<PAGE>
As filed with the Securities and Exchange Commission on May 22, 1996.
Registration No. 333-2387
================================================================================
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
-------------------------------------
AMENDMENT NO. 1
TO
FORM S-4/A
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
-------------------------------------
ABC BANCORP
(Exact name of registrant as specified in charter)
Georgia 6022 58-1456434
(State or other jurisdiction (Primary Standard Industrial (I.R.S. Employer
of incorporation or Classification Code Number) I.D. No.)
registration)
310 First Street, S.E.
Moultrie, Georgia 31768
(912) 890-1111
(Address, including zip code, and telephone number, including area code, of
registrant's principal executive offices)
_____________________
Kenneth J. Hunnicutt, President
310 First Street, S.E.
Moultrie, Georgia 31768
(912) 890-1111
(Name, address, including zip code, and telephone number, including area code,
of agent for service)
-------------------
Copy to:
Steven E. Fox, Esq. T. Kurt Miller, Esq.
Rogers & Hardin Balch & Bingham
229 Peachtree Street, N.E. AmSouth/Harbert Center
2700 Cain Tower P.O. Box 306
Atlanta, Georgia 30303 Birmingham, Alabama 32501
(404) 522-4700 (205) 251-8100
-------------------
Approximate date of commencement of proposed sale to the public: Upon
consummation of the merger described herein and after the effective date of this
Registration Statement.
____________________________
The Registrant hereby amends this Registration Statement on such date
or dates as may be necessary to delay its effective date until the Registrant
shall file a further amendment which specifically states that this Registration
Statement shall thereafter become effective in accordance with Section 8(a) of
the Securities Act of 1933 or until the Registration Statement shall become
effective on such date as the Commission, acting pursuant to said Section 8(a),
may determine.
<PAGE>
ABC BANCORP
CROSS REFERENCE SHEET
<TABLE>
<CAPTION>
Item Number Caption Heading in Prospectus
<S> <C>
A. Information About the Transaction
1. Forepart of Registration Outside Front Cover Page; Facing Page
Statement and Front
Cover Page of Prospectus
2. Inside Front and Available Information; Incorporation of Certain
Outside Back Cover Documents by Reference; Table of Contents
Pages of Prospectus
3. Risk Factors, Ratio of Earnings Summary; ABC and Southland Selected Financial Data
to Fixed Charges and
Other Information
4. Terms of the Transaction Summary; The Merger; Comparison of Rights of
Southland and ABC Shareholders; Appendix A
5. Pro Forma Financial Information Summary
6. Material Contacts with the The Merger
Company Being Acquired
7. Additional Information Required *
for Reoffering by Persons and
Parties Deemed to be Underwriters
8. Interests of Named Experts and Legal Opinion, Relationships with Independent
Counsel Public Accountants and Experts
9. Disclosure of Commission Position *
on Indemnification for Securities
Act Liabilities
B. Information About the Registrant
10. Information with Respect to S-3 Incorporation of Certain Documents by Reference;
Registrants Summary -- The Parties
11. Incorporation of Certain Incorporation of Certain Documents by Reference
Information by Reference
12. Information with Respect to S-2 *
or S-3 Registrants
13. Incorporation of Certain *
Information by Reference
14. Information with Respect to *
Registrants Other than S-2
or S-3 Registrants
C. Information About the Company
Being Acquired
15. Information with Respect to S-3 *
Companies
16. Information with Respect to S-2 *
or S-3 Companies
17. Information with Respect Summary - The Parties; Business of Southland
to Companies Other than S-2
or S-3 Companies
D. Voting and Management Information
18. Information if Proxies, Incorporation of Certain Documents by Reference;
Consents or Authorizations Summary; Information Concerning The Meeting; The
Are to be Solicited Merger; Comparison of Rights of Southland and ABC
Shareholders
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
<S> <C>
19. Information if Proxies, Consents or *
Authorizations Are Not to be Solicited,
or in an Exchange Offer
</TABLE>
* Inapplicable, not required or none.
<PAGE>
SOUTHLAND BANCORPORATION
3299 Ross Clark Circle, NW
Dothan, Alabama 36303
May ___, 1996
To the Shareholders of Southland Bancorporation:
You are cordially invited to attend a Special Meeting of Shareholders of
Southland Bancorporation (the "Company") to be held at the main office lobby of
Southland Bank, 3299 Ross Clark Circle, NW, Dothan, Alabama on June , 1996, at
9:00 a.m. (the "Special Meeting"). At the Special Meeting, you will be asked to
consider and vote upon an Agreement and Plan of Merger dated as of December 18,
1995, as amended by Amendment No. 1 to Agreement and Plan of Merger
dated as of April 16, 1996 (collectively, the "Merger Agreement"), which
provides for the merger (the "Merger") of the Company with and into ABC Bancorp
("ABC"). A copy of the Merger Agreement is attached to the accompanying Proxy
Statement/Prospectus.
If the Merger becomes effective, each share of the common stock of the
Company outstanding immediately prior to the consummation of the Merger (the
"Company Shares"), other than shares held by shareholders who dissent from the
Merger, will be converted into the right to receive cash and whole shares of the
common stock, $1.00 par value per share, of ABC ("ABC Common Stock") equal to
(i) 1.8 times the Book Value of the Company (as defined in the Merger Agreement)
as of the close of business on the day immediately preceding the date of
consummation of the Merger, divided by (ii) the aggregate number of the
outstanding shares of the Company's common stock as of the effective time of the
Merger (the "Merger Consideration"). Subject to the terms of the Merger
Agreement, each shareholder who does not dissent from the Merger may elect to
receive (i) cash in the amount equal to the Merger Consideration times the
number of outstanding Company shares held by such shareholder as of the
effective time of the Merger (the "Cash Consideration"); (ii) the number of
shares of ABC Common Stock equal to the Merger Consideration divided by the Base
Period Trading Price of the ABC Common Stock (as defined in the Merger
Agreement), multiplied by the number of outstanding Company Shares held by such
shareholder as of the effective time of the Merger (the "Stock Consideration");
or (iii) a combination of Cash Consideration and Stock Consideration in the
relative proportions selected by such shareholder.
The number of Company Shares to be converted into the right to receive Cash
Consideration (and cash in lieu of any fractional shares) shall not be less than
35% of the number of outstanding Company Shares and, together with any Company
Shares as to which dissenters' rights have been perfected, shall not be greater
than 49% of the outstanding Company Shares. The number of Company Shares to be
converted into the right to receive Stock Consideration shall be not less than
51% of the number of the outstanding Company Shares and not greater than 65% of
the number of outstanding Company Shares.
You will be entitled to elect to receive: (i) all stock; (ii) all cash; or
(iii) a combination of cash and stock. In the event that Southland shareholders
elect to receive more Cash Consideration or more Stock Consideration than is
available, then such elections will be redesignated as described in the Merger
Agreement. These redesignations are more fully discussed in the enclosed Proxy
Statement.
You are strongly encouraged to consult your own tax advisors regarding the
particular income tax consequences of each of your alternatives with respect to
the Merger.
<PAGE>
Also accompanying this letter are a Notice of Special Meeting, form of
Proxy for voting your Company Shares and an Election Form. We ask that you take
the following actions in connection with these materials:
1. Please sign, date and return to the Company as soon as possible the
form of Proxy in the enclosed self-addressed, stamped envelope. It is
important that your Company Shares be voted whether or not you attend
the Special Meeting. If you attend the Special Meeting, you may vote
in person if you wish, even though you previously returned your Proxy.
2. Please execute the Election Form and also return it to the Company in
the enclosed self-addressed, stamped envelope.
Before executing and returning the Proxy, you should carefully read the
accompanying Proxy Statement. Before executing and returning the Election Form,
you should carefully read the instructions thereon.
The Company's Board of Directors has fixed the close of business on
May 17, 1996 as the record date for the Special Meeting. Accordingly,
only shareholders of record on that date will be entitled to notice of, and to
vote at, the Special Meeting or any adjournments or postponements thereof.
Approval of the Merger requires the affirmative vote of holders of two-thirds of
the outstanding Company Shares as of the record date. In that regard, certain
of the Company's directors who owned an aggregate of 58% of the outstanding
Company Shares on the record date have granted irrevocable proxies in favor of
ABC pursuant to which ABC intends to vote such shares in favor of the Merger and
the Merger Agreement. Accordingly, the affirmative vote, in person or by proxy,
of holders of not less than approximately 37,387 additional Company Shares is
needed to approve the Merger and the Merger Agreement.
The Board of Directors of the Company believes that the proposed Merger, on
the terms and conditions set forth in the accompanying Proxy Statement, is in
the best interests of the Company and its shareholders and, therefore,
unanimously recommends that you vote in favor of the Merger and the Merger
Agreement.
We look forward to your attendance at the Special Meeting.
If you have any questions, please feel free to contact the Company's
President, John E. Meyer, Jr., at (334) 671-4000.
Very truly yours,
Winn F. Martin
Chairman
<PAGE>
SOUTHLAND BANCORPORATION
3299 Ross Clark Circle, NW
Dothan, Alabama 46970
Telephone: (334) 671-4000
NOTICE OF SPECIAL MEETING OF SHAREHOLDERS
TO BE HELD JUNE __, 1996
To The Shareholders of Southland Bancorporation:
Notice is hereby given that a Special Meeting of Shareholders (the "Special
Meeting") of Southland Bancorporation, Dothan, Alabama (the "Company"), will be
held at the main office lobby of Southland Bank, 3299 Ross Clark Circle, NW,
Dothan, Alabama on June __, 1996, at 9:00 a.m. local time, for the following
purposes:
1. To consider and vote upon the Merger Agreement dated as of December
18, 1995, between the Company and ABC Bancorp ("ABC") in the form set forth in
Appendix A to the accompanying Proxy Statement, and the transactions
contemplated thereby, including the merger of the Company with and into ABC (the
"Merger").
2. To transact such other business as may properly come before the
Special Meeting.
Notice is also given that the Company's shareholders have the right to
dissent and demand an appraisal of the value of their shares in the event that
the Merger is approved and consummated. The right of any dissenting shareholder
to receive the value of his or her shares through the statutory appraisal
process is contingent upon strict compliance with the procedures set forth in
Article 13 of the Alabama Business Corporation Act, a copy of which is attached
as Appendix B to the accompanying Proxy Statement.
The Company's Board of Directors has fixed the close of business on
May 17, 1996, as the record date for the determination of shareholders
entitled to notice of and to vote at the Special Meeting and at any adjournment
or postponement thereof.
THE COMPANY'S BOARD OF DIRECTORS HAS UNANIMOUSLY APPROVED THE MERGER AND
THE MERGER AGREEMENT AND UNANIMOUSLY RECOMMENDS THAT SHAREHOLDERS VOTE "FOR"
APPROVAL AND ADOPTION OF THE MERGER AND THE MERGER AGREEMENT.
By Order of the Board of Directors
___________________________
Pam H. Adams, Secretary
May ___, 1996
SHAREHOLDERS ARE URGED TO DATE, SIGN AND RETURN PROMPTLY THE ENCLOSED PROXY IN
THE ACCOMPANYING ENVELOPE, WHICH REQUIRES NO POSTAGE IF MAILED IN THE UNITED
STATES. IF A SHAREHOLDER RECEIVES MORE THAN ONE PROXY BECAUSE HE OR SHE OWNS
SHARES REGISTERED IN DIFFERENT NAMES OR ADDRESSES, EACH PROXY SHOULD BE
COMPLETED AND RETURNED. YOUR COOPERATION WILL BE APPRECIATED. YOUR PROXY WILL
BE VOTED WITH RESPECT TO THE MATTERS IDENTIFIED THEREON IN ACCORDANCE WITH ANY
SPECIFICATIONS ON THE PROXY AND, IF NO SPECIFICATION IS MADE, YOUR PROXY WILL BE
VOTED FOR APPROVAL OF THE MERGER AND THE MERGER AGREEMENT.
<PAGE>
PROSPECTUS PROXY STATEMENT
OF OF
ABC BANCORP SOUTHLAND BANCORPORATION
SOUTHLAND BANCORPORATION
SPECIAL MEETING OF SHAREHOLDERS
June __, 1996
This Proxy Statement/Prospectus is being furnished to shareholders of
record at May 17, 1996 of Southland Bancorporation (the "Company"), in
connection with the solicitation of proxies by the Company for use at the
Special Meeting of Shareholders of the Company to be held at the main office
lobby of Southland Bank, 3299 Ross Clark Circle, NW, Dothan, Alabama, on
June __, 1996, at 9:00 a.m. local time, and at any postponements or
adjournments thereof (the "Special Meeting"). This Proxy Statement/Prospectus
and the form of proxy are being first mailed on or about May , 1996.
At the Special Meeting, the Company's shareholders will be asked to approve
the Agreement of Merger dated as of December 18, 1995, as amended by Amendment
No. 1 to Agreement and Plan of Merger dated as of April 16, 1996 (collectively
the "Merger Agreement") between the Company and ABC Bancorp ("ABC"), and the
transactions contemplated thereby, including the merger of the Company with and
into ABC (the "Merger" or the "Merger Proposal"). A copy of the Merger Agreement
is attached to this Proxy Statement/Prospectus as Appendix A. Upon consummation
of the Merger, each outstanding share of the Company's common stock, other than
shares held by shareholders who dissent from the Merger (the "Company Shares"),
will be converted into the right to receive cash or whole shares of ABC's common
stock, $1.00 par value per share ("ABC Common Stock"), upon the terms and
subject to the conditions set forth herein. For a more complete description of
the Merger Agreement and the terms of the Merger, see "PROPOSED MERGER."
This Proxy Statement/Prospectus constitutes the Proxy Statement of the
Company and the Prospectus of ABC covering the shares of its Common Stock to be
issued pursuant to the Merger Proposal. ABC has filed a registration statement
(the "Registration Statement") on Form S-4 under the Securities Act of 1933, as
amended (the "1933 Act"), with the Securities and Exchange Commission covering a
maximum of 618,928 shares of ABC Common Stock to be issued or reserved for
issuance in connection with the Merger. This Proxy Statement/Prospectus does
not cover any resales of ABC Common Stock to be received by the shareholders of
the Company upon consummation of the Merger, and no person is authorized to make
use of this Proxy Statement/Prospectus in connection with any such resale.
The outstanding shares of ABC Common Stock are, and the shares offered
hereby will be, approved for quotation on the Nasdaq National Market System.
The closing sale price of ABC Common Stock, as reported on the Nasdaq National
Market System on May , 1996, was $ per share.
THE ABOVE MATTERS ARE DISCUSSED IN DETAIL IN THIS PROXY STATEMENT. THE
PROPOSED MERGER IS A COMPLEX TRANSACTION. SHAREHOLDERS ARE STRONGLY URGED TO
READ AND CONSIDER CAREFULLY THIS PROXY STATEMENT IN ITS ENTIRETY.
THE SECURITIES OFFERED HEREBY ARE NOT SAVINGS ACCOUNTS, DEPOSITS OR OTHER
OBLIGATIONS OF ANY BANK OR NON-BANK SUBSIDIARY AND ARE NOT INSURED BY THE
FEDERAL DEPOSIT INSURANCE CORPORATION, THE BANK INSURANCE FUND, THE SAVINGS
ASSOCIATION INSURANCE FUND OR ANY OTHER FEDERAL OR STATE GOVERNMENT AGENCY.
<PAGE>
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED
UPON THE ACCURACY OR ADEQUACY OF THIS PROXY STATEMENT/PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
No person has been authorized to give any information or make any
representations not contained herein, and, if given or made, such information or
representations must not be relied upon as having been authorized. This Proxy
Statement/Prospectus does not constitute an offer to sell any securities other
than the securities to which it relates or an offer to sell any securities
covered by this Proxy Statement/Prospectus in any jurisdiction where, or to any
person to whom, it is unlawful to make such an offer. Neither the delivery
hereof nor any distribution of securities by ABC made hereunder shall, under any
circumstances, create an implication that there has been no change in the facts
herein set forth since the date hereof.
All information concerning ABC contained herein has been furnished by
ABC, and all information concerning the Company contained herein has been
furnished by the Company.
The date of this Proxy Statement/Prospectus is May ___, 1996.
<PAGE>
TABLE OF CONTENTS
Page
AVAILABLE INFORMATION...................................................... 5
DOCUMENTS INCORPORATED BY REFERENCE........................................ 5
SUMMARY.................................................................... 6
The Parties............................................................. 6
The Special Meeting..................................................... 6
Financial Terms of the Merger........................................... 7
Reasons for the Proposed Merger......................................... 8
Interest of Certain Persons in the Merger............................... 9
Recommendation of the Board of Directors................................ 9
Dissenters' Rights...................................................... 9
Certain Federal Income Tax Consequences................................. 9
Conditions; Amendments; Termination..................................... 10
Comparative Shareholders' Rights........................................ 10
Proposed Transaction with Central Bankshares, Inc....................... 10
Comparison of Certain Unaudited Per Share Data.......................... 11
Selected Consolidated Financial Information............................. 12
Summary Pro Forma Financial Data........................................ 16
MARKET VALUE OF SECURITIES AND DIVIDENDS................................... 18
SPECIAL MEETING INFORMATION................................................ 19
Purpose of Special Meeting.............................................. 19
Date, Time and Place.................................................... 19
Record Date............................................................. 19
Vote Required........................................................... 19
Proxies................................................................. 20
PROPOSED MERGER............................................................ 20
Background of the Merger................................................ 20
Reasons for the Merger.................................................. 21
Absence of Fairness Opinion............................................. 22
Recommendation of Company's Board of Directors.......................... 22
Description of Merger................................................... 22
Consideration for Shares................................................ 22
Election Procedure...................................................... 23
Allocation Procedure.................................................... 24
Payment of Cash in Lieu of Fractional Shares............................ 25
<PAGE>
Surrender of Certificates............................................... 25
Effective Date of Merger................................................ 26
Interests of Management in the Merger................................... 26
Rights of Dissenting Shareholders....................................... 27
Federal Income Tax Consequences of the Merger........................... 29
Regulatory Approvals.................................................... 32
Business Pending the Merger............................................. 32
Other Provisions of the Agreement....................................... 32
Operations of Southland Bank After the Merger........................... 33
Accounting Treatment.................................................... 34
Resale of ABC Common Stock.............................................. 34
DESCRIPTION OF ABC BANCORP................................................. 34
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS............................................................. 35
DESCRIPTION OF ABC COMMON STOCK............................................ 50
CERTAIN REGULATORY CONSIDERATIONS RELATING TO ABC.......................... 52
COMPARATIVE RIGHTS OF SHAREHOLDERS......................................... 58
DESCRIPTION OF SOUTHLAND BANCORPORATION.................................... 65
Business................................................................ 65
Employees............................................................... 66
Properties.............................................................. 67
Litigation.............................................................. 67
Management.............................................................. 68
Security Ownership of Management and Principal Shareholders............. 69
Certain Regulatory Considerations Relating to the Company............... 70
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS......................................... 71
OTHER MATTERS.............................................................. 87
EXPERTS.................................................................... 87
LEGAL OPINIONS............................................................. 88
INDEX TO FINANCIAL INFORMATION............................................. 89
APPENDICES:
Appendix A: Agreement and Plan of Merger
Appendix B: Dissenters' Rights under Article 13
of the Alabama Business Corporation Act
<PAGE>
AVAILABLE INFORMATION
ABC has filed with the Securities and Exchange Commission (the
"Commission") a Registration Statement (the "Registration Statement") on Form
S-4 under the 1933 Act covering the shares of ABC Common Stock to be issued in
connection with the Merger. This Proxy Statement also constitutes the
Prospectus of ABC filed as part of the Registration Statement. This Proxy
Statement does not contain all of the information set forth in the Registration
Statement. The Registration Statement and the exhibits thereto can be inspected
and copied at the Commission's public reference room, Room 1024, 450 Fifth
Street, N.W., Washington, D.C. 20549, as well as the Commission's regional
offices located at: CitiCorp Center, 500 West Madison Street, Suite 1400,
Chicago, Illinois 60621-2511 and Seven World Trade Center, 13th Floor, New York,
New York 10048. Copies of such material also can be obtained from the Public
Reference Section of the Commission at 450 Fifth Street, N.W., Washington, D.C.
20549, at prescribed rates.
ABC is subject to the informational requirements of the Securities Exchange
Act of 1934, as amended (the "1934 Act"). Accordingly, ABC files proxy
statements, annual and quarterly reports and other information with the
Commission. Those proxy statements, reports and other information may be
inspected and copied at prescribed rates, at the public reference facilities
maintained by the Commission at the addresses set forth above.
DOCUMENTS INCORPORATED BY REFERENCE
THIS PROXY STATEMENT/PROSPECTUS INCORPORATES DOCUMENTS BY REFERENCE WHICH
ARE NOT PRESENTED HEREIN OR DELIVERED HEREWITH. DOCUMENTS RELATING TO ABC
(EXCLUDING UNINCORPORATED EXHIBITS) ARE AVAILABLE WITHOUT CHARGE TO EACH PERSON
(INCLUDING ANY BENEFICIAL OWNER) TO WHOM THIS PROXY STATEMENT/PROSPECTUS IS
DELIVERED UPON WRITTEN OR ORAL REQUEST TO SARA R. HALL, ABC BANCORP, 310 FIRST
STREET, S.E., P. O. BOX 1500, MOULTRIE, GEORGIA 31768 (912) 890-1111. IN ORDER
TO INSURE TIMELY DELIVERY OF SUCH DOCUMENTS, ANY REQUEST SHOULD BE MADE BY JUNE
, 1996
The following documents of ABC (Commission File No. 0-16181) are hereby
incorporated by reference:
1. ABC's Annual Report on Form 10-K for the year ended December 31, 1995.
2. ABC's Quarterly Report on form 10-Q for the quarter ended March 31,
1996
3. All documents filed by ABC pursuant to Section 13(a), 13(c), 14 or
15(d) of the 1934 Act after the date of this Proxy
Statement/Prospectus but prior to the date of the Special Meeting on
June __, 1996.
The following documents filed by First National Financial Corporation
("First National")(Commission File No. 0-20130) are hereby incorporated by
reference:
1. Financial Statements of First National consisting of an Independent
Auditors' Report; Consolidated Balance Sheets - as of December 31,
1995 and 1994; Consolidated Statements of Income -for the years ended
December 31, 1995 and 1994; Consolidated Statement of Changes in
Shareholders' Equity - for the years ended December 31, 1995 and 1994;
Consolidated Statements of Cash Flows - for the years ended December
31, 1995 and 1994; and Notes to Consolidated Financial Statements
(filed as pages 26 through 48 of First National's Annual Report on
Form 10-KSB filed with the Commission on March 26, 1996).
2. Financial Statements of First National, consisting of Consolidated
Balance Sheets; Consolidated Income Statements; Consolidated
Statements of Cash Flows for the three months ended March 31, 1996 and
1995; and Notes to Financial Statements (filed as pages 2 through 7 of
First National's Quarterly Report on Form 10-QSB filed with the
Commission on May 15, 1996).
Any statement contained in a document incorporated by reference herein
shall be deemed to be modified or superseded for purposes of this Proxy
Statement/Prospectus to the extent that a statement contained in this Proxy
Statement/Prospectus, or in any other subsequently filed document which is also
incorporated herein by reference, modifies or supersedes such statement. Any
such statement so modified or superseded shall not be deemed to constitute a
part of this Proxy Statement/Prospectus except as so modified or superseded.
5
<PAGE>
SUMMARY
This summary is necessarily general and abbreviated and has been prepared
to assist shareholders in their review of this Proxy Statement/Prospectus. The
summary is not intended to be a complete explanation of the matters covered in
this Proxy Statement/Prospectus and is qualified in all respects by reference to
the more detailed information contained in this Proxy Statement/Prospectus and
the Appendices hereto, which shareholders are urged to read carefully. Unless
the context clearly suggests otherwise, references in this Proxy
Statement/Prospectus to the "Company" refer to Southland Bancorporation and its
consolidated subsidiary, Southland Bank.
The Parties
ABC Bancorp. ABC is a bank holding company organized under the laws of the
State of Georgia and registered with the Board of Governors of the Federal
Reserve System (the "Federal Reserve Board") pursuant to the Bank Holding
Company Act of 1956, as amended (the "BHCA"). ABC, through its subsidiaries, is
engaged in the commercial banking business. Its primary source of earnings is
derived from income generated by the ownership and operation of its five wholly-
owned subsidiary banks: American Banking Company located in Moultrie; The Bank
of Quitman; Bank of Thomas County; The Citizens Bank of Tifton; and Cairo
Banking Company. As of December 31, 1995, ABC, on a consolidated basis, had
total assets of $341.5 million, total loans of $214.3 million, total deposits of
$301.0 million and stockholders' equity of $33.9 million. ABC's net income for
1995 was $4.3 million, or $1.29 per share. Based on total assets, ABC is the
second largest financial institution headquartered in south Georgia. ABC's
principal executive offices are located at 310 First Street, S.E., P.O. Box
1500, Moultrie, Georgia 31768, and its telephone number is (912) 890-1111.
Southland Bancorporation. The Company is a bank holding company organized
under the laws of the State of Alabama and registered with the Federal Reserve
Board pursuant to the BHCA. The Company owns all of the outstanding common
stock of Southland Bank in Dothan, Alabama ("Southland Bank"), an Alabama state
bank which provides general banking services in southeastern Alabama. The
Company began operations as a bank holding company in March 1983. As of
December 31, 1995, the Company, on a consolidated basis, had total assets of
$100.8 million, total loans of $71.4 million, total deposits of $84.8 million
and stockholders' equity of $6.3 million. The Company's net income for 1995 was
$1.0 million, or $2.05 per share. The Company's principal executive offices are
located at 3299 Ross Clark Circle, NW, Dothan, Alabama 36303, and its telephone
number is (334) 671-4000.
The Special Meeting
Date of Meeting, Time and Place. The Special Meeting will be held
June __, 1996, at 9:00 a.m. at the main office lobby of Southland Bank,
3299 Ross Clark Circle, NW, Dothan, Alabama.
Record Date. All shareholders of record of the Company as of the close of
business on May 17, 1996 (the "Record Date") will be entitled to notice of
and to vote at the Special Meeting.
Purpose of Special Meeting. The purpose of the Special Meeting is to
consider and vote upon the Merger Agreement between the Company and ABC and the
transactions contemplated thereby,
6
<PAGE>
including the Merger of the Company with and into ABC on the terms described in
this Proxy Statement. A copy of the Merger Agreement is attached to this Proxy
Statement as Appendix A.
Required Shareholder Vote. The affirmative vote, in person or by proxy, of
the holders of not less than two-thirds of the issued and outstanding Company
Shares is required to approve the Merger Proposal. The directors and executive
officers of the Company owned beneficially, directly and indirectly, 340,029
Company Shares constituting 67.65% of such shares outstanding on the Record
Date. Certain directors of the Company, who owned beneficially, directly and
indirectly, Company Shares constituting approximately 59% of such shares
outstanding on the Record Date, have executed and delivered to ABC irrevocable
proxies pursuant to which ABC intends to vote such shares in favor of the Merger
and the Merger Agreement. Accordingly, the affirmative vote, in person or by
proxy, of holders of not less than approximately 37,387 additional Company
Shares is needed to approve the Merger Proposal. See "VOTE REQUIRED" and
"MEETING INFORMATION."
Financial Terms of the Merger
Structure. Under the Merger Agreement, the Company will be merged with and
into ABC. ABC will be the surviving corporation in the Merger. As a result of
the Merger, the separate corporate existence of the Company will cease, and
Southland Bank will become a wholly-owned subsidiary of ABC.
Consideration Amount. If the Merger becomes effective, each Company Share
outstanding immediately prior to the consummation of the Merger, other than
shares held by shareholders who dissent from the Merger, will be converted into
the right to receive a combination of cash and whole shares of ABC Common Stock
equal to (i) 1.8 times the book value of the Company's Common Stock as
determined in accordance with generally accepted accounting principles ("GAAP")
as of the close of business immediately prior to the consummation of the Merger,
divided by (ii) the aggregate number of outstanding Company Shares (the "Merger
Consideration"). Cash will be paid in lieu of issuing fractional shares of ABC
Common Stock. Thus, for example, if immediately prior to the consummation of
the Merger the number of Company Shares outstanding is 500,000, the book
value of the Company's Common Stock as determined under GAAP is $6,000,000, and
there are no dissenting shareholders, the Merger Consideration for each
outstanding Company Share would be as follows:
<TABLE>
<S> <C>
Book Value of the Company's Common Stock
(determined in accordance with GAAP) $6,000,000
multiple 1.8
-----------
Merger Consideration for
all outstanding shares $10,800,000
divided by number of outstanding shares 500,000
-----------
Merger Consideration for
each outstanding share $21.60
===========
</TABLE>
ABC Common Stock Price. The number of shares of ABC Common Stock into
which a Company Share may be converted will be determined by dividing the Merger
Consideration by the value of a share of the ABC Common Stock determined in
accordance with the Merger Agreement (the "Base Period Trading Price"). Thus, a
Company shareholder would receive, for his or her Company Shares exchangeable
for ABC Common Stock, a number of whole shares of ABC Common Stock equal to the
Merger Consideration times the number of Company Shares to be exchanged for ABC
Common Stock, divided by the Base Period Trading Price, with cash being paid in
lieu of fractional shares of ABC Common Stock. For this purpose, the "Base
Period Trading Price" means (i)(A) $13.88 plus (B) the average of the daily
closing sales price of a share of ABC Common Stock as reported on the Nasdaq
National Market for the 20 consecutive trading days immediately preceding the
five consecutive calendar days immediately preceding the effective time of
Merger (the "Pre-Closing Base Period Trading Price"), divided by (ii) two;
provided that for purposes of this calculation, the Pre-Closing Base Period
Trading Price is deemed to equal (i) $18.00 in the event the Pre-Closing Base
Period Trading Price is greater than $18.00 or (ii) $10.00 in the event that the
Pre-Closing Base Period Trading Price is less than $10.00. Thus, for example, if
a shareholder holds 100 Company Shares, and elects to receive shares of ABC
Common Stock for all of his or her 100 Company Shares (and such election is not
redesignated as described below), and the Merger Consideration for each Company
Share is determined to be $21.50 as described in the example above, and if the
Pre-Closing Base Period Trading Price is $14.00, then the shareholder would
receive 154 shares of ABC Common Stock (plus cash in lieu of a fractional share)
determined as follows:
<TABLE>
<S> <C>
Merger Consideration $21.60
times number of Company Shares
to be exchanged 100
------
subtotal $2,160
divided by the Base Period Trading Price
(($14.00 + 13.88)/2) $13.94
------
number of shares of ABC Common Stock 154.95
</TABLE>
7
<PAGE>
Stock and Cash Election. Subject to certain limitations discussed below,
each Company shareholder who does not dissent may elect to receive (i) cash for
all of his or her Company Shares; (ii) shares of ABC Common Stock for all of his
or her Company Shares; or (iii) a combination of cash and ABC Common Stock in
the relative proportions specified by such shareholder for his or her Company
Shares. The total number of Company Shares to be converted into the right to
receive cash, including cash in lieu of fractional shares, may not be less than
35% of the total number of outstanding Company Shares (the "Minimum Cash
Election Number") and, together with any Company Shares as to which dissenters'
rights have been perfected, may not be greater than 49% of the outstanding
Company Shares (the "Maximum Cash Election Number"). The total number of
Company Shares to be converted into the right to receive ABC Common Stock may
not be less than 51% of the number of outstanding Company Shares (the "Minimum
Stock Election Number") nor greater than 65% of the number of outstanding
Company Shares (the "Maximum Stock Election Number"). If the number of Company
Shares to be converted into shares of ABC Common Stock exceeds the Maximum Stock
Election Number, then all Company Shareholders who have elected to receive
shares of ABC Common Stock (other than any Company Shareholder who has made an
election to receive no more than 65% and no less than 51% of the applicable
Merger Consideration in the form of ABC Common Stock for his or her Company
Shares) shall, on a prorata basis, have their elections redesignated to receive
cash so that the Maximum Stock Election Number and the Minimum Cash Election
Number are achieved. If the number of Company Shares to be converted into cash
exceeds the Maximum Cash Election Number, then all Company Shareholders who have
made an election to receive cash (other than any Company Shareholder who has
made an election to receive no more than 49% and no less than 35% of the
applicable Merger Consideration in the form of cash for his or her Company
Shares) shall, on a prorata basis, have their elections redesignated so that the
Maximum Cash Election Number and Minimum Stock Election Number are achieved.
See "PROPOSED MERGER - Allocation Procedure."
Reasons for the Proposed Merger
In May, 1995, the Company engaged T. Stephen Johnson and Associates
("Johnson") an investment banker, as broker, to market the Company to the
banking community. Johnson circulated bid packages to eleven financial
institutions. As a result of solicitations for bids to purchase the Company, the
Company received two bids for the purchase of the Company, the highest bid being
submitted by Colonial Bancorporation ("Colonial"). The Colonial bid represented
an all-stock transaction at a fixed price of 1.8 times book value of the
Company, or total consideration of $10,499,996. Colonial executed a letter of
intent, but the parties failed to reach a final agreement and both parties
approved cessation of negotiations. In October, 1995, the Company and the other
original bidder, ABC, initiated negotiations for ABC's purchase of the Company.
By the end of October, 1995, ABC and the Company had entered into a formal
letter of intent providing for consideration in the form of both stock and cash
and ABC agreed to a purchase price of 1.8 times book value as of the time of
closing. See "Financial Terms of the Merger--Consideration Amount". The actual
purchase price will depend on the book value of the Company as of closing. The
final agreement between the Company and ABC is attached hereto as Appendix A.
The Board of Directors of the Company has determined that the proposed
Merger is in the Company's best interest and the best interests of its
shareholders, customers, employees and community. In particular, the Board
determined that the proposed Merger will provide Southland Bank with increased
financial resources and the technical expertise available from ABC and its bank
subsidiaries. In addition, by receiving ABC Common Stock, shareholders of the
Company may benefit from ownership of a larger financial institution whose
common stock is traded on the Nasdaq National Market System. If the proposed
Merger is consummated, shareholders of the Company will receive consideration
per Company Share with a quoted market value higher than has been previously
available for such shares based upon past trading transactions.
The Company has not sought or received an opinion from an independent third
party regarding the fairness of the Merger to any of the Company's shareholders,
nor was any special committee formed to negotiate or make recommendations on
behalf of the Company shareholders. However, the terms of the Merger have been
reviewed and unanimously approved by the Company's Board of Directors.
ABC's Board of Directors has concluded that the Merger would be in the best
interests of ABC's shareholders and the employees, depositors and other
customers of ABC's affiliates, and is consistent with ABC's acquisition strategy
of developing a network of local banks in southern Georgia and Alabama. ABC's
Board believes that the additional banking and other resources that will be
available to the Company as a result of the Merger will enhance the Company's
service to its customers. See "PROPOSED MERGER -- Reasons for the Merger."
8
<PAGE>
Interests of Certain Persons in the Merger
ABC has agreed to cause Southland Bank to enter into an employment
agreement with John E. Meyer, Jr., the President of the Company and Southland
Bank, pursuant to which Mr. Meyer would serve as the President of Southland Bank
for at least two years following the Merger. Winn F. Martin, the Company's
Chairman of the Board and the holder of 234,848 Company Shares, representing
approximately 48% of the outstanding Company Shares, has agreed to elect to
receive cash for all of his Company Shares and ABC has agreed to permit Mr.
Martin to require ABC to register for resale under the 1933 Act the shares of
ABC Common Stock that Mr. Martin may receive as a result of the redesignation
procedures described above. Mr. Martin's election is, however, subject to the
redesignation procedures described above to the same extent as all Company
shareholders. ABC has also agreed to cause each officer and employee of
Southland Bank to be eligible to participate in ABC's employee benefit plans.
Furthermore, ABC has agreed to provide generally to employees of Southland Bank
fringe benefits (including health and welfare plans, vacation benefits and
severance benefits) on terms and conditions no less favorable than those
provided to other employees of ABC's other bank subsidiaries. In addition,
certain directors of the Company, who owned beneficially, directly and
indirectly, Company Shares constituting approximately 58% of such shares
outstanding on the Record Date, have delivered to ABC irrevocable proxies
pursuant to which ABC intends to vote such shares in favor of the Merger and the
Merger Agreement. See "PROPOSED MERGER -- Interests of Management in the
Merger".
Recommendation of the Board of Directors
The Company's Board of Directors has unanimously approved the Merger
Agreement and has agreed to support the Merger and to recommend the Merger to
the Company's shareholders. The Board of Directors believes that the terms of
the Merger Proposal are in the best interests of the Company's shareholders and
unanimously recommends to the Company shareholders that they vote in favor of
the Merger and the Merger Proposal. See "PROPOSED MERGER -- Recommendation of
Board of Directors."
Dissenters' Rights
Holders of Company Shares may dissent from the proposed Merger to the
extent, and in strict compliance with the manner, specified in Article 13 of the
Alabama Business Corporation Act. HOLDERS OF COMPANY SHARES WHO WANT TO
EXERCISE THEIR DISSENTERS' RIGHTS MUST SEND WRITTEN NOTICE OF THEIR INTENT TO
DEMAND PAYMENT FOR THEIR COMPANY SHARES BEFORE THE SHAREHOLDERS OF THE COMPANY
VOTE ON THE MERGER PROPOSAL AT THE SPECIAL MEETING ON JUNE 21, 1996. Such
written notice should be sent to the attention of John E. Meyer, Jr., President,
Southland Bancorporation, 3299 Ross Clark Circle, NW, Dothan, Alabama 36303.
See "PROPOSED MERGER -- Rights of Dissenting Shareholders" and the text of
Article 13 of the Alabama Business Corporation Act attached as Appendix B to
this Proxy Statement.
Certain Federal Income Tax Consequences
The Merger, if and when consummated in accordance with the Merger Agreement,
will constitute a tax-free reorganization. Company shareholders receiving only
ABC Common Stock will recognize no gain or loss on the exchange of Company
Shares. A Company shareholder who receives only cash for his or her Company
Shares will recognize any gain or loss, which may be capital in nature or (in
the case
9
<PAGE>
of any gain) may constitute ordinary dividend income, depending upon whether he
or she or any related person or entity owns any ABC Common Stock immediately
after the Merger. The foregoing summary is based upon an opinion to the Company
provided by Rogers & Hardin, ABC's counsel. Such opinion is not binding on the
Internal Revenue Service (the "Service"), and no advance ruling has been sought
or obtained from the Service. In addition, it is possible that Company
shareholders will receive a combination of ABC Common Stock and cash that
results in ordinary income taxation of all or a portion of the cash. All
Company shareholders should consult their own tax advisors as to the specific
tax consequences to them of the Merger. See "PROPOSED MERGER -- Federal Income
Tax Consequences of the Merger."
Conditions; Amendments; Termination
Consummation of the Merger is contingent upon the approval of the Merger
Proposal by the Company shareholders and certain regulatory authorities,
including the Federal Reserve Board the Alabama State Banking Department and the
Georgia Department of Banking and Finance, and is subject to numerous other
conditions. See "Other Provisions of the Agreement -- Additional Conditions to
the Merger."
The Merger Agreement may be amended at any time by mutual agreement of the
Boards of Directors of ABC and the Company; provided, that after the approval of
the Company shareholders has been obtained, the Merger Agreement may not be
amended or supplemented in any manner which will result in a decrease in the
consideration paid for the Company Shares or which will otherwise materially
adversely affect the rights of the Company's shareholders. The Merger Agreement
may also be terminated, and the Merger abandoned, notwithstanding prior
shareholder approval, by mutual agreement of the Company and ABC or by either of
them in the event of failure to satisfy the conditions to the Merger prior to
August 1, 1996, or if either party shall have breached any material
representation or warranty contained in the Merger Agreement and such breach has
not been cured within 30 days of notice thereof to the breaching party. See
"PROPOSED MERGER -- Waivers; Amendments; Terminations."
Comparative Shareholders' Rights
The rights of shareholders of ABC and shareholders of the Company differ in
a number of respects. For a description of the relative rights of such
shareholders, see "COMPARATIVE RIGHTS OF SHAREHOLDERS."
Proposed Transactions
ABC has announced a proposed merger transaction with Central Bankshares,
Inc. ("Central"), a Georgia corporation and the sole shareholder of Central Bank
& Trust, a Georgia chartered state bank located in Cordele, Georgia (the
"Central Merger"). Pursuant to the Agreement and Plan of Merger by and between
ABC and Central dated as of December 29, 1995, Central will be merged with and
into ABC (the "Central Merger Agreement"), with Central Bank & Trust thereupon
becoming a wholly-owned subsidiary of ABC. In connection with the Central
Merger, the Central shareholders will receive shares of ABC Common Stock having
an aggregate value equal to 2.0 times the lesser of (1) 8.0% of the total assets
of Central or (2) the total equity of Central, plus the amount, if any, by which
the total equity of Central exceeds 8.0% of its total assets, based on the
average of the total assets of Central as of the close of business for each of
the 60 calendar days immediately preceding the consummation of the Central
Merger. As of December 31, 1995, Central had total assets of approximately $51
million and total equity of approximately $4.0 million. The description of the
Central Merger Agreement is qualified in its entirety by reference to a copy
thereof which has been filed as an exhibit to the Registration Statement of
which this Proxy Statement is a part.
10
<PAGE>
The consummation of the Central Merger is subject to the satisfaction of a
number of conditions, including the receipt of the requisite shareholder
approval by the Central shareholders, the approval of the Federal Reserve Board
and the Georgia Department of Banking and Finance, and the registration under
the 1933 Act of the shares of ABC Common Stock to be issued in connection with
the Central Merger.
ABC also has announced a proposed merger with First National Financial
Corporation ("First National"), a Georgia corporation and the sole shareholder
of First National Bank of South Georgia, a national banking association located
in Albany, Georgia ("First National Bank"). Pursuant to the Agreement and the
Plan of Merger by and between ABC and First National dated as of April 15, 1996
(the "First National Merger Agreement"), First National will be merged with and
into ABC (the "First National Merger"), with First National Bank thereupon
becoming a wholly-owned subsidiary of ABC. In connection with the First National
Merger, the First National shareholders will receive shares of ABC Common Stock
having a aggregate value equal to 2.265 times the lesser of (1) 8.0% of the
total assets of First National or (2) the total equity of First National, plus
the amount, if any, by which the total equity of First National exceeds 8.0% of
its total assets, based on the total assets of First National as of the close of
business for each of the 60 calendar days immediately preceding the consummation
of the First National Merger. As of March 31, 1996, First National had total
assets of approximately $54 million and total equity of approximately $5.6
million. The description of the First National Merger Agreement is qualified in
its entirety by reference to a copy thereof which has been filed as an exhibit
to the Registration Statement of which this Proxy Statement is a part .
The consummation of the First National Merger is subject to the
satisfaction of a number of conditions, including the requisite shareholder
approval by the First National shareholders, the approval of the Federal Reserve
Board and the Georgia Department of Banking and Finance, and the registration
under the 1933 Act of the shares of ABC Common Stock to be issued in connection
with the First National Merger.
It is currently anticipated that the Central Merger and the First National
Merger will not be consummated until after the consummation of the Merger.
However, the actual timing of the consummation of the Merger, the Central Merger
and the First National Merger (collectively, the "ABC Mergers") is dependent on
a number of factors, including the requisite shareholder and regulatory
approvals. There can be no assurance as to whether or when the Central Merger or
the First National Merger will be consummated.
The ABC Mergers, if consummated, will result in the issuance of a
substantial number of new shares of ABC Common Stock which could have a dilutive
effect on the earnings per share of ABC, Southland, Central and First National
on a combined basis. For an explanation of the effect of the ABC Mergers on ABC,
see "Unaudited Pro Forma Condensed Consolidated Financial Data," which data
gives no effect to any currently outstanding options to purchase Company Shares.
At the close of business on the Record Date, there were 27,776 Company Shares
subject to such options. The Company's Board of Directors expects that options
to purchase approximately 10,800 such shares will be exercised at prices between
$8.33 and $10.00 per share prior to the consummation of the Merger. See
"Description of Southland Bancorporation--Security Ownership of Management and
Principal Shareholders."
Comparison of Certain Unaudited Per Share Data
The following tables present selected historical, pro forma combined, and
equivalent Company per share data as of and for the three-month period ended
March 31, 1996 and the year ended December 31, 1995 assuming the Maximum Cash
Election Number and Minimum Cash Election Number are achieved for (i) ABC and
the Company; (ii) ABC on a pro forma basis as if the Central Merger had been
effective and the Company; (iii) ABC on a pro forma basis as if the First
National Merger had been effective and the Company; and (iv) ABC on a pro forma
basis as if the Central Merger and First National Merger had been effective and
the Company. The information is based on the historical financial statements of
ABC, Central, First National and the Company. The pro forma data do not purport
to be indicative of the results of future operations or the actual results that
would have occurred had the ABC Mergers been consummated at the beginning of the
periods presented. The pro forma data give effect to the ABC Mergers and are
based on numerous assumptions and estimates. On the Record Date, there were
27,092 Company Shares subject to options. The Company's Board of Directors
expects that options to purchase approximately 10,800 such shares will be
exercised at prices between $8.33 and $10.00 per share prior to consummation of
the Merger. The effect of the Company's options were not included in the
following per share data. If the Merger is consummated as anticipated, it will
be accounted for as a purchase transaction. It is anticipated that the Central
Merger and First National Merger will each be accounted for as poolings-of-
interests. The information presented below should be read in conjunction with,
and is qualified in its entirety by, the separate consolidated financial
statements, including applicable notes, of ABC and of the Company, and the
Unaudited Pro Forma Condensed Consolidated Financial Data, and notes thereto,
appearing elsewhere herein.
<TABLE>
<CAPTION>
As of and For The Year Ended December 31, 1995
Maximum Cash Election Minimum Cash Election
-------------------------------- -------------------------------
Equivalent Equivalent
Company Company
The Pro Forma Amount Pro Forma Amount
ABC Company Combined (3) Per Share (1) Combined (3) Per Share (2)
---------- ----------- ------------- --------------- ------------- --------------
<S> <C> <C> <C> <C> <C> <C>
Net income per common share $ 1.29 $ 2.10(4) $ 1.25 $ 2.08 $ 1.23 $ 2.04
Dividends per common share 0.35 - 0.31 0.51 0.30 0.50
Book value per common share 10.04 12.94 10.53 17.48 10.63 17.64
</TABLE>
<TABLE>
<CAPTION>
Maximum Cash Election Minimum Cash Election
------------------------------- ------------------------------
ABC/ Equivalent Equivalent
Central Company Company
Pro Forma The Pro Forma Amount Pro Forma Amount
(5) Company Combined (3) Per Share (1) Combined (3) Per Share(2)
------------ ----------- ------------- --------------- ------------- --------------
<S> <C> <C> <C> <C> <C> <C>
Net income per common share $ 1.23 $ 2.10(4) $ 1.20 $ 1.99 $ 1.18 $ 1.96
Dividends per common share 0.33 - 0.29 0.48 0.29 0.48
Book value per common share 9.67 12.94 10.08 16.73 10.18 16.90
</TABLE>
<TABLE>
<CAPTION>
Maximum Cash Election Minimum Cash Election
ABC/ ---------------------------- ------------------------------
First Equivalent Equivalent
National Company Company
Pro Forma The Pro Forma Amount Pro Forma Amount
(6) Company Combined (3) Per Share (1) Combined (3) Per Share(2)
------------ ----------- ------------- --------------- ------------- --------------
<S> <C> <C> <C> <C> <C> <C>
Net income per common share $ 1.19 $ 2.10(4) $ 1.17 $ 1.94 $ 1.15 $ 1.91
Dividends per common share 0.28 - 0.26 0.43 0.25 0.42
Book value per common share 9.53 12.94 9.93 16.48 10.03 16.65
</TABLE>
<TABLE>
<CAPTION>
ABC/ Maximum Cash Election Minimum Cash Election
Central/ ---------------------------- -----------------------------
First Equivalent Equivalent
National Company Company
Pro Forma The Pro Forma Amount Pro Forma Amount
(7) Company Combined (3) Per Share (1) Combined (3) Per Share(2)
------------ ----------- ------------- --------------- ------------- --------------
<S> <C> <C> <C> <C> <C> <C>
Net income per common share $ 1.15 $ 2.10(4) $ 1.13 $ 1.88 $ 1.12 $ 1.86
Dividends per common share 0.27 - 0.25 0.42 0.24 0.40
Book value per common share 9.23 12.94 9.62 15.97 9.71 16.12
</TABLE>
(1) The equivalent share information for the Company in the above tables is
computed assuming an exchange ratio of 414,118 shares of ABC Common Stock
(with an assumed market value of $14.00 per share) for all of the Company
Shares determined in the following manner: (a) 49% of the Company Shares
(including shares with respect to which dissenters' rights have been
perfected) will be converted into cash; and (b) 51% of the Company Shares
will be converted into shares of ABC Common Stock, plus cash in lieu of any
fractional shares.
(2) The equivalent shares information for the Company in the above table is
computed assuming an exchange ratio of 527,797 shares of ABC Common Stock
(with an assumed market value of $14.00 per share) for all of the Company
Shares determined in the following manner: (a) 35% of the Company Shares
(including shares with respect to which dissenters' rights have been
perfected) will be converted into cash; and (b) 65% of the Company Shares
will be converted into shares of ABC Common Stock, plus cash in lieu of any
fractional shares.
(3) See Unaudited Pro Forma Condensed Consolidated Financial Data included
elsewhere in this Proxy Statement.
(4) Net income per common share is based on net income from continuing
operations.
(5) Represents ABC on a pro forma basis to give effect to the Central Merger as
if it had been consummated as of January 1, 1995 and assumes that ABC
issued an aggregate of 587,614 shares of ABC Common Stock in connection
therewith.
(6) Represents ABC on a pro forma basis to give effect to the First National
Merger as if it had been consummated as of January 1, 1995 and assumes that
ABC issued an aggregate of 779,770 shares of ABC Common Stock in connection
therewith.
(7) Represents ABC on a pro forma basis to give effect to the Central Merger
and the First National Merger as if they had been consummated as of January
1, 1995 and assumes that ABC issued an aggregate of 587,614 of ABC Common
Stock in connection with the Central Merger and 779,770 shares of ABC
Common Stock in connection with the First National Merger.
<TABLE>
<CAPTION>
As of and For The Three Months Ended March 31, 1996
Maximum Cash Election Minimum Cash Election
-------------------------------- -------------------------------
Equivalent Equivalent
Company Company
The Pro Forma Amount Pro Forma Amount
ABC Company Combined (3) Per Share (1) Combined (3) Per Share (2)
---------- ----------- ------------- --------------- ------------- --------------
<S> <C> <C> <C> <C> <C> <C>
Net income per common share $ 0.37 $ 0.74(4) $ 0.38 $ 0.66 $ 0.37 $ 0.64
Dividends per common share 0.10 - 0.09 0.16 0.09 0.16
Book value per common share 10.23 13.46 10.66 18.44 10.76 18.61
</TABLE>
<TABLE>
<CAPTION>
Maximum Cash Election Minimum Cash Election
------------------------------- ------------------------------
ABC/ Equivalent Equivalent
Central Company Company
Pro Forma The Pro Forma Amount Pro Forma Amount
(5) Company Combined (3) Per Share (1) Combined (3) Per Share(2)
------------ ----------- ------------- --------------- ------------- --------------
<S> <C> <C> <C> <C> <C> <C>
Net income per common share $ 0.35 $ 0.74(4) $ 0.37 $ 0.64 $ 0.36 $ 0.62
Dividends per common share 0.09 - 0.08 0.14 0.07 0.12
Book value per common share 9.80 13.46 10.21 17.66 10.31 17.84
</TABLE>
<TABLE>
<CAPTION>
Maximum Cash Election Minimum Cash Election
ABC/ ---------------------------- ------------------------------
First Equivalent Equivalent
National Company Company
Pro Forma The Pro Forma Amount Pro Forma Amount
(6) Company Combined (3) Per Share (1) Combined (3) Per Share(2)
------------ ----------- ------------- --------------- ------------- --------------
<S> <C> <C> <C> <C> <C> <C>
Net income per common share $ 0.33 $ 0.74(4) $ 0.34 $ 0.59 $ 0.34 $ 0.59
Dividends per common share 0.08 - 0.07 0.12 0.07 0.12
Book value per common share 9.64 13.46 10.05 17.39 10.14 17.54
</TABLE>
<TABLE>
ABC/ Maximum Cash Election Minimum Cash Election
Central/ ---------------------------- -----------------------------
First Equivalent Equivalent
National Company Company
Pro Forma The Pro Forma Amount Pro Forma Amount
(7) Company Combined (3) Per Share (1) Combined (3) Per Share(2)
------------ ----------- ------------- --------------- ------------- --------------
<S> <C> <C> <C> <C> <C> <C>
Net income per common share $ 0.32 $ 0.74(4) $ 0.34 $ 0.59 $ 0.33 $ 0.57
Dividends per common share 0.07 - 0.07 0.12 0.06 0.10
Book value per common share 9.35 13.46 9.73 16.83 9.83 17.01
</TABLE>
(1) The equivalent share information for the Company in the above tables is
computed assuming an exchange ratio of 430,670 shares of ABC Common Stock
(with an assumed market value of $14.00 per share) for all of the Company
Shares determined in the following manner: (a) 49% of the Company Shares
(including shares with respect to which dissenters' rights have been
perfected) will be converted into cash; and (b) 51% of the Company Shares
will be converted into shares of ABC Common Stock, plus cash in lieu of any
fractional shares.
(2) The equivalent shares information for the Company in the above table is
computed assuming an exchange ratio of 548,893 shares of ABC Common Stock
(with an assumed market value of $14.00 per share) for all of the Company
Shares determined in the following manner: (a) 35% of the Company Shares
(including shares with respect to which dissenters' rights have been
perfected) will be converted into cash; and (b) 65% of the Company Shares
will be converted into shares of ABC Common Stock, plus cash in lieu of any
fractional shares.
(3) See Unaudited Pro Forma Condensed Consolidated Financial Data included
elsewhere in this Proxy Statement.
(4) Net income per common share is based on net income from continuing
operations.
(5) Represents ABC on a pro forma basis to give effect to the Central Merger as
if it had been consummated as of January 1, 1996 and assumes that ABC
issued an aggregate of 588,742 shares of ABC Common Stock in connection
therewith.
(6) Represents ABC on a pro forma basis to give effect to the First National
Merger as if it had been consummated as of January 1, 1996 and assumes that
ABC issued an aggregate of 788,868 shares of ABC Common Stock in connection
therewith.
(7) Represents ABC on a pro forma basis to give effect to the Central Merger
and the First National Merger as if they had been consummated as of January
1, 1996 and assumes that ABC issued an aggregate of 588,742 of ABC Common
Stock in connection with the Central Merger and 788,868 shares of ABC
Common Stock in connection with the First National Merger.
11
<PAGE>
Selected Consolidated Financial Information
The following tables set forth certain unaudited historical consolidated
financial information for each of ABC and the Company. This information is
based in part on, and is qualified in its entirety by, the respective
consolidated financial statements of ABC and the Company, including the
applicable notes thereto, appearing elsewhere in this Proxy Statement and should
be read in conjunction therewith.
<TABLE>
<CAPTION>
ABC BANCORP AND SUBSIDIARIES
Three Months
Ended March 31, Year Ended December 31,
----------------- -----------------------------------------------------
1996 1995 1995 1994 1993 1992 1991
-------- -------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
(Dollars in thousands, except per share data)
Selected Balance Sheet Data:
Total assets................... $335,589 $293,942 $341,505 $292,799 $268,616 $259,386 $180,548
Total loans.................... 223,305 195,387 214,251 192,124 161,747 150,945 100,648
Total deposits................. 293,385 256,534 300,988 256,869 238,225 234,470 158,543
Investment securities.......... 58,916 46,215 50,260 46,505 45,937 35,161 30,272
Stockholders' equity........... 34,575 31,251 33,935 30,450 19,959 19,405 18,654
Selected Income Statement Data:
Interest income................ $7,051 6,157 26,703 21,328 $ 19,697 $ 15,668 $ 15,861
Interest expense............... 2,841 2,348 10,673 7,828 7,732 6,692 8,457
-------- ------- -------- -------- -------- -------- --------
Net interest income........... 4,110 3,809 16,030 13,500 11,965 8,976 7,404
</TABLE>
12
<PAGE>
<TABLE>
<CAPTION>
ABC BANCORP AND SUBSIDIARIES
Three Months
Ended March 31, Year Ended December 31,
----------------- ---------------------------------------------------
1996 1995 1995 1994 1993 1992 1991
-------- -------- -------- -------- -------- -------- -------
(Dollars in thousands, except per share data)
<S> <C> <C> <C> <C> <C> <C> <C>
Provision for loan losses...... 180 180 848 638 1,191 1,129 451
Other income................... 927 886 3,276 3,025 2,867 2,097 1,781
Other expenses................. 3,017 3,000 12,228 11,547 10,535 8,030 6,677
------- ------- -------- -------- -------- -------- --------
Income before tax.............. 1,840 1,515 6,230 4,340 3,106 1,914 2,057
Income tax expense............. 605 487 1,889 1,240 814 429 487
------- ------- -------- -------- -------- -------- --------
Net income before cumulative
effect......................... 1,235 1,028 4,341 3,100 2,292 1,485 1,570
Cumulative effect.............. -- -- -- -- 346 -- --
------- ------- -------- -------- -------- -------- --------
Net income.................... $1,235 $ 1,028 $ 4,341 $ 3,100 $ 2,638 $ 1,485 $ 1,570
======= ======= ======== ======== ======== ======== ========
Per Share Data:
Net income before cumulative
effect........................ $ -- $ -- $ 1.29 $ 1.05 $ .91 $ 0.58 $ 0.61
Net income..................... 0.37 0.31 1.29 1.05 1.04 0.58 0.61
Book value..................... 10.23 9.32 10.04 9.10 8.49 7.64 7.05
Tangible book value............ 9.64 8.65 9.43 8.41 7.39 6.54 5.84
Dividends...................... 0.10 0.08 0.35 0.29 0.29 0.29 0.26
Profitability Ratios:
Net income to average total
assets........................ 1.50% 1.42% 1.43% 1.15% 1.03% 0.78% 0.92%
Net income to average
stockholders' equity.......... 14.56 13.23 13.44 13.99 13.6 8.0 8.8
Net interest margin............ 5.26 5.58 5.94 5.62 5.34 5.49 5.14
Loan Quality Ratios:
Net charge-offs to total loans. 0.04 (0.08) 0.16 0.25 1.02 0.91 0.24
Reserve for loan losses to
total loans and OREO.......... 1.98 2.03 1.99 1.96 2.20 2.64 1.25
Nonperforming assets to total
loans and OREO................ 1.88 2.25 1.08 2.04 2.66 4.66 1.26
Reserve for loan losses to
nonperforming loans........... 119.0 101.0 184.0 96.0 104.0 65.0 117.0
Reserve for loan losses to
total nonperforming assets.... 105.0 90.0 184.0 93.0 83.0 57.0 99.0
Liquidity Ratios:
Loans to total deposits........ 76.0 76.0 71.0 75.0 68.0 64.0 63.0
Loans to average earning
assets........................ 71.0 72.0 78.0 78.0 70.0 89.0 67.0
Noninterest-bearing deposits
to total deposits............. 15.0 17.0 19.0 19.0 16.0 15.0 16.0
Capital Adequacy Ratios:
Common stockholders' equity
to total assets............... 10.3 10.6 9.9 10.4 7.4 7.5 10.3
</TABLE>
13
<PAGE>
<TABLE>
<CAPTION>
ABC BANCORP AND SUBSIDIARIES
Three Months
Ended March 31, Year Ended December 31,
----------------- -----------------------------------------------------
1996 1995 1995 1994 1993 1992 1991
-------- -------- --------- --------- --------- --------- ---------
(Dollars in thousands, except per share data)
<S> <C> <C> <C> <C> <C> <C> <C>
Total stockholders' equity to
total assets................... 10.3% 10.60 9.9% 10.4% 7.4% 7.5% 10.3%
Dividend payout ratio............ 27.0 26.00 27.0 29.0 25.0 50.0 43.0
</TABLE>
<TABLE>
<CAPTION>
SOUTHLAND BANCORPORATION AND SUBSIDIARY
Three Months
Ended March 31, Year Ended December 31,
----------------------- -----------------------------------------------------
1996 1995 1995 1994 1993 1992 1991
---------- ---------- -------- -------- -------- -------- --------
(Dollars in thousands, except per share data)
<S> <C> <C> <C> <C> <C> <C> <C>
Selected Balance Sheet Data:
Total assets..................... $107,468 $100,859 $100,807 $ 93,370 $100,431 $ 95,752 $ 78,780
Investment securities............ 25,180 18,168 20,931 15,054 14,042 11,395 7,226
Total loans...................... 76,054 69,867 71,371 69,732 73,692 74,242 63,461
Total deposits................... 87,865 86,125 84,828 79,338 87,052 83,680 70,043
Borrowings....................... 12,008 8,379 8,525 8,479 7,385 6,690 3,920
Stockholders' equity............. 6,568 5,394 6,316 4,857 5,309 4,669 4,075
Selected Income Statement Data:
Interest income.................. 2,456 2,270 9,033 7,393 6,976 6,928 6,994
Interest expense................. 1,206 1,080 4,775 3,596 3,260 3,600 4,232
-------- -------- -------- -------- -------- -------- --------
Net interest income........... 1,250 1,190 4,258 3,797 3,716 3,328 2,762
Provision for loan losses........ - 52 72 582 536 488 372
Other income..................... 399 368 1,582 1,307 2,182 1,843 1,348
Other expenses................... 1,076 1,082 4,101 4,498 4,342 3,752 3,148
-------- -------- -------- -------- -------- -------- --------
Earnings from continuing
operations before income taxes
and cumulative effect of change
in accounting method............. 573 424 1,667 24 1,020 930 590
Income tax expense (benefit)..... 213 171 643 (63) 372 382 200
-------- -------- -------- -------- -------- -------- --------
Earnings from continuing
operations before cumulative
effect of change in accounting
method........................... 360 253 1,024 87 648 548 390
Discontinued operations........... - (12) (22) (86) (58) (54) (13)
Earnings before cumulative
effect of change in accounting
method........................... 360 241 1,002 1 590 494 377
Cumulative effect of change in
accounting method................ -- -- -- -- 49 -- --
-------- -------- -------- -------- -------- -------- --------
Net earnings.................. $ 360 $ 241 $ 1,002 $ 1 $ 639 $ 494 $ 377
======== ======== ======== ======== ======== ======== ========
</TABLE>
14
<PAGE>
<TABLE>
<CAPTION>
SOUTHLAND BANCORPORATION AND SUBSIDIARY
Three Months
Ended March 31, Year Ended December 31,
------------------- -----------------------------------------------------
1996 1995 1995 1994 1993 1992 1991
-------- -------- -------- -------- -------- -------- --------
(Dollars in thousands, except per share data)
<S> <C> <C> <C> <C> <C> <C> <C>
Per Share Data:
Earnings from continuing
operations before cumulative
effect of change in accounting
method........................... 0.74 0.52 $ 2.10 $ 0.18 $ 1.33 $ 1.12 $ 0.82
Earnings before cumulative
effect of change in accounting
method........................... 0.74 0.49 2.05 -- 1.21 0.95 0.79
Net earnings...................... 0.74 0.49 2.05 -- 1.31 0.95 0.79
Book value........................ 13.46 11.05 12.94 9.95 10.88 9.68 8.45
Tangible book value............... 13.46 11.05 12.94 9.95 10.88 9.68 8.45
Dividends......................... -- -- -- -- -- -- --
Profitability Ratios:
Net earnings to average total
assets........................... 1.37% 1.00% 1.00% --% 0.65% 0.49% 0.51%
Net earnings to average
stockholders' equity............. 22.35 18.81 17.94 -- 11.29 11.30 9.71
Net interest margin............... 5.04 4.88 4.54 4.21 4.13 3.78 4.23
Loan Quality Ratios:
Net charge-offs to total average
loans............................ 0.08 0.15 0.24 0.18 0.69 0.36 0.47
Allowance for loan losses to
total loans and OREO............. 1.54 1.81 1.72 1.88 1.18 1.17 1.03
Nonperforming assets to total
loans and OREO................... 1.37 2.13 0.91 3.07 2.39 1.78 3.10
Allowance for loan losses to
nonperforming loans.............. 148 174 389.0 110.0 178.0 412.0 151.0
Allowance for loan losses to
total nonperforming assets....... 113 85 188.0 61.0 49.0 66.0 33.0
Liquidity Ratios:
Loans to total deposits........... 87 79 85.0 88.0 85.0 89.0 91.0
Average loans to average earning
assets........................... 75 74 78.0 81.0 86.0 86.0 90.0
Noninterest-bearing deposits
to total deposits................ 10 9 11.0 9.0 9.0 11.0 11.0
Capital Adequacy Ratios:
Common stockholders' equity
to total assets.................. 6.11 5.35 6.27 5.20 5.29 4.88 5.17
Total stockholders' equity to
total assets..................... 6.11 5.35 6.27 5.20 5.29 4.88 5.17
Dividend payout ratio............. -- -- -- -- -- -- --
</TABLE>
15
<PAGE>
Summary Pro Forma Financial Data
The following unaudited pro forma financial data give effect, as
appropriate, to various merger transactions as of the dates and for the periods
indicated and pursuant to the accounting basis described below. The unaudited
pro forma financial data are presented for information purposes only and are not
necessarily indicative of the combined financial position or results of
operations which actually would have occurred if the transactions had been
consummated at the date and for the periods indicated or which may be obtained
in the future. The information should be read in conjunction with the unaudited
pro forma financial information appearing elsewhere in this Prospectus/Proxy
Statement.
Selected Pro Forma Combined Data for ABC and the Company
The following unaudited pro forma combined data give effect to the
acquisition of the Company as of March 31, 1996 and for the three-month period
ended March 31, 1996 and the year ended December 31, 1995, assuming such
acquisition is treated as a purchase transaction and that the Minimum and
Maximum Cash Election Numbers are achieved.
<TABLE>
<CAPTION>
As of March 31, 1996
------------------------------
Minimum Maximum
Cash Cash
Election Election
------------- -------------
(Dollars in Thousands,
Except Per Share Data)
------------------------------
<S> <C> <C>
Balance Sheet Data:
Total assets $ 444,173 $ 442,518
Cash 19,522 19,522
Federal funds sold 17,397 15,742
Securities 82,096 82,096
Loans, net 293,757 293,757
Total deposits 381,150 381,150
Borrowings 12,108 12,108
Stockholders' equity 42,259 40,604
Book value per common share 10.76 10.66
</TABLE>
<TABLE>
<CAPTION>
Three Months Ended
Year Ended December 31, 1995 March 31, 1996
------------------------------ ------------------------------
Minimum Maximum Minimum Maximum
Cash Cash Cash Cash
Election Election Election Election
------------- ------------- ------------- -------------
(Dollars in Thousands, Except Per Share Data)
---------------------------------------------------------------
<S> <C> <C> <C> <C>
Income Statement Data:
Total interest income $ 35,508 $ 35,417 $ 9,450 $ 9,427
Total interest expense 15,448 15,448 4,147 4,147
------------- ------------- ------------- -------------
Net interest income 20,060 19,969 5,303 5,280
Provision for loan losses 920 920 180 180
------------- ------------- ------------- -------------
Net interest income after
provision for loan losses 19,140 19,049 5,123 5,100
Total noninterest income 4,858 4,858 1,326 1,326
Total noninterest expense 16,738 16,738 4,195 4,195
Income tax expense 2,454 2,424 799 791
------------- ------------ ------------- ------------
Income from continuing operations $ 4,806 $ 4,745 $ 1,455 $ 1,440
============= ============= ============= =============
Income from continuing operations per share $ 1.23 $ 1.25 $ .37 $ .38
============= ============= ============= =============
</TABLE>
Selected Pro Forma Combined Data for ABC/Central and the Company
The following unaudited pro forma combined data as of March 31, 1996 and
for the year ended December 31, 1995 and the three months ended March 31, 1996,
give effect to the acquisition of Central by ABC, assuming such acquisition is
accounted for as a pooling of interests, and the acquisition of the Company by
ABC/Central, assuming such acquisition is accounted for as a purchase
transaction, as if all such transactions had been consummated on March 31, 1996,
in the case of the data included under "Balance Sheet Data," and at the
beginning of the period, in the case of the data included under "Income
Statement Data."
<TABLE>
<CAPTION>
As of March 31, 1996
------------------------------
Minimum Maximum
Cash Cash
Election Election
------------- -------------
(Dollars in Thousands,
Except Per Share Data)
------------------------------
<S> <C> <C>
Balance Sheet Data:
Total assets $ 494,277 $ 492,622
Cash 21,664 21,664
Federal funds sold 17,397 15,742
Securities 92,958 92,958
Loans, net 328,745 328,745
Total deposits 425,874 425,874
Borrowings 12,108 12,108
Stockholders' equity 46,559 44,904
Book value per common share 10.31 10.21
</TABLE>
<TABLE>
<CAPTION>
Three Months Ended
Year Ended December 31, 1995 March 31, 1996
------------------------------ ------------------------------
Minimum Maximum Minimum Maximum
Cash Cash Cash Cash
Election Election Election Election
------------- ------------- ------------- -------------
(Dollars in Thousands, Except Per Share Data)
----------------------------------------------------------------
<S> <C> <C> <C> <C>
Income Statement Data:
Total interest income $ 39,649 $ 39,558 $ 10,563 $ 10,540
Total interest expense 17,408 17,408 4,687 4,687
------------- ------------- ------------- -------------
Net interest income 22,241 22,150 5,876 5,853
Provision for loan losses 1,060 1,060 180 180
------------- ------------- ------------- -------------
Net interest income after
provision for loan losses 21,181 21,090 5,696 5,673
Total noninterest income 5,455 5,455 1,506 1,506
Total noninterest expense 18,612 18,612 4,671 4,671
Income tax expense 2,719 2,689 904 896
------------- ------------ ------------- ------------
Income from continuing operations $ 5,305 $ 5,244 $ 1,627 $ 1,612
============= ============= ============= =============
Income from continuing operations per share $ 1.18 $ 1.20 $ .36 $ .37
============= ============= ============= =============
</TABLE>
16
<PAGE>
Selected Pro Forma Combined Data for ABC/First National and the Company
The following unaudited pro forma combined data as of March 31, 1996 and
for the year ended December 31, 1995 and for the three months ended March 31,
1996, give effect to the acquisition of First National by ABC, assuming such
acquisition is accounted for as a pooling of interests, and the acquisition of
the Company by ABC/First National, assuming such acquisition is accounted for as
a purchase transaction, as if all such transactions had been consummated on
March 31, 1996, in the case of the data included under "Balance Sheet Data," and
at the beginning of the period, in the case of the data included under "Income
Statement Data."
<TABLE>
<CAPTION>
As of March 31, 1996
------------------------------
Minimum Maximum
Cash Cash
Election Election
------------- -------------
(Dollars in Thousands,
Except Per Share Data)
------------------------------
<S> <C> <C>
Balance Sheet Data:
Total assets $ 498,037 $ 496,382
Cash 21,640 21,640
Federal funds sold 20,497 18,842
Securities 93,428 93,428
Loans, net 328,772 328,772
Total deposits 429,013 429,013
Borrowings 12,108 12,108
Stockholders' equity 47,852 46,197
Book value per common share 10.14 10.05
</TABLE>
<TABLE>
<CAPTION>
Three Months Ended
Year Ended December 31, 1995 March 31, 1996
------------------------------ ------------------------------
Minimum Maximum Minimum Maximum
Cash Cash Cash Cash
Election Election Election Election
------------- ------------- ------------- -------------
(Dollars in Thousands, Except Per Share Data)
----------------------------------------------------------------
<S> <C> <C> <C> <C>
Income Statement Data:
Total interest income $ 39,553 $ 39,462 $ 10,521 $ 10,498
Total interest expense 17,341 17,341 4,685 4,685
------------- ------------- ------------- -------------
Net interest income 22,212 22,121 5,836 5,813
Provision for loan losses 1,105 1,105 230 230
------------- ------------- ------------- -------------
Net interest income after
provision for loan losses 21,107 21,016 5,606 5,583
Total noninterest income 5,382 5,382 1,449 1,449
Total noninterest expense 18,311 18,311 4,592 4,592
Income tax expense 2,760 2,730 875 867
------------- ------------- ------------- -------------
Income from continuing operations $ 5,418 $ 5,357 $ 1,588 $ 1,573
============= ============= ============= =============
Income from continuing operations per share $ 1.15 $ 1.17 $ .34 $ .34
============= ============= ============= =============
</TABLE>
Selected Pro Forma Combined Data for ABC/Central/First National and the Company
The following unaudited pro forma combined data as of March 31, 1996 and
for the year ended December 31, 1995 and for the three months ended March 31,
1996, give effect to the acquisitions of Central and First National by ABC,
assuming such acquisitions are accounted for as pooling of interests, and the
acquisition of the Company by ABC/Central/First National, assuming such
acquisition is accounted for as a purchase transaction, as if all such
transactions had been consummated on March 31, 1996, in the case of the data
included under "Balance Sheet Data," and at the beginning of the period, in the
case of the data included under "Income Statement Data."
<TABLE>
<CAPTION>
As of March 31, 1996
------------------------------
Minimum Maximum
Cash Cash
Election Election
------------- -------------
(Dollars in Thousands,
Except Per Share Data)
------------------------------
<S> <C> <C>
Balance Sheet Data:
Total assets $ 548,141 $ 546,486
Cash 23,782 23,782
Federal funds sold 20,497 18,842
Securities 104,290 104,290
Loans, net 363,760 363,760
Total deposits 473,737 473,737
Borrowings 12,108 12,108
Stockholders' equity 52,152 50,497
Book value per common share 9.83 9.73
</TABLE>
<TABLE>
<CAPTION>
Three Months Ended
Year Ended December 31, 1995 March 31, 1996
------------------------------ ------------------------------
Minimum Maximum Minimum Maximum
Cash Cash Cash Cash
Election Election Election Election
------------- ------------- ------------- -------------
(Dollars in Thousands, Except Per Share Data)
-----------------------------------------------------------------
<S> <C> <C> <C> <C>
Income Statement Data:
Total interest income $ 43,694 $ 43,603 $ 11,634 $ 11,611
Total interest expense 19,301 19,301 5,225 5,225
------------- ------------- ------------- -------------
Net interest income 24,393 24,302 6,409 6,386
Provision for loan losses 1,245 1,245 230 230
------------- ------------- ------------- -------------
Net interest income after
provision for loan losses 23,148 23,057 6,179 6,156
Total noninterest income 5,979 5,979 1,629 1,629
Total noninterest expense 20,185 20,185 5,068 5,068
Income tax expense 3,025 2,995 980 972
------------- ------------- ------------- -------------
Income from continuing operations $ 5,917 $ 5,856 $ 1,760 $ 1,745
============= ============= ============= =============
Income from continuing operations per share $ 1.12 $ 1.13 $ .33 $ .34
============= ============= ============= =============
</TABLE>
17
<PAGE>
MARKET VALUE OF SECURITIES AND DIVIDENDS
ABC
ABC Common Stock is included in the Nasdaq National Market
under the symbol "ABCB". On December 18, 1995, the last day preceding the
public announcement of the Merger, the closing sale price for ABC Common Stock
was $14.50 per share. On May __, 1996, the closing sale price for ABC Common
Stock was $_____ per share.
The following table sets forth the quarterly range of high and low
closing sale prices per share of ABC Common Stock from January 1, 1994 through
May __, 1996, as reported on the Nasdaq National Market, together with the
amounts of cash dividends per share declared by ABC during each such
quarter.
<TABLE>
<CAPTION>
Prices of Common Stock
----------------------
High Low Cash Dividends
---------- ---------- --------------
<S> <C> <C> <C>
1996
--------------------
First Quarter....... $15.00 $14.00 $.10
Second Quarter
(through May __,
1996).............. $ -- $ -- N/A
1995
--------------------
First Quarter....... $10.125 $9.00 $.075
Second Quarter...... $11.625 $9.50 $.075
Third Quarter....... $14.50 $11.375 $.10
Fourth Quarter...... $14.75 $13.50 $.10
1994
--------------------
First Quarter(1).... N/A N/A $.0714
Second Quarter...... $13.75 $12.25 $.0714
Third Quarter....... $14.00 $12.75 $.0714
Fourth Quarter...... $13.75 $12.00 $.0714
</TABLE>
--------------------
(1) Prior to May 1994, quotations for the ABC Common Stock were not
reported on any market, and there was no established public
trading market for the ABC Common Stock. The ABC Common Stock was
included in the Nasdaq National Market beginning on May
26, 1994.
For a discussion of ABC's policies concerning the declaration of dividends and
regulatory restrictions on such declaration, see "DESCRIPTION OF ABC COMMON
STOCK -- General."
ABC Common Stock was held by approximately 800 shareholders of record as of
December 31, 1995.
The Company
Company Shares are not publicly traded. There are, however, occasional
transactions in Company Shares as a result of private negotiations. Thus, the
Company is aware of the price paid in some sales of the Company Shares but is
not aware of the price paid in all transfers of Company Shares. The last
transaction in Company Shares known to the Company occurred in June 1995 at a
price per Company Share unknown to the Company.
18
<PAGE>
The Company has not paid any dividends since March 1, 1990. For more
information concerning the restrictions placed on the declaration of dividends
by the Merger Agreement, see "PROPOSED MERGER -- Business Pending the Merger,"
below.
SPECIAL MEETING INFORMATION
Purpose of Special Meeting
The purpose of the Special Meeting is to enable the Company shareholders to
consider and vote upon the Merger Proposal. The Company's Board of Directors is
not presently aware of any other matters which may come before the Special
Meeting.
Date, Time and Place
The Board of Directors is soliciting proxies ("Proxies") from holders of
Company Shares for use at the Special Meeting to be held June 21, 1996, at
9:00 a.m., at the main office lobby of Southland Bank, 3299 Ross Clark Circle,
NW, Dothan, Alabama.
Record Date
Only shareholders of record as of the close of business on May 17,
1996 (the "Record Date") will be entitled to notice of and to vote and give
Proxies for purposes of voting at the Special Meeting. At the close of business
on the Record Date, there were 488,082 Company Shares issued and outstanding and
27,092 Company Shares subject to options granted under the Company's Stock
Option Plan. Each Company Share has one vote on the Merger Proposal.
Vote Required
The affirmative vote of the holders of two-thirds of the Company Shares
outstanding on the Record Date are required to approve and adopt the Merger
Proposal. Abstentions will therefore have the effect of votes against the Merger
Agreement. The directors and executive officers of the Company owned
beneficially, directly and indirectly, 340,029 Company Shares constituting
approximately 67.65% of such shares outstanding on the Record Date. Certain
directors of the Company, who owned beneficially, directly and indirectly,
Company Shares constituting approximately 58% of such shares outstanding on the
Record Date, have executed and delivered to ABC irrevocable proxies directing
ABC to vote such shares in favor of the Merger. Accordingly, the affirmative
vote, in person or by proxy, of holders of not less than approximately
37,837 additional Company Shares is needed to approve the Merger Proposal.
No vote of the shareholders of ABC is required in connection with the
Merger. No directors or executive officers of ABC own any Company Shares.
19
<PAGE>
Proxies
The accompanying Proxy is solicited by the Board of Directors of the
Company. The Board of Directors requests that Company shareholders mark, sign
and date the accompanying Proxy and promptly return it to the Company in the
enclosed envelope. If a Proxy is properly executed and returned prior to the
Special Meeting, it will be voted as indicated thereon or, if no voting
instructions are indicated thereon, such Proxy will be voted in favor of the
Merger Proposal. Although the Board of Directors knows of no additional matters
to be presented at the Special Meeting as of the date of this Proxy Statement,
the persons named in such Proxy, or their substitutes, will have authority in
their discretion to vote on any such matters as may come before the Special
Meeting. Proxies marked "No" will not be voted in favor of any postponements
for the purpose of soliciting more votes.
Any shareholder giving a Proxy has the right to revoke it at any time
before it is exercised. Therefore, execution of the Proxy will not affect the
shareholder's right to vote in person if he or she attends the Special Meeting.
Revocation may be made before the Special Meeting by written notice sent to Pam
H. Adams, Secretary, Southland Bancorporation, 3299 Ross Clark Circle, NW,
Dothan, Alabama 36303, by executing a subsequently dated proxy, or by attending
the Special Meeting and voting in person.
The Company will bear the cost of soliciting Proxies. Solicitation will be
made by mail, as well as by telephone or in person by certain directors,
officers and employees of the Company (who will receive no additional
compensation for doing so). The Company does not intend to pay compensation for
soliciting Proxies nor use any specially engaged employees of the Company or
other paid solicitors.
PROPOSED MERGER
The following description of the material aspects of the Merger does not
purport to be complete and is qualified in its entirety by reference to the
Merger Agreement which is set forth in Appendix A attached to and incorporated
in this Proxy Statement. All shareholders are urged to read the Merger Agreement
in its entirety.
Background of the Merger
In May, 1995, the Board of Directors of the Company first considered the
possibility of selling the Company or Southland Bank in order to provide the
Company's shareholders with greater liquidity and a greater return on their
investment.
In May, 1995, the Board of Directors of the Company retained T. Steven
Johnson ("TSJ"), a business broker, to initiate conversations with other
financial institutions to determine their interest in engaging in preliminary
discussions with regard to a possible transaction with the Company or Southland
Bank. The Company's agreement with TSJ provides that the Company will pay TSJ a
finder's fee of 1% of the total purchase price if, at any time within a one-year
period following TSJ's introduction of the Company to a potential merger
partner, the Company enters into an agreement to merge with that potential
merger partner.
On July 24, 1995, the Board of Directors of the Company entered into
preliminary discussions with Colonial Bancshares, Inc. ("Colonial") regarding
the possible purchase of Southland Bank by Colonial. During this same time,
other financial institutions, including ABC, discussed with the Company the
possibility of a business combination or other type of transaction.
20
<PAGE>
On August 2, 1995, the Company entered into a non-binding letter of intent
with Colonial pursuant to which Colonial agreed in principle to acquire
Southland Bank, subject to the satisfaction of certain conditions. On September
19, 1995, Colonial advised the Company that it did not intend to proceed with
the proposed transaction. On September 22, 1995, the Board of Directors of the
Company agreed to discontinue the negotiations with Colonial, and on September
29, 1995, the Company and Colonial issued a press release disclosing that they
had jointly decided to discontinue their negotiations.
In October, 1995, ABC entered into preliminary negotiations with the
Company with respect to a proposed business combination, and on October 31,
1995, the Company and ABC entered into a letter of intent which provided for the
merger described herein.
On November 9, 1995 representatives of ABC met in Dothan, Alabama with
representatives of the Company to discuss the terms of the Merger.
On November 21, 1995, the Board of Directors of ABC approved the Merger
Agreement, and on December 1, 1995, ABC advised the Company that ABC intended to
pursue the Merger. The Board of Directors of the Company approved the Merger
Agreement on December 8, 1995.
On December 8, 1995, ABC and the Company issued a press release announcing
the execution of the Merger Agreement.
Reasons for the Merger
In considering whether to approve the Merger with ABC, the Board of
Directors of the Company evaluated the Company's future role in the changing
banking environment in light of its managerial resources, financial condition
and recent results of operations. The Board considered such things as potential
increased competition from bank and non-bank sources; prospects for future
growth through mergers, acquisitions and branching, and the ability of the
Company to develop new commercial products on a cost-effective basis. The Board
also considered (i) information concerning the relative financial condition,
results of operations, dividend records and growth potential of the Company and
ABC; (ii) the value of the consideration offered to the Company's shareholders
relative to the market value and book value of the Company Shares and the
Company's earnings; (iii) the relative strengths and compatibility of the
management of the two organizations; (iv) the market price data and relative
liquidity of ABC Common Stock and the lack of an active market for the Company's
stock; (v) the financial terms of other recent business combinations in the
banking industry, particularly in Alabama and Georgia; (vi) offers obtained from
other financial institutions; (vii) the dividend payment history of the Company
compared to that of ABC; and (viii) the tax consequences of the Merger.
After reviewing these factors, the Board of Directors of the Company
concluded that the Company's employees and customers will benefit from the
opportunities offered by affiliation with a larger financial institution
strategically located in an expanded market in south Georgia and eastern Alabama
and from a financial base which will permit more rapid development of new
products and services. Customers of the Company will benefit from the
convenience of improved product availability. Shareholders of the Company who
receive ABC Common Stock may benefit from ownership of a larger financial
institution and from ownership of common stock which is traded on the Nasdaq
National Market System. The Merger will also provide the Company with access to
the expertise of a larger institution, improving its service capabilities.
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The Board of Directors of the Company believes that the Merger will better
enable the Company to meet the needs of the community which it serves and will
permit more aggressive competition with other financial institutions located in
and around southeastern Alabama. For these reasons, the Board of Directors of
the Company believes that the proposed Merger is in the Company's best interest
and the best interests of its shareholders, customers, employees and community.
ABC's Board of Directors has also concluded that the Merger would be in the
best interests of ABC's shareholders and the employees, depositors and other
customers of ABC's subsidiaries. In particular, ABC's Board concluded that the
Merger would be consistent with ABC's acquisition strategy described above and
would extend ABC's current market base with a well-managed organization. ABC's
Board also believes that the additional banking and other resources that will be
available to the Company as a result of the Merger will enhance the Company's
service to its customers.
Absence of Fairness Opinion
The Company has not sought or received an opinion from an independent third
party regarding the fairness of the Merger to any of the Company shareholders,
nor was any special committee formed to negotiate or make recommendations on
behalf of the Company shareholders. However the terms of the Merger have been
reviewed and unanimously approved by the Company's Board of Directors. In that
regard, the Company's Board of Directors determined that the Merger is fair to,
and in the best interest of, the Company shareholders, the Company's customers
and employees and the communities in which the Company operates based upon the
Board's evaluation of the value of the Company, the Company's business prospects
and other business and financial considerations.
Recommendation of Company's Board of Directors
THE BOARD OF DIRECTORS OF THE COMPANY HAS CAREFULLY CONSIDERED THE MERGER
PROPOSAL, HAS UNANIMOUSLY APPROVED THE MERGER, AND UNANIMOUSLY RECOMMENDS A VOTE
IN FAVOR OF THE MERGER AGREEMENT AND MERGER PROPOSAL.
Description of Merger
Upon consummation of the transactions contemplated under the Merger
Agreement, the Company will be merged with and into ABC. ABC will be the
surviving corporation after the Merger, and the articles of incorporation and
the bylaws of ABC will remain in effect as they were immediately prior to the
Merger. After the Merger, Southland Bank will be a wholly-owned subsidiary of
ABC, under the operation of its current management, and the separate corporate
identity of the Company will cease to exist. Upon consummation of the Merger,
ABC intends to add one representative to the Board of Directors of Southland
Bank, subject to the prior approval of the Federal Deposit Insurance Corporation
"FDIC"). See "Operations of Southland Bank After the Merger."
Consideration for Shares
At the effective time of the Merger, each Company Share outstanding
immediately prior to the consummation of the Merger, other than shares held by
shareholders who dissent to the Merger, will be converted into the right to
receive cash and that number of shares of ABC Common Stock equal to (i) 1.8
times the Book Value of the Company (as defined in the Merger Agreement) as of
the close of
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business immediately prior to the consummation of the Merger, divided by (ii)
the aggregate number of outstanding Company Shares (the "Merger Consideration").
For purposes of the Merger, the "Book Value of the Company" means the book value
of the Company determined in accordance with general accepted accounting
principles consistently applied ("GAAP"). The Merger Consideration was
determined by arm's length negotiations between the parties, taking into account
the per-share earnings, book value, and market value of Company Shares, as well
as the premiums paid for other financial institutions in recent acquisitions in
Alabama and Georgia.
Subject to certain limitations discussed below, each Company shareholder
who does not dissent may elect to receive (i) cash for all of his or her Company
Shares; (ii) shares of ABC Common Stock for his or her Company Shares; or (iii)
a combination of cash and ABC Common Stock in the relative proportions specified
by such shareholder for his or her Company Shares. The total number of Company
Shares to be converted into the right to receive cash, including cash in lieu of
fractional shares, may not be less than 35% of the total number of outstanding
Company Shares (the "Minimum Cash Election Number") and, together with any
Company Shares as to which dissenters' rights have been perfected, may not be
greater than 49% of the outstanding Company Shares (the "Maximum Cash Election
Number"). The total number of Company Shares to be converted into the right to
receive ABC Common Stock may not be less than 51% of the number of outstanding
Company Shares (the "Minimum Stock Election Number") and may not be greater than
65% of the number of outstanding Company Shares (the "Maximum Stock Election
Number").
The number of shares of ABC Common Stock into which a Company Share may be
converted will be determined by dividing the Merger Consideration by the value
of a share of the ABC Common Stock determined in accordance with the Merger
Agreement (the "Base Period Trading Price"). Thus, a Company Shareholder would
receive, for his or her Company Shares exchangeable for ABC Common Stock, a
number of shares of ABC Common Stock equal to the Merger Consideration times the
number of Company Shares to be exchanged for ABC Common Stock, divided by the
Base Period Trading Price, with cash being paid in lieu of fractional shares of
ABC Common Stock.
For this purpose, the "Base Period Trading Price" means (i)(A) $13.88 plus
(B) the average of the daily closing sales price of a share of ABC Common Stock
as reported on the Nasdaq National Market System for the 20 consecutive trading
days immediately preceding the five (5) consecutive calendar days immediately
preceding the effective time of Merger (the "Pre-Closing Base Period Trading
Price"), divided by (ii) two, provided that for purposes of this calculation,
the Pre-Closing Base Period Trading Price is to equal (i) $18.00 in the event
the Pre-Closing Base Period Trading Price is greater than $18.00 or (ii) $10.00
in the event that the Pre-Closing Base Period Trading Price is less than $10.00.
The following sections contain detailed discussions of the election and
allocation procedures.
Election Procedure
General. The Merger Agreement allows Company shareholders to elect to
receive cash for all or some of their Company Shares in an amount equal to the
Merger Consideration times the number of Company Shares as to which the cash
election is being made, subject to the limitation on total cash to be paid by
ABC in the Merger described herein. An election form for use in making a cash
election is enclosed herewith (the "Election Form"). Shareholders who do not
submit a valid Election Form will have their shares converted as described under
"Allocation Procedure," below.
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Election Forms. An election to receive the Merger Consideration in cash,
stock or a combination of cash and stock must be made by completing an Election
Form in accordance with the instructions set forth therein and returning it to
SunTrust Banks, Inc., in its capacity as the Exchange Agent. Each Election Form
must be received by the Exchange Agent on or before the close of business on the
date which is five (5) business days prior to the Effective Date of the Merger
(the "Election Deadline").
Revocation or Modification of Election. An election will be duly made when
an Election Form, properly completed, is received by the Exchange Agent on or
prior to the Election Deadline. An Election Form is irrevocable and, once
delivered to the Exchange Agent, may not be modified without the consent of ABC.
The Exchange Agent may, in its sole discretion, permit holders of the Company
Shares to submit Election Forms to it after the Election Deadline. The Exchange
Agent will determine the validity of elections submitted by the Company
shareholders, and the Exchange Agent's determination will be final.
Election by Constructive Owners. If a shareholder certifies in writing at
the time of filing a cash election (the "Certifying Owner") that his or her
Company Shares are deemed to be constructively owned by another shareholder of
the Company who has also filed an Election Form (the "Constructive Owner") under
the provisions of Section 318(a) of the Internal Revenue Code of 1986, as
amended (the "Code"), and the Certifying Owner supplies information to the
Company's legal counsel in support of his or her certification, and such counsel
does not disagree with that certification, the Constructive and Certifying
Owners' elections shall be treated as a single election and their shares will be
aggregated for purposes of determining priority for conversion into the Merger
Consideration. Because of the tax consequences which may result from a
shareholder receiving (either actually or constructively) a combination of cash
and ABC Common Stock, each Company shareholder should consider filing a combined
election form with any other Company shareholder whose shares may be deemed to
be constructively owned by him or her by reason of Section 318 of the Code.
See, "PROPOSED MERGER -- Federal Income Tax Consequences of the Merger."
Election by Nominee. A holder of Company Shares that is a bank, trust
company, security broker-dealer or other recognized nominee, may submit one or
more Election Forms for the persons for whom it holds Company Shares as nominee
provided that such bank, trust company, security broker-dealer or nominee,
certifies to the satisfaction of the Company and ABC the names of the persons
for whom it is so holding shares (the "Beneficial Owners"). In such case, each
Beneficial Owner for whom an Election Form is submitted shall be treated as a
separate owner for purposes of the election procedure and allocation of ABC
Common Stock.
Allocation Procedure
Failure to Timely Submit Election Form or Defective Election Forms. If a
Company shareholder fails to submit an Election Form by the Election Deadline or
if the Exchange Agent determines, it its sole discretion, that an Election Form
so submitted is defective, then the Company shareholder shall be deemed to have
made a combination election to receive 51% of the applicable amount of the
Merger Consideration in the form of ABC Common Stock and 49% of the applicable
Merger Consideration in the form of cash for his or her Company Shares.
Oversubscription for Cash and Undersubscription for Stock. If the number
of Company Shares to be converted into cash exceeds the Maximum Cash Election
Number, then all Company Shareholders
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who have made an election to receive cash (other than any Company Shareholder
who has made an election to receive no more than 49% and no less than 35% of the
applicable Merger Consideration in the form of cash for his or her Company
Shares) shall, on a prorata basis, have their elections redesignated so that the
Maximum Cash Election Number and Minimum Stock Election Number are achieved.
Undersubscription for Cash and Oversubscription for Stock. If the number
of Company Shares to be converted into shares of ABC Common Stock exceeds the
Maximum Stock Election Number, then all Company Shareholders who have elected to
receive shares of ABC Common Stock (other than any Company Shareholder who has
made an election to receive no more than 65% and no less than 51% of the
applicable Merger Consideration in the form of ABC Common Stock for his or her
Company Shares) shall, on a prorata basis, have their elections redesignated so
that the Maximum Stock Election Number and the Minimum Cash Election Number are
achieved.
Payment of Cash in Lieu of Fractional Shares
No fractional shares of ABC Common Stock will be issued in the Merger.
Each Company shareholder who would otherwise have been entitled to receive a
fraction of a share of ABC Common Stock will receive, in lieu thereof, cash in
an amount equal to the Base Period Trading Price multiplied by the fraction of
share of ABC Common Stock to which such Company shareholder would otherwise be
entitled. For the definition of Base Period Trading Price, see "Consideration
for Shares" above.
Surrender of Certificates
A Letter of Transmittal for use in surrendering certificates representing
Company Shares ("Old Certificates") in exchange for ABC Common Stock will be
mailed to Company shareholders within five business days following the date of
the Special Meeting on June 21, 1996, if the Merger is approved at the
Special Meeting. Shareholders will be instructed to send their Old Certificates
to the Exchange Agent named in the Letter of Transmittal in accordance with the
instructions contained therein. If the Merger is not consummated, the Exchange
Agent will return any Old Certificates it has received to the persons
surrendering such Old Certificates in accordance with the Letter of Transmittal.
If any certificates for shares of ABC Common Stock are to be issued in a
name other than that for which an Old Certificate surrendered or exchanged is
issued, the Old Certificate so surrendered must be properly endorsed and
otherwise in proper form for transfer, and the person requesting the exchange
must affix any requisite stock transfer tax stamps to the Old Certificate
surrendered, provide funds for their purchase, or establish to the satisfaction
of the Exchange Agent that such taxes are not payable.
Unless and until Old Certificates (or evidence that the Old Certificates
have been lost, stolen or destroyed, accompanied by such security or indemnity
as shall be requested by the Company) are presented to the Exchange Agent, the
holder thereof shall not be entitled to any consideration to be paid in the
Merger or to any dividends payable on ABC Common Stock. To the extent permitted
by law, former Company shareholders will be entitled to vote after the Effective
Date at any meeting of ABC shareholders the number of shares of ABC Common Stock
into which their respective Company Shares are converted, regardless of whether
they have exchanged certificates representing their Company Shares for
certificates representing ABC Common Stock. On or after the Effective Date,
upon surrender of his or her Old Certificates (or evidence that the Old
Certificates have been lost, stolen or destroyed, accompanied by such security
or indemnity as is requested by the Company) to the Exchange Agent, the
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holder thereof will be paid the consideration to which the holder is entitled
under the Merger Agreement, including any dividends which theretofore became
payable on any shares of ABC Common Stock to which the holder is entitled. In
no event will any holder of Company Shares exchanged in the Merger be entitled
to receive any interest on any amounts held by the Exchange Agent or ABC.
After the consummation of the Merger, there will be no transfers on the
stock transfer books of the Company or ABC of any Company Shares. If, after the
consummation of the Merger, Old Certificates are properly presented to ABC, they
will be cancelled and exchanged for the consideration specified in the Merger
Agreement, subject to applicable law and to the extent that ABC has not paid any
amounts to a public official pursuant to applicable abandoned property laws.
SHAREHOLDERS SHOULD NOT SEND IN THEIR STOCK CERTIFICATES AT THIS TIME, BUT
SHOULD WAIT FOR RECEIPT OF THE LETTER OF TRANSMITTAL.
Effective Date of Merger
As used in this Proxy Statement, "Effective Date" means the date on which
ABC files the appropriate articles of merger in the office of the Georgia
Secretary of State, or such other date as specified in such articles of merger.
The Effective Date cannot occur before completion of all conditions under the
Merger Agreement, or authorized waiver thereof. See "Other Provisions of the
Merger Agreement." The Merger Agreement provides that the parties shall use
their reasonable efforts to cause the Effective Date to occur on (a) the last
business day of the month in which occurs the last to occur of (i) the effective
date of any required consent (including regulatory consents) and (ii) the date
on which the Company's shareholders approve the Merger Agreement; or (b) such
later time as the parties may mutually agree. It is currently anticipated that
the Effective Date will occur on, or as soon as practicable after, June 24,
1996. If the Merger has not occurred by August 1, 1996, unless such date is
otherwise extended by agreement of the parties, either the Company or ABC has
the right to terminate the Merger Proposal in its entirety without penalty.
Interests of Management in the Merger
John E. Meyer, Jr., the Chief Executive Officer and President of the
Company and Southland Bank, has agreed to enter into a two year employment
agreement with Southland Bank upon consummation of the Merger. In addition,
Winn F. Martin, the Company's Chairman of the Board and the holder of 234,848
Company Shares, representing approximately 48% of the outstanding Company
Shares, has entered into a registration rights and election agreement with ABC
pursuant to which Mr. Martin has agreed to elect to receive cash for all of his
Company Shares and ABC has agreed to permit Mr. Martin to require ABC to
register for resale under the 1933 Act the shares of ABC Common Stock that Mr.
Martin may receive as a result of the redesignation procedures described
elsewhere herein. Absent such registration, Mr. Martin would be required to
sell any shares of ABC Common Stock that he holds only in accordance with Rule
145 under the 1933 Act. See "Resale of ABC Common Stock." Mr. Martin's
election is, however, subject to the redesignation procedures described above to
the same extent as all Company shareholders.
Following the Merger, ABC intends to provide generally to officers and
employees of Southland Bank fringe benefits (including health and welfare plans,
vacation benefits and severance benefits) on terms and conditions no less
favorable than those provided to officers and employees of ABC's other bank
subsidiaries from time to time. ABC will also cause each officer and employee
of Southland Bank to be eligible to participate in ABC's SEP/IRA Retirement Plan
(the "SEP Plan") according to the terms of the
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SEP Plan. For purposes of the eligibility and vesting provisions under ABC's
pension plan, officers and employees of Southland Bank shall receive credit for
years of service at Southland Bank. Under the SEP Plan, officers and employees
who have been employed by Southland Bank during three of the five calendar years
preceding the Effective Date are eligible to participate in the SEP Plan.
Rights of Dissenting Shareholders
Any Company shareholder who does not vote in favor of the Merger may elect
to receive payment of the value of his or her shares (excluding values relating
to the Merger unless such exclusion is inequitable) in cash in accordance with
Article 13 of the Alabama Business Corporation Act ("Article 13"). Any holder
of Company Shares contemplating the exercise of his or her right of dissent is
urged to review carefully the provisions of Article 13 attached as Appendix B to
this Proxy Statement. Set forth below, to be read in conjunction with the full
text of Article 13, is a summary of the principal steps to be taken if the right
of dissent is to be exercised. EACH STEP MUST BE TAKEN IN STRICT COMPLIANCE
WITH THE APPLICABLE PROVISIONS OF ARTICLE 13 IN ORDER FOR HOLDERS OF COMPANY
SHARES TO PERFECT DISSENTERS' RIGHTS.
Written Notice to Company. Written notice of a shareholder's intent to
demand payment for his or her Company Shares in the event the shareholders of
the Company approve the Merger Proposal must be received by the Company before
the shareholders of the Company vote on the Merger Proposal at the Special
Meeting on June 21, 1996. Such written notice should state the number of
Company Shares which are dissenting from the Merger and should be sent to the
attention of Pam H. Adams, Secretary, Southland Bancorporation, 3299 Ross Clark
Circle, NW, Dothan, Alabama 36303. Because statutory dissenters' rights are not
available unless this notice requirement is fulfilled, it is recommended that
any notice to be delivered by mail be sent by registered or certified mail with
return receipt requested.
Differing Record and Beneficial Owners. A record shareholder may assert
dissenters' rights as to fewer than all the Company Shares registered in that
shareholder's name only if the shareholder dissents (in accordance with the
provisions of Article 13) with respect to all the Company Shares beneficially
owned by any one person and notifies the Company in writing of the name and
address of each person on whose behalf the shareholder is asserting dissenters'
rights.
A beneficial shareholder may assert dissenters' rights as to the Company
Shares held on the shareholder's behalf only if (i) the beneficial shareholder
submits to the Company the record shareholder's written consent to the dissent
no later than the time the beneficial shareholder asserts dissenters' rights and
(ii) the beneficial shareholder asserts dissenters' rights (in accordance with
the provisions of Article 13) with respect to all the beneficial shareholder's
Company Shares or those Company Shares over which the beneficial shareholder has
power to direct the vote.
Voting. Company Shares for which notice has been received that dissenters'
rights are being sought ("Dissenting Shares") must not be voted in favor of the
Merger Proposal, but such shares need not be voted against the Merger Proposal.
Notice to Dissenters. If the Merger Proposal is approved by the Company
shareholders at the Special Meeting, the Company or ABC will send notice, along
with a copy of Article 13, to dissenting shareholders no later than 10 days
after such approval. Such notice will (i) supply a form for demanding payment
for Dissenting Shares; (ii) state where the payment demand and Old Certificates
must be sent;
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(iii) set a date by which ABC must receive the payment demand and Old
Certificates, which date shall not be less than thirty (30) nor more than sixty
(60) days after the date of such notice; and (iv) inform dissenting shareholders
concerning the extent to which transfers of Dissenting Shares will be restricted
after the payment demand is received.
Payment Demand. The dissenting shareholder must (i) demand payment, (ii)
certify whether beneficial ownership of the Dissenting Shares was acquired prior
to the date set forth in the dissenter's notice, and (iii) deposit his or her
Old Certificates with the Company within 20 days after making the payment
demand, all in accordance with the notice from the Company or ABC in order for
the holder's statutory dissenters' rights to be available. A shareholder who
does not follow this procedure will not be entitled to payment for his or her
shares under Article 13 and will be entitled only to receive the consideration
payable in the Merger.
Payment by ABC. Upon the consummation of the Merger or upon receipt of a
payment demand, ABC will offer to pay the dissenting shareholders who have met
all statutory conditions ABC's estimate of the fair value of the Dissenting
Shares plus any accrued interest. The offer will be accompanied by (i) the
Company's balance sheet for the fiscal year ending December 31, 1995, an income
statement for the same period and the latest available interim financial
statements, if any; (ii) a statement of ABC's estimate of the fair market value
of the shares; (ii) an explanation of how any interest on such shares was
calculated; (iv) a statement concerning the right of any dissenting shareholder
to demand payment under the alternative valuation methods available pursuant to
Article 13; and (v) a copy of Article 13.
Alternative Payment Demand. If any dissenting shareholder believes that
ABC's estimate of fair market value is less than the fair value of his or her
shares or the estimate was incorrectly calculated, if ABC fails to make the
offer within 60 days after the date set for demanding payment or if ABC does not
release the transfer restrictions imposed on the shares within 60 days after the
date set for demanding payment, each such dissenting shareholder may notify ABC
of such shareholder's own estimate of the value of the Dissenting Shares (if it
differs from ABC's estimate) and (i) demand payment of the shareholder's
estimate of the fair value of the Dissenting Shares (less any payment received
from ABC) or (ii) reject ABC's offer and demand payment of the shareholder's
estimate of the fair value of the Dissenting Shares, as appropriate. A
dissenting shareholder, however, loses these rights if no demand is made within
thirty (30) days of ABC's offer of payment.
Petition for Determination of Value. If a demand for payment by the
dissenting shareholder remains unsettled 60 days after the receipt of such
demand, ABC will commence a proceeding in the circuit or superior court of the
county of the Company's principal office, to appraise the value of the
Dissenting Shares. All dissenting shareholders at such time will be made
parties to those proceedings. A dissenting shareholder will be entitled to
judgment for an amount, if any, by which the court finds the fair value of his
or her shares, plus interest, exceeds any amount paid by ABC.
The court in an appraisal proceeding will determine and assess costs
against all parties in such amounts as the court finds equitable. The court may
assess fees and expenses of counsel and experts against ABC or against a
dissenting shareholder if the court finds that such dissenting shareholder acted
arbitrarily, vexatiously, or not in good faith. In addition, if the court finds
that the services of counsel for any dissenting shareholder were of substantial
benefit to other dissenting shareholders similarly situated and that the fees
for those services should not be assessed against ABC, the court may award to
those counsel reasonable fees to be paid out of the amounts awarded the
dissenting shareholders who were benefited.
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Effect on Dividends and Voting Rights. A dissenting shareholder will
retain his or her rights, if any, to vote and receive dividends, until the
Merger is consummated. Upon the consummation of the Merger, any shareholder who
has given proper notice and made a valid demand will cease to be a shareholder
and will have no rights with respect to the Dissenting Shares except the right
to receive payment of the fair value of his or her shares.
No Right to Challenge Merger. Article 13 provides that a shareholder who
is entitled to dissent to a particular corporate transaction such as the Merger
is not entitled to otherwise challenge that transaction.
Federal Income Tax Consequences of the Merger
Tax Opinion. The following discussion of the Federal income tax
consequences of the merger is based upon an opinion received from Rogers &
Hardin, counsel for ABC. Such opinion is not binding upon the Internal Revenue
Service (the "Service"), and no advance ruling has been sought or obtained from
the Service. Insofar as the opinion of Rogers & Hardin is directed to the tax
treatment of Company shareholders, it does not purport to apply to all Company
shareholders. Certain Company shareholders may be in special circumstances
which are not addressed in such opinion. The opinion also considers only
Federal income taxes and does not take into account the application of other
Federal taxes or state or local taxes. FOR THESE REASONS, COMPANY SHAREHOLDERS
ARE URGED TO CONSULT THEIR OWN TAX ADVISORS AT THEIR OWN EXPENSE TO DETERMINE
THE TAX CONSEQUENCES OF THE MERGER IN THEIR OWN SITUATIONS.
Such opinion is based upon the Internal Revenue Code of 1986, as amended
(the "Code"), the applicable regulations promulgated or proposed thereunder,
current rulings of the Service and judicial decisions as in effect on the date
of such opinion, all of which are subject to modification or challenge at any
time and perhaps with retroactive effect.
Tax-free Reorganization. The Merger, if and when consummated in accordance
with the Merger Agreement, will constitute a tax-free reorganization for Federal
income tax purposes within the meaning of Section 368(a)(1)(A) of the Code.
Exchange of Company Shares Solely for ABC Common Stock. A Company
shareholder who receives solely shares of ABC Common Stock pursuant to the
Merger will recognize no gain or loss, except with respect to cash received in
lieu of a fractional share of ABC Common Stock, if any. See "Cash in Lieu of
Fractional Shares of ABC Common Stock" below. The aggregate basis of the shares
of ABC Common Stock actually received by such Company shareholder will be the
same as the tax basis of the Company Shares surrendered in exchange therefor, as
reduced by the ratable portion of such basis allocated to any fractional share
interest to which he or she may have been entitled. The holding period of the
ABC Common Stock received by such a shareholder will include the holding period
of the Company Shares surrendered in the exchange, provided the Company Shares
were held as a capital asset as of the Effective Date.
Exchange of Company Shares for a Combination of Cash and ABC Common Stock.
A Company shareholder who receives a combination of ABC Common Stock and cash
pursuant to the Merger will recognize any gain (although not any loss), but in
an amount not in excess of the amount of cash received. Such gain will be
recognized in the year in which the ABC Common Stock and cash are
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received (i.e., at the Effective Date). Any recognized gain will be eligible
for capital gain treatment (assuming the shareholder's Company Shares are held
as a capital asset by the shareholder) unless such receipt of cash has "the
effect of the distribution of a dividend" (within the meaning of Section 356 of
the Code taking in account the constructive ownership rules of Section 318 of
the Code) in which case such gain will be taxable as ordinary income to the
extent of the shareholder's ratable share of the Company's undistributed
earnings and profits. The principles applicable under Section 302 of the Code
and the United States Supreme Court decision in Clark v. Commissioner, 109 S.
Ct. 1455, 89-1 U.S.T.C. (S) 9230 (1989), will serve as guidelines in determining
whether the receipt of cash has the effect of the distribution of a dividend
under Section 356 of the Code. Under those principles, the distribution to a
shareholder will not be considered to have the effect of the distribution of a
dividend if it is "substantially disproportionate" with respect to the
shareholder or if it is "not essentially equivalent to a dividend" to the
shareholder. For purposes of these tests and under Clark, a Company shareholder
will be treated as if he or she received solely ABC Common Stock pursuant to the
Merger and then received cash through a redemption by ABC of a number of such
shares having a value equal to the cash amount.
Under Clark, a distribution will be "substantially disproportionate" with
respect to a Company shareholder if the shareholder's proportionate interest in
ABC Common Stock actually held by the shareholder after the Merger is less than
80% of what the shareholder's proportionate interest in the ABC Common Stock
would have been if solely ABC Common Stock had been distributed in the Merger.
In applying this test for purposes of Section 356 of the Code, the constructive
ownership rules of Section 318 of the Code (under which shareholders are treated
as holding not only their own shares but also shares held by certain related
persons and entities) are applicable. Accordingly, even if a Company
shareholder receives less than 80% of his or her respective Merger Consideration
in the form of ABC Common Stock (and thus more than 20% in cash), the
shareholder may not satisfy the "substantially disproportionate" test if persons
or entities related to him or her elect to receive a relatively higher
percentage of (or all) ABC Common Stock for their respective Company Shares
surrendered in the Merger (or if such Company shareholder or a related person or
entity already owns any shares of ABC Common Stock prior to the Merger).
Even if the Merger distribution does not satisfy the "substantially
disproportionate" test with respect to a particular Company shareholder, the
distribution still may be "not essentially equivalent to a dividend" to the
shareholder (and thus may nevertheless qualify for capital gain treatment)
depending upon the shareholder's particular facts and circumstances.
A Company shareholder who receives ABC Common Stock and cash will receive a
basis in such ABC Common Stock equal to the basis of the Company Shares
surrendered in the exchange, decreased by the amount of any cash received, and
increased by the amount of any gain recognized on the exchange. The holding
period of the ABC Common Stock received by such a shareholder will include the
holding period of the Company Shares surrendered in the exchange, provided the
Company Shares were held as a capital asset as of the Effective Date.
Exchange of Company Shares Solely for Cash. In the case of a Company
shareholder who receives only cash in exchange for all of his or her Company
Shares, including any dissenting Company shareholder, the cash will be treated
as received by the shareholder as a distribution in redemption of the
shareholder's Company Shares, subject to the provisions and limitations of
Section 302 of the Code. Where, after such distribution, a former Company
shareholder does not own shares of ABC Common Stock directly or indirectly
through the constructive ownership rules of Section 318 of the Code, the
redemption will be treated as a complete termination of interest within the
meaning of Section 302(b)(3)
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of the Code. As provided in Section 1001 of the Code, gain or loss will be
recognized by such shareholder in an amount equal to the difference between the
amount of cash received in the redemption and the adjusted basis of the Company
Shares surrendered. Provided that the Company Shares are a capital asset in the
hands of such shareholder, the gain or loss, if any, will constitute capital
gain or loss. The gain or loss will be long-term capital gain or loss if the
shareholder has held, or is deemed to have held, his or her Company Shares for
more than one year at the Effective Date.
Cash in Lieu of Fractional Shares of ABC Common Stock. The payment of cash
to Company shareholders in lieu of fractional shares of ABC Common Stock will be
treated as if such fractional shares were distributed as part of the exchange
and then redeemed by ABC, and the payment received by the Company shareholders
will be treated as having been received as a distribution in full payment in
exchange for such fractional shares of ABC Common Stock. The resulting gain or
loss will be capital gain or loss (assuming the ABC Common Stock is a capital
asset in the Company shareholder's hands), which will be long term in nature if
the Company Shares exchanged therefor have been held (or are deemed to have been
held) more than one year.
Backup Withholding. Absent an applicable exemption, the Exchange Agent
must withhold 31% of the cash consideration to which any Company shareholder is
entitled in the Merger unless the shareholder provides his or her tax
identification number and certifies, under penalties of perjury, that such
number is correct. Accordingly, if requested by the Exchange Agent, each
Company shareholder should complete an IRS Form W-9 or substitute form to
provide the information and certification necessary to avoid this "backup
withholding."
Proposed Reduction in Capital Gains Tax Rate. On November 20, 1995,
Congress passed the Revenue Reconciliation Act of 1995 (H.R. 2491). Among other
things, H.R. 2491 generally would have (i) allowed individuals a deduction equal
to 50% of net capital gain for the taxable year and (ii) repealed the current
maximum 28% rate on the net capital gain of individuals. Thus, for example, the
effective tax rate on the net capital gain of an individual in the maximum 39.6%
bracket would have been 19.8%. In addition, H.R. 2491 generally would have
provided an alternative tax of 28% on the net capital gain of a corporation if
that rate were less than the corporation's regular income tax rate. If H.R.
2491 had been enacted into law, each of these capital gains rate reduction
provisions generally would have applied to taxable years ending after December
31, 1994.
President Clinton vetoed H.R. 2491 on December 6, 1995. The President's
subsequent proposals to Congress (including his proposed budget submitted to
Congress on March 19, 1996) have not included any such capital gains rate
reductions.
It is currently impossible to predict with any degree of certainty whether
any legislation ultimately agreed upon by Congress and the President, and thus
enacted into law, will include any reduction in the capital gains rate
applicable to any taxpayer. In addition, even if such legislation does
ultimately include a reduction in the effective tax rate applicable to capital
gains, the effective date of such reduction may be such that any Company
shareholder who recognizes capital gain in the Merger will not be eligible to
apply the reduced rate to such gain.
BECAUSE CERTAIN TAX CONSEQUENCES OF THE MERGER WILL VARY DEPENDING UPON THE
PARTICULAR CIRCUMSTANCES OF EACH COMPANY SHAREHOLDER AND OTHER FACTORS, EACH
COMPANY SHAREHOLDER SHOULD CONSULT HIS OR HER OWN TAX ADVISOR AS TO THE SPECIFIC
TAX CONSEQUENCES TO HIM OR HER OF THE MERGER
31
<PAGE>
(INCLUDING THE APPLICATION AND EFFECT OF STATE AND LOCAL INCOME AND OTHER TAX
LAWS).
Regulatory Approvals
The Merger was approved by the Federal Reserve Board under the BHCA on
April 16, 1996, by the State Banking Department of the State of Alabama on
April 4, 1996, and by the Department of Banking and Finance of the State of
Georgia on March 26, 1996. The Merger may not be consummated for fifteen (15)
days after approval by the Federal Reserve Board, during which time an action
may be brought by the United States Department of Justice challenging the Merger
on antitrust grounds.
Business Pending the Merger
The Merger Agreement provides, among other limitations, that, pending
consummation of the Merger, the Company will operate in the ordinary course,
will use its best efforts to preserve its businesses and business organizations
intact, comply with all applicable laws and make no material changes in its
customary business practices.
Other Provisions of the Agreement
Representations and Warranties. The Merger Agreement contains
representations and warranties by the parties regarding, among other things,
their respective organization, authorization to enter into the Agreement,
capitalization, pending and threatened litigation, contractual obligations,
compliance with applicable laws and regulations, financial statements and
filings with regulatory agencies. These representations and warranties will not
survive consummation of the Merger.
Additional Conditions to the Merger. The obligations of the Company and ABC
to consummate the Merger are subject to the following additional conditions,
among others: approval and adoption of the Merger Agreement and the Merger by
the requisite vote of the Company shareholders as solicited by this Proxy
Statement; absence of any order, judgment or decree of any court or any
government agency having jurisdiction over the Company or over ABC restraining
or prohibiting the consummation of the Merger; the receipt by the Company of an
opinion from Rogers & Hardin with respect to the tax effect of the Merger; the
inclusion of the ABC Common Stock to be issued in the Merger in the Nasdaq
National Market System; and the effectiveness of the registration statement of
which this Proxy Statement is a part and the absence of a stop order suspending
such effectiveness. In addition, the obligation of ABC to consummate the Merger
is further subject to the satisfaction or waiver of a number of conditions,
including the continued truth and accuracy in all material respects of the
representations or warranties made by the Company and Southland Bank set forth
in the Merger Agreement; the Company's performance of all of its respective
obligations under the Merger Agreement; ABC's receipt of an opinion of counsel
to the Company with respect to certain corporate matters; ABC's receipt of a
letter from the Company's independent accountants with respect to the financial
information of the Company contained herein; and the execution of an employment
agreement by and between Southland Bank and John E. Meyer in substantially the
form attached as Exhibit 4 to the Merger Agreement. The Company's obligation to
consummate the Merger is also subject to the satisfaction or waiver of a number
of conditions, including the continued truth and accuracy in all material
respects of the representations or warranties made by ABC set forth in the
Merger Agreement; ABC's performance of all of its obligations under the Merger
Agreement; and the Company's receipt of an opinion of counsel to ABC with
respect to certain corporate matters.
32
<PAGE>
Waivers; Amendments; Terminations. Any term or condition of the Merger
Agreement may be waived by the party entitled to the benefits thereof, and the
Agreement may be amended or supplemented at any time by written agreement of the
parties, except that after the Merger is approved by the Company shareholders,
no such amendment or supplement may result in a decrease in the consideration
for the Company Shares or otherwise materially adversely affect the rights of
the Company shareholders without their approval. The Merger Agreement provides
that it may be terminated (a) by the mutual consent of both parties; (b) by
either party in the event of a material breach by the other party of any
representation or warranty contained in the Merger Agreement which cannot be or
has not been cured within 30 days after the giving of notice of such breach to
such party; (c) by either party in the event that any consent or regulatory
approval necessary to consummate the Merger has been denied by final
nonappealable action of such authority or if any action taken by such authority
is not appealed with the limit for such appeal or if the Company's shareholders
fail to approve the Merger and the Merger Agreement; (d) at any time after
August 1, 1996, by either party in the event the Merger has not been consummated
on or before such date; (e) by either party if it becomes clear that certain
conditions precedent to such party's obligations cannot be satisfied on or prior
to August 1, 1996; or (f) by the Company upon the payment of the termination fee
discussed below in connection with its acceptance of a superior proposal.
Expenses of the Merger. The Company and ABC each will bear their respective
costs and expenses incurred in connection with the Merger, including the fees,
expenses and disbursements of their respective counsel and auditors and one-half
of the printing expenses and filing fees in connection with this Proxy
Statement, whether or not the Merger is consummated. Notwithstanding the
foregoing, in the event that the Merger Agreement is terminated by the Company
pursuant to Section 9.1(g) of the Merger Agreement upon execution of a
definitive agreement with a third party or in the event that, prior the
termination of the Merger Agreement, the Company receives a takeover proposal
and, within one year of such termination, enters into, approves, recommends or
takes action with respect to a merger, consolidation or other business
combination with any other person, then the Company shall pay to ABC the sum of
ABC's expenses, not to exceed $100,000, plus the sum of $350,000.
Operations of Southland Bank After the Merger
Upon the consummation of the Merger, Southland Bank will remain a state
bank organized under the laws of the State of Alabama. Upon consummation of the
Merger, ABC intends to seek the approval of the FDIC to add Kenneth J.
Hunnicutt, the President and Chief Executive Officer of ABC, to the Board of
Directors of Southland Bank. The parties intend that after the Effective Date,
the operations of Southland Bank initially will continue unchanged. There can
be no assurance, however, that the operations of Southland Bank will continue
unchanged indefinitely and, as the sole shareholder of Southland Bank, ABC will
be entitled to remove or not reelect such officers or directors of Southland
Bank and to make any other changes in its business or operation in the future as
ABC may deem necessary or appropriate, subject to certain prior regulatory
approval. ABC has agreed to provide generally to officers and employees of
Southland Bank comparable employee benefits that ABC provides to officers and
employees of its other banking subsidiaries from time to time. See "PROPOSED
MERGER -- Interest of Management in the Merger."
After the Effective Date, ABC anticipates that there will be a close
liaison and a high level of cooperation among all of ABC's subsidiaries
resulting in an improved ability to meet the needs of the communities which
Southland Bank and ABC's other affiliates serve.
33
<PAGE>
Accounting Treatment
The Merger will be accounted for as a purchase transaction, and certain
adjustments will be made with respect to the acquired assets and liabilities and
related income and expenses of the Company based upon estimated fair market
values. The actual adjustments will be made on the basis of appraisals and
evaluations as of the Effective Date of the Merger.
Resale of ABC Common Stock
All shares of ABC Common Stock received by Company shareholders in the
Merger will be freely transferable, except that shares of ABC Common Stock
received by persons who are deemed to be "affiliates" (as such term is defined
under the 1933 Act) of the Company prior to the Merger may be resold by them
only in transactions permitted by the resale provisions of Rule 145 promulgated
under the 1933 Act (or Rule 144 in the case of such persons who become
affiliates of ABC) or as otherwise permitted under the 1933 Act. Persons who
may be deemed to be affiliates of ABC or the Company generally include
individuals or entities that control, are controlled by, or are under common
control with, such party and may include certain officers and directors of such
party as well as principal shareholders of such party. The Merger Agreement
requires the Company to use reasonable efforts to deliver or cause to be
delivered to ABC a letter agreement to the effect that such person will not
offer or sell or otherwise dispose of any of the shares of ABC Common Stock
issued to such persons in or pursuant to the Merger in violation of the 1933 Act
or the rules and regulations promulgated by the Commission thereunder.
DESCRIPTION OF ABC BANCORP
ABC is a bank holding company organized under the laws of the State of
Georgia and registered with the Board of Governors of the Federal Reserve System
(the "Federal Reserve Board") pursuant to the Bank Holding Company Act of 1956,
as amended (the "BHCA"). ABC, through its subsidiaries, is engaged in the
commercial banking business. Its primary source of earnings is derived from
income generated by the ownership and operation of its five wholly-owned
subsidiary banks (the "Subsidiary Banks"): American Banking Company located in
Moultrie, Georgia; The Bank of Quitman located in Quitman, Georgia; Bank of
Thomas County located in Thomasville, Georgia; The Citizens Bank of Tifton
located in Tifton, Georgia; and Cairo Banking Company located in Cairo, Georgia.
As of December 31, 1995, the Company, on a consolidated basis, had total assets
of $341.5 million, total loans of $214.3 million, total deposits of $301.0
million and stockholders' equity of $33.9 million. The Company's net income for
1995 was $4.3 million, or $1.29 per share. Based on total assets, ABC is the
second largest financial institution headquartered in south Georgia. ABC's
principal executive offices are located at 310 First Street, S.E., P.O. Box
1500, Moultrie, Georgia 31768, and its telephone number is (912) 890-1111.
ABC has entered into an Agreement and Plan of Merger with Central
Bankshares, Inc. ("Central") dated as of December 29, 1995 pursuant to which
Central would merge with and into ABC (the "Central Merger"). Central is a bank
holding company registered under the BHCA and operates Central Bank & Trust with
two branches in Cordele, Georgia.
In connection with the Central Merger, the Central shareholders will
receive shares of ABC Common Stock having an aggregate value equal to 2.0 times
the lesser of (1) 8.0% of the total assets of Central or (2) the total equity of
Central, plus the amount, if any, by which the total equity of Central exceeds
8.0% of its total assets, based on the average of the total assets of Central as
of the close of
34
<PAGE>
business for each of the 60 calendar days immediately preceding the consummation
of the Central Merger. As of December 31, 1995, Central had total assets of
approximately $51 million and total equity of approximately $4.0 million. The
description of the Central Merger Agreement is qualified in its entirety by
reference to a copy thereof which has been filed as an exhibit to the
Registration Statement of which this Proxy Statement is a part.
The consummation of the Central Merger is subject to the satisfaction of a
number of conditions, including the receipt of the requisite shareholder
approval by the Central shareholders, the approval of the Federal Reserve Board
and the Georgia Department of Banking and Finance and the registration under the
1933 Act of the shares of ABC Common Stock to be issued in connection with the
Central Merger.
ABC also has entered into an Agreement and Plan of Merger with First
National Financial Corporation ("First National") dated as of April 15, 1996
pursuant to which First National would merge with and into ABC (the "First
National Merger"). First National is a bank holding company registered under the
BHCA and operates First National Bank of South Georgia.
In connection with the First National Merger, the First National
shareholders will receive shares of ABC Common Stock having a aggregate value
equal to 2.265 times the lesser of (1) 8.0% of the total assets of First
National or (2) the total equity of First National, plus the amount, if any, by
which the total equity of First National exceeds 8.0% of its total assets, based
on the total assets of First National as of the close of business for each of
the 60 calendar days immediately preceding the consummation of the First
National Merger. As of March 31, 1996, First National had total assets of
approximately $54 million and total equity of approximately $5.6 million. The
description of the First National Merger Agreement is qualified in its entirety
by reference to a copy thereof which has been filed as an exhibit to the
Registration Statement of which this Proxy Statement is a part.
The consummation of the First National Merger is subject to the
satisfaction of a number of conditions, including the requisite shareholder
approval by the First National shareholders, the approval of the Federal Reserve
Board and the Georgia Department of Banking and Finance, and the registration
under the 1933 Act of the shares of ABC Common Stock to be issued in connection
with the First National Merger.
It is currently anticipated that the Central Merger and the First National
Merger will not be consummated until after the consummation of the Merger.
However, the actual timing of the consummation of the Merger and the Central
Merger and the First National Meger is dependent on a number of factors,
including the requisite shareholder and regulatory approvals. There can be no
assurance that the Central Merger or the First National Merger will be
consummated.
For an explanation of the effect of the Merger, the Central Merger and the
First National Merger on ABC, see "Unaudited Pro Forma Condensed Consolidated
Financial Data."
Additional information concerning ABC is contained in documents
incorporated in this Proxy Statement by reference. These documents are
available without charge upon written request to Sara R. Hall, ABC Bancorp, 310
First Street, S.E., P. O. Box 1500, Moultrie, Georgia 31768 (912) 890-1111. In
order to assure timely delivery of these documents, any request should be made
by May 31, 1996.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
General
ABC's principal asset is its ownership of the Subsidiary Banks.
Accordingly, ABC's results of operations are primarily dependent upon the
results of operations of the Subsidiary Banks. The Subsidiary Banks conduct a
commercial banking business which consists of attracting deposits from the
general public and applying those funds to the origination of commercial,
consumer and real estate loans (including commercial loans collateralized by
real estate). The Subsidiary Banks' profitability depends primarily on net
interest income, which is the difference between interest income generated from
interest-earning assets (i.e., loans and investments) less the interest expense
incurred on interest-bearing liabilities (i.e., customer deposits and borrowed
funds). Net interest income is affected by the relative amounts of interest-
earning assets and interest-bearing liabilities, and the interest rate paid and
earned on these balances. Net interest income is dependent upon the Subsidiary
Banks' interest rate spread, which is the difference between the average yield
earned on its interest-earning assets and the average rate paid on its interest-
bearing liabilities. When interest-earning assets approximate or exceed
interest-bearing liabilities, any positive interest rate spread will generate
interest income. The interest rate spread is impacted by interest rates,
deposit flows and loan demand. Additionally, and to a lesser extent, the Banks'
profitability is affected by such factors as the level of non-interest income
and expenses, the provision for loan losses and the effective tax rate. Non-
interest income consists primarily of loan and other fees and income from the
sale of loans and investment securities. Non-interest expenses consist of
compensation and benefits, occupancy-related expenses, deposit insurance
premiums paid to the FDIC and other operating expenses.
35
<PAGE>
Results of Operations For Years Ended December 31, 1995, 1994 and 1993
ABC's results of operations are determined by its ability to effectively
manage interest income and expense, to minimize loan and investment losses, to
generate noninterest income and to control noninterest expense. Since interest
rates are determined by market forces and economic conditions beyond the control
of ABC, the ability to generate net interest income is dependent upon the Banks'
ability to obtain an adequate spread between the rate earned on interest-earning
assets and the rate paid on interest-bearing liabilities. Thus, the key
performance measure for net interest income is the interest margin or net yield,
which is taxable-equivalent net interest income divided by average earning
assets.
The primary component of consolidated earnings is net interest income, or
the difference between interest income on interest-earning assets and interest
paid on interest-bearing liabilities. The net interest margin is net interest
income expressed as a percentage of average interest-earning assets. Interest-
earning assets consist of loans, investment securities and Federal funds sold.
Interest-bearing liabilities consist of deposits, of which approximately 17% are
noninterest-bearing. A portion of interest income is earned on tax-exempt
investments, such as state and municipal bonds. In an effort to state this tax-
exempt income and its resultant yields on a basis comparable to all other
taxable investments, an adjustment is made to analyze this income on a taxable-
equivalent basis.
The net interest margin increased by 32 basis points or 5.69% to 5.94% in
1995 as compared to 5.62% in 1994. This increase in net interest margin was
achieved by an increase of 103 basis points on average yield earned on interest-
earning assets accompanied by an increase of 94 basis points in average rate
paid on interest-bearing liabilities. Net interest income on a taxable-
equivalent basis was $16,314,000 in 1995 as compared to $13,814,000 in 1994,
representing an increase of 18.10%. Net interest income on a taxable-equivalent
basis was $13,814,000 in 1994 as compared to $12,273,000 in 1993, representing
an increase of 12.56%. Net interest margin increased by 5.24% to 5.62% in 1994
from 5.34% in 1993 because average interest-earning assets increased by 5.34% in
1994 as compared to 1993.
Average interest-earning assets increased by $28,559,000 or 11.62% to
$274,428,000 in 1995 from $245,869,000 in 1994. Average loans increased by
$24,341,000; average investments increased by $2,516,000; and average Federal
funds sold increased by $1,702,000. The increase in average interest-earning
assets was funded by an increase in average deposits of $22,869,000 or 9.52% to
$263,046,000 in 1995 from $240,177,000 in 1994. By comparison, average
interest-earning assets increased by $15,912,000 or 6.92% to $245,869,000 in
1994 from $229,957,000 in 1993. During 1994, average deposits increased by
$9,424,000 or 4.08%, to $240,177,000 from $230,753,000 in 1993. Approximately
17% of the average deposits were noninterest-bearing deposits in 1995 as
compared to 16% noninterest-bearing deposits in 1994.
The allowance for loan losses represents a reserve for potential losses in
the loan portfolio. The adequacy of the allowance for loan losses is evaluated
periodically based on a review of all significant loans, with a particular
emphasis on nonaccruing, past due and other loans that management believes
require attention.
The provision for loan losses is a charge to earnings in the current period
to replenish the allowance and maintain it at a level management has determined
to be adequate. The provision for loan losses charged to earnings amounted to
$848,000 in 1995, $638,000 in 1994 and $1,191,000 in 1993. The increase in the
provision for loan losses in 1995 of $210,000 or 32.92%, as compared with 1994
was
36
<PAGE>
accompanied by an increase of 11.52% in total loans in 1995 and an increase in
the allowance for loan losses of 13.71%. Net charge-offs represented 39.27% of
the provision for loan losses in 1995 as compared to 70.85% in 1994. The
decrease in loan charge-offs in 1995 resulted from an improvement in the quality
of the collateral held as security on loans and the ability of the creditors to
service their debt. The loan charge-offs for 1995 represented .16% of average
loans outstanding during the year as compared to .25% for 1994. At December 31,
1995, the allowance for loan losses was 1.99% of total loans outstanding as
compared by an allowance for loan losses of 1.96% of total loans outstanding at
December 31, 1994. The determination of the allowance rests upon management's
judgment about factors affecting loan quality and assumptions about the local
and national economy. Management considers the year-end allowance for loan
losses adequate to cover potential losses in the loan portfolio.
Average total assets increased $34,700,000 or 12.92% to $303,190,000 in
1995 as compared to $268,490,000 in 1994. The increase in average total assets
was accompanied by an increase in average deposits of $22,869,000 or 9.52%.
Average total assets increased $11,843,000 or 4.61% to $268,490,000 in 1994 as
compared to $256,647,000 in 1993 and was accompanied by an increase in average
total deposits of $9,424,000 or 4.08% to $240,177,000 in 1994 from $230,753,000
in 1993.
The Company has provided a valuation reserve of $228,000 against a
deferred tax asset of $286,000 recorded on the books of a subsidiary bank. The
deferred tax asset relates to a purchased tax net operating loss carryforward
for which utilization is limited to specified amounts in future years and can
only be used to offset taxable income of that subsidiary bank. At December 31,
1995, approximately $840,000 was available to offset income of the subsidiary
bank in future years.
Results of Operations for Three Months Ended March 31, 1996 and 1995
The net interest margin decreased 33 basis points or 5.81% to 5.35% for the
three months ended March 31, 1996 as compared to 5.68% for the three months
ended March 31, 1995. This decrease in net interest margin was the result of an
increase of 43 basis points in average rate paid on interest-bearing
liabilities. Net interest income on a taxable-equivalent basis increased 7.79%
to $4,179,000 for the three months ended March 31, 1996 as compared to
$3,877,000 for the three months ended March 31, 1995. The increase in net
interest income was attributable to an increase of 12.66% in average loans to
$212,844,888 for the three months ended March 31, 1996 from $188,930,000 for the
three months ended March 31, 1995.
The provision for loan losses remained constant at $180,000 for the three
moths ended march 31, 1996 and 1995. During the three months ended March 31,
1996, the Company recorded net loan charge-offs of $24,000 as compared to net
loan recoveries on charged-off loans of $32,000 for the three months ended March
31, 1995.
Net income increased $207,000 or 20.14% to $1,235,000 for the three months
ended March 31, 1996 as compared to $1,028,000 for the three months ended March
31, 1995. This increase in net income was attributable primarily to the increase
in net interest income. Noninterest expense net of noninterest income deceased
$25,000 to $2,090,000 for the three months ended march 31, 1996 as compared to
$2,115,000 for the three months ended March 31, 1995.
Total assets increased $41,647,00 or 14.17% to $335,589,000 at March 31,
1996 as compared to total assets of $293,942,000 at March 31, 1995. Total loans
increased $27,918,000 or 14.29% to $223,305,000 at March 31, 1996 from
$195,387,000 at March 31, 1995. Total deposits increased $36,851,000 or 14.36%
to $293,385,000 from $256,534,000 at March 31, 1995.
Average Balances and Net Income Analysis
The following table sets forth the amount of ABC's interest income or
interest expense for each category of interest-earning assets and interest-
bearing liabilities and the average interest rate for total interest-earning
assets and total interest-bearing liabilities, net interest spread and net yield
on average interest-earning assets. Federally tax-exempt income is presented on
a taxable equivalent basis assuming a 34% Federal tax rate.
<TABLE>
<CAPTION>
Year Ended December 31,
(Dollars in Thousands)
--------------------------------------------------------------------------------------------
1995 1994 1993
----------------------------- ----------------------------- ----------------------------
Average Average Average
Interest Yield/ Interest Yield/ Interest Yield/
Average Income/ Rate Average Income/ Rate Average Income/ Rate
Balance Expense Paid Balance Expense Paid Balance Expense Paid
------- -------- ------- ------- -------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
ASSETS
Interest-earning assets:
Loans, net of unearned
interest................ $205,023 $22,647 11.05% $180,682 $18,017 9.97% $159,976 $16,278 10.18%
Investment securities:
Taxable................. 38,781 2,271 5.86% 35,099 1,928 5.49% 32,581 1,997 6.08%
Tax-exempt.............. 9,595 835 8.70% 10,761 924 8.59% 9,265 905 9.77%
Federal funds sold........ 21,029 1,234 5.87% 19,327 773 4.00% 27,865 825 2.96%
-------- ------- -------- ------- -------- -------
Total interest-
earning assets........ 274,428 26,987 9.83% 245,869 21,642 8.80% 229,957 20,005 8.70%
-------- ------- -------- ------- -------- -------
Noninterest-earning
assets:
Cash...................... $ 15,741 $ 16,132 $ 16,035
Allowance for loan
losses.................. (4,072) (3,951) (2,950)
</TABLE>
37
<PAGE>
<TABLE>
<CAPTION>
Year Ended December 31,
(Dollars in Thousands)
--------------------------------------------------------------------------------------------
1995 1994 1993
---------------------------- ---------------------------- ----------------------------
Average Average Average
Interest Yield/ Interest Yield/ Interest Yield/
Average Income/ Rate Average Income/ Rate Average Income/ Rate
Balance Expense Paid Balance Expense Paid Balance Expense Paid
------- -------- ------- ------- -------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Unrealized gain on 61
available for sale
securities...............
Other assets.............. 17,032 10,440 13,605
-------- -------- --------
Total noninterest
earning assets...... 28,762 22,621 26,690
-------- -------- --------
Total assets....... $303,190 $268,490 $256,647
======== ======== ========
LIABILITIES AND
STOCKHOLDERS' EQUITY
Interest-bearing
liabilities:
Savings and interest-
bearing demand
deposits............... $ 81,137 $ 2,484 3.06% $ 88,482 $ 2,539 2.87% $ 87,867 $ 2,686 3.06%
Time deposits........... 138,036 7,887 5.71% 112,730 5,064 4.49% 108,288 4,808 4.44%
Other short-term
borrowings.............. 5,308 302 5.69% 2,557 68 2.66%
Debt.................... -- -- 1,931 157 8.13% 3,654 238 6.51%
-------- ------- -------- ------- -------- -------
Total interest-
bearing liabilities... 224,481 10,673 4.75% 205,700 7,828 3.81% 199,809 7,732 3.87%
-------- ------- -------- ------- -------- -------
Noninterest-bearing
liabilities and stock-
holders' equity:
Demand deposits......... 43,873 38,965 34,598
Other liabilities....... 2,533 1,659 2,915
Stockholders' equity.... 32,303 22,166 19,325
-------- -------- --------
Total noninterest-
bearing liabili-
ties and stock-
holders' equity....... 78,709 62,790 56,838
-------- -------- --------
Total liabilities
and stockholders'
equity............... $303,190 $268,490 $256,647
======== ======== ========
Interest rate spread........ 5.08% 4.99% 4.83%
===== ==== =====
Net interest income......... $16,314 $13,814 $12,273
======= ======= =======
Net interest margin......... 5.94% 5.62% 5.34%
===== ==== =====
</TABLE>
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<PAGE>
Rate and Volume Analysis
The following table reflects the changes in net interest income resulting from
changes in interest rates and from asset and liability volume. Federally tax-
exempt interest is presented on a taxable-equivalent basis assuming a 34%
Federal tax rate. The change in interest attributable to rate has been
determined by applying the change in rate between years to average balances
outstanding in the later year. The change in interest due to volume has been
determined by applying the rate from the earlier year to the change in average
balances outstanding between years. Thus, changes that are not solely due to
volume have been consistently attributed to rate.
<TABLE>
<CAPTION>
Year Ended December 31,
(Dollars in Thousands)
------------------------------------------------------------
1995 vs. 1994 1994 vs. 1993
----------------------------- -----------------------------
Changes Due To Changes Due To
----------------- -----------------
Increase Increase
(Decrease) Rate Volume (Decrease) Rate Volume
---------- ------- -------- ---------- ------- --------
<S> <C> <C> <C> <C> <C> <C>
Increase (decrease) in:
Income from earning assets:
Interest and fees on loans...... $4,630 $2,203 $2,427 $1,739 $(368) $2,107
Interest on securities:
Taxable....................... 343 141 202 (60) (206) 137
Tax-exempt.................... (89) 11 (100) 19 (127) 146
Interest on Federal funds...... 461 393 68 (52) 201 (253)
------ ------ ------ ------ ----- ------
Total interest income....... $5,345 $2,748 $2,597 $1,637 $(500) $2,137
------ ------ ------ ------ ----- ------
Expense from interest-bearing
liabilities:
Interest on savings and $ (55) $ 156 $ (211) $ (147) $(166) $ 19
interest-bearing demand........
Interest on time deposits........ 2,823 1,686 1,137 256 59 197
Interest on short-term deposits.. 234 161 73 68 -- 68
Interest on debt................. (157) -- (157) 81 31 (112)
------ ------ ------ ------ ----- ------
Total interest expense....... $2,845 $2,003 $ 842 $ 96 $ (76) $ 172
------ ------ ------ ------ ----- ------
Net interest income.......... $2,500 $ 745 $1,755 $1,541 $(424) $1,965
====== ====== ====== ====== ===== ======
</TABLE>
Noninterest Income
The most significant increase in noninterest income was an increase in
service charges on deposit accounts of $139,000 in 1995 over 1994, representing
an increase of 5.66%. This increase in service charges was achieved by an
increase in average deposits of $22,869,000 during 1995 as compared to 1994.
Total other income increased $158,000 or 5.51% in 1994 is attributable to an
increase of $157,000 in service charges on deposits. Following is a comparison
of noninterest income for 1995, 1994 and 1993.
39
<PAGE>
<TABLE>
<CAPTION>
Year Ended December 31,
(Dollars in Thousands)
----------------------------------------
1995 1994 1993
------------ ------------ ------------
<S> <C> <C> <C>
Service charges on deposit accounts... $2,595,000 $2,456,000 $2,299,000
Other service charges, commissions 301,000 224,000 230,000
and fees.............................
Other income.......................... 380,000 345,000 338,000
---------- ---------- ----------
$3,276,000 $3,025,000 $2,867,000
========== ========== ==========
</TABLE>
Noninterest Expense
Salaries and employee benefits increased $499,000, or 8.74% in 1995 over
1994. Salaries increased $297,000; bonuses increased $74,000; and employee
benefits increased $127,000. The increase in employee benefits was attributable
to an increase of $54,000 or 10.82% in retirement benefits as compared to 1994.
Deposit insurance premiums decreased $258,000 or 46.15% in 1995 as a result of
the decrease in assessments by the Federal Insurance Deposit Corporation which
became effective in early 1995. The most significant increase in noninterest
expense in 1994 as compared to 1993 was an increase of $158,000 or 54.48% in
data processing fees which was attributable to a major data processing
conversion completed in the first quarter of 1994. Following is an analysis of
noninterest expense for 1995, 1994 and 1993.
<TABLE>
<CAPTION>
Year Ended December 31,
(Dollars in Thousands)
----------------------------------------
1995 1994 1993
------------ ------------ ------------
<S> <C> <C> <C>
Salaries and employee benefits... $ 6,210,000 $ 5,711,000 $ 5,238,000
Occupancy and equipment expense.. 1,830,000 1,754,000 1,567,000
Deposit insurance premiums....... 301,000 559,000 551,000
Data Processing fees............. 372,000 448,000 290,000
Other expense.................... 3,515,000 3,075,000 2,889,000
----------- ----------- -----------
$12,228,000 $11,547,000 $10,535,000
=========== =========== ===========
</TABLE>
Asset/Liability Management
A principal objective of ABC's asset/liability management strategy is to
minimize its exposure to changes in interest rates by matching the maturity and
repricing horizons of interest-earning assets and interest-bearing liabilities.
This strategy is overseen in part through the direction of ABC's Asset and
Liability Committee (the "ALCO Committee") which establishes policies and
monitors results to control interest rate sensitivity.
As part of ABC's interest rate risk management policy, the ALCO Committee
examines the extent to which its assets and liabilities are "interest rate-
sensitive" and monitors its interest rate-sensitivity "gap." An asset or
liability is considered to be interest rate-sensitive if it will reprice or
mature within the time period analyzed, usually one year or less. The interest
rate-sensitivity gap is the difference between the interest-earning assets and
interest-bearing liabilities scheduled to
40
<PAGE>
mature or reprice within such time period. A 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 the interest rate-sensitive assets.
During a period of rising interest rates, a negative gap would tend to adversely
affect net interest income, while a positive gap would tend to result in an
increase in net interest income. 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 adversely affect net interest income. If ABC's
assets and liabilities were equally flexible and moved concurrently, the impact
of any increase or decrease in interest rates on net interest income would be
minimal.
A simple interest rate "gap" analysis by itself may not be an accurate
indicator of how net interest income will be affected by changes in interest
rates. Accordingly, the ALCO Committee also evaluates how the repayment of
particular assets and liabilities is impacted by changes in interest rates.
Income associated with interest-earning assets and costs associated with
interest-bearing liabilities may not be affected uniformly by changes in
interest rates. In addition, the magnitude and duration of changes in interest
rates may have a significant impact on net interest income. For example,
although certain assets and liabilities may have similar maturities or periods
of repricing, they may react in different degrees to changes in market interest
rates. Interest rates on certain types of assets and liabilities fluctuate in
advance of changes in general market interest rates, while interest rates on
other types may lag behind changes in general market rates. In addition,
certain assets, such as adjustable rate mortgage loans, have features (generally
referred to as "interest rate caps") which limit changes in interest rates on a
short-term basis and over the life of the asset. In the event of a change in
interest rates, prepayment and early withdrawal levels also could deviate
significantly from those assumed in calculating the interest-rate gap. The
ability of many borrowers to service their debts also may decrease in the event
of an interest-rate increase.
The following table sets forth the distribution of the repricing of ABC's
earning assets and interest-bearing liabilities as of December 31, 1995, the
interest rate sensitivity gap (i.e., interest rate sensitive assets less
interest rate sensitive liabilities), the cumulative interest rate sensitivity
gap ratio (i.e., interest rate sensitive assets divided by interest rate
sensitivity liabilities) and the cumulative sensitivity gap ratio. The table
also sets forth the time periods in which earning assets and liabilities will
mature or may reprice in accordance with their contractual terms. However, the
table does not necessarily indicate the impact of general interest rate
movements on the net interest margin since the repricing of various categories
of assets and liabilities is subject to competitive pressures and the needs of
Southland Bank's customers. In addition, various assets and liabilities
indicated as repricing within the same period may in fact reprice at different
times within such period and at different rates.
41
<PAGE>
<TABLE>
<CAPTION>
At December 31, 1995
Maturing or Repricing Within
-----------------------------------------------------------------
Zero to Three Three Months One to Five Over Five
Months to One Year Years Years Total
------------- ------------- ------------ --------- --------
<S> <C> <C> <C> <C> <C>
(Dollars in Thousands)
Earning assets:
Federal funds sold...................... $ 41,025 $ -- $ -- $ -- $ 41,025
Investment securities................... 2,135 10,683 29,355 8,087 50,260
Loans................................... 87,283 20,548 84,858 21,562 214,251
-------- -------- -------- ------- --------
130,443 31,231 114,213 29,649 305,536
-------- -------- -------- ------- --------
Interest-bearing liabilities:
Interest-bearing demand deposits (1).... -- 17,638 54,195 -- 71,833
Savings (1)............................. -- -- 22,318 -- 22,318
Certificates less than $100,000......... 22,344 52,575 35,715 -- 110,634
Certificates $100,000 and over.......... 15,541 15,040 7,192 -- 37,773
Other short-term borrowings............. 3,487 -- -- -- 3,487
-------- -------- -------- ------- --------
41,372 85,253 119,420 -- 246,045
-------- -------- -------- ------- --------
Interest rate sensitivity gap............. $ 89,071 $(54,022) $ (5,207) $29,649 $ 59,491
======== ======== ======== ======= ========
Cumulative interest rate sensitivity gap.. $ 89,071 $ 35,049 $ 29,842 $59,491
======== ======== ======== =======
Interest rate sensitivity gap ratio....... 3.15 0.37 0.96 N/A
======== ======== ======== =======
Cumulative interest rate sensitivity gap 3.15 1.28 1.12 1.24
ratio..................................... ======== ======== ======== =======
- ---------------
</TABLE>
(1) ABC has found that NOW checking accounts and savings deposits are generally
not sensitive to changes in interest rates and, therefore, it has placed
such liabilities in the "One to Five Years" category. It has also found
that the money-market check deposits reprice between three months to one
year, on the average.
Maturities and Sensitivity of Loans to Changes in Interest Rates
ABC's loan portfolio, as of December 31, 1995, was made up primarily of short-
term fixed rate loans or variable rate loans. The average contractual life on
installment loans is approximately three years, while mortgages are generally
variable over one to five-year periods. Total loans as of December 31, 1995 are
shown in the following table according to maturity classifications: (i) one
year or less, (ii) after one year through five years, and (iii) after five
years.
<TABLE>
<CAPTION>
December 31, 1995
(Dollars in Thousands)
------------------------
Maturity:
<S> <C>
One year or less................... $107,831
After one year through five years.. 84,858
After five years................... 21,562
--------
$214,251
========
</TABLE>
42
<PAGE>
The following table summarizes loans at December 31, 1995 with the due
dates after one year which (i) have predetermined interest rates and (ii) have
floating or adjustable interest rates.
<TABLE>
<CAPTION>
December 31, 1995
(Dollars in Thousands)
------------------------
<S> <C>
Predetermined interest rates........... 106,420
Floating or adjustable interest rates.. --
--------
$106,420
========
</TABLE>
Records were not available to present the above information in each
category listed in the first paragraph above and could not be reconstructed
without undue burden.
Loan Portfolio
Management believes that ABC's loan portfolio is adequately diversified.
The loan portfolio contains no foreign or energy-related loans or significant
concentrations in any one industry, with the exception of agricultural loans,
which constituted approximately 26% of ABC's loan portfolio as of December 31,
1995. As of December 31, 1995, the ten largest loans of ABC accounted for
approximately 12% of ABC's total loans. As of December 31, 1995, ABC had
outstanding loan commitments of $39 million. The amounts of loans outstanding
at the indicated dates is shown in the following table according to type of
loan.
<TABLE>
<CAPTION>
March 31, December 31,
---------- ---------------------------------------------------
1996 1995 1994 1993 1992 1991
---------- -------- --------- --------- --------- --------
(Dollars in Thousands)
<S> <C> <C> <C> <C> <C> <C>
Commercial and industrial... $ 24,829 $ 23,733 $ 23,531 $ 20,849 $ 19,650 $ 11,379
Agricultural................ 16,867 15,124 17,079 9,767 10,789 8,109
Real estate - construction.. 1,762 1,836 1,828 3,387 2,130 1,421
Real estate - mortgage,
farmland.................. 43,255 40,053 34,887 29,489 24,922 14,129
Real estate - mortgage,
commercial................ 42,447 41,438 35,242 27,402 22,284 12,506
Real estate - mortgage,
residential............... 54,522 52,377 44,064 41,902 43,500 31,343
Consumer installment loans.. 38,857 38,973 34,213 27,231 25,979 19,007
Other....................... 766 717 1,280 1,720 1,691 2,754
-------- -------- -------- -------- -------- --------
223,305 214,251 192,124 161,747 150,945 100,648
Less reserve for possible
loan losses................ 4,428 4,272 3,757 3,571 4,013 1,257
-------- -------- -------- -------- -------- --------
Total loans..... $218,877 $209,979 $188,367 $158,176 $146,932 $ 99,391
======== ======== ======== ======== ======== ========
</TABLE>
Nonperforming Loans
A loan is placed on non-accrual status when, in management's judgment,
the collection of the interest income appears doubtful. Interest receivable
that has been accrued in prior years and
43
<PAGE>
is subsequently determined to have doubtful collectibility is charged to the
allowance for possible loan losses. Interest on loans that are classified as
non-accrual is recognized when received. Past due loans are loans whose
principal or interest is past due 90 days or more. In some cases, where
borrowers are experiencing financial difficulties, loans may be restructured to
provide terms significantly different from the original contractual terms.
<TABLE>
<CAPTION>
March 31, December 31,
---------- -----------------------------------------------
1996 1995 1994 1993 1992 1991
-------- -------- -------- -------- -------- --------
(Dollars in Thousands)
<S> <C> <C> <C> <C> <C> <C>
Loans accounted for on a $3,718 $2,259 $3,460 $3,119 $5,605 $ 511
nonaccrual basis.............
Installment loans and term
loans contractually past due
ninety days or more as to
interest or principal
payments and still accruing. 12 27 103 316 595 563
Loans, the terms of which
have been renegotiated to
provide a reduction or
deferral of interest or
principal because of
deterioration in the
financial position of the
borrower.................... 0 -- 358 -- -- --
Loans now current about which
there are serious doubts as
to the ability of the
borrower to comply with 0 -- -- -- -- --
present loan repayment terms ------ ------ ------ ------ ------ ------
Total........................ $3,730 $2,286 $3,921 $3,435 $6,200 $1,074
====== ====== ====== ====== ====== ======
</TABLE>
As of March 31, 1996 and December 31, 1995, 1994, 1993, 1992 and 1991, total
nonperforming loans were approximately 1.67%, 1.07%, 2.04%, 2.12%, 4.11% and
1.67%, respectively, of total loans outstanding at such dates.
In the opinion of management, any loans classified by regulatory authorities
as substandard or special mention that have not been disclosed above do not
(i) represent or result from trends or uncertainties which management reasonably
expects will materially impact future operating results, liquidity or capital
resources, nor (ii) represent material credits about which management is aware
of any information which causes management to have serious doubts as to the
ability of such borrowers to comply with the loan repayment terms. Any loans
classified by regulatory authorities as loss have been charged off.
Summary of Loan Loss Experience
The provision for possible loan losses is created by direct charges to
operations. Losses on loans are charged against the allowance in the period in
which such loans, in management's opinion, become uncollectible. Recoveries
during the period are credited to this allowance. The factors that
44
<PAGE>
influence management's judgment in determining the amount charged to operating
expense are past loan experience, composition of the loan portfolio, evaluation
of possible future losses, current economic conditions and other relevant
factors. ABC's allowance for loan losses was approximately $4.3 million at
December 31, 1995, representing 2.01% of year-end total loans outstanding and
OREO, compared with approximately $3.8 million at December 31, 1994, which
represented 1.98% of year-end total loans outstanding and OREO.
The allowance for loan losses is reviewed quarterly based on management's
evaluation of current risk characteristics of the loan portfolio, as well as the
impact of prevailing and expected economic business conditions. Management
considers the allowance for loan losses adequate to cover possible loan losses
on each outstanding loan with particular emphasis on any problem loans.
The following table presents an analysis of ABC's loan loss experience for the
periods indicated:
<TABLE>
<CAPTION>
Three
months
ended Year ended
March 31, December 31,
--------- ----------------------------------------------------------
1996 1995 1994 1993 1992 1991
-------- ---------- ---------- ---------- ---------- ---------
(Dollars in Thousands)
<S> <C> <C> <C> <C> <C> <C>
Average amount of loans outstanding.......... $217,199 $205,023 $180,682 $159,976 $118,313 $98,737
======== ======== ======== ======== ======== =======
Balance of reserve for possible loan losses 4,272 $ 3,757 $ 3,571 $ 4,013 $ 1,257 $ 1,046
at beginning of period...................... -------- -------- -------- -------- -------- -------
Charge offs:
Commercial, financial, industrial and (2) (96) (431) (428) (406) (214)
agricultural........................
Real estate................................. -- (103) (144) (1,851) (698) (200)
Consumer.................................... (151) (531) (396) (374) (318) (41)
Recoveries:
Commercial, financial and agricultural...... 25 90 74 273 26 44
Real estate................................. 51 127 265 554 210 166
Consumer.................................... 53 180 180 193 113 5
-------- -------- -------- -------- -------- -------
Net charge-offs............................ $ (24) $ (333) $ (452) $ (1,633) $ (1,073) $ (240)
-------- -------- -------- -------- -------- -------
Additions to reserve charged to operating $ 180 $ 848 $ 638 $ 1,191 $ 1,129 $ 451
expenses.................................... -------- -------- -------- -------- -------- -------
Allowance for loan losses of acquired sub- $ -- $ -- $ -- $ -- $ 2,700 $ --
sidiary..................................... -------- --------- --------- --------- -------- --------
Balance of reserve for possible loan $ 4,428 $ 4,272 $ 3,757 $ 3,571 $ 4,013 $ 1,257
losses.................................... ======== ======== ======== ======== ======== =======
Ratio of net loan charge-offs to average 0.04% 0.16% 0.25% 1.02% 0.91% 0.24%
loans....................................... ======== ======== ======== ======== ======== =======
</TABLE>
The following table sets forth the breakdown of the allowance for loan
losses by loan category for the periods indicated. Management believes that the
allowance can be allocated only on an approximate basis. The allocation of the
allowance to each category is not necessarily indicative of future losses and
does not restrict the use of the allowance to absorb losses in any other
category.
<TABLE>
<CAPTION>
ALLOCATION OF THE ALLOWANCE FOR LOAN LOSSES
At March 31, At December 31,
---------------------- ------------------------------------------------
1996 1995 1994
---------------------- ---------------------- ---------------------
Percent of Percent of Percent of
Loans in Loans in Loans in
Category to Category to Category to
Amount Total Loans Amount Total Loans Amount Total Loans
------ ----------- ------ ----------- ------ -----------
<S> <C> <C> <C> <C> <C> <C>
Commercial, financial,
industrial and agricultural $ 970 19% $ 936 18% $ 919 21%
Real estate 1,505 63% 1,452 63% 1,425 60%
Consumer 870 18% 839 18% 824 19%
Unallocated 1,083 1,045 589
------- ------ ------- ------- ------- ------
$ 4,428 100% $ 4,272 100% $ 3,757 100%
======= ====== ======= ======= ======= ======
</TABLE>
45
<PAGE>
Investment Portfolio
ABC manages the mix of asset and liability maturities in an effort to control
the effects of changes in the general level of interest rates of net interest
income. See "-- Asset/Liability Management." Except for its effect on the
general level of interest rates, inflation does not have a material impact on
ABC due to the rate variability and short-term maturities of its earning assets.
In particular, approximately 50% of the loan portfolio is comprised of loans
which mature within one year or less. Mortgage loans, primarily with five- to
fifteen-year maturities, are also made on a variable rate basis with rates being
adjusted every one to five years. Additionally, 25% of the investment portfolio
matures within one year.
Types of Investments
The carrying value and estimated market value of investment securities are as
follows:
<TABLE>
<CAPTION>
Gross Gross Approximate
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
--------- ---------- ----------- -----------
(Dollars in Thousands)
<S> <C> <C> <C> <C>
Securities Available for
Sale December 31, 1995:
U.S. Government and
agency securities........ $37,174 $ 285 $ (93) $37,366
Mortgage-backed
securities............... 2,282 69 (8) 2,343
Other securities......... 300 -- (18) 282
------- ------ ------- -------
$39,756 $ 354 $ (119) $39,991
======= ====== ======= =======
December 31, 1994:
U.S. Government and
agency securities........ $ 1,664 $ -- $ (14) $ 1,650
Other securities......... 300 -- (40) 260
------- ------ ------- -------
$ 1,964 $ -- $ (54) $ 1,910
======= ======= =======
Securities Held to
Maturity December 31,
1995:
State and municipal
securities............... $10,269 $ 258 $ (65) $10,462
======= ====== ======= =======
December 31, 1994:
U.S. Government and
agency securities........ $32,159 $ 19 $(1,196) $30,982
State and municipal
securities............... 9,819 114 (471) 9,462
Mortgage-backed
securities............... 2,617 22 (59) 2,580
------- ------ ------- -------
$44,595 $ 155 $(1,726) $43,024
======= ====== ======= =======
December 31, 1993:
U.S. Government and
agency securities........ $32,033 $ 430 $ (42) $32,421
State and municipal
securities............... 11,004 469 (78) 11,395
Mortgage-backed
securities............... 2,600 140 -- 2,740
Other securities......... 300 -- -- 300
------- ------ ------- -------
$45,937 $1,039 $ (120) $46,856
======= ====== ======= =======
</TABLE>
46
<PAGE>
The following table represents maturities and weighted average yields of
investment securities held by ABC at December 31, 1995.
<TABLE>
<CAPTION>
December 31, 1995
(Dollars in Thousands)
----------------------------------------------------------------------------------
After One Year but After Five Years but
Within One Year Within Five Years Within Ten Years After Ten Years
---------------- ------------------- --------------------- ------------------
Amount Yield Amount Yield Amount Yield Amount Yield
-------- ------- -------- ------- -------- ------- -------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
U.S. Treasury and Other
U.S. government agencies (1)... $11,848 5.75% $28,143 6.22% $ -- -- % $ -- -- %
Obligations of states and other
political subdivisions (1)(2).. 727 6.12 2,734 6.63 5,722 7.72 1,086 8.37
- -------------------------
</TABLE>
(1) Yields were computed using coupon interest, adding discount accretion or
subtracting premium amortization, as appropriate, on a ratable basis over
the life of each security. The weighted average yield for each maturity
range was computed using the acquisition price of each security in that
range.
(2) Yields on securities of state and political subdivisions are stated on a
tax equivalent basis using a tax rate of 34%.
Deposits
Average amount of deposits and average rate paid thereon, classified as to
noninterest-bearing demand deposits, interest-bearing demand and savings
deposits and time deposits, for the periods indicated are presented below.
<TABLE>
<CAPTION>
Year Ended December 31,
(Dollars in Thousands)
-------------------------------------
1995 1994
----------------- ----------------
Amount Rate Amount Rate
--------- ------ --------- -----
<S> <C> <C> <C> <C>
Noninterest-bearing demand
deposits................... $ 43,873 -- % $ 38,965 --%
Interest-bearing demand and
savings deposits........... 81,137 3.06% 88,482 2.47%
Time deposits................ 138,036 5.71% 112,730 4.49%
-------- --------
Total deposits..... $263,046 $240,177
======== ========
</TABLE>
ABC has a large, stable base of time deposits, with little or no dependence
on volatile deposits of $100,000 or more. The time deposits are principally
certificates of deposit and individual retirement accounts obtained for
individual customers.
The amounts of time certificates of deposit issued in amounts of $100,000
or more as of December 31, 1995, are shown below by category, which is based on
time remaining until maturity of (i) three months or less, (ii) over three
through twelve months and (iii) over twelve months.
47
<PAGE>
<TABLE>
<CAPTION>
December 31, 1995
(Dollars in Thousands)
------------------------
<S> <C>
Three months or less.............. $15,541
Over three through twelve months.. 15,040
Over twelve months................ 7,192
-------
Total.......................... $37,773
=======
</TABLE>
Return on Assets and Shareholders' Equity
The following table shows return on assets (net income divided by average
total assets), return on equity (net income divided by average shareholders'
equity), dividend payout ratio (dividends declared per share divided by net
income per share) and shareholders' equity to asset ratio (average shareholders'
equity divided by average total assets) for the periods indicated.
<TABLE>
<CAPTION>
Year Ended December 31,
----------------------------
1995 1994 1993
-------- ------- -------
<S> <C> <C> <C>
Return on assets........ 1.43% 1.15% 1.03%
Return on equity........ 13.44 13.99 13.65
Dividend payout ratio... 27.13 28.57 25.96
Equity to assets ratio.. 10.65 8.26 7.53
</TABLE>
Liquidity and Capital Resources
Liquidity management involves the matching of the cash flow requirements of
customers, who may be either depositors desiring to withdraw funds or borrowers
needing assurance that sufficient funds will be available to meet their credit
needs, and the ability of ABC and the Subsidiary Banks to meet those needs. ABC
and the Subsidiary Banks seek to meet liquidity requirements primarily through
management of short-term investments (principally Federal funds sold) and
monthly amortizing loans. Another source of liquidity is the repayment of
maturing single payment loans. In addition, the Subsidiary Banks maintain
relationships with correspondent banks which could provide funds to them on
short notice, if needed.
The liquidity and capital resources of ABC and the Subsidiary Banks are
monitored on a periodic basis by state and Federal regulatory authorities. At
December 31, 1995, the Subsidiary Banks' short-term investments were adequate to
cover any reasonably anticipated immediate need for funds. During 1995, ABC
increased its capital by $125,000, representing proceeds from exercise of common
stock options. It also increased its capital by retaining net earnings of
$3,162,000 after payment of dividends. After recording an increase in capital
of $198,000 for unrealized gains on securities, net of taxes, total capital
increased during 1995 by $3,485,000. At December 31, 1995, total capital of ABC
amounted to $33,935,000. ABC and the Subsidiary Banks were aware of no events
or trends likely to result in a material change in their liquidity. At December
31, 1995, there were no binding outstanding commitments for capital
expenditures. However, ABC anticipates that expenditures of approximately
$1,500,000 will be required for expansion or relocation of properties which it
plans to implement in 1996 in order to serve its customers and meet the needs of
the citizens
48
<PAGE>
in the communities served by the Subsidiary Banks and ABC expects to use
approximately $6,000,000 to consummate the Merger.
During the three months ended March 31, 1996, total capital increased
$640,000 to $34,575,000 at March 31, 1996. This increase in capital resulted
from the retention of net earnings of $897,000 (after deducting dividends to
shareholders of $338,000) and a decrease of $257,000 in unrealized gains on
securities available for sale, net of taxes.
In accordance with risk capital guidelines issued by the Federal Reserve
Board, ABC is required to maintain a minimum standard of total capital to
weighted risk assets of 8%. Additionally, all member banks must maintain "core"
or "Tier 1" capital of at least 4% of total assets ("leverage ratio"). Member
banks operating at or near the 4% capital level are expected to have well-
diversified risks, including no undue interest rate risk exposure, excellent
control systems, good earnings, high asset quality, and well managed on- and
off-balance sheet activities; and, in general, be considered strong banking
organizations with a composite 1 rating under the CAMEL rating system of banks.
For all but the most highly rated banks meeting the above conditions, the
minimum leverage ratio is to be 4% plus an additional 100 to 200 basis points.
The following table summarizes the regulatory capital levels of ABC at
December 31, 1995.
<TABLE>
<CAPTION>
December 31, 1995
(Dollars in Thousands)
-----------------------------------------------------------
Actual Required Excess
------------------ ----------------- ------------------
Amount Percent Amount Percent Amount Percent
-------- --------- -------- --------- -------- ---------
<S> <C> <C> <C> <C> <C> <C>
Leverage capital..... $33,260 10.37% $12,824 4.00% $20,436 6.37%
Risk-based capital:
Core Capital....... 33,260 15.23 8,733 4.00 24,527 11.23
Total Capital...... 36,008 16.49 17,466 8.00 18,542 8.49
</TABLE>
Commitments and Lines of Credit
In the ordinary course of business, the Subsidiary Banks have granted
commitments to extend credit to approved customers. Generally, these
commitments to extend credit have been granted on a temporary basis for seasonal
or inventory requirements and have been approved by each of the Subsidiary
Bank's Board of Directors. The Subsidiary Banks have also granted commitments
to approved customers for standby letters of credit. These commitments are
recorded in the financial statements when funds are disbursed or the financial
instruments become payable. The Subsidiary Banks use the same credit policies
for these off-balance sheet commitments as they do for financial instruments
that are recorded in the consolidated financial statements. Commitments
generally have fixed expiration dates or other termination clauses and may
require payment of a fee. Because many of the commitment amounts expire without
being drawn upon, the total commitment amounts do not necessarily represent
future cash requirements.
49
<PAGE>
Following is a summary of the commitments outstanding at December 31, 1995
and 1994.
<TABLE>
<CAPTION>
December 31,
(Dollars in Thousands)
-------------------------
1995 1994
---------- ----------
<S> <C> <C>
Commitments to extend credit.. $36,024 $22,344
Credit card commitments....... 2,883 2,345
Standby letters of credit..... 905 590
------- -------
$39,812 $25,279
======= =======
</TABLE>
Impact of Inflation
The consolidated financial statements and related consolidated financial
data presented herein have been prepared in accordance with generally accepted
accounting principles and practices within the banking industry which require
the measurement of financial position and operating results in terms of
historical dollars without considering the changes in the relative purchasing
power of money over time due to inflation. Unlike most industrial companies,
virtually all the assets and liabilities of a financial institution are monetary
in nature. As a result, interest rates have a more significant impact on a
financial institution's performance than the effects of general levels of
inflation.
DESCRIPTION OF ABC COMMON STOCK
General
ABC's authorized capital stock consists of 10,000,000 shares of Common
Stock, $1.00 par value per share, of which 3,379,192 shares were issued and
outstanding as of March 1, 1996, and 5,000,000 shares of preferred stock, none
of which are issued and outstanding. ABC has reserved 6,667 shares of ABC
Common Stock for issuance pursuant to certain outstanding options to purchase
such shares. ABC's Board of Directors has recommended that ABC's shareholders
approve an amendment to ABC's Articles of Incorporation to increase the number
of authorized shares of Common Stock from 10,000,000 shares to 15,000,000
shares. The ABC shareholders are expected to vote on this proposed amendment at
the annual meeting of shareholders to be held on April 16, 1996.
Common Stock
The holders of ABC Common Stock are entitled to receive dividends when, as
and if declared by the Board of Directors and paid by ABC out of funds legally
available therefor and to share ratably in the assets of ABC available for
distribution after the payment of all prior claims in the event of any
liquidation dissolution or winding-up of ABC. All outstanding shares of ABC
Common Stock are duly authorized and validly issued, fully paid and
nonassessable.
Under Federal Reserve Board policy, a bank holding company is expected to
act as a source of financial strength to each of its subsidiary banks and to
commit resources to support each such
50
<PAGE>
bank. Consistent with this policy, the Federal Reserve Board has stated that,
as a matter of prudent banking, a bank holding company generally should not
maintain a rate of cash dividends unless the available net income of the bank
holding company is sufficient to fully fund the dividends, and the prospective
rate of earnings retention appears to be consistent with its capital needs,
asset quality, and overall financial condition.
The ability of ABC to pay cash dividends is currently influenced, and in
the future could be further influenced, by bank regulatory policies or
agreements and by capital guidelines. Accordingly, the actual amount and timing
of future dividends, if any, will depend on, among other things, future
earnings, the financial condition of ABC and each of its Subsidiary Banks, the
amount of cash on hand at the holding company level, outstanding debt
obligations, if any, and the requirements imposed by regulatory authorities.
Holders of ABC Common Stock are entitled to one vote per share on all
matters requiring a vote of shareholders. The ABC Common Stock does not have
cumulative voting rights, which means that the holders of more than 50% of the
outstanding shares of ABC Common Stock voting for the election of directors can
elect 100% of the directors if they choose to do so. In such event, the holders
of the remaining shares of ABC Common Stock will not be able to elect any of the
directors.
Preferred Stock
No shares of Preferred Stock have been issued. ABC's Board of Directors is
authorized to issue the Preferred Stock in one or more series and to fix and
determine, among other things, the dividend payable with respect to such shares
of Preferred Stock (including whether and in what manner such dividend shall be
accumulated; whether such shares shall be redeemable and, if so, the prices,
terms and conditions of such redemption; the amount payable on such shares in
the event of voluntary or involuntary liquidation; the nature of any purchase,
retirement or sinking fund provisions; the nature of any conversion rights with
respect to such shares; and the extent of the voting rights, if any, of such
shares. Certain of such rights may, under certain circumstances, adversely
affect the rights or interests of holders of Common Stock. In addition, the
Preferred Stock may be issued under certain circumstances as a defensive device
to thwart an attempted hostile takeover of ABC. See " -- Certain Antitakeover
Provisions of ABC's Articles of Incorporation."
Limitations on Directors' Liability
ABC's Articles of Incorporation provide that no director of ABC shall be
liable to ABC or its shareholders for monetary damages for breach of duty of
care or other duty as a director, except for liability (i) for any
appropriation, in violation of his duties, of any business opportunity of ABC,
(ii) for acts or omissions not in good faith or which involve intentional
misconduct or a knowing violation of law, (iii) in respect of certain unlawful
dividend payments or stock redemptions or repurchases, or (iv) for any
transaction from which the director derived an improper personal benefit. The
effect of these provisions is to eliminate the rights of ABC and its
shareholders (through shareholders' derivative suits on behalf of ABC) to
recover monetary damages against a director for breach of fiduciary duty as a
director (including breaches resulting from grossly negligent behavior), except
in the situations described above. Insofar as indemnification for liabilities
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<PAGE>
arising under the 1933 Act may be permitted to directors, officers and
controlling persons of ABC pursuant to the foregoing, ABC has been advised that
in the opinion of the Commission such indemnification is against public policy
as expressed in the 1933 Act and is, therefore, unenforceable.
Certain Antitakeover Provisions of ABC's Articles of Incorporation
ABC's Articles of Incorporation were amended in 1995 to increase the number
of authorized shares of Common Stock from 3,000,000 to 10,000,000 and to
authorize the creation of 5,000,000 shares of "blank check" preferred stock.
This amendment was approved by ABC's Board of Directors and adopted by ABC's
shareholders at the annual meeting held on April 18, 1995. As referenced above,
ABC has proposed a further increase in the number of authorized shares of Common
Stock, which proposed increase proposal is to be considered by ABC's
shareholders at the annual meeting to be held on April 16, 1996. The issuance
of these shares may place ABC in a position to deter a future takeover attempt
that some shareholders may favor. In the event of a proposed merger, tender
offer or other attempt to gain control of ABC, it will be possible for the Board
of Directors to authorize the issuance of ABC's preferred stock to impede
completion of the proposed merger, tender offer or other attempt to gain
control. The Board of Directors, however, did not consider the potential
deterrent as a reason for establishing the number of its authorized shares.
There are 5,000,000 shares of authorized ABC preferred stock, but no such
shares outstanding at this time. ABC's Articles of Incorporation give the Board
the right to determine the number and terms (other than voting rights) of shares
of authorized preferred stock prior to issuance thereof, without obtaining
shareholder approval of such terms. The Board could thus choose to issue a
series of preferred stock to impede a threatened takeover attempt or tender
offer. However, ABC has no current plans to issue any shares of preferred
stock. The Georgia Business Corporation Code permits a corporation's articles
of incorporation to provide that its Board of Directors may determine all rights
(including voting rights) of preferred stock prior to the issuance of such
stock, but ABC's Board of Directors has taken no action to date to authorize an
amendment of ABC's Articles of Incorporation to permit the Board of Directors to
set voting rights for the preferred stock.
Transfer Agent
SunTrust Banks, Inc. currently acts as the transfer agent for the ABC
Common Stock.
CERTAIN REGULATORY CONSIDERATIONS RELATING TO ABC
General
As a bank holding company, ABC is subject to the regulation and supervision
of the Federal Reserve Board and the Georgia Department of Banking and Finance
(the "DBF"). The Subsidiary Banks are subject to supervision and examination by
applicable state and federal banking agencies, including the Federal Reserve
Board, the FDIC and the DBF. The Subsidiary Banks are also subject to various
requirements and restrictions under federal and state law, including
requirements to maintain reserves against deposits, restrictions on the types
and amounts of loans that may be granted and the interest that may be charged
thereon, and limitations on the types of investments that may
52
<PAGE>
be made and the types of services that may be offered. Various consumer laws
and regulations also affect the operations of the Subsidiary Banks. In addition
to the impact of regulation, commercial banks are affected significantly by the
actions of the Federal Reserve Board as it attempts to control the money supply
and credit availability in order to influence the economy.
The BHCA requires every bank holding company to obtain the prior approval
of the Federal Reserve Board before (i) it may acquire direct or indirect
ownership or control of more than 5% of the voting shares of any bank that it
does not already control; (ii) it or any of its subsidiaries, other than a bank,
may acquire all or substantially all of the assets of a bank; and (iii) it may
merge or consolidate with any other bank holding company. In addition, a bank
holding company is generally prohibited from engaging in, or acquiring, direct
or indirect control of the voting shares of any company engaged in non-banking
activities. This prohibition does not apply to activities found by the Federal
Reserve Board, by order or regulation, to be so closely related to banking or
managing or controlling banks as to be a proper incident thereto. Some of the
activities that the Federal Reserve Board has determined by regulation or order
to be closely related to banking are: making or servicing loans and certain
types of leases; performing certain data processing services; acting as
fiduciary or investment or financial advisor; providing discount brokerage
services; underwriting bank eligible securities; underwriting debt and equity
securities on a limited basis through separately capitalized subsidiaries; and
making investments in corporations or projects designed primarily to promote
community welfare.
In addition, the DBF requires information with respect to the financial
condition, operations, management and intercompany relationships of ABC and the
Subsidiary Banks and related matters. The DBF may also require such other
information as is necessary to keep itself informed as to whether the provisions
of Georgia law and the regulations and orders issued thereunder by the DBF have
been complied with, and the DBF may examine ABC. ABC is an "affiliate" of the
Subsidiary Banks under the Federal Reserve Act, which imposes certain
restrictions on (i) loans by the Subsidiary Banks to ABC; (ii) investments in
the stock or securities of ABC by the Subsidiary Banks; (iii) the Subsidiary
Bank's taking the stock or securities of an "affiliate" as collateral for loans
by the Subsidiary Banks to a borrower; and (iv) the purchase of assets from ABC
by the Subsidiary Banks. Further, a bank holding company and its subsidiaries
are prohibited from engaging in certain tie-in arrangements in connection with
any extension of credit, lease or sale of property or furnishing of services.
Payment of Dividends and Other Restrictions
ABC is a legal entity separate and distinct from its subsidiaries. There
are various legal and regulatory limitations under federal and state law on the
extent to which ABC's subsidiaries can pay dividends or otherwise supply funds
to ABC.
The principal source of ABC's cash revenues is dividends from its
subsidiaries and there are certain limitations under federal, Georgia and
Alabama law on the payment of dividends by such subsidiaries. The prior
approval of the Federal Reserve Board or the applicable state commissioner, as
the case may be, is required if the total of all dividends declared by any state
member bank of the Federal Reserve System in any calendar year exceeds the
bank's net profits (as defined) for that year combined with its retained net
profits for the preceding two calendar years, less any required
53
<PAGE>
transfers to surplus or a fund for the retirement of any preferred stock. The
relevant federal and state regulatory agencies also have authority to prohibit a
state member bank or bank holding company, which would include ABC and the
Subsidiary Banks (including Southland Bank) from engaging in what, in the
opinion of such regulatory body, constitutes an unsafe or unsound practice in
conducting its business. The payment of dividends could, depending upon the
financial condition of the subsidiary, be deemed to constitute such an unsafe or
unsound practice.
Under Georgia law (which would apply to any payment of dividends by the
Subsidiary Banks (other than Southland Bank) to ABC), the prior approval of the
Georgia Commissioner of Banking and Finance is required before any cash
dividends may be paid by a state bank if: (i) total classified assets at the
most recent examination of such bank exceed 80% of the equity capital (as
defined, which includes the reserve for loan losses) of such bank; (ii) the
aggregate amount of dividends declared or anticipated to be declared in the
calendar year exceeds 50% of the net profits (as defined) for the previous
calendar year; or (iii) the ratio of equity capital to adjusted total assets is
less than 6%.
Retained earnings of the Subsidiary Banks available for payment of cash
dividends under all applicable regulations without obtaining governmental
approval were approximately $2.4 million as of December 31, 1995.
In addition, the Subsidiary Banks are subject to limitations under
Section 23A of the Federal Reserve Act with respect to extensions of credit to,
investments in, and certain other transactions with, ABC. Furthermore, loans
and extensions of credit are also subject to various collateral requirements.
Capital Adequacy
The Federal Reserve Board has adopted risk-based capital guidelines for
bank holding companies. The minimum ratio of total capital ("Total Capital") to
risk-weighted assets (including certain off-balance sheet items, such as standby
letters of credit, is 8%). At least half of the Total Capital is to be composed
of common stock, minority interests in the equity accounts of consolidated
subsidiaries, noncumulative perpetual preferred stock and a limited amount of
perpetual preferred stock, less goodwill ("Tier I Capital"). The remainder may
consist of subordinated debt, other preferred stock and a limited amount of loan
loss reserves.
In addition, the Federal Reserve Board has established minimum leverage
ratio guidelines for bank holding companies. These guidelines provide for a
minimum ratio of Tier I Capital to total assets, less goodwill (the "Leverage
Ratio") of 3% for bank holding companies that meet certain specified criteria,
including those having the highest regulatory rating. All other bank holding
companies generally are required to maintain a Leverage Ratio of at least 3%
plus an additional cushion of 100 to 200 basis points. The guidelines also
provide that bank holding companies experiencing internal growth or making
acquisitions will be expected to maintain strong capital positions substantially
above the minimum supervisory levels without significant reliance on intangible
assets. Furthermore, the Federal Reserve Board has indicated that it will
consider a "tangible Tier I capital leverage ratio" (deducting all intangibles)
and other indicia of capital strength in evaluating proposals for expansion or
new activities.
54
<PAGE>
Effective December 19, 1992, a new Section 38 to the Federal Deposit
Insurance Act implemented the prompt corrective action provisions that Congress
enacted as a part of the Federal Deposit Insurance Corporation Improvement Act
of 1991 (the "1991 Act"). The "prompt corrective action" provisions set forth
five regulatory zones in which all banks are placed largely based on their
capital positions. Regulators are permitted to take increasingly harsh action as
a bank's financial condition declines. Regulators are also empowered to place in
receivership or require the sale of a bank to another depository institution
when a bank's capital leverage ratio reaches two percent. Better capitalized
institutions are generally subject to less onerous regulation and supervision
than banks with lesser amounts of capital.
The FDIC has adopted regulations implementing the prompt corrective action
provisions of the 1991 Act, which place financial institutions in the following
five categories based upon capitalization ratios: (1) a "well capitalized"
institution has a total risk-based capital ratio of at least 10%, a Tier I risk-
based ratio of at least 6% and a leverage ratio of at least 5%; (2) an
"adequately capitalized" institution has a total risk-based capital ratio of at
least 8%, a Tier I risk-based ratio of at least 4% and a leverage ratio of at
least 4%; (3) an "undercapitalized" institution has a total risk-based capital
ratio of under 8%, a Tier I risk-based ratio of under 4% or a leverage ratio of
under 4%; (4) a "significantly undercapitalized" institution has a total risk-
based capital ratio of under 6%, a Tier I risk-based ratio of under 3% or a
leverage ratio of under 3%; and (5) a "critically undercapitalized" institution
has a leverage ratio of 2% or less. Institutions in any of the three
undercapitalized categories would be prohibited from declaring dividends or
making capital distributions. The FDIC regulations also establish procedures
for "downgrading" an institution to a lower capital category based on
supervisory factors other than capital.
The downgrading of an institution's category is automatic in two
situations: (1) whenever an otherwise well-capitalized institution is subject
to any written capital order or directive, and (2) where an undercapitalized
institution fails to submit or implement a capital restoration plan or has its
plan disapproved. The Federal banking agencies may treat institutions in the
well-capitalized, adequately capitalized and undercapitalized categories as if
they were in the next lower capital level based on safety and soundness
considerations relating to factors other than capital levels.
All insured institutions regardless of their level of capitalization are
prohibited by the Federal Deposit Insurance Corporation Improvement Act of 1991
(the "FDIC Act") from paying any dividend or making any other kind of capital
distribution or paying any management fee to any controlling person if following
the payment or distribution the institution would be undercapitalized. While
the prompt corrective action provisions of the FDIC Act contain no requirements
or restrictions aimed specifically at adequately capitalized institutions, other
provisions of the FDIC Act and the agencies' regulations relating to deposit
insurance assessments, brokered deposits and interbank liabilities treat
adequately capitalized institutions less favorably than those that are well-
capitalized.
Under the FDIC's regulations, all of the Subsidiary Banks are "well
capitalized" institutions.
55
<PAGE>
Support of Subsidiary Banks
Under the Federal Reserve Board policy, ABC is expected to act as a source
of financial strength to, and to commit resources to support, each of the
Subsidiary Banks. This support may be required at times when, absent such
Federal Reserve Board policy, ABC may not be inclined to provide it. In the
event of a bank holding company's bankruptcy, any commitment by the bank holding
company to a federal bank regulatory agency to maintain the capital of a
subsidiary bank will be assumed by the bankruptcy trustee and entitled to a
priority of payment.
As a result of the enactment of Section 206 of the Financial Institutions
Reform, Recovery and Enforcement Act ("FIRREA") on August 9, 1989, a depository
institution insured by the FDIC can be held liable for any loss incurred by, or
reasonably expected to be incurred by, the FDIC after August 9, 1989 in
connection with (i) the default of a commonly controlled FDIC-insured depository
institution or (ii) any assistance provided by the FDIC to any commonly
controlled FDIC-insured depository institution "in danger of default" is defined
generally as the existence of certain conditions indicating that a default is
likely to occur in the absence of regulatory assistance.
FDIC Insurance Assessments
The Subsidiary Banks are subject to FDIC deposit insurance assessments for
the Bank Insurance Fund (the "BIF"). Since 1989 the annual FDIC deposit
insurance assessments increased from $.083 per $100 of deposits to a minimum
level of $.23 per $100, an increase of 177 percent. The FDIC implemented a
risk-based assessment system whereby banks are assessed on a sliding scale
depending on their placement in nine separate supervisory categories, from $.23
per $100 of deposits for the healthiest banks (those with the highest capital,
best management and best overall condition) to as much as $.31 per $100 of
deposits for the less-healthy institutions, for an average $.259 per $100 of
deposits.
On August 8, 1995, the FDIC lowered the BIF premium for "healthy" banks 83%
from $.23 per $100 in deposits to $.04 per $100 in deposits, while retaining the
$.31 level for the riskiest banks. The average assessment rate was therefore
reduced from $.232 to $.044 per $100 of deposits. The new rate took effect on
September 29, 1995. On November 14, 1995, the FDIC again lowered the BIF
premium for "healthy" banks from $.04 per $100 of deposits to zero for the
highest rated institutions (92% of the industry). As a result, the Subsidiary
Banks pay only the legally required annual minimum payment of $10,000 per year
for insurance as of January 1996.
Recent Legislative and Regulatory Action
On April 19, 1995, the four federal bank regulatory agencies adopted
revisions to the regulations promulgated pursuant to the Community Reinvestment
Act (the "CRA"), which are intended to set distinct assessment standards for
financial institutions. The revised regulation contains three evaluation tests:
(i) a lending test which will compare the institution's market share of loans in
low- and moderate- income areas to its market share of loans in its entire
service area and the percentage of a bank's outstanding loans to low- and
moderate- income areas or individuals; (ii) a services test which will evaluate
the provisions of services that promote the availability of credit to low- and
moderate-income areas; and (iii) an investment test, which will evaluate an
institution's
56
<PAGE>
record of investments in organizations designed to foster community development,
small- and minority-owned businesses and affordable housing lending, including
state and local government housing or revenue bonds. The regulation is designed
to reduce some paperwork requirements of the current regulations and provide
regulators, institutions and community groups with a more objective and
predictable manner with which to evaluate the CRA performance of financial
institutions. The rule became effective on January 1, 1996 at which time
evaluation under streamlined procedures were scheduled to begin for institutions
with assets of less than $250 million that are owned by a holding company with
total assets of less than $1 billion. Until the regulators release guidelines
for examiners that interpret the rules, it is unclear what effect, if any, these
regulations will have on ABC and the Subsidiary Banks. Congress and various
federal agencies (including, in addition to the bank regulatory agencies, the
Department of Housing and Urban Development, the Federal Trade Commission and
the Department of Justice) (collectively, the "Federal Agencies") responsible
for implementing the nation's fair lending laws have been increasingly concerned
that prospective home buyers and other borrowers are experiencing discrimination
in their efforts to obtain loans. In recent years, the Department of Justice
has filed suit against financial institutions, which it determined had
discriminated, seeking fines and restitution for borrowers who allegedly
suffered from discriminatory practices. Most, if not all, of these suits have
been settled (some for substantial sums) without a full adjudication on the
merits.
On March 8, 1994, the Federal Agencies, in an effort to clarify what
constitutes lending discrimination and specify the factors the agencies will
consider in determining if lending discrimination exists, announced a joint
policy statement detailing specific discriminatory practices prohibited under
the Equal Opportunity Act and the Fair Housing Act. In the policy statement,
three methods of proving lending discrimination were identified: (1) overt
evidence of discrimination, when a lender blatantly discriminates on a
prohibited basis; (2) evidence of disparate treatment, when a lender treats
applicants differently based on a prohibited factor even where there is no
showing that the treatment was motivated by prejudice or a conscious intention
to discriminate against a person; and (3) evidence of disparate impact, when a
lender applies a practice uniformly to all applicants, but the practice has a
discriminatory effect, even where such practices are neutral on their face and
are applied equally, unless the practice can be justified on the basis of
business necessity.
On September 23, 1994, President Clinton signed the Reigle Community
Development and Regulatory Improvement Act of 1994 (the "Regulatory Improvement
Act"). The Regulatory Improvement Act contains funding for community development
projects through banks and community development financial institutions and also
numerous regulatory relief provisions designed to eliminate certain duplicative
regulations and paperwork requirements. On September 29, 1994, President
Clinton signed the Reigle-Neal Interstate Banking and Branching Efficiency Act
of 1994 (the "Federal Interstate Bill") which amended federal law to permit bank
holding companies to acquire existing banks in any state effective September 29,
1995, and to permit any interstate bank holding company to merge its various
bank subsidiaries into a single bank with interstate branches after May 31,
1997. States have the authority to authorize interstate branching prior to June
1, 1997, or, alternatively, to opt out of interstate branching prior to that
date. The Georgia Financial Institutions Code was amended in 1994 to permit the
acquisition of a Georgia bank or bank holding company by out-of-state bank
holding companies beginning July 1, 1995. On September 29, 1995, the interstate
banking provisions of the Georgia Financial Institutions Code were superseded by
the Federal Interstate Bill.
57
<PAGE>
In February 1996, the Georgia legislature adopted the "Georgia Interstate
Branching Act," which when signed by the Governor, will permit Georgia-based
banks and bank holding companies owning or acquiring banks outside of Georgia
and all non-Georgia banks and bank holding companies owning or acquiring banks
in Georgia the right to merge any lawfully acquired bank into an interstate
branch network. The Georgia Interstate Branching Act also allows banks to
establish de novo branch banks on a limited basis beginning July 1, 1996.
Beginning July 1, 1998, the number of de novo bank branches which may be
established will no longer be limited.
Monetary Policy
The earnings of ABC are affected by domestic and foreign economic
conditions, particularly by the monetary and fiscal policies of the United
States government and its agencies.
The Federal Reserve Board has had, and will continue to have, an important
impact on the operating results of commercial banks through its power to
implement national monetary policy in order, among other things, to mitigate
recessionary and inflationary pressures by regulating the national money supply.
The techniques used by the Federal Reserve Bank include setting the reserve
requirements of member banks and establishing the discount rate on member bank
borrowings. The Federal Reserve Board also conducts open market transactions in
United States government securities.
Future Requirements
Statutes and regulations are regularly introduced which contain wide-
ranging proposals for altering the structures, regulations and competitive
relationships of the nations's financial institutions. It cannot be predicted
whether or what form any proposed statute or regulation will be adopted or the
extent to which the business of ABC or any of the Subsidiary Banks may be
affected by such statute or regulation.
COMPARATIVE RIGHTS OF SHAREHOLDERS
ABC is a business corporation organized under the Georgia Business
Corporation Code (the "GBCC"). The Company is a corporation organized under the
Alabama Business Corporation Act (the "ABCA"). The Company's shareholders,
whose rights as shareholders are currently governed by the ABCA and the
Company's Articles of Incorporation and Bylaws, will become, upon consummation
of the Merger, shareholders of ABC. Their rights as shareholders of ABC will be
governed by the GBCC and the ABC Articles of Incorporation and Bylaws. Certain
differences between the rights of the Company's shareholders and ABC
shareholders are summarized below. The summary does not purport to be a
complete statement of the rights of the Company's shareholders as compared with
the rights of the ABC shareholders. The identification of specific differences
is not meant to indicate that other equally or more significant differences do
not exist. The summary is qualified in its entirety by reference to the ABCA,
the GBCC, and the respective articles of incorporation and bylaws of the two
corporations.
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Liquidity and Marketability
ABC Common Stock. All of the 3,379,192 shares of ABC Common Stock are
freely tradeable except for approximately 712,190 shares held by "affiliates" of
ABC, as such term is defined in Rule 144 under the 1933 Act, which shares may
only be sold pursuant to an effective registration statement under the 1933 Act
or in compliance with Rule 144 or another applicable exemption from the
registration requirements of the 1933 Act.
Company Common Stock. The Company Shares are not registered with the
Commission or listed on any national securities exchange or quoted on any
interdealer quotation system. There is no established market for the Company
Shares, and none is expected to develop.
Reporting Requirements
ABC Common Stock. ABC is a reporting company under the 1934 Act and files
annual and quarterly financial reports with the Commission. ABC also files
certain reports with the Federal Reserve Board and the Georgia Department of
Banking and Finance.
Company Common Stock. The Company is not subject to any financial
reporting regulations, other than those of the Federal Reserve Board and the
Alabama State Department of Banking.
Preemptive, Voting and Liquidation Rights
ABC Common Stock. The ABC Common Stock does not have preemptive rights.
Each share of ABC Common Stock has the right to cast one vote on all matters
voted upon by the ABC shareholders. Under the GBCC, a majority of the
outstanding shares entitled to vote must approve any dissolution or liquidation
of a corporation, unless the articles of incorporation or bylaws require a
greater vote. Neither ABC's articles nor its bylaws impose any such
requirement.
Company Common Stock. Company Common Shares do not possess preemptive
rights. Each Company Share has the right to cast one vote on all matters voted
upon by the Company's shareholders. Cumulative voting is not authorized and
under the ABCA, two-thirds of the outstanding shares entitled to vote must
approve any dissolution or liquidation of a corporation, unless the articles of
incorporation require a greater or lesser vote. The Company's articles do not
impose any such requirement.
Mergers, Consolidations and Sales of Assets
ABC Common Stock. Under the GBCC, a merger (other than a merger of a
subsidiary in which the parent owns at least 90% of each class of outstanding
stock), a disposition of all or substantially all of a corporation's property
and a share exchange generally must be approved by a majority of the outstanding
shares entitled to vote, unless the articles of incorporation or bylaws requires
otherwise. Neither ABC's articles nor its bylaws impose any such requirement.
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Company Common Stock. Under the ABCA, a merger (other than a merger of a
subsidiary in which the parent owns at least 80% of each class of outstanding
stock), a disposition of all or substantially all of a corporation's property
and a share exchange generally must be approved by two-thirds of the outstanding
shares entitled to vote, unless the articles of incorporation or bylaws requires
otherwise. The Company's articles do not impose any such requirement.
Dissenters' Rights
ABC Common Stock. Under the GBCC, a shareholder of a corporation
participating in certain transactions may, under certain circumstances, receive
the fair value of his shares in cash, in lieu of the consideration he would
otherwise have received in the transaction. The GBCC recognizes dissenters'
rights in connection with mergers, share exchanges, sales of all or
substantially all of the corporation's property and certain amendments to the
articles of incorporation that materially and adversely affect a shareholder's
rights. Appraisal rights are not available (unless otherwise provided in the
corporation's articles of incorporation, and ABC's articles do not so provide):
(i) if the shares of the corporation are listed on a national securities
exchange or held of record by more than 2,000 shareholders, and shareholders by
the terms of the merger or consolidation are not required to accept in exchange
for their shares anything other than shares of stock of the surviving or
resulting corporation, or shares of stock of any other corporation listed on a
national securities exchange or held of record by more than 2,000 stockholders,
other than cash in lieu of fractional shares of stock; or (ii) in a merger if
the corporation is the surviving corporation and no vote of its shareholders
thereon is required. Under the GBCC, the ABC shareholders are not entitled to
dissenters' rights with respect to the Merger.
Company Common Stock. Under the ABCA, a shareholder of a corporation
participating in certain transactions may, under certain circumstances, receive
the fair value of his shares in cash, in lieu of the consideration he would
otherwise have received in the transaction. The ABCA recognizes dissenters'
rights in connection with mergers, share exchanges, sales of all or
substantially all of the corporation's property and certain amendments to the
articles of incorporation that materially and adversely affect a shareholder's
rights. Under the ABCA, the Company's shareholders are entitled to dissenters
rights with respect to the Merger.
Taxation
ABC Common Stock. ABC is a taxable entity under the Code and is taxed on
its income and entitled to the deductions allowed under the Code. A sale of
shares of ABC Common Stock will normally result in a capital gain or loss for
federal income tax purposes. Shareholders of ABC who receive dividends are
expected to receive a copy of Form 1099 filed with the Internal Revenue Service
prior to January 31 of the following year.
Company Common Stock. The Company is a taxable entity under the Code and
is taxed on its income and entitled to the deductions allowed under the Code. A
sale of Company Shares will normally result in a capital gain or loss for
federal income tax purposes. Shareholders of the Company who receive dividends
are expected to receive a copy of Form 1099 filed with the Internal Revenue
Service prior to January 31 of the following year.
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Distributions
ABC Common Stock. The holders of ABC Common Stock are entitled to receive
dividends when, as and if declared by the Board of Directors and paid by ABC out
of funds legally available therefor. Under Federal Reserve Board policy, a bank
holding company is expected to act as a source of financial strength to each of
its subsidiary banks and to commit resources to support each such bank.
Consistent with this policy, the Federal Reserve Board has stated that, as a
matter of prudent banking, a bank holding company generally should not maintain
a rate of cash dividends unless the available net income of the bank holding
company is sufficient to fully fund the dividends, and the prospective rate of
earnings retention appears to be consistent with its capital needs, asset
quality, and overall financial condition. The ability of ABC to pay cash
dividends is currently influenced, and in the future could be further
influenced, by bank regulatory policies or agreements and by capital guidelines.
Accordingly, the actual amount and timing of future dividends, if any, will
depend on, among other things, future earnings, the financial condition of ABC
and each of its Subsidiary Banks, the amount of cash on hand at the holding
company level, outstanding debt obligations, if any, and the requirements
imposed by regulatory authorities.
Company Common Stock. The holders of Company Shares are entitled to
receive dividends when, as and if declared by the Board of Directors and paid by
the Company out of funds legally available therefor. Under Federal Reserve
Board policy, a bank holding company is expected to act as a source of financial
strength to each of its subsidiary banks and to commit resources to support each
such bank. Consistent with this policy, the Federal Reserve Board has stated
that, as a matter of prudent banking, a bank holding company generally should
not maintain a rate of cash dividends unless the available net income of the
bank holding company is sufficient to fully fund the dividends, and the
prospective rate of earnings retention appears to be consistent with its capital
needs, asset quality, and overall financial condition. The ability of the
Company to pay cash dividends is currently influenced, and in the future could
be further influenced, by bank regulatory policies or agreements and by capital
guidelines. Accordingly, the actual amount and timing of future dividends, if
any, will depend on, among other things, future earnings, the financial
condition of the Company and each of its subsidiary banks, the amount of cash on
hand at the holding company level, outstanding debt obligations, if any, and the
requirements imposed by regulatory authorities. As noted in "Certain Regulatory
Considerations Relating to the Company," (i) on or about September 12, 1994, the
Company entered into a Memorandum of Understanding with the Federal Reserve Bank
of Atlanta (the "Reserve Bank") providing, among other things, that the company
would not declare or pay dividends to its shareholders without the prior written
approval of the Reserve Bank, and (ii) on or about March 8, 1993, Southland Bank
entered into a Memorandum of Understanding with the FDIC and Alabama State
Banking Department (the "Department") pursuant to which Southland Bank agreed
that it would not declare or pay dividends without the prior written consent of
the FDIC and the Department.
Liability
ABC Common Stock. ABC shareholders are not personally liable for the
obligations of ABC.
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Company Common Stock. The Company's shareholders are not personally liable
for the Company's obligations.
Assessments
ABC Common Stock. All shares of ABC Common Stock are fully paid and
nonassessable.
Company Common Stock. All Company Shares are fully paid and nonassessable.
Fiduciary Duties
ABC Common Stock. ABC's Articles of Incorporation provide that, with
certain exceptions mandated by the GBCC, officers and directors are not liable
to ABC or its shareholders for monetary damages for breach of their fiduciary
duty of care.
Company Common Stock. The Company's Articles of Incorporation do not
include a provision eliminating or limiting any officer or director liability to
the Company or its shareholders for any breach of their fiduciary duty of care.
Indemnification
ABC Common Stock. ABC's articles provide that no director shall be
personally liable to ABC or its shareholders for monetary damages for any breach
of the duty of care or other duty as a director, except that such liability
shall not be eliminated: (i) for any appropriation, in violation of a
director's duties, of any business opportunity of the corporation, (ii) for acts
or omissions which involve intentional misconduct or a knowing violation of law,
(iii) for certain unlawful distributions, or (iv) for any transaction from which
the director derived an improper personal benefit. The GBCC permits a
corporation to indemnify a director if the director seeking indemnification
acted in a manner he believed in good faith to be in or not opposed to the best
interest of the company and, in the case of any criminal proceedings, that he
had no reasonable cause to believe his conduct was unlawful. A further
limitation on indemnification imposed by the GBCC is that in the case of
indemnification in connection with a proceeding by or in the right of the
corporation, indemnification is limited to reasonable expenses incurred in
connection with the proceeding.
Company Common Stock. Pursuant to the Company's bylaws, the Company shall
indemnify all persons who may be indemnified under the ABCA to the full extent
such indemnification is required or permitted under the ABCA. Such persons who
may be indemnified are directors, officers, employees and agents of ABC.
Management
ABC Common Stock. The business and affairs of ABC are managed by or under
the direction of its Board of Directors. Each director is elected annually by
the ABC shareholders and may be removed and replaced, with or without cause, by
a majority vote of ABC shareholders at any meeting of such holders.
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Company Common Stock. The business and affairs of the Company are managed
by or under the direction of its Board of Directors. Each director is elected
annually by the Company's shareholders and may be removed and replaced, with or
without cause, by a majority vote of the Company's shareholders at any meeting
of such holders.
Special Meetings
ABC Common Stock. Special meetings of the ABC shareholders may be called
at any time by ABC's Chairman of the Board, Vice Chairman of the Board,
President, Secretary or a majority of the directors of ABC. Special meetings of
the ABC shareholders also shall be called upon the written request of the
holders of 50% or more of all shares of capital stock of ABC entitled to vote in
an election of directors.
Company Common Stock. Special meetings of the Company's shareholders may
be called at any time by the president or at the request of a majority of the
Board of Directors. Special meetings of the Company's shareholders also shall
be called upon the written request of the holders of 10% or more of all shares
of capital stock of the Company entitled to vote in an election of directors.
Right to Compel Dissolution
ABC Common Stock. Under the GBCC, ABC shareholders may not compel the
dissolution of ABC without prior action by ABC's Board of Directors proposing
such dissolution.
Company Common Stock. Under the ABCA, the Company's shareholders (other
than by unanimous written consent) may not compel the dissolution of the Company
without prior action by the Company's Board of Directors proposing such
dissolution.
Continuity of Existence
ABC Common Stock. ABC's Articles of Incorporation provide for perpetual
existence, subject to termination or dissolution as provided by the GBCC.
Company Common Stock. The Company's Articles of Incorporation provide for
perpetual existence, subject to termination or dissolution as provided by the
ABCA.
Certain Legal Rights
ABC Common Stock. The GBCC affords ABC shareholders the right to bring a
legal action on behalf of ABC (a shareholder derivative action) to recover
damages from a third party or an officer or director of ABC, if the ABC
shareholder was a shareholder of ABC at the time of the act or omission
complained of or became a shareholder through transfer by operation of law from
one who was a shareholder at that time and the shareholder fairly and adequately
represents the interest of ABC in enforcing its rights. In addition, a
shareholder may not commence a derivative proceeding until a written demand has
been made upon the corporation to take suitable action and 90 days have expired
from the date the demand was made (unless the demand has been rejected by
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the corporation or irreparable injury to the corporation would result by waiting
for the expiration of that 90-day period). In addition, ABC shareholders may
bring class actions to recover damages from directors for violations of their
fiduciary duties.
Company Common Stock. The Alabama Rules of Civil Procedure provide that
Company shareholders attempting to enforce a right which may be properly
asserted by the Company (a shareholder derivative action) must allege and verify
that they were shareholders at the time of the transaction of which the
shareholders' complain or that such shareholders' shares thereafter devolved
upon them by operation of law. Such shareholders must also have made a demand
of the Company to obtain the action desired from the directors or adequately
prove the reasons for any failure to obtain the action or for not making the
demand. The shareholders further may not maintain such a derivative action if
they do not fairly and adequately represent the interests of the shareholders in
enforcing the rights of the Company. Although not certain under Alabama law,
the shareholders may also have the right to assert causes of action,
individually or by class action, against officers and directors of the Company
in certain situations, such as commissions of fraud or breaches of fiduciary
duty.
Right to List of Holders and Inspection of Books and Records
ABC Common Stock. Under the GBCC, ABC shareholders are generally entitled
to inspect and copy ABC's Articles of Incorporation, Bylaws, shareholder
resolutions, Board resolutions, lists of names and addresses of Board members,
all written communications to shareholders, lists of names and business
addresses of current directors and officers, and the Annual Registration filed
with the Secretary of State of the State of Georgia. An ABC shareholder must
make a written request at least five business days in advance of such
inspection, which must occur during regular business hours at ABC's principal
office. Other ABC records are generally available to an ABC shareholder for
inspection and copying during regular business hours at a reasonable location
specified by ABC upon written demand at least five business days in advance, if
the shareholder makes a demand in good faith and for proper purpose that is
reasonably relevant to legitimate interests as a shareholder, describes with
reasonable particularity the purpose and the records desired to be inspected,
and the records requested are directly connected with a stated purpose and are
to be used only for that stated purpose. A Georgia corporation may limit these
latter inspection rights to shareholders owning more than 2% of the outstanding
stock of the corporation. ABC's Articles of Incorporation do not contain any
such limitation.
Company Common Stock. Under the ABCA, the Company's shareholders are
generally entitled to inspect and copy the Company's Articles of Incorporation,
Bylaws, shareholder resolutions, Board resolutions, lists of names and addresses
of Board members, all written communications to shareholders generally within
the past three years, lists of names and business addresses of current directors
and officers, and the most recent annual report filed with the Secretary of
State of the State of Alabama. A shareholder must make a written request at
least five business days in advance of such inspection, which must occur during
regular business hours at the Company's principal office. Subject to certain
limitations applicable to corporations engaged in the banking business, other
records of the Company are generally available to a shareholder for inspection
and copying during regular business hours at a reasonable location specified by
the
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Company upon written demand at least five business days in advance, if the
shareholder makes a demand for any proper purpose.
DESCRIPTION OF SOUTHLAND BANCORPORATION
Business
General. The Company is a bank holding company organized under the laws of
the State of Alabama and registered with the Federal Reserve Board pursuant to
the BHCA. The Company owns all of the outstanding capital stock of Southland
Bank, an Alabama state bank that provides general banking services in the
Alabama cities of Dothan, Headland, Abbeville, Eufaula and Clayton. At December
31, 1995, the Company, on a consolidated basis, had total assets of
approximately $100.8 million, total loans of approximately $71.4 million, total
deposits of approximately $84.8 million and total stockholders' equity of
approximately $6.3 million. The Company's net income for 1995 was $1.0 million
or $2.05 per share.
Southland Bank serves its primary market area of southeast Alabama from its
headquarters located in Dothan, Alabama. The banking business in this market is
highly competitive. Southland Bank competes for both deposits and loan
customers with many other financial institutions with equal or greater resources
than are available to Southland Bank. Such institutions include other
commercial banks, credit union insurance companies, brokerage firms and other
financial services companies.
Southland Bank operates a full service commercial banking business and
provides a wide range of banking services, including checking and savings
accounts; various types of certificates of deposit; agricultural, consumer,
commercial and real estate loans; safe deposit boxes; drive-in banking
facilities and access to 24-hour teller machines through various networks. A
description of Southland Bank's primary banking activities is set forth below.
Deposits. Southland Bank offers a wide range of commercial and consumer
deposit accounts, including checking accounts, money market checking accounts,
negotiable order of withdrawal (NOW) accounts, individual retirement accounts,
time certificates of deposit and regular savings accounts. The sources of
deposits typically are residents and businesses and their employees within
Southland Bank's market area. Southland Bank pays competitive interest rates on
time and savings deposits and has implemented a service charge fee schedule
competitive with other financial institutions in its market area. For
additional information, including the amounts of deposits of various types and
information concerning deposits greater than or equal to $100,000, see
"Management's Discussion and Analysis of Financial Condition and Results of
Operations."
Lending Activities. Southland Bank's lending activities include
agricultural, real estate, consumer and commercial loans. Southland Bank's
agricultural loans are made for crop production expenses and to finance the
purchase of farm-related equipment. Its real estate loan portfolio includes
traditional first mortgage loans to individuals on single-family homes, loans
secured by farmland and construction loans. Southland Bank also makes consumer
loans, consisting primarily of installment loans to individuals for personal,
family and household purposes, including loans for automobiles, home
improvements and investments. Southland Bank's commercial lending is directed
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principally toward businesses located within the defined trade area of Southland
Bank with a demand for funds that falls within Southland Bank's legal lending
limits. Southland Bank also targets businesses that are existing or are
potential deposit customers.
Lending decisions are based upon determination of the borrower's ability
and willingness to repay the loan, which in turn are impacted by such factors as
an individual borrower's income, job stability, length of time as a resident in
the community, previous credit history and collateral for the loan and a
commercial borrower's cash flow, sales trend and inventory levels and relevant
economic conditions. In the case of agricultural loans, Southland Bank
typically looks to the borrower's cash flow as the principal source of repayment
and generally secures repayment by a security interest in the crops or farm-
related equipment and, in some cases, an assignment of crop insurance on a
mortgage on real estate. Risks associated with loans can be significant and
include, but are not limited to, fraud, bankruptcy, economic downturn,
deteriorated or non-existing collateral and changes in interest rates.
Agricultural loans carry additional risks, including fluctuating commodity
prices and the risk of adverse weather conditions.
Investment Activities. After establishing necessary cash reserves and
funding loans, Southland Bank invests its remaining liquid assets in investments
allowed under banking laws and regulations. Southland Bank invests primarily in
obligations of the United States or obligations guaranteed as to principal and
interest by the United States and other taxable securities and in certain
obligations of states and municipalities. Risks associated with these
investments include, but are not limited to, mismanagement in terms of interest
rate, maturity and concentration. For additional information concerning
investment activities, see the information set forth under "Management's
Discussion and Analysis of Financial Condition and Results of Operations."
Asset/Liability Management. It is management's objective to manage
Southland Bank's assets and liabilities to provide a satisfactory, consistent
level of profitability within the framework of established cash, loan,
investment, borrowing and capital policies. Certain officers of Southland Bank
are charged with the responsibility for developing and monitoring policies and
procedures that are designed to ensure acceptable composition of the
asset/liability mix. It is management's overall philosophy to support asset
growth primarily through growth of core deposits, which includes deposits of all
categories made by individuals, partnerships and corporations. Southland Bank's
asset/liability mix is monitored on a timely basis with a report reflecting
interest-sensitive assets and interest-sensitive liabilities being prepared and
presented to the asset/liability committee of Southland Bank's Board of
Directors on a monthly basis. In addition, Southland Bank's liquidity is
monitored on a monthly basis by its Board of Directors. The objective of this
policy is to manage interest-sensitive assets and liabilities so as to minimize
the impact of substantial movements in interest rates on Southland Bank's
earnings. See "Management's Discussion and Analysis of Financial Condition and
Results of Operations."
Employees
As of December 31, 1995, the Company and Southland Bank had a total of 63
full-time equivalent employees to whom they provide a variety of benefits. The
Company and Southland Bank consider employee relations to be excellent.
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Properties
The principal offices of the Company and Southland Bank are located at 3299
Ross Clark Circle, NW, Dothan, Alabama 36303. Southland Bank also operates
branches at 204 Kirkland Street, Abbeville, Alabama; 103 Eufaula Avenue,
Clayton, Alabama; and 208 Main Street, Headland, Alabama. These properties are
owned by Southland Bank and are not subject to any material encumbrances.
Southland Bank operates two branches on leased property located at 3090 Ross
Clark Circle, NW, Dothan, Alabama and 1094 S. Eufaula Avenue, Eufaula, Alabama.
Litigation
An action entitled Bruce Roland v. Southland Bank, Civil Action Number CV-
95-509, was commenced in the Circuit Court of Houston County, Alabama on June 2,
1995. Plaintiff seeks compensatory damages in an unspecified amount and
punitive damages in the amount of $300,000, for an alleged wrongful intrusion
into his private affairs and violation of his right to privacy allegedly arising
from the wrongful communication of the amount of a "Draw Check" cashed for the
Plaintiff by a teller of Southland Bank to a business competitor of the
Plaintiff. Southland Bank's insurance carrier has accepted defense of the
matter on behalf of Southland Bank without reservation of rights. There would
be no insurance coverage in respect of an award of punitive damages against
Southland Bank. Southland Bank has denied the material allegations of the
complaint and has asserted affirmative defenses. The action is in the discovery
stage.
An action entitled Debbie Dutill v. Southland Insurance Agency, Inc., Civil
Action Number CV-95-323, was commenced in the Circuit Court of Houston County,
Alabama, on May 8, 1995. Plaintiff seeks compensatory damages in an unspecified
amount for an alleged misrepresentation relating to the existence of insurance
coverage insuring the Plaintiff's automobile from physical damage, Plaintiff
alleges that Southland Insurance Agency's misrepresentation caused GMAC to
cancel the "forced" collision coverage which GMAC had placed on the Plaintiff's
automobile. Southland Bank's insurance carrier has accepted defense of the
matter on behalf of Southland Bank with reservation of rights. Southland Bank
has denied the material allegations of the complaint and has asserted
affirmative defenses. The action is in the discovery stage.
An action entitled Frank Martin v. Invest Financial Corporation; Invest
Financial Corporation Insurance Agency; ITT Hartford Life Insurance Company; and
Southland Bank, Civil Action Number CV-95-0180, was commenced in the Circuit
Court of Barbour County, Alabama, on July 13, 1995. Plaintiff seeks
compensatory damages in an unspecified amount as well as unspecified punitive
damages for an alleged misrepresentation by a dual employee of Invest Financial
Corporation and Southland Bank resulting in the purchase by the Plaintiff of a
variable rate annuity through reinvestment of the proceeds from a matured
certificate of deposit. Invest Financial Corporation, through its general
counsel, has agreed to indemnify and hold Southland Bank harmless in this
litigation. In addition, Southland Bank's insurance carrier has been notified
of the action. Southland Bank has denied the material allegations of the
complaint and has asserted the available affirmative defenses. In addition,
Southland Bank has, in conjunction with the other defendants asserted the
arbitration provisions as set forth in the contract documents. The action is
currently awaiting ruling by the United States District Court, Middle District
of Alabama, on Defendants' Petition to Compel Arbitration.
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An action entitled Southland Bank v. Myrtle Stowers, followed by a
counterclaim styled: Myrtle Stowers v. Southland Bank, Tony Gontko and Robin
Waters was commenced in the Circuit Court of Butler County, Alabama, Civil
Action Number CV-93-14, on January 12, 1993. Southland Bank as the original
plaintiff sought to collect, on a promissory note allegedly executed by the
Defendant, Myrtle Stowers. Defendant, Myrtle Stowers, filed a counterclaim
against Southland Bank and its former employees, Tony Gontko and Robin Waters,
alleging that Tony Gontko and Robin Waters, while acting as agents for Southland
Bank, forged or arranged for the forgery of Plaintiff Myrtle Stower's signature
on a promissory note and security agreement in a scheme to defraud her.
Plaintiff Myrtle Stowers seeks unspecified compensatory and punitive damages.
Southland Bank's insurance carrier has accepted defense of the matter on behalf
of Southland Bank with reservation of rights. There would be no insurance
coverage in respect of an award of punitive damages against Southland Bank.
Southland Bank has denied the material allegations of the complaint and has
asserted affirmative defenses. The action is in the discovery stage.
Management
The following table contains certain information regarding each director
and executive officer of the Company. The table sets forth, as of March 31,
1996, the name, age, business experience during the past five years, and the
year in which each director and executive officer began continuous service to
the Company and Southland Bank. The Company will cease to exist upon the
Merger, and, accordingly, the directors and executive officers of the Company
will no longer serve in such capacities following the effective date of the
Merger. No changes are expected in the management of Southland Bank as a result
of the proposed transaction, other than the appointment of an additional
director to the Board by ABC, subject to the prior approval of the FDIC.
<TABLE>
<CAPTION>
Served as a Served as a
Director of Director of
the Company Southland
Name Age Principal Occupation Since Bank Since
- ---------------------- --- -------------------- ----------- -----------
<S> <C> <C> <C> <C>
John E. Meyer, Jr. 47 President, the N/A N/A
Company and
Southland Bank
Gary E. Johns 42 Treasurer/Vice N/A N/A
President, the
Company and
Southland Bank
Winn Farrar Martin 56 Director, Southland 1977 1977
Bank; Director and
Chairman, the
Company and
Southland Bank
John Farrar Martin 32 McKinsey & Co., 1995 N/A
Atlanta, Georgia
John Granger Danford 65 Retired 1995 1987
Gail Whigham 62 Retired 1995 N/A
Winn Edwin Martin 85 Retired 1983 1946
</TABLE>
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All of the Company's directors and executive officers hold office for a
term of one year or until their respective successors are duly elected and
qualified. Except for Mr. Meyer's Employment Agreement (described above), there
are no arrangements or understandings between any of the directors, executive
officers or any other persons pursuant to which any of the Company's directors
or executive officers have been selected for their respective positions. Winn
Edwin Martin is the father of Winn Farrar Martin and Gail Whigham, and Winn
Farrar Martin is the father of John Farrar Martin.
Security Ownership of Management and Principal Shareholders
The following table sets forth, as of March 1, 1996, the total number of
Company Shares beneficially owned by each director of the Company, each
beneficial owner of five percent or more of the outstanding Company Shares, and
all directors and executive officers of the Company as a group. The number of
Company Shares shown as being beneficially owned by each person are those over
which he has either sole or shared voting or investment power. Unless otherwise
indicated, the persons listed below have sole voting and investment power with
respect to their shares. At March 29, 1996, the Company had 488,082 shares of
common stock outstanding, and 27,776 shares of common stock subject to options
granted under the Company's Stock Option Plan.
The Company's Stock Option Plan provides that employees of the Company who
were granted options (the owners) must be employed by the Company, or any
affiliate or subsidiary of the Company, on the exercise date of the option,
which is generally five years from the issue date. The Option Plan also
provides that the options may be accelerated upon retirement or the death of the
owner at the discretion of the Company, in which case the owner shall receive
the difference between the stated option price and the then current book value
price per share. Because the Board of Directors of the Company has determined
that situations such as the Merger were not contemplated by the Option Plan, the
Board has determined that options currently eligible for exercise in
1996 and options that would be eligible for exercise under the Option Plan
in the years 1997, 1998, 1999 and 2000 shall be eligible for exercise prior to
the consummation of the Merger in the following respective percentages: 100%,
80%, 60%, 40% and 20%. Additionally, pursuant to the acceleration provision
under the Option Plan, the Board has determined to accelerate, prior to the
consummation of the Merger, all remaining options that would be eligible for
exercise under the Option Plan in the years 1997, 1998, 1999 and 2000, which
equates to the following respective percentages of such options: 20%, 40%, 60%
and 80%. As of the consummation of the Merger, any outstanding stock options of
the Company shall be terminated.
<TABLE>
<CAPTION>
Name and Address of Shares Beneficially Owned
Beneficial Owner (1) Percent of Class (2)
- --------------------------- ---------------------------- --------------------
<S> <C> <C>
Winn Edwin Martin 7,260 1.44%
Rt. 1 Box 110
Clayton, Alabama 36016
Gary E. Johns 1 --
302 Dee Road
Opp, Alabama
</TABLE>
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<TABLE>
<CAPTION>
Name and Address of Shares Beneficially Owned
Beneficial Owner (1) Percent of Class (2)
- --------------------------- ---------------------------- --------------------
<S> <C> <C>
John E. Meyer, Jr. 3,000 0.60%
110 Breckenridge Lane
Dothan, Alabama 36301
John Farrar Martin 4,092 0.81%
403 Tenterden Curve
Peachtree City, Georgia
30269
John Granger Danford 36,048 7.17%
602 West Gray Hodges Road
Dothan, Alabama 36303
Gail Whigham 54,780 10.90%
2511 Beach Boulevard
Pascagoula, Mississippi
39567
Winn Farrar Martin 234,848(3) 46.72%
117 Lakeview Lane
Headland, Alabama 36345
All directors and officers 340,029 67.65%
as a group
- --------------------
</TABLE>
(1) The information contained in this column is based upon information
furnished to the Company by the individuals identified above and
shareholder records of the Company.
(2) The percentages contained in this column have been calculated to give
effect to the exercise of outstanding stock options to purchase an
aggregate of 14,562 Company Shares prior to the Effective Date.
(3) Includes 3,828 shares held by David Norman Martin, 3,828 shares held by
Winn E. Martin, II, 792 shares held jointly with Patricia V. Martin and 432
shares held in an IRA account for the benefit of Mr. Martin.
Certain Regulatory Considerations Relating to the Company
On or about November 26, 1989, Southland Bank, the FDIC and the Department
entered into a Memorandum of Understanding, which was revised on or about March
8, 1993 (as so revised, the "FDIC MOU"). The FDIC MOU required Southland Bank
to formulate and submit a management plan and retain qualified management,
required the Board of Southland Bank to develop and approve a three-year capital
program, required Southland Bank to maintain minimal Tier I capital of 8%, and
required Southland Bank to meet the minimum ratio requirements established for
risk based capital. The FDIC MOU also prohibited Southland Bank from declaring
or paying cash or property dividends without the prior written consent of the
FDIC and the Department. The FDIC MOU required the Board of Southland Bank to
review the adequacy of the bank's allowance for loan and lease losses
("Allowance") and to establish a program for maintaining an adequate Allowance.
The FDIC MOU also required the bank to eliminate from its books all assets
classified "loss," and to reduce the aggregate dollar volume of all remaining
assets classified "substandard" according to a specific schedule. The FDIC MOU
also required the Board of Southland Bank to adopt and implement a program
requiring written action plans designed to eliminate the basis of criticism
involving certain loan relationships and assets. The FDIC MOU prohibited
Southland Bank from extending additional credit to or for the benefit of any
borrower who had a loan or other extension of credit with the bank that had been
charged off or classified "loss" or "doubtful" and was uncollected and also
imposed
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restrictions upon the bank's extending additional credit to a borrower who had a
loan or other extension of credit classified "substandard" and was uncollected.
The FDIC MOU required the Board of Southland Bank to revise its written funds
management policy and to take steps necessary to correct specified violations of
laws, rules and regulations cited in the Examination Report of July 6, 1992, and
to ensure future compliance with laws and regulations. The FDIC MOU also
required Southland Bank to prepare and submit to the regulatory authorities a
comprehensive budget and earnings forecast each year. The FDIC MOU also
required Southland Bank to correct specified internal routine and control
deficiencies. Management of Southland Bank believes the Bank is in compliance
with the FDIC MOU at March 31, 1996.
On or about September 12, 1994, the Federal Reserve Bank of Atlanta
("Reserve Bank") and the Company entered into a Memorandum of Understanding (the
"Reserve Bank MOU"). The Reserve Bank MOU prohibited the Company from
increasing its borrowings or incurring any debt without the prior written
approval of the Reserve Bank; required the Company to submit to the Reserve Bank
a written plan to service its outstanding debt and any other cash obligations
for at least a five year period; prohibited the Company from purchasing or
redeeming treasury stock or declaring or paying dividends to its shareholders
without the prior written approval of the Reserve Bank; required the Company to
maintain a separate checking account for the proceeds of any incurrence of debt
approved by the Reserve Bank; required the Company to notify the Reserve Bank at
least thirty days prior to the payment of any salary or other compensation at
the parent company level; required the Company to submit to the Reserve Bank a
quarterly written progress report detailing the Company's compliance with the
Reserve Bank MOU and required submissions of other financial information and
reports; and required the Company to correct other deficiencies noted by the
Reserve Bank. The Reserve Bank MOU provided that it superseded both an informal
supervisory action imposed by the Reserve Bank in conjunction with a March 8,
1988 inspection of the Company and a May 19, 1992 Board resolution. The Company
believes it is in compliance with the Reserve Bank MOU at March 31, 1996.
Management's Discussion and Analysis of Financial Condition and Results of
Operations
General
The Company's principal asset is its ownership of Southland Bank.
Accordingly, the Company's results of operations are primarily dependent upon
the results of operations of Southland Bank. Southland Bank conducts a
commercial banking business which consists of attracting deposits from the
general public and applying those funds to the origination of commercial,
consumer and real estate loans (including commercial loans collateralized by
real estate). Southland Bank's profitability depends primarily on net interest
income, which is the difference between interest income generated from interest-
earning assets (i.e., loans and investments) less the interest expense incurred
on interest-bearing liabilities (i.e., customer deposits and borrowed funds).
Net interest income is affected by the relative amounts of interest-earning
assets and interest-bearing liabilities, and the interest rate paid and earned
on these balances. Net interest income is dependent upon the Banks' interest
rate spread, which is the difference between the average yield earned on its
interest-earning assets and the average rate paid on its interest-bearing
liabilities. When interest-earning assets approximate or exceed interest-
bearing liabilities, any positive interest rate spread will generate interest
income. The interest rate spread is impacted by interest rates, deposit flows
and loan demand. Additionally, and to a lesser extent, Southland Banks'
profitability is affected by such
71
<PAGE>
factors as the level of noninterest income and expenses, the provision for loan
losses and the effective tax rate. Noninterest income consists primarily of
loan and other fees and income from the sale of loans and investment securities.
Noninterest expenses consist of compensation and benefits, occupancy-related
expenses, deposit insurance premiums paid to the FDIC and other operating
expenses.
Results of Operations For Years Ended December 31, 1995, 1994 and 1993
The Company's results of operations are determined by its ability to
effectively manage interest income and expense, to minimize loan and investment
losses, to generate noninterest income and to control noninterest expense.
Since interest rates are determined by market forces and economic conditions
beyond the control of the Company, the ability to generate net interest income
is dependent upon Southland Bank's ability to obtain an adequate spread between
the rate earned on interest-earning assets and the rate paid on interest-bearing
liabilities. Thus, the key performance measure for net interest income is the
interest margin or net yield, which is taxable-equivalent net interest income
divided by average earning assets.
The primary component of consolidated earnings is net interest income, or
the difference between interest income on interest-earning assets and interest
paid on interest-bearing liabilities. The net interest margin is net interest
income expressed as a percentage of average interest-earning assets. Interest-
earning assets consist of loans, investment securities and federal funds sold.
Interest-bearing liabilities consist of deposits, of which approximately 11% are
noninterest-bearing at December 31, 1995, and borrowed funds.
The net interest margin increased by 33 basis points, or 7.84% to 4.54% in
1995 as compared to 4.21% in 1994. This increase in net interest margin was
achieved by an increase of 142 basis points on average yield earned on interest-
earnings assets which was partially offset by an increase of 133 basis points on
the average rate paid on interest-bearing liabilities. Net interest income on a
taxable-equivalent basis was $4,258,000 in 1995 as compared to $3,797,000 in
1994, representing an increase of 12.14%. Net interest income on a taxable-
equivalent basis was $3,797,000 in 1994 as compared to $3,716,000 in 1993,
representing an increase of 2.18%. The net interest margin increased by 1.94%
to 4.21% in 1994 from 4.13% in 1993 because average interest-earning assets
increased by 2.94% in 1994 as compared to 1993.
Average interest-earning assets increased by $3,684,000 or 4.09% to
$93,855,000 in 1995 from $90,171,000 in 1994. Average loans increased by
$176,000 as average investments increased by $3,328,000, and average federal
funds sold increased by $180,000. The increase in average interest-earning
assets was funded by an increase in average deposits of $2,213,000, or 2.66% to
$85,403,000 in 1995 from $83,190,000 in 1994. By comparison, average interest-
earning assets increased by $264,000, or .29% to $90,171,000 in 1994 from
$89,907,000 in 1993. During 1994, average deposits decreased by $2,529,000, or
2.95% to $83,190,000 from $85,719,000 in 1993. Approximately 9.69% of the
average deposits were noninterest-bearing deposits in 1995 as compared to 9.57%
noninterest-bearing deposits in 1994.
The provision for loan losses is a charge to earnings in the current period
to replenish the allowance and maintain it at a level management determined to
be adequate. The provision for loan
72
<PAGE>
losses charged to earnings amounted to $72,000 in 1995, $582,000 in 1994, and
$536,000 in 1993. The decrease in the provision for loan losses in 1995 of
$510,000 as compared with 1994 was a direct result of the change in methodology
of calculating an adequate allowance that was implemented in 1994. Prior to 1994
the allowance was established by applying a percentage against outstanding
loans. In 1994, at the recommendation of the FDIC, management established a more
formal approach to determining the adequacy of the allowance. The process
utilizes a loan grading system, historical trends, actual losses, peer
comparisons, and balances of outstanding loans. The allowance for loan losses to
net loans was 1.72% in 1995 and 1.91% in 1994, compared to 1.20% in 1993, 1.19%
in 1992, and 1.06% in 1991. The loan charge offs for 1995 represented .46% of
average loans outstanding during the year, as compared to .40% for 1994. The
slight increase of loan charge offs in 1995 over 1994 resulted from a slight
deterioration in the quality of the collateral held as security on loans and the
ability of the debtors to service their debt. Loan quality, as measured by non-
performing assets, improved from $2,168,000 in 1994 to $653,000 in 1995. The
determination of the allowance rests upon management's judgment about factors
affecting loan quality and assumptions about the local and national economy.
Management considers the year-end allowance for loan losses adequate to cover
potential losses in the loan portfolio.
Average total assets increased $2,453,000, or 2.50% to $100,486,000 in 1995
as compared to $98,033,000 in 1994. The increase in average total assets was
accompanied by an increase in average deposits of $2,213,000 or 2.66%. Average
total assets increased $250,000 or .26% to $98,033,000 in 1994 as compared to
$97,783,000 in 1993 and was accompanied by a decrease in average total deposits
of $2,529,000 or 2.95% to 83,190,000 in 1994 from $85,719,000 in 1993.
Results of Operations for three Months Ended March 31, 1996 and 1995
The Company's net earnings for the quarter ending March 31, 1996 was
$360,000 as compared to $241,000 for the quarter ending March 31, 1995; an
increase of $119,000 or 49.4%. This increase was the result of continued loan
quality improvement, enhanced loan pricing and operating expense control.
The net interest margin increased to 5.04% for the quarter ending March
31, 1996, versus 4.88% for the quarter ending March 31, 1995. In addition, the
net interest income spread increased $60,000 or 5.1%. Net interest
income dollars was $1,250,000 at March 31, 1996 versus $1,190,000 for the
quarter ending March 31, 1995. The improvement resulted from yield enhancements
on earning assets combined with volume increases.
The Company believes the allowance for loan losses at March 31, 1996 to be
adequate at 1.54% of total loans. The net charge offs to total average loans was
.08% at March 31, 1996 versus .15% for March 31, 1995. Based on the method of
computing the allowance for loan losses used since 1994, a provision was not
required for the quarter ending March 31, 1996.
The Company's noninterest income was $399,000 at March 31, 1996 versus
$368,000 at march 31, 1995. This increase of $31,000. or 8.42% was a result of
increased revenue from mortgage origination and financial investment services
referral fees, as the Company outsourced these operations in 1994.
The Company's noninterest expense was $1,076,000 at March 31, 1996 versus
$1,082,000 at March 31, 1995. This represents a decrease of $6,000 or 0.66%.
The most significant component of the decrease was FDIC insurance expense. As a
result of the decrease in assessments by the Federal Deposit Insurance
Corporation in 1995, this expense was $6,509 at March 31, 1996 versus $51,800 at
March 31, 1995, or a $45,291 decrease.
Total assets of the Company, as of March 31, 1996, were $107,468,000 as
compared to $100,859,000 at March, 31, 1995. This represents an increase of
6.6% or $6,609,000.
The Company and Southland Bank seek to meet liquidity requirements
primarily through management of the investment portfolio and monthly amortizing
loans. Another source of liquidity is the repayment of maturing single payment
loans. Secondary sources of funds are provided by certificates of deposit
obtained from national markets. Also, Southland Bank maintains $10,000,000 in
lines of credit with Federal Home Loan Bank and other correspondent banks to
provide funds on short notice if needed. Additional long term liquidity needs
are met by the use of advances from Federal Home Loan Bank.
On March 31, 1996, the investment portfolio totaled approximately
$11,968,000 in held to maturity and $13,212,000 securities in available for
sale. A comparison to March 31, 1995, reflects $1,124,469 in held to maturity
and $17,044,076 in available for sale. During the first quarter of 1996, the
Company purchased and classified $9,000,000 in callable agency securities in
held to maturity. In addition, $2,000,000 in callable agency securities were
transferred from available for sale to held to maturity on March 31, 1996. These
securities had a market value of $2,001,000 at March 31, 1996. It is the intent
of the Company to hold these securities to maturity or the call date.
Total loans at March 31, 1996, were $76,054,000 as compared to $69,867,000
at March 31, 1995. This represents a $6,187,000 increase in loans. The growth of
8.9% during this time frame is focused on commercial lines of business, without
concentration in any loan category. The loan portfolio contains no foreign or
energy related loans or concentration greater than 10% in any one industry.
The Company's total deposits increased $1,740,442 from March 31, 1995, to
March 31, 1996, or 2.02%. Total deposits were $87,865,000 at March 31, 1996, and
$86,125,000 at March 31, 1995. Noninterest bearing deposits represented 51.1% of
the total increase in deposits.
Borrowings at March 31, 1996, were $12,008,000 compared to $8,379,000 at
March 31, 1995. This increase of $3,629,000 was provided by Federal Home Loan
Bank advances. These advances were utilized to fund the increase in loans and
securities and were borrowed at variable rates to reduce the asset sensitivity
of the Company.
At March 31, 1996, total equity was $6,568,000 compared to $5,394,000 at
March 31, 1995, with an equity to asset ratio of 6.11% at March 31, 1996,
compared to 5.34% on March 31, 1995. This increase of $1,174,000 was provided by
the earnings of the Company's subsidiary bank. The Company's annualized return
on assets was 1.37% and annualized return on equity was 22.35% at March 31,
1996.
Average Balances and Net Income Analysis
The following table sets forth the amount of the Company's average
balances, interest income, and interest expense for each category of interest-
earning assets and interest-bearing liabilities and the average yield for the
interest-earning assets and average rate paid for the interest-bearing
liabilities, net interest spread, and net interest margin on average interest-
earning assets. Federally tax-exempt income is presented on a taxable
equivalent basis assuming a 34% Federal tax rate.
<TABLE>
<CAPTION>
Year Ended December 31,
(Dollars in Thousands)
---------------------------------------------------------------------------------------------
1995 1994 1993
-------------------------------- ----------------------------- ----------------------------
Average Average Average
Interest Yield/ Interest Yield/ Interest Yield/
Average Income/ Rate Average Income/ Rate Average Income/ Rate
Balance Expense Paid Balance Expense Paid Balance Expense Paid
------- ------- ---- ------- ------- ----- ------- ------- ----
ASSETS
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Interest-earning assets:
Loans, net of unearned
income (1).............. $ 72,808 $7,646 10.50% $72,632 $6,492 8.94% $77,758 $6,428 8.27%
Investment securities:
Taxable................. 19,189 1,384 7.21% 15,777 837 5.31% 10,664 497 4.66%
Tax-exempt.............. 38 3 7.89% 122 8 6.56% 218 14 6.42%
Federal funds sold........ 1,820 -- -- 1,640 56 3.41% 1,267 37 2.92%
-------- ------ ------- ------ ------- ------
Total interest-
earning assets........ 93,855 9,033 9.62% 90,171 7,393 8.20% 89,907 6,976 7.76%
</TABLE>
73
<PAGE>
<TABLE>
<CAPTION>
Year Ended December 31,
(Dollars in Thousands)
---------------------------------------------------------------------------------------------
1995 1994 1993
-------------------------------- ----------------------------- ----------------------------
Average Average Average
Interest Yield/ Interest Yield/ Interest Yield/
Average Income/ Rate Average Income/ Rate Average Income/ Rate
Balance Expense Paid Balance Expense Paid Balance Expense Paid
------- ------- ---- ------- ------- ----- ------- ------- ----
ASSETS
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Noninterest-earning
assets:
Cash...................... $ 2,380 $ 2,645 $ 2,678
Allowance for loan (1,204) (794)
losses.................. (1,280)
Other assets.............. 5,531 6,421 5,991
Total noninterest 6,631 7,862 7,876
earning assets...... -------- ------- -------
Total assets....... $100,486 $98,033 $97,783
======== ======= =======
LIABILITIES AND
STOCKHOLDERS' EQUITY
Interest-bearing
liabilities:
Savings and interest- $ 20,645 $ 757 3.67% $34,260 $1,384 4.04% $31,497 $1,085 3.44%
bearing demand
deposits...............
Time deposits........... 56,479 3,427 6.07% 40,968 1,747 4.26% 46,802 1,930 4.12%
Borrowings.............. 8,584 591 6.88% 9,538 465 4.88% 5,813 245 4.21%
-------- ------ ------- ------ ------- ------
Total interest-
bearing liabilities... 85,708 4,775 5.57% 84,766 3,596 4.24% 84,112 3,260 3.88%
-------- ------ ------- ------ ------- ------
Noninterest-bearing
liabilities and stock-
holders' equity:
Demand deposits...... 8,279 7,962 7,420
Other liabilities....... 913 391 593
Stockholders' equity.... 5,586 4,914 5,658
-------- ------- -------
Total noninterest-
bearing liabili-
ties and stock-
holders' equity...... 14,778 13,267 13,671
-------- ------- -------
Total liabilities
and stockholders'
equity............... $100,486 $98,033 $97,783
======== ======= =======
Interest rate spread........ 4.05% 3.96% 3.88%
===== ===== =====
Net interest income......... $4,258 $3,797 $3,716
====== ====== ======
Net interest margin......... 4.54% 4.21% 4.13%
===== ===== =====
- ------------------
</TABLE>
(1) Loan fees are included in interest and loan amounts include non-accrual
loans.
74
<PAGE>
Rate and Volume Analysis
The following table reflects the changes in net interest income resulting
from changes in interest rates and from asset and liability volume. The change
in interest attributable to rate has been determined by applying the change in
rate between years to average balances outstanding in the later year. The change
in interest due to volume has been determined by applying the rate from the
earlier year to the change in average balances outstanding between years. Thus,
changes that are not solely due to volume have been consistently attributed to
rate. The change in interest due to both rate and volume has been allocated to
the components in proportion to the relationship of the dollar amounts of the
change in each.
<TABLE>
<CAPTION>
Year Ended December 31,
(Dollars in Thousands)
----------------------------------------------------------
1995 vs. 1994 1994 vs. 1993
----------------------------- ---------------------------
Changes Due To Changes Due To
----------------- ---------------
Increase Increase
(Decrease) Rate Volume (Decrease) Rate Volume
---------- -------- ------- ---------- ------ -------
<S> <C> <C> <C> <C> <C> <C>
Increase (decrease) in:
Income from earning assets:
Loans, including fees....... $1,154 $1,138 $ 16 $ 64 $503 $(439)
Investment securities:
Taxable................... 547 342 205 340 76 264
Tax-exempt................ (5) 2 (7) (6) -- (6)
Federal funds sold......... (56) (61) 5 19 7 12
------ ------ ----- ----- ---- -----
Total interest income..... 1,640 1,421 219 417 586 $(169)
------ ------ ----- ----- ---- -----
Expense from interest-bearing
liabilities:
Savings and $ (627) $ (118) $(509) $ 299 $198 $ 101
interest-bearing demand....
Time deposits................ 1,680 887 793 (183) 64 (247)
Borrowings................... 126 177 (51) 220 43 177
------ ------ ----- ----- ---- -----
Total interest expense... 1,179 946 233 336 305 31
------ ------ ----- ----- ---- -----
Net interest income...... $ 461 $ 475 $ (14) $ 81 $281 $(200)
====== ====== ===== ===== ==== =====
</TABLE>
Other Income
The most significant increase in other income in 1995 was a result of
correspondent fees of $161,773 for the referral of mortgage loan applicants.
Total other income decreased in 1994 by $876,000, or 40.13% attributable
primarily to a decrease in the volume of loan originations and sales through the
Company's mortgage banking operations and gains received on the sale of
investment securities in 1993. As a direct result of the reduced volume of
mortgage loan originations in 1994 as compared to 1993, Management redesigned
its mortgage banking operations in early 1995. The new process utilizes third
party mortgage processors and has reduced operating expenses that allow the
Company to generate a profit on the reduced volumes. Following is a comparison
of other income for 1995, 1994 and 1993.
75
<PAGE>
<TABLE>
<CAPTION>
Year Ended December 31,
(Dollars in Thousands)
------------------------------
1995 1994 1993
-------- ------- -------
<S> <C> <C> <C>
Service charges on deposit accounts........... $ 775 $ 733 $ 888
Gain (loss) on sale of investment securities.. (1) -- 35
Trading account gains......................... -- -- 112
Gain on sale of loans......................... 298 251 765
Loan servicing fees........................... 166 105 --
Correspondent fees............................ 161 -- --
Other income.................................. 183 218 382
------ ------ ------
$1,582 $1,307 $2,182
====== ====== ======
</TABLE>
Other Expenses
Salaries and employee benefits increased $81,000, or 4.17% in 1995 over
1994. Deposit insurance premiums decreased $114,000, or 48.78% in 1995 as a
result of the decrease in assessments by the Federal Deposit Insurance
Corporation which became effective in early 1995. The most significant increase
in other expenses in 1994 as compared to 1993 was an increase of $64,000, or
3.43% in Salaries and employee benefits which was attributable to a management
restructure completed in the second quarter of 1994. Net occupancy and
equipment expense increased 4.9% from 1993 to 1994 as a result of a significant
expansion to Southland Bank's main office in Dothan, Alabama. Following is an
analysis of other expenses for 1995, 1994 and 1993.
<TABLE>
<CAPTION>
Year Ended December 31,
(Dollars in Thousands)
-----------------------------
1995 1994 1993
------- ------- -------
<S> <C> <C> <C>
Salaries and employee benefits.. $2,012 $1,931 $1,867
Net occupancy and equipment..... 798 911 868
FDIC insurance.................. 120 234 217
Other real estate, net.......... 177 217 212
Other........................... 994 1,205 1,179
------ ------ ------
$4,101 $4,498 $4,343
====== ====== ======
</TABLE>
Asset/Liability Management
As part of the Company's interest rate risk management policy, management
examines the extent to which its assets and liabilities are "interest rate-
sensitive" and monitors its interest rate-sensitivity "gap." An asset or
liability is considered to be interest rate-sensitive if it will reprice or
mature within the time period analyzed, usually one year or less. The interest
rate-sensitivity gap is the difference between the interest-earning assets and
interest-bearing liabilities scheduled to mature or reprice within such time
period. A 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 the interest rate-sensitive assets. During a period of rising interest
rates, a negative gap would tend to adversely affect net interest
76
<PAGE>
income, while a positive gap would tend to result in an increase in net interest
income. 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
adversely affect net interest income. If the Company's assets and liabilities
were equally flexible and moved concurrently, the impact of any increase or
decrease in interest rates on net interest income would be minimal.
A simple interest rate "gap" analysis by itself may not be an accurate
indicator of how net interest income will be affected by changes in interest
rates. Accordingly, management also evaluates how the repayment of particular
assets and liabilities is impacted by changes in interest rates. Income
associated with interest-earning assets and costs associated with interest-
bearing liabilities may not be affected uniformly by changes in interest rates.
In addition, the magnitude and duration of changes in interest rates may have a
significant impact on net interest income. For example, although certain assets
and liabilities may have similar maturities or periods of repricing, they may
react in different degrees to changes in market interest rates. Interest rates
on certain types of assets and liabilities fluctuate in advance of changes in
general market interest rates, while interest rates on other types may lag
behind changes in general market rates. In addition, certain assets, such as
adjustable rate mortgage loans, have features (generally referred to as
"interest rate caps") which limit changes in interest rates on a short-term
basis and over the life of the asset. In the event of a change in interest
rates, prepayment and early withdrawal levels also could deviate significantly
from those assumed in calculating the interest-rate gap. The ability of many
borrowers to service their debts also may decrease in the event of an interest-
rate increase.
The following table sets forth the distribution of the repricing of the
Company's earning assets and interest-bearing liabilities as of December 31,
1995, the interest rate sensitivity gap (i.e., interest rate sensitive assets
less interest rate sensitive liabilities), the cumulative interest rate
sensitivity gap (i.e., interest rate sensitive assets divided by interest rate
sensitivity liabilities) and the cumulative sensitivity gap ratio. The table
also sets forth the time periods in which earning assets and liabilities will
mature or may reprice in accordance with their contractual terms. However, the
table does not necessarily indicate the impact of general interest rate
movements on the net interest margin since the repricing of various categories
of assets and liabilities is subject to competitive pressures and the needs of
Southland Bank's customers. In addition, various assets and liabilities
indicated as repricing within the same period may in fact reprice at different
times within such period and at different rates.
<TABLE>
<CAPTION>
At December 31, 1995
Maturing or Repricing Within
-------------------------------------------------------------------
Zero to Three Three Months One to Five Over Five
Months to One Year Years Years Total
-------------- ------------- ------------ ---------- ---------
<S> <C> <C> <C> <C> <C>
(Dollars in Thousands)
Earning assets:
Interest-bearing deposits................. $ 2,018 $ -- $ -- $ -- $ 2,018
Investment securities..................... 1,628 10,277 5,024 4,002 20,931
Loans..................................... 46,914 12,560 9,987 2,049 71,510
------- -------- ------- ------- -------
$50,560 $ 22,837 $15,011 $ 6,051 $94,459
======= ======== ======= ======= =======
Interest-bearing liabilities:
Interest-bearing demand deposits (1)...... $ 9,780 $ 6,160 $ -- $ -- $15,940
Savings (1)............................... -- 2,879 -- -- 2,879
</TABLE>
77
<PAGE>
<TABLE>
<CAPTION>
At December 31, 1995
Maturing or Repricing Within
-------------------------------------------------------------------
Zero to Three Three Months One to Five Over Five
Months to One Year Years Years Total
-------------- ------------- ------------ ---------- ---------
<S> <C> <C> <C> <C> <C>
(Dollars in Thousands)
Certificates less than $100,000........... 21,310 21,643 6,353 -- 49,306
Certificates $100,000 and over............ 2,184 2,835 1,922 466 7,407
Borrowings................................ 3,240 323 4,742 220 8,525
------- -------- ------- ------- -------
$36,514 $ 33,840 $13,017 $ 686 $84,057
======= ======== ======= ======= =======
Interest rate sensitivity gap............. $14,046 $(11,003) $ 1,994 $ 5,365 $10,402
======= ======== ======= ======= =======
Cumulative interest rate sensitivity gap.. $14,046 $ 3,043 $ 5,037 $10,402 $10,402
======= ======== ======= ======= =======
Interest rate sensitivity gap ratio....... 138.47% 67.49% 115.32% 882.07% 112.37%
======= ======== ======= ======= =======
Cumulative interest rate sensitivity gap 138.47% 104.33% 106.04% 112.37% 112.37%
ratio..................................... ======= ======== ======= ======= =======
- ---------------
</TABLE>
(1) The Company has found that NOW checking accounts and savings deposits are
generally not sensitive to changes in interest rates and, therefore, it has
placed such liabilities in the "Three Months to One Year" category. It has
also found that the money-market checking deposits reprice between zero and
three months, on the average.
Southland Bank is positively gapped in each measured time period. A
sensitivity ratio of 138.47 exists in the 0-3 month category which would impact
earnings in a positive manner if a rising interest rate environment prevails.
This category would have a negative earnings impact should the market enter into
a falling interest rate scenario. However, the net interest dollar margin
stabilizes as the given rate environment spreads over the other measured GAP
periods. A simulation model is used to measure the dollar impact of various
rate movements on the net interest margin.
Maturities and Sensitivity of Loans to Changes in Interest Rates
The Company's loan portfolio, as of December 31, 1995, was made up primarily
of short-term fixed rate loans or variable rate loans. The average contractual
life on installment loans is approximately three years, while mortgages are
generally variable over one to five-year periods. Total loans as of December
31, 1995 are shown in the following table according to maturity classifications:
(i) one year or less, (ii) after one year through five years, and (iii) after
five years.
<TABLE>
<CAPTION>
December 31, 1995
(Dollars in Thousands)
------------------------
Maturity:
<S> <C>
One year or less................... $ 23,347
After one year through five years.. 20,626
After five years................... 27,399
----------------------
$ 71,372
======================
</TABLE>
78
<PAGE>
The following table summarizes loans at December 31, 1995 with the due
dates after one year which (i) have predetermined interest rates and (ii) have
floating or adjustable interest rates.
<TABLE>
<CAPTION>
December 31, 1995
(Dollars in Thousands)
------------------------
<S> <C>
Predetermined interest rates........... $ 11,221
Floating or adjustable interest rates.. 36,804
----------------------
$ 48,025
======================
</TABLE>
Records were not available to present the above information in each
category listed in the first paragraph above and could not be reconstructed
without undue burden.
Loan Portfolio
Management believes that the Company's loan portfolio is adequately
diversified. The loan portfolio contains no foreign or energy-related loans or
concentrations greater than 10% in any one industry. As of December 31, 1995,
the ten largest loans of the Company accounted for approximately 10% of the
Company's total loans. As of December 31, 1995, the Company had no loan
participations purchased and had outstanding loan commitments of $2.7 million.
The amounts of loans outstanding at the indicated dates is shown in the
following table according to type of loan.
<TABLE>
<CAPTION>
March 31, December 31,
-------- ------------------------------------------------
1996 1995 1994 1993 1992 1991
-------- -------- -------- -------- -------- --------
(Dollars in Thousands)
<S> <C> <C> <C> <C> <C> <C>
Commercial and industrial... $19,475 $19,726 $14,827 $16,171 $24,065 $18,413
Agricultural................ 4,848 2,867 2,171 2,217 2,257 1,348
Real estate - construction.. 6,198 5,730 4,175 3,148 2,631 2,849
Real estate - mortgage,
farmland.................. 998 1,060 941 1,148 1,233 890
Real estate - mortgage,
commercial................ 17,002 15,640 18,345 17,246 10,443 11,019
Real estate - mortgage,
residential............... 22,443 22,651 24,559 28,888 28,006 24,991
Consumer installment loans.. 5,078 3,635 4,219 4,385 4,584 3,554
Other....................... 12 62 495 489 1,023 397
------- ------- ------- ------- ------- -------
76,054 71,371 69,732 73,692 74,242 63,461
Less allowance for
loan losses................ 1,174 1,230 1,332 883 881 671
------- ------- ------- ------- ------- -------
Total loans*............. $74,880 $70,141 $68,400 $72,809 $73,361 $62,790
------- ------- ------- ------- ------- -------
</TABLE>
- ----------------------
*Does not include loans held for sale in 1991, 1992, 1993 and 1994.
Nonperforming Assets
Accrual of interest on loans is discontinued either when reasonable
doubt exits as to the full, timely collection on interest or principal or when a
loan becomes contractually past due by 90 days or more with respect to interest
or principal. When a loan is placed on nonaccrual status, all interest
79
<PAGE>
previously accrued, but not collected, is reversed against current period
income. Income on such loans is then recognized only to the extent that cash is
received and where the future collection of principal is probable. Interest
accruals are recorded on such loans only when they are brought fully current
with respect to interest and principal and when, in the judgment of management,
the loans are estimated to be fully collectible as to both principal and
interest.
<TABLE>
<CAPTION>
March 31, December 31,
------ ------------------------------------------
1996 1995 1994 1993 1992 1991
------ ------ ------- ------- ------- -------
(Dollars in Thousands)
<S> <C> <C> <C> <C> <C> <C>
Loans accounted for on a
nonaccrual basis................. $ 581 $ 303 $1,200 $ 474 $ 195 $ 371
Installment loans and term
loans contractually past due
ninety days or more as to
interest or principal payments
and still accruing.............. 215 13 15 23 19 72
Other real estate, net............ 246 339 953 1,293 1,130 1,572
------ ----- ------ ------ ------ ------
Total non-performing assets...... $1,042 $ 653 $2,168 $1,790 $1,344 $2,015
====== ===== ====== ====== ====== ======
</TABLE>
As of March 31, 1996 and December 31, 1995, 1994, 1993, 1992 and 1991, total
nonperforming assets were approximately 1.37%, .91%, 3.11%, 2.43%, 1.81% and
3.18%, respectively, of total loans outstanding at such dates. Foregone interest
on non-accrual loans at December 31, 1995 was $42,840.
In the opinion of management, any loans classified by regulatory authorities
as substandard or special mention that have not been disclosed above do not (i)
represent or result from trends or uncertainties which management reasonably
expects will materially impact future operating results, liquidity or capital
resources, nor (ii) represent material credits about which management is aware
of any information which causes management to have serious doubts as to the
ability of such borrowers to comply with the loan repayment terms. Any loans
classified by regulatory authorities as loss have been charged off.
Summary of Loan Loss Experience
The allowance for loan losses is created by direct charges to operations.
Losses on loans are charged against the allowance in the period in which such
loans, in management's opinion, become uncollectible. Recoveries during the
period are credited to this allowance. The factors that influence management's
judgment in determining the amount charged to operating expense are past loan
experience, composition of the loan portfolio, evaluation of possible future
losses, current economic conditions, and other relevant factors. The Company's
allowance for loan losses was approximately $1.23 million at December 31, 1995,
representing 1.72% of year-end total loans outstanding and OREO, compared with
approximately $1.33 million at December 31, 1994, which represented 1.88% of
year-end total loans outstanding and OREO.
The allowance for loan losses is reviewed quarterly based on management's
evaluation of current risk characteristics of the loan portfolio, as well as the
impact of prevailing and expected economic business conditions. Management
considers the allowance for loan losses adequate to
80
<PAGE>
cover possible loan losses on each outstanding loan with particular emphasis on
any problem loans.
The following table presents an analysis of the Company's loan loss experience
for the periods indicated:
<TABLE>
<CAPTION>
March 31, December 31,
-------- ----------------------------------------------------
1996 1995 1994 1993 1992 1991
-------- -------- --------- --------- --------- --------
(Dollars in Thousands)
<S> <C> <C> <C> <C> <C> <C>
Average amount of loans outstanding.......... $73,958 $72,808 $72,632 $77,758 $77,222 $57,021
======= ======= ======= ======= ======= =======
Balance of allowance for loan losses
at beginning of period...................... $ 1,230 $ 1,332 $ 883 $ 881 $ 671 $ 567
Charge offs: ------- ------- ------- ------- ------- -------
Commercial, industrial, and agricultural.... $ 5 $ 211 $ 109 $ 382 $ 215 $ 232
Real estate................................. 9 16 97 44 37 25
Consumer installment........................ 67 110 83 151 64 96
Recoveries:
Commercial, financial, and agricultural..... - 126 129 14 20 74
Real estate................................. 1 21 6 6 4 1
Consumer installment........................ 24 16 21 23 14 10
------- ------- ------- ------- ------- -------
Net charge-offs............................ $ 56 $ 174 $ 133 $ 534 $ 278 $ 268
------- ------- ------- ------- ------- -------
Additions to allowance charged to operating
expenses.................................... $ - $ 72 $ 582 $ 536 $ 488 $ 372
------- ------- ------- ------- ------- -------
Balance of allowance for loan
losses at end of period................... $ 1,174 $ 1,230 $ 1,332 $ 883 $ 881 $ 671
======= ======= ======= ======= ======= =======
Ratio of net loan charge-offs to average
loans outstanding........................... 0.08% 0.24% 0.18% 0.69% 0.36% 0.47%
======= ======= ======= ======= ======= =======
</TABLE>
81
<PAGE>
Allocation of Allowance
The Company has allocated the allowance for loan losses according to
the amount deemed to be reasonably necessary to provide for the possibility of
losses being incurred within the categories of loans set forth in the table
below. This allocation is based on management's evaluation of the loan portfolio
under current economic conditions, past loan loss experience, adequacy and
nature of collateral, and such factors which, in the judgement of management,
deserve recognition in estimating loan losses. Because the allocation is based
on estimates and subjective judgement, it is not necessarily indicative of the
specific amounts or loan categories in which charge-offs may occur.
<TABLE>
<CAPTION>
---------------------------------------------------------------------------
Real Estate
Commercial Construction
Industrial and Consumer
Agricultural Residential Installment TOTAL
---------------------------------------------------------------------------
(amounts in thousands, except percentages)
<S> <C> <C> <C> <C>
3/31/96 Allowance: $731 $145 $298 $1,174
% of loans in each category
to total loans 55.7% 37.6% 6.7% 100.0%
12/31/95 Allowance: $755 $144 $331 $1,230
% of loans in each category
to total loans 55.1% 39.8% 5.1% 100.0%
12/31/94 Allowance: $814 $175 $343 $1,332
% of loans in each category
to total loans 52.7% 41.2% 6.1% 100.0%
</TABLE>
Investment Portfolio
The carrying value and estimated market value of investment securities are as
follows:
<TABLE>
<CAPTION>
Gross Gross Approximate
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
--------- ---------- ---------- -----------
(Dollars in Thousands)
<S> <C> <C> <C> <C>
Investment Securities
Available for Sale
December 31, 1995:
State and political
subdivisions........... $ 358 $ -- $ -- $ 358
U.S. Government agencies. 7,982 27 -- 8,009
Mortgage-backed
securities............. 10,935 17 47 10,905
--------- ---------- ------- ----------
$ 19,275 $ 44 $ 47 $ 19,272
========= ========== ======= ==========
December 31, 1994:
Mortgage-backed
securities............. $ 14,089 $ -- $ 766 $ 13,323
========= ========== ======= ==========
Investment Securities Held
to Maturity December 31,
1995:
State and political
subdivisions........... $ 15 $ 1 $ -- $ 16
U.S. Government agencies. 34 4 -- 38
Mortgage-backed
securities............. 1,009 -- 6 1,003
Other securities......... 602 -- -- 602
--------- ---------- ------- ----------
$ 1,660 $ 5 $ 6 $ 1,659
========= =========== ======= ==========
December 31, 1994:
State and political
subdivisions........... $ 74 $ 1 $ -- $ 75
U.S. Government agencies. 46 4 -- 50
Mortgage-backed
securities............. 1,010 -- 55 955
Other securities......... 601 -- -- 601
-------- ---------- ------- ----------
$ 1,731 $ 5 $ 55 $ 1,681
======== ========== ======= ==========
</TABLE>
82
<PAGE>
The following table represents maturities and weighted average yields of
investment securities held by the Company at December 31, 1995.
<TABLE>
<CAPTION>
December 31, 1995
(Dollars in Thousands)
--------------------------------------------------------------------------------
After One Year but After Five Years but
Within One Year Within Five Years Within Ten Years After Ten Years
---------------- ------------------- --------------------- -----------------
Amount Yield Amount Yield Amount Yield Amount Yield
------- ------- --------- -------- ----------- -------- ------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
U.S. Treasury and Other
U.S. government agencies (1)... $ -- --% $ 9,065 6.70% $ -- -- $ -- --%
Obligations of states and other
political subdivisions (1)(2).. -- -- -- -- 373 7.02% -- --
Mortgage-backed securities....... -- -- -- -- $10,905 6.91% -- --
------- --------- ------- -------
$ -- -- $ 9,065 6.70% $11,278 6.91% $ -- --
======= ========= ======= =======
- -------------------------
</TABLE>
(1) Yields were computed using coupon interest, adding discount accretion or
subtracting premium amortization, as appropriate, on a ratable basis over
the life of each security. The weighted average yield for each maturity
range was computed using the acquisition price of each security in that
range.
(2) Yields on securities of state and political subdivisions are stated on a tax
equivalent basis using a tax rate of 34%.
Deposits
Average amount of deposits and average rate paid thereon, classified as to
noninterest-bearing demand deposits, interest-bearing demand and savings
deposits and time deposits, for the periods indicated are presented below.
<TABLE>
<CAPTION>
Year Ended December 31,
(Dollars in Thousands)
-----------------------------------
1995 1994
--------------- ---------------
Amount Rate Amount Rate
-------- ----- -------- -----
<S> <C> <C> <C> <C>
Noninterest-bearing demand
deposits................... $ 8,279 N/A $ 7,962 N/A
Interest-bearing demand and
savings deposits........... 20,645 3.67% 34,260 4.04%
Time deposits................ 56,479 6.07% 40,968 4.27%
------- -------
Total deposits..... $85,403 4.90% $83,190 3.76%
======= =======
</TABLE>
The Company has a large, stable base of time deposits, with little or no
dependence on volatile deposits of $100,000 or more. The time deposits are
principally certificates of deposit and individual retirement accounts obtained
for individual customers.
The amounts of time certificates of deposit issued in amounts of $100,000
or more as of December 31, 1995, are shown below by category, which is based on
time remaining until maturity of (i) three months or less, (ii) over three
through twelve months and (iii) over twelve months.
83
<PAGE>
<TABLE>
<CAPTION>
December 31, 1995
(Dollars in Thousands)
------------------------
<S> <C>
Three months or less.............. $ 2,184
Over three through twelve months.. 2,835
Over twelve months................ 2,388
-----
Total.......................... $ 7,407
=======
</TABLE>
Return on Assets and Stockholders' Equity
The following table shows return on assets (net earnings divided by average
total assets), return on equity (net earnings divided by average stockholders'
average equity), dividend payout ratio (dividends declared per share divided by
net income per share) and average stockholders' equity to average assets ratio
(average stockholders' equity divided by average total assets) for the periods
indicated.
<TABLE>
<CAPTION>
Year Ended December 31,
--------------------------
1995 1994 1993
-------- ------- -------
<S> <C> <C> <C>
Return on average assets................ 1.00% --% 0.65%
Return on average equity................ 17.94 -- 11.29
Dividend payout ratio................... -- -- --
Average equity to average assets ratio.. 5.56 5.01 5.79
</TABLE>
Liquidity and Capital Resources
Liquidity management involves the matching of the cash flow requirements of
customers who may be either depositors desiring to withdraw funds or borrowers
needing assurance that sufficient funds will be available to meet their credit
needs and the ability of the Company and Southland Bank to meet their credit
needs. The Company and Southland Bank seek to meet liquidity requirements
primarily through management of the investment portfolio and monthly amortizing
loans. Another source of liquidity is the repayment of maturing single payment
loans. Also, Southland Bank maintains a $10,000,000 line of credit with Federal
Home Loan Bank to provide funds on short notice, if needed. Secondary sources
of funds are provided by certificates of deposits obtained from national
markets. These funds provide additional sources for short-term funding needs.
The liquidity and capital resources of the Company and Southland Bank are
monitored on a periodic basis by state and Federal regulatory authorities. As
determined under guidelines established by these regulatory authorities,
Southland Bank's liquidity ratio at December 31, 1995 is considered
satisfactory. At that date, Southland Bank's short-term investments were
adequate to cover any reasonably anticipated immediate need for funds. At
December 31, 1995, the Company's and Southland Bank's capital asset ratios were
considered adequate, based on guidelines established by regulatory authorities.
The primary source of funds available to the Company are dividends paid by
Southland Bank. Federal and state statutes and regulations impose restrictions
on the amount of dividends that may be declared by Southland Bank. Regulatory
authorities have also restricted
84
<PAGE>
Southland Bank from paying any dividends without obtaining prior regulatory
consent (see the section titled "Certain Regulatory Considerations Relating to
the Company"). Accordingly, the Company's liquidity is impacted by these
restrictions. The Company increased its capital by retaining net earnings of
$1,002,000 during 1995. After recording an increase of capital of $457,000 for
the change in unrealized holding gains and losses on investment securities
available for sale, net of taxes, total capital of the Company increased during
1995 by $1,459,000. At December 31, 1995, total capital of the Company amounted
to $6,315,522.
At December 31, 1995, there were no binding outstanding commitments for
capital expenditures. However, the Company anticipates that expenditures of
approximately $750,000 will be required for expansion or relocation of
properties which it plans to implement in 1996 in order to serve its customers
and meet the needs of the citizens in the communities served by Southland Bank.
In accordance with risk capital guidelines issued by the Federal Reserve
Board, the Company should meet a minimum ratio of qualifying total capital to
weighted risk assets of 8%, of which at least 4% should be in the form of Tier 1
capital. Institutions operating at or near the 4% capital level are expected to
have well diversified risks, including no undue interest rate risk exposure,
excellent control systems, good earnings, high asset quality, and well managed
on and off balance sheet activities; and, in general, be considered strong
banking organizations with a composite 1 rating under the CAMEL rating system of
banks. For all but the most highly rated banks meeting the above conditions,
the minimum leverage ratio is to be 4% plus an additional 100 to 200 basis
points.
The following table summarizes the regulatory capital levels of the Company
at December 31, 1995.
<TABLE>
<CAPTION>
December 31, 1995
(Dollars in Thousands)
------------------------------------------------------
Actual Required Excess
---------------- ---------------- ----------------
Amount Percent Amount Percent Amount Percent
------ -------- ------ -------- ------ --------
<S> <C> <C> <C> <C> <C> <C>
Leverage capital..... $6,316 6.29% $4,019 4.00% $2,297 2.29%
Risk-based capital:
Tier I Capital..... 6,316 9.51% 2,658 4.00% 3,658 5.51%
Total Capital...... 7,152 10.76% 5,315 8.00% 1,837 2.76%
</TABLE>
Southland Bank is also required to independently meet the same capital
guidelines. As discussed under the section "Certain Regulatory Considerations
Relating to the Company," Southland Bank is further required to maintain a
minimum Tier I capital ratio of 8.0%, rather than the established regulatory
percentage of 6.0%, under the terms of the FDIC MOU. Southland Bank's Tier I
capital ratio at December 31, 1995 was 11.47%.
Commitments and Lines of Credit
In the ordinary course of business, Southland Bank has granted commitments
to extend credit to approved customers. Generally, these commitments to extend
credit have been granted on a
85
<PAGE>
temporary basis for seasonal or inventory requirements and have been approved by
Southland Bank's Board of Directors. Southland Bank has also granted
commitments to approved customers for standby letters of credit. These
commitments are recorded in the financial statements when funds are disbursed or
the financial instruments become payable. Southland Bank uses the same credit
policies for these off-balance sheet commitments as it does for financial
instruments that are recorded in the consolidated financial statements.
Commitments generally have fixed expiration dates or other termination clauses
and may require payment of a fee. Because many of the commitment amounts expire
without being drawn upon, the total commitment amounts do not necessarily
represent future cash requirements.
Following is a summary of the commitments outstanding at December 31, 1995
and 1994.
<TABLE>
<CAPTION>
December 31,
(Dollars in Thousands)
------------------------
1995 1994
---------- ----------
<S> <C> <C>
Commitments to extend credit.. $ 2,662 $ 7,415
Standby letters of credit..... 19 1
--------- ----------
$ 2,681 $ 7,416
========= ==========
</TABLE>
Impact of Inflation
The consolidated financial statements and related consolidated financial
data presented herein have been prepared in accordance with generally accepted
accounting principles and practices within the banking industry which require
the measurement of financial position and operating results in terms of
historical dollars without considering the changes in the relative purchasing
power of money over time due to inflation. Unlike most industrial companies,
virtually all the assets and liabilities of a financial institution are monetary
in nature. As a result, interest rates have a more significant impact on a
financial institution's performance than the effects of general levels of
inflation.
Recent Accounting Pronouncements
In October 1995, the FASB issued FAS 123, Accounting for Stock-Based
Compensation. FAS 123 establishes financial accounting and reporting standards
for stock-based employee compensation plans. These plans include all
arrangements by which employees receive shares of stock or other equity
instruments of the employer or the employer incurs liabilities to employees in
amounts based on the price of the employer's stock. Such instruments include
stock purchase plans, stock options, restricted stock and stock appreciation
rights. FAS 123 also applies to transactions in which any entity issues
instruments to acquire goods or services from non-employees.
A new method of accounting for stock-based compensation arrangements with
employees is established by FAS 123. The new method is a fair value based
method rather than the intrinsic value based method. However, FAS 123 does not
require an entity to adopt the new fair value based method for purposes of
preparing it basic financial statements. Entities are allowed (1) to continue
to use their existing method or (2) adopt the FAS 123 fair based method. The
selected method would apply to all of an entity's compensation plans.
86
<PAGE>
FAS 123 requires that an employer's financial statements include certain
disclosures about stock-based compensation arrangements regardless of the method
used to account for them. The accounting requirements of this statement are
effective for transactions entered into in fiscal years that begin after
December 15, 1995. The disclosure requirements are effective for financial
statements for fiscal years beginning after December 15, 1995. The Company has
not determined the impact of adopting FAS 123.
Company Shares
The authorized capital stock of the Company consists of 1,800,000 common
shares, without par value, 488,082 shares of which were issued and outstanding
at March 1, 1996, and 27,092 shares which were subject to options granted under
the Company's Stock Option Plan. On March 25, 1996, there were 73 persons of
record holding Company Shares. For information concerning the market value of
such shares and dividends during the past three years, see "MARKET VALUE OF
SECURITIES AND DIVIDENDS -- The Company," above.
OTHER MATTERS
The Special Meeting is called for the purposes set forth in the Notice and
Proxy Statement. The Board of Directors does not know of any matters for action
by shareholders at such meeting other than the matters described in the Notice
and Proxy Statement. The enclosed Proxy, however, will confer discretionary
authority with respect to matters which are not known to the Board of Directors
at this time and which may properly come before the Special Meeting. It is the
intention of the persons named in the Proxy to vote in pursuance of the Proxy
with respect to such matters in accordance with their best judgment.
EXPERTS
The consolidated financial statements of the Company as of December 31,
1995 and 1994 and for each of the years in the three-year period ended December
31, 1995 have been included herein and in the registration statement in reliance
upon the report of KPMG Peat Marwick LLP, independent certified public
accountants, appearing elsewhere herein, and upon the authority of said firm as
experts in accounting and auditing.
The report of KPMG Peat Marwick LLP covering the December 31, 1995
consolidated financial statements refers to a change in the method of accounting
for income taxes in 1993 to adopt the provisions of SFAS No. 109, "Accounting
for Income Taxes," and refers to a change in the method of accounting for
investments in debt and equity securities at January 1, 1994 to adopt the
provisions of SFAS No. 115, "Accounting for Certain Investments in Debt and
Equity Securities."
Representatives of KPMG Peat Marwick LLP are expected to be present at the
Special Meeting.
The consolidated financial statements of ABC as of December 31, 1995 and
1994 and for the years ended December 31, 1995, 1994 and 1993 included in this
Proxy Statement/Prospectus have been audited by Mauldin & Jenkins, independent
certified public accountants, to the extent indicated
87
<PAGE>
in their report included herein, and are included herein in reliance upon such
report and upon the authority of such firm as experts in accounting and
auditing.
The consolidated financial statements of Central as of December 31, 1995
and 1994 and for the years then ended included in this Proxy
Statement/Prospectus have been audited by Mauldin & Jenkins, independent
certified public accountants, to the extent indicated in their report included
herein, and are included herein in reliance upon such report and upon the
authority of such firm as experts in accounting and auditing.
The consolidated financial statements of First National as of December 31,
1995 and 1994 and for the years then ended incorporated by reference in this
Proxy Statement/Prospectus have been audited by Francis & Company, independent
certified public accountants, to the extent indicated in their report
incorporated herein by reference, and are incorporated herein by reference in
reliance upon such report and upon the authority of such firm as experts in
accounting and auditing.
LEGAL OPINIONS
A legal opinion to the effect that the issuance of the shares of ABC
Common Stock offered hereby has been duly authorized by ABC and that such
shares, when issued in accordance with the Merger Agreement, will be duly issued
and outstanding and fully paid and non-assessable, has been rendered by Rogers &
Hardin. Rogers & Hardin has also rendered an opinion as to certain federal
income tax consequences of the Merger.
88
<PAGE>
INDEX TO FINANCIAL INFORMATION
Unaudited Pro Forma Condensed Consolidated Financial Data:
<TABLE>
<CAPTION>
<S> <C>
Introductory Note..................................................... PF
ABC Historical combined with the Company Historical (assuming 35% of
Merger Consideration payable in cash)
- Pro Forma Condensed Balance Sheet............................. PF
- Pro Forma Condensed Statement of Income....................... PF
- Notes to Pro Forma Condensed Financial Statements............. PF
ABC Historical combined with the Company Historical (assuming 49% of
Merger Consideration payable in cash)
- Pro Forma Condensed Balance Sheet............................. PF
- Pro Forma Condensed Statement of Income....................... PF
- Notes to Pro Forma Condensed Financial Statements............. PF
ABC Historical combined with Central Historical
- Pro Forma Condensed Balance Sheet............................. PF
- Pro Forma Condensed Statement of Income....................... PF
- Notes to Pro Forma Condensed Financial Statements............. PF
ABC/Central Combination combined with the Company Historical
(assuming 35% of Merger Consideration payable in cash)
- Pro Forma Condensed Balance Sheet............................. PF
- Pro Forma Condensed Statement of Income....................... PF
- Notes to Pro Forma Condensed Financial Statements............. PF
ABC/Central Combination combined with the Company Historical
(assuming 49% of Merger Consideration payable in cash)
- Pro Forma Condensed Balance Sheet............................. PF
- Pro Forma Condensed Statement of Income....................... PF
- Notes to Pro Forma Condensed Financial Statements............. PF
ABC Historical combined with First National Historical
- Pro Forma Condensed Balance Sheet............................. PF
- Pro Forma Condensed Statement of Income....................... PF
- Notes to Pro Forma Condensed Financial Statements............. PF
ABC/First National Combination combined with the Company Historical
(assuming 35% of Merger Consideration payable in cash)
- Pro Forma Condensed Balance Sheet............................. PF
- Pro Forma Condensed Statement of Income....................... PF
- Notes to Pro Forma Condensed Financial Statements............. PF
ABC/First National Combination combined with the Company Historical
(assuming 49% of Merger Consideration payable in cash)
- Pro Forma Condensed Balance Sheet............................. PF
- Pro Forma Condensed Statement of Income....................... PF
- Notes to Pro Forma Condensed Financial Statements............. PF
ABC/Central Combination combined with First National Historical
- Pro Forma Condensed Balance Sheet............................. PF
- Pro Forma Condensed Statement of Income....................... PF
- Notes to Pro Forma Condensed Financial Statements............. PF
ABC/Central/First National Combination combined with the Company Historical
(assuming 35% of Merger Consideration payable in cash)
- Pro Forma Condensed Balance Sheet............................. PF
- Pro Forma Condensed Statement of Income....................... PF
- Notes to Pro Forma Condensed Financial Statements............. PF
ABC/Central/First National Combination combined with the Company Historical
(assuming 49% of Merger Consideration payable in cash)
- Pro Forma Condensed Balance Sheet............................. PF
- Pro Forma Condensed Statement of Income....................... PF
- Notes to Pro Forma Condensed Financial Statements............. PF
ABC Bancorp Historical Financial Data:
Consolidated Financial Statements - March 31, 1996 and 1995 (unaudited)
- Consolidated Statements of Financial Condition................
- Consolidated Statements of Income.............................
- Consolidated Statements of Cash Flows.........................
- Notes to Consolidated Financial Statements....................
Consolidated Financial Statements
- Independent Auditor's Report.................................. F-1
- Consolidated Balance Sheets -- December 31, 1995 and 1994..... F-2
- Consolidated Statements of Income - Years ended
December 31, 1995, 1994 and 1993............................
- Consolidated Statements of Stockholders Equity - Years ended
December 31, 1995, 1994 and 1993............................
- Consolidated Statements of Cash Flows - Years ended
December 31, 1995, 1994 and 1993............................
- Notes to Consolidated Financial Statements....................
Southland Bancorporation Historical Financial Data:
Consolidated Financial Statements - March 31, 1996 and
December 31, 1995 (unaudited)
- Consolidated Balance Sheets...................................
- Consolidated Statements of Earnings-Three Months ended March
31, 1996 and 1995...........................................
- Consolidated Statements of Cash Flows-Three Months ended March
31, 1996 and 1995...........................................
- Notes to Consolidated Financial Statements....................
Consolidated Financial Statements
- Independent Auditors' Report..................................
- Consolidated Balance Sheets December 31, 1995
and 1994....................................................
- Consolidated Statements of Earnings - Years ended
December 31, 1995, 1994, and 1993...........................
- Consolidated Statements of Stockholders' Equity - Years ended
December 31, 1995, 1994, and 1993...........................
- Consolidated Statements of Cash Flows - Years ended
December 31, 1995, 1994, and 1993...........................
- Notes to Consolidated Financial Statements....................
Central Bankshares, Inc. Historical Financial Data:
Consolidated Financial Statements - March 31, 1996 and 1995 (unaudited)
- Consolidated Balance Sheets...................................
- Consolidated Statements of Income.............................
- Consolidated Statements of Cash Flows.........................
- Notes to Consolidated Financial Statements....................
Consolidated Financial Statements
- Independent Auditors' Report..................................
- Consolidated Balance Sheets - Year ended December 31, 1995
and 1994....................................................
- Consolidated Statements of Income - Years ended
December 31, 1995 and 1994..................................
- Consolidated Statements of Stockholder's Equity - Years ended
December 31, 1995 and 1994..................................
- Notes to Consolidated Financial Statements....................
</TABLE>
<PAGE>
Unaudited Pro Forma Condensed Consolidated Financial Data
The unaudited Pro Forma Condensed Consolidated Financial Data included
herein give effect to the Merger (assuming the Maximum and Minimum Cash Election
Numbers are achieved); to the Central Merger; to the Merger (assuming the
Maximum and Minimum Cash Election Numbers are achieved) assuming the Central
Merger has already been consummated; to the First National Merger; to the Merger
(assuming the Maximum and Minimum Cash Election Numbers are achieved) assuming
the First National Merger has already been consummated; to the Central and First
National Mergers combined; and to the Merger (assuming the Maximum and Minimum
Cash Election Numbers are achieved) assuming the Central and First National
Mergers have both already been consummated. The Company information is combined
with ABC using the purchase method of accounting. Central's information is
combined with ABC using the pooling of interests accounting method. First
National's information is combined with ABC using the pooling of interests
accounting method.
The ABC historical amounts were derived from consolidated financial
statements of ABC included herein. The Company historical amounts were derived
from the consolidated financial statements of the Company included herein. The
historical amounts of Central were derived from the consolidated financial
statements of Central included herein. The historical amounts of First National
were derived from the consolidated financial statements of First National
incorporated herein by reference.
The Unaudited Pro Forma Condensed Consolidated Financial Data do not
purport to present the financial position of ABC had the various transactions
indicated above actually been consummated on the dates indicated. In addition,
the Unaudited Pro Forma Condensed Consolidated Financial Data are not
necessarily indicative of the future results of operations of ABC and should be
read in conjunction with the historical financial statements of ABC and the
Company, including the notes thereto, included herein.
<PAGE>
ABC BANCORP AND SUBSIDIARIES
COMBINED WITH SOUTHLAND BANCORPORATION
PRO FORMA CONDENSED BALANCE SHEET
MARCH 31, 1996
(UNAUDITED)
(DOLLARS IN THOUSANDS)
The following unaudited pro forma condensed balance sheet as of March
31, 1996 has been prepared to reflect the acquisition by ABC of 100% of
Southland after giving effect to the adjustments described in the notes to the
pro forma condensed financial statements. The acquisition will be accounted for
as a purchase transaction. These statements should be read in conjunction with
the other financial statements and notes thereto included elsewhere in this
Proxy Statement.
<TABLE>
<CAPTION>
PRO FORMA
ADJUSTMENTS
ABC SOUTHLAND (NOTES A PRO FORMA
HISTORICAL HISTORICAL AND B) COMBINED
---------- ----------- ----------- ---------
<S> <C> <C> <C> <C>
ASSETS
- ------
Cash and due from banks $ 16,855 $ 2,667 $ - $ 19,522
Federal funds sold 21,535 - (4,138)(1) 17,397
Investment securities 56,916 25,180 - 82,096
Loans, net 218,877 74,880 - 293,757
Premises and equipment 7,222 2,544 500 (2) 10,266
Investment in Southland - - 11,822 (1)
(11,822)(2) -
Excess cost over fair value of
assets acquired 1,996 - 2,250 (2)
2,504 (2) 6,750
Other assets 12,188 2,197 - 14,385
-------- -------- -------- --------
$335,589 $107,468 $ 1,116 $444,173
======== ======== ======== ========
LIABILITIES AND EQUITY
- ----------------------
Deposits $293,385 $ 87,865 $ - $381,250
Other liabilities 7,629 1,027 - 8,656
Long-term debt - 12,008 - 12,008
-------- -------- -------- --------
Total liabilities 301,014 100,900 - 401,914
-------- -------- -------- --------
EQUITY
- ------
Common stock 3,597 - 549 (1) 4,146
Capital surplus 16,826 - 7,135 (1) 23,961
Retained earnings 15,815 - - 15,815
Unrealized gains on securities available
for sale, net of taxes (108) - - (108)
Treasury stock (1,555) - - (1,555)
Equity of Southland - 6,568 (6,568)(2) -
-------- -------- -------- --------
Total equity 34,575 6,568 1,116 42,259
-------- -------- -------- --------
$335,589 $107,468 $ 1,116 $444,173
======== ======== ======== ========
</TABLE>
PF-1
<PAGE>
ABC BANCORP AND SUBSIDIARIES
COMBINED WITH SOUTHLAND BANCORPORATION
PRO FORMA CONDENSED STATEMENTS OF INCOME
(UNAUDITED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
The following unaudited pro forma condensed statements of income have
been prepared to reflect the acquisition by ABC of 100% of Southland after
giving effect to the adjustments described in the notes to the pro forma
condensed financial statements. The acquisition will be accounted for as a
purchase transaction. These statements should be read in conjunction with the
other financial statements and notes thereto included elsewhere in this Proxy
Statement.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, 1995
-----------------------------------------------------------
PRO FORMA
ABC SOUTHLAND ADJUSTMENTS PRO FORMA
HISTORICAL HISTORICAL (NOTE B) COMBINED
---------- ---------- ----------- -----------
<S> <C> <C> <C> <C>
INTEREST INCOME $ 26,703 $ 9,033 $ (228)(4) $ 35,508
INTEREST EXPENSE 10,673 4,775 15,448
-------- ------- -------- --------
Net interest income 16,030 4,258 (228) 20,060
PROVISION FOR LOAN LOSSES 848 72 920
-------- ------- -------- --------
Net interest income after provision for
loan losses 15,182 4,186 (228) 19,140
OTHER INCOME 3,276 1,582 4,858
OTHER EXPENSE 12,228 4,101 409(3) 16,738
-------- ------- -------- --------
Income from continuing operations before
income taxes 6,230 1,667 (637) 7,260
INCOME TAXES 1,889 643 (78)(5) 2,454
-------- ------- -------- --------
Income from continuing operations $ 4,341 $ 1,024 $ (559) $ 4,806
======== ======= ======== ========
INCOME PER SHARE FROM CONTINUING
OPERATIONS $ 1.23
========
THREE MONTHS ENDED MARCH 31, 1996
-----------------------------------------------------------
PRO FORMA
ABC SOUTHLAND ADJUSTMENTS PRO FORMA
HISTORICAL HISTORICAL (NOTE B) COMBINED
---------- ---------- ----------- -----------
INTEREST INCOME $ 7,051 $ 2,456 $ (57)(4) $ 9,450
INTEREST EXPENSE 2,941 1,206 4,147
-------- -------- -------- --------
Net interest income 4,110 1,250 (57) 5,303
PROVISION FOR LOAN LOSSES 180 - - 180
-------- -------- -------- --------
Net interest income after provision for
loan losses 3,930 1,250 (57) 5,123
OTHER INCOME 927 399 1,326
OTHER EXPENSE 3,017 1,076 102(3) 4,195
-------- -------- -------- --------
Income from continuing operations before
income taxes 1,840 573 (159) 2,254
INCOME TAXES 605 213 (19)(5) 799
-------- -------- -------- --------
Income from continuing operations $ 1,235 $ 360 $ (140) $ 1,455
======== ======== ======== ========
INCOME PER SHARE FROM CONTINUING
OPERATIONS $ .37
========
</TABLE>
PF-2
<PAGE>
ABC BANCORP AND SUBSIDIARIES
COMBINED WITH SOUTHLAND BANCORPORATION
NOTES TO PRO FORMA CONDENSED FINANCIAL STATEMENTS
(UNAUDITED)
A. The pro forma condensed balance sheet has been prepared assuming the
transaction was consummated on March 31, 1996. The pro forma condensed
statements of income have been prepared assuming the transaction was
consummated at the beginning of each period presented.
B. The following pro forma adjustments have been applied to give effect to the
proposed transactions described in this Proxy Statement.
BALANCE SHEET:
(1) Payment of $4,138,000 in cash (representing 35% of total
consideration) and issue of 548,893 of ABC common in exchange for 100%
of the equity of Southland for a total consideration of $11,822,000.
(2) Elimination of investment in Southland and allocation of purchase
price as follows:
(a) Write-up of land and buildings to approximate market value.
(b) $2,250,000, representing approximately 50% of the excess of
purchase price over the fair value of net assets acquired, has
been tentatively allocated as a premium paid for the customer
deposit base. The allocation is subject to a statistical study to
determine the ultimate customer deposit base premium. For
purposes of the pro forma financial statements, the premium is
being amortized over a period of 10 years.
(c) The remainder of the excess of purchase price over the fair value
of net assets acquired amounting to $2,504,000 has been considered
to be goodwill and is being amortized over a period of 15 years.
PF-3
<PAGE>
STATEMENTS OF INCOME:
(3) Pro forma adjustments to income resulting from the allocation of the
purchase price of Southland as follows:
(a) Depreciation of the write-up of buildings using the straight-line
method over the estimated average remaining life of 30 years.
(b) Amortization of the customer deposit base premium using the
straight-line method over a period of 10 years.
(c) Amortization of goodwill using the straight-line method over a
period of 15 years.
(4) Loss of interest on Federal funds sold used to fund the acquisition
using an average rate of 5.5%.
(5) Tax effect of pro forma adjustments for reduction in interest income
using a tax rate of 34%.
C. The following is the effect of the purchase adjustments described in Note
B(3) of Notes to the Pro Forma Condensed Financial Statements of ABC
Bancorp and Subsidiaries Combined with Southland Bancorporation.
<TABLE>
<CAPTION>
DEPRECIATION AMORTIZATION
OF WRITE-UP OF DEPOSIT AMORTIZATION
OF BANK BASE OF
YEAR ENDING DECEMBER 31, BUILDINGS PREMIUM GOODWILL TOTAL
------------------------- ------------ ------------- ------------- ------
<S> <C> <C> <C> <C>
1996 $17,000 $225,000 $167,000 $409,000
1997 17,000 225,000 167,000 409,000
1998 17,000 225,000 167,000 409,000
1999 17,000 225,000 167,000 409,000
2000 17,000 225,000 167,000 409,000
</TABLE>
No tax effects relating to the purchase adjustments have been recorded
because the Company is acquiring the stock of Southland and will not be
allowed any taxable deductions for the above adjustments.
PF-4
<PAGE>
ABC BANCORP AND SUBSIDIARIES
COMBINED WITH SOUTHLAND BANCORPORATION
PRO FORMA CONDENSED BALANCE SHEET
MARCH 31, 1996
(UNAUDITED)
(DOLLARS IN THOUSANDS)
The following unaudited pro forma condensed balance sheet as of March
31, 1996 has been prepared to reflect the acquisition by ABC of 100% of
Southland after giving effect to the adjustments described in the notes to the
pro forma condensed financial statements. The acquisition will be accounted for
as a purchase transaction. These statements should be read in conjunction with
the other financial statements and notes thereto included elsewhere in this
Proxy Statement.
<TABLE>
<CAPTION>
PRO FORMA
ADJUSTMENTS
ABC SOUTHLAND (NOTES A PRO FORMA
ASSETS HISTORICAL HISTORICAL AND B) COMBINED
- ------ ---------- ----------- ------------ ----------
<S> <C> <C> <C> <C>
Cash and due from banks $ 16,855 $ 2,667 $ - $ 19,522
Federal funds sold 21,535 (5,793)(1) 15,742
Investment securities 56,916 25,180 82,096
Loans, net 218,877 74,880 293,757
Premises and equipment 7,222 2,544 500 (2) 10,266
Investment in Southland - 11,822 (1)
(11,822)(2) -
Excess cost over fair value of assets
acquired 1,996 - 2,250 (2)
2,504 (2) 6,750
Other assets 12,188 2,197 - 14,385
--------- --------- --------- ---------
$335,589 $107,468 $ (539) $442,518
========= ========= ========= =========
LIABILITIES AND EQUITY
- ---------------------------------
Deposits $293,385 $ 87,865 $ - $381,250
Other liabilities 7,629 1,027 - 8,656
Long-term debt - 12,008 - 12,008
--------- --------- --------- ---------
Total liabilities 301,014 100,900 - 401,914
--------- --------- --------- ---------
EQUITY
- ------
Common stock 3,597 - 431(1) 4,028
Capital surplus 16,826 - 5,598(1) 22,424
Retained earnings 15,815 - - 15,815
Unrealized gains on securities
available for sale,
net of taxes (108) - - (108)
Treasury stock (1,555) - - (1,555)
Equity of Southland - 6,568 (6,568)(2) -
--------- --------- --------- ---------
Total equity 34,575 6,568 (539) 40,604
--------- --------- --------- ---------
$335,589 $107,468 $ (539) $ 442,518
======== ======== ======== =========
</TABLE>
PF-5
<PAGE>
ABC BANCORP AND SUBSIDIARIES
COMBINED WITH SOUTHLAND BANCORPORATION
PRO FORMA CONDENSED STATEMENTS OF INCOME
(UNAUDITED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
The following unaudited pro forma condensed statements of income have
been prepared to reflect the acquisition by ABC of 100% of Southland after
giving effect to the adjustments described in the notes to the pro forma
condensed financial statements. The acquisition will be accounted for as a
purchase transaction. These statements should be read in conjunction with the
other financial statements and notes thereto included elsewhere in this Proxy
Statement.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, 1995
----------------------------------------------------
PRO FORMA
ABC SOUTHLAND ADJUSTMENTS PRO FORMA
HISTORICAL HISTORICAL (NOTE B) COMBINED
----------- ----------- ------------ ---------
<S> <C> <C> <C> <C>
INTEREST INCOME $ 26,703 $ 9,033 $ 319 (4) $ 35,417
INTEREST EXPENSE 10,673 4,775 - 15,448
------- -------- -------- --------
Net interest income 16,030 4,258 319 19,969
PROVISION FOR LOAN LOSSES 848 72 - 920
------- -------- -------- --------
Net interest income after provision for
loan losses 15,182 4,186 319 19,049
OTHER INCOME 3,276 1,582 - 4,858
OTHER EXPENSE 12,228 4,101 409 (3) 16,738
------- -------- -------- --------
Income from continuing operations before
income taxes 6,230 1,667 (728) 7,169
INCOME TAXES 1,889 643 (108)(5) 2,424
------- -------- -------- --------
Income from continuing operations $ 4,341 1,024 (620) 4,745
======= ======== ======== ========
INCOME PER SHARE FROM CONTINUING
OPERATIONS $ 1.25
========
THREE MONTHS ENDED MARCH 31, 1996
----------------------------------------------------
PRO FORMA
ABC SOUTHLAND ADJUSTMENTS PRO FORMA
HISTORICAL HISTORICAL (NOTE B) COMBINED
----------- ----------- ------------ ---------
INTEREST INCOME $ 7,051 $ 2,456 $ (80)(4) $ 9,427
INTEREST EXPENSE 2,941 1,206 - 4,147
------- -------- -------- --------
Net interest income 4,110 1,250 (80) 5,280
PROVISION FOR LOAN LOSSes 180 180
------- -------- -------- --------
Net interest income after provision for 3,930 1,250 (80) 5,100
loan losses
OTHER INCOME 927 399 1,326
OTHER EXPENSE 3,017 1,076 102 (3) 4,195
------- -------- -------- --------
Income from continuing operations before
income taxes 1,840 573 (182) 2,231
INCOME TAXES 605 213 (27)(5) 791
------- -------- -------- --------
Income from continuing operations $ 1,235 $ 360 $ (155) $ 1,440
------- -------- -------- --------
INCOME PER SHARE FROM CONTINUING
OPERATIONS $ .38
========
</TABLE>
PF-6
<PAGE>
ABC BANCORP AND SUBSIDIARIES
COMBINED WITH SOUTHLAND BANCORPORATION
NOTES TO PRO FORMA CONDENSED FINANCIAL STATEMENTS
(UNAUDITED)
A. The pro forma condensed balance sheet has been prepared assuming the
transaction was consummated on March 31, 1996. The pro forma condensed
statements of income have been prepared assuming the transaction was
consummated at the beginning of each period presented.
B. The following pro forma adjustments have been applied to give effect to the
proposed transactions described in this Proxy Statement.
BALANCE SHEET:
(1) Payment of $5,793,000 in cash (representing 49% of total
consideration) and issue of 430,670 of ABC common in exchange for 100%
of the equity of Southland for a total consideration of $11,822,000.
(2) Elimination of investment in Southland and allocation of purchase
price as follows:
(a) Write-up of land and buildings to approximate market value.
(b) $2,250,000, representing approximately 50% of the excess of
purchase price over the fair value of net assets acquired, has
been tentatively allocated as a premium paid for the customer
deposit base. The allocation is subject to a statistical study to
determine the ultimate customer deposit base premium. For
purposes of the pro forma financial statements, the premium is
being amortized over a period of 10 years.
(c) The remainder of the excess of purchase price over the fair value
of net assets acquired amounting to $2,504,000 has been considered
to be goodwill and is being amortized over a period of 15 years.
PF-7
<PAGE>
STATEMENTS OF INCOME:
(3) Pro forma adjustments to income resulting from the allocation of the
purchase price of Southland as follows:
(a) Depreciation of the write-up of buildings using the straight-line
method over the estimated average remaining life of 30 years.
(b) Amortization of the customer deposit base premium using the
straight-line method over a period of 10 years.
(c) Amortization of goodwill using the straight-line method over a
period of 15 years.
(4) Loss of interest on Federal funds sold used to fund the acquisition
using an average rate of 5.5%.
(5) Tax effect of pro forma adjustments for reduction in interest income
using a tax rate of 34%.
C. The following is the effect of the purchase adjustments described in Note
B(3) of Notes to the Pro Forma Condensed Financial Statements of ABC
Bancorp and Subsidiaries Combined with Southland Bancorporation.
<TABLE>
<CAPTION>
DEPRECIATION AMORTIZATION
OF WRITE-UP OF DEPOSIT AMORTIZATION
OF BANK BASE OF
YEAR ENDING DECEMBER 31, BUILDINGS PREMIUM GOODWILL TOTAL
------------------------ ------------ ------------ ------------- --------
<S> <C> <C> <C> <C>
1996 $17,000 $225,000 $167,000 $409,000
1997 17,000 225,000 167,000 409,000
1998 17,000 225,000 167,000 409,000
1999 17,000 225,000 167,000 409,000
2000 17,000 225,000 167,000 409,000
</TABLE>
No tax effects relating to the purchase adjustments have been recorded
because the Company is acquiring the stock of Southland and will not be
allowed any taxable deductions for the above adjustments.
PF-8
<PAGE>
ABC BANCORP AND SUBSIDIARIES
COMBINED WITH CENTRAL BANKSHARES, INC.
PRO FORMA CONDENSED BALANCE SHEET
MARCH 31, 1996
(UNAUDITED)
(DOLLARS IN THOUSANDS)
The following unaudited pro forma condensed balance sheet as of March
31, 1996 has been prepared to reflect the acquisition by ABC of 100% of Central
after giving effect to the adjustments described in the notes to the pro forma
condensed financial statements. The acquisition will be accounted for as a
pooling of interest. These statements should be read in conjunction with the
other financial statements and notes thereto included elsewhere in this Proxy
Statement.
<TABLE>
<CAPTION>
PRO FORMA
ADJUSTMENTS
ABC CENTRAL (NOTES A PRO FORMA
ASSETS HISTORICAL HISTORICAL AND B) COMBINED
- ------ ------------ ----------- ----------- -----------
<S> <C> <C> <C> <C>
Cash and due from banks $ 16,855 $ 2,142 $ - $ 18,997
Federal funds sold 21,535 - - 21,535
Investment securities 56,916 10,862 - 67,778
Loans, net 218,877 34,988 - 253,865
Premises and equipment 7,222 1,074 - 8,296
Investment in Central - - 4,300 (1)
(4,300)(2) -
Excess cost over fair value of assets
acquired 1,996 - 1,996
Other assets 12,188 1,038 - 13,226
----------- ---------- ---------- ---------
$335,589 $50,104 $ - $385,693
=========== ========== ========== =========
LIABILITIES AND EQUITY
- ----------------------
Deposits $293,385 $44,724 $ - $338,109
Other liabilities 7,629 1,080 8,709
----------- ---------- ---------- ---------
Total liabilities $301,014 $45,804 $346,818
----------- ---------- ---------- ---------
EQUITY
- ------
Common stock 3,597 - 589 (1) 4,186
Capital surplus 16,826 - 3,730 (1) 20,556
Retained earnings 15,815 - - 15,815
Unrealized gains on securities available
for sale,
net of taxes (108) - (19)(1) (127)
Treasury stock (1,555) - (1,555)
Equity of Central 4,300 (4,300)(2) -
----------- ---------- ---------- ---------
Total equity 34,575 4,300 - 38,875
----------- ---------- ---------- ---------
$335,589 $50,104 $ - $385,693
========== ========== ========== =========
</TABLE>
PF-9
<PAGE>
ABC BANCORP AND SUBSIDIARIES
COMBINED WITH CENTRAL BANKSHARES, INC.
PRO FORMA CONDENSED STATEMENTS OF INCOME
(UNAUDITED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
The following unaudited pro forma condensed statements of income have
been prepared to reflect the acquisition by ABC of 100% of Central after giving
effect to the adjustments described in the notes to the pro forma condensed
financial statements. The acquisition will be accounted for as a pooling of
interest. These statements should be read in conjunction with the other
financial statements and notes thereto included elsewhere in this Proxy
Statement.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, 1995 YEAR ENDED DECEMBER 31, 1994 YEAR ENDED DECEMBER 31, 1993
-------------------------------- ---------------------------------- ---------------------------------
ABC CENTRAL COMBINED ABC CENTRAL COMBINED ABC CENTRAL COMBINED
HISTORICAL HISTORICAL (NOTE A) HISTORICAL HISTORICAL (NOTE A) HISTORICAL HISTORICAL (NOTE A)
--------- --------- -------- ---------- ---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
INTEREST INCOME $ 26,703 $ 4,141 $ 30,844 $ 21,328 $ 3,253 $ 24,581 $ 19,697 $ 3,118 $ 22,815
INTEREST EXPENSE 10,673 1,960 12,633 7,828 1,248 9,076 7,732 1,207 8,939
--------- --------- -------- ---------- ---------- ---------- ---------- ---------- ----------
Net interest
Income 16,030 2,181 18,211 13,500 2,005 15,505 11,965 1,911 13,876
PROVISION FOR
LOAN LOSSES 848 140 988 638 180 818 1,191 193 1,384
--------- --------- -------- ---------- ---------- ---------- ---------- ---------- ----------
Net interest
after provision
for loan losses 15,182 2,041 17,223 12,862 1,825 14,687 10,774 1,718 12,492
OTHER INCOME 3,276 597 3,873 3,025 667 3,692 2,867 611 3,478
OTHER EXPENSE 12,228 1,874 14,102 11,547 1,795 13,342 10,535 1,843 12,378
--------- --------- -------- ---------- ---------- ---------- ---------- ---------- ----------
Income from
continuing oper-
ations before
income taxes &
cumulative
effect 6,230 764 6,994 4,340 697 5,037 3,106 486 3,592
INCOME TAXES 1,889 265 2,154 1,240 240 1,480 814 165 979
--------- --------- -------- ---------- ---------- ---------- ---------- ---------- ----------
Income from
operations before
cumulative effect 4,341 499 4,840 3,100 457 3,557 2,292 321 2,613
CUMULATIVE EFFECT OF
ACCOUNTING
CHANGE -- -- -- -- -- -- 346 -- 346
--------- --------- -------- ---------- ---------- ---------- ---------- ---------- ----------
Income from
continuing
operations $ 4,341 $ 499 $ 4,840 $ 3,100 $ 457 $ 3,557 $ 2,638 $ 321 $ 2,959
--------- --------- -------- ---------- ---------- ---------- ---------- ---------- ----------
INCOME PER SHARE FROM
CONTINUING OPERATIONS $ 1.23 $ 1.01 $ .95
======== ======== ========
</TABLE>
ABC BANCORP AND SUBSIDIARIES
COMBINED WITH CENTRAL BANKSHARES, INC.
PRO FORMA CONDENSED STATEMENTS OF INCOME
(UNAUDITED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
(CONTINUED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED MARCH 31, 1996 THREE MONTHS ENDED MARCH 31, 1995
------------------------------------------- -------------------------------------------
PRO FORMA PRO FORMA
ABC CENTRAL COMBINED ABC CENTRAL COMBINED
HISTORICAL HISTORICAL (NOTE A) HISTORICAL HISTORICAL (NOTE A)
------------- ------------ ------------ ------------- ------------ -----------
<S> <C> <C> <C> <C> <C> <C>
INTEREST INCOME $ 7,051 $ 1,113 $ 8,164 $ 6,157 $ 914 $ 7,071
INTEREST EXPENSE 2,941 540 3,481 2,348 403 2,751
------------- ------------ ------------ ------------- ------------ -----------
Net interest income 4,110 573 4,683 3,809 511 4,320
PROVISION FOR LOAN LOSSES 180 180 180 45 225
------------- ------------ ------------ ------------- ------------ -----------
Net interest
income after
provision for
loan losses 3,930 573 4,503 3,629 466 4,095
OTHER INCOME 927 180 1,107 886 160 1,046
OTHER EXPENSE 3,017 476 3,493 3,000 476 3,476
------------- ------------ ------------ ------------- ------------ -----------
Income from
continuing
operations before
income taxes
and cumulative
effect 1,840 277 2,117 1,515 150 1,665
INCOME TAXES 605 105 710 487 57 544
------------- ------------ ------------ ------------- ------------ -----------
Income from
operations
before
cumulative effect 1,235 172 1,407 1,028 93 1,121
CUMULATIVE EFFECT OF
ACCOUNTING
CHANGE
------------- ------------ ------------ ------------ ------------ -----------
Income from
continuing
operations $ 1,235 $ 172 $ 1,407 $ 1,028 $ 93 $ 1,121
============= ============ ============ ============= ============ ============
INCOME PER SHARE FROM
CONTINUING OPERATIONS $ .35 $ .29
========== ============
</TABLE>
PF-10
<PAGE>
ABC BANCORP AND SUBSIDIARIES
COMBINED WITH CENTRAL BANKSHARES, INC.
NOTES TO PRO FORMA CONDENSED FINANCIAL STATEMENTS
(UNAUDITED)
A. The pro forma condensed balance sheet has been prepared assuming the
transaction was consummated on March 31, 1996. The pro forma condensed
statements of income have been prepared assuming the transaction was
consummated at the beginning of the earliest period presented.
B. The following pro forma adjustments have been applied to give effect to the
proposed transactions described in this Proxy Statement.
BALANCE SHEET:
(1) Issue of 588,742 shares of ABC common stock, $1 par value, in exchange
for 100% of the equity of Central.
(2) Elimination of investment in Central.
STATEMENTS OF INCOME:
(3) Pro forma income per common share is based on the average number of
common shares that would have been outstanding during the respective
periods. There are no dilutive common stock attributes.
PF-11
<PAGE>
ABC BANCORP AND SUBSIDIARIES
AND CENTRAL BANKSHARES, INC.
COMBINED WITH SOUTHLAND BANCORPORATION
PRO FORMA CONDENSED BALANCE SHEET
MARCH 31, 1996
(UNAUDITED)
(DOLLARS IN THOUSANDS)
The following unaudited pro forma condensed balance sheet as of March
31, 1996 has been prepared to reflect the acquisition by ABC (after the proposed
acquisition of Central) of 100% of Southland after giving effect to the
adjustments described in the notes to the pro forma condensed financial
statements. These statements should be read in conjunction with the other
financial statements and notes thereto included elsewhere in this Proxy
Statement.
<TABLE>
<CAPTION>
PRO FORMA
ABC ADJUSTMENTS
CENTRAL SOUTHLAND (NOTES A PRO FORMA
ASSETS COMBINED HISTORICAL AND B) COMBINED
- ------- ----------- ------------- ------------- -----------
<S> <C> <C> <C> <C>
Cash and due from banks $ 18,997 $ 2,667 - $ 21,664
Federal funds sold 21,535 - (4,138)(1) 17,397
Investment securities 67,778 25,180 - 92,958
Loans, net 253,865 74,880 - 328,745
Premises and equipment 8,296 2,544 500 (2) 11,340
Investment in Southland - - 11,822 (1)
(11,822)(2)
Excess cost over fair value of assets
acquired 1,996 - 2,250 (2)
2,504 (2) 6,750
Other assets 13,226 2,197 - 15,423
-------- --------- --------- --------
$385,693 $ 107,468 $ 1,116 $494,277
======== ========= ========== ========
LIABILITIES AND EQUITY
- ---------------------
Deposits $338,109 $ 87,865 $ - $425,974
Other liabilities 8,709 1,027 - 9,736
Long-term debt - 12,008 - 12,008
-------- --------- -------- --------
Total liabilities 346,818 100,900 - 447,718
-------- --------- -------- --------
EQUITY
- ------
Common stock 4,186 - 549 (1) 4,735
Capital surplus 20,556 - 7,135 (1) 27,691
Retained earnings 15,815 - - 15,815
Unrealized gains on securities available
for sale, net of taxes (127) - - (127)
Treasury stock (1,555) - - (1,555)
Equity of Southland - 6,568 (6,568)(2) -
-------- --------- --------- --------
Total equity 38,875 6,568 1,116 46,559
-------- --------- --------- --------
$ 385,693 $ 107,468 $ 1,116 $494,277
========= ========= ========= ========
</TABLE>
PF-12
<PAGE>
ABC BANCORP AND SUBSIDIARIES
AND CENTRAL BANKSHARES, INC.
COMBINED WITH SOUTHLAND BANCORPORATION
PRO FORMA CONDENSED STATEMENTS OF INCOME
(UNAUDITED)
(DOLLARS IN THOUSANDS)
The following unaudited pro forma condensed statements of income have
been prepared to reflect the acquisition by ABC (after the proposed acquisition
of Central) of 100% of Southland after giving effect to the adjustments
described in the notes to the pro forma condensed financial statements. These
statements should be read in conjunction with the other financial statements and
notes thereto included elsewhere in this Proxy Statement.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, 1995
--------------------------------------------------------
ABC PRO FORMA
CENTRAL SOUTHLAND ADJUSTMENTS PRO FORMA
COMBINED HISTORICAL (NOTE B) COMBINED
---------- ----------- ------------ ------------
<S> <C> <C> <C> <C>
INTEREST INCOME $ 30,844 $ 9,033 $ (228)(4) $ 39,649
INTEREST EXPENSE 12,633 4,775 - 17,408
-------- -------- -------- --------
Net interest income 18,211 4,258 (228) 22,241
PROVISION FOR LOAN LOSSES 988 72 - 1,060
-------- -------- -------- --------
Net interest income after provision for
loan losses 17,223 4,186 (228) 21,181
OTHER INCOME 3,873 1,582 - 5,455
OTHER EXPENSE 14,102 4,101 409 (3) 18,612
-------- -------- -------- --------
Income from continuing operations before
income taxes 6,994 1,667 (637) 8,024
INCOME TAXES 2,154 643 (78)(5) 2,719
-------- -------- -------- --------
Income from continuing operations 4,840 $ 1,024 $ (559) $ 5,305
======= ======== ======== ========
INCOME PER SHARE FROM CONTINUING
OPERATIONS $ 1.18
========
THREE MONTHS ENDED MARCH 31, 1996
----------------------------------------------------------
ABC PRO FORMA
CENTRAL SOUTHLAND ADJUSTMENTS PRO FORMA
COMBINED HISTORICAL (NOTE B) COMBINED
---------- ----------- ------------ ------------
INTEREST INCOME $ 8,164 $ 2,456 $ (57)(4) $ 10,563
INTEREST EXPENSE 3,481 1,206 - 4,687
-------- -------- -------- --------
Net interest income 4,683 1,250 (57) 5,876
PROVISION FOR LOAN LOSSES 180 - - 180
-------- -------- -------- --------
Net interest income after provision for
loan losses 4,503 1,250 (57) 5,696
OTHER INCOME 1,107 399 - 1,506
OTHER EXPENSE 3,493 1,076 102 (3) 4,671
-------- -------- -------- --------
Income from continuing operations before
income taxes 2,117 573 (159) 2,531
INCOME TAXES 710 213 (19)(5) 904
-------- -------- -------- --------
Income from continuing operations $ 1,407 $ 360 $ (140) $ 1,627
======== ======== ======== ========
INCOME PER SHARE FROM CONTINUING
OPERATIONS $ .36
========
</TABLE>
PF-13
<PAGE>
ABC BANCORP AND SUBSIDIARIES
AND CENTRAL BANKSHARES, INC.
COMBINED WITH SOUTHLAND BANCORPORATION
NOTES TO PRO FORMA CONDENSED FINANCIAL STATEMENTS
(UNAUDITED)
A. The pro forma condensed balance sheet has been prepared assuming the
transaction was consummated on March 31, 1996. The pro forma condensed
statements of income have been prepared assuming the transaction was
consummated at the beginning of each period presented.
B. The following pro forma adjustments have been applied to give effect to the
proposed transactions described in this Proxy Statement.
BALANCE SHEET:
(1) Payment of $4,138,000 in cash (representing 35% of total
consideration) and issue of 548,893 of ABC common in exchange for 100%
of the equity of Southland for a total consideration of $11,822,000.
(2) Elimination of investment in Southland and allocation of purchase
price as follows:
(a) Write-up of land and buildings to approximate market value.
(b) $2,250,000, representing approximately 50% of the excess of
purchase price over the fair value of net assets acquired, has
been tentatively allocated as a premium paid for the customer
deposit base. The allocation is subject to a statistical study to
determine the ultimate customer deposit base premium. For
purposes of the pro forma financial statements, the premium is
being amortized over a period of 10 years.
(c) The remainder of the excess of purchase price over the fair value
of net assets acquired amounting to $2,504,000 has been considered
to be goodwill and is being amortized over a period of 15 years.
PF-14
<PAGE>
STATEMENTS OF INCOME:
(3) Pro forma adjustments to income resulting from the allocation of the
purchase price of Southland as follows:
(a) Depreciation of the write-up of buildings using the straight-line
method over the estimated average remaining life of 30 years.
(b) Amortization of the customer deposit base premium using the
straight-line method over a period of 10 years.
(c) Amortization of goodwill using the straight-line method over a
period of 15 years.
(4) Loss of interest on Federal funds sold used to fund the acquisition
using an average rate of 5.5%.
(5) Tax effect of pro forma adjustments for reduction in interest income
using a tax rate of 34%.
C. The following is the effect of the purchase adjustments described in Note
B(3) of Notes to the Pro Forma Condensed Financial Statements of ABC
Bancorp and Subsidiaries Combined with Southland Bancorporation.
<TABLE>
<CAPTION>
DEPRECIATION AMORTIZATION
OF WRITE-UP OF DEPOSIT AMORTIZATION
OF BANK BASE OF
YEAR ENDING DECEMBER 31, BUILDINGS PREMIUM GOODWILL TOTAL
----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
1996 $17,000 $225,000 $167,000 $409,000
1997 17,000 225,000 167,000 409,000
1998 17,000 225,000 167,000 409,000
1999 17,000 225,000 167,000 409,000
2000 17,000 225,000 167,000 409,000
</TABLE>
No tax effects relating to the purchase adjustments have been recorded
because the Company is acquiring the stock of Southland and will not be
allowed any taxable deductions for the above adjustments.
PF-15
<PAGE>
ABC BANCORP AND SUBSIDIARIES
AND CENTRAL BANKSHARES, INC.
COMBINED WITH SOUTHLAND BANCORPORATION
PRO FORMA CONDENSED BALANCE SHEET
MARCH 31, 1996
(UNAUDITED)
(DOLLARS IN THOUSANDS)
The following unaudited pro forma condensed balance sheet as of March
31, 1996 has been prepared to reflect the acquisition by ABC (after the proposed
acquisition of Central) of 100% of Southland after giving effect to the
adjustments described in the notes to the pro forma condensed financial
statements. These statements should be read in conjunction with the other
financial statements and notes thereto included elsewhere in this Proxy
Statement.
<TABLE>
<CAPTION>
PRO FORMA
ABC ADJUSTMENTS
CENTRAL SOUTHLAND (NOTES A PRO FORMA
COMBINED HISTORICAL AND B) COMBINED
---------- ---------- -------------- -----------
ASSETS
- -------
<S> <C> <C> <C> <C>
Cash and due from banks $ 18,997 $ 2,667 $ - $ 21,664
Federal funds sold 21,535 (5,793)(1) 15,742
Investment securities 67,778 25,180 - 92,958
Loans, net 253,865 74,880 - 328,745
Premises and equipment 8,296 2,544 500 (2) 11,340
Investment in Southland - - 11,822 (1)
(11,822)(2) -
Excess cost over fair value of assets acquired 1,996 - 2,250 (2)
2,504 (2) 6,750
Other assets 13,226 2,197 - 15,423
--------- -------- --------- --------
$ 385,693 $107,468 $ (539) $492,622
========= ======== ======== ========
LIABILITIES AND EQUITY
- -----------------------
Deposits $338,109 $ 87,865 $ - $425,974
Other liabilities 8,709 1,027 - 9,736
Long-term debt 12,008 - 12,008
--------- -------- --------- --------
Total liabilities 346,818 100,900 - 447,718
--------- -------- --------- --------
EQUITY
- ------
Common stock 4,186 431 (1) 4,617
Capital surplus 20,556 5,598 (1) 26,154
Retained earnings 15,815 15,815
Unrealized gains on securities available for sale,
net of taxes (127) (127)
Treasury stock (1,555) (1,555)
Equity of Southland - 6,568 (6,568)(2)
--------- -------- --------- --------
Total equity 38,875 6,568 (539) 44,904
--------- -------- --------- --------
$385,693 $107,468 $ (539) $492,622
======== ======== ======== ========
</TABLE>
PF-16
<PAGE>
ABC BANCORP AND SUBSIDIARIES
AND CENTRAL BANKSHARES, INC.
COMBINED WITH SOUTHLAND BANCORPORATION
PRO FORMA CONDENSED STATEMENTS OF INCOME
(UNAUDITED)
(DOLLARS IN THOUSANDS)
The following unaudited pro forma condensed statements of income have
been prepared to reflect the acquisition by ABC (after the proposed acquisition
of Central) of 100% of Southland after giving effect to the adjustments
described in the notes to the pro forma condensed financial statements. These
statements should be read in conjunction with the other financial statements and
notes thereto included elsewhere in this Proxy Statement.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, 1995
------------------------------------------------------------
ABC PRO FORMA
CENTRAL SOUTHLAND ADJUSTMENTS PRO FORMA
COMBINED HISTORICAL (NOTE B) COMBINED
------------ ------------- ---------------- ---------
<S> <C> <C> <C> <C>
INTEREST INCOME $30,844 $9,033 $ (319)(4) $39,558
INTEREST EXPENSE 12,633 4,775 - 17,408
------- ------ ------ -------
Net interest income 18,211 4,258 (319) 22,150
PROVISION FOR LOAN LOSSES 988 72 - 1,060
------- ------ ------ -------
Net interest income after provision for
loan losses 17,223 4,186 (319) 21,090
OTHER INCOME 3,873 1,582 - 5,455
OTHER EXPENSE 14,102 4,101 409 (3) 18,612
------- ------ ------ -------
Income from continuing operations before
income taxes 6,994 1,667 (728) 7,933
INCOME TAXES 2,154 643 (108)(5) 2,689
------- ------ ------ -------
Income from continuing operations $ 4,840 $1,024 $ (620) $ 5,244
======= ====== ====== =======
INCOME PER SHARE FROM CONTINUING OPERATIONS $ 1.20
=======
THREE MONTHS ENDED MARCH 31, 1996
------------------------------------------------------------
ABC/ PRO FORMA
CENTRAL SOUTHLAND ADJUSTMENTS PRO FORMA
COMBINED HISTORICAL (NOTE B) COMBINED
------------ ------------- ---------------- ---------
<S> <C> <C> <C> <C>
INTEREST INCOME $ 8,164 $2,456 $ (80)(4) $10,540
INTEREST EXPENSE 3,481 1,206 - 4,687
------- ------ ------ -------
Net interest income 4,683 1,250 (80) 5,853
PROVISION FOR LOAN LOSSES 180 - - 180
------- ------ ------ -------
Net interest income after provision for
loan losses 4,503 1,250 (80) 5,673
OTHER INCOME 1,170 399 - 1,506
OTHER EXPENSE 3,493 1,076 102 (3) 4,671
------- ------ ------ -------
Income from continuing operations before
income taxes 2,117 573 (182) 2,508
INCOME TAXES 710 213 (27)(5) 896
------- ------ ------ -------
Income from continuing operations $ 1,407 $ 360 $ (155) $ 1,612
======= ====== ====== =======
INCOME PER SHARE FROM CONTINUING OPERATIONS $ .37
=======
</TABLE>
PF-17
<PAGE>
ABC BANCORP AND SUBSIDIARIES
AND CENTRAL BANKSHARES, INC.
COMBINED WITH SOUTHLAND BANCORPORATION
NOTES TO PRO FORMA CONDENSED FINANCIAL STATEMENTS
(UNAUDITED)
A. The pro forma condensed balance sheet has been prepared assuming the
transaction was consummated on March 31, 1996. The pro forma condensed
statements of income have been prepared assuming the transaction was
consummated at the beginning of each period presented.
B. The following pro forma adjustments have been applied to give effect to the
proposed transactions described in this Proxy Statement.
BALANCE SHEET:
(1) Payment of $5,793,000 in cash (representing 49% of total
consideration) and issue of 430,670 of ABC common in exchange for 100%
of the equity of Southland for a total consideration of $11,822,000.
(2) Elimination of investment in Southland and allocation of purchase
price as follows:
(a) Write-up of land and buildings to approximate market value.
(b) $2,250,000, representing approximately 50% of the excess of
purchase price over the fair value of net assets acquired, has
been tentatively allocated as a premium paid for the customer
deposit base. The allocation is subject to a statistical study to
determine the ultimate customer deposit base premium. For
purposes of the pro forma financial statements, the premium is
being amortized over a period of 10 years.
(c) The remainder of the excess of purchase price over the fair value
of net assets acquired amounting to $2,504,000 has been considered
to be goodwill and is being amortized over a period of 15 years.
PF-18
<PAGE>
STATEMENTS OF INCOME:
(3) Pro forma adjustments to income resulting from the allocation of the
purchase price of Southland as follows:
(a) Depreciation of the write-up of buildings using the straight-line
method over the estimated average remaining life of 30 years.
(b) Amortization of the customer deposit base premium using the
straight-line method over a period of 10 years.
(c) Amortization of goodwill using the straight-line method over a
period of 15 years.
(4) Loss of interest on Federal funds sold used to fund the acquisition
using an average rate of 5.5%.
(5) Tax effect of pro forma adjustments for reduction in interest income
using a tax rate of 34%.
C. The following is the effect of the purchase adjustments described in Note
B(3) of Notes to the Pro Forma Condensed Financial Statements of ABC
Bancorp and Subsidiaries Combined with Southland Bancorporation.
<TABLE>
<CAPTION>
DEPRECIATION AMORTIZATION
OF WRITE-UP OF DEPOSIT AMORTIZATION
OF BANK BASE OF
YEAR ENDING DECEMBER 31, BUILDINGS PREMIUM GOODWILL TOTAL
----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
1996 $17,000 $225,000 $167,000 $409,000
1997 17,000 225,000 167,000 409,000
1998 17,000 225,000 167,000 409,000
1999 17,000 225,000 167,000 409,000
2000 17,000 225,000 167,000 409,000
</TABLE>
No tax effects relating to the purchase adjustments have been recorded
because the Company is acquiring the stock of Southland and will not be
allowed any taxable deductions for the above adjustments.
PF-19
<PAGE>
ABC BANCORP AND SUBSIDIARIES
COMBINED WITH FIRST NATIONAL FINANCIAL CORPORATION
PRO FORMA CONDENSED BALANCE SHEET
MARCH 31, 1996
(UNAUDITED)
(DOLLARS IN THOUSANDS)
The following unaudited pro forma condensed balance sheet as of March
31, 1996 has been prepared to reflect the acquisition by ABC of 100% of First
National after giving effect to the adjustments described in the notes to the
pro forma condensed financial statements. The acquisition will be accounted for
as a pooling of interest. These statements should be read in conjunction with
the other financial statements and notes thereto included elsewhere in this
Proxy Statement.
<TABLE>
<CAPTION>
PRO FORMA
FIRST ADJUSTMENTS
ABC NATIONAL (NOTES A PRO FORMA
HISTORICAL HISTORICAL AND B) COMBINED
------------ ------------- ---------------- ---------
<S> <C> <C> <C> <C>
ASSETS
- ------
Cash and due from banks $ 16,855 $ 2,118 $ - $ 18,973
Federal funds sold 21,535 3,100 - 24,635
Investment securities 56,916 11,332 - 68,248
Loans, net 218,877 35,015 - 253,892
Premises and equipment 7,222 1,463 - 8,685
Investment in Southland - - 5,593 (1)
(5,593)(2) -
Excess cost over fair value of assets acquired 1,996 - - 1,996
Other assets 12,188 836 - 13,024
-------- -------- -------- --------
$335,589 $ 53,864 $ - $389,453
======== ======== ======== ========
LIABILITIES AND EQUITY
- ----------------------
Deposits $293,385 $ 47,863 $ - $341,248
Other liabilities 7,629 408 - 8,037
-------- -------- -------- --------
Total liabilities 301,014 48,271 - 349,285
-------- -------- -------- --------
EQUITY
- ------
Common stock 3,597 - 789 (1) 4,386
Capital surplus 16,826 - 4,843 (1) 21,669
Retained earnings 15,815 - - 15,815
Unrealized gains on securities available for sale,
net of taxes (108) - (39)(1) (147)
Treasury stock (1,555) - - (1,555)
Equity of First National - 5,593 (5,593)(2) -
-------- -------- -------- --------
Total equity 34,575 5,593 - 40,168
-------- -------- -------- --------
$335,589 $ 53,864 $ - $389,453
======== ======== ======== ========
</TABLE>
PF-20
<PAGE>
ABC BANCORP AND SUBSIDIARIES
COMBINED WITH FIRST NATIONAL FINANCIAL CORPORATION
PRO FORMA CONDENSED STATEMENTS OF INCOME
(UNAUDITED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
The following unaudited pro forma condensed statements of income have
been prepared to reflect the acquisition by ABC of 100% of First National after
giving effect to the adjustments described in the notes to the pro forma
condensed financial statements. The acquisition will be accounted for as a
pooling of interest. These statements should be read in conjunction with the
other financial statements and notes thereto included elsewhere in this Proxy
Statement.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, 1995 YEAR ENDED DECEMBER 31, 1994
------------------------------------- -------------------------------------
FIRST PRO FORMA FIRST PRO FORMA
ABC NATIONAL COMBINED ABC NATIONAL COMBINED
HISTORICAL HISTORICAL (NOTE A) HISTORICAL HISTORICAL (NOTE A)
------------ ------------ ----------- ------------ ------------ -----------
<S> <C> <C> <C> <C> <C> <C>
INTEREST INCOME $26,703 $ 4,045 $ 30,748 $ 21,328 $ 3,162 $ 24,490
INTEREST EXPENSE 10,673 1,893 12,566 7,828 1,438 9,266
------- ------- -------- -------- ------- --------
Net interest income 16,030 2,152 18,182 13,500 1,724 15,224
PROVISION FOR LOAN LOSSES 848 185 1,033 638 120 758
------- ------- -------- -------- ------- --------
Net interest income
after provision for
loan losses 15,182 1,967 17,149 12,862 1,604 14,466
OTHER INCOME 3,276 524 3,800 3,025 355 3,380
OTHER EXPENSE 12,228 1,573 13,801 11,547 1,420 12,967
------- ------- -------- -------- ------- --------
Income from continuing
operations before
income taxes and
cumulative
effect 6,230 918 7,148 4,340 539 4,879
INCOME TAXES 1,889 306 2,195 1,240 223 1,463
------- ------- -------- -------- ------- --------
Income from
operations before
cumulative effect 4,341 612 4,953 3,100 316 3,416
CUMULATIVE EFFECT OF
ACCOUNTING CHANGE - - - - - -
------- ------- -------- -------- ------- --------
Income from continuing
operations $ 4,341 $ 612 $ 4,953 $ 3,100 $ 316 $ 3,416
======= ======= ======== ======== ======= ========
INCOME PER SHARE FROM
CONTINUING OPERATIONS $ 1.19 $ .91
======== ========
<CAPTION>
YEAR ENDED DECEMBER 31, 1993
----------------------------------------
FIRST PRO FORMA
ABC NATIONAL COMBINED
HISTORICAL HISTORICAL (NOTE A)
------------ ------------ ----------
<S> <C> <C> <C>
INTEREST INCOME $ 19,697 $ 2,510 $ 22,207
INTEREST EXPENSE 7,732 1,177 8,909
-------- ------- --------
Net interest income 11,965 1,333 13,298
PROVISION FOR LOAN LOSSES 1,191 128 1,319
-------- ------- --------
Net interest income
after provision for
loan losses 10,774 1,205 11,979
OTHER INCOME 2,867 289 3,156
OTHER EXPENSE 10,535 1,256 11,791
-------- ------- --------
Income from continuing
operations before
income taxes and
cumulative
effect 3,106 238 3,344
INCOME TAXES 814 - 814
-------- ------- --------
Income from
operations before
cumulative effect 2,292 238 2,530
CUMULATIVE EFFECT OF
ACCOUNTING CHANGE 346 346
-------- ------- --------
Income from continuing
operations $ 2,638 $ 238 $ 2,876
======== ======= ========
INCOME PER SHARE FROM
CONTINUING OPERATIONS $ .87
========
</TABLE>
PF-21
<PAGE>
ABC BANCORP AND SUBSIDIARIES
COMBINED WITH CENTRAL BANKSHARES, INC.
PRO FORMA CONDENSED STATEMENTS OF INCOME
(UNAUDITED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
(CONTINUED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED MARCH 31, 1996 THREE MONTHS ENDED MARCH 31, 1995
------------------------------------------------- ------------------------------------------
FIRST PRO FORMA FIRST PRO FORMA
ABC NATIONAL COMBINED ABC NATIONAL COMBINED
HISTORICAL HISTORICAL (NOTE A) HISTORICAL HISTORICAL (NOTE A)
--------------- ------------ ------------ ------------- ------------ -----------
<S> <C> <C> <C> <C> <C> <C>
INTEREST INCOME $ 7,051 $ 1,071 $ 8,122 $ 6,157 $ 938 $ 7,095
INTEREST EXPENSE 2,941 538 3,479 2,348 393 2,741
-------- ------- ------- -------- ------- -------
Net interest income 4,110 533 4,643 3,809 545 4,354
PROVISION FOR LOAN LOSSES 180 50 230 180 25 205
-------- ------- ------- -------- ------- -------
Net interest
income after
provision for
loan losses 3,930 483 4,413 3,629 520 4,149
OTHER INCOME 927 123 1,050 886 85 971
OTHER EXPENSE 3,017 397 3,414 3,000 391 3,391
-------- ------- ------- -------- ------- -------
Income from
continuing
operations before
income taxes
and cumulative
effect 1,840 209 2,049 1,515 214 1,729
INCOME TAXES 605 76 681 487 81 568
-------- ------ ------ ------- ------ -------
Income from
operations
before
cumulative effect 1,235 133 1,368 1,028 133 1,161
CUMULATIVE EFFECT OF
ACCOUNTING CHANGE - - - - - -
-------- ------ ------- ------- ------- -------
Income from
continuing
operations $ 1,235 $ 133 $ 1,368 $ 1,028 $ 133 $ 1,161
======= ====== ======= ======= ====== =======
INCOME PER SHARE FROM
CONTINUING OPERATIONS $ .33 $ .28
======= =======
</TABLE>
PF-21(A)
<PAGE>
ABC BANCORP AND SUBSIDIARIES
COMBINED WITH FIRST NATIONAL FINANCIAL CORPORATION
NOTES TO PRO FORMA CONDENSED FINANCIAL STATEMENTS
(UNAUDITED)
A. The pro forma condensed balance sheet has been prepared assuming the
transaction was consummated on March 31, 1996. The pro forma condensed
statements of income have been prepared assuming the transaction was
consummated at the beginning of the earliest fiscal year presented.
B. The following pro forma adjustments have been applied to give effect to the
proposed transactions described in this Proxy Statement.
BALANCE SHEET:
(1) Issue of 788,868 shares of ABC common stock, $1 par value, in exchange
for 100% of the equity of First National.
(2) Elimination of investment in First National.
STATEMENTS OF INCOME:
(3) Pro forma income per common share is based on the average number of
common shares that would have been outstanding during the respective
periods. There are no dilutive common stock attributes.
PF-22
<PAGE>
ABC BANCORP AND SUBSIDIARIES
AND FIRST NATIONAL FINANCIAL CORPORATION
COMBINED WITH SOUTHLAND BANCORPORATION
PRO FORMA CONDENSED BALANCE SHEET
MARCH 31, 1996
(UNAUDITED)
(DOLLARS IN THOUSANDS)
The following unaudited pro forma condensed balance sheet as of March
31, 1996 has been prepared to reflect the acquisition by ABC (after the proposed
acquisition of First National) of 100% of Southland after giving effect to the
adjustments described in the notes to the pro forma condensed financial
statements. These statements should be read in conjunction with the other
financial statements and notes thereto included elsewhere in this Proxy
Statement.
<TABLE>
<CAPTION>
ABC PRO FORMA
FIRST ADJUSTMENTS
NATIONAL SOUTHLAND (NOTES A PRO FORMA
COMBINED HISTORICAL AND B) COMBINED
------------ ------------- ---------------- ---------
<S> <C> <C> <C> <C>
ASSETS
- ------
Cash and due from banks $ 18,973 $ 2,667 $ - $ 21,640
Federal funds sold 24,635 - (4,138)(1) 20,497
Investment securities 68,248 25,180 - 93,428
Loans, net 253,892 74,880 - 328,772
Premises and equipment 8,685 2,544 500 (2) 11,729
Investment in Southland - - 11,822 (1)
(11,822)(2) -
Excess cost over fair value of assets acquired 1,996 - 2,250 (2)
2,504 (2) 6,750
Other assets 13,024 2,197 - 15,221
-------- -------- -------- --------
$389,453 $107,468 $ 1,116 $498,037
======== ======== ======== ========
LIABILITIES AND EQUITY
- ----------------------
Deposits $341,248 $ 87,865 $ - $429,113
Other liabilities 8,037 1,027 - 9,064
Long-term debt - 12,008 - 12,008
-------- -------- -------- --------
Total liabilities 349,285 100,900 - 450,185
-------- -------- -------- --------
EQUITY
- ------
Common stock 4,386 - 549 (1) 4,935
Capital surplus 21,669 - 7,135 (1) 28,804
Retained earnings 15,815 - - 15,815
Unrealized gains on securities available for sale,
net of taxes (147) - - (147)
Treasury stock (1,555) - - (1,555)
Equity of Southland - 6,568 (6,568)(2) -
-------- -------- -------- --------
Total equity 40,168 6,568 1,116 47,852
-------- -------- -------- --------
$389,453 $107,468 $ 1,116 $498,037
======== ======== ======== ========
</TABLE>
PF-23
<PAGE>
ABC BANCORP AND SUBSIDIARIES
AND FIRST NATIONAL FINANCIAL CORPORATION
COMBINED WITH SOUTHLAND BANCORPORATION
PRO FORMA CONDENSED STATEMENTS OF INCOME
(UNAUDITED)
(DOLLARS IN THOUSANDS)
The following unaudited pro forma condensed statements of income have
been prepared to reflect the acquisition by ABC (after the proposed acquisition
of First National) of 100% of Southland after giving effect to the adjustments
described in the notes to the pro forma condensed financial statements. These
statements should be read in conjunction with the other financial statements and
notes thereto included elsewhere in this Proxy Statement.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, 1995
------------------------------------------------------------
ABC
FIRST PRO FORMA
NATIONAL SOUTHLAND ADJUSTMENTS PRO FORMA
COMBINED HISTORICAL (NOTE B) COMBINED
------------ ------------- ---------------- ---------
<S> <C> <C> <C> <C>
INTEREST INCOME $30,748 $9,033 $ (228)(4) $39,553
INTEREST EXPENSE 12,566 4,775 - 17,341
------- ------ ------ -------
Net interest income 18,182 4,258 (228) 22,212
PROVISION FOR LOAN LOSSES 1,033 72 - 1,105
------- ------ ------ -------
Net interest income after provision for
loan losses 17,149 4,186 (228) 21,107
OTHER INCOME 3,800 1,582 - 5,382
OTHER EXPENSE 13,801 4,101 409 (3) 18,311
------- ------ ------ -------
Income from continuing operations before
income taxes 7,148 1,667 (637) 8,178
INCOME TAXES 2,195 643 (78)(5) 2,760
------- ------ ------ -------
Income from continuing operations $ 4,953 $1,024 $ (559) $ 5,418
======= ====== ====== =======
INCOME PER SHARE FROM CONTINUING OPERATIONS $ 1.15
=======
THREE MONTHS ENDED MARCH 31, 1996
------------------------------------------------------------
ABC/
FIRST PRO FORMA
NATIONAL SOUTHLAND ADJUSTMENTS PRO FORMA
COMBINED HISTORICAL (NOTE B) COMBINED
------------ ------------- ---------------- ---------
<S> <C> <C> <C> <C>
INTEREST INCOME $ 8,122 $2,456 $ (57)(4) $10,521
INTEREST EXPENSE 3,479 1,206 - 4,685
------- ------ ------ -------
Net interest income 4,643 1,250 (57) 5,836
PROVISION FOR LOAN LOSSES 230 - - 230
------- ------ ------ -------
Net interest income after provision for
loan losses 4,413 1,250 (57) 5,606
OTHER INCOME 1,050 399 - 1,449
OTHER EXPENSE 3,414 1,076 102 (3) 4,592
------- ------ ------ -------
Income from continuing operations before
income taxes 2,049 573 (159) 2,463
INCOME TAXES 681 213 (19)(5) 875
------- ------ ------ -------
Income from continuing operations $ 1,368 $ 360 $ (140) $ 1,588
======= ====== ====== =======
INCOME PER SHARE FROM CONTINUING OPERATIONS $ .34
=======
</TABLE>
PF-24
<PAGE>
ABC BANCORP AND SUBSIDIARIES
AND FIRST NATIONAL FINANCIAL CORPORATION
COMBINED WITH SOUTHLAND BANCORPORATION
NOTES TO PRO FORMA CONDENSED FINANCIAL STATEMENTS
(UNAUDITED)
A. The pro forma condensed balance sheet has been prepared assuming the
transaction was consummated on March 31, 1996. The pro forma condensed
statements of income have been prepared assuming the transaction was
consummated at the beginning of each period presented.
B. The following pro forma adjustments have been applied to give effect to the
proposed transactions described in this Proxy Statement.
BALANCE SHEET:
(1) Payment of $4,138,000 in cash (representing 35% of total
consideration) and issue of 548,893 of ABC common in exchange for 100%
of the equity of Southland for a total consideration of $11,822,000.
(2) Elimination of investment in Southland and allocation of purchase
price as follows:
(a) Write-up of land and buildings to approximate market value.
(b) $2,250,000, representing approximately 50% of the excess of
purchase price over the fair value of net assets acquired, has
been tentatively allocated as a premium paid for the customer
deposit base. The allocation is subject to a statistical study to
determine the ultimate customer deposit base premium. For
purposes of the pro forma financial statements, the premium is
being amortized over a period of 10 years.
(c) The remainder of the excess of purchase price over the fair value
of net assets acquired amounting to $2,504,000 has been considered
to be goodwill and is being amortized over a period of 15 years.
PF-25
<PAGE>
STATEMENTS OF INCOME:
(3) Pro forma adjustments to income resulting from the allocation of the
purchase price of Southland as follows:
(a) Depreciation of the write-up of buildings using the straight-line
method over the estimated average remaining life of 30 years.
(b) Amortization of the customer deposit base premium using the
straight-line method over a period of 10 years.
(c) Amortization of goodwill using the straight-line method over a
period of 15 years.
(4) Loss of interest on Federal funds sold used to fund the acquisition
using an average rate of 5.5%.
(5) Tax effect of pro forma adjustments for reduction in interest income
using a tax rate of 34%.
C. The following is the effect of the purchase adjustments described in Note
B(3) of Notes to the Pro Forma Condensed Financial Statements of ABC
Bancorp and Subsidiaries Combined with Southland Bancorporation.
<TABLE>
<CAPTION>
DEPRECIATION AMORTIZATION
OF WRITE-UP OF DEPOSIT AMORTIZATION
OF BANK BASE OF
YEAR ENDING DECEMBER 31, BUILDINGS PREMIUM GOODWILL TOTAL
- ----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
1996 $ 17,000 $ 225,000 $ 167,000 $409,000
1997 17,000 225,000 167,000 409,000
1998 17,000 225,000 167,000 409,000
1999 17,000 225,000 167,000 409,000
2000 17,000 225,000 167,000 409,000
</TABLE>
No tax effects relating to the purchase adjustments have been recorded because
the Company is acquiring the stock of Southland and will not be allowed any
taxable deductions for the above adjustments.
PF-26
<PAGE>
ABC BANCORP AND SUBSIDIARIES
AND FIRST NATIONAL FINANCIAL CORPORATION
COMBINED WITH SOUTHLAND BANCORPORATION
PRO FORMA CONDENSED BALANCE SHEET
MARCH 31, 1996
(UNAUDITED)
(DOLLARS IN THOUSANDS)
The following unaudited pro forma condensed balance sheet as of March
31, 1996 has been prepared to reflect the acquisition by ABC (after the proposed
acquisition of First National) of 100% of Southland after giving effect to the
adjustments described in the notes to the pro forma condensed financial
statements. These statements should be read in conjunction with the other
financial statements and notes thereto included elsewhere in this Proxy
Statement.
<TABLE>
<CAPTION>
ABC PRO FORMA
FIRST ADJUSTMENTS
NATIONAL SOUTHLAND (NOTES A PRO FORMA
COMBINED HISTORICAL AND B) COMBINED
------------ ------------- ---------------- ---------
<S> <C> <C> <C> <C>
ASSETS
- ------
Cash and due from banks $ 18,973 $ 2,667 $ - $ 21,640
Federal funds sold 24,635 - (5,793)(1) 18,842
Investment securities 68,248 25,180 - 93,428
Loans, net 253,892 74,880 - 328,772
Premises and equipment 8,685 2,544 500 (2) 11,729
Investment in Southland - - 11,822 (1)
(11,822)(2) -
Excess cost over fair value of assets acquired 1,996 - 2,250 (2)
2,504 (2) 6,750
Other assets 13,024 2,197 - 15,221
-------- -------- -------- --------
$389,453 $107,468 $ (539) $496,382
======== ======== ======== ========
LIABILITIES AND EQUITY
- ----------------------
Deposits $341,248 $ 87,865 $ - $429,113
Other liabilities 8,037 1,027 - 9,064
Long-term debt - 12,008 - 12,008
-------- -------- -------- --------
Total liabilities 349,285 100,900 - 450,185
-------- -------- -------- --------
EQUITY
- ------
Common stock 4,386 - 431 (1) 4,817
Capital surplus 21,669 - 5,598 (1) 27,267
Retained earnings 15,815 - - 15,815
Unrealized gains on securities available for sale,
net of taxes (147) - - (147)
Treasury stock (1,555) - - (1,555)
Equity of Southland - 6,568 (6,568)(2) -
-------- -------- -------- --------
Total equity 40,168 6,568 (539) 46,197
-------- -------- -------- --------
$389,453 $107,468 $ (539) $496,382
======== ======== ======== ========
</TABLE>
PF-27
<PAGE>
ABC BANCORP AND SUBSIDIARIES
AND FIRST NATIONAL FINANCIAL CORPORATION
COMBINED WITH SOUTHLAND BANCORPORATION
PRO FORMA CONDENSED STATEMENTS OF INCOME
(UNAUDITED)
(DOLLARS IN THOUSANDS)
The following unaudited pro forma condensed statements of income have
been prepared to reflect the acquisition by ABC (after the proposed acquisition
of First National) of 100% of Southland after giving effect to the adjustments
described in the notes to the pro forma condensed financial statements. These
statements should be read in conjunction with the other financial statements and
notes thereto included elsewhere in this Proxy Statement.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, 1995
------------------------------------------------------------
ABC
FIRST PRO FORMA
NATIONAL SOUTHLAND ADJUSTMENTS PRO FORMA
COMBINED HISTORICAL (NOTE B) COMBINED
------------ ------------- ---------------- ---------
<S> <C> <C> <C> <C>
INTEREST INCOME $30,748 $9,033 $ (319)(4) $39,462
INTEREST EXPENSE 12,566 4,775 - 17,341
------- ------ ------ -------
Net interest income 18,182 4,258 (319) 22,121
PROVISION FOR LOAN LOSSES 1,033 72 - 1,105
------- ------ ------ -------
Net interest income after provision for
loan losses 17,149 4,186 (319) 21,016
OTHER INCOME 3,800 1,582 - 5,382
OTHER EXPENSE 13,801 4,101 409 (3) 18,311
------- ------ ------ -------
Income from continuing operations before
income taxes 7,148 1,667 (728) 8,087
INCOME TAXES 2,195 643 (108)(5) 2,730
------- ------ ------ -------
Income from continuing operations $ 4,953 $1,024 $ (620) $ 5,357
======= ====== ====== =======
INCOME PER SHARE FROM CONTINUING OPERATIONS $ 1.17
=======
THREE MONTHS ENDED MARCH 31, 1996
------------------------------------------------------------
ABC/
FIRST PRO FORMA
NATIONAL SOUTHLAND ADJUSTMENTS PRO FORMA
COMBINED HISTORICAL (NOTE B) COMBINED
------------ ------------- ---------------- ---------
<S> <C> <C> <C> <C>
INTEREST INCOME $ 8,122 $2,456 $ (80)(4) $10,498
INTEREST EXPENSE 3,479 1,206 - 4,685
------- ------ ------ -------
Net interest income 4,643 1,250 (80) 5,813
PROVISION FOR LOAN LOSSES 230 - - 230
------- ------ ------ -------
Net interest income after provision for
loan losses 4,413 1,250 (80) 5,583
OTHER INCOME 1,050 399 - 1,449
OTHER EXPENSE 3,414 1,076 102 (3) 4,592
------- ------ ------ -------
Income from continuing operations before
income taxes 2,049 573 (182) 2,440
INCOME TAXES 681 213 (27)(5) 867
------- ------ ------ -------
Income from continuing operations $ 1,368 $ 360 $ (155) $ 1,573
======= ====== ====== =======
INCOME PER SHARE FROM CONTINUING OPERATIONS $ .34
=======
</TABLE>
PF-28
<PAGE>
ABC BANCORP AND SUBSIDIARIES
AND FIRST NATIONAL FINANCIAL CORPORATION
COMBINED WITH SOUTHLAND BANCORPORATION
NOTES TO PRO FORMA CONDENSED FINANCIAL STATEMENTS
(UNAUDITED)
A. The pro forma condensed balance sheet has been prepared assuming the
transaction was consummated on March 31, 1996. The pro forma condensed
statements of income have been prepared assuming the transaction was
consummated at the beginning of each period presented.
B. The following pro forma adjustments have been applied to give effect to the
proposed transactions described in this Proxy Statement.
BALANCE SHEET:
(1) Payment of $5,793,000 in cash (representing 49% of total
consideration) and issue of 430,670 of ABC common in exchange for 100%
of the equity of Southland for a total consideration of $11,822,000.
(2) Elimination of investment in Southland and allocation of purchase
price as follows:
(a) Write-up of land and buildings to approximate market value.
(b) $2,250,000, representing approximately 50% of the excess of
purchase price over the fair value of net assets acquired, has
been tentatively allocated as a premium paid for the customer
deposit base. The allocation is subject to a statistical study to
determine the ultimate customer deposit base premium. For
purposes of the pro forma financial statements, the premium is
being amortized over a period of 10 years.
(c) The remainder of the excess of purchase price over the fair value
of net assets acquired amounting to $2,504,000 has been considered
to be goodwill and is being amortized over a period of 15 years.
PF-29
<PAGE>
STATEMENTS OF INCOME:
(3) Pro forma adjustments to income resulting from the allocation of the
purchase price of Southland as follows:
(a) Depreciation of the write-up of buildings using the straight-line
method over the estimated average remaining life of 30 years.
(b) Amortization of the customer deposit base premium using the
straight-line method over a period of 10 years.
(c) Amortization of goodwill using the straight-line method over a
period of 15 years.
(4) Loss of interest on Federal funds sold used to fund the acquisition
using an average rate of 5.5%.
(5) Tax effect of pro forma adjustments for reduction in interest income
using a tax rate of 34%.
C. The following is the effect of the purchase adjustments described in Note
B(3) of Notes to the Pro Forma Condensed Financial Statements of ABC
Bancorp and Subsidiaries Combined with Southland Bancorporation.
<TABLE>
<CAPTION>
DEPRECIATION AMORTIZATION
OF WRITE-UP OF DEPOSIT AMORTIZATION
OF BANK BASE OF
YEAR ENDING DECEMBER 31, BUILDINGS PREMIUM GOODWILL TOTAL
----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
1996 $ 17,000 $ 225,000 $ 167,000 $ 409,000
1997 17,000 225,000 167,000 409,000
1998 17,000 225,000 167,000 409,000
1999 17,000 225,000 167,000 409,000
2000 17,000 225,000 167,000 409,000
</TABLE>
No tax effects relating to the purchase adjustments have been recorded
because the Company is acquiring the stock of Southland and will not be
allowed any taxable deductions for the above adjustments.
PF-30
<PAGE>
ABC BANCORP AND SUBSIDIARIES
AND CENTRAL BANKSHARES, INC.
COMBINED WITH FIRST NATIONAL FINANCIAL CORPORATION
PRO FORMA CONDENSED BALANCE SHEET
MARCH 31, 1996
(UNAUDITED)
(DOLLARS IN THOUSANDS)
The following unaudited pro forma condensed balance sheet as of March
31, 1996 has been prepared to reflect the acquisition by ABC (after the proposed
acquisition of Central) of 100% of First National after giving effect to the
adjustments described in the notes to the pro forma condensed financial
statements. These statements should be read in conjunction with the other
financial statements and notes thereto included elsewhere in this Proxy
Statement.
<TABLE>
<CAPTION>
PRO FORMA
ABC FIRST ADJUSTMENTS
CENTRAL NATIONAL (NOTES A PRO FORMA
COMBINED HISTORICAL AND B) COMBINED
---------- ---------- -------------- ----------
<S> <C> <C> <C> <C>
ASSETS
- ------
Cash and due from banks $ 18,997 $ 2,118 $ - $ 21,115
Federal funds sold 21,535 3,100 - 24,635
Investment securities 67,778 11,332 - 79,110
Loans, net 253,865 35,015 - 288,880
Premises and equipment 8,296 1,463 - 9,759
Investment in First National - - 5,593 (1)
(5,593)(2)
Excess cost over fair value of assets
acquired 1,996 - - 1,996
Other assets 13,226 836 - 14,062
-------- ------- --------- --------
$385,693 $53,864 $ - $439,557
-------- ------- --------- --------
LIABILITIES AND EQUITY
- ----------------------
Deposits $338,109 $47,863 $ - $385,972
Other liabilities 8,709 408 - 9,117
-------- ------- --------- --------
Total liabilities 346,818 48,271 - 395,089
-------- ------- --------- --------
EQUITY
- ------
Common stock 4,186 - 789 (1) 4,975
Capital surplus 20,556 - 4,843 (1) 25,399
Retained earnings 15,815 - - 15,815
Unrealized gains on securities available
for sale, net of taxes (127) - (39)(1) (166)
Treasury stock (1,555) - - (1,555)
Equity of First National - 5,593 (5,593)(2) -
-------- ------- --------- --------
Total equity 38,875 5,593 - 44,468
-------- ------- --------- --------
$385,693 $53,864 $ - $439,557
======== ======= ========= ========
</TABLE>
PF-31
<PAGE>
ABC BANCORP AND SUBSIDIARIES
AND CENTRAL BANKSHARES, INC.
COMBINED WITH FIRST NATIONAL FINANCIAL CORPORATION
PRO FORMA CONDENSED STATEMENTS OF INCOME
(UNAUDITED)
(DOLLARS IN THOUSANDS)
The following unaudited pro forma condensed statements of income have
been prepared to reflect the acquisition by ABC (after the proposed acquisition
of Central) of 100% of First National after giving effect to the adjustments
described in the notes to the pro forma condensed financial statements. These
statements should be read in conjunction with the other financial statements and
notes thereto included elsewhere in this Proxy Statement.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, 1995 YEAR ENDED DECEMBER 31, 1994 YEAR ENDED DECEMBER 31, 1993
------------------------------------ -------------------------------- ------------------------------
ABC FIRST PRO FORMA ABC FIRST PRO FORMA ABC FIRST PRO FORMA
CENTRAL NATIONAL COMBINED CENTRAL NATIONAL COMBINED CENTRAL NATIONAL COMBINED
COMBINED HISTORICAL (NOTE A) COMBINED HISTORICAL (NOTE A) COMBINED HISTORICAL (NOTE A)
---------- ----------- ------------ --------- ------------ --------- --------- ---------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
INTEREST INCOME $ 30,844 $ 4,045 $ 34,889 $24,581 $3,162 $27,743 $22,815 $2,510 $25,325
INTEREST EXPENSE 12,633 1,893 14,526 9,076 1,438 10,514 8,939 1,177 10,116
-------- -------- -------- ------- ------ ------ ------ ------ -------
Net interest income 18,211 2,152 20,363 15,505 1,724 17,229 13,876 1,333 15,209
PROVISION FOR LOAN LOSSES 988 185 1,173 818 120 938 1,384 128 1,512
-------- -------- -------- ------- ------ ------ ------ ------ -------
Net interest income
after provision for
loan losses 17,223 1,967 19,190 14,687 1,604 16,291 12,492 1,205 13,697
OTHER INCOME 3,873 524 4,397 3,692 355 4,047 3,478 289 3,767
OTHER EXPENSE 14,102 1,573 15,675 13,342 1,420 14,762 12,378 1,256 13,634
-------- -------- -------- ------- ------ ------ ------ ------ -------
Income from continuing
operations before
income taxes and
cumulative effect 6,994 918 7,912 5,037 539 5,576 3,592 238 3,830
INCOME TAXES 2,154 306 2,460 1,480 223 1,703 979 - 979
-------- -------- -------- ------- ------ ------ ------ ------ -------
Income from continuing
operations before
cumulative effect 4,840 612 5,452 3,557 316 3,873 2,613 238 2,851
CUMULATIVE EFFECT OF
ACCOUNTING CHANGE - - - - - - 346 - 346
Income from continuing
operations $ 4,840 $ 612 $ 5,452 $ 3,557 $ 316 $3,873 $2,959 $ 238 $ 3,197
======== ======== ======== ======= ====== ====== ====== ====== =======
INCOME PER SHARE FROM
CONTINUING OPERATIONS $ 1.15 $ .90 $ .82
======= ====== ======
</TABLE>
PF-32
<PAGE>
ABC BANCORP AND SUBSIDIARIES
AND CENTRAL BANKSHARES, INC.
COMBINED WITH FIRST NATIONAL FINANCIAL CORPORATION
PRO FORMA CONDENSED STATEMENTS OF INCOME
(UNAUDITED)
(DOLLARS IN THOUSANDS)
(CONTINUED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED MARCH 31, 1996 THREE MONTHS ENDED MARCH 31, 1995
------------------------------------------- -------------------------------------------
ABC FIRST PRO FORMA ABC FIRST PRO FORMA
CENTRAL NATIONAL COMBINED CENTRAL NATIONAL COMBINED
COMBINED HISTORICAL (NOTE A) COMBINED HISTORICAL (NOTE A)
---------- ------------- -------- --------- ---------- ---------
<S> <C> <C> <C> <C> <C> <C>
INTEREST INCOME $ 8,164 $1,071 $ 9,235 $ 7,071 $ 938 $ 8,009
INTEREST EXPENSE 3,481 538 4,019 2,751 393 3,144
------- ------ ------ ------ ------ -------
Net interest income 4,683 533 5,216 4,320 545 4,865
PROVISION FOR LOAN LOSSES 180 50 230 225 25 250
------- ------ ------ ------ ------ -------
Net interest income
after provision for
loan losses 4,503 483 4,986 4,095 520 4,615
OTHER INCOME 1,107 123 1,230 1,046 85 1,131
OTHER EXPENSE 3,493 397 3,890 3,476 391 3,867
------- ------ ------ ------ ------ -------
Income from continuing
operations before
income taxes and
cumulative effect 2,117 209 2,326 1,665 214 1,879
INCOME TAXES 710 76 786 544 81 625
------- ------ ------ ------ ------ -------
Income from
operations before
cumulative effect 1,407 133 1,540 1,121 133 1,254
CUMULATIVE EFFECT OF
ACCOUNTING CHANGE - - - - - -
Income from continuing
operations $ 1,407 $ 133 $1,540 $1,121 $ 133 $ 1,254
------- ------ ------ ------ ------ -------
INCOME PER SHARE FROM
CONTINUING OPERATIONS $ .32 $ .27
====== ======
</TABLE>
PF-32(A)
<PAGE>
ABC BANCORP AND SUBSIDIARIES
AND CENTRAL BANKSHARES, INC.
COMBINED WITH FIRST NATIONAL FINANCIAL CORPORATION
NOTES TO PRO FORMA CONDENSED FINANCIAL STATEMENTS
(UNAUDITED)
A. The pro forma condensed balance sheet has been prepared assuming the
transaction was consummated on March 31, 1996. The pro forma condensed
statements of income have been prepared assuming the transaction was
consummated on January 1, 1995 at the beginning of each period presented.
B. The following pro forma adjustments have been applied to give effect to the
proposed transactions described in this Proxy Statement.
BALANCE SHEET:
(1) Issue of 788,868 shares of ABC common stock, $1 par value, in exchange
for 100% of the equity of First National.
(2) Elimination of investment in First National.
STATEMENTS OF INCOME:
(3) Pro forma income per common share is based on the average number of
common shares that would have been outstanding during the respective
periods.
PF-33
<PAGE>
ABC BANCORP AND SUBSIDIARIES,
CENTRAL BANKSHARES, INC.
AND FIRST NATIONAL FINANCIAL CORPORATION
COMBINED WITH SOUTHLAND BANCORPORATION
PRO FORMA CONDENSED BALANCE SHEET
MARCH 31, 1996
(UNAUDITED)
(DOLLARS IN THOUSANDS)
The following unaudited pro forma condensed balance sheet as of March
31, 1996 has been prepared to reflect the acquisition by ABC (after the proposed
acquisitions of Central and First National) of 100% of Southland after giving
effect to the adjustments described in the notes to the pro forma condensed
financial statements. These statements should be read in conjunction with the
other financial statements and notes thereto included elsewhere in this Proxy
Statement.
<TABLE>
<CAPTION>
ABC
CENTRAL PRO FORMA
FIRST ADJUSTMENTS
NATIONAL SOUTHLAND (NOTES A PRO FORMA
COMBINED HISTORICAL AND B) COMBINED
---------- ---------- -------------- -----------
ASSETS
- -------
<S> <C> <C> <C> <C>
Cash and due from banks $ 21,115 $ 2,667 $ - $ 23,782
Federal funds sold 24,635 (4,138)(1) 20,497
Investment securities 79,110 25,180 - 104,290
Loans, net 288,880 74,880 - 363,760
Premises and equipment 9,759 2,544 500 (2) 12,803
Investment in Southland - - 11,822 (1) -
(11,822)(2) -
Excess cost over fair value of assets acquired 1,996 - 2,250 (2) -
2,504 (2) 6,750
Other assets 14,062 2,197 - 16,259
--------- -------- --------- --------
$ 439,557 $107,468 $ 1,116 $548,141
========= ======== ======== ========
LIABILITIES AND EQUITY
- -----------------------
Deposits $385,972 $ 87,865 $ - $473,837
Other liabilities 9,117 1,027 - 10,144
Long-term debt - 12,008 - 12,008
--------- -------- --------- --------
Total liabilities 395,089 100,900 - 495,989
--------- -------- --------- --------
EQUITY
- ------
Common stock 4,975 - 549 (1) 5,524
Capital surplus 25,399 - 7,135 (1) 32,534
Retained earnings 15,815 - - 15,815
Unrealized gains on securities available for sale,
net of taxes (166) - - (166)
Treasury stock (1,555) - - (1,555)
Equity of Southland - 6,568 (6,568)(2) -
--------- -------- --------- --------
Total equity 44,468 6,568 1,116 52,152
--------- -------- --------- --------
$439,557 $107,468 $ 1,116 $548,141
======== ======== ======== ========
</TABLE>
PF-34
<PAGE>
ABC BANCORP AND SUBSIDIARIES,
CENTRAL BANKSHARES, INC.
AND FIRST NATIONAL CORPORATION
COMBINED WITH SOUTHLAND BANCORPORATION
PRO FORMA CONDENSED STATEMENTS OF INCOME
(UNAUDITED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
The following unaudited pro forma condensed statements of income have
been prepared to reflect the acquisition by ABC (after the proposed
acquisitions of Central and First National) of 100% of Southland after
giving effect to the adjustments described in the notes to the pro forma
condensed financial statements. These statements should be read in conjunction
with the other financial statements and notes thereto included elsewhere in this
Proxy Statement.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, 1995
-----------------------------------------------------------
ABC
CENTRAL
FIRST PRO FORMA
NATIONAL SOUTHLAND ADJUSTMENTS PRO FORMA
COMBINED HISTORICAL (NOTE B) COMBINED
---------- ---------- ----------- -----------
<S> <C> <C> <C> <C>
INTEREST INCOME $ 34,889 $ 9,033 $ (228)(4) $ 43,694
INTEREST EXPENSE 14,526 4,775 - 19,301
-------- ------- -------- --------
Net interest income 20,363 4,258 (228) 24,393
PROVISION FOR LOAN LOSSES 1,173 72 - 1,245
-------- ------- -------- --------
Net interest income after provision for
loan losses 19,190 4,186 (228) 23,148
OTHER INCOME 4,397 1,582 - 5,979
OTHER EXPENSE 15,675 4,101 409 (3) 20,185
-------- ------- -------- --------
Income from continuing operations before
income taxes 7,912 1,667 (637) 8,942
INCOME TAXES 2,460 643 (78)(5) 3,025
-------- ------- -------- --------
Income from continuing operations $ 5,452 $ 1,024 $ (559) $ 5,917
======== ======= ======== ========
INCOME PER SHARE FROM CONTINUING
OPERATIONS $ 1.12
========
THREE MONTHS ENDED MARCH 31, 1996
-----------------------------------------------------------
ABC/
CENTRAL/
FIRST PRO FORMA
NATIONAL SOUTHLAND ADJUSTMENTS PRO FORMA
COMBINED HISTORICAL (NOTE B) COMBINED
---------- ---------- ----------- -----------
INTEREST INCOME $ 9,235 $ 2,456 $ (57)(4) $11,634
INTEREST EXPENSE 4,019 1,206 - 5,225
-------- -------- -------- --------
Net interest income 5,216 1,250 (57) 6,409
PROVISION FOR LOAN LOSSES 230 - - 230
-------- -------- -------- --------
Net interest income after provision for
loan losses 4,986 1,250 (57) 6,179
OTHER INCOME 1,230 399 - 1,629
OTHER EXPENSE 3,890 1,076 102 (3) 5,068
-------- -------- -------- --------
Income from continuing operations before
income taxes 2,326 573 (159) 2,740
INCOME TAXES 786 213 (19)(5) 980
-------- -------- -------- --------
Income from continuing operations $ 1,540 $ 360 $ (140) $ 1,760
======== ======== ======== ========
INCOME PER SHARE FROM CONTINUING
OPERATIONS $ .33
========
</TABLE>
PF-35
<PAGE>
ABC BANCORP AND SUBSIDIARIES
CENTRAL BANKSHARES, INC.
AND FIRST NATIONAL FINANCIAL CORPORATION
COMBINED WITH SOUTHLAND BANCORPORATION
NOTES TO PRO FORMA CONDENSED FINANCIAL STATEMENTS
(UNAUDITED)
A. The pro forma condensed balance sheet has been prepared assuming the
transaction was consummated on March 31, 1996. The pro forma condensed
statements of income have been prepared assuming the transaction was
consummated at the beginning of each period presented.
B. The following pro forma adjustments have been applied to give effect to the
proposed transactions described in this Proxy Statement.
BALANCE SHEET:
(1) Payment of $4,138,000 in cash (representing 35% of total
consideration) and issue of 548,893 of ABC common in exchange for 100%
of the equity of Southland for a total consideration of $11,822,000.
(2) Elimination of investment in Southland and allocation of purchase
price as follows:
(a) Write-up of land and buildings to approximate market value.
(b) $2,250,000, representing approximately 50% of the excess of
purchase price over the fair value of net assets acquired, has
been tentatively allocated as a premium paid for the customer
deposit base. The allocation is subject to a statistical study to
determine the ultimate customer deposit base premium. For
purposes of the pro forma financial statements, the premium is
being amortized over a period of 10 years.
(c) The remainder of the excess of purchase price over the fair value
of net assets acquired amounting to $2,504,000 has been considered
to be goodwill and is being amortized over a period of 15 years.
PF-36
<PAGE>
STATEMENTS OF INCOME:
(3) Pro forma adjustments to income resulting from the allocation of the
purchase price of Southland as follows:
(a) Depreciation of the write-up of buildings using the straight-line
method over the estimated average remaining life of 30 years.
(b) Amortization of the customer deposit base premium using the
straight-line method over a period of 10 years.
(c) Amortization of goodwill using the straight-line method over a
period of 15 years.
(4) Loss of interest on Federal funds sold used to fund the acquisition
using an average rate of 5.5%.
(5) Tax effect of pro forma adjustments for reduction in interest income
using a tax rate of 34%.
C. The following is the effect of the purchase adjustments described in Note
B(3) of Notes to the Pro Forma Condensed Financial Statements of ABC
Bancorp and Subsidiaries Combined with Southland Bancorporation.
<TABLE>
<CAPTION>
DEPRECIATION AMORTIZATION
OF WRITE-UP OF DEPOSIT AMORTIZATION
OF BANK BASE OF
YEAR ENDING DECEMBER 31, BUILDINGS PREMIUM GOODWILL TOTAL
- ----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
1996 $ 17,000 $ 225,000 $ 167,000 $409,000
1997 17,000 225,000 167,000 409,000
1998 17,000 225,000 167,000 409,000
1999 17,000 225,000 167,000 409,000
2000 17,000 225,000 167,000 409,000
</TABLE>
No tax effects relating to the purchase adjustments have been recorded because
the Company is acquiring the stock of Southland and will not be allowed any
taxable deductions for the above adjustments.
PF-37
<PAGE>
ABC BANCORP AND SUBSIDIARIES,
CENTRAL BANKSHARES, INC.
AND FIRST NATIONAL FINANCIAL CORPORATION
COMBINED WITH SOUTHLAND BANCORPORATION
PRO FORMA CONDENSED BALANCE SHEET
MARCH 31, 1996
(UNAUDITED)
(DOLLARS IN THOUSANDS)
The following unaudited pro forma condensed balance sheet as of March
31, 1996 has been prepared to reflect the acquisition by ABC (after the proposed
acquisition of Central and First National) of 100% of Southland after giving
effect to the adjustments described in the notes to the pro forma condensed
financial statements. These statements should be read in conjunction with the
other financial statements and notes thereto included elsewhere in this Proxy
Statement.
<TABLE>
<CAPTION>
ABC
CENTRAL PRO FORMA
FIRST ADJUSTMENTS
NATIONAL SOUTHLAND (NOTES A PRO FORMA
COMBINED HISTORICAL AND B) COMBINED
---------- ---------- -------------- -----------
ASSETS
- -------
<S> <C> <C> <C> <C>
Cash and due from banks $ 21,115 $ 2,667 $ - $ 23,782
Federal funds sold 24,635 (5,793)(1) 18,842
Investment securities 79,110 25,180 - 104,290
Loans, net 288,880 74,880 - 363,760
Premises and equipment 9,759 2,544 500 (2) 12,803
Investment in Southland - - 11,822 (1) -
(11,822)(2) -
Excess cost over fair value of assets acquired 1,996 - 2,250 (2) -
2,504 (2) 6,750
Other assets 14,062 2,197 - 16,259
--------- -------- --------- --------
$ 439,557 $107,468 $ (539) $546,486
========= ======== ======== ========
LIABILITIES AND EQUITY
- -----------------------
Deposits $385,972 $ 87,865 $ - $473,837
Other liabilities 9,117 1,027 - 10,144
Long-term debt - 12,008 - 12,008
--------- -------- --------- --------
Total liabilities 395,089 100,900 - 495,989
--------- -------- --------- --------
EQUITY
- ------
Common stock 4,975 - 431 (1) 5,406
Capital surplus 25,399 - 5,598 (1) 30,997
Retained earnings 15,815 - - 15,815
Unrealized gains on securities available for sale,
net of taxes (166) - - (166)
Treasury stock (1,555) - - (1,555)
Equity of Southland - 6,568 (6,568)(2) -
--------- -------- --------- --------
Total equity 44,468 6,568 (539) 50,497
--------- -------- --------- --------
$439,557 $107,468 $ (539) $546,486
======== ======== ======== ========
</TABLE>
PF-38
<PAGE>
ABC BANCORP AND SUBSIDIARIES,
CENTRAL BANKSHARES, INC.
AND FIRST NATIONAL CORPORATION
COMBINED WITH SOUTHLAND BANCORPORATION
PRO FORMA CONDENSED STATEMENTS OF INCOME
(UNAUDITED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
The following unaudited pro forma condensed statements of income have
been prepared to reflect the acquisition by ABC (after the proposed
acquisitions of Central and First National) of 100% of Southland after
giving effect to the adjustments described in the notes to the pro forma
condensed financial statements. These statements should be read in conjunction
with the other financial statements and notes thereto included elsewhere in this
Proxy Statement.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, 1995
-----------------------------------------------------------
ABC
CENTRAL
FIRST PRO FORMA
NATIONAL SOUTHLAND ADJUSTMENTS PRO FORMA
COMBINED HISTORICAL (NOTE B) COMBINED
---------- ---------- ----------- -----------
<S> <C> <C> <C> <C>
INTEREST INCOME $ 34,889 $ 9,033 $ (319)(4) $ 43,603
INTEREST EXPENSE 14,526 4,775 - 19,301
-------- ------- -------- --------
Net interest income 20,363 4,258 (319) 24,302
PROVISION FOR LOAN LOSSES 1,173 72 - 1,245
-------- ------- -------- --------
Net interest income after provision for
loan losses 19,190 4,186 (319) 23,057
OTHER INCOME 4,397 1,582 - 5,979
OTHER EXPENSE 15,675 4,101 409 (3) 20,185
-------- ------- -------- --------
Income from continuing operations before
income taxes 7,912 1,667 (728) 8,851
INCOME TAXES 2,460 643 (108)(5) 2,995
-------- ------- -------- --------
Income from continuing operations $ 5,452 $ 1,024 $ (620) $ 5,856
======== ======= ======== ========
INCOME PER SHARE FROM CONTINUING
OPERATIONS $ 1.13
========
THREE MONTHS ENDED MARCH 31, 1996
-----------------------------------------------------------
ABC/
CENTRAL/
FIRST PRO FORMA
NATIONAL SOUTHLAND ADJUSTMENTS PRO FORMA
COMBINED HISTORICAL (NOTE B) COMBINED
---------- ---------- ----------- -----------
INTEREST INCOME $ 9,235 $ 2,456 $ (80)(4) $11,611
INTEREST EXPENSE 4,019 1,206 - 5,225
-------- -------- -------- --------
Net interest income 5,216 1,250 (80) 6,386
PROVISION FOR LOAN LOSSES 230 - - 230
-------- -------- -------- --------
Net interest income after provision for
loan losses 4,986 1,250 (80) 6,156
OTHER INCOME 1,230 399 - 1,629
OTHER EXPENSE 3,890 1,076 102 (3) 5,068
-------- -------- -------- --------
Income from continuing operations before
income taxes 2,326 573 (182) 2,717
INCOME TAXES 786 213 (27)(5) 972
-------- -------- -------- --------
Income from continuing operations $ 1,540 $ 360 $ (155) $ 1,745
======== ======== ======== ========
INCOME PER SHARE FROM CONTINUING
OPERATIONS $ .34
========
</TABLE>
PF-39
<PAGE>
ABC BANCORP AND SUBSIDIARIES
CENTRAL BANKSHARES, INC.
AND FIRST NATIONAL FINANCIAL CORPORATION
COMBINED WITH SOUTHLAND BANCORPORATION
NOTES TO PRO FORMA CONDENSED FINANCIAL STATEMENTS
(UNAUDITED)
A. The pro forma condensed balance sheet has been prepared assuming the
transaction was consummated on March 31, 1996. The pro forma condensed
statements of income have been prepared assuming the transaction was
consummated at the beginning of each period presented.
B. The following pro forma adjustments have been applied to give effect to the
proposed transactions described in this Proxy Statement.
BALANCE SHEET:
(1) Payment of $5,793,000 in cash (representing 49% of total
consideration) and issue of 430,670 of ABC common in exchange for 100%
of the equity of Southland for a total consideration of $11,822,000.
(2) Elimination of investment in Southland and allocation of purchase
price as follows:
(a) Write-up of land and buildings to approximate market value.
(b) $2,250,000, representing approximately 50% of the excess of
purchase price over the fair value of net assets acquired, has
been tentatively allocated as a premium paid for the customer
deposit base. The allocation is subject to a statistical study to
determine the ultimate customer deposit base premium. For
purposes of the pro forma financial statements, the premium is
being amortized over a period of 10 years.
(c) The remainder of the excess of purchase price over the fair value
of net assets acquired amounting to $2,504,000 has been considered
to be goodwill and is being amortized over a period of 15 years.
PF-40
<PAGE>
STATEMENTS OF INCOME:
(3) Pro forma adjustments to income resulting from the allocation of the
purchase price of Southland as follows:
(a) Depreciation of the write-up of buildings using the straight-line
method over the estimated average remaining life of 30 years.
(b) Amortization of the customer deposit base premium using the
straight-line method over a period of 10 years.
(c) Amortization of goodwill using the straight-line method over a
period of 15 years.
(4) Loss of interest on Federal funds sold used to fund the acquisition
using an average rate of 5.5%.
(5) Tax effect of pro forma adjustments for reduction in interest income
using a tax rate of 34%.
C. The following is the effect of the purchase adjustments described in Note
B(3) of Notes to the Pro Forma Condensed Financial Statements of ABC
Bancorp and Subsidiaries Combined with Southland Bancorporation.
<TABLE>
<CAPTION>
DEPRECIATION AMORTIZATION
OF WRITE-UP OF DEPOSIT AMORTIZATION
OF BANK BASE OF
YEAR ENDING DECEMBER 31, BUILDINGS PREMIUM GOODWILL TOTAL
- ----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
1996 $ 17,000 $ 225,000 $ 167,000 $409,000
1997 17,000 225,000 167,000 409,000
1998 17,000 225,000 167,000 409,000
1999 17,000 225,000 167,000 409,000
2000 17,000 225,000 167,000 409,000
</TABLE>
No tax effects relating to the purchase adjustments have been recorded because
the Company is acquiring the stock of Southland and will not be allowed any
taxable deductions for the above adjustments.
PF-41
<PAGE>
ABC BANCORP
INDEX TO FINANCIAL STATEMENTS AND SCHEDULES
Consolidated Financial Statements -- March 31, 1996 and 1995 (unaudited)
Consolidated Statements of Financial Condition
Consolidated Statements of Income
Consolidated Statements of Cash Flows
Notes to Consolidated Financial Statements
Consolidated financial statements:
Independent Auditor's Report
Consolidated Balance Sheets - December 31, 1995 and 1994
Consolidated Statements of Income - Years ended December 31, 1995, 1994 and
1993
Consolidated Statements of Stockholders' Equity - Years ended December 31,
1995, 1994 and 1993
Consolidated Statements of Cash Flows - Years ended December 31, 1995, 1994
and 1993
Notes to Consolidated Financial Statements
All schedules are omitted as the required information is inapplicable or the
information is presented in the financial statements or related notes.
<PAGE>
ABC BANCORP AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Dollars in Thousands)
(Unaudited)
Assets Mar 31 Dec 31
------ 1996 1995
-------- --------
Cash and due from banks $16,855 $23,612
Securities available for sale, at fair value 46,618 39,991
Securities held to maturity, at cost 10,298 10,269
(fair value $10,479 and $10,462, respectively)
Federal funds sold 21,535 41,025
Loans 223,305 214,251
Less allowance for loan losses 4,428 4,272
-------- --------
Loans, net 218,877 209,979
-------- --------
Premises and equipment, net 7,222 6,942
Other assets 14,184 9,687
-------- --------
$335,589 $341,505
======== ========
Liabilities and Stockholders' Equity
------------------------------------
Deposits
Noninterest-bearing demand $ 45,125 $ 58,430
Interest-bearing demand 74,410 71,833
Savings 24,075 22,318
Time, $100,000 and over 38,653 37,773
Other time 111,122 110,634
-------- --------
Total deposits 293,385 300,988
Securities sold under repurchase agreements
and other borrowing 529 3,487
Other liabilities 7,100 3,095
-------- --------
Total liabilities 301,014 307,570
-------- --------
Stockholders' equity
Common stock,par value $1; 10,000,000 shares
authorized, 3,597,074 shares issued 3,597 3,597
Capital surplus 16,826 16,826
Retained earnings 15,815 14,918
Unrealized gains (losses) on securities
available for sale, net of taxes (108) 149
-------- --------
36,130 35,490
Less cost of 217,882 shares acquired for the
treasury (1,555) (1,555)
-------- --------
Total stockholders' equity 34,575 33,935
-------- --------
$335,589 $341,505
======== ========
See Note to Consolidated Financial Statements.
<PAGE>
ABC BANCORP AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
THREE MONTHS ENDED MARCH 31, 1996 AND 1995
(Dollars in Thousands)
(Unaudited)
1996 1995
------ ------
Interest income
Interest and fees on loans $5,872 $5,176
Interest on taxable securities 668 516
Interest on nontaxable securities 134 133
Interest on deposits in other banks 0 18
Interest on Federal funds sold 377 314
------ ------
7,051 6,157
------ ------
Interest expense
Interest on deposits 2,910 2,291
Interest on securities sold under repurchase
agreements and other borrowings 31 57
------ ------
2,941 2,348
------ ------
Net interest income 4,110 3,809
Provision for loan losses 180 180
------ ------
Net interest income after provision
for loan losses 3,930 3,629
------ ------
Other income
Service charges on deposit accounts 668 602
Other service charges, commisions and fees 233 229
Other 26 55
------ ------
927 886
------ ------
Other expense
Salaries and employee benefits 1,670 1,519
Equipment expense 270 278
Occupancy expense 207 231
Amortization of intangible assets 79 79
Data processing fees 346 337
Directors fees 49 47
FDIC premiums 3 145
Other operating expenses 393 364
------ ------
3,017 3,000
------ ------
Income before income taxes 1,840 1,515
Applicable income taxes 605 487
------ ------
Net income $1,235 $1,028
====== ======
Income per common share $0.37 $0.31
====== ======
Average shares outstanding 3,379,192 3,352,525
========= =========
See Note to Consolidated Financial Statements.
<PAGE>
ABC BANCORP AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS
THREE MONTHS ENDED MARCH 31, 1996 AND 1995
(Dollars in Thousands)
(Unaudited)
1996 1995
------ ------
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $1,235 $1,028
------- -------
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation 227 199
Provision for loan losses 180 180
Amortization of intangible assets 79 67
Other prepaids, deferrals and accruals, net (547) (941)
------- -------
Total adjustments (61) (495)
------- -------
Net cash provided by (used in)
operating activities 1,174 533
------- -------
CASH FLOWS FROM INVESTING ACTIVITIES
Proceeds from maturities of securities held
for investment 6,145 3,928
Purchase of securities available for sale (12,561) (3,607)
Purchase of securities held for investment (500) --
(Increase)decrease in Federal funds sold 19,490 (1,663)
(Increase) decrease in loans (9,153) (3,510)
Purchase of premises and equipment (483) (217)
------- -------
Net cash provided by (used in)
investing activities 2,938 (5,069)
------- -------
CASH FLOWS FROM FINANCING ACTIVITIES
Net increase (decrease) in deposits (8,613) (20)
Net increase (decrease) in repurchase
agreements (2,694) (1,198)
Increase (decrease) of long-term debt -- 2,000
Dividends paid (338) (239)
------- -------
Net cash provided by (used in) finan (11,645) 543
------- -------
<PAGE>
ABC BANCORP AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
THREE MONTHS ENDED MARCH 31 1996 AND 1995
(Dollars in Thousands)
(Unaudited)
1996 1995
-------- --------
Net increase (decrease) in cash and due from ($7,533) ($3,993)
Cash and due from banks at beginning of year 24,388 20,495
------- --------
Cash and due from banks at end of quarter $16,855 $16,502
======= =======
See Note to Consolidated Financial Statements.
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
- --------------------------------------------------------------------------------
NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The accounting and reporting policies of ABC Bancorp and subsidiaries ("the
Company") conform to generally accepted accounting principles and to general
practices within the banking industry. The interim consolidated financial
statements included herein are unaudited, but reflect all adjustments which, in
the opinion of management, are necessary for a fair presentation of the
consolidated financial position and results of operations for the interim
periods presented. All adjustments reflected in the interim financial
statements are of a normal, recurring nature. Such financial statements should
be read in conjunction with the financial statements and notes thereto and the
report of independent auditors included in the Company's Form 10-K Annual Report
for the year ended December 31, 1995. The results of operations for the three
months ended March 31, 1996 are not necessarily indicative of the results to be
expected for the full year.
NOTE 2. STOCKHOLDERS' EQUITY
As of July 17, 1995, a 4-for-3 stock split in the form of a Common Stock
dividend on the outstanding shares of the Company's Common Stock became
effective. Fractional shares were paid in cash. All per share information
reflects retroactively this stock split.
<PAGE>
INDEPENDENT AUDITOR'S REPORT
- --------------------------------------------------------------------------------
TO THE BOARD OF DIRECTORS
ABC BANCORP
MOULTRIE, GEORGIA
We have audited the accompanying consolidated balance sheets of ABC
BANCORP AND SUBSIDIARIES as of December 31, 1995 and 1994, and the related
consolidated statements of income, stockholders' equity and cash flows for each
of the three years in the period ended December 31, 1995. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to
above present fairly, in all material respects, the financial position of ABC
Bancorp and Subsidiaries as of December 31, 1995 and 1994, and the results of
their operations and their cash flows for each of the three years in the period
ended December 31, 1995, in conformity with generally accepted accounting
principles.
As discussed in Note 1 to the consolidated financial statements,
effective January 1, 1993, the Company changed its method of accounting for
income taxes.
/s/ Mauldin & Jenkins
Albany, Georgia
January 24, 1996
F-1
<PAGE>
ABC BANCORP AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 1995 AND 1994
(Dollars in Thousands)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
ASSETS 1995 1994
- ------ ---------- ----------
<S> <C> <C>
Cash and due from banks $ 23,612 $ 20,089
Federal funds sold 41,025 21,902
Securities available for sale, at fair value (Note 2) 39,991 1,910
Securities held to maturity, at cost (fair value $10,462
and $43,024) (Note 2) 10,269 44,595
Loans (Note 3) 214,251 192,124
Less allowance for loan losses 4,272 3,757
---------- ----------
Loans, net 209,979 188,367
---------- ----------
Premises and equipment, net (Note 4) 6,942 7,171
Other assets 9,687 8,765
---------- ----------
$ 341,505 $ 292,799
========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
- ------------------------------------
Deposits
Noninterest-bearing demand $ 58,430 $ 48,450
Interest-bearing demand 71,833 63,262
Savings 22,318 23,644
Time, $100,000 and over 37,773 27,291
Other time 110,634 94,222
---------- ----------
Total deposits 300,988 256,869
Securities sold under repurchase agreements 1,887 2,338
Other short-term borrowings 1,600 -
Other liabilities 3,095 3,142
---------- ----------
Total liabilities 307,570 262,349
---------- ----------
COMMITMENTS AND CONTINGENT LIABILITIES (Note 8)
STOCKHOLDERS' EQUITY (Note 10)
Common stock, par value $1; 10,000,000 shares authorized,
3,597,074 and 2,697,987 shares issued, respectively 3,597 2,698
Capital surplus 16,826 17,728
Retained earnings 14,918 11,753
Unrealized gains (losses) on securities available for sale,
net of taxes 149 (49)
---------- ----------
35,490 32,130
Less cost of shares acquired for the treasury,
217,882 and 183,412 shares, respectively (1,555) (1,680)
---------- ----------
Total stockholders' equity 33,935 30,450
---------- ----------
$ 341,505 $ 292,799
========== ==========
</TABLE>
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
F-2
<PAGE>
ABC BANCORP AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993
(DOLLARS IN THOUSANDS)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
1995 1994 1993
---------- ---------- ----------
<S> <C> <C> <C>
INTEREST INCOME
Interest and fees on loans $ 22,647 $ 18,017 $ 16,278
Interest on taxable securities 2,271 1,863 1,892
Interest on nontaxable securities 551 610 597
Interest on deposits in other banks - 65 105
Interest on Federal funds sold 1,234 773 825
---------- ---------- ----------
26,703 21,328 19,697
---------- ---------- ----------
INTEREST EXPENSE
Interest on deposits 10,371 7,603 7,476
Interest on securities sold under repurchase agreements 77 68 18
Interest on other borrowings 225 157 238
---------- ---------- ----------
10,673 7,828 7,732
---------- ---------- ----------
Net interest income 16,030 13,500 11,965
PROVISION FOR LOAN LOSSES (Note 3) 848 638 1,191
---------- ---------- ----------
Net interest income after provision for loan losses 15,182 12,862 10,774
---------- ---------- ----------
OTHER INCOME
Service charges on deposit accounts 2,595 2,456 2,299
Other service charges, commissions and fees 301 224 230
Other 380 345 338
---------- ---------- ----------
3,276 3,025 2,867
---------- ---------- ----------
OTHER EXPENSES
Salaries and employee benefits (Note 5) 6,210 5,711 5,238
Equipment expense 1,074 1,091 723
Occupancy expense 756 663 844
Amortization of intangible assets 268 268 279
Data processing fees 372 448 290
Directors fees 314 291 270
FDIC premiums 301 559 551
Other operating expenses (Note 6) 2,933 2,516 2,340
---------- ---------- ----------
12,228 11,547 10,535
---------- ---------- ----------
</TABLE>
F-3
<PAGE>
ABC BANCORP AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993
(DOLLARS IN THOUSANDS)
================================================================================
<TABLE>
<CAPTION>
1995 1994 1993
------------ ----------- -----------
<S> <C> <C> <C>
Income before income taxes and cumulative
effect of accounting change $ 6,230 $ 4,340 $ 3,106
APPLICABLE INCOME TAXES (Note 7) 1,889 1,240 814
------------ ----------- -----------
Income before cumulative effect of
accounting change 4,341 3,100 2,292
CUMULATIVE EFFECT OF CHANGE IN METHOD OF ACCOUNTING
FOR INCOME TAXES - - 346
------------ ----------- -----------
Net income $ 4,341 $ 3,100 $ 2,638
============ =========== ===========
INCOME PER COMMON SHARE:
Income before cumulative effect of accounting change $ 1.29 $ 1.05 $ 0.91
Cumulative effect of accounting change - - 0.13
------------ ----------- -----------
Net income (Note 1) $ 1.29 $ 1.05 $ 1.04
============ =========== ===========
</TABLE>
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
F-4
<PAGE>
ABC BANCORP AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993
(DOLLARS IN THOUSANDS)
================================================================================
<TABLE>
<CAPTION>
COMMON STOCK CAPITAL RETAINED
------------------------
SHARES PAR VALUE SURPLUS EARNINGS
---------- ------------ ------------ ------------
<S> <C> <C> <C> <C>
BALANCE, DECEMBER 31, 1992 1,950,487 $ 1,950 $ 10,152 $ 7,571
Net income - - - 2,638
Cash dividends paid, $.29 per share - - - (672)
Purchase of 143,024 shares of treasury stock - - - -
---------- ------------ ------------ ------------
BALANCE, DECEMBER 31, 1993 1,950,487 1,950 10,152 9,537
Net income - - - 3,100
Cash dividends declared, $.29 per share - - - (884)
Proceeds from sale of stock, net of stock
offering expense 747,500 748 7,576 -
Net change in unrealized losses on
securities available for sale, net of taxes - - - -
---------- ------------ ------------ ------------
BALANCE, DECEMBER 31, 1994 2,697,987 2,698 17,728 11,753
Net income - - - 4,341
Cash dividends declared, $.35 per share - - - (1,176)
Four-for-three common stock split 899,087 899 (899) -
Purchase of fractional shares - - (3) -
Stock issued under stock option purchase plan - - - -
Net change in unrealized gains on
securities available for sale, net of taxes - - - -
---------- ------------ ------------ ------------
BALANCE, DECEMBER 31, 1995 3,597,074 $ 3,597 $ 16,826 $ 14,918
========== ============ ============ ============
</TABLE>
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
<TABLE>
<CAPTION>
UNREALIZED
GAINS (LOSSES)
ON SECURITIES
AVAILABLE
FOR SALE, TREASURY STOCK
---------------------------
NET OF TAXES SHARES COST TOTAL
- -------------- ------------ ------------- ------------
<S> <C> <C> <C>
$ - 40,388 $ (268) $ 19,405
- - - 2,638
- - - (672)
- 143,024 (1,412) (1,412)
- -------------- ------------ ------------- -----------
- 183,412 (1,680) 19,959
- - - 3,100
- - - (884)
- - - 8,324
(49) - - (49)
- -------------- ------------ ------------- -----------
(49) 183,412 (1,680) 30,450
- - - 4,341
- - - (1,176)
- 61,137 - -
- - - (3)
- (26,667) 125 125
198 - - 198
- -------------- ------------ ------------- -----------
$ 149 217,882 $ (1,555) $ 33,935
============== ============ ============= ===========
</TABLE>
F-5
<PAGE>
ABC BANCORP AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993
(DOLLARS IN THOUSANDS)
================================================================================
<TABLE>
<CAPTION>
1995 1994 1993
---------- ---------- ----------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $ 4,341 $ 3,100 $ 2,638
---------- ---------- ----------
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 936 809 638
Amortization of intangible assets 268 268 279
Provision for loan losses 848 638 1,191
Provision for deferred taxes (160) (22) (170)
Write-downs of other real estate owned - 53 -
(Increase) decrease in interest receivable (775) (804) 100
Increase (decrease) in interest payable 190 104 (90)
Increase (decrease) in taxes payable (29) 184 76
Other prepaids, deferrals and accruals, net (653) 798 (178)
---------- ---------- ----------
Total adjustments 625 2,028 1,846
---------- ---------- ----------
Net cash provided by operating activities 4,966 5,128 4,484
---------- ---------- ----------
CASH FLOWS FROM INVESTING ACTIVITIES
Decrease in interest-bearing deposits in banks - 1,257 100
Purchases of securities available for sale (21,690) (1,664) -
Purchases of securities held to maturity (1,654) (7,524) (24,502)
Proceeds from maturities of securities available for sale 4,086 - -
Proceeds from maturities of securities held to maturity 15,778 8,531 13,587
(Increase) decrease in Federal funds sold (19,123) 9,673 9,565
Increase in loans, net (22,460) (30,829) (12,435)
Purchase of premises and equipment (717) (2,303) (382)
Proceeds from the sale of premises and equipment 24 22 26
---------- ---------- ----------
Net cash used in investing activities (45,756) (22,837) (14,041)
---------- ---------- ----------
CASH FLOWS FROM FINANCING ACTIVITIES
Increase in deposits 44,119 18,644 3,755
Increase (decrease) in repurchase agreements (451) (842) 3,117
Proceeds from other borrowings 1,600 - 1,412
Repayment of long-term debt - (4,677) (15)
Dividends paid (1,077) (645) (672)
Proceeds from stock offering, net - 8,324 -
Proceeds from exercise of stock options 125 - -
Purchase of fractional shares (3) - -
Purchase of shares of stock for the treasury - - (1,412)
---------- ---------- ----------
Net cash provided by financing activities 44,313 20,804 6,185
---------- ---------- ----------
</TABLE>
F-6
<PAGE>
ABC BANCORP AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993
(DOLLARS IN THOUSANDS)
================================================================================
<TABLE>
<CAPTION>
1995 1994 1993
----------- ----------- -----------
<S> <C> <C> <C>
Net increase (decrease) in cash and due from banks $ 3,523 $ 3,095 $ (3,372)
Cash and due from banks at beginning of year 20,089 16,994 20,366
----------- ----------- -----------
Cash and due from banks at end of year $ 23,612 $ 20,089 $ 16,994
=========== =========== ===========
SUPPLEMENTAL DISCLOSURES OF CASH FLOW
INFORMATION
Cash paid during the year for:
Interest $ 10,483 $ 7,724 $ 7,822
Income taxes $ 2,078 $ 1,078 $ 562
NONCASH TRANSACTIONS
Net change in unrealized gains (losses)
on securities available for sale $ 289 $ (54) $ -
Property transferred from premises and equipment
to other real estate owned $ - $ 103 $ -
Dividends declared $ 338 $ 239 $ -
</TABLE>
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
F-7
<PAGE>
ABC BANCORP AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
================================================================================
NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
BASIS OF FINANCIAL STATEMENT PRESENTATION
ABC Bancorp, headquartered in Moultrie, Georgia, is the holding
company (the "Company") for five community banks ("the Banks")
located in the south Georgia cities of Moultrie, Quitman, Tifton,
Cairo and Thomasville. The Banks operate 11 banking offices and two
drive-through facilities within ABC Bancorp's market area. Through
its Banks, ABC Bancorp operates a full service banking business and
offers a broad range of retail and commercial banking services to
its customers. The Company and the Banks are subject to the
regulations of certain Federal and state agencies and are
periodically examined by those regulatory agencies.
The accounting and reporting policies of the Company conform to
generally accepted accounting principles and general practices
within the financial services industry. In preparing the financial
statements, management is required to make estimates and assumptions
that affect the reported amounts of assets and liabilities as of the
date of the balance sheet and revenues and expenses for the period.
Actual results could differ from those estimates.
The principles which significantly affect the determination of
financial position, results of operations and cash flows are
summarized below.
CASH AND CASH EQUIVALENTS
For purposes of reporting cash flows, cash and due from banks
includes cash on hand and amounts due from banks (including cash
items in process of clearing). Cash flows from loans originated by
the Banks, deposits, interest-bearing deposits and Federal funds
purchased and sold are reported net.
The Company maintains amounts due from banks which, at times, may
exceed Federally insured limits. The Company has not experienced any
losses in such accounts.
F-8
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
================================================================================
NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
SECURITIES AVAILABLE FOR SALE
Securities classified as available for sale are those debt
securities that the Company intends to hold for an indefinite period
of time, but not necessarily to maturity. Any decision to sell a
security classified as available for sale would be based on various
factors, including significant movements in interest rates, changes
in the maturity mix of the Company's assets and liabilities,
liquidity needs, regulatory capital considerations and other similar
factors. Securities available for sale are carried at fair value.
Unrealized gains or losses are reported as increases or decreases in
stockholders' equity, net of the related deferred tax effect.
Realized gains or losses, determined on the basis of the cost of
specific securities sold, are included in earnings.
SECURITIES HELD TO MATURITY
Securities classified as held to maturity are those debt securities
the Company has both the intent and ability to hold to maturity
regardless of changes in market conditions, liquidity needs or
changes in general economic conditions. These securities are carried
at cost adjusted for amortization of premium and accretion of
discount, computed by the interest method over their contractual
lives. The sale of a security within three months of its maturity
date or after collection of at least 85 percent of the principal
outstanding at the time the security was acquired is considered a
maturity for purposes of classification and disclosure.
A decline in the fair value below cost of any available for sale or
held to maturity security that is deemed other than temporary is
charged to earnings resulting in the establishment of a new cost basis
for the security.
F-9
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
================================================================================
NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
LOANS AND INTEREST INCOME
Loans are stated at principal amounts outstanding less unearned
income and the allowance for loan losses. Interest income on loans
is credited to income based on the principal amount outstanding at
the respective rate of interest except for add-on interest on
certain instalment loans for which interest is recognized on the
sum-of-the-months method.
Accrual of interest income is discontinued on loans when, in the
opinion of management, collection of such interest income becomes
doubtful. When a loan is placed on nonaccrual status, all interest
previously accrued but not collected is reversed against current
interest income. Accrual of interest on such loans is resumed when,
in management's judgment, the collection of interest and principal
becomes probable.
Fees on loans and costs incurred in origination of loans are
recognized at the time the loan is placed on the books. Because loan
fees are not significant and the majority of loans have maturities
of one year or less, the results on operations are not materially
different than the results which would be obtained by accounting for
loan fees and costs in accordance with generally accepted accounting
principles.
The allowance for loan losses is established through a provision for
loan losses charged to expense. Loans are charged against the
allowance for loan losses when management believes that
collectibility of the principal is unlikely. The allowance is an
amount that management believes will be adequate to absorb estimated
losses on existing loans that may become uncollectible, based on
evaluation of the collectibility of loans and prior loss experience.
This evaluation also takes into consideration such factors as
changes in the nature and volume of the loan portfolio, overall
portfolio quality, review of specific problem loans and current
economic conditions that may affect the borrower's ability to pay.
Certain estimates are susceptible to change in the near term. Such
estimates include the creditworthiness of significant borrowers and
the collateral value of delinquent loans. While management uses the
best information available to make its evaluation, future
adjustments to the allowance may be necessary if there are
significant changes in economic conditions. In addition, regulatory
agencies, as an integral part of their examination process,
periodically review the Company's allowance for loan losses, and may
require the Company to record additions to the allowance based on
their judgment about information available to them at the time of
their examinations.
F-10
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
================================================================================
NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
LOANS AND INTEREST INCOME (CONTINUED)
Impaired loans are measured based on the present value of expected
future cash flows discounted at the loan's effective interest rate
or, as a practical expedient, at the loan's observable market price
or the fair value of the collateral if the loan is collateral
dependent. A loan is impaired when it is probable the creditor will
be unable to collect all contractual principal and interest payments
due in accordance with the terms of the loan agreement. Accrual of
interest on an impaired loan is discontinued when management
believes, after considering collection efforts and other factors,
that the borrower's financial condition is such that collection of
interest is doubtful. Cash collections on impaired loans are
credited to the loans receivable balance, and no interest income is
recognized on those loans until the principal balance has been
collected.
PREMISES AND EQUIPMENT
Premises and equipment are stated at cost less accumulated
depreciation. Depreciation is computed principally by the straight-
line method over the following estimated useful lives:
<TABLE>
<CAPTION> Years
---------
<S> <C>
Buildings and improvements 15-40
Furniture and equipment 5-7
</TABLE>
OTHER REAL ESTATE OWNED
Other real estate owned (OREO) represents properties acquired
through foreclosure or other proceedings. OREO is held for sale and
is recorded at the lower of the recorded amount of the loan or fair
value of the properties less estimated costs of disposal. Any write-
down to fair value at the time of transfer to OREO is charged to the
allowance for loan losses. Property is evaluated regularly to ensure
the recorded amount is supported by its current fair value and
valuation allowances to reduce the carrying amount to fair value
less estimated costs to dispose are recorded as necessary.
Subsequent decreases in fair value and increases in fair value, up
to the value established at foreclosure, are recognized as charges
or credits to noninterest expense. OREO is reported net of allowance
for losses in the Company's financial statements.
F-11
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
================================================================================
NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
INTANGIBLE ASSETS
Intangible assets, arising from excess of purchase price over net
assets acquired of purchased banks, are being amortized on the
straight-line method over various periods not exceeding 25 years.
INCOME TAXES
The Company and its subsidiaries file a consolidated income tax
return. Each subsidiary provides for income taxes based on its
contribution to income taxes (benefits) of the consolidated group.
As of January 1, 1993, the Company adopted Statement of Financial
Accounting Standards ("SFAS") No. 109, "Accounting for Income
Taxes". SFAS No. 109 requires a balance sheet approach to accounting
for income taxes and requires that deferred tax assets and
liabilities be adjusted in the period of enactment for the effect of
an enacted change in tax laws or rates. The adoption of SFAS No. 109
resulted in an income tax benefit of $345,937, which has been
included in the consolidated statement of income for the year ended
December 31, 1993 as a cumulative effect.
Deferred taxes are provided on a liability method whereby deferred
tax assets are recognized for deductible temporary differences and
operating loss and tax credit carryforwards and deferred tax
liabilities are recognized for taxable temporary differences.
Temporary differences are the differences between the reported
amounts of assets and liabilities and their tax bases. Deferred tax
assets are reduced by a valuation allowance when, in the opinion of
management, it is more likely than not that some portion or all of
the deferred tax assets will not be realized. Deferred tax assets
and liabilities are adjusted for the effect of changes in tax laws
on the date of enactment.
F-12
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
================================================================================
NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
FAIR VALUE OF FINANCIAL INSTRUMENTS
Financial Accounting Standards Board Statement No. 107, "Disclosures
About Fair Value of Financial Instruments," requires disclosure of
fair value information about financial instruments, whether or not
recognized in the balance sheet, for which it is practicable to
estimate that value. In cases where quoted market prices are not
available, fair values are based on estimates using present value or
other valuation techniques. Those techniques are significantly
affected by the assumptions used, including the discount rate and
estimates of future cash flows. In that regard, the derived fair
value estimates cannot be substantiated by comparison to independent
markets and, in many cases, could not be realized in immediate
settlement of the instrument. Statement No. 107 excludes certain
financial instruments from its disclosure requirements. Accordingly,
the aggregate fair value amounts presented do not represent the
underlying value of the Company.
The following methods and assumptions were used by the Company in
estimating the fair value of its financial instruments:
Carrying amounts approximate fair values for the following
instruments:
Cash and due from banks
Federal funds sold
Securities available for sale
Variable rate loans that reprice frequently
Credit card loans and equity line loans
Variable rate money market accounts
Variable rate certificates of deposit
Short-term borrowing
Accrued interest receivable
Accrued interest payable
F-13
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
================================================================================
NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
FAIR VALUE OF FINANCIAL INSTRUMENTS (CONTINUED)
Quoted market prices, where available, or if not available, based on
quoted market prices of comparable instruments for securities held
to maturity.
Discounted cash flows using interest rates currently being offered
on instruments with similar terms and with similar credit quality:
All loans except variable rate loans described above
Fixed rate certificates of deposit
Commitments to extend credit and standby letters of credit are not
recorded until such commitments are funded. The value of these
commitments are the fees charged to enter into such agreements.
These commitments do not represent a significant value to the
Company until such commitments are funded. The Company has
determined that such instruments do not have a distinguishable fair
value and no fair value has been assigned to these instruments.
EARNINGS PER SHARE
Earnings per share are calculated on the basis of the weighted
average number of shares outstanding. All per share data for prior
years have been adjusted to reflect the four-for-three stock split
effected in the form of a stock dividend to shareholders of record
as of July 17, 1995.
F-14
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
================================================================================
NOTE 2. INVESTMENTS IN SECURITIES
Effective January 1, 1994, the Bank adopted Financial Accounting
Standards Board Statement No. 115 "Accounting for Certain Investments
in Debt and Equity Securities." Upon adoption, the Company transferred
$300,005 of marketable equity securities from securities held to
maturity to securities available for sale. The securities available
for sale were marked to fair value resulting in a net unrealized loss
of $11,986 which was included in stockholders' equity at $11,986.
Under special provisions adopted by the Financial Accounting Standards
Board in October 1995, the Company transferred $20,188,243 from
securities held to maturity to securities available for sale on
December 31, 1995, resulting in a net unrealized gain of $94,743 which
was included in stockholders' equity at $62,531 net of related taxes
of $32,212.
The amortized cost and approximate fair values of investments in
securities at December 31, 1995 and 1994 were as follows:
<TABLE>
<CAPTION>
GROSS GROSS
AMORTIZED UNREALIZED UNREALIZED FAIR
COST GAINS LOSSES VALUE
---------- ---------- ---------- ----------
(DOLLARS IN THOUSANDS)
-------------------------------------------------
<S> <C> <C> <C> <C>
SECURITIES AVAILABLE FOR SALE
DECEMBER 31, 1995:
U. S. GOVERNMENT AND AGENCY SECURITIES $ 37,174 $ 285 $ (93) $ 37,366
MORTGAGE-BACKED SECURITIES 2,282 69 (8) 2,343
OTHER SECURITIES 300 - (18) 282
---------- ---------- ---------- ----------
$ 39,756 $ 354 $ (119) $ 39,991
========== ========== ========== ==========
December 31, 1994:
U. S. Government and agency securities $ 1,664 $ - $ (14) $ 1,650
Other securities 300 - (40) 260
---------- ---------- ---------- ----------
$ 1,964 $ - $ (54) $ 1,910
========== ========== ========== ==========
SECURITIES HELD TO MATURITY
DECEMBER 31, 1995:
STATE AND MUNICIPAL SECURITIES $ 10,269 $ 258 $ (65) $ 10,462
========== ========== ========== ==========
December 31, 1994:
U. S. Government and agency securities $ 32,159 $ 19 $ (1,196) $ 30,982
State and municipal securities 9,819 114 (471) 9,462
Mortgage-backed securities 2,617 22 (59) 2,580
---------- ---------- ---------- ----------
$ 44,595 $ 155 $ (1,726) $ 43,024
========== ========== ========== ==========
</TABLE>
F-15
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
================================================================================
NOTE 2. INVESTMENTS IN SECURITIES (CONTINUED)
There were no sales of securities during 1995, 1994 or 1993.
The amortized cost and fair value of securities as of December 31,
1995 by contractual maturity are shown below. Maturities may differ
from contractual maturities in mortgage-backed securities because the
mortgages underlying the securities may be called or repaid without
any penalties. Therefore, these securities are not included in the
maturity categories in the following maturity summary.
<TABLE>
<CAPTION>
SECURITIES AVAILABLE FOR SALE SECURITIES HELD TO MATURITY
----------------------------- ---------------------------
AMORTIZED FAIR AMORTIZED FAIR
COST VALUE COST VALUE
---------- ----------- ---------- ----------
(DOLLARS IN THOUSANDS)
------------------------------------------------------------
<S> <C> <C> <C> <C>
Due in one year or less $ 11,541 $ 11,566 $ 727 $ 724
Due from one year to five years 25,633 25,800 2,734 2,748
Due from five to ten years - - 5,722 5,891
Due after ten years - - 1,086 1,099
Mortgage-backed securities 2,282 2,343 - -
Marketable equity securities 300 282 - -
---------- ----------- ---------- ----------
$ 39,756 $ 39,991 $ 10,269 $ 10,462
========== =========== ========== ==========
</TABLE>
Securities with a carrying value of $33,837,773 and $28,616,565 at December
31, 1995 and 1994, respectively, were pledged to secure public deposits and for
other purposes.
F-16
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
================================================================================
NOTE 3. LOANS AND ALLOWANCE FOR LOAN LOSSES
The composition of loans is summarized as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------------------
1995 1994
----------- ------------
(DOLLARS IN THOUSANDS)
--------------------------------
<S> <C> <C>
Commercial and financial $ 23,733 $ 23,531
Agricultural 15,124 17,079
Real estate - construction 1,836 1,828
Real estate - mortgage, farmland 40,053 34,887
Real estate - mortgage, commercial 41,438 35,242
Real estate - mortgage, residential 52,377 44,064
Consumer instalment loans 38,976 34,220
Other 717 1,280
----------- ------------
214,254 192,131
Unearned discount (3) (777)
Allowance for loan losses (4,272) (3,757)
----------- ------------
$ 209,979 $ 188,367
=========== ============
</TABLE>
At December 31, 1995, executive officers and directors, and companies in
which they have a 10 percent or more beneficial ownership, were indebted to the
Company in the aggregate amount of $7,792,000. The interest rates on these
loans were substantially the same as rates prevailing at the time of the
transaction and repayment terms are customary for the type of loan involved.
Following is a summary of transactions:
<TABLE>
<CAPTION>
DECEMBER 31,
---------------------------
1995 1994
----------- -----------
(DOLLARS IN THOUSANDS)
---------------------------
<S> <C> <C>
BALANCE, BEGINNING OF YEAR $ 7,234 $ 8,506
Advances 5,030 4,670
Repayments (4,715) (4,890)
Transactions due to changes in directors 243 (1,052)
----------- -----------
BALANCE, END OF YEAR $ 7,792 $ 7,234
=========== ===========
</TABLE>
F-17
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
================================================================================
NOTE 3. LOANS AND ALLOWANCE FOR LOAN LOSSES (CONTINUED)
Changes in the allowance for loan losses are as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
---------------------------
1995 1994
----------- -----------
(DOLLARS IN THOUSANDS)
---------------------------
<S> <C> <C>
BALANCE, BEGINNING OF YEAR $ 3,757 $ 3,571
Provision charged to operations 848 638
Loans charged off (730) (971)
Recoveries 397 519
----------- -----------
BALANCE, END OF YEAR $ 4,272 $ 3,757
=========== ===========
</TABLE>
Information with respect to impaired loans as of and for the year
ended December 31, 1995 is as follows:
<TABLE>
<CAPTION>
(DOLLARS IN
THOUSANDS)
----------
<S> <C>
Loans receivable for which there is a related allowance for
credit losses $ 1,006
Loans receivable for which there is no related allowance for
credit losses 1,253
----------
Total impaired loans $ 2,259
==========
Allowance provided for impaired loans included in the
allowance for loan losses $ 163
==========
Average balance $ 3,089
==========
Interest income recognized $ 161
==========
</TABLE>
F-18
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
================================================================================
NOTE 3. LOANS AND ALLOWANCE FOR LOAN LOSSES (CONTINUED)
Loans on which the accrual of interest had been discontinued or
reduced amounted to $3,817,699 at December 31, 1994. The reduction in
interest income associated with nonaccrual and renegotiated loans for
1994 and 1993 is as follows. For 1995, nonaccrual loans have been
included in the impaired loan information above.
<TABLE>
<CAPTION>
DECEMBER 31,
---------------------------
1994 1993
----------- -----------
(DOLLARS IN THOUSANDS)
---------------------------
<S> <C> <C>
Income in accordance with original loan terms $ 324 $ 201
Income recognized 37 9
----------- -----------
$ 287 $ 192
=========== ===========
</TABLE>
NOTE 4. PREMISES AND EQUIPMENT, NET
Major classifications of these assets are summarized as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
---------------------------
1995 1994
----------- -----------
(DOLLARS IN THOUSANDS)
---------------------------
<S> <C> <C>
Land $ 1,563 $ 1,564
Buildings 5,446 5,271
Equipment 5,936 6,223
Construction in progress 182 -
----------- -----------
13,127 13,058
Accumulated depreciation (6,185) (5,887)
----------- -----------
$ 6,942 $ 7,171
=========== ===========
</TABLE>
Depreciation expense for the years ended December 31, 1995, 1994 and
1993 was $886,320, $738,562 and $462,368, respectively.
F-19
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
================================================================================
NOTE 5. EMPLOYEE BENEFIT PLANS
The Company and all subsidiaries have adopted simplified employee
pension plans for substantially all employees. These plans are SEP-IRA
defined contribution plans. Contributions to these plans charged to
expense during 1995, 1994 and 1993 amounted to $540,766, $499,254 and
$484,870, respectively.
NOTE 6. DEFERRED COMPENSATION PLANS
The Company and two subsidiary Banks have entered into separate
deferred compensation arrangements with certain executive officers and
directors. The plans call for certain amounts payable at retirement,
death or disability. The estimated present value of the deferred
compensation is being accrued over the remaining expected term of
active employment. The Company and Banks have purchased life insurance
policies which they intend to use to finance this liability. Aggregate
compensation expense under the plans were $54,724, $81,295 and $83,459
for 1995, 1994 and 1993, respectively, and is included in other
operating expenses.
NOTE 7. INCOME TAXES
The total income taxes in the consolidated statements of income are as
follows:
<TABLE>
<CAPTION>
DECEMBER 31,
----------------------------------------
1995 1994 1993
------------ ------------ ------------
(DOLLARS IN THOUSANDS)
----------------------------------------
<S> <C> <C> <C>
Current $ 2,049 $ 1,262 $ 638
Deferred (160) (22) 176
------------ ------------ ------------
$ 1,889 $ 1,240 $ 814
============ ============ ============
</TABLE>
F-20
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
================================================================================
NOTE 7. INCOME TAXES (CONTINUED)
The Company's provision for income taxes differs from the amounts
computed by applying the Federal income tax statutory rates to income
before income taxes. A reconciliation of the differences is as
follows:
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------------------------------------------
1995 1994 1993
-------------------------------------------------------
AMOUNT PERCENT AMOUNT PERCENT AMOUNT PERCENT
-------- -------- -------- -------- -------- --------
(DOLLARS IN THOUSANDS)
-------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Tax provision at statutory rate $ 2,118 34 % $ 1,475 34 % $ 1,056 34 %
Increase (decrease) resulting from:
Tax-exempt interest (216) (3) (246) (6) (274) (9)
Amortization of excess
cost over assets acquired 32 - 37 1 49 2
Changes in valuation allowance
for deferred taxes (72) (1) (50) (1) - -
Other 27 - 24 1 (17) (1)
-------- -------- -------- -------- -------- --------
Provision for income taxes $ 1,889 30 % $ 1,240 29 % $ 814 26 %
======== ======== ======== ======== ======== ========
</TABLE>
Net deferred income tax assets of $486,260 and $411,710 at December
31, 1995 and 1994, respectively, are included in other assets. The
components of deferred income taxes are as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------------
1995 1994
----------- ----------
(DOLLARS IN THOUSANDS)
--------------------------
<S> <C> <C>
DEFERRED TAX ASSETS:
Loan loss reserves $ 836 $ 640
Deferred compensation 148 138
Other real estate - 18
Other 34 68
Net operating loss tax carryforward 285 310
Less valuation allowance (228) (300)
----------- ----------
1,075 874
----------- ----------
DEFERRED TAX LIABILITIES:
Deprecation and amortization (253) (179)
Amortization of intangible assets (250) (283)
Unrealized gain on securities available for sale (86) -
----------- ----------
(589) (462)
----------- ----------
Net deferred tax assets $ 486 $ 412
=========== ==========
</TABLE>
F-21
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
================================================================================
NOTE 8. COMMITMENTS AND CONTINGENT LIABILITIES
In the normal course of business, the Company has entered into off-
balance-sheet financial instruments which are not reflected in the
financial statements. These financial instruments include commitments
to extend credit and standby letters of credit. Such financial
instruments are included in the financial statements when funds are
disbursed or the instruments become payable. These instruments
involve, to varying degrees, elements of credit risk in excess of the
amount recognized in the balance sheet.
The Company's exposure to credit loss in the event of nonperformance
by the other party to the financial instrument for commitments to
extend credit and standby letters of credit is represented by the
contractual amount of those instruments. The Company uses the same
credit and collateral policies for these off-balance-sheet financial
instruments as it does for on-balance-sheet financial instruments. A
summary of the Company's commitments is as follows:
<TABLE>
<CAPTION>
December 31,
--------------------------
1995 1994
---------- ----------
(Dollars in Thousands)
--------------------------
<S> <C> <C>
Commitments to extend credit $ 36,024 $ 22,344
Credit card commitments 2,883 2,345
Standby letters of credit 905 590
---------- ----------
$ 39,812 $ 25,279
========== ==========
</TABLE>
Commitments to extend credit generally have fixed expiration dates or
other termination clauses and may require payment of a fee. Since many
of the commitments are expected to expire without being drawn upon,
the total commitment amounts do not necessarily represent future cash
requirements. The credit risk involved in issuing these financial
instruments is essentially the same as that involved in extending
loans to customers. The Company evaluates each customer's
creditworthiness on a case-by-case basis. The amount of collateral
obtained, if deemed necessary by the Company upon extension of credit,
is based on management's credit evaluation of the customer. Collateral
held varies but may include real estate and improvements, marketable
securities, accounts receivable, crops, livestock, inventory,
equipment and personal property.
F-22
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
================================================================================
NOTE 8. COMMITMENTS AND CONTINGENT LIABILITIES (CONTINUED)
Credit card commitments are unsecured.
Standby letters of credit are conditional commitments issued by the
Company to guarantee the performance of a customer to a third party.
Those guarantees are primarily issued to support public and private
borrowing arrangements. The credit risk involved in issuing letters of
credit is essentially the same as that involved in extending loan
facilities to customers. Collateral held varies as specified above and
is required in instances which the Company deems necessary.
In the normal course of business, the Company is involved in various
legal proceedings. In the opinion of management and counsel for the
Company, any liability resulting from such proceedings would not have
a material adverse effect on the Company's financial statements.
NOTE 9. CONCENTRATIONS OF CREDIT
The Banks make agricultural, agribusiness, commercial, residential and
consumer loans to customers primarily in the twelve county area
surrounding Moultrie in south central Georgia.
A substantial portion of the Company's customers' abilities to honor
their contracts is dependent on the business economy in the
geographical area served by the Banks.
Although the Company's loan portfolio is diversified, there is a
relationship in this region between the agricultural economy and the
economic performance of loans made to nonagricultural customers. The
Company's lending policies for agricultural and nonagricultural
customers require loans to be well-collateralized and supported by
cash flows. Collateral for agricultural loans include equipment,
crops, livestock and land. Credit losses from loans related to the
agricultural economy is taken into consideration by management in
determining the allowance for loan losses.
A substantial portion of the Company's loans are secured by real
estate in the Company's primary market area. In addition, a
substantial portion of the real estate owned is located in those same
markets. Accordingly, the ultimate collectibility of a substantial
portion of the Company's loan portfolio and the recovery of a
substantial portion of the carrying amount of real estate owned are
susceptible to changes in market conditions in the Company's primary
market area.
F-23
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
================================================================================
NOTE 9. CONCENTRATIONS OF CREDIT (CONTINUED)
The Company has a concentration of funds on deposit at its primary
correspondent bank at December 31, 1995, as follows:
<TABLE>
<S> <C>
Noninterest-bearing accounts $15,448,169
Federal funds sold 25,550,000
-----------
$40,998,169
===========
</TABLE>
NOTE 10. STOCKHOLDERS' EQUITY
The primary source of funds available to the Parent Company is the
payment of dividends by the subsidiary Banks. Banking regulations
limit the amount of dividends that may be paid without prior approval
of the Banks' regulatory agency. Approximately $2,381,100 are
available to be paid as dividends by the Bank subsidiaries at December
31, 1995.
Banking regulations also require the Company to maintain minimum
capital levels in relation to Company assets. At December 31, 1995,
the Company's capital ratios were considered adequate based on
regulatory minimum capital requirements. The minimum capital
requirements and the actual capital ratios for the Company at December
31, 1995 are as follows:
<TABLE>
<CAPTION>
Regulatory
Actual Requirement
----------- -----------
<S> <C> <C>
Leverage capital ratio 10.37 % 4.00 %
Risk based capital ratios:
Core capital 15.23 4.00
Total capital 16.49 8.00
</TABLE>
F-24
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
================================================================================
NOTE 11. DISCLOSURES ABOUT FAIR VALUE OF FINANCIAL INSTRUMENTS
The carrying value and estimated fair value of the Company's financial
instruments are as follows:
<TABLE>
<CAPTION>
December 31,
------------------------------------------------------
1995 1994
-------------------------- --------------------------
Carrying Fair Carrying Fair
Value Value Value Value
------------ ------------ ------------ ------------
(Dollars in Thousands)
------------------------------------------------------
<S> <C> <C> <C> <C>
FINANCIAL ASSETS:
Cash and short-term investments $ 64,637 $ 64,637 $ 41,991 $ 41,991
============ ============ ============ ============
Investments in securities $ 50,260 $ 50,453 $ 46,505 $ 44,934
============ ============ ============ ============
Loans $ 214,251 $ 205,845 $ 192,124 $ 185,314
Allowance for loan losses (4,272) - (3,757) -
------------ ------------ ------------ ------------
Loans, net $ 209,979 $ 205,845 $ 188,367 $ 185,314
============ ============ ============ ============
FINANCIAL LIABILITIES:
Noninterest-bearing demand $ 58,430 $ 58,430 $ 48,450 $ 48,450
Interest-bearing demand 71,833 71,833 63,262 63,262
Savings 22,318 22,318 23,644 23,644
Time deposits 148,407 150,186 121,513 121,595
------------ ------------ ------------ ------------
Total deposits $ 300,988 $ 302,767 $ 256,869 $ 256,951
============ ============ ============ ============
Short-term borrowings $ 3,487 $ 3,487 $ 2,338 $ 2,338
============ ============ ============ ============
</TABLE>
F-25
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
================================================================================
NOTE 12. CONDENSED FINANCIAL INFORMATION OF ABC BANCORP (PARENT COMPANY ONLY)
CONDENSED BALANCE SHEETS
DECEMBER 31, 1995 AND 1994
(Dollars in Thousands)
<TABLE>
<CAPTION>
1995 1994
----------- -----------
<S> <C> <C>
ASSETS
Cash $ 1,027 $ 1,307
Interest-bearing deposits in banks 2,060 1,500
Investment in subsidiaries 27,607 24,461
Other assets 3,856 3,838
----------- -----------
Total assets $ 34,550 $ 31,106
=========== ===========
LIABILITIES
Other liabilities $ 615 $ 656
----------- -----------
Total liabilities 615 656
----------- -----------
STOCKHOLDERS' EQUITY 33,935 30,450
----------- -----------
Total liabilities and stockholders' equity $ 34,550 $ 31,106
=========== ===========
</TABLE>
F-26
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
================================================================================
NOTE 12. CONDENSED FINANCIAL INFORMATION OF ABC BANCORP (PARENT COMPANY ONLY)
(Continued)
CONDENSED STATEMENTS OF INCOME
YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993
(Dollars in Thousands)
<TABLE>
<CAPTION>
1995 1994 1993
---------- ---------- ----------
<S> <C> <C> <C>
INCOME
Dividends from subsidiaries $ 1,815 $ 1,170 $ 1,150
Interest 106 84 11
Fee and rental income 2,757 2,427 1,950
Other income 25 94 32
---------- ---------- ----------
Total income 4,703 3,775 3,143
---------- ---------- ----------
EXPENSE
Interest - 111 193
Amortization and depreciation 423 436 423
Other expense 2,944 2,644 1,926
---------- ---------- ----------
Total expense 3,367 3,191 2,542
---------- ---------- ----------
Income before income taxes (benefits)
and equity in undistributed earnings
of subsidiaries 1,336 584 601
INCOME TAXES (BENEFITS) (58) (55) 147
---------- ---------- ----------
Income before equity in undistributed
earnings of subsidiaries 1,394 639 454
EQUITY IN UNDISTRIBUTED EARNINGS
OF SUBSIDIARIES 2,947 2,461 2,184
---------- ---------- ----------
Net income $ 4,341 $ 3,100 $ 2,638
========== ========== ==========
</TABLE>
F-27
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
================================================================================
NOTE 12. CONDENSED FINANCIAL INFORMATION OF ABC BANCORP (PARENT COMPANY ONLY)
(Continued)
CONDENSED STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993
(Dollars in Thousands)
<TABLE>
<CAPTION>
1995 1994 1993
----------- ----------- -----------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING
ACTIVITIES
Net income $ 4,341 $ 3,100 $ 2,638
----------- ----------- -----------
Adjustments to reconcile net income to
net cash provided by operating activities:
Depreciation and amortization 155 168 144
Amortization of intangible assets 268 268 279
Undistributed earnings of subsidiaries (2,947) (2,461) (2,184)
Increase in interest receivable (9) (6) -
Increase (decrease) in taxes payable (180) 30 19
Provision for deferred taxes 14 5 204
(Increase) decrease in due from
subsidiaries (55) 45 (49)
Other prepaids, deferrals and accruals, net (88) 50 (56)
----------- ----------- -----------
Total adjustments (2,842) (1,901) (1,643)
----------- ----------- -----------
Net cash provided by operating
activities 1,499 1,199 995
----------- ----------- -----------
CASH FLOWS FROM INVESTING
ACTIVITIES
Increase in interest-bearing deposits in banks (560) (1,500) -
Purchases of premises and equipment (281) (243) (22)
Proceeds from sale of premises 17 - -
Contribution of capital to subsidiary bank - (1,500) -
----------- ----------- -----------
Net cash used in investing activities (824) (3,243) (22)
----------- ----------- -----------
</TABLE>
F-28
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
================================================================================
NOTE 12. CONDENSED FINANCIAL INFORMATION OF ABC BANCORP (PARENT COMPANY ONLY)
(Continued)
CONDENSED STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993
(Dollars in Thousands)
<TABLE>
<CAPTION>
1995 1994 1993
----------- ----------- -----------
<S> <C> <C> <C>
CASH FLOWS FROM FINANCING
ACTIVITIES
Proceeds from long-term debt $ - $ - $ 1,412
Repayment of long-term debt - (4,677) (15)
Proceeds from sale of stock, net of
stock offering expense - 8,324 -
Proceeds from exercise of stock options 125 - -
Purchase of treasury stock - - (1,412)
Purchase of fractional shares (3) - -
Dividends paid (1,077) (645) (672)
----------- ----------- -----------
Net cash provided by (used in)
financing activities (955) 3,002 (687)
----------- ----------- -----------
Net increase (decrease) in cash (280) 958 286
Cash at beginning of year 1,307 349 63
----------- ----------- -----------
Cash at end of year $ 1,027 $ 1,307 $ 349
=========== =========== ===========
SUPPLEMENTAL DISCLOSURE OF
CASH FLOW INFORMATION
Cash paid during the year for interest $ - $ 111 $ 193
</TABLE>
F-29
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
================================================================================
NOTE 13. PENDING ACQUISITIONS
The Company has entered into a definitive merger agreement with
Southland Bancorporation, Dothan, Alabama pursuant to which it would
acquire all of the outstanding stock of Southland Bancorporation in
exchange for a combination of cash and the Company's common stock. The
total merger consideration will approximate $11.4 million. Total
assets of Southland Bancorporation at December 31, 1995 were
approximately $101 million. The merger is subject to approval by
Southland Bancorporation shareholders and certain regulatory
authorities and the registration of the Company's common stock to be
issued in connection with the merger. As a result of the merger,
Southland Bank, a wholly-owned subsidiary of Southland Bancorporation,
will become a wholly-owned subsidiary of the Company. The merger will
be accounted for as a purchase transaction.
The Company has also entered into a definitive merger agreement with
Central Bankshares, Inc., Cordele, Georgia whereby it would acquire
all of the outstanding common stock of Central Bankshares, Inc. in
exchange for the Company's common stock. The total merger
consideration will approximate $8.3 million. Total assets of Central
Bankshares at December 31, 1995 were approximately $51 million. The
merger is subject to approval by Central Bankshares, Inc. shareholders
and certain regulatory authorities and the registration of the
Company's common stock to be issued in connection with the merger. As
a result of the merger, Central Bank & Trust, a wholly-owned
subsidiary of Central Bankshares, Inc., will become a wholly-owned
subsidiary of the Company. The merger will be accounted for as a
pooling of interests.
F-30
<PAGE>
SOUTHLAND BANCORPORATION AND SUBSIDIARY
Consolidated Balance Sheets
Unaudited
(dollars in thousands except per share data)
<TABLE>
<CAPTION>
31-Mar-96 31-Dec-95
Assets
------
<S> <C> <C>
Cash and due from banks $ 2,667 $ 4,845
Investment securities held to maturity 11,968 1,660
Investment securities available for sale 13,212 19,291
Loans 76,054 71,371
Less allowance for loan loss (1,174) (1,229)
---------------------------------
Net loans 74,880 70,142
Premises and equipment 2,543 2,695
Other real estate 246 339
Other assets 1,952 1,855
---------------------------------
Total assets $107,468 $100,807
=================================
<CAPTION>
Liabilities and Stockholders' Equity
------------------------------------
Deposits:
Noninterest bearing $ 8,663 $ 9,295
Interest bearing 71,425 68,125
Time deposits $100,000 and over 7,777 7,408
---------------------------------
Total deposits 87,865 84,828
Borrowings 12,008 8,525
Other liabilities 1,027 1,138
---------------------------------
Total liabilities 100,900 94,491
Stockholders' equity
Common stock, Class A, No Par:
1,800 shares authorized;
509,556 shares issued 26 26
Common stock, Class B, par value
$8.50 per share, 380 shares authorized,
none issued
Preferred stock, Class A, par value
$5.00 per share, 6 shares authorized,
none issued
Additional paid-in-capital 2,575 2,575
Unrealized holding (loss) gain on investment securities
available for sale, net of tax (104) 4
Retained earnings, substantially restricted 4,137 3,777
Treasury shares at cost, 21,474 shares (66) (66)
---------------------------------
Total stockholders' equity 6,568 6,316
Total liabilities and stockholders' equity $107,468 $100,807
=================================
</TABLE>
See accompanying notes to consolidated financial statements.
F-32
<PAGE>
SOUTHLAND BANCORPORATION AND SUBSIDIARY
Consolidated Statements of Earnings
Unaudited
<TABLE>
<CAPTION> For the three months
(dollars in thousands, except per share amounts) ended March 31,
--------------------------
1996 1995
<S> <C> <C>
Interest income:
Loans, including fees $ 2,041 $ 1,981
Interest-bearing deposits other than financial institutions 15 -
Interest and dividends on investment securities held to maturity -
Taxable 199 13
Tax-exempt - 1
Interest on investment securities available for sale 201 275
------- -------
Total interest income 2,456 2,270
------- -------
Interest expense:
Deposits 1,042 930
Federal funds purchased
Borrowings 164 150
------- -------
Total interest expense 1,206 1,080
------- -------
Net interest income 1,250 1,190
------- -------
Provision for loan losses - 52
------- -------
Net interest income after provision for loan losses 1,250 1,138
------- -------
Other income
Service charges on deposit accounts 161 159
Gain on sales of investment securities available for sale 3 -
Gain on sales of loans 87 108
Other 148 101
------- -------
Total other income 399 368
------- -------
Other expenses
Salaries and employee benefits 557 539
Net occupancy 91 107
Equipment 56 38
FDIC insurance 6 52
Other real estate net 31 44
Other 335 302
------- -------
Total other expenses 1,076 1,082
------- -------
Earnings from continuing operations before income taxes 573 424
Income tax expense 213 171
------- -------
Earnings from continuing operations 360 253
Discontinued operations net of income tax benefit - (12)
------- -------
Net earnings $ 360 $ 241
======= =======
Per share amounts:
Earnings from continuing operations $ .74 $ .52
======= =======
Net earnings $ .74 $ .49
======= =======
</TABLE>
See accompanying notes to consolidated financial statements.
F-33
<PAGE>
SOUTHLAND BANCORPORATION
AND SUBSIDIARY
Consolidated Statements of Cash Flows
Unaudited
(dollars in thousands)
<TABLE>
<CAPTION>
For the three months
ended March 31,
------------------------
1996 1995
<S> <C> <C>
Cash flows from operating activities:
Net earnings $ 360 $ 241
Adjustments to reconcile net earnings to net cash
provided by operating activities:
Depreciation and amortization 93 97
Provision for loan losses 52
(Accretion) of discounts and amortization of
premiums on investment securities 18 (2)
Gain on sales of investment securities available for sale (3) -
Loss on sale premises and equipment 1 1
Gain on sale of other real estate - (8)
Provisions for losses of other real estate 23 43
Gain on sales of loans (87) (108)
(Increase) decrease in other assets (97) 81
(Decrease) increase in other liabilities (111) 267
----------------------
Net cash provided by operating activities 197 664
----------------------
Cash flows from investing activities:
Proceeds from calls of investment securities available for sale 7,000 -
Proceeds from sales of investment securities available for sale 2,080 -
Purchase of investment securities held to maturity (9,000) -
Purchase of investment securities available for sale (4,580) (2,936)
Principal repayments of investment securities held to maturity 85 7
Principal repayments of investment securities available for sale 510 322
Net purchases of Federal Home Loan Bank stock (480) (2)
Net increase in loans (5,625) (1,920)
Proceeds from sales of loans 974 1,785
Purchase of premises and equipment (29) (39)
Proceeds from sale of premises and equipment 58 (24)
Proceeds from sale of other real estate 70 260
----------------------
Net cash used in investing activities (8,937) (2,547)
----------------------
Cash flows from financing activities:
Net increase (decrease) in noninterest bearing deposits (632) 559
Net increase in interest-bearing deposits 3,300 4,269
Net increase in time deposits, $100,000 and over 371 1,858
Principal payments on notes payable (67) (1)
Net increase in Federal Home Loan Bank advances 3,550 -
----------------------
Net cash provided by financing activities 6,522 6,685
----------------------
Net (decrease) increase in cash and cash equivalents (2,218) 4,802
Cash and cash equivalents at beginning of period 4,845 3,793
----------------------
Cash and cash equivalents at end of period $2,667 $8,595
Supplemental schedule of cash flow information: ======================
Cash paid during the period for:
Interest $1,374 $ 969
======================
Income taxes $ 5 $ -
======================
</TABLE>
See accompanying notes to consolidated financial statements.
F-34
<PAGE>
SOUTHLAND BANCORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31,1996 AND 1995
(UNAUDITED)
(1) The accompanying unaudited consolidated financial statements, which are for
interim periods, do not include all disclosures provided in the annual
consolidated financial statements. These financial statements and the notes
thereto should be read in conjunction with the annual financial statements
and the notes thereto for the years ended December 31, 1995, 1994, and 1993
included elsewhere in this Proxy Statement/Prospectus.
(2) All material intercompany balances and transactions have been eliminated.
(3) In the opinion of the Company, the accompanying unaudited consolidated
financial statements contain all adjustments (which are of a normal
recurring nature) necessary for a fair presentation of the financial
statements. The results of operations for the three months ended March 31,
1996 are not necessarily indicative of the results to be expected for the
full year.
F-35
<PAGE>
Independent Auditors' Report
----------------------------
The Board of Directors and Stockholders
Southland Bancorporation:
We have audited the accompanying consolidated balance sheets of Southland
Bancorporation and subsidiary as of December 31, 1995 and 1994, and the related
consolidated statements of earnings, stockholders' equity and cash flows for
each of the years in the three-year period ended December 31, 1995. These
consolidated financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these consolidated
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of Southland
Bancorporation and subsidiary at December 31, 1995 and 1994, and the results of
their operations and their cash flows for each of the years in the three-year
period ended December 31, 1995, in conformity with generally accepted accounting
principles.
As discussed in Notes 1 and 9, the Company changed its method of accounting for
income taxes in 1993 to adopt the provisions of Statement of Financial
Accounting Standards No. 109, Accounting for Income Taxes. As discussed in Note
1, the Company changed its method of accounting for investments in debt and
equity securities at January 1, 1994 to adopt the provisions of Statement of
Financial Accounting Standards No. 115, Accounting for Certain Investments in
Debt and Equity Securities.
/s/ KPMG Peat Marwick LLP
Atlanta, Georgia
January 19, 1996
F-36
<PAGE>
SOUTHLAND BANCORPORATION
AND SUBSIDIARY
Consolidated Balance Sheets
December 31, 1995 and 1994
<TABLE>
<CAPTION>
Assets 1995 1994
---------- ------------ -----------
<S> <C> <C>
Cash and due from banks (note 2) $ 4,844,760 3,793,519
Investment securities available for sale (notes 3 and 8) 19,271,117 13,323,249
Investment security held to maturity (fair value of $1,659,470
and $1,681,655 in 1995 and 1994, respectively) (notes 3 and 8) 1,659,934 1,731,077
Loans held for sale -- 291,733
Loans, net of unearned income of $238,848 and $253,031 in
1995 and 1994, respectively (notes 4 and 8) 71,371,295 69,731,944
Less allowance for loan losses (note 4) (1,229,603) (1,331,778)
----------- ----------
Net loans 70,141,692 68,400,166
Premises and equipment, net (note 5) 2,695,917 3,040,736
Other real estate, net (note 6) 338,652 953,130
Deferred taxes (note 9) 424,816 713,207
Other assets 1,429,810 1,122,820
---------- -----------
Total assets $ 100,806,698 93,369,637
=========== ==========
</TABLE>
See accompanying notes to consolidated financial statements. (Continued)
F-37
<PAGE>
SOUTHLAND BANCORPORATION
AND SUBSIDIARY
Consolidated Balance Sheets, Continued
December 31, 1995 and 1994
<TABLE>
<CAPTION>
Liabilities and Stockholders' Equity 1995 1994
------------------------------------ ------------ -----------
<S> <C> <C>
Deposits:
Noninterest-bearing $ 9,295,421 7,115,041
Interest-bearing 68,125,482 65,818,158
Time deposits $100,000 and over 7,406,845 6,405,120
----------- ----------
Total deposits 84,827,748 79,338,319
Borrowings (note 8) 8,524,969 8,479,214
Other liabilities 1,138,459 695,091
----------- -----------
Total liabilities 94,491,176 88,512,624
----------- ----------
Stockholders' equity (note 11):
Common stock, Class A, no par value; 1,800,000
shares authorized; 509,556 shares issued 26,065 26,065
Common stock, Class B, par value $8.50 per
share, 360 shares authorized, none issued -- --
Preferred stock, Class A, par value $5.00 per
share, 6,000 shares authorized, none issued -- --
Additional paid-in capital 2,575,204 2,575,204
Net unrealized holding gain(loss) on investment
securities available for sale (notes 1 and 3) 3,638 (452,969)
Retained earnings, substantially restricted 3,777,134 2,775,232
Treasury stock at cost, 21,474 shares (66,519) (66,519)
----------- ----------
Total stockholders' equity 6,315,522 4,857,013
Commitments and contingencies (notes 4 and 11)
----------- ----------
Total liabilities and stockholders' equity $100,806,698 93,369,637
=========== ==========
</TABLE>
See accompanying notes to consolidated financial statements. (Continued)
F-38
<PAGE>
SOUTHLAND BANCORPORATION
AND SUBSIDIARY
Consolidated Statements of Earnings
Years Ended December 31, 1995, 1994, and 1993
<TABLE>
<CAPTION>
1995 1994 1993
---------- ---------- ----------
<S> <C> <C> <C>
Interest income:
Loans, including fees $ 7,645,653 6,491,895 6,428,140
Federal funds sold -- 56,077 37,287
Investment securities held to maturity:
Taxable 155,049 59,969 33,472
Tax-exempt 2,851 7,934 14,355
Investment securities available for sale:
Taxable 1,229,420 777,430 463,200
Tax-exempt 177 -- --
--------- --------- ---------
Total interest income 9,033,150 7,393,305 6,976,454
Interest expense:
Deposits (including interest on time
deposits $100,000 and over of $419,496,
$197,533, and $304,566 in 1995,
1994, and 1993 respectively) 4,183,861 3,131,406 3,015,164
Federal funds purchased 1,138 44,912 --
Borrowings 589,708 419,867 244,622
--------- --------- ---------
Total interest expense 4,774,707 3,596,185 3,259,786
--------- --------- ---------
Net interest income 4,258,443 3,797,120 3,716,668
Provision for loan losses (note 4) (71,874) (582,022) (536,049)
--------- --------- ---------
Net interest income after
provision for loan losses 4,186,569 3,215,098 3,180,619
--------- --------- ---------
Other income:
Service charges on deposit accounts 774,568 732,717 888,109
Loss on sales of investment
securities available for sale (note 3) (1,553) -- --
Gain on sales of investment
securities held to maturity (note 3) -- -- 35,301
Trading account gains -- -- 112,338
Gain on sales of loans 298,261 251,391 765,072
Loan servicing fees 166,121 104,512 --
Correspondent fees 161,373 -- --
Other 183,120 217,970 381,614
--------- --------- ---------
Total other income 1,581,890 1,306,590 2,182,434
--------- --------- ---------
</TABLE>
See accompanying notes to consolidated financial statements. (Continued)
F-39
<PAGE>
SOUTHLAND BANCORPORATION
AND SUBSIDIARY
Consolidated Statements of Earnings, Continued
Years Ended December 31, 1995, 1994, and 1993
<TABLE>
<CAPTION>
1995 1994 1993
---------- ---------- ----------
<S> <C> <C> <C>
Other expenses:
Salaries and employee benefits
(note 7) 2,012,059 1,931,480 1,867,338
Net occupancy 680,976 790,681 660,298
Equipment 117,318 120,137 207,420
FDIC insurance 120,049 234,396 217,465
Other real estate, net 176,825 217,269 212,372
Other 993,625 1,203,880 1,177,888
--------- --------- ---------
Total other expenses 4,100,852 4,497,843 4,342,781
--------- --------- ---------
Earnings from continuing operations
before income taxes and cumulative
effect of change in accounting method 1,667,607 23,845 1,020,272
Income tax expense (benefit) (note 9) 643,358 (62,866) 371,853
--------- --------- ---------
Earnings from continuing operations
before cumulative effect of change
in accounting method 1,024,249 86,711 648,419
Discontinued operations:
Loss from operations of discontinued
insurance agency, net of income tax
benefits of $11,512, $44,134, and $29,853
in 1995, 1994, and 1993, respectively (note 12) (22,347) (85,673) (57,951)
--------- --------- ---------
Earnings before cumulative effect of change
in accounting method 1,001,902 1,038 590,468
Cumulative effect of change in accounting method
(notes 1 and 9) -- -- 49,054
--------- --------- ---------
Net earnings $ 1,001,902 1,038 639,522
========= ========= =========
Per share amounts:
Earnings from continuing operations before cumulative
effect of change in accounting method $ 2.10 .18 1.33
========= ========= =========
Earnings before cumulative effect of change in
accounting method $ 2.05 -- 1.21
Cumulative effect of change in accounting method -- -- .10
-------- --------- ---------
Net earnings $ 2.05 -- 1.31
========= ========= =========
Weighted average common shares outstanding, including
common stock equivalents 488,082 488,082 488,082
========= ========= =========
</TABLE>
See accompanying notes to consolidated financial statements.
F-40
<PAGE>
SOUTHLAND BANCORPORATION
AND SUBSIDIARY
Consolidated Statements of Stockholders' Equity
Years Ended December 31, 1995, 1994, and 1993
<TABLE>
<CAPTION>
Net
unrealized
holding
gain (loss)
on investment
Additional securities
Common Common paid-in available Retained Treasury
shares stock capital for sale, earnings stock Total
------- ------ ---------- -------------- --------- --------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance at December 31, 1992 509,566 $ 26,065 2,575,204 -- 2,134,672 (66,519) 4,669,422
Net Earnings -- -- -- -- 639,522 -- 639,522
------- ------ ---------- ------------- --------- ------- ---------
Balance at December 31, 1993 509,566 26,065 2,575,204 -- 2,774,194 (66,519) 5,308,944
Effect of adoption of
FAS 115, Accounting
for Certain Investments
in Debt and Equity
Securities, on
January 1, 1994 (note 1) -- -- -- 79,241 -- -- 79,241
Change in unrealized gain (loss)
on investment securities
available for sale, net of
tax effect -- -- -- (532,210) -- -- (532,210)
Net earnings -- -- -- -- 1,038 -- 1,038
------- ------ ---------- ------------- --------- ------- ---------
Balance at December 31, 1994 509,566 26,065 2,575,204 (452,969) 2,775,232 (66,519) 4,857,013
Net earnings -- -- -- -- 1,001,902 -- 1,001,902
Change in unrealized gain
(loss) on investment
securities available
for sale, net of tax effect -- -- -- 456,607 -- -- 456,607
------- ------ ---------- ------------- --------- ------- ---------
Balance at December 31, 1995 509,566 $ 26,065 2,575,204 3,638 3,777,134 (66,519) 6,315,522
======= ====== ========== ============= ========= ======= =========
</TABLE>
See accompanying notes to consolidated financial statements.
F-41
<PAGE>
SOUTHLAND BANCORPORATION
AND SUBSIDIARY
Consolidated Statements of Cash Flows
Years Ended December 31, 1995, 1994, and 1993
<TABLE>
<CAPTION>
1995 1994 1993
----------- ------------ ------------
<S> <C> <C> <C>
Cash flows from operating activities:
Net earnings $ 1,001,902 1,038 639,522
Adjustments to reconcile net earnings to net cash
provided by operating activities:
Depreciation and amortization 384,493 409,112 335,188
Provision for loan losses 71,874 582,022 536,049
Deferred tax benefit (16,014) (156,000) (68,000)
(Accretion) of discounts and amortization of
premiums on investment securities (19,310) 25,631 143,565
Loss on sales of investment securities available for sale 1,553 -- --
Gain on sales of investment securities held to maturity -- -- (35,301)
Proceeds from sale of trading securities -- -- 8,518,969
Gain on sale of trading securities -- -- (112,338)
Loss on sale of premises and equipment 744 633 11,646
Loss on sale of other real estate 37,433 101,973 68,424
Provision for losses of other real estate 104,059 86,063 64,926
Loss on sale of repossessed property -- 3,203 6,577
Gain on sales of loans (298,261) (251,391) (765,072)
Cumulative effect of change in accounting method -- -- (49,054)
(Increase) decrease in other assets (306,990) (553,958) 1,296,510
Increase (decrease) in other liabilities 443,368 312,749 (28,366)
---------- ----------- -----------
Net cash provided by operating activities 1,404,851 561,075 10,563,245
---------- ----------- -----------
Cash flows from investing activities:
Proceeds from sale of investment securities held to maturity -- -- 1,012,675
Proceeds from maturity of investment securities held to maturity 50,000 55,000 150,000
Proceeds from calls of investments securities held to maturity 10,000 15,000 --
Proceeds from calls of investment securities available for sale 10,000,000 -- --
Proceeds from sales of investment securities available for sale 1,631,744 -- --
Purchase of investment securities held to maturity -- -- (13,378,379)
Purchase of investment securities available for sale (18,290,798) (3,436,619) --
Principal repayments of investment securities held to maturity 15,762 18,059 1,052,971
Principal repayments of investment securities available for sale 1,487,436 1,524,388 --
Net (purchases) redemptions of Federal Home Loan Bank stock (2,100) 31,900 --
Net increase in loans (5,128,606) (23,120,487) (54,049,059)
Proceeds from sales of loans 3,928,589 27,078,423 54,144,972
Purchase of premises and equipment (95,066) (296,862) (1,324,208)
Proceeds from sale of premises and equipment 54,648 61,411 29,424
Proceeds from sale of other real estate 449,597 126,412 388,032
Proceeds from sale of repossessed property -- 10,500 22,858
---------- ----------- -----------
Net cash (used in) provided by investing activities (5,888,794) 2,067,125 (11,950,714)
---------- ----------- -----------
</TABLE>
See accompanying notes to consolidated financial statements. (Continued)
F-42
<PAGE>
SOUTHLAND BANCORPORATION
AND SUBSIDIARY
Consolidated Statements of Cash Flows, Continued
Years Ended December 31, 1995, 1994, and 1993
<TABLE>
<CAPTION>
1995 1994 1993
---------- ----------- -----------
<S> <C><C> <C> <C>
Cash flows from financing activities:
Net increase (decrease) in noninterest bearing deposits 2,180,380 (947,186) (1,110,131)
Net increase (decrease) in interest-bearing deposits 2,307,324 (6,662,277) 4,330,503
Net increase (decrease) in time deposits, $100,000 and over 1,001,725 (104,604) 152,265
Principal payments on notes payable (6,437) (20,719) (105,468)
Proceeds from issuance of note payable 52,192 115,000 100,000
Net increase in Federal Home Loan Bank advances -- 1,000,000 700,000
--------- ---------- ----------
Net cash provided by (used in) financing activities 5,535,184 (6,619,786) 4,067,169
--------- ---------- ----------
Net increase (decrease) in cash and cash equivalents 1,051,241 (3,991,586) 2,679,700
Cash and cash equivalents at beginning of year 3,793,519 7,785,105 5,105,405
--------- ---------- ----------
Cash and cash equivalents at end of year $ 4,844,760 3,793,519 7,785,105
========= ========== ==========
Supplemental schedule of cash flow information:
Cash paid during the year for:
Interest $ 4,312,181 3,523,087 3,358,402
========= ========== ==========
Income taxes $ 601,605 250,000 335,116
========= ========== ==========
Supplemental information on noncash transactions:
Transfers from loans to other real estate $ 160,196 478,401 685,131
========= ========== ==========
Transfers to investment securities available for sale
from investment securities held to maturity $ -- -- 12,270,147
========= ========== ==========
Transfers from investment securities available for sale
to investment securities held to maturity $ -- 75,643 --
========= ========== ==========
Transfer from premises and equipment
to other real estate $ -- 145,618 --
========= ========== ==========
Loans to facilitate $ 183,585 306,959 --
========= ========== ==========
Effect of adoption of FAS 115, Accounting for Certain
Investments in Debt and Equity Securities, on
January 1, 1994 $ -- 79,241 --
========= ========== ==========
Change in unrealized gain (loss) on investment securities
available for sale, net of tax effect of $304,405 and
$301,979 in 1995 and 1994, respectively $ 456,607 (532,210) --
========= ========== ==========
</TABLE>
See accompanying notes to consolidated financial statements.
F-43
<PAGE>
SOUTHLAND BANCORPORATION
AND SUBSIDIARY
Notes to Consolidated Financial Statements
December 31, 1995, 1994, and 1993
(1) Summary of Significant Accounting Policies
------------------------------------------
(a) Organization and Basis of Financial Statement Presentation
----------------------------------------------------------
The accompanying consolidated financial statements include the
accounts of Southland Bancorporation (the Corporation) and its wholly-
owned subsidiary, Southland Bank (the Bank) collectively as the
Company. All significant intercompany accounts and transactions have
been eliminated in consolidation.
The Company provides a full range of banking services to individual
and corporate customers in its primary market area of Dothan, Alabama
and surrounding counties. The Bank is subject to competition from
other financial institutions. The Company is subject to the
regulations of certain federal and state agencies and undergoes
periodic examinations by those authorities.
A substantial portion of the Company's loans are secured by real
estate in the Company's primary market area. In addition, a
substantial portion of other real estate is located in those same
markets. Accordingly, the ultimate collectibility of a substantial
portion of the Company's loan portfolio and the recovery of a
substantial portion of the carrying amount of other real estate are
susceptible to changes in market conditions in the Company's primary
market area.
The accounting principles and reporting policies of the Company, and
the methods of applying these principles, conform with generally
accepted accounting principles and with general practice within the
banking industry. Certain items in the prior year's financial
statements have been reclassified to conform with the current
financial statement presentation.
In preparing the consolidated financial statements, management is
required to make estimates and assumptions that affect the reported
amounts of assets and liabilities as of the date of the balance sheet
and revenues and expenses for the period. Actual results could differ
significantly from those estimates.
Material estimates that are particularly susceptible to significant
change in the near-term relate to the determination of the allowance
for loan losses and the valuation of real estate acquired in
connection with foreclosures or in satisfaction of loans. In
connection with the determination of the allowance for loan losses,
management periodically reviews the creditworthiness of significant
borrowers and evaluates the collateral position of delinquent loans.
Management obtains independent appraisals for significant properties
in determining the allowance for loan losses and the valuation of
other real estate.
Management believes that the allowances for losses on loans and other
real estate are adequate. While management uses available information
to recognize losses on loans
(Continued)
F-44
<PAGE>
SOUTHLAND BANCORPORATION
AND SUBSIDIARY
Notes to Consolidated Financial Statements
(1) Summary of Significant Accounting Policies, Continued
-----------------------------------------------------
(a) Organization and Basis of Financial Statement Presentation, Continued
---------------------------------------------------------------------
and other real estate, future additions to the allowances may be
necessary based on changes in economic conditions, particularly in the
Company's primary market area. In addition, various regulatory
agencies, as an integral part of their examination process,
periodically review the Company's allowances for losses on loans and
other real estate. Such agencies may require the Company to recognize
additions to the allowances based on their judgments about information
available to them at the time of their examination.
(b) Cash Equivalents
----------------
For purposes of the statements of cash flows, the Company considers
amounts due from financial institutions and federal funds sold to be
cash equivalents. Federal funds sold are generally sold for one-day
periods.
(c) Investment Securities
---------------------
The Company adopted Statement of Financial Accounting Standards (FAS)
115, Accounting for Certain Investments in Debt and Equity Securities,
effective January 1, 1994. In accordance with FAS 115, investments
are classified in three categories: held to maturity securities
(reported at amortized cost), trading securities (reported at fair
value), and available for sale securities (reported at fair value).
Designation of an investment security as held to maturity, trading, or
available for sale is made at the time the security is purchased,
based on the Company's intent and ability to hold the security.
Investment securities to be held to maturity are carried at cost
adjusted for amortization of premiums and accretion of discounts to
maturity. Unrealized gains or losses on trading securities are
included in earnings. The Company did not have any trading account
securities at December 31, 1995 or 1994. Unrealized gains or losses
on available for sale securities are excluded from earnings and
reported as a separate component of stockholders' equity, net of the
related income tax effect. Gains or losses on the sale of investment
securities are computed on the specific identification method, and
recognized in earnings on the trade date.
At adoption of FAS 115, the Company transferred certain investment
securities with a total amortized cost of $12,270,147 and fair value
of $12,393,960 from held to maturity to investment securities
available for sale. The unrealized net holding gains on investment
securities available for sale at January 1, 1994 totaled $123,813 and
were included as a separate component of stockholders' equity of
$79,241, net of income taxes of $44,572 upon the Corporation's
adoption of FAS 115.
(Continued)
F-45
<PAGE>
SOUTHLAND BANCORPORATION
AND SUBSIDIARY
Notes to Consolidated Financial Statements
(1) Summary of Significant Accounting Policies, Continued
-----------------------------------------------------
(c) Investment Securities, Continued
--------------------------------
Purchase premiums and discounts on investment securities are amortized
and accreted to interest income using the level yield method on the
outstanding principal balances. In establishing the accretion of
discounts and amortization of premiums, the Company utilizes market
based prepayment assumptions. Interest and dividend income are
recognized when earned.
A decline in the fair value below cost of any available for sale or
held to maturity security that is deemed other than temporary is
charged to earnings resulting in the establishment of a new cost basis
for the security.
(d) Loans and Interest Income
-------------------------
Loans are stated at principal amounts outstanding less unearned income
and the allowance for loan losses. Interest income on loans is
credited to earnings based on the principal amount outstanding at the
respective rate of interest except for add on installment loans for
which interest is recognized on the "Rule of 78's" method.
Loans held for sale are carried at the lower of aggregate cost or
market. Gains or losses on disposition are recorded in other income,
based on the net proceeds received and the recorded investment in the
loan sold. For sales of the Small Business Association (SBA)
guaranteed portion of loans, the basis in the portion of the loan sold
is determined by allocating the loan carrying value to the portion
sold and portion retained based on the relative fair values of the
portion sold and portion retained. Such gains or losses are adjusted
by the amount of any excess servicing fee receivables resulting from
the transactions.
Accrual of interest on loans is discontinued either when reasonable
doubt exists as to the full, timely collection on interest or
principal or when a loan becomes contractually past due by 90 days or
more with respect to interest or principal. When a loan is placed on
nonaccrual status, all interest previously accrued, but not collected,
is reversed against current period interest income. Income on such
loans is then recognized only to the extent that cash is received and
where the future collection of principal is probable. Interest
accruals are recorded on such loans only when they are brought fully
current with respect to interest and principal and when, in the
judgment of management, the loans are estimated to be fully
collectible as to both principal and interest.
(Continued)
F-46
<PAGE>
SOUTHLAND BANCORPORATION
AND SUBSIDIARY
Notes to Consolidated Financial Statements
(1) Summary of Significant Accounting Policies, Continued
-----------------------------------------------------
(d) Loans and Interest Income, Continued
------------------------------------
In May 1993, the Financial Accounting Standards Board (FASB) issued
FAS 114, Accounting by Creditors for Impairment of a Loan. FAS 114
requires impaired loans to be measured based on the present value of
expected future cash flows, discounted at the loan's effective
interest rate, or at the loan's observable market price, or the fair
value of the collateral if the loan is collateral dependent, beginning
in 1995. In October 1994, the FASB issued FAS 118, Accounting by
Creditors for Impairment of a Loan-Income Recognition and Disclosures,
which amends the requirements of FAS 114 regarding interest income
recognition and related disclosure requirements. Initial adoption of
FAS 114 and FAS 118 must be reflected prospectively. The Company
adopted FAS 114 and FAS 118 on January 1, 1995 and the impact to the
consolidated financial statements was not material. At December 31,
1995, pursuant to the definition within FAS 114, the Company had
$480,000 of impaired loans, which includes one loan for $180,000 with
a valuation allowance of $68,000. No valuation allowance was deemed
necessary for the remaining $300,000 of impaired loans.
A loan is considered impaired when, based on current information and
events, it is probable that the Company will be unable to collect all
amounts due according to the contractual terms of the note agreement.
Cash receipts on impaired loans which the accrual of interest has been
discontinued are applied to reduce the principal amount of such loans
until the principal has been recovered and are recognized as interest
income thereafter.
(e) Allowance for Loan Losses
-------------------------
Additions to the allowance for loan losses are based on management's
evaluation of the loan portfolio under current economic conditions,
including such factors as the volume and character of loans
outstanding, past loss experience, general economic conditions, and
such other factors which, in management's judgment, deserve
recognition in estimating loan losses. Loans are charged to the
allowance when, in the opinion of management, such loans are deemed to
be uncollectible. Provisions for loan losses and recoveries of loans
previously charged to the allowance are added to the allowance.
(f) Premises and Equipment
----------------------
Premises and equipment are stated at cost less accumulated
depreciation. Depreciation is provided on the straight-line method
over the estimated useful lives of the respective assets which range
from 3 to 30 years. Leasehold improvements are amortized on a
straight-line basis over the life of the respective lease or, if
shorter, the estimated useful life of the improvements.
(Continued)
F-47
<PAGE>
SOUTHLAND BANCORPORATION
AND SUBSIDIARY
Notes to Consolidated Financial Statements
(1) Summary of Significant Accounting Policies, Continued
-----------------------------------------------------
(g) Other Real Estate
-----------------
Other real estate is reported net of the allowance for losses. Other
real estate represents property acquired through foreclosure or deeded
to the Bank in lieu of foreclosure on real estate mortgage loans on
which the borrowers have defaulted as to payment of principal and
interest. For real estate acquired through foreclosure, a new cost
basis is established through a charge to the allowance for loan
losses, at fair value at the time of foreclosure less costs to sell.
Subsequent to foreclosure, foreclosed assets are carried at the lower
of fair value less estimated costs to sell, or cost, with the
difference recorded as a valuation allowance, on an individual asset
basis. Subsequent decreases in fair value and increases in fair
value, up to the value established at foreclosure, are recognized as
charges or credits to other expense.
(h) Income Taxes
------------
During 1993, the Company adopted FAS 109 Accounting for Income Taxes.
Under the asset and liability method of FAS 109, deferred tax assets
and liabilities are recognized for the future tax consequences
attributable to differences between the financial statement carrying
amounts of existing assets and liabilities and their respective tax
basis and operating loss and tax credit carryforwards. Deferred tax
assets and liabilities are measured using enacted tax rates expected
to apply to taxable earnings in the years in which those temporary
differences are expected to be recovered or settled. Under FAS 109,
the effect on deferred tax assets and liabilities of a change in tax
rates is recognized in earnings in the period that includes the
enactment date.
Upon adoption in 1993, the Company applied the provisions of FAS 109
without restating prior years' financial statements. The cumulative
effect of the change in the method of accounting for income taxes was
$49,054 and is reported separately in the 1993 financial statements.
(i) Employee Benefit Plan
---------------------
The Bank has a defined contribution plan which covers substantially
all employees. The Bank contributes amounts to the defined
contribution plan subject to minimums established by regulation and
maximums allowed for tax purposes.
(Continued)
F-48
<PAGE>
SOUTHLAND BANCORPORATION
AND SUBSIDIARY
Notes to Consolidated Financial Statements
(1) Summary of Significant Accounting Policies, Continued
-----------------------------------------------------
(j) Earnings Per Share
------------------
Earnings per common share is based on the weighted average number of
shares outstanding during each period. The effect of outstanding
stock options is not significant to the computation of earnings per
share.
(k) Recent Accounting Pronouncements
--------------------------------
In October 1995, the FASB issued FAS 123, Accounting for Stock-Based
Compensation. FAS 123 establishes financial accounting and reporting
standards for stock-based employee compensation plans. Those plans
include all arrangements by which employees receive shares of stock or
other equity instruments of the employer or the employer incurs
liabilities to employees in amounts based on the price of the
employer's stock. Such instruments include stock purchase plans, stock
options, restricted stock, and stock appreciation rights. FAS 123 also
applies to transactions in which an entity issues its equity
instruments to acquire goods or services from nonemployees.
A new method of accounting for stock-based compensation arrangements
with employees is established by FAS 123. The new method is a fair
value based method rather than the intrinsic value based method.
However, FAS 123 does not require an entity to adopt the new fair
value based method for purposes of preparing its basic financial
statements. Entities are allowed (1) to continue to use their
existing method or (2) adopt the FAS 123 fair value based method. The
selected method would apply to all of an entity's compensation plans
and transactions
FAS 123 requires that an employer's financial statements include
certain disclosures about stock-based employee compensation
arrangements regardless of the method used to account for them. The
accounting requirements of this statement are effective for
transactions entered into in fiscal years that begin after December
15, 1995. The disclosure requirements are effective for financial
statements for fiscal years beginning after December 15, 1995. The
Company has not determined the impact of adopting FAS 123.
(2) Cash and Due From Banks
-----------------------
The Bank is required to maintain certain daily reserve balances in
accordance with Federal Reserve Board requirements. The required balances
were $25,000 and $68,000 at December 31, 1995 and 1994, respectively.
(Continued)
F-49
<PAGE>
SOUTHLAND BANCORPORATION
AND SUBSIDIARY
Notes to Consolidated Financial Statements
(3) Investment Securities
---------------------
The amortized cost, gross unrealized gains and losses, and approximate fair
value of investment securities held to maturity at December 31, 1995 and
1994, respectively, were as follows:
<TABLE>
<CAPTION>
1995
--------------------------------------------------------
Gross Gross Approximate
Amortized unrealized unrealized fair
cost gains losses value
---- ----- ------ -----
<S> <C> <C> <C> <C>
Debt securities:
State and political subdivisions $ 15,015 1,357 -- 16,372
U.S. government agencies 33,808 3,863 -- 37,671
Mortgage-backed securities 1,008,611 322 6,006 1,002,927
--------- ----- ------ ---------
1,057,434 5,542 6,006 1,056,970
Other securities:
Stock in Federal Home Loan
Bank of Atlanta 602,500 -- -- 602,500
--------- ----- ------ ---------
$ 1,659,934 5,542 6,006 1,659,470
========= ===== ====== =========
<CAPTION>
1994
--------------------------------------------------------
Gross Gross Approximate
Amortized unrealized unrealized fair
cost gains losses value
---- ----- ------ -----
<S> <C> <C> <C> <C>
Debt securities:
State and political
subdivisions $ 74,017 1,406 -- 75,423
U.S. government agencies 46,286 3,820 -- 50,106
Mortgage-backed securities 1,010,374 84 54,732 955,726
--------- ----- ------ ---------
1,130,677 5,310 54,732 1,081,255
Other securities:
Stock in Federal Home Loan
Bank of Atlanta 600,400 -- -- 600,400
--------- ----- ------ ---------
$ 1,731,077 5,310 54,732 1,681,655
========= ===== ====== =========
</TABLE>
The stock in the Federal Home Loan Bank of Atlanta, which is carried at cost,
has no contractual maturity, has no quoted fair value, and no ready market
exists; therefore, the fair value of such stock is assumed to approximate cost
in the above summary. The investment in the stock is required by law of every
member of the Federal Home Loan Bank system.
(Continued)
F-50
<PAGE>
SOUTHLAND BANCORPORATION
AND SUBSIDIARY
Notes to Consolidated Financial Statements
(3) Investment Securities, Continued
--------------------------------
The amortized cost and approximate fair value of investment securities held
to maturity at December 31, 1995, by contractual maturity, are shown below.
Expected maturities will differ from contractual maturities because
borrowers may have the right to call or prepay obligations with or without
call or prepayment penalties.
<TABLE>
<CAPTION>
1995
---------------------
Approximate
Amortized fair
cost value
----------- ---------
<S> <C> <C>
Due after one year through five years $ 15,015 16,372
Due after five years through ten years -- --
Due after ten years 33,808 37,671
--------- ---------
48,823 54,043
Mortgage-backed securities 1,008,611 1,002,927
--------- ---------
$1,057,434 1,056,970
========= =========
</TABLE>
There were no sales of investment securities held to maturity during 1995 or
1994. Proceeds from sales of investments securities during 1993 were
$1,012,675. Gross gains of $35,301 were realized on those sales in 1993.
The amortized cost, gross unrealized gains and losses, and approximate fair
value of investment securities available for sale at December 31, 1995 were
as follows:
<TABLE>
<CAPTION>
1995
-----------------------------------------------
Gross Gross Approximate
Amortized unrealized unrealized fair
cost gains losses value
---- ----- ------ -----
<S> <C> <C> <C> <C>
State and political subdivisions $ 357,519 -- 2 357,517
U.S. government agencies 7,982,427 26,636 -- 8,009,063
Mortgage-backed securities 10,934,921 16,713 47,097 10,904,537
---------- ------ ------ -----------
$ 19,274,867 43,349 47,099 19,271,117
========== ========== ====== ===========
</TABLE>
In 1994, the Bank transferred four investment securities from available for
sale to held to maturity. These securities carried total unrealized holding
gains of $11,520 at the date of transfer. These unrealized holding gains are
included as a component of amortized cost and are being amortized over the
remaining life of the securities. The total unamortized holding gains at
December 31, 1995 and 1994 amounted to $9,813 and $10,667, respectively. The
portion of these unamortized holding gains included in the unrealized gain
on available for sale securities, net of tax, at December 31, 1995 and the
unrealized loss on available for sale securities, net of tax, at December
31, 1994 was $5,888 and $6,400, respectively.
(Continued)
F-51
<PAGE>
SOUTHLAND BANCORPORATION
AND SUBSIDIARY
Notes to Consolidated Financial Statements
(3) Investment Securities, Continued
--------------------------------
The amortized cost, gross unrealized gains and losses, and approximate fair
value of investment securities available for sale at December 31, 1994 were
as follows:
<TABLE>
<CAPTION>
1994
-----------------------------------------------
Gross Gross Approximate
Amortized unrealized unrealized fair
cost gains losses value
---- ----- ------ -----
<S> <C> <C> <C> <C>
Mortgage-backed securities 14,088,864 -- 765,615 13,323,249
========== ========== ========== ===========
</TABLE>
The amortized cost and approximate fair value of investment securities
available for sale at December 31, 1995, by contractual maturity, are shown
below. Expected maturities will differ from contractual maturities because
borrowers may have the right to call or prepay obligations with or without
call or prepayment penalties.
<TABLE>
<CAPTION>
1995
---------------------------
Approximate
Amortized fair
cost value
---- -----
<S> <C> <C>
Due after one year through five years $ 5,982,427 6,009,063
Due after five years through ten years 2,000,000 2,000,000
Due after ten years 357,519 357,517
Mortgage-backed securities 10,934,921 10,904,537
---------- ----------
$ 19,274,867 19,271,117
=========== ==========
</TABLE>
Proceeds from sales of investment securities available for sale were
$1,631,744 for the year ended December 31, 1995. Gross losses of $1,553
were realized on those sales for the year ended December 31, 1995. No sales
of investment securities available for sale occurred during 1994 or 1993.
Securities having an approximate amortized cost of $1,308,000 and $2,075,000
at December 31, 1995 and 1994, respectively, were pledged to secure public
funds. In addition, securities having an approximate amortized cost of
$2,100,000 and $647,000 at December 31, 1995 and 1994, respectively, were
pledged to secure FHLB advances.
(Continued)
F-52
<PAGE>
SOUTHLAND BANCORPORATION
AND SUBSIDIARY
Notes to Consolidated Financial Statements
(4) Loans and Allowance for Loan Losses
-----------------------------------
At December 31, 1995 and 1994, the composition of the loan portfolio was as
follows:
<TABLE>
<CAPTION>
1995 1994
---- ----
<S> <C> <C>
Commercial, financial, and
agricultural $ 29,382,692 22,113,615
Real estate - mortgage 38,290,739 42,903,896
Installment loans 3,635,583 4,218,936
Other 62,281 495,497
------------ ----------
Total loans 71,371,295 69,731,944
Less allowance for loan losses (1,229,603) (1,331,778)
---------- ----------
Loans, net $ 70,141,692 68,400,166
========== ==========
A summary of the transactions in the allowance for loan losses follows:
1995 1994 1993
---- ---- ----
Balance at beginning of year $ 1,331,778 883,083 880,780
Provision charged to operating
expense 71,874 582,022 536,049
Recoveries of loans previously
charged off 163,129 156,113 42,830
Loans charged off (337,178) (289,440) (576,576)
---------- ---------- ----------
Balance at end of year $ 1,229,603 1,331,778 883,083
========== ========== ==========
</TABLE>
Nonaccrual loans at December 31, 1995 and 1994 totaled $303,000 and
$1,200,000, respectively. Foregone interest on these loans was $42,840 in
1995, $85,659 in 1994, and $12,211 in 1993.
Certain directors and officers of the Bank are loan customers of the Bank.
Total loans outstanding to these persons at December 31, 1995 and 1994
amounted to $482,410 and $393,216, respectively. The change from 1994 to
1995 reflects payments of $431,089 and advances of $520,283. Such loans
are made in the ordinary course of business on substantially the same terms
as those prevailing at the time for comparable transactions with other
customers, including interest rate and collateral, and in the opinion of
management do not represent more than a normal credit risk or present
unfavorable features.
Proceeds from the sale of loans during 1995, 1994, and 1993 were
$3,928,589, $27,078,423, and $54,144,972 and realized gains were $298,261,
$251,391, and $765,072, respectively. There were no sales of real estate
mortgage loans in 1995. Sales of real estate mortgage loans accounted for
$19,786,981 and $45,797,271 of total sales in 1994 and 1993, respectively.
At December 31, 1995 and 1994, the Company was servicing certain Small
Business Administration loans for others with aggregate principal balances
of approximately $14,612,000 an $13,705,000, respectively.
(Continued)
F-53
<PAGE>
SOUTHLAND BANCORPORATION
AND SUBSIDIARY
Notes to Consolidated Financial Statements
(5) Premises and Equipment
----------------------
A summary of premises and equipment at December 31, 1995 and 1994 follows:
<TABLE>
<CAPTION>
1995 1994
---- ----
<S> <C> <C>
Construction in progress $ 38,900 17,300
Land 541,943 553,063
Buildings 2,423,210 2,466,627
Furniture and equipment 2,789,727 2,723,332
Leasehold improvements 50,650 50,650
--------- ---------
5,844,430 5,810,972
Less accumulated depreciation and amortization 3,148,513 2,770,236
--------- ---------
Total $2,695,917 3,040,736
========= =========
</TABLE>
Depreciation and amortization charged to operating expense was $384,493,
$409,112, and $335,188 in 1995, 1994, and 1993 respectively.
(6) Other Real Estate
-----------------
A summary of the transactions in the allowance for losses of other real
estate for the years ended December 31, 1995, and 1994, and 1993 follows:
<TABLE>
<CAPTION>
1995 1994 1993
---- ---- ----
<S> <C> <C> <C>
Balance at beginning of year $226,394 140,332 105,406
Provision charged to earnings 104,059 91,000 64,926
Charge-offs (34,988) (4,938) (30,000)
------- ------- -------
Balance at end of year $295,465 226,394 140,332
======= ======= =======
</TABLE>
Other real estate, net, as of December 31, 1995 and 1994 totaled $338,652
and $953,130, respectively, and consist primarily of commercial properties.
(7) Employee Benefit Plan
---------------------
Employees of the Bank may contribute up to 15 percent of their annual
salary to the Bank's defined contribution retirement plan. Under the
provisions of the plan, the Bank is required to match the employees'
contributions up to 3 percent of their annual salary and may make
additional discretionary contributions.
Contributions to the plan by the Bank totaled $84,905, $81,164, and $78,340
for the years ended December 31, 1995, 1994, and 1993, respectively.
(Continued)
F-54
<PAGE>
SOUTHLAND BANCORPORATION
AND SUBSIDIARY
Notes to Consolidated Financial Statements
(8) Borrowings
----------
Borrowings at December 31, 1995 and 1994 are summarized as follows:
<TABLE>
<CAPTION>
December 31
------------
1995 1994
---- ----
<S> <C> <C>
Advances from the Federal Home Loan Bank
of Atlanta under the terms of the adjustable
rate credit program, maturing in equal
amounts of $2,000,000 on March 30, 1996, 1997
and 1998, respectively, and $1,000,000 on
January 28, 1996. The interest rates at
December 31, 1995 range from 5.8875 percent
to 5.9575 percent and are based on the 90-day
LIBOR rate. The advances are collateralized
by real estate mortgage loans of $7,861,834
and $5,966,345 at December 31, 1995 and 1994,
respectively, and by securities having an
approximate amortized cost of $2,100,000 and
$647,000 at December 31, 1995 and 1994,
respectively. $ 7,000,000 7,000,000
Notes payable to various individuals, including
certain directors, bearing interest at a prime
rate (8.50 at December 31, 1995) plus one
percent. Principal and interest payments are
due quarterly through March 2001. 1,400,000 1,400,000
Note payable to an individual bearing interest
at 13 percent with principal and interest
payments due monthly through 2016. 124,969 79,214
---------- ----------
$ 8,524,969 8,479,214
========== ==========
</TABLE>
The Bank has available a revolving line of credit with the Federal Home
Loan Bank of Atlanta bearing interest under the terms of an adjustable rate
credit program. The amount available was $10,000,000 at December 31, 1995
and 1994, respectively. Advances drawn on the line of credit are to be
collateralized by U.S. government agencies securities.
(Continued)
F-55
<PAGE>
SOUTHLAND BANCORPORATION
AND SUBSIDIARY
Notes to Consolidated Financial Statements
(8) Borrowings, Continued
---------------------
Aggregate maturities of borrowings at December 31, 1995 are as follows:
<TABLE>
<CAPTION>
Total
-----
<S> <C>
1996 $ 3,563,310
1997 2,184,364
1998 2,185,552
1999 206,890
2000 164,463
Thereafter 220,390
--------
$ 8,524,969
=========
</TABLE>
(9) Income Taxes
------------
As discussed in note 1, the Company adopted FAS 109 as of January 1, 1993.
Total income tax expense (benefit) for the years ended December 31,
1995, 1994, and 1993 was allocated as follows (in thousands):
<TABLE>
<CAPTION>
1995 1994 1993
--------- --------- ---------
<S> <C> <C> <C>
Income from continuing operations $ 643,358 (62,866) 371,853
======= ======== ========
Loss from discontinued operations $ (11,512) (44,134) (29,853)
======= ======== ========
Stockholders' equity, for unrealized gains (losses)
on investment securities available for sale $ 304,405 (301,979) --
======= ======== ========
Components of income tax expense (benefit) for the years ended December 31,
1995, 1994, and 1993 are as follows:
<CAPTION>
1995
--------------------------
Current Deferred Total
------- -------- -----
<S> <C> <C> <C>
Federal $ 580,141 (15,794) 564,347
State 67,719 (220) 67,499
------- -------- --------
Totals $ 647,860 (16,014) 631,846
======= ======== ========
1994
--------
Current Deferred Total
------- -------- --------
<S> <C> <C> <C>
Federal $ 49,000 (143,000) (94,000)
State -- (13,000) (13,000)
------- --------
Totals $ 49,000 (156,000) (107,000)
======= ======== ========
</TABLE>
(Continued)
F-56
<PAGE>
SOUTHLAND BANCORPORATION
AND SUBSIDIARY
Notes to Consolidated Financial Statements
(9) Income Taxes, Continued
-----------------------
<TABLE>
<CAPTION>
1993
--------------------------
Current Deferred Total
------- -------- -----
<S> <C> <C> <C>
Federal $ 382,000 (58,000) 324,000
State 28,000 (10,000) 18,000
------- ------- -------
Totals $ 410,000 (68,000) 342,000
======= ======= =======
</TABLE>
The provisions for income taxes for 1995, 1994, and 1993 are more than that
computed by applying the U.S. federal corporate tax rate of 34 percent to
earnings from continuing operations before income taxes and cumulative
effect of a change in accounting method for the following reasons:
<TABLE>
<CAPTION>
1995 1994 1993
---- ---- ----
<S> <C> <C> <C>
Amount computed at statutory rate $ 566,986 8,107 346,892
Increase (reduction) in income taxes
resulting from:
Tax exempt interest (4,942) (4,630) (4,874)
State income tax, net of federal
income tax benefit 46,869 (8,580) 11,880
Internal Revenue Service exam settled -- (59,443) --
Other, net 34,445 1,680 17,955
------- ------- -------
$ 643,358 (62,866) 371,853
======= ======= =======
</TABLE>
The tax effects of temporary differences that give rise to significant
portions of the deferred tax assets and deferred tax liabilities at
December 31, 1995 and 1994 are as follows:
<TABLE>
<CAPTION>
1995 1994
---- ----
<S> <C> <C>
Deferred tax assets:
Loans, principally due to allowance for loan
losses $ 328,385 431,807
Unrealized loss on investment securities
available for sale -- 301,979
Premises and equipment, principally due to
differences
in depreciation -- 8,238
Other real estate 124,521 17,922
Deferred compensation 31,135 --
Deferred income -- 10,699
Other 28,160 --
------- -------
Total gross deferred tax assets 512,201 770,645
Less valuation allowance -- --
------- -------
Net deferred tax assets $ 512,201 770,645
------- -------
</TABLE>
(Continued)
F-57
<PAGE>
SOUTHLAND BANCORPORATION
AND SUBSIDIARY
Notes to Consolidated Financial Statements
(9) Income Taxes, Continued
-----------------------
<TABLE>
<CAPTION>
1995 1994
---- ----
<S> <C> <C>
Deferred tax liabilities:
Tax exempt discount accretion $ 1,814 1,448
Unrealized gain on investment
securities available for sale 2,425 --
Federal Home Loan Bank stock
dividends 3,187 8,439
Prepaid expenses 25,069 13,742
Repossessed property 29,700 29,700
Premises and equipment,
principally due to differences in depreciation 22,387 --
Other 2,803 4,109
------ -------
Total gross deferred tax liabilities 87,385 57,438
------- -------
Net deferred tax asset $ 424,816 713,207
======= =======
</TABLE>
In assessing the realizability of deferred tax assets, management considers
whether it is more likely than not that some portion or all of the deferred
tax assets will not be realized. The ultimate realization of deferred tax
assets is dependent upon the generation of future taxable income during the
periods in which those temporary differences become deductible. Management
considers the scheduled reversal of deferred tax liabilities, projected
future taxable income, and tax planning strategies in making this
assessment. Based upon the level of historical taxable income and
projection for future taxable income over the periods which the temporary
differences resulting in the deferred tax assets are deductible, management
believes it is more likely than not that the Company will realize the
benefits of these deductible differences.
(10) Stock Options
-------------
The Corporation has granted nonqualified compensatory stock options to
certain employees. The options may only be exercised at five years from the
grant date. The following is summary of the options outstanding at December
31, 1995:
<TABLE>
<CAPTION>
Options Exercise
Grant date granted price Total
---------- ------- -------- -----
<S> <C> <C> <C>
January 22, 1992 5,436 $ 8.33 $ 45,282
January 4, 1993 5,556 9.68 53,782
January 22, 1994 5,763 10.00 57,630
------ ------
16,755 $ 156,694
====== ========
</TABLE>
No options were granted or exercised during the year ended December 31,
1995. Options forfeited totalled 3,529, 3,296, and 4,494 during the years
ended December 31, 1995, 1994, and 1993, respectively. The exercise price
for options granted is based on a discounted per share book value at the
date of grant, as no ready market value is available.
(Continued)
F-58
<PAGE>
SOUTHLAND BANCORPORATION
AND SUBSIDIARY
Notes to Consolidated Financial Statements
(11) Commitments and Contingencies
-----------------------------
The Bank is a party to financial instruments with off-balance sheet risk in
the normal course of business to meet the financing needs of its customers.
These financial instruments include commitments to extend credit, and
standby letters of credit. Such instruments involve elements of credit
risk in excess of the amounts recognized in the financial statements.
The Bank's exposure to credit loss in the event of nonperformance by the
other party to the financial instrument for commitments to extend credit
and standby letters of credit is represented by the contractual amount of
these instruments. The Bank uses the same credit policies in making
commitments and conditional obligations as it does in granting credit in
transactions recorded in the financial statements.
The off-balance sheet financial instruments whose contract amounts
represent credit risk as of December 31, 1995, are as follows:
Commitments to extend credit $ 2,662,000
Standby letters of credit $19,000
Commitments to extend credit are agreements to lend to a customer as long
as there is no violation of any condition established in the contract.
Commitments generally have fixed expiration dates or other termination
clauses and may require payment of a fee. Since many of the commitments
are expected to expire without being drawn upon, the total commitment
amounts do not necessarily represent future cash requirements.
Standby letters of credit and financial guarantees written are conditional
commitments issued by the Bank to guarantee the performance of a customer
to a third party. Those guarantees are primarily issued to support public
and private borrowing arrangements. The credit risk involved in issuing
letters of credit is essentially the same as that involved in extending
loan facilities to customers. The Bank holds various assets as collateral
supporting those commitments for which collateral is deemed necessary.
The Bank is involved in various legal actions arising in the normal course
of business. In the opinion of management, based upon consultation with
legal counsel, the ultimate resolution of the proceedings will not have a
material adverse effect upon the financial position of the Bank.
On November 26, 1989, the Bank entered into a Memorandum of Understanding
with the Federal Deposit Insurance Corporation and the Banking Department
of the State of Alabama whereby the Bank agreed to take certain affirmative
actions. The Memorandum was revised in March 1993. The actions required of
the Bank primarily include (a) developing a management plan which defines
lines of authority and responsibilities for each officer; (b) retaining
qualified management including a chief executive officer and senior lending
officer; (c) establishing a committee of directors to review each officer's
performance at least annually; (d) developing a three-year capital plan
that provides for maintenance of specified levels of capital, projections
of growth and future capital needs and contingency plans that identify
alternate sources of capital;
(Continued)
F-59
<PAGE>
SOUTHLAND BANCORPORATION
AND SUBSIDIARY
Notes to Consolidated Financial Statements
(11) Commitments and Contingencies, Continued
----------------------------------------
(e) establishing a program for maintaining an adequate allowance for loan
losses; (f) reducing substandard assets to specified levels by certain
dates; (g) developing written action plans to eliminate the basis of
criticism for significant classified loans; (h) ceasing extension of credit
to borrowers with loans classified below certain levels; (i) revising the
funds management policy to include an increase in the minimum target ratio
for liquidity and reducing the Bank's reliance upon potentially volatile
liabilities to fund long-term assets; (j) preparation of annual budgets;
(k) obtaining regulatory approval prior to paying dividends and (l)
correcting certain internal control deficiencies and violations of rules
and regulations.
On September 12, 1994, the Corporation entered into a Memorandum of
Understanding with the Federal Reserve Bank of Atlanta (FRB) whereby the
Corporation agreed to take certain affirmative actions. The actions
required of the Corporation primarily include (a) no increase in its
borrowings or insurance of debt without the prior written approval of the
FRB; (b) by no later than September 30, 1994, the Corporation will submit
to the FRB, and thereafter comply with, a written plan to service its
outstanding debt and any other cash obligations for at least a five-year
period; (c) the Corporation will immediately notify the FRB of any
anticipated deviations to the written plan; (d) the Corporation will not
(i) purchase or redeem treasury stock or (ii) declare or pay dividends to
its stockholders without the prior written approval of the FRB. The
Corporation is to submit its request to the FRB thirty days before the date
on which it wishes to take any such action; (e) the Corporation will
maintain a separate checking account ("separate account") for the proceeds
of any insurance of debt (including debt incurred in connection with the
issuance of equity) approved by the FRB; (f) the Corporation will notify
the FRB at least thirty days prior to the payment of any salary or other
compensation at the parent company level. Along with such notification,
the Corporation will provide the FRB with justification for such
compensation payment(s) and information detailing the source of funding for
the payment(s); (g) within thirty days of the end of each calendar quarter,
the Corporation will continue to submit to the FRB a written progress
report detailing the form and manner of all actions taken to comply with
this Memorandum and the results thereof. The Corporation submitted the
debt service/capital plan (the Plan) to the FRB which was approved by the
Corporation's board of directors on September 30, 1994. According to the
Plan, the Corporation will (1) issue up to $1,000,000 in new equity, in
maximum amounts of $250,000 in each of the next four years, (2) use the
equity proceeds, in part, to retire 25 percent of the principal balance of
its outstanding debt over the next five years, (3) extend the maturities of
the remaining principal balance of the debt maturing in the next five
years, and (4) establish a cash reserve of approximately $500,000 that can
be used for capital injections into the Corporation, if necessary, or for
longer-term debt servicing needs. No corporate dividends or corporate
salary expenses are projected in the Plan.
At December 31, 1995, the Corporation and Bank believe they were in
compliance with the requirements as defined in each of the memorandums of
understanding.
(Continued)
F-60
<PAGE>
SOUTHLAND BANCORPORATION
AND SUBSIDIARY
Notes to Consolidated Financial Statements
(12) Sale of Insurance Agency
------------------------
During 1995, the Bank sold the property and casualty book of business
developed by its subsidiary, Southland Insurance Agency, Inc. In
conjunction with the sale, the Bank discontinued its insurance agency
operations. Accordingly, all related operating activity for the insurance
agency has been reclassified and reported as discontinued operations.
Under the terms of the sales agreement, the sales price is based on a
percentage of future insurance premiums underwritten by the buyer and is to
be adjusted upon the one-year anniversary of the sales agreement based on
policies in force at that time. The Company did not recognize any gain on
the sale in 1995. Such gain will be recorded when the sales proceeds are
determined in 1996.
(Continued)
F-61
<PAGE>
SOUTHLAND BANCORPORATION
AND SUBSIDIARY
Notes to Consolidated Financial Statements
(13) Fair Value of Financial Instruments
-----------------------------------
FAS 107, Disclosures about Fair Value of Financial Instruments, requires
disclosure of fair value information about financial instruments, whether
or not recognized on the face of the balance sheet, for which it is
practicable to estimate that value. Fair value estimates are made at a
specific point in time, based on relevant market information and
information about the financial instrument. These estimated do not reflect
any premium or discount that could result form offering for sale at one
time the Company's entire holdings of a particular financial instrument.
Because no market exists for a portion of the Company's financial
instruments, fair value estimates are based on judgments regarding future
expected loss experience, current economic conditions, risk
characteristics of various financial instruments, and other factors. These
estimates are subjective in nature and involve uncertainties and matters
of significant judgment and, therefore, cannot be determined with
precision. Changes in assumptions could significantly affect the
estimates. Fair value estimates are based on existing on-and-off balance
sheet financial instruments without attempting to estimate the value of
anticipated future business and the value of assets and liabilities that
are not considered financial instruments. In addition, the tax
ramifications related to the realization of the unrealized gains and
losses can have a significant effect on fair value estimates and have not
been considered in any of the estimates The assumptions used in the
estimation of the fair value of the Company's financial instruments are
explained below. Where quoted market prices are not available, fair values
are based on estimates using discounted cash flow and other valuation
techniques. Discounted cash flows can be significantly affected by the
assumptions used, including the discount rate and estimates of future cash
flows. The following fair value estimates cannot be substantiated by
comparison to independent markets and should not be considered
representative of the liquidation value of the Company's financial
instruments, but rather a good-faith estimate of the fair value of
financial instruments held by the Company. FAS 107 excludes certain
financial instruments and all non-financial instruments from its
disclosure requirements.
The following methods and assumptions were used by the Company in
estimating the fair value of its financial instruments:
(a) Cash and Due From Banks
-----------------------
Fair value equals the carrying value of such assets.
(b) Investment Securities
---------------------
The fair value of investment securities is based on quoted market
prices.
(c) Loans
-----
The fair value of loans is calculated using discounted cash flows by
loan type. The discount rate used to determine the present value of
the loan portfolio is an estimated market discount rate that reflects
the credit and interest rate risk inherent in the loan portfolio. The
estimated maturity is based on the Company's historical experience
with repayments adjusted to estimate the effect of current market
conditions. The carrying amount of accrued interest approximates its
fair value.
(Continued)
F-62
<PAGE>
SOUTHLAND BANCORPORATION
AND SUBSIDIARY
Notes to Consolidated Financial Statements
(13) Fair Value of Financial Instruments
-----------------------------------
(d) Deposits
--------
As required by FAS 107, the fair value of deposits with no stated
maturity, such as non-interest bearing demand deposits, NOW accounts,
savings, and money market deposit accounts, is equal to their carrying
values. Certificates of deposit have been valued using discounted cash
flows. The discount rate used is based on estimated market rates for
deposits of similar remaining maturities.
(e) Borrowings
----------
The fair value of borrowings has been determined using discounted cash
flows. The discount rate used is based on estimated market rates for
borrowings of similar remaining maturities.
The carrying value and estimated fair value of the Company's financial
instruments at December 31, 1995 are as follows (in thousands):
<TABLE>
<CAPTION>
Estimated
Carrying fair
amount value
------ -----
<S> <C> <C>
Financial assets:
Cash and due from banks $ 4,845 4,845
====== ======
Investment securities $20,931 20,931
====== ======
Loans, net $70,142 69,985
====== ======
Financial liabilities:
Deposits $84,828 85,041
====== ======
Borrowings $ 8,525 8,540
====== ======
</TABLE>
(Continued)
F-63
<PAGE>
SOUTHLAND BANCORPORATION
AND SUBSIDIARY
Notes to Consolidated Financial Statements
(14) Financial Information of Southland Bancorporation (Parent Company Only)
-----------------------------------------------------------------------
<TABLE>
<CAPTION>
Balance Sheets
December 31, 1995 and 1994
Assets 1995 1994
------ ---- ----
<S> <C> <C>
Cash and cash equivalents $ 180,496 11,090
Investment in Bank 7,628,333 6,274,556
Premises and equipment 680 --
Other assets 73,743 67,342
---------- ---------
Total assets $7,883,252 6,352,988
========= =========
Liabilities and Stockholders' Equity
------------------------------------
Liabilities:
Note payable $1,524,969 1,479,214
Other liabilities 42,761 16,761
---------- ---------
Total liabilities 1,567,730 1,495,975
Stockholders' equity:
Common stock 26,065 26,065
Additional paid-in capital 2,575,204 2,575,204
Net unrealized loss on investment securities
available for sale 3,638 (452,969)
Retained earnings 3,777,134 2,775,232
Treasury stock (66,519) (66,519)
---------- ---------
Total stockholders' equity 6,315,522 4,857,013
---------- ---------
Total liabilities and stockholders' equity $7,883,252 6,352,988
========== =========
</TABLE>
<TABLE>
<CAPTION>
Statements of Earnings
Years Ended December 31, 1995, 1994, and 1993
1995 1994 1993
---- ---- ----
<S> <C> <C> <C>
Interest income $ 479 485 1,432
Interest expense (146,851) (119,875) (100,754)
Dividends from Bank 300,000 -- 50,000
Other expense (93,896) (2,699) (230)
---------- --------- ---------
Income (loss) before income tax
benefit 59,732 (122,089) (49,552)
Income tax benefit 45,000 44,000 34,000
Undistributed equity in earnings
of Bank 897,170 79,127 655,074
---------- --------- ---------
Net earnings $1,001,902 1,038 639,522
========== ========= =========
</TABLE>
(Continued)
F-64
<PAGE>
SOUTHLAND BANCORPORATION
AND SUBSIDIARY
Notes to Consolidated Financial Statements
(14) Financial Information of Southland Bancorporation (Parent Company Only),
------------------------------------------------------------------------
Continued
---------
<TABLE>
<CAPTION>
Statements of Cash Flows
Years Ended December 31, 1995, and 1994, and 1993
1995 1994 1993
---- ---- ----
<S> <C> <C> <C>
Cash flows from operating activities:
Net earnings $1,001,902 1,038 639,522
Adjustments to reconcile net earnings to
net cash provided by (used in) operating
activities:
Undistributed equity in earnings of Bank (897,170) (79,127) (655,074)
Increase in other assets (6,401) (44,269) 23,073
Increase (decrease) in other liabilities 26,000 16,761 (102,749)
--------- ------- --------
Net cash provided by (used in)
operating activities 124,331 (105,597) (95,228)
--------- ------- --------
Cash flows from investing activities:
Purchase of premises and equipment (680) -- --
--------- ------- --------
Net cash used in financing
activities (680) -- --
--------- ------- --------
Cash flows from financing activities:
Principal payments on note payable (6,437) (20,719) (105,468)
Proceeds from issuance of note payable 52,192 115,000 100,000
--------- ------- --------
Net cash provided by (used in)
financing activities 45,755 94,281 (5,468)
--------- ------- --------
Increase (decrease) in
cash and cash equivalents 169,406 (11,316) (100,696)
Cash and cash equivalents, beginning of year 11,090 22,406 123,102
--------- ------- --------
Cash and cash equivalents, ending of year $ 180,496 11,090 22,406
========= ======= ========
Supplemental schedule of cash flow information:
Cash paid during the year for:
Interest $ 145,931 114,096 100,226
========= ======= ========
Income taxes $ -- 250,000 335,116
========= ======= ========
</TABLE>
(Continued)
F-65
<PAGE>
SOUTHLAND BANCORPORATION
AND SUBSIDIARY
Notes to Consolidated Financial Statements
(14) Financial Information of Southland Bancorporation (Parent Company Only),
------------------------------------------------------------------------
Continued
---------
Dividends paid by the Bank are the primary source of funds available to
the Corporation for payment of dividends to its stockholders and other
needs. Federal and state statutes and regulations impose restrictions on
the amount of dividends that may be declared by the Bank. In addition, the
Bank is also required to maintain minimum amounts of capital as defined by
banking regulators, which could further limit the availability of dividends
from the Bank. Regulatory authorities have restricted the Bank from paying
any dividends without obtaining prior regulatory consent (see note 11). On
March 29, 1995, the Bank obtained approval to pay quarterly dividends of
$100,000 to the Corporation following the end of each calendar quarter
beginning March 31, 1995. Payment of these dividends is contingent upon
the Bank meeting certain capital and core earnings requirements.
Accordingly, at December 31, 1995, substantially all of the Corporation's
investment in the Bank is restricted as to dividend payments by the Bank to
the Corporation.
(15) Pending Merger
--------------
On December 8, 1995, the Company and ABC Bancorp (ABC) announced the
signing of an Agreement and Plan of Merger (the Agreement) which provides
for the merger of the Company with and into ABC. The transaction is
expected to be accounted for as a purchase. The Agreement is subject to
approval by the shareholders of the Corporation and certain regulatory
authorities, and is expected to close in 1996.
Under the terms of the Agreement, upon consumption of the merger, each
outstanding share of the Corporation's stock will be converted into cash
and stock of ABC, based on each shareholders' elections, in an amount equal
to 1.8 times the book value of the Corporations' stock at the valuation
date, as defined in the Agreement. In any case, the number of shares of
the Corporation's stock to be converted into cash will not be less than 35
percent nor more than 49 percent of the total outstanding shares of the
Corporation.
F-66
<PAGE>
CENTRAL BANKSHARES, INC. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
MARCH 31, 1996 AND 1995
(UNAUDITED)
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
ASSETS 1996 1995
----------- -----------
<S> <C> <C>
Cash and due from banks $ 2,141,940 $ 1,588,742
Federal funds sold 880,000
Securities available for sale, at fair value 7,977,966 6,070,924
Securities held for investment, at cost 2,883,580 3,251,178
Loans, less allowance for loan losses
of $445,115 and $371,884 34,988,252 29,774,901
Office properties and equipment, net 1,073,524 1,190,573
Accrued interest receivable 737,889 572,472
Other assets 300,601 1,485,772
----------- -----------
$50,103,752 $44,814,562
=========== ===========
Liabilities and Stockholders' Equity
Liabilities
Deposits
Noninterest-bearing demand $ 3,514,460 $ 2,728,987
Interest-bearing demand 9,668,049 9,205,791
Savings 3,148,812 3,046,732
Time, $100,000 and over 8,005,442 4,149,535
Other time 20,387,251 21,469,634
----------- -----------
Total deposits 44,724,014 40,600,679
Accrued interest and other liabilities 1,080,051 454,911
----------- -----------
Total liabilities 45,804,065 41,055,590
----------- -----------
Commitments and contingent liabilities
Stockholders' equity
Capital stock, common, par value $1;
10,000,000 shares authorized, and 218,130
shares issued and outstanding 218,130 218,130
Additional paid-in capital 2,423,300 2,423,300
Retained earnings 1,677,502 1,098,322
Unrealized gains (losses) on securities
available for sale, net of taxes (19,245) 19,220
----------- -----------
Total stockholders' equity 4,299,687 3,758,972
$50,103,752 $44,814,562
=========== ===========
</TABLE>
F-68
<PAGE>
CENTRAL BANKSHARES, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF INCOME
THREE MONTHS ENDED MARCH 31, 1996 AND 1995
(UNAUDITED)
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
1996 1995
----------- -----------
<S> <C> <C>
Interest income
Interest and fees on loans $ 925,450 $ 764,822
Investment securities and time deposits 171,281 143,712
Other interest income 16,228 5,853
----------- -----------
1,112,959 914,387
----------- -----------
Interest expense
Interest on deposits 539,327 397,345
Interest on borrowed money 800 5,950
----------- -----------
540,127 403,295
----------- -----------
Net interest income 572,832 511,092
Provision for loan losses - 45,000
----------- -----------
Net interest income after provision
for loan losses 572,832 466,092
----------- -----------
Other income
Service charges 127,873 113,694
Other income 51,755 45,925
----------- -----------
179,628 159,619
----------- -----------
General and administrative expenses
Employee compensation and benefits 227,431 210,687
Occupancy and equipment 77,480 90,635
Other operating expenses 170,522 174,859
----------- -----------
475,433 476,181
Income before income taxes 277,027 149,530
Applicable income taxes 104,578 57,099
----------- -----------
Net income $ 172,449 $ 92,431
=========== ===========
Per share of common stock
Net income $ .79 $ .42
=========== ===========
</TABLE>
F-69
<PAGE>
CENTRAL BANKSHARES, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
THREE MONTHS ENDED MARCH 31, 1996 AND 1995
(UNAUDITED)
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
1996 1995
----------- -----------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $ 172,449 $ 92,431
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization 33,516 38,857
Provision for loan losses - 45,000
Changes in assets and liabilities:
(Increase) decrease in accrued interest
receivable 7,866 (21,895)
(Increase) decrease in other assets 999,292 (25,451)
Decrease in accrued interest payable (97,277) (65,926)
(Increase) decrease in accrued expenses
and other liabilities 485,432 (8,962)
----------- -----------
Net cash provided by operating
activities 1,601,278 54,054
----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES
Net decrease in Federal funds sold 2,010,000 700,000
Purchases of securities available for sale (819,417) (1,447,465)
Proceeds from sales of securities 660,797 1,115,432
available for sale
Net increase in loans (2,089,075) (1,184,487)
Purchases of property and equipment - (5,930)
----------- -----------
Net cash used in investing activities (237,695) (822,450)
----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES
Payment of dividends - (108,850)
Net increase (decrease) in customer deposits (1,486,822) 1,852,819
----------- -----------
Net cash provided by (used in)
financing activities (1,486,822) 1,743,969
----------- -----------
Net increase (decrease) in cash and due
from banks (123,239) 975,573
Cash and due from banks at beginning of period 2,265,179 613,169
----------- -----------
Cash and due from banks at end of period $ 2,141,940 $ 1,588,742
----------- -----------
</TABLE>
F-70
<PAGE>
CENTRAL BANKSHARES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
(1) The accompanying unaudited consolidated financial statements, which are for
interim periods, do not include all disclosures provided in the annual
consolidated financial statements. These financial statements and the notes
thereto should be read in conjunction with the annual financial statements
and the notes thereto for the years ended December 31, 1995 and 1994
included elsewhere in this Proxy Statement/Prospectus.
(2) All material intercompany balances and transactions have been eliminated.
(3) In the opinion of the Company, the accompanying unaudited consolidated
financial statements contain all adjustments (which are of a normal
recurring nature) necessary for a fair presentation of the financial
statements. The results of operations for the three months ended March 31,
1996 are not necessarily indicative of the results to be expected for the
full year.
F-71
<PAGE>
----------------------------
CENTRAL BANKSHARES, INC.
AND SUBSIDIARY
FINANCIAL REPORT
DECEMBER 31, 1995
----------------------------
<PAGE>
INDEPENDENT AUDITOR'S REPORT
- --------------------------------------------------------------------------------
To the Board of Directors
Central Bankshares, Inc.
Cordele, Georgia
We have audited the accompanying consolidated balance sheets of
Central Bankshares, Inc. and subsidiary as of December 31, 1995 and 1994, and
the related consolidated statements of income, stockholders' equity and cash
flows for the years then ended. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to
above present fairly, in all material respects, the financial position of
Central Bankshares, Inc. and subsidiary, as of December 31, 1995 and 1994, and
the results of their operations and their cash flows for the years then ended,
in conformity with generally accepted accounting principles.
/s/ MAULDIN & JENKINS
- ------------------------
Macon, Georgia
January 26, 1996
<PAGE>
CENTRAL BANKSHARES, INC. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
YEARS ENDED DECEMBER 31, 1995 AND 1994
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------
ASSETS 1995 1994
------------ --------------
<S> <C> <C>
Cash and due from banks $2,265,179 $613,169
Federal funds sold 2,010,000 1,580,000
Securities available for sale, at fair value (Note 2) 7,657,910 4,761,587
Securities held for investment, at cost (fair value $3,153,364
and $3,806,937) (Note 2) 3,167,994 4,086,463
Loans, less allowance for loan losses of $477,618
and $316,348 (Note 3) 32,899,177 28,635,414
Office properties and equipment, net (Note 4) 1,107,040 1,223,500
Accrued interest receivable 745,755 550,577
Other assets 1,299,893 1,460,321
------------ -------------
$51,152,948 $42,911,031
============ =============
Liabilities and Stockholders' Equity
Liabilities
Deposits
Noninterest-bearing demand $3,855,460 $3,826,152
Interest-bearing demand 10,088,278 9,764,121
Savings 2,996,337 3,028,255
Time, $100,000 and over 7,796,339 3,381,390
Other time 21,474,422 18,747,942
------------ -------------
Total deposits 46,210,836 38,747,860
Accrued interest and other liabilities 734,867 473,397
------------ -------------
Total liabilities 46,945,703 39,221,257
------------ -------------
Commitments and contingent liabilities (Note 7)
Stockholders' equity (Notes 6 and 9)
Capital stock, common, par value $1; 10,000,000 shares
authorized, and 218,130 shares issued and outstanding 218,130 218,130
Additional paid-in capital 2,423,300 2,423,300
Retained earnings 1,505,053 1,114,741
Unrealized gains (losses) on securities available for sale,
net of taxes 60,762 (66,397)
------------ -------------
Total stockholders' equity 4,207,245 3,689,774
------------ -------------
$51,152,948 $42,911,031
============ =============
</TABLE>
See Notes to Consolidated Financial Statements.
2
<PAGE>
CENTRAL BANKSHARES, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF INCOME
YEARS ENDED DECEMBER 31, 1995 AND 1994
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------
1995 1994
------------- ------------
<S> <C> <C>
Interest income
Interest and fees on loans $ 3,488,170 $ 2,771,563
Investment securities and time deposits 582,433 441,072
Other interest income 70,851 39,967
------------- --------------
4,141,454 3,252,602
------------- --------------
Interest expense
Interest on deposits 1,953,037 1,236,982
Interest on borrowed money 6,486 1,0851
------------- --------------
1,959,523 1,247,833
------------- --------------
Net interest income 2,181,931 2,004,769
Provision for loan losses (Note 3) 139,774 180,000
------------- --------------
Net interest income after provision for loan losses 2,042,157 1,824,769
------------- --------------
Other income
Service charges 507,685 500,964
Net realized gains (losses) on sales of securities available for sale (14,432) 1,820
Other income 103,022 164,503
------------- --------------
596,275 667,287
------------- --------------
General and administrative expenses
Employee compensation and benefits 952,094 903,265
Occupancy and equipment 279,587 273,938
FDIC insurance premiums 90,502 81,975
Directors fees and benefits 50,268 52,069
Other operating expenses 442,812 437,179
------------- --------------
1,873,894 1,794,473
------------- --------------
Income before income taxes 764,538 697,583
Applicable income taxes (Note 5) 265,341 240,324
------------- --------------
Net income $ 499,197 $ 457,259
============= ==============
Per share of common stock
Net income $ 2.20 $ 2.03
============= ==============
</TABLE>
See Notes to Consolidated Financial Statements.
3
<PAGE>
CENTRAL BANKSHARES, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
YEARS ENDED DECEMBER 31, 1995 AND 1994
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------
Unrealized
Gains
(Losses) on
Securities
Available
Common Stock Additional for Sale,
-------------------------- Paid-in Retained Net of
Shares Par Value Capital Earnings Taxes Total
--------- ----------- ---------- -------- ------------ -----------
<S> <C> <C> <C> <C> <C> <C>
Balance, December 31, 1993 220,000 $ 220,000 $2,450,000 $ 657,482 $ - $ 3,327,482
Net income - - - 457,259 - 457,259
Purchase and simultaneous
retirement of the Company's
common stock (1,870) (1,870) (26,700) - - (28,570)
Net change in unrealized
gains (losses) on securities
available for sale, net of
taxes - - - - (66,397) (66,397)
-------- ----------- ---------- ---------- ----------- ----------
Balance, December 31, 1994 218,130 218,130 2,423,300 1,114,741 (66,397) 3,689,774
Net income - - - 499,197 - 499,197
Payment of dividends - - - (108,885) - (108,885)
Net change in unrealized
gains (losses) on securities
available for sale, net of
taxes - - - - 127,159 127,159
-------- ----------- ---------- ---------- ----------- -----------
Balance, December 31, 1995 218,130 $ 218,130 $2,423,300 $1,505,000 $ 60,762 $ 4,207,245
======== =========== ========== ========== =========== ===========
</TABLE>
See Notes to Consolidated Financial Statements.
4
<PAGE>
CENTRAL BANKSHARES, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, 1995 AND 1994
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------
1995 1994
------------- ------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $ 499,197 $ 457,259
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 184,329 191,161
Provision for loan losses 139,774 180,000
Amortization on investments 8,447 42,560
Deferred income tax (benefits) expense (48,205) 51,712
Net realized gains (losses) on securities available for sale 15,738 (1,820)
Changes in assets and liabilities:
Increase in accrued interest receivable (195,178) (81,624)
(Increase) decrease in other assets 61,870 (1,121,855)
Increase in accrued interest payable 118,173 93,842
(Increase) decrease in accrued expenses and other liabilities 191,502 (80,453)
------------- ------------
Net cash provided by (used in) operating activities 975,647 (269,218)
------------- ------------
CASH FLOWS FROM INVESTING ACTIVITIES
Net increase in Federal funds sold (430,000) (727,000)
Purchases of securities available for sale (7,396,446) (3,948,789)
Proceeds from sales of securities available for sale 3,143,929 3,303,253
Proceeds from maturities of securities available for sale 1,629,725 1,250,000
Purchases of securities held for investment - (3,540,719)
Proceeds from maturities of securities held for investment 819,478 805,047
Net increase in loans (4,403,538) (1,620,796)
Purchases of property and equipment (40,876) (98,667)
------------- ------------
Net cash used in investing activities (6,677,728) (4,577,671)
------------- ------------
CASH FLOWS FROM FINANCING ACTIVITIES
Payment of dividends (108,885) -
Repayment of note payable - (61,973)
Net increase in customer deposits 7,462,976 3,205,160
------------- ------------
Purchase of common stock for the treasury - (28,570)
------------- ------------
Net cash provided by financing activities 7,354,091 3,114,617
------------- ------------
</TABLE>
5
<PAGE>
CENTRAL BANKSHARES, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, 1995 AND 1994
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
1995 1994
------------ -------------
<S> <C> <C>
Net increase (decrease) in cash and due from banks $ 1,652,010 $ (1,732,272)
Cash and due from banks at beginning of year 613,169 2,345,441
------------ ------------
Cash and due from banks at end of year $ 2,265,179 $ 613,169
============ ============
SUPPLEMENTAL DISCLOSURES OF CASH FLOW
INFORMATION
Cash payments for:
Interest $ 1,841,350 $ 1,154,955
Income taxes $ 207,474 $ 263,119
SUPPLEMENTAL DISCLOSURE OF NONCASH INVESTING AND
FINANCING ACTIVITY
Other real estate acquired in settlement of loans $ 98,623 $ 216,660
Net change in unrealized gains (losses) on
securities available for sale $ 127,159 $ (66,397)
</TABLE>
See Notes to Consolidated Financial Statements.
6
<PAGE>
CENTRAL BANKSHARES, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Central Bankshares, Inc. is a one-bank holding company whose business
is presently conducted by its wholly-owned subsidiary, Central Bank and
Trust. The Company provides a full range of banking services to
individual and corporate customers in its primary market of Crisp
County, Georgia and surrounding counties. The Company is subject to
competition from other financial institutions and the regulations of
certain federal and state agencies. The Company is periodically
examined by certain regulatory authorities.
Basis of Presentation
The consolidated financial statements include the accounts of the
Company and its subsidiary. Significant intercompany transactions and
accounts are eliminated in consolidation. The accounting and reporting
policies of the Company and its subsidiary conform to generally
accepted accounting principles and with general practices within the
banking industry. In preparing the financial statements, management is
required to make estimates and assumptions that effect the reported
amounts of assets and liabilities as of the date of the balance sheet
and revenues and expenses for the period. Actual results could differ
from those estimates.
The principles which significantly affect the determination of
financial position, results of operations and cash flows are
summarized below:
Cash and Cash Equivalents
For purposes of reporting cash flows, cash and due from banks includes
cash on hand and amounts due from banks (including cash items in
process of clearing). Cash flows from loans originated by the Company,
deposits, interest-bearing deposits, Federal funds purchased and sold
are reported net.
The Company maintains amounts due from banks which, at times, may
exceed Federally insured limits, and has experienced no related
losses.
7
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
Securities Available for Sale
Securities classified as available for sale are those debt securities
that the Company intends to hold for an indefinite period of time, but
not necessarily to maturity. Any decision to sell a security
classified as available for sale would be based on various factors,
including significant movements in interest rates, changes in the
maturity mix of the Company's assets and liabilities, liquidity needs,
regulatory capital considerations and other similar factors.
Securities available for sale are carried at fair value. Unrealized
gains and losses are reported as increases and decreases in
stockholders' equity, net of the related deferred tax effect. Realized
gains or losses, determined on the basis of the cost of specific
securities sold, are included in earnings.
Securities Held for Investment
Securities classified as held for investment are those debt securities
the Company has both the intent and ability to hold to maturity
regardless of changes in market conditions, liquidity needs or changes
in general economic conditions. These securities are carried at cost
adjusted for amortization of premium and accretion of discount,
computed by the interest method over their contractual lives. The sale
of a security within three months of its maturity date or after
collection of at least 85 percent of the principal outstanding at the
time the security was acquired is considered a maturity for purposes
of classification and disclosure.
A decline in the fair value below cost of any available for sale or
held to maturity security that is deemed other than temporary is
charged to earnings resulting in the establishment of a new cost basis
for the security.
Loans
Loans are stated at the amount of unpaid principal, reduced by
unearned discount. Interest on loans is credited to income on a daily
basis based upon the principal amount outstanding, except for certain
installment loans which is credited to income based on the sum-of-the-
months-digits method, the results of which are not materially
different from generally accepted accounting principles.
8
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
Loans (Continued)
Accrual of interest income is discontinued on loans when, in the
opinion of management, collection of such interest income becomes
doubtful. Accrual of interest on such loans is resumed when, in
management's judgment, the collection of interest and principal
becomes probable.
Loan Fees
Fees on loans and costs incurred in origination of loans are
recognized at the time the loan is placed on the books. Because loan
fees are not significant and the majority of loans have maturities of
one year or less, the results of this method of accounting are not
materially different than the results which would be obtained by
accounting for loan costs in accordance with generally accepted
accounting principles.
Allowance for Loan Losses
The allowance for loan losses is established through a provision for
loan losses charged to expenses. Loans are charged against the
allowance for loan losses when management believes that the
collectibility of the principal is unlikely. The allowance is an
amount that management believes will be adequate to absorb possible
losses on existing loans that may become uncollectible, based on
evaluations of the collectibility of loans and prior loan loss
experience. This evaluation also takes into consideration such factors
as changes in the nature and volume of the loan portfolio, overall
portfolio quality, review of specific problem loans, and current
economic conditions that may affect the borrower's ability to pay.
Certain estimates are susceptible to change in the near term. Such
estimates include the creditworthiness of significant borrowers and
the collateral value of delinquent loans. While management uses the
best information available to make its evaluation, future adjustments
to the allowance may be necessary if there are significant changes in
economic conditions. In addition, regulatory agencies, as an integral
part of their examination process, periodically review the Company's
allowance for loan losses, and may require the Company to record
additions to the allowance based on their judgment about information
available to them at the time of their examinations.
9
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
Allowance for Loan Losses (Continued)
Impaired loans are measured based on the present value of expected
future cash flows discounted at the loan's effective interest rate or,
as a practical expedient, at the loan's observable market price or the
fair value of the collateral if the loan is collateral dependent. A
loan is impaired when it is probable the creditor will be unable to
collect all contractual principal and interest payments due in
accordance with the terms of the loan agreement. Accrual of interest
on an impaired loan is discontinued when management believes, after
considering collection efforts and other factors, that the borrower's
financial condition is such that collection of interest is doubtful.
Cash collections on impaired loans are credited to the loans
receivable balance, and no interest income is recognized on those
loans until the principal balance has been collected.
Office Buildings and Equipment
Office buildings and equipment are stated at cost less accumulated
depreciation, computed on the straight-line method over the estimated
useful lives of the assets.
Income Taxes
The Company and its subsidiary file a consolidated income tax return.
The subsidiary provides for income taxes based on its contribution to
income taxes (benefits) of the consolidated group.
Provisions for income taxes are based on amounts reported in the
consolidated statements of income after exclusion of nontaxable income
such as interest on state and municipal securities and include
deferred taxes on temporary differences in the recognition of income
and expense for tax and financial statement purposes.
10
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
Income Taxes (Continued)
Deferred taxes are computed on the liability method whereby deferred
tax assets are recognized for deductible temporary differences and
operating loss and tax credit carryforwards and deferred tax
liabilities are recognized for taxable temporary differences.
Temporary differences are the differences between the reported amounts
of assets and liabilities and their tax bases. Deferred tax assets are
reduced by a valuation allowance when, in the opinion of management,
it is more likely than not that some portion or all of the deferred
tax assets will not be realized. Deferred tax assets and liabilities
are adjusted for the effect of changes in tax laws on the date of
enactment.
Fair Value of Financial Instruments
Financial Accounting Standards Board Statement No. 107, "Disclosures
About Fair Value of Financial Instruments", requires disclosure about
fair value information about financial instruments, whether or not
recognized in the balance sheet, for which it is practicable to
estimate that value. In cases where quoted market prices are not
available, fair values are based on estimates using present value or
other valuation techniques. Those techniques are significantly
affected by the assumptions used, including the discount rate and
estimates of future cash flows. In that regard, the derived fair value
estimates cannot be substantiated by comparison to independent markets
and, in many cases, could not be realized in immediate settlement of
the instrument. Statement No. 107 excludes certain financial
instruments from its disclosure requirements. The aggregate fair value
amounts presented do not represent the underlying value of the
Company.
11
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
Financial Value of Financial Instruments (Continued)
The following methods and assumptions were used by the Company in
estimating the fair value of its financial instruments:
Carrying amounts approximate fair values for the following
instruments:
Cash and due from banks Federal funds sold
Securities available for sale Variable rate loans that reprice
Variable rate money markets frequently
Variable rate certificates of Accrued interest receivable
deposit
Accrued interest payable and
other liabilities
Quoted market prices, where available, of if not available, based
upon quoted market prices of comparable instruments for securities
held for investment.
Discounted cash flows using interest rates currently being offered
on instruments with similar terms and with similar credit quality:
All loans except variable rate loans described above
Fixed rate certificates of deposits
Commitments to extend credit and standby letters of credit are not
recorded until such commitments are funded. The value of these
commitments are the fees charged to enter into such agreements. These
commitments do not represent a significant value to the Company until
such commitments are funded. The Company has determined that such
instruments do not have a distinguishable fair value and no fair value
has been assigned to these instruments.
12
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
Earnings Per Share
Earnings per share are calculated on the basis of the weighted
average number of shares outstanding. The effect of the stock
options outstanding (see Note 6) are included in the computation of
the weighted average number of shares outstanding since the effect of
options is considered to be dilutive.
Reclassifications
Certain items on the consolidated financial statements as of and for
the year ended December 31, 1994 have been reclassified with no
effect on net income, to be consistent with the classifications
adopted for the year ended December 31, 1995.
NOTE 2. INVESTMENTS IN SECURITIES
The amortized cost and fair values of investments in securities as of
December 31, 1995 and 1994 are summarized as follows:
<TABLE>
<CAPTION>
Gross Gross
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
Securities Available for Sale
December 31, 1995:
U. S. Treasury securities $ 499,889 $ 2,611 $ - $ 502,500
U. S. Government agencies 1,451,259 36,576 - 1,487,835
Mortgage-backed securities 5,614,699 57,393 (4,517) 5,667,575
------------- ------------- ------------- -------------
$ 7,565,847 $ 96,580 $ (4,517) $ 7,657,910
============= ============= ============= =============
December 31, 1994:
U. S. Treasury securities $ 2,977,008 $ - $ (64,698) $ 2,912,310
U. S. Government agencies 984,215 - (12,810) 971,405
Mortgage-backed securities 907,025 4,482 (33,635) 877,872
------------- ------------- ------------- -------------
$ 4,868,248 $ 4,482 $ (111,143) $ 4,761,587
============= ============= ============= =============
</TABLE>
13
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
NOTE 2. INVESTMENTS IN SECURITIES (Continued)
<TABLE>
<CAPTION>
Gross Gross
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
Securities Held for Investment:
December 31, 1995:
Mortgage-backed securities $ 3,002,394 $ - $ (14,630) $ 2,987,764
Federal Home Loan Bank stock 165,600 - - 165,600
------------- ------------- ------------- -------------
$ 3,167,994 $ - $ (14,630) $ 3,153,364
============= ============= ============= =============
December 31, 1994:
U. S. Government agencies, one
to five years $ 500,000 $ - $ (30,715) $ 469,285
Mortgage-backed securities 3,420,863 321 (249,132) 3,172,052
Federal Home Loan Bank stock 165,600 - - 165,600
------------- ------------- ------------- -------------
$ 4,086,463 $ 321 $ (279,847) $ 3,806,937
============= ============= ============= =============
</TABLE>
Gross realized gain or loss from the sale of securities available for
sale for the years ended December 31, 1995 and 1994 was $15,738 and
$1,820, respectively.
The amortized cost and fair value of securities as of December 31,
1995 by contractual maturity are shown below. Maturities may differ
from contractual maturities in mortgage-backed securities because the
mortgages underlying the securities may be called or repaid without
penalty. Federal Home Loan Bank stock has no contractual maturity.
Therefore, these securities are not included in the maturity
categories in the following maturity summary:
<TABLE>
<CAPTION>
Securities Available for Sale Securities Held for Investment
----------------------------------- -----------------------------------
Amortized Fair Amortized Fair
Cost Value Cost Value
------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
Due in one year or less $ 991,835 $ 999,140 $ - $ -
Due from one year to five years 454,174 485,885 - -
Due from five years to ten years 505,140 505,310 - -
Mortgage-backed securities 5,614,698 5,667,575 3,002,394 2,987,764
Federal Home Loan Bank stock - - 165,600 165,600
------------- ------------- ------------- -------------
$ 7,565,847 $ 7,657,910 $ 3,167,994 $ 3,153,364
============= ============= ============= =============
</TABLE>
14
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
NOTE 2. INVESTMENTS IN SECURITIES (Continued)
Securities with a carrying value of $6,104,297 and $4,527,324
at December 31, 1995 and 1994, respectively, were pledged to secure
public deposits and for other purposes.
NOTE 3. LOANS AND ALLOWANCE FOR LOAN LOSSES
A comparative summary of loans receivable as of December 31, 1995 and
1994, is as follows:
<TABLE>
<CAPTION>
1995 1994
-------------- -------------
<S> <C> <C>
Real estate:
Construction and land development $ 697,869 $ 384,971
Secured by farmland 1,319,053 1,514,974
Secured by residential property 9,604,145 9,300,414
Secured by other real estate 4,123,444 3,788,888
Agricultural 3,402,984 2,696,759
Commercial 7,476,559 4,269,320
Consumer 6,650,828 6,908,351
Other 101,913 88,385
-------------- -------------
33,376,795 28,952,062
Reserve for loan losses (477,618) (316,648)
-------------- -------------
$ 32,899,177 $ 28,635,414
============== =============
</TABLE>
The Company primarily lends money to customers located in the
immediate geographic area.
As of December 31, 1995 and 1994, the Company serviced loans for
others in the amounts of $13,819,850 and $12,642,411, respectively.
The Company had no loans it considered to be impaired other than the
loans on which the accrual of interest had been discontinued. Loans
on which the accrual of interest had been discontinued amounted to
$10,450 and $50,574 at December 31, 1995 and 1994, respectively.
There was no significant amount of interest recognized on nonaccrual
loans in either year.
15
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
NOTE 3. LOANS AND ALLOWANCE FOR LOAN LOSSES (Continued)
At December 31, 1995 and 1994, certain executive officers and
directors, and companies in which they have a 10 percent or more
ownership, were indebted to the Company. The interest rates on these
loans were substantially the same as rates prevailing at the time of
the transaction, and repayment terms are customary. Following is a
summary of transactions:
<TABLE>
<CAPTION>
December 31,
----------------------------
1995 1994
------------ ------------
<S> <C> <C>
Balance, beginning of year $ 1,587,622 $ 1,125,486
Advances 1,853,368 1,369,937
Repayments (1,665,706) (907,801)
------------ ------------
Balance, end of year $ 1,775,284 $ 1,587,622
============ ============
</TABLE>
Changes in the allowance for loan losses are summarized as follows:
<TABLE>
<CAPTION>
December 31,
---------------------------
1995 1994
---------- -----------
<S> <C> <C>
Balance, beginning of year $ 316,648 $ 369,517
Provision charged to operations 139,774 180,000
Recoveries 24,590 33,111
Loans charged off (3,394) (265,980)
---------- -----------
Balance, end of year $ 477,618 $ 316,648
========== ===========
</TABLE>
16
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
NOTE 4. OFFICE PROPERTIES AND EQUIPMENT
At December 31, 1995 and 1994, office properties and equipment
consisted of the following:
<TABLE>
<CAPTION>
1995 1994
------------ -----------
<S> <C> <C>
Land $ 204,498 $ 204,498
Buildings and improvements 628,449 627,703
Furniture, equipment and automobiles 1,359,872 1,330,020
------------ -----------
2,192,819 2,162,221
Accumulated depreciation (1,085,779) (938,721)
------------ -----------
$ 1,107,040 $ 1,223,500
============ ===========
</TABLE>
For the years ended December 31, 1995 and 1994, depreciation expense
amounted to $157,336 and $164,174, respectively.
NOTE 5. INCOME TAXES
The components of the income tax provision for the years ended
December 31, 1995 and 1994 were as follows:
<TABLE>
<CAPTION>
1995 1994
---------- ----------
<S> <C> <C>
Current tax expense $ 313,546 $ 188,612
Deferred tax (benefit) expense (48,205) 51,712
---------- ----------
$ 265,341 $ 240,324
========== ==========
</TABLE>
The Company's provision for income taxes differs from amounts computed
by applying the Federal income tax statutory rates to income before
income taxes. A reconciliation of the differences is as follows:
<TABLE>
<CAPTION>
December 31, 1995 December 31, 1995
------------------------- -------------------------
Amount Percent Amount Percent
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Tax provision at statutory rate $ 259,943 34.0 % $ 237,178 34.0 %
State income taxes 10,257 1.3 - -
Other items, net (4,859) (.6) 3,146 .5
------------ ------------ ------------ ------------
Provision for income taxes $ 265,341 34.7 % $ 240,324 34.50 %
============ ============ ============ ============
</TABLE>
17
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
NOTE 5. INCOME TAXES (Continued)
Net deferred income tax liabilities of $7,646 and $55,851 at December
31, 1995 and 1994, respectively, are included in other liabilities.
The components of deferred income taxes are as follows:
<TABLE>
<CAPTION>
December 31,
-------------------------
1995 1994
---------- ----------
<S> <C> <C>
Deferred tax assets:
Loan loss reserves $ 92,857 $ 45,334
Deferred benefits payable 24,646 9,569
Writedown of other real estate owned 4,951 744
---------- ----------
122,454 55,647
---------- ----------
Deferred tax liabilities:
Depreciation and amortization 100,136 98,961
Income from life insurance contracts 29,964 -
Other liabilities - 12,537
---------- ----------
130,100 111,498
---------- ----------
Net deferred tax liabilities $ 7,646 $ 55,851
========== ==========
</TABLE>
NOTE 6. STOCK OPTIONS AND EARNINGS PER SHARE
The Company granted stock options to the President and Senior Vice-
President for the purchase of 9,990 and 7,200 shares, respectively, of
the Company's common stock. The option price is $10 per share (market
value at date of grant) and the options are exercisable until October
1996. No options have expired, been exercised or canceled since
granted. The options may be canceled, reduced or modified if the
Board of Directors considers it necessary in connection with any
proposed issuance of the Company's common stock.
Income per share of common stock includes the effect of the stock
options mentioned above as if the option had been exercised at
January 1, 1995. The number of common shares outstanding was increased
by the number of shares issuable under the stock option and this
theoretical increase in the number of common shares was reduced by the
number of common shares which are assumed to have been repurchased
with the applicable portion of the proceeds from the exercise of the
options. Repurchase price was assumed to be the average market value
during the year.
18
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
NOTE 7. COMMITMENTS AND CONTINGENT LIABILITIES
In the ordinary course of business, the Company may enter into off
balance sheet financial instruments which are not reflected in the
consolidated financial statements. These instruments include
commitments to extend credit, standby letters of credit and liability
for assets held in trust. Such financial instruments are recorded in
the consolidated financial statements when funds are disbursed or the
instruments become payable. These instruments involve, to varying
degrees, elements of credit risk in excess of the amount recognized in
the balance sheet.
The Company's exposure to credit losses in the event of nonperformance
by the other party to the financial instrument for commitments to
extend credit and standby letters of credit is represented by the
contractual amount of those instruments. The Company uses the same
credit policies for these off balance sheet financial instruments as
it does for other instruments that are recorded in the consolidated
financial statements. A summary of the Company's commitments is as
follows:
<TABLE>
<CAPTION>
1995 1994
------------ ------------
<S> <C> <C>
Commitments to extend credit $ 2,792,471 $ 2,885,600
Standby letters of credit 175,100 220,300
------------ ------------
$ 2,967,571 $ 3,105,900
============ ============
</TABLE>
Commitments generally have fixed expiration dates or other termination
clauses and may require payment of a fee. Since many of the
commitment amounts expire without being drawn upon, the total
commitment amounts do not necessarily represent future cash
requirements. The credit risk involved in issuing these financial
instruments is essentially the same as that involved in extending
other loans to customers. The Company evaluates each customer's
creditworthiness on a case-by-case basis. The amount of collateral
obtained, is based on management's credit evaluation of the customer.
Collateral held varies but may include real estate and improvements,
marketable securities, accounts receivable, inventory, equipment and
personal property.
Standby letters of credit are conditional commitments issued by the
Company to guarantee the performance of a customer to a third party.
Those guarantees are primarily issued to support public and private
borrowing arrangements. The credit risk involved in issuing letters of
credit is essentially the same as that involved in extending loan
facilities to customers.
19
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
NOTE 7. COMMITMENTS AND CONTINGENT LIABILITIES (Continued)
Collateral held varies as specified above and is required in instances
which the Company deems necessary.
The Company does not anticipate any material losses as a result of the
commitments.
The nature of the business of the Company is such that it ordinarily
results in a certain amount of litigation. In the opinion of
management, there is no litigation in which the outcome will have a
material effect on the consolidated financial statements.
NOTE 8. CONCENTRATIONS OF CREDIT
The Company makes agricultural, agribusiness, commercial, residential
and consumer loans to customers primarily in its market area of Crisp
County, Georgia and surrounding counties. A substantial portion of
the Company's customers' abilities to honor their contracts is
dependent on the agribusiness economy in this market area.
Although the Company's loan portfolio is diversified, there is a
relationship in this region between the agricultural economy and the
economic performance of loans made to nonagricultural customers. The
Company's lending policies for agricultural and nonagricultural
customers require loans to be well-collateralized and supported by
cash flows. Collateral for agricultural loans include equipment,
crops, livestock, and land. Credit losses from loans related to the
agricultural economy is taken into consideration by management in
determining the allowance for loan losses.
A substantial portion of the Company's loans are secured by real
estate in the Company's primary market area. In addition, a
substantial portion of the real estate owned is located in those same
markets. Accordingly, the ultimate collectibility of a substantial
portion of the Company's loan portfolio and the recovery of a
substantial portion of the carrying amount of real estate owned are
susceptible to changes in the market conditions in the Company's
primary market area.
20
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
NOTE 8. CONCENTRATIONS OF CREDIT (Continued)
Most of the Company's loan customers are also depositors of the
Company. The concentrations of credit by type of loan are also set
forth in Note 3. Standby letters of credit are granted primarily to
commercial borrowers of the Company. The Company, as a matter of
policy, does not generally extend credit to any single borrower or
group of related borrowers in excess of 25% of the Company's combined
capital stock and capital surplus accounts ($2,641,430) which amounted
to $660,358 at December 31, 1995.
The Company has a concentration of funds on deposit at its principle
correspondent bank at December 31, 1995, as follows:
<TABLE>
<S> <C>
Noninterest-bearing accounts $ 1,404,124
Federal funds sold 1,480,000
------------
$ 2,884,124
============
</TABLE>
NOTE 9. STOCKHOLDERS' EQUITY
The primary source of funds available to the Parent Company is the
payment of dividends by the subsidiary. Banking regulations limit the
amount of dividends that may be paid without prior approval of the
subsidiary Bank's regulatory agency. Approximately $249,600 are
available to be paid as dividends by the subsidiary Bank at
December 31, 1995.
Banking regulations also require the Company to maintain minimum
capital levels in relation to Company assets. At December 31, 1994,
the Company's capital ratios were considered adequate based on
regulatory requirements. The minimum capital requirements and the
actual capital ratios for the Bank at December 31, 1995 are as
follows:
<TABLE>
<CAPTION>
Actual Requirement
------------ ---------------
<S> <C> <C>
Leverage capital ratio 8.35% 4.00%
Risk based capital ratios:
Core capital 11.86% 4.00%
Total capital 13.12% 8.00%
</TABLE>
21
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
NOTE 10. DISCLOSURES ABOUT FAIR VALUE OF FINANCIAL INSTRUMENTS
The carrying value and estimated fair value of the Company's financial
instruments are as follows:
<TABLE>
<CAPTION>
Carrying Fair
Value Value
------------- -------------
<S> <C> <C>
Financial assets:
Cash and short-term investments $ 4,275,179 $ 4,275,179
============= =============
Investments in securities $ 10,825,904 $ 10,811,274
============= =============
Loans $ 33,376,795 $ 33,053,000
Allowance for loan losses 477,618 -
------------- -------------
Loans, net $ 32,899,177 $ 33,053,000
============= =============
Financial liabilities:
Noninterest-bearing demand $ 3,855,460 $ 3,855,460
Interest-bearing demand 10,088,278 10,088,278
Savings 2,996,337 2,996,337
Time deposits 29,270,761 29,288,000
------------- -------------
Total deposits $ 46,210,836 $ 46,228,075
============= =============
</TABLE>
22
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
NOTE 11. CONDENSED FINANCIAL INFORMATION ON CENTRAL BANKSHARES, INC.
(PARENT COMPANY ONLY)
CONDENSED BALANCE SHEETS
DECEMBER 31, 1995 AND 1994
<TABLE>
<CAPTION>
1995 1994
----------- -----------
<S> <C> <C>
Assets
Cash $ 14,053 $ 12,055
Due from subsidiary - -
Unamortized organization costs 30,990 43,386
Investment in subsidiary 4,162,202 3,634,984
----------- -----------
Total assets $ 4,207,245 $ 3,690,425
=========== ===========
Liabilities
Due to subsidiary $ - $ 651
----------- -----------
Stockholders' equity 4,207,245 3,689,774
----------- -----------
Total liabilities and stockholders' equity $ 4,207,245 $ 3,690,425
=========== ===========
</TABLE>
23
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
NOTE 11. CONDENSED FINANCIAL INFORMATION ON CENTRAL BANKSHARES, INC.
(PARENT COMPANY ONLY) (Continued)
CONDENSED STATEMENTS OF INCOME
YEARS ENDED DECEMBER 31, 1995 AND 1994
<TABLE>
<CAPTION>
1995 1994
---------- ----------
<S> <C> <C>
Income, dividends received $ 108,885 $ 99,000
Expense, other 14,769 17,500
---------- ----------
Income before income tax
benefits and equity in undistributed
earnings of subsidiary 94,116 81,500
Income tax benefits 5,021 5,950
---------- ----------
Income before equity in
undistributed earnings of subsidiary 99,137 87,450
Equity in undistributed earnings of subsidiary 400,060 369,809
---------- ----------
Net income $ 499,197 $ 457,259
========== ==========
</TABLE>
24
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
NOTE 11. CONDENSED FINANCIAL INFORMATION ON CENTRAL BANKSHARES, INC.
(PARENT COMPANY ONLY) (Continued)
CONDENSED STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, 1995 AND 1994
<TABLE>
<CAPTION>
1995 1994
----------- -----------
<S> <C> <C>
CASH FLOWS FROM OPERATING
ACTIVITIES
Net income $ 499,197 $ 457,259
----------- -----------
Adjustments to reconcile net income to net
cash provided by operating activities:
Amortization of organization costs 12,396 12,390
Undistributed earnings of subsidiary (400,059) (369,809)
Decrease in due from subsidiary - 2,107
Increase (decrease) in due to subsidiary (651) 651
----------- -----------
Total adjustments (388,314) (354,661)
----------- -----------
Net cash provided by operating activities 110,883 102,598
----------- -----------
CASH FLOWS FROM FINANCING
ACTIVITIES
Dividends paid (108,885) -
----------- -----------
Retirement of debt - (61,973)
Retirement of treasury stock - (28,570)
----------- -----------
Net cash used in financing activities (108,885) (90,543)
Net increase in cash 1,998 12,055
Cash at beginning of year 12,055 -
----------- -----------
Cash at end of year $ 14,053 $ 12,055
=========== ===========
</TABLE>
25
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
NOTE 12. PENDING MERGER
The directors of the Company have entered into a definitive merger
agreement with ABC Bancorp, a multi-bank holding company with
headquarters in Moultrie, Georgia, whereby ABC Bancorp would acquire
all of the outstanding common stock of the Company in exchange for
common stock of ABC Bancorp. The merger is subject to approval by
the Company's shareholders and certain regulatory authorities. Upon
completion of the merger, Central Bank & Trust will become a wholly-
owned subsidiary of ABC Bancorp. The merger will be accounted for as
a pooling of interests.
26
<PAGE>
Appendix A
AGREEMENT AND PLAN OF MERGER
BY AND BETWEEN
ABC BANCORP
AND
SOUTHLAND BANCORPORATION
As of December 18, 1995
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<C> <S> <C> <C>
Preamble.................................................................... A-1
ARTICLE 1 TERMS OF MERGER..................................... A-1
1.1 Merger.......................................................... A-1
1.2 Time and Place of Closing....................................... A-2
1.3 Effective Time.................................................. A-2
ARTICLE 2 ARTICLES, BYLAWS, MANAGEMENT........................ A-2
2.1 Articles of Incorporation....................................... A-2
2.2 Bylaws.......................................................... A-2
2.3 Directors and Officers.......................................... A-2
ARTICLE 3 MANNER OF CONVERTING AND EXCHANGING
SHARES.............................................. A-2
3.1 Conversion of Shares............................................ A-2
3.2 Exchange of Shares.............................................. A-6
3.3 Anti-Dilution Provisions........................................ A-6
3.4 Shares Held by TARGET or PURCHASER.............................. A-6
3.5 TARGET Bank..................................................... A-6
3.6 Rights of Former TARGET Shareholders............................ A-7
3.7 Options......................................................... A-7
ARTICLE 4 REPRESENTATIONS AND WARRANTIES OF TARGET............ A-7
4.1 Organization, Standing and Power................................ A-7
4.2 Authority; No Breach............................................ A-8
4.3 Capital Stock................................................... A-8
4.4 TARGET Subsidiaries............................................. A-9
4.5 Financial Statements............................................ A-9
4.6 Absence of Undisclosed Liabilities............................. A-10
4.7 Absence of Certain Changes or Events........................... A-10
4.8 Tax Matters.................................................... A-10
4.9 TARGET Allowance for Possible Loan Losses...................... A-11
4.10 Assets......................................................... A-11
4.11 Environmental Matters.......................................... A-12
4.12 Compliance with Laws........................................... A-13
4.13 Labor Relations................................................ A-13
4.14 Employee Benefit Plans......................................... A-14
4.15 Material Contracts............................................. A-15
</TABLE>
A-i
<PAGE>
4.16 Legal Proceedings............................................. A-16
4.17 Reports....................................................... A-16
4.18 Statements True and Correct................................... A-16
4.19 Accounting, Tax and Regulatory Matters........................ A-17
4.20 Charter Provisions............................................ A-17
ARTICLE 5 REPRESENTATIONS AND WARRANTIES OF
PURCHASER......................................... A-17
5.1 Organization, Standing and Power.............................. A-17
5.2 Authority; No Breach.......................................... A-17
5.3 Capital Stock................................................. A-18
5.4 PURCHASER Subsidiaries........................................ A-19
5.5 Financial Statements.......................................... A-19
5.6 Absence of Undisclosed Liabilities............................ A-20
5.7 Absence of Certain Changes or Events.......................... A-20
5.8 Tax Matters................................................... A-20
5.9 PURCHASER Allowance for Possible Loan Losses.................. A-21
5.10 Assets........................................................ A-21
5.11 Environmental Matters......................................... A-21
5.12 Compliance with Laws.......................................... A-23
5.13 Labor Relations............................................... A-23
5.14 Employee Benefit Plans........................................ A-23
5.15 Legal Proceedings............................................. A-25
5.16 Reports....................................................... A-25
5.17 Statements True and Correct................................... A-26
5.18 Accounting, Tax and Regulatory Matters........................ A-26
5.19 Charter Provisions............................................ A-26
ARTICLE 6 CONDUCT OF BUSINESS
PENDING CONSUMMATION.............................. A-27
6.1 Affirmative Covenants of TARGET............................... A-27
6.2 Negative Covenants of TARGET.................................. A-27
6.3 Covenants of PURCHASER........................................ A-29
6.4 Adverse Changes in Condition.................................. A-29
6.5 Reports....................................................... A-29
ARTICLE 7 ADDITIONAL AGREEMENTS............................. A-29
7.1 Registration Statement; Proxy Statement; Shareholder Approval. A-29
7.2 Listing....................................................... A-30
7.3 Applications.................................................. A-30
7.4 Filings with State Offices.................................... A-30
7.5 Agreement as to Efforts to Consummate......................... A-30
7.6 Investigation and Confidentiality............................. A-30
7.7 Press Releases................................................ A-31
A-ii
<PAGE>
7.8 No Solicitation.............................................. A-31
7.9 Tax Treatment................................................ A-33
7.10 Agreement of Affiliates...................................... A-33
7.11 Employee Benefits and Contracts.............................. A-33
7.12 Large Deposits............................................... A-34
7.13 Indemnification Against Certain Liabilities.................. A-34
7.14 Registration flights and Election Agreement.................. A-34
7.15 Irrevocable Proxies.......................................... A-34
7.16 Reserve for Snead Annuity.................................... A-34
ARTICLE 8 CONDITIONS PRECEDENT TO OBLIGATIONS TO
CONSUMMATE....................................... A-35
8.1 Conditions to Obligations of Each Party...................... A-35
8.2 Conditions to Obligations of PURCHASER....................... A-36
8.3 Conditions to Obligations of TARGET.......................... A-37
ARTICLE 9 TERMINATION...................................... A-38
9.1 Termination.................................................. A-38
9.2 Effect of Termination........................................ A-39
ARTICLE 10 MISCELLANEOUS.................................... A-39
10.1 Definitions.................................................. A-39
10.2 Expenses..................................................... A-47
10.3 Brokers and Finders.......................................... A-47
10.4 Entire Agreement............................................. A-47
10.5 Amendments................................................... A-48
10.6 Waivers...................................................... A-48
10.7 Assignment................................................... A-48
10.8 Notices...................................................... A-48
10.9 Governing Law................................................ A-49
10.10 Counterparts................................................. A-49
10.11 Captions..................................................... A-49
10.12 Enforcement of Agreement..................................... A-49
10.13 Severability................................................. A-50
10.14 Survival..................................................... A-50
A-iii
<PAGE>
LIST OF EXHIBITS
Exhibit Number Description
- -------------- -----------
1. Form of agreement of affiliates of Southland Bancorporation
((S) 7.10).
2. Matters as to which Balch & Bingham will opine ((S) 8.2(d)).
3. Registration Rights and Election Agreement ((S) 7.14).
4. Employment Agreement between PURCHASER and John E. Meyer, Jr.
((S) 8.2(f)).
5. Matters as to which Rogers & Hardin will opine ((S) 8.3(d)).
6. Irrevocable Proxy ((S) 7.15).
A-iv
<PAGE>
AGREEMENT AND PLAN OF MERGER
----------------------------
THIS AGREEMENT AND PLAN OF MERGER (the "Agreement") is made and entered
into as of December 18, 1995, by and between SOUTHLAND BANCORPORATION
("TARGET"), a corporation organized and existing under the laws of the State of
Alabama, with its principal office located in Dothan, Alabama, and ABC BANCORP
("PURCHASER"), a corporation organized and existing under the laws of the State
of Georgia, with its principal office located in Moultrie, Georgia.
Preamble
--------
Certain terms used in this Agreement are defined in Section 10.1 hereof.
The Boards of Directors of TARGET and PURCHASER are of the opinion that the
transactions described herein are in the best interests of the parties and their
respective shareholders. This Agreement provides for the combination of TARGET
with PURCHASER pursuant to the merger of TARGET with and into PURCHASER, as a
result of which the outstanding shares of the capital stock of TARGET shall be
converted into the right to receive the consideration provided for herein, and
the shareholders of TARGET (other than those shareholders, if any, who exchange
their shares solely for cash) shall become shareholders of PURCHASER. The
transactions described in this Agreement are subject to the approvals of the
shareholders of TARGET, the Board of Governors of the Federal Reserve System,
the Alabama Banking Department and the Georgia Department of Banking and Finance
and the satisfaction of certain other conditions described in this Agreement.
It is the intention of the parties to this Agreement that the Merger for federal
income tax purposes shall qualify as a "reorganization" within the meaning of
Section 368(a) of the Internal Revenue Code.
Following the Closing of the Merger, Southland Bank, a wholly-owned Alabama
state bank subsidiary of TARGET, will be operated as a separate subsidiary of
PURCHASER.
NOW, THEREFORE, in consideration of the above and the mutual warranties,
representations, covenants and agreements set forth herein, the parties agree as
follows:
ARTICLE 1
TERMS OF MERGER
---------------
1.1 Merger. Subject to the terms and conditions of this Agreement, at
------
the Effective Time, TARGET shall be merged with and into PURCHASER in accordance
with the provisions of Section 14-2-1101 of the GBCC and Section 10-2B-11.05 of
the ABCA and with the effect provided in Section 14-2-1106 of the GBCC (the
"Merger"). PURCHASER shall be the Surviving Corporation resulting from the
Merger. The Merger shall be consummated pursuant to the terms of this
Agreement, which has been approved and adopted by the respective Boards of
Directors of TARGET and PURCHASER.
<PAGE>
1.2 Time and Place of Closing. The Closing shall take place at 10:00
-------------------------
a.m. on the date that the Effective Time occurs or at such other time as the
Parties, acting through their chief executive officers or chief financial
officers, may mutually agree (the "Closing Date"). The place of Closing shall
be at the offices of Rogers & Hardin, Atlanta, Georgia, or such other place as
may be mutually agreed upon by the Parties.
1.3 Effective Time. The Merger and other transactions contemplated by
--------------
this Agreement shall become effective on the date and at the time the Articles
of Merger reflecting the Merger shall become effective with the Secretary of
State of the State of Georgia and the Secretary of State of the State of Alabama
in accordance with the relevant provisions of the GBCC and the ABCA,
respectively. (the "Effective Time"). Subject to the terms and conditions
hereof, unless otherwise mutually agreed upon in writing by the chief executive
officers of each Party, the Parties shall use their reasonable efforts to cause
the Effective Time to occur on (a) the last business day of the month in which
occurs the last to occur of (i) the effective date (including expiration of any
applicable waiting period) of the last required Consent of any Regulatory
Authority having authority over and approving or exempting the Merger and
(ii) the date on which the shareholders of TARGET approve this Agreement to the
extent such approval is required by applicable Law; or (b) such later date as
may be mutually agreed upon in writing by the chief executive officers or chief
financial officers of each Party.
ARTICLE 2
ARTICLES, BYLAWS, MANAGEMENT
----------------------------
2.1 Articles of Incorporation. The Articles of Incorporation of
-------------------------
PURCHASER in effect immediately prior to the Effective Time shall be the
Articles of Incorporation of the Surviving Corporation until otherwise amended
or repealed.
2.2 Bylaws. The Bylaws of PURCHASER in effect immediately prior to the
------
Effective Time shall be the Bylaws of the Surviving Corporation until otherwise
amended or repealed.
2.3 Directors and Officers. The directors of PURCHASER in office
----------------------
immediately prior to the Effective Time shall serve as the directors of the
Surviving Corporation from and after the Effective Time in accordance with the
Bylaws of the Surviving Corporation. The officers of PURCHASER in office
immediately prior to the Effective Time, together with such additional persons
as may thereafter be elected, shall serve as the officers of PURCHASER from and
after the Effective Time in accordance with the Bylaws of PURCHASER.
ARTICLE 3
MANNER OF CONVERTING AND EXCHANGING SHARES
------------------------------------------
3.1 Conversion of Shares. Subject to the provisions of this Article 3,
--------------------
at the Effective Time, by virtue of the Merger and without any action on the
part of the holders thereof, the shares of PURCHASER and TARGET shall be
converted as follows:
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(a) Each share of PURCHASER Common Stock issued and outstanding
immediately prior to the Effective Time shall remain issued and outstanding from
and after the Effective Time.
(b) Subject to the remaining provisions of this Section 3.1, each
share of TARGET Common Stock (including any shares currently subject to options
which are exercised prior to the Effective Time, if any) outstanding immediately
prior to the Effective Time, other than shares with respect to which statutory
dissenters' rights have been perfected (the "Dissenting Shares") and shares held
by TARGET or any of TARGET Subsidiaries or by PURCHASER or any of PURCHASER
Subsidiaries, in each case other than in a fiduciary capacity or as a result of
debts previously contracted (the "Outstanding TARGET Shares"), shall
automatically be converted at the Effective Time into the right to receive cash
and whole shares of PURCHASER Common Stock, plus cash in lieu of fractional
shares pursuant to subparagraph (j) below, if applicable, in an amount equal to
(i) 1.8 multiplied by the Book Value of TARGET as of the close of business on
the day immediately preceding the Closing Date (the "Valuation Date"), divided
(ii) by the aggregate number of Outstanding TARGET Shares (the "Merger
Consideration"). In accordance with the provisions of this Section 3.1 each
TARGET shareholder who does not dissent may elect to receive (i) cash in an
amount equal to the Merger Consideration times the number of Outstanding TARGET
Shares such shareholder holds as of the Effective Time (the "Cash
Consideration"), (ii) the number of shares, or such fractions of a share
(subject to paragraph (j) below), of PURCHASER Common Stock which shall be equal
to the Merger Consideration divided by the Base Period Trading Price (the
"Exchange Ratio"), multiplied by the number of outstanding TARGET Shares such
shareholder holds as of the Effective Time (the "Stock Consideration"), or
(iii) a combination of Cash Consideration and Stock Consideration.
(c) The number of shares of TARGET Common Stock (including fractional
shares) to be converted into the right to receive Cash Consideration (or cash
pursuant to Section 3.1(j) hereof) shall not be less than 35% of the number of
the Outstanding TARGET Shares (the "Minimum Cash Election Number") and, together
with any shares of TARGET Common Stock as to which dissenters' rights have been
perfected as contemplated by Section 3.1(l) hereof, shall not be greater than
49% of the Outstanding TARGET Shares (the "Maximum Cash Election Number"). The
number of shares of TARGET Common Stock to be converted into the right to
receive Stock Consideration shall be not less than 51% of the number of
Outstanding TARGET Shares (the "Minimum Stock Election Number") and not greater
than 65% of the number of Outstanding TARGET Shares (the "Maximum Stock Election
Number").
(d) Subject to the proration and election procedures set forth in this
Section 3.1, each TARGET shareholder will be entitled to elect to receive in
exchange for his or her Outstanding TARGET Shares the applicable amount of
Merger Consideration in the form of (a) Cash Consideration for all such shares
(a "Cash Election"), (b) Stock Consideration for all such shares (a "Stock
Election"), or (c) Cash Consideration and Stock Consideration for such shares in
the relative proportions specified by such TARGET shareholder (a "Combination
Election"). All such elections shall be made on a form designed for that
purpose (a "Form of Election"). TARGET shareholders who hold such shares as
nominees, trustees or in other representative capacities (a "Representative")
may submit multiple Forms of Election, provided that such Representative
certifies that each such
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Form of Election covers all the shares of TARGET Common Stock held by each such
Representative for a particular beneficial owner.
(e) PURCHASER and TARGET shall each use its best efforts to mail the
Form of Election to all Persons who are holders of TARGET Common Stock on the
record date fixed for the Shareholders' Meeting (the "Record Date"). A Form of
Election must be received by the Exchange Agent no later than by the close of
business five (5) days prior to the Effective Date (the "Election Deadline") in
order to be effective. All elections shall be irrevocable.
(f) Prior to the Effective Time, PURCHASER shall select a bank or
trust company reasonably acceptable to TARGET to act as exchange agent (the
"Exchange Agent") to effectuate the delivery of the Merger Consideration to
holders of TARGET Common Stock. Elections shall be made by holders of TARGET
Common Stock by mailing, faxing or otherwise delivering to the Exchange Agent a
Form of Election. To be effective, a Form of Election must be properly
completed, signed and submitted to the Exchange Agent. PURCHASER shall have the
discretion, which it may delegate in whole or in part to the Exchange Agent, to
determine whether Forms of Election have been properly completed, signed and
submitted and to disregard immaterial defects in Forms of Election. The
decision of PURCHASER (or the Exchange Agent) in such matters shall be
conclusive and binding. Neither PURCHASER nor the Exchange Agent will be under
any obligation to notify any Person of any defect in a Form of Election.
(g) A holder of TARGET Common Stock who does not submit a Form of
Election which is received by the Exchange Agent prior to the Election Deadline
shall be deemed to have made a Combination Election to receive 51% of the
applicable amount of the Merger Consideration in the form of Stock Consideration
and 49% of the applicable amount of the Merger Consideration in the form of Cash
Consideration for his or her TARGET Shares. If PURCHASER or the Exchange Agent
shall determine that any purported Cash Election or Stock Election was not
properly made, such purported Cash Election or Stock Election shall be deemed to
be of no force and effect, and the TARGET shareholder making such purported Cash
Election or Stock Election shall for purposes hereof be deemed to have made a
Combination Election to receive 51% of the applicable amount of the Merger
Consideration in the form of Stock Consideration and 49% of the applicable
amount of the Merger Consideration in the form of Cash Consideration for his or
her TARGET Shares.
(h) All shares of TARGET Common Stock which are subject to Cash
Elections or the cash portion of Combination Elections are referred to herein as
"Cash Election Shares". All shares of TARGET Common Stock which are subject to
Stock Elections or the stock portion of Combination Elections are referred to
herein as "Stock Election Shares". If, after the results of the Forms of
Election are calculated, the number of shares of TARGET Common Stock to be
converted into shares of PURCHASER Common Stock exceeds the Maximum Stock
Election Number, then the Exchange Agent shall determine the number of Stock
Election Shares which must be redesignated as Cash Election Shares and all
TARGET Shareholders who have Stock Election Shares (other than any TARGET
Shareholder who has made a Combination Election to receive no more than 65% and
no less than 51% of the applicable Merger Consideration in the form of Stock
Consideration for his or her TARGET Shares) shall, on a prorata basis, have such
number of their Stock Election Shares redesignated as Cash Election Shares so
that the Maximum Stock Election Number and the Minimum
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Cash Election Number are achieved. If, after the result of the Forms of
Election are calculated, the number of shares of TARGET Common Stock to be
converted into cash exceeds the Maximum Cash Election Number, then the Exchange
Agent shall determine the number of Cash Election Shares which must be
redesignated as Stock Election Shares and all TARGET Shareholders who have Cash
Election Shares (other than any TARGET Shareholder who has made a Combination
Election to receive no more than 49% and no less than 35% of the applicable
Merger Consideration in the form of Cash Consideration for his or her TARGET
Shares) shall, on a prorata basis, have such number of their Cash Election
Shares redesignated as Stock Election Shares so that the Maximum Cash Election
Number and Minimum Stock Election Number are achieved. PURCHASER or the
Exchange Agent shall make all computations contemplated by this Section 3.1 and
all such computations shall be conclusive and binding on the holders of TARGET
Common Stock.
(i) After the redesignation procedure set forth in paragraph (h) above
is completed, all Cash Election Shares shall be converted into the right to
receive the Cash Consideration, and all Stock Election Shares shall be converted
into the right to receive the Stock Consideration. Such certificates previously
evidencing shares of TARGET Common Stock ("Old Certificates") shall be exchanged
for (a) certificates evidencing the Stock Consideration or (b) the Cash
Consideration, multiplied in each case by the number of shares previously
evidenced by the canceled certificate, upon the surrender of such certificates
in accordance with the provisions of Section 3.2, without interest.
Notwithstanding the foregoing, however, no fractional shares of PURCHASER Common
Stock shall be issued, and, in lieu thereof, a cash payment shall be made
pursuant to Paragraph (j) below.
(j) Notwithstanding any other provision of this Agreement, each holder
of shares of TARGET Common Stock exchanged pursuant to the Merger who would
otherwise have been entitled to receive a fraction of a share of PURCHASER
Common Stock (after taking into account all certificates delivered by such
holder) shall receive, in lieu thereof, cash (without interest) in an amount
equal to such fractional part of a share of PURCHASER Common Stock multiplied by
the Base Period Trading Price. No such holder will be entitled to dividends,
voting rights, or any other rights as a shareholder in respect of any fractional
shares.
(k) Each share of the TARGET Common Stock that is not an Outstanding
TARGET Share as of the Effective Time shall be cancelled without consideration
therefor.
(l) Outstanding TARGET Shares held by TARGET shareholders who, prior
to the Effective Time, have met the requirements of Article 13 of the ABCA with
respect to shareholders dissenting from the Merger ("Dissenting TARGET
Shareholders") shall not be converted in the Merger, but all such shares shall
be cancelled and the holders thereof shall thereafter have only such rights as
are granted to dissenting shareholders under Article 13 of the ABCA; provided,
however, that if any such shareholder fails to perfect his or her rights as a
dissenting shareholder with respect to his or her Outstanding TARGET Shares in
accordance with Article 13 of the ABCA, such shares held by such shareholder
shall, upon the happening of that event, be treated the same as all other
holders of TARGET Common Stock who have not dissented as to the Merger.
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3.2 Exchange of Shares. TARGET shall send or cause to be sent to each
------------------
holder of Outstanding TARGET Shares as of the Record Date a form of letter of
transmittal (the "Letter of Transmittal") for use in exchanging Old Certificates
for cash and certificates representing PURCHASER Common Stock which shall be
deposited with the Exchange Agent by PURCHASER as of the Effective Time. The
Letter of Transmittal shall be mailed within five (5) business days following
the date of the Shareholders' Meeting. The Letter of Transmittal will contain
instructions with respect to the surrender of Old Certificates and the
distribution of cash and certificates representing PURCHASER Common Stock. If
any certificates for shares of PURCHASER Common Stock are to be issued in a name
other than that for which an Old Certificate surrendered or exchanged is issued,
the Old Certificate so surrendered shall be properly endorsed and otherwise in
proper form for transfer and the person requesting such exchange shall affix any
requisite stock transfer tax stamps to the Old Certificate surrendered or
provide funds for their purchase or establish to the satisfaction of the
Exchange Agent that such taxes are not payable. Unless and until Old
Certificates (or evidence that such certificates have been lost, stolen or
destroyed accompanied by such security or indemnity as shall be requested by
TARGET) are presented to the Exchange Agent, the holder thereof shall not be
entitled to the consideration to be paid in exchange therefor pursuant to the
Merger, to any dividends payable on any PURCHASER Common Stock to which he or
she is entitled, or to exercise any rights as a shareholder of PURCHASER Common
Stock. Subject to applicable law and to the extent that the same has not yet
been paid to a public official pursuant to applicable abandoned property laws,
upon surrender of his or her Old Certificates, the holder thereof shall be paid
the consideration to which he or she is entitled. All such property, if held by
the Exchange Agent for payment or delivery to the holders of unsurrendered Old
Certificates and unclaimed at the end of one (1) year from the Effective Time,
shall at such time be paid or redelivered by the Exchange Agent to PURCHASER and
after such time any holder of an Old Certificate who has not surrendered such
certificate shall, subject to applicable laws and to the extent that the same
has not yet been paid to a public official pursuant to applicable abandoned
property laws, look as a general creditor only to PURCHASER for payment or
delivery of such property. In no event will any holder of TARGET Common Stock
exchanged in the Merger be entitled to receive any interest on any amounts held
by the Exchange Agent or PURCHASER.
3.3 Anti-Dilution Provisions. In the event TARGET or PURCHASER changes
------------------------
the number of shares of TARGET Common Stock or PURCHASER Common Stock,
respectively, issued and outstanding prior to the Effective Time as a result of
a stock split, stock dividend or similar recapitalization with respect to such
stock and the record date therefor (in the case of a stock dividend) or the
effective date therefor (in the case of a stock split or similar
recapitalization) shall be prior to the Effective Time, the Exchange Ratio shall
be proportionately adjusted.
3.4 Shares Held by TARGET or PURCHASER. Each of the shares of TARGET
----------------------------------
Common Stock held by any TARGET Company or by any PURCHASER Company, in each
case other than in a fiduciary capacity or as a result of debts previously
contracted, shall be canceled and retired at the Effective Time and no
consideration shall be issued in exchange therefor.
3.5 TARGET Bank. After consummation of the Merger, TARGET Bank shall be
-----------
a separate subsidiary of PURCHASER.
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3.6 Rights of Former TARGET Shareholders. At the Effective Time, the
------------------------------------
stock transfer books of TARGET shall be closed as to holders of TARGET Common
Stock immediately prior to the Effective Time and no transfer of TARGET Common
Stock by any such holder shall thereafter be made or recognized. Until
surrendered for exchange in accordance with the provisions of Section 3.2 of
this Agreement, each Old Certificate (other than shares to be canceled pursuant
to Section 3.1(f) of this Agreement) shall from and after the Effective Time
represent for all purposes only the right to receive the consideration provided
in Section 3.1 of this Agreement in exchange therefor. To the extent permitted
by Law, former shareholders of record of TARGET shall be entitled to vote after
the Effective Time at any meeting of PURCHASER shareholders the number of whole
shares of PURCHASER Common Stock into which their respective shares of TARGET
Common Stock are converted, regardless of whether such holders have exchanged
their certificates representing TARGET Common Stock for certificates
representing PURCHASER Common Stock in accordance with the provisions of this
Agreement. Whenever a dividend or other distribution is declared by PURCHASER
on the PURCHASER Common Stock, the record date for which is at or after the
Effective Time, the declaration shall include dividends or other distributions
on all shares issuable pursuant to this Agreement, but no dividend or other
distribution payable to the holders of record of PURCHASER Common Stock as of
any time subsequent to the Effective Time shall be delivered to the holder of
any certificate representing shares of TARGET Common Stock issued and
outstanding at the Effective Time until such holder surrenders such certificate
for exchange as provided in Section 3.2 of this Agreement. However, upon
surrender of such TARGET Common Stock certificate, both the PURCHASER Common
Stock certificate (together with all such undelivered dividends or other
distributions without interest) and any undelivered cash payments to be paid for
fractional share interests (without interest) shall be delivered and paid with
respect to each share represented by such certificate.
3.7 Options. Each warrant, stock option or other right, if any, to
-------
purchase shares of TARGET Common Stock issued and outstanding immediately prior
to the Effective Time shall be cancelled (whether or not such warrant, option or
other right is then exercisable), and all rights in respect thereof shall cease
to exist, without any conversion thereof or payment of any consideration
therefor.
ARTICLE 4
REPRESENTATIONS AND WARRANTIES OF TARGET
----------------------------------------
TARGET hereby represents and warrants to PURCHASER as follows:
4.1 Organization, Standing and Power. TARGET is a corporation duly
--------------------------------
organized, validly existing, and in good standing under the Laws of the State of
Alabama, and is duly registered as a bank holding company under the BHC Act.
TARGET has the corporate power and authority to carry on its business as now
conducted and to own, lease and operate its Assets. TARGET is duly qualified or
licensed to transact business as a foreign corporation in good standing in the
States of the United States and foreign jurisdictions where the character of its
assets or the nature or conduct of its business requires it to be so qualified
or licensed, except for such jurisdictions in which the failure to be so
qualified or licensed is not reasonably likely to have, individually or in the
aggregate, a Material Adverse Effect on TARGET.
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4.2 Authority; No Breach.
--------------------
(a) TARGET has the corporate power and authority necessary to execute,
deliver and perform its obligations under this Agreement and to consummate the
transactions contemplated hereby. The execution, delivery and performance of
this Agreement and the consummation of the transactions contemplated herein,
including the Merger, have been duly and validly authorized by all necessary
corporate action in respect thereof on the part of TARGET, subject to the
approval of this Agreement by the holders of a majority of the outstanding
TARGET Common Stock. Subject to such requisite shareholder approval, this
Agreement represents a legal, valid, and binding obligation of TARGET,
enforceable against TARGET in accordance with its terms (except in all cases as
such enforceability may be limited by applicable bankruptcy, insolvency,
reorganization, moratorium, or similar Laws affecting the enforcement of
creditors' rights generally and except that the availability of the equitable
remedy of specific performance or injunctive relief is subject to the discretion
of the court before which any proceeding may be brought).
(b) Neither the execution and delivery of this Agreement by TARGET,
nor the consummation by TARGET of the transactions contemplated hereby, nor
compliance by TARGET with any of the provisions hereof will (i) conflict with or
result in a breach of any provision of TARGET's Articles of Incorporation or
Bylaws, or (ii) constitute or result in a Default under, or require any Consent
pursuant to, or result in the creation of any Lien on any Asset of any TARGET
Company under, any Contract or Permit of any TARGET Company, where such Default
or Lien, or any failure to obtain such Consent, is reasonably likely to have,
individually or in the aggregate, a Material Adverse Effect on TARGET, or, (iii)
subject to receipt of the requisite approvals referred to in Section 8.1(b) of
this Agreement, violate any Law or Order applicable to any TARGET Company or any
of their respective Assets.
(c) Other than in connection or compliance with the provisions of the
Securities Laws, applicable state corporate and securities Laws, and other than
Consents required from Regulatory Authorities, and other than notices to or
filings with the Internal Revenue Service or the Pension Benefit Guaranty
Corporation with respect to any employee benefit plans, and other than Consents,
filings or notifications which, if not obtained or made, are not reasonably
likely to have, individually or in the aggregate, a Material Adverse Effect on
TARGET, no notice to, filing with, or Consent of any public body or authority is
necessary for the consummation by TARGET of the Merger and the other
transactions contemplated in this Agreement.
4.3 Capital Stock.
-------------
(a) The authorized capital stock of TARGET consists of 1,800,000
shares of TARGET Common Stock, of which 488,082 shares are issued and
outstanding as of the date of this Agreement, 360 shares of Class B Common
Stock, $8.50 par value, none of which are issued and outstanding as of the date
of this Agreement, and 6,000 shares of Class A Preferred Stock, $5.00 par value,
none of which are issued and outstanding as of the date of this Agreement. All
of the issued and outstanding shares of capital stock of TARGET are duly and
validly issued and outstanding and are fully paid and nonassessable under the
ABCA. None of the outstanding shares of capital stock of TARGET has been issued
in violation of any preemptive rights of the current or
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past shareholders of TARGET. TARGET has outstanding options to purchase not
more than 17,461 shares of TARGET Common Stock.
(b) Except as set forth in Section 4.3(a) of this Agreement or as
Previously Disclosed, there are no shares of capital stock or other equity
securities of TARGET outstanding and no outstanding options, warrants, scrip,
rights to subscribe to, calls, or commitments of any character whatsoever
relating to, or securities or rights convertible into or exchangeable for,
shares of the capital stock of TARGET or contracts, commitments, understandings,
or arrangements by which TARGET is or may be bound to issue additional shares of
its capital stock or options, warrants, or rights to purchase or acquire any
additional shares of its capital stock.
4.4 TARGET Subsidiaries. TARGET has Previously Disclosed all of the
-------------------
TARGET Subsidiaries as of the date of this Agreement. TARGET owns all of the
issued and outstanding shares of capital stock of TARGET Bank, and TARGET Bank
owns all of the issued and outstanding stock of each other TARGET Subsidiary.
No equity securities of any TARGET Subsidiary are or may become required to be
issued (other than to a TARGET Company) by reason of any options, warrants,
scrip, rights to subscribe to, calls, or commitments of any character whatsoever
relating to, or securities or rights convertible into or exchangeable for,
shares of the capital stock of any such Subsidiary, and there are no Contracts
by which any TARGET Subsidiary is bound to issue (other than to a TARGET
Company) additional shares of its capital stock or options, warrants, or rights
to purchase or acquire any additional shares of its capital stock or by which
any TARGET Company is or may be bound to transfer any shares of the capital
stock of any TARGET Subsidiary (other than to a TARGET Company). There are no
Contracts relating to the rights of any TARGET Company to vote or to dispose of
any shares of the capital stock of any TARGET Subsidiary. All of the shares of
capital stock of each TARGET Subsidiary held by a TARGET Company are fully paid
and nonassessable under the applicable corporation Law of the jurisdiction in
which such Subsidiary is incorporated or organized and are owned by the TARGET
Company free and clear of any Lien. Each TARGET Subsidiary is either a bank or
a corporation, and is duly organized, validly existing, and (as to corporations)
in good standing under the Laws of the jurisdiction in which it is incorporated
or organized, and has the corporate power and authority necessary for it to own,
lease and operate its Assets and to carry on its business as now conducted.
Each TARGET Subsidiary is duly qualified or licensed to transact business as a
foreign corporation in good standing in the States of the United States and
foreign jurisdictions where the character of its Assets or the nature or conduct
of its business requires it to be so qualified or licensed, except for such
jurisdictions in which the failure to be so qualified or licensed is not
reasonably likely to have, individually or in the aggregate, a Material Adverse
Effect on TARGET. Each TARGET Subsidiary that is a depository institution is an
insured institution as defined in the Federal Deposit Insurance Act and
applicable regulations thereunder.
4.5 Financial Statements. TARGET has Previously Disclosed, and
--------------------
delivered to PURCHASER prior to the execution of this Agreement, copies of all
TARGET Financial Statements for periods ended prior to the date hereof and will
deliver to PURCHASER copies of all TARGET Financial Statements prepared
subsequent to the date hereof. The TARGET Financial Statements (as of the dates
thereof and for the periods covered thereby) (a) are or, if dated after the date
of this Agreement, will be in accordance with the books and records of the
TARGET Companies, which
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are or will be, as the case may be, complete and correct in all material
respects and which have been or will have been, as the case may be, maintained
in accordance with good business practices, and (b) present or will present, as
the case may be, fairly the consolidated financial position of the TARGET
Companies as of the dates indicated and the consolidated results of operations,
changes in shareholders' equity, and cash flows of the TARGET Companies for the
periods indicated, in accordance with GAAP (subject to any exceptions as to
consistency specified therein or as may be indicated in the notes thereto or, in
the case of interim financial statements, to normal recurring year-end
adjustments that are not material).
4.6 Absence of Undisclosed Liabilities. Except as Previously Disclosed,
----------------------------------
no TARGET Company has any Liabilities that are reasonably likely to have,
individually or in the aggregate, a Material Adverse Effect on TARGET, except
Liabilities which are accrued or reserved against in the consolidated balance
sheets of TARGET as of December 31, 1994 and September 30, 1995 included in the
TARGET Financial Statements or reflected in the notes thereto. Except as
Previously Disclosed, no TARGET Company has incurred or paid any Liability since
September 30, 1995, except for such Liabilities incurred or paid in the ordinary
course of business consistent with past business practice and which are not
reasonably likely to have, individually or in the aggregate, a Material Adverse
Effect on TARGET.
4.7 Absence of Certain Changes or Events. Except as Previously
------------------------------------
Disclosed, since September 30, 1995, (a) there have been no events, changes or
occurrences which have had, or are reasonably likely to have, individually or in
the aggregate, a Material Adverse Effect on TARGET, and (b) the TARGET Companies
have not taken any action, or failed to take any action, prior to the date of
this Agreement, which action or failure, if taken after the date of this
Agreement, would represent or result in a material breach or violation of any of
the covenants and agreements of TARGET provided in Article 7 of this Agreement.
4.8 Tax Matters.
-----------
(a) All Tax returns required to be filed by or on behalf of any of the
TARGET Companies have been duly filed or requests for extensions have been
timely filed, granted, and have not expired for periods ended on or before
December 31, 1994, and on or before the date of the most recent fiscal year end
immediately preceding the Effective Time, except to the extent that all such
failures to file, taken together, are not reasonably likely to have a Material
Adverse Effect on TARGET, and all returns filed are complete and accurate to the
Knowledge of TARGET. All Taxes shown on filed returns have been paid. As of
the date of this Agreement, there is no audit examination, deficiency, or refund
Litigation with respect to any Taxes that is reasonably likely to result in a
determination that would have, individually or in the aggregate, a Material
Adverse Effect on TARGET, except as reserved against in the TARGET Financial
Statements delivered prior to the date of this Agreement. All Taxes and other
Liabilities due with respect to completed and settled examinations or concluded
Litigation have been paid.
(b) None of the TARGET Companies has executed an extension or waiver
of any statute of limitations on the assessment or collection of any Tax due
that is currently in effect, and no unpaid tax deficiency has been asserted in
writing against or with respect to any TARGET
A-10
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Company, which deficiency is reasonably likely to have, individually or in the
aggregate, a Material Adverse Effect on TARGET.
(c) Adequate provision for any Taxes due or to become due for any of
the TARGET Companies for the period or periods through and including the date of
the respective TARGET Financial Statements has been made and is reflected on
such TARGET Financial Statements.
(d) Deferred Taxes of the TARGET Companies have been provided for in
accordance with GAAP.
(e) Each of the TARGET Companies is in compliance with, and its
records contain all information and documents (including, without limitation,
properly completed IRS Forms W-9) necessary to comply with, all applicable
information reporting and Tax withholding requirements under federal, state and
local Tax Laws, and such records identify with specificity all accounts subject
to backup withholding under Section 3406 of the Internal Revenue Code, except
for such instances of noncompliance and such omissions as are not reasonably
likely to have, individually or in the aggregate, a Material Adverse Effect on
TARGET.
(f) Effective January 1, 1993, TARGET adopted Financial Accounting
Standards Board Statement 109, "Accounting for Income Taxes."
4.9 TARGET Allowance for Possible Loan Losses. The allowance for
-----------------------------------------
possible loan or credit losses (the "TARGET Allowance") shown on the
consolidated balance sheets of TARGET included in the most recent TARGET
Financial Statements dated prior to the date of this Agreement was, and the
TARGET Allowance shown on the consolidated balance sheets of TARGET included in
the TARGET Financial Statements as of dates subsequent to the execution of this
Agreement will be, maintained in accordance with, and are in the amounts
required by GAAP and applicable regulatory requirements or guidelines as of the
dates thereof except where the failure of such TARGET Allowance to be so
maintained is not reasonably likely to have a Material Adverse Effect on TARGET.
4.10 Assets. Except as Previously Disclosed or as disclosed or reserved
------
against in the TARGET Financial Statements, or where the failure to own good and
marketable title is not reasonably likely to have a Material Adverse Effect on
TARGET, the TARGET Companies have good and marketable title, free and clear of
all Liens, to all of their respective Assets. All material tangible properties
used in the businesses of the TARGET Companies are in good condition, reasonable
wear and tear excepted, and are usable in the ordinary course of business
consistent with TARGET's past practices. All Assets which are material to
TARGET's business on a consolidated basis, held under leases or subleases by any
of the TARGET Companies are held under valid Contracts enforceable in accordance
with their respective terms (except as enforceability may be limited by
applicable bankruptcy, insolvency, reorganization, moratorium, or other Laws
affecting the enforcement of creditors' rights generally and except that the
availability of the equitable remedy of specific performance or injunctive
relief is subject to the discretion of the court before which any proceedings
may be brought), and each such Contract is in full force and effect. The
policies of fire, theft, liability, and other insurance maintained with respect
to the Assets or businesses of the
A-11
<PAGE>
TARGET Companies provide adequate coverage under current industry practices
against loss or Liability, and the fidelity and blanket bonds in effect as to
which any of the TARGET Companies is a named insured are reasonably sufficient.
The Assets of the TARGET Companies include all assets required to operate the
business of the TARGET Companies as presently conducted.
4.11 Environmental Matters. Except as Previously Disclosed:
---------------------
(a) Each TARGET Company, its Participation Facilities and its Loan
Properties are, and have been, in compliance with all Environmental Laws, except
for violations which are not reasonably likely to have, individually or in the
aggregate, a Material Adverse Effect on TARGET.
(b) There is no Litigation pending or, to the Knowledge of TARGET,
threatened before any court, governmental agency or authority or other forum in
which any TARGET Company or any of its Participation Facilities has been or,
with respect to threatened Litigation, may be named as a defendant (i) for
alleged noncompliance (including by any predecessor) with any Environmental Law
or (ii) relating to the release into the environment of any Hazardous Material
or oil, whether or not occurring at, on, under or involving a site owned, leased
or operated by any TARGET Company or any of its Participation Facilities, except
for such Litigation pending or, to the Knowledge of TARGET, threatened that is
not reasonably likely to have, individually or in the aggregate, a Material
Adverse Effect on TARGET.
(c) There is no Litigation pending which TARGET has received proper
notice or service thereof or, to the Knowledge of TARGET, threatened before any
court, governmental agency or board or other forum in which any of its Loan
Properties (or any TARGET Company in respect of such Loan Property) has been or,
with respect to threatened litigation, may be named as a defendant or
potentially responsible party (i) for alleged noncompliance (including by any
predecessor) with any Environmental Law or (ii) relating to the release into the
environment of any Hazardous Material or oil, whether or not occurring at, on,
under or involving a Loan Property, except for such Litigation pending or, to
the Knowledge of TARGET, threatened that is not reasonably likely to have,
individually or in the aggregate, a Material Adverse Effect on TARGET.
(d) To the Knowledge of TARGET, there is no reasonable basis for any
Litigation of a type described in subsections (b) or (c), except such as is not
reasonably likely to have, individually or in the aggregate, a Material Adverse
Effect on TARGET.
(e) During the period of (i) any TARGET Company's ownership or
operation of any of their respective current properties, (ii) any TARGET
Company's participation in the management of any Participation Facility, or
(iii) any TARGET Company's holding of a security interest in a Loan Property,
there have been no releases of Hazardous Material or oil in, on, under or
affecting any such property, Participation Facility, or to the Knowledge of
TARGET Loan Property, except such as are not reasonably likely to have,
individually or in the aggregate, a Material Adverse Effect on TARGET.
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(f) Prior to the period of (i) any TARGET Company's ownership or
operation of any of their respective current properties, (ii) any TARGET
Company's participation in the management of any Participation Facility, or
(iii) any TARGET Company's holding of a security interest in a Loan Property, to
the Knowledge of TARGET, there were no releases of Hazardous Material or oil in,
on, under or affecting any such property, Participation Facility or Loan
Property, except such as are not reasonably likely to have, individually or in
the aggregate, a Material Adverse Effect on TARGET.
4.12 Compliance with Laws.
--------------------
(a) TARGET is duly registered as a bank holding company under the BHC
Act. Each TARGET Company has in effect all Permits necessary for it to own,
lease or operate its Assets and to carry on its business as now conducted,
except for those Permits the absence of which are not reasonably likely to have,
individually or in the aggregate, a Material Adverse Effect on TARGET, and there
has occurred no Default under any such Permit, other than Defaults which are not
reasonably likely to have, individually or in the aggregate, a Material Adverse
Effect on TARGET.
(b) Except as Previously Disclosed, no TARGET Company:
(i) is in violation of any Laws, Orders or Permits applicable to
its business or employees conducting its business, except for violations
which are not reasonably likely to have, individually or in the aggregate,
a Material Adverse Effect on TARGET; and
(ii) has received any notification or communication from any
agency or department of federal, state, or local government or any
Regulatory Authority or the staff thereof (A) asserting that any TARGET
Company is not in compliance with any of the Laws or Orders which such
governmental authority or Regulatory Authority enforces, where such
noncompliance is reasonably likely to have, individually or in the
aggregate, a Material Adverse Effect on TARGET, (B) threatening to revoke
any Permits, the revocation of which is reasonably likely to have,
individually or in the aggregate, a Material Adverse Effect on TARGET, or
(C) requiring any TARGET Company to enter into or consent to the issuance
of a cease and desist order, formal agreement, directive, commitment or
memorandum of understanding, or to adopt any Board resolution or similar
undertaking, which restricts materially the conduct of its business, or in
any manner relates to its capital adequacy, its credit or reserve policies,
its management, or the payment of dividends.
4.13 Labor Relations. No TARGET Company is the subject of any Litigation
---------------
asserting that it or any other TARGET Company has committed an unfair labor
practice (within the meaning of the National Labor Relations Act or comparable
state law) or seeking to compel it or any other TARGET Company to bargain with
any labor organization as to wages or conditions of employment, nor is there any
strike or other labor dispute involving any TARGET Company, pending or, to its
Knowledge, threatened, or to its Knowledge, is there any activity involving any
TARGET Company's employees seeking to certify a collective bargaining unit or
engaging in any other organization activity.
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4.14 Employee Benefit Plans.
----------------------
(a) TARGET has Previously Disclosed, and delivered or made available
to PURCHASER prior to the execution of this Agreement, copies in each case of
all pension, retirement, profit-sharing, deferred compensation, stock option,
employee stock ownership, severance pay, vacation, bonus, or other incentive
plans all other written employee programs, arrangements, or agreements, all
medical, vision, dental, or other health plans, all life insurance plans, and
all other employee benefit plans or fringe benefit plans, including, without
limitation, "employee benefit plans," as that term is defined in Section 3(3) of
ERISA, currently adopted, maintained by, sponsored in whole or in part by, or
contributed to by any TARGET Company or Affiliate thereof for the benefit of
employees, retirees, dependents, spouses, directors, independent contractors, or
other beneficiaries and under which employees, retirees, dependents, spouses,
directors, independent contractors, or other beneficiaries are eligible to
participate (collectively, the "TARGET Benefit Plans"). Any of the TARGET
Benefit Plans which is an "employee pension benefit plan," as that term is
defined in Section 3(2) of ERISA, is referred to herein as a "TARGET ERISA
Plan." Each TARGET ERISA Plan which is also a "defined benefit plan" (as
defined in Section 414(j)) of the Internal Revenue Code) is referred to herein
as a "TARGET Pension Plan." No TARGET Pension Plan is or has been a multi-
employer plan within the meaning of Section 3(37) of ERISA.
(b) All TARGET Benefit Plans are, in all material respects, in
compliance with the applicable terms of ERISA, the Internal Revenue Code, and
any other applicable Laws the breach or violation of which are reasonably likely
to have, individually or in the aggregate, a Material Adverse Effect on TARGET.
Each TARGET ERISA Plan which is intended to be qualified under Section 401(a) of
the Internal Revenue Code has received a favorable determination letter from the
Internal Revenue Service, and TARGET is not aware of any circumstances likely to
result in revocation of any such favorable determination letter. To the
Knowledge of TARGET, no TARGET Company has engaged in a transaction with respect
to any TARGET Benefit Plan that, assuming the taxable period of such transaction
expired as of the date hereof would subject any TARGET Company to a tax or
penalty imposed by either Section 4975 of the Internal Revenue Code or Section
502(i) of ERISA in amounts which are reasonably likely to have, individually or
in the aggregate, a Material Adverse Effect on TARGET.
(c) No TARGET ERISA Plan which is a defined benefit pension plan has
any "unfunded current liability," as that term is defined in Section
302(d)(8)(A) of ERISA, based on actuarial assumptions set forth for such plan's
most recent actuarial valuation. Since the date of the most recent actuarial
valuation, there has been (i) no material change in the financial position of
any TARGET Pension Plan, (ii) no change in the actuarial assumptions with
respect to any TARGET Pension Plan, and (iii) no increase in benefits under any
TARGET Pension Plan as a result of plan amendments or changes in applicable law,
which is reasonably likely to have, individually or in the aggregate, a Material
Adverse Effect on TARGET or materially adversely affect the funding status of
any such plan. Neither any TARGET Pension Plan nor any "single-employer plan,"
within the meaning of Section 4001(a)(15) of ERISA, currently or formerly
maintained by any TARGET Company, or the single-employer plan of any entity
which is considered one employer with TARGET under Section 4001 of ERISA or
Section 414 of the Internal Revenue Code or Section 302 of ERISA (whether or not
waived) (an "ERISA Affiliate") has an "accumulated funding deficiency" within
the meaning of Section 412 of the Internal Revenue Code or Section 302 of ERISA,
which
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is reasonably likely to have a Material Adverse Effect on TARGET. No TARGET
Company has provided, or is required to provide, security to a TARGET Pension
Plan or to any single-employer plan of an ERISA Affiliate pursuant to Section
401(a)(29) of the Code.
(d) Within the six-year period preceding the Effective Time, no
Liability under Subtitle C or D of Title IV or ERISA has been or is expected to
be incurred by any TARGET Company with respect to any ongoing, frozen or
terminated single-employer plan or the single-employer plan of any ERISA
Affiliate, which Liability is reasonably likely to have a Material Adverse
Effect on TARGET. Except as Previously Disclosed, no TARGET Company has
incurred any withdrawal Liability with respect to a multi-employer plan under
Subtitle B of Title TV or ERISA (regardless of whether based on contributions of
an ERISA Affiliate), which Liability is reasonably likely to have a Material
Adverse Effect on TARGET. No notice of a "reportable event," within the meaning
of Section 4043 of ERISA for which the 30-day reporting requirement has not been
waived, has been required to be filed for any TARGET Pension Plan or by any
ERISA Affiliate within the 12-month period ending on the date hereof.
(e) No TARGET Company has any obligations for retiree health and life
benefits under any of the TARGET Benefit Plans and there are no restrictions on
the rights of such TARGET Company to amend or terminate any such Plan without
incurring any Liability thereunder, which Liability is reasonably likely to have
a Material Adverse Effect on TARGET.
(f) Except as Previously Disclosed, neither the execution and delivery
of this Agreement nor the consummation of the transactions contemplated hereby
will (i) result in any payment (including, without limitation, severance,
unemployment compensation, golden parachute or otherwise) becoming due to any
director or any employee of any TARGET Company from any TARGET Company under any
TARGET Benefit Plan or otherwise, (ii) increase any benefits otherwise payable
under any TARGET Benefit Plan, or (iii) result in any acceleration of the time
of payment or vesting of any such benefit.
(g) The actuarial present values of all accrued deferred compensation
entitlements (including, without limitation, entitlements under any executive
compensation, supplemental retirement, or employment agreement) of employees and
former employees of any TARGET Company and their respective beneficiaries, other
than entitlements accrued pursuant to funded retirement plans subject to the
provisions of Section 412 of the Internal Revenue Code or Section 302 of ERISA,
have been fully reflected on the TARGET Financial Statements to the extent
required by and in accordance with GAAP.
4.15 Material Contracts. Except as Previously Disclosed or otherwise
------------------
reflected in the TARGET Financial Statements, none of the TARGET Companies, nor
any of their respective Assets, businesses or operations, is a party to, or is
bound or affected by, or receives benefits under, (a) any employment, severance,
termination, consulting or retirement Contract providing for aggregate payments
to any Person in any calendar year in excess of $50,000, (b) any Contract
relating to the borrowing of money by any TARGET Company or the guarantee by any
TARGET Company of any such obligation (other than Contracts evidencing deposit
liabilities, purchases of federal funds, fully secured repurchase agreements,
trade payables, and Contracts relating to borrowings or guarantees made in the
ordinary course of business), and (c) any Contracts between
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<PAGE>
or among TARGET Companies (together with all Contracts referred to in Sections
4.10 and 4.14(a) of this Agreement, the "TARGET Contracts"). None of the TARGET
Companies is in Default under any TARGET Contract, other than Defaults which are
not reasonably likely to have, individually or in the aggregate, a Material
Adverse Effect on TARGET. All of the indebtedness of any TARGET Company for
money borrowed is prepayable at any time by such TARGET Company without penalty
or premium.
4.16 Legal Proceedings. Except as Previously Disclosed, there is no
-----------------
Litigation instituted or pending or, to the Knowledge of TARGET, threatened (or
unasserted but considered probable of assertion and which, if asserted, would
have at least a reasonable probability of an unfavorable outcome) against any
TARGET Company, or against any Asset, interest, or right of any of them, that is
reasonably likely to have, individually or in the aggregate, a Material Adverse
Effect on TARGET, nor are there any Orders of any Regulatory Authorities, other
governmental authorities, or arbitrators outstanding against any TARGET Company,
that are reasonably likely to have, individually or in the aggregate, a Material
Adverse Effect on TARGET.
4.17 Reports. Except as Previously Disclosed, since January 1, 1993,
-------
each TARGET Company has timely filed all reports and statements, together with
any amendments required to be made with respect thereto, that it was required to
file with all Regulatory Authorities. As of their respective dates, each of
such reports and documents, including the financial statements, exhibits, and
schedules thereto, complied in all material respects with all applicable Laws.
As of their respective dates, none of such reports or documents contained any
untrue statement of a material fact or omitted to state a material fact required
to be stated therein or necessary to make the statements made therein, in light
of the circumstances under which they were made, not misleading.
4.18 Statements True and Correct. No statement, certificate, instrument
---------------------------
or other writing furnished or to be furnished by any TARGET Company or any
Affiliate thereof to PURCHASER pursuant to this Agreement or any other document,
agreement or instrument referred to herein contains or will contain any untrue
statement of material fact or will omit to state a material fact necessary to
make the statements therein, in light of the circumstances under which they were
made, not misleading. None of the information supplied or to be supplied by any
TARGET Company or any Affiliate thereof for inclusion in the Registration
Statement to be filed by PURCHASER with the SEC, will, when the Registration
Statement becomes effective, be false or misleading with respect to any material
fact, or omit to state any material fact necessary to make the statements
therein not misleading. None of the information supplied or to be supplied by
any TARGET Company or any Affiliate thereof for inclusion in the Proxy Statement
to be mailed to TARGET's shareholders in connection with the Shareholders'
Meeting, and any other documents to be filed by any TARGET Company or any
Affiliate thereof with the SEC or any other Regulatory Authority in connection
with the transactions contemplated hereby, will, at the respective time such
documents are filed, and with respect to the Proxy Statement, when first mailed
to the shareholders of TARGET, be false or misleading with respect to any
material fact, or omit to state any material fact necessary to make the
statements therein, in light of the circumstances under which they were made,
not misleading, or, in the case of the Proxy Statement or any amendment thereof
or supplement thereto, at the time of the Shareholders' Meeting, be false or
misleading with respect to any material fact, or omit to state any material fact
necessary to correct any statement in any earlier communication with respect to
the solicitation of any proxy for the Shareholders' Meeting. All
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<PAGE>
documents that any TARGET Company or any Affiliate thereof is responsible for
filing with any Regulatory Authority in connection with the transactions
contemplated hereby will comply as to form in all material respects with the
provisions of applicable Law.
4.19 Accounting, Tax and Regulatory Matters. Except as Previously
--------------------------------------
Disclosed, no TARGET Company or any Affiliate thereof has taken any action or
has any Knowledge of any fact or circumstance that is reasonably likely to (a)
prevent the transactions contemplated hereby, including the Merger, from
qualifying as a reorganization within the meaning of Section 368(a) of the
Internal Revenue Code, or (b) materially impede or delay receipt of any Consents
of Regulatory Authorities referred to in Section 8.1 (b) of this Agreement or
result in the imposition of a condition or restriction of the referred to in
the second sentence of such Section. To the Knowledge of TARGET, there exists
no fact, circumstance, or reason why the requisite Consents referred to in
Section 8.1(b) of this Agreement cannot be received in a timely manner without
the imposition of any condition or restriction of the type described in the
second sentence of such Section 8.1(b).
4.20 Charter Provisions. Each TARGET Company has taken all action so
------------------
that the entering into of this Agreement and the consummation of the Merger and
the other transactions contemplated by this Agreement do not and will not result
in the grant of any rights to any Person under the Articles of Incorporation,
Bylaws or other governing instruments of any TARGET Company or restrict or
impair the ability of PURCHASER to vote, or otherwise to exercise the rights of
a shareholder with respect to, shares of any TARGET Company that may be acquired
or controlled by it.
ARTICLE 5
REPRESENTATIONS AND WARRANTIES OF PURCHASER
-------------------------------------------
PURCHASER hereby represents and warrants to TARGET as follows:
5.1 Organization, Standing and Power. PURCHASER is a corporation duly
--------------------------------
organized, validly existing, and in good standing under the laws of the State of
Georgia, and is duly registered as a bank holding company under the BHC Act.
PURCHASER has the corporate power and authority to carry on its business as now
conducted and to own, lease and operate its Assets. PURCHASER is duly qualified
or licensed to transact business as a foreign corporation in good standing in
the States of the United States and foreign jurisdictions where the character of
its Assets or the nature or conduct of its business requires it to be so
qualified or licensed, except for such jurisdictions in which the failure to be
so qualified or licensed is not reasonably likely to have, individually or in
the aggregate, a Material Adverse Effect on PURCHASER.
5.2 Authority; No Breach.
--------------------
(a) PURCHASER has the corporate power and authority necessary to
execute, deliver and perform its obligations under this Agreement and to
consummate the transactions contemplated hereby. The execution, delivery and
performance of this Agreement and the consummation of the transactions
contemplated herein, including the Merger, have been duly and validly authorized
by all necessary corporate action in respect thereof on the part of PURCHASER.
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<PAGE>
This Agreement represents a legal, valid, and binding obligation of PURCHASER,
enforceable against PURCHASER in accordance with its terms (except in all cases
as such enforceability may be limited by applicable bankruptcy, insolvency,
reorganization, moratorium, or similar Laws affecting the enforcement of
creditors' rights generally and except that the availability of the equitable
remedy of specific performance or injunctive relief is subject to the discretion
of the court before which any proceeding may be brought).
(b) Neither the execution and delivery of this Agreement by PURCHASER,
nor the consummation by PURCHASER of the transactions contemplated hereby, nor
compliance by PURCHASER with any of the provisions hereof will (i) conflict with
or result in a breach of any provision of PURCHASER's Articles of Incorporation
or Bylaws, or (ii) constitute or result in a Default under, or require any
Consent pursuant to, or result in the creation of any Lien on any Asset of any
PURCHASER Company under, any Contract or Permit of any PURCHASER Company, where
such Default or Lien, or any failure to obtain such Consent, is reasonably
likely to have, individually or in the aggregate, a Material Adverse Effect on
PURCHASER, or, (iii) subject to receipt of the requisite approvals referred to
in Section 8.1(b) of this Agreement, violate any Law or Order applicable to any
PURCHASER Company or any of their respective Assets.
(c) Other than in connection or compliance with the provisions of the
Securities Laws, applicable state corporate and securities Laws, and rules of
the NASD, and other than Consents required from Regulatory Authorities, and
other than notices to or filings with the Internal Revenue Service or the
Pension Benefit Guaranty Corporation with respect to any employee benefit plans,
and other than Consents, filings or notifications which, if not obtained or
made, are not reasonably likely to have, individually or in the aggregate, a
Material Adverse Effect on PURCHASER, no notice to, filing with, or Consent of
any public body or authority is necessary for the consummation by PURCHASER of
the Merger and the other transactions contemplated in this Agreement.
5.3 Capital Stock.
-------------
(a) The authorized capital stock of PURCHASER consists of (i)
10,000,000 shares of PURCHASER Common Stock, of which 3,379,192 shares are
issued and outstanding as of the date of this Agreement and (ii) 5,000,000
shares of Preferred Stock, none of which are issued or outstanding as of the
date of this Agreement. All of the issued and outstanding shares of PURCHASER
Common Stock are, and all of the shares of PURCHASER Common Stock to be issued
in exchange for shares of TARGET Common Stock upon consummation of the Merger,
when issued in accordance with the terms of this Agreement, will be, duly and
validly issued and outstanding and fully paid and nonassessable under the GBCC.
None of the outstanding shares of PURCHASER Common Stock has been, and none of
the shares of PURCHASER Common Stock to be issued in exchange for shares of
TARGET Common Stock upon consummation of the Merger will be, issued in violation
of any preemptive rights of the current or past shareholders of PURCHASER.
PURCHASER has reserved 6,667 shares of PURCHASER Common Stock for issuance under
the PURCHASER Stock Plans, pursuant to which options to purchase not more than
6,667 shares of PURCHASER Common Stock are outstanding as of the date of this
Agreement.
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<PAGE>
(b) Except as set forth in Section 5.3(a) of this Agreement, or as
Previously Disclosed, there are no shares of capital stock or other equity
securities of PURCHASER outstanding and no outstanding options, warrants, scrip,
rights to subscribe to, calls, or commitments of any character whatsoever
relating to, or securities or rights convertible into or exchangeable for,
shares of the capital stock of PURCHASER or contracts, commitments,
understandings, or arrangements by which PURCHASER is or may be bound to issue
additional shares of its capital stock or options, warrants, or rights to
purchase or acquire any additional shares of its capital stock.
5.4 PURCHASER Subsidiaries. PURCHASER has Previously Disclosed all of
----------------------
the PURCHASER Subsidiaries as of the date of this Agreement. PURCHASER owns all
of the issued and outstanding shares of capital stock of each PURCHASER
Subsidiary. No equity securities of any PURCHASER Subsidiary are or may become
required to be issued (other than to a PURCHASER Company) by reason of any
options, warrants, scrip, rights to subscribe to, calls, or commitments of any
character whatsoever relating to, or securities or rights convertible into or
exchangeable for, shares of the capital stock of any such Subsidiary, and there
are no Contracts by which any PURCHASER Subsidiary is bound to issue (other than
to a PURCHASER Company) additional shares of its capital stock or options,
warrants, or rights to purchase or acquire any additional shares of its capital
stock or by which any PURCHASER Company is or may be bound to transfer any
shares of the capital stock of any PURCHASER Subsidiary (other than to a
PURCHASER Company). There are no Contracts relating to the rights of any
PURCHASER Company to vote or to dispose of any shares of the capital stock of
any PURCHASER Subsidiary. All of the shares of capital stock of each PURCHASER
Subsidiary held by a PURCHASER Company are fully paid and nonassessable under
the applicable corporation Law of the jurisdiction in which such Subsidiary is
incorporated or organized and are owned by the PURCHASER Company free and clear
of any Lien. Each PURCHASER Subsidiary is either a bank or a corporation, and
is duly organized, validly existing, and (as to corporations) in good standing
under the Laws of the jurisdiction in which it is incorporated or organized, and
has the corporate power and authority necessary for it to own, lease and operate
its Assets and to carry on its business as now conducted. Each PURCHASER
Subsidiary is duly qualified or licensed to transact business as a foreign
corporation in good standing in the States of the United States and foreign
jurisdictions where the character of its Assets or the nature or conduct of its
business requires it to be so qualified or licensed, except for such
jurisdictions in which the failure to be so qualified or licensed is not
reasonably likely to have, individually or in the aggregate, a Material Adverse
Effect on PURCHASER. Each PURCHASER Subsidiary that is a depository institution
is an insured institution as defined in the Federal Deposit Insurance Act and
applicable regulations thereunder.
5.5 Financial Statements. PURCHASER has Previously Disclosed and
--------------------
delivered to TARGET prior to the execution of this Agreement copies of all
PURCHASER Financial Statements for periods ended prior to the date hereof and
will deliver to TARGET copies of all PURCHASER Financial Statements prepared
subsequent to the date hereof. The PURCHASER Financial Statements (as of the
dates thereof and for the periods covered thereby) (a) are or, if dated after
the date of this Agreement, will be in accordance with the books and records of
the PURCHASER Companies, which are or will be, as the case may be, complete and
correct in all material respects and which have been or will have been, as the
case may be, maintained in accordance with good business practices, and (b)
present or will present, as the case may be, fairly the consolidated financial
position of the PURCHASER Companies as of the dates indicated and the
consolidated
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results of operations, changes in shareholders' equity, and cash flows of the
PURCHASER Companies for the periods indicated, in accordance with GAAP (subject
to exceptions as to consistency specified therein or as may be indicated in the
notes thereto or, in the case of interim financial statements, to normal
recurring year-end adjustments that are not material).
5.6 Absence of Undisclosed Liabilities. No PURCHASER Company has any
----------------------------------
Liabilities that are reasonably likely to have, individually or in the
aggregate, a Material Adverse Effect on PURCHASER, except Liabilities which are
accrued or reserved against in the consolidated balance sheets of PURCHASER as
of December 31, 1994 and September 30, 1995 included in the PURCHASER Financial
Statements or reflected in the notes thereto. No PURCHASER Company has incurred
or paid any Liability since September 30, 1995, except for such Liabilities
incurred or paid in the ordinary course of business consistent with past
business practice and which are not reasonably likely to have, individually or
in the aggregate, a Material Adverse Effect on PURCHASER.
5.7 Absence of Certain Changes or Events. Since September 30, 1995,
------------------------------------
except as disclosed in SEC Documents filed by PURCHASER prior to the date of
this Agreement, (a) there have been no events, changes or occurrences which have
had, or are reasonably likely to have, individually or in the aggregate, a
Material Adverse Effect on PURCHASER, and (b) the PURCHASER Companies have not
taken any action, or failed to take any action, prior to the date of this
Agreement, which action or failure, if taken after the date of this Agreement,
would represent or result in a material breach or violation of any of the
covenants and agreements of PURCHASER provided in Article 7 of this Agreement.
5.8 Tax Matters.
-----------
(a) All Tax returns required to be filed by or on behalf of any of the
PURCHASER Companies have been timely filed or requests for extensions have been
timely filed, granted, and have not expired for periods ended on or before
December 31, 1994, and on or before the date of the most recent fiscal year end
immediately preceding the Effective Time, except to the extent that all such
failures to file, taken together, are not reasonably likely to have a Material
Adverse Effect on PURCHASER, and all returns filed are complete and accurate to
the Knowledge of PURCHASER. All Taxes shown on filed returns have been paid.
As of the date of this Agreement, there is no audit examination, deficiency, or
refund Litigation with respect to any Taxes that is reasonably likely to result
in a determination that would have, individually or in the aggregate, a Material
Adverse Effect on PURCHASER, except as reserved against in the PURCHASER
Financial Statements delivered prior to the date of this Agreement. All Taxes
and other Liabilities due with respect to completed and settled examinations or
concluded Litigation have been paid.
(b) None of the PURCHASER Companies has executed an extension or
waiver of any statute of limitations on the assessment or collection of any Tax
due that is currently in effect, and no unpaid tax deficiency has been asserted
in writing against or with respect to any PURCHASER Company, which deficiency is
reasonably likely to have, individually or in the aggregate, a Material Adverse
Effect on PURCHASER.
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(c) Adequate provision for any Taxes due or to become due for any of
the PURCHASER Companies for the period or periods through and including the date
of the respective PURCHASER Financial Statements has been made and is reflected
on such PURCHASER Financial Statements.
(d) Deferred Taxes of the PURCHASER Companies have been provided for
in accordance with GAAP.
(e) Effective January 1, 1993, PURCHASER adopted Financial Accounting
Standards Board Statement 109, "Accounting for Income Taxes."
5.9 PURCHASER Allowance for Possible Loan Losses. The allowance for
--------------------------------------------
possible loan or credit losses (the "PURCHASER Allowance") shown on the
consolidated balance sheets of PURCHASER included in the most recent PURCHASER
Financial Statements dated prior to the date of this Agreement was, and the
PURCHASER Allowance shown on the consolidated balance sheets of PURCHASER
included in the PURCHASER Financial Statements as of dates subsequent to the
execution of this Agreement will be, as of the dates thereof, adequate (within
the meaning of GAAP and applicable regulatory requirements or guidelines) to
provide for losses relating to or inherent in the loan and lease portfolios
(including accrued interest receivables) of the PURCHASER Companies and other
extensions of credit (including letters of credit and commitments to make loans
or extend credit) by the PURCHASER Companies as of the dates thereof except
where the failure of such PURCHASER Allowance to be so adequate is not
reasonably likely to have a Material Adverse Effect on PURCHASER.
5.10 Assets. Except as Previously Disclosed or as disclosed or reserved
------
against in the PURCHASER Financial Statements, the PURCHASER Companies have good
and marketable title, free and clear of all Liens, to all of their respective
Assets. All material tangible properties used in the businesses of the
PURCHASER Companies are in good condition, reasonable wear and tear excepted,
and are usable in the ordinary course of business consistent with PURCHASER's
past practices. All Assets which are material to PURCHASER's business on a
consolidated basis, held under leases or subleases by any of the PURCHASER
Companies, are held under valid Contracts enforceable in accordance with their
respective terms (except as enforceability may be limited by applicable
bankruptcy, insolvency, reorganization, moratorium, or other Laws affecting the
enforcement of creditors' rights generally and except that the availability of
the equitable remedy of specific performance or injunctive relief is subject to
the discretion of the court before which any proceedings may be brought), and
each such Contract is in full force and effect. The policies of fire, theft,
liability, and other insurance maintained with respect to the Assets or
businesses of the PURCHASER Companies provide adequate coverage under current
industry practices against loss or Liability, and the fidelity and blanket bonds
in effect as to which any of the PURCHASER Companies is a named insured are
reasonably sufficient. The Assets of the PURCHASER Companies include all assets
required to operate the business of the PURCHASER Companies as presently
conducted.
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<PAGE>
5.11 Environmental Matters.
---------------------
(a) Each PURCHASER Company, its Participation Facilities and its Loan
Properties are, and have been, in compliance with all Environmental Laws, except
for violations which are not reasonably likely to have, individually or in the
aggregate, a Material Adverse Effect on PURCHASER.
(b) There is no Litigation pending or, to the Knowledge of PURCHASER,
threatened before any court, governmental agency or authority or other forum in
which any PURCHASER Company or any of its Participation Facilities has been or,
with respect to threatened Litigation, may be named as a defendant (i) for
alleged noncompliance (including by any predecessor) with any Environmental Law
or (ii) relating to the release into the environment of any Hazardous Material
(as defined below) or oil, whether or not occurring at, on, under or involving a
site owned, leased or operated by any PURCHASER Company or any of its
Participation Facilities, except for such Litigation pending or, to the
Knowledge of Purchaser, threatened that is not reasonably likely to have,
individually or in the aggregate, a Material Adverse Effect on PURCHASER.
(c) There is no Litigation pending or, to the Knowledge of Purchaser,
threatened before any court, governmental agency or board or other forum in
which any of its Loan Properties (or any PURCHASER Company in respect of such
Loan Property) has been or, with respect to threatened Litigation, may be named
as a defendant or potentially responsible party (i) for alleged noncompliance
(including by any predecessor), with any Environmental Law or (ii) relating to
the release into the environment of any Hazardous Material or oil, whether or
not occurring at, on, under or involving a Loan Property, except for such
Litigation pending or, to the Knowledge of Purchaser, threatened that is not
reasonably likely to have, individually or in the aggregate, a Material Adverse
Effect on PURCHASER.
(d) To the Knowledge of PURCHASER, there is no reasonable basis for
any Litigation of a type described in subsections (b) or (c), except such as is
not reasonably likely to have, individually or in the aggregate, a Material
Adverse Effect on PURCHASER.
(e) During the period of (i) any PURCHASER Company's ownership or
operation of any of their respective current properties, (ii) any PURCHASER
Company's participation in the management of any Participation Facility, or
(iii) any PURCHASER Company's holding of a security interest in a Loan Property,
there have been no releases of Hazardous Material or oil in, on, under or
affecting such property, Participation Facility or Loan Property, except such as
are not reasonably likely to have, individually or in the aggregate, a Material
Adverse Effect on PURCHASER.
(f) Prior to the period of (i) any PURCHASER Company's ownership or
operation of any of their respective current properties, (ii) any PURCHASER
Company's participation in the management of any Participation Facility, or
(iii) any PURCHASER Company's holding of a security interest in a Loan Property,
to the Knowledge of PURCHASER, there were no releases of Hazardous Material or
oil in, on, under or affecting any such property, Participation
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<PAGE>
Facility or Loan Property, except such as are not reasonably likely to have,
individually or in the aggregate, a Material Adverse Effect on PURCHASER.
5.12 Compliance with Laws. PURCHASER is duly registered as a bank
--------------------
holding company under the BHC Act. Each PURCHASER Company has in effect all
Permits necessary for it to own, lease or operate its Assets and to carry on its
business as now conducted, except for those Permits the absence of which are not
reasonably likely to have, individually or in the aggregate, a Material Adverse
Effect on PURCHASER, and there has occurred no Default under any such Permit,
other than Defaults which are not reasonably likely to have, individually or in
the aggregate, a Material Adverse Effect on PURCHASER.
(a) No PURCHASER Company:
(i) is in violation of any Laws, Orders or Permits applicable to
its business or employees conducting its business, except for violations
which are not reasonably likely to have, individually or in the aggregate,
a Material Adverse Effect on PURCHASER; or
(ii) has received any notification or communication from any
agency or department of federal, state, or local government or any
Regulatory Authority or the staff thereof (A) asserting that any PURCHASER
Company is not in compliance with any of the Laws or Orders which such
governmental authority or Regulatory Authority enforces, where such
noncompliance is reasonably likely to have, individually or in the
aggregate, a Material Adverse Effect on PURCHASER, (B) threatening to
revoke any Permits, the revocation of which is reasonably likely to have,
individually or in the aggregate, a Material Adverse Effect on PURCHASER,
or (C) requiring any PURCHASER Company to enter into or consent to the
issuance of a cease and desist order, formal agreement, directive,
commitment or memorandum of understanding, or to adopt any Board resolution
or similar undertaking, which restricts materially the conduct of its
business, or in any manner relates to its capital adequacy, its credit or
reserve policies, its management, or the payment of dividends.
5.13 Labor Relations. No PURCHASER Company is the subject of any
---------------
Litigation asserting that it or any other PURCHASER Company has committed an
unfair labor practice (within the meaning of the National Labor Relations Act or
comparable state law) or seeking to compel it or any other PURCHASER Company to
bargain with any labor organization as to wages or conditions of employment, nor
is there any strike or other labor dispute involving any PURCHASER Company,
pending or, to its Knowledge, threatened, or to its Knowledge, is there any
activity involving any PURCHASER Company's employees seeking to certify a
collective bargaining unit or engaging in any other organization activity.
5.14 Employee Benefit Plans.
----------------------
(a) PURCHASER has Previously Disclosed and delivered or made
available to TARGET prior to the execution of this Agreement copies in each case
of all pension, retirement, profit-sharing, deferred compensation, stock option,
employee stock ownership, severance pay, vacation, bonus, or other incentive
plans, all other written employee programs, arrangements, or
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<PAGE>
agreements, all medical, vision, dental, or other health plans, all life
insurance plans, and all other employee benefit plans or fringe benefit plans,
including, without limitation, "employee benefit plans," as that term is defined
in Section 3(3) of ERISA, currently adopted, maintained by, sponsored in whole
or in part by, or contributed to by any PURCHASER Company or Affiliate thereof
for the benefit of employees, retirees, dependents, spouses, directors,
independent contractors, or other beneficiaries and under which employees,
retirees, dependents, spouses, directors, independent contractors, or other
beneficiaries are eligible to participate (collectively, the "PURCHASER Benefit
Plans). Any of the PURCHASER Benefit Plans which is an "employee pension
benefit plan," as that term is defined in Section 3(2) of ERISA, is referred to
herein as a "PURCHASER ERISA Plan." Each PURCHASER ERISA Plan which is also a
"defined benefit plan" (as defined in Section 414(j)) of the Internal Revenue
Code) is referred to herein as a "PURCHASER Pension Plan." No PURCHASER Pension
Plan is or has been a multi-employer plan within the meaning of Section 3(37) of
ERISA.
(b) All PURCHASER Benefit Plans are in compliance with the applicable
terms of ERISA, the Internal Revenue Code, and any other applicable Laws the
breach or violation of which are reasonably likely to have, individually or in
the aggregate, a Material Adverse Effect on PURCHASER. Each PURCHASER ERISA
Plan which is intended to be qualified under Section 401(a) of the Internal
Revenue Code has received a favorable determination letter from the Internal
Revenue Service, and PURCHASER is not aware of any circumstances likely to
result in revocation of any such favorable determination letter. To the
Knowledge of PURCHASER, no PURCHASER Company has engaged in a transaction with
respect to any PURCHASER Benefit Plan that, assuming the taxable period of such
transaction expired as of the date hereof would subject any PURCHASER Company to
a tax or penalty imposed by either Section 4975 of the Internal Revenue Code or
Section 502(i) of ERISA in amounts which are reasonably likely to have,
individually or in the aggregate, a Material Adverse Effect on PURCHASER.
(c) No PURCHASER ERISA Plan which is a defined benefit pension plan
has any "unfunded current liability," as that term is defined in Section
302(d)(8)(A) of ERISA, based on actuarial assumptions set forth for such plan's
most recent actuarial valuation. Since the date of the most recent actuarial
valuation, there has been (i) no material change in the financial position of
any PURCHASER Pension Plan, (ii) no change in the actuarial assumptions with
respect to any PURCHASER Pension Plan, and (iii) no increase in benefits under
any PURCHASER Pension Plan as a result of plan amendments or changes in
applicable Law which is reasonably likely to have, individually or in the
aggregate, a Material Adverse Effect on PURCHASER or materially adversely affect
the funding status of any such plan. Neither any PURCHASER Pension Plan nor any
"single-employer plan," within the meaning of Section 4001(a)(15) of ERISA,
currently or formerly maintained by any PURCHASER Company, or the single-
employer plan of any ERISA Affiliate has an "accumulated funding deficiency"
within the meaning of Section 412 of the Internal Revenue Code or Section 302 of
ERISA, which is reasonably likely to have a Material Adverse Effect on
PURCHASER. No PURCHASER Company has provided, or is required to provide,
security to a PURCHASER Pension Plan or to any single-employer plan of an ERISA
Affiliate pursuant to Section 401(a)(29) of the Code.
(d) No Liability under Subtitle C or D of Title IV or ERISA has been
or is expected to be incurred by any PURCHASER Company with respect to any
ongoing, frozen or
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<PAGE>
terminated single-employer plan or the single-employer plan of any ERISA
Affiliate, which Liability is reasonably likely to have a Material Adverse
Effect on PURCHASER. No PURCHASER Company has incurred any withdrawal Liability
with respect to a multi-employer plan under Subtitle B of Title IV or ERISA
(regardless of whether based on contributions of an ERISA Affiliate), which
Liability is reasonably likely to have a Material Adverse Effect on PURCHASER.
No notice of a "reportable event" within the meaning of Section 4043 of ERISA
for which the 30-day reporting requirement has not been waived, has been
required to be filed for any PURCHASER Pension Plan or by any ERISA Affiliate
within the 12-month period ending on the date hereof
(e) Except as Previously Disclosed, (i) no PURCHASER Company has any
obligations for retiree health and life benefits under any of the PURCHASER
Benefit Plans and (ii) there are no restrictions on the rights of such PURCHASER
Company to amend or terminate any such Plan without incurring any Liability
thereunder, which Liability is reasonably likely to have a Material Adverse
Effect on PURCHASER.
(f) Except as Previously Disclosed, neither the execution and delivery
of this Agreement nor the consummation of the transactions contemplated hereby
will (i) result in any payment (including, without limitation, severance,
unemployment compensation, golden parachute or otherwise) becoming due to any
director or any employee of any PURCHASER Company from any PURCHASER Company
under any PURCHASER Benefit Plan or otherwise, (ii) increase any benefits
otherwise payable under any PURCHASER Benefit Plan, or (iii) result in any
acceleration of the time of payment or vesting of any such benefit.
(g) The actuarial present values of all accrued deferred compensation
entitlements (including, without limitation, entitlements under any executive
compensation, supplemental retirement, or employment agreement) of employees and
former employees of any PURCHASER Company and their respective beneficiaries,
other than entitlements accrued pursuant to funded retirement plans subject to
the provisions of Section 412 of the Internal Revenue Code or Section 302 of
ERISA, have been fully reflected on the PURCHASER Financial Statements to the
extent required by and in accordance with GAAP.
5.15 Legal Proceedings. There is no Litigation instituted or pending,
-----------------
or, to the Knowledge of PURCHASER, threatened (or unasserted but considered
probable of assertion and which if asserted would have at least a reasonable
probability of an unfavorable outcome) against any PURCHASER Company, or against
any Asset, interest, or right of any of them, that is reasonably likely to have,
individually or in the aggregate, a Material Adverse Effect on PURCHASER, nor
are there any Orders of any Regulatory Authorities, other governmental
authorities, or arbitrators outstanding against any PURCHASER Company, that are
reasonably likely to have, individually or in the aggregate, a Material Adverse
Effect on PURCHASER.
5.16 Reports. Since January 1, 1993, each PURCHASER Company has timely
-------
filed all reports and statements, together with any amendments required to be
made with respect thereto, that it was required to file with (a) the SEC,
including, but not limited to, Forms 10-K, Forms 10-Q, Forms 8-K, and proxy
statements, (b) other Regulatory Authorities, and (c) any applicable state
securities or banking authorities (except, in the case of state securities
authorities, failures to file which are not reasonably likely to have,
individually or in the aggregate, a Material Adverse Effect
A-25
<PAGE>
on PURCHASER). As of their respective dates, each of such reports and
documents, including the financial statements, exhibits, and schedules thereto,
complied in all material respects with all applicable Laws. As of its
respective date, none of such reports and documents contained any untrue
statement of a material fact or omitted to state a material fact required to be
stated therein or necessary to make the statements made therein, in light of the
circumstances under which they were made, not misleading.
5.17 Statements True and Correct. No statement, certificate, instrument
---------------------------
or other writing furnished or to be furnished by any PURCHASER Company or any
Affiliate thereof to TARGET pursuant to this Agreement or any other document,
agreement or instrument referred to herein contains or will contain any untrue
statement of material fact or will omit to state a material fact necessary to
make the statements therein, in light of the circumstances under which they were
made, not misleading. None of the information supplied or to be supplied by any
PURCHASER Company or any Affiliate thereof for inclusion in the Registration
Statement to be filed by PURCHASER with the SEC, will, when the Registration
Statement becomes effective, be false or misleading with respect to any material
fact, or omit to state any material fact necessary to make the statements
therein not misleading. None of the information supplied or to be supplied by
any PURCHASER Company or any Affiliate thereof for inclusion in the Proxy
Statement to be mailed to TARGET's shareholders in connection with the
Shareholders' Meeting, and any other documents to be filed by any PURCHASER
Company or any Affiliate thereof with the SEC or any other Regulatory Authority
in connection with the transactions contemplated hereby, will, at the respective
time such documents are filed, and with respect to the Proxy Statement, when
first mailed to the shareholders of TARGET, be false or misleading with respect
to any material fact, or omit to state any material fact necessary to make the
statements therein, in light of the circumstances under which they were made,
not misleading, or, in the case of the Proxy Statement or any amendment thereof
or supplement thereto, at the time of the Shareholders' Meeting, be false or
misleading with respect to any material fact, or omit to state any material fact
necessary to correct any statement in any earlier communication with respect to
the solicitation of any proxy for the Shareholders' Meeting. All documents that
any PURCHASER Company or any Affiliate thereof is responsible for filing with
any Regulatory Authority in connection with the transactions contemplated hereby
will comply as to form in all material respects with the provisions of
applicable Law.
5.18 Accounting, Tax and Regulatory Matters. No PURCHASER Company or any
--------------------------------------
Affiliate thereof has taken any action or has any Knowledge of any fact or
circumstance that is reasonably likely to (a) prevent the transactions
contemplated hereby, including the Merger, from qualifying as a reorganization
within the meaning of Section 368(a) of the Internal Revenue Code, or (b)
materially impede or delay receipt of any Consents of Regulatory Authorities
referred to in Section 9.1(b) of this Agreement or result in the imposition of a
condition or restriction of the type referred to in the second sentence of such
Section. To the Knowledge of PURCHASER, there exists no fact, circumstance, or
reason why the requisite Consents referred to in Section 9.1(b) of this
Agreement cannot be received in a timely manner without the imposition of any
condition or restriction of the type described in the second sentence of such
Section 9.1(b).
5.19 Charter Provisions. Each PURCHASER Company has taken all action so
------------------
that the entering into of this Agreement and the consummation of the Merger and
the other transactions contemplated by this Agreement do not and will not result
in the grant of any rights to any Person
A-26
<PAGE>
under the Articles of Incorporation, Bylaws or other governing instruments of
any PURCHASER Company or restrict or impair the ability of any TARGET
shareholder to vote, or otherwise to exercise the rights of a shareholder with
respect to, shares of PURCHASER Common Stock that may be acquired or controlled
by it.
ARTICLE 6
CONDUCT OF BUSINESS PENDING CONSUMMATION
----------------------------------------
6.1 Affirmative Covenants of TARGET. Unless the prior written consent
-------------------------------
of PURCHASER shall have been obtained, and except as otherwise contemplated
herein, TARGET shall, and shall cause each of its Subsidiaries: (a) to operate
its business in the usual, regular, and ordinary course; (b) to preserve intact
its business organization and Assets and maintain its rights and franchises; (c)
to use its reasonable efforts to cause its representations and warranties to be
correct at all times; and (d) to take no action which would (i) adversely affect
the ability of any Party to obtain any Consents required for the transactions
contemplated hereby without imposition of a condition or restriction of the type
referred to in the second sentence of Section 8.1(b) of this Agreement or (ii)
adversely affect in any material respect the ability of either Party to perform
its covenants and agreements under this Agreement.
6.2 Negative Covenants of TARGET. From the date of this Agreement until
----------------------------
the earlier of the Effective Time or the termination of this Agreement, TARGET
covenants and agrees that it will not do or agree or commit to do, or permit any
of its Subsidiaries to do or agree or commit to do, any of the following without
the prior written consent of the chief executive officer or chief financial
officer of PURCHASER, which consent shall not be unreasonably withheld:
(a) amend the Articles of Incorporation, Bylaws or other governing
instruments of any TARGET Company; or
(b) incur any additional debt obligation or other obligation for
borrowed money (other than indebtedness of a TARGET Company to another TARGET
Company) in excess of an aggregate of $50,000 (for the TARGET Companies on a
consolidated basis) except in the ordinary course of the business of TARGET
Companies consistent with past practices (which shall include, for TARGET
Subsidiaries that are depository institutions, creation of deposit liabilities,
purchases of federal funds, and entry into repurchase agreements fully secured
by U.S. government or agency securities), or impose, or suffer the imposition,
on any share of stock held by any TARGET Company of any Lien or permit any such
Lien to exist, except with regard to Liens on the stock of TARGET Bank
Previously Disclosed; or
(c) repurchase, redeem, or otherwise acquire or exchange (other than
exchanges in the ordinary course under employee benefit plans), directly or
indirectly, any shares, or any securities convertible into any shares, of the
capital stock of any TARGET Company, or declare or pay any dividend or make any
other distribution in respect of TARGET's capital stock; or
A-27
<PAGE>
(d) except for this Agreement, or pursuant to the exercise of stock
options outstanding as of the date hereof and pursuant to the terms thereof in
existence on the date hereto, or as Previously Disclosed, issue, sell, pledge,
encumber, authorize the issuance of, or enter into any Contract to issue, sell,
pledge, encumber, or authorize the issuance of or otherwise permit to become
outstanding, any additional shares of TARGET Common Stock or any other capital
stock of any TARGET Company, or any stock appreciation rights, or any option,
warrant, conversion, or other right to acquire any such stock, or any security
convertible into any such stock; or
(e) adjust, split, combine or reclassify any capital stock of any
TARGET Company or issue or authorize the issuance of any other securities in
respect of or in substitution for shares of TARGET Common Stock or sell, lease,
mortgage or otherwise dispose of or otherwise encumber (i) any shares of capital
stock of any TARGET Subsidiary (unless any such shares of stock are sold or
otherwise transferred to another TARGET Company) or (ii) any Asset having a book
value in excess of $50,000 other than in the ordinary course of business for
reasonable and adequate consideration; or
(f) acquire direct or indirect control over any Person, other than
in connection with (i) internal reorganizations or consolidations involving
existing Subsidiaries, (ii) foreclosures in the ordinary course of business, or
(iii) acquisitions of control by a depository institution Subsidiary in its
fiduciary capacity; or
(g) grant any increase in compensation or benefits to the employees
or officers of any TARGET Company (including such discretionary increases as may
be contemplated by existing employment agreements), except in accordance with
past practice Previously Disclosed or as required by Law; pay any bonus except
in accordance with past practice Previously Disclosed or the provisions of any
applicable program or plan adopted by its Board of Directors prior to the date
of this Agreement; enter into or amend any severance agreements with officers of
any TARGET Company; grant any increase in fees or other increases in
compensation or other benefits to directors of any TARGET Company except in
accordance with past practice Previously Disclosed; or
(h) except with regard to the employment agreements referenced in
Section 6.2(g), enter into or amend any employment Contract between any TARGET
Company and any Person (unless such amendment is required by Law) that the
TARGET Company does not have the unconditional right to terminate without
Liability (other than Liability for services already rendered), at any time on
or after the Effective Time; or
(i) adopt any new employee benefit plan of any TARGET Company or
make any material change in or to any existing employee benefit plans of any
TARGET Company other than any such change that is required by Law or that, in
the opinion of counsel, is necessary or advisable to maintain the tax qualified
status of any such plan; or
(j) make any significant change in any accounting methods or
systems of internal accounting controls, except as may be appropriate to
conform to changes in regulatory accounting requirements or GAAP; or
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<PAGE>
(k) commence any Litigation other than in accordance with past
practice, settle any Litigation involving any Liability of any TARGET Company
for money damages in excess of $50,000 or which involves material restrictions
upon the operations of any TARGET Company; or
(l) except in the ordinary course of business, modify, amend or
terminate any material Contract or waive, release, compromise or assign any
material rights or claims.
6.3 Covenants of PURCHASER. From the date of this Agreement until the
----------------------
earlier of the Effective Time or the termination of this Agreement, PURCHASER
covenants and agrees that it shall continue to conduct its business and the
business of its Subsidiaries in a manner designed in its reasonable judgment, to
enhance the long-term value of the PURCHASER Common Stock and the business
prospects of the PURCHASER Companies and, to the extent consistent therewith, to
use all reasonable efforts to preserve intact the PURCHASER Companies' core
businesses and goodwill with their respective employees and the communities they
serve.
6.4 Adverse Changes in Condition. Each Party agrees to give written
----------------------------
notice promptly to the other Party upon becoming aware of the occurrence or
impending occurrence of any event or circumstance relating to it or any of its
Subsidiaries which (a) is reasonably likely to have, individually or in the
aggregate, a Material Adverse Effect on it or (b) is reasonably likely to cause
or constitute a material breach of any of its representations, warranties, or
covenants contained herein, and to use its best efforts to prevent or promptly
to remedy the same.
6.5 Reports. Each Party and its Subsidiaries shall file all reports
-------
required to be filed by it with Regulatory Authorities between the date of this
Agreement and the Effective Time and shall deliver to the other Party copies of
all such reports promptly after the same are filed. If financial statements are
contained in any such reports filed with the SEC, such financial statements will
fairly present the consolidated financial position of the entity filing such
statements as of the dates indicated and the consolidated results of operations,
changes in shareholders' equity, and cash flows for the periods then ended in
accordance with GAAP (subject in the case of interim financial statements to
normal recurring year-end adjustments that are not material). As of their
respective dates, such reports filed with the SEC will comply in all material
respects with the Securities Laws and will not contain any untrue statement of a
material fact or omit to state a material fact required to be stated therein or
necessary in order to make the statements therein, in light of the circumstances
under which they were made, not misleading. Any financial statements contained
in any other reports to another Regulatory Authority shall be prepared in
accordance with Laws applicable to such reports.
ARTICLE 7
ADDITIONAL AGREEMENTS
---------------------
7.1 Registration Statement; Proxy Statement; Shareholder Approval. As
-------------------------------------------------------------
soon as practicable after execution of this Agreement, PURCHASER shall file the
Registration Statement with the SEC, and shall use its best efforts to cause the
Registration Statement to become effective under the 1933 Act and take any
action required to be taken under the applicable state Blue Sky or securities
Laws in connection with the issuance of the shares of PURCHASER Common Stock
upon
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<PAGE>
consummation of the Merger. TARGET shall furnish all information concerning it
and the holders of its capital stock as PURCHASER may reasonably request in
connection with such action. TARGET shall call a Shareholders' Meeting, to be
held as soon as reasonably practicable after the Registration Statement is
declared effective by the SEC, for the purpose of voting upon approval of the
Merger and this Agreement and such other related matters as it deems
appropriate. In connection with the Shareholders' Meeting, (a) PURCHASER shall
prepare and file on TARGET's behalf a Proxy Statement (which shall be included
in the Registration Statement) with the SEC and mail it to its shareholders, (b)
the Parties shall furnish to each other all information concerning them that
they may reasonably request in connection with such Proxy Statement, (c) the
Board of Directors of TARGET shall recommend (subject to compliance with their
fiduciary duties as advised by counsel) to its shareholders that they approve
this Agreement, and (d) the Board of Directors and officers of TARGET shall use
their reasonable efforts to obtain such shareholders' approval (subject to
compliance with their fiduciary duties as advised by counsel).
7.2 Listing. PURCHASER shall use its best efforts to list, prior to the
-------
Effective Time, on the NASDAQ/NMS, the shares of PURCHASER Common Stock to be
issued to the holders of TARGET Common Stock pursuant to the Merger.
7.3 Applications. PURCHASER shall promptly prepare and file, and TARGET
------------
shall cooperate in the preparation and, where appropriate, filing of,
applications with all Regulatory Authorities having jurisdiction over the
transactions contemplated by this Agreement seeking the requisite Consents
necessary to consummate the transactions contemplated by this Agreement.
7.4 Filings with State Offices. Upon the terms and subject to the
--------------------------
conditions of this Agreement, PURCHASER shall execute and file the Articles of
Merger with the Secretary of State of the State of Georgia in connection with
the Closing.
7.5 Agreement as to Efforts to Consummate. Subject to the terms and
-------------------------------------
conditions of this Agreement, each Party agrees to use, and to cause its
Subsidiaries to use, its best efforts to take, or cause to be taken, all
actions, and to do, or cause to be done, all things necessary, proper, or
advisable under applicable Laws, as promptly as practicable so as to permit
consummation of the Merger at the earliest possible date and to otherwise enable
consummation of the transactions contemplated hereby and shall cooperate fully
with the other Party hereto to that end (it being understood that any amendments
to the Registration Statement filed by PURCHASER in connection with the
PURCHASER Common Stock to be issued in the Merger or a resolicitation of proxies
as a consequence of an acquisition agreement by PURCHASER or any of its
Subsidiaries shall not violate this covenant), including, without limitation,
using its efforts to lift or rescind any Order adversely affecting its ability
to consummate the transactions contemplated herein and to cause to be satisfied
the conditions referred to in Article 9 of this Agreement. Each Party shall
use, and shall cause each of its Subsidiaries to use, its best efforts to obtain
all Consents necessary or desirable for the consummation of the transactions
contemplated by this Agreement.
7.6 Investigation and Confidentiality.
---------------------------------
(a) Prior to the Effective Time, each Party will keep the other
Party advised of all material developments relevant to its business and to
consummation of the Merger and shall
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permit the other Party to make or cause to be made such investigation of the
business and properties of it and its Subsidiaries and of their respective
financial and legal conditions as the other Party reasonably requests, provided
that such investigation shall be reasonably related to the transactions
contemplated hereby and shall not interfere unnecessarily with normal
operations. No investigation by a Party shall affect the representations and
warranties of the other Party.
(b) Except as may be required by applicable law or legal process,
and except for such disclosure to those of its directors, officers, employees
and representatives as may be appropriate or required in connection with the
transactions contemplated hereby, each Party shall hold in confidence all
nonpublic information obtained from the other Party (including work papers and
other material derived therefrom) as a result of this Agreement or in connection
with the transactions contemplated hereby (whether so obtained before or after
the execution hereof) until such time as the Party providing such information
consents to its disclosure or such information becomes otherwise publicly
available. Promptly following any termination of this Agreement, each of the
Parties agrees to use its best efforts to cause its respective directors,
officers, employees and representatives to destroy or return to the providing
party all such nonpublic information (including work papers and other material
retrieved therefrom), including all copies thereof. Each Party shall, and shall
cause its advisers and agents to, maintain the confidentiality of all
confidential information furnished to it by the other Party concerning its and
its Subsidiaries' businesses, operations, and financial positions and shall not
use such information for any purpose except in furtherance of the transactions
contemplated by this Agreement. If this Agreement is terminated prior to the
Effective Time, each Party shall promptly return all documents and copies
thereof and all work papers containing confidential information received from
the other Party, except one copy of certain materials that can be retained for
legal files in accordance with the provisions of the Confidentiality Agreements.
(c) Each Party agrees to give the other Party notice as soon as
practicable after any determination by it of any fact or occurrence relating to
the other Party which it has discovered through the course of its investigation
and which represents, or is reasonably likely to represent, either a material
breach of any representation, warranty, covenant or agreement of the other Party
or which has had or is reasonably likely to have a Material Adverse Effect on
the other Party.
7.7 Press Releases. Prior to the Effective Time, TARGET and PURCHASER
--------------
shall consult with each other as to the form and substance of any press release
or other public disclosure materially related to this Agreement or any other
transaction contemplated hereby; provided, however, that nothing in this Section
7.7 shall be deemed to prohibit any Party from making any disclosure which its
counsel deems necessary or advisable in order to satisfy such Party's disclosure
obligations imposed by Law.
7.8 No Solicitation.
---------------
(a) TARGET shall not, nor shall it permit any of its Subsidiaries
to, nor shall it authorize or permit any officer, director of employee of, or
any investment banker, attorney or other advisor or representative of, TARGET or
any of its Subsidiaries to, (i) solicit or initiate, or encourage the submission
of, any takeover proposal or (ii) participate in any discussions or negotiations
regarding, or furnish to any person any information with respect to, or take any
other
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action to facilitate any inquiries or the making of any proposal that
constitutes, or may reasonably be expected to lead to, any takeover proposal;
provided, however, that, if in the opinion of its Board of Directors, after
consultation with counsel, such failure to act would be inconsistent with its
fiduciary duties to stockholders under applicable law, TARGET may, in response
to an unsolicited takeover proposal, and subject to compliance with subparagraph
(c) below, (A) furnish information with respect to TARGET to any Person pursuant
to a confidentiality agreement and (B) participate in negotiations regarding
such takeover proposal. Without limiting the foregoing, it is understood that
any violation of the restrictions set forth in the immediately preceding
sentence by any executive officer of TARGET or any of its Subsidiaries or any
investment banker, attorney or other advisor or representative of TARGET or any
of its Subsidiaries, whether or not such person is purporting to act on behalf
of TARGET or any of its Subsidiaries or otherwise, shall be deemed to be a
breach of this Section 7.8 by TARGET. For purposes of this Agreement, "takeover
proposal" means an inquiry, proposal or acquisition or purchase of a substantial
amount of assets of TARGET or any of its Subsidiaries (other than investors in
the ordinary course of business) or of over 20% of any class of equity
securities of TARGET or any of its Subsidiaries or any tender offer or exchange
offer that if consummated would result in any Person beneficially owning 20% or
more of any class of equity securities of TARGET or any of its Subsidiaries, or
any merger, consolidation, business combination, sale of substantially all
assets, recapitalization, liquidation, dissolution or similar transaction
involving TARGET or any of its Subsidiaries other than the transactions
contemplated by this Agreement, or any other transaction the consummation of
which would reasonably be expected to impede, interfere with, prevent or
materially delay the Merger or which would reasonably be expected to dilute
materially the benefits to PURCHASER of the transactions contemplated hereby.
(b) Except as set forth herein, neither the Board of Directors of
TARGET nor any committee thereof shall (i) withdraw or modify, or propose to
withdraw or modify, in a manner adverse to PURCHASER, the approval or
recommendation of such Board of Directors or any such committee of this
Agreement or the Merger, (ii) approve or recommend, or propose to approve or
recommend, any takeover proposal or (iii) enter into any agreement with respect
to any takeover proposal. Notwithstanding the foregoing, if in the opinion of
the TARGET Board of Directors, after consultation with counsel, failure to do so
would be inconsistent with its fiduciary duties to TARGET stockholders under
applicable law, then, prior to the Shareholders' Meeting, the TARGET Board of
Directors may (subject to the terms of this and the following sentences)
withdraw or modify its approval or recommendation of this Agreement or the
Merger, approve or recommend a superior proposal, or enter into an agreement
with respect to a superior proposal, in each case at any time after the second
business day following PURCHASER's receipt of written notice (a "Notice of
Superior Proposal") advising PURCHASER that the TARGET Board of Directors has
received a superior proposal, specifying the material terms and conditions of
such superior proposal and identifying the Person making such superior proposal;
provided that TARGET shall not enter into an agreement with respect to a
superior proposal unless TARGET shall have furnished PURCHASER with written
notice no later than 12:00 noon one (1) day in advance of any date that it
intends to enter into such agreement. In addition, if TARGET proposes to enter
into an agreement with respect to any takeover proposal, it shall concurrently
with entering into such agreement pay, or cause to be paid, to PURCHASER the
Expenses (as defined in Section 10.2(a) and to the extent provided by Section
10.2(b)) and the Termination Fee (as defined in Section 10.2(b)). For purposes
of this Agreement, a "superior proposal" means any bona fide takeover proposal
to acquire, directly
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or indirectly, for consideration consisting of cash and/or securities, more than
50% of the shares of TARGET Common Stock or TARGET Bank then outstanding or all
or substantially all of the assets of TARGET or TARGET Bank and otherwise on
terms which the TARGET Board of Directors determines in its good faith judgment
(based on the advice of a financial advisor of nationally recognized reputation)
to be more favorable to its shareholders than the Merger.
(c) In addition to the obligations of TARGET set forth in paragraph
(b) above, TARGET shall immediately advise PURCHASER orally and in writing of
any request for information or of any takeover proposal, or any inquiry with
respect to or which could lead to any takeover proposal, the material terms and
conditions of such request, takeover proposal or inquiry, and the identity of
the person making any takeover proposal or inquiry. TARGET shall keep PURCHASER
fully informed of the status and details (including amendments or proposed
amendments) of any such request, takeover proposal or inquiry.
(d) Nothing contained in this Section 7.8 shall prohibit TARGET from
making any disclosure to TARGET's shareholders if, in the opinion of the TARGET
Board of Directors, after consultation with counsel, failure to so disclose
would be inconsistent with its fiduciary duties to its shareholders under
applicable law; provided that TARGET does not, except as permitted by
subparagraph (b) above, withdraw or modify, or propose to withdraw or modify,
its position with respect to the Merger or approve or recommend, or propose to
approve or recommend, a takeover proposal.
7.9 Tax Treatment. Each of the Parties undertakes and agrees to use its
-------------
reasonable efforts to cause the Merger, and to take no action which would cause
the Merger not, to qualify for treatment as a "reorganization" within the
meaning of Section 368(a) of the Internal Revenue Code for federal income tax
purposes.
7.10 Agreement of Affiliates. TARGET has Previously Disclosed all
-----------------------
Persons whom it reasonably believes are "affiliates" of TARGET for purposes of
Rule 145 under the 1933 Act. TARGET shall use its reasonable efforts to cause
each such Person to deliver to PURCHASER not later than thirty (30) days after
the date of this Agreement, a written agreement, substantially in the form of
Exhibit 1 hereto, providing that such Person will not sell, pledge, transfer, or
otherwise dispose of the shares of TARGET Common Stock held by such Person
except as contemplated by such agreement or by this Agreement and will not sell,
pledge, transfer, or otherwise dispose of the shares of PURCHASER Common Stock
to be received by such Person upon consummation of the Merger except in
compliance with applicable provisions of the 1933 Act and the rules and
regulations thereunder. Regardless of whether each such affiliate has provided
the written agreement referred to in this Section, PURCHASER shall be entitled
to place restrictive legends upon certificates for shares of PURCHASER Common
Stock issued to affiliates of TARGET pursuant to this Agreement to enforce the
provisions of this Section. PURCHASER shall not be required to maintain the
effectiveness of the Registration Statement under the 1933 Act for the purposes
of resale of PURCHASER Common Stock by such affiliates, except as may be
expressly set forth herein.
7.11 Employee Benefits and Contracts. Following the Effective Time,
-------------------------------
PURCHASER shall provide generally to officers and employees of the TARGET
Companies employee benefits under employee benefit plans (other than stock
option or other plans involving the potential issuance
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<PAGE>
of PURCHASER Common Stock), on terms and conditions which when taken as a whole
are substantially similar to those currently provided by the PURCHASER Companies
to their similarly situated officers and employees, provided that for a period
of twelve (12) months after the Effective Time, PURCHASER shall provide
generally to officers and employees of TARGET Companies severance benefits in
accordance with the policies of either (i) TARGET as Previously Disclosed, or
(ii) PURCHASER, whichever of (i) or (ii) will provide the greater benefit to the
officer or employee. For purposes of participation and vesting under such
employee benefit plans, the service of the employees of the TARGET Companies
prior to the Effective Time shall be treated as service with a PURCHASER Company
participating in such employee benefit plans. PURCHASER also shall honor in
accordance with their terms all employment, severance, consulting and other
compensation Contracts Previously Disclosed to PURCHASER between any TARGET
Company and any current or former director, officer, or employee thereof and all
provisions for vested benefits or other vested amounts earned or accrued through
the Effective Time under the TARGET Benefit Plans.
7.12 Large Deposits. Prior to the Closing, TARGET will provide PURCHASER
--------------
with a list of all certificates of deposit or checking, savings or other
deposits owned by persons who, to the Knowledge of the TARGET, had deposits
aggregating more than $100,000 and a list of all certificates of deposit or
checking, savings or other deposits owned by directors and officers of TARGET
and the Bank and their affiliates in an amount aggregating more than $100,000 as
of the last day of the calendar month immediately prior to the Closing.
7.13 Indemnification Against Certain Liabilities. PURCHASER agrees that
-------------------------------------------
all rights to indemnification and all limitations of liability existing in favor
of the officers and directors of TARGET and TARGET Bank ("Indemnified Parties")
as provided in their respective articles of incorporation and bylaws as of the
date hereof with respect to matters occurring prior to the Effective Time shall
survive the Merger and shall continue in full force and effect, without any
amendment thereto, for a period of not less than six (6) years from the
Effective Time; provided, however, that all rights to any indemnification in
respect of any claim asserted or made within such period shall continue until
the final disposition of such claim.
7.14 Registration Rights and Election Agreement. Concurrent with the
------------------------------------------
execution hereof, Winn F. Martin shall execute and deliver a Registration Rights
and Election Agreement substantially in the from of Exhibit 3 hereto.
7.15 Irrevocable Proxies. Concurrent with the execution hereof, TARGET
-------------------
shall obtain and deliver to PURCHASER irrevocable proxies in substantially the
form of Exhibit 6 hereto from Affiliates of TARGET holding in the aggregate 51%
of the Outstanding TARGET Shares.
7.16 Reserve for Snead Annuity. Prior to the Closing, PURCHASER shall
-------------------------
cause Mauldin & Jenkins ("M&J") and TARGET shall cause KPMG Peat Marwick ("Peat
Marwick") to determine the amount of the reserve which TARGET should establish
with respect to the annuity payable to Thomas Snead and/or Jacqueline Tew Snead
pursuant to that certain Agreement in Principle by and between TARGET and Mr.
and Mrs. Snead dated as of August 17, 1989 (the "Snead Reserve"). If the amount
of the Snead Reserve determined by M&J and the amount of the Snead Reserve
determined by Peat Marwick are within $25,000 of each other, then the amount of
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<PAGE>
the Snead Reserve shall be equal to the average of the amounts so determined.
If the amounts of the Snead Reserve so determined differ by more than $25,000,
then M&J and Peat Marwick shall mutually select and appoint a third independent
accounting firm to determine the amount of the Snead Reserve, in which event the
amount of the Snead Reserve shall be equal to the result obtained by averaging
the two of the three amounts which deviate the least from the average of the
first two amounts so determined. Each party will bear equally the fees and
expenses of the independent accounting firm mutually selected, but each party
shall be solely responsible for the fees and expenses of any independent
accounting firm selected solely by such party. Upon the final determination of
the amount of the Snead Reserve, TARGET shall establish a reserve on its books
in an amount equal to fifty percent (50%) of the amount of the Snead Reserve
determined in accordance herewith.
ARTICLE 8
CONDITIONS PRECEDENT TO OBLIGATIONS TO CONSUMMATE
-------------------------------------------------
8.1 Conditions to Obligations of Each Party. The respective obligations
---------------------------------------
of each Party to perform this Agreement and consummate the Merger and the other
transactions contemplated hereby are subject to the satisfaction of the
following conditions, unless waived by both Parties pursuant to Section 10.6 of
this Agreement:
(a) Shareholder Approval. The shareholders of TARGET shall have
--------------------
approved this Agreement, and the consummation of the transactions contemplated
hereby, including the Merger, as and to the extent required by Law or by the
provisions of any governing instruments.
(b) Regulatory Approvals. All Consents of, filings and registrations
--------------------
with, and notifications to, all Regulatory Authorities required for consummation
of the Merger shall have been obtained or made and shall be in full force and
effect, and all waiting periods required by Law shall have expired. No Consent
obtained from any Regulatory Authority which is necessary to consummate the
transactions contemplated hereby shall be conditioned or restricted in a manner
(including, without limitation, requirements relating to the raising of
additional capital or the disposition of Assets) which, in the reasonable
judgment of the Board of Directors of either Party, would so materially
adversely impact the economic or business benefits of the transactions
contemplated by this Agreement so as to render inadvisable the consummation of
the Merger; provided, however, that no such condition or restriction shall be
deemed to be materially adverse unless it materially differs from terms and
conditions customarily imposed by any Regulatory Authority in connection with
similar transactions.
(c) Consents and Approvals. Each Party shall have obtained any and
----------------------
all Consents required for consummation of the Merger (other than those referred
to in Section 8.1(b) of this Agreement) or for the preventing of any Default
under any Contract or Permit of such Party which, if not obtained or made, is
reasonably likely to have, individually or in the aggregate, a Material Adverse
Effect on such Party.
(d) Legal Proceedings. No court or governmental or regulatory
-----------------
authority of competent jurisdiction shall have enacted, issued, promulgated,
enforced or entered any Law or
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<PAGE>
Order (whether temporary, preliminary or permanent) or taken any other action
which prohibits, materially restricts or makes illegal consummation of the
transactions contemplated by this Agreement.
(e) Registration Statement. The Registration Statement shall be
----------------------
effective under the 1933 Act, no stop orders suspending the effectiveness of the
Registration Statement shall have been issued, no action, suit, proceeding or
investigation by the SEC to suspend the effectiveness thereof shall have been
initiated and be continuing, and all necessary approvals under state securities
Laws or the 1933 Act or 1934 Act relating to the issuance or trading of the
shares of PURCHASER Common Stock issuable pursuant to the Merger shall have been
received.
(f) NASD Listing. The shares of PURCHASER Common Stock issuable
------------
pursuant to the Merger shall have been approved for listing on the NASDAQ/NMS.
(g) Tax Matters. TARGET shall have received a written opinion of
-----------
counsel from Rogers & Hardin, in form reasonably satisfactory to it,
substantially to the effect that for federal income tax purposes (a) the Merger
will constitute a reorganization within the meaning of Section 368(a) of the
Internal Revenue Code, and (b) the exchange in the Merger of TARGET Common Stock
for PURCHASER Common Stock will not give rise to gain or loss to the
stockholders of TARGET with respect to such exchange (except to the extent of
any cash received).
8.2 Conditions to Obligations of PURCHASER. The obligations of
--------------------------------------
PURCHASER to perform this Agreement and consummate the Merger and the other
transactions contemplated hereby are subject to the satisfaction of the
following conditions, unless waived by PURCHASER pursuant to Section 10.6(a) of
this Agreement:
(a) Representations and Warranties. The representations and
------------------------------
warranties of TARGET set forth or referred to in this Agreement shall be true
and correct in all respects as of the date of this Agreement and as of the
Effective Time with the same effect as though all such representations and
warranties had been made on and as of the Effective Time (provided that
representations and warranties which are confined to a specified date shall
speak only as of such date), except (i) as expressly contemplated by this
Agreement, or (ii) for representations and warranties (other than the
representations and warranties set forth in Section 4.3 of this Agreement, which
shall be true in all respects) the inaccuracies of which relate to matters that
are not reasonably likely to have, individually or in the aggregate, a Material
Adverse Effect on TARGET.
(b) Performance of Agreements and Covenants. Each and all of the
---------------------------------------
agreements and covenants of TARGET to be performed and complied with pursuant to
this Agreement and the other agreements contemplated hereby prior to the
Effective Time shall have been duly performed and complied with in all material
respects.
(c) Certificates. TARGET shall have delivered to PURCHASER (i) a
------------
certificate, dated as of the Effective Time and signed on its behalf by its
chief executive officer, to the effect that the conditions of its obligations
set forth in Sections 8.2(a) and 8.2(b) of this Agreement have been satisfied in
all material respects, and (ii) certified copies of resolutions duly adopted by
TARGET's Board of Directors and shareholders evidencing the taking of all
corporate
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action necessary to authorize the execution, delivery and performance of this
Agreement, and the consummation of the transactions contemplated hereby, all in
such reasonable detail as PURCHASER and its counsel shall reasonably request.
(d) Opinion of Counsel. TARGET shall have delivered to PURCHASER an
------------------
opinion of Balch & Bingham, counsel to TARGET, dated as of the Closing, in
substantially the form of Exhibit 2 hereto.
(e) Accountant's Letters. PURCHASER shall have received from KPMG
--------------------
Peat Marwick letters dated not more than five (5) days prior to (i) the date of
the Proxy Statement and (ii) the Effective Time, with respect to certain
financial information regarding TARGET, in form and substance reasonably
satisfactory to PURCHASER, which letters shall be based upon customary specified
procedures undertaken by such firm.
(f) Employment Agreement. John E. Meyer, Jr. shall have executed and
--------------------
delivered an Employment Agreement substantially in the form of Exhibit 4 hereto,
and TARGET and Mr. Meyer shall have cancelled and terminated, to the
satisfaction of PURCHASER, that certain Employment Agreement between them dated
as of November 17, 1993, as amended.
8.3 Conditions to Obligations of TARGET. The obligations of TARGET to
-----------------------------------
perform this Agreement and consummate the Merger and the other transactions
contemplated hereby are subject to the satisfaction of the following conditions,
unless waived by TARGET pursuant to Section 10.6(b) of this Agreement:
(a) Representations and Warranties. The representations and
------------------------------
warranties of PURCHASER set forth or referred to in this Agreement shall be true
and correct in all respects as of the date of this Agreement and as of the
Effective Time with the same effect as though all such representations and
warranties had been made on and as of the Effective Time (provided that
representations and warranties which are confined to a specified date shall
speak only as of such date), except (i) as expressly contemplated by this
Agreement, or (ii) for representations and warranties (other than the
representations and warranties set forth in Section 5.3 of this Agreement, which
shall be true in all respects) the inaccuracies of which relate to matters that
are not reasonably likely to have, individually or in the aggregate, a Material
Adverse Effect on PURCHASER.
(b) Performance of Agreements and Covenants. Each and all of the
---------------------------------------
agreements and covenants of PURCHASER to be performed and complied with pursuant
to this Agreement and the other agreements contemplated hereby prior to the
Effective Time shall have been duly performed and complied with in all material
respects.
(c) Certificates. PURCHASER shall have delivered to TARGET (i) a
------------
certificate, dated as of the Effective Time and signed on its behalf by its
chief executive officer and its chief financial officer, to the effect that the
conditions of its obligations set forth in Section 8.3(a) and 8.3(b) of this
Agreement have been satisfied in all material respects, and (ii) certified
copies of resolutions duly adopted by PURCHASER's Board of Directors evidencing
the taking of all corporate action necessary to authorize the execution,
delivery and performance of this Agreement,
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<PAGE>
and the consummation of the transactions contemplated hereby, all in such
reasonable detail as TARGET and its counsel shall reasonably request.
(d) Opinion of Counsel. PURCHASER shall have delivered to TARGET an
------------------
opinion of Rogers & Hardin, counsel to PURCHASER, dated as of the Closing, in
substantially the form of Exhibit 5 hereto.
ARTICLE 9
TERMINATION
-----------
9.1 Termination. Notwithstanding any other provision of this Agreement,
-----------
and notwithstanding the approval of this Agreement by the shareholders of
TARGET, this Agreement may be terminated and the Merger abandoned at any time
prior to the Effective Time:
(a) By mutual consent of the Board of Directors of PURCHASER and the
Board of Directors of TARGET; or
(b) By the Board of Directors of either Party (provided that the
terminating Party is not then in material breach of any representation,
warranty, covenant, or other agreement contained in this Agreement) in the event
of a material breach by the other Party of any representation or warranty
contained in this Agreement which cannot be or has not been cured within thirty
(30) days after the giving of written notice to the breaching Party of such
breach and which breach would provide the non-breaching party the ability to
refuse to consummate the Merger under the standard set forth in Section 8.2(a)
of this Agreement in the case of PURCHASER and Section 8.3(a) of this Agreement
in the case of TARGET; or
(c) By the Board of Directors of either Party (provided that the
terminating Party is not then in material breach of any representation,
warranty, covenant, or other agreement contained in this Agreement) in the event
of a material breach by the other Party of any covenant or agreement contained
in this Agreement which cannot be or has not been cured within (30) days after
the giving of written notice to the breaching Party of such breach; or
(d) By the Board of Directors of either Party (provided that the
terminating Party is not then in material breach of any representation,
warranty, covenant, or other agreement contained in this Agreement) in the event
(i) any Consent of any Regulatory Authority required for consummation of the
Merger and the other transactions contemplated hereby has been denied by final
nonappealable action of such authority or if any action taken by such authority
is not appealed within the time limit for appeal, or (ii) if the shareholders of
TARGET fail to approve this Agreement and the transactions contemplated hereby
as required by the ABCA at the Shareholders' Meetings where the transactions
were presented to such shareholders for approval and voted upon; or
(e) By the Board of Directors of either Party in the event that the
Merger shall not have been consummated by June 1, 1996, but only if the failure
to consummate the transactions contemplated hereby on or before such date is not
caused by any breach of this Agreement by the Party electing to terminate
pursuant to this Section 9.1 (e); or
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(f) By the Board of Directors of either Party (provided that the
terminating Party is not then in material breach of any representation,
warranty, covenant, or other agreement contained in this Agreement) in the event
that any of the conditions precedent to the obligations of such Party to
consummate the Merger cannot be satisfied or fulfilled by the date specified in
Section 9.1(e) of this Agreement.
(g) By the Board of Directors of TARGET in connection with entering
into a definitive agreement in accordance with Section 7.8(b), provided that it
has complied with all provisions thereof, including the notice provisions
therein, and that it makes simultaneous payment of the Expenses and the
Termination Fee.
9.2 Effect of Termination. In the event of the termination and
---------------------
abandonment of this Agreement pursuant to Section 9.1 of this Agreement, this
Agreement shall become void and have no effect, except that (i) the provisions
of this Section 9.2 and Sections 7.6(b), 7.8(b) and 10.2 of this Agreement shall
survive any such termination and abandonment, and (ii) a termination pursuant to
Section 9.1 of this Agreement shall not relieve the breaching Party from
Liability for an uncured willful breach of a representation, warranty, covenant,
or agreement giving rise to such termination.
ARTICLE 10
MISCELLANEOUS
-------------
10.1 Definitions. Except as otherwise provided herein, the capitalized
-----------
terms set forth below (in their singular and plural forms as applicable) shall
have the following meanings:
"ABCA" shall mean the Alabama Business Corporation Act.
"Acquisition Proposal" with respect to a Party shall mean any tender offer
or exchange offer or any proposal for a merger, acquisition of all of the stock
or Assets of, or other business combination involving such Party or any of its
Subsidiaries or the acquisition of a substantial equity interest in, or a
substantial portion of the Assets of, such Party or any of its Subsidiaries.
"Affiliate" of a Person shall mean: (a) any other Person directly, or
indirectly through one or more intermediaries, controlling, controlled by or
under common control with such Person or (b) any officer, director, partner,
employer, or direct or indirect beneficial owner of any 10% or greater equity or
voting interest of such Person.
"Agreement" shall mean this Agreement and Plan of Merger and the Exhibits
delivered pursuant hereto and incorporated herein by reference.
"Assets" of a Person shall mean all of the assets, properties, businesses
and rights of such Person of every kind, nature, character and description,
whether real, personal or mixed, tangible or intangible, accrued or contingent,
or otherwise relating to or utilized in such Person's business, directly or
indirectly, in whole or in part, whether or not carried on the books and records
of such
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Person, and whether or not owned in the name of such Person or any Affiliate of
such Person and wherever located.
"Base Period Trading Price" shall mean (i) $13.88 plus (B) the average of
the daily closing sales price of a share of PURCHASER Common Stock as reported
on NASDAQ/NMS for the twenty (20) consecutive trading days immediately preceding
five (5) consecutive calendar days immediately preceding the Effective Time (the
"Pre-Closing Base Period Trading Price"), divided by (ii) two (2); provided,
--------
however, that for purposes of this calculation, the Pre-Closing Base Trading
- -------
Price shall be deemed to equal (i) $18.00 in the event the Pre-Closing Base
Period Trading Price is greater than $18.00 or (ii) $10.00 in the event the Pre-
Closing Base Period Trading Price is less than $10.00.
"BHC Act" shall mean the federal Bank Holding Company Act of 1956, as
amended.
"Book Value" shall mean the book value of TARGET as calculated under GAAP.
"Cash Consideration" shall have the meaning provided in Section 3.1(b) of
this Agreement.
"Cash Election" shall have the meaning provided in Section 3.1(d) of this
Agreement.
"Cash Election Shares" shall have the meaning provided in Section 3.1(h) of
this Agreement.
"Closing" shall mean the closing of the transactions contemplated hereby,
as described in Section 1.2 of this Agreement.
"Closing Date" shall have the meaning provided in Section 1.2 of this
Agreement.
"Combination Election" shall have the meaning provided in Section 3.1(d) of
this Agreement.
"Consent" shall mean any consent, approval, authorization, clearance,
exemption, waiver, or similar affirmation by any Person pursuant to any
Contract, Law, Order, or Permit.
"Contract" shall mean any written or oral agreement, arrangement,
authorization, commitment, contract, indenture, instrument, lease, obligation,
plan, practice, restriction, understanding or undertaking of any kind or
character, or other document to which any Person is a party or that is binding
on any Person or its capital stock, Assets or business.
"Default" shall mean (a) any breach or violation of or default under any
Contract, Order or Permit, (b) any occurrence of any event that with the passage
of time or the giving of notice or both would constitute a breach or violation
of or default under any Contract, Order or Permit, or (c) any occurrence of any
event that with or without the passage of or the giving of notice would give
rise to a right to terminate or revoke, change the current terms of, or
renegotiate, or to accelerate, increase, or impose any Liability under, any
Contract, Order or Permit.
"Dissenting Shares" shall have the meaning provided in Section 3.1(b) of
this Agreement.
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<PAGE>
"Dissenting TARGET Shareholders" shall have the meaning provided in Section
3.1(l) of this Agreement.
"Effective Time" shall mean the date and time at which the Merger becomes
effective as defined in Section 1.3 of this Agreement.
"Environmental Laws" shall mean all Laws which are administered,
interpreted or enforced by the United States Environmental Protection Agency and
state and local agencies with primary jurisdiction over pollution or protection
of the environment.
"ERISA" shall mean the Employee Retirement Income Security Act of 1974, as
amended.
"ERISA Plan" shall have the meaning provided in Section 4.14 of this
Agreement.
"Exchange Agent" shall have the meaning provided in Section 3.1(f) of this
Agreement.
"Exchange Ratio" shall have the meaning provided in Section 3.1(b) of this
Agreement.
"Exhibits" 1 through 6, inclusive, shall mean the Exhibits so marked,
copies of which are attached to this Agreement. Such Exhibits are hereby
incorporated by reference herein and made a part hereof and may be referred to
in this Agreement and any other related instrument or document without being
attached hereto.
"Expenses" shall have the meaning provided in Section 10.2 of this
Agreement.
"Form of Election" shall have the meaning provided in Section 3.1(d) of
this Agreement.
"GAAP" shall mean generally accepted accounting principles, consistently
applied during the periods involved.
"Georgia Articles of Merger" shall mean the Articles of Merger to be
executed by PURCHASER and filed with the Secretary of State of the State of
Georgia relating to the Merger as contemplated by Section 1.1 of this Agreement.
"GBCC" shall mean the Georgia Business Corporation Code.
"Hazardous Material" shall mean any pollutant, contaminant, or hazardous
substance within the meaning of the Comprehensive Environmental Response,
Compensation and Liability Act of 1980, as amended, 42 U.S.C. (S) 9601 et seq.,
or any similar federal, state or local Law.
"Internal Revenue Code" shall mean the Internal Revenue Code of 1986, as
amended, and the rules and regulations promulgated thereunder.
"IRS" shall mean the Internal Revenue Service.
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<PAGE>
"Knowledge" as used with respect to a Person shall mean the Knowledge after
reasonable due inquiry of the Chairman, President, Chief Financial Officer,
Chief Accounting Officer, Chief Credit Officer, or any Senior or Executive Vice
President of such Person.
"Law" shall mean any code, law, ordinance, regulation, reporting or
licensing requirement, rule, or statute applicable to a Person or its Assets,
Liabilities or business, including, without limitation, those promulgated,
interpreted or enforced by any of the Regulatory Authorities.
"Letter of Transmittal" shall have the meaning provided in Section 3.2 of
this Agreement.
"Liability" shall mean any direct or indirect, primary or secondary,
liability, indebtedness, obligation, penalty, cost or expense (including,
without limitation, costs of investigation, collection and defense), claim,
deficiency, guaranty or endorsement of or by any Person (other than endorsements
of notes, bills, checks, and drafts presented for collection or deposit in the
ordinary course of business) of any type, whether accrued, absolute or
contingent, liquidated or unliquidated, matured or unmatured, or otherwise.
"Lien" shall mean any conditional sale agreement, default of title,
easement, encroachment, encumbrance, hypothecation, infringement, lien,
mortgage, pledge, reservation, restriction, security interest, title retention
or other security arrangement, or any adverse right or interest, charge, or
claim of any nature whatsoever of, on, or with respect to any property or
property interest, other than (i) Liens for current property Taxes not yet due
and payable, (ii) for depository institution Subsidiaries of a Party, pledges to
secure deposits and other Liens incurred in the ordinary course of the banking
business, and (iii) Liens which are not reasonably likely to have, individually
or in the aggregate, a Material Adverse Effect on a Party.
"Litigation" shall mean any action, arbitration, cause of action, claim,
complaint, criminal prosecution, demand letter, governmental or other
examination or investigation, hearing, inquiry, administrative or other
proceeding, or notice (written or oral) by any Person alleging potential
Liability or requesting information relating to or affecting a Party, its
business, its Assets (including, without limitation, Contracts related to it),
or the transactions contemplated by this Agreement, but shall not include
regular, periodic examinations of depository institutions and their Affiliates
by Regulatory Authorities.
"Loan Property" shall mean any property owned by the Party in question or
by any of its Subsidiaries or in which such Party or Subsidiary holds a security
interest, and, where required by the context, includes the owner or operator of
such property, but only with respect to such property.
"Material" for purposes of this Agreement shall be determined in light of
the facts and circumstances of the matter in question, provided that any
specific monetary amount stated in this Agreement shall determine materiality in
that instance.
"Material Adverse Effect" on a Party shall mean an event, change or
occurrence which has a material adverse impact on (a) the financial position,
business, or results of operations of such Party and its Subsidiaries, taken as
a whole, or (b) the ability of such Party to perform its obligations under this
Agreement or to consummate the Merger or the other transactions contemplated by
this
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<PAGE>
Agreement, provided that "material adverse impact" shall not be deemed to
include the impact of (x) changes in banking and similar Laws of general
applicability or interpretations thereof by courts or governmental authorities,
(y) changes in generally accepted accounting principles or regulatory accounting
principles generally applicable to banks and their holding companies, and (z)
the Merger and compliance with the provisions of this Agreement on the operating
performance of the Parties.
"Maximum Cash Election Number" shall have the meaning provided in
Section 3.1(c) of this Agreement.
"Maximum Stock Election Number" shall have the meaning provided in
Section 3.1(c) of this Agreement.
"Merger" shall mean the merger of TARGET with and into PURCHASER referred
to in Section 1.1 of this Agreement.
"Merger Consideration" shall have the meaning provided in Section 3.1(b) of
this Agreement.
"Minimum Cash Election Number" shall have the meaning provided in
Section 3.1(c) of this Agreement.
"Minimum Stock Election Number" shall have the meaning provided in
Section 3.1(c) of this Agreement.
"NASD" shall mean the National Association of Securities Dealers, Inc.
"NASDAQ/NMS" shall mean the National Market System of the National
Association of Securities Dealers Automated Quotations System.
"1933 Act" shall mean the Securities Act of 1933, as amended.
"1934 Act" shall mean the Securities Exchange Act of 1934, as amended.
"Old Certificates" shall have the meaning provided in Section 3.1(i) of
this Agreement.
"Order" shall mean any administrative decision or award, decree,
injunction, judgment, order, quasi-judicial decision or award, ruling, or writ
of any federal, state, local or foreign or other court, arbitrator, mediator,
tribunal, administrative agency or Regulatory Authority.
"Outstanding TARGET Shares" shall have the meaning provided in
Section 3.1(b) of this Agreement.
"Participation Facility" shall mean any facility or property in which the
Party in question or any of its Subsidiaries participates in the management
(including any property or facility held in a joint venture) and, where required
by the context, said term means the owner or operator of such facility or
property, but only with respect to such facility or property.
A-43
<PAGE>
"Party" shall mean either TARGET or PURCHASER, and "Parties" shall mean
both TARGET and PURCHASER.
"Permit" shall mean any federal, state, local, and foreign governmental
approval, authorization, certificate, easement, filing, franchise, license,
notice, permit, or right to which any, Person is a party or that is or may be
binding upon or inure to the benefit of any Person or its capital stock, Assets,
Liabilities, or business.
"Person" shall mean a natural person or any legal, commercial or
governmental entity, such as, but not limited to, a corporation, general
partnership, joint venture, limited partnership, limited liability company,
trust, business association, group acting in concert, or any person acting in a
representative capacity.
"Previously Disclosed" shall mean information (a) delivered in writing
prior to the date of this Agreement in the manner and to the Party and counsel
described in Section 10.8 of this Agreement and describing in reasonable detail
the matters contained therein, provided that in the case of Subsidiaries
acquired after the date of this Agreement, such information may be so delivered
by the acquiring Party to the other Party prior to the date of such acquisition,
or (b) disclosed prior to the date of this Agreement by one Party to the other
in an SEC Document delivered to such other Party in which the specific
information has been identified by the Party making the disclosure.
"Proxy Statement" shall mean the proxy statement used by TARGET to solicit
the approval of its shareholders of the transactions contemplated by this
Agreement and shall include the prospectus of PURCHASER relating to shares of
PURCHASER Common Stock to be issued to the shareholders of TARGET.
"PURCHASER Allowance" shall have the meaning provided in Section 5.9 of
this Agreement.
"PURCHASER Benefit Plans" shall have the meaning set forth in Section 5.14
of this Agreement.
"PURCHASER Common Stock" shall mean the $1.00 par value common stock of
PURCHASER.
"PURCHASER Companies" shall mean, collectively, PURCHASER and all PURCHASER
Subsidiaries.
"PURCHASER Financial Statements" shall mean (i) the consolidated statements
of condition (including related notes and schedules, if any) of PURCHASER as of
September 30, 1995, and as of December 31, 1994 and 1993, and the related
statements of income, changes in shareholders' equity, and cash flows (including
related notes and schedules, if any) for the nine months ended September 30,
1995, and for each of the three years ended December 31, 1994, 1993, and 1992,
as filed by PURCHASER in SEC Documents and (ii) the consolidated statements of
condition of PURCHASER (including related notes and schedules, if any) and
related statements of income,
A-44
<PAGE>
changes in shareholders' equity, and cash flows (including related notes and
schedules, if any) included in SEC Documents filed with respect to periods ended
subsequent to September 30, 1995.
"PURCHASER Stock Plans" shall mean the existing stock option and other
stock-based compensation plans.
"PURCHASER Subsidiaries" shall mean the Subsidiaries of PURCHASER.
"Record Date" shall have the meaning provided in Section 3.1(e) of this
Agreement.
"Registration Statement" shall mean the Registration Statement on Form S-4,
or other appropriate form, filed with the SEC by PURCHASER under the 1933 Act in
connection with the transactions contemplated by this Agreement.
"Regulatory Authorities" shall mean, collectively, the Federal Trade
Commission, the United States Department of Justice, the Board of the Governors
of the Federal Reserve System, the Office of the Comptroller of the Currency,
the Federal Deposit Insurance Corporation, all state banking and other
regulatory agencies having jurisdiction over the Parties and their respective
Subsidiaries, the NASD, and the SEC.
"Representative" shall have the meaning provided in Section 3.1(d) of this
Agreement.
"SEC Documents" shall mean all reports and registration statements filed,
or required to be filed, by a Party or any of its Subsidiaries with any
Regulatory Authority pursuant to the Securities Laws.
"Securities Laws" shall mean the 1933 Act, the 1934 Act, the Investment
Company Act of 1940, as amended, the Investment Advisors Act of 1940, as
amended, the Trust Indenture Act of 1939, as amended, state blue sky laws, and
the rules and regulations of any Regulatory Authority promulgated thereunder.
"Shareholders' Meeting" shall mean the meeting of the shareholders of
TARGET to be held pursuant to Section 7.1 of this Agreement, including any
adjournment or adjournments thereof.
"Stock Consideration" shall have the meaning provided in Section 3.1(b) of
this Agreement.
"Stock Election" shall have the meaning provided in Section 3.1(d) of this
Agreement.
"Subsidiaries" shall mean all those corporations, banks, associations, or
other entities of which the entity in question owns or controls 5% or more of
the outstanding equity securities either directly or through an unbroken chain
of entities as to each of which 5 % or more of the outstanding equity securities
is owned directly or indirectly by its parent; provided, however, there shall
not be included any such entity acquired through foreclosure or any such entity
the equity securities of which are owned or controlled in a fiduciary capacity.
A-45
<PAGE>
"Surviving Corporation" shall mean PURCHASER as the surviving corporation
resulting from the Merger.
"TARGET Allowance" shall have the meaning provided in Section 4.9 of this
Agreement.
"TARGET Bank" shall mean Southland Bank, an Alabama state-chartered bank
and a TARGET Subsidiary.
"TARGET Benefit Plans" shall have the meaning set forth in Section 5.14 of
this Agreement.
"TARGET Common Stock" shall mean the no par value, Class A Common Stock of
TARGET.
"TARGET Companies" shall mean, collectively, TARGET and all TARGET
Subsidiaries.
"TARGET Financial Statements" shall mean (a) the consolidated balance
sheets (including related notes and schedules, if any) of TARGET as of September
30, 1995, and as of December 31, 1994 and 1993, and the related statements of
income, changes in shareholders' equity, and cash flows (including related notes
and schedules, if any) for the nine months ended September 30, 1995, and for
each of the three fiscal years ended December 31, 1994, 1993, 1992, as
previously furnished by TARGET to Purchaser, and (b) the consolidated balance
sheets of TARGET (including related notes and schedules, if any) and related
statements of income, changes in shareholders' equity, and cash flows (including
related notes and schedules, if any) with respect to periods ended subsequent to
September 30, 1993.
"TARGET Stock Plans" shall mean the existing stock option and other stock-
based compensation plans of TARGET.
"TARGET Subsidiaries" shall mean the Subsidiaries of TARGET, which shall
include the TARGET Subsidiaries described in Section 4.4 of this Agreement and
any Person acquired as a Subsidiary of TARGET in the future and owned by TARGET
at the Effective Time.
"Taxes" shall mean any federal, state, county, local, foreign and other
taxes, assessments, charges, fares, and impositions, including interest and
penalties thereon or with respect thereto.
"Termination Fee" shall have the meaning provided in Section 10.2 of this
Agreement.
"Valuation Date" shall have the meaning provided in Section 3.1(b) of this
Agreement.
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<PAGE>
10.2 Expenses.
--------
(a) Except as otherwise provided in this Section 10.2, each of the
Parties shall bear and pay all direct costs and expenses incurred by it or on
its behalf in connection with the transactions contemplated hereunder, including
filing, registration and application fees, printing fees, and fees and expenses
of its own financial or other consultants, investment bankers, accountants, and
counsel (the "Expenses"), except that each of the Parties shall bear and pay
one-half of the filing fees payable in connection with the Registration
Statement and the Proxy Statement and printing costs incurred in connection with
the printing of the Registration Statement and the Proxy Statement.
(b) TARGET shall pay, or cause to be paid, in same day funds to
PURCHASER the sum of (i) all of PURCHASER's Expenses, not to exceed $100,000,
plus (ii) $350,000 (the "Termination Fee") upon demand if (A) TARGET terminates
this Agreement pursuant to Section 9.1(g) or (B) prior to the termination of
this Agreement (other than by TARGET pursuant to Section 9.1(b)), a takeover
proposal shall have been made and within one (1) year of such termination,
TARGET enters into an agreement with respect to, or approves or recommends or
takes any action to facilitate, such takeover proposal. The amount of Expenses
so payable shall be the amount set forth in an estimate delivered by PURCHASER,
subject to an upward or downward adjustment (not to be in excess of the amount
set forth in clause (i) above) upon delivery of reasonable documentation
therefor.
10.3 Brokers and Finders. Except as Previously Disclosed, each of the
-------------------
Parties represents and warrants that neither it nor any of its officers,
directors, employees, or Affiliates has employed any broker or finder or
incurred any Liability for any financial advisory fees, investment bankers'
fees, brokerage fees, commissions, or finders' fees in connection with this
Agreement or the transactions contemplated hereby. In the event of a claim by
any broker or finder based upon its representing or being retained by or
allegedly representing or being retained by TARGET or PURCHASER, each of TARGET
and PURCHASER, as the case may be, agrees to indemnify and hold the other Party
harmless of and from any Liability in respect of any such claim.
10.4 Entire Agreement. Except as otherwise expressly provided herein,
----------------
this Agreement (including the documents and instruments referred to herein)
constitutes the entire agreement between the Parties with respect to the
transactions contemplated hereunder and supersedes all prior arrangements or
understandings with respect thereto, written or oral (except, as to Section
8.6(b) of this Agreement, with respect to the Confidentiality Agreements).
Nothing in this Agreement expressed or implied, is intended to confer upon any
Person, other than the Parties or their respective successors, any rights,
remedies, obligations, or liabilities under or by reason of this Agreement,
other than as provided in Section 7.13 of this Agreement.
10.5 Amendments. To the extent permitted by Law, this Agreement may be
----------
amended by a subsequent writing signed by each of the Parties upon the approval
of the Boards of Directors of each of the Parties; provided, however, that after
any such approval by the holders of TARGET Common Stock, there shall be made no
amendment decreasing the consideration to be received by TARGET shareholders
without the further approval of such shareholders.
A-47
<PAGE>
10.6 Waivers.
-------
(a) Prior to or at the Effective Time, PURCHASER, acting through its
Board of Directors, chief executive officer or other authorized officer, shall
have the right to waive any Default in the performance of any term of this
Agreement by TARGET, to waive or extend the time for the compliance or
fulfillment by TARGET of any and all of its obligations under this Agreement,
and to waive any or all of the conditions precedent to the obligations of
PURCHASER under this Agreement, except any condition which, if not satisfied,
would result in the violation of any Law. No such waiver shall be effective
unless in writing signed by a duly authorized officer of PURCHASER.
(b) Prior to or at the Effective Time, TARGET, acting through its
Board of Directors, chief executive officer or other authorized officer, shall
have the right to waive any Default in the performance of any term of this
Agreement by PURCHASER, to waive or extend the time for the compliance or
fulfillment by PURCHASER of any and all of its obligations under this Agreement,
and to waive any or all of the conditions precedent to the obligations of TARGET
under this Agreement, except any condition which, if not satisfied, would result
in the violation of any Law. No such waiver shall be effective unless in
writing signed by a duly authorized officer of TARGET.
(c) The failure of any Party at any time or times to require
performance of any provision hereof shall in no manner affect the right of such
Party at a later time to enforce the same or any other provision of this
Agreement. No waiver of any condition or of the breach of any term contained in
this Agreement in one or more instances shall be deemed to be or construed as a
further or continuing waiver of such condition or breach or a waiver of any
other condition or of the breach of any other term of this Agreement.
10.7 Assignment. Except as expressly contemplated hereby, neither this
----------
Agreement nor any of the rights, interests or obligations hereunder shall be
assigned by any Party hereto (whether by operation of Law or otherwise) without
the prior written consent of the other Party. Subject to the immediately
preceding sentence, this Agreement will be binding upon, inure to the benefit
of, and be enforceable by the Parties and their respective successors and
assigns.
10.8 Notices. All notices or other communications which are required or
-------
permitted hereunder shall be in writing and sufficient if delivered by hand, by
facsimile transmission, by registered or certified mail, postage pre-paid, or by
courier or overnight carrier, to the persons at the addresses set forth below
(or at such other address as may be provided hereunder), and shall be deemed to
have been delivered as of the date so delivered:
PURCHASER: ABC Bancorp
310 First Street, S.E.
Moultrie, Georgia 31768
Telecopy Number: (912) 890-2235
Attention: President
A-48
<PAGE>
Copy to Counsel: Rogers & Hardin
2700 Cain Tower, Peachtree Center
229 Peachtree Street, N.E.
Atlanta, Georgia 30303
Telecopy Number: (404) 525-2224
Attention: Steven E. Fox
TARGET: Southland Bancorporation
P.O. Box 5676
Dothan, Alabama 36302
Telecopy Number: (334) 671-7814
Attention: President
Copy to Counsel: Balch & Bingham
1901 Sixth Avenue North
Birmingham, Alabama 35203
Telecopy Number: (205) 252-1074
Attention: T. Kurt Miller
10.9 Governing Law. This Agreement shall be governed by and construed in
-------------
accordance with the Laws of the State of Georgia, without regard to any
applicable conflicts of Laws, except to the extent that the federal laws of the
United States may apply to the Merger.
10.10 Counterparts. This Agreement may be executed in one or more
------------
counterparts, each of which shall be deemed to be an original, but all of which
together shall constitute one and the same instrument.
10.11 Captions. The captions contained in this Agreement are for
--------
reference purposes only and are not part of this Agreement.
10.12 Enforcement of Agreement. The Parties hereto agree that irreparable
------------------------
damage would occur in the event that any of the provisions of this Agreement was
not performed in accordance with its specific terms or was otherwise breached.
It is accordingly agreed that the Parties shall be entitled to an injunction or
injunctions to prevent breaches of this Agreement and to enforce specifically
the terms and provisions hereof in any court of the United States or any state
having jurisdiction, this being in addition to any other remedy to which they
are entitled at law or in equity.
10.13 Severability. Any term or provision of this Agreement which is
------------
invalid or unenforceable in any jurisdiction shall, as to that jurisdiction, be
ineffective to the extent of such invalidity or unenforceability without
rendering invalid or unenforceable the remaining terms and provisions of this
Agreement or affecting the validity or enforceability of any of the terms or
provisions of this Agreement in any other jurisdiction. If any provision of
this Agreement is so broad as to be unenforceable, the provision shall be
interpreted to be only so broad as is enforceable.
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<PAGE>
10.14 Survival. The respective representations, warranties, obligations,
--------
covenants and agreements of the Parties shall not survive the Effective Time or
the termination and abandonment of this Agreement except that (i) Articles Two,
Three and Ten and Sections 7.6(b), 7.9, 7.10, 7.11, 7.13 and 7.14 of this
Agreement shall survive the Effective Time; and (ii) Sections 7.6(b), 7.8(b),
9.2, 10.2 and 10.14 shall survive the termination and abandonment of this
Agreement.
IN WITNESS WHEREOF, each of the Parties has caused this Agreement to be
executed on its behalf and its corporate seal to be hereunto affixed and
attested by its officers as of the day and year first above written.
ATTEST: ABC BANCORP
/S/ SARA R. HALL By: /S/ KENNETH J. HUNNICUTT
- ---------------- ------------------------
Secretary President
[CORPORATE SEAL]
ATTEST: SOUTHLAND BANCORPORATION
/S/ PAM H. ADAMS By: /S/ JOHN E. MEYER, JR.
- ---------------- ----------------------
Secretary President
[CORPORATE SEAL]
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<PAGE>
EXHIBIT 1
---------
AFFILIATE AGREEMENT
-------------------
ABC Bancorp
310 First Street, S.E.
Moultrie, Georgia 31768
Attention: President
Ladies and Gentlemen:
The undersigned is a shareholder of Southland Bancorporation ("Target"), a
corporation organized under the laws of the State of Alabama and located in
Dothan, Alabama, and will become a shareholder of ABC Bancorp ("Purchaser")
pursuant to the transactions described in the Agreement and Plan of Merger,
dated as of December 18, 1995 (the "Agreement"), by and between Target and
Purchaser. Under the terms of the Agreement, Target will be merged into and
with Purchaser (the "Merger"), and the shares of the no par value, Class A
common stock of Target ("Target Common Stock") will be converted into and
exchanged for a combination of shares of the $1.00 par value common stock of
Purchaser ("Purchaser Common Stock") and cash. This Affiliate Agreement
represents an agreement between the undersigned and Purchaser regarding certain
rights and obligations of the undersigned in connection with the shares of
Purchaser to be received by the undersigned as a result of the Merger.
In consideration of the Merger and the mutual covenants contained herein,
the undersigned and Purchaser hereby agree as follows:
1. Affiliate Status. The undersigned understands and agrees that as to
----------------
Target the undersigned is an "affiliate" under Rule 145(c) as defined in Rule
405 of the Rules and Regulations of the Securities and Exchange Commission
("SEC") under the Securities Act of 1933, as amended ("1933 Act"), and the
undersigned anticipates that the undersigned will be such an "affiliate" at the
time of the Merger.
2. Covenants and Warranties of Undersigned. The undersigned
---------------------------------------
represents, warrants and agrees that:
(a) The Purchaser Common Stock received by the undersigned as a
result of the Merger will be taken for his or her own account and not for
others, directly or indirectly, in whole or in part.
(b) Purchaser has informed the undersigned that any distribution by
the undersigned of Purchaser Common Stock has not been registered under the 1933
Act and that shares of Purchaser Common Stock received pursuant to the Merger
can only be sold by the undersigned (i) following registration under the 1933
Act, or (ii) in conformity with the volume and other
<PAGE>
requirements of Rule 145(d) promulgated by the SEC as the same now exist or may
hereafter be amended, or (iii) to the extent some other exemption from
registration under the 1933 Act might be available. The undersigned understands
that Purchaser is under no obligation to file a registration statement with the
SEC covering the disposition of the undersigned's shares of Purchaser Common
Stock.
3. Restrictions on Transfer.
------------------------
(a) The undersigned understands and agrees that stop transfer
instructions with respect to the shares of Purchaser Common Stock received by
the undersigned pursuant to the Merger will be given to Purchaser's Transfer
Agent and that there will be placed on the certificates for such shares, or
shares issued in substitution thereof, a legend stating in substance:
"The shares represented by this certificate may not be sold,
transferred or otherwise disposed of except or unless (i) covered by
an effective registration statement under the Securities Act of
1933, as amended, (ii) in accordance with (x) Rule 145(d) (in the
case of shares issued to an individual who is not an affiliate of
---
Purchaser) or (y) Rule 144 (in the case of shares issued to an
individual who is an affiliate of Purchaser) of the Rules and
Regulations of such Act, or (iii) in accordance with a legal opinion
satisfactory to counsel for Purchaser that such sale or transfer is
otherwise exempt from the registration requirements of such Act."
(b) Such legend will also be placed on any certificate representing
Purchaser securities issued subsequent to the original issuance of the Purchaser
Common Stock pursuant to the Merger as a result of any stock dividend, stock
split, or other recapitalization as long as the Purchaser Common Stock issued to
the undersigned pursuant to the Merger has not been transferred in such manner
to justify the removal of the legend therefrom. In addition, if the provisions
of Rules 144 and 145 are amended to eliminate restrictions applicable to the
Purchaser Common Stock received by the undersigned pursuant to the Merger, or at
the expiration of the restrictive period set forth in Rule 145(d), Purchaser,
upon the request of the undersigned, will cause the certificates representing
the shares of Purchaser Common Stock issued to the undersigned in connection
with the Merger to be reissued free of any legend relating to the restrictions
set forth in Rules 144 and 145(d) upon receipt by Purchaser of an opinion of its
counsel to the effect that such legend may be removed.
4. Understanding of Restrictions on Dispositions. The undersigned has
---------------------------------------------
carefully read the Agreement and this Affiliate Agreement and discussed their
requirements and impact upon his or her ability to sell, transfer, or otherwise
dispose of the shares of Purchaser Common Stock received by the undersigned in
connection with the Merger, to the extent he or she believes necessary, with his
or her counsel or counsel for Target.
5. Filing of Reports by Purchaser. Purchaser agrees for a period of
------------------------------
three years after the effective date of the Merger, to file on a timely basis
all reports required to be filed by it
2
<PAGE>
pursuant to Section 13 of the Securities Exchange Act of 1934, as amended, so
that the public information provisions of Rule 145(d) promulgated by the SEC as
the same are presently in effect will be available to the undersigned in the
event the undersigned desires to transfer any shares of Purchaser Common Stock
issued to the undersigned pursuant to the Merger.
6. Transfer Under Rule 145(d). If the undersigned desires to sell or
--------------------------
otherwise transfer the shares of Purchaser Common Stock received by him or her
in connection with the Merger at any tine during the restrictive period set
forth in Rule 145(d), the undersigned will provide the necessary representation
letter to the Transfer Agent for Purchaser Common Stock, together with such
additional information as the Transfer Agent may reasonably request. If
Purchaser's counsel concludes that such proposed sale or transfer complies with
the requirements of Rule 145(d), Purchaser shall cause such counsel to provide
such opinions as may be necessary to Purchaser's Transfer Agent so that the
undersigned may complete the proposed sale or transfer.
7. Acknowledgments. The undersigned recognizes and agrees that the
---------------
foregoing provisions also apply with respect to Target Common Stock held by, and
Purchaser Common Stock issued in connection with the Merger to, (a) the
undersigned's spouse, (b) any relative of the undersigned or of the
undersigned's spouse who has the same home as the undersigned, (c) any trust or
estate in which the undersigned, the undersigned's spouse, and any such relative
collectively own at least a 10% beneficial interest or of which any of the
foregoing serves as trustee, executor or in any similar capacity, and (d) any
corporation or other organization in which the undersigned, the undersigned's
spouse and any such relative collectively own at least 10% of any class of
equity securities or of the equity interest. The undersigned further recognizes
that, in the event that the undersigned is a director or executive officer of
Purchaser or becomes a director or executive officer of Purchaser upon
consummation of the Merger, among other things, any sale of Purchaser Common
Stock by the undersigned within a period of less than six months following the
effective time of the Merger may subject the undersigned to liability pursuant
to Section 16(b) of the Securities Exchange Act of 1934, as amended.
8. Miscellaneous. This Affiliate Agreement is the complete agreement
-------------
between Purchaser and the undersigned concerning the subject matter
hereof. Any notice required to be sent to any party hereunder shall be sent by
registered or certified mail, return receipt requested, using the addresses set
forth herein or such other address as shall be furnished in writing by the
parties. This Affiliate Agreement shall be governed by the laws of the State of
Georgia.
(Signatures on Next Page)
3
<PAGE>
This Affiliate Agreement is executed as of the _____ day of __________________,
199__.
Very truly yours,
_________________________________
Signature
_________________________________
Print Name
_________________________________
_________________________________
_________________________________
_________________________________
Address
_________________________________
Telephone No.
AGREED TO AND ACCEPTED as of
_____________________, 199__
ABC BANCORP
By: __________________________
Its: ________________________
4
<PAGE>
EXHIBIT 2
---------
MATTERS AS TO WHICH
BALCH & BINGHAM WILL OPINE
[Subject to standard assumptions, limitations, restrictions and matters
disclosed in the Agreement and its schedules, including principles of equity and
remedies, such as specific performance and fiduciary out provisions.]
1. Target is a corporation duly organized, existing and in good
standing under the laws of the State of Georgia with corporate power and
authority (a) to conduct its business as described in the proxy statement used
to solicit the approval by the stockholders of Target of the transactions
contemplated by the Agreement ("Proxy Statement"), and (b) to own and use its
Assets.
2. Target Bank is an Alabama chartered state bank duly organized and
validly existing under the laws of the State of Alabama with all requisite power
and authority to conduct its business as described in the Proxy Statement, and
to own and use its Assets. The deposits of Target Bank are insured by the
Federal Deposit Insurance Corporation to the extent provided by law.
3. Target's authorized shares consist of 1,800,000 shares of Class A
Common Stock, of which ________ shares were outstanding as of ________________,
________ shares of Class B Common Stock, $8.50 par value, none of which were
outstanding as of ______________, and _______ shares of Class A Preferred Stock,
none of which were outstanding as of _____________. The outstanding shares of
Target Common Stock have been duly authorized and validly issued, were not
issued in violation of any statutory preemptive rights of shareholders, and are
fully paid and nonassessable. To our Knowledge, except as Previously Disclosed,
there are no options, subscriptions, warrants, calls, rights or commitments
obligating Target to issue equity securities or acquire its equity securities.
4. Target owns directly or indirectly all the issued and outstanding
shares of the capital stock of Target Bank. To our knowledge, there are no
options, subscriptions, warrants, calls, rights or commitments obligating Target
Bank to issue equity securities or acquire its equity securities.
5. The execution and delivery by Target of the Agreement do not, and if
Target were now to perform its obligations under the Agreement such performance
would not, result in any violation of the Articles of Incorporation or Bylaws of
Target or the Articles of Incorporation or Bylaws of Target Bank or, to our
Knowledge, result in any breach of, or default or acceleration under, any
material Contract or Order to which Target or Target Bank is a party or by which
Target or Target Bank is bound.
6. Target has duly authorized the execution and delivery of the
Agreement and all performance by Target thereunder and has duly executed and
delivered the Agreement.
7. Assuming that the Agreement is governed by and interpreted in
accordance with the laws of the State of Alabama, the Agreement is enforceable
against Target.
<PAGE>
EXHIBIT 3
---------
REGISTRATION RIGHTS AND ELECTION AGREEMENT
THIS REGISTRATION RIGHTS AND ELECTION AGREEMENT (the "Agreement"), dated as
of December 18, 1995, is between WINN F. MARTIN, an individual resident of the
State of Alabama ("Martin"), and ABC BANCORP, a Georgia corporation ("Company").
W I T N E S S E T H:
- - - - - - - - - -
WHEREAS, Martin is a major shareholder of Southland Bancorporation
("Southland"), which has agreed to merge with and into the Company (the
"Merger") pursuant to an Agreement and Plan of Merger (the "Merger Agreement")
dated even herewith;
WHEREAS, as a result of his position with Southland, any sale by Martin of
the shares of the Company's common stock, $1.00 par value per share, acquired by
Martin (if any) pursuant to the Merger (the "Merger Shares") will be subject to
the provisions of Rule 145 promulgated under the Securities Act of 1933, as
amended (the "Securities Act"); and
WHEREAS, the Company requires that this Agreement be made as a condition
precedent to the Merger;
NOW, THEREFORE, in consideration of the premises and of the mutual
covenants and agreements set forth herein and for other good and valuable
consideration the receipt and sufficiency of which are hereby acknowledged, the
parties, intending to be legally bound hereby, agree as follows:
ARTICLE I
REPRESENTATIONS AND WARRANTIES
Section 1.1 Representations and Warranties of Martin. Martin hereby
----------------------------------------
represents and warrants to the Company as follows:
(a) Martin has the requisite power and authority to enter into and perform
this Agreement. This Agreement is a valid and binding obligation of Martin
enforceable against Martin in accordance with its terms, except that such
enforcement may be subject to (i) bankruptcy, fraudulent conveyance, insolvency,
reorganization, moratorium or other similar law now or hereafter in effect
relating to creditors' rights generally and (ii) general principles of equity
(regardless of whether such enforcement is considered in a proceeding in equity
or at law).
<PAGE>
(b) Neither the execution and delivery of this Agreement by Martin nor the
consummation by Martin of the transactions contemplated hereby conflicts with or
constitutes a violation of or default under any statute, law, regulation, order
or decree applicable to Martin, or any contract, commitment, agreement,
arrangement or restriction of any kind to which Martin is a party or by which
Martin is bound.
Section 1.2 Representations and Warranties of the Company. The Company
---------------------------------------------
hereby represents and warrants to Martin as follows:
(a) The Company has the requisite corporate power and authority to enter
into and perform this Agreement. The execution and delivery of this Agreement
by the Company and the consummation by the Company of the transactions
contemplated hereby have been duly authorized by all necessary corporate action
on behalf of the Company. This Agreement is a valid and binding obligation of
the Company enforceable against the Company in accordance with its terms, except
that such enforcement may be subject to (i) bankruptcy, fraudulent conveyance,
insolvency, reorganization, moratorium or other similar laws now or hereafter in
effect relating to creditors's rights generally and (ii) general principles of
equity (regardless of whether such enforcement is considered in a proceeding in
equity or at law).
(b) Neither the execution and delivery of this Agreement by the Company
nor the consummation by the Company of the transactions contemplated hereby
conflicts with or constitutes a violation of or default under the charter or
bylaws of the Company, any statute, law, regulation, order or decree applicable
to the Company, or any contract, commitment, agreement, arrangement or
restriction of any kind to which the Company is a party or by which the Company
is bound.
ARTICLE II
AGREEMENT WITH RESPECT TO CASH ELECTION
In connection with the Merger, Martin agrees to make a Cash Election (as
defined in the Merger Agreement).
ARTICLE III
REGISTRATION RIGHTS
Section 3.1 Certain Definitions. The following terms shall have the
-------------------
meanings set forth below:
(a) The terms "register," "registered" and "registration" shall refer
to a registration effected by preparing and filing a registration statement in
compliance with the Securities Act, and applicable rules and regulations
thereunder and the declaration or ordering of the effectiveness of such
registration statement.
(b) "Registration Expenses" shall mean all expenses incurred in
effecting any registration pursuant to this Agreement, including, without
limitation, all registration, qualification,
2
<PAGE>
and filing fees, printing expenses, escrow fees, fees and disbursements of
counsel for the Company, blue sky fees and expenses, expenses of any regular or
special audits incident to or required by any such registration, all
underwriting discounts, selling commissions and stock transfer taxes applicable
to the sale of the Merger Shares upon any registration as contemplated hereby
and fees and disbursements of counsel for Martin, but shall not include the
compensation of regular employees of the Company, which shall be paid in any
event by the Company.
(c) "Rule 145" shall mean Rule 145 as promulgated by the Securities
and Exchange Commission (the "SEC") under the Securities Act, as such Rule may
be amended from time to time, or any similar successor rule that may be
promulgated by the SEC.
Section 3.2 Demand Registration Rights. From and after the effective date
--------------------------
of the Merger and for so long as any sale of the Merger Shares by Martin remains
subject to the provisions of Rule 145, Martin may require the Company to
register the Merger Shares under the Securities Act on any form available to the
Company (a "Demand Registration"); provided, however, that Martin shall only be
-------- -------
entitled to one such Demand Registration and the Merger Shares shall not be
offered on a delayed or continuous basis. Upon written demand by Martin
delivered to the Company, the Company will use its best efforts to effect the
registration under the Securities Act and applicable state securities laws of
the Merger Shares which the Company has been so requested to register by Martin.
Section 3.3 Expenses of Registration. All Registration Expenses incurred
------------------------
in connection with any registration, qualification or compliance pursuant to
this Agreement shall be borne by Martin.
Section 3.4 Indemnification.
---------------
(a) The Company will indemnify Martin, each of his legal counsel and
accountants and each person controlling Martin within the meaning of Section 15
of the Securities Act, with respect to which registration, qualification, or
compliance has been effected pursuant to this Article III, and each underwriter,
if any, and each person who controls within the meaning of Section 15 of the
Securities Act any underwriter, against all expenses, claims, losses, damages
and liabilities (or actions, proceedings, or settlements in respect thereof)
arising out of or based on any untrue statement (or alleged untrue statement) of
a material fact contained in any prospectus, offering circular, or other
document (including any related registration statement, notification, or the
like) incident to any such registration, qualification, or compliance, or based
on any omission (or alleged omission) to state therein a material fact required
to be stated therein or necessary to make the statements therein not misleading,
or any violation by the Company of the Securities Act or any rule or regulation
thereunder applicable to the Company or relating to action or inaction required
of the Company in connection with any such registration, qualification, or
compliance, and will reimburse Martin and each such legal counsel and
accountants and each person controlling Martin, each such underwriter, and each
person who controls any such underwriter, for any legal and any other expenses
reasonably incurred in connection with investigating and defending or settling
any such claim, loss, damage, liability, or action, provided that the Company
will not be liable in any such case to the extent that any such claim, loss,
damage, liability or expense arises out of or is based on any untrue statement
or omission based upon written information furnished to the Company by
3
<PAGE>
Martin or underwriter and stated to be specifically for use therein; provided,
however, that the obligations of the Company hereunder shall not apply to
amounts paid in settlement of any such loss, claim, damage, liability or action
if such settlement is effected without the consent of the Company (which consent
has not been unreasonably withheld or delayed).
(b) Martin will indemnify the Company, each of its directors, officers,
partners, legal counsel, and accountants and each underwriter, if any, of the
Company's securities covered by such a registration statement, each person who
controls the Company or such underwriter within the meaning of Section 15 of the
Securities Act, against all claims, losses, damages and liabilities (or actions
in respect thereof) arising out of or based on any untrue statement (or alleged
untrue statement) of a material fact contained in any such registration
statement, prospectus, offering circular, or other document, or any omission (or
alleged omission) to state therein a material fact required to be stated therein
or necessary to make the statements therein not misleading, and will reimburse
the Company and such directors, officers, partners, legal counsel, and
accountants, persons, underwriters, or control persons for any legal or any
other expenses reasonably incurred in connection with investigating or defending
any such claim, loss, damage, liability or action, in each case to the extent,
but only to the extent, that such untrue statement (or alleged untrue statement)
or omission (or alleged omission) is made in such registration statement,
prospectus, offering circular or other document in reliance upon and in
conformity with written information furnished to the Company by Martin and
stated to be specifically for use therein, provided, however, that the
obligations of Martin hereunder shall not apply to amounts paid in settlement of
any such claims, losses, damages, or liabilities (or actions in respect thereof)
if such settlement is effected without the consent of Martin (which consent
shall not be unreasonably withheld or delayed).
(c) Each party entitled to indemnification under this Article III (the
"Indemnified Party") shall give notice to the party required to provide
indemnification (the "Indemnifying Party") promptly after such Indemnified Party
has actual knowledge of any claim as to which indemnity may be sought, and shall
permit the Indemnifying Party to assume the defense of such claim or any
litigation resulting therefrom, provided that counsel for the Indemnifying
Party, who shall conduct the defense of such claim or any litigation resulting
therefrom, shall be approved by the Indemnified Party (whose approval shall not
unreasonably be withheld), and the Indemnified Party may participate in such
defense at such party's expense, and provided further that the failure of any
Indemnified Party to give notice as provided herein shall not relieve the
Indemnifying Party of its obligations under this Article III, to the extent such
failure is not prejudicial. No Indemnifying Party, in the defense of any such
claim or litigation, shall, except with the consent of each Indemnified Party,
consent to entry of any judgment or enter into any settlement that does not
include as an unconditional term thereof the giving by the claimant or plaintiff
to such Indemnified Party of a release from all liability in respect to such
claim or litigation. Each Indemnified Party shall furnish such information
regarding itself or the claim in question as an Indemnifying Party may
reasonably request in writing and as shall be reasonably required in connection
with defense of such claim and litigation resulting therefrom.
(d) If the indemnification provided for in this Article III is held by
a court of competent jurisdiction to be unavailable to an Indemnified Party with
respect to any loss, liability, claim, damage, or expense referred to therein,
then the Indemnifying Party, in lieu of indemnifying such Indemnified Party
hereunder, shall contribute to the amount paid or payable by such
4
<PAGE>
indemnified Party as a result of such loss, liability, claim, damage or expense
in such proportion as is appropriate to reflect the relative fault of the
indemnifying Party on the one hand and of the Indemnified Party on the other in
connection with the conduct, statements or omissions that resulted in such loss,
liability, claim, damage or expense as well as any other relevant equitable
considerations. The relative fault of the Indemnifying Party and of the
Indemnified Party shall be determined by reference to, among other things,
whether the untrue or alleged untrue statement of a material fact or the
omission to state a material fact relates to information supplied by the
Indemnifying Party or by the Indemnified Party and the parties' relative intent,
knowledge, access to information, and opportunity to correct or prevent such
statement or omission.
(e) Notwithstanding the foregoing, to the extent that the provisions
on indemnification and contribution contained in the underwriting agreement
entered into by the Indemnifying Party and the Indemnified Party in connection
with the underwritten public offering are in conflict with the foregoing
provisions, the provisions in the underwriting agreement shall control.
Section 3.5 Information by Martin. Martin shall furnish to the Company
---------------------
such information regarding Martin and the distribution proposed by him as the
Company may reasonably request in writing and as shall be reasonably required in
connection with any registration, qualification, or compliance referred to in
this Article III.
Section 3.6 Delivery of Prospectus to Martin. In the case of a
--------------------------------
registration of the Merger Shares effected by the Company pursuant to this
Article III, the Company will furnish to Martin such number of authorized copies
of a prospectus, including copies of any preliminary prospectus and amendments
or supplements to any prospectus, in conformity with the requirements of the
Securities Act, and such other documents as Martin may reasonably request in
order to facilitate the public sale or other disposition of the Merger Shares.
ARTICLE IV
MISCELLANEOUS
Section 4.1 Enforcement.
-----------
(a) Martin, on the one hand, and the Company, on the other, acknowledges and
agrees that irreparable damage would occur if any of the provisions of this
Agreement were not performed in accordance with their specific terms or were
otherwise breached. Accordingly, the parties will be entitled to an
injunction or injunctions to prevent breaches of this Agreement and to enforce
specifically its provisions in any court of the United States or any state
having jurisdiction, without the necessity of furnishing a bond of any type, and
the other party hereto will not oppose the granting of such relief on the
grounds that an adequate remedy at law exists, this being in addition to any
other remedy to which they may be entitled to law in equity.
(b) No failure or delay on the part of either party in the exercise of any
power, right or privilege hereunder shall operate as a waiver thereof, nor shall
any single or partial exercise of
5
<PAGE>
any such power, right or privilege, preclude other or further exercise thereof
or of any other right, power or privilege.
Section 4.2 Entire Agreement. This Agreement, together with the documents
----------------
expressly referred to herein, constitute the entire understanding of the parties
with respect to the subject matter contained herein. This Agreement may be
amended only by an agreement in writing executed by Martin and the Company.
Section 4.3 Severability. If any provision of this Agreement is held by a
------------
court of competent jurisdiction to be unenforceable, the remaining provisions
shall remain in full force and effect. It is declared to be the intention of
the parties that they would have executed the remaining provisions without
including any that may be held unenforceable.
Section 4.4 Headings. Descriptive headings are for convenience only and
--------
will not control or affect the meaning or construction of any provision of this
Agreement.
Section 4.5 Counterparts. This Agreement may be executed in two or more
------------
counterparts, and each such executed counterpart will be an original instrument.
Section 4.6 Notices. Any notices, consents, requests, instructions,
-------
approvals and other communications required or permitted to be given, served or
delivered pursuant to this Agreement shall be deemed to have been given, served
or delivered (a) on the second business day after being deposited in the United
States mail, registered or certified and with proper postage prepaid, (b) on the
first business day after being deposited with any recognized overnight courier
service with proper fees prepaid or (C) on the business day on which it is sent
and received by fax,
if to the Company; ABC Bancorp
310 First Street, S.E.
Moultrie, Georgia
Attn: Mr. Kenneth J. Hunnicutt
Fax: (912) 890-2235
with a copy to: Rogers & Hardin
2700 Cain Tower
229 Peachtree Street, N.E.
Atlanta, Georgia 30303
Attn: Steven E. Fox, Esq.
Fax: (404) 525-2224
if to Martin: Mr. Winn F. Martin
________________________
________________________
Fax: ___________________
6
<PAGE>
with a copy to: ____________________
____________________
____________________
Attn:_______________
Fax:________________
or to such other address or fax number as any party may, from time to time,
designate in a written notice given in a like manner.
Section 4.7 Successors and Assigns. This Agreement shall bind, and inure
----------------------
to the benefit of, the respective successors, assigns, heirs, executors,
administrators and other legal representatives of the parties; provided,
however, that no party may assign this Agreement without the other party's prior
written consent.
Section 4.8 Governing Law. This Agreement will be governed by and
-------------
construed and enforced in accordance with the internal laws of the State of
Georgia, without giving effect to the conflict of laws principles thereof.
Section 4.9 Further Assurances. Each of the parties hereto agrees to use
------------------
all reasonable efforts to take, or cause to be taken, all action, and to do, or
cause to be done, all things necessary, proper or advisable to consummate and
make effective the transactions contemplated by this Agreement. If any further
action is necessary or desirable to carry out the purposes of this Agreement,
the Company or Martin, as the case may be, shall take all such necessary action.
IN WITNESS WHEREOF, Martin has executed, sealed and delivered this
Agreement, and the Company has caused this Agreement to be executed, sealed and
delivered, all as of the date first referenced to above.
ABC BANCORP
By:___________________________
Its: ________________________
________________________(SEAL)
WINN F. MARTIN
7
<PAGE>
EXHIBIT 4
---------
R&H DRAFT
EMPLOYMENT AGREEMENT
--------------------
THIS EMPLOYMENT AGREEMENT (the "Agreement") is effective as of ___________,
1996, by and between SOUTHLAND BANK, an Alabama bank (the "Bank"), and JOHN E.
MEYER, JR., a resident of the State of Alabama (the "Executive").
WHEREAS, ABC Bancorp, a Georgia corporation ("ABC"), has acquired all of
the equity interest of the Bank by means of a merger pursuant to a Merger
Agreement dated as of December 18, 1995 the ("Merger Agreement");
WHEREAS, the Bank is now a wholly-owned subsidiary of ABC;
WHEREAS, the Executive is the President and Chief Executive Officer of the
Bank and desires to continue his employment with the Bank in such capacity;
WHEREAS, ABC desires that the Executive continue to serve in the capacity
of President and Chief Executive Officer of the Bank; and
WHEREAS, the Bank and the Executive, in conjunction with and pursuant to
the terms of the Merger Agreement, desire to set forth in writing the terms and
conditions of the Executive's continued employment with the Bank.
NOW, THEREFORE, in consideration of the premises and the mutual covenants
and agreements contained herein, and other good and valuable consideration, the
receipt and sufficiency of which are hereby acknowledged, the parties hereby
agree as follows:
1. Employment and Duties.
---------------------
(a) The Bank hereby agrees to continue to employ the Executive and
the Executive agrees to continue employment in his capacity as President and
Chief Executive Officer of the Bank to act in accordance with the terms and
conditions set forth herein. The Executive also consents to serve, if elected,
as a director of the Bank without additional compensation therefor for the first
twelve (12) months of such service and thereafter at the rate then in effect for
directors of the Bank. During the term of this Agreement, the Executive agrees
that this position will be his principal employment, that he will serve the Bank
faithfully and to the best of his ability and that he will devote his full
business time, attention and skills to the operation of the business of the
Bank, subject to reasonable absences for vacation and illness, and that he will
perform such duties, functions and responsibilities in connection with such
position and consistent with the foregoing as are from time to time delegated to
the Executive by the Board of Directors of the Bank (the "Board"); provided,
--------
however, that the foregoing shall not be deemed to restrict the Executive from
- -------
devoting a reasonable amount of time and attention to the management of his
personal affairs and investments, so long as
<PAGE>
(b) The Bank hereby represents and warrants to the Executive that:
(i) this Agreement has been duly authorized, executed and delivered by it, and
constitutes the valid and binding agreement of it, enforceable against it in
accordance with its terms; (ii) it has the full power authority to execute,
deliver and perform this Agreement and has taken all necessary action to secure
all approvals required in connection herewith; and (iii) the execution, delivery
and performance of this Agreement and the consummation of the transactions
contemplated hereby will not, with the passage of time or the giving of notice
or both, violate or conflict with, constitute a breach of or default under,
result in the loss of any material benefit under, or permit the acceleration of
or entitle any party to accelerate any obligation under or pursuant to, its
charter or bylaws or any material mortgage, lien, lease, agreement, instrument,
order, arbitration award, judgment or decree to which it is a party or by which
it or any of its assets are bound.
6. Restrictive Covenants. Acknowledging that (i) he has intimate
---------------------
knowledge of the business of the Bank which, if exploited by him, in
contravention of this Agreement, would seriously adversely and irreparably
affect the value of the Bank and the ability of ABC to continue to operate the
Bank following the consummation of the merger contemplated by the Merger
Agreement; (ii) the provisions of this Section 6 are reasonable and necessary to
protect the legitimate interests of ABC; (iii) the provisions of this Section 6
are reasonable and necessary to protect the goodwill of the Bank acquired by ABC
pursuant to the Merger Agreement; (iv) any violation of this Section 6 will
result in irreparable injury to ABC and the Bank and that damages at law would
not be reasonable or adequate compensation to ABC and the Bank for a violation
of this Section 6; and (v) that in the course of his employment with the Bank,
as contemplated by this Agreement, and as a result of the position of trust that
he will hold under this Agreement, he will obtain private and confidential
information and proprietary data relating to ABC, the Bank and other affiliates
of ABC, including, without limitation, financial information, product
information and other data that are valuable assets and property rights of the
Bank and ABC and its affiliates (collectively referred to as "Confidential
Information"), the Executive hereby agrees as follows:
(a) The Executive shall not, during the Term of this Agreement or
any time after the termination of this Agreement, either directly or indirectly,
disclose or use any Confidential Information acquired during his employment with
the Bank, unless (i) the Confidential Information has been made public through
no action or fault of the Executive, or (ii) its disclosure is requested or
compelled by applicable law or regulatory agency. The Executive further agrees
that after the termination of this Agreement, or at such other time as the Bank
requests, the Executive will return to the Bank all documents, papers and
records constituting Confidential Information, and all copies of same in the
Executive's possession and control.
(b) For a period of two (2) years after termination of the
Executive's employment hereunder for any reason, the Executive shall not
directly or indirectly provide banking or bank-related services to, or solicit
the banking or bank-related business of, any customer of the Bank at the time of
such provision of services or solicitation which the Executive served either
alone or with others while employed by the Bank in any city, town, borough,
township, village or other place in which the Executive performed services for
the Bank while employed by it, or assist any actual or potential competitor of
the Bank to provide banking or bank-related services to or solicit any such
customer's banking or bank-related business in any such place.
-4-
<PAGE>
the Bank, including, without limitation, Employer's pension plan and
hospitalization, major medical, disability and group life insurance plans.
(d) Expenses. The Executive shall be entitled to receive
--------
reimbursement for all reasonable expenses incurred by him in connection with the
fulfillment of his duties hereunder, upon receipt of appropriate vouchers
therefor, provided that the Executive has complied with all reasonable policies
and procedures relating to the reimbursement of such expenses as shall, from
time to time, be established by the Bank.
4. Termination.
-----------
(a) This Agreement shall terminate on the earliest to occur of the
following events: (i) on the mutual agreement of the Bank and the Executive;
(ii) the death of the Executive or Executive's voluntary retirement; (iii)
the Executive becoming unable to perform a substantial portion of his duties as
described herein due to injury, illness or disability (mental or physical) as
determined by an independent physician selected by the Bank and reasonably
satisfactory to the Executive for a period of three (3) consecutive months or
any aggregate period of six (6) months in any eighteen (18) month period
("Disability"); or (iv) immediately upon the Bank giving written notice to the
Executive of termination for Cause (as defined herein).
(b) The Bank may terminate the Executive's employment under this
Agreement at any time for Cause. The termination shall be evidenced by written
notice to the Executive, which shall specify the cause for termination. "Cause"
shall exist if: (i) the Executive is convicted of (from which no appeal may be
taken), or pleads guilty to, any act of fraud, misappropriation or embezzlement,
or any felony; (ii) in the reasonable determination of the Board, the Executive
has engaged in conduct or activity materially damaging to the business of the
Bank (it being understood, however, that unintentional physical damage to any
property of the Bank by the Executive shall not be a ground for such a
determination by the Board); or (iii) the Executive has failed, without
reasonable cause, to devote his full business time and best efforts to the
business of the Bank as provided in Section 1(a) hereof and, after written
notice from the Bank of such failure, the Executive at any time thereafter again
so fails.
5. Representations and Warranties.
------------------------------
(a) The Executive represents and warrants to the Bank that: (i) he has
the full power and authority to execute, deliver and perform this Agreement, and
that he has taken all actions necessary to secure all approvals required in
connection herewith and therewith; (ii) this Agreement has been duly authorized,
executed and delivered by him and constitutes his valid and binding agreement,
enforceable against him in accordance with its terms; and (iii) the execution,
delivery and performance of this Agreement and the consummation of the
transactions contemplated hereby will not, with the passage of time or the
giving of notice or both, violate or conflict with, constitute a breach of or
default under, result in the loss of any material benefit under, or permit the
acceleration of or entitle any party to accelerate any obligation under or
pursuant to, any material mortgage, lien, leases, agreement, instrument, order,
arbitration award, judgment or decree to which he is a party or by which he or
any of his assets are bound.
-3-
<PAGE>
(b) The Bank hereby represents and warrants to the Executive that:
(i) this Agreement has been duly authorized, executed and delivered by it, and
constitutes the valid and binding agreement of it, enforceable against it in
accordance with its terms; (ii) it has the full power authority to execute,
deliver and perform this Agreement and has taken all necessary action to secure
all approvals required in connection herewith; and (iii) the execution, delivery
and performance of this Agreement and the consummation of the transactions
contemplated hereby will not, with the passage of time or the giving of notice
or both, violate or conflict with, constitute a breach of or default under,
result in the loss of any material benefit under, or permit the acceleration of
or entitle any party to accelerate any obligation under or pursuant to, its
charter or bylaws or any material mortgage, lien, lease, agreement, instrument,
order, arbitration award, judgment or decree to which it is a party or by which
it or any of its assets are bound.
6. Restrictive Covenants. Acknowledging that (i) he has intimate
---------------------
knowledge of the business of the Bank which, if exploited by him, in
contravention of this Agreement, would seriously adversely and irreparably
affect the value of the Bank and the ability of ABC to continue to operate the
Bank following the consummation of the merger contemplated by the Merger
Agreement; (ii) the provisions of this Section 6 are reasonable and necessary to
protect the legitimate interests of ABC; (iii) the provisions of this Section 6
are reasonable and necessary to protect the goodwill of the Bank acquired by ABC
pursuant to the Merger Agreement; (iv) any violation of this Section 6 will
result in irreparable injury to ABC and the Bank and that damages at law would
not be reasonable or adequate compensation to ABC and the Bank for a violation
of this Section 6; and (v) that in the course of his employment with the Bank,
as contemplated by this Agreement, and as a result of the position of trust that
he will hold under this Agreement, he will obtain private and confidential
information and proprietary data relating to ABC, the Bank and other affiliates
of ABC, including, without limitation, financial information, product
information and other data that are valuable assets and property rights of the
Bank and ABC and its affiliates (collectively referred to as "Confidential
Information"), the Executive hereby agrees as follows:
(a) The Executive shall not, during the Term of this Agreement or any
time after the termination of this Agreement, either directly or indirectly,
disclose or use any Confidential Information acquired during his employment with
the Bank, unless (1) the Confidential Information has been made public through
no action or fault of the Executive, or (ii) its disclosure is requested or
compelled by applicable law or regulatory agency. The Executive further agrees
that after the termination of this Agreement, or at such other time as the Bank
requests, the Executive will return to the Bank all documents, papers and
records constituting Confidential Information, and all copies of same in the
Executive's possession and control.
(b) For a period of two (2) years after termination of the Executive's
employment hereunder for any reason, the Executive shall not directly or
indirectly provide banking or bank-related services to, or solicit the banking
or bank-related business of, any customer of the Bank at the time of such
provision of services or solicitation which the Executive served either alone or
with others while employed by the Bank in any city, town, borough, township,
village or other place in which the Executive performed services for the Bank
while employed by it, or assist any actual or potential competitor of the Bank
to provide banking or bank-related services to or solicit any such customer's
banking or bank-related business in any such place.
-4-
<PAGE>
(c) While the Executive is employed by the Bank and for a period of
two (2) years after termination of the Executive's employment hereunder for any
reason, the Executive shall not, directly or indirectly, as principal, agent, or
trustee, or through the agency of any corporation, partnership, trade
association, agent or agency, engage in any banking or bank-related business or
venture which competes with the business of the Bank as conducted during the
Executive's employment by the flank within a radius of fifty (50) miles of the
Bank's main office.
(d) In addition to all other remedies provided at law or at equity,
the Bank may petition and obtain from a court of law or equity both temporary
and permanent injunctive relief without the necessity of proving actual damages
and without posting bond or other security to prevent a breach by the Executive
of any covenant contained in this Section 6, as well as to an equitable
accounting of all earnings and profits and other benefits arising out of any
such violations.
7. Notices. Any notice or other communication required or permitted to
-------
be given hereunder shall be in writing and deemed to have been given when
delivered in person or when dispatched by telegram or electronic facsimile
transfer (confirmed in writing by mail, registered or certified, return receipt
requested, postage prepaid, simultaneously dispatched) to the addresses
specified below.
If to the Executive: John E. Meyer, Jr.
_______________________
Dothan, Alabama 36303
Facsimile: (___) ____-_______
If to the Bank: Southland Bank
c/o ABC Bancorp
310 First Street, S.E.
Moultrie, Georgia 31768
Facsimile: (912) 890-2235
Attn: President
or to such other address or fax number as either party may from time to time
designate in writing to the other.
8. Entire Agreement. This Agreement constitutes the entire agreement
----------------
between the parties hereto relating to the subject matter hereof, and supersedes
all prior agreements and understandings, whether oral or written, with respect
to the same, including, without limitation, that certain employment agreement by
and between the Bank and the Executive dated as of November 17, 1993, as
amended, which is hereby terminated and shall be of no further force or effect.
No modification, alteration, amendment or recision of or supplement to this
Agreement shall be valid or effective unless the same is in writing and signed
by both parties hereto.
9. Governing Law. This Agreement and the rights and duties of the
-------------
parties hereunder shall be governed by, construed under and enforced in
accordance with the laws of the State Alabama.
-5-
<PAGE>
10. Assignment. This Agreement shall inure to the benefit of and be
----------
binding upon the parties hereto and their respective heirs, personal
representatives, successors and permitted assigns. The rights, duties and
obligations under this Agreement are assignable by the Bank to a successor of
all or substantially all of the business or assets of the Bank. The rights,
duties and obligations of the Executive under this Agreement shall not be
assignable .
11. Survival. The respective obligations of the parties under Section 6
--------
hereof shall survive the termination of this Agreement.
IN WITNESS WHEREOF, the Bank has caused this Agreement to be executed and
delivered, and the Executive has executed and delivered this Agreement, all as
of the day and year first above written.
SOUTHLAND BANK
By:______________________________________
Its: ________________________________
______________________________________(SEAL)
JOHN E. MEYER, JR.
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<PAGE>
EXHIBIT 5
---------
MATTERS AS TO WHICH
ROGERS & HARDIN WILL OPINE
[Subject to standard assumptions, limitations, restrictions and matters
disclosed in the Agreement and its schedules, including principles of equity and
remedies, such as specific performance.]
1. Purchaser is a corporation duly organized, existing and in good
standing under the laws of the State of Georgia with corporate power and
authority (a) to conduct its business as described in the proxy statement used
to solicit the approval by the stockholders of Target of the transactions
contemplated by the Agreement ("Proxy Statement"), and (b) to own and use its
Assets.
2. Purchaser's authorized shares consist of 10,000,000 shares of Common
Stock, no par value, of which __________ shares were outstanding as of
_____________, and 5,000,000 shares of Preferred Stock, none of which were
outstanding as of ____________. The outstanding shares of Purchaser Common
Stock have been duly authorized and validly issued, were not issued in violation
of any statutory preemptive rights of shareholders, and are fully paid and
nonassessable. To our Knowledge, except as Previously Disclosed, there are no
options, subscriptions, warrants, calls, rights or commitments obligating
Purchaser to issue equity securities or acquire its equity securities. The
shares of Purchaser Common Stock to be issued to the shareholders of Target upon
consummation of the Merger have been registered under the Securities Act of
1933, as amended, and when issued in accordance with the Agreement, will be
validly issued, fully paid and nonassessable.
3. The execution and delivery by Purchaser of the Agreement do not, and
if Purchaser were now to perform its obligations under the Agreement such
performance would not, result in any violation of the Articles of Incorporation
or Bylaws of Purchaser or, to our knowledge, result in any breach of, or default
or acceleration under, any material Contract or Order to which Purchaser is a
party or by which Purchaser is bound.
4. Purchaser has duly authorized the execution and delivery of the
Agreement and all performance by Purchaser thereunder and has duly executed and
delivered the Agreement.
5. The Agreement is enforceable against Purchaser.
<PAGE>
EXHIBIT 6
---------
IRREVOCABLE PROXY
-----------------
This Irrevocable Proxy is given by the undersigned, Winn F. Martin
("Shareholder"), in favor of ABC Bancorp, a Georgia corporation ("ABC"), as of
the 18th day of December, 1995.
WHEREAS, ABC and Southland Bancorporation, an Alabama corporation
("Southland"), have entered into an Agreement and Plan of Merger dated as of
December 18, 1995 (the "Merger Agreement") (capitalized terms used but not
defined herein shall have the same meaning assigned to such terms in the Merger
Agreement), pursuant to which ABC proposes to acquire the entire equity interest
in Southland by means of a merger (the "Merger") of Southland with and into ABC
in which (a) each issued and outstanding share of common stock, $.01 par value,
of Southland (the "Southland Common Stock"), other than shares of Southland
Common Stock with respect to which statutory dissenters' rights have been
perfected and shares held by Southland (or any of its subsidiaries) or by ABC
(or any of its subsidiaries), in each case other than in a fiduciary capacity or
as a result of debt previously contracted, shall automatically be converted into
the right to receive cash and whole shares of ABC's common, $1.00 par value,
plus cash in lieu of fractional shares, in an amount equal to (i) 1.8 multiplied
by the Book Value of Southland (as defined in the Merger Agreement) as of the
close of business immediately preceding the consummation of the Merger divided
by (ii) the aggregate number of outstanding shares of Southland Common Stock;
and (b) each outstanding option to purchase Southland Common Stock not
theretofore exercised shall be cancelled;
WHEREAS, Shareholder owns, as of the date hereof, 225,968 shares of
Southland Common Stock (the "Existing Shares", together with any shares of
Southland Common Stock acquired after the date hereof and prior to the
termination hereof, hereinafter collectively referred to as the "Shares"); and
WHEREAS, ABC has entered into the Merger Agreement in reliance on
Shareholder's agreement to support the Merger, including the granting of
Shareholder's Irrevocable Proxy hereunder.
NOW, THEREFORE, with respect to the Merger Agreement and the
transactions contemplated thereby and in accordance with Section (S) 10-2B-7.22
of the Alabama Business Corporation Act, Shareholder hereby irrevocably makes,
constitutes and appoints ABC to act as Shareholder's true and lawful proxy and
attorney-in-fact in the name and on behalf of Shareholder, with full power to
appoint a substitute or substitutes. Shareholder further directs ABC, and ABC
hereby agrees, to vote all of the Shares which are entitled to vote at any
meeting of the shareholders of Southland (whether annual or special and whether
or not an adjourned meeting), or by written consent in the place and stead of
Shareholder, in favor of the Merger as set forth in the Merger Agreement. By
giving this proxy, Shareholder hereby revokes any other proxy granted by
Shareholder at any time with respect to the Shares and no subsequent proxies
will be given with
-1-
<PAGE>
respect thereto by Shareholder. THE PROXY GRANTED HEREBY IS COUPLED WITH AN
INTEREST AND IS IRREVOCABLE. The proxy granted hereby shall not be terminated
by any act of Shareholder or by operation of law, by lack of appropriate power
of authority, or by the occurrence of any other event or events and shall be
binding upon all beneficiaries, heirs at law, legatees, distributees,
successors, assigns and legal representatives of Shareholder. Shareholder
agrees to use all good faith efforts to cause any record owner of the Shares of
which Shareholder is the beneficial owner to grant to ABC a proxy of the same
effect as that contained herein. Shareholder shall perform such further acts
and execute such further documents as may be required to vest in ABC the sole
power to vote the Shares during the term of the proxy granted herein. The proxy
granted herein shall expire on the earlier of (i) the date on which ABC and
Shareholder mutually consent in writing to terminate this Irrevocable Proxy,
(ii) the date of the Closing (as defined in the Merger Agreement), or (iii) the
termination of the Merger Agreement in accordance with the terms thereof.
Notwithstanding anything herein to the contrary, the proxy granted hereby and
power herein conferred upon ABC (or any substitute or substitutes) may not be
exercised prior to the receipt by ABC and Southland of the Consents of the
Regulatory Authorities (as contemplated by the Merger Agreement).
IN WITNESS WHEREOF, Shareholder has executed and delivered this
Irrevocable Proxy as of the date set forth above.
SHAREHOLDER
WINN F. MARTIN
---------------------------
(Name)
---------------------------
(Signature)
<PAGE>
IRREVOCABLE PROXY
-----------------
This Irrevocable Proxy is given by the undersigned, Gail M. Whigham
("Shareholder"), in favor of ABC Bancorp, a Georgia corporation ("ABC"), as of
the 18th day of December, 1995.
WHEREAS, ABC and Southland Bancorporation, an Alabama corporation
("Southland"), have entered into an Agreement and Plan of Merger dated as of
December 18, 1995 (the "Merger Agreement") (capitalized terms used but not
defined herein shall have the same meaning assigned to such terms in the Merger
Agreement), pursuant to which ABC proposes to acquire the entire equity interest
in Southland by means of a merger (the "Merger") of Southland with and into ABC
in which (a) each issued and outstanding share of common stock, $.01 par value,
of Southland (the "Southland Common Stock"), other than shares of Southland
Common Stock with respect to which statutory dissenters' rights have been
perfected and shares held by Southland (or any of its subsidiaries) or by ABC
(or any of its subsidiaries), in each case other than in a fiduciary capacity or
as a result of debt previously contracted, shall automatically be converted into
the right to receive cash and whole shares of ABC's common, $1.00 par value,
plus cash in lieu of fractional shares, in an amount equal to (i) 1.8 multiplied
by the Book Value of Southland (as defined in the Merger Agreement) as of the
close of business immediately preceding the consummation of the Merger divided
by (ii) the aggregate number of outstanding shares of Southland Common Stock;
and (b) each outstanding option to purchase Southland Common Stock not
theretofore exercised shall be cancelled;
WHEREAS, Shareholder owns, as of the date hereof, 54,780 shares of
Southland Common Stock (the "Existing Shares", together with any shares of
Southland Common Stock acquired after the date hereof and prior to the
termination hereof, hereinafter collectively referred to as the "Shares"); and
WHEREAS, ABC has entered into the Merger Agreement in reliance on
Shareholder's agreement to support the Merger, including the granting of
Shareholder's Irrevocable Proxy hereunder.
NOW, THEREFORE, with respect to the Merger Agreement and the
transactions contemplated thereby and in accordance with Section (S) 10-2B-7.22
of the Alabama Business Corporation Act, Shareholder hereby irrevocably makes,
constitutes and appoints ABC to act as Shareholder's true and lawful proxy and
attorney-in-fact in the name and on behalf of Shareholder, with full power to
appoint a substitute or substitutes. Shareholder further directs ABC, and ABC
hereby agrees, to vote all of the Shares which are entitled to vote at any
meeting of the shareholders of Southland (whether annual or special and whether
or not an adjourned meeting), or by written consent in the place and stead of
Shareholder, in favor of the Merger as set forth in the Merger Agreement. By
giving this proxy, Shareholder hereby revokes any other proxy granted by
Shareholder at any time with respect to the Shares and no subsequent proxies
will be given with respect thereto by Shareholder. THE PROXY GRANTED HEREBY IS
COUPLED WITH AN INTEREST AND IS IRREVOCABLE. The proxy granted hereby shall not
be terminated by any
<PAGE>
act of Shareholder or by operation of law, by lack of appropriate power of
authority, or by the occurrence of any other event or events and shall be
binding upon all beneficiaries, heirs at law, legatees, distributees,
successors, assigns and legal representatives of Shareholder. Shareholder
agrees to use all good faith efforts to cause any record owner of the Shares of
which Shareholder is the beneficial owner to grant to ABC a proxy of the same
effect as that contained herein. Shareholder shall perform such further acts
and execute such further documents as may be required to vest in ABC the sole
power to vote the Shares during the term of the proxy granted herein. The proxy
granted herein shall expire on the earlier of (i) the date on which ABC and
Shareholder mutually consent in writing to terminate this Irrevocable Proxy,
(ii) the date of the Closing (as defined in the Merger Agreement), or (iii) the
termination of the Merger Agreement in accordance with the terms thereof.
Notwithstanding anything herein to the contrary, the proxy granted hereby and
power herein conferred upon ABC (or any substitute or substitutes) may not be
exercised prior to the receipt by ABC and Southland of the Consents of the
Regulatory Authorities (as contemplated by the Merger Agreement).
IN WITNESS WHEREOF, Shareholder has executed and delivered this
Irrevocable Proxy as of the date set forth above.
SHAREHOLDER
GAIL M. WHIGHAM
--------------------------
(Name)
--------------------------
(Signature)
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<PAGE>
AMENDMENT NO. 1 TO AGREEMENT AND PLAN OF MERGER
-----------------------------------------------
THIS AMENDMENT NO. 1 TO AGREEMENT AND PLAN OF MERGER (this "Amendment") is
entered into as of April 16, 1996, by and among ABC BANCORP, a Georgia
corporation, and SOUTHLAND BANCORPORATION, an Alabama corporation.
W I T N E S S E T H:
- - - - - - - - - -
WHEREAS, the parties hereto have entered into that certain Agreement and
Plan of Merger (THE "Merger Agreement"), dated as of December 18, 1995; and
WHEREAS, the parties hereto have determined that it is desirable to amend
the Merger Agreement;
NOW, THEREFORE, in consideration of the foregoing and the provisions set
forth below, the parties hereto hereby agree as follows:
Section 1. Amendment of Section 9.1(e). Section 9.1 (e) of the Merger
---------------------------
Agreement is hereby amended to read in its entirety as follows:
"(e) By the Board of Directors of either Party in the event that
the Merger shall not have been consummated by August 1, 1996, but only
if the failure to consummate the transactions contemplated hereby on
or before such date is not caused by any breach of this Agreement by
the Party electing to terminate pursuant to this Section 9.1 (e) ; or"
Section 2. Ratification. Except as expressly amended by the terms
------------
hereof, the Merger Agreement is hereby reaffirmed by each of the parties hereto.
IN WITNESS WHEREOF, each of the parties hereto has caused this Amendment
to be executed on its behalf and its corporate seal to be hereunto affixed and
attested by its officers as of the day and year first above written.
ATTEST: ABC BANCORP
/s/ Sara R Hall By: /s/ Kenneth J. Hunnicutt
- --------------- ----------------------------
Secretary President
(CORPORATE SEAL)
ATTEST: SOUTHLAND BANCORPORATION
/s/ Pamela H. Adams By: /s/ John E. Meyer, Jr.
- ------------------- --------------------------
Secretary President
(CORPORATE SEAL)
<PAGE>
Appendix B
ALABAMA BUSINESS CORPORATION ACT
ARTICLE 13. DISSENTERS' RIGHTS
DIVISION A. RIGHT TO DISSENT AND OBTAIN PAYMENT FOR SHARES
10-2B-13.01 DEFINITIONS.--
(1) "Corporate action" means the filing of articles of merger or share
exchange by the Probate Judge or Secretary of State, or other action
giving legal effect to a transaction that is the subject of
dissenters' rights.
(2) "Corporation" means the issuer of shares held by a dissenter before
the corporate action, or the surviving or acquiring corporation by
merger or share exchange of that issuer.
(3) "Dissenter" means a shareholder who is entitled to dissent from
corporate action under Section 13.02 and who exercises that right when
and in the manner required by Sections 13.20 through 13.28.
(4) "Fair Value," with respect to a dissenter's shares, means the value of
the shares immediately before the effectuation of the corporate action
to which the dissenter objects, excluding any appreciation or
depreciation in anticipation of the corporate action unless exclusion
would be inequitable.
(5) "Interest" means interest from the effective date of the corporate
action until the date of payment, at the average rate currently paid
by the corporation on its principal bank loans, or, if none, at a rate
that is fair and equitable under all circumstances.
(6) "Record shareholder" means the person in whose name shares are
registered in the records of a corporation or the beneficial owner of
shares to the extent of the rights granted by a nominee certificate on
file with a corporation.
(7) "Beneficial shareholder" means the person who is a beneficial owner of
shares held in a voting trust or by a nominee as the record
shareholder.
(8) "Shareholder" means the record shareholder or the beneficial
shareholder.
10-2B-13.02 RIGHT TO DISSENT.--(a) A shareholder is entitled to dissent
from, and obtain payment of the fair value of his or her shares in the event of,
any of the following corporate actions:
(1) Consummation of a plan of merger to which the corporation is a party
(i) if shareholder approval is required for the merger by
Section 11.03 or the articles of
B-1
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incorporation and the shareholder is entitled to vote on the merger or
(ii) if the corporation is a subsidiary that is merged with its parent
under Section 11.04;
(2) Consummation of a plan of share exchange to which the corporation is a
party as the corporation whose shares will be acquired, if the
shareholder is entitled to vote on the plan;
(3) Consummation of a sale or exchange by all, or substantially all, of
the property of the corporation other than in the usual and regular
course of business, if the shareholder is entitled to vote on the sale
or exchange, including a sale in dissolution, but not including a sale
pursuant to court order or a sale for cash pursuant to a plan by which
all or substantially all of the net proceeds of the sale will be
distributed to the shareholders within one year after the date of
sale;
(4) To the extent that the articles of incorporation of the corporation so
provide, an amendment of the articles of incorporation that materially
and adversely affects rights in respect to a dissenter's shares
because it:
(i) Alters or abolishes a preferential right of the shares;
(ii) Creates, alters, or abolishes a right in respect of redemption,
including a provision respecting a sinking fund for the
redemption or repurchase of the shares;
(iii) Alters or abolishes a preemptive right of the holder of the
shares to acquire shares or other securities;
(iv) Excludes or limits the right of the shares to vote on any
matter, or to cumulate votes, other than a limitation by
dilution through issuance of shares or other securities with
similar voting rights; or
(v) Reduces the number of shares owned by the shareholder to a
fraction of a share if the fractional share so created is to be
acquired for cash under Section 6.04; or
(5) Any corporate action taken pursuant to a shareholder vote to the
extent the articles of incorporation, bylaws, or a resolution of the
board of directors provides that voting or nonvoting shareholders are
entitled to dissent and obtain payment for their shares.
(b) A shareholder entitled to dissent and obtain payment for shares under
this chapter may not challenge the corporate action creating his or her
entitlement unless the action is unlawful or fraudulent with respect to the
shareholder or the corporation.
10-2B-13.03 DISSENT BY NOMINEES AND BENEFICIAL OWNERS.--(a) A record
shareholder may assert dissenters' rights as to fewer than all of the shares
registered in his or her name only if he or she dissents with respect to all
shares beneficially owned by any one person and notifies the corporation in
writing of the name and address of each person on whose behalf he or she asserts
dissenters' rights. The rights of a partial dissenter under this subsection are
determined as
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<PAGE>
if the shares to which he or she dissents and his or her other shares were
registered in the names of different shareholders.
(b) A beneficial shareholder may assert dissenters' rights as to shares
held on his or her behalf only if:
(1) He or she submits to the corporation the record shareholder's written
consent to the dissent not later than the time the beneficial
shareholder asserts dissenters' rights; and
(2) He or she does so with respect to all shares of which he or she is the
beneficial shareholder or over which he or she has power to direct the
vote.
DIVISION B. PROCEDURE FOR EXERCISE OF DISSENTERS' RIGHTS
10-2B-13.20 NOTICE OF DISSENTERS' RIGHTS.--(a) If proposed corporate
action creating dissenters' rights under Section 13.02 is submitted to a vote at
a shareholders' meeting, the meeting notice must state that shareholders are or
may be entitled to assert dissenters' rights under this article and be
accompanied by a copy of this article.
(b) If corporate action creating dissenters' rights under Section 13.02 is
taken without a vote of shareholders, the corporation shall (1) notify in
writing all shareholders entitled to assert dissenters' rights that the action
was taken; and (2) send them the dissenters' notice described in Section 13.22.
10-2B-13.21 NOTICE OF INTENT TO DEMAND PAYMENT.--(a) If proposed
corporate action creating dissenters' rights under Section 13.02 is submitted to
a vote at a shareholder's meeting, a shareholder who wishes to assert
dissenters' rights (1) must deliver to the corporation before the vote is taken
written notice of his or her intent to demand payment or his or her shares if
the proposed action is effectuated; and (2) must not vote his or her shares in
favor of the proposed action.
(b) A shareholder who does not satisfy the requirements of subsection
(a) is not entitled to payment for his or her shares under this article.
10-2B-13.22 DISSENTERS' NOTICE.--(a) If proposed corporate action creating
dissenters' rights under Section 13.02 is authorized at a shareholders' meeting,
the corporation shall deliver a written dissenters' notice to all shareholders
who satisfied the requirements of Section 13.21.
(b) The dissenters' notice must be sent no later than 10 days after the
corporate action was taken, and must:
(1) State where the payment demand must be sent;
(2) Inform holders of shares to what extent transfer of the shares will be
restricted after the payment demand is received;
B-3
<PAGE>
(3) Supply a form for demanding payment;
(4) Set a date by which the corporation must receive the payment demand,
which date may not be fewer than 30 nor more than 60 days after the
date the subsection (a) notice is delivered; and
(5) Be accompanied by a copy of this article.
10-2B-13.23 DUTY TO DEMAND PAYMENT.--(a) A shareholder sent a dissenters'
notice described in Section 13.22 must demand payment in accordance with the
terms of the dissenters' notice.
(b) The shareholder who demands payment retains all other rights of a
shareholder until those rights are canceled or modified by the taking of the
proposed corporate action.
(c) A shareholder who does not demand payment by the date set in the
dissenters' notice is not entitled to payment for his or her shares under this
article.
(d) A shareholder who demands payment under subsection (a) may not
thereafter withdraw that demand and accept the terms offered under the proposed
corporate action unless the corporation shall consent thereto.
10-2B-13.24 SHARE RESTRICTIONS.--(a) Within 20 days after making a formal
payment demand, each shareholder demanding payment shall submit the certificate
or certificates representing his or her shares to the corporation for
(1) notation thereon by the corporation that such demand has been made and
(2) return to the shareholder by the corporation.
(b) The failure to submit his or her shares for notation shall, at the
option of the corporation, terminate the shareholders' rights under this article
unless a court of competent jurisdiction, for good and sufficient cause, shall
otherwise direct.
(c) If shares represented by a certificate on which notation has been made
shall be transferred, each new certificate issued therefor shall bear similar
notation, together with the name of the original dissenting holder of such
shares.
(d) A transferee of such shares shall acquire by such transfer no rights in
the corporation other than those which the original dissenting shareholder had
after making demand for payment of the fair value thereof.
10-2B-13.25 OFFER OF PAYMENT.--(a) As soon as the proposed corporate
action is taken, or upon receipt of a payment demand, the corporation shall
offer to pay each dissenter who complied with Section 13.23 the amount the
corporation estimates to be the fair value of his or her shares, plus accrued
interest.
(b) The offer of payment must be accompanied by:
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<PAGE>
(1) The corporation's balance sheet as of the end of a fiscal year ending
not more than 16 months before the date of the offer, an income
statement for that year, and the latest available interim financial
statements, if any;
(2) A statement of the corporation's estimate of the fair value of the
shares;
(3) An explanation of how the interest was calculated;
(4) A statement of the dissenter's right to demand payment under
Section 13.28; and
(5) A copy of this article.
(c) Each dissenter who agrees to accept the corporation's offer of payment
in full satisfaction of his or her demand must surrender to the corporation the
certificate or certificates representing his or her shares in accordance with
terms of the dissenters' notice. Upon receiving the certificate or
certificates, the corporation shall pay each dissenter the fair value of his or
her shares, plus accrued interest, as provided in subsection (a). Upon
receiving payment, a dissenting shareholder ceases to have any interest in the
shares.
10-2B-13.26 FAILURE TO TAKE CORPORATE ACTION.--(a) If the corporation
does not take the proposed action within 60 days after the date set for
demanding payment, the corporation shall release the transfer restrictions
imposed on shares.
(b) If, after releasing transfer restrictions, the corporation takes the
proposed action, it must send a new dissenters' notice under Section 13.22 and
repeat the payment demand procedure.
10-2B-13.28 PROCEDURE IF SHAREHOLDER DISSATISFIED WITH OFFER OF PAYMENT.--
(a) A dissenter may notify the corporation in writing of his or her own
estimate of the fair value of his or her shares and amount of interest due, and
demand payment of his or her estimate, or reject the corporation's offer under
Section 13.25 and demand payment of the fair value of his or her shares and
interest due, if:
(1) The dissenter believes that the amount offered under Section 13.25 is
less than the fair value of his or her shares or that the interest due
is incorrectly calculated;
(2) The corporation fails to make an offer under Section 13.25 within 60
days after the date set for demanding payment; or
(3) The corporation, having failed to take the proposed action, does not
release the transfer restrictions imposed on shares within 60 days
after the date set for demanding payment.
(b) A dissenter waives his or her right to demand payment under this
section unless he or she notifies the corporation of his or her demand in
writing under subsection (a) within 30 days after the corporation offered
payment for his or her shares.
DIVISION C. JUDICIAL APPRAISAL OF SHARES
10-2B-13.30 COURT ACTION.--(a) If a demand for payment under
Section 13.28 remains unsettled, the corporation shall commence a proceeding
within 60 days after receiving the
B-5
<PAGE>
payment demand and petition the court to determine the fair value of the shares
and accrued interest. If the corporation does not commence the proceeding
within the 60 day period, it shall pay each dissenter whose demand remains
unsettled the amount demanded.
(b) The corporation shall commence the proceeding in the circuit court of
the county where the corporation's principal office (or, if none in this state,
its registered office) is located. If the corporation is a foreign corporation
without a registered office in this state, it shall commence the proceeding in
the county in this state where the registered office of the domestic corporation
merged with or whose shares were acquired by the foreign corporation was
located.
(c) The corporation shall make all dissenters (whether or not residents of
this state) whose demands remain unsettled parties to the proceeding as in an
action against their shares, and all parties must be served with a copy of the
petition. Nonresidents may be served by registered or certified mail or by
publication as provided under the Alabama Rules of Civil Procedure.
(d) After service is completed, the corporation shall deposit with the
clerk of the court an amount sufficient to pay unsettled claims of all
dissenters party to the action in an amount per share equal to its prior
estimate of fair value, plus accrued interest, under Section 13.25.
(e) The jurisdiction of the court in which the proceeding is commenced
under subsection (b) is plenary and exclusive. The court may appoint one or
more persons as appraisers to receive evidence and recommend decision on the
question of fair value. The appraisers have the powers described in the order
appointing them, or in any amendment to it. The dissenters are entitled to the
same discovery rights as parties in other civil proceedings.
(f) Each dissenter made a party to the proceeding is entitled to judgment
for the amount the court finds to be the fair value of his or her shares, plus
accrued interest. If the court's determination as to the fair value of a
dissenter's shares, plus accrued interest, is higher than the amount estimated
by the corporation and deposited with the clerk of the court pursuant to
subsection (d), the corporation shall pay the excess to the dissenting
shareholder. If the court's determination as to fair value, plus accrued
interest, of a dissenter's shares is less than the amount estimated by the
corporation and deposited with the clerk of the court pursuant to subsection
(d), then the clerk shall return the balance of funds deposited, less any costs
under Section 13.31, to the corporation.
(g) Upon payment of the judgment, and surrender to the corporation of the
certificate or certificates representing the appraised shares, a dissenting
shareholder ceases to have any interest in the shares.
10-2B-13.31 COURT COSTS AND COUNSEL FEES.--(a) The court in an appraisal
proceeding commenced under Section 13.30 shall determine all costs of the
proceeding, including compensation and expenses of appraisers appointed by the
court. The court shall assess the costs against the corporation, except that
the court may assess costs against all or some of the dissenters, in amounts the
court finds equitable, to the extent the court finds the dissenters acted
arbitrarily, vexatiously, or not in good faith in demanding payment under
Section 13.28.
B-6
<PAGE>
(b) The court may also assess the reasonable fees and expenses of counsel
and experts for the respective parties, in amounts the court finds equitable:
(1) Against the corporation and in favor of any or all dissenters if the
court finds the corporation did not substantially comply with the
requirements of Sections 13.20 through 13.28; or
(2) Against either the corporation or a dissenter, in favor of any other
party, if the court finds that the party against whom the fees and
expenses are assessed acted arbitrarily, vexatiously, or not in good
faith with respect to the rights provided by this chapter.
(c) If the court finds that the services of counsel for any dissenter were
of substantial benefit to other dissenters similarly situated, and that the fees
for those services should not be assessed against the corporation, the court may
award to these counsel reasonable fees to be paid out of the amounts awarded the
dissenters who were benefitted.
10-2B-13.32 STATUS OF SHARES AFTER PAYMENT.-- Shares acquired by a
corporation pursuant to payment of the agreed value therefor or to payment of
the judgment entered therefor, as in this chapter provided, may be held and
disposed of by such corporation as in the case of other treasury shares, except
that, in the case of a merger or share exchange, they may be held and disposed
of as the plan of merger or share exchange may otherwise provide.
B-7
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
Item 20. Indemnification of Directors and Officers
The Georgia Business Corporation Code (the "Georgia Code") provides that
the Articles of Incorporation may include a provision eliminating or limiting
the personal liability of a director, other than: (i) for any appropriation, in
violation of the director's duties, of any business opportunity of the
corporation; (ii) for acts or omissions which involve intentional misconduct or
unlawful violation of laws; (iii) for certain unlawful distributions; and (iv)
for any transaction from which the director received an improper personal
benefit. The Georgia Code further provides that a corporation may indemnify a
director if the director acted in a manner he believed in good faith to be in or
not opposed to the best interest of the corporation and, in the case of any
criminal proceeding, he had no reasonable cause to believe that his conduct was
unlawful. A corporation may not indemnify a director, however, in connection
with a proceeding by or in the right of the corporation in which the director
was adjudged liable to the corporation, or in connection with any other
proceeding in which the director was adjudged liable on the basis that personal
benefit was improperly received by the director. The Georgia Code provides for
mandatory indemnification of a director unless otherwise limited by a
corporation's Articles of Incorporation, to the extent of reasonable expenses
incurred by the director in connection with a proceeding.
A further limitation on indemnification imposed by the Georgia Code is that
in the case of indemnification in connection with a proceeding by or in the
right of the corporation, indemnification is limited to reasonable expenses
incurred in connection with the proceeding.
Article XI of the Registrant's Amended Articles of Incorporation (the
"Articles") provides that no director shall be personally liable to the
Registrant or its stockholders for monetary damages for any breach of the duty
of care or other duty as a director, except that such liability shall not be
eliminated: (i) for any appropriation, in violation of a director's duties, of
any business opportunity of the corporation, (ii) for acts or omissions which
involve intentional misconduct or a knowing violation of law, (iii) for certain
unlawful distributions, or (iv) for any transaction from which the director
derived an improper personal benefit.
The Georgia Code permits a corporation to indemnify a director if the
director seeking indemnification acted in a manner he believed in good faith to
be in or not opposed to the best interest of the corporation and, in the case of
any criminal proceeding, that he had no reasonable cause to believe his conduct
was unlawful.
Item 21. Exhibits and Financial Statement Schedules
a. Exhibits and Exhibit Index
4.1* Articles of Incorporation of the Registrant, as amended
(incorporated by reference to Exhibit 2.1 to the Registrant's
Regulation A Offering Statement on Form 1-A (File No. 24A-2630)
filed August 14, 1987).
- --------
*Incorporated herein by reference as indicated above or previously filed.
II-1
<PAGE>
4.2* Amendment to Amended Articles of Incorporation dated May 26, 1995
(incorporated by reference to Exhibit 3.1.1 to the Registrant's Form
10-K filed March 28, 1996).
4.3* Bylaws of the Registrant, as amended (incorporated by reference to
Exhibit 2.2 to the Company's Regulation A Offering Statement on
Form 1-A (File No. 24A-2630) filed August 14, 1987).
5.1* Opinion of Rogers & Hardin regarding legality of securities being
registered (including their consent).
8.1 Opinion of Rogers & Hardin regarding certain tax matters (including
their consent).
10.1* 1985 Incentive Stock Option Plan (filed as Exhibit 5.1 to the
Registrant's Regulation A Offering Statement on Form 1-A
(File No. 24A-2630), filed with the Commission on August 14, 1987
and incorporated herein by reference).
10.2* Incentive Stock Option Agreement with Kenneth J. Hunnicutt dated
October 17, 1985 (filed as Exhibit 5.2 to the Registrant's
Regulation A Offering Statement on Form 1-A (File No. 24A-2630),
filed with the Commission on August 14, 1987 and incorporated
herein by reference).
10.3* Deferred Compensation Agreement for Kenneth J. Hunnicutt dated
December 16, 1986 (filed as Exhibit 5.3 to the Registrant's
Regulation A Offering Statement on Form 1-A (File No. 24A-2630),
filed with the Commission on August 14, 1987 and incorporated
herein by reference).
10.4* Security Deed in favor of M.I.A., Co. dated December 31, 1984
(filed as Exhibit 5.4 to the Registrant's Regulation A Offering
Statement on Form 1-A (File No. 24A-2630), filed with the
Commission on August 14, 1987 and incorporated herein by
reference).
10.5* Loan Agreement and Master Term Note dated December 30, 1986
(filed as Exhibit 5.5 to the Registrant's Regulation A Offering
Statement on Form 1-A (File No. 24A-2630), filed with the
Commission on August 14, 1987 and incorporated herein by
reference).
10.6* Executive Salary Continution Agreement dated February 14, 1984
(filed as Exhibit 10.6 to the Registrant's Annual Report on Form
10-KSB (File Number 2-71257), filed herewith with the Commission on
March 27, 1989 and incorporated herein by reference).
10.7* 1992 Incentive Stock Option Plan and Option Agreement for K. J.
Hunnicutt (filed as Exhibit 10.7 to the Registrant's Annual
Report on Form 10-KSB (File Number 0-16181), filed with the
Commission on March 30, 1993 and incorporated herein by
referenced.)
10.8* Executive Employment Agreement with Kenneth J. Hunnicutt dated
September 20, 1994 (filed as Exhibit 10.8 to the Registrant's
Annual Report on Form 10-KSB (File Number 0-016181), filed with
the Commission on March 30, 1995 and incorporated herein by
reference).
- --------
*Incorporated herein by reference as indicated above or previously filed.
II-2
<PAGE>
10.9* Executive Consulting Agreement with Eugene M. Vereen dated
September 20, 1994 (filed as Exhibit 10.9 to the Registrant's
Annual Report on Form 10-KSB (File Number 0-16181), filed with
the Commission on March 30, 1995 and incorporated herein by
reference).
10.10* Agreement and Plan of Merger by and between Registrant and Southland
Bancorporation dated as of December 18, 1995 (filed as Exhibit 10.11
to the Registrant's Annual Report on Form 10-K (File No. 0-16181),
filed with the Commission on March 28, 1996 and incorporated herein
by reference).
10.11* Agreement and Plan of Merger by and between Registrant and Central
Bankshares, Inc. dated as of December 29, 1995 (filed as Exhibit 10.10
to the Registrant's Annual Report on Form 10-K (File No. 0-16181),
filed with the Commission on March 28, 1996 and incorporated herein
by reference).
10.12 Agreement and Plan of Merger by and between Registrant and First
National Financial Corporation dated as of April 15, 1996.
--------
21.1* Schedule of subsidiaries of ABC Bancorp (incorporated by
reference to Exhibit 22.1 to Registrant's Annual Report on Form
10-KSB (File No. 1-16181) filed with the Commission on March 30,
1993).
23.1 Consent of Mauldin & Jenkins.
23.2 Consent of KPMG Peat Marwick LLP.
23.3 Consent of Rogers & Hardin (contained in Exhibits 5.1 and 8.1
hereto).
23.4 Consent of Francis & Company.
23.5 Consent of Mauldin & Jenkins.
24.1 Powers of attorney (included in the Signature page hereto)
99.1* Election Form.
99.2* Letter of Transmittal and Instructions.
99.3* Form of Exchange Agreement by and among Banks, Inc., ABC
Bancorp and Southland Bancorporation.
99.4* Form of proxy card.
b. Financial Statement Schedules.
No financial statement schedules are required to be filed with this
Registration Statement.
c. Reports, Opinions or Appraisals.
None.
Item 22. Undertakings
(a) The undersigned registrant hereby undertakes:
(1) To file, during any period in which offers or sales are being
made, a post-effective amendment to this Registration Statement;
(i) To include any prospectus required by Section 10(a)(3) of
the Securities Act of 1933 (the "Securities Act");
(ii) To reflect in the prospectus any facts or events arising
after the effective date of the Registration Statement (or
the most recent post-effective amendment thereof) which,
individually or in the aggregate, represent a fundamental
change in the information set forth in the Registration
Statement. Notwithstanding the foregoing, any increase or
decrease in volume of securities offered (if the total
dollar value of securities offered would not exceed that
which was registered) and any deviation from the low or
high and of the estimated maximum offering range may be
reflected in the form of prospectus filed with the
Commission pursuant to Rule 424(b) if, in the aggregate,
the changes in volume and price represent no more than 20
percent change in the maximum aggregate offering price set
forth in the "Calculation of Registration Fee" table in
the effective registration statement.
(iii) To include any material information with respect to the
plan of distribution not previously disclosed in the
Registration Statement or any material change to such
information in the Registration Statement.
(2) That, for the purpose of determining any liability under the
Securities Act, each such post-effective amendment shall be
deemed to be a new registration statement relating to the
securities offered therein, and the offering of such securities
at that time shall be deemed to be the initial bona fide
offering thereof.
(3) To remove registration by means of a post-effective amendment
any of the securities being registered which remain unsold at
the termination of the offering.
(4) If the registrant is a foreign private issuer, to file a post-
effective amendment to the registration statement to include any
financial statements required by Rule 3-19 of this chapter at
the start of any delayed offering or throughout a continuous
offering. Financial statements and information otherwise
required by Section 10(a)(3) of the Act need not be furnished,
provided, that the registrant includes in the prospectus, by
means of a post-effective amendment, financial statements
required pursuant to this paragraph (a)(4) and other information
necessary to ensure that all other information in the prospectus
is at least as current as the date of those financial
statements. Notwithstanding the foregoing, with respect to
registration statements on Form F-3, a post-effective amendment
need not be filed to include financial statements and
information required by Section 10(a)(3) of the Act or Rule 3-19
of this chapter if such financial statements and information are
contained in periodic reports filed with or furnished to the
Commission by the registrant pursuant to section 13 or section
15(d) of the Securities Exchange Act of 1934 that are
incorporated by reference in the Form F-3.
(b) The undersigned Registrant hereby undertakes as follows: that prior
to any public reoffering of the securities registered hereunder through use of a
prospectus which is part of this registration statement, by any person or party
who is deemed to be an underwriter within the meaning of Rule 145(c), the issuer
undertakes that such reoffering prospectus will contain the information called
for by the applicable registration form with respect to reofferings by persons
who may be deemed underwriters, in addition to the information called for by the
other Items of the applicable form.
II-3
<PAGE>
(c) The Registrant undertakes that every prospectus (i) that is filed
pursuant to paragraph (b) immediately preceding, or (ii) that purports to
meet the requirements of section 10(a)(3) of the Act and is used in
connection with an offering of securities subject to Rule 415, will be
filed as a part of an amendment to the registration statement and will not
be used until such amendment is effective, and that, for purposes of
determining any liability under the Securities Act of 1933, each such post-
effective amendment shall be deemed to be a new registration statement
relating to the securities offered therein, and the offering of such
securities at that time shall be deemed to be the initial bona fide
offering thereof.
(d) The undersigned registrant hereby undertakes that, for purposes of
determining any liability under the Securities Act of 1933, each filing the
registrant's annual report pursuant to Section 13(a) or Section 15(d) of
the Securities Exchange Act of 1934 (and, where applicable, each filing of
an employee benefit plan's annual report pursuant to Section 15(d) of the
Securities Exchange Act of 1934) that is incorporated by reference in the
registration statement shall be deemed to be a new registration statement
relating to the securities offered therein, and the offering of such
securities at that time shall be deemed to be the initial bona fide
offering thereof.
(e) Insofar as indemnification for liabilities arising under the
Securities Act of 1933 may be permitted to directors, officers and
controlling persons of the Registrant pursuant to the foregoing provisions,
or otherwise, the Registrant has been advised that in the opinion of the
Securities and Exchange Commission such indemnification is against the
public policy as expressed in the Act and is, therefore, unenforceable. In
the event that a claim for indemnification against such liabilities (other
than the payment by the Registrant of expenses incurred or paid by a
director, officer or controlling person of the Registrant in the successful
defense of any action, suit or proceeding) is asserted by such director,
officer or controlling person in connection with the securities being
registered, the Registrant will, unless in the opinion of its counsel the
matter has been settled by controlling precedent, submit to a court of
appropriate jurisdiction the question whether such indemnification by it is
against public policy as expressed in the Act and will be governed by the
final adjudication of such issue.
(f) The undersigned Registrant hereby undertakes to respond to
requests for information that is incorporated by reference into the
prospectus pursuant to Items 4, 10(b), 11, or 13 of this Form, within one
business day of receipt of such request, and to send the incorporated
documents by first class mail or other equally prompt means. This includes
information contained in documents filed subsequent to the effective date
of the registration statement through the date of responding to the
request.
(g) The undersigned Registrant hereby undertakes to supply by means of
a post-effective amendment all information concerning a transaction, and
the company being acquired involved therein, that was not the subject of
and included in the registration statement when it became effective.
II-4
<PAGE>
SIGNATURES
In accordance with the requirements of the Securities Act of
1933, the Registrant has duly caused this Amendment of the Registration
Statement to be signed on its behalf by the undersigned, thereunto duly
authorized in the City of Moultrie, State of Georgia, on May 22, 1996.
ABC BANCORP
By: /s/ Kenneth J. Hunnicutt
-----------------------------------
Kenneth J. Hunnicutt, President
and Chief Executive Officer
In accordance with requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in their
capacities and on the dates indicated.
Each person whose signature appears below hereby authorizes Kenneth J.
Hunnicutt and W. Edwin Lane, Jr., and each of them, to file one or more
amendments (including post-effective amendments) to the Registration
Statement, with all exhibits thereto, which amendments may make such
changes as any of such persons deems appropriate, and each person,
individually and in each capacity stated below, hereby appoints each of
such persons as attorney-in-fact and agent, with full power of substitution
and resubstitution, to execute in his name and on his behalf any such
amendments to the Registration Statement, hereby ratifying and confirming
all that said attorneys-in-fact and agents, or their substitute or
substitutes, may lawfully do or come to be done by virtue hereof.
<TABLE>
<CAPTION>
Signature and Title Date
<S> <C> <C>
/s/ Kenneth J. Hunnicutt
- --------------------------- President, Chief Executive May 22, 1996
Kenneth J. Hunnicutt Officer and Director
(Principal Executive Officer)
Executive Vice President and
Chief Financial Officer
(Principal Financial Officer
/s/ W. Edwin Lane, Jr. and Principal Accounting
- --------------------------- Officer) May 22, 1996
W. Edwin Lane, Jr.
*
- ---------------------------------------- Director May 22, 1996
J. Raymond Fulp
* Chairman of the
- ---------------------------------------- Board and Director May 22, 1996
Williard E. Lasseter
*
- ---------------------------------------- Director May 22, 1996
Bobby B. Lindsey
</TABLE>
II-5
<PAGE>
<TABLE>
<S> <C> <C>
*
- ----------------------------------------- Director May 22, 1996
Hal L. Lynch
- ----------------------------------------- Director May 22, 1996
Joseph C. Parker
*
- ----------------------------------------- Director May 22, 1996
Eugene M. Vereen, Jr.
*
- ----------------------------------------- Vice Chairman and May 22, 1996
Doyle Weltzbarker Director
*
- ----------------------------------------- Director May 22, 1996
Henry C. Wortman
</TABLE>
* By: /s/ W. Edwin Lane,Jr.
-----------------------------------
Attorney-in-Fact
II-6
<PAGE>
EXHIBIT INDEX
4.1* Articles of Incorporation of the Registrant, as amended (incorporated by
reference to Exhibit 2.1 to the Registrant's Regulation A Offering
Statement on Form 1-A (File No. 24A-2630) filed August 14, 1987).
4.2* Amendment to Amended Articles of Incorporation dated May 26, 1995
(incorporated by reference to Exhibit 3.1.1 to the Registrant's Form 10-K
filed March 28, 1996).
4.3* Bylaws of the Registrant, as amended (incorporated by reference to Exhibit
2.2 to the Registrant's Regulation A Offering Statement on Form 1-A (File
No. 24A-2630) filed August 14, 1987).
5.1* Opinion of Rogers & Hardin regarding legality of securities being
registered (including their consent).
8.1 Opinion of Rogers & Hardin regarding certain tax matters (including
their consent).
10.1* 1985 Incentive Stock Option Plan (filed as Exhibit 5.1 to the Registrant's
Regulation A Offering Statement on Form 1-A (File No. 24A-2630), filed
with the Commission on August 14, 1987 and incorporated herein by
reference).
10.2* Incentive Stock Option Agreement with Kenneth J. Hunnicutt dated October
17, 1985 (filed as Exhibit 5.2 to the Registrant's Regulation A Offering
Statement on Form 1-A (File No. 24A2630), filed with the Commission on
August 14, 1987 and incorporated herein by reference).
10.3* Deferred Compensation Agreement for Kenneth J. Hunnicutt dated December
16, 1986 (filed as Exhibit 5.3 to the Registrant's Regulation A Offering
Statement on Form 1-A (File No. 24A-2630), filed with the Commission on
August 14, 1987 and incorporated herein by reference).
10.4* Security Deed in favor of M.I.A., Co. dated December 31, 1984 (filed as
Exhibit 5.4 to the Registrant's Regulation A Offering Statement on Form
1-A (File No. 24A-2630), filed with the Commission on August 14, 1987 and
incorporated herein by reference).
10.5* Loan Agreement and Master Term Note dated December 30, 1986 (filed as
Exhibit 5.5 to the Registrant's Regulation A Offering Statement on Form
1-A (File No. 24A-2630), filed with the Commission on August 14, 1987 and
incorporated herein by reference).
10.6* Executive Salary Continuation Agreement dated February 14, 1984 (filed as
Exhibit 10.6 to the Registrant's Annual Report on Form 10-KSB (File Number
2-71257), filed herewith with the Commission on March 27, 1989 and
incorporated herein by reference).
- ----------
* Incorporated herein by reference as indicated above or previously filed.
<PAGE>
10.7* 1992 Incentive Stock Option Plan and Option Agreement for K. J. Hunnicutt
(filed as Exhibit 10.7 to the Registrant's Annual Report of Form 10-KSB
(File Number 0-16181), filed with the Commission on March 30, 1993 and
incorporated herein by referenced.)
10.8* Executive Employment Agreement with Kenneth J. Hunnicutt dated September
20, 1994 (filed as Exhibit 10.8 to the Registrant's Annual Report on Form
10-KSB (File Number 0-016181), filed with the Commission on March 30,
1995 and incorporated herein by reference).
10.9* Executive Consulting Agreement with Eugene M. Vereen dated September 20,
1994 (filed as Exhibit 10.9 to the Registrant's Annual Report on Form 10-
KSB (File Number 0-16181), filed with the Commission on March 30, 1995
and incorporated herein by reference).
10.10* Agreement and Plan of Merger by and between the Registrant and Southland
Bancorporation dated as of December 18, 1995 (filed as Exhibit 10.10 to
the Registrant's Annual Report on Form 10-K (File No. 0-16181), filed
with the Commission on March 28, 1996 and incorporated herein by
reference).
10.11* Agreement and Plan of Merger by and between the Registrant and Central
Bankshares, Inc. dated as of December 29, 1995. (filed as Exhibit 10.11
to the Registrant's Annual Report on Form 10-K) (File No. 0-16181), filed
with the Commission on March 28, 1996 and incorporated herein by
reference).
10.12 Agreement and Plan of Merger by and between the Registrant and First
National Financial Corporation dated as of April 15, 1996.
21.1* Schedule of subsidiaries of ABC Bancorp (incorporated by reference to
Exhibit 22.1 to the Registrant's Annual Report on Form 10-KSB (File No.
1-16181) filed with the Commission on March 30, 1993).
23.1 Consent of Mauldin & Jenkins.
23.2 Consent of KPMG Peat Marwick LLP.
23.3 Consent of Rogers & Hardin (contained in Exhibits 5.1 and 8.1 hereto).
23.4 Consent of Francis & Company.
23.5 Consent of Mauldin & Jenkins.
24.1 Powers of attorney (included in the Signature page hereto)
99.1* Election Form.
99.2* Letter of Transmittal and Instructions.
99.3* Form of Exchange Agreement by and among SunTrust Banks, Inc., ABC Bancorp
and Southland Bancorporation.
99.4* Form of proxy card.
- -------
* Incorporated herein by reference as indicated above or previously filed.
<PAGE>
Exhibit 8.1
May 22, 1996
ABC Bancorp
310 First Street, S.E.
Moultrie, Georgia 31768
Southland Bancorporation
3299 Ross Clark Circle, N.W.
Dothan, Alabama 36302
Re: Federal Income Tax Consequences of Proposed Merger
of Southland Bancorporation with and into ABC Bancorp
-----------------------------------------------------
Gentlemen:
We have acted as counsel for ABC Bancorp ("ABC") in connection with the
proposed merger (the "Merger") of Southland Bancorporation ("Southland") with
and into ABC, pursuant to the Agreement and Plan of Merger (the "Merger
Agreement") dated as of December 18, 1995, by and between ABC and Southland. In
our capacity as counsel for ABC and as provided in the Merger Agreement, we have
been requested to render our opinion regarding certain of the federal income tax
consequences of the Merger.
We understand that this opinion will be filed as an exhibit to the
Registration Statement on Form S-4 (the "Registration Statement") that will be
filed by ABC with the Securities and Exchange Commission relating to the
securities that will be issued by ABC pursuant to the Merger Agreement and that
this opinion will be referred to in the Proxy Statement/Prospectus that will be
a part of the Registration Statement. We hereby consent to such use of and
reference to this opinion.
All terms used herein without definition shall have the respective meanings
specified in the Merger Agreement and, unless otherwise indicated, all section
references herein are to the Internal Revenue Code of 1986, as amended.
INFORMATION RELIED UPON
-----------------------
In rendering this opinion, we have examined such documents as we have
deemed appropriate, including the Merger Agreement and the Registration
Statement. In the course of such examination, we have assumed, with your
consent, that all documents submitted to us as
<PAGE>
ABC Bancorp
Southland Bancorporation
May 22, 1996
Page 2
__________________________
photocopies faithfully reproduce the originals thereof, that all such originals
are authentic, that all such documents have been or will be duly executed to the
extent required, and that all statements set forth in such documents are
accurate. We have also obtained such additional information and representations
as we have deemed relevant and necessary through consultations with various
representatives of ABC and Southland. In addition, we have obtained written
certificates from the managements of ABC and Southland to verify certain
relevant facts that have been represented to us or that we have assumed in
rendering this opinion. Such certificates are attached as Exhibits to this
opinion. With your consent, we have assumed that the representations made in
such certificates are true on the date hereof and will be true at the Effective
Time.
OPINION
-------
Based upon the foregoing, it is our opinion that:
(1) The Merger will constitute a "reorganization" within the meaning of
Section 368(a)(1)(A), and ABC and Southland will each be "a party to a
reorganization" within the meaning of Section 368(b).
(2) No gain or loss will be recognized by ABC or Southland as a result of
the Merger.
(3) A Southland shareholder will not recognize income or gain (whether
ordinary or capital in nature) on his or her exchange of Southland Common Stock
in the Merger in excess of the amount of cash, if any, received by him or her in
the Merger.
(4) The tax basis of any ABC Common Stock received by a Southland
shareholder in the Merger will be the same as the tax basis of his or her ABC
Common Stock exchanged in the Merger, decreased by the total amount of any cash
received and increased by the total amount of any income or gain (whether
ordinary or capital in nature) recognized in the Merger.
(5) A Southland shareholder's holding period of any ABC Common Stock
received by him or her in the Merger will include the holding period of his or
her Southland Common Stock surrendered in the Merger, provided that he or she
held the Southland Common Stock as a capital asset at the Effective Time.
<PAGE>
ABC Bancorp
Southland Bancorporation
May 22, 1996
Page 3
_____________________________
The opinion expressed herein is based upon existing statutory, regulatory,
and judicial authority, any of which may be changed at any time with retroactive
effect. In addition, such opinion is based solely on the documents that we have
examined, the additional information that we have obtained and the
representations that have been made to us and cannot be relied upon if any of
the facts contained in such documents or in such additional information is, or
later becomes, inaccurate or if any of the representations made to us is, or
later becomes, inaccurate. Finally, our opinion is limited to the tax matters
specifically addressed herein, and we have not been asked to address, nor have
we addressed, any other tax consequences of the Merger.
Very truly yours,
/s/ Rogers & Hardin
ROGERS & HARDIN
<PAGE>
EXHIBIT 10.12
AGREEMENT AND PLAN OF MERGER
BY AND BETWEEN
ABC BANCORP
AND
FIRST NATIONAL FINANCIAL CORPORATION
As of April 15, 1996
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
<S> <C>
Preamble................................................................... 1
ARTICLE 1 TERMS OF MERGER................................................ 1
1.1 Merger......................................................... 1
1.2 Time and Place of Closing...................................... 2
1.3 Effective Time................................................. 2
ARTICLE 2 ARTICLE, BYLAWS, MANAGEMENT.................................... 2
2.1 Articles of Incorporation...................................... 2
2.2 Bylaws......................................................... 2
2.3 Directors and Officers......................................... 2
ARTICLE 3 MANNER OF CONVERTING AND EXCHANGING SHARES..................... 3
3.1 Conversion of Shares........................................... 3
3.2 Exchange of Shares............................................. 4
3.3 Anti-Dilution Provisions....................................... 4
3.4 Shares Held by TARGET or PURCHASER............................. 5
3.5 TARGET Bank.................................................... 5
3.6 Rights of Former TARGET Shareholders........................... 5
3.7 Treatment of OPtions and Warrants.............................. 6
ARTICLE 4 REPRESENTATIONS AND WARRANTS OF TARGET......................... 6
4.1 Organization, Standing and Power............................... 6
4.2 Authority; No Breach........................................... 6
4.3 Capital Stock.................................................. 7
4.4 TARGET Subsidiaries............................................ 8
4.5 Financial Statements........................................... 8
4.6 Absence of Undisclosed Liabilities............................. 9
4.7 Absence of Certain Changes or Events........................... 9
4.8 Tax Matters.................................................... 9
4.9 TARGET Allowance for Possible Loan Losses...................... 10
4.10 Assets......................................................... 10
4.11 Environmental Matters.......................................... 11
4.12 Compliance with Laws........................................... 12
4.13 Labor Relations................................................ 13
4.14 Employee Benefit Plans......................................... 13
4.15 Material Contracts............................................. 15
4.16 Legal Proceedings.............................................. 15
</TABLE>
i
<PAGE>
<TABLE>
<S> <C>
4.17 Reports........................................................ 16
4.18 Statements True and Correct.................................... 16
4.19 Accounting, Tax and Regulatory Matters......................... 17
4.20 Charter Provisions............................................. 17
ARTICLE 5 REPRESENTATIONS AND WARRANTIES OF PURCHASER.................... 17
5.1 Organization, Standing and Power............................... 17
5.2 Authority; No Breach........................................... 17
5.3 Capital Stock.................................................. 18
5.4 PURCHASER Susidiaries.......................................... 19
5.5 Financial Statements........................................... 20
5.6 Absence of Undisclosed Liabilities............................. 20
5.7 Absence of Certain Changes or Events........................... 20
5.8 Tax Matters.................................................... 20
5.9 PURCHASER Allowance for Possible Loan Losses................... 21
5.10 Assets......................................................... 22
5.11 Environmental Matters.......................................... 22
5.12 Compliance with Laws........................................... 23
5.13 Labor Relations................................................ 24
5.14 Employee Benefit Plans......................................... 24
5.15 Legal Proceedings.............................................. 26
5.16 Reports........................................................ 26
5.17 Statements True and Correct.................................... 27
5.18 Accounting, Tax and Regulatory Matters......................... 27
5.19 Charter Provisions............................................. 28
ARTICLE 6 CONDUCT OF BUSINESS PENDING CONSUMMATION....................... 28
6.1 Affirmative Covenants of TARGET................................ 28
6.2 Negative Covenants of TARGET................................... 28
6.3 Covenants of PURCHASER......................................... 30
6.4 Adverse Changes in Condition................................... 30
6.5 Reports........................................................ 31
ARTICLE 7 ADDITIONAL AGREEMENTS.......................................... 31
7.1 Registration Statement; Proxy Statement; Shareholder Approval.. 31
7.2 Listing........................................................ 32
7.3 Applications................................................... 32
7.4 Filings with State Offices..................................... 32
7.5 Agreements as to Efforts to Consummate......................... 32
7.6 Investment and Confidentiality................................. 32
7.7 Press Releases................................................. 33
</TABLE>
ii
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C>
7.8 No Solicitation................................................ 33
7.9 Tax Treatment.................................................. 35
7.10 Agreement of Affiliates........................................ 35
7.11 Employee Benefits and Contracts................................ 36
7.12 Large Deposits................................................. 36
7.13 Indemnification................................................ 36
7.14 Irrevocable Proxies............................................ 36
7.15 Noncompetition Agreements...................................... 37
7.16 TARGET Options and Warrants.................................... 37
ARTICLE 8 CONDITIONS PRECEDENT TO OBLIGATIONS TO CONSUMMATE.............. 37
8.1 Conditions to Obligations of Each Party........................ 37
8.2 Conditions to Obligations of PURCHASER......................... 38
8.3 Conditions to Obligations of TARGET............................ 40
ARTICLE 9 TERMINATION.................................................... 40
9.1 Termination.................................................... 40
9.2 Effect of Termination.......................................... 42
ARTICLE 10 MISCELLANEOUS.................................................. 42
10.1 Definitions.................................................... 42
10.2 Expenses....................................................... 50
10.3 Brokers and Finders............................................ 50
10.4 Entire Agreement............................................... 50
10.5 Amendments..................................................... 50
10.6 Waivers........................................................ 51
10.7 Assignment..................................................... 51
10.8 Notices........................................................ 51
10.9 Governing Law.................................................. 52
10.10 Counterparts................................................... 52
10.11 Captions....................................................... 52
10.12 Enforcement of Agreement....................................... 52
10.13 Severability................................................... 53
</TABLE>
iii
<PAGE>
[CAPTION]
<TABLE>
LIST OF EXHIBITS
----------------
Exhibit Number Description
- -------------- -----------
<S> <C>
1. List of Holders (S3.7).
2. Form of agreement of affiliates of First National Financial
Corporation (S7.10).
3. Irrevocable Proxy (S7.14).
4. Form of Noncompetition Agreement with Mr. Phillips
(S7.15).
4A. Form of Noncompetition Agreement with Directors other
than Mr. Phillips (S7.15).
5. Form of letter from Holders of Warrants (S7.16).
6. Form of letter from Holders of Options (S7.16).
7. Matters as to which Smith, Gambrell & Russell will opine
(S8.2(d)).
8. Matters as to which Rogers & Hardin will opine
(S8.3(d)).
</TABLE>
iv
<PAGE>
AGREEMENT AND PLAN OF MERGER
----------------------------
THIS AGREEMENT AND PLAN OF MERGER (the "Agreement") is made and entered
into as of April 15, 1996, by and between FIRST NATIONAL FINANCIAL CORPORATION
("TARGET"), a corporation organized and existing under the laws of the State of
Georgia, with its principal office located in Albany, Georgia, and ABC BANCORP
("PURCHASER"), a corporation organized and existing under the laws of the State
of Georgia, with its principal office located in Moultrie, Georgia.
Preamble
---------
Certain terms used in this Agreement are defined in Section 10.1 hereof.
The Boards of Directors of TARGET and PURCHASER are of the opinion that the
transactions described herein are in the best interests of the parties and their
respective shareholders. This Agreement provides for the combination of TARGET
with PURCHASER pursuant to the merger of TARGET with and into PURCHASER, as a
result of which the outstanding shares of the capital stock of TARGET shall be
converted into the right to receive shares of common stock of PURCHASER (except
as provided herein), and the shareholders of TARGET shall become shareholders of
PURCHASER (except as provided herein). The transactions described in this
Agreement are subject to the approvals of the shareholders of TARGET, the Board
of Governors of the Federal Reserve System, the Georgia Department of Banking
and Finance and the satisfaction of certain other conditions described in this
Agreement. It is the intention of the parties to this Agreement that the Merger
for federal income tax purposes shall qualify as a "reorganization" within the
meaning of Section 368(a) of the Internal Revenue Code.
Following the Closing of the Merger, First National Bank of South Georgia, a
wholly-owned national bank subsidiary of TARGET (the "Bank"), will be operated
as a separate subsidiary of PURCHASER.
NOW, THEREFORE, in consideration of the above and the mutual warranties,
representations, covenants and agreements set forth herein, the parties agree as
follows:
ARTICLE 1
TERMS OF MERGER
---------------
1.1 Merger. Subject to the terms and conditions of this Agreement, at the
------
Effective Time, TARGET shall be merged with and into PURCHASER in accordance
with the provisions of Section 14-2-1101 of the GBCC and with the effect
provided in Section 14-2-1106 of the GBCC (the "Merger"). PURCHASER shall be
the Surviving Corporation resulting from the Merger. The Merger shall be
consummated pursuant to the terms of this Agreement, which has been approved and
adopted by the respective Boards of Directors of TARGET and PURCHASER.
<PAGE>
1.2 Time and Place of Closing. The Closing shall take place at 10:00 a.m. on
-------------------------
the date that the Effective Time occurs or at such other time as the Parties,
acting through their chief executive officers or chief financial officers, may
mutually agree (the "Closing Date"). The place of Closing shall be at the
offices of Rogers & Hardin, Atlanta, Georgia, or such other place as may be
mutually agreed upon by the Parties.
1.3 Effective Time. The Merger and other transactions contemplated by this
--------------
Agreement shall become effective on the date and at the time the Georgia
Articles of Merger reflecting the Merger shall become effective with the
Secretary of State of the State of Georgia (the "Effective Time"). Subject to
the terms and conditions hereof, unless otherwise mutually agreed upon in
writing by the chief executive officers of each Party, the Parties shall use
their reasonable efforts to cause the Effective Time to occur on (a) the last
business day of the month in which occurs the last to occur of (i) the effective
date (including expiration of any applicable waiting period) of the last
required Consent of any Regulatory Authority having authority over and approving
or exempting the Merger and (ii) the date on which the shareholders of TARGET
approve this Agreement to the extent such approval is required by applicable
Law; or (b) such later date as may be mutually agreed upon in writing by the
chief executive officers or chief financial officers of each Party.
ARTICLE 2
ARTICLES, BYLAWS, MANAGEMENT
----------------------------
2.1 Articles of Incorporation. The Articles of Incorporation of PURCHASER in
-------------------------
effect immediately prior to the Effective Time shall be the Articles of
Incorporation of the Surviving Corporation until otherwise amended or repealed.
2.2 Bylaws. The Bylaws of PURCHASER in effect immediately prior to the
------
Effective Time shall be the Bylaws of the Surviving Corporation until otherwise
amended or repealed.
2.3 Directors and Officers. The directors of PURCHASER in office immediately
----------------------
prior to the Effective Time shall serve as the directors of the Surviving
Corporation from and after the Effective Time in accordance with the Bylaws of
the Surviving Corporation. The officers of PURCHASER in office immediately
prior to the Effective Time, together with such additional persons as may
thereafter be elected, shall serve as the officers of PURCHASER from and after
the Effective Time in accordance with the Bylaws of PURCHASER. The directors
and officers of TARGET Bank immediately prior to the Effective Time shall serve
as the initial directors and officers of TARGET Bank from and after the
Effective Time in accordance with the Bylaws of TARGET Bank.
2
<PAGE>
ARTICLE 3
MANNER OF CONVERTING AND EXCHANGING SHARES
------------------------------------------
3.1 Conversion of Shares. Subject to the provisions of this Article 3, at
--------------------
the Effective Time, by virtue of the Merger and without any action on the part
of the holders thereof, the shares of PURCHASER and TARGET shall be converted as
follows:
(a) Each share of PURCHASER Common Stock issued and outstanding
immediately prior to the Effective Time shall remain issued and outstanding from
and after the Effective Time.
(b) Each share of TARGET Common Stock outstanding immediately prior to
the Effective Time, other than shares with respect to which statutory
dissenters' rights have been perfected (the "Dissenting Shares") and shares held
in TARGET's treasury which shall be cancelled without consideration at the
Effective Time (the "Outstanding TARGET Shares"), shall automatically be
converted at the Effective Time into the right to receive whole shares of
PURCHASER Common Stock, plus cash in lieu of fractional shares pursuant to
subparagraph (c) below, if applicable, in an amount equal to (i) the Merger
Consideration, plus (ii) the Aggregate Option Consideration, divided by
(iii) the Aggregate TARGET Shares (the "Per Share Merger Consideration"). In
accordance with the provisions of this Section 3.1, each TARGET shareholder who
does not dissent shall receive the number of shares, or such fractions of a
share (subject to paragraph (b) below), of PURCHASER Common Stock which shall be
equal to the (i) the Per Share Merger Consideration divided by the Base Period
Trading Price (the "Exchange Ratio"), (ii) multiplied by the aggregate number of
Outstanding TARGET Shares such shareholder holds as of the Effective Time.
(c) Notwithstanding any other provision of this Agreement, each holder of
shares of TARGET Common Stock exchanged pursuant to the Merger who would
otherwise have been entitled to receive a fraction of a share of PURCHASER
Common Stock (after taking into account all certificates delivered by such
holder) shall receive, in lieu thereof, cash (without interest) in an amount
equal to such fractional part of a share of PURCHASER Common Stock multiplied by
the Base Period Trading Price. No such holder will be entitled to dividends,
voting rights, or any other rights as a shareholder in respect of any fractional
shares.
(d) Each share of the TARGET Common Stock that is not an Outstanding
TARGET Share as of the Effective Time shall be cancelled without consideration
therefor.
(e) Outstanding TARGET Shares held by TARGET shareholders who, prior to
the Effective Time, have met the requirements of Article 13 of the GBCC with
3
<PAGE>
respect to shareholders dissenting from the Merger ("Dissenting TARGET
Shareholders") shall not be converted in the Merger, but all such shares shall
be cancelled and the holders thereof shall thereafter have only such rights as
are granted to dissenting shareholders under Article 13 of the GBCC; provided,
however, that if any such shareholder fails to perfect his or her rights as a
dissenting shareholder with respect to his or her Outstanding TARGET Shares in
accordance with Article 13 of the GBCC, such shares held by such shareholder
shall, upon the happening of that event, be treated the same as all other
holders of TARGET Common Stock who have not dissented as to the Merger.
3.2 Exchange of Shares. Prior to the Effective Time, PURCHASER shall select
------------------
a bank or trust company reasonably acceptable to TARGET to act as exchange agent
(the "Exchange Agent") to effectuate the delivery of the Merger Consideration to
holders of TARGET Common Stock. Promptly following the Effective Time, the
Exchange Agent shall send to each holder of Outstanding TARGET Shares
immediately prior to the Effective Time a form of letter of transmittal (the
"Letter of Transmittal") for use in exchanging certificates previously
evidencing shares of TARGET Common Stock ("Old Certificates"). The Letter of
Transmittal will contain instructions with respect to the surrender of Old
Certificates and the distribution of cash and certificates representing
PURCHASER Common Stock, which certificates shall be deposited with the Exchange
Agent by PURCHASER as of the Effective time. If any certificates for shares of
PURCHASER Common Stock are to be issued in a name other than that for which an
Old Certificate surrendered or exchanged is issued, the Old Certificate so
surrendered shall be properly endorsed and otherwise in proper form for transfer
and the person requesting such exchange shall affix any requisite stock transfer
tax stamps to the Old Certificate surrendered or provide funds for their
purchase or establish to the satisfaction of the Exchange Agent that such taxes
are not payable. Unless and until Old Certificates (or evidence that such
certificates have been lost, stolen or destroyed accompanied by such security or
indemnity as shall be requested by TARGET) are presented to the Exchange Agent,
the holder thereof shall not be entitled to the consideration to be paid in
exchange therefor pursuant to the Merger, to any dividends payable on any
PURCHASER Common Stock to which he or she is entitled, or to exercise any rights
as a shareholder of PURCHASER Common Stock. Subject to applicable law and to the
extent that the same has not yet been paid to a public official pursuant to
applicable abandoned property laws, upon surrender of his or her Old
Certificates, the holder thereof shall be paid the consideration to which he or
she is entitled. All such property, if held by the Exchange Agent for payment
or delivery to the holders of unsurrendered Old Certificates and unclaimed at
the end of one (1) year from the Effective Time, shall at such time be paid or
redelivered by the Exchange Agent to PURCHASER and after such time any holder of
an Old Certificate who has not surrendered such certificate shall, subject to
applicable laws and to the extent that the same has not yet been paid to a
public official pursuant to applicable abandoned property laws, look as a
general creditor only to PURCHASER for payment or delivery of such property.
4
<PAGE>
In no event will any holder of TARGET Common Stock exchanged in the Merger be
entitled to receive any interest on any amounts held by the Exchange Agent or
PURCHASER.
3.3 Anti-Dilution Provisions. In the event TARGET or PURCHASER changes the
------------------------
number of shares of TARGET Common Stock or PURCHASER Common Stock, respectively,
issued and outstanding prior to the Effective Time as a result of a stock split,
stock dividend or similar recapitalization with respect to such stock and the
record date therefor (in the case of a stock dividend) or the effective date
therefor (in the case of a stock split or similar recapitalization) shall be
prior to the Effective Time, the Exchange Ratio shall be proportionately
adjusted.
3.4 Shares Held by TARGET or PURCHASER. Each of the shares of TARGET Common
----------------------------------
Stock held by any TARGET Company or by any PURCHASER Company, in each case other
than in a fiduciary capacity or as a result of debts previously contracted,
shall be canceled and retired at the Effective Time and no consideration shall
be issued in exchange therefor.
3.5 TARGET Bank. After consummation of the Merger, TARGET Bank shall be a
-----------
separate subsidiary of PURCHASER.
3.6 Rights of Former TARGET Shareholders. At the Effective Time, the stock
------------------------------------
transfer books of TARGET shall be closed as to holders of TARGET Common Stock
immediately prior to the Effective Time and no transfer of TARGET Common Stock
by any such holder shall thereafter be made or recognized. Until surrendered
for exchange in accordance with the provisions of Section 3.2 of this Agreement,
each Old Certificate (other than shares to be canceled pursuant to
Section 3.1(d) of this Agreement) shall from and after the Effective Time
represent for all purposes only the right to receive the consideration provided
in Section 3.1 of this Agreement in exchange therefor. To the extent permitted
by Law, former shareholders of record of TARGET shall be entitled to vote after
the Effective Time at any meeting of shareholders of PURCHASER the number of
whole shares of PURCHASER Common Stock into which their respective shares of
TARGET Common Stock are converted, regardless of whether such holders have
exchanged their certificates representing TARGET Common Stock for certificates
representing PURCHASER Common Stock in accordance with the provisions of this
Agreement. Whenever a dividend or other distribution is declared by PURCHASER on
the PURCHASER Common Stock, the record date for which is at or after the
Effective Time, the declaration shall include dividends or other distributions
on all shares issuable pursuant to this Agreement, but no dividend or other
distribution payable to the holders of record of PURCHASER Common Stock as of
any time subsequent to the Effective Time shall be delivered to the holder of
any certificate representing shares of TARGET Common Stock issued and
outstanding at the Effective Time until such holder surrenders such certificate
for exchange as provided in Section 3.2 of this
5
<PAGE>
Agreement. However, upon surrender of such TARGET Common Stock certificate, both
the PURCHASER Common Stock certificate (together with all such undelivered
dividends or other distributions without interest) and any undelivered cash
payments to be paid for fractional share interests (without interest) shall be
delivered and paid with respect to each share represented by such certificate.
3.7 Treatment of Options and Warrants. Pursuant to Section 7.16 hereof, each
---------------------------------
option ("TARGET Option") or warrant ("TARGET Warrant") to purchase shares of
TARGET Common Stock issued by TARGET, outstanding and unexercised immediately
prior to the Effective Time, if any, is to be cancelled upon consummation of the
Merger, and all rights in respect thereof will cease to exist. As consideration
for the cancellation of all of the TARGET Options and TARGET Warrants, each
TARGET Option or TARGET Warrant shall automatically be converted at the
Effective Time into the right to receive whole shares of PURCHASER Common Stock,
plus cash in lieu of fractional shares pursuant to subparagraph 3.1(c) above, if
applicable, in an amount equal to (i) the aggregate number of Option Shares
which each holder (a "Holder") of TARGET Options or TARGET Warrants, as the case
may be, could have been converted into immediately prior to the Effective Date
(whether or not such TARGET Option or TARGET Warrant is then exercisable),
multiplied by (ii) the difference between (A) the Per Share Merger Consideration
and (B) the exercise price for each Option Share subject to such TARGET Option
or TARGET Warrant, divided by (iii) the Base Period Trading Price. The name of
each Holder and the number of TARGET Options and TARGET Warrants owned by such
Holder is set forth on Exhibit 1 hereto.
ARTICLE 4
REPRESENTATIONS AND WARRANTIES OF TARGET
----------------------------------------
TARGET hereby represents and warrants to PURCHASER as follows:
4.1 Organization, Standing and Power. TARGET is a corporation duly
--------------------------------
organized, validly existing, and in good standing under the Laws of the State of
Georgia, and is duly registered as a bank holding company under the BHC Act.
TARGET has the corporate power and authority to carry on its business as now
conducted and to own, lease and operate its Assets. TARGET is duly qualified or
licensed to transact business as a foreign corporation in good standing in the
States of the United States and foreign jurisdictions where the character of its
assets or the nature or conduct of its business requires it to be so qualified
or licensed, except for such jurisdictions in which the failure to be so
qualified or licensed is not reasonably likely to have, individually or in the
aggregate, a Material Adverse Effect on TARGET.
6
<PAGE>
4.2 Authority; No Breach
--------------------
(a) TARGET has the corporate power and authority necessary to execute,
deliver and perform its obligations under this Agreement and to consummate the
transactions contemplated hereby. The execution, delivery and performance of
this Agreement and the consummation of the transactions contemplated herein,
including the Merger, have been duly and validly authorized by all necessary
corporate action in respect thereof on the part of TARGET, subject to the
approval of this Agreement by the holders of a majority of the outstanding
TARGET Common Stock. Subject to such requisite shareholder approval, this
Agreement represents a legal, valid and binding obligation of TARGET,
enforceable against TARGET in accordance with its terms (except in all cases as
such enforceability may be limited by applicable bankruptcy, insolvency,
reorganization, moratorium, or similar Laws affecting the enforcement of
creditors' rights generally and except that the availability of the equitable
remedy of specific performance or injunctive relief is subject to the discretion
of the court before which any proceeding may be brought).
(b) Neither the execution and delivery of this Agreement by TARGET, nor
the consummation by TARGET of the transactions contemplated hereby, nor
compliance by TARGET with any of the provisions hereof, will (i) conflict with
or result in a breach of any provision of TARGET's Articles of Incorporation or
Bylaws, or (ii) constitute or result in a Default under, or require any Consent
pursuant to, or result in the creation of any Lien on any Asset of any TARGET
Company under, any Contract or Permit of any TARGET Company, where such Default
or Lien, or any failure to obtain such Consent, is reasonably likely to have,
individually or in the aggregate, a Material Adverse Effect on TARGET, or,
(iii) subject to receipt of the requisite approvals referred to in
Section 8.1(b) of this Agreement, violate any Law or Order applicable to any
TARGET Company or any of their respective Assets.
(c) Other than in connection or compliance with the provisions of the
Securities Laws, applicable state corporate and securities Laws, and other than
Consents required from Regulatory Authorities, and other than notices to or
filings with the Internal Revenue Service or the Pension Benefit Guaranty
Corporation with respect to any employee benefit plans, and other than Consents,
filings or notifications which, if not obtained or made, are not reasonably
likely to have, individually or in the aggregate, a Material Adverse Effect on
TARGET, no notice to, filing with, or Consent of any public body or authority is
necessary for the consummation by TARGET of the Merger and the other
transactions contemplated in this Agreement.
7
<PAGE>
4.3 Capital Stock.
-------------
(a) The authorized capital stock of TARGET consists of (i) 10,000,000
shares of TARGET Common Stock, of which 495,409 shares are issued and
outstanding as of the date of this Agreement, and (ii) 1,000,000 shares of
Preferred Stock, none of which are issued or outstanding as of the date of this
Agreement. All of the issued and outstanding shares of capital stock of TARGET
are duly and validly issued and outstanding and are fully paid and nonassessable
under the GBCC. None of the outstanding shares of capital stock of TARGET has
been issued in violation of any preemptive rights of the current or past
shareholders of TARGET.
(b) Except as set forth in Section 4.3(a) of this Agreement or as
Previously Disclosed, there are no shares of capital stock or other equity
securities of TARGET outstanding and no outstanding options, warrants, scrip,
rights to subscribe to, calls, or commitments of any character whatsoever
relating to, or securities or rights convertible into or exchangeable for,
shares of the capital stock of TARGET or contracts, commitments, understandings,
or arrangements by which TARGET is or may be bound to issue additional shares of
its capital stock or options, warrants, or rights to purchase or acquire any
additional shares of its capital stock.
4.4 TARGET Subsidiaries. TARGET has Previously Disclosed all of the TARGET
-------------------
Subsidiaries as of the date of this Agreement. TARGET owns all of the issued
and outstanding shares of capital stock of TARGET Bank, and TARGET Bank owns all
of the issued and outstanding stock of each other TARGET Subsidiary. No equity
securities of any TARGET Subsidiary are or may become required to be issued
(other than to a TARGET Company) by reason of any options, warrants, scrip,
rights to subscribe to, calls, or commitments of any character whatsoever
relating to, or securities or rights convertible into or exchangeable for,
shares of the capital stock of any such Subsidiary, and there are no Contracts
by which any TARGET Subsidiary is bound to issue (other than to a TARGET
Company) additional shares of its capital stock or options, warrants, or rights
to purchase or acquire any additional shares of its capital stock or by which
any TARGET Company is or may be bound to transfer any shares of the capital
stock of any TARGET Subsidiary (other than to a TARGET Company). There are no
Contracts relating to the rights of any TARGET Company to vote or to dispose of
any shares of the capital stock of any TARGET Subsidiary. All of the shares of
capital stock of each TARGET Subsidiary held by a TARGET Company are fully paid
and nonassessable under the applicable corporation Law of the jurisdiction in
which such Subsidiary is incorporated or organized and are owned by the TARGET
Company free and clear of any Lien. Each TARGET Subsidiary is either a bank or
a corporation, and is duly organized, validly existing, and (as to corporations)
in good standing under the Laws of the jurisdiction in which it is incorporated
or organized, and has the corporate power and authority necessary for it to own,
lease and operate its
8
<PAGE>
Assets and to carry on its business as now conducted. Each TARGET Subsidiary is
duly qualified or licensed to transact business as a foreign corporation in good
standing in the States of the United States and foreign jurisdictions where the
character of its Assets or the nature or conduct of its business requires it to
be so qualified or licensed, except for such jurisdictions in which the failure
to be so qualified or licensed is not reasonably likely to have, individually or
in the aggregate, a Material Adverse Effect on TARGET. Each TARGET Subsidiary
that is a depository institution is an insured institution as defined in the
Federal Deposit Insurance Act and applicable regulations thereunder.
4.5 Financial Statements. TARGET has Previously Disclosed, and delivered to
--------------------
PURCHASER prior to the execution of this Agreement, copies of all TARGET
Financial Statements for periods ended prior to the date hereof and will deliver
to PURCHASER copies of all TARGET Financial Statements prepared subsequent to
the date hereof. The TARGET Financial Statements (as of the dates thereof and
for the periods covered thereby) (a) are or, if dated after the date of this
Agreement, will be in accordance with the books and records of the TARGET
Companies, which are or will be, as the case may be, complete and correct in all
material respects and which have been or will have been, as the case may be,
maintained in accordance with good business practices, and (b) present or will
present, as the case may be, fairly the consolidated financial position of the
TARGET Companies as of the dates indicated and the consolidated results of
operations, changes in shareholders' equity, and cash flows of the TARGET
Companies for the periods indicated, in accordance with GAAP (subject to any
exceptions as to consistency specified therein or as may be indicated in the
notes thereto or, in the case of interim financial statements, to normal
recurring year-end adjustments that are not material).
4.6 Absence of Undisclosed Liabilities. Except as Previously Disclosed, no
----------------------------------
TARGET Company has any Liabilities that are reasonably likely to have,
individually or in the aggregate, a Material Adverse Effect on TARGET, except
Liabilities which are accrued or reserved against in the consolidated balance
sheet of TARGET as of December 31, 1995 included in the TARGET Financial
Statements or reflected in the notes thereto. Except as Previously Disclosed,
no TARGET Company has incurred or paid any Liability since December 31, 1995,
except for such Liabilities incurred or paid in the ordinary course of business
consistent with past business practice and which are not reasonably likely to
have, individually or in the aggregate, a Material Adverse Effect on TARGET.
4.7 Absence of Certain Changes or Events. Since December 31, 1995, (a) there
------------------------------------
have been no events, changes or occurrences which have had, or are reasonably
likely to have, individually or in the aggregate, a Material Adverse Effect on
TARGET, and (b) the TARGET Companies have not taken any action, or failed to
take any action, prior to the date of this Agreement, which action or failure,
if taken after the date of this Agreement,
9
<PAGE>
would represent or result in a material breach or violation of any of the
covenants and agreements of TARGET provided in Article 7 of this Agreement.
4.8 Tax Matters.
-----------
(a) All Tax returns required to be filed by or on behalf of any of the
TARGET Companies have been duly filed or requests for extensions have been
timely filed, granted, and have not expired for periods ended on or before
December 31, 1995, and on or before the date of the most recent fiscal year end
immediately preceding the Effective Time, except to the extent that all such
failures to file, taken together, are not reasonably likely to have a Material
Adverse Effect on TARGET, and all returns filed are complete and accurate to the
Knowledge of TARGET. All Taxes shown on filed returns have been paid. As of
the date of this Agreement, there is no audit examination, deficiency, or refund
Litigation with respect to any Taxes that is reasonably likely to result in a
determination that would have, individually or in the aggregate, a Material
Adverse Effect on TARGET, except as reserved against in the TARGET Financial
Statements delivered prior to the date of this Agreement. All Taxes and other
Liabilities due with respect to completed and settled examinations or concluded
Litigation have been paid.
(b) None of the TARGET Companies has executed an extension or waiver of
any statute of limitations on the assessment or collection of any Tax due that
is currently in effect, and no unpaid tax deficiency has been asserted in
writing against or with respect to any TARGET Company, which deficiency is
reasonably likely to have, individually or in the aggregate, a Material Adverse
Effect on TARGET.
(c) Adequate provision for any Taxes due or to become due for any of the
TARGET Companies for the period or periods through and including the date of the
respective TARGET Financial Statements has been made and is reflected on such
TARGET Financial Statements.
(d) Deferred Taxes of the TARGET Companies have been provided for in
accordance with GAAP.
(e) Each of the TARGET Companies is in compliance with, and its records
contain all information and documents (including, without limitation, properly
completed IRS Forms W-9) necessary to comply with, all applicable information
reporting and Tax withholding requirements under federal, state and local Tax
Laws, and such records identify with specificity all accounts subject to backup
withholding under Section 3406 of the Internal Revenue Code, except for such
instances of noncompliance and such omissions as are not reasonably likely to
have, individually or in the aggregate, a Material Adverse Effect on TARGET.
10
<PAGE>
(f) Effective January 1, 1993, TARGET adopted Financial Accounting
Standards Board Statement 109, "Accounting for Income Taxes."
4.9 TARGET Allowance for Possible Loan Losses. The allowance for possible
-----------------------------------------
loan or credit losses (the "TARGET Allowance") shown on the consolidated balance
sheets of TARGET included in the most recent TARGET Financial Statements dated
prior to the date of this Agreement was, and the TARGET Allowance shown on the
consolidated balance sheets of TARGET included in the TARGET Financial
Statements as of dates subsequent to the execution of this Agreement will be, as
of the dates thereof, adequate (within the meaning of GAAP and applicable
regulatory requirements or guidelines) to provide for losses relating to or
inherent in the loan and lease portfolios (including accrued interest
receivables) of the TARGET Companies and other extensions of credit (including
letters of credit and commitments to make loans or extend credit) by the TARGET
Companies as of the dates thereof except where the failure of such TARGET
Allowance to be so adequate is not reasonably likely to have a Material Adverse
Effect on TARGET.
4.10 Assets. Except as Previously Disclosed or as disclosed or reserved
------
against in the TARGET Financial Statements, or where the failure to own good and
marketable title is not reasonably likely to have a Material Adverse Effect on
TARGET, the TARGET Companies have good and marketable title, free and clear of
all Liens, to all of their respective Assets. All material tangible properties
used in the businesses of the TARGET Companies are in good condition, reasonable
wear and tear excepted, and are usable in the ordinary course of business
consistent with TARGET's past practices. All Assets which are material to
TARGET's business on a consolidated basis, held under leases or subleases by any
of the TARGET Companies are held under valid Contracts enforceable in accordance
with their respective terms (except as enforceability may be limited by
applicable bankruptcy, insolvency, reorganization, moratorium, or other Laws
affecting the enforcement of creditors' rights generally and except that the
availability of the equitable remedy of specific performance or injunctive
relief is subject to the discretion of the court before which any proceedings
may be brought), and each such Contract is in full force and effect. TARGET has
Previously Disclosed, and delivered to PURCHASER prior ot the execution of this
Agreement, copies of the policies of fire, theft, liability, and other insurance
maintained with respect to the Assets or businesses of the TARGET Companies and,
in the opinion of TARGET management, provide adequate coverage under current
industry practices against loss or Liability, and, in the opinion of TARGET
management, the fidelity and blanket bonds in effect as to which any of the
TARGET Companies is a named insured are reasonably sufficient. The Assets of
the TARGET Companies include all assets required to operate the business of the
TARGET Companies as presently conducted.
4.11 Environmental Matters.
---------------------
11
<PAGE>
(a) Each TARGET Company, its Participation Facilities and its Loan
Properties are, and have been, in compliance with all Environmental Laws, except
for violations which are not reasonably likely to have, individually or in the
aggregate, a Material Adverse Effect on TARGET.
(b) There is no Litigation pending or, to the Knowledge of TARGET,
threatened before any court, governmental agency or authority or other forum in
which any TARGET Company or any of its Participation Facilities has been or,
with respect to threatened Litigation, may be named as a defendant (i) for
alleged noncompliance (including by any predecessor) with any Environmental Law
or (ii) relating to the release into the environment of any Hazardous Material
or oil, whether or not occurring at, on, under or involving a site owned, leased
or operated by any TARGET Company or any of its Participation Facilities, except
for such Litigation pending or, to the Knowledge of TARGET, threatened that is
not reasonably likely to have, individually or in the aggregate, a Material
Adverse Effect on TARGET.
(c) There is no Litigation pending or, to the Knowledge of TARGET,
threatened before any court, governmental agency or board or other forum in
which any of its Loan Properties (or any TARGET Company in respect of such Loan
Property) has been or, with respect to threatened litigation, may be named as a
defendant or potentially responsible party (i) for alleged noncompliance
(including by any predecessor) with any Environmental Law or (ii) relating to
the release into the environment of any Hazardous Material or oil, whether or
not occurring at, on, under or involving a Loan Property, except for such
Litigation pending or, to the Knowledge of TARGET, threatened that is not
reasonably likely to have, individually or in the aggregate, a Material Adverse
Effect on TARGET.
(d) To the Knowledge of TARGET, there is no reasonable basis for any
Litigation of a type described in subsections (b) or (c), except such as is not
reasonably likely to have, individually or in the aggregate, a Material Adverse
Effect on TARGET.
(e) During the period of (i) any TARGET Company's ownership or operation
of any of their respective current properties, (ii) any TARGET Company's
participation in the management of any Participation Facility, or (iii) any
TARGET Company's holding of a security interest in a Loan Property, there have
been no releases of Hazardous Material or oil in, on, under or affecting any
such property, Participation Facility, or to the Knowledge of TARGET Loan
Property, except such as are not reasonably likely to have, individually or in
the aggregate, a Material Adverse Effect on TARGET.
(f) Prior to the period of (i) any TARGET Company's ownership or
operation of any of their respective current properties, (ii) any TARGET
Company's
12
<PAGE>
participation in the management of any Participation Facility, or (iii) any
TARGET Company's holding of a security interest in a Loan Property, to the
Knowledge of TARGET, there were no releases of Hazardous Material or oil in, on,
under or affecting any such property, Participation Facility or Loan Property,
except such as are not reasonably likely to have, individually or in the
aggregate, a Material Adverse Effect on TARGET.
4.12 Compliance with Laws.
--------------------
(a) TARGET is duly registered as a bank holding company under the
BHC Act. Each TARGET Company has in effect all Permits necessary for it to own,
lease or operate its Assets and to carry on its business as now conducted,
except for those Permits the absence of which are not reasonably likely to have,
individually or in the aggregate, a Material Adverse Effect on TARGET, and there
has occurred no Default under any such Permit, other than Defaults which are not
reasonably likely to have, individually or in the aggregate, a Material Adverse
Effect on TARGET.
(b) Except as Previously Disclosed no TARGET Company:
(i) is in violation of any Laws, Orders or Permits applicable to its
business or employees conducting its business, except for violations which are
not reasonably likely to have, individually or in the aggregate, a Material
Adverse Effect on TARGET; and
(ii) has received any notification or communication from any agency
or department of federal, state, or local government or any Regulatory Authority
or the staff thereof (A) asserting that any TARGET Company is not in compliance
with any of the Laws or Orders which such governmental authority or Regulatory
Authority enforces, where such noncompliance is reasonably likely to have,
individually or in the aggregate, a Material Adverse Effect on TARGET,
(B) threatening to revoke any Permits, the revocation of which is reasonably
likely to have, individually or in the aggregate, a Material Adverse Effect on
TARGET, or (C) requiring any TARGET Company to enter into or consent to the
issuance of a cease and desist order, formal agreement, directive, commitment or
memorandum of understanding, or to adopt any Board resolution or similar
undertaking, which restricts materially the conduct of its business, or in any
manner relates to its capital adequacy, its credit or reserve policies, its
management, or the payment of dividends.
4.13 Labor Relations. No TARGET Company is the subject of any Litigation
---------------
asserting that it or any other TARGET Company has committed an unfair labor
practice (within the meaning of the National Labor Relations Act or comparable
state law) or seeking to compel it or any other TARGET Company to bargain with
any labor organization as to
13
<PAGE>
wages or conditions of employment, nor is there any strike or other labor
dispute involving any TARGET Company, pending or, to its Knowledge, threatened,
or to its Knowledge, is there any activity involving any TARGET Company's
employees seeking to certify a collective bargaining unit or engaging in any
other organization activity.
4.14 Employee Benefit Plans.
----------------------
(a) TARGET has Previously Disclosed, and delivered or made available to
PURCHASER prior to the execution of this Agreement, copies in each case of all
pension, retirement, profit-sharing, deferred compensation, stock option,
employee stock ownership, severance pay, vacation, bonus, or other incentive
plans all other written employee programs, arrangements, or agreements, all
medical, vision, dental, or other health plans, all life insurance plans, and
all other employee benefit plans or fringe benefit plans, including, without
limitation, "employee benefit plans," as that term is defined in Section 3(3) of
ERISA, currently adopted, maintained by, sponsored in whole or in part by, or
contributed to by any TARGET Company or Affiliate thereof for the benefit of
employees, retirees, dependents, spouses, directors, independent contractors, or
other beneficiaries and under which employees, retirees, dependents, spouses,
directors, independent contractors, or other beneficiaries are eligible to
participate (collectively, the "TARGET Benefit Plans"). Any of the TARGET
Benefit Plans which is an "employee pension benefit plan," as that term is
defined in Section 3(2) of ERISA, is referred to herein as a "TARGET ERISA
Plan." Each TARGET ERISA Plan which is also a "defined benefit plan" (as
defined in Section 414(j)) of the Internal Revenue Code) is referred to herein
as a "TARGET Pension Plan." No TARGET Pension Plan is or has been a multi-
employer plan within the meaning of Section 3(37) of ERISA.
(b) All TARGET Benefit Plans are in compliance with the applicable terms
of ERISA, the Internal Revenue Code, and any other applicable Laws the breach or
violation of which are reasonably likely to have, individually or in the
aggregate, a Material Adverse Effect on TARGET. Each TARGET ERISA Plan which is
intended to be qualified under Section 401(a) of the Internal Revenue Code has
received a favorable determination letter from the Internal Revenue Service, and
TARGET is not aware of any circumstances likely to result in revocation of any
such favorable determination letter. To the Knowledge of TARGET, no TARGET
Company has engaged in a transaction with respect to any TARGET Benefit Plan
that, assuming the taxable period of such transaction expired as of the date
hereof would subject any TARGET Company to a tax or penalty imposed by either
Section 4975 of the Internal Revenue Code or Section 502(i) of ERISA in amounts
which are reasonably likely to have, individually or in the aggregate, a
Material Adverse Effect on TARGET.
14
<PAGE>
(c) No TARGET ERISA Plan which is a defined benefit pension plan has any
"unfunded current liability," as that term is defined in Section 302(d)(8)(A) of
ERISA, based on actuarial assumptions set forth for such plan's most recent
actuarial valuation. Since the date of the most recent actuarial valuation,
there has been (i) no material change in the financial position of any TARGET
Pension Plan, (ii) no change in the actuarial assumptions with respect to any
TARGET Pension Plan, and (iii) no increase in benefits under any TARGET Pension
Plan as a result of plan amendments or changes in applicable law, which is
reasonably likely to have, individually or in the aggregate, a Material Adverse
Effect on TARGET or materially adversely affect the funding status of any such
plan. Neither any TARGET Pension Plan nor any "single-employer plan," within
the meaning of Section 4001(a)(15) of ERISA, currently or formerly maintained by
any TARGET Company, or the single-employer plan of any entity which is
considered one employer with TARGET under Section 4001 of ERISA or Section 414
of the Internal Revenue Code or Section 302 of ERISA (whether or not waived)
(an "ERISA Affiliate") has an "accumulated funding deficiency" within the
meaning of Section 412 of the Internal Revenue Code or Section 302 of ERISA,
which is reasonably likely to have a Material Adverse Effect on TARGET. No
TARGET Company has provided, or is required to provide, security to a TARGET
Pension Plan or to any single-employer plan of an ERISA Affiliate pursuant to
Section 401(a)(29) of the Code.
(d) Within the six-year period preceding the Effective Time, no
Liability under Subtitle C or D of Title IV or ERISA has been or is expected to
be incurred by any TARGET Company with respect to any ongoing, frozen or
terminated single-employer plan or the single-employer plan of any ERISA
Affiliate, which Liability is reasonably likely to have a Material Adverse
Effect on TARGET. Except as Previously Disclosed, no TARGET Company has incurred
any withdrawal Liability with respect to a multi-employer plan under Subtitle B
of Title TV or ERISA (regardless of whether based on contributions of an ERISA
Affiliate), which Liability is reasonably likely to have a Material Adverse
Effect on TARGET. No notice of a "reportable event," within the meaning of
Section 4043 of ERISA for which the 30-day reporting requirement has not been
waived, has been required to be filed for any TARGET Pension Plan or by any
ERISA Affiliate within the 12-month period ending on the date hereof.
(e) No TARGET Company has any obligations for retiree health and life
benefits under any of the TARGET Benefit Plans and there are no restrictions on
the rights of such TARGET Company to amend or terminate any such Plan without
incurring any Liability thereunder, which Liability is reasonably likely to have
a Material Adverse Effect on TARGET.
(f) Except as Previously Disclosed, neither the execution and delivery
of this Agreement nor the consummation of the transactions contemplated hereby
will (i) result
15
<PAGE>
in any payment (including, without limitation, severance, unemployment
compensation, golden parachute or otherwise) becoming due to any director or any
employee of any TARGET Company from any TARGET Company under any TARGET Benefit
Plan or otherwise, (ii) increase any benefits otherwise payable under any TARGET
Benefit Plan, or (iii) result in any acceleration of the time of payment or
vesting of any such benefit.
(g) The actuarial present values of all accrued deferred compensation
entitlements (including, without limitation, entitlements under any executive
compensation, supplemental retirement, or employment agreement) of employees and
former employees of any TARGET Company and their respective beneficiaries, other
than entitlements accrued pursuant to funded retirement plans subject to the
provisions of Section 412 of the Internal Revenue Code or Section 302 of ERISA,
have been fully reflected on the TARGET Financial Statements to the extent
required by and in accordance with GAAP.
4.15 Material Contracts. Except as Previously Disclosed, or otherwise
------------------
reflected in the TARGET Financial Statements, none of the TARGET Companies, nor
any of their respective Assets, businesses or operations, is a party to, or is
bound or affected by, or receives benefits under, (a) any employment, severance,
termination, consulting or retirement Contract providing for aggregate payments
to any Person in any calendar year in excess of $50,000, (b) any Contract
relating to the borrowing of money by any TARGET Company or the guarantee by any
TARGET Company of any such obligation (other than Contracts evidencing deposit
liabilities, purchases of federal funds, fully secured repurchase agreements,
trade payables, and Contracts relating to borrowings or guarantees made in the
ordinary course of business), and (c) any Contracts between or among TARGET
Companies (together with all Contracts referred to in Sections 4.10 and 4.14(a)
of this Agreement, the "TARGET Contracts"). None of the TARGET Companies is in
Default under any TARGET Contract, other than Defaults which are not reasonably
likely to have, individually or in the aggregate, a Material Adverse Effect on
TARGET. All of the indebtedness of any TARGET Company for money borrowed is
prepayable at any time by such TARGET Company without penalty or premium.
4.16 Legal Proceedings. Except as Previously Disclosed, there is no
-----------------
Litigation instituted or pending or, to the Knowledge of TARGET, threatened (or
unasserted but considered probable of assertion and which, if asserted, would
have at least a reasonable probability of an unfavorable outcome) against any
TARGET Company, or against any Asset, interest, or right of any of them, that is
reasonably likely to have, individually or in the aggregate, a Material Adverse
Effect on TARGET, nor are there any Orders of any Regulatory Authorities, other
governmental authorities, or arbitrators outstanding against any TARGET Company,
that are reasonably likely to have, individually or in the aggregate, a Material
Adverse Effect on TARGET.
16
<PAGE>
4.17 Reports. Since January 1, 1993, each TARGET Company has timely filed
-------
all reports and statements, together with any amendments required to be made
with respect thereto, that it was required to file with (a) the SEC, including,
but not limited to, Forms 10-K, Forms 10-Q, Forms 8-K, and proxy statements,
(b) other Regulatory Authorities, and (c) any applicable state securities or
banking authorities (except, in the case of state securities authorities,
failures to file which are not reasonably likely to have, individually or in the
aggregate, a Material Adverse Effect on TARGET). As of their respective dates,
each of such reports and documents, including the financial statements,
exhibits, and schedules thereto, complied as to form in all material respects
with all applicable Laws. As of its respective date, none of such reports and
documents contained any untrue statement of a material fact or omitted to state
a material fact required to be stated therein or necessary to make the
statements made therein, in light of the circumstances under which they were
made, not misleading.
4.18 Statements True and Correct. No statement, certificate, instrument
---------------------------
or other writing furnished or to be furnished by any TARGET Company or any
Affiliate thereof to PURCHASER pursuant to this Agreement or any other document,
agreement or instrument referred to herein contains or will contain any untrue
statement of material fact or will omit to state a material fact necessary to
make the statements therein, in light of the circumstances under which they were
made, not misleading. None of the information supplied or to be supplied by any
TARGET Company or any Affiliate thereof for inclusion in the Registration
Statement to be filed by PURCHASER with the SEC, will, when the Registration
Statement becomes effective, be false or misleading with respect to any material
fact, or omit to state any material fact necessary to make the statements
therein not misleading. None of the information supplied or to be supplied by
any TARGET Company or any Affiliate thereof for inclusion in the Proxy Statement
to be mailed to TARGET's shareholders in connection with the Shareholders'
Meeting, and any other documents to be filed by any TARGET Company or any
Affiliate thereof with the SEC or any other Regulatory Authority in connection
with the transactions contemplated hereby, will, at the respective time such
documents are filed, and with respect to the Proxy Statement, when first mailed
to the shareholders of TARGET, be false or misleading with respect to any
material fact, or omit to state any material fact necessary to make the
statements therein, in light of the circumstances under which they were made,
not misleading, or, in the case of the Proxy Statement or any amendment thereof
or supplement thereto, at the time of the Shareholders' Meeting, be false or
misleading with respect to any material fact, or omit to state any material fact
necessary to correct any statement in any earlier communication with respect to
the solicitation of any proxy for the Shareholders' Meeting. All documents that
any TARGET Company or any Affiliate thereof is responsible for filing with any
Regulatory Authority in connection with the transactions contemplated hereby
will comply as to form in all material respects with the provisions of
applicable Law.
17
<PAGE>
4.19 Accounting, Tax and Regulatory Matters. Except as Previously Disclosed,
--------------------------------------
no TARGET Company or any Affiliate thereof has taken any action or has any
Knowledge of any fact or circumstance that is reasonably likely to (a) prevent
the transactions contemplated hereby, including the Merger, from qualifying as a
reorganization within the meaning of Section 368(a) of the Internal Revenue
Code, or (b) materially impede or delay receipt of any Consents of Regulatory
Authorities referred to in Section 8.1 (b) of this Agreement or result in the
imposition of a condition or restriction of the referred to in the second
sentence of such Section. To the Knowledge of TARGET, there exists no fact,
circumstance, or reason why the requisite Consents referred to in Section 8.1(b)
of this Agreement cannot be received in a timely manner without the imposition
of any condition or restriction of the type described in the second sentence of
such Section 8.1(b).
4.20 Charter Provisions. Each TARGET Company has taken all action so that
------------------
the entering into of this Agreement and the consummation of the Merger and
the other transactions contemplated by this Agreement do not and will not result
in the grant of any rights to any Person under the Articles of Incorporation,
Bylaws or other governing instruments of any TARGET Company or restrict or
impair the ability of PURCHASER to vote, or otherwise to exercise the rights of
a shareholder with respect to, shares of any TARGET Company that may be acquired
or controlled by it.
ARTICLE 5
REPRESENTATIONS AND WARRANTIES OF PURCHASER
-------------------------------------------
PURCHASER hereby represents and warrants to TARGET as follows:
5.1 Organization, Standing and Power. PURCHASER is a corporation duly
--------------------------------
organized, validly existing, and in good standing under the laws of the State of
Georgia, and is duly registered as a bank holding company under the BHC Act.
PURCHASER has the corporate power and authority to carry on its business as now
conducted and to own, lease and operate its Assets. PURCHASER is duly qualified
or licensed to transact business as a foreign corporation in good standing in
the States of the United States and foreign jurisdictions where the character of
its Assets or the nature or conduct of its business requires it to be so
qualified or licensed, except for such jurisdictions in which the failure to be
so qualified or licensed is not reasonably likely to have, individually or in
the aggregate, a Material Adverse Effect on PURCHASER.
5.2 Authority; No Breach.
--------------------
(a) PURCHASER has the corporate power and authority necessary to execute,
deliver and perform its obligations under this Agreement and to consummate the
transactions contemplated hereby. The execution, delivery and performance of
this
18
<PAGE>
Agreement and the consummation of the transactions contemplated herein,
including the Merger, have been duly and validly authorized by all necessary
corporate action in respect thereof on the part of PURCHASER. This Agreement
represents a legal, valid and binding obligation of PURCHASER, enforceable
against PURCHASER in accordance with its terms (except in all cases as such
enforceability may be limited by applicable bankruptcy, insolvency,
reorganization, moratorium, or similar Laws affecting the enforcement of
creditors' rights generally and except that the availability of the equitable
remedy of specific performance or injunctive relief is subject to the discretion
of the court before which any proceeding may be brought).
(b) Neither the execution and delivery of this Agreement by PURCHASER,
nor the consummation by PURCHASER of the transactions contemplated hereby, nor
compliance by PURCHASER with any of the provisions hereof will (i) conflict with
or result in a breach of any provision of PURCHASER's Articles of Incorporation
or Bylaws, or (ii) constitute or result in a Default under, or require any
Consent pursuant to, or result in the creation of any Lien on any Asset of any
PURCHASER Company under, any Contract or Permit of any PURCHASER Company, where
such Default or Lien, or any failure to obtain such Consent, is reasonably
likely to have, individually or in the aggregate, a Material Adverse Effect on
PURCHASER, or, (iii) subject to receipt of the requisite approvals referred to
in Section 8.1(b) of this Agreement, violate any Law or Order applicable to any
PURCHASER Company or any of their respective Assets.
(c) Other than in connection or compliance with the provisions of the
Securities Laws, applicable state corporate and securities Laws, and rules of
the NASD, and other than Consents required from Regulatory Authorities, and
other than notices to or filings with the Internal Revenue Service or the
Pension Benefit Guaranty Corporation with respect to any employee benefit plans,
and other than Consents, filings or notifications which, if not obtained or
made, are not reasonably likely to have, individually or in the aggregate, a
Material Adverse Effect on PURCHASER, no notice to, filing with, or Consent of
any public body or authority is necessary for the consummation by PURCHASER of
the Merger and the other transactions contemplated in this Agreement.
5.3 Capital Stock.
-------------
(a) The authorized capital stock of PURCHASER consists of (i) 10,000,000
shares of PURCHASER Common Stock, of which 3,379,192 shares are issued and
outstanding as of the date of this Agreement, and (ii) 5,000,000 shares of
Preferred Stock, none of which are issued or outstanding as of the date of this
Agreement. All of the issued and outstanding shares of PURCHASER Common Stock
are, and all of the shares of PURCHASER Common Stock to be issued in exchange
for shares of TARGET Common Stock upon consummation of the Merger, when issued
in accordance with the terms of this
19
<PAGE>
Agreement, will be, duly and validly issued and outstanding and fully paid and
nonassessable under the GBCC. None of the outstanding shares of PURCHASER Common
Stock has been, and none of the shares of PURCHASER Common Stock to be issued in
exchange for shares of TARGET Common Stock upon consummation of the Merger will
be, issued in violation of any preemptive rights of the current or past
shareholders of PURCHASER.
(b) Except as set forth in Section 5.3(a) of this Agreement, or as
Previously Disclosed, there are no shares of capital stock or other equity
securities of PURCHASER outstanding and no outstanding options, warrants, scrip,
rights to subscribe to, calls, or commitments of any character whatsoever
relating to, or securities or rights convertible into or exchangeable for,
shares of the capital stock of PURCHASER or contracts, commitments,
understandings, or arrangements by which PURCHASER is or may be bound to issue
additional shares of its capital stock or options, warrants, or rights to
purchase or acquire any additional shares of its capital stock.
5.4 PURCHASER Subsidiaries. PURCHASER has Previously Disclosed all of the
----------------------
PURCHASER Subsidiaries as of the date of this Agreement. PURCHASER owns all of
the issued and outstanding shares of capital stock of each PURCHASER Subsidiary.
No equity securities of any PURCHASER Subsidiary are or may become required to
be issued (other than to a PURCHASER Company) by reason of any options,
warrants, scrip, rights to subscribe to, calls, or commitments of any character
whatsoever relating to, or securities or rights convertible into or exchangeable
for, shares of the capital stock of any such Subsidiary, and there are no
Contracts by which any PURCHASER Subsidiary is bound to issue (other than to a
PURCHASER Company) additional shares of its capital stock or options, warrants,
or rights to purchase or acquire any additional shares of its capital stock or
by which any PURCHASER Company is or may be bound to transfer any shares of the
capital stock of any PURCHASER Subsidiary (other than to a PURCHASER Company).
There are no Contracts relating to the rights of any PURCHASER Company to vote
or to dispose of any shares of the capital stock of any PURCHASER Subsidiary.
All of the shares of capital stock of each PURCHASER Subsidiary held by a
PURCHASER Company are fully paid and nonassessable under the applicable
corporation Law of the jurisdiction in which such Subsidiary is incorporated or
organized and are owned by the PURCHASER Company free and clear of any Lien.
Each PURCHASER Subsidiary is either a bank or a corporation, and is duly
organized, validly existing, and (as to corporations) in good standing under the
Laws of the jurisdiction in which it is incorporated or organized, and has the
corporate power and authority necessary for it to own, lease and operate its
Assets and to carry on its business as now conducted. Each PURCHASER Subsidiary
is duly qualified or licensed to transact business as a foreign corporation in
good standing in the States of the United States and foreign jurisdictions where
the character of its Assets or the nature or conduct of its business requires it
to be so qualified or licensed, except for such jurisdictions in which the
failure to be so qualified or licensed is not reasonably likely to have,
individually or in the
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aggregate, a Material Adverse Effect on PURCHASER. Each PURCHASER Subsidiary
that is a depository institution is an insured institution as defined in the
Federal Deposit Insurance Act and applicable regulations thereunder.
5.5 Financial Statements. PURCHASER has Previously Disclosed and delivered
--------------------
to TARGET prior to the execution of this Agreement copies of all PURCHASER
Financial Statements for periods ended prior to the date hereof and will deliver
to TARGET copies of all PURCHASER Financial Statements prepared subsequent to
the date hereof. The PURCHASER Financial Statements (as of the dates thereof
and for the periods covered thereby) (a) are or, if dated after the date of this
Agreement, will be in accordance with the books and records of the PURCHASER
Companies, which are or will be, as the case may be, complete and correct in all
material respects and which have been or will have been, as the case may be,
maintained in accordance with good business practices, and (b) present or will
present, as the case may be, fairly the consolidated financial position of the
PURCHASER Companies as of the dates indicated and the consolidated results of
operations, changes in shareholders' equity, and cash flows of the PURCHASER
Companies for the periods indicated, in accordance with GAAP (subject to
exceptions as to consistency specified therein or as may be indicated in the
notes thereto or, in the case of interim financial statements, to normal
recurring year-end adjustments that are not material).
5.6 Absence of Undisclosed Liabilities. No PURCHASER Company has any
----------------------------------
Liabilities that are reasonably likely to have, individually or in the
aggregate, a Material Adverse Effect on PURCHASER, except Liabilities which are
accrued or reserved against in the consolidated balance sheet of PURCHASER as of
December 31, 1995 included in the PURCHASER Financial Statements or reflected in
the notes thereto. No PURCHASER Company has incurred or paid any Liability
since December 31, 1995, except for such Liabilities incurred or paid in the
ordinary course of business consistent with past business practice and which are
not reasonably likely to have, individually or in the aggregate, a Material
Adverse Effect on PURCHASER.
5.7 Absence of Certain Changes or Events. Since December 31, 1995, except as
------------------------------------
disclosed in SEC Documents filed by PURCHASER prior to the date of this
Agreement, (a) there have been no events, changes or occurrences which have had,
or are reasonably likely to have, individually or in the aggregate, a Material
Adverse Effect on PURCHASER, and (b) the PURCHASER Companies have not taken any
action, or failed to take any action, prior to the date of this Agreement, which
action or failure, if taken after the date of this Agreement, would represent or
result in a material breach or violation of any of the covenants and agreements
of PURCHASER provided in Article 7 of this Agreement.
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5.8 Tax Matters.
-----------
(a) All Tax returns required to be filed by or on behalf of any of the
PURCHASER Companies have been timely filed or requests for extensions have been
timely filed, granted, and have not expired for periods ended on or before
December 31, 1995, and on or before the date of the most recent fiscal year end
immediately preceding the Effective Time, except to the extent that all such
failures to file, taken together, are not reasonably likely to have a Material
Adverse Effect on PURCHASER, and all returns filed are complete and accurate to
the Knowledge of PURCHASER. All Taxes shown on filed returns have been paid.
As of the date of this Agreement, there is no audit examination, deficiency, or
refund Litigation with respect to any Taxes that is reasonably likely to result
in a determination that would have, individually or in the aggregate, a Material
Adverse Effect on PURCHASER, except as reserved against in the PURCHASER
Financial Statements delivered prior to the date of this Agreement. All Taxes
and other Liabilities due with respect to completed and settled examinations or
concluded Litigation have been paid.
(b) None of the PURCHASER Companies has executed an extension or waiver
of any statute of limitations on the assessment or collection of any Tax due
that is currently in effect, and no unpaid tax deficiency has been asserted in
writing against or with respect to any PURCHASER Company, which deficiency is
reasonably likely to have, individually or in the aggregate, a Material Adverse
Effect on PURCHASER.
(c) Adequate provision for any Taxes due or to become due for any of the
PURCHASER Companies for the period or periods through and including the date of
the respective PURCHASER Financial Statements has been made and is reflected on
such PURCHASER Financial Statements.
(d) Deferred Taxes of the PURCHASER Companies have been provided for in
accordance with GAAP.
(e) Each of the PURCHASER Companies is in compliance with, and its
records contain all information and documents (including, without limitation,
properly completed IRS Forms W-9) necessary to comply with, all applicable
information reporting and Tax withholding requirements under federal, state and
local Tax Laws, and such records identify with specificity all accounts subject
to backup withholding under Section 3406 of the Internal Revenue Code, except
for such instances of noncompliance and such omissions as are not reasonably
likely to have, individually or in the aggregate, a Material Adverse Effect on
PURCHASER.
(f) Effective January 1, 1993, PURCHASER adopted Financial Accounting
Standards Board Statement 109, "Accounting for Income Taxes."
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5.9 PURCHASER Allowance for Possible Loan Losses. The allowance for possible
--------------------------------------------
loan or credit losses (the "PURCHASER Allowance") shown on the consolidated
balance sheets of PURCHASER included in the most recent PURCHASER Financial
Statements dated prior to the date of this Agreement was, and the PURCHASER
Allowance shown on the consolidated balance sheets of PURCHASER included in the
PURCHASER Financial Statements as of dates subsequent to the execution of this
Agreement will be, as of the dates thereof, adequate (within the meaning of GAAP
and applicable regulatory requirements or guidelines) to provide for losses
relating to or inherent in the loan and lease portfolios (including accrued
interest receivables) of the PURCHASER Companies and other extensions of credit
(including letters of credit and commitments to make loans or extend credit) by
the PURCHASER Companies as of the dates thereof except where the failure of such
PURCHASER Allowance to be so adequate is not reasonably likely to have a
Material Adverse Effect on PURCHASER.
5.10 Assets. Except as Previously Disclosed or as disclosed or reserved
------
against in the PURCHASER Financial Statements, the PURCHASER Companies have good
and marketable title, free and clear of all Liens, to all of their respective
Assets. All material tangible properties used in the businesses of the
PURCHASER Companies are in good condition, reasonable wear and tear excepted,
and are usable in the ordinary course of business consistent with PURCHASER's
past practices. All Assets which are material to PURCHASER's business on a
consolidated basis, held under leases or subleases by any of the PURCHASER
Companies, are held under valid Contracts enforceable in accordance with their
respective terms (except as enforceability may be limited by applicable
bankruptcy, insolvency, reorganization, moratorium, or other Laws affecting the
enforcement of creditors' rights generally and except that the availability of
the equitable remedy of specific performance or injunctive relief is subject to
the discretion of the court before which any proceedings may be brought), and
each such Contract is in full force and effect. The policies of fire, theft,
liability, and other insurance maintained with respect to the Assets or
businesses of the PURCHASER Companies provide adequate coverage under current
industry practices against loss or Liability, and the fidelity and blanket bonds
in effect as to which any of the PURCHASER Companies is a named insured are
reasonably sufficient. The Assets of the PURCHASER Companies include all assets
required to operate the business of the PURCHASER Companies as presently
conducted.
5.11 Environmental Matters.
---------------------
(a) Each PURCHASER Company, its Participation Facilities and its Loan
Properties are, and have been, in compliance with all Environmental Laws, except
for violations which are not reasonably likely to have, individually or in the
aggregate, a Material Adverse Effect on PURCHASER.
23
<PAGE>
(b) There is no Litigation pending or, to the Knowledge of PURCHASER,
threatened before any court, governmental agency or authority or other forum in
which any PURCHASER Company or any of its Participation Facilities has been or,
with respect to threatened Litigation, may be named as a defendant (i) for
alleged noncompliance (including by any predecessor) with any Environmental Law
or (ii) relating to the release into the environment of any Hazardous Material
(as defined below) or oil, whether or not occurring at, on, under or involving a
site owned, leased or operated by any PURCHASER Company or any of its
Participation Facilities, except for such Litigation pending or, to the
Knowledge of Purchaser, threatened that is not reasonably likely to have,
individually or in the aggregate, a Material Adverse Effect on PURCHASER.
(c) There is no Litigation pending or, to the Knowledge of Purchaser,
threatened before any court, governmental agency or board or other forum in
which any of its Loan Properties (or any PURCHASER Company in respect of such
Loan Property) has been or, with respect to threatened Litigation, may be named
as a defendant or potentially responsible party (i) for alleged noncompliance
(including by any predecessor), with any Environmental Law or (ii) relating to
the release into the environment of any Hazardous Material or oil, whether or
not occurring at, on, under or involving a Loan Property, except for such
Litigation pending or, to the Knowledge of Purchaser, threatened that is not
reasonably likely to have, individually or in the aggregate, a Material Adverse
Effect on PURCHASER.
(d) To the Knowledge of PURCHASER, there is no reasonable basis for any
Litigation of a type described in subsections (b) or (c), except such as is not
reasonably likely to have, individually or in the aggregate, a Material Adverse
Effect on PURCHASER.
(e) During the period of (i) any PURCHASER Company's ownership or
operation of any of their respective current properties, (ii) any PURCHASER
Company's participation in the management of any Participation Facility, or
(iii) any PURCHASER Company's holding of a security interest in a Loan Property,
there have been no releases of Hazardous Material or oil in, on, under or
affecting such property, Participation Facility or Loan Property, except such as
are not reasonably likely to have, individually or in the aggregate, a Material
Adverse Effect on PURCHASER.
(f) Prior to the period of (i) any PURCHASER Company's ownership or
operation of any of their respective current properties, (ii) any PURCHASER
Company's participation in the management of any Participation Facility, or
(iii) any PURCHASER Company's holding of a security interest in a Loan Property,
to the Knowledge of PURCHASER, there were no releases of Hazardous Material or
oil in, on, under or affecting any such property, Participation Facility or Loan
Property, except such as are not reasonably likely to have, individually or in
the aggregate, a Material Adverse Effect on PURCHASER.
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<PAGE>
5.12 Compliance with Laws. PURCHASER is duly registered as a bank
--------------------
holding company under the BHC Act. Each PURCHASER Company has in effect all
Permits necessary for it to own, lease or operate its Assets and to carry on its
business as now conducted, except for those Permits the absence of which are not
reasonably likely to have, individually or in the aggregate, a Material Adverse
Effect on PURCHASER, and there has occurred no Default under any such Permit,
other than Defaults which are not reasonably likely to have, individually or in
the aggregate, a Material Adverse Effect on PURCHASER.
(a) No PURCHASER Company:
(i) is in violation of any Laws, Orders or Permits applicable to
its business or employees conducting its business, except for violations
which are not reasonably likely to have, individually or in the aggregate, a
Material Adverse Effect on PURCHASER; or
(ii) has received any notification or communication from any agency
or department of federal, state, or local government or any Regulatory
Authority or the staff thereof (A) asserting that any PURCHASER Company is
not in compliance with any of the Laws or Orders which such governmental
authority or Regulatory Authority enforces, where such noncompliance is
reasonably likely to have, individually or in the aggregate, a Material
Adverse Effect on PURCHASER, (B) threatening to revoke any Permits, the
revocation of which is reasonably likely to have, individually or in the
aggregate, a Material Adverse Effect on PURCHASER, or (C) requiring any
PURCHASER Company to enter into or consent to the issuance of a cease and
desist order, formal agreement, directive, commitment or memorandum of
understanding, or to adopt any Board resolution or similar undertaking, which
restricts materially the conduct of its business, or in any manner relates to
its capital adequacy, its credit or reserve policies, its management, or the
payment of dividends.
5.13 Labor Relations. No PURCHASER Company is the subject of any Litigation
---------------
asserting that it or any other PURCHASER Company has committed an unfair labor
practice (within the meaning of the National Labor Relations Act or comparable
state law) or seeking to compel it or any other PURCHASER Company to bargain
with any labor organization as to wages or conditions of employment, nor is
there any strike or other labor dispute involving any PURCHASER Company, pending
or, to its Knowledge, threatened, or to its Knowledge, is there any activity
involving any PURCHASER Company's employees seeking to certify a collective
bargaining unit or engaging in any other organization activity.
5.14 Employee Benefit Plans.
----------------------
25
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(a) PURCHASER has Previously Disclosed and delivered or made available to
TARGET prior to the execution of this Agreement copies in each case of all
pension, retirement, profit-sharing, deferred compensation, stock option,
employee stock ownership, severance pay, vacation, bonus, or other incentive
plans, all other written employee programs, arrangements, or agreements, all
medical, vision, dental, or other health plans, all life insurance plans, and
all other employee benefit plans or fringe benefit plans, including, without
limitation, "employee benefit plans," as that term is defined in Section 3(3) of
ERISA, currently adopted, maintained by, sponsored in whole or in part by, or
contributed to by any PURCHASER Company or Affiliate thereof for the benefit of
employees, retirees, dependents, spouses, directors, independent contractors, or
other beneficiaries and under which employees, retirees, dependents, spouses,
directors, independent contractors, or other beneficiaries are eligible to
participate (collectively, the "PURCHASER Benefit Plans). Any of the PURCHASER
Benefit Plans which is an "employee pension benefit plan," as that term is
defined in Section 3(2) of ERISA, is referred to herein as a "PURCHASER ERISA
Plan." Each PURCHASER ERISA Plan which is also a "defined benefit plan" (as
defined in Section 414(j)) of the Internal Revenue Code) is referred to herein
as a "PURCHASER Pension Plan." No PURCHASER Pension Plan is or has been a
multi-employer plan within the meaning of Section 3(37) of ERISA.
(b) All PURCHASER Benefit Plans are in compliance with the applicable
terms of ERISA, the Internal Revenue Code, and any other applicable Laws the
breach or violation of which are reasonably likely to have, individually or in
the aggregate, a Material Adverse Effect on PURCHASER. Each PURCHASER ERISA
Plan which is intended to be qualified under Section 401(a) of the Internal
Revenue Code has received a favorable determination letter from the Internal
Revenue Service, and PURCHASER is not aware of any circumstances likely to
result in revocation of any such favorable determination letter. To the
Knowledge of PURCHASER, no PURCHASER Company has engaged in a transaction with
respect to any PURCHASER Benefit Plan that, assuming the taxable period of such
transaction expired as of the date hereof would subject any PURCHASER Company to
a tax or penalty imposed by either Section 4975 of the Internal Revenue Code or
Section 502(i) of ERISA in amounts which are reasonably likely to have,
individually or in the aggregate, a Material Adverse Effect on PURCHASER.
(c) No PURCHASER ERISA Plan which is a defined benefit pension plan has
any "unfunded current liability," as that term is defined in Section
302(d)(8)(A) of ERISA, based on actuarial assumptions set forth for such plan's
most recent actuarial valuation. Since the date of the most recent actuarial
valuation, there has been (i) no material change in the financial position of
any PURCHASER Pension Plan, (ii) no change in the actuarial assumptions with
respect to any PURCHASER Pension Plan, and (iii) no increase in benefits under
any PURCHASER Pension Plan as a result of plan amendments or changes in
applicable Law which is reasonably likely to have, individually or in the
26
<PAGE>
aggregate, a Material Adverse Effect on PURCHASER or materially adversely affect
the funding status of any such plan. Neither any PURCHASER Pension Plan nor any
"single-employer plan," within the meaning of Section 4001(a)(15) of ERISA,
currently or formerly maintained by any PURCHASER Company, or the single-
employer plan of any ERISA Affiliate has an "accumulated funding deficiency"
within the meaning of Section 412 of the Internal Revenue Code or Section 302 of
ERISA, which is reasonably likely to have a Material Adverse Effect on
PURCHASER. No PURCHASER Company has provided, or is required to provide,
security to a PURCHASER Pension Plan or to any single-employer plan of an ERISA
Affiliate pursuant to Section 401(a)(29) of the Code.
(d) No Liability under Subtitle C or D of Title IV or ERISA has been or
is expected to be incurred by any PURCHASER Company with respect to any ongoing,
frozen or terminated single-employer plan or the single-employer plan of any
ERISA Affiliate, which Liability is reasonably likely to have a Material Adverse
Effect on PURCHASER. No PURCHASER Company has incurred any withdrawal Liability
with respect to a multi-employer plan under Subtitle B of Title IV or ERISA
(regardless of whether based on contributions of an ERISA Affiliate), which
Liability is reasonably likely to have a Material Adverse Effect on PURCHASER.
No notice of a "reportable event" within the meaning of Section 4043 of ERISA
for which the 30-day reporting requirement has not been waived, has been
required to be filed for any PURCHASER Pension Plan or by any ERISA Affiliate
within the 12-month period ending on the date hereof
(e) Except as Previously Disclosed, (i) no PURCHASER Company has any
obligations for retiree health and life benefits under any of the PURCHASER
Benefit Plans and (ii) there are no restrictions on the rights of such PURCHASER
Company to amend or terminate any such Plan without incurring any Liability
thereunder, which Liability is reasonably likely to have a Material Adverse
Effect on PURCHASER.
(f) Except as Previously Disclosed, neither the execution and delivery of
this Agreement nor the consummation of the transactions contemplated hereby will
(i) result in any payment (including, without limitation, severance,
unemployment compensation, golden parachute or otherwise) becoming due to any
director or any employee of any PURCHASER Company from any PURCHASER Company
under any PURCHASER Benefit Plan or otherwise, (ii) increase any benefits
otherwise payable under any PURCHASER Benefit Plan, or (iii) result in any
acceleration of the time of payment or vesting of any such benefit.
(g) The actuarial present values of all accrued deferred compensation
entitlements (including, without limitation, entitlements under any executive
compensation, supplemental retirement, or employment agreement) of employees and
former employees of any PURCHASER Company and their respective beneficiaries,
other than entitlements
27
<PAGE>
accrued pursuant to funded retirement plans subject to the provisions of Section
412 of the Internal Revenue Code or Section 302 of ERISA, have been fully
reflected on the PURCHASER Financial Statements to the extent required by and in
accordance with GAAP.
5.15 Legal Proceedings. There is no Litigation instituted or pending,
-----------------
or, to the Knowledge of PURCHASER, threatened (or unasserted but considered
probable of assertion and which if asserted would have at least a reasonable
probability of an unfavorable outcome) against any PURCHASER Company, or against
any Asset, interest, or right of any of them, that is reasonably likely to have,
individually or in the aggregate, a Material Adverse Effect on PURCHASER, nor
are there any Orders of any Regulatory Authorities, other governmental
authorities, or arbitrators outstanding against any PURCHASER Company, that are
reasonably likely to have, individually or in the aggregate, a Material Adverse
Effect on PURCHASER.
5.16 Reports. Since January 1, 1993, each PURCHASER Company has timely
-------
filed all reports and statements, together with any amendments required to be
made with respect thereto, that it was required to file with (a) the SEC,
including, but not limited to, Forms 10-K, Forms 10-Q, Forms 8-K, and proxy
statements, (b) other Regulatory Authorities, and (c) any applicable state
securities or banking authorities (except, in the case of state securities
authorities, failures to file which are not reasonably likely to have,
individually or in the aggregate, a Material Adverse Effect on PURCHASER). As
of their respective dates, each of such reports and documents, including the
financial statements, exhibits, and schedules thereto, complied as to form in
all material respects with all applicable Laws. As of its respective date, none
of such reports and documents contained any untrue statement of a material fact
or omitted to state a material fact required to be stated therein or necessary
to make the statements made therein, in light of the circumstances under which
they were made, not misleading.
5.17 Statements True and Correct. No statement, certificate, instrument
---------------------------
or other writing furnished or to be furnished by any PURCHASER Company or any
Affiliate thereof to TARGET pursuant to this Agreement or any other document,
agreement or instrument referred to herein contains or will contain any untrue
statement of material fact or will omit to state a material fact necessary to
make the statements therein, in light of the circumstances under which they were
made, not misleading. None of the information supplied or to be supplied by any
PURCHASER Company or any Affiliate thereof for inclusion in the Registration
Statement to be filed by PURCHASER with the SEC, will, when the Registration
Statement becomes effective, be false or misleading with respect to any material
fact, or omit to state any material fact necessary to make the statements
therein not misleading. None of the information supplied or to be supplied by
any PURCHASER Company or any Affiliate thereof for inclusion in the Proxy
Statement to be mailed to TARGET's shareholders in connection with the
Shareholders' Meeting, and any other
28
<PAGE>
documents to be filed by any PURCHASER Company or any Affiliate thereof with the
SEC or any other Regulatory Authority in connection with the transactions
contemplated hereby, will, at the respective time such documents are filed, and
with respect to the Proxy Statement, when first mailed to the shareholders of
TARGET, be false or misleading with respect to any material fact, or omit to
state any material fact necessary to make the statements therein, in light of
the circumstances under which they were made, not misleading, or, in the case of
the Proxy Statement or any amendment thereof or supplement thereto, at the time
of the Shareholders' Meeting, be false or misleading with respect to any
material fact, or omit to state any material fact necessary to correct any
statement in any earlier communication with respect to the solicitation of any
proxy for the Shareholders' Meeting. All documents that any PURCHASER Company or
any Affiliate thereof is responsible for filing with any Regulatory Authority in
connection with the transactions contemplated hereby will comply as to form in
all material respects with the provisions of applicable Law.
5.18 Accounting, Tax and Regulatory Matters. No PURCHASER Company or any
--------------------------------------
Affiliate thereof has taken any action or has any Knowledge of any fact or
circumstance that is reasonably likely to (a) prevent the transactions
contemplated hereby, including the Merger, from qualifying as a reorganization
within the meaning of Section 368(a) of the Internal Revenue Code, or (b)
materially impede or delay receipt of any Consents of Regulatory Authorities
referred to in Section 9.1(b) of this Agreement or result in the imposition of a
condition or restriction of the type referred to in the second sentence of such
Section. To the Knowledge of PURCHASER, there exists no fact, circumstance, or
reason why the requisite Consents referred to in Section 9.1(b) of this
Agreement cannot be received in a timely manner without the imposition of any
condition or restriction of the type described in the second sentence of such
Section 9.1(b).
5.19 Charter Provisions. Each PURCHASER Company has taken all action so
------------------
that the entering into of this Agreement and the consummation of the Merger and
the other transactions contemplated by this Agreement do not and will not result
in the grant of any rights to any Person under the Articles of Incorporation,
Bylaws or other governing instruments of any PURCHASER Company or restrict or
impair the ability of any TARGET shareholder to vote, or otherwise to exercise
the rights of a shareholder with respect to, shares of PURCHASER Common Stock
that may be acquired or controlled by it.
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ARTICLE 6
CONDUCT OF BUSINESS PENDING CONSUMMATION
----------------------------------------
6.1 Affirmative Covenants of TARGET. Unless the prior written consent of
-------------------------------
PURCHASER shall have been obtained, and except as otherwise contemplated herein,
TARGET shall, and shall cause each of its Subsidiaries: (a) to operate its
business in the usual, regular, and ordinary course; (b) to preserve intact its
business organization and Assets and maintain its rights and franchises; (c) to
use its reasonable efforts to cause its representations and warranties to be
correct at all times; and (d) to take no action which would (i) adversely affect
the ability of any Party to obtain any Consents required for the transactions
contemplated hereby without imposition of a condition or restriction of the type
referred to in the second sentence of Section 8.1(b) of this Agreement or (ii)
adversely affect in any material respect the ability of either Party to perform
its covenants and agreements under this Agreement.
6.2 Negative Covenants of TARGET. From the date of this Agreement until the
----------------------------
earlier of the Effective Time or the termination of this Agreement, TARGET
covenants and agrees that it will not do or agree or commit to do, or permit any
of its Subsidiaries to do or agree or commit to do, any of the following without
the prior written consent of the chief executive officer or chief financial
officer of PURCHASER, which consent shall not be unreasonably withheld:
(a) amend the Articles of Incorporation, Bylaws or other governing
instruments of any TARGET Company; or
(b) incur any additional debt obligation or other obligation for borrowed
money (other than indebtedness of a TARGET Company to another TARGET Company) in
excess of an aggregate of $50,000 (for the TARGET Companies on a consolidated
basis) except in the ordinary course of the business of TARGET Companies
consistent with past practices (which shall include, for TARGET Subsidiaries
that are depository institutions, creation of deposit liabilities, purchases of
federal funds, receipt of Federal Home Loan Bank advances, and entry into
repurchase agreements fully secured by U.S. government or agency securities), or
impose, or suffer the imposition, on any share of stock held by any TARGET
Company of any Lien or permit any such Lien to exist; or
(c) repurchase, redeem, or otherwise acquire or exchange (other than
exchanges in the ordinary course under employee benefit plans), directly or
indirectly, any shares, or any securities convertible into any shares, of the
capital stock of any TARGET Company, or declare or pay any dividend or make any
other distribution in respect of TARGET's capital stock; or
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(d) except for the issuance of TARGET Options to purchase 4,874 shares of
TARGET Common Stock at an exercise price of $11.08 per share to the Bank's
President and Chief Executive Officer, Raymond D. Phillips ("Mr. Phillips"), or
as otherwise permitted hereby, or as Previously Disclosed, issue, sell, pledge,
encumber, authorize the issuance of, or enter into any Contract to issue, sell,
pledge, encumber, or authorize the issuance of or otherwise permit to become
outstanding, any additional shares of TARGET Common Stock or any other capital
stock of any TARGET Company, or any stock appreciation rights, or any option,
warrant, conversion, or other right to acquire any such stock, or any security
convertible into any such stock; or
(e) adjust, split, combine or reclassify any capital stock of any TARGET
Company or issue or authorize the issuance of any other securities in respect of
or in substitution for shares of TARGET Common Stock or sell, lease, mortgage or
otherwise dispose of or otherwise encumber (i) any shares of capital stock of
any TARGET Subsidiary (unless any such shares of stock are sold or otherwise
transferred to another TARGET Company) or (ii) any Asset having a book value in
excess of $50,000 other than in the ordinary course of business for reasonable
and adequate consideration; or
(f) acquire direct or indirect control over any Person, other than in
connection with (i) internal reorganizations or consolidations involving
existing Subsidiaries, (ii) foreclosures in the ordinary course of business, or
(iii) acquisitions of control by a depository institution Subsidiary in its
fiduciary capacity; or
(g) grant any increase in compensation or benefits to the employees or
officers of any TARGET Company (including such discretionary increases as may be
contemplated by existing employment agreements), except in accordance with past
practice Previously Disclosed or as required by Law; pay any bonus except for
any bonus properly payable to Mr. Phillips under the Employment Agreement dated
December 20, 1993 between the Bank and Mr. Phillips or otherwise payable in
accordance with past practice Previously Disclosed or the provisions of any
applicable program or plan adopted by its Board of Directors prior to the date
of this Agreement; enter into or amend any severance agreements with officers of
any TARGET Company; grant any increase in fees or other increases in
compensation or other benefits to directors of any TARGET Company or in
accordance with past practice Previously Disclosed; or
(h) enter into or amend any employment Contract between any TARGET
Company and any Person (unless such amendment is required by Law) that the
TARGET Company does not have the unconditional right to terminate without
Liability (other than Liability for services already rendered), at any time on
or after the Effective Time; or
31
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(i) adopt any new employee benefit plan of any TARGET Company or make any
material change in or to any existing employee benefit plans of any TARGET
Company other than any such change that is required by Law or that, in the
opinion of counsel, is necessary or advisable to maintain the tax qualified
status of any such plan; or
(j) make any significant change in any accounting methods or systems of
internal accounting controls, except as may be appropriate to conform to changes
in regulatory accounting requirements or GAAP; or
(k) commence any Litigation other than in accordance with past practice,
settle any Litigation involving any Liability of any TARGET Company for money
damages in excess of $50,000 or which involves material restrictions upon the
operations of any TARGET Company; or
(l) except in the ordinary course of business, modify, amend or terminate
any material Contract or waive, release, compromise or assign any material
rights or claims.
6.3 Covenants of PURCHASER. From the date of this Agreement until the earlier
----------------------
of the Effective Time or the termination of this Agreement, PURCHASER covenants
and agrees that it shall continue to conduct its business and the business of
its Subsidiaries in a manner designed in its reasonable judgment, to enhance the
long-term value of the PURCHASER Common Stock and the business prospects of the
PURCHASER Companies and, to the extent consistent therewith, to use all
reasonable efforts to preserve intact the PURCHASER Companies' core businesses
and goodwill with their respective employees and the communities they serve.
6.4 Adverse Changes in Condition. Each Party agrees to give written notice
----------------------------
promptly to the other Party upon becoming aware of the occurrence or impending
occurrence of any event or circumstance relating to it or any of its
Subsidiaries which (a) is reasonably likely to have, individually or in the
aggregate, a Material Adverse Effect on it or (b) is reasonably likely to cause
or constitute a material breach of any of its representations, warranties, or
covenants contained herein, and to use its reasonable efforts to prevent or
promptly to remedy the same.
6.5 Reports. Each Party and its Subsidiaries shall file all reports required
-------
to be filed by it with Regulatory Authorities between the date of this Agreement
and the Effective Time and shall deliver to the other Party copies of all such
reports promptly after the same are filed. If financial statements are
contained in any such reports filed with the SEC, such financial statements will
fairly present the consolidated financial position of the
32
<PAGE>
entity filing such statements as of the dates indicated and the consolidated
results of operations, changes in shareholders' equity, and cash flows for the
periods then ended in accordance with GAAP (subject in the case of interim
financial statements to normal recurring year-end adjustments that are not
material). As of their respective dates, such reports filed with the SEC will
comply in all material respects with the Securities Laws and will not contain
any untrue statement of a material fact or omit to state a material fact
required to be stated therein or necessary in order to make the statements
therein, in light of the circumstances under which they were made, not
misleading. Any financial statements contained in any other reports to another
Regulatory Authority shall be prepared in accordance with Laws applicable to
such reports.
ARTICLE 7
ADDITIONAL AGREEMENTS
---------------------
7.1 Registration Statement; Proxy Statement; Shareholder Approval. As soon
-------------------------------------------------------------
as practicable after execution of this Agreement, PURCHASER shall file the
Registration Statement with the SEC, and shall use its best efforts to cause the
Registration Statement to become effective under the 1933 Act and take any
action required to be taken under the applicable state Blue Sky or securities
Laws in connection with the issuance of the shares of PURCHASER Common Stock
upon consummation of the Merger. TARGET shall furnish all information
concerning it and the holders of its capital stock as PURCHASER may reasonably
request in connection with such action. TARGET shall call a Shareholders'
Meeting, to be held as soon as reasonably practicable after the Registration
Statement is declared effective by the SEC, for the purpose of voting upon
approval of the merger and this Agreement and such other related matters as it
deems appropriate. In connection with the Shareholders' Meeting, (a) PURCHASER
shall prepare and file on TARGET's behalf a Proxy Statement (which shall be
included in the Registration Statement) with the SEC and mail it to its
shareholders, (b) the Parties shall furnish to each other all information
concerning them that they may reasonably request in connection with such Proxy
Statement, (c) the Board of Directors of TARGET shall recommend (subject to
compliance with their fiduciary duties as advised by counsel) to its
shareholders that they approve this Agreement, and (d) the Board of Directors
and officers of TARGET shall use their reasonable efforts to obtain such
shareholders' approval (subject to compliance with their fiduciary duties as
advised by counsel).
7.2 Listing. PURCHASER shall use its best efforts to list, prior to the
-------
Effective Time, on NASDAQ, the shares of PURCHASER Common Stock to be issued to
the holders of TARGET Common Stock pursuant to the Merger.
7.3 Applications. PURCHASER shall promptly prepare and file, and TARGET
------------
shall cooperate in the preparation and, where appropriate, filing of,
applications with all
33
<PAGE>
Regulatory Authorities having jurisdiction over the transactions contemplated by
this Agreement seeking the requisite Consents necessary to consummate the
transactions contemplated by this Agreement.
7.4 Filings with State Offices. Upon the terms and subject to the conditions
--------------------------
of this Agreement, PURCHASER shall execute and file the Georgia Articles of
Merger with the Secretary of State of the State of Georgia in connection with
the Closing.
7.5 Agreement as to Efforts to Consummate. Subject to the terms and
-------------------------------------
conditions of this Agreement, each Party agrees to use, and to cause its
Subsidiaries to use, its best efforts to take, or cause to be taken, all
actions, and to do, or cause to be done, all things necessary, proper, or
advisable under applicable Laws, as promptly as practicable so as to permit
consummation of the Merger at the earliest possible date and to otherwise enable
consummation of the transactions contemplated hereby and shall cooperate fully
with the other Party hereto to that end (it being understood that any amendments
to the Registration Statement filed by PURCHASER in connection with the
PURCHASER Common Stock to be issued in the Merger or a resolicitation of proxies
as a consequence of an acquisition agreement by PURCHASER or any of its
Subsidiaries shall not violate this covenant), including, without limitation,
using its efforts to lift or rescind any Order adversely affecting its ability
to consummate the transactions contemplated herein and to cause to be satisfied
the conditions referred to in Article 9 of this Agreement. Each Party shall
use, and shall cause each of its Subsidiaries to use, its best efforts to obtain
all Consents necessary or desirable for the consummation of the transactions
contemplated by this Agreement.
7.6 Investigation and Confidentiality.
---------------------------------
(a) Prior to the Effective Time, each Party will keep the other Party
advised of all material developments relevant to its business and to
consummation of the Merger and shall permit the other Party to make or cause to
be made such investigation of the business and properties of it and its
Subsidiaries and of their respective financial and legal conditions as the other
Party reasonably requests, provided that such investigation shall be reasonably
related to the transactions contemplated hereby and shall not interfere
unnecessarily with normal operations. No investigation by a Party shall affect
the representations and warranties of the other Party.
(b) Except as may be required by applicable Law or legal process, and
except for such disclosure to those of its directors, officers, employees and
representatives as may be appropriate or required in connection with the
transactions contemplated hereby, each Party shall hold in confidence all
nonpublic information obtained from the other Party (including work papers and
other material derived therefrom) as a result of this Agreement or in connection
with the transactions contemplated hereby (whether so obtained before or
34
<PAGE>
after the execution hereof) until such time as the Party providing such
information consents to its disclosure or such information becomes otherwise
publicly available. Promptly following any termination of this Agreement, each
of the Parties agrees to use its best efforts to cause its respective directors,
officers, employees and representatives to destroy or return to the providing
party all such nonpublic information (including work papers and other material
retrieved therefrom), including all copies thereof. Each Party shall, and shall
cause its advisers and agents to, maintain the confidentiality of all
confidential information furnished to it by the other Party concerning its and
its Subsidiaries' businesses, operations, and financial positions and shall not
use such information for any purpose except in furtherance of the transactions
contemplated by this Agreement. If this Agreement is terminated prior to the
Effective Time, each Party shall promptly return all documents and copies
thereof and all work papers containing confidential information received from
the other Party, except one copy of certain materials that can be retained for
legal files in accordance with the provisions of the Confidentiality Agreements.
(c) Each Party agrees to give the other Party notice as soon as
practicable after any determination by it of any fact or occurrence relating to
the other Party which it has discovered through the course of its investigation
and which represents, or is reasonably likely to represent, either a material
breach of any representation, warranty, covenant or agreement of the other Party
or which has had or is reasonably likely to have a Material Adverse Effect on
the other Party.
(d) It is hereby agreed that this Section 7.6 shall supersede in its
entirety that certain Confidentiality Agreement dated April 9, 1996, between
PURCHASER and TARGET.
7.7 Press Releases. Prior to the Effective Time, TARGET and PURCHASER shall
--------------
consult with each other as to the form and substance of any press release or
other public disclosure materially related to this Agreement or any other
transaction contemplated hereby; provided, however, that nothing in this
Section 7.7 shall be deemed to prohibit any Party from making any disclosure
which its counsel deems necessary or advisable in order to satisfy such Party's
disclosure obligations imposed by Law.
7.8 No Solicitation. (a) TARGET shall not, nor shall it permit any of its
---------------
Subsidiaries to, nor shall it authorize or permit any officer, director of
employee of, or any investment banker, attorney or other advisor or
representative of, TARGET or any of its Subsidiaries to, (i) solicit or
initiate, or encourage the submission of, any takeover proposal or (ii)
participate in any discussions or negotiations regarding, or furnish to any
person any information with respect to, or take any other action to facilitate
any inquiries or the making of any proposal that constitutes, or may reasonably
be expected to lead to, any takeover proposal; provided, however, that, if in
the opinion of its Board of Directors, after
35
<PAGE>
consultation with counsel, such failure to act would be inconsistent with its
fiduciary duties to shareholders under applicable law, TARGET may, in response
to an unsolicited takeover proposal, and subject to compliance with subparagraph
(c) below, (A) furnish information with respect to TARGET to any Person pursuant
to a confidentiality agreement and (B) participate in negotiations regarding
such takeover proposal. Without limiting the foregoing, it is understood that
any violation of the restrictions set forth in the immediately preceding
sentence by any executive officer of TARGET or any of its Subsidiaries or any
investment banker, attorney or other advisor or representative of TARGET or any
of its Subsidiaries, whether or not such person is purporting to act on behalf
of TARGET or any of its Subsidiaries or otherwise, shall be deemed to be a
breach of this Section 7.8 by TARGET. For purposes of this Agreement, "takeover
proposal" means an inquiry, proposal or acquisition or purchase of a substantial
amount of assets of TARGET or any of its Subsidiaries (other than investors in
the ordinary course of business) or of over 20% of any class of equity
securities of TARGET or any of its Subsidiaries or any tender offer or exchange
offer that if consummated would result in any Person beneficially owning 20% or
more of any class of equity securities of TARGET or any of its Subsidiaries, or
any merger, consolidation, business combination, sale of substantially all
assets, recapitalization, liquidation, dissolution or similar transaction
involving TARGET or any of its Subsidiaries other than the transactions
contemplated by this Agreement, or any other transaction the consummation of
which would reasonably be expected to impede, interfere with, prevent or
materially delay the Merger or which would reasonably be expected to dilute
materially the benefits to PURCHASER of the transactions contemplated hereby.
(b) Except as set forth herein, neither the Board of Directors of TARGET nor
any committee thereof shall (i) withdraw or modify, or propose to withdraw or
modify, in a manner adverse to PURCHASER, the approval or recommendation of such
Board of Directors or any such committee of this Agreement or the Merger,
(ii) approve or recommend, or propose to approve or recommend, any takeover
proposal or (iii) enter into any agreement with respect to any takeover
proposal. Notwithstanding the foregoing, if in the opinion of the TARGET Board
of Directors, after consultation with counsel, failure to do so would be
inconsistent with its fiduciary duties to TARGET shareholders under applicable
law, then, prior to the Shareholders' Meeting, the TARGET Board of Directors may
(subject to the terms of this and the following sentences) withdraw or modify
its approval or recommendation of this Agreement or the Merger, approve or
recommend a superior proposal, or enter into an agreement with respect to a
superior proposal, in each case at any time after the second business day
following PURCHASER's receipt of written notice (a "Notice of Superior
Proposal") advising PURCHASER that the TARGET Board of Directors has received a
superior proposal, specifying the material terms and conditions of such superior
proposal and identifying the Person making such superior proposal; provided that
TARGET shall not enter into an agreement with respect to a superior proposal
unless TARGET shall have furnished PURCHASER with written notice no later than
12:00 noon
36
<PAGE>
one (1) day in advance of any date that it intends to enter into such agreement.
In addition, if TARGET proposes to enter into an agreement with respect to any
takeover proposal, it shall concurrently with entering into such agreement pay,
or cause to be paid, to PURCHASER the Expenses and the Termination Fee (as
defined in Section 10.2(b). For purposes of this Agreement, a "superior
proposal" means any bona fide takeover proposal to acquire, directly or
indirectly, for consideration consisting of cash and/or securities, more than
50% of the shares of TARGET Common Stock or TARGET Bank then outstanding or all
or substantially all of the assets of TARGET or TARGET Bank and otherwise on
terms which the TARGET Board of Directors determines in its good faith judgment
(based on the advice of a financial advisor of recognized reputation) to be more
favorable to its shareholders than the Merger.
(c) In addition to the obligations of TARGET set forth in paragraph (b) above,
TARGET shall immediately advise PURCHASER orally and in writing of any request
for information or of any takeover proposal, or any inquiry with respect to or
which could lead to any takeover proposal, the material terms and conditions of
such request, takeover proposal or inquiry, and the identity of the person
making any takeover proposal or inquiry. TARGET shall keep PURCHASER fully
informed of the status and details (including amendments or proposed amendments)
of any such request, takeover proposal or inquiry.
(d) Nothing contained in this Section 7.8 shall prohibit TARGET from making
any disclosure to TARGET's shareholders if, in the opinion of the TARGET Board
of Directors, after consultation with counsel, failure to so disclose would be
inconsistent with its fiduciary duties to its shareholders under applicable law;
provided that TARGET does not, except as permitted by subparagraph (b) above,
withdraw or modify, or propose to withdraw or modify, its position with respect
to the Merger or approve or recommend, or propose to approve or recommend, a
takeover proposal.
7.9 Tax Treatment. Each of the Parties undertakes and agrees to use its
-------------
reasonable efforts to cause the Merger, and to take no action which would cause
the Merger not, to qualify for treatment as a "reorganization" within the
meaning of Section 368(a) of the Internal Revenue Code for federal income tax
purposes.
7.10 Agreement of Affiliates. TARGET has Previously Disclosed all
-----------------------
Persons whom it reasonably believes are "affiliates" of TARGET for purposes of
Rule 145 under the 1933 Act. TARGET shall use its reasonable efforts to cause
each such Person to deliver to PURCHASER not later than thirty (30) days after
the date of this Agreement, a written agreement, substantially in the form of
Exhibit 2 hereto, providing that such Person will not sell, pledge, transfer, or
otherwise dispose of the shares of TARGET Common Stock held by such Person
except as contemplated by such agreement or by this Agreement and will not sell,
pledge, transfer, or otherwise dispose of the shares of PURCHASER Common Stock
to
37
<PAGE>
be received by such Person upon consummation of the Merger except in
compliance with applicable provisions of the 1933 Act and the rules and
regulations thereunder. Regardless of whether each such affiliate has provided
the written agreement referred to in this Section, PURCHASER shall be entitled
to place restrictive legends upon certificates for shares of PURCHASER Common
Stock issued to affiliates of TARGET pursuant to this Agreement to enforce the
provisions of this Section.
7.11 Employee Benefits and Contracts. Following the Effective Time,
-------------------------------
PURCHASER shall provide generally to officers and employees of the TARGET
Companies employee benefits under employee benefit plans (other than stock
option or other plans involving the potential issuance of PURCHASER Common
Stock), on terms and conditions which when taken as a whole are substantially
similar to those currently provided by the PURCHASER Companies to their
similarly situated officers and employees, provided that for a period of twelve
(12) months after the Effective Time, PURCHASER shall provide generally to
officers and employees of TARGET Companies severance benefits in accordance with
the policies of either (i) TARGET as Previously Disclosed, or (ii) PURCHASER,
whichever of (i) or (ii) will provide the greater benefit to the officer or
employee. For purposes of participation and vesting under such employee benefit
plans, the service of the employees of the TARGET Companies prior to the
Effective Time shall be treated as service with a PURCHASER Company
participating in such employee benefit plans. PURCHASER also shall honor in
accordance with their terms all employment, severance, consulting and other
compensation Contracts Previously Disclosed to PURCHASER between any TARGET
Company and any current or former director, officer, or employee thereof and all
provisions for vested benefits or other vested amounts earned or accrued through
the Effective Time under the TARGET Benefit Plans.
7.12 Large Deposits. Prior to the Closing, TARGET will provide PURCHASER
--------------
with a list of all certificates of deposit or checking, savings or other
deposits owned by persons who, to the Knowledge of the TARGET, had deposits
aggregating more than $100,000 and a list of all certificates of deposit or
checking, savings or other deposits owned by directors and officers of TARGET
and the Bank and their affiliates in an amount aggregating more than $100,000 as
of the last day of the calendar month immediately prior to the Closing.
7.13 Indemnification. PURCHASER agrees that all rights to
---------------
indemnification and all limitations of liability existing in favor of the
officers and directors of TARGET and TARGET Bank ("Indemnified Parties") as
provided in their respective articles of incorporation and bylaws as of the date
hereof with respect to matters occurring prior to the Effective Time shall
survive the Merger and shall continue in full force and effect, without any
amendment thereto, for a period of not less than six (6) years from the
Effective Time;
38
<PAGE>
provided, however, that all rights to any indemnification in respect of any
claim asserted or made within such period shall continue until the final
disposition of such claim.
7.14 Irrevocable Proxies. Concurrent with the execution hereof, TARGET
-------------------
shall obtain and deliver to PURCHASER irrevocable proxies in substantially the
form of Exhibit 3 hereto from each member of TARGET's Board of Directors.
7.15 Noncompetition Agreements. TARGET shall use its best efforts to
-------------------------
cause Mr. Phillips and each other member of its Board of Directors to execute
and deliver to PURCHASER, on or before the Closing Date, Noncompetition
Agreements substantially in the forms attached hereto as Exhibits 4 and 4A,
respectively.
7.16 TARGET Options and Warrants. TARGET shall use its best efforts to
---------------------------
cause (i) each Holder of TARGET Warrants listed on Exhibit 1 hereto to execute
and deliver to PURCHASER, on or before the Closing Date, a letter in the form of
Exhibit 5 hereto signed by such Holder, and (ii) each Holder of TARGET Options
listed on Exhibit 1 hereto to execute and deliver to PURCHASER, on or before the
Closing Date, a letter in the form of Exhibit 6 hereto signed by such Holder.
ARTICLE 8
CONDITIONS PRECEDENT TO OBLIGATIONS TO CONSUMMATE
-------------------------------------------------
8.1 Conditions to Obligations of Each Party. The respective obligations of
---------------------------------------
each Party to perform this Agreement and consummate the Merger and the other
transactions contemplated hereby are subject to the satisfaction of the
following conditions, unless waived by both Parties pursuant to Section 10.6 of
this Agreement:
(a) Shareholder Approval. The shareholders of TARGET shall have approved
--------------------
this Agreement, and the consummation of the transactions contemplated hereby,
including the Merger, as and to the extent required by Law or by the provisions
of any governing instruments.
(b) Regulatory Approvals. All Consents of, filings and registrations
--------------------
with, and notifications to, all Regulatory Authorities required for consummation
of the Merger shall have been obtained or made and shall be in full force and
effect, and all waiting periods required by Law shall have expired. No Consent
obtained from any Regulatory Authority which is necessary to consummate the
transactions contemplated hereby shall be conditioned or restricted in a manner
(including, without limitation, requirements relating to the raising of
additional capital or the disposition of Assets) which, in the reasonable
judgment of the Board of Directors of either Party, would so materially
adversely impact the economic or business benefits of the transactions
contemplated by this Agreement so as to
39
<PAGE>
render inadvisable the consummation of the Merger; provided, however, that no
such condition or restriction shall be deemed to be materially adverse unless it
materially differs from terms and conditions customarily imposed by any
Regulatory Authority in connection with similar transactions.
(c) Consents and Approvals. Each Party shall have obtained any and all
----------------------
Consents required for consummation of the Merger (other than those referred to
in Section 8.1(b) of this Agreement) or for the preventing of any Default under
any Contract or Permit of such Party which, if not obtained or made, is
reasonably likely to have, individually or in the aggregate, a Material Adverse
Effect on such Party.
(d) Legal Proceedings. No court or governmental or regulatory authority
-----------------
of competent jurisdiction shall have enacted, issued, promulgated, enforced or
entered any Law or Order (whether temporary, preliminary or permanent) or taken
any other action which prohibits, materially restricts or makes illegal
consummation of the transactions contemplated by this Agreement.
(e) Registration Statement. The Registration Statement shall be
----------------------
effective under the 1933 Act, no stop orders suspending the effectiveness of the
Registration Statement shall have been issued, no action, suit, proceeding or
investigation by the SEC to suspend the effectiveness thereof shall have been
initiated and be continuing, and all necessary approvals under state securities
Laws or the 1933 Act or 1934 Act relating to the issuance or trading of the
shares of PURCHASER Common Stock issuable pursuant to the Merger shall have been
received.
(f) NASDAQ Listing. The shares of PURCHASER Common Stock issuable
--------------
pursuant to the Merger shall have been approved for listing on NASDAQ.
(g) Tax Matters. TARGET shall have received a written opinion of counsel
-----------
from Rogers & Hardin, in form reasonably satisfactory to it, substantially to
the effect that for federal income tax purposes (a) the Merger will constitute a
reorganization within the meaning of Section 368(a) of the Internal Revenue
Code, and (b) the exchange in the Merger of TARGET Common Stock for PURCHASER
Common Stock will not give rise to gain or loss to the shareholders of TARGET
with respect to such exchange (except to the extent of any cash received).
8.2 Conditions to Obligations of PURCHASER. The obligations of PURCHASER to
--------------------------------------
perform this Agreement and consummate the Merger and the other transactions
contemplated hereby are subject to the satisfaction of the following conditions,
unless waived by PURCHASER pursuant to Section 10.6(a) of this Agreement:
40
<PAGE>
(a) Representations and Warranties. The representations and warranties
------------------------------
of TARGET set forth or referred to in this Agreement shall be true and correct
in all respects as of the date of this Agreement and as of the Effective Time
with the same effect as though all such representations and warranties had been
made on and as of the Effective Time (provided that representations and
warranties which are confined to a specified date shall speak only as of such
date), except (i) as expressly contemplated by this Agreement, or (ii) for
representations and warranties (other than the representations and warranties
set forth in Section 4.3 of this Agreement, which shall be true in all respects)
the inaccuracies of which relate to matters that are not reasonably likely to
have, individually or in the aggregate, a Material Adverse Effect on TARGET.
(b) Performance of Agreements and Covenants. Each and all of the
---------------------------------------
agreements and covenants of TARGET to be performed and complied with pursuant to
this Agreement and the other agreements contemplated hereby prior to the
Effective Time shall have been duly performed and complied with in all material
respects.
(c) TARGET shall have delivered to PURCHASER (i) a certificate, dated as
of the Effective Time and signed on its behalf by its chief executive officer,
to the effect that the conditions of its obligations set forth in
Sections 8.2(a) and 8.2(b) of this Agreement have been satisfied, and
(ii) certified copies of resolutions duly adopted by TARGET's Board of Directors
and shareholders evidencing the taking of all corporate action necessary to
authorize the execution, delivery and performance of this Agreement, and the
consummation of the transactions contemplated hereby, all in such reasonable
detail as PURCHASER and its counsel shall reasonably request.
(d) Opinion of Counsel. TARGET shall have delivered to PURCHASER an
------------------
opinion of Smith, Gambrell & Russell, counsel to TARGET, dated as of the
Closing, in substantially the form of Exhibit 7 hereto.
(e) Accountant's Letters. PURCHASER shall have received from Mauldin &
--------------------
Jenkins letters dated not more than five (5) days prior to (i) the date of the
Proxy Statement and (ii) the Effective Time, with respect to certain financial
information regarding TARGET, in form and substance reasonably satisfactory to
PURCHASER, which letters shall be based upon customary specified procedures
undertaken by such firm.
(f) Noncompetition Agreements. Mr. Phillips and each other member of
-------------------------
TARGET's Board of Directors shall have executed and delivered a Noncompetition
Agreement substantially in the forms of Exhibits 4 and 4A, respectively.
41
<PAGE>
(g) Dissenting Shareholders. Holders of not more than seven and one-half
-----------------------
(7.5%) percent of the issued and outstanding TARGET Common Stock shall have
timely filed written notice with TARGET that they intend to demand payment for
their shares.
(h) Opinion of Accountant. PURCHASER shall have received an opinion of
---------------------
Mauldin & Jenkins to the effect that the Merger qualifies for a pooling of
interests within the meaning of APB No. 16 if consummated in accordance with
this Agreement.
(i) Letters from Holders. PURCHASER shall have received from each Holder
--------------------
of TARGET Warrants a letter substantially in the form of Exhibit 5 hereto and
shall have received from each Holder of TARGET Options a letter substantially in
the form of Exhibit 6 hereto, in each case signed by such Holder.
8.3 Conditions to Obligations of TARGET. The obligations of TARGET to
-----------------------------------
perform this Agreement and consummate the Merger and the other transactions
contemplated hereby are subject to the satisfaction of the following conditions,
unless waived by TARGET pursuant to Section 10.6(b) of this Agreement:
(a) Representations and Warranties. The representations and warranties
------------------------------
of PURCHASER set forth or referred to in this Agreement shall be true and
correct in all respects as of the date of this Agreement and as of the Effective
Time with the same effect as though all such representations and warranties had
been made on and as of the Effective Time (provided that representations and
warranties which are confined to a specified date shall speak only as of such
date), except (i) as expressly contemplated by this Agreement, or (ii) for
representations and warranties (other than the representations and warranties
set forth in Section 5.3 of this Agreement, which shall be true in all respects)
the inaccuracies of which relate to matters that are not reasonably likely to
have, individually or in the aggregate, a Material Adverse Effect on PURCHASER.
(b) Performance of Agreements and Covenants. Each and all of the
---------------------------------------
agreements and covenants of PURCHASER to be performed and complied with pursuant
to this Agreement and the other agreements contemplated hereby prior to the
Effective Time shall have been duly performed and complied with in all material
respects.
(c) Certificates. PURCHASER shall have delivered to TARGET (i) a
------------
certificate, dated as of the Effective Time and signed on its behalf by its
chief executive officer and its chief financial officer, to the effect that the
conditions of its obligations set forth in Section 8.3(a) and 8.3(b) of this
Agreement have been satisfied, and (ii) certified copies of resolutions duly
adopted by PURCHASER's Board of Directors evidencing the taking of all corporate
action necessary to authorize the execution, delivery and performance
42
<PAGE>
of this Agreement, and the consummation of the transactions contemplated hereby,
all in such reasonable detail as TARGET and its counsel shall reasonably
request.
(d) Opinion of Counsel. PURCHASER shall have delivered to TARGET an
------------------
opinion of Rogers & Hardin, counsel to PURCHASER, dated as of the Closing, in
substantially the form of Exhibit 4 hereto.
ARTICLE 9
TERMINATION
-----------
9.1 Termination. Notwithstanding any other provision of this Agreement, and
-----------
notwithstanding the approval of this Agreement by the shareholders of TARGET,
this Agreement may be terminated and the Merger abandoned at any time prior to
the Effective Time:
(a) By mutual consent of the Board of Directors of PURCHASER and the
Board of Directors of TARGET; or
(b) By the Board of Directors of either Party (provided that the
terminating Party is not then in material breach of any representation,
warranty, covenant, or other agreement contained in this Agreement) in the event
of a material breach by the other Party of any representation or warranty
contained in this Agreement which cannot be or has not been cured within thirty
(30) days after the giving of written notice to the breaching Party of such
breach and which breach would provide the non-breaching party the ability to
refuse to consummate the Merger under the standard set forth in Section 8.2(a)
of this Agreement in the case of PURCHASER and Section 8.3(a) of this Agreement
in the case of TARGET; or
(c) By the Board of Directors of either Party (provided that the
terminating Party is not then in material breach of any representation,
warranty, covenant, or other agreement contained in this Agreement) in the event
of a material breach by the other Party of any covenant or agreement contained
in this Agreement which cannot be or has not been cured within (30) days after
the giving of written notice to the breaching Party of such breach; or
(d) By the Board of Directors of either Party (provided that the
terminating Party is not then in material breach of any representation,
warranty, covenant, or other agreement contained in this Agreement) in the event
(i) any Consent of any Regulatory Authority required for consummation of the
Merger and the other transactions contemplated hereby has been denied by final
nonappealable action of such authority or if any action taken by such authority
is not appealed within the time limit for appeal, or (ii)
43
<PAGE>
if the shareholders of TARGET fail to approve this Agreement and the
transactions contemplated hereby as required by the GBCC at the Shareholders'
Meetings where the transactions were presented to such shareholders for approval
and voted upon; or
(e) By the Board of Directors of either Party in the event that the
Merger shall not have been consummated by November 1, 1996 but only if the
failure to consummate the transactions contemplated hereby on or before such
date is not caused by any breach of this Agreement by the Party electing to
terminate pursuant to this Section 9.1 (e); or
(f) By the Board of Directors of either Party (provided that the
terminating Party is not then in material breach of any representation,
warranty, covenant, or other agreement contained in this Agreement) in the event
that any of the conditions precedent to the obligations of such Party to
consummate the Merger cannot be satisfied or fulfilled by the date specified in
Section 9.1(e) of this Agreement.
(g) By the Board of Directors of TARGET in connection with entering into
a definitive agreement in accordance with Section 7.8(b), provided that it has
complied with all provisions thereof, including the notice provisions therein,
and that it makes simultaneous payment of the Expenses and the Termination Fee.
9.2 Effect of Termination. In the event of the termination and abandonment
---------------------
of this Agreement pursuant to Section 9.1 of this Agreement, this Agreement
shall become void and have no effect, except (i) as provided in Section 10.14,
and (ii) a termination pursuant to Section 9.1 of this Agreement shall not
relieve the breaching Party from Liability for an uncured willful breach of a
representation, warranty, covenant, or agreement giving rise to such
termination.
ARTICLE 10
MISCELLANEOUS
-------------
10.1 Definitions. Except as otherwise provided herein, the capitalized
-----------
terms set forth below (in their singular and plural forms as applicable) shall
have the following meanings:
"Acquisition Proposal" with respect to a Party shall mean any tender offer or
exchange offer or any proposal for a merger, acquisition of all of the stock or
Assets of, or other business combination involving such Party or any of its
Subsidiaries or the acquisition of a substantial equity interest in, or a
substantial portion of the Assets of, such Party or any of its Subsidiaries.
44
<PAGE>
"Affiliate" of a Person shall mean: (a) any other Person directly, or
indirectly through one or more intermediaries, controlling, controlled by or
under common control with such Person or (b) any officer, director, partner,
employer, or direct or indirect beneficial owner of any 10% or greater equity or
voting interest of such Person.
"Aggregate Option Consideration" shall mean the aggregate exercise price of
all options and warrants to purchase TARGET Common Stock outstanding immediately
prior to the Effective Time (whether or not such option or warrant is then
exercisable).
"Aggregate TARGET Shares" shall mean the aggregate number of outstanding
shares of TARGET Common Stock plus the aggregate number of Option Shares
outstanding immediately prior to the Effective Time.
"Agreement" shall mean this Agreement and Plan of Merger and the Exhibits
delivered pursuant hereto and incorporated herein by reference.
"Assets" of a Person shall mean all of the assets, properties, businesses and
rights of such Person of every kind, nature, character and description, whether
real, personal or mixed, tangible or intangible, accrued or contingent, or
otherwise relating to or utilized in such Person's business, directly or
indirectly, in whole or in part, whether or not carried on the books and records
of such Person, and whether or not owned in the name of such Person or any
Affiliate of such Person and wherever located.
"Base Period Trading Price" shall mean the average of the daily high and low
sales prices of a share of PURCHASER Common Stock as reported on NASDAQ for the
twenty (20) consecutive trading days immediately preceding five (5) consecutive
calendar days immediately preceding the Effective Time; provided however, that
for purposes of this calculation, the Base Period Trading Price shall be deemed
to equal (i) $16.00 in the event the Base Period Trading Price is greater than
$16.00 or (ii) $12.00 in the event the Base Period Trading Price is less than
$12.00.
"Bank" shall have the meaning provided in the Preamble to this Agreement.
"BHC Act" shall mean the federal Bank Holding Company Act of 1956, as amended.
"Closing" shall mean the closing of the transactions contemplated hereby, as
described in Section 1.2 of this Agreement.
"Closing Date" shall have the meaning provided in Section 1.2 of this
Agreement.
45
<PAGE>
"Consent" shall mean any consent, approval, authorization, clearance,
exemption, waiver, or similar affirmation by any Person pursuant to any
Contract, Law, Order, or Permit.
"Contract" shall mean any written or oral agreement, arrangement,
authorization, commitment, contract, indenture, instrument, lease, obligation,
plan, practice, restriction, understanding or undertaking of any kind or
character, or other document to which any Person is a party or that is binding
on any Person or its capital stock, Assets or business.
"Default" shall mean (a) any breach or violation of or default under any
Contract, Order or Permit, (b) any occurrence of any event that with the passage
of time or the giving of notice or both would constitute a breach or violation
of or default under any Contract, Order or Permit, or (c) any occurrence of any
event that with or without the passage of or the giving of notice would give
rise to a right to terminate or revoke, change the current terms of, or
renegotiate, or to accelerate, increase, or impose any Liability under, any
Contract, Order or Permit.
"Dissenting Shares" shall have the meaning provided in Section 3.1(b) of this
Agreement.
"Dissenting TARGET Shareholders" shall have the meaning provided in Section
3.1(l) of this Agreement.
"Effective Time" shall mean the date and time at which the Merger becomes
effective as defined in Section 1.3 of this Agreement.
"Environmental Laws" shall mean all Laws which are administered, interpreted
or enforced by the United States Environmental Protection Agency and state and
local agencies with primary jurisdiction over pollution or protection of the
environment.
"ERISA" shall mean the Employee Retirement Income Security Act of 1974, as
amended.
"ERISA Plan" shall have the meaning provided in Section 4.14 of this
Agreement.
"Exchange Agent" shall have the meaning provided in Section 3.2 of this
Agreement.
"Exchange Ratio" shall have the meaning provided in Section 3.1(b) of this
Agreement.
46
<PAGE>
"Exhibits" 1 through 3, inclusive, shall mean the Exhibits so marked, copies
of which are attached to this Agreement. Such Exhibits are hereby incorporated
by reference herein and made a part hereof and may be referred to in this
Agreement and any other related instrument or document without being attached
hereto.
"Expenses" shall have the meaning provided in Section 10.2 of this Agreement.
"GAAP" shall mean generally accepted accounting principles, consistently
applied during the periods involved.
"Georgia Articles of Merger" shall mean the Articles of Merger to be executed
by PURCHASER and filed with the Secretary of State of the State of Georgia
relating to the Merger as contemplated by Section 1.3 of this Agreement.
"GBCC" shall mean the Georgia Business Corporation Code.
"Hazardous Material" shall mean any pollutant, contaminant, or hazardous
substance within the meaning of the Comprehensive Environmental Response,
Compensation and Liability Act of 1980, as amended, 42 U.S.C. (S) 9601 et seq.,
or any similar federal, state or local Law.
"Internal Revenue Code" shall mean the Internal Revenue Code of 1986, as
amended, and the rules and regulations promulgated thereunder.
"IRS" shall mean the Internal Revenue Service.
"Knowledge" as used with respect to a Person shall mean the Knowledge after
reasonable due inquiry of the Chairman, President, Chief Financial Officer,
Chief Accounting Officer, Chief Credit Officer, or any Senior or Executive Vice
President of such Person.
"Law" shall mean any code, law, ordinance, regulation, reporting or licensing
requirement, rule, or statute applicable to a Person or its Assets, Liabilities
or business, including, without limitation, those promulgated, interpreted or
enforced by any of the Regulatory Authorities.
"Letter of Transmittal" shall have the meaning provided in Section 3.2 of this
Agreement.
"Liability" shall mean any direct or indirect, primary or secondary,
liability, indebtedness, obligation, penalty, cost or expense (including,
without limitation, costs of
47
<PAGE>
investigation, collection and defense), claim, deficiency, guaranty or
endorsement of or by any Person (other than endorsements of notes, bills,
checks, and drafts presented for collection or deposit in the ordinary course of
business) of any type, whether accrued, absolute or contingent, liquidated or
unliquidated, matured or unmatured, or otherwise.
"Lien" shall mean any conditional sale agreement, default of title, easement,
encroachment, encumbrance, hypothecation, infringement, lien, mortgage, pledge,
reservation, restriction, security interest, title retention or other security
arrangement, or any adverse right or interest, charge, or claim of any nature
whatsoever of, on, or with respect to any property or property interest, other
than (i) Liens for current property Taxes not yet due and payable, (ii) for
depository institution Subsidiaries of a Party, pledges to secure deposits and
other Liens incurred in the ordinary course of the banking business, and
(iii) Liens which are not reasonably likely to have, individually or in the
aggregate, a Material Adverse Effect on a Party.
"Litigation" shall mean any action, arbitration, cause of action, claim,
complaint, criminal prosecution, demand letter, governmental or other
examination or investigation, hearing, inquiry, administrative or other
proceeding, or notice (written or oral) by any Person alleging potential
Liability or requesting information relating to or affecting a Party, its
business, its Assets (including, without limitation, Contracts related to it),
or the transactions contemplated by this Agreement, but shall not include
regular, periodic examinations of depository institutions and their Affiliates
by Regulatory Authorities.
"Loan Property" shall mean any property owned by the Party in question or by
any of its Subsidiaries or in which such Party or Subsidiary holds a security
interest, and, where required by the context, includes the owner or operator of
such property, but only with respect to such property.
"Material" for purposes of this Agreement shall be determined in light of the
facts and circumstances of the matter in question, provided that any specific
monetary amount stated in this Agreement shall determine materiality in that
instance.
"Material Adverse Effect" on a Party shall mean an event, change or occurrence
which has a material adverse impact on (a) the financial position, business, or
results of operations of such Party and its Subsidiaries, taken as a whole, or
(b) the ability of such Party to perform its obligations under this Agreement or
to consummate the Merger or the other transactions contemplated by this
Agreement, provided that "material adverse impact" shall not be deemed to
include the impact of (x) changes in banking and similar Laws of general
applicability or interpretations thereof by courts or governmental authorities,
(y) changes in generally accepted accounting principles or regulatory accounting
principles generally applicable to banks and their holding companies, and
(z) the Merger and
48
<PAGE>
compliance with the provisions of this Agreement on the operating
performance of the Parties.
"Merger" shall mean the merger of TARGET with and into PURCHASER referred to
in Section 1.1 of this Agreement.
"Merger Consideration" shall mean (i) (A) 2.265 times the lesser of
(1) 0.08 times the total assets of TARGET or (2) the Total Equity of TARGET,
plus (B) 1.0 times the amount, if any, by which the Total Equity of TARGET
- ----
exceeds 0.08 times the total assets of TARGET, based on the average of the
total assets of TARGET as of the close of business for each of the sixty (60)
calendar days immediately preceding the Closing Date.
"NASD" shall mean the National Association of Securities Dealers, Inc.
"NASDAQ" shall mean the Nasdaq National Market.
"1933 Act" shall mean the Securities Act of 1933, as amended.
"1934 Act" shall mean the Securities Exchange Act of 1934, as amended.
"Old Certificates" shall have the meaning provided in Section 3.2 of this
Agreement.
"Option Shares" shall mean the shares of TARGET Common Stock issuable by
TARGET in connection with the exercise of any TARGET Option or TARGET Warrant
(whether or not such option or warrant is then exercisable).
"Order" shall mean any administrative decision or award, decree, injunction,
judgment, order, quasi-judicial decision or award, ruling, or writ of any
federal, state, local or foreign or other court, arbitrator, mediator, tribunal,
administrative agency or Regulatory Authority.
"Outstanding TARGET Shares" shall have the meaning provided in
Section 3.1(b) of this Agreement.
"Participation Facility" shall mean any facility or property in which the
Party in question or any of its Subsidiaries participates in the management
(including any property or facility held in a joint venture) and, where required
by the context, said term means the owner or operator of such facility or
property, but only with respect to such facility or property.
49
<PAGE>
"Party" shall mean either TARGET or PURCHASER, and "Parties" shall mean both
TARGET and PURCHASER.
"Per Share Merger Consideration" shall have the meaning set forth in
Section 3.1(b) of this Agreement.
"Permit" shall mean any federal, state, local, and foreign governmental
approval, authorization, certificate, easement, filing, franchise, license,
notice, permit, or right to which any, Person is a party or that is or may be
binding upon or inure to the benefit of any Person or its capital stock, Assets,
Liabilities, or business.
"Person" shall mean a natural person or any legal, commercial or governmental
entity, such as, but not limited to, a corporation, general partnership, joint
venture, limited partnership, limited liability company, trust, business
association, group acting in concert, or any person acting in a representative
capacity.
"Previously Disclosed" shall mean information (a) delivered in writing prior
to the date of this Agreement in the manner and to the Party and counsel
described in Section 10.8 of this Agreement and describing in reasonable detail
the matters contained therein, provided that in the case of Subsidiaries
acquired after the date of this Agreement, such information may be so delivered
by the acquiring Party to the other Party prior to the date of such acquisition,
or (b) disclosed prior to the date of this Agreement by one Party to the other
in an SEC Document delivered to such other Party in which the specific
information has been identified by the Party making the disclosure.
"Proxy Statement" shall mean the proxy statement used by TARGET to solicit the
approval of its shareholders of the transactions contemplated by this Agreement
and shall include the prospectus of PURCHASER relating to shares of PURCHASER
Common Stock to be issued to the shareholders of TARGET.
"PURCHASER Allowance" shall have the meaning provided in Section 5.9 of this
Agreement.
"PURCHASER Benefit Plans" shall have the meaning set forth in Section 5.14 of
this Agreement.
"PURCHASER Common Stock" shall mean the $1.00 par value common stock of
PURCHASER.
"PURCHASER Companies" shall mean, collectively, PURCHASER and all PURCHASER
Subsidiaries.
50
<PAGE>
"PURCHASER Financial Statements" shall mean (i) the consolidated statements of
condition (including related notes and schedules, if any) of PURCHASER as
December 31, 1995, 1994 and 1993, and the related statements of income, changes
in shareholders' equity, and cash flows (including related notes and schedules,
if any) for each of the three years ended December 31, 1995, 1994, and 1993, as
filed by PURCHASER in SEC Documents and (ii) the consolidated statements of
condition of PURCHASER (including related notes and schedules, if any) and
related statements of income, changes in shareholders' equity, and cash flows
(including related notes and schedules, if any) included in SEC Documents filed
with respect to periods ended subsequent to December 31, 1995.
"PURCHASER Stock Plans" shall mean the existing stock option and other stock-
based compensation plans.
"PURCHASER Subsidiaries" shall mean the Subsidiaries of PURCHASER.
"Record Date" shall have the meaning provided in Section 3.1(e) of this
Agreement.
"Registration Statement" shall mean the Registration Statement on Form S-4, or
other appropriate form, filed with the SEC by PURCHASER under the 1933 Act in
connection with the transactions contemplated by this Agreement.
"Regulatory Authorities" shall mean, collectively, the Federal Trade
Commission, the United States Department of Justice, the Board of the Governors
of the Federal Reserve System, the Office of the Comptroller of the Currency,
the Federal Deposit Insurance Corporation, all state banking and other
regulatory agencies having jurisdiction over the Parties and their respective
Subsidiaries, the NASD, and the SEC.
"SEC Documents" shall mean all reports and registration statements filed, or
required to be filed, by a Party or any of its Subsidiaries with any Regulatory
Authority pursuant to the Securities Laws.
"Securities Laws" shall mean the 1933 Act, the 1934 Act, the Investment
Company Act of 1940, as amended, the Investment Advisors Act of 1940, as
amended, the Trust Indenture Act of 1939, as amended, state blue sky laws, and
the rules and regulations of any Regulatory Authority promulgated thereunder.
"Shareholders' Meeting" shall mean the meeting of the shareholders of TARGET
to be held pursuant to Section 7.1 of this Agreement, including any adjournment
or adjournments thereof.
51
<PAGE>
"Subsidiaries" shall mean all those corporations, banks, associations, or
other entities of which the entity in question owns or controls 5% or more of
the outstanding equity securities either directly or through an unbroken chain
of entities as to each of which 5 % or more of the outstanding equity securities
is owned directly or indirectly by its parent; provided, however, there shall
not be included any such entity acquired through foreclosure or any such entity
the equity securities of which are owned or controlled in a fiduciary capacity.
"Surviving Corporation" shall mean PURCHASER as the surviving corporation
resulting from the Merger.
"TARGET Allowance" shall have the meaning provided in Section 4.9 of this
Agreement.
"TARGET Bank" shall mean First National Bank of South Georgia, Albany, a
Georgia state-chartered bank and a TARGET Subsidiary.
"TARGET Benefit Plans" shall have the meaning set forth in Section 5.14 of
this Agreement.
"TARGET Common Stock" shall mean the $5.00 par value Common Stock of TARGET.
"TARGET Companies" shall mean, collectively, TARGET and all TARGET
Subsidiaries.
"TARGET Financial Statements" shall mean (a) the consolidated balance sheets
(including related notes and schedules, if any) of TARGET as of
December 31, 1995, 1994 and 1993, and the related statements of income, changes
in shareholders' equity, and cash flows (including related notes and schedules,
if any) for each of the three fiscal years ended December 31, 1995, 1994, 1993,
as previously furnished by TARGET to Purchaser, and (b) the consolidated balance
sheets of TARGET (including related notes and schedules, if any) and related
statements of income, changes in shareholders' equity, and cash flows (including
related notes and schedules, if any) with respect to periods ended subsequent to
December 31, 1995.
"TARGET Option" shall have the meaning set forth in Section 3.7 of this
Agreement.
"TARGET Stock Plans" shall mean the existing stock option and other stock-
based compensation plans of TARGET.
52
<PAGE>
"TARGET Subsidiaries" shall mean the Subsidiaries of TARGET, which shall
include the TARGET Subsidiaries described in Section 4.4 of this Agreement and
any Person acquired as a Subsidiary of TARGET in the future and owned by TARGET
at the Effective Time.
"TARGET Warrant" shall have the meaning set forth in Section 3.7 of this
Agreement.
"Taxes" shall mean any federal, state, county, local, foreign and other taxes,
assessments, charges, fares, and impositions, including interest and penalties
thereon or with respect thereto.
"Termination Fee" shall have the meaning provided in Section 10.2 of this
Agreement.
"Total Equity of TARGET" shall mean TARGET's total stockholders' equity
calculated under GAAP as of the close of business on the day immediately
preceding the Closing Date.
10.2 Expenses.
--------
(a) Except as otherwise provided in this Section 10.2, each of the
Parties shall bear and pay all direct costs and expenses incurred by it or on
its behalf in connection with the transactions contemplated hereunder, including
filing, registration and application fees, printing fees, and fees and expenses
of its own financial or other consultants, investment bankers, accountants, and
counsel (the "Expenses"), except that each of the Parties shall bear and pay
one-half of the filing fees payable in connection with the Registration
Statement and the Proxy Statement and printing costs incurred in connection with
the printing of the Registration Statement and the Proxy Statement.
(b) TARGET shall pay, or cause to be paid, in same day funds to
PURCHASER the sum of (i) all of PURCHASER's Expenses, plus (ii) $200,000 (the
"Termination Fee") upon demand if (A) TARGET terminates this Agreement pursuant
to Section 9.1(g) or (B) prior to the termination of this Agreement (other than
by TARGET pursuant to Section 9.1(b)), a takeover proposal shall have been made
and TARGET shall have entered into an agreement with respect to, or approves
or recommends or takes any action to facilitate, such takeover proposal. The
amount of Expenses so payable shall be the amount set forth in an estimate
delivered by PURCHASER, subject to an upward or downward adjustment.
10.3 Brokers and Finders. Except as Previously Disclosed, each of the
-------------------
Parties represents and warrants that neither it nor any of its officers,
directors, employees, or
53
<PAGE>
Affiliates has employed any broker or finder or incurred any Liability for any
financial advisory fees, investment bankers' fees, brokerage fees, commissions,
or finders' fees in connection with this Agreement or the transactions
contemplated hereby. In the event of a claim by any broker or finder based upon
its representing or being retained by or allegedly representing or being
retained by TARGET or PURCHASER, each of TARGET and PURCHASER, as the case may
be, agrees to indemnify and hold the other Party harmless of and from any
Liability in respect of any such claim.
10.4 Entire Agreement. Except as otherwise expressly provided herein,
----------------
this Agreement (including the documents and instruments referred to herein)
constitutes the entire agreement between the Parties with respect to the
transactions contemplated hereunder and supersedes all prior arrangements or
understandings with respect thereto, written or oral (except, as to Section
8.6(b) of this Agreement, with respect to the Confidentiality Agreements).
Nothing in this Agreement expressed or implied, is intended to confer upon any
Person, other than the Parties or their respective successors, any rights,
remedies, obligations, or liabilities under or by reason of this Agreement,
other than as provided in Section 7.13 of this Agreement.
10.5 Amendments. To the extent permitted by Law, this Agreement may be
----------
amended by a subsequent writing signed by each of the Parties upon the approval
of the Boards of Directors of each of the Parties; provided, however, that after
any such approval by the holders of TARGET Common Stock, there shall be made no
amendment decreasing the consideration to be received by TARGET shareholders
without the further approval of such shareholders.
10.6 Waivers.
-------
(a) Prior to or at the Effective Time, PURCHASER, acting through
its Board of Directors, chief executive officer or other authorized officer,
shall have the right to waive any Default in the performance of any term of this
Agreement by TARGET, to waive or extend the time for the compliance or
fulfillment by TARGET of any and all of its obligations under this Agreement,
and to waive any or all of the conditions precedent to the obligations of
PURCHASER under this Agreement, except any condition which, if not satisfied,
would result in the violation of any Law. No such waiver shall be effective
unless in writing signed by a duly authorized officer of PURCHASER .
(b) Prior to or at the Effective Time, TARGET, acting through its
Board of Directors, chief executive officer or other authorized officer, shall
have the right to waive any Default in the performance of any term of this
Agreement by PURCHASER, to waive or extend the time for the compliance or
fulfillment by PURCHASER of any and all of its obligations under this Agreement,
and to waive any or all of the conditions precedent to the
54
<PAGE>
obligations of TARGET under this Agreement, except any condition which, if not
satisfied, would result in the violation of any Law. No such waiver shall be
effective unless in writing signed by a duly authorized officer of TARGET.
(c) The failure of any Party at any time or times to require
performance of any provision hereof shall in no manner affect the right of such
Party at a later time to enforce the same or any other provision of this
Agreement. No waiver of any condition or of the breach of any term contained in
this Agreement in one or more instances shall be deemed to be or construed as a
further or continuing waiver of such condition or breach or a waiver of any
other condition or of the breach of any other term of this Agreement.
10.7 Assignment. Except as expressly contemplated hereby, neither this
----------
Agreement nor any of the rights, interests or obligations hereunder shall be
assigned by any Party hereto (whether by operation of Law or otherwise) without
the prior written consent of the other Party. Subject to the immediately
preceding sentence, this Agreement will be binding upon, inure to the benefit
of, and be enforceable by the Parties and their respective successors and
assigns.
10.8 Notices. All notices or other communications which are required or
-------
permitted hereunder shall be in writing and sufficient if delivered by hand, by
facsimile transmission, by registered or certified mail, postage pre-paid, or by
courier or overnight carrier, to the persons at the addresses set forth below
(or at such other address as may be provided hereunder), and shall be deemed to
have been delivered as of the date so delivered:
PURCHASER: ABC Bancorp
310 First Street, S.E.
Moultrie, Georgia 31768
Telecopy Number: (912) 890-2235
Attention: President
Copy to Counsel: Rogers & Hardin
2700 Cain Tower, Peachtree Center
229 Peachtree Street, N.E.
Atlanta, Georgia 30303
Telecopy Number: (404) 525-2224
Attention: Steven E. Fox, Esq.
TARGET: First National Financial Corporation
2627 Dawson Road
55
<PAGE>
Albany, Georgia 31707-1748
Telecopy Number: (912) 888-5359
Attention: President
Copy to Counsel: Smith, Gambrell & Russell
Suite 1800
3343 Peachtree Road, N.E.
Atlanta, Georgia 30326-1010
Telecopy Number: (404) 815-3509
Attention: Robert T. Molinet, Esq.
10.9 Governing Law. This Agreement shall be governed by and construed in
-------------
accordance with the Laws of the State of Georgia, without regard to any
applicable conflicts of Laws, except to the extent that the federal laws of the
United States may apply to the Merger.
10.10 Counterparts. This Agreement may be executed in one or more
------------
counterparts, each of which shall be deemed to be an original, but all of which
together shall constitute one and the same instrument.
10.11 Captions. The captions contained in this Agreement are for reference
--------
purposes only and are not part of this Agreement.
10.12 Enforcement of Agreement. The Parties hereto agree that irreparable
------------------------
damage would occur in the event that any of the provisions of this Agreement was
not performed in accordance with its specific terms or was otherwise breached.
It is accordingly agreed that the Parties shall be entitled to an injunction or
injunctions to prevent breaches of this Agreement and to enforce specifically
the terms and provisions hereof in any court of the United States or any state
having jurisdiction, this being in addition to any other remedy to which they
are entitled at law or in equity.
10.13 Severability. Any term or provision of this Agreement which is
------------
invalid or unenforceable in any jurisdiction shall, as to that jurisdiction, be
ineffective to the extent of such invalidity or unenforceability without
rendering invalid or unenforceable the remaining terms and provisions of this
Agreement or affecting the validity or enforceability of any of the terms or
provisions of this Agreement in any other jurisdiction. If any provision of
this Agreement is so broad as to be unenforceable, the provision shall be
interpreted to be only so broad as is enforceable.
56
<PAGE>
10.14 Survival. The respective representations, warranties, obligations,
--------
covenants and agreements of the Parties shall not survive the Effective Time or
the termination and abandonment of this Agreement, except that (i) Articles Two,
Three and Ten and Sections 7.6(b), 7.9, 7.11 and 7.13 of this Agreement shall
survive the Effective Time; and (ii) Sections 7.6(b), 7.8(b), 9.2, 10.2 and
10.14 shall survive the termination and abandonment of this Agreement.
IN WITNESS WHEREOF, each of the Parties has caused this Agreement to be
executed on its behalf and its corporate seal to be hereunto affixed and
attested by its officers as of the day and year first above written.
ATTEST: ABC BANCORP
/s/ Sara R. Hall By: /s/ Kenneth J. Hunnicutt
- ---------------- -----------------------------
Secretary Its: President
-------------------------
[CORPORATE SEAL]
ATTEST: FIRST NATIONAL FINANCIAL
CORPORATION
/s/ By /s/ Raymond B. Phillips
- ---------------- -----------------------------
Secretary Its: President
-------------------------
[CORPORATE SEAL]
57
<PAGE>
EXHIBIT 1
---------
OUTSTANDING INCENTIVE STOCK OPTIONS GRANTED PURSUANT TO
1991 INCENTIVE STOCK OPTION PLAN
<TABLE>
<CAPTION>
Option Exercise
Option Holder Shares Price
- --------------- ------ --------
<S> <C> <C>
Raymond B. Phillips 4,000 $10.50
4,000 $10.50
4,000 $12.00
John M. Hemphill 2,500 $10.50
2,500 $10.50
2,500 $12.00
JoAnn Kitchens 1,000 $10.50
1,000 $10.50
1,000 $12.00
Kathleen Lovelace 1,000 $10.50
1,000 $10.50
1,000 $12.00
Albert Vineyard 1,000 $10.50
1,000 $12.00
-----
Total 27,500
======
</TABLE>
STOCK OPTIONS GRANTED PURSUANT TO EMPLOYMENT CONTRACT
<TABLE>
<CAPTION>
Option Exercise
Option Holder Shares Price
- ----------------- ------ --------
<S> <C> <C>
Raymond B. Phillips 4,874 $10.00
4,874 $10.00
4,874 $10.00
4,874 $11.08
4,874* $11.08
-----
Total 24,370
======
</TABLE>
<PAGE>
* Pursuant to the terms of Mr. Phillips' Employment Contract, these options
will be granted to Mr. Phillips at the expiration of the Employment
Contract on May 29, 1996.
<PAGE>
OUTSTANDING STOCK PURCHASE WARRANTS
<TABLE>
<CAPTION>
Number of Exercise
Warrant Holder Warrants Price
- -------------- --------- --------
<S> <C> <C>
Willie Adams, Jr., M.D. 10,000 $10.00
Robert V. Barkley 10,000 $10.00
John L. Gay 15,000 $10.00
Waddell M. Hagins, Jr. 10,300 $10.00
C. Alex Kemp 12,500 $10.00
Glenn A. Kirbo 15,000 $10.00
W. Thomas Mitcham 15,000 $10.00
R. Douglas Oliver 10,000 $10.00
Raymond B. Phillips 10,000 $10.00
W. Paul Wallace, Jr. 10,000 $10.00
------
Total 117,800
=======
</TABLE>
<PAGE>
-2-
<PAGE>
EXHIBIT 2
---------
AFFILIATE AGREEMENT
-------------------
ABC Bancorp
310 First Street, S.E.
Moultrie, Georgia 31768
Attention: President
Ladies and Gentlemen:
The undersigned is a shareholder of First National Financial Corporation
("Target"), a corporation organized under the laws of the State of Georgia and
located in Albany, Georgia, and will become a shareholder of ABC Bancorp
("Purchaser") pursuant to the transactions described in the Agreement and Plan
of Merger, dated as of April 15, 1996 (the "Agreement"), by and between Target
and Purchaser. Under the terms of the Agreement, Target will be merged into and
with Purchaser (the "Merger"), and the shares of the $5.00 par value common
stock of Target ("Target Common Stock") will be converted into and exchanged for
shares of the $1.00 par value common stock of Purchaser ("Purchaser Common
Stock"). This Affiliate Agreement represents an agreement between the
undersigned and Purchaser regarding certain rights and obligations of the
undersigned in connection with the shares of Purchaser to be received by the
undersigned as a result of the Merger.
In consideration of the Merger and the mutual covenants contained herein, the
undersigned and Purchaser hereby agree as follows:
1. Affiliate Status. The undersigned understands and agrees that as to
----------------
Target the undersigned is an "affiliate" under Rule 145(c) as defined in Rule
405 of the Rules and Regulations of the Securities and Exchange Commission
("SEC") under the Securities Act of 1933, as amended ("1933 Act"), and the
undersigned anticipates that the undersigned will be such an "affiliate" at the
time of the Merger.
2. Covenants and Warranties of Undersigned. The undersigned represents,
---------------------------------------
warrants and agrees that:
<PAGE>
(a) The Purchaser Common Stock received by the undersigned as a result
of the Merger will be taken for his or her own account and not for others,
directly or indirectly, in whole or in part.
(b) Purchaser has informed the undersigned that any distribution by the
undersigned of Purchaser Common Stock has not been registered under the 1933 Act
and that shares of Purchaser Common Stock received pursuant to the Merger can
only be sold by the undersigned (i) following registration under the 1933 Act,
or (ii) in conformity with the volume and other requirements of Rule 145
(d) promulgated by the SEC as the same now exist or may hereafter be amended, or
(iii) to the extent some other exemption from registration under the 1933 Act
might be available. The undersigned understands that Purchaser is under no
obligation to file a registration statement with the SEC covering the
disposition of the undersigned's shares of Purchaser Common Stock.
(c) The undersigned agrees not to offer to sell, sell or otherwise
dispose of any shares of PURCHASER Common Stock until such time as financial
results covering at least 30 days of post-Merger combined operations have been
published, either by issuance of a quarterly earnings report on Form 10-Q or
other public issuance (such as a press release) which includes such information.
3. Restrictions on Transfer.
------------------------
(a) The undersigned understands and agrees that stop transfer instructions
with respect to the shares of Purchaser Common Stock received by the undersigned
pursuant to the Merger will be given to Purchaser's Transfer Agent and that
there will be placed on the certificates for such shares, or shares issued in
substitution thereof, a legend stating in substance:
"The shares represented by this certificate may not be sold, transferred or
otherwise disposed of except or unless (i) covered by an effective
registration statement under the Securities Act of 1933, as amended, (ii) in
accordance with (x) Rule 145(d) (in the case of shares issued to an
individual who is not an affiliate of Purchaser) or (y) Rule 144 (in the
---
case of shares issued to an individual who is an affiliate of Purchaser) of
the Rules and Regulations of such Act, or (iii) in accordance with a legal
opinion satisfactory to counsel for Purchaser that such sale or transfer is
otherwise exempt from the registration requirements of such Act."
(b) Such legend will also be placed on any certificate representing
Purchaser securities issued subsequent to the original issuance of the Purchaser
Common Stock pursuant to the Merger as a result of any stock dividend, stock
split, or other
2
<PAGE>
recapitalization as long as the Purchaser Common Stock issued to
the undersigned pursuant to the Merger has not been transferred in such manner
to justify the removal of the legend therefrom. In addition, if the provisions
of Rules 144 and 145 are amended to eliminate restrictions applicable to the
Purchaser Common Stock received by the undersigned pursuant to the Merger, or at
the expiration of the restrictive period set forth in Rule 145(d), Purchaser,
upon the request of the undersigned, will cause the certificates representing
the shares of Purchaser Common Stock issued to the undersigned in connection
with the Merger to be reissued free of any legend relating to the restrictions
set forth in Rules 144 and 145(d) upon receipt by Purchaser of an opinion of its
counsel to the effect that such legend may be removed.
4. Understanding of Restrictions on Dispositions. The undersigned has
---------------------------------------------
carefully read the Agreement and this Affiliate Agreement and discussed their
requirements and impact upon his or her ability to sell, transfer, or otherwise
dispose of the shares of Purchaser Common Stock received by the undersigned in
connection with the Merger, to the extent he or she believes necessary, with his
or her counsel or counsel for Target.
5. Filing of Reports by Purchaser. Purchaser agrees for a period of three
------------------------------
years after the effective date of the Merger, to file on a timely basis all
reports required to be filed by it pursuant to Section 13 of the Securities
Exchange Act of 1934, as amended, so that the public information provisions of
Rule 145(d) promulgated by the SEC as the same are presently in effect will be
available to the undersigned in the event the undersigned desires to transfer
any shares of Purchaser Common Stock issued to the undersigned pursuant to the
Merger.
6. Transfer Under Rule 145(d). If the undersigned desires to sell or
--------------------------
otherwise transfer the shares of Purchaser Common Stock received by him or her
in connection with the Merger at any time during the restrictive period set
forth in Rule 145(d), the undersigned will provide the necessary representation
letter to the Transfer Agent for Purchaser Common Stock, together with such
additional information as the Transfer Agent may reasonably request. If
Purchaser's counsel concludes that such proposed sale or transfer complies with
the requirements of Rule 145(d), Purchaser shall cause such counsel to provide
such opinions as may be necessary to Purchaser's Transfer Agent so that the
undersigned may complete the proposed sale or transfer.
7. Acknowledgments. The undersigned recognizes and agrees that the foregoing
---------------
provisions also apply with respect to Target Common Stock held by, and Purchaser
Common Stock issued in connection with the Merger to, (a) the undersigned's
spouse, (b) any relative of the undersigned or of the undersigned's spouse who
has the same home as the undersigned, (c) any trust or estate in which the
undersigned, the undersigned's spouse, and any such relative collectively own at
least a 10% beneficial interest or of which any of the
3
<PAGE>
foregoing serves as trustee, executor or in any similar capacity, and (d) any
corporation or other organization in which the undersigned, the undersigned's
spouse and any such relative collectively own at least 10% of any class of
equity securities or of the equity interest. The undersigned further recognizes
that, in the event that the undersigned is a director or executive officer of
Purchaser or becomes a director or executive officer of Purchaser upon
consummation of the Merger, among other things, any sale of Purchaser Common
Stock by the undersigned within a period of less than six months following the
effective time of the Merger may subject the undersigned to liability pursuant
to Section 16(b) of the Securities Exchange Act of 1934, as amended.
8. Miscellaneous. This Affiliate Agreement is the complete agreement
-------------
between Purchaser and the undersigned concerning the subject matter hereof. Any
notice required to be sent to any parry hereunder shall be sent by registered or
certified mail, return receipt requested, using the addresses set forth herein
or such other address as shall be furnished in writing by the parties. This
Affiliate Agreement shall be governed by the laws of the State of Georgia.
This Affiliate Agreement is executed as of the _____ day of ____________,
1996.
Very truly yours,
----------------------------
Signature
----------------------------
Print Name
----------------------------
----------------------------
----------------------------
----------------------------
Address
----------------------------
Telephone No.
AGREED TO AND ACCEPTED as of
- ----------------, 1996
4
<PAGE>
ABC BANCORP
By:_________________________
Its:_____________________
5
<PAGE>
EXHIBIT 3
---------
IRREVOCABLE PROXY
-----------------
This Irrevocable Proxy is given by the undersigned, ______________
("Shareholder"), in favor of ABC Bancorp, a Georgia corporation ("ABC"), as of
the ____ day of April, 1996.
WHEREAS, ABC and First National Financial Corporation, a Georgia corporation
("Target"), have entered into an Agreement and Plan of Merger dated as of
April 12, 1996 (the "Merger Agreement") (capitalized terms used but not defined
herein shall have the same meaning assigned to such terms in the Merger
Agreement), pursuant to which ABC proposes to acquire the entire equity interest
in Target by means of a merger (the "Merger") of Target with and into ABC;
WHEREAS, Shareholder owns, as of the date hereof, _________ shares of Target
Common Stock (the "Existing Shares", together with any shares of Target Common
Stock acquired after the date hereof and prior to the termination hereof,
hereinafter collectively referred to as the "Shares"); and
WHEREAS, ABC has entered into the Merger Agreement in reliance on
Shareholder's agreement to support the Merger, including the granting of
Shareholder's Irrevocable Proxy hereunder.
NOW, THEREFORE, with respect to the Merger Agreement and the transactions
contemplated thereby and in accordance with the Georgia Business Corporation
Code, Shareholder hereby irrevocably makes, constitutes and appoints ABC to act
as Shareholder's true and lawful proxy and attorney-in-fact in the name and on
behalf of Shareholder, solely for the limited purpose set forth herein, with
full power to appoint a substitute or substitutes solely for the limited purpose
set forth herein. Shareholder further directs ABC, and ABC hereby agrees, to
vote all of the Shares which are entitled to vote at any meeting of the
shareholders of Target (whether annual or special and whether or not an
adjourned meeting), or by written consent in the place and stead of Shareholder,
in favor of the Merger as set forth in the Merger Agreement. ABC shall have no
right to vote the shares with respect to any other matters. By giving this
proxy, Shareholder hereby revokes any other proxy granted by Shareholder at any
time with respect to the Shares and no subsequent proxies will be given with
respect thereto by Shareholder. THE PROXY GRANTED HEREBY IS COUPLED WITH AN
INTEREST AND IS IRREVOCABLE. The proxy granted hereby shall not be terminated by
any act of Shareholder or by operation of law, by lack of appropriate power of
authority, or by the occurrence of any other event or events and shall be
binding upon all beneficiaries, heirs at law, legatees, distributees,
successors, assigns and legal representatives of Shareholder. Shareholder agrees
to use all good faith efforts to cause any record owner of the Shares of which
Shareholder is the beneficial owner to grant to ABC a proxy of the same effect
as that contained herein. Shareholder shall perform such
<PAGE>
further acts and execute such further documents as may be required to vest in
ABC the sole power to vote the Shares during the term of the proxy granted
herein. The proxy granted herein shall expire on the earlier of (i) the date on
which ABC and Shareholder mutually consent in writing to terminate this
Irrevocable Proxy, (ii) the date of the Closing, or (iii) the termination of the
Merger Agreement in accordance with the terms thereof. Notwithstanding anything
herein to the contrary, the proxy granted hereby and power herein conferred upon
ABC (or any substitute or substitutes) may not be exercised prior to the receipt
by ABC and Target of the Consents of the Regulatory Authorities (as contemplated
by the Merger Agreement).
IN WITNESS WHEREOF, Shareholder has executed and delivered this Irrevocable
Proxy as of the date set forth above.
----------------------
(Name)
----------------------
(Signature)
2
<PAGE>
EXHIBIT 4
---------
NONCOMPETITION AGREEMENT
------------------------
This NONCOMPETITION AGREEMENT (the "Agreement") is executed as of the ___ day
of ______________, 1996, by and between ABC BANCORP, a Georgia corporation
("ABC"), and RAYMOND D. PHILLIPS (the "Shareholder").
W I T N E S S E T H:
- - - - - - - - - -
WHEREAS, pursuant to an Agreement and Plan of Merger dated as of
April 15, 1996 (the "Merger Agreement") by and among ABC and First National
Financial Corporation ("First National"), First National will merge with and
into ABC (the "Merger"), and each shareholder of First National will receive
shares of common stock of ABC in exchange for their shares of common stock of
First National;
WHEREAS, as a result of the Merger, ABC will acquire the business and goodwill
of First National and its wholly-owned subsidiary, First National Bank of South
Georgia (the "Bank");
WHEREAS, this Agreement has been entered into as a condition and inducement
to the Merger;
WHEREAS, the Bank is a full service bank, offering a wide range of financial
services, including deposit and credit services (the "Business");
WHEREAS, the Shareholder is a shareholder of First National, a Director and
executive officer of both First National and the Bank, and possesses extensive
knowledge of certain information that is deemed confidential by First National
and the Bank and is the subject of reasonable efforts by First National and/or
the Bank to maintain its confidentiality, including, but not limited to,
technical or non-technical data, formulas, compilations, programs, methods,
techniques, financial data, financial plans, product plans and lists of actual
or potential customers or suppliers (the "Trade Secrets"); and
WHEREAS, as a shareholder of First National, the Shareholder will benefit
from the Merger.
NOW, THEREFORE, in consideration of the mutual promises and covenants
contained herein, the parties intending to be legally bound agree as follows:
<PAGE>
1. Payment to Mr. Phillips. Upon execution and delivery of this Agreement,
-----------------------
ABC shall pay to Mr. Phillips the sum of Twenty-Five Thousand ($25,000.00)
Dollars and shall cause the Bank to transfer to Mr. Phillips title to that
certain 1994 Chevrolet S10 Blazer currently driven by him.
2. Term. The term of this Agreement shall commence on the date hereof and
----
shall continue for a period of three (3) years thereafter.
3. Non-Competition Agreement. During the term of this Agreement, the
-------------------------
Shareholder shall not, directly or indirectly, by himself, on behalf of or in
conjunction with any other person or legal entity, or for or on behalf of any
person, company or other entity, engage in any business in competition with the
Business of the Bank as presently conducted. This restriction shall apply to
the geographic area consisting of Dougherty County, Georgia (the "Territory").
The Shareholder is also prohibited during the term of this Agreement from owning
more than five percent (5%) of any bank or financial institution that engages in
any business in competition with the Business of the Bank in the Territory. The
Shareholder agrees that, because of his knowledge of the Trade Secrets of the
Bank, the Shareholder's competition with the Bank in the foregoing manner would
substantially and irreparably damage and impair the Business of the Bank.
4. Customer Protection. During the term of this Agreement, the Shareholder
-------------------
will not directly or indirectly, by himself, on behalf of or in conjunction with
any other person or legal entity, or for or on behalf of any other person,
company or entity, solicit or accept, or attempt to solicit or accept, any
business from any of the Bank's customers, for the purpose of providing products
or services competitive with those provided by the Bank in connection with the
Business as presently conducted. This restriction shall apply to the geographic
area consisting of the Territory.
5. Non-Solicitation of Employees. During the term of this agreement,
-----------------------------
the Shareholder, for his private purposes or as an employee, officer, director,
agent, customer, independent contractor or in any other relationship to any
person or entity, shall refrain from recruiting or hiring directly any employee
of the Bank, or assisting others in doing so, whether or not such other employee
has a written contract with the Bank.
6. Non-Disclosure. During the term of this Agreement, without ABC's prior
--------------
written consent, the Shareholder will not directly or indirectly, use, duplicate
or record, disclose, divulge or communicate to any person or entity in any
manner, any Trade Secret or other confidential information of the Bank.
2
<PAGE>
7. Injunctive Relief. Breach of any covenant herein by the Shareholder
-----------------
will result in irreparable harm to ABC for which there will be no adequate
remedy at law. Accordingly, upon any such breach, ABC will be entitled to an
injunction in action to any other rights and remedies, including the award of
damages, available at law or in equity. ABC will not have to prove money damages
to enforce any provision of this Agreement.
8. Benefit. This Agreement shall be binding upon the parties hereto, and
-------
shall operate for the benefit of the Shareholder and ABC and any of ABC's
successors and assigns.
9. Governing Law and Severability. This Agreement shall be governed by the
------------------------------
laws of Georgia. In the event that any term or provision of this Agreement is
held to be unreasonable, the same shall not fail, but shall be deemed amended
only to the extent necessary to render it reasonable, and the parties agree to
be bound by the same as thus amended. If any provision is determined by a court
to be invalid or unenforceable, and the court refuses to amend such provision to
render it enforceable, such provision shall be deemed severed from the remainder
of the Agreement and the remaining provisions shall continue in full force and
effect.
10. Entire Agreement. This Agreement constitutes the entire agreement of the
----------------
parties. Except as required pursuant to paragraph 8 hereof, no waiver or
modification of this Agreement of any covenant, condition or limitation shall be
valid unless in writing and signed by all parties.
11. Enforcement Costs. If any legal action or other proceeding is brought for
-----------------
the enforcement of this Agreement, or because of an alleged dispute, breach,
default or misrepresentation in connection with any provision of this Agreement,
the prevailing party shall be entitled to recover reasonable attorneys' fees,
court costs and all expenses (including, without limitation, all such fees,
costs and expenses incident to arbitration, appellate, bankruptcy and post-
judgment proceedings), incurred in that action or proceeding, in addition of any
other relief to which such party or parties may be entitled. Attorneys' fees
shall include, without limitation, paralegal fees, investigative fees, expert
witness fees, administrative costs and all other charges billed by the attorney
to the prevailing party.
IN WITNESS WHEREOF, the parties have executed this Agreement under seal, to be
effective as of the date set forth above.
SHAREHOLDER:
________________________(SEAL)
3
<PAGE>
[SIGNATURES CONTINUED ON PAGE 4]
4
<PAGE>
ABC BANCORP
By:______________________________
Its:__________________________
5
<PAGE>
EXHIBIT 4A
----------
NONCOMPETITION AGREEMENT
------------------------
This NONCOMPETITION AGREEMENT (the "Agreement") is executed as of the ___ day
of ______________, 1996, by and between ABC BANCORP, a Georgia corporation
("ABC"), and __________________ (the "Shareholder").
W I T N E S S E T H:
- - - - - - - - - -
WHEREAS, pursuant to an Agreement and Plan of Merger dated as of
April 15, 1996 (the "Merger Agreement") by and among ABC and First National
Financial Corporation ("First National"), First National will merge with and
into ABC (the "Merger"), and each shareholder of First National will receive
shares of common stock of ABC in exchange for their shares of common stock of
First National;
WHEREAS, as a result of the Merger, ABC will acquire the business and goodwill
of First National and its wholly-owned subsidiary, First National Bank of South
Georgia (the "Bank");
WHEREAS, this Agreement has been entered into as a condition and inducement to
the Merger;
WHEREAS, the Bank is a full service bank, offering a wide range of financial
services, including deposit and credit services (the "Business");
WHEREAS, the Shareholder is a shareholder of First National, a Director of
both First National and the Bank, and possesses extensive knowledge of certain
information that is deemed confidential by First National and the Bank and is
the subject of reasonable efforts by First National and/or the Bank to maintain
its confidentiality, including, but not limited to, technical or non-technical
data, formulas, compilations, programs, methods, techniques, financial data,
financial plans, product plans and lists of actual or potential customers or
suppliers (the "Trade Secrets"); and
WHEREAS, as a shareholder of First National, the Shareholder will benefit from
the Merger.
NOW, THEREFORE, in consideration of the mutual promises and covenants
contained herein, the parties intending to be legally bound agree as follows:
12. Term. The term of this Agreement shall commence on the date hereof and
----
shall continue for a period of three (3) years thereafter.
<PAGE>
EXHIBIT 23.1
CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
We hereby consent to the use of our report dated January 24, 1996
relating to the consolidated financial statements of ABC Bancorp included in the
Registration Statement on Form S-4 and to the reference of our Firm under the
caption "Experts" in the Prospectus/Proxy Statement.
/s/ Mauldin & Jenkins
MAULDIN & JENKINS
May 22, 1996
Albany, Georgia
<PAGE>
Exhibit 23.2
Independent Accountants' Consent
--------------------------------
The Board of Directors
Southland Bancorporation:
We consent to the use of our report included herein and to the reference to our
firm under the heading "Experts" in the prospectus.
Our report refers to a change in the method of accounting for income taxes in
1993 to adopt the provisions of Statement of Financial Accounting Standards No.
109, Accounting for Income Taxes and a change in the method of accounting for
investments in debt and equity securities to adopt the provisions of Statement
of Financial Accounting Standards No. 115, Accounting for Certain Investments in
Debt and Equity Securities, at January 1, 1994.
/s/ KPMG Peat Marwick LLP
KPMG PEAT MARWICK LLP
Atlanta, Georgia
May 22, 1996
<PAGE>
EXHIBIT 23.4
CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
We hereby consent to the use in this Registration Statement on Form S-4 of our
report dated February 9, 1996, relating to the financial statements of First
National Financial Corporation, Albany, Georgia, and to the reference to our
Firm under the caption "Experts" in the Prospectus.
/s/ Francis & Co; CPAs
- ------------------------
Francis & Co; CPAs
Atlanta, Georgia
May 20, 1996
<PAGE>
EXHIBIT 23.5
CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
We hereby consent to the use of our report dated January 26, 1996
relating to the consolidated financial statements of Central Bankshares, Inc.
included in the Registration Statement on Form S-4 and to the reference of our
Firm under the caption "Experts" in the Prospectus/Proxy Statement.
/s/ Mauldin & Jenkins
MAULDIN & JENKINS
May 22, 1996
Albany, Georgia
