<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON FEBRUARY 18, 1999
REGISTRATION NO. 333-_____
________________________________________________________________________________
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM S-4
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
______________________
CENTURY SOUTH BANKS, INC.
(Exact Name of Registrant as Specified in its Charter)
GEORGIA 6711 58-1455591
(State or other (Primary Standard Industrial (I.R.S. Employer
jurisdiction of incorporation or Classification Code Number) Identification
organization) No.)
60 MAIN STREET WEST
DAHLONEGA, GEORGIA 30533
706/864-1111
(Address, including zip code, and telephone number, including area code, of
registrant's principal executive offices)
JAMES A. FAULKNER
CENTURY SOUTH BANKS, INC.
60 MAIN STREET WEST
DAHLONEGA, GEORGIA 30533
706/864-3915
(Address, including zip code, and telephone number, including area code, of
agent for service)
WITH COPIES TO:
THOMAS O. POWELL, ESQUIRE ROBERT C. SCHWARTZ, ESQUIRE
TROUTMAN SANDERS LLP SMITH, GAMBRELL & RUSSELL, LLP
600 PEACHTREE STREET, N.E. 1230 PEACHTREE STREET, N.E.
SUITE 5200 SUITE 3100
ATLANTA, GEORGIA 30308-2216 ATLANTA, GEORGIA 30303
404/885-3294 404/815-3758
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE OF THE SECURITIES TO
THE PUBLIC: As soon as practicable after the effective date of this Registration
Statement and the effective time of the merger (the "Merger") of IBI Acquisition
Corp. (the "Merger Sub"), an Alabama corporation, with and into Independent
Bancorp, Inc., an Alabama corporation ("Independent"), as described in the
Agreement and Plan of Merger among Independent, Century South Banks, Inc.
("CSBI") and the Merger Sub, dated as of September 8, 1998 and amended as of
November 8, 1998 (the "Merger Agreement") attached as Appendix A to the Proxy
Statement/Prospectus forming a part of this Registration Statement.
If the securities being registered on this form are being offered in
connection with the formation of a holding company and there is compliance with
General Instruction G, check the following box. [_]
If this form is filed to register additional securities for an
offering pursuant to Rule 462(b) under the Securities Act, check the following
box and list the Securities Act registration number of the earlier effective
registration statement for the same offering. [_]
If this form is a post-effective amendment filed pursuant to Rule
462(d) under the Securities Act, check the following box and list the Securities
Act registration number of the earlier effective registration statement for the
same offering. [_]
<PAGE>
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------
TITLE OF EACH CLASS PROPOSED MAXIMUM PROPOSED MAXIMUM
OF SECURITIES TO BE AMOUNT TO BE OFFERING PRICE AGGREGATE AMOUNT OF
REGISTERED REGISTERED/(1)/ PER SHARE/(2)/ OFFERING PRICE/(3)/ REGISTRATION FEE
- -----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Common Stock, $1.00
par value 699,186 $9.65 $6,746,700 $1,890
- -------------------------------------------------------------------------------------------------------------
</TABLE>
/(1)/ The number of shares to be registered is based upon an estimate of the
maximum number of shares of common stock of CSBI to be issued to the
shareholders of Independent pursuant to the Merger.
/(2)/ Represents the quotient obtained by dividing (i) the proposed maximum
aggregate offering price (determined as described in note (3) below) by
(ii) the number of shares of CSBI Common Stock being registered hereunder.
/(3)/ Computed in accordance with Rule 457(f)(2) based on the book value, as of
February 16, 1999, of the maximum number of shares of Independent Common
Stock (215,000) to be received by CSBI in exchange for the securities
registered hereby.
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OF 1933 OR UNTIL THIS REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE SECURITIES AND EXCHANGE COMMISSION, ACTING
PURSUANT TO SAID SECTION 8(A), MAY DETERMINE.
THIS PROXY STATEMENT/PROSPECTUS INCORPORATES BY REFERENCE CERTAIN
DOCUMENTS RELATING TO CSBI THAT ARE NOT PRESENTED HEREIN OR DELIVERED HEREWITH.
SUCH DOCUMENTS ARE AVAILABLE WITHOUT CHARGE UPON REQUEST FROM: CENTURY SOUTH
BANKS, INC., 60 MAIN STREET WEST, DAHLONEGA, GEORGIA 30533, ATTENTION: CORPORATE
SECRETARY, 706/864-1111. IN ORDER TO ENSURE TIMELY DELIVERY OF THE DOCUMENTS,
ANY REQUESTS SHOULD BE MADE NO LATER THAN FIVE (5) BUSINESS DAYS BEFORE THE
SPECIAL MEETING OF INDEPENDENT SHAREHOLDERS, OR BY [_______], 1999.
- --------------------------------------------------------------------------------
<PAGE>
INDEPENDENT BANCORP, INC.
MERGER PROPOSED--YOUR VOTE IS
VERY IMPORTANT
Dear Independent Shareholder:
The Board of Directors of Independent Bancorp, Inc. has approved a merger
in which Independent will become a wholly-owned subsidiary of Century South
Banks, Inc. We are sending you this proxy statement/prospectus to ask you to
vote in favor of the merger.
In the merger, each share of your Independent common stock (excluding
shares held by Independent shareholders who perfect their dissenter's rights)
will be converted into the right to receive a number of shares of CSBI common
stock which will be determined by a formula. This number of shares is the
exchange ratio. The precise exchange ratio will depend upon the market value of
CSBI common stock immediately prior to the effective time of the merger. If the
market value of CSBI's common stock is less than or equal to $30.75, the
exchange ratio will be 3.2520; if the market value is greater than or equal to
$31.50, the ratio will be 3.1746; and if the market value is between $30.75 and
$31.50 the exchange ratio will be between 3.2520 and 3.1746.
The merger will turn your Independent shares into shares of a publicly-
traded, larger and more diversified financial services company.
YOUR VOTE IS VERY IMPORTANT. The merger cannot be completed without the
approval of Independent shareholders. Whether or not you plan to attend the
shareholder meeting, please take the time to vote by completing and mailing the
enclosed proxy card. If you sign, date and mail your proxy card without
indicating how you want to vote, we will vote your proxy in favor of the merger.
If you do not return your card, the effect will be a vote against the merger.
We strongly support the acquisition of Independent by CSBI and join with
the other members of the Board in enthusiastically recommending that you vote in
favor of the merger.
THIS PROXY STATEMENT/PROSPECTUS PROVIDES DETAILED INFORMATION ABOUT THE MERGER.
YOU SHOULD READ IT CAREFULLY. THE MERGER INVOLVES CERTAIN RISKS. SEE "RISK
FACTORS" ON PAGE [_] OF THIS PROXY STATEMENT/PROSPECTUS.
The date, time and place of the special meeting are:
March __, 1999, _____ p.m.
Independent Bancorp, Inc.
402 Main Street
Oxford, Alabama 36203
------------------------------- ----------------------------------
Fred M. Denney Joel B. Carter
Chairman of the Board Chief Executive Officer
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES
REGULATOR HAS APPROVED THE SECURITIES TO BE ISSUED UNDER THIS PROXY
STATEMENT/PROSPECTUS OR DETERMINED IF THIS PROXY STATEMENT/PROSPECTUS IS
ACCURATE OR ADEQUATE. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
THESE SECURITIES ARE NOT SAVINGS OR DEPOSIT ACCOUNTS OR OTHER OBLIGATIONS OF ANY
BANK OR NON-BANK SUBSIDIARY OF ANY OF THE PARTIES, AND THEY ARE NOT INSURED BY
THE FEDERAL DEPOSIT INSURANCE CORPORATION, THE BANK INSURANCE FUND OR ANY OTHER
GOVERNMENTAL AGENCY.
This proxy statement/prospectus is dated March __, 1999
and was first mailed to shareholders on or about March __, 1999.
<PAGE>
INDEPENDENT BANCORP, INC.
402 MAIN STREET
OXFORD, ALABAMA 36203
NOTICE OF SPECIAL MEETING OF SHAREHOLDERS
March __, 1999
To the Shareholders of Independent Bancorp, Inc.:
NOTICE IS HEREBY GIVEN that a special meeting of shareholders ("Special
Meeting") of Independent Bancorp, Inc. ("Independent") will be held at the main
office of Independent, located at 402 Main Street, Oxford, Alabama, at [___
p.m.], local time, on March __, 1999, for the following purposes:
1. To consider and vote upon a proposal to approve the Agreement and Plan
of Merger, dated as of September 8, 1998 and amended as of November 8, 1998 (the
"Merger Agreement"), by and among Independent, Century South Banks, Inc.
("CSBI") and IBI Acquisition Corp., a wholly owned subsidiary of CSBI (the
"Merger Sub"), pursuant to which, among other matters, the Merger Sub will merge
with and into Independent (the "Merger") and the shares of Independent will be
converted into the right to receive shares of common stock of CSBI, all as more
fully described in the accompanying Proxy Statement/Prospectus. A copy of the
Merger Agreement is set forth in Appendix A to the accompanying Proxy
Statement/Prospectus and is hereby incorporated by reference herein.
2. To transact such other business as may properly come before the
Independent Special Meeting or any adjournments thereof.
Only shareholders of record at the close of business on February __, 1999
are entitled to receive notice of and to vote at the Special Meeting or any
adjournments thereof. Approval of the Merger Agreement and the consummation of
the transactions contemplated thereby requires the affirmative vote of the
holders of two-thirds of the shares of Independent common stock entitled to vote
at the Independent Special Meeting.
THE BOARD OF DIRECTORS OF INDEPENDENT UNANIMOUSLY RECOMMENDS THAT
SHAREHOLDERS VOTE FOR APPROVAL OF THE MERGER AGREEMENT AND CONSUMMATION OF THE
TRANSACTIONS CONTEMPLATED THEREBY.
NOTICE OF RIGHT TO DISSENT. IF PROPOSAL 1 ABOVE IS APPROVED AND THE MERGER
CONTEMPLATED THEREIN IS CONSUMMATED, EACH SHAREHOLDER OF INDEPENDENT WILL HAVE
THE RIGHT TO DISSENT FROM APPROVAL OF THE MERGER AND WILL BE ENTITLED TO THE
RIGHTS AND REMEDIES OF DISSENTING SHAREHOLDERS PROVIDED IN ARTICLE 13 ("ARTICLE
13") OF THE ALABAMA BUSINESS CODE ANNOTATED (THE "ABCA"). THE RIGHT OF ANY SUCH
SHAREHOLDER TO ANY DISSENTERS' RIGHTS IS CONTINGENT UPON CONSUMMATION OF THE
MERGER AND UPON STRICT COMPLIANCE WITH THE REQUIREMENTS SET FORTH IN ARTICLE 13,
THE FULL TEXT OF WHICH IS SET FORTH AS APPENDIX C TO THE ACCOMPANYING PROXY
STATEMENT/PROSPECTUS. FOR A SUMMARY OF THE REQUIREMENTS OF ARTICLE 13, SEE "THE
MERGER - DISSENTERS' RIGHTS OF APPRAISAL" IN THE ACCOMPANYING PROXY
STATEMENT/PROSPECTUS.
BY ORDER OF THE BOARD OF DIRECTORS
Oscar B. Cotton, Secretary
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
<S> <C>
SUMMARY........................................................................................... 1
The Companies.................................................................................... 1
The Merger....................................................................................... 1
What Independent Shareholders Will Receive....................................................... 1
Reasons for the Merger........................................................................... 1
The Independent Shareholders' Meeting............................................................ 1
Independent Board of Directors' Recommendation to Independent Shareholders....................... 1
Record Date; Voting Power........................................................................ 2
Vote Required.................................................................................... 2
Interests of Persons Involved in the Merger that are Different From Yours........................ 2
Conditions to the Merger......................................................................... 2
Termination of the Merger Agreement.............................................................. 2
Regulatory Approvals............................................................................. 2
Accounting Treatment............................................................................. 2
Important Federal Tax Consequences............................................................... 3
Dissenters' Rights............................................................................... 3
Market Prices of CSBI and Independent Common Stock; Dividend Payments............................ 4
CSBI and Independent Selected Historical Financial Data.......................................... 5
RISK FACTORS...................................................................................... 8
Integration of Acquired Banks and Businesses; Business Combinations.............................. 8
Management of Growth............................................................................. 8
Interests of Certain Persons in the Merger....................................................... 8
Competition...................................................................................... 8
Possible Volatility of Stock Price............................................................... 8
Risk from General Economic Conditions............................................................ 9
Risks Relating to Year 2000 Issue................................................................ 9
Anti-Takeover Effect of Certain Charter and Bylaw Provisions..................................... 9
WHERE YOU CAN FIND ADDITIONAL INFORMATION......................................................... 10
INFORMATION INCORPORATED BY REFERENCE............................................................. 11
A WARNING ABOUT FORWARD-LOOKING STATEMENTS........................................................ 11
INFORMATION CONCERNING THE INDEPENDENT SPECIAL MEETING............................................ 12
General.......................................................................................... 12
The Special Meeting.............................................................................. 12
Matters to be Considered......................................................................... 12
Vote Required.................................................................................... 12
Voting of Proxies................................................................................ 12
Revocability of Proxies.......................................................................... 13
Solicitation of Proxies.......................................................................... 13
Recommendation of the Independent Board.......................................................... 13
THE MERGER........................................................................................ 14
General.......................................................................................... 14
Background of the Merger......................................................................... 14
Independent's Reasons for the Merger............................................................. 14
CSBI's Reasons for the Merger.................................................................... 15
Merger Consideration............................................................................. 15
Fractional Shares................................................................................ 15
Opinion of Independent's Financial Advisor....................................................... 15
Effective Time................................................................................... 17
Distribution of CSBI Certificates................................................................ 17
</TABLE>
i
<PAGE>
Certain Federal Income Tax Consequences..................................... 18
Management and Operations after the Merger.................................. 19
Interests of Certain Persons in the Merger.................................. 19
Conditions to Consummation.................................................. 20
Regulatory Approvals........................................................ 21
Amendment, Waiver, and Termination.......................................... 22
Conduct of Business Pending the Merger...................................... 23
Expenses and Fees........................................................... 24
Accounting Treatment........................................................ 24
Resales of CSBI Common Stock................................................ 24
Dissenters' Rights of Appraisal............................................. 24
PRO FORMA COMBINED FINANCIAL DATA............................................ 27
DESCRIPTION OF INDEPENDENT................................................... 32
General..................................................................... 32
Market Area................................................................. 32
Lending Activities.......................................................... 32
Deposits.................................................................... 33
Investments................................................................. 33
Competition................................................................. 33
Employees................................................................... 34
Description of Property..................................................... 34
Legal Proceedings........................................................... 34
Ownership of Independent Common Stock....................................... 34
INDEPENDENT BANCORP, INC. MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS............................. 35
General..................................................................... 35
Summary..................................................................... 35
Financial Condition......................................................... 35
Balance Sheet Management.................................................... 36
Results of Operations....................................................... 36
Effects of Inflation and Changing Prices.................................... 38
Net Interest Income......................................................... 39
Liability and Asset Management.............................................. 41
Deposits.................................................................... 42
Assets...................................................................... 43
Investment Portfolio........................................................ 43
Investment Policy........................................................... 45
Loan Portfolio.............................................................. 46
Loan Policy................................................................. 47
Credit Risk Management and Reserve for Loan Losses.......................... 48
Capital Resources/Liquidity................................................. 50
Capital Adequacy............................................................ 50
CERTAIN DIFFERENCES IN THE RIGHTS OF INDEPENDENT SHAREHOLDERS AND
CSBI SHAREHOLDERS............................................................ 52
Authorized Capital Stock.................................................... 52
Directors................................................................... 52
Voting Requirements Generally............................................... 53
Dividends................................................................... 53
Conversion and Dissolution.................................................. 54
Amendment or Repeal of the Articles of Incorporation and Bylaws............. 54
Dissenters' Rights.......................................................... 54
Special Meetings of Shareholders............................................ 55
Liability of Directors...................................................... 55
Advance Notice Provisions for Certain Actions............................... 55
Indemnification of Directors and Officers................................... 55
Changes in Control.......................................................... 56
ii
<PAGE>
<TABLE>
<S> <C>
Preemptive Rights ............................................................................... 57
CERTAIN REGULATORY CONSIDERATIONS................................................................. 57
General.......................................................................................... 57
Capital and Operational Requirements............................................................. 58
Distributions.................................................................................... 59
"Source of Strength" Policy...................................................................... 59
EXPERTS........................................................................................... 59
LEGAL MATTERS..................................................................................... 59
OTHER MATTERS..................................................................................... 59
INDEX TO FINANCIAL STATEMENTS
Independent Financial Statements................................................................. F-1
</TABLE>
Appendix A - Agreement and Plan of Merger, dated as of September 8, 1998 and
amended as of November 8, 1998, by and among Independent Bancorp, Inc., Century
South Banks, Inc. and IBI Acquisition Corp.
Appendix B - ABCA Dissenters' Rights
Appendix C - Opinion of T. Stephen Johnson & Associates, Inc.
iii
<PAGE>
________________________________________________________________________________
SUMMARY
This summary highlights selected information from this document and may not
contain all of the information that is important to you. To understand the
merger fully, and for more complete descriptions of the legal terms of the
merger, you should read carefully this entire document and the documents we have
referred you to. (The term "we" refers to both CSBI and Independent together.)
THE COMPANIES
CENTURY SOUTH BANKS, INC.
60 Main Street West
Dahlonega, Georgia 30533
(706)864-1111
CSBI is a bank holding company. Through its banking subsidiaries, CSBI
provides a wide range of commercial and retail banking services in Georgia and
Tennessee.
INDEPENDENT BANCORP, INC.
402 Main Street
Oxford, Alabama 36203
(256)835-1776
Independent is a bank holding company. Through its banking subsidiary, The
Independent Bank of Oxford, Independent provides a wide range of commercial and
retail banking services in Oxford and Anniston, Alabama.
THE MERGER
The acquisition of Independent by CSBI is governed by a merger agreement.
We encourage you to read the merger agreement, which is attached as Appendix A.
WHAT INDEPENDENT SHAREHOLDERS WILL RECEIVE
As a result of the merger, Independent shareholders will receive a number
of shares of CSBI common stock for each share of Independent common stock that
they own. The number of shares will be determined by a formula which provides
an exchange ratio. The precise exchange ratio will depend upon the market value
of CSBI common stock immediately prior to the effective time of the merger. If
the market value of CSBI's common stock is less than or equal to $30.75, the
exchange ratio will be 3.2520; if the market value is greater than or equal to
$31.50, the ratio will be 3.1746; and if the market value is between $30.75 and
$31.50, the exchange ratio will be between 3.2520 and 3.1746. The merger will
turn your Independent shares into shares of a publicly-traded, larger and more
diversified financial services company. The number of shares of CSBI common
stock will be reduced in the event that certain merger-related expenses of
Independent exceed $100,000.
Independent shareholders should not send in their stock certificates until
requested to do so after the merger is completed.
REASONS FOR THE MERGER
The board of directors of Independent believes that the merger will create
value for Independent's shareholders. It also believes that CSBI is offering a
fair price to Independent shareholders for their Independent common shares. The
merger will turn your Independent shares into shares of a publicly-traded,
larger and more diversified financial services company. The board of directors
of Independent believes that the merger will enable Independent to serve its
customers better than its competitors by offering more diverse products and
services. In addition, since CSBI's subsidiaries are operated as community
banks, the board believes that the same commitment to customer service now
existing at Independent will continue following the merger.
To review the reasons for the merger in greater detail, as well as the
uncertainties, see pages [____].
THE INDEPENDENT SHAREHOLDERS' MEETING
The Special Meeting of Independent shareholders to vote on the merger will
be held at 402 Main Street, Oxford, Alabama, at [__] p.m., on March __, 1999.
INDEPENDENT BOARD OF DIRECTORS' RECOMMENDATION TO INDEPENDENT SHAREHOLDERS
The board of directors of Independent believes that the merger is in the
best interest of Independent shareholders and recommends that you vote "FOR" the
proposal to approve the merger agreement.
________________________________________________________________________________
1
<PAGE>
________________________________________________________________________________
RECORD DATE; VOTING POWER
You may vote at the Independent special meeting if you owned Independent
shares as of the close of business on February __, 1999. You will have one vote
for each share of Independent common stock you owned on that date.
VOTE REQUIRED
The merger must be approved by the holders of at least two-thirds of the
shares of Independent common stock.
INTERESTS OF PERSONS INVOLVED IN THE MERGER THAT ARE DIFFERENT FROM YOURS
Independent's officers and directors may have interests in the merger that
differ from the interests of Independent shareholders generally, including
employment and bonus arrangements for officers and continuation of their
services as directors.
CONDITIONS TO THE MERGER
The completion of the merger depends on the fulfillment of a number of
conditions, including the following:
. Independent shareholders must approve the merger agreement;
. we must receive all required regulatory approvals and any waiting periods
required by law must have passed;
. we must receive a legal opinion confirming the tax-free nature of the
transaction;
. each parties' representations and warranties, which are contained in the
merger agreement, must be accurate in all material respects;
. each party shall have delivered officers' certificates and its counsel's
legal opinions to the other; and
. shares of CSBI's common stock issuable pursuant to the merger must be
approved for listing on NASDAQ.
Unless prohibited by law, either CSBI or Independent can elect to waive a
condition that has not been satisfied and complete the merger anyway. We cannot
be certain whether or when any of these conditions will be satisfied, or waived
where permissible, or that we will complete the merger.
TERMINATION OF THE MERGER AGREEMENT
Notwithstanding the approval of the merger by the Independent shareholders
at the Independent special meeting, CSBI and Independent can agree at any time
to terminate the Merger Agreement before completing the merger.
Either CSBI or Independent can also terminate the Merger Agreement:
. if more than two-thirds of Independent's shareholders fail to approve the
merger;
. if the other party materially violates any of its representations or
warranties under the merger agreement and fails to cure such violation;
. if we do not complete the merger by June 30, 1999;
. if any government body whose approval is necessary to complete the merger
makes a final decision not to approve the merger; or
. if the conditions to the obligations of a party to complete the merger cannot
be satisfied by June 30, 1999.
CSBI can also terminate the merger if Independent receives an acquisition
offer from a third party and the board of directors of Independent fails to
reaffirm the merger at the request of CSBI.
REGULATORY APPROVALS
We cannot complete the merger unless we obtain the approval of the Board of
Governors of the Federal Reserve System. In addition, the merger is subject to
the approval of the Superintendent of Banks in Alabama and the Department of
Banking and Finance in Georgia.
While we do not know of any reason why we would not obtain the regulatory
approvals in a timely manner, we cannot be certain when or if we will obtain
them.
ACCOUNTING TREATMENT
We expect the merger to qualify as a pooling of interests, which means that
CSBI will treat CSBI and Independent as if they had always been
________________________________________________________________________________
2
<PAGE>
________________________________________________________________________________
combined for accounting and financial reporting purposes.
IMPORTANT FEDERAL TAX CONSEQUENCES
We expect that the merger will be tax-free to Independent shareholders for
federal income tax purposes (except for tax payable because of cash received for
fractional shares or pursuant to the exercise of dissenters' rights).
DISSENTERS' RIGHTS
Alabama law permits Independent shareholders to dissent from the merger and
to have their shares appraised and the fair value paid to them in cash. To do
this, Independent shareholders must follow certain procedures, including filing
notices with Independent, and either ABSTAINING FROM VOTING OR VOTING AGAINST
the merger. If you hold shares of Independent common stock and you follow the
required formalities, your Independent shares will not become shares of CSBI
common stock. Instead, your only right will be to receive the appraised value of
your Independent shares in cash. See "THE MERGER - Dissenters' Rights of
Appraisal."
________________________________________________________________________________
3
<PAGE>
________________________________________________________________________________
MARKET PRICES OF CSBI AND INDEPENDENT COMMON STOCK; DIVIDEND PAYMENTS
<TABLE>
<CAPTION>
Cash Cash
Sales Price Per Share of Dividend Sales Price Per Share of Dividend
CSBI Common Stock Declared Independent Common Stock Declared(1)
----------------- -------- ------------------------ --------
High Low High Low
---- --- ---- ---
<S> <C> <C> <C> <C> <C> <C>
1996
First Quarter $16.75 $13.75 $0.09750 .45
Second Quarter 15.25 13.50 0.09875 -0-
Third Quarter 17.50 14.50 0.10000 .45
Fourth Quarter 19.00 16.25 0.10125 -0-
1997
First Quarter 20.50 17.75 0.10250 22.00 .50
Second Quarter 20.00 18.00 0.10375 18.50 -0-
Third Quarter 20.38 18.00 0.10500 19.00 .50
Fourth Quarter 25.00 19.75 0.10625 -0-
1998
First Quarter 25.75 23.50 0.10750 .52
Second Quarter 38.25 24.50 0.10875 -0-
Third Quarter 38.00 25.00 0.11000 -0- .81
Fourth Quarter 30.50 28.75 0.11125 -0- .27
1999
First Quarter
(through February
__, 1999
- ---------------
(1) Through July 1998, dividends for Independent were declared and paid on a
semi-annual basis. Such dividend declarations were made based on the results
of operations of the previous six month period and were declared immediately
subsequent to the related six month period. The dividends were paid based on
dividends received from Independent's bank subsidiary. Semi-annual dividends
of $0.52 and $0.54 were paid in January 1998 and July 1998, respectively
under this policy. In July 1998, Independent adopted a quarterly dividend
policy effective with the September 30, 1998 quarter in order to provide for
a dividend payment schedule consistent with CSBI shareholders until such
time that the merger was closed. In September 1998 and December 1998,
Independent declared and paid regular dividends of $0.27 and $0.27, for the
third and fourth quarter, respectively.
</TABLE>
________________________________________________________________________________
4
<PAGE>
________________________________________________________________________________
CSBI AND INDEPENDENT SELECTED HISTORICAL FINANCIAL DATA
<TABLE>
<CAPTION>
At or for the Years Ended December 31,
1998 1997 1996
<S> <C> <C> <C>
CSBI COMMON STOCK
Net income per common share:
Historical - basic $ 1.34 $ 0.89 $ 1.18
Historical - diluted $ 1.32 $ 0.87 $ 1.15
Pro forma CSBI and Independent combined - diluted $ 1.30 $ 0.93 $ 1.18
Dividends per common share:
Historical $ 0.44 $ 0.42 $ 0.40
Book Value per common share:
Historical $10.85 $10.04 $ 9.44
Pro forma CSBI and Independent combined - (1) $10.77 $ 9.99 $ 9.32
IBC COMMON STOCK
Net income per common share:
Historical - basic $ 3.24 $ 6.22 $ 5.30
Historical - diluted $ 3.24 $ 6.22 $ 5.30
Equivalent pro forma CSBI and Independent
combined (2) - diluted $ 4.23 $ 3.02 $ 3.84
Dividends per common share:
Historical $ 1.60 $ 1.00 $ 0.90
Equivalent pro forma combined (3) $ 1.43 $ 1.37 $ 1.30
Book Value per common share:
Historical $31.37 $29.56 $23.94
Equivalent pro forma CSBI and Independent combined (2) $35.02 $32.48 $30.30
</TABLE>
(1) Determined by dividing pro forma combined shareholder's equity by pro forma
shares outstanding as follows:
EQUITY SHARES
12/31/98 126,076,552 11,701,513
(2) Determined by multiplying the applicable pro forma amount by the assumed
exchange ratio of 3.2520 to 1.
(3) Determined by multiplying the applicable CSBI historical amount by the
assumed exchange ratio of 3.2520 to 1.
________________________________________________________________________________
5
<PAGE>
________________________________________________________________________________
CENTURY SOUTH BANKS, INC. AND SUBSIDIARIES
Selected Financial Data
(Unaudited)
<TABLE>
<CAPTION>
AS OF OR FOR THE YEARS ENDED DECEMBER 31,
--------------------------------------------------------------------
1998 1997 1996 1995 1994
---- ---- ---- ---- ----
(Amounts in thousands, except per share data and percentages)
<S> <C> <C> <C> <C> <C>
SUMMARY OF OPERATIONS:
Net interest income $ 53,394 $ 50,458 $ 48,218 $ 44,411 $ 38,689
Provision for possible loan losses 1,772 5,201 2,166 2,159 1,390
Net income 14,681 9,632 12,683 10,759 9,300
PER SHARE DATA:
Net income - basic 1.34 0.89 1.18 1.02 0.90
Net income - diluted 1.32 0.87 1.15 1.00 0.88
Cash dividends declared 0.44 0.42 0.40 0.38 0.34
Book value 10.85 10.04 9.44 8.64 7.54
Tangible book value 10.42 9.37 8.70 7.91 6.70
BALANCE SHEET SUMMARY:
Investments 143,561 178,804 192,937 193,398 196,207
Loans, net 776,389 746,392 688,431 647,352 592,860
Deposits 912,953 960,336 928,971 850,530 802,761
Assets 1,054,952 1,088,368 1,051,399 976,203 917,484
Long-term debt and
other borrowings:
Federal Home Loan
Bank advances 12,780 6,881 6,982 14,183 15,183
Other long-term debt 35 39 1,741 6,327 8,774
Other borrowings - 1,500 - 501 1,850
Average shareholders' equity 114,367 105,735 96,312 86,937 77,024
Average total assets 1,060,852 1,052,695 1,004,260 928,238 855,343
FINANCIAL RATIOS:
Net income to average assets 1.38% 0.91% 1.26% 1.16% 1.09%
Overhead ratio/(a)/ 2.78 3.03 2.80 2.95 3.03
Net income to average
shareholders' equity 12.84 9.11 13.17 12.38 12.07
Dividend payout ratio/(b)/ 32.73 37.04 24.32 21.41 17.46
Average shareholder's equity to
average total assets 10.78 10.04 9.59 9.37 9.01
</TABLE>
/(a)/ Represents noninterest expense less noninterest income divided by average
assets.
/(b)/ Represents dividends declared divided by net income, including pooled
subsidiaries.
________________________________________________________________________________
6
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INDEPENDENT BANCORP, INC. AND SUBSIDIARY
Selected Financial Data
(Unaudited)
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
1998 1997 1996 1995
- -----------------------------------------------------------------------------------------------------------------
(Amounts in thousands, except per share data and percentages)
<S> <C> <C> <C> <C>
SUMMARY OF OPERATIONS
Net interest income $ 3,473 $ 3,145 $ 2,619 $ 2,202
Provision for possible loan losses 1,364 196 184 102
Net income 697 1,337 1,140 832
PER SHARE DATA
Net income - basic 3.24 6.22 5.30 3.87
Net income - diluted 3.24 6.22 5.30 3.87
Cash dividends declared 1.60 1.00 0.90 0.84
Book value 31.38 29.56 23.94 19.82
Tangible book value 31.33 29.49 23.84 19.67
BALANCE SHEET SUMMARY
Investments 28,005 25,888 23,036 18,300
Loans, net 57,464 50,559 40,692 34,303
Deposits 83,355 73,442 62,268 54,625
Average shareholders' equity 6,493 5,653 4,905 3,850
Average total assets 90,001 76,374 66,222 55,521
FINANCIAL RATIOS
Net income to average assets 0.77% 1.75% 1.72% 1.50%
Overhead ratio (a) 1.59% 1.53% 1.70% 1.92%
Net income to average 10.73% 23.65% 23.24% 21.61%
shareholders' equity
Dividend payout ratio (b) 49.35% 16.08% 17.02% 21.75%
Average shareholders' equity to
average total assets 7.21% 7.40% 7.41% 6.93%
</TABLE>
(a) Represents noninterest expense less noninterest income divided by average
assets.
(b) Represents dividends declared divided by net income.
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RISK FACTORS
In addition to the other information included in or incorporated by
reference into this Proxy Statement/Prospectus and the appendices hereto, the
following factors should be considered carefully in evaluating the Merger.
INTEGRATION OF ACQUIRED BANKS AND BUSINESSES; BUSINESS COMBINATIONS
CSBI is continually evaluating acquisition opportunities and frequently
conducts due diligence activities in connection with possible acquisitions. As
a result, acquisition discussions and, in some cases, negotiations frequently
take place, and future acquisitions involving cash, debt or equity securities
could occur. On December 16, 1997, CSBI acquired Bank Corporation of Georgia
("BCG"). The acquisition of BCG, Independent and any other banks or businesses
will be accompanied by the risks commonly associated with acquisitions. These
risks include potential exposure to unknown liabilities of acquired banks and
businesses, the difficulty and expense of integrating the operations and
personnel of the banks or businesses, the potential disruption to the business
of CSBI, the potential diversion of management time and attention, the
impairments of relationships with and the possible loss of key employees and
customers of the acquired banks or businesses, the incurrence of amortization
expenses if an acquisition is accounted for as a purchase and dilution to the
shareholders of CSBI if the acquisition is made for stock. The risks associated
with the acquisition of Independent (as well as other acquisitions) could have a
material adverse effect on CSBI and the value of CSBI Common Stock; Dividend
Payments.
MANAGEMENT OF GROWTH
CSBI has recently experienced a period of rapid growth that has placed, and
may continue to place, a significant strain on CSBI's financial, management and
other resources. CSBI's ability to manage its growth effectively will require
it to continue to improve its systems and procedures and to attract, train,
motivate, manage and retain key employees. Any inability of CSBI to manage
growth effectively could have a material adverse effect on CSBI's business,
operating results and financial condition.
INTERESTS OF CERTAIN PERSONS IN THE MERGER
In considering the recommendation of the Merger by the Independent Board of
Directors, shareholders should be aware that certain directors and executive
officers of Independent have certain interests that may present them with
potential conflicts of interest with respect to the Merger. These interests
relate to, among other things, provisions in the Merger Agreement regarding
indemnification and eligibility for certain employee benefits. See "THE MERGER
- - Interests of Certain Persons in the Merger."
COMPETITION
The banking business is highly competitive, and CSBI expects this
competition to increase. Due in part to both regulatory changes and consumer
demands, banks have experienced increased competition from other financial
entities offering similar products. Competition from both bank and non-bank
organizations is expected to continue to increase. In the conduct of certain
aspects of its banking business, CSBI's banking subsidiaries encounter strong
competition from other commercial banks, savings institutions, credit unions,
mortgage banking firms, consumer finance companies, securities brokerage firms,
insurance companies, money market mutual funds and other financial institutions.
Many of these competitors have substantially greater resources than CSBI's
banking subsidiaries and offer certain services that these subsidiaries do not
provide. CSBI's banking subsidiaries compete with other banking institutions on
the basis of service, convenience and, to some extent, price.
POSSIBLE VOLATILITY OF STOCK PRICE
The market price of CSBI Common Stock could be subject to significant
fluctuations in response to, and may be adversely affected by, variations in
quarterly operating results, changes in earnings estimates by analysts,
developments in the banking industry and general stock market conditions, as
well as other factors. Any future shortfall in CSBI's revenue or earnings from
levels expected by securities analysts could have an immediate and significant
adverse effect on the trading price of CSBI Common Stock in any given period.
Moreover, CSBI may not learn of, or be able to confirm, such shortfalls until
late in the fiscal quarter, or following the end of the quarter, which could
result in an even more immediate and adverse effect on the trading price of CSBI
Common Stock. In
8
<PAGE>
addition, the stock market has experienced extreme price and volume fluctuations
from time to time which have, in certain circumstances, had no meaningful
relationship to CSBI's performance.
RISK FROM GENERAL ECONOMIC CONDITIONS
In addition, general economic conditions affect the banking industry. The
credit quality of CSBI's loan portfolio necessarily reflects, among other
matters, the general economic conditions in the areas in which it conducts its
business. The continued financial success of CSBI and its subsidiaries depends
in part on factors which are beyond CSBI's control, including national and local
economic conditions, the supply and demand for investable funds, interest rates
and federal, state and local laws affecting these matters. Any substantial
deterioration in any of the foregoing conditions could have a material adverse
effect on CSBI's financial condition and results of operations, which, in all
likelihood, would adversely affect the market price of CSBI Common Stock. See
"Summary--Market Prices of CSBI and Independent Common Stock."
RISKS RELATING TO YEAR 2000 ISSUE
The Year 2000 issue refers generally to the data structure problem that
will prevent systems from properly recognizing dates after the year 1999. CSBI
has appointed a Year 2000 committee with a full-time Year 2000 coordinator to
conduct a comprehensive review of its operational and financial systems to
determine how the Year 2000 will impact operation of these systems. The
committee has developed a plan to identify all critical systems and developed
solutions for all systems that are found to not be Year 2000 compliant. In
addition, confirmations have been received from CSBI's primary processing
vendors and counterparties that plans have been developed to address processing
of transactions in the Year 2000. However, the identification and solving of
all year 2000 issues is a complex problem and CSBI cannot provide assurance that
CSBI's systems nor the systems of other companies with whom CSBI conducts
business will be Year 2000 compliant prior to December 31, 1999 or that failure
of any such system will not have a material adverse effect on CSBI's business,
operating results and financial condition.
ANTI-TAKEOVER EFFECT OF CERTAIN CHARTER AND BYLAW PROVISIONS
Various differences exist between the rights of Independent and CSBI
shareholders under their respective Articles of Incorporation and Bylaws. In
particular, certain provisions of the Articles of Incorporation and Bylaws of
CSBI could delay or frustrate the removal of incumbent directors and could make
more difficult a merger, tender offer or proxy contest involving CSBI, even if
such events could be beneficial to shareholders. See "CERTAIN DIFFERENCES IN THE
RIGHTS OF INDEPENDENT SHAREHOLDERS AND CSBI SHAREHOLDERS."
9
<PAGE>
WHERE YOU CAN FIND ADDITIONAL INFORMATION
CSBI files annual, quarterly and current reports, proxy statements and
other information with the Securities and Exchange Commission ("SEC"). You may
read and copy any reports, statements or other information filed by CSBI at the
SEC's public reference rooms in Washington D.C., New York, New York, or Chicago,
Illinois. Please call the SEC at 1-800-SEC-0330 for further information on the
public reference rooms. CSBI's SEC filings are also available to the public
from commercial document retrieval services and at the web site maintained by
the SEC at "http://www.sec.gov."
CSBI has filed a Registration Statement on Form S-4 to register with the
SEC the CSBI Common Stock to be issued to Independent shareholders in the
Merger. This Proxy Statement/Prospectus is a part of that Registration
Statement and constitutes a prospectus of CSBI in addition to a proxy statement
of Independent for the Special Meeting. As allowed by the SEC rules, this Proxy
Statement/Prospectus does not contain all the information you can find in the
Registration Statement or the exhibits to the Registration Statement.
NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATION OTHER THAN THOSE CONTAINED IN THIS PROXY STATEMENT/PROSPECTUS
AND, IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATION SHOULD NOT BE RELIED
UPON AS HAVING BEEN AUTHORIZED BY CSBI OR INDEPENDENT. NEITHER THE DELIVERY OF
THIS PROXY STATEMENT/PROSPECTUS NOR ANY DISTRIBUTION OF THE SECURITIES TO WHICH
THIS PROXY STATEMENT/PROSPECTUS RELATES SHALL, UNDER ANY CIRCUMSTANCES, CREATE
ANY IMPLICATION THAT THERE HAS BEEN NO CHANGE IN THE AFFAIRS OF CSBI OR ANY OF
ITS SUBSIDIARIES OR INDEPENDENT OR ITS SUBSIDIARY SINCE THE DATE HEREOF OR THAT
THE INFORMATION CONTAINED HEREIN IS CORRECT AS OF ANY TIME SUBSEQUENT TO ITS
DATE. THIS PROXY STATEMENT/PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL, OR A
SOLICITATION OF AN OFFER TO PURCHASE, ANY SECURITIES OTHER THAN THE SECURITIES
TO WHICH IT RELATES OR AN OFFER TO SELL OR A SOLICITATION OF AN OFFER TO
PURCHASE THE SECURITIES OFFERED BY THIS PROXY STATEMENT/PROSPECTUS IN ANY
JURISDICTION IN WHICH SUCH AN OFFER OR SOLICITATION IS NOT LAWFUL.
10
<PAGE>
INFORMATION INCORPORATED BY REFERENCE
The SEC allows us to "incorporate by reference" certain information in this
Proxy Statement/Prospectus, which means that we can disclose important
information to you by referring you to another document filed separately with
the SEC by CSBI. The information incorporated by reference is deemed to be part
of this Proxy Statement/Prospectus, except for any information superseded by
information in the Proxy Statement/Prospectus. This Proxy Statement/Prospectus
incorporates by reference the documents set forth below that CSBI has previously
filed with the SEC. These documents contain important information about CSBI
and its finances.
CSBI Filings (SEC File No. 0-26254) Period
- ----------------------------------- ------
Annual Report on Form 10-K Year ended December 31, 1997
Quarterly Reports on Form 10-Q Quarters ended March 31, 1998, June
30, 1998, and September 30, 1998
The description of CSBI Common Stock contained in the CSBI Registration
Statement filed pursuant to Section 12 of the Exchange Act and any amendment or
report filed for the purpose of updating such description is also incorporated
herein by reference
We further incorporate by reference additional documents that CSBI files
with the SEC between the date of this Proxy Statement/Prospectus and the date of
the Special Meeting of Independent shareholders.
A WARNING ABOUT FORWARD-LOOKING STATEMENTS
CSBI and Independent make forward-looking statements in this document, and,
in the case of CSBI, the public documents to which we refer, that are subject to
risks and uncertainties. These forward-looking statements include information
about possible or assumed future results of our operations or the performance of
CSBI after the Merger. Also, when we use any of the words "believes,"
"expects," "anticipates" or similar expressions, we are making forward-looking
statements. MANY POSSIBLE EVENTS OR FACTORS COULD AFFECT THE FUTURE FINANCIAL
RESULTS AND PERFORMANCE OF EACH OF OUR COMPANIES. THIS COULD CAUSE RESULTS OR
PERFORMANCE TO DIFFER MATERIALLY FROM THOSE EXPRESSED IN OUR FORWARD-LOOKING
STATEMENTS. YOU SHOULD CONSIDER THESE RISKS WHEN YOU VOTE ON THE MERGER.
Factors that may cause actual results to differ materially from those
contemplated by such forward-looking statements include, but are not limited to,
the following: (i) failure to fully realize or to realize within the expected
time frame expected cost savings from the Merger, (ii) lower than expected
income or revenues following the Merger or higher than expected operating costs,
(iii) a significant increase in competitive pressure in the banking and
financial services industry, (iv) business disruption related to the Merger
(both before and after completion), (v) greater than expected costs or
difficulties related to the integration of the management of CSBI and
Independent, (vi) litigation costs and delays caused by litigation, (vii) higher
than anticipated costs in completing the Merger, (viii) unanticipated regulatory
delays or constraints or changes in the proposed transaction required by
regulatory authorities, (ix) reduction in interest margins due to changes in the
interest rate environment, (x) poorer than expected general economic conditions,
including acquisition and growth opportunities, either nationally or in the
states in which the combined company will be doing business, (xi) legislation or
regulatory changes which adversely affect the businesses in which the combined
company would be engaged, (xii) other unanticipated occurrences which may delay
the consummation of the Merger, increase the costs related to the Merger or
decrease the expected financial benefits of the Merger and (xiii) other factors
set forth in "RISK FACTORS." By making these forward-looking statements,
neither company will undertake to update them in any manner except as may be
required by the respective company's disclosure obligations in filings it makes
with the SEC under the Federal securities laws.
11
<PAGE>
INFORMATION CONCERNING THE INDEPENDENT SPECIAL MEETING
GENERAL
This Proxy Statement/Prospectus is being mailed by Independent to holders
of its common stock, $0.01 par value ("Independent Common Stock"), on or about
February __, 1999, together with the Notice of the Special Meeting of
Independent Shareholders and a form of proxy solicited by the Independent Board
for use at the Special Meeting and at any adjournments or postponements thereof.
THE SPECIAL MEETING
The Special Meeting will be held at the main office of Independent, located
at 402 Main Street, Oxford, Alabama 36203-1237, at [ ] p.m., local time, on
March __, 1999. Only holders of Independent Common Stock of record at the close
of business on February __, 1999 (the "Record Date") will be entitled to receive
notice of and to vote at the Independent Special Meeting. As of the Record
Date, there were 215,000 shares of Independent Common Stock outstanding and
entitled to vote, with each such share entitled to one vote.
MATTERS TO BE CONSIDERED
At the Special Meeting, Independent shareholders will be asked to consider
and vote upon a proposal to approve the Agreement and Plan of Merger dated as of
September 8, 1998 and amended as of November 8, 1998, by and among Independent,
CSBI and the Merger Sub, pursuant to which the Merger Sub will be merged with
and into Independent. Upon completion of the Merger, the Merger Sub will cease
to exist and Independent will become a wholly owned subsidiary of CSBI.
VOTE REQUIRED
Under the Alabama Business Code Annotated (the "ABCA"), the affirmative
vote of the holders of at least two-thirds of the outstanding shares of
Independent Common Stock entitled to vote is required to approve and adopt the
Merger Agreement. On the Record Date, there were approximately [_____] holders
of record of Independent Common Stock. On such date, the directors and officers
of Independent and their affiliates beneficially owned, and expressed their
intent to vote in favor of the Merger, a total of approximately [____%] of the
outstanding shares of Independent Common Stock. At the date of this Proxy
Statement/Prospectus, neither CSBI nor any of its affiliates owned any of the
outstanding shares of Independent Common Stock.
VOTING OF PROXIES
Shares of Independent Common Stock represented by properly executed proxies
received at or prior to the Special Meeting will be voted at the Special Meeting
in the manner specified by the holders of such shares. Properly executed
proxies which do not contain voting instructions will be voted FOR approval and
adoption of the Merger Agreement. Any stockholder present in person or by proxy
(including broker non-votes, which generally occur when a broker who holds
shares in street name for a customer does not have the authority to vote on
certain non-routine matters because its customer has not provided any voting
instructions with respect to the matter) at the Independent Special Meeting who
abstains from voting will be counted for purposes of determining whether a
quorum exists.
BECAUSE APPROVAL OF THE MERGER AGREEMENT REQUIRES THE AFFIRMATIVE VOTE OF
AT LEAST TWO-THIRDS OF ALL THE VOTES ENTITLED TO BE CAST AT THE SPECIAL MEETING
BY HOLDERS OF THE ISSUED AND OUTSTANDING INDEPENDENT COMMON SHARES, ABSTENTIONS
AND BROKER NON-VOTES WILL HAVE THE SAME EFFECT AS NEGATIVE VOTES. ACCORDINGLY,
THE INDEPENDENT BOARD URGES ITS SHAREHOLDERS TO COMPLETE, DATE, AND SIGN THE
ACCOMPANYING PROXY AND RETURN IT PROMPTLY IN THE ENCLOSED, POSTAGE-PAID
ENVELOPE.
If any other matters are properly presented at the Special Meeting, the
person or persons named in the form of proxy enclosed with this Proxy
Statement/Prospectus and acting thereunder will have discretion to vote on such
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<PAGE>
matters in accordance with their best judgment, unless the proxy indicates
otherwise. Independent has no knowledge of any matters to be presented at the
Special Meeting, other than the matters described in this Proxy
Statement/Prospectus.
REVOCABILITY OF PROXIES
The grant of a proxy on the enclosed form of proxy does not preclude an
Independent Shareholder from voting in person or otherwise revoking a proxy. An
Independent Shareholder may revoke a proxy at any time prior to its exercise by
delivering to the Corporate Secretary of Independent, a duly executed revocation
or proxy bearing a later date or by voting in person at the Special Meeting.
All written notices of revocation and other communications with respect to the
revocation of Independent proxies should be addressed to Independent Bancorp,
Inc., 402 Main Street, Oxford, Alabama 36203, Attention: Corporate Secretary.
Attendance at the Independent Special Meeting will not in and of itself
constitute revocation of a proxy.
SOLICITATION OF PROXIES
Independent will bear the cost of the solicitation of proxies in connection
with the Special Meeting, except that CSBI will pay the SEC filing fees payable
in connection with the Registration Statement of which this Proxy
Statement/Prospectus is a part and one-half of the printing costs incurred in
connection with the printing of such Registration Statement and this Proxy
Statement /Prospectus.
Solicitation of proxies may be made in person or by mail, telephone, or
facsimile, or other form of communication by directors, officers, and employees
of Independent, who will not be specially compensated for such solicitation.
Nominees, fiduciaries, and other custodians will be requested to forward
solicitation materials to beneficial owners and to secure their voting
instructions, if necessary, and will be reimbursed for the expenses incurred in
sending proxy materials to beneficial owners.
No person is authorized to give any information or to make any
representation not contained in this Proxy Statement/Prospectus and, if given or
made, such information or representation should not be relied upon as having
been authorized by Independent, CSBI or any other person. The delivery of this
Proxy Statement/Prospectus shall not, under any circumstances, create any
implication that there has been no change in the business or affairs of
Independent or CSBI since the date of the Proxy Statement/Prospectus.
RECOMMENDATION OF THE INDEPENDENT BOARD
THE INDEPENDENT BOARD HAS UNANIMOUSLY APPROVED THE MERGER AGREEMENT AND THE
TRANSACTIONS CONTEMPLATED THEREBY, BELIEVES THAT THE MERGER IS IN THE BEST
INTERESTS OF INDEPENDENT AND ITS SHAREHOLDERS, AND RECOMMENDS THAT THE
SHAREHOLDERS OF INDEPENDENT VOTE "FOR" APPROVAL OF THE MERGER AGREEMENT.
In the course of reaching its decision to approve the Merger Agreement and
the transactions contemplated thereby, the Independent Board, among other
things, consulted with its legal advisors regarding the legal terms of the
Merger Agreement and with its financial advisor, T. Stephen Johnson &
Associates, Inc. ("Advisor"), as to the fairness, from a financial point of
view, of the consideration to be received by the holders of Independent Common
Stock in the Merger. For a discussion of the factors considered by the
Independent Board in reaching its conclusion, see "THE MERGER-Background of the
Merger and Independent's Reasons for the Merger."
Independent shareholders should note that certain members of management and
directors of Independent have certain interests in, and may derive certain
benefits as a result of, the Merger that are in addition to their interests as
shareholders of Independent. See "THE MERGER-Interests of Certain Persons in
the Merger."
INDEPENDENT SHAREHOLDERS SHOULD NOT SEND ANY STOCK CERTIFICATES WITH THEIR
PROXY CARDS.
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<PAGE>
THE MERGER
The descriptions of the terms and conditions of the Merger, the Merger
Agreement, and any related documents in this Proxy Statement/Prospectus are
qualified in their entirety by reference to the copy of the Merger Agreement
attached as Appendix A to this Proxy Statement/Prospectus, to the Alabama
Statute governing dissenters' rights, a copy of which is attached as Appendix B
to this Proxy Statement/Prospectus, to the Registration Statement of which this
Proxy Statement/Prospectus is a part and to the exhibits to the Registration
Statement.
GENERAL
The Merger Agreement provides that the Merger Sub shall merge with and into
Independent with Independent as the surviving corporation in the Merger. As a
result, Independent will become a wholly owned subsidiary of CSBI, and the
Merger Sub will cease to exist. After the Merger, The Independent Bank of
Oxford, an Alabama corporation and a wholly-owned subsidiary of Independent
("Bank"), will remain a wholly-owned subsidiary of Independent. At the time the
Merger becomes effective, each share of issued and outstanding Independent
Common Stock (excluding shares held by CSBI and its subsidiaries, Independent
and its subsidiary and excluding shares held by Independent shareholders who
exercise their dissenters' rights) shall be converted into the right to receive
a number of shares of CSBI Common Stock which will be determined by the formula
set forth below in "Merger Consideration." If the Merger Agreement is approved
at the Special Meeting, all required governmental and other consents and
approvals are obtained, and all other conditions to the obligations of the
parties to consummate the Merger are either satisfied or waived (as permitted),
the Merger will be consummated.
BACKGROUND OF THE MERGER
Beginning in the second quarter of 1998, the Chief Executive Officer and
Board of Directors of Independent received an unsolicited and informal
indication of interest to discuss the possibility of being acquired by another
financial institution. Although this discussion did not lead to a formal offer,
the Board of Directors of Independent, recognized and evaluated the increasing
valuations of community banks and consolidation activity affecting community
banks. After careful consideration of the qualification and experience of
various financial advisory firms, Independent engaged Advisor to provide to
Independent advice concerning potential suitable merger partners.
The Board of Directors of Independent's interest in evaluating a merger
candidate was to obtain a high value for the shareholders, liquidity, and
maintain a community bank identity in the local market place. CSBI was one
financial institution identified by Advisor having these characteristics. The
management of CSBI and Independent began considering a potential acquisition of
Independent by CSBI in June, 1998. A letter of intent was finalized and executed
as of July 9, 1998. The Merger Agreement was approved by the CSBI Board of
Directors on July 8, 1998, and by the Independent Board of Directors on July 28,
1998. The Merger Agreement was executed on September 8, 1998.
INDEPENDENT'S REASONS FOR THE MERGER
Independent's Board of Directors believes that the Merger is in the best
interest of Independent shareholders. The Board of Directors of Independent
considered a number of factors in deciding to approve and recommend the terms of
the Merger to Independent shareholders, including: (i) the terms of the proposed
transaction; (ii) the financial condition, results of operations, and future
prospects of Independent; (iii) the value of the consideration to be received by
Independent shareholders relative to the book value and earnings per share of
Independent Common Stock; (iv) the competitive and regulatory environment for
financial institutions generally; (v) the fact that the Merger will enable
Independent shareholders to exchange their Independent Common Stock (for which
there is no established public trading market) for shares of common stock of a
larger and more diversified entity, the stock of which is more widely held and
more actively traded; (vi) the likelihood of receiving the requisite regulatory
approvals; (vii) that it is expected that the Merger will be a tax-free
transaction (except in respect of cash received for fractional shares of
Independent Common Stock) for federal income tax purposes; and (viii) other
information. The Board of Directors also took into account an opinion received
from Advisor that the consideration to be received by the shareholders of
Independent in the Merger, as described in the Merger Agreement, is fair, from a
financial point of view to them. See "-Opinion of Independent's Financial
Advisor." The foregoing
14
<PAGE>
discussion of the information and factors considered by the Independent Board of
Directors is not intended to be exhaustive of the factors considered by the
Board of Directors. The Independent Board of Directors did not assign any
relative or specific weights to the foregoing factors, and individual directors
may have given different weights to different factors.
CSBI'S REASONS FOR THE MERGER
The CSBI Board of Directors, after consideration of relevant business,
financial, legal and market factors, approved the Merger Agreement. In reaching
this decision, the CSBI Board of Directors considered all material factors
although it did not assign any relative or specific weight to any individual
factor. The CSBI Board of Directors also took into account its stated strategic
long term goal of expanding CSBI throughout the Southeast so as to become one of
the leading independent bank holding companies in the region. In this regard,
CSBI looked at the profit position of Independent, giving consideration to
Independent's size, its stockholder base, management expertise, and its presence
in Alabama. After considering these factors, CSBI determined that the Merger
would help accomplish its long term goals and would enhance CSBI's shareholder
value, while permitting CSBI to continue to grow and expand as an independent
bank holding company.
MERGER CONSIDERATION
The Merger Agreement provides that, at the date and time at which the
Articles of Merger reflecting the Merger become effective with the Secretary of
State of the State of Georgia and the Secretary of State of the State of Alabama
(the "Effective Time"), each issued and outstanding share of Independent Common
Stock (excluding shares held by CSBI or any of its subsidiaries or by
Independent and its subsidiary, in each case other than in a fiduciary capacity
or as a result of debts previously contracted, and excluding shares held by
Independent shareholders who exercise their dissenters' rights) shall be
converted into the right to receive a number (the "Exchange Ratio") of shares of
CSBI Common Stock equal to 99.9999 divided by the Deemed Market Value (as
defined below), provided, however, that if the Deemed Market Value is less than
or equal to $30.75, the Exchange Ratio shall be 3.2520, and if the Deemed Market
Value is greater than or equal to $31.50, the Exchange Ratio shall be 3.1746.
The aggregate number of shares of CSBI Common Stock issuable pursuant to the
immediately preceding sentence is sometimes hereinafter referred to as the
"Merger Consideration." For purposes of this Agreement, "Deemed Market Value"
shall mean the arithmetic average, for the period of ten (10) consecutive
trading days immediately preceding the date which is five (5) calendar days
prior to the Effective Time, of the arithmetic average of the high and low
trading prices for a share of CSBI Common Stock for each such trading day, as
reported by NASDAQ.
In the event Independent or CSBI changes the number of shares of
Independent Common Stock or CSBI Common Stock on a fully diluted basis, issued
and outstanding prior to the Effective Time (as defined above) as a result of a
stock split, stock dividend or similar recapitalization, the Merger
Consideration shall be proportionately adjusted.
FRACTIONAL SHARES
Pursuant to the terms of the Merger Agreement, each holder of shares of
Independent Common Stock converted pursuant to the Merger, who would otherwise
have been entitled to receive a fraction of a share of CSBI Common Stock shall
receive, in lieu thereof, cash (without interest) in an amount equal to such
fractional part of a share of CSBI Common Stock multiplied by the market value
per share of CSBI Common Stock at the Effective Time, which shall be the last
sale price of such common stock on the Nasdaq National Market (as reported by
The Wall Street Journal or, if not reported thereby, any other authoritative
source) on the last business day preceding the Effective Time. No such holder
will be entitled to dividends, voting rights, or any other rights as a
shareholder in respect of any fractional shares.
OPINION OF INDEPENDENT'S FINANCIAL ADVISOR
Advisor is an investment banking and financial services firm located in
Roswell, Georgia. As part of its investment banking business, Advisor engages in
the review of the fairness of bank acquisition transactions from a financial
perspective and in the valuation of banks and other businesses and their
securities in connection with mergers, acquisitions and other transactions.
Neither Advisor nor any of its affiliates has a material financial
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interest in Independent or CSBI. Advisor was selected to advise Independent's
Board of Directors based upon its familiarity with Independent, the regional
community banking industry and its knowledge of the banking industry as a whole.
No instructions were given or limitations imposed by the Independent Board of
Directors upon Advisor regarding the scope of its investigation or the
procedures it followed in rendering its opinion.
Advisor has rendered its opinion (the "Fairness Opinion") to the Board of
Directors of Independent that the consideration to be received by the holders of
Independent Common Stock under the Merger Agreement is fair to such shareholders
from a financial point of view. A copy of the Fairness Opinion, which sets forth
certain assumptions made, matters considered and limitations on the review
undertaken, is attached as Appendix C to this Proxy Statement and should be read
in its entirety. The summary of the Fairness Opinion set forth herein is
qualified in its entirety by reference to the text of the Fairness Opinion.
In addition to rendering the Fairness Opinion, the Advisor was engaged by
Independent to act as advisor to the Board of Directors during the negotiations
with CSBI for which a fee of 1% of the total purchase price for Independent's
shares will be paid upon closing. This fee includes rendering this Fairness
Opinion.
In arriving at its Fairness Opinion, Advisor performed merger analyses
described below. Advisor also reviewed certain publicly available business and
financial information relating to Independent and CSBI. Advisor also considered
certain financial and stock market data of Independent and CSBI, compared that
data with similar data for certain other publicly-held banks and bank holding
companies and considered the financial terms of certain other recent comparable
community bank acquisition transactions in the southeastern United States, as
further discussed below. Advisor also considered such other information,
financial studies, analyses and investigations and financial, economic and
market criteria that it deemed relevant. In connection with its review, Advisor
did not independently verify the foregoing information and relied on such
information as being complete and accurate in all material respects. Financial
forecasts prepared by Independent management and submitted to Advisor were based
on assumptions believed by Advisor to be reasonable and to reflect currently
available information, but Advisor did not independently verify such
information. Advisor did not make an independent evaluation or appraisal of the
assets of Independent or CSBI.
In connection with rendering the Fairness Opinion, Advisor performed a
variety of financial analyses, including those summarized below. The summary set
forth below does not purport to be a complete description of the analyses
performed by Advisor in this regard. The preparation of a fairness opinion
involves various determinations as to the most appropriate and relevant methods
of financial analysis and the application of these methods to the particular
circumstances and, therefore, such an opinion is not readily susceptible to
summary description. Accordingly, notwithstanding the separate factors
summarized below, Advisor believes that its analyses must be considered as a
whole and that selecting portions of its analyses and the factors considered by
it, without considering all analyses and factors, could create an incomplete
view of the evaluation process underlying its opinion. In performing its
analyses, Advisor made numerous assumptions with respect to industry
performance, business and economic conditions and other matters, many of which
are beyond Independent's or CSBI's control. The analyses performed by Advisor
are not necessarily indicative of actual values or future results, which may be
significantly more or less favorable than suggested by such analyses. No company
or transaction considered as a comparison in the analyses is identical to
Independent, CSBI or the Merger. Accordingly, an analysis of the results of such
comparisons is not mathematical; rather, it involves complex considerations and
judgments concerning differences in financial and operating characteristics of
companies and other factors that could affect the public trading value of the
companies involved in such comparisons. In addition, the analyses do not purport
to be appraisals or reflect the process by which or the prices at which
businesses actually may be sold or the prices at which any securities may trade
at the present time or at any time in the future.
Merger Analysis: The merger consideration to be received by Independent
Shareholders is based on the defined Exchange Ratio for CSBI common shares. The
value of the shares to be received is the current market value of CSBI common
shares which currently trade on NASDAQ. The February 8, 1999 closing price for
CSBI common shares was $25.00 per share. Assuming this closing price is equal to
the Deemed Market Value the Exchange Ratio would be 3.2520 and the transaction
value of each of the 215,000 Independent common shares would be $81.30. This
transaction value equals 2.591 times December 31, 1998 book value and 25.078
times 1998 earnings per share. The purchase premium was calculated to equal
20.13 percent of core deposits as of December 31, 1998.
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Comparable Transactions Analysis: The Advisor reviewed the Merger as of
February 9, 1999, for the purpose of determining purchase premiums that could be
used in comparing the Merger with other announced transactions. The Advisor
reviewed the purchase premiums paid in all nine transactions that were announced
since December, 1997 involving selling institutions headquartered in Alabama.
These are considered the comparable transactions. A listing of these
transactions is included with the Fairness Opinion. On average, the comparable
transactions reported an announced deal price to book value of 2.349 times, an
announced deal price to earnings of 25.43 times and a purchase premium as a
percent of core deposits of 22.96 percent. The Merger compares favorably with
these transactions with the deal price to book value, the deal price to
earnings, and the purchase premium as a percent of core deposits each ranking
well within the range of the comparable transactions.
Dividend Analysis: The Advisor reviewed the historical dividend payouts at
Independent in an effort to equate such payouts to the current dividend payout
at CSBI. The Independent shareholders received $1.60 per common share during
1998. Assuming on the current CSBI dividend payout of $0.445 per share, the
Independent shareholders would receive the equivalent of $1.45 per current
Independent share, based on the Exchange Ratio of 3.2520.
EFFECTIVE TIME
If the Merger Agreement is approved by the requisite votes of Independent
shareholders and all other required governmental and other consents and
approvals are received, and if the other conditions to the obligations of the
parties to consummate the Merger are satisfied or waived (as permitted), the
Merger will be consummated and effected on the date and at the time the Articles
of Merger reflecting the Merger become effective with the Secretary of State of
the State of Alabama and the Secretary of State of the State of Georgia. Unless
otherwise mutually agreed upon in writing by the chief executive officers of
each of CSBI and Independent, CSBI and Independent will use their reasonable
efforts to cause the Effective Time to occur on 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, (ii) the date on which the shareholders of Independent approve the
Merger Agreement, or (iii) a later date if agreed upon in writing by the chief
executive officers of CSBI and Independent. Assuming satisfaction of all
conditions to consummation of the Merger, the Merger is expected to be made
effective during the second quarter of 1999. Either CSBI or Independent may
terminate the Merger Agreement prior to the Effective Time, under certain
circumstances. See "Conditions to Consummation" and "Amendment, Waiver, and
Termination."
DISTRIBUTION OF CSBI CERTIFICATES
Within 20 days after the Effective Time, CSBI shall mail appropriate
transmittal materials to each record holder of Independent Common Stock for use
in effecting the surrender and cancellation of those certificates in exchange
for CSBI Common Stock. Risk of loss to the certificates shall remain with the
holder until proper delivery of such certificates to CSBI by the former
shareholders of Independent. INDEPENDENT SHAREHOLDERS SHOULD NOT SURRENDER THEIR
CERTIFICATES FOR EXCHANGE UNTIL THEY RECEIVE THE LETTER OF TRANSMITTAL AND
INSTRUCTIONS. After the Effective Time, each holder of shares of Independent
Common Stock issued and outstanding at the Effective Time shall surrender the
certificate or certificates representing such shares to CSBI and shall within 20
days after surrender thereof receive the consideration they are entitled to
under the Merger Agreement, together with all undelivered dividends or
distributions in respect of such shares (without interest thereon) pursuant to
the Merger Agreement. As provided in the Merger Agreement, each record holder of
Independent Common Stock shall also receive cash in lieu of any fractional share
of CSBI Common Stock to which such shareholder would be otherwise entitled
(without interest). CSBI shall not be obligated to deliver the consideration to
which any former holder of Independent Common Stock is entitled until such
holder surrenders such holder's certificate or certificates representing such
holder's shares for exchange. The certificate or certificates so surrendered
shall be duly endorsed as CSBI may require. CSBI shall not be liable to a holder
of Independent Common Stock for any property delivered in good faith to a public
official pursuant to any applicable abandoned property law.
After the Effective Time (and prior to the surrender of certificates of
Independent Common Stock to CSBI), record holders of certificates that
represented outstanding Independent Common Shares immediately prior to the
Effective Time will have no rights with respect to such certificates other than
the right to surrender such certificates and receive in exchange therefor a
certificate or certificates representing the aggregate number of whole
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shares of CSBI Common Stock to which such holder is entitled pursuant to the
Merger Agreement, together with a check for amount (without interest)
representing any fractional share.
In the event that any dividend or distribution, the record date for which
is on or after the Effective Time, is declared by CSBI on the CSBI Common Stock,
no such dividend or other distributions shall be delivered to the holder of a
certificate representing shares of Independent Common Stock immediately prior to
the Effective Time until such holder surrenders such certificate as set forth
above.
In addition, to the extent permitted by law, holders of certificates that
represented outstanding Independent Common Stock immediately prior to the
Effective Time will be entitled to vote after the Effective Time at any meeting
of CSBI shareholders the number of whole shares of CSBI Common Stock into which
such shares have been converted, even if such holder has not surrendered such
certificates for exchange as set forth above.
CERTAIN FEDERAL INCOME TAX CONSEQUENCES
The following is a summary of certain federal income tax consequences of
the Merger and the exchange by the holders of Independent Common Stock of such
shares for shares of CSBI Common Stock. This discussion applies only to
Independent Shareholders, if any, who hold their shares as a capital asset. This
discussion does not address all aspects of taxation that may be relevant to
particular Independent shareholders in light of their personal investment or tax
circumstances, or to certain types of Independent shareholders (including
insurance companies, financial institutions, broker-dealers, foreign
corporations, persons who receive stock through the exercise of stock options or
otherwise as compensation for services rendered and persons who are not citizens
or residents of the United States) subject to special treatment under the
federal income tax laws, nor does it discuss any state, local or foreign tax
considerations. Accordingly, each Independent shareholder is urged to consult
his or her own tax advisor as to the specific tax consequences of the Merger,
including the applicable federal, state, local and foreign tax consequences of
the Merger.
Neither CSBI nor Independent has requested or will receive an advance
ruling from the Internal Revenue Service (the "Service") as to the federal
income tax consequences of the Merger. Rather, a condition to consummation of
the Merger is the receipt by each of CSBI and Independent of an opinion of
Troutman Sanders LLP, counsel to CSBI, as to the qualification of the Merger as
a tax-free reorganization and certain other federal income tax consequences of
the Merger. Such opinion will be based upon certain representations of fact
provided by CSBI and Independent. Such representations of fact have not been
independently verified by Troutman Sanders LLP. Such opinion will be also based
upon the Internal Revenue Code of 1986, as amended (the "Code"), regulations
thereunder, administrative rulings and practice by the Service, and judicial
authority, in each case existing at the time such opinion is delivered, and all
of which is subject to change, possibly retroactively. Any change in applicable
law or pertinent facts could affect the continuing validity of such opinion and
this discussion. In addition, a tax opinion is not binding upon the Service, and
there can be no complete assurance, and none is hereby given, that the Service
will not take a position which is contrary to one or more positions reflected in
the tax opinion, or that such opinion will be upheld by the courts if challenged
by the Service. CSBI and Independent have represented in the Merger Agreement
that neither they nor their affiliates have taken any action or have knowledge
of any fact or circumstance that is reasonably likely to prevent the Merger from
qualifying as a reorganization which is tax-free to the Independent shareholders
pursuant to Section 368(a) of the Code. Based on the foregoing, it is
anticipated that the tax opinion will state, among other matters, that: (i) the
Merger will constitute a reorganization within the meaning of Section 368(a) of
the Code, and CSBI, the Merger Sub and Independent will each be a party to the
reorganization within the meaning of Section 368(b) of the Code; (ii) no gain or
loss will be recognized by CSBI or Independent as a result of the Merger; (iii)
no gain or loss will be recognized by the Independent shareholders upon the
exchange of Independent Common Stock for CSBI Common Stock pursuant to the
Merger (except with respect to cash received in lieu of a fractional share
interest in CSBI Common Stock); (iv) the receipt of cash in lieu of fractional
shares of CSBI Common Stock will be treated as if fractional shares were
distributed as part of the exchange and then were redeemed by CSBI; (v) an
Independent shareholder who perfects his appraisal rights under Georgia law and
who receives payment in cash for the "fair value" of his shares of Independent
Common Stock will be treated as having exchanged such shares for cash in a
redemption subject to Section 302 of the Code, and the Independent shareholder
generally will recognize capital gain or loss in such exchange equal to the
difference between the cash received and the tax basis of such shares; (vi) the
aggregate tax basis of the shares of CSBI Common Stock received by an
Independent shareholder pursuant to the Merger will be the same as the aggregate
tax basis of the shares of Independent Common Stock surrendered in exchange
therefor, excluding any basis allocable to a fractional share of CSBI Common
Stock for which cash is received; and (vii) the holding period
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of shares of CSBI Common Stock received by an Independent Shareholder will
include the holding period or periods of the shares of Independent Common Stock
exchanged therefor, provided that the shares of Independent Common Stock are
held as a capital asset within the meaning of Section 1221 of the Code at the
Effective Time.
EACH HOLDER OF SHARES OF INDEPENDENT COMMON STOCK IS URGED TO CONSULT SUCH
HOLDER'S PERSONAL TAX AND FINANCIAL ADVISORS AS TO THE SPECIFIC FEDERAL INCOME
TAX CONSEQUENCES TO SUCH HOLDER, BASED ON SUCH HOLDER'S OWN PARTICULAR STATUS
AND CIRCUMSTANCES, AND ALSO AS TO ANY STATE, LOCAL, FOREIGN OR OTHER TAX
CONSEQUENCES ARISING OUT OF THE MERGER.
THE DISCUSSION SET FORTH ABOVE DOES NOT ADDRESS THE STATE, LOCAL OR FOREIGN
TAX ASPECTS OF THE MERGER. THE DISCUSSION IS BASED ON CURRENTLY EXISTING
PROVISIONS OF THE CODE, EXISTING AND PROPOSED TREASURY REGULATIONS THEREUNDER
AND CURRENT ADMINISTRATIVE RULINGS AND COURT DECISIONS. ALL OF THE FOREGOING ARE
SUBJECT TO CHANGE AND ANY SUCH CHANGE COULD AFFECT THE CONTINUING VALIDITY OF
THIS DISCUSSION. EACH INDEPENDENT SHAREHOLDER SHOULD CONSULT HIS OR HER OWN TAX
ADVISOR WITH RESPECT TO THE SPECIFIC TAX CONSEQUENCES OF THE MERGER TO HIM OR
HER, INCLUDING THE APPLICATION AND EFFECT OF STATE, LOCAL AND FOREIGN TAX LAWS.
MANAGEMENT AND OPERATIONS AFTER THE MERGER
CSBI and Merger Sub Officers and Directors. At the Effective Time, the
Merger Sub will be merged with and into Independent, and Independent will become
a wholly-owned subsidiary of CSBI. Bank will remain a wholly-owned subsidiary of
Independent. Independent and Bank will continue to be governed by the laws of
the State of Alabama and the United States and operate in accordance with their
respective Articles of Incorporation, Articles of Association, and Bylaws as in
effect on the date of the Merger Agreement until otherwise amended or repealed
after the Effective Time.
After the Merger, the directors and officers of CSBI in office at the
Effective Time will remain in such positions in accordance with the bylaws of
CSBI, and the directors and officers of the Merger Sub in office immediately
prior to the Effective Time will cease to serve since the Merger Sub will have
merged into Independent.
Independent and Bank Directors. The Directors of Independent and Bank in
office at the Effective Time may continue, at their discretion, to serve as
directors of Independent and Bank for a period of the later of their attaining
age 75 or five years after the Closing.
Independent and Bank Executive Officers. Upon the consummation of the
Merger, the executive officers of Independent in office immediately prior to the
Effective Time will continue to serve as the executive officers of Independent.
INTERESTS OF CERTAIN PERSONS IN THE MERGER
General. Certain members of Independent's management and Board of Directors
may be deemed to have interests in the Merger in addition to their interests as
shareholders of Independent generally. These interests include, among others,
certain proposed employee benefits, Joel B. Carter's employment agreement and
bonus agreement with Independent and Bank and certain insurance coverage, as
hereinafter described
Employee Benefits. The Merger Agreement provides that, after the Effective
Time, CSBI will provide generally to officers and employees of Independent who
become employees of a CSBI company, employee benefits under employee benefit
plans (other than stock option or other plans involving the potential issuance
of CSBI Common Stock), on terms and conditions that, when taken as a whole, are
substantially similar to those currently provided by CSBI and its subsidiaries
to their similarly situated officers and employees; provided, that, for a period
of 12 months after the Effective Time, CSBI will provide officers and employees
of Independent and Bank benefits in accordance with the policies of either
Independent or CSBI on a basis of whichever policy will give the employee the
greater benefit. Furthermore, CSBI will waive any pre-existing condition
exclusion under any employee health plan to the extent such condition was
covered under the relevant Independent benefit plan and the individual was
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covered by such Independent benefit plan on the date which immediately precedes
the Effective Time. For purposes of participation, vesting and benefit accrual
under such employee benefit plans, service with Independent or Bank prior to the
Effective Time will be treated as service with CSBI or its subsidiaries.
Employment Agreement. On September 8, 1998, Joel B. Carter and Independent
and Bank entered into an employment agreement pursuant to which, contingent upon
the consummation of the Merger, Mr. Carter will serve as President and Chief
Executive Officer of Bank (the "Employment Agreement"). The Employment Agreement
runs for five years from the effective date of the Merger. The Employment
Agreement provides for an annual base salary equal to Mr. Carter's compensation
paid by Bank as of the date of the Merger Agreement (subject to potential
adjustments). During the term of the Employment Agreement, Mr. Carter will be
entitled to certain benefits substantially similar to those provided to certain
executive officers of CSBI and its affiliated companies.
In the event that Mr. Carter's employment is terminated during the term of
the Employment Agreement other than for "cause" or if either Independent or Bank
breaches the Employment Agreement, he will be entitled to receive the
compensation and benefits otherwise payable for the remaining portion of the
term of the Employment Agreement (subject to certain conditions). The Employment
Agreement restricts Mr. Carter from (i) disclosing Independent's or Bank's trade
secrets, (ii) competing with Bank for a period of two years following
termination within a 50 mile radius of Bank's main office, and (iii) employing
any Bank employee for two years following termination.
Bonus Agreement. On September 8, 1998, Mr. Carter and Independent entered
into a bonus agreement whereby Independent will pay Mr. Carter a $100,000 bonus
if he remains as President of the Bank through the Effective Time.
Insurance. CSBI has generally agreed to provide directors' and officers'
insurance coverage at the Effective Time for Independent's directors and
officers either, at CSBI's election, (i) by purchasing continuation coverage
under Independent's current policy for directors and officers for a period of
not less than three years after the Effective Time or (ii) by obtaining coverage
under CSBI's current directors' and officers' policy to provide coverage for
Independent's directors and officers on a prior acts basis for a period of not
less than three years prior to the Effective Time.
CONDITIONS TO CONSUMMATION
The obligations of Independent and CSBI to consummate the Merger are
subject to the satisfaction or waiver (to the extent permitted) of the following
conditions:
(i) the shareholders of Independent shall have approved the Merger
Agreement and the consummation of the Merger as and to the extent
required by law, the provision of any of its governing instruments,
and by the rules of the NASD;
(ii) the required regulatory approvals described under "Regulatory
Approvals" shall have been received, generally without any
conditions or requirements which would, in the reasonable judgment
of the Board of Directors of CSBI, materially adversely affect the
economic or business benefits of the transactions contemplated by
the Merger Agreement so as to render inadvisable the consummation of
the Merger;
(iii) each party shall have received all consents (other than those
described in (ii) above) required for consummation of the Merger and
the prevention of default under any contract 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 generally
without any conditions or requirements which would, in the
reasonable judgment of the Board of Directors of CSBI, materially
adversely affect the economic or business benefits of the
transactions contemplated by the Merger Agreement so as to render
inadvisable the consummation of the Merger;
(iv) no court or regulatory authority shall have taken any action which
prohibits, restricts or makes illegal the consummation of the
transactions contemplated by the Merger Agreement;
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(v) the Registration Statement of which this Proxy Statement/Prospectus
is a part shall have been declared effective by the SEC and shall
not be subject to a stop order, no action, suit, proceeding or
investigation by the SEC to suspend the effectiveness of the
Registration Statement shall have been initiated and be continuing
and the shares of CSBI Common Stock issuable in connection with the
Merger shall have been qualified, registered or otherwise approved
for exchange under the securities laws of the various states in
which such qualification, registration or approval is required;
(vi) each of CSBI and Independent shall have received a letter from KPMG
LLP to the effect that the Merger will qualify for pooling-of-
interests accounting treatment;
(vii) each of CSBI and Independent shall have received an opinion of
Troutman Sanders LLP as to the matters set forth above under
"Certain Federal Income Tax Matters;"
(viii) CSBI and Bank shall have offered to Joel B. Carter to enter into an
employment agreement substantially in the form attached to the
Merger Agreement;
(ix) the other party's representations and warranties shall remain
accurate, and the other party shall have performed all of the
agreements and covenants to be performed by it pursuant to the
Merger Agreement, and shall have delivered certificates confirming
satisfaction of the foregoing requirements and certain other
matters;
(x) each party shall have received an opinion of the other party's
counsel, dated the closing date as to certain matters;
(xi) CSBI shall have received from KPMG LLP letters with respect to
certain financial information regarding Independent and Bank;
(xii) CSBI shall have received from each affiliate of Independent an
Affiliate Agreement substantially in the form attached to the Merger
Agreement to the extent necessary to assure that the Merger will
qualify for pooling-of-interests accounting treatment;
(xiii) CSBI shall have received from certain of the executive officers and
directors of Independent a Support Agreement substantially in the
form attached to the Merger Agreement; and,
(xiv) the shares of CSBI Common Stock issuable pursuant to the Merger
shall have been approved for listing on NASDAQ.
No assurances can be provided as to when or if all of the conditions
precedent to the Merger can or will be satisfied or waived by the appropriate
party. As of the date of this Proxy Statement/Prospectus, the parties know of no
reason to believe that any of the conditions set forth above will not be
satisfied.
The conditions to consummation of the Merger may be waived, in whole or in
part, to the extent permissible under applicable law, by the party for whose
benefit the condition has been imposed, without the approval of the Independent
Shareholders.
REGULATORY APPROVALS
The Merger is subject to approval by the Federal Reserve Board (the
"Federal Reserve") under the Bank Holding Company Act of 1956 (the "BHC Act").
The BHC Act provides that the Federal Reserve will not approve a transaction (i)
which would result in a monopoly, or which would be in furtherance of any
combination or conspiracy to monopolize or to attempt to monopolize the business
of banking in any part of the United States or (ii) the effect of which in any
section of the country may be substantially to lessen competition, or to tend to
create a monopoly, or which in any other manner would be in restraint of trade,
unless the Federal Reserve finds that the anticompetitive effects of the
proposed transaction are clearly outweighed in the public interest by the
probable effect of the transaction in meeting the convenience and needs of the
community to be served. In conducting its review of any application for
approval, the Federal Reserve is required to consider the financial and
managerial resources and future prospects of the company or companies and the
banks concerned, and the convenience and needs of the community to be served.
The BHC Act also requires the Federal Reserve to notify the Attorney
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General of the United States of the approval of any transaction. Any action
brought under the antitrust laws by the Attorney General (acting through the
Department of Justice) arising out of any transaction must be commenced by the
Department of Justice prior to the earliest date the transaction could be
consummated, which, with certain limited exceptions, is 30 days after the
Federal Reserve approval. The BHC Act further requires that consummation of
approved acquisitions or mergers be delayed for a period of not less than 30
days following the date of Federal Reserve approval, during which time
complaining parties may obtain a review of the Federal Reserve's order by filing
a petition requesting that the order be set aside in the United States Court of
Appeals for the District of Columbia Circuit or in the United States Court of
Appeals for the circuit in which the complaining party has its principal place
of business. If no action based on the antitrust laws is commenced before the
termination of the 30-day period, the acquisition or merger may not be attacked
thereafter in any judicial proceeding on the ground that it alone and of itself
constituted a violation of any antitrust laws other than Section 2 of the
Sherman Antitrust Act. On January 25, 1999, CSBI filed an application with the
Federal Reserve to acquire Independent pursuant to the Merger Agreement.
The Merger is also subject to approval by the Georgia Department of Banking
and Finance (the "DBF"). On [_________, 1999], the DBF approved CSBI's
application to acquire Independent. In addition, the Merger is subject to
approval by the Superintendent of Banks of the State of Alabama (the
"Superintendent"). On [__________, 1999], the Superintendent approved CSBI's
application to acquire Independent.
THE MERGER CANNOT PROCEED IN THE ABSENCE OF THE REQUISITE REGULATORY
APPROVALS. THERE CAN BE NO ASSURANCE THAT SUCH REGULATORY APPROVALS WILL BE
OBTAINED OR AS TO THE DATES OF ANY SUCH APPROVALS. THERE CAN ALSO BE NO
ASSURANCE THAT SUCH APPROVALS WILL NOT CONTAIN A CONDITION OR REQUIREMENT WHICH
CAUSES SUCH APPROVALS TO FAIL TO SATISFY THE CONDITIONS SET FORTH IN THE MERGER
AGREEMENT. SEE "- CONDITIONS TO CONSUMMATION." THERE CAN LIKEWISE BE NO
ASSURANCE THAT THE UNITED STATES DEPARTMENT OF JUSTICE WILL NOT CHALLENGE THE
MERGER, OR, IF SUCH A CHALLENGE IS MADE, AS TO THE RESULT THEREOF.
The BHC Act discussed above provides for the publication of notices and the
administrative hearings relating to the federal or state filings noted above and
permits interested parties to intervene in the proceedings. If interested
parties intervene, administrative and judicial proceedings relating to both
federal and state filings could substantially delay the regulatory approvals
required for consummation of the Merger.
AMENDMENT, WAIVER, AND TERMINATION
To the extent permitted by law, Independent and CSBI, with the approval of
their respective Boards of Directors, may amend the Merger Agreement by written
agreement at any time without the approval of the Independent Shareholders,
provided that, after the approval of the Merger by Independent Shareholders, no
amendment may decrease the consideration to be received by Independent
Shareholders without the approval of Independent Shareholders.
Prior to or at the Effective Time, either CSBI or Independent may waive any
default in the performance of any term of the Merger Agreement by the other
party, may waive or extend the time for the fulfillment by the other party of
any of its obligations under the Merger Agreement, and may waive any of the
conditions precedent to the obligations of such party under the Merger
Agreement, except any condition that, if not satisfied, would result in the
violation of an applicable law.
The Merger Agreement may be terminated, and the Merger abandoned, at any
time prior to the Effective Time, by mutual consent of the Boards of Directors
of CSBI and Independent. In addition, the Merger Agreement may be terminated,
and the Merger abandoned, prior to the Effective Time by either CSBI or
Independent if (i) the other party breaches and does not timely cure any
representation or warranty contained in the Merger Agreement, (ii) any consent
of any regulatory authority required for consummation of the Merger is 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 the Independent
shareholders fail to approve the Merger Agreement at the Special Meeting, (iii)
the Merger has not been consummated by June 30, 1999, or (iv) any of the
conditions precedent to the obligation of the terminating party to consummate
the Merger cannot be satisfied by June 30, 1999. In addition, the Merger
Agreement may be terminated by CSBI in the event that the Independent Board of
Directors shall have failed to
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reaffirm, following a written request by CSBI for such reaffirmation after
Independent shall have received any inquiry or proposal with respect to an
"Acquisition Proposal" (as defined in the Merger Agreement), its approval of the
Merger and the transactions contemplated by this Agreement (to the exclusion of
any other Acquisition Proposal), or shall have resolved not to reaffirm the
Merger.
CONDUCT OF BUSINESS PENDING THE MERGER
Under the terms of the Merger Agreement, Independent has agreed, except as
otherwise contemplated by the Merger Agreement or with the prior written consent
of CSBI, to (i) operate its business and cause Bank to operate its business only
in the usual, regular and ordinary course, (ii) preserve intact its business
organizations and assets and maintain its rights and franchises, (iii) use its
reasonable efforts to cause its representations and warranties to be correct at
all times, and (iv) take no action which would (a) adversely affect the ability
of any party to obtain any consents required for the transactions contemplated
by the Merger Agreement without imposition of a condition or restriction which,
in the reasonable judgment of the Board of Directors of CSBI, would so
materially adversely impact the economic or business benefits of the
transactions contemplated by the Merger Agreement as to render inadvisable the
consummation of the Merger or (b) adversely affect in any Material (as defined
in the Merger Agreement) respect the ability of either party to perform its
covenants and agreements under the Merger Agreement.
In addition, Independent has agreed in the Merger Agreement not to take
certain actions relating to the operation of its businesses pending consummation
of the Merger without the prior consent of the Chief Executive Officer of CSBI
(which consent shall not be unreasonably withheld). Such actions include,
without limitation: (i) amending the charter, bylaws or other governing
instruments of Independent or Bank; (ii) becoming responsible for any obligation
for borrowed money in excess of an aggregate of $50,000, except in the ordinary
course of business of Independent and Bank consistent with past practices or
allowing the imposition of a lien on Bank stock; (iii) acquiring or exchanging
(other than exchanges in the ordinary course under employee benefit plans) any
shares (or securities convertible into any shares) of capital stock of
Independent or paying any dividend on Independent Common Stock; except that
Independent may pay a cash dividend of not more than $.29 per share to
shareholders of record on March 1, 1999 and June 15, 1999 unless the Closing
occurs prior to such date; (iv) subject to certain exceptions, issuing, selling
or pledging additional shares of Independent Common Stock, any rights to acquire
any such stock or any security convertible into such stock; (v) adjusting or
reclassifying any capital stock of Independent or disposing of any asset having
a book value in excess of $25,000, other than in the ordinary course, (vi)
acquiring control over any real property, with certain exceptions, (vii)
purchasing any securities or making any investments in any person other than
Bank or otherwise acquiring direct or indirect control over any person with
certain exceptions, (viii) granting any increase in compensation or benefits to
the employees or officers of Independent or Bank exceeding 5% (except as
previously disclosed to CSBI, as required by law or in connection with Joel B.
Carter's employment contract), paying any bonus, entering into or amending any
severance agreements with officers of either Independent or Bank, granting any
increase in compensation or other benefits to directors of either Independent or
Bank (except as previously disclosed to CSBI); (ix) entering into or amending
(unless required by law) any employment contract that neither Independent nor
Bank have the unconditional right to terminate without certain liability; (x)
subject to certain exceptions, adopting any new employee benefit plan of
Independent or Bank or materially changing any existing plan or program; (xi)
making any significant change in tax or accounting methods, except for any
change required by law or generally accepted accounting principles, consistently
applied ("GAAP"); (xii) commencing any litigation other than in accordance with
past practice or settling any litigation for money damages in excess of $25,000
or which place material restrictions on the operations of Independent or Bank;
or (xiii) except in the ordinary course of business, modifying, amending or
terminating any material contracts or waiving, releasing or assigning any
material rights or claims.
In addition, Independent has agreed that neither it nor its affiliates or
representative shall solicit or engage in negotiations concerning, or provide
any confidential information or assistance to or have any discussions with any
person relating to, an Acquisition Proposal (as defined in the Merger
Agreement), other than the transactions contemplated by the Merger Agreement.
Pursuant to the Merger Agreement, except to the extent necessary to comply with
the fiduciary duties of the Independent Board of Directors as determined by the
Independent Board of Directors after consulting with and considering the advice
of counsel, neither Independent nor any affiliate or representative thereof
shall furnish any non-public information that it is not legally obligated to
furnish, negotiate with respect to, or enter into any contract with respect to,
any Acquisition Proposal, but Independent may communicate information about such
an Acquisition Proposal to its shareholders if and to the extent that it is
required to do so in order to comply with its legal obligations as advised by
counsel. In the Merger Agreement, Independent also agreed to terminate any
negotiations conducted prior to the date of the Merger Agreement with
23
<PAGE>
any parties other than CSBI with respect to any of the foregoing and agreed to
use its reasonable efforts to cause its representatives not to engage in any of
the foregoing. Independent has further agreed to promptly advise CSBI following
the receipt of any Acquisition Proposal and the material details thereof.
EXPENSES AND FEES
The Merger Agreement provides that each party shall be responsible for its
own direct costs and expenses incurred in connection with the negotiation and
consummation of the transactions contemplated by the Merger Agreement, except
that CSBI shall pay the filing fee in connection with the Registration Statement
and the Proxy Statement and one-half of the printing costs incurred in
connection with printing the Registration Statement and the proxy statement. If
the Merger Agreement is terminated prior to the Effective Time by either party
as a result of the other party's breach of its representations, warranties or
agreements set forth in the Merger Agreement, such breaching party shall pay to
the terminating party, as its sole remedy, the reasonable direct costs and
expenses incurred by the terminating party in connection with the Merger, plus
$500,000.
ACCOUNTING TREATMENT
The Merger is anticipated to be accounted for on a pooling-of-interests
basis. Under this method of accounting, as of the Effective Time the assets and
liabilities of Independent would be added to those of CSBI at their recorded
book values and the shareholders' equity accounts of CSBI and Independent would
be combined on CSBI's consolidated balance sheet. The unaudited pro forma
financial information contained in this Proxy Statement/Prospectus has been
prepared using the pooling-of-interests accounting method. See "SUMMARY" and
"PRO FORMA COMBINED FINANCIAL DATA."
RESALES OF CSBI COMMON STOCK
The shares of CSBI Common Stock to be issued to shareholders of Independent
in the Merger have been registered under the Securities Act. Such shares may be
traded freely and without restriction by those shareholders not deemed to be
"affiliates" of Independent or CSBI as that term is defined under the Securities
Act. Any subsequent transfer of such shares, however, by any person who is an
affiliate of Independent at the time the Merger is submitted for a vote or
consent of the shareholder of Independent will, under existing law, require
either (i) the further registration under the Securities Act of the shares of
CSBI Common Stock to be transferred, (ii) compliance with Rule 145 promulgated
under the Securities Act (permitting limited sales under certain circumstances),
or (iii) the availability of another exemption from registration. An "affiliate"
of Independent, as defined by the rules promulgated pursuant to the Securities
Act, is a person who directly, or indirectly through one or more intermediaries,
controls, is controlled by, or is under common control with Independent. In
addition, under the requirements for the pooling-of-interests method of
accounting, the shares of CSBI Common Stock issued to affiliates are not
transferable until such time as financial results covering at least 30 days of
combined operations of CSBI and Independent have been published. The foregoing
restrictions are expected to apply to the directors, executive officers, and the
beneficial holders of 10% or more of the Independent Common Shares (and to
certain relatives or the spouse of any such person and any trust, estates,
corporations, or other entities in which any such person has a 10% or greater
beneficial or equity interest).
In addition, Independent has agreed that it will use its reasonable efforts
to cause each person or entity that is an "affiliate" for purposes of Rule 145
and the pooling-of-interests accounting rules to enter into a written agreement
in substantially the form attached to the Merger Agreement relating to such
restrictions on sale or other transfer.
DISSENTERS' RIGHTS OF APPRAISAL
The following discussion is not a complete statement of the law pertaining
to dissenters' rights under the ABCA and is qualified in its entirety by the
full text of Article 13 of the ABCA, which is attached to this Proxy
Statement/Prospectus as Appendix B.
Holders of Independent Common Stock will be entitled to assert dissenters'
rights with respect to the Merger in accordance with Article 13 of the ABCA
("Article 13"). Any shareholder who wishes to assert such dissenters' rights, or
who wishes to preserve the right to do so, should review the following
discussion and Appendix B carefully because failure to comply with the specified
procedures will result in the loss of dissenters' rights.
24
<PAGE>
A holder of Independent Common Stock electing to exercise dissenters'
rights (1) must deliver to Independent, before the vote of Independent
shareholders concerning the Merger is taken, written notice of his or her intent
to demand payment for his or her shares if the Merger is effectuated, and (2)
must not vote in favor of the Merger Agreement (any such holder, a "Dissenting
Shareholder"). The required written notice of intent to demand payment should be
delivered to Independent Bancorp, Inc., 402 Main Street, Oxford, Alabama 36203,
Attn.: Chief Executive Officer. The requirement of such written notice is in
addition to and separate from the requirement that such shares not be voted in
favor of the Merger Agreement, and the requirement of such written notice is not
satisfied by voting against the Merger Agreement either in person or by proxy.
The requirement that such shares not be voted in favor of the Merger Agreement
will be satisfied if no proxy is returned and such shares are not voted in
person. Because a properly executed and delivered proxy which is left blank
will, unless revoked, be voted FOR approval of the Merger Agreement, in order to
be assured that such shareholder's shares are not voted in favor of the Merger
Agreement, a Dissenting Shareholder who votes by proxy must not leave the proxy
blank but must (i) vote AGAINST the approval of the Merger Agreement or (ii)
affirmatively ABSTAIN from voting. Neither a vote against approval of the Merger
Agreement nor an abstention will satisfy the requirement that a written notice
of intent to demand payment be delivered to Independent before the vote on the
Merger Agreement.
Both holders of record and beneficial owners of Independent Common Stock
are entitled to assert dissenters' rights for the shares registered in the name
of such record holder or held for the benefit of such beneficial owner.
Dissenters' rights may be asserted with respect to less than all shares of
Independent Common Stock held of record by such holder only if such holder
dissents with respect to all shares beneficially owned by any one person and
notifies Independent in writing of the name and address of each person on whose
behalf such record holder is asserting dissenters' rights. A beneficial owner,
in order to assert his or her dissenters' rights, must submit to Independent the
record shareholder's written consent to the dissent prior to or
contemporaneously with such assertion and must dissent with respect to all
shares of which he or she is the beneficial owner or over which he or she has
the power to vote. Where no number of shares is expressly mentioned, the notice
of intent to demand payment will be presumed to cover all shares held in the
name of the record holder.
No later than 10 days after the Articles of Merger are filed with the
Secretary of State of the State of Alabama (or other action giving legal effect
to the Merger occurs), Independent will send a written dissenters' notice to
each Dissenting Shareholder who did not vote in favor of the Merger and who duly
filed a written notice of intent to demand payment in accordance with the
foregoing. The dissenters' notice will (i) state where each Dissenting
Shareholder must send a payment demand, (ii) inform each Dissenting Shareholder
to what extent the transfer of his shares will be restricted after his payment
demand is received, (iii) specify the deadline by which time Independent must
receive a payment demand from such Dissenting Shareholder and (iv) include a
form for demanding payment. The dissenters' notice will also be accompanied by a
copy of Article 13. The deadline for receipt of a shareholder's payment demand
will be no fewer than 30 nor more than 60 days after the date the dissenters
notice is delivered. It is the obligation of Dissenting Shareholders to initiate
all necessary action to perfect their dissenters' rights within the time periods
prescribed in Article 13 and the dissenters' notice. If no payment demand is
timely received from a Dissenting Shareholder, all dissenters' rights will be
lost, notwithstanding any previously written notice of intent to demand payment.
Each Dissenting Shareholder who demands payment retains all other rights of a
shareholder until those rights are canceled or modified by the Merger. A
Dissenting Shareholder who demands payment in accordance with the foregoing may
not thereafter withdraw that demand and accept the terms offered under the
Merger Agreement unless Independent consents to such a withdrawal and
acceptance.
Within 20 days after making a formal payment demand, a Dissenting
Shareholder must submit his share certificate or certificates to Independent so
that Independent may make a notation on such certificate or certificates that a
payment demand has been made. The shares must then be returned to the Dissenting
Independent Shareholder with the notation made on them. A Dissenting
Shareholder's failure to submit shares for notation will, at Independent's
option, terminate such person's rights as a dissenter, unless a court of
competent jurisdiction determines otherwise. If shares containing such notation
are later transferred, each new certificate issued for those shares shall bear a
similar notation and the name of the original Dissenting Shareholder. Moreover,
the person or entity to whom such shares are transferred shall only acquire from
the transfer the rights the original Dissenting Shareholder had after making a
payment demand.
As soon as the Articles of Merger are filed with the Secretary of State of
the State of Alabama (or other action giving legal effect to the Merger occurs),
or upon receipt of a payment demand, Independent shall offer to pay each
Dissenting Shareholder who has complied with the procedures outlined above the
amount Independent
25
<PAGE>
estimates to be the fair market value of such Dissenting Shareholder's shares,
plus accrued interest from the effective date of the Merger at a rate of _____%.
This offer will be accompanied by those materials required by Article 13. Each
Dissenting Shareholder who agrees to accept the above-referenced offer of
payment in full satisfaction of his or her demand must surrender to Independent
the certificate or certificates representing his or her shares in accordance
with the terms of the dissenters' notice. Upon receiving such certificate or
certificates, Independent will pay each dissenter complying with Article 13 the
fair market value of his or her shares, plus accrued interest. Upon receiving
such payment, a Dissenting Shareholder ceases to have any interest in the
shares.
If Independent does not consummate the Merger within 60 days after the date
set for demanding payment, Independent shall release the above-mentioned
transfer restrictions imposed on shares of a Dissenting Shareholder. If, after
releasing such transfer restrictions, Independent consummates the Merger, it
must send a new dissenters' notice and repeat the payment demand procedure.
A Dissenting Shareholder who has made a payment demand may notify
Independent in writing of his or her own estimate of the fair value of his or
her shares and the amount of interest due, and demand payment of his or her
estimate, or reject the offer made to such shareholder and demand payment of the
fair value of his or her shares and interest due, if: (i) the Dissenting
Shareholder believes that the amount offered him or her is less than the fair
value of his or her shares or that the interest due is incorrectly calculated;
(ii) Independent fails to make an offer as required by Article 13 within 60 days
after the date set for demanding payment; or (iii) Independent, having failed to
consummate the Merger, does not release the transfer restrictions imposed on
shares within 60 days after the date set for demanding payment; provided,
however, that a Dissenting Shareholder waives his or her right to demand payment
different from that offered unless he or she notifies Independent of his or her
demand in writing within 30 days after Independent offers payment for his or her
shares.
If a demand for payment under the preceding paragraph remains unsettled,
Independent shall commence a proceeding within 60 days after receiving the
payment demand and petition the court to determine the fair value of the shares
and accrued interest. If Independent does not commence the proceeding within the
60 day period, it shall pay each dissenter whose demand remains unsettled the
amount demanded. If Independent does timely commence a proceeding, each
Dissenting Shareholder whose demand remains unsettled will be made a party to
the proceeding and will be served with a copy of the petition. After service is
completed, Independent will deposit with the clerk of the court an amount
sufficient to pay unsettled claims of all dissenters who are parties to the
action in an amount per share equal to its prior estimate of fair value, plus
accrued interest. 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 Independent and deposited with the clerk of the court, Independent
shall pay the excess to the Dissenting Shareholder. If the court's determination
as to the fair value, plus accrued interest, of a dissenter's shares is less
than the amount estimated by Independent and deposited with the clerk of the
court, then the clerk shall return the balance of funds deposited, less any
costs to Independent (as discussed below).
Upon payment of the judgment and surrender to Independent of the
certificate or certificates representing the judicially appraised shares, a
Dissenting Shareholder will cease to have any interest in the shares. The court
shall assess costs of the appraisal proceeding, including the compensation and
expense of court appointed appraisers, against Independent, except that the
court may assess costs against all or some of the Dissenting Shareholders, in
amounts the court finds equitable, to the extent the court finds that such
Dissenting Shareholders acted arbitrarily, vexatiously, or not in good faith in
demanding payment different from that initially offered by Independent. The
court may also assess the reasonable fees and expenses of counsel and experts,
in amounts the court finds equitable, against Independent if Independent failed
to substantially comply with Article 13, or against any party which the court
finds acted arbitrarily, vexatiously, or not in good faith with respect to the
rights provided by Article 13. If the court finds that the services of counsel
for any dissenter were of substantial benefit to other dissenters, and the fees
for such services are not assessed against Independent, then the court may award
to these counsel reasonable fees to be paid out of the amounts awarded the
dissenters who were benefited.
26
<PAGE>
CENTURY SOUTH BANKS, INC. AND SUBSIDIARIES AND
INDEPENDENT BANCORP, INC. AND SUBSIDIARY
Pro Forma Condensed Combined Balance Sheet
December 31, 1998
(Unaudited)
The following unaudited pro forma condensed combined balance sheet combines the
historical consolidated balance sheets of CSBI and Independent as if the Merger
had been effective December 31, 1998. The acquisition of Independent will be
accounted for using the pooling-of-interests method of accounting. The proposed
acquisition will involve the acquisition of 100% of the issued and outstanding
shares of Independent in exchange for 699,186 shares of CSBI common stock (see
note (a)). This pro forma condensed combined balance sheet assumes that as part
of the Merger, 699,186 shares of CSBI Common Stock will be issued in exchange
for all the shares of Independent's Common Stock outstanding at December 31,
1998 at an exchange ratio of 3.2520. This pro forma condensed combined balance
sheet should be read in conjunction with the separate financial statements and
related notes of CSBI and Independent appearing elsewhere in, or incorporated by
reference in, this Proxy Statement/Prospectus.
<TABLE>
<CAPTION>
HISTORICAL HISTORICAL PRO FORMA PRO FORMA
ASSETS CSBI INDEPENDENT ADJUSTMENT CONSOLIDATED
- ------ ---- ----------- ---------- ------------
<S> <C> <C> <C> <C>
Cash and due from banks $ 49,227 $ 2,198 $ 51,425
Federal funds sold 29,430 1,120 30,550
Interest bearing deposits 7,875 74 7,949
Investment securities 143,561 28,005 171,566
Net loans 776,389 57,464 833,853
Premises and equipment 23,686 1,614 25,300
Goodwill and intangibles 4,637 4,637
Foreclosed assets 4,685 4,685
---------- ------- -------- ----------
Other assets 15,462 4,318 19,780
----------
Total Assets $1,054,952 $94,793 $1,149,745
========== ======= ======== ==========
Liabilities
Deposits:
Noninterest bearing $ 135,787 $ 7,220 $ 143,007
Time deposits greater than $100,000 127,706 31,879 159,585
Other interest bearing 649,460 44,256 693,716
---------- ------- -------- ----------
Total Deposits $ 912,953 $83,355 $ 996,308
FHLB advances 12,780 3,500 16,280
Long term debt 35 35
Other liabilities 9,853 1,192 11,045
---------- ------- -------- ----------
Total Liabilities $ 935,621 $88,047 $1,023,668
Shareholders' equity
Common stock 11,088 2 697* 11,787
Surplus 34,955 1,848 (697)* 36,106
Retained earnings 73,442 4,802 78,244
Treasury stock (1,051) (1,051)
Accumulated other comprehensive income 897 94 991
Total Shareholders' Equity $ 119,331 $ 6,746 $ 126,077
---------- ------- ----------
Total Shareholders' Equity and $1,054,952 $94,793 $1,149,745
Liabilities ========== ======= ==========
Tier I Capital to Assets 10.52%
Debt to Equity Ratio 0.03% 0.03%
* (see note (b))
</TABLE>
27
<PAGE>
CENTURY SOUTH BANKS, INC. AND SUBSIDIARIES AND
INDEPENDENT BANCORP, INC. AND SUBSIDIARY
Pro Forma Financial Information
Pro Forma Condensed Combined Statements of Income
The following unaudited pro forma condensed combined consolidated statements of
income of CSBI and Independent give effect to the proposed acquisition of all
issued and outstanding shares of Independent Common Stock in exchange for 3.2520
shares of CSBI common stock for each share of Independent Common Stock to be
issued to Independent Shareholders using the pooling-of-interests method of
accounting and giving effect to the Merger as if the Merger had been effective
as of the beginning of the periods presented. The pro forma information assumes
that 699,186 shares of CSBI Common Stock will be issued in exchange for all the
shares of Independent Common Stock outstanding immediately prior to the
Effective Time. The pro forma condensed combined consolidated statements of
income should be read in conjunction with the separate financial statements and
related notes of CSBI and Independent appearing elsewhere in, or incorporated by
reference in, this Proxy Statement/Prospectus.
For the year ended December 31, 1998
(Unaudited)
<TABLE>
<CAPTION>
HISTORICAL HISTORICAL PROFORMA
CSBI INDEPENDENT ADJUSTMENTS CONSOLIDATED
(Amounts in thousands, except per share amounts)
<S> <C> <C> <C> <C>
Interest income $ 91,935 $ 7,545 $ 99,480
Interest expense 38,541 4,071 42,612
------------------------------------------------------------------------
Net interest income $ 53,394 $ 3,474 - $ 56,868
Provision for loan losses 1,772 1,364 3,136
Net interest income after provision for
loan losses $ 51,622 $ 2,110 - $ 53,732
Noninterest income 15,209 615 15,824
Noninterest expense 44,717 2,048 46,765
------------------------------------------------------------------------
Income before income taxes $ 22,114 $ 677 - $ 22,791
Income tax expense (benefit) 7,433 (20) 7,413
Net Income $ 14,681 $ 697 - $ 15,378
========================================================================
Earnings per share:
Basic $ 1.34 $ 3.24 $ 1.32
Diluted 1.32 3.24 1.30
Weighted average shares outstanding:*
Basic 10,964,827 215,000 484,186 11,664,013
Diluted 11,161,175 215,000 484,186 11,860,861
</TABLE>
* (see note (c))
28
<PAGE>
CENTURY SOUTH BANKS, INC. AND SUBSIDIARIES AND
INDEPENDENT BANCORP, INC. AND SUBSIDIARY
Pro Forma Condensed Combined Statement of Income
For the Year ended December 31, 1997
(Unaudited)
<TABLE>
<CAPTION>
HISTORICAL HISTORICAL PROFORMA
CSBI INDEPENDENT ADJUSTMENTS CONSOLIDATED
---- ----------- ----------- ------------
(Amounts in thousands, except per share amounts)
<S> <C> <C> <C> <C>
Interest income $ 90,806 $ 6,510 $ 97,316
Interest expense 40,348 3,365 43,713
-----------------------------------------------------------------
Net interest income $ 50,458 $ 3,145 - $ 53,603
Provision for loan losses 5,201 196 5,397
Net interest income after provision
for loan losses $ 45,257 $ 2,949 - $ 48,206
Noninterest income 10,409 524 10,933
Noninterest expense 42,256 1,695 43,951
-----------------------------------------------------------------
Income before income taxes $ 13,410 $ 1,778 - $ 15,188
Income taxes 3,778 441 4,219
Net income $ 9,632 $ 1,337 - $ 10,969
==================================================================
Earnings per share:
Basic $ 0.89 $ 6.22 $ 0.95
Diluted 0.87 6.22 0.93
Weighted average shares outstanding:*
Basic 10,837,530 215,000 484,186 11,536,716
Diluted 11,101,412 215,000 484,186 11,800,598
</TABLE>
* (see note (c))
29
<PAGE>
CENTURY SOUTH BANKS, INC. AND SUBSIDIARIES AND
INDEPENDENT BANCORP, INC. AND SUBSIDIARY
Pro Forma Condensed Combined Statement of Income
For the Year ended December 31, 1996
(Unaudited)
<TABLE>
<CAPTION>
HISTORICAL HISTORICAL PROFORMA
CSBI INDEPENDENT ADJUSTMENTS CONSOLIDATED
---- ----------- ----------- ------------
(Amounts in thousands, except per share amounts)
<S> <C> <C> <C> <C>
Interest income $ 87,261 $ 5,495 $ 92,756
Interest expense 39,043 2,876 41,919
----------------------------------------------------------------
Net interest income $ 48,218 $ 2,619 - $ 50,837
Provision for loan losses 2,166 184 2,350
Net interest income after provision $ 46,052 $ 2,435 - $ 48,487
for loan losses
Noninterest income 9,693 541 10,234
Noninterest expense 37,796 1,665 39,461
----------------------------------------------------------------
Income before income taxes $ 17,949 $ 1,311 - $ 19,260
Income taxes 5,266 171 5,437
Net income $ 12,683 $ 1,140 - $ 13,823
================================================================
Earnings per share:
Basic $ 1.18 $ 5.30 $ 1.21
Diluted 1.15 5.30 1.18
-
Weighted average shares outstanding*
Basic 10,768,683 215,000 484,186 11,467,869
Diluted 11,001,425 215,000 484,186 11,700,611
</TABLE>
* (see note (c))
30
<PAGE>
CENTURY SOUTH BANKS, INC. AND SUBSIDIARIES AND
INDEPENDENT BANCORP, INC. AND SUBSIDIARY
Notes to Pro Forma Financial Statements
The following notes describe the pro forma adjustments necessary to reflect
the proposed acquisition of Independent as described in note (a).
(a) On September 8, 1998, CSBI entered into a Merger Agreement whereby
CSBI will acquire the 215,000 outstanding shares of Independent Common Stock in
an exchange of its common shares. Pursuant to the terms of the Merger Agreement,
as amended, CSBI will exchange its common shares for the shares of Independent
Common Stock. The number of shares will be determined by a formula, which
provides an Exchange Ratio. The precise Exchange Ratio will depend upon the
market value of CSBI Common Stock immediately prior to the Effective Time. If
the market value of CSBI's Common Stock is less than or equal to $30.75, the
Exchange Ratio will be 3.2520; if the market value is greater than or equal to
$31.50, the Exchange Ratio will be $3.1746; and if the market value is between
$30.75 and $31.50 the Exchange Ratio will be between 3.2520 and 3.1746.
(b) Reflects the issuance of 699,186 shares of CSBI Common Stock in
exchange for all of the outstanding shares of Independent Common Stock.
(c) Pro forma weighted average number of common shares and share
equivalents includes the historical amounts for CSBI increased by the additional
shares that would have been outstanding had the acquisition of Independent taken
place as of the beginning of the respective periods.
31
<PAGE>
DESCRIPTION OF INDEPENDENT
GENERAL
Independent, an Alabama corporation organized on May 1, 1995, is a bank
holding company registered under the BHC Act whose primary subsidiary and
principal asset is the Bank, an Alabama state chartered banking corporation.
Independent owns all of the outstanding capital stock of the Bank. Through its
ownership of the Bank, Independent is engaged in a general commercial banking
business and its primary source of earnings is derived from income generated by
the Bank. As of December 31, 1998, Independent had total assets of
approximately $94.8 million, net portfolio loans of approximately $57.5 million,
deposits of $83.4 million and shareholders' equity of approximately $6.7
million.
The Bank is headquartered in Oxford, Alabama, and was organized in 1988.
The Bank is not a member of the Federal Reserve System. The Bank engages in
general commercial banking and related businesses from its two full service
banking locations located in Calhoun County, Alabama.
The business of the Bank consists of attracting deposits from the general
public in the areas served by its banking offices and applying those deposits,
together with funds derived from other sources, to the origination of a variety
of consumer, commercial, residential, real estate and commercial real estate
loans in the surrounding areas. The revenues of the Bank are derived primarily
from (i) interest on, and fees received in connection with, its lending
activities, (ii) interest and dividends from investment securities and short-
term investments, and (iii) fees received in providing financial services. The
principal sources of funds for the Bank's lending and investment activities are
its deposits, amortization and payment of loans, and the maturity and repayments
of investment securities. The principal expenses of the Bank are the interest
paid on deposits and operating and general administrative expenses.
As a general commercial bank, the Bank offers a broad range of commercial,
consumer, and residential real estate loans, and provides a variety of corporate
and personal banking services to individuals, businesses, and other institutions
located in its market area. In order to attract funds for loans, the Bank's
deposit services include certificates of deposit, individual retirement accounts
(''IRAs'') and other time deposits, checking and other demand deposit accounts,
interest paying checking accounts (''NOW accounts''), savings accounts, and
money market accounts. The transaction accounts and time certificates are
tailored to the principal market areas at rates competitive to those in the
area. All deposit accounts are insured by the Federal Deposit Insurance
Corporation ("FDIC") up to the maximum limits permitted by law. The Bank also
offers ATM cards (with access to local, state and national networks), safe
deposit boxes, wire transfers, direct deposit, and automatic drafts for various
accounts.
The Bank is subject to examination and comprehensive regulation by the
Alabama Banking Department and the FDIC. As is the case with banking
institutions generally, the Bank's operations are materially and significantly
influenced by general economic conditions and by related monetary and fiscal
policies of financial institution regulatory agencies, including the FDIC and
the Federal Reserve. Deposit flows and costs of funds are influenced by
interest rates on competing investments and general market rates of interest.
Lending activities are affected by the demand for financing of real estate and
other types of loans, which in turn is affected by the interest rates at which
such financing may be offered and other factors affecting local demand and
availability of funds.
MARKET AREA
The Bank's operations are based in Oxford, Alabama and its primary market
area covers all of Calhoun County and the northern half of Talledega County.
Management of the Bank believes that its principal markets have been (i) the
expanding residential and commercial market within its primary market area, and
(ii) the established commercial, small business, and professional establishments
in its market area. Businesses and individuals are solicited through the
personal efforts of the Bank's directors and officers.
LENDING ACTIVITIES
The primary source of income generated by the Bank is from the interest
earned on both its loan and investment portfolios. To develop business, the
Bank relies to a great extent on the personalized approach of its directors and
officers who have extensive business and personal contacts in the Bank's local
community. Independent has attempted to maintain diversification when
considering investments and the approval of loan
32
<PAGE>
requests. Emphasis has been placed on the borrower's ability to generate cash
flow sufficient to support its debt obligation and other cash-related expenses.
Lending activities include commercial and consumer loans, and loans for
residential purposes. Commercial loans include collaterized and
uncollateralized loans for working capital (including inventory and
receivables), business expansion (including real estate acquisitions and
improvements), and purchases of equipment and machinery. Consumer loans include
collateralized and uncollateralized loans for the purchase of automobiles,
boats, home improvement and personal investments. The Bank also originates a
variety of residential real estate loans, including conventional mortgages
collateralized by first mortgage liens, to enable borrowers to purchase,
refinance or improve homes or real property. In addition, such loans include
those made to individual borrowers collateralized by first mortgage liens on
unimproved parcels of real estate on which the borrower intends to erect his
personal residence. To a lesser extent, the Bank also has made land acquisition
and development loans and construction loans to develop residential properties
for construction of residential subdivisions and multi-family residential
projects. The Bank provides personal and corporate credit cards, VISA or
MasterCard credit cards, as issued by a correspondent bank which assumes all
liabilities relating to underwriting of credit applicants.
At December 31, 1998, Independent's net loan portfolio was $57.5 million,
representing 60.6% of total assets. As of such date, the Bank's net loan
portfolio consisted of 15.9% commercial loans, 57.8% real estate mortgage loans,
4% real estate construction loans, and 22.4% installment or consumer loans.
DEPOSITS
Deposits are the primary source of funds for Independent. Independent's
deposits consist of checking accounts, regular savings accounts, NOW accounts,
money market accounts, certificates of deposit and jumbo certificates of
deposit. Deposits are attracted from individuals, partnerships and corporations
in all of Calhoun County and the northern half of Talledega County, Alabama. In
addition, Independent obtains deposits from state and local entities and, to a
lesser extent, U. S. Government and other depository institutions. Independent
does not accept brokered deposits.
INVESTMENTS
Independent maintains an investment strategy of seeking portfolio yields
within acceptable risk levels, as well as providing liquidity. Independent
maintains two classifications of investment securities: "Held to Maturity" and
Available for Sale". The "Available for Sale" securities are carried at fair
market value. Investments are made in U. S. Government and agency securities,
mortgaged-backed securities, State and municipal securities and equity
securities.
COMPETITION
The Bank encounters strong competition both in attracting deposits and in
the origination of loans. Competition among financial institutions is based
upon interest rates offered on deposit accounts, interest rates charged on loans
and other credit service charges, the quality of the services rendered, and the
convenience of banking facilities. The deregulation of the banking industry and
the widespread enactment of laws which permit multi-bank holding companies as
well as the availability of nationwide interstate banking has created a highly
competitive environment for financial service providers in the Bank's primary
market area. In one or more aspects of its business, the Bank has competed with
other commercial banks, savings and loan associations, credit unions, finance
companies, mutual funds, insurance companies, brokerage and investment banking
companies, and other financial intermediaries operating in its market area and
elsewhere. Most of these competitors, some of which are affiliated with large
bank holding companies, have substantially greater resources and lending limits
than the Bank, and may offer certain services that the Bank does not provide.
In addition, many of the Bank's non-bank competitors are not subject to the same
extensive federal regulations that govern bank holding companies and state
chartered and federally insured banks.
The Bank's primary market area is served by 7 commercial banks and 10
credit unions. As of December 31, 1998, deposits totaled approximately
$1,402,600,000 in the primary market.
33
<PAGE>
EMPLOYEES
At December 31, 1998, the Bank employed 35 full-time employees and 1 part-
time employee. None of these employees are covered by a collective bargaining
agreement, and management believes that its employee relations are excellent.
DESCRIPTION OF PROPERTY
The principal administrative office of Independent is located at 402 Main
Street, Oxford, Alabama, and such office also serves as the Bank's primary
banking facility. This facility consists of approximately 10,000 usable square
feet on one floor, situated on land owned by the Bank. The main area is
comprised of a lobby, customer service area, inside teller stations, safe
deposit booths, the vault and the Bank's loan department and is the location of
the Bank's primary retail banking operations.
The Bank has a branch office located at 1100 Quintard Avenue, Anniston,
Alabama. The 1,500 square foot facility includes a lobby with 3 teller
stations, 2 executive offices, a vault area and 2 outside drive-in teller
operations. The Bank owns the land and all improvements thereon.
LEGAL PROCEEDINGS
Independent is periodically party to or otherwise involved in legal
proceedings arising in the normal course of business, such as claims to enforce
liens, foreclose on loan defaults, claims involving the making and servicing of
real property loans, and other issues incident to Independent and the Bank's
business. Management is not aware of any proceeding threatened or pending
against Independent or the Bank which, if determined adversely, would have a
material effect on the business or financial position of Independent.
OWNERSHIP OF INDEPENDENT COMMON STOCK
The following table sets forth the number of shares and percentages of
outstanding shares of Independent Common Stock which were owned at February 16,
1999, by the directors and executive officers of Independent. Percentages of
shares beneficially owned are based on 215,000 shares outstanding at February
16, 1999.
<TABLE>
<CAPTION>
NAME OF BENEFICIAL OWNER* NUMBER OF SHARES PERCENTAGE
------------------------------------------------------------------------------------------------------
<S> <C> <C>
Joel B. Carter 1,366 .63%
------------------------------------------------------------------------------------------------------
Oscar Cotton 10,243 4.76%
------------------------------------------------------------------------------------------------------
Fred M. Denney 23,492 10.92%
------------------------------------------------------------------------------------------------------
Jimmy L. Hall 13,657 6.35%
------------------------------------------------------------------------------------------------------
Robert McCormick 9,825 4.56%
------------------------------------------------------------------------------------------------------
Leon Smith 10,649 4.96%
------------------------------------------------------------------------------------------------------
John H. Street, Jr. 7,052 3.28%
------------------------------------------------------------------------------------------------------
Charles Strickland 7,881 3.66%
------------------------------------------------------------------------------------------------------
Horace N. Thrower 9,278 4.31%
All directors and executive officers
as a group (9 persons) 94,443 43.46%
------------------------------------------------------------------------------------------------------
</TABLE>
* Except as otherwise indicated, the persons named in the above table have
sole voting and investment power with respect to all shares of common stock
shown as beneficially owned by them. Information as to beneficial
ownership of common stock has been furnished by the respective persons
listed in the above table.
34
<PAGE>
INDEPENDENT BANCORP, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
GENERAL
Independent Bancorp, Inc.'s Management's Discussion and Analysis of
Financial Condition and Results of Operations should be read in conjunction with
the information and tables which follow.
SUMMARY
Net income for 1998 was $696,994, a 47.9% decrease from Independent's net
income for 1997. Net income for 1997 was $1,337,341, a 17.3% increase from net
income of $1,140,009 in 1996. Net income per common share for 1998 was $3.24.
For 1997, net income per common share was $6.22 compared to $5.30 per share for
1996. Pretax income for 1998 decreased $1,101,306 or 61.9%. Pretax income for
1997 increased $466,795 or 35.6% from 1996.
The decrease in net income from 1997 to 1998 was due to an increase in the
loan loss reserve based on a provision of $1,363,750 as compared to a provision
of only $196,000 for 1997. The increase in net income from 1996 to 1997 is
primarily due to the overall increase in total loans. The increased provision
for 1998 related primarily to the replenishment of the reserve for current year
net charge-offs of $474,000 and an additional provision to cover recently
identified potential risks in the loan portfolio as evaluated by management.
FINANCIAL CONDITION
Earning Assets. Average earning assets in 1998 increased $12,033,000 or
16.7% primarily due to an increase in loan volume. Average earning assets in
1997 increased $10,257,000 or 16.6% over 1996 also due to an increase in loan
volume.
Loan Portfolio. Independent's average loans for 1998 were $55,355,000, an
increase of 19.3% over 1997. Average loans for 1997 were $46,386,000, an
increase of 23.6% over $37,520,000 in average loans for 1996. Loan growth for
1998 and 1997 was primarily funded from deposit growth. The most significant
loan growth was in real estate loans and consumer loans. Real estate loans
increased by $3,368,000 or 10.6% over 1997 and $5,511,000 or 20.0% over 1996.
Consumer loans increased by $3,917,000 or 37.3% over 1997 and $3,100,000 or
45.9% over 1996. The increase in ending balances from 1997 to 1998 and 1996 to
1997 was consistent with the increase in average balances.
Investment Portfolio. Independent's average investment securities
portfolio increased $3,420,000 or 14.3% from 1997 to 1998. Independent's
average investment securities portfolio increased by $1,892,000 or 8.6% from
1996 to 1997.
Independent maintains an investment strategy of seeking portfolio yields
within acceptable risk levels, as well as providing liquidity. Independent
maintains two classifications of investment securities: "Held to Maturity" and
"Available for Sale." The "Available for Sale" securities are carried at fair
market value. At year-end 1998, net unrealized gains in the investment
portfolio amounted to $910,000. At the end of 1997, the investment portfolio
had net unrealized gains of $760,000.
Deposits. Independent's average deposits increased $10,691,000 or 15.3%
from 1997 to 1998. Independent's average deposits increased $9,350,000 or 15.4%
from 1996 to 1997. From year-end 1997 to year-end 1998, total deposits increased
$9,913,000 or 13.5%. From year-end 1996 to year-end 1997, total deposits
increased $11,174,000 or 17.9%. The largest portion of growth during 1998 was
in time deposits which increased $8,277,000 or 15.4% from year-end 1997. From
1997 to 1998 interest-bearing transaction deposits increased $1,100,000 or
12.2%, savings deposits increased $537,000 or 16.3%, time deposits of less than
$100,000 increased $3,024,000 or 11.1% and time deposits of $100,000 or more and
open time deposits increased $5,253,000 or 19.7%.
Capital Resources. Stockholders' equity increased $390,000 or 6.1% to
$6,746,000 as of December 31, 1998, compared to $6,356,000 as of December 31,
1997, and $5,148,000 at the end of 1996. Net income for fiscal
35
<PAGE>
year ended 1998 less dividends to shareholders of $344,000 and an increase in
unrealized gains on "Available for Sale" securities accounted for all the
increase in stockholders' equity during 1998.
BALANCE SHEET MANAGEMENT
Liquidity Management. Liquidity is the ability of a company to convert
assets into cash without significant loss and to raise funds by increasing
liabilities. Liquidity management involves having the ability to meet day-to-
day cash flow requirements of its customers, whether they are depositors wishing
to withdraw funds or borrowers requiring funds to meet their credit needs.
The primary function of asset/liability management is not only to assure
adequate liquidity in order for Independent to meet the needs of its customer
base, but to maintain an appropriate balance between interest-sensitive assets
and interest-sensitive liabilities so that Independent can profitably deploy its
assets. Both assets and liabilities are considered sources of liquidity funding
and both are, therefore, monitored on a daily basis.
The asset portion of the balance sheet provides liquidity through loan
repayments and sales and maturities of investment securities. Additional
sources of liquidity are prepayments from mortgage-backed securities in the
investment portfolio.
The liability portion of the balance sheet provides liquidity through
various interest-bearing and noninterest-bearing deposit accounts. At year-end
1998, Independent had $4,650,000 of federal funds available and a line of credit
from The Federal Home Loan Bank of which approximately $1,500,000 was available
and unused.
RESULTS OF OPERATIONS
Net Interest Income. Net interest income is the principal component of a
financial institution's income stream and represents the spread between interest
and fee income generated from earning assets and the interest expense paid on
deposits and borrowings. The following discussion is on a fully taxable
equivalent basis.
Net interest income for 1998 increased $359,000 or 10.0% over 1997. Net
interest income for 1997 increased $546,000 or 18.0% over 1996. The increase in
net interest income from 1997 to 1998 is primarily due to the increase in total
loans. The increase in the net interest income from 1996 to 1997 was also
attributable to an increase in total loans.
Interest income increased $1,065,000 or 15.3% in 1998 from 1997 and
increased $1,035,000 or 17.5% in 1997 from 1996. Interest income produced by
the loan portfolio increased $929,000 or 18.5% in 1998 from 1997 and increased
$923,000 or 22.6% in 1997 from 1996. Interest income on investment securities
increased $154,000 or 8.4% from 1997 to 1998 and increased $141,000 or 8.3% from
1996 to 1997. The increases in investment income from 1997 to 1998 and from
1996 to 1997 are primarily due to increases in average investment securities.
Other interest income decreased $18,000 or 19.4% from 1997 to 1998 and decreased
by $29,000 or 23.8% from 1996 to 1997.
Total interest expense increased $706,000 or 21.0% from 1997 to 1998 and
increased by $489,000 or 17.0% in 1997 from 1996. The interest expense increase
from 1997 to 1998 and from 1996 to 1997 is primarily due to an increase in
interest bearing time deposits.
The trend in net interest income is commonly evaluated in terms of average
rates using the net interest margin and the interest rate spread. The net
interest margin, or the net yield on earning assets, is computed by dividing
fully taxable equivalent net interest income by average earning assets. The
interest rate spread represents the difference between the average yield on
average earning assets and the average rate paid for all funds used to support
those earning assets including both interest-bearing and noninterest-bearing
sources. The net interest margin decreased 28 basis points in 1998 to 4.68% from
4.96%. The net interest spread decreased 21 basis points from 4.27% for 1997 to
4.06% for 1998. The net cost of funds, defined as interest expense divided by
average earning assets, increased 17 basis points from 4.67% in 1997 to 4.84% in
1998. The net interest margin increased 6 basis points in 1997 to 4.96% from
4.90% for 1996. The net interest spread increased 7 basis points from 4.20% for
1996 to 4.27% for 1997. The net cost of funds increased 2 basis points from
4.65% in 1996 to 4.67% in 1997.
36
<PAGE>
The interest rate spread measures the difference between the average yield
on earning assets and the average rate paid on interest bearing sources of
funds. The interest rate spread eliminates the impact of noninterest bearing
funds and gives a direct perspective on the effect of market interest rate
movements. During recent years, the net interest margins and interest rate
spreads have been under intense pressure to maintain historical levels, due in
part to tax laws that discouraged investment in tax-exempt securities and
intense competition for funds with non-bank institutions. As a result of lower
market interest rates during 1998, the interest rate spread decreased 21 basis
points from 1997 to 1998. Higher market interest rates during 1997 resulted in
an interest rate spread increase of 7 basis points from 1996.
Allowance for Loan Losses. Lending officers are responsible for the
ongoing review and administration of each loan. They make the initial
identification of loans which present some difficulty in collection or where
there is an indication that the probability of loss exists. Lending officers
are responsible for the collection efforts on a delinquent loan. Senior
management is informed of the status of delinquent and problem loans on a
monthly basis.
Senior management makes recommendations monthly to the board of directors
as to charge-offs. Senior management reviews the allowance for loan losses on a
monthly basis. Independent's policy is to discontinue interest accrual when
payment of principal and interest is 90 days or more in arrears.
The allowance for loan losses represents management's assessment of the
risks associated with extending credit and its evaluation of the quality of the
loan portfolio. Management analyzes the loan portfolio to determine the
adequacy of the allowance for loan losses and the appropriate provisions
required to maintain a level considered adequate to absorb anticipated loan
losses. In assessing the adequacy of the allowance, management reviews the
size, quality and risk of loans in the portfolio. Management also considers
such factors as loan loss experience, the amount of past due and nonperforming
loans, specific known risk, the status and amount of nonperforming assets,
underlying collateral values securing loans, current and anticipated economic
conditions and other factors which affect the allowance for potential credit
losses.
While it is Independent's policy to charge off in the current period the
loans in which a loss is considered probable, there are additional risks of
future losses which cannot be quantified precisely or attributed to particular
loans or classes of loans. Because these risks include the state of the
economy, management's judgment as to the adequacy of the allowance is
necessarily approximate and imprecise.
Management believes that the $1,403,822 as of December 31, 1998 and the
$514,188 as of December 31, 1997 in the allowance for loan losses are adequate
to absorb known risks in the portfolio. No assurance can be given, however,
that adverse economic circumstances will not result in increased losses in the
loan portfolio, and require greater provisions for loan losses in the future.
Nonperforming Assets. Nonperforming assets include nonperforming loans and
foreclosed real estate held for sale. Nonperforming loans include loans
classified as nonaccrual or renegotiated. Independent's policy is to place a
loan on nonaccrual status when it is contractually past due 90 days or more as
to payment of principal or interest. At the time a loan is placed on nonaccrual
status, interest previously accrued but not collected is reversed. Interest
accrued during the current year is charged against current earnings. Interest
accrued during previous years is charged against the allowance for loan losses.
Recognition of any interest after a loan has been placed on nonaccrual is
accounted for on a cash basis.
Independent had nonperforming assets of approximately $634,000 at December
31, 1998 and $266,000 as of December 31, 1997.
Noninterest Income. Noninterest income consists of revenues generated from
a broad range of financial services and activities including fee-based services
and profits and commissions earned through credit life insurance sales and other
activities. In addition, gains or losses realized from the sale of investment
portfolio securities are included in noninterest income. Total noninterest
income increased by $91,000 or 17.4% for the year ended 1998 as compared to the
same period of 1997. For the year ended December 31, 1997, total noninterest
income decreased $17,000 or 3.1% compared to 1996. The increase in 1998 is due
primarily to an increase in service charges on deposits. The decrease in
noninterest income in 1997 is due primarily to a $43,000 gain on the disposal of
assets realized in 1996 without any such gain realized in 1997.
37
<PAGE>
Fee income from service charges on deposit accounts increased $65,000 or
14.7% from 1997 to 1998 and increased $29,000 or 7.0% in 1997. Nonrecurring
items of noninterest income include investment security gains and gains/losses
on the disposal of other assets. Included in other noninterest income are gains
on sales of securities of $-0- and $1,000 in 1998 and 1997, respectively, and
gains/<losses> on disposal of assets of $-0- and <$2,000>, respectively. In
1998, Independent had $73,000 of income from insurance commissions compared to
$50,000 in 1997. The income from insurance commissions was $42,000 in 1996.
Noninterest Expenses. Noninterest expense for 1998 increased $353,000 or
20.8% from 1997 and increased $30,000 or 1.8% in 1997 from 1996. Salaries and
employee benefits increased $175,000 or 20.1% from 1997 to 1998. Salaries and
employee benefits in 1997 decreased $1,000 or 0.1% from 1996 to a total of
$868,000 at year-end 1997. The increase in 1998 was due to the addition of staff
and normal pay incentives. Other noninterest expenses increased $175,000 or
37.0% from 1997 to 1998.
Occupancy expense increased $34,000 or 14.6% from 1997 to 1998. Occupancy
expense decreased by $21,000 or 8.3% in 1997 following a decrease of $19,000 or
7.0% in 1996. Occupancy expense was lower in 1997 and 1996 due to decreases in
rent expense.
EFFECTS OF INFLATION AND CHANGING PRICES
Inflation generally increases the cost of funds and operating overhead, and
to the extent loans and other assets bear variable rates, the yields on such
assets. Unlike most industrial companies, virtually all of the assets and
liabilities of a financial institution are monetary in nature. As a result,
interest rates generally have a more significant impact on the performance of a
financial institution than the effects of general levels of inflation. Although
interest rates do not necessarily move in the same direction or to the same
extent as the prices of goods and services, increases in inflation generally
have resulted in increased interest rates. At the beginning of 1996, the
Federal Reserve Board decreased interest rates 75 basis points in an effort to
enhance growth in the economy through monetary policy. The prime rate remained
unchanged through 1996. Until March of 1997, the prime rate was 8.25%, but at
that time it increased to 8.50% where it remained through the second quarter of
1998. Subsequent to the second quarter of 1998, the prime rate decreased to
7.75%. In addition, inflation affects financial institutions' cost of goods and
services purchased, the cost of salaries and benefits, occupancy expense and
similar items. Inflation and related increases in interest rates generally
decrease the market value of investments and loans held and may adversely affect
liquidity, earnings and stockholders' equity. Mortgage originations and
refinancings tend to slow as interest rates increase and can reduce
Independent's earnings from such activities.
38
<PAGE>
NET INTEREST INCOME
The following table sets forth weighted yields earned by Independent on its
earning assets and the weighted average rates paid on its deposits and other
interest-bearing liabilities for the years indicated and certain other
information (in thousands):
<TABLE>
<CAPTION>
1998 1997
---------------------------- ---------------------------
Interest Average Interest Average
Average Income/ Yields/ Average Income Yields/
Balance Expense Rates Balance Expense Rates
-------- -------- -------- -------- -------- -------
<S> <C> <C> <C> <C> <C> <C>
ASSETS:
Interest-earning assets:
Loans 55,355 5,939 10.73% 46,386 5,010 10.80%
Investment securities
Taxable 12,148 696 5.73 9,696 613 6.32
Tax-exempt 15,192 1,295 8.52 14,224 1,224 8.61
------ ----- ------ ------
Total investment securities 27,340 1,991 7.28 23,920 1,837 7.68
------ ----- ------ ------
Interest-bearing deposits in banks 45 2 4.44 36 2 5.55
Federal funds sold 1,359 73 5.37 1,724 91 5.28
------ ----- ------ ------
Total interest-earning assets/
interest income 84,099 8,005 9.52 72,066 6,940 9.63
Cash due from banks 2,380 2,272
Other assets 4,101 2,512
Allowance for loan losses (579) (476)
------ ------
Total Assets 90,001 76,374
====== ======
LIABILITIES AND SHAREHOLDERS' EQUITY:
Interest-bearing liabilities:
Demand deposits 9,871 375 3.80 11,655 442 3.79
Savings 3,683 110 2.99 3,165 94 2.97
Time deposits 58,894 3,471 5.89 47,776 2,820 5.90
Other borrowings 2,048 115 5.62 158 9 5.70
------ ----- ------ ------
Total interest-bearing liabilities/
interest expense 74,496 4,071 5.46 62,754 3,365 5.36
Noninterest-bearing demand deposits.... 8,172 7,333
Other liabilities 840 634
Shareholders' equity 6,493 5,653
------ ------
Total Liabilities and
Shareholders' Equity 90,001 76,374
====== ======
Net interest earnings/net
interest spread 3,934 4.06 3,575 4.27
Net yield on earning assets 4.68 4.96
Taxable equivalent adjustment:
Investment securities 443 419
Loans 18 10
----- ------
Total taxable equivalent
adjustment 461 429
----- ------
Net interest income 3,473 3,146
===== ======
</TABLE>
39
<PAGE>
RATE/VOLUME VARIANCE ANALYSIS
Taxable Equivalent Basis (In thousands)
<TABLE>
<CAPTION>
Average Volume Change in volume Average Rate
---------------------------- ------------------ --------------------
1998 1997 1996 1998-97 1997-96 1998 1997 1996
------ ------- ------- -------- -------- ----- ----- ----
<S> <C> <C> <C> <C> <C> <C> <C> <C>
INTEREST-EARNING ASSETS:
Loans 55,355 46,386 37,520 8,969 8,866 10.73% 10.80% 10.89%
Investment Securities
Taxable 12,148 9,696 8,408 2,452 1,288 5.73 6.32 6.22
Tax exempt 15,192 14,224 13,620 968 604 8.52 8.61 8.61
------- ------- -------- -------- ------
Total investment securities 27,340 23,920 22,028 3,420 1,892 7.28 7.68 7.70
------- ------- -------- ------- ------
Federal funds sold 1,359 1,724 2,214 (365) (490) 5.37 5.28 5.42
Interest-bearing deposits in banks 45 36 47 9 (11) 4.44 5.55 4.26
------- ------- -------- ------- ------
Total interest-earning assets 84,099 72,066 61,809 12,033 10,257 9.52 9.63 9.56
======= ======= ======== ======= ======
INTEREST-BEARING LIABILITIES:
Demand deposits 9,871 11,655 11,238 (1,784) 417 3.80 3.79 3.92
Savings 3,683 3,165 3,312 518 (147) 2.99 2.97 3.35
Time certificates 58,894 47,776 39,119 11,118 8,657 5.89 5.90 5.93
Other borrowings 2,048 158 137 1,890 21 5.62 5.70 3.65
------- ------- -------- ------- ------
Total interest-bearing liabilities 74,496 62,754 53,806 11,742 8,948 5.46 5.36 5.35
======= ======= ======== ======= ======
Net interest income/net interest spread 4.06 4.27 4.20
Net yield on earning assets 4.68 4.96 4.90
Net cost of funds 4.84 4.67 4.65
<CAPTION>
Income/Expense Variance 1998 1997
-------------------------- ------------------ ------------------------- ----------------------
1998 1997 1996 1998-97 1997-96 Volume Rate Mix Volume Rate Mix
------ ------- ------- -------- -------- -------- ------ ----- ------ ---- ------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
INTEREST-EARNING ASSETS:
Loans $5,939 $ 5,010 $ 4,087 $ 929 $ 923 $ 969 $ (33) $ (7) $ 966 $ (34) $ (9)
Investment securities
Taxable 696 613 523 83 90 155 (57) (15) 80 8 2
Tax exempt 1,295 1,224 1,173 71 51 84 (13) 0 52 0 (1)
------ ------- ------- -------- -------- -------- ------ ----- ------ ----- ------
Total investment
securities 1,991 1,837 1,696 154 141 239 (70) (15) 132 8 1
------ ------- ------- -------- -------- -------- ------ ----- ------ ----- ------
Federal funds sold 73 91 120 (18) (29) (20) 2 0 (27) (3) 1
Interest bearing deposits 2 2 2 0 0 1 (1) 0 (1) 1 0
------ ------- ------- -------- -------- -------- ------ ----- ------ ----- ------
Total interest-earning
assets $8,005 $ 6,940 $ 5,905 $ 1,065 $ 1,035 $ 1,189 $ (102) $ (22) $1,070 $ (28) $ (7)
====== ======= ======= ======== ======== ======== ====== ===== ====== ===== ======
INTEREST-BEARING
LIABILITIES:
Demand deposits $ 375 $ 442 $ 441 $ (67) $ 1 $ (67) $ 1 $ (1) $ 16 $ (14) $ (1)
Savings 1 10 94 111 16 (17) 15 1 0 (5) (13) 1
Time certificates 3,471 2,820 2,319 651 501 656 (5) 0 514 (12) (1)
Other borrowings 115 9 5 106 4 108 0 (2) 1 3 0
------ ------- ------- -------- -------- -------- ------ ----- ------ ----- ------
Total interest-bearing
liabilities $4,071 $ 3,365 $ 2,876 $ 706 $ 489 $ 712 $ (3) $ (3) $ 526 $ (36) $ (1)
====== ======= ======= ======== ======== ======== ====== ===== ====== ===== ======
Net interest income $3,934 $ 3,575 $ 3,029 $ 359 $ 546 $ 477 $ (99) $ (19) $ 544 $ 8 $ (6)
====== ======= ======= ======== ======== ======== ====== ===== ====== ===== ======
</TABLE>
40
<PAGE>
LIABILITY AND ASSET MANAGEMENT
The matching of assets and liabilities may be analyzed by examining the
extent to which such assets and liabilities are "interest rate sensitive" and by
monitoring an institution's interest rate sensitivity "gap." An asset or
liability is said to be interest rate sensitive within a specific time period if
it will mature or reprice within that time period. The interest rate
sensitivity gap is defined as the difference between the amount of interest-
earning assets maturing or repricing within a specific time period and the
amount of interest-bearing liabilities maturing or repricing within that 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 amount of 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.
The asset/liability committee, which consists of the president and certain
officers, is charged with monitoring the liquidity and funds position of
Independent. The Committee regularly reviews (a) the rate sensitivity position
on a three-month, six-month, and one-year time horizon; (b) loans to deposits
ratio; and (c) average maturity for certain categories of liabilities.
The following table represents an interest sensitivity profile for
Independent as of December 31, 1998. The table represents a static point in
time and does not consider other variables, such as changing spread
relationships or interest rate levels. "Net repricing gap" is the difference
between total earning assets and total interest bearing liabilities repricing in
any given period and "cumulative gap" is the sum of the net repricing gap from
period to period.
Since interest-bearing demand deposits and savings accounts do not reprice
on a regular basis, these balances have been included in the "After 5 years and
non-rate sensitive" category.
41
<PAGE>
<TABLE>
<CAPTION>
AFTER 5 YEARS
WITHIN AFTER 3 MONTHS AFTER 12 MONTHS AND NON-RATE
3 MONTHS WITHIN 12 MONTHS WITHIN 5 YEARS SENSITIVE TOTAL
---------- ------------------ --------------- -------------- --------
(In thousands)
<S> <C> <C> <C> <C> <C>
EARNING ASSETS:
Loans $21,321 $ 10,124 $ 24,781 $ 2,642 $ 58,868
Investment securities 3,097 908 2,946 21,054 28,005
Federal funds sold and
Interest-bearing deposits
in banks 1,194 0 0 0 1,194
------- -------- -------- ------- --------
Total earning assets 25,612 11,032 27,727 23,696 88,067
------- -------- -------- ------- --------
INTEREST-BEARING LIABILITIES:
Interest-bearing deposits 22,159 26,153 12,406 15,417 76,135
Other borrowed funds 0 0 3,500 0 3,500
------- -------- -------- ------- --------
Total interest-bearing
liabilities 22,159 26,153 15,906 15,417 79,635
------- -------- -------- ------- --------
RATE SENSITIVITY GAP:
Net repricing gap $ 3,453 $(15,121) $ 11,821 $ 8,279 $ 8,432
======= ======== ======== ======= ========
Net repricing gap as a
percentage of total
earning assets 13.5% (137.1)% 42.6% 34.9%
======= ======== =======
Cumulative gap $ 3,453 $(11,668) $ 153 $ 8,432
======= ======== ======== =======
Cumulative gap as a
percentage of total
earning assets 13.5% (31.8)% .24% 9.57%
======= ======== =======
</TABLE>
The above table indicates that in a rising interest rate environment, the Bank's
earnings may be adversely affected in the 0-365 day periods where liabilities
will reprice faster than assets.
DEPOSITS
Independent's primary source of funds is interest-bearing deposits. The
following table sets forth Independent's deposit structure at December 31, in
each of the last two years.
<TABLE>
<CAPTION>
December 31,
----------------
1998 1997
------- -------
(In thousands)
<S> <C> <C>
Noninterest-bearing deposits:
Individuals, partnerships and corporations $ 6,762 $ 6,688
U. S. Government and states and political subdivisions 139 267
Certified and official checks 319 267
------- -------
Total non-interest-bearing deposits 7,220 7,222
------- -------
Interest-bearing deposits:
Interest-bearing demand accounts 10,114 9,013
Savings accounts 3,827 3,290
Certificates of deposit, less than $100,000 30,315 27,291
Certificates of deposit, more than $100,000 31,879 26,626
------- -------
Total interest-bearing deposits 76,135 66,220
------- -------
Total deposits $83,355 $73,442
======= =======
</TABLE>
42
<PAGE>
The following table presents a breakdown by category of the average amount
of deposits and the average rate paid on deposits for the periods indicated:
<TABLE>
<CAPTION>
December 31,
-------------------------------
1998 1997
-------------- ---------------
(Dollars in thousands)
<S> <C> <C> <C> <C>
Amount Rate Amount Rate
------ ---- ------- ------
Noninterest-bearing deposits $ 8,172 0% $ 7,333 0%
Savings deposits 3,683 2.99 3,165 2.97
Time deposits 58,894 5.89 47,776 5.90
Interest-bearing demand 9,871 3.80 11,655 3.79
------- -------
Total deposits $80,620 4.91 $69,929 4.81
=======
</TABLE>
At December 31, 1998, time deposits greater than $100,000 aggregated
approximately $31,879,000. The following table indicates, as of December 31,
1998, the dollar amount of $100,000 or more time deposits by the time remaining
until maturity (in thousands):
<TABLE>
<CAPTION>
December 31, 1998
-----------------------------------
3 Months 3 to 12 1 to 5 Over 5
or less Months Years Years
-------- -------- ------- ------
<S> <C> <C> <C> <C>
Time certificates $15,493 $13,603 $2,239 $544
======== ======== ======= ======
</TABLE>
ASSETS
The management of Independent considers many criteria in managing assets,
including creditworthiness, diversification and structural characteristics,
maturity and interest rate sensitivity. The following table sets forth
Independent's interest-earning assets by category at December 31, in each of the
last two years.
<TABLE>
<CAPTION>
December 31,
----------------
1998 1997
------- -------
(In thousands)
<S> <C> <C>
Interest-bearing deposits with banks $ 74 $ 34
Investment securities 28,005 25,888
Federal funds sold 1,120 0
Loans:
Real estate 36,342 33,070
Commercial and other 22,526 18,003
------- -------
Total loans 58,868 51,073
------- -------
Interest-earning assets $88,067 $76,995
======= =======
</TABLE>
INVESTMENT PORTFOLIO
Independent has classified its investment securities as either held to
maturity or available for sale. The classification of certain investment
securities as available for sale is consistent with Independent's investment
philosophy of maintaining flexibility to manage the portfolio. Approximately
$910,000 of unrealized gains was included in shareholders' equity related to the
available for sale investment securities as of December 31, 1998.
At year end 1998, obligations of the United States Government or its
agencies and obligations of states and political subdivisions, including Fannie
Mae, Freddie Mac, Ginnie Mae and Small Business Administration loans represented
approximately 97% of the total investment portfolio. The following table
presents the carrying amounts of Independent's investment portfolio at December
31, in each of the last two years.
43
<PAGE>
<TABLE>
<CAPTION>
December 31,
----------------
1998 1997
------- -------
(In thousands)
<S> <C> <C>
HELD TO MATURITY:
U.S. Government and agencies $ 790 $ 850
States and political subdivisions 12,185 12,088
Mortgage-backed securities 22 47
------- -------
Total held to maturity portfolio $12,997 $12,985
======= =======
AVAILABLE FOR SALE:
U.S. Government and agencies $ 3,537 $ 3,021
States and political subdivisions 3,255 2,616
Mortgage backed securities 7,496 6,960
Equity securities 720 306
------- -------
Total available for sale portfolio $15,008 $12,903
======= =======
Total investment portfolio $28,005 $25,888
======= =======
</TABLE>
44
<PAGE>
The following table presents the maturity distribution of the cost and
estimated market value of Independent's investment portfolio at December 31,
1998. The weighted average yields on these instruments are presented based on
final maturity. Yields on obligations of states and political subdivisions have
not been adjusted to a fully-taxable equivalent basis.
<TABLE>
<CAPTION>
December 31, 1998
----------------------------------------
Amortized Estimated Weighted average
Cost Market Value yield
-------- ------------ -----------------
(In thousands)
<S> <C> <C> <C>
HELD TO MATURITY:
U.S. Government and agencies:
Due within 1 year $ 22 $ 22 7.84%
Due after 1 year but within 5 years 100 105 8.03
Due after 5 years but within 10 years 0 0 0.00
Due after 10 years 690 681 7.45
------- ------
Total 812 808
------- ------
States and political subdivision:
Due within 1 year 50 50 4.48
Due after 1 year but within 5 years 2,873 2,970 5.45
Due after 5 years but within 10 years 4,908 5,177 5.33
Due after 10 years 4,354 4,745 6.11
------- -------
Total 12,185 12,942 5.61
------- -------
Total investments held to maturity $12,997 $13,750 5.73%
======= =======
AVAILABLE FOR SALE:
U.S. Government and agencies:
Due within 1 year $ 1,456 $ 1,443 5.70%
Due after 1 year but within 5 years 3,729 3,765 7.45
Due after 5 years but within 10 years 1,892 1,917 6.81
Due after 10 years 3,939 3,908 6.51
------- -------
Total 11,016 11,033 6.77
------- -------
States and political subdivision:
Due within 1 year 153 155 6.86
Due after 1 year but within 5 years 789 821 5.54
Due after 5 years but within 10 years 321 350 6.39
Due after 10 years 1,852 1,929 5.39
------- -------
Total 3,115 3,255 5.60
------- -------
Equity Securities 720 720 6.30
------- -------
Total investments available for sale $14,851 $15,008 6.50%
======= =======
Total investments portfolio $27,848 $28,758 6.14%
======= =======
</TABLE>
INVESTMENT POLICY
The objective of Independent's investment policy is to invest funds not
otherwise needed to meet the loan demand of Independent to earn the maximum
return, yet still maintain sufficient liquidity to meet fluctuations in
Independent's loan demand and deposit structure. In doing so, Independent
balances the market and credit risk against the potential investment return,
makes investments compatible with the pledge requirements of Independent's
deposits of public funds, maintains compliance with regulatory investment
requirements, and assists the various public entities with their financing
needs. The Board of Directors is ultimately responsible for investment policy
and oversight of all security transactions, but day to day responsibility for
execution rests with the designated Investment Officer. All investment
transactions occurring since the previous board of directors' meeting are
reviewed by the board at its next monthly meeting. Significant limitations on
the investment officer's authority
45
<PAGE>
are imposed through the policy and all investment activity is confined to the
parameters as set out under the Code of Federal Regulations, Title 12. The
investment policy allows portfolio holdings to include short-term securities
purchased to provide Independent's needed liquidity and longer term securities
purchased to generate stable income for Independent during periods of interest
rate fluctuations.
LOAN PORTFOLIO
The following table sets forth the composition of Independent's loan
portfolio at December 31 in each of the past two years.
<TABLE>
<CAPTION>
December 31,
---------------------
1998 1997
------- ------------
(In thousands)
<S> <C> <C>
Real estate loans:
Construction and land development $ 2,315 $ 2,355
Secured by residential properties 34,027 30,715
------- -------
Total real estate loans 36,342 33,070
------- -------
Commercial and industrial loans 9,359 8,125
Consumer loans 13,128 9,850
All other loans 39 28
------- -------
Total loans 58,868 51,073
Less:
Allowance for loan losses 1,404 514
------- -------
Net loans $57,464 $50,559
======= =======
</TABLE>
The following table summarizes certain information concerning Independent's
loan portfolio
<TABLE>
<CAPTION>
December 31, 1998
-------------------
% of
Amount Total Loans
------- -----------
(In thousands)
<S> <C> <C>
Real estate loans:
Construction and land development $ 2,315 3.93%
Secured by residential properties 34,027 57.80
------- -------
Total real estate loans 36,342 61.73
------- -------
Commercial and industrial loans 9,359 15.90
Consumer loans 13,128 22.30
All other loans 39 0.07
------- -------
Total loans 58,868 100.00
Less:
Allowance for loan losses 1,404 (2.39)
------- -------
Net loans $57,464 97.61%
======= =======
</TABLE>
46
<PAGE>
The following table shows the maturity of selected loan categories as of
December 31, 1998. Also provided are the amounts due after one year classified
according to the sensitivity in interest rates.
Maturing
after one
Within but within After
(Amounts in thousands) one year five years five years
---------- ----------- ----------
Commercial, financial and agricultural $ 3,388 $ 3,978 $ 1,993
Real estate -- construction 1,995 44 276
Real estate -- mortgage 4,937 5,388 23,702
Consumer 2,106 10,630 431
------- ------- -------
Totals $12,426 $20,040 $26,402
======= ======= =======
Summary of above loans due after one year:
Total fixed rate due after one year $18,249
Total adjustable rate due after one year 28,193
-------
Total loans due after one year $46,442
=======
Actual repayments of loans may differ from the contractual maturities
reflected above because borrowers have the right to prepay obligations with and
without prepayment penalties. Additionally, the refinancing of such loans or
the potential delinquency of such loans could also cause differences between the
contractual maturities reflected above and the actual repayment of such loans.
LOAN POLICY
All lending activities of Independent are under the direct supervision and
control of the Independent Board with secondary authority vested in the Board
Loan Committee. The Officers Loan Committee consists of the president, vice
presidents, and other lending officers. The loan portfolio consists primarily
of real estate, commercial, small business, residential construction and
consumer installment loans. Maturity of term loans is normally limited to 20
years with periodic adjustments of interest rates. Conventional real estate
loans may be made up to 80% of the appraised value or purchase cost of the real
estate for no more than a 20-year term with periodic adjustments of interest
rates. Installment loans are based on the earning capacity and vocational
stability of the borrower.
The Independent board at its regularly scheduled meetings reviews all new
loans made the preceding month. Loans which are 30 days or more past due are
reviewed monthly.
The Loan Committee of Independent monthly reviews the loan portfolio,
particularly nonaccrual and renegotiated loans. Each loan officer is
responsible for monitoring and collecting his or her own loan portfolio. Loan
Committee review may result in a determination that a loan should be placed on a
nonaccrual status for income recognition, subject to Independent Board approval.
In addition, to the extent that management identifies potential losses in the
loan portfolio and reduces the book value of such loans through charge-offs, to
their estimated collectible value, Independent's policy is to classify as
nonaccrual any loan on which payment of principal or interest is 90 days or more
past due, where there is adequate collateral to cover principal and accrued
interest and the loan is in the process of collection. No concessions are
granted and late fees are collected. In addition, a loan will be classified as
nonaccrual if, in the opinion of the Loan Committee, based upon a review of the
borrower's or guarantor's financial condition, collateral value or other
factors, payment is questionable, even though payments are not 90 days or more
past due.
When a loan is classified as nonaccrual, any unpaid interest is reversed
against current income. Interest is included in income thereafter only to the
extent received in cash. The loan remains in nonaccrual classification until
such time as the loan is brought current, when it may be returned to accrual
classification. When principal or interest on a nonaccrual loan is brought
current, if in management's opinion future payments are questionable, the loan
would remain classified as nonaccrual. After a nonaccrual or renegotiated loan
is charged off, any subsequent payments of either interest or principal are
applied first to any remaining balance outstanding, then to recoveries and
lastly to income.
The large number of consumer installment loans and the relatively small
dollar amount of each makes an individual review impracticable. It is
Independent's policy to charge off any consumer installment loan which is past
due 120 days or more.
In addition, mortgage loans secured by real estate are placed on nonaccrual
status when the mortgagor is in bankruptcy, or foreclosure proceedings are
instituted. Any accrued interest receivable remains in interest income as an
obligation of the borrower.
47
<PAGE>
CREDIT RISK MANAGEMENT AND ALLOWANCE FOR LOAN LOSSES
Credit risk and exposure to loss are inherent parts of the banking
business. Management seeks to manage and minimize these risks through its loan
and investment policies and loan review procedures. Management establishes and
continually reviews lending and investment criteria and approval procedures that
it believes reflect the risk sensitive nature of Independent. The loan review
procedures are set to monitor adherence to the established criteria and to
ensure that on a continuing basis such standards are enforced and maintained.
Management's objective in establishing lending and investment standards is
to manage the risk of loans and to provide for income generation through pricing
policies.
The loan portfolio is regularly reviewed and management determines the
amount of loans to be charged-off. In addition, such factors as Independent's
previous loan loss experience, prevailing and anticipated economic conditions,
industry concentrations and the overall quality of the loan portfolio are
considered. While management uses available information to recognize losses on
loans and real estate owned, future additions to the allowance may be necessary
based on changes in economic conditions. In addition, various regulatory
agencies, as an integral part of their examination process, periodically review
the allowances for losses on loans and real estate owned. Such agencies may
require Independent to recognize additions to the allowances based on their
judgments about information available at the time of their examinations. In
addition, any loan or portion thereof which is classified as a "loss" by
regulatory examiners is charged-off.
The allowance for loan losses is increased by provisions charged to
operating expense. The allowance is reduced by charging off loans or portions of
loans at the time they are deemed by management to be uncollectible and
increased when loans previously charged off are recovered. The resulting
allowance for loan losses is viewed by management as a single, unallocated
allowance available for all loans and, in management's opinion, is adequate to
provide for reasonably foreseeable potential loan losses. The risk associated
with loans varies with the creditworthiness of the borrower, the type of loan
(consumer, commercial or real estate) and its maturity. Cash flows adequate to
support a repayment schedule is an element considered for all types of loans.
Real estate loans are impacted by market conditions regarding the value of the
underlying property used as collateral. Commercial loans are also impacted by
the management of the business as well as economic conditions.
The amount of loan charge-offs by category during 1998 is as follows (in
thousands):
Real estate loans $ 3
Commercial and industrial loans 359
All other loans 177
-------
Total $ 539
=======
Management believes the allowance for loan losses is adequate to absorb such
charge-offs.
Rules and formulas relative to the adequacy of the reserve, although useful
as guidelines to management, are not rigidly applied. The reserve for loan
losses was $1,403,822 as of December 31, 1998 or 2.39% of net loans outstanding
compared to $514,188 at year end 1997, or 1.01% of loans outstanding and
$447,376 or 1.09% at year end 1996. The following table presents data related to
Independent's reserve for loan losses for the periods indicated.
48
<PAGE>
<TABLE>
<CAPTION>
Year-to-date
---------------------------------
1998 1997 1996
-------- ------------- --------
(Dollars in thousands)
<S> <C> <C> <C>
Total loans:
Average outstanding during the period $55,355 $46,386 $37,520
======= ======= =======
Allowance for loan losses:
Balance at beginning of period $ 514 $ 447 $ 350
Charge-offs:
Real estate loans 3 12 16
Installment loans 177 133 70
Credit cards and related plans 0 0 0
Commercial and all other loans 359 19 4
------- ------- -------
Total loans charged off 539 164 90
------- ------- -------
Recoveries:
Real estate loans 6 3 0
Installment loans 52 31 3
Credit cards related plans 0 0 0
Commercial 7 1 0
------- ------- -------
Total recoveries 65 35 3
------- ------- -------
Net (charge-offs) recoveries (474) (129) (87)
------- ------- -------
Provision charged to income 1,364 196 184
------- ------- -------
Balance at end of period $ 1,404 $ 514 $ 447
======= ======= =======
Year-to-date
--------------------------------
1998 1997 1996
------- ------- -------
Allowance for loan losses to net (charge-offs) (2.96) 3.98) (5.14)
Net (charge-offs) to average loans outstanding (0.86)% (0.28)% (0.23)%
Allowance for loan losses to average loans outstanding 2.54 1.11 1.19
</TABLE>
The following table sets forth information with respect to nonperforming
loans of Independent on the dates indicated. Accrual of interest is
discontinued when there is reasonable doubt as to the full, timely collections
of interest or principal. When a loan becomes contractually past due ninety
(90) days with respect to interest or principal, it is reviewed and a
determination is made as to whether it should be placed on nonaccrual status.
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 resumed
on such loans only when they are brought fully current with respect to principal
and interest. Restructured loans are those loans on which concessions in terms
have been granted because of a borrower's financial difficulty. Interest is
generally accrued on such loans in accordance with the new terms. The
information provided below is as of December 31, 1998 and as of December 31 for
the years indicated.
49
<PAGE>
<TABLE>
<CAPTION>
December 31,
-------------------------
1998 1997 1996
------- ------- -------
(Dollars in thousands)
<S> <C> <C> <C>
Nonaccrual loans $ 634 $ 195 $ 9
Restructured loans 0 0 0
Loans past due 90 days 107 100 40
Nonperforming loans as a percentage of net loans before allowance
for loan losses 1.26% 0.58% 0.12%
Allowance for loan losses as a percentage of nonperforming loans 189 174 912
</TABLE>
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 judgment of management, deserve
recognition in estimating loan losses. Regulatory agencies, as an integral part
of their examination process, periodically review the Company's allowances for
losses on loans and real estate acquired through foreclosure and other
nonperforming assets. 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. Because the allocation is based on
estimates and subjective judgment, it is not necessarily indicative of the
specific amounts or loan categories in which charge offs may occur.
The amounts of such components of the allowance for loan losses at December 31
are presented below:
(Amounts in thousands) 1998 1997
-------- ---------
Allocation of allowance for loan losses by loan type:
Commercial, financial and agricultural $ 761 $279
Real estate 45 16
Consumer installment 598 219
------ ----
Total $1,404 $514
====== ====
CAPITAL RESOURCES/LIQUIDITY
Liquidity. Of primary importance to depositors, creditors and regulators
is the ability to have readily available funds sufficient to repay fully
maturing liabilities. Independent's liquidity, represented by cash and cash due
from banks, is a result of its operating, investing and financing activities.
In order to insure funds are available at all times, Independent devotes
resources to projecting on a monthly basis the amount of funds which will be
required and maintains relationships with a diversified customer base so funds
are accessible. Liquidity requirements can also be met though short-term
borrowings or the disposition of short-term assets which are generally matched
to correspond to the maturity of liabilities.
Independent has a formal liquidity policy, and in the opinion of
management, its liquidity levels are considered adequate. Independent is not
subject to any specific liquidity requirements imposed by regulatory
authorities, but is subject to liquidity requirements set forth in general FDIC
guidelines. Management believes its liquidity ratios meet or exceed these
guidelines. Management does not know of any trends or demands which are
reasonably likely to result in liquidity increasing or decreasing in any
material matter.
The following table sets forth liquidity ratios for the periods indicated:
<TABLE>
<CAPTION>
December 31,
--------------------------------------------------
1998 1997 1996
---- ---- ----
<S> <C> <C> <C>
Average loans to average deposits 68.7% 66.2% 61.8%
</TABLE>
CAPITAL ADEQUACY
Capital adequacy refers to the level of capital required to sustain asset
growth over time and to absorb losses. The objective of Independent's management
is to maintain a level of capitalization that is sufficient to take advantage of
profitable growth opportunities while meeting regulatory requirements. This is
achieved by improving profitability through effectively allocating resources to
more profitable businesses, improving asset quality, strengthening service
quality, and streamlining costs. The primary measures used by management to
monitor the results of these efforts are the ratios of average equity to average
assets, average tangible equity to average tangible assets, and average equity
to net loans. The Federal Reserve Board has adopted capital guidelines governing
the activities of bank holding companies. These guidelines require the
maintenance of an amount of capital based on risk-adjusted assets so that
categories of assets with potentially higher credit risk will require more
capital backing than assets with lower risk. In addition, banks and bank holding
companies are required to maintain capital to support, on a risk-adjusted basis,
certain off-balance sheet activities such as loan commitments.
The capital guidelines classify capital into two tiers, referred to as Tier
I and Tier II. Under risk-based capital requirements, total capital accounts
consists of Tier I capital which is generally common shareholders' equity less
goodwill and Tier II capital which is primarily a portion of the allowance for
loan losses and certain qualifying debt instruments. In determining risk-based
capital requirements, assets are assigned risk-weights of 0% to 100%, depending
primarily on the regulatory assigned levels of credit risk associated with such
assets. Off-balance sheet items are considered in the calculation of risk-
adjusted assets through conversion factors established by the regulators. The
framework for calculating risk-based capital requires banks and bank holding
companies to meet the regulatory minimums of 4% Tier I and 8% total risk-based
capital. In 1990 regulators added a leverage computation to the capital
requirements, comparing Tier I capital to total average assets less goodwill.
50
<PAGE>
<TABLE>
<CAPTION>
December 31,
1998
----------------
(Dollars in
thousands)
<S> <C>
CAPITAL:
Tier I capital:
Stockholders' equity $ 6,652
Less disallowed intangibles 9
-------
Total Tier I capital 6,643
Tier II capital:
Qualifying allowance for loan losses 838
-------
Total Tier II capital 838
-------
Total capital $ 7,481
=======
Risk-adjusted assets $66,464
=======
Quarterly average assets $94,850
=======
RATIOS:
Tier I capital to risk-adjusted assets 10.00%
Tier II capital to risk-adjusted assets 1.26
Total capital to risk-adjusted assets 11.26
Leverage-Tier I capital to quarterly average assets less disallowed intangibles 7.00
</TABLE>
The Federal Deposit Insurance Corporation Improvement Act of 1991 ("FDICA")
established five capital categories for banks and bank holding companies. The
bank regulators adopted regulations defining these five capital categories in
September, 1992. Under these new regulations each bank is classified into one of
the five categories based on its level of risk-based capital as measured by Tier
I capital, total risk-based capital, and Tier I leverage ratios and its
supervisory ratings.
The following table lists the five categories of capital and each of the minimum
requirements for the three risk-based capital ratios.
<TABLE>
<CAPTION>
Total Risk- Tier I Risk-
Based Based Leverage
Capital Ratio Capital Ratio Ratio
------------- ------------- ------------
<S> <C> <C> <C>
Well-capitalized 10% or above 6% or above 5% or above
Adequately capitalized 8% or above 4% or above 4% or above
Undercapitalized Less than 8% Less than 4% Less than 4%
Significantly undercapitalized Less than 6% Less than 3% Less than 3%
Critically undercapitalized -------- ------- 2% or less
</TABLE>
On December 31, 1998, Independent and the Bank exceeded the regulatory
minimums and qualified as well-capitalized institutions under the regulations.
51
<PAGE>
CERTAIN DIFFERENCES IN THE RIGHTS OF
INDEPENDENT SHAREHOLDERS
AND CSBI SHAREHOLDERS
Independent is incorporated under the laws of the State of Alabama and CSBI
is incorporated under the laws of the State of Georgia. Independent
shareholders, whose rights as shareholders are currently governed by Alabama law
and the Independent Articles of Incorporation (the "Independent Articles") and
Bylaws, will become, upon consummation of the Merger, shareholders of CSBI.
Their rights as shareholders of CSBI will be governed by Georgia law and the
CSBI Articles of Incorporation (the "CSBI Articles") and Bylaws. Set forth below
is a summary comparison of the material rights of Independent shareholders and
CSBI shareholders. The information set forth below does not purport to be a
complete discussion of the differences in the rights of Independent shareholders
and CSBI shareholders and is qualified in its entirety by reference to the full
text of the Independent Articles and Bylaws, the CSBI Articles and Bylaws, the
Alabama Business Corporation Act (the "ABCA"), and the Georgia Business
Corporation Code (the "GBCC").
AUTHORIZED CAPITAL STOCK
Independent. Independent is authorized to issue 300,000 shares of common
stock, $.01 per share par value of which 215,000 shares are issued and
outstanding.
CSBI. CSBI is authorized to issue 30,000,000 shares of common stock, $1.00
par value, of which 11,002,387 shares were issued and outstanding as of December
31, 1998. As of December 31, 1998, 500,000 shares of CSBI Common Stock were
reserved for issuance upon the exercise of outstanding stock options and
purchases under the CSBI Incentive Stock Option Plan, 500,000 shares were
reserved pursuant to the CSBI Dividend Reinvestment Plan, 500,000 shares were
reserved pursuant to the CSBI Employee Stock Ownership Plan, and 227,403 shares
were reserved pursuant to options granted to certain executive officers outside
the CSBI Option Plan.
DIRECTORS
Independent. The Bylaws of Independent provide that the number of
directors shall be not less than six nor more than fifteen, with the exact
number to be determined either by the shareholders or by the Board of Directors.
The directors shall be elected annually by the shareholders at their annual
meeting, or at any meeting of the shareholders held pursuant to the laws of
Alabama, and shall hold office at the pleasure of the shareholders and until
respective successors are elected. Directors need not be residents of the State
of Alabama or shareholders of Independent.
At such time as the Board of Directors shall consist of nine or more
members, the directors shall be classified, with respect to the time for which
they severally hold office, into three classes as nearly equal in number as
possible. The board shall determine the members of each class. At each
following annual meeting of the shareholders, the successors of the class of
Directors whose term expires at that meeting shall be elected to hold office for
a term expiring at the annual meeting of shareholders held in the third year
following the year of their election. If the number of directors is thereafter
changed by the board, any newly created directorships or any decrease in
directorships shall be so apportioned among the classes as to make all classes
as nearly equal in number of directors as possible; provided, however, that no
-------- -------
decrease in the number of directors shall shorten the term of any incumbent
director. The Independent Board of Directors currently has 9 members.
If any vacancy occurs in the membership of the board, it may be filled by
the affirmative vote of the majority of the directors then in office, though
less than a quorum, and if not therefore filled by action of the directors, may
be filled by the shareholders at any meeting held during the existence of such
vacancy. A director elected to fill a vacancy shall be elected for the
unexpired term of his predecessor in office.
CSBI. The Bylaws of CSBI provide for a Board of Directors having not less
than five nor more than 25 members, the precise number to be fixed by resolution
of the shareholders or the Board of Directors. Each director, except in the
case of death, resignation or retirement, disqualification or removal, shall
serve until his successor shall have been elected and qualified. Directors
shall be elected by the shareholders at the Annual Meeting for a one
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year term. Each director of CSBI must be a United States citizen, and at least
60% of the directors shall reside in the State of Georgia and in the county in
which the registered office of CSBI is located, or within 40 miles of any office
of a subsidiary bank authorized to offer a complete line of banking services.
Each director shall own in his name 500 shares of CSBI's common stock
unhypothecated. No director may be re-elected after the age 70 unless such
director is elected to the board of CSBI for his initial term having then
attained the age of 70. In such case, such director will serve no more than five
successive one-year terms.
When a vacancy occurs among the directors, the remaining members of the
board may appoint a director to fill such vacancy at any regular meeting of the
board, or at a special meeting called for that purpose. Pursuant to Georgia
law, any director may be removed from office with or without cause by the
affirmative vote of the holders of a majority of the votes entitled to be cast
by the holders of voting stock of CSBI. Removal action may be taken at any
shareholders meeting with respect to which notice of such purpose has been
given. A successor director may be elected to serve the unexpired term at the
same meeting. The CSBI Board of Directors currently has 11 members.
VOTING REQUIREMENTS GENERALLY
Independent. Under the Independent Bylaws, except as otherwise provided by
the Independent Articles or the ABCA, each outstanding share, regardless of
class, is entitled to one vote on each matter voted on at a shareholders
meeting. A majority of the votes entitled to be cast on the matter by a voting
group constitutes a quorum of that voting group for action on that matter. The
presence of a quorum of each voting group entitled to vote thereon shall be the
requisite for transaction of business on a given matter. Action on a matter
other than election of directors is approved by a voting group if a quorum of
such voting group exists and the number of votes cast within such voting group
in favor of such action exceeds the number of votes cast within such voting
group against such action. Except as otherwise provided in the Bylaws, all
shares entitled to vote for election of directors shall vote thereon as a single
voting group, and directors shall be elected by a plurality of votes cast by
shares entitled to vote in the election in a meeting at which a quorum of such
voting group is present. Alabama law generally requires approval of a merger,
share exchange, or sale of substantially all the assets of a corporation by two-
thirds (2/3) of all votes entitled to be cast on the plan within each voting
group entitled to vote separately on the transaction.
Article VIII of the Independent Articles provides that, except for removal
of any director, which may be accomplished by unanimous written shareholder
consent, any action required or permitted to be taken by the shareholders may be
effected only at an annual or special meeting of shareholders, and shareholder
action by written consent in lieu of a meeting shall be prohibited in all other
circumstances.
CSBI. CSBI Common Stock is not divided into classes, and CSBI has no
classes or series of capital stock issued or outstanding other than CSBI Common
Stock. The holders of a majority of the stock issued and outstanding and
entitled to vote thereat, present in person or represented by proxy, shall
constitute a quorum for the transaction of business at all meetings of the
shareholders except as otherwise provided by statute or by the CSBI Articles or
Bylaws. In deciding on questions at meetings, except in the election of
directors, each shareholder shall be entitled to one vote for each share of
stock held and the majority of votes so cast shall prevail. In election of
directors, each shareholder shall have the right to vote the number of shares
held for each of the persons nominated. Georgia law generally requires approval
of any merger, share exchange, or sale of substantially all the assets of a
corporation by a majority of the votes entitled to vote on the transaction,
voting as a single group, and by a majority of all votes entitled to be cast by
shareholders in each voting group entitled to vote separately on the plan.
Under the GBCC, action required or permitted to be taken at a shareholders'
meeting may be taken without a meeting if the action is taken by all the
shareholders entitled to vote by means of one or more written consents signed by
all shareholders entitled to take action.
DIVIDENDS
Independent. Under the ABCA, the Board of Directors may declare dividends
on Independent Common Stock unless doing so would cause Independent to be unable
to pay its debts as they come due in the usual course of business, or
Independent's total assets to be less than the sum of its total liabilities plus
the amount needed to satisfy any dissolution preferences.
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CSBI. Under the GBCC, the Board of Directors may declare dividends on CSBI
Common Stock unless doing so would cause CSBI to be unable to pay its debts as
they come due in the usual course of business, or CSBI's total assets to be less
than the sum of its total liabilities plus the amount needed to satisfy any
dissolution preferences
CONVERSION AND DISSOLUTION
Independent. Shares of Independent Common Stock are not convertible into
any other security, and upon dissolution or liquidation, share ratably in the
residual assets of Independent.
CSBI. Shares of CSBI Common Stock are not convertible into any other
security, and upon dissolution or liquidation, share ratably in the residual
assets of CSBI.
AMENDMENT OR REPEAL OF THE ARTICLES OF INCORPORATION AND BYLAWS
Independent. Under Alabama law, amendment of a corporation's articles of
incorporation which will not trigger dissenters' rights generally requires
approval by a majority of shares actually voting. Amendment of a corporation's
articles of incorporation which will trigger dissenters' rights generally
requires approval by a majority of the votes entitled to be cast on the
amendment by any voting group with respect to which the amendment would create
dissenters' rights.
The Independent Bylaws provide that the Board of Directors may amend or
repeal any provision of the Bylaws or adopt any new bylaw, unless the
shareholders have adopted, amended or repealed a particular bylaw provision and
have expressly reserved the right of amendment or repeal therefor.
Independent's shareholders have the right to amend or repeal any provision of
the Bylaws, or to adopt new Bylaw provisions, even though such provisions may
also be adopted, amended or repealed by the Board.
The Independent Bylaws further provide that a provision fixing a greater
quorum or voting requirement for the Board than the minimum required by the
ABCA, if originally adopted by the shareholders, may be amended or repealed by
the shareholders only by the affirmative vote of a majority of the votes
entitled to be cast; or if originally adopted by the board, may be amended or
repealed by the directors only by a majority of the entire board. A Bylaw
adopted or amended by the shareholders fixing a greater quorum or voting
requirement for the board may be amended or repealed only by a specified vote of
either the shareholders or the board, if such Bylaw provision so provides.
CSBI. Under the GBCC, amendment of a corporation's articles of
incorporation generally requires approval by a majority of the votes entitled to
be cast on the amendment by each voting group entitled to vote on the amendment.
The CSBI Board of Directors has the power to alter, amend, or repeal the CSBI
Bylaws or adopt new Bylaws, but any Bylaws adopted by the Board of Directors may
be altered, amended or repealed, and the new Bylaws adopted, by the
shareholders. The shareholders may prescribe that any Bylaw or Bylaws adopted
by them shall not be altered, amended or repealed by the Board of Directors.
DISSENTERS' RIGHTS
Independent. Under Alabama law, Independent shareholders are generally
entitled to dissent from, and obtain payment of the fair value of their shares,
in the event of a merger to which Independent is a party; a share exchange
involving acquisition of Independent's shares; or the sale or exchange of
substantially all of Independent's property. See "THE MERGER - Dissenters'
Rights of Appraisal."
CSBI. Under Georgia law, CSBI shareholders are generally entitled to
dissent from, and obtain payment of the fair value of their shares, in the event
of a merger to which CSBI is a party; a share exchange involving acquisition of
CSBI's shares; the sale or exchange of substantially all of CSBI's property; or,
under certain circumstances, amendment of the CSBI Articles that materially and
adversely affects rights in respect to a dissenter's shares.
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SPECIAL MEETINGS OF SHAREHOLDERS
Independent. The Independent Bylaws provide that, except to the extent
otherwise presented by statute or the Articles of Incorporation, special
meetings of shareholders, for any purpose or purposes, may be called by the
presiding officer of the Board of Directors, if any, or at the request of the
holders of not less than one-tenth of all shares entitled to vote at the
meeting.
CSBI. The CSBI Bylaws provide that a special meeting of the CSBI
shareholders, unless otherwise prescribed by law, may be called for any purpose
at any time by the Board of Directors or by any three or more shareholders
owning, in the aggregate, not less than 33 1/3% of the stock of CSBI.
LIABILITY OF DIRECTORS
CSBI. The GBCC permits a corporation to include a provision in its
articles of incorporation eliminating or limiting the personal liability of a
director to the corporation or its shareholders for damages for breach of the
director's duty of care or other duty as a director, subject to certain
limitations. The CSBI Articles include such a provision which, as set forth
below, limits such liability to the fullest extent permitted under applicable
law.
The CSBI Articles provide that a director will not be personally liable to
CSBI or its shareholders for monetary damages for breach of the duty of care or
other duty as a director resulting from any act or omission other than personal
liability of a director for: (i) any appropriation, in violation of his duties,
of any business opportunity of the corporation; (ii) acts or omissions not in
good faith or which involve intentional misconduct or a knowing violation of the
law; (iii) the types of liability set forth in Section 14-2-832 of the GBCC,
dealing with unlawful distributions to shareholders, and (iv) any transactions
from which the director derived an improper personal benefit.
While these provisions provide directors with protection from awards of
monetary damages for breaches of their duty of care, they do not eliminate such
duty. Accordingly, these provisions will have no effect on the availability of
equitable remedies such as an injunction or rescission based on a director's
breach of his or her duty of care. The provisions described above apply to an
officer of CSBI only if he or she is a director of CSBI and is acting in his or
her capacity as director, and do not apply to officers of CSBI who are not
directors.
Independent. The ABCA authorizes similar provisions for all Alabama
corporations, but the Independent Articles do not contain these provisions.
ADVANCE NOTICE PROVISIONS FOR CERTAIN ACTIONS
Neither the Independent Articles and Bylaws nor the CSBI Articles and
Bylaws have provisions for advance shareholder notice of shareholder proposals
or director nominations.
INDEMNIFICATION OF DIRECTORS AND OFFICERS
Independent. Sections 10-2B-8.50 through 10-2B-8.58 of the ABCA contain
detailed and comprehensive provisions providing for the indemnification of
directors and officers of Alabama corporations against expenses, judgments,
fines and settlements in connection with litigation. Under these provisions,
indemnification is available if it is determined that the proposed indemnitee
acted in good faith and reasonably believed (i) in the case of conduct in his or
her official capacity, that such conduct was in the best interests of the
corporation, (ii) in all other cases, that such conduct was at least not opposed
to the best interests of the corporation, and (iii) with respect to any criminal
action or proceeding, that the individual had no reasonable cause to believe his
or her conduct was unlawful. To the extent that a proposed indemnitee has been
successful on the merits or otherwise in defense of any action, suit or
proceeding (or any claim, issue or matter therein), he or she must be
indemnified against expenses (including attorney fees) actually and reasonably
incurred by him or her in connection therewith.
Under the ABCA, indemnification permitted in connection with a proceeding
by or in the right of the corporation is limited to reasonable expenses incurred
in connection with the proceeding. A corporation may not indemnify a director
or officer 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 he was adjudged liable on the basis that
personal benefit was improperly received by him.
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Independent's Bylaws provide for indemnification in accordance with Alabama
law for officers and directors.
CSBI. Sections 14-2-850 through 14-2-859 of the GBCC similarly provide for
the indemnification of directors and officers of Georgia corporations against
expenses, judgments, fines and settlements in connection with litigation. Under
these provisions, indemnification is available if it is determined that the
proposed indemnitee acted in good faith and reasonably believed (i) in the case
of conduct in his or her official capacity, that such conduct was in the best
interests of the corporation, (ii) in all other cases, that such conduct was at
least not opposed to the best interests of the corporation, and (iii) with
respect to any criminal action or proceeding, that the individual had no
reasonable cause to believe his or her conduct was unlawful. To the extent that
a proposed indemnitee has been successful on the merits or otherwise in defense
of any action, suit or proceeding (or any claim, issue or matter therein), he or
she must be indemnified against expenses (including attorney fees) actually and
reasonably incurred by him or her in connection therewith.
Under the GBCC, Indemnification permitted in connection with a proceeding
by or in the right of the corporation is limited to reasonable expenses incurred
in connection with the proceeding. A corporation may not indemnify a director
or officer in connection with a proceeding in which he was adjudged liable on
the basis that personal benefit was improperly received by him.
The CSBI Bylaws provide that CSBI may indemnify any person who is involved
in any actual or threatened action, suit or proceeding, whether civil, criminal,
administrative or investigative, by reason of the fact that he or she is or was
a director, officer, employee or agent of CSBI, or is or was serving at the
request of CSBI as a director, officer, employee or agent of another corporation
or of a partnership, joint venture, trust or other enterprise, against expenses
(including attorney's fees), judgments, fines, and amounts paid in settlement,
in accordance with Georgia law. In the case of a claim, issue, or matter as to
which a person has been adjudged to be liable to CSBI, the CSBI Bylaws only
permit indemnification to the extent that the Superior Court or the court in
which such action or suit was brought determines upon application that such
person is fairly and reasonably entitled to indemnity for such expenses as the
court deems proper. The CSBI Bylaws also provide for mandatory indemnification
of directors, officers, employees, or agents of CSBI in the circumstances
required by Georgia law.
CHANGES IN CONTROL
Independent. The Independent Bylaws' provision for classification of the
Board of Directors (upon the size of the Board reaching nine or more members),
pursuant to which approximately one-third of the directors of Independent will
be elected annually for a three-year term, may delay the ability of dissatisfied
Independent shareholders or anyone who obtains a controlling interest in
Independent Common Stock to elect a new Board of Directors and to exercise
control of Independent.
CSBI. Certain provisions of the CSBI Bylaws may have the effect of
preventing, discouraging, or delaying any change of control of CSBI. The Board
of Directors of CSBI may, if it deems it advisable, oppose a tender or other
offer for CSBI's securities, whether the offer is in cash or in the securities
of a corporation or otherwise. When considering whether to oppose an offer, the
Board of Directors may, but is not legally obligated to, consider any pertinent
issues; including but not limited to (i) whether the offer price is acceptable
based on the historical and present operating results or financial condition of
the Corporation; (ii) whether a more favorable price could be obtained for
CSBI's securities in the future; (iii) the impact which an acquisition of CSBI
would have on the employees, depositors and customers of CSBI and its
subsidiaries and the communities which they serve; (iv) the reputation and
business practices of the offeror and its management and affiliates; (v) the
value of the securities, if any, that the offeror is offering in exchange for
CSBI's securities, based on an analysis of the worth of CSBI as compared to the
offeror or any other entity whose securities are being offered; and (vi) any
antitrust or other legal or regulatory issues that are raised by the offer.
If the Board of Directors determines that an offer should be rejected, it
may take any lawful action to accomplish its purpose including, but not limited
to, any or all of the following: (i) advising shareholders not to accept the
offer; (ii) litigation against the offeror; (iii) filing complaints with
governmental and regulatory authorities; (iv) acquiring CSBI's securities; (v)
selling or otherwise issuing authorized but unissued securities of CSBI or
treasury stock or granting options or rights with respect thereto; (vi)
acquiring a company to create an
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antitrust or other regulatory problem for the offeror; and (vii) soliciting a
more favorable offer from another individual entity.
PREEMPTIVE RIGHTS
Independent. Under the ABCA, the shareholders of a corporation have a
preemptive right to acquire proportional amounts of the corporation's unissued
shares upon the decision of the Board of Directors to issue them, unless the
corporation's articles of incorporation otherwise provide. The Independent
Articles contain no provision eliminating preemptive rights.
CSBI. Under the GBCC, unless the articles of incorporation otherwise
provide, shareholders of a corporation (other than a few limited exceptions)
have no preemptive rights to acquire the corporation's unissued or treasury
shares. The CSBI Articles make no provision for preemptive rights.
CERTAIN REGULATORY CONSIDERATIONS
GENERAL
As registered bank holding companies, CSBI and Independent are subject to
the supervision of, and to regular inspection by, the Federal Reserve. The bank
subsidiaries of CSBI are organized as national banking associations, which are
subject to regulation, supervision and examination by the Office of the
Comptroller of Currency (the "Comptroller"), or as state chartered banks, which
are subject to regulation, supervision and examination by state regulators. Bank
is an Alabama state charted bank, which is subject to regulation, supervision
and examination by the Superintendent of Banks in Alabama. Both CSBI's and
Independent's banks are also subject to regulation by the Federal Reserve and
the FDIC, and other U.S. federal regulatory agencies. In addition to banking
laws, regulations and regulatory agencies, CSBI and Independent and their
subsidiaries and affiliates are subject to various other laws and regulations
and supervision and examination by other regulatory agencies, all of which,
directly or indirectly, affect the operations and management of CSBI and
Independent and their ability to make distributions. The following discussion
summarizes certain aspects of those laws and regulations that affect CSBI and
Independent.
The activities of CSBI and Independent and those of companies that each
controls or in which either holds more than 5% of the voting stock are limited
to banking, managing or controlling banks, furnishing services to or performing
services for their subsidiaries or any other activity that the Federal Reserve
determines to be so closely related to banking or managing or controlling banks
as to be a proper incident thereto. In making such determinations, the Federal
Reserve is required to consider whether the performance of such activities by a
bank holding company or its subsidiaries can reasonably be expected to produce
benefits to the public such as greater convenience, increased competition or
gains in efficiency that outweigh possible adverse effects, such as undue
concentration of resources, decreased or unfair competition, conflicts of
interest or unsound banking practices. Generally, bank holding companies, such
as CSBI and Independent, are required to obtain prior approval of the Federal
Reserve to engage in any new activity or to acquire more than 5% of any class of
voting stock of any company.
Bank holding companies are also required to obtain the prior approval of
the Federal Reserve before acquiring more than 5% of any class of voting stock
of any bank that is not already majority owned by the bank holding company.
Pursuant to the Riegle-Neal Interstate Banking and Branching Efficiency Act of
1994 (the "Interstate Banking and Branching Act"), bank holding companies became
able to acquire banks in states other than their home states beginning September
29, 1995, without regard to the permissibility of such acquisitions under state
law, but subject to any state requirement that the bank has been organized and
operating for a minimum period of time, not to exceed five years, and the
requirement that the bank holding company, prior to or following the proposed
acquisition, controls no more than 10% of the total amount of deposits of
insured depository institutions in the United States and less than 30% of such
deposits in that state (or such lesser or greater amount set by state law).
The Interstate Banking and Branching Act also authorizes banks to merge
across state lines, subject to certain restrictions, thereby creating interstate
branches. Pursuant to the Interstate Banking and Branching Act, a bank is now
able to open new branches in a state in which it does not already have banking
operations if the state enacts a law permitting such de novo branching.
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Proposals to change the laws and regulations governing the banking industry
are frequently introduced in the U.S. Congress, in the state legislatures and
before the various bank regulatory agencies. The likelihood and timing of any
such proposals or bills being enacted and the impact they might have on CSBI and
Independent and their subsidiaries cannot be determined at this time.
CAPITAL AND OPERATIONAL REQUIREMENTS
The Federal Reserve, the Comptroller, and the FDIC have issued
substantially similar risk-based and leverage capital guidelines applicable to
U.S. banking organizations. In addition, those regulatory agencies may from
time to time require that a banking organization maintain capital above the
minimum levels, whether because of its financial condition or actual or
anticipated growth. The Federal Reserve risk-based guidelines define a two-tier
capital framework. "Tier I capital" consists of common and qualifying preferred
shareholders' equity, less certain intangibles and other adjustments. "Tier II
capital" consists of subordinated and other qualifying debt, and the allowance
for credit losses up to 1.25% of risk-weighted assets. The sum of Tier I
capital and Tier II capital less investments in unconsolidated subsidiaries
represents qualifying "total capital," at least 50% of which must consist of
Tier I capital. Risk-based capital ratios are calculated by dividing Tier I
capital and total capital by risk-weighted assets. Assets and off-balance sheet
exposures are assigned to one of four categories of risk weights, based
primarily on relative credit risk. The minimum Tier I capital ratio is 4% and
the minimum total capital ratio is 8%. CSBI's Tier I capital and total risk-
based capital ratios under these guidelines at December 31, 1998 were 15.06% and
16.35% respectively, and Independent's were 11.26% and 9.99% respectively.
The "leverage ratio" is determined by dividing Tier I capital by adjusted
average total assets. Although the stated minimum ratio is 3%, most banking
organizations are required to maintain ratios of at least 100 to 200 basis
points above 3%. CSBI's and Independent's leverage ratios at December 31, 1998
were 10.84% and 7.00%, respectively.
The Federal Deposit Insurance Corporation Improvement Act of 1991
("FDICIA"), among other things, identifies five capital categories for insured
depository institutions (well capitalized, adequately capitalized,
undercapitalized, significantly undercapitalized and critically
undercapitalized) and requires the respective U.S. federal regulatory agencies
to implement systems for "prompt corrective action" for insured depository
institutions that do not meet minimum capital requirements within such
categories. FDICIA imposes progressively more restrictive constraints on
operations, management and capital distributions, depending on the category in
which an institution is classified. Failure to meet the capital guidelines
could also subject a banking institution to capital raising requirements. An
"undercapitalized" bank must develop a capital restoration plan and its parent
holding company must guarantee that bank's compliance with the plan. The
liability of the parent holding company under any such guarantee is limited to
the lesser of 5% of the bank's assets at the time it became undercapitalized or
the amount needed to comply with the plan. Furthermore, in the event of the
bankruptcy of the parent holding company, such guarantee would take priority
over the parent's general unsecured creditors. In addition, FDICIA requires the
various regulatory agencies to prescribe certain non-capital standards for
safety and soundness related generally to operations and management, asset
quality and executive compensation and permits regulatory action against a
financial institution that does not meet such standards.
The various regulatory agencies have adopted substantially similar
regulations that define the five capital categories identified by FDICIA, using
the total risk-based capital, Tier I risk-based capital and leverage capital
ratios as the relevant capital measures. Such regulations establish various
degrees of corrective action to be taken when an institution is considered
undercapitalized. Under the regulations, a "well capitalized" institution must
have a Tier I capital ratio of at least 6%, a total capital ratio of at least
10% and a leverage ratio of a least 5% and not be subject to a capital directive
order. An "adequately capitalized" institution must have a Tier I capital ratio
of at least 4%, a total capital ratio of at least 8% and a leverage ratio of at
least 4%, or 3% in some cases. Under these guidelines, each of the banking
subsidiaries of CSBI and Independent is considered "well capitalized."
Banking agencies have also adopted regulations which mandate that
regulators take into consideration concentrations of credit risk and risks from
non-traditional activities, as well as an institution's ability to manage those
risks, when determining the adequacy of an institution's capital. That
evaluation will be made as a part of the institution's regular safety and
soundness examination. Banking agencies also have adopted final regulations
requiring regulators to consider interest rate risk (when the interest rate
sensitivity of an institution's assets does not match the sensitivity of its
liabilities or its off-balance sheet position) in the determination of a bank's
capital adequacy. Concurrently, banking agencies have proposed a methodology
for evaluating interest rate risk. After
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gaining experience with the proposed measurement process, those banking agencies
intend to propose further regulations to establish an explicit risk-based
capital charge for interest rate risk.
DISTRIBUTIONS
CSBI and Independent both derive funds for cash distributions to their
respective shareholders from a variety of sources, including cash and temporary
investments. The primary source of such funds, however, is dividends received
from their banking subsidiaries. Each of their banking subsidiaries is subject
to various general regulatory policies and requirements relating to the payment
of dividends, including requirements to maintain capital above regulatory
minimums. The appropriate U.S. federal regulatory authority is authorized to
determine under certain circumstances relating to the financial condition of the
bank or bank holding company that the payment of dividends would be an unsafe or
unsound practice and to prohibit payment thereof.
In addition to the foregoing, the ability of CSBI, Independent and their
respective banking subsidiaries to pay dividends may be affected by the various
minimum capital requirements and the capital and non-capital standards
established under FDICIA, as described above. The rights of CSBI, Independent,
their respective shareholders and their respective creditors to participate in
any distribution of the assets or earnings of their respective subsidiaries is
further subject to the prior claims of creditors of the respective subsidiaries.
"SOURCE OF STRENGTH" POLICY
According to Federal Reserve Board policy, bank holding companies are
expected to act as a source of financial strength to each subsidiary bank and to
commit resources to support each such subsidiary. This support may be required
at times when a bank holding company may not be able to provide such support.
Similarly, under the cross-guarantee provisions of the Federal Deposit Insurance
Act, in the event of a loss suffered or anticipated by the FDIC - either as a
result of default of a banking subsidiary of a bank holding company such as CSBI
or Independent or related to FDIC assistance provided to a subsidiary in danger
of default - the other banking subsidiaries of such bank holding company may be
assessed for the FDIC's loss, subject to certain exceptions.
EXPERTS
The consolidated financial statements of CSBI as of December 31, 1997 and
1996, and for each of the years in the three-year period ended December 31, 1997
have been incorporated by reference herein and in the Registration Statement in
reliance upon the report of KPMG LLP, independent certified public accountants,
incorporated by reference herein, and upon the authority of said firm as experts
in accounting and auditing.
The consolidated financial statements of Independent as of and for the
years ended at December 31, 1998 and 1997 included in this Proxy
Statement/Prospectus and in the Registration Statement have been audited by
Schauer, Taylor, Cox & Vise, P.C., independent certified public accountants, as
set forth in their report thereon included herein on such financial statements
and are included in reliance upon such report given upon the authority of such
firm as experts on accounting and auditing.
LEGAL MATTERS
The legality of the shares of CSBI Common Stock being offered hereby is
being passed upon for CSBI by Troutman Sanders LLP, Atlanta, Georgia. As of the
date of this Proxy Statement/Prospectus, certain members of Troutman Sanders LLP
beneficially owned approximately 13,573 shares of CSBI Common Stock. Troutman
Sanders LLP, counsel for CSBI, will also opine as to certain federal income tax
consequences of the Merger. See "The Merger - Certain Federal Income Tax
Consequences." Certain additional legal matters relating to the Merger are
being passed upon for CSBI by Troutman Sanders LLP, Atlanta, Georgia, and for
Independent by Smith, Gambrell & Russell, LLP, Atlanta, Georgia.
OTHER MATTERS
As of the date of this Proxy Statement/Prospectus, Independent's Board of
Directors knows of no matters that will be presented for consideration at the
Special Meeting other than as described in this Proxy Statement/Prospectus.
However, if any other matter shall come before the Special Meeting or any
adjournments thereof and shall be voted upon, the proposed proxy will be deemed
to confer authority to the individuals named as
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authorized therein to vote the shares represented by such proxy as to any such
matters. The persons named as proxies intend to vote or not to vote in
accordance with the recommendation of the Board of Directors of Independent.
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<PAGE>
INDEX TO FINANCIAL STATEMENTS
CONSOLIDATED FINANCIAL STATEMENTS
INDEPENDENT BANCORP, INC. AND SUBSIDIARY
DECEMBER 31, 1998 AND 1997
<TABLE>
<S> <C>
Independent Auditors' Report............................................. F-1
Consolidated Statements of Financial Condition........................... F-2
Consolidated Statements of Income........................................ F-4
Consolidated Statements of Shareholders' Equity.......................... F-6
Consolidated Statements of Cash Flows.................................... F-7
Consolidated Statements of Comprehensive Income.......................... F-9
Notes to Consolidated Financial Statements............................... F-10
</TABLE>
<PAGE>
SCHAUER, TAYLOR, COX & VISE, P.C.
CERTIFIED PUBLIC ACCOUNTANTS AND CONSULTANTS
150 OLDE TOWNE ROAD
BIRMINGHAM, ALABAMA 35216
-------------------
<TABLE>
<S> <C> <C>
DOUGLAS B. SCHAUER, CPA TELEPHONE (205) 822-3488 STEVEN W. BROWN, CPA
EDWARD R. TAYLOR, CPA WATS (800) 466-3488 M. BRYANT KING, CPA
W. ERNEST COX, CPA FAX (205) 822-3541 RAYMOND A. PATTON, CPA
DONALD G. VISE, CPA RUSSELL D. PAYNE, CPA
</TABLE>
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and Shareholders
of Independent Bancorp, Inc. and Subsidiary
Oxford, Alabama
We have audited the consolidated balance sheets of Independent Bancorp, Inc. and
Subsidiary as of December 31, 1998 and 1997, and the related consolidated
statements of income, shareholders' equity, cash flows and comprehensive income
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 audits 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 consolidated financial position of
Independent Bancorp, Inc. and Subsidiary as of December 31, 1998 and 1997, and
the consolidated results of their operations and their cash flows for the years
then ended, in conformity with generally accepted accounting principles.
Birmingham, Alabama
January 22, 1999
/S/ SCHAUER, TAYLOR, COX & VISE, P.C.
-------------------------------------
SCHAUER, TAYLOR, COX & VISE, P.C
F-1
<PAGE>
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
INDEPENDENT BANCORP, INC. AND SUBSIDIARY
DECEMBER 31, 1998 AND 1997
<TABLE>
<CAPTION>
1998 1997
----------- -----------
<S> <C> <C>
ASSETS
Cash and due from banks $ 2,197,669 $ 1,784,914
Interest-bearing deposits with other banks 74,378 33,956
Federal funds sold 1,120,000 -0-
Securities available-for-sale 15,007,838 12,903,280
Securities held-to-maturity, fair value of
$13,749,964 and $13,648,691, respectively 12,996,880 12,984,342
Loans 58,867,517 51,073,106
Less: Allowance for loan losses 1,403,822 514,188
----------- -----------
NET LOANS 57,463,695 50,558,918
Premises and equipment, net 1,613,871 1,202,267
Accrued interest 847,148 809,765
Cash surrender value of life insurance 2,719,016 1,034,778
Other assets 752,433 343,147
----------- -----------
TOTAL ASSETS $94,792,928 $81,655,367
=========== ===========
</TABLE>
See notes to consolidated financial statements
F-2
<PAGE>
<TABLE>
<CAPTION>
1998 1997
----------- -----------
<S> <C> <C>
LIABILITIES AND SHAREHOLDERS' EQUITY
LIABILITIES
Deposits:
Noninterest-bearing $ 7,220,425 $ 7,221,983
Interest-bearing 76,134,667 66,220,475
----------- -----------
TOTAL DEPOSITS 83,355,092 73,442,458
Federal funds purchased -0- 810,000
FHLB line of credit 3,500,000 -0-
Accrued interest 1,078,910 967,859
Other liabilities 112,995 78,925
----------- -----------
TOTAL LIABILITIES 88,046,997 75,299,242
SHAREHOLDERS' EQUITY
Common stock; $0.01 par value;
300,000 shares authorized;
215,000 shares issued and outstanding 2,150 2,150
Capital surplus 1,847,850 1,847,850
Retained earnings 4,801,960 4,448,966
Accumulated comprehensive income: net unrealized
holding gains on securities available-for-sale, net
of deferred income tax 93,971 57,159
----------- -----------
TOTAL SHAREHOLDERS' EQUITY 6,745,931 6,356,125
----------- -----------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $94,792,928 $81,655,367
=========== ===========
</TABLE>
See notes to consolidated financial statement
F-3
<PAGE>
CONSOLIDATED STATEMENTS OF INCOME
INDEPENDENT BANCORP, INC. AND SUBSIDIARY
YEARS ENDED DECEMBER 31, 1998 AND 1997
<TABLE>
<CAPTION>
1998 1997
----------- -----------
<S> <C> <C>
REVENUE FROM EARNING ASSETS
Interest and fees on loans $5,921,086 $4,999,813
Interest and dividends on investment securities:
Taxable securities 650,725 594,263
Securities exempt from federal income taxes 852,080 804,941
Dividends on stock 45,420 18,407
Interest on federal funds sold 73,205 91,461
Interest on deposits in banks 2,076 1,569
---------- ----------
TOTAL REVENUE FROM EARNING ASSETS 7,544,592 6,510,454
INTEREST EXPENSE
Interest on deposits 3,956,557 3,356,051
Interest on FHLB borrowings 103,927 -0-
Interest on other short-term borrowings 10,703 9,196
---------- ----------
TOTAL INTEREST EXPENSE 4,071,187 3,365,247
---------- ----------
Net interest income 3,473,405 3,145,207
Provision for loan losses 1,363,750 196,000
---------- ----------
NET INTEREST INCOME AFTER PROVISION FOR LOAN LOSSES 2,109,655 2,949,207
NONINTEREST INCOME
Service charges on deposits 507,538 442,541
Insurance commissions 73,183 50,145
Investment security gains -0- 1,000
Gain (loss) on the disposal of assets -0- (2,412)
Other operating income 34,538 32,662
---------- ----------
TOTAL NONINTEREST INCOME 615,259 523,936
NONINTEREST EXPENSES
Salaries and employee benefits 1,043,100 868,488
Occupancy, furniture and equipment expense 267,351 233,376
Director and committee fees 88,740 119,500
Other operating expenses 649,029 473,779
---------- ----------
TOTAL NONINTEREST EXPENSES 2,048,220 1,695,143
---------- ----------
Income before income taxes 676,694 1,778,000
Provision (credit) for income taxes (20,300) 440,659
---------- ----------
NET INCOME $ 696,994 $1,337,341
========== ==========
</TABLE>
F-4
<PAGE>
<TABLE>
<CAPTION>
1998 1997
-------- --------
<S> <C> <C>
EARNINGS PER SHARE OF COMMON STOCK
- ----------------------------------
Basic earnings per share $ 3.24 $ 6.22
Basic weighted average shares outstanding 215,000 215,000
Diluted earnings per share $ 3.24 $ 6.22
Diluted weighted average shares outstanding 215,000 215,000
</TABLE>
See notes to consolidated financial statements
F-5
<PAGE>
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
INDEPENDENT BANCORP, INC. AND SUBSIDIARY
YEARS ENDED DECEMBER 31, 1998 AND 1997
<TABLE>
<CAPTION>
Accumulated
Common Capital Retained Comprehensive
Stock Surplus Earnings Income Total
------ ---------- ----------- -------------- -----------
<S> <C> <C> <C> <C> <C>
Balance at
December 31, 1996 $2,150 $1,847,850 $3,326,625 $(28,518) $5,148,107
Cash dividends - common -
$1.00 per share (215,000) (215,000)
Net change in unrealized
gains/losses on securities 85,677 85,677
Net income -1997 1,337,341 1,337,341
------ ---------- ---------- ------------- ----------
BALANCE AT
DECEMBER 31, 1997 2,150 1,847,850 4,448,966 57,159 6,356,125
CASH DIVIDENDS - COMMON -
$1.60 PER SHARE (344,000) (344,000)
NET CHANGE IN UNREALIZED
GAINS/LOSSES ON SECURITIES 36,812 36,812
NET INCOME -1998 696,994 696,994
------ ---------- ---------- ------------- ----------
BALANCE AT
DECEMBER 31, 1998 $2,150 $1,847,850 $4,801,960 $ 93,971 $6,745,931
====== ========== ========== ============= ==========
</TABLE>
See notes to consolidated financial statements
F-6
<PAGE>
CONSOLIDATED STATEMENTS OF CASH FLOWS
INDEPENDENT BANCORP, INC. AND SUBSIDIARY
YEARS ENDED DECEMBER 31, 1998 AND 1997
<TABLE>
<CAPTION>
1998 1997
------------ ------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $ 696,994 $ 1,337,341
Adjustments to reconcile net income to net
cash provided by operating activities:
Provision for loan losses 1,363,750 196,000
Depreciation, amortization, and accretion, net 93,079 105,102
Deferred income tax cost (benefit) (378,000) 12,000
Increase in interest receivable (37,383) (134,448)
Increase in interest payable 111,051 159,991
Gain on the sale of investment securities -0- (1,000)
Loss on sale of other real estate -0- 2,413
Other, net (100,277) (138,262)
------------ ------------
NET CASH PROVIDED BY OPERATING ACTIVITIES 1,749,214 1,539,137
------------ ------------
CASH FLOWS FROM INVESTING ACTIVITIES
Proceeds from sales of investment securities available-
for-sale -0- 3,619,610
Proceeds from calls, maturities and paydowns of investment
securities available-for-sale 5,341,087 862,148
Purchases of investment securities available-for-sale (7,440,755) (6,663,969)
Proceeds from calls, maturities and paydowns of investment
securities held-to-maturity 809,638 209,149
Purchases of investment securities held-to-maturity (755,166) (734,352)
Net increase in loans (8,196,995) (10,141,058)
Purchases of premises and equipment (508,242) (438,860)
Proceeds from disposition of other real estate -0- 21,000
Purchase of life insurance contracts (1,684,238) (538,245)
------------ ------------
NET CASH USED IN INVESTING ACTIVITIES (12,434,671) (13,804,577)
------------ ------------
</TABLE>
F-7
<PAGE>
<TABLE>
<CAPTION>
1998 1997
----------- -----------
<S> <C> <C>
CASH FLOWS FROM FINANCING ACTIVITIES
Net increase (decrease) in demand deposits,
NOW accounts and savings accounts $ 1,591,158 $(1,515,001)
Net increase in certificates of deposit 8,321,476 12,689,034
Net increase in short-term borrowings 2,690,000 450,000
Dividends paid to shareholders (344,000) (215,000)
----------- -----------
NET CASH PROVIDED BY FINANCING ACTIVITIES 12,258,634 11,409,033
----------- -----------
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 1,573,177 (856,407)
Cash and Cash Equivalents at Beginning of Year 1,818,870 2,675,277
----------- -----------
CASH AND CASH EQUIVALENTS AT END OF YEAR $ 3,392,047 $ 1,818,870
=========== ===========
SUPPLEMENTAL DISCLOSURES
Cash paid during the year for interest $ 3,960,136 $ 3,205,256
Cash paid during the year for income taxes 433,319 561,497
Loans transferred to foreclosed real estate during the year 140,591 71,532
Proceeds from sales of foreclosed real estate
financed through loans 212,123 -0-
Net increase (decrease) in unrealized gains on
securities available-for-sale 61,354 142,796
</TABLE>
<PAGE>
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
INDEPENDENT BANCORP, INC. AND SUBSIDIARY
YEARS ENDED DECEMBER 31, 1998 AND 1997
<TABLE>
<CAPTION>
1998 1997
-------- ----------
<S> <C> <C>
NET INCOME $696,994 $1,337,341
Other comprehensive income, net of tax:
Unrealized gains on securities
Unrealized holding gains arising during period 61,354 143,796
Less: reclassified adjustments for gains
included in net income -0- (1,000)
-------- ----------
Net unrealized gains 61,354 142,796
Income tax related to items of other comprehensive income (24,542) (57,119)
-------- ----------
Other comprehensive income 36,812 85,677
-------- ----------
COMPREHENSIVE INCOME $733,806 $1,423,018
======== ==========
</TABLE>
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
INDEPENDENT BANCORP, INC. AND SUBSIDIARY
DECEMBER 31, 1998 AND 1997
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Independent Bancorp, Inc. (the "Company") and its subsidiary operate
predominantly in the domestic commercial banking industry. The accounting and
reporting policies of the Company and its subsidiary conform to generally
accepted accounting principles and to general practice within the banking
industry. The following summarizes the most significant of these policies.
Basis of Consolidation
- ----------------------
The consolidated financial statements include the accounts of the Company and
its wholly owned subsidiary, The Independent Bank of Oxford (the "Bank"). All
significant intercompany balances and transactions have been eliminated.
Investments in subsidiaries are carried at the parent company's equity in the
underlying net assets.
Consolidated Statements of Comprehensive Income
- -----------------------------------------------
The Company adopted Statement of Financial Accounting Standards (SFAS) No. 130,
Reporting Comprehensive Income, on December 31, 1998. This statement establishes
standards for the reporting and display of comprehensive income and its
components in a full set of general-purpose financial statements. The statement
requires that an enterprise classify items of other comprehensive income by
their nature in the financial statement and display the accumulated balance of
other comprehensive income separately from retained earnings and additional paid
in capital in the equity section of a statement of financial condition.
Comprehensive income is generally defined as the change in equity of a business
enterprise during a period from transactions and other events and circumstances
from non-owner sources. It includes all changes in equity during a period except
those resulting from investments by owners and distributions to owners.
Use of Estimates
- ----------------
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
Material estimates that are particularly susceptible to significant change
relate to the determination of the allowance for losses on loans and the
valuation of foreclosed real estate. In connection with the determination of the
estimated losses on loans and foreclosed real estate, management obtains
independent appraisals for significant properties.
F-10
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
INDEPENDENT BANCORP, INC. AND SUBSIDIARY
DECEMBER 31, 1998 AND 1997
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - CONTINUED
While management uses available information to recognize losses on loans and
foreclosed real estate, further reductions in the carrying amounts of loans and
foreclosed assets may be necessary based on changes in local economic
conditions. In addition, regulatory agencies, as an integral part of their
examination process, periodically review the estimated losses on loans and
foreclosed real estate. Such agencies may require the Bank to recognize
additional losses based on their judgments about information available to them
at the time of their examination. Because of these factors, it is reasonably
possible that the estimated losses on loans and foreclosed real estate may
change materially in the near term. However, the amount of the change that is
reasonably possible cannot be estimated.
Investment Securities and Securities Available-For-Sale
- -------------------------------------------------------
Securities are classified as either held-to-maturity, available-for-sale, or
trading.
Held-to-maturity or investment securities are securities for which management
has the ability and intent to hold on a long-term basis or until maturity. These
securities are carried at amortized cost, adjusted for amortization of premiums,
and accretion of discount to the earlier of the maturity or call date.
Securities available-for-sale represent those securities intended to be held for
an indefinite period of time, including securities that management intends to
use as part of its asset/liability strategy, or that may be sold in response to
changes in interest rates, changes in prepayment risk, the need to increase
regulatory capital, or other similar factors. Securities available-for-sale are
recorded at market value with unrealized gains and losses net of any tax effect,
added or deducted directly from shareholders' equity.
Securities carried in trading accounts are carried at market value with
unrealized gains and losses reflected in income.
Realized and unrealized gains and losses are based on the specific
identification method.
Declines in the fair value of individual held-to-maturity and available-for-sale
securities below their cost that are other than temporary result in write-downs
of the individual securities to their fair value. The related write-downs are
included in earnings as realized losses.
The Company and its subsidiary have no trading securities.
F-11
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
INDEPENDENT BANCORP, INC. AND SUBSIDIARY
DECEMBER 31, 1998 AND 1997
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - CONTINUED
Loans
- -----
Loans are stated at unpaid principal balances, less the allowance for loan
losses and net deferred loan fees and unearned discounts.
Unearned discounts on installments loans are recognized as income over the term
of the loans using a method that approximates the interest methods.
Loan origination and commitment fees, as well as certain direct origination
costs, when material, are deferred and amortized as a yield adjustment over the
lives of the related loans using the interest method.
Allowance For Possible Loan Losses
- ----------------------------------
A loan is considered impaired, based on current information and events, if it is
probable that the Company will be unable to collect the scheduled payments of
principal or interest when due according to the contractual terms of the loan
agreement. Uncollateralized loans are measured for impairment based on the
present value of expected future cash flows discounted at the historical
effective interest rate, while all collateral-dependent loans are measured for
impairment based on the fair value of the collateral. Smaller balance
homogeneous loans which consist of residential mortgages and consumer loans are
evaluated collectively and reserves are established based on historical loss
experience.
The allowance for loan losses is established through charges to earnings in the
form of a provision for loan losses. Increases and decreases in the allowance
due to changes in the measurement of the impaired loans are included in the
provision for loan losses. Loans continue to be classified as impaired unless
they are brought fully current and the collection of scheduled interest and
principal is considered probable. When a loan or portion of a loan is determined
to be uncollectible, the portion deemed uncollectible is charged against the
allowance and subsequent recoveries, if any, are credited to the allowance.
Management's periodic evaluation of the adequacy of the allowance is based on
the Bank's past loan loss experience, known and inherent risks in the portfolio,
adverse situations that may affect the borrowers' ability to repay, estimated
value of any underlying collateral, and an analysis of current economic
conditions. While management believes that it has established the allowance in
accordance with generally accepted accounting principles and has taken into
account the views of its regulators and the current economic environment, there
can be no assurance that in the future the Bank's regulators or its economic
environment will not require further increases in the allowance.
Income Recognition on Impaired and Nonaccrual Loans
- ---------------------------------------------------
Loans, including impaired loans, are generally classified as nonaccrual if they
are past due as to maturity or payment of principal or interest for a period of
more than 90 days, unless such loans are well collateralized and in the process
of collection. If a loan or a portion of a loan is classified as doubtful or is
partially charged off, the loan is generally classified as nonaccrual. Loans
that are on a current payment status or past due less than 90 days may also be
classified as nonaccrual if repayment in full of principal and/or interest is in
doubt.
Loans may be returned to accrual status when all principal and interest amounts
contractually due are reasonably assured of repayment within an acceptable
period of time, and there is a sustained period of repayment performance by the
borrower, in accordance with the contractual terms of interest and principal.
F-12
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
INDEPENDENT BANCORP, INC. AND SUBSIDIARY
DECEMBER 31, 1998 AND 1997
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - CONTINUED
While a loan is classified as nonaccrual and the future collectibility of the
recorded loan balance is doubtful, collections of interest and principal are
generally applied as a reduction to principal outstanding, except in the case of
loans with scheduled amortizations where the payment is generally applied to the
oldest payment due. When the future collectibility of the recorded loan balance
is expected, interest income may be recognized on a cash basis. In the case
where a nonaccrual loan has been partially charged off, recognition of interest
on a cash basis is limited to that which would have been recognized on the
recorded loan balance at the contractual interest rate. Receipts in excess of
that amount are recorded as recoveries to the allowance for loan losses until
prior charge offs have been fully recovered. Interest income recognized on a
cash basis was immaterial for the years ended December 31, 1998 and 1997.
Premises and Equipment
- ----------------------
Premises and equipment are stated at cost less accumulated depreciation.
Expenditures for additions and major improvements that significantly extend the
useful lives of the assets are capitalized. Expenditures for repairs and
maintenance are charged to expense as incurred. The carrying values of assets
traded in are used to adjust the carrying values of the new assets acquired by
trade. Assets which are disposed of are removed from the accounts and the
resulting gains or losses are recorded in operations.
F-13
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
INDEPENDENT BANCORP, INC. AND SUBSIDIARY
DECEMBER 31, 1998 AND 1997
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - CONTINUED
Depreciation is provided generally by accelerated and straight-line methods
based on the estimated useful lives of the respective assets.
Foreclosed Real Estate
- ----------------------
Foreclosed real estate includes both formally foreclosed property and in-
substance foreclosed property. In-substance foreclosed properties are those
properties for which the institution has taken physical possession, regardless
of whether formal foreclosure proceedings have taken place.
At the time of foreclosure, foreclosed real estate is recorded at the lower of
the carrying amount or fair value less cost to sell, which becomes the
property's new basis. Any write-downs based on the asset's fair value at date of
acquisition are charged to the allowance for loan losses. After foreclosure,
these assets are carried at the lower of their new cost basis or fair value less
cost to sell.
Costs incurred in maintaining foreclosed real estate and subsequent adjustments
to the carrying amount of the property are included in income (loss) on
foreclosed real estate.
Income Taxes
- ------------
Income taxes are provided for the tax effects of the transactions reported in
the financial statements and consist of taxes currently due plus deferred taxes
related primarily to differences between the basis of available-for-sale
securities, allowance for loan losses, estimated losses on foreclosed real
estate, accumulated depreciation, and accrued employee benefits for financial
and income tax reporting. The deferred tax assets and liabilities represent the
future tax return consequences of those differences, which will either be
taxable or deductible when the assets and liabilities are recovered or settled.
Deferred tax assets and liabilities are reflected at income tax rates applicable
to the period in which the deferred tax assets or liabilities are expected to be
realized or settled. As changes in tax laws or rates are enacted, deferred tax
assets and liabilities are adjusted through the provision for income taxes.
The Company and its subsidiary file a consolidated federal income tax return.
The subsidiary provides for income taxes on a separate return basis, and remits
to the Company amounts determined to be currently payable.
F-14
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
INDEPENDENT BANCORP, INC. AND SUBSIDIARY
DECEMBER 31, 1998 AND 1997
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - CONTINUED
Earnings Per Common Share
- -------------------------
The Company adopted SFAS No. 128, Earnings Per Share, on December 31, 1997. This
statement establishes standards for computing and presenting earnings per share
("EPS") and applies to entities with publicly held common stock or potential
common stock. This statement replaces the presentation of primary EPS with a
presentation of basic EPS and requires dual presentation of basic and diluted
EPS on the face of the income statement for all entities with complex capital
structures and requires a reconciliation of the numerator and denominator of the
basic EPS computation to the numerator and denominator of the diluted EPS
computation. All prior year earnings per share data have been restated to
reflect the presentation required under SFAS No. 128.
Retirement Plan
- ---------------
The Bank adopted a 401(k) Profit Sharing Plan (the "Plan") on January 1, 1994.
The Plan covers substantially all of the Bank's employees, subject to
eligibility requirements relating to age and years of service. The Plan allows
for employee contributions and diversification of investment options.
Employer contributions are determined by the board of directors.
Off Balance Sheet Financial Instruments
- ---------------------------------------
In the ordinary course of business the Bank has entered into off-balance-sheet
financial instruments consisting of commitments to extend credit, commitments
under credit card arrangements, commercial letters of credit and standby letters
of credit. Such financial instruments are recorded in the financial statements
when they become payable.
The Bank has available as a source of short-term financing a line of credit of
$5,000,000 with the Federal Home Loan Bank of Atlanta of which $1,500,000 was
available and unused.
The Bank also has available as a source of short-term financing the purchase of
federal funds from other commercial banks from available lines totaling
$4,650,000.
Cash Flow Information
- ---------------------
The Company considers all cash and amounts due from depository institutions and
federal funds sold to be cash equivalents for purposes of the statements of cash
flows.
F-15
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
INDEPENDENT BANCORP, INC. AND SUBSIDIARY
DECEMBER 31, 1998 AND 1997
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - CONTINUED
Reclassifications
- -----------------
Certain amounts in 1997 have been reclassified to conform with the 1998
presentation.
Recently Issued Accounting Standards
- ------------------------------------
In June 1997, the Financial Accounting Standards Board (FASB) issued SFAS No.
131, Disclosures about Segments of an Enterprise and Related Information, which
establishes standards for the way that public business enterprises report
information about operating segments in annual financial statements and requires
that those enterprises report selected information about operating segments in
interim financial reports issued to shareholders. This statement also
establishes standards for related disclosures about products and services,
geographic areas, and major customers. This statement requires the reporting of
financial and descriptive information about an enterprise's reportable operating
segments. This statement is effective for financial statements for periods
beginning after December 15, 1997. In the initial year of application,
comparative information for earlier years is to be restated. The Company is
currently exempt from the reporting and disclosure requirements of SFAS No. 131.
Effective for years ending after December 15, 1997, SFAS No. 132, Employers'
Disclosures about Pensions and Other Postretirement Benefits was issued by FASB
which standardizes the disclosure requirements for pensions and other
postretirement benefits to the extent practicable, requires additional
information on changes in the benefits obligations and fair values of plan
assets that will facilitate financial analysis, and eliminates certain other
disclosures previously required. The adoption of this statement did not have a
material effect on the Company's consolidated financial statements.
In June 1998, the Financial Accounting Standards Board also issued SFAS No. 133,
Accounting for Derivative Instruments and Hedging Activities. This statement
establishes accounting and reporting standards for derivative instruments and
for hedging activities. It requires that an entity recognize all derivatives as
either assets or liabilities in the statement of financial condition and measure
those instruments at fair value. The accounting for changes in the fair value of
a derivative is to be determined based upon the intended use of the derivative.
For certain hedge designations (cash flow and foreign currency exposure) the
derivative's gain or loss is reported as a component of other comprehensive
income. Other designations require the gain or loss to be recognized in earnings
in the period of change. This statement is effective for financial statements
for periods beginning after June 15, 1999. Management does not believe that the
adoption of SFAS No. 133 will have a material impact on the Company's
consolidated financial statements.
F-16
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
INDEPENDENT BANCORP, INC. AND SUBSIDIARY
DECEMBER 31, 1998 AND 1997
NOTE 2 - RESTRICTIONS ON CASH AND DUE FROM BANK ACCOUNTS
The Bank is required by regulatory authorities to maintain average reserve
balances either in vault cash or on deposit with the Federal Reserve. The
average amount of those reserves required at December 31, 1998 and 1997, was
approximately $474,000 and $494,000, respectively.
NOTE 3 - INVESTMENT SECURITIES
The carrying amounts of investment securities as shown in the consolidated
statements of financial condition and their approximate fair values at December
31, 1998 and 1997 were as follows:
<TABLE>
<CAPTION>
Gross Gross Estimated
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
----------- ---------- ---------- -----------
<S> <C> <C> <C> <C>
SECURITIES AVAILABLE-FOR-SALE:
- ------------------------------
DECEMBER 31, 1998:
U. S. GOVERNMENT AND AGENCY
SECURITIES $ 3,568,010 $ 27,145 $58,614 $ 3,536,541
MORTGAGE-BACKED SECURITIES 7,448,356 65,849 18,558 7,495,647
STATE AND MUNICIPAL SECURITIES 3,114,456 140,797 -0- 3,255,253
EQUITY SECURITIES 720,397 -0- -0- 720,397
----------- -------- ------- -----------
$14,851,219 $233,791 $77,172 $15,007,838
=========== ======== ======= ===========
December 31, 1997:
U. S. Government and agency
securities $ 3,010,376 $ 18,621 $ 7,583 $ 3,021,414
Mortgage-backed securities 6,980,318 16,221 36,707 6,959,832
State and municipal securities 2,511,622 104,713 -0- 2,616,335
Equity securities 305,699 -0- -0- 305,699
----------- -------- ------- -----------
$12,808,015 $139,555 $44,290 $12,903,280
=========== ======== ======= ===========
</TABLE>
F-17
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
INDEPENDENT BANCORP, INC. AND SUBSIDIARY
DECEMBER 31, 1998 AND 1997
NOTE 3 - INVESTMENT SECURITIES - CONTINUED
<TABLE>
<CAPTION>
Gross Gross Estimated
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
----------- ---------- ---------- -----------
<S> <C> <C> <C> <C>
SECURITIES HELD-TO-MATURITY:
- ---------------------------
DECEMBER 31, 1998:
U. S. GOVERNMENT AND AGENCY
SECURITIES $ 789,815 $ 4,582 $8,955 $ 785,442
MORTGAGE-BACKED SECURITIES 21,782 562 -0- 22,344
STATE AND MUNICIPAL SECURITIES 12,185,283 756,895 -0- 12,942,178
----------- -------- ------ -----------
$12,996,880 $762,039 $8,955 $13,749,964
=========== ======== ====== ===========
December 31, 1997:
U. S. Government and agency
securities $ 850,074 $ 9,946 $ -0- $ 860,020
Mortgage-backed securities 47,379 1,102 -0- 48,481
State and municipal securities 12,086,889 654,785 1,484 12,740,190
----------- -------- ------ -----------
$12,984,342 $665,833 $1,484 $13,648,691
=========== ======== ====== ===========
</TABLE>
[The remainder of this page intentionally left blank]
F-18
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
INDEPENDENT BANCORP, INC. AND SUBSIDIARY
DECEMBER 31, 1998 AND 1997
NOTE 3 - INVESTMENT SECURITIES - CONTINUED
The contractual maturities of securities to be held-to-maturity and securities
available-for-sale at December 31, 1998, 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>
Securities Securities
Held-to-maturity Available-for-sale
----------------------------- ------------------------
Amortized Fair Amortized Fair
Cost Value Cost Value
---------------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Due in one year or less $ 71,782 $ 72,652 $ 1,608,718 $ 1,597,665
Due after one year through
five years 2,973,321 3,074,951 4,518,753 4,586,905
Due after five years through
ten years 4,907,580 5,176,397 2,212,671 2,266,531
Due after ten years 5,044,197 5,425,964 5,790,680 5,836,340
Equity securities -0- -0- 720,397 720,397
----------- ----------- ----------- -----------
$12,996,880 $13,749,964 $14,851,219 $15,007,838
=========== =========== =========== ===========
</TABLE>
There were no sales of securities in 1998. Gross realized gains on sales of
securities available-for-sale were $8,389 during 1997 and gross realized losses
on sales of securities available-for-sale were $7,389.
Other securities include a restricted investment in Federal Home Loan Bank stock
which must be maintained to secure the available lines of credit. The amount of
investment in this stock amounted to $420,700 and $206,400 at December 31, 1998
and 1997, respectively.
Mortgage-backed securities have been included in the maturity tables based upon
the guaranteed payoff date of each security.
Investment securities pledged to secure public funds on deposit and for other
purposes as required by law amounted to approximately $22,607,000 and
$20,777,000 at December 31, 1998 and 1997, respectively.
F-19
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
INDEPENDENT BANCORP, INC. AND SUBSIDIARY
DECEMBER 31, 1998 AND 1997
NOTE 4 - LOANS
The Bank grants loans to customers primarily in Calhoun County of East Central
Alabama.
The major classifications of loans as of December 31, 1998 and 1997 were as
follows:
<TABLE>
<CAPTION>
1998 1997
----------- -----------
<S> <C> <C>
Commercial, financial and agricultural $ 9,359,293 $ 8,124,648
Real estate - construction 2,315,359 2,355,418
Real estate - mortgage 34,026,754 30,714,671
Consumer 13,127,058 9,850,037
Other 39,053 28,332
----------- -----------
58,867,517 51,073,106
Allowance for loan losses 1,403,822 514,188
----------- -----------
Net loans $57,463,695 $50,558,918
=========== ===========
</TABLE>
Certain directors, executive officers and principal shareholders including their
immediate families and associates were loan customers of the Bank during 1998
and 1997. Such loans are made in the ordinary course of business at normal
credit terms, including interest rates and collateral, and do not represent more
than a normal risk of collection. Total loans to these persons at December 31,
1998 and 1997, amounted to approximately $287,000 and $336,000.
Total loans which the Company considered to be impaired at December 31, 1998 and
1997 were $633,653 and $194,809, respectively. All of these loans were on
nonaccrual status and had related allowances of $63,500 and $19,500,
respectively. For the years ended December 31, 1998 and 1997, the difference
between gross interest income that would have been recorded in such period if
the nonaccruing loans had been current in accordance with their original terms
and the amount of interest income on those loans that was included in such
period's net income was immaterial.
The Bank has no commitments to loan additional funds to the borrowers of non-
accrual loans.
F-20
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
INDEPENDENT BANCORP, INC. AND SUBSIDIARY
DECEMBER 31, 1998 AND 1997
NOTE 5 - ALLOWANCE FOR LOAN LOSSES
Changes in the allowance for loan losses for the years ended December 31, 1998
and 1997 were as follows:
<TABLE>
<CAPTION>
1998 1997
----------- ----------
<S> <C> <C>
Balance at beginning of year $ 514,188 $ 447,376
Charge-offs (539,609) (163,986)
Recoveries 65,493 34,798
---------- ---------
Net (charge-offs) recoveries (474,116) (129,188)
Provision for loan losses 1,363,750 196,000
---------- ---------
Balance at end of year $1,403,822 $ 514,188
========== =========
</TABLE>
NOTE 6 - PREMISES AND EQUIPMENT
Premises and equipment as of December 31, 1998 and 1997 is as follows:
<TABLE>
<CAPTION>
1998 1997
---------- ----------
<S> <C> <C>
Land $ 223,000 $ 223,000
Buildings 1,185,139 460,257
Furniture and equipment 912,404 739,776
Construction in process -0- 389,268
---------- ----------
2,320,543 1,812,301
Less allowance for depreciation 706,672 610,034
---------- ----------
$1,613,871 $1,202,267
========== ==========
</TABLE>
The provision for depreciation charged to occupancy, furniture and equipment
expense for the years ended December 31, 1998 and 1997 was $96,638 and $98,343,
respectively.
F-21
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
INDEPENDENT BANCORP, INC. AND SUBSIDIARY
DECEMBER 31, 1998 AND 1997
NOTE 7 - DEPOSITS
The major classifications of deposits as of December 31, 1998 and 1997 were as
follows:
<TABLE>
<CAPTION>
1998 1997
----------- -----------
<S> <C> <C>
Noninterest-bearing demand $ 7,220,425 $ 7,221,983
NOW accounts 10,113,826 9,013,345
Savings 3,827,052 3,290,078
Time 30,315,192 27,291,316
Certificates of deposit of $100,000 or more 30,025,098 24,727,498
Time deposits open 1,853,499 1,898,238
----------- -----------
$83,355,092 $73,442,458
=========== ===========
</TABLE>
The maturities of time certificates of deposit and other time deposits of
$100,000 or more issued by the Bank at December 31, 1998, are as follows:
<TABLE>
<CAPTION>
Time Other
Certificates Time
of Deposit Deposits Total
------------ ---------- -----------
<S> <C> <C> <C>
Three months or less $13,639,833 $1,853,499 $15,493,332
Over three through twelve months 13,602,248 -0- 13,602,248
Over twelve months 2,783,017 -0- 2,783,017
----------- ---------- -----------
$30,025,098 $1,853,499 $31,878,597
=========== ========== ===========
</TABLE>
NOTE 8 - REGULATORY MATTERS
The Company and its subsidiary bank are subject to various regulatory capital
requirements administered by the state and federal banking agencies. Failure to
meet minimum capital requirements can initiate certain mandatory and possible
additional discretionary actions by regulators, that if undertaken, could have a
direct material effect on the Company and its subsidiary bank and the
consolidated financial statements. Under regulatory capital adequacy guidelines
and the regulatory framework for prompt corrective action, the Company and its
subsidiary bank must meet specific capital guidelines involving quantitative
measures of their assets, liabilities, and certain off-balance sheet items as
calculated under regulatory accounting practices. The Bank's capital amounts and
classification under the prompt corrective guidelines are also subject to
qualitative judgments by the regulators about components, risk weightings, and
other factors.
F-22
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
INDEPENDENT BANCORP, INC. AND SUBSIDIARY
DECEMBER 31, 1998 AND 1997
NOTE 8 - REGULATORY MATTERS - CONTINUED
Quantitative measures established by regulation to ensure capital adequacy
require the Company and its subsidiary bank to maintain minimum amounts and
ratios of total risk-based capital and Tier I capital to risk-weighted assets
(as defined in the regulations), and Tier I capital to adjusted total assets (as
defined). Management believes, as of December 31, 1998 and 1997, that the
Company and its subsidiary bank meet all capital adequacy requirements to which
they are subject.
As of December 15, 1997, the most recent notification from the FDIC, the Bank
was categorized as well capitalized under the regulatory framework for prompt
corrective action. To remain categorized as well capitalized, the Company and
its subsidiary bank will have to maintain minimum total risk-based, Tier I risk-
based, and Tier I leverage ratios as disclosed in the table below. There are no
conditions or events since the most recent notification that management believes
have changed the Bank's prompt corrective action category.
<TABLE>
<CAPTION>
To Be Well Capitalized
Under Prompt
For Capital Corrective Action
Actual Adequacy Purposes Provisions
----------------------- ------------------------ ---------------------------
Amount Ratio Amount Ratio Amount Ratio
----------- --------- ---------- ---------- ---------- -----------
(in Thousands)
<S> <C> <C> <C> <C> <C> <C>
AS OF DECEMBER 31, 1998:
- ------------------------
TOTAL RISK-BASED CAPITAL
(TO RISK-WEIGHTED ASSETS)
CONSOLIDATED $7,481 11.26% * $5,317 * 8.0% * $6,646 * 10.0%
THE INDEPENDENT BANK OF OXFORD 7,465 11.23 * 5,317 * 8.0 * 6,646 * 10.0
TIER I CAPITAL
(TO RISK-WEIGHTED ASSETS)
CONSOLIDATED 6,643 9.99 * 2,659 * 4.0 * 3,988 * 6.0
THE INDEPENDENT BANK OF OXFORD 6,627 9.97 * 2,659 * 4.0 * 3,988 * 6.0
TIER I CAPITAL
(TO ADJUSTED TOTAL ASSETS)
CONSOLIDATED 6,643 7.00 * 3,794 * 4.0 * 4,743 * 5.0
THE INDEPENDENT BANK OF OXFORD 6,627 6.99 * 3,795 * 4.0 * 4,743 * 5.0
</TABLE>
* greater than equal to
F-23
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
INDEPENDENT BANCORP, INC. AND SUBSIDIARY
DECEMBER 31, 1998 AND 1997
NOTE 8 - REGULATORY MATTERS - CONTINUED
<TABLE>
<CAPTION>
To Be Well Capitalized
Under Prompt
For Capital Corrective Action
Actual Adequacy Purposes Provisions
------------------ ------------------------ -------------------------
Amount Ratio Amount Ratio Amount Ratio
---------- ------ --------- ---------- ---------- ----------
(in Thousands)
<S> <C> <C> <C> <C> <C> <C>
As of December 31, 1997:
- ------------------------
Total Risk-Based Capital
(to Risk-Weighted Assets)
Consolidated $6,797 12.03% * 4,520 * 8.0% * $5,650 * 10.0%
The Independent Bank of Oxford 6,785 12.01 * 4,520 * 8.0 * 5,650 * 10.0
Tier I Capital
(to Risk-Weighted Assets)
Consolidated 6,283 11.12 * 2,260 * 4.0 * 3,390 * 6.0
The Independent Bank of Oxford 6,271 11.10 * 2,260 * 4.0 * 3,390 * 6.0
Tier I Capital
(to Adjusted Total Assets)
Consolidated 6,283 7.76 * 3,239 * 4.0 * 4,048 * 5.0
The Independent Bank of Oxford 6,271 7.74 * 3,239 * 4.0 * 4,049 * 5.0
</TABLE>
* greater than equal too
[The remainder of this page intentionally left blank]
F-24
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
INDEPENDENT BANCORP, INC. AND SUBSIDIARY
DECEMBER 31, 1998 AND 1997
NOTE 9 - OTHER OPERATING EXPENSES
The major components of other operating expense included in noninterest expense
at December 31, 1998 and 1997 are as follows:
<TABLE>
<CAPTION>
1998 1997
----------- ------------
<S> <C> <C>
Advertising $ 83,645 $ 52,939
Supplies 74,677 68,401
Professional fees 51,098 33,634
Postage 46,700 41,996
ATM fees 35,492 34,380
Insurance 34,632 29,205
Federal Reserve charges 29,729 31,573
FDIC and State assessments 19,011 16,848
Dues and subscriptions 16,553 16,449
Taxes and licenses 15,510 10,700
Other 241,982 137,654
-------- --------
$649,029 $473,779
======== ========
</TABLE>
NOTE 10 - INCOME TAXES
Federal and state income taxes receivable and (payable) as of December 31, 1998
and 1997 included in other assets and other liabilities respectively, were as
follows:
<TABLE>
<CAPTION>
1998 1997
--------- ---------
<S> <C> <C>
Current
Federal $ 63,082 $ 2,091
======== ========
State $(54,611) $(69,239)
======== ========
</TABLE>
F-25
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
INDEPENDENT BANCORP, INC. AND SUBSIDIARY
DECEMBER 31, 1998 AND 1997
NOTE 10 - INCOME TAXES - CONTINUED
The components of the deferred income tax asset included in other assets at
December 31, 1998 and 1997 are as follows:
<TABLE>
<CAPTION>
1998 1997
-------------------- ------------------
<S> <C> <C>
Deferred tax asset:
Federal $ 527,995 $208,003
State 72,604 25,753
--------- --------
Gross deferred income tax asset 600,599 233,756
Deferred tax liability:
Federal (72,245) (61,393)
State (14,001) (11,469)
--------- --------
Gross deferred income tax liability (86,246) (72,862)
--------- --------
Net deferred tax asset $ 514,353 $160,894
========= ========
The tax effects of each type of income and expense item that gave rise to deferred taxes are:
Alternative minimum tax credit carryover $ 116,572 $ 62,070
Net unrealized gains on securities available-for-sale (62,647) (38,106)
Depreciation (19,570) (21,973)
Allowance for loan losses 484,027 171,686
Other, net (4,029) (12,783)
--------- --------
Net deferred tax asset $ 514,353 $160,894
========= ========
The components of income tax expense for the years ended December 31, 1998 and 1997 were as
follows:
Current:
Federal $ 297,689 $358,840
State 60,011 69,819
Deferred:
Federal (330,000) 6,000
State (48,000) 6,000
--------- --------
$ (20,300) $440,659
========= ========
</TABLE>
F-26
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
INDEPENDENT BANCORP, INC. AND SUBSIDIARY
DECEMBER 31, 1998 AND 1997
NOTE 10 - INCOME TAXES - CONTINUED
There was no material tax effect of securities transactions for the years ended
December 31, 1998 and 1997.
The principal reasons for the difference in the effective tax rate and the
federal statutory rate are as follows for the years ended December 31, 1998 and
1997:
<TABLE>
<CAPTION>
1998 1997
--------- ---------
<S> <C> <C>
Statutory federal income tax rate 34.0 % 34.0 %
Effect on rate of:
Tax-exempt securities (42.9) (15.3)
Tax-exempt loan income (1.8) (0.4)
Interest expense disallowance 6.8 2.4
State income tax, net of federal tax benefit (1.2) 2.6
Other 2.1 1.5
------- -------
Effective income tax rate (3.0)% 24.8 %
======== =======
</TABLE>
NOTE 11 - COMMITMENTS AND CONTINGENCIES
The Company's consolidated financial statements do not reflect various
commitments and contingent liabilities which arise in the normal course of
business and which involve elements of credit risk, interest rate risk and
liquidity risk. These commitments and contingent liabilities are commitments to
extend credit, commercial letters of credit and standby letters of credit. A
summary of the Bank's commitments and contingent liabilities at December 31,
1998 and 1997 is approximately as follows:
<TABLE>
<CAPTION>
Contract or
Notional Amount
-----------------------------
1998 1997
----------- -----------
<S> <C> <C>
Commitments to extend credit $ 4,127,000 $ 3,178,000
Standby letters of credit 191,000 240,000
</TABLE>
F-27
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
INDEPENDENT BANCORP, INC. AND SUBSIDIARY
DECEMBER 31, 1998 AND 1997
NOTE 11 - COMMITMENTS AND CONTINGENCIES - CONTINUED
Commitments to extend credit, commercial letters of credit and standby letters
of credit all include exposure to some credit loss in the event of
nonperformance of the customer. The Bank's credit policies and procedures for
credit commitments and financial guarantees are the same as those for extension
of credit that are recorded on the consolidated balance sheet. Because these
instruments have fixed maturity dates, and because many of them expire without
being drawn upon, they do not generally present any significant liquidity risk
to the Bank.
NOTE 12 - CONCENTRATIONS OF CREDIT
All of the Bank's loans, commitments, and commercial and standby letters of
credit have been granted to customers in the Bank's market area. All such
customers are depositors of the Bank. Investments in state and municipal
securities also involve governmental entities within the Bank's market area.
The concentrations of credit by type of loan are set forth in Note 4. The
distribution of commitments to extend credit related primarily to unused real
estate draw lines. Commercial and standby letters of credit were granted
primarily to commercial borrowers.
The Bank maintains its cash accounts at the Federal Home Loan Bank and at
various commercial banks in Alabama and Georgia. The total cash balances in
commercial banks are insured by the FDIC up to $100,000. Total uninsured
balances held at commercial banks amounted to $19,547 and $22,938 at December
31, 1998 and 1997, respectively.
NOTE 13 - ECONOMIC DEPENDENCY
The Bank had deposits from the City of Oxford totaling $14,065,243 and
$12,058,920 at December 31, 1998 and 1997, respectively. In addition, the
Company had deposits from the Regional Medical Center totaling $3,817,729 and
$5,866,172 at December 31, 1998 and 1997, respectively. The loss of these
deposits could create temporary liquidity concerns for the Bank. The majority
of these deposits are certificates of deposit with stated maturity dates. The
Bank routinely engages in competitive bidding for these deposits.
F-28
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
INDEPENDENT BANCORP, INC. AND SUBSIDIARY
DECEMBER 31, 1998 AND 1997
NOTE 14 - RESTRICTIONS ON SUBSIDIARY DIVIDENDS, LOANS OR ADVANCES
The Bank is subject to the dividend restrictions set forth by the State Banking
Department. Under such restrictions, the Bank may not, without the prior
approval of the State Banking Department, declare dividends in excess of the sum
of the current year's earnings plus the retained net earnings from the preceding
two years. The dividends as of December 31, 1998 that the Bank could declare,
without the approval of the State Banking Department, amounted to approximately
$2,426,437.
NOTE 15 - RETIREMENT PLAN
The Bank has a qualified employee benefit plan under section 401(k) of the
Internal Revenue Code. Employees can contribute up to 15% of their salary on a
pre-tax basis and the Bank makes discretionary matching contributions. The
Bank's matching contributions charged to operations were $13,470 and $11,595 for
the years ended December 31, 1998 and 1997, respectively.
NOTE 16 - EXECUTIVE AND DIRECTOR SALARY CONTINUATION PLANS
Effective September 4, 1996, the Bank entered into contractual agreements with
its Directors and certain executive officers to provide for continued
compensation upon retirement. In connection with the adoption of these plans,
the Bank purchased cash build-up life insurance contracts to provide the funding
for the retirement benefits. At all times the Bank is the sole owner of the
cash surrender values of the contracts. The retirement obligation to the
Directors and executive officers is equal to the earnings of the Plans less any
related direct costs and shall be payable upon retirement in ten equal annual
installments. A liability reserve account is recorded to accrue the retirement
benefit obligations and will be adjusted each year based upon the earnings of
the Plans less direct costs. At December 31, 1998 and 1997, there was no
retirement obligation under the Plans.
F-29
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
INDEPENDENT BANCORP, INC. AND SUBSIDIARY
DECEMBER 31, 1998 AND 1997
NOTE 17 - LITIGATION
While the Company and its subsidiary are parties to various legal proceedings
arising from the ordinary course of business, management believes after
consultation with legal counsel that there are no proceedings threatened or
pending against the Company or its subsidiary that will, individually or in the
aggregate, have a material adverse effect on the business or consolidated
financial condition of the Company.
NOTE 18 - PENDING BUSINESS COMBINATION
On September 8, 1998, the Company entered into an Agreement and Plan of Merger
(the "Agreement") with Century South Banks, Inc. ("CSBI"), a Georgia bank
holding company located in Dahlonega, Georgia. The Agreement calls for the
Company to become a wholly owned subsidiary of CSBI through the exchange of
stock, whereby, each shareholder of the Company will receive shares of CSBI
based upon an exchange ratio. The Agreement provides for an exchange ratio of
3.2520 shares of CSBI common stock in consideration of each share of the
Company's common stock surrendered. The transaction is intended to qualify as a
tax-free reorganization and will be accounted for using the pooling of interests
method of accounting. The Agreement will be subject to normal shareholder and
regulatory approvals and is expected to be consummated in the first half of
1999.
[The remainder of this page intentionally left blank]
F-30
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
INDEPENDENT BANCORP, INC. AND SUBSIDIARY
DECEMBER 31, 1998 AND 1997
NOTE 19 - CONDENSED PARENT COMPANY INFORMATION
<TABLE>
<CAPTION>
BALANCE SHEETS
December 31,
-------------------------------
1998 1997
---------- ----------
<S> <C> <C>
ASSETS
Cash and due from banks $ 4,739 $ 2,044
Investment in and amounts due from subsidiary
(equity method) - eliminated upon consolidation 6,720,954 6,328,282
Intangibles, net 9,318 16,306
Other assets 10,920 9,493
----------- -----------
TOTAL ASSETS $ 6,745,931 $ 6,356,125
=========== ===========
LIABILITIES AND SHAREHOLDERS' EQUITY
TOTAL LIABILITIES $ -0- $ -0-
SHAREHOLDERS' EQUITY 6,745,931 6,356,125
----------- -----------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 6,745,931 $ 6,356,125
=========== ===========
</TABLE>
F-31
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
INDEPENDENT BANCORP, INC. AND SUBSIDIARY
DECEMBER 31, 1998 AND 1997
NOTE 19 - CONDENSED PARENT COMPANY INFORMATION - CONTINUED
<TABLE>
<CAPTION>
STATEMENTS OF INCOME
Years Ended
December 31,
------------------------------
1998 1997
----------- -----------
<S> <C> <C>
INCOME
From subsidiary - eliminated upon consolidation $ 356,900 $ 221,450
EXPENSES
Director and committee fees 4,390 5,400
Other expenses 12,803 7,322
----------- -----------
TOTAL EXPENSES 17,193 12,722
----------- -----------
Income before income taxes and equity
in undistributed earnings of subsidiary 339,707 208,728
Income tax benefit 1,427 4,545
----------- -----------
Income before equity in undistributed earnings
of subsidiary 341,134 213,273
Equity in undistributed earnings of subsidiary 355,860 1,124,068
----------- -----------
NET INCOME $ 696,994 $ 1,337,341
=========== ===========
</TABLE>
F-32
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
INDEPENDENT BANCORP, INC. AND SUBSIDIARY
DECEMBER 31, 1998 AND 1997
NOTE 19 - CONDENSED PARENT COMPANY INFORMATION - CONTINUED
<TABLE>
<CAPTION>
STATEMENTS OF CASH FLOWS
Years Ended
December 31,
------------------------------
1998 1997
------------ ------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $ 696,994 $ 1,337,341
Adjustments to reconcile net income to net
cash provided by operating activities:
Equity in undistributed income of subsidiary (355,860) (1,124,068)
Deferred tax (benefit) expense -0- (2,000)
Amortization of intangibles 6,988 6,988
Other (1,427) (2,546)
------------ ------------
NET CASH PROVIDED BY OPERATING ACTIVITIES 346,695 215,715
------------ ------------
CASH FLOWS FROM FINANCING ACTIVITIES
Cash dividends (344,000) (215,000)
------------ ------------
NET CASH USED IN FINANCING ACTIVITIES (344,000) (215,000)
------------ ------------
NET INCREASE IN CASH AND CASH EQUIVALENTS 2,695 715
Cash and Cash Equivalents at Beginning of Year 2,044 1,329
------------ ------------
CASH AND CASH EQUIVALENTS AT END OF YEAR $ 4,739 $ 2,044
============ ============
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
Cash paid (received) during the year for:
Interest $ -0- $ -0-
Income taxes, net -0- -0-
</TABLE>
F-33
<PAGE>
APPENDIX A
AGREEMENT AND PLAN OF MERGER
THIS AGREEMENT AND PLAN OF MERGER (this "Agreement") is made and entered
into as of September 8, 1998, by and among Independent Bancorp, Inc.
("Independent"), a corporation organized and existing under the laws of the
State of Alabama, with its principal office located in Oxford, Alabama, Century
South Banks, Inc. ("CSBI"), a corporation organized and existing under the laws
of the State of Georgia, with its principal office located in Dahlonega, Georgia
and IBI Acquisition Corp. ("IAC"), a corporation organized and existing under
the laws of the State of Alabama with its principal office located in Oxford,
Alabama and a wholly owned subsidiary of CSBI.
PREAMBLE
The Boards of Directors of Independent and CSBI are of the opinion that the
transaction described herein is in the best interest of the parties and their
respective shareholders. This Agreement provides for the merger of IAC with and
into Independent such that Independent will become a wholly owned subsidiary of
CSBI (the "Merger"). At the effective time of the Merger, the outstanding shares
of the capital stock of Independent shall be converted into the right to receive
shares of the common stock of CSBI (except as provided herein). As a result,
shareholders of Independent shall become shareholders of CSBI. The transaction
described in this Agreement is subject to the approvals of the shareholders of
Independent, the Board of Governors of the Federal Reserve System, the
Superintendent of Banks of the State of Alabama and the Department of Banking
and Finance of the State of Georgia, and the satisfaction of certain other
conditions described in this Agreement. It is the intention of the parties to
this Agreement that the Merger (i) for federal income tax purposes shall qualify
as a "reorganization" within the meaning of Section 368(a) of the Internal
Revenue Code, and (ii) for accounting purposes shall qualify for treatment as a
"pooling of interests".
Immediately following the Closing of the Merger, Independent Bank and Trust
("Bank"), a banking corporation organized under the laws of the State of Alabama
and a wholly-owned subsidiary of Independent, with its main office located in
Oxford, Alabama, will remain in existence under its Articles of Incorporation
and Bylaws, as in effect immediately prior to the Effective Time, as a wholly-
owned subsidiary of Independent.
Certain terms used in this Agreement are defined in Section 11.1 of this
Agreement.
NOW, THEREFORE, in consideration of the above and the mutual warranties,
representations, covenants and agreements set forth herein, the parties agree as
follows:
ARTICLE I
TRANSACTION AND TERMS OF MERGER
1.1 Merger. Subject to the terms and conditions of this Agreement, at the
Effective Time, IAC shall be merged with and into Independent in accordance with
the provisions of Section 14-2-1107 of the GBCC and Section 10-2B-11.07 of the
ABCA and with the effect provided in Section 14-2-1106 of the GBCC and Section
10-2B-11.06 of the ABCA. Independent shall be the Surviving Corporation
resulting from the Merger as a wholly owned subsidiary of CSBI, and the separate
existence of IAC shall cease. 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 Independent, IAC and CSBI.
1.2 Time and Place of Closing. The Closing will take place at 9:30 a.m. on
the date that the Effective Time occurs (or the immediately preceding day if the
Effective Time is earlier than 9:30 a.m.), or at such other time as the Parties,
acting through their Chief Executive Officers, may mutually agree. The place of
Closing shall be at the offices of Troutman Sanders LLP, Atlanta, Georgia, or
such other place as may be mutually agreed upon by the Parties.
1.3 Effective Time. The Merger contemplated by this Agreement shall become
effective on the date
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and at the time the Articles of Merger reflecting the Merger shall become
effective with the Secretary of State of the State of Alabama and the Secretary
of State of the State of Georgia. 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 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, (ii) the
date on which the shareholders of Independent approve this Agreement, or (iii)
such later date as may be mutually agreed upon in writing by the Chief Executive
Officers of each Party.
1.4 Execution of Support and Non Competition Agreements. Immediately prior
to the execution of this Agreement and as a condition hereto, each of the
executive officers and directors of Independent and Bank listed in Exhibit D is
executing and delivering to CSBI a Support Agreement and Non Competition
Agreement in substantially the form as attached hereto as Exhibit A.
ARTICLE 2
TERMS OF MERGER
2.1 Articles of Incorporation. The Articles of Incorporation of
Independent 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 Independent 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 of Independent and Bank. The directors of
Independent and Bank in office prior to the Effective Time may continue, at
their discretion, to serve as directors of the Surviving Corporation and Bank
for a period of the later of their attaining age 75 or five (5) years after the
Closing and, in such event, shall be compensated for their services as directors
in an amount equal to $900 per month for each director for attending such
meetings except the Chairman of the Board who shall receive $950 per month. The
officers of Independent immediately prior to the Effective Time shall become the
officers of the Surviving Corporation.
2.4 Directors and Officers of CSBI and IAC. The directors and officers of
CSBI in office immediately prior to the Effective Time, shall serve as the
officers and directors of CSBI from and after the Effective Time in accordance
with the Bylaws of CSBI. The directors of IAC in office immediately prior to the
Effective Time shall become additional directors of the Surviving Corporation
from and after the Effective Time until their successors shall have been duly
elected and qualified or until their earlier death, resignation or removal in
accordance with the Bylaws of the Surviving Corporation.
ARTICLE 3
MANNER OF CONVERTING 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 the constituent corporations shall be
converted as follows:
(a) Each share of IAC Common Stock issued and outstanding immediately
prior to the Effective Time shall be converted into and become one fully paid
and non-assessable share of common stock of the Surviving Corporation. Each
share of CSBI Common Stock issued and outstanding immediately prior to the
Effective Time shall remain issued and outstanding from and after the Effective
Time; and
(b) Subject to adjustment as outlined below and the conditions set
forth herein, each share of Independent Common Stock issued and outstanding at
the Effective Time (excluding shares held by CSBI or any of its Subsidiaries or
by Independent, in each case other than in a fiduciary capacity or as a result
of debts previously contracted, and excluding shares held by Independent
shareholders who perfect their dissenters' rights of appraisal as provided in
Section 3.4 of this Agreement) shall be converted into the right to receive
3.1746 (the "Exchange
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Ratio") shares of CSBI Common Stock for a total of 682,539 shares of CSBI Common
Stock (the "Merger Consideration").
(c) As of the Effective Time, each share of Independent Common Stock
as set forth in Section 3.1(b) of this Agreement shall cease to be outstanding
and each holder of a certificate representing any such shares of Independent
Common Stock shall cease to have any rights with respect thereto, except the
right to receive such holders' pro rata portion of the Merger Consideration and
any cash in lieu of fractional shares of CSBI Common Stock to be issued or paid
in consideration therefor upon surrender of such certificate in accordance with
Section 4.1 of this Agreement, without interest; and
(d) The Merger Consideration shall be reduced by the sum of all
amounts in excess of $100,000 paid or to be paid by either Independent or Bank
or both for the fees and expenses (other than the fees and expenses associated
with the services of T. Stephen Johnson & Associates, Inc.), of consultants,
attorneys, accountants and the like in connection with the Merger and the due
diligence conducted by Independent in regard to the Merger. In the event of an
adjustment pursuant to this Section 3.1(d), the Merger Consideration shall be
reduced by that number of whole shares of CSBI Common Stock equal to the dollar
amount determined in accordance with Section 3.1(d) divided by $31.50, and such
resulting number of shares of CSBI Common Stock shall be substituted for 682,539
as set forth in Section 3.1(b) of this Agreement and the Exchange Ratio
decreased accordingly.
3.2 Anti-Dilution Provisions. In the event Independent or CSBI changes the
number of shares of Independent Common Stock or CSBI 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 Merger Consideration shall be proportionately
adjusted.
3.3 Shares Held by Independent or CSBI. Each of the shares of Independent
Common Stock held by Independent or by any CSBI Companies, 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.
3.4 Dissenting Shareholders. Any holder of shares of Independent Common
Stock who perfects his dissenters' rights of appraisal in accordance with and as
contemplated by Sections 10-2B-13.20 et seq. of the ABCA shall be entitled to
receive the value of such shares in cash as determined pursuant to such
provision of Law; provided, however, that no such payment shall be made to any
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dissenting shareholder unless and until such dissenting shareholder has complied
with the applicable provisions of the ABCA and surrendered to Independent the
certificate or certificates representing the shares for which payment is being
made. In the event that after the Effective Time a dissenting shareholder of
Independent fails to perfect, or effectively withdraws or loses, his right to
appraisal and of payment for his shares, Independent shall issue and deliver the
consideration to which such holder of shares of Independent Common Stock is
entitled under this Article 3 (without interest) upon surrender by such holder
of the certificate or certificates representing the shares of Independent Common
Stock held by him.
3.5 Fractional Shares. Notwithstanding any other provision of this
Agreement, each holder of shares of Independent Common Stock exchanged pursuant
to the Merger, who would otherwise have been entitled to receive a fraction of a
share of CSBI 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 Independent Common Stock
multiplied by the market value of one share of CSBI Common Stock at the
Effective Time. The market value of one share of CSBI Common Stock at the
Effective Time shall be the last sales price of the CSBI Common Stock on NASDAQ
on the last business day preceding the Effective Time. No such holder will be
entitled to dividends, voting rights or any other rights as a shareholder in
respect of any fractional shares.
ARTICLE 4
EXCHANGE OF SHARES
4.1 Exchange Procedures. Within 20 days after the Effective Time, CSBI
shall, as exchange agent, mail to the former shareholders of Independent
appropriate transmittal materials (which shall specify that delivery shall be
effected, and risk of loss and title to the certificates theretofore
representing shares of Independent Common
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Stock shall pass, only upon proper delivery of such certificates to CSBI). After
the Effective Time, each holder of shares of Independent Common Stock (other
than shares to be canceled pursuant to Section 3.3 of this Agreement or as to
which dissenters' rights of appraisal have been perfected as provided in Section
3.4 of this Agreement) issued and outstanding at the Effective Time shall
surrender the certificate or certificates representing such shares to CSBI and
shall within 20 days after surrender thereof receive in exchange therefor the
consideration provided in Section 3.1 of this Agreement, together with all
undelivered dividends or distributions in respect of such shares (without
interest thereon) pursuant to Section 4.2 of this Agreement. To the extent
required by Section 3.5 of this Agreement, each holder of shares of Independent
Common Stock issued and outstanding at the Effective Time also shall receive,
upon surrender of the certificate or certificates representing such shares, cash
in lieu of any fractional share of CSBI Common Stock to which such holder may be
otherwise entitled (without interest). CSBI shall not be obligated to deliver
the consideration to which any former holder of Independent Common Stock is
entitled as a result of the Merger until such holder surrenders his certificate
or certificates representing the shares of Independent Common Stock for exchange
as provided in this Section 4.1. The certificate or certificates of Independent
Common Stock so surrendered shall be duly endorsed as CSBI may require. Any
other provision of this Agreement notwithstanding, CSBI shall not be liable to a
holder of Independent Common Stock for any amounts paid or property delivered in
good faith to a public official pursuant to any applicable abandoned property
Law.
4.2 Rights of Former Shareholders. At the Effective Time, the stock
transfer books of Independent shall be closed as to holders of Independent
Common Stock immediately prior to the Effective Time, and no transfer of
Independent Common Stock by any such holder shall thereafter be made or
recognized. Until surrendered for exchange in accordance with the provisions of
Section 4.1 of this Agreement, each certificate theretofore representing shares
of Independent Common Stock (other than shares to be canceled pursuant to
Sections 3.3 and 3.4 of this Agreement) shall from and after the Effective Time
represent for all purposes only the right to receive the consideration provided
in Sections 3.1 and 3.5 of this Agreement in exchange therefor. To the extent
permitted by Law, former shareholders of record of Independent shall be entitled
to vote after the Effective Time at any meeting of CSBI shareholders the number
of whole shares of CSBI Common Stock into which their respective shares of
Independent Common Stock are converted, regardless of whether such holders have
exchanged their certificates representing Independent Common Stock for
certificates representing CSBI Common Stock in accordance with the provisions of
this Agreement. Whenever a dividend or other distribution is declared by CSBI on
the CSBI 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 CSBI Common Stock as of any
time subsequent to the Effective Time shall be delivered to the holder of any
certificate representing shares of Independent Common Stock issued and
outstanding at the Effective Time until such holder surrenders such certificate
for exchange as provided in Section 4.1 of this Agreement. However, upon
surrender of such Independent Common Stock certificate, both the CSBI 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.
ARTICLE 5
REPRESENTATIONS AND WARRANTIES OF INDEPENDENT
Independent hereby represents and warrants to CSBI and IAC as follows:
5.1 Organization, Standing and Power. Independent 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.
Independent has the corporate power and authority to carry on its business as
now conducted and to own, lease and operate its Assets. Neither Independent nor
Bank owns any property or conducts any business outside of the State of Alabama
which would require either of them to be qualified as a foreign corporation in
any jurisdiction.
5.2 Authority; No Breach By Agreement.
(a) Independent 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
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herein, including the Merger, have been duly and validly authorized by all
necessary corporate action in respect thereof on the part of Independent,
subject to the approval of this Agreement by the holders of at least a majority
of the outstanding shares of Independent Common Stock, which is the only
shareholder vote required for approval of this Agreement and consummation of the
Merger by Independent. Subject to such requisite shareholder approval and
Consents of Regulatory Authorities, this Agreement represents a legal, valid and
binding obligation of Independent, enforceable against Independent 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) Except as Previously Disclosed, neither the execution and
delivery of this Agreement by Independent nor the consummation by Independent of
the transactions contemplated hereby, nor compliance by Independent with any of
the provisions hereof, will (i) conflict with or result in a breach of any
provision of Independent'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 either Independent or Bank or both under,
any Contract or Permit of either Independent or Bank or both, 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 Independent, or
(iii) subject to receipt of the requisite approvals referred to in Section
9.1(a) and (b) of this Agreement, violate any Law or Order applicable to either
Independent or Bank or both 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 IRS or the Pension Benefit Guaranty
Corporation with respect to any employee benefit plans, or under the HSR Act 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 Independent no notice to, filing with or Consent of, any
public body or authority is necessary for the consummation by Independent of the
Merger and the other transactions contemplated in this Agreement.
5.3 Capital Stock and Other Securities.
(a) The authorized capital stock of Independent consists of 300,000
shares of Independent Common Stock. As of the date of this Agreement, there are
(i) 215,000 shares of Independent Common Stock issued and outstanding and (ii)
no outstanding stock options for shares of Independent Common Stock. No more
than 215,000 shares of Independent Common Stock will be issued and outstanding
at the Effective Time. No options to acquire Independent Common Stock will be
issued and outstanding at the Effective Time. All of the issued and outstanding
shares of capital stock of Independent 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 Independent has been issued in violation
of any preemptive rights of the current or past shareholders of Independent.
(b) There are no shares of capital stock or other equity securities of
Independent 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 Independent or contracts, commitments, understandings or arrangements
by which Independent 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 Independent's Subsidiaries. Other than Bank, Independent has no
subsidiaries.
5.5 Regulatory Filings; Financial Statements.
(a) Independent has provided and will provide to CSBI all Independent
Regulatory Reports for the period beginning December 31, 1993 and ending the
Effective Time. The Independent Regulatory Reports (i) at the time filed,
complied in all Material respects with the applicable requirements of the Law,
and (ii) did not at the time they were filed (or if amended or superseded by a
filing prior to the date of this Agreement, then on the
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date of such filing) contain any untrue statement of a Material fact or omit to
state a Material fact required to be stated in such Independent Regulatory
Reports or necessary in order to make the statements in such Independent
Regulatory Reports, in light of the circumstances under which they were made,
not misleading. Except for Independent Subsidiaries that are registered as a
broker, dealer or investment advisor or filings due to fiduciary holdings of the
Independent Subsidiaries, none of the Independent Subsidiaries is required to
file any forms, reports or other documents with the SEC;
(b) Independent has Previously Disclosed, and delivered to CSBI prior
to the execution of this Agreement, copies of all Independent Financial
Statements for periods ended prior to the date hereof and will deliver to CSBI
copies of all Independent Financial Statements prepared subsequent to the date
hereof. The Independent Financial Statements (as of the dates thereof and for
the periods covered thereby) (i) are or will be, if dated after the date of this
Agreement, in accordance with the books and records of Independent, which are or
will be, materially complete and correct and which have been or will have been
maintained in accordance with good business practices, and (ii) present or will
present fairly the financial position of Independent as of the dates indicated
and the results of operations, changes in shareholders' equity and cash flows of
Independent 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).
5.6 Absence of Undisclosed Liabilities. Neither Independent nor Bank has
any Liabilities that are reasonably likely to have, individually or in the
aggregate, a Material Adverse Effect on either Independent or Bank, except
Liabilities which are accrued or reserved against in the consolidated balance
sheets of Independent as of December 31, 1997 and June 30, 1998 included in the
Independent Financial Statements or reflected in the notes thereto. Neither
Independent nor Bank has incurred or paid any Liability since June 30, 1998,
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
Independent.
5.7 Absence of Certain Changes or Events. Since June 30, 1998, (i) 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
Independent, (ii) neither Independent nor Bank has 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
Independent provided in Article 7 of this Agreement, and (iii) Independent and
Bank have conducted their respective businesses in the ordinary and usual course
(excluding the incurrence of expenses in connection with this Agreement and the
transactions contemplated hereby).
5.8 Tax Matters.
(a) All Tax returns required to be filed by or on behalf of
Independent or Bank 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, 1997, 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 Independent, and all returns filed are complete and accurate
in all Material respects to the Knowledge of Independent. All Taxes shown on
filed returns have been paid as of the date of this Agreement, and 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 Independent,
except as reserved against in the Independent 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) Neither Independent nor Bank 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 Independent or Bank, which deficiency is
reasonably likely to have, individually or in the aggregate, a Material Adverse
Effect on Independent.
(c) Adequate provision for any Taxes due or to become due by
Independent or Bank for the
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period or periods through and including the date of the respective Independent
Financial Statements has been made and is reflected on such Independent
Financial Statements.
(d) Deferred Taxes of Independent or Bank have been provided for in
accordance with GAAP. Effective January 1, 1993 for Bank and effective May 1,
1995 for Independent, Bank and Independent adopted Financial Accounting
Standards Board Statement 109, "Accounting for Income Taxes."
(e) Independent and Bank are in compliance with, and their respective
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
Independent.
(f) Neither Independent nor Bank has made any payments, is obligated
to make any payments or is a party to any contract, agreement or other
arrangement that could obligate it to make any payments that would be disallowed
as a deduction under Section 280G or 162(m) of the Internal Revenue Code.
(g) There are no Material Liens with respect to Taxes upon any of the
Assets of either Independent or Bank.
(h) There has not been an ownership change, as defined in Internal
Revenue Code Section 382(g), of either Independent or Bank that occurred during
or after any Taxable Period in which either Independent or Bank incurred a net
operating loss that carries over to any Taxable Period ending after December 31,
1996.
(i) Neither Independent nor Bank has filed any consent under Section
341(f) of the Internal Revenue Code concerning collapsible corporations.
(j) After the date of this Agreement, no Material election with
respect to Taxes will be made without the prior consent of CSBI, which consent
will not be unreasonably withheld.
(k) Neither Independent nor Bank has or has had a permanent
establishment in any foreign country, as defined in any applicable tax treaty or
convention between the United States and such foreign country.
5.9 Allowance. The Allowance shown on the consolidated balance sheets of
Independent included in the most recent Independent Financial Statements dated
prior to the date of this Agreement was, and the Allowance shown on the
consolidated balance sheets of Independent included in the Independent 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 Bank and other extensions of credit (including letters of credit
and commitments to make loans or extend credit) by Bank as of the dates thereof,
except where the failure of such Allowance to be so adequate is not reasonably
likely to have a Material Adverse Effect on Independent.
5.10 Assets. Except as Previously Disclosed or as disclosed or reserved
against in the Independent Financial Statements, Independent and Bank each has
good and marketable title, free and clear of all Liens, to all of their
respective Assets. All Material tangible properties used in the business of
Independent and Bank are in good condition, reasonable wear and tear excepted,
and are usable in the ordinary course of business consistent with Independent
and Bank's past practices except for deficiencies that are not likely to have
individually or in the aggregate a Material Adverse Effect on Independent or
Bank. All Assets which are Material to Independent's and Bank's respective
businesses held under leases or subleases by either Independent or Bank, 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. Management believes that the policies of fire, theft,
liability and other insurance maintained
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with respect to the Assets or businesses of either Independent or Bank provide
adequate coverage against loss or Liability, and the fidelity and blanket bonds
in effect as to which Bank is a named insured are, in the reasonable belief of
Independent's management, reasonably sufficient. Neither Independent nor Bank
has received notice from any insurance carrier that (i) such insurance will be
canceled or that coverage thereunder will be reduced or eliminated or (ii)
premium costs with respect to such policies of insurance will be substantially
increased. The Assets of Bank include all assets required to operate the
business of Bank as presently conducted.
5.11 Environmental Matters.
(a) To the Knowledge of Independent, Independent, Bank, their
respective Participation Facilities and Loan Properties are, and have been, in
full 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 Independent or on Bank.
(b) There is no Litigation pending or, to the Knowledge of
Independent, threatened before any court, governmental agency, board, authority
or other forum in which either Independent or Bank or any of their respective
Participation Facilities and Loan Properties 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, whether or not occurring at, on, under or involving a site
owned, leased or operated by either Independent or Bank or any of their
respective Participation Facilities and Loan Properties, except for such
Litigation pending or threatened which is not likely to have, individually or in
the aggregate, a Material Adverse Effect on Independent or on Bank.
(c) To the Knowledge of Independent, there is no reasonable basis for
any Litigation of a type described in subsection (b), except such as is not
likely to have, individually or in the aggregate, a Material Adverse Effect on
either Independent or Bank.
(d) To the Knowledge of Independent, during the period of (i)
Independent Bank's ownership or operation of any of their respective current
properties, (ii) Independent's or Bank's participation in the management of any
Participation Facility or (iii) Independent's or Bank's holding of a security
interest in a Loan Property, there have been no releases, spills or discharges
of Hazardous Material or other conditions involving Hazardous Materials in, on,
under or affecting any Participation Facility or Loan Property, except such as
are not likely to have, individually or in the aggregate, a Material Adverse
Effect on either Independent or Bank.
5.12 Compliance with Laws. Independent is duly registered as a bank holding
company under the BHC Act. Bank is duly registered as a bank under the Alabama
Banking Code. Bank 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 likely to have, individually or in
the aggregate, a Material Adverse Effect on Independent, 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
Independent. Neither Independent nor Bank:
(a) is in violation of any Laws, Environmental Laws, Orders or
Permits applicable to its business or employees conducting its business, except
for violations which are not likely to have, individually or in the aggregate, a
Material Adverse Effect on Independent; nor
(b) except as Previously Disclosed, 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 (i) asserting that
either Independent or Bank 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 either Independent or Bank, (ii) threatening to
revoke any Permits, the revocation of which is reasonably likely to have,
individually or in the aggregate, a Material Adverse Effect on either
Independent or Bank, or (iii) requiring Independent or Bank 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
businesses, or in
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any manner relates to their respective capital adequacy, credit or reserve
policies, management or the payment of dividends.
5.13 Labor Relations. Neither Independent nor Bank is the subject of any
Litigation asserting that either of them has committed an unfair labor practice
(within the meaning of the National Labor Relations Act or comparable state law)
or seeking to compel Independent or Bank to bargain with any labor organization
as to wages or conditions of employment, nor is Independent or Bank a party to
or bound by any collective bargaining agreement, Contract or other agreement or
understanding with a labor union or labor organization, nor is there any strike
or other labor dispute involving either of them, pending or to their respective
Knowledge threatened, nor to their respective Knowledge, is there any activity
involving Independent's or Bank's employees seeking to certify a collective
bargaining unit or engaging in any other organization activity.
5.14 Employee Benefit Plans.
(a) Independent has Previously Disclosed, and delivered or made
available to CSBI prior to the execution of this Agreement, correct and complete
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 Independent or any Affiliate thereof
for the benefit of employees, retirees, dependents, spouses, directors,
independent contractors or other beneficiaries and under which such persons are
eligible to participate (collectively, the "Independent Benefit Plans"). Any of
the Independent Benefit Plans which is an "employee welfare benefit plan," as
that term is defined in Section 3(l) of ERISA, or an "employee pension benefit
plan," as that term is defined in Section 3(2) of ERISA, is referred to herein
as a "Independent ERISA Plan." Each Independent ERISA Plan which is also a
"defined benefit plan" (as defined in Section 414(j) of the Internal Revenue
Code or Section 3(35) of ERISA) is referred to herein as a "Independent Pension
Plan". No Independent Pension Plan is or has been a "multi-employer plan"
within the meaning of Section 3(37) of ERISA. Independent does not, and may not
ever, participate in either a multi-employer plan or a multiple employer plan.
(b) Independent has delivered or made available to CSBI prior to the
execution of this Agreement correct and complete copies of the following
documents: (i) all trust agreements or other funding arrangements for such
Independent Benefit Plans (including insurance contracts), and all amendments
thereto, (ii) with respect to any such Independent Benefit Plans or amendments,
all determination letters, Material rulings, Material opinion letters, Material
information letters or Material advisory opinions issued by the IRS, the United
States Department of Labor or the Pension Benefit Guaranty Corporation after
December 31, 1994, (iii) annual reports or returns, audited or unaudited
financial statements, actuarial valuations and reports and summary annual
reports prepared for any Independent Benefit Plan with respect to the most
recent plan year, and (iv) the most recent summary plan descriptions and any
Material modifications thereto.
(c) All Independent 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 Independent.
Each Independent 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 IRS, and Independent is not aware of any circumstances likely to
reasonably result in revocation of any such favorable determination letter or
failure of an Independent ERISA Plan intended to satisfy Internal Revenue Code
Section 401 to satisfy the Tax qualification provisions of the Internal Revenue
Code applicable thereto. Neither Independent nor Bank has engaged in a
transaction with respect to any Independent Benefit Plan that, assuming the
Taxable Period of such transaction expired as of the date hereof, would subject
Independent or Bank to a Material 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 Independent.
(d) No Independent 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
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valuation, and the fair market value of the assets of any such plan exceeds the
plan's "benefit liabilities," as that term is defined in Section 4001(a)(16) of
ERISA, when determined under actuarial factors that would apply if the plan
terminated in accordance with all applicable legal requirements. Since the date
of the most recent actuarial valuation, there has been (i) no Material change in
the financial position or funded status of any Independent Pension Plan, (ii) no
change in the actuarial assumptions with respect to any Independent Pension
Plan, and (iii) no increase in benefits under any Independent Pension Plan as a
result of plan amendments or changes in applicable Law, any of which is
reasonably likely to have, individually or in the aggregate, a Material Adverse
Effect on Independent or materially affect the funding status of any such plan.
Neither any Independent Pension Plan nor any "single-employer plan," within the
meaning of Section 4001(a)(15) of ERISA, currently or formerly maintained by
Independent, or the single-employer plan of any entity which is considered one
employer with Independent 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 Independent. Independent
has not provided, and is not required to provide, security to a Independent
Pension Plan or to any single-employer plan of an ERISA Affiliate pursuant to
Section 401(a)(29) of the Internal Revenue Code. All premiums required to be
paid under ERISA Section 4006 have been timely paid by Independent, except to
the extent any failure to do so would not have a Material Adverse Effect on
Independent.
(e) Within the six-year period preceding the Effective Time, no
Liability under Subtitle C or D of Title IV of ERISA has been or is expected to
be incurred by Independent 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 Independent.
Except as Previously Disclosed, Independent has not incurred any withdrawal
Liability with respect to a multi-employer plan under Subtitle B of Title IV of
ERISA (regardless of whether based on contributions of an ERISA Affiliate),
which Liability is reasonably likely to have a Material Adverse Effect on
Independent. 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 Independent Pension Plan or by any ERISA
Affiliate within the 12-month period ending on the date hereof.
(f) Except as required under Title I, Part 6 of ERISA and Internal
Revenue Code Section 4980 B, neither Independent nor Bank has any obligations to
provide health and life benefits under any of the Independent Benefit Plans to
former employees, and there are no restrictions on the rights of Independent to
amend or terminate any such plan without incurring any Liability thereunder,
which Liability is reasonably likely to have a Material Adverse Effect on
Independent.
(g) 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
officer, director or any employee of Independent from Independent or Bank under
any Independent Benefit Plan or otherwise, (ii) increase any benefits otherwise
payable under any Independent Benefit Plan, or (iii) result in any acceleration
of the time of payment or vesting of any such benefit, where such payment,
increase or acceleration is reasonably likely to have, individually or in the
aggregate, a Material Adverse Effect on Independent.
(h) 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 Independent and its 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 Independent Financial Statements to the extent
required by and in accordance with GAAP.
5.15 Material Contracts. Except as Previously Disclosed or otherwise
reflected in the Independent Financial Statements, neither Independent, Bank nor
any of their respective Assets, businesses or operations, is a party to, or is
bound or affected by, or receives benefits under, (i) any employment, severance,
termination, consulting or retirement Contract providing for aggregate payments
to any Person in any calendar year in excess of $50,000, (ii) any Contract
relating to the borrowing of money by Independent or Bank or the guarantee by
Independent or Bank of any such obligation (other than Contracts evidencing
deposit liabilities, purchases of federal funds, fully-secured repurchase
agreements, trade payables, letters of credit and Contracts relating to
borrowings or
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guarantees made in the ordinary course of business), and (iii) any other
Contract or amendment thereto would be required to be filed as an exhibit to an
Independent Regulatory Report filed by Independent with any Regulatory Authority
as of the date of this Agreement that has not been filed by Independent with any
Regulatory Authority as an exhibit to any Independent Regulatory Report for the
fiscal year ended December 31, 1997 (together with all Contracts referred to in
Sections 5.10 and 5.14(a) of this Agreement, the "Independent Contracts"). With
respect to each Independent Contract, (i) the Contract is in full force and
effect, (ii) neither Independent nor Bank is in Default thereunder, other than
Defaults which are not reasonably likely to have, individually or in the
aggregate, a Material Adverse Effect on Independent, (iii) neither Independent
nor Bank has repudiated or waived any material provision of any such Contract,
and (iv) no other party to any such Contract is, to the knowledge of
Independent, in Default in any respect, other than Defaults which are not
reasonably likely to have, individually or in the aggregate, a Material Adverse
Effect on Independent, or has repudiated or waived any Material provision
thereunder. Except as Previously Disclosed, all of the indebtedness of
Independent or Bank for money borrowed is prepayable at any time by Independent
or Bank without penalty or premium.
5.16 Legal Proceedings. There is no Litigation pending, or, to the
Knowledge of Independent, threatened against either Independent or Bank, or
against any of their Assets, employee benefit plans, interests or rights that is
reasonably likely to have, individually or in the aggregate, a Material Adverse
Effect on Independent, nor are there any Orders of any Regulatory Authorities,
other governmental authorities or arbitrators outstanding against either
Independent or Bank, that are reasonably likely to have, individually or in the
aggregate, a Material Adverse Effect on Independent.
5.17 Reports. Independent and Bank have timely filed all reports and
statements, together with any amendments required to be made with respect
thereto, that they were required to file with Regulatory Authorities and any
applicable state securities or banking authorities, except failures to file
which are not reasonably likely to have, individually or in the aggregate, a
Material Adverse Effect on Independent. 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, each such report and document did not contain any
untrue statement of a Material fact or omit to state a Material fact required to
be stated therein or necessary to make the statements made therein, in light of
the circumstances under which they were made, not misleading.
5.18 Statements True and Correct. No statement, certificate, instrument or
other writing furnished or to be furnished by Independent or Bank or any
Affiliate thereof to CSBI 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
Independent or Bank or any Affiliate thereof for inclusion in the Registration
Statement to be filed by CSBI 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 Independent or
Bank or any Affiliate thereof for inclusion in the Proxy Statement to be mailed
to Independent's shareholders in connection with the Independent Meeting, and
any other documents to be filed by Independent 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
Independent, 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 Independent 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
Independent Meeting. All documents that Independent 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.
5.19 Accounting, Tax and Regulatory Matters. Neither Independent, Bank nor
any Affiliate thereof has taken any action or has any Knowledge of any fact or
circumstance that is reasonably likely to (i) prevent the Merger from qualifying
for pooling-of-interests accounting treatment or as a reorganization within the
meaning of
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Section 368(a) of the Internal Revenue Code, or (ii) 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.
5.20 State Takeover Laws. Independent has taken all necessary action to
exempt the transactions contemplated by this Agreement from any applicable
"moratorium," "control share," "fair price," "business combination" or other
state takeover Law.
5.21 Articles of Incorporation Provisions. Independent has taken all
actions so that the entering into of this Agreement and the consummation of the
Merger contemplated hereby 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 Independent (other than voting, dissenters' rights of appraisal
or other similar rights) or restrict or impair the ability of CSBI or any of its
Subsidiaries to vote, or otherwise to exercise the rights of a shareholder with
respect to, shares of Independent Common Stock that may be acquired or
controlled by it.
5.22 Derivatives. All interest rate swaps, caps, floors, option
agreements, futures and forward contracts and other similar risk management
arrangements, whether entered into for Independent's own account, or for the
account of Bank or its customers, were entered into (i) in accordance with
prudent business practices and all applicable Laws, and (ii) with counterparties
believed to be financially responsible.
5.23 Year 2000. Independent has disclosed to CSBI a complete and accurate
copy of Independent's plan, including an estimate of anticipated associated
costs, for implementing modifications to Independent's hardware, software and
computer systems, chips and microprocessors, to ensure proper execution and
accurate processing of all date-related data, whether from years in the same
century or in different centuries. Between the date of this Agreement and the
Effective Time, Independent shall endeavor to continue its efforts to implement
such plan.
ARTICLE 6
REPRESENTATIONS AND WARRANTIES OF CSBI AND IAC
CSBI and IAC, jointly and severally, hereby represent and warrant to
Independent as follows:
6.1 Organization, Standing and Power. CSBI 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. IAC
is a financial institution duly organized, validly existing and in good standing
under the laws of the State of Alabama. CSBI has the corporate power and
authority to carry on its business as now conducted and to own, lease and
operate its Assets. CSBI 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 CSBI.
6.2 Authority; No Breach By Agreement.
(a) CSBI and IAC each have the corporate power and authority
necessary to execute, deliver and perform their respective 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 CSBI and IAC. Subject to the Consents of Regulatory Authorities, this
Agreement represents a legal, valid, and binding obligation of CSBI and IAC,
enforceable against CSBI and IAC 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 either
CSBI or IAC, nor the
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consummation by either CSBI or IAC of the transactions contemplated hereby, nor
compliance by either CSBI or IAC with any of the provisions hereof, will (i)
conflict with or result in a breach of any provision of CSBI's or IAC'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 CSBI Companies under, any Contract or Permit of any CSBI Companies,
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
CSBI, or (iii) subject to receipt of the requisite approvals referred to in
Section 9.1(b) of this Agreement, violate any Law or Order applicable to any
CSBI Companies or any of their respective Assets.
(c) No notice to, filing with or Consent of any public body or
authority is necessary for the consummation by either CSBI or IAC of the Merger
and the other transactions contemplated in this Agreement other than (i) in
connection or compliance with the provisions of the Securities Laws, applicable
state corporate and securities Laws and rules of the NASD, (ii) Consents
required from Regulatory Authorities, (iii) notices to or filings with the IRS
or the Pension Benefit Guaranty Corporation with respect to any employee benefit
plans, (iv) under the HSR Act, and (v) 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 CSBI.
6.3 Capital Stock.
(a) The authorized capital stock of CSBI consists of 30,000,000 shares
of CSBI Common Stock. As of June 30, 1998, there were 11,004,172 shares of CSBI
Common Stock issued and outstanding. As of June 30, 1998, 500,000 shares of
CSBI Common Stock were reserved for issuance upon the exercise of issued and
outstanding stock options under the 1994 Incentive Stock Option Plan and 500,000
shares of CSBI Common Stock are reserved under the 1998 Century South Banks,
Inc. Executive Stock Plan (collectively, the "CSBI Option Plans"). All of the
issued and outstanding shares of CSBI Common Stock are, and all of the shares of
CSBI Common Stock to be issued in exchange for shares of Independent 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 CSBI
Common Stock has been, and none of the shares of CSBI Common Stock to be issued
in exchange for shares of Independent Common Stock upon consummation of the
Merger will be, issued in violation of any preemptive rights of the current or
past shareholders of CSBI.
(b) Except as set forth in Section 6.3(a) of this Agreement, or as
provided pursuant to the CSBI Option Plans or as Previously Disclosed, as of the
date of this Agreement, there are no shares of capital stock or other equity
securities of CSBI 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 CSBI or contracts, commitments, understandings or
arrangements by which CSBI 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.
6.4 SEC Filings; Financial Statements.
(a) CSBI has filed and made available to Independent all forms,
reports and documents required to be filed by CSBI with the SEC since December
31, 1993 (collectively, the "CSBI SEC Reports"). The CSBI SEC Reports (i) at the
time filed, complied in all Material respects with the applicable requirements
of the 1933 Act and the 1934 Act, as the case may be, and (ii) did not at the
time they were filed (or if amended or superseded by a filing prior to the date
of this Agreement, then on the date of such filing) contain any untrue statement
of a Material fact or omit to state a Material fact required to be stated in
such CSBI SEC Reports or necessary in order to make the statements in such CSBI
SEC Reports, in light of the circumstances under which they were made, not
misleading. Except for CSBI Subsidiaries that are registered as a broker, dealer
or investment advisor or filings due to fiduciary holdings of the CSBI
Subsidiaries, none of the CSBI Subsidiaries is required to file any forms,
reports or other documents with the SEC;
(b) CSBI has Previously Disclosed and delivered to Independent prior
to the execution of this Agreement copies of all CSBI Financial Statements for
periods ended prior to the date hereof and will deliver to Independent copies of
all CSBI Financial Statements prepared subsequent to the date hereof. The CSBI
Financial
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Statements (as of the dates thereof and the periods covered thereby) (i) are or,
if dated after the date of this Agreement, will be in accordance with the books
and records of the CSBI Companies, which are or will be, materially complete and
correct and which have been or will have been, maintained in accordance with
good business practices, and (ii) present or will present fairly the
consolidated financial position of the CSBI Companies as of the dates indicated
and the consolidated results of operations, changes in shareholders' equity and
cash flows of the CSBI 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).
6.5 Absence of Undisclosed Liabilities. None of the CSBI Companies have
any Liabilities that are reasonably likely to have, individually or in the
aggregate, a Material Adverse Effect on CSBI, except Liabilities which are
accrued or reserved against in the consolidated balance sheets of CSBI as of
December 31, 1997 and June 30, 1998 included in the CSBI Financial Statements or
reflected in the notes thereto. No CSBI Companies have incurred or paid any
Liability since March 31, 1998, 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 CSBI.
6.6 Absence of Certain Changes or Events. Since June 30, 1998, except as
Previously Disclosed, (i) 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 CSBI, and (ii) the CSBI 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 CSBI provided in Article 7 of this Agreement.
6.7 Compliance with Laws. CSBI is duly registered as a bank holding
company under the BHC Act. Each of the CSBI Companies has in effect all permits
necessary to own, lease or operate their Assets and to carry on their 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 CSBI, 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 CSBI. None of the CSBI Companies:
(a) 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 CSBI; and
(b) except as Previously Disclosed, 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 (i) asserting that
any of the CSBI Companies are 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 CSBI, (ii) threatening to revoke any Permits, the
revocation of which is reasonably likely to have, individually or in the
aggregate, a Material Adverse Effect on CSBI, or (iii) requiring any CSBI
Companies 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.
6.8 Legal Proceedings. There is no Litigation instituted or pending, or,
to the Knowledge of CSBI, threatened against any CSBI Companies, 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 CSBI, nor are
there any Orders of any Regulatory Authorities, other governmental authorities
or arbitrators outstanding against any CSBI Companies, that are reasonably
likely to have, individually or in the aggregate, a Material Adverse Effect on
CSBI.
6.9 Statements True and Correct. No statement, certificate, instrument or
other writing furnished or to be furnished by any CSBI Companies or any
Affiliate thereof to Independent 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
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circumstances under which they were made, not misleading. None of the
information supplied or to be supplied by any CSBI Companies or any Affiliate
thereof for inclusion in the Registration Statement to be filed by CSBI 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 CSBI Companies or any Affiliate thereof for
inclusion in the Proxy Statement to be mailed to Independent shareholders in
connection with the Independent Meeting, and any other documents to be filed by
any CSBI Companies 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 Independent, 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 Independent
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 Independent
Meeting. All documents that any CSBI Companies 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.
6.10 Accounting, Tax and Regulatory Matters. No CSBI Company or any
Affiliate thereof has taken any action or has any Knowledge of any fact or
circumstance that is reasonably likely to (i) prevent the Merger from qualifying
for pooling-of-interests accounting treatment or as a reorganization within the
meaning of Section 368(a) of the Internal Revenue Code, or (ii) 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
9.1(b).
ARTICLE 7
CONDUCT OF BUSINESS PENDING CONSUMMATION
7.1 Affirmative Covenants of Independent. From the date of this Agreement
until the earlier of the Effective Time or the termination of this Agreement
unless the prior written consent of CSBI shall have been obtained, and except as
otherwise contemplated herein, Independent agrees: (i) to operate its business
and cause Bank to operate its business in the usual, regular and ordinary
course; (ii) to preserve intact its business organizations and Assets and
maintain its rights and franchises; (iii) to use its reasonable efforts to cause
its representations and warranties to be correct at all times; and (iv) to take
no action which would (a) 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 last
sentence of Section 9.1(b) of this Agreement or (b) adversely affect in any
Material respect the ability of either Party to perform its covenants and
agreements under this Agreement.
7.2 Negative Covenants of Independent. From the date of this Agreement
until the earlier of the Effective Time or the termination of this Agreement,
Independent covenants and agrees that it and Bank will not do or agree or commit
to do, any of the following without the prior written consent of the Chief
Executive Officer of CSBI, which consent shall not be unreasonably withheld:
(a) amend the Articles of Incorporation, Bylaws or other governing
instruments of Independent or the Charter, Bylaws or other governing instruments
of Bank; or
(b) incur any additional debt obligation or other obligation for
borrowed money in excess of an aggregate of $50,000 except in the ordinary
course of the business of Independent and Bank consistent with past practices
(which shall include creation of deposit liabilities, purchases of federal funds
and entry into repurchase agreements fully secured by U.S. government or agency
securities), or impose, or suffer the imposition, on any share of stock of Bank
held by Independent of any Lien or permit any such Lien to exist; or
(c) repurchase, redeem or otherwise acquire or exchange (other than
exchanges in the ordinary course under employee benefit plans), directly or
indirectly, any shares, or any securities convertible into any shares, of the
capital stock of Independent, or declare or pay any dividend or make any other
distribution in
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<PAGE>
respect of Independent capital stock provided that Independent may, in its sole
discretion (to the extent legally and contractually permitted to do so), but
shall not be obligated to, declare and pay a cash dividend at a rate not to
exceed twenty-seven cents ($.27) per share to shareholders of record on
September 15, 1998 and December 13, 1998 unless the Closing occurs prior to such
date in which case any then unpaid quarterly dividend shall not be paid; or
(d) except for this Agreement, or as Previously Disclosed, issue or
sell, pledge, encumber, authorize the issuance of, enter into any Contract to
issue, sell, pledge, encumber or authorize the issuance of, or otherwise permit
to become outstanding, any additional shares of Independent Common Stock, or any
stock appreciation rights, or any option, warrant, conversion or other right to
acquire any such stock; or
(e) adjust, split, combine or reclassify any capital stock of
Independent or issue or authorize the issuance of any other securities in
respect of or in substitution for shares of either Independent Common Stock or
Bank's common stock or sell, lease, mortgage or otherwise dispose of or
otherwise encumber any Asset having a book value in excess of $25,000 other than
in the ordinary course of business for reasonable and adequate consideration; or
(f) acquire direct or indirect control over any real property, other
than in connection with (i) foreclosures in the ordinary course of business, or
(ii) acquisitions of control by Independent in its fiduciary capacity; or
(g) except for purchases of U.S. Treasury securities or U.S.
Government agency securities, which in either case have maturities of three
years or less, purchase any securities or make any Material investment, either
by purchase of stock or securities, contributions to capital, Asset transfers or
purchase of any Assets, in any Person other than Bank, or otherwise acquire
direct or indirect control over any Person, other than in connection with (i)
foreclosures in the ordinary course of business, (ii) acquisitions of control by
a depository institution Subsidiary in its fiduciary capacity, or (iii) the
creation of new, wholly-owned Subsidiaries organized to conduct or continue
activities otherwise permitted by this Agreement; or
(h) grant any increase in compensation or benefits to the employees or
officers of Independent or Bank (including such discretionary increases as may
be contemplated by existing employment agreements) exceeding five percent (5%)
individually or in the aggregate on an annual basis, except in accordance with
past practice Previously Disclosed or in connection with that certain agreement
between Independent and Joel B. Carter of even date herewith or as required by
Law, pay any bonus enter into or amend any severance agreements with officers of
either Independent or Bank, grant any increase in fees or other increases in
compensation or other benefits to directors of either Independent or Bank except
in accordance with past practice Previously Disclosed; or
(i) enter into or amend any employment Contract between Independent or
Bank and any Person (unless such amendment is required by Law) that Independent
or Bank, as the case may be, 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
(j) adopt any new employee benefit plan of Independent or Bank or make
any Material change in or to any existing employee benefit plans of Independent
or Bank 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
(k) make any significant change in any Tax or accounting methods or
systems of internal accounting controls, except as may be appropriate to conform
to changes in regulatory accounting requirements or GAAP; or
(l) commence any Litigation other than in accordance with past
practice, settle any Litigation involving any Liability of Independent or Bank
for money damages in excess of $25,000 or Material restrictions upon the
operations of Independent or Bank; or
(m) except in the ordinary course of business, modify, amend or
terminate any Material
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Contract or waive, release, compromise or assign any Material rights or claims.
7.3 Covenants of CSBI and IAC. From the date of this Agreement until the
earlier of the Effective Time or the termination of this Agreement, unless the
prior written consent of Independent shall have been obtained, CSBI and IAC,
jointly and severally, covenant and agree that each of them shall (i) continue
to conduct their respective businesses and the business of its Subsidiaries in a
manner designed in their respective reasonable judgment to enhance the long-term
value of the CSBI Common Stock and the business prospects of the CSBI Companies,
(ii) to the extent consistent therewith, use all reasonable efforts to preserve
intact the CSBI Companies' core businesses and goodwill with their respective
employees and the communities they serve, (iii) use their respective reasonable
efforts to cause their respective representations and warranties to be correct
at all times, (iv) take no action which would (a) adversely affect the ability
of any Party to obtain any Consents required for the transaction contemplated
hereby without imposition of a condition or restriction of the type referred to
in the last sentence of Section 9.1(b) of this Agreement, or (b) adversely
affect in any Material respect the ability of any Party to perform its covenants
and agreements under this Agreement, (v) not repurchase, redeem or otherwise
acquire (other than purchases in the open market to fund its dividend
reinvestment plan), directly or indirectly, any shares or any securities
convertible into any shares, of the capital stock of CSBI, and (vi) not take any
action reasonably likely to result in any stop order or suspension from trading
to be issued regarding the listed shares of the common stock of CSBI.
7.4 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 (i) is reasonably likely to have, individually or in the
aggregate, a Material Adverse Effect on it or (ii) 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.
7.5 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 Regulatory Authorities, 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 Regulatory
Authorities 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 8
ADDITIONAL AGREEMENTS
8.1 Shareholder Approval. Independent shall take, in accordance with
applicable law and its Articles of Incorporation and Bylaws, all action
necessary to convene the Independent Meeting to consider and vote upon the
approval of this Agreement and any other matters required to be approved by
Independent shareholders for consummation of the Merger (including any
adjournment), as promptly as practicable after the Registration Statement is
declared effective. The Board of Directors of Independent shall (subject to
compliance with its fiduciary duties as advised by counsel) recommend such
approval, and Independent (subject to the direction of the Independent Board
acting in compliance with its fiduciary duties as advised by counsel) shall take
all reasonable lawful action to solicit such approval by its shareholders.
CSBI, as sole shareholder of IAC, will vote its IAC Common Stock in favor of the
Merger.
8.2 Registration Statement.
(a) Each of CSBI and Independent agrees to cooperate in the
preparation of a Registration Statement to be filed by CSBI with the SEC in
connection with the issuance of CSBI Common Stock in the Merger
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(including the Proxy Statement and all related documents). Provided Independent
has cooperated as required above, CSBI agrees to file the Registration Statement
with the SEC as promptly as practicable, but in no event later than 60 days
after the date of this Agreement. Each of Independent and CSBI agrees to use all
reasonable efforts to cause the Registration Statement to be declared effective
under the 1933 Act as promptly as reasonably practicable after filing thereof.
CSBI also agrees to use all reasonable efforts to obtain all necessary state
securities law or "Blue Sky" permits and approvals required to carry out the
transactions contemplated by this Agreement. Independent agrees to furnish CSBI
all information concerning Independent, Bank and their respective officers,
directors and shareholders as may be reasonably requested in connection with the
foregoing.
(b) Each of Independent and CSBI agrees, as to itself and its
Subsidiaries, that none of the information supplied or to be supplied by it for
inclusion or incorporation by reference in (i) the Registration Statement will,
at the time the Registration Statement and each amendment or supplement thereto,
if any, becomes effective under the 1933 Act, contain any untrue statement of a
Material fact or omit to state any Material fact required to be stated therein
or necessary to make the statements therein not misleading, and (ii) the Proxy
Statement and any amendment or supplement thereto will, at the date of mailing
to Independent shareholders and at the time of the Independent Meeting, contain
any untrue statement of a Material fact or omit to state any Material fact
required to be stated therein or necessary to make the statements therein not
misleading with respect to any Material fact, or which will omit to state any
Material fact necessary in order to make the statements therein not false or
misleading or necessary to correct any statement in any earlier statement in the
Proxy Statement or any amendment or supplement thereto. Each of Independent and
CSBI further agrees that if it shall become aware prior to the Effective Date of
any information that would cause any of the statements in the Proxy Statement to
be false or misleading with respect to any Material fact, or to omit to state
any Material fact necessary to make the statements therein not false or
misleading, to promptly inform the other Party thereof and to take the necessary
steps to correct the Proxy Statement.
(c) In the case of CSBI, CSBI will advise Independent, promptly after
CSBI receives notice thereof, of the time when the Registration Statement has
become effective or any supplement or amendment has been filed, or of the
issuance of any stop order or the suspension of the qualification of the CSBI
Common Stock for offering or sale in any jurisdiction, of the initiation or
threat of any proceeding for any such purpose, or of any request by the SEC for
the amendment or supplement of the Registration Statement or for additional
information.
(d) Nothing in this Section 8.2 or elsewhere in this Agreement shall
prohibit accurate disclosure by Independent of information that is required to
be disclosed in the Registration Statement of the Proxy Statement or in any
other document required to be filed with the SEC (including, without limitation,
a Solicitation/Recommendation Statement on Schedule 14D-9) or otherwise required
to be publicly disclosed by applicable Law or the regulations and rules of the
NASD.
8.3 Applications. CSBI shall promptly prepare and file, Independent and
Bank 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. CSBI
shall permit Independent and Bank to review (and approve with respect to
information relating to Independent) such applications prior to filing same.
8.4 Filings with State Office. Upon the terms and subject to the
conditions of this Agreement, Independent shall execute and file the Articles of
Merger with the Secretary of State of the State of Georgia and the Secretary of
State of the State of Alabama in connection with the Closing.
8.5 Agreement as to Efforts to Consummate. Subject to the terms and
conditions of this Agreement, each Party agrees to use its reasonable efforts to
take all actions, and to do 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 CSBI in connection with the CSBI Common Stock to be issued in
the Merger or a resolicitation of proxies as a consequence of an acquisition
agreement by CSBI or any of its Subsidiaries shall not violate this covenant),
including, without limitation, using its reasonable 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
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of this Agreement; provided, that nothing herein shall preclude either Party
from exercising its rights under this Agreement. Each Party shall use, and shall
cause each of its Subsidiaries to use, its reasonable efforts to obtain all
Consents necessary or desirable for the consummation of the transactions
contemplated by this Agreement.
8.6 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 transaction 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) Each Party shall, and shall cause its advisers and agents to,
maintain the confidentiality of all confidential information furnished to it by
any other Party concerning its and its Subsidiaries' businesses, operations and
financial condition except in furtherance of the transactions contemplated by
this Agreement. In the event that a Party is required by applicable Law or
valid court process to disclose any such confidential information, then such
Party shall provide the other Party with prompt written notice of any such
requirement so that the other Party may seek a protective order or other
appropriate remedy and/or waive compliance with this Section 8.6. If in the
absence of a protective order or other remedy or the receipt of a waiver by the
other Party, a Party is nonetheless, in the written opinion of counsel, legally
compelled to disclose any such confidential information to any tribunal or else
stand liable for contempt or suffer other censure or penalty, a Party may,
without liability hereunder, disclose to such tribunal only that portion of the
confidential information which such counsel advises such Party is legally
required to be disclosed; provided that such disclosing Party use its best
efforts to preserve the confidentiality of such confidential information,
including without limitation, by cooperating with the other Party to obtain an
appropriate protective order or other reliable assurance that confidential
treatment will be accorded such confidential information by such tribunal. 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.
(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) Neither Party nor any of their respective Subsidiaries shall be
required to provide access to or to disclose information where such access or
disclosure would violate or prejudice the rights of its customers, jeopardize
the attorney-client or similar privilege with respect to such information or
contravene any Law, rule, regulation, Order, judgment, decree, fiduciary duty or
agreement entered into prior to the date of this Agreement. The Parties will
use their reasonable efforts to make appropriate substitute disclosure
arrangements, to the extent practicable, in circumstances in which the
restrictions of the preceding sentence apply.
8.7 Press Releases. Prior to the Effective Time, Independent and CSBI
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
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8.7 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.
8.8 Certain Actions. Except with respect to this Agreement and the
transactions contemplated hereby, neither Independent nor any Affiliate thereof
nor any investment banker, attorney, accountant or other representative
(collectively, the "Representatives") retained by Independent or Bank shall
directly or indirectly solicit or engage in negotiations concerning any
Acquisition Proposal by any Person, or provide any confidential information or
assistance to, or have any discussions with, any Person with respect to an
Acquisition Proposal. Except to the extent necessary to comply with the
fiduciary duties of Independent Board of Directors as determined by the
Independent Board of Directors after consulting with and considering the advice
of counsel, neither
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Independent nor any Affiliate or Representative thereof shall furnish any non-
public information that it is not legally obligated to furnish, negotiate with
respect to, or enter into any Contract with respect to, any Acquisition
Proposal, but Independent may communicate information about such an Acquisition
Proposal to its shareholders if and to the extent that it is required to do so
in order to comply with its legal obligations as advised by counsel; provided
--------
that Independent shall promptly advise CSBI verbally and in writing following
the receipt of any Acquisition Proposal and the Material details thereof.
Independent shall (i) immediately cease and cause to be terminated any existing
activities, discussions or negotiations with any Persons conducted heretofore
with respect to any of the foregoing and (ii) direct and use its reasonable
efforts to cause all of its Representatives not to engage in any of the
foregoing.
8.9 Accounting and 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 pooling-of-interests accounting
treatment and treatment as a "reorganization" within the meaning of Section
368(a) of the Internal Revenue Code for federal income tax purposes.
8.10 State Takeover Laws. Independent and Bank shall take all reasonable
steps to exempt the transactions contemplated by this Agreement from, or if
necessary challenge the validity or applicability of, any applicable state
takeover Law.
8.11 Articles of Incorporation Provisions. Independent and Bank shall take
all necessary action to ensure that the entering into of this Agreement and the
consummation of the Merger does not and will not result in the grant of any
rights to any Person under the Articles, Bylaws or other governing instruments
of Independent or Bank (other than voting, dissenters' rights of appraisal or
other similar rights) or restrict or impair the ability of CSBI or any of its
Subsidiaries to vote, or otherwise to exercise the rights of a shareholder with
respect to, shares of Independent or Bank that may be acquired or controlled by
it.
8.12 Agreement of Affiliates. Independent has Previously Disclosed all
Persons whom it reasonably believes is an "affiliate" of Independent for
purposes of Rule 145 under the 1933 Act. Independent shall use its reasonable
efforts to cause each such Person to deliver to CSBI not later than 30 days
after the date of this Agreement, a written agreement, substantially in the form
of Exhibit B, providing that such Person will not sell, pledge, transfer or
otherwise dispose of the shares of Independent 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 CSBI 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 and until such time as the financial results covering at least 30
days of combined operations of CSBI and Independent have been published within
the meaning of Section 201.01 of the SEC's Codification of Financial Reporting
Policies. If the Merger will qualify for pooling-of-interests accounting
treatment, (i) shares of CSBI Common Stock issued to such affiliates of
Independent in exchange for shares of Independent Common Stock and (ii) shares
of CSBI Common Stock held by affiliates of CSBI shall not be transferable until
such time as financial results referred to in this Section 8.12 have been
published as set forth in this Section 8.12, regardless of whether each such
affiliate has provided the written agreement referred to in this Section 8.12
(and CSBI shall be entitled to place restrictive legends upon certificates for
shares of CSBI Common Stock issued to affiliates of Independent pursuant to this
Agreement to enforce the provisions of this Section 8.12); provided, further
that no affiliate either of CSBI or Independent may dispose of or reduce the
risks of ownership in their respective shares of CSBI Common Stock or
Independent Common Stock within 30 days prior to the Effective Time. CSBI shall
not be required to maintain the effectiveness of the Registration Statement
under the 1933 Act for the purposes of resale of CSBI Common Stock by such
affiliates.
8.13 Employee Benefits and Contracts. Following the Effective Time, CSBI
shall provide generally to officers and employees of Independent, who at or
after the Effective Time become employees of a CSBI Company, employee benefits
under employee benefit plans (other than stock option or other plans involving
the potential issuance of CSBI Common Stock except as set forth in this Section
8.13) on terms and conditions which when taken as a whole are substantially
similar to those currently provided by the CSBI Companies to their similarly
situated officers and employees; provided, that, for a period of 12 months after
the Effective Time, CSBI shall provide generally to officers and employees of
Independent and Bank benefits in accordance with the policies of either (i)
Independent as Previously Disclosed pursuant to this Section 8.13, or (ii) CSBI,
whichever of (i) or (ii) will provide the greater benefit to the officer or
employee. CSBI shall waive any pre-existing condition exclusion under any
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employee health plan for which any employees and/or officers and dependents
covered by Independent Benefit Plans as of Closing shall become eligible by
virtue of the preceding sentence, to the extent (i) such pre-existing condition
was covered under the Independent Benefit Plans and (ii) the individual affected
by the pre-existing condition was covered by the Independent Entity's
corresponding plan on the date which immediately precedes the Effective Time.
For purposes of participation, vesting and benefit accrual under all qualified
benefit plans, the service of the employees of Independent or Bank prior to the
Effective Time shall be treated as service with the CSBI Companies participating
in all qualified benefit plans. Bank will enter into an employment contract
acceptable to CSBI with Joel B. Carter as of the date of Closing to the extent
he is available and agrees to such employment.
8.14 Exchange Listing. CSBI shall use its reasonable efforts to list, prior
to the Effective Time, on the NASDAQ, subject to official notice of issuance,
the shares of CSBI Common Stock to be issued to the holders of Independent
Common Stock pursuant to the Merger.
8.15 D&O Coverage. At the Effective Time, CSBI will provide directors and
officers insurance coverage for Independent's directors and officers either, at
CSBI's election, (i) by purchasing continuation coverage under Independent's
current policy for directors and officers for a period not less than three (3)
years after the Effective Time, or (ii) obtain coverage under CSBI's current
directors' and officers' policy to provide coverage for Independent's directors
and officers on a prior acts basis for a period not less than three (3) years
prior to the Effective Time.
ARTICLE 9
CONDITIONS PRECEDENT TO OBLIGATIONS TO CONSUMMATE
9.1 Conditions to Obligations of Each Party. The respective obligations
of each Party to perform this Agreement and to consummate the Merger are subject
to the satisfaction of the following conditions, unless waived by both Parties
pursuant to Section 11.6 of this Agreement:
(a) Shareholder Approval. The shareholders of Independent shall have
--------------------
approved this Agreement and the consummation of the Merger as and to the extent
required by Law and by the provisions of any of its governing instruments and by
the rules of the NASD.
(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 or deposits) which in the
reasonable judgment of the Board of Directors of CSBI 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.
(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 9.1(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. No Consent obtained which is necessary to consummate the
transactions contemplated hereby shall be conditioned or restricted in a manner
which in the reasonable judgment of the Board of Directors of CSBI 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.
(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, restricts or makes illegal
consummation of the transactions contemplated by this Agreement.
(e) Registration Statement. The Registration Statement shall be
----------------------
effective under the 1933
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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 CSBI Common
Stock issuable pursuant to the Merger shall have been received.
(f) Pooling Letters. Each of the Parties shall have received a
---------------
letter, dated as of the Effective Time, in form and substance reasonably
acceptable to such Party, from KPMG Peat Marwick to the effect that the Merger
will qualify for pooling-of-interests accounting treatment.
(g) Tax Matters. Independent and CSBI shall have received a written
-----------
opinion of counsel from Troutman Sanders LLP in form reasonably satisfactory to
each of them (the "Tax Opinion"), substantially to the effect that for federal
income tax purposes (i) the Merger will constitute a reorganization within the
meaning of Section 368(a) of the Internal Revenue Code, (ii) the exchange in the
Merger of Independent Common Stock for CSBI Common Stock will not give rise to
gain or loss to the shareholders of Independent with respect to such exchange
(except to the extent of any cash received in lieu of a fractional share
interest in CSBI Common Stock), and (iii) neither of Independent nor CSBI will
recognize gain or loss as a consequence of the Merger except for income and
deferred gain recognized pursuant to Treasury regulations issued under Section
1502 of the Internal Revenue Code. In rendering such Tax Opinion, Troutman
Sanders LLP shall be entitled to rely upon representations of officers of
Independent and CSBI reasonably satisfactory in form and substance to such
counsel.
(h) Employment Agreements. CSBI and Bank shall have offered Joel B.
---------------------
Carter the employment agreement in substantially the form set forth in Exhibit C
to this Agreement.
9.2 Conditions to Obligations of CSBI. The obligations of CSBI to perform
this Agreement and to consummate the Merger and the other transactions
contemplated hereby are subject to the satisfaction of the following conditions,
unless waived by CSBI pursuant to Section 11.6(a) of this Agreement:
(a) Representations and Warranties. The representations and
------------------------------
warranties of Independent set forth or referred to in this Agreement shall be
true and correct in all material 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 and correct in all Material 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 Independent.
(b) Performance of Agreements and Covenants. Each and all of the
---------------------------------------
agreements and covenants of Independent 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. Independent shall have delivered to CSBI (i) a
------------
certificate, dated as of the Effective Time and signed on its behalf by its
Chief Executive Officer and Chief Financial Officer, to the effect that the
conditions of its obligations set forth in Section 9.2(a) and 9.2(b) of this
Agreement have been satisfied, and (ii) certified copies of resolutions duly
adopted by the Independent 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 CSBI and its counsel shall
request.
(d) Opinion of Counsel. CSBI shall have received a written opinion
------------------
from Smith, Gambrell & Russell, LLP, counsel to Independent, dated as of the
Closing, in form reasonably satisfactory to CSBI, as to the matters set forth in
Exhibit E hereto.
(e) Accountant's Letters. CSBI 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 Independent and Bank, in form and substance reasonably
satisfactory to
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CSBI, which letters shall be based upon customary specified procedures
undertaken by such firm.
(f) Affiliate Agreements. CSBI shall have received from each
--------------------
affiliate of Independent the affiliate agreement referred to in Section 8.12
hereof, in substantially the form attached hereto as Exhibit B, to the extent
necessary to assure in the reasonable judgment of CSBI that the transaction
contemplated hereby will qualify for pooling-of-interests accounting treatment.
(g) Support Agreements. Each of the executive officers and directors
------------------
of Independent listed in Exhibit D shall have executed and delivered to CSBI a
Support Agreement in substantially the form attached hereto as Exhibit A.
9.3 Conditions to Obligations of Independent. The obligations of
Independent 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 Independent pursuant to Section 11.6(b)
of this Agreement:
(a) Representations and Warranties. The representations and
------------------------------
warranties of CSBI set forth or referred to in this Agreement shall be true and
correct in all Material 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 6.3 of this Agreement, which
shall be true and correct in all Material 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 CSBI.
(b) Performance of Agreements and Covenants. Each and all of the
---------------------------------------
agreements and covenants of CSBI 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. CSBI shall have delivered to Independent (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 9.3(a) and 9.3(b) of this
Agreement have been satisfied, and (ii) certified copies of resolutions duly
adopted by CSBI's Board of Directors 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 Independent and its counsel shall request.
(d) Opinion of Counsel. Independent shall have received an opinion of
------------------
Troutman Sanders LLP, counsel to CSBI, dated as of the Effective Time, in form
reasonably satisfactory to Independent, as to matters set forth in Exhibit F
hereto.
(e) Share Listing. The shares of CSBI Common Stock issuable pursuant
-------------
to the Merger shall have been approved for listing on NASDAQ.
ARTICLE 10
TERMINATION
10.1 Termination. Notwithstanding any other provision of this Agreement,
and notwithstanding the approval of this Agreement by the shareholders of
Independent, this Agreement may be terminated and the Merger abandoned at any
time prior to the Effective Time:
(a) By mutual consent of the respective Boards of Directors of CSBI
and Independent; 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 breach by the other Parties of any representation or warranty contained in
this Agreement which cannot
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be or has not been cured within 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 9.2(a) of this Agreement in the case of CSBI and
Section 9.3(a) of this Agreement in the case of Independent; 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
(i) any Consent of any Regulatory Authority required for consummation of the
Merger shall have 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) the shareholders of Independent fail to vote their approval of
this Agreement and the transaction contemplated hereby at the Independent
Meeting where the transaction was presented to such shareholders for approval
and voted upon; or
(d) By the Board of Directors of either Party in the event that the
Merger shall not have been consummated by January 31, 1999, 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 10.1(d); or
(e) 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 10.1(d) of this Agreement; or
(f) By CSBI in the event that the Board of Directors of Independent
shall have failed to reaffirm, following a written request by CSBI for such
reaffirmation after Independent shall have received any inquiry or proposal with
respect to an Acquisition Proposal, its approval of the Merger (to the exclusion
of any other Acquisition Proposal), or shall have resolved not to reaffirm the
Merger.
10.2 Effect of Termination. In the event of the termination and abandonment
of this Agreement pursuant to Section 10.1 of this Agreement, this Agreement
shall become void and have no effect, except that (i) the provisions of this
Section 10.2 and Article 11 and Section 8.6(b) of this Agreement shall survive
any such termination and abandonment, and (ii) a termination pursuant to
Sections 10.1(b) or 10.1(e) 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; provided that
such Liability shall be determined solely in accordance with the effect of
Section 11.2(b) of this Agreement.
10.3 Non-Survival of Representations and Covenants. The respective
representations, warranties, obligations, covenants and agreements of the
Parties shall not survive the Effective Time except for this Section 10.3 and
Articles 2, 3, 4, and 11 and Section 8.12 of this Agreement.
ARTICLE 11
MISCELLANEOUS
11.1 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, as amended.
"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: (i) any other Person directly, or
indirectly through one or more intermediaries, controlling, controlled by or
under common control with such Person, (ii) any officer, director, partner,
employer or direct or indirect beneficial owner of any 10% or greater equity or
voting interest of such
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Person or (iii) any other Person for which a Person described in clause (ii)
acts in any such capacity.
"AGREEMENT" shall mean this Agreement and Plan of Merger, including the
Exhibits delivered pursuant hereto and incorporated herein by reference.
"ALLOWANCE" shall mean the allowance for possible loan or credit losses for
the periods set forth in Section 5.9 of this Agreement.
"ARTICLES OF MERGER" shall mean the Articles of Merger to be executed by
CSBI, IAC and Independent and filed with the Secretary of State of the State of
Georgia and the Secretary of State of the State of Alabama relating to the
Merger as contemplated by Section 1.1 of this Agreement.
"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.
"BANK" shall have the meaning set forth in the Preamble of this Agreement.
"BHC ACT" shall mean the federal Bank Holding Company Act of 1956, as
amended.
"CHANGE IN CONTROL OF CSBI" shall mean during the term of this Agreement,
the individuals constituting CSBI's Board at the effective date of the Merger
("Beginning CSBI Board") cease for any reason to constitute at least a majority
of said Board, provided that in making such determination, a director elected by
or on the recommendation of the Beginning CSBI Board shall be deemed to be a
member of such Beginning CSBI Board, excluding, for this purpose, any director
whose assumption of office occurs as a result of an actual or threatened
election contest or proxy contest with respect to the election or removal of
directors. If (i) a notice or an application is filed with the Federal Reserve
Board ("FRB") pursuant to Regulation "Y" of the FRB under the Change in Bank
Control Act or the Bank Holding Company Act or with the Department pursuant to
the FICG for permission to acquire control of CSBI or Bank, or (ii) more than
25% of the CSBI's outstanding common stock or equivalent in voting power of any
class or classes of outstanding securities of CSBI entitled to vote in elections
of directors shall be acquired by any corporation or other person, or group.
"Group" shall mean persons who act in concert as described in Section 13(d)(3)
or 14(d) (2) of the Securities Exchange Act of 1934 as amended. CSBI shall
become a subsidiary of another corporation or shall be merged or consolidated
into another corporation and (i) less than a majority of the outstanding voting
shares of the parent or surviving corporation after such acquisition, merger or
consolidation are owned immediately after such acquisition, merger or
consolidation by the owners of the voting shares of CSBI immediately before such
acquisition, merger or consolidation, or (ii) a person or entity (excluding any
corporation resulting from such business combination or any employee benefit
plan or related trust of CSBI or such resulting corporation) beneficially owns
or controls 25% or more of the combined voting power of the then outstanding
securities of such corporation, except to the extent that such ownership existed
prior to the business combination, or (iii) less than a majority of the members
of the board of directors of the corporation resulting from such business
combination were members of the CSBI Board at the time of the execution of the
initial agreement for such merger or consolidation, or (iv) substantially all of
the assets of CSBI shall be sold to another entity other than a sale to a
wholly-owned subsidiary of CSBI.
"CLOSING" shall mean the closing of the transaction contemplated hereby, as
described in Section 1.2 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.
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"CSBI COMMON STOCK" shall mean the no par value common stock of CSBI.
"CSBI COMPANIES" shall mean, collectively, CSBI and all CSBI Subsidiaries.
"CSBI FINANCIAL STATEMENTS" shall mean (i) the consolidated statements of
condition (including related notes and schedules, if any) of CSBI as of June 30,
1998, and as of December 31, 1997, 1996, 1995 and 1994, and the related
statements of income, changes in shareholders' equity, and cash flows (including
related notes and schedules, if any) for the three months ended June 30, 1998,
and for each of the four years ended December 31, 1997, 1996, 1995 and 1994, as
filed by CSBI in SEC Documents and (ii) the consolidated statements of condition
of CSBI (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, 1997.
"CSBI SUBSIDIARIES" shall mean the subsidiaries of CSBI including IAC.
"DEFAULT" shall mean (i) any breach or violation of or default under any
Contract, Order or Permit, (ii) any occurrence of any event that with the
passage of time or the giving of control or both would constitute a breach or
violation of or default under any Contract, Order or Permit, or (iii) any
occurrence of any event that with or without the passage of time 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.
"EFFECTIVE TIME" shall mean the date and time at which 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.
"ENVIRONMENTAL LAWS" shall mean all federal, state, municipal and local
laws, statutes, orders, regulations, decrees, resolutions, proclamations,
permits, licenses, approvals, authorizations, consents, judgments, judicial
decisions and other governmental requirements, limitations and standards
relating to the environment, health and safety issues, including, without
limitation, the manufacture, generation, use, processing, treatment, recycling,
storage, handling, "Release" (as hereinafter defined), investigation, removal,
remediation and cleanup of or other corrective action for "Hazardous Materials"
(as hereinafter defined), exposure to Hazardous Materials and personal injury,
natural resource damage, property damage and interference with the use of
property caused by or resulting from Hazardous Materials.
"ERISA" shall mean the Employee Retirement Income Security Act of 1974, as
amended.
"ERISA AFFILIATE" shall have the meaning provided in Section 5.14 of this
Agreement.
"ERISA PLAN" shall have the meaning provided in Section 5.14 of this
Agreement.
"EXCHANGE RATIO" shall mean the ratio formed by the number of shares of
CSBI Common Stock Independent shareholders will receive for each share of
Independent Common Stock as set forth herein to one.
"EXHIBITS" A through F, 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 heret o.
"FICG" shall mean the Financial Institutions Code of Georgia.
"GAAP" shall mean generally accepted accounting principles, consistently
applied during the periods involved.
"GBCC" shall mean the Georgia Business Corporation Code.
"HAZARDOUS MATERIALS" shall mean all hazardous, toxic, explosive,
corrosive, flammable, infectious,
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radioactive, carcinogenic, mutagenic and volatile substances, materials,
compounds, chemicals and waste, and all other industrial waste, sanitary waste,
pollutants and contaminants, and all constituents thereof, including, without
limitation, petroleum hydrocarbons, asbestos-containing materials, lead-based
paints and all substances, materials, wastes, chemicals, compounds, contaminants
and pollutants regulated or addressed by Environmental Laws.
"HSR ACT" shall mean Section 7A of the Clayton Act, as added by the Title
II of the Hart-Scott-Rodino Antitrust Improvement Act of 1976, as amended, and
the rules and regulations promulgated thereunder.
"IRS" shall mean the Internal Revenue Service.
"INDEPENDENT BENEFIT PLANS" shall have the meaning set forth in Section
5.14 of this Agreement.
"INDEPENDENT COMMON STOCK" shall mean the $0.01 par value common stock of
Independent.
"INDEPENDENT FINANCIAL STATEMENTS" shall mean (i) the audited consolidated
balance sheets (including related notes and schedules, if any) of Independent as
of December 31, 1997, 1996, and 1995, 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, 1997,
1996, and 1995, and (ii) the unaudited financial statements for the six-month
period ended June 30, 1998 contained in Independent's Federal Reserve Reporting
Form Y-9 filed August 15, 1998, (iii) the unaudited balance sheet and the
related statement of income, changes in shareholders' equity and cash flows
(including related notes and schedules, if any) for the fiscal year ended
December 31, 1994, and (iv) the unaudited balance sheet and related statement of
income prepared by management of Independent for internal use for the one-month
period ended July 31, 1998.
"INDEPENDENT MEETING" shall mean the special meeting of the shareholders of
Independent or any adjournment thereof to vote on the matters set forth in the
Proxy Statement.
"INDEPENDENT REGULATORY REPORT" shall mean any form, report, or document
either (i) filed or required to be filed by Independent or Bank or both with any
Regulatory Authority, or (ii) received by Independent or Bank or both from any
Regulatory Authority.
"INTERNAL REVENUE CODE" shall mean the Internal Revenue Code of 1986, as
amended, and the rules and regulations promulgated thereunder.
"KNOWLEDGE" as used with respect to a Person shall mean the knowledge,
after all appropriate due inquiry, of the Chairman, President, Chief Financial
Officer, Chief Accounting Officer, Chief Credit Officer, General Counsel, or any
Senior or Executive Vice President or Manager of such Person.
"LAW" shall mean any code, law, ordinance, regulation, reporting or
licensing requirement, rule or statute and all Environmental Laws applicable to
a Person or its Assets, Liabilities or business, including, without limitation,
those promulgated, interpreted or enforced by any of the Regulatory Authorities.
"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, (iii) Liens which are not reasonably likely to have, individually or
in the aggregate, a Material Adverse Effect on a Party; and (iv) Liens which
have been Previously Disclosed.
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"LITIGATION" shall mean any action, arbitration, cause of action, claim,
complaint, criminal prosecution, demand letter, governmental or other
examination or investigation, request for information, 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, leased or operated by the
Party in question or by any of its Subsidiaries or in which such Party or
Subsidiary holds a security or other interest (including an interest in a
fiduciary capacity), 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, condition
or occurrence which has a Material adverse impact on (i) the financial position,
business or results of operations of such Party and its Subsidiaries, taken as a
whole, or (ii) 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 Effect" 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
and (y) changes in GAAP or regulatory accounting principles generally applicable
to banks and their holding companies.
"MERGER" shall mean the merger of Independent with and into CSBI referred
to in the Preamble of this Agreement.
"MERGER CONSIDERATION" shall mean the aggregate consideration to be
received for all of the shares of Independent Common Stock.
"NASD" shall mean the National Association of Securities Dealers, Inc.
"NASDAQ" shall mean the National Association of Securities Dealers
Automated Quotation System.
"1933 ACT" shall mean the Securities Act of 1933, as amended.
"1934 ACT" shall mean the Securities Exchange Act of 1934, as amended.
"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.
"PARTICIPATION FACILITY" shall mean any facility or property in which the
Party in question or any of its Subsidiaries participates in the management
(including, but not limited to, 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.
"PARTY" shall mean either Independent, IAC or CSBI, and "PARTIES" shall
mean Independent, IAC and CSBI.
"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,
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business association, group acting in concert or any person acting in a
representative capacity.
"PREVIOUSLY DISCLOSED" shall mean information delivered in writing prior to
the date of this Agreement marked as such and in the manner and to the Party or
counsel or both described in Section 11.8 of this Agreement and entitled
"Previously Disclosed Information Delivered Pursuant to the Agreement and Plan
of Merger" describing in reasonable detail the matters contained therein or
identifying the information disclosed; 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.
"PROXY STATEMENT" shall mean the proxy statement used by Independent to
solicit the approval of its shareholders of the transactions contemplated by
this Agreement and shall include the prospectus of CSBI relating to shares of
CSBI Common Stock to be issued to the shareholders of Independent and other
proxy solicitation materials of Independent consisting of a part thereof.
"REGISTRATION STATEMENT" shall mean the Registration Statement on Form S-4,
or other appropriate form, including any pre-effective or post-effective
amendments or supplements thereto, filed with the SEC by CSBI 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 Department of Banking and Finance, the
Superintendent, the Federal Deposit Insurance Corporation, all state regulatory
agencies having jurisdiction over the Parties and their respective Subsidiaries,
NASD and the SEC.
"RELEASE" shall mean any spilling, leaking, pumping, pouring, emitting,
emptying, discharging, injecting, escaping, leaching, dumping, abandonment or
disposing into or migration within the environment.
"REPRESENTATIVES" shall have the meaning set forth in Section 8.8.
"SEC" shall mean the Securities and Exchange Commission.
"SEC DOCUMENTS" shall mean all forms, proxy statements, reports,
registration statements, schedules and other documents 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, and the rules and
regulations of any Regulatory Authority promulgated thereunder.
"SUBSIDIARIES" shall mean all those corporations, banks, association, 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.
"SUPERINTENDENT" shall mean the Superintendent of Banks of the State of
Alabama.
"SURVIVING CORPORATION" shall mean Independent as the surviving corporation
resulting from the Merger.
"TAX" OR "TAXES" shall mean all federal, state, county, local and foreign
taxes, charges, fees, levies, imposts, duties or other assessments, including
income, gross receipts, excise, employment, sales, use, transfer, license,
payroll, franchise, severance, stamp, occupation, windfall profits,
environmental, federal highway use, commercial rent, customs duties, capital
stock, paid-up capital, profits, withholding, Social Security, single business
and unemployment, disability, real property, personal property, registration, ad
valorem, value added, alternative or add-on minimum, estimated or other tax or
governmental fee of any kind whatsoever, imposed or required to be withheld by
the United States or any state, local, or foreign government or subdivision or
agency thereof, including interest and penalties thereon or additions with
respect thereto.
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"TAXABLE PERIOD" shall mean any period prescribed by any governmental
authority, including the United States or any state, local or foreign government
or subdivision or agency thereof for which a Tax Return required to be filed or
Tax is required to be paid.
"TAX RETURN" shall mean any report, return or other information required to
be supplied to a taxing authority in connection with Taxes, including any return
of an affiliated or combined or unitary group that includes a Party or its
Subsidiaries.
11.2 Expenses.
(a) General. Except as otherwise provided in this Section 11.2, 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 except that CSBI shall bear and pay the filing fees
payable in connection with the Registration Statement and the Proxy Statement
and one-half of the printing costs incurred in connection with the printing of
the Registration Statement and the Proxy Statement.
(b) Breach by either Party. In addition to the foregoing, if prior to
----------------------
the Effective Time, this Agreement is terminated by either Party as a result of
the other Party's breach of such party's representations, warranties or
agreements set forth herein of this Agreement, such Party shall pay to the non-
breaching Party as its sole and exclusive remedy resulting from such
termination, an amount in cash equal to the sum of:
(i) the reasonable direct costs and expenses incurred by or on
behalf of the non-breaching Party in connection with the transactions
contemplated by this Agreement, plus
----
(ii) the sum of $500,000,
which sum represents compensation for the non-breaching Party's loss as the
result of the transactions contemplated by this Agreement not being consummated.
11.3 Brokers and Finders. Independent 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 except
Independent has engaged T. Stephen Johnson & Associates, Inc. to render
financial advisory services. In the event of a claim by any broker or finder
based upon his or its representing or being retained by or allegedly
representing or being retained by Independent, Independent shall indemnify and
hold CSBI harmless of and from any Liability in respect of any such claim and
reduce the Merger Consideration by an amount equal to such claim as determined
by CSBI.
11.4 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
transaction contemplated hereunder and supersedes all prior arrangements or
understandings with respect thereto, written or oral. 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.
11.5 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; whether before or after
shareholder approval of the Merger has been obtained provided, however, that
-------- -------
after any such approval by the holders of Independent Common Stock, there shall
be made no amendment decreasing the consideration to be received by Independent
shareholders without the further approval of such shareholders.
11.6 Waivers.
(a) Prior to or at the Effective Time, CSBI, acting through its Board
of Directors, Chief
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Executive Officer or other authorized officer, shall have the right to waive any
Default in the performance of any term of this Agreement by Independent, to
waive or extend the time for the compliance or fulfillment by Independent of any
and all of its obligations under this Agreement and to waive any or all of the
conditions precedent to the obligations of CSBI 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 CSBI.
(b) Prior to or at the Effective Time, Independent, acting through its
Board of Directors, shall have the right to waive any Default in the performance
of any term of this Agreement by CSBI, to waive or extend the time for the
compliance or fulfillment by CSBI of any and all of its obligations under this
Agreement and to waive any or all of the conditions precedent to the obligations
of Independent 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 Independent.
(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.
11.7 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 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.
11.8 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:
CSBI and IAC: Century South Banks, Inc.
60 Main Street West - Third Floor
Dahlonega, Georgia 30533
706/864-7966 - FAX
Attn: James A. Faulkner, Vice Chairman
and Chief Executive Officer
Copy to Counsel: Troutman Sanders LLP
600 Peachtree Street, N.E., Suite 5200
Atlanta, Georgia 30308-2218
404/885-3995 - FAX
Attn: Thomas O. Powell, Esquire
Independent and Bank: Independent Bancorp, Inc.
Independent Bank and Trust
402 Main Street
Oxford, Alabama 36203-1237
Attn: Fred M. Denney, Chairman
Copy to Counsel: Smith, Gambrell & Russell, LLP
1230 Peachtree Street
Promenade II, Suite 3100
Atlanta, Georgia 30303-3592
404/685-7058 - FAX
Attn: Robert C. Schwartz, Esquire
A-31
<PAGE>
11.9 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.
11.10 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.
11.11 Captions. The captions contained in this Agreement are for
reference purposes only and are not part of this Agreement.
11.12 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.
11.13 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 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.
11.14 Interpretation of Agreement. The Parties hereto acknowledge and
agree that each Party has participated in the drafting of this Agreement and
that this document has been reviewed, negotiated and accepted by all parties and
their respective counsel, and the normal rule of construction to the effect that
any ambiguities are to be resolved against the drafting party shall not be
applied to the interpretation of this Agreement. No inference in favor, or
against, any party shall be drawn from the fact that one party has drafted any
portion hereof.
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 officers thereunto as of the day and year first above written.
"INDEPENDENT"
ATTEST: INDEPENDENT BANCORP, INC.
/s/ Oscar B. Cotton /s/ Fred M. Denney
- -------------------------------- -----------------------------------
Oscar B. Cotton, Secretary Fred M. Denney, Chairman
(CORPORATE SEAL) /s/ Joel B. Carter
-----------------------------------
Joel B. Carter, President
"CSBI"
ATTEST: CENTURY SOUTH BANKS, INC.
/s/ Susan F. Anderson /s/ James A. Faulkner
- -------------------------------- -----------------------------------
Susan F. Anderson, Secretary James A. Faulkner, Vice-Chairman
and Chief Executive Officer
(CORPORATE SEAL)
A-32
<PAGE>
"IAC"
ATTEST: IBI ACQUISITION CORP.
/s/ Susan F. Anderson /s/ James A. Faulkner
- ---------------------------------- -------------------------------------
Susan F. Anderson, Secretary James A. Faulkner, Vice-Chairman
and Chief Executive Officer
(CORPORATE SEAL)
A-33
<PAGE>
AMENDMENT TO AGREEMENT AND PLAN OF MERGER
This Amendment to Agreement and Plan of Merger, dated as of November 8,
1998 (the "Amendment"), by and among Independent Bancorp, Inc. ("Independent"),
a corporation organized and existing under the laws of the State of Alabama,
Century South Banks, Inc. ("CSBI"), a corporation organized and existing under
the laws of the State of Georgia, and IBI Acquisition Corp. ("IAC"), a
corporation organized and existing under the laws of the State of Alabama:
WHEREAS, pursuant to the terms of that certain Agreement and Plan of
Merger, dated as of September 8, 1998, by and among Independent, CSBI and IAC
(the "Merger Agreement"), IAC will merge with and into Independent, Independent
will become a wholly-owned subsidiary of CSBI and the shares of common stock of
Independent will be converted into the right to receive shares of common stock
of CSBI; and
WHEREAS, the parties wish to amend the Merger Agreement pursuant to the
terms of Section 11.5 thereof.
NOW, THEREFORE, in consideration of the premises and the mutual agreements
hereinafter set forth, the parties agree as follows:
1. The first sentence of the second paragraph of the Preamble of the
Merger Agreement is hereby amended by deleting the words "Independent Bank and
Trust ("Bank")" and by substituting in lieu thereof: "The Independent Bank of
Oxford ("Bank")."
2. Section 3.1(b) of the Merger Agreement is hereby amended by deleting
it in its entirety and substituting in lieu thereof the following new Section
3.1(b) as follows:
Subject to adjustment as outlined below and the conditions set forth herein,
each share of Independent Common Stock issued and outstanding immediately prior
to the Effective Time (excluding shares held by CSBI or any of its Subsidiaries
or by Independent, in each case other than in a fiduciary capacity or as a
result of debts previously contracted, and excluding shares held by Independent
shareholders who perfect their dissenters' rights of appraisal as provided in
Section 3.4 of this Agreement) shall be converted into the right to receive a
number (the "Exchange Ratio") of shares of CSBI Common Stock equal to 99.9999
divided by the Deemed Market Value (as defined below), provided, however, that
if the Deemed Market Value is less than or equal to $30.75, the Exchange Ratio
shall be 3.2520, and if the Deemed Market Value is greater than or equal to
$31.50, the Exchange Ratio shall be 3.1746. The aggregate number of shares of
CSBI Common Stock issuable pursuant to the immediately preceding sentence is
sometimes hereinafter referred to as the "Merger Consideration." For purposes
of this Agreement, "Deemed Market Value" shall mean the arithmetic average, for
the period of ten (10) consecutive trading days immediately preceding the date
which is five (5) calendar days prior to the Effective Time, of the arithmetic
average of the high and low trading prices for a share of CSBI Common Stock for
each such trading day, as reported by NASDAQ.
A-34
<PAGE>
The following table provides examples showing the Merger Consideration and
the number of shares of CSBI Common Stock into which each share of Independent
Common Stock would be exchanged for using several assumptions (but assuming no
adjustment pursuant to Section 3.1(d):
<TABLE>
<CAPTION>
And each share of
Independent Common Stock
Number of shares of CSBI would be exchanged for the
If the Deemed Market Value Common Stock comprising following number of shares
of CSBI Common Stock is the Merger Consideration of CSBI Common Stock
----------------------- ------------------------ --------------------
<S> <C> <C>
more than 30.75 699,186 3.2520
31.00 693,548 3.2258
31.25 687,999 3.2000
less than 31.50 682,539 3.1746
</TABLE>
3. Section 3.1(d) of the Merger Agreement is hereby amended by deleting
the second sentence of such section in its entirety and substituting in lieu
thereof the following new second sentence:
In the event of an adjustment pursuant to this Section 3.1(d), (i) the
Merger Consideration shall be reduced by that whole number of shares of
CSBI Common Stock equal to the dollar amount determined in accordance with
Section 3.1(d) divided by the Deemed Market Value and (ii) the Exchange
Ratio shall be decreased accordingly.
4. Section 8.2(a) of the Merger Agreement is hereby amended by deleting
the words "but in no event later than 60 days after the date of this Agreement"
in the second sentence of such subsection and substituting therefor the words
"but in no event later than 150 days after the date of this Agreement."
5. Section 10.1(d) of the Merger Agreement is hereby amended by deleting
the date reference "January 31, 1999" in the second line thereof and
substituting therefor the words "June 30, 1999. "
6. The definition of "CSBI Common Stock" in Section 11 of the Merger
Agreement is hereby amended by deleting the words "no par value" and
substituting therefor the words "$1.00 par value."
7. Except as amended hereby, the terms, conditions, covenants,
agreements, representations and warranties contained in the Merger Agreement
shall remain unaffected hereby and shall continue in full force and effect.
8. This Amendment may be executed in two or more counterparts, each of
which shall be deemed an original, but all of which together shall constitute
one and the same instrument.
IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be
duly executed by their duly authorized officers as of the date first written
above.
ATTEST: "Independent"
INDEPENDENT BANCORP, INC.
/s/ Oscar B. Cotton /s/ Fred M. Denney
- ----------------------------------- ---------------------------------
Oscar B. Cotton, Secretary Fred M. Denney, Chairman
[CORPORATE SEAL]
/s/ Joel B. Carter
---------------------------------
Joel B. Carter, President
A-35
<PAGE>
ATTEST: "CSBI"
CENTURY SOUTH BANKS, INC.
/s/ Susan F. Anderson /s/ James A. Faulkner
- ------------------------------------ ----------------------------------
Susan F. Anderson, Secretary James A. Faulkner, Vice-Chairman
and Chief Executive Officer
[CORPORATE SEAL]
ATTEST: "IAC"
IBI ACQUISITION CORP.
/s/ Susan F. Anderson /s/ James A. Faulkner
- ------------------------------------ ----------------------------------
Susan F. Anderson, Secretary James A. Faulkner, Vice-Chairman
and Chief Executive Officer
[CORPORATE SEAL]
A-36
<PAGE>
APPENDIX B
ARTICLE 13. DISSENTERS' RIGHTS
DIVISION A.
RIGHT TO DISSENT AND OBTAIN PAYMENT FOR SHARES
(S) 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 10-2B-13.02 and who exercises that right when and
in the manner required by Sections 10-2B-13.20 through 10-2B-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.
(S) 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 10-2B-11.03 or
the articles of 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 10-2B-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;
B-1
<PAGE>
(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 10-2B-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.
(S) 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 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
(S) 10-2B-13.20. NOTICE OF DISSENTERS' RIGHTS.
(a) If proposed corporate action creating dissenters' rights under Section
10-2B-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 10-2B-
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
10-2B-13.22.
B-2
<PAGE>
(S) 10-2B-13.21. NOTICE OF INTENT TO DEMAND PAYMENT.
(a) If proposed corporate action creating dissenters' rights under Section
10-2B-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.
(S) 10-2B-13.22. DISSENTERS' NOTICE.
(a) If proposed corporate action creating dissenters' rights under Section
10-2B-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 10-2B-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;
(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.
(S) 10-2B-13.23. DUTY TO DEMAND PAYMENT.
(a) A shareholder sent a dissenters' notice described in Section 10-2B-
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.
(S) 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.
B-3
<PAGE>
(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.
(S) 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 10-2B-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:
(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 10-2B-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.
(S) 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 10-2B-13.22
and repeat the payment demand procedure.
(S) 10-2B-13.27. RESERVED.
(S) 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 10-2B-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 10-
2B-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 10-2B-13.25
within 60 days after the date set for demanding payment; or
B-4
<PAGE>
(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
(S) 10-2B-13.30. COURT ACTION.
(a) If a demand for payment under Section 10-2B-13.28 remains unsettled,
the corporation shall commence a proceeding within 60 days after receiving the
payment demand and petition the court to determine the fair value of the shares
and accrued interest. If the corporation does not commence the proceeding within
the 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 10-2B-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 10-2B-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.
B-5
<PAGE>
(S) 10-2B-13.31. COURT COSTS AND COUNSEL FEES.
(a) The court in an appraisal proceeding commenced under Section 10-2B-
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 10-2B-13.28.
(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 10-2B-13.20 through 10-2B-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.
(S) 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-6
<PAGE>
APPENDIX C
February __, 1999
Board of Directors
Independent Bancorp, Inc.
402 Main Street
Oxford, Alabama 36203-1237
Dear Directors:
T. Stephen Johnson & Associates, Inc., Roswell, Georgia ("TSJ&A") has been asked
to render an opinion as to the fairness from a financial point of view of the
consideration to be received by the shareholders of Independent Bancorp, Inc.
("Independent") in connection with the proposed merger of IBI Acquisition Corp.
("Merger Sub"), an Alabama corporation and a wholly owned subsidiary of Century
South Banks, Inc. ("CSBI"), with and into Independent. As a result, Independent
will become a wholly owned subsidiary of CSBI, pursuant to an Agreement and Plan
of Merger dated as of September 8, 1998 and an Amendment to Agreement and Plan
of Merger dated as of November 8, 1998 (together the "Merger Agreement"). The
Merger Agreement calls for each outstanding share of Independent common stock to
be converted into the right to receive a number (the "Exchange Ratio") of shares
of CSBI common stock equal to 99.9999 divided by the Deemed Market Value,
provided, however, that the Deemed Market Value is less than or equal to $30.75,
the Exchange Ratio shall be 3.2520, and if the Deemed Market Value is greater
than or equal to $31.50, the Exchange Ratio shall be 3.1746. The "Deemed Market
Value" shall mean the arithmetic average, for the period of ten consecutive
trading days immediately preceding the date which is five calendar days prior to
the Effective Time, of the arithmetic average of the high and low trading prices
for a share of CSBI Common Stock for each such trading day, as reported by
NASDAQ.
TSJ&A is an investment banking and consulting firm that specializes in the
valuation of closely-held corporations and provides fairness opinions as part of
its practice. Because of its prior experience in the appraisal of southeastern
financial institutions involved in mergers, it has developed an expertise in
fairness opinions related to the securities of southeastern financial
institutions. Independent retained TSJ&A to serve as financial advisor to
analyze the value of Independent in a merger or acquisition transaction; solicit
potential acquirers' interest in entering into a merger or acquisition
transaction with Independent, and to negotiate the Board of Directors terms,
amount and form of consideration; consult with management regarding merger or
acquisition transaction; and provide a fairness opinion for which compensation
will be received.
In performing its analysis, TSJ&A relied upon and assumed without independent
verification, the accuracy and completeness of all information provided to it.
TSJ&A has not performed any independent appraisal or evaluation of the assets of
Independent or of CSBI or any of its subsidiaries. As such, TSJ&A does not
express an opinion as to the fair market value of Independent. The opinion of
financial fairness expressed herein is necessarily based on market, economic and
other relevant considerations as they exist and can be evaluated as of February
__, 1999.
In arriving at its opinion, TSJ&A reviewed and analyzed audited and unaudited
financial information regarding Independent and CSBI, the merger, the Merger
Agreement, a draft of SEC filings, as well as publicly available information and
actual comparable transactions.
The merger consideration to be received by Independent Shareholders is based on
the defined Exchange Ratio for CSBI common shares. The value of the shares to
be received is the current market value of CSBI common shares which currently
trade on NASDAQ. The February 8, 1999 closing price for CSBI common shares was
$25.00 per
C-1
<PAGE>
Board of Directors
Independent Bancorp, Inc.
February __, 1999
Page 2
share. Assuming this closing price is equal to the Deemed Market Value the
Exchange Ratio would be 3.2520 and the transaction value of each of the 215,000
Independent common shares would be $81.30. This transaction value equals 2.591
times December 31, 1998 book value and 25.078 times 1998 earnings per share. The
purchase premium was calculated to equal 20.13 percent of core deposits as of
December 31, 1998.
TSJ&A reviewed the Merger as of February 9, 1999, for the purpose of determining
purchase premiums that could be used in comparing the Merger with other
announced transactions. TSJ&A reviewed the purchase premiums paid in all nine
transactions that were announced since December, 1997 involving selling
institutions headquartered in the state of Alabama, for which transaction
information is available. A listing of these transactions is attached. The deal
price to book value and the purchase premium as a percent of core deposits for
this transaction rank within the range of purchase premiums paid in the
comparable transactions. The deal price to earnings for this transaction ranks
below the range of deal price to earnings in the comparable transactions. On
average, the nine comparable transactions reported an announced deal price to
book value of 2.349 times an announced deal price to earnings of 25.43 times and
an announced purchase premium to core deposits of 22.96 percent.
During 1998, Independent shareholders received dividends totaling $1.60 per
share. Based on the Exchange Ratio of 3.2520, after the merger and assuming the
current CSBI common share quarterly dividend rate of $0.445 per share, the
Independent shareholders would receive an annual dividend equivalent to $1.45
per Independent common share, a decrease of $0.15 per share.
Therefore, in consideration of the above, it is the opinion of TSJ&A that, based
on the structure of the Merger and the analyses that have been performed, the
consideration to be received by the shareholders of Independent is fair from a
financial point of view.
Sincerely,
T. Stephen Johnson & Associates, Inc.
C-2
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 20. INDEMNIFICATION OF DIRECTORS AND OFFICERS
The provisions of the Georgia Business Corporation Code and CSBI's Bylaws
set forth the extent to which CSBI's directors and officers may be indemnified
against liabilities they may incur while serving in such capacities. Under
these indemnification provisions, CSBI is required to indemnify any of its
directors or officers against any reasonable expenses (including attorneys'
fees) incurred by such director or officer in defense of any action, suit, or
proceeding, whether civil, criminal, administrative, or investigative, and
whether formal or informal, to which such director or officer was made a party,
or in defense of any claim, issue or matter therein, by reason of the fact that
such director or officer is or was a director or officer of CSBI or who, while a
director of CSBI, is or was serving at CSBI's request as a director, officer,
partner, trustee, employee or agent of another corporation, partnership, joint
venture, trust, employee benefit plan, or other enterprise, to the extent that
such director or officer has been successful, on the merits or otherwise, in
such defense. CSBI also may indemnify any of its directors or officers, against
any liability incurred in connection with any threatened, pending, or completed
action, suit, or proceeding, whether civil, criminal, administrative, or
investigative, by reason of the fact that such director or officer is or was a
director or officer of CSBI or who, while a director or officer of CSBI, is or
was serving at CSBI's request as a director, officer, employee, or agent of
another corporation, partnership, joint venture, trust, or other enterprise, if
such director or officer acted in good faith and in a manner such director or
officer reasonably believed to be in, or not opposed to, the best interests of
CSBI, or, with respect to any criminal proceeding, had no reasonable cause to
believe such director's or officer's conduct was unlawful, if a determination
has been made that the director or officer has met these standards of conduct.
Such indemnification in connection with a proceeding by or in the right of CSBI,
however, is limited to reasonable expenses, including attorneys' fees, incurred
in connection with the proceeding. CSBI may also provide advancement of
expenses incurred by a director or officer in defending any such action, suit,
or proceeding upon receipt of a written affirmation of such officer or director
that such director or officer has met certain standards of conduct and an
undertaking by or on behalf of such director or officer to repay such advances
unless it is ultimately determined that such director or officer is entitled to
indemnification by CSBI.
CSBI may not indemnify a director or officer in connection with a
proceeding by or in the right of CSBI in which the director or officer was
adjudged liable to CSBI (except to the extent the court deems indemnification
proper), or in connection with a proceeding in which he was adjudged liable on
the basis that he improperly received a personal benefit.
CSBI's Articles of Incorporation contain a provision which provides that,
to the fullest extent permitted by the Business Corporation Code of Georgia, a
director of CSBI shall not be personally liable to CSBI or its shareholders for
monetary damages for breach of his duty of care or any other duty as a director.
CSBI maintains an insurance policy insuring CSBI and directors and officers
of CSBI against certain liabilities, including liabilities under the Securities
Act of 1933.
ITEM 21. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(a) Exhibits (See exhibit index immediately preceding the exhibits
for the page number where each exhibit can be found)
EXHIBIT
NUMBER DESCRIPTION OF EXHIBITS
- ------ -----------------------
2(a) Agreement and Plan of Merger, dated as of September 8, 1998 and
amended as of November 8, 1998 by and among CSBI, the Merger Sub
and Independent (included in Appendix A to the Proxy
Statement/Prospectus and incorporated by reference herein)
II-1
<PAGE>
3(a) Articles of Incorporation, as amended (included as Exhibit 3(a)
to the Registrant's Form 10-K for the fiscal year ended December
31, 1996, previously filed with the Commission and incorporated
by reference herein)
3(b) Bylaws, as amended (included as Exhibit 3(b) to the Registrant's
Form 10-K for the fiscal year ended December 31, 1996, previously
filed with the Commission and incorporated by reference herein)
4(a) See Exhibits 3(a) and 3(b) for provisions of the Articles of
Incorporation and Bylaws of the Registrant defining rights of
holders of Common Stock of the Registrant
5 Securities Opinion of Troutman Sanders LLP (to be filed by
Amendment)
8 Tax Opinion of Troutman Sanders LLP
11 Statement regarding computation of per share earnings (included
in Pro Forma Financial Information in this Registration
Statement)
23(a) Consent of Troutman Sanders LLP (included in Exhibits 5 and 8)
23(b) Consent of KPMG LLP as to CSBI
23(c) Consent of Schauer, Taylor, Cox & Vise, PC as to Independent
23(d) Consent of T. Stephen Johnson & Associates, Inc.
24 Power of Attorney (included in the signature page of page II-5 of
this Registration Statement)
ITEM 22. UNDERTAKINGS
(a) The undersigned CSBI 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;
(ii) To reflect in the prospectus any facts or events
arising after the effective date of the registration statement (or the most
recent post-effective amendment thereof) which, individually or in the
aggregate, represent a fundamental change in the information set forth in the
registration statement;
(iii) To include any material information with respect to
the plan of distribution not previously disclosed in the registration statement
or any material change to such information in the registration statement;
provided, however, that paragraphs (a)(1)(i) and (a)(1)(ii) do not apply if the
registration statement is on Form S-3 or Form S-8, and the information required
to be included in a post-effective amendment by those paragraphs is contained in
periodic reports filed by registrant pursuant to section 13 or section 15(d) of
the Securities Exchange Act of 1934 that are incorporated by reference in the
registration statement.
(2) That, for the purpose of determining any liability under the
Securities Act of 1933, each such post-effective amendment shall be deemed to be
a new registration statement relating to the securities offered therein, and the
offering of such securities at that time shall be deemed to be the initial bona
fide offering thereof.
(3) To remove from registration by means of a post-effective
amendment any of the securities being registered which remain unsold at the
termination of the offering.
II-2
<PAGE>
(b) The undersigned hereby undertakes that, for purposes of determining
any liability under the Securities Act of 1933, each filing of registrant's
annual report pursuant to Section 13(a) or 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.
(c) Insofar as indemnification for liabilities arising under the
Securities Act of 1933 may be permitted to directors, officers and controlling
persons of registrant pursuant to registrant's Articles of Incorporation or
Bylaws, or otherwise, registrant has been advised that in the opinion of the
Securities and Exchange Commission such indemnification is against public policy
as expressed in the Securities Act of 1933 and is, therefore, unenforceable. In
the event that a claim for indemnification against such liabilities (other than
the payment by registrant of expenses incurred or paid by a director, officer or
controlling person of 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, 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 Securities
Act of 1933 and will be governed by the final adjudication of such issue.
(d) 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 Form S-4, 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.
(e) The undersigned registrant hereby undertakes to supply by means of a
post-effective amendment all information concerning a transaction, and the
company being acquired involved therein, that was not the subject of and
included in the registration statement when it became effective.
II-3
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the registrant
has duly caused this Amended Registration Statement to be signed on its behalf
by the undersigned, thereunto duly authorized, in the City of Dahlonega, State
of Georgia, on February __, 1999.
CENTURY SOUTH BANKS, INC.
By: /s/ James A. Faulkner
------------------------------------------------
James A. Faulkner, Vice Chairman and Chief
Executive Officer
By: /s/ Joseph W. Evans
------------------------------------------------
Joseph W. Evans, President, Chief Operating
Officer and Chief Financial Officer
II-4
<PAGE>
POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature appears
below constitutes and appoints jointly and severally, James A. Faulkner and
Joseph W. Evans, and each one of them, their respective attorney-in-fact, each
with the power of substitution, for him in any and all capacities, to sign any
and all amendments to this Registration Statement (including post-effective
amendments), and to file the same, with exhibits thereto, and other documents in
connection therewith, with the Securities and Exchange Commission, hereby
ratifying and confirming all that each of said attorneys-in-fact, or their
respective substitute or substitutes, may do or cause to be done by virtue
hereof.
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed below by the following persons in the
capacities and on February 18, 1999:
<TABLE>
<CAPTION>
Signature Title
--------- -----
<S> <C>
/s/ William H. Anderson, II
- ---------------------------------------------- Chairman of the Board and Director
William H. Anderson, II
/s/ J. Russell Ivie
- ---------------------------------------------- Vice Chairman and Director
J. Russell Ivie
/s/ James A. Faulkner
- ---------------------------------------------- Vice Chairman, Chief Executive Officer and Director
James A. Faulkner
/s/ Joseph W. Evans
- ---------------------------------------------- President, Chief Operating Officer, Chief
Joseph W. Evans Financial Officer and Director
/s/ James R. Balkcom, Jr.
- ---------------------------------------------- Director
James R. Balkcom, Jr.
- ---------------------------------------------- Director
William L. Chandler
/s/ Thomas T. Folger, Jr.
- ---------------------------------------------- Director
Thomas T. Folger, Jr.
/s/ Quill O. Healey
- ---------------------------------------------- Director
Quill O. Healey
- ---------------------------------------------- Director
Frank C. Jones
- ---------------------------------------------- Director
John B. McKibbon, III
- ---------------------------------------------- Director
E. Paul Stringer
</TABLE>
II-5
<PAGE>
INDEX TO EXHIBITS
2(a) Agreement and Plan of Merger, dated as of September 8, 1998 and
amended as of November 8, 1998 by and among CSBI, the Merger Sub and
Independent (included in Appendix A to the Proxy Statement/Prospectus
and incorporated by reference herein)
3(a) Articles of Incorporation, as amended (included as Exhibit 3(a) to the
Registrant's Form 10-K for the fiscal year ended December 31, 1996,
previously filed with the Commission and incorporated by reference
herein)
3(b) Bylaws, as amended (included as Exhibit 3(b) to the Registrant's Form
10-K for the fiscal year ended December 31, 1996, previously filed
with the Commission and incorporated by reference herein)
4(a) See Exhibits 3(a) and 3(b) for provisions of the Articles of
Incorporation and Bylaws of the Registrant defining rights of holders
of Common Stock of the Registrant
5 Securities Opinion of Troutman Sanders LLP (to be filed by Amendment)
8 Tax Opinion of Troutman Sanders LLP
11 Statement regarding computation of per share earnings (included in Pro
Forma Financial Information in this Registration Statement)
23(a) Consent of Troutman Sanders LLP (included in Exhibits 5 and 8)
23(b) Consent of KPMG LLP as to CSBI
23(c) Consent of Schauer, Taylor, Cox & Vise, PC as to Independent
23(d) Consent of T. Stephen Johnson & Associates, Inc.
24 Power of Attorney (included in the signature page of page II-5 of this
Registration Statement)
<PAGE>
EXHIBIT 8
TROUTMAN SANDERS LLP
ATTORNEYS AT LAW
A LIMITED LIABILITY PARTNERSHIP
NATIONSBANK PLAZA
600 PEACHTREE STREET, N.E. - SUITE 5200
ATLANTA, GEORGIA 30308-2216
TELEPHONE: 404-885-3000
FACSIMILE: 404-885-3995
February 18, 1999
Century South Banks, Inc.
60 Main Street West - Third Floor
Dahlonega, Georgia 30533
Independent Bancorp, Inc.
Independent Bank and Trust
402 Main Street
Oxford, Georgia 36203-1237
Re: Federal Income Tax Consequences of Merger of IBI Acquisition Corp., a
wholly-owned Subsidiary of Century South Banks, Inc., with and into
Independent Bancorp, Inc.
Ladies and Gentlemen:
We have acted as counsel to Century South Banks, Inc. ("CSBI"), in
connection with the proposed merger of its wholly-owned subsidiary, IBI
Acquisition Corp. ("IAC") with and into Independent Bancorp, Inc.
("Independent"). The Merger will be effected pursuant to the Agreement and Plan
of Merger by and among Independent, CSBI and IAC, dated as of September 8, 1998
and amended on November 8, 1998 (the "Merger Agreement").
In our capacity as counsel to CSBI, our opinion has been requested with
respect to certain federal income tax consequences associated with the proposed
Merger. In rendering this opinion, we have examined (i) the Internal Revenue
Code of 1986, as amended (the "Code"), and Treasury Regulations promulgated
thereunder, (ii) the legislative history of applicable sections of the Code, and
(iii) appropriate Internal Revenue Service and judicial authorities. In
addition, we have relied upon certain information made known to us as more fully
described below. All capitalized terms used herein without definition shall
have the respective meanings specified in the Merger Agreement, and, unless
otherwise specified, all section references herein are to the Code.
In rendering the opinions expressed herein, we have examined such documents
as we have deemed appropriate, including:
(1) the Merger Agreement;
(2) the Registration Statement and Proxy Statement/Prospectus being filed
with the Securities and Exchange Commission regarding the Merger; and
(3) such additional documents as we have considered relevant.
<PAGE>
However, we have not yet obtained written certificates from CBSI, IAC, or
Independent to verify certain facts that we have assumed in rendering this
opinion. Before rendering our opinion in connection with the closing of the
Merger, we intend to obtain appropriate written certificates to confirm certain
material facts that we have assumed herein.
In our examination of such documents, we have assumed, with your consent,
that all documents submitted to us as photocopies faithfully reproduce the
originals thereof, that 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 further assumed
that any representations or statements made "to the best knowledge of" or
similarly qualified, are true and correct without such qualification. With your
permission, we have also assumed certain other factual matters set forth more
fully below.
You have advised us that the proposed Merger will (i) build market share by
enabling CSBI to expand into Alabama, which is a region of strategic importance
to CSBI, (ii) will enable Independent to better serve customers by offering more
diverse products and services, and (iii) will strengthen a franchise that will
make a long-term contribution to earnings per share as a result of economies of
scale and earnings power that follow a larger market share. To achieve these
goals, the following will occur pursuant to the Merger Agreement:
(1) IAC will merge with and into Independent pursuant to the laws of the
States of Georgia and Alabama. IAC's separate corporate existence will cease to
exist, and Independent will be the surviving corporation. Thereafter,
Independent will be a wholly-owned subsidiary of CSBI, and will continue to
operate the businesses of Independent conducted prior to the Merger.
Immediately following the Merger, The Independent Bank of Oxford ("Bank"), a
banking corporation organized under the laws of the State of Alabama, and a
wholly-owned subsidiary of Independent, will remain in existence as a wholly-
owned subsidiary of Independent;
(2) Each share of Independent Common Stock (excluding shares held by
Independent shareholders who perfect their dissenters' rights of appraisal)
issued and outstanding immediately prior to the effective time of the Merger
(the "Effective Time") shall, as of the Effective Time, by virtue of the Merger
and without any action on the part of the holders thereof, be converted into and
exchanged for the right to receive shares of CSBI Common Stock in accordance
with the Merger Agreement; and
(3) No fractional shares of CSBI Common Stock will be issued as a result
of the proposed Merger. In lieu of the issuance of fractional shares, each
holder of shares of Independent Common Stock who would otherwise have been
entitled to receive a fraction of a share of CSBI Common Stock (after taking
into account all certificates delivered by such holder) shall receive cash
(without interest) in an amount equal to the value of such fractional part of a
share of CSBI Common Stock in accordance with the Merger Agreement at the
Effective Time. No such holder shall be entitled to dividends, voting rights or
any other shareholder right in respect of any fractional share.
With your consent, we have also assumed that the following statements are
true as of the date hereof and will be true as of the Effective Time:
(1) The fair market value of CSBI Common Stock and other consideration
received by the shareholders of Independent will be, in each instance,
approximately equal to the fair market value of the Independent Common Stock
surrendered in exchange therefor;
(2) Following the Merger, Independent will hold at least 90% of the fair
market value of its net assets and at least 70% of the fair market value of its
gross assets and at least 90% of the fair market value of IAC's net assets and
at least 70% of the fair market value of the IAC's gross assets held immediately
prior to the Merger. For purposes of this representation, amounts paid by
Independent or IAC to dissenters, amounts paid by Independent or IAC to
shareholders who receive cash or other property, amounts used by Independent or
IAC to pay reorganization expenses, and all redemptions and distributions
(except for regular, normal dividends) made by Independent will be included as
assets of Independent or IAC, respectively, immediately prior to the Merger;
<PAGE>
(3) Prior to the Merger, CSBI will be in control of IAC within the meaning
of Section 368(c) of the Code;
(4) Independent has no plan or intention to issue additional shares of its
stock that would result in CSBI losing control of Independent within the meaning
of Section 368(c) of the Code;
(5) Bank has no plan or intention to issue additional shares of its stock
that would result in Independent losing control of Bank within the meaning of
Section 368(c) of the Code;
(6) Except for cash paid in lieu of fractional shares of CBSI Common Stock
pursuant to the Merger, neither CBSI nor any "CBSI Related Person" (as defined
below) has (i) any plan or intention to purchase, redeem or otherwise acquire
any of the CBSI Common Stock that will be issued pursuant to the Merger or (ii)
participated in or will participate in any purchase, redemption or other
acquisition of Independent Common Stock in contemplation or as part of the
Merger (which excludes repurchases by CBSI of small percentages of CSBI Common
Stock in the open market as part of an ongoing stock repurchase program (which
program will not be created or modified in connection with the Merger)). For
purposes of this paragraph, any arrangement that would result in a reduction of
the risk of loss with respect to the holding of any interest in the shares of
CBSI Common Stock or Independent Common Stock as the case may be shall
constitute an acquisition of such shares;
"CBSI Related Person" is (i) a member of its affiliated group within
the meaning of Section 1504 of the Code, (ii) a corporation as to which CBSI
owns, actually or constructively, fifty percent or more of the total voting
power or total value of the shares of all classes of stock outstanding, or (iii)
a corporation which owns, actively or constructively, fifty percent or more of
the total voting power or total value of the shares of all classes of stock of
CBSI. A person will be related to CBSI for this purpose if such relationship
exists either immediately before or immediately after such acquisition or arises
in connection with the merger, and a person that is a partner in a partnership
will be deemed to own or have acquired stock that such partnership acquired in
accordance with the partner's interest in the partnership;
(7) Neither Independent nor any "Independent Related Person" (as defined
below) has (i) purchased, redeemed or otherwise acquired any Independent Common
Stock in contemplation or as part of the Merger or (ii) will acquire any
Independent Common Stock prior to the Merger. Neither Independent nor any
Independent Related Person has made any extraordinary distribution with respect
to Independent Stock. For purposes of this paragraph, any arrangement that
would result in a reduction of the risk of loss with respect to the holding of
any interest in the shares of Independent Common Stock shall constitute an
acquisition of such shares;
An "Independent Related Person" is (i) a corporation as to which
Independent owns actively or constructively fifty percent or more of the total
voting power or total value of the shares of all classes of stock outstanding,
or (ii) a corporation which owns actually or constructively fifty percent or
more of the total voting power or total value of all shares of all classes of
stock of Independent. A person will be deemed related to Independent for this
purpose if such relationship exists either immediately before or immediately
after such acquisition, and a person that is a partner in a partnership will be
deemed to own or have acquired any stock that such partnership acquired in
accordance with the partner's interest in the partnership;
(8) CSBI has no plan or intention to liquidate Independent; to merge
Independent with or into another corporation other than IAC; to sell or
otherwise dispose of the stock of Independent except for transfers of stock to
corporations controlled by CSBI; or to cause Independent to sell or otherwise
dispose of any of its assets or of any of the assets acquired from IAC, except
for dispositions made in the ordinary course of business or transfers of assets
to a corporation controlled by Independent;
(9) Independent and CSBI have no plan or intention to liquidate Bank; to
merge Bank into another corporation; to sell or otherwise dispose of the stock
of Bank except for transfers of stock to corporations controlled by CSBI; or to
cause Bank to sell or otherwise dispose of any of its assets, except for
dispositions made in the ordinary course of business;
<PAGE>
(10) IAC will have no liabilities assumed by Independent, and it will not
transfer to Independent any assets subject to liabilities, in the Merger;
(11) At the time of the Merger, the only class of issued and outstanding
stock of Independent will be the Independent Common Stock;
(12) In the Merger, shares of Independent stock representing control of
Independent, as defined in Section 368(c) of the Code, will be exchanged solely
for CSBI Common Stock. For purposes of this representation, shares of
Independent stock exchanged for cash or other property originating with CSBI
will be treated as outstanding Independent stock on the date of the Merger;
(13) The Independent Common Stock to be surrendered by each shareholder of
Independent will not be subject to any liability, and neither Independent nor
CSBI will assume any liability with respect to the surrendered Independent
Common Stock;
(14) At the time of the Merger, Independent and Bank will not have
outstanding any warrants, options, convertible securities, or any other type of
right pursuant to which any person could acquire stock in Independent or Bank
that, if exercised or converted, would affect CSBI's acquisition or retention of
control of Independent or Independent's retention of control of Bank, as defined
in Section 368(c) of the Code;
(15) Neither CSBI nor any Affiliate owns or has owned during the past five
years, any shares of the stock of Independent;
(16) During the two-year period prior to the Effective Time, neither
Independent nor Bank declared or paid any dividends with respect to its
outstanding stock other than regular, normal dividends;
(17) Following the Merger, each of Independent and Bank will either
continue its historic business or use a significant portion of its historic
business assets in a business;
(18) CSBI, IAC, Independent and the shareholders of Independent will pay
their respective expenses, if any, incurred in connection with the Merger;
(19) There is no intercorporate indebtedness existing between CSBI and
Independent or between IAC and Independent that was issued, acquired, or will be
settled at a discount;
(20) For each of CSBI, IAC, Independent and Bank, not more than 25% of the
fair market value of its adjusted total assets consists of stock and securities
of any one issuer, and not more than 50% of the fair market value of its
adjusted total assets consists of stock and securities of five or fewer issuers.
For purposes of the preceding sentence, (i) a corporation's adjusted total
assets exclude cash, cash items (including accounts receivable and cash
equivalents), and United States government securities, (ii) a corporation's
adjusted total assets exclude stock and securities issued by any subsidiary at
least 50% of the voting power or 50% of the total fair market value of the stock
of which is owned by the corporation, but the corporation is treated as owning
directly a ratable share (based on the percentage of the fair market value of
the subsidiary's stock owned by the corporation) of the assets owned by any such
subsidiary, and (iii) all corporations that are members of the same "controlled
group" within the meaning of Section 1563(a) of the Code are treated as a single
issuer;
(21) Neither Independent nor Bank is under the jurisdiction of a court in
a case under Title 11 of the United States Code, a receivership, foreclosure, or
similar proceeding in a federal or state court;
(22) At the Effective Time, the fair market value of the assets of
Independent will exceed the sum of its liabilities plus the amount of
liabilities, if any, to which the assets are subject;
(23) At the Effective Time, the fair market value of the assets of Bank
will exceed the sum of its liabilities plus the amount of liabilities, if any,
to which the assets are subject;
<PAGE>
(24) The payment of cash in lieu of fractional shares of CSBI Common Stock
is solely for the purpose of avoiding the expense and inconvenience to CSBI of
issuing fractional shares and does not represent separately bargained-for
consideration. The total cash consideration that will be paid in the Merger to
the Independent shareholders in lieu of issuing fractional shares of CSBI Common
Stock will not exceed 1% of the total consideration that will be issued in the
Merger to the Independent shareholders in exchange for their shares of
Independent Common Stock. The fractional share interests of each Independent
shareholder will be aggregated, and no CSBI shareholder will receive cash in an
amount equal to or greater than the value of one full share of CSBI Common
Stock;
(25) None of the compensation received, or to be received, by any
shareholder-employees of Independent will be separate consideration for, or
allocable to, any of their shares of Independent Common Stock; none of the
shares of CSBI Common Stock or cash received, or to be received, by any
shareholder-employees of Independent pursuant to the Merger will be separate
consideration for, or allocable to, any employment agreement; and the
compensation paid to any shareholder-employees of Independent will be for
services actually rendered, or to be rendered, and will be commensurate with
amounts paid to third parties bargaining at arm's length for similar services;
(26) The Merger Agreement and documents, agreements and other matters
specifically identified therein represent the entire understanding of CSBI, IAC
and Independent with respect to the Merger contemplated thereby, and the Merger
will be effected in accordance with the Merger Agreement; and
(27) The Merger is being undertaken for one or more valid business
purposes, including those described herein.
Based solely on the information submitted and the representations set forth
above, we are of the opinion that:
(1) The Merger will constitute a reorganization within the meaning of
Section 368(a)(1)(A) and Section 368(a)(2)(E) of the Code. CSBI, IAC and
Independent will each be a "party to a reorganization" within the meaning of
Section 368(b) of the Code;
(2) Neither CSBI, IAC nor Independent will recognize any gain or loss as a
result of the Merger except for income and deferred gain recognized pursuant to
Treasury Regulations issued under Section 1502 of the Code. Code Sections 361
and 1032;
(3) The holders of Independent Common Stock will recognize no gain or loss
upon the exchange of their shares of Independent Common Stock solely for shares
of CSBI Common Stock (except for cash received in lieu of a fractional share of
CSBI Common Stock). Code Section 354(a)(1);
(4) The tax basis of the CSBI Common Stock received by the holders of
Independent Common Stock in the Merger will, in each case, be the same as the
basis of the Independent Common Stock surrendered in exchange therefor. Code
Section 358(a)(l);
(5) The holding period of the CSBI Common Stock received by the holders of
Independent Common Stock in the Merger will, in each case, include the period
during which the Independent Common Stock surrendered in exchange therefor was
held by the exchanging shareholders, provided that the Independent Common Stock
was held as a capital asset in the hands of the exchanging shareholders on the
date of the Merger. Code Section 1223(1);
(6) The payment of cash to holders of Independent Common Stock in lieu of
fractional share interests of CSBI Common Stock will be treated as if such
fractional shares were issued as part of the Merger and then were redeemed by
CSBI. An Independent shareholder receiving such cash payment will recognize
gain or loss measured by the difference (if any) between the amount of cash
received and the basis in such fractional share. Generally, any gain or loss
recognized upon such exchange will be capital gain or loss, provided the
fractional share would constitute a capital asset in the hands of the exchanging
shareholders. Rev. Rul. 66-365, 1966-2 C.B. 116 and Rev. Proc. 77-41, 1977-2
C.B. 574; and
<PAGE>
(7) The payment of cash to Independent shareholders in exchange for
Independent Common Stock pursuant to the exercise of dissenter's rights will be
treated as having been received in redemption of such shareholder's Independent
Common Stock, and may result in taxable gain or loss, measured by the difference
(if any) between the amount of cash received and such shareholder's basis in the
Independent Common Stock. Provided the shares were held as capital assets at
the time of the redemption, such gain or loss will constitute capital gain or
loss.
The opinions expressed herein are based upon existing statutory,
regulatory, and judicial authority, any of which may be changed at any time with
retroactive effect. In addition, our opinions are based solely on the documents
that we have examined, the additional information that we have obtained, and the
statements set out herein, which we have assumed and you have confirmed to be
true on the date hereof and the date the Merger is consummated. Our opinions
cannot be relied upon if any of the facts contained in such documents or if such
additional information is, or later becomes, inaccurate, or if any of the
statements set out herein is, or later becomes, inaccurate. Our opinions do not
address the tax consequences to Independent shareholders who hold their
Independent Common Stock other than as a capital asset, foreign shareholders,
tax exempt organizations and persons who acquired their Independent Common Stock
as compensation. Finally, our opinions are limited to the federal income tax
matters specifically covered thereby, and we have not been asked to address, nor
have we addressed, any other tax consequences of the Merger, whether federal,
state, local or foreign including, but not limited to, tax consequences of a
required change in accounting method, if any, the termination of a bad debt
reserve, if any, or the termination of the consolidated group of Independent and
the Bank.
This opinion is being provided solely for the use of CSBI, Independent and
the shareholders of Independent. No other person or party shall be entitled to
rely on this opinion. We hereby consent to the use of this opinion in the Proxy
Statement/Prospectus constituting part of the Registration Statement.
Sincerely,
/s/ TROUTMAN SANDERS LLP
<PAGE>
EXHIBIT 23(B)
Accountants' Consent
--------------------
The Board of Directors
Century South Banks, Inc.:
We consent to the use of our report incorporated herein by reference and to the
reference to our firm under the heading "Experts" in the Proxy
Statement/Prospectus.
/s/ KPMG PEAT MARWICK LLP
-------------------------
KPMG PEAT MARWICK LLP
Atlanta, Georgia
February 18, 1999
<PAGE>
EXHIBIT 23(C)
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
The Board of Directors
Independent Bancorp, Inc.
We hereby consent to the inclusion in the Registration Statement on Form S-4
of Century South Banks, Inc. of our report dated January 22, 1999, on the
consolidated statements of financial condition of Independent Bancorp, Inc. and
subsidiary as of December 31, 1998 and 1997, and the related statement of
income, shareholders' equity, cash flows and comprehensive income for the years
then ended. We also consent to the reference to us under the heading "Experts"
in the Proxy Statement/Prospectus.
/s/ SCHAUER, TAYLOR, COX & VISE, PC
-----------------------------------
SCHAUER, TAYLOR, COX & VISE, PC
Birmingham, Alabama
February 16, 1999
<PAGE>
EXHIBIT 23(D)
CONSENT OF FINANCIAL ADVISOR
We consent to the use in this Registration statement of Century South Banks,
Inc. on Form S-4 of our opinion related to Independent Bancorp, Inc. included in
the Prospectus to such Registration Statement at Exhibit C and to the reference
to our firm in the Prospectus under the caption "DESCRIPTION OF TRANSACTION-
Opinion of Independent's Financial Advisor."
/s/ T. STEPHEN JOHNSON & ASSOCIATES, INC.
- ---------------------------------------------
T. STEPHEN JOHNSON & ASSOCIATES, INC.
February 17, 1998
