes, interest
income presented in the table has been adjusted to a tax equivalent basis
assuming a 34% tax rate for all years. The tax equivalent adjustment recognizes
the income tax savings when comparing taxable and tax-exempt assets.
77
<PAGE>
AVERAGE BALANCE SHEETS AND INTEREST RATES
(Dollar amounts in thousands)
<TABLE>
<CAPTION>
Years ended December 31,
-------------------------------------------------------------------------------------------------
1997 1996 1995
--------------------------- --------------------------------- -------------------------------
Average Average Average Average Average Average
Balance Interest Rate Balance Interest Rate Balance Interest Rate
--------------------------- --------------------------------- -------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
ASSETS
Interest earning assets
Securities
Taxable $ 36,166 $ 2,270 6.28% $ 38,651 $ 2,398 6.20% $ 40,739 $ 2,513 6.17%
Tax-exempt (1) 20,776 1,610 7.75% 19,453 1,552 7.98% 15,317 1,338 8.74%
Other 1,169 74 6.33% 972 63 6.48% 785 51 6.50%
Unrealized gain on A.F.S. 204 -- (346) -- (412) --
------------------------- -------------------------------- -----------------------------
Total securities 58,315 3,954 6.78% 58,730 4,013 6.83% 56,429 3,902 6.91%
Loans (2) 104,906 10,112 9.64% 95,767 9,362 9.78% 93,184 9,163 9.83%
Interest-bearing deposits
with other banks 236 15 6.36% 1,180 61 5.17% 1,154 75 6.50%
Federal funds sold and
securities purchased under
agreements to resell 2,382 124 5.21% 3,945 202 5.12% 3,294 185 5.62%
------------------------- -------------------------------- -----------------------------
Total earning assets 165,839 $14,205 8.57% 159,622 $13,638 8.54% 154,061 $13,325 8.65%
=============== =================== ==================
Noninterest earning assets
Allowance for loan losses (1,113) (1,302) (1,296)
Premises and equipment 2,750 2,910 2,911
Cash and due from banks 5,788 6,132 6,305
Accrued interest and other
assets 1,931 1,576 1,566
-------- -------- --------
Total assets $175,195 $168,938 $163,547
======== ======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
Interest-bearing liabilities
Deposits
Interest-bearing demand
deposits $ 19,211 $ 507 2.64% $ 18,617 $ 496 2.66% $ 18,777 $ 521 2.77%
Savings deposits 21,814 647 2.97% 21,682 646 2.98% 23,576 748 3.17%
Time deposits 85,472 4,906 5.74% 84,597 4,847 5.73% 77,142 4,308 5.58%
------------------------- -------------------------------- -----------------------------
Total interest-bearing
deposits 126,497 6,060 4.79% 124,896 5,989 4.80% 119,495 5,577 4.67%
Borrowed funds
Securities sold under
agreement to repurchase -- -- -- -- -- -- -- -- --
Other borrowings 1,139 64 5.62% 887 41 4.62% 930 56 6.02%
Long-term borrowings 971 54 5.56% 159 9 5.66% 553 33 5.97%
------------------------- -------------------------------- -----------------------------
Total borrowed funds 2,110 118 5.59% 1,046 50 4.78% 1,483 89 6.00%
------------------------- -------------------------------- -----------------------------
Total interest-bearing
liabilities 128,607 $ 6,178 4.80% 125,942 $ 6,039 4.80% 120,978 $ 5,666 4.68%
=============== =================== ==================
Noninterest-bearing liabilities
Noninterest-bearing
demand deposits 24,645 23,167 24,287
Other liabilities 1,840 1,318 1,263
Shareholders' equity 20,103 18,511 17,019
-------- -------- --------
Total liabilities and
shareholders' $175,195 $168,938 $163,547
======== ======== ========
Interest margin recap
Net interest income and
interest rate spread $ 8,027 3.76% $ 7,599 3.75% $ 7,659 3.97%
=============== =================== ==================
Net interest income margin 4.84% 4.76% 4.97%
===== ===== =====
</TABLE>
(1) Interest income on tax-exempt securities has been adjusted to a tax
equivalent basis using a marginal federal income tax rate of 34% for all years.
Tax equivalent adjustments were $543 for 1997, $524 for 1996, and $455 for 1995.
(2) Nonaccrual loans are included in average loan balances and loan fees are
included in interest income. Loan fees were $409 for 1997, $340 for 1996, and
$381 for 1995.
78
<PAGE>
The following table depicts the dollar effect of volume of interest
sensitive assets and liabilities and interest rate changes on FFBS' interest
income and interest expense. Information is provided in each category with
respect to changes attributable to changes in volume (changes in volume
multiplied by prior rate), changes attributable to changes in rate (changes in
rate multiplied by old volume), and the net change. Variances which were not
specifically attributable to volume or rate were allocated proportionately
between rate and volume using the absolute values of each for a basis for the
allocation. Nonaccruing loans were included in the average loan balances used in
determining the yields. Interest foregone on nonaccruing loans is disclosed in
Note 3 to the consolidated financial statements, and is not considered to have a
material effect on the reasonableness of these presentations.
VOLUME/RATE ANALYSIS
(Dollar amounts in thousands)
<TABLE>
<CAPTION>
1997 change from 1996 due to 1996 change from 1995 due to
----------------------------------- -----------------------------------
Volume Rate Total Volume Rate Total
--------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
Interest income
Loans $ 904 $ (154) $ 750 $ 255 $ (56) $ 199
Securities
Taxable (152) 24 (128) (128) 13 (115)
Tax-exempt 108 (50) 58 385 (171) 214
Other 13 (2) 11 12 -- 12
Total securities interest (31) (28) (59) 269 (158) 111
Interest-bearing deposits with other banks (33) (13) (46) 2 (16) (14)
Federal funds sold (79) 1 (78) 39 (22) 17
--------- --------- --------- --------- --------- ---------
Total interest income 761 (194) 567 565 (252) 313
--------- --------- --------- --------- --------- ---------
Interest expense
Interest-bearing demand deposits 16 (5) 11 (4) (21) (25)
Savings deposits 4 (3) 1 (45) (57) (102)
Time deposits 50 9 59 425 114 539
Other borrowings 13 10 23 (3) (12) (15)
Long-term borrowings 47 (2) 45 (22) (2) (24)
--------- --------- --------- --------- --------- ---------
Total interest expense 130 9 139 350 23 373
--------- --------- --------- --------- --------- ---------
Net interest income $ 631 $ (203) $ 428 $ 214 $ (274) $ (60)
========= ========= ========= ========= ========= =========
</TABLE>
FFBS' 1997 net interest income margin (tax equivalent) was $8 million, an
increase of $428,000 (5.63%) from 1996. This increase was substantially related
to interest income, which contributed $567,000 to the increase in net interest
income during 1997. The average balance of loans grew $9.1 million at an average
rate decrease of 14 basis points, while the average balance of the securities
portfolio decreased $415,000 and losing 5 basis points on the average rate. The
increase in loans resulted from FFBS' attempts to expand its loan base by using
cash inflows generated by increased deposits, other borrowings and sales or
maturities of securities. Management's goal was to maximize net interest income.
The effect solely of loan volume growth was $904,000, which was partially
reduced by the loan interest rate of ($154,000). Securities, both rate and
volume, contributed ($59,000) to partially offset the loan interest increase.
Interest expense reduced net interest income by ($139,000). The effect of
interest-bearing liability volume was ($130,000). There was no significant
change in the interest rate paid on deposits. The largest change was an increase
in time deposits.
79
<PAGE>
Noninterest Income and Expense
Noninterest income and expense for 1997 and 1996 and percentage change
between such years is included in the following table.
NONINTEREST INCOME & EXPENSE
(Dollar amounts in thousands)
<TABLE>
<CAPTION>
% change % change
1997 from '96 1996 from '95 1995
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
Noninterest Income
Trust Department income $ 622 8.74% $ 572 3.81% $ 551
Service charges and fees 1,171 (0.85)% 1,181 5.07% 1,124
Prepaid pension cost adjustment 222 -- -- -- --
Other 88 12.82% 78 6.85% 73
-------- -------- -------- -------- --------
2,103 14.86% 1,831 4.75% 1,748
Realized gain on sale of loans -- (100.00)% 35 -- --
Security gains/(losses) 134 (770.00)% (20) (70.59)% (68)
-------- -------- -------- -------- --------
Total noninterest income $ 2,237 21.18% $ 1,846 9.88% $ 1,680
======== ======== ======== ======== ========
Noninterest Expense
Salaries and employee benefits $ 3,124 (0.73)% $ 3,147 4.80% $ 3,003
Occupancy expense 404 (0.25)% 405 1.00% 401
Equipment expense 509 2.21)% 498 5.51% 472
Office expense 150 (7.41)% 162 16.55% 139
Data processing fees 272 -- 272 16.24% 234
FDIC assessments -- -- -- (100.00) 160
Other 1,080 19.60% 903 -- 903
-------- -------- -------- -------- --------
Total noninterest expense $ 5,539 2.82% $ 5,387 1.41% $ 5,312
======== ======== ======== ======== ========
</TABLE>
There were no significant variances between 1997 and 1996 in either
noninterest income or expense. The largest changes in 1997 were a pension plan
adjustment of $222,000 for previously unrecorded prepaid pension plan costs and
an increase of $154,000 on the net gain on securities sales. For 1996, the
largest changes were an increase of $83,000 on securities sales gains, an
increase in salaries and employee benefits of $144,000, and a decrease in FDIC
assessments of $160,000.
Income Taxes
FFBS' effective income tax rate was 26.7% in 1997 versus 29.5% in 1996.
The primary cause of the effective tax rate decline was an increase in tax free
securities income. Management evaluates the deferred tax assets and liabilities
each quarter and has determined that no valuation allowance was needed in 1997
or 1996 for any of the deferred tax assets. Note 8 to the consolidated financial
statements contains additional analysis of income taxes.
80
<PAGE>
Loans and Asset Quality
Loans. The loan portfolio constitutes the major earning assets of FFBS,
and offers the best alternative for maximizing interest spread above the cost of
funds. The following table reflects outstanding balances by loan type. FFBS'
lending area is primarily McMinn County, Tennessee. The majority of loans are
secured by specific items of collateral. FFBS' major lending guidelines require
75% loan to value ratio for commercial loans and an 90% loan to value ratio for
loans secured by real estate. FFBS does not have any loan concentration specific
to any industry or individual borrower. There are no loans outstanding to
foreign entities. FFBS does sell residential real estate loans in the secondary
market.
LOANS OUTSTANDING
(Dollar amounts in thousands)
<TABLE>
<CAPTION>
at December 31,
-------------------------------------------------------------
1997 1996 1995 1994 1993
--------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
Commercial, financial, and agricultural $ 29,462 $ 19,328 $ 14,259 $ 26,478 $ 20,697
Real estate-construction 6,895 5,485 3,837 2,609 2,169
Residential real estate 38,908 38,165 43,361 24,683 19,613
Commercial real estate 19,226 15,341 14,139 11,329 11,489
Installment 20,855 19,495 21,955 19,549 18,224
Other 268 395 307 333 287
--------- --------- --------- --------- ---------
Total loans 115,614 98,209 97,858 84,981 72,479
Unearned income (1,213) (665) (677) (580) (788)
--------- --------- --------- --------- ---------
Total loans, net $ 114,401 $ 97,544 $ 97,181 $ 84,401 $ 71,691
========= ========= ========= ========= =========
<CAPTION>
Composition of loan portfolio by type at December 31,
-------------------------------------------------------------
1997 1996 1995 1994 1993
--------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
Commercial, financial, and agricultural 25.48% 19.68% 14.57% 31.16% 28.56%
Real estate-construction 5.96% 5.59% 3.92% 3.07% 2.99%
Residential real estate 33.65% 38.86% 44.31% 29.05% 27.06%
Commercial real estate 16.63% 15.62% 14.45% 13.33% 15.85%
Installment 18.04% 19.85% 22.44% 23.00% 25.14%
Other 0.23% 0.40% 0.31% 0.39% 0.40%
--------- --------- --------- --------- ---------
Total 100.0% 100.0% 100.0% 100.0% 100.0%
========= ========= ========= ========= =========
</TABLE>
FFBS' total loan portfolio increased $16.9 million during 1997, a $10.1
million increase in commercial, financial and agricultural loans, and a $3.9
million increase in commercial real estate loans. Management's strategy was to
increase net interest income by expanding the loan portfolio in the following
loan categories: commercial and financial loans, commercial real estate loans,
real estate construction loans, and consumer installment loans. FFBS' strategy
was to address loan portfolio risk by avoiding industry concentrations, focusing
more on the local market, and to reduce interest rate risk by originating more
variable rate loans.
Loan Liquidity. The Loan Liquidity Table reflects the maturity schedule of
commercial, financial and agricultural loans and each type of real estate loans.
For each of these loan types, the table also reflects the fixed and variable
loans maturing after one year. Real estate loans maturing within one year are
$11.8 million (13% of total), from 1-5 years are $20.7 million (22% of total),
and over 5 years are $32.6 million (34% of total). Commercial, financial and
agricultural loans maturing within one year are $8.6 million (9% of total), from
1-5 years are $14.4 million (15%), and over 5 years are $6.5 million (7%).
Approximately 59% of these loans mature within 5 years.
81
<PAGE>
Selected loans maturing from 1-5 years are 85% fixed rate and 15% variable rate.
Selected loans due after 5 years are 75% variable. During recent years,
management has been focusing on increasing the percentage of variable rate loans
to reduce the amount of interest rate sensitivity to the portfolio.
LOAN LIQUIDITY
(Dollar amounts in thousands)
Loan Maturities at December 31, 1997
--------------------------------------
1 year 1 - 5 Over 5
and less years Years Total
-------- -------- -------- --------
Commercial, financial, and agricultural $ 8,573 $ 14,390 $ 6,499 $ 29,462
Real estate-construction 3,645 1,117 2,133 6,895
Real estate-residential 3,159 7,683 28,066 38,908
Real estate-commercial 4,991 11,867 2,368 19,226
-------- -------- -------- --------
Total selected loans $ 20,368 $ 35,057 $ 39,066 $ 94,491
======== ======== ======== ========
Sensitivity to Changes in Interest Rates
----------------------------------------
Fixed Rate Variable Rate
------------- -------------
Commercial, financial, and agricultural
Due after one year through five years $ 10,573 $ 3,817
Due after five years 1,062 5,437
Real estate-construction
Due after one year through five years 1,117 --
Due after five years 1,950 183
Real estate-residential
Due after one year through five years 7,588 95
Due after five years 4,717 23,349
Real estate-commercial
Due after one year through five years 10,456 1,411
Due after five years 2,087 281
------------- -------------
Total selected loans $ 39,550 $ 34,573
============= =============
Provision and Allowance for Loan Losses. The provision for loan losses
represents charges made to earnings to maintain an adequate allowance for loan
losses. The allowance is maintained at an amount believed to be sufficient to
absorb possible losses that may be experienced in the credit portfolio. Factors
considered in establishing an appropriate allowance include: a careful
assessment of the financial condition of the borrower; a realistic determination
of the value and adequacy of underlying collateral; the condition of the local
economy and the condition of the specific industry of the borrower; a
comprehensive analysis of the levels and trends of loan categories; and a review
of delinquent and classified loans. A quarterly analysis of the allowance is
prepared to determine a specific allocation for loans which represent
significant loss exposure and an allocation based on historical loan loss
experience and other factors and trends.
Activity in the allowance for loan losses is reflected in the following
table. The recorded values of loans actually removed from the consolidated
balance sheets are referred to as charge-offs and, after netting out recoveries
on previously charged-off assets, become net charge-offs. FFBS' policy is to
charge off loans, when, in management's opinion, the loan is deemed
uncollectible, although concerted efforts are made to maximize recovery.
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<PAGE>
ANALYSIS OF ALLOWANCE FOR LOAN LOSSES
(Dollar amounts in thousands)
<TABLE>
<CAPTION>
1997 1996 1995 1994 1993
--------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
Balance at beginning of year $ 1,153 $ 1,283 $ 1,244 $ 1,105 $ 945
Loans charged off
Commercial, financial, and agricultural 578 53 24 19 81
Real estate-construction -- -- -- 45 --
Real estate-residential 54 45 -- 1 61
Real estate-commercial 33 6 -- -- 14
Installment 290 361 277 218 220
--------- --------- --------- --------- ---------
Total charge-offs 955 465 301 283 376
--------- --------- --------- --------- ---------
Charge-offs recovered
Commercial, financial, and agricultural 47 12 16 47 97
Real estate-construction 33 12 -- -- --
Real estate-residential 22 21 13 42 17
Real estate-commercial -- -- -- 7 --
Installment 147 140 136 126 122
--------- --------- --------- --------- ---------
Total recoveries 249 185 165 222 236
--------- --------- --------- --------- ---------
Net loans charged off 706 280 136 61 140
Reclassification to Off-Balance Sheet
Reserve (36) -- -- -- --
Current year provision 685 150 175 200 300
--------- --------- --------- --------- ---------
Balance at end of year $ 1,096 $ 1,153 $ 1,283 $ 1,244 $ 1,105
========= ========= ========= ========= =========
Loans at year end $ 114,401 $ 97,544 $ 97,181 $ 84,401 $ 71,691
Ratio of allowance to loans
at year end 0.96% 1.18% 1.32% 1.47% 1.54%
Average loans $ 104,906 $ 95,767 $ 93,184 $ 7 ,559 $ 69,220
Ratio of net loans charged off
to average loans 0.67% 0.29% 0.15% 0.08% 0.20%
<CAPTION>
Allocation of allowance for loan losses at December 31,
--------------------------------------------------------------
1997 1996 1995 1994 1993
--------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
Commercial, financial, and agricultural $ 153 $ 60 $ 55 $ 28 $ 149
Real estate-construction 30 78 59 65 35
Real estate-residential 173 524 675 582 399
Real estate-commercial 159 62 19 34 113
Installment 563 305 377 447 198
Unallocated 18 124 98 88 211
--------- --------- --------- --------- ---------
Total $ 1,096 $ 1,153 $ 1,283 $ 1,244 $ 1,105
========= ========= ========= ========= =========
</TABLE>
83
<PAGE>
The allowance for loan losses declined $57,000 to $1.1 million in 1997,
and the ratio of the allowance to total loans decreased from 1.18% in 1996 to
0.96% in 1997. The decline in the allowance was primarily due to a larger
provision in 1997, as net charge-offs increased $426,000 from 1996. The increase
in the ratio of net loans charged off to average loans also reflects the
increase in net loans charged off, although average loans increased $9.1 million
from 1996 to 1997. FFBS' allocation of the allowance is consistent with the
institution's loss experience. Approximately 51% and 14% of the allowance is
allocated to the installment loans and commercial, financial and agricultural
loans, respectively. These loan categories represent those loan groups having
the highest risk and highest loss experience. The loss experience on real estate
loan categories has been less and accordingly less allowance has been allocated.
The unallocated allowance allocation is $18,000, or 2%, of the total allowance.
Asset Quality. Loan credit risk is the greatest risk that FFBS faces. FFBS
has had a history of moderate to minor levels of problem loans and loan losses.
Below is a discussion on FFBS' problem loans and losses and the relationship to
the level of the allowance for loan losses discussed above.
The level of nonperforming loans is an important element in assessing
asset quality and the relevant risk in the credit portfolio. Nonperforming loans
include nonaccrual loans and loans delinquent 90 days or more. Loans, including
impaired loans under Statement of Financial Accounting Standard No. 114, are
classified as nonaccrual status generally when they become past due 90 days, or
earlier if management assesses that collection of interest is doubtful, but for
which principal is considered collectible. When loans are placed on nonaccrual
status, all unpaid accrued interest is reversed. These loans are returned to
accrual status only when the borrower demonstrates the ability to remain current
for a sustained period of time. Management permits certain loans to accrue past
90 days if the loan is fully secured and either in the process of being renewed
or submitted for collection. Another element associated with asset quality is
other real estate owned "OREO," which represents properties acquired by FFBS
through loan defaults by customers. OREO balances were not material at FFBS.
Nonperforming assets and relative percentage to loan balances is presented in
the following table.
NONPERFORMING ASSETS
(Dollar amounts in thousands)
<TABLE>
<CAPTION>
as of December 31,
--------------------------------------------------------
1997 1996 1995 1994 1993
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
Principal balance
Nonaccrual $ 499 $ 275 $ 283 $ 303 $ 381
Restructured and Nonaccrual 116 -- -- -- --
90 days or more past due 172 95 189 36 --
-------- -------- -------- -------- --------
Total nonperforming loans $ 787 $ 370 $ 472 $ 339 $ 381
======== ======== ======== ======== ========
Nonperforming as a percent of net
loans 0.69% 0.38% 0.49% 0.41% 0.54%
Other real estate owned $ 378 $ 93 -- -- --
OREO as a percent of loans 0.33% 0.10% -- -- --
Allowance as a percent of
nonperforming loans 139.26% 311.62% 271.82% 366.96% 290.03%
</TABLE>
Nonperforming loans, primarily nonaccrual but including 90 days past due
but still accruing, increased $417,000 from 1996 to $787,000 at year end 1997.
The percentage of nonperforming loans to net loans increased to 0.69% in 1997,
and the allowance as a percent of nonperforming loans decreased to 139% in 1997.
The increase in nonaccrual loans is due to real estate loans ($226,000 increase)
and commercial loans ($125,000 increase). The
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<PAGE>
composition of 1997 nonaccrual loans is one loan greater than $100,000, seven
loans in the range from $25,000 to $99,000, and 20 loans below these levels.
Management believes the allowance for loan losses is maintained at a level
sufficient to cover possible losses in the portfolio and is appropriate given
the level of risk in the portfolio. Management recognizes the level of
nonperforming loans and net charge-offs, and therefore initiates a frequent and
detailed loan loss prevention program. Management conducts a monthly analysis of
the adequacy of the allowance for loan losses including a review of
nonperforming and other potentially problem loans. The allowance analysis is
computed based on specific loss exposures on certain loans and a historical loss
factor based on loss experience. The loss exposure on nonperforming loans is
computed monthly.
Information on impaired loans, loans where management believes there is
doubt as to the full repayment of principal and interest, is presented in the
consolidated financial statements in Note 3. Impaired loans are exclusive of
past due loans, since some past due loans may still be accruing interest.
Impaired loans increased from $275,000 in 1996 to $615,000 in 1997. This
increase is primarily due to an increase in problem loans related to commercial
borrowers which are few in number, but which carry larger balances.
Securities
Securities are classified as "available-for-sale." Available-for-sale
securities are those which FFBS may decide to sell if needed for liquidity,
asset-liability management, or other reasons. Securities available-for-sale are
reported at fair value, with unrealized gains and losses included as a separate
component of equity, net of tax. FFBS does not maintain any held-to-maturity
securities or trading securities.
The following table summarizes the carrying values of securities for 1997,
1996 and 1995, and the maturity distribution at December 31, 1997, by
classification. The investment portfolio consists primarily of obligations of
states and political subdivisions. Year-end securities balances were $56.5
million at 1997, a decrease of $2.4 million from 1996. This decrease
demonstrates management's strategy to increase the net interest income by
investing securities proceeds (received from securities sales or maturities)
into loan portfolio products.
Mortgage-backed securities and collateralized mortgage obligations (or
asset-backed securities) are presented in the maturity table by their stated
maturity dates; however, the industry experience is for these securities to
mature earlier than the stated dates due to accelerated payments and
refinancing.
Note 2 to the consolidated financial statements reflects the gross
unrealized gains and losses in the securities portfolio. Total securities in
1997 were at a net $643,000 unrealized gain, up from a net unrealized gain of
$430,000 in 1996. These trends reflect the impact of the market reaction to
longer term securities in FFBS' portfolio.
While FFBS has been decreasing the available-for-sale securities,
reinvested funds were used to purchase securities with longer maturities in
order to secure higher yields.
FFBS sold $21.6 million available-for-sale securities in 1997 and $13
million in 1996. Net realized gains and losses were immaterial in each year.
The securities portfolio carries varying degrees of risk. Investments in
U.S. Treasury and Federal agency securities have little or no credit risk.
Mortgage-backed and asset-backed securities are substantially issues of Federal
agencies. Obligations of states and political subdivisions represent FFBS'
highest exposure in the portfolio. This risk is minimized through the purchase
of high quality investments. When purchased, obligations of states and political
subdivisions must have a rating of within the top four highest grades as
determined by Moody's or Standard and Poor's. The risk of non-rated municipal
bonds is minimized by limiting the amounts invested, and by investing in
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<PAGE>
local issues. Management believes that the non-rated securities are of a high
quality. FFBS does not use off-balance sheet derivative financial instruments,
such as interest rate swaps.
SECURITIES
(at Market Value - Dollar amounts in thousands)
at December 31,
------------------------------
1997 1996 1995
-------- -------- --------
Securities available-for-sale
U.S. Government & Agencies $ 14,116 $ 18,217 $ 18,878
States and political subdivisions(1) 32,763 20,259 18,615
Mortgage-backed and asset-backed 8,945 19,831 18,260
FHLB and FRB stock 666 626 589
-------- -------- --------
Total securities available-for-sale $ 56,490 $ 58,933 $ 56,342
======== ======== ========
<TABLE>
<CAPTION>
Securities Maturity Schedule
-----------------------------------------------------------------------------------------------------
1 Year and Less 1 to 5 Years 5 to 10 Years Over 10 Years Total
---------------- ---------------- ---------------- ---------------- ----------------
Balance Rate Balance Rate Balance Rate Balance Rate Balance Rate
---------------- ---------------- ---------------- ---------------- ----------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Available-for-sale
U.S. Treasury and Agencies $ 3,988 5.39% $ 9,130 6.26% $ 497 6.16% $ 501 7.06% $ 14,116 5.74%
State and municipal(1)(2) 544 6.76% 3,125 5.35% 12,987 4.77% 16,107 4.81% 32,763 4.86%
Mortgage-backed and asset-
backed -- 436 6.19% 1,885 5.98% 6,624 6.49% 8,945 6.33%
FHLB and FRB stock -- -- -- 666 7.11% 666 7.11%
-------- -------- -------- -------- --------
Total available-for-sale $ 4,532 $ 12,691 $ 15,369 $ 15,369 $ 56,490
======== ======== ======== ======== ========
</TABLE>
(1) Rates on state and municipal securities are not tax equivalent rates.
(2) The aggregate book and market value of securities issued by York County,
South Carolina School District is $3 million, or 14.4%, of stockholders'
equity.
Deposits and Borrowings
Deposits. The deposit base provides the major funding source for earning
assets. A three-year schedule of deposits by type and maturities of time
deposits greater than $100,000 is presented in the following table. Total
deposits have grown from 1996 to 1997, increasing $4.6 million to $154.6 million
in 1997. There were not significant variances in the mix of deposit types,
although $3.6 million of the increase was in time deposits. FFBS competes with
other financial institutions and brokerage institutions for deposits in its
market. FFBS' strategy was to maintain the rate paid on savings and demand
accounts and slightly increase the rates paid on certificates to retain these
balances as they compete in the market.
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<PAGE>
DEPOSIT INFORMATION
(Dollar amounts in thousands)
Deposits at December 31,
--------------------------------------------
1997 1996 1995
-------- -------- --------
Noninterest bearing $ 26,323 $ 26,860 $ 25,387
Interest bearing demand 19,551 18,439 18,076
Savings demand 21,601 21,108 23,272
Time 87,142 83,581 83,698
-------- -------- --------
Total deposits $154,617 $149,988 $150,433
======== ======== ========
Maturity Ranges of Time Deposits
with Balances of $100 or More at December 31,
--------------------------------------------
1997 1996 1995
-------- -------- --------
3 months or less $ 3,906 $ 2,897 $ 5,882
3 through 6 months 2,645 2,124 2,398
6 through 12 months 2,978 4,571 2,939
over 12 months 6,794 4,104 4,415
-------- -------- --------
$ 16,323 $ 13,696 $ 15,634
======== ======== ========
Total time deposits greater than $100,000 increased by $2.6 million during
1997. The growth in time deposits has been primarily in long-term certificates
(those having more than one year maturity).
Borrowings. Other borrowed funds consist of advances from the Federal Home
Loan Bank, federal funds purchased, and the treasury tax and loan note option.
FFBS does not have any securities sold under agreements to repurchase.
In order to promote loan portfolio growth, FFBS borrowed an additional $2
million of advances from the Federal Home Loan Bank in 1997. These additional
advances increased the year-end 1996 advance balance of $154,000 to $2.1 million
in 1997. Information on borrowings is presented in the consolidated financial
statements in Note 7.
Liquidity and Rate Sensitivity
Liquidity management is the process by which FFBS ensures that adequate
liquid funds are available to meet financial commitments on a timely basis.
These commitments include withdrawals by depositors, funding credit obligations
to borrowers, servicing long-term obligations, shareholder dividend payments,
paying operating expenses, funding capital expenditures, and maintaining reserve
requirements. Liquidity is monitored closely by the asset-liability committee,
which establishes policies and rates, makes prudent investing and funds
management decisions, and manages liquidity levels.
The liquidity of FFBS is dependent on the receipt of dividends from the
banking subsidiary. Certain restrictions exist regarding the transfer of funds
from the subsidiary as explained in Note 13 to the consolidated financial
statements. Management expects that in the aggregate, the banking subsidiary
will continue to have the ability to dividend adequate funds to FFBS.
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<PAGE>
FFBS' source of funding is predominantly core deposits consisting of both
business and individual deposits, maturities and sales of securities, repayments
of loan principal and interest, and advances from the Federal Home Loan Bank.
The deposit base is diversified between individuals and businesses which helps
avoid dependence on large concentrations of funds. FFBS does not solicit
certificates of deposits from brokers. The following table details the main
components of cash flows for 1997 and 1996.
FUNDING USES AND SOURCES
(Dollar amounts in thousands)
<TABLE>
<CAPTION>
1997 1996
----------------------------- -----------------------------
Average Increase/(decrease) Average Increase/(decrease)
------------------ ------------------
Balance Amount Percent Balance Amount Percent
-------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
Funding Uses
Loans, net of unearned income $104,906 $ 9,139 9.54% $ 95,767 $ 2,583 2.77%
Taxable securities 36,166 (2,485) (6.43)% 38,651 (2,088) (5.13)%
Tax exempt securities 20,776 1,323 6.80% 19,453 4,136 27.00%
Other 1,169 197 20.27% 972 187 23.82%
Interest bearing deposits in other
banks 236 (944) (80.00)% 1,180 26 2.25%
Federal funds sold and securities
purchased under agreements to
resell 2,382 (1,563) (39.62) 3,945 651 19.76%
-------- -------- ------- -------- -------- -------
Total Uses $165,635 $ 5,667 3.54% $159,968 $ 5,495 3.56%
======== ======== ======= ======== ======== =======
Funding Sources
Noninterest bearing deposits $ 24,645 $ 1,478 6.38% $ 23,167 $ (1,120) (4.61)%
Interest bearing demand and
savings deposits 41,025 726 1.80% 40,299 (2,054) (4.85)%
Time deposits 85,472 875 1.03% 84,597 7,455 9.66%
Other borrowings 1,139 252 28.41% 887 (43) (4.62)%
Long-term borrowings 971 812 510.69% 159 (394) (71.25)%
-------- -------- ------- ------- -------- -------
Total Sources $153,252 $ 4,143 2.78% $149,109 $ 3,844 2.65%
======== ======== ======= ======== ======== =======
</TABLE>
FFBS' primary funding sources during 1997 were loan repayments and
pay-offs, maturities and sales of securities, deposit growth and borrowings.
Primary uses of funding sources during 1997 were a net increase in loans and
purchases of securities.
Interest rate risk is the exposure to FFBS' earnings and capital from
changes in future interest rates. All financial institutions assume interest
rate risk as an integral part of normal operations. Managing and measuring the
interest rate risk is the process that ranges from reducing the exposure of
FFBS' interest margin regarding swings in interest rates to assuring that there
is sufficient capital and liquidity to support future balance sheet growth.
FFBS' interest rate sensitivity position is influenced by the distribution
of interest earning assets and interest-bearing liabilities among the maturity
categories. The following table reflects interest earning assets and
interest-bearing liabilities by maturity distribution. Product lines re-pricing
in time periods predetermined by contractual agreements are included in the
respective maturity categories.
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<PAGE>
LIQUIDITY AND INTEREST RATE SENSITIVITY
(Dollar amounts in thousands)
<TABLE>
<CAPTION>
at December 31, 1997
--------------------------------------------------------
1 - 90 91 - 365 1 - 5 Over 5
Days Days Years Years Total
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
Interest earning assets
Loans $ 22,293 $ 31,901 $ 48,275 $ 11,932 $114,401
Securities available-for-sale
Taxable 1,426 5,125 16,573 576 23,700
Tax-exempt 50 488 3,076 28,533 32,147
-------- -------- -------- -------- --------
Total Securities 1,476 5,613 19,649 29,109 55,847
Other-primarily short-term time deposits
with Federal Home Loan Bank 1,925 -- -- -- 1,925
-------- -------- -------- -------- --------
Total earning assets $ 25,694 $ 37,514 $ 67,924 $ 41,041 $172,173
======== ======== ======== ======== ========
Interest bearing liabilities
Interest-bearing demand deposits $ 19,551 -- -- -- $ 19,551
Savings deposits 21,601 -- -- -- 21,601
Time deposits 16,599 29,748 40,795 -- 87,142
Federal funds purchased 650 -- -- -- 650
Treasury tax and loan note option 1,100 -- -- -- 1,100
Long-term borrowings 25 72 384 1,640 2,121
-------- -------- -------- -------- --------
Total interest bearing liabilities $ 59,526 $ 29,820 $ 41,179 $ 1,640 $132,165
======== ======== ======== ======== ========
Rate sensitive gap $(33,832) $ 7,694 $ 26,745 $ 39,401 $ 40,008
Rate sensitive cumulative gap $(33,832) $(26,138) $ 607 $ 40,008
Cumulative gap as a percentage of earning
assets (131.67)% (69.68)% .89% 97.48%
</TABLE>
The purpose of this GAP chart is to measure interest rate risk utilizing
the re-pricing intervals of interest sensitive assets and liabilities. Rate
sensitive GAPs constantly change as funds are acquired and invested and as rates
change. Rising interest rates are likely to increase net interest income in a
positive GAP position while falling interest rates are beneficial in a negative
GAP position.
FFBS has a negative GAP position for the 1-90 days time period, and a
positive GAP position for all other time periods presented. The Liquidity and
Interest Rate Sensitivity Table places interest-bearing demand and savings
deposits in the shortest maturity category because these liabilities do not have
defined maturities. If these deposits were placed in a maturity distribution
representative of FFBS' deposit base history, the GAP position would increase in
the shortest maturity category, and decrease in both the 1-5 years category and
the over 5 years category. Management feels that funding sources such as
securities and federal funds sold are sufficient to meet any funding uses based
on historical levels and assessment of market demand for loans. Management sets
deposit interest rates competitively to prevent a significant amount of deposits
from withdrawing.
Since most of the assets and liabilities are monetary in nature, inflation
has an effect on financial institutions. Personnel costs, occupancy expenses and
equipment costs all tend to reflect the inflation rate as measured by the
consumer price index. FFBS continues to attempt to offset such increases by
raising noninterest income.
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<PAGE>
Capital Adequacy
Capital adequacy in the banking industry is evaluated primarily by the use
of three required capital ratios: Leverage capital (Tier I capital divided by
average assets less intangible assets and unrealized security gains/losses);
Tier I risk-based capital (Tier I capital divided by risk weighted assets); and
total risk-based capital (Tier I capital plus Tier II capital divided by risk
weighted assets). Tier I capital is shareholders' equity less intangible assets
plus/less unrealized losses/gains. Tier II capital consists of the allowance for
loan losses limited to 1.25% of risk weighted assets. Risk weights are assigned
to on-and off-balance sheet items in arriving at risk-adjusted total assets.
See Note 13 to the consolidated financial statements for details on the
three capital requirements. FFBS meets the well capitalization capital standards
as of year end 1997.
Pending Changes
Statement of Financial Accounting Standards ("SFAS") No. 130, "Reporting
Comprehensive Income." This Statement establishes standards for reporting and
display of comprehensive income and its components (revenues, expenses, gains
and losses) in a full set of general-purpose financial statements. Comprehensive
income is defined as all changes in equity other than those resulting from
investments by owners or distributions to owners. The most common items of other
comprehensive income include unrealized gains or losses on securities available
for sale. This Statement requires that all items that are required to be
recognized under accounting standards as components of comprehensive income be
reported in a financial statement that is displayed with the same prominence as
other financial statements. Statement No. 130 is effective for 1998. The only
item of comprehensive income for FFBS is changes in unrealized gains (losses) on
securities, which was $132,000 in 1997 and ($87,000) in 1996.
As of and for the Three Months Ended March 31, 1998
The following discussion is presented to provide additional information
concerning the consolidated financial condition as of March 31, 1998 and the
consolidated results of operations for the three months ended March 31, 1998 and
1997 for FFBS. This discussion and analysis should be read in conjunction with
the consolidated financial statements where this March 31 information is
presented (unaudited).
Overview of Operations. Net income for the three months ended March 31,
1998 was $471,000, or $2.87 per share compared with $507,000 or $3.09 per share
for the same period in 1997. Two primary factors resulted in this variance.
First, the net interest income increased $167,000 in the current year period as
compared to the prior year period.
The second factor was a $309,000 provision for loan losses recorded in
March 1998, $249,000 more than the previous year provision for the same period.
Due to the increase in loans charged off in the 1998 period, an increase in the
allowance for loan losses was needed in order to maintain the allowance at a
desired level.
Financial Condition. From December 31, 1997 to March 31, 1998 there were
minor declines in loans and securities, while cash and cash equivalents and
deposits reflected a minor increase. Total assets increased $2.6 million during
this period to $184.6 million at March 31, 1998. The changes in assets and
liabilities are consistent with management's strategy as previously discussed.
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<PAGE>
BUSINESS OF FFBS
General
FFBS, incorporated in Tennessee, is a bank holding company that commenced
operations in 1983. Its principal asset is the capital stock of Athens. At March
31, 1998, FFBS had total assets of $185 million and stockholder equity of $22
million. Athens, FFBS' wholly-owned subsidiary, is a nationally chartered
banking corporation. The bank was formed in 1872 and received its national
charter in 1884. Athens provides a variety of banking, financial and trust
services to businesses and individuals. FFBS formed a finance company named
Friendly Finance, Inc. ("Friendly Finance") during 1997, which is a wholly-owned
subsidiary of Athens. Friendly Finance is located at 600 Decatur Pike Plaza,
Athens, Tennessee which facility is leased by Athens.
Employees
As of March 31, 1998, FFBS had approximately 99 full-time equivalent
employees. The employees are not represented by a collective bargaining unit.
FFBS believes its relationship with its employees to be good.
Customers
It is the opinion of management that there is no single customer or
affiliated group of customers whose deposits, if withdrawn, would have a
materially adverse effect on the business of FFBS.
Properties
FFBS has its principal office in its headquarters building at 204
Washington Avenue, Athens, Tennessee, which is owned by Athens. Athens owns or
leases the following properties in which it operates five branches, an
operations center, and Friendly Finance.
<TABLE>
<CAPTION>
Description Address Term Extensions Square Footage
- ----------- ------- ---- ---------- --------------
<S> <C> <C> <C> <C>
Operations 3 South Hill Street 2/1/94 - 1/31/99 2 additional 5-year 20,500
Center Madison Park Center terms
Athens, TN 37371-
0110
Branch 1604 Decatur Pike 3/27/90 - 11/20/2003 3 additional 3-year (Land Lease)
Athens, TN 37303-2424 terms
Branch 601 Tennessee Avenue Own ------ ------
Etowah, TN 37331
Branch 3099 U.S. Highway 11 Own ------ ------
Calhoun, TN 37309
Branch 111 South Niota Road Own ------ 10,368
Englewood, TN 37329 12/29/89 - 12/31/99 (Land Lease
on parking lot lease for parking lot)
Branch 3809 U.S. Highway Own ------ ------
South
Riceville, TN 37370
Friendly 600 Decatur Pike Plaza 7/3/97 - 7/13/99 2 additional 2-year 1,350
Finance, Inc. Athens, TN 37303 terms
</TABLE>
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<PAGE>
Athens operates six automatic teller machines as follows:
Location Own/Lease Property
-------- ------------------
204 Washington Own
Athens, TN 37303
1604 Decatur Pike Own
Athens, TN 37303
601 Tennessee Avenue Own
Etowah, TN 37331
Walmart Store Lease
1610 Congress Parkway
Athens, TN 37303
BP/Blimpie Subs Lease
947 Congress Parkway
Athens, TN 37303
Phillips 66/Blimpie Subs Lease
1430 Murray's Chapel
Sweetwater, TN 37874
Legal Proceedings
The nature of its business generates a certain amount of litigation
against FFBS and Athens involving matters arising in the ordinary course of
business. None of the legal proceedings currently pending or threatened to which
FFBS or Athens is a party or to which any of their properties are subject will
have, in the opinion of management of FFBS, a material effect on the business or
financial condition of FFBS or Athens.
Banking
Athens conducts its business as a commercial bank, with special emphasis
in retail banking, including the acceptance of checking and savings deposits,
and the making of commercial, real estate, personal, home improvement,
automobile and other installment and term loans. It also offers trusts, notary
public services and other customary bank services to its customers.
Competition
All phases of FFBS' banking activities are highly competitive. Athens
competes actively with seven commercial banks and savings associations, as well
as finance companies, credit unions and other financial institutions located in
its service area, which includes McMinn County in Tennessee.
Executive Compensation
L.A. Walker, Jr. is the Chairman of the Board and Chief Executive Officer
of Athens. For his services to Athens in 1997, Mr. Walker received a salary of
$115,050 and a bonus of $30,856. Neither FFBS nor Athens have an employment
agreement with Mr. Walker or any other executive officer.
Supervision and Regulation
FFBS is a bank holding company within the meaning of the federal Bank
Holding Company Act of 1956, as amended (the "Act"), and is registered with the
Board of Governors of the Federal Reserve System (the "Board").
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<PAGE>
FFBS is required to file with the Board annual reports and such additional
information as the Board may require pursuant to the Act. The Board may also
make examinations of FFBS and its subsidiaries. The following summary of the Act
and of the other acts described herein is qualified in its entirety by express
reference to each of the particular acts.
The Act requires every bank holding company to obtain the prior approval
of the Board before acquiring direct or indirect ownership or control of more
than 5% of the voting shares of any bank which is not majority owned by the bank
holding company. The Act prohibits a bank holding company, with certain
exceptions, from acquiring direct or indirect ownership or control of more than
5% of the outstanding voting shares of any company which is not a bank and from
engaging in any business other than banking or furnishing services to or
performing services for its subsidiaries. The 5% limitation is not applicable to
ownership of shares in any company the activities of which the Board has
determined to be so closely related to banking or managing or controlling banks
as to be a proper incident thereto.
Athens and Friendly Finance, Inc. are "affiliates" of FFBS within the
meaning of the Federal Reserve Act. This act places restrictions on a bank's
loans or extensions of credit to, purchases of or investments in the securities
of, and purchases of assets from an affiliate, a bank's loans or extensions of
credit to third parties collateralized by the securities or obligations of an
affiliate, the issuance of guarantees, acceptances, and letters of credit on
behalf of an affiliate, and certain bank transactions with an affiliate, or with
respect to which an affiliate acts as agent, participates, or has a financial
interest. Furthermore, a bank holding company and its subsidiaries are
prohibited from engaging in certain tie-in arrangements in connection with any
extension of credit, lease or sale of property or furnishing of services.
Under Board policy, FFBS is expected to act as a source of financial
strength to its subsidiary bank and to commit resources to support its bank
subsidiary. This support may be required at times when, absent such Board
policy, FFBS 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 (i) the default of a commonly controlled FDIC-insured depository
institution or (ii) any assistance provided by the FDIC to any commonly
controlled FDIC-insured depository institution "in danger of default." "Default"
is defined generally as the appointment of a conservator or receiver and "in
danger of default" is defined generally as the existence of certain conditions
indicating that a default is likely to occur in the absence of regulatory
assistance. Under FDICIA (see discussion below) a bank holding company may be
required to guarantee the capital plan of an undercapitalized depository
institution. Any capital loans by a bank holding company to any of its
subsidiary banks are subordinate in right of payment to deposits and to certain
other indebtedness of such subsidiary bank. In the event of a bank holding
company's bankruptcy, any commitment by the bank holding company to a federal
bank regulatory agency to maintain the capital of a subsidiary bank will be
assumed by the bankruptcy trustee and entitled to a priority of payment.
Athens is a nationally chartered bank and is subject to examination and
regulation by the OCC. Friendly Finance, Inc. is a state-chartered industrial
loan and thrift company and is subject to examination and regulation by the
TDFI.
The operation of Athens is subject to state and federal statutes
applicable to national banks and the regulations of the OCC and the FDIC. Such
statutes and regulations relate to required reserves, investments, loans,
mergers and consolidations, issuances of securities, payment of dividends,
establishment of branches and other aspects of Athens' operations.
Athens is also subject to the provisions of the Community Reinvestment Act
of 1977, which requires the OCC, in connection with its regular examination of
the bank, to assess Athens' record in meeting the credit needs of the
communities served by Athens, including low- and moderate-income neighborhoods.
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Capital Requirements. The OCC's minimum capital standards applicable to
national banks require the most highly-rated institutions to meet a Tier I
leverage capital ratio of at least 3.0% of total assets. Tier I (or "core
capital") consists of common stockholders' equity, noncumulative perpetual
preferred stock and minority interests in consolidated subsidiaries minus all
intangible assets other than limited amounts of purchased mortgage servicing
rights and certain other accounting adjustments. All other banks must have a
Tier I leverage ratio of at least 100-200 basis points above the 3% minimum. The
OCC capital regulations establish a minimum leverage ratio of not less than 4%
for banks that are not highly rated or are anticipating or experiencing
significant growth.
OCC capital regulations require higher capital levels for banks which
exhibit more than a moderate degree of risk or exhibit other characteristics
which necessitate that higher than minimum levels of capital be maintained. Any
insured bank with a Tier I capital to total assets ratio of less than 2% is
deemed to be operating in an unsafe and unsound condition pursuant to Section
8(a) of the FDIA unless the insured bank enters into a written agreement, to
which the FDIC is a party, to correct its capital deficiency. Insured banks
operating with Tier I capital levels below 2% (and which have not entered into a
written agreement) are subject to an insurance removal action. Insured banks
operating with lower than the prescribed minimum capital levels generally will
not receive approval of applications submitted to the FDIC. Also, inadequately
capitalized national banks will be subject to such administrative action as the
FDIC deems necessary.
OCC regulations also require that banks meet a risk-based capital
standard. The risk-based capital standard requires the maintenance of total
capital (which is defined as Tier I capital and Tier II or supplementary
capital) to risk weighted assets of 8% and Tier I capital to risk-weighted
assets of 4%. In determining the amount of risk-weighted assets, all assets,
plus certain off balance sheet items, are multiplied by a risk-weight of 0% to
100%, based on the risks the OCC believes are inherent in the type of asset or
item. The components of Tier I capital are equivalent to those discussed above
under the 3% leverage requirement. The components of mandatory convertible
securities, term subordinated debt, intermediate-term preferred stock and
allowance for possible loan and lease losses. Allowance for possible loan and
lease losses includable in supplementary capital is limited to a maximum of
1.25% of risk-weighted assets. Overall, the amount of capital counted toward
supplementary capital cannot exceed 100% of Tier I capital. The OCC includes in
its evaluation of a bank's capital adequacy an assessment of risk-based capital
focussing principally on broad categories of credit risk. No measurement
framework for assessing the level of a bank's interest rate risk exposure has
been codified but, effective board and senior management oversight of the banks
tolerance for interest rate risk is required.
The OCC has adopted the Federal Financial Institutions Examination
Council's recommendation regarding the adoption of Statement of Financial
Accounting Standard No. 115, "Accounting for Certain Investments in Debt and
Equity Securities." Specifically, the agencies determined that net unrealized
holding gains or losses on available for sale debt and equity securities should
not be included when calculating core and risk-based capital ratios.
OCC capital requirements are designated as the minimum acceptable
standards for banks whose overall financial condition is fundamentally sound,
which are well-managed and have no material or significant financial weakness.
The OCC capital regulations state that, where the OCC determines that the
financial history or condition, including off-balance sheet risk, managerial
resources and/or the future earnings prospects of a bank are not adequate and/or
a bank has a significant volume of assets classified substandard, doubtful or
loss or otherwise criticized, the OCC may determine that the minimum adequate
amount of capital for that bank is greater than the minimum standards
established in the regulation.
Year 2000 Compliance. The Year 2000 poses serious challenges to the
banking industry. Many experts believe that even the most prepared organizations
may encounter some implementation problems. The federal banking agencies are
concerned that financial institutions avoid major disruptions to service and
operations. All national banks are required to have an action plan to address
Year 2000 issues which must include an indication of management awareness of the
problems and the commitment to solutions; identification of external risks; and
operational issues that are relevant to a bank's Year 2000 planning.
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<PAGE>
The OCC issued Advisory Letter 97-6, dated May 16, 1997, which outlines
comprehensive guidance for banks to effect a Year 2000 compliant system. AL 97-6
established the following target time frames to accomplish critical actions
concerning Year 2000 compliance:
* By September 30, 1997, all existing national banks should have
identified affected applications and databases. Mission critical applications
should be identified and an action plan set for Year 2000 work.
* By December 31, 1998, code enhancements and revisions, hardware
upgrades, and other associated changes should be largely completed by all
national banks. In addition, for mission critical applications, programming
changes should be largely completed and testing should be well underway.
* Between January 1, 1999 and December 31, 1999, national banks
should be testing and implementing their Year 2000 conversion programs.
Athens will undergo regular examination by the OCC for compliance with its
Year 2000 Preparedness Plan.
Prompt Corrective Action. FDICIA was enacted in December 1991,
substantially revising the bank regulatory and funding provisions of the FDIA
and making 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. Athens has capital levels well above the minimum
requirements. In addition, an institution that is not well capitalized is
generally prohibited from accepting brokered deposits and offering interest
rates on deposits higher than the prevailing rate in its market and also may not
be able to "pass through" insurance coverage for certain employee benefit
accounts. FDICIA also requires the holding company of any undercapitalized
depository institution to guarantee, in part, certain aspect of such depository
institution's capital plan for such plan to be acceptable. FDICIA contains
numerous other provisions, including new accounting, audit and reporting
requirements, termination of the "too big to fail" doctrine except in special
cases, limitations on the FDIC's payment of deposits at foreign branches, new
regulatory standards in such areas as asset quality, earnings and compensation
and revised regulatory standards for, among other things, real estate lending
and capital adequacy. FDICIA also requires that a depository institution provide
90 days prior notice of the closing of any branches.
Effect of Governmental Policies
FFBS, Athens and Friendly Finance, Inc. are affected by the policies of
regulatory authorities, including the Federal Reserve System. An important
function of the Federal Reserve System is to regulate the national money supply.
Among the instruments of monetary policy used by the Federal Reserve are:
purchases and sales of U.S. Government securities in the marketplace; changes in
the discount rate, which is the rate any depository institution must pay to
borrow from the Federal Reserve; and changes in the reserve requirements of
depository institutions. These instruments are effective in influencing economic
and monetary growth, interest rate levels and inflation.
The monetary policies of the Federal Reserve System and other governmental
policies have had a significant effect on the operating results of commercial
banks in the past and are expected to continue to do so in the future. Because
of changing conditions in the national economy and in the money market, as well
as the result of actions by monetary and fiscal authorities, it is not possible
to predict with certainty future changes in interest rates, deposit levels, loan
demand or the business and earnings of FFBS or whether the changing economic
conditions will have a positive or negative effect on operations and earnings.
Bills are pending before the United States Congress which could affect the
business of FFBS and Athens, and there are indications that other similar bills
may be introduced in the future. It cannot be predicted whether or in what form
any of these proposals will be adopted or the extent to which the business of
FFBS and Athens may be affected thereby.
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<PAGE>
Ownership of FFBS Common Stock
As of March 31, 1998, FFBS' records indicated the following number of
shares were beneficially owned by (i) a persons who own beneficially 5% or more
of FFBS Common, (ii) each person who is a director or an executive officer of
FFBS and (iii) all directors and executive officers as a group.
Amount and Nature
of Beneficial Ownership Percent
Name of Beneficial Owner (Number of Share) of Class
- ------------------------ ----------------- --------
Michael L. Bevins 1925 1.18%
William P. Biddle, III 1411 *
Charles W. Bivens 1259 *
R. Hal Buttram 214 *
Robert B. Mayfield 319 *
C. Scott Mayfield, Jr. 706 *
John W. Perdue 211 *
Jerry Richardson 250 *
Joel C. Riley 437 *
William R. Rodgers 285 *
W.D. Sullins, Jr. 400 *
L.A. Walker, Jr. 545 *
Directors and Executive
Officers as a Group (12 persons) 7962 4.89%
- ---------
* Less than one percent.
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<PAGE>
DESCRIPTION OF FFBS CAPITAL STOCK
FFBS is authorized by its charter to issue a maximum of 400,000 shares of
common stock, $5.00 par value (the "FFBS Common"), of which 164,125 were
outstanding at March 24, 1998. The holders of FFBS Common are entitled to one
vote for each share held of record on all matters submitted to a vote of
shareholders. Cumulative voting is not allowed. Holders of FFBS Common are
entitled to receive ratably such dividends, if any, as may be declared by the
FFBS Board out of funds legally available therefor; provided, however, that the
declaration and payment of dividends by the FFBS Board shall be subject to the
rules and regulations of the FRB governing the amount of dividends which may be
paid to shareholders, the manner in which dividends are paid, and the methods,
if any, by which capital stock and surplus may be retired and reduced. In the
event of liquidation, dissolution or winding up of FFBS, holders of FFBS Common
will be entitled to share ratably in all assets remaining after payment of
liabilities. Holders of FFBS Common have no preemptive rights. Holders of FFBS
Common have no right to convert the FFBS Common into any other securities. All
shares of FFBS Common outstanding are fully paid and nonassessable. FFBS acts as
the transfer agent and registrar for FFBS Common.
EFFECT OF THE MERGER ON RIGHTS OF SHAREHOLDERS
Both BFC and FFBS are Tennessee corporations subject to the provisions of
TBCA. Therefore, the Merger will not alter the statutory provisions applicable
to the shareholders of FFBS. However, following the Merger, the rights of
shareholders of FFBS who become shareholders of BFC will be governed by the
Charter and Bylaws of BFC. The following is a summary of the material
differences in the rights of shareholders of FFBS and BFC and is qualified in
its entirety by reference to the governing law and the Charters and Bylaws of
BFC and FFBS. Certain topics discussed below are also subject to federal law and
the regulations promulgated thereunder, including those of the FDIC and FRB.
Authorized Capital Stock
BFC's Charter authorizes the issuance of up to 16,000,000 shares of
capital stock: 15,000,000 shares of common stock, par value $2.50 per share, and
1,000,000 shares of preferred stock, par value $5.00 per share. BFC had issued
and outstanding, as of the BFC Record Date, 1,275,893 shares of BFC Common and
215,805 shares of BFC Preferred.
FFBS' Charter authorizes the issuance of up to 400,000 shares of common
stock, par value $5.00 per share, of which 164,125 shares were issued and
outstanding as of the FFBS Record Date.
Number and Qualifications of Directors
FFBS' Charter provides that the FFBS Board will have a maximum of 15
members and that the affirmative vote of not less than 80% of the outstanding
shares of FFBS Common is required to change that provision of the Charter. BFC's
Charter provides for no fewer than 5 directors and no more than 25.
FFBS' Bylaws allow for both active and advisory directors. Active
directors must be between the ages of 30 and 70. Advisory directors must be over
the age of 70 and serve in an advisory capacity only; advisory directors do not
have voting powers. BFC's Bylaws have no such age requirements or provisions for
advisory directors.
BFC directors are elected for a term of one year and serve until their
successors are elected and qualified. FFBS' Bylaws provide staggered terms for
directors. FFBS directors are elected for staggered three-year terms and serve
until their successors are elected and qualified.
Removal of Directors
A FFBS director can be removed for cause by either the shareholders or the
FFBS Board. A BFC director may be removed by the shareholders at a meeting
called for such purpose.
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Shareholder Approval of Certain Mergers or Sales of Assets
FFBS' Charter requires the approval of 80% of the outstanding shares of
FFBS Common for any merger or sale, exchange or lease of substantially all of
the assets of FFBS, if the FFBS Board does not recommend that the shareholders
vote to approve the merger, sale, exchange or lease. Neither BFC's Charter nor
Bylaws contain a similar provision.
Meetings of Shareholders
BFC's Bylaws authorize the President, a majority of the members of the
Board of Directors or shareholders owning at least 25% of the outstanding common
stock to call a special meeting of shareholders for any purpose. Such a call
shall state the purpose of the proposed meeting and the business transacted at
the special meeting must be confined to the purposes stated in the call.
FFBS' Bylaws authorize the President, the Chairman of the FFBS Board, a
majority of the FFBS Board, and holders of at least 10% of the outstanding
shares of FFBS Common to call a special meeting of shareholders.
Indemnification
The TBCA provides in certain situations for mandatory and permissive
indemnification of directors and officers. The TBCA provides that statutory
indemnification is not to be deemed exclusive of any other rights to which a
director seeking indemnification may be entitled; provided, however, no
indemnification may be made if a final adjudication adverse to the director or
officer establishes his liability (i) for any breach of loyalty to the
corporation or its shareholders; (ii) for acts or omissions not in good faith or
which involve intentional misconduct or a knowing violation of law; or (iii) for
unlawful distributions. The Bylaws of BFC provide for indemnification of
directors and officers to the full extent allowed by the TBCA.
The Bylaws of FFBS allow for indemnification to the full extent allowed by
the TBCA; provided that, no person can be indemnified or reimbursed in relation
to any matter as to which he is finally adjusted to have been guilty or liable
for gross negligence of his duties to FFBS; and provided that, no person shall
be indemnified or reimbursed in relation to any matter which has been made the
subject of a compromise settlement except with the approval of (i) a court of
competent jurisdiction, (ii) the holders of a majority of the outstanding shares
of FFBS Common, or (iii) the FFBS Board.
Dividends and Other Distributions
The TBCA provides that BFC, generally, may make dividends or other
distributions to its shareholders unless after the distribution either (i) BFC
would not be able to pay its debts as they become due in the usual course of
business or (ii) BFC'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. In addition, the FRB places additional restrictions on
the payment of dividends by bank holding companies.
FFBS has traditionally paid dividends on FFBS Common. BFC, generally, pays
dividends on BFC Preferred and has sporadically paid dividends on BFC Common.
However, BFC has no current intention to pay future cash dividends on BFC
Common.
VALIDITY OF COMMON STOCK
A legal opinion to the effect that the shares of BFC Common when issued in
accordance with the Merger Agreement, will be validly issued, fully paid and
nonassessable, has been rendered by Ritchie & Eubanks PLLC, Knoxville,
Tennessee, counsel to BFC.
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EXPERTS
The Consolidated Financial Statements of First Franklin Bancshares, Inc.
and subsidiaries included herein have been so included in reliance on the report
of G.R. Rush & Company, P.C., Chattanooga, Tennessee, independent certified
public accountants, given on the authority of said firm as experts in auditing
and accounting.
The Consolidated Financial Statements of BankFirst Corporation and
subsidiaries as of December 31, 1997 have been included herein in reliance on
the report of Crowe, Chizek and Company LLP, Louisville, Kentucky, independent
certified public accountants, given on the authority of that firm as experts in
accounting and auditing. The consolidated financial statements of BankFirst
Corporation (formerly known as Smoky Mountain Bancorp, Inc.) as of December 31,
1996 and 1995 and for the two years then ended have been included herein in
reliance on the report of Coopers & Lybrand, L.L.P., independent accountants,
given on the authority of that firm as experts in accounting and auditing.
The report of Coopers & Lybrand L.L.P. with respect to BankFirst
Corporation's (formerly known as Smoky Mountain Bancorp, Inc.) consolidated
financial statements as of December 31, 1995 and for the year then ended makes
reference to the fact that separate financial statements of Smoky Mountain
Bancorp, Inc. included in the 1995 restated consolidated balance sheet and
statements of income, stockholders' equity and cash flows of BankFirst
Corporation (formerly known as Smoky Mountain Bancorp, Inc.) were audited by
Hazlett, Lewis & Bieter, P.L.L.C., independent accountants. The report of
Hazlett, Lewis & Bieter, P.L.L.C. with respect to Smoky Mountain Bancorp, Inc.'s
consolidated financial statements as of and for the year ended December 31, 1995
has been included herein, given on the authority of that firm as experts in
accounting and auditing.
Change in Accountants
On June 3, 1997 the BFC Board engaged Crowe, Chizek and Company LLP as
independent accountants for BFC and its subsidiaries. Coopers & Lybrand L.L.P.
had served as BFC's independent accountants prior to that time.
Coopers & Lybrand, L.L.P. had been engaged to audit BFC's financial
statements as of and for the period ended December 31, 1996 and to audit
BankFirst's financial statements as of and for the periods ended December 31,
1993, December 31, 1994 and December 31, 1995. Coopers & Lybrand's reports on
the financial statements of BankFirst and BFC for those years do not contain an
adverse opinion or a disclaimer of opinion, and such reports are not qualified
or modified as to uncertainty, audit scope or accounting principles. During the
time Coopers & Lybrand, L.L.P. served as accountant for BankFirst and BFC,
BankFirst and BFC had no disagreements with Coopers & Lybrand, L.L.P. on any
matter of accounting principles or practices, financial statement disclosure, or
auditing scope or procedure, which, if not resolved to the satisfaction of
Coopers & Lybrand, L.L.P., would have caused them to make reference thereto in
such reports nor were there any reportable events required to be disclosed. In
accordance with the rules of the SEC, Coopers & Lybrand, L.L.P. has reviewed and
concurred with the above discussion. A copy of Coopers & Lybrand's letter is
filed as an exhibit to the registration statement of which this Joint Proxy
Statement/Prospectus is a part.
99
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INDEX TO FINANCIAL INFORMATION
Page
----
Financial Statements of BankFirst Corporation 1997, 1996 and 1995 (audited)
Report of Independent Accountants for 1997............................F-2
Report of Independent Accountants for 1996 and 1995...................F-3
Report of Independent Auditors for 1995...............................F-4
Consolidated Balance Sheets...........................................F-5
Consolidated Statements of Income.....................................F-6
Consolidated Statements of Changes in Stockholders' Equity............F-7
Consolidated Statements of Cash Flows.................................F-8
Notes to Consolidated Financial Statements............................F-9
Financial Statements of BankFirst Corporation March 31, 1998 (unaudited)
Consolidated Balance Sheet............................................F-28
Consolidated Statements of Income.....................................F-29
Consolidated Statement of Changes in Stockholders' Equity.............F-30
Consolidated Statements of Cash Flows.................................F-31
Notes to Consolidated Financial Statements............................F-32
Financial Statements of First Franklin Bancshares, Inc.
1997, 1996 and 1995 (audited)
Independent Auditors' Report .........................................F-35
Consolidated Balance Sheets...........................................F-36
Consolidated Statements of Income.....................................F-37
Consolidated Statements of Changes in Stockholders' Equity............F-38
Consolidated Statements of Cash Flows.................................F-39
Notes to Consolidated Financial Statements............................F-40
Financial Statements of First Franklin Bancshares, Inc.
March 31, 1998 (unaudited)
Consolidated Balance Sheets...........................................F-56
Consolidated Statements of Income.....................................F-57
Consolidated Statements of Changes in Stockholders' Equity............F-58
Consolidated Statements of Cash Flows.................................F-59
F-1
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
Board of Directors and Stockholders
BankFirst Corporation
Knoxville, Tennessee
We have audited the accompanying consolidated balance sheet of BankFirst
Corporation (formerly Smoky Mountain Bancorp, Inc.) as of December 31, 1997 and
the related consolidated statements of income, changes in stockholders' equity,
and cash flows for the year then ended. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audit.
We conducted our audit 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 balance sheet presentation. We
believe that our audit provides a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of BankFirst
Corporation as of December 31, 1997, and the results of its operations and its
cash flows for the year then ended in conformity with generally accepted
accounting principles.
Crowe, Chizek and Company LLP
Louisville, Kentucky
February 6, 1998, except for Note 17
as to which the date is March 19, 1998
F-2
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Stockholders
BankFirst Corporation (formerly known as Smoky Mountain Bancorp, Inc.)
We have audited the accompanying consolidated balance sheet of BankFirst
Corporation (formerly known as Smoky Mountain Bancorp, Inc.) and Subsidiaries as
of December 31, 1996, and the related consolidated statements of income,
stockholders' equity, and cash flows for the year then ended. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audit. The consolidated financial statements give retroactive effect to a
business combination with BankFirst, which has been accounted for in a manner
similar to a pooling of interest, as described in Note 2 to the consolidated
financial statements.
We conducted our audit 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 audit provides a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the consolidated financial position of
BankFirst Corporation (formerly known as Smoky Mountain Bancorp, Inc.) and
Subsidiaries as of December 31, 1996, and the consolidated results of their
operations and their cash flows for the year then ended, in conformity with
generally accepted accounting principles.
We previously audited and reported on the balance sheet, statements of income,
stockholders' equity and cash flows of BankFirst as of and for the year ended
December 31, 1995, prior to the restatement for the 1996 combination accounted
for in a manner similar to a pooling of interest. The contribution of BankFirst
to interest income and net income represented 46% and 57% of the respective 1995
restated totals. Separate consolidated financial statements of Smoky Mountain
Bancorp, Inc. included in the 1995 restated consolidated balance sheet and
statements of income, stockholders' equity and cash flows were audited and
reported on separately by other auditors. We also audited the combination of the
accompanying consolidated balance sheet and statements of income, stockholders'
equity and cash flows as of and for the year ended December 31, 1995, after
restatement for the 1996 pooling of interest; in our opinion, such consolidated
statements have been properly combined on the basis described in Note 2 of the
notes to the consolidated financial statements.
COOPERS & LYBRAND L.L.P.
Knoxville, Tennessee
February 6, 1997
- --------------------------------------------------------------------------------
F-3
<PAGE>
REPORT OF INDEPENDENT AUDITORS
To the Stockholders and Board of Directors
BankFirst Corporation (formerly Smoky Mountain Bancorp, Inc.)
We have audited the consolidated statements of income, changes in stockholders'
equity, and cash flows of BankFirst Corporation (formerly Smoky Mountain
Bancorp, Inc.) and subsidiary for the year ended December 31, 1995, prior to the
restatement for the 1996 combination with BankFirst accounted for in a manner
similar to a pooling interest. 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 audit.
We conducted our audit 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 audit provides a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the results of operations and the cash flows
of BankFirst Corporation (formerly Smoky Mountain Bancorp, Inc.) and subsidiary
for the year ended December 31, 1995, in conformity with generally accepted
accounting principles, prior to the restatement for the 1996 combination with
BankFirst accounted for in a manner similar to a pooling of interest.
/s/ Hazlett, Lewis & Bieter
Chattanooga, Tennessee
January 24, 1996
F-4
<PAGE>
BANKFIRST CORPORATION
CONSOLIDATED BALANCE SHEETS
December 31, 1997 and 1996
(Dollar amounts in thousands, except share and per share data)
- --------------------------------------------------------------------------------
1997 1996
-------- --------
ASSETS
Cash and due from banks $ 17,363 $ 9,195
Federal funds sold 7,000 3,800
-------- --------
Total cash and cash equivalents 24,363 12,995
Securities available for sale, at fair value 71,912 76,474
Loans, net 345,564 311,679
Premises, furniture and equipment, net 18,737 14,195
Federal Home Loan Bank Stock, at cost 2,380 1,926
Accrued interest receivable and other assets 5,794 5,724
-------- --------
Total assets $468,750 $422,993
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities
Noninterest-bearing deposits $ 66,426 $ 47,301
Interest-bearing deposits 328,726 319,050
-------- --------
Total deposits 395,152 366,351
Securities sold under agreements to repurchase 16,302 5,966
Other borrowed funds 209 550
Advances from the Federal Home Loan Bank 10,000 12,000
Accrued interest payable and other liabilities 6,672 2,583
-------- --------
Total liabilities 428,335 387,450
Employee Stock Ownership Plan 1,536 1,389
Stockholders' equity
Common stock: $2.50 par value, 3,000,000 shares
authorized, 1,273,410 and 993,683 shares
outstanding in 1997 and 1996 3,099 2,394
Noncumulative convertible preferred stock: $5 par
value, 1,000,000 shares authorized, 218,508 and
225,559 shares outstanding in 1997 and 1996 1,093 1,128
Additional paid-in capital 20,112 19,818
Retained earnings 14,013 10,745
Unrealized gain on securities available for sale 562 69
-------- --------
Total stockholders' equity 38,879 34,154
-------- --------
Total liabilities and stockholders' equity $468,750 $422,993
======== ========
- --------------------------------------------------------------------------------
See accompanying notes to consolidated financial statements.
F-5
<PAGE>
BANKFIRST CORPORATION
CONSOLIDATED STATEMENTS OF INCOME
Years ended December 31, 1997, 1996 and 1995
(Dollar amounts in thousands, except share and per share data)
- --------------------------------------------------------------------------------
1997 1996 1995
------- ------- -------
Interest income
Interest and fees on loans $32,769 $28,227 $24,628
Taxable securities 4,513 4,815 4,049
Nontaxable securities 122 172 200
Other 221 370 372
------- ------- -------
37,625 33,584 29,249
Interest expense
Deposits 15,044 14,108 12,640
Short-term borrowings 744 562 177
Long-term borrowings 686 529 599
------- ------- -------
16,474 15,199 13,416
------- ------- -------
Net interest income 21,151 18,385 15,833
Provision for loan losses 2,250 517 378
------- ------- -------
Net interest income after provision
for loan losses 18,901 17,868 15,455
Noninterest income
Service charges and fees 2,640 2,615 2,181
Net securities gains 175 -- 73
Net gain on loan sales 226 199 181
Other 379 583 254
------- ------- -------
3,420 3,397 2,689
Noninterest expenses
Salaries and employee benefits 7,986 7,392 6,746
Occupancy expense 1,312 1,724 1,142
Equipment expense 2,028 1,884 1,213
Office expense 625 371 576
Data processing fees 981 735 535
FDIC assessments 48 134 505
Other 2,804 3,172 3,128
------- ------- -------
15,784 15,412 13,845
------- ------- -------
Income before income taxes 6,537 5,853 4,299
Provision for income taxes 2,471 2,189 1,474
------- ------- -------
Net income $ 4,066 $ 3,664 $ 2,825
======= ======= =======
Earnings per share:
Basic $ 3.12 $ 3.06 $ 3.07
Diluted $ 2.80 $ 2.77 $ 2.76
- --------------------------------------------------------------------------------
See accompanying notes to consolidated financial statements.
F-6
<PAGE>
BANKFIRST CORPORATION
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
Years ended December 31, 1997, 1996 and 1995
(Dollar amounts in thousands, except share and per share data)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Net
Unrealized Total
Additional Gains Stock-
Common Preferred Paid-in Retained (Losses) holders'
Stock Stock Capital Earnings on Securities Equity
-------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
Balance, January 1, 1995 $ 1,767 $ 641 $ 12,344 $ 5,368 $ (1,286) $ 18,834
Sales of common stock, 40,379 shares 101 -- 1,207 -- -- 1,308
Cash dividends on preferred stock -- -- -- (74) -- (74)
Cash dividends on common stock (305) (305)
Net income -- -- -- 2,825 -- 2,825
Reclassification of ESOP shares subject
to put options -- -- (385) -- -- (385)
Change in unrealized gains (losses) -- -- -- -- 1,873 1,873
-------- -------- -------- -------- -------- --------
Balance, January 1, 1996 1,868 641 13,166 7,814 587 24,076
Sales of preferred stock, 97,297 shares -- 487 1,314 -- -- 1,801
Sales of common stock, 159,606 shares 399 -- 4,073 -- -- 4,472
Conversion of debenture into
common stock, 25,000 shares 63 -- 437 -- -- 500
Cash dividends on preferred stock -- -- -- (162) -- (162)
Common stock dividend, 12,695 shares 31 -- 540 (571) -- --
Net income -- -- -- 3,664 -- 3,664
Reclassification of ESOP shares subject
to put options 33 -- 288 -- -- 321
Change in unrealized gains (losses) -- -- -- -- (518) (518)
-------- -------- -------- -------- -------- --------
Balance, January 1, 1997 2,394 1,128 19,818 10,745 69 34,154
Stock options exercised, 23,659 shares 59 -- 465 -- -- 524
Conversion of 7,051 shares preferred
stock into 3,482 shares common stock 9 (35) 26 -- -- --
Cash dividends on preferred stock -- -- -- (161) -- (161)
Common stock split, 253,727 shares 634 -- -- (634) -- --
Cash paid for fractional shares in stock
split -- -- -- (3) -- (3)
Repurchased common stock, 1,141 shares (3) -- (44) -- -- (47)
Net income -- -- -- 4,066 -- 4,066
Reclassification of ESOP shares subject
to put options 6 -- (153) -- -- (147)
Change in unrealized gains (losses) -- -- -- -- 493 493
-------- -------- -------- -------- -------- --------
Balance, December 31, 1997 $ 3,099 $ 1,093 $ 20,112 $ 14,013 $ 562 $ 38,879
======== ======== ======== ======== ======== ========
</TABLE>
- --------------------------------------------------------------------------------
See accompanying notes to consolidated financial statements.
F-7
<PAGE>
BANKFIRST CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
Years ended December 31, 1997, 1996 and 1995
(Dollar amounts in thousands, except share and per share data)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
1997 1996 1995
-------- -------- --------
<S> <C> <C> <C>
Cash flows from operating activities
Net income $ 4,066 $ 3,664 $ 2,825
Adjustments to reconcile net income to net
cash from operating activities
Provision for loan losses 2,250 517 378
Depreciation 1,381 1,071 849
Amortization and accretion, net (156) (329) (108)
Gain on securities sales (175) -- (73)
Loss (gain) on sale of assets 85 625 (3)
Gain on sale of mortgage loans (226) (199) (181)
Proceeds from sales of mortgage loans 15,491 12,297 10,462
Originations of mortgage loans held for sale (15,562) (12,267) (10,436)
Proceeds from sale of trading securities -- -- 8,169
Purchase of trading securities -- -- (8,115)
Changes in assets and liabilities
Accrued interest receivable and other assets (70) (74) (303)
Accrued interest payable and other liabilities 3,788 177 708
-------- -------- --------
Net cash provided by operating activities 10,872 5,482 4,172
Cash flows from investing activities
Time deposits in other banks -- -- 1,350
Purchase of securities (32,378) (71,380) (54,474)
Proceeds from maturities of securities 24,173 73,437 36,563
Proceeds from sales of securities 13,893 -- --
Net increase in loans (35,839) (62,094) (31,856)
Purchase of FHLB stock (454) -- --
Premises and equipment expenditures, net (6,008) (1,988) (2,820)
-------- -------- --------
Net cash used in investing activities (36,613) (62,025) (51,237)
Cash flows from financing activities
Net change in deposits 28,801 36,437 44,863
Net change under repurchase agreements
and other borrowed funds 9,995 (1,116) 5,519
Advances from the Federal Home Loan Bank -- 10,000 --
Repayments of advances from Federal Home Loan Bank (2,000) (3,000) --
Payments of notes payable -- (3,244) --
Preferred stock dividends paid (161) (162) (74)
Common stock dividends paid -- -- (305)
Cash paid for fractional shares in stock split (3) -- --
Sales of stock and stock options exercised 524 6,273 1,308
Repurchase of common stock (47) -- --
-------- -------- --------
Net cash provided by financing activities 37,109 45,188 51,311
-------- -------- --------
Net change in cash and cash equivalents 11,368 (11,355) 4,246
Cash and cash equivalents, beginning of year 12,995 24,350 20,104
-------- -------- --------
Cash and cash equivalents, end of year $ 24,363 $ 12,995 $ 24,350
======== ======== ========
Supplemental disclosures:
Interest paid $ 16,480 $ 15,264 $ 12,630
Income taxes paid 2,203 2,372 1,677
Loans converted to other real estate 422 133 789
Debenture converted to common stock -- 500 --
Preferred stock converted to common stock 35 -- --
Reclassification of ESOP shares (147) 321 (385)
</TABLE>
- --------------------------------------------------------------------------------
See accompanying notes to consolidated financial statements.
F-8
<PAGE>
BANKFIRST CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollar amounts in thousands, except share and per share data)
- --------------------------------------------------------------------------------
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Principles of Consolidation: The consolidated financial statements include the
accounts of BankFirst Corporation (formerly Smoky Mountain Bancorp, Inc.) (the
"Company") and its wholly-owned subsidiaries, BankFirst (the Bank) and First
National Bank of Gatlinburg. In April, 1998, the Company changed its name to
BankFirst Corporation. First National Bank of Gatlinburg was merged into
BankFirst in March 1997. All significant inter-company balances and transactions
have been eliminated in consolidation.
Nature of Operations: The Bank generates commercial, mortgage and installment
loans, and receives deposits from customers located throughout Eastern
Tennessee. The majority of the loans are secured by specific items of collateral
including business assets, real property and consumer assets. Borrowers' cash
flow is expected to be a primary source of repayment. Real estate loans are
secured by both residential and commercial real estate. Substantially all
operations are in the banking industry.
Use of Estimates: The preparation of financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions based on available information. These estimates and assumptions
affect the amounts reported in the financial statements and the disclosures
provided, and future results could differ. Estimates that are more susceptible
to change in the near term include the allowance for loan losses and fair values
of securities.
Cash Flow Reporting: Cash and cash equivalents include cash on hand, balances
due from banks, and federal funds sold. Net cash flows are reported for customer
loan and deposit transactions and other borrowed funds.
Securities: Securities are classified as held to maturity and are carried at
amortized cost when management has the positive intent and ability to hold to
maturity. Securities are classified as available for sale when they might be
sold prior to maturity for liquidity, asset-liability management, or other
reasons. Available for sale securities are carried at fair value, with
unrealized gains or losses included as a separate component of equity, net of
tax. Trading securities are carried at fair value, with changes in unrealized
holding gains and losses included in income. Realized gains or losses are
determined based on the amortized cost of the specific security sold. Interest
income includes amortization of purchase premium or discounts. Securities are
written down to fair value when a decline in fair value is not temporary.
Loans: Loans are reported at the principal balance outstanding, net of deferred
loan fees and costs. Interest income on real estate, commercial and consumer
loans is accrued over the term of the loans based on the principal outstanding.
Interest income is not reported when full loan repayment is in doubt.
- --------------------------------------------------------------------------------
(Continued)
F-9
<PAGE>
BANKFIRST CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollar amounts in thousands, except share and per share data)
- --------------------------------------------------------------------------------
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
Allowance for Loan Losses: The allowance for loan losses is a valuation
allowance, increased by the provision for loan losses and decreased by
charge-offs less recoveries. Management estimates the allowance balance required
based on past loan loss experience, known and inherent risks in the portfolio,
information about specific borrower situations and estimated collateral values,
economic conditions, and other factors. Allocations of the allowance may be made
for specific loans, but the entire allowance is available for any loan that, in
management's judgment, should be charged-off.
Loans are considered impaired if full payment under the loan terms is not
expected. Impairment is evaluated in total for smaller-balance loans of similar
nature such as residential mortgage and consumer loans, and on an individual
loan basis for other loans. Impaired loans are carried at the present value of
expected cash flows discounted at the loan's effective interest rate or at the
fair value of the collateral if the loan is collateral dependent. A portion of
the allowance for loan losses is allocated to impaired loans. Loans are
evaluated for impairment when payments are delayed, or when the internal grading
system indicates a doubtful classification. Payments on such loans are reported
as principal reductions.
Mortgage Loans Held for Sale: Mortgage loans held for sale are carried at the
lower of aggregate cost or market. The cost of mortgage loans held for sale is
the mortgage note amount plus certain net origination costs less discounts
collected. The aggregate cost of mortgage loans held for sale at year-end 1997
and 1996, is less than their aggregate net realizable value.
Premises, Furniture and Equipment: Premises, furniture and equipment are stated
at cost less accumulated depreciation. Depreciation expense is computed using
the straight line and declining-balance methods over the estimated useful lives
of the assets. Maintenance and repairs are expensed and major improvements are
capitalized. These assets are reviewed for impairment when events indicate the
carrying amount may not be recoverable.
Other Real Estate: Real estate acquired through foreclosure or acceptance of a
deed in lieu of foreclosure is recorded at the lower of cost (fair value at date
of foreclosure) or fair value less estimated selling costs. Expenses incurred in
carrying other real estate are charged to operations as incurred.
Repurchase Agreements: Substantially all repurchase agreement liabilities
represent amounts advanced by various customers that are not covered by federal
deposit insurance and are secured by securities owned.
Income Taxes: The Company files consolidated federal and state income tax
returns. Income tax expense is the sum of the current year income tax due or
refundable and the change in deferred tax assets and liabilities. Deferred tax
assets and liabilities are the expected future tax consequences of temporary
differences between the carrying amounts and tax bases of assets and
liabilities, computed using enacted tax rates. A valuation allowance, if needed,
reduces deferred tax assets to the amount expected to be realized.
- --------------------------------------------------------------------------------
(Continued)
F-10
<PAGE>
BANKFIRST CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollar amounts in thousands, except share and per share data)
- --------------------------------------------------------------------------------
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
Loss Contingencies: The Company is involved in various legal actions. In the
opinion of management, the outcome of these matters will not have a material
effect on the Company's financial position, results of operations, or cash
flows.
Fair Value of Financial Instruments: Fair values of financial instruments are
estimated using relevant market information and other assumptions, as disclosed
in Note 15. Fair value estimates involve uncertainties and matters of
significant judgment regarding interest rates, credit risk, prepayments, and
other factors, especially in the absence of broad markets for particular items.
Changes in assumptions or in market conditions could significantly affect the
estimates.
Preferred Stock: The preferred stock pays dividends at a rate of 5%, and is
noncumulative, nonvoting, and each share is convertible into .6175 shares of
common stock at the option of the holder. The conversion ratio of preferred
stock into common stock is adjusted for common stock dividends and splits.
Preferred stock has equal liquidation rights to common stock.
Earnings Per Common Share: Basic earnings per share is based on weighted average
common shares outstanding. Diluted earnings per share further assumes issuance
of any dilutive potential common shares. Earnings per share are restated for all
subsequent stock dividends and splits.
Reclassifications: Certain items in the 1996 and 1995 financial statements have
been reclassified to conform with the 1997 presentation.
Current Accounting Issues: Statement of Financial Accounting Standard (SFAS) No.
130, "Reporting Comprehensive Income" was issued in June 1997. This Statement
requires that certain items be reported in a separate statement of comprehensive
income, be included as a separate, additional component of the statement of
income, or be added to the statement of stockholders' equity. Such items include
foreign currency translations, accounting for futures contracts, accounting for
defined benefit pension plans, and accounting for certain investments in debt
and equity securities. The periodic change in net appreciation or depreciation
on securities available for sale reported in the Company's balance sheet is an
element of comprehensive income under this standard. This Statement is effective
for the Company in 1998.
- --------------------------------------------------------------------------------
(Continued)
F-11
<PAGE>
BANKFIRST CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollar amounts in thousands, except share and per share data)
- --------------------------------------------------------------------------------
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
SFAS No. 131, "Disclosures about Segments of an Enterprise and Related
Information" was issued in June 1997. This Statement changes the way public
companies report information about operating segments in annual financial
statements and requires that those companies report selected information about
operating segments in interim financial reports. It also establishes standards
for related disclosures about products and services, geographic areas, and major
customers. Operating segments are parts of a company for which separate
information is available which is evaluated regularly by the chief operating
decision maker in deciding how to allocate resources and in evaluating
performance. Required disclosures for operating segments include total segment
revenues, total segment profit or loss, and total segment assets. The Statement
also requires disclosures regarding revenues derived from products and services
(or similar groups of products or services), countries in which the company
derives revenue or holds assets, and about major customers, regardless of
whether this information is used in operating decision making. The Company is
required to adopt the disclosure requirements in its 1998 annual report, and in
interim periods in 1999. The 1999 interim period disclosures are required to
include comparable 1998 information.
NOTE 2 - BUSINESS COMBINATION
At the close of business on December 31, 1996, BankFirst stockholders exchanged
1,154,652 shares of its common stock for 570,380 shares of BankFirst Corporation
(formerly Smoky Mountain Bancorp, Inc.) common stock. In addition, outstanding
employee stock options to purchase 221,466 shares of BankFirst common stock were
converted into options to purchase approximately 109,404 shares of BankFirst
Corporation common stock, as adjusted for the 1997 stock split. The combination
has been accounted for in a manner similar to a pooling of interests and,
accordingly, the Company's consolidated financial statements were restated in
1996 and 1995 to include the accounts and operations of BankFirst for the period
prior to the combination.
Separate interest income and net income of the merged entities are as follows:
1996 1995
------- -------
Interest income
BankFirst Corporation $17,081 $15,934
BankFirst 16,503 13,315
------- -------
$33,584 $29,249
======= =======
Net income
BankFirst Corporation $ 1,450 $ 1,224
BankFirst 2,214 1,601
------- -------
$ 3,664 $ 2,825
======= =======
- --------------------------------------------------------------------------------
(Continued)
F-12
<PAGE>
BANKFIRST CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollar amounts in thousands, except share and per share data)
- --------------------------------------------------------------------------------
NOTE 2 - BUSINESS COMBINATION (Continued)
January 1, January 1,
1995 Effect 1995
As Previously of As
Reported Combination Restated
------------- ----------- --------
Stockholders' equity
Common stock $ 464 $ 1,303 $ 1,767
Noncumulative convertible
preferred stock -- 641 641
Additional paid-in capital 2,167 10,177 12,344
Unrealized loss on securities
available for sale (668) (618) (1,286)
Retained earnings 3,818 1,550 5,368
-------- -------- --------
Total $ 5,781 $ 13,053 $ 18,834
======== ======== ========
NOTE 3 - SECURITIES
Securities available for sale are summarized as follows:
<TABLE>
<CAPTION>
Gross Gross
Amortized Unrealized Unrealized Fair
1997 Cost Gains Losses Value
- ---- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
U.S. Treasury securities $ 19,172 $ 272 $ -- $ 19,444
Obligations of U.S.
government agencies 43,946 492 (29) 44,409
Obligations of states and
political subdivisions 6,145 91 -- 6,236
Mortgage-backed securities 1,742 83 (2) 1,823
----------- ----------- ----------- -----------
$ 71,005 $ 938 $ (31) $ 71,912
=========== =========== =========== ===========
<CAPTION>
Gross Gross
Amortized Unrealized Unrealized Fair
1996 Cost Gains Losses Value
- ---- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
U.S. Treasury securities $ 12,422 $ 45 $ (52) $ 12,415
Obligations of U.S.
government agencies 60,884 265 (261) 60,888
Obligations of states and
political subdivisions 2,596 117 (1) 2,712
Mortgage-backed securities 459 -- -- 459
----------- ----------- ----------- -----------
$ 76,361 $ 427 $ (314) $ 76,474
=========== =========== =========== ===========
</TABLE>
- --------------------------------------------------------------------------------
(Continued)
F-13
<PAGE>
BANKFIRST CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollar amounts in thousands, except share and per share data)
- --------------------------------------------------------------------------------
NOTE 3 - SECURITIES (Continued)
The amortized cost and estimated market value of debt securities available for
sale at year-end 1997, by contractual maturity, is shown below. Securities not
due at a single maturity date, primarily mortgage-backed securities, are shown
separately.
Amortized Fair
Cost Value
--------- ---------
Due in one year or less $ 8,195 $ 8,201
Due after one year through five years 33,754 34,156
Due after five years through ten years 26,440 26,840
Due after ten years 874 892
--------- ---------
Mortgage-backed securities 1,742 1,823
--------- ---------
Total maturities $ 71,005 $ 71,912
========= =========
1997 1996 1995
------- ------- -------
Sales of securities available for sale
Realized gains $ 206 $ -- $ --
Realized losses 31 -- --
Sales of trading securities
Realized gains $ -- $ -- $ 75
Realized losses -- -- 2
Securities with a carrying value of $62,097 and $61,415 at year-end 1997 and
1996, were pledged for public deposits and securities sold under agreements to
repurchase .
NOTE 4 - LOANS AND ALLOWANCE FOR LOANS LOSSES
At year-end 1997 and 1996, loans consisted of the following:
1997 1996
--------- ---------
Commercial, industrial and agricultural $ 65,681 $ 50,286
Commercial real estate 144,876 140,048
Real estate construction 18,082 20,894
Residential real estate 81,235 72,471
Loans to individuals 39,092 30,782
Lease financing 1,845 1,055
Mortgage loans held for sale 395 324
Other 115 261
--------- ---------
Total loans 351,321 316,121
Less: Unearned interest income and fees (755) (872)
Allowance for loan losses (5,002) (3,570)
--------- ---------
$ 345,564 $ 311,679
========= =========
- --------------------------------------------------------------------------------
(Continued)
F-14
<PAGE>
BANKFIRST CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollar amounts in thousands, except share and per share data)
- --------------------------------------------------------------------------------
NOTE 4 - LOANS AND ALLOWANCE FOR LOAN LOSSES (Continued)
Activity in the allowance for loan losses is as follows:
1997 1996 1995
------- ------- -------
Beginning balance $ 3,570 $ 3,407 $ 3,282
Provision 2,250 517 378
Loans charged off (878) (439) (400)
Recoveries of loans charged off 60 85 147
------- ------- -------
Balance, end of year $ 5,002 $ 3,570 $ 3,407
======= ======= =======
Impaired loans consisted of the following at year-end:
1997 1996
---- ----
Impaired loans
Loans with allowance allocated $552 $616
Amount of allowance for loan losses
allocated 61 216
Loans with no allowance allocated -- --
1997 1996 1995
---- ---- ----
Impaired loans
Average balance during the year $549 $627 $ --
Interest income recognized thereon -- 28 --
Cash-basis interest income recognized -- 28 --
The aggregate amount of loans to executive officers and directors of the Company
and their related interests was approximately $17,157 and $9,595 at year-end
1997 and 1996. During 1997 and 1996, new loans aggregating approximately $9,006
and $605 and amounts collected of approximately $1,444 and $1,569 were
transacted with such parties.
NOTE 5 - PREMISES, FURNITURE, AND EQUIPMENT
A summary of premises and equipment as of year-end 1997 and 1996 is as follows:
1997 1996
-------- --------
Land $ 4,908 $ 4,227
Premises 11,796 8,855
Furniture, fixtures and equipment 7,352 5,978
Construction in progress 963 360
-------- --------
Total cost 25,019 19,420
Accumulated depreciation (6,282) (5,225)
-------- --------
$ 18,737 $ 14,195
======== ========
- --------------------------------------------------------------------------------
(Continued)
F-15
<PAGE>
BANKFIRST CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollar amounts in thousands, except share and per share data)
- --------------------------------------------------------------------------------
NOTE 6 - DEPOSITS
Certificates of deposit of $100 thousand or more were $61,937 and $55,772 at
year-end 1997 and 1996.
At year-end 1997, maturities of time deposits with a term of over one year were
as follows, for the next five years.
1998 $ 149,247
1999 22,406
2000 7,081
2001 847
2002 1,941
Thereafter 325
The aggregate amount of deposits to executive officers and directors of the
Company and their related interests was approximately $1,395 and $912 at year
end 1997 and 1996.
NOTE 7 - BORROWINGS
Securities sold under agreements to repurchase and treasury tax and loan
deposits are financing arrangements. Securities involved with the agreements are
recorded as assets and are held by a safekeeping agent and the obligations to
repurchase the securities are reflected as liabilities. Securities sold under
agreements to repurchase consist of short term excess funds from repurchase
agreements and overnight liabilities to deposit customers arising from a cash
management program. While effectively deposit equivalents, such arrangements are
in the form of repurchase agreements. Other borrowed funds were comprised of
treasury tax and loan deposits which bear interest at the federal funds rate
less .25%.
Information concerning securities sold under agreements to repurchase at
year-end 1997 and 1996 is summarized as follows:
1997 1996
------- -------
Average month-end balance during the year $ 9,137 $ 7,365
Average interest rate during the year 4.76% 4.84%
Maximum month-end balance during the year $16,302 $ 9,715
The aggregate amount of securities sold under agreements to repurchase from
executive officers and directors of the Company and their related interests were
$4,014 and $-0- at year-end 1997 and 1996.
- --------------------------------------------------------------------------------
(Continued)
F-16
<PAGE>
BANKFIRST CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollar amounts in thousands, except share and per share data)
- --------------------------------------------------------------------------------
NOTE 7 - BORROWINGS (Continued)
Federal Home Loan Bank advances consist of the following at year-end 1997 and
1996:
1997 1996
------- -------
6.40% fixed rate advance, interest only monthly,
principal due at maturity on April 25, 1997 $ -- $ 1,000
6.60% fixed rate advance, interest only monthly,
principal due at maturity on October 24, 1997 -- 1,000
Variable rate, interest only monthly, principal due at
maturity on September 30, 1998 5,000 5,000
Variable rate, interest only monthly, principal due at
maturity on April 30, 1998 5,000 5,000
------- -------
$10,000 $12,000
======= =======
These advances are collateralized by a blanket pledge of qualifying mortgage
loans totaling $15,000 and $18,000 at year-end 1997 and 1996.
At year-end 1997, the Company had approximately $29,000 of federal funds lines
of credit available from correspondent institutions, and $2,200 unused lines of
credit with the Federal Home Loan Bank.
NOTE 8 - RETIREMENT PLANS
A 401(k) profit sharing plan covers substantially all employees. Employee
contributions are voluntary and employer contributions are discretionary.
Employee contributions are fully vested and employer contributions are fully
vested after five years. Expense was $135, $75 and $56 for 1997, 1996 and 1995.
The Company has an Employee Stock Ownership Plan (ESOP) which enables employees
who have met minimum service and age requirements to acquire shares of the
Company's common stock. Cost of the Plan is borne by the Company through
discretionary contributions to an employee stock ownership trust. All shares
under the plan were allocated at year end 1997, 1996 and 1995. Shares of common
stock are allocated to each participating employee and are held in trust until
the employee's termination, retirement or death. The Company's contribution to
the ESOP was $30 in 1996. There was no contribution in 1997 or 1995.
Upon withdrawal from the plan, participants are entitled to require the Company
to repurchase the stock (referred to as a put option). Withdrawn participants
are entitled to exercise the put option for a period of not more than 60 days
following the date of distribution of the stock. At year-end 1997, 1996, and
1995, the fair value of ESOP shares subject to repurchase was $1,536, $1,389,
and $1,710, the fair value per share was $44.00, $38.40, $34.80, and shares held
by the ESOP were 34,915, 36,169, and 49,145. The value of shares subject to the
put option have been presented outside of stockholders' equity since no active
market existed for the Company's common stock.
- --------------------------------------------------------------------------------
(Continued)
F-17
<PAGE>
BANKFIRST CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollar amounts in thousands, except share and per share data)
- --------------------------------------------------------------------------------
NOTE 9 - INCOME TAXES
Income tax expense is summarized as follows:
1997 1996 1995
------- ------- -------
Current $ 2,706 $ 2,209 $ 1,404
Deferred (235) (20) 70
------- ------- -------
$ 2,471 $ 2,189 $ 1,474
======= ======= =======
Federal $ 2,080 $ 1,852 $ 1,338
State 391 337 136
------- ------- -------
$ 2,471 $ 2,189 $ 1,474
======= ======= =======
Deferred income taxes reflect the effect of "temporary differences" between
values recorded for assets and liabilities for financial reporting purposes and
values utilized for measurement in accordance with tax laws. The tax effects of
the primary temporary differences giving rise to the Company's net deferred tax
assets and liability are as follows:
1997 1996
---- ----
Assets Liabilities Assets Liabilities
--------- ----------- --------- -----------
Allowance for loan losses $ 1,059 $ -- $ 516 $ --
Unearned loan income -- -- 44 --
Unrealized gain on securities -- (345) -- (44)
Depreciation -- (623) -- (511)
Other real estate 19 -- 19 --
FHLB dividends -- (144) -- (82)
Other -- (261) -- (169)
--------- --------- --------- ---------
Total deferred income taxes $ 1,078 $ (1,373) $ 579 $ (806)
========= ========= ========= =========
A reconciliation of expected income tax expense at the statutory federal income
tax rate of 34% with the actual effective income tax rates, is as follows:
1997 1996 1995
------ ------ ------
Statutory federal tax rate 34.0% 34.0% 34.0%
State income tax, net of federal benefit 4.0 4.0 4.0
Tax exempt income (0.1) (1.4) (3.4)
Other (0.1) 0.8 (.3)
------ ------ ------
37.8% 37.4% 34.3%
====== ====== ======
- --------------------------------------------------------------------------------
(Continued)
F-18
<PAGE>
BANKFIRST CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollar amounts in thousands, except share and per share data)
- --------------------------------------------------------------------------------
NOTE 10 - COMMITMENTS AND FINANCIAL INSTRUMENTS
WITH OFF-BALANCE-SHEET RISK
The Bank is party to financial instruments with off-balance-sheet risk in the
normal course of business to meet the financing needs of their customers. These
financial instruments include loan commitments and standby letters of credit.
The substantial majority of these instruments are with parties in the Knoxville
and surrounding East Tennessee area. The instruments involve, to varying
degrees, elements of credit risk in excess of the amount recognized in the
financial statements.
The exposure to credit loss in the event of nonperformance by the other party to
the financial instrument for loan commitments and standby letters of credit is
represented by the contractual amount of those instruments. The same credit
policies are used in making commitments and conditional obligations as are used
for on-balance-sheet instruments. There are no significant concentrations of
credit risk with any individual counterparty to originate loans.
Financial instruments whose contract amounts represent credit risk at year-end
1997 and 1996 were as follows:
1997 1996
------- -------
Loan commitments $ 8,702 $ 1,400
Standby letters of credit 6,589 9,052
Unused lines of credit 50,287 50,015
Since many of the loan commitments may expire without being drawn upon, the
total commitment amount does not necessarily represent future cash requirements.
Each customer's credit worthiness is evaluated on a case-by-case basis. The
amount of collateral obtained, if deemed necessary 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, and/or income-producing commercial properties.
The credit risk involved in issuing letters of credit is essentially the same as
that involved in extending loan facilities to customers. The aggregate amount of
loan commitments and standby letters of credit to executive officers and
directors of the Company was approximately $2,832 and $1,718 at year-end 1997
and 1996.
- --------------------------------------------------------------------------------
(Continued)
F-19
<PAGE>
BANKFIRST CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollar amounts in thousands, except share and per share data)
- --------------------------------------------------------------------------------
NOTE 11 - RELATED PARTY TRANSACTIONS
The Bank was a 50% partner with a related party, the purpose of which was to own
and operate a building in downtown Knoxville, Tennessee. The Bank's main offices
occupy a portion of this building. During 1997, the Bank purchased the other
partner's interest in the building at a fair market value of $924 based on an
independent appraisal. The partnership was dissolved following the consummation
of the transaction. Total payments received from tenants of the buildings other
than the Bank totaled $105 in 1997. The Bank's contributions to the partnership
expenses were approximately $169, $313 and $192 in 1997, 1996 and 1995.
NOTE 12 - REGULATORY MATTERS
The Company and Bank are subject to regulatory capital requirements administered
by federal and state banking agencies. Capital adequacy guidelines and prompt
corrective action regulations involve quantitative measures of assets,
liabilities, and certain off-balance-sheet items calculated under regulatory
accounting practices. The prompt corrective action regulations provide five
classifications, including well capitalized, adequately capitalized, under
capitalized, significantly under capitalized, and critically under capitalized,
although these terms are not used to represent overall financial condition. If
under capitalized, capital distributions are limited, as is asset growth and
expansion, and plans for capital restoration are required.
At year-end, the capital requirements were met. Actual capital levels (in
millions) and minimum required levels were:
<TABLE>
<CAPTION>
Minimum Amounts to be
Well Capitalized
Minimum Required Under Prompt
for Capital Corrective Action
Actual Adequacy Purposes Provisions
------ ----------------- ----------
Actual Ratio Actual Ratio Actual Ratio
------ ----- ------ ----- ------ -----
1997
- ----
<S> <C> <C> <C> <C> <C> <C>
Total Capital (to Risk Weighted Assets)
Consolidated $ 40.4 11.1% $ 29.2 8.0% $ 36.5 10.0%
BankFirst 42.5 11.6 29.2 8.0 36.5 10.0
Tier 1 Capital (to Risk Weighted Assets)
Consolidated $ 39.6 10.8% $ 14.6 4.0% $ 21.9 6.0%
BankFirst 37.9 10.4 14.6 4.0 21.9 6.0
Tier 1 Capital (to Average Assets)
Consolidated $ 39.6 8.6% $ 18.3 4.0% $ 22.9 5.0%
BankFirst 37.9 8.3 18.3 4.0 22.9 5.0
</TABLE>
- --------------------------------------------------------------------------------
(Continued)
F-20
<PAGE>
BANKFIRST CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollar amounts in thousands, except share and per share data)
- --------------------------------------------------------------------------------
NOTE 12 - REGULATORY MATTERS (Continued)
<TABLE>
<CAPTION>
Minimum Amounts to be
Well Capitalized
Minimum Required Under Prompt
for Capital Corrective Action
Actual Adequacy Purposes Provisions
------ ----------------- ----------
Actual Ratio Actual Ratio Actual Ratio
------ ----- ------ ----- ------ -----
1996
- ----
<S> <C> <C> <C> <C> <C> <C>
Total Capital (to Risk Weighted Assets)
Consolidated $ 38.8 12.0% $ 25.9 8% $ 32.4 10%
BankFirst 22.2 13.1 13.6 8 17.0 10
FNB of Gatlinburg 15.3 9.9 12.3 8 15.4 10
Tier 1 Capital (to Risk Weighted Assets)
Consolidated $ 35.1 10.9% $ 12.9 4% $ 19.5 6%
BankFirst 20.3 12.0 6.8 4 10.2 6
FNB of Gatlinburg 13.7 8.9 6.2 4 9.2 6
Tier 1 Capital (to Average Assets)
Consolidated $ 35.2 8.3% $ 17.1 4% $ 21.3 5%
BankFirst 20.3 9.4 8.6 4 10.8 5
FNB of Gatlinburg 13.7 6.5 8.4 4 10.6 5
</TABLE>
The Company and subsidiary bank were well capitalized at year-end 1997.
The Company's primary source of funds to pay dividends to stockholders is the
dividends it receives from the Bank. The Bank is subject to certain regulations
on the amount of dividends it may declare without prior regulatory approval.
Under these regulations, the amount of dividends that may be paid in any year is
limited to that year's net profits, as defined, combined with the retained net
profits of the preceding two years, less dividends declared during those
periods. At year-end 1997, $6,200 of retained earnings was available for
dividends in future periods.
The Bank was required to have approximately $3,516 and $2,517 of cash on hand to
meet regulatory reserve requirements at year-end 1997 and 1996.
NOTE 13 - STOCK OPTIONS
The Company maintains a stock option plan, which is administered by the
Executive Committee of the Board of Directors. A maximum of 625,000 stock
options may be issued to selected directors, officers, and other key employees.
The exercise price of each option is the fair market value of the Company's
common stock on the date of grant. The maximum term of the options is ten years.
Certain options may be exercised immediately upon grant, and certain options
vest at an annual rate of 20%, allowing 20% of the options to be exercised at
each grant anniversary date. At year-end 1997, 423,961 shares are authorized for
future grant.
- --------------------------------------------------------------------------------
(Continued)
F-21
<PAGE>
BANKFIRST CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollar amounts in thousands, except share and per share data)
- --------------------------------------------------------------------------------
NOTE 13 - STOCK OPTIONS (Continued)
A summary of the Company's option activity, and related information for the
year-ended 1997, 1996, and 1995 is presented below:
<TABLE>
<CAPTION>
1997 1996 1995
----- ---- ----
Weighted Weighted Weighted
Average Average Average
Exercise Exercise Exercise
Options Price Options Price Options Price
------- ----- ------- ----- ------- -----
<S> <C> <C> <C> <C> <C> <C>
Outstanding at beginning
of year 177,529 $ 26.03 109,404 $ 21.24 93,966 $ 18.62
Granted 32,876 38.40 68,125 34.80 15,438 32.39
Exercised (28,153) 18.62 -- -- -- --
Forfeited (9,366) 35.60 -- -- -- --
----------- -------- ----------- ------- ----------- --------
Outstanding at end of year 172,886 30.94 177,529 26.03 109,404 20.55
Options exercisable at year-end 92,443 22.75 108,318 20.45 108,046 20.41
----------- ----------- -----------
Weighted-average fair value of
options granted during the year $ 15.44 $ 12.32 $ 14.59
=========== =========== ===========
</TABLE>
Options outstanding at year-end 1997 had a range of exercise prices from $18.62
to $38.40 and had a weighted average remaining life of seven years. The fair
value of each option grant is estimated on the date of grant using the
Black-Scholes option pricing model with the following weighted-average
assumptions used for grants in 1997, 1996, and 1995: risk-free interest rate of
6.75%, 7.03% and 7.04%, and expected lives of seven, eight and nine years.
No expense for stock options is recorded, as the grant price equals the market
price of the stock at grant date. The following disclosures show the effect on
income and earnings per share had the options' fair value been recorded using an
option pricing model. If additional options are granted, the proforma effect
will increase in the future.
<TABLE>
<CAPTION>
1997 1996 1995
---- ---- ----
As As As
Reported Proforma Reported Proforma Reported Proforma
-------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
Net income $ 4,066 $ 3,838 $ 3,664 $ 3,661 $ 2,825 $ 2,544
Basic earnings per share $ 3.12 $ 2.94 $ 3.06 $ 3.05 $ 3.07 $ 2.84
Diluted earnings per share 2.80 2.57 2.77 2.69 2.76 2.10
</TABLE>
- --------------------------------------------------------------------------------
(Continued)
F-22
<PAGE>
BANKFIRST CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollar amounts in thousands, except share and per share data)
- --------------------------------------------------------------------------------
NOTE 14 - EARNINGS PER SHARE
A reconciliation of the numerators and denominators of the earnings per common
share and earnings per common share assuming dilution computations are presented
below.
<TABLE>
<CAPTION>
1997 1996 1995
----------- ----------- -----------
<S> <C> <C> <C>
Earnings Per Share
Net income $ 4,066 $ 3,664 $ 2,825
Less: Dividends declared on preferred stock (161) (162) (74)
----------- ----------- -----------
Net income available to common
stockholders $ 3,905 $ 3,502 $ 2,751
=========== =========== ===========
Weighted average common shares outstanding 1,251,556 1,145,754 895,843
=========== =========== ===========
Earnings per share $ 3.12 $ 3.06 $ 3.07
=========== =========== ===========
Earnings Per Share Assuming Dilution
Net income available to common stockholders $ 3,905 $ 3,502 $ 2,751
Add back dividends upon assumed conversion
of preferred stock 161 162 74
----------- ----------- -----------
Net income available to common
stockholders assuming conversion $ 4,066 $ 3,664 $ 2,825
=========== =========== ===========
Weighted average common shares outstanding 1,251,556 1,145,754 895,843
Add: Dilutive effects of assumed conversions
and exercises:
Convertible preferred stock 137,106 139,283 79,522
Convertible debenture -- 7,813 7,813
Stock options 62,605 31,633 39,848
Weighted average common and dilutive
potential common shares outstanding 1,451,267 1,324,483 1,023,026
----------- ----------- -----------
Earnings per share assuming dilution $ 2.80 $ 2.77 $ 2.76
=========== =========== ===========
</TABLE>
- --------------------------------------------------------------------------------
(Continued)
F-23
<PAGE>
BANKFIRST CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollar amounts in thousands, except share and per share data)
- --------------------------------------------------------------------------------
NOTE 15 - FAIR VALUE OF FINANCIAL INSTRUMENTS
The carrying value and estimated fair value of the Company's financial
instruments are as follows at year-end 1997 and 1996.
1997 1996
---- ----
Carrying Fair Carrying Fair
Value Value Value Value
-------- -------- -------- --------
Financial assets:
Cash and cash equivalents $ 24,363 $ 24,363 $ 12,995 $ 12,995
Securities available for sale 71,912 71,912 76,474 76,474
Loans, net 345,564 348,229 311,679 310,065
Financial liabilities:
Demand, savings, and money
market accounts 213,306 213,306 183,483 183,483
Certificate of deposits 181,846 180,856 182,868 183,026
Advances from FHLB 10,000 9,884 12,000 11,111
Repurchase agreement and other 16,511 16,511 6,516 6,516
The following methods and assumptions were used to estimate the fair values for
financial instruments. The carrying amount is considered to estimate fair value
for cash and short-term instruments, demand deposits, liabilities for borrowed
money, and variable rate loans or deposits that reprice frequently and fully.
Securities available for sale fair values are based on quoted market prices or,
if no quotes are available, on the rate and term of the security and on
information about the issuer. For fixed rate loans or deposits and for variable
rate loans or deposits with infrequent repricing or repricing limits, the fair
value is estimated by discounted cash flow analysis using current market rates
for the estimated life and credit risk. Fair values for impaired loans are
estimated using discounted cash flow analyses or underlying collateral values,
where applicable. Liabilities for borrowed money are estimated using rates of
debt with similar terms and remaining maturities.
- --------------------------------------------------------------------------------
(Continued)
F-24
<PAGE>
BANKFIRST CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollar amounts in thousands, except share and per share data)
- --------------------------------------------------------------------------------
NOTE 16 - PARENT COMPANY CONDENSED FINANCIAL STATEMENTS
BALANCE SHEETS
Years ended December 31, 1997 and 1996
1997 1996
------- -------
Assets
Cash and cash equivalents $ 1,604 $ 9
Interest bearing deposit -- 1,200
Investment in subsidiary banks 38,753 34,370
Other 58 5
------- -------
Total assets $40,415 $35,584
======= =======
Total liabilities -- 41
------- -------
Employee stock ownership plan 1,536 1,389
Stockholders' equity
Common stock 3,099 2,394
Preferred stock 1,093 1,128
Additional paid-in capital 20,112 19,818
Retained earnings 14,013 10,745
Unrealized gain on securities 562 69
------- -------
Total stockholders' equity 38,879 34,154
------- -------
Total liabilities and stockholders' equity $40,415 $35,584
======= =======
STATEMENTS OF INCOME
Years ended December 31, 1997, 1996, and 1995
1997 1996 1995
------- ------- -------
Dividends from subsidiary banks $ 173 $ 380 $ 700
Other income 149 141 120
------- ------- -------
Total income 322 521 820
Interest expense -- 120 296
Other expense 143 301 788
------- ------- -------
Total expenses 143 421 1,084
------- ------- -------
Income before income taxes 179 100 (264)
Income tax expense (benefit) 3 (106) (366)
------- ------- -------
Income before equity in undistributed
income of subsidiaries 176 206 102
Equity in undistributed net income
of subsidiaries 3,890 3,458 2,723
------- ------- -------
Net income $ 4,066 $ 3,664 $ 2,825
======= ======= =======
- --------------------------------------------------------------------------------
(Continued)
F-25
<PAGE>
BANKFIRST CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollar amounts in thousands, except share and per share data)
- --------------------------------------------------------------------------------
NOTE 16 - PARENT COMPANY CONDENSED FINANCIAL STATEMENTS (Continued)
STATEMENTS OF CASH FLOWS
Years ended December 31, 1997, 1996, and 1995
<TABLE>
<CAPTION>
1997 1996 1995
------- ------- -------
<S> <C> <C> <C>
Operating activities
Net income $ 4,066 $ 3,664 $ 2,825
Adjustments to reconcile net income to net
cash provided by operating activities:
Undistributed net income of subsidiaries (3,890) (3,458) (2,723)
Change in assets (53) (23) 2
Change in liabilities (41) (10) --
------- ------- -------
Net cash provided by operating activities 82 173 104
Net cash used in investment activities
Change in time deposit with other banks 1,200 (1,200) --
------- ------- -------
Financing activities
Payments of notes payable -- (3,244) --
Preferred stock dividends paid (161) (162) (74)
Common stock dividends paid -- -- (305)
Cash paid for fractional shares in stock split (3) -- --
Effect of internal reorganization -- (1,846) (1,235)
Sales of common stock and stock options exercised 524 6,273 1,308
Repurchase of common stock (47) -- --
------- ------- -------
Net cash provided by (used in) financing activities 313 1,021 (306)
------- ------- -------
Net change in cash and cash equivalents 1,595 (6) (202)
Cash and cash equivalents, beginning of year 9 15 217
------- ------- -------
Cash and cash equivalents, end of year $ 1,604 $ 9 $ 15
======= ======= =======
</TABLE>
- --------------------------------------------------------------------------------
(Continued)
F-26
<PAGE>
BANKFIRST CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollar amounts in thousands, except share and per share data)
- --------------------------------------------------------------------------------
NOTE 17 - SUBSEQUENT EVENTS
On January 16, 1998, the Bank acquired a mortgage loan origination and servicing
company for $7.5 million cash in a business combination accounted for as a
purchase. The mortgage company's primary asset was loan servicing rights of
approximately $7.0 million. The excess of the purchase price over the fair value
of net asset acquired, $1.9 million, will be amortized on a straight-line basis
over 15 years.
On March 19, 1998, the Company and First Franklin Bancshares, Inc. ("First
Franklin") agreed in principle that all of the outstanding common stock of First
Franklin would be acquired by the Company in a business combination to be
accounted for as a pooling of interest. At December 31, 1997, First Franklin had
total assets of $182.0 million and total equity of $21.0 million. Upon
consummation of the transaction, stockholders of First Franklin will receive
4.41 shares of the Company's common stock for each share of First Franklin
common stock. Historical financial information presented in future reports will
be restated to include First Franklin. Consummation of the transaction is
subject to regulatory and stockholder approval.
The following summarized operating data gives effect to the acquisition had it
occurred on January 1, 1995:
1997 1996 1995
------------ ------------ ----------
Net interest income $ 28,635 $ 25,460 $ 23,037
============ ============ ==========
Net income $ 6,628 $ 6,049 $ 5,179
============ ============ ==========
Basic earnings per share $ 3.27 $ 3.14 $ 3.14
============ ============ ==========
Diluted earnings per share $ 3.05 $ 2.94 $ 2.95
============ ============ ==========
- --------------------------------------------------------------------------------
F-27
<PAGE>
BANKFIRST CORPORATION
CONSOLIDATED BALANCE SHEET
(Dollar amounts in thousands, except share and per share data)
- --------------------------------------------------------------------------------
March 31, 1998
(Unaudited)
ASSETS
Cash and due from banks $ 23,711
Securities available for sale, at fair value 75,206
Mortgage loans held for sale 19,969
Loans, net 361,029
Premises and equipment, net 19,202
Mortgage servicing rights 6,992
Federal Home Loan Bank Stock, at cost 2,422
Intangible assets 2,120
Accrued interest receivable and other asset 6,176
--------
Total assets $516,827
========
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities
Noninterest-bearing deposits $ 75,992
Interest-bearing deposits 334,133
--------
Total deposits 410,125
Federal funds purchased 14,500
Securities sold under agreements
to repurchase 19,175
Advances from the Federal Home Loan Bank 25,000
Accrued interest payable and other liabilities 6,280
--------
Total liabilities 475,080
Employee Stock Ownership Plan 1,745
Stockholders' equity
Common stock: $2.50 par value, 3,000,000
shares authorized, 1,275,893 shares
outstanding 3,105
Noncumulative convertible preferred stock: $5 par value,
1,000,000 shares authorized, 215,805 shares outstanding 1,079
Additional paid-in capital 19,938
Retained earnings 15,206
Unrealized gain on securities available for sale 674
--------
Total stockholders' equity 40,002
--------
Total liabilities and stockholders' equity $516,827
========
- --------------------------------------------------------------------------------
See accompanying notes to the consolidated financial statements.
F-28
<PAGE>
BANKFIRST CORPORATION
CONSOLIDATED STATEMENTS OF INCOME
(Dollar amounts in thousands, except share and per share data)
- --------------------------------------------------------------------------------
Three months ended March 31,
(Unaudited)
1998 1997
---- ----
Interest income
Interest and fees on loans $ 9,088 $ 7,753
Taxable securities 1,089 1,181
Nontaxable securities 57 32
Other 46 59
------- -------
10,280 9,025
Interest expense
Deposits 3,774 3,694
Short-term borrowings 484 168
Long-term borrowings 144 169
------- -------
4,402 4,031
------- -------
Net interest income 5,878 4,994
Provision for loan losses 225 300
------- -------
Net interest income after
provision for loan losses 5,653 4,694
Noninterest income
Service charges and fees 466 537
Loan servicing income, net of amortization 325 --
Net gain on loan sales 206 52
Trust department income 24 14
Other 452 260
------- -------
1,473 863
Noninterest expenses
Salaries and employee benefits 2,820 1,988
Occupancy expense 434 261
Equipment expense 496 495
Office expense 327 70
Data processing fees 285 239
FDIC assessments 11 29
Merger expnese 39 --
Other 736 838
------- -------
5,148 3,920
------- -------
Income before income taxes 1,978 1,637
Provision for income taxes 746 577
------- -------
Net income $ 1,232 $ 1,060
======= =======
Other comprehensive income (loss),
net of tax
Change in unrealized
gain (loss) on securities 112 (545)
------- -------
Comprehensive income $ 1,344 $ 515
======= =======
Earnings per share:
Basic $ 0.94 $ 0.82
Diluted $ 0.84 $ 0.74
- --------------------------------------------------------------------------------
See accompanying notes to the consolidated financial statements.
F-29
<PAGE>
BANKFIRST CORPORATION
CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
Three Months ended March 31, 1998
(Unaudited)
(Dollar amounts in thousands, except share and per share data)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Net
Unrealized Total
Additional Gains Stock-
Common Preferred Paid-in Retained (Losses) holders'
Stock Stock Capital Earnings on Securities Equity
----- ----- ------- -------- ------------- ------
<S> <C> <C> <C> <C> <C> <C>
Balance, January 1, 1998 $3,099 $1,093 $20,112 $14,013 $562 $38,879
Stock options exercised, 814 shares 2 -- 25 -- -- 27
Conversion of 2,703 shares of
preferred stock into 1,669 shares
common stock 4 (14) 10 -- -- --
Cash dividend on preferred stock -- -- -- (39) -- (39)
Net income -- -- -- 1,232 -- 1,232
Reclassification of ESOP shares
subject to put options -- -- (209) -- -- (209)
Change in unrealized gains -- -- -- -- 112 112
(losses)
------ ------ ------- ------- ---- -------
Balance, March 31, 1998 $3,105 $1,079 $19,938 $15,206 $674 $40,002
====== ====== ======= ======= ==== =======
</TABLE>
- --------------------------------------------------------------------------------
See accompanying notes to the consolidated financial statements.
F-30
<PAGE>
BANKFIRST CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollar amounts in thousands, except share and per share data)
- --------------------------------------------------------------------------------
Three months
ended March 31,
(Unaudited)
1998 1997
---- ----
Cash flows from operating activities
Net income $ 1,232 $ 1,060
Adjustments to reconcile net income
to net cash from operating activities
Provision for loan losses 225 300
Depreciation 303 289
Amortization and accretion, net (343) (40)
Gain on sale of mortgage loans (206) (52)
Proceeds from sales of mortgage loans 29,806 1,899
Purchases of mortgage loans held for sale (11,944) --
Originations of mortgage loans held for sale (30,963) (2,140)
Changes in assets and liabilities
Accrued interest receivable and other assets (2,124) (731)
Accrued interest payable and other liabilities (691) 583
-------- --------
Net cash provided by (used in)
operating activities (14,705) 1,168
Cash flows from investing activities
Net cash paid for mortgage company (7,449) --
Purchase of securities (4,095) (3,522)
Proceeds from maturities of securities 1,000 6,573
Net increase in loans (16,085) (16,091)
Purchase of FHLB stock (42) (556)
Premises and equipment expenditures, net (603) (1,670)
-------- --------
Net cash used in investing activities (27,274) (15,266)
Cash flows from financing activities
Net change in deposits 14,973 10,274
Net change in securities sold
under agreements to repurchase 2,873 295
Net change in federal funds purchased 14,291 10,450
Advances from the FHLB 15,000 --
Repayment of notes payable (5,798) --
Preferred stock dividends paid (39) (40)
Stock options exercised 27 --
-------- --------
Net cash provided by financing activities 41,327 20,979
-------- --------
Net change in cash and cash equivalents (652) 6,881
Cash and cash equivalents, beginning of period 24,363 12,995
-------- --------
Cash and cash equivalents, end of period $ 23,711 $ 19,876
======== ========
Supplemental disclosures:
Interest paid $ 2,013 $ 1,827
Income taxes paid 250 131
Loans converted to other real estate 178 107
Preferred stock converted to common stock 14 --
Reclassification of ESOP shares 209 --
- --------------------------------------------------------------------------------
See accompanying notes to the consolidated financial statements.
F-31
<PAGE>
BANKFIRST CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollar amounts in thousands, except share and per share data)
- --------------------------------------------------------------------------------
Principles of Consolidation: The consolidated financial statements include the
accounts of BankFirst Corporation (formerly Smoky Mountain Bancorp, Inc.) (the
"Company") and its wholly-owned subsidiary, BankFirst (the "Bank"), and the
Bank's wholly-owned subsidiary, Curtis Mortgage Company. In April, 1998, the
Company changed its name to BankFirst Corporation.
The accompanying unaudited consolidated financial statements have been prepared
in accordance with generally accepted accounting principles for interim
financial information, and accordingly they do not include all of the
information and footnotes required by generally accepted accounting principles
for complete financial statements. In the opinion of management, all adjustments
considered necessary for a fair presentation have been included. Operating
results for the three month periods ended March 31, 1998 and 1997 are not
necessarily indicative of the results that may be expected for the year ended
December 31, 1998, or for the year ended December 31, 1997. For further
information, refer to the consolidated financial statements and footnotes
thereto included BankFirst's consolidated financial statements for the year
ended December 31, 1997.
Mortgage Banking Activities: Mortgage loans are originated and intended for sale
in the secondary market are carried at the lower of cost or estimated aggregate
market value. Mortgage loans are sold into the secondary market at market
prices, which includes consideration for normal servicing fees. The total cost
of mortgage loans purchased or originated with the intent to sell is allocated
between the loan servicing right and the mortgage loan without servicing, based
on their relative fair values. The capitalized cost of loan servicing rights is
amortized in proportion to, and over the period of, estimated net future
servicing revenue. Mortgage servicing rights are periodically evaluated for
impairment by stratifying them based on predominant risk characteristics of the
underlying serviced loans, such as loan type, term and note rate. Impairment
represents the excess of cost of an individual mortgage servicing rights stratum
over its fair value, and is recognized through a valuation allowance.
Borrowings: Federal funds purchased are overnight borrowings. Advances from the
Federal Home Loan Bank are comprised of $15,000 overnight, $5,000 due April 30,
1998, and $5,000 due September 30, 1998.
Comprehensive Income: The Company adopted Statement of Financial Accounting
Standard No. 130, "Reporting Comprehensive Income", effective for the interim
period ended March 31, 1998. This Standard requires reporting of comprehensive
income, defined as changes in equity other than those resulting from investments
by or distributions to stockholders. Net income, plus or minus "other
comprehensive income" results in comprehensive income. The only item of other
comprehensive income applicable to the Company is the change in unrealized gain
or loss on securities available for sale. Comprehensive income is reported on
the statement of income. The period ended March 31, 1997 was restated to meet
the current reporting format.
- --------------------------------------------------------------------------------
(Continued)
F-32
<PAGE>
BANKFIRST CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollar amounts in thousands, except share and per share data)
- --------------------------------------------------------------------------------
Purchase Transaction: On January 16, 1998, the Bank acquired Curtis Mortgage
Company, a mortgage loan origination and servicing company, for $7,500 in a
business combination accounted for as a purchase. The results of operations of
Curtis Mortgage Company is included in the accompanying financial statements
since the date of acquisition. The excess of the purchase price over the fair
value of net assets acquired resulted in $1,900 of goodwill, which is being
amortized on a straight-line basis over 15 years. Upon the transaction, $6,065
of the purchase price was allocated to mortgage servicing rights, which are
being amortized on a level-yield basis over the life of the underlying loans.
Assets and liabilities acquired were:
Cash $ 51
Loans held for sale 6,267
Mortgage servicing rights 7,000
Furniture and equipment 165
Accrued interest receivable and other assets 375
Notes payable (5,798)
Accrued and other liabilities (2,460)
Subsequent Event: On March 19, 1998, the Company and First Franklin Bancshares,
Inc. ("First Franklin") agreed in principle that all of the outstanding common
stock of First Franklin would be acquired by the Company in a business
combination to be accounted for as a pooling of interest. At March 31, 1998,
First Franklin had total assets of $185 and total equity of $22. Upon
consummation of the transaction, stockholders of First Franklin will receive
4.41 shares of the Company's common stock for each share of First Franklin
common stock. Historical financial information presented in future reports will
be restated to include First Franklin. Consummation of the transaction is
subject to regulatory and stockholder approval.
The following summarized operating data gives effect to the acquisition had it
occurred on January 1, 1997:
Three months ended March 31,
1998 1997
---- ----
Net interest income $7,796 $6,745
Net income $1,703 $1,567
Basic earnings per share $.83 $.78
Diluted earnings per share $.78 $.72
- --------------------------------------------------------------------------------
(Continued)
F-33
<PAGE>
BANKFIRST CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollar amounts in thousands, except share and per share data)
- --------------------------------------------------------------------------------
Earnings Per Share: Basic earnings per share is based on weighted average common
shares outstanding. Diluted earnings per share further assumes issuance of any
dilutive potential common shares. Earnings per share are restated for all
subsequent stock dividends and splits.
A reconciliation of the numerators and denominators of the earnings per common
share and earnings per common share assuming dilution computations are presented
below
Three months ended
March 31,
(Unaudited)
1998 1997
---- ----
Earnings Per Share
Net income $ 1,232 1,060
Less: Dividends declared on preferred stock (39) (40)
----------- -----------
Net income available to common
stockholders $ 1,193 $ 1,020
=========== ===========
Weighted average common shares outstanding 1,273,994 1,242,103
=========== ===========
Earnings per share $ 0.94 $ 0.82
=========== ===========
Earnings Per Share Assuming Dilution
Net income available to common stockholders $ 1,193 $ 1,020
Add back dividends upon assumed conversion
of preferred stock 39 40
----------- -----------
Net income available to common
stockholders assuming conversion $ 1,232 $ 1,060
=========== ===========
Weighted average common shares outstanding 1,273,994 1,242,103
Add: Dilutive effects of assumed conversions
and exercises:
Convertible preferred stock 134,371 139,847
Stock options 58,939 57,213
Weighted average common and dilutive
potential common shares outstanding 1,467,304 1,439,163
----------- -----------
Earnings per share assuming dilution $ 0.84 $ 0.74
=========== ===========
F-34
<PAGE>
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and Stockholders
First Franklin Bancshares, Inc. and Subsidiary
Athens, Tennessee
We have audited the accompanying consolidated balance sheets of First Franklin
Bancshares, Inc. and Subsidiary as of December 31, 1997 and 1996, and the
related consolidated statements of income, changes in stockholders' equity, and
cash flows for each of the years in the three-year period ended December 31,
1997. These consolidated financial statements are the responsibility of the
Bank's management. Our responsibility is to express an opinion on these
consolidated 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 these audits to
obtain reasonable assurance about whether the consolidated financial statements
are free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the consolidated financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of First Franklin
Bancshares, Inc. and Subsidiary as of December 31, 1997 and 1996, and the
results of their operations and their cash flows for each of the years in the
three-year period ended December 31, 1997 in conformity with generally accepted
accounting principles.
G. R. RUSH & COMPANY, P.C.
Chattanooga, Tennessee
January 22, 1998
(except for Note 16, as to which the
date is March 19, 1998)
F-35
<PAGE>
FIRST FRANKLIN BANCSHARES, INC. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 1997 AND 1996
(In Thousands of Dollars)
-------------------------
1997 1996
--------- --------
ASSETS
Cash and due from banks $ 6,927 $ 6,237
Federal funds sold -- 5,900
-------- --------
Total cash and cash equivalents 6,927 12,137
Securities available for sale,
at fair value 56,490 58,933
Loans, net 113,305 96,391
Premises and equipment, net 2,729 2,848
Accrued interest receivable
and other assets 2,516 1,982
-------- --------
Total assets $181,967 $172,291
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities
Noninterest-bearing deposits $ 26,323 $ 26,860
Interest-bearing deposits 128,294 123,128
-------- --------
Total deposits 154,617 149,988
Other borrowed funds 1,750 714
Advances from the Federal
Home Loan Bank 2,121 154
Accrued interest payable and
other liabilities 2,462 1,763
-------- --------
Total liabilities 160,950 152,619
-------- --------
Stockholders' equity
Common stock: $5.00 par value,
400,000 shares authorized,
164,028 and 164,902 shares
outstanding in 1997 and 1996 820 825
Additional paid-in capital 3,203 3,333
Retained earnings 16,595 15,247
Net unrealized gain on securities
available for sale 399 267
-------- --------
Total stockholders' equity 21,017 19,672
-------- --------
Total liabilities and
stockholders' equity $181,967 $172,291
======== ========
See notes to consolidated financial statements.
F-36
<PAGE>
FIRST FRANKLIN BANCSHARES, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF INCOME
FOR THE YEARS ENDED DECEMBER 31, 1997 AND 1996
(In Thousands of Dollars,
Except Per Share Amounts)
---------------------------------
1997 1996 1995
-------- -------- --------
INTEREST INCOME
Interest and fees on loans $ 10,111 $ 9,362 $ 9,171
Taxable securities 2,361 2,473 2,565
Nontaxable securities 1,051 1,016 874
Other 139 263 260
-------- -------- --------
13,662 13,114 12,870
-------- -------- --------
INTEREST EXPENSE
Deposits 6,060 5,989 5,576
Borrowings 118 50 90
-------- -------- --------
6,178 6,039 5,666
-------- -------- --------
NET INTEREST INCOME 7,484 7,075 7,204
PROVISION FOR LOAN LOSSES 685 150 175
-------- -------- --------
NET INTEREST INCOME AFTER PROVISION
FOR LOAN LOSSES 6,799 6,925 7,029
-------- -------- --------
NONINTEREST INCOME
Service charges and fees 1,171 1,181 1,124
Net securities gains (losses) 134 (20) (68)
Net gain on loan sales -- 35 --
Trust department income 622 572 551
Prepaid pension cost adjustment 222 -- --
Other 88 78 73
-------- -------- --------
2,237 1,846 1,680
-------- -------- --------
NONINTEREST EXPENSES
Salaries and employee benefits 3,124 3,147 3,003
Occupancy expense 404 405 401
Equipment expense 509 498 472
FDIC assessments -- -- 160
Office expense 150 162 139
Data processing fees 272 272 234
Other 1,080 903 903
-------- -------- --------
5,539 5,387 5,312
-------- -------- --------
INCOME BEFORE INCOME TAXES 3,497 3,384 3,397
PROVISION FOR INCOME TAXES 935 999 1,043
-------- -------- --------
NET INCOME $ 2,562 $ 2,385 $ 2,354
======== ======== ========
EARNINGS PER SHARE:
Basic $ 15.62 $ 14.40 $ 14.15
See notes to consolidated financial statements.
F-37
<PAGE>
FIRST FRANKLIN BANCSHARES, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
FOR THE YEARS ENDED DECEMBER 31, 1997 AND 1996
<TABLE>
<CAPTION>
(In Thousands of Dollars)
-------------------------------------------------------------------------------
Additional Net Unrealized Total
Common Paid-in Retained Gains (Losses) Stockholders'
Stock Capital Earnings on Securities Equity
---------- ---------- -------- -------------- -------------
<S> <C> <C> <C> <C> <C>
Balance, January 1, 1995 $ 837 $ 3,627 $ 12,231 $ (1,454) $ 15,241
Retirement of repurchased
shares, 1,200 shares (6) (114) -- -- (120)
Cash dividends on common stock -- -- (847) -- (847)
Net income -- -- 2,354 -- 2,354
Change in unrealized gains
(losses) -- -- -- 1,808 1,808
-------- -------- -------- -------- --------
Balance, January 1, 1996 831 3,513 13,738 354 18,436
Retirement of repurchased
shares, 1,225 shares (6) (180) -- -- (186)
Cash dividends on common stock -- -- (876) -- (876)
Net income -- -- 2,385 -- 2,385
Change in unrealized gains
(losses) -- -- -- (87) (87)
-------- -------- -------- -------- --------
Balance, January 1, 1997 825 3,333 15,247 267 19,672
Sales of common stock,
267 shares 1 42 -- -- 43
Retirement of repurchased
shares, 1,141 shares (6) (172) -- -- (178)
Cash dividends on common stock -- -- (1,214) -- (1,214)
Net income -- -- 2,562 -- 2,562
Change in unrealized gains
(losses) -- -- -- 132 132
-------- -------- -------- -------- --------
Balance, December 31, 1997 $ 820 $ 3,203 $ 16,595 $ 399 $ 21,017
======== ======== ======== ======== ========
</TABLE>
See notes to consolidated financial statements.
F-38
<PAGE>
FIRST FRANKLIN BANCSHARES, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1997 AND 1996
Inflows (Outflows) in Cash and Cash Equivalents
<TABLE>
<CAPTION>
(In Thousands of Dollars)
--------------------------------------------
1997 1996 1995
--------- -------- --------
<S> <C> <C> <C>
Cash flows from operating activities
Net income $ 2,562 $ 2,385 $ 2,354
Adjustment to reconcile net income to net cash
provided by operating activities
Provision for loan losses 685 150 175
Depreciation 373 344 332
Amortization 36 36 36
Net (gains) losses on securities sales (134) 20 68
Net (gains) losses on sales of premises and equipment (8) (5) 2
Gain on sale of loans -- (35) --
Deferred tax provision 29 74 13
Accrued interest receivable and other assets (570) (115) 151
Accrued interest payable and other liabilities 552 (3) 135
-------- -------- --------
Net cash flows from operating activities 3,525 2,851 3,266
-------- -------- --------
Cash flows from investing activities
Purchases of securities (26,898) (29,544) (13,431)
Proceeds from maturities of securities 8,051 13,832 9,010
Proceeds from sales of securities 21,637 12,995 14,089
Net increase in loans (17,598) (643) (12,917)
Proceeds from sales of premises and equipment 8 20 --
Acquisition of premises and equipment (255) (274) (362)
-------- -------- --------
Net cash flows from investment activities (15,055) (3,614) (3,611)
-------- -------- --------
Cash flows from financing activities
Net change in deposits 4,629 (444) 5,075
Advances from Federal Home Loan Bank 2,000 -- --
Repayments of advances from Federal Home Loan Bank (33) (9) (8)
Net change in other borrowed funds 1,073 562 (602)
Purchase of common stock (178) (186) (120)
Sales of common stock 43 -- --
Common stock dividends paid (1,214) (876) (847)
-------- -------- --------
Net cash flows from financing activities 6,320 (953) 3,498
-------- -------- --------
Cash and cash equivalents
Net cash inflow (outflow) (5,210) (1,716) 3,153
Balance
Beginning of year 12,137 13,853 10,700
-------- -------- --------
End of year $ 6,927 $ 12,137 $ 13,853
======== ======== ========
Supplemental disclosures:
Interest $ 6,139 $ 6,048 $ 5,459
Income taxes 983 1,101 1,052
Total increase in unrealized
appreciation (depreciation) on
securities available for sale 132 (87) 1,808
</TABLE>
See notes to consolidated financial statements.
F-39
<PAGE>
FIRST FRANKLIN BANCSHARES, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1997 AND 1996
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES.
Principles of consolidation. The consolidated financial statements include
the accounts of the parent company and its wholly owned subsidiary, First
National Bank and Trust Company. All significant intercompany transactions
and balances are eliminated in the consolidation.
Nature of operations. The Company provides a variety of financial services
to individuals and corporate customers through its various branches in the
McMinn County, Tennessee region. The Company's primary deposit products
are demand deposits, NOW accounts, savings accounts and certificates of
deposit. Its primary lending products are commercial and single-family
residential loans.
Use of estimates. The preparation of financial statements in conformity
with generally accepted accounting principles requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the
date of the financial statements and the reported amounts of revenues and
expenses during the reporting period. Actual results could differ from
those estimates.
Material estimates that are particularly susceptible to significant change
relate to the determination of the allowance for loan losses. Management's
determination of the allowance for loan losses is based on various factors
described below under the caption "Loans and allowance for loan losses".
While management uses available information to recognize losses on loans,
future additions to the allowance may be necessary based on changes in
local economic conditions. In addition, regulatory agencies, as an
integral part of their examination process, periodically review the
Company's allowance for loan losses. Such agencies may require the Company
to recognize additions to the allowance based on their judgments about
information available to them at the time of their examination. Because of
these factors, it is reasonably possible that the allowance for loan
losses may change materially in the near term.
Cash and cash equivalents. For purposes of the statement of cash flows,
the Company considers all highly liquid debt instruments purchased with a
maturity of three months or less to be cash equivalents.
Securities available for sale. The Company classified all investments as
securities available for sale. No investments were classified under the
other categories of trading securities and held to maturity securities.
Available for sale securities are reported at fair value, with unrealized
holding gains and losses excluded from earnings and reported as a separate
component of stockholders' equity.
All investment securities are initially recorded at cost, with adjustments
made for amortization of premiums and accretion of discounts, which are
recognized as adjustments to interest income. Gains and losses on
disposition are based on the net proceeds and the adjusted carrying amount
of the securities sold, using the specific identification method.
F-40
<PAGE>
FIRST FRANKLIN BANCSHARES, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1997 AND 1996
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued).
Unrealized holding gains and losses, net of deferred tax, on securities
available for sale are reported as a net amount in a separate component of
stockholders' equity until realized. At December 31, 1997 and 1996, the
deferred tax liability was $244 thousand and $163 thousand, respectively.
Loans and allowance for loan losses. Loans are stated at the amount of
unpaid principal, reduced by unearned discount, unamortized loan fees and
an allowance for loan losses. Interest on loans is calculated by using the
simple interest method on daily balances of the principal amount
outstanding. Loan fees are recognized as an adjustment of yield over the
lives of the related loans.
The allowance for loan losses is established through a provision for loan
losses charged to expense. Loans are charged against the allowance for
loan losses when management believes that the collectibility of the
principal is unlikely. The allowance is an amount that management believes
will be adequate to absorb possible losses on existing loans that may
become uncollectible, based on evaluations of the collectibility of loans
and prior loan loss experience. The evaluations take into consideration
such factors as changes in the nature and volume of the loan portfolio,
overall portfolio quality, review of specific problem loans, and current
economic conditions that may affect the borrowers' ability to pay. Accrual
of interest is discontinued on a loan when management believes, after
considering economic and business conditions and collection efforts, that
the borrowers' financial condition is such that collection of interest is
doubtful.
Loans are considered impaired in full payment under the loan terms is not
expected. Impairment is evaluated in total for smaller-balance loans of
similar nature such as residential mortgage and consumer loans, and on an
individual basis for other loans. Impaired loans are carried at the
present value of expected cash flows discounted at the loan's effective
interest rate or at the fair value of the collateral if the loan is
collateral dependent. If impaired loans are significant to management, a
portion of the allowance for loan losses is allocated to impaired loans.
Loans are evaluated for impairment when payments are delayed, or when the
internal grading system indicates a substandard or doubtful
classification. Payment on such loans are reported as principal
reductions.
Depreciation. Office equipment and buildings are stated at cost less
accumulated depreciation computed on the straight-line method over the
estimated useful lives of the assets. Leasehold improvements are amortized
on the straight-line method over the shorter of the estimated useful lives
of the improvements or the terms of the related leases.
Amortization. Intangible assets of the parent company are being amortized
on the straight-line method over a fifteen year period.
Income taxes. Income taxes are allocated based upon each entity's portion
of net income at the applicable tax rate. Deferred income taxes are
reported for timing differences between items of income or expense
reported in the financial statements and those reported for income tax
purposes. The differences relate principally to the basis of available for
sale securities, depreciation methods, defined benefit pension plan, and
the provision for loan losses.
F-41
<PAGE>
FIRST FRANKLIN BANCSHARES, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1997 AND 1996
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued).
Fair value of financial instruments. Fair values of financial instruments
are estimated using relevant market information and other assumptions, as
disclosed in Note 11. Fair value estimates involve uncertainties and
matters of significant judgment regarding interest rates, credit risk,
prepayments, and other factors, especially in the absence of broad markets
for particular items. Changes in assumptions or in market conditions could
significantly affect the estimates.
Repurchased common stock. All repurchased shares are retired in accordance
with Tennessee statutes and are available for issuance.
Earnings per share. Basic earnings per share are computed under a new
accounting standard effective in the quarter ended December 31, 1997. All
prior amounts conform to the new standard and do not require restatement.
Basic earnings per share is based upon net income divided by the weighted
average number of shares outstanding during the year.
Reclassifications. Certain amounts in 1995 and 1996 have been reclassified
to conform with the 1997 presentation.
Future accounting changes. New accounting standards have been issued which
will require future reporting of comprehensive income (net income plus
changes in holding gains and losses on available for sale securities) and
may require redetermination of industry segment financial information.
2. SECURITIES AVAILABLE FOR SALE.
Carrying amounts and approximate market values of securities are
summarized as follows:
<TABLE>
<CAPTION>
December 31, 1997 Amortized Unrealized Unrealized
(In Thousands of Dollars) Cost Gains Losses Market Value
------------------------- --------- ---------- ---------- ------------
<S> <C> <C> <C> <C>
U.S. Treasury $ 12,078 $ 88 $ (41) $ 12,125
Obligations of other U.S. government
agencies:
Mortgage-backed securities 4,481 39 (29) 4,491
Collateralized mortgage
obligations 4,473 12 (31) 4,454
Other 2,002 -- (11) 1,991
Obligations of states and political
subdivisions 32,147 624 (8) 32,763
FHLB and FRB stock 666 -- -- 666
-------- -------- -------- --------
$ 55,847 $ 763 $ (120) $ 56,490
======== ======== ======== ========
</TABLE>
F-42
<PAGE>
FIRST FRANKLIN BANCSHARES, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1997 AND 1996
2. SECURITIES AVAILABLE FOR SALE (Continued).
<TABLE>
<CAPTION>
December 31, 1996 Amortized Unrealized Unrealized
(In Thousands of Dollars) Cost Gains Losses Market Value
------------------------- --------- ---------- ---------- ------------
<S> <C> <C> <C> <C>
U.S. Treasury $ 13,575 $ 88 $ (104) $ 13,559
Obligations of other U.S. government
agencies:
Mortgage-backed securities 13,182 58 (48) 13,192
Collateralized mortgage
obligations 6,701 22 (84) 6,639
Other 4,687 19 (48) 4,658
Obligations of states and political
subdivisions 19,732 550 (23) 20,259
FHLB and FRB stock 626 -- -- 626
-------- -------- -------- --------
$ 58,503 $ 737 $ (307) $ 58,933
======== ======== ======== ========
</TABLE>
Securities with par amounts of approximately $17,375 thousand and $17,869
thousand for 1997 and 1996, respectively, were pledged to secure deposits
and other liabilities of $7,117 thousand and $2,969 thousand. The market
value of the pledged securities was $17,553 thousand and $18,000 thousand
at December 31, 1997 and 1996, respectively.
The maturities of securities at December 31, 1997, were as follows:
Amortized Market
In Thousands of Dollars Cost Value
-------------------------------------- ----------- -----------
Due in one year or less $ 4,549 $ 4,532
Due after one year through five years 12,588 12,691
Due after five years through ten years 15,122 15,369
Due after ten years 22,922 23,232
Other securities 666 666
----------- -----------
$ 55,847 $ 56,490
=========== ===========
In Thousands of Dollars 1997 1996 1995
-------------------------------------- ------ ------ ------
Sales of available for sale securities
Realized gains $ 137 $ 33 $ 20
Realized losses 3 53 88
F-43
<PAGE>
FIRST FRANKLIN BANCSHARES, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1997 AND 1996
3. NET LOANS.
Major classifications of loans at December 31, are as follows:
In Thousands of Dollars 1997 1996
-------------------------------------- --------- ---------
Commercial loans $ 29,462 $ 19,328
Real estate loans
Construction and development 6,895 5,485
Commercial 19,226 15,341
Residential 38,908 38,165
Installment loans 20,855 19,495
Other 268 395
--------- ---------
Total loans 115,614 98,209
Less -
Unearned interest income (1,062) (603)
Allowance for loan losses (1,096) (1,153)
Unamortized loan fees (151) (62)
--------- ---------
Net loans $ 113,305 $ 96,391
========= =========
Impaired loans on which the accrual of interest has been discontinued or
reduced had balances of $615 thousand and $275 thousand at December 31,
1997 and 1996, respectively. If interest on those loans had been accrued,
such income would have approximated $56 thousand and $12 thousand for the
above years. Interest income on this type of loan is recorded only when
received.
Changes in the allowance for loan losses were as follows:
In Thousands of Dollars 1997 1996 1995
----------------------------------- ------- ------- -------
Balance, beginning of year $ 1,153 $ 1,283 $ 1,244
Provision 685 150 175
Loans charged off (955) (465) (301)
Recoveries of loans charged off 249 185 165
Reclassification to Off-Balance
Sheet Reserve (36) -- --
------- ------- -------
Balance, end of year $ 1,096 $ 1,153 $ 1,283
======= ======= =======
F-44
<PAGE>
FIRST FRANKLIN BANCSHARES, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1997 AND 1996
4. PREMISES AND EQUIPMENT.
Major classifications of these assets are as follows:
In Thousands of Dollars 1997 1996
---------------------------------- ---------- ----------
Land $ 338 $ 338
Buildings 1,697 1,687
Leasehold improvements 762 747
Furniture, fixtures and equipment 3,038 2,832
---------- ----------
5,835 5,604
Less - accumulated depreciation 3,106 2,756
---------- ----------
$ 2,729 $ 2,848
========== ==========
5. INTANGIBLE ASSETS.
Included in the caption "Accrued interest receivable and other assets" are
intangible assets consisting of goodwill which is being amortized on the
straight-line method over its useful life:
In Thousands of Dollars Unamortized Cost Amortization
----------------------- ---------------- -------------------------
1997 1996 1997 1996 1995
------- ------- ------- ------- -------
Goodwill $ 85 $ 121 $ 36 $ 36 $ 36
======= ======= ======= ======= =======
6. DEPOSITS.
Certificates of deposit of $100 thousand or more were $16,323 thousand and
$13,696 thousand at December 31, 1997 and 1996, respectively.
At December 31, 1997, scheduled maturities of time deposits were as
follows (in thousands of dollars):
1998 $ 46,331
1999 25,935
2000 8,678
2001 6,198
----------
$ 87,142
==========
F-45
<PAGE>
FIRST FRANKLIN BANCSHARES, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1997 AND 1996
7. BORROWINGS.
Other borrowed funds consist of treasury tax and loan deposits, which are
held under a note option with the Federal Home Loan Bank, and federal
funds purchased. The note option has a maximum indebtedness of $1,100
thousand, bears an interest rate equivalent to the federal funds rate, and
generally matures within seven to fourteen days. Other borrowed funds at
December 31, 1997 and 1996 were comprised of the following:
In Thousands of Dollars 1997 1996
--------------------------------- --------- -------
Treasury tax and loan note option $ 1,100 $ 714
Federal funds purchased 650 --
--------- -------
$ 1,750 $ 714
========= =======
Federal Home Loan Bank advances consisted of the following at December 31,
1997 and 1996:
In Thousands of Dollars 1997 1996
- --------------------------------------------------------- ------- -------
6.75% fixed rate advance, principal and interest monthly,
maturing on September 1, 2012 $ 743 $ --
6.51% fixed rate advance, principal and interest monthly,
maturing on January 1, 2013 500 --
7.20% fixed rate advance, principal and interest monthly,
maturing on June 1, 2012 490 --
6.80% fixed rate advance, principal and interest monthly,
maturing on March 1, 2012 243 --
5.95% fixed rate advance, principal and interest monthly,
maturing on August 1, 2008 80 85
5.70% fixed rate advance, principal and interest monthly,
maturing on September 1, 2008 65 69
------- ------
$ 2,121 $ 154
======= ======
F-46
<PAGE>
FIRST FRANKLIN BANCSHARES, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1997 AND 1996
7. BORROWINGS (Continued).
These advances are collateralized by a blanket pledge of the subsidiary's
qualifying residential mortgage loans which have a carrying value that
significantly exceeds the maximum FHLB note amounts.
8. PROVISION FOR INCOME TAXES. The provision for income taxes is as follows:
In Thousands of Dollars 1997 1996 1995
---------------------------------- ------- ------- --------
Currently payable -
Federal $ 713 $ 728 $ 825
State 193 197 205
------- ------- -------
906 925 1,030
Deferred provision -
Federal and state 29 74 13
------- ------- -------
$ 935 $ 999 $ 1,043
======= ======= =======
Temporary differences which give rise to the net deferred tax liability at
December 31, are as follows:
In Thousands of Dollars 1997 1996
--------------------------------- -------- --------
Deferred tax assets:
Allowance for loan losses $ 95 $ 103
Deferred compensation 86 89
Deferred loan fees 57 24
------- -------
Total deferred tax assets 238 216
------- -------
Deferred tax liabilities:
Net unrealized appreciation
on securities available
for sale 244 163
Depreciation 209 221
Defined benefit plan 189 --
Other 57 42
------- -------
Total deferred tax liabilities 699 426
------- -------
Net deferred tax asset (liability) $ (461) $ (210)
======= =======
The net deferred tax asset (liability) amounts are included in the caption
"Accrued interest receivable and other assets" and "Accrued interest
payable and other liabilities", respectively. The parent company's tax
liabilities or expenses were not significant for 1997 or 1996.
F-47
<PAGE>
FIRST FRANKLIN BANCSHARES, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1997 AND 1996
8. PROVISION FOR INCOME TAXES (Continued).
A reconciliation of expected income tax expense at the statutory federal
income tax rate of 34% with the actual effective income tax rates, is as
follows:
1997 1996 1995
---- ---- ----
Statutory federal tax rate 34.0% 34.0% 34.0%
State income tax, net of
federal benefit 4.0 4.0 4.0
Tax exempt income (7.5) (6.0) (5.4)
Other (3.8) (2.5) (1.9)
---- ---- ----
26.7% 29.5% 30.7%
==== ==== ====
9. RETIREMENT PLANS.
The First National Bank and Trust Company has defined benefit pension and
defined contribution profit sharing plans covering substantially all
employees. The benefits for the pension plan are based primarily upon
years of service and career average pay. The Bank's funding policy is to
make annual contributions as required by applicable regulations. The Bank
has charged pension costs as accrued, based on an actuarial valuation and
funded the plans through contributions to trust funds that are kept apart
from Bank funds.
The pertinent assumptions and calculations covering the pension plan are
summarized below as of December 31:
In Thousands of Dollars 1997 1996
----------------------------------------- ------- -------
Assumptions:
Discount rate 8.5% 8.5%
Salary increase rate 6.5% 6.5%
Expected rate of return on plan assets 8.5% 8.5%
Net periodic pension cost:
Service cost $ 173 $ 159
Interest cost 318 287
Return on plan assets (629) (305)
Other 249 (21)
------- -------
Net periodic pension cost $ 111 $ 120
======= =======
F-48
<PAGE>
FIRST FRANKLIN BANCSHARES, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1997 AND 1996
9. RETIREMENT PLANS (Continued).
In Thousands of Dollars 1997 1996
------------------------------------------ ---------- ----------
Actuarial present value of --
Vested benefit obligation $ (3,924) $ (2,708)
Nonvested benefit obligation (52) (27)
--------- ---------
Accumulated benefit obligation (3,976) (2,735)
Effect of projected future compensation (1,263) (1,051)
--------- ---------
Projected benefit obligation (5,239) (3,786)
Plan assets at fair value 4,927 4,177
--------- ---------
Plan assets in excess of or (less
than) projected benefit
obligation (312) 391
Unrecognized transition amount (150) (171)
Unrecognized net loss 959 150
--------- ---------
Net prepaid pension cost $ 497 $ 370
========= =========
Plan assets consist principally of U.S. Treasury notes, government
agencies, corporate bonds and notes, and common stocks. Contributions to
the plans are as follows:
In Thousands of Dollars 1997 1996 1995
---------------------------------- ------- ------- -------
Pension plan $ 238 $ 229 $ 243
Profit sharing plan 83 112 106
10. CONTINGENT LIABILITIES.
The consolidated financial statements do not reflect various commitments
and contingent liabilities which arise in the normal course of business
and which involve elements of credit risk, interest rate risk and
liquidity risk. These commitments and contingent liabilities are
commitments to extend credit, letters of credit, and home equity lines of
credit. A summary of the unused portion of these commitments and
contingent liabilities at December 31, 1997, is as follows (in thousands
of dollars):
Commercial lines of credit $ 7,541
Real estate construction lines of credit 5,151
Personal lines of credit 472
Home equity lines of credit 1,216
Other commitments to extend credit 314
Standby letters of credit 171
---------
Total $ 14,865
=========
F-49
<PAGE>
FIRST FRANKLIN BANCSHARES, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1997 AND 1996
10. CONTINGENT LIABILITIES (Continued).
All of the above commitments and contingent liabilities include exposure
to some credit loss in the event of nonperformance of the customer. The
credit policies and procedures for these items are the same as those for
extensions of credit that are recorded in the consolidated balance sheets.
Because the majority of these instruments have fixed maturity dates and
all commitments are not utilized before expiration, they do not generally
present any significant liquidity risk to the bank. No significant losses
have been incurred on its commitments in either 1997 or 1996.
11. FAIR VALUE OF FINANCIAL INSTRUMENTS.
The fair value of financial instruments is disclosed to comply with
Statement of Financial Accounting Standards (SFAS) No. 107, "Disclosure
about Fair Value of Financial Instruments". For the purposes of this
disclosure, the estimated fair value of financial instruments with
immediate and shorter-term maturities (generally 90 days or less) is
assumed to be the same as the recorded book value. At December 31, 1997
and 1996, these instruments include the consolidated balance sheet lines
captioned "Cash and cash equivalents", interest receivable included in
"Accrued interest receivable and other assets" (of $1,192 thousand and
$1,245 thousand, respectively), "Noninterest-bearing deposits", NOW
account and savings deposits included in "Interest-bearing deposits" (of
$41,152 thousand and $39,547 thousand, respectively), "Other borrowed
funds", "Advances from the Federal Home Loan Bank", and interest payable
included in "Accrued interest payable and other liabilities" (of $944
thousand and $896 thousand, respectively). Investment securities consist
entirely of available for sale securities and are recorded at fair value
on the consolidated balance sheet.
The carrying amounts and estimated fair values of other financial
instruments at December 31, 1997 and 1996, are summarized as follows:
1997 1996
------------------------------------------
Carrying Estimated Carrying Estimated
In Thousands of Dollars Amount Fair Value Amount Fair Value
----------------------- -------- ---------- -------- ----------
Financial assets:
Loans, less allowance for
loan losses $113,305 $113,939 $ 96,391 $ 97,434
Financial liabilities:
Time deposits $ 87,142 $ 87,491 $ 83,581 $ 84,020
Off-balance sheet:
Commitments to extend
credit and standby letters
of credit $ -- $ -- $ -- $ --
The following methods and assumptions were used by the Company in
estimating its fair value disclosures for financial instruments:
F-50
<PAGE>
FIRST FRANKLIN BANCSHARES, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1997 AND 1996
11. FAIR VALUE OF FINANCIAL INSTRUMENTS (Continued).
Loans. The fair values of variable rate loans that reprice frequently and
have no significant change in credit risk are assumed to approximate
carrying amounts. The fair value of other loans (e.g., commercial,
commercial real estate, certain mortgage loans and consumer loans) are
estimated using discounted cash flow analysis, using interest rates
currently being offered for loans with similar terms to borrowers of
similar credit quality and estimates of maturity based on actual maturity
dates.
Time deposits. The fair value for fixed-rate time deposits with stated
maturities was estimated using discounted cash flow analyses, using
current market rates for instruments with similar maturities.
Off-balance sheet instruments. These instruments include home equity and
personal lines of credit, commercial lines of credit and standby letters
of credit. Because the majority of these instruments are not utilized
before expiration and generally have maturity dates of less than one year,
they do not generally represent any significant financial instrument for
the Company.
12. RELATED PARTY TRANSACTIONS.
At December 31, 1997 and 1996, respectively, related party transactions
between the subsidiary bank and its officers and board members were as
follows:
In Thousands of Dollars 1997 1996
------------------------------------ --------- ---------
Loans $ 1,912 $ 1,226
Deposits 1,082 464
Trust assets (market value):
Benefit plans $ 8,568 $ 6,952
Other 11,482 9,977
13. REGULATORY MATTERS.
The Company and subsidiary bank are each independently subject to various
regulatory capital requirements administered by their primary federal
regulators, the Federal Reserve Bank (FRB) and the Office of Comptroller
of the Currency (OCC). Failure to meet the minimum regulatory capital
requirements can initiate certain mandatory, and possible additional
discretionary actions by regulators, that if undertaken, could have a
direct material effect on the Company's consolidated financial statements.
Under the regulatory capital adequacy guidelines and the regulatory
framework for prompt corrective action, the Company and subsidiary bank
must each individually meet specific capital guidelines involving
quantitative measures of their respective assets, liabilities, and certain
off-balance-sheet items as calculated under regulatory accounting
practices. The Company's and subsidiary bank's capital amounts and
classification under the prompt corrective action guidelines are also
subject to qualitative judgments by the regulators about components, risk
weightings, and other factors.
F-51
<PAGE>
FIRST FRANKLIN BANCSHARES, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1997 AND 1996
13. REGULATORY MATTERS (Continued).
Quantitative measures established by regulation to ensure capital adequacy
require the Company and subsidiary bank to maintain minimum amounts and
ratios of total risk-based capital and Tier 1 capital to risk-weighted
assets (as defined in the regulations), and Tier 1 capital to adjusted
total assets (as defined). Management believes, as of December 31, 1997,
that both the Company and subsidiary bank exceed all the respective
capital adequacy requirements to which they are subject.
As of December 31, 1997, the most recent notification from the OCC
categorized both the Company and subsidiary bank as well capitalized under
the regulatory framework for prompt corrective action. To remain
categorized as well capitalized, the Company and subsidiary bank will have
to maintain minimum total risk-based, Tier 1 risk-based, and Tier 1
leverage ratios as disclosed in the table below. There are no conditions
or events since the most recent notification that management believes have
changed the Company's or the subsidiary bank's prompt corrective action
category.
<TABLE>
<CAPTION>
In Thousands of Dollars
------------------------------------------------------------------
To Be Well
Capitalized Under
For Capital Prompt Corrective
Actual Adequacy Purposes Action Provisions
------ ----------------- -----------------
December 31, 1997 Amount Ratio Amount Ratio Amount Ratio
----------------- ------- ------- ------ ------- ------ -------
<S> <C> <C> <C> <C> <C> <C>
Total Capital (to Risk
Weighted Assets):
Consolidated $21,629 19.1% $9,069 =>8.0% $11,337 =>10.0%
Subsidiary bank $21,312 18.8% $9,063 =>8.0% $11,329 =>10.0%
Tier 1 Capital (to Risk
Weighted Assets):
Consolidated $20,533 18.1% $4,534 =>4.0% $ 6,802 => 6.0%
Subsidiary bank $20,216 17.8% $4,531 =>4.0% $ 6,797 => 6.0%
Tier 1 Capital (to Adjusted
Total Assets):
Consolidated $20,533 11.4% $5,397 =>3.0% $ 8,996 => 5.0%
Subsidiary bank $20,216 11.2% $5,396 =>3.0% $ 8,993 => 5.0%
</TABLE>
F-52
<PAGE>
FIRST FRANKLIN BANCSHARES, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1997 AND 1996
13.REGULATORY MATTERS (Continued).
<TABLE>
<CAPTION>
In Thousands of Dollars
-----------------------------------------------------------
To Be Well
Capitalized Under
For Capital Prompt Corrective
Actual Adequacy Purposes Action Provisions
---------------- ----------------- -----------------
December 31, 1996 Amount Ratio Amount Ratio Amount Ratio
----------------- ------ ----- ------ ----- ------ -----
<S> <C> <C> <C> <C> <C> <C>
Total Capital (to Risk
Weighted Assets):
Consolidated $20,437 20.2% $8,098 =>8.0% $10,123 =>10.0%
Subsidiary bank $20,229 20.0% $8,094 =>8.0% $10,118 =>10.0%
Tier 1 Capital (to Risk
Weighted Assets):
Consolidated $19,284 19.1% $4,049 =>4.0% $ 6,074 =>6.0%
Subsidiary bank $19,076 18.9% $4,047 =>4.0% $ 6,070 =>6.0%
Tier 1 Capital (to Adjusted
Total Assets):
Consolidated $19,284 11.4% $5,084 =>3.0% $ 8,474 =>5.0%
Subsidiary bank $19,076 11.3% $5,082 =>3.0% $ 8,471 =>5.0%
</TABLE>
The subsidiary bank, as a National Bank, is subject to the dividend
restrictions set forth by the Comptroller of the Currency. Under such
restrictions, the bank may not, without prior approval of the Comptroller
of the Currency, declare dividends in excess of the sum of current year's
earnings (as defined) plus the retained earnings (as defined) from the
prior two years. The bank was in compliance with these regulations as of
December 31, 1997 and 1996.
14. CONCENTRATIONS OF CREDIT RISK.
Substantially all of the subsidiary bank's loans, commitments and letters
of credit have been granted to customers in the bank's market area and are
depositors of the bank. Investments in state and municipal securities
generally involve governmental entities within Tennessee. Concentrations
by type of loan are described in Note 3. Commercial and standby letters of
credit were granted primarily to commercial borrowers. The subsidiary
bank, as a matter of policy, strives to limit loans to one individual,
related group of borrowers, or one industry to twenty-five percent of
capital. In addition, the subsidiary bank had the following individual
concentrations at December 31:
In Thousands of Dollars 1997 1996
---------------------------------------------- -------- --------
Par value of securities issued by governmental
entities outside of Tennessee $ 14,470 $ 3,485
Correspondent bank balances 39 8,276
-------- --------
$ 14,509 $ 11,761
======== ========
F-53
<PAGE>
FIRST FRANKLIN BANCSHARES, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1997 AND 1996
14. CONCENTRATIONS OF CREDIT RISK (Continued).
The correspondent bank balances represent federal funds sold of $0 and
$5,900 thousand, respectively, and due from accounts in excess of federal
deposit insurance limits amounting to $39 thousand and $2,376 thousand,
respectively. The subsidiary bank's Interbank Liability Policy requires
the bank to monitor the amount of credit exposure to each correspondent
bank on a quarterly basis and to report any policy exceptions to the board
of directors.
15. CONDENSED FINANCIAL STATEMENTS OF PARENT COMPANY.
CONDENSED BALANCE SHEETS
December 31
(In Thousands of Dollars)
-------------------------
1997 1996
---- ----
ASSETS
Cash $ 415 $ 112
Other assets 458 351
Investment in subsidiary bank 20,615 19,343
------- -------
$21,488 $19,806
======= =======
LIABILITIES $ 432 $ 95
EQUITY 21,056 19,711
------- -------
$21,488 $19,806
======= =======
CONDENSED STATEMENTS OF INCOME
For the Years Ended December 31
(In Thousands of Dollars)
----------------------------
1997 1996 1995
---- ---- ----
Dividends from subsidiary bank $1,420 $1,090 $1,025
Equity in subsidiary undistributed income 1,272 1,221 3,189
Other income 71 37 14
Other operating expenses (70) (49) (79)
Income tax (provision) benefit 1 ( 1) 13
------ ------ ------
Net income $2,694 $2,298 $4,162
====== ====== ======
F-54
<PAGE>
FIRST FRANKLIN BANCSHARES, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1997 AND 1996
15. CONDENSED FINANCIAL STATEMENTS OF PARENT COMPANY (Continued).
CONDENSED STATEMENTS OF CASH FLOWS
For the Years Ended December 31
(In Thousands of Dollars)
-------------------------
1997 1996 1995
---- ---- ----
Cash flows from operating activities:
Net income $ 2,694 $ 2,298 $ 4,162
Reconciling items:
Equity in undistributed net income (1,272) (1,221) (3,189)
Change in assets (107) 30 36
Change in liabilities 337 1 (24)
------- ------- -------
Net cash from operating
activities 1,652 1,108 985
Cash flows from financing activities:
Cash dividends on common stock (1,214) (876) (847)
Sales of common stock 43 - -
Retirement of repurchased shares (178) (186) (120)
------- ------- -------
Net cash from financing
activities (1,349) (1,062) (967)
------- ------- -------
Net change in cash and equivalents 303 46 18
Beginning cash and equivalents 112 66 48
------- ------- -------
Ending cash and equivalents $ 415 $ 112 $ 66
======= ======= =======
Amount of dividends that could be paid
from bank subsidiary without
regulatory approval $ 7,364
=======
16. SUBSEQUENT EVENT.
On March 19, 1998, the Company entered into an "Agreement and Plan of
Merger" with Bankfirst Corporation (formerly Smoky Mountain Bancorp,
Inc.). The merger agreement requires that all of the outstanding common
stock of the Company be acquired by BankFirst Corporation in a business
combination to be accounted for as a pooling of interest. Upon
consummation of the transaction, shareholders of the Company will receive
4.41 shares of BankFirst Corporation's common stock for each share of
Company common stock. Consummation of the transaction is subject to
regulatory and stockholder approval.
F-55
<PAGE>
FIRST FRANKLIN BANCSHARES, INC. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
MARCH 31, 1998 AND 1997
UNAUDITED
-------------------------
(In Thousands of Dollars)
-------------------------
1998 1997
---- ----
ASSETS
Cash and due from banks $ 5,404 $ 7,477
Federal funds sold 5,700 6,400
Commercial paper -- 1,548
--------- ---------
Total cash and cash equivalents 11,104 15,425
Securities available for sale, at fair value 56,211 57,209
Loans, net 111,890 96,929
Premises and equipment, net 2,703 2,777
Accrued interest receivable and other assets 2,697 1,993
--------- ---------
Total assets $ 184,605 $ 174,333
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities
Noninterest-bearing deposits $ 25,640 $ 25,834
Interest-bearing deposits 131,463 125,651
--------- ---------
Total deposits 157,103 151,485
Other borrowed funds 1,100 1,100
Advances from the Federal Home Loan Bank 2,351 402
Accrued interest payable and other liabilities 2,329 1,835
--------- ---------
Total liabilities 162,883 154,822
--------- ---------
Stockholders' equity
Common stock: $5.00 par value, 400,000 shares
authorized, 164,125 and 163,761 shares
outstanding in 1998 and 1997 821 819
Additional paid-in capital 3,218 3,161
Retained earnings 17,066 15,754
Net unrealized gain (loss) on securities
available for sale 617 (223)
--------- ---------
Total stockholders' equity 21,722 19,511
--------- ---------
Total liabilities and stockholders' equity $ 184,605 $ 174,333
========= =========
F-56
<PAGE>
FIRST FRANKLIN BANCSHARES, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF INCOME
FOR THE THREE MONTHS ENDED MARCH 31, 1998 AND 1997
UNAUDITED
-------------------------
(In Thousands of Dollars,
Except Per Share Amounts)
-------------------------
1998 1997
---- ----
INTEREST INCOME
Interest and fees on loans $ 2,734 $ 2,300
Taxable securities 351 605
Nontaxable securities 397 256
Other 34 59
------- -------
3,516 3,220
------- -------
INTEREST EXPENSE
Deposits 1,547 1,458
Borrowings 51 11
------- -------
1,598 1,469
------- -------
NET INTEREST INCOME 1,918 1,751
PROVISION FOR LOAN LOSSES 309 60
------- -------
NET INTEREST INCOME AFTER PROVISION
FOR LOAN LOSSES 1,609 1,691
------- -------
NONINTEREST INCOME
Service charges and fees 301 264
Trust department income 161 147
Other 24 24
------- -------
486 435
------- -------
NONINTEREST EXPENSES
Salaries and employee benefits 826 810
Occupancy expense 107 98
Equipment expense 167 149
Office expense 28 35
Data processing fees 80 59
Other 282 269
------- -------
1,490 1,420
------- -------
INCOME BEFORE INCOME TAXES 605 706
PROVISION FOR INCOME TAXES 134 199
------- -------
NET INCOME $ 471 $ 507
------- -------
OTHER COMPREHENSIVE INCOME (LOSS), NET OF TAX
Change in unrealized gain (loss) on securities 218 (490)
------- -------
COMPREHENSIVE INCOME $ 689 $ 17
======= =======
EARNINGS PER SHARE:
Basic $ 2.87 $ 3.09
F-57
<PAGE>
FIRST FRANKLIN BANCSHARES, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
FOR THE THREE MONTHS ENDED MARCH 31, 1998 AND 1997
<TABLE>
<CAPTION>
UNAUDITED
--------------------------------------------------------------
(In Thousands of Dollars)
--------------------------------------------------------------
Additional Net Unrealized Total
Common Paid-in Retained Gains (Losses) Stockholders'
Stock Capital Earnings on Securities Equity
----- ------- -------- ------------- ------
<S> <C> <C> <C> <C> <C>
Balance, January 1, 1997 $ 825 $ 3,333 $ 15,247 $ 267 $ 19,672
Sales of common stock -- -- -- -- --
Retirement of repurchased
shares, 1,141 shares (6) (172) -- -- (178)
Cash dividends on common stock -- -- -- -- --
Net income -- -- 507 -- 507
Change in unrealized gains
(losses) -- -- -- (490) (490)
-------- -------- -------- -------- --------
Balance, March 31, 1997 $ 819 $ 3,161 $ 15,754 $ (223) $ 19,511
======== ======== ======== ======== ========
Balance, January 1, 1998 $ 820 $ 3,203 $ 16,595 $ 399 $ 21,017
Sales of common stock,
97 shares 1 15 -- -- 16
Retirement of repurchased
shares -- -- -- -- --
Cash dividends on common stock -- -- -- -- --
Net income -- -- 471 -- 471
Change in unrealized gains
(losses) -- -- -- 218 218
-------- -------- -------- -------- --------
Balance, March 31, 1998 $ 821 $ 3,218 $ 17,066 $ 617 $ 21,722
======== ======== ======== ======== ========
</TABLE>
F-58
<PAGE>
FIRST FRANKLIN BANCSHARES, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE THREE MONTHS ENDED MARCH 31, 1998 AND 1997
Inflows (Outflows) in Cash and Cash Equivalents
UNAUDITED
-------------------------
(In Thousands of Dollars)
-------------------------
1998 1997
---- ----
Cash flows from operating activities
Net income $ 471 $ 507
Adjustment to reconcile net income to net cash
provided by operating activities
Provision for loan losses 309 60
Depreciation 108 95
Amortization 9 9
Net (gains) losses on securities sales -- --
Net (gains) losses on sales of premises
and equipment (10) (8)
Gain on sale of loans -- --
Deferred tax provision (benefit) (40) (25)
Accrued interest receivable and other
assets (190) (20)
Accrued interest payable and other
liabilities (227) 396
-------- --------
Net cash flows from operating
activities 430 1,014
-------- --------
Cash flows from investing activities
Purchases of securities (10) (158)
Proceeds from maturities of securities 641 1,093
Proceeds from sales of securities -- --
Net increase in loans 1,106 (598)
Proceeds from sales of premises and equipment 14 8
Acquisition of premises and equipment (86) (24)
-------- --------
Net cash flows from investment
activities 1,665 321
-------- --------
Cash flows from financing activities
Net change in deposits 2,486 1,497
Advances from Federal Home Loan Bank 250 250
Repayments of advances from Federal Home
Loan Bank (20) (2)
Net change in other borrowed funds (650) 386
Purchase of common stock -- (178)
Sales of common stock 16 --
Common stock dividends paid -- --
-------- --------
Net cash flows from financing
activities 2,082 1,953
-------- --------
Cash and cash equivalents
Net cash inflow (outflow) 4,177 3,288
Balance
Beginning of year 6,927 12,137
-------- --------
End of year $ 11,104 $ 15,425
======== ========
Supplemental disclosures:
Interest $ 1,470 $ 1,331
Income taxes 48 51
Total increase in unrealized appreciation
(depreciation) on securities available
for sale 218 (490)
F-59
<PAGE>
APPENDIX A
AGREEMENT AND PLAN OF MERGER
BETWEEN
SMOKY MOUNTAIN BANCORP, INC.
AND
FIRST FRANKLIN BANCSHARES, INC.
<PAGE>
INDEX
ARTICLE I ............................................................. Page 2
DEFINITIONS.......................................................... Page 2
1.1 Definitions.................................................... Page 2
Act................................................................ Page 2
Affiliate ......................................................... Page 2
Agreement ......................................................... Page 2
BankFirst ......................................................... Page 2
BankFirst Subsidiaries............................................. Page 2
Certificate........................................................ Page 2
Closing ......................................................... Page 2
Closing Date....................................................... Page 2
Code............................................................... Page 2
Confidential Information........................................... Page 3
ERISA.............................................................. Page 3
Effective Time..................................................... Page 3
Eligible First Franklin Shareholder............................... Page 3
Exchange Act....................................................... Page 3
Exchange Agent..................................................... Page 3
Exchange Ratio..................................................... Page 3
FDIA............................................................... Page 3
FDIC............................................................... Page 3
FRB................................................................ Page 3
Federal Reserve.................................................... Page 3
First Franklin..................................................... Page 3
First Franklin Common Stock........................................ Page 3
First Franklin Employee Plans...................................... Page 4
First Franklin Financial Statements................................ Page 4
First Franklin Interim Financial Statements........................ Page 4
First Franklin Shareholders........................................ Page 4
First Franklin Shareholders' Meeting............................... Page 4
First Franklin Tax Returns......................................... Page 4
First Franklin Taxes............................................... Page 4
First National..................................................... Page 4
First National Subsidiary.......................................... Page 4
GAAP .............................................................. Page 4
Governmental Approvals............................................. Page 5
IRS ............................................................... Page 5
Merger ............................................................ Page 5
OCC ............................................................... Page 5
Other Plan ........................................................ Page 5
(i)
<PAGE>
Parties............................................................ Page 5
Pension Plan....................................................... Page 5
Person............................................................. Page 5
Previously Disclosed............................................... Page 5
Proxy Statement.................................................... Page 5
Records............................................................ Page 5
Registration Statement............................................. Page 6
Regulatory Approval................................................ Page 6
Regulatory Authorities............................................. Page 6
S-4 Registration Statement......................................... Page 6
SEC................................................................ Page 6
Securities Act..................................................... Page 6
Shareholders Meetings.............................................. Page 6
Smoky Mountain..................................................... Page 6
Smoky Mountain Common Stock........................................ Page 6
Smoky Mountain Financial Statements................................ Page 6
Smoky Mountain's Interim Financial Statements...................... Page 6
Smoky Mountain's Shareholders' Meeting............................. Page 7
Smoky Mountain Taxes............................................... Page 7
Smoky Mountain Tax Returns......................................... Page 7
Stock Event........................................................ Page 7
Subsidiary or Subsidiaries......................................... Page 7
TDFI............................................................... Page 7
Takeover Proposal.................................................. Page 7
Welfare Plan....................................................... Page 7
ARTICLE 2 ............................................................. Page 8
MERGER OF SMOKY MOUNTAIN AND FIRST FRANKLIN.......................... Page 8
2.1 Merger....................................................... Page 8
2.2. Effective Time of the Merger................................. Page 8
2.3 Closing...................................................... Page 8
2.4 Effect of the Merger......................................... Page 8
2.5 Effect of the Merger on the Capital Stock.................... Page 9
(a) Cancellation of Treasury Stock........................... Page 9
(b) Conversion of First Franklin Common Stock................ Page 9
(c) Dissenter's Rights....................................... Page 9
2.6 Exchange of Certificates..................................... Page 9
(a) Exchange Agent........................................... Page 9
(b) Exchange Procedures...................................... Page 10
(c) Distributions with Respect to the Unexchanged Share...... Page 10
(d) No Further Ownership Rights in First Franklin
Common Stock........................................... Page 11
(e) No Fractional Shares..................................... Page 11
(ii)
<PAGE>
(f) Termination of Exchange Fund............................. Page 11
(g) No Liability............................................. Page 11
2.7 Shareholders' Meetings....................................... Page 12
2.8 Regulatory Approvals......................................... Page 12
2.9 Certain Undertakings......................................... Page 13
(a) Undertakings of First Franklin........................... Page 13
(b) Undertakings of Smoky Mountain........................... Page 14
ARTICLE 3............................................................... Page 15
REPRESENTATIONS AND WARRANTIES OF SMOKY MOUNTAIN..................... Page 15
3.1 Organization and Corporate Authority......................... Page 15
3.2 Authorization, Execution and Delivery;
Agreement Not in Breach...................................... Page 16
3.3 No Legal Bar................................................. Page 17
3.4 Regulatory Approvals......................................... Page 17
3.5 Capitalization............................................... Page 17
3.6 Smoky Mountain Financial Statements.......................... Page 18
3.7 Tax Matters.................................................. Page 18
3.8 Insurance.................................................... Page 20
3.9 Legal Proceedings............................................ Page 20
3.10 Compliance with Law.......................................... Page 21
3.11 Governmental Authorizations.................................. Page 21
3.12 Supervisory Matters.......................................... Page 22
3.13 Rights and Licenses.......................................... Page 22
3.14 Properties................................................... Page 23
3.15 Absence of Certain Changes or Events......................... Page 23
3.16 Public Offering of Smoky Mountain Stock...................... Page 23
3.17 Representations and Warranties True on and as of
Closing Date................................................. Page 23
3.18 Material Contracts........................................... Page 23
3.19 Employee Benefit Plans....................................... Page 24
3.20 Brokers...................................................... Page 26
3.21 Books of Account; Corporate Records.......................... Page 26
3.22. Reserves for Loan Losses..................................... Page 26
3.23. Labor Relations.............................................. Page 26
3.24 No Undisclosed Liabilities................................... Page 27
3.25 Year 2000 Compliance......................................... Page 28
3.26. Environmental Law Violations................................. Page 28
(1) Environmental Law........................................ Page 28
(2) Hazardous Substance...................................... Page 28
(3) Loan Portfolio Properties and Other Properties Owned..... Page 29
(iii)
<PAGE>
ARTICLE 4 ............................................................. Page 29
REPRESENTATIONS AND WARRANTIES OF FIRST FRANKLIN..................... Page 29
4.1 Organization and Standing.................................... Page 29
4.2 Authorization, Execution and Delivery; Agreement
Not in Breach................................................ Page 30
4.3 No Legal Bar................................................. Page 30
4.4 Regulatory Approvals......................................... Page 31
4.5 Capitalization and Ownership................................. Page 31
4.6 First Franklin Financial Statements.......................... Page 32
4.7 Tax Matters.................................................. Page 33
4.8 Insurance.................................................... Page 35
4.9 Legal Proceedings............................................ Page 35
4.10 Compliance with Law.......................................... Page 35
4.11 Brokers...................................................... Page 36
4.12 Governmental Authorizations.................................. Page 36
4.13 Supervisory Matters.......................................... Page 37
4.14 Rights and Licenses.......................................... Page 37
4.15 Material Contracts........................................... Page 37
4.16 Properties................................................... Page 38
4.17 Employee Benefit Plans....................................... Page 38
4.18 Absence of Certain Changes or Events......................... Page 40
4.19 Books of Account; Corporate Records......................... Page 40
4.20 Representations and Warranties True on and as of
Closing Date................................................. Page 40
4.21. Reserves for Loan Losses..................................... Page 41
4.22. Labor Relations.............................................. Page 41
4.23 No Undisclosed Liabilities................................... Page 42
4.24 Year 2000 Compliance......................................... Page 42
4.25. Environmental Law Violations................................. Page 43
(1) Environmental Law........................................ Page 43
(2) Hazardous Substance...................................... Page 43
(3) Loan Portfolio Properties and Other Properties Owned..... Page 43
ARTICLE 5 ............................................................. Page 43
COVENANTS AND AGREEMENTS............................................. Page 43
5.1 Pre-Merger Conduct of Business by First Franklin, First
National and the First National Subsidiary................... Page 43
5.2 Pre-Merger Conduct of Business by Smoky
Mountain and BankFirst....................................... Page 46
5.3 Access....................................................... Page 49
5.4 Confidential Information..................................... Page 49
5.5 Proxy Statement.............................................. Page 50
5.6 Furnishing of Information.................................... Page 50
5.7 Filing for all Regulatory Approvals.......................... Page 51
5.8 Increase in Authorized Shares................................ Page 51
(iv)
<PAGE>
5.9 No Control of First Franklin by Smoky Mountain............... Page 51
5.10 Agreements to Use Best Efforts............................... Page 51
5.11 Press Releases and Public Information........................ Page 52
5.12 Updating of the Schedules.................................... Page 52
5.13 Accounting Treatment......................................... Page 52
5.14. Current SEC Reports.......................................... Page 52
5.15 Exchange Act Registration.................................... Page 52
5.16 Indemnification and Insurance................................ Page 53
ARTICLE 6 ............................................................. Page 54
CONDITIONS PRECEDENT TO OBLIGATION TO CLOSE.......................... Page 54
6.1 Conditions to Both Parties' Obligation to Close.............. Page 54
(a) Governmental Approvals................................... Page 54
(b) Shareholder Approval..................................... Page 54
(c) Pooling Opinion.......................................... Page 54
(d) Securities Laws.......................................... Page 54
6.2 Conditions to First Franklin's Obligation to Close........... Page 55
(a) Accuracy of Representations and Warranties............... Page 55
(b) Performance of Covenants and Agreements.................. Page 55
(c) No Material Change....................................... Page 55
(d) Fairness Opinion......................................... Page 55
(e) Consent of Other Persons................................. Page 55
(f) Legal Opinion of Counsel................................. Page 56
(g) Updated Smoky Mountain Schedules......................... Page 57
(h) Tax Treatment............................................ Page 57
(i) Outstanding Shares....................................... Page 57
(j) Comfort Letter........................................... Page 58
6.3 Conditions to Smoky Mountain's Obligation to Closing......... Page 58
(a) Accuracy of Representations and Warranties............... Page 58
(b) Performance of Covenants and Agreements.................. Page 58
(c) Consent of Other Persons................................. Page 58
(d) No Material Change....................................... Page 58
(e) Legal Opinion of First Franklin's Counsel................ Page 59
(f) Updated First Franklin Schedules......................... Page 60
(g) Outstanding Shares....................................... Page 60
(h) Resignations of Directors................................ Page 60
(i) Other Information and Actions............................ Page 60
(j) Comfort Letter........................................... Page 60
(v)
<PAGE>
ARTICLE 7 ............................................................. Page 60
TERMINATION.......................................................... Page 60
7.1 Termination.................................................. Page 60
7.2 Effect of Termination........................................ Page 61
7.3 Termination Without Cause.................................... Page 62
ARTICLE 8 ............................................................. Page 62
MISCELLANEOUS........................................................ Page 62
8.1 Smoky Mountain and First National Boards of Directors........ Page 62
8.2 Continuation of First National............................... Page 62
8.3 Expenses..................................................... Page 62
8.4 Entire Agreement; Amendment.................................. Page 62
8.5 Waiver....................................................... Page 63
8.6 Governing Law................................................ Page 63
8.7 Governmental Agencies........................................ Page 63
8.8 Specific Performance......................................... Page 63
8.9 Notices...................................................... Page 63
8.10 No Third Party Beneficiaries................................. Page 65
8.11 No Assignment................................................ Page 65
8.12 Headings..................................................... Page 65
8.13 Termination of Representations and Warranties................ Page 65
8.14 Construction................................................. Page 65
8.15 Counterparts................................................. Page 66
8.16 Severability................................................. Page 66
(vi)
<PAGE>
AGREEMENT AND PLAN OF MERGER
This Agreement and Plan of Merger (the "Agreement") is made and entered
into as of the 19th day of March, 1998, by and between SMOKY MOUNTAIN BANCORP,
INC., 625 Market Street, Knoxville, Tennessee 37902 ("Smoky Mountain") and FIRST
FRANKLIN BANCSHARES, INC., 204 Washington Avenue, Athens, Tennessee 37371-0100
("First Franklin").
W I T N E S S E T H:
WHEREAS, Smoky Mountain, a Tennessee corporation, and a registered bank
holding company under the Bank Holding Company Act of 1956, as amended, (the
"Act"), is the owner of all of the issued and outstanding shares of common stock
of BankFirst, a Tennessee banking corporation, located at 625 Market Street,
Knoxville, Tennessee 37902 ("BankFirst"); BankFirst has two (2) wholly-owned
subsidiaries, Curtis Mortgage Company, Inc. and Eastern Life Insurance Company;
and
WHEREAS, First Franklin, a Tennessee corporation, and a registered bank
holding company under the Act is the owner of all of the issued and outstanding
shares of common stock of First National Bank and Trust Company of Athens, a
national banking association, located at 204 Washington Avenue, Athens,
Tennessee 37371 ("First National"); and First National Bank has one wholly-owned
subsidiary, Friendly Finance Company, Inc., a Tennessee chartered industrial
loan and thrift company, located at 620 Decatur Pike, Athens, Tennessee 37303;
and
WHEREAS, Smoky Mountain is undertaking an underwritten public offering of
Smoky Mountain common stock; and
WHEREAS, the parties hereto deem it desirable for First National to be
acquired by Smoky Mountain through the Merger of First Franklin with and into
Smoky Mountain, pursuant to the applicable laws of the United States and the
State of Tennessee, in accordance with the provisions of this Agreement; and
WHEREAS, for federal income tax purposes, it is intended that the Merger
shall qualify as a reorganization under the provisions of Section 368 of the
Internal Revenue Code of 1986, as amended; and
WHEREAS, for accounting purposes, it is intended that the Merger shall be
accounted for as a "pooling of interest"; and
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<PAGE>
WHEREAS, the parties hereto desire to enter into this Agreement for the
purpose of setting forth certain representations, warranties, agreements,
covenants, conditions and other provisions with respect to the Merger.
NOW, THEREFORE, in consideration of the mutual covenants and other
provisions herein contained, and for other good and valuable consideration, the
receipt and sufficiency of which are hereby acknowledged, the parties hereto
agree as follows:
ARTICLE I
DEFINITIONS
1.1 Definitions. As used in this Acquisition Agreement, the following
terms have the definitions indicated:
"Act" shall mean the Bank Holding Company Act of 1956, as amended.
"Affiliate" shall mean, for purposes of Section 3.19 of this
Agreement only, as it applies to Smoky Mountain, BankFirst and BankFirst
Subsidiary, and Section 4.17 of this Agreement only, as it applies to First
Franklin, First National and First National Subsidiary, all persons under common
control with Smoky Mountain, BankFirst, BankFirst Subsidiary, First Franklin,
First National and First National Subsidiary, within the meaning of Sections
4001(a)(14) or (b)(1) of ERISA or any regulations promulgated thereunder, or
Section 414(b) or (c) of the Code.
"Agreement" shall mean this Agreement and Plan of Merger.
"BankFirst" shall mean BankFirst, a Tennessee banking corporation
located at 625 Market Street, Knoxville, Tennessee 37902.
"BankFirst Subsidiaries" shall mean Curtis Mortgage Company, Inc.
and Eastern Life Insurance Company as described in Section 3.1.
"Certificate" shall mean the certificate or certificates
representing the shares of Smoky Mountain Common Stock to be issued in exchange
for the First Franklin Common Stock.
"Closing" shall mean the closing of the transactions contemplated by
this Agreement which shall take place at BankFirst, 625 Market Street,
Knoxville, Tennessee 37902 on June 30, 1998, or as specified in Section 2.3
hereof.
"Closing Date" shall mean June 30, 1998, or such other date on which
the Closing is completed as set forth in Section 2.3 hereof.
"Code" shall mean the Internal Revenue Code of 1986, as amended.
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<PAGE>
"Confidential Information" shall mean any and all commercial,
financial, technical, or other information regarding Smoky Mountain or First
Franklin, or their respective businesses, properties, and personnel, or those of
their respective subsidiaries, joint ventures, officers, directors, control
persons, or affiliates which is derived or results from one party's access to
the properties, books, contracts, commitments, and records of the other pursuant
to the provisions of this Agreement, whether obtained before or after the
execution of this Agreement, except for information (i) otherwise known to the
acquiring party, (ii) already in the public domain, (iii) released without
restriction by the proprietor of the information to another person, or (iv)
received by the acquiring party on a non-confidential basis from another person
lawfully possessing and lawfully entitled to disclose such information.
"ERISA" shall mean the Employee Retirement Income Security Act of
1974, as amended.
"Effective Time" shall have the meaning assigned in Section 2.2 of
this Agreement.
"Exchange Act" shall mean the Securities Exchange Act of 1934, as
amended.
"Exchange Agent" shall mean BankFirst, and Smoky Mountain shall
deposit with the BankFirst, Trust Department, for the benefit of Eligible First
Franklin Shareholders, Certificates representing shares of Smoky Mountain Common
Stock for exchange in accordance with the provisions of Section 2.6 of this
Agreement.
"Exchange Ratio" shall have the meaning described in Section 2.5(b)
hereof.
"FDIA" shall mean the Federal Deposit Insurance Act of 1950, as
amended.
"FDIC" shall mean the Federal Deposit Insurance Corporation.
"FRB" shall have the same meaning as Federal Reserve.
"Federal Reserve" shall mean the Board of Governors of the Federal
Reserve System and shall include the Federal Reserve Bank of Atlanta acting
under delegated authority.
"First Franklin" shall mean First Franklin Bancshares, Inc., a
Tennessee corporation and a registered bank holding company with its principal
office located at 204 Washington Avenue, Athens, Tennessee 37371-0100.
"First Franklin Common Stock" shall mean the Five Dollar ($5.00) par
value common stock of which 400,000 shares are authorized and 164,125 shares are
issued and outstanding.
Page 3 of 66
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<PAGE>
"First Franklin Employee Plans" shall mean First National's 401-K
Profit Sharing Plan adopted on January 1, 1984, as amended on May 5, 1994, and
First National Pension Plan adopted on January 1, 1973, as amended on May 21,
1996.
"First Franklin Financial Statements" shall mean First Franklin's
Audited Consolidated Financial Statements for the calendar years ended December
31, 1997 and 1996.
"First Franklin Interim Financial Statements" shall mean First
Franklin's unaudited consolidated statement of condition (including related
notes and schedules, if any), statement of changes in shareholders' equity, and
statement of changes in financial position or cash flows (including related
notes and schedules, if any) for each quarter ended after December 31, 1997.
"First Franklin Shareholders" means the holders of record (other
than a dissenting shareholder who perfects statutory dissenter's rights) of all
of the issued and outstanding First Franklin Common Stock immediately prior to
the Effective Time.
"First Franklin Shareholders' Meeting" shall mean the special
meeting of shareholders to be held pursuant to Section 2.7(a) of this Agreement.
"First Franklin Tax Returns" shall mean all federal, state, local
and foreign tax returns, reports and declarations of estimated tax with respect
to income, sales, and all other applicable taxes, and all other tax returns and
reports (including, without limitation, income, profit, franchise, sales, use,
real property, personal property, ad valorem, excise, employment, social
security, and wage withholding taxes of every kind, character, or description
imposed by any governmental or quasi-governmental authority), the filing of
which by First Franklin, First National and First National Subsidiary is
required by applicable law (without regard to extensions of time permitted by
law, regulation, or otherwise) at or before the Effective Time.
"First Franklin Taxes" shall mean income, profits, gross receipts,
franchise, value added, payroll, sales, employment, use, property, withholding,
excise and occupancy taxes, and any penalties, interest, or additions to tax
imposed thereon or in connection therewith, due or claimed to be due by any
taxing authority in connection with any of the First Franklin Tax Returns.
"First National" shall mean the First National Bank and Trust
Company, a national banking association, located at 204 Washington Avenue,
Athens, Tennessee 37371.
"First National Subsidiary" shall mean Friendly Finance Company,
Inc., a Tennessee chartered industrial loan and thrift company, located at 620
Decatur Pike, Athens, Tennessee 37303.
"GAAP" shall mean generally accepted accounting principles,
consistently applied.
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<PAGE>
"Governmental Approvals" shall mean the approval of the FRB, the
FDIC, the SEC and/or the TDFI and any other regulatory agency which approves
transactions of this type, "Regulatory Approval" and "Governmental Approval" are
used interchangeably in this document.
"IRS" shall mean the Internal Revenue Service.
"Merger" shall mean the Merger of First Franklin with and into Smoky
Mountain pursuant to the applicable laws of the United States and the State of
Tennessee, and in accordance with the provisions of this Agreement.
"OCC" shall mean the Office of the Comptroller of the Currency, a
bureau of the United States Department of the Treasury and the regulator of
national banks, or any successor agency.
"Other Plan" shall mean any deferred compensation, bonus, stock
option, stock purchase, or other employee benefit plan, agreement, commitment,
or arrangement except a Pension Plan or a Welfare Plan.
"Parties" shall mean Smoky Mountain and First Franklin collectively;
each individually may sometimes be referred to as a "Party."
"Pension Plan" shall mean any employee pension benefit plan as such
term is defined in Section 3(2) of ERISA which is maintained by the referenced
Party.
"Person" shall mean any natural person, fiduciary, corporation,
partnership, joint venture, business trust or any other entity of any kind.
"Previously Disclosed" shall mean information (i) delivered prior to
the date of this Agreement in the manner prescribed for the giving of notices
pursuant to Section 8.9 of this Agreement and describing in reasonable detail
the matters contained therein, or (ii) disclosed prior to the date of this
Agreement in any report or registration statement filed (or required to be
filed) by any party to this Agreement and delivered by that party to the other
party hereto.
"Proxy Statement" shall mean the joint proxy statement to be used by
First Franklin and Smoky Mountain to solicit the approval of its shareholders of
this Agreement.
"Records" means with respect to Smoky Mountain, BankFirst and
BankFirst Subsidiaries, First Franklin, First National and First National
Subsidiary, all available records, original instruments and other documentation,
pertaining to their respective assets,
Page 5 of 66
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<PAGE>
liabilities, the Smoky Mountain Common Stock and the First Franklin Common
Stock, the deposits and the loans, and all other business and financial records
which are necessary or customary for use in the conduct of their respective
businesses, as it was conducted prior to the Closing Date.
"Registration Statement" shall mean the registration statement on
form S-1 filed by Smoky Mountain with the SEC to register shares for an
underwritten public offering of Smoky Mountain Common Stock.
"Regulatory Approval" shall mean the same as Governmental Approval.
"Regulatory Authorities" shall collectively mean the FRB, the FDIC,
the SEC, the TDFI, or any other state or federal governmental or
quasi-governmental entity which has, or may hereafter have, jurisdiction over
any of the transactions described in this Agreement
"S-4 Registration Statement" shall mean the registration statement
filed with the SEC covering the shares of Smoky Mountain Common Stock issuable
in the merger and containing a Prospectus/Proxy Statement with respect to each
of the Shareholder's Meetings.
"SEC" shall mean the United States Securities and Exchange
Commission.
"Securities Act" shall mean the Securities Act of 1933, as amended.
"Shareholders Meetings" shall mean the special meetings of the
shareholders of Smoky Mountain and First Franklin to be held pursuant to Section
2.7(a) and Section 2.7(b) of this Agreement, including any adjournment or
adjournments thereof.
"Smoky Mountain" shall mean Smoky Mountain Bancorp, Inc., a
registered bank holding company under the Bank Holding Company Act of 1956, as
amended, (the "Act"), which is the owner of all of the issued and outstanding
shares of common stock of BankFirst, a Tennessee banking corporation, located at
625 Market Street, Knoxville, Tennessee 37902.
"Smoky Mountain Common Stock" shall mean the 3,000,000 authorized
shares of the voting common stock of Smoky Mountain, $2.50 par value of which
Smoky Mountain has 1,275,079 shares issued and outstanding.
"Smoky Mountain Financial Statements" shall mean Smoky Mountain's
audited, consolidated financial statements for the calendar years ended December
31, 1997 and 1996.
"Smoky Mountain's Interim Financial Statements" shall mean Smoky
Mountain's unaudited consolidated statement of condition (including related
notes and schedules, if any), statement of changes in stockholder's equity, and
statement of changes in financial
Page 6 of 66
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<PAGE>
position of cash-flows for each quarter ended after December 31, 1997.
"Smoky Mountain's Shareholders' Meeting" shall mean a special
meeting of Smoky Mountain's shareholders to be held pursuant to Section 2.7(b)
of this Agreement.
"Smoky Mountain Taxes" shall mean income, profits, gross, receipts,
franchise, value added, payroll, sales, employment, use, property, withholding,
excise, and occupancy taxes, and any penalties, interest, or additions to tax
imposed thereon or in connection therewith, due or claimed to be due by any
taxing authority in connection with any of the Smoky Mountain Tax Returns.
"Smoky Mountain Tax Returns" shall mean all federal, state, local,
and foreign tax returns, reports and declarations of estimated tax with respect
to income, sales, and all other applicable taxes, and all other tax returns and
reports (including, without limitation, income, profit, franchise, sales, use,
real property, personal property, ad valorem, excise, employment, social
security, and wage withholding taxes, of every kind, character, or description
imposed by any governmental or quasi-governmental authority), the filing of
which by Smoky Mountain, BankFirst, or the BankFirst Subsidiaries is required by
applicable law (without regard to extensions of time permitted by law,
regulation, or otherwise) at or before the Effective Time.
"Stock Event" shall mean any subdivision of the outstanding shares
of Smoky Mountain Common Stock into a greater number of shares by means of a
stock split, stock dividend, or reclassification.
"Subsidiary" or "Subsidiaries" shall mean all of those corporations,
banks, associations or other entities of which the entity in question owns or
controls 5% or more of the outstanding equity securities either directly or
through an unbroken chain of entities as to each of which 5% or more of the
outstanding equity securities is owned directly or indirectly by its parent;
provided, however, that there shall not be included any such entity acquired
through foreclosure or in satisfaction of a debt previously contracted in good
faith, any such entity that owns or operates an automatic teller machine
interchange network, any such entity that is a joint venture of the parent or of
a Subsidiary of the parent, or any such entity the equity securities of which
are owned or controlled in a fiduciary capacity or through a small business
investment corporation.
"TDFI" shall mean the Tennessee Department of Financial
Institutions.
"Takeover Proposal" shall have the meaning assigned in Section
5.1(j) or Section 5.2(j) of this Agreement, as the case may be.
"Welfare Plan" shall mean any "employee welfare benefit plan" as
such term is defined in Section 3(1) of ERISA.
Page 7 of 66
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<PAGE>
ARTICLE 2
MERGER OF SMOKY MOUNTAIN AND FIRST FRANKLIN
2.1 Merger. Subject to the terms and conditions of this Agreement, at the
Effective Time of the Merger, First Franklin shall be merged into and with Smoky
Mountain in accordance with the provisions of and the effect provided in
Tennessee Code Annotated ss.48-21- 101, et. seq., of the Tennessee Business
Corporation Act. Smoky Mountain shall be the surviving corporation and shall be
governed by the laws of the State of Tennessee.
2.2. Effective Time of the Merger. Subject to the provisions of this
Agreement, Articles of Merger shall be duly prepared, executed and acknowledged
by Smoky Mountain and First Franklin and thereafter delivered to the Secretary
of State of the State of Tennessee for filing, as provided in the Tennessee
Business Corporation Act, Tennessee Code Annotated ss. 48-21-101, et seq., as
soon as practical on or after the Closing Date. The Merger shall become
effective upon the filing of the Articles of Merger with the Secretary of State
of the State of Tennessee, or at such other time as provided in the Articles and
Plan of Merger as attached as Schedule 2.2 executed and acknowledged by Smoky
Mountain and First Franklin.
2.3 Closing. The closing of the Merger will take place at 10:00 A.M. on
June 30, 1998 at the offices of BankFirst, 625 Market Street, Knoxville,
Tennessee 37902, unless another time, date or place is agreed to in writing by
the parties hereto. If Regulatory Approvals of the Merger have not been
received, the Closing Date will be extended, but in any event not later than
September 30, 1998. If the Closing Date is after June 30, 1998, the Closing
shall be the last business day of the month after Regulatory Approval.
2.4 Effect of the Merger. At the Effective Time,
(a) The separate existence of First Franklin shall cease and First
Franklin shall be merged with and into Smoky Mountain;
(b) The Charter of Smoky Mountain as in effect immediately prior to
the Effective Time, shall be the charter of the surviving corporation; and
(c) The Bylaws of Smoky Mountain as in effect immediately prior to
the Effective Time shall be the bylaws of the corporation.
Page 8 of 66
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<PAGE>
2.5 Effect of the Merger on the Capital Stock. As of the Effective Time by
virtue of the Merger, and without any action on the part of the holders of any
shares of First Franklin Common Stock:
(a) Cancellation of Treasury Stock. All shares of First Franklin
Common Stock that are owned by First Franklin as treasury stock shall be
canceled and retired and shall cease to exist, and no stock of Smoky Mountain or
other consideration shall be delivered in exchange therefor.
(b) Conversion of First Franklin Common Stock. Each issued and
outstanding share of First Franklin Common Stock (other than shares to be
canceled in accordance with Section 2.5(a) above) shall without any action on
the part of the holder thereof be converted into four point four one zero
(4.410) fully paid and non-assessable shares of Smoky Mountain Common Stock
("Exchange Ratio"). All such shares of First Franklin Common Stock shall no
longer be outstanding, and shall automatically be canceled and retired and shall
cease to exist, and each certificate previously representing any such shares
shall thereafter represent the shares of Smoky Mountain Common Stock into which
First Franklin Common Stock has been converted. Certificates previously
representing shares of First Franklin Common Stock shall be exchanged for
Certificates representing whole shares of Smoky Mountain Common Stock issued in
consideration therefor upon the surrender of such certificates in accordance
with Section 2.6, without interest. Fractional shares shall be paid for by Smoky
Mountain in cash based on a value of Sixty Dollars ($60.00) per share of Smoky
Mountain Common Stock.
(c) Dissenter's Rights. If holders of shares of First Franklin
Common Stock are entitled to dissent from the Merger and obtain payment for
shares under Tennessee Code Annotated ss. 48-23-101, et seq., issued and
outstanding shares of First Franklin Common Stock held by a dissenting
shareholder who has not voted in favor of the Merger and who has delivered
written demand in accordance with Tennessee Code Annotated ss. 48-23-202 shall
not be converted as described in Section 2.5(b) above, but shall from and after
the Effective Time represent only the right to receive such consideration as may
be determined to be due to such dissenting shareholder pursuant to Tennessee
Code Annotated ss. 48-23-101, et seq.; provided, however, that each share of
First Franklin Common Stock outstanding immediately prior to the Effective Time
and held by a dissenting shareholder who shall, after the Effective Time,
withdraw his demand to obtain payment for shares, or lose his/her dissenter's
rights, in either case, pursuant to Tennessee Code Annotated ss. 48-23-101, et
seq., shall be deemed to be converted into shares of Smoky Mountain Common Stock
as of the Effective Time, based upon the Exchange Ratio as provided in Section
2.5(b).
2.6 Exchange of Certificates.
(a) Exchange Agent. As of the Effective Time, Smoky Mountain shall
deposit or cause to be deposited with BankFirst, or such other bank or trust
company designated by Smoky Mountain (and reasonably acceptable to First
Franklin) for the benefit of the holders of
Page 9 of 66
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<PAGE>
shares of First Franklin Common Stock, for exchange in accordance with this
Section 2 through the Exchange Agent, Certificates representing the shares of
Smoky Mountain Common Stock (such Certificates of Smoky Mountain Common Stock,
together with any dividends or other distributions with respect thereto, and
amounts sufficient to pay for fractional shares based on the Exchange Ratio,
being hereinafter referred to as the "Exchange Fund") issuable pursuant to
Section 2.5(b) upon conversion of outstanding shares of First Franklin Common
Stock.
(b) Exchange Procedures. As soon as reasonably practical after the
Effective Time, the Exchange Agent will send to each First Franklin shareholder
whose stock shall have been converted into Smoky Mountain Common Stock a notice
and transmittal form advising such shareholder of the effectiveness of the
Merger and the procedure for surrender to the Exchange Agent of outstanding
certificates formerly evidencing First Franklin Common Stock in exchange for new
certificates for Smoky Mountain Common Stock. The Exchange Agent shall send: (1)
a letter of transmittal, which shall specify that delivery shall be effective,
and risk of loss and title to the certificate shall pass, only upon delivery of
the certificates to the Exchange Agent, and shall be in such form and have such
other provisions as Smoky Mountain and First Franklin may reasonably specify;
and (2) instructions for use in effecting the surrender of the certificates
evidencing First Franklin Common Stock in exchange for certificates representing
shares of Smoky Mountain Common Stock. Upon surrender of a certificate for
cancellation to the Exchange Agent, together with such letter of transmittal,
duly executed, the holder of such certificate shall be entitled to receive in
exchange therefor a certificate representing that number of whole shares of
Smoky Mountain Common Stock which such holder has the right to receive in
respect of the certificate surrendered pursuant to the provisions of this
Section 2 (after taking to account all shares of First Franklin Common Stock
then held by such holder) and the certificate so surrendered shall forthwith be
canceled. In the event of a transfer of ownership of First Franklin Common
Stock, which is not registered in the transfer records of First Franklin, a
certificate representing the proper number of shares of Smoky Mountain Common
Stock may be issued to a transferee, if the certificate representing such First
Franklin Common Stock is presented to the Exchange Agent, accompanied by all
documents required to evidence and effect such transfer. Until surrendered as
contemplated by this Section 2.6, each certificate representing shares of First
Franklin Common Stock shall be deemed at anytime after the Effective Time to
represent only the right to receive upon such surrender the certificate
representing shares of Smoky Mountain Common Stock and cash in lieu of
fractional shares of Smoky Mountain Common Stock as contemplated by Section 2.5.
(c) Distributions with Respect to the Unexchanged Shares. No
dividends or other distributions declared or made after the Effective Time with
respect to Smoky Mountain Common Stock with a record date after the Effective
Time shall be paid to the holder of any unsurrendered certificate with respect
to the shares of Smoky Mountain Common Stock represented thereby, and no cash
payment in lieu of fractional shares shall be paid to such holder pursuant to
Section 2.5(b) until the holder of such certificate shall surrender such
certificate. Subject to the effect of applicable laws, following the surrender
of any such certificate, there shall be paid to the holder of the certificates
representing whole shares of Smoky Mountain Common
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Stock issued in exchange therefor, without interest, (1) at the time of such
surrender, the amount of cash payable with respect to a fractional share of
Smoky Mountain Common Stock to which such holder is entitled pursuant to Section
2.5(b), and the amount of dividends or other distributions with a record date
after the Effective Time theretofore payable with respect to such whole shares
of Smoky Mountain Common Stock, and (2) at the appropriate payment date, the
amount of dividends or other distributions with a record date after the
Effective Time, but prior to surrender and payment date subsequent to surrender
payable with respect to such whole shares of Smoky Mountain Common Stock.
(d) No Further Ownership Rights in First Franklin Common Stock. All
shares of Smoky Mountain Common Stock issued upon conversion of shares of First
Franklin Common Stock in accordance with the terms hereof (including any cash
paid pursuant to Section 2.5(b) or 2.6(c)) shall be deemed to have been issued
in full satisfaction of all rights pertaining to such shares of First Franklin
Common Stock, subject, however, to the surviving corporation's obligations to
pay any dividends or make any other distributions with a record date prior to
the Effective Time, which may have been declared or made by First Franklin on
such shares of First Franklin Common Stock in accordance with the terms of this
Agreement on or prior to the Effective Time and which remain unpaid at the
Effective Time, and there shall be no further registration of transfers on the
stock transfer books of Smoky Mountain of the shares of First Franklin Common
Stock, which were outstanding immediately prior to the Effective Time. If, after
the Effective Time, certificates are presented to Smoky Mountain for any reason,
they shall be canceled and exchanged as provided in this Section 2.
(e) No Fractional Shares. No certificates or script representing
fractional shares of Smoky Mountain Common Stock shall be issued upon the
surrender or exchange of certificates and such fractional share interest will
not entitle the owner thereof to vote or to any rights of a shareholders of
Smoky Mountain.
(f) Termination of Exchange Fund. Any portion of the Exchange Fund
which remains undistributed to the shareholders of First Franklin for six months
after the Effective Time shall be delivered to Smoky Mountain, upon demand, and
any shareholders of First Franklin who have not theretofore complied with this
Section 2 shall thereafter look only to Smoky Mountain for payment of their
claim for Smoky Mountain Common Stock, any cash in lieu of fractional shares of
Smoky Mountain Common Stock, and any dividends or distributions with respect to
Smoky Mountain Common Stock.
(g) No Liability. Neither Smoky Mountain nor First Franklin shall be
liable to any holder of shares of First Franklin Common Stock or Smoky Mountain
Common Stock for such shares (or dividends or distributions with respect
thereto) or cash from the Exchange Fund delivered to a public official pursuant
to any applicable abandoned property, escheat or similar law.
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2.7 Shareholders' Meetings.
(a) Simultaneous with the execution of this Agreement, the members
of the Board of Directors of First Franklin shall execute the letter in the form
attached hereto as Schedule 2.7(a) agreeing, inter alia, to vote for and support
the Merger. First Franklin shall call a special meeting of First Franklin
shareholders in accordance with the applicable provisions of Tennessee Code
Annotated ss. 48-21-104 for the purpose of considering and voting on this
Agreement and the transactions contemplated hereby. Subject to the effectiveness
of the S-4 Registration Statement, the First Franklin Shareholders' Meeting
shall be held as soon as practicable.
(b) Smoky Mountain shall call a special meeting of Smoky Mountain
shareholders entitled to vote on the Merger in accordance with the applicable
provisions of Tennessee Code Annotated ss.48-21-104 for the purpose of
considering and voting on this Agreement and the transactions contemplated
hereby. Subject to the effectiveness of the S-4 Registration Statement, the
Smoky Mountain Shareholders' Meeting shall be held as soon as practicable. The
Board of Directors of Smoky Mountain, consistent with its fiduciary duties and
to the extent permitted by law, shall use its best efforts to solicit the
requisite vote for approval of the Merger by the shareholders of Smoky Mountain
and shall recommend to such shareholders that they approve the Merger and adopt
and approve this Agreement.
2.8 Regulatory Approvals. Subject to the terms and conditions of this
Agreement, Smoky Mountain and First Franklin shall cooperate, and shall cause
each of their subsidiaries to cooperate in the preparation and submission by
Smoky Mountain and First Franklin as promptly as reasonably practicable such
applications, petitions and other documents and materials as any of them may
reasonably deem necessary or desirable to the FRB, the FDIC, the SEC and the
TDFI, the respective shareholders of Smoky Mountain and First Franklin, and any
other persons for the purpose of obtaining any approvals or consents necessary
to consummate the transactions contemplated by this Agreement. Prior to making
any such filings with any regulatory authority or making any written disclosures
with respect to the transactions contemplated hereby to shareholders or to any
third person (such as mailings to shareholders or press releases), the parties
shall submit to each other the materials to be filed, mailed or released. Any
materials shall be reasonably acceptable to all parties, prior to the filing
with any regulatory authorities, or the disclosures to shareholders or to any
third person, except to the extent that any person is legally required to
proceed prior to obtaining approvals from the other parties.
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2.9 Certain Undertakings.
(a) Undertakings of First Franklin. First Franklin undertakes and
agrees:
(1) To adopt through action of its Board of Directors this
Agreement and to join with Smoky Mountain in executing and delivering the same.
(2) To cooperate with Smoky Mountain in the preparation of the
S-4 Registration Statement under the Securities Act, and to furnish Smoky
Mountain with all information concerning First Franklin and First National and
the First National Subsidiary reasonably requested by Smoky Mountain or required
for (i) inclusion in the S-4 Registration Statement to be filed by Smoky
Mountain for the purpose of registering the shares of Smoky Mountain Common
Stock to be exchanged for shares of First Franklin Common Stock in the Merger;
(ii) any application made by Smoky Mountain to any governmental or regulatory
body in connection with the transactions contemplated by this Agreement; and
(iii) finalizing and distributing all material in furtherance of the purposes
set forth in this Agreement.
(3) To use its best efforts and to take any and all necessary
or appropriate actions (including the payment of all required filing fees, other
than filing fees required to be paid by Smoky Mountain), and to cause its
officers, directors, employees, agents, and representatives to use their best
efforts and to take all steps in good faith within their power, to cause to be
fulfilled those of the conditions precedent to its or to Smoky Mountain's (or
their respective subsidiaries') obligations to consummate the Merger which are
dependent upon its or their actions, including, but not limited to, (i)
requesting the delivery of appropriate opinions and letters from its counsel;
and (ii) obtaining any consents, approvals, or waivers required to be obtained
from other parties to loan agreements or other contracts material to its
business or the business of First National.
(4) To join with Smoky Mountain, upon the fulfillment of the
conditions precedent to First Franklin's obligations to consummate the Merger,
in executing and delivering such documents and making such filings as shall
cause the consummation of the Merger.
(5) To keep Smoky Mountain closely advised of all material
developments relevant to the consummation of the Merger, to give prompt written
notice to Smoky Mountain upon becoming aware of any impending or threatened
occurrence of any event that would cause or constitute a breach of any of the
representations and warranties of First Franklin contained or referred to in
this Agreement (including, without limitation, any representations and
warranties made on behalf of First National and the First National Subsidiary),
and to use its best efforts to prevent or promptly to remedy the same.
(6) To maintain, and to cause its officers, directors,
employees, agents, and representatives (including the First National Subsidiary
and its officers, directors,
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employees, agents and representatives) to maintain, in accordance with the
provisions of Section 5.4 hereof, the confidentiality of all Confidential
Information, abstracts and derivatives thereof, furnished to it or them by Smoky
Mountain or any Smoky Mountain Subsidiary concerning its business, assets, and
financial condition; and not to use, and to cause its officers, directors,
employees, agents and representatives (including First National and the First
National Subsidiary and their respective officers, directors, employees, agents,
and representatives) to not use, such information for a period of two (2) years,
except in furtherance of the transactions contemplated by this Agreement; and to
return, and to cause its officers, directors, employees, agents, and
representatives (including First National and the First National Subsidiary and
their respective officers, directors, employees, agents and representatives) to
return, if this Agreement is terminated, all documents and copies of
Confidential Information, abstracts and derivatives thereof, received from Smoky
Mountain or any Smoky Mountain Subsidiary.
(7) The undertakings of First Franklin set forth in this
Section 2.9(a) shall terminate on the Effective Time.
(b) Undertakings of Smoky Mountain. Smoky Mountain undertakes and
agrees:
(1) To adopt through action of its Board of Directors this
Agreement and to join with First Franklin in executing and delivering the same.
(2) To prepare or cause to be prepared, as soon as practicable
after the date of this Agreement, a draft of the S-4 Registration Statement, to
share such draft with First Franklin, and to cooperate with First Franklin in
finalizing such S-4 Registration Statement (and any amendments thereto) and to
use its best efforts to cause the S-4 Registration Statement to become effective
as soon as practicable.
(3) To use its best efforts and to take any and all necessary
or appropriate actions (including the payment of all required filing fees, other
than filing fees required to be paid by First Franklin) and to cause its
officers, directors, employees, agents and representatives to use their best
efforts and to take all steps in good faith within their power, to cause to be
fulfilled those of the conditions precedent to its or First Franklin's (or their
respective Subsidiaries') obligations to consummate the Merger which are
dependent upon its or their actions, including but not limited to (i) requesting
the delivery of appropriate opinions and letters from its counsel; and (ii)
obtaining any consents, approvals, or waivers required to be obtained from other
parties to loan agreements or other contracts material to its business or the
business of the Smoky Mountain Subsidiary.
(4) To join with First Franklin, upon the fulfillment of the
conditions precedent to Smoky Mountain's obligations to consummate the Merger,
in executing and delivering such documents and making such filings as shall
cause the consummation of the Merger.
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(5) To keep First Franklin closely advised of all material
developments relevant to the consummation of the Merger, to give prompt written
notice to First Franklin upon becoming aware of any impending or threatened
occurrence of any event that would cause or constitute a breach of any of the
representations and warranties of Smoky Mountain contained or referred to in
this Agreement, (including, without limitation, any representations and
warranties made on behalf of BankFirst and the BankFirst Subsidiaries), and to
use its best efforts to prevent or promptly to remedy the same.
(6) To maintain, and to cause its officers, directors,
employees, agents, and representatives (including BankFirst and the BankFirst
Subsidiaries and their respective officers, directors, employees, agents and
representatives) to maintain, in accordance with the provisions of Section 5.4
hereof, the confidentiality of all Confidential Information, abstracts and
derivatives thereof, furnished to it or them by First Franklin, First National
or the First National Subsidiary concerning their respective businesses, assets,
and financial condition; and not to use, and to cause their respective officers,
directors, employees, agents and representatives (including BankFirst and the
BankFirst Subsidiaries and their officers, directors, employees, agents and
representatives) not to use, Confidential Information for a period of two (2)
years except in furtherance of the transactions contemplated by this Agreement;
and to return, and to cause their respective officers, directors, employees,
agents and representatives (including BankFirst and the BankFirst Subsidiaries
and their respective officers, directors, employees, agents and representatives)
to return, if this Agreement is terminated, all documents and copies of
Confidential Information, abstracts and derivatives thereof, received from First
Franklin, First National and the First National Subsidiary.
(7) The undertakings of Smoky Mountain set forth in Section
2.9(b) shall terminate at the Effective Time.
ARTICLE 3
REPRESENTATIONS AND WARRANTIES OF SMOKY MOUNTAIN
As of the date hereof and as of the Closing Date, Smoky Mountain
represents and warrants on its behalf and on behalf of BankFirst and the
BankFirst Subsidiaries to First Franklin as follows:
3.1 Organization and Corporate Authority. Smoky Mountain, BankFirst,
Curtis Mortgage Company and Eastern Life Insurance Company are corporations duly
incorporated, validly existing, and in good standing under the laws of the State
of Tennessee. BankFirst, a wholly-owned subsidiary of Smoky Mountain, is a
Tennessee state banking institution, duly incorporated, validly existing, and in
good standing under the laws of the State of Tennessee. Curtis Mortgage Company,
Inc., a wholly-owned subsidiary of BankFirst, is a Tennessee corporation, duly
incorporated, validly existing, and in good standing under the laws of the State
of Tennessee. Eastern Life Insurance Company, a wholly-owned subsidiary of
BankFirst,
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is an insurance corporation, duly incorporated, validly existing, and in good
standing under the laws of the State of Tennessee. Smoky Mountain, BankFirst and
the BankFirst Subsidiaries have all necessary corporate power and authority to
own or lease their respective properties and to conduct their respective
businesses as they are now being conducted, are duly qualified to do business
and are in good standing in every jurisdiction in which the nature of the
business conducted by them or the character or location of the properties owned
or leased by them makes such qualification necessary, except to the extent that
any failure to so qualify would not, in the aggregate, have a material adverse
effect on the business, financial condition, or results of operations of Smoky
Mountain, BankFirst or the BankFirst Subsidiaries, taken as a whole. The deposit
accounts of BankFirst are insured by the FDIC to the full extent permitted under
applicable law and the rules and regulations of the FDIC. The Charters and
Bylaws of Smoky Mountain, BankFirst, Curtis Mortgage Company and Eastern Life
Insurance Company, and all amendments thereto to the date hereof (true, correct,
and complete copies of which are attached hereto as Schedule 3.1) are in full
force and effect as of the date of this Agreement. Smoky Mountain and BankFirst
have taken such action and executed and filed such documents and notices as may
be necessary to enable BankFirst to exercise the powers conferred on Tennessee
banking corporations.
3.2 Authorization, Execution and Delivery; Agreement Not in Breach.
(a) Smoky Mountain has all requisite corporate power and authority
to execute and deliver this Agreement and Plan of Merger and to consummate the
transactions contemplated hereby. This Agreement, and all other agreements
contemplated to be executed in connection herewith by Smoky Mountain, have been
(or upon execution will have been) duly executed and delivered by Smoky
Mountain, have been (or upon execution will have been) duly authorized by the
Smoky Mountain Board of Directors, and the matter will be submitted to a
specially called meeting of the Smoky Mountain Shareholders to be held as
provided in Section 2.7(b). Thereafter, assuming proper shareholder approval, no
other corporate proceedings on the part of Smoky Mountain are (or will be)
necessary to authorize such execution and delivery, and this Agreement
constitutes (or upon execution will constitute) the legal, valid and enforceable
obligation of Smoky Mountain, subject, as to enforceability, to applicable
bankruptcy, insolvency, reorganization, moratorium or similar laws affecting the
enforcement of creditors' rights generally, and to the application of equitable
principles and judicial discretion.
(b) The execution and delivery of this Agreement, the consummation
of the transactions contemplated hereby and the fulfillment of the terms hereof
will not result in a breach of any of the terms or provisions of, or constitute
a default under (or an event which, with the passage of time or the giving of
notice or both, would constitute a default under), or conflict with, or permit
the acceleration of any obligation under, any mortgage, lease, covenant,
agreement, indenture or other instrument to which any of Smoky Mountain,
BankFirst or BankFirst Subsidiaries is a party or by which it or its property or
any of its assets are bound; the Restated Charter or Bylaws of Smoky Mountain;
the Charter or Bylaws of BankFirst, the Charter or Bylaws of BankFirst
Subsidiaries; or any judgment, decree, order or award of any court, governmental
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body or arbitrator by which either Smoky Mountain, BankFirst or BankFirst
Subsidiaries is bound; or any permit, concession, grant, franchise, license,
law, statute, ordinance, rule or regulation applicable to Smoky Mountain or its
properties; or result in the creation of any lien, claim, security interest,
encumbrance, charge, restriction or right of any third party of any kind
whatsoever upon the property or assets of Smoky Mountain, except that the
Government Approvals shall be required in order for Smoky Mountain to consummate
this Agreement.
(c) The shares of Smoky Mountain Common Stock to be issued to
Eligible First Franklin Shareholders pursuant to the Merger and as contemplated
in this Agreement are duly authorized and, when properly issued and delivered
following consummation of the Merger, will be validly issued, fully paid and
nonassessable. Such shares of Smoky Mountain Common Stock will be delivered to
First Franklin Shareholders pursuant to the terms of this Agreement free and
clear of all claims, encumbrances, security interests and liens whatsoever and
will be fully transferrable by any such holder without any restrictions required
under federal or applicable state securities laws, except restrictions
applicable to such holders who are deemed "affiliates" of First Franklin under
Rule 145 under the Securities Act.
3.3 No Legal Bar. Smoky Mountain is not a party to, subject to or bound by
any agreement, judgment, order, writ, prohibition, injunction or decree of any
court or other governmental body of competent jurisdiction which would prevent
the execution of this Agreement by Smoky Mountain, its delivery to First
Franklin or the consummation of the transactions contemplated hereby, and no
action or proceeding is pending against Smoky Mountain in which the validity of
this Agreement, any of the transactions contemplated hereby or any action which
has been taken by any of the parties in connection herewith or in connection
with any of the transactions contemplated hereby is at issue.
3.4 Regulatory Approvals. No consent, approval, order or authorization of,
or registration, declaration or filing with, any federal, state or local
governmental authority is required to be made or obtained by Smoky Mountain in
connection with the execution and delivery of this Agreement or the consummation
of the transactions contemplated hereby by Smoky Mountain, except for (a) the
prior approval of the FRB of the Agreement under the Act; (b) the prior approval
of the FDIC of the Agreement; (c) the approval of the SEC; (d) the prior
approval of the TDFI under Tennessee Code Annotated ss. 45-2-1401 et seq and the
regulations promulgated by the TDFI thereunder; and (e) a Proxy Statement in
definitive form relating to the Smoky Mountain Stockholders Meeting.
3.5 Capitalization. The authorized capital stock of Smoky Mountain
consists of 3,000,000 shares of voting Common Stock of par value of Two Dollars
and Fifty Cents ($2.50) per share ("Smoky Mountain Common Stock"); 1,000,000
shares of non-voting Common Stock of par value of Two Dollars and Fifty Cents
($2.50) per share ("Non-Voting Common Stock"), and 1,000,000 shares of preferred
stock of par value of Five Dollars ($5.00) per share ("Smoky Mountain Preferred
Stock"). As of the date of this Agreement, 1,275,079 shares of Smoky Mountain
Common Stock are issued and outstanding and 215,805 shares of Smoky Mountain
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Preferred Stock are issued and outstanding, which are presently convertible at
the option of the holders thereof to 133,259 shares of Smoky Mountain Common
Stock. Additionally, Smoky Mountain is responsible to issue, when vested and if
exercised, 201,286 shares of Smoky Mountain Common Stock to option holders. As
of February 10, 1998, 93,693 shares are vested and exercisable by the option
holders. In addition, Smoky Mountain is holding 1,141 shares of Smoky Mountain
Common Stock as treasury stock. No shares of Non-Voting Common Stock are issued
and outstanding. All of the outstanding Smoky Mountain Common Stock is validly
issued, fully paid, and non-assessable, and has not been issued in violation of
any preemptive rights of any Smoky Mountain Shareholder. BankFirst is a
wholly-owned subsidiary of Smoky Mountain. Curtis Mortgage Company, Inc. and
Eastern Life Insurance Company are wholly-owned subsidiaries of BankFirst.
3.6 Smoky Mountain Financial Statements. Smoky Mountain has delivered and,
to the extent reference is made to financial statements not yet available or
capable of development, will deliver to First Franklin true and complete copies
of: (i) Smoky Mountain's audited Consolidated Financial Statements for the
calendar years ended December 31, 1997, 1996 and 1995; and (ii) Smoky Mountain's
unaudited consolidated financial statements for each of the calendar quarters in
calendar year 1998 and thereafter, ending prior to the Closing Date. Such
financial statements and the notes thereto present fairly, or will present
fairly when issued, in all material respects, the consolidated financial
position of Smoky Mountain at the respective dates thereof and the consolidated
results of operations and consolidated cash flow of Smoky Mountain for the
periods indicated, and in each case in conformity with GAAP consistently applied
and maintained, subject to normal year-end adjustments.
3.7 Tax Matters. Except as set forth in Schedule 3.7 hereto:
(a) Smoky Mountain, BankFirst and BankFirst Subsidiaries have, or,
in the case of returns which become due after the date hereof and at or before
the Effective Time of the Merger, will have, prior to the Effective Time of the
Merger, duly filed with the appropriate governmental agencies all federal,
state, local and foreign tax returns, reports, and declarations of estimated tax
with respect to income, sales, and all other applicable taxes, and all other tax
returns and reports, the filing of which is required by applicable law (without
regard to extensions of time permitted by law, regulation, or otherwise) at or
before the Effective Time of the Merger (including, without limitation, income,
profit, franchise, sales, use, real property, ad valorem, excise, personal
property, employment, social security, and wage withholding taxes of every kind,
character, or description imposed by any governmental or quasi-governmental
authority). All of the Smoky Mountain Tax Returns are (or, in the case of
returns becoming due after the date hereof and at or before the Effective Time
of the Merger, will be) accurate and complete in all material respects.
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(b) Smoky Mountain, BankFirst and the BankFirst Subsidiaries have
collected and withheld all taxes that they are or have been required to collect
or withhold and have timely submitted all such collected and withheld amounts to
the appropriate authorities. Smoky Mountain, BankFirst and the BankFirst
Subsidiaries are in compliance with the back-up withholding and information
reporting requirements under the Code and the rules and regulations of the IRS
thereunder.
(c) All federal, state, local, and foreign taxes due and payable
pursuant to the Smoky Mountain Tax Returns or pursuant to any installments of
estimated taxes, and all other taxes, assessments, deficiencies, levies,
imposts, duties, license fees, registration fees, withholding, or other similar
governmental charges, and any penalties, interest, or additions to tax imposed
thereon or in connection therewith, due or claimed to be due by any taxing
authority, have been accrued , adequately reserved against, or paid.
(d) The reserves for taxes contained in the Smoky Mountain Financial
Statements are adequate to cover the payment of all liabilities of Smoky
Mountain, BankFirst and the BankFirst Subsidiaries for federal, state, local,
and foreign taxes (including installments of estimated taxes and all other
taxes, assessments, deficiencies, levies, imposts, duties, license fees,
registration fees, withholding, or other similar governmental charges), and any
penalties, interest, or additions to tax imposed thereon or in connection
therewith due or claimed to be due by any taxing authority in connection with
any of the Smoky Mountain Tax Returns. As of December 31, 1997, Smoky Mountain
had no net operating loss carryforward (for federal or state income tax
purposes), and neither Smoky Mountain, BankFirst or the BankFirst Subsidiaries
have a net operating loss carryforward (for federal or state income tax
purposes). The reserves for taxes in all of the Smoky Mountain Interim Financial
Statements will be adequate to cover liabilities for taxes for all periods up to
and including the dates of such financial statements.
(e) Neither Smoky Mountain, BankFirst nor BankFirst Subsidiaries
have received any notice of deficiency or assessment or proposed deficiency or
assessment by the IRS or any other taxing authority in connection with the Smoky
Mountain Tax Returns. All federal income tax returns of Smoky Mountain,
BankFirst and the BankFirst Subsidiaries have been examined by the Internal
Revenue Service, or closed without audit by the applicable statute, for all
taxable years prior to and including the taxable year ended December 31, 1994.
There is no action, suit, proceeding, audit, examination, investigation, or
claim pending, or to the knowledge of Smoky Mountain, threatened, in respect of
any Smoky Mountain Taxes for which Smoky Mountain, BankFirst or any BankFirst
Subsidiary is or may become liable.
(f) Neither Smoky Mountain nor BankFirst nor the BankFirst
Subsidiaries has waived any law or regulation fixing, or consented to the
extension of, any period of time with respect to assessment or collection of any
Smoky Mountain Taxes, and no power of attorney has been granted by Smoky
Mountain, BankFirst or BankFirst Subsidiaries with respect to any tax matters is
currently in force.
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(g) Neither Smoky Mountain, BankFirst nor the BankFirst Subsidiaries
has made an election under Section 341(f) of the Code.
(h) Smoky Mountain, BankFirst and the BankFirst Subsidiaries have
provided, and until the Effective Time of the Merger will continue to provide,
to First Franklin complete and correct copies of their income tax returns and
all material correspondence and documents, if any, in their possession relating
directly or indirectly to Smoky Mountain Taxes for each taxable year of Smoky
Mountain, BankFirst and the BankFirst Subsidiaries for all years as to which the
applicable statute of limitations have not run on the date hereof. For this
purpose, "correspondence and documents" include amended tax returns, claims for
refund, notices from taxing authorities of proposed changes or adjustments to
taxes or tax returns, consents to assessment or collection of taxes, acceptances
of proposed adjustments, closing agreements, rulings and determination letters
and requests therefor, and all other written communications to or from taxing
authorities relating to any material tax liability of Smoky Mountain, BankFirst
or BankFirst Subsidiaries.
3.8 Insurance. Schedule 3.8 hereto lists all insurance policies presently
carried by Smoky Mountain, BankFirst and the BankFirst Subsidiaries which are
currently in force with respect to their business and properties, including
without limitation title insurance policies on real property owned (exclusive of
foreclosed property). The existing insurance carried by Smoky Mountain,
BankFirst, and the BankFirst Subsidiaries is and will continue to be with
reputable insurers and, in respect of the nature of the risks insured against
and the amount of coverage provided, not less than that customarily carried by
parties similarly situated who own properties and engage in businesses
substantially similar to that of Smoky Mountain, BankFirst and the BankFirst
Subsidiaries, and such insurance is and will continue to be sufficient for
compliance by Smoky Mountain, BankFirst and the BankFirst Subsidiaries with all
material requirements of law and agreements to which any of Smoky Mountain,
BankFirst or a BankFirst Subsidiary is a party. Except as noted in Schedule 3.8,
neither Smoky Mountain, BankFirst, nor the BankFirst Subsidiaries is in default
in the payment of any premium, currently has outstanding any claim with respect
to such insurance coverage, or has received notification of, or has knowledge
of, the existence of any grounds for the cancellation of proposed cancellation
of any such policies or bonds.
3.9 Legal Proceedings. Except as set forth in Schedule 3.9 hereto, there
are no judicial or administrative proceedings of any kind or nature pending or,
to the knowledge of Smoky Mountain, threatened against Smoky Mountain, BankFirst
or the BankFirst Subsidiaries before any court or arbitral tribunal or before or
by any governmental department, agency, or instrumentality in any manner
involving Smoky Mountain, BankFirst or the BankFirst Subsidiaries or any of
their respective properties or capital stock, or the transactions contemplated
by this Agreement. Except as set forth in Schedule 3.9 (i) there is, to the best
of Smoky Mountain's knowledge, no basis for any action, suit, investigation, or
proceeding against Smoky Mountain, BankFirst or the BankFirst Subsidiaries
before any court or arbitral tribunal or before or by any governmental
department, agency, or instrumentality, which, if determined adversely to Smoky
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Mountain, BankFirst or the BankFirst Subsidiaries, would have a material adverse
effect on the assets, business, employees, revenue, income, prospects, condition
(financial or otherwise),liabilities, net worth or results of operations of
Smoky Mountain, BankFirst or the BankFirst Subsidiaries, and (ii) there are no
actions, suits, or proceedings pending or, to the knowledge of Smoky Mountain,
threatened by or against any officer, director, agent, or employee of Smoky
Mountain , BankFirst or the BankFirst Subsidiaries in connection with the
business, properties, affairs or prospects of Smoky Mountain, BankFirst or the
BankFirst Subsidiaries. To the knowledge of Smoky Mountain, neither Smoky
Mountain, BankFirst nor the BankFirst Subsidiaries is in default with respect to
any judgment, order, writ, injunction, decree, award, rule or regulation of any
court, arbitrator, or governmental department, agency, or instrumentality.
3.10 Compliance with Law. Other than as set forth in Schedule 3.10 hereto,
to the knowledge of Smoky Mountain, (i) Smoky Mountain, BankFirst and the
BankFirst Subsidiaries are in full compliance with the back-up withholding
requirements of Section 3406 of the Code and the Treasury Regulations
promulgated thereunder; (ii) Smoky Mountain, BankFirst and the BankFirst
Subsidiaries are in full compliance with the reporting and other requirements of
the Bank Secrecy Act (including the Currency and Foreign Transaction Reporting
Act) and the regulations promulgated thereunder by the Department of the
Treasury; (iii) Smoky Mountain, BankFirst and the BankFirst Subsidiaries are in
substantial compliance with the provisions of all other applicable federal,
state, and local statutes, and all rules, regulations, or orders of, or
understandings or agreements with, governmental agencies having jurisdiction
over the assets, business, properties, operations, employees, revenue, income,
condition (financial or otherwise), liabilities, net worth, or results of
operations of Smoky Mountain, BankFirst and the BankFirst Subsidiaries; and (iv)
neither Smoky Mountain, BankFirst nor the BankFirst Subsidiaries is subject to
or has been threatened with any material fine, penalty, liability, or legal
disability with respect to the assets, business, operations, revenue, income,
condition (financial or otherwise), liabilities, net worth, or results of
operations of Smoky Mountain, BankFirst and the BankFirst Subsidiaries as the
result of the failure of Smoky Mountain, BankFirst or the BankFirst Subsidiaries
to comply with any requirement of any governmental body or agency having
jurisdiction over them, the conduct of their business, the use of their assets
and properties, or any premises occupied by them. Smoky Mountain, BankFirst and
the BankFirst Subsidiaries have filed, and until the Effective Time of Merger
will continue to file, all reports required to be filed by them with any
regulatory agency on or prior to the date such reports were due, and all such
reports, as finally amended, complied and will comply in all material respects
with applicable requirements of law and, as of their respective dates or the
dates as amended, did not and will not contain any untrue statement of a
material fact or omit to state a material fact required to be stated therein or
necessary to make the statements therein, in light of the circumstances under
which they were or will be made, not misleading. Except to the extent stated
therein, all financial statements and schedules included and to be included in
such reports were and will be prepared in accordance with GAAP or such other
regulatory accounting requirements as were applicable thereto, applied on a
consistent basis with prior periods, subject to normal year-end adjustments, and
fairly presented and will fairly present the information purported to be shown
therein.
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3.11 Governmental Authorizations. Each of Smoky Mountain, BankFirst and
the BankFirst Subsidiaries have all licenses, permits, approvals, and other
authorizations from all federal, state, and local authorities as are necessary
for the conduct of its business and operations, and all such licenses,
franchises, permits, approvals, and other authorizations are in full force and
effect and are not subject to any condition, qualification, or limitation.
Neither Smoky Mountain, BankFirst nor any of the BankFirst Subsidiaries has
received any notification from any agency, department, or instrumentality (or
the staff thereof) of federal, state, or local government asserting
noncompliance with any of the laws, rules, regulations or orders that such
governmental authority enforces or threatening to revoke any license, franchise,
permit, or governmental authorization.
3.12 Supervisory Matters. Neither Smoky Mountain, BankFirst nor any of the
BankFirst Subsidiaries has been advised by any regulatory agency that it is
contemplating issuing (or requesting ) any written agreement, memorandum of
understanding, order, decree, directive, extraordinary supervisory letter,
commitment letter, or similar document or taking (or considering the
appropriateness of taking) any prompt corrective action (within the meaning of
the FDIA). The last examination of BankFirst by the Staff of the FDIC and the
Tennessee Department of Financial Institutions prior to the date of this
Agreement was performed as of August 29, 1997. The last examination of Smoky
Mountain by the Staff of the FRB prior to the date of this Agreement was
performed as of December 31, 1996. If either or both of Smoky Mountain or
BankFirst was notified of any deficiency as a result of such examinations, or
any prior examinations, each such deficiency has been corrected to the
satisfaction of the appropriate agency and if changes in the operating methods
or organization were required by reason of such examination or such other
examination, such changes have been made. The reserve for loan losses for
BankFirst has been calculated in accordance with GAAP applied on a consistent
basis, as the same are applied to comparable banking institutions, and in
accordance with all applicable rules and regulations. The reserves for loan
losses set forth in BankFirst's Financial Statements are adequate in all
respects to provide for all losses, net of recoveries relating to loans
previously charged off, on loans outstanding as of the dates thereof. Further,
BankFirst has not been notified in writing that such reserves violated any
minimum requirements or that the independent auditors of BankFirst believes such
reserves to be inadequate or inconsistent with historical loan loss experience.
3.13 Rights and Licenses. Set forth in Schedule 3.13 hereto is a list and
description of all trademarks, trademark rights, trade names, and licenses owned
and/or used by Smoky Mountain, Bank First and the BankFirst Subsidiaries,
including all registrations thereof. To the knowledge of Smoky Mountain, neither
Smoky Mountain, BankFirst or the BankFirst Subsidiaries are subject to any
material disability to conduct their respective businesses as currently
conducted or liability by reason of their failure to own or possess the rights
to use any other trademark, trademark right, trade name, trade name right, or
license. Each of Smoky Mountain, BankFirst and the BankFirst Subsidiaries have
full right and authority to own and use all the trademarks, trade names, and
licenses listed in Schedule 3.13. Neither Smoky Mountain, BankFirst nor any of
the BankFirst Subsidiaries have been held liable for, and no actions, suits, or
proceedings are pending or, to the knowledge of Smoky Mountain, threatened
against Smoky
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Mountain, BankFirst or the BankFirst Subsidiaries, alleging that Smoky Mountain,
BankFirst or the BankFirst Subsidiaries are liable for infringement of any
trademark, trademark right, trade name, trade name right, or license owned
and/or used by any other person or entity. Neither Smoky Mountain, BankFirst or
the BankFirst Subsidiaries have knowledge of any infringement on the trademarks,
trademark rights, trade names, and licenses owned and/or used by Smoky Mountain,
BankFirst and the BankFirst Subsidiaries.
3.14 Properties. Each of Smoky Mountain, BankFirst and the BankFirst
Subsidiaries has good and marketable title to all of their respective assets and
properties, including all real, personal, and intangible properties, and such
properties and assets are subject to no liens, mortgages, security interests,
encumbrances, or charges of any kind except (i) as noted in the Financial
Statements described in Section 3.6, (ii) statutory liens not yet delinquent,
and (iii) minor defects and irregularities in title and encumbrances that do not
materially impair the value or use thereof for the purposes for which they are
held.
3.15 Absence of Certain Changes or Events. Since December 31, 1997,
neither Smoky Mountain, BankFirst or the BankFirst Subsidiaries have, except as
set forth in Schedule 3.15 heretofore delivered by Smoky Mountain to First
Franklin, (i) incurred any material liability, except in the ordinary course of
business, consistent with their past practice; (ii) suffered any material
adverse change in their respective businesses, operations, assets, or condition
(financial or other); (iii) made any material change in its mode of management
or operation or method of accounting; or (iv) failed to operate their respective
businesses in all material respects in the ordinary course consistent with its
past practice.
3.16 Public Offering of Smoky Mountain Stock. Smoky Mountain,
contemporaneous with this Agreement, is undertaking an underwritten public
offering of Smoky Mountain Common Stock under the Securities Act. Smoky Mountain
has made, or will make, available a true and complete copy of the Registration
Statement filed by Smoky Mountain in connection with such public offering, and
any correspondence with the SEC related thereto.
3.17 Representations and Warranties True on and as of Closing Date. All
the representations and warranties of Smoky Mountain, on behalf of itself and on
behalf of BankFirst and the BankFirst Subsidiaries, contained in this Agreement
will be materially true on and as of the Closing Date, except to the extent
affected (i) by the transactions contemplated hereby, and (ii) by circumstances
disclosed to First Franklin occurring subsequent to the date hereof which in the
aggregate are not materially adverse to Smoky Mountain, BankFirst and the
BankFirst Subsidiaries.
3.18 Material Contracts. Except as set forth in Schedule 3.18 heretofore
delivered by Smoky Mountain to First Franklin, neither Smoky Mountain, BankFirst
nor the BankFirst Subsidiaries are a party to or bound by any (i) employment or
consulting contract which is not terminable by Smoky Mountain, BankFirst or any
of the BankFirst Subsidiaries on 60 or fewer days' notice, (ii) bonus, stock
option, deferred compensation or profit sharing, pension, or
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retirement plan or arrangements; (iii) material lease or license with respect to
any property, real or personal, whether as landlord, tenant, licensor, or
licensee, which cannot be terminated without substantial penalty and on notice
of not more than 30 days; (iv) contract or commitment for capital expenditures
in excess of $5,000 for any one project or $25,000 in the aggregate; (v)
material contract or commitment, whether or not made in the ordinary course of
business, for the purchase of materials or supplies or for the performance of
services over a period of more than 60 days from the date of this Agreement and
which cannot be terminated without substantial penalty and on notice of not more
than 30 days; (vi) agreement or instrument or charter or other restriction which
materially and adversely affects or in the future may materially or adversely
affect the business, operations, prospects, properties, assets, or financial
condition of Smoky Mountain, BankFirst or any of the BankFirst Subsidiaries;
(vii) contract or option to purchase or sell any real or personal property
otherwise than in the ordinary course of business which cannot be terminated
without substantial penalty and on notice of not more than 30 days; or (viii)
material contract, other than the foregoing, not made in the ordinary course of
business, which cannot be terminated without substantial penalty and on notice
of not more than 30 days. Smoky Mountain, BankFirst and the BankFirst
Subsidiaries have in all material respects performed all obligations required to
be performed by them to date and are not in default under, and no event has
occurred which with the lapse of time or action by a third party could result in
default under, any outstanding indenture, mortgage, contract, lease, or other
agreement to which Smoky Mountain, BankFirst or any of the BankFirst
Subsidiaries are bound, or under the provisions of their respective Charters or
Bylaws.
3.19 Employee Benefit Plans.
(a) Schedule 3.19 heretofore delivered by Smoky Mountain to First
Franklin lists each pension plan, each welfare plan, and each deferred
compensation, bonus, stock option, stock purchase, or other employee benefit
plan, agreement, commitment, or arrangements which is or has at any time been
established, sponsored, maintained, or contributed to by Smoky Mountain,
BankFirst, or any Affiliate. Except as set out in Schedule 3.19, none of Smoky
Mountain, BankFirst, or any Affiliate has at any time (i) established,
sponsored, maintained, or made any contribution to any Pension Plan; (ii) been a
party to any collective bargaining agreement, contract, or other arrangement, or
been subject to any statute, rule, or regulation, which required Smoky Mountain,
BankFirst, or any Affiliate to establish, maintain, sponsor, or make any
contribution to any Welfare Plan; or (iii) established, sponsored, maintained,
been a party to, or incurred any obligation or liability under any Other Plan.
Smoky Mountain, BankFirst, and their Affiliates have no obligations or
liabilities (whether accrued, absolute, contingent, or unliquidated, whether or
not known or whether or not due or to become due) with respect to any "employee
benefit plan" (as defined in Section 3(3) of ERISA) or Other Plan which is not
listed in Schedule 3.19. For the purposes of this Section 3.19, the term
"Affiliate" shall include all persons under common control with Smoky Mountain
or BankFirst within the meaning of Sections 4001(a)(14) or (b)(1) of ERISA or
any regulations promulgated thereunder, or Sections 414(b) or (c) of the Code.
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(b) Smoky Mountain has delivered to First Franklin a copy of each
plan or arrangement listed in Schedule 3.19 and any related trust agreements,
insurance contracts, and other documents pursuant to which benefits under such
plan or arrangement are funded or paid, including all amendments, modifications,
and supplements thereto, all of which (except as otherwise indicated in Schedule
3.19) are legally valid and binding and in full force and effect.
(c) Smoky Mountain has delivered to First Franklin copies of (i) the
annual report and actuarial report for each plan or arrangement listed in
Schedule 3.19 for the most recent plan year and the four preceding plan years,
if applicable; (ii) all IRS determination letters and rulings, together with all
amendments, modifications, or supplements thereto, if applicable, with respect
to each such plan and each amendment, modification, or supplement thereto; (iii)
all Department of Labor prohibited transaction exemptions letter and
determinations with respect to each such plan or arrangement; and (iv) all
Pension Benefit Guaranty Corporation determinations and notices with respect to
each such plan or arrangement.
(d) As of the date of this Agreement and as of the Effective Time of
the Merger, in the case of each plan or arrangement listed in Schedule 3.19
which is a defined benefit plan (within the meaning of Section 3(35) of ERISA),
the net fair market value of the assets held to fund such plan or arrangement
will equal or exceed the present value of all accrued benefits thereunder, both
vested and nonvested, as determined in accordance with an actuarial costs method
acceptable under Section 3(31) of ERISA.
(e) On a timely basis, Smoky Mountain, BankFirst and their
Affiliates have made all contributions or payments to or under each plan or
arrangement listed in Schedule 3.19 as required pursuant to each such plan or
arrangement, any collective, bargaining agreements or other agreements, ERISA,
or other applicable laws, and have made adequate provision for reserves to meet
contributions and payments under such plans or arrangements which have not been
made because they are not yet due.
(f) Each Pension Plan listed in Schedule 3.19 has been determined to
be qualified under Section 401(a) and, if applicable, Section 401(k) of the Code
by the IRS, and nothing has occurred or been omitted since the date of the last
such determination which resulted or will result in the revocation of such
determination.
(g) Each plan or arrangement listed in Schedule 3.19 (and any
related trust, insurance contract, or other vehicle pursuant to which benefits
under such plan or arrangement are funded or paid) has been administered in all
respects in full compliance with applicable provisions of ERISA, the Code, the
Consolidated Omnibus Budget Reconciliation Act of 1986 and regulations
promulgated thereunder ("COBRA"), and other applicable law. Without limiting the
generality of the foregoing, none of Smoky Mountain, BankFirst, or any Affiliate
has (i) incurred any liability for tax under Section 4971 of the Code on account
of any accumulated funding deficiency and no plan or arrangement listed in
Schedule 3.19 has incurred any accumulated funding deficiency within the meaning
of Sections 412 or 418(B) of the Code; (ii)
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applied for or obtained a waiver by the IRS of any minimum funding requirement
under Section 412 of the Code; (iii) become subject to any disallowance of
deductions under Sections 419 or 419(A) of the Code; (iv) incurred any liability
for excise tax under Sections 4972, 4975, or 4976 of the Code or any liability
under Section 406 of ERISA; (v) incurred any liability to the Pension Benefit
Guaranty Corporation; (vi) had a reportable event (within the meaning of Section
4043 of ERISA); or (vii) breached any of the duties or failed to perform any of
the obligations imposed upon the fiduciaries or plan administrators under Title
I of ERISA.
(h) Neither Smoky Mountain, BankFirst nor any Affiliate has incurred
any material liability under Section 4201 of ERISA for a complete or partial
withdrawal from or have agreed to participate in a multi-employer plan as
defined in Section 4001(a)(3) of ERISA.
3.20 Brokers. No agent, broker, finder, investment banker, person, or firm
acting on behalf or under authority of Smoky Mountain, BankFirst or the
BankFirst Subsidiaries is or will be entitled to any broker's or finder's fee or
any other commissions or similar fee incurred directly or indirectly by or on
behalf of Smoky Mountain, BankFirst or the BankFirst Subsidiaries in connection
with the transactions contemplated by this Agreement.
3.21 Books of Account; Corporate Records. The Books of Account of Smoky
Mountain, BankFirst and BankFirst Subsidiaries are maintained in substantial
compliance with all applicable legal and accounting requirements. The minutes of
meetings maintained by Smoky Mountain, BankFirst and the BankFirst Subsidiaries
contain complete and accurate records in all material respects of the corporate
actions of its shareholders and Board of Directors and all committees thereof.
3.22. Reserves for Loan Losses. Except as described in Schedule 3.22, the
loan loss reserves reflected in the BankFirst Financial Statements are adequate
to provide for possible losses on loans (including accrued interest receivable)
in the loan portfolio of BankFirst and any losses associated with "Real Estate
Owned" by BankFirst, and each such provision has been established in accordance
with GAAP.
3.23. Labor Relations. Except to the extent set forth in Schedule 3.23:
(a) Smoky Mountain, BankFirst and the BankFirst Subsidiaries are in
compliance with all applicable laws and collective bargaining agreements
described in Schedule 3.23 respecting employment and employment practices, terms
and conditions of employment and employment practices, terms and conditions of
employment and wages and hours and occupational safety and health, and are not
engaged in any unfair labor practice within the meaning of Section 8 of the
National Labor Relations Act;
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(b) There is no unfair labor practice, charge or complaint or any
other matter against or involving Smoky Mountain, BankFirst or the BankFirst
Subsidiaries pending or, to the knowledge of Smoky Mountain, BankFirst or the
BankFirst Subsidiaries, threatened before the National Labor Relations Board or
any court of law;
(c) There is no labor strike, dispute, slowdown or stoppage actually
pending or threatened against Smoky Mountain, BankFirst or the BankFirst
Subsidiaries;
(d) No certification or decertification question or organizational
drive exists or has existed within the past twelve (12) months respecting the
employees of any of Smoky Mountain, BankFirst or the BankFirst Subsidiaries;
(e) No grievance or arbitration proceeding arising out of or under
any collective bargaining agreement is pending against Smoky Mountain, BankFirst
or any of the BankFirst Subsidiaries, or, to the knowledge of Smoky Mountain,
BankFirst or the BankFirst Subsidiaries, threatened; and, to the knowledge of
Smoky Mountain, BankFirst or the BankFirst Subsidiaries, no basis for any claim
therefor exists;
(f) No agreement (including any collective bargaining agreement),
arbitration or court decision or governmental order which is binding on Smoky
Mountain, BankFirst or the BankFirst Subsidiaries in any way limits or restricts
Smoky Mountain, BankFirst or the BankFirst Subsidiaries from relocating or
closing any of its operations;
(g) Smoky Mountain, BankFirst or the BankFirst Subsidiaries have not
experienced any organized work stoppage or other labor difficulty within the
past three (3) years;
(h) There are no charges, investigations, administrative proceedings
or formal complaints of discrimination (including discrimination based upon sex,
age, marital status, race, national origin, sexual preference, handicap or
veteran status) pending or, to the knowledge of Smoky Mountain, BankFirst or the
BankFirst Subsidiaries, threatened before the Equal Opportunity Commission or
any federal, state or local agency or court against Smoky Mountain, BankFirst or
the BankFirst Subsidiaries. There have been no audits of the equal employment
opportunity practices of Smoky Mountain, BankFirst or the BankFirst Subsidiaries
and, to the knowledge of Smoky Mountain, BankFirst or the BankFirst
Subsidiaries, no basis for any such audit exists.
3.24 No Undisclosed Liabilities. Except as set forth in Schedule 3.24
neither Smoky Mountain, BankFirst nor the BankFirst Subsidiaries have any
liabilities (absolute, accrued, contingent or otherwise), except liabilities (a)
disclosed in the Smoky Mountain Financial Statements; (b) incurred in the
ordinary course of business and not required under GAAP to be reflected on the
Smoky Mountain Financial Statements; (c) incurred since December 31, 1997 in the
ordinary course of business consistent with past practice; or (d) incurred in
connection with this Agreement.
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3.25 Year 2000 Compliance. The management and directors of Smoky Mountain,
BankFirst and the BankFirst Subsidiaries are aware of the significant risks
posed by information systems which are not Year 2000 compliant and have taken
appropriate measures and have initiated appropriate plans to require that any
vendor or service provider with which Smoky Mountain, BankFirst and the
BankFirst Subsidiaries do business be Year 2000 compliant, including, without
limitation, vendors and service providers which have supplied or will supply not
only information and data processing systems, but environmental systems,
elevators, telephone and facsimile machines, heating, ventilation, and air
conditioning systems, automatic teller machines, and vaults. Neither Smoky
Mountain, BankFirst nor the BankFirst Subsidiaries shall contract with any
vendor or service provider for any affected service unless the vendor or service
provider can offer written assurances of Year 2000 compliance.
3.26. Environmental Law Violations.
(a) For purposes of this Section 3.26, the following terms shall
have the indicated meanings:
(1) "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 (a) 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 (b) 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.
ss.9601, et seq., the Resource Conservation and Recovery Act, as amended, 42
U.S.C. ss.6901, et seq., the Clear Air Act, as amended, 42 U.S.C. ss.7401, et
seq., the Federal Water Pollution Control Act, as amended, 33 U.S.C. ss.1251, et
seq., the Toxic Substances Control Act, as amended 15 U.S.C. ss.9601, et seq.,
the Safe Drinking Water Act, 42 U.S.C. ss.300(f), 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.
(2) "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.
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(3) "Loan Portfolio Properties and Other Properties Owned"
means those properties now or previously owned or operated by Smoky Mountain,
BankFirst or the BankFirst Subsidiaries, including properties owned or operated
in a fiduciary capacity.
(b) Neither Smoky Mountain, BankFirst nor the BankFirst Subsidiaries
have been 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.
(c) None of the Loan Portfolio Properties and Other Properties Owned
by Smoky Mountain, BankFirst or the BankFirst Subsidiaries have been or are 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 on such entities.
(d) To the best knowledge of Smoky Mountain, BankFirst or the
BankFirst 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 either Smoky
Mountain, BankFirst or the BankFirst 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 or result in a material adverse effect on such entities.
ARTICLE 4
REPRESENTATIONS AND WARRANTIES OF FIRST FRANKLIN
First Franklin represents and warrants to Smoky Mountain, on its own
behalf and on behalf of First National and the First National Subsidiary as
follows:
4.1 Organization and Standing. First Franklin is a corporation, duly
incorporated, validly existing, and in good standing under the laws of the State
of Tennessee. First National, a wholly-owned subsidiary of First Franklin, is a
national banking association duly incorporated, validly existing, and in good
standing under the laws of the United States. Friendly Finance Company, Inc. is
a Tennessee chartered loan and industrial thrift corporation, validly existing,
and in good standing under the laws of the State of Tennessee. First Franklin,
First National and the First National Subsidiary have all necessary corporate
power and authority to own or lease their properties and assets and to conduct
their business and are in good standing in every jurisdiction in which the
nature of the business conducted by them or the character or location of the
properties owned or leased by them makes such qualification necessary, except to
the extent that any failure to so qualify would not, in the aggregate, have a
material adverse effect on the business, financial condition, or results of
operations of First National, taken as a whole. The deposit accounts of First
National are insured by the FDIC to the full extent permitted under applicable
law and the rules and regulations of the FDIC. The Charters and Bylaws of First
Franklin and the First National Subsidiary, and the Articles of Association and
Bylaws of First
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National and all amendments thereto to the date hereof (true, correct, and
complete copies of which have been previously delivered to Smoky Mountain and
are attached hereto as Schedule 4.1) are in full force and effect as of the date
of this Agreement. First Franklin and First National have taken such action and
executed and filed such documents and notices as may be necessary to enable
First National to exercise the powers conferred on national banking
associations.
4.2 Authorization, Execution and Delivery; Agreement Not in Breach
(a) First Franklin has all requisite corporate power and authority
to execute and deliver this Agreement and to consummate the transactions
contemplated hereby. This Agreement, and all other agreements contemplated to be
executed in connection herewith by First Franklin, have been (or upon execution
will have been) duly executed and delivered by First Franklin, have been (or
upon execution will have been) duly authorized by the First Franklin Board of
Directors, and the matter will be submitted to a specially called meeting of the
First Franklin Shareholders to be held as provided in Section 2.7(a).
Thereafter, assuming proper shareholder approval, no other corporate proceedings
on the part of First Franklin are (or will be) necessary to authorize such
execution and delivery, and constitute (or upon execution will constitute) the
legal, valid and enforceable obligation of First Franklin, subject, as to
enforceability, to applicable bankruptcy, insolvency, reorganization, moratorium
or similar laws affecting the enforcement of creditors' rights generally, and to
the application of equitable principles and judicial discretion.
(b) The execution and delivery of this Agreement, the consummation
of the transactions contemplated hereby and the fulfillment of the terms hereof
will not result in a breach of any of the terms or provisions of, or constitute
a default under (or an event which, with the passage of time or the giving of
notice or both, would constitute a default under), or conflict with, or permit
the acceleration of any obligation under, any mortgage, lease, covenant,
agreement, indenture or other instrument to which either First Franklin, First
National or the First National Subsidiary is a party or by which it or its
property or any of its assets are bound; the Charter or Bylaws of First
Franklin; the Articles of Association or Bylaws of First National; the Charter
or Bylaws of the First National Subsidiary; or any judgment, decree, order or
award of any court, governmental body or arbitrator by which either First
Franklin, First National or the First National Subsidiary is bound; or any
permit, concession, grant, franchise, license, law, statute, ordinance, rule or
regulation applicable to First Franklin or its properties; or result in the
creation of any lien, claim, security interest, encumbrance, charge, restriction
or right of any third party of any kind whatsoever upon the property or assets
of First Franklin, except that the Government Approvals shall be required in
order for First Franklin to consummate this Agreement.
4.3 No Legal Bar. First Franklin is not a party to, subject to or bound by
any agreement, judgment, order, writ, prohibition, injunction or decree of any
court or other governmental body of competent jurisdiction which would prevent
the execution of this Agreement by First Franklin, its delivery to Smoky
Mountain or the consummation of the
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transactions contemplated hereby, and no action or proceeding is pending against
First Franklin in which the validity of this Agreement, any of the transactions
contemplated hereby or any action which has been taken by any of the parties in
connection herewith or in connection with any of the transactions contemplated
hereby is at issue.
4.4 Regulatory Approvals. No consent, approval, order or authorization of,
or registration, declaration or filing with, any federal, state or local
governmental authority is required to be made or obtained by First Franklin in
connection with the execution and delivery of this Agreement or the consummation
of the transactions contemplated hereby by First Franklin, except for (a) the
prior approval of the FRB of the Agreement under the Bank Holding Company Act of
1956, as amended; (b) the prior approval of the FDIC of the Agreement; (c) the
approval of the SEC; and (d) the Proxy Statement in definitive form relating to
the Smoky Mountain Stockholders Meeting.
4.5 Capitalization and Ownership.
(a) The authorized capital stock of First Franklin consists of
400,000 shares of Common Stock of par value of Five Dollars ($5.00) per share
("First Franklin Common Stock"). As of the date of this Agreement, 164,125
shares of First Franklin Common Stock are issued and outstanding. In addition,
First Franklin is holding 35,872 shares of First Franklin Common Stock as
treasury stock. All of the outstanding First Franklin Common Stock is validly
issued, fully paid and nonassessable, and has not been issued in violation of
any preemptive right of any First Franklin Shareholder. As of the Effective Time
of the Merger, there will be no more than 164,125 shares of First Franklin
issued or outstanding. The authorized capital stock of First National consists
solely of 120,000 shares of common stock, par value $10.00 per share, of which,
as of the date of this Agreement, 120,000 shares are issued and outstanding,
fully paid and non-assessable (except to the extent that capital stock of a
national banking association is assessable under the national banking laws),
wholly-owned by First Franklin, and have not been issued in violation of the
preemptive rights of any person. All of the outstanding shares of common stock
of First National owned beneficially and of record by First Franklin are free
and clear of any security interest, lien, claim, charge, restriction or
encumbrance. The authorized capital stock of Friendly Finance Company, Inc.
consists solely of 100,000 shares of common stock at par value of $.01 per
share, of which, as of the date of this Agreement, 10,000 shares are issued and
outstanding, fully paid and non-assessable, wholly owned by First National, and
have not been issued in violation of the preemptive rights of any person. All of
the outstanding shares of common stock of Friendly Finance Company, Inc. owned
beneficially and of record by First National are free and clear of any security,
interest, lien, claim, charge, restriction, or encumbrance. Other than as set
forth in this Section, First Franklin does not own directly or indirectly,
beneficially or of record, more than five percent (5%) of the outstanding stock
of any other corporation and does not otherwise "control" any "company" or
"bank" (as those terms are defined in the Act). There are no owners of record of
five (5%) percent or more of First Franklin Common Stock.
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(b) Except as previously disclosed to Smoky Mountain in writing, as
of the date of this Agreement, there are no, and as of the Closing Date there
will not be, outstanding securities convertible into, or exercisable or
exchangeable for, First Franklin Common Stock, the common stock of First
National, or the common stock of Friendly Finance Company, Inc., or any
outstanding options, rights (preemptive or otherwise), or warrants to purchase
or to subscribe for any shares of First Franklin Common Stock, of the common
stock of First National, or of the common stock of Friendly Finance Company,
Inc., or any other securities of First Franklin, First National or Friendly
Finance Company, Inc. Except as previously disclosed to Smoky Mountain in
writing, as of the date of this Agreement there are, and as of the Closing Date
and thereafter there will be, no outstanding agreements, arrangements,
commitments, or understandings of any kind, to which First Franklin, First
National or the First National Subsidiary or, to the knowledge of management of
First Franklin is a party, affecting or relating to the voting, issuance,
purchase, redemption, repurchase, or transfer of First Franklin's Common Stock,
or any other securities of First Franklin, any shares of the capital stock of
First National, or any shares of the capital stock of the First National
Subsidiary.
4.6 First Franklin Financial Statements. First Franklin has delivered and,
to the extent reference is made to financial statements not yet available or
capable of development, will deliver to Smoky Mountain true and complete copies
of (i) First Franklin's audited Consolidated Financial Statements for the
calendar years ended December 31, 1997, 1996 and 1995; and (ii) First Franklin's
unaudited consolidated financial statements for each of the calendar quarters in
calendar year 1998 and thereafter, ending prior to the Closing Date. Such
financial statements and the notes thereto present fairly, or will present
fairly when issued, in all material respects, the consolidated financial
position of First Franklin at the respective dates thereof and the consolidated
results of operations and consolidated cash flow of First Franklin for the
periods indicated, and in each case in conformity with GAAP consistently applied
and maintained, subject to normal year-end adjustments. All of the documents
referred to in this Section 4.6, and all such documents hereafter filed by First
Franklin, First National and the First National Subsidiary with the appropriate
regulatory authorities prior to the Effective Time of the Merger, complied and
will comply in all material respects with applicable requirements of law and, as
of their respective dates or the dates as amended, did not and will not contain
any untrue statement of a material fact or omit to state a material fact
required to be stated therein or necessary to make the statements therein, in
light of the circumstances under which they were or will be made, not
misleading. Except to the extent stated therein, the First Franklin Financial
Statements and other schedules included in the documents referred to in this
Section 4.6 or to be included in such documents hereafter filed by First
Franklin, First National or the First National Subsidiary with the appropriate
Regulatory Authorities prior to the Effective Time of the Merger, and the First
Franklin Interim Financial Statements and any other such financial statements
provided by First Franklin, First National or the First National Subsidiary to
Smoky Mountain prior to the Effective Time of the Merger, (i) were prepared, and
will be prepared, in accordance with GAAP, applied on a consistent basis with
all prior periods, and (ii) fairly present, and will fairly present, the
financial position of each of First Franklin, First National and the First
National Subsidiary and the results of operations and changes in financial
positions for each of First Franklin, First National and the
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First National Subsidiary at the dates and for the periods referred to therein
in conformity with GAAP applied on a consistent basis throughout the periods
involved, subject to normal year-end adjustments. All material liabilities of
First Franklin, First National and the First National Subsidiary, actual or
contingent, which in accordance with GAAP, consistently applied, were required
to be reflected or reserved against the consolidated balance sheet or deducted
from gross revenues in a consolidated income statement for the periods covered
in the First Franklin Financial Statements and the First National Financial
Statements are disclosed therein.
4.7 Tax Matters. Except as set forth in Schedule 4.7 heretofore delivered
by First Franklin to Smoky Mountain.
(a) First Franklin, First National and the First National Subsidiary
have (or, in the case of returns becoming due after the date hereof and at or
before the Effective Time of the Merger, will have, prior to the Effective Time
of the Merger) duly filed with the appropriate governmental agencies all
federal, state, local, and foreign tax returns, reports, and declarations of
estimated tax with respect to income, sales, and all other applicable taxes, and
all other tax returns and reports, the filing of which is required by applicable
law (without regard to extensions of time permitted by law, regulation, or
otherwise) at or before the Effective Time of the Merger, (including, without
limitation, income, profit, franchise, sales, use, real property, personal
property, ad valorem, excise, employment, social security, and wage withholding
taxes of every kind, character, or description imposed by any governmental or
quasi-governmental authority). All of the First Franklin Tax Returns are (or, in
the case of returns becoming due after the date hereof and at or before the
Effective Time of the Merger, will be) accurate and complete in all material
respects.
(b) First Franklin, First National and First National Subsidiary
have collected and withheld all taxes which they are or have been required to
collect or withhold and have timely submitted all such collected and withheld
amounts to the appropriate authorities. First Franklin, First National and First
National Subsidiary are in compliance with the back-up withholding and
information reporting requirements under the Code and the rules and regulations
of the IRS.
(c) All federal, state, local, and foreign taxes due and payable
pursuant to First Franklin Tax Returns or pursuant to any installments of
estimated taxes, all other taxes, assessments, deficiencies, levies, imposts,
duties, license fees, registration fees, withholding, or other similar
governmental charges, and any penalties, or interest, or additions to tax
imposed thereon or in connection therewith due or claimed to be due by any
taxing authority, have been accrued, adequately reserved against, or paid.
(d) The reserves for taxes contained in the First Franklin Financial
Statements, and the First Franklin Interim Financial Statement are adequate to
cover the payment by First Franklin, First National or First National Subsidiary
of their respective liabilities for federal, state, local, and foreign taxes
(including installments of estimated taxes) and all other
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taxes, assessments, deficiencies, levies, imposts, duties, license fees,
registration fees, or other similar governmental charges (including without
limitation income, profits, gross receipts, franchise, value added, payroll,
sales, employment, use, property, withholding, excise, and occupancy taxes, and
any penalties, interest, or additions to tax imposed thereon or in connection
therewith due or claimed to be due by any taxing authority in connection with
any of the First Franklin Tax Returns for all periods up to and including
December 31, 1997. As of February 10, 1998, First Franklin had no net operating
loss carryforward (for federal or state income tax purposes), First National had
no net operating loss carryforward (for federal or state income tax purposes),
and the First National Subsidiary had no net operating loss carryforward (for
federal or state income tax purposes) The reserves for taxes in all of the First
Franklin Interim Financial Statements will be adequate to cover all liabilities
for taxes for all periods up to and including the dates of such financial
statements.
(e) Neither First Franklin, First National nor the First National
Subsidiary has received any notice of deficiency or assessment or proposed
deficiency or assessment by the IRS or any other taxing authority in connection
with the First Franklin Tax Returns. All federal income tax returns of First
Franklin, First National and the First National Subsidiary have been examined by
the IRS or closed without audit (or the statute of limitations with respect to
such returns has expired and no waiver extending the statute of limitations has
been requested or granted) for all taxable years prior to and including the
taxable year ended 1994. There is no action, suit, proceeding, audit,
examination, investigation, or claim pending, or to the knowledge of First
Franklin, threatened, in respect of any First Franklin Taxes for which First
Franklin, First National or the First National Subsidiary is or may become
liable.
(f) Neither First Franklin, First National nor the First National
Subsidiary has waived any law or regulation fixing, or consented to the
extension of, any period of time with respect to the assessment or collection of
any First Franklin Taxes, and no power of attorney granted by First Franklin,
First National or the First National Subsidiary with respect to any tax matters
is currently in force.
(g) Neither First Franklin, First National nor the First National
Subsidiary has made an election under Section 341(f) of the Code.
(h) First Franklin, First National and the First National Subsidiary
have provided, and until the Effective Time of the Merger will continue to
provide, to Smoky Mountain complete and correct copies of their income tax
returns and all material correspondence and documents, if any, in their
possession relating directly or indirectly to First Franklin Taxes for each
taxable year of First Franklin, First National and the First National Subsidiary
as to which the applicable statute of limitations has not run on the date
hereof. For this purpose, "correspondence and documents" include amended tax
returns, claims for refund, notices from taxing authorities of proposed changes
or adjustments to taxes or tax returns, consents to assessment or collection of
taxes, acceptances of proposed adjustment, closing agreement, rulings and
determination letters and requests therefor, and all other written
communications to or from taxing authorities relating to
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any material liability of First Franklin, First National or the First National
Subsidiary.
4.8 Insurance. Schedule 4.8 hereto lists all insurance policies presently
carried by First Franklin, First National and the First National Subsidiary
which are currently in force with respect to their business and properties,
including without limitation title insurance policies on real property owned
(exclusive of foreclosed property). The existing insurance carried by First
Franklin, First National and the First National Subsidiary is and will continue
to be with reputable insurers and, in respect of the nature of the risks insured
against and the amount of coverage provided, not less than that customarily
carried by parties similarly situated who own properties and engage in
businesses substantially similar to that of First Franklin, First National and
the First National Subsidiary, and such insurance is and will continue to be
sufficient for compliance by First Franklin, First National and the First
National Subsidiary with all material requirements of law and agreements to
which any of First Franklin, First National or the First National Subsidiary is
a party. Except as noted in Schedule 4.8, neither First Franklin, First National
nor the First National Subsidiary is in default in the payment of any premium,
currently has outstanding any claim with respect to such insurance coverage, or
has received notification of, or has knowledge of, the existence of any grounds
for the cancellation or proposed cancellation of any such policies or bonds.
4.9 Legal Proceedings. Except as set forth in Schedule 4.9 heretofore
delivered by First Franklin to Smoky Mountain, there are no judicial or
administrative proceedings of any kind or nature now pending or, to the
knowledge of First Franklin, threatened against First Franklin, First National
or the First National Subsidiary before any court or arbitral tribunal or before
or by any governmental department, agency, or instrumentality in any manner
involving First Franklin, First National or the First National Subsidiary or any
of its or their properties or capital stock to the transactions contemplated by
this Agreement. Except as set forth in Schedule 4.9, (i) there is, to the best
of First Franklin's knowledge, no basis for any action, suit, investigation, or
proceeding against First Franklin, First National or the First National
Subsidiary before any court or arbitral tribunal or before or by any
governmental department, agency, or instrumentality, which, if determined
adversely to First Franklin. First National or First National Subsidiary, would
have a material adverse effect on the respective assets, businesses, employees,
revenue, income, prospects, condition (financial or otherwise), liabilities, net
worth, or results of operations of First Franklin, First National or the First
National Subsidiary, (ii) there are no actions, suits, or proceedings pending
or, to the knowledge of First Franklin, threatened by or against any officer,
director, agent, or employee of First Franklin, First National or the First
National Subsidiary in connection with the business, properties, affairs, or
prospects of First Franklin, First National or the First National Subsidiary.
Neither First Franklin, First National nor the First National Subsidiary is in
default with respect to any judgment, order, writ, injunction, decree, award,
rule, or regulation of any court, arbitrator, or governmental department, agency
or instrumentality.
4.10 Compliance with Law. Other than as set forth in Schedule 4.10 hereto,
(i) First Franklin, First National and the First National Subsidiary are in full
compliance with the
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back-up withholding requirements of section 3406 of the Code and the Treasury
Regulations promulgated thereunder, (ii) First Franklin, First National and the
First National Subsidiary are in full compliance with the reporting and other
requirements of the Bank Secrecy Act (including the Currency and Foreign
Transaction Reporting Act), and the regulations promulgated thereunder by the
Department of the Treasury; (iii) First Franklin, First National and the First
National Subsidiary are in compliance with the provisions of all other
applicable federal, state, and local statutes, and all rules, regulations, or
orders of, or understandings or agreements with, governmental agencies having
jurisdiction over the assets, business, properties, operations, employees,
revenue, income, condition (financial or otherwise), liabilities, net worth, or
results of operations of First Franklin, First National and the First National
Subsidiary; and (iv) neither First Franklin, First National nor the First
National Subsidiary is subject to or has been threatened with any material fine,
penalty, liability, or legal disability with respect to the assets, business,
operations, revenue, income, condition (financial or otherwise), liabilities,
net worth, or results of operations of First Franklin, First National and the
First National Subsidiary as the result of the failure of First Franklin, First
National or the First National Subsidiary to comply with any requirement of any
governmental body or agency having jurisdiction over them, the conduct of their
business, the use of their assets and properties, or any premises occupied by
them. First Franklin, First National and the First National Subsidiary have
filed, and until the Effective Time of the Merger will continue to file, all
reports required to be filed by any of them with any Regulatory Agency on or
prior to the date such reports were due, and all such reports, as finally
amended, complied and will comply in all material respect with applicable
requirements of law and, as of their respective dates or the dates as amended,
did not and will not contain any untrue statement of a material fact or omit to
state a material fact required to be stated therein or necessary to make the
statements therein, in light of the circumstances under which they were made,
not misleading. Except to the extent stated therein, all financial statements
and schedules included and to be included in such reports were and will be
prepared in accordance with GAAP or other regulatory accounting requirements as
were applicable thereto, applied on a consistent basis with prior periods
subject to normal year-end adjustments, and fairly presented and will fairly
present the information purported to be shown therein.
4.11 Brokers. No agent, broker, finder, investment banker, person, or firm
acting on behalf or under authority of First Franklin, First National or the
First National Subsidiary is or will be entitled to any broker's or finder's fee
or any other commissions or similar fee incurred directly or indirectly by or on
behalf of First Franklin, First National or the First National Subsidiary in
connection with the transactions contemplated by this Agreement.
4.12 Governmental Authorizations. First Franklin, First National and the
First National Subsidiary have all licenses, permits, approvals, and other
authorizations from all federal, state, and local authorities as are necessary
for the conduct of their respective business and operations, and all such
licenses, franchises, permits, approvals, and other authorizations are in full
force and effect and are not subject to any condition, qualification, or
limitation. Neither First Franklin, First National nor the First National
Subsidiary has received any notification from any agency, department, or
instrumentality of federal, state, or local government or the staff thereof
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asserting noncompliance with any of the laws, rules, regulations, or orders that
such governmental authority enforces or threatening to revoke any license,
franchise, permit, or governmental authorization.
4.13 Supervisory Matters. Neither First Franklin, First National nor the
First National Subsidiary has been advised by any Regulatory Agency that it is
contemplated issuing or requesting (or considering the appropriateness of
issuing or requesting) any written agreement, memorandum of understanding,
order, decree, directive, extraordinary supervisory letter, commitment letter,
or similar document or taking (or considering the appropriateness of taking) any
prompt corrective action (within the meaning of the FDIA). The last examination
of First National by the staff of the OCC prior to the date of this Agreement
was performed as of June 30, 1996. The last examination of the holding company,
First Franklin, prior to the date of this Agreement was performed as of December
31, 1996. The First National Subsidiary was examined by the TDFI on December 11,
1997. If either or both of First National or First Franklin was notified of any
deficiencies as a result of such examinations or any prior examinations, each
such deficiency has been corrected to the satisfaction of the appropriate
agency, and if any changes in operating methods or organization were required by
reason of such examination or such other examinations, such changes have been
made. The loan portfolios of First National reflected in the First National
Financial Statements in excess of reserves are, to the best knowledge and belief
of First Franklin and First National, collectible. Further, First National has
not been notified in writing that such reserves violated any minimum
requirements or that the independent auditors of First Franklin believe such
reserves to be inadequate or inconsistent with historical loan loss experience.
4.14 Rights and Licenses. Set forth in Schedule 4.14 hereto is a list and
description of all trademarks, trademark rights, trade names, and licenses owned
and/or used by First Franklin, First National and the First National Subsidiary,
including all registrations thereof. To the knowledge of First Franklin, neither
First Franklin, First National nor the First National Subsidiary is subject to
any material disability to conduct its business as currently conducted or
liability by reason of its failure to own or possess the rights to use any other
trademark, trademark right, trade name, trade name right, or license. Each of
First Franklin, First National and the First National Subsidiary have full right
and authority to own and use all the trademarks, trade names, and licenses
listed in Schedule 4.14. Neither First Franklin, First National nor the First
National Subsidiary has been held liable for, and no actions, suits or
proceedings are pending or, to the knowledge of First Franklin, threatened
against First Franklin, First National or the First National Subsidiary,
alleging that First Franklin, First National or the First National Subsidiary is
liable for infringement of any trademark, trademark right, trade name, trade
name right, or license owned and/or used by any other person or entity. Neither
First Franklin, First National nor the First National Subsidiary has knowledge
of any infringement on the trademarks, trademark rights, trade names, and
licenses owned and/or used by First Franklin, First National and the First
National Subsidiary.
4.15 Material Contracts. Except as set forth in Schedule 4.15 heretofore
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delivered by First Franklin to Smoky Mountain, neither First Franklin, First
National nor the First National Subsidiary is a party to or bound by any (i)
employment or consulting contract which is not terminable by First Franklin,
First National and the First National Subsidiary on 60 or fewer days' notice;
(ii) bonus, stock option, deferred compensation or profit sharing, pension, or
retirement plan or arrangements; (iii) material lease or license with respect to
any property, real or personal, whether as landlord, tenant, licensor, or
licensee, which cannot be terminated without substantial penalty and on notice
of not more than 30 days; (iv) contract or commitment for capital expenditures
in excess of $5,000 for any one project or $25,000 in the aggregate; (v)
material contract or commitment, whether or not made in the ordinary course of
business, for the purchase of materials or supplies or for the performance of
services over a period of more than 60 days from the date of this Agreement and
which cannot be terminated without substantial penalty and on notice of not more
than 30 days; (vi) agreement or instrument or charter or other restriction which
materially and adversely affects or in the future may materially or adversely
affect the business, operations, prospects, properties, assets, or financial
condition of First Franklin, First National or the First National Subsidiary;
(vii) contract or option to purchase or sell any real or personal property
otherwise than in the ordinary course of business which cannot be terminated
without substantial penalty and on notice of not more than 30 days; or (viii)
material contract, other than the foregoing, not made in the ordinary course of
business, which cannot be terminated without substantial penalty and on notice
of not more than 30 days. First Franklin, First National and the First National
Subsidiary have in all material respects performed all obligations required to
be performed by it to date and is not in default under, and no event has
occurred which with the lapse of time or action by a third party could result in
default under, any outstanding indenture, mortgage, contract, lease, or other
agreement to which First Franklin, First National or the First National
Subsidiary is bound, or under the provisions of the Charters of First Franklin
and the First National Subsidiary, or Articles of Association of First National,
or the Bylaws of First Franklin, First National and the First National
Subsidiary.
4.16 Properties. Each of First Franklin, First National and the First
National Subsidiary have good, clear, and marketable title to all of its assets
and properties, including all real, personal, and intangible properties, and
such properties and assets are subject to no liens, mortgages, security
interests, encumbrances, or charges of any kind except (a) as noted in the
financial statements described in Section 4.6, (b) statutory liens not yet
delinquent, and (c) minor defects and irregularities in title and encumbrances
which do not materially impair the value or use thereof for the purposes for
which they are held.
4.17 Employee Benefit Plans.
(a) Schedule 4.17 heretofore delivered by First Franklin to Smoky
Mountain lists each pension plan, each welfare plan, and each deferred
compensation, bonus, stock option, stock purchase, or other employee benefit
plan, agreement, commitment, or arrangements which is or has at any time been
established, sponsored, maintained, or contributed to by First Franklin, First
National and the First National Subsidiary, or any Affiliate (as defined below).
Except as set out in Schedule 4.17, none of First Franklin, First National or
the First National
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Subsidiary, or any Affiliate has at any time (i) established, sponsored,
maintained, or made any contribution to any Pension Plan; (ii) been a party to
any collective bargaining agreement, contract, or other arrangement, or been
subject to any statute, rule, or regulation, which required First Franklin,
First National or the First National Subsidiary, or any Affiliate to establish,
maintain, sponsor, or make any contribution to any Welfare Plan; or (iii)
established, sponsored, maintained, been a party to, or incurred any obligation
or liability under any Other Plan. First Franklin, First National or the First
National Subsidiary, and their Affiliates have no obligations or liabilities
(whether accrued, absolute, contingent, or unliquidated, whether or not known or
whether or not due or to become due) with respect to any "employee benefit plan"
(as defined in Section 3(3) of ERISA) or Other Plan which is not listed in
Schedule 4.17. For the purposes of this Section 4.17, the term "Affiliate" shall
include all persons under common control with First Franklin, First National or
the First National Subsidiary within the meaning of Sections 4001(a)(14) or
(b)(1) of ERISA or any regulations promulgated thereunder, or Sections 414(b) or
(c) of the Code.
(b) First Franklin has delivered to Smoky Mountain a copy of each
plan or arrangement listed in Schedule 4.17 and any related trust agreements,
insurance contracts, and other documents pursuant to which benefits under such
plan or arrangement are funded or paid, including all amendments, modifications,
and supplements thereto, all of which (except as otherwise indicated in Schedule
4.17) are legally valid and binding and in full force and effect.
(c) First Franklin has delivered to Smoky Mountain copies of (i) the
annual report and actuarial report for each plan or arrangement listed in
Schedule 4.17 for the most recent plan year and the four preceding plan years,
if applicable; (ii) all IRS determination letters and rulings, together with all
amendments, modifications, or supplements thereto, if applicable, with respect
to each such plan and each amendment, modification, or supplement thereto; (iii)
all Department of Labor prohibited transaction exemptions letter and
determinations with respect to each such plan or arrangement; and (iv) all
Pension Benefit Guaranty Corporation determinations and notices with respect to
each such plan or arrangement.
(d) As of the date of this Agreement and as of the Effective Time of
the Merger, in the case of each plan or arrangement listed in Schedule 4.17
which is a defined benefit plan (within the meaning of Section 3(35) of ERISA),
the net fair market value of the assets held to fund such plan or arrangement
will equal or exceed the present value of all accrued benefits thereunder, both
vested and nonvested, as determined in accordance with an actuarial costs method
acceptable under Section 3(31) of ERISA.
(e) On a timely basis, First Franklin, First National and the First
National Subsidiary and their Affiliates have made all contributions or payments
to or under each plan or arrangement listed in Schedule 4.17 as required
pursuant to each such plan or arrangement, any collective, bargaining agreements
or other agreements, ERISA, or other applicable laws, and have made adequate
provision for reserves to meet contributions and payments under such plans or
arrangements which have not been made because they are not yet due.
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(f) Each Pension Plan listed in Schedule 4.17 has been determined to
be qualified under Section 401(a) and, if applicable, Section 401(k) of the Code
by the IRS, and nothing has occurred or been omitted since the date of the last
such determination which resulted or will result in the revocation of such
determination.
(g) Each plan or arrangement listed in Schedule 4.17 (and any
related trust, insurance contract, or other vehicle pursuant to which benefits
under such plan or arrangement are funded or paid) has been administered in all
respects in full compliance with applicable provisions of ERISA, the Code, the
Consolidated Omnibus Budget Reconciliation Act of 1986 and regulations
promulgated thereunder ("COBRA"), and other applicable law. Without limiting the
generality of the foregoing, none of First Franklin, First National or the First
National Subsidiary, or any Affiliate has (i) incurred any liability for tax
under Section 4971 of the Code on account of any accumulated funding deficiency
and no plan or arrangement listed in Schedule 4.17 has incurred any accumulated
funding deficiency within the meaning of Sections 412 or 418(B) of the Code;
(ii) applied for or obtained a waiver by the IRS of any minimum funding
requirement under Section 412 of the Code; (iii) become subject to any
disallowance of deductions under Sections 419 or 419(A) of the Code; (iv)
incurred any liability for excise tax under Sections 4972, 4975, or 4976 of the
Code or any liability under Section 406 of ERISA; (v) incurred any liability to
the Pension Benefit Guaranty Corporation; (vi) had a reportable event (within
the meaning of Section 4043 of ERISA); or (vii) breached any of the duties or
failed to perform any of the obligations imposed upon the fiduciaries or plan
administrators under Title I of ERISA.
(h) Neither First Franklin, First National, nor the First National
Subsidiary, or any Affiliate has incurred any material liability under Section
4201 of ERISA for a complete or partial withdrawal from or have agreed to
participate in a multi-employer plan as defined in Section 4001(a)(3) of ERISA.
4.18 Absence of Certain Changes or Events. Since December 31, 1997,
neither First Franklin, First National nor the First National Subsidiary has,
except as set forth in Schedule 4.18 heretofore delivered by First Franklin to
Smoky Mountain, (i) incurred any material liability, except in the ordinary
course of business, consistent with its past practice; (ii) suffered any
material adverse change in its business, operations, assets, or condition
(financial or other); (iii) made any material change in its mode of management
or operation or method of accounting; or (iv) failed to operate its business in
all material respects in the ordinary course consistent with its past practice.
4.19 Books of Account; Corporate Records. The books of account of First
Franklin, First National and the First National Subsidiary are maintained in
substantial compliance with all applicable legal and accounting requirements.
The minutes of meetings maintained by First Franklin, First National and the
First National Subsidiary contain complete and accurate records in all material
respects of the corporate actions of its shareholders and Board of Directors and
all committees thereof.
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4.20 Representations and Warranties True on and as of Closing Date. All
the representations and warranties of First Franklin, on behalf of itself and
First National and the First National Subsidiary, contained in this Agreement
will be materially true on and as of the Closing Date, except to the extent
affected (i) by the transactions contemplated hereby, and (ii) by circumstances
disclosed to Smoky Mountain occurring subsequent to the date hereof which in the
aggregate are not materially adverse to First Franklin, First National or the
First National Subsidiary.
4.21. Reserves for Loan Losses. Except as described in Schedule 4.21, the
loan loss reserves reflected in the First Franklin Financial Statements are
adequate to provide for possible losses on loans (including accrued interest
receivable) in the loan portfolio of First National and the First National
Subsidiary and any losses associated with "Real Estate Owned" by First National
or the First National Subsidiary, and each such provision has been established
in accordance with GAAP.
4.22. Labor Relations. Except to the extent set forth in Schedule 4.22:
(a) First Franklin, First National and the First National Subsidiary
are in compliance with all applicable laws and collective bargaining agreements
described in Schedule 4.22 respecting employment and employment practices, terms
and conditions of employment and employment practices, terms and conditions of
employment and wages and hours and occupational safety and health, and are not
engaged in any unfair labor practice within the meaning of Section 8 of the
National Labor Relations Act;
(b) There is no unfair labor practice, charge or complaint or any
other matter against or involving First Franklin, First National and the First
National Subsidiary pending or, to the knowledge of First Franklin threatened
before the National Labor Relations Board or any court of law;
(c) There is no labor strike, dispute, slowdown or stoppage actually
pending or threatened against First Franklin, First National or the First
National Subsidiary;
(d) No certification or decertification question or organizational
drive exists or has existed within the past twelve (12) months respecting the
employees of First Franklin, First National and the First National Subsidiary;
(e) No grievance or arbitration proceeding arising out of or under
any collective bargaining agreement is pending against First Franklin, First
National or the First National Subsidiary, or, to the knowledge of First
Franklin threatened; and, to the knowledge of First Franklin no basis for any
claim therefor exists;
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(f) No agreement (including any collective bargaining agreement),
arbitration or court decision or governmental order which is binding on First
Franklin, First National or the First National Subsidiary in any way limits or
restricts First Franklin, First National or the First National Subsidiary from
relocating or closing any of its operations;
(g) First Franklin, First National or First National Subsidiary have
not experienced any organized work stoppage or other labor difficulty within the
past three (3) years;
(h) There are no charges, investigations, administrative proceedings
or formal complaints of discrimination (including discrimination based upon sex,
age, marital status, race, national origin, sexual preference, handicap or
veteran status) pending or, to the knowledge of First Franklin threatened before
the Equal Opportunity Commission or any federal, state or local agency or court
against First Franklin, First National or the First National Subsidiary. There
have been no audits of the equal employment opportunity practices of First
Franklin, First National and the First National Subsidiary and, to the knowledge
of First Franklin, First National or the First National Subsidiary, no basis for
any such audit exists.
4.23 No Undisclosed Liabilities. Except as set forth in Schedule 4.23
neither First Franklin, First National or the First National Subsidiary has any
liabilities (absolute, accrued, contingent or otherwise), except liabilities (a)
disclosed in the First Franklin Financial Statements; (b) incurred in the
ordinary course of business and not required under GAAP to be reflected on the
First Franklin Financial Statements; (c) incurred since December 31, 1997 in the
ordinary course of business consistent with past practice; or (d) incurred in
connection with this Agreement.
4.24 Year 2000 Compliance. The management and directors of First Franklin,
First National and the First National Subsidiary are aware of the significant
risks posed by information systems which are not Year 2000 compliant and have
taken appropriate measures and have initiated appropriate plans to require that
any vendor or service provider with which First Franklin, First National and the
First National Subsidiary do business be Year 2000 compliant, including, without
limitation, vendors and service providers which have supplied or will supply not
only information and data processing systems, but environmental systems,
elevators, telephone and facsimile machines, heating, ventilation, and air
conditioning systems, automatic teller machines, and vaults. Neither First
Franklin, First National nor the First National Subsidiary shall contract with
any vendor or service provider for any affected service unless the vendor or
service provider can offer written assurances of Year 2000 compliance.
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4.25. Environmental Law Violations.
(a) For purposes of this Section 4.25, the following terms shall
have the indicated meanings:
(1) "Environmental Law" shall have the meaning assigned in
Section 3.26.
(2) "Hazardous Substance" shall have the meaning assigned in
Section 3.26.
(3) "Loan Portfolio Properties and Other Properties Owned"
means those properties now or previously owned or operated by First Franklin,
First National or the First National Subsidiary, including properties owned or
operated in a fiduciary capacity.
(b) Neither First Franklin, First National nor the First National
Subsidiary has been in violation of or liable under any Environmental Law,
except any such violations or liabilities which would not singly or in the
aggregate have a material adverse effect.
(c) None of the Loan Portfolio Properties and Other Properties Owned
by First Franklin, First National or the First National Subsidiary have been or
are 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 on such entities.
(d) To the best knowledge of First Franklin, First National and the
First National Subsidiary, 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 either
First Franklin, First National or the First National Subsidiary 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 or result in any material liability of First Franklin, First
National or the First National Subsidiary.
ARTICLE 5
COVENANTS AND AGREEMENTS
5.1 Pre-Merger Conduct of Business by First Franklin, First National and
the First National Subsidiary. First Franklin covenants and agrees, on its own
behalf and on behalf of First National and the First National Subsidiary, that
from the date hereof until the Effective Time of the Merger, unless Smoky
Mountain shall otherwise specifically agree in writing or as otherwise
specifically authorized herein:
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(a) The business of First Franklin, First National and the First
National Subsidiary shall be conducted only in the usual, regular and ordinary
course and in substantially the same manner as heretofore conducted, and, to the
extent consistent with such business, First Franklin shall use all reasonable
efforts to preserve, and shall cause First National and the First National
Subsidiary to preserve, intact their business organization, to keep available
the services of their officers and employees, to maintain their rights and
franchises, and to preserve their relationships with customers, suppliers, and
others having business with First Franklin, First National and the First
National Subsidiary to the end that their goodwill and continuing business shall
be unaffected in all material respects at the Effective Time of the Merger.
Without limiting the generality of the foregoing, First National and the First
National Subsidiary shall not enter into or become bound by any contract, plan,
commitment, or instrument described in Section 4.15 hereof or enter into any
transaction (whether or not described in Section 4.15 hereof) involving the
expenditure, commitment, or lending of money or credit in excess of its legal
lending limit.
(b) Neither First Franklin, First National nor the First National
Subsidiary shall (i) issue any shares of capital stock, except for shares to be
issued prior to the Effective Time of the Merger in connection with the exercise
of options or warrants outstanding on the date hereof and disclosed to Smoky
Mountain pursuant to Section 4.5(b) hereof; (ii) declare, set aside, or pay any
dividend or other distribution payable in cash, stock, or property with respect
to shares of its outstanding capital stock, except for the semi-annual dividend
on First Franklin Common Stock as agreed to in writing by the parties; (iii)
make any change in its capital stock by split, reverse split, reclassification,
reorganization, subdivision, or otherwise; (iv) acquire any shares of its
capital stock by tender, redemption, or otherwise; (v) amend its Charter or
Articles of Association (whichever is applicable) or Bylaws; or (vi) merge or
consolidate with or into, or permit the merger into it of, any other
association, corporation, trust, or entity or change the character of its
business.
(c) Neither First Franklin, First National nor the First National
Subsidiary shall grant any stock options, warrants, rights, or other securities
convertible into, or exercisable or exchangeable for, shares of its capital
stock.
(d) Neither First Franklin, First National nor the First National
Subsidiary shall incur any obligations, commitments, or liabilities, whether
primarily or by way of guaranty, in excess of its legal lending limit or having
a maturity of more than one year from the date of its creation, other than in
the ordinary course of business consistent with past practice.
(e) Except in the ordinary course of business, neither First
Franklin, First National nor the First National Subsidiary shall enter into any
supply contracts, leases, or other agreements that cannot be terminated without
substantial penalty and/or notice of not more than 30 days.
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(f) Except as required by law, neither First Franklin, First
National nor the First National Subsidiary shall change any loan, investment, or
management policies or make any material alteration in the manner of keeping its
books, accounts, and records.
(g) Except in the ordinary course of business, neither First
Franklin, First National nor the First National Subsidiary shall grant any
salary increase (other than as required by any existing contract) or bonus or
enter into any new employment or employee benefit contract or arrangement.
(h) Except in the ordinary course of business, neither First
Franklin, First National nor the First National Subsidiary shall sell or
otherwise dispose of, or agree to sell or otherwise dispose of, any assets.
(i) Neither First Franklin, First National nor the First National
Subsidiary shall take any action that would in any manner adversely affect the
ability of any party hereto to obtain the approvals of any Regulatory
Authorities required for consummation of the transactions contemplated hereby or
otherwise interfere with, impede, delay, or make more costly the consummation of
the transactions contemplated hereby.
(j) Neither First Franklin, First National nor the First National
Subsidiary shall authorize or permit any officer, director, employee, investment
banker, financial consultant, attorney, accountant, or other agent or
representative of First Franklin, directly or indirectly, to initiate contact
with any person or entity in an effort to solicit, initiate, or encourage any
Take Over Proposal. In addition, except as the fiduciary duties of the Board of
Directors of First Franklin, First National or the First National Subsidiary may
otherwise require (as evidenced by a reasoned opinion of counsel received prior
thereto, with a copy promptly furnished to Smoky Mountain) with respect to an
unsolicited, bona fide, written Takeover Proposal, neither First Franklin, First
National nor the First National Subsidiary shall authorize or permit any
officer, director, employee, investment banker, financial consultant, attorney,
accountant, or other agent or representative of First Franklin, First National
or the First National Subsidiary, directly or indirectly, (i) to cooperate with,
or furnish or cause to be furnished any non-public information concerning the
assets, operations, business, properties, prospects, or condition (financial or
otherwise), of First Franklin, First National or the First National Subsidiary
to any person or entity in connection with any Takeover Proposal; (ii) to
negotiate any Takeover Proposal with any person or entity; or (iii) to enter
into any agreement or agreement in principle as to any Takeover Proposal. First
Franklin shall promptly give notice to Smoky Mountain upon becoming aware of any
Takeover Proposal. As used in this paragraph, "Takeover Proposal" shall mean any
proposal, other than as contemplated by this Agreement, for a Merger or other
business combination involving First Franklin, First National or the First
National Subsidiary or for the acquisition of a five (5%) percent equity
interest in First Franklin, First National or the First National Subsidiary, or
for the acquisition of five (5%) percent or more of the assets of First
Franklin, First National or the First National Subsidiary.
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(k) First Franklin shall not take or fail to take, and shall cause
First National and the First National Subsidiary not to take or fail to take,
any action that would cause any of the representations or warranties made by
First Franklin on its own behalf or on behalf of First National and the First
National Subsidiary in this Agreement to be or become untrue. First Franklin
shall promptly notify Smoky Mountain in writing of the existence or happening of
any fact, event, or occurrence that alters, will alter, or may be expected to
alter, in a material respect, the accuracy or completeness of any representation
or warranty by First Franklin contained in this Agreement, including, without
limitation, any representations and warranties made on behalf of First National
and the First National Subsidiary.
(l) Neither First Franklin, First National nor the First National
Subsidiary shall extend credit or accept any deposit or engage in any similar
transaction other than on substantially the same terms (including, without
limitation, interest rates and collateral) as those prevailing at the time for
comparable transactions by other banks in the same geographic market.
5.2 Pre-Merger Conduct of Business by Smoky Mountain and BankFirst. Smoky
Mountain covenants and agrees, on its own behalf and on behalf of BankFirst and
the BankFirst Subsidiaries, that from the date hereof until the Effective Time
of the Merger, unless First Franklin shall otherwise specifically agree in
writing or as otherwise specifically authorized herein:
(a) The business of Smoky Mountain, BankFirst and the BankFirst
Subsidiaries shall be conducted only in the usual, regular and ordinary course
and in substantially the same manner as heretofore conducted, and, to the extent
consistent with such business, Smoky Mountain shall use all reasonable efforts
to preserve, and shall cause BankFirst and the BankFirst Subsidiaries to
preserve, intact their respective business organizations, to keep available the
services of their respective officers and employees, to maintain their
respective rights and franchises, and to preserve their respective relationships
with customers, suppliers, and others having business with Smoky Mountain,
BankFirst and the BankFirst Subsidiaries to the end that their goodwill and
continuing business shall be unaffected in all material respects at the
Effective Time of the Merger.
Without limiting the generality of the foregoing, BankFirst and the BankFirst
Subsidiaries shall not enter into or become bound by any contract, plan,
commitment, or instrument described in Section 3.18 hereof or enter into any
transaction (whether or not described in Section 3.18 hereof) involving the
expenditure, commitment, or lending of money or credit in excess of its legal
lending limit; provided, however, Smoky Mountain, BankFirst and the BankFirst
Subsidiaries shall not be prohibited from taking whatever action is reasonably
necessary to accomplish the terms of Section 3.16.
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(b) Neither Smoky Mountain, BankFirst nor the BankFirst Subsidiaries
shall (i) issue any shares of capital stock, except for shares to be issued
prior to the Effective Time of the Merger in connection with the exercise of
options or warrants outstanding on the date hereof and disclosed to First
Franklin pursuant to Section 3.5(b) hereof; (ii) declare, set aside, or pay any
dividend or other distribution payable in cash, stock, or property with respect
to shares of its outstanding capital stock, except for the quarterly dividend on
Smoky Mountain Preferred Stock as agreed to in writing by the parties; (iii)
make any change in its capital stock by split, reverse split, reclassification,
reorganization, subdivision, or otherwise; (iv) acquire any shares of its
capital stock by tender, redemption, or otherwise; (v) amend its Charter or
Bylaws; or (vi) merge or consolidate with or into, or permit the Merger into it
of, any other association, corporation, trust, or entity or change the character
of its business.
(c) Neither Smoky Mountain, BankFirst nor the BankFirst Subsidiaries
shall grant any stock options, warrants, rights, or other securities convertible
into, or exercisable or exchangeable for, shares of its capital stock.
(d) Neither Smoky Mountain, BankFirst and the BankFirst Subsidiaries
shall incur any obligations, commitments, or liabilities, whether primarily or
by way of guaranty, in excess of its legal lending limit or having a maturity of
more than one year from the date of its creation, other than in the ordinary
course of business consistent with past practice.
(e) Except in the normal course of business, neither Smoky Mountain,
BankFirst nor the BankFirst Subsidiaries shall enter into any supply contracts,
leases, or other agreements that cannot be terminated without substantial
penalty and/or notice of not more than 30 days.
(f) Except as required by law, neither Smoky Mountain, BankFirst nor
the BankFirst Subsidiaries shall change any loan, investment, or management
policies or make any material alteration in the manner of keeping its books,
accounts, and records.
(g) Except in the normal course of business, neither Smoky Mountain,
BankFirst nor the BankFirst Subsidiaries shall grant any salary increase (other
than as required by any existing contract) or bonus or enter into any new
employment or employee benefit contract or arrangement.
(h) Neither Smoky Mountain, BankFirst nor the BankFirst Subsidiaries
shall sell or otherwise dispose of, or agree to sell or otherwise dispose of,
any assets
(i) Neither Smoky Mountain, BankFirst nor the BankFirst Subsidiaries
shall take any action that would in any manner adversely affect the ability of
any party hereto to obtain the approvals of any Regulatory Authorities required
for consummation of the transactions contemplated hereby or otherwise interfere
with, impede, delay, or make more costly the consummation of the transactions
contemplated hereby.
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(j) Neither Smoky Mountain, BankFirst nor the BankFirst Subsidiaries
authorize or permit any officer, director, employee, investment banker,
financial consultant, attorney, accountant, or other agent or representative of
Smoky Mountain, directly or indirectly, to initiate contact with any person or
entity in an effort to solicit, initiate, or encourage any Takeover Proposal. In
addition, except as the fiduciary duties of the Board of Directors of Smoky
Mountain, BankFirst or the BankFirst Subsidiaries may otherwise require (as
evidenced by a reasoned opinion of counsel received prior thereto, with a copy
promptly furnished to First Franklin) with respect to an unsolicited, bona fide,
written Takeover Proposal, neither Smoky Mountain, BankFirst nor the BankFirst
Subsidiaries shall authorize or permit any officer, director, employee,
investment banker, financial consultant, attorney, accountant, or other agent or
representative of Smoky Mountain, BankFirst or the BankFirst Subsidiaries,
directly or indirectly, (i) to cooperate with, or furnish or cause to be
furnished any non-public information concerning the assets, operations,
business, properties, prospects, or condition (financial or otherwise), of Smoky
Mountain, BankFirst or the BankFirst Subsidiaries to any person or entity in
connection with any Takeover Proposal; (ii) to negotiate any Takeover Proposal
with any person or entity; or (iii) to enter into any agreement or agreement in
principle as to any Takeover Proposal. Smoky Mountain shall promptly give notice
to First Franklin upon becoming aware of any Takeover Proposal. As used in this
paragraph, "Takeover Proposal" shall mean any proposal, other than as
contemplated by this Agreement, for a merger or other business combination
involving Smoky Mountain, BankFirst or the BankFirst Subsidiaries or for the
acquisition of a five (5%) percent equity interest in Smoky Mountain, BankFirst
or the BankFirst Subsidiaries, or for the acquisition of five (5%) percent or
more of the assets of Smoky Mountain, BankFirst or the BankFirst Subsidiaries.
Notwithstanding the terms of this Agreement, nothing shall prohibit Smoky
Mountain, BankFirst and the BankFirst Subsidiaries from taking the action
contemplated under 3.16.
(k) Smoky Mountain shall not take or fail to take, and shall cause
each of BankFirst and the BankFirst Subsidiaries not to take or fail to take,
any action that would cause any of the representations or warranties made by
Smoky Mountain on its own behalf or on behalf of BankFirst and the BankFirst
Subsidiaries in this Agreement to be or become untrue. Smoky Mountain shall
promptly notify First Franklin in writing of the existence or happening of any
fact, event, or occurrence that alters, will alter, or may be expected to alter,
in an important or potentially important respect, the accuracy or completeness
of any representation or warranty by Smoky Mountain contained in this Agreement,
including, without limitation, any representations and warranties made on behalf
of BankFirst and the BankFirst Subsidiaries.
(l) Neither Smoky Mountain, BankFirst nor the BankFirst Subsidiaries
shall extend credit or accept any deposit or engage in any similar transaction
other than on substantially the same terms (including, without limitation,
interest rates and collateral) as those prevailing at the time for comparable
transactions by other banks in the same geographic market.
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5.3 Access. First Franklin, First National and the First National
Subsidiary shall afford to Smoky Mountain, and Smoky Mountain, BankFirst and the
BankFirst Subsidiaries shall afford to First Franklin, and to each of their
respective accountants, counsel, and other representatives, full access during
normal business hours and for reasonable periods throughout the period prior to
the Effective Time of the Merger all of the records, including their respective
properties, books, contracts, commitments, and records (including but not
limited to tax returns) and, during such period, shall furnish promptly to each
other or their representatives (i) a copy of each report, schedule, piece of
correspondence, and other document delivered to, filed with, or received by any
of them pursuant to the requirements of federal or state laws in connection with
this Agreement; (ii) written notice of any event or development (A) which, had
it been known on the date of this Agreement, would have been required to be
disclosed under this Agreement, (B) which would cause any of the representations
and warranties of First Franklin or of Smoky Mountain contained herein to be
inaccurate or incomplete or otherwise misleading, or (C) which materially
relates to the satisfaction of the conditions set forth in Article Six of this
Agreement, or which are material to the activities of First Franklin and Smoky
Mountain; and (iii) all other information concerning their assets, operations,
business, employees, revenue, income, prospects, condition (financial or
otherwise), liabilities, net worth, or results of operations as they or their
representatives may reasonably request. Any inspection or investigation
performed pursuant to this Section 5.3 shall be conducted in a manner so as not
to interfere unreasonably with the operation of the business of the entity being
inspected or investigated and shall not affect or limit in any way any of their
respective representations and warranties hereunder.
5.4 Confidential Information. All Confidential Information shall be held
in strict confidence; and the party gaining access to such Confidential
Information shall exercise the same degree of care with respect thereto that any
such party uses to preserve and safeguard its own confidential proprietary
information. Such Confidential Information shall not directly or indirectly be
divulged, disclosed, or communicated to any other person or entity or used for
any purposes other than those expressly contemplated by this Agreement, except
as otherwise required by judicial or regulatory authorities having jurisdiction
in respect thereof. In the event the transactions contemplated by this Agreement
are not consummated for any reason, all copies of all documents and other
recorded material comprising such Confidential Information shall immediately be
returned and shall not thereafter be used for any purpose by the acquiring party
or any subsidiary or affiliate thereof, and the confidentiality of such
Confidential Information shall be maintained, except to the extent that such
Confidential Information can be shown to be or to have been (i) otherwise known
to the acquiring party, (ii) already in the public domain, (iii) released
without restriction by the proprietor of the Confidential Information to another
person, or (iv) received by the acquiring party on a non-confidential basis from
another person lawfully possessing and lawfully entitled to disclose such
information. This undertaking with respect to nondisclosure of Confidential
Information is of the essence and will survive any termination of this Agreement
or the transactions contemplated hereby.
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5.5 Proxy Statement. First Franklin shall timely mail the Proxy Statement
to the shareholders of First Franklin who are entitled to notice of, and to vote
at the First Franklin Shareholders' Meeting. First Franklin shall publish such
notice or notices of the First Franklin Shareholders' Meeting as may be
required, and at the times and in the form and manner required, by applicable
provisions of state and federal statutes, regulations, rules and orders and by
its Charter. Smoky Mountain shall timely mail the Proxy Statement to the
shareholders of Smoky Mountain who are entitled to notice of, and to vote at the
Smoky Mountain Shareholders' Meeting. Smoky Mountain shall publish such notice
or notices of the Smoky Mountain Shareholders' Meeting as may be required, and
at the times and in the form and manner required, by applicable provisions of
state and federal statutes, regulations, rules and orders and by its Charter.
5.6 Furnishing of Information.
(a) Smoky Mountain and First Franklin shall promptly furnish each
other with such information relating to Smoky Mountain and First Franklin as is
required under applicable laws and regulations for inclusion in the Registration
Statement.
(b) Each party shall promptly furnish the other such information
relating to Smoky Mountain and First Franklin (i) as is required under
applicable laws and regulations for inclusion in any filing with state or
federal authorities necessary to obtain approval for, or to give notice of, the
Merger or any other transaction contemplated hereby (including, without
limitation, any documents filed or to be filed by Smoky Mountain or First
Franklin with the FRB, the SEC, the TDFI and the FDIC for authority to
consummate the transactions contemplated hereby); (ii) as is necessary for
disclosure to First Franklin's and Smoky Mountain's shareholders; or (iii) as
reasonably requested by Smoky Mountain and First Franklin. Each party will
promptly furnish to the other copies of all quarterly and annual financial
reports filed by First Franklin, First National, the First National Subsidiary,
Smoky Mountain, BankFirst and the BankFirst Subsidiaries with the state or
federal Regulatory Authorities, as well as any examination or similar reports
received from such persons, and any correspondence related thereto, to the
extent permitted by applicable law. Until the Effective Time of the Merger, each
party shall provide to the other party, on or before the twentieth day of each
calendar month, monthly financial statements generated by First Franklin, First
National, Smoky Mountain and BankFirst for the preceding calendar month period,
including a balance sheet and income statement.
(c) Smoky Mountain and First Franklin shall provide to each other
copies of all applications, documents, correspondence, or oral (to the extent
material) or written comments that each of them or any of their affiliates files
with, send to, or receives from the SEC relative to the Registration Statement
and the S-4 Registration Statement, the FRB, the TDFI, and the FDIC, or any
other state or federal authorities, or the staff or agents of any of them,
relating to this Agreement and the transactions contemplated hereby, including
any applications filed for the purpose of obtaining any required regulatory
approvals. Copies of all such applications, documents, correspondence, or
comments shall be provided by each of the Smoky Mountain and First Franklin to
the other's counsel. In the case of applications, documents, correspondence, and
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comments to be filed by First Franklin or First National or by Smoky Mountain or
BankFirst with a Regulatory Authority, copies are to be provided to each other's
counsel for review and comment with as much as advance notice as is reasonably
practicable, and in the case of correspondence or comments (written or oral)
received by First Franklin, First National, the First National Subsidiary, Smoky
Mountain, BankFirst or the BankFirst Subsidiaries from a regulatory authority ,
copies (or, with respect to oral comments, a written summary thereof) are to be
provided to each others counsel as promptly as possible after receipt thereof.
5.7 Filing for all Regulatory Approvals. Subject to the provisions of
Section 5.6 hereof, for the purpose of obtaining Regulatory Approval of the
Merger, Smoky Mountain shall prepare and file all necessary documents with the
FRB, the SEC, the TDFI, and the FDIC. Smoky Mountain and First Franklin shall
each diligently pursue the Regulatory Approval process by taking such actions,
and causing their respective subsidiaries to take such actions, as may be
required to effect the Merger and all other transactions contemplated by this
Agreement. Notwithstanding the foregoing, nothing herein shall require Smoky
Mountain to take any action, accept any condition, or make any concession which
Smoky Mountain reasonably determines to be materially adverse to the assets,
business, operations, employees, revenues, income, prospects, condition
(financial or otherwise), liabilities, net worth, or results of operations of
Smoky Mountain or First Franklin or their subsidiaries.
5.8 Increase in Authorized Shares If it is necessary to authorize any
additional shares of Smoky Mountain Common Stock in order to effect the Merger,
and the public offering as described in Section 3.16, Smoky Mountain shall call
a meeting of its shareholders in accordance with the applicable provisions of
Tennessee law and of Smoky Mountain's Charter for the purpose of amending such
Charter.
5.9 No Control of First Franklin by Smoky Mountain. Notwithstanding any
other provision hereof, until the Effective Time of the Merger, the management
of First Franklin and the authority to establish and implement its business
policies shall continue to reside solely in First Franklin's officers and Board
of Directors, and the election of First Franklin's directors shall be solely the
prerogative of First Franklin's shareholders.
5.10 Agreements to Use Best Efforts. Subject to the terms and conditions
set forth in this Agreement, First Franklin and Smoky Mountain each agrees to
use its best efforts to take, or cause to be taken, all actions and to do, or
cause to be done, all things necessary, proper, or advisable to consummate and
make effective, as promptly as practicable, the transactions contemplated by
this Agreement and to cooperate with each other in connection with the
foregoing, including using best efforts (i) to obtain all necessary consents,
approvals, and authorizations as are required to be obtained under applicable
state and federal statutes and regulations, (ii) to defend all lawsuits or other
legal proceedings challenging this Agreement or the consummation of the
transactions contemplated hereby, (iii) to lift or rescind any injunction or
restraining order or any other order or condition adversely affecting the
ability of the parties to consummate the transactions contemplated by this
Agreement, (iv) to effect all necessary filings
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with state and federal regulatory agencies, and (v) to continue the business
enterprise of First Franklin, within the meaning of Section 368 of the Code, for
the purpose of causing the merger to be a tax-free transaction to the First
Franklin Shareholders. In the event of the imposition of a condition to any
approval by any state or federal Regulatory Authority necessary for the valid
consummation of the transactions contemplated by this Agreement which Smoky
Mountain and First Franklin deem to be materially burdensome, Smoky Mountain
may, after consultation with First Franklin, take such action as Smoky Mountain
may deem appropriate for the purpose of obtaining the removal or modification of
such condition; provided, however, that nothing in this Section 5.10 shall
require Smoky Mountain to institute any litigation in connection therewith, to
continue any actions subsequent to any termination of this Agreement, or to
assume any obligation that it deems not to be in its best interest.
5.11 Press Releases and Public Information. Smoky Mountain and First
Franklin further agree that no press releases shall mention the public offering
being made by Smoky Mountain under the terms of Section 3.16 of this Agreement,
unless approved in writing by Smoky Mountain. Subject to compliance with their
respective legal obligations, Smoky Mountain and First Franklin will advise and
confer with each other and otherwise cooperate in good faith prior to releasing
any statement to the press or otherwise making public any information concerning
any of the transactions contemplated herein.
5.12 Updating of the Schedules. First Franklin and Smoky Mountain shall,
from time to time, prepare and deliver to each other such supplements to the
Schedules attached hereto as may be necessary or appropriate to ensure the
accuracy and completeness of the information required to be disclosed in such
Schedules at all times prior to the Effective Time of the Merger.
5.13 Accounting Treatment. Smoky Mountain shall obtain from Crowe Chizek &
Company an opinion letter stating that the Merger will qualify for pooling of
interests accounting treatment.
5.14. Current SEC Reports. For so long as and to the extent necessary to
permit First Franklin Shareholders to sell Smoky Mountain Common Stock pursuant
to Rule 145 and, to the extent applicable, Rule 144 under the Securities Act,
Smoky Mountain shall file, on a timely basis, all reports required to be filed
with the SEC by it pursuant to Section 13 of the Exchange Act, so long as it is
subject to such requirement, shall furnish to any such First Franklin
Shareholder upon request a written statement as to whether Smoky Mountain has
complied with such reporting requirements during the twelve (12) months
preceding any proposed sale under Rule 145 and shall otherwise use its
reasonable best efforts to permit such sales pursuant to Rule 145 and 144.
5.15 Exchange Act Registration. Regardless of whether the offering of
Smoky Mountain Common Stock described in Section 3.16 is consummated, Smoky
Mountain shall, after the Effective Time of the Merger, take such action as may
be required to register with the SEC the
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Smoky Mountain Common Stock under Section 12(g) of the Exchange Act.
5.16 Indemnification and Insurance.
(a) Smoky Mountain shall, to the fullest extent permitted under
applicable law or under its Charter or By-Laws, indemnify and hold harmless,
each present and former director, officer or employee of First Franklin, First
National and First National Subsidiary (collectively, the "Indemnified Parties")
against any costs or expenses (including attorneys' fees), judgment, fines,
losses, claims, damages, liabilities and amounts paid in settlement in
connection with any claim, action, suit, proceeding or investigation, whether
civil, criminal, administrative or investigative, (x) arising out of or
pertaining to the transactions contemplated by this Agreement or (y) otherwise
with respect to any acts or omissions occurring at or prior to the Effective
Time, to the same extent as provided in the Charter, Articles of Association or
By-Laws, as the case may be, of First Franklin, First National or First National
Subsidiary or any applicable contract or agreement as in effect on the date
hereof, in each case for a period of six years after the date hereof. In the
event of any such claim, action, suit, proceeding or investigation (whether
arising before or after the Effective Time, (i) any counsel retained by the
Indemnified Parties for any period after the Effective Time shall be reasonably
satisfactory to Smoky Mountain, (ii) after the Effective Time, Smoky Mountain
shall pay the reasonable fees and expenses of such counsel, promptly after
statements therefor are received, and (iii) Smoky Mountain will cooperate in the
defense of any such matter, provided, however, that Smoky Mountain shall not be
liable for any settlement effected without its written consent (which consent
shall not be unreasonably withheld); and provided further that, in the event
that any claim or claims for indemnification are asserted or made within such
six-year period, all rights to indemnification in respect of any such claim or
claims shall continue until the disposition of any and all such claims. The
Indemnified Parties as a group may retain only one law firm to represent them
with respect to any single action unless there is, under applicable standards of
professional conduct, a conflict on any significant issue between the positions
of any two or more Indemnified Parties, in which case each Indemnified Person
with respect to whom such a conflict exists (or group of such Indemnified
Persons who among them have no such conflict) may retain one separate law firm.
(b) Smoky Mountain shall honor and fulfill in all respects the
obligations of First Franklin pursuant to indemnification agreements and
employment agreements, if any, with First Franklin's directors and officers
existing at or before the Effective Time.
(c) For a period of three (3) years after the Effective Time, Smoky
Mountain shall maintain in effect, if available, directors' and officers'
liability insurance covering those persons who are currently covered by First
Franklin's directors' and officers' liability insurance policy (a copy of which
has been made available to Smoky Mountain) on terms comparable to those now
applicable to directors and officers of First Franklin.
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ARTICLE 6
CONDITIONS PRECEDENT TO OBLIGATION TO CLOSE
6.1 Conditions to Both Parties' Obligation to Close. The obligations of
Smoky Mountain and First Franklin under this Agreement to consummate the
transactions contemplated hereby are subject to the satisfaction of the
following conditions precedent at or prior to (as the case may be) the Closing,
unless any one or more of such conditions, to the extent legally permitted,
shall be waived in writing by the parties hereto on or before the Closing Date:
(a) Governmental Approvals. Any and all orders, permits, approvals,
or qualifications from all appropriate state and federal governmental
authorities, including without limitation the FRB, the SEC, the TDFI and the
FDIC for the lawful consummation of the Merger and the transactions contemplated
by this Agreement shall have been obtained within three (3) months following the
date of this Agreement, subject to no conditions which in the reasonable
judgment of Smoky Mountain and First Franklin would restrict the Surviving
Corporation in its spheres of operation and business activities subsequent to
the Effective Time of the Merger; provided, however, that if Smoky Mountain is
continuing in good faith to seek regulatory approvals at the end of such three
(3) month period, Smoky Mountain may request that First Franklin agree to extend
the term of this Agreement by three (3) months, approval of which request shall
not be unreasonably withheld by First Franklin. Any waiting period required
prior to the consummation of such transactions pursuant to any applicable laws
or regulations shall have elapsed, and no court, arbitral tribunal, or
governmental agency shall have enjoined, restrained, or prohibited the
transactions contemplated by this Agreement, which injunction, restraint, or
prohibition shall not have been removed.
(b) Shareholder Approval. This Agreement shall have been duly
adopted and approved by the shareholders of First Franklin and Smoky Mountain,
which are entitled to vote with respect to the Merger. If necessary, the
shareholders of Smoky Mountain shall have adopted and approved an amendment to
the Charter of Smoky Mountain increasing the number of authorized shares of
Smoky Mountain Common Stock as contemplated hereby.
(c) Pooling Opinion. The parties shall have received the pooling
opinion letter from Crowe Chizek & Company.
(d) Securities Laws. The S-4 Registration Statement filed by Smoky
Mountain shall be declared effective by the SEC and no order suspending the sale
of the shares of Smoky Mountain Common Stock in any jurisdiction shall have been
issued, and no proceedings for that purpose shall have been instituted or shall
be, to Smoky Mountain's knowledge, contemplated.
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6.2 Conditions to First Franklin's Obligation to Close. The obligations of
First Franklin under this Agreement to consummate the transactions contemplated
hereby are, in addition, subject to the satisfaction of the following conditions
on or prior to the Closing Date, unless any one or more of such conditions, to
the extent legally permitted, are waived in writing by First Franklin on or
before the Closing Date:
(a) Accuracy of Representations and Warranties. The representations
and warranties of Smoky Mountain herein contained shall have been true and
correct in all material respects when made, and, in addition, shall be true and
correct in all material respects on and as of the Closing Date, with the same
force and effect as though made on and as of the Closing Date, except as
affected by transactions specifically contemplated or permitted hereby and
except for any such representations and warranties made as of a specific date,
which shall be true and correct in all material respects as of such date, and
except for any changes occurring in the ordinary course of business, none of
which individually or in the aggregate has been materially adverse to Smoky
Mountain. Smoky Mountain shall present to First Franklin a certificate of the
Chief Executive Officer that Section 6.2(a) is true and complete and correct as
of the date of Closing.
(b) Performance of Covenants and Agreements. Smoky Mountain shall
have performed in all material respects all obligations and agreements and
complied with all covenants contained in this Agreement to be performed and
complied with by Smoky Mountain on or prior to the Closing Date.
(c) No Material Change. Between the date of this Agreement and the
Closing Date, there shall not have occurred any material adverse change in the
assets, including loan portfolio, business, operations, employees, revenue,
income, prospects, condition (financial or otherwise), liabilities, net worth,
or results of operations of Smoky Mountain, BankFirst, or the BankFirst
Subsidiaries.
(d) Fairness Opinion. First Franklin shall, as soon as practicable,
have obtained an opinion, dated as of the date of this Agreement and issued to
First Franklin and its shareholders by Professional Bank Services, Inc. or
another investment banking firm or consulting firm acceptable to both Smoky
Mountain and First Franklin, suitable for inclusion in shareholder proxy
materials, that the transactions contemplated by this Agreement are fair from a
financial point of view.
(e) Consent of Other Persons. To the extent that any lease,
contract, or agreement to which First Franklin or First National is a party or
by which any of them is bound or to which any of their properties is subject
shall require the consent of any other person or entity to the transactions
contemplated hereby, such consent shall have been obtained by the Closing Date,
unless Smoky Mountain specifically agrees that such consent need not be obtained
by the Closing
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Date; provided, however, that First National shall not make, as a condition for
the obtaining of any such consent, any agreements, representations, warranties,
or undertakings that are not specifically approved by Smoky Mountain. Smoky
Mountain shall furnish such information and shall take such other actions as
First Franklin may reasonably request in order to obtain any consent of any
third party required by Section 6.3(c).
(f) Legal Opinion of Counsel. Smoky Mountain shall have delivered to
First Franklin an opinion or opinions of counsel, dated as of the Closing, in
form and substance satisfactory to First Franklin and its counsel, to the effect
that:
(i) Smoky Mountain is a corporation organized, validly
existing, and in good standing under the laws of the State of Tennessee and is
duly registered as a bank holding company under the Act; BankFirst is a banking
corporation organized, validly existing, and in good standing under the laws of
the State of Tennessee; Curtis Mortgage and Eastern Life Insurance Company are
nonbank corporations organized, validly existing, and in good standing under the
laws of the State of Tennessee; and each of Smoky Mountain, BankFirst and
BankFirst Subsidiaries has full corporate power to own and operate its business
and properties and to carry on its business as currently conducted.
(ii) Execution, delivery, and performance of this Agreement by
Smoky Mountain and consummation of the transactions contemplated hereby do not
and will not conflict with, or result in the breach of, or constitute a default
under, any of the provisions of the Charters or Bylaws of Smoky Mountain,
BankFirst or the BankFirst Subsidiaries, or to such counsel's knowledge, any
agreement to which any of Smoky Mountain, BankFirst or the BankFirst
Subsidiaries is a party or by which their respective properties or assets may be
bound.
(iii) To the knowledge of such Counsel, except as disclosed
herein, there are no outstanding subscriptions, options, warrants or rights to
acquire or issue or any outstanding securities or obligations convertible into,
shares of Smoky Mountain Common Stock, except as disclosed herein
(iv) To the knowledge of such Counsel, there are no
outstanding obligations to purchase, reacquire, or redeem any shares of Smoky
Mountain Common Stock.
(v) Smoky Mountain has full corporate power and corporate
authority to make, execute, deliver and perform this Agreement, and this
Agreement has been duly authorized and approved by all necessary corporate
action of Smoky Mountain and constitutes a valid and legally binding obligation
of Smoky Mountain.
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(vi) All filings and registrations with, and notifications to,
all Regulatory Authorities (including, without limitation, the FRB, the SEC, the
TDFI and the FDIC) required on the part of Smoky Mountain for the consummation
of the Merger have been made, all approvals and authorizations of all federal
and state authorities (including, without limitation, the FRB, the TDFI and the
FDIC) required with respect to Smoky Mountain for consummation of the Merger are
in full force and effect, and all applicable waiting periods have passed.
(vii) The Registration Statement has become effective and, to
such counsel's knowledge, no stop order suspending the effectiveness of the
Registration Statement has been issued and no proceedings for that purpose have
been instituted or are contemplated.
(viii) The shares of Smoky Mountain Common Stock to be issued
to First Franklin Shareholders pursuant to the Merger and as contemplated in the
Agreement are duly authorized and, when properly issued and delivered following
consummation of the Merger, will be validly issued, fully paid and
nonassessable. Such shares of Smoky Mountain Common Stock will be delivered to
First Franklin Shareholders pursuant to the terms of the Plan of Merger free and
clear of all claims, encumbrances, security interests and liens whatsoever and
will be fully transferable by any such holder without any restrictions required
under federal or applicable state securities laws, except restrictions
applicable to such holders who are deemed "affiliates" of First Franklin under
Rule 145 under the Securities Act.
(g) Updated Smoky Mountain Schedules. Smoky Mountain shall have
delivered to First Franklin such supplements as may be necessary or appropriate
to ensure the accuracy and completeness as of the Closing Date of the
information disclosed in the schedules provided by Smoky Mountain pursuant
hereto.
(h) Tax Treatment. First Franklin shall have obtained an opinion
dated the Closing Date, that the Merger shall be treated for federal income
purposes as a tax-free reorganization with respect to First Franklin's
shareholders.
(i) Outstanding Shares. No more than 1,275,079 shares of Smoky
Mountain Common Stock and 215,805 shares of Smoky Mountain Preferred Stock shall
be outstanding immediately prior to the Effective Time of the Merger, unless
options are exercised or preferred shares are converted, and Smoky Mountain
shall have no other outstanding equity securities or other securities
convertible into, or exercisable or exchangeable for, equity securities of Smoky
Mountain, except as shall be disclosed to First Franklin, in accordance with
Smoky Mountain's Registration Statement.
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(j) Comfort Letter. First Franklin shall have received from Crowe
Chizek and Company letters dated not more than five (5) days prior to (i) the
date of the Proxy Statement; and (ii) the Effective Time with respect to the
certain financial information concerning Smoky Mountain in form and substance
which is customary in transactions of the nature contemplated by this Agreement.
6.3 Conditions to Smoky Mountain's Obligation to Close. The obligations of
Smoky Mountain under this Agreement to consummate the transactions contemplated
hereby are subject to the satisfaction of the following additional conditions,
on or prior to the Closing Date, unless any one or more of such conditions, to
the extent legally permitted, shall be waived in writing by Smoky Mountain on or
before the Closing Date:
(a) Accuracy of Representations and Warranties. The representations
and warranties of First Franklin herein contained shall have been true and
correct in all material respects when made, and, in addition, shall be true and
correct in all material respects on and as of the Closing Date, with the same
force and effect as though made on and as of the Closing Date, except as
affected by transactions specifically contemplated or permitted hereby and
except for any such representations and warranties made as of a specific date,
which shall be true and correct in all material respects as of such date, and
except for any changes occurring in the ordinary course of business, none of
which individually or in the aggregate has been materially adverse to First
Franklin. First Franklin shall present to Smoky Mountain a certificate of its
Chief Executive Officer that Section 6.3(a) is true and complete and correct as
of the date of Closing.
(b) Performance of Covenants and Agreements. First Franklin shall
have performed in all material respects all obligations and agreements and
complied with all covenants contained in this Agreement to be performed and
complied with by First Franklin on or prior to the Closing Date.
(c) Consent of Other Persons. To the extent that any lease,
contract, or agreement to which First Franklin or First National is a party or
by which any of them is bound or to which any of their properties is subject
shall require the consent of any other person or entity to the transactions
contemplated hereby, such consent shall have been obtained by the Closing Date,
unless Smoky Mountain specifically agrees that such consent need not be obtained
by the Closing Date; provided, however, that First National shall not make, as a
condition for the obtaining of any such consent, any agreements,
representations, warranties, or undertakings that are not specifically approved
by Smoky Mountain. Smoky Mountain shall furnish such information and shall take
such other actions as First Franklin may reasonably request in order to obtain
any consent of any third party required by this Section 6.3(c).
(d) No Material Change. Between the date of this Agreement and the
Closing Date, there shall not have occurred any material adverse change in the
assets (including loan portfolio), business, operations, employees, revenue,
income, prospects, condition (financial or otherwise), liabilities, net worth,
or results of operations of First Franklin or First National.
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(e) Legal Opinion of First Franklin's Counsel. First Franklin shall
have delivered to Smoky Mountain an opinion or opinions of counsel, dated as of
the Closing, in form and substance reasonably satisfactory to Smoky Mountain and
its counsel, to the effect that:
(i) First Franklin is a corporation organized, validly
existing, and in good standing under the laws of the State of Tennessee and is
duly registered as a bank holding company under the Act; First National is a
national banking association organized, validly existing, and in good standing
under the laws of the United States; Friendly Finance Company, Inc., is a
Tennessee chartered industrial loan and thrift company, validly existing, and in
good standing under the laws of the State of Tennessee; and First Franklin,
First National and the First National Subsidiary each have full corporate power
to own and operate their respective business and properties and to carry on
their respective business as currently conducted.
(ii) The authorized capital stock of First Franklin consists
solely of 400,000 shares of First Franklin Common Stock, of which 164,125 shares
are validly issued and outstanding, fully paid and nonassessable, and have not
been issued in violation of the preemptive rights of any person; the authorized
capital stock of First National consists solely of 120,000 shares of common
stock, of which 120,000 shares are validly issued and outstanding, fully paid
and nonassessable (except to the extent that capital stock of a national banking
association is assessable under the national banking laws), have not been issued
in violation of the preemptive rights of any person, and wholly-owned by First
Franklin; the authorized capital stock of Friendly Finance Company, Inc.
consists solely of 100,000 shares of Common Stock of which 10,000 shares are
validly issued and outstanding, fully paid and nonassessable, and have not been
issued in violation of the preemption rights of any person, and wholly owned by
First National.
(iii) To the knowledge of such counsel, there are no
outstanding subscriptions, options, warrants, or rights to acquire or issue, or
any outstanding securities or obligations convertible into, shares of First
Franklin Common Stock.
(iv) To the knowledge of such counsel, there are no
outstanding obligations to purchase, reacquire, or redeem any shares of First
Franklin Common Stock.
(v) Execution, delivery, and performance of this Agreement by
First Franklin and consummation of the transactions contemplated hereby do not
and will not conflict with, or result in the breach of, or constitute a default
under, any of the provisions of the Charter or Bylaws of First Franklin or, to
such counsel's knowledge, of any other agreement to which First Franklin is a
party or by which its properties or assets or the properties or assets of First
National) may be bound.
(vi) First Franklin has full corporate power and corporate
authority to execute, deliver, and perform this Agreement, and this Agreement
has been duly authorized, approved, and adopted by all requisite corporate
action of First Franklin, and by the shareholders of First Franklin, and
constitutes a valid and binding obligation of First Franklin.
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(vii) All filings and registrations with, and notifications
to, all federal and state authorities required on the part of First Franklin for
the consummation of the Merger have been made; all approvals and authorizations
of all federal and state authorities required with respect to First Franklin for
consummation of the Merger are in full force and effect, and all applicable
waiting periods have passed.
(f) Updated First Franklin Schedules. First Franklin shall have
delivered to Smoky Mountain such supplements as may be necessary or appropriate
to ensure the accuracy and completeness as of the Closing Date of the
information disclosed in the Schedules provided by First Franklin pursuant
hereto.
(g) Outstanding Shares. No more than 164,125 shares of First
Franklin Common Stock shall be outstanding immediately prior to the Effective
Time of the Merger, and First Franklin shall have no other outstanding equity
securities or other securities convertible into, or exercisable or exchangeable
for, equity securities of First Franklin.
(h) Resignations of Directors. The directors of First Franklin shall
have submitted their resignations, effective as of the Effective Time of the
Merger, subject to acceptance by Smoky Mountain and subject to Section 7.1 of
this Agreement.
(i) Other Information and Actions. First Franklin shall have
delivered or caused to be delivered to Smoky Mountain such other documents or
instruments, and shall have taken or caused to be taken such other actions, as
may reasonably have been requested by Smoky Mountain or its counsel with respect
to the transactions contemplated by this Agreement.
(j) Comfort Letter. Smoky Mountain shall have received from G. R.
Rush and Company letters dated not more than five (5) days prior to (i) the date
of the Proxy Statement; and (ii) the Effective Time with respect to the certain
financial information concerning First Franklin in form and substance which is
customary in transactions of the nature contemplated by this Agreement.
ARTICLE 7
TERMINATION
7.1 Termination. This Agreement may be terminated at any time prior to the
Effective Time of the Merger, whether before or after approval by the
shareholders of First Franklin and Smoky Mountain by any one of the following
means:
(a) By mutual written consent authorized by the boards of director
of each of Smoky Mountain and First Franklin.
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(b) By the Board of Directors of Smoky Mountain, upon delivery of
written notice of termination to First Franklin, if any event occurs which
renders impossible of satisfaction in any material respect one or more of the
conditions to the obligations of Smoky Mountain to effect the Merger set forth
in Sections 6.1 and 6.3 hereof and noncompliance is not waived by Smoky
Mountain.
(c) By the Board of Directors of First Franklin, upon delivery of
written notice of termination of Smoky Mountain, if any event occurs which
renders impossible of satisfaction in any material respect one or more of the
conditions to the obligations of First Franklin to effect the Merger set forth
in Sections 6.1 and 6.2 hereof and noncompliance is not waived by First
Franklin.
(d) By the Board of Directors of Smoky Mountain or the Board of
Directors of First Franklin in the event (i) the Effective Time of Merger shall
not have occurred on or before September 30, 1998, and provided that no further
government, regulatory, or shareholder approvals are necessary as of such date;
or (ii) any court of competent jurisdiction in the United States or other
federal or state governmental body shall have issued an order, decree, or ruling
or taken any other action restraining, enjoining, or otherwise prohibiting the
Merger or other transactions contemplated hereunder and such order, decree,
ruling, or other action shall become final and non-appealable, and it is not
relieved within thirty (30) days.
7.2 Effect of Termination.
(a) If this Agreement is terminated pursuant to Section 7.1 hereof,
all further obligations of the parties hereto under this Agreement shall
terminate and the Merger shall be abandoned, except that the provisions of this
Section 7.2(a) and Sections 4.11 (brokers), 5.4 (Confidential Information), and
7.2(b) (expenses in the event of termination) hereof shall survive any such
termination and abandonment of the Merger.
(b) Notwithstanding the foregoing, (i) in the event this Agreement
is terminated by Smoky Mountain pursuant to Section 7.1(b) hereof (because of
any act, condition or omission of First Franklin, First National, or the First
National Subsidiary) or by First Franklin pursuant to Section 7.1(c) hereof
(because of any act, condition, or omission of Smoky Mountain, BankFirst or the
BankFirst Subsidiaries), the party terminating this Agreement shall be entitled
to reimbursement from the other party for the costs and expenses (including fees
and expenses of attorneys, auditors and financial advisors) actually and
reasonably incurred by it in connection with this Agreement and the transactions
contemplated hereby.
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7.3 Termination Without Cause. In the event that either party desires to
terminate this Agreement, after approval by the stockholders of Smoky Mountain
and First Franklin, for any reason, other than as set forth in Section 7.1(b)
and Section 7.1(c) hereof, the terminating party shall pay to the
non-terminating party the sum of Four Million ($4,000,000.00) Dollars as
liquidated damages ("terminating sum"). The terminating sum shall be due and
payable at the termination of the Agreement.
ARTICLE 8
MISCELLANEOUS
8.1 Smoky Mountain and First National Boards of Directors. The parties
hereto agree that, at the Effective Time of Merger, the number of directors of
Smoky Mountain's Board of Directors shall be increased by three (3) persons.
Smoky Mountain shall use its best efforts to have these additional Smoky
Mountain directorships filled by the election of three (3) current directors of
First Franklin, who shall serve as Smoky Mountain directors. Additionally, the
parties agree that the number of directors of First National's Board of
Directors shall be increased by at least one (1) person. First National shall
use its best efforts to have the additional First National directorship filled
by the election of one (1) current director of Smoky Mountain whose name will be
set forth in Exhibit 8.1 hereto, who shall serve as a First National Director.
8.2 Continuation of First National. For a minimum of two (2) years from
the Closing Date, the legal status of First National shall not be changed nor
shall its name be changed.
8.3 Expenses. Except as provided in Section 7.2(b) hereof, each party
shall bear and pay all costs and expenses incurred by it or on its behalf in
connection with the transactions contemplated hereby, including the fees and
expenses of its own financial or other consultants, investment bankers,
accountants, and counsel.
8.4 Entire Agreement; Amendment. This Agreement, including any Exhibits
and Schedules hereto and other writings specifically referred to, constitutes
the entire agreement among the parties hereto with respect to the transactions
contemplated hereby and supersedes all prior oral or written agreements,
commitments, or understandings with respect to the matters provided for herein.
No amendment, modification, or discharge of this Agreement shall be valid or
binding unless set forth in writing and duly executed by the party against whom
enforcement of the amendment, modification, or discharge is sought; provided,
however, that, subject to Section 8.4 hereof, after approval by First Franklin's
Shareholders, there can be no amendment which will affect the rights of such
shareholders in a manner which, in the judgment of First Franklin's Board of
Directors, is materially adverse to First Franklin's Shareholders.
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8.5 Waiver. No delay or failure on the part of any party hereto to
exercise any right, power, or privilege under this Agreement or under any other
instrument given in connection with or pursuant to this Agreement shall impair
any such right, power or privilege or be construed as a waiver of any default or
as acquiescence therein. No single or partial exercise of any such right, power,
or privilege shall preclude the further exercise of any such right, power or
privilege or the exercise of any other right, power or privilege. No waiver
shall be valid against any party hereto unless made in writing and signed by the
party against whom enforcement of such waiver is sought and then only to the
extent expressly specified therein.
8.6 Governing Law. This Agreement, the rights and obligations of the
parties hereto, and any claims or disputes relating hereto, shall be governed by
and construed in accordance with the substantive laws and the procedural
provisions of the State of Tennessee as applied to contracts executed in and to
be performed in the State of Tennessee, to the extent federal law does not
control.
8.7 Governmental Agencies. All references herein to various applicable
governmental regulatory agencies shall be deemed to include, to the extent
required by law, any other such regulatory agency that, by virtue of legislative
change or any action permitted to a party hereunder, properly assumes
jurisdiction of any of the transactions contemplated in this Agreement.
8.8 Specific Performance. The parties recognize and hereby acknowledge
that it is impossible adequately to measure in money the damages that would
result to a party by reason of the failure of any of the parties to perform any
of the obligations imposed upon it by this Agreement. Accordingly, if, after
approval by the shareholders of First Franklin and Smoky Mountain, any party
should institute an action or proceeding seeking specific performance of the
provisions hereof, each party against which such action or proceeding is brought
hereby waives the claim or defense that the party instituting such action or
proceeding has an adequate remedy at law and hereby agrees not to assert in any
such action or proceeding the claim or defense that such a remedy at law exists.
8.9 Notices. All notices, demands, requests, or other communications that
may be or are required to be given, served, or sent by any party to any other
party pursuant to this Agreement shall be in writing and shall be hand delivered
or mailed by registered or certified mail, return receipt requested, postage
prepaid, or transmitted by telegram, telex, or facsimile transmission, addressed
as follows:
If to Smoky Mountain:
Mr. Fred R. Lawson
President and Chief Executive Officer
Smoky Mountain Bancorp, Inc.
625 Market Street
Knoxville, TN 37902
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With a copy to:
Robert G. McCullough, Esq.
Baker, Donelson, Bearman and Caldwell
511 Union Street, Suite 1700
Nashville, TN 37219
Thomas McAdams, Esq.
Bernstein, Stair and McAdams
531 South Gay Street
Suite 700
Knoxville, TN 37902
If to First Franklin:
Mr. L. A. Walker
Chairman and Chief Executive Officer
First Franklin Bancshares, Inc.
204 Washington Avenue
Post Office Box 100
Athens, TN 37371-0100
With a copy to:
Scott McGinness, Esq.
Miller & Martin
Suite 1000, Volunteer Building
832 Georgia Avenue
Chattanooga, TN 37402
Kathryn R. Edge, Esq.
Miller & Martin
Suite 2325
SunTrust Center
Nashville, TN 37219
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Each party may designate by notice in writing a new address to which any notice,
demand, request, or communication may thereafter be so given, served, or sent.
Each notice, demand, request, or communication sent by mail shall be deemed to
have been given two business days after the date of such mailing (except that a
notice of change of address shall not be deemed to have been given until
received by the addressee). Notices sent by telegram, telex, facsimile
transmission, or hand delivery shall be deemed to have been given as of the date
received.
8.10 No Third Party Beneficiaries. It is the explicit intention of the
parties hereto that no person or entity other than the parties hereto is or
shall be entitled to bring any action to enforce any provision of this Agreement
against any of the parties hereto, and the covenants, undertakings and
agreements set forth in this Agreement shall be solely for the benefit of, and
shall be enforceable only by, the parties hereto or their respective successors,
legal representatives as permitted hereunder, and any other persons or entities
specifically designated herein, except to the extent that other persons or
entities are direct beneficiaries of the provisions of Sections 5.14, 5.15 and
5.16 hereof.
8.11 No Assignment. This Agreement may not be assigned by any of the
parties hereto , by operation of law, or otherwise, except as contemplated
hereby and shall be binding upon and shall inure to the benefit of the parties
hereto and their respective successors and legal representatives.
8.12 Headings. Article and section headings contained in this Agreement
are inserted for convenience of reference only, shall not be deemed to be a part
of this Agreement for any purpose, and shall not in any way define or affect the
meaning, construction, or scope of any of the provisions hereof.
8.13 Termination of Representations and Warranties. Except for the
provisions of Sections 5.14, 5.15 and 5.16, the undertakings, covenants,
representations and warranties of the parties set forth in this Agreement or in
certificates, schedules, or other documents delivered pursuant hereto shall
expire at, and be terminated and extinguished at, the Closing; provided,
however, that in the case of consummation of the Merger, no representation or
warranty of First Franklin provided for herein shall be deemed to be terminated
or extinguished so as to deprive Smoky Mountain of any defense in law or equity
that it otherwise would have to any claim against it by any person or any claim
against any person, including, without limitation, any shareholder or former
shareholder of First Franklin.
8.14 Construction. Should any provision of this Agreement require judicial
interpretation, the parties hereto agree that the court interpreting or
construing the same shall not apply a presumption that the term shall be more
strictly construed against one party by the reason of the construction that a
document is to be more strictly construed against the party than itself or
through its agent prepared the same, it being agreed that Smoky Mountain and
First Franklin and their respective agents have participated in the preparation
hereof.
Page 65 of 66
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8.15 Counterparts. This Agreement may be executed in any number of
counterparts, each of which shall be deemed an original instrument, but all of
which counterparts shall constitute one and the same Agreement.
8.16 Severability. If any portion or provision of this Agreement should be
determined by a court of competent jurisdiction to be invalid, illegal or
unenforceable in any jurisdiction, such portion or provision shall be
ineffective as to that jurisdiction to the extent of such invalidity, illegality
or unenforceability, without affecting in any way the validity or enforceability
of the remaining portions or provisions hereof in such jurisdiction or rendering
that or any other portions or provisions of this Agreement invalid, illegal or
unenforceable in any other jurisdiction.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed on their behalf and in their name, on the day and year first above
written.
SMOKY MOUNTAIN BANCORP, INC.
By: /s/ Fred R. Lawson
---------------------------------------
Fred R. Lawson
Its: President and Chief Executive Officer
ATTEST:
/s/ Vickie T. Mynatt
- ----------------------------
Secretary
FIRST FRANKLIN BANCSHARES, INC.
By: /s/ L. A. Walker, Jr
---------------------------------------
L. A. Walker, Jr.
Its: Chairman and Chief Executive Officer
ATTEST:
/s/ Michael L. Bevins
- ----------------------------
Secretary
Page 66 of 66
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APPENDIX B
FAIRNESS OPINION
OF
PROFESSIONAL BANK SERVICES, INC.
<PAGE>
[Letterhead of Professional Bank Services, Inc.]
March 17, 1998
Board of Directors
First Franklin Bancshares, Inc.
204 Washington Avenue
Athens, Tennessee 37303
Dear Members of the Board:
You have requested our opinion as investment bankers as to the fairness, from a
financial perspective, to the common shareholders of First Franklin Bancshares,
Inc., Athens, Tennessee (the "Company") of the proposed merger of the Company
with Smoky Mountain Bancorp, Inc., Knoxville, Tennessee ("SMB"). In the proposed
merger, Company common shareholders will receive, 4.410 SMB common shares per
Company common share or an aggregate of 723,791 SMB common shares for all
164,125 Company common shares outstanding, as further defined in the Agreement
and Plan of Merger between SMB and the Company (the "Agreement"). The most
recent trading activity in SMB common shares took place on February 27, 1998,
when 1,785 shares traded at $50.00 per share. Under the terms of the Agreement,
upon completion of the proposed merger, SMB will seek to commence a secondary
offering of shares in the public market at $60.00 per common share and begin
trading on the National Association of Securities Dealers Automated Quotations
system (NASDAQ). At the pro forma offering price of $60.00 per SMB common share,
the consideration to be received by Company common shareholders represents an
aggregate value of $43,427,460 or $264.60 per Company common share.
Professional Bank Services, Inc. ("PBS") is a bank consulting firm and as part
of its investment banking business is continually engaged in reviewing the
fairness, from a financial perspective, of bank acquisition transactions and in
the valuation of banks and other businesses and their securities in connection
with mergers, acquisitions, estate settlements and other purposes. We are
independent with respect to the parties of the proposed transaction.
For purposes of this opinion, PBS performed a review and analysis of the
historic performance of the Company and its wholly owned subsidiaries First
National Bank and Trust Company, Athens, Tennessee (the "Bank") contained in:
(i) December 31, 1997 and June 30, 1997 FR Y- 9C Consolidated Financial
Statements filed by the Company with the Federal Reserve; (ii) December 31, 1997
consolidated audited financial statements and annual report Board of Directors
First Franklin Bancshares, Inc.
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of the Company; and (iii) September 30, 1997 Uniform Bank Performance Reports of
the Company. We have reviewed and tabulated statistical data regarding the loan
portfolio, securities portfolio and other performance ratios and statistics.
Financial projections were prepared and analyzed as well as other financial
studies, analyses and investigations as deemed relevant for the purposes of this
opinion. In review of the aforementioned information, we have taken into account
our assessment of general market and financial conditions, our experience in
other transactions, and our knowledge of the banking industry generally.
As part of preparing this Fairness Opinion, PBS performed a due diligence review
of SMB the week of March 9, 1998. As part of the due diligence, PBS reviewed the
following items: minutes of the Board of Directors meetings of the subsidiary
bank, BankFirst, from January 1997 through January 1998; reports of independent
auditors and management letters and response thereto, for the years ending
December 31, 1996 and 1997; the most recent analysis and calculation of
allowance for loan and lease losses for the subsidiary bank; internal loan
review reports; investment portfolio activity reports; asset/liability
management reports; asset quality reports; Uniform Holding Company Report for
SMB as of December 31, 1996 and September 30, 1997; December 31, 1997 report of
Condition and Income and September 30, 1997 Uniform Bank Performance Report for
the subsidiary bank; discussion of pending litigation and other issues with
senior management of SMB.
We have not compiled, reviewed or audited the financial statements of the
Company or SMB, nor have we independently verified any of the information
reviewed; we have relied upon such information as being complete and accurate in
all material respects. We have not made independent evaluation of the assets of
the Company or SMB.
Based on the foregoing and all other factors deemed relevant, it is our opinion
as investment bankers, that, as of the date hereof, the merger consideration
proposed to be received the holders of all classes of stock of the Company under
the Agreement is fair and equitable from a financial perspective.
Very truly yours,
/s/ PROFESSIONAL BANK SERVICES, INC.
-----------------------------------------
Professional Bank Services, Inc.
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APPENDIX C
PROVISIONS OF
TENNESSEE BUSINESS CORPORATION ACT
GOVERNING
DISSENTERS' RIGHTS
<PAGE>
TENNESSEE CODE ANNOTATED
TITLE 48. CORPORATIONS AND ASSOCIATIONS
CHAPTER 23. BUSINESS CORPORATIONS-- DISSENTERS' RIGHTS
PART 1-- RIGHT TO DISSENT AND OBTAIN PAYMENT FOR SHARES
ss. 48-23-101. Definitions
As used in this chapter, unless the context otherwise requires:
(1) "Beneficial shareholder" means the person who is a beneficial owner of
shares held by a nominee as the record shareholder;
(2) "Corporation" means the issuer of the shares held by a dissenter
before the corporate action, or the surviving or acquiring corporation by merger
or share exchange of that issuer;
(3) "Dissenter" means a shareholder who is entitled to dissent from
corporate action under ss. 48-23-102 and who exercises that right when and in
the manner required by part 2 of this chapter;
(4) "Fair value", with respect to a dissenter's shares, means the value of
the shares immediately before the effectuation of the corporate action to which
the dissenter objects, excluding any appreciation or depreciation in
anticipation of the corporate action;
(5) "Interest" means interest from the effective date of the corporate
action that gave rise to the shareholder's right to dissent until the date of
payment, at the average auction rate paid on United States treasury bills with a
maturity of six (6) months (or the closest maturity thereto) as of the auction
date for such treasury bills closest to such effective date;
(6) "Record shareholder" means the person in whose name shares are
registered in the records of a corporation or the beneficial owner of shares to
the extent of the rights granted by a nominee certificate on file with a
corporation; and
(7) "Shareholder" means the record shareholder or the beneficial
shareholder.
ss. 48-23-102. Shareholders rights
(a) A shareholder is entitled to dissent from, and obtain payment of the
fair value of the shareholder's shares in the event of, any of the following
corporate actions:
(1) Consummation of a plan of merger to which the corporation is a
party:
(A) If shareholder approval is required for the merger by ss.
48-21-103 or the charter and the shareholder is entitled to vote on the merger;
or
(B) If the corporation is a subsidiary that is merged with its
parent under ss. 48-21-104;
(2) Consummation of a plan of share exchange to which the
corporation is a party as the corporation whose shares will be acquired, if the
shareholder is entitled to vote on the plan;
(3) Consummation of a sale or exchange of all, or substantially all,
of the property of the corporation other than in the usual and regular course of
business, if the shareholder is entitled to vote on the sale or exchange,
including a sale in dissolution, but not including a sale pursuant to court
order or a sale for cash
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pursuant to a plan by which all or substantially all of the net proceeds of the
sale will be distributed to the shareholders within one (1) year after the date
of sale;
(4) An amendment of the charter that materially and adversely
affects rights in respect of a dissenter's shares because it:
(A) Alters or abolishes a preferential right of the shares;
(B) Creates, alters, or abolishes a right in respect of
redemption, including a provision respecting a sinking fund for the redemption
or repurchase, of the shares;
(C) Alters or abolishes a preemptive right of the holder of
the shares to acquire shares or other securities;
(D) Excludes or limits the right of the shares to vote on any
matter, or to cumulate votes, other than a limitation by dilution through
issuance of shares or other securities with similar voting rights; or
(E) Reduces the number of shares owned by the shareholder to a
fraction of a share, if the fractional share is to be acquired for cash under
ss. 48-16-104; or
(5) Any corporate action taken pursuant to a shareholder vote to the
extent the charter, bylaws, or a resolution of the board of directors provides
that voting or nonvoting shareholders are entitled to dissent and obtain payment
for their shares.
(b) A shareholder entitled to dissent and obtain payment for the
shareholder's shares under this chapter may not challenge the corporate action
creating the shareholder's entitlement unless the action is unlawful or
fraudulent with respect to the shareholder or the corporation.
(c) Notwithstanding the provisions of subsection (a), no shareholder may
dissent as to any shares of a security which, as of the date of the effectuation
of the transaction which would otherwise give rise to dissenters' rights, is
listed on an exchange registered under ss. 6 of the Securities Exchange Act of
1934, as amended, or is a "national market system security," as defined in rules
promulgated pursuant to the Securities Exchange Act of 1934, as amended.
ss. 48-23-103. Partial dissenters; beneficial owners
(a) A record shareholder may assert dissenters' rights as to fewer than
all the shares registered in the record shareholder's name only if the record
shareholder dissents with respect to all shares beneficially owned by any one
(1) person and notifies the corporation in writing of the name and address of
each person on whose behalf the record shareholder asserts dissenters' rights.
The rights of a partial dissenter under this subsection are determined as if the
shares as to which the partial dissenter dissents and the partial dissenter's
other shares were registered in the names of different shareholders.
(b) A beneficial shareholder may assert dissenters' rights as to shares of
any one (1) or more classes held on the beneficial shareholder's behalf only if
the beneficial shareholder:
(1) Submits to the corporation the record shareholder's written
consent to the dissent not later than the time the beneficial shareholder
asserts dissenters' rights; and
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(2) Does so with respect to all shares of the same class of which
the person is the beneficial shareholder or over which the person has power to
direct the vote.
ss. 48-23-201. Notice of shareholders right to dissent
(a) If proposed corporate action creating dissenters' rights under ss.
48-23-102 is submitted to a vote at a shareholders' meeting, the meeting notice
must state that shareholders are or may be entitled to assert dissenters' rights
under this chapter and be accompanied by a copy of this chapter.
(b) If corporate action creating dissenters' rights under ss. 48-23-102 is
taken without a vote of shareholders, the corporation shall notify in writing
all shareholders entitled to assert dissenters' rights that the action was taken
and send them the dissenters' notice described in ss. 48-23-203.
(c) A corporation's failure to give notice pursuant to this section will
not invalidate the corporate action.
ss. 48-23-202. Dissenting shareholders duties
(a) If proposed corporate action creating dissenters' rights under ss.
48-23-102 is submitted to a vote at a shareholders' meeting, a shareholder who
wishes to assert dissenters' rights must:
(1) Deliver to the corporation, before the vote is taken, written
notice of the shareholder's intent to demand payment for the shareholder's
shares if the proposed action is effectuated; and
(2) Not vote the shareholder's shares in favor of the proposed
action. No such written notice of intent to demand payment is required of any
shareholder to whom the corporation failed to provide the notice required by ss.
48-23-201.
(b) A shareholder who does not satisfy the requirements of subsection (a)
is not entitled to payment for the shareholder's shares under this chapter.
ss. 48-23-203. Dissenters' notice
(a) If proposed corporate action creating dissenters' rights under ss.
48-23-102 is authorized at a shareholders' meeting, the corporation shall
deliver a written dissenters' notice to all shareholders who satisfied the
requirements of ss. 48-23-202.
(b) The dissenters' notice must be sent no later than ten (10) days after
the corporate action was authorized by the shareholders or effectuated,
whichever is the first to occur, and must:
(1) State where the payment demand must be sent and where and when
certificates for certificated shares must be deposited;
(2) Inform holders of uncertificated shares to what extent transfer
of the shares will be restricted after the payment demand is received;
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(3) Supply a form for demanding payment that includes the date of
the first announcement to news media or to shareholders of the principal terms
of the proposed corporate action and requires that the person asserting
dissenters' rights certify whether or not the person asserting dissenters'
rights acquired beneficial ownership of the shares before that date;
(4) Set a date by which the corporation must receive the payment
demand, which date may not be fewer than one (1) nor more than two (2) months
after the date the subsection (a) notice is delivered; and
(5) Be accompanied by a copy of this chapter if the corporation has
not previously sent a copy of this chapter to the shareholder pursuant to ss.
48-23-201.
ss. 48-23-204. Shareholder demanding payment and depositing share certificates
(a) A shareholder sent a dissenters' notice described in ss. 48-23-203
must demand payment, certify whether the shareholder acquired beneficial
ownership of the shares before the date required to be set forth in the
dissenters' notice pursuant to ss. 48-23-203(b)(3), and deposit the
shareholder's certificates in accordance with the terms of the notice.
(b) The shareholder who demands payment and deposits the shareholder's
share certificates under subsection (a) retains all other rights of a
shareholder until these rights are canceled or modified by the effectuation of
the proposed corporate action.
(c) A shareholder who does not demand payment or deposit the shareholder's
share certificates where required, each by the date set in the dissenters'
notice, is not entitled to payment for the shareholder's shares under this
chapter.
(d) A demand for payment filed by a shareholder may not be withdrawn
unless the corporation with which it was filed, or the surviving corporation,
consents thereto.
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ss. 48-23-205. Restricting transfer of uncertificated shares
(a) The corporation may restrict the transfer of uncertificated shares
from the date the demand for their payment is received until the proposed
corporate action is effectuated or the restrictions released under ss.
48-23-207.
(b) The person for whom dissenters' rights are asserted as to
uncertificated shares retains all other rights of a shareholder until these
rights are canceled or modified by the effectuation of the proposed corporate
action.
ss. 48-23-206. Payments to dissenters
(a) Except as provided in ss. 48-23-208, as soon as the proposed corporate
action is effectuated, or upon receipt of a payment demand, whichever is later,
the corporation shall pay each dissenter who complied with ss. 48-23-204 the
amount the corporation estimates to be the fair value of each dissenter's
shares, plus accrued interest.
(b) The payment must be accompanied by:
(1) The corporation's balance sheet as of the end of a fiscal year
ending not more than sixteen (16) months before the date of payment, an income
statement for that year, a statement of changes in shareholders' equity for that
year, and the latest available interim financial statements, if any;
(2) A statement of the corporation's estimate of the fair value of
the shares;
(3) An explanation of how the interest was calculated;
(4) A statement of the dissenter's right to demand payment under ss.
48-23-209; and
(5) A copy of this chapter if the corporation has not previously
sent a copy of this chapter to the shareholder pursuant to ss. 48-23-201 or ss.
48-23-203.
ss. 48-23-207. Corporations failure to effectuate proposed action
(a) If the corporation does not effectuate the proposed action that gave
rise to the dissenters' rights within two (2) months after the date set for
demanding payment and depositing share certificates, the corporation shall
return the deposited certificates and release the transfer restrictions imposed
on uncertificated shares.
(b) If, after returning deposited certificates and releasing transfer
restrictions, the corporation effectuates the proposed action, it must send a
new dissenters' notice under ss. 48-23-203 and repeat the payment demand
procedure.
ss. 48-23-208. After-acquired shares; withholding payment
(a) A corporation may elect to withhold payment required by ss. 48-23-206
from a dissenter unless the dissenter was the beneficial owner of the shares
before the date set forth in the dissenters' notice as the date of the first
announcement to news media or to shareholders of the principal terms of the
proposed corporate action.
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(b) To the extent the corporation elects to withhold payment under
subsection (a), after effectuating the proposed corporate action, it shall
estimate the fair value of the shares, plus accrued interest, and shall pay this
amount to each dissenter who agrees to accept it in full satisfaction of the
dissenter's demand. The corporation shall send with its offer a statement of its
estimate of the fair value of the shares, an explanation of how the interest was
calculated, and a statement of the dissenter's right to demand payment under ss.
48-23-209.
ss. 48-23-209. Disagreement between dissenter and corporation regarding fair
value
(a) A dissenter may notify the corporation in writing of the dissenter's
own estimate of the fair value of the dissenter's shares and amount of interest
due, and demand payment of the dissenter's estimate (less any payment under ss.
48-23-206), or reject the corporation's offer under ss. 48-23-208 and demand
payment of the fair value of the dissenter's shares and interest due, if:
(1) The dissenter believes that the amount paid under ss. 48-23-206
or offered under ss. 48-23-208 is less than the fair value of the dissenter's
shares or that the interest due is incorrectly calculated;
(2) The corporation fails to make payment under ss. 48-23-206 within
two (2) months after the date set for demanding payment; or
(3) The corporation, having failed to effectuate the proposed
action, does not return the deposited certificates or release the transfer
restrictions imposed on uncertificated shares within two (2) months after the
date set for demanding payment.
(b) A dissenter waives the dissenter's right to demand payment under this
section unless the dissenter notifies the corporation of the dissenter's demand
in writing under subsection (a) within one (1) month after the corporation made
or offered payment for the dissenter's shares.
ss. 48-23-301. Commencement of proceeding; parties; jurisdiction; judgment
(a) If a demand for payment under ss. 48-23-209 remains unsettled, the
corporation shall commence a proceeding within two (2) months after receiving
the payment demand and petition the court to determine the fair value of the
shares and accrued interest. If the corporation does not commence the proceeding
within the two-month period, it shall pay each dissenter whose demand remains
unsettled the amount demanded.
(b) The corporation shall commence the proceeding in a court of record
having equity jurisdiction in the county where the corporation's principal
office (or, if none in this state, its registered office) is located. If the
corporation is a foreign corporation without a registered office in this state,
it shall commence the proceeding in the county in this state where the
registered office of the domestic corporation merged with or whose shares were
acquired by the foreign corporation was located.
(c) The corporation shall make all dissenters (whether or not residents of
this state) whose demands remain unsettled, parties to the proceeding as in an
action against their shares and all parties must be served with a copy of the
petition. Nonresidents may be served by registered or certified mail or by
publication as provided by law.
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(d) The jurisdiction of the court in which the proceeding is commenced
under subsection (b) is plenary and exclusive. The court may appoint one (1) or
more persons as appraisers to receive evidence and recommend decision on the
question of fair value. The appraisers have the powers described in the order
appointing them, or in any amendment to it. The dissenters are entitled to the
same discovery rights as parties in other civil proceedings.
(e) Each dissenter made a party to the proceeding is entitled to judgment:
(1) For the amount, if any, by which the court finds the fair value
of the dissenter's shares, plus accrued interest, exceeds the amount paid by the
corporation; or
(2) For the fair value, plus accrued interest, of the dissenter's
after-acquired shares for which the corporation elected to withhold payment
under ss. 48-23-208.
ss. 48-23-302. Costs and attorney fees
(a) The court in an appraisal proceeding commenced under ss. 48-23-301
shall determine all costs of the proceeding, including the reasonable
compensation and expenses of appraisers appointed by the court. The court shall
assess the costs against the corporation, except that the court may assess costs
against all or some of the dissenters, in amounts the court finds equitable, to
the extent the court finds the dissenters acted arbitrarily, vexatiously, or not
in good faith in demanding payment under ss. 48-23-209.
(b) The court may also assess the fees and expenses of counsel and experts
for the respective parties, in amounts the court finds equitable against:
(1) The corporation and in favor of any or all dissenters if the
court finds the corporation did not substantially comply with the requirements
of part 2 of this chapter; or
(2) Either the corporation or a dissenter, in favor of any other
party, if the court finds that the party against whom the fees and expenses are
assessed acted arbitrarily, vexatiously, or not in good faith with respect to
the rights provided by this chapter.
(c) If the court finds that the services of counsel for any dissenter were
of substantial benefit to other dissenters similarly situated, and that the fees
for those services should not be assessed against the corporation, the court may
award to these counsel reasonable fees to be paid out of the amounts awarded to
the dissenters who were benefited.
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PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
Item 20. Indemnification of Directors and Officers
The Charter and Bylaws of BFC provide for the indemnification of BFC
directors, officers, employees and agents to the full extent permitted by the
Tennessee Business Corporation Act ("TBCA").
BFC's directors, officers, employees and agents who successfully defend
any threatened, pending or completed action, suit or proceeding to which they
were made a party by reason of their status as a director, officer, employee or
agent of BFC are entitled to indemnification against all expenses actually and
reasonable incurred by them in connection with such action, suit or proceeding.
Indemnification may be provided by BFC in other situations upon court
order or upon a determination by (1) a disinterested majority of the Board of
Directors of BFC; (2) independent legal counsel in a written opinion; or (3) a
majority of the shareholders of BFC that indemnification of the director,
officer, employee or agent is proper because such person met the applicable
standard of conduct specified by the TBCA and BFC's Charter and Bylaws.
Indemnification may be authorized if the individual (1) acted in good faith; (2)
reasonably believed that his conduct was in or not opposed to the best interest
of the corporation; and (3) in the case of any criminal proceeding, had no
reasonable cause to believe his conduct was unlawful. The termination of any
action, suit or proceeding by judgment, order, settlement, conviction, or plea
of nolo contendere or its equivalent, shall not, of itself, create a presumption
that the above standard of conduct has not been met.
No BFC director can be held personally liable to the corporation for
monetary damages for any breach of his fiduciary duty to the corporation;
provided that, a director may be liable (1) for breach of the director's duty of
loyalty to the corporation and its shareholders; (2) for acts or omissions not
in good faith or involving intentional misconduct or a knowing violation of law;
(3) for any action in which the director did not meet the applicable standard of
conduct; and (4) for any transaction from which the director derived an improper
personal benefit.
The TBCA provides that BFC may not indemnify a director in connection with
any action, suit or proceeding in which a judgment or other final adjudication
established the director's liability (1) to the corporation; (2) for receipt of
an improper personal benefit; (3) for breach of the director's duty of loyalty
to the corporation or its shareholders; (4) for acts or omissions not in good
faith or which involve intentional misconduct or a knowing violation of law; or
(5) for unlawful distributions pursuant to TBCA ss. 48-18-304.
In addition, the TBCA and BFC's Charter and Bylaws authorize BFC to
purchase officer and director liability insurance. BFC has officer and director
liability insurance in the amount of $5 million.
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Item 21. Exhibits and Financial Statement Schedules
(a) Exhibits
Number Description
------ -----------
2 Agreement and Plan of Merger between Smoky Mountain Bancorp,
Inc. and First Franklin Bancshares, Inc., dated March 19,
1998. (Included as Appendix A to the Joint Proxy
Statement/Prospectus).
3.1 Amended and Restated Charter of BankFirst Corporation, as
amended.
3.2 Bylaws of BankFirst Corporation.
4 Form of Common Stock Certificate.
5 Opinion and Consent of Ritchie & Eubanks PLLC regarding the
validity of the Common Stock registered hereunder.
8 Opinion of Miller & Martin LLP regarding tax matters.
10.1 BankFirst Corporation Incentive Stock Option Plan.
10.2 Smoky Mountain Bancorp, Inc. Employee Stock Ownership Plan,
as amended April 1, 1989.
10.3 Stock Option Plan of BankFirst dated March 14, 1995.
10.4 BankFirst Incentive Stock Option Plan dated October 11,
1995.
10.5 Agreement to Purchase Stock between BankFirst and Cutis
Mortgage Company; William H. Curtis and Gordon C. Curtis,
dated January 13, 1998.
10.6 Agreement and Plan of Merger of BankFirst and First National
Bank of Gatlinburg, dated January 16, 1997.
10.7 Acquisition Agreement between Smoky Mountain Bancorp, Inc.
and BankFirst, dated August 15, 1996.
10.8 BankFirst v. Electronic Communication Corporation, et. al.,
Partial Settlement Agreement, dated March 18, 1998.
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10.9 Lease Agreement between BankFirst and Clayton Homes, Inc.,
dated July 1, 1997.
10.10 Form of Letter Agreement between Smoky Mountain Bancorp,
Inc. and the Directors of First Franklin Bancshares, Inc.
16 Letter of Coopers & Lybrand, L.L.P. Regarding Change in
Certifying Accountant.
21 List of Subsidiaries.
23.1 Consent of Ritchie & Eubanks PLLC (included in Exhibit 5).
23.2 Consent of Miller & Martin LLP (included in Exhibit 8).
23.3 Consent of Crowe, Chizek and Company, LLP
23.4 Consent of Coopers & Lybrand, L.L.P.
23.5 Consent of G.R. Rush & Company, P.C.
23.6 Consent of Hazlett, Lewis & Bieter, P.L.L.C.
23.7 Consent of Professional Bank Services, Inc.
24 Powers of Attorney (included on the signature page of this
Registration Statement).
27 Financial Data Schedule.
99.1 Form of Proxy for Special Meeting of Shareholders of
BankFirst Corporation.
99.2 Form of Proxy for Special Meeting of Shareholders of First
Franklin Bancshares, Inc.
99.3 Fairness Opinion of Professional Bank Services, Inc.
99.4 Charter of First Franklin Bancshares, Inc.
99.5 Bylaws of First Franklin Bancshares, Inc.
(b) Financial Statement Schedules.
Not applicable.
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(c) Not Applicable.
Item 22. Undertakings
(a) 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.
(b) The Registrant undertakes that every prospectus (i) that is filed
pursuant to paragraph (a) 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.
(c) Insofar as indemnification for liabilities arising under the
Securities Act of 1933 may be permitted to directors, officers and controlling
persons of the Registrant pursuant to the foregoing provisions or otherwise, the
Registrant has been advised that in the opinion of the Securities and Exchange
Commission, such indemnification is against public policy as expressed in the
Act and is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by the
Registrant for expenses incurred or paid by a director, officer or controlling
person of the Registrant in the successful defense of any action, suit or
proceeding) is asserted by such director, officer or controlling person in
connection with the securities being registered, the Registrant will, unless in
the opinion of its counsel the matter has been settled by controlling precedent,
submit to a court of appropriate jurisdiction the question whether such
indemnification by it is against public policy as expressed in the Act and will
be governed by the final adjudication of such issue.
(d) The undersigned Registrant hereby undertakes that, for purposes of
determining any liability under the Securities Act of 1933, the information
omitted from the form of prospectus files as part of this registration statement
in reliance upon Rule 430A and contained in a form of prospectus filed by the
registrant pursuant to Rule 424(b)(1) or (4) or 497(h) under the Securities Act
shall be deemed to be part of this registration statement as of the time it was
declared effective.
The undersigned Registrant hereby further undertakes that, for purposes of
determining liability under the Securities Act of 1933, each post-effective
amendment that contains a form of prospectus shall be deemed to be a new
registration relating to the securities offered therein, and the offering of
such securities at that time shall be deemed to be the initial bona fide
offering thereof.
II-4
<PAGE>
(e) 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.
(f) 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-5
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
has duly caused this Registration Statement on Form S-4 to be signed on its
behalf by the undersigned, thereunto duly authorized in the City of Knoxville,
State of Tennessee on May 7, 1998.
BANKFIRST CORPORATION
By: /s/ Fred R. Lawson
-------------------------------------
Fred R. Lawson, President and Chief
Executive Officer
POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature
appears below hereby constitutes and appoints each of Fred R. Lawson and C.
David Allen, his true and lawful attorney-in-fact and agent, with full power of
substitution and resubstitution, for him and in his name, place and stead, in
any and all capacities, to sign any and all amendments to this Registration
Statement, and to file the same, with all exhibits thereto, and other documents
in connection therewith, with the Securities and Exchange Commission, granting
unto said attorney-in-fact and agent full power and authority to do and perform
each and every act and thing requisite and necessary to be done as fully to all
intents and purposes as he might or could do in person, hereby ratifying and
confirming all that said attorney-in-fact and agent, or his substitute or
substitutes, may lawfully do or cause to be done by virtue hereof.
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:
Name Position Date
---- -------- ----
/s/ James L. Clayton
- ------------------------------
James L. Clayton Chairman and Director May 7, 1998
/s/ Fred R. Lawson
- ------------------------------
Fred R. Lawson President, Chief Executive May 7, 1998
Officer and Director
/s/ C. David Allen
- ------------------------------
C. David Allen Chief Financial Officer May 7, 1998
/s/ C. Warren Neel
- ------------------------------
C. Warren Neel Director May 7, 1998
/s/ Charles Earl Ogle, Jr.
- ------------------------------
Charles Earl Ogle, Jr. Director May 7, 1998
/s/ Geoffrey A. Wolpert
- ------------------------------
Geoffrey A. Wolpert Director May 7, 1998
II-6
<PAGE>
EXHIBIT INDEX
Number Description Page
------ ----------- ----
2 Agreement and Plan of Merger between Smoky Mountain Bancorp,
Inc. and First Franklin Bancshares, Inc., dated March 19,
1998. (Included as Appendix A to the Joint Proxy
Statement/Prospectus).
3.1 Amended and Restated Charter of BankFirst Corporation, as
amended.
3.2 Bylaws of BankFirst Corporation.
4 Form of Common Stock Certificate.
5 Opinion and Consent of Ritchie & Eubanks PLLC regarding the
validity of the Common Stock registered hereunder.
8 Opinion of Miller & Martin LLP regarding tax matters.
10.1 BankFirst Corporation Incentive Stock Option Plan.
10.2 Smoky Mountain Bancorp, Inc. Employee Stock Ownership Plan,
as amended April 1, 1989.
10.3 Stock Option Plan of BankFirst dated March 14, 1995.
10.4 BankFirst Incentive Stock Option Plan dated October 11,
1995.
10.5 Agreement to Purchase Stock between BankFirst and Cutis
Mortgage Company; William H. Curtis and Gordon C. Curtis,
dated January 13, 1998.
10.6 Agreement and Plan of Merger of BankFirst and First National
Bank of Gatlinburg, dated January 16, 1997.
10.7 Acquisition Agreement between Smoky Mountain Bancorp, Inc.
and BankFirst, dated August 15, 1996.
10.8 BankFirst v. Electronic Communication Corporation, et. al.,
Partial Settlement Agreement, dated March 18, 1998.
<PAGE>
Number Description Page
------ ----------- ----
10.9 Lease Agreement between BankFirst and Clayton Homes, Inc.,
dated July 1, 1997.
10.10 Form of Letter Agreement between Smoky Mountain Bancorp,
Inc. and the Directors of First Franklin Bancshares, Inc.
16 Letter of Coopers & Lybrand, L.L.P. Regarding Change in
Certifying Accountant.
21 List of Subsidiaries.
23.1 Consent of Ritchie & Eubanks PLLC (included in Exhibit 5).
23.2 Consent of Miller & Martin LLP (included in Exhibit 8).
23.3 Consent of Crowe, Chizek and Company, LLP
23.4 Consent of Coopers & Lybrand, L.L.P.
23.5 Consent of G.R. Rush & Company, P.C.
23.6 Consent of Hazlett, Lewis & Bieter, P.L.L.C.
23.7 Consent of Professional Bank Services, Inc.
24 Powers of Attorney (included on the signature page of this
Registration Statement).
27 Financial Data Schedule.
99.1 Form of Proxy for Special Meeting of Shareholders of
BankFirst Corporation.
99.2 Form of Proxy for Special Meeting of Shareholders of First
Franklin Bancshares, Inc.
99.3 Fairness Opinion of Professional Bank Services, Inc.
99.4 Charter of First Franklin Bancshares, Inc.
99.5 Bylaws of First Franklin Bancshares, Inc.
EXHIBIT 3.1
RECEIVED
SECRETARY OF STATE
96 OCT 31 PM 2:09
RILEY DARNELL
SECRETARY OF STATE
AMENDED AND RESTATED CHARTER
OF
SMOKY MOUNTAIN BANCORP, INC.
TO THE SECRETARY OF STATE OF THE STATE OF TENNESSEE:
Pursuant to the provisions of the Section 48-20-107 of the Tennessee
Business Corporation Act, the undersigned corporation hereby amends and restates
its Charter of Incorporation to provide:
1. NAME. The name of the Corporation is SMOKY MOUNTAIN BANCORP, INC.
2. AUTHORIZED SHARES.
(a) The total number of shares of capital stock which the
corporation shall have authority to issue is 5,000,000, of which 3,000,000
shares shall be voting common stock of par value of Two Dollars and Fifty Cents
($2.50) per share (hereafter called the "Common Stock"), 1,000,000 shares shall
be non-voting common stock of par value of Two Dollars and Fifty Cents ($2.50)
per share (hereafter called the "Non-voting Common Stock"), and 1,000,000 shares
shall be preferred stock of par value of Five Dollars ($5.00) per share
(hereafter called the "Preferred Stock").
(b) The Preferred Stock may be issued from time to time by the
corporation in one or more series, with no voting powers, and such designations,
preferences and relative, participating, optional or special rights, and
qualifications, limitations or restrictions thereof, as shall be stated and
expressed in the resolution or resolutions providing for the issue of such stock
adopted by the Board of Directors of the corporation pursuant to authority to do
so which is hereby vested in the Board of Directors. Each such series of
Preferred Stock shall be distinctly designated. Except in respect of the
particulars fixed by the Board of Directors for each series as permitted hereby,
all shares of Preferred Stock so designated by the Board of Directors shall be
alike in every particular, except that shares of any one series issued at
different times may differ as to the dates from which dividends thereon shall be
paid. The preferences and relative, participating, optional and other special
rights of each such series and the qualifications, limitations and restrictions
thereof, if any, may differ from those of any and all other series at any time
outstanding and the Board of Directors of the corporation is hereby expressly
granted authority to fix, by resolutions, duly adopted prior to the issuance of
any shares of a particular series of Preferred Stock so designated by the Board
of Directors, the designations, limitations and restrictions thereof, if any
such series, including, without limitation, the following:
(1) The distinctive designation of and the number of shares of
Preferred Stock which shall constitute such series;
(2) The rate and time at which, and the terms and conditions
upon which, dividends, if any, on Preferred Stock of such series shall be paid
and the extent of the preference or relation, if any, of such dividends to the
dividends payable on any other series of Preferred Stock or any other class of
stock of the corporation.
(3) The right, if any, of the holders of Preferred Stock of
such series to convert the same into, or exchange the same for, shares of any
other class of stock or any series of any class of stock of the corporation and
the terms and conditions of such conversion or exchange.
1
<PAGE>
(4) Whether or not Preferred Stock of such series shall be
subject to redemption, and the redemption price or prices and the time or times
at which, and the terms and conditions upon which, Preferred Stock of such
series may be redeemed;
(5) The rights, if any, of the holders of Preferred Stock of
such series upon the voluntary or involuntary liquidation of the corporation;
(c) Except as otherwise provided in this Restated Charter of
Incorporation, the Board of Directors shall have authority to authorize the
issuance, from time to time, without any vote or other action by the
shareholders, of any or all shares of stock of the corporation of any class or
series at any time authorized and any securities convertible into or
exchangeable for any such shares and any options, rights or warrants to purchase
or acquire any such shares, in each case to such persons and on such terms
(including as a dividend or distribution on or with respect to, or in connection
with a split or combination of, the outstanding shares of stock of the same or
any other class or series) as the Board of Directors from time to time in its
discretion lawfully may determine, provided, that the consideration for the
issuance of shares of stock of the corporation (unless issued as such a dividend
or distribution or in connections with such a split or combination) shall not be
less than the per value of such shares. Shares so issued shall be fully paid
stock and the holders of such stock shall not be liable to any further call or
assessment thereon.
3. REGISTERED OFFICE AND REGISTERED AGENT.
(a) The address of the registered office of the corporation shall
be:
625 Market Street
Knoxville, Knox County, Tennessee 37902
(b) The registered agent of the corporation shall be:
Fred R. Lawson
625 Market Street
Knoxville, Knox County, Tennessee 37902
4. PRINCIPAL OFFICE. The address of the principal office of the
corporation shall be:
625 Market Street
Knoxville, TN 37902
5. PURPOSE. The corporation as a corporation for profit for any lawful
purpose not specifically prohibited to corporations under the applicable laws of
the State of Tennessee.
6. BOARD OF DIRECTORS. The property, affairs and business of the
corporation shall be managed by a Board of Directors. The number of directors
shall be as specified in the bylaws of the corporation, but shall be no fewer
than five (5) and no more than twenty-five (25). The Directors shall be elected
by the shareholders at the annual meeting or the shareholders and each Director
shall be elected for a term of one (1) year or until his successor shall be
elected and shall qualify to serve. A director must comply with the requirements
of 12 United States Code ss.72, which requires, among other things, that
directors be shareholders of the corporation.
7. POWERS OF BOARD OF DIRECTORS. In furtherance and not in limitation of
the powers conferred by statute, the Board of Directors of the corporation is
expressly authorized:
2
<PAGE>
(a) To make, alter, amend or repeal the bylaws, except as otherwise
expressly provided in any bylaw made by the holders of the capital stock of the
corporation entitled to vote hereon. Any bylaw may be altered, amended or
repealed by the holders of the capital stock of the corporation entitled to vote
thereon at any annual meeting or at any special meeting called for that purpose.
(b) To determine the use and disposition of any surplus and net
profits of the corporation, including the determination of the amount of working
capital required, to set apart out of any of the funds of the corporation,
whether or not available for dividends, a reserve or reserves for any proper
purpose and to abolish any such reserve in the manner in which it was created.
(c) To designate, by resolution passed by a majority of the whole
Board of Directors, one or more committees, each committee to consist of one or
more directors of the corporation, which to the extent provided in the
resolution designating the committee or in the bylaws of the corporation, shall,
subject to the limitations prescribed by law, have and may exercise all the
powers and authority of the Board of Directors in the management of the business
and affairs of the corporation, and may authorized the seal of the corporation
to be affixed to all papers which may require it. Such committee or committees
shall have such name or names as may be provided in the bylaws of the
corporation or as may be determined from time to time by resolution adopted by a
majority of the whole Board of Directors.
(d) To exercise, in addition to the powers and authorities
hereinbefore or by law conferred upon it, any such powers and authorities and do
all such acts and things as may be exercised or done by the corporation,
subject, nevertheless, to the provisions of the laws of the State of Tennessee
and of the Amended and Restated Charter and of the bylaws of the corporation.
(e) To establish bonus, profit sharing, stock option, or other types
of incentive compensation plans for the employees, including officers and
directors of the corporation; to fix the amount of profits to be shared or
distributed; and to determine the persons who participate in any such plan and
the amount of their respective participation;
(f) To authorize the issuance of bonds, debentures and other
evidences of indebtedness of the corporation and fix all the terms and
conditions thereof, including without limitations the convertibility thereof
into shares of any class or series of the capital stock of the corporation.
8. DENIAL OF PREEMPTIVE RIGHTS. No holder of any class of capital stock of
the corporation, whether now or hereafter authorized, shall be entitled, as such
as a matter of right, to subscribe for or purchase any part of any new or
additional issue of capital stock of the corporation of any class whatsoever, or
of securities convertible into exchangeable for capital stock of the corporation
of any class whatsoever, whether now or hereafter authorized, or whether issued
cash, property services.
9.DIRECTORS PROTECTED. A director shall be fully protected in relying in
good faith upon the books of account or other records of the corporation or
statements prepared by any of its officers or by independent public accountants
or by an appraiser selected with reasonable care by the Board of Directors as to
the value and amount of the assets, liabilities and/or net profits of the
corporation, or any other facts pertinent to the existence and amount of surplus
or other funds from which dividends might properly be declared and paid, or with
which the corporation's capital stock might properly be purchased or redeemed.
10. NO LIABILITY OF HOLDERS OF CAPITAL STOCK FOR CORPORATE DEBTS. The
holders of the capital stock of the corporation shall not be personally liable
for the payment of the corporation's debts and the private property of the
holders of the capital stock of the corporation shall not be subject to the
payment of debts of the corporation to any extent whatsoever.
3
<PAGE>
11. TRANSACTIONS WITH DIRECTORS AND OFFICERS. No contract or transaction
between the corporation and one or more of its directors or officers, or between
the corporation and any other corporation, partnership, association, or other
organization in which one or more of its directors or officers are directors or
officers, or have a financial interest, shall (illegible) solely for this
reason, or solely because the director or officer is present at or participates
in the meeting of the Board of Directors or committee thereof which authorizes
the contract or transaction, or solely because his or their votes are counted
for such purpose, if (1) the material facts as to his relationship or interest
and as to the contract or transactions are disclosed or are known to the Board
of Directors or the committee, and the Board of Directors or the committee in
good faith authorize the contract or transaction by the affirmative votes of a
majority of the disinterested directors, even though the disinterested directors
be less than a quorum, or (2) the material facts as to his relationship or
interest and as to the contract or transaction are disclosed, or are known to
the stockholders entitled to vote thereon, and the contract or transaction is
specifically approved in good faith by vote of stockholders, or (3) the contract
or transaction is fair as to the corporation as of the time it is authorized,
approved or ratified by the Board of Directors, a committee thereof or the
stockholders. Common or interested directors may be counted in determining the
presence of a quorum at a meeting of the Board of Directors or of a committee
which authorizes the contract or transaction.
12. INDEMNIFICATION OF DIRECTORS, OFFICERS AND OFFICERS AND OTHERS.
(a) Any person who was or is a party, or is threatened to be made a
party, to any threatened, pending or completed action, suit or proceeding,
whether civil, criminal, administrative or investigate, by reason of the fact
that he is or was a director, officer, employee or agent of the corporation, or
is was serving at the request of the corporation as a director, officer,
employee or agent (for purposes of this Article including trustee) of another
corporation, partnership, joint venture, trust or other enterprise, shall be
indemnified and held harmless by the corporation to the fullest extent legally
permissible under the Tennessee Business Corporation Act of the State of
Tennessee, as amended from time to time, against all expenses, liabilities and
losses (including attorneys' fees), judgments, fines and amounts paid in
settlement actually and reasonably incurred by such person in connection with
such action, suit or proceeding.
(b) To the extent that a director, officer, employee or agent of the
corporation has been successful on the merits or otherwise in defense of any
action, suit or proceeding referred to in paragraph (a) of this Section, or in
defense of any claim, issue or matter therein, he shall be indemnified by the
corporation against expenses (including attorneys' fees) actually and reasonably
incurred by him in connection therewith without the necessity of any action
being taken by the corporation other than the determination, in good faith, that
such defense has been successful. In all other cases wherein indemnification is
provided by this Article, unless ordered by a court, indemnification shall be
made by the corporation only as authorized in the specific case upon a
determination that indemnification of the director, officer, employee or agent
is proper in the circumstances because he has met the applicable standard of
conduct specified in this Article. Such determination shall be made either (1)
by the Board of Directors by a majority vote of a quorum consisting of directors
who were parties to such action, suit or proceeding, or (2) if such a quorum is
not obtainable, or even if obtainable, a quorum of disinterested directors so
directs, by independent legal counsel in a written opinion, or (3) by the
holders of a majority of the shares of capital stock of the corporation entitled
to vote thereon.
(c) The termination of any action, suit or proceeding by judgement,
order, settlement, conviction, or upon a plea of nolo contendere or its
equivalent, shall not, of itself, create a presumption that the person seeking
indemnification did not act in good faith and in a manner which he reasonably
believed to be in or not opposed to the best interests of the corporation, and,
with respect to any criminal action or proceeding, had reasonable cause to
believe that his conduct was unlawful. Entry of judgment by consent as part of a
settlement shall not be deemed a final adjudication of liability for negligence
or misconduct in the performance of duty, nor of any other issue or matter.
4
<PAGE>
(d) Expenses (including attorneys' fees) incurred by an officer or
director in defending any civil, criminal, administrative or investigative
action, suit or proceeding may be paid to the corporation in advance of the
final disposition of such action, suit or proceeding as authorized by the Board
of Directors in the specific case upon receipt of a demand by or on behalf of
such director or officer to repay such amount unless it shall ultimately be
determined that he is not entitled to be indemnified by the corporation.
Expenses (including attorneys' fees) incurred by other employees or agents of
the corporation in defending any civil, criminal, administrative or
investigative action, suit or proceeding may be paid by the corporation upon
such terms and conditions, if any, as the Board of Directors deems appropriate.
(e) No director shall be personally liable to the corporation or its
stockholders for monetary damages for any breach of fiduciary duty by such
director as a director. Notwithstanding the foregoing sentence, a director shall
be liable to the extent provided by applicable law (i) for breach of the
director's duty of loyalty to the corporation its stockholders, (ii) for acts or
omissions not in good faith or which involve intentional misconduct or a knowing
violation of law, (iii) pursuant to Section 48-18-502 of the Tennessee Business
Corporation Act or (iv) for any transaction from which the director derived an
improper seasonal benefit. No amendment to or repeal of this Section shall apply
to or have any effect on the liability or alleged liability of any director of
the corporation for or with respect to any acts or omissions of such director
occurring prior to such amendment.
(f) The indemnification and advancement of expenses provided by this
Article shall not be deemed exclusive of any other rights to which those seeking
indemnification or advancement may be entitled under any bylaw, agreement, vote
of stockholders or disinterested directors or otherwise, both as to action in an
official capacity and as to action in another capacity while holding such
office, and shall continue as to a person who has ceased to be a director,
officer, employee or agent and shall inure to the benefit of the heirs,
executors and administrators of such person.
(g) By action of the Board of Directors, notwithstanding any
interest of the directors in the action, the corporation may purchase and
maintain insurance, in such amounts as the Board of Directors deems appropriate,
on behalf of any person who is or was a director, officer, employee or agent of
the corporation, or is or was serving at the request of the corporation as a
director, officer, employee or agent of another corporation, partnership, joint
venture, trust or other enterprise against any liability asserted against him
and incurred by him in any such capacity, or arising out of his status as such,
whether or not the corporation shall have the power to indemnify him against
such liability under the provisions of this Article.
13. REMOVAL OF DIRECTORS. Any or all of the directors of the corporation
may be removed for cause by a vote of a majority of the entire Board of
Directors. "Cause" shall include, but not be limited to, a director willfully or
without reasonable cause being absent from any regular or special meeting for
the purpose of obstructing or hindering the business of the corporation.
14. AMENDMENTS. The provisions of this Amended and Restated Charter may be
further amended, altered, or repealed form time to time to the extend, and in
the manner prescribed by the laws of the State of Tennessee, and any additional
provisions so authorized may be added. All rights herein conferred on the
directors, officers, and shareholders are granted subject to this reservation.
15. APPROVAL BY STOCKHOLDERS. This Amended and Restated Charter was
adopted by the vote in excess of two-thirds (2/3) of the outstanding voting
common stock at the called Special Meeting of the Stockholders held on September
20, 1996.
5
<PAGE>
Dated: October 18th, 1996.
SMOKY MOUNTAIN BANCORP, INC.
By: /s/ Fred R. Lawson
------------------------------------
Fred R. Lawson, President
and Chief Executive Officer
6
<PAGE>
ARTICLES OF AMENDMENT
TO
AMENDED AND RESTATED CHARTER
OF
SMOKY MOUNTAIN BANCORP, INC.
TO THE SECRETARY OF STATE OF THE STATE OF TENNESSEE:
Pursuant to the provisions of Section 48-20-106 of the Tennessee Business
Corporation Act, the undersigned corporation adopts the following Articles of
Amendment to its Charter:
1. The name of the Corporation is SMOKY MOUNTAIN BANCORP, INC.
2. The amendment is to be effective when filed with the Secretary of
State.
3. Article 1 of the Charter shall be deleted in its entirety and replaced
with the following:
1. NAME. The name of the Corporation is BankFirst Corporation.
4. Article 2.(a) of the Charter shall be deleted in its entirety and
replaced with the following:
2. AUTHORIZED SHARES.
(a) The total number of shares of capital stock which the
corporation shall have authority to issue is 16,000,000, of which
15,000,000 shares shall be voting common stock of par value of Two Dollars
and Fifty Cents ($2.50) per share (hereafter called the "Common Stock"),
and 1,000,000 shares shall be preferred stock of par value of Five Dollars
($5.00) per share (hereafter called the "Preferred Stock").
5. The amendment was adopted by the vote of a majority of the outstanding
voting common stock at the Annual Meeting of the Stockholders held on April 27,
1998.
Dated: April 27, 1998
SMOKY MOUNTAIN BANCORP, INC.
<PAGE>
By: /s/ Fred R. Lawson
-----------------------------------
Fred R. Lawson, President
and Chief Executive Officer
EXHIBIT 3.2
BYLAWS
OF
BANKFIRST CORPORATION
<PAGE>
INDEX
ARTICLE I .............................................................. Page 1
Offices ............................................................. Page 1
Section 1........................................................... Page 1
Section 2........................................................... Page 1
ARTICLE II .............................................................. Page 1
Stockholders' Meetings................................................. Page 1
Section 1........................................................... Page 1
Section 2........................................................... Page 1
Section 3 .......................................................... Page 2
Section 4........................................................... Page 2
Section 5........................................................... Page 2
Section 6 .......................................................... Page 2
Section 7 .......................................................... Page 2
ARTICLE III.............................................................. Page 3
Board of Directors..................................................... Page 3
Section 1 .......................................................... Page 3
Section 2 .......................................................... Page 3
Section 3 .......................................................... Page 3
Section 4 .......................................................... Page 3
Section 5 .......................................................... Page 3
Section 6........................................................... Page 3
ARTICLE IV .............................................................. Page 4
Executive Committee.................................................... Page 4
Section 1 .......................................................... Page 4
Section 2 .......................................................... Page 5
Section 3 .......................................................... Page 5
Section 4 .......................................................... Page 5
ARTICLE V .............................................................. Page 6
Officers ............................................................. Page 6
Section 1 .......................................................... Page 6
Section 2 .......................................................... Page 7
Section 3 .......................................................... Page 7
Section 4 .......................................................... Page 7
Section 5 .......................................................... Page 7
Section 6 .......................................................... Page 7
Section 7 .......................................................... Page 7
<PAGE>
ARTICLE VI .............................................................. Page 7
Stock ................................................................. Page 7
Section 1 .......................................................... Page 7
Section 2 .......................................................... Page 7
Section 3 .......................................................... Page 7
Section 4........................................................... Page 7
Section 5 .......................................................... Page 8
ARTICLE VII.............................................................. Page 8
Dividends ............................................................. Page 8
Section 1............................................................ Page 8
Section 2............................................................ Page 8
ARTICLE VIII............................................................. Page 8
Indemnification of Directors, Officers and Others...................... Page 8
Section 1........................................................... Page 9
Section 2 .......................................................... Page 9
Section 3 .......................................................... Page 9
Section 4........................................................... Page 9
Section 5 .......................................................... Page 9
Section 6.......................................................... Page 10
Section 7 ......................................................... Page 10
ARTICLE IX.............................................................. Page 10
Fiscal Year........................................................... Page 10
ARTICLE X ............................................................. Page 10
Amendments............................................................ Page 10
<PAGE>
BYLAWS
OF
BANKFIRST CORPORATION
ARTICLE I
Offices
Section 1. The principal office of this Corporation shall be located at
625 Market Street, Knoxville, Knox County, Tennessee 37902.
Section 2. The Corporation may also have offices at such other place or
places within or without the State of Tennessee as the Board of Directors may
from time to time designate, or the business of the Corporation may require.
ARTICLE II
Stockholders' Meetings
Section 1. The annual meeting of the Stockholders shall be held on the
third Monday in April of each year at ten o'clock A.M. (or if said date be a
legal holiday, then on the next succeeding day not a legal holiday), for the
purpose of electing directors and for the transaction of such other business as
may properly be brought before the meeting. Such meetings may be held at the
principal office of the Corporation in the State of Tennessee or at any other
place, either within or without the State of Tennessee, as is designated from
time to time by the directors and stated in the notice of the meeting. The
secretary will give at least ten (10) days written notice to all stockholders
prior to such meeting, but any or all stockholders may waive such notice before,
at, or after any meeting.
Section 2. Special meetings of the stockholders may be called at any time
by the President, and shall be called by him at the request in writing or by the
vote of a majority of the directors or at the request in writing by the
stockholders of record holding not less than twenty-five (25%) percent of the
amount of capital stock of the Corporation issued and outstanding. Ten days
prior to the holding of special meetings, written notice of the time, place and
object of any such special meeting of the stockholders of shall be sent by the
Secretary to the stockholders of record at such address as appears on the stock
books of the Corporation, or, of no address be there given, then to the last
address of such stockholder known to any officer of the Corporation. Any or all
stockholders may waive such notice
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before, at, or after any meeting. Business transacted at all special meetings
shall be confined to the objects stated in the notice of or call therefor.
Section 3. At any meeting of the stockholders, a quorum shall be
constituted by the presence of the stockholders, in person or by proxy, holding
a majority of the outstanding stock. If, however, such majority is not present
or represented at any meeting of the stockholders, those who do attend many
adjourn from time to time without notice, other than an announcement at the
meeting, until the requisite amount of voting stock shall be present. At such
adjourned meeting at which the requisite amount of voting stock is represented,
any business may be transacted which might have been transacted at the meeting
originally called. Every meeting of the stockholders may adjourn from time to
time until its business is completed.
Section 4. Each voting common stockholder shall have one vote for each
share of stock registered in his or her name on the books of the Corporation.
Each voting common stockholder may vote in person or by written proxy for each
share of stock standing registered in his or her name on the fifth day preceding
the meeting. All elections and questions or other matters shall be decided by a
majority of the stock represented at such meeting.
Section 5. There shall be kept a record of the proceedings of all meetings
of the stockholders which shall be verified by the signatures of the President
and Secretary of the Corporation.
Section 6. The meeting of the stockholders shall be called to order by the
President, and he shall preside over the meeting throughout its proceedings.
Section 7. The Board of Directors may close the stock transfer books of
the Corporation for a period not exceeding fifty (50) days preceding the date of
any meeting of stockholders or the date for payment of any dividend or the date
for the allotment of rights or the date when any change or conversion or
exchange of stock shall go into effect; or, in lieu of closing the stock
transfer books, the Board of Directors may fix in advance a date, not exceeding
fifty (50) days preceding the date of any meeting of stockholders or the date
for the payment of any dividend or the date for the allotment of rights, or the
date when any change or conversion or exchange of stock shall go into effect, as
a record date for the determination of stockholders entitled to notice of, and
to vote at, any such meeting, or entitled to receive payment of any such
dividend, or to any such allotment of rights, or to exercise their rights in
respect of any such change, conversion or exchange of stock, and in such case
only such stockholders as shall be stockholders of record on the date so fixed
shall be entitled to such notice of, and to vote at, such meeting, or to receive
payment of such dividend, or to receive such allotment of rights, or to exercise
such rights, as the case may be, notwithstanding any transfer of any stock on
the books of the corporation after any such record date fixed as aforesaid.
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ARTICLE III
Board of Directors
Section 1. The business and the property of the Corporation shall be
managed and controlled by the Board of Directors, and such Board may exercise
all powers of the Corporation and do all such lawful acts and things as are not
by statute or by the Charter of Incorporation or by these Bylaws directed or
required to be exercised or done by the stockholders. The Board of Directors
shall consist of not less than five (5) nor more than twenty-five (25) persons.
Each director shall be elected for a period of one year and shall serve until
his or her successor shall be elected and qualified. The directors shall be
elected at each annual meeting of the stockholders.
Section 2. A majority of the Board of Directors shall constitute a quorum
and may conduct all of the business which the Board is empowered to conduct.
Section 3. The stockholders may, at any meeting called for such purpose,
remove any director and fill the vacancy thus created until the next annual
meeting. If a vacancy occurs in the Board from any cause other than removal by
the stockholders, such vacancy may be filled by the Board until the next annual
meeting of the stockholders.
Section 4. The annual meeting of the Directors shall be held on the third
Monday in April of each year at the time immediately after which the meeting of
the stockholders is ended or duly adjourned (or if said date be a legal holiday,
then on the next succeeding day not a legal holiday), for the purpose of
transacting such business as may be brought before the meeting. Such meetings
may be held at the principal office of the Corporation in the State of Tennessee
or at any other place, either within or without the State of Tennessee, as is
designated from time to time by the directors and stated in the notice of the
meeting. The Secretary will give at least ten (10) days written notice to all
Directors prior to such meeting, but any or all Directors may waive such notice
before, at, or after any meeting.
Section 5. Special meetings of the Board of Directors may be called by the
Chairman or by a majority of the directors on reasonable notice, written or
verbal. If a quorum is present, all matters may be decided by a majority of
those present at such meeting. Any director may waive notice of any meeting
either before, at, or after the meeting.
Section 6. Directors must comply with the requirements of 12 United States
Code ss.72 which requires, among other things, that Directors be stockholders of
the Corporation.
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ARTICLE IV
Executive Committee
Section 1. The Executive Committee of the Corporation shall consist of the
Chairman of the Board of the Corporation, the President of the Corporation and
three members of the Board of Directors of the Corporation so elected by such
Board to the Executive Committee. The Executive Committee shall have and may
exercise, when the Board is not in session, all the powers of the Board of
Directors in the management of the business and affairs of the Corporation and
shall have the power to authorize the execution of any and all documents for and
on behalf of the Corporation, but the Executive Committee shall not have the
power to elect members of the Board of Directors or to change the membership
thereof or to fill vacancies in the Executive Committee, or to make or amend
Bylaws of the Corporation. In addition to the foregoing powers and without in
any manner limiting the same, the Executive Committee is hereby specifically
granted the following powers:
(a) To issue shares of the capital stock of the Corporation and
within the limitations set forth in the Charter of Incorporation, to offer
shares of the capital stock of the Corporation for sale pro rata to the
stockholders of the Corporation or otherwise as the Executive Committee may from
time to time determine and to offer shares of the capital stock of the
Corporation in exchange for shares of stock of any bank, banking association,
trust company or other corporation of whatsoever nature on such basis as the
Executive Committee may from time to time determine.
(b) To declare dividends upon the capital stock of the Corporation
and to set aside such reserves as the Executive Committee may determine
advisable.
(c) To borrow money and to secure the repayment of same by pledge or
mortgage of any or all of the assets of the Corporation.
(d) To determine the terms and conditions upon which the
stockholders may examine the books of the Corporation and the extent of such
examination.
(e) To sell a part of the assets of the Corporation less than the
whole, or less than substantially the whole thereof.
(f) To direct the closing of the books for the transfer of shares of
the capital stock of the Corporation and to fix record dates for determination
of stockholders entitled to vote at meetings of the stockholders of the
Corporation or to receive dividends upon the capital stock of the Corporation,
or to receive rights to purchase additional shares of the capital stock of the
Corporation, or for any other purpose.
(g) To purchase property of any sort or description for the use of
the Corporation.
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(h) To appoint officers of the Corporation, excepting only the
Chairman of the Board of Directors, the President and the Vice Presidents, and
to determine the salary and compensation of all of the officers of the
Corporation.
(i) To authorize the signing of checks, notes, contracts and other
instruments for and on behalf of the Corporation.
(j) To propose and declare advisable amendments to the Charter of
Incorporation of the Corporation and to call meeting of the stockholders to
consider the same.
(k) To authorize the purchase by the Corporation of shares of its
capital stock.
(l) To fix the amount of or to waive a bond upon the issuance of
certificates of stock in lieu of lost, destroyed or stolen certificates.
(m) To change the principal office of the Corporation and the
resident agent in charge thereof.
(n) To authorize the issuance of scrip of the Corporation in lieu of
fractional shares and to determine the date upon which such script shall be and
become void.
(o) To make application for the listing of the shares of the capital
stock of the Corporation and to execute any and all instruments; and do all acts
and things necessary or proper in order to cause said shares so to be listed,
including the appointment of transfer agents and registrars.
(p) To appoint proxies and attorneys in fact for the Corporation to
vote upon shares of stock of a bank or other corporation owned by this
Corporation at meetings of stockholders of such bank or other corporation.
Section 2. A majority of the Executive Committee shall constitute a quorum
and may conduct all of the business which the Executive Committee is empowered
to conduct either in person or telephonically. Any action taken shall be
authorized by a majority vote of the Executive Committee.
Section 3. Any single member of the Executive Committee may, upon
reasonable notice written or verbal call a meeting of the Executive Committee
into session.
Section 4. The Board of Directors shall fill any vacancy occurring in the
Executive Committee. Members of the Executive Committee shall serve from the
time of their election until their successors shall have been elected by the
Board of Directors.
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ARTICLE V
Officers
Section 1. The officers of the Corporation may be:
(a) The Chairman of the Board. The Board of Directors may appoint
one of its own members to be Chairman of the Board. He shall preside at all
meetings of the Board of Directors. The Chairman of the Board shall supervise
the carrying out of the policies adopted or approved by the Board. He shall have
general supervisory powers, as well as the specific powers conferred by these
Bylaws. He shall also have and may exercise such further powers and duties as
from time to time may be conferred upon, or assigned to, him by the Board of
Directors;
(b) President. The President shall be the chief executive officer of
the Corporation, and subject to the Board of Directors, shall have general and
active management of the business of the Corporation and shall see that all
orders and resolutions of the Board are carried into effect. The President shall
convene and preside at all meetings of the stockholders and perform such duties
as may be assigned to him by the Board of Directors;
(c) Vice Presidents. The Vice Presidents shall have such powers and
perform such duties as may be assigned to them by the Board of Directors and the
President. The Board of Directors may appoint as many Vice Presidents as the
Board deems fit and proper, and they may be designated as Executive Vice
Presidents, Senior Vice Presidents, Vice Presidents, and Assistant Vice
Presidents;
(d) Secretary. The Secretary shall keep the minutes of all meetings
of the Board of Directors and stockholders. He shall give such notices to the
directors and stockholders as may be required by law or by these Bylaws. He
shall have charge of all books, papers, contracts and documents belonging to the
Corporation except those pertaining to the office of the Treasurer. He shall
attest to the signature of the Corporation by the President. He shall keep or
cause to be kept a record showing the name and address of each stockholder of
the Corporation and shall perform such other duties as may from time to time be
assigned to him by the Board of Directors;
(e) Treasurer. The Treasurer shall have custody of the corporate
funds and securities and shall keep full and accurate accounts of receipts and
disbursements in books belonging to the Corporation, and shall deposit all
monies and other valuable effects in the name and to the credit of the
Corporation;
He shall disburse the funds of the Corporation as may be ordered by
the Board, taking proper vouchers for such disbursements and shall render to the
President and directors at the regular meetings of the Board, or whenever they
may require it, an account of all his transactions as Treasurer and of the
financial condition of the Corporation; and
(f) Other Officers. Any and all other officers as may from time to
time be appointed by the Board of Directors.
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Section 2. All of the officers of this Corporation shall be under the
supervision of the Board of Directors, and the Board of Directors may designate
additional powers and duties for any or all of the officers of this Corporation.
Section 3. The officers of this Corporation shall be elected by the Board
of Directors at each annual meeting. The salaries of all officers and agents of
the Corporation shall be affixed by the authority of the Board of Directors. The
term of office for each officer shall be one year. Any vacancy which might occur
in any office shall be filled by the Board of Directors.
Section 4. As many as two of said officers may be held by the same person,
except that the offices of President and Executive Vice President, Senior Vice
President, and Vice President and those of President and Secretary shall not be
held by the same person at the same time.
Section 5. Officers need not be stockholders or directors of the
Corporation.
Section 6. Each officer shall hold his or her office until his or her
successor is elected and qualified.
Section 7. The Board of Directors may at any time remove any officer and
elect his or her successor.
ARTICLE VI
Stock
Section 1. The par value and the maximum number of shares of any class of
the Corporation's stock which may be issued and outstanding shall be set forth
from time to time in the Charter of Incorporation of the Corporation, as
amended.
Section 2. The certificates of stock of the Corporation shall be numbered
and shall be entered on the books of the Corporation as they are issued. They
shall exhibit the holder's name and number of shares and shall be signed by the
President and Secretary, which signatures may be affixed in person or by stamp
or by mechanical means.
Section 3. No shares shall be transferred without the consent of the Board
of Directors entered of record until the same is fully paid up or satisfactory
security given for the residue remaining unpaid. The person in whose name shares
of stock stand on the books of the Corporation shall be deemed the owner thereof
so far as the Corporation is concerned.
Section 4. Any person claiming a certificate of stock to be lost or
destroyed shall make an affidavit of that fact and give the Corporation a bond
in such sum as the directors may order to indemnify the Corporation against loss
or liability on account of the alleged loss of any such certificate. In
addition, the Board of Directors may, in its discretion, require that
advertisement be made for the lost certificate in such manner as it may direct.
A new certificate of the same tenor and
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for the same number of shares as the one alleged to be lost or destroyed may be
issued upon compliance with the foregoing provisions. A new certificate may be
issued without requiring any bond when, in the judgment of the directors, it
will be safe and proper so to do.
Section 5. No holder of stock shall be entitled as such, as a matter of
right, to any preemptive or preferential rights to subscribe for or purchase any
part of a new or additional issue of stock of the Corporation of any class
whatsoever, or of any notes, bonds, obligations or other securities, whether or
not the same be convertible into or exchangeable for stock of the corporation of
any class whatsoever, whether now or hereafter authorized or whether issued for
cash or other consideration, or by way of dividend.
ARTICLE VII
Dividends
Section 1. Dividends upon the capital stock of the Corporation, subject to
the provisions of the Charter of Incorporation, if any, may be declared by the
directors at any regular or special meeting, pursuant to and in accordance with
law. Dividends may be paid in cash, in property, or in shares of capital stock.
Section 2. Before payment of any dividend, there may be set aside out of
any funds of the Corporation available for dividends such sum or sums as the
directors from time to time, in their absolute discretion, think proper as a
reserve fund to meet contingencies, or for equalizing dividends, or for
repairing or maintaining any property of the Corporation, or for such other
purposes as the directors deem advisable.
ARTICLE VIII
Indemnification of Directors, Officers and Others
Section 1. Any person who was or is a party, or is threatened to be made a
party, to any threatened, pending or completed action, suit or proceeding,
whether civil, criminal, administrative or investigative, by reason of the fact
that he is or was a director, officer, employee or agent of the corporation, or
is or was serving at the request of the corporation as a director, officer,
employee or agent (for purposes of this Article including trustee) of another
corporation, partnership, joint venture, trust or other enterprise, shall be
indemnified and held harmless by the corporation to the fullest extent legally
permissible under the Tennessee Business Corporation Act of the State of
Tennessee, as amended from time to time, against all expenses, liabilities and
losses (including attorneys' fees), judgments, fines and amounts paid in
settlement actually and reasonably incurred by such person in connection with
such action, suit or proceeding.
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Section 2. To the extent that a director, officer, employee or agent of
the corporation has been successful on the merits or otherwise in defense of any
action, suit or proceeding referred to in paragraph (a) of this Section, or in
defense of any claim, issue or matter therein, he shall be indemnified by the
corporation against expenses (including attorneys' fees) actually and reasonably
incurred by him in connection therewith without the necessity of any action
being taken by the corporation other than the determination, in good faith, that
such defense has been successful. In all other cases wherein indemnification is
provided by this Article, unless ordered by a court, indemnification shall be
made by the corporation only as authorized in the specific case upon a
determination that indemnification of the director, officer, employee or agent
is proper in the circumstances because he has met the applicable standard of
conduct specified in this Article. Such determination shall be made either (1)
by the Board of Directors by a majority vote of a quorum consisting of directors
who were parties to such action, suit or proceeding, or (2) if such a quorum is
not obtainable, or even if obtainable, a quorum of disinterested directors so
directs, by independent legal counsel in a written opinion, or (3) by the
holders of a majority of the shares of capital stock of the corporation entitled
to vote thereon.
Section 3. The termination of any action, suit or proceeding by judgment,
order, settlement, conviction, or upon a plea of nolo contendere or its
equivalent, shall not, of itself, create a presumption that the person seeking
indemnification did not act in good faith and in a manner which he reasonably
believed to be in or not opposed to the best interests of the corporation, and,
with respect to any criminal action or proceeding, had reasonable cause to
believe that his conduct was unlawful. Entry of a judgment by consent as part of
a settlement shall not be deemed a final adjudication of liability for
negligence or misconduct in the performance of duty, nor of any other issue or
matter.
Section 4. Expenses (including attorneys' fees) incurred by an officer or
director in defending any civil, criminal, administrative or investigative
action, suit or proceeding may be paid by the corporation in advance of the
final disposition of such action, suit or proceeding as authorized by the Board
of Directors in the specific case upon receipt of a demand by or on behalf of
such director or officer to repay such amount unless it shall ultimately be
determined that he is not entitled to be indemnified by the corporation.
Expenses (including attorneys' fees) incurred by other employees or agents of
the corporation in defending any civil, criminal, administrative or
investigative action, suit or proceeding may be paid by the corporation upon
such terms and conditions, if any, as the Board of Directors deems appropriate.
Section 5. No director shall be personally liable to the corporation or
its stockholders for monetary damages for any breach of fiduciary duty by such
director as a director. Notwithstanding the foregoing sentence, a director shall
be liable to the extent provided by applicable law (i) for breach of the
director's duty of loyalty to the corporation or its stockholders, (ii) for acts
or omissions not in good faith or which involve intentional misconduct or a
knowing violation of law, (iii) pursuant to Section 48-18-502 of the Tennessee
Business Corporation Act or (iv) for any transaction from which the director
derived an improper personal benefit. No amendment to or repeal of this Section
shall apply to or have any effect on the liability or alleged liability of any
director of the corporation for or with respect to any acts or omissions of such
director occurring prior to such amendment.
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Section 6. The indemnification and advancement of expenses provided by
this Article shall not be deemed exclusive of any other rights to which those
seeking indemnification or advancement may be entitled under any By-Law,
agreement, vote of stockholders or disinterested directors or otherwise, both as
to action in an official capacity and as to action in another capacity while
holding such office, and shall continue as to a person who has ceased to be a
director, officer, employee or agent and shall inure to the benefit of the
heirs, executors and administrators of such person.
Section 7. By action of the Board of Directors, notwithstanding any
interest of the directors in the action, the corporation may purchase and
maintain insurance, in such amounts as the Board of Directors deems appropriate,
on behalf of any person who is or was a director, officer, employee or agent of
the corporation, or is or was serving at the request of the corporation as a
director, officer, employee or agent of another corporation, partnership, joint
venture, trust or other enterprise against any liability asserted against him
and incurred by him in any such capacity, or arising out of his status as such,
whether or not the corporation shall have the power to indemnify him against
such liability under the provisions of this Article.
ARTICLE IX
Fiscal Year
The fiscal year of the Corporation shall be the twelve (12) month calendar
year beginning January 1 of each year and ending December 31 of the same year.
ARTICLE X
Amendments
These Bylaws, or any part of the bylaws, may be amended or altered, or
repealed, or new bylaws adopted by the majority vote of all the members of the
Board of Directors at any regular meeting, or at a special meeting called for
that purpose, except as otherwise expressly provided in any bylaw made by the
holders of the capital stock of the corporation entitled to vote thereon. Any
bylaw altered, amended or repealed is subject to the power of the shareholders
to change such action at any regular meeting, or at any special meeting duly
convened after notice of the proposed change.
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CERTIFICATE
This is to certify that the foregoing is a true and correct copy of the
Bylaws of BankFirst Corporation, and that such Bylaws were duly adopted by the
Shareholders of the Corporation on the date set forth below.
Dated: 4/30/98 BANKFIRST CORPORATION:
By: /s/ Vickie Mynatt
-----------------------------
Secretary
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EXHIBIT 4
NUMBER SHARES
INCORPORATED UNDER THE LAWS OF THE STATE OF TENNESSEE
BANKFIRST CORPORATION
The Corporation is authorized to issue
15,000,000 Common Shares - Par Value $2.50 each
This Certifies that SPECIMEN is the owner of ___________________________________
fully paid and non-assessable Shares of the above Corporation transferable only
on the books of the Corporation by the holder hereof in person or by duly
authorized Attorney upon surrender of this Certificate properly endorsed.
In Witness Whereof, the said Corporation has caused this Certificate to be
signed by its duly authorized officers and to be sealed with the Seal of the
Corporation.
Dated____________________________
EXHIBIT 5
[Letterhead of Ritchie & Eubanks PLLC]
May 6, 1998
BankFirst Corporation
625 Market Street
Knoxville, TN 37902
RE: Registration Statement on Form S-4
723,791 Shares of Common Stock
Gentlemen:
We are counsel to BankFirst Corporation, a Tennessee corporation (the
"Company"), and have acted as such in the negotiation and preparation of the
Agreement and Plan of Merger between Smoky Mountain Bancorp, Inc. (The previous
corporate name of the Company) and First Franklin Bancshares, Inc., dated March
19, 1998 (the "Merger Agreement"). The Merger Agreement calls for the
registration and issuance of 723,791 shares of Common Stock of the Company (the
"Common Stock").
In connection with the following opinion, we have examined and have relied
upon such documents, records, certificates, statements and instruments as we
have deemed necessary and appropriate to render the opinion herein set forth.
Based upon the foregoing, it is our opinion that the Company's shares of
Common Stock, when and if issued and sold in accordance with the terms of the
Merger Agreement, a copy of which is annexed to the Registration Statement on
Form S-4 and filed with the Securitites and Exchange Commission, pursuant to the
Securitites Act of 1933, as amended (the "Registration Statement"), will be
legally and validly issued, fully-paid and nonassessable.
<PAGE>
The undersigned hereby consents to the filing of this opinion as Exhibit 5
to the Registration Statement and the reference to our name in the Registration
Statement under the caption of the prospectus entitled "Validity of Common
Stock".
Sincerely,
/s/ Wilson S. Ritchie
- ---------------------------
Wilson S. Ritchie
EXHIBIT 8
[Letterhead of Miller & Martin LLP]
May 6, 1998
Mr. L. A. Walker, Jr.
Chairman and Chief Executive Officer
First Franklin Bancshares, Inc.
204 Washington Avenue
P.O. Box 100
Athens, Tennessee 37371-0100
Dear Mr. Walker:
We have acted as special counsel to First Franklin Bancshares, Inc., a
corporation organized under the laws of Tennessee ("FFBS"), in connection with
the planned acquisition of FFBS by BankFirst Corporation, a corporation
organized under the laws of Tennessee ("BFC"), accomplished by means of a merger
of FFBS with and into BFC (the "Merger"), pursuant to the Agreement and Plan of
Merger, dated as of the 19th day of March, 1998, by and between FFBS and BFC
(the "Merger Agreement"). Capitalized terms used but not defined herein shall
have the meanings specified in the Proxy Statement-Prospectus pertaining to the
Merger.
We have assumed with your consent that:
(a) the Merger will be effected in accordance with the Merger
Agreement; and
(b) the representations contained in the letters of representation
from FFBS, BFC and certain management shareholders of FFBS to us will be true on
the Effective Date;
(c) all signatures and documents (whether originals or certified or
photostatic copies) are authentic and genuine;
<PAGE>
(d) all participants in the Merger possess adequate legal capacity;
and
(e) FFBS and BFC will comply with all reporting obligations with
respect to the Merger required under the Internal Revenue Code of 1986, as
amended (the "Code"), and the Treasury Regulations promulgated thereunder.
On the basis of the foregoing, and our consideration of such other matters
of fact and law as we have deemed necessary or appropriate, and subject to the
conditions and limitations expressed herein, it is our opinion for federal
income tax purposes that:
(i) the Merger will constitute a reorganization under Section 368(a)
of the Code; and
(ii) the statements contained in numbered paragraphs 1-7 of the
section of the Proxy Statement-Prospectus entitled "The Merger - Certain United
States Federal Income tax Consequences," are correct.
The tax consequences described above may not be applicable to FFBS
shareholders that (i) are subject to the alternative minimum tax; (ii) acquired
their FFBS Common pursuant to the exercise of an employee stock option or right
or otherwise as compensation; (iii) hold FFBS Common as part of a "straddle,"
"conversion transaction," "hedging transaction" or other risk reduction
transaction; or (iv) are insurance companies, securities dealers, financial
institutions, tax-exempt organizations, or foreign persons.
The foregoing opinion addresses only certain consequences of a corporate
reorganization for federal income tax purposes. We have not considered the
effect on this transaction, if any, of foreign, state and local taxes, sales and
use taxes, or any other taxes. Moreover, the discussion of United States federal
income tax consequences set forth above is based upon the Code, the Treasury
Regulations promulgated thereunder and administrative rulings and court
decisions effective as of the date hereof. All of the foregoing authorities are
subject to
<PAGE>
change, possibly with retroactive effect, and any such change could affect the
validity of the foregoing opinion.
The foregoing opinion is intended for and may be relied upon solely by
FFBS and its shareholders.
We hereby consent to the reference to us under the heading "THE MERGER --
Certain Federal Income Tax Consequences" in the Proxy Statement-Prospectus
pertaining to the Merger and to the filing of this opinion as an exhibit to the
related Registration Statement on Form S-4 filed with the Securities and
Exchange Commission. In giving this consent, we do not hereby admit that we are
within the category of persons whose consent is required under Section 7 of the
Securities Act of 1933, as amended, or the rules and regulations of the
Securities and Exchange Commission thereunder.
Very truly yours,
MILLER & MARTIN LLP
By: /s/ Kathryn Reed Edge
-----------------------------
Kathryn Reed Edge
Partner
EXHIBIT 10.1
BANKFIRST CORPORATION
INCENTIVE STOCK OPTION PLAN
BANKFIRST CORPORATION, a Tennessee bank holding corporation, with principal
offices at 625 Market Street, Knoxville, Knox County, Tennessee, is establishing
a STOCK OPTION PLAN as follows:
ARTICLE I
PLAN INTRODUCTION
1.1. Name. This Plan shall be known as the "BankFirst Corporation
Incentive Stock Option Plan." The Plan was formerly known as the "Smoky Mountain
Bancorp, Inc. Incentive Stock Option Plan".
1.2. Purpose. The purpose of the BankFirst Corporation Incentive Stock
Option Plan is to secure for the Corporation and its shareholders the benefits
which flow from providing selected directors, officers, and other key employees
of BankFirst Corporation and/or BankFirst, BankFirst Corporation's wholly owned
subsidiary (herein collectively referred to as "directors, officers, key
employees and/or employees") with the incentive inherent in common stock
ownership. By so encouraging and enabling such employees to become owners of the
Corporation's shares, the Corporation seeks to motivate, retain, and attract
those highly competent individuals upon whose judgment, initiative, leadership
and continued efforts the success of the Corporation in large measure depends.
1.3. Form of Plan. With of a view of providing these employees with an
attractive incentive for continued faithful service with the Corporation and/or
BankFirst, its wholly owned subsidiary, the Corporation intends the stock
options granted hereunder to qualify as incentive stock options within the
meaning of Code Section 422A of the Internal Revenue Code of 1986, as amended
(the "Code"), such that the exercise of the options will not be a taxable event
for the employee until such time that he or she actually disposes of the shares.
1.4. Effective Date. The effective date of the Plan is December 31, 1996,
the date of its approval by the Executive Committee of the Board, provided,
however, if the Plan is not approved by the shareholders of the Corporation at
the next Shareholders Meeting, or if the Plan is not approved by such
shareholders before December 31, 1997, the Plan shall terminate and any options
granted thereunder shall be void and have no force or effect, except as
expressly provided otherwise herein.
1.5. Definitions. As used herein, the following terms have the meanings
hereinafter set forth unless the context clearly indicates to the contrary:
(a) "Board" shall mean the Board of Directors of BankFirst
Corporation
<PAGE>
(b) "Committee" shall mean the Executive Committee of the Board of
Directors.
(c) "Corporation" shall mean BankFirst Corporation
(d) "Fair Market Value" shall mean the fair market value of the
stock established by the Board of Directors quarterly immediately prior to the
grant of any option hereunder.
(e) "Grantee" shall mean an employee of the Corporation to whom an
Award has been granted hereunder.
(f) "Optionee" shall mean a director, officer, or other key employee
to whom an Option has been granted hereunder.
(g) "Plan" shall mean the BankFirst Corporation Incentive Stock
Option Plan, the terms of which are set forth herein.
(h) "Stock" shall mean the Common Stock of BankFirst Corporation or,
in the event that such outstanding shares of stock are hereafter changed into or
exchanged for shares of a different stock or securities of the Corporation or
some other corporation or company, such other stock or securities.
(i) "Stock Option Agreement" shall mean the agreement between the
Corporation and the Optionee under which the Optionee may purchase Stock
hereunder.
ARTICLE II
PLAN PARTICIPATION, ADMINISTRATION, TERMINATION
2.1. Eligibility and Plan Participation. Any director, officer or other
key employee of the Corporation shall be eligible to participate in the Plan.
The Committee may grant Options to any eligible participant in accordance with
such determinations as the Committee from time to time in its sole discretion
shall make.
(a) Options Discretionary. The granting of options hereunder shall
be entirely discretionary with the Committee and nothing in the Plan shall be
deemed to give any director, officer, or other key employee of the Corporation
any right to participate in the Plan or to receive options.
2.2. Plan Administration. The Plan shall be administered by the Committee
in accordance with the following provisions:
<PAGE>
(a) Duties and Powers of Committee. Subject to the express
provisions of the Plan, the Committee shall have sole discretion and authority
to determine from among the directors and the Chief Executive Officer of the
Corporation those to whom and the time or times at which an Option may be
granted hereunder, and the number of shares of Stock to be subject to each
Option. The President and Chief Executive Officer shall in accordance with the
authorization of the Committee have sole discretion and authority to determine
from among the officers and key employees those to whom and the time or times at
which an Option may be granted hereunder, and the number of shares of Stock to
be subject to each Option. Subject to the express provisions of the Plan, the
Committee shall also have complete authority to interpret the Plan, to
prescribe, amend, and rescind rules and regulations relating to it, to determine
the details and provisions of each Stock Option Agreement, and to make all other
determinations necessary or advisable in the administration of the Plan.
(b) Majority Rule. A majority of the disinterested members of the
Committee shall constitute a quorum, and any action taken by a majority present
at a meeting at which a quorum is present or any action taken without a meeting
evidenced by a writing executed by a majority of the disinterested members of
the whole Committee shall constitute the action of the Committee.
(c) Corporation Assistance. The Corporation shall supply full and
timely information to the Committee on all matters relating to employees, their
employment, death, retirement, disability or other termination of employment,
and such other pertinent facts as the Committee may require. The Corporation
shall furnish the Committee with such clerical and other assistance as is
necessary in the performance of its duties.
ARTICLE III
STOCK OPTION SHARES
3.1. Stock Limitations. Subject to adjustment pursuant to the provisions
of Section 3.4 hereof, the number of shares of Stock which may be issued and
sold hereunder shall not exceed 500,000 shares. Such shares may be authorized
and unissued shares or shares issued and thereafter acquired by the
Corporation..
3.2. Options Granted Under the Plan. Shares of Stock with respect to which
an Option granted hereunder have been exercised shall not again be available for
Option hereunder. If Options granted hereunder shall terminate or expire for any
reason without being wholly exercised, new Options may be granted hereunder
covering the number of shares to which such Option termination relates.
3.3. Antidilution. In the event that the outstanding shares of Stock
hereafter are changed into or exchanged for a different number or kind of shares
or other securities of the Corporation or of another corporation by reason of
merger, consolidation, other reorganization, recapitalization, reclassification,
combination of shares, stock split-up, or stock dividend:
(a) The aggregate number and kind of shares subject to Options which
<PAGE>
may be granted hereunder shall be adjusted accordingly.
(b) Rights under outstanding Options granted hereunder, both as to
the number of subject shares and the Option price, shall be adjusted
accordingly.
(c) Where dissolution or liquidation of the Corporation or any
merger or combination in which the Corporation is not a surviving corporation is
involved, each outstanding Option granted hereunder shall terminate, but the
Optionee shall be fully vested and shall have the right, immediately prior to
such dissolution, liquidation, merger, or combination, to exercise his/her
Option in whole or in part.
The foregoing adjustments and the manner of application of the foregoing
provisions shall be determined solely by the Committee, and any such adjustment
may provide for the elimination of fractional share interests.
3.4. Termination, Amendment and Modification of the Plan. The Board of
Directors may at any time suspend, discontinue, or terminate the Plan, and may
at any time and from time to time and in any respect amend or modify the Plan
and make rules for its administration; provided, however, that no such action of
the Board without approval of the majority of the shareholders of the
Corporation may:
(a) Increase the total number of shares of Stock subject to the Plan
except as contemplated in Section 3.4 hereof;
(b) Withdraw the administration of the Plan from the Committee; and
provided further, that no termination, amendment, or modification of the Plan
shall in any manner (1) affect any Option theretofore granted under the Plan
without the consent of the Optionee or permitted transferee of the Option, or
(2) prevent Options issued under the Plan from being "incentive stock options"
as defined in Section 422A of the Code.
ARTICLE IV
STOCK OPTIONS
4.1. Stock Option Grants and Agreements. Each Option granted hereunder
shall be evidenced by minutes of a meeting or the written consent of the
Committee, and by a written Stock Option Agreement dated as of the date of grant
and executed by the Corporation and the Optionee. The Stock Option Agreement may
be in such form as shall be approved by the Board of Directors.
(a) Additional Terms. Such Stock Option Agreement and any Option
granted thereunder shall contain such other and additional terms, not
inconsistent with the terms of this Plan, which are deemed necessary and
desirable by the Board of Directors, the
<PAGE>
Committee, or by legal counsel to the Corporation, and such other terms shall
include those which, together with the terms of this Plan, shall constitute such
option as an "incentive stock option" within the meaning of Section 422A of
Code.
4.2. Option Price. The per share Option price of the Stock subject to each
Option shall be the Fair Market Value per share.
4.3. Option Vesting. No portion of the Option may be exercised unless
vested in accordance with the provisions of the Stock Option Agreement and this
Plan. Options shall vest at an annual rate of twenty percent (20%), allowing the
exercise of the stock options in accordance with the following schedule:
Date of Grant of Option Vesting Schedule
----------------------- ----------------
One (1) Year from Option Date 20%
Two (2) Years from Option Date 40%
Three (3) Years from Option Date 60%
Four (4) Years from Option Date 80%
Five (5) Years from Option Date 100%
"Vesting" as used in the Stock Option Agreement and this Plan shall act to give
the Optionee those rights determined by the Committee and no others. Both
unvested and vested portions of Options shall be subject to early termination.
All Optionees shall become fully vested upon the dissolution or liquidation of
the Corporation, or any merger or combination in which the Corporation is not a
surviving corporation.
4.4. Option Period. Each Option granted hereunder must be granted within
ten years from the effective date of the Plan.
4.5. Natural Termination and Expiration of Options. The period for the
exercise of each Option shall be determined by the Committee, but in no instance
shall such period exceed ten years from the date of grant of the Option.
4.6. Early Termination and Expiration of Options; Effect Thereof. Each of
the following shall be a "Terminating Event", the occurrence of which shall act
to terminate the Option prior to its natural expiration to the extent not
previously exercised:
<PAGE>
(i) Termination of Employment. The termination of employment or
directorship of the Optionee for cause, the date of termination being the
date the optionee is notified of the termination.
(ii) Reduction of Position. The reduction of the Optionee's position
for any reason whatsoever, the date of termination being the date the
Optionee is notified of the reduction. The Option shall not be affected by
any change in duties or position as long as the Optionee continues to be
an Optionee of the Corporation at the same or higher position as that held
on the Grant Date.
Upon the occurrence of a Terminating Event, the unvested portion of the Option
shall expire on the date of termination set forth above. To the extent that the
Optionee shall have been otherwise entitled to do so, the vested portion may
continue to be exercised by the Optionee (or, should the Optionee be deceased,
by the legatee or legatees of the Optionee under such Optionee's Last Will or by
such Optionee's personal representative or distributees), during a Transitory
Period to be determined by the Committee but in no event later than three (3)
months after the date of termination set forth above. No further vesting shall
occur during the Transitory Period, and the Option shall fully expire at the
conclusion of the Transitory Period.
4.7. Effect of Option Termination and Expiration. Once any Option granted
hereunder has terminated or expired, such Option shall be deemed irrevocably
expired. Regardless of any efforts by the Optionee to cure the event causing
such termination and/or expiration, such Option may not be revived unless
specifically reinstated in writing by an officer of the Corporation duly
authorized by disinterested members of the Board of Directors.
4.8. Option Exercise. Options may be exercised in whole at any time, or in
part from time to time with respect to whole shares only, to the extent that the
Option has vested, and within the period permitted for the exercise thereof.
Further, except as otherwise provided herein, the Option may not be exercised at
any time unless the Optionee shall have been in the continuous employ of the
Corporation from the date the Option is granted to the date of exercising the
Option.
(a) Method of Option Exercise. Any Option granted pursuant to this
Plan shall contain provisions established by the Board of Directors setting
forth the manner of exercise of such Option. Notwithstanding the foregoing,
Options shall be exercised by providing (1) written notice of intent to exercise
the Option with respect to a specified number of shares delivered to the
Corporation at its principal office in Knoxville, Tennessee, and (2) payment in
full to the Corporation at said office of the amount of the Option price for the
number of shares of Stock with respect to which the Option is then being
exercised, such payment to be in cash or certified funds made payable to the
order of the Corporation.
<PAGE>
4.9. Nontransferability of Option. No Option shall be transferred by an
Optionee otherwise than by Will or the laws of descent and distribution. During
the lifetime of an Optionee the Option shall be exercised only by him/her. No
transfer of an Option by the Optionee by Will or by the laws of descent and
distribution shall be effective to bind the Corporation unless the Corporation
shall have been furnished with written notice thereof and an authenticated copy
of the will and/or such other evidence as the Committee may deem necessary to
establish the validity of the transfer and the acceptance by the transferee or
transferees of the terms and conditions of such Option.
4.10. Rights as Shareholder. An Optionee or a transferee of an Option
shall have no rights as a shareholder with respect to any shares subject to such
Option prior to purchase of such shares by valid exercise of such Option as
provided herein and a stock certificate is issued and delivered by the
Corporation therefor.
4.11. Stock Certificates; Refunds. The Corporation shall issue and deliver
the certificate or certificates for shares of Stock purchased upon the valid
exercise of any Option granted hereunder or any portion thereof within fifteen
(15) business days of the exercise of the Option and payment therefor. In the
event the Option or a portion thereof is not validly exercised or is otherwise
not available in accordance with the terms of this Plan, the Corporation shall
refund the purchase price for that portion of the Option not validly exercised
or otherwise not available within fifteen (15) business days of the exercise of
the Option and payment therefor. No refund of the purchase price will be made
for a validly exercised Option after share certificates issue.
ARTICLE V
MISCELLANEOUS
5.1. Employment and Directorship. Nothing in the Plan or in any Option
granted hereunder or in any Stock Option Agreement relating thereto shall confer
upon any employee the right to continue in the employ of the Corporation, or the
director the right to serve on the Board of Directors.
5.2. Tax Obligations of Optionee. If for any reason the exercise of any
portion of any Option granted hereunder shall be determined to be a taxable
event, the Optionee shall be solely responsible for all employment related taxes
that may be incurred thereby.
5.3. Stock for Investment. The Stock Option Agreement shall provide that
the Optionee shall upon each exercise of a part or all of the Option granted
represent and warrant, or be deemed to represent and warrant, that his/her
purchase of stock pursuant to such Option is for investment only. At any time
the Board of Directors may waive the requirement of such a provision in any
Stock Option Agreement entered into under any stock option plan of the
Corporation.
5.4. Other Securities Law Restrictions. The Board of Directors shall
include Securities Law-related provisions in any Stock Option Agreement that, in
its discretion, is
<PAGE>
necessary to protect the interests of the Corporation.
5.5. Other Compensation Plans. The adoption of the Plan shall not affect
any other stock option or incentive or other compensation plans in effect for
the Corporation, nor shall the Plan preclude the Corporation from establishing
any other forms of incentive or other compensation for employees of the
Corporation.
5.6. Obligation to Sell Subject to Governmental Approval. The
Corporation's obligation to sell and deliver stock under the Plan in accordance
with the terms of this Agreement is at all times subject to all approvals of any
governmental authorities required in connection with the authorization,
issuance, sale or delivery of the stock.
5.7. Plan Binding on Successors. The Plan shall inure to the benefit of
and be binding upon the successors and assigns of the Corporation. The Plan
shall inure to the benefit of and be binding upon the respective heirs,
successors, administrators, and representatives as permitted herein.
5.8. Headings. The headings of each of the provisions hereof are for
convenience and reference only and are not substantive. They are not be used in
the interpretation hereof or to modify any of the terms or provisions of this
Plan.
5.9. Singular, Plural; Gender. Whenever used herein, nouns in the singular
shall include the plural and the masculine pronoun shall include the feminine
gender, and vice versa.
5.10. Shareholder Approval. The Plan will be submitted to the Common
shareholders of the Corporation at the next annual meeting of shareholders, for
approval by the holders of a majority of the outstanding shares of Common Stock
of the Corporation. If the Plan is not approved by the holders of a majority of
the outstanding shares of Common Stock of the Corporation by December 31, 1997,
then the Plan shall terminate and any Options granted hereunder shall be void,
forfeited and of no further force or effect.
Smoky Mountain Bancorp, Inc. Employee Stock Ownership Plan
As Amended and Restated Effective April 1, 1989
<PAGE>
Table of Contents
Page
----
INTRODUCTION .............................................................. 1
I Definitions ......................................................... 2
1.01 Accrued Benefit ..................................................... 2
1.02 Affiliated Group .................................................... 2
1.03 Beneficiary ......................................................... 2
1.04 Benefit ............................................................. 2
1.05 Board ............................................................... 2
1.06 Code ................................................................ 2
1.07 Company ............................................................. 2
1.08 Compensation ........................................................ 2
1.09 Disability .......................................................... 3
1.10 Effective Date ...................................................... 3
1.11 Effective Date of this Restatement .................................. 3
1.12 Eligible Employee ................................................... 3
1.13 Employee ............................................................ 4
1.14 Employer ............................................................ 4
1.15 Employer Securities ................................................. 4
1.16 Entry Date .......................................................... 4
1.17 ERISA ............................................................... 4
1.18 Fund ................................................................ 4
1.19 General Fund ........................................................ 4
1.20 Highly Compensated Employee ......................................... 4
1.21 Inactive Participant ................................................ 5
1.22 Individual Account .................................................. 5
1.23 Normal Retirement Age ............................................... 5
1.24 Normal Retirement Date .............................................. 5
2.25 Participant ......................................................... 6
1.26 Plan ................................................................ 6
1.27 Plan Administrator .................................................. 6
1.28 Plan Year ........................................................... 6
1.29 Regular Account ..................................................... 6
1.30 Restatement ......................................................... 6
1.31 Spouse .............................................................. 6
1.32 Stock Account ....................................................... 6
1.33 Termination of Employment ........................................... 6
1.34 Trust Agreement ..................................................... 6
1.35 Trust Fund .......................................................... 6
1.36 Trustee ............................................................. 6
1.36 Valuation Dare ...................................................... 6
1.37 Year of Service ..................................................... 6
II Eligibility to Participate .......................................... 9
2.01 Eligibility Requirements ............................................ 9
2.02 Participation upon Reemployment ..................................... 9
2.03 Inactive Participants ............................................... 9
2.04 Determination of Eligibility ........................................ 9
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<PAGE>
III Contributions ..................................................... 10
3.01 Employer Contributions ............................................ 10
3.02 Participant Contributions ......................................... 10
3.03 Maximum Annual Additions .......................................... 10
3.04 Combined Plan Limits .............................................. 12
IV Participant Accounts and Investment Funds ......................... 13
4.01 General ........................................................... 13
4.02 Value of Fund ..................................................... 13
4.03 Accounting Procedure .............................................. 13
4.04. Charges to Accounts ............................................... 14
4.05 Employer Contribution and Forfeiture Allocation ................... 14
4.06 Accounting for Stock Transactions ................................. 15
4.07 Adjustments for Distributions on Stock ............................ 15
4.08 Make-up Allocations ............................................... 15
4.09 Nonallocation Provision ........................................... 15
4.10 Accounting for Allocations ........................................ 16
V Vesting ........................................................... 17
5.01 Employer Contribution Account ..................................... 17
5.02 Restoration of Forfeitures ........................................ 17
5.03 Special Vesting Rules ............................................. 17
5.04 Determination of Vesting .......................................... 18
VI Distributions on Separation or Retirement ......................... 19
6.01 Events Allowing Distribution ...................................... 19
6.02 Form of Distribution .............................................. 19
6.03 Amount and Timing of Distributions ................................ 20
6.04 Methods of Distribution ........................................... 20
6.05 Required Form of Benefits ......................................... 21
6.06 Commencement of Benefits .......................................... 22
6.07 Distributions Pursuant to a Qualified Domestic Relations Order .... 22
6.08 Accounts of Former Employees ...................................... 22
6.09 Direct Rollover Distributions ..................................... 22
VII Employer Securities: Buy-Sell Rights .............................. 24
7.01 Right of First Refusal ............................................ 24
7.02 Put Option ........................................................ 24
7.03 Nonterminable Provisions .......................................... 25
VIII Top Heavy Provisions .............................................. 26
8.01 Determination of Top Heavy ........................................ 26
8.02 Vesting ........................................................... 27
8.03 Minimum Employer Contribution ..................................... 28
8.04 Impact on Maximum Benefits ........................................ 28
IX Plan Administration ............................................... 29
94-2A December 19, 1994
<PAGE>
9.01 Plan Administrator ................................................. 29
9.02 General Powers, Rights and Duties .................................. 29
9.03 Manner of Action ................................................... 30
9.04 Interested Committee Member ........................................ 30
9.05 Resignation or Removal of Committee Members ........................ 30
9.06 Nondiscrimination .................................................. 30
9.07 Delegation and Reliance ............................................ 30
9.08 Claims Procedure ................................................... 31
9.09 Plan Administrator's Decision Final ................................ 32
9.10 Standard of Review ................................................. 32
9.11 Information Required by Plan Administrator ......................... 32
9.12 Freedom from Liability ............................................. 32
X Amendment and Termination .......................................... 33
10.01 Amendment .......................................................... 33
10.02 Termination ........................................................ 33
10.03 Nonforfeitability on Termination, Partial Termination or
Discontinuance of Contributions .................................... 34
10.04 Allocation and Distribution of Assets on Termination ............... 34
XI Leveraged ESOP Provisions .......................................... 35
11.01 Loans from Disqualified Persons .................................... 35
11.02 Use of Loan Proceeds ............................................... 35
11.03 Collateral for Loan ................................................ 35
11.04 Suspense Account ................................................... 35
11.05 Default ............................................................ 35
11.06 Allocation of Employer Securities .................................. 35
11.07 Loan Payments ...................................................... 35
XII Diversification of Investments ..................................... 37
12.01 Diversification Election ........................................... 37
12.02 Qualified Election Period .......................................... 37
12.03 Fair Market Value .................................................. 37
12.04 De Minimis Amounts ................................................. 38
XIII General Provisions ................................................. 39
13.01 Fiduciaries ........................................................ 39
13.02 Non-Alienation ..................................................... 39
13.03 Facility of Payment ................................................ 39
13.04 No Contract ........................................................ 39
13.05 Waiver of Notice ................................................... 40
13.06 Absence of Guarantee ............................................... 40
13.07 Missing Persons .................................................... 40
13.08 Non-Diversion ...................................................... 40
13.09 Return of Contributions ............................................ 43
13.10 Litigation by Participants or Beneficiaries ........................ 40
XIV Adoption of Plan by Other Entities ................................. 42
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<PAGE>
14.01 Adoption of Plan ................................................... 42
14.02 Withdrawal from Plan ............................................... 42
XV Trust Fund and Trustees ............................................ 43
15.01 General Nature of Trustees' Responsibilities ....................... 43
15.02 Investment Powers .................................................. 43
15.03 Valuation .......................................................... 44
15.04 Other Powers ....................................................... 44
15.05 Voting Company Stock ............................................... 46
15.06 Prohibited Transaction ............................................. 46
15.07 Administration of the Plan ......................................... 46
15.08 Directing the Trustees ............................................. 47
15.09 Records and Reports ................................................ 47
15.10 Notification to Trustees ........................................... 47
15.11 Expenses ........................................................... 48
15.12 Trustees' Tenure and Succession .................................... 48
15.13 Successor Trustee .................................................. 48
15.14 Bond and Security .................................................. 49
15.15 Commingling ........................................................ 49
15.16 Indemnification of Trustees ........................................ 49
94-2A December 19, 1994
<PAGE>
INTRODUCTION
Establishment of the Plan
The First National Bank of Gatlinburg Profit Sharing Plan, a profit sharing
plan, was first established by the First National Bank of Gatlinburg on April 1,
1982. The Plan was amended to become an employee stock ownership plan effective
April 1, 1987. The employee stock ownership plan, which is now the Smoky
Mountain Bancorp, Inc. Employee Stock Ownership Plan (formerly, the First
National Bank of Gatlinburg Employee Stock Ownership Plan), has now been amended
and restated by Smoky Mountain Bancorp, Inc. (formerly First National Bank of
Gatlinburg) effective January 1, 1989 unless a special effective date is
required by law. The rights and benefits of Participants who are employed by the
Employer on or after the Effective Date of this Restatement shall be determined
as provided herein, except as specifically provided or changed by subsequent
amendment.
The Plan as amended is intended to be an employee stock ownership plan within
the meaning of Section 407(d)(6) of the Act and Section 4975(e)(7) of the Code,
which is intended to invest primarily in employer securities and consists of
this combined Plan and Trust.
The Plan has been amended and restated to comply with the Tax Reform Act of 1986
and certain other laws and regulations which have become effective since the
Plan was last amended. It is the intention of the Company that the Plan and the
Trust established pursuant to the Plan meet the requirements of ERISA and
qualify under Sections 401(a) and 501(a) of the Code.
Except as otherwise provided, the Plan and all matters relating thereto shall be
governed, construed and administered in accordance with the applicable laws of
the United States and the State of Tennessee.
94-2A December 19, 1994 1
<PAGE>
ARTICLE I
Definitions
Unless otherwise provided or required by the context, the following terms and
phrases as used in the Plan shall have the meanings as set forth in this Article
I. Masculine pronouns shall refer to men or women or both and nouns and pronouns
when stated in the singular shall include the plural and when stated in the
plural shall include the singular wherever appropriate. Any headings used herein
are included for ease of reference only, and are nor to be construed so as to
alter any term of the Plan.
1.01 Accrued Benefit means the sum of the balances in the various accounts
maintained with respect to a Participant pursuant to Article IV of the
Plan.
1.02 Affiliated Group means the Company and all other entities required to be
aggregated with the Company under Sections 414(b), (c), (m) or (o) of the
Code, but only for the period during which such other entity is required
to be so aggregated with the Company.
1.03 Beneficiary means a person or entity designated by the Participant to
receive benefits payable from the Plan as a result of the death of the
Participant. In the event no Beneficiary is designated, the Beneficiary
shall be the Participant's Spouse. If the Participant has no Spouse at the
time of death, or if no other person designated as Beneficiary survives
the Participant, the Beneficiary shall be the Participant's estate.
1.04 Benefit means Accrued Benefit.
1.05 Board means the Board of Directors of the Company.
1.06 Code means the Internal Revenue Code of 1986, as amended from time to
time. All references to specific sections of the Code are deemed to be
references to such sections as they may be amended or superseded.
1.07 Company means Smoky Mountain Bancorp, Inc., a corporation.
1.08 Compensation. The term "Compensation" as modified below, has the following
meaning for each respective purpose under the Plan:
(a) Plan Compensation. For purposes of determining contributions to the
Plan, Plan Compensation includes earned income, wages, salaries, and
commissions reported on Form W-2 which is paid to the Employee by
the Employer during the Plan Year. Plan Compensation will include
any amount which is contributed by the Employer pursuant to a salary
reduction agreement and which is not includible in the gross income
of the Employee under Sections 125, 402(e)(3), 402(h), 403(b), 457
or 414(h) of the Code.
(b) Section 415 Compensation. For the purpose of applying the
limitations of Section 415 of the Code, Section 415 Compensation
means the Participant's wages, within the meaning of Section 3401(a)
of the Code and all other payments of compensation to the
Participant by the Employer (in the course of the Employer's trade
or business) for which the Employer is required to furnish the
Participant a written statement under Sections 6041(d), 6051(a)(3)
and 6052 of the Code. This definition may be modified to exclude
amounts paid by the Employer as reimbursement for moving expenses
incurred by the Employee to the extent that at
94-2A December 19, 1994 2
<PAGE>
the time of payment it is reasonable to believe that these amounts
are deductible by the Employee under Section 217 of the Code.
Section 415 Compensation must be determined without regard to any
rules that limit the remuneration included in wages based on the
nature or location of the employment or the services performed.
(c) Total Compensation means Section 415 Compensation plus all amounts
contributed by an Employer on behalf of the Participant pursuant to
a salary reduction agreement which are not includible in the gross
income of the Participant under Sections 125, 402(e)(3), and
402(h)(1)(B) of the Code.
For Plan Years beginning on or after January 1, 1989, Compensation for the
purposes of this Section for any determination period shall not exceed the
limit on Compensation prescribed in Section 401(a)(17) of the Code (the
"Section 401 (a)(17) Limit"). For Plan Years beginning after December
31, 1988 and before January 1, 1994, this limitation shall be two hundred
thousand dollars ($200,000), adjusted at the same time and in the same
manner as under Section 415(d) of the Code, except that the first
adjustment to the limit is effected on January 1, 1990. For Plan Years
beginning on or after January 1, 1994, the limit is one hundred fifty
thousand dollars ($150,000), as adjusted for increases in the cost of
living in accordance with Section 401(a)(17)(B) of the Code. The cost of
living adjustment in effect on January 1 of any calendar year shall apply
to any determination period beginning in such calendar year. For this
purpose, the "determination period" is any period not exceeding twelve
(12) months over which Compensation is determined. If a determination
period consists of fewer than twelve (12) months, the Section 401(a)(17)
Limit will be multiplied by a fraction, the numerator of which is the
number of months in the determination period, and the denominator of which
is twelve (12).
In determining the Compensation of a Participant for purposes of this
limitation, the rules of Section 414(q)(6) of the Code shall apply, except
in applying such rules, the term "family" shall include only the Spouse of
the Participant and any lineal descendant of the Participant who has not
attained age nineteen (19) before the close of the year. If, as a result
of the application of such rules, the adjusted Section 401(a)(17) Limit is
exceeded, then, the limitation shall be prorated among the affected
individuals in proportion to each such individual's Compensation as
determined under this Section prior to the application of this limitation.
1.09 Disability means a medically determinable physical or mental impairment
incurred while a Participant was actively employed by a member of the
Affiliated Group and which prevents a Participant from performing the
duties of any substantially gainful activity and which can be expected to
result in death or to be of long-continued and indefinite duration. The
existence of a Disability shall be determined by the Plan Administrator on
the advice of a physician chosen by the Plan Administrator.
However, to the extent permitted by law, Disability shall not include any
injury or disease which (a) was contracted, suffered or incurred while the
Participant was engaged in, or resulted from his having engaged in, a
criminal enterprise, (b) was intentionally self-inflicted, or (c) arose
out of service in the armed forces of any country.
1.10 Effective Date means April 1, 1982.
1.11 Effective Date of this Restatement means January 1, 1989 unless a special
effective date is required by law.
1.12 Eligible Employee means an Employee, other than a leased employee,
employed by an Employer, provided that such person is not included in a
unit of employees covered by a
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collective bargaining agreement where retirement benefits were the subject
of good faith bargaining between the employee representative and the
Employer. The term Eligible Employee shall include an otherwise Eligible
Employee who is on an approved leave of absence.
1.13 Employee means any person employed by the Employer.
Employee also means a leased employee within the meaning of Section 414(n)
of the Code.
The term "leased employee" means any person (other than an employee of the
recipient) who pursuant to an agreement between the recipient and any
other person ("leasing organization") has performed services for the
recipient (or for the recipient and related persons determined in
accordance with Section 414(n)(6) of the Code) on a substantially
full-time basis for a period of at least one year, and such services are
of a type historically performed by employees in the business field of the
recipient employer. Contributions or benefits provided a leased employee
by the leasing organization which are attributable to services performed
for the recipient employer shall be treated as provided by the recipient
employer.
A leased employee shall not be considered an employee of the recipient if:
(i) such employee is covered by a money purchase pension plan providing:
(1) a nonintegrated employer contribution rate of at least ten percent
(10%) of compensation, as defined in Section 415(c)(3) of the Code, but
including amounts contributed pursuant to a salary reduction agreement
which are excludible from the employee's gross income under Sections 125,
402(e)(3), 402(h) or 403(b) of the Code, (2) immediate participation, and
(3) full and immediate vesting; and (ii) leased employees do not
constitute more than twenty percent (20%) of the recipient's nonhighly
compensated workforce.
1.14 Employer means the Company and any other incorporated member of the
Affiliated Group which adopts this Plan as provided in Article XIV.
1.15 Employer Securities means shares of the common stock of the Company having
a combination of voting power or dividend rights equal to or in excess of:
(a) that class of common stock of the Company having the greatest voting
power, and (b) that class of common stock of the Company having the
greatest dividend rights.
1.16 Entry Date means the date on which an Eligible Employee becomes a
Participant in the Plan. The Entry Dates are January 1 and July 1.
1.17 ERISA means the Employee Retirement Income Security Act of 1974, as
amended from time to time.
1.18 Fund means Trust Fund.
1.19 General Fund means all of the assets held by the Trustees in accordance
with this Plan, other than Employer Securities credited to the segregated
stock account described in Article IV.
1.20 Highly Compensated Employee means any Highly Compensated Active Employee
and any Highly Compensated Former Employee. A Highly Compensated Active
Employee means any Employee who performs services for the Employer during
the determination year and who, during the look-back year: received Total
Compensation from the Employer in excess of seventy-five thousand dollars
($75,000) (as adjusted pursuant to Section 415(d) of the Code); (ii)
received Total Compensation from the Employer in excess of fifty
94-2A December 19, 1994 4
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thousand dollars ($50,000) (as adjusted pursuant to Section 415(d) of the
Code) and was a member of the top-paid group for such year; or (iii) was
an officer of the Employer and received Total Compensation during such
year that is greater than fifty percent (50%) of the dollar limitation in
effect under Section 415(b)(1)(A) of the Code; provided, however, that if
no officer satisfies such compensation requirement during either a
determination year or look-back year, the highest paid officer for such
year shall be treated as a Highly Compensated Employee.
The term Highly Compensated Employee also means: (i) any Employee who is
described in the preceding sentence if the term "determination year" is
substituted for the term "look-back year" and who is one of the one
hundred (100) Employees who received the most Total Compensation from the
Employer during the determination year; and (ii) any Employee who is a
five percent (5%) owner at any time during the look-back year or
determination year.
For the purpose of this Section, the determination year shall be the Plan
Year. The look-back year shall be the twelve (12) month period immediately
preceding the determination year, or at the election of the Employer, may
be the calendar year ending with or within the determination year.
A Highly Compensated Former Employee includes any Employee who separated
from service (or was deemed to have separated) prior to the determination
year, performs no service for the Employer during the determination year,
and was a Highly Compensated Active Employee for either the separation
year or any determination year ending on or after the Employee's
fifty-fifth birthday.
If an Employee is, during a determination year or look-back year, a family
member of either a five percent (5%) owner who is an active or former
Employee or a Highly Compensated Employee who is one of the ten (10) most
Highly Compensated Employees ranked on the basis of Total Compensation
paid by the Employer during such year, then the family member and the five
percent (5%) owner or top-ten Highly Compensated Employee shall be
aggregated. In such case, the family member and five percent (5%) owner or
top-ten Highly Compensated Employee shall be treated as a single Employee
receiving Total Compensation and plan contributions or benefits equal to
the sum of such Total Compensation and contributions or benefits of the
family member and five percent (5%) owner or top-ten Highly Compensated
Employee. For purposes of this Section, family member includes the spouse,
lineal ascendants and descendants of the Employee or former Employee and
the spouses of such lineal ascendants and descendants.
Solely for the purposes of this Section 1.19, the term "Employer" shall
include the Employer as defined in Section 1.15 and any other member of
the Affiliated Group.
1.21 Inactive Participant means any Participant who is transferred to an
employee group not eligible to participate in the Plan, is transferred
directly to a member of the Affiliated Group which does not maintain the
Plan for its employees, or ceases to be an Employee but continues to be
entitled to a benefit under the Plan.
1.22 Individual Account means the separate accounts for the share of each
Participant in the Trust Fund, including either or both Regular Account
and the Stock Account.
1.23 Normal Retirement Age means the Participant's sixty-fifth (65th) birthday.
1.24 Normal Retirement Date means the first day of the month coinciding with or
next following the date the Participant attains his Normal Retirement Age.
94-2A December 19, 1994 5
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1.25 Participant means any Eligible Employee who satisfies the requirements of
Section 2.01 and who continues to be entitled to any benefits under the
Plan.
1.26 Plan means Smoky Mountain Bancorp, Inc. Employee Stock Ownership Plan as
it may be amended from time to time. The Plan shall be deemed to include
the Trust.
1.27 Plan Administrator means the person or persons appointed to oversee
operation and administration of the Plan pursuant to Article IX.
1.28 Plan Year means, effective January 1, 1991, the twelve (12) consecutive
month period beginning on any January 1 and ending on the next following
December 31. Prior to that date, the Plan Year was the twelve (12)
consecutive month period beginning on any April 1 with a short Plan Year
beginning on April 1, 1990 and ending on December 31, 1990.
1.29 Regular Account means an account established pursuant to Section 4.01(a).
1.30 Restatement means this Plan as amended and restated herein.
1.31 Spouse means the person to whom the Participant is legally married on the
applicable date or such person as designated in a qualified domestic
relations order under Section 414(p) of the Code.
1.32 Stock Account means an account established pursuant to Section 4.01(b).
1.33 Termination of Employment means separation from service with the Employer
other than pursuant to a leave of absence granted by the Employer in
accordance with a uniform and nondiscriminatory leave of absence policy.
An Employee on such an approved leave shall incur a Termination of
Employment at the expiration of the leave if the Employee does not return
to active employment prior to such time.
1.34 Trust Agreement means Article XV of the Plan and any and all amendments
and supplements thereto entered into between the Company and the Trustee.
1.35 Trust Fund means all sums of money, insurance or annuity contracts and all
other property including all earnings, appreciation, or additions, held
for the exclusive use of Participants and their Beneficiaries, from which
benefits provided by this Plan will be paid.
1.36 Trustee means the Trustee or any successors thereto appointed by the Board
to administer the Trust Fund.
1.36 Valuation Date means each December 31 or such other date or dates as may
be established by the Plan Administrator to assure proper administration
of the Plan. In no event shall there be less than one (1) Valuation Date
within any twelve (12) consecutive month period. The Plan Administrator
may direct a special Valuation Date in order to avoid prejudice either to
continuing Participants or to terminating Participants. Such special
Valuation Date shall be deemed equivalent to a regular Valuation Date.
Adjustments hereunder shall apply uniformly to all accounts hereunder.
1.37 Year of Service and other service measurements under the Plan shall be
determined utilizing the special definitions of this Section. Unless
otherwise specified, service shall be credited for employment with any
member of the Affiliated Group, and with the approval of the Board, may be
credited for employment with an Employer prior to the time it became a
member of the Affiliated Group.
94-2A December 19, 1994 6
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(a) A Year of Service means a Computation Period during which an
Employee is credited with at least one thousand (1,000) Hours of
Service.
(b) A one-year Break in Service means a Computation Period during which
an Employee fails to complete more than five hundred (500) Hours of
Service.
(c) A Computation Period for eligibility and vesting purposes means the
twelve (12) consecutive month period beginning on the date the
Employee first performs an Hour of Service for the Employer and each
successive twelve (12) consecutive month period.
(d) An Hour of Service means:
(1) Each hour for which an Employee is paid or entitled to payment
for the performance of duties for the Employer during the
applicable Computation Period.
(2) Each hour for which an Employee is paid, or entitled to
payment, by the Employer on account of a period of time during
which no duties are performed (irrespective of whether the
employment relationship has terminated) due to vacation,
holiday, illness, incapacity (including disability), layoff,
jury duty, military duty or leave of absence, except that
(A) Not more than five hundred one (501) Hours of Service
shall be credited on account of any single continuous
period during which the Employee performs no duties
(whether or not such period occurs in a single
Computation Period), and
(B) Hours of Service shall not be counted where such payment
is made or is due under a plan maintained solely for the
purpose of complying with applicable worker's
compensation, unemployment or disability insurance laws,
or solely to reimburse an Employee for medical or
medically-related expenses.
(3) Each hour for which back pay, irrespective of mitigation of
damages, is either awarded or agreed to by the Employer.
However, the same Hours of Service shall not be credited under
both (1) and (2) above in this Section. No more than five
hundred one (501) Hours of Service shall be credited for
payment of back pay on account of any single continuous
period, to the extent that such back pay is agreed to or
awarded for a period of time during which an Employee did not
or would not have performed duties.
(4) To the extent required by law and not otherwise credited under
another provision of this Section, each hour for which an
Employee on leave from employment to serve in the Armed Forces
of the United States is or would have been paid, directly or
indirectly, or entitled to payment under (1) above assuming
that but for such military service he would have been
regularly engaged in the performance of his duties. Such hours
shall be credited to the Computation Period in which he would
have been regularly engaged in the performance of his duties
but for such military service. Provided, however, that no
Hours of Service shall be credited under this Section unless
the Employee returns to active employment with a member of the
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Affiliated Group within the period provided by law for the
protection of his re-employment rights.
Hours of Service for reasons other than the performance of duties
shall be determined and credited in accordance with Department of
Labor Regulation Sections 2530.200b-2(b) and (c), which is
incorporated herein by reference.
(e) Special Maternity/Paternity Rule. Solely for the purpose of
determining whether a Break in Service has occurred, an Employee who
is absent from employment because of the Employee's pregnancy, the
birth of the Employee's child, the placement of a child with the
Employee in connection with the adoption of such child by the
Employee, or the need to care for such child for a period beginning
immediately following such birth or placement, shall be credited
with:
(1) The Hours of Service which otherwise would normally have been
credited to such individual but for such absence, or
(2) In any case in which the Plan Administrator is unable to
determine the hours described above, eight (8) Hours of
Service per day of such absence.
The above rule shall apply only if the Employee furnishes to the
Plan Administrator such timely information as it may require to
establish that the absence was for the above reasons and to
determine the number of days of such absence.
Such Hours of Service shall be credited in the Computation Period in
which the absence from work begins, if such credit is necessary to
prevent a Break in Service in that period. In any other case, such
Hours of Service shall be credited in the immediately following
Computation Period. In no event more than five hundred one (501)
Hours of Service be credited because of such pregnancy or placement.
(f) Family and Medical Leave. Solely to the extent required by law, an
Employee who is absent from employment because of a leave of absence
under the Family and Medical Leave Act of 1993 shall receive credit
for Hours of Service during such absence. Provided, however, that
the same Hours of Service shall not be credited under both this
subsection and any other provision of this Section.
(g) Hours of Service will be credited based upon relevant payroll
records maintained by the Company. However, any Employee for whom
records are not maintained shall be deemed to have worked and will
receive credit for forty-five (45) Hours of Service for each week in
which he would be credited with at least one (1) Hour of Service
under subsections (a)(1), (2), (3) and (4) above.
94-2A December 19, 1994 8
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ARTICLE II
Eligibility to Participate
2.01 Eligibility Requirements. Each Eligible Employee who was a Participant in
the Plan prior to the Effective Date of this Restatement shall continue to
be a Participant. Each other Eligible Employee shall become eligible to
participate in the Plan on the first Entry Date coinciding with or next
following the attainment of age twenty-one (21) and the completion of one
(1) Year of Service.
2.02 Participation upon Reemployment
(a) An Eligible Employee who met the eligibility requirements of Section
2.01, but who separated from service before the next Entry Date,
shall become a Participant immediately upon reemployment if he
returns to employment after such Entry Date but prior to incurring a
one-year Break in Service.
(b) A Participant who has incurred a one-year Break in Service shall be
eligible to participate in the Plan immediately upon performance of
an Hour of Service upon reemployment as an Eligible Employee.
2.03 Inactivity Participants. An Inactive Participant shall not be eligible to
make deposits or to have contributions made on his behalf. Except as
provided in Section 2.02, an Inactive Participant shall again become a
Participant in the Plan upon return to employment with an Employer as an
Eligible Employee.
2.04 Determination of Eligibility. The eligibility of an Employee shall be
determined by the Plan Administrator based upon information furnished by
the Employee or Employer, as appropriate. This determination shall be
conclusive and binding on all parties.
94-2A December 19, 1994 9
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ARTICLE III
Contributions
3.01 Employer Contributions.
(a) Subject to the limitations set forth in this Article, the Employer
shall make an Employer contribution with respect to each year in
such amount as its Board of Directors in its sole discretion shall
determine and authorize by resolution. If a contribution is to be
made with respect to a year, such resolution shall either specify a
fixed dollar amount of contribution or specify a definite formula by
which a fixed dollar amount can be determined by the time specified
below for payment of the contribution to the Trustee.
(b) Notwithstanding the above, the Employer's contribution for any
taxable year shall not exceed the maximum amount allowable as a
deduction to the Employer under Section 404 of the Code.
(c) The Employer's contribution for any Plan Year shall be paid to the
Trustee either in cash or in Employer Securities valued at the fair
market value thereof at the time of contribution. Such contributions
may be made in advance from time to time during the Plan Year, but
in any event, shall be paid to the Trustee in such period so that
such contribution on account of a Plan Year, but made after the end
of such year, is nevertheless deemed to have been made on the last
day of such Plan Year under the rules set forth in Section 404(a)(6)
of the Code, or any other statute of similar import, or any rule or
regulation thereunder. All contributions for each Plan Year shall be
deemed to be paid as of the close of business as of the last day of
the Plan Year.
(d) Allocations of Employer Contributions and forfeitures will not be
discontinued or decreased because of the Participant's attainment of
any age.
(e) The contribution may be made regardless of whether the Employer has
earnings or profits for the taxable year ending with or within the
Plan Year.
3.02 Participant Contributions. No Participant shall be required or permitted
to make contributions to the Plan or Trust.
3.03 Maximum Annual Additions.
(a) The maximum Annual Addition credited for a Limitation Year shall
equal the lesser of: (i) thirty thousand dollars ($30,000) or, if
greater, one-fourth (1/4) of the dollar limitation in effect under
Section 415(b)(1)(A) of the Code; or (ii) twenty-five percent (25%)
of the Participant's Section 415 Compensation for such Limitation
Year.
For the Plan Year beginning April 1, 1989, in determining the
limitation on Annual Additions with respect to any Participant, the
dollar amount specified in paragraph (a)(i) of this Section may be
increased by an amount not exceeding 100% of such dollar amount
applicable for any Plan Year so long as the increased amount is
represented by Company Stock contributed to the Trust, acquired with
Employer Contributions in cash or allocated due to repayment of a
loan under Section 11.01; provided, however, that such increased
dollar limitation shall be applicable only for
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a Plan Year in which not more than one-third (1/3) of the total
Employer Contributions are allocated to the accounts of Participants
who are Highly Compensated Employees. For the purposes of applying
the limitations on Annual Additions specified in this Plan and any
other plan maintained by the Employer or member of the Affiliated
Group, Employer Contributions made under this Plan from the suspense
account shall be counted first and shall not be reduced unless such
contributions alone exceed the limits specified herein.
For each Plan Year, Employer Contributions applied to the Trust to
pay interest on a loan under Section 11.01 prior to the due date of
the Employer's tax return (including extensions) and any financed
shares which are allocated as forfeitures shall not be included as
Annual Additions under this Section; provided, however, that the
provisions of this paragraph shall be applicable only for Plan Years
for which not more than one-third (1/3) of the Employer
Contributions applied to pay principal and interest on such a loan
are allocated to Highly Compensated Employees.
(b) Annual Addition means the sum credited to a Participant's accounts
under this Plan and under any plan maintained by any other member of
the Affiliated Group for any Limitation Year of:
(1) Employer contributions (including Employer contributions
allocated under a simplified employee pension), Employee
contributions, and forfeitures;
(2) Amounts allocated to an individual medical account as
described in Section 415(l)(1) of the Code which is part of a
pension or annuity plan maintained by the Employer; and
(3) Amounts which are attributable to post-retirement medical
benefits allocated to the separate account of a key employee
as described in Section 419A(d)(2) of the Code.
(c) Limitation Year means Plan Year, unless the Company elects a
different twelve (12) consecutive month period as provided by
Treasury Regulation Section 1.415-2(b).
(d) The following procedure shall apply if as a result of an allocation
of forfeitures, a reasonable error in estimating compensation or for
any other reason permitted by the Internal Revenue Service, the
Annual Addition of a Participant exceeds the maximum permitted under
Section 3.03(a) as of the end of a Limitation Year:
(1) If the Participant is covered by the Plan at the end of the
Limitation Year, the excess will be used to reduce Employer
contributions (including any allocation of forfeitures) for
such Participant in the next Limitation Year and each
succeeding Limitation Year, if necessary.
(2) if excess Annual Additions exist after application of
subsection (1) and the Participant as not covered by the Plan
at the end of the Limitation Year, such excess will be held
unallocated in a suspense account. The suspense account will
be used to reduce future contributions to the Plan by the
Employer (including any allocation of forfeitures) for all
remaining Participants in the next Limitation Year and each
succeeding Limitation Year, if necessary.
94-2A December 19, 1994 11
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A suspense account in existence at any time during the
Limitation Year pursuant to this Section 3.03(d) shall not
participate in the allocation of investment gains and losses.
(e) If a short Limitation Year is created because of an initial short
Plan Year or an amendment changing the Limitation Year to a
different twelve (12) consecutive month period, the maximum
permissible amount prescribed in (a) will nor exceed the defined
contribution dollar limitation multiplied by the following fraction:
Number of Months in the Short Limitation Year
---------------------------------------------
12
3.04 Combined Plan Limits.
(a) In addition to the limitations in the preceding Section and
notwithstanding other provisions of the Plan, in any case in which
an individual is a Participant in this Plan and in a defined benefit
plan qualified under Section 401(a) of the Code which at any time
was maintained by the Company or by any other member of the
Affiliated Group, the sum of the Defined Benefit Plan Fraction and
the Defined Contribution Plan Fraction for any year may not exceed
one (1). The Defined Benefit Plan Fraction and Defined Contribution
Plan Fraction shall be determined as provided in Section 415(e) of
the Code.
(b) In the event the above limits are exceeded in any Limitation Year,
the benefits of the applicable defined benefit plan shall be reduced
to the extent necessary to satisfy the requirements of subsection
(a). However, no benefit already accrued under the applicable
defined benefit plan shall be reduced for this purpose.
94-2A December 19, 1994 12
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ARTICLE IV
Participant Accounts and Investment Funds
4.01 General. The Plan Administrator shall establish and maintain a separate
Individual Account for each Participant which shall consist of the
following sub-accounts: (a) a separate Regular Account, which shall
reflect in terms of dollars and cents the Participant's share of the
Employer contributions, and forfeitures, if any, arising under the Plan
and held in the General Fund and the income, losses, appreciation, and
depreciation attributable thereto, and (b) a separate Stock Account for
each Participant, which shall reflect the number of Employer Securities
held for the account of such Participant.
4.02 Value of Fund. As soon as practicable after each Valuation Date, the
Trustees shall determine the fair market value of the General Fund as of
such Valuation Date. The fair market value of the General Fund means the
net value of all General Fund assets and liabilities as of the close of
business on the Valuation Date, including income, loss, appreciation, and
depreciation since the immediately preceding Valuation Date (the General
Fund does not include Employer Securities credited to the separate Stock
Accounts of Participants or to the suspense account); less the dollar
amount of Employer contributions, dividends on Employer Securities, if
any, allocated to Participant's Stock Accounts that are paid to the
Trustees for the period elapsed since the end of the Plan Year immediately
preceding such Valuation Date, and the dollar amount, if any, of
forfeitures of balances in the General Fund occurring as of such Valuation
Date.
The Trustees shall determine the fair market value of Employer Securities
in good faith based upon such factors as the Trustees in their sole
discretion deem appropriate; provided that all valuations of Employer
Securities with respect to activities carried on by the Plan shall be made
by an independent appraiser, in accordance with and subject to the
requirements of Section 401(a)(28)(C) of the Code and the Treasury
Regulations thereunder.
4.03 Accounting Procedure. As of each Valuation Date, within a reasonable time
after the fair market value of the General Fund on such date has been
determined and the amount of the Employer Contribution for the Plan Year
ending on such date, if any, has been determined, the Plan Administrator
shall:
(a) First, allocate dividends, if any, received respect to Employer
Securities allocated to the Participant's Stock Accounts since the
immediately preceding Valuation Date to the Regular Account of each
Participant in proportion to the Employer Securities allocated to
the Stock Accounts of the Participants;
(b) Next, charge to the proper accounts all payments or distributions
made from Participants' accounts that have not been charged
previously, in accordance with Section 4.04;
(c) Next, as of each Valuation Date, reduce account balances to reflect
forfeitures, if any, in accordance with Section 5.02;
(d) Next, adjust the Stock Accounts and the Regular Accounts to reflect
the acquisition and disposition, if any, of Employer Securities
since the immediately preceding Valuation Date, in accordance with
Section 4.06;
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(e) Next, adjust the net credit balances of the Regular Accounts of all
Participants in the General Fund upward or downward, pro rats, in
proportion to the net credit balances of the accounts before such
adjustment, so that the total of the net credit balances of such
accounts after such adjustment will equal the fair market value of
the General Fund as of such date; and
(f) Finally, as of each Regular Valuation Date allocate and credit
Employer contributions and forfeitures in accordance with Section
4.05.
The adjustments to reflect disbursements and earnings or losses since the
preceding Valuation Date (subsections (a), (b) (c) and (e)) shall be the
only procedures to be performed as of a special Valuation Date.
4.04. Charges to Accounts. The Plan Administrator shall charge to the
appropriate accounts of each Participant all payments and distributions
made under the Plan to or for the benefit of such Participant or his
Beneficiary since the immediately preceding Valuation Date.
4.05 Employer Contribution and Forfeiture Allocation. Subject to the
limitations of Article III, as of each Valuation Date the Plan
Administrator shall allocate to the account of each Participant who was
employed on such Valuation Date the Participant's ratable portion of the
Employer contribution and forfeitures for the Plan Year ending on such
date, determined as follows:
(a) Add the amount contributed by the Employer for such Plan Year to the
total forfeitures occurring during the Plan Year, which amount shall
be referred to as the total aggregate Employer Contribution; and
(b) Then allocate to the account of each Participant that portion of the
total aggregate Employer Contribution which the Compensation of that
Participant for that year bears to the total Compensation of all
such Participants for such year.
Cash contributions and cash forfeitures (and contributions of property
other than Employer Securities) shall be credited to the Regular Accounts
of the respective Participants. Contributions and forfeitures in the form
of Employer Securities shall be credited to the Stock Accounts of the
respective Participants, and the fair market value of such shares at the
time of the transfer of such shares to the Trustees shall be recorded as
the cost to the Trust of such shares. Dividends paid with respect to
shares of Employer Securities credited to the suspense account described
in Section 11.04 shall be applied by the Trustee in the same manner as
Employer Contributions made pursuant to Section 3.01, provided, however,
such dividends shall not be treated as an Employer Contribution for
purposes of Section 3.03 of this Plan nor Section 415 of the Code to the
extent permitted in Section 3.03.
A Participant must be an Eligible Employee on the last day of the Plan
Year and complete a Year of Service during the Plan Year in order to
receive an Employer Contribution with respect to such Plan Year. Provided,
however, that a Participant shall not be considered to be other than an
Eligible Employee on such date solely because the Participant is absent
from employment because of a leave of absence under the Family and Medical
Leave Act of 1993.
The requirement stated in the previous paragraph shall not apply to a
Participant who separated from service after age 65 or who died during the
Plan Year.
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4.06 Accounting for Stock Transactions. The Plan Administrator shall allocate
to the respective Stock Account of each Participant the shares released
from the suspense account in accordance with Section 11.04 on account of
debt payments made during the Plan Year ending on such date in the same
manner and proportion as if the shares had been contributed to the Plan
and Trust and allocated in accordance with Section 4.05. Such debt payment
shall then be debited to the corresponding Regular Account of each
Participant.
The Plan Administrator shall allocate to the respective Stock Account of
each Participant that portion of shares otherwise purchased by the Trust
Fund during the Plan Year ending on such date which the respective Regular
Account of each Participant as adjusted immediately before such allocation
bears to the total of the Regular Accounts of all Participants as so
adjusted. The cost of shares so allocated to the Stock Account of a
Participant shall be debited to the corresponding Regular Account of each
Participant. The cost of such shares shall be deemed to be the average
cost per share of all such shares of Employer Securities purchased by the
Trustees during such Plan Year. Shares purchased by the Trust Fund means
the net number of shares of Employer Securities so acquired by the Trust
Fund during the Plan Year (which excludes contributions to the Trust Fund,
shares acquired with the proceeds of a loan and shares distributed to
Participants, which are reflected in the share accounting pursuant to the
above sections). A net sale of Employer Securities for a Plan Year shall
be accounted for in an inverse manner to the above, except that proceeds
of such a sale shall be allocated to the respective Regular Accounts in
proportion to the respective Stock Accounts.
Distributions of cash in lieu of shares, including cash for fractional
shares, shall be treated for accounting purposes as a distribution of the
shares to the Participant and a purchase by the Trust of such shares from
the Participant at the fair market value per share (determined in
accordance with Section 4.02 of the Plan) as of the date of distribution.
4.07 Adjustments for Distributions on Stock. In the event of the receipt by the
Trust Fund of Employer Securities in kind as a stock split, stock dividend
or other distribution on stock, the number of shares so acquired with
respect to shares allocated to the Stock Accounts of Participants on the
record date of such a distribution shall be allocated to the respective
Stock Accounts of the Participants in proportion to the balances of the
Stock Accounts as of such record date; provided, however, that the Plan
Administrator, in its discretion, may direct the Employer or the Trustee
to distribute cash dividends directly to Participants in accordance with
the number of shares of Employer Securities allocated to their respective
Stock Accounts.
4.08 Make-up Allocations. In the event that a Participant who shall have been
entitled under the terms of this Plan to an allocation of the Employer
contributions to his account for a prior Plan Year was denied or failed to
receive such an allocation, and it is subsequently demonstrated or
discovered that such Participant shall have been entitled to such an
allocation, at the direction of the Plan Administrator, in addition to the
regular contribution for the Plan Year, the Employer shall contribute an
amount equal to the amount of the allocation to which such Participant was
otherwise entitled but failed to receive for the prior year and such
amount shall be allocated to the Individual Account of such Participant.
4.09 Nonallocation Provision. Notwithstanding any other provision of this Plan,
no portion of the assets of the Plan attributable to Employer Securities
which were acquired by the Plan in a sale to which section 1042 of the
Code applies may accrue or be allocated directly or indirectly during a
Nonallocation Period to: (1) any Employee who sells shares of Employer
Securities to the Plan in a transaction to which Section 1042 of the Code
applies; (2) any individual who is related to such an Employee within the
meaning of Section 267(b) of the Code, except as otherwise provided by
Section 409(n)(3)(A) of the Code;
94-2A December 19, 1994 15
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and (3) any other individual owning (either directly or indirectly) more
than twenty-five percent (25%) of (i) any class of outstanding stock of
the Company, or any corporation which is a member of the same controlled
group of corporations within the meaning of Section 409(1)(4) of the Code,
or (ii) the total value of any class of outstanding stock of such
corporation.
For purposes of the preceding paragraph, an individual shall be treated as
twenty-five percent (25%) shareholder (1) at any time during the one (1)
year period ending on the date of the sale to which Section 1042 of the
Code applies or (2) on the dates as of which any Employer Securities sold
to the Plan in a transaction to which Section 1042 of the Code applies are
allocated to the Individual Accounts of Participants. In the event the
individual's situation is described in number (1) of the preceding
sentence, such individual shall continue to be treated as a twenty-five
percent (25%) shareholder until all of the Employer Securities acquired by
the Plan pursuant to the transaction to which Section 1042 of the Code
applies have been allocated. If, however, an individual who first becomes
a twenty-five percent (25%) shareholder at such time as described in
number (2) (and not as described in number (1)) above, such an individual
shall only be treated as a twenty-five percent (25%) shareholder with
respect to those Employer Securities acquired in the transaction to which
Section 1042 of the Code applies which are allocated as of the date or
dates on which an individual is a twenty-five percent (25%) shareholder.
Nonallocation Period refers to the period beginning on the date of the
sale of Employer Securities and ending on the later of: (i) the date which
is ten (10) years after the date of sale or (ii) the date of the Plan
allocation attributable to the final payment of acquisition indebtedness
incurred in connection with such a sale.
4.10 Accounting for Allocations. The Trustee shall adopt accounting procedures
for the purpose of making the allocations to Participant's Accounts
provided for in this Section. The Trustee shall maintain adequate records
of the aggregate cost basis of Company Stock and of each class of Company
Stock allocated to each Participant's Stock Account. From time to time,
the Trustee may modify the accounting procedures for the purposes of
achieving equitable and nondiscriminatory allocations among the accounts
of Participants in accordance with the general concepts of the Plan, the
provisions of this Article and the requirements of the Code and ERISA.
94-2A December 19, 1994 16
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ARTICLE V
Vesting
5.01 Employer Contribution Account. Each Participant shall have a
nonforfeitable right to the entire value of his Employer Contribution
Account upon completion of four (4) Years of Service. In addition, a
Participant shall be fully vested in his Employer Contribution Account
upon death, Disability or attainment of Normal Retirement Age if such
event occurs while he is employed by a member of the Affiliated Group.
Furthermore, the Participant shall be fully vested upon termination of the
Plan or upon the occurrence of another event described in Section 13.03,
if such event occurs prior to the time the Participant has incurred a
forfeiture.
If a Participant separates from service prior to acquiring a
nonforfeitable tight to the entire value of his Employer Contribution
Account, the nonvested portion of such Account shall be forfeited upon the
earlier to occur of (a) or (b) below where:
(a) is the date on which the Participant receives full payment of his
vested Accrued Benefit upon termination of participation in the Plan
within the meaning of Treasury Regulation Section
1.411(a)-7(d)(4)(ii), and
(b) is the date on which the Participant incurs five (5) consecutive
one-year Breaks in Service.
Amounts forfeited shall be treated as coming first from a Participant's
Regular Account and then from his Stock Account.
Such forfeitures shall be allocated to other Participants' Employer
Contribution Accounts in the manner specified in Section 3.02 for
allocating Employer Contributions.
5.02 Restoration of Forfeitures. If a Participant whose Employer Contribution
Accounts have been forfeited under Section 5.01 returns to service prior
to incurring five (5) consecutive one-year Breaks in Service, the dollar
amount forfeited shall be restored to the Participant's Employer
Contribution Account at the time of reemployment. The funds for such
restoration shall be taken from any available forfeited amounts or, if
such forfeited amounts are insufficient to provide the restoration, shall
be provided by Employer contribution.
5.03 Special Vesting Rules.
(a) Vesting in Prior Contributions. If a Participant returns to
employment after incurring five (5) consecutive one-year Breaks in
Service, his Years of Service subsequent to such five (5) year
period shall not be taken into account for purposes of determining
whether the Participant is vested in his Employer Contributions
which accrued before such five (5) year period.
(b) Vesting in Subsequent Contributions. A Participant who does not have
a nonforfeitable right to benefits derived from contributions
described in Section 3.01, and whose number of consecutive one-year
Breaks in Service equaled or exceeded the greater of five (5) or the
aggregate number of Years of Service before such period shall be
treated as a new Employee upon reemployment, and any prior Years of
Service shall not be taken into account for vesting purposes.
94-2A December 19, 1994 17
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(c) Predecessor Employers. Years of Service for a predecessor Employer
as that term is defined in Code Section 414(a)(1) shall be taken
into account for vesting purposes.
(d) Prior Plan. Subject to subsection (b), as of March 31, 1987, Years
of Service for vesting earned under the Plan as in effect on that
date shall be included in a Participant's Years of Service for
vesting under the Plan after that date.
5.04 Determination of Vesting. The Plan Administrator shall determine whether
an Employee is fully vested based upon information furnished by the
Employee or Employer, as appropriate. This determination shall be
conclusive and binding on all parties.
94-2A December 19, 1994 18
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ARTICLE VI
Distributions on Separation or Retirement
6.01 Events Allowing Distribution. A Participant shall be eligible to receive a
distribution of his vested Accrued Benefit upon reaching Normal Retirement
Date, death, separation from service or Disability; provided, however,
that the eligibility of a Participant to receive a distribution on account
of a separation from service shall be waived if he returns to employment
with an Employer prior to receiving such distribution. A Participant shall
also be eligible to receive a distribution of his vested Accrued Benefit
upon termination of this Plan.
Distributions shall be payable as provided in Sections 6.02 and 6.03.
6.02 Form of Distribution.
(a) Subject to the conditions and limitations set forth in other
provisions of this Plan, distributions to or with respect to a
Participant shall be made
(1) In one single sum or
(2) In sixty (60) equal annual installments over a period not to
exceed five (5) years.
If a Participant fails to elect a form of distribution, such
distribution will be made in the form specified in subparagraph (1).
Notwithstanding any other provision of the Plan, if the value of the
vested Accrued Benefit did not exceed the amount prescribed in
Section 411(a)(11)(A) of the Code (currently three thousand five
hundred dollars ($3,500)) at the time of this or any prior
distribution, the distribution shall be made in the form of a single
sum.
(b) If a Participant dies while legally married prior to the
distribution of his vested Accrued Benefit, the value of such
Benefit as determined under Section 6.03 below shall be distributed
by payment in a single sum to the Participant's surviving Spouse
unless the Participant had made a Qualified Election prior to his
death. If a Qualified Election had been made, payment shall be made
in a single sum to or for the benefit of the Participant's
Beneficiary or Beneficiaries.
A Qualified Election means an election made by the Participant that
his Accrued Benefit will not be distributed in full to the surviving
Spouse, provided that:
(1) The Participant's Spouse consents in writing to such election
and to the designation of the alternate Beneficiary and
acknowledges the effect of such election on forms provided by
and filed with the Plan Administrator and witnessed by a Plan
representative or a notary public; or
(2) It is established that the Participant has no Spouse, that
such Spouse cannot be located, or that such other
circumstances exist for which no consent is required under the
Code or applicable regulations thereunder.
Any consent by a Spouse (or establishment that consent of a Spouse
may not be obtained) shall be effective only with respect to such
Spouse. Spousal consent
94-2A December 19, 1994 19
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shall be irrevocable unless the Participant revokes his Qualified
Election in order to designate another nonspouse Beneficiary. In
such case, a new Qualified Election must be made in accordance with
this paragraph.
(c) Distributions will be made in the discretion of the Plan
Administrator in whole shares of Company Stock or in cash, unless
the Participant requests in writing of the Plan Administrator, that
distribution be in Company Stock within such reasonable time before
such distribution as the Plan Administrator requires. Any balance in
a Participant's Regular Account will be applied to acquire for
distribution the maximum number of whole shares of Company Stock
available at the then fair market value. Any unexpended balance not
sufficient to purchase a whole share will be distributed in cash. If
Company Stock is not available for purchase by the Trustee, then the
Trustee shall hold such balance until Company Stock is acquired and
then make such distribution. In no event shall the Trustee be
required to purchase Company Stock for more than the fair market
value of such Company Stock. The Trustee will make distribution from
the Trust only on instructions for the Plan Administrator.
6.03 Amount and Timing of Distributions. A Participant eligible to receive a
distribution in accordance with Section 6.01 shall be entitled to receive
the value of his vested Accrued Benefit as of the Valuation Date which
immediately precedes the date of the distribution.
Such distribution shall be made to the Participant or his Beneficiary, as
the case may be, in the forms described in Section 6.02 above, within a
reasonable time after the close of the Plan Year in which the event
described in Section 6.01 occurred. However, if a Participant terminates
for a reason other than retirement, death or Disability, the distribution
shall be made within a reasonable time after the close of the Plan Year in
which the Participant incurs a Break in Service. If the Participant's
vested Accrued Benefit is zero, the Participant shall be deemed to have
received a distribution of such vested benefit.
Notwithstanding the above, if the value of the Participant's vested
Accrued Benefit exceeded the amount prescribed in Section 411(a)(11)(A) of
the Code (currently three thousand five hundred dollars ($3,500)) at the
time of this or any prior distribution, no distribution shall be made
hereunder prior to the Participant's Normal Retirement Date without the
consent of the Participant.
In the event the Participant does not consent to such distribution, his
vested Accrued Benefit shall be distributed in accordance with this
Article VI following the earlier of the last day of the Plan Year in which
the Participant attains his Normal Retirement Age or dies. Such
distribution shall be in the automatic form of benefit under the Plan.
6.04 Methods of Distribution.
(a) The provisions of this Section will apply to any distribution of a
Participant's interest and will take precedence over any
inconsistent provisions of this Plan.
(b) All distributions required under this Section shall be determined
and made in accordance with the regulations under Section 401(a)(9)
of the Code, including the minimum distribution incidental benefit
requirement of Proposed Treasury Regulation Section 1.401(a)(9)-2.
(c) Distribution of benefits, if not made in a single sum, shall be made
over one of the following periods (or a combination thereof): (i)
the life of such Participant; (ii) the lives of such Participant and
a designated Beneficiary; (iii) a period not extending
94-2A December 19, 1994 20
<PAGE>
beyond the life expectancy of such Participant or (iv) a period not
extending beyond the life expectancy of such Participant and a
designated Beneficiary.
(d) If the distribution of the Participant's interest has begun in
accordance with the preceding paragraph and the Participant dies
before his entire interest has been distributed to him, the
remaining portion of such interest shall be distributed at least as
rapidly as under the method of distribution used as of his date of
death.
(e) If the Participant dies before distribution commences, and the
Participant has elected a form of benefit other than a single sum,
his entire interest will be distributed no later than five (5) years
after the Participant's death except that:
(1) Payments of any portion of such interest to or for the benefit
of a Beneficiary may be made over the life or life expectancy
of such Beneficiary commencing no later than one (1) year
after the Participant's death; and
(2) Payments of any portion of such interest to the Participant's
surviving Spouse are not required to begin earlier than the
date on which the Participant would have attained age seventy
and one-half (70 1/2) and if the Spouse dies before payments
begin, subsequent distributions are not required to begin
earlier than the date the Spouse would have attained age
seventy and one-half (70 1/2).
(f) For purposes of this Section, any distribution required under the
incidental death benefit requirements of Section 401(a) of the Code
shall be treated as a distribution required under Section 401(a)(9)
of the Code.
6.05 Required Form of Benefits. Notwithstanding anything in this Article to the
contrary, if the Participant elects in writing to receive payment of his
benefits in accordance with the provisions of this Section, the
distribution of his Individual Account shall commence not later than one
(1) year after (a) the close of the Plan Year in which the Participant
incurs a Termination of Employment by reason of attainment of Normal
Retirement Age, disability or death; or (b) the close of the Plan Year
following the end of the fifth Plan Year following the Plan Year in which
the Participant incurs a Termination of Employment for any other reason,
except in the event the Participant is rehired by the Employer before the
close of such year.
Any distribution made under this Section 6.05 shall be in the form of
substantially equal periodic payments (not less frequently than annually)
spread over a period not to exceed the greater of (1) five (5) years after
the date upon which such payments commenced; or (2) in the case of a
Participant whose account balance exceeds $500,000 at the time the
distribution is to commence (or the dollar limitation as adjusted by Code
Section 409(o)(2)), five (5) years plus one (1) additional year (but not
more than five (5) additional years) for each $100,000 or fraction thereof
by which such balance exceeds $500,000.
For purposes of this Section 6.05 only, a Participant's Individual Account
shall not include any Employer Securities credited to his Stock Account
which were acquired with the proceeds of an exempt loan described in
Article XI until the close of the Plan Year in which the loan is repaid in
full.
Amounts payable to a Participant whose account balance exceeds Three
Thousand Five Hundred Dollars ($3,500) shall not be distributed before the
Participant attains Normal Retirement Age without the affirmative consent
of the Participant.
94-2A December 19, 1994 21
<PAGE>
6.06 Commencement of Benefits.
(a) Unless the Participant elects otherwise in writing pursuant to a
provision of this Plan in effect on the dare of such election, the
payment of Benefits under the Plan to a Participant shall commence
no later than the sixtieth (60th) day after the close of the Plan
Year in which the last of the following occurs:
(1) The Participant attains age sixty-five (65);
(2) The tenth (10th) anniversary of the date on which the
Participant commenced participation in the Plan; or
(3) The Participant terminates service with any member of the
Affiliated Group.
(b) Distribution of benefits shall commence not later than the April 1
of the calendar year following the calendar year in which the
Participant attains age seventy and one-half (70 1/2), except that
an active Participant who attained age 70 1/2 in 1988 will be
considered to have attained age 70 1/2 in 1989. Notwithstanding the
above, distribution of benefits to an active Participant who
attained age seventy and one-half (70 1/2) prior to January 1, 1988,
and who is not a five percent (5%) owner, need not commence until
the April 1 of the calendar year following the calendar year in
which the Participant retires.
6.07 Distributions Pursuant to a Qualified Domestic Relations Order.
Distribution of benefits to an alternate payee under a qualified domestic
relations order meeting the requirements of Section 414(p) of the Code
shall be made in a single sum to such alternate payee, unless such
alternate payee elects otherwise in accordance with a form of payment
permitted under the terms of this Article VI. Such payment shall be made
on a date specified in the qualified domestic relations order, which date
may precede the time the Participant would be eligible to receive a
distribution under the terms of the Plan.
6.08 Accounts of Former Employees. The amount credited to the Individual
Account of a Participant, if any, after the Termination of Employment of
such Participant shall continue to be adjusted in accordance with Article
IV as of each Valuation Date following such termination, until such amount
has been distributed in full; provided, however, such accounts shall not
be credited with either Employer contributions or forfeitures for any Plan
Year with respect to which such individual was not actively employed on
the last day of such year. Distributions of the balance of the amount
credited to the accounts of a Participant shall constitute payment in full
of the benefits of such Participant hereunder.
Notwithstanding anything to the contrary, Employer Securities allocated to
the Stock Account of a Participant shall be distributed in whole shares of
Employer Securities, with the value of any fractional shares paid in cash,
unless the Participant consents to a distribution in cash (or other
property) in lieu of distribution in the form of Employer Securities.
6.09 Direct Rollover Distributions.
(a) Direct Rollover Election. Effective January 1, 1993, notwithstanding
any provision of the Plan to the contrary that would otherwise limit
a Distributee's election under this Section, a Distributee may elect
at the time and in the manner prescribed by the Plan Administrator,
to have all or any portion of an Eligible Rollover Distribution to
which he is otherwise entitled, paid directly to any one Eligible
Retirement Plan specified by the Distributee in a Direct Rollover.
94-2A December 19, 1994 22
<PAGE>
(b) Definitions.
(1) Eligible Rollover Distribution means any distribution of all
or any portion of the balance to the credit of the
Distributee, except that an Eligible Rollover Distribution
does not include: any distribution that is one of a series of
substantially equal periodic payments (not less frequently
than annually) made for the life (or life expectancy) of the
Distributee or the joint lives (or joint life expectancies) of
the Distributee and the Distributee's designated Beneficiary,
or for a specified period of ten (10) years or more; any
distribution to the extent such distribution is required under
Section 401(a)(9) of the Code; and the portion of any
distribution that is not includible in gross income
(determined without regard to the exclusion for net unrealized
appreciation with respect to employer securities).
(2) Eligible Retirement Plan means an individual retirement
account described in Section 408(a) of the Code, an individual
retirement annuity described in Section 408(b) of the Code, an
annuity plan described in Section 403(a) of the Code, or a
qualified trust described in Section 401(a) of the Code, that
accepts the Distributee's Eligible Rollover Distribution.
However, in the case of an Eligible Rollover Distribution to
the surviving Spouse, an Eligible Retirement Plan includes
only an individual retirement account or individual retirement
annuity.
(3) Distributee means an Employee or former Employee. In addition,
the Employee's or former Employee's surviving Spouse and the
Employee's or former Employee's Spouse or former Spouse who is
the alternate payee under a qualified domestic relations
order, as defined in Section 414(p) of the Code, are
Distributees with regard to the interest of the Spouse or
former Spouse.
(4) Direct Rollover means a payment by the Plan to the Eligible
Retirement Plan specified by the Distributee.
94-2A December 19, 1994 23
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ARTICLE VII
Employer Securities: Buy-Sell Rights
7.01 Right of First Refusal, If at any time after the Termination of Employment
of a Participant the Participant or his Beneficiary wishes to dispose of
any Employer Securities distributed in accordance with this Plan, the
Participant shall send notice by registered or certified mail to the Plan
Administrator specifying the number of such shares he desires to sell.
Thereupon, the Employer and, alternately, the Trustees shall have the
right and option to purchase all or any portion of the shares specified in
such notice at the greater of:
(a) The fair marker value of such shares determined by the Trustees as
of the Valuation Date immediately preceding receipt of such notice
by the Employer; or
(b) The purchase price and other terms offered by a buyer other than the
Employer or the Trustees, malting a good faith offer to purchase the
security.
The Employer or the Trustees shall notify such a Participant or
Beneficiary of exercise of such a right of first refusal no later than
fourteen (14) days after actual receipt of such a notice by the Plan
Administrator. If both the Employer and the Trustees fail to send such an
acceptance before the expiration of such a fourteen (14) day period, the
holder of the Employer Security shall be free to sell the shares specified
in the notice no later than sixty (60) days after actual receipt of the
notice by the Plan Administrator at a price not less than the price
specified in such notice. The purchase by the Employer or the Trustees
shall be consummated no more than thirty (30) days after the mailing of
the acceptance by the Employer or the Trustees by delivery of the
specified consideration for such shares to the holder of the Employer
Security, and the holders delivering to the Employer or the Trustees the
certificate or certificates representing such shares duly endorsed in
blank for transfer.
The employer may require that a Participant (or Beneficiary) entitled to a
distribution of Company Stock under the Plan execute an appropriate stock
transfer agreement which recognizes and includes the terms of the right of
first refusal prior to receiving Company Stock.
Shares of Company Stock held or distributed by the Trustee may include
such legend restrictions on transferability as the Employer may reasonably
require in order to assure compliance with applicable federal and state
securities laws and legend restrictions reflecting the right of first
refusal described in this Section.
7.02 Put Option. In the event an Employer Security held in the Trust Fund is
not readily tradable on an established market when distributed, such a
security (and only such a security) shall be subject to a put option to
the Employer under the terms and conditions, as follows:
(a) Holder of the Option. The put option shall be exercisable only (1)
by Participants and their Beneficiaries, (2) by persons to whom such
a security is transferred by gift from a Participant or Beneficiary,
(3) by persons to whom such security is transferred by reason of the
death of a Participant or Beneficiary or (4) by the Trustee or
Custodian of an Individual Retirement Account to whom such a
security is transferred by a Participant or Beneficiary in a
tax-free rollover under Section 408 of the Code;
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(b) Duration of Option. The put option shall be exercisable during the
sixty (60) day period beginning on the date such a security is
distributed from the Plan to the Participant or Beneficiary. In the
event such an option is not exercised before the end of that sixty
(60) day period, the put option shall again be exercisable during a
sixty (60) day period, determined by the Plan Administrator, in the
next Plan Year that begins after the end of the first sixty (60) day
exercise period. The Plan Administrator shall notify the holder of
the option of the second sixty (60) day period at least fifteen (15)
days in advance.
After the expiration of both sixty (60) day periods described above,
such a security shall not be subject to any put option;
(c) Terms of Payment. The payment for Employer Securities sold pursuant
to a put option shall be paid either in a single sum within thirty
(30) days of exercise of the put option or as follows: twenty
percent (20%) of the total purchase price will be paid in cash at
the closing which with be no later than thirty (30) days after
exercise of the put option. The purchaser shall evidence the balance
of the purchase price by executing a promissory note, delivered to
the selling Holder of the Option at the closing. The note delivered
at closing shall bear interest at a reasonable rate. The note shall
provide for four (4) equal annual installments with interest payable
with each installment, the first installment being due and payable
one (1) year after the closing date. The note further shall provide
for acceleration in the event of thirty (30) days' default of the
payment on interest or principal and shall grant to the maker of the
note the right to prepay the note in whole or in part at any time or
times without penalty; provided however, the purchaser shall not
have the right to make any prepayment during the tax year of the
Holder of the Option in which the closing date occurs. The purchaser
shall provide adequate security with respect to the amount of the
note.
(d) Price. The price at which a put option shall be exercisable is the
fair market value of the Employer Securities subject to the put
option (valued as of the Valuation Date coinciding with or next
preceding the date of exercise, or with respect to an individual who
is a disqualified person within the meaning of Code Section
4975(e)(2), valued as of the date the option is exercised), treating
such securities as if currently held by the Trustee. The fair market
value of such shares shall be determined by an independent
appraisal.
7.03 Nonterminable Provisions. No Employer Security distributed from the Plan
shall be subject to a put, a call or other option, or any buy-sell or
similar arrangement, other than those provided in this Article or as
required by applicable laws, and notwithstanding the fact that the Plan
ceases to be an employee stock ownership plan within the meaning of
Section 4975(e)(7) of the Code, Employer Securities acquired with the
proceeds of a loan described in Article XI shall continue after such loan
is repaid to be subject to any rights provided in Section 7.02 and the
protections provided by this Section.
94-2A December 19, 1994 25
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ARTICLE VIII
Top Heavy Provisions
The following provisions shall become effective in any Plan Year in which the
Plan is determined to be a Top Heavy Plan.
8.01 Determination of Top Heavy. The Plan will be considered a Top Heavy Plan,
if, as of the Determination Date, the sum of the present value of the
Participant Accounts for all Key Employees exceeds sixty percent (60%) of
a similar sum for all Participants, or if the Plan is part of a Required
Aggregation Group and the Required Aggregation Group is Top Heavy.
(a) Determination Date with respect to a Plan Year means the last day of
the immediately preceding Plan Year or in the case of the first Plan
Year, the Determination Date means the last day of such Plan Year.
(b) The Present Value shall be the sum of (i) the Participant's account
balances determined as of the most recent Valuation Date that is
within the twelve (12) month period ending on the Determination
Date; (ii) the adjustment for contributions due as of the
Determination Date; (iii) the aggregate distributions made, with
respect to such Employee during the five (5) year period ending on
the Determination Date; and (iv) distributions under a terminated
plan which, if it had not been terminated, would have been required
to be included in an Aggregation Group.
(c) Key Employee means any Employee (or the Beneficiary of such
Employee) who, at any time during the Plan Year or any of the
four (4) preceding Plan Years is:
(1) An officer of the Employer whose annual Total Compensation
from the Employer is greater than fifty percent (50%) of the
amount in effect under Section 415(b)(1)(A) of the Code for
any such Plan Year provided, however, that no more than fifty
(50) Employees (or if less, the greater of three (3) Employees
or ten percent (10%) of the Employees) shall be considered
officers;
(2) One of the ten (10) Employees whose annual Total Compensation
from the Employer is more than the dollar limitation in effect
under Section 415(c)(1)(A) of the Code and owning (or
considered as owning within the meaning of Section 318 of the
Code) both more than one-half percent (.5%) interest and one
of the ten (10) largest interests in the Employer. If two (2)
Employees have the same interest in the Employer, the Employee
having the greater annual Total Compensation from the Employer
shall be treated as having a larger interest;
(3) A five percent (5%) owner of the Employer; or
(4) A one percent (1%) owner of the Employer having annual Total
Compensation from the Employer of more than one hundred fifty
thousand dollars ($150,000).
The aggregation rules of Section 414(b), (c), and (m) of the Code do
not apply for purposes of determining ownership in the Employer.
94-2A December 19, 1994 26
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(d) The Required Aggregation Group means (i) each qualified plan of the
Employer in which a Key Employee is a Participant in the Plan Year
containing the Determination Date or in any of the four (4)
preceding Plan Years, and (ii) each other qualified plan that
enables any of the above plans to meet the requirements of Sections
401(a)(4) or 410 of the Code.
(e) The Permissive Aggregation Group. The Employer may treat any plan
not required to be included in the Required Aggregation Group as
defined herein as being pan of such group if the group would
continue to meet the requirements of Sections 401(a)(4) and 410 of
the Code with the plan being taken into account.
(f) Rollover Deposits. Except as provided in Treasury regulations, any
Rollover Deposits (or similar transfer) initiated by the Employee to
a plan in the Aggregation Group shall not be taken into account with
respect to the transferee plan for purposes of determining whether
this Plan is Top Heavy.
(g) No Services for Five Years. The Participant Account of an individual
who has not performed services for any Employer maintaining the Plan
at any time during the five (5) year period ending on the
Determination Date shall not be considered for purposes of this
Section.
(h) Non-Key Employee means any Employee (and any Beneficiary of an
Employee) who does not meet the definition of Key Employee. If an
individual is a Non-Key Employee with respect to any plan for any
Plan Year but such individual was a Key Employee with respect to
such plan for any prior Plan Year, any Accrued Benefit of such
Employee (and the account of such Employee) shall not be taken into
account in this Section.
8.02 Vesting.
(a) For any Plan Year in which this Plan is Top Heavy, the Vested
Percentage applicable to the Accrued Benefit of an Employee who has
at least one (1) Hour of Service after the Plan became Top-Heavy
shall be not less than the amount shown on the following table:
Completed Vested Percentage
Years of Attributable to
Service Employer Contributions
------- ----------------------
0-2 0%
3 or more 100%
(b) In the event the Plan ceases to be Top-Heavy for a Plan Year, the
vesting schedule in effect immediately prior to the Plan Year in
which the Plan became Top-Heavy shall again become applicable as an
amendment to the Plan.
(c) In the event that the Plan becomes or ceases to be Top-Heavy, the
Vested Percentage of a Participant's Accrued Benefit shall not be
less than the Vested Percentage determined as of the last day of the
last Plan Year prior to the change from Top-Heavy to not Top-Heavy
or vice versa. Furthermore, each Participant who has completed at
least three (3) Years of Vesting Service may elect to continue to
have his Vested Percentage computed in accordance with subsection
(a) for such Plan Year and any subsequent Plan Year in which the
Plan is no longer Top Heavy.
94-2A December 19, 1994 27
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8.03 Minimum Employer Contribution.
(a) The sum of the Employer contributions and forfeitures, if any,
allocated to the account of each Participant who is a Non-Key
Employee for each Plan Year for which the Plan is determined to be
Top Heavy shall not be less than the smaller of (i) three percent
(3%) of such Participants Section 415 Compensation or (ii) a
percentage of the Participant's Section 415 Compensation for the
Plan Year that is the same percentage as the greatest percentage of
Section 415 Compensation allocated (as Employer contributions and
forfeitures) to the account of any Key Employee.
Each non-key Employee will receive a minimum contribution for the
Plan Year pursuant to this Section if the non-key Employee was a
Participant in the Plan and had not separated from service at the
end of the Plan Year, regardless of whether the Participant earned a
Year of Service during the year. Contributions to a cash or deferred
arrangement maintained by any member of the Affiliated Group shall
be included in determining the amount contributed on behalf of a Key
Employee when the minimum contribution is less than three percent
(3%) of Section 415 Compensation but shall not be taken into account
as an Employer contribution for purposes of this Section.
(b) In any Plan Year in which a Participant who is a Non-Key Employee
has a benefit under a defined benefit plan maintained by the
Employer, the Top-Heavy minimum benefit shall be satisfied under
this Plan and five percent (5%) shall be substituted for three
percent (3%) each place it appears in subsection (a). A defined
benefit plan shall be considered for purposes of this subsection
only if it is in the aggregation group of which the Plan is a part.
(c) In any Plan Year in which this Plan is Top Heavy, the Plan
Administrator may limit allocations of Employer contributions and
forfeitures, if any, to Key Employees, in a uniform manner, as a
maximum dollar amount or as a maximum percentage of compensation. No
action by the Plan Administrator under this subsection shall
increase the benefits of any Key Employee.
8.04 Impact on Maximum Benefits. In the event that the aggregate of the sum of
the Accounts of Participants who are Key Employees under the Plan exceeds
sixty percent (60%) of the sum of the Accounts of all Participants, the
denominator of the defined benefit and defined contribution fractions
specified in Section 415(e) of the Code shall be modified by replacing
"1.25" with "1.0."
The Plan Administrator may substitute "ninety percent (90%)" for "sixty
percent (60%)" in the preceding paragraph. In that event, if the aggregate
of the sum of the Participant Accounts of Participants who are Key
Employees exceeds sixty percent (60%) but is not more than ninety percent
(90%) of the aggregate of the sum of the Participant Accounts of all
Participants, Section 8.03(a) shall be modified by substituting "four
percent (4%)" (seven and one-half percent (7 1/2) in the case of a Non-Key
Employee having a benefit under a defined benefit plan maintained by the
Employer) for "three percent (3%)" wherever it appears therein.
94-2A December 19, 1994 28
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ARTICLE IX
Plan Administration
9.01 Plan Administration. The Board shall appoint a Plan Committee
("Committee") which shall be the Plan Administrator who shall be the named
fiduciary having the authority to control and manage the operation and
administration of the Plan.
9.02 General Powers. Rights and Duties. Except as otherwise specifically
provided and in addition to the powers, rights and duties specifically
given to the Plan Administrator elsewhere in the Plan and the Trust
Agreement or by direct, written delegation from the Company, the Plan
Administrator shall have the power and the duty to take all action and to
make all decisions necessary or proper to carry out the Plan. The powers
and duties of the Plan Administrator shall include the following:
(a) To, in its discretion, interpret all Plan provisions and to
determine all questions arising under the Plan, including the power
to determine the eligibility of Employees, Participants and all
other persons to participate in the Plan or to receive benefits
under the Plan and to determine the amount of benefits payable under
the Plan to any person and to remedy ambiguities, inconsistencies or
omissions;
(b) To adopt such rules of procedure and regulations and prescribe the
use of such forms as in its opinion may be necessary for the proper
and efficient administration of the Plan and as are consistent with
the Plan and Trust Agreement;
(c) To enforce the Plan in accordance with the terms of the Plan and the
Trust Agreement and the rules and regulations adopted pursuant to
(b) above;
(d) To direct the Trustee in writing to make payments from the Trust
Fund to the Participants who qualify for benefits hereunder. Such
written notice shall include such information as may be required for
payment of benefits;
(e) To furnish the Employers with such information as may be required by
them for tax or other purposes in connection with the Plan;
(f) To employ agents, attorneys, accountants, actuaries or other persons
(who also may be employed by an Employer) and to allocate or
delegate to them such powers, rights and duties as the Plan
Administrator has and may consider necessary or advisable to
properly carry out administration of the Plan or compliance with the
requirements of ERISA, provided that such allocation or delegation
and the acceptance thereof by such agents, attorneys or other
persons shall be in writing;
(g) To exercise such authority as it deems appropriate in order to
comply with the reporting and disclosure requirements of ERISA and
regulations issued thereunder;
(h) To provide a full and fair review to any Participant whose claim for
benefits has been denied in whole or in part;
(i) To establish and carry out a funding policy and method consistent
with the objectives of the Plan and ERISA, pursuant to which the
Company shall determine the Plan's liquidity and financial needs and
communicate them to the Trustees or other fiduciaries charged with
determining investment policy; and
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9.03 Manner of Action. During a period in which two (2) or more Committee
members are acting, the following provisions apply where the context
admits:
(a) The Committee shall select a Chairman and may select a Secretary
(who may, but need not, be a member of the Committee).
(b) A Committee member may delegate any or all of his rights, powers,
and duties to any other member provided such delegation is in
writing and is consented to by such other Committee member.
(c) The Committee members may act by meeting and may execute any
document by signing one document or concurrent documents.
(d) A majority of the members of the Committee at the time in office
shall constitute a quorum for the transaction of business at any
meeting. Any determination or action of a Committee may be made or
taken by a majority of the members present at any meeting or
without a meeting by a resolution or written memorandum concurred in
by a majority of the members then in office.
(e) If there is an even division of opinion among the Committee members
as to a matter, a disinterested party selected by the Committee
shall decide the matter and his decision shall control.
(f) Except as otherwise provided by law, no member of the Committee
shall be liable or responsible for an act or omission of the other
Committee members in which the former has not concurred.
(g) The certificate of the secretary of the Committee or of a majority
of the Committee members that the Committee has taken or authorized
any action shall be conclusive in favor of any person relying on the
certificate.
9.04 Interested Committee Member. A member of the Committee who is also a
Participant in the Plan may not decide or determine any issue concerning
the amount of his benefit or its distribution to him unless such decision
or determination could be made by him under the Plan if he were not
serving on the Committee.
9.05 Resignation or Removal of Committee Members. A member of the Committee may
be removed by the Board at any time by written notice to him and the other
members of the Committee. A member of the Committee may resign at any time
by giving written notice to the Board and the other members of the
Committee. The Board may fill any vacancy in the membership of the
Committee; provided, however, that if a vacancy reduces the membership of
the Committee to less than three (3), such vacancy shall be filled as soon
as practicable. The Board shall give prompt written notice thereof to the
members of the Committee. Until any such vacancy is filled, the remaining
members may exercise all of the powers, rights and duties conferred on the
Committee.
9.06 Nondiscrimination. The Plan Administrator shall not take action nor direct
the Trustee to take any action with respect to any of the benefits
provided hereunder which would discriminate in favor of Highly Compensated
Employees. There shall similarly be no discrimination between
similarly-situated Participants.
9.07 Delegation and Reliance. To the extent permitted by law, the Plan
Administrator and any person to whom it may delegate any duty or power in
connection with administering the Plan, the Employer, and the officers and
directors thereof, shall be entitled to rely
94-2A December 19, 1994 30
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conclusively upon, and shall be fully protected in any action taken in
good faith in the reliance upon any actuary, counsel, accountant or other
person selected by the Plan Administrator. Further, to the extent
permitted by law, neither the Plan Administrator, nor any Employer, nor
the officers or directors thereof, shall be liable for any neglect,
omission or wrongdoing of a Trustee, insurance company, investment
manager, or any other person or fiduciary.
9.08 Claims Procedure. The claims procedure hereunder shall be as provided
herein:
(a) Claim. A Participant or Beneficiary or other person who believes
that he is being denied a benefit to which he is entitled
(hereinafter referred to as "Claimant") may file a written request
for such benefit with the Plan Administrator setting forth his
claim.
(b) Response to Claim. The Plan Administrator shall respond within
ninety (90) days of receipt of the claim. However, upon written
notification to the Claimant, the response period may be extended
for an additional ninety (90) days for reasonable cause. If the
claim is denied in whole or in part, the Claimant shall be provided
with a written opinion using nontechnical language setting forth:
(1) The specific reason or reasons for denial;
(2) The specific references to pertinent Plan provisions on which
the denial is based;
(3) A description of any additional material or information
necessary for the Claimant to perfect the claim and an
explanation of why such material or such information is
necessary;
(4) Appropriate information as to the steps to be taken if the
Claimant wishes to submit the claim for review; and
(5) The time limits for requesting a review.
(c) Request for Review. Within sixty (60) days after the receipt by the
Claimant of the written opinion described above, the Claimant may
request in writing that the Plan Administrator review the
determination.
The Claimant or his duly authorized representative may review the
pertinent documents and submit issues and comments in writing for
consideration by the Plan Administrator. If the Claimant does not
request a review of the determination within such sixty (60) day
period, he shall be barred from challenging the determination.
(d) Review and Decision. The Plan Administrator shall review the
determination within sixty (60) days after receipt of a Claimant's
request for review; provided, however, that for reasonable cause
such period may be extended to no more than one hundred twenty (120)
days. After considering all materials presented by the Claimant, the
Plan Administrator will render a written opinion, written in a
manner calculated to be understood by the Claimant setting forth the
specific reasons for the decision and containing specific references
to the pertinent Plan provisions on which the decision is based.
94-2A December 19, 1994 31
<PAGE>
9.09 Plan Administrator's Decision Final. Subject to applicable law, any
interpretation of the provisions of the Plan and any decision on any
matter within the discretion of the Plan Administrator made by the Plan
Administrator in good faith shall be binding on all persons. A
misstatement or other mistake of fact shall be corrected when it becomes
known and the Plan Administrator shall make such adjustment on account
thereof as it considers equitable and practicable.
9.10 Standard of Review. The Plan Administrator shall perform its duties as the
Plan Administrator and in its sole discretion shall determine appropriate
courses of action in light of the reason and purpose for which this Plan
is established and maintained. In particular, the Plan Administrator shall
interpret all Plan provisions and make all determinations as to whether
any Participant or Beneficiary is entitled to receive any benefit under
the terms of this Plan which interpretation shall be made by the Plan
Administrator in its sole discretion. Any construction of the terms of the
Plan that is adopted by the Plan Administrator and for which there is a
rational basis shall be final and legally binding on all parties.
Any interpretation of the Plan or other action of the Plan Administrator
shall be subject to review only if such interpretation or other action is
without rational basis. Any review of a final decision or action of the
Plan Administrator shall be based only on such evidence presented to or
considered by the Plan Administrator at the time it made the decision that
is the subject of review. If any participating Employer and/or any
Eligible Employee who performs services for a participating Employer that
is or may be compensated for in part by benefits payable pursuant to this
Plan, such an individual shall be treated as agreeing with and consenting
to any decision that the Plan Administrator makes in its sole discretion
and further agrees to the limited standard of review described by this
Section 9.11 by the acceptance of such benefits.
9.11 Information Required by Plan Administrator. Each person entitled to
benefits under the Plan must file his most recent post office address with
the Plan Administrator. Any communication, statement or notice addressed
to any such person at the last post office address filed with the Plan
Administrator will be binding upon such person for all purposes of the
Plan. Each person entitled to benefits under the Plan also shall furnish
the Plan Administrator with such documents or information as the Plan
Administrator considers necessary or desirable for the purpose of
administering the Plan. The Employer shall furnish the Plan Administrator
with such data and information as the Plan Administrator may deem
necessary or desirable in order to administer the Plan. The records of any
Employer with respect to periods of employment, termination of employment
and the reason therefor, leave of absence, re-employment and earnings will
be conclusive on all persons unless determined by the Plan Administrator
to be incorrect.
9.12 Freedom from Liability. The Plan Administrator shall be entitled to rely
upon information furnished by the Company and upon tables, valuation,
certificates, opinions and reports furnished by any trustee, accountant,
actuary, insurer or legal counsel in connection with any action or
determination. To the extent permitted by law, the Company shall
indemnify, hold harmless and defend the Plan Administrator against any
liability or loss (including any sum paid in settlement of a claim)
sustained as a result of any act or omission in their administrative
capacities, if such act or omission does not involve willful misconduct.
Such indemnification shall include attorneys' fees and other costs and
expenses reasonably incurred in defense of any action brought against the
Plan Administrator and shall apply to any Persons who are or were
directors, officers or Employees of any Employer who may be subjected to
liability by reason of an act or omission occurring in good faith in the
operation and administration of the Plan or Trust or in the investment of
the assets of the Trust.
94-2A December 19, 1994 32
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ARTICLE X
Amendment and Termination
10.01 Amendment. Except as provided herein, the Board reserves the right to
amend or terminate this Plan at any time and in any manner. The Board may
delegate this authority to any officer(s) of the Company. Any action by
the Board shall be evidenced by a valid resolution. Any action by any
officer(s) shall be evidenced by a valid officer's certificate. The
resolutions and officer's certificates shall be attached to this Plan and
considered a part hereof. Any modification or amendment shall satisfy the
following rules:
(a) The duties and liabilities of the Trustee under the Plan cannot be
changed substantively without its consent.
(b) No amendment shall reduce the amount of a Participant's account
balance or eliminate an optional form of distribution except to the
extent permitted under Section 412(c)(8) of the Code or other
applicable Treasury Regulations.
(c) No merger or consolidation with, or transfer of assets or
liabilities to any other plan shall be made unless each Participant
and each other person entitled to benefits under the Plan shall be
entitled to a benefit immediately after such merger, consolidation
or transfer (if the plan into which such persons were merged, etc.,
then terminated) which is equal to or greater than the benefit such
persons would have been entitled to receive immediately before the
merger, consolidation or transfer (if the plan from which such
persons were merged, etc. had then terminated).
(d) Under no condition shall any amendment result in the return or
repayment to any Employer of any part of the Trust Fund or the
income therefrom, or result in the distribution of the Trust Fund
for the benefit of anyone other than Participants and any other
persons entitled to benefits under the Plan.
(e) No modification or amendment of the Plan shall be made retroactively
unless deemed by the Company to be necessary or appropriate to
conform the Plan to or to satisfy the conditions of any law,
governmental regulation or ruling, to permit the Plan and the Trust
to meet the requirements of Sections 401, 404 and 501 of the Code,
or the corresponding provisions of any subsequent law or to clarify
provisions that are confusing or unclear.
(f) If the Plan's vesting schedule is changed as a result of an
amendment, each Participant who has completed at least three (3)
Years of Service may elect to continue to have his vested percentage
computed in accordance with the vesting schedule in effect for that
Participant prior to the amendment. This election may be made no
earlier than the date the amendment is adopted and no later than the
latest of the date that is sixty (60) days after the date: (i) the
amendment is adopted; (ii) the amendment becomes effective; or (iii)
the Participant is issued a written notice of the amendment by the
Employer or Plan Administrator.
10.02 Termination. Although it is intended that this Plan shall be continued and
that contributions to it will be made regularly, this Plan is entirely
voluntary on the part of the Employer, and the continuance of the Plan and
the payments thereunder are not assumed as a contractual obligation of the
Employer. The Employer specifically reserves the right, in its sole and
uncontrolled discretion and by its official and authorized act, to modify,
to
94-2A December 19, 1994 33
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suspend (in whole or in part) or to discontinue at any time its
contributions to this Plan in accordance with the provisions of Section
10.01 for Plan amendments. The Plan will terminate as to all Employers on
any date specified by the Board, provided written notice of the
termination is given to the Plan Administrator, the Trustee and the other
Employers. The Plan will terminate as to an individual Employer on the
first to occur of the following:
(a) The dare it is terminated by that Employer through action taken by
its Board of Directors;
(b) The date the Employer is judicially declared bankrupt or insolvent;
or
(c) The dissolution, merger, consolidation or reorganization of that
Employer, the sale of a majority of the voting shares of that
Employer by the Company, or the sale by that Employer of all or
substantially all of its assets, except that:
(1) In any such event arrangements may be made with the consent of
the Company whereby the Plan will be continued by any
successor to that Employer or any purchaser of all or
substantially all of its assets, in which case the successor
or purchaser will be substituted for that Employer under the
Plan and the Trust Agreement; and
(2) If an Employer is merged, dissolved or in any way reorganized
into, or consolidated with, any other Employer, the Plan as
applied to the former Employer will automatically continue in
effect without a termination thereof.
10.03 Nonforfeitability on Termination, Partial Termination or Discontinuance of
Contributions. If there is a termination or partial termination of the
Plan with respect to an Employer, era complete discontinuance of
contributions to the Plan by such Employer, the rights of all affected
Participants to benefits accrued to the date of such event shall be
nonforfeitable.
10.04 Allocation and Distribution of Assets on Termination. On termination of
the Plan with respect to any Employer, the Plan Administrator will direct
the allocation and distribution of Plan assets allocable to Participants
employed by that Employer and other persons entitled to benefits under the
Plan. Such allocation and distribution will be made only after payment of
or provision for all expenses and charges of administration applicable to
the Plan, and after appropriate adjustment of the Participant's accounts
as of the date of termination in the manner described in Article IV. Each
affected Participant will receive a distribution equal to the value of his
respective Accrued Benefit on the termination date. Distributions under
this Section shall be made as soon as administratively feasible after the
plan termination date.
94-2A December 19, 1994 34
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ARTICLE XI
Leveraged ESOP Provisions
11.01 Loans from Disqualified Persons. Notwithstanding any other provision to
the contrary in this Plan, the Trustees may obtain a loan described in
this Section if and only if the terms of such a loan comply with all of
the requirements of this Article XI. A loan is described in this Section
if such loan is made to the Trust Fund directly or indirectly by a
disqualified person, such as the Employer, (as defined in section
4975(e)(2) of the Code), or if such loan is guaranteed by such a
disqualified person (including the use of assets by such a disqualified
person as collateral for a loan to the Trust Fund).
11.02 Use of Loan Proceeds. Any proceeds of a loan described in Section 11.01
shall be used within a reasonable time by the Trust Fund solely to acquire
Employer Securities, or to repay such a loan. No securities acquired with
the proceeds of such a loan may be subject to any put call, or other
option, or buy-sell or similar arrangement while held by and when
distributed from the Plan, regardless of whether a loan described in
Section 11.01 is outstanding at such time, except as specifically provided
in Article VII.
11.03 Collateral for Loan. The only asset which shall be used as collateral for
a loan described in Section 11.01 shall be all or part of the Employer
Securities acquired with the proceeds from such a loan. Such securities
shall be released from collateral under the loan agreement no later than
the release of such securities from the suspense account in accordance
with Section 11.04.
11.04 Suspense Account. Employer Securities purchased with the proceeds of a
loan described in Section 11.01 shall be allocated and credited to a
suspense account. For each Plan Year (not later than as of the end of such
year) there shall be released from the suspense account that portion of
the securities held in the suspense account immediately before such
release which the principal and interest paid under the loan during such
year bear to the principal and interest paid and to be paid under the loan
during such year and for all future years. If the interest rate under the
loan is variable, the interest to be paid in future years shall be
computed by using the interest rate applicable as of the end of such Plan
Year.
11.05 Default. In the event of default upon a loan described in Section 11.01,
the amount of securities transferred to the lender in satisfaction of such
a loan shall not exceed the amount of such a default. If the lender is a
disqualified person, the loan must provide for a transfer of plan assets
on default only upon and to the extent of the failure of the Plan to meet
the payment schedule of the loan. The guarantee of a loan does not make
the guarantor a lender.
11.06 Allocation of Employer Securities. Employer Securities acquired with the
proceeds of a loan described in Section 11.01 shall be allocated to the
accounts of Participants when released from the suspense account in the
same manner as an Employer contribution as provided in Section 4.05.
11.07 Loan Payments. Payments with respect to a loan described in Section 11.01
during a Plan Year shall be made by the Trust Fund only to the extent that
the Trust Fund has received during or prior to such Plan Year the amounts,
as follows:
(a) Contributions by the Employer (other than contributions of Employer
Securities);
(b) Earnings attributable to the investment of such contributions; and
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(c) Cash dividends and other income received by the Trustee on shares of
Employer Securities acquired with the proceeds of an exempt loan
described in Section 11.01.
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ARTICLE XII
Diversification of Investments
12.01 Diversification Election. Each participant who
(a) has completed at least ten (10) years of participation under the
Plan and who has attained age 55 may elect in writing, within the
Qualified Election Period, to direct the Trustee to diversify the
investment of twenty-five (25%) of the total number of shares that
have ever been allocated to his Stock Account; but only if such
shares were acquired by or contributed to the Plan after December
31, 1986. Such percentage shall be determined as of the Valuation
Date immediately preceding or coincident with such election. The
number of shares previously distributed pursuant to an election made
in accordance with this Section with respect to an earlier Plan Year
included within the Qualified Election Period shall then be
subtracted from the number of shares so calculated to determine the
number of shares that may be diversified. The maximum number of
shares subject to the election described in this Section shall be
rounded to the nearest whole number. In the case of the Plan Year in
which the Participant can make his last election, this Section 12.01
shall be applied by substituting fifty percent (50%) for twenty-five
percent (25%).
(b) The diversification election shall be made from among no less than
three investment options offered on terms not inconsistent with
regulations issued under Code ss.401(a)(28). If the Plan does not
provide alternative investment options at the time a Participant
acquires the right to make a diversification election, the Plan
Administrator shall direct the Trustee to distribute the portion of
the account subject to the election to the Participant no later than
ninety (90) days after the end of the election period referred to in
Section 12.02, provided the Participant requests the distribution in
writing.
(c) A Participant entitled to make an election in accordance with the
provisions of this Section 12.01 may waive his right to such
election for any particular Plan Year by delivering a writing to the
Plan Administrator, provided, however, that a Participant's failure
to affirmatively elect diversification in accordance with the terms
of this Article shall also be treated as a waiver of a Participant's
right to make an election with respect to such Plan Year.
12.02 Qualified Election Period. For purposes of this Article XII, the Qualified
Election Period is the six (6) Plan Year period beginning with the later
of (1) the Plan Year in which a Participant attains age 55, or (2) the
Plan Year in which the Participant completes ten (10) years of
participation in the Plan. A qualified Participant may make an election
under Section 12.01 only within the ninety (90) day period next following
the close of each Plan Year in the Qualified Section Period.
Any amounts distributed to a Participant in accordance with an election
made pursuant to this Article XII shall be treated as a distribution in
the form of Employer Securities to the Participant and a purchase of such
shares by the Trust from the Participant at the then fair market value of
the shares (as determined in accordance with Section 4.02 of the Plan) as
of the date of the distribution.
12.03 Fair Market Value. For purposes of this Article XII, Employer Securities
shall be valued by the Trustee at its then fair market value in accordance
with the provisions of Section 4.02 of the Plan.
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12.04 De Minimis Amounts. Notwithstanding any other provision of this Article
XII, if the fair market value of the Employer Securities allocated to the
Stock Account of a Participant entitled to make an election under Section
12.01, determined as of the Valuation Date immediately preceding the first
day of any Plan Year included within the Qualified Election Period is five
hundred dollars ($500) or less, then such Participant will nor be entitled
to make a diversification election with respect to such Plan Year.
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ARTICLE XIII
General Provisions
13.01 Fiduciaries. The Company, the Board, the Plan Administrator, and the
Trustee shall be the named fiduciaries under this Plan and shall exercise
their duties hereunder in accordance with the requirements of Part 4 of
Title I of ERISA. No fiduciary under the Plan or the Trust Agreement shall
be liable for an act or omission of another person in carrying out any
fiduciary responsibility where such fiduciary responsibility is allocated
to such other person by the Plan or the Trust Agreement except to the
extent that such fiduciary is in violation of his duty under Section
405(a) or 405(c)(2) of ERISA.
The Company shall have exclusive responsibility for the specific matters
delegated to it by the Plan. The Trustee shall have responsibility for
management and control of the assets of the Plan as provided in the Trust
Agreement.
13.02 Non-Alienation.
(a) Protected Benefits. None of the benefits under the Plan are subject
to the claims of creditors of Participants or their Beneficiaries,
and will nor be subject to attachment, garnishment or any other
legal process. Neither a Participant nor his Beneficiary may assign,
sell, borrow on, or otherwise encumber any of his beneficial
interest in the Plan and Trust Fund, nor shall any such benefits be
in any manner liable for or subject to the deeds, contracts,
liabilities, engagements or torts of any Participant or Beneficiary.
If any such Participant or Beneficiary shall become bankrupt or
attempt to anticipate, sell, alienate, transfer, pledge, assign,
encumber or change any benefit specifically provided for herein, or
if a court of competent jurisdiction enters an order purporting to
subject such interest to the claim of any creditor, then the Trustee
shall hold or apply such benefit to or for the benefit of such
Participant or Beneficiary in such manner as the Trustee may deem
proper.
(b) Qualified Domestic Relations Order. The foregoing Section 13.02(a)
shall also apply to the creation, assignment or recognition of a
right under a domestic relations order, unless such order is
determined to be a qualified domestic relations order as defined in
Section 414(p) of the Code (and those other domestic relations
orders permitted to be so treated by the Plan Administrator under
the provisions of the Retirement Equity Act of 1984).
The Plan Administrator shall establish a written procedure to
determine the qualified status of domestic relations orders and to
administer distributions under such qualified orders.
13.03 Facility of Payment. In the event that any benefit hereunder becomes
payable to a minor, to a person under a legal disability, or to a person
who, in the opinion of the Plan Administrator, is incapable of properly
using, expending, investing or otherwise disposing of such distribution,
then the Plan Administrator may direct the payment of such benefit: (a)
directly to such person; (b) to the legally appointed guardian or
conservator of such person; (c) to a relative, friend or institution for
the care and support of such person; or (d) as directed by a court of
competent jurisdiction.
13.04 No Contract. This Plan shall not be deemed to constitute a contract
between the Employer and any Participant or to be a consideration or an
inducement for the employment of any Participant or Employee. Nothing
contained in this Plan shall be deemed to give any
94-2A December 19, 1994 39
<PAGE>
Participant or Employee the right to be retained in the service of the
Employer or to interfere with the right of the Employer to discharge any
Participant or Employee at any time regardless of the effect which such
discharge shall have upon such individual as a Participant in the Plan.
13.05 Waiver of Notice. Any notice required under the Plan may be waived by the
person entitled to notice.
13.06 Absence of Guarantee. Neither the Plan Administrator nor any Employer in
any way guarantees the Trust Fund from loss or depreciation. Except as
required by applicable law, the Employers do not guarantee any payment to
any person. The liability of the Trustee or the Plan Administrator to make
any payment under the Plan will be limited to the assets held by the
Trustee which are available for that purpose.
13.07 Missing Persons. If the Plan Administrator or Trustee is unable to make
payment to any Participant or other person to whom a payment is due under
the Plan because it cannot ascertain the identity or whereabouts of such
Participant or other person after reasonable efforts have been made to do
so, (including mailing the payment to the last known address of such
Participant or such other person as shown on the records of the Employer),
such payment and any subsequent payments otherwise due shall be forfeited
twenty-four (24) months after the date such payment first became due;
provided, however, that such payment and any subsequent payments shall be
reinstated retroactively, not later than sixty (60) days after the date on
which the Participant or such other person entitled to payment is
identified or located.
13.08 Non-Diversion. There shall be no use or diversion of any portion of the
assets of the Trust Fund other than for the exclusive benefit of
Participants and their Beneficiaries.
13.09 Return of Contributions. All Employer Contributions are made conditioned
upon their deductibility for federal income tax purposes under Section 404
of the Code and upon continuing qualification of the Plan under Section
401 of the Code. Amounts contributed by an Employer shall be returned to
the Employer under the following conditions:
(a) If a contribution was made by an Employer by a mistake of fact, the
excess of the amount of such contribution over the amount that would
have been contributed had there been no mistake of fact shall be
returned to the Employer within one (1) year after the payment of
the contribution;
(b) If the Plan does not qualify under Section 401 of the Code,
contributions made by an Employer shall be returned to the Employer
within one (1) year after the date of denial of initial
qualification of the Plan, provided that an application for
determination is made by the time prescribed by law for filing the
Employer's federal income tax return for the taxable year in which
the Plan was adopted or such later date as the Secretary of the
Treasury may prescribe; and
(c) If an Employer makes a contribution which is not deductible under
Section 404 of the Code, such contribution (but only to the extent
disallowed) shall be returned to the Employer within one (1) year
after the disallowance of the deduction.
Earnings attributable to the contribution shall not be returned to the
Employer, but losses attributable to such excess contribution must reduce
the amount to be so returned.
13.10 Litigation by Participants or Beneficiaries. If a Participant or other
person brings a legal action against the Trustee, one or more Employers
and/or the Plan Administrator, and such
94-2A December 19, 1994 40
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action results adversely to that person, or if a legal action arises
because of conflicting claims to a Participant's or other person's
benefits, the costs borne by the Trustee, the Employers or the Plan
Administrator in defending the action will be charged, to the extent
permitted by law, to the amounts involved in the action or which were
payable to the Participant or other person concerned.
94-2A December 19, 1994 41
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ARTICLE XIV
Adoption of Plan by Other Entities
14.01 Adoption of Plan. Any member of the Affiliated Group may adopt this Plan
for all or a portion of its employees, provided that the Board approves
such participation and the terms of such participation is set forth in a
participation agreement by and between such Employer and the Board. This
Plan and all participation agreements shall constitute a single plan
collectively adopted by all participating Employers.
The participation agreement may modify any of the terms of the Plan with
respect to employees of a participating Employer; provided, however, that
in no event shall the powers and rights of the Company as provided in the
Plan be abridged, nor shall the participation agreement contain any
provision which could result in the disqualification of the Plan. Each
such Employer shall have the obligation to pay the contributions for its
own employees and no other Employer shall have such obligation.
14.02 Withdrawal from Plan. An Employer may withdraw at any time from the Plan
by complying with the appropriate provisions of the Plan and Trust. Such
withdrawal shall not affect the other Employers. The Board may, at its
discretion, terminate an Employer's participation in the Plan at any time
when, in its judgment, such Employer fails or refuses to discharge its
obligations under the Plan, or if amendments to the Plan applicable to
such Employer are not deemed to be in the best interests of the Plan as a
whole.
94-2A December 19, 1994 42
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ARTICLE XV
Trust Fund and Trustees
15.01 General Nature of Trustees' Responsibilities. To the extent acceptable to
it, the Trustees shall receive such sums of money or other property as
shall from time to time be paid or delivered by the Employer to hold for
management and distribution under the terms of the Plan. All such money
and property so held, together with all investments made therewith and
proceeds thereof, and such earnings, profits, increments, and accruals
thereon as may occur from time to time, less any payments which the
Trustees, from time to time, may be authorized to make therefrom, shall
constitute the Trust Fund (hereinafter called the "Fund").
The Fund shall be held by the Trustees in trust and shall be administered,
controlled and invested in accordance with the Plan and Trust. In the
management of the Fund and the discharge of its duties hereunder, the
Trustees shall act solely in the interests of the Participants, Former
Participants and their Spouses or Beneficiaries. The Trustees shall
discharge their duties in accordance with this Agreement with the care,
skill, prudence and diligence under the circumstances then prevailing that
a prudent man acting in a like capacity and familiar with such matters
would use in the conduct of an enterprise of a like character and with
like aims. The Trustees' obligations relate solely to the Trust Fund and
it shall have no responsibility whatsoever for the control, management,
administration or revision of the Plan itself or for procuring
contributions required in the Plan.
Anything contained in this Agreement to the contrary notwithstanding it
shall be impermissible at any time prior to the satisfaction of all
liabilities with respect to Participants, Former Participants and their
spouses, except for payments of benefits under the terms of the Plan of
the Employer for any part of this Fund to be used for or diverted to any
purpose other than the exclusive benefit of such Participants, Former
Participants and their Spouses or Beneficiaries, except for payments of
expenses and charges properly payable out of the Fund as set forth herein.
15.02 Investment Powers.
(a) General Investment Policy. Employer contributions in cash and other
cash received by the Trust will be applied to pay any current
obligations of the Trust incurred for purchase of Company Stock, and
may be applied to purchase shares of Company Stock from shareholders
or from the Employer. The investment policy of the Plan is to invest
primarily in Company Stock. The Trustees are specifically authorized
to invest up to 100% of the assets of the Trust in Company Stock and
shall maintain at least 51% of the Fund assets in Company Stock.
With due regard to providing for such primary investment policy, the
Plan Administrator may direct the Trustees to invest funds under the
Plan in savings accounts, certificates of deposit, high-grade
short-term securities, stocks, bonds; or in any common or commingled
trust fund maintained by a bank, insurance company or other
authorized custodian for the investment of qualified employee
benefit trusts. All purchases of Company Stock shall be made at
prices which, in the judgment of the Plan Administrator, do not
exceed the fair market value of such shares as determined under
Section 15.3. Company Stock may be acquired for cash or on terms. In
this regard, borrowings are authorized including, but not limited
to, borrowings to obtain funds to acquire Company Stock. Borrowings
for Plan purposes other than the acquisition of Company Stock are
also authorized.
94-2A December 19, 1994 43
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Any Company Stock in which the Trustees invest shall be no less
valuable than other Company Stock regularly issued by the Company
for purchase by persons other than the Trustees.
(b) Acquisition Loans. Any loan which is made to the Trust must comply
with the following requirements: (1) the loan must be at a
reasonable rate of interest; (2) any collateral pledged to the
creditor by the Trustees shall consist only of the assets purchased
with the borrowed funds (although in addition to such collateral,
the Employer may guarantee repayment of the loan); (3) under the
terms of the loan, the creditor shall have no recourse against the
Trust except with respect to such collateral; (4) the loan shall be
repaid only from those amounts contributed by the Employer to the
Trust and from amounts earned on Trust investments pledged as
collateral for the loan or contributions made to meet the Plan's
obligations under the loan; (5) the Employer must contribute to the
Trust amounts sufficient to enable the Trust to pay each installment
of principal and interest on the loan on or before the date such
installment is due, even if no tax benefit results from such
contribution; (6) upon the payment of any portion of the balance due
on the loan, the assets originally pledged as collateral for such
portion shall be released from encumbrance. Released shares must be
allocated to the accounts of the Participants during the year such
portion of the loan is paid. Such allocation must be made in the
same manner provided for under this Plan for allocating shares when
no loan is involved.
Should any acquisition loan be made to the Trust, the following
rules will apply: Proceeds of any such loan must be used, within a
reasonable time after the receipt, only for any or all of the
following purposes: (1) to acquire qualifying employer securities;
(2) to repay such loan: (3) to repay a prior exempt loan.
Should any Plan assets be used as collateral for any such loan, all
such assets shall be placed in a suspense account and for each Plan
Year during the duration of the loan, the amount of Company Stock
released from the suspense account must equal the amount of
encumbered Company Stock held immediately before the release for the
current Plan Year multiplied by a fraction, the numerator of which
is the amount of principal and interest paid for the year and the
denominator of which is the sum of the numerator plus the principal
and interest to be paid for all future years.
(c) Geographic Situs. In no event shall the Trustees maintain the
indicia of ownership of any assets of the Fund outside the
jurisdiction of the United States District Courts.
(d) Liquidity. The Trustees shall exercise their investment discretion
so as to provide sufficient cash assets as the Plan Administrator
may suggest will be necessary from time to time to meet the
liquidity requirements for the administration of the Plan.
15.03 Valuation. The fair market value of the Fund shall be determined as of
each Valuation Date by independent appraisal conducted in accordance with
any applicable regulations and performed by an appraiser meeting the
requirements of Code Section 170(a)(1) and the regulations promulgated
thereunder. Under special circumstances, such as purchase of or tender for
Company Stock held by the Trustees, the Trustees may, but shall not be
required to, direct determination of fair market value by independent
appraisal as of any date.
15.04 Other Powers. In the management, care and disposition of the Fund, the
Trustees, and their successors, may do all things and execute such
instruments as may be deemed necessary or proper in order to carry out the
provisions of the Plan and this Agreement,
44
<PAGE>
including the following powers (in addition to the Investment powers set
forth above), all of which maybe exercised without order of or report to
any court and without giving bond:
(a) To see, exchange, or otherwise dispose of any property at any time
held in the Fund at public or private sale, for cash or on terms
without advertisement; and no person dealing with the Trustees shall
be bound to see to the application of monies paid;
(b) To retain, manage, operate, repair and improve and to mortgage
and/or lease and/or grant options to sell (for any period
whatsoever) any real or personal property held by the Trustees;
(c) To compromise, compound, and settle any debt or obligation due to or
from it as Trustees hereunder and to reduce the rate of interest on,
to extend or otherwise modify, or to foreclose upon default or
otherwise enforce, and to abandon, if it shall deem it advisable,
any property, whether real or personal, which may at any time be
held by them, and in general to protect in every way the interest of
the Fund, either before or after default;
(d) To vote in person or by proxy on any stocks or other securities held
by them (except as otherwise provided herein), unless by law or
regulatory authority the right to vote be proscribed as to them but
vested in Participants of the Fund, in which latter event the vote
shall be only by the Participants or as directed by them:
(e) To join in, or to dissent from or oppose, the reorganization,
capitalization, consolidation, sale or merger of corporations or
properties in which the Trustees may be interested as Trustees, upon
such terms and conditions as it may deem wise, and to accept any
securities which may be issued upon any such reorganization,
recapitalization, consolidation, sale or merger and thereafter to
hold the same;
(f) To register any stocks, bonds, or other securities except interests
in real property, held in the Fund in its own name as Trustees or in
the name of a nominee and to hold any investment in bearer form, or
to combine certificates representing such investments with
certificates of the same issue held by the Trustees in other
fiduciary capacities, or to deposit or to arrange for the deposit of
such securities in a qualified central depository even though, when
so deposited such securities may be merged and held in bulk in the
name of the nominee of such depository with other securities
deposited herein by any other person, or to deposit or to arrange
for the deposit of any securities issued by the United States
Government, or any agency or instrumentality thereof, with a federal
reserve bank, provided that the books and records of the Trustees
shall at all times show that all such investments are part of the
Fund;
(g) To borrow or raise monies for purposes deemed appropriate by the
Trustees, including the making of distributions under the Plan in
such amount and upon such terms and conditions as in their absolute
discretion the Trustees may deem advisable; and for any sums so
borrowed to issue its promissory note as Trustees and to secure the
repayment thereof by pledging all or any part of the Fund; and no
person lending money to the Trustees shall be bound to see to the
application of the money loaned or to inquire into the validity,
expediency or propriety of any such borrowing;
94-2A December 19, 1994 45
<PAGE>
(h) To employ agents from time to time, at the expense of the Fund, and
to delegate to them such ministerial and limited duties as the
Trustees see fit;
(i) To consult with legal counsel, who may be counsel to Employer,
consultants and other professional advisors, and to act upon the
advice of such counsel;
(j) To make, execute, and acknowledge and deliver any and all deeds,
leases, assignments and instruments and to do all acts which they
may deem necessary or proper to carry out the investment provisions
of the Plan;
(k) To make distributions wholly or partly in cash or in kind;
(l) To reserve from investment and keep unproductive of income any
amounts or part of the Fund as they may from time to time deem
advisable.
15.05 Voting Company Stock. All Company Stock allocated to Participant Accounts
shall be voted by the Trustees unless the vote involves approval of a
merger, consolidation, recapitalization, reclassification, liquidation,
dissolution, sale of substantially all of the Employer's assets, or any
similar transaction described in regulations. Participants shall be
permitted to vote Company Stock allocated to their Accounts in accordance
with procedures established by the Trustee on matters specified in the
preceding sentence as being matters on which the Trustee shall not vote.
The Trustees shall vote all Company Stock held in Trust which has not been
allocated to Participant Accounts. If any Participant fails to direct
the Trustees as to the manner in which Company Stock allocated to his
Account shall be voted, the Trustees shall vote such Stock in the same
manner as unallocated Company Stock.
15.06 Prohibited Transaction. Anything in this Agreement of Trust to the
contrary notwithstanding (and especially the powers granted to the
Trustees herein), the Trustees shall not be authorized to engage in any
transaction which is prohibited by Sections 406 of the Act or Section 4975
of the Internal Revenue Code unless they determine that such transaction
is exempt under the terms of the Act and the Internal Revenue Code
therefrom.
15.07 Administration of the Plan; Payments of Benefits; Reliance on Committee.
The Plan Administrator shall have the exclusive authority and
responsibility for communicating to the Trustees any and all decisions and
directions concerning the administration of the Plan and the payment of
benefits thereunder (including payees, amounts, addresses, dates of
payments, etc.). In the event the Trustees shall deem it necessary to
withhold any payments or distributions pending compliance with legal
requirements with respect to probate of Wills, appointment of personal
representative, payment of or provision for estate or inheritance taxes,
or for death duties or otherwise, the Trustees shall notify the Plan
Administrator and shall thereafter take no action pending compliance, or
pending receipt of the Plan Administrator's instructions to distribute.
Orders and directions from the Plan Administrator need not specify the
purpose of the payment so ordered, and the Trustees shall not be
responsible in any way respecting the purpose or propriety of such
payments or for the administration of the Plan and Trust. The Trustees
shall not be responsible in any respect for the adequacy of the Fund to
meet or discharge any payments or liabilities under the Plan; and payments
shall be limited to amounts available in the Fund. Any order or direction
from the Plan Administrator shall constitute a certification to the
Trustees that the action directed is one which is in conformity with the
provisions of the Plan and of the Act. To the extent permitted by law, the
Trustees shall not be liable for any action taken (especially any payment
made from the Fund) at the direction of the Plan Administrator or for any
failure to act, if such action can under the terms of the Plan and Trust
be taken only after receipt from the Plan Administrator of specific
directions or for failure to act pending
94-2A December 19, 1994 46
<PAGE>
receipt of directions from the Plan Administrator when direction is
required or is requested in writing by the Trustees.
15.08 Directing the Trustees. The Company may from time to time direct the
Trustees as to the investment or management of all or part of the Trust
Fund. The Employer may also from time to time appoint an Investment
Manager or Mangers for all, or any part, of the Trust Fund; provided that
no Investment Manager shall be appointed unless it qualifies as an
Investment Manager within the meaning of Section 3(38) of the Act. Any
such Investment Manager shall be a fiduciary of the Plan and shall qualify
by accepting its appointment as Investment Manager in writing.
Upon the appointment and qualification of an Investment Manager, the
Investment Manager shall have exclusive power and authority for the
investment and reinvestment of the Fund and shall have the power to direct
the acquisition and disposition of any and all assets and investment of
the Fund. The Trustees shall be relieved from any liability for the
making, retention, or sale of any investment by or at the direction of an
Investment Manager appointed in the manner herein set forth or by or at
the direction of the Employer.
15.09 Records and Reports. The Trustees shall keep accurate and detailed
accounts of all investments, receipts and disbursements, and other
transactions hereunder. Within ninety (90) days following the close of
each fiscal year, the trustees shall file a written report with the
undersigned Employer or the Plan Administrator setting forth all
investments, receipts and disbursements, and other transactions effected
by the Trustees during such fiscal year. Upon the expiration of ninety
(90) days from the date of filing such annual or other account, the
Trustees shall be forever released and discharged from any liability or
accountability to the undersigned Employer as respects the propriety of
its acts or transactions shown in such accounts (other than liability for
acts of fraud or willful misconduct), except with respect to any such acts
or transactions as to which the undersigned Employer shall within such
ninety (90) day period file with the Trustees a written statement claiming
a breach of the Trustees' fiduciary duties or failure to fulfill the
Trustees; obligations under the Agreement. The Trustees shall never be
required to file any inventory or appraisals, or any annual or other
returns to any court or to post bond.
The Trustees shall be entitled to have a judicial settlement of any
account for which they are responsible. In any such proceeding or for any
judicial instructions required in connection with the Fund, the only
necessary parties thereto in addition to the Trustees will be the
undersigned Employer of the Plan and the Plan Administrator. However, the
Trustees may bring in other persons as a party or party defendant.
15.10 Notification to Trustees. Any notice, direction, order, request,
certification or instruction of the Plan Administrator to the Trustees
shall be in writing signed by a member of the Committee or shall be
presented at a meeting with the Trustees. Any action by the Employer
pursuant to any of the provisions of the Plan or of this Agreement shall
be authorized or evidenced by a resolution of the Board of the Employer or
by an officer of the Employer authorized by resolution of the Board to
take actions in connection with this Plan and Trust. The Trustees and
every other person shall be entitled to rely conclusively upon any and all
such notices, directions, orders, requests, certifications and
instructions received from the Plan Administrator or from the Employer and
reasonably believed to be properly executed, and shall act and be fully
protected in acting in accordance therewith.
The Trustees from time to time may request and be entitled to certified
copies of resolutions of the Employer, evidencing the appointment and
termination of office of any members of the Committee and of successors to
such members together with specimens of their signatures, and the Trustees
shall be entitled to rely conclusively upon such resolutions and
94-2A December 19, 1994 47
<PAGE>
signatures as evidence of the identity of the members of the Committee and
shall not be charged with notice of any change with respect thereto until
the Employer shall have furnished the Trustees with certified copies of
resolutions relative to such change.
15.11 Expenses. All expenses of making purchases and sales, other expenses of
managing the Fund (including the employment of agents and advisors and any
taxes levied or assessed against the Trustees in respect of the Fund)
shall constitute a lien against the assets of the Fund and may be paid by
the Trustees (without approval of the Plan Administrator) if not paid by
the Employer within a reasonable time after becoming due. No Trustee
receiving compensation from an Employer or Affiliate as an employee shall
be paid compensation for services as Trustee from the Fund.
15.12 Trustees' Tenure and Succession.
(a) Any Trustee may be removed at any time upon sixty (60) days notice
in writing to the Trustee signed by an authorized officer of the
Employer.
(b) Any Trustee may resign at any time upon sixty (60) days notice in
writing to an authorized officer of the Employer.
The foregoing notice requirements may be waived by agreement or by the
failure of either party to notify the other of its intention to enforce
such requirements within 30 days of abrogation of a notice requirement.
Within ninety (90) days after such removal or resignation of a Trustee,
the removed or resigning Trustee shall, to the extent otherwise
unavailable, file with the Employer a written account setting forth all
investments, receipts and disbursements, and other transactions in which
such Trustee has participated since the end of the largest fiscal year in
which such an accounting was filed with the Employer and containing an
exact description of all securities purchased and sold, the cost or net
proceeds of sale, and showing the securities and investments held at the
dare of such removal or resignation and the cost of each item thereof as
carried on the books of the Trustee. Except with respect to any such acts
or transactions as to which the Employer shall within such ninety (90) day
period file with the Trustee a written statement claiming a breach of
fiduciary duty or failure to observe the terms of this Agreement, upon the
expiration of ninety (90) days from the date of filing such report, the
Trustee participating in such accounting shall be forever released and
discharged from any liability or accountability to the Employer as
respects the propriety of the Trustee's acts or transactions shown in such
report (other than liability for acts of fraud or willful misconduct). The
Employer may waive the accounting required under this Section; however, in
the event of such waiver the Trustee shall be released from liability to
the Employer unless an accounting is performed.
15.13 Successor Trustee. Upon the removal or resignation of a Trustee acting
under this Agreement, a successor Trustee may be appointed as provided
herein. The Trustee who has resigned or has been removed shall do anything
required so that the successor Trustee shall be able to carry out the
rights, duties and obligations of the Trustee set forth herein. A
successor Trustee shall not be responsible for any act or omissions of a
predecessor Trustee, and shall not be required to make any claim or demand
against a predecessor Trustee unless the Plan Administrator shall in
writing request the successor Trustee to participate in a claim against a
predecessor Trustee. A successor Trustee shall have and may exercise all
the rights, powers and duties given to an original Trustee named herein,
as such rights, powers and duties may be amended from time to time. Such
rights, powers and duties attach to the office of Trustee and are not
personal to any specific Trustee which may be serving as Trustee under
this Agreement at any given time.
94-2A December 19, 1994 48
<PAGE>
15.14 Bond and Security. The Trustees shall not be required to give any bond or
any other security for the faithful performance of the Trustees; duties
under the Agreement, except such as may be required by any law which
prohibits the waiver thereof.
15.15 Commingling. If the Committee consents or directs, the trust assets of the
undersigned Employer which are held by the Trustees may be commingled with
the trust assets of any Affiliate which adopts a qualified plan and trust
agreement substantially similar to this Plan and Trust. Such commingling
shall be only for administrative and investment purposes and only if
adequate records are maintained so that it is always possible to ascertain
and separate the trusts assets of each such Employer. No individual
Employer shall at any time own any specific assets in such commingled
Fund, its interest being an undivided interest of its pro rata portion of
the entire Fund.
15.16 Indemnification of Trustees. To the extent permitted under the Act, the
Plan shall indemnify the Trustees against any cost or liability which they
may incur in the course of administering the Plan and executing the duties
assigned pursuant to the Plan. The Employer shall indemnify the Trustees
against any personal liability or cost (including attorney's fees) not
provided for in the preceding sentence which they may incur as a result of
any act or omission in good faith and to the extent permitted by law in
relation to the Plan or its Participants. The Employer may purchase
fiduciary liability insurance to insure its obligation under this Section.
94-2A December 19, 1994 49
EXHIBIT 10.3
STOCK OPTION PLAN
OF
BANKFIRST
BankFirst, a Tennessee banking corporation, with principal offices at 625
Market Street, Knoxville, Knox County, Tennessee, is establishing a stock option
plan to advance the interests of the Bank and its shareholders by encouraging
and enabling selected directors, officers, and other key employees upon whose
judgment, initiative and effort the Bank is largely dependent for the successful
conduct of its business to acquire and retain a proprietary interest in the Bank
by ownership of stock.
Article I
Definitions
As used herein, the following terms have the meanings hereinafter set
forth unless the context clearly indicates to the contrary:
(a) "Bank" shall mean BankFirst.
(b) "Board" shall mean the Board of Directors of BankFirst.
(c) "Committee" shall mean the Executive Committee of the Board of
Directors.
(d) "Fair Market Value" shall mean the sum established by the Board
of Directors annually, and for the purpose of the adoption of this Plan,
shall mean the sum of Twenty ($20.00) Dollars per share. If the stock is
listed upon an established stock exchange or exchanges, such fair market
shall be deemed to be the highest closing price of the capital stock on
such stock exchange or exchanges on the day the option is granted, or if
no sale of the Bank's Common Stock shall have been made on any stock
exchange on that day, on the next preceding day on which there was a sale
of such stock.
(e) "Grantee" shall mean an employee to whom an Award has been
granted hereunder.
(f) "Optionee" shall mean an officer, director or key employee to
whom an option has been granted hereunder.
<PAGE>
(g) "Plan" shall mean the BankFirst Stock Plan, the terms of which
are set forth herein.
(h) "Stock" shall mean the Common Stock of BankFirst or, in the
event that such outstanding shares of stock are hereafter changed into or
exchanged for shares of a different stock or securities of the Bank or
some other corporation, such other stock or securities.
(i) "Stock Option Agreement" shall mean the agreement between the
Bank and the Optionee under which the Optionee may purchase Stock
hereunder.
Article II
The Plan
2.1 Name. This plan shall be known as the "BankFirst Stock Option Plan".
2.2 Purpose. The purpose of the Plan is to advance the interests of the
Bank and its shareholders by affording to officers, key employees and directors
of the Bank an opportunity to acquire to increase their proprietary interest in
the Bank by the grant to such key management employees and directors of options
under the terms set forth herein. By thus encouraging such officers, key
employees, and directors to become owners of the Bank's shares, the Bank seeks
to motivate, retain, and attract those highly competent individuals upon whose
judgment, initiative, leadership and continued efforts the success of the Bank
in large measure depends. The options granted hereunder are not "incentive stock
options" within the meaning of Section 422 of the Internal Revenue Code of 1986.
2.3 Effective Date. The effective date of the Plan is March 14, 1995, the
date of its approval by the Board, provided, however, if the Plan is not
approved by the Stockholders at the next Stockholders Meeting, or if the Plan is
not approved by such stockholders before March 14, 1996, the Plan shall
terminate and any options granted thereunder shall be void and have no force or
effect, except as provided in Article V hereof.
Article III
Participants
Any director, officer or other key management employee of the Bank shall
be eligible to participate in the Plan. The Committee may grant Options to any
eligible participant in accordance with such determinations as the Committee
from time to time in its sole discretion shall make.
2
<PAGE>
Article IV
Administration
4.1 Duties and Powers of Committee. The Plan shall be administered by the
Committee. Subject to the express provisions of the Plan, the Committee shall
have sole discretion and authority to determine from among the directors and the
Chief Executive Officer of the Bank those to whom and the time or times at which
Option may be granted and the number of shares of Stock to be subject to each
Option. The President and Chief Executive Officer shall in accordance with the
authorization of the Executive Committee of the Board have sole discretion and
authority to determine from among the officers and key employees those to whom
and the time or times at which Option may be granted and the number of shares of
Stock to be subject to each Option. Subject to the express provisions of the
Plan, the Committee shall also have complete authority to interpret the Plan, to
prescribe, amend, and rescind rules and regulations relating to it, to determine
the details and provisions of each Stock Option Agreement, and to make all other
determinations necessary or advisable in the administration of the Plan.
4.2 Majority Rule. A majority of the members of the Committee shall
constitute a quorum, and any action taken by a majority present at a meeting at
which a quorum is present or any action taken without a meeting evidenced by a
writing executed by a majority of the whole Committee shall constitute the
action of the Committee.
4.3 Bank Assistance. The Bank shall supply full and timely information to
the Committee on all matters relating to employees, their employment, death,
retirement, disability or other termination of employment, and such other
pertinent facts as the Committee may require. The Bank shall furnish the
Committee with such clerical and other assistance as it is necessary in the
performance of its duties.
Article V
Stock Subject to Plan
5.1 Limitations. Subject to adjustment pursuant to the provisions of
Section 5.3 hereof, the number of shares of Stock which may be issued and sold
hereunder shall not exceed 500,000 shares; such shares may be authorized and
unissued shares or shares issued and thereby after acquired by the Bank. All
shares issued and sold hereunder shall be subject to the restriction that the
shares may not be sold by the Optionee until the initial public offering of the
Bank's stock or the Bank determines otherwise.
3
<PAGE>
The Bank has previously granted options totaling 169,565 shares to two (2)
executive employees and three (3) directors. The Stock Option Agreements
authorized by the Board of Directors to the two (2) executive officers and three
(3) directors differ in terms of the Stock Option Plans set forth herein
specifically in price, exercise of option, expiration and registration rights.
Copies of the agreements are on file with the Secretary of the Board.
5.2 Options Granted Under the Plan. Shares of Stock with respect to which
an Option granted hereunder shall have been exercised shall not again be
available for Option hereunder. If Options granted hereunder shall terminate for
any reason without being wholly exercised, new Options may be granted hereunder
covering the number of shares to which such option termination relates.
5.3 Antidilution. In the event that the outstanding shares of Stock
hereafter are changed into or exchanged for a different number or kind of shares
or other securities of the Bank or of another corporation by reason of merger,
consolidation, other reorganization, recapitalization, reclassification,
combination of shares, stock split-up, or stock dividend:
(a) The aggregate number and kind of shares subject to Options which
may be granted hereunder shall be adjusted appropriately.
(b) Rights under outstanding Options granted hereunder, both as to
the number of subject shares and the Option price, shall be adjusted
appropriately.
(c) Where dissolution or liquidation of the Bank or any merger or
combination in which the Bank is not a surviving corporation is involved,
each outstanding Option granted hereunder shall terminate, but the
Optionee shall have the right, immediately prior to such dissolution,
liquidation, merger, or combination, to exercise his Option in whole or in
part, to the extent that it shall not have been exercised, without regard
to any installment exercise provisions.
The foregoing adjustments and the manner of application of the foregoing
provisions shall be determined solely by the Committee, and any such adjustment
may provide for the elimination of fractional share interests.
Article VI
Stock Options
6.1 Option Grant and Agreement. Each Option granted hereunder shall be
evidenced by minutes of a meeting or the written consent of the Committee and by
a written Stock Option Agreement dated as of the date of grant and executed by
the Bank and the Optionee, which Agreement shall set forth such terms and
conditions as may be determined by the Committee consistent with the Plan.
4
<PAGE>
6.2 Option Price. The per share Option price of the Stock subject to each
Option shall be determined by the Committee, by the per share price shall not be
less than the Fair Market Value of the Stock on the date the Option is granted.
6.3 Option Period. Each Option granted hereunder must be granted within
ten years from the effective date of the plan. The period for the exercise of
each Option shall be determined by the Committee, but in no instance shall such
period exceed ten years from the date of grant of the Option.
6.4 Option Exercise. Options may be exercised in whole at any time, or in
part from time to time with respect to whole shares only, within the period
permitted for the exercise thereof, and shall be exercised by written notice of
intent to exercise the Option with respect to a specified number of shares
delivered to the Bank at its principal office in Knoxville, Tennessee, and
payment in full to the Bank at said office of the amount of the Option price for
the number of shares of Stock with respect to which the Option is then being
exercised. In addition to and at the time of payment of the Option price,
Optionee shall pay to the Bank in cash the full amount of all federal and state
withholding or other employment taxes applicable to the taxable income of such
Optionee resulting from such exercise.
6.5 Nontransferability of Option. No Option shall be transferred by an
Optionee otherwise than by will or the laws of descent and distribution. During
the lifetime of an Optionee the Option shall be exercisable only by him.
6.6 Effect of Death or Other Termination of Employment.
(a) If the Optionee's employment or directorship with the Bank shall
be terminated by the Bank with or without cause, or by the act of the
Optionee, the Optionee's right to exercise such Option shall terminate and
all rights thereunder shall cease, provided, however, that if the Optionee
shall die, retire, or become permanently and totally disabled, as
determined by the Committee in accordance with applicable Bank personnel
policies, such Option shall become exercisable in full on the date of such
death, retirement, or disability and, in the case of retirement or
disability, such Option shall remain exercisable for three months after
the date of such retirement or disability.
(b) If an Optionee's employment or directorship with the Bank shall
be terminated or any reason other than death, the Optionee shall have the
right, during the period ending three months after such termination, to
exercise such Option to the extent that it was exercisable at the date of
such termination of employment and shall not have been exercised.
(c) If an Optionee shall die while serving as a director or while in
the employ of the Bank or within three months after termination of such
directorship or employment, the personal representative of the estate of
the decedent or the person or persons to whom an Option granted hereunder
shall have been validly transferred by the Personal Representative
5
<PAGE>
pursuant to will or the laws of descent and distribution shall have the
right during the period ending one year after the date of the Optionee's
death, to exercise the Optionee's Option to the extent that it was
exercisable at the date of termination of employment by death or otherwise
and shall not have been exercised.
(d) No transfer of an Option by the Optionee by will or by the laws
of descent and distribution shall be effective to bind the Bank unless the
Bank shall have been furnished with written notice thereof and an
authenticated copy of the will and/or such other evidence as the Committee
may deem necessary to establish the validity of the transfer and the
acceptance by the transferee or transferees of the terms and conditions of
such Option.
6.7 Rights as Shareholder. An Optionee or a transferee of an Option shall
have no rights as a shareholder with respect to any shares subject to such
Option prior to the purchase of such shares by exercise of such Option as
provided herein.
Article VII
Stock Certificates
The Bank shall issue and deliver the certificate for shares of Stock
purchased upon the exercise of any Option granted hereunder or any portion
thereof within five (5) business days of the option.
Article VIII
Termination, Amendment and Notification of Plan
The Board of Directors may at any time terminate, and may at any time and
from time to time and in any respect amend or modify, the Plan; provided,
however, that no such action of the Board without approval of the majority of
the shareholders of the Bank may:
(a) Increase the total number of shares of Stock subject to the Plan
except as contemplated in Section 5.3 hereof,
(b) Withdraw the administration of the Plan from the Committee,
(c) Permit any person while a member of the Committee to be eligible
to receive or hold an Option under the Plan; and
provided further, that no termination, amendment, or modification of the Plan
shall in any manner affect any Option theretofore granted under the Plan without
the consent of the Optionee or permitted transferee of the Option.
6
<PAGE>
Article IX
Miscellaneous
9.1 Employment and Directorship. Nothing in the Plan or in any Option
granted hereunder or in any Stock Option Agreement relating thereto shall confer
upon any employee the right to continue in the employ of the Bank, or the
director the right to serve on the Board of Directors.
9.2 Other Compensation Plans. The adoption of the Plan shall not affect
any other stock option or incentive or other compensation plans in effect for
the Bank, nor shall the Plan preclude the Bank from establishing any other forms
of incentive or other compensation for employees of the Bank.
9.3 Plan Binding on Successors. The Plan shall be binding upon the
successors and assigns of the Bank.
9.4 Singular, Plural, Gender. Whenever used herein, nouns in the singular
shall include the plural, and the masculine pronoun shall include the feminine
gender.
9.5 Headings, etc., No Part of the Plan. Headings of Articles and Section
hereof are inserted for convenience and reference; they constitute no part of
the Plan.
7
<PAGE>
GRANT OF STOCK OPTION
UNDER
BANKFIRST STOCK OPTION PLAN
Grantee: James L. Clayton
Social Security Number: ###-##-####
Grant Date: 3/14/95
Expiration Date: March 14, 2005
Number of Shares: 1200
Exercise Price Per Share: $20.00
BankFirst, a Tennessee banking corporation, (the "Bank"), hereby grants you an
option to purchase the total number of shares of Bank stock set forth above and
at the exercise price stated above, subject to the terms and conditions of the
BankFirst Stock Option Plan and Stock Option Agreement.
I hereby acknowledge receipt of the Option granted above. I further acknowledge
receipt of a copy of the BankFirst Stock Option Plan and Stock Option Agreement
and agree to conform to all terms and conditions of the Option and Agreement.
Date: March 14, 1995 Signature: /s/ Fred R. Lawson
--------------------- ---------------------------
BankFirst
Date: March 14, 1995 Signature: /s/ James L. Clayton
---------------------------------
James L. Clayton - Director
EXHIBIT 10.4
BANKFIRST INCENTIVE STOCK OPTION PLAN
BANKFIRST, a Tennessee banking corporation, with principal offices at 625 Market
Street, Knoxville, Knox County, Tennessee, is establishing a STOCK OPTION PLAN
as follows:
ARTICLE I
PLAN INTRODUCTION
1.1. Name. This Plan shall be known as the "BankFirst Incentive Stock
Option Plan."
1.2. Purpose. The purpose of the BankFirst Incentive Stock Option Plan is
to secure for the Bank and its shareholders the benefits which flow from
providing selected directors, officers, and other key employees with the
incentive inherent in common stock ownership. By so encouraging and enabling
such employees to become owners of the Bank's shares, the Bank seeks to
motivate, retain, and attract those highly competent individuals upon whose
judgment, initiative, leadership and continued efforts the success of the Bank
in large measure depends.
1.3. Form of Plan. With of a view of providing these employees with an
attractive incentive for continued faithful service with the Bank, the Bank
intends the stock options granted hereunder to qualify as incentive stock
options within the meaning of Code Section 422A of the Internal Revenue Code of
1986, as amended (the "Code"), such that the exercise of the options will not be
a taxable event for the employee until such time that he or she actually
disposes of the shares.
1.4. Effective Date. The effective date of the Plan is October 11, 1995,
the date of its approval by the Executive Committee of the Board, provided,
however, if the Plan is not approved by the shareholders of the Bank at the next
Shareholders Meeting, or if the Plan is not approved by such shareholders before
June 30, 1996, the Plan shall terminate and any options granted thereunder shall
be void and have no force or effect, except as expressly provided otherwise
herein.
1.5. Definitions. As used herein, the following terms have the meanings
hereinafter set forth unless the context clearly indicates to the contrary:
(a) "Bank" shall mean BankFirst.
(b) "Board" shall mean the Board of Directors of BankFirst.
(c) "Committee" shall mean the Executive Committee of the Board of
Directors.
(d) "Fair Market Value" shall mean the sum established by the Board
of Directors immediately prior to the grant of any option hereunder.
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<PAGE>
(e) "Grantee" shall mean an employee of the Bank to whom an Award
has been granted hereunder.
(f) "Optionee" shall mean a director, officer, or other key employee
to whom an Option has been granted hereunder.
(g) "Plan" shall mean the BankFirst Incentive Stock Option Plan,
the terms of which are set forth herein.
(h) "Stock" shall mean the Common Stock of BankFirst or, in the
event that such outstanding shares of stock are hereafter changed into or
exchanged for shares of a different stock or securities of the Bank or
some other corporation or company, such other stock or securities.
(i) "Stock Option Agreement" shall mean the agreement between the
Bank and the Optionee under which the Optionee may purchase Stock
hereunder.
ARTICLE II
PLAN PARTICIPATION, ADMINISTRATION, TERMINATION
2.1. Eligibility and Plan Participation. Any director, officer or other
key management employee of the Bank shall be eligible to participate in the
Plan. The Committee may grant Options to any eligible participant in accordance
with such determinations as the Committee from time to time in its sole
discretion shall make.
(a) Options Discretionary. The granting of options hereunder shall be
entirely discretionary with the Committee and nothing in the Plan shall be
deemed to give any director, officer, or other key management employee of the
Bank any right to participate in the Plan or to receive options.
2.2. Plan Administration. The Plan shall be administered by the Committee
in accordance with the following provisions:
(a) Duties and Powers of Committee. Subject to the express
provisions of the Plan, the Committee shall have sole discretion and
authority to determine from among the directors and the Chief Executive
Officer of the Bank those to whom and the time or times at which an Option
may be granted hereunder, and the number of shares of Stock to be subject
to each Option. The President and Chief Executive Officer shall in
accordance with the authorization of the Committee have sole discretion
and authority to determine from among the officers and key employees those
to whom and the time or times at which an Option may be granted hereunder,
and the number of shares of Stock to be subject to each Option. Subject to
the express provisions of the Plan, the Committee shall also have complete
authority to interpret the Plan, to prescribe, amend,
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<PAGE>
and rescind rules and regulations relating to it, to determine the details
and provisions of each Stock Option Agreement, and to make all other
determinations necessary or advisable in the administration of the Plan.
(b) Majority Rule. A majority of the disinterested members of the
Committee shall constitute a quorum, and any action taken by a majority
present at a meeting at which a quorum is present or any action taken
without a meeting evidenced by a writing executed by a majority of the
disinterested members of the whole Committee shall constitute the action
of the Committee.
(c) Bank Assistance. The Bank shall supply fu1l and timely
information to the Committee on all matters relating to employees, their
employment, death, retirement, disability or other termination of
employment, and such other pertinent facts as the Committee may require.
The Bank shall furnish the Committee with such clerical and other
assistance as is necessary in the performance of its duties.
ARTICLE III
STOCK OPTION SHARES
3.1. Stock Limitations. Subject to adjustment pursuant to the provisions
of Section 3.4 hereof the number of shares of Stock which may be issued and sold
hereunder shall not exceed 500,000 shares. Such shares may be authorized and
unissued shares or shares issued and thereby after acquired by the Bank. All
shares issued and sold hereunder shall be subject to the restriction that the
shares may not be sold by the Optionee until the initial public offering of the
Bank's stock or the Bank determines otherwise.
3.2. Previous Stock Option Grants. The Bank has previously granted options
totaling 178,765 shares to two (2) executive employees and seventeen (17)
directors. The Stock Option Agreements authorized by the Board of Directors to
these individuals differ in terms of the Stock Options Plans set forth herein
specifically in price, exercise of option, expiration and registration rights.
Copies of the Agreements are on file with the Secretary of the Board.
3.3. Options Granted Under the Plan. Shares of Stock with respect to which
an Option granted hereunder have been exercised shall not again be available for
Option hereunder. If Options granted hereunder shall terminate or expire for any
reason without being wholly exercised, new Options may be granted hereunder
covering the number of shares to which such Option termination relates.
3.4. Antidilution. In the event that the outstanding shares of Stock
hereafter are changed into or exchanged for a different number or kind of shares
or other securities of the Bank or of another corporation by reason of merger,
consolidation, other reorganization, recapitalization, reclassification,
combination of shares, stock split-up, or stock dividend:
Page 3
<PAGE>
(a) The aggregate number and kind of shares subject to Options which
may be granted hereunder shall be adjusted accordingly.
(b) Rights under outstanding Options granted hereunder, both as to
the number of subject shares and the Option price, shall be adjusted
accordingly.
(c) Where dissolution or liquidation of the Bank or any merger or
combination in which the Bank is not a surviving corporation is involved,
each outstanding Option granted hereunder shall terminate, but the
Optionee shall be fully vested and shall have the right, immediately prior
to such dissolution, liquidation, merger, or combination, to exercise
his/her Option in whole or in part.
The foregoing adjustments and the manner of application of the foregoing
provisions shall be determined solely by the Committee, and any such adjustment
may provide for the elimination of fractional share interests.
3.5. Termination, Amendment and Modification the Plan. The Board of
Directors may at any time suspend, discontinue, or terminate the Plan, and may
at any time and from time to time and in any respect amend or modify the Plan
and make rules for its administration; provided, however, that no such action of
the Board without approval of the majority of the shareholders of the Bank may:
(a) Increase the total number of shares of Stock subject to the Plan
except as contemplated in Section 3.4 hereof;
(b) Withdraw the administration of the Plan from the Committee;
(c) Permit any person while a member of the Committee to be eligible
to receive or hold an Option under the Plan; and
provided further, that no termination, amendment, or modification of the Plan
shall in any manner (1) affect any Option theretofore granted under the Plan
without the consent of the Optionee or permitted transferee of the Option, or
(2) prevent Options issued under the Plan from being "incentive stock options"
as defined in Section 422A of the Code.
ARTICLE IV
STOCK OPTIONS
4.1. Stock Option Grants and Agreements. Each Option granted hereunder
shall be evidenced by minutes of a meeting or the written consent of the
Committee, and by a written Stock Option Agreement dated as of the date of grant
and executed by the Bank and the Optionee. The Option and Stock Option Agreement
may be in such form as shall be approved by the Board of Directors.
Page 4
<PAGE>
(a) Additional Terms. Such Stock Option Agreement and any Option granted
thereunder shall contain such other and additional terms, not inconsistent with
the terms of this Plan, which are deemed necessary and desirable by the Board of
Directors, the Committee, or by legal counsel to the Bank, and such other terms
shall include those which, together with the terms of this Plan, shall
constitute such option as an "incentive stock option" within the meaning of
Section 422A of Code.
4.2. Option Price. The per share Option price of the Stock subject to each
Option shall be determined by the Committee, but the per share price shall not
be less than the Fair Market Value of the Stock on the date the Option is
granted.
4.3. Option Vesting. No portion of the Option may be exercised unless
vested in accordance with the provisions of the Stock Option Agreement and this
Plan. Options shall vest at an annual rate of twenty percent (20%), allowing the
exercise of twenty percent (20%) of the stock option shares at the successful
conclusion of each year of service. "Vesting" as used in the Stock Option
Agreement and this Plan shall act to give the Officer those rights determined by
the Committee and no others. Both unvested and vested portions of Options shall
be subject to early termination. Al Optionees shall become fully vested upon
the dissolution or liquidation of the Bank, or any merger or combination in
which the Bank is not a surviving corporation.
4.4. Option Period. Each Option granted hereunder must be granted within
ten years from the effective date of the Plan.
4.5. Natural Termination and Expiration of Options. The period for the
exercise of each Option shall be determined by the Committee, but in no instance
shall such period exceed ten years from the date of grant of the Option.
4.6. Early Termination and Expiration of Options; Effect Thereof. Each of
the following shall be a Terminating Event, the occurrence of which shall act to
terminate the Option prior to its natural expiration to the extent not
previously exercised:
(i) Termination of Employment. The termination of employment of the
Officer for any reason whatsoever, the date of termination being the date
the Officer is notified of the termination.
(ii) Reduction of Position. The reduction of the Officer's position
for any reason whatsoever, the date of termination being the date the
Officer is notified of the reduction. The Option shall not be affected by
any change in duties or position as long as the Officer continues to be an
Officer of the Bank at the same or higher position as that held on the
Grant Date.
Page 5
<PAGE>
(iii) Unauthorized Leave. Any unauthorized leave from employment
taken by the Officer, the date of termination being the date such leave
became unauthorized.
(iv) Death of Officer. The death of the Officer while employed or
during any Transitory Period, the date of termination being the date of
death.
Upon the occurrence of a Terminating Event, the unvested portion of the Option
shall expire on the date of termination set forth above. To the extent that the
Officer shall have been otherwise entitled to do so, the vested portion may
continue to be exercised by the Officer (or, should the Officer be deceased, by
the legatee or legatees of the Officer under such Officer's Last Will or by such
Officer's personal representative or distributees), during a Transitory Period
to be determined by the Committee but in no event later than three (3) months
after the date of termination set forth above. No further vesting shall occur
during the Transitory Period, and the Option shall fully expire at the
conclusion of the Transitory Period.
4.7. Effect of Option Termination and Expiration. Once any Option granted
hereunder has terminated or expired, such Option shall be deemed irrevocably
expired. Regardless of any efforts by the Optionee to cure the event causing
such expiration, such Option may not be revived unless specifically reinstated
in writing by an officer of the Bank duly authorized by disinterested members of
the Board of Directors.
4.8. Option Exercise. Options may be exercised in whole at any time, or in
part from time to time with respect to whole shares only, to the extent that the
Option has vested, and within the period permitted for the exercise thereof.
Further, except as otherwise provided herein, the Option may not be exercised at
any time unless the Optionee shall have been in the continuous employ of the
Bank from the date the Option is granted to the date of exercising the Option.
(a) Method of Option Exercise. Any Option granted pursuant to this Plan
shall contain provisions established by the Board of Directors setting forth the
manner of exercise of such Option. Notwithstanding the foregoing, Options shall
be exercised by providing (1) written notice of intent to exercise the Option
with respect to a specified number of shares delivered to the Bank at its
principal office in Knoxville, Tennessee, and (2) payment in full to the Bank at
said office of the amount of the Option price for the number of shares of Stock
with respect to which the Option is then being exercised, such payment to be in
cash or certified funds made payable to the order of the Bank.
4.8. Nontransferability of Option. No Option shall be transferred by an
Optionee otherwise than by Will or the laws of descent and distribution. During
the lifetime of an Optionee the Option shall be exercised only by him/her. No
transfer of an Option by the Optionee by Will or by the laws of descent and
distribution shall be effective to bind the Bank unless the Bank shall
Page 6
<PAGE>
have been furnished with written notice thereof and an authenticated copy of the
will and/or such other evidence as the Committee may deem necessary to establish
the validity of the transfer and the acceptance by the transferee or transferees
of the terms and conditions of such Option.
4.9. Rights as Shareholder. An Optionee or a transferee of an Option shal1
have no rights as a shareholder with respect to any shares subject to such
Option prior to purchase of such shares by valid exercise of such Option as
provided herein and a stock certificate is issued and delivered by the Bank
therefor.
4.10. Stock Certificates; Refunds. The Bank shall issue and deliver the
certificate or certificates for shares of Stock purchased upon the valid
exercise of any Option granted hereunder or any portion thereof within fifteen
(15) business days of the exercise of the Option and payment therefor. In the
event the Option or a portion thereof is not validly exercised or is otherwise
not available in accordance with the terms of this Plan, the Bank shall refund
the purchase price for that portion of the Option not validly exercised or
otherwise not available within fifteen (15) business days of the exercise of the
Option and payment therefor. No refund of the purchase price will be made for a
validly exercised Option after share certificates issue.
ARTICLE V
MISCELLANEOUS
5.1. Employment and Directorship. Nothing in the Plan or in any Option
granted hereunder or in any Stock Option Agreement relating thereto shall confer
upon any employee the right to continue in the employ of the Bank, or the
director the right to serve on the Board of Directors.
5.2. Tax Obligations of Officer. If for any reason the exercise of any
portion of any Option granted hereunder shall be determined to be a taxable
event, the Optionee shall be solely responsible for all employment related taxes
that may be incurred thereby.
5.3. Stock for Investment. The Stock Option Agreement shall provide that
the Optionee shall upon each exercise of a part or all of the Option granted
represent and warrant, or be deemed to represent and warrant, that his/her
purchase of stock pursuant to such Option is for investment only, and not with a
view to distribution and, further, that such stock purchased may not be sold by
the Optionee until the initial public offering of the Bank's stock or the Bank
determines otherwise. At any time the Board of Directors may waive the
requirement of such a provision in any Stock Option Agreement entered into under
any stock option plan of the Bank.
5.4. Other Securities Law Restrictions. The Board of Directors shall
include Securities Law-related provisions in any Stock Option Agreement that, in
its discretion, is necessary to protect the interests of the Bank.
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<PAGE>
5.5. Other Compensation Plans. The adoption of the Plan shall not affect
any other stock option or incentive or other compensation plans in effect for
the Bank, nor shall the Plan preclude the Bank from establishing any other forms
of incentive or other compensation for employees of the Bank.
5.6. Obligation to Sell Subject to Governmental Approval. The Bank's
obligation to sell and deliver stock tinder the Plan in accordance with the
terms of this Agreement is at all times subject to all approvals of any
governmental authorities required in connection with the authorization,
issuance, sale or delivery of the stock.
5.7. Plan Binding on Successors. The Plan shall inure to the benefit of
and be binding upon the successors and assigns of the Bank. The Plan shall inure
to the benefit of and be binding upon the respective heirs, successors,
administrators, and representatives as permitted herein.
5.8. Headings. The headings of each of the provisions hereof are for
convenience and reference only and are not substantive. They are not be used in
the interpretation hereof or to modify any of the terms or provisions of this
Plan.
5.9. Singular, Plural; Gender. Whenever used hereto, nouns in the singular
shall include the plural and the masculine pronoun shall include the feminine
gender, and vice versa.
5.10. Shareholder Approval. The Plan will be submitted to the Common
shareholders of the Bank at the next annual meeting of shareholders, for
approval by the holders of a majority of the outstanding shares of Common Stock
of the Bank. If the Plan is not approved by the holders of a majority of the
outstanding shares of Common Stock of the Bank by June 30, 1996, then the Plan
shall terminate and any Options granted hereunder shall be void, forfeited and
of no further force or effect.
Page 8
EXHIBIT 10.5
AGREEMENT TO PURCHASE STOCK
BETWEEN
BANKFIRST ("Purchaser")
AND
CURTIS MORTGAGE COMPANY ("Curtis Mortgage");
WILLIAM H. CURTIS AND GORDON C. CURTIS
("Shareholders")
Dated: January 13, 1998
<PAGE>
Table of Contents
I. DEFINITIONS....................................................Page 1 of 24
1.1 "Agreement"..........................................Page 2 of 24
1.2 "Benefit Plans"......................................Page 2 of 24
1.3 "Closing"............................................Page 2 of 24
1.4 "Closing Date".......................................Page 2 of 24
1.5 "Code"...............................................Page 2 of 24
1.6 "ERISA"..............................................Page 2 of 24
1.7 "Hazardous Substance"................................Page 2 of 24
1.8 "Interim Financial Statements".......................Page 2 of 24
1.9 "Curtis Mortgage"....................................Page 2 of 24
1.10 "Personal Agreements"................................Page 2 of 24
1.11 "Purchaser"..........................................Page 2 of 24
1.12 "Shareholders".......................................Page 2 of 24
II. COVENANTS AND UNDERTAKINGS.....................................Page 2 of 24
2.1 Purchase of Stock....................................Page 2 of 24
2.2 Purchase Price.......................................Page 3 of 24
2.3 Escrow Account.......................................Page 3 of 24
2.4 Separate Entity......................................Page 4 of 24
2.5 Conduct of the Business of Curtis
Mortgage Prior to Closing..........................Page 4 of 24
2.6 Lease Agreements.....................................Page 5 of 24
2.7 Filing of Tax Returns................................Page 5 of 24
2.8 Examination of Records...............................Page 5 of 24
2.9 Consents and Approvals...............................Page 6 of 24
2.10 Personal Agreements..................................Page 6 of 24
2.11 Supplying of Financial Statements....................Page 6 of 24
III. REPRESENTATIONS AND WARRANTIES OF CURTIS MORTGAGE AND THE
SHAREHOLDERS...................................................Page 6 of 24
3.1 Organization and Standing............................Page 6 of 24
3.2 Authority and Status.................................Page 6 of 24
3.3 Capitalization.......................................Page 7 of 24
3.4 Absence of Equity Investments........................Page 7 of 24
3.5 Financial Statements of Curtis Mortgage..............Page 7 of 24
3.6 Absence of Undisclosed Liabilities...................Page 8 of 24
3.7 Tax Returns..........................................Page 8 of 24
3.8 Ownership of Assets and Leases.......................Page 9 of 24
3.9 Agreement Does Not Violate Other Instruments.........Page 9 of 24
3.10 Absence of Changes...................................Page 9 of 24
3.11 Litigation..........................................Page 10 of 24
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3.12 Licenses and Permits; Compliance with Law...........Page 10 of 24
3.13 Contracts, Etc......................................Page 10 of 24
3.14 Labor Matters.......................................Page 11 of 24
3.15 Benefit Plans.......................................Page 11 of 24
3.16 Mortgage Loans......................................Page 12 of 24
3.17 Environmental Matters...............................Page 12 of 24
3.18 Insurance...........................................Page 12 of 24
3.19 Related Party Relationships.........................Page 13 of 24
3.20 Exhibits............................................Page 13 of 24
3.21 Audited Net Worth...................................Page 13 of 24
3.22 Disclosure and Absence of
Undisclosed Liabilities...........................Page 13 of 24
IV. REPRESENTATIONS AND WARRANTIES OF PURCHASER...................Page 13 of 24
4.1 Organization and Standing...........................Page 13 of 24
4.2 Corporate Power and Authority.......................Page 13 of 24
4.3 Agreement Does Not Violate Other Instruments........Page 14 of 24
V. CONDITIONS PRECEDENT TO OBLIGATIONS OF PURCHASER..............Page 14 of 24
5.1 Representations True at Closing.....................Page 14 of 24
5.2 Acts and Undertakings of Curtis
Mortgage and the Shareholders.....................Page 14 of 24
5.3 No Injunction, Etc..................................Page 14 of 24
5.4 Opinion of Counsel..................................Page 15 of 24
5.5 Consents, Approvals and Waivers.....................Page 15 of 24
5.6 Personal Agreements.................................Page 15 of 24
5.7 Due Diligence Investigation.........................Page 15 of 24
5.8 Life Insurance......................................Page 15 of 24
VI. CONDITIONS PRECEDENT TO THE OBLIGATIONS OF
CURTIS MORTGAGE AND THE SHAREHOLDERS TO CLOSE.................Page 15 of 24
6.1 Representations True at Closing.....................Page 15 of 24
6.2 Covenants of Purchaser..............................Page 16 of 24
6.3 No Injunction, Etc..................................Page 16 of 24
6.4 Opinion of Counsel for Purchaser....................Page 16 of 24
6.5 Consents, Approvals and Waivers.....................Page 16 of 24
6.6 Personal Agreements.................................Page 16 of 24
VII. CLOSING.......................................................Page 16 of 24
7.1 Time and Place of Closing...........................Page 16 of 24
7.2 Transactions at Closing.............................Page 16 of 24
7.2.1 Curtis Mortgage and the
Shareholders' Performance..............Page 16 of 24
7.2.2 Performance by Purchaser..................Page 18 of 24
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<PAGE>
VIII.SURVIVAL OF REPRESENTATIONS AND WARRANTIES AND INDEMNIFICATION
8.1 Survival of Representations and Warranties
of Curtis Mortgage and the Shareholders...........Page 18 of 24
8.2 Survival of Representations and
Warranties of Purchaser...........................Page 20 of 24
IX. TERMINATION...................................................Page 20 of 24
9.1 Method of Termination...............................Page 20 of 24
9.2 Effect of Termination...............................Page 20 of 24
9.3 Risk of Loss........................................Page 21 of 24
X. GENERAL PROVISIONS............................................Page 21 of 24
10.1 Notices.............................................Page 21 of 24
10.2 Brokers.............................................Page 22 of 24
10.3 Further Assurances..................................Page 22 of 24
10.4 Waiver..............................................Page 22 of 24
10.5 Expenses............................................Page 23 of 24
10.6. Binding Effect......................................Page 23 of 24
10.7. Headings............................................Page 23 of 24
10.8. Entire Agreement....................................Page 23 of 24
10.9 Governing Law.......................................Page 23 of 24
10.10 Counterparts........................................Page 23 of 24
10.11 Pronouns............................................Page 23 of 24
10.12 Exhibits Incorporated...............................Page 23 of 24
10.13 Time of Essence.....................................Page 23 of 24
10.14 Intent and Due Diligence Standard...................Page 23 of 24
-iii-
<PAGE>
AGREEMENT TO PURCHASE STOCK
This Agreement to Purchase Stock, made this 13th day of January, 1998, by
and among BankFirst, a Tennessee banking corporation, with its principal offices
at 625 Market Street, Knoxville, Tennessee 37902 (hereinafter referred to as
"Purchaser"), Curtis Mortgage Company, a Tennessee corporation with its
principal office at 249 North Peters Road, Knoxville, Tennessee 37923
(hereinafter referred to as "Curtis Mortgage"), and William H. Curtis and Gordon
C. Curtis (hereinafter referred to as the "Shareholders").
W I T N E S S E T H:
WHEREAS, William Curtis and Gordon Curtis are the only shareholders, and
the Shareholders own all of the authorized, issued and outstanding shares of
Curtis Mortgage; and
WHEREAS, Purchaser has made an offer, pursuant to which Purchaser will
purchase all of the authorized, issued and outstanding shares of Curtis Mortgage
owned by the Shareholders upon the terms and subject to the conditions set forth
herein; and
WHEREAS, Curtis Mortgage and the Shareholders have accepted the offer
pursuant to the terms and conditions set forth herein.
WHEREAS, it is the intention of the Shareholders to allow Purchaser ample
time and access to information in order to fully and completely conduct any and
all due diligence investigation that it deems necessary to satisfy itself with
the condition of Curtis Mortgage to be acquired by Purchaser pursuant to this
Agreement; and
WHEREAS, the parties hereto have intentionally not provided for a
substantial nonrefundable deposit, it being the intention of the parties that,
if Purchaser is not satisfied with the results of its due diligence
investigation, Purchaser may elect not to consummate the transactions
contemplated by this Agreement and neither party shall have any other claim
against the other party.
NOW, THEREFORE, in consideration of the premises and the mutual promises,
representations, warranties and covenants hereinafter set forth, the parties
agree as follows:
I. DEFINITIONS.
As used herein, the following terms shall have the following meanings
unless the context otherwise requires:
1.1 "Agreement" shall mean this Agreement to Purchase Stock
Agreement.
Page 1 of 24
<PAGE>
1.2 "Benefit Plans" shall have the meaning set forth in Section
3.14.
1.3 "Closing" shall mean the consummation of the transactions
provided for in this Agreement.
1.4 "Closing Date" shall mean the date on which the Closing occurs
pursuant to Section 7.1 hereof.
1.5 "Code" shall mean the Internal Revenue Code of 1986, as amended.
1.6 "ERISA" shall mean the Employee Retirement Income Security Act
of 1974, as amended.
1.7 "Hazardous Substance" shall have the meaning set forth in
Section 3.17.
1.8 "Interim Financial Statements" shall have the meaning set forth
in Section 3.5.
1.9 "Curtis Mortgage" shall mean Curtis Mortgage Company, a
Tennessee corporation.
1.10 "Personal Agreements" shall mean those Employment Agreements
between Curtis Mortgage and those individuals set forth in Section 2.10,
substantially in the form attached as Exhibits 2.10(a), 2.10(b), and 2.10(c),
each of which may be referred to individually as a "Personal Agreement" and/or
"Employment Agreement".
1.11 "Purchaser" shall mean BankFirst, a Tennessee corporation.
1.12 "Shareholders" shall mean William H. Curtis and Gordon C.
Curtis, each of whom may be referred to individually as a "Shareholder".
II. COVENANTS AND UNDERTAKINGS.
2.1 Purchase of Stock. Subject to the terms and conditions
hereinafter set forth, the Shareholders shall, at the Closing, sell, assign,
transfer, convey and deliver to Purchaser, free and clear of all liens, claims,
charges, security interests and other encumbrances of any nature whatsoever, all
of the authorized, issues and outstanding shares of stock of Curtis Mortgage
owned by Shareholders. Such sale, transfer, conveyance and delivery shall be
evidenced by the delivery to Purchaser of duly endorsed in blank share
certificates accompanied by duly executed stock powers (in other case, with
signatures guaranteed).
Page 2 of 24
<PAGE>
2.2 Purchase Price. Purchaser, in full payment for the purchase of
stock pursuant to Section 2.1 hereof shall pay to the Shareholders Seven Million
Five Hundred Thousand Dollars ($7,500,000.00) cash. Seven Million Dollars
($7,000,000.00) shall be delivered to Shareholders at Closing and Five Hundred
Thousand Dollars ($500,000.00) shall be placed in the Escrow Account described
in Section 2.3 below.
2.3 Escrow Account. Shareholders shall deposit Five Hundred Thousand
Dollars ($500,000.00) into an interest-bearing escrow account to be held by
BankFirst, as Escrow Agent, for a period of thirty-six (36) months after the
date of Closing (the "Escrow Period"). The Escrow Agent shall be maintained at
BankFirst as long as BankFirst is paying a competitive interest rate. In the
event the Shareholders determine that BankFirst is not paying a competitive
interest rate and the Shareholders desire to move the account, the parties to
this Agreement and the new bank shall enter into an Escrow Agreement which will
adopt the terms of this Agreement. In the event that Curtis Mortgage receives a
notification of an audit, or tax assessment, by federal or state tax
authorities, within the Escrow Period, then the Escrow Period shall be extended
until a final assessment or resolution of the tax liability is made. At the
expiration of the Escrow Period, as the same may be extended, the Escrow Agent
shall pay to Shareholders Five Hundred Thousand Dollars ($500,000.00) plus the
accrued interest, less the following items, if any:
(a) Any amounts paid by Curtis Mortgage Company prior to the
expiration of such period, for liabilities or obligations which were
incurred or owed by Curtis Mortgage prior to Closing, but which were
not included in the balance sheet of Curtis Mortgage as of October
31, 1997. Such items include, but are not limited to, federal, state
or local tax liabilities relating to the operation of Curtis
Mortgage prior to Closing and any undisclosed debts or liabilities
which arose or were incurred, or caused by Curtis Mortgage to exist
by its operations through October 31, 1997.
(b) Any damages suffered by Purchaser as a result of the
breach of the Agreement for Purchase of Stock by Curtis Mortgage or
the Shareholders, including any misrepresentation made therein, or
in any of the exhibits, schedules, or disclosures made in connection
with the negotiation and consummation of said Agreement.
If during the Escrow Period, any claim shall be made against the Escrow Fund,
the Escrow Agent and/or Purchaser, as the case may be, shall notify the
Shareholders in writing as to the nature and amount of such claim or debt.
Within ten (10) business days upon receipt of such notice, the Shareholders
shall notify the Escrow Agent and the Purchaser in writing whether the claim or
debt is valid and due. If Seller consents to payment, the Escrow Agent shall pay
the claim or debt and obtain a receipt therefor. If the Shareholders dispute the
claim or debt, the Escrow Agent shall notify Purchaser and not disburse any of
the Escrow Fund in connection with the disputed item until Escrow Agent receives
written directions with respect to it, signed by both Purchaser and
Shareholders. If any disputed claim or debt is unresolved when the Escrow is due
to expire, Escrow Agent shall continue to hold sufficient amounts to cover said
claim or debt until such claim or debt is disposed of to the satisfaction of
Purchase and Sellers. The Escrow Agent shall not be required to determine
Page 3 of 24
<PAGE>
the amount of validity of any claim or debt alleged, or be responsible for the
sufficiency of any agreement or the payment of any claim or debt made by
Purchaser and Shareholders for such amount. Escrow Agent shall not be liable for
any acts or omissions of any kind unless caused by his negligence or wilful
misconduct. BankFirst will not charge an escrow fee for handling the escrow
fund; however, if a third party is appointed as the Escrow Agent, the new Escrow
Agent's fee shall be fixed by the parties under a separate agreement.
2.4 Separate Entity. Initially, Purchaser will maintain Curtis
Mortgage as a separate entity; however, at its discretion, Purchaser shall be
entitled to change the corporate structure to meet the Purchaser's needs. In the
event of a change in corporate structure or otherwise, the Purchaser and the
Shareholders shall in no way be relieved of all other agreements and
undertakings set forth in this Agreement.
2.5 Conduct of the Business of Curtis Mortgage Prior to Closing.
2.5.1 Except (i) with the consent in writing of Purchaser,
(ii) as may be required to effect the transactions contemplated by
this Agreement or (iii) as provided otherwise in this Agreement,
Curtis Mortgage and the Shareholders covenant that, between the date
of this Agreement and the Closing Date, Curtis Mortgage will conduct
its business in the ordinary course and that they will:
(a) use their best efforts deemed reasonable in the
normal course of business and in conformity to past practices
to preserve the organization of Curtis Mortgage intact and to
preserve the goodwill of customers and others having business
relations with Curtis Mortgage;
(b) maintain the properties of Curtis Mortgage in the
same working order and condition as such properties are in as
of the date of this Agreement, reasonable wear and tear
excepted;
(c) keep in force at no less than their present limits
all existing bonds and policies of insurance insuring Curtis
Mortgage and its respective properties and employees;
(d) not make or permit any change in Curtis Mortgage's
Articles of Incorporation or Bylaws, or in its authorized,
issued or outstanding securities;
(e) not grant any stock option or right to purchase any
security of Curtis Mortgage, issue any security convertible
into such securities, purchase, redeem, retire or otherwise
acquire any of such securities, or agree to do any of the
foregoing or declare, set aside or pay any dividend or other
distribution in respect of such securities; and
Page 4 of 24
<PAGE>
(f) promptly advise Purchaser in writing of any matters
arising or discovered after the date of this Agreement which,
if existing or known at the date hereof, would be required to
be set forth or described in this Agreement or the Exhibits
hereto.
2.5.2 Except after prior notification to, and written consent
of Purchaser, Curtis Mortgage will not make, and the Shareholders
will not permit Curtis Mortgage to make, between the date of this
Agreement and the Closing Date, any change in its banking or safe
deposit arrangements or grant any powers of attorney. A list of all
bank accounts, safe deposit boxes (and the contents thereof) and
powers of attorney of Curtis Mortgage and of all persons authorized
to act with respect thereto is attached hereto as Exhibit 2.5.2.
2.5.3 Except with the prior consent in writing of Purchaser,
Curtis Mortgage will not make, and the Shareholders will not permit
Curtis Mortgage to make, between the date of this Agreement and the
Closing Date, any changes in its accounting methods or practices.
2.6 Lease Agreement. Curtis Mortgage and Shareholders shall at the
Closing enter into a Lease Agreement substantially in the form set forth in
Exhibit 2.6(a).
2.7 Filing of Tax Returns. Curtis Mortgage will timely file all
federal, state and local tax returns required before Closing. For purposes of
this Section 2.7, such returns shall be deemed timely filed if Curtis Mortgage
has obtained an extension from the appropriate taxing authority as to the time
in which it may file such tax returns. Curtis Mortgage shall submit all such tax
returns to Purchaser prior to the date they must be filed, and Purchaser shall
have the opportunity to comment on the tax returns. Purchaser will file all such
tax returns due after the Closing. The Shareholders hereby agree to provide
Purchaser with all information within their knowledge or possession necessary to
file such returns. All such information shall be true, correct and accurate in
all respect to the best of the Shareholders' knowledge, information and belief.
2.8 Examination of Records. Between the date of the Letter of Intent
and the Closing Date, Curtis Mortgage will allow, and the Shareholders will
cause Curtis Mortgage to allow, Purchaser, its counsel and other representatives
full access to all the books, records, files, documents, assets, properties,
personnel, contracts, and agreements of Curtis Mortgage which may be reasonably
requested, and shall furnish Purchaser, its officers and representatives during
such period with all information concerning the affairs of Curtis Mortgage which
may be reasonably requested (herein collectively the "Information"). Purchaser
acknowledges that the Information would otherwise not be available and that it
is confidential. Purchaser agrees to hold the Information in strict confidence,
and agrees not to communicate or otherwise transmit any of the Information to
any other person, company or entity, or to use the Information for any purpose
other than to enable Purchaser to analyze Curtis Mortgage for the purpose of
acquisition. Purchaser further agrees that (1) in the event it does not acquire
Curtis Mortgage, or (2) upon demand by Curtis Mortgage, Purchaser will promptly
return to Curtis Mortgage any and all Information that was disclosed by Curtis
Mortgage
Page 5 of 24
<PAGE>
in written form, including all copies made by Purchaser, and will confirm in
writing to Curtis Mortgage that all written information has been so returned.
Purchaser will conduct any investigation in a manner which will not unreasonably
interfere with the business of Curtis Mortgage.
2.9 Consents and Approvals. Purchaser, Curtis Mortgage and the
Shareholders agree to use their best efforts to obtain the waiver, consent and
approval of all persons and regulatory authorities whose waiver, consent or
approval is required in order to consummate the transactions contemplated by
this Agreement. All obtained written waivers, consents and approvals shall be
produced at Closing in form and content reasonably satisfactory to Purchaser and
the Shareholders.
2.10 Personal Agreements. Each Shareholder and Jennifer Wiggins at
the Closing will enter into a Personal Agreement and/or Covenant Not to Compete
substantially in the form set forth in Exhibits 2.10(a) through 2.10(c). As
officers, employees and/or directors of Curtis Mortgage, the Shareholders and
Wiggins shall be entitled to all rights afforded by the contracts, by-laws and
the statutes of the State of Tennessee.
2.11 Supplying of Financial Statements. Curtis Mortgage and the
Shareholders will deliver to Purchaser all regularly prepared unaudited
financial statements of Curtis Mortgage prepared after the date of this
Agreement, in the format historically utilized internally, as soon as available,
but not later than the 10th day of each month.
III. REPRESENTATIONS AND WARRANTIES OF CURTIS MORTGAGE AND THE
SHAREHOLDERS.
Curtis Mortgage and the Shareholders, jointly and severally, represent and
warrant to Purchaser as follows:
3.1 Organization and Standing. Curtis Mortgage is a Tennessee
corporation duly authorized, validly existing and in good standing. Copies of
Curtis Mortgage's Articles of Incorporation, and all amendments thereof to date,
certified by the Secretary of State of Tennessee, and of Curtis Mortgage's
Bylaws, as amended to date certified by Curtis Mortgage's secretary, are
attached as Exhibit 3.1, and are true, correct and complete copies as of the
date of this Agreement.
3.2 Authority and Status. Each Shareholder and Curtis Mortgage has
the capacity and authority to execute and deliver this Agreement, to perform
hereunder and to consummate the transactions contemplated hereby without the
necessity of any act or consent of any other person whomsoever. The execution,
delivery and performance by Curtis Mortgage of this Agreement and each and every
agreement, document and instrument provided for herein have been duly authorized
and approved by the Board of Directors of Curtis Mortgage. This Agreement and
each and every agreement, document and instrument to be executed, delivered and
performed by Curtis Mortgage or any Shareholder in connection herewith
constitute or will, when executed and delivered, constitute the valid and
legally binding obligations of Curtis Mortgage and the Shareholders, as the case
may
Page 6 of 24
<PAGE>
be, enforceable against each of them in accordance with their respective terms,
except as enforceability may be limited by applicable equitable principles or by
bankruptcy, insolvency, reorganization, moratorium, or similar laws from time to
time in effect affecting the enforcement of creditors' rights generally.
3.3 Capitalization. The entire authorized capital stock of Curtis
Mortgage consists of Five Hundred (500) shares of no par value common stock of
which Five Hundred (500) shares are issued and outstanding and are held by the
Shareholders as set forth below:
Shareholder Number of Shares Held
----------- ---------------------
William Curtis 250
Gordon Curtis 250
As of the Closing, all of the issued and outstanding shares of Curtis Mortgage
owned by the Shareholders shall be free and clear of all liens, claims, charges
and encumbrances of any nature whatsoever, and the authorization of no other
person or entity will be required to consummate the transactions contemplated
herein by virtue of any such person or entity having an equitable or beneficial
interest in Curtis Mortgage. There are no outstanding options, warrants, calls,
commitments or plans by Curtis Mortgage to issue any additional shares of its
capital stock, to pay any dividends on such shares or to purchase, redeem, or
retire any outstanding shares of its capital stock, nor are there outstanding
any securities or obligations which are convertible into or exchangeable for any
shares of capital stock of Curtis Mortgage.
3.4 Absence of Equity Investments. Curtis Mortgage does not, either
directly or indirectly, own of record or beneficially any shares or other equity
interest in any corporation, partnership, limited partnership, joint venture,
trust or other business entity, except the following as described on Exhibit
3.4.
3.5 Financial Statements of Curtis Mortgage. Curtis Mortgage has
delivered to the Purchaser copies of the following financial statements, all of
which are true and complete and have been prepared in accordance with generally
accepted accounting principles consistently followed throughout the period
indicated:
(i) Balance Sheets of Curtis Mortgage as of December 1996, 1995 and
1994, together with related statements of income and cash flow and the
related footnotes, all certified by H. James Johnston, Certified Public
Accountant. The Balance Sheets present a true and complete statement, as
of their dates, of Curtis Mortgage's financial condition and the results
of its operations for the respective periods; and
(ii) Balance Sheet of Curtis Mortgage with related statement of
operations as of and for the period ended October 31, 1997, prepared by
Curtis Mortgage's personnel, which have not been formally audited,
certified as true and accurate by the Shareholders to
Page 7 of 24
<PAGE>
the best of their knowledge. These statements present fairly Curtis
Mortgage's financial condition as of October 31, 1997 and the results of
its operations for the period then ended (the Interim Financial
Statements).
3.6 Absence of Undisclosed Liabilities. Except as to the extent
fully reflected or reserved against in Curtis Mortgage's Balance Sheets or set
forth in the Exhibits to this Agreement, Curtis Mortgage as of October 31, 1997
had no liabilities of any nature, whether accrued, absolute, contingent or
otherwise, including, without limitation, tax liabilities due or to become due,
and whether incurred in respect of or measured by Curtis Mortgage's income for
any period prior to October 31, 1997, or arising out of transactions entered
into, or any state of facts existing, prior thereto. Each Shareholder represents
and warrants that he does not know or have reasonable grounds to know of any
basis for the assertion against Curtis Mortgage as of October 31, 1997, of any
liability of any nature or in any amount not fully reflected or reserved against
in the Balance Sheet. Except as disclosed in the interim financial statements
for the period ended October 31, 1997 or Exhibit 3.6, there has not been
(i) any change in Curtis Mortgage's financial condition, assets,
liabilities, or business, other than changes in the ordinary course of
business;
(ii) any damage, destruction, or loss, whether or not covered by
insurance, materially and adversely affecting Curtis Mortgage's properties
or business;
(iii) any declaration, or setting aside, or payment of any dividend
or other distribution in respect of Curtis Mortgage's shares, or any
direct or indirect redemption, purchase, or other acquisition of any of
such shares;
(iv) any increase in the compensation payable or to become payable
by Curtis Mortgage to any of its officers, employees or agents, or any
bonus payment or arrangement made to or with any of them; or
(v) any significant labor trouble, or any event or condition of any
character, materially and adversely affecting Curtis Mortgage's business
or prospects.
3.7 Tax Returns. Curtis Mortgage has, as of the date hereof, and
will prior to Closing have, timely and accurately filed all federal, state,
foreign and local tax returns and reports required to be filed by it prior to
such dates and has timely paid, or will prior to Closing pay, all taxes shown on
such returns as owed for the period of such returns, including all withholding
or other payroll related taxes shown on such returns. The tax basis of all
assets of Curtis Mortgage as reflected on its tax returns and related records is
correct and accurate for use in tax periods ending after Closing. Curtis
Mortgage's tax returns have not been audited, and Curtis Mortgage has not
received notice of any impending audit. No unresolved assessments or notices of
deficiency or other communications have been received by Curtis Mortgage with
respect to any tax returns filed or to be filed.
Page 8 of 24
<PAGE>
3.8 Ownership of Assets and Leases. Each of the leases and
agreements described in Exhibit 3.8 is in full force and effect and constitutes
a legal, valid and binding obligation of Curtis Mortgage and the other
respective parties thereto and is enforceable in accordance with its terms,
except as enforceability may be limited by applicable equitable principles or by
bankruptcy, insolvency, reorganization, moratorium, or similar laws from time to
time in effect affecting the enforcement of creditors' rights generally, and
there is not under any of such leases or agreements existing any default of
Curtis Mortgage or of any other parties thereto (or event or condition which,
with notice or lapse of time, or both, would constitute a default). All
buildings, machinery and equipment owned or leased by Curtis Mortgage are in
good operating condition and reasonable state of repair, subject only to their
age, and ordinary wear and tear to the best of the Seller's knowledge and belief
without any inspection. Curtis Mortgage has not received any notice of violation
of any applicable zoning regulation, ordinance or other law, regulation or
requirement relating to its operations and properties, whether owned or leased,
there are no violations, or grounds therefor, which could adversely affect the
operation of the business conducted by Curtis Mortgage. The accounts receivable
of Curtis Mortgage reflect actual transactions, have arisen in the ordinary
course of business and are fairly stated in the financial statements.
3.9 Agreement Does Not Violate Other Instruments. Except as listed
in Exhibit 3.9, the execution and delivery of this Agreement by Curtis Mortgage
and the Shareholders do not, and the consummation of the transactions
contemplated hereby will not, violate any provision of the Articles of
Incorporation, as amended, or Bylaws, as amended, of Curtis Mortgage or violate
or constitute an occurrence of default under any provision of, or conflict with,
result in acceleration of any obligation under, or give rise to a right by any
party to terminate its obligations under, any mortgage, deed of trust,
conveyance to secure debt, note, loan, lien, lease, agreement, instrument, or
any order, judgment, decree or other arrangement to which Curtis Mortgage or any
Shareholder is a party or is bound or by which Curtis Mortgage's assets are
affected.
3.10 Absence of Changes. Except as disclosed on Exhibit 3.10
attached hereto, subsequent to October 31, 1997, Curtis Mortgage has not:
(a) Suffered any change or become aware of any event or state of
facts that could have a material adverse effect on its financial
condition, assets, liabilities, business, or prospects, experienced any
labor difficulty, suffered any casualty loss, whether or not insured, or
otherwise been operated in any manner not in the ordinary course of
business.
(b) Except in the ordinary course of business and consistent with
past practice, paid any claim, or discharged or satisfied any lien or
encumbrance, or paid or satisfied any liability, whether absolute,
accrued, contingent, or otherwise and whether due or to become due.
Page 9 of 24
<PAGE>
(c) Except in the ordinary course of business consistent with past
practice, sold or transferred any of its properties or assets, real,
personal, or mixed, tangible or intangible, related to Curtis Mortgage.
(d) Disposed of or permitted to lapse any trademark or patent or any
trademark or patent application or license; or disposed of any trade
secret, formula, process, or know-how.
(e) Except in the ordinary course of business, made any capital
expenditures or commitments in excess of $10,000.00.
(f) Agreed, whether in writing or otherwise, to take any action
referred to in this Section 3.10 in the future.
3.11 Litigation. Except as otherwise set forth in Exhibit 3.11
hereto, there are no suits, actions, proceedings, known claims or investigations
pending, threatened against or affecting Curtis Mortgage and Shareholders and
there exists no basis or grounds for any such suit, action, proceeding, claim or
investigation. The extent of the liability of any litigation known is described
in Exhibit 3.11.
3.12 Licenses and Permits; Compliance with Law. Curtis Mortgage
holds all licenses, certificates, permits, franchises and rights from all
appropriate federal, state or other public authorities necessary for the conduct
of its business and the use of its assets. All material licenses, certificates,
permits, franchises and rights are listed in Exhibit 3.12. Except as noted in
Exhibit 3.12, Curtis Mortgage is presently conducting its business so as to
comply substantially with all applicable statutes, ordinances, rules,
regulations and orders of any governmental authority.
3.13 Contracts, Etc. Exhibit 3.13 hereto consists of a true and
complete list of all contracts, agreements and other instrument to which Curtis
Mortgage is a party, except for certain miscellaneous contracts entered in the
ordinary course of business, none of which, in the aggregate, are material to
the operations of Curtis Mortgage. Except as set forth in Exhibits 3.7, 3.13,
3.16, or 3.18, Curtis Mortgage is not a party or subject to, whether oral or
written, any of the following:
3.13.1 Any lease, rental agreement or other contract or commitment
affecting the ownership or leasing of, title to or use of any interest in
real or personal property and any maintenance or service agreements
relating to any real or personal property;
3.13.2 Any contract or commitment providing for payments based in
any manner upon the sales, purchases, receipts, income or profits of
Curtis Mortgage;
3.13.3 Any single contract or commitment, or sales or purchase
order, which involves future payments, performance of services or delivery
of goods and/or materials, to or by Curtis Mortgage with an amount or
value in the aggregate in excess of $10,000.00;
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3.13.4 Any franchise agreement, marketing agreement or royalty
agreement, and with respect to each such agreement. Exhibit 3.13 sets
forth the aggregate royalties or similar payment paid hereunder by Curtis
Mortgage as of the date hereof;
3.13.5 Any contract or agreement with a creditor not made in the
ordinary course of business;
3.13.6 Any employment contract or arrangement regarding employees or
independent contractors which is not terminable by it within ninety (90)
days without payment of any amount for any reason whatsoever, or for any
continuing payment of any type or nature, including, without limitation,
any bonuses and vested commissions other than commissions due upon closing
of pending loans to Jennifer Wiggins and Laura C. Waits;
3.13.7 Any plan or other arrangement providing for life insurance,
pensions, stock rights, distributions, options, deferred compensation,
retirement payments, profit sharing, medical reimbursements or other
benefits for officers or other employees or independent contractors;
3.13.8 Any instrument or arrangement evidencing or related to
indebtedness for money borrowed or to be borrowed, whether directly or
indirectly, by way of purchase money obligation, guaranty, subordination,
conditional sale, lease-purchase or otherwise; or
3.13.9 Any contraction with any labor organization.
All of the contracts, agreements, policies of insurance or
instruments described in Exhibits 3.7, 3.13, 3.16, or 3.18 hereto are valid and
binding upon Curtis Mortgage and the other parties thereto and are in full force
and effect and enforceable in accordance with their terms, and neither Curtis
Mortgage nor any other party to such contract, commitment or arrangement has
breached any provision of, or is in default under, the terms thereof.
3.14 Labor Matters. Exhibit 3.14 sets forth a list of the payroll of
all employees of Curtis Mortgage as of the first payroll date subsequent to the
execution of this Agreement. Except as set forth in Exhibit 3.14, Curtis
Mortgage is not in violation of any applicable federal or state law or
regulation relating to labor or labor practices. There has not been, and will
not be, any adverse change in relations with employees and independent
contractors of Curtis Mortgage as a result of the transactions contemplated by
this Agreement.
3.15 Benefit Plans. Exhibit 3.15 lists every pension, retirement,
profit-sharing, deferred compensation, stock option, employee stock ownership,
severance pay, vacation, bonus or other incentive plan, health plan, life
insurance plan or any other employee benefit plan or fringe benefit plan,
including, without limitation, any "employee benefit plan", as that term is
defined in Section 3(3) of the Employee Retirement Income Security Act of 1974
as amended ("ERISA"), maintained or contributed to by Curtis Mortgage.
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3.16 Mortgage Loans. Exhibit 3.16 attached hereto consists of a true
and correct list of all mortgage loans owned by or serviced by Curtis Mortgage
with the current principal balance, payment schedule, and escrow information for
each such loan.
3.17 Environmental Matters. Exhibit as set forth in Exhibit 3.17;
(a) neither Curtis Mortgage nor any other party is using or has used
any real property owned or leased by Curtis Mortgage (the "Real Property")
for the handling, treatment, storage or disposal of any Hazardous
Substance (as hereinafter defined);
(b) No release, discharge, spillage or disposal of any Hazardous
Substance and no soil or water contamination by any Hazardous Substance
has occurred or is occurring in or on the Real Property;
(c) Curtis Mortgage and the Shareholders have complied with all
known reporting requirements under any applicable federal, state or local
environmental laws and permits, and so far as the Company and/or the
Shareholders know there are no existing violations by Curtis Mortgage of
any such environmental laws or permits;
(d) there are no claims, actions, suits, proceeding or
investigations related to the presence, release, discharge, spillage or
disposal of any Hazardous Substance or contamination of soil or water by
any Hazardous Substance pending or threatened with respect to the Real
Property or otherwise against Curtis Mortgage in any court or before any
state, federal, or other governmental agency or private arbitration
tribunal and there is no basis for any such claim, action, suit,
proceeding or investigation;
(e) there are no underground storage tanks on the Real Property.
For the purpose of this agreement, "Hazardous Substance" shall mean any
hazardous or toxic substance or wastes as those terms are defined by any
applicable federal or state law or regulation including, without limitation, the
Comprehensive Environmental Recovery Compensation and Liability Act, 42 U.S.C.
9601 et seq., and the Resource Conservation and Recovery Act, 42 U.S.C. 6901 et
seq. and petroleum, petroleum products and oil.
3.18 Insurance. Set forth in Exhibit 3.18 is a complete list of
insurance policies which Curtis Mortgage maintained with respect to its
businesses, properties or employees within the preceding twenty-four (24)
months, except life insurance policies on the lives of the Shareholders. Except
as set forth in Exhibit 3.18, such policies are in full force and effect and no
event has occurred which would give any insurance carrier a right to terminate
any such policy. Such policies, with respect to their amounts and types of
coverage, are adequate to insure fully against risks to which Curtis Mortgage
and its property and assets are exposed in the operation of its businesses.
Except as set forth in Exhibit 3.18, there has not been any change in Curtis
Mortgage's relationship with its insurers or in the premiums payable pursuant to
such policies.
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3.19 Related Party Relationships. Except as set forth in Exhibit
3.19, no Shareholder nor any officer or director of Curtis Mortgage, possesses,
directly or indirectly, any beneficial interest in, or is a director, officer or
employee of, any corporation, partnership, firm, association or business
organization which is a client, supplier, customer, lessor, lessee, lender,
creditor, borrower, debtor or contracting party with or of Curtis Mortgage
(except as a stockholder holding less than a one percent interest in a
corporation whose shares are traded on a national or regional securities
exchange or in the over-the-counter market).
3.20 Exhibits. All Exhibits are to be attached hereto within two (2)
weeks of the execution of this Agreement and are true, correct and complete as
of the date of this Agreement and are true, correct and complete as of the date
of this Agreement and will be true, correct and complete as of the Closing,
except to the extent that such Exhibits may be untrue, incorrect or incomplete
due to changes occurring due to the operation of Curtis Mortgage in the ordinary
course. Matters disclosed on each Exhibit shall be deemed disclosed only for
purposes of the matters to be disclosed on such Exhibit and shall not be deemed
to be disclosed for any other purpose unless expressly provided therein.
3.21 Audited Net Worth. The annual audit of Curtis Mortgage will not
be completed prior to closing; however, the audit report as of December 31, 1997
will be issued on or before March 1, 1998 and will provide that the Audited Net
Worth of Curtis Mortgage Company as of December 31, 1997 will be not less than
$1,737,786.00.
3.22 Disclosure and Absence of Undisclosed Liabilities. This
Agreement and the Exhibits hereto disclose all facts material to the assets,
business or operations of Curtis Mortgage. No statement contained herein or in
any certificate, schedule, list, exhibit or other instrument furnished to
Purchaser pursuant to the provisions hereof contains or will contain any untrue
statement of any material fact or omits or will omit to state a material fact
necessary in order to make the statements contained herein or therein not
misleading.
IV. REPRESENTATIONS AND WARRANTIES OF PURCHASER.
Purchaser represents and warrants to Curtis Mortgage and the
Shareholders as follows:
4.1 Organization and Standing. Purchaser is a duly organized and
validly existing corporation in good standing under the laws of the State of
Tennessee.
4.2 Corporate Power and Authority. Purchaser has the capacity and
authority to execute and deliver this Agreement, to perform hereunder and to
consummate the transactions contemplated hereby without the necessity of any act
or consent of any other person whomsoever, except for approval by its Board of
Directors, which Purchaser anticipates receiving. This Agreement, and each and
every other agreement, document and instrument to be executed, delivered
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and performed by Purchaser in connection herewith, constitute or will, when
executed and delivered, constitute the valid and legally binding obligation of
Purchaser enforceable against it in accordance with their respective terms,
except as enforceability may be limited by applicable equitable principles, or
by bankruptcy, insolvency, reorganization, moratorium, or similar laws from time
to time in effect affecting the enforcement of creditors' rights generally.
4.3 Agreement Does Not Violate Other Instruments. The execution and
delivery of this Agreement by Purchaser does not, and the consummation of the
transactions contemplated hereby will not, violate any provisions of the
Articles of Incorporation, as amended, or Bylaws, as amended, of Purchaser, or
violate or constitute an occurrence of default under any provision of, or
conflict with, result in acceleration of any obligation under, or give rise to a
right by any party to terminate its obligations under, any mortgage, deed of
trust, conveyance to secure debt, note, loan, lien, lease, agreement, instrument
or any order, judgment, decree or other arrangement to which Purchaser is a
party or is bound or by which it or its assets are affected.
V. CONDITIONS PRECEDENT TO OBLIGATIONS OF PURCHASER.
The obligations of Purchaser to consummate the transactions
contemplated by this Agreement shall be subject to the satisfaction, on or
before the Closing Date, of each and every one of the following conditions, all
or any of which may be waived, in whole or in part, by Purchaser for purposes of
consummating such transactions, but without prejudice to any other right or
remedy which Purchaser may have hereunder as a result of any misrepresentation
by, or breach of any covenant or warranty of, Curtis Mortgage or the
Shareholders contained in this Agreement or any other certificate or instrument
furnished by Curtis Mortgage or an Shareholder hereunder.
5.1 Representations True at Closing. The representations and
warranties made by Curtis Mortgage and the Shareholder to Purchaser in this
Agreement, the Exhibits hereto or any document or instrument delivered to
purchaser or its representative hereunder shall be true and correct on the
Closing Date with the same force and effect as though such representations and
warranties had been made on and as of such time.
5.2 Acts and Undertakings of Curtis Mortgage and the Shareholders.
Curtis Mortgage and the Shareholders shall have duly performed all of the acts
and undertaking to be performed by them on or prior to the Closing Date, and the
President of Curtis Mortgage and the Shareholders shall deliver to Purchaser a
certificate dated as of the Closing Date certifying to the fulfillment of this
condition and the condition set forth in Section 5.1 hereof.
5.3 No Injunction, Etc. No action, proceeding, investigation,
regulation or legislation shall have been instituted, threatened or proposed
before any court, governmental agency or legislative body to enjoin, restrain,
prohibit or obtain substantial damages in respect of, or which is related to, or
arises out of, this Agreement or the consummation of the transactions
contemplated hereby, or which is related to or arises out of the business of
Curtis Mortgage, if such action,
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proceeding, investigation, regulation or legislation, in the reasonable judgment
of Purchaser would make it inadvisable to consummate such transactions.
5.4 Opinion of Counsel. A favorable opinion of Norton & Luhn, P.C.,
counsel for Curtis Mortgage, and the Shareholders, shall have been delivered to
Purchaser dated as of the Closing Date, substantially in form and substance of
the opinion attached hereto as Exhibit 5.4.
5.5 Consents, Approvals and Waivers. Purchaser shall have received a
true and correct copy of each consent, approval and waiver (a) referred to in
Section 2.10 hereof, or (b) otherwise required for the execution of this
Agreement and the consummation of the transactions contemplated hereby.
5.6 Personal Agreements. The Shareholders and Jennifer Wiggins shall
have executed Personal Agreements substantially in the respective forms set
forth in Exhibits 2.10(a) through 2.10(c).
5.7 Due Diligence Investigation. Purchaser shall have performed a
due diligence investigation of the books and records and operations of Curtis
Mortgage, the results of which investigation shall have been satisfactory to
Purchaser.
5.8 Life Insurance. Purchaser shall have the right to purchase a
$1,000,000.00 life insurance policy on the life of William Curtis. William
Curtis agrees to cooperate in the acquisition of the insurance policy by being
available to answer the insurance questionaire and take the physical examination
required by the insurance company.
VI. CONDITIONS PRECEDENT TO THE OBLIGATIONS OF CURTIS MORTGAGE AND THE
SHAREHOLDERS TO CLOSE.
The obligations of Curtis Mortgage and the Shareholders to
consummate the transactions contemplated by this Agreement shall be subject to
the satisfaction, on or before the Closing Date, of each and every one of the
following conditions, all or any of which may be waived, in whole or in part, by
Curtis Mortgage and the Shareholders, but without prejudice to any other right
or remedy which they may have hereunder as a result of any misrepresentation by,
or breach of any covenant or warranty of Purchaser contained in this Agreement,
or any certificate or instrument furnished by it hereunder.
6.1 Representations True at Closing. The representations and
warranties made by Purchaser in this Agreement to Curtis Mortgage and the
Shareholders or any document or instrument delivered to Curtis Mortgage, the
Shareholders or their representatives hereunder shall be true and correct on the
Closing Date with the same force and effect as though such representations and
warranties had been made on and as of such date, except for changes contemplated
by this Agreement.
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6.2 Covenants of Purchaser. Purchaser shall have duly performed all
of the covenants, acts and undertakings to be performed by it on or prior to the
Closing Date, and a duly authorized officer of Purchaser shall deliver a
certificate dated as of the Closing Date certifying to the fulfillment of this
condition and the condition set forth under Section 6.1 above.
6.3 No Injunction, Etc. No action, proceeding, investigation,
regulation or legislation shall have been instituted, threatened or proposed
before any court, governmental agency or legislative body to enjoin, restrain,
prohibit or obtain substantial damages in respect of, or which is related to or
arises out of, this Agreement or the consummation of the transactions
contemplated hereby, or which is related to or arises out of, the business of
Purchaser, if such action, proceedings, investigation, regulation or
legislation, in the reasonable judgment of Curtis Mortgage or the Shareholders
would make it inadvisable to consummate same.
6.4 Opinion of Counsel for Purchaser. A favorable opinion of Ritchie
& Eubanks, P.L.L.C., counsel for Purchaser, shall have been delivered to Curtis
Mortgage and the Shareholders dated as of the Closing Date, substantially in the
form and substance of the opinion attached hereto as Exhibit 6.4.
6.5 Consents, Approvals and Waivers. Curtis Mortgage and
Shareholders shall have received a true and correct copy of each consent,
approval and waiver (a) referred to in Section 2.11 hereof, or (b) otherwise
required for the execution of this Agreement and the consummation of the
transactions contemplated hereby.
6.6 Personal Agreements. Shareholders and Jennifer Wiggins shall
have executed Personal Agreements substantially in the respective forms set
forth in Exhibits 2.10(a) through 2.10(c).
VII. CLOSING.
7.1 Time and Place of Closing. The Closing shall be held at the
offices of BankFirst, 625 Market Street, Knoxville, Tennessee 37902, commencing
at 10:00 a.m. Eastern Time, on January 20, 1998, unless another place or date is
agreed to in writing by Curtis Mortgage and Purchaser. The Closing Date may be
extended by agreement to a date no more than five (5) days following approval of
the Federal Reserve Bank of the acquisition by BankFirst.
7.2 Transactions at Closing. At the Closing, each of the following
transactions shall occur:
7.2.1 Curtis Mortgage and the Shareholders' Performance. At
the Closing, Curtis Mortgage and the Shareholders shall deliver to
Purchaser the following:
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(a) all certificates representing shares of the outstanding
capital stock of Curtis Mortgage owned by the Shareholders, duly
endorsed for transfer or accompanied by instruments of transfer
reasonably satisfactory in form and substance to Purchaser and its
counsel, with signatures guaranteed;
(b) the certificate of the Shareholders and of the President
of Curtis Mortgage described in Section 5.2;
(c) copies of the consents and waivers described in Section
2.9 and Section 5.5;
(d) Satisfactory evidences of the approvals described in
Section 5.5;
(e) certificates of compliance or certificates of good
standing of Curtis Mortgage, as of the most recent practicable date,
from the appropriate governmental authority of the jurisdiction of
its incorporation and any other jurisdiction which is set forth in
Exhibit 3.1 hereto;
(f) certified copies of resolutions of the Board of Directors
of Curtis Mortgage approving the transactions set forth in this
Agreement;
(g) certificate of incumbency for the officers of Curtis
Mortgage;
(h) resignations of the directors and designated officers of
Curtis Mortgage;
(i) Personal Agreements executed by the Shareholders
substantially in the form set forth in Exhibits 2.10(a) and (b); and
(j) Personal Agreement executed by Jennifer Wiggins
substantially in the form set forth in Exhibit 2.10(c).
(k) opinion of counsel described in Section 5.4.
(l) executed Lease Agreements substantially in the forms of
Exhibits 2.6(a) and 2.6(b);
(m) such other evidence of the performance of all covenants
and satisfaction of all conditions required of Curtis Mortgage and
the Shareholders by this Agreement, at or prior to the Closing, as
Purchaser or its counsel may reasonably require.
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7.2.2 Performance by Purchaser. At the Closing, Purchaser shall
deliver to the Shareholders and/or Escrow Agent the following:
(a) cash to Shareholders, by cashier's check or certified
check or wire transfer, in the aggregate amount of $7,000,000.00.
(b) cash to Escrow Agent, by cashier's check or certified
check or wire transfer, in the aggregate amount of $500,000.00;
(c) the certificate of the authorized officer described in
Section 6.2;
(d) satisfactory evidence of the approvals described in
Section 6.5;
(e) opinion of counsel described in Section 6.4;
(f) certificate of incumbency of the officers of Purchaser who
are executing this Agreement and the other documents contemplated
hereunder;
(g) executed Personal Agreements substantially in the forms of
Exhibits 2.10(a), 2.10(b), and 2.10(c);
(h) certified copy of resolutions of the Board of Directors of
Purchaser approving the transactions set forth in this Agreement;
(i) executed Lease Agreements substantially in the forms of
Exhibits 2.6(a) and 2.6(b); and
(j) such other evidence of the performance of all the
covenants and satisfaction of all of the conditions required of
Purchaser by this Agreement at or before the Closing as Curtis
Mortgage.
VIII. SURVIVAL OF REPRESENTATIONS AND WARRANTIES AND INDEMNIFI- CATION.
8.1 Survival of Representations and Warranties of Curtis Mortgage
and the Shareholders. All representations, warranties, agreements, covenants and
obligations made or undertaken by Curtis Mortgage and the Shareholders in this
Agreement or in any document or instrument executed and delivered pursuant
hereto are material, have been relied upon by Purchaser, shall survive the
Closing hereunder and shall not merge in the performance of any obligation by
any party hereto. To the extent provided in this section, Curtis Mortgage and
the Shareholders, jointly and severally, agree to indemnify and hold Purchaser
harmless from and against all liability, loss, damage or injury and all
reasonable costs and expenses (including reasonable counsel fees and costs
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of any suit related thereto) suffered or incurred by Purchaser arising from:
(a) any misrepresentation by, or breach of any covenant or warranty
of, Curtis Mortgage or any Shareholder contained in this Agreement or any
certificate or other instrument furnished or to be furnished by Curtis
Mortgage or any Shareholder hereunder, or any claim by a third party
which, if true, would be such a misrepresentation or breach;
(b) any claim against or liability of Curtis Mortgage which accrued
prior to the Closing, to the extent not accrued or reserved against in the
financial statements, disclosed in the Exhibits to this Agreement, or
incurred in the ordinary course of business since October 31, 1997.
Following the Closing, Curtis Mortgage will be owned by the Purchaser, the
parties to this Agreement agree that the Shareholders will have no right of
reimbursement or contribution against Curtis Mortgage.
In the event that a state of facts exist whereby the Purchaser intends to
assert a claim against the Shareholders, the Purchaser shall notify the
Shareholders in writing. If the claim relates to a claim asserted by a third
party against the Purchaser, the Purchaser may employ legal counsel reasonably
acceptable to Shareholders. Purchaser shall direct the defense or prosecution of
the claim or action of such third party as it relates to the Purchaser. The
Purchaser shall not pay or settle a claim of any third party as long as the
Shareholders defend or prosecute the claim of the third party in good faith;
provided, however, that in the event the Purchaser reasonably determines that it
may be adversely affected by a failure to pay or settle the claim of any third
party promptly, it may, upon written notice to Shareholders, pay or settle such
claims without affecting the rights of either party. In the event the claim
arises from other than a claim of a third party, the Shareholders shall have
thirty (30) days from the date of Purchaser's notice to cure such claim to the
satisfaction of the Purchaser, or to contest such claim.
In the event a disputed claim is not resolved in a manner satisfactory to
the Shareholders and Purchaser within thirty (30) days of receipt by the
Shareholders of the notice that Shareholders intend to dispute the claim, the
claim shall be submitted to arbitration pursuant to the rules of the American
Arbitration Association and the decision for the arbitrator shall be conclusive
and binding on all parties. In addition to the amount of the claim or liability
asserted hereunder, if any, the successful party or parties shall recover all
expense and costs reasonably incurred, including reasonable attorney's fees, as
a result of the action on the claim, together with interest at the maximum rate
allowed by law on the amount of the claim, to be paid by the Purchaser or by the
Shareholders, as the case may be as determined by the arbitrator.
Such right of indemnification shall expire three (3) years after the
Closing, unless a lawsuit, arbitration, or administrative proceeding based on an
asserted claim shall have been commenced within said period and is then pending,
or a tax assessment has been made or a notification of a tax audit has been
received within said period and is then pending.
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8.2 Survival of Representations and Warranties of Purchaser. All
representations, warranties, agreements, covenants and obligations made or
undertaken by Purchaser in this Agreement or in any document or instrument
executed and delivered pursuant hereto are material, have been relied upon by
Curtis Mortgage and the Shareholders, shall survive the Closing hereunder and
shall not merge in the performance of any obligation by any party hereto.
Purchaser agrees to indemnify and hold Curtis Mortgage and the Shareholders
harmless from and against all liability, loss, damage or injury and all
reasonable costs and expenses (including reasonable counsel fees and costs of
any suit related thereto) suffered or incurred by Curtis Mortgage or the
Shareholders arising from any misrepresentation by, or breach of any covenant or
warranty of, Purchaser contained in this Agreement or any certificate or
instrument furnished or to be furnished by Purchaser hereunder, or any claim by
a third party (regardless of whether the claimant is ultimately successful)
which if true would be such a misrepresentation or breach.
IX. TERMINATION.
9.1 Method of Termination. This Agreement constitutes the binding
and irrevocable agreement of the parties to consummate the transactions
contemplated hereby, the consideration for which is (a) the covenants set forth
in Article II hereof, and (b) expenditures and obligations incurred and to be
incurred by Purchaser, on the one hand, and by Curtis Mortgage and the
Shareholders, on the other hand, in respect of this Agreement, and this
Agreement may be terminated or abandoned only as follows:
9.1.1 By the mutual consent of the Boards of Directors of Curtis
Mortgage and Purchaser, notwithstanding prior approval by the shareholders
of any or all of such corporations;
9.1.2 By the Board of Directors of Curtis Mortgage after October 31,
1997, if any of the conditions set forth in Article VI hereof, to which
their obligations are subject, have not been fulfilled or waived, unless
such fulfillment has been frustrated or made impossible by any act or
failure to act of any of them; or
9.1.3 By Purchaser after October 31, 1997, if any of the conditions
set forth in Article V hereof, to which the obligations of Purchaser are
subject, have not been fulfilled or waived, unless such fulfillment has
been frustrated or made impossible by any act or failure to act of
Purchaser.
9.2 Effect of Termination. In the event of a termination of this
Agreement pursuant to Section 9.1.1 hereof, each party shall pay the costs and
expenses incurred by it in connection with this Agreement, and no party (or any
of its officers, directors, employees, agents, representatives or shareholders)
shall be liable to any other party for any costs, expenses, damage or loss of
anticipated profits hereunder. In the event of any other termination, the
parties shall retain any and all rights attendant to a breach of any covenant,
representation or warranty made hereunder.
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9.3 Risk of Loss. Curtis Mortgage and the Shareholders assume all
risk of condemnation, destruction, loss or damage due to fire or other casualty
from the date of this Agreement up to the Closing. If the condemnation,
destruction, loss, or damage is such that the business of Curtis Mortgage is
interrupted or curtailed or the assets of Curtis Mortgage are materially
affected, then Purchaser shall have the right to terminate this Agreement. If
the condemnation, destruction, loss, or damage is such that the business of
Curtis Mortgage is neither interrupted nor curtailed nor its assets materially
affected, or if the business is interrupted or curtailed or the assets are
materially affected and Purchaser nevertheless forgoes the right to terminate
this Agreement, the purchase price shall be adjusted at the Closing to reflect
such condemnation, destruction, loss, or damage to the extent that insurance
proceeds are not sufficient to cover such destruction, loss or damage, and if
Purchaser, on the one hand, and Curtis Mortgage and the Shareholders, on the
other hand, are unable to agree upon the amount of such adjustment, the dispute
shall be resolved jointly by the independent accounting firms then employed by
Purchaser and Curtis Mortgage, and if said accounting firms to not agree upon
the amount of such adjustment, they shall appoint a nationally recognized
accounting firm, whose determination of the dispute shall be final and binding.
X. GENERAL PROVISIONS.
10.1 Notices. All notices, requests, demands and other
communications hereunder shall be in writing and shall be delivered by hand or
mailed by registered or certified mail, return receipt requested, first class
postage prepaid, addressed as follows:
10.1.1 If to Curtis Mortgage or the Shareholders:
Curtis Mortgage Company
Attn: William H. Curtis
249 North Peters Road
Knoxville, Tennessee 37923
and to
William H. Curtis
4407 Beechwood Road
Knoxville, Tennessee 37920
Gordon C. Curtis
109 Harbor Point Cove
Lenoir City, Tennessee 37772
10.1.2 If to Purchaser:
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BankFirst
Attn: Fred R. Lawson
625 Market Street
Knoxville, Tennessee 37902
with a copy to:
BankFirst
Attn: R. Stephen Hagood
625 Market Street
Knoxville, Tennessee 37902
10.1.3 If delivered personally, the date on which a notice,
request, instruction or document is delivered shall be the date on
which such delivery is made and, if delivered by mail, the date on
which such notice, request, instruction or document is received
shall be the date of delivery. In the event any such notice,
request, instruction or document is mailed to a party in accordance
with this Section 10.1 and is returned to the sender as
nondeliverable, then such notice, request, instruction or document
shall be deemed to have been delivered or received on the fifth day
following the deposit of such notice, request, instruction or
document in the United States mail.
10.1.4 Any part hereto may change its address specified for
notices herein by designating a new address by notice in accordance
with this Section 10.1.
10.2 Brokers. Purchaser represents and warrants to Curtis Mortgage
and the Shareholders, and Curtis Mortgage and the Shareholders, jointly and
severally, represent and warranty to Purchaser that no broker or finder has
acted for it or them or any entity controlling, controlled by or under common
control with it or them in connection with this Agreement. Shareholders agree to
indemnify and hold harmless Purchaser against any fee, loss or expense arising
out of any claim by any broker or finder employed or alleged to have been
employed by them.
10.3 Further Assurances. Each party covenants that at any time, and
from time to time, after the Closing Date, it will execute such additional
instruments and take such actions as may be reasonably requested by the other
parties to confirm or perfect or otherwise to carry out the intent and purposes
of this agreement.
10.4 Waiver. Any failure on the part of any party hereto to comply
with any of its obligations, agreements or conditions hereunder may be waived by
any other party to whom such compliance is owed. No waiver of any provision of
this Agreement shall be deemed, or shall constitute, a waiver of any other
provision, whether or not similar, nor shall any waiver constitute a continuing
waiver.
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10.5 Expenses. All expenses incurred by the parties hereto in
connection with or related to the authorization, preparation and execution of
this Agreement and the Closing of the transactions contemplated hereby,
including, without limitation of the generality of the foregoing, all fees and
expenses of agents, representatives, counsel and accountants employed by any
such party, shall be borne solely and entirely by the party which has incurred
same.
10.6. Binding Effect. This Agreement shall be binding upon and inure
to the benefit of the parties hereto and their respective heirs, legal
representatives, executors, administrators, successors and assigns. The
invalidity of nonenforceability of this Agreement as to any Shareholder shall
not affect the validity or enforceability of this Agreement as to any other
Shareholder.
10.7. Headings. The section and other headings in this Agreement are
inserted solely as a matter of convenience and for reference, and are not a part
of this Agreement.
10.8. Entire Agreement. This Agreement constitutes the entire
agreement among the parties hereto and supersedes and cancels any prior
agreements, representations, warranties, or communications, whether oral or
written, among the parties hereto relating to the transactions contemplated
hereby or the subject matter herein. Neither this Agreement nor any provision
hereof may be changed, waived, discharged or terminated orally, but only by an
agreement in writing signed by the party against whom or which the enforcement
of such change, waiver, discharge or termination is sought.
10.9 Governing Law. This Agreement shall be governed by and
construed in accordance with the laws of the State of Tennessee.
10.10 Counterparts. This Agreement may be executed in two or more
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
10.11 Pronouns. All pronouns used herein shall be deemed to refer to
the masculine, feminine or neuter gender as the context requires.
10.12 Exhibits Incorporated. All Exhibits attached hereto are
incorporated herein by reference, and all blanks in such Exhibits, if any, will
be filled in as required in order to consummate the transactions contemplated
herein and in accordance with this Agreement.
10.13 Time of Essence. Time is of the essence in this Agreement.
10.14 Intent and Due Diligence Standard. The parties hereto have
entered into this Agreement in good faith with the intention of closing the
transaction contemplated herein in accordance with the terms and conditions of
this Agreement. It is the further intention of the parties hereto to provide
Purchaser ample time to conduct any and all due diligence investigation it deems
necessary to satisfy itself with the condition of Curtis Mortgage. If, prior to
Closing, Purchaser is
Page 23 of 24
<PAGE>
not satisfied with the condition of Curtis Mortgage, Purchaser may elect to
terminate the transaction contemplated herein.
IN WITNESS WHEREOF, each party hereto has executed or caused this
Agreement to be executed on its behalf, all on the day and year first above
written.
BANKFIRST
("Purchaser")
By: /s/ Fred R. Lawson
-----------------------------------
Fred R. Lawson
Title: President
CURTIS MORTGAGE COMPANY
("Curtis Mortgage")
By: /s/ William H. Curtis
-----------------------------------
William H. Curtis
Title: Chairman & CEO
SHAREHOLDERS:
/s/ William H. Curtis
--------------------------------------
William H. Curtis
/s/ Gordon C. Curtis
--------------------------------------
Gordon C. Curtis
Page 24 of 24
EXHIBIT 10.6
AGREEMENT AND PLAN OF MERGER
OF
BANKFIRST
AND
FIRST NATIONAL BANK OF GATLINBURG
This Agreement and Plan of Merger is made this 16th day of January, 1997,
by and among Smoky Mountain Bancorp, Inc., a Tennessee corporation registered as
a bank holding company, with its principal offices at 625 Market Street,
Knoxville, Tennessee (hereinafter "Parent"), BankFirst, a Tennessee corporation
with its principal offices at 625 Market Street, Knoxville, Tennessee 37901
(hereinafter "BankFirst"), and First National Bank of Gatlinburg, a national
banking association with its principal offices at 811 Parkway, Gatlinburg,
Tennessee (hereinafter "First National").
W I T N E S S E T H:
WHEREAS, the authorized capital stock of BankFirst consists of (i) Ten
Million (10,000,000) shares of Common Stock, par value $5.00 per share (the
"BankFirst Common Stock"), of which One Million One Hundred Fifty-Four Thousand
One Hundred Fifty-Two (1,154,152) shares are authorized, issued and outstanding
as of this date, and (ii) Five Hundred Thousand (500,000) shares of Preferred
Stock, par value $5.00 per share (the "BankFirst Preferred Stock"), of which Two
Hundred Twenty-Five Thousand Five Hundred Fifty-Nine (225,559) shares are
authorized, issued and outstanding as of this date; and
WHEREAS, Parent is the owner of all of the issued and outstanding shares
of BankFirst Common Stock and BankFirst Preferred Stock; and
WHEREAS, the authorized capital stock of First National consists of (i)
Two Hundred Thousand (200,000) shares of Common Stock, par value Ten ($10.00)
Dollars per share (the "First National Common Stock"), of which Ninety-Four
Thousand Six Hundred Forty-Five (94,645) shares are issued and outstanding as of
this date; and
WHEREAS, Parent is the owner of all of the issued and outstanding shares
of First National Common Stock; and
<PAGE>
WHEREAS, Parent proposes to merge First National into BankFirst, with
BankFirst becoming the surviving corporation and "Resulting Bank", as that term
is used in Tennessee Code Annotated, Section 45-2-1301(7); and
WHEREAS, pursuant to Tennessee Code Annotated, Sections 45-2-1304 and
45-2-1305, the Board of Directors of Parent, BankFirst, and First National, and
Parent as the sole Shareholder of both BankFirst and First National, are
entitled to vote on the Merger; and
WHEREAS, the purpose of this Agreement and Plan of Merger is to set forth
the terms and conditions of the Merger for consideration and approval by the
Board of Directors of Parent, BankFirst and First National, and by Parent as the
sole Shareholder of BankFirst and First National.
NOW, THEREFORE, in consideration of the mutual covenants, agreements and
provisions herein contained, the parties agree as follows:
ARTICLE I
DEFINITIONS
As used in this Agreement, the following terms have the definitions
indicated:
"Agreement" means this Agreement and Plan of Merger, and all exhibits
annexed to and incorporated by specific reference as a part of this Agreement.
"Audited Financial Statements of BankFirst" shall have the meaning
assigned to such term in Section 7.5 of this Agreement.
"BankFirst" shall mean BankFirst, a Tennessee banking corporation
headquartered at 625 Market Street, Knoxville, Knox County, Tennessee 37902.
"BankFirst Common Stock" shall mean the Five Dollar ($5.00) par value
common stock of which Ten Million (10,000,000) shares are authorized and One
Million One Hundred Fifty-Four Thousand One Hundred Fifty-Two (1,154,152) shares
are issued and outstanding.
"BankFirst Financial Statements" shall mean the Audited Financial
Statements and the Unaudited Financial Statements described in Section 7.5.
"BankFirst Preferred Stock" shall mean the Five Dollar ($5.00) par value
Non-Cumulative Convertible Preferred Stock of which Five Hundred Thousand
(500,000) shares are authorized and Two Hundred Twenty-Five Thousand Five
Hundred Fifty-Nine (225,559) shares are issued and outstanding.
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<PAGE>
"BankFirst Subsidiary" shall mean Eastern Life Insurance Company, a duly
chartered and validly existing corporation chartered under the laws of the State
of Tennessee, headquartered at 625 Market Street, Knoxville, Knox County,
Tennessee 37902.
"Constituent Corporations" shall mean the two corporations being merged,
which are BankFirst and First National.
"Effective Date" shall have the meaning assigned to it in Section 3.2 of
this Agreement; provided, however, the Effective Date may be extended if
governmental approvals have not been obtained.
"FDIC" shall mean the Federal Deposit Insurance Corporation.
"First National" shall mean First National Bank of Gatlinburg, a national
banking association headquartered at 811 Parkway, Gatlinburg, Sevier County,
Tennessee 37738.
"First National Common Stock" shall mean the Ten ($10.00 Dollar par value
common stock of which Two Hundred Thousand (200,000) shares are authorized and
Ninety-Four Thousand Six Hundred Forty-Five (94,645) shares are issued and
outstanding.
"First National's Financial Statements" shall have the meaning specified
in Section 8.5 of this Agreement.
"GAAP" shall mean Generally Accepted Accounting Principles, consistently
applied.
"Government Approvals" shall have the meaning assigned to such term in
Section 6.4 of this agreement.
"Merger" shall mean the merger of First National Bank into BankFirst, with
BankFirst being the Surviving Corporation and Resulting Bank, as described in
Section 3.1 of this Agreement.
"Merging Banks" shall mean BankFirst and First National Bank of
Gatlinburg.
"Parent" shall mean Smoky Mountain Bancorp, Inc., a corporation chartered
and existing under the laws of the State of Tennessee which is registered as a
bank holding company and has its principal office at 625 Market Street,
Knoxville, Knox County, Tennessee 37902.
"Parent Preferred Stock" shall mean the One Million (1,000,000) shares of
authorized $5.00 par value Preferred Stock of Parent, of which Two Hundred
Twenty-Five Thousand Five Hundred Fifty-Nine (225,559) shares are now issued and
outstanding.
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<PAGE>
"Parent Voting Common Stock" shall mean the Ten Million (10,000,000)
shares of authorized voting Common Stock of Parent, $2.50 par value, of which
Nine Hundred Ninety-Three Thousand Four Hundred Thirty-Six (993,436) shares are
now issued and outstanding, and of which Ninety-One Thousand One Hundred
Seventeen (91,117) shares are being held by Parent as treasury stock.
"Parent's Financial Statements" shall have the meaning specified in
Section 6.6 of this Agreement.
"Resulting Bank" shall have the definition assigned to it in Section
45-2-1301(7) of the Tennessee Code, and for the purposes of this Agreement shall
mean BankFirst, which is also referred to herein as the Surviving Corporation.
"Surviving Corporation" shall mean the surviving corporation of the
Merger, which for the purposes of this Agreement shall mean BankFirst, which is
also referred to herein as the Resulting Bank.
"TDFI" shall mean the Tennessee Department of Financial Institutions.
ARTICLE II
MERGING BANKS
Section 2.1 Names and Addresses of Merging Banks. The names and addresses
of the principal offices of the Merging Banks are as follows:
(1) BankFirst
625 Market Street
Knoxville, Tennessee 37902
(2) First National Bank of Gatlinburg
811 Parkway
Gatlinburg, Tennessee 37738
Section 2.2 Location of Each Office or Branch of BankFirst. The addresses
of each office or branch of BankFirst is listed on Exhibit A attached hereto and
made a part hereof.
Section 2.3 Location of Each Office or Branch of First National. The
addresses of each offices or branch of First National is listed on Exhibit B
attached hereto and made a part hereof.
4
<PAGE>
ARTICLE III
THE MERGER
Section 3.1 Merger. Subject to the terms and conditions of this Merger
Agreement, First National shall be merged with and into BankFirst in accordance
with the General Corporation Law of the State of Tennessee, the Title 45, Banks
and Financial Institutions, Tennessee Code Annotated ss.45-1-101, et seq., and
the Rules and Regulations of the Federal Deposit Insurance Corporation. The
separate existence of First National shall cease, and BankFirst shall be the
surviving corporation and the Resulting State Bank, and shall continue its
corporate existence under the laws of the State of Tennessee as a wholly owned
subsidiary of Parent.
Section 3.2 Effective Date of the Merger. The Merger shall become
effective when a properly approved and executed Certificate of Merger is duly
issued by the Commissioner of Financial Institutions for the State of Tennessee
and submitted to the Secretary of State for the State of Tennessee pursuant to
T.C.A. Section 45-2-1306. When used in this Agreement, the term "Effective Date"
shall mean the date and time at which such Certificate is so filed, and the
effective date shall be March 21, 1997, provided the regulatory approvals are
obtained and the Certificate of Merger is filed..
ARTICLE IV
THE SURVIVING CORPORATION AND RESULTING BANK
Section 4.1 Name of Surviving Corporation and Resulting Bank. At the
effective date, BankFirst shall become the Surviving Corporation and Resulting
Bank from the Merger.
Section 4.2 Charter of Incorporation. At the Effective Date, the Amended
and Restated Charter of BankFirst shall be the Charter of Incorporation of
Surviving Corporation and Resulting Bank, and thereafter may be amended in
accordance with its terms and as provide by law.
Section 4.3 Bylaws. The Bylaws of BankFirst as in effect on the Effective
Date shall be the Bylaws of the Resulting Bank.
Section 4.4 Board of Directors. From and after the Effective Date, the
Board of Directors of BankFirst shall be the Board of Directors of the Resulting
Bank. Members of the Board of Directors will be selected, and vacancies will be
filled, in accordance with the Charter of Incorporation and the Bylaws of
BankFirst. As of the Effective Date, the members of the Board of Directors of
the Resulting Bank shall be those listed on Exhibit C attached hereto and made a
part hereof.
5
<PAGE>
Section 4.5 Officers. From and after the Effective Date, the officers of
the Resulting Bank shall be those officers listed on Exhibit D attached hereto
and made a part hereof. After the Effective Date, the Board of Directors of the
Resulting Bank may make changes in the officers in accordance with the law and
as provided by the Charter of Incorporation and the Bylaws of BankFirst.
Section 4.6 Location of Principal Office. The location of the principal
office of the Resulting Bank shall be BankFirst, 625 Market Street, Knoxville,
Tennessee 37902.
Section 4.7 Location of Each Additional Office and/or Branch. The address
of each office and/or branch of the Resulting Bank shall be those listed on
Exhibit E attached hereto and made a part hereof. Each of these locations were
originally locations of one of the Merging Banks, and it is contemplated that
all of the officers of BankFirst and First National will continue to be
operated.
ARTICLE V
STOCK OWNERSHIP AFTER MERGER
Section 5.1 Cancellation of Shares. As of the Effective Date, Parent shall
cancel all of the authorized, issued and outstanding shares of First National
Common Stock and First National Preferred Stock.
Section 5.2 Ownership of BankFirst Shares. As of the date of this
agreement and as of the Effective Date, Parent shall own all of the authorized,
issued and outstanding shares of BankFirst Common Stock and BankFirst Preferred
Stock.
Section 5.3 Closing of First National Transfer Books. The stock transfer
books of First National were closed when the Parent acquired First National in
1989, and there have not been, nor will there be any transfer of First National
Common Stock or First National Preferred Stock..
ARTICLE VI
REPRESENTATIONS AND WARRANTIES OF PARENT
Parent represents and warrants to BankFirst and First National as follows:
Section 6.1 Organization. Parent is a bank holding corporation duly
organized, validly existing and in good standing under the laws of the State of
Tennessee, and (i) has, in all material respects, all requisite corporate power
and authority to own, operate and lease its material properties and carry on its
business as it is currently being conducted; (ii) is in good standing and is
duly
6
<PAGE>
qualified to do business in each jurisdiction where the character of its
properties owned or held under lease or by nature of its business make such
qualification necessary; and (iii) has in effect all federal, state and local
governmental authorizations, permits and licenses necessary for it to own or
lease its properties and assets and to carry on its business as it is currently
being conducted. The corporate charter and bylaws of Parent, as amended to date,
are in full force and effect.
Section 6.2 Capitalization. The authorized capital stock of Parent
consists of Three Million (3,000,000) shares of voting Common Stock of par value
of Two Dollars and Fifty Cents ($2.50) per share ("Parent Voting Common Stock");
and One Million shares of Preferred Stock of par value of Five Dollars ($5.00)
per share ("Parent Preferred Stock"). As of the date of this Agreement, Nine
Hundred Ninety-Three Thousand Four Hundred Thirty-Six (993,436) shares of Parent
Common Stock are issued and outstanding; and Two Hundred Twenty-Five Thousand
Five Hundred Fifty-Nine (225,559) shares of Parent Preferred Stock are issued
and outstanding. In addition, Parent is holding Ninety-One Thousand One Hundred
Seventeen (91,117) shares of Parent Common Stock and Parent Preferred Stock as
treasury stock. All of the outstanding Parent Common Stock is validly issued,
fully paid, and non-assessable, and has not been issued in violation of any
preemptive rights of any shareholder of Parent. All of the outstanding Parent
Preferred Stock is validly issued, fully paid and non-assessable and has not
been issued in violation of any preemptive rights of any shareholder of Parent.
Section 6.3 Authority Relative to this Agreement. Parent has the corporate
power to enter into this Agreement and to carry out its obligations under this
Agreement. The execution and delivery of this Agreement and the consummation of
the transactions contemplated by this Agreement have been duly authorized by
Parent's Board of Directors, and, no other corporate proceedings on the part of
the Parent are necessary to authorize this Agreement and the transactions
contemplated by this Agreement. Parent is not subject to or obligated under (i)
any charter, bylaw, indenture, or other loan document provision or (ii) any
other contract, license, franchise, permit, order or decree, which would be
breached or violated by Parent executing and carrying out this Agreement. The
Parent is the sole shareholder of BankFirst and First National, and has given
its approval to the merger as required by Tennessee Code Annotated ss.45-2-1305.
Section 6.4 Government Approvals. No consent, approval, order or
authorization of, or registration, declaration or filing with, any federal,
state or local governmental authority is required to be made or obtained by
Parent in connection with the execution and delivery of this Agreement or the
consummation of the transactions contemplated herein by Parent. BankFirst shall
file the appropriate application with the FDIC to obtain its prior approval of
this Agreement; and the appropriate documentation to obtain the prior approval
of the Tennessee Department of Financial Institutions ("TDFI") under Section
45-2-1304 of the Tennessee Code and the regulations promulgated by the TDFI
thereunder (collectively, the "Government Approvals").
7
<PAGE>
Section 6.5 No Legal Bar. Parent is not a party to, subject to or bound
by, any agreement, judgment, order, writ, prohibition, injunction or decree of
any court or other governmental body of competent jurisdiction which would
prevent the execution of this Agreement by Parent, its delivery to BankFirst and
First National or the consummation of the transactions contemplated hereby, and
no action or proceeding is pending against Parent in which the validity of this
Agreement, any of the transactions contemplated hereby or any action which has
been taken by any of the parties in connection herewith or in connection with
any of the transactions contemplated here is at issue.
Section 6.6 Reports and Financial Statements. Parent has delivered and, to
the extent reference is made to financial statements not yet available or
capable of development, will deliver to BankFirst and First National true and
complete copies of: (i) Parent's audited Consolidated Financial Statements for
the calendar years ended December 31, 1995 and 1994; and (ii) Parent's unaudited
and consolidated financial statements for each of the calendar quarters in
calendar year 1996 and thereafter, ending prior to the Effective Date. Such
financial statements and the notes thereto present fairly, or will present
fairly when issued, in all material respects, the consolidated financial
position of Parent as of the respective dates thereof and the consolidated
results of operations and consolidated cash flow of Parent for the periods
indicated, and in each case in conformity with GAAP consistently applied and
maintained.
Section 6.7 Absence of Certain Changes of Events. Since December 31, 1996,
there has not been any material adverse change in the financial condition or in
the result of operations or the businesses, properties, assets, or liabilities
of Parent and its subsidiary, taken as a whole.
Section 6.8 Litigation. Except as disclosed in Parent's Financial
Statements, there is no suit, action or proceeding pending or, to the knowledge
of Parent, threatened against or affecting Parent or any of its subsidiaries,
which, if adversely determined, would materially and adversely affect the
financial condition, business or results of operations of Parent and its
subsidiaries, taken as a whole; nor is there any judgment, decree, injunction,
rule or order of any court, governmental department, commission, agency,
instrumentality, or arbitration outstanding against Parent or any of its
subsidiaries having, or which, insofar as can reasonably be foreseen, in the
future may have, any such effect.
Section 6.9 Disclosure. The information concerning, and the
representations or warranties made by Parent as set forth in this Agreement, or
in any document, statement, certificate or other writing furnished or to be
furnished by Parent to BankFirst or First National pursuant hereto, do not and
will not contain any untrue statement of material fact or omit and will not omit
to state a material fact required to be stated herein or therein which is
necessary to make the statements and facts contained herein or therein, in light
of the circumstances under which they were or are made, not false or misleading.
Copies of all documents heretofore or hereafter delivered or made available to
BankFirst or First National by Parent pursuant hereto were or will be complete
and accurate copies of such document.
8
<PAGE>
ARTICLE VII
REPRESENTATIONS AND WARRANTIES OF BANKFIRST
Both as of the date hereof and as of the Effective Date, BankFirst
represents and warrants to Parent and First National as follows:
Section 7.1 Organization and Qualification of BankFirst. BankFirst is a
state-chartered banking corporation duly organized, validly existing and in good
standing under the laws of the State of Tennessee and (i) has all requisite
corporate power and authority to own, operate and lease its material properties
and to carry on its material business as it is currently being conducted; (ii)
is in good standing and is duly qualified to do business in each jurisdiction
where the character of its material properties owned or held under lease or the
nature of its material business makes such qualification necessary; (iii) has in
effect all federal state and local government authorizations, permits and
licenses necessary for it to own or leases its properties and assets and to
carry on its business as it is currently being conducted; and (iv) its deposit
accounts are insured by the FDIC to the fullest extent permitted under
applicable law. BankFirst is not a member of the Federal Reserve System. The
BankFirst subsidiary, Eastern Life Insurance Company, is duly chartered, validly
existing and in good standing under the laws of the state of its incorporation
and (i) has all requisite corporate power and authority to own, operate and
lease its material properties and to carry on its material business as it is
currently being conducted and (ii) is in good standing and is duly qualified to
do business in each jurisdiction where the character of its material properties
owned or held under lease or the nature of its material business makes such
qualification necessary; and (iii) has in effect all federal, state and local
government authorizations, permits and licenses necessary for it to own or
leases its properties and assets and to carry on its business as it is currently
being conducted. BankFirst engages only in activities (and holds properties only
of the types) permitted by the Tennessee Code for Tennessee state-chartered
banks. The corporate charter and bylaws of BankFirst and its subsidiary, as
amended to date, are in full force and effect.
Section 7.2 Authorization, Execution and Delivery; Agreement Not in
Breach.
(a) BankFirst has all requisite power and authority to execute and
deliver this Agreement and to consummate the transactions contemplated hereby
and thereby. The execution and delivery of this Agreement and the consummation
of the proposed transactions have been duly authorized by a unanimous vote of
the entire Board of Directors of BankFirst and, except for the approval of the
sole Shareholder of BankFirst, no other corporate proceedings on the part of
BankFirst are necessary to authorize the execution and delivery of this
Agreement and the consummation of the transactions contemplated hereby and
thereby. This Agreement and all other agreements and instruments herein
contemplated to be executed by BankFirst have been (or upon execution will have
been) duly executed and delivered by BankFirst and constitute (or upon execution
will constitute) legal, valid and enforceable obligations of BankFirst, subject,
as to enforceability, to applicable bankruptcy, insolvency, receivership,
conservatorship, reorganization, moratorium or similar laws affecting the
enforcement of creditors' rights generally and to the application of equitable
principles and judicial discretion.
9
<PAGE>
(b) The execution and delivery of this Agreement, the consummation
of the transactions contemplated hereby and thereby, and the fulfillment of the
terms hereof and thereof will not result in a violation or breach of any of the
material terms or provisions of, or constitute a default under (or an event
which, with the passage of time or the giving of notice, or both, would
constitute a default under), or conflict with, or permit the acceleration of,
any obligation under any mortgage, lease, covenant, agreement, indenture or
other instrument to which BankFirst or the BankFirst Subsidiary is a party or by
which BankFirst or the BankFirst Subsidiary is bound; the Charter or Bylaws of
BankFirst; or any judgment, decree, order, regulatory letter of understanding or
award of any court, governmental body, authority or arbitrator by which
BankFirst or the BankFirst Subsidiary is bound; or any material permit,
concession, grant, franchise, license, law, statute, ordinance, rule or
regulation applicable to BankFirst or the BankFirst Subsidiary or the properties
of any of them; or result in the creation of any material lien, claim, security
interest, encumbrance, charge, restriction or right of any third party of any
kind whatsoever upon the properties or assets of BankFirst or the BankFirst
Subsidiary.
Section 7.3 No Legal Bar. BankFirst is not a party to, or subject to, or
bound by, any agreement or judgment, order, letter of understanding, writ,
prohibition, injunction or decree of any court or other governmental authority
or body which would prevent the execution of this Agreement by BankFirst, the
delivery thereof to Parent or the consummation of the transaction contemplated
hereby and thereby, and no action or proceeding is pending against BankFirst in
which the validity of this Agreement, the transaction contemplated hereby or any
action which has been taken by any of the parties in connection herewith or in
connection with the transaction contemplated hereby is at issue.
Section 7.4 Government and Other Approvals. BankFirst shall file the
appropriate application with the FDIC and the Tennessee Department of Financial
Institutions seeking their prior approval of the merger as set forth under this
Agreement.
Section 7.5 BankFirst Financial Statements. BankFirst has delivered true
copies of its audited consolidated balance sheets as of December 31, 1995, 1994
and 1993, and the related consolidated statements of income and stockholders'
equity and cash flows of BankFirst for the years ended December 31, 1995, 1994
and 1993 (the "Audited Financial Statements of BankFirst") and the comparative
interim (or annual) financial statements for any subsequent quarter (or year)
ending after December 31, 1995 and prior to the Effective Date. Such financial
statements (i) were (or will be) prepared from the books and records of
BankFirst; (ii) were (or will be) prepared in accordance with generally accepted
accounting principles consistently applied; (iii) accurately present (or will
present) BankFirst's consolidated financial condition and the consolidated
results of its operations as at the relevant dates thereof and for the periods
covered thereby; (iv) do contain or reflect (or will contain and reflect) all
necessary adjustments and accruals for an accurate presentation of BankFirst's
consolidated financial condition and the consolidated results of BankFirst's
operations for the periods covered by such Financial Statements; and (v) do
contain and reflect (or will contain and reflect) adequate provisions for loan
losses, for ORE reserves and for all reasonably anticipated liabilities for all
taxes, federal, state, or local, with respect to the periods then
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ended.
Section 7.6 Records and Documents. The records of BankFirst are and will
be sufficient to enable BankFirst to continue conducting its business as a
Tennessee-chartered state bank under similar standards as BankFirst has
heretofore conducted such business.
Section 7.7 Capitalization of BankFirst. The authorized capital stock of
BankFirst consists of Ten Million (10,000,000) shares of common stock having a
par value of $5.00 per share (the "BankFirst Common Stock") and Five Hundred
Thousand (500,000) shares of noncumulative convertible preferred stock
("BankFirst Preferred Stock"). As of the date of this Agreement, 1,154,152
shares of BankFirst Common Stock are issued and outstanding and no BankFirst
Common Stock is held by BankFirst as treasury stock. All of the outstanding
BankFirst Common Stock is validly issued, fully paid and nonassessable and has
not been issued in violation of any preemptive rights of any BankFirst
shareholder. As of the date of this Agreement, 225,559 shares of BankFirst
Preferred Stock shares are issued and outstanding and no BankFirst Preferred
Stock is held by BankFirst as treasury stock. All of the outstanding BankFirst
Preferred Stock is validly issued, fully paid and nonassessable and has not been
issued in violation of any preemptive rights of any BankFirst shareholder. All
of the issued and outstanding shares of BankFirst are presently held by Parent
pursuant to a Plan of Share Exchange which was approved by the Federal Reserve
Board on November 9, 1996 and consummated on December 31, 1996.
Section 7.8 Disclosure. The information concerning, and representations
and warranties made by, BankFirst set forth in this Agreement, or in any
document, statement, certificate or other writing furnished or to be furnished
by BankFirst to Parent pursuant hereto, does not and will not contain any untrue
statement of a material fact or omit and will not omit to state a material fact
required to be stated herein or therein necessary to make the statements and
facts contained herein or therein, in light of the circumstances in which they
were or are made, not false or misleading. Copies of all documents heretofore or
hereafter delivered or made available to Parent or First National by BankFirst
pursuant hereto were or will be complete and accurate copies of such documents.
Section 7.9 Absence of Certain Changes of Events. Since December 31, 1996,
there has not been any material adverse change in the financial condition or in
the result of operations or the businesses, properties, assets, or liabilities
of BankFirst and its subsidiary, taken as a whole.
Section 7.10 Litigation. Except as disclosed in BankFirst's Financial
Statements, there is no suit, action or proceeding pending or, to the knowledge
of BankFirst, threatened against or affecting BankFirst or any of its
subsidiaries, which, if adversely determined, would materially and adversely
affect the financial condition, business or results of operations of BankFirst
and its subsidiaries, taken as a whole; nor is there any judgment, decree,
injunction, rule or order of any court, governmental department, commission,
agency, instrumentality, or arbitration outstanding against BankFirst or any of
its subsidiaries having, or which, insofar as can reasonably be foreseen, in the
future may have, any such effect.
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ARTICLE VIII
REPRESENTATIONS AND WARRANTIES OF FIRST NATIONAL
Both as of the date hereof and as of the Effective Time, First National
represents and warrants to Parent and BankFirst as follows:
Section 8.1 Organization and Qualification of First National. First
National is a federally-chartered national banking corporation duly organized,
validly existing and in good standing under the laws of the United States of
America and (i) has all requisite corporate power and authority to own, operate
and lease its material properties and to carry on its material business as it is
currently being conducted; (ii) is in good standing and is duly qualified to do
business in each jurisdiction where the character of its material properties
owned or held under lease or the nature of its material business makes such
qualification necessary (iii) has in effect all federal state and local
government authorizations, permits and licenses necessary for it to own or
leases its properties and assets and to carry on its business as it is currently
being conducted; and (iv) its deposit accounts are insured by the FDIC to the
fullest extent permitted under applicable law. First National is a member of the
Federal Reserve System. The corporate charter and bylaws of First National, as
amended to date, are in full force and effect.
Section 8.2 Authorization, Execution and Delivery; Agreement Not in
Breach.
(a) First National has all requisite power and authority to execute
and deliver this Agreement and to consummate the transactions contemplated
hereby and thereby. The execution and delivery of this Agreement and the
consummation of the proposed transaction have been duly authorized by a majority
of the entire Board of Directors of First National and, except for the approval
of the sole Shareholder of First National, no other corporate proceedings on the
part of First National are necessary to authorize the execution and delivery of
this Agreement and the consummation of the transactions contemplated hereby and
thereby. This Agreement and all other agreements and instruments herein
contemplated to be executed by First National have been (or upon execution will
have been) duly executed and delivered by First National and constitute (or upon
execution will constitute) legal, valid and enforceable obligations of First
National, subject, as to enforceability, to applicable bankruptcy, insolvency,
receivership, conservatorship, reorganization, moratorium or similar laws
affecting the enforcement of creditors' rights generally and to the application
of equitable principles and judicial discretion.
(b) The execution and delivery of this Agreement, the consummation
of the transaction contemplated hereby and thereby, and the fulfillment of the
terms hereof and thereof will not result in a violation or breach of any of the
material terms or provisions of, or constitute a default under (or an event
which, with the passage of time or the giving of notice, or both, would
constitute a default under), or conflict with, or permit the acceleration of,
any obligation under any mortgage,
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lease, covenant, agreement, indenture or other instrument to which First
National is a party or by which First National is bound; the Charter or Bylaws
of First National; or any judgment, decree, order, regulatory letter of
understanding or award of any court, governmental body, authority or arbitrator
by which First National is bound; or any material permit, concession, grant,
franchise, license, law, statute, ordinance, rule or regulation applicable to
First National or the properties of any of them; or result in the creation of
any material lien, claim, security interest, encumbrance, charge, restriction or
right of any third party of any kind whatsoever upon the properties or assets of
First National.
Section 8.3 No Legal Bar. First National is not a party to, or subject to,
or bound by, any agreement or judgment, order, letter of understanding, writ,
prohibition, injunction or decree of any court or other governmental authority
or body which would prevent the execution of this Agreement by First National,
the delivery thereof to Parent or the consummation of the transaction
contemplated hereby and thereby, and no action or proceeding is pending against
First National in which the validity of this Agreement, the transaction
contemplated hereby or any action which has been taken by any of the parties in
connection herewith or in connection with the transaction contemplated hereby is
at issue.
Section 8.4 Government and Other Approvals. Except for the Government
Approvals described in Section 6.4 and Section 7.4, no consent, approval, order
or authorization of, or registration, declaration or filing with, any federal,
state or local governmental authority is required to be made or obtained by
First National in connection with the execution and delivery of this Agreement
or the consummation of the transactions contemplated by this Agreement nor is
any consent or approval required from any landlord, licensor or other
non-governmental party which has granted rights to First National in order to
avoid forfeiture or impairment of such rights.
Section 8.5 First National Financial Statements. First National has
delivered true copies of its audited consolidated balance sheets as of December
31, 1995, 1994 and 1993, and the related consolidated statements of income and
stockholders' equity and cash flows of BankFirst for the years ended December
31, 1995, 1994 and 1993 (the "Audited Financial Statements of First National")
and the comparative interim (or annual) financial statements for any subsequent
quarter (or year) ending after December 31, 1995 and prior to the Effective
Date. Such financial statements (i) were (or will be) prepared from the books
and records of First National; (ii) were (or will be) prepared in accordance
with generally accepted accounting principles consistently applied; (iii)
accurately present (or will present) First National's consolidated financial
condition and the consolidated results of its operations as at the relevant
dates thereof and for the periods covered thereby; (iv) do contain or reflect
(or will contain and reflect) all necessary adjustments and accruals for an
accurate presentation of First National's consolidated financial condition and
the consolidated results of First National's operations for the periods covered
by such Financial Statements; and (v) do contain and reflect (or will contain
and reflect) adequate provisions for loan losses, for ORE reserves and for all
reasonably anticipated liabilities for all taxes, federal, state, or local, with
respect to the periods then ended.
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Section 8.6 Records and Documents. The records of First National are and
will be sufficient to enable First National to continue conducting its business
as a nationally-chartered bank under similar standards as First National has
heretofore conducted such business.
Section 8.7 Capitalization of First National. The authorized capital of
First National consists of Two Hundred Thousand (200,000) shares of Common
Stock, par value Ten ($10.00) Dollars per share ("First National Common Stock").
As of the date of this Agreement, Ninety-Four Thousand Six Hundred Forty-Five
(94,645) shares of First National Common Stock are issued and outstanding and no
First National Common Stock is held by First National as Treasury Stock. All of
the First National Common Stock is validly issued, fully paid and
non-assessable, and has not been issued in violation of any preemptive rights of
any First National shareholder. All of the issued and outstanding shares of
First National are presently held by Parent, pursuant to an Agreement and Plan
of Reorganization which was approved by the Federal Reserve Board in November,
1989.
Section 8.8 Disclosure. The information concerning, and representations
and warranties made by, First National set forth in this Agreement, or in any
document, statement, certificate or other writing furnished or to be furnished
by First National pursuant hereto, does not and will not contain any untrue
statement of a material fact or omit and will not omit to state a material fact
required to be stated herein or therein necessary to make the statements and
facts contained herein or therein, in light of the circumstances in which they
were or are made, not false or misleading. Copies of all documents heretofore or
hereafter delivered or made available to Parent or First National by First
National pursuant hereto were or will be complete and accurate copies of such
documents.
Section 8.9 Absence of Certain Changes of Events. Since December 31, 1996,
there has not been any material adverse change in the financial condition or in
the result of operations or the businesses, properties, assets, or liabilities
of First National and its subsidiary, taken as a whole.
Section 8.10 Litigation. Except as disclosed in First National's Financial
Statements, there is no suit, action or proceeding pending or, to the knowledge
of First National, threatened against or affecting First National or any of its
subsidiaries, which, if adversely determined, would materially and adversely
affect the financial condition, business or results of operations of First
National and its subsidiaries, taken as a whole; nor is there any judgment,
decree, injunction, rule or order of any court, governmental department,
commission, agency, instrumentality, or arbitration outstanding against First
National or any of its subsidiaries having, or which, insofar as can reasonably
be foreseen, in the future may have, any such effect.
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ARTICLE IX
CONDUCT OF BUSINESS PENDING THE MERGER
Section 9.1 Conduct of Business by BankFirst Pending the Merger. Prior to
the Effective Date, unless Parent shall otherwise agree or is otherwise
contemplated by this Agreement:
(i) The respective businesses of BankFirst and its subsidiaries shall be
conducted only in the ordinary course, and there shall be no
material changes in the conduct of BankFirst's operations;
(ii) BankFirst shall not (A) sell or pledge or agree to sell or pledge
any stock owned by it in any of its subsidiaries; (B) amend its
Amended and Restated Charter of Incorporation or Bylaws; or (C)
split, combine or reclassify its outstanding capital stock or
declare, set aside or pay any dividend payable in cash, stock or
property;
(iii) Neither BankFirst nor any of its subsidiaries shall (A) issue or
agree to issue any additional shares of, or rights of any kind to
acquire any shares of, its capital stock of any class; (B) acquire
or dispose of any fixed assets or acquire or dispose of any other
substantial assets other than in the ordinary course of business;
(C) incur a material amount of additional indebtedness, any other
material liabilities or enter into any other material transaction
other than in the ordinary course of business; (D) enter into any
contract, agreement, commitment or arrangement with respect to any
of the foregoing;
(iv) BankFirst shall use its best efforts to preserve intact the business
organization of BankFirst and its subsidiaries, to keep available
the services of it with its present officers and key employees, and
to preserve the good will of those having business relationships
with it and its subsidiaries;
(v) Neither BankFirst nor its subsidiaries will enter into any new
employment agreements with any of their respective officers or
employees or grant any increases in the compensation of their
respective officers and employees other than increases in the
ordinary course of business and consistent with past practice.
Section 9.2 Conduct of Business by First National Pending the Merger.
Prior to the Effective Date, unless Parent shall otherwise agree or is otherwise
contemplated by this Agreement:
(i) The respective businesses of First National and its subsidiaries
shall be conducted only in the ordinary course, and there shall be
no material changes in the conduct of First National's operations;
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(ii) First National shall not (A) sell or pledge or agree to sell or
pledge any stock owned by it in any of its subsidiaries; (B) amend
its Amended and Restated Charter of Incorporation or Bylaws; or (C)
split, combine or reclassify its outstanding capital stock or
declare, set aside or pay any dividend payable in cash, stock or
property;
(iii) Neither First National nor any of its subsidiaries shall (A) issue
or agree to issue any additional shares of, or rights of any kind to
acquire any shares of, its capital stock of any class (B) acquire or
dispose of any fixed assets or acquire or dispose of any other
substantial assets other than in the ordinary course of business;
(C) incur a material amount of additional indebtedness, any other
material liabilities or enter into any other material transaction
other than in the ordinary course of business; (D) enter into any
contract, agreement, commitment or arrangement with respect to any
of the foregoing;
(iv) First National shall use its best efforts to preserve intact the
business organization of First National and its subsidiaries, to
keep available the services of it with its present officers and key
employees, and to preserve the good will of those having business
relationships with it and its subsidiaries;
(v) Neither First National nor its subsidiaries will enter into any new
employment agreements with any of their respective officers or
employees or grant any increases in the compensation of their
respective officers and employees other than increases in the
ordinary course of business and consistent with past practice.
ARTICLE X
CONDITIONS PRECEDENT
Section 10.1 Conditions to Each Parties' Obligation to Effect the Merger.
The respective obligations of each party to effect the Merger shall be subject
to the fulfillment at or prior to the Effective Date of the following
conditions:
(i) This Agreement and the transactions contemplated by this Agreement
shall have been approved and adopted by the requisite votes of the
Board of Directors of BankFirst, First National and Parent;
(ii) This Agreement and the transactions contemplated by this Agreement
shall have been approved and adopted by the requisite votes of the
holder of the outstanding voting securities of BankFirst and First
National; and
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(iii) This Agreement and Plan of Merger shall have been approved by the
FDIC and the Commissioner of Financial Institutions for the State of
Tennessee.
Section 10.2 Conditions to Obligations of Parent to Effect the Merger. The
obligations of Parent to effect the Merger shall be subject to the fulfillment
at or prior to the Effective Date of the additional following conditions:
(i) BankFirst and First National shall have performed their agreements
contained in this Agreement required to be performed on or prior to
the Effective Date and the representations and warranties of
BankFirst and First National contained in this Agreement shall be
true in all material respects on and as of the Effective Date as if
made on and as of such date, except and contemplated by this
Agreement, and Parent shall have received a certificate of each
President or Chief Executive Officer of BankFirst and First National
to that effect.
(ii) Parent shall have received an opinion from the President of
BankFirst, dated the Effective Date, to the effect that:
(a) BankFirst is a corporation duly organized and validly existing
under the laws of the State of Tennessee;
(b) BankFirst is the corporate power to enter into this Agreement
and to consummate the actions contemplated hereby; and the
execution and delivery of this Agreement and the consummation
of the transactions contemplated hereby have been duly
authorized by requisite corporate action taken on the part of
BankFirst;
(c) This Agreement has been executed and delivered by BankFirst
and (assuming the valid authorization, execution and delivery
of this Agreement by Parent and First National) is a valid and
binding obligation of BankFirst, except (A) as may be limited
by or subject to any bankruptcy, insolvency, reorganization,
moratorium or other similar laws now or hereafter in effect
relating to creditors' rights, and (B) that the remedy's
specific performance, injunction and other forms of equitable
relief are subject to certain tests of equity jurisdiction,
equitable defenses and the discretion of the court before
which any proceeding may be brought;
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(d) Neither the execution, delivery, nor performance of this
Agreement by BankFirst, nor the consummation of the
transactions contemplated by the Agreement, will violate the
Amended and Restated Charter of Incorporation or Bylaws of
BankFirst and, to the actual knowledge of such officer, will
not constitute a violation of or a default under (except for
any such violation or default as to which requisite waivers or
consent either shall have been obtained by BankFirst by the
Effective Date or shall have been waived by the Parent in
writing) any material contract, agreement or instruments to
which BankFirst is subject and which has been specifically
identified to such officer by BankFirst in connection with
rendering such opinion.
(iii) Parent shall have received an opinion from the President and Chief
Executive Officer of First National
(a) First National is a corporation duly organized and validly
existing under the laws of the United States of America;
(b) First National has the corporate power to enter into this
Agreement and to consummate the actions contemplated hereby;
and the execution and delivery of this Agreement and the
consummation of the transactions contemplated hereby have been
duly authorized by requisite corporate action taken on the
part of First National;
(c) This Agreement has been executed and delivered by First
National and (assuming the valid authorization, execution and
delivery of this Agreement by Parent and BankFirst) is a valid
and binding obligation of First National, except (A) as may be
limited by or subject to any bankruptcy, insolvency,
reorganization, moratorium or other similar laws now or
hereafter in effect relating to creditors' rights, and (B)
that the remedy's specific performance, injunction and other
forms of equitable relief are subject to certain tests of
equity jurisdiction, equitable defenses and the discretion of
the court before which any proceeding may be brought.
(d) Neither the execution, delivery, nor performance of this
Agreement by First National, or the consummation of the
transactions contemplated by the Agreement, will violate the
Amended and Restated Charter of Incorporation or Bylaws of
First National, to the actual knowledge of such officer, will
not constitute a violation as to
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which requisite waivers or consent either shall have been
obtained by BankFirst by the Effective Date or shall have been
waived by the Parent in writing) any material contract,
agreement or instruments to which First National is subject
and which has been specifically identified to such officer by
First National in connection with rendering such opinion.
Section 10.3 Conditions to Obligation of BankFirst to Effect the Merger.
The obligation of BankFirst to effect the merger shall be subject to the
fulfillment at or prior to the Effective Date of the following additional
conditions:
(i) Parent and First National shall have performed their agreements
contained in this Agreement required to be performed on or prior to
the Effective Date and the representations and warranties of Parent
and First National contained in this Agreement shall be true in all
material respects on and as of the Effective Date as if made on and
as of such date, except as contemplated or permitted by this
Agreement, and BankFirst shall have received a certificate of each
of the Presidents and/or Chief Executive Officer of Parent and First
National to that effect.
(ii) BankFirst shall have received a certificate from each of the
Presidents and/or Chief Executive Officers of Parent and First
National, dated the Effective Date, to the effect that:
(a) Each of Parent and First National is a corporation duly
organized and validly existing under the laws of the State of
Tennessee;
(b) Parent and First National each has the requisite power to
enter into this Agreement and to consummate the transactions
contemplated by this Agreement; and the execution and delivery
of this Agreement and the consummation of the transactions
contemplated by this Agreement have been duly authorized by
requisite corporate action taken on the part of Parent and
First National, respectively;
(c) This Agreement has been executed and delivered by Parent and
First National and (assuming the valid authorization,
execution and delivery of this Agreement by BankFirst) is a
valid and binding obligation of Parent and First National,
except (A) as may be limited or subject to any bankruptcy,
insolvency, reorganization, moratorium or other similar laws,
now or hereafter in effect relating to creditors' rights, and
(B)
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that the remedies of specific performance, injunction and
other forms of equitable relief are subject to certain tests
of equity jurisdiction, equitable defenses and the discretion
of the court before which any proceeding may be brought;
(d) Neither the execution, delivery nor performance of this
Agreement by Parent and First National will violate the
Charter of Incorporation or Bylaws of Parent or First
National. And, to the actual knowledge of such officer, will
not constitute a violation of or a default under (except for
any such violation or default as to which requisite waivers or
consent shall either have been obtained by Parent and First
National by the Effective Date or shall have been waived by
BankFirst in writing). Any material contract, agreement or
instrument to which Parent or First National is subject and
which has been specifically identified to counsel by Parent or
First National in connection with the rendering of the
opinion;
Section 10.4 Conditions to Obligations of First National to Effect the
Merger. The obligations of First National to effect the Merger shall be subject
to the fulfillment at or prior to the Effective Date of the additional following
conditions:
(i) BankFirst and Parent shall have performed its agreements contained
in this Agreement required to be performed on or prior to the
Effective Date and the representations and warranties of BankFirst
and Parent contained in this Agreement shall be true in all
materials respects on and as of the Effective Date as if made on and
as of such date, except as contemplated by this Agreement, and First
National shall have received a Certificate of the President or Chief
Executive Officer of BankFirst and Parent to that effect.
(ii) First National shall have received an opinion from the President and
Chief Executive Officer of BankFirst and Parent, dated the Effective
Date, to the effect that:
(a) BankFirst and Parent are corporations duly organized and
validly existing under the laws of the State of Tennessee;
(b) BankFirst and Parent have the corporate power to enter into
this Agreement and to consummate the transactions contemplated
hereby; and the execution and delivery of this Agreement and
the consummation of the transactions contemplated hereby have
been duly authorized by requisite corporate action taken on
the part of BankFirst and the Parent;
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(c) This Agreement has been executed and delivered by BankFirst
and Parent and (assuming the valid authorization, execution
and delivery of this Agreement by First National) is a valid
and binding obligation of BankFirst and Parent, except (a) as
may be limited by or subject to any bankruptcy, insolvency,
reorganization, moratorium or other similar laws now or
hereafter in effect relating to creditors' rights; and (b) the
remedies of specific performance, injunction and other forms
of equitable relief are subject to certain tests of equity
jurisdiction, equitable defenses and the discretion of the
court before which any proceeding may be brought.
(d) Neither the execution, delivery, nor performance of this
Agreement by BankFirst or Parent, nor the consummation of the
transactions contemplated by the Agreement, will violate the
Amended and Restated Charter of Incorporation or Bylaws of
BankFirst and/or Parent and, to the actual knowledge of the
respective officer, will not constitute a violation of or a
default under (except for any such violation or default as to
which requisite waivers or consent shall have been obtained by
BankFirst or parent by the Effective Date or shall have been
waived by First National in writing). Any material contract,
agreement or instrument to which BankFirst or Parent is
subject and which has been specifically identified to such
representative by the Company in connection with the rendering
of such opinion.
Section 10.5 Materiality of Conditions. Notwithstanding anything contained
herein, no condition involving performance of agreements or the accuracy of
representations and warranties as of the Effective Date, or the furnishing of
officers' certificates or opinions shall be deemed not fulfilled, and the party
to whom such condition runs shall not be entitled to terminate this Agreement on
such basis, if the respects in which the agreements have not been performed, or
the representations and warranties are untrue, or the certificates, opinions or
certificates do not conform to what is prescribed by this Agreement, in the
aggregate, are not materially adverse to the financial condition, results of
operation, business or assets of the other parties, provided, however, that the
foregoing shall not constitute a waiver of any other rights a party may have in
such circumstances.
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ARTICLE XI
TERMINATION, AMENDMENT AND WAIVER
Section 11.1 Termination. This Agreement may be terminated at any time
prior to the Effective Date whether before or after approval of the sole
Shareholder of BankFirst and First National:
(a) By mutual consent of the Board of Directors of Parent, BankFirst and
First National;
(b) By Parent, should BankFirst or First National fail to conduct its
business pursuant to the covenants made in Article IX;
(c) By either Parent or BankFirst, upon written notice to the other
party, upon denial of any Governmental Approval necessary for the
consummation of the Merger (or should such approval be conditioned
upon a substantial deviation from the transaction contemplated);
provided, however, that either party may, upon written notice to the
other, extend the term of this Agreement for one 60-day period to
prosecute diligently and overturn such denial, provided that such
denial has been appealed within ten (10) business days of the
receipt thereof;
(d) By Parent if the conditions set forth in Sections 10.1 or 10.2 are
not satisfied in all material respects as of the Effective Date, or
by BankFirst if the conditions set for in Section 10.1 or Section
10.3 are not satisfied in all material respects as of the Effective
Date, or by First National Bank if the conditions set forth in
Sections 10.1 and 10.4 are not satisfied in all material respects as
of the Effective Date, and any such failure has not been waived
prior to the Effective Date;
(e) By any party in the event that there shall have been a material
breach of any obligation of any other party hereunder, and such
breach shall have not been remedied within thirty (30) days after
receipt by the breaching party of written notice from the other
party(ies) specifying the nature of such breach and requesting that
it be remedied.
Section 11.2 Effect of Termination. In the event that this Agreement
should be terminated pursuant to Section 11.1 hereof, all further obligations of
the parties under this Agreement shall be terminated without further liability
of any party to another; provided, however, that a termination under Section
11.1 hereof shall not relieve any party of any liability for a breach of this
Agreement or for any misstatement or misrepresentation made hereunder prior to
such termination, or be deemed to constitute a waiver of any available remedy
for any such breach, misstatement or misrepresentation.
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ARTICLE XII
GENERAL PROVISIONS
Section 12.1 Notices. Any notice, request, demand and other communication
which either party hereto may desire or may be required hereunder to give shall
be in writing and shall be deemed to be duly given if delivered personally or
mailed by certified or registered mail (postage prepaid, return receipt
requested), air courier or facsimile transmission, addressed or transmitted to
such other party as follows:
If to BankFirst:
Fred R. Lawson, President and Chief Executive Officer
BankFirst
625 Market Street
Knoxville, TN 37902
If to Parent:
Fred R. Lawson, President and Chief Executive Officer
Smoky Mountain Bancorp, Inc.
625 Market Street
Knoxville, Tennessee 37902
If to First National Bank of Gatlinburg:
Charles Earl Ogle, Jr., Chairman
First National Bank of Gatlinburg
811 Parkway
Gatlinburg, TN 37738
or to such other address as any party hereto may hereafter designate to the
other parties in writing. Notice shall be deemed to have been given on the date
reflected in the proof or evidence of delivery, or if none, on the date actually
received.
Section 12.2 Assignability and Parties in Interest. This Agreement shall
not be assignable by any of the Parties hereto.
Section 12.3 Governing Law. This Agreement shall be governed by, and
construed and enforced in accordance with, the laws of the State of Tennessee.
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Section 12.4 Counterparts. This Agreement may be executed simultaneously
in one or more counterparts, each of which shall be deemed an original, but all
of which shall constitute but one and the same instrument.
Section 12.5 Best Efforts. First National, BankFirst and Parent each agree
to use its best efforts to complete the transactions contemplated by this
Agreement.
Section 12.6 Publicity. The parties agree that press releases and other
public announcements to be made by any of them with respect to the transactions
contemplated hereby shall be subject to mutual agreement.
Section 12.7 Entire Agreement. This Agreement, the Exhibits and
certificates required to be delivered hereunder and any amendments or addenda
hereafter executed and delivered in accordance with Article 10 hereof constitute
the entire agreement of the parties hereto pertaining to the transaction
contemplated hereby and supersede all prior written and oral (and all
contemporaneous oral) agreements and understandings of the parties hereto
concerning the subject matter hereof. The Exhibits and certificates attached
hereto or furnished pursuant to this Agreement are hereby incorporated as
integral parts of this Agreement. Except as provided herein, by specific
language and not by mere implication, this Agreement is not intended to confer
upon any other person not a party to this Agreement any rights or remedies
hereunder.
Section 12.8 Severability. If any portion or provision of this Agreement
should be determined by a court of competent jurisdiction to be invalid, illegal
or unenforceable in any jurisdiction, such portion or provision shall be
ineffective as to that jurisdiction to the extent of such invalidity, illegality
or unenforceability, without affecting in any way the validity or enforceability
of the remaining portions or provisions hereof in such jurisdiction or rendering
that or any other portions or provisions of this Agreement invalid, illegal or
unenforceable in any other jurisdiction.
Section 12.9 Modifications, Amendments and Waivers. At any time prior to
the Effective Date or termination of this Agreement, the parties may, solely by
written agreement executed by their duly authorized officers:
(a) Extend the time for the performance of any of the obligations or
other acts of the other party hereto;
(b) Waive any inaccuracies in the representations and warranties made by
the other party contained in this Agreement or in the schedules or
exhibits hereto or any other document delivered pursuant to this
Agreement;
(c) Waive compliance with any of the covenants or agreements of the
other party contained in this Agreement; and
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(d) Amend or add to any provision of this Agreement; provided, however,
that no provision of this Agreement may be amended or added to
except by an agreement in writing signed by the parties hereto or
their respective successors in interest and expressly stating that
it is an amendment to this Agreement.
Section 12.10 Interpretation. The headings contained in this Agreement are
for reference purposes only and shall not affect in any way the meaning or
interpretation of this Agreement.
Section 12.11 Payment of Expenses. Each party shall pay its own expenses
incurred by the parties in connection with the transactions contemplated
hereunder.
Section 12.12 Survival of Representations and Warranties. All
representations and warranties made by the parties hereto or in any instrument
or document furnished in connection herewith, shall survive the Effective Date
and any investigation at any time made by or on behalf of the parties hereto and
shall expire at the Effective Date of the exchange except as to any matter which
is based upon willful fraud with respect to which the representations and
warranties set forth in this Agreement shall expire only upon expiration of the
applicable statutes of limitation. Nothing in this Section 12.12 shall limit any
party's rights or remedies for misrepresentations, breaches of this Agreement or
any other improper action or inaction by the other party hereto prior to the its
termination.
Section 12.13 No Waiver. No failure, delay or omission of or by any party
in exercising any right, power or remedy upon any breach or default of any other
party shall impair any such rights, powers or remedies of the party not in
breach or default, nor shall it be construed to be a waiver of any such right,
power or remedy, or an acquiescence in any similar breach or default; nor shall
any waiver of any single breach or default be deemed a waiver of any other
breach or default theretofore or thereafter occurring. Any waiver, permit,
consent or approval of any kind or character on the part of any party of any
provisions of this Agreement must be in writing and must be executed by the
parties to this Agreement and shall be effective only to the extent specifically
set forth in such writing.
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IN WITNESS WHEREOF, each of the parties hereto has duly executed and
delivered this Agreement or has caused this Agreement to be executed and
delivered in its name and on its behalf by its representative thereunto duly
authorized, all as of the date first written above.
BANKFIRST
By: /s/ Fred R. Lawson
--------------------------------------
Fred R. Lawson
Its: President and Chief Executive Officer
ATTEST:
/s/ Vickie L. Mynatt
- -----------------------------
Secretary
SMOKY MOUNTAIN BANCORP, INC.
By: /s/ Fred R. Lawson
--------------------------------------
Fred R. Lawson
Its: President and Chief Executive Officer
ATTEST:
/s/ Leslie Ruhn
- -----------------------------
Secretary
FIRST NATIONAL BANK OF GATLINBURG
By: /s/ Dwight Grizzell
--------------------------------------
Dwight Grizzell
Its: President
ATTEST:
/s/ Leslie Ruhn
- -----------------------------
Secretary
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EXHIBIT A
BankFirst BankFirst
625 Market Street 4611 Kingston Pike
Knoxville, Tennessee 37902 Knoxville, Tennessee 37919
BankFirst BankFirst
330 North Cedar Bluff Road 3038-A Mall Road North
Knoxville, Tennessee 37923 Knoxville, Tennessee 37924
BankFirst BankFirst
11140 Kingston Pike 7108 Maynardville Highway
Knoxville, Tennessee 37922 Knoxville, Tennessee 37918
BankFirst BankFirst
710 South Foothills Plaza Drive 109 Associates Boulevard
Maryville, Tennessee 37801 Alcoa, Tennessee 37701
BankFirst BankFirst
406 Grove Street 22730 West Lee Highway
Loudon, Tennessee 37774 Philadelphia, Tennessee 37846
BankFirst BankFirst
302 Village Square 391 Highway 321/95North
Loudon, Tennessee 37774 Lenoir City, Tennessee 37771
<PAGE>
EXHIBIT B
First National Bank of Gatlinburg First National Bank of Gatlinburg
811 Parkway 7110 Highway 321
P.O. Box 110 Gatlinburg, Tennessee 37738
Gatlinburg, Tennessee 37738-0110
First National Bank of Gatlinburg First National Bank of Gatlinburg
3416 South River Road 430 Forks of the River Parkway
Pigeon Forge, Tennessee 37863 Sevierville, Tennessee 37862
First National Bank of Gatlinburg First National Bank of Gatlinburg
710 Dolly Parton Parkway 10232 Chapman Highway
Sevierville, Tennessee 37862 Seymour, Tennessee 37865
First National Bank of Gatlinburg First National Bank of Gatlinburg
858 Highway 92 South 263 East Broadway Boulevard
P.O. Box 723 Jefferson City, Tennessee 37760
Dandridge, Tennessee 37725-0723
<PAGE>
EXHIBIT E
BankFirst BankFirst
625 Market Street 4611 Kingston Pike
Knoxville, Tennessee 37902 Knoxville, Tennessee 37919
BankFirst BankFirst
330 North Cedar Bluff Road 3038-A Mall Road North
Knoxville, Tennessee 37923 Knoxville, Tennessee 37924
BankFirst BankFirst
11140 Kingston Pike 7108 Maynardville Highway
Knoxville, Tennessee 37922 Knoxville, Tennessee 37918
BankFirst BankFirst
710 South Foothills Plaza Drive 109 Associates Boulevard
Maryville, Tennessee 37801 Alcoa, Tennessee 37701
BankFirst BankFirst
406 Grove Street 22730 West Lee Highway
Loudon, Tennessee 37774 Philadelphia, Tennessee 37846
BankFirst BankFirst
302 Village Square 391 Highway 321/95North
Loudon, Tennessee 37774 Lenoir City, Tennessee 37771
BankFirst BankFirst
811 Parkway 7110 Highway 321
P.O. Box 110 Gatlinburg, Tennessee 37738
Gatlinburg, Tennessee 37738-0110
BankFirst BankFirst
3416 South River Road 430 Forks of the River Parkway
Pigeon Forge, Tennessee 37863 Sevierville, Tennessee 37862
BankFirst BankFirst
710 Dolly Parton Parkway 10232 Chapman Highway
Sevierville, Tennessee 37862 Seymour, Tennessee 37865
BankFirst BankFirst
858 Highway 92 South 263 East Broadway Boulevard
P.O. Box 723 Jefferson City, Tennessee 37760
Dandridge, Tennessee 37725-0723
<PAGE>
EXHIBIT C
Charles Anderson
James L. Clayton
Dwight Grizzell
Jerry Hays
Fred A. Hurst, M. D.
Fred R. Lawson
Jack H. Lefler
John J. Manikas
James L. Matlock
C. Warren Neel
Charles Earl Ogle, Jr.
Richard B. Ray
Harlan Reagan
Jim Reagan
Jim Sidwell, Jr.
Joseph A. Swann
Bernie R. Swiney
Samuel H. Taylor
Fred L. Waggoner, Jr.
Kathy J. White
Timothy W. Williams
Geoff Wolpert
Joseph R. Zappa, Jr.
Some board members will want to retire after the boards are combined. That
decision has not been reached at this point.
<PAGE>
EXHIBIT D
James L. Clayton, Chairman
Fred R. Lawson, President and Chief Executive Officer
C. David Allen, Chief Financial Officer
Edward L. Green, Regional President for Loudon County
Dwight Grizzell, Regional President for Sevier County
Ed Stiner, Regional President for Jefferson County
W. Robert Sullivan, Regional President for Blount County
R. Stephen Hagood, Executive Vice President
Ken Simonis, Executive Vice President
Beverly F. Atchley, Senior Vice President
Nancy J. Bowen, Vice President
Bev Brosch, Vice President
Mike Brown, Senior Vice President
Michael L. Bryson, Senior Vice President
David Butler, Vice President
Charles A. Chadwell, Vice President
Susan S. Clendenen, Vice President
Jerry Cole, Vice President
Jerry L. French, Senior Vice President
W. James Haynes, Vice President
Steve P. Henry, Vice President
Faye Hurt, Vice President
E. Allen King, Senior Vice President
Ronnie Loveday, Vice President
Jean R. Lowery, Vice President
Powell McCarty, Vice President
Devon McKinzie, Vice President
Ginny McLain-Tate, Vice President
Ronald L. McNabb, Vice President
G. Janice Miller, Controller
Donald R. Mull, Vice President
JoAnn Owens, Vice President
C. Suzi Ray, Senior Vice President
Kathy Reed, Vice President
Jessica Rich, Vice President
Tommy Small, Vice President
Sheila H. Sterling, Senior Vice President
Michael R. Stuart, Vice President
Fay M. Townsend, Vice President
Rose Walker, Vice President
Martha S. Wallen, Senior Vice President
Martha A. Ward, Vice President
Sharon O. Woods, Senior Vice President
EXHIBIT 10.7
ACQUISITION AGREEMENT
This Acquisition Agreement (the "Acquisition Agreement") is made and
entered into as of the 15th day of August, 1996, by and between SMOKY MOUNTAIN
BANCORP, INC. ("Smoky Mountain"), a corporation chartered and existing under the
laws of the State of Tennessee which is registered as a bank holding company and
has its principal office at 811 Parkway, Gatlinburg, Tennessee 37738, and
BANKFIRST ("BankFirst), a banking corporation chartered and existing under the
laws of the State of Tennessee which has its principal place of business at 625
Market Street, Knoxville, Tennessee 37902. First National Bank of Gatlinburg
("FNBG"), is a national banking institution whose principal office is at 811
Parkway, Gatlinburg, Tennessee 37738, and is a wholly owned subsidiary of Smoky
Mountain.
RECITALS:
A. The Boards of Directors of Smoky Mountain and BankFirst have agreed
that Smoky Mountain will acquire from the BankFirst shareholders by Plan of
Share Exchange all of the issued and outstanding shares of BankFirst Common
Stock and BankFirst Preferred Stock and Smoky Mountain is willing to do so under
the terms and subject to the conditions hereinafter set forth in this Agreement
and the Plan of Share Exchange (the "Acquisition").
B. BankFirst and Smoky Mountain wish to consummate the transactions
contemplated by this Acquisition Agreement in a timely and effective manner.
C. The Board of Directors of First National of Gatlinburg joins in this
agreement for the purpose of giving its approval to the transaction set forth in
this agreement.
NOW, THEREFORE, in consideration of the foregoing and the representations,
warranties, covenants and agreements of the Parties set forth in this
Acquisition Agreement and for other good and valuable considerations, the
receipt and sufficiency of which are hereby acknowledged, the Parties agree as
follows:
ARTICLE I
DEFINITIONS
1.1 Definitions. As used in this Acquisition Agreement, the following
terms have the definitions indicated:
"Acquisition" shall have the meaning assigned to such term in Recital A of
this Acquisition Agreement.
ACQUISITION AGREEMENT - Page 1
<PAGE>
"Acquisition Agreement" means this Agreement, and all Exhibits and
Schedules annexed to and incorporated by specific reference as a part of this
Acquisition Agreement.
"Audited Financial Statements of BankFirst" shall have the meaning
assigned to such term in Section 5.6 of this Acquisition Agreement.
"BHCA" shall mean the Bank Holding Company Act of 1956, as amended.
"BankFirst" shall mean BankFirst, a Tennessee banking corporation
headquartered at 625 Market Street, Knoxville, Knox County, Tennessee 37902.
"BankFirst Common Stock" shall mean the Five Dollar ($5.00) par value
common stock of which 10,000,000 are authorized and 1,154,152 shares are issued
and outstanding.
"BankFirst Preferred Stock" shall mean the Five Dollar ($5.00) par value
non- cumulative convertible preferred stock of which 500,000 shares are
authorized and 225,559 shares are issued and outstanding.
"BankFirst Employee Plan" shall mean BankFirst's 401-K Profit Sharing Plan
adopted on July 1, 1993, as amended on July 1, 1994.
"BankFirst Record Holders" means the holders of record of all of the
issued and outstanding BankFirst Common Stock and BankFirst Preferred Stock
immediately prior to the Effective Time.
"BankFirst Stock Options" shall mean options previously issued by
BankFirst entitling the holder to purchase BankFirst Common Stock as more
particularly described in Section 2.6.
"Closing" shall have the meaning assigned to such term in Section 2.3 of
this Acquisition Agreement.
"Closing Date" shall have the meaning assigned to such term in Section 2.3
of this Acquisition Agreement.
"Consideration" shall mean the value to be received by the BankFirst
Record Holders in exchange for their BankFirst Common and BankFirst Preferred
Stock, such value to be determined as provided in Section 3.1 of this Agreement.
"Effective Time" shall have the meaning assigned in Section 2.4 of this
Agreement, but shall not be later than December 31, 1996; provided, however, the
effective date may be extended if governmental approvals have not been obtained.
ACQUISITION AGREEMENT - Page 2
<PAGE>
"ERISA" shall mean the Employee Retirement Income Security Act of 1974, as
amended.
"Exchange" shall mean the exchange of stock as contemplated in this
Agreement and the Plan of Share Exchange.
"Exchange Agent" shall mean Smoky Mountain.
"Exchange Rate Price" shall mean the sum of $43.50 for each share of Smoky
Mountain Common Stock.
"FDIC" means the Federal Deposit Insurance Corporation.
"Federal Reserve" shall mean the Board of Governors of the Federal Reserve
System and shall include the Federal Reserve Bank of Atlanta acting under
delegated authority.
"GAAP" shall mean generally accepted accounting principles, consistently
applied.
"Governmental Approvals" shall have the meaning assigned to such term in
Section 4.4 of this Acquisition Agreement.
"Internal Revenue Code" shall mean the Internal Revenue Code of 1986, as
amended.
"Parties" shall mean Smoky Mountain and BankFirst collectively; each
individually may sometimes be referred to as a "Party."
"Pension Plan" shall mean any employee pension benefit plan as such term
is defined in Section 3(2) of ERISA which is maintained by the referenced Party.
"Person" shall mean any natural person, fiduciary, corporation,
partnership, joint venture, business trust or any other entity of any kind.
"Plan of Exchange" shall mean the Plan of Share Exchange of Smoky Mountain
Bancorp, Inc. and BankFirst dated as of the date of this Acquisition Agreement
and is attached hereto as Exhibit "1".
"Proxy Statement" shall mean the proxy statement to be used by BankFirst
and/or Smoky Mountain to solicit the approval of its shareholders of this
Acquisition Agreement.
ACQUISITION AGREEMENT - Page 3
<PAGE>
"Records" means all available records, original instruments and other
documentation, pertaining to BankFirst, BankFirst's assets, BankFirst's
liabilities, the BankFirst Common Stock, the BankFirst Preferred Stock, the
deposits and the Loans, and all other business and financial records which are
necessary or customary for use in the conduct of BankFirst's business by
BankFirst on and after the Effective Time as it was conducted prior to the
Closing Date.
"Regulatory Approval" shall mean the same as Governmental Approval.
"Regulatory Authorities" shall mean, collectively, the Federal Reserve,
the FDIC, the TDFI, or any other state or federal governmental or
quasi-governmental entity which has, or may hereafter have, jurisdiction over
any of the transactions described in this Acquisition Agreement.
"Shareholders Meeting" shall mean the meeting of the shareholders of Smoky
Mountain and BankFirst to be held pursuant to Section 6.2 and Section 7.1 of
this Acquisition Agreement, including any adjournment or adjournments thereof.
"Smoky Mountain" shall mean Smoky Mountain Bancorp, Inc., a bank holding
corporation with its principal office located at 811 Parkway, Gatlinburg,
Tennessee 37738.
"Smoky Mountain Common Stock" shall mean the authorized voting common
stock of Smoky Mountain, $2.50 par value, and Smoky Mountain has issued and
outstanding 395,518 shares of the voting common stock.
"Smoky Mountain Preferred Stock" shall mean the authorized Five Dollar
($5.00) par value preferred stock of Smoky Mountain, none of which has been
designated either by par or dividend rates by the Board of Directors. The
preferred shares shall be authorized by the Board of Directors of Smoky Mountain
and shall have the equivalent par and dividend rate as the issued and
outstanding BankFirst Preferred Stock.
"Subsidiary" or "Subsidiaries" shall mean all of those corporations,
banks, associations or other entities of which the entity in question owns or
controls 5% or more of the outstanding equity securities either directly or
through an unbroken chain of entities as to each of which 5% or more of the
outstanding equity securities is owned directly or indirectly by its parent;
provided, however, that there shall not be included any such entity acquired
through foreclosure or in satisfaction of a debt previously contracted in good
faith, any such entity that owns or operates an automatic teller machine
interchange network, any such entity that is a joint venture of the parent or of
a Subsidiary of the parent, or any such entity the equity securities of which
are owned or controlled in a fiduciary capacity or through a small business
investment corporation.
"TDFI" shall mean the Tennessee Department of Financial Institutions.
ACQUISITION AGREEMENT - Page 4
<PAGE>
"Tennessee Code" means the Tennessee Code Annotated, as amended.
"Tennessee Commissioner" shall mean the Commissioner of Financial
Institutions of the State of Tennessee.
ARTICLE 2
TERMS OF ACQUISITION
2.1 The Acquisition or Exchange. Subject to the terms of this Agreement
and the Plan of Share Exchange, Smoky Mountain will acquire by exchange all of
the BankFirst Common Stock and the BankFirst Preferred Stock for Smoky Mountain
Common Stock and Smoky Mountain Preferred Stock. As a result of the exchange of
the stock, BankFirst will become a wholly owned subsidiary of Smoky Mountain.
The members of the Board of Directors of Smoky Mountain and BankFirst have
agreed to, and shall, subject to their fiduciary duties, recommend to the Smoky
Mountain and BankFirst shareholders that they approve the Acquisition Agreement,
including the Plan of Share Exchange attached as Exhibit "1". The Plan of Share
Exchange and Article 3 below establish the method of determining the shares of
stock that will be exchanged, the number of shares that will be exchanged, and
the method of, and procedure for, delivering the shares of Smoky Mountain Common
Stock and Preferred Stock to the BankFirst Record Holders in exchange for their
BankFirst Common Stock and Preferred Stock.
2.2 Rights of Dissenting BankFirst Shareholders. The rights of the
BankFirst Record Holders who vote against the Acquisition Agreement are set
forth in Section 45-2-1309 of the Tennessee Code and Section 3.8 of the Plan of
Share Exchange.
2.3 Time and Place of Closing. The Closing shall take place at 10:00 a.m.
Eastern Time on the Business Day next preceding the date on which the regulatory
approval is obtained, or at such other time as the Parties, acting through their
presidents may mutually agree (the "Closing Date"). The place of Closing shall
be at the principal offices of BankFirst, 625 Market Street, Knoxville,
Tennessee. The Closing shall be held no later than December 31, 1996. In the
event regulatory approval has been applied for, but not received, the closing
may be extended until regulatory approval is obtained.
2.4 The Effective Time of the Exchange. The Exchange shall become
effective on the date and at the time the Articles of Exchange are filed with,
and accepted by the Tennessee Commissioner in accordance with Section 45-2-1306
of the Tennessee Code, or at such later date and/or time as may be specified in
the Articles of Exchange so filed and accepted. Unless the Parties shall
otherwise agree in writing, the date and time so specified in the Articles of
Exchange shall be at the close of business on the last day of the month in which
all Governmental Approvals shall have been obtained, all required waiting
periods shall have expired and all conditions to closing shall have been met or
lawfully waived by the party(ies) entitled to the benefits thereof; provided,
however, that in the event that all Governmental Approvals required for the
lawful
ACQUISITION AGREEMENT - Page 5
<PAGE>
consummation of the transactions contemplated herein and all other conditions
precedent to closing (including any waiting periods prescribed by law or by any
Governmental Authority) shall not have been satisfied or waived prior to the
15th day of the month, BankFirst may, at its discretion, delay the Effective
Time of the exchange to a date no later than the last day of the following
month.
2.5 Results of Exchange Becoming Effective. The consummation of the
exchange at the Effective Time shall have the results set forth in the Plan of
Share Exchange and ss. 48-21-108 of Tennessee Code Annotated.
2.6 BankFirst Stock Options. Smoky Mountain has been informed by BankFirst
that BankFirst has issued certain stock options and instituted incentive stock
option plans, copies of which are attached to Schedule 2.6. The stock option
agreements, the incentive stock option plans and the number of shares are
described in detail in Schedule 2.6. Smoky Mountain will, subject to regulatory
approval, either assume all of BankFirst's obligations with respect to all of
such options or purchase the options. If regulatory approval cannot be obtained
to assume the options, Smoky Mountain and BankFirst agree to either:
(a) Allow the option holders the right to exercise the options and
make a market for the shares based on the Exchange Rate Price; or
(b) Purchase the option holders' rights based on the difference
between the exercise price set forth in the stock options and the Exchange Rate
Price.
ARTICLE 3
THE CONSIDERATION FOR THE EXCHANGE
3.1 The Consideration to be Received by the BankFirst Record Holders. The
amount of consideration to be received by the BankFirst Record Holders in
exchange for their BankFirst Common Stock and BankFirst Preferred Stock
incidental to the Plan of Share Exchange becoming effective, the methods of
payment of the consideration in shares of Smoky Mountain and the procedures for
effecting the exchange shall be as provided in the Plan of Share Exchange. The
consideration is based on .494 shares of Smoky Mountain Common Stock for each
issued and outstanding share of BankFirst Common Stock, and a one for one
exchange of Smoky Mountain Preferred Stock for the issued and outstanding
BankFirst Preferred Stock. The Board of Directors of Smoky Mountain will
authorize the same number of Preferred Stock shares at an equivalent par and
dividend rate as BankFirst, and will issue the Smoky Mountain Preferred Stock
shares on a one for one exchange for the issued and outstanding BankFirst
Preferred Stock.
ACQUISITION AGREEMENT - Page 6
<PAGE>
ARTICLE 4
REPRESENTATIONS AND WARRANTIES OF SMOKY MOUNTAIN
As of the date hereof and as of the closing date, Smoky Mountain
represents and warrants to BankFirst as follows:
4.1 Organization and Corporate Authority. Smoky Mountain is a bank holding
corporation duly organized, validly existing and in good standing under the laws
of the State of Tennessee, and (i) has, in all material respects, all requisite
corporate power and authority to own, operate and lease its material properties
and carry on its business as it is currently being conducted; (ii) is in good
standing and is duly qualified to do business in each jurisdiction where the
character of its properties owned or held under lease or the nature of its
business makes such qualification necessary; and (iii) has in effect all
federal, state, and local governmental authorizations, permits and licenses
necessary for it to own or lease its properties and assets and to carry on its
business as it is currently being conducted. The corporate Charter and Bylaws of
Smoky Mountain, as amended to date, will be in full force and effect as of the
closing date. True copies of the Restated Charter and Bylaws of Smoky Mountain
are annexed as Schedule 4.1.
4.2 Authorization, Execution and Delivery; Acquisition Agreement Not in
Breach.
(a) Smoky Mountain has all requisite corporate power and authority
to execute and deliver this Acquisition Agreement and the Plan of Share Exchange
and to consummate the transactions contemplated hereby and thereby. This
Agreement, and all other agreements contemplated to be executed in connection
herewith by Smoky Mountain, have been (or upon execution will have been) duly
executed and delivered by Smoky Mountain, have been (or upon execution will have
been) duly authorized by the Smoky Mountain Board of Directors, and the matter
has been submitted to the specially called meeting of the Smoky Mountain
Shareholders to be held on September 20, 1996, and thereafter, no other
corporate proceedings on the part of Smoky Mountain are (or will be) necessary
to authorize such execution and delivery, and constitute (or upon execution will
constitute) legal, valid and enforceable obligations of Smoky Mountain, subject,
as to enforceability, to applicable bankruptcy, insolvency, reorganization,
moratorium or similar laws affecting the enforcement of creditors' rights
generally, and to the application of equitable principles and judicial
discretion. A certified copy of the resolutions of the Board of Directors of
Smoky Mountain and the Shareholders authorizing the execution and performance of
this Agreement will be annexed as Schedule 4.2.
(b) The execution and delivery of this Acquisition Agreement, the
consummation of the transactions contemplated hereby and the fulfillment of the
terms hereof will not result in a breach of any of the terms or provisions of,
or constitute a default under (or an event which, with the passage of time or
the giving of notice or both, would constitute a default under), or conflict
with, or permit the acceleration of any obligation under, any mortgage, lease,
covenant,
ACQUISITION AGREEMENT - Page 7
<PAGE>
agreement, indenture or other instrument to which Smoky Mountain is a party or
by which it or its property or any of its assets is bound; the Restated Charter
or Bylaws of Smoky Mountain; or any judgment, decree, order or award of any
court, governmental body or arbitrator by which Smoky Mountain is bound; or any
permit, concession, grant, franchise, license, law, statute, ordinance, rule or
regulation applicable to Smoky Mountain or its properties; or result in the
creation of any lien, claim, security interest, encumbrance, charge, restriction
or right of any third party of any kind whatsoever upon the property or assets
of Smoky Mountain, except that the Government Approvals shall be required in
order for Smoky Mountain to consummate this Agreement and the Plan of Share
Exchange.
4.3 No Legal Bar. Smoky Mountain is not a party to, subject to or bound by
any agreement, judgment, order, writ, prohibition, injunction or decree of any
court or other governmental body of competent jurisdiction which would prevent
the execution of this Acquisition Agreement by Smoky Mountain, its delivery to
BankFirst or the consummation of the transactions contemplated hereby, and no
action or proceeding is pending against Smoky Mountain in which the validity of
this Acquisition Agreement, any of the transactions contemplated hereby or any
action which has been taken by any of the parties in connection herewith or in
connection with any of the transactions contemplated hereby is at issue.
4.4 Government Approvals. No consent, approval, order or authorization of,
or registration, declaration or filing with, any federal, state or local
governmental authority is required to be made or obtained by Smoky Mountain in
connection with the execution and delivery of this Acquisition Agreement and the
Plan of Share Exchange or the consummation of the transactions contemplated
hereby by Smoky Mountain , except for: (a) the prior approval of the Board of
Governors of the Federal Reserve System (the "Federal Reserve") of the
Acquisition Agreement under the Bank Holding Company Act of 1956, as amended;
(b) the prior approval of the FDIC to the Acquisition Agreement; and (c) the
prior approval of the Tennessee Department of Financial Institutions (TDFI)
under Section 45-2-1314 et seq of the Tennessee Code and the regulations
promulgated by the TDFI thereunder (collectively, the "Government Approvals").
4.5 Capitalization. The authorized capital stock of Smoky Mountain
consists of 3,000,000 shares of voting Common Stock of par value of Two Dollars
and Fifty Cents ($2.50) per share ("Smoky Mountain Common Stock"); 1,000,000
shares of non-voting Common Stock of par value of Two Dollars and Fifty Cents
($2.50) per share ("Non-Voting Common Stock"), and 1,000,000 shares of preferred
stock of par value of Five Dollars ($5.00) per share ("Smoky Mountain Preferred
Stock"). As of the date of this Agreement, 395,518 shares of Smoky Mountain
Common Stock are issued and outstanding. In addition, Smoky Mountain is holding
91,117 shares of Smoky Mountain Common Stock as treasury stock. All of the
outstanding Smoky Mountain Common Stock is validly issued, fully paid, and
non-assessable, and has not been issued in violation of any preemptive rights of
any Smoky Mountain Shareholder.
ACQUISITION AGREEMENT - Page 8
<PAGE>
4.6 Smoky Mountain Financial Statements. Smoky Mountain has delivered and,
to the extent reference is made to financial statements not yet available or
capable of development, will deliver to BankFirst true and complete copies of:
(i) Smoky Mountain's audited Consolidated Financial Statements for the calendar
years ended December 31, 1995 and 1994; and (ii) Smoky Mountain's unaudited
consolidated financial statements for each of the calendar quarters in calendar
year 1996 and thereafter, ending prior to the Closing Date. Such financial
statements and the notes thereto present fairly, or will present fairly when
issued, in all material respects, the consolidated financial position of Smoky
Mountain at the respective dates thereof and the consolidated results of
operations and consolidated cash flow of Smoky Mountain for the periods
indicated, and in each case in conformity with GAAP consistently applied and
maintained. Certain of the above Financial Statements identified therein are
annexed to Schedule 4.6 hereto.
4.7 Disclosure. The information concerning, and the representations or
warranties made by Smoky Mountain as set forth in this Agreement, or in any
document, statement, certificate or other writing furnished or to be furnished
by Smoky Mountain to BankFirst pursuant hereto, do not and will not contain any
untrue statement of a material fact or omit and will not omit to state a
material fact required to be stated herein or therein which is necessary to make
the statements and facts contained herein or therein, in light of the
circumstances under which they were or are made, not false or misleading. Copies
of all documents heretofore or hereafter delivered or made available to
BankFirst by Smoky Mountain pursuant hereto were or will be complete and
accurate copies of such documents.
ARTICLE 5
REPRESENTATIONS AND WARRANTIES OF BANKFIRST
Both as of the date hereof and as of the Effective Time, BankFirst
represents and warrants to Smoky Mountain as follows:
5.1 Organization and Qualification of BankFirst. BankFirst is a
state-chartered banking corporation duly organized, validly existing and in good
standing under the laws of the State of Tennessee and (a) has all requisite
corporate power and authority to own, operate and lease its material properties
and to carry on its material business as it is currently being conducted; (b) is
in good standing and is duly qualified to do business in each jurisdiction where
the character of its material properties owned or held under lease or the nature
of its material business makes such qualification necessary; and (c) its deposit
accounts are insured by the FDIC to the fullest extent permitted under
applicable law. BankFirst is not a member of the Federal Reserve System. The
BankFirst subsidiary, Eastern Life Insurance Company, is duly chartered, validly
existing and in good standing under the laws of the state of its incorporation
and (a) has all requisite corporate power and authority to own, operate and
lease its material properties and to carry on its material business as it is
currently being conducted and (b) is in good standing and is duly qualified to
do business in each jurisdiction where the character of its material properties
owned or held under
ACQUISITION AGREEMENT - Page 9
<PAGE>
lease or the nature of its material business makes such qualification necessary.
BankFirst and its subsidiary have in effect all material federal, state and
local governmental authorization, permits and licenses necessary for them to own
or lease their respective material properties and assets and to carry on their
material business as it is currently being conducted. BankFirst engages only in
activities (and holds properties only of the types) permitted by the Tennessee
Code for Tennessee state-chartered banks.
5.2 Authorization, Execution and Delivery; Acquisition Agreement Not in
Breach.
(a) BankFirst has all requisite power and authority to execute and
deliver this Agreement and the Plan of Share Exchange and to consummate the
transactions contemplated hereby and thereby. The execution and delivery of this
Agreement and the Plan of Share Exchange and the consummation of the proposed
transaction have been duly authorized by a majority of the entire Board of
Directors of BankFirst and, except for the approval of the BankFirst
Shareholders, no other corporate proceedings on the part of BankFirst are
necessary to authorize the execution and delivery of this Agreement and the Plan
of Share Exchange and the consummation of the Acquisition contemplated hereby
and thereby. This Acquisition Agreement and the Plan of Share Exchange and all
other agreements and instruments herein contemplated to be executed by BankFirst
have been (or upon execution will have been) duly executed and delivered by
BankFirst and constitute (or upon execution will constitute) legal, valid and
enforceable obligations of BankFirst, subject, as to enforceability, to
applicable bankruptcy, insolvency, receivership, conservatorship,
reorganization, moratorium or similar laws affecting the enforcement of
creditors' rights generally and to the application of equitable principles and
judicial discretion. A certified copy of the resolutions of the Board of
Directors of BankFirst and the Shareholders authorizing the execution and
performance of this Agreement will be annexed as Schedule 5.2.
(b) The execution and delivery of this Agreement and the Plan of
Share Exchange, the consummation of the transaction contemplated hereby and
thereby, and the fulfillment of the terms hereof and thereof will not result in
a violation or breach of any of the material terms or provisions of, or
constitute a default under (or an event which, with the passage of time or the
giving of notice, or both, would constitute a default under), or conflict with,
or permit the acceleration of, any obligation under any mortgage, lease,
covenant, agreement, indenture or other instrument to which BankFirst or the
BankFirst Subsidiary is a party or by which BankFirst or the BankFirst
Subsidiary is bound; the Charter or Bylaws of BankFirst; or any judgment,
decree, order, regulatory letter of understanding or award of any court,
governmental body, authority or arbitrator by which BankFirst or the BankFirst
Subsidiary is bound; or any material permit, concession, grant, franchise,
license, law, statute, ordinance, rule or regulation applicable to BankFirst or
the BankFirst Subsidiary or the properties of any of them; or result in the
creation of any material lien, claim, security interest, encumbrance, charge,
restriction or right of any third party of any kind whatsoever upon the
properties or assets of BankFirst or the BankFirst Subsidiary.
ACQUISITION AGREEMENT - Page 10
<PAGE>
5.3 No Legal Bar. BankFirst is not a party to, or subject to, or bound by,
any agreement or judgment, order, letter of understanding, writ, prohibition,
injunction or decree of any court or other governmental authority or body which
would prevent the execution of this Agreement and the Plan of Share Exchange by
BankFirst, the delivery thereof to Smoky Mountain or the consummation of the
transaction contemplated hereby and thereby, and no action or proceeding is
pending against BankFirst in which the validity of this Agreement, the
transaction contemplated hereby or any action which has been taken by any of the
parties in connection herewith or in connection with the transaction
contemplated hereby is at issue. 5.4 Government and Other Approvals. Except for
the Government Approvals described in Section 4.4, no consent, approval, order
or authorization of, or registration, declaration or filing with, any federal,
state or local governmental authority is required to be made or obtained by
BankFirst in connection with the execution and delivery of this Agreement or the
consummation of the transactions contemplated by this Agreement nor is any
consent or approval required from any landlord, licensor or other
non-governmental party which has granted rights to BankFirst in order to avoid
forfeiture or impairment of such rights.
5.5 Charter Documents. Included in Schedule 5.5 are true and correct
copies of the Charter and Bylaws of BankFirst. The Charter and Bylaws of
BankFirst, as amended to date, are in full force and effect.
5.6 BankFirst Financial Statements. Accompanying Schedule 5.6 are true
copies of the audited consolidated balance sheets of BankFirst as of December
31, 1995, 1994 and 1993, and the related consolidated statements of income and
stockholders' equity and cash flows of BankFirst for the years ended December
31, 1995, 1994 and 1993 (the "Audited Financial Statements of BankFirst") and
the comparative interim (or annual) financial statements for any subsequent
quarter (or year) ending after December 31, 1995 and prior to the Closing Date.
Such financial statements (i) were (or will be) prepared from the books and
records of BankFirst; (ii) were (or will be) prepared in accordance with
generally accepted accounting principles consistently applied; (iii) accurately
present (or will present) BankFirst's consolidated financial condition and the
consolidated results of its operations as at the relevant dates thereof and for
the periods covered thereby; (iv) do contain or reflect (or will contain and
reflect) all necessary adjustments and accruals for an accurate presentation of
BankFirst's consolidated financial condition and the consolidated results of
BankFirst's operations for the periods covered by such Financial Statements; and
(v) do contain and reflect (or will contain and reflect) adequate provisions for
loan losses, for ORE reserves and for all reasonably anticipated liabilities for
all taxes, federal, state, or local, with respect to the periods then ended.
5.7 Records and Documents. The records of BankFirst are and will be
sufficient to enable BankFirst to continue conducting its business as a
Tennessee-chartered state bank under similar standards as BankFirst has
heretofore conducted such business.
ACQUISITION AGREEMENT - Page 11
<PAGE>
5.8 Capitalization of BankFirst. The authorized capital stock of BankFirst
consists of Ten Million (10,000,000) shares of common stock having a par value
of $5.00 per share (the "BankFirst Common Stock") and Five Hundred Thousand
(500,000) shares of noncumulative convertible preferred stock (""BankFirst
Preferred Stock"). As of the date of this Agreement, 1,154,152 shares of
BankFirst Common Stock are issued and outstanding and no BankFirst Common Stock
is held by BankFirst as treasury stock. All of the outstanding BankFirst Common
Stock is validly issued, fully paid and nonassessable and has not been issued in
violation of any preemptive rights of any BankFirst shareholder. As of the date
of this Agreement, 225,559 shares of BankFirst Preferred Stock shares are issued
and outstanding and no BankFirst Preferred Stock is held by BankFirst as
treasury stock.
5.9 Disclosure. The information concerning, and representations and
warranties made by, BankFirst set forth in this Agreement, or in the Schedules
of Exceptions of BankFirst hereto, or in any document, statement, certificate or
other writing furnished or to be furnished by BankFirst to Smoky Mountain
pursuant hereto, does not and will not contain any untrue statement of a
material fact or omit and will not omit to state a material fact required to be
stated herein or therein necessary to make the statements and facts contained
herein or therein, in light of the circumstances in which they were or are made,
not false or misleading. Copies of all documents heretofore or hereafter
delivered or made available to Smoky Mountain by BankFirst pursuant hereto were
or will be complete and accurate copies of such documents.
5.10 Material Contracts. Except as reflected in the BankFirst Financial
Statements, or as described in Schedule 5.14 hereto, neither BankFirst nor the
BankFirst Subsidiary, nor any of their respective assets, businesses, or
operations, is as of the date of this Agreement a party to, or is bound or
affected by, or receives benefits under any contract or agreement or amendment
thereto that in each case would be required to be filed as an exhibit to an
Annual Report on Form F-2 filed by BankFirst as of the date of this Agreement
that has not been filed as an exhibit to BankFirst's Form F-2 filed for the
fiscal year ended December 31, 1995.
ARTICLE 6
COVENANTS OF SMOKY MOUNTAIN
6.1 Regulatory Approvals. Within a reasonable time after execution of this
Agreement, Smoky Mountain shall file any and all applications with the
appropriate Regulatory Authorities in order to obtain the Government Approvals
and shall take such other actions as may be reasonably required to consummate
the transactions contemplated in this Agreement and the Plan of Share Exchange
with reasonable promptness. BankFirst shall pay all fees and expenses arising in
connection with such applications for Regulatory Approval. Smoky Mountain agrees
to provide the appropriate Regulatory Authorities with the information required
by such authorities in connection with Smoky Mountain's applications for
Regulatory Approval and Smoky Mountain agrees to use its best efforts to obtain
such Regulatory Approvals, and any other approvals and consents as may be
required for the Closing, as promptly as practicable.
ACQUISITION AGREEMENT - Page 12
<PAGE>
6.2 Proxy Statement. Smoky Mountain Shareholder Approval. Smoky Mountain
shall call a meeting of shareholders for September 20, 1996 for the purpose of
(i) approving this agreement and the Plan of Share Exchange; and (ii) such other
related matters as it deems appropriate. In connection with the shareholder's
meeting; (i) Smoky Mountain shall prepare a proxy statement and shall mail or
cause to be mailed such Proxy Statement to its shareholders; (ii) the Board of
Directors shall recommend (subject to compliance with their legal and fiduciary
duty) to Smoky Mountain shareholders the approval of this Agreement and the Plan
of Share Exchange.
ARTICLE 7
COVENANTS OF BANKFIRST
7.1 Proxy Statement; BankFirst Shareholder Approval. BankFirst shall call
the Shareholders Meeting to be held as soon as reasonably practicable after the
date of this Agreement and shall use its best efforts to ensure that such
meeting is held not later than October 10, 1996, for the purpose of (i)
approving this Agreement and the Plan of Share Exchange, and (ii) such other
related matters as it deems appropriate. In connection with the Shareholders
Meeting, (i) BankFirst shall prepare a Proxy Statement, shall mail or cause to
be mailed such Proxy Statement to its shareholders; and (ii) the Board of
Directors of BankFirst shall recommend (subject to compliance with their legal
and fiduciary duty as advised by counsel) to BankFirst shareholders the approval
of this Agreement and the Plan of Share Exchange.
7.2 Conduct of Business - Affirmative Covenants. Unless the prior written
consent of Smoky Mountain shall have been obtained and, except as otherwise
contemplated herein:
(a) BankFirst shall, and shall cause the BankFirst Subsidiary to:
(i) Operate its business only in the usual, regular, and
ordinary course;
(ii) Preserve intact its business organizations and assets and
to maintain its rights and franchises;
(iii) Take no action, unless otherwise required by law, rules
or regulation, that would (a) adversely affect the ability of any of them or
Smoky Mountain to obtain any necessary approvals of Regulatory Authorities
required to consummate the transactions contemplated by this Agreement, or (b)
adversely affect the ability of such party to perform its covenants and
agreements under this Agreement;
ACQUISITION AGREEMENT - Page 13
<PAGE>
(iv) Except as they may terminate in accordance with their
terms, keep in full force and effect, and not default in any of their
obligations under, all material contracts;
(v) Keep in full force and effect insurance coverage with
responsible insurance carriers which is reasonably adequate in coverage and
amount for companies the size of BankFirst or the BankFirst Subsidiary and for
the businesses and properties owned by each and in which each is engaged, to the
extent that such insurance is reasonably available;
(vi) Use its best efforts to retain its present customer base
and to facilitate the retention of such customers by BankFirst and its branches
after the closing;
(vii) To maintain, renew, keep in full force and effect, and
preserve its business organization and material rights and franchises, permits
and licenses, and to use its best efforts to maintain positive relations with
its present employees so that such employees will continue to perform
effectively and will be available to BankFirst or Smoky Mountain and BankFirst's
Subsidiaries or Smoky Mountain's Subsidiaries at and after the closing, and to
use its best efforts to maintain its existing, or substantially equivalent,
credit arrangements with banks and other financial institutions and to assure
the continuance of its customer relationships;
(b) BankFirst agrees to use its best efforts to assist Smoky
Mountain in obtaining the Government Approvals necessary to complete the
transactions contemplated hereby, and BankFirst shall provide to Smoky Mountain
or to the appropriate governmental authorities all information reasonably
required to be submitted in connection with obtaining such approvals.
(c) BankFirst, at its own cost and expense, shall use its best
efforts to secure all necessary consents and all consents and releases, if any,
required of BankFirst or third parties and shall comply with all applicable
laws, regulations and rulings in connection with this Agreement and the
consummation of the transactions contemplated hereby.
(d) At all times to and including, and as of, the Closing, BankFirst
shall inform Smoky Mountain in writing of any and all facts necessary to amend
or supplement the representations and warranties made herein and the schedules
attached hereto as necessary so that the information contained herein and
therein will accurately reflect the current status of BankFirst.
ARTICLE 8
CONDITIONS TO CLOSING
8.1 Conditions to the Obligations of BankFirst. Unless waived in writing
by BankFirst, the obligation of BankFirst to consummate the transaction
contemplated by this Agreement is subject to the satisfaction at or prior to the
Closing Date of the following conditions:
ACQUISITION AGREEMENT - Page 14
<PAGE>
(a) Performance. Each of the material acts and undertakings of Smoky
Mountain to be performed at or before the Closing Date pursuant to this
Acquisition Agreement shall have been duly performed.
(b) Representations and Warranties. The representations and
warranties of Smoky Mountain contained in Article 4 of this Acquisition
Agreement shall be true and complete, in all material respects, on and as of the
exchange with the same effect as though made on and as of the exchange.
(c) Documents. In addition to the other deliveries of Smoky Mountain
described elsewhere in this Acquisition Agreement, BankFirst shall have received
the following documents and instruments:
(i) a certificate from the Secretary or Assistant Secretary of Smoky
Mountain dated as of the Closing Date certifying that:
(A) Smoky Mountain's Board of Directors has duly adopted
resolutions (copies of which shall be attached to such certificate)
approving the substantive terms of this Acquisition Agreement
(including the Plan of Share Exchange) and authorizing the
consummation of the transactions contemplated by this Acquisition
Agreement and that such resolutions have not been amended or
modified and remain in full force and effect;
(B) Smoky Mountain's Shareholders have duly adopted
resolutions (copies of which shall be attached to such certificate)
approving the substantive terms of this Acquisition Agreement
(including the Plan of Share Exchange) and authorizing the
consummation of the transactions contemplated by this Acquisition
Agreement and that such resolutions have not been amended or
modified and remain in full force and effect;
(C) each person executing this Acquisition Agreement on behalf
of Smoky Mountain is an officer of Smoky Mountain holding the office
or offices specified therein and that the signature of each person
set forth on such certificate is his genuine signature;
(D) the charter documents of Smoky Mountain attached to such
certificate remain in full force and effect;
(E) Smoky Mountain is in good standing under its Tennessee
corporate charter; and
ACQUISITION AGREEMENT - Page 15
<PAGE>
(F) Smoky Mountain is in good standing with all Regulatory
Authorities having jurisdiction over it and has received no
notification that this transaction would result in a cease and
desist order or an impairment of the financial ability of Smoky
Mountain to perform its obligations under this Acquisition
Agreement.
(ii) a certificate signed by a duly authorized officer of Smoky
Mountain stating that the conditions set forth in Section 8.1(a), Section
8.1(b), and Section 8.1(c) of this Acquisition Agreement have been fulfilled.
(d) Consideration. BankFirst shall have received a certificate
executed by an authorized officer of the Exchange Agent to the effect that the
Exchange Agent has received and holds in its possession certificates evidencing
and representing that number of shares of Smoky Mountain Common Stock and Smoky
Mountain Preferred Stock, and/or collected funds sufficient to meet the
obligations to the BankFirst Record Holders to deliver the Consideration under
this Acquisition Agreement and the Plan of Share Exchange.
(e) No Material Adverse Change. No material adverse change in the
material business, property, assets, liabilities (whether absolute, contingent
or otherwise), prospects, operations, liquidity, income or condition (financial
or otherwise) of Smoky Mountain taken as a whole, shall have occurred since the
date of this Acquisition Agreement. In the event of such an adverse change with
respect to Smoky Mountain, BankFirst may elect either (i) to close the
contemplated transaction in accordance with the terms of this Acquisition
Agreement or (ii) to terminate this Acquisition Agreement without penalty.
8.2 Conditions to the Obligations of Smoky Mountain. Unless waived in
writing by Smoky Mountain, the obligation of Smoky Mountain to consummate the
transactions contemplated by this Acquisition Agreement is subject to the
satisfaction at or prior to the Closing Date of the following conditions:
(a) Performance. Each of the material acts and undertakings of
BankFirst to be performed at or before the Closing Date pursuant to this
Acquisition Agreement shall have been duly performed;
(b) Representations and Warranties. The representations and
warranties of BankFirst contained in Article 5 of this Acquisition Agreement
shall be true and correct, in all material respects, on and as of the Closing
Date with the same effect as though made on and as of the Closing Date;
(c) No Material Adverse Change. No material adverse change in the
material business, property, assets (including loan portfolios), liabilities
(whether absolute, contingent or otherwise), prospects, operations, liquidity,
income, or condition (financial or otherwise) of BankFirst taken as a whole
shall have occurred since the date of this Acquisition
ACQUISITION AGREEMENT - Page 16
<PAGE>
Agreement. In the event of such a material adverse change with respect to
BankFirst, Smoky Mountain may elect either (i) to close the contemplated
transaction in accordance with the terms of this Acquisition Agreement or (ii)
to terminate this Acquisition Agreement without penalty;
8.3 Conditions to Obligations of All Parties. The obligation of each Party
to effect the transactions contemplated hereby shall be subject to the
fulfillment, at or prior to the Closing, of the following conditions:
(a) No Pending or Threatened Claims. That no claim, action, suit,
investigation or other proceeding shall be pending or threatened before any
court or governmental agency which presents a substantial risk of the restraint
or prohibition of the transactions contemplated by this Acquisition Agreement or
the obtaining of material damages or other relief in connection therewith; and
(b) Governmental Approvals Obtained. The parties hereto shall have
received all applicable Governmental Approvals for the consummation of the
transactions contemplated herein and all waiting periods incidental to such
approvals or notices given shall have expired.
ARTICLE 9
TERMINATION
9.1 Termination. This Acquisition Agreement and the Plan of Share Exchange
may be terminated at any time prior to the Closing, as follows:
(a) By mutual consent in writing of the Parties;
(b) By Smoky Mountain, should BankFirst or the BankFirst Subsidiary
fail to conduct its business pursuant to its Covenants made in Article 7;
(c) By either Smoky Mountain or BankFirst, upon written notice to
the other party, upon denial of any Governmental Approval necessary for the
consummation of the Acquisition (or should such approval be conditioned upon a
substantial deviation from the transaction contemplated); provided, however,
that either party may, upon written notice to the other, extend the term of this
Acquisition Agreement for only one sixty (60) day period to prosecute diligently
and overturn such denial, provided that such denial has been appealed within ten
(10) business days of the receipt thereof;
ACQUISITION AGREEMENT - Page 17
<PAGE>
(d) By Smoky Mountain if the conditions set forth in Sections 8.2 or
8.3 are not satisfied in all material respects as of the Closing Date, or by
BankFirst if the conditions set forth in Section 8.1 or 8.3 are not satisfied in
all material respects as of the Closing Date, and such failure has not been
waived prior to the Closing;
(e) By Smoky Mountain or BankFirst in the event that there shall
have been a material breach of any obligation of the other party hereunder and
such breach shall not have been remedied within thirty (30) days after receipt
by the breaching party of written notice from the other party specifying the
nature of such breach and requesting that it be remedied;
(f) By BankFirst in the event that there shall have been, in the
good faith opinion of BankFirst's Board of Directors, a material adverse change
in the business, property, assets, liabilities (whether absolute, contingent,
accrued, contingent or otherwise), prospects, operations, liquidity, income,
condition (financial or otherwise) or net worth of Smoky Mountain taken as a
whole or upon the occurrence of any event or circumstances which may have the
effect of limiting or restricting Smoky Mountain's ability to deliver the
consideration either by issuing to the BankFirst Record Holders the Smoky
Mountain Common Stock and the Smoky Mountain Preferred Stock.
9.2 Effect of Termination. In the event that this Acquisition Agreement
should be terminated pursuant to Section 9.1 hereof, all further obligations of
the parties under this Acquisition Agreement shall terminate without further
liability of any party to another; provided, however, that a termination under
Section 9.1 hereof shall not relieve any party of any liability for a breach of
this Acquisition Agreement or for any misstatement or misrepresentation made
hereunder prior to such termination, or be deemed to constitute a waiver of any
available remedy for any such breach, misstatement or misrepresentation.
ARTICLE 10
GENERAL PROVISIONS
10.1 Notices. Any notice, request, demand and other communication which
either party hereto may desire or may be required hereunder to give shall be in
writing and shall be deemed to be duly given if delivered personally or mailed
by certified or registered mail (postage prepaid, return receipt requested), air
courier or facsimile transmission, addressed or transmitted to such other party
as follows:
ACQUISITION AGREEMENT - Page 18
<PAGE>
If to BankFirst:
Fred R. Lawson
President and Chief Executive Officer
BankFirst
625 Market Street
Knoxville, TN 37902
If to Smoky Mountain:
James L. Clayton
Chairman
Smoky Mountain Bancorp, Inc.
811 Parkway
Gatlinburg, TN 37738
With an additional copy to:
James L. Clayton
625 Market Street
Knoxville, TN 37902
If to First National Bank of Gatlinburg:
Charles Earl Ogle, Jr.
Chairman
First National Bank of Gatlinburg
811 Parkway
Gatlinburg, TN 37738
or to such other address as any party hereto may hereafter designate to the
other parties in writing. Notice shall be deemed to have been given on the date
reflected in the proof or evidence of delivery, or if none, on the date actually
received.
10.2 Assignability and Parties in Interest. This Acquisition Agreement
shall not be assignable by any of the Parties hereto.
10.3 Governing Law. This Acquisition Agreement shall be governed by, and
construed and enforced in accordance with, the laws of the State of Tennessee.
ACQUISITION AGREEMENT - Page 19
<PAGE>
10.4 Counterparts. This Acquisition Agreement may be executed
simultaneously in one or more counterparts, each of which shall be deemed an
original, but all of which shall constitute but one and the same instrument.
10.5 Best Efforts. BankFirst and Smoky Mountain each agree to use its best
efforts to complete the transactions contemplated by this Acquisition Agreement.
10.6 Publicity. The parties agree that press releases and other public
announcements to be made by any of them with respect to the transactions
contemplated hereby shall be subject to mutual agreement.
10.7 Entire Agreement. This Acquisition Agreement, together with the Plan
of Share Exchange which is Exhibit "1" hereto, the Schedules, Exhibits and
certificates required to be delivered hereunder and any amendments or addenda
hereafter executed and delivered in accordance with Section 10.9 hereof
constitute the entire agreement of the parties hereto pertaining to the
transaction contemplated hereby and supersede all prior written and oral (and
all contemporaneous oral) agreements and understandings of the parties hereto
concerning the subject matter hereof. The schedules, Exhibit "1", the exhibits
and certificates attached hereto or furnished pursuant to this Acquisition
Agreement are hereby incorporated as integral parts of this Acquisition
Agreement. Except as provided herein, by specific language and not by mere
implication, this Acquisition Agreement is not intended to confer upon any other
person not a party to this Acquisition Agreement any rights or remedies
hereunder.
10.8 Severability. If any portion or provision of this Acquisition
Agreement should be determined by a court of competent jurisdiction to be
invalid, illegal or unenforceable in any jurisdiction, such portion or provision
shall be ineffective as to that jurisdiction to the extent of such invalidity,
illegality or unenforceability, without affecting in any way the validity or
enforceability of the remaining portions or provisions hereof in such
jurisdiction or rendering that or any other portions or provisions of this
Acquisition Agreement invalid, illegal or unenforceable in any other
jurisdiction.
10.9 Modifications, Amendments and Waivers. At any time prior to the
Closing or termination of this Acquisition Agreement, the parties may, solely by
written agreement executed by their duly authorized officers:
(a) Extend the time for the performance of any of the obligations or
other acts of the other party hereto;
(b) Waive any inaccuracies in the representations and warranties
made by the other party contained in this Acquisition Agreement or in the
schedules or exhibits hereto or any other document delivered pursuant to this
Acquisition Agreement;
ACQUISITION AGREEMENT - Page 20
<PAGE>
(c) Waive compliance with any of the covenants or agreements of the
other party contained in this Acquisition Agreement; and
(d) Amend or add to any provision of this Acquisition Agreement or
the Plan of Share Exchange; provided, however, that no provision of this
Acquisition Agreement may be amended or added to except by an agreement in
writing signed by the parties hereto or their respective successors in interest
and expressly stating that it is an amendment to this Acquisition Agreement.
10.10 Interpretation. The headings contained in this Acquisition Agreement
are for reference purposes only and shall not affect in any way the meaning or
interpretation of this Acquisition Agreement.
10.11 Payment of Expenses. Except as set forth herein, BankFirst shall pay
the fees and expenses (including, without limitation, legal fees and expenses)
incurred by Smoky Mountain and BankFirst in connection with the transactions
contemplated hereunder.
10.12 Survival of Representations and Warranties. All representations and
warranties made by the parties hereto or in any instrument or document furnished
in connection herewith, shall survive the Closing and any investigation at any
time made by or on behalf of the parties hereto and shall expire at the
Effective Time of the exchange except as to any matter which is based upon
willful fraud with respect to which the representations and warranties set forth
in this Acquisition Agreement shall expire only upon expiration of the
applicable statutes of limitation. Nothing in this Section 10.12 shall limit
BankFirst's or Smoky Mountain's rights or remedies for misrepresentations,
breaches of this Acquisition Agreement or any other improper action or inaction
by the other party hereto prior to the its termination.
10.13 No Waiver. No failure, delay or omission of or by any party in
exercising any right, power or remedy upon any breach or default of any other
party shall impair any such rights, powers or remedies of the party not in
breach or default, nor shall it be construed to be a waiver of any such right,
power or remedy, or an acquiescence in any similar breach or default; nor shall
any waiver of any single breach or default be deemed a waiver of any other
breach or default theretofore or thereafter occurring. Any waiver, permit,
consent or approval of any kind or character on the part of any party of any
provisions of this Acquisition Agreement must be in writing and must be executed
by the parties to this Acquisition Agreement and shall be effective only to the
extent specifically set forth in such writing.
IN WITNESS WHEREOF, each of the parties hereto has duly executed and
delivered this Acquisition Agreement or has caused this Acquisition Agreement to
be executed and delivered in its name and on its behalf by its representative
thereunto duly authorized, all as of the date first written above.
ACQUISITION AGREEMENT - Page 21
<PAGE>
BANKFIRST
By: /s/ Fred R. Lawson
----------------------------------------
Fred R. Lawson
Its: President and Chief Executive Officer
ATTEST:
/s/ Vickie T. Mynatt
- ------------------------------
Secretary
SMOKY MOUNTAIN BANCORP, INC.
By: /s/ Fred R. Lawson
----------------------------------------
Fred R. Lawson
Its: President and Chief Executive Officer
ATTEST:
/s/ Vickie T. Mynatt
- ------------------------------
Secretary
ACQUISITION AGREEMENT - Page 22
EXHIBIT 10.8
AGREEMENT
THIS AGREEMENT ("Agreement") is made and entered this 18th day of March,
1998, by and between Paymentech Merchant Services, Inc., formerly known as First
USA Merchant Services, Inc. ("Paymentech"), and BankFirst ("BankFirst").
WITNESSETH:
WHEREAS, Paymentech performed credit card processing services for
Electronic Communications Corporation ("ECC") and/or BankFirst and its merchant
customers for a period through March 6, 1998; and
WHEREAS, on November 24, 1997, BankFirst filed a lawsuit in the Chancery
Court for Sevier County, Tennessee, against ECC and Steve Newland, bearing Case
No. 97-11-328 (the "Lawsuit"), and on December 29, 1997, BankFirst filed an
Amended Verified Complaint in the Lawsuit joining Paymentech as a Defendant; and
WHEREAS, Paymentech has filed a Counterclaim against BankFirst and a
Cross-Claim against ECC in the Lawsuit; and
WHEREAS, while performing processing services for BankFirst, Paymentech
mistakenly overpaid BankFirst the total sum of $4,395,835.90, as more
particularly shown on Exhibit 1 attached hereto, and those overpayments were
reported by BankFirst to First USA; and
WHEREAS, the Amended Verified Complaint alleges that based on an interim
accounting, through November 28, 1997, Paymentech made unauthorized and
unreported deductions from wire transfers to BankFirst in the aggregate amount
of $544,393; and the Counterclaim filed by paymentech alleges that in performing
processing services, Paymentech inadvertently overpaid BankFirst the total sum
of $3,967,907.77 (now adjusted to $3,967,887.77); and
WHEREAS, BankFirst acknowledges that it received overpayments from
Paymentech, as reported by BankFirst to Paymentech, and is willing to repay that
portion of the overpayments net of certain amounts as herein specified to
Paymentech pending the resolution of the Lawsuit based upon the terms and
provisions of this Agreement.
NOW, THEREFORE, in consideration of the foregoing premises and the mutual
agreements of the parties set forth below, it is agreed as follows:
-1-
<PAGE>
1. Immediately upon the execution of this Agreement, BankFirst shall pay
Paymentech, by wire transfer, the total sum of $3,088,245.01. The amount to be
wire transferred represents the total amount of the overpayments as certified by
Paymentech and as set forth on Exhibit 1 in the amount of $4,395,835.90, less a
wire transfer which was returned by BankFirst on January 7, 1998 in the amount
of $427,948.13, less net debits in the total amount of $253,957.78 sent by
Paymentech to BankFirst on December 30, 1997, and December 31, 1997, less fees
reported by Paymentech to have been collected by Paymentech and owed to
BankFirst as of January 31, 1998 in the amount of $81,291.98, and less the total
sum of $544,393.00 which is the amount of the alleged unauthorized wire
transfers as set forth in Exhibit I to the Amended Verified Complaint.
2. In order to induce BankFirst to make the wire transfer described in
paragraph 1 above, Paymentech hereby makes the following certifications to
BankFirst:
(a) The overpayments reflected in Exhibit 1 attached hereto were
wire transferred to BankFirst in error. These wire transfers were duplicate
payments of amounts already paid to BankFirst or its merchants and, as such, the
amounts wired in error do not rightfully belong to BankFirst.
(b) The Automated Clearing House ("ACH") debits reflected on Exhibit
2 attached hereto were sent to BankFirst by Paymentech in order to recoup a
portion of the amounts wired in error, and the debits as indicated on attached
Exhibit 2 were not accepted by BankFirst thereby reversing the indicated debits.
The only debits which have reached funds of BankFirst are in the net aggregate
amount of $253,957.78, as set forth in Exhibit 2. No other debits have been
initiated by Paymentech to collect any of the overpayments, and there have been
no other charges made against any accounts or funds of BankFirst to collect any
of the overpayments.
3. BankFirst acknowledges that the funds being retained by BankFirst in
the amount of $544,393.00 are being retained only as an exercise of BankFirst's
claimed setoff rights against amounts claimed in the Lawsuit. If the final
judgment in the Lawsuit is not in favor of BankFirst against Paymentech, or if
such judgment is less than the amount being retained by BankFirst, upon the
judgment becoming final, BankFirst will immediately return all funds being
retained by it, with any interest and other amounts as may be awarded by the
Court to Paymentech. Also, by retaining $544,393, BankFirst does not waive any
right to amend the Amended Verified Complaint to seek a recovery against
Paymentech in a higher amount. Likewise, Paymentech does not waive any right to
amend its Counterclaim to assert any claim not resolved in this Agreement.
-2-
<PAGE>
4. The parties acknowledge that there will be additional bank account
debits sent by Paymentech to BankFirst related to the processing of BankFirst's
merchants' transactions, especially relating to the merchant's chargebacks and
discount fees. Therefore, the receipt by BankFirst of such debits in the
ordinary course of business will be considered an exception to the
certifications set forth in paragraph 2 above. However, this Agreement does not
preclude or otherwise affect any right of BankFirst or its merchant customers to
contest chargebacks. Furthermore, this Agreement does not address processing
fees charged by Paymentech for the months of February and March, 1998, or
thereafter, and Paymentech's collection of fees for that period from BankFirst's
merchants and any resulting amounts owed by one party to the other.
5. Paymentech has given BankFirst credit for net debits in the amount of
$253,957.78, which were sent by Paymentech to BankFirst via ACH. BankFirst
agrees that it will take no action to return these debits to Paymentech since
BankFirst has been given credit for the full amount of the original net debits.
6. Paymentech agrees that it will not process any further ACH debits to
BankFirst, except for those contemplated by paragraph 4 above.
7. Paymentech hereby releases BankFirst from any claims associated with
the overpayments (except as to the retained funds in the amount of $544,393.00),
including any interest on such overpayments, and Paymentech's Counterclaim
against BankFirst will be amended to reduce the claim from $3,967,907.77 to
$544,393.00; provided, however, such release shall not be construed to release
any claim by Paymentech for prejudgment interest on the funds being retained by
BankFirst, nor shall it operate as a release of any other claims asserted (or
which may hereafter be asserted consistent with this Agreement) by Paymentech in
its Counterclaim in the Lawsuit. BankFirst hereby releases Paymentech from any
claims associated with BankFirst's retention of $81,291.98 from the overpayment
amount, as referenced in paragraph 1 above.
8. Net ACH transfers from Paymentech to BankFirst in the amount of
$98,356.53 on November 26, 1997 and $320,259.49 on November 28, 1997, resulted
in the issuance of duplicate credits to BankFirst's merchant customers.
BankFirst subsequently reversed the second credit to all affected merchants and
as of the date of this Agreement no merchants have asserted a claim against
BankFirst for such action. Paymentech agrees to indemnify and hold BankFirst
harmless from any losses and expenses from any claims asserted against BankFirst
by its merchants resulting from the reversal of the above-described credits.
-3-
<PAGE>
9. This Agreement may only be amended in writing. Any disputes concerning
the interpretation of this Agreement or the parties' rights and responsibilities
hereunder shall be resolved in the Lawsuit. This Agreement may be executed on
facsimile copies hereof and by signatures appearing in the facsimile copies.
Each party represents that the person signing this Agreement has been duly
authorized to do so by any and all required corporate action of such party.
10. The initial WHEREAS provision of this Agreement is not intended to
affect or in any manner waive the position of Paymentech as stated in its
Answer, Counterclaim and Cross-Claim in the Lawsuit as to the person or entity
to which it was providing credit card processing services.
IN WITNESS WHEREOF, the parties have executed this Agreement by their duly
authorized representatives on the day and date first written above.
BANKFIRST
BY: /s/ David Allen
--------------------------
ITS: Sr. V. P.
PAYMENTECH MERCHANT
SERVICES, INC.
BY: /s/ Alyse J. Nachson
--------------------------
ITS: Sr. Director
-4-
<PAGE>
Exhibit 1
-------------------------------------------------------------
Date Wires Sent
---- ----------
1-Dec 2,621.64
3-Dec 467,218.71
3-Dec 737,204.45
4-Dec 125,313.90
5-Dec 128,815.25
8-Dec 103,389.68
9-Dec 140,286.21
10-Dec 439,165.45
11-Dec 126,634.98
12-Dec 104,476.07
15-Dec 111,591.70
16-Dec 121,309.49
17-Dec 389,952.17
18-Dec 98,558.65
19-Dec 107,276.49
22-Dec 82,281.58
23-Dec 90,070.48
24-Dec 328,782.66
26-Dec 111,382.30
29-Dec 89,083.52
30-Dec 82,472.41
31-Dec 427,948.13
4,395,835.90
Returned wire 1-7-98 (427,948.13) 3,967,887.77
-------------------------------------------------------------
Page 1
<PAGE>
Exhibit 2
-------------------------------------------------------------
Returned by
Bank
Debits Credits as of 3/16/98
------ ------- -------------
127,658.18 (1,383.96)
128,187.63 (502.07)
192,243.54 (109.38) x
194,923.41 (1,860.13) x
30,817.08 (1,066.92) x
19,812.14 (17.53) x
20,580.30 x
17,919.73 (527.64) x
29,336.44 (10.88) x
7,813.63 (4,036.85) x
11,023.70 x
5,457.62 x
6,326.42 (250.70) x
22,552.85 (218.58) x
3,087.82 (44.00) x
3,672.65 (188.56) x
2,160.11 (69.13) x
12,453.03 (54.25) x
1,058.64 (441.56) x
3,935.90 (45.00) x
914.15 (531.60) x
439.22 (29.85) x
5,844.33 x
260.76 (249.09) x
175.68 x
1238.04 (288.66) x
1,839.08 (147.74) x
3,735.08 x
1,063.30 (67.50) x
120.00 (29.07) x
(29.73) x
200.00 (503.38), x
-------------------------------------------------------------
Page 1
<PAGE>
Exhibit 2
-------------------------------------------------------------
Returned by
Bank
Debits Credits as of 3/16/98
------ ------- -------------
3,066.25 x
(93.86) x
2,171.90 x
380.63 (30.00)** x
(104.64) x
7,717.48 (540.34) x
200.00 x
79.25 (577.46) x
431.91 (258.30) x
1,957.82 (799.56) x
(851.11) x
793.13 (1,086.24) x
(2,119.07) x
(100.00) x
(95.00) x
(369.78) x
(209.78) x
-------------------------------------------------------------
**Credit not returned
Page 2
EXHIBIT 10.9
LEASE AGREEMENT
This Lease Agreement is made and entered into as of the 1st day of July,
1997, by and between BankFirst, 625 Market Street, Knoxville, Tennessee 37902,
hereinafter called "Lessor", and Clayton Homes, Inc., hereinafter called
"Lessee".
WHEREAS, Lessor is the owner of certain real property located at 625
Market Street, Knoxville, Tennessee 37902; and
WHEREAS, Lessor desires to lease the 7th through the 15th floors of 625
Market Street, Knoxville, Tennessee (the "Premises") to Lessee, and Lessee
desires to lease said Premises from Lessor upon the terms and conditions
hereinafter set forth.
NOW, THEREFORE, for and in consideration of the premises and the covenants
and agreements hereinafter set forth, the Lessor and the Lessee hereby mutually
covenant and agree as follows:
1. Leased Premises. The Lessor separately leases to the Lessee each floor
(the 7th through the 15th) of the Premises. Lessor is leasing said Premises to
Lessee "as is, where is", with no warranties or representations.
2. Term. The term of this Lease shall be month to month, commencing July
1, 1997.
3. Rent. Lessee shall pay to Lessor an annual rental of Eight Dollars and
Fifty Cents ($8.50) per square foot, per floor, in advance, on the first day of
each month, for floors 7-13, and Four Dollars and Twenty-Five Cents ($4.25) for
the 14th floor of the Premises, as follows:
Floor Square Feet Total Per Month Rental
----- ----------- ----------------------
7 3106 $2,200.00
8 3106 $2,200.00
9 3106 $2,200.00
10 3106 $2,200.00
11 3106 $2,200.00
12 3106 $2,200.00
13 3106 $2,200.00
14 3006 $1,064.00
15 Discretionary Use $1,000.00
4. Repairs and Maintenance. At all times during the term of this Lease,
the Lessor shall keep and maintain at Lessor's own cost and expense, the
Premises and all improvements now or hereafter erected thereon, and all
facilities appurtenant to the Premises in good order and repair and in a safe,
lawful and clean condition, free of dirt, rubbish, snow, ice and unlawful
obstructions. It shall also be the Lessor's responsibility to maintain the
exterior walls, and the heating and air conditioning system.
5. Liens. Lessee shall pay and discharge all expenses incurred by Lessee
for the services of mechanics or for the costs of goods and materials delivered
by materialmen, and save and hold Lessor harmless from any and all claims by
such mechanics or materialmen for labor or services performed or goods delivered
at the request of the Lessee. Lessee shall discharge and satisfy any judgments
taken on account of claims or liens filed by mechanics or materialmen for work
ordered by Lessee.
6. Utilities and Janitorial Services. The Lessor shall pay or cause to be
paid all charges for the furnishing of utilities, including but not limited to,
water, sewer, electricity, and gas or oil, or any other public utility charges
that may or could be assessed against the Premises during the term of the Lease,
for the removal of garbage and rubbish from the Property, and for janitorial
services.
7. Hazardous Materials. Lessee shall not permit the Premises to be used
for the production or storage of any "Hazardous Substance" as that term is
defined by federal and state law. Lessee shall, at Lessee's own expense, comply
with all law regulating the use, generation, storage, transportation and
disposal of Hazardous Substances. Lessee shall remove, at its own expense, any
Hazardous Substances which it permits to be located on the Premises during the
term of this Lease. Lessee shall indemnify, defend and hold harmless Lessor from
all fines, suits, procedures, claims and actions of every kind, and all costs
associated therewith (including attorney and consultant fees), arising out of or
in any way connected with any deposit, spill, discharge, or other release of
Hazardous Substances that occurs at, on , or from the Premises during the term
of this Lease.
8. Alteration. The Lessee shall make no structural alterations or
additions or improvements to the Premises without the prior written consent of
the Lessor.
9. Trade Fixtures. Provided Lessee is not then in default, Lessee may
remove any trade fixtures installed by it in the Premises. Lessee shall promptly
and at its sole cost and expense repair any damage to the Premises incurred in
removing such trade fixtures.
<PAGE>
10. Indemnity. Lessee shall indemnify and hold Lessor and the Premises
free and harmless from any and all liabilities, claims, loss, damages, or
expenses resulting from Lessee's occupation and use of the property,
specifically including, without limitation, any liability, claim, loss, damage,
or expense arising by reason of: (1) the death or injury of any person,
including Lessee, or any person who is an employee, agent or invitee of Lessee,
or by reason of the damage to or destruction of any property, including property
owned by Lessee, or by any person who is an employee, agent or invitee of
Lessee, from any cause whatsoever while such person or property is in or on the
Premises or in any way connected with the Premises or with any of the
improvements or personal property on the Premises; and (2) any work performed on
the Premises or materials furnished to the Premises at the request of Lessee or
any person or entity acting for or on behalf of Lessee.
11. Assignment and Sub-Leasing. Lessee will not, without first obtaining
the written consent of Lessor, sell, assign, mortgage or transfer this Lease, in
whole or in part, or sublet all or any part of the Premises.
12. Destruction of Premises. Should the Premises be destroyed by fire,
lightning, tornado, or the like, or be so damaged as to render the Premises
unfit for Lessee's use and occupancy, then this Lease shall terminate on the
date of such destruction or damage. Lessor shall be entitled to receive all
insurance proceeds related to the destruction or damage of the Premises, and
Lessor is not under any obligation to restore the Premises to its original
condition.
13. Condemnation. If the whole or substantially the whole of the Premises
shall be lawfully condemned or taken in any manner for any public or quasi
public use or purpose, this Lease and the term and estate hereby granted shall
forthwith cease and terminate as of the date of taking. Lessor shall be entitled
to receive the entire award in any condemnation proceeding, including any award
for the value of any unexpired term of this Lease, and Lessee shall have no
claim against the proceeds of condemnation. Lessee shall have the right to
maintain any action allowable by law for damage to its Premises or personal
property.
14. Remedies on Default. Upon the occurrence of any default under this
Agreement, the Lessor shall have the right, at its option, to elect any one or
more of the following remedies:
(1) Lessor may, at its option, re-enter and take possession of the
Premises and improvements without terminating this Lease, and sub-lease
the Premises in their entirety for the account of Lessee, holding Lessee
liable for the difference in the rents and other amounts actually paid by
such sub-lessee in sub-letting and the rents and other amounts payable by
Lessee hereunder;
(2) The Lessor may terminate the Lease Term, exclude Lessee from
possession of the Premises and improvements, and use Lessor's best efforts
to lease the same to another for the account of Lessor, holding Lessee
liable for all rent and other amounts payable by Lessee hereunder;
(3) The Lessor may take whatever action at law or in equity may
appear necessary or desirable to collect the rent and other amounts then
due and thereafter to become due, and to enforce performance and
observance of any obligation, agreement or covenant of Lessee under this
Agreement, and in connection with such actions, to recover any and all
damages to Lessor for Lessee's violation or breach of the Lease.
15. Termination. Lessee may terminate this Lease Agreement with respect to
one (1) or more floors of the Premises by giving Lessor written notice thirty
(30) days prior to the intended termination date, which shall be the last day of
the applicable month, and by vacating by the termination date that portion of
the Premises for which the Lease is to be terminated. Lessee shall leave the
vacated portion of the Premises "broom clean". If the Lessee has not vacated the
Premises by the termination date, then this Lease shall continue in full force
and effect for an additional month until Lessee has vacated the Premises.
16. Entire Agreement. This Lease sets forth the entire understanding and
agreement of Lessor and Lessee with respect to the Premises. No modifications of
or amendments to this Lease shall be binding upon Lessee and/or Lessor unless in
writing and signed by both parties hereto. This Agreement shall be binding upon
the parties and any permitted successors and assigns.
IN WITNESS WHEREOF, the Lessor and Lessee have caused this Lease to be
executed as of the date and year first above written.
LESSOR:
BANKFIRST
By: /s/ Fred R. Lawson
-----------------------------------
Fred R. Lawson, President
LESSEE:
CLAYTON HOMES, INC.
By: /s/ John Kalee
-----------------------------------
Its: Vice President
2
<PAGE>
STATE OF TENNESSEE )
COUNTY OF KNOX )
Personally appeared before me, a Notary Public in and for said State and
County, Fred R. Lawson, with whom I am personally acquainted (or proved to me on
the basis of satisfactory evidence), and who, upon oath, acknowledged himself to
be President of BankFirst, and that he, as such officer of said corporation,
being authorized so to do, signed, sealed and delivered the foregoing instrument
in my presence for the purposes therein contained as his free act and deed, by
signing the name of the corporation by himself as such officer.
Witness my hand and seal at office, this 19th day of August, 1997.
/S/ Leslie J. Ruhn
------------------------------------
Notary Public
My commission expires: 6-20-01
STATE OF TENNESSEE )
COUNTY OF KNOX )
Personally appeared before me, a Notary Public in and for said State and
County, John Kalee, with whom I am personally acquainted (or proved to me on the
basis of satisfactory evidence), and who, upon oath, acknowledged himself to be
Vice President of Clayton Homes, Inc., and that she/he, as such officer of said
corporation, being authorized so to do, signed, sealed and delivered the
foregoing instrument in my presence for the purposes therein contained as
her/his free act and deed, by signing the name of the corporation by himself as
such officer.
Witness my hand and seal at office, this 19th day of August, 1997.
/s/ Ernest H. Robert, Sr.
------------------------------------
Notary Public
My commission expires: 4/2/01
3
EXHIBIT 10.10
March 19, 1998
Smoky Mountain Bancorp, Inc.
625 Market Street
Knoxville, Tennessee 37902
Gentlemen:
This letter is delivered to Smoky Mountain Bancorp, Inc. ("Smoky
Mountain") in compliance with Section 2.7(a) of the Agreement and Plan of Merger
(the "Agreement") dated March 19, 1998, between Smoky Mountain and First
Franklin Bancshares, Inc. ("First Franklin").
(1) I agree that I will vote all shares of First Franklin common stock I
own, directly or indirectly, in favor of the merger (the "Merger") of First
Franklin with and into Smoky Mountain as contemplated by the Agreement and,
subject to restrictions under applicable securities laws, I will recommend to
other shareholders of First Franklin that they vote their shares in favor of the
Merger.
(2) I agree that after the effective time of the Merger, I will not sell
or otherwise reduce my risk (within the meaning of the Securities and Exchange
Commission's Financial Reporting Release No. 1, "Codification of Financial
Reporting Policies" Section 201.01 [47 CFR 21028] (April 15, 1982)) with respect
to any shares of Smoky Mountain stock received by me in the Merger until after
such time as consolidated financial statements which reflect at least thirty
(30) days of post-merger combined operations of Smoky Mountain and First
Franklin have been published by Smoky Mountain, except as permitted by Staff
Accounting Bulletin No. 76 issued by the SEC.
(3) I represent and warrant to Smoky Mountain that the shares of common
stock of Smoky Mountain that I shall receive in exchange for my shares of common
stock of First Franklin are not being acquired by me with a view to their
distribution except to the extent and in the manner provided for in paragraph
(d) of Rule 145 under the Securities Act of 1933, as amended (the "Act").
(4) I agree with Smoky Mountain not to dispose of any such shares of
common stock of Smoky Mountain in any manner that would violate the Act or any
applicable rule or regulation promulgated thereunder or any state securities
law, and unless and until Smoky Mountain shall have received an opinion of
counsel satisfactory to Smoky Mountain, to the effect that a proposed
disposition of such shares may be effected without any such violation.
(5) I further agree with Smoky Mountain that the certificate or
certificates representing such shares of common stock of Smoky Mountain may bear
a legend referring to the restrictions on disposition thereof in accordance with
the provisions of the foregoing paragraphs and that stop-transfer instructions
may be filed with respect to such shares with the transfer agent for such
shares.
(6) The agreements made by me in the foregoing paragraphs are on the
understanding and condition that Smoky Mountain agrees (a) in the event that any
shares may be disposed of in accordance with the provisions of paragraph 3 above
to deliver in exchange for the certificate or certificates representing such
shares a new certificate or certificates representing such shares not bearing
the legend and not subject to the stop-transfer instructions referred to in
paragraph 5 above, and (b) as long as I hold shares of stock subject to the
provisions of the
<PAGE>
foregoing paragraphs (but for a period not in excess of one year from the date
of consummation of the Merger under the Agreement) to file with the SEC or
otherwise make publicly available all information about Smoky Mountain, to the
extent available to Smoky Mountain without unreasonable effort or expense,
necessary to enable me to resell shares under the provisions of paragraph (d) of
Rule 145 under the Act.
If the foregoing is your understanding of our agreement and satisfies the
conditions of Section 2.7(a) of the Agreement, please sign and return to me a
copy of this letter.
Very truly yours,
/s/ C. Scott Mayfield, Jr.
/s/ R. Hal Buttrram
/s/ Jerry Richardson
/s/ Charles W. Bivens
/s/ W.D. Sullins, Jr.
/s/ William P. Biddle, III
/s/ Michael L. Bivens
/s/ Joel C. Riley
/s/ William R Rodgers
/s/ John W. Perdue
/s/ L.A.Walker, Jr.
/s/ Robert B. Mayfiled
ACCEPTED AND AGREED TO:
This 19th day of March, 1998
SMOKY MOUNTAIN BANCORP, INC.
By: /s/ Fred R. Lawson
---------------------------------
Title: President
EXHIBIT 16
Securities and Exchange Commission
450 5th Street, N.W.
Washington, D.C. 20549
Commissioners:
We have read the statements made by BankFirst Corporation (formerly known as
Smoky Mountain Bancorp. Inc. (copy attached), which we understand will be filed
with the Commission, as an exhibit to the Registration Statement on Form S-4
dated May 7, 1998. We agree with the statements concerning our Firm in such
Registration Statement.
Very truly yours,
/s/ Coopers & Lybrand L.L.P.
---------------------------
Coopers & Lybrand L.L.P.
EXHIBIT 21
List of Subsidiaries
BankFirst Corporation (Tennessee)
BankFirst (Tennessee Banking Corporation)
Curtis Mortgage Company, Inc. (Tennessee)
Eastern Life Insurance Company (Tennessee)
EXHIBIT 23.3
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
We hereby consent to the inclusion in the Registration Statement on Form S-4 of
BankFirst Corporation, of our report dated February 6, 1998 on the 1997
consolidated financial statements of BankFirst Corporation (formerly Smoky
Mountain Bancorp, Inc.). We also consent to the reference to us under the
heading "Experts" in the prospectus.
/s/ Crowe, Chizek and Company LLP
-------------------------------
Crowe, Chizek and Company LLP
Louisville, Kentucky
May 7, 1998
EXHIBIT 23.4
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the inclusion in this registration statement on Form S-4 dated May
7, 1998 of our report, which includes an explanatory paragraph referring to the
restatement of the financial statements as of and for the year ended December
31, 1995 for the 1996 combination accounted for in a manner similar to a pooling
of interest and referring to the work of other auditors on the separate
consolidated financial statements of Smoky Mountain Bancorp, Inc., dated
February 6, 1997, on our audit(s) of the financial statements and the financial
statements schedules of BankFirst Corporation (formerly known as Smoky Mountain
Bancorp, Inc.). We also consent to the reference to our firm under the caption
"Experts."
/s/ Coopers & Lybrand L.L.P.
Knoxville, Tennessee
May 7, 1998
EXHIBIT 23.5
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
We hereby consent to the inclusion in the Registration Statement on Form S-4 of
BankFirst Corporation, of our report dated January 22, 1998 on the 1997, 1996
and 1995 consolidated financial statements of First Franklin Bancshares, Inc. We
also consent to the reference to us under the heading "Experts" in the
prospectus.
/s/ G.R. Rush & Company, P.C.
-----------------------------
G.R. Rush & Company, P.C.
Chattanooga, Tennessee
May 7, 1998
Exhibit 23.6
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
We hereby consent to the inclusion in the Registration Statement on Form S-4 of
BankFirst Corporation, of our report dated January 24, 1996, on the 1995
financial statements of BankFirst Corporation (formerly Smoky Mountain Bankcorp,
Inc.), prior to the restatement for the 1996 combination with BankFirst
accounted for in a manner similar to a pooling of interest. We also consent to
the reference to us under the heading "Experts" in the prospectus.
/s/ Hazlett, Lewis & Bieter
- ---------------------------
Chattanooga, Tennessee
May 5, 1998
EXHIBIT 23.7
CONSENT OF PROFESSIONAL BANK SERVICES, INC.
In connection with the proposed merger of First Franklin Bancshares, Inc.,
Athens, Tennessee with Smokey Mountain Bancorp, Inc., Knoxville, Tennessee, the
undersigned, acting as an independent financial analyst to the common
shareholders of First Franklin Bancshares, Inc., hereby consents to the
reference to our firm in the Joint Proxy Statement Prospectus and to the
inclusion of our fairness opinion as an Appendix to the Joint Proxy Statement
Prospectus.
/s/ PROFESSIONAL BANK SERVICES, INC.
--------------------------------------
April 22, 1998 PROFESSIONAL BANK SERVICES, INC.
<TABLE> <S> <C>
<ARTICLE> 9
<CIK> 824719
<NAME> BankFirst Corporation
<MULTIPLIER> 1000
<S> <C> <C>
<PERIOD-TYPE> 12-mos 3-mos
<FISCAL-YEAR-END> DEC-31-1997 MAR-31-1998
<PERIOD-START> JAN-01-1997 JAN-01-1998
<PERIOD-END> DEC-31-1997 MAR-31-1998
<CASH> 17,363 23,711
<INT-BEARING-DEPOSITS> 0 0
<FED-FUNDS-SOLD> 7,000 0
<TRADING-ASSETS> 0 0
<INVESTMENTS-HELD-FOR-SALE> 71,912 75,206
<INVESTMENTS-CARRYING> 0 0
<INVESTMENTS-MARKET> 0 0
<LOANS> 350,566 366,206
<ALLOWANCE> 5,002 5,177
<TOTAL-ASSETS> 468,750 516,827
<DEPOSITS> 395,152 410,125
<SHORT-TERM> 16,511 48,675
<LIABILITIES-OTHER> 8,208 8,025
<LONG-TERM> 10,000 10,000
0 0
1,093 1,079
<COMMON> 3,099 3,105
<OTHER-SE> 34,687 35,818
<TOTAL-LIABILITIES-AND-EQUITY> 468,750 516,827
<INTEREST-LOAN> 32,769 9,088
<INTEREST-INVEST> 4,635 1,146
<INTEREST-OTHER> 221 46
<INTEREST-TOTAL> 37,625 10,280
<INTEREST-DEPOSIT> 15,044 3,774
<INTEREST-EXPENSE> 16,474 4,402
<INTEREST-INCOME-NET> 21,151 5,878
<LOAN-LOSSES> 2,250 225
<SECURITIES-GAINS> 175 0
<EXPENSE-OTHER> 15,784 5,148
<INCOME-PRETAX> 6,537 1,978
<INCOME-PRE-EXTRAORDINARY> 6,537 1,978
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> 4,066 1,232
<EPS-PRIMARY> 3.12 .94
<EPS-DILUTED> 2.80 .84
<YIELD-ACTUAL> 9.14 9.55
<LOANS-NON> 642 592
<LOANS-PAST> 1,533 1,861
<LOANS-TROUBLED> 0 0
<LOANS-PROBLEM> 113 71
<ALLOWANCE-OPEN> 3,570 5,002
<CHARGE-OFFS> 878 62
<RECOVERIES> 60 11
<ALLOWANCE-CLOSE> 5,002 5,177
<ALLOWANCE-DOMESTIC> 4,096 4,135
<ALLOWANCE-FOREIGN> 0 0
<ALLOWANCE-UNALLOCATED> 906 1,042
</TABLE>
EXHIBIT 99.1
REVOCABLE PROXY
(SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS OF BANKFIRST CORPORATION)
The undersigned hereby appoints Fred R. Lawson and Charles Earl Ogle, Jr.
with full powers of substitution, as attorneys and proxies for the undersigned,
to vote all shares of Common Stock of BankFirst Corporation ("BFC") standing in
my name on the books and records of BFC on the 15th day of May, 1998, which the
undersigned is entitled to cast at the Special Meeting of Stockholders to be
held on the fifteenth floor of the main office of BankFirst at 625 Market
Street, Knoxville, Tennessee 37902 on June 26, 1998, at 10:00 a.m., Eastern
Daylight Savings Time, and at any and all adjournments as follows:
FOR AGAINST ABSTAIN
------- --------- ---------
1. Approval of the Agreement and Plan
of Merger dated as of March ___,
1998 (the "Merger Agreement")
among which provides for, among
other things, the merger of First
Federal Bancshares, Inc. ("the
Merger") with and into BFC, with
BFC to be the surviving
corporation in the Merger. The
Board of Directors recommends a
vote FOR the Merger Agreement.
------- --------- ---------
2. Election of three (3) additional
Directors. The Board of Directors
recommends a vote FOR the election
of the nominees.
|_| For all nominees listed below:
L.A. Walker, Jr.
W.D. Sullins, Jr.
C. Scott Mayfield, Jr.
|_| Withhold Authority to vote for all nominees.
Instruction: To withhold authority to vote for any
individual nominee, write such nominee's
name in the space provided below.
- -----------------------------------------------------
- -----------------------------------------------------
3. Approval of an amendment to the
BFC Charter Authorizing a four for
one on stock split of BFC Common.
------- --------- ---------
4. At their discretion, on such other
business as may property come
before the Special Meeting or any
adjournments or postponements
thereof.
------- --------- ---------
NOTE: The Board of Directors is not
aware of any other matter that may come
before the meeting.
------- --------- ---------
THIS PROXY WILL BE VOTED "FOR" EACH OF THE PROPOSITIONS STATED IF NO CHOICE IS
MADE HEREON.
<PAGE>
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 BFC at
the Special Meeting of the stockholder'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 26th day of June, 1998, and a Joint Proxy Statement/Prospectus dated
June ____, 1998, prior to the execution of this Proxy.
-----------------------------------------
Date
-----------------------------------------
Signature of Stockholder
-----------------------------------------
Signature of Stockholder
(Please sign exactly as your printed name
appears hereon. When signing as attorney,
executor, administrator, trustee or
guardian, please give your full title. If
shares are held jointly, each holder
should sign.)
EXHIBIT 99.2
REVOCABLE PROXY
(SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
OF FIRST FRANKLIN BANCSHARES, INC.)
The undersigned hereby appoints L. A. Walker, Jr. and John Perdue with
full powers of substitution, as attorneys and proxies for the undersigned, to
vote all shares of Common Stock of First Franklin Bancshares, Inc. ("FFBS"),
standing in my name on the books and records of FFBS on the 15th day of May,
1998, which the undersigned is entitled to cast at the Special Meeting of
Stockholders to be held at the main office of The First National Bank and Trust
Company at 204 Washington Avenue, Athens, Tennessee 37371 on June 26, 1998, at
10:00 a.m., Eastern Daylight Savings Time, and at any and all adjournments as
follows:
FOR AGAINST ABSTAIN
------- --------- ---------
1. Approval of the Agreement and Plan of
Merger dated as of March 19, 1998 (the
"Merger Agreement") among which provides
for, among other things, the merger of
FFBS ("the Merger") with and into
BankFirst Corporation, with BankFirst
Corporation to be the surviving
corporation in the Merger. The Board of
Directors recommends a vote FOR the
Merger Agreement.
------- --------- ---------
2. At their discretion, on such other
business as may property come before the
Special Meeting or any adjournments or
postponements thereof.
------- --------- ---------
NOTE: The Board of Directors is not
aware of any other matter that may come
before the meeting.
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 FFBS
at the Special Meeting of the stockholder'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 26th day of June, 1998, and a Joint Proxy Statement/Prospectus dated
June _____, 1998, prior to the execution of this Proxy.
------------------------------------------
Date
------------------------------------------
Signature of Stockholder
------------------------------------------
Signature of Stockholder
(Please sign exactly as your printed name
appears hereon. When signing as attorney,
executor, administrator, trustee or
guardian, please give your full title. If
shares are held jointly, each holder
should sign.)
EXHIBIT 99.3
March 1998
Professional BankServices
FAIRNESS OPINION
First Franklin Bancshares, Inc.
Athens, Tennessee
<PAGE>
================================================================================
FAIRNESS OPINION
================================================================================
FIRST FRANKLIN BANCSHARES, INC.
ATHENS, TENNESSEE
March 1998
<PAGE>
FAIRNESS OPINION
FIRST FRANKLIN BANCSHARES, INC.
TABLE OF CONTENTS
================================================================================
Page
1 OPINION LETTER ........................................................ 1
2 ECONOMIC OUTLOOK
Demographic and Economic Analysis ..................................... 3
3 COMPETITIVE MARKET OVERVIEW ........................................... 6
4 FINANCIAL REVIEW ...................................................... 9
5 METHODOLOGY ........................................................... 18
Transaction Value Method .............................................. 20
Market Comparison Method .............................................. 21
Asset Value Method .................................................... 24
Earnings Method ....................................................... 26
Acquisition Analysis Method ........................................... 29
Conclusion ............................................................ 30
6 PRO FORMA OFFER ANALYSIS .............................................. 31
Pro Forma Results ..................................................... 32
$15 Million Pro Forma Offering ........................................ 38
Stock Pricing History ................................................. 42
7 SMB DUE DILIGENCE REVIEW .............................................. 46
8 FIRM QUALIFICATIONS
Professional Bank Services, Inc ....................................... 53
Resumes ............................................................... 54
Code of Conduct ....................................................... 58
9 EXHIBITS
1 - Short and Long-term Earnings Valuation Status Quo ................ 59
2 - Options Comparison ............................................... 60
<PAGE>
Opinion Letter
<PAGE>
[LETTERHEAD OF PROFESSIONAL BANK SERVICES]
March 17, 1998
Board of Directors
First Franklin Bancshares, Inc.
204 Washington Avenue
Athens, Tennessee 37303
Dear Members of the Board:
You have requested our opinion as investment bankers as to the fairness, from a
financial perspective, to the common shareholders of First Franklin Bancshares,
Inc., Athens, Tennessee (the "Company") of the proposed merger of the Company
with Smoky Mountain Bancorp, Inc., Knoxville, Tennessee ("SMB"). In the
proposed merger, Company common shareholders will receive, 4.410 SMB common
shares per Company common share or an aggregate of 723,791 SMB common shares
for all 164,125 Company common shares outstanding, as further defined in the
Agreement and Plan of Merger between SMB and the Company (the "Agreement"). The
most recent trading activity in SMB common shares took place on February 27,
1998, when 1,785 shares traded at $50.00 per share. Under the terms of the
Agreement, upon completion of the proposed merger, SMB will seek to commence a
secondary offering of shares in the public market at $60.00 per common share
and begin trading on the National Association of Securities Dealers Automated
Quotations system (NASDAQ). At the pro forma offering price of $60.00 per SMB
common share, the consideration to be received by Company common shareholders
represents an aggregate value of $43,427,460 or $264.60 per Company common
share.
Professional Bank Services, Inc. ("PBS") is a bank consulting firm and as part
of its investment banking business is continually engaged in reviewing the
fairness, from a financial perspective, of bank acquisition transactions and in
the valuation of banks and other businesses and their securities in connection
with mergers, acquisitions, estate settlements and other purposes. We are
independent with respect to the parties of the proposed transaction.
For purposes of this opinion, PBS performed a review and analysis of the
historic performance of the Company and its wholly owned subsidiaries First
National Bank and Trust Company, Athens, Tennessee (the "Bank") contained in:
(i) December 31, 1997 and June 30, 1997 FR Y-9C Consolidated Financial
Statements filed by the Company with the Federal Reserve; (ii) December 31,
1997 consolidated audited financial statements and annual report
-1-
<PAGE>
Board of Directors
First Franklin Bancshares, Inc.
March 17, 1998
Page 2
of the Company; and (iii) September 30, 1997 Uniform Bank Performance Reports
of the Company. We have reviewed and tabulated statistical data regarding the
loan portfolio, securities portfolio and other performance ratios and
statistics. Financial projections were prepared and analyzed as well as other
financial studies, analyses and investigations as deemed relevant for the
purposes of this opinion. In review of the aforementioned information, we have
taken into account our assessment of general market and financial conditions,
our experience in other transactions, and our knowledge of the banking industry
generally.
As part of preparing this Fairness Opinion, PBS performed a due diligence
review of SMB the week of March 9, 1998. As part of the due diligence, PBS
reviewed the following items: minutes of the Board of Directors meetings of
the subsidiary bank, BankFirst, from January 1997 through January 1998; reports
of independent auditors and management letters and response thereto, for the
years ending December 31, 1996 and 1997; the most recent analysis and
calculation of allowance for loan and lease losses for the subsidiary bank;
internal loan review reports; investment portfolio activity reports;
asset/liability management reports; asset quality reports; Uniform Holding
Company Report for SMB as of December 31, 1996 and September 30, 1997; December
31, 1997 report of Condition and Income and September 30, 1997 Uniform Bank
Performance Report for the subsidiary bank; discussion of pending litigation
and other issues with senior management of SMB.
We have not compiled, reviewed or audited the financial statements of the
Company or SMB, nor have we independently verified any of the information
reviewed; we have relied upon such information as being complete and accurate
in all material respects. We have not made independent evaluation of the assets
of the Company or SMB.
Based on the foregoing and all other factors deemed relevant, it is our opinion
as investment bankers, that, as of the date hereof, the merger consideration
proposed to be received the holders of all classes of stock of the Company
under the Agreement is fair and equitable from a financial perspective.
Very truly yours,
/s/ Professional Bank Services, Inc.
-----------------------------------
Professional Bank Services, Inc.
-2-
<PAGE>
Economic Outlook
<PAGE>
DEMOGRAPHIC AND ECONOMIC ANALYSIS
- --------------------------------------------------------------------------------
First Franklin Bancshares, Inc., Athens, Tennessee (the "Company") through its
wholly owned subsidiary First National Bank and Trust Company, Athens,
Tennessee (the "Bank") operates its main office and one branch office in
Athens, Tennessee and one branch office in the cities of Etowah, Englewood,
Calhoun and Riceville all located in McMinn County, Tennessee. Inherent in the
analysis of the shares of stock in a company is a review of the demographics
and economics of the area in which the institution operates. The Company's
primary market area is McMinn County, Tennessee.
The table below lists the population of McMinn County, the state of Tennessee
and the United States.
- --------------------------------------------------------------------------------
1990 1997 % Change
- --------------------------------------------------------------------------------
McMinn County 42,383 46,292 922%
Tennessee 4,877,185 5,394,298 10.60
United States 248,709,873 267,805,150 7.68
- --------------------------------------------------------------------------------
The projected 2002 population for McMinn County is 48,986, which represents a
15.58% increase from the 1990 population. The projected 2002 population for
Tennessee and the United States is 5,750,901 and 281,208,787, respectively
which represents a 17.91% increase and a 13.07% increase from the 1990
population, respectively.
1997 Age Distribution
(percent)
- --------------------------------------------------------------------------------
0-4 5-9 10-14 15-19 20-24 25-44 45-64 65-84 85+
- --------------------------------------------------------------------------------
McMinn County 6.2 6.2 6.5 6.9 6.0 29.7 23.6 13.3 1.6
Tennessee 6.7 6.9 6.8 7.0 6.4 31.3 21.7 11.7 1.4
United States 7.2 7.4 7.1 7.1 6.5 31.4 20.5 11.3 1.4
- --------------------------------------------------------------------------------
The 1997 median age in McMinn County is 37.4. The 1997 median age in Tennessee
and the United States is 35.6 and 34.8, respectively.
-3-
<PAGE>
Household income for the Company's primary market area, the state of Tennessee
and the United States is presented below. This statistic is a gauge of an
area's economic welfare and measures the amount of income generated per
household.
Median Household Income
- --------------------------------------------------------------------------------
Projected
1997 2002 Change $ Change
- --------------------------------------------------------------------------------
McMinn County 26,826 $28,177 $ 1,351 5.04%
Tennessee 32,965 35,364 2,399 7.28
United States 36,961 42,042 5,081 13.75
- --------------------------------------------------------------------------------
In 1997, the median household income level for McMinn County is 18.6% below
that of the state of Tennessee. A detailed analysis of key economic indicators
is presented on the following page.
The total percentage change in population of McMinn County, from 1990 to 1997,
ranks the County 54th of the 95 counties in Tennessee. The median household
income of $26,826 ranks 60th in the State.
-4-
<PAGE>
Key Economic Indicators
McMinn County, State of Tennessee
and the United States
- --------------------------------------------------------------------------------
McMinn State of United
Key Economic Indicator County Tennessee States
- --------------------------------------------------------------------------------
Total Population, 1997 46,292 4,877,185 248,709,873
Total Population, 1990 42,383 5,394,298 267,805,150
- --------------------------------------------------------------------------------
Household Income Distribution; 1997(%)
$0 - 14,999 28.0% 20.4% 17.7%
$15,000-24,999 18.1% 16.2% 14.4%
$25,000-49,999 33.4% 34.4% 33.5%
$50,000-99,999 17.7% 22.9% 26.5%
$100,000-149,999 2.3% 4.2% 5.4%
$150,000+ 0.5% 1.9% 2.6%
- --------------------------------------------------------------------------------
Median Household Income; 1997 $26,826 $32,965 $36,961
- --------------------------------------------------------------------------------
Employed by Industry (%) - 1990
Executive 7.1% 10.5% 12.3%
Professional 8.5% 12.1% 14.1%
Technical 3.0% 3.4% 3.7%
Sales 9.5% 11.9% 11.8%
Administrative Support 11.2% 14.8% 16.3%
Service 9.7% 12.4% 13.2%
Farming/Forestry 3.4% 2.2% 2.5%
Craft/Repair 16.1% 12.2% 11.3%
Operator/Inspector 20.1% 11.0% 6.8%
Transport 5.9% 4.7% 4.1%
Laborer 5.6% 4.8% 3.9%
- --------------------------------------------------------------------------------
1997 Median Age of Population 37.4 35.6 34.8
- --------------------------------------------------------------------------------
Average Disposable Income
By Age of Householder
0 - 35 years of age $24,684 $29,779 $30,999
35 - 44 33,537 41,005 40,281
45 - 54 37,880 44,301 45,940
55 - 64 30,641 37,675 39,611
65+ 15,394 21,098 22,603
- --------------------------------------------------------------------------------
Average Home Value (1990) $52,282 $70,769 $111,667
- --------------------------------------------------------------------------------
Total Households, 1997 18,085 2,062,154 104,000,643
Total Households, 1990 16,351 1,853,725 99,019,931
- --------------------------------------------------------------------------------
-5-
<PAGE>
Competitive Market Overview
<PAGE>
COMPETITIVE MARKET OVERVIEW
- --------------------------------------------------------------------------------
First Franklin Bancshares, Inc., Athens, Tennessee (the "Company") through its
wholly owned subsidiary First National Bank and Trust Company, Athens,
Tennessee (the "Bank") operates its main office and one branch office in Athens
Tennessee and branch offices in Etowah, Englewood, Calhoun and Riceville all
located in McMinn County, Tennessee.
As of June 30, 1997 the deposit base of McMinn County, Tennessee totals $574.3
million and has experienced a two year compound growth rate of 6.83%. The
Company maintains six office locations in McMinn County with a total deposit
base of $156.0 million at June 30, 1997 and represents a 27.17% market share
position. Since 1995 the institution has experienced a two year compound growth
rate of 4.65%. This market is served by seven commercial banks one thrift and
four credit unions with a total of twenty five retail office locations. The
Bank maintains the greatest marketshare out of the twelve institutions in this
market.
Analysis indicates there is no overlap in the Federally defined banking markets
served by the Company and SMB. Therefore, there are no anti-trust issues
associated with this transaction.
-6-
<PAGE>
MCMINN COUNTY, TENNESSEE DEPOSIT MARKET SHARE
Pending Ownership, Including Bank, Credit Union, Savings Bank
and Thrift Branches
<TABLE>
<CAPTION>
Branch Total Total Total
Branch Two Yr. Deposits Deposits Deposits Deposits
Holding ------------------------------------ Comp. 6/97 as 6/97 6/96 6/95
Company Name Institution City Address Type Growth % of List ($000s) (($000s) ($000s)
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
FIRST FRANKLIN
BKSHRS INC FIRST NATIONAL BK & TR ATHENS 204 WASHINGTON AVE Bank 5.24% 15.58 89,453 84,221 80,770
FIRST FRANKLIN
BKSHRS INC FIRST NATIONAL BK & TR ETOWAH 531 TENNESSEE AVE Bank (2.92)% 4.86 27,896 30,338 9,601
FIRST FRANKLIN
BKSHRS INC FIRST NATIONAL BK & TR ATHENS 1604 DECATUR PIKE Bank 19.63% 3.04 17,476 14,436 12,211
FIRST FRANKLIN
BKSHRS INC FIRST NATIONAL BK & TR ENGLEWOOD MAIN ST Bank 0.89% 1.37 7,876 7,950 7,737
FIRST FRANKLIN
BKSHRS INC FIRST NATIONAL BK & TR CALHOUN HWY 11 Bank (8.62)% 0.70 3,997 4,929 4,787
FIRST FRANKLIN
BKSHRS INC FIRST NATIONAL BK & TR RICEVILLE HWY 11 Bank 12.50% 1.62 9,295 8,355 7.344
----- ------- ------- -------
4.65% 27.17 155,993 150,229 142,450
CITIZENS NATIONAL
BANCORP CITIZENS NATL BK OF ATHENS ATHENS 208 S WHITE ST Bank 4.86% 16.59 95,265 92,532 86,635
CITIZENS NATIONAL
BANCORP CITIZENS NATL BK OF ATHENS ATHENS 1866 DECATUR PIKE Bank 13.82% 0.30 1,732 1,672 1,337
CITIZENS NATIONAL
BANCORP CITIZENS NATL BK OF ATHENS ATHENS 1612 S CONGRESS PKWY Bank 48.78% 3.32 19,053 11,281 8,607
CITIZENS NATIONAL
BANCORP CITIZENS NATL BK OF ATHENS ETOWAH 841 HWY 411 N Bank 8.11% 0.60 3,464 4,242 2,964
----- ------- ------- -------
9.57% 20.81 119,514 109,727 99,543
ATHENS FS & LA ATHENS FS & LA ATHENS 106 WASHINGTON AVE Thrift 1.37% 12.33 70,798 67,850 68,903
ATHENS FS & LA ATHENS FS & LA ETOWAH 623 TENNESSEE AVE Thrift 5.61% 5.19 29,835 27,248 26,748
ATHENS FS & LA ATHENS FS & LA ATHENS 1103 DECATUR PIKE Thrift (1.02)% 2.17 12,440 12,367 12,697
----- ------- ------- -------
2.16% 19.69 113,073 107,465 108,348
BOWATERS EMPLOYEES BOWATERS EMPLOYEES CALHOUN 454 HWY 163 Credit 4.21% 10.B0 62,040 59,722 57,130
PIONEER BANCSHARES
INC VALLEY BANK ATHENS 103 WASHINGTON AVE Bank (0.88)% 4.12 23,644 21,385 24,067
PIONEER BANCSHARES
INC VALLEY BANK ATHENS 810 S CONGRESS PKY Bank 50.65% 1.70 9,782 6,965 4,310
PIONEER BANCSHARES
INC VALLEY BANK ENGLEWOOD HWY 39 8 CHURCH ST Bank 2.03% 1.52 8,715 8.491 8,372
---- ------ ------ ------
7.09% 7.34 42,141 36,841 36,749
GREENE COUNTY
BCSHRS PREMIER BANK OF EAST TN NIOTA 204 E MAIN ST Bank 23.87% 5.54 31,841 24,550 20,751
COMMUNITY GROUP
INC MCMINN BANK 8 TRUST ETOWAH 720 TENN. AVE Bank 3.43% 4.07 23,375 21,397 21,852
FIRST CITIZENS
BANCORP BANK/FIRST CITIZENS BANK ATHENS 2 N WHlTE ST Bank 3.00% 1.35 7,730 8,210 7,286
FIRST CITIZENS
BANCORP BANK/FIRST CITIZENS BANK ATHENS DECATUR PIKE & DUPIT Bank 7.75% 1.34 7,724 6,533 6,653
---- ------ ------ ------
5.29% 2.69 15,454 14,743 13,939
MEIGS COUNTY
BANCSHARES MEIGS COUNTY BANK ATHENS 1117 CONGRESS PKY Bank NA 1.37 7,876 2,498 0
ELECTRICAL
PRODUCTS EMPL. ELECTRICAL PRODUCTS EMPL. ATHENS 260 DENNIS ST Credit 25.31% 0.21 1,228 1,031 782
</TABLE>
-7-
<PAGE>
MCMINN COUNTY, TENNESSEE DEPOSIT MARKET SHARE
Pending Ownership, Including Bank, Credit Union, Savings Bank
and Thrift Branches
<TABLE>
<CAPTION>
Branch Total Total TotaL
Branch Two Yr. Deposits Deposits Deposits Deposits
Holding ------------------------------------ Comp. 6/97 as 6/97 6/96 6/95
Company Name Institution City Address Type Growth % of List ($000s) ($000s) ($000s)
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
APCO EMPLOYEES APCO EMPLOYEES ATHENS 2000 TELLICOAVE Credit 5.74% 0.21 1,203 1,137 1,076
A.U.B. EMPLOYEES A.U.B.EMPLOYEES ATHENS 100 NEW ENG RD Credit (1.39)% 0.10 598 629 615
- ------------------------------------------------------------------------------------------------------------------------------------
Aggregate 6.83% 100.00 574,336 529,969 503,235
</TABLE>
SNL Branch Migration DataSource v1.8
-8-
<PAGE>
Financial Review
<PAGE>
FINANCIAL REVIEW
-------------------------------------------------------------------------------
The following analysis presents a synopsis of the financial highlights and
operating performance for First Franklin Bancshares, Inc., Athens, Tennessee
(the "Company"). The selected financial data and ratio analysis exhibit the
Company's fundamental balance sheet composition as of December 31, 1994, 1995,
1996 and September 30, 1997, as well as the earnings results for the years
ending December 31, 1994, 1995, 1996 and nine months ending September 30, 1997.
First Franklin Bancshares, Inc.
Athens, Tennessee
(In Thousands)
- --------------------------------------------------------------------------------
Dec. 31, Dec. 31, Dec. 31, Sept, 30,
Selected Financial Data 1994 1995 1996 1997
- --------------------------------------------------------------------------------
Total Assets $162,903 $170,929 $172,291 $177,517
Total Gross Loans 84,401 101,170 97,544 110,379
Allowance For Loan Loss 1,244 1,283 1,153 1,044
Total Deposits 145,357 150,432 149,988 151,587
Total Equity Capital 15,240 18,436 19,672 20,982
Net income $ 2,532 $ 2,354 $ 2,385 $ 1,760
Ratio Analysis:
Tier One Leverage Ratio 10.25% 10.68% 11.38% 11.65%
Return on Assets 1.63 1.43 1.41 1.35
Return on Equity 15.52 13.50 12.63 11.77
Total Net Loans/Total Assets 51.05 58.44 55.95 61.59
Total Net Loans/Total Deposits 57.21 66.40 64.27 72.13
ALLL/Total Loans 1.47 1.27 1.18 0.95
Net Interest Margin 5.24 4.95 4.75 4.84
Non Interest Income/Avg. Assets 1.17 1.06 1.08 0.99
Non Interest Expense/Avg. Assets 3.26 3.24 3.18 3.27
Non-Current Loans/Gross Loans 0.40 0.47 0.38 1.14
- --------------------------------------------------------------------------------
-9-
<PAGE>
FIRST FRANKLIN BANCSHARES, INC.
Growth
[The following table was represented by a line graph in the printed material.]
1994 1995 1996 9/30/97
---- ---- ---- -------
Assets $162,903 $170,929 $172,291 $177,517
Deposits $145,357 $150,432 $149,988 $151,587
Net Loans $ 83,157 $ 99,887 $ 96,391 $109,355
The Company has continued to experience moderate growth in total assets, and
deposits over the period examined, and loans have grown more significantly over
the period. Over this timeframe, assets have increased 8.97%, deposits 4.28%,
and loans have grown 31.50%. Of the $26.0 million of growth in loans, real
estate related credits grew $19.4 million, which was an increase of 39.94% over
the period reviewed. Commercial loans have increased $4.7 million, or 26.83%
over the period. Loans to individuals have increased $3.2 million, or 18.84%,
over the period. The loan growth has been funded by increases in deposits as
well as through liquidation of investment securities.
Capital
The Company's tier one leverage capital is considered strong and well in excess
of established minimum regulatory guidelines. As of September 31, 1997, the
Company's tier one capital equals $20.6 million and represents 11.65% of
adjusted assets. The following graph depicts the Company's' historical level of
capital in comparison to peer for the periods reviewed.
-10-
<PAGE>
FIRST FRANKLIN BANCSHARES, INC.
Tier One Leverage Capital
[The following table was represented by a line graph in the printed material.]
1994 1995 1996 9/30/97
---- ---- ---- -------
Company 10.25% 10.68% 11.38% 11.65%
Peer 8.71% 8.99% 9.25% 9.40%
The above graph indicates that the Company has maintained a significant level
of capital which has remained above peer. The increase in the tier one leverage
ratio is due primarily to earnings retention over the period.
Earnings
Over the period presented, the Company has continued to experience a decline in
return on assets and return on equity. Despite the Company's significant
increases in loans, net interest income to average earning assets has been
declining over the period reviewed. This trend has been partially offset by
above peer non-interest income and lower than peer non-interest expenses.
-11-
<PAGE>
FIRST FRANKLIN BANCSHARES, INC.
Return on Average Assets
[The following table was represented by a line graph in the printed material.]
1994 1995 1996 9/30/97
---- ---- ---- -------
Company 1.63% 1.43% 1.41% 1.35%
Peer 1.02% 1.14% 1.17% 1.24%
FIRST FRANKLIN BANCSHARES, INC.
Return on Average Equity
[The following table was represented by a line graph in the printed material.]
1994 1995 1996 9/30/97
---- ---- ---- -------
Company 15.52% 13.50% 12.63% 13.50%
Peer 11.98% 12.93% 12.92% 11.77%
Since 1995 return on equity has fallen below peer primarily due to the
Company's increasing over-capitalization and declining earnings trend.
-12-
<PAGE>
The Company's net interest margin has been declining more than peer over the
period reviewed. The yield on earning assets has remained above peer due to an
increasing volume of loans as a percentage of earning assets as compared to the
peer group, as well as substantially higher investment securities yields than
peer. The Company's cost of funds has been increasing and has remained above
peer over the period.
FIRST FRANKLIN BANCSHARES, INC.
Net Interest Margin
[The following table was represented by a line graph in the printed material.]
1994 1995 1996 9/30/97
---- ---- ---- -------
Company 5.24% 4.95% 4.77% 4.84%
Peer 4.75% 4.79% 4.75% 4.73%
The following charts present the Company's other income and expense components.
FIRST FRANKLIN BANCSHARES, INC.
Non-Interest Income
[The following table was represented by a line graph in the printed material.]
1994 1995 1996 9/30/97
---- ---- ---- -------
Company 1.17% 1.06% 1.08% 0.99%
Peer 0.86% 0.84% 0.92% 0.87%
-13-
<PAGE>
The level of non-interest income while declining, has remained significantly
above peer throughout the period reviewed.
FIRST FRANKLIN BANCSHARES, INC.
Non-Interest Expense
[The following table was represented by a line graph in the printed material.]
1994 1995 1996 9/30/97
---- ---- ---- -------
Peer 3.44% 3.29% 3.28% 3.18%
Company 3.26% 3.24% 3.18% 3.27%
The Company has had a level of non-interest expense approximating peer.
Non-interest expense has remained well controlled over the period reviewed.
A review of the Company's total overhead expense components, as of September
30, 1997, is presented below. A review of these items reveals that the
Company's above peer operating cost is attributable to above peer personnel
expenses. Personnel expense has increased from 1.81% of average assets or
eleven basis points above peer in 1994, to 1.90% or 21 basis points above peer
over the first nine months of 1997.
Percentage of Average Assets
Company Peer
Personnel Expense 1.90% 1.69%
Occupancy Expense 0.48 0.48
Other Expense 0.89 1.01
---- ----
3.27% 3.18%
-14-
<PAGE>
Liquidity
A fundamental indication of the Company's liquidity position is provided by a
review of the Company's loan to asset and net non-core funding dependence
ratio. These ratios provide an indication of the Company's ability to account
for changes in the composition of the balance sheet, as well as provide funds
for future growth. The Company's net non-core funding dependence as of
September 30, 1997 equals 9.32% versus the peer growth of 7.13%.
FIRST FRANKLIN BANCSHARES, INC.
Loans to Assets
[The following table was represented by a line graph in the printed material.]
1994 1995 1996 9/30/97
---- ---- ---- -------
Company 51.05% 58.44% 55.95% 61.59%
Peer 56.17% 57.12% 59.10% 61.00%
The Company's loan to asset ratio has increased from 51.05% at December 31,
1994, to 61.59% at September 30, 1997. Over the same period, peer loans
increased from 56.17% to 61.00% of assets. The Company has continued to reduce
their investment securities portfolios to fund loan growth. Analysis indicates
the Company has sufficient liquidity to support future increases in the loan
portfolio.
Asset Quality
Overall asset quality appears satisfactory; however, the allowance for loan and
lease losses (ALLL) at 0.95% of total loans and leases may require additional
analysis given the Company's increasing levels of charge-offs and
non-performing loans. At September 30, 1997 non-current loans represent 1.14%
of the Company's total loan portfolio compared to 0.90o/O for peer.
-15-
<PAGE>
FIRST FRANKLIN BANCSHARES, INC.
Non-Current/Gross Loans
[The following table was represented by a line graph in the printed material.]
1994 1995 1996 9/30/97
---- ---- ---- -------
Company 0.40% 0.47% 0.38% 1.14%
Peer 1.05% 0.92% 0.90% 0.90%
Total delinquencies including non-accruals have been increasing over the first
nine months of 1997 and are now above peer levels.
FIRST FRANKLIN BANCSHARES, INC.
Total Delinquency-Including Non-Accruals
[The following table was represented by a line graph in the printed material.]
1994 1995 1996 9/30/97
---- ---- ---- -------
Company 1.82% 3.62% 3.53% 3.32%
Peer 2.38% 2.35% 2.44% 2.23%
A review of the Company's historic net loan loss demonstrates that while it is
not excessive, loan losses have continued to increase and are now above peer
levels.
-16-
<PAGE>
FIRST FRANKLIN BANCSHARES, INC.
Net Losses to Average Total Loans
[The following table was represented by a line graph in the printed material.]
1994 1995 1996 9/30/97
---- ---- ---- -------
Company 0.08% 0.15% 0.29% 0.35%
Peer 0.20% 0.21% 0.23% 0.21%
FIRST FRANKLIN BANCSHARES, INC.
ALLL to Total Loans
[The following table was represented by a line graph in the printed material.]
1994 1995 1996 9/30/97
---- ---- ---- -------
Company 1.47% 1.27% 1.18% 0.95%
Peer 1.65% 1.50% 1.41% 1.34%
-17-
<PAGE>
Methodology
<PAGE>
METHODOLOGY
-------------------------------------------------------------------------------
The concept of value requires utilization of valuation techniques normally
considered by analysts to determine fair value. This is consistent with the
methods utilized by certain courts and regulatory agencies. Transaction Value
Method of valuing a share of common stock is determined by examining recent
common stock transactions of the Company. Market Comparison Method is
determined by comparing the value of recent control acquisitions to the book
value and earnings of the Company. Asset Value Method is based on adjusted
market value to net assets. EaMings Method relates value to the earnings
capacity of the Company. Acquisition Analysis Method determines value based on
the amount an acquiror is willing to pay in order to achieve an earnings
breakeven in the first year.
The Company currently has 164,125 common shares outstanding.
For the purpose of this analysis, the following tables demonstrate adjustments
to the Company's December 31, 1997 equity, shares outstanding and 1997 net
income.
-------------------------------------------------------------------------------
December 31, 1997 Equity $21,017,000
Shares Outstanding 164,125
1997 Stated Net Income $ 2,562,000
Gains on Sale of loans (134,000)
Tax Effect @ 34% 46.000
-----------
Adjusted 1997 Net Income $ 2,474,000
-------------------------------------------------------------------------------
-18-
<PAGE>
The table below demonstrates the proposed transaction value at SMB's most
recent common stock trading price of $50.00 per share. In addition, under the
terms of the Agreement, upon completion of the proposed transaction, SMB will
seek to undertake a secondary public offering at $60.00 per share and begin
trading on an organized exchange. The $60.00 per share offering price has been
utilized to calculate the per share and aggregate transaction value in the
table that follows.
Proposed Transaction Value At $50.00 Per Share
-------------------------------------------------------------------------------
Company Common Shares 164,125
Exchange Ratio 4.410
SMB shares to be issued 723,791
SMB stock price , $50.00
-----------
Proposed Transaction Value $36,189,550
===========
Per Company Common Share $220.50
Multiple of Company December 31, 1997 1.72X
Multiple of Company 1997 Adjusted Net Income 14.63X
-------------------------------------------------------------------------------
Proposed Transaction Value At $60.00 Per Share
-------------------------------------------------------------------------------
Company Common Shares 164,125
Exchange Ratio 4.410
SMB shares to be issued 723,791
SMB stock price $60.00
-----------
Proposed Transaction Value $43,427,460
===========
Per Company Common Share $264.60
Multiple of Company December 31, 1997 2.07X
Multiple of Company 1997 Adjusted Net Income 17.54X
-------------------------------------------------------------------------------
-19-
<PAGE>
TRANSACTION VALUE METHOD
-------------------------------------------------------------------------------
The Transaction Value represents the price(s) at which shares of common stock
in the Company have exchanged hands between a willing buyer and seller. A
market value can be determined based on a limited number of transactions.
Because the Company's stock is not listed and is not followed by market makers,
data indicative of the true value at which shares have been exchanged is
limited.
The Company's last reported trade occurred on January 30, 1998 when 14 shares
traded at $167.00 per share.
The following table demonstrates the Company's Transaction Value.
Transaction Value Method
-------------------------------------------------------------------------------
Transaction Value 167.00
Per Common Share
Multiple of Book Value 1.30X
-------------------------------------------------------------------------------
-20-
<PAGE>
MARKET COMPARISON METHOD
-------------------------------------------------------------------------------
The Market Comparison Method analyzes the prevailing condition of the bank
acquisition market. Recent market area transactions have established ranges for
prices of control acquisitions relative to book value and earnings.
There have been approximately 193 bank transactions in Tennessee, Alabama, and
Georgia (the "Regional Area") since 1990, for which financial information is
available. Analysis of these transactions depicts median multiples of book
value and earnings of 1.75 and 16.20, respectively.
Further analysis of the 193 Regional Area transactions establishes peer
evaluation criteria. The capital position, asset size, return on equity and
location are noteworthy criteria.
Regional Medians
-------------------------------------------------------------------------------
Multiple of Multiple of
Category Book Value Earnings
-------------------------------------------------------------------------------
All Regional Transactions 1.75X 16.20X
-------------------------------------------------------------------------------
Capital (Between 10%-12%) 1.84X 18.38X
Assets (Between $100-$250 Million) 1.99X 15.62X
Return on Equity (Between 11% - 13%) 1.78X 16.58X
Location (Tennessee) 1.63X 14.83X
-------------------------------------------------------------------------------
Comparing the proposed transaction value as a multiple of 1997 equity and as a
multiple of adjusted earnings to the above peer transaction categories, the
following table demonstrates how the proposed transaction value compares to the
deals transacted in the peer transaction categories.
-21-
<PAGE>
Transaction Value Percentile Rankings At $50.00 Per SMB Share
- --------------------------------------------------------------------------------
Multiple of Multiple of
Transaction Value Percentile Ranking Book Value Earnings
- --------------------------------------------------------------------------------
All Regional Transactions 48.70% 37.60%
- --------------------------------------------------------------------------------
Capital (Between 10%-12%) 39.70% 19.60%
Assets (Between $100-$250 Million) 23.20% 47.50%
Return on Equity (Between 11% - 13% 41.90% 30.60%
Location (Tennessee) 53.60% 46.80%
- --------------------------------------------------------------------------------
Transaction Value Percentile Rankings At $60.00 Per SMB Share
- --------------------------------------------------------------------------------
Multiple of Multiple of
Transaction Value Percentile Ranking Book Value Earnings
- --------------------------------------------------------------------------------
All Regional Transactions 73.10% 57.20%
Capital (Between 10%-12%) 73.10% 45.90%
Assets (Between $100-$250 Million) 58.50% 58.40%
Return on Equity (Between 11% - 13%) 75.80% 54.10%
Location (Tennessee) 77.40% 65.30%
- --------------------------------------------------------------------------------
Applying the median acquisition ratios of all transactions announced in the
Regional Area to the book value and net income of the Company results in the
following values.
All Regional Area Transactions
- --------------------------------------------------------------------------------
Multiple of Book Value $36,780,000
===========
Per Common Share $224.10
Multiple of Adjusted Equity 1.75X
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Multiple of Earnings $40,079,000
===========
Per Common Share $244.20
Multiple of Book Value 1.91X
- --------------------------------------------------------------------------------
Additional analysis is perfommed on the peer multiples based on capitalization,
asset size, return on equity and location previously reported.
-22-
<PAGE>
Capital (Between 10%-12%)
- --------------------------------------------------------------------------------
Multiple of Book Value $38,671,000
===========
Per Common Share $35.62
Multiple of Book Value 1.84X
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Multiple of Earnings $45,472,000
===========
Per Common Share $277.06
Multiple of Book Value 2.16X
- --------------------------------------------------------------------------------
Assets (Between $100-$250 Million)
- --------------------------------------------------------------------------------
Multiple of Book Value $41,824,000
===========
Per Common Share $254.83
MultiDle of Book Value 1.99X
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Multiple of Earnings $38,644,000
===========
Per Common Share $235.45
Multiple of Book Value 1.84X
- --------------------------------------------------------------------------------
Return on Equity (Between 11% - 13%)
- --------------------------------------------------------------------------------
Multipile of Book Value $37,410,000
===========
Per Common Share $227.94
Multiple of Book Value 1.78X
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Multiple of Earnings $41,019,000
===========
Per Common Share $249.93
Multiple of Book Value 1.95X
Tennessee Transactions
- --------------------------------------------------------------------------------
Multiple of Book Value $34,258,000
===========
Per Common Share $208.73
Multiple of Book Value 1.63X
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Multiple of Eamings $36,689,000
===========
Per Common Share $223.54
Multiple of Book Value 1.75X
- --------------------------------------------------------------------------------
-23-
<PAGE>
ASSET VALUE METHOD
-------------------------------------------------------------------------------
The Asset Value Method considers the value of assets based on information
available. The valuation is based on "marked adjusted" book value. Review of
the Company's financial statements indicates $85,000 in unamortized goodwill at
December 31, 1997. The following presents the Asset Value.
-------------------------------------------------------------------------------
Company December 31, 1997 Equity $21,017,000
Investment Securities Appreciation Tax Effected 0
Intangibles Assets (85,000)
Demand Deposit Adjustment 6,903,000
-----------
Net Book Value $27,835,000
===========
Per Common Share $169.60
Multiple of Book Value 1.32X
-------------------------------------------------------------------------------
-24-
<PAGE>
ANALYSIS OF DEMAND DEPOSIT VALUATION
CALCULATION OF ADJUSTMENT
(In Thousands)
- --------------------------------------------------------------------------------
Earnings Credit Rate 8.56%
Plus: Service Charge 2.93%
Less: Operating Cost 3.92%
----
Net Benefit 7.57%
Total Demand Deposits $26,339,000
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Year 1 2 3 4 5
- --------------------------------------------------------------------------------
Net Account Balance $23,178 $23,178 $23,178 $23,178 $23,178
Earnings Credit 1,984 1,984 1,984 1,984 1,984
Plus: Service Charge 679 679 679 679 679
Less: Operating Cost (909) (909) (909) (909) (909)
------ ------ ------ ------ ------
Net Annual Benefit 1,755 1,755 1,755 1,755 1,755
Present Value Factor 0.9211 0.8485 0.7816 0.7200 0.6632
------ ------ ------ ------ ------
Discounted Benefit 1,616 1,489 1,371 1,263 1,164
DDA Value $6,903,000
- --------------------------------------------------------------------------------
-25-
<PAGE>
EARNINGS METHOD
-------------------------------------------------------------------------------
The Earnings Method is based on the premise that common stock value is
equivalent to that price at which its future dividends and residual book value
will produce a particular yield. The yield or discount rate utilized in the
appraisal is 12 percent based on analysis of available market information and
consideration of risk factors.
Two earnings methods are established:
(1) Short-term value based on 5-year projections and cash flows;
(2) Long-term value based on 20-year projections and cash flows.
The table below represents short-term summary projected financial information
of the Company.
Summary Projected Data
(In Thousands)
- --------------------------------------------------------------------------------
1 2 3 4 5
- --------------------------------------------------------------------------------
Assets (in thousands) $192,884 $204,457 $216,724 $229,728 $243,512
Dividends 1,119 1,227 1,300 1,378 1,461
Equity 22,695 24,535 26,486 28,553 30,745
Net Income 2,797 3,067 3,251 3,446 3,653
Return on Assets 1.45% 1.50% 1.50% 1.50% 1.50
Return on Equity 12.32 12.50 12.27 12.07 11.88
Equity/Assets 11.77 12.00 12.22 12.43 12.63
- --------------------------------------------------------------------------------
-26-
<PAGE>
FIRST FRANKLIN BANCSHARES, INC.
PROJECTED ASSET LEVEL
[The following table was represented by a line graph in the printed material.]
1 $192,884
2 $204,457
3 $216,724
4 $229,728
5 $243,512
FIRST FRANKLIN BANCSHARES, INC.
PROJECTED INCOME LEVEL
[The following table was represented by a line graph in the printed material.]
1 $2,797
2 $3,067
3 $3,251
4 $3,446
5 $3,653
-27-
<PAGE>
Value of the Company in the short-term is derived by applying a terminal value
equal to 16.20 times the ending income. The use of the 16.20 multiple reflects
the median multiple of earnings for all bank transactions in the Regional Area
since 1990.
The short term valuation analysis is presented below:
- --------------------------------------------------------------------------------
Short-term Value $38,184,000
===========
Per Common Share $232.65
Multiple of Book Value 1.82X
- --------------------------------------------------------------------------------
Utilizing the five-year projectio,ns prepared for the short-term valuation as a
base, twenty-year projections are prepared. Assumptions utilized in the
long-term projection are:
o Return on assets will increase from 1.45% in Year 1 to 1.50% in Year 2 and
remain at that level throughout the analysis.
o Dividends will increase from 40% of net income throughout the first five
years to 60% of income from year six through twenty.
Based on these assumptions and a terminal value equal to 16.20 times ending
income, the long-term valuation analysis is presented below:
- --------------------------------------------------------------------------------
Long-term Value $31,659,000
===========
Per Common Share $192.90
Multiple of Book Value 1.51X
- --------------------------------------------------------------------------------
-28-
<PAGE>
ACQUISITION ANALYSIS METHOD
-------------------------------------------------------------------------------
A key factor in valuing a bank based on cash consideration is the impact to the
acquiring corporation's earnings per share in the initial year. Acquirors will
price certain transactions to maintain or enhance future earnings with a
break-even the first year.
The primary components of the impact to the acquiror consist of the net income
of the Company less after-tax interest expense and amortization of intangibles
(goodwill). Based on the assumption that the acqjuiror will value the
institution at break-even, a 7.00% cost of funds, and the amortization of
intangibles over a fifteen-year period, the following table presents the
Acquisition Analysis Value.
Status Quo:
Adjusted 1997 Net Income $ 2,474,000
Non-Interest Expense Reduction 0
After-tax Interest Expense (1,572,000)
Amortization of Intangibles (902,000)
------------
Net Impact to Acquiror 0
============
Acquisition Analysis Value $ 34,548,000
============
Per Common Share $ 210.50
Multiple of Book Value 1.64X
Multiple of Earnings 13.96X
10% Overhead Reduction:
Adjusted 1997 Net Income $ 2,474,000
Non-Interest Expense Reduction After Tax 360,000
After-tax Interest Expense (1,718,000)
Amortization of Intangibles (1,116.000)
------------
Net Impact to Acquiror 0
============
Acquisition Analysis Value $ 37,753,000
============
Per Common Share $ 230.03
Multiple of Book Value 1.80X
Multiple of Earnings 15.26X
-29-
<PAGE>
CONCLUSION
-------------------------------------------------------------------------------
The following table presents the values determined in the various analyses:
(In Thousands, Except Per Share)
Available to Per Common Multiple of
Method Shareholders (000's) Share Book
-------------------------------------------------------------------------------
Transaction Value Method NM $167.00 1.30X
-------------------------------------------------------------------------------
Market Comparison Method
All Regional Area Transactions
Book Value Multiple $36,780 224.10 1.75
Earnings Multiple 40,079 244.20 1.91
Capital Transactions
Book Value Multiple 38,671 235.62 1.84
Earnings Multiple 45,472 277.06 2.16
Assets
Book Value Multiple 41,824 254.83 1.99
Earnings Multiple 38,644 235.45 1.84
Return on Equity
Book Value Multiple 37,410 227.94 1.78
Earnings Multiple 41,019 249.93 1.95
Tennessee Transactions
Book Value Multiple 34,258 208.73 1.63
Earnings Multiple 36,689 223.54 1.75
Asset Value Method 27,835 169.60 1.32
Earnings Value Method
Short-term Valuation 38,184 232.65 1.82
Long-term Valuation 31,659 192.50 1.51
Acquisition Analysis
Status Quo 34,548 210.50 1.64
10% Overhead Reduction 37,753 230.03 1.80
Average 36,714 223.69 1.75
Median 37,582 228.99 1.79
Deal Value @ $50.00 36,190 220.50 1.72
Deal Value @ $60.00 43,428 264.60 2.07
- --------------------------------------------------------------------------------
-30-
<PAGE>
Pro Forma Offer Analysis
<PAGE>
PRO FORMA ANALYSIS
-------------------------------------------------------------------------------
The following pages demonstrate the pro forma impact of the proposed merger on
both the Company and SMB.
Options represent approximately 13.56% of SMB's actual December 31, 1997 shares
outstanding as compared to a median and average of approximately 5.01% and
3.76%, respectively, for all publicly traded banks with assets between $250
million and $750 million (as demonstrated in Exhibit II). Due to SMB's
significant percentage of options outstanding, the tables which follow also
demonstrate the dilutive effects of these options on the pro forma earnings of
the combined Company.
In addition to the pro forma financial tables, the next section demonstrates a
$60.00 per share secondary offering of $15.0 million and analyzes the pro forma
impact on the combined company's return on equity, earnings per share, book
value and equity to asset ratio.
-31-
<PAGE>
SMOKY MOUNTAIN BANCORP, INC.
PRO FORMA ANALYSIS
First Franklin Adjusted Net Income $ 2,474
First Franklin Shares Outstanding 164,125
Smoky Mountain Adjusted Net Income $ 4,820
Smoky Mountain Option Strike Price $ 30.94
Earnings Rate on Additional Capital 7.00%
Tax Rate 35.00%
Exchange Ratio 4.410
- --------------------------------------------------------------------------------
YEAR 1997 1998
- --------------------------------------------------------------------------------
Smoky Mountain Adjusted
Shares Outstanding 1,408,339 1,408,339
New Shares Issued 723,791 723,791
---------- ----------
Pro Forma Shares 2,132,130 2,132,130
Options Converted 172,886 172,886
---------- ----------
Pro Forma Shares Including Options 2,305,016 2,305,016
Smoky Mountain Net Income $ 4,820 $ 5,747
First Franklin Income 2,474 2,667
---------- ----------
Pro Forma Net Income $ 7,294 $ 8,414
Earnings on Options 374 374
Tax Effect (131) (131)
---------- ----------
Pro Forma Earnings Including Options $ 7.537 $ 8.657
Status Quo Smoky Mountain EPS $ 3.422 $ 4.081
Pro Forma Smoky Mountain EPS
Without Options $ 3.421 $ 3.946
Pro Forma Smoky Mountain EPS
Including Options $ 3.270 $ 3.756
Status Quo Equity First Franklin $ 21,017 $ 21,905
Status Quo Equity Smoky Mountain 40,415 46,103
---------- ----------
Pro Forma Equity $ 61,432 $ 68,008
Option Equity 5,349 5,349
---------- ----------
Pro Forma Equity Including Options $ 66,781 $ 73,357
Smoky Mountain Status Quo Book Value $ 28.70 $ 32.74
Pro Forma Smoky Mountain BV
Without Options $ 28.81 $ 31.90
Pro Forma Smoky Mountain BV
Including Options $ 28.97 $ 31.82
- --------------------------------------------------------------------------------
Smoky Mountain Reported Net Income $ 4,066
Non Recurring Gain on Sale (175)
Non Recurring Loss on Sale 85
Loan Provision Adjustment 1,250
Tax Effect @ 35.0% (4,06)
----------
Adjusted 1997 Net Income $ 4,820
-32-
<PAGE>
SMOKY MOUNTAIN BANCORP, INC.
EARNINGS ANALYSIS
1997
- --------------------------------------------------------------------------------
Net Income Pro Forma Pro Forma
(000) Share EPS
- --------------------------------------------------------------------------------
Smoky Mountain $ 4,820 1,408,339 $3.42
First Franklin 2,474 723,791
------- ---------
Total $7,294 2,132,130 $3.42
Option Earnings 243 172,886
------- ---------
Total $7,537 2,305,016 $3.27
- --------------------------------------------------------------------------------
1998
- --------------------------------------------------------------------------------
Net Income Pro Forma Pro Forma
(000) Share EPS
- --------------------------------------------------------------------------------
Smoky Mountain (1) $5,747 1,408,339 $4.08
First Franklin 2,667 723,791
------- ---------
Total $8,414 2,132,130 $3.95
Option Earnings 243 172,886
------- ---------
Total $8,657 2,305,016 $3.76
- --------------------------------------------------------------------------------
EQUITY ANALYSIS
December 31, 1997
- --------------------------------------------------------------------------------
Equity Equity
(000) Shares Per Share
- --------------------------------------------------------------------------------
Smoky Mountain $40,415 1,408,339 $28.70
First Franklin 21,017 723,791
------- ---------
Total $61,432 2,132,130 $28.81
Option Equity 5,349 172,886
------- ---------
Total $66,781 2,305,016 $28.97
- --------------------------------------------------------------------------------
-33-
<PAGE>
SMOKY MOUNTAIN BANCORP
EARNINGS PER SHARE
[The following table was represented by a line graph in the printed material.]
SMOKEY MOUNTAIN BANCORP
Earnings Per Share
Status Quo Pro Forma Pro Forma w/options
---------- --------- -------------------
1997 $3.42 $3.42 $3.27
1998 $4.08 $3.95 $3.76
BOOK VALUE ANALYSIS
1997
[The following table was represented by a line graph in the printed material.]
SMOKEY MOUNTAIN BANCORP
Book Value Analysis
Status Quo $28.70
Pro Forma $28.81
Pro Forma w/options $28.97
-34-
<PAGE>
FIRST FRANKLIN BANCSHARES, INC.
PRO FORMA ANALYSIS
First Franklin Adjusted Net Income $2,474
First Franklin Shares Outstanding 164,125
Smoky Mountain Adjusted Net Income $4,820
Smoky Mountain Option Strike Price $30.94
Earnings Rate on Additional Capital 7.00%
Tax Rate 35.00%
Exchange Ratio 4.410
- --------------------------------------------------------------------------------
YEAR 1997 1998
- --------------------------------------------------------------------------------
Smoky Mountain Adjusted Shares
Outstanding 1,498,339 1,408,339
New Shares Issued 723,791 723,791
--------- ---------
Pro Forma Shares 2,132,130 2,132,130
Options Converted 172,886 172.886
--------- ---------
Pro Forma Shares Including Options 2,305,016 2,305,016
Smoky Mountain Net Income $4,820 $5,747
First Franklin Income 2,474 2,667
--------- ---------
Pro Forma Net Income $7,294 $8,414
Eamings on Options 374 374
Tax Effect (131) (131)
--------- ---------
Pro Forma Earnings Including Options $7,537 $8,657
Status Quo First Franklin EPS $15.074 $16.250
Pro Forma EPS Without Options $15.087 $17.403
Pro Forma EPS Including Options $14.421 $16.563
Status Quo Equity First Franklin $21,017 $21,905
Status Quo Equity Smoky Mountain 40,415 46,103
--------- ---------
Pro Forma Equity $61,432 $68,008
Option Equity 5,349 5,349
--------- ---------
Pro Forma Equity Including Options $66,781 $73,357
First Franklin Status Quo Book Value $128.05 $133.47
Pro Forma BV Without Options $127.06 $140.66
Pro Forma BV Including Options $127.77 $140.35
- --------------------------------------------------------------------------------
Smoky Mountain Reported Net Income $4,066
Non Recurring Gain on Sale (175)
Non Recurring Loss on Sale 85
Loan Provision Adjustment 1,250
Tax Effect @ 35.0% (406)
------
Adjusted 1997 Net Income $4,820
-35-
<PAGE>
FIRST FRANKLIN BANCSHARES, INC.
EARNINGS ANALYSIS
1997
- --------------------------------------------------------------------------------
1997 Status Quo Adjusted EPS $ 15.07
Pro Forma Excluding Options 15.08
-------
Accretion $ 0.01
Percent (0.07)%
1997 Status Quo Adjusted EPS $ 15.07
Pro Forma Including Options 14.42
-------
Dilution $ (0.65)
Percent (4.51)%
- --------------------------------------------------------------------------------
1998
- --------------------------------------------------------------------------------
1998 Budgeted Status Quo EPS $ 16.25
Pro Forma Excluding Options 17.40
-------
Accretion $ 1.15
Percent 7.08%
1998 Budgeted Status Quo EPS $ 16.25
Pro Forma Including Options 16.56
-------
Accretion $ 0.31
Percent 1.91%
- --------------------------------------------------------------------------------
EQUITY ANALYSIS
1997
- --------------------------------------------------------------------------------
Status Quo Book Value Per Share $128.05
Pro Forma Excluding Options 127.06
-------
Dilution $ (0 99)
Percent (0.77)%
Status Quo Book Value Per Share $128.05
Pro Forma Including Options 127.77
-------
Dilution $ (0.28)
Percent (0.22)%
- --------------------------------------------------------------------------------
-36-
<PAGE>
FIRST FRANKLIN BANCSHARES, INC.
EARNINGS PER SHARE
[The following table was represented by a line graph in the printed material.]
FIRST FRANKLIN BANCSHARES, INC.
Earnings Per Share
Status Quo Pro Forma Pro Forma w/options
---------- --------- -------------------
1997 $15.08 $15.07 $14.42
1998 $17.40 $16.56 $16.25
BOOK VALUE ANALYSIS
1997
[The following table was represented by a line graph in the printed material.]
FIRST FRANKLIN BANCSHARES, INC.
Book Value Analysis
Status Quo $128.05
Pro Forma $127.06
Pro Forma w/options $127.77
-37-
<PAGE>
COMBINED COMPANY
EXCLUDING OPTIONS
PRO FORMA ANALYSIS
$15.0 MILLION OFFERING AT $60.00 PER SHARE
WITH ADDITIONAL 15.0% OVER ALLOTMENT
<TABLE>
<S> <C> <C> <C> <C> <C>
SHARE PRICE $60.00 MULTIPLE OF B.V. 2.08
AMOUNT SOLD $17,250 MULTIPLE OF EPS 17.54
EARNINGS RATE 7.00% B.V. PER SHARK $28.81
BEGINNING DIVIDENDS $0.00 EPS $3.42
DIVIDEND GROWTH 0.00% EARNINGS GROWTH 10.00%
COMBINED ASSETS 650,717 ASSET GROWTH 6.00%
YEAR 1 YEAR 2 YEAR 3 YEAR 4 YEAR 5
------ ------ ------ ------ ------
COMBINED NET INCOME $8,414 $8,919 $9,454 $10,021 $10,622
OFFERING EARNINGS 1,208 1,208 1,208 1,208 1,208
TAX EFFECT (411) (411) (411) (411) (411)
--------- --------- --------- --------- ---------
PRO FORMA NETINCOME $921 716 $10,251 $10,818 $11,419
--------- --------- --------- --------- ---------
PRO FORMA SHARES OUT 2,132,130 2,132,130 2,132,130 2,132,130 2,132,130
SHARES ISSUED 287,500 287,500 287,500 287,500 287,500
--------- --------- --------- --------- ---------
PRO FORMA SHARES 2,419,630 2,419,630 2,419,630 2,419,630 2,419,630
--------- --------- --------- --------- ---------
STATUS QUO EPS $3.95 $4.18 $4.43 $4.70 $4.98
PRO FORMA EPS $3.81 $4.02 $4.24 $4.47 $4.72
--------- --------- --------- --------- ---------
DIFFERENTAL ($0.14) ($0.17) ($0.20) ($.23) ($0.26)
--------- --------- --------- --------- ---------
STATUS QUO
YEAR 1 YEAR 2 YEAR 3 YEAR 4 YEAR 5
------ ------ ------ ------ ------
BEGINNING PRO FORMA EQUITY $61,432 $69,846 $78,765 $88,219 $98,240
NET INCOME 8,414 8,919 9,454 10,021 10,622
DIVIDENDS 0 0 0 0 0
--------- --------- --------- --------- ---------
ENDING EQUITY $69,846 $78,765 $88,219 $98,240 $108,863
--------- --------- --------- --------- ---------
PRO FORMA
BEGINNING EQUITY $61,432 $87,893 $97,609 $107,860 $118,678
NET INCOME 9,211 9,716 10,251 10,818 11,419
DIVIDENDS 0 0 0 0 0
ISSUED 17,250 0 0 0 0
--------- --------- --------- --------- ---------
ENDING EQUITY $81,893 $97,609 $107,860 $118,678 $130,097
--------- --------- --------- --------- ---------
STATUS QUO B.V. $32.76 $36.94 $41.38 $46.08 $51.06
PRO FORMA B.V. $36.32 $40.34 $44.58 $49.05 $53.77
------ ------ ------ ------ ------
DIFFERENTIAL $3.57 $3.40 $3.20 $2.97 $2.71
------ ------ ------ ------ ------
STATUS QUO TOTALASSETS 650,717 689,760 731,146 775,014 821,515
PRO FORMA TOTAL ASSETS 667,967 708,045 750,528 795,559 843,293
STATUS QUO ROA 1.29% 1.29% 1.29% 1.29% 1.29%
PRO FORMA ROA 1.38% 1.37% 1.37% 1.36% 1.35%
STATUS QUO ROE 12.05% 11.32% 10.72% 10.20% 9.76%
PRO FORMA ROE 10.48% 9.95% 9.50% 9.20% 6.78%
STATUS QUO EQUITY/ASSETS 10.73% 11.42% 12.07% 12.68% 13.25%
PRO FORMA EQUITY/ASSETS 13.51% 14.15% 14.75% 15.31% 15.84%
</TABLE>
-38-
<PAGE>
COMBINED COMPANY
EXCLUDING OPTIONS
PRO FORMA ANALYSIS
$15.0 MILLION OFFERING AT $60.00 PER SHARE
WITH ADDITIONAL 15.0% OVER ALLOTMENT
[The following table was represented by a line graph in the printed material.]
COMBINED COMPANY
Earnings Per Share
Status Quo Pro Forma
---------- ---------
1 $3.95 $3.81
2 $4.18 $4.02
3 $4.43 $4.24
4 $4.70 $4.47
5 $4.98 $4.72
[The following table was represented by a line graph in the printed material.]
COMBINED COMPANY
Book Value Per Share
Status Quo Pro Forma
---------- ---------
1 $32.76 $36.32
2 $36.94 $40.34
3 $41.38 $44.58
4 $46.08 $49.05
5 $51.06 $53.77
-39-
<PAGE>
COMBINED COMPANY
INCLUDING OPTIONS
PRO FORMA ANALYSIS
S15.0 MILLION OFFERING AT S60.00 PER SHARE
WITH ADDITIONAL 15.0% OVER ALLOTMENT
SHARE PRICE $60.00 MULTIPLE OF B.V. 2.07
AMOUNT SOLD $17,250 MULTIPLE OF EPS 18.35
EARNINGS RATE 7.00% B.V. PER SHARE $28.97
BEGINNING DIVIDENDS $0.00 EPS $3.27
DIVIDEND GROWTH 0.00% EARNINGS GROWTH 10.00%
ASSETS 650,717 ASSET GROWTH 6.00%
<TABLE>
<CAPTION>
YEAR 1 YEAR 2 YEAR 3 YEAR 4 YEAR 5
------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C>
COMBINED NET INCOME $8,657 $9,177 $9,727 $10,311 $10,930
OFFERING EARNINGS 1,208 1,208 1,208 1,208 1,208
TAX EFFECT (411) (411) (411) (411) (411)
--------- --------- --------- --------- ---------
PRO FORMA NET INCOME $9,454 $9,974 $10,524 $11,108 $11,727
--------- --------- --------- --------- ---------
PRO FORMA SHARES OUT 2,305,016 2,305,016 2,305,016 2,305,016 2,305,016
SHARES ISSUED 287,500 287,500 287,500 287,500 287,500
--------- --------- --------- --------- ---------
PRO FORMA SHARES 2,592,516 2,592,516 2,592,516 2,592,516 2,592,516
--------- --------- --------- --------- ---------
STATUS QUO EPS $3.76 $3.98 $4.22 $4.47 $4.74
PRO FORMA EPS $3.65 $3.85 $4.06 $4.28 $4.52
--------- --------- --------- --------- ---------
DIFFERENTIAL ($0.11) ($0.13) ($0.16) ($0.19) ($0.22)
--------- --------- --------- --------- ---------
STATUS QUO
YEAR 1 YEAR 2 YEAR3 YEAR 4 YEAR 5
------ ------ ----- ------ ------
BEGINNING PRO FORMA EQUITY $66,781 $75,438 $84,615 $94 343 $104,654
NET INCOME 8,657 9,177 9,727 10,311 10,930
DIVIDENDS 0 0 0 0 0
--------- --------- --------- --------- ---------
ENDING EQUITY $75,438 $54,615 $94,343 $104,654 $115,584
--------- --------- --------- --------- ---------
PRO FORMA
BEGINNING EQUITY $66,781 $93,485 $103,459 $113,984 $125,092
NET INCOME 9,454 9,974 10,524 11,108 11,727
DIVIDENDS 0 0 0 0 0
ISSUED 17,250 0 0 0 0
--------- --------- --------- --------- ---------
ENDING EQUITY $93,485 $103459 $113.984 $125.092 $136.818
--------- --------- --------- --------- ---------
STATUS QUO B.V. $32.73 $36.71 $40.93 $45.40 $50.14
PRO FORMA B.V. $36.06 $39.91 $43.97 $48.25 $52.77
--------- --------- --------- --------- ---------
DIFFERENTIAL $3.33 $3.20 $3.04 $2.85 $2.63
--------- --------- --------- --------- ---------
STATUS QUO TOTAL ASSETS 650,717 689,760 731,146 775,014 821,515
PRO FORMA TOTAL ASSETS 667,967 708,045 750,528 795,559 843,293
STATUS QUO ROA 1.33% 1.33% 1.33% 1.33% 1.33%
PRO FORMA ROA 1.42% 1.41% 1.40% 1.40% 1.39%
STATUS QUO ROE 11.48% 10.85% 10.31% 9.85% 9.46%
PRO FORMA ROE 10.11% 9.64% 9.23% 8.88% 8.57%
STATUS QUO EQUITY/ASSETS 11.59% 12.27% 12.90% 13.50% 14.07%
PRO FORMA EQUITY/ASSETS 14.37% 15.00% 15.59% 16.14% 16.65%
</TABLE>
-40-
<PAGE>
COMBINED COMPANY
INCLUDING OPTIONS
PRO FORMA ANALYSIS
$15.0 MILLION OFFERING AT $60.00 PER SHARE
WITH ADDITIONAL 15.0% OVER ALLOTMENT
[The following table was represented by a line graph in the printed material.]
COMBINED COMPANY
Earnings Per Share
Status Quo Pro Forma
---------- ---------
1 $3.76 $3.65
2 $3.98 $3.85
3 $4.22 $4.06
4 $4.47 $4.28
5 $4.74 $4.52
[The following table was represented by a line graph in the printed material.]
COMBINED COMPANY
Book Value Per Share
Status Quo Pro Forma
---------- ---------
1 $32.73 $36.06
2 $36.71 $39.91
3 $40.93 $43.97
4 $45.40 $48.25
5 $50.14 $52.77
-41-
<PAGE>
SMOKEY MOUNTAIN BANCORP
STOCK TRANSACTIONS
SINCE MAY 1997
NUMBER OF PRICE PER
DATE SHARES SHARE
---- ------ -----
5/8/97 1549 $48.00
5/8/97 100 48.00
5/8/97 1000 48.00
6/20/97 913 51.80
7/9197 1817 NM
7/91/97 909 NM
7/9/97 454 NM
7/9/97 120 50.00
7/9/97 200 50.00
7/9/97 200 50.00
7/9/97 200 50.00
7/9/97 300 50.00
7/9/97 10 50.00
7/9/97 500 50.00
7/9/97 100 50.00
7/9/97 300 50.00
7/9/97 20 50.00
7/9/97 60 50.00
7/9/97 200 50.00
7/9/97 50 50.00
7/9/97 176 50.00
7/9/97 164 50.00
7/9/97 100 50.00
7/9/97 100 50.00
7/9/97 20 50.00
7/9/97 140 50.00
7/9/97 200 50.00
7/9/97 20 50.00
7/30/97 4294 48.50
8/5/97 1429 NM
8/5/97 714 NM
8/5/97 357 NM
8/5/97 1000 52.00
8/5/97 1500 52.00
8/13/97 413 54.00
8/13/97 413 54.00
8/25/97 280 NM
8/25/97 70 NM
8/25/97 350 54.00
-42-
<PAGE>
SMOKEY MOUNTAIN BANCORP
STOCK TRANSACTIONS
SINCE MAY 1997
NUMBER OF PRICE PER
DATE SHARES SHARE
---- ------ -----
8/26/97 1000 50.00
9/11/97 7280 NM
9/11/97 1000 NM
9/11/97 1820 NM
9/11/97 100 54.00
9/11/97 4000 54.00
9/11/97 200 54.00
9/11/97 1000 54.00
9/11/97 4800 54.00
9/16/97 50 54.00
9/25/97 800 NM
9/25/97 500 54.00
9/25/97 300 54.00
9/30/97 1820 54.00
10/17/97 1048 NM
10/17/97 148 54.00
10/17/97 1500 54.00
10/17/97 500 54.00
10/27/97 3058 51.00
11/4/97 100 54.00
11/4/97 106 54.00
11/21/97 2000 51.50
12/19/97 5681 NM
12/19/97 2272 44.00
12/19/97 2273 NM
12/19/97 1136 NM
12/19/97 2273 44.00
12/19/97 1136 44.00
12/22/97 50 NM
12/22/97 50 NM
12/22/97 50 NM
12/22/97 99 NM
12/22/97 40 NM
12/22/97 40 NM
12/22/97 40 NM
12/29/97 568 44.00
12/29/97 570 44.00
12/29/97 58 44.00
12/29/97 115 NM
-43-
<PAGE>
SMOKEY MOUNTAIN BANCORP
STOCK TRANSACTIONS
SINCE MAY 1997
NUMBER OF PRICE PER
DATE SHARES SHARE
---- ------ -----
12/29/97 90 NM
1/27/98 1092 44.00
1/27/98 454 44.00
2/17/98 54 44.00
21/17/98 400 50.00
2/27/98 116 50.00
2/27/98 216 50.00
2/27/98 148 50.00
2/27/98 268 50.00
2/27/98 168 50.00
2/27/98 869 50.00
AVERAGE $50.23
MEDIAN $50.00
-44-
<PAGE>
SMOKEY MOUNTAIN BANCORP MONTHLY VOLUME AND AVERAGE STOCK PRICE
[The following table was represented by a line graph in the printed material.]
Volume Avg. Price
------ ----------
5/30/97 2,649 $48.00
6/30/97 913 $51.80
7/30/97 10,654 $49.93
8/30/97 7,526 $52.67
9/30/97 23,670 $54.00
10/31/97 6,254 $53.25
11/30/97 2,206 $53.17
12/31/97 16,541 $44.00
1/31/98 1,546 $44.00
2/28/98 2,239 $49.25
-45-
<PAGE>
SMB Due Diligence Review
<PAGE>
DUE DILIGENCE REVIEW SMOKY MOUNTAIN BANCORP, INC.
Introduction
-------------------------------------------------------------------------------
A due diligence review of Smoky Mountain Bancorp, Inc. ("SMB"), Knoxville,
Tennessee was performed. The purpose of the due diligence review was to analyze
the overall condition of SMB in conjunction with the proposed Agreement and
Plan of Merger with First Franklin Bancshares, Inc., Athens, Tennessee. The
review process was conducted the week of March 9, 1998 at the corporate offices
of SMB by Professional Bank Services, Inc. ("PBS"). The analysis was performed
utilizing various management and financial data for SMB, as well as for SMB's
subsidiary bank ("BankFirst"). The due diligence review focused on various
financial and other data which included: SMB's Board of Directors' minutes;
regulatory reports of examination; annual reports and supplemental management
letters issued by SMB's independent external auditors; the December 31, 1997
Consolidated Reports of Condition and Income for the holding company and
affiliate banks; the affiliate banks' and Bank Holding Company Performance
Reports for September 30, 1997; various asset quality related reports; the most
recent allowance for loan and lease loss analysis reports for each affiliate
bank; and independent internal audit reports. In addition, a review of 31 loan
relationships over $1 million and 14 problem loans over $250,000 was conducted
to test asset quality and loan rating systems.
The following is a summary of the due diligence findings and conclusions.
Overall Conclusion
Based upon the information available during the review and offered by
individual interviews, SMB is in satisfactory financial condition. BankFirst is
the lead bank and represents approximately 99.9% of SMB assets.
The interviews revealed executive management to be well informed and
conservative in its banking philosophy. There are no major asset quality or
credit administration concerns at the subsidiary bank. BankFirst's volume of
classified assets has historically been very low. However, a number of large
problem credits was inherited through the merger with First National Bank of
Gatlinburg in March 1997. Since then, BankFirst
-46-
<PAGE>
management has taken a number of steps to improve underwriting in Sevier County
and to develop a more consistent lending philosophy corporate-wide. The
allowance for loan and lease losses appears adequate, and the methodology
employed to calculate the reserve is reasonable.
There was no information disclosed during this review that would impact the
integrity of published financial statements or otherwise indicate a pending
reversal of SMB's satisfactory operating performance.
Smoky Mountain Bancorp, Inc.
SMB has $468,750,628 in total assets as of December 31, 1997. Total assets are
projected to increase to over $500 million by the end of 1998. BankFirst
comprises virtually all of the assets of SMB. The Company's stock is not
publicly traded at this time.
BankFirst Operations
A recent joint examination of BankFirst by the State and FDIC, dated August 29,
1997, was conducted in the second and third quarters of 1997. The scope of the
examination focused on the overall financial condition of the bank, as well as
the effectiveness of risk management systems. The examination found the
financial condition of the bank to be sound, and noted the Board and executive
management have been effective in their supervision. The bank was found to have
adequate capital and satisfactory earnings. Asset quality was noted as
satisfactory. Liquidity was rated as adequate and interest rate risk noted as
being adequately controlled.
The only concern noted in the examination report was the inadequate allowance
for loan and lease loss account (ALLL). A provision of $1.3 million was
required to return the ALLL to an adequate level.
Primary concerns with regulators have been in compliance area. The bank was on
quarterly progress reporting on corrective action items until March 1998, and
more training was needed. These issues have reportedly been resolved.
-47-
<PAGE>
Asset Quality
Asset quality is satisfactory. Discussions with SMB's Senior Lending Officer,
Steve Hagood, revealed that controls over the lending have always been
emphasized. For the past several months, BankFirst's lending management has
been focusing on bridging the gap between the two cultures coming with the
merger with First National Bank, Gatlinburg.
There is more perceived risk in the Sevier County portfolio based on the
tourist and economy-dependent nature of many hotels, motels, restaurants, gift
shops, entertainment businesses, etc. in Gatlinburg, Pigeon Forge, and
Sevierville. Net charge offs as a percentage of average loans and leases
trended upward from 1995 through 1996, when the ratio was .16%, the same as
peer-group averages. Through September 30, 1997, net losses increased to .25%,
while the peer average held steady. Similar trends through year-end 1996 were
noted for non-performing loans, as well as all loans past due more than 30
days. However, both of these ratios improved somewhat by year-end 1997, but
remain slightly above peer group averages.
The Allowance for Loan and Lease Losses represented 1.42% of total loans as
December 31, 1997, which represented a comfortable $782M excess over internal
reserve analysis calculations, but in line with the peer average of 1.40% (as
of September 30, 1997). Management closely scrutinizes larger non-performing
assets on at least a quarterly basis and has provided specific allocations to
the ALLL as needed.
As of January 31, 1998, loans rated Substandard or worse total $9,622M
representing 22% of equity capital and reserves. This ratio increases only
slightly when other real estate owned is added in. The regulators have found
SMB's methodology for analyzing the ALLL to be adequate. However, the Board's
failure to act on internally-noted deficiencies in the ALLL analysis was the
one area requiring the Board's attention in the August 1997 regulatory
examination report.
Earnings
Return on average assets for the year ended December 31, 1997 was 0.91% versus
peer average of 1.21%. The primary changes from 1996 results was increased
provision for loan loss expenses. The Bank suffers from above average overhead
-48-
<PAGE>
expense, and compares unfavorable with peer group in this area. This comparison
worsened when the Bank moved to a new, larger bank peer group in 1997.
Provision for loan loss expense has historically been in line with peer, but
increased in 1997 as a result of lower asset quality after the merger with FNB,
Gatlinburg. These two expense areas offset the Bank's above average net
interest income position.
Capital Ratios
BankFirst's historically solid earnings performance has resulted in a
satisfactory capital base at the holding company. As of December 31, 1997,
SMB's leverage ratio stood at 8.6%, below the peer average of 8.96%. All of
SMB's capital ratios exceed regulatory minimum requirements, and SMB is
considered "well capitalized". Stock options have increased considerably
presumably as a result of a December stock split; at the August 29, 1997
examination, there were 80,375 options outstanding; now there are about
173,000.
Liquidity, Asset/Liability Management
The loan-to-deposit ratio is high at 91 percent. The bank has the ability to
borrow up to $50MM from FHLB and about $30MM is funded now. The asset/liability
management committee (ALCO) meets quarterly. The Bank utilizes software to rate
shock earnings on interest rate movements using scenarios of plus or minus 3.00
percent There reportedly is no significant effect on earnings even though bank
is asset sensitive.
The Investment portfolio is managed by Martin and Company, an arrangement that
has not been questioned by the regulators. The current gain in the $77MM
portfolio is $1.3MM. The portfolio has an average yield 6.51 percent and an
average life of 4.52 years. U.S. Government agencies (many callable) make up
most of portfolio at $48MM (62 percent); U. S. Treasuries $1.9MM (25 percent);
and very few tax-free municipal issues. The majority of agency securities came
from the merger with FNB, Gatlinburg. BankFirst's portfolio would be
complemented by First Franklin's which has most of its account in municipal
issues,
Liquidity was upgraded by FDIC at a recent exam as reported in the May 15, 1997
Board minutes.
-49-
<PAGE>
Risk Monitoring
External Audit - The external audit was performed by the CPA firm of Crowe
Chizek and Company, LLP for the first time in 1997. The prior firm was Coopers
and Lybrand. Management stated that no external CPA Management Letters were
issued for the 1996 and 1997 audits. SMB reportedly switched accounting firms
due to cost factors.
Internal Audit - The internal audit function is performed by Beverly Achley.
Ms. Achley is comfortable with the performance and independence of the internal
audit function at this time. She reports to the Audit Committee of the SMB
Board.
Systems and processes to monitor overdrafts, kiting suspects, and insufficient
funds items seem satisfactory. As previously mentioned, many internal control
weaknesses surfaced in connection with the merger; reportedly the importance of
internal controls has been given a higher priority by management and the Board
in the past year.
The internal audit plan and schedule are approved by the Bank's external
auditors; the plan is heavily compliance oriented; will begin using a risk
rating system which is being developed at this time. Staffing for the internal
audit function is believed sufficient at the present time.
The Audit Committee appears to have well-qualified members; meetings are held
quarterly and the information covered is considered adequate.
Overall, the independence, competency, and performance of the internal audit
function appears satisfactory.
Loan Review - The independence of the Loan Review function appears adequate.
The function reports to Internal Auditor, Beverly Achley, who reports to the
Audit Committee. The Watch List is maintained by the Loan Review. Loans are
reviewed on an individual basis rather than by region or line of business, and
no summary or narrative reporting of findings or overall conclusions of asset
quality are given. Review selection criteria is based on the size of loan
stated as a percentage of capital beginning with 15 percent, then to 10
percent. Reg. O loans are reviewed as a group annually. Loan Review prepares a
write-up on every loan reviewed but a copy is not placed in loan file The
qualifications of the loan review officer appear adequate
-50-
<PAGE>
EDP
Advanced Computer Systems, Inc. ("ACE") performs the data processing for the
Bank; ACE is now in the second year of a three year contract. A major systems
conversion is planned for early April 1998 to Bank Line. Year 2000 program is
to be completed by December 31, 1998.
Pending Litigation
The only litigation in which the Bank is a defendant is from a counterclaim
filed March 4, 1998, by First USA, a credit card processor for BankFirst. The
Bank filed a claim against Electronic Communications Corporation ("ECC") in
late 1997. First USA was the upstream processor and sponsoring principal
for ECC. ECC had an agreement with BankFirst for credit card processing
services. These services were later transferred to First USA. BankFirst alleges
that ECC breached its contract and caused damages to the Bank by wrongfully and
fraudulently accounting for and billing BankFirst customers and for allegedly
converting funds to ECC's own use.
Since December 1, 1997, when First USA took over the processing, a number of
payments were reportedly erroneously sent to BankFirst. The Bank has held these
funds which now total $3,497,046.36. This amount is carried in Other
Liabilities. BankFirst discovered these overpayments in December 1997 and
notified First USA. The Bank is concerned about some debits which were made to
its ACH account and is requesting through part of this lawsuit that certain
amounts be deducted from the amount First USA says it is owed. The following is
a schedule of these amounts in dispute:
Overpayments $3,967,907.77
Less: ACH debits 253,957.78
Amount First USA acknowledges it owes 81,291.98
Withholdings being negotiated 613,743.29
Balance $3,018,914.72
The merits of the Bank's claim will determine how much has to be refunded to
First USA. The Bank's attorney will be sending a letter summarizing the case
and the potential liability.
-51-
<PAGE>
Affiliates
BankFirst has several affiliations, many through the interests of Chairman
Clayton. These are listed in the most recent examination report. One of these
is CMH Services, Inc. which occupies space at the Main Office. The Bank bought
a 50 percent partnership interest in Heritage-Clayton Partnership which is
owned by CMH for $923,817 plus $16,990.74 for personal property on the 15th
floor of the Main office building. No regulatory concerns were noted regarding
these or other affiliations.
The Bank acquired Curtis Mortgage Company, a 50-year business in Knoxville, for
$7.5MM in cash. Curtis Mortgage has a $446MM servicing portfolio. Due diligence
by Crowe Chizek revealed no significant adverse findings.
Summary
This review disclosed no material adverse findings which would cause a
substantial adjustment in the terms of the proposed merger. The major risk in
the loan portfolio is the heavy concentration of hotel, restaurant, and other
businesses dependent upon tourism in the Sevier County area. These loans
require considerably more attention than normal commercial loans, so the
workload of the loan officers needs to be closely monitored. The outcome of the
lawsuit against BankFirst needs to be followed but it appears that the maximum
exposure would be about $700M.
There are apparently no significant downgrades in the individual loans selected
for review, therefore, it appears that the ALLL is adequate at this time.
-52-
<PAGE>
Firm Qualifications
<PAGE>
PROFESSIONAL BANK SERVICES, INC.
INVESTMENT BANKING ENGAGEMENTS
- --------------------------------------------------------------------------------
Professional Bank Services, Inc., ("PBS"), a consulting firm for financial
institutions with offices in Atlanta, GA., Chicago, IL., Louisville, KY.,
Washington, D.C., and Nashville, TN., was established in 1978. Since its,
inception, the firm has assisted over 1,000 institutions in various capacities.
One OMB of specialization is the firm's appraisal services. The company is
continually engaged to provide assistance with corporate expansion, holding
company formation, and to perform fairness opinions and stock appraisals. PBS'
wholly owned subsidiary, Investment Bank Services, Inc., is a registered Broker
Dealer with the Securities and Exchange Commission ("S.E.C.").
The firm's stock appraisals have been recognized by various courts and
regulatory agencies in settling dissenting minority shareholder suits. In
addition to minority valuations, the firm also specializes in valuations that
facilitate the merger or acquisition process. The firm has valued institutions
with assets totaling over $5.0 billion, and fair market values over $600
million.
PBS utilizes proven industry accepted methods in providing common stock
appraisals. The appraisal and support documents are prepared in a fashion that
is easily understood and are often accompanied by professional presentation.
The appraisals have been used for reverse common stock splits, consummation of
interim bank mergers and valuing stock for Employee Stock Ownership Plans, as
well as other traditional purposes.
-53-
<PAGE>
CHRISTOPHER L. HARGROVE
President and Senior Consultant
Professional Bank Services, Inc.
Mr. Hargrove has an in-depth understanding of the acquisition process. As a
senior analyst for a major mid-south bank holding company, Mr. Hargrove assisted
in the successful acquisition of several commercial banks with assets totaling
over $2.0 billion. Mr. Hargrove is also experienced in analyzing financial data
concerning common stock and other securities. His expertise includes:
Acquisition Strategy Designing and implementing plans for continual
growth through acquisition to ensure the client
remains competitive in an industry of transition.
Capital Analysis Determining the optimal use of a bank's capital
resources in order to accurately plan for growth and
profitability.
Common Stock Appraisal Determining through market and fundamental analyses
the value of common stock for the purpose of
preparing fairness opinions and special actions
called for. by management.
PROFESSIONAL EXPERIENCE
- --------------------------------------------------------------------------------
Professional Bank Services, Inc. 1996 - Present
Louisville, Kentucky President and Senior Consultant
Professional Bank Services, Inc. 1989 - 1996
Louisville, Kentucky Vice President and Senior Consultant
Professional Bank Services, Inc. 1985 - 1989
Nashville, Tennessee. Senior Consultant
Investment Bank Services, Inc. 1987 - Present
Louisville, Kentucky President
Investment Bank Services, Inc. 1986 - 1987
Louisville, Kentucky Vice President
First American Corporation 1982 - 1985
Nashville, Tennessee Senior Financial Analyst
EDUCATIONAL EXPERIENCE I
- --------------------------------------------------------------------------------
Middle Tennessee State University B.B.A. Finance
Murfreesboro, Tennessee 1980
M.A. Finance
1982
National Association of Registered Representative
Securities Dealers 1987
Washington, D.C.
National Association of Registered Principal
Securities Dealers 1998
Washington, D.C.
-54-
<PAGE>
PAUL E. BLEUEL
Senior Consultant
Professional Bank Services, Inc.
Mr. Bleuel has an extensive background and understanding of the acquisition
process. As a senior executive for a major Midwestern bank holding company, Mr.
Bleuel led the acquisition process for 13 transactions totaling over $1.5
billion in assets. Mr. Bleuel has over 26 years of experience in strategic
planning, financial budgeting and analysis, asset/liability management and
accounting in financial institutions. His expertise includes:
Acquisition Analysis Evaluation of proposed merger and acquisition
and Strategy ventures to ensure that client remains competitive
in the financial services industry.
Fairness Opinions Evaluating proposed mergers and acquisitions to
ensure fair and equitable treatment to shareholders.
Financial Analysis Analyses and recommendations to financial
institutions regarding profitability, expansion,
capital and long-range strategic planning.
PROFESSlONAL EXPERIENCE
- --------------------------------------------------------------------------------
Professional Bank Services, Inc. November 1995 - Present
Louisville, Kentucky Senior Consultant
Liberty National Bancorp, Inc. 1982 - 1995
Louisville. Kentucky Executive Vice President
United Kentucky, Inc. 1969 - 1982
Louisville, Kentucky Chief Financial Officer
EDUCATIONAL EXPERIENCE
- --------------------------------------------------------------------------------
Bellarmine College Master of Business Administration
Louisville, Kentucky 1981
St. Meinrad College Bachelor of Science
St. Meinrad, Indiana 1966
National Association of Registered Representative
Securities Dealers 1997
Washington, D.C.
Bank Administration Institute 1976
School of Banking
Madison, Wisconsin
-55-
<PAGE>
RONALD R. ROBERTS
Senior Consultant
Professional Bank Services, Inc.
Mr. Roberta has an extensive background in regulatory requirements and
assistance, audit requirements, loan review and bank policies and procedures. He
has a unique combination of experience, having worked in both banking and the
regulatory environment. His expertise includes:
Management consulting and Assisting organizations in identifying problems and
Strategic Planning implementing action programs that have improved
earnings and performance. Assisting financial
institutions in developing strategic plans.
Loan Review and Completing numerous loan reviews, assisting banks in
Due Diligence Review evaluating their loan portfolios and improving
lending practices. Assessing loan quality and ALLL
adequacy.
Litigation Support/Expert Providing comprehensive, detailed information in
Witness both state and federal cases as a respected
authorfty on most banking subjects.
Bank Operations Assisting financial institutions in establishing
policies and procedures in areas of bank operations
and lending.
Regulatory Relations Working with client and regulatory agencies to
ensure that the needs of the financial institution
are best served while meeting the requirements of
the regulatory body.
Internal Auditing Designing internal audit programs and conducting
internal audits.
PROFESSIONAL EXPERIENCE
- --------------------------------------------------------------------------------
Professional Bank Services, Inc. 1990 - Present
Nashville, Tennessee Senior Consultant
First American Corporation 1982 - 1990
Nashville, Tennessee Senior Vice President
Director of Audit/Loan Examination
Division
Office of Comptroller of the Currency 1970 - 1982
Knoxville/Nashville, Tennessee National Bank Examiner
EDUCATIONAL EXPERIENCE
- --------------------------------------------------------------------------------
University of Tennessee B.S. Business Administration-Accounting
Knoxville, Tennessee 1970
University of Wisconsin Graduate School of Banking
Madison, Wisconsin 1980
-56-
<PAGE>
PAUL D. REESE, CFA
Senior Analyst
Professional Bank Services, Inc.
Mr. Reese has a strong background in finance and bank accounting, excellent
familiarity with the capital markets in general, and the banking industry in
particular. Skilled in the development of macro and micro economic forecasts and
models, as well as, company and industry fundamental and technical analysis. His
expertise includes:
Valuation Analysis Valuation analysis for minority and majority stock
transactions, ESOPs, niergers and acquisitions, and
the long-term effect of these transactions on
strategic shareholder value.
Security and Market Analysis of publicly traded securities and markets.
Analysis In-depth knowledge of financial institution common
stock valuation techniques and forecasting for
publicly traded securities. Experienced in fixed
income securities valu~ion.
Financial Forecasting Skilled in short and long term economic and
financial forecasting. Development of spreadsheet
models, interest rate forecasts and micro and macro
economic forecasts.
PROFESSIONAL EXPERIENCE
- --------------------------------------------------------------------------------
Professional Bank Services, Inc. October 1995 - Present
Louisville, Kentucky Senior Analyst
SNL Securities March 1994 - October 1995
Charlottesville, Virginia Financial Analyst
ESOP Services, Inc. March 1994 - December 1994
Scottsville, Virginia Financial Analyst
EDUCATIONAL EXPERIENCE
- ----------------------------------------------------------------------------
University of Virginia B.S. Finance
Mclntire School of Commerce 1992
Charlottesville, Virginia
Completed Level I
Chartered Financial Analyst Exam June 1995
Completed Level II
Chartered Financial Analyst Exam June 1996
Completed Level Ill
Chartered Financial Analyst Exam June 1997
National Association of Registered Representative
Securities Dealers 1997
Washington, D.C.
-57-
<PAGE>
CODE OF PROFESSIONAL CONDUCT
Professional Bank Services, Inc. ("PBS"), is a consulting firm whose mission is
the provision of quality business advice, and superior service to the financial
industry. Our services reflect the firm's extensive experience in the financial
industry, its keen awareness of a financial institution's special position of
trust, and a knowledge of financial and regulatory issues.
The firm and its employees are committed to the highest standards of
professional conduct.
Conflicts of Interest
The firm shall not represent a client if its ability to consider, recommend or
carry out a course of action on behalf of the client could be adversely affected
by its responsibilities to another client, a third party, its own interests or
those of its principals. Neither the firm nor its employees shall acquire an
equity interest in or become indebted to any organization where such
relationship creates a conflict of interest. The firm shall use its best efforts
to avoid even the appearance of a conflict of interest.
The Client
When engaged by a financial institution, the firm's sole duty of loyalty shall
be to the welfare and the best interests of the institution, as distinct from
the sometimes inconsistent interests of employees, management, directors or
shareholders.
When engaged by an individual or other party, the firm's duty of loyalty shall
be to that individual or other party. PBS is often engaged to carry out
difficult and challenging assignments in situations where conflict with third
parties is inevitable. Such engagements will be conducted efficiently, fairly
and in the best interest of the client, with a view towards constructive
management of conflict.
Duty of Competence
The firm shall provide competent services to its clients and decline to render
advice in matters for which it is not qualified. The firm shall not provide
legal advice and when appropriate shall request that the client seek the
services ol other qualified professionals.
The firm's consultants shall continue to develop their skill and knowledge
through ongoing programs of continuing education and professional development.
The firm's consultants shall not violate or in any way participate in the
violation of any law, regulation or technical standard applicable to financial
institutions, their directors, officers or shareholders.
Engagement Letters and Fees
Each engagement of the firm shall be described in an engagement letter which
specifies the services which the firm shall perform and which has been approved
by the client or the client's board of directors or authorized officer. Each
engagement letter shall set forth an estimate of the fees for services to be
rendered and the basis for determination of those fees. The firm's fees shall,
except in unusual circumstances and when otherwise agreed, be based on the
firm's usual and customary rates. Fees for services take into account (a) the
nature of the particular services to be performed, (b) the novelty and
difficulty of the matter, (c) the skill, standing and experience of the
consultants performing the work, and (d) the urgency of the matter.
Nature of Advice
The firm shall always keep clients reasonably informed about all matters
relevant to its professional services. In matters requidng action by a client,
the firm shall explain all aspects of a matter and altemate courses of action as
reasonably necessary to permit the client to make informed decisions.
Integrity of Communications
The firm shall never disclose any confidential or other information about a
client to any other party except with the consent of the client and in the
course of providing its services. When dealing with third parties, the firm
shall always identify its clients except when clearly inappropriate to do so.
Code of Professional Conduct
This Code of Professional Conduct shall be prominently displayed in the firm's
informational material and included as part of engagement letters.
PROFESSIONALBANKSERVICES
-58-
<PAGE>
EXHIBITS
<PAGE>
DISCOUNT RATE 12.00%
BEGINNING EQUITY $ 21,017 (12/31/97)
BEGINNING ASSETS $181,966 (12/31/97)
GROWTH RATE 6.00%
SHORT TERM DIVIDEND PAYOUT 40.00%
LONG TERM DIVIDEND PAYOUT 60.00%
EARNINGS MULTIPLE 16.20 X
FIRST FRANKUN BANCSHARES, INC.
STATUS QUO
SHORT-TERM EARNINGS VALUATION
<TABLE>
<CAPTION>
NET PRESENT EQUITY/
PD YEAR EQUITY INCOME ASSETS DIVS. PVIF VALUE ROE ROA ASSETS
-- ---- ------ ------ ------ ----- ---- ----- --- --- ------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1.0 1 $22,695 $2,797 192,884 $1,119 89.29% $999 12.32% 1.45% 11.77%
2.0 2 24,535 $3,067 204,457 $1,227 79.72% 978 12.50% 1.50% 12.00%
3.0 3 26,486 $3,251 216,724 $1,300 71.18% 926 12.27% 1.50% 12.22%
4.0 4 28.553 $3,446 229,728 $1,378 63.55% 676 12.07% 1.50% 12.43%
5.0 5 30,745 $3,653 243,512 $1,461 56.74% 829 11.88% 1.50% 12.63%
- ------------------------------------------------------------------------------------------------------------------
TERMINAL VALUE 59,173 56.74% 33,577
-------
PRESENT VALUE WITH TERMINAL VALUE EQUAL
TO 16.20X ENDING INCOME $38,184
=======
PER COMMON SHARE $232.65
=======
MULTIPLE OF BOOK VALUE 1.82
<CAPTION>
NET PRESENT EQUITY/
PD YEAR EQUITY INCOME ASSETS DIVS. PVIF VALUE ROE ROA ASSETS
-- ---- ------ ------ ------ ----- ---- ----- --- --- ------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1.0 1 22,695 $2,797 192,884 $1,119 89.29% $999 12.32% 1.45% 11.77%
2.0 2 24,535 $3,067 204,457 $1,227 79.72% 978 12.50% 1.50% 12.00%
3.0 3 26,486 $3,251 216,724 $1,300 71.18% 926 12.27% 1.50% 12.22%
4.0 4 28,553 $3,446 229,728 $1,378 63.55% 876 12.07% 1.50% 12.43%
5.0 5 30,745 $3,653 243,512 $1,461 56.74% 829 11.88% 1.50% 12.63%
6.0 6 32,294 $3,872 258,122 $2,323 50.66% 1,177 11.99% 1.50% 12.51%
7.0 7 33,935 $4,104 273,610 $2,462 45.23% 1,114 12.09% 1.50% 12.40%
6.0 8 35,675 $4,350 290,026 $2,610 40.39% 1,054 12.19% 1.50% 12.30%
9.0 9 37,520 $4,611 307,426 $2,767 36.06% 998 12.29% 1.50% 12.20%
10.0 10 39,475 $4,888 325,873 $2,933 32.20% 944 12.38% 1.50% 12.11%
11.0 11 41,548 $5,181 345,426 $3,109 28.75% 894 12.47% 1.50% 12.03%
12.0 12 43,745 $5,492 366,151 $3,295 25.67% 846 12.56% 1.50% 11.95%
13.0 13 46,073 $5,822 388,120 $3,493 22.92% 801 12.64% 1.50% 11.87%
14.0 14 48,542 $6,171 411,408 $3,703 20.46% 758 12.71% 1.50% 11.80%
15.0 15 51,158 $6,541 436,092 $3,925 18.27% 717 12.79% 1.50% 11.73%
16.0 16 53,932 $6,934 462,258 $4,160 16.31% 679 12.86% 1.50% 11.67%
17.0 17 56,872 $7,350 489,993 $4,410 14.56% 642 12.92% 1.50% 11.61%
18.0 18 59,988 $7,791 519,393 $4,675 13.00% 608 12.99% 1.50% 11.55%
19.0 19 63,292 $8,258 550,556 $4,955 11.61% 575 13.05% 1.50% 11.50%
20.0 20 66,793 $8,754 583,590 $5,252 10.37% 544 13.11% 1.50% 11.45%
TERMINAL VALUE 141,812 10.37% 14,701
-------
PRESENT VALUE WITH TERMINAL VALUE EQUAL $31,659
TO 16.20X ENDING INCOME =======
PER COMMON SHARE $192.90
=======
MULTIPLE OF BOOK VALUE 1.51
</TABLE>
-59-
<PAGE>
COMPARATIVE OPTION ANALYSIS
PUBLICLY TRADED BANKS WITH ASSETS BETWEEN $250.0 - $750.0 MlLLION
<TABLE>
<CAPTION>
Common
Total Shares Stock Options
Assets Outstanding Options as a % of
($000) (Actual) Outstanding Shares
Ticker Short Name Mst RctQ Mst RctQ (Actual) Outstanding
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
ABAN American Bancshares Inc. $290,796 4,070,458 0 0.00%
ABCB ABC Bancorp 685,411 7,252,365 33,334 0.46%
ABPA Ambassador Bank 277,907 1,910,229 54,315 2.64%
AFSC Anchor Financial Corp. 585,397 3,876,047 391,262 10.09%
ALLE Allegiant Bancorp Inc. 578,700 4,459,711 576,656 12.93%
AMBC American Bancorp. 474,904 3,129,674 0 0.00%
ANBC ANB Corp. 525,490 4,530,974 329,450 7.27%
AThB Atlantic Bank & Trust Co. 321,776 4,055,526 883,700 21.79%
AUBN Auburn National Bancorp. 264,028 1,308,191 0 0.00%
BAYB Bay Bancshares Inc. 276,294 2,490,103 33,300 1.34%
BCBF BCB Financial Services Corp. 447,594 3,471,062 143,957 4.15%
BCOM Bank of Commence 556,772 11,579,935 1,722,196 14.87%
BEVB Beverly Bancorp. 645,726 5,487,322 399,445 7.28%
BHB Bar Harbor Bankshares 353,744 1,720,583 0 0.00%
BKLA Bank of Los Angeles 272,033 4,751,685 118,464 2.49%
BLMT Belmont Bancorp. 388,713 2,637,498 0 0.00%
BMTC Bryn Mawr Bank Corp. 374,210 2,185,609 181,600 6.31%
BNBC Broad National Bancorp. 601,669 4,706,921 385,548 8.19%
BNCC BNCCORP Inc. 360,121 2,338,720 30,000 1.28%
BNSC Bank of Santa Clara 262,649 2,152,213 112,202 5.21%
BPBC Boston Private Bancorp Inc. 323,085 6,718,608 797,452 11.87%
CAC Camden National Corp. 569,461 2,265,058 95,758 4.23%
CASS Cass Commercial Corp. 438,327 3,656,548 120,000 3.11%
CBCL Capitol Bancorp Ltd. 633,826 5,195,513 554,476 10.67%
CBIN Community Bank Shares 262,845 1.983,722 0 0.00%
CBIV Community Bankshares Inc. 270,691 2,779,187 150,000 5.40%
CBMD Columbia Bancorp 373,451 2,200,165 149,829 6.81%
CBNJ Carnegie Bancorp 431,886 2,751,816 258,737 9.40%
CCBP Comm Bancorp Inc. 381,811 2,202,405 0 0.00%
CCOW Capital Corp of the West 343,024 4,356,080 197,669 4.54%
CEBC Centennial Bancorp 471,998 14,456,446 1,038,814 7.19%
CFFI C&F Financial Corp. 278,106 1,916,190 74,050 3.86%
CFIC Community Financial Corp. 304,177 2,360,612 0 0.00%
CIBN California Independent Bancorp 292,938 1,651,131 248,490 15.05%
CIVC Civic BanCorp 325,420 4,619,768 399,582 6.65%
CLBK Commercial Bankshares Inc. 396,199 3,517,583 175,649 5.00%
CNAF Commercial National Financial 319,742 1,800,000 0 0.00%
CNBC Center Bancorp Inc. 473,112 2,361,447 99,225 4.20%
CNBF CNB Financial Corp. 634,389 3,838,098 62,250 1.62%
CNBKA Century Bancorp Inc. 631,125 5,790,417 110,483 1.91%
CNBT Citizens National Bank of TX 285,561 3,893,091 164,540 4.74%
COB CoBancorp Inc. 666,186 3,453,824 114,044 3.30%
COVB CoVest Bancshares Inc. 582,722 4,365,761 1,073,610 24.59%
CRRB Carrollton Bancorp 287,907 1,454,288 0 0.00%
CTBP Coast Bancorp 261,505 2,203,659 78,000 3.54%
OTY Community Banks Inc. 463,050 3,036,305 110,987 3.66%
CVLY Codorus Valley Bancorp Inc. 255,058 2,194,518 12,600 0.57%
CWV Commercial BancShares Inc. 425,164 1,616,167 0 0.00%
CYFN Century Financial Corp. 458,532 5,092,248 246,312 4.64%
FBA Frst Banks America Inc. 451,708 3,796,231 15,000 0.40%
</TABLE>
-60-
<PAGE>
COMPARATlVE OPTION ANALYSlS
PUBLICLY TRADED BANKS WITH ASSETS BETWEEN $250.0-$750.0 MILLION
<TABLE>
<CAPTION>
Common
Total Shares Stock Options
Assets Outstanding Options as a % of
($000) (Actual) Outstanding Shares
Ticker Short Name Mst RctQ Mst RctQ (Actual) Outstanding
- ------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
FBCG First Banking Co. of SE GA 411,223 3,762,468 0 0.00%
FBNC First Bancorp 402,669 3,020,370 156,200 5.17%
FCTR First Charter Corp. 585,944 7,555,927 187,267 2.48%
FLIC First of Long Island Corp. 478,930 3,104,961 155,678 5.01%
FMAR First Mariner Bancorp 257,020 2,851,563 180,600 6.33%
FNBC Franklin Bancorp. 647,448 6,630,975 678,350 10.23%
FNBF FNB Financial Services Corp. 325,151 2,493,680 288,648 11.58%
FNBN FNB Corp. 325,655 1,819,825 138,050 7.59%
FNBR FNB Rcchester Corp. 522,353 3,589,253 323,600 9.02%
FNC First National Corp. 565,571 5,188,097 102,621 1.98%
FOOT Foothill Independent Bancorp 435,708 5,111,993 687,861 13.46%
FPBN FP Bancorp Inc. 353,204 2,778,823 264,126 9.50%
FRBK Republic First Bancorp Inc. 303,166 4,135,571 809,090 19.56%
FSBT First State Corp. 539,949 6,892,769 436,905 6.34%
FSNM First State Bancorp. 401,044 2,583,867 199,753 7.73%
FSVB Franklin Bank NA 503,908 3,498,985 252,020 7.20%
FTCG First Colonial Group Inc. 346,738 1,652,634 22,499 1.36%
FUNC First United Corp. 569,030 6,259,586 0 0.00%
FUSC First United Bancorp. 305,253 4,042,671 361,733 8.95%
FVNB First Victoria National Bank 500,273 2,372,792 0 0.00%
GABC German American Bancorp 498,831 5,350,161 41,927 0.78%
GBCI Glacier Bancorp Inc. 580,398 6,847,485 328,991 4.80%
GFLS Greater Community Bancorp 297,303 2,104,190 332,437 15.80%
GLDB Gold Banc Corp. 411,086 4,793,615 70,500 1.47%
GRAN Bank of Granite Corp. 528,980 9,146,272 136,566 1.49%
HABC Habersham Bancorp 326,950 2,371,554 345,754 14.58%
HBCI Heritage Bancorp Inc. 366,269 4,772,521 31,966 0.67%
HCK Hudson Chartered Bancorp Inc. 731,524 7,076,263 446,877 6.32%
IBK Independent Bankshares Inc. 264,574 1,975,000 14,167 0.72%
IROQ Iroquois Bancorp Inc. 509,778 2,388,936 126,050 5.28%
ISB Interchange Financial Services 548,037 4,240,392 75,602 1.78%
IUBC Indiana United Bancorp 371,751 1,250,897 0 0.00%
JRBK James River Bankshares Inc. 390,076 3,672,557 187,500 5.11%
KHG Keystone Heritage Group Inc. 646,336 3,958,249 67,130 1.70%
LABN Lake Ariel Bancorp Inc. 368,073 4,548,383 220,500 4.85%
LEBC Letchworth Independent BS Corp 261,372 968,986 71,492 7.38%
LION Fidelity National Corp. 657,804 8,114,407 0 0.00%
LKFN Lakeland Financial Corp. 714,212 2,902,502 0 0.00%
LXBK LSB Bancshares Inc. 616,265 8,666,294 341,743 3.94%
MATE Matewan BancShares Inc. 633,974 3,636,750 0 0.00%
MBVT Merchants Bancshares Inc. 584,252 4,290,698 50,000 1.17%
MNOC Monocacy Bancshares Inc. 289,944 1,791,374 26,983 1.51%
MRET Merit Holding Corp. 267,363 3,989,033 113,250 2.84%
NBT National Bancshares Corp. 470,159 4,658,734 148,700 3.19%
NCBH North County Ibancorp 280,734 4,637,516 221,597 4.78%
NECB New England Community Bancorp 606,170 5,161,000 187,000 3.62%
NMBT NMBT Corp. 336,566 2,614,858 293,600 11.23%
NRIM Northrim Bank 273,157 3,112,060 387,455 12.45%
NSDB NSD Bancorp Inc. 320,330 2,586,999 79,415 3.07%
NSFC Northern States Financial Corp 458,986 889,373 5,178 0.58%
</TABLE>
-61-
<PAGE>
COMPARATIVE OPTION ANALYSIS
PUBLICLY TRADED BANKS WITH ASSETS BETWEEN $250.0 - $750.0 MILLION
<TABLE>
<CAPTION>
Common
Total Shares Stock Options
Assets Outstanding Options as a % of
($000) (Actual) Outstanding Shares
Ticker Short Name Mst RctQ Mst RctO (Actual) Outstanding
- -------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
OAKF Oak Hill Financial Inc. 361,917 3,518,190 104,900 2.98%
OSKY Mahaska Investment Co. 274,736 3,665,494 435,673 11.89%
OVBC Ohio Valley Banc Corp. 365,605 1,786,556 0 0.00%
OZRK Bank of the Ozarks Inc. 352,093 3,779,555 0 0.00%
PAB PAB Bankshares Inc. 328,792 2,825,963 72,000 2.55%
PBSF Pacific Bank NA 603,364 2,692,514 352,500 13.09%
PBTC Peoples BancTrust Co. 361,005 3,387,433 79,100 2.34%
PCCI Pacific Crest Capital 464,295 2,886,946 222,663 7.71%
PEBK Peoples Bank 327,370 1,702,000 0 0.00%
PFBI Premier Financial Bancorp Inc. 468,452 4,209,090 40,000 0.95%
PNBC Princeton National Bancorp 450,043 2,677,542 0 0.00%
PPLS Peoples Bank of Indianapolis 598,476 3,076,850 112,020 3.64%
PRFN Prestige Financial Corp. 283,587 3,308,624 320,581 9.69%
RBPAA Royal Bancshares of PA 349,037 8,329,402 562,520 6.75%
REB Redwood Empire Bancorp 447,633 2,785,261 431,500 15.49%
RMPO Ramapo Financial Corp. 285,727 8,107,074 67,534 9.47%
SABC South Alabama Bancorp. 369,595 4,245,586 150,000 3.53%
SBCO Southside Bancshares Corp. 549,864 2,797,670 75,000 2.68%
SBHC Security Bank Holding Co. 270,232 4,057,313 96,600 2.38%
SBIT Summit Bancshares Inc. 459,794 6,501,332 256,676 3.95%
SFBC Slade's Ferry Bancorp 301,571 3,236,713 0 0.00%
SFSW State Financial Services Corp. 421,278 3,872,552 92,315 2.38%
SJNB SJNB Financial Corp. 324,919 2,493,000 252,518 10.13%
STBC State Bancorp Inc. 738,089 6,109,083 217,266 3.56%
SUB Sun Bancorp Inc. 510,728 6,200,681 225,963 3.64%
SWBS SierraWest Bancorp 589,755 4,100,000 412,155 10.05%
SWPA Southwest National Corp. 739,242 3,064,910 0 0.00%
SXNB Success Bancshares Inc. 378,719 2,918,324 153,340 5.25%
SYI S.Y. Bancorp Inc. 478,597 3,281,971 170,134 5.18%
TIBB TIB Financial Corp. 260,957 4,368,954 673,310 15.41%
TMP Tompkins County Trustco Inc. 626,907 3,217,879 125,884 3.91%
UBCD UnionBancorp Inc. 625,460 4,135,830 41,727 1.01%
UBSH Union Bankshares Corp. 595,481 3,575,937 231,560 6.48%
USBN United Security Bancorp. 281,806 4,052,775 63,078 1.56%
VAIB Valley Independent Bank 446,543 6,187,397 476,779 7.71%
VBNJ Vista Bancorp Inc. 543,467 4,160,711 0 0.00%
WAIN Wainwright Bank & Trust Co. 325,440 4,248,324 219,050 5.16%
WRKC Westbank Corp. 308,265 3,581,377 277,122 7.74%
WNNB Wayne Bancorp Inc. 368,849 3,930,606 0 0.00%
YANB Yardville National Bancorp 614,686 4,958,098 27,428 0.55%
Average 5.01%
Median 3.76%
SMOKY MOUNTAIN BANCORP $468,751 1,274,551 172,886 13.56%
</TABLE>
<PAGE>
FIRST NATIONAL BANK AND TRUST COMPANY
ATHENS, TENNESSEE
SPECIAL MEETING OF THE STOCKHOLDERS
APRIL 5, 1983
The special shareholders meeting of the stockholders of The First National
Bank and Trust Company, Athens, Tennessee, was held in the Directors Room of the
bank on Tuesday, April 5, 1983 pursuant to the proxy statement furnished to all
of the shareholders previously.
The meeting was called to order by Mr. L. A. Roseberry, Chairman of the
Board, presiding. Chairman Roseberry welcomed each of the shareholders present
and paid particular notice and welcome to several shareholders who are from out
of town. He specifically recognized Mr. George Hammer of Beaumont, Texas, Mr.
Arnold Malone of Nashville, Tennessee and Mrs. Cissy Proffitt of Maryville,
Tennessee.
The first order of business was for the appointment of secretary of the
meeting. Chairman Roseberry noted that in order to facilitate the meeting, he
recommended that Mr. Michael L. Bevins be appointed Secretary to the meeting
unless there were other recommendations from the floor. There being none, Mr.
Bevins was appointed to serve as Secretary to the Special Shareholders Meeting.
Chairman Roseberry called on Secretary Bevins for his report whereupon Mr.
Bevins reported that the notice of meeting and proxy statement had been
submitted to the shareholders as required by governing regulations, this
information being mailed to the shareholders on March 10, 1983.
The next order of business was for the appointment of a Tellers Committee
whereupon Chairman Roseberry appointed Mrs. Sheila H. Sterling as Chairman of
the Teller Committee along with members Mr. Gary Womac and Mr. Robert B.
Mayfield. Chairman Roseberry then asked the Tellers Committee to excuse itself
to determine as to whether or not a quorum of the shareholders are present in
person and by proxy so as to allow the meeting to continue. In the interim, Mr.
Roseberry called on President L. A. Walker, Jr. to present the question at hand
for this special shareholders meeting. President Walker informed the
shareholders that they had already received their proxy and notice of the
meeting. Contained in the proxy material was all of the relevant information as
it would pertain to the question at hand. He informed the shareholders that a
special shareholders meeting had been held on March 24, 1983 which was conducted
by Mr. Stanley Huggins, attorney, to review in detail the advantages and
disadvantages of a holding company. This presentation was presented through a
slide presentation and was most informative and had answered all of the
questions that the shareholders had had at that time. President Walker also
noted that over 95% of our shareholders had returned their proxies and that this
was probably the largest percentage that we had received back. President Walker
then called on any questions that any of the shareholders may have as it
pertains to the question. There being none he turned the meeting back over to
Chairman Roseberry.
<PAGE>
STOCKHOLDERS MEETING
April 5, 1983
Page 2
Chairman Roseberry called on the Chairman of the Tellers Committee for her
report, whereupon Mrs. Sheila H. Sterling reported that there was indeed a
quorum present by proxy and in person there being a total of 95,262 shares
represented in person and by proxy. (A breakdown of these votes is attached to
these minutes). Chairman Roseberry thanked Mrs. Sterlinq for her report and
indicated that since there was a quorum present the meeting could continue and
the question could be addressed.
Chairman Roseberry then called on President Walker to present the
question. President Walker then informed the shareholders that the question upon
which a vote was to be taken was on the consolidation of The First National Bank
and Trust Company, Athens, Tennessee, with Interim National Bank of Athens,
Tennessee as set forth in the agreement of consolidation furnished to the
shareholders prior to the meeting. Upon motion by W. D. Sullins, seconded by
Felmont F. Eaves, the consolidation of The First National Bank with Interim
National Bank was approved with Mr. William R. Selden and Mrs. Margaret N.
Proffitt as named in the proxy voting those shares as indicated by the various
proxies as received. The following schedule records the votes of the shares of
the shareholders for this meeting:
# Shares # Shares Total
Voted by Proxy Voted in Person Shares Voted
-------------- --------------- ------------
FOR 76,024 11,670 87,694
AGAINST 2,431 3,119 5,550
ABSTAIN 2,018 2,018
------ ------ ------
TOTAL 80,473 14,789 95,262
ADJOURNMENT
There beinq no further business to come before this special shareholders
meeting of The First National Bank and Trust Company upon motion by Mr. Felmont
F. Eaves, seconded by Mr. Arnold Malone, the meeting was adjourned.
/s/ L.A. Roseberry
-----------------------------
L.A. Roseberry, Chairman
/s/ Michael L. Bevins
- --------------------------------
Michael L. Bevins, Secretary
Date Read and Approved:___________________
<PAGE>
Attachment to Minutes of
Stockholders Meeting of
April 5, 1983
IN PERSON: FOR: Michael L. Bevins, 1341; Wm. P. Biddle, III, 636; Robert H.
Buttram, 20; F. F. Eaves, 891; Maynard Ellis, Jr. 250; Maynard Ellis, Jr. and/or
Helen Ellis Walker, 50; Maynard Ellis, Jr. and/or Horace M. Ellis, III, 50;
Maynard Ellis, Jr. and/or James O. Ellis, 50; Maynard Ellis, Jr. and/or Ruth
Ellen Ellis, 50;Joseph T. Frye, Jr., 1039; Wm. C. Grater, 100; Gary D. Womac,
186; Kenneth D. Higgins, 427; M/Mrs. Kenneth D. Higgins, 1426; Robert F. Lee,
229; Arnold L. Malone, 400; Robert Bolton Mayfield, 200; Thomas B. Mayfield,
III, 2100; Doug Rodgers, 10; L. A. Roseberry, 180; W. D. Sullins, 1421; United
Enterprise, 401; Leonard A. Walker, Jr., 163; Maynard Ellis, Jr. and/or Marion
Dake Ellis, 50 11,670 SHARES
IN PERSON: AGAINST: George N. Hammer, 44; William R. Selden, 1483; William R.
Selden or Donald G. Self, Tr., 1592 3,119 SHARES
BY PROXY: AGAINST: Frank J. Andre, 67; Howard E. Bales, 73; Carl M. Hutsell, 41;
Mr and Mrs. K. M. Kirkpatrick, 100; C. Scott Mayfield, 396, Muriel S. Mayfield,
382; James H. Owen or Virginia Owen, 512; Marion L. Smith, 300, Elizabeth Selden
Taylor, 200; W. Stokes Taylor, Guardian and Cust. for Joseph R. Taylor, 25; Mrs.
Mayme Jo McMillon Stowers,335 2,431 SHARES
BY PROXY: FOR: Catherine Burn Allen, 141; Ralph G. Anderson or Mrs. Alma N.
Anderson, 100; George Reed Arrants or Jean Dodson Arrants, 28; Athens Insurance
Agency, 41; Mrs. Dorothy L. Babion, 128; Donald G. Barlowe or Jean S. Barlowe,
150; Joy Bemis, 44; E. B. Bohannon, Jr., 121; Mrs. Evelyn Moore Boyd, 1566;
Naomi L. Boyd, 36; Thomas M. Boyd, 487; Betty B. Bragg, 242; Oscar R. Bragg,
Jr., 192; Frank N. Bratton, 838; Sarah V. Brigham, 2408; Joe Washington Brown,
29; Laura Fisher Brown, 25; James E. Burn, 270; Patton Blair Burn, 141; Sandra
Burn Boyd, 141; Sm. H. Burn, 1200; Dr. T. J. Burton, 2224; Susan H. Carter, 100;
Susan H. Carter, Cust. for David Anthony Carter, 100; Susan H. Carter, Cust. for
James L. Carter, III, 100; W. P. Chesnutt, Jr., 350; W. P. Chesnutt, 346;
Frederic J. Chester, 35; Geo. B. Coe, Jr., 20; Eugene S. Collins, 62; Isabelle
T. Cook, 64; Alice R. Cooke Masters, 172; Evelyn Cooke, 573; David L. Copeland
or Johnnie P. Copeland, 20; Wendell W. Crews and/or Aleese T. Crews, 41; Frank
L. Crow, 525; Walter L. Darby, Jr. and/or Mary Ann F. Darby, 29; Billy L. Davis
or Joyce Davis, 60; Wm. M. Davis, 496; Marise W. Davitt, 2000; Leslie W. Dooley,
678; Lee Dallas Duncan, 520; Sue Elder, 250; Katherine Asler Elderkin,
561;Eleven & Co., 2773; Mary Ruth Ellis, 250; Mrs. Ellen Louise Emery, 19;
Lorene A. Epperson, 235; Erma Fine Ewing, 76; John A. Ewing, 77; FNB & Elaine
Mayfield Cathcart & Charles Scott Mayfield Jr.,55; FNB & Elaine Mayfield
Cathcart and Charles Scott Mayfield, Jr., 55; James E. Fisher and/or Margaret M.
Fisher, 160; First Tennco, 800; First Bankers c/o First Natl. Bank of Broward
County, 141; Mrs. Lorine Wm. Foree, 1737; Mrs. Carolyn H. Foster, 1140;
Marguerite Gammon, 134; Morris D. Goodfriend, 401; Benjamin Barc1ay Graves, 85;
Shelley or Judith Griffith, 50; Mr. or Mrs. Clyde R. Grubb, 150; Raymond Guffey,
201; Bonnie P. Hairrell, 100; David P. Hairrell, 76; Wm. B. Hairrell; 76;
Charles R. Hammer, 48; Frank L. Hammer, 134; Mary Hammer, 134; Dr. R. Danny
Hays, 38; Hans C. Helmerich, 15; Johathan David Helmerich, 15; Walt H.
Helmerich, IV, 15; Zachery Dow Helmerich, 15; Mrs. Anne E. Hornsby & James H.
Hornsby Jr JT Ten WROS; 560; Mrs. Agnes Horton, 282; Mrs. Thelma Milton Horton,
227; Rankin M. Hudson, 261; Frances Hutsell, 25; Fred. A. Hutsell Jr. Cust for
Jeffrey Alan Hutsell, 2; Fred A. Hutsell, Jr. Cust for Jeanna Joy Hutsell, 2;
Fred A. Hutsell, Jr. Cust. for Johnny Hutsell, 2; Mrs. Jane M. Jack, 105; Mrs.
Alice Janeway, 15; Mrs. Betty Meagher Johnpeter, 160; Charles A. Johnpeter, 25;
Elizabeth Ann Johnson, 544;
<PAGE>
continued----
BY PROXY: FOR: Harry C. Johnson, Jr., 437; Mr. and Mrs. J.E. "Gene" Johnson, 41;
James Emmette Johnson, 545; Kathleen N. Johnson, 13; Mrs. Mary Elizabeth
Edington Johnson, 20; Wm. D. Johnson, 12; Herman Johnston, 100; Herman Johnston
and/or Mrs. Mildred Johnston, 100; Charlotte Margaret Jones Stephenson, 52;
Cyril Wm. Jones, III, 22; John M. Jones, III, 158; Luther H. or Eloise T. Jones,
209; Michael Robert Jones, 8; Dr. Milnor Jones, 2301; FNB Suc. Cust. for Camille
Jones, 21; FNB, Suc. Cust for Jonathan Jones, 21; Mrs. Milnor Jones, 121; Miriam
Conner Jones, 22; Mary Jane Ferris Kelly, 220; Paul DeWitt Kelly II Cust for Ann
Ferris Kelly, 120; Paul DeWitt Kelly II Cust for Elizabeth Neal Kelly, 120; Paul
Dewitt Kelly III, 120; Paul DeWitt Kelly II 220; Chas. T. King, & wife,
Harriette Ewing King, 77; James R. Laycock, 81, Becky W. Leamon, 245; Mrs. Edna
Wood Lee Stapella, 29; Mrs. Effaleda O Lee, 96; David M. Lepchitz, 200; Jake
Lepchitz or Mrs. Louise D. Lepchitz, 179; Mrs. Adele H.W. McClary or David S. W.
McClary 52; Mrs. Adele H.W. McClary or Richard A. McClary, 52; David S.W.
McClary or Robt. L. McClary, 100; Richard A.W. McClary or Robt L. McClary, 100;
Robert McClary or Adele McClary, 100; Willie Mae McCracken, 525; Don J. McKay
164; James T. McKay or Dashille McKay, 22; Charles H. McKeehan, 12; M and Mrs.
D. E. McKeehan, 25; Mrs. D. E. McKeehan or Brenda Gail McKeehan 12; David E.
McKeehan, 100; McMinn Co., 12,461; Clarence C. McPhail, 25; James H. McSpadden,
9; Mrs. Barbara C. Mahery, 102; Charles C. Mahery, 452; John Patrick Mahery,
102; Mrs. Phyllis L. Marks, 50; Wm. L. Marks, 128; Charles Glenn Mason, 101;
Charles Scott Mayfield, Jr., 183; Mrs. Thomas B. Mayfield, III, 218; Thomas
Brient Mayfield IV, 201; Harold F. Miller, 1550; Mrs. Rebecca W. Milne, 100;
Mrs. Lean M Minge, 151; Vernie L. Minnick a/or Blanche A. Minnick as Jt. Ten
WROS, 93; Mrs. Lucille Mitchell, 169; Mrs. Pauline D. Mitchell, 169; Mr or Mrs.
C.L. Mixson, 100; Dave E. Morgan, 160; Harry E. Morgan or Velma C. Morgan, 22;
R. Quay Morgan, 2; Ray Quay Morgan, Jr., 405; Mrs. Stella J. Morgan, 40; David
Carroll Murphy, 41; David Carroll Murphy or Mrs. Billie Jo Murphy, 100; Larry
Nolen, 1000; Margaret Ann Nolen, 102; Robbye Morgan Ottlinger, 41; A.E. or
Leotta Parrot, 10; Mrs. Eleanor Foree Peebles, 743; Mrs. Mary H. Pickering, 29;
Robin L. Pierce or Frankie Wright Pierce, 200; Jack A. Prince, 12; Reep & Co.,
983; Donald B. Reid, 22; Jerry Richardson or Ruby Richardson, 125; Mrs. Martha
Frances Robertson, 80; Stephen Rodgers, 10; Wm. R. Rodgers or Helen p. Rodgers,
130; Philip Rodgers, 10; Mrs. Donald H. Rule, 102; Mrs. Lena D. Rule or Caroly
C. Rule, 102; Jacolyn A Russell, 67; Mrs. Mary Hoyle Rymer, 574; Elizabeth
Wellford Graves Seckman, 35; Mrs. Jeanne Senerate, 212; Mrs. Tom Sherman, 1344;
Mrs. Mary Neal Chudress Shoaf, 830; Mary Davitt Shoniker or Joseph J. Shoniker,
Jr., 40; Jerry E. Smith, 15; Mrs. Deborah Johnson Hamilton, 42; Mrs. Eddie
Miller Spooner, 29; Mrs. Elizabeth Ann Squires, 1500; R. R. Streety, Tr. for
Dorothy R. Streety, 630; Mrs. Mildred F. Sullins, 314, Ella K. Swafford, 32;
Lena M. Tallent or Sibyl T. Haney, 224; Tenn & Co., 3161; Frances Turner 29;
Uniplant & Co., 891; Geo H. Usry and/or Lynn D. Usry, 25; Peter VanNess, 100;
Jacquelyn Burn Wade, Cust. for James E. Burn, Jr., 50; Jacquelyn Burn Wade,
Cust. for Sara Roseanne Burn, 50; Wm. Bryan Walker, 850; Mrs. Mary Owen Wankon,
450; Mrs. Myra Perkinson Weaver, 15; Mrs. Alma C. Webb, 102; Harold D. White,
384; Miss Emma Sue Williams, 2347; Mrs. Doris D. Willson, 95; Mrs. Mary Emert
Willson, 972; James H. Willson, 2000; Wm. P. Willson, 524; Wm. B. Wilson, 144;
Mr. Ben Fred Wood, 29; Mr. and Mrs. Fred Wynn, 100; Zenda & Company, 701; Robert
Davis Arrants, 14 76024 SHARES
BY PROXY: ABSTAIN: Robert C. Hornsby, Jr., 2016; Mrs. Frances H.
Newton, 2 2018 SHARES
EXHIBIT 99.4
FILED CHARTER
SECRETARY OF STATE OF
1982 SEP 14 PM 1:24 FIRST FRANKLIN BANCSHARES, INC.
The undersigned natural person or persons, having capacity to contract and
acting as incorporator or incorporators of a corporation under the Tennessee
General Corporation Act, adopt the following charter for such Corporation:
1. The name of the corporation is First Franklin Bancshares, Inc.
2. The duration of the corporation is perpetual.
3. The address of the principal office of the corporation in the State
of Tennessee shall be 204 Washington Avenue, N.W., P.O. Box 100,
Athens, Tennessee 37303, County of McMinn.
4. The corporation is for profit.
5. The principal purpose for which the corporation is organized is to
engage in banking and non-banking activities of a bank holding
company which is registered with the Board of Governors of the
Federal Reserve System under the Federal Bank Holding Company Act of
1956, as amended. This corporation may engage in any and all lawful
businesses allowed for such a bank holding company under state and
federal law.
6. The maximum number of shares which the corporation shall have the
authority to issue is four hundred thousand (400,000) shares, each
of which shall have a par value of Five Dollars ($5.00).
7. The corporation will not commence business until consideration of an
amount not less than One Thousand Dollars ($1,000.00) has been
received for the issuance of shares.
8. The capital stock of the corporation may be issued for valid
corporate purposes upon authorization by the Board of Directors of
the corporation without prior stockholder approval.
9. The affirmative vote of the holders of not less than eighty percent
(80%) of the outstanding voting stock of the corporation is required
in the event that the Board of Directors of the corporation does not
recommend to the stockholders of the corporation a vote in favor of
(1) a merger or consolidation of the corporation with, or (2) a
sale, exchange or lease of all or substantially all of the assets of
the corporation to, any person or entity. For purposes of this
provision, substantially all of the assets shall mean assets having
a fair market value or book value, whichever is greater, of 25
percent or more of the total assets as reflected on a balance sheet
of the corporation as of a date no earlier than 45 days prior to any
acquisition of such assets. The affirmative vote of the holders of
not less than eighty percent (80%) of the outstanding voting stock
of the corporation is required to amend or repeal the provisions of
this Section 9.
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10. A director of the corporation may be removed for cause as defined in
Section 48-807 of the Tennessee General Corporation Act by the
affirmative vote of a majority of the entire Board of Directors of
the Corporation.
11. The Board of Directors of the corporation shall consist of a maximum
of fifteen (15) persons. The affirmative vote of the holders of not
less than eighty percent (80%) of the outstanding voting stock of
the corporation is required to amend or repeal the provisions of
this Section 11.
12. The holders of the shares of the corporation shall have no
preemptive right, as defined in Section 48-713 of the Tennessee
General Corporation Act.
Dated: September 10, 1982
/s/ Ann W. Langston
---------------------
Incorporator
EXHIBIT 99.5
BYLAWS OF
FIRST FRANKLIN BANCSHARES, INC.
ARTICLE I
MEETINGS OF SHAREHOLDERS
1. Annual Meeting. The annual meeting of the shareholders shall be held on
the fourth Tuesday in February of each year at its principal office unless a
different time or place, either within or without Tennessee, is designated by
the Directors.
2. Specia1 Meetings. Special meetings of the shareholders may be called by
the President, the Chairman of the Board of Directors, a majority of the Board
of Directors, or by the holders of not less than one-tenth (1/10) of all the
shares entitled to vote at such meeting. The place of such meetings shall be
designated by the directors.
3. Notice of Shareholder Meetings. Written or printed notice stating the
place, day, and hour of the meeting, and, in the case of a special meeting; the
purpose or purposes for which the meeting is called and the person or persons
calling the meeting, shall be delivered either personally or by mail by or at
the direction of the president, secretary, officer, or person calling the
meeting, to each shareholder entitled to vote at the meeting. If mailed, such
notice shall be mailed not less than ten (10) nor more than sixty (60) days
before the date of the meeting, by depositing
<PAGE>
such notice in the United States mail addressed to the shareholder at his
address as it appears on the stock transfer books of the Corporation, with
postage thereon prepaid. If delivered personally, such notice shall be
delivered not less than five (5) nor more than sixty (60) days before the date
of the meeting, and shall be deemed delivered when actually received by the
shareholder. The person giving such notice shall certify that the notice
required by this paragraph has been given.
4. Quorum Requirements. A majority of the shares entitled to vote shall
constitute a quorum for the transaction of business. A meeting may be adjourned
despite the absence of a quorum, and notice of an adjourned meeting need not be
given if the time and place to which the meeting is adjourned are announced at
the meeting at which the adjournment is taken. When a quorum is present at any
meeting, a majority in interest of the stock there represented shall decide any
question brought before such meeting, unless the question is one upon which, by
express provision of this Corporation's charter, these bylaws, or by the laws of
Tennessee, a larger or different vote is required, in which case such express
provisions shall govern the decision of such question.
5. Voting and Proxies. Every shareholder entitled to vote at a meeting may
do so either in person or by written proxy, which proxy shall be filed with the
secretary of the
2
<PAGE>
meeting before being voted. Such proxy shall entitle the holders thereof to
vote at any adjournment of such meeting, but shall not be valid after the final
adjournment thereof. No proxy shall be valid after the expiration of eleven
(11) months from the date of its execution unless otherwise provided in the
proxy.
ARTICLE II
BOARD OF DIRECTORS
1. Composition of Board of Directors. The corporation shall have a Board of
Directors consisting of active directors, whose qualifications, election,
number, etc. are described and discussed in this Article II and throughout these
Bylaws. The corporation shall also have advisory directors with limited rights,
as described in Section 11 of this Article II. Whenever the terms "director" or
"Board of Directors" or "Board" are used herein or in other corporate documents,
the terms shall include active directors only, unless the word "advisory" is
used in conjunction therewith.
2. Qualification and Election of Active Directors. Directors must be
shareholders, not under 30 years of age and not over 70 years of age at the time
of the shareholders' meeting at which they are elected by the shareholders. In
the event that a director attains age 70 during his term of office, he shall
serve only until the next shareholders' meeting after his 70th birthday, at
which time his successor
3
<PAGE>
shall be appointed to serve out the remainder of his term. The terms of the
initial Board of Directors elected by the shareholder(s) shall be set so as to
implement staggered terms, i.e. the terms of one-third (or as near one-third as
possible) of the directors shall be one year, the terms of one-third shall be
two years and the terms of one-third shall be three years. Thereafter,
one-third of the directors shall be elected by a majority of the votes cast at
each annual meeting of the shareholders, or by similar vote at any special
meeting called for the purpose, to serve three year terms. Each director shall
hold office until the expiration of the term for which he is elected, except as
stated above, and thereafter until his successor has been elected and
qualified. Any vacancy occurring in the Board of Directors shall be filled by
appointment by the remaining directors, and any director so appointed shall
serve until the next election.
3. Number. The maximum number of active directors is fixed by the Charter
and may be altered only by amendment thereto, but shall never be less than the
number required by law. The Board of Directors may, by a vote of the majority of
the full Board, between annual meetings of the shareholders, increase the
membership of the Board up to the maximum number set out in the Charter and by
like vote appoint qualified persons to fill the vacancies created thereby.
4
<PAGE>
4. Meetings. The annual meeting of the Board of Directors shall be held
immediately after the adjournment of the annual meeting of the shareholders, at
which time the officers of the Corporation shall be elected. The Board may also
designate more frequent intervals for regular meetings. Special meetings may be
called at any time by any one director or any two officers of the Corporation.
5. Notice of Directors' Meetings. The annual and all regular Board meetings
may be held without notice. Special meetings shall be held with not less than
one hour notice of such meeting to be given to each director, which notice shall
be given on a best efforts basis by those calling the meeting.
6. Quorum and Vote. The presence of a majority of the directors shall
constitute a quorum for the transaction of business. A meeting may be adjourned
despite the absence of a quorum, and notice of an adjourned meeting need not be
given if the time and place to which the meeting is adjourned are fixed at the
meeting at which the adjournment is taken, and if the period of adjournment does
not exceed thirty (30) days in any one adjournment. The vote of a majority of
the directors present at a meeting at which a quorum is present shall be the act
of the Board, unless the vote of a greater number is required by the charter,
these bylaws, or by the laws of Tennessee.
5
<PAGE>
7. Appointment of Chairman, Executive and Other Committees. The Chairman of
the Board of Directors of the corporation shall also serve as an officer of the
corporation. The Board of Directors, by a resolution adopted by a majority of
its members, may designate an executive committee, consisting of two or more
directors, and other committees, consisting of two or more persons, who may or
may not be directors, and may delegate to such Chairman, committee or committees
any and all such authority as it deems desirable, including the right to
delegate to an executive committee the power to exercise all the authority of
the Board of Directors in the management of the affairs and property of the
corporation.
8. Powers. In addition to other powers specifically set out herein or that
apply under Tennessee or other applicable law, the Board of Directors shall have
the power to manage and administer the affairs of the Corporation and to do and
perform all lawful acts with respect to the affairs of the Corporation except
those that may be specifically reserved to the shareholders under Tennessee or
other applicable law.
9. Contracts with Interested Directors. No contract or other transaction
between this Corporation and any other corporation shall be affected by the fact
that any director of this Corporation is interested in, or is a director or
officer of, such other corporation, and any direc-
6
<PAGE>
tor, individually or jointly, may be a party to, or may be interested in, any
contract or transaction of this Corporation or in which this Corporation is
interested; and no contract, or other transaction, of this Corporation with any
person, firm, or corporation, shall be affected by the fact that any director
of this Corporation is a party to, or is interested in, such contract, act, or
transaction, or is in any way connected with such person, firm, or corporation,
and every person who may become a director of this Corporation is hereby
relieved from any liability that might otherwise exist from contracting with
the Corporation for the benefit of himself or any firm, association, or
corporation in which he may be in any way interested.
10. Special Considerations by Directors. The directors of this Corporation
shall consider all factors they deem relevant in evaluating any proposed tender
offer or exchange offer for the Corporation's stock, any proposed merger or
consolidation of the Corporation with or into another Corporation and any
proposal to purchase or otherwise acquire all of the assets of the Corporation.
The director shall evaluate whether the proposal is in the best interests of the
Corporation by considering the best interests of the shareholders and other
factors the directors determine to be relevant, including the social, legal and
economic effects on employees, customers and the communities served by the
Corporation and its subsidiary or subsidiaries. The directors
7
<PAGE>
shall evaluate the consideration being offered to the shareholders in relation
to the then current market value of shares of the Corporation in a freely
negotiated transaction, and the directors' estimate of the future value of
shares of the Corporation as an independent entity.
11. Advisory Directors. The active Board of Directors may nominate persons
over the age of 70 years who have previously served as active directors to the
shareholders for election, at the annual meeting of shareholders, as Advisory
Directors. Advisory Directors shall serve in an advisory capacity to the
officers of the corporation and to the active board. They shall, at their
option, attend all meetings of the active board, and shall receive the same fees
for attendance as active directors. Advisory Directors shall not have voting
powers, nor may they serve as active members of any committees. Advisory
Directors shall not incur the responsibilites or liabilities which vest with
active directors.
ARTICLE III
OFFICERS
1. Number. The Corporation shall have a President, a Chairman of the Board,
a Secretary, and such other officers as the Board of Directors shall from time
to time deem necessary. Any two or more offices may be held by the same person,
except the offices of president and secretary.
8
<PAGE>
2. Election and Term. The officers shall be elected by the Board at its annual
meeting. Each officer shall serve until the expiration of the term for which he
is elected, and thereafter until his successor has been elected and qualified.
3. Duties. All offices shall have such authority and perform such duties in
the management of the Corporation as are normally incident to their offices and
as the Board of Directors may from time to time provide.
ARTICLE IV
RESIGNATIONS, REMOVALS AND VACANCIES
1. Resignations. Any officer or director may resign at any time by giving
written notice to the Chairman of the Board of Directors, the president, or the
secretary. Any such resignation shall take effect at the time specified therein,
or, if no time is specified, then upon its acceptance by the Board of Directors.
2. Removal of Officers. Any officer or agent may be removed by the Board of
Directors whenever in its judgment the best interests of the Corporation will be
served thereby.
3. Removal of Directors. Any or all of the directors may be removed with
cause by a proper vote of the shareholders or with cause by a majority vote of
the entire Board of Directors.
9
<PAGE>
4. Vacancies. Newly created directorships resulting from an increase in the
number of directors, and vacancies occurring in any office or directorship for
any reason, including removal of an officer or director, may be filled by the
vote of a majority of the directors then in office, even if less than a quorum
exists.
ARTICLE V
CAPITAL STOCK
1. Stock Certificates. Every shareholder shall be entitled to a certificate
or certificates of capital stock of the Corporation in such form as may be
prescribed by the Board of Directors. Unless otherwise decided by the Board of
Directors, such certificates shall be signed by two officers of the Corporation.
2. Transfer of Shares. Any share or shares of stock may be transferred on
the books of the Corporation by delivery and surrender of the properly assigned
certificate, but subject to any restrictions on transfer imposed by either the
applicable securities laws or any shareholder agreement.
3. Loss of Certificates. In the case of the loss, mutilation, or
destruction of a certificate of stock, a duplicate certificate may be issued
upon such terms as the Board of Directors shall prescribe.
10
<PAGE>
ARTICLE VI
ACTION BY CONSENT
Whenever the shareholders or directors are required or permitted to take
any action by vote, such action may be taken without a meeting on written
consent, setting forth the action so taken, signed by all the persons or
entities entitled to vote thereon.
ARTICLE VII
INDEMNIFICATION
Any person, his heirs, executors, or administrators, may be indemnified or
reimbursed by the Corporation for reasonable expenses actually incurred in
connection with any action, suit or proceeding, civil or criminal, in which he
or they shall be made a party by reason of his being or having been a director,
officer, or employee of the Corporation or of any firm, corporation, or
organization which he served in any such capacity at the request of the
Corporation; provided, however, that no person shall be so indemnified or
reimbursed in relation to any matter in such action, suit, or proceeding as to
which he shall finally be adjudged to have been guilty or liable for gross
negligence, willful misconduct or criminal acts in the performance of his duties
to the Corporation; and, provided, further, that no such person shall be so
indemnified or reimbursed in relation to any matter in such action, suit, or
proceeding which has been
11
<PAGE>
made the subject of a compromise settlement except with the approval of a court
of competent jurisdiction, or the holders of record of a majority of the
outstanding shares of the Corporation, or the Board of Directors, acting by
vote of directors not parties to the same or substantially the same action,
suit, or proceeding, constituting a majority of the whole number of directors.
The foregoing right of indemnification or reimbursement shall not be exclusive
of other rights to which such persons, his heirs, executors, or administrators,
may be entitled as a matter of law.
The Corporation may, upon the affirmative vote of a majority of its Board
of Directors, purchase insurance for the purpose of indemnifying its directors,
officers, and other employees to the extent that such indemnifications are
allowed in the preceding paragraph. Such insurance may, but need not, be for the
benefit of all directors, officers, employees.
ARTICLE VIII
AMENDMENT OF BYLAWS
These bylaws may be amended, added to, or repealed either by: (1) a
majority vote of the shares represented at any duly constituted shareholders'
meeting, or (2) a majority vote of the entire Board of Directors. Any change in
the bylaws made by the Board of Directors, however, may be amended or repealed
by the shareholders.
12
<PAGE>
CERTIFICATION
I certify that these Bylaws were adopted at the shareholder's meeting of
the Corporation held on the 19th day of October 1982.
/s/ L. A. Walker, Jr.
-----------------------------
