<PAGE> 1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-Q
[X] QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarter ended September 30, 1998
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from _________________ to _________________
Commission File Number:
001-13949
LOCAL FINANCIAL CORPORATION
(Exact name of registrant as specified in its charter)
DELAWARE 65-0424192
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
3601 N.W. 63RD, OKLAHOMA CITY, OK 73116
---------------------------------------- -------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (405) 841-2298
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15 (d) of the Securities Exchange
Act of 1934 during the preceding 12 months (or for such shorter period
that the registrant was required to file such reports, and (2) has been
subject to such filing requirements for the past 90 days.
Yes [X] No [ ]
Number of shares outstanding of the registrant's $0.01 par value common
stock as of November 13, 1998 were as follows:
NUMBER OF SHARES
-----------------------------
20,537,209
<PAGE> 2
LOCAL FINANCIAL CORPORATION
INDEX
<TABLE>
<CAPTION>
PAGE
<S> <C> <C>
PART I. FINANCIAL INFORMATION
Item 1. Consolidated Statements of Financial Condition-
December 31, 1997 and September 30, 1998 (unaudited)...........................................1
Consolidated Statements of Operations-
For the Three Months and Nine Months Ended September 30, 1998
And 1997 (unaudited)...........................................................................2
Consolidated Statements of Cash Flows-
For the Nine Months Ended September 30, 1998 and 1997 (unaudited)..............................3
Notes to Consolidated Financial Statements.....................................................5
Item 2. Management's Discussion and Analysis of Financial Condition
And Results of Operations......................................................................9
Item 3. Quantitative and Qualitative Disclosures about Market Risk....................................20
PART II. OTHER INFORMATION
Item 1 Legal Proceedings.............................................................................20
Item 6. Exhibits and Reports on Form 8-K..............................................................21
Signatures ..............................................................................................22
Index to Exhibits ..............................................................................................23
</TABLE>
<PAGE> 3
PART 1. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
LOCAL FINANCIAL CORPORATION AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
(Dollars in thousands, except share data)
(unaudited)
<TABLE>
<CAPTION>
September 30, December 31,
1998 1997
------------- ------------
<S> <C> <C>
ASSETS
------
Cash and due from banks $ 28,319 $ 34,152
Interest bearing deposits with other banks 20,644 20,000
Securities purchased under agreements to resell -- 178,000
Securities available for sale 617,884 518,107
Loans receivable, net of allowance for loan losses of $27,925
at September 30, 1998 and $20,484 at December 31, 1997 1,254,856 953,470
Federal Home Loan Bank of Topeka stock, at cost 50,688 45,147
Premises and equipment, net 22,619 10,646
Assets acquired through foreclosure and repossession, net 872 260
Intangible assets, net 18,474 1,779
Deferred tax asset, net 13,009 26,058
Current income taxes receivable 19,416 28,427
Other assets 59,600 65,319
----------- -----------
Total assets $ 2,106,381 $ 1,881,365
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
Liabilities:
Deposits:
Demand $ 347,331 $ 247,264
Savings 75,113 68,937
Time 1,263,093 1,286,332
----------- -----------
Total deposits 1,685,537 1,602,533
Advances from borrowers for taxes and insurance 9,124 5,046
Advances from the Federal Home Loan Bank of Topeka 182,544 80,136
Senior notes 80,000 80,000
Other liabilities 36,246 31,025
----------- -----------
Total liabilities 1,993,451 1,798,740
----------- -----------
Commitments and contingencies
Stockholders' equity:
Common stock, $0.01 par value, 25,000,000 shares authorized;
20,537,269 shares issued and 20,537,209 shares outstanding at
September 30, 1998; 25,000,000 shares authorized; 19,700,060
shares issued and 19,700,000 shares outstanding at
December 31, 1997 205 197
Preferred Stock, $0.01 par value, 5,000,000 shares authorized;
none outstanding -- --
Additional paid-in capital 206,757 197,766
Retained earnings 45,259 31,760
Treasury stock, 60 shares, at cost (149,436) (149,436)
Accumulated other comprehensive income 10,145 2,338
----------- -----------
Total stockholders' equity 112,930 82,625
----------- -----------
Total liabilities and stockholders' equity $ 2,106,381 $ 1,881,365
=========== ===========
</TABLE>
The accompanying notes are an integral part of these
Consolidated Financial Statements.
1
<PAGE> 4
LOCAL FINANCIAL CORPORATION AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF OPERATIONS
(Dollars in thousands, except share data)
(unaudited)
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
---------------------------- ----------------------------
1998 1997 1998 1997
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Interest and dividend income:
Loans $ 23,754 $ 25,810 $ 68,652 $ 80,346
Securities available for sale 11,572 20,084 31,230 50,787
Securities held to maturity -- -- -- 16,345
Federal Home Loan Bank of Topeka stock 918 768 2,659 2,161
Short term investments and other 142 791 4,361 1,378
------------ ------------ ------------ ------------
Total interest and dividend income 36,386 47,453 106,902 151,017
------------ ------------ ------------ ------------
Interest Expense:
Deposit accounts 17,797 20,523 56,196 62,395
Advances from the Federal Home Loan Bank of Topeka 2,187 11,893 5,024 36,982
Securities sold under agreements to repurchase and other -- 2,073 251 11,849
Notes payable 2,367 692 7,107 1,154
------------ ------------ ------------ ------------
Total interest expense 22,351 35,181 68,578 112,380
------------ ------------ ------------ ------------
Net interest and dividend income 14,035 12,272 38,324 38,637
Provision for loan losses (500) (25,353) (950) (44,047)
------------ ------------ ------------ ------------
Net interest and dividend income after provision for loan
losses 13,535 (13,081) 37,374 (5,410)
------------ ------------ ------------ ------------
Noninterest income:
Deposit related income 2,495 2,083 6,968 5,828
Loan fees and loan service charges 546 561 1,438 2,262
Net gains (losses) on sale of assets 176 (125,485) 535 (151,644)
Other 335 244 1,218 1,648
------------ ------------ ------------ ------------
Total noninterest income (loss) 3,552 (122,597) 10,159 (141,906)
------------ ------------ ------------ ------------
Noninterest expense:
Compensation and employee benefits 4,466 3,866 12,096 11,294
Deposit insurance premiums 332 263 1,015 791
Provision for uninsured risk -- -- -- 2,700
Equipment and data processing 968 748 2,505 2,298
Occupancy 743 636 2,061 2,029
Advertising 546 129 1,368 810
Professional fees 433 408 1,398 985
Other 2,201 7,518 6,160 12,545
------------ ------------ ------------ ------------
Total noninterest expense 9,689 13,568 26,603 33,452
------------ ------------ ------------ ------------
Income (loss) before provision (benefit) for income taxes 7,398 (149,246) 20,930 (180,768)
Provision (benefit) for income taxes 2,673 (50,795) 7,431 (59,082)
------------ ------------ ------------ ------------
Net income (loss) $ 4,725 $ (98,451) $ 13,499 $ (121,686)
============ ============ ============ ============
Basic net income (loss) per share $ 0.23 $ (5.98) $ 0.66 $ (7.72)
============ ============ ============ ============
Diluted net income (loss) per share $ 0.23 $ (5.98) $ 0.66 $ (7.72)
============ ============ ============ ============
Weighted average shares outstanding - Basic 20,537,209 16,475,000 20,396,141 15,762,271
============ ============ ============ ============
Weighted average shares outstanding - Diluted 20,620,627 16,475,000 20,560,292 15,762,271
============ ============ ============ ============
</TABLE>
The accompanying notes are an integral part of these
Consolidated Financial Statements.
2
<PAGE> 5
LOCAL FINANCIAL CORPORATION AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollars in thousands, except share data)
(unaudited)
<TABLE>
<CAPTION>
Nine Months Ended
September 30,
--------------------------
1998 1997
----------- -----------
<S> <C> <C>
CASH PROVIDED (ABSORBED) BY OPERATING ACTIVITIES:
Net income (loss) $ 13,499 $ (121,686)
Adjustments to reconcile net income (loss) to net cash provided by operating
activities-
Provisions for uninsured risk and losses on loans and assets
acquired through foreclosure and repossession 950 46,791
Deferred income tax expense (benefit) 8,436 (33,098)
Accretion of discounts on loans acquired (2,008) (6,043)
Accretion of deferred losses on interest rate swaps -- 1,129
Net amortization (accretion) of premium on securities available for sale (3,943) 4,159
Net amortization (accretion) of premium on securities held to maturity -- 1,289
Depreciation and amortization 2,336 1,759
Proceeds from the sales of loans 62,631 11,613
(Gain) loss on sale of assets (535) 151,644
Stock dividends received from Federal Home Loan Bank stock (2,659) (2,161)
Change in other assets 21,858 (22,991)
Change in other liabilities (2,927) (548)
----------- -----------
Net cash provided by operating activities 97,638 31,857
----------- -----------
CASH PROVIDED (ABSORBED) BY INVESTING ACTIVITIES:
Proceeds from sales of securities available for sale 37,499 1,121,371
Proceeds from principal collections on securities available for sale 147,174 11,748
Proceeds from principal collections on securities held to maturity -- 53,692
Purchases of securities available for sale (226,357) --
Purchases of securities held to maturity -- (147,829)
Payments on termination of interest rate swap agreements -- (47,283)
Purchases of repurchase agreements (1,139,462) --
Proceeds from maturity of repurchase agreements 1,317,462 --
Purchases of Federal Home Loan Bank stock -- (31,189)
Proceeds from the sale of Federal Home Loan Bank stock -- 8,959
Loans made by non-bank subsidiary -- (1,607)
Repayments of loans made by non-bank subsidiary -- 29,408
Change in loans receivable, net (153,935) 12,539
Proceeds from disposal of assets acquired through foreclosure and repossession 382 (5,794)
Purchases of premises and equipment (2,922) (657)
Proceeds from sales of premises and equipment 35 4
Cash acquired in acquisition of Green Country Banking Corporation 2,512 --
Cash paid in acquisition of BankSouth Corporation, net of cash and
cash equivalents received (12,288) --
----------- -----------
Net cash provided (absorbed) by investing activities (29,900) 1,003,362
----------- -----------
CASH PROVIDED (ABSORBED) BY FINANCING ACTIVITIES:
Change in transaction accounts 7,494 (13,265)
Change in time deposits (163,145) (60,044)
Change in securities sold under agreements to repurchase -- (946,129)
Proceeds from advances from the Federal Home Loan Bank 869,415 5,261,673
Repayments of advances from the Federal Home Loan Bank (787,607) (5,374,688)
Proceed from the issuance of common stock -- 181,067
Proceeds from the issuance of senior notes -- 80,000
Payments of debt issuance costs -- (4,344)
Repayments of note payable -- (7,010)
Purchase of treasury stock -- (149,436)
Payment of liability assumed from Green Country Banking Corporation (3,162) --
Change in advances by borrowers for taxes and insurance 4,078 3,485
----------- -----------
Net cash (absorbed) by financing activities (72,927) (1,028,691)
----------- -----------
Net change in cash and cash equivalents (5,189) 6,528
Cash and cash equivalents at beginning of period 54,152 16,122
----------- -----------
Cash and cash equivalents at end of period $ 48,963 $ 22,650
=========== ===========
Supplemental disclosures of cashflow information: Cash paid (received) during
the period for:
Interest $ 61,687 $ 121,700
=========== ===========
Income taxes $ (11,405) $ --
=========== ===========
Supplemental schedule of noncash investing and financing activities:
Loans made to facilitate the sale of assets
aquired through foreclosure and repossession $ -- $ 79
=========== ===========
Transfers of loans to assets acquired through foreclosure
and repossession $ 620 $ 4,874
=========== ===========
Repayment of note payable and accrued interest by shareholders $ -- $ 8,099
=========== ===========
Transfer of assets acquired through foreclosure and repossession to other assets $ -- $ 6,045
=========== ===========
</TABLE>
The accompanying notes are an integral part of these
consolidated financial statements.
3
<PAGE> 6
LOCAL FINANCIAL CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. BASIS OF PRESENTATION
The accompanying unaudited Consolidated Financial Statements were prepared in
accordance with the instructions for Form 10-Q and, therefore, do not include
all disclosures necessary for a complete presentation of financial condition,
results of operations, and cash flows in conformity with generally accepted
accounting principles. All adjustments (consisting of only normal recurring
adjustments) that are necessary, in the opinion of management, for a fair
presentation of the interim financial statements have been included; however,
the results of operations for the nine months ended September 30, 1998 are not
necessarily indicative of the results that may be expected for the entire fiscal
year or any interim period. The interim financial information should be read in
conjunction with the audited Consolidated Financial Statements and Notes
included in the Company's Form 10-K Transition Report for the period ended
December 31, 1997, as filed with the Securities and Exchange Commission ("SEC").
2. SECURITIES PURCHASED UNDER AGREEMENT TO RESELL
Securities purchased under agreement to resell are summarized as follows (in
thousands):
<TABLE>
<CAPTION>
September 30, 1998 December 31, 1997
------------------ -----------------
<S> <C> <C>
Average outstanding balance $ 94,082 $ 60,000
Maximum month-end balance 231,000 178,000
Mortgage-backed securities securing
the agreements at period-end:
Carrying value -- 178,000
Estimated market value -- 184,000
</TABLE>
Securities purchased under agreements to resell are held by the Company. The
agreements generally mature within one month.
3. SECURITIES
A comparative summary of securities available for sale is as follows (in
thousands):
<TABLE>
<CAPTION>
Gross Gross Estimated
Amortized Unrealized Unrealized Market
Cost Gains Losses Value
----------------- ----------------- ------------------ ------------------
<S> <C> <C> <C> <C>
September 30, 1998
- ------------------
Municipal securities $ 1,362 $ -- $ -- $ 1,362
U.S. Government and 48,210 252 -- 48,462
agency securities
Collateralized mortgage
obligations:
FNMA $ 242,167 $ 9,850 $ -- $ 252,017
Private Issue 191,058 2,106 -- 193,164
FHLMC 102,308 3,139 -- 105,447
Mortgage-backed securities:
Private Issue 8,446 235 -- 8,681
FNMA 4,569 6 -- 4,575
FHLMC 3,723 6 -- 3,729
GNMA 434 13 -- 447
------------ ------------ ----------- ------------
$ 602,277 $ 15,607 $ -- $ 617,884
============ ============ =========== ============
</TABLE>
4
<PAGE> 7
<TABLE>
<CAPTION>
Gross Gross Estimated
Amortized Unrealized Unrealized Market
Cost Gains Losses Value
----------------- ----------------- ------------------ ------------------
<S> <C> <C> <C> <C>
December 31, 1997
- -----------------
U.S. Government and $ 6,001 $ -- $ 1 $ 6,000
agency securities
Collateralized mortgage
obligations:
FNMA 265,088 2,199 1,088 266,199
FHLMC 140,781 1,773 61 142,493
Private Issue 19,966 249 31 20,184
Mortgage-backed securities:
FHLMC 44,085 143 1 44,227
Private Issue 36,584 407 -- 36,991
FNMA 1,619 8 -- 1,627
GNMA 386 1 1 386
------------ ------------ ------------ ------------
$ 514,510 $ 4,780 $ 1,183 $ 518,107
============ ============ ============ ============
</TABLE>
With the merger of BankSouth Corporation ("BankSouth"), effective as of
September 30, 1998, the Company acquired approximately $30,228,000 in U.S.
government and agency securities with a weighted average yield of 4.73%,
approximately $7,049,000 in fixed rate mortgage-backed securities with a
weighted average yield of 5.73% and approximately $889,000 in municipal
securities with a weighted average yield of 6.02%.
5
<PAGE> 8
4. LOANS RECEIVABLE
Loans receivable are shown below at amortized cost (in thousands):
<TABLE>
<CAPTION>
September 30, 1998 December 31, 1997
------------------ -----------------
<S> <C> <C>
Residential real estate loans $ 346,033 $ 281,565
Commercial 816,994 646,539
Held for sale 11,976 --
Consumer loans 107,778 45,850
----------- -----------
Total loans 1,282,781 973,954
Less:
Allowance for loan losses (27,925) (20,484)
----------- -----------
Loans receivable, net $ 1,254,856 $ 953,470
=========== ===========
</TABLE>
The Company acquires commercial real estate loans from various sources. These
loans are secured primarily by multifamily residential and nonresidential real
estate. The purchased loans are geographically diverse and have no significant
concentrations of credit with any single borrower.
The Company markets student loans throughout the State of Oklahoma. The Student
Loan Marketing Association ("Sallie Mae") handles the application processing,
disbursement and servicing responsibilities on behalf of the Company. The
Company sells student loans to Sallie Mae approximately 60 days after the loans
are fully funded. At September 30, 1998, student loans totaling approximately
$4,122,000 were held for sale and are included as a component of loans
receivable in the accompanying consolidated statements of financial condition.
The Company securitizes and sells 30-year conforming single family residential
loans originated since January 1, 1998 in the secondary market. At September 30,
1998, residential real estate loans held for sale totaled $7,854,000 and are
included as a component of loans receivable in the accompanying consolidated
statements of financial condition.
5. ADVANCES FROM THE FEDERAL HOME LOAN BANK OF TOPEKA ("FHLB")
Advances from the FHLB are summarized as follows (dollars in thousands):
<TABLE>
<CAPTION>
September 30, 1998 December 31, 1997
------------------------------------- -------------------------------------
Weighted Weighted
Average Average
Balance Contractual Rate Balance Contractual Rate
------- ---------------- ------- ----------------
<S> <C> <C> <C> <C>
Variable rate $ -- -- $ 30,100 5.75%
Fixed rate 182,544 5.00% 50,036 6.26
----------- -----------
$ 182,544 5.00% $ 80,136 6.06%
=========== ========= =========== ==========
</TABLE>
Although no specific assets are pledged, the FHLB requires the Company to hold
eligible assets with a lending value, as defined, at least equal to FHLB
advances, which can include such items as first
6
<PAGE> 9
mortgage loans, investment securities, federal funds sold and interest bearing
deposits which are not already pledged or encumbered.
Scheduled principal repayments of advances from the FHLB at September 30, 1998
are as follows (dollars in thousands):
<TABLE>
<CAPTION>
Weighted
Year ending Average
December 31, Amount Contractual Rate
------------ ------ ----------------
<S> <C> <C>
1998 $ 12,510 5.58%
1999 -- --
2000 -- --
2001 -- --
2002 and thereafter 170,034 4.96
----------- ----
$ 182,544 5.00%
=========== ====
</TABLE>
6. COMPREHENSIVE INCOME (LOSS)
The Company adopted Statement of Financial Accounting Standards No. 130,
"Reporting Comprehensive Income" in the quarter ended June 30, 1998. The
standard requires reporting of comprehensive income, which includes all changes
in stockholders' equity other than additional investments by stockholders or
distributions to stockholders. Comprehensive income for the Company includes net
income and unrealized gains on securities which are charged or credited to the
cumulative unrealized gains on securities account within stockholders' equity.
Comprehensive income (loss) for the periods ended September 30, 1998 and 1997,
consists of (dollars in thousands):
<TABLE>
<CAPTION>
Three Months Nine Months
Ended September 30, Ended September 30,
------------------------------------ -------------------------------------
1998 1997 1998 1997
---------------- ------------------ ------------------ -----------------
<S> <C> <C> <C> <C>
Net income (loss)........................... $ 4,725 $ (98,451) $ 13,499 $ (121,686)
Other comprehensive income, net of tax:
Unrealized gains on securities,
net of reclassification adjustment..... 5,307 32,097 7,807 45,559
------------- ------------- ------------- -------------
Comprehensive income (loss)................. $ 10,032 $ (66,354) $ 21,306 $ (76,127)
============= ============= ============= =============
</TABLE>
7
<PAGE> 10
ITEM 2 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
GENERAL
On August 25, 1997, the Company entered into a redemption agreement
(the "Redemption Agreement") with Baron Collier and Miles Collier, the then sole
stockholders of the Company (the "Selling Stockholders"). In the Redemption
Agreement the Company agreed to redeem all of the Company's issued and
outstanding shares of Common stock for consideration of $154.0 million, subject
to adjustments. The Redemption Agreement was contingent upon the Company raising
through a private placement at least $190.0 million from the sale of its common
stock and at least $70.0 million from the sale of its notes. In addition, the
Company agreed to prepay a promissory note payable to the mother of the Selling
Stockholders at a price equal to the principal amount thereof plus accrued and
unpaid interest thereon to the date of prepayment ($7.0 million of principal and
$190,000 of interest).
On September 8, 1997, the Company entered into a purchase agreement
with Friedman, Billings, Ramsey & Co. and the various purchasers (the "Purchase
Agreement"). The Purchase Agreement provided generally for a private placement
of $197.0 million of common stock and $80.0 million of Senior Notes. In
conjunction with the Purchase Agreement, the Company also entered into a
Registration Rights Agreement with the purchasers, which required the Company to
file a registration statement with the Securities and Exchange Commission
covering the securities sold under the Purchase Agreement. The Company used its
net proceeds from the Purchase Agreement to fund the Redemption Agreement. It
closed these agreements on September 8, 1997.
In connection with the consummation of the transactions contemplated by
the Purchase Agreement and the Redemption Agreement, Edward A. Townsend, the
present Chairman of the Board and Chief Executive Officer of the Company and the
subsidiary banks, Jan A. Norton, the present President of the Company and the
banks and Joseph A. Leone were elected directors of the Company. All of the
persons then serving as directors of the Company resigned. Following such
resignation and appointments, the new members of the Board of Directors caused
Robert A. Kotecki, George Nigh, and Kenneth W. Townsend to be appointed to the
Company's Board of Directors and management appointments were made.
Subsequently, J. David Rosenberg joined the Board.
The Company filed its registration statement on January 5, 1998, and
the registration statement was made effective on April 20, 1998. As a result,
the Company became subject to the periodic reporting requirements of the
Securities Exchange Act of 1934, as amended, and its common stock and Senior
Notes began trading on AMEX under the symbols "LO" and "LO.A".
On September 10, 1998, Local Financial Corporation announced plans to
merge Local America Bank of Tulsa into its parent company, Local Federal Bank,
and operate under one name as Local Federal Bank. The merger will result in no
loss of services or branch closures. The merger will be accounted for "as-if a
pooling of interests" for a combination of entities under common control. The
Office of Thrift Supervision ("OTS") deemed the application complete effective
October 1, 1998. Absent further action by the OTS, the application will be
automatically approved on November 30, 1998.
8
<PAGE> 11
The information included in Item 2 (Management's Discussion and
Analysis of Financial Condition and Results of Operations) should be read in
conjunction with the information contained in the Consolidated Financial
Statements and the Notes thereto. This report contains "forward-looking
statements" within the meaning of the Private Securities Litigation Reform Act
of 1995 (the "Reform Act"), and is subject to the safe harbor created by that
Reform Act. The words "estimate", "project", "anticipate", "expect", "intend",
"believe", "plans", and similar expressions are intended to identify
forward-looking statements. Because such forward-looking statements involve
risks and uncertainties, there are important factors that could cause actual
results to differ materially from those expressed or implied by such
forward-looking statements. Factors, all of which are difficult to predict and
many of which are beyond the control of the Company, that could cause actual
results to differ materially include, but are not limited to: risks related to
the Company's acquisition strategy, including risks of adversely changing
results of operations and factors affecting the Company's ability to consummate
further acquisitions; changes in general economic and business conditions;
changes in market rates of interest; changes in the laws and regulations
applicable to the Company; the risks associated with the bank's Non-Traditional
lending (loans other than single-family residential mortgage loans such as
multifamily, real estate acquisition and development, commercial, warehouse and
mortgage servicing rights loans); risks associated with the Company's Year 2000
compliance effort and those of its significant vendors and large commercial
borrowers; and changes in business strategies and other factors as discussed in
the Company's Form 10-K Transition Report for the period ended December 31,
1997, as filed with the SEC.
CHANGES IN FINANCIAL CONDITION FROM DECEMBER 31, 1997 TO SEPTEMBER 30, 1998
General. On October 22, 1997, the Company and its subsidiary bank,
Local America Bank of Tulsa, FSB ("Local America"), entered into an Agreement
and Plan of Merger (the "Merger Agreement") with Green Country Banking
Corporation ("Green Country") and its wholly-owned subsidiary, Green Country
Bank, FSB ("Green Country Bank"), pursuant to which Green Country would be
merged with and into the Company, with the Company as the surviving corporation,
and in connection therewith, Green Country Bank would be merged with and into
Local America (collectively, the "Merger"). The Merger was consummated on
February 16, 1998, and in connection therewith, each outstanding share of common
stock and preferred stock of Green Country was converted into 27.907 and
4,150.27 newly-issued shares, respectively, of the Company's Common stock. As a
result of the foregoing, an aggregate of 837,209 shares of the Company's Common
stock were issued in connection with the Merger to the three existing
shareholders of Green Country, which included Edward A. Townsend, Chairman and
Chief Executive Officer of the Company, and Jan A. Norton, President and Chief
Operating Officer of the Company. The Merger was accounted for under the
purchase method of accounting. On February 16, 1998, Green Country Bank operated
out of three full-service offices located in Miami, Grove and Commerce, Oklahoma
and had consolidated assets, liabilities, deposits and stockholders' equity of
$104.6 million, $99.6 million, and $79.0 million and $5.0 million, respectively.
On June 18, 1998, Local Financial Corporation announced that its
wholly-owned subsidiary, Local Federal Bank, F.S.B., had entered into a
definitive agreement to acquire BankSouth Corporation, a Lawton, Oklahoma bank
holding company, for approximately $20.6 million in cash, which includes the
redemption of its preferred stock. BankSouth is the holding company of Citizens
Bank, which has five branches in Lawton, Oklahoma and one in Norman, Oklahoma.
BankSouth had total assets, liabilities, deposits and stockholders' equity of
approximately $177.5 million, $167.8 million, $159.7 million and $9.7 million,
respectively, as of September 30, 1998. The acquisition was completed on October
9, 1998 and is reflected for accounting purposes in the Company's Consolidated
Statement of Financial Condition as of September 30, 1998. The acquisition was
accounted for under the purchase method of accounting.
9
<PAGE> 12
Giving effect to the acquisitions of Green Country and BankSouth which
occurred during the period, total assets increased by $225.0 million or 12.0%
during the nine months ended September 30, 1998. The net increase resulted
primarily from an increase in loans receivable of $301.4 million or 31.6%, an
increase in securities available for sale of $99.8 million or 19.3%, and an
increase in intangible assets resulting from the Green Country and BankSouth
acquisitions discussed above. These increases were offset by a decrease in
securities purchased under agreements to resell of $178.0 million or 100% as the
Company liquidated its short-term investment portfolio. Total liabilities
increased $194.7 million or 10.8% from December 31, 1997 to September 30, 1998.
During the period the Company selectively adjusted deposit rates which caused
some rate-sensitive movement of funds, primarily in the time deposit area, where
deposits fell $23.2 million or 1.8%. This outflow was offset by an increase in
demand deposits of $100.0 million or 40.5% and by an increase in borrowings from
the Federal Home Loan Bank of Topeka (the "FHLB") of $102.4 million or 127.8%.
Excluding the effect of the acquired institutions, the Company's total
assets, deposits and total liabilities declined $57.1 million or 3.0%, $155.7
million or 9.7% and $73.4 million or 4.1%, respectively, during the period.
Stockholders' equity increased $30.3 million or 36.7% from December 31,
1997 to September 30, 1998 primarily as a result of net income during the period
and an increase in additional paid-in-capital of $9.0 million which resulted
from the shares issued in connection with the Company's acquisition of Green
Country on February 16, 1998 at which point the Company issued 837,209 new
shares of Common stock to purchase the net assets of Green Country.
DISCUSSION AND RESULTS OF OPERATIONS FOR THE NINE MONTHS ENDED SEPTEMBER 30,
1998 AND SEPTEMBER 30, 1997 AND FOR THE THREE MONTHS ENDED SEPTEMBER 30, 1998
AND SEPTEMBER 30, 1997
General. The Company's results of operations depend substantially on
its net interest and dividend income, which is the difference between interest
and dividend income on interest-earning assets, which consist primarily of loans
receivable, mortgage-backed and other investments securities and various
short-term investments, and interest expense on interest-bearing liabilities,
which consist primarily of deposits and borrowings. The Company's results of
operations have also been significantly affected by the net costs of hedging its
interest rate exposure; its provisions for losses on loans resulting from the
Company's assessment of the adequacy of its allowance for losses on loans; the
level of its noninterest income, including deposit related income, loan fees and
service charges and net gains (losses) on sales of assets; the level of its
noninterest expense, such as compensation and employee benefits, equipment and
data processing expense and occupancy expense; and provisions (benefits) for
income taxes.
Net Income (Loss). The Company reported net income (loss) of $13.5
million and $(121.7) million during the nine months ended September 30, 1998 and
September 30, 1997, respectively. The net loss reported for the nine months
ended September 30, 1997 was attributable to the $151.6 million in losses on
sale of securities and liquidation of related hedges, and the $44.0 million of
provision for loan loss taken in association with the indirect lending auto
portfolio which was subsequently sold as of December 1997 by new management.
10
<PAGE> 13
AVERAGE BALANCES, NET INTEREST INCOME, YIELDS EARNED AND RATES PAID
The following table sets forth, for the periods indicated, information
regarding (i) the total dollar amount of interest income of the Company
from interest-earning assets and the resultant average yields; (ii) the
total dollar amount of interest expense on interest-bearing liabilities and
the resultant average rate; (iii) net interest income; (iv) interest rate
spread; and (v) net interest margin. Information is based on average daily
balances during the indicated periods
<TABLE>
<CAPTION>
THREE MONTHS ENDED SEPTEMBER 30,
---------------------------------------- -------------------------------------
1998 1997
---------------------------------------- -------------------------------------
AVERAGE AVERAGE
AVERAGE YIELD/ AVERAGE YIELD/
BALANCE INTEREST COST BALANCE INTEREST COST
----------- ----------- ------- ----------- --------- -------
(Dollars in Thousands)
<S> <C> <C> <C> <C> <C> <C>
Interest-earning assets:
Loans receivable (1) $ 1,160,814 $ 23,754 8.19% $ 1,014,860 $ 25,810 10.17%
Securities (2) 606,840 11,572 7.63% 1,346,456 20,084 5.97%
Repurchase Agreements -- -- -- 7,837 109 5.52%
Other earning assets (3) 65,575 1,060 6.41% 97,502 1,450 5.90%
----------- -------- ------ ----------- -------- ------
Total interest-earning assets 1,833,229 36,386 7.87% 2,466,655 47,453 7.63%
----------- -------- ------ ----------- -------- ------
Noninterest-earning assets 91,925 75,523
----------- -----------
Total assets $ 1,925,154 $ 2,542,178
=========== ===========
Interest-bearing liabilities:
Deposits:
Transaction accounts (4) 269,761 1,603 2.36% 278,110 1,820 2.60%
Term certificates of deposit 1,194,305 16,194 5.38% 1,309,864 18,703 5.66%
----------- -------- ------ ----------- -------- ------
Total interest bearing deposits 1,464,066 17,797 4.82% 1,587,974 20,523 5.13%
Borrowings:
FHLB advances 155,502 2,187 5.58% 642,133 11,893 7.35%
Securities sold under agreements to
repurchase & other -- -- -- 110,470 2,073 7.44%
Promissory note payable -- -- -- 5,181 108 8.27%
Senior Notes 80,000 2,367 11.81% 19,130 584 11.81%
----------- -------- ------ ----------- -------- ------
Total interest-bearing liabilities 1,699,568 22,351 5.22% 2,364,888 35,181 5.90%
----------- -------- ------ ----------- -------- ------
Noninterest-bearing liabilities 118,742 86,124
----------- -----------
Total liabilities 1,818,310 2,451,012
Stockholders' equity 106,844 91,166
----------- -----------
Total liabilities and stockholders'
equity $ 1,925,154 $ 2,542,178
=========== ===========
Net interest-earning assets $ 133,661 $ 101,767
=========== ===========
Net interest income/interest rate spread $ 14,035 2.65% $ 12,272 1.73%
======== ====== ======== ======
Net interest margin 3.04% 1.97%
====== ======
Ratio of average interest-earning assets to
average interest-bearing liabilities 107.86% 104.30%
====== ======
<CAPTION>
NINE MONTHS ENDED SEPTEMBER 30,
---------------------------------------- -------------------------------------
1998 1997
---------------------------------------- -------------------------------------
AVERAGE AVERAGE
AVERAGE YIELD/ AVERAGE YIELD/
BALANCE INTEREST COST BALANCE INTEREST COST
----------- ----------- ------- ----------- --------- -------
(Dollars in Thousands)
<S> <C> <C> <C> <C> <C> <C>
Interest-earning assets:
Loans receivable (1) $ 1,102,531 $ 68,652 8.30% $ 1,046,195 $ 80,346 10.24%
Securities (2) 567,289 31,230 7.34% 1,501,373 67,132 5.96%
Repurchase Agreements 94,082 3,947 5.61% 12,821 557 5.81%
Other earning assets (3) 61,520 3,073 6.68% 67,834 2,982 5.88%
Total interest-earning assets 1,825,422 106,902 7.83% 2,628,223 151,017 7.68%
----------- ----------- ------ ----------- --------- ------
Noninterest-earning assets 101,107 80,624
----------- -----------
Total assets $ 1,926,529 $ 2,708,847
=========== ===========
Interest-bearing liabilities:
Deposits:
Transaction accounts (4) 272,410 5,154 2.53% 270,722 5,517 2.72%
Term certificates of deposit 1,253,801 51,042 5.44% 1,337,314 56,878 5.69%
Total interest bearing deposits 1,526,211 56,196 4.92% 1,608,036 62,395 5.19%
Borrowings:
FHLB advances 108,310 5,024 6.20% 685,522 36,982 7.21%
Securities sold under agreements to
repurchase & other -- 251 -- 215,984 11,849 7.33%
Promissory note payable -- -- -- 11,789 570 6.46%
Senior Notes 80,000 7,107 11.81% 6,447 584 11.81%
----------- ----------- ------ ----------- --------- ------
Total interest-bearing liabilities 1,714,521 68,578 5.35% 2,527,778 112,380 5.94%
----------- ----------- ------ ----------- --------- ------
Noninterest-bearing liabilities 112,234 82,909
----------- -----------
Total liabilities 1,826,755 2,610,687
Stockholders' equity 99,774 98,160
----------- -----------
Total liabilities and stockholders'
equity $ 1,926,529 $ 2,708,847
=========== ===========
Net interest-earning assets $ 110,901 $ 100,445
=========== ===========
Net interest income/interest rate spread $ 38,324 $ 2.48% $ 38,637 1.74%
=========== ======= ========= ======
Net interest margin 2.81% 1.97%
======= ======
Ratio of average interest-earning assets to
average interest-bearing liabilities 106.47% 103.97%
======= ======
</TABLE>
- ----------
(1) The average balance of loans receivable includes nonperforming loans,
interest on which is recognized on a cash basis, and excludes the
allowance for loan losses which is included in noninterest-earning
assets.
(2) Includes all securities classified as held to maturity and available for
sale, including the market valuation accounts.
(3) Includes cash and due from banks, equity securities, interest bearing
deposits, and FHLB stock.
(4) Includes demand, passbook, NOW, and money market accounts.
10a
<PAGE> 14
RATE/VOLUME ANALYSIS
The following table sets forth the effects of changing rates and volumes on
net interest income of the Company. Information is provided with respect to
(i) effects on interest income attributable to changes in volume (changes in
volume multiplied by prior rate); (ii) effects on interest income
attributable to changes in rate (changes in rate multiplied by prior
volume); and (iii) changes in rate/volume (change in rate multiplied by
change in volume).
<TABLE>
<CAPTION>
THREE MONTHS ENDED SEPTEMBER 30, 1998
COMPARED TO THREE MONTHS ENDED
-------------------------------------------------------------
INCREASE (DECREASE) DUE TO
---------------------------------------
RATE/ TOTAL NET INCREASE
RATE VOLUME VOLUME (DECREASE)
--------- --------- --------- ------------------
(Dollars in Thousands)
<S> <C> <C> <C> <C>
Interest-earning assets:
Loans receivable $ (5,043) $ 3,712 $ (725) $ (2,056)
Debt securities 5,592 (11,032) (3,072) (8,512)
Repurchase Agreements (109) (109) 109 (109)
Other earning assets 126 (475) (41) (390)
--------- --------- --------- ---------
Total net change in income on interest-earning
assets 566 (7,904) (3,729) (11,067)
--------- --------- --------- ---------
Interest-bearing liabilities:
Deposits:
Transaction accounts (167) (55) 5 (217)
Term certificates of deposit (942) (1,650) 83 (2,509)
--------- --------- --------- ---------
Total deposits (1,109) (1,705) 88 (2,726)
Borrowings:
FHLB advances (2,862) (9,013) 2,169 (9,706)
Securities sold under agreements to
repurchase and other (2,073) (2,073) 2,073 (2,073)
Promissory note payable (108) (108) 108 (108)
Senior Notes -- 1,797 (14) 1,783
--------- --------- --------- ---------
Total net change in expense on interest-bearing
liabilities (6,152) (11,102) 4,424 (12,830)
========= ========= ========= =========
Change in net interest income $ 6,718 $ 3,198 $ (8,153) $ 1,763
========= ========= ========= =========
<CAPTION>
NINE MONTHS ENDED SEPTEMBER 30, 1998
COMPARED TO NINE MONTHS ENDED
SEPTEMBER 30, 1997
-------------------------------------------------------------
INCREASE (DECREASE) DUE TO
---------------------------------------
RATE/ TOTAL NET INCREASE
RATE VOLUME VOLUME (DECREASE)
--------- --------- --------- ------------------
(Dollars in Thousands)
<S> <C> <C> <C> <C>
Interest-earning assets:
Loans receivable $ (15,202) $ 4,327 $ (819) $ (11,694)
Debt securities 15,521 (41,766) (9,657) (35,902)
Repurchase Agreements (19) 3,530 (121) 3,390
Other earning assets 406 (278) (37) 91
--------- --------- --------- ---------
Total net change in income on interest-earning
assets 706 (34,187) (10,634) (44,115)
--------- --------- --------- ---------
Interest-bearing liabilities:
Deposits:
Transaction accounts (395) 35 (3) (363)
Term certificates of deposit (2,436) (3,552) 152 (5,836)
--------- --------- --------- ---------
Total deposits (2,831) (3,517) 149 (6,199)
Borrowings:
FHLB advances (5,184) (31,139) 4,365 (31,958)
Securities sold under agreements to
repurchase and other (11,849) (11,849) 12,100 (11,598)
Promissory note payable (570) (570) 570 (570)
Senior Notes -- 6,588 (65) 6,523
--------- --------- --------- ---------
Total net change in expense on interest-bearing
liabilities (20,434) (40,487) 17,119 (43,802)
--------- --------- --------- ---------
Change in net interest income $ 21,140 $ 6,300 $ (27,753) $ (313)
========= ========= ========= =========
</TABLE>
10b
<PAGE> 15
Net Interest and Dividend Income. Net interest and dividend income is
determined by the Company's net interest spread (i.e., the difference between
the yields earned on its interest-earning assets and the rates paid on its
interest-bearing liabilities) and the relative amounts of interest-earning
assets and interest-bearing liabilities.
Net interest and dividend income totaled $38.3 million and $38.6
million during the nine months ended September 30, 1998 and September 30, 1997,
respectively, remaining relatively stable but declining by $313,000 or 0.81% in
the comparative periods. Similarly, net interest and dividend income totaled
$14.0 million and $12.3 million during the three months ended September 30, 1998
and September 30, 1997, respectively, increasing $1.7 million or 14.4% in the
comparative periods. The decline in the nine month period was due to a
significant decline in the average balance of securities, which is attributable
to the sale of such securities. The effect on interest income of the declining
average balance of securities in both the nine month and three month comparative
periods was offset by significant declines in the average balances of
interest-bearing liabilities primarily advances from the Federal Home Loan Bank
of Topeka ("FHLB") and securities sold under agreements to repurchase. The
average balance of advances from FHLB and securities sold under agreements to
repurchase declined $577.2 million or 84.2% and $216.0 million or 100%,
respectively, during the nine months ended comparative periods. Similarly, the
average balance of these same interest bearing liabilities declined $486.6
million or 75.8% and $110.5 million or 100%, respectively, in the three months
ended comparative periods. Also, lower yields in the loan portfolio were offset
by higher yields in the securities portfolio and other earning assets resulting
in increased yields overall on interest earning assets during both the nine
month and three months comparative periods.
During the nine months ended September 30, 1998 as compared to the same
period in 1997, the yield on the Company's interest earning assets increased 15
basis points while the cost of the interest bearing liabilities decreased 59
basis points resulting in an increase in the Company's net interest spread and
net interest margin of 74 and 84 basis points, respectively. Likewise during the
three months ended September 30, 1998, the Company's yield on interest earning
assets increased 24 basis points while the cost of the interest bearing
liabilities decreased 68 basis points as compared to the same period in 1997.
Interest Income. Total interest and dividend income decreased by $44.1
million or 29.2% during the nine months ended September 30, 1998, as compared to
the same period in the prior year and declined by $11.1 million or 23.3% during
the three months ended September 30, 1998 as compared to the same period in the
prior year. Interest income on loans receivable decreased by $11.7 million or
14.6% during the nine months ended September 30, 1998 as compared to the same
period in the prior year and decreased by $2.1 million or 8.0% during the three
months ended September 30, 1998 as compared to the same period in the prior
year. The decrease in interest on loans receivable was due to a reduction in the
average yield. This decline in the average yield reflected, in part, the
December 1997 sale of the Company's indirect automobile portfolio which carried
higher yields than traditional real estate secured loans and the generally lower
rate environment overall as higher yielding loans are being paid off and
replaced by lower yielding originations in both the commercial and residential
lending portfolios.
Interest income on investments (which include mortgage-backed and
related securities, including CMOs, U.S. Government and agency securities, FHLB
stock and, during fiscal 1997, interest rate caps and floors and Student Loan
Marketing Association preferred stock) declined by $32.4 million or 45.9%
11
<PAGE> 16
during the nine months ended September 30, 1998 as compared to the same period
in the prior year and declined by $9.0 million or 41.6% during the three months
ended September 30, 1998 as compared to the same period in the prior year. The
decline in interest income on such investments during the nine and three months
ended September 30, 1998 was primarily due to the decline in the average balance
of securities of $859 billion and $779 million, respectively, during each of the
comparative periods. During the nine months ended September 1997, the Company
reduced its securities holdings (primarily its COFI-based CMOs) through bulk
sale transactions which resulted in the sale of $1.2 billion par of securities
during the period. During the nine months ended September 1997 and in connection
with the Private Placement and the Redemption, new management accelerated the
disposition of its securities portfolio, particularly its COFI-based CMOs, and
determined that its remaining CMO portfolio was "other than temporarily
impaired" in accordance with SFAS No. 115 and, pursuant to GAAP, wrote-down the
portfolio to market value. During the nine months ended September 30, 1998, the
Company sold $37.9 million par of its remaining COFI-based portfolio.
Interest Expense. Total interest expense declined by $43.8 million or
39.0% during the nine months ended September 30, 1998 as compared to the same
period in the prior year. Similarly, total interest expense declined by $12.8
million or 36.5% during the three months ended September 30, 1998 as compared to
the same period in the prior year. Interest expense on deposits, the largest
component of the Company's interest-bearing liabilities, declined by $6.2
million or 9.9% during the nine months ended September 30, 1998 and $2.7 million
or 13.3% during the three months ended September 30, 1998 as compared to the
same period in the prior year. The decline in interest expense on deposits was a
result of the decline in average balances during the period as well as lower
rates being paid overall.
Interest expense on FHLB advances declined by $29.4 million or 85.4%
during the nine months ended September 30, 1998 as compared to the same period
in the prior year. During the three months ended September 30, 1998, interest
expense on FHLB advances decreased $7.2 million or 76.6% as compared to the same
period in the prior year. The decline in interest expense on borrowings was a
function primarily of a declining balance of borrowings as well as, to a lesser
extent, lower rates available at the FHLB. However, at September 30, 1998, the
Company had increased its FHLB borrowings to fund the increased commercial
lending activity and to cover deposit outflows. Interest expense on reverse
repurchase agreements decreased $14.1 million or 98.26% during the nine months
ended September 30, 1998 and $4.6 million or 100% during the 3 months ended
September 30, 1998 as compared to the same periods in the prior year.
During the nine months ended September 30, 1998, interest expense of
$7.1 million on notes payable consisted of interest accrued with respect to the
Senior Notes. During the nine months ended September 30, 1997, interest expense
on notes payable included $570,000 of interest paid on a promissory note payable
to Isabel Collier Read. On September 8, 1997, in connection with the closing of
the Private Placement and the Redemption Transactions, the Company issued $80.0
million of Senior Notes (which are due in September 2004 and bear interest at
the rate of 11.0% payable semi-annually).
Provision for Loan Losses. The Company established provisions for loan
losses of $950,000 and $44.0 million during the nine months ended September 30,
1998 and September 30, 1997, respectively. During such respective periods, loan
charge-offs (net of recoveries) amounted to $793,000 and $15.8 million.
Allowances acquired, as a result of the acquisitions of Green Country and
BankSouth, were $4.0 million and $3.3 million, respectively, and are reflected
in the allowance at September 30, 1998. The provisions established during the
nine months ended September 30, 1997 were intended primarily to
12
<PAGE> 17
cover realized and inherent losses with respect to the Company's portfolio of
indirect automobile receivables. At December 31, 1997, the Company's portfolio
of such indirect automobile loans had been sold. The provisions established
during the nine months ended September 30, 1998 were a function of management's
credit risk monitoring process that considers several factors, including among
other things, current economic conditions affecting the Company's customers, the
payment performance of individual large loans and pools of homogeneous small
loans, portfolio seasoning, change in collateral values, and detailed review of
specific large loan relationships. Management will continue to review its loan
loss allowance as the Company's loan portfolio grows and diversifies to
determine if changes to the policy and resulting allowance for loan loss are
necessary.
Noninterest Income. Total noninterest income (loss) amounted to $10.2
million and $(141.9) million during the nine months ended September 30, 1998 and
September 30, 1997, respectively. Total noninterest income (loss) amounted to
$3.6 million and $(122.6) million during the three months ended September 30,
1998 and September 30, 1997, respectively. The components of noninterest income
consist of deposit-related income, loan fees and loan service charges, net gains
(losses) on sale of assets and other miscellaneous income. The noninterest
income (losses) recognized during the nine months ended September 30, 1997 and
the three months ended September 30, 1997 primarily related to losses incurred
on the sale of securities and the liquidation of related hedges. During the
three month period ended September 30, 1997, this amounted to $(125.5) million
of losses. These sales continued through December 31, 1997 as new management,
pursuant to the strategy outlined in the Private Placement Memorandum,
dramatically restructured the balance sheet of the Company. Specifically, during
the quarter ended September 30, 1997, the Company (1) liquidated the hedging
contracts previous management had entered into in an attempt to reduce the
Company's exposure to interest rates, (2) sold the majority of its COFI-based
CMO portfolio, and (3) wrote-down the remaining COFI-based CMO portfolio to
reflect market values. Net gains on sale of assets recognized during the nine
month period ended September 30, 1998 of $535,000 came as a result of the
Company's sale of COFI-based CMOs, fixed-rate mortgages and consumer loans. The
principal source of noninterest income consists of fees associated with
depository transaction accounts and loan fees and loan service charges. The
noninterest income recognized during the nine months ended September 30, 1998 is
reflective of the core noninterest income potential of the Company as this was
the first full nine months of operations occurring subsequent to the balance
sheet restructuring discussed above.
Noninterest Expense. Total noninterest expense decreased by $6.8
million or 20.5% during the nine months ended September 30, 1998 and $3.9
million or 28.6% during the three months ended September 30, 1998 as compared to
the same periods in the prior year. The increased other noninterest expense
during 1997 primarily reflected nonrecurring charges which were related to the
Private Placement and the Redemption which was consummated on September 8, 1997.
During the nine months ended September 30, 1997, the Company reported provisions
of $2.7 million as the Company reassessed its potential liability with respect
to a pending dispute with the FDIC regarding amounts owed by Local America to
the FDIC under the 1989 Assistance Agreement between Local America and the
Federal Savings and Loan Insurance Corporation (the "FDIC Dispute"). While there
was a decline in noninterest expense overall, there were increases in
compensation and employee benefits of $802,000 or 7.10% and $600,000 or 15.5%
during the nine month period ended September 30, 1998 and the three month period
ended September 30, 1998, respectively, when compared to the same periods in the
prior year. The increases came primarily as a result of the staffing necessary
to support the expansion of the loan production base to include commercial
business lending.
13
<PAGE> 18
Provision (Benefit) for Income Taxes. During the nine months ended
September 30, 1998, the Company recorded $7.4 million of provision for income
taxes. At September 30, 1998, the Company had approximately $25.0 million and
$180.0 million of net operating loss carryforwards available for federal and
state income tax purposes, respectively. The Federal net operating loss
carryforwards expire in 2013. The State net operating loss carryforwards expire
in varying amounts between 2006 and 2013. A valuation allowance for all
available State net operating loss carryforwards has been established as it was
determined to be more likely than not that the benefit of the deferred tax asset
would not be realized. Based on the current strategy of new management, no
valuation allowance for other deferred tax assets has been established as the
Company believes it is more likely than not that sufficient income for Federal
income tax purposes will be realized. The change in ownership of the Company did
not result in a limitation on the utilization of the net operating losses.
ASSET AND LIABILITY MANAGEMENT
Asset and liability management is concerned with the timing and
magnitude of the repricing of assets and liabilities. It is the objective of the
Company to attempt to control risks associated with interest rate movements. In
general, management's strategy is to match asset and liability balances within
maturity categories to limit the Company's exposure to earnings variations and
variations in the value of assets and liabilities as interest rates change over
time. The Company's asset and liability management strategy is formulated and
monitored by the Asset/Liability Management Committee, which is comprised of the
Chief Executive Officer, the President, the Chief Financial Officer, the
Treasurer, the Director of Retail Operations and the Director of Commercial Real
Estate of the Company, in accordance with policies approved by the Board of
Directors of the Company. The Asset/Liability Management Committee meets at
least monthly and reviews, among other things, the sensitivity of the Company's
assets and liabilities to interest rate changes, the book and market values of
assets and liabilities, unrealized gains and losses, including those
attributable to hedging transactions, purchase and sale activity, and maturities
and prepayments of loans, investments and borrowings. The Asset/Liability
Management Committee also approves and establishes pricing and funding decisions
with respect to overall asset and liability composition and reports to the full
Board of Directors.
One of the primary goals of the Company's Asset/Liability Management
Committee is to effectively increase the duration of the Company's liabilities
and/or effectively contract the duration of the Company's assets so that the
respective durations are matched as closely as possible. This duration
adjustment can be accomplished either internally by restructuring the Company's
balance sheet, or externally by adjusting the duration of the Company's assets
and/or liabilities through the use of hedging contracts, such as interest rate
swaps, caps and floors. Although the Company has in the past hedged its interest
rate exposure externally through the use of various hedging contracts, the
Company's current strategy is to hedge internally through the use of core
transaction deposit accounts, which are not as rate sensitive as other deposit
instruments, and FHLB advances, together with an emphasis on investing in
shorter-term or adjustable rate assets which are more responsive to changes in
interest rates, such as adjustable rate U.S. Government agency mortgage-backed
securities, short-term U.S. Government agency securities and commercial and
consumer loans. There were no hedging contracts outstanding at September 30,
1998 or during the nine months then ended.
The Asset/Liability Management Committee's methods for evaluating
interest rate risk include an analysis of the Company's interest rate
sensitivity "gap", which is defined as the difference between interest-earning
assets and interest-bearing liabilities maturing or repricing within a given
time period. A
14
<PAGE> 19
gap is considered positive when the amount of interest-rate sensitive assets
exceeds the amount of interest-rate sensitive liabilities. A gap is considered
negative when the amount of interest-rate sensitive liabilities exceeds
interest-rate sensitive assets. During a period of falling interest rates, a
negative gap would tend to result in an increase in net interest income, while a
positive gap would tend to affect net interest income adversely. Because
different types of assets and liabilities with the same or similar maturities
may react differently to changes in overall market rates or conditions, changes
in interest rates may affect net interest income positively or negatively even
if an institution were perfectly matched in each maturity category.
The following table summarizes the anticipated maturities or repricing
of the Company's interest-earning assets and interest-bearing liabilities as of
September 30, 1998, based on the information and assumptions set forth in the
notes below:
<TABLE>
<CAPTION>
More Than
Three to More Than Three Years
Within Three Twelve One Year to to Five Over Five
Months Months Three Years Years Years Total
------ ------ ----------- ----- ----- -----
(Dollars in Thousands)
<S> <C> <C> <C> <C> <C> <C>
Interest-earning assets(1):
Loans receivable(2) $ 320,675 $ 265,423 $ 245,250 $ 220,884 $ 234,161 $ 1,286,393
Securities(3) 371,670 47,450 89,864 37,903 55,390 602,277
Other interest-earning
assets(4) 99,651 -- -- -- -- 99,651
----------- ----------- ----------- ----------- ----------- -----------
Total $ 791,996 $ 312,873 $ 335,114 $ 258,787 $ 289,551 $ 1,988,321
=========== =========== =========== =========== =========== ===========
Interest-bearing liabilities:
Deposits(5):
Money market and NOW
Accounts $ 26,936 $ 35,513 $ 64,554 $ 39,314 $ 72,047 $ 238,364
Passbook accounts 2,616 7,847 16,757 12,414 35,479 75,113
Certificates of deposit 407,987 571,329 260,291 22,877 609 1,263,093
Borrowings:
FHLB advances 12,510 130,000 -- 40,000 34 182,544
Senior Notes -- -- -- -- 80,000 80,000
----------- ----------- ----------- ----------- ----------- -----------
Total $ 450,049 $ 744,689 $ 341,602 $ 114,605 $ 188,169 $ 1,839,114
=========== =========== =========== =========== =========== ===========
Excess (deficiency) of
interest-earning assets over
interest-bearing liabilities $ 341,947 $ (431,816) $ (6,488) $ 114,182 $ 101,382 $ 149,207
=========== =========== =========== =========== =========== ===========
Cumulative excess (deficiency)
of interest-earning assets over $ 341,947 $ (89,869) $ (96,357) $ 47,825 $ 149,207 $ 149,207
=========== =========== =========== =========== =========== ===========
interest-bearing liabilities
Cumulative excess (deficiency)
of interest-earning assets over
interest-bearing liabilities
as a percent of total assets 16.23% (4.27)% (4.57)% 2.27% 7.08% 7.08%
=========== =========== =========== =========== =========== ===========
</TABLE>
(1) Adjustable-rate loans and securities are included in the period in which
interest rates are next scheduled to adjust rather than in the period in which
they mature. Fixed-rate loans and securities are included in the periods in
which they are scheduled to be repaid, based on scheduled amortization, and
adjusted to take into account estimated prepayments based on, among other
things, historical performance.
(2) Balances have been reduced for nonaccrual loans, which amounted to $1.5
million at September 30, 1998.
(3) Does not include unrealized gain on securities classified as available for
sale of $15.61 million.
15
<PAGE> 20
(4) Comprised of cash and due from banks, deposits with other banks, repurchase
agreements and FHLB stock.
(5) Adjusted to take into account assumed annual decay rates which were applied
against money market, NOW and passbook accounts.
LIQUIDITY AND CAPITAL RESOURCES
Liquidity. Liquidity refers to the Company's ability to generate
sufficient cash to meet the funding needs of current loan demand, savings
deposit withdrawals, principal and interest payments with respect to outstanding
borrowings and to pay operating expenses. It is management's policy to maintain
greater liquidity than required in order to be in a position to fund loan
originations, to meet withdrawals from deposit accounts, to make principal and
interest payments with respect to outstanding borrowings and to make investments
that take advantage of interest rate spreads. The Company monitors its liquidity
in accordance with guidelines established by the Company and applicable
regulatory requirements. The Company's need for liquidity is affected by loan
demand, net changes in deposit levels and the scheduled maturities of its
borrowings. The Company can minimize the cash required during the times of heavy
loan demand by modifying its credit policies or reducing its marketing effort.
Liquidity demand caused by net reductions in deposits are usually caused by
factors over which the Company has limited control. The Company derives its
liquidity from both its assets and liabilities. Liquidity is derived from assets
by receipt of interest and principal payments and prepayments, by the ability to
sell assets at market prices and by utilizing unpledged assets as collateral for
borrowings. Liquidity is derived from liabilities by maintaining a variety of
funding sources, including deposits, advances from the FHLB and other short and
long-term borrowings.
The Company's liquidity management is both a daily and long-term
function of funds management. Liquid assets are generally invested in short-term
investments such as overnight money funds and short-term government agency
securities. If the Company requires funds beyond its ability to generate them
internally, various forms of both short and long-term borrowings provide an
additional source of funds. At September 30, 1998, the Company had $313.0
million in borrowing capacity under a collateralized line of credit with the
FHLB, of which $182.5 million was outstanding as of such date. The Bank does not
currently accept brokered deposits as a source of liquidity and does not
anticipate a change in this practice in the foreseeable future.
At September 30, 1998, the Company had outstanding commitments
(including unused lines of credit) to originate and/or purchase mortgage and
non-mortgage loans of $113.8 million. Certificates of deposit which are
scheduled to mature within one year totaled $979.3 million at September 30,
1998, and borrowings which are scheduled to mature or reprice within the same
period amounted to $142.5 million. The Company anticipates that it will have
sufficient funds available to meet its current loan commitments and that, based
upon past experience and current pricing policies, it can adjust the rates of
certificates of deposit to retain a substantial portion of its maturing
certificates and also, to the extent deemed necessary, refinance the maturing
borrowings.
As of March 1, 1998, the Company began making interest payments on its
Senior Notes. The Senior Notes have an annual debt service requirement of $8.8
million (or $4.4 million for each semi-annual period). The Company anticipates
that it will have sufficient funds available to meet the annual debt service
requirement.
16
<PAGE> 21
Capital Resources. Federally insured savings institutions such as the
Banks are required to maintain minimum levels of regulatory capital. The
following table reflects the Banks' actual levels of regulatory capital and
applicable regulatory capital requirements at September 30, 1998.
<TABLE>
<CAPTION>
MINIMUM
REQUIRED(4) ACTUAL EXCESS
----------- ------ ------
PERCENT AMOUNT PERCENT AMOUNT PERCENT AMOUNT
------- ------ ------- ------ ------- ------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
Local Federal:
Tangible capital 1.50% $ 30,883 7.29% $ 150,085 5.79% $ 119,202
Core capital (1) 3.00% 61,786 7.32% 150,728 4.32% 88,942
Risk-based capital(2)(3) 8.00% 98,000 13.04% 159,688 5.04% 61,688
Local America:
Tangible capital 1.50% 9,931 16.93% 112,064 15.43% 102,133
Core capital (1) 3.00% 19,862 16.93% 112,064 13.93% 92,202
Risk-based capital(2)(3) 8.00% 39,517 23.89% 117,989 15.89% 78,472
</TABLE>
(1) Does not reflect amendments, proposed by the OTS in April 1991, which would
increase this requirement to between 4% and 5%.
(2) Does not reflect the interest-rate risk component to the risk-based capital
requirement, the effective date of which has been postponed.
(3) Tangible and core capital are computed as a percentage of adjusted total
assets and risk-based capital is computed as a percentage of adjusted
risk-weighted assets.
(4) Does not reflect the requirements to be met in order for an institution to
be deemed "adequately capitalized" under applicable laws and regulations.
INFLATION AND CHANGING PRICES
The Consolidated Financial Statements and related data presented herein
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 (except with respect to available for sale
securities which are carried at market value), without considering changes in
the relative purchasing power of money over time due to inflation. Unlike most
industrial companies, substantially all of the assets and liabilities of the
Company are monetary in nature. As a result, interest rates have a more
significant impact on the Company's performance than the effects of general
levels of inflation. Interest rates do not necessarily move in the same
direction or in the same magnitude as the prices of goods and services.
YEAR 2000 COMPLIANCE
The Year 2000 could have a broad impact on the business environment in
which the Company operates due to the possibility that many computerized systems
across all industries will be unable to process information containing dates
beginning in the Year 2000. The Company has established an enterprise-wide
program to prepare its computer systems and applications for the Year 2000 and
is utilizing both internal and external resources to identify, correct and test
the systems for Year 2000 compliance. The Company anticipates that the majority
of its reprogramming will be completed by
17
<PAGE> 22
December 31, 1998 and testing efforts will be substantially concluded by March
31, 1999. Further validation through testing will be conducted throughout
calendar year 1999.
The Company does not rely on in-house data processing or computer
programming for its main frame banking applications. The Company's primary data
processing vendor, AllTel, Inc., has a history of producing high quality banking
applications and has assured the Company that its core applications will be
capable of handling the Year 2000. The Company will be testing these
applications in its own environment to validate these assurances.
Because third party failures could have a material impact on the
Company's ability to conduct business, questionnaires have been sent to
substantially all of the Company's vendors and large commercial borrowers to
certify that plans are being developed to address the Year 2000 issue. The
returned questionnaires are currently being assessed by the Company, and are
being categorized based upon readiness for the Year 2000 issues and prioritized
in order of significance to the business of the Company. To the extent that
business-critical vendors do not provide the Company with satisfactory evidence
of their readiness to handle Year 2000 issues, contingency plans will be
developed. Furthermore, information has been provided to large commercial
borrowers regarding the potential business risks associated with the Year 2000
issue. The Company intends to make every reasonable effort to assess the Year
2000 readiness of these critical business partners and to create action plans to
address the identified risks.
The Company anticipates that it will have substantially completed an
assessment of the Year 2000 compliance status of all its information technology
and non-information technology equipment by December 31, 1998 and will then
address the Year 2000 compliance of such equipment.
Testing and remediation of all of the Company's systems and
applications is expected to incrementally cost approximately $250,000 from
inception in calendar year 1997 through completion in calendar year 1999. All
estimated costs have been budgeted and are expected to be funded by cash flows
from operations.
The Company does not believe the costs and efforts related to the Year
2000 compliance project will be material to its financial position or results of
operations. However, the cost of the project and the date on which the Company
plans to complete the Year 2000 modifications are based on management's best
estimates, which were derived utilizing numerous assumptions of future events
including the continued availability of certain resources, third party
modification plans and other factors. Unanticipated failures by critical vendors
and large commercial borrowers, as well as the failure by the Company to execute
its own remediation efforts, could have a material adverse effect on the cost of
the project and its completion date. As a result, there can be no assurance that
these forward-looking estimates will be achieved and the actual cost and vendor
compliance could differ materially from those plans, resulting in material
financial risk.
18
<PAGE> 23
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
See "Management's Discussion and Analysis of Financial Condition and
Results of Operations - Asset and Liability Management" for Quantitative and
Qualitative Disclosures about Market Risk.
PART II OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
The Company has filed a lawsuit against the Selling Shareholders in the
United States District Court for the Western District of Oklahoma in order to
collect amounts it believes the Selling Shareholders owe to the Company pursuant
to the Redemption Agreement with regard to losses experienced by the Company in
liquidating the Company's hedging contracts and to determine any purchase price
adjustment that must be made after final determination of the Adjusted Closing
Equity of the Company as of the September 8, 1997 closing date of the
redemption. Pursuant to the Redemption Agreement, if the Company's unaudited
consolidated stockholders' equity (after adding back to total stockholders'
equity, as determined on the September 8, 1997 Closing Date Balance Sheet, (i)
any provisions for loan losses recognized by the Company after May 31, 1997,
(ii) the amount of any unrealized loss on COFI-based CMOs categorized as
available for sale under SFAS No. 115, (iii) the after-tax amount of certain
losses on the sale of available for sale CMOs during June of 1997, and (iv)
certain legal fees and expenses incurred by the Company in connection with the
Private Placement and the Redemption, as adjusted (the "Adjusted Closing
Equity") as of September 8, 1997, was less than $144.5 million, then the
Purchase Price would be reduced by the amount of such shortfall and the Selling
Shareholders would, in such event, have to pay to the Company the amount of such
shortfall. If, on the other hand, the Adjusted Closing Equity is determined to
be greater than $144.5 million, then the Purchase Price would be increased by
the amount of such excess, and the Company would have to pay the Selling
Shareholders such excess.
The Company and the Selling Shareholders were unable to agree on the
amount of total stockholders' equity in the Closing Date Balance Sheet prepared
as of September 8, 1997, and in accordance with the procedures set forth in the
Redemption Agreement, the matter was referred to binding arbitration before an
independent certified public accountant who was designated for this purpose by
the U. S. District Judge presiding over the above-referenced lawsuit in the
United States District Court for the Western District of Oklahoma. The
arbitrator rendered his decision to the Court and the parties on September 18,
1998, determining the amount of the total stockholders' equity in the Final
Closing Date Balance of the Company as of September 8, 1997.
It is anticipated that the parties or the Court will now determine the
Adjusted Closing Equity of the Company, however, it is not known at this time
when this will occur or whether further litigation will be necessary to finally
adjudicate the Adjusted Closing Equity. Based on the arbitrator's determination
of the amount of total stockholders' equity, the Company anticipates that it
will be obligated to pay an amount of less than $400,000 to the Selling
Shareholders as additional purchase price under the Redemption Agreement upon
such final determination of Adjusted Closing Equity.
19
<PAGE> 24
There have not been any other material developments to date in any of
the other legal proceedings previously disclosed.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
a. Exhibits
Exhibit 2.1 - Merger Agreement by and between BankSouth Corp., Citizens
Bank, Local Federal Bank, F.S.B. and certain Control Group Shareholders named
therein dated June 18, 1998
Exhibit 27 - Financial Data Schedule
b. Reports on Form 8-K
On September 10, 1998, Local Financial Corporation announced plans to
merge Local America Bank of Tulsa into its parent company, Local Federal Bank,
and operate under one name as Local Federal Bank. The merger will result in no
loss of services or branch closures. The merger is subject to regulatory
approval and will be accounted for "as-if a pooling of interests" for a
combination of entities under common control.
20
<PAGE> 25
SIGNATURES
Pursuant to the requirement of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
LOCAL FINANCIAL CORPORATION
Date: November 13, 1998 By /s/ Edward A. Townsend
---------------------------------------
Edward A. Townsend
Chairman of the Board
Chief Executive Officer
LOCAL FINANCIAL CORPORATION
Date: November 13, 1998 By /s/ Richard L. Park
---------------------------------------
Richard L. Park
Chief Financial Officer
21
<PAGE> 26
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT DESCRIPTION
- ------- -----------
<S> <C>
2.1 Merger Agreement by and between BankSouth Corp., Citizens Bank, Local
Federal Bank, F.S.B., and certain Control Group Shareholders named
therein dated June 18, 1998
27 Financial Data Schedule
</TABLE>
<PAGE> 1
EXHIBIT 2.1
STOCK PURCHASE AGREEMENT
THIS STOCK PURCHASE AGREEMENT (this "Agreement") is dated as of this 18th
day of June, 1998, by and among LOCAL FEDERAL BANK, F.S.B., a federally
chartered stock savings bank ("Buyer"), and BANKSOUTH CORP., an Oklahoma
corporation ("BankSouth"), CITIZENS BANK, an Oklahoma state banking corporation
("Citizens Bank"), and WILLIAM H. CRAWFORD, an individual, with mailing address
of P. 0. Box 430, Frederick, Oklahoma 73542 ("Crawford"), AULENA S. GIBSON, an
individual, with mailing address of 3607 Arlington, Lawton, Oklahoma 73505
("Aulena Gibson"), G. CARL GIBSON, JR., both individually, and as custodian for
G. C. Gibson III and Gregory Carlton Gibson, with mailing address of 3205 Duvall
Drive, Norman, Oklahoma 73072 ("Carl Gibson"), GILBERT C. GIBSON, an individual,
with mailing address of P. 0. 2765, Lawton, Oklahoma 73505 ("Gilbert Gibson"),
GORE EAST, INC., an Oklahoma corporation, with mailing address of P. 0. Box
2765, Lawton, Oklahoma 73505 ("Gore East"), WILLIAM L. SCEARCE, both
individually and on behalf of his IRA Rollover, with mailing address of 1116
Arlington, Lawton, Oklahoma 73501 ("Scearce"), and CATHY E. WILLIS, as Trustee
of the Cathy E. Willis Family Trust dated February 12, 1987, with mailing
address of P. 0. Box 720098, Norman, Oklahoma 73070 ("Willis"). (Crawford,
Aulena Gibson, Carl Gibson, Gilbert Gibson, Gore East, Scearce and Willis shall
sometimes hereinafter be collectively referred to as the "Control Group
Shareholders." All of the foregoing shall sometimes hereinafter be collectively
referred to herein as the "Parties.")
RECITALS:
A. BankSouth is duly registered with the Federal Reserve Bank of Kansas
City ("FRB") as a one bank holding company pursuant to applicable laws and
regulations by reason of its sole ownership of Citizens Bank. BankSouth has
authorized capital stock of Two Hundred Thousand (200,000) shares of common
stock, par value $1.00 per share (the "Common Stock"), and Two Hundred Fifty
Thousand (250,000) shares of 6 1/2% Series A cumulative preferred stock, par
value $9.00 per share (the "Preferred Stock"). The Control Group Shareholders
collectively own a total of 48,345 shares of the Common Stock constituting
Sixty-Two and 16/100 percent (62.16%) of all of the issued and outstanding
Common Stock (hereinafter collectively referred to as the "Shares"). BankSouth
has granted non-qualified stock options to three individuals to purchase a
total of Five Thousand Five Hundred (5,500) additional shares of its Common
Stock for an exercise price of One Hundred Sixty-Seven and No/100 Dollars
($167.00) per share ("Common Stock Options"). The Common Stock Options are fully
exercisable by the holders thereof in the event of the merger of BankSouth into
another corporation, unless the Common Stock Options are assumed by the
surviving corporation or new options are substituted therefor. If any of the
remaining shareholders of the Common Stock, i.e., the individuals or entities,
other than the Control Group Shareholders, who own the remaining shares of the
issued and outstanding Common Stock agree to become parties to this Agreement by
their execution and delivery to Buyer on or before the Closing Date of a joinder
agreement whereby they agree to sell all of the shares of the Common Stock owned
by them to Buyer pursuant hereto, they shall be deemed thereby to become subject
to all of the terms and conditions of this Agreement as fully as if they were
one of the Control Group Shareholders originally executing this Agreement. The
joinder agreement shall be in form mutually satisfactory to counsel for Buyer
and counsel for the Control Group Shareholders. The shares of Common Stock owned
by any such shareholder who executes and delivers such joinder agreement to the
Buyer pursuant hereto shall
<PAGE> 2
thereafter be deemed to be a part of the Shares, as defined herein, for all
purposes in this Agreement.
B. Citizens Bank has authorized capital stock of One Hundred Thousand
(100,000) shares of common stock, par value $10.00 per share (the "Citizens Bank
Common Stock"), of which Eighty-Six Thousand Two Hundred Fifty (86,250) shares
are issued and outstanding. BankSouth is the owner of all of the issued and
outstanding Citizens Bank Common Stock. Citizens Bank is engaged in the business
of operating a state banking corporation with its principal office and four
branch offices in the City of Lawton, Comanche County, Oklahoma, and with a
branch office in the City of Norman, Cleveland County, Oklahoma.
C. Buyer is engaged in the business of operating a federally chartered
stock savings bank with its principal office in Oklahoma City, Oklahoma, and has
Twenty-Eight (28) branches at various locations in the State of Oklahoma. Buyer
is the wholly-owned subsidiary bank of Local Financial Corporation, a Delaware
corporation ("LFC"), a publicly held company whose stock is listed on the
American Stock Exchange. LFC is duly registered as a savings and loan holding
company under the Home Owners' Loan Act ("HOLA") with the Office of Thrift
Supervision ("OTS").
D. The Parties (including, specifically, the respective Boards of Directors
of BankSouth, Citizens Bank and the Buyer) consider it advisable and to the
benefit of and in the best interests of all of the Parties, including,
specifically, all of the Common Stock shareholders of BankSouth that Buyer and
BankSouth participate in and effectuate a share acquisition of all of the Common
Stock of BankSouth by Buyer in accordance with the provisions of Section 1090.1
of the Oklahoma General Corporation Act (18 O.S. 1991, Section 1090.1) as a
result of which BankSouth will become a wholly-owned subsidiary of Buyer (the
"Acquisition") upon the terms, for the consideration and subject to the other
terms and conditions set forth in this Agreement. BankSouth will subsequently be
merged with Citizens Bank and the resulting entity then merged into Buyer, with
Buyer to be the surviving bank.
NOW, THEREFORE, in consideration of the aforementioned Recitals, the
premises, of the mutual covenants set forth herein, and of such other good and
valuable consideration, the receipt and sufficiency of which are hereby
acknowledged by the Control Group Shareholders, BankSouth and Citizens Bank, and
by the Buyer, and in order to consummate the Acquisition, the Parties hereto do
hereby covenant and agree as follows:
2
<PAGE> 3
ARTICLE I
SALE AND PURCHASE OF BANKSOUTH STOCK; CLOSING
Section 1.1 BUYER'S ACQUISITION OF ALL OF THE COMMON STOCK OF BANKSOUTH
PURSUANT TO THIS AGREEMENT AND 18 O.S. 1991, SECTION 1090.1, AND BANKSOUTH'S
REDEMPTION OF ALL OF THE PREFERRED STOCK.
1.1.1 Subject to the terms and conditions of this Agreement, at the
Effective Time (as that term is defined in Section 1.12 below), each share of
Common Stock (other than Dissenting Shares of Common Stock, as such term is
defined in Section 1.2 below) which is outstanding immediately prior to the
Effective Time, shall, by virtue of the consummation of the Acquisition
hereunder, and without any further action, be converted into the right to
receive a cash payment in the amount set forth below, in this Subsection
1.1.1, as applicable, pursuant to the provisions of Section 1090.1 of the
Oklahoma General Corporation Act and the terms and provisions of this
Agreement. The total amount of Nineteen Million Eight Hundred Thirty-One
Thousand Five Hundred Fifty-One and No/100 Dollars ($19,831,551.00) will be
payable on the date upon which the Effective Time occurs (which shall be
hereinafter sometimes referred to as the "Closing Date" hereunder) for all of
the issued and outstanding shares of the Common Stock and all existing Common
Stock Options (unless increased in a manner specifically provided below)
("Purchase Price") as determined in the following manner:
(i) an original price per share of Two Hundred Fifty and No/100
Dollars ($250.00) per share of issued and outstanding Common Stock (to be
adjusted to a reduced price of Two Hundred Forty-Four and 19/100 Dollars
($244.19) per share to account for the dilution of the Purchase Price
affected by the necessity to acquire the Common Stock Options at a price of
Eighty-Two and 19/100 Dollars ($82.19) per share as provided below); plus
(ii) Five and No/100 Dollars ($5.00) per share of Common Stock to
account for the earnings of BankSouth during calendar year 1998, up and
until October 31, 1998; plus
(iii) In the event and only in the event the Closing of the
Acquisition shall not be consummated (unless due to the failure of
BankSouth, Citizens Bank or the Control Group Shareholders to perform
hereunder and/or to comply with the terms and conditions and other
provisions of this Agreement), on or before October 31, 1998, an additional
amount shall be paid for the issued and outstanding shares of the Common
Stock and the existing Common Stock Options which is equal to one hundred
percent (100%) of all earnings (i.e., the net income from consolidated
operations of BankSouth and Citizens Bank) realized by BankSouth from and
after October 31, 1998 until the Closing Date hereunder, as determined on a
per share basis by dividing the total amount of said earnings from and
after October 31, 1998, by the total number of issued and outstanding
shares of Common Stock, plus the number of shares represented by the
existing Common Stock Options; less
3
<PAGE> 4
(iv) an amount to be deducted from the Purchase Price which is equal
to the total amount of any and all cash dividends declared and paid by
BankSouth to the holders of its Common Stock during Calendar Year 1998, up
to and including the Closing Date, as determined on a per share basis by
dividing the total amount of any and all cash dividends so declared and
paid by the number of issued and outstanding shares of Common Stock
receiving such dividends; and
(v) As mentioned above, an amount of Eighty-Two and 19/100 Dollars
($82.19) for each share subject to the existing Common Stock Options, plus
any additional amount which the holders of the Common Stock Options become
entitled to receive by virtue of the application of the provisions of
Subsection 1.1.1(iii), above.
1.1.2 Subject to the terms and conditions of this Agreement, at the
Effective Time, BankSouth, by its execution and delivery of this Agreement,
covenants and agrees to exercise its right to redeem all of the Preferred
Stock from the holders of all of the issued and outstanding shares thereof
pursuant to its right and option to do so, as set forth in Section 8a of the
Certificate of Designations of BankSouth filed with regard to the Preferred
Stock with the Oklahoma Secretary of State on November 7, 1997, on the Closing
Date, contemporaneously with and conditioned upon the successful consummation
of the Acquisition pursuant hereto. BankSouth shall redeem all of the shares
of the Preferred Stock at closing for a redemption price of Nine and No/100ths
Dollars ($9.00) per share, plus any accrued and unpaid dividends owing thereon
as of the Closing Date ("Preferred Stock Redemption Price"). The Preferred
Stock Redemption Price will total the amount of Seven Hundred Sixty-Nine
Thousand Nine Hundred Seventy-Seven and No/100ths Dollars ($769,977.00) (ie.,
$9.00 per share x 85,553 issued and outstanding shares of Preferred Stock),
plus the amount necessary to pay any accrued and unpaid dividends owing on the
Preferred Stock as of the Closing Date.
1.1.3 Except as otherwise specifically provided in this Agreement, in
addition to the payment of the Purchase Price, as defined above, the Buyer
agrees as additional and material consideration to BankSouth, Citizens Bank
and the Control Group Shareholders to assume all of the liabilities of
BankSouth and Citizens Bank on the Closing Date hereunder, including, without
limitation, the assumption and/or payment in full of the existing loan of
BankSouth from the Durant Bank & Trust Company, an Oklahoma state banking
association ("Durant Bank"), as secured by BankSouth's pledge of all of the
issued and outstanding Citizens Bank Common Stock (the "Bank Stock Loan")
which shall not, in any event, exceed the amount of One Million Eight Hundred
Thousand and No/100 Dollars ($1,800,000.00), as more specifically provided in
Section 1.7, below.
1.1.4 The conversion ratio, i.e. the right to receive cash in
exchange for each share of the Common Stock, and the Common Stock Options
shall be appropriately and proportionately adjusted in the event of any stock
dividend on, or stock split or stock combination of, or any other change in
the Common Stock based on a record date occurring during the period from the
date of this Agreement until immediately before the
4
<PAGE> 5
Effective Time, such that the total amount of the Purchase Price
shall not be increased in any event by reason thereof.
1.1.5 Subject to the terms and conditions of this Agreement, at the
Effective Time, BankSouth will take all necessary and appropriate actions to
terminate, pay and absolve any and all liability which BankSouth may have to
the members of its Board of Directors and of the Board of Directors of
Citizens Bank for deferred compensation owing to them for their service as
members of the Boards of Directors of BankSouth and Citizens Bank,
respectively, to include, specifically, the following: (1) cause the transfer
to each such member of all right, title, interest and ownership (as such
member may direct) of the annuity policy obtained and maintained by BankSouth
as to that director to fund its obligation and liability to that member of its
Board of Directors for deferred compensation; (ii) pay by corporate check the
amount of the remaining balance of the individual deferred compensation
liability owing by BankSouth to its individual directors for such deferred
compensation, which is in excess of the value of the annuity policy
transferred by BankSouth to such individual director, pursuant to Section
1.1.5(i) above, but not in any event to exceed (in the aggregate) the total
amount shown for such unfunded deferred compensation liability on the most
recently available Financial Statements, as those terms are defined below, of
BankSouth and Citizens Bank; and (iii) obtain from each such member of the
Board of Directors so paid an original, executed Receipt, Satisfaction and
Release of any and all claims against BankSouth or Citizens Bank for deferred
compensation in form and substance satisfactory to Buyer's counsel.
Section 1.2 DISSENTING SHARES. Notwithstanding anything in this Agreement
to the contrary, shares of Common Stock which are outstanding immediately prior
to the Effective Time and which are held by shareholders who shall not have
consented in writing to the Acquisition and/or shall not have voted such shares
in favor of the Acquisition and who shall have delivered to BankSouth in a
timely manner a written demand for appraisal of such shares in accordance with
the procedures provided for in the Oklahoma General Corporation Act (18 O.S.
1991, Section 1091) shall not be converted into the consideration provided
for under Section 1.1 above on the Effective Time (the "Dissenting Shares"),
but, instead, the holders thereof shall be entitled to the payment of the
appraised value of such shares in accordance with the said provisions of the
Oklahoma General Corporation Act; provided, however, in the event a shareholder
fails to perfect, withdraws, does not comply with the procedure required by the
provisions of the Oklahoma General Corporation Act, or otherwise loses his right
to appraisal and payment for his shares of Common Stock, pursuant to the
applicable provisions of the Oklahoma General Corporation Act, each such
Dissenting Share of Common Stock held by such Dissenting Shareholder shall be
converted into and represent only the right to receive the consideration for the
share of Common Stock, as specified in Section 1.1 above upon surrender of the
certificate or certificates so representing the Dissenting Shares of Common
Stock.
Section 1.3 EFFECT OF THE ACQUISITION. At the Effective Time, Buyer shall
become the owner of all of the issued and outstanding capital stock of BankSouth
and BankSouth shall become a wholly-owned subsidiary corporation of Buyer, all
without any further action, corporate or otherwise, on the part of Buyer or
BankSouth or Citizens Bank, or any of BankSouth's respective shareholders of
either the Common Stock or the Preferred Stock. None of the Common Stock
Shareholders of BankSouth shall have any further rights in such shares of
5
<PAGE> 6
Common Stock as of the Effective Time and all such shares shall be automatically
converted into the right to receive the consideration set forth herein, subject
only to the Appraisal Rights accorded to the Dissenting Shares as set forth and
described in Section 1.2 above.
Section 1.4 CERTIFICATES OF INCORPORATION. The respective Certificates of
Incorporation of the Buyer and BankSouth, as in effect immediately prior to the
Effective Time, shall remain in effect thereafter, unless and until amended as
provided by applicable law.
Section 1.5 BY-LAWS. The respective By-Laws of the Buyer and of
BankSouth, as in effect immediately prior to the Effective Time, shall remain
in effect thereafter, unless and until amended or repealed as provided by the
By-Laws, the respective Certificates of Incorporation and applicable law.
Section 1.6 BANKSOUTH DIRECTORS AND OFFICERS. All directors and officers of
BankSouth and of Citizens Bank, respectively, shall tender their resignation
from all positions held by them as an officer or director of either BankSouth or
Citizens Bank at the Effective Time. New officers and directors of BankSouth and
Citizens Bank, respectively, shall be designated by Buyer at the Effective
Time. The directors and officers of Buyer immediately prior to the Effective
Time shall remain as the directors and officers of Buyer after the Effective
Time.
Section 1.7 BUYER'S ASSUMPTION OR PAYMENT OF BANK STOCK LOAN TO DURANT
BANK. As an integral part of this transaction and as additional consideration to
BankSouth and the Control Group Shareholders to enter into and perform under
this Agreement, Buyer agrees that it will, on the Closing Date, either assume or
cause to be fully paid the Bank Stock Loan to Durant Bank; provided, however,
that the amount of the Bank Stock Loan which Buyer is obligated to assume or pay
at the Closing pursuant to this Agreement shall not, in any event, exceed the
amount of One Million Eight Hundred Thousand and No/100 Dollars ($1,800,000.00).
This is a specific assumption and obligation of Buyer with regard to the
performance and consummation of this transaction and is intended to be an
integral part of its assumption of all liabilities of BankSouth pursuant to this
Agreement. All of the issued and outstanding shares of Citizens Bank Common
Stock have been pledged by BankSouth to the Durant Bank to secure repayment of
the Bank Stock Loan. Buyer agrees to cause Durant Bank, by Buyer's assumption or
payment of the Bank Stock Loan, to fully release its pledge of all of Citizens
Bank Common Stock and to obtain all of the Citizens Bank Common Stock
certificates held by Durant Bank pursuant to such pledge for the Closing to be
endorsed in blank for transfer by BankSouth on the Closing Date when the
Acquisition is fully consummated
Section 1.8 NON-COMPETITION AGREEMENT AND CRAWFORD'S LIMITED
NON-SOLICITATION AGREEMENT. As a material inducement to the Buyer to enter into
this Agreement and as additional valuable consideration for Buyer's Acquisition
of BankSouth at the Closing hereunder, the following Control Group Shareholders,
i.e., Carl Gibson, Gilbert Gibson and Gore East, together with First Banker's
Insurance Agency, Inc., an Oklahoma corporation, owned and controlled by Aulena
Gibson ("FBIA"), which is engaged in the business of selling insurance and
securities, each covenant and agree to enter into, execute and deliver to Buyer
at the Closing a Non-Competition/Non-Solicitation Agreement (the "Non-Compete
Agreement") substantially in the form of Exhibit 1.8A, which is attached hereto
and by this reference made an integral part
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hereof, agreeing not to compete with the Buyer, or any of its subsidiaries or
affiliated corporations in any business being conducted by any of them, or to
intentionally solicit Buyer's customers, from and after the Closing Date
hereunder, upon the terms and conditions set forth therein, in Comanche and
Cleveland Counties, Oklahoma, except as otherwise expressly provided therein.
Crawford is Vice Chairman of the Board of Directors and the owner of Twenty and
28/100ths percent (20.28%) of BankSouth's issued and outstanding Common Stock.
Crawford is also the majority shareholder and Chairman of the Board and Chief
Executive Officer of First Southwest Bank, an Oklahoma state banking corporation
("First Southwest") with principal offices in Frederick, Tillman County, and
branches in Hobart, Kiowa County and Chattanooga, Comanche County, Oklahoma. As
a material inducement to the Buyer to enter into this Agreement and as
additional valuable consideration for Buyer's Acquisition of BankSouth at the
Closing hereunder, Crawford covenants and agrees to enter into, execute and
deliver to Buyer at the Closing a Limited Non-Solicitation Agreement ("Limited
Non-Solicitation Agreement") substantially in the form of Exhibit 1.8B, which is
attached hereto and by this reference made an integral part hereof, whereby
Crawford will agree not to use any information which he has obtained in his
capacities as a director, officer and major shareholder of BankSouth or of
Citizens Bank to solicit the existing customers of Local Federal or any of its
subsidiaries or affiliates or of Citizens Bank, or the employment of the current
or former officers of Citizens Bank, for First Southwest Bank, or for the
benefit of any other banking entity or business entity in which he has any
ownership or control which is in competition with Local Federal, Citizens Bank
or any of the subsidiaries or affiliates of Local Federal, to include, without
limitation, using for that purpose any of BankSouth's or Citizens Bank's
customer lists, account lists, loan lists, deposit lists or data, contractual
arrangements, asset lists, examination reports, call reports, board meeting
minutes, director reports and exams, employee lists, investment lists or any
other information of any other type or kind which he obtained or received solely
by reason of his capacity as an officer, director or shareholder of BankSouth or
Citizens Bank, upon the terms and conditions set forth in that said Limited
Non-Solicitation Agreement, Exhibit 1.8B hereto.
Section 1.9 CLOSING. The consummation of the Acquisition pursuant to this
Agreement (the "Closing") shall take place on the Closing Date, provided all of
the conditions precedent to the Parties' obligations under this Agreement as set
forth in Articles V and VI herein have been fully performed and satisfied in
accordance with this Agreement. The Closing shall be effected on the Closing
Date at the offices of Buyer in Oklahoma City, Oklahoma, or at such other place
as the Parties hereto may mutually agree, at 10:00 a.m., Central Time. At the
Closing on the Closing Date, Buyer shall act as the exchange agent (the
"Exchange Agent") to effect the exchange of the Common Stock and the redemption
and cancellation of the Preferred Stock. Each holder of a stock certificate or
certificates (i) representing outstanding shares of Common Stock being converted
pursuant to the Acquisition, or (ii) representing outstanding shares of
Preferred Stock being redeemed by BankSouth pursuant to this Agreement, at the
Effective Time shall, as soon after the Effective Time as possible, surrender
such certificate or certificates to the Exchange Agent (or, if such certificate
or certificates shall have been lost or destroyed, shall deliver to the Exchange
Agent an affidavit to such effect and, if reasonably requested by the Exchange
Agent, a bond or indemnity agreement in form and substance satisfactory to the
Exchange Agent with regard thereto), and each such holder shall be entitled upon
such surrender (or upon such delivery), to receive from the Buyer or BankSouth,
as the case may be, in exchange therefor by corporate check, an amount equal to
the price per share of the Purchase Price, or the price per share of the
Preferred Stock Redemption Price, respectively, as determined
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in the manner set forth above in Section 1.1, at the Effective Time. The price
received by the selling Common Stock Shareholder, or the Preferred Stock
Shareholder whose shares are being redeemed, respectively, shall be equal to the
Purchase Price per share for the Common Stock and the Preferred Stock Redemption
Price per share for the Preferred Stock, respectively, described above,
multiplied times the number of shares of Common Stock or Preferred Stock,
respectively, being surrendered for exchange, or being redeemed, respectively,
pursuant hereto. No interest will accrue on the cash payment to be made from and
after the Effective Time prior to the receipt by the Exchange Agent of the
certificate or certificates representing shares of the Common Stock or the
Preferred Stock, respectively, being surrendered pursuant to this provision to
effectuate the conversion or the redemption thereof, respectively.
Section 1.10 CLOSING DATE DELIVERIES BY BUYER. At the Closing, Buyer shall
execute and deliver to BankSouth and the Control Group Shareholders, the
following:
1.10.1 Evidence in a form satisfactory to BankSouth and the Control
Group Shareholders and their counsel that all requisite federal and state
regulatory approvals have been obtained to authorize the Acquisition of
BankSouth by Buyer and the concomitant acquisition of Citizens Bank by Buyer
and its subsequent merger into Buyer with Buyer to be the surviving bank;
1.10.2 The respective payment of the Purchase Price by Buyer, and of
the Preferred Stock Redemption Price by BankSouth, in the manner and at the
times required under the provisions of this Article I, above;
1.10.3 A copy of Buyer's Board of Directors' Resolutions as
represented and required of the Buyer under the provisions of Section 3.2 of
the Agreement, below;
1.10.4 The Buyer's Closing Certificate, as hereinafter defined, and
required to be provided in Section 6.4 of this Agreement, executed by the
President of Buyer; and
1.10.5 Execute and file the Certificate of Acquisition with the
Oklahoma Secretary of State to evidence the consummation of the Acquisition
pursuant hereto as required by the provisions of 18 O.S. 1991, Section 1090.1.
Section 1.11 CLOSING DATE DELIVERIES BY BANKSOUTH, CITIZENS BANK AND THE
CONTROL GROUP SHAREHOLDERS. At the Closing, BankSouth, Citizens Bank and the
Control Group Shareholders shall deliver to the Buyer the following respective
items, as stated below:
1.11.1 Closing Certificate of BankSouth and Citizens Bank, as
required to be provided in Section 5.4 of this Agreement, duly executed by the
President of BankSouth and by the President and Chief Financial Officer of
Citizens Bank;
1.11.2 A certified copy of the Resolutions of the Board of Directors
and of the Shareholders of BankSouth and of Citizens Bank, respectively, as
required and represented under the provisions of Sections 2.1, 2.2 and 2.10,
respectively, and pursuant to Section 4.7.1 of this Agreement;
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1.11.3 The stock certificates representing all of the issued and
outstanding Shares, duly endorsed for transfer to the Buyer by each of the
Control Group Shareholders, as to their respective Common Stock certificates,
or accompanied by stock powers duly executed for transfer to Buyer by each of
the Control Group Shareholders as to their respective stock certificates
representing all of the Shares of Common Stock owned by each of the Control
Group Shareholders;
1.11.4 The stock certificates representing all of the issued and
outstanding shares of Preferred Stock owned by the Control Group Shareholders
duly endorsed in blank for transfer as to their respective Preferred Stock
certificates, or accompanied by stock powers duly endorsed in blank for
transfer, by each of the Control Group Shareholders as to their respective
Preferred Stock certificates being redeemed pursuant to this Agreement,
representing all of the shares of Preferred Stock owned by each of them.
1.11.5 Copies certified by the applicable government agency of the
Charter, Certificate of Incorporation and Bylaws of BankSouth, Citizens Bank
and Chattanooga Liquidation, Inc., as required to be provided by BankSouth and
Citizens Bank to Buyer pursuant to Sections 2.1 and 2.2, respectively, of this
Agreement;
1.11.6 All stock certificate(s) representing all of the issued and
outstanding Shares of Citizens Bank Common Stock duly endorsed for transfer,
in such manner as Buyer may elect, by BankSouth, or accompanied by stock
powers duly executed by BankSouth for transfer of all of the issued and
outstanding Citizens Bank Common Stock to Buyer;
1.11.7 Copies of all insurance policies required to be provided by
BankSouth to Buyer pursuant to Section 2.23 of this Agreement;
1.11.8 The original, executed resignations, in form satisfactory to
Buyer, of all of the members of the Board of Directors and all Officers, which
have been designated by Buyer to the Control Group Shareholders on or before
the Closing Date, of BankSouth and Citizens Bank, respectively, and of any
subsidiary corporations of either of them from their respective office or
position on the Board of Directors held by them with regard to BankSouth,
Citizens Bank and/or any of their subsidiary corporations, respectively;
1.11.9 Opinion of counsel for BankSouth, Citizens Bank and the
Control Group Shareholders, substantially in the form of BankSouth's Opinion
of Counsel which is attached to this Agreement as Exhibit 1.11.9 and by this
reference thereto made an integral part hereof, in final form approved by
Buyer's counsel prior to the execution thereof by BankSouth's counsel;
1.11.10 Original, executed copies of the Releases substantially in
the form of Exhibit 1.11.10, which is attached to this Agreement and by this
reference thereto made an integral part hereof, shall be delivered to Buyer,
executed by all of the Control Group
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Shareholders, namely, Crawford, Aulena Gibson, Carl Gibson, Gilbert
Gibson, Scearce and Willis (collectively, the "Shareholders' Releases");
1.11.11 BankSouth shall execute and deliver to Buyer the Certificate
of Acquisition to be filed with the Oklahoma Secretary of State to evidence
the consummation of the Acquisition pursuant hereto as required by the
provisions of 18 O.S. 1991, Section 1090.1;
1.11.12 Evidence in form and substance satisfactory to Buyer and
BankSouth that the BankSouth Corp. Employee Stock Ownership Plan and Trust
("BankSouth ESOP") will be completely terminated as of the Closing Date, or
shortly thereafter, in compliance with all applicable laws and regulations and
the terms of the BankSouth ESOP Plan and Trust and that neither BankSouth nor
Buyer will have any continuing liability or responsibility for the operation
or maintenance of the BankSouth ESOP from and after the Closing Date;
1.11.13 Evidence in form satisfactory to Buyer that (i) BankSouth
has fully complied with the requirements of Section 1.1.5, above, and
distributed to the individual members of BankSouth's and Citizens Bank's Board
of Directors, their respective annuity policy obtained by BankSouth to fund
its deferred compensation liability to that member of its Board of Directors
for service on the Boards of Directors of BankSouth and Citizens Bank; (ii)
paid by corporate check any and all remaining liability or obligation for such
deferred compensation owing to such directors in excess of the value of the
annuity policy so distributed to each of them; and (iii) has obtained from
each such director and provided to Buyer at Closing an original, executed
Receipt and Satisfaction acknowledging the transfer of the annuity policy and
payment of any remaining deferred compensation liability owing to such
director in complete satisfaction of BankSouth's and Citizens Bank's
obligations to that director for such deferred compensation for such member's
service on those Boards of Directors and releasing and discharging any and all
claims such director may have, has had or might hereafter have had for
compensation or deferred compensation from BankSouth or Citizens Bank, in form
and substance satisfactory to Buyer's counsel.
1.11.14 Opinion of special counsel for BankSouth and Citizens Bank,
in form and substance satisfactory to Buyer's counsel, or the evaluation of
pension benefit consultants selected by Buyer, rendering its legal opinion or
consultants' evaluation, respectively, to Buyer that the BankSouth ESOP was
properly and validly established, operated, maintained and is being terminated
in accordance with all applicable laws and regulations and that such counsel
or consultant, as the case may be, does not know, or have reason to believe,
that Buyer will incur any material tax liability, or any other material
liability of any other kind or nature, with regard to the BankSouth ESOP,
other than in the amounts reflected as a liability therefor on the most
recently available Financial Statements of BankSouth, as that term is defined
below.
1.11.15 Original, executed copies of the Non-Compete Agreement,
substantially in the form of Exhibit 1.8A hereto, shall be delivered to Buyer
by Carl Gibson, Gilbert Gibson, Gore East and FBIA as required by the
provisions of Section 1.8,
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above, and an original, executed copy of the Limited Non-Solicitation
Agreement, substantially in the form of Exhibit 1.8B hereto, shall be
delivered to Buyer by Crawford as also required by Section 1.8, above.
1.11.16 Such other documents, assignments, transfers or officers'
certificates as Buyer may deem reasonable and necessary in order to fully
effectuate the transaction contemplated by this Agreement under the
circumstances.
Section 1.12 EFFECTIVE TIME OF THE ACQUISITION. The Acquisition shall
become effective at 5:00 p.m., Central Time, on the date when the last of the
following actions shall have been completed:
1.12.1 All necessary orders, consents and approvals shall have been
entered by regulatory authority having jurisdiction over any of the Parties,
to include, without limitation, the Federal Deposit Insurance Corporation
("FDIC"), the FRB, and the OTS, granting consent, authorization or approval as
necessary to consummate the transactions contemplated by this Agreement,
without the imposition of any condition or conditions which in the reasonable
opinion of Buyer or of BankSouth are unduly burdensome and all applicable
waiting periods have expired and all required notices have been published;
1.12.2 All of the conditions precedent to Buyer's obligations to
complete the Acquisition as set forth in Article V of this Agreement, below,
shall have been completely satisfied or expressly waived in writing by Buyer;
1.12.3 All of the conditions precedent to the obligations of
BankSouth and of the Control Group Shareholders to complete the Acquisition as
set forth in Article VI of this Agreement, below, shall have been completely
satisfied or expressly waived in writing by BankSouth;
1.12.4 A Certificate of Acquisition will have been executed by Buyer
and BankSouth, duly acknowledged and filed with the Secretary of State of
Oklahoma in accordance with the provisions of Section 1090.1 of the Oklahoma
General Corporation Act, which shall be done five (5) business days after
Subsections 1.12.1 through 1.12.3, above, have been satisfied, unless the
Parties mutually agree to a different date.
The time when the Acquisition shall become effective, as defined by this Section
1.12, is herein called the "Effective Time" and the date upon which the
Effective Time occurs shall be hereinafter sometimes referred to as the "Closing
Date" hereunder.
ARTICLE II
REPRESENTATIONS AND WARRANTIES
OF BANKSOUTH AND CITIZENS BANK
BankSouth and Citizens Bank do each hereby specifically covenant and agree
to prepare and deliver to Buyer, as expeditiously as possible, but not later
than the date which is thirty (30) days after the date of this Agreement,
complete and correct copies of each of the
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Exhibits required to be provided to Buyer by the terms and provisions of this
Article II, below, to include, without limitation, Exhibits 2.3, 2.6-2.12,
2.15-2.16, 2.18, 2.20-2.24 and 2.30. BankSouth and Citizens Bank do each hereby,
respectively, represent and warrant to the Buyer, as of the date of this
Agreement and as of the Closing Date hereunder, as follows:
Section 2.1 ORGANIZATION AND STANDING OF BANKSOUTH. BankSouth is a
corporation duly organized, validly existing and in good standing under the laws
of the State of Oklahoma, and has all requisite power and authority (corporate
and other), and is duly qualified and licensed and possess all licenses,
franchises, permits and other governmental authorizations necessary to own,
lease and operate its assets and properties and to conduct its business as now
being conducted, including, without limitation, the full power and authority for
BankSouth to own all of the issued and outstanding capital stock of Citizens
Bank and for BankSouth to enter into and perform its obligations under this
Agreement and the transactions contemplated hereby. BankSouth is duly licensed
or qualified to do business and is in good standing in each jurisdiction in
which its ownership or leasing of property or the conduct of its business
requires such licensing or qualification and where the failure to be so
licensed, qualified or in good standing would have a material adverse effect on
the financial condition, operations, business or prospects of BankSouth or
Citizens Bank, respectively, either individually, or taken as a whole. BankSouth
is duly registered as a one bank holding company with the FRB pursuant to
applicable laws and regulations. BankSouth does not own any equity interest,
directly or indirectly, in any corporation, limited liability company,
partnership, joint venture, firm or other entity, of any kind or nature, except
for Citizens Bank, Chattanooga Liquidation, Inc., an Oklahoma corporation
("Chattanooga"), BankSouth Properties, Inc., an Oklahoma corporation, and FCB
Services, Inc., an Oklahoma corporation. BankSouth Properties Inc. and FCB
Services, Inc. currently do not have any assets, operations or income and are
inactive. All approvals for the Acquisition required to be obtained from the
Board of Directors or the Shareholders of BankSouth under its Certificates of
Incorporation or By-Laws, or under applicable law have been obtained or will
have been obtained prior to the Closing Date. BankSouth has delivered to Buyer
complete and correct copies of the Certificate of Incorporation of BankSouth, as
certified to by the Secretary of State of Oklahoma and of the By-Laws of
BankSouth, as certified to by the Secretary or Assistant Secretary of BankSouth,
as in effect on the Closing Date.
Section 2.2 ORGANIZATION AND STANDING OF CITIZENS BANK. Citizens Bank is an
Oklahoma state banking corporation duly organized, validly existing and in good
standing under the laws of the State of Oklahoma and with the Oklahoma State
Banking Department ("OSBD"). Citizens Bank has the full power and authority,
corporate and otherwise, and is duly qualified and licensed and possesses all
licenses, franchises, permits and other governmental authorizations necessary to
own, lease and operate its assets and properties and to conduct its business as
now being conducted, including, without limitation, the full power and authority
to operate Citizens Bank and to enter into and perform each of its obligations
under this Agreement and the transactions contemplated hereby. All approvals, if
any, required to be obtained from the Board of Directors or the Shareholders of
Citizens Bank under its Certificate of Incorporation, Charter or By-Laws, or by
applicable law, have been obtained. Citizens Bank is duly licensed or qualified
to do business and is in good standing in each jurisdiction in which its
ownership or leasing of property or the conduct of its business requires such
qualification, except where the failure to be so licensed, qualified or in good
standing would not have a material adverse effect on the financial condition,
operations, business or prospects of Citizens Bank, either individually
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or taken as a whole. Citizens Bank does not own any equity interest, directly or
indirectly, in any corporation, limited liability company, partnership, joint
venture, firm or other entity of any kind or nature, except for BankSouth
Services, Inc., an Oklahoma corporation. BankSouth Services, Inc. currently
does not have any assets, operations or income and is inactive. The deposit
accounts of Citizens Bank are insured by the Bank Insurance Fund to the maximum
extent permitted by the Federal Deposit Insurance Act ("FDIA"), and Citizens
Bank has paid all premiums and assessments required to be paid by it by the
provisions of the FDIA and the regulations thereunder. Citizens Bank is a member
in good standing of the FDIC. Citizens Bank has delivered to Buyer complete and
correct copies of the Charter and Certificate of Incorporation of Citizens Bank,
as certified to by the Secretary of State of Oklahoma, and the By-Laws of
Citizens Bank, as certified to by the Secretary or Assistant Secretary of
Citizens Bank.
Section 2.3 CAPITALIZATION OF BANKSOUTH AND CITIZENS BANK. The authorized
capital stock of BankSouth consists of Four Hundred Fifty Thousand (450,000)
shares consisting of (i) Two Hundred Thousand (200,000) shares of common stock,
par value $1.00 per share, of which Seventy-Seven Thousand Seven Hundred
(77,700) shares are issued and outstanding and are owned by the Shareholders
listed on Exhibit 2.3 to this Agreement, which is attached hereto and by this
reference made a part hereof ("Common Stock"), in the amounts reflected thereon
opposite the name of each such Shareholder, and of (ii) Two Hundred Fifty
Thousand (250,000) shares of 6 1/2% Series A cumulative preferred stock, par
value $9.00 per share, of which Eighty-Five Thousand Five Hundred Fifty-Three
(85,553) shares are issued and outstanding and are owned by the Shareholders
listed on Exhibit 2.3 hereto ("Preferred Stock"), in the amounts reflected
thereon opposite the name of each such Shareholder. All quarterly dividends
earned on the Preferred Stock to the date of this Agreement have been fully paid
by BankSouth. One Thousand (1,000) shares of the capital stock of BankSouth is
held in its treasury. No share of the capital stock of BankSouth has been
reserved for any purpose. The authorized capital of Citizens Bank consists of
One Hundred Thousand (100,000) shares of common stock, par value $10.00 per
share ("Citizens Bank Common Stock"), of which Eighty-Six Thousand Two Hundred
Fifty (86,250) shares are issued and outstanding and are owned by BankSouth.
There is no authorized preferred stock of Citizens Bank. None of the capital
stock of Citizens Bank is held in its treasury. No share of the capital stock of
Citizens Bank has been reserved for any purpose. All of the issued and
outstanding shares of the capital stock of BankSouth and of Citizens Bank,
respectively, are duly and validly authorized and issued, fully paid and
non-assessable and have not been issued in violation of any pre-emptive rights.
The BankSouth Shareholders listed on Exhibit 2.3 hereto are the record and
beneficial owners of all of the issued and outstanding shares of the Common
Stock and of the Preferred Stock, respectively, as reflected thereon, and such
shares are held by the Shareholders listed on Exhibit 2.3, respectively, free
and clear of all liens, encumbrances, pledges, options, charges, claims,
security interests, agreements, equities and assessments whatsoever, with the
Control Group Shareholders having full right and authority to sell, assign,
transfer and deliver the Shares as herein provided. The Shareholders listed on
Exhibit 2.3 own the shares of Common Stock and of Preferred Stock in the
respective amounts and in the manner respectively set forth and described on
Exhibit 2.3) and above in this Section 2.3. There are no outstanding securities
convertible into or exchangeable for the capital stock of BankSouth, or of
Citizens Bank, respectively, and there are no outstanding options, rights
(pre-emptive or otherwise), or warrants to purchase or to subscribe for any
equity securities of either BankSouth or Citizens Bank, respectively, except for
the Common Stock Options, as defined above, granted by BankSouth for the total
amount of Five Thousand Five Hundred (5,500) shares
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of Common Stock (3,300 shares granted to John T. Womack; 1,100 shares granted to
Jeff Chism; and 1,100 shares granted to Dan Torbett). There are no outstanding
agreements, arrangements, Commitments or understandings of any kind affecting or
relating to the voting, issuance, purchase, redemption, repurchase or transfer
of the capital stock of either BankSouth or Citizens Bank, respectively, or any
equity securities of BankSouth or Citizens Bank, respectively except as
expressly provided for and described in this Agreement. On the Closing Date,
BankSouth will have good, valid and marketable title to all of the issued and
outstanding shares of Citizens Bank Common Stock, free and clear of all
mortgages, liens, pledges, charges, claims, security interests, agreements,
encumbrances and equities whatsoever (except for the existing pledge of all of
the shares of Citizens Bank Common Stock to the Durant Bank to secure the
repayment of the Bank Stock Loan which Buyer is required to assume or fully pay
on or before the Closing Date pursuant to the provisions of Section 1.7, above),
with full right and authority to sell and transfer all of the Citizens Bank
Common Stock to Buyer, subject only to the existing security interest therein of
the Durant Bank.
Section 2.4 TRADE NAMES. No other person, firm or corporation is presently
using or claiming, or has the right to use or claim, any of the following trade
names: "BankSouth Corp." and/or "Citizens Bank," or to any of the trademarks,
logos or symbols used by either BankSouth or Citizens Bank in conjunction with
said trade names, respectively. Neither BankSouth nor Citizens Bank have
conferred any right or license to use any of the aforesaid trade names,
trademarks, logos, or symbols on any other person, firm or corporation. After
the Closing Date, the Control Group Shareholders shall forego and not make a
claim to any right, title or interest in or to the use of the trade names listed
above in this Section, or any trademarks, logos or symbols used by BankSouth or
Citizens Bank in conjunction with any of those said trade names.
Section 2.5 FINANCIAL STATEMENTS. BankSouth and Citizens Bank have
separately delivered to Buyer and identified by reference to this Section 2.5,
each of the following financial statements: (i) the unaudited annual
consolidated financial statements of BankSouth (including a Balance Sheet and
the related Statements of Operations, Equity and Cash Flows, and the notes
relating thereto), prepared internally by BankSouth, as of and for the fiscal
years ending December 31, 1995, December 31, 1996, and December 31, 1997; (ii)
the unaudited annual financial statements of Citizens Bank (including a Balance
Sheet and related Statements of Operations, Equity and Cash Flows, and the notes
relating thereto) prepared internally by Citizens Bank, as of and for the fiscal
years ending December 31, 1995, December 31, 1996, and December 31, 1997; and
(iii) the unaudited internal consolidated financial statements of BankSouth and
Citizens Bank, respectively, as of and for the period ending March 31, 1998
(collectively, the "Financial Statements"). The Financial Statements fairly
present the consolidated financial condition and results of operations of
BankSouth and Citizens Bank, respectively, as of the dates and for the periods
indicated therein, were prepared in accordance with generally accepted
accounting principles consistently applied throughout the periods involved,
except as otherwise set forth therein, and in accordance with the books and
records of BankSouth and Citizens Bank, respectively. The books and records of
BankSouth and Citizens Bank, respectively, on the basis of which such respective
Financial Statements were prepared fully and fairly reflect all of the
transactions of BankSouth and Citizens Bank, respectively, and are complete and
correct in all material respects. Each of the books of account of BankSouth and
Citizens Bank, reflect, respectively, substantially all items of income and
expense, and
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substantially all of their respective assets, liabilities and accruals, and
reflect all material items of income and expense and all material assets,
liabilities and accruals, and are maintained in form and substance adequate for
preparing audited Financial Statements in accordance with generally accepted
accounting principles.
Section 2.6 LIABILITIES. Neither BankSouth nor Citizens Bank has any
indebtedness, obligation or liability, contingent or otherwise, and whether due
or to become due, which is required by generally accepted accounting principles
to be reflected in the Financial Statements, or which is material, except (i)
those reflected in the Financial Statements, (ii) those individual liabilities
subsequently incurred in the Ordinary Course of Business (as that term is
defined below in this Agreement), (iii) deposit accounts opened in the Ordinary
Course of Business of a type authorized by law, or (iv) those set forth in
Exhibit 2.6 to this Agreement. All deposit accounts and notes payable, and other
liabilities of either BankSouth or Citizens Bank, respectively, are current and
not in default.
Section 2.7 TAXES. To the best of their respective knowledge and belief,
BankSouth, Chattanooga and Citizens Bank have each duly filed with the
appropriate governmental agencies all tax reports and returns required to be
filed by each said entity, including, without limitation, all federal, state,
and local income, franchise, sales and property tax returns, complete and
accurate copies of which have previously been provided to Buyer and each has
duly paid in full, or made adequate provision for the payment of, all taxes and
other charges due or claimed to be due from it by federal, state or local taxing
authorities; and there are no federal, state or local tax liens upon any of the
property or assets of either BankSouth, Chattanooga or Citizens Bank,
respectively. All of such reports and returns are true, correct, and complete in
all material respects. The federal income tax returns of BankSouth, Chattanooga
and Citizens Bank, respectively, have been examined by the federal tax
authorities or closed by applicable statute and satisfied for all periods to and
including the fiscal year ended December 31, 1997; all deficiencies asserted as
a result of such examinations have been paid or finally settled, and no state of
facts exists or has existed which might constitute grounds for the assessment of
any further tax liability with respect to the periods which have not been
audited by the federal, state or local taxing authorities. All of the respective
tax liabilities of BankSouth, Chattanooga and Citizens Bank for the current year
to date and all prior years, whether or not they have become due and payable,
have been paid in full or adequately reserved for, and to the extent tax
liabilities have accrued but not become payable, they are properly reflected on
the respective books of BankSouth, Chattanooga or Citizens Bank or in the
Financial Statements. No income, franchise, sales or property tax return of
either BankSouth, Chattanooga or Citizens Bank is currently being audited by the
Internal Revenue Service or any other taxing authority having jurisdiction over
any of them. Except as set forth on Exhibit 2.7 hereto, neither BankSouth,
Chattanooga nor Citizens Bank is a party to, or bound by, or have any obligation
under any tax sharing or similar agreement. There are no outstanding agreements
or waivers extending the statutory period of limitation applicable to any state
or federal income tax return of either BankSouth, Chattanooga or Citizens Bank,
respectively, for any period. Neither BankSouth, Chattanooga nor Citizens Bank
is a party to any action or proceeding by any governmental authority for
assessment or collection of taxes, and no claim for assessment or collection of
taxes by any governmental authority has been asserted against either BankSouth,
Chattanooga or Citizens Bank. All federal or state income taxes that either
BankSouth,
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Chattanooga or Citizens Bank is or was required by applicable laws to withhold
or collect have been duly withheld or collected and, to the extent required,
have been paid to the proper governmental body or other person who is entitled
by law to receive such withholding.
Section 2.8 PROPERTY AND ASSETS. Subject to Permitted Title Exceptions, as
that term is defined and described below, or as otherwise indicated in Exhibit
2.8 hereto, BankSouth, Citizens Bank or Chattanooga, respectively, each have
good and marketable title to all of their respective properties and assets,
whether real, personal, tangible or intangible, reflected in the Financial
Statements or subsequently acquired, free and clear of all liens, charges,
Encumbrances, as that term is defined below in this Section, and claims of third
parties or restrictions. Permitted Title Exceptions include (i) liens for
current real estate taxes or special assessments not yet delinquent, (ii)
utility, access and other easements and rights-of-way, restrictions and
exceptions, that will not materially interfere with the present use or
occupation of the real estate owned by BankSouth, Citizens Bank or Chattanooga,
respectively, as the case may be, or impair the present business operations
conducted thereon, (iii) such minor defects, irregularities, encumbrances,
easements, rights-of-way and clouds on title as normally exist with respect to
property similar in character which do not materially impair the use of the
premises affected thereby for the purpose for which it is presently being used,
and (iv) any building, zoning or subdivision ordinances applicable to the
premises, provided the same have not been violated. Exhibit 2.8 lists and
describes all real property and all interests in real property (other than
mortgages and deeds of trust) owned by BankSouth, Citizens Bank or Chattanooga,
respectively, separately identified as to the property and assets owned by each
of said entities, as of the date hereof, including, but not limited to, all
leaseholds, options to purchase real property and leases, including without
limitation, equipment leases, under which either BankSouth, Citizens Bank or
Chattanooga, respectively, is the lessor or the lessee. Subject to the Permitted
Title Exceptions, (A) BankSouth, Citizens Bank and Chattanooga, respectively,
each enjoys peaceful and undisturbed possession under all leases for the use of
real property and all equipment leases under which it is the lessee; (B) all of
such leases are in full force and effect and neither BankSouth, Citizens Bank
nor Chattanooga, is in default in any regard under any such lease; and (C)
except as disclosed in Exhibit 2.8, all personal property and assets and
improvements on real property owned and currently used by either BankSouth,
Citizens Bank, or Chattanooga and material to their respective businesses are in
good operating condition and repair, normal wear and tear excepted. For purposes
of this Agreement, the term "Encumbrance" shall mean any charge, claim,
community property interest, condition, equitable interest, lien, option,
pledge, security interest, right of first refusal, or restriction of any kind,
including any restriction on use, voting, transfer, receipt of income, or
exercise of any other attribute of ownership.
Section 2.9 LITIGATION AND PROCEEDINGS. Except as set forth in Exhibit 2.9
hereto, (i) there is not pending any legal, administrative, arbitration,
governmental or other proceeding to which any of the Control Group Shareholders,
BankSouth, Citizens Bank or Chattanooga is a party, or, to the knowledge of
BankSouth, Citizens Bank or Chattanooga, is threatened to be made a party; (ii)
none of the Control Group Shareholders, BankSouth, Citizens Bank or Chattanooga
is under any investigation to their respective knowledge with respect to, or is
charged with any violation or alleged violation of, any federal, state, local or
other law or regulation other than as described in each of their respective most
recent regulatory examination reports, if applicable; (iii) neither BankSouth,
Citizens Bank nor Chattanooga is subject to any order of any federal, state, or
local court or other governmental agency not generally applicable
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to entities engaged in their same business; (iv) no one has asserted, and to the
knowledge of BankSouth, Citizens Bank, or Chattanooga, no one has grounds to
assert any material claims against any of the Control Group Shareholders,
BankSouth, Citizens Bank or Chattanooga, based upon the wrongful action or
inaction of any of the Control Group Shareholders, BankSouth, Citizens Bank or
Chattanooga, or any of their respective officers, directors, agents or
employees; and (v) no one has asserted and, to the knowledge of BankSouth,
Citizens Bank or Chattanooga, there do not exist grounds for any claims against
any of the Control Group Shareholders, BankSouth, Citizens Bank, or Chattanooga
which have resulted or may result in litigation that will prevent or delay the
consummation of the transactions contemplated by this Agreement.
Section 2.10 AUTHORITY. Each of BankSouth and Citizens Bank, respectively,
has full corporate power and authority to carry out the transactions provided
for in this Agreement on the terms and conditions set forth herein. The
execution and delivery by BankSouth and Citizens Bank of this Agreement and the
respective consummation by each of them of the transactions contemplated hereby
have been duly and validly authorized by all necessary corporate action of each
of them. This Agreement constitutes a valid and legally binding obligation of
BankSouth, Citizens Bank and each of the Control Group Shareholders,
respectively, in accordance with its terms, except that the enforcement of the
rights and remedies created hereby and thereby is subject to bankruptcy,
insolvency, reorganization and similar laws of general application affecting the
rights and remedies of creditors and that the availability of the remedy of
specific performance or of injunctive or other equitable relief is subject to
the discretion of the court before which any proceeding therefor may be brought.
Except as listed on Exhibit 2.10 hereto, neither the execution and delivery of
this Agreement, nor the consummation by the Control Group Shareholders,
BankSouth and/or Citizens Bank, respectively, of the transactions contemplated
hereby in accordance with the terms and conditions hereof, nor the respective
compliance by the Control Group Shareholders, BankSouth and Citizens Bank with
any of the provisions hereof, will violate, conflict with, result in a breach
of, constitute a default under, accelerate the performance required by the terms
of, or permit the termination of any order, writ, injunction, decree, statute,
rule, regulation or policy guidelines applicable to the Control Group
Shareholders, BankSouth or Citizens Bank, respectively, or any contract,
agreement, indenture or instrument to which any of the Control Group
Shareholders, BankSouth, Citizens Bank or Chattanooga is a party or by which any
of the Control Group Shareholders, BankSouth, Citizens Bank or Chattanooga is
bound or committed or the respective Certificate of Incorporation, Charter or
Bylaws of BankSouth, Citizens Bank or Chattanooga. Except for the approvals
contemplated by this Agreement, none of the Control Group Shareholders,
BankSouth or Citizens Bank is required to obtain any consent, approval, order or
authorization of, or to effect any registration, declaration or filing with, any
governmental authority or under any contract, agreement, indenture or instrument
to which any of the Control Group Shareholders, BankSouth or Citizens Bank is a
party, or by which any of them is bound or committed in connection with the
execution and delivery of this Agreement, or the consummation of the
transactions contemplated hereby.
Section 2.11 ABSENCE OF CERTAIN CHANGES. Except as set forth in Exhibit
2.11 hereto or permitted by this Agreement, since December 31, 1997, none of the
following actions, changes or matters has been taken by or transpired with
regard to either BankSouth or Citizens Bank, respectively:
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2.11.1 any material adverse change in the financial condition,
operations, business or prospects of BankSouth or Citizens Bank, either
individually or taken as a whole, other than changes which are the result of
changes in laws or regulations, conditions affecting the economy generally or
other factors affecting banking institutions in general;
2.11.2 any sale, assignment, transfer, purchase or other disposition
of any tangible or intangible asset of BankSouth, Citizens Bank or
Chattanooga, respectively, except in the Ordinary Course of Business
consistent with past practice, as that term is defined below in this Section,
and for fair and adequate consideration;
2.11.3 any suffering of any damage, destruction, or loss, whether as
the result of fire, explosion, earthquake, accident, casualty, labor trouble,
requisition or taking of property by any government or any agency of any
government, flood, windstorm, embargo, riot or act of God or the enemy, or
other similar or dissimilar casualty or event or otherwise, and whether or not
covered by insurance, materially and adversely affecting the business,
property, or assets of BankSouth, Citizens Bank or Chattanooga, respectively;
2.11.4 any increase in the compensation payable or to become payable
by BankSouth or Citizens Bank, respectively, to any of their respective
directors, officers, employees, agents, consultants, or any bonus granted to
any such persons, except in the Ordinary Course of Business consistent with
past practice;
2.11.5 any material change in the method of recordkeeping employed by
BankSouth, Citizens Bank or Chattanooga, respectively;
2.11.6 any issuance or sale by BankSouth or Citizens Bank,
respectively, of any of their respective corporate debt securities, or any
borrowings of money or other pledging of any of their respective credit except
in the Ordinary Course of Business consistent with past practice;
2.11.7 any occurrence of any other material obligation or liability
(absolute or contingent), except normal trade or business obligations or
liabilities incurred in the Ordinary Course of Business;
2.11.8 any mortgage, pledge, or subjecting to lien, claim, security
interest, charge, Encumbrance, or restriction (other than Permitted Title
Exceptions) of any of the respective assets or properties of BankSouth,
Citizens Bank or Chattanooga, respectively;
2.11.9 any discharge or satisfaction of any lien, mortgage, pledge,
claim, security interest, charge, Encumbrance, or restriction or payment of
any obligation or liability (absolute or contingent), of BankSouth, Citizens
Bank or Chattanooga, other than in the Ordinary Course of Business;
2.11.10 any declaration or payment of dividends by either BankSouth
or Citizens Bank on their respective capital stock, except that Citizens Bank
shall be
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permitted to pay a dividend in an amount not to exceed One and
25/100ths Dollars ($1.25) per share each calendar quarter on its Common Stock
to BankSouth and BankSouth, in turn, shall be permitted to continue to pay
quarterly dividends on its Common Stock and Preferred Stock in a total amount
not to exceed the amount of Eighty-Nine Cents ($0.89) per share in each
calendar quarter to its Common Stock and Preferred Stock Shareholders in the
amounts and at the times consistent with its existing dividend policy;
2.11.11 any cancellation or compromise by BankSouth, Citizens Bank
or Chattanooga, respectively, of any material debt or claim, other than in the
Ordinary Course of Business or upon payment in full;
2.11.12 any waiver by BankSouth, Citizens Bank or Chattanooga,
respectively, of any material rights of value, other than in the Ordinary
Course of Business or upon payment in full;
2.11.13 except in the Ordinary Course of their respective Businesses,
any entering into, or agreeing to enter into, any agreement or arrangement
granting any preferential right to purchase any of their respective assets,
properties, or rights or requiring the consent of any party to the transfer
and assignment of any such respective assets, properties, or rights;
2.11.14 any entering into of any material transaction, contract, or
commitment outside the Ordinary Course of its Business;
2.11.15 any introduction of any material change with respect to the
operation of their respective businesses, including, without limitation, their
respective methods of accounting (exclusive of changes generally applicable to
the banking business or industry such as, without limitation, changes in
banking statutes, rules and regulations, changes in accounting principles,
rules and practices and changes in tax laws and regulations, and the
prevailing interpretation of any thereof);
2.11.16 any receipt of notice or knowledge of, or reason to believe
that any labor unrest exists among any of their respective employees, or that
any group, organization or union has attempted to organize any of their
respective employees, or any receipt of notice or knowledge of, or reason to
believe that there will be, resignations of several of their respective
employees, or of more than two (2) of the key executive employees of Citizens
Bank, i.e., Senior Vice President, or above, by reason of the execution of
this Agreement or the consummation of the transactions contemplated by this
Agreement;
2.11.17 any failure to operate their respective business
organizations intact and to seek to preserve the goodwill of their respective
customers and others with whom they have business relations;
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2.11.18 any making by either BankSouth or Citizens Bank,
respectively, of any capital expenditure or capital addition or betterment in
excess of $10,000 per respective project;
2.11.19 any making by either BankSouth, Citizens Bank or Chattanooga,
respectively, of any loan or discount or entering into a financing lease (A)
which has not been made for good, valuable and adequate consideration in the
Ordinary Course of Business, and (B) which has not been evidenced by notes or
other evidences of indebtedness which are true, genuine and what they purport
to be; or
2.11.20 any agreement to do any of the foregoing.
2.11.21 For purposes of this Agreement, the term "Ordinary Course of
Business" shall be defined to mean an action taken by a person which: (i) is
consistent with the past practices of such person and is taken in the ordinary
course of the normal day-to-day operations of such person; (ii) is not
required to be authorized by Board of Directors of such person (or by any
person or group of persons exercising similar authority); and (iii) is similar
in nature and magnitude to action customarily taken, without any authorization
by the Board of Directors (or by any person or group of persons exercising
similar authority), in the ordinary course of the normal day-to-day operations
of such persons that are in the same line of business as such person.
Section 2.12 EMPLOYEE BENEFIT PLANS. Unless disclosed in Exhibit 2.12
hereto:
2.12.1 Neither BankSouth or Citizens Bank, respectively, maintains
nor has maintained, nor has any present or future obligation or liability
under, any funded deferred compensation plans (including profit sharing,
pension, 401-k, savings, employee stock ownership plans or trusts or other
stock bonus plans), unfunded deferred compensation arrangements or employee
benefit plans as defined in Section 3(3) of the Employee Retirement Income
Security Act of 1974, as amended ("ERISA"), other than the respective plans,
if any, maintained by any of them as set forth in Exhibit 2.12 hereto, to
include, without limitation, the BankSouth ESOP (true and correct copies of
which have been delivered to Buyer) (the "Benefit Plans").
2.12.2 There are no multi-employer plans, as defined in Section 4001
(a)(3) of ERISA, to which either BankSouth or Citizens Bank, respectively,
contributes, or under which either of them has any present or future
obligation or liability.
2.12.3 Each of the Benefit Plans which is an employee pension benefit
plan, as defined in Section 3(2) of ERISA, and which is intended to be
"qualified" within the meaning of Section 401(a) of the Internal Revenue Code
of 1986 ("Code") ("Pension Plan"), has been determined by the Internal Revenue
Service to be so qualified and neither BankSouth nor Citizens Bank is aware of
any fact that would adversely affect such qualified status. Each Benefit Plan
has been operated and administered in accordance with the requirements of
ERISA and the applicable provisions of the Code and has been fully funded at
the times and in the amounts required by the terms and conditions of each
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Benefit Plan by the entity maintaining that Benefit Plan, i.e., BankSouth or
Citizens Bank, respectively, as the case may be.
2.12.4 With respect to each Benefit Plan for which an annual report
has been filed, no material adverse change has occurred with respect to the
matters covered by the most recent such annual report, which is included in
Exhibit 2.12, since the end of the period covered thereby.
2.12.5 None of the Benefit Plans (or any pension plan maintained by a
trade or business, whether or not incorporated, which is under common control
with either BankSouth or Citizens Bank, respectively, or any of them, within
the meaning of Section 414(b) or (c) of the Code) which are subject to Title
IV of ERISA has completely or partially terminated, or been the subject of a
reportable event as defined in Section 4043 of ERISA.
2.12.6 No proceedings by the Pension Benefit Guaranty Corporation to
terminate a Pension Plan (or any pension plan maintained by a trade or
business, whether or not incorporated, which is under common control with
either BankSouth or Citizens Bank, respectively, or any of them, within the
meaning of Section 414(b) or (c) of the Code) pursuant to Subtitle C of Title
IV or ERISA have been instituted or threatened. No liability under Subtitle D
of Title IV of ERISA has been incurred by either BankSouth or Citizens Bank
with respect to a Pension Plan or a pension plan maintained by a trade or
business whether or not incorporated which is under common control with either
BankSouth or Citizens Bank, respectively, or any of them, within the meaning
of Section 414(b) or (c) of the Code.
2.12.7 The present value of all accrued benefits (vested and
non-vested) under each of the defined benefit pension plans disclosed under
Exhibit 2.12 did not, as of the latest valuation date, exceed the then current
market value of the assets of such plan allocable to such accrued benefits
based upon the actuarial assumptions currently utilized for such plans and as
disclosed under Exhibit 2.12, and no accumulated funding deficiency (whether
or not waived) exists with respect to any such plan which has been terminated
by either BankSouth or Citizens Bank, respectively, or any of their respective
predecessors.
2.12.8 There has been no prohibited transaction (as is defined in
Section 4975 of the Code or in Part 4 of Subtitle B of Title I of ERISA) with
respect to any Benefit Plan. No penalty or tax under Section 402(i) of ERISA
or Section 4975 of the Code has been imposed upon either BankSouth or Citizens
Bank.
2.12.9 There are no pending or, to the knowledge of BankSouth or
Citizens Bank, any threatened claims by or on behalf of the Benefit Plans, by
any employee or beneficiary covered under the Benefit Plans, or otherwise
involving the Benefit Plans which allege a breach of fiduciary duties or
violations of other applicable state or federal law which could result in
liability on the part of either BankSouth or Citizens Bank, respectively, or
any of the Benefit Plans under ERISA or any other law,
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nor, to the knowledge of BankSouth or Citizens Bank, respectively, is
there any basis for such a claim.
2.12.10 BankSouth and Citizens Bank, respectively, has complied with
all provisions relating to continuation coverage required by Title I, Subtitle
B, Part 6 of ERISA as applicable.
Section 2.13 FORMS OF INSTRUMENTS, ETC. BankSouth and Citizens Bank will
make available to Buyer, upon request, copies of all standard forms of savings
and deposit accounts, certificates of deposit, notes, mortgages, deeds of trust,
security agreements and other routine documents of a like nature utilized on a
regular and recurring basis by any of them in their respective Ordinary Course
of Business.
Section 2.14 REQUIRED REPORTS AND COMPLIANCE WITH LAWS AND ORDERS.
BankSouth and Citizens Bank has each duly filed with the OSBD, the FRB and the
FDIC, as the case may be, in correct form the reports required to be filed by
and is in material compliance in all material respects with all laws, rules,
regulations, policy guidelines, orders and requirements applicable to it and has
paid all premiums and special assessments due and such reports were in all
material respects complete and accurate and in compliance with the requirements
of applicable laws and regulations, provided that information as of a later date
shall be deemed to modify information as of an earlier date; and BankSouth and
Citizens Bank have previously delivered or made available to Buyer accurate and
complete copies of all such reports. In connection with the most recent
examinations of BankSouth and Citizens Bank, respectively, by the FRB, OSBD, or
the FDIC, as the case may be, neither BankSouth nor Citizens Bank was required
to correct or change any action, procedure or proceeding which BankSouth or
Citizens Bank believes has not been corrected or changed as required by said
examination.
Section 2.15 LOANS. All loan agreements, notes receivable, borrowing
arrangements, and leases ("Loans") made or held by BankSouth, Citizens Bank or
Chattanooga, as lender, as reflected in the Financial Statements and/or on the
books of BankSouth, Citizens Bank, or of Chattanooga, respectively, are valid,
binding, and enforceable obligations of the respective debtors without any
claims or defenses, except as set forth on Exhibit 2.15 which is attached hereto
and by this reference made an integral part hereof, and each such Loan which is
secured by a security interest in personal property is secured by a valid and
perfected lien and each such Loan which is secured by an interest in real
property is secured by a valid and perfected mortgage lien. The Loans and loan
portfolio of BankSouth, Citizens Bank and of Chattanooga, respectively, are in
accordance in all material respects with all applicable laws, regulations,
orders and policy guidelines other than as disclosed in examination reports or
in Exhibit 2.15 hereto. Exhibit 2.15 hereto contains a list of all loan
commitments of BankSouth, Citizens Bank or Chattanooga exceeding $100,000
including the name of the borrower, other loans of such borrower held by
BankSouth, Citizens Bank or Chattanooga, respectively, and the type of security
for the loan. The aggregate reserves for Loans included in the Financial
Statements are adequate as of such dates in all respects for all known and/or
estimated losses as of such dates (net of recoveries relating to Loans
previously charged off) on any Loans of BankSouth, Citizens Bank or of
Chattanooga, respectively, which were outstanding as of such date. To the best
of the knowledge of BankSouth and Citizens Bank, all Loans of BankSouth,
Citizens Bank and Chattanooga are bona fide and arose in the Ordinary Course of
Business.
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Except for Loans described and listed in Exhibit 2.15 hereto (which Exhibit
shall include the borrower's name, amount of the loan, the number of days,
if any, the loan is delinquent and the name of the entity, bank or holding
company, i.e., BankSouth, Citizens Bank or Chattanooga, which made that
Loan), neither BankSouth, Citizens Bank nor Chattanooga, respectively, is a
party to any written or oral (i) Loan under the terms of which the obligor
is more than thirty (30) days in default in payment of principal, interest, or
other provisions thereof as of the dates shown thereon; (ii) Loan which has
been or may be classified by the examiners for the FRB, FDIC, or OSBD, as
"substandard," "doubtful," "loss," "other loans especially mentioned," or any
comparable classification used by such regulatory agencies; (iii) Loan which
has been so classified internally by that lender; (iv) Loan by BankSouth or
Citizens Bank to any of its respective directors or officers, or any member of
its respective directors' or officers' immediate families (spouse, siblings,
children, or parents), or any affiliate or associate (as such terms are
defined in the rules and regulations applicable to that respective bank) of
the foregoing which is more than thirty (30) days delinquent, or (v) Loans
which are in known violation of any law, regulation, or rule of any
governmental authority, federal, state or county. Except as noted in Exhibit
2.15 hereto, the documentation for all Loans of BankSouth, Citizens Bank or
Chattanooga, respectively, which are described in Exhibit 2.15 is
substantially in the same form as for the other Loans of similar type of
BankSouth, Citizens Bank or Chattanooga, respectively.
Section 2.16 NO IMPENDING MATERIAL ADVERSE EVENTS. Unless
disclosed in Exhibit 2.16, which is attached hereto and by this reference made
an integral part hereof, as of the date hereof, neither BankSouth nor Citizens
Bank, respectively, has knowledge of any impending loss of their respective
business, or of any other presently existing facts or circumstances which would
be reasonably likely to have a material adverse effect upon the respective
financial condition, results of operations, business, or prospects of
BankSouth or of Citizens Bank, respectively, other than changes which are the
result of changes in laws or regulations or other factors affecting banking
institutions in general.
Section 2.17 BOOKS AND RECORDS. The minute books of BankSouth,
Citizens Bank and Chattanooga, respectively, each reflect accurately all
significant action ever taken by the shareholders and board of directors (or
any committee thereof), of each of those entities, i.e., BankSouth, Citizens
Bank or Chattanooga, respectively.
Section 2.18 REGULATORY AGREEMENTS. Except as disclosed in
Exhibit 2.18 hereto, neither BankSouth, Chattanooga nor Citizens Bank,
respectively, is a party to any Assistance Agreement, Supervisory Directive,
memorandum of understanding, consent order, cease and desist order or condition
or any other regulatory order or decree with or by the OSBD, FDIC or the FRB,
as applicable, or any other regulatory agency that restricts the conduct of the
respective business of BankSouth or Citizens Bank, or in any manner relates to
the capital adequacy, credit policies, ability to pay dividends, net worth or
asset management or maintenance of BankSouth or Citizens Bank, respectively.
Section 2.19 FULL DISCLOSURE. None of the information concerning
BankSouth, Chattanooga or Citizens Bank, respectively, contained in this
Agreement and the schedules hereto, or in any of the lists, documents or
instruments attached hereto or to be delivered by or on behalf of BankSouth,
Chattanooga or Citizens Bank, respectively, as contemplated by any provision of
this Agreement, or in any of the applications or documents to be filed with
governmental
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agencies in connection with obtaining requisite approvals for the transactions
contemplated hereby, contains or will contain any untrue statement of a
material fact or omits or will omit to state any material fact necessary to
make the statements contained herein or therein, taken as a whole with all
other such lists, documents, instruments or other information so furnished in
light of the circumstances in which they are made, not misleading.
Section 2.20 INVESTMENTS.
2.20.1 Set forth in Exhibit 2.20 hereto is a list of all
investment and mortgage-backed and related securities owned by BankSouth
and Citizens Bank, respectively, indicating the original cost and
current market value thereof. Except as disclosed in Exhibit 2.20, since
December 31, 1997, no investment or mortgage-backed and related
securities have been acquired or disposed of by either BankSouth or
Citizens Bank, respectively, except in the Ordinary Course of Business
and the investments of BankSouth or of Citizens Bank in investment and
mortgage-backed and related securities are in accordance in all material
respects with all applicable laws, regulations, orders, and policy
guidelines.
2.20.2 BankSouth and Citizens Bank have each set forth
respectively in Exhibit 2.20 hereto a written description as of the date
hereof of each real estate development project in which either
BankSouth, Chattanooga or Citizens Bank has an equity ownership, if any,
the amount of funds invested by either BankSouth, Chattanooga or
Citizens Bank, respectively, the appraised value of any real property
for which appraisals exist and the carrying value on the books of
BankSouth, Chattanooga and Citizens Bank, respectively, for any such
investment and, with respect to each such project which has not been
completed, an estimate of the cost of completing such project. BankSouth
and Citizens Bank, each has made available to Buyer true and complete
copies of appraisal reports relating to each such project as are
available. Exhibit 2.20 also includes a listing of all other real
property in which either BankSouth, Citizens Bank, or Chattanooga,
respectively, has an equity interest and the amount of each such
investment. To the best of the knowledge of BankSouth and Citizens Bank,
respectively, there are no facts, circumstances or contingencies which
exist or which are reasonably likely to occur prior to the Closing
hereunder (other than general economic conditions and conditions
generally affecting real estate) which would require a material
reduction under generally accepted accounting principles in the
aggregate values of the real estate investments, other real estate
owned, joint ventures, and construction loans, respectively, of either
BankSouth, Citizens Bank or Chattanooga, which reductions are not
disclosed or reflected in the Financial Statements, or Exhibit 2.20.
Section 2.21 REPURCHASE AGREEMENTS. Unless disclosed in
Exhibit 2.21 hereto, with respect to all repurchase agreements pursuant to
which either BankSouth or Citizens Bank, is a party, (a) where either BankSouth
or Citizens Bank, respectively, has an obligation to resell securities,
it has either good title to or a valid, perfected first lien or security
interest in the government securities or other collateral securing the
repurchase agreement, and the value of the collateral securing each such
repurchase agreement to which any of them is a party at the date hereof equals
or exceeds the amount of the debt secured by such collateral under such
repurchase agreement, and (b) where either BankSouth or Citizens Bank has the
respective obligation to
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repurchase securities, the value of the collateral securing the said obligation
of BankSouth or Citizens Bank, respectively, does not exceed 100% of the
amount of said obligation.
Section 2.22 SIGNIFICANT AGREEMENTS. Except as set forth in
Exhibit 2.22 hereto, neither BankSouth, Chattanooga nor Citizens Bank,
respectively, is a party to (in its own name or as a successor in interest) nor
bound by any written or oral:
2.22.1 contracts or commitments involving employment,
consulting, deferred compensation, profit sharing, pension, bonus,
retirement, percentage compensation, incentive compensation, service
award, severance payment, employee benefit, or stock options or
warrants;
2.22.2 leases or licenses with respect to any property,
real or personal, as lessor, lessee, licensor, or licensee, except
leases of personal property with either BankSouth or Citizens Bank,
respectively, as the case may be, as lessee with rental payments of less
than $2,500 per annum in the aggregate;
2.22.3 contract or commitment for capital expenditures in
excess of $10,000 for any one project;
2.22.4 material contract or commitment made other than in
the Ordinary Course of Business for the purchase of materials or
supplies or for the performance of services for a period extending
beyond December 31, 1997;
2.22.5 contract or option for the purchase of any real or
personal property other than in the Ordinary Course of Business;
2.22.6 letter of credit or guarantee agreement;
2.22.7 collective bargaining or other agreement entered
into with any union or other entity representing employees;
2.22.8 contract or commitment to (a) acquire investment
securities in excess of $25,000, or (b) to extend credit in excess of
$100,000, in each case for any one contract or commitment; or
2.22.9 contracts, commitments, or agreements not otherwise
described in Subsections 2.22.1 - 2.22.8, above, made other than in the
Ordinary Course of Business, in an amount with a value of more than
$10,000 in the aggregate.
BankSouth, Chattanooga and Citizens Bank, respectively, has
performed in all material respects all material 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, would result in a
default under, any presently outstanding indenture, mortgage, lease, contract,
commitment, or agreement to which either BankSouth, Chattanooga or Citizens
Bank is a party, respectively, or by which it is bound and which is material,
or is set forth in Exhibit 2.22 hereto, and each such presently outstanding
indenture, mortgage, lease, contract, commitment, or
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agreement is a valid, legally binding obligation of BankSouth, Chattanooga
and/or Citizens Bank, respectively, as the case may be, and the other party or
parties thereto.
Section 2.23 INSURANCE. Exhibit 2.23 hereto lists the insurance
policies which BankSouth, Chattanooga and Citizens Bank each has in full force
and effect with respect to its respective assets and business. Unless disclosed
in Exhibit 2.23, since January 1, 1998, neither BankSouth, Chattanooga nor
Citizens Bank has received any notice of cancellation with respect to any of
its insurance policies or bonds, and within the last three (3) years neither
BankSouth, Chattanooga nor Citizens Bank has been refused any insurance
coverage sought or applied for (except where the refusal of coverage relates to
an insurer's ceasing generally to offer a particular type of coverage), and it
has no reason to believe that existing insurance coverage cannot be renewed as
and when the same shall expire.
Section 2.24 TRANSACTIONS WITH AFFILIATED PERSONS. Except as
listed in Exhibit 2.24 hereto, or elsewhere in this Agreement, no "affiliated
persons" or "affiliate" of either BankSouth, Citizens Bank or Chattanooga,
respectively, as those terms are defined in 12 C.F.R. Section 561.5 and 12
C.F.R. Section 563.41, respectively, have engaged in any material transactions
with either BankSouth, Citizens Bank or Chattanooga, respectively.
Section 2.25 BROKERS. Neither the Control Group Shareholders,
BankSouth nor Citizens Bank has retained or otherwise engaged or employed any
broker, finder or any other person, or paid or agreed to pay any fee or
commission to any agent, broker, finder or other person, for or on account of
such person's acting as a broker, finder or otherwise in connection with this
Agreement, the Acquisition or the other transactions contemplated hereby.
Section 2.26 NO DEFAULT. None of the Control Group Shareholders,
nor BankSouth nor Citizens Bank, respectively, is in default under and no
event has occurred which, with the lapse of time or action by a third party,
would result in a default under the terms of (i) any judgment, decree, order,
or writ of any agency of any government or court, whether federal, state or
local and whether at law or in equity, or (ii) any license, permit, rule or
regulation of any federal or state or local governmental agency which default
would have a materially adverse effect upon the respective financial condition,
results of operation, business or properties of BankSouth or Citizens Bank.
Section 2.27 HAZARDOUS MATERIALS. To the best knowledge of
BankSouth or Citizens Bank, respectively, no "Hazardous Materials" (as
hereinafter defined) has been disposed of, buried beneath, or percolated
beneath the respective real property, or improvements thereon, owned now or
during the last five years by BankSouth, Chattanooga or Citizens Bank,
respectively (the "Real Property"), nor has any Hazardous Materials ever been
removed from and stored off-site of the Real Property, or of any real or
personal property securing the Loans of any of those said respective entities.
Further, to the best knowledge of BankSouth, and Citizens Bank, respectively,
there has been no "Release" (as hereinafter defined) of any Hazardous Materials
on or from the Real Property or any improvements thereon. BankSouth,
Chattanooga and Citizens Bank, respectively, is each in material compliance
with all applicable federal, state and local laws, administrative rulings, and
regulations of any court, administrative agency or other governmental or
quasi-governmental authority, relating to the protection of the environment
(including, but not limited to, laws prohibiting the creation of a public
nuisance). Neither
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BankSouth, Chattanooga or Citizens Bank, respectively, has received
notification from any governmental entity or a private citizen acting in the
public interest that it is a potentially responsible party under Section 107 of
the Comprehensive Environmental Response Compensation and Liability Act of
1980, as amended ("CERCLA") or Section 7003 of the Resource Conservation and
Recovery Act of 1976, as amended ("RCRA") and none of them has received
notification from any federal, state, or local government agency, or regulatory
body, of a violation. The term "Environmental Laws" for the purposes of this
Agreement, shall include, without limitation, the Clean Air Act, 42 U.S.C.
Section 7401, et seq.; the Clean Water Act, 33 U.S.C. Section 1251, et seq.,
and the Water Quality Act of 1981; the Federal Insecticide, Fungicide and
Rodenticide Act ("FIFRA"), 7 U.S.C. Section 136 et seq.; the Marine,
Protection, Research and Sanctuaries Act, 33 U.S.C. Section 1401, et seq.; the
National Environmental Policy Act, 42 U.S.C. Section 4321, et seq.; the Noise
Control Act, 42 U.S.C. Section 4901, et seq.; the Occupational Safety and Health
Act, 29 U.S.C. Section 651, et seq.; the RCRA, 42 U.S.C. Section 6901, et seq.;
as amended by the Hazardous and Solid Waste Amendments of 1984; the Safe
Drinking Water Act, 42 U.S.C. Section 300f, et seq,; CERCLA, 42 U.S.C.
Section 9601, et seq., as amended by the Superfund Amendments and
Reauthorization Act, and the Emergency Planning and Community-Right-to-Know
Act; the Toxic Substance Control Act ("TSCA"), 15 U.S.C. Section 2601, et seq.
and the Atomic Energy Act, 42 U.S.C. Section 2011, et seq., all as may have
been amended as of the date of this Agreement, together with their implementing
regulations and guidelines as of the date of this Agreement. The term
"Environmental Laws" shall also include all state, regional, county, municipal
and other local laws, regulations and ordinances that are equivalent or similar
to the federal laws recited above or that purport to regulate Hazardous
Materials. The term "Hazardous Materials" shall include, without limitation,
any hazardous substance, pollutant, or contaminants regulated under CERCLA; oil
and petroleum products and natural gas, natural gas liquids, liquified natural
gas, and synthetic gas usable for fuel; pesticides regulated under FIFRA;
asbestos, polychlorinated biphenyls, and other substances regulated under TSCA;
source material; special nuclear material, and by-product materials regulated
under the Atomic Energy Act; and industrial process and pollution control
wastes to the extent regulated under applicable Environmental Laws. The term
"Release" shall have the meaning given to such term in Section 101(22) of
CERCLA.
Section 2.28 BOOKS AND RECORDS. The books of account, minutes
books, stock record books and other records of BankSouth, Chattanooga and
Citizens Bank, respectively, all of which have been made available to Buyer,
are complete and correct and have been maintained in accordance with sound
business practices. The minutes books of each of BankSouth, Chattanooga and
Citizens Bank contain accurate and complete records of all meetings held of,
and corporate action taken by, the stockholders, the Boards of Directors, and
committees of the Boards of Directors of each of BankSouth, Chattanooga and
Citizens Bank, respectively, and no meetings of any such stockholders, Board of
Directors, or committee has been held for which minutes have not been prepared
and are not contained in such minute books. At the Closing hereunder, all of
those books and records will be in possession of BankSouth and Citizens Bank,
respectively.
Section 2.29 CONDITION AND SUFFICIENCY OF ASSETS. The buildings,
structures and equipment of BankSouth, Chattanooga and Citizens Bank,
respectively, whether owned or leased, are structurally sound, are in good
operating condition and repair, and are adequate for the uses to which they are
being put, and none of such buildings, plants, structures, or equipment is in
need of maintenance or repairs except for ordinary, routine maintenance and
repairs that are not
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material in nature or cost. The building, structures and equipment of
BankSouth, Chattanooga and Citizens Bank, respectively, are sufficient for the
continued conduct of the businesses of each of those entities after the Closing
in substantially the same manner as they were being conducted prior to the
Closing.
Section 2.30 EMPLOYEES AND DIRECTORS.
2.30.1 Exhibit 2.30 which is attached hereto and by this
reference made an integral part hereof, contains a complete and accurate
list of the following information for each employee or director of
BankSouth or Citizens Bank, respectively, including, each employee on
leave of absence or layoff status; employer; employee name; job title,
current compensation paid or payable, and any change in compensation
since December 31, 1997; vacation accrued; and service credited for
purposes of vesting and eligibility to participate under any pension,
retirement, profit-sharing, thrift-savings, deferred compensation,
stock bonus, stock option, cash bonus, employee stock ownership
(including investment credit or payroll stock ownership), severance pay,
insurance, medical, welfare, or vacation plan, or any other Benefit Plan
of any type or kind or any other Pension Plan, employee benefit plan or
any other director plan of any type or kind maintained by either
BankSouth or Citizens Bank, respectively.
2.30.2 No employee or director of BankSouth or Citizens
Bank, respectively, is a party to, or is otherwise bound by, any
agreement or arrangement, including any confidentiality,
non-competition, or proprietary rights agreement, between such employee
or director and any other person ("Proprietary Rights Agreement") that
in any way adversely affects or will affect (i) the performance of
his/her duties as an employee or director of BankSouth or Citizens Bank,
respectively, or (ii) the ability of BankSouth or Citizens Bank,
respectively, to conduct its respective business, including without
limitation, any Proprietary Rights Agreement with the BankSouth
Shareholders, BankSouth or Citizens Bank by any such employee or
director. To the knowledge of BankSouth or Citizens Bank, no director,
officer, or other key employee of either BankSouth or Citizens Bank,
respectively, intends to terminate his/her employment with such entity
in the immediate future or as a result of the entering into this
Agreement or consummating of the Acquisition contemplated hereunder.
Section 2.31 IMPROPER PAYMENTS. None of the officers,
directors, agents or employees of either BankSouth or Citizens Bank,
respectively, nor, to the knowledge of BankSouth or Citizens Bank themselves,
respectively, any other person or entity (including, without limitation, any
affiliate of the Control Group Shareholders, BankSouth or Citizens Bank,
respectively) acting on behalf of either BankSouth or Citizens Bank, as the
case may be, in any case for which such action may be attributable to either
BankSouth or Citizens Bank, has directly or indirectly, on behalf of or with
respect to either BankSouth or Citizens Bank, (i) made any political
contributions with funds of BankSouth, Chattanooga or Citizens Bank,
respectively, (ii) made any payment which was not legal to make or which was
not legal for the payee to receive, (iii) received any payment which was not
legal to receive or which was not legal for the payor to make, (iv) executed
any material transaction or payment which is not properly booked in accordance
with generally accepted accounting principles, or (v) had any off-book bank or
cash
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accounts of which BankSouth, Chattanooga or Citizens Bank, respectively, was
the beneficial owner.
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF BUYER
Buyer hereby makes the following representations and warranties
to each of the Control Group Shareholders as of the date of this Agreement, and
as of the Closing Date, as follows:
Section 3.1 ORGANIZATION AND STANDING OF BUYER. Buyer is a federally
chartered stock savings bank organized, validly existing and in good standing
under the laws of the United States of America. Buyer has all requisite
corporate power and authority and is duly qualified and licensed and possesses
all licenses, franchises, permits and other governmental authorizations
necessary to own, lease and operate its assets and properties and to conduct
its business as now being conducted, including, without limitation, the full
power and authority to enter into and perform under this Agreement and the
transactions contemplated hereby. All approvals, if any, required to be
obtained from the Board of Directors or the shareholders of Buyer under Buyer's
Charter and By-laws or applicable law have been obtained or will be obtained
prior to the Closing Date, subject to the absolute right of any government
regulatory agency to deny such approval.
Section 3.2 AUTHORITY. Buyer has full corporate power and
authority to carry out the transactions provided for in this Agreement on the
terms and conditions set forth herein. The execution and delivery of this
Agreement and the consummation by Buyer of the transactions contemplated hereby
have been duly and validly authorized by all necessary corporate action. This
Agreement constitutes a valid and legally binding obligation of Buyer,
enforceable against Buyer in accordance with its terms, except that the
enforcement of the rights and remedies created hereby is subject to bankruptcy,
insolvency, reorganization and similar laws of general application affecting
the rights and remedies of creditors and that the availability of the remedy of
specific performance or of injunctive relief is subject to the discretion of
the court before which any proceeding therefor may be brought. Neither the
execution and delivery of this Agreement, nor the consummation by Buyer of the
transactions contemplated hereby, will conflict with, or result in a breach of,
any terms, condition or provision of, or constitute a default under, (a) the
Charter or Bylaws of Buyer, (b) any agreement or instrument to which Buyer is a
party or by which it is bound, or (c) any material order, judgment or decree to
which Buyer is subject.
Section 3.3 BROKERS. Buyer has not retained or otherwise engaged
or employed any broker, finder or any other person, or paid or agreed to pay
any fee or commission to any agent, broker, finder or other person, for or on
account of such person's acting as a broker or finder in connection with this
Agreement, or the Acquisition or the other transactions contemplated hereby.
Section 3.4 LEGAL PROCEEDING. There are no material legal
proceedings pending against or affecting, or, to the knowledge of Buyer,
threatened against or affecting it, any of which would prevent Buyer from
carrying out its obligations under the Agreement.
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Section 3.5 CONSENTS AND APPROVALS. Except for the respective
consents and approvals of or filings or registrations with or notices to the
OSBD, the OTS, the FRB and/or the FDIC or the expiration of any related
applicable waiting periods, no consents or approvals of or filings or
registrations with, or notices to any governmental agency, commission or
authority are necessary, and no waiting periods related thereto are required to
expire, in connection with (i) the execution and delivery by Buyer of this
Agreement and (ii) the consummation by Buyer of the transactions contemplated
hereby.
Section 3.6 NO IMPENDING MATERIAL ADVERSE EVENTS. As of the date
hereof, Buyer has no knowledge of any impending loss of business, or of any
other presently existing facts or circumstances which would be reasonably
likely to have a material adverse effect upon the financial condition, results
of operations, business, or prospects of Buyer.
Section 3.7 FULL DISCLOSURE. None of the information concerning
Buyer contained in this Agreement and the schedules hereto, or in any of the
lists, documents or instruments attached hereto or to be delivered by or on
behalf of Buyer as contemplated by a provision of this Agreement, or in any of
the applications or documents to be filed with governmental agencies in
connection with obtaining requisite approvals for the transactions contemplated
hereby, contains or will contain any untrue statement of a material fact or
omits or will omit to state any material fact necessary to make the statements
contained herein or therein, taken as a whole with all other such lists,
documents, instruments or other information so furnished in light of the
circumstances in which they are made, not misleading.
ARTICLE IV
FURTHER COVENANTS AND AGREEMENTS OF THE PARTIES
Section 4.1 CONDUCT OF BUSINESS. The Control Group Shareholders,
BankSouth and Citizens Bank, respectively, warrant and covenant to Buyer that,
between the date of this Agreement, and the Closing Date, the business of
BankSouth, Chattanooga and of Citizens Bank, respectively, shall (except with
the prior written approval of Buyer), be conducted in accordance with the
following provisions:
4.1.1 Except as contemplated by this Agreement, neither
BankSouth, Chattanooga nor Citizens Bank, respectively, shall engage in
any transaction or incur any obligations except in the Ordinary Course
of Business consistent with good corporate and banking practices.
BankSouth, Chattanooga and Citizens Bank, respectively, shall each use
its best efforts to maintain in effect all approvals, licenses and
authorizations from all federal and state regulatory bodies and
officials and all other rights, approvals and consents required to carry
on their respective business as now being conducted by each of them.
4.1.2 BankSouth, Chattanooga and Citizens Bank shall each
use its respective best efforts to maintain and preserve its respective
business organization intact (including, to the extent consistent with
good business practice under the circumstances, the retention of its
respective employees) and maintain its relationships and goodwill with
deposit account holders, borrowers, employees and others having business
relationships
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with either BankSouth, Chattanooga or Citizens Bank, respectively, so
that they will be preserved for Buyer on and after the Closing Date.
4.1.3 Each of BankSouth, Chattanooga and Citizens Bank,
respectively, shall be maintained at all times as a corporation or
association, as the case may be, duly organized, validly existing and in
good standing and shall be qualified to conduct its business as now
being conducted in accordance with all applicable laws.
4.1.4 Each of BankSouth, Chattanooga and Citizens Bank,
respectively, shall take all steps reasonably necessary to maintain in
force all of its respective existing casualty, liability and other
insurance policies and fidelity bonds with respect to its respective
business, properties, employees and agents, or replace them with
substantially similar policies and bonds providing substantially the
same coverage.
4.1.5 None of BankSouth, Chattanooga nor Citizens Bank,
respectively, shall make any change in their respective methods of
accounting or in their respective applications of generally accepted
accounting principles from the methods consistently applied throughout
the periods covered by the Financial Statements referred to in Section
2.5 of this Agreement, except for changes required by changes in
generally accepted accounting principles and changes in applicable
regulatory requirements.
4.1.6 Each of BankSouth, Chattanooga and Citizens Bank,
respectively, shall at their sole cost and expense maintain all of their
respective properties in their respective present repair, order and
condition, ordinary wear and tear excepted.
4.1.7 Neither BankSouth, Chattanooga nor Citizens Bank,
respectively, shall (i) amend its respective Certificate of
Incorporation, Charter or Bylaws, as the case may be, except as
specified herein, or as consented to in advance by Buyer, (ii) or merge
or consolidate with or into any other corporation, (iii) effect any
stock split, or change in any manner the rights of the holders of its
capital stock or the character of its business or (iv) elect any
additional directors or officers.
4.1.8 Neither BankSouth, Chattanooga nor Citizens Bank,
respectively, shall redeem or issue any of their respective securities
or enter into any agreement providing for or granting any option,
warrant, call, commitment or any agreement of any character relating to
the purchase, sale, redemption or issuance of the respective securities
of BankSouth, Chattanooga or Citizens Bank, nor shall BankSouth or
Citizens Bank, respectively, declare or pay any cash or stock dividends
on any of their respective shares of issued and outstanding capital
stock; except that BankSouth and Citizens Bank shall be expressly
authorized to continue their current quarterly dividend policy pursuant
to which Citizens Bank shall be permitted to continue to pay a dividend
in an amount not to exceed One and 25/100ths Dollars ($1.25) per share
on its Common Stock to BankSouth each calendar quarter and BankSouth, in
turn, shall be permitted to continue to pay quarterly dividends on its
Common Stock (not to exceed $0.75 per share) and Preferred Stock (not to
exceed $0.14 per share) for each calendar quarter pursuant to its
existing dividend policy.
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4.1.9 Neither BankSouth, Chattanooga nor Citizens Bank,
respectively, shall take any action or omit to take any action which, to
their respective knowledge, will cause a material breach of any of their
respective contracts, commitments or obligations, including, but not
limited to, their respective obligations under this Agreement.
4.1.10 Neither BankSouth, Chattanooga nor Citizens Bank,
respectively, will (i) grant any increase in compensation or pay any
bonus to any of their respective officers or other employees except in
the Ordinary Course of Business and in accordance with past practices
and/or except as provided for by contracts in existence as of the date
of this Agreement; in any event, no bonus shall be granted; or (ii)
enter into, amend or alter any bonus, incentive compensation, profit
sharing, stock purchase, stock option, retirement, pension, group
insurance, death benefit or other fringe benefit, arrangement or trust
agreement for the benefit of officers or other employees of either
BankSouth, Chattanooga or Citizens Bank, respectively, or any
employment or consulting agreement thereof; or (iii) increase the staff
of either BankSouth, Chattanooga or Citizens Bank, respectively, or
(iv) pay any deferred compensation to any of the respective directors,
officers or employees of either BankSouth, Chattanooga or Citizens
Bank, except as expressly authorized and required to be paid to the
members of the Boards of Directors of BankSouth and Citizens Bank by the
provisions of Section 1.1.5 of this Agreement, above.
4.1.11 Each of BankSouth, Chattanooga and Citizens Bank
shall exercise good faith and use their respective best efforts to duly
comply with all laws and regulations applicable to them and to the
conduct of their business, including the Community Reinvestment Act, and
all applicable anti-discrimination statutes and regulations regarding
employment practices and the extension or denial of credit. Each of
BankSouth, Chattanooga and Citizens Bank, shall file all tax returns and
pay all taxes required of them and shall not extend or agree to the
extension of any statutes of limitations with regard to such tax returns
or tax liabilities.
4.1.12 Without limiting any of the foregoing covenants,
each of BankSouth, Chattanooga and Citizens Bank shall conduct its
respective business and affairs until the Closing hereunder in such
manner that all of the representations and warranties contained in
Article II of this Agreement required to be true at such time shall be
true at such time, and so that all its agreements and conditions
contained in this Agreement required to be performed by such time are so
performed.
4.1.13 Neither BankSouth, Chattanooga nor Citizens Bank,
respectively, shall (i) incur or guarantee any additional borrowings of
any person or (ii) pledge any of their assets, except, in each such case
in the Ordinary Course of Business and consistent with current business
practice, and good corporate and banking practices.
4.1.14 Neither BankSouth, Chattanooga nor Citizens Bank
shall purchase, or sell, or contract to sell any of their respective
assets except in the Ordinary Course of Business, consistent with their
current business practice.
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4.1.15 Between the date of this Agreement and the Closing
Date, neither BankSouth, Chattanooga nor Citizens Bank, respectively,
shall take any of the actions, or allow any of the changes or matters to
transpire which are set forth above in Section 2.11 of this Agreement.
Section 4.2 ACCESS AND INFORMATION.
4.2.1 Consistent with applicable law, each of BankSouth,
Chattanooga and Citizens Bank, respectively, will permit Buyer, through
its designated agents, accountants, counsel, auditors, and other
representatives (collectively referred to as "Agents") to make or cause
to be made such investigation of the business, properties and personnel
of each of BankSouth, Chattanooga and Citizens Bank, respectively, as
Buyer may reasonably deem necessary or advisable prior to the Closing
under the circumstances. The Buyer and its Agents shall, at all
reasonable times and with reasonable notice given to either BankSouth,
Chattanooga and Citizens Bank, as the case may be, without unduly
interfering with the normal business operations of BankSouth,
Chattanooga or Citizens Bank, respectively, have full access to their
respective premises and to all of the respective properties, books,
contracts, commitments, and records of BankSouth, Chattanooga or
Citizens Bank. Each of BankSouth, Chattanooga and Citizens Bank,
respectively, shall, and shall also authorize and direct its respective
agents, auditors, accountants, and counsel, to fully cooperate with
Buyer and its Agents in making available to them all financial and other
information requested, including, without limitation, providing them
with the right to examine all working papers pertaining to audits made
and to make copies and extracts thereof, and full and complete access to
all information concerning any litigation in which any of them is
currently involved. BankSouth and Citizens Bank, respectively, agree to
cause to be delivered to Buyer or to make available to Buyer to the
extent such documents or information exists, or are in their possession
or control, all of the items pertaining to each of BankSouth,
Chattanooga or Citizens Bank, respectively, as are set forth and listed
on Exhibit 4.2.1 to this Agreement. No investigation by or on behalf of
Buyer under this Section 4.2 or otherwise will affect any of the
representations and warranties of either the Control Group Shareholders,
BankSouth or Citizens Bank, respectively, as contained in this
Agreement.
4.2.2 Until the Closing, each of the Parties hereto and
their respective employees, agents, accountants, counsel, auditors and
other representatives shall keep confidential any information (unless
readily ascertainable from public information or sources) obtained from
the other party, except as may be required to be disclosed to regulatory
authorities, or in any requisite Securities and Exchange Commission
filings, or to the public, or to LFC's, Buyer's or BankSouth's
stockholders, respectively, in proxy and related materials. If this
Agreement is terminated, promptly after such termination all documents,
working papers or other written material obtained by one party from the
other party in connection with this Agreement shall be returned to the
party that provided such material and all additional copies thereof
shall be destroyed by the non-providing party.
4.2.3 Commencing with the date of this Agreement and
continuing until the first to occur of the Closing Date or the
termination of this Agreement in accordance
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with the terms and provisions hereof, each of BankSouth and Citizens
Bank, as the case may be, shall promptly advise Buyer in writing of any
matter relating to its respective financial condition, operations,
assets, liabilities or business which arises or is discovered after the
date of this Agreement, and which if existing or known on the date
hereof would have been required to be set forth and described herein or
in one of the Exhibits to this Agreement.
Section 4.3 COOPERATION. The Parties hereto shall cooperate with
each other in every way in carrying out the transactions contemplated hereby,
in obtaining all required regulatory and any other approvals and authorizations
therefor, and in executing and delivering all documents, instruments or copies
thereof deemed necessary or useful by either party hereto. Buyer shall, at its
sole cost and expense, promptly prepare and file such regulatory applications
as are necessary to secure all federal and state approvals necessary to
effectuate the transactions contemplated herein and the Control Group
Shareholders, BankSouth and Citizens Bank, respectively, shall each assist
Buyer with respect to any applications to be filed with the OTS, the FRB, the
FDIC and the OSBD, respectively, provided, that the preparation and expense of
all such applications shall be the sole responsibility of Buyer. Each party
shall have the right to review and approve in advance all characterizations of
the information relating to it and made by the other party which appear in any
filing made in connection with the transactions contemplated by this Agreement.
Section 4.4 BUYER TO HAVE NO CONTROL OF BANKSOUTH OR CITIZENS
BANK PRIOR TO THE CLOSING DATE. Prior to the Closing Date, Buyer will not
control or attempt to exercise any control (as that term is defined in the Bank
Control Act) of the respective business or affairs of either BankSouth or
Citizens Bank. Prior to the Closing Date, the management and policy control of
BankSouth and Citizens Bank will each reside solely in its respective officers
and directors and the election of its respective directors shall be solely the
affair of their respective shareholders.
Section 4.5 EMPLOYEES AND BENEFITS. All employees of BankSouth
and of Citizens Bank, respectively, will, upon the Closing Date, continue as
the respective employees of BankSouth and of Citizens Bank, but the
continuation of said employment thereafter shall be within the sole and
absolute discretion of the officers and directors of Buyer, except to the
extent otherwise specifically provided in this Agreement.
Section 4.6 AMENDMENT NOT TO NEGOTIATE. As a material inducement
to cause Buyer to enter into this Agreement, each of the Control Group
Shareholders, BankSouth, and Citizens Bank hereby agree that during the term of
this Agreement they will not, either themselves, itself, or through their, or
its respective officers, directors, employees, agents, accountants, counsel,
representatives or others, (i) solicit any other acquisition proposals, engage
in any discussions concerning, or negotiate with other persons or entities
regarding, any other acquisition proposals, whether formally or informally, or
(ii) provide (except as may be required by law) any non-public information
documents or materials to any person or entity (other than Buyer), or its
agents, in connection with such proposals. If any of the Control Group
Shareholders, BankSouth or Citizens Bank, respectively, violates this Section
4.6 in any respect, then, and in such event, Buyer shall be entitled to
immediately seek the specific performance of this Agreement and the Control
Group Shareholders, BankSouth and Citizens Bank each
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specifically acknowledge and agree that, then, and in such event, such
equitable remedy will be necessary and appropriate for Buyer to seek and that
in such event a legal remedy of damages would not be adequate to compensate
Buyer for such a breach of this Agreement.
Section 4.7 SHAREHOLDERS' AGREEMENTS. As a material inducement to
Buyer to enter into this Agreement, each of the Control Group Shareholders
covenant and agree as follows that:
4.7.1 Each of the Control Group Shareholders shall, at any
meeting (or action by unanimous written consent) of the BankSouth Board
of Directors or of the BankSouth Shareholders called for that purpose,
vote or cause to be voted, all of the Shares held by him/her or it
(whether owned as of the date hereof or hereafter acquired) in favor of
this Agreement and the consummation of the Acquisition contemplated
hereby and against any plan or proposal pursuant to which either
BankSouth or Citizens Bank is to be acquired by or merged with, or
pursuant to which either BankSouth or Citizens Bank, respectively,
proposes to sell all or substantially all of its assets and liabilities
to, any person, entity or group (other than Buyer or any affiliate
thereof). The Control Group Shareholders specifically covenant to call a
Special Meeting of the Board of Directors of BankSouth, as expeditiously
as possible, for the principal purpose of adopting and approving the
execution of this Agreement, the redemption of all the Preferred Stock
at the Effective Time and the Acquisition and authorizing the submission
of this Agreement and the Acquisition, as soon as possible thereafter,
to a Special Meeting of BankSouth Shareholders to obtain their approval
and adoption thereof in accordance with the statutory procedures
required by 18 O.S. 1991, Section 1090.1. The Control Group Shareholders
further specifically covenant and agree to call the Special Meeting of
the BankSouth Shareholders, as expeditiously as possible after the date
this Agreement is fully executed by the Parties, but not in any event
later than sixty (60) days after that date, for the principal purpose of
approving by majority vote of all of the BankSouth Common Stock
Shareholders the adoption of this Agreement and consummation of the
Acquisition in accordance the provisions of 18 O.S. 1991, Section
1090.1. In this regard, the Control Group Shareholders agree to cause
BankSouth to prepare any required notices, proxy statements or other
information to be submitted to all of the shareholders of the Common
Stock and of the Preferred Stock prior to the Special Meeting of
BankSouth Shareholders in accordance with the provisions of 18 O.S.
1991, Section 1090.1, and any other applicable law or regulations, at
its sole cost and expense.
4.7.2 Each of the Control Group Shareholders agree that
they shall not, prior to the Closing hereunder or the earlier
termination of this Agreement in accordance with its terms, sell,
pledge, transfer or otherwise dispose of any of their respective
BankSouth Shares.
Section 4.8 ALTERNATIVE STRUCTURE. Notwithstanding any provision
of this Agreement to the contrary, Buyer may, with the written consent of
BankSouth, which consent shall not be unreasonably withheld or denied, elect,
subject to the filing of all necessary applications and the receipt of all
required regulatory approvals, to modify the structure of the acquisition of
BankSouth and Citizens Bank set forth herein; provided that (i) the federal
income tax consequences of any transactions created by such modification shall
not be changed, (ii) the
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consideration to be paid to the BankSouth Shareholders is not thereby changed
in kind or reduced in amount as a result of such modification, and (iii) such
modification will not materially delay or jeopardize receipt of any required
regulatory approvals or any other conditions to the obligations of Buyer as set
forth in Article V of this Agreement below.
Section 4.9 ENVIRONMENTAL AUDITS OF ALL REAL PROPERTY OWNED
DURING LAST FIVE YEARS. BankSouth and Citizens Bank covenant and agree, at the
direction and control of Buyer, at Buyer's sole cost and expense, to obtain, as
expeditiously as possible, Phase I Environmental Audits of all parcels of real
property which either BankSouth, Citizens Bank or Chattanooga now own or have
owned at any time during the five (5) year period of time immediately preceding
the date this Agreement is fully executed by the Parties. Within ten (10) days
after the execution of this Agreement, BankSouth and Citizens Bank will provide
a list and adequate legal descriptions of all such parcels of real property so
owned by them to Buyer and shall fully cooperate and assist the environmental
consultants selected by Buyer in performing such audits and in facilitating
the prompt completion thereof. If any of the Phase I Environmental Audits
recommend the conducting of a Phase II Environmental Audit of any such parcel
of real property owned or formerly owned by BankSouth or Citizens Bank then,
and in such event, the Phase II Environmental Audits shall be conducted by
Buyer's environmental consultants, as expeditiously as possible, at the sole
cost and expense of Buyer. Complete copies of all such Phase I and Phase II
Environmental Audits so obtained shall be provided to BankSouth and to Buyer
as soon as they are available, subject to the confidentiality provisions of
this Agreement.
Section 4.10 TERMINATION OF BANKSOUTH ESOP. BankSouth shall, at
its sole cost and expense, take all necessary and appropriate actions to cause
the BankSouth ESOP to be completely terminated on the Closing Date, or as soon
thereafter as possible, in order that it will not have any continuing existence
insofar as BankSouth is concerned and BankSouth shall have no further or future
liability or responsibility for the BankSouth ESOP from and after the Closing
Date. The termination of the BankSouth ESOP shall be done in a manner complying
with all provisions of the applicable laws and regulations and with the express
terms and conditions of the BankSouth ESOP Plan and Trust. All funds to be paid
by Buyer to the BankSouth ESOP on the Closing Date to purchase all of the
Common Stock owned by the BankSouth ESOP, and by BankSouth to the BankSouth
ESOP on the Closing Date to redeem all of the Preferred Stock owned by the
BankSouth ESOP, shall be held or distributed by the Trustee of the BankSouth
ESOP, as expeditiously as possible, in a manner fully complying with all
applicable laws and regulations and the express terms of the BankSouth ESOP
Plan and Trust. Gilbert Gibson, as one of the Trustees of the BankSouth ESOP,
hereby covenants and agrees to take all actions necessary to terminate the
BankSouth ESOP in accordance with the terms and provisions of this Section 4.9
and to provide to Buyer on the Closing Date evidence satisfactory to Buyer that
the BankSouth ESOP has been, or will expeditiously be, properly terminated and
that Buyer or BankSouth will have no continuing liability or responsibility
for operation and maintenance of the BankSouth ESOP from and after the Closing
Date.
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ARTICLE V
CONDITIONS TO OBLIGATIONS OF BUYER TO CLOSE
The obligations of Buyer to complete and consummate the
transactions provided for in this Agreement shall be subject to the complete
satisfaction, on or prior to the Closing Date, of each of the following
conditions precedent, provided that any such condition (other than those set
forth in Section 5.1 below) may be waived by Buyer.
Section 5.1 REGULATORY APPROVALS. To the extent required by
applicable law and regulations, (i) all applicable state and federal regulatory
authorities having jurisdiction over the approval of this transaction, to
include, without limitation, the OSBD, the FDIC, the FRB and the OTS, shall
have approved this Agreement and the transactions contemplated by this
Agreement without the imposition of any condition or conditions which in the
reasonable opinion of the Buyer, are unduly burdensome; (ii) all required
notices have been published and all applicable waiting periods, including those
under the Hart Scott Rodino Act, if applicable, have expired.
Section 5.2 PERFORMANCE OF AGREEMENTS. Each of the Control Group
Shareholders, BankSouth and Citizens Bank shall have performed all of their
respective conditions, duties and obligations contained in this Agreement
required to be performed by each of them prior to the Closing and specifically
shall have obtained (i) the resolution of BankSouth's Board of Directors
authorizing and approving this Agreement and submitting it to a vote of the
Common Stock Shareholders for approval and further authorizing BankSouth's
redemption of all of the Preferred Stock, subject to the terms and conditions
of this Agreement, at the Effective Time, for the Preferred Stock Redemption
Price, and (ii) the valid approval of a majority of the BankSouth Common Stock
Shareholders of this Agreement and of the Acquisition within sixty (60) days
after the date this Agreement is fully executed by the Parties in a manner
sufficient to cause the provisions of 18 O.S. 1991, Section 1090.1 to be fully
applicable to this Agreement and the Acquisition for all purposes pursuant to
the requirements of Section 4.7.1. above, and shall have provided evidence to
Buyer, in form reasonably satisfactory to Buyer, that such requisite Board of
Directors' and Common Stock Shareholders' approvals have been properly
obtained. In addition, BankSouth shall have evidenced, or be able to evidence
to Buyer on the Closing Date, that the BankSouth ESOP will be on the Closing
Date, or as expeditiously as possible thereafter, completely terminated in
accordance with the requirements of Sections 1.11.12 and 4.10 of this
Agreement, above. Each of the Control Group Shareholders and any other
BankSouth Common Stock Shareholders who have executed joinder agreements hereto
shall be prepared to transfer and convey to Buyer all of the BankSouth Common
Stock which they own on the Closing Date in the manner required by this
Agreement.
Section 5.3 CONTINUED ACCURACY OF REPRESENTATIONS AND WARRANTIES.
The representations and warranties of BankSouth and Citizens Bank (considered
individually and collectively) contained in Article II of this Agreement must
have been accurate in all material respects as of the date of the execution of
this Agreement and must be accurate in all material respects on and as of the
Closing Date with the same effect as if made on that date, without giving
effect to any supplement made to the Exhibits to this Agreement after the date
of the execution of this Agreement.
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Section 5.4 DELIVERY OF CLOSING CERTIFICATE BY BANKSOUTH AND
CITIZENS BANK. Buyer shall have received a certificate, dated the Closing Date,
in form satisfactory to Buyer, of BankSouth and Citizens Bank, respectively,
executed on behalf of BankSouth by its President and on behalf of Citizens Bank
by its President and by its Chief Financial Officer, certifying to the
satisfaction of the conditions set forth in Sections 5.2, 5.3, 5.5, 5.7 and 5.8
of this Article V to the best of the signers' knowledge after careful
investigation (the "BankSouth Closing Certificate").
Section 5.5 ABSENCE OF MATERIAL ADVERSE CHANGES. There shall have
been no material adverse change in the business, assets, prospects or financial
condition of BankSouth and its subsidiary bank, Citizens Bank, taken as a
whole since December 31, 1997 (which will include, without limitation, the
resignations of more than two (2) of their key executive employees, i.e.,
Senior Vice President or above, of Citizens Bank, from their employment, or
such key executive employees giving clear indication to Buyer, BankSouth or
Citizens Bank that they intend to resign from such employment, on or before the
Closing Date or shortly thereafter, in anticipation of, or as a result of, the
consummation of the Acquisition), other than changes which are the result of
changes in laws or regulations or other factors affecting banking institutions,
in general, and except for changes not prohibited by this Agreement.
Section 5.6 OPINION OF COUNSEL OF BANKSOUTH AND CITIZENS BANK.
Buyer shall have received from counsel for BankSouth and Citizens Bank an
opinion of counsel, dated the Closing Date, in the form and substance set forth
in Exhibit 1.11.9 to this Agreement. In rendering such opinion, counsel for
BankSouth and Citizens Bank may rely upon the opinion of qualified counsel,
upon certificates of government officials and officers of BankSouth and
Citizens Bank, respectively, provided that such counsel states that such
counsel reasonably believes that such counsel and Buyer may justifiably rely
upon such other opinions and the accuracy of such certificates, and provided
further that such other opinions and certificates are delivered to Buyer
concurrently with such counsel's opinion.
Section 5.7 OPINION OF SPECIAL COUNSEL TO BANKSOUTH AS TO
BANKSOUTH ESOP. Buyer shall have received from the special counsel to
BankSouth, an opinion of that special counsel, dated the Closing Date, as
required to be delivered at Closing by the provisions of Section 1.11.14,
above, or, alternatively, the evaluation and report of the pension benefit
consultants of Buyer's choosing, addressed to BankSouth and Buyer, in form and
substance satisfactory to Buyer's counsel, opining or finding that the
BankSouth ESOP was properly and validly established, has been and is qualified
as an employee benefit plan by the Internal Revenue Service, has been properly
operated and maintained by BankSouth until the Closing Date and is being
properly terminated by BankSouth on the Closing Date, or as expeditiously
thereafter as possible, in accordance with all applicable laws and regulations
and the express terms and provisions of the BankSouth ESOP Plan and Trust, and
that such counsel, or consultants, do not know, or have any reason to know of
any materially adverse tax consequences or other liabilities that may be
incurred by BankSouth or Buyer by reason of the operation, maintenance and
termination of the BankSouth ESOP, other than any amounts reflected for any
such liabilities on the Financial Statements of BankSouth.
Section 5.8 ENVIRONMENTAL AUDITS DO NOT DISCLOSE THE EXISTENCE OF
A SIGNIFICANT HAZARDOUS MATERIALS PROBLEM. None of the Phase I or Phase II
Environmental
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Audits to be obtained by BankSouth and Citizens Bank and provided to Buyer
pursuant to the requirements of Section 4.9, above, reveals the presence of
Hazardous Materials, as defined above, or the violation of any Environmental
Laws, as defined above, with regard to any of the real property owned by
BankSouth or Citizens Bank now, or in the immediately preceding five (5) year
period of time, which would, in the reasonable opinion of Buyer, impose a
material liability, or a material potential liability (legal or economic) to
Buyer if the Acquisition was to be consummated.
Section 5.9 ABSENCE OF LITIGATION. There shall not be pending any
action in any court of competent jurisdiction seeking to enjoin consummation of
the transactions contemplated by this Agreement, or any action which, in the
opinion of counsel for Buyer, after an independent review of readily available
facts and applicable law, poses a significant risk of resulting in the
divestiture by Buyer of BankSouth or Citizens Bank, or any material portion of
the assets of either BankSouth or Citizens Bank, respectively, or otherwise
threatens to materially impair the value of the assets of either BankSouth or
Citizens Bank, respectively, or poses the possible assessment of significant
damages against or the imposition of any other materially adverse consequences
upon BankSouth or Citizens Bank.
Section 5.10 THIRD PARTY CONSENTS. BankSouth and Citizens Bank,
respectively, as the case may be, shall have received the consent of all third
parties who are subject to agreements with any of them and which agreement
requires or purports to require the consent of the other or another party
thereto to the transactions contemplated by this Agreement.
Section 5.11 RESIGNATION OF DIRECTORS AND OFFICERS. Buyer shall
have received the currently dated original, written resignations of all the
current members of the Board of Directors and officers of BankSouth and
Citizens Bank, respectively (effective on the Closing Date).
Section 5.12 SHAREHOLDERS' RELEASES. Buyer shall have received
the currently dated original Shareholders' Releases, in the form and substance
set forth in Exhibit 1.11.10 to this Agreement, from each of the Control Group
Shareholders.
ARTICLE VI
CONDITIONS TO OBLIGATIONS OF THE CONTROL GROUP
SHAREHOLDERS, BANKSOUTH AND CITIZENS BANK
The obligations of the Control Group Shareholders, BankSouth and
Citizens Bank to complete the transactions provided for in this Agreement shall
be subject to the satisfaction, at or prior to the Closing Date, of each of the
following conditions precedent by Buyer, provided that any such condition
(other than those set forth in Section 6.3 below) may be waived by BankSouth.
Section 6.1 PERFORMANCE OF AGREEMENTS. Buyer shall have performed
all conditions, duties and obligations contained in this Agreement required to
be performed by it prior to the Closing Date, and shall be prepared to pay the
Purchase Price, in full, to all shareholders of BankSouth Common Stock on the
Closing Date.
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Section 6.2 CONTINUED ACCURACY OF REPRESENTATIONS AND WARRANTIES.
The representations and warranties of Buyer contained in Article III of this
Agreement shall, be true and correct in all material respects on and as of the
Closing Date with the same effect as if made on that date.
Section 6.3 REGULATORY APPROVALS. To the extent required by
applicable law and regulations, all applicable federal and state regulatory
authorities, if any, to include, without limitation, the OSBD, the FDIC, the
FRB and the OTS, shall have approved this Agreement and the transactions
contemplated by this Agreement, without the imposition of any condition or
conditions which in the reasonable opinion of BankSouth are unduly burdensome
and all applicable waiting periods have expired and all required notices have
been published.
Section 6.4 DELIVERY OF BUYER'S CLOSING CERTIFICATE. The Control
Group Shareholders, BankSouth and Citizens Bank shall have received a
certificate, dated the Closing Date, of Buyer's President, certifying to the
satisfaction of the conditions set forth in Sections 6.1, 6.2 and 6.5 of this
Article VI (the "Buyer's Closing Certificate").
Section 6.5 ABSENCE OF LITIGATION. There shall be no pending or
threatened litigation or administrative proceeding seeking to restrain,
prevent, rescind or change the terms of the transaction contemplated by this
Agreement or to obtain damages in connection therewith or and preliminary
injunction restraining such transactions.
ARTICLE VII
TERMINATION, AMENDMENT AND WAIVER
Section 7.1 TERMINATION BY MUTUAL CONSENT. This Agreement may be
terminated prior to the Closing Date by the mutual written consent of the Buyer
and BankSouth.
Section 7.2 TERMINATION BY ANY PARTY. This Agreement may be
terminated by either BankSouth or Buyer twenty (20) or more days after receipt
of notice of final denial by any regulatory authority having jurisdiction of
the transactions contemplated hereby.
Section 7.3 TERMINATION BY BUYER. Buyer may terminate this
agreement by giving written notice to BankSouth (i) if any condition in
Article V hereof which must be fulfilled shall not have been fulfilled on or
before the date specified for the fulfillment thereof; provided, however, that
such notice shall include a statement of the grounds thereof and BankSouth
shall have twenty (20) days thereafter to cure the events or conditions cited
in such notice (to the extent curable) and if BankSouth cures the events or
conditions giving the rise to such grounds to the satisfaction of Buyer, Buyer
shall not have any right to terminate this Agreement based upon such specified
events or conditions. If Buyer does elect to terminate this Agreement, pursuant
to this provision, and BankSouth is unable to timely cure such default or
breach within the said twenty (20) day period, then, in such event, this
Agreement shall be null, void and of no further force and effect and none of
the Parties hereto shall have any further rights, duties or liabilities
hereunder unless otherwise expressly provided in this Agreement.
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Section 7.4 TERMINATION BY BANKSOUTH. BankSouth may terminate
this Agreement by giving written notice to Buyer if any condition in Article VI
hereof which must be fulfilled before BankSouth is obligated to consummate the
transactions contemplated hereby shall not have been fulfilled on or before the
date specified for the fulfillment thereof; provided, however, that such notice
shall include a statement of the grounds thereof and Buyer shall have twenty,
(20) days thereafter to cure the events or conditions cited in such notice (to
the extent curable) and if Buyer cures the events or conditions giving rise to
such grounds, BankSouth shall not have any right to terminate this Agreement
based upon such events or conditions. If BankSouth does elect to terminate
this Agreement, pursuant to this Section, and Buyer is unable to timely cure
its breach or default within said twenty (20) day period of time, then, and in
such event, this Agreement shall be null, void and of no further force and
effect, and none of the Parties hereto shall have any further rights, duties
or liabilities hereunder, unless otherwise expressly provided in this
Agreement.
Section 7.5 TERMINATION BY EXPIRATION. If the transactions
contemplated by this Agreement have not been consummated prior to December 31.
1998, any Party hereto may elect to terminate this Agreement by giving written
notice to the other Party hereto; provided that this right to terminate shall
not be available to any Party hereto whose failure to perform an obligation
under the Agreement has been the cause of, or has resulted in, the failure of
the transactions contemplated herein to be consummated by December 31, 1998.
Section 7.6 AMENDMENT. This Agreement maybe amended or modified
in whole or in part at any time by an agreement in writing executed by all of
the Parties hereto.
Section 7.7 WAIVER. At any time prior to the Closing Date, any of
the Parties to this Agreement may, on their own respective behalf:
7.7.1 waive any inaccuracies in the representations and
warranties by the other Party contained herein or in any document
delivered by the other Party pursuant hereto; or
7.7.2 waive compliance by the other Party with the
covenants, agreements or conditions contained herein.
Any agreement to such waiver shall be valid only if set forth in
an instrument in writing executed by a duly authorized officer or
representative of the Party granting such waiver.
ARTICLE VIII
GENERAL AND MISCELLANEOUS PROVISIONS
Section 8.1 CONFIDENTIALITY.
8.1.1 Buyer acknowledges and agrees that the information
to be provided by the Control Group Shareholders, BankSouth and Citizens
Bank to Buyer under this Agreement and with regard to the transactions
contemplated by this Agreement will contain information, reports and
financial data which are confidential in nature and the
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property of the Control Group Shareholders, BankSouth and Citizens Bank
as the case may be (the "Confidential Information"). Accordingly, Buyer
agrees that it, and any of its directors, officers, attorneys,
accountants, employees or other agents that are given access to the
Confidential Information, agree to be bound by the terms and provisions
of this Section 8.1 of the Agreement. In consideration of the Control
Group Shareholders, BankSouth and Citizens Bank providing Buyer with the
Confidential Information. Buyer agrees to keep the Confidential
Information in strict confidence, except as otherwise provided by this
Agreement, and in order to maintain its confidentiality, Buyer agrees
that it will not use or allow the use for any purpose of any
Confidential Information other than in connection with preparing,
evaluating and performing the transaction to be consummated pursuant to
this Agreement. Buyer will not disclose or allow disclosure to others of
any of the Confidential Information, except as provided herein and
except to officers, employees, directors, attorneys, accountants or
agents of Buyer who are actively and directly participating in Buyer's
work in connection with the consummation of the transaction contemplated
by this Agreement and Buyer will use its best efforts to cause all such
officers, employees, directors, attorneys, accountants or agents to
observe the terms of this section. Finally, Buyer agrees not to make or
allow to be made copies of any of the Confidential Information except as
necessary to perform the work to be performed by Buyer in conjunction
with its evaluating and consummating the transaction contemplated by
this Agreement. Both Buyer and each of the Control Group Shareholders,
BankSouth and Citizens Bank, respectively, agree to also keep in strict
confidence all terms and provisions of this Agreement, including the
Purchase Price.
8.1.2 The provisions of this Section 8.1 shall be
inoperative as to particular portions of the Confidential Information if
such information (i) becomes generally available to the public other
than as a result of a disclosure by Buyer, its officers, directors,
attorneys, accountants, employees or agents; (ii) was available to Buyer
on a non-confidential basis prior to its disclosure to Buyer by the
Control Group Shareholders, BankSouth or Citizens Bank or their
respective officers, employees, directors, accountants, counsel,
agents, advisors or representatives, (iii) becomes available to Buyer on
a non-confidential basis from a source other than the Control Group
Shareholders, BankSouth or Citizens Bank or their respective officers,
employees, directors, accountants, counsel, agents, advisors or
representatives, unless Buyer knows, after due inquiry, that such source
is not entitled to make the disclosure of such information to it; or
(iv) is disclosed to the OSBD, FRB, OTS or FDIC, or any other federal or
state regulatory authority having jurisdiction over Buyer, or any of the
Control Group Shareholders, BankSouth or Citizens Bank, upon a proper
and valid request being made therefor by such agency, or by Buyer, or
Buyer's affiliate, LFC, with regard to any required securities filing
made by LFC with the Securities and Exchange Commission, the American
Stock Exchange and/or the Oklahoma Securities Commission or with its
public shareholders. The provisions of this Section 8.1 shall be binding
upon Buyer and its directors, officers, employees, accountants,
attorneys and agents for a period of one (1) year from May 1, 1998, or
until the Closing Date, if the transaction contemplated by this
Agreement is consummated, whichever shall first occur. If Buyer is
requested by any court or governmental agency or authority (other than
the aforesaid state or federal regulatory authorities) to disclose any
of the Confidential Information, then it will provide the Control Group
Shareholders with prompt notice of such request or requirement. The
Control Group Shareholders may then
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either seek appropriate protective or other injunctive relief from all
or part of such request or requirement or waive the Buyer's compliance
with the provisions of this Section 8.1 pertaining to the Confidential
Information so sought with respect to all or any part of such request or
requirement to produce such Confidential Information. If, after the
Control Group Shareholders have had a reasonable opportunity to seek
such protective or injunctive relief, the Control Group Shareholders
have failed to obtain such relief, and, in the opinion of Buyer's
counsel, Buyer believes it is legally compelled to disclose any of the
Confidential Information to such court, agency, arbitrator or authority,
then Buyer may disclose that portion of the Confidential Information
which its counsel advises it that it is so compelled to disclose. In no
event will Buyer oppose any action by the Control Group Shareholders to
obtain injunctive or other appropriate protective relief and/or other
reliable assurance that confidential treatment will be accorded to the
Confidential Information disclosed to such court, agency, arbitrator or
other authority in such instances. Prior to Closing, neither Buyer nor
the Control Group Shareholders, BankSouth or Citizens Bank will disclose
to any other party other than regulatory authorities having jurisdiction
over the Parties hereto or pursuant to any requisite Securities and
Exchange Commission, the American Stock Exchange or Oklahoma Securities
Commission filing, of LFC, that Buyer has expressed an interest in
acquiring all of the capital stock of BankSouth, or that BankSouth and
the Control Group Shareholders have expressed an interest in selling all
of the capital stock of BankSouth to Buyer, without prior consultation
and the prior written consent of all Parties to this Agreement.
Section 8.2 ENTIRE AGREEMENT. The terms and conditions of this
Agreement (i) constitute the entire agreement and understanding between the
Buyer and the Control Group Shareholders, BankSouth and Citizens Bank; (ii)
supersede all prior agreements and understandings, written or oral, between the
Buyer and the Control Group Shareholders, BankSouth and Citizens Bank; and
(iii) may not be modified or amended except by an instrument mutually executed
and delivered by the Buyer and the Control Group Shareholders, BankSouth and
Citizens Bank.
Section 8.3 GOVERNING LAW. The terms and conditions of this
Agreement shall be governed by and construed in accordance with federal law, to
the extent applicable, and otherwise by the laws and decisions of the State of
Oklahoma.
Section 8.4 NOTICES. Any notice or other communication required
or permitted under this Agreement, or convenient to the Buyer or the Control
Group Shareholders, BankSouth and Citizens Bank in the consummation of the
transactions contemplated hereby, shall be deemed delivered when (i) three days
after deposited in a receptacle of the United States Postal Service, as
registered or certified mail, return receipt requested, postage prepaid, (ii)
sent by electronic facsimile transmission (if receipt is verified), (iii)
personally delivered, or (iv) one (1) day after received by an overnight
courier service (which obtains a receipt evidencing delivery) and shall be
addressed as follows:
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(i) If to the Control Group Gilbert C. Gibson, Chairman of the Board
Shareholders, BankSouth of Directors and Chief Executive Officer
or Citizens Bank: BankSouth Corp. and Citizens Bank
1420 W. Lee Boulevard
Lawton, Oklahoma 73502
Telephone: (580) 248-5974
Telecopy: (580) 536-3674
with a copy to: Marion Bauman, Esq.
Craig, Ledgerwood & Bauman
401 W. Main Street
Norman, Oklahoma 73069
Telephone: (405) 329-3363
Telecopy: (405) 329-5520
(ii) If to Buyer: Edward A. Townsend, Chairman of the Board
of Directors and Chief Executive Officer
Local Federal Bank, F.S.B.
3601 N.W. 63rd Street
Oklahoma City, OK 73116
Telephone: (405) 841-2100
Facsimile: (405) 841-2289
with a copy to: Michael R. Ford, Esq.
Fellers, Snider, Blankenship,
Bailey & Tippens
Bank One Tower
100 N. Broadway, Suite 1700
Oklahoma City, OK 73102-8820
Telephone: (405) 232-0621
Facsimile: (405) 232-9659
Section 8.5 SUCCESSORS. The terms and conditions hereof shall be
binding upon and inure to the benefit of the respective successors, assigns,
heirs and personal representatives of the Control Group Shareholders, BankSouth
and Citizens Bank and the Buyer.
Section 8.6 ATTORNEY FEES, COSTS AND EXPENSES. Except as
otherwise expressly provided herein, each of the Parties hereto shall pay its
own respective legal and accounting fees and all other expenses and fees
incurred by it in connection with the transactions contemplated by this
Agreement. Provided, however, to the extent there are any closing costs
associated with the closing of the transaction contemplated by this Agreement,
those shall be shared evenly by the Buyer and the Control Group Shareholders.
Should either the Buyer or the Control Group Shareholders employ an attorney or
attorneys to enforce any of the terms and conditions hereof, or to protect any
right, title or interest created or evidenced hereby, the non-prevailing party
in any action pursued in courts of competent jurisdiction shall pay to the
prevailing party all reasonable costs, damages, and expenses, including
reasonable attorneys' fees, expended or incurred by the prevailing party.
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Section 8.7 PRESS RELEASES AND PUBLIC STATEMENTS. No party to
this Agreement shall make, issue or release any public announcement, statement
or acknowledgement of the existence of, or publicly reveal the terms,
conditions or the status of, the transactions provided for herein without first
obtaining the consent to such announcement, statement, acknowledgement, or
revelation from the other Parties hereto, provided, however, that Buyer, or its
affiliates, may make any such release or announcement which, in the opinion of
counsel for the Buyer, is necessary or appropriate for Buyer, or its
affiliates, to make in order to comply with applicable laws or regulations, to
include, without limitation, any such release, announcement or filing which
Buyer, or its affiliate, LFC, is required to make pursuant to the applicable
provisions of federal or state securities laws, or the rules and requirements
of the American Stock Exchange.
Section 8.8 SURVIVAL OF REPRESENTATIONS AND WARRANTIES. The
representations, warranties, covenants and agreements made by the Control Group
Shareholders, BankSouth and Citizens Bank and by Buyer, respectively, in this
Agreement shall survive the Closing Date hereunder and shall also survive and
shall be unaffected by (and shall not be deemed waived by) any investigation,
audit, appraisal, or inspection at any time made by or on behalf of Buyer.
Section 8.9 ASSIGNMENT AND LEGAL EFFECT. None of the Parties to
this Agreement may assign any of their respective rights, obligations or duties
under this Agreement to any other person without the prior written consent of
all other Parties hereto. Any assignment in contravention of this provision
shall be void. Anything in this Agreement to the contrary notwithstanding, the
Parties hereto shall not be required to take any action under this Agreement
which is found by the final decision of appropriate federal or state
governmental authorities to be inconsistent or in conflict with applicable
federal or state laws or regulations pertaining to any of the Parties hereto.
Section 8.10 NO THIRD-PARTY BENEFICIARIES. Execution of this
Agreement by the Parties hereto is not intended to and does not confer any
benefits or rights on (contractually or otherwise) any person or entity not a
party to this Agreement.
Section 8.11 TIME. Time is of the essence to the performance of
the terms and conditions of this Agreement, provided, however, that if the
final date of any period which is set for a time provision under this Agreement
falls on a Saturday, Sunday or legal holiday under the laws of the United
States of America or the State of Oklahoma, in such event the time of such
period shall be extended to the next day which is not a Saturday, Sunday or
legal holiday.
Section 8.12 SEVERABILITY. If any of the terms and conditions of
this Agreement shall for any reason be held to be invalid, illegal or
unenforceable in any respect, such invalidity, illegality or unenforceability
shall not affect any other of the terms and conditions hereof and the terms and
conditions hereof shall be thereafter construed as if such invalid, illegal or
unenforceable term or conditions had never been contained herein.
Section 8.13 COUNTERPARTS. This Agreement may be executed in any
number of counterparts, and each counterpart hereof shall be deemed to be an
original instrument, but all counterparts hereof taken together shall
constitute one and the same instrument.
45
<PAGE> 46
Section 8.14 ADDITIONAL ACTS. In addition to the acts and deeds
recited herein and contemplated hereby to be performed, executed and/or
delivered by them, each of the Control Group Shareholders, BankSouth and
Citizens Bank, hereby agree to perform, execute and/or deliver or cause to be
performed, executed and/or delivered at the Closing hereunder and thereafter
any and all such further acts, deeds and assurances as the Buyer may reasonably
require to (i) invest in the Buyer the complete ownership of and clear title to
all assets of BankSouth and Citizens Bank, and (ii) to consummate the
Acquisition and all of the other transactions contemplated by this Agreement.
Section 8.15 HEADINGS. The headings herein are for reference
purposes only and shall not affect the meanings or interpretation of the terms
and conditions of this Agreement.
Section 8.16 INTERPRETATION. Whenever the context hereof shall so
require, the singular shall include the plural, the male gender shall include
the female gender and neuter, and vice-versa.
IN WITNESS WHEREOF, this Agreement has been executed and
delivered by one to the other by the Control Group Shareholders, BankSouth and
Citizens Bank and the Buyer on the date first recited, effective as of the date
last executed by any party hereto.
CONTROL GROUP
SHAREHOLDERS:
/s/ WILLIAM H. CRAWFORD
-------------------------------------
WILLIAM H. CRAWFORD, an Individual
Date: 6/18/98
-----------------------------
/s/ AULENA S. GIBSON
-------------------------------------
AULENA S. GIBSON, an Individual
Date: 6/18/98
-----------------------------
/s/ G. CARL GIBSON JR.
-------------------------------------
G. CARL GIBSON, JR., an Individual, and as
Custodian for G.C. Gibson III and Gregory
Carlton Gibson
Date: 6/18/98
-----------------------------
46
<PAGE> 47
/s/ GILBERT C. GIBSON
-------------------------------------
GILBERT C. GIBSON, an Individual
Date: 6/18/98
-----------------------------
GORE EAST, INC.,
an Oklahoma corporation
By: /s/ GILBERT C. GIBSON
--------------------------------
Name: Gilbert C. Gibson
Title: President
Date: 6/18/98
-----------------------------
/s/ WILLIAM L. SCEARCE
-------------------------------------
WILLIAM L. SCEARCE, an Individual, and on
behalf of his IRA Rollover
Date: 6/18/98
-----------------------------
- and -
/s/ CATHY E. WILLIS, TRUSTEE
-------------------------------------
CATHY E. WILLIS, as Trustee of the Cathy E.
Willis Family Trust dated February 12, 1987
Date: 6/18/98
-----------------------------
BANKSOUTH: BANKSOUTH CORP.,
an Oklahoma corporation
By: /s/ GILBERT C. GIBSON
---------------------------------
Name: Gilbert C. Gibson
Title: Chairman of the Board and Executive
Officer
Date: 6/18/98
-----------------------------
47
<PAGE> 48
CITIZENS BANK: CITIZENS BANK,
an Oklahoma state banking corporation
By: /s/ GILBERT C. GIBSON
--------------------------------
Name: Gilbert C. Gibson
Title: Chairman of the Board and Chief
Executive Officer
Date: 6/18/98
-----------------------------
BUYER: LOCAL FEDERAL BANK, F.S.B,
a federally chartered stock savings bank
By: /s/ EDWARD A. TOWNSEND
---------------------------------
Name: EDWARD A. TOWNSEND
Title: Chairman of the Board and Chief
Executive Officer
Date: 6/18/98
-----------------------------
48
<TABLE> <S> <C>
<ARTICLE> 9
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> SEP-30-1998
<CASH> 28,319
<INT-BEARING-DEPOSITS> 20,644
<FED-FUNDS-SOLD> 0
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 617,884
<INVESTMENTS-CARRYING> 0
<INVESTMENTS-MARKET> 0
<LOANS> 1,282,781<F1>
<ALLOWANCE> 27,925
<TOTAL-ASSETS> 2,106,381
<DEPOSITS> 1,685,537
<SHORT-TERM> 182,544
<LIABILITIES-OTHER> 36,246
<LONG-TERM> 80,000
0
0
<COMMON> 205
<OTHER-SE> 112,725<F2>
<TOTAL-LIABILITIES-AND-EQUITY> 2,106,381
<INTEREST-LOAN> 68,652
<INTEREST-INVEST> 38,250
<INTEREST-OTHER> 0
<INTEREST-TOTAL> 106,902
<INTEREST-DEPOSIT> 56,196
<INTEREST-EXPENSE> 68,578
<INTEREST-INCOME-NET> 38,324
<LOAN-LOSSES> 950
<SECURITIES-GAINS> 535
<EXPENSE-OTHER> 6,160
<INCOME-PRETAX> 20,930
<INCOME-PRE-EXTRAORDINARY> 20,930
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 13,499
<EPS-PRIMARY> 0.66
<EPS-DILUTED> 0.66
<YIELD-ACTUAL> 7.83
<LOANS-NON> 1,508
<LOANS-PAST> 1,493
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 20,484
<CHARGE-OFFS> 818
<RECOVERIES> 25
<ALLOWANCE-CLOSE> 27,925
<ALLOWANCE-DOMESTIC> 27,925
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 4,263
<FN>
<F1>Loan tag is a gross loan number.
<F2>Other - SE tag includes Retained Earnings, Paid in Capital, Treasury Stock, and
Unrealized gains (losses) on Securities Available for Sale.
</FN>
</TABLE>
