<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON NOVEMBER 24, 1998
REGISTRATION NO. 333-28081
================================================================================
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
AMENDMENT
TO
POST-EFFECTIVE AMENDMENT NO. 3
TO
FORM S-4
REGISTRATION STATEMENT UNDER
THE SECURITIES ACT OF 1933
-----------------
BANCORPSOUTH, INC.
(Exact name of Registrant as specified in its charter)
<TABLE>
<S> <C> <C>
MISSISSIPPI 6712 64-0659571
(State or other jurisdiction of (Primary Standard Industrial (I.R.S. Employer Identification No.)
incorporation or organization) Classification Code Number)
</TABLE>
ONE MISSISSIPPI PLAZA
TUPELO, MISSISSIPPI 38801
(601) 680-2000
(Address, Including Zip Code, and Telephone Number, including
Area Code, of registrant's principal executive offices)
AUBREY B. PATTERSON
BANCORPSOUTH, INC.
ONE MISSISSIPPI PLAZA
TUPELO, MISSISSIPPI 38801
(Name, address, including zip code, and telephone number,
including area code, of agent for service)
-----------------
With copies to:
THEODORE W. LENZ, ESQ. CAROLYN V. KELLY, ESQ.
WALLER LANSDEN DORTCH & DAVIS, PLLC JENKENS & GILCHRIST,
511 UNION STREET, SUITE 2100 A PROFESSIONAL CORPORATION
NASHVILLE, TENNESSEE 37219 1445 ROSS AVENUE, SUITE 3200
DALLAS, TEXAS 75202
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE OF THE SECURITIES TO THE
PUBLIC: As soon as practicable after this Post-Effective Amendment becomes
effective.
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, please check the following box and list
the Securities Act registration statement number of the earlier effective
registration statement for the same offering. ________________________________
If this Form is a post-effective amendment filed pursuant to Rule 462(c) under
the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ]
<PAGE> 2
[THE FIRST CORPORATION LOGO]
MERGER PROPOSED -- YOUR VOTE IS VERY IMPORTANT
The First Corporation has entered into a merger agreement with
BancorpSouth, Inc. which provides that, subject to shareholder and regulatory
approval and other conditions, The First Corporation will merge into
BancorpSouth, Inc. In connection with that transaction, The First National Bank
of Opelika, a subsidiary of The First Corporation, will merge into BancorpSouth
Bank, a subsidiary of BancorpSouth, Inc. The combined company will have banking
operations in Mississippi, Tennessee and Alabama, and, based upon the companies'
September 30, 1998 balance sheets, total assets of about $4.51 billion, deposits
of about $3.81 billion and shareholders' equity of about $405.1 million.
If the merger is completed, shareholders of The First Corporation will
receive shares of BancorpSouth, Inc. common stock in exchange for their shares
of common stock of The First Corporation. However, rather than receiving any
fractional shares of BancorpSouth common stock, you will receive cash in lieu of
any fraction of a share of BancorpSouth common stock to which you otherwise
would be entitled. BancorpSouth, Inc. common stock is listed on the New York
Stock Exchange under the symbol "BXS." On November 19, 1998, the closing price
per share of BancorpSouth, Inc. common stock reported on the New York Stock
Exchange was $20.75.
The merger cannot be completed without the approval of The First
Corporation's shareholders. The First Corporation has scheduled a special
meeting for its shareholders to vote on the merger agreement. In order for the
merger to be approved, at least two-thirds of the outstanding shares of common
stock of The First Corporation must be voted in favor of the merger agreement.
The date, time and place of the special meeting is as follows:
______________, 1998
______ __.m. (local time)
The First National Bank of Opelika
414 South Seventh Street
Opelika, Alabama 36801.
YOUR VOTE IS VERY IMPORTANT. Whether or not you plan to attend your
special shareholders meeting, please take the time to vote by completing and
mailing the enclosed proxy card to us. If you sign, date and mail your proxy
card without indicating how you want to vote, your proxy will be counted as a
vote in favor of the merger agreement. If you don't return your card, the effect
will be a vote against the merger agreement.
The attached Prospectus Supplement/Proxy Statement provides you with
detailed information about the proposed merger and the companies involved. We
encourage you to read this entire document carefully. You can also obtain
information about BancorpSouth, Inc. from documents it has filed with the
Securities and Exchange Commission.
The Board of Directors of The First Corporation unanimously recommends
that shareholders vote "FOR" approval of the merger agreement.
Very truly yours,
William C. Kent
President
<PAGE> 3
[THE FIRST CORPORATION LOGO]
NOTICE OF SPECIAL SHAREHOLDERS MEETING
TO BE HELD ON ________, 1998
TO THE SHAREHOLDERS OF THE FIRST CORPORATION:
This serves as notice to you that a special meeting of shareholders of
The First Corporation will be held on ___________, 1998 at ____ __.m., local
time, at The First National Bank of Opelika, 414 South Seventh Street, Opelika,
Alabama, for the purpose of considering and voting upon the following matters:
1. Merger. Approval and adoption of the Agreement and Plan of Merger,
dated as of August 12, 1998, between The First Corporation and BancorpSouth,
Inc., which provides for the merger of The First Corporation with and into
BancorpSouth, Inc.
2. Other Matters. To consider and vote on other matters that properly
come before the special meeting or any adjournments or postponements of the
special meeting.
Only holders of record of The First Corporation common stock at the
close of business on ________, 1998 are entitled to notice of and to vote at the
special meeting or any adjournments or postponements of the special meeting.
Under Article 13 of the Alabama Business Corporation Act (the "ABCA"),
holders of The First Corporation common stock who comply with the requirements
of Article 13 of the ABCA will have the right to dissent from the merger and to
obtain payment of the fair value of their shares. A copy of Article 13 of the
ABCA is attached as Annex B to the attached Prospectus Supplement/Proxy
Statement. In addition, please see the section entitled "THE MERGER --
Dissenters' Rights" in the attached Prospectus Supplement/Proxy Statement for a
discussion of the procedures to be followed in asserting these dissenters'
rights.
PLEASE MARK, SIGN, DATE AND RETURN YOUR PROXY PROMPTLY, WHETHER OR NOT
YOU PLAN TO ATTEND THE SPECIAL MEETING. All shareholders are cordially invited
to attend the special meeting. To ensure your representation at the special
meeting, please complete and promptly mail the enclosed proxy in the enclosed
return envelope. This will not prevent you from voting in person, but will help
to secure a quorum and avoid added solicitation costs. Your proxy may be revoked
at any time before it is voted. Please review the Prospectus Supplement/Proxy
Statement accompanying this notice for more complete information regarding the
merger and the special meeting.
BY ORDER OF THE BOARD OF DIRECTORS
William C. Kent
President
__________, 1998
THE BOARD OF DIRECTORS OF THE FIRST CORPORATION UNANIMOUSLY RECOMMENDS THAT
SHAREHOLDERS VOTE "FOR" APPROVAL OF THE MERGER AGREEMENT.
<PAGE> 4
PROSPECTUS SUPPLEMENT
(TO PROSPECTUS DATED SEPTEMBER 24, 1998)
AND PROXY STATEMENT
2,468,472 SHARES
[BANCORPSOUTH LOGO]
COMMON STOCK
This Prospectus Supplement/Proxy Statement provides you with detailed
information about a proposed merger between BancorpSouth, Inc. and The First
Corporation. This document also contains information about BancorpSouth and The
First Corporation. If the merger is completed, The First Corporation will merge
into BancorpSouth and shareholders of The First Corporation will be issued
shares of BancorpSouth common stock in exchange for their shares of The First
Corporation common stock. In connection with that transaction, The First
National Bank of Opelika, a subsidiary of The First Corporation, will merge into
BancorpSouth Bank, a subsidiary of BancorpSouth.
You can obtain additional information about BancorpSouth from documents
that it has filed with the Securities and Exchange Commission, including a
discussion of risk factors that should be considered in connection with an
acquisition of BancorpSouth common stock. See "Where You Can Find More
Information" on page 82 of this document for information on how to obtain copies
of these documents.
The merger cannot be completed unless the merger agreement between The
First Corporation and BancorpSouth is approved by shareholders of The First
Corporation. The First Corporation has scheduled a special meeting of its
shareholders to vote on the merger agreement, to be held as follows:
_______, 1998
______ __.m. (local time)
The First National Bank of Opelika
414 South Seventh Street
Opelika, Alabama.
BancorpSouth common stock is listed on the New York Stock Exchange
under the symbol "BXS." On November 19, 1998, the closing price per share of
BancorpSouth common stock reported on the New York Stock Exchange was $20.75.
---------------
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES
COMMISSIONER HAS APPROVED OR DISAPPROVED OF THE SHARES OF BANCORPSOUTH
COMMON STOCK TO BE ISSUED UNDER THIS PROSPECTUS SUPPLEMENT/PROXY STATEMENT OR
DETERMINED IF THIS PROSPECTUS SUPPLEMENT/PROXY STATEMENT IS TRUTHFUL OR
COMPLETE. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
---------------
SHARES OF BANCORPSOUTH COMMON STOCK ARE NOT SAVINGS OR DEPOSIT ACCOUNTS
AND ARE NOT INSURED BY THE FEDERAL DEPOSIT INSURANCE CORPORATION OR ANY OTHER
GOVERNMENTAL AGENCY.
---------------
The date of this Prospectus Supplement/Proxy Statement is ____________, 1998.
<PAGE> 5
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
QUESTIONS AND ANSWERS ABOUT THE MERGER...........................................................4
SUMMARY..........................................................................................5
SELECTED FINANCIAL DATA.........................................................................16
THE SPECIAL MEETING.............................................................................23
GENERAL................................................................................23
PROXIES................................................................................23
SOLICITATION OF PROXIES................................................................24
RECORD DATE AND VOTING RIGHTS..........................................................24
RECOMMENDATION OF THE BOARD OF DIRECTORS...............................................25
DISSENTERS' RIGHTS.....................................................................25
THE MERGER......................................................................................30
DESCRIPTION OF THE MERGER..............................................................30
BACKGROUND OF THE MERGER...............................................................32
REASONS FOR THE MERGER; RECOMMENDATION OF THE BOARD OF DIRECTORS.......................34
FAIRNESS OPINION.......................................................................36
REGULATORY APPROVAL....................................................................39
ACCOUNTING TREATMENT...................................................................40
CERTAIN FEDERAL INCOME TAX CONSEQUENCES................................................40
INTERESTS OF CERTAIN PERSONS IN THE MERGER.............................................42
COMPARISON OF RIGHTS OF SHAREHOLDERS...................................................42
RESTRICTIONS ON RESALES BY AFFILIATES..................................................42
THE MERGER AGREEMENT............................................................................44
EXCHANGE OF CERTIFICATES...............................................................44
CONDITIONS TO THE MERGER...............................................................45
TERMINATION OF THE MERGER AGREEMENT....................................................46
CONDUCT OF BUSINESS PRIOR TO THE MERGER AND OTHER COVENANTS............................47
AMENDMENT OF THE MERGER AGREEMENT; WAIVER; EXPENSES....................................49
STOCK OPTION AGREEMENT.................................................................49
PRICE RANGE OF COMMON STOCK AND DIVIDENDS.......................................................52
MARKET PRICES..........................................................................52
DIVIDENDS..............................................................................53
THE FIRST CORPORATION MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS.............................................................54
RESULTS OF OPERATIONS FOR THE NINE MONTH PERIOD ENDED SEPTEMBER 30, 1998 AS
COMPARED TO THE NINE MONTH PERIOD ENDED SEPTEMBER 30, 1997......................54
FINANCIAL CONDITION FOR THE PERIOD ENDED SEPTEMBER 30, 1998 AS COMPARED
TO THE PERIOD ENDED SEPTEMBER 30, 1997..........................................58
RESULTS OF OPERATIONS FOR THE FISCAL YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995......58
FINANCIAL CONDITION FOR THE FISCAL YEARS ENDED DECEMBER 31, 1997 AND 1996..............65
CENTURY DATE CHANGE (YEAR 2000)........................................................69
</TABLE>
<PAGE> 6
<TABLE>
<S> <C>
INFORMATION ABOUT THE FIRST CORPORATION..........................................................72
GENERAL.................................................................................72
EMPLOYEES...............................................................................73
SUPERVISION AND REGULATION..............................................................73
CERTAIN RELATED PARTY TRANSACTIONS......................................................76
LEGAL PROCEEDINGS.......................................................................77
PRINCIPAL SHAREHOLDERS AND MANAGEMENT...................................................78
COMPARISON OF RIGHTS OF SHAREHOLDERS.............................................................79
VOTING RIGHTS; CUMULATIVE VOTING........................................................79
PREEMPTIVE RIGHTS.......................................................................79
CHANGE OF CONTROL.......................................................................79
BOARD OF DIRECTORS......................................................................80
REMOVAL OF DIRECTORS....................................................................81
AUTHORIZED CAPITAL STOCK................................................................81
RIGHTS OF SHAREHOLDERS TO CALL SPECIAL MEETINGS.........................................81
WHERE YOU CAN FIND MORE INFORMATION..............................................................82
CAUTIONARY STATEMENT CONCERNING FORWARD-LOOKING INFORMATION......................................83
LEGAL MATTERS....................................................................................84
EXPERTS..........................................................................................85
THE FIRST CORPORATION CONSOLIDATED FINANCIAL STATEMENTS.........................................F-1
PROSPECTUS, DATED SEPTEMBER 24, 1998............................................................P-1
ANNEX A - AGREEMENT AND PLAN OF MERGER....................................................A-1
ANNEX B - PROVISIONS OF ARTICLE 13 OF THE ALABAMA BUSINESS
CORPORATION ACT, RELATING TO DISSENTERS' RIGHTS.................................B-1
ANNEX C - FAIRNESS OPINION OF ALEX SHESHUNOFF & CO. INVESTMENT BANKING....................C-1
ANNEX D - STOCK OPTION AGREEMENT..........................................................D-1
</TABLE>
<PAGE> 7
QUESTIONS AND ANSWERS
ABOUT THE MERGER
Q: WHAT DO I NEED TO DO NOW?
A: Whether or not you plan to attend the special meeting of The First
Corporation shareholders, please indicate on the enclosed proxy card
how you want to vote, and sign and mail the proxy card in the enclosed
return envelope as soon as possible so that your shares may be
represented at the special shareholders meeting. If you sign and send
in your proxy but don't indicate how you want to vote, your proxy will
be counted as a vote in favor of the merger agreement between The First
Corporation and BancorpSouth. If you don't vote on the merger agreement
or if you abstain, the effect will be a vote against the merger
agreement.
You are invited to the special shareholders meeting to vote your shares
in person. If you do sign your proxy card, you can take back your proxy
at any time until the special shareholders meeting and either change
your vote or attend the special shareholders meeting and vote in
person.
Regardless of whether you plan to attend the special meeting in person,
we encourage you to complete and return your signed proxy using the
enclosed reply envelope. This will help to ensure that a quorum is
present at the special meeting and will help reduce the costs
associated with the solicitation of proxies.
THE BOARD OF DIRECTORS OF THE FIRST CORPORATION UNANIMOUSLY RECOMMENDS
VOTING "FOR" APPROVAL OF THE MERGER AGREEMENT.
Q: IF MY SHARES ARE HELD IN "STREET NAME" BY MY BROKER, WILL MY BROKER
VOTE MY SHARES FOR ME?
A: Only if you provide instructions to your broker on how to vote by
following the directions your broker provides. Without instructions
from you to your broker, your shares will not be voted and this will
effectively be a vote against the merger agreement.
Q: SHOULD I SEND IN MY STOCK CERTIFICATES NOW?
A: No. After the merger is completed, you will be sent written
instructions on how to exchange your shares of common stock of The
First Corporation for shares of BancorpSouth common stock.
Q. WHOM DO I CONTACT IF I HAVE QUESTIONS ABOUT THE MERGER?
A: If you have more questions about the merger, you should contact:
The First Corporation
P.O. Box 970
Opelika, Alabama 36803-0970
Attention: William C. Kent
Phone Number: (334) 749-2041.
4
<PAGE> 8
SUMMARY
This summary highlights selected information from this document. It
does not contain all of the information that is important to you. You should
carefully read this entire document and the documents to which it refers you in
order to understand fully the merger and to obtain a more complete description
of the companies and the legal terms of the merger. See "WHERE YOU CAN FIND MORE
INFORMATION." Each item in this summary includes a page reference that directs
you to a more complete description in this document of the topic discussed.
THE COMPANIES (PAGE 72)
BANCORPSOUTH, INC.
One Mississippi Plaza
Tupelo, Mississippi 38801
(601) 680-2000
BancorpSouth is incorporated in the State of Mississippi and is a
registered bank holding company under the Bank Holding Company Act of 1956, as
amended. Through its wholly-owned bank subsidiary, BancorpSouth Bank, and its
banking-related subsidiaries, BancorpSouth serves customers primarily in
Mississippi, west Tennessee and portions of Alabama. BancorpSouth Bank conducts
a commercial banking and trust business through 148 offices in 71 municipalities
or communities in 47 counties throughout Mississippi, west Tennessee and
portions of Alabama. BancorpSouth Bank has operated under the trade names "Bank
of Mississippi" in Mississippi and "Volunteer Bank" in Tennessee. BancorpSouth's
principal assets are the stock of its subsidiaries. As of September 30, 1998,
BancorpSouth had total assets of about $4.36 billion, deposits of about $3.69
billion and shareholders' equity of about $389.1 million.
On October 30, 1998, Alabama Bancorp., Inc., a bank holding company
based in Birmingham, Alabama, merged into BancorpSouth. In connection with that
merger, Highland Bank and First Community Bank of The South (which were
subsidiaries of Alabama Bancorp., Inc.) merged into BancorpSouth Bank. Highland
Bank operated seven banking locations in the metropolitan Birmingham, Alabama
area and First Community Bank operated four banking locations in the Fort
Deposit, Alabama area. As of September 30, 1998, Alabama Bancorp., Inc. and its
subsidiaries had total assets of about $275.4 million and total deposits of
about $243.3 million.
On May 2, 1998, BancorpSouth entered into a merger agreement with
Merchants Capital Corporation, a bank holding company based in Vicksburg,
Mississippi. The merger agreement provides for the merger of Merchants Capital
Corporation into BancorpSouth, and the merger of Merchants Bank (a wholly-owned
subsidiary of Merchants Capital Corporation) into BancorpSouth Bank. Merchants
Bank operates six banking locations in the Vicksburg, Mississippi area and a
loan production office in Jackson, Mississippi. As of September 30, 1998,
Merchants Capital Corporation and its subsidiaries had total assets of about
$211.4 million and total deposits of about $173.5 million. This merger, which is
subject to regulatory approval and other conditions described in the merger
agreement, is expected to be completed during December 1998. The parties have
structured the merger as a tax-free exchange of common stock and intend to
account for the merger as a pooling of interests.
On November 4, 1998, BancorpSouth entered into a merger agreement with
HomeBanc Corporation, a bank holding company based in Guntersville, Alabama. The
merger agreement provides for the merger of HomeBanc Corporation into
BancorpSouth, and the merger of The Home Bank (a wholly-owned subsidiary of
HomeBanc Corporation) into BancorpSouth Bank. The Home Bank operates one banking
location in Guntersville, Alabama, two banking locations in Albertville,
Alabama, one banking location in Arab, Alabama and one banking location in Boaz,
Alabama. As of September 30, 1998, HomeBanc Corporation and its subsidiary had
total assets of about $____ million and total deposits of about $____ million.
This merger, which is subject to regulatory approval and other conditions
described in the merger agreement, is expected to be completed during February
1999. The parties have structured the merger as a tax-free exchange of common
stock and intend to account for the merger as a pooling of interests.
5
<PAGE> 9
THE FIRST CORPORATION
414 South Seventh Street
Opelika Alabama 36801
(334) 749-2041
The First Corporation is incorporated in the State of Alabama and is a
registered bank holding company under the Bank Holding Company Act of 1956, as
amended. It is based in Opelika, Alabama and is the sole shareholder of The
First National Bank of Opelika, which is a national banking association with two
banking locations in Opelika, Alabama and one banking location in Auburn,
Alabama. The First Corporation's principal asset is the stock of its subsidiary.
As of September 30, 1998, The First Corporation and its subsidiary had total
assets of about $143.4 million, deposits of about $121.5 million and
shareholders' equity of about $15.95 million.
THE MERGER (PAGE 30)
BancorpSouth and The First Corporation entered into a merger agreement
whereby The First Corporation will merge into BancorpSouth, subject to
shareholder and regulatory approval and other conditions. The merger agreement
is attached to this Prospectus Supplement/Proxy Statement as Annex A. You should
read it carefully.
If this merger is completed, the businesses and operations of
BancorpSouth and The First Corporation will be combined into a single, larger
company and The First National Bank of Opelika will combine with BancorpSouth
Bank into a single, larger bank. The parties hope to complete the merger by the
end of December 1998, after obtaining approvals from the shareholders of The
First Corporation, the Federal Deposit Insurance Corporation and Mississippi and
Alabama banking authorities.
If the merger is completed, The First Corporation shareholders will
receive a maximum of 10.4235 shares and a minimum of 7.7043 shares of
BancorpSouth common stock for each share of The First Corporation common stock
they own. BancorpSouth will not issue any fractional shares of BancorpSouth
common stock. Instead, you will receive cash equal to the product of (1) the
average closing price of BancorpSouth common stock as reported on the New York
Stock Exchange during the ten consecutive trading days ending on the third
business day before the date on which the merger is completed, times (2) the
fraction of a share of BancorpSouth common stock to which you otherwise would be
entitled.
The number of shares of BancorpSouth common stock to be exchanged for
each share of common stock of The First Corporation (which is referred to as the
"exchange ratio") will be determined by dividing $174.8178 by the average
closing price of BancorpSouth common stock as reported on the New York Stock
Exchange during the ten consecutive trading days ending on the third business
day before the date on which the merger is completed. For example, if the
average closing price of BancorpSouth common stock is equal to $22.50, the
exchange ratio for The First Corporation common stock would be 7.7697 (or
$174.8178 / $22.50), and 7.7697 shares of BancorpSouth common stock would be
issued for each share of The First Corporation common stock. If the average
closing price is equal to $17.00, the exchange ratio for each share of The First
Corporation common stock would be 10.2834 (or $174.8178 / $17.00), and 10.2834
shares of BancorpSouth common stock would be issued for each share of The First
Corporation common stock.
The range of the exchange ratio is designed to reduce the impact of
fluctuations in the market price of BancorpSouth common stock prior to
completion of the merger. The following table shows the implied market value of
the consideration that shareholders of The First Corporation will receive in the
merger for each share of The First Corporation common stock (assuming that the
exchange ratio formula results in a number that is equal to or between the
minimum and maximum exchange ratio amounts). The market price of BancorpSouth
common stock will vary prior to and after the merger, and could decrease.
6
<PAGE> 10
<TABLE>
<CAPTION>
Implied Market
Value of Shares
Exchange Ratio Received(1)(2)
-------------- ---------------
<S> <C> <C>
Minimum...................................... 7.7043 $174.8178
Maximum...................................... 10.4235 $174.8178
</TABLE>
- --------------------
(1) Based upon the average closing price per share of BancorpSouth common
stock during the ten consecutive trading days ending on the third
business day prior to the date on which the merger is completed.
(2) Assumes that the average closing price per share of BancorpSouth common
stock for purposes of computing the exchange ratio is not less than
about $16.7715 or more than about $22.6909, which would result in the
minimum and maximum exchange ratios.
The exchange ratio is limited by a minimum and maximum amount, even if
the exchange ratio formula results in a number outside of that range. That is,
the exchange ratio cannot be more than 10.4235 or less than 7.7043. For example,
if the average closing price of BancorpSouth common stock was equal to $16.00,
then the exchange ratio would be the maximum amount of 10.4235, even though the
exchange ratio formula would result in a calculated amount of about 10.9261 (or
$174.8178 / $16.00).
However, the merger agreement could be terminated if the calculated
amount of the exchange ratio is greater than 11.8132 or less than 7.0879.
BancorpSouth can elect to terminate the merger agreement if the calculated
amount of the exchange ratio is less than 7.0879 (which would occur if the
average closing price of BancorpSouth common stock used to compute the exchange
ratio was more than about $24.6643) unless The First Corporation agreed to lower
the minimum amount of the exchange ratio to an amount that is not less than the
calculated amount of the exchange ratio. Likewise, The First Corporation can
terminate the merger agreement if the calculated amount of the exchange ratio is
greater than 11.8132 (which would occur if the average closing price of
BancorpSouth common stock used to compute the exchange ratio was less than about
$14.7985) unless BancorpSouth agreed to increase the maximum amount of the
exchange ratio amount to an amount that is not more than the calculated amount
of the exchange ratio. There can be no assurance that either party would agree
to such an increase or decrease, or that either party would exercise its rights
to terminate the merger agreement in such event. The parties could elect to
proceed with the merger without adjusting the minimum or maximum amount of the
exchange ratio.
The exchange ratio will be fixed on the third business day before the
date on which the merger is completed, based on the average closing price as
reported on the New York Stock Exchange during the ten trading day period ending
on that date. Therefore, until that date the actual amount of the exchange ratio
can't be determined, and we are not able to predict whether or not the computed
amount of the exchange ratio will be within the range of the minimum and maximum
exchange ratios. Until that time, fluctuations in the market price of
BancorpSouth common stock will cause the exchange ratio to increase or decrease,
depending upon whether the market price decreases or increases. After the
exchange ratio becomes fixed on the third business day prior to the merger, the
market value of the BancorpSouth common stock received in the merger may
increase or decrease.
A common stock purchase right attaches to, and trades with, each share
of BancorpSouth common stock, including the shares of BancorpSouth common stock
that shareholders of The First Corporation will receive in the merger. Upon the
occurrence of certain events (including the acquisition of, or tender offer for,
20% or more of the outstanding shares of BancorpSouth common stock by any person
or entity), each of these common stock purchase rights (other than those held by
the person acquiring the shares or making the tender offer) will entitle the
holder of the right to purchase one share of BancorpSouth common stock for a
price per share equal to 50% of the then market price. These rights, which are
issued under BancorpSouth's shareholder rights plan (which
7
<PAGE> 11
is commonly referred to as a "poison pill"), may make it more difficult for any
person or entity to acquire control of BancorpSouth without the approval of
BancorpSouth's Board of Directors.
SPECIAL SHAREHOLDERS MEETING (PAGE 23)
A special meeting of the shareholders of The First Corporation will be
held on ______, 1998 at the following time and place. At the special meeting,
shareholders of The First Corporation will be asked to approve the merger
agreement between The First Corporation and BancorpSouth.
______________, 1998
______ __.m. (local time)
The First National Bank of Opelika
414 South Seventh Street
Opelika, Alabama
RECOMMENDATION TO SHAREHOLDERS (PAGE 34)
The Board of Directors of The First Corporation believes that the
merger between The First Corporation and BancorpSouth is in the best interests
of the shareholders of The First Corporation, and unanimously recommends that
you vote "FOR" the proposal to approve the merger agreement. The conclusion of
the Board of Directors of The First Corporation with respect to the merger is
based on a number of factors described in this document, including the receipt
of a fairness opinion from its financial advisor.
RECORD DATE; VOTING POWER (PAGE 24)
You can vote at the special meeting of shareholders of The First
Corporation if you owned common stock of The First Corporation as of the close
of business on ___________, 1998, the record date set by the Board of Directors
of The First Corporation. Each share of common stock of The First Corporation is
entitled to one vote. On ______________, 1998, there were 232,321 shares of
common stock of The First Corporation outstanding and entitled to vote on the
merger agreement.
VOTE REQUIRED (PAGE 24)
In order for the merger to be approved, at least two-thirds of the
outstanding shares of common stock of The First Corporation must be voted in
favor of the merger agreement. The First Corporation expects that its executive
officers and directors will vote all of their shares in favor of the merger
agreement.
The following chart describes the voting requirements for the merger
agreement:
<TABLE>
<S> <C>
Number of shares of common stock of The First Corporation
outstanding on ____________, 1998............................ 232,321
Number of votes necessary to approve the merger agreement.... 154,881
Number of votes that executive officers and directors of The
First Corporation can cast (1)............................... 55,885.41
Percentage of votes that executive officers and directors of
The First Corporation can cast (1)........................... 24.06%
</TABLE>
---------------
(1) Does not include 3,200 shares of common stock of The First
Corporation subject to stock options exercisable on December
13, 1998. Includes 1,360.41 shares of common stock of The
First Corporation held by such persons as trustees of The
First Corporation Employee Stock Ownership Plan and which
shares have not been allocated to the participants in such
plan. Pursuant to the terms of this plan, the trustees may
vote such unallocated shares in their discretion.
8
<PAGE> 12
BACKGROUND OF THE MERGER (PAGE 32)
In June 1998, management of The First Corporation met separately with
representatives of two financial institutions that had expressed unsolicited
interest in pursuing a possible business combination with The First Corporation.
On June 18, 1998, the Board of Directors of The First Corporation engaged Alex
Sheshunoff & Co. Investment Banking, an independent investment advisory firm, to
assist the Board of Directors of The First Corporation in establishing a
reasonable value of the company and assisting in soliciting additional
expressions of interest regarding a potential business combination with The
First Corporation.
Alex Sheshunoff & Co. Investment Banking promptly contacted six
additional financial institutions to solicit expressions of interest in
acquiring The First Corporation. BancorpSouth was contacted on June 30, 1998 by
Alex Sheshunoff & Co. Investment Banking to determine BancorpSouth's interest in
acquiring The First Corporation. Of these six additional financial institutions,
three, including BancorpSouth, expressed an interest in a business combination
with The First Corporation. On July 6, 1998, BancorpSouth presented an informal
presentation, which consisted primarily of an introduction to BancorpSouth, to
management of The First Corporation.
After reviewing the expressions of interest from the initial two, and
additional three, financial institutions, the Board of Directors of The First
Corporation determined that offers from three of the five institutions were not
financially attractive enough to warrant further consideration. The remaining
two financial institutions, one of which was BancorpSouth, were allowed to
conduct a due diligence review of The First Corporation. On July 14, 1998,
BancorpSouth proposed to Alex Sheshunoff & Co. Investment Banking an acquisition
value of about 2.72 times the net book value of The First Corporation, or an
aggregate value of about $40.8 million. Upon completion of its due diligence
review, BancorpSouth increased its offer to an aggregate value of about $41.4
million.
After considering each financial institution's final offers, the Board
of Directors of The First Corporation determined that BancorpSouth's offer was
the most attractive to The First Corporation and its shareholders. Between July
29, 1998 and August 11, 1998, representatives of BancorpSouth and The First
Corporation negotiated the merger agreement and the stock option agreement. On
August 12, 1998, the Board of Directors of The First Corporation approved the
merger and the merger agreement and stock option agreement. BancorpSouth and The
First Corporation each executed the merger agreement and the stock option
agreement later in the day on August 12, 1998. The Board of Directors of
BancorpSouth approved the merger and the merger agreement on August 26, 1998.
REASONS FOR THE MERGER (PAGE 34)
The merger will combine the strengths of BancorpSouth and The First
Corporation, and that of their subsidiary banks. The combined company resulting
from the merger should be able to achieve superior financial performance
compared to each company operating independently. One reason for this is that
the combined company should be able to reduce costs substantially by eliminating
overlap in the companies' operations and by applying BancorpSouth's investments
in technology to The First Corporation's operations. Another reason is that the
combined company should have opportunities to increase revenue by bringing a
larger universe of customers in contact with a broader range of products and
services. The competitiveness of the financial services industry is increasing
continually, and the greater strength realized through combining the companies
should enable them to provide superior products and services to their customers
and substantial benefits to their shareholders.
FEDERAL INCOME TAX CONSEQUENCES (PAGE 40)
The parties have structured the merger with the intent that The First
Corporation, its shareholders, BancorpSouth and its shareholders will not
recognize any gain or loss for U.S. federal income tax purposes in the merger,
except in connection with cash received instead of fractional
9
<PAGE> 13
shares by shareholders of The First Corporation, or with respect to shareholders
of The First Corporation who dissent from the merger under Alabama law. The
merger is conditioned on receipt of legal opinions that this will be the case,
but these opinions won't bind the Internal Revenue Service, which could take a
different view. Determining the actual tax consequences of the merger to you can
be complicated. They will depend on your specific situation and many variables
not within the companies' control. You should consult your own tax advisor for a
full understanding of the merger's tax consequences.
ACCOUNTING TREATMENT (PAGE 40)
The parties expect that the merger of The First Corporation into
BancorpSouth will qualify as a pooling of interests, which means that, for
accounting and financial reporting purposes, BancorpSouth will treat the
combined companies as if they had always been one company.
FAIRNESS OPINION (PAGE 36)
Alex Sheshunoff & Co. Investment Banking rendered an opinion to the
Board of Directors of The First Corporation that, as of the date of the opinion,
the exchange ratio was fair from a financial point of view to the shareholders
of The First Corporation. This opinion is attached as Annex C to this document.
You should read it carefully.
INTERESTS OF CERTAIN PERSONS IN THE MERGER (PAGE 42)
Directors and executive officers of The First Corporation will be
issued shares of BancorpSouth common stock in the merger on the same basis as
other shareholders of The First Corporation. The following chart shows the
number of shares of BancorpSouth common stock that may be issued to directors
and executive officers of The First Corporation in the merger:
Shares of common stock of The First Corporation
beneficially owned by its executive officers and
directors on ____________, 1998 (1)............ 55,885.41
Maximum number of shares of BancorpSouth common
stock that may be received by executive officers
and directors based upon this beneficial
ownership...................................... 582,521
Minimum number of shares of BancorpSouth common
stock that may be received by executive officers
and directors based upon this beneficial
ownership...................................... 430,557
-------------------------
(1) Does not include 3,200 shares of common stock of The First
Corporation subject to stock options exercisable on December
13, 1998. Includes 1,360.41 shares of common stock of The
First Corporation held by such persons as trustees of The
First Corporation Employee Stock Ownership Plan and which
shares have not been allocated to the participants in such
plan. Pursuant to the terms of this plan, the trustees may
vote such unallocated shares in their discretion.
In addition, there are currently options outstanding to purchase up to
3,200 shares of The First Corporation common stock, many of which are held by
directors and executive officers of The First Corporation. These options will be
replaced in the merger with options to purchase a number of shares of
BancorpSouth common stock equal to the product of (1) the number of shares of
The
10
<PAGE> 14
First Corporation common stock which the options entitle the holder to
acquire, times (2) the exchange ratio in the merger.
Mr. William C. Kent, who is currently President of The First
Corporation, will become community bank president of the branch locations of
BancorpSouth Bank in the Opelika, Alabama area after the merger. Mr. Kent has
entered into an employment agreement with BancorpSouth Bank that is effective
upon completion of the merger. The employment agreement provides that Mr. Kent
will receive an annual salary of $118,368. In his employment agreement, Mr.
Kent has agreed that he will not compete with BancorpSouth Bank within a
specified area.
DISSENTERS' RIGHTS (PAGE 25)
Alabama law permits you to dissent from the merger and to have the fair
value of your shares of common stock of The First Corporation paid to you in
cash. To do this, you must follow certain procedures, including filing certain
notices with The First Corporation and refraining from voting your shares in
favor of the merger. If you dissent from the merger, your shares of The First
Corporation common stock will not be exchanged for shares of BancorpSouth common
stock in the merger, and your only right will be to receive the appraised fair
value of your shares of common stock of The First Corporation in cash.
REGULATORY APPROVAL (PAGE 39)
The companies cannot complete the merger unless they obtain the
approval of the Federal Deposit Insurance Corporation. The U.S. Department of
Justice has input into the FDIC's approval process. Once the FDIC has approved
the merger, federal law requires the companies to wait for up to 30 days to
complete the merger, in order to give the Department of Justice the opportunity
to review and object to the merger. BancorpSouth obtained approval from the FDIC
on November 9, 1998. Pursuant to the specific terms of the FDIC approval, the
waiting period will expire on November 24, 1998, 15 days after receipt of such
FDIC approval.
In addition, the merger is subject to the approval of the Mississippi
Department of Banking and Consumer Finance and the Alabama Banking Department.
The companies have filed all of the required notices with these state regulatory
authorities, and approval of the merger is expected to be received following an
affirmative vote of the shareholders of The First Corporation in favor of the
merger agreement.
While the companies are not aware of any reason why they should not
obtain the remaining regulatory approvals in a timely manner, they cannot be
certain when they will obtain the approvals or that the companies will obtain
them.
CONDITIONS TO COMPLETION OF THE MERGER (PAGE 45)
The completion of the merger depends on a number of conditions being
met, including the following:
1. Shareholders of The First Corporation approving the merger;
2. The New York Stock Exchange having authorized for listing the
shares of BancorpSouth common stock to be issued to
shareholders of The First Corporation;
3. Receipt of all required regulatory approvals, including that
of the FDIC, and the expiration of any regulatory waiting
periods;
4. The absence of any governmental order blocking completion of
the merger, or of any proceedings by a government body trying
to block it;
5. Receipt of opinions of legal counsel to each company that the
U.S. federal income tax treatment in the merger will generally
be as described in this document;
11
<PAGE> 15
6. BancorpSouth being satisfied that the merger will qualify for
pooling of interests accounting treatment under applicable
accounting standards; and
7. Mr. William C. Kent, the President of The First Corporation,
entering into a written employment agreement with BancorpSouth
Bank.
In cases where the law permits, a party to the merger agreement could
elect to waive a condition that has not been satisfied and complete the merger
although it is entitled not to. The companies cannot be certain whether or when
any of these conditions will be satisfied (or waived, where permissible), or
that the merger will be completed.
TERMINATION OF THE MERGER AGREEMENT (PAGE 46)
The companies can agree at any time to terminate the merger agreement
without completing the merger, even if the shareholders of The First Corporation
have already voted to approve it. Also, BancorpSouth can terminate the merger
agreement if the Board of Directors of The First Corporation withdraws, or
modifies in any way adverse to BancorpSouth, its recommendation that its
shareholders approve the merger, or if BancorpSouth's independent certified
public accountants advise BancorpSouth that the merger does not qualify for
pooling of interests accounting treatment.
Moreover, either company can terminate the merger agreement in the
following circumstances:
1. After a final decision by a governmental authority to prohibit
the merger, or after the rejection of an application for a
governmental approval required to complete the merger (but in
the latter case, only after waiting 60 days);
2. If the mergers aren't completed by June 30, 1999;
3. If the shareholders of The First Corporation do not approve
the merger; or
4. If the other party violates, in a significant way, any of its
representations, warranties, covenants or obligations
contained in the merger agreement.
Generally, a party can only terminate the merger agreement in one of the
preceding four situations if that party is not in violation of the merger
agreement or if its violations of the merger agreement are not the cause of the
event permitting termination.
In addition, if the computed amount of the exchange ratio for shares of
common stock of The First Corporation is less than 7.0879, BancorpSouth can
elect to terminate the merger agreement unless The First Corporation agrees to
lower the minimum exchange ratio amount of 7.7043 to an amount not less than the
computed exchange ratio. This would occur if the average closing price per share
of BancorpSouth common stock used to compute the exchange ratio was more than
about $24.6643. Similarly, if the computed exchange ratio is more than 11.8132,
The First Corporation can elect to terminate the merger agreement unless
BancorpSouth agrees to increase the maximum exchange ratio amount of 10.4235 to
an amount not greater than the computed exchange ratio. This would occur if the
average closing price per share of BancorpSouth common stock used to compute the
exchange ratio was less than about $14.7985. There can be no assurance that
BancorpSouth or The First Corporation would exercise, or refrain from
exercising, their right to terminate the merger agreement under the
circumstances described in this paragraph. BancorpSouth and The First
Corporation could also elect to complete the merger without adjusting the
minimum or maximum exchange ratios.
For example, if the average closing price of BancorpSouth common stock
was equal to $24.75, the exchange ratio applied to each share of BancorpSouth
common stock would be about 7.06. Since that amount is less than 7.0879,
BancorpSouth would have the right to terminate the merger
12
<PAGE> 16
agreement unless The First Corporation agrees to decrease the minimum exchange
ratio of 7.7043 to an amount proposed by BancorpSouth that is not less than
7.06. BancorpSouth could elect to waive its right to terminate and complete the
mergers without adjusting the exchange ratio. If the average closing price of
BancorpSouth common stock was equal to $14.50, the exchange ratio applied to
each share of The First Corporation common stock would be about 12.06. Since
that amount is more than 11.8132, The First Corporation would have the right to
terminate the merger agreement unless BancorpSouth agrees to increase the
maximum exchange ratio of 10.4235 to an amount proposed by The First Corporation
that is not greater than 12.06. The First Corporation could elect to waive its
right to terminate and complete the merger without adjusting the exchange ratio.
The computed exchange ratio amount below which BancorpSouth can elect
to terminate the merger agreement, 7.0879, is less than the minimum exchange
ratio of 7.7043. Therefore, if the computed exchange ratio is less than 7.7043
but not less than 7.0879, then the applicable exchange ratio would be limited to
the minimum exchange ratio of 7.7043 and BancorpSouth would not have the right
to terminate the merger agreement as a result. Similarly, the computed exchange
ratio amount above which The First Corporation can elect to terminate the merger
agreement, 11.8132, is more than the maximum exchange ratio of 10.4235.
Therefore, if the computed exchange ratio is more than 10.4235 but not more than
11.8132, then the applicable exchange ratio would be limited to the maximum
exchange ratio of 10.4235 and The First Corporation would not have the right to
terminate the merger agreement as a result. If the average closing price of
BancorpSouth common stock is viewed as an implied value, this paragraph
demonstrates that shareholders of The First Corporation could actually receive
shares of BancorpSouth common stock with an implied value of less than $174.8178
in exchange for each share of The First Corporation common stock.
BANCORPSOUTH'S OPTION TO PURCHASE THE FIRST CORPORATION COMMON STOCK (PAGE 49)
To induce BancorpSouth to enter into the merger agreement, The First
Corporation granted a stock option to BancorpSouth to purchase up to 47,822
shares of The First Corporation common stock at a price of $125.00 per share.
The number of shares of The First Corporation common stock that may be acquired
upon exercise of the stock option may not exceed 19.9% of the issued and
outstanding shares of The First Corporation common stock (without counting
shares that are exercisable under the stock option).
BancorpSouth cannot exercise the stock option unless certain specific
events take place. These events are generally related to a competing transaction
involving a merger, business combination or other acquisition of The First
Corporation or its stock or assets. As of the date of this Prospectus
Supplement/Proxy Statement, the companies are not aware that any event of that
kind has occurred. The stock option could have the effect of discouraging other
companies that might want to combine with or acquire The First Corporation from
doing so. The stock option agreement is attached as Annex D to this Prospectus
Supplement/Proxy Statement.
COMPARATIVE PER SHARE MARKET PRICE INFORMATION (PAGE 52)
Shares of BancorpSouth common stock are listed on the New York Stock
Exchange. On August 26, 1998, the last full trading day prior to the public
announcement of the merger, BancorpSouth common stock closed at $18.8125 per
share. On _____, 1998, the latest practicable date on which stock price
information was available prior to mailing of this document, BancorpSouth common
stock closed at $_____ per share. Of course, the market price of BancorpSouth
common stock will fluctuate prior to and after completion of the merger, while
the exchange ratio will be fixed prior to the completion of the merger. You
should obtain current stock price quotations for BancorpSouth common stock.
There is no established trading market for shares of The First
Corporation common stock, which is inactively traded in private transactions.
Therefore, reliable information is not available about the prices at which
shares of The First Corporation common stock have been bought and sold.
13
<PAGE> 17
FORWARD-LOOKING STATEMENTS MAY PROVE INACCURATE (PAGE 83)
This document, and other documents to which you are referred in this
document, contain forward-looking statements that are subject to risks and
uncertainties. These forward-looking statements include information about
possible or assumed future results of the companies' operations or the
performance of the combined companies after the merger. Forward-looking
statements generally include any of the words "believes," "expects,"
"anticipates" or similar expressions. Many possible events or factors could
affect the future financial results and performance of each of the companies and
the combined company after the merger and could cause those results or
performance to differ materially from those expressed in forward-looking
statements. These possible events or factors include the following:
1. Problems or delays in bringing the companies together, either
before or after the merger is consummated;
2. Legal and regulatory risks and uncertainties;
3. Economic, political and competitive forces affecting the
companies' businesses, markets, constituencies or securities;
and
4. Inaccuracies in the companies' analyses of these risks and
forces, and lack of success of strategies developed to deal
with them.
14
<PAGE> 18
COMPARATIVE UNAUDITED PER SHARE DATA
The following table shows information, for the periods indicated, about
BancorpSouth's and The First Corporation's historical net income per share,
dividends per share and book value per share. The table also provides similar
information that reflects the merger of BancorpSouth and The First Corporation
(which is referred to as "pro forma" information). In presenting the comparative
pro forma information for certain time periods, it is assumed that The First
Corporation and BancorpSouth had been merged throughout those periods for
accounting and financial reporting purposes (a method which is referred to as
the "pooling of interests" method of accounting). In addition, the table
provides "pro forma equivalent" information for The First Corporation, which was
obtained by multiplying the BancorpSouth and The First Corporation pro forma
amounts by an assumed exchange ratio equal to the midpoint of the range of the
exchange ratio. It is intended to reflect the fact that shareholders will be
receiving more than one share of BancorpSouth common stock for each share of The
First Corporation common stock exchanged in the merger.
<TABLE>
<CAPTION>
BOOK VALUE PER SHARE: DECEMBER 31, 1997 SEPTEMBER 30, 1998
----------------- ------------------
<S> <C> <C>
BancorpSouth historical(1)......................... $ 8.09 $ 8.71
The First Corporation historical................... 63.08 63.45
BancorpSouth and The First Corporation pro
forma (2)..................................... 8.06 8.66
The First Corporation pro forma equivalent (3)..... 73.04 78.51
</TABLE>
<TABLE>
<CAPTION>
NINE-MONTHS
NET INCOME PER SHARE: YEAR ENDED DECEMBER 31, ENDED SEPTEMBER 30,
----------------------- -------------------
1995 1996 1997 1998
---- ---- ---- ----
<S> <C> <C> <C> <C>
BancorpSouth historical(1)......................... $ 0.84 $ 1.01 $ 1.01 $ 0.89
The First Corporation historical................... 3.70 5.85 5.79 4.34
BancorpSouth and The First Corporation pro
forma (2)..................................... 0.82 1.00 1.00 0.88
The First Corporation pro forma equivalent (3)..... 7.46 9.03 9.02 7.98
<CAPTION>
NINE-MONTHS
CASH DIVIDENDS PER SHARE: YEAR ENDED DECEMBER 31, ENDED SEPTEMBER 30,
----------------------- -------------------
1995 1996 1997 1998
---- ---- ---- ----
<S> <C> <C> <C> <C>
BancorpSouth historical(1)......................... $ 0.31 $ 0.35 $ 0.395 $ 0.33
The First Corporation historical................... 1.75 2.00 2.150 --
BancorpSouth and The First Corporation pro
forma (2)..................................... 0.31 0.35 0.395 0.33
The First Corporation pro forma equivalent (3)..... 2.81 3.17 3.580 2.99
</TABLE>
- --------------------
(1) Adjusted to reflect two two-for-one stock splits of BancorpSouth common
stock, each effected in the form of a 100% stock dividend as of
November 20, 1995 and May 15, 1998, respectively.
(2) Presented as if the merger of The First Corporation into BancorpSouth
had been effective throughout the periods presented.
(3) Calculated by multiplying the BancorpSouth and The First Corporation
pro forma amount by 9.0639, the midpoint of the range of the exchange
ratio.
15
<PAGE> 19
SELECTED FINANCIAL DATA
The following tables show summarized unaudited historical consolidated
financial data for BancorpSouth and for The First Corporation and also show
similar pro forma information reflecting the merger of the two companies. The
pro forma information reflects the pooling of interests method of accounting for
the merger of The First Corporation into BancorpSouth. The pro forma information
does not reflect BancorpSouth's pending merger with Merchants Capital
Corporation or the merger of Alabama Bancorp., Inc. into BancorpSouth on October
30, 1998. See "SUMMARY -- The Companies" and "WHERE YOU CAN FIND MORE
INFORMATION."
BancorpSouth and The First Corporation expect to incur merger-related
expenses as a result of combining the companies. The companies also anticipate
that the merger will provide the combined company with financial benefits such
as reduced operating expenses and the opportunity to earn more revenue. However,
none of these anticipated expenses or benefits have been factored into the pro
forma income statement information. For that reason, the pro forma information,
while helpful in illustrating the financial attributes of the combined company
under one set of assumptions, doesn't attempt to predict or suggest future
results. Also, the information set forth for the nine-month period ended
September 30, 1998 does not indicate what the results will be for the full 1998
fiscal year.
The information in the following tables is based on the historical
financial information of BancorpSouth that has been presented in its prior
filings with the Securities and Exchange Commission (and which has been
incorporated by reference into this Prospectus Supplement/Proxy Statement) and
on the historical financial information of The First Corporation included in
this Prospectus Supplement/Proxy Statement. All of the summary financial
information provided in the following tables should be read in connection with
this historical financial information. See "WHERE YOU CAN FIND MORE
INFORMATION." The financial information as of and for the interim periods ended
September 30, 1998 and 1997 has not been audited and in the respective opinions
of management reflects all adjustments (consisting only of normal recurring
adjustments) necessary to a fair presentation of such data.
16
<PAGE> 20
BancorpSouth, Inc.
Selected Historical Consolidated Financial Data
(Dollars in thousands, except per share amounts)
<TABLE>
<CAPTION>
For the Nine
Months Ended
September 30,
For the Years Ended December 31, (Unaudited)
-------------------------------------------------------- -----------------------
EARNINGS SUMMARY: 1993 1994 1995 1996 1997 1997 1998
---- ---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C>
Interest revenue ............... $ 193,869 $ 207,895 $ 252,427 $ 277,919 $ 307,094 $ 225,082 $ 250,706
Interest expense ............... 78,715 85,029 114,457 126,505 144,055 106,431 122,890
---------- ---------- ---------- ---------- ---------- ---------- ----------
Net interest revenue ......... 115,154 122,866 137,970 151,414 163,039 118,651 127,816
Provision for credit losses .... 9,032 5,946 6,206 8,804 9,008 6,125 9,784
Other revenue .................. 26,776 26,012 31,240 40,745 43,667 32,211 35,268
Other expense .................. 93,176 99,372 111,750 118,472 131,988 92,483 92,752
---------- ---------- ---------- ---------- ---------- ---------- ----------
Income before income tax and
accounting change ......... 39,722 43,560 51,254 64,883 65,710 52,244 60,548
Applicable income taxes ........ 10,216 12,832 15,750 22,000 20,360 16,756 20,230
---------- ---------- ---------- ---------- ---------- ---------- ----------
Income before accounting
change .................... 29,506 30,728 35,504 42,883 45,350 35,488 40,318
Accounting change, net of tax .. 3,429 -- -- -- -- -- --
---------- ---------- ---------- ---------- ---------- ---------- ----------
Net income ..................... $ 32,935 $ 30,728 $ 35,504 $ 42,883 $ 45,350 $ 35,488 $ 40,318
========== ========== ========== ========== ========== ========== ==========
PER SHARE DATA:
Basic earnings ................. $ 0.83 $ 0.7500 $ 0.85 $ 1.02 $ 1.020 $ 0.800 $ 0.90
Diluted earnings ............... 0.82 0.7500 0.84 1.01 1.010 0.790 0.89
Cash dividends ................. 0.27 0.2775 0.31 0.35 0.395 0.285 0.33
Book value ..................... 5.91 6.2200 6.86 7.51 8.090 7.980 8.71
BALANCE SHEET DATA (PERIOD END):
Total assets ................... $2,802,044 $3,019,118 $3,306,159 $3,617,239 $4,180,143 $3,955,525 $4,363,014
Loans, net of unearned income .. 1,785,933 2,025,614 2,295,166 2,469,334 2,759,027 2,673,644 3,020,278
Allowance for credit losses .... 27,468 30,830 34,636 37,272 39,877 39,187 43,600
Securities ..................... 664,741 746,861 679,058 760,805 939,631 899,247 967,119
Deposits ....................... 2,466,285 2,598,669 2,863,612 3,161,379 3,540,255 3,466,119 3,685,171
Long-term debt
Parent ....................... 24,508 24,508 24,508 -- -- -- --
Subsidiaries ................. -- 23,520 49,116 55,778 47,539 48,121 170,123
Total stockholders' equity ..... 233,168 252,852 288,095 315,324 360,422 354,702 389,120
BALANCE SHEET DATA (AVERAGES):
Total assets ................... $2,659,785 $2,884,539 $3,151,297 $3,452,921 $3,853,818 $3,807,088 $4,346,616
Total stockholders' equity ..... $ 218,504 $ 240,929 $ 268,395 $ 299,749 $ 344,166 $ 354,702 $ 372,122
Average number of diluted shares
outstanding .................. 40,103 40,780 42,031 42,259 44,789 44,745 45,058
SELECTED RATIOS (ANNUALIZED):
Return on average assets ....... 1.24% 1.07% 1.13% 1.24% 1.18% 1.24% 1.24%
Return on average stockholders'
equity ....................... 15.07 12.75 13.23 14.31 13.18 13.92 14.45
Net interest margin ............ 4.89 4.76 4.86 4.81 4.64 4.56 4.30
Net charge-offs to average loans 0.34 0.14 0.15 0.26 0.27 0.25 0.28
Tier 1 capital to risk-weighted
assets ....................... 11.00 11.31 12.11 12.14 12.49 12.69 12.23
Total capital to risk-weighted
assets ....................... 13.70 13.49 13.97 13.39 13.74 13.95 13.48
Leverage ratio ................. 8.30 8.33 8.56 8.56 8.82 8.88 8.65
</TABLE>
17
<PAGE> 21
The First Corporation
Selected Historical Consolidated Financial Data
(Dollars in thousands, except per share amounts)
<TABLE>
<CAPTION>
For the Nine
Months Ended
September 30,
For the Years Ended December 31, (Unaudited)
-------------------------------------------------- ----------------
1993 1994 1995 1996 1997 1997 1998
---- ---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C>
EARNINGS SUMMARY:
Interest revenue ............... $ 7,550 $ 7,720 $ 8,693 $ 9,908 $ 10,380 $ 7,773 $ 8,013
Interest expense ............... 3,882 3,923 4,939 5,432 5,501 4,120 4,269
-------- -------- -------- --------- -------- --------- ---------
Net interest revenue ......... 3,668 3,797 3,754 4,476 4,879 3,653 3,744
Provision for credit losses .... 130 140 131 212 195 145 70
Other revenue .................. 520 374 540 734 587 426 501
Other expense .................. 2,929 2,974 3,123 3,343 3,519 2,521 2,750
-------- -------- -------- --------- -------- --------- ---------
Income before income tax ..... 1,129 1,057 1,040 1,655 1,752 1,413 1,425
Applicable income taxes ........ 151 206 209 334 422 352 416
-------- -------- -------- --------- -------- --------- ---------
Net income ..................... $ 978 $ 851 $ 831 $ 1,321 $ 1,330 $ 1,061 $ 1,009
======== ======== ======== ========= ======== ========= =========
PER SHARE DATA:
Basic earnings ................. $ 4.37 $ 3.64 $ 3.70 $ 5.85 $ 5.79 $ 4.63 $ 4.34
Diluted earnings ............... 4.37 3.64 3.70 5.85 5.79 4.63 4.34
Cash dividends ................. 1.60 1.60 1.75 2.00 2.15 -- --
Book value ..................... 50.07 47.40 55.34 57.71 63.08 63.45 68.65
BALANCE SHEET DATA (PERIOD END):
Total assets ................... $121,333 $121,029 $130,813 $ 136,508 $145,475 $ 139,532 $ 143,391
Loans, net of unearned income .. 43,065 50,141 60,522 70,803 82,032 76,362 84,127
Allowance for credit losses .... 786 839 864 1,087 1,153 1,172 1,193
Securities ..................... 70,064 61,223 60,413 55,792 48,570 48,731 44,524
Deposits ....................... 103,990 105,097 114,922 117,153 123,853 118,513 121,539
Long-term debt ................. 4,826 2,918 1,010 3,935 5,000 5,000 5,000
Total stockholders' equity ..... 11,202 10,606 12,536 13,233 14,579 14,648 15,950
BALANCE SHEET DATA (AVERAGES):
Total assets ................... $117,939 $121,170 $125,884 $ 137,103 $140,111 $ 139,277 $ 144,271
Total stockholders' equity ..... $ 10,790 $ 10,867 $ 11,541 $ 12,584 $ 13,907 $ 13,684 $ 15,185
Average number of diluted shares
outstanding .................. 224 224 225 227 229 229 232
SELECTED RATIOS (ANNUALIZED):
Return on average assets ....... 0.79% 0.71% 0.67% 0.96% 0.94% 1.02% 0.93%
Return on average stockholders'
equity ....................... 8.68 7.88 7.26 10.43 9.51 10.34 8.86
Net interest margin ............ 3.53 3.58 3.45 3.66 3.92 3.88 3.88
Net charge-offs to average loans 0.19 0.19 0.19 (0.01) 0.17 0.08 0.04
Tier 1 capital to risk-weighted
assets ....................... 21.37 20.18 18.43 16.95 15.36 16.57 15.81
Total capital to risk-weighted
assets ....................... 22.62 21.43 19.68 18.20 16.60 17.82 17.03
Leverage ratio ................. 9.45 9.81 9.73 9.75 10.29 10.33 10.68
</TABLE>
18
<PAGE> 22
Pro Forma Condensed Consolidated Balance Sheet
December 31, 1997
(Unaudited)
<TABLE>
<CAPTION>
Historical
----------------------------------
The First
BancorpSouth Corporation Adjustments Pro Forma
------------- ---------------- ----------- -------------
(In thousands)
<S> <C> <C> <C> <C>
ASSETS
$ 292,772 $ 5,117 $ 297,889
Held-to-maturity securities............. 533,419 629 534,048
Available-for-sale securities........... 406,212 47,941 454,153
Federal funds sold...................... -- 4,010 4,010
Loans and leases........................ 2,852,885 82,032 2,934,917
Less: Unearned discount............... 93,858 -- 93,858
Allowance for credit losses..... 39,877 1,153 41,030
------------- ---------------- -------------
Net loans and leases.................. 2,719,150 80,879 2,800,029
Mortgages held for sale................. 39,134 -- 39,134
Premises and equipment, net............. 101,373 4,596 105,969
Other assets............................ 88,083 2,303 90,386
------------- ---------------- ------ -------------
Total assets.......................... $ 4,180,143 $ 145,475 -- $ 4,325,618
============= ================ ====== =============
LIABILITIES
Deposits
Non-interest bearing.................. $ 467,962 $ 12,425 $ 480,387
Interest bearing...................... 3,072,293 111,428 3,183,721
------------- ---------------- -------------
Total deposits........................ 3,540,255 123,853 3,664,108
Short-term borrowings................... 177,450 507 177,957
Long-term debt.......................... 47,539 5,000 52,539
Other liabilities....................... 54,477 1,536 56,013
------------- ---------------- -------------
Total liabilities..................... 3,819,721 130,896 3,950,617
------------- ---------------- -------------
SHAREHOLDERS' EQUITY
Common stock............................ 111,980 11 $5,226 (1) 117,217
Capital surplus......................... 95,699 1,033 (5,226) (1) 91,506
Unrealized gain on available-for-sale
securities.......................... 4,482 176 4,658
Retained earnings....................... 150,580 13,359 163,939
Less cost of treasury stock............. (2,319) -- (2,319)
------------- ---------------- ------ -------------
Total shareholders' equity............ 360,422 14,579 -- 375,001
------------- ---------------- ------ -------------
Total liabilities and shareholders'
equity............................. $ 4,180,143 $ 145,475 -- $ 4,325,618
============= ================ ====== =============
</TABLE>
- ----------------------
(1) Reclassification of capital accounts to reflect the exchange of The
First Corporation common stock for BancorpSouth common stock.
19
<PAGE> 23
Pro Forma Condensed Consolidated Balance Sheet
September 30, 1998
(Unaudited)
<TABLE>
<CAPTION>
Historical
---------------------------------
The First
BancorpSouth Corporation Adjustments Pro Forma
--------------- --------------- ----------- ---------
(In thousands)
<S> <C> <C> <C> <C>
Cash and due from banks................. $ 143,246 $ 3,593 $ 146,839
Held-to-maturity securities............. 601,048 629 601,677
Available-for-sale securities........... 366,071 43,895 409,966
Federal funds sold...................... 28,000 5,720 33,720
Loans and leases........................ 3,116,956 84,127 3,201,083
Less: Unearned discount............... 96,678 -- 96,678
Allowance for credit losses..... 43,600 1,193 44,793
--------------- --------------- -------------
Net loans and leases.................. 2,976,678 82,934 3,059,612
Mortgages held for sale................. 41,327 -- 41,327
Premises and equipment, net............. 105,563 4,404 109,967
Other assets............................ 101,081 2,216 103,297
--------------- --------------- ------------ -------------
Total assets.......................... $ 4,363,014 $ 143,391 $ 0 $ 4,506,405
=============== =============== ============ =============
LIABILITIES
Deposits
Non-interest bearing.................. $ 481,692 $ 12,049 $ 493,741
Interest bearing...................... 3,203,479 109,490 3,312,969
--------------- --------------- -------------
Total deposits........................ 3,685,171 121,539 3,806,710
Short-term borrowings................... 55,525 126 55,651
Long-term debt.......................... 170,123 5,000 175,123
Other liabilities....................... 63,075 776 63,851
--------------- --------------- -------------
Total liabilities..................... 3,973,894 127,441 4,101,335
--------------- --------------- -------------
SHAREHOLDERS' EQUITY
Common stock............................ 111,980 12 5,252 (1) 117,244
Capital surplus......................... 96,099 1,117 (5,252) (1) 91,964
Unrealized gain on available-for-sale
securities.......................... 7,854 453 8,307
Retained earnings....................... 174,670 14,368 189,038
Less cost of treasury stock............. (1,483) -- (1,483)
--------------- --------------- ------------ -------------
Total shareholders' equity............ 389,120 15,950 0 405,070
--------------- --------------- ------------ -------------
Total liabilities and shareholders'
equity............................ $ 4,363,014 $ 143,391 $ 0 $ 4,506,405
=============== =============== ============ =============
</TABLE>
- -------------------------
(1) Reclassification of capital accounts to reflect the exchange of The
First Corporation common stock for BancorpSouth common stock.
20
<PAGE> 24
Pro Forma Condensed Consolidated Statements of Income
(Unaudited)
<TABLE>
<CAPTION>
For the years ended December 31,
-----------------------------------------------------------------------------------------------------
1995 1996
--------------------------------------------------- ------------------------------------------------
The First The First
BancorpSouth Corporation BancorpSouth Corporation
Historical Historical Adjustments Pro Forma Historical Historical Adjustments Pro Forma
------------ ----------- ----------- --------- ------------ ----------- ----------- ---------
(In thousands except per share amounts)
<S> <C> <C> <C> <C> <C> <C> <C>
Interest revenue .......... $252,427 $8,693 $261,120 $277,919 $ 9,908 $287,827
Interest expense .......... 114,457 4,939 119,396 126,505 5,432 131,937
-------- ------ -------- -------- ------- --------
Net interest revenue ...... 137,970 3,754 141,724 151,414 4,476 155,890
Provision for credit losses 6,206 131 6,337 8,804 212 9,016
-------- ------ -------- -------- ------- --------
Net interest revenue, after
provision for credit
losses .................. 131,764 3,623 135,387 142,610 4,264 146,874
Other revenue ............. 31,240 540 31,780 40,745 734 41,479
Other expense ............. 111,750 3,123 114,873 118,472 3,343 121,815
-------- ------ -------- -------- -------- ------- ---- --------
Income before income tax .. 51,254 1,040 52,294 64,883 1,655 66,538
Applicable income taxes ... 15,750 209 15,959 22,000 334 22,334
-------- ------ -------- -------- -------- ------- ---- --------
Net income ................ $ 35,504 $ 831 -- $ 36,335 $ 42,883 $ 1,321 -- $44,204
======== ====== ======== ======== ======== ======= ==== ========
EARNINGS PER SHARE
Basic ................... $ 0.85 $ 3.70 -- $ 0.83 $ 1.02 $ 5.85 -- $ 1.00
Diluted ................. $ 0.84 $ 3.70 -- $ 0.82 $ 1.02 $ 5.85 -- $ 1.00
AVERAGE SHARES
Basic ................... 41,749 225 -- 43,788 41,991 227 -- 44,049
Diluted ................. 42,031 225 -- 44,070 42,259 227 -- 44,317
</TABLE>
<TABLE>
<CAPTION>
For the year ended December 31, 1997
----------------------------------------------------
The First
BancorpSouth Corporation
Historical Historical Adjustments Pro Forma
------------ ----------- ----------- ---------
<S> <C> <C> <C> <C>
Interest revenue......... $307,094 $10,380 $317,474
Interest expense......... 144,055 5,501 149,556
-------- ------- --------
Net interest revenue..... 163,039 4,879 167,918
Provision for credit losses 9,008 195 9,203
-------- ------- --------
Net interest revenue, after
provision for credit
losses............... 154,031 4,684 158,715
Other revenue............ 43,667 587 44,254
Other expense............ 131,988 3,519 135,507
-------- ------- -------- --------
Income before income tax. 65,710 1,752 67,462
Applicable income taxes.. 20,360 422 20,782
-------- ------- -------- --------
Net income............... $ 45,350 $ 1,330 -- $ 46,680
======== ======= ======== ========
EARNINGS PER SHARE
Basic.................. $ 1.02 $ 5.79 -- $ 1.00
Diluted................ $ 1.01 $ 5.79 -- $ 1.00
AVERAGE SHARES
Basic.................. 44,427 229 -- 46,503
Diluted................ 44,789 229 -- 46,865
</TABLE>
21
<PAGE> 25
Pro Forma Condensed Consolidated Statements of Income
(Unaudited)
<TABLE>
<CAPTION>
For the nine months ended September 30,
------------------------------------------------------------------------------------------------------
1997 1998
------------------------------------------------ --------------------------------------------------
The First The First
BancorpSouth Corporation BancorpSouth Corporation
Historical Historical Adjustments Pro Forma Historical Historical Adjustments Pro Forma
------------ ----------- ----------- --------- ------------ ----------- ----------- ---------
(In thousands except per share amounts)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Interest revenue............ $225,082 $7,773 $232,855 $250,706 $8,013 $258,719
Interest expense............. 106,431 4,120 110,551 122,890 4,269 127,159
-------- ------ -------- -------- ------ --------
Net interest revenue......... 118,651 3,653 122,304 127,816 3,744 131,560
Provision for credit losses.. 6,125 145 6,270 9,784 70 9,854
-------- ------ -------- -------- ------ --------
Net interest revenue, after
provision for credit
losses................... 112,526 3,508 116,034 118,032 3,674 121,706
Other revenue................ 32,211 426 32,637 35,268 501 35,769
Other expense................ 92,493 2,521 95,014 92,752 2,750 95,502
-------- ------ -------- -------- ------ --------
Income before income tax..... 52,244 1,413 53,657 60,548 1,425 61,973
Applicable income taxes...... 16,756 352 17,108 20,230 416 20,646
-------- ------ ------ -------- -------- ------ ----- --------
Net income................... $ 35,488 $1,061 -- $ 36,549 $ 40,318 $1,009 -- $ 41,327
======== ====== ====== ======== ======== ====== ===== ========
EARNINGS PER SHARE
Basic...................... $ 0.80 $ 4.63 -- $ 0.79 $ 0.90 $ 4.34 -- $ 0.89
Diluted.................... $ 0.79 $ 4.63 -- $ 0.78 $ 0.89 $ 4.34 -- $ 0.88
AVERAGE SHARES
Basic...................... 44,413 229 -- 46,489 44,558 232 -- 46,661
Diluted.................... 44,745 229 -- 46,821 45,058 232 -- 47,161
</TABLE>
22
<PAGE> 26
THE SPECIAL MEETING
GENERAL
This Prospectus Supplement/Proxy Statement is first being mailed, on or
about __________, 1998, to the holders (the "First Corporation Shareholders") of
shares of common stock, $0.05 par value per share (the "First Corporation Common
Stock"), of The First Corporation, an Alabama corporation ("The First
Corporation").
This Prospectus Supplement/Proxy Statement is accompanied by a Notice
of Special Meeting from, and form of proxy that is solicited by, the Board of
Directors of The First Corporation (the "First Corporation Board") for use at
the special meeting of First Corporation Shareholders and at any adjournments or
postponements thereof.
A special meeting of First Corporation Shareholders (the "First
Corporation Special Meeting") is to be held as follows:
___________, 1998
______ _.m. (local time)
The First National Bank of Opelika
414 South Seventh Street
Opelika, Alabama.
At the First Corporation Special Meeting, First Corporation
Shareholders will consider and vote upon a proposal to approve and adopt an
Agreement and Plan of Merger, dated as of August 12, 1998 (the "Merger
Agreement"), between The First Corporation and BancorpSouth, Inc., a Mississippi
corporation ("BancorpSouth"), which provides for the merger of The First
Corporation with and into BancorpSouth (the "Merger").
PROXIES
First Corporation Shareholders may use the accompanying proxy solicited
by the First Corporation Board if any such shareholder is unable to attend the
First Corporation Special Meeting in person or wishes to have his or her shares
voted by proxy even if such shareholder does attend the meeting. First
Corporation Shareholders may revoke any proxy given pursuant to this
solicitation by:
1. Delivering to the corporate Secretary of The First Corporation
a written notice revoking the proxy prior to the taking of the
vote at the First Corporation Special Meeting;
2. Delivering a duly executed proxy relating to the same shares
bearing a later date; or
3. Attending the meeting and voting in person (attendance at the
First Corporation Special Meeting will not in and of itself
constitute a revocation of a proxy).
All written notices of revocation and other communications with respect
to the revocation of proxies should be addressed to the following:
The First Corporation
P.O. Box 970
Opelika, Alabama 36803-0970
Attention: Secretary.
For a notice of revocation or later proxy to be valid, however, it must
actually be received by The First Corporation prior to the vote of the First
Corporation Shareholders at the First Corporation Special Meeting. All shares
represented by valid proxies received pursuant to this
23
<PAGE> 27
solicitation, and not revoked before they are exercised, will be voted in the
manner specified therein. If no specification is made, the proxies will be voted
in favor of approval of the Merger Agreement.
The First Corporation is currently unaware of any other matters that
may be presented for action at the First Corporation Special Meeting. If other
matters do properly come before the First Corporation Special Meeting, then
shares represented by proxies will be voted (or not voted) by the persons named
in the proxies in their discretion.
SOLICITATION OF PROXIES
The cost of soliciting proxies from First Corporation Shareholders will
be borne by the parties to the Merger Agreement. In addition to the solicitation
of proxies by mail, The First Corporation will request banks, brokers and other
record holders to send proxies and proxy material to the beneficial owners of
the stock and secure their voting instructions, if necessary. The First
Corporation will reimburse such record holders for their reasonable expenses in
so doing. If necessary, The First Corporation may also use several of its
regular employees, who will not be specially compensated, to solicit proxies
from First Corporation Shareholders, either personally or by telephone,
telegram, facsimile or special delivery letter.
RECORD DATE AND VOTING RIGHTS
The First Corporation Board has fixed ____________, 1998 as the record
date (the "First Corporation Record Date") for the determination of the First
Corporation Shareholders entitled to receive notice of and to vote at the First
Corporation Special Meeting. Accordingly, only First Corporation Shareholders of
record at the close of business on the First Corporation Record Date will be
entitled to notice of and to vote at the First Corporation Special Meeting. At
the close of business on the First Corporation Record Date, there were ________
shares of First Corporation Common Stock entitled to vote at the First
Corporation Special Meeting held by approximately ____ holders of record.
As of the First Corporation Record Date, there were ______ shares of
First Corporation Common Stock held of record by trustees of The First
Corporation Employee Stock Ownership Plan (the "First Corporation ESOP").
Pursuant to the terms of the First Corporation ESOP, each participant in the
First Corporation ESOP may direct the trustees of the First Corporation ESOP to
vote his or her allocated shares for or against a transaction such as the
Merger. Unless so directed, such allocated shares are not to be voted. The
trustees may vote unallocated shares in their discretion. There were 1,360.41 of
these unallocated shares of First Corporation Common Stock as of the First
Corporation Record Date.
The presence, in person or by proxy, of shares of First Corporation
Common Stock representing a majority of the votes entitled to be cast at the
First Corporation Special Meeting is necessary to constitute a quorum. Each
share of First Corporation Common Stock outstanding on the First Corporation
Record Date entitles its holder to one vote as to the approval of (1) the Merger
Agreement, and (2) any other proposal that may properly come before the First
Corporation Special Meeting.
For purposes of determining the presence or absence of a quorum for the
transaction of business, The First Corporation will count shares of First
Corporation Common Stock present in person at the First Corporation Special
Meeting but not voting, and shares of First Corporation Common Stock for which
it has received proxies but with respect to which holders of such shares have
abstained, as present at the First Corporation Special Meeting. Abstentions are
counted as present at the First Corporation Special Meeting for purposes of
determining whether a quorum exists and have the effect of a vote "against" any
matter as to which they are specified. Proxies submitted by brokers that do not
indicate a vote for some or all of the proposals because they don't have
discretionary voting authority and have not received instructions as to how to
vote on those proposals (so-called "broker non-votes") will be counted as
present at the First Corporation Special
24
<PAGE> 28
Meeting for purposes of determining whether a quorum exists and have the effect
of a vote "against" any proposal as to which instructions on how to vote were
not provided.
Under the Alabama Business Corporation Act (the "ABCA"), approval of
the Merger Agreement requires the affirmative vote of the holders of two-thirds
of all votes entitled to be cast on the Merger Agreement at the First
Corporation Special Meeting. Because approval of the Merger Agreement requires
the affirmative vote of the holders of two-thirds of the outstanding shares of
First Corporation Common Stock, abstentions and broker non-votes will have the
same effect as negative votes. Accordingly, the First Corporation Board urges
First Corporation Shareholders to complete, date and sign the accompanying proxy
and return it promptly in the enclosed, postage-paid envelope.
As of the First Corporation Record Date, about 55,885.41 shares of First
Corporation Common Stock, or about 24.06% of the shares entitled to vote at the
First Corporation Special Meeting, were beneficially owned by directors and
executive officers of The First Corporation. This beneficial ownership does not
include 3,200 shares of common stock of The First Corporation subject to stock
options exercisable on December 13, 1998, but does include 1,360.41 shares of
First Corporation Common Stock held by such persons as trustees of the First
Corporation ESOP and which shares have not been allocated to the participants in
the First Corporation ESOP. Pursuant to the terms of the First Corporation ESOP,
the trustees may vote such unallocated shares in their discretion. It is
expected that each director and executive officer of The First Corporation will
vote the shares of First Corporation Common Stock beneficially owned by him or
her for approval of the Merger Agreement.
RECOMMENDATION OF THE BOARD OF DIRECTORS
The First Corporation Board has unanimously approved the Merger
Agreement. The First Corporation Board believes that the Merger is in the best
interests of The First Corporation and First Corporation Shareholders and
unanimously recommends that First Corporation Shareholders vote "FOR" approval
and adoption of the Merger Agreement. The conclusion of The First Corporation
Board with respect to the Merger is based on a number of factors, including the
receipt of a fairness opinion from its financial advisor. See "THE MERGER --
Reasons for the Merger; Recommendation of the Board of Directors."
DISSENTERS' RIGHTS
Any holder of First Corporation Common Stock is entitled to dissenters'
rights under Article 13 of the ABCA ("Article 13") as a result of the Merger.
All references in Article 13 and in this summary to a "First Corporation
Shareholder" are to the record holders of First Corporation Common Stock who
have asserted their dissenters' rights. A person having a beneficial interest in
shares of First Corporation Common Stock that are held of record in the name of
another person, such as a broker or nominee, must act promptly to cause the
record holder to follow the steps summarized below properly and in a timely
manner to perfect whatever dissenters' rights the beneficial owner may have.
The following discussion is not a complete statement of the law
pertaining to dissenters' rights under the ABCA. Any First Corporation
Shareholder who wishes to exercise such dissenters' rights, or who wishes to
preserve his or her right to do so, should review Article 13, a copy of which is
attached as Annex B to this Prospectus Supplement/Proxy Statement, and the
following discussion carefully. Failure to timely and properly comply with the
procedures specified will result in the complete loss of dissenters' rights
under the ABCA.
The availability of dissenters' rights is conditioned upon compliance
with applicable law. Accordingly, any First Corporation Shareholder who wishes
to dissent from the Merger and receive the value of his or her First Corporation
Common Stock in cash should consult with his or her counsel.
25
<PAGE> 29
A First Corporation Shareholder's failure to vote against the Merger
Agreement will not constitute a waiver of his or her appraisal or similar
rights. A vote against the Merger Agreement will not be deemed to satisfy all of
the notice requirements under Alabama law with respect to appraisal rights.
In order to be eligible to exercise the right to dissent, a First
Corporation Shareholder must:
1. Give notice in writing to The First Corporation prior to the
vote on the Merger Agreement that such First Corporation
Shareholder intends to demand payment for his or her shares of
First Corporation Common Stock if the Merger is consummated;
and
2. Not vote such shares of First Corporation Common Stock in
favor of the Merger Agreement.
If the Merger is approved at the First Corporation Special Meeting,
BancorpSouth must deliver a written notice (the "Dissenters' Notice") to all
First Corporation Shareholders who satisfied the requirements referred to in the
preceding paragraph. BancorpSouth must deliver the Dissenters' Notice within ten
days after the Effective Date. This notice must:
1. State where the payment demand ("Payment Demand") must be
sent and where First Corporation Common Stock certificates
must be deposited;
2. Inform holders of shares of First Corporation Common Stock to
what extent transfer of the shares will be restricted after
the payment demand is received;
3. Supply a form for demanding payment that includes the date of
the first announcement to the news media or to First
Corporation Shareholders of the terms of the Merger, and the
First Corporation Shareholder asserting dissenters' rights
must certify whether he or she acquired beneficial ownership
of the shares of First Corporation Common Stock before that
date;
4. Set a date by which BancorpSouth must receive the Payment
Demand, which date may not be fewer than 30 nor more than 60
days after the date the Dissenters' Notice is delivered; and
5. Be accompanied by a copy of Article 13 of the ABCA.
A shareholder who is sent a Dissenters' Notice must demand payment in
accordance with the terms of the Dissenters' Notice and certify that he or she
acquired beneficial ownership of the shares of First Corporation Common Stock
before the date required to be set forth in the Dissenters' Notice. The
dissenting shareholder must, within 20 days of making such demand for payment,
submit his or her stock certificates to BancorpSouth. BancorpSouth shall make a
notation on the shareholder's stock certificates indicating that a demand for
payment has been made and shall return such certificates to the shareholder.
Failure to submit First Corporation Common Stock certificates to BancorpSouth
for notation will result in the forfeiture by such shareholder of the right to
receive payment for such shares, unless a court of competent jurisdiction
otherwise directs for good and sufficient cause.
A First Corporation Shareholder who demands payment and deposits his or
her stock certificates in accordance with the previous paragraph retains all
other rights of a First Corporation Shareholder until those rights are canceled
or modified by the consummation of the Merger.
A shareholder who does not demand payment or deposit his or her stock
certificates where required, in each case by the date set forth in the
Dissenters' Notice, is not entitled to payment for his or her shares of First
Corporation Common Stock.
26
<PAGE> 30
As soon as the Merger is effective, or upon receipt of a Payment
Demand, BancorpSouth must offer to pay each dissenting First Corporation
Shareholder who has complied with his or her obligations under Section
10-2B-13.23 of the ABCA the amount BancorpSouth estimates to be the fair value
of such First Corporation Shareholder's shares of First Corporation Common
Stock, plus accrued interest. This offer of payment must be accompanied by the
following:
1. The First Corporation's consolidated balance sheet as of the
end of a fiscal year ending not more than 16 months before the
date of the offer of payment, an income statement for that
year and the latest available interim financial statements, if
any;
2. A statement of BancorpSouth's estimate of the fair value of
the shares of First Corporation Common Stock;
3. An explanation of how the interest was calculated;
4. A statement of the dissenting shareholder's right to demand
payment under ABCA Section 10-2B-13.28; and
5. A copy of Article 13 of the ABCA.
Each dissenter who agrees to accept BancorpSouth's offer of payment in
full satisfaction of his or her demand must surrender to BancorpSouth his or her
certificate or certificates in accordance with the terms of the Dissenters'
Notice. Upon receipt of the certificate or certificates, BancorpSouth will pay
the dissenter the fair value of his or her shares, plus accrued interest.
BancorpSouth may elect to withhold an offer of payment from a dissenter
who was not the beneficial owner of the shares of First Corporation Common Stock
on the date set forth in the Dissenters' Notice as the date of the first
announcement to news media or to First Corporation Shareholders of the terms of
the Merger. To the extent BancorpSouth does elect to withhold payment under
those circumstances, BancorpSouth must estimate, after consummation of the
Merger, the fair value of the shares of First Corporation Common Stock, plus
accrued interest, and pay this amount to each dissenting First Corporation
Shareholder who agrees to accept it in full satisfaction of such shareholder's
demand. BancorpSouth must send with its offer:
1. A statement of BancorpSouth's estimate of the fair value of
the shares of First Corporation Common Stock;
2. An explanation of how the interest was calculated; and
3. A statement of the dissenting First Corporation Shareholder's
right to demand payment pursuant to ABCA Section 10-2B-13.28.
A dissenting shareholder may notify BancorpSouth in writing of such
shareholder's own estimate of the fair value of his or her shares of First
Corporation Common Stock and amount of interest due. The dissenting shareholder
may demand payment of such estimate (less any payments previously made) or
reject BancorpSouth's offer and demand payment of the fair value of such shares
and interest due, if:
1. The dissenting shareholder believes that the amount offered to
be paid by BancorpSouth is less than the fair value of such
shares or that the interest due is incorrectly calculated;
2. BancorpSouth fails to make an offer of payment within 60 days
after the date set forth demanding payment; or
27
<PAGE> 31
3. BancorpSouth, having failed to take the proposed corporate
action, does not release the transfer restrictions imposed on
the shares of First Corporation Common Stock within 60 days
after the date set for demanding payment.
However, a dissenting shareholder waives the right to demand such payment unless
the shareholder notifies BancorpSouth of such demand in writing within 30 days
after BancorpSouth offered payment for the shareholder's shares of First
Corporation Common Stock.
If BancorpSouth does not take the proposed corporate action within 60
days after the date set for demanding payment of such dissenting shareholder's
shares of First Corporation Common Stock, BancorpSouth must release the transfer
restrictions imposed on such shares of First Corporation Common Stock. If
BancorpSouth, after releasing the transfer restrictions imposed upon the
shareholder's shares of First Corporation Common Stock, takes the proposed
corporate action, a new Dissenters' Notice must be delivered to the shareholder
and the Payment Demand procedure discussed above must be repeated.
If a demand for payment under Section 10-2B-13.28 of the ABCA remains
unsettled, BancorpSouth must commence a proceeding within 60 days after
receiving the Payment Demand and petition the court to determine the fair value
of the shares of First Corporation Common Stock and accrued interest. If
BancorpSouth does not commence this proceeding within this 60-day period, it
must pay each dissenting First Corporation Shareholder whose demand remains
unsettled the amount demanded.
BancorpSouth must commence any such proceeding relating to First
Corporation Common Stock in the circuit court of Lee County, Alabama (the
"Circuit Court"). BancorpSouth must make all dissenting shareholders, whose
demands remain unsettled, parties to the proceeding and all parties must be
served with a copy of the petition. After the dissenting shareholders have been
properly served a copy of the petition, BancorpSouth must deposit with the clerk
of the Circuit Court an amount sufficient to pay unsettled claims of all
dissenting shareholders in an amount equal to BancorpSouth's prior estimate of
fair value, plus accrued interest. The Circuit Court may appoint one or more
persons as appraisers to receive evidence and recommend a decision on the
question of fair value. The appraisers will have the powers described in the
order appointing them, or in any amendment to it. Dissenting shareholders are
entitled to the same discovery rights as parties to other civil proceedings.
Each dissenting First Corporation Shareholder made a party to the
proceeding is entitled to judgment for the amount the Circuit Court finds as the
fair value of such shareholder's shares of First Corporation Common Stock, plus
interest.
The Circuit Court, in an appraisal proceeding, must determine all costs
of the proceeding, including the compensation and expense of appraisers
appointed by the Circuit Court. The Circuit Court must assess these costs
against BancorpSouth, except that the Circuit Court may assess costs against all
or some of the dissenting shareholders, in amounts the Circuit Court finds
equitable, to the extent the court finds the dissenting shareholders acted
arbitrarily, vexatiously or not in good faith in demanding payment.
The Circuit Court may also assess the reasonable fees and expenses of
counsel and experts for the respective parties, in amounts the court finds
equitable, as follows:
1. Against BancorpSouth and in favor of any and all dissenting
shareholders if the court finds that BancorpSouth did not
substantially comply with the requirements of ABCA Sections
10-2B-13.20 through 10-2B-13.28; or
2. Against either BancorpSouth or a dissenting shareholder, in
favor of any other party, if the court finds that the party
against whom the fees and expenses are assessed
28
<PAGE> 32
acted arbitrarily, vexatiously or not in good faith with
respect to the rights provided by Article 13 of the ABCA.
If the Circuit Court finds that the services of counsel for any
dissenting shareholder were of substantial benefit to other dissenting
shareholders similarly situated, and that the fees for those services should not
be assessed against BancorpSouth, the Circuit Court may award to those counsel
reasonable fees to be paid out of the amounts awarded to the dissenting
shareholders who were benefited.
29
<PAGE> 33
THE MERGER
DESCRIPTION OF THE MERGER
At the effective time of the Merger (the "Effective Time"), The First
Corporation will merge into BancorpSouth, the separate corporate existence of
The First Corporation will cease and BancorpSouth will be the surviving
corporation (the "Surviving Corporation"). BancorpSouth will continue to exist
as a Mississippi corporation. In addition, The First National Bank of Opelika, a
national banking association and a wholly-owned subsidiary of The First
Corporation ("First National Bank"), will merge into BancorpSouth Bank, a
Mississippi state bank corporation and a wholly-owned subsidiary of
BancorpSouth, and BancorpSouth Bank will be the surviving bank (the "Surviving
Bank"). BancorpSouth Bank shall continue its existence under the laws of the
State of Mississippi. Subject to the satisfaction or waiver of certain
conditions set forth in the Merger Agreement, the Merger will become effective
upon the filing of articles of merger (the "Articles of Merger") in the offices
of the Secretary of State of the State of Alabama and the offices of the
Secretary of State of the State of Mississippi in accordance with the ABCA and
the Mississippi Business Corporation Act (the "MBCA"). See "THE MERGER AGREEMENT
- -- Conditions to the Merger."
The Merger will have the effects set forth in Sections 79-4-11.01 and
81-5-85 of the Mississippi Code, Sections 10-2B-11.01 et seq. of the ABCA and
Sections 5-13B-20 et seq. of the Alabama Banking Code ("ABC").
BancorpSouth's amended and restated articles of incorporation and
bylaws as in effect at the Effective Time will be those of the Surviving
Corporation, while BancorpSouth Bank's amended and restated articles of
incorporation and bylaws will be those of the Surviving Bank.
At the Effective Time, automatically by virtue of the Merger and
without any action on the part of any party or shareholder, each share of First
Corporation Common Stock issued and outstanding immediately prior to the
Effective Time will become and be converted into the right to receive shares of
common stock, $2.50 par value per share (the "BancorpSouth Common Stock"), of
BancorpSouth in the amounts set forth below. However, shares with respect to
which appraisal or dissenters' rights have been properly demanded in accordance
with Article 13 of the ABCA ("Dissenting Shares"), or held by The First
Corporation or any of its subsidiaries, in each case, other than shares held in
a fiduciary capacity ("Trust Account Shares") or in respect of a debt previously
contracted ("DPC Shares") will not be converted into BancorpSouth Common Stock
automatically at the Effective Time of the Merger. If, prior to the Effective
Time, shares of BancorpSouth Common Stock are changed into a different number or
class of shares due to any reclassification, recapitalization, split-up,
combination, exchange of shares or readjustment, or if a stock dividend is
declared on the shares of First Corporation Common Stock with a record date
prior to the Effective Time, the exchange ratio will be adjusted accordingly.
<TABLE>
<CAPTION>
Minimum Number of Maximum Number of
Shares to be Received Shares to be Received
--------------------- ---------------------
<S> <C> <C>
Exchange Ratio.................. 7.7043 10.4235
</TABLE>
The market price of BancorpSouth Common Stock is expected to fluctuate
between the date of this Prospectus Supplement/Proxy Statement, the date on
which the Merger is completed and thereafter, and may decrease. Each of the
exchange ratios is flexible within a specified range in order to assure that,
within the range, the implied market value of BancorpSouth Common Stock that you
receive in connection with the Merger (i.e., $174.8178 per share of First
Corporation Common Stock) will remain the same despite fluctuations in the
market price between the date of this Proxy Statement/Prospectus Supplement and
the Effective Time. For further information concerning the historical market
prices of BancorpSouth Common Stock and First Corporation
30
<PAGE> 34
Common Stock, see "PRICE RANGE OF COMMON STOCK AND DIVIDENDS." No assurance can
be given concerning the market price of BancorpSouth Common Stock before or
after the Effective Time.
For purposes of calculating the exchange ratio:
1. "Exchange Ratio" means the quotient, rounded to the nearest
1/10,000, equal to (x) $174.8178, divided by (y) the Average
Closing Price (as defined in the following paragraph);
2. "Average Closing Price" means the average closing prices of
BancorpSouth Common Stock as reported on the New York Stock
Exchange for the ten consecutive full trading days in which
shares of BancorpSouth Common Stock are traded on the New York
Stock Exchange ending at the close of trading on the third
business day prior to the date on which the Merger is
completed.
In the event that, without giving effect to the minimum and maximum
exchange ratio limitations, the exchange ratio computed in accordance with the
formula in the Merger Agreement exceeds 11.8132, The First Corporation may, at
its option and without penalty, terminate the Merger Agreement by giving prior
written notice to BancorpSouth, unless within 24 hours after such notice is
given, BancorpSouth agrees to increase the maximum exchange ratio of 10.4235 to
an amount proposed by The First Corporation that is not greater than the
computed amount of the exchange ratio. If, however, the computed exchange ratio
is less than 7.0879, BancorpSouth may, at its option and without penalty,
terminate the Merger Agreement by giving prior written notice to The First
Corporation, unless within 24 hours after such notice is given, The First
Corporation agrees to lower the minimum exchange ratio of 7.7043 to an amount
proposed by BancorpSouth that is not less than the computed exchange ratio. See
"THE MERGER AGREEMENT -- Termination of the Merger Agreement."
At the Effective Time, First Corporation Shareholders, other than those
who perfect dissenters' rights under the ABCA (see "THE SPECIAL MEETING --
Dissenters' Rights"), will cease to be, and will have no rights as, First
Corporation Shareholders, other than to receive the consideration to be issued
to them in the Merger (the "Merger Consideration"). After the Effective Time,
there will be no transfers on the stock transfer books of The First Corporation
of shares of First Corporation Common Stock. If, after the Effective Time, stock
certificates representing shares of First Corporation Common Stock are presented
for transfer to SunTrust Bank, Atlanta (the "Exchange Agent"), they will be
canceled and exchanged for certificates representing shares of BancorpSouth
Common Stock as provided in the Merger Agreement.
A common stock purchase right attaches to, and trades with, each share
of BancorpSouth Common Stock, including the shares of BancorpSouth Common Stock
that First Corporation Shareholders will receive in the Merger. Upon the
occurrence of certain events (including the acquisition of, or tender offer for,
20% or more of the outstanding shares of BancorpSouth Common Stock by any person
or entity), each of these common stock purchase rights (other than those held by
the person acquiring the shares or making the tender offer) will entitle the
holder of the right to purchase one share of BancorpSouth Common Stock for a
price per share equal to 50% of the then market price. These rights, which are
issued under BancorpSouth's shareholder rights plan (which is commonly referred
to as a "poison pill"), may make it more difficult for any person or entity to
acquire control of BancorpSouth without the approval of BancorpSouth's Board of
Directors.
At the Effective Time, all shares of First Corporation Common Stock
held by The First Corporation or its subsidiaries, other than Trust Account
Shares or DPC Shares, will be canceled and will cease to exist, and no
BancorpSouth Common Stock or other consideration will be delivered in exchange
for such shares. Also at the Effective Time, all shares of BancorpSouth Common
Stock held by The First Corporation or its subsidiaries, other than Trust
Account Shares or DPC Shares, will
31
<PAGE> 35
become treasury stock and all other shares of BancorpSouth Common Stock
outstanding as of the Effective Time will remain outstanding.
Dissenting Shares will not be converted into the right to receive, or
be exchangeable for, the Merger Consideration. Instead, the holders of
Dissenting Shares will be entitled to payment of the appraised value of the
Dissenting Shares in accordance with Article 13 of the ABCA. However, if any
holder of Dissenting Shares subsequently delivers a written withdrawal of their
demand for appraisal, or if any holder fails to establish his or her entitlement
to dissenters' rights under Article 13 of the ABCA, the holder will forfeit the
right to appraisal and his or her shares will be deemed to have been converted
into the right to receive, and to have become exchangeable for, the Merger
Consideration. See "THE SPECIAL MEETING -- Dissenters' Rights."
BACKGROUND OF THE MERGER
During the period from 1983 to late 1997, management of The First
Corporation received several unsolicited inquiries from several large regional
financial institutions or their representatives regarding a possible business
combination with The First Corporation and/or the First National Bank. In late
1985, the First Corporation Board received a formal expression of interest from
a financial institution. After thorough consideration, however, the First
Corporation Board decided to remain independent and declined to entertain any
further discussions with that potential acquirer. With that one exception, none
of the unsolicited inquiries received by The First Corporation during this
time-frame resulted in any meaningful discussions with management of The First
Corporation regarding a possible business combination, and no formal
negotiations were conducted.
During the period from late 1997 through early 1998, management of The
First Corporation received additional unsolicited inquiries from two financial
institutions, each of whom expressed an interest in pursuing a possible business
combination with The First Corporation. At its regular meeting on June 15, 1998,
the First Corporation Board decided to schedule informal meetings between
representatives of these financial institutions and the First Corporation Board.
These meetings were scheduled and held on June 22, 1998 and June 23, 1998.
Given this renewed level of interest in The First Corporation, on June
18, 1998 the First Corporation Board engaged the independent investment advisory
firm of Alex Sheshunoff & Co. Investment Banking ("Sheshunoff") to assist the
First Corporation Board in establishing a reasonable value of the company and to
assist the First Corporation Board in soliciting additional expressions of
interest regarding a business combination with The First Corporation.
Following its engagement, Sheshunoff promptly contacted six other
financial institutions (including BancorpSouth) to solicit additional
expressions of interest in acquiring The First Corporation. Sheshunoff was
familiar with BancorpSouth, and BancorpSouth had indicated an interest in
expansion. Three of the six financial institutions contacted by Sheshunoff,
including BancorpSouth, responded positively to such solicitation. The First
Corporation Board, with the assistance of Sheshunoff, considered expressions of
interest received from five financial institutions (including BancorpSouth, two
other financial institutions that expressed interest in response to contacts
made by Sheshunoff and the two financial institutions that had expressed
interest prior to June 18, 1998).
Following an evaluation of the expressions of interest, the First
Corporation Board determined that offers received from three of the five
institutions were not attractive enough, from a financial perspective, to
warrant further consideration. The First Corporation Board authorized the two
remaining institutions, including BancorpSouth, to conduct a due diligence
review with respect to The First Corporation.
On June 30, 1998, representatives of Sheshunoff contacted Mr. Aubrey B.
Patterson, Chairman and Chief Executive Officer of BancorpSouth, to determine
BancorpSouth's interest in
32
<PAGE> 36
pursuing a possible business combination with The First Corporation. The parties
discussed the banking industry generally and the business and operating
philosophies of their respective companies. At the conclusion of the
conversation, BancorpSouth agreed to meet with management of The First
Corporation in Opelika, Alabama on July 6, 1998 to discuss the possibility of a
business combination with total consideration in the range of 2.75 times The
First Corporation's book value.
On July 6, 1998, Mr. Larry R. Mathews (who was then President of
Alabama Bancorp., Inc., which had recently entered into a merger agreement with
BancorpSouth), Mr. Patterson and Mr. L. Nash Allen, Jr., Treasurer and Chief
Financial Officer of BancorpSouth, flew to Opelika, Alabama and made a
presentation to the First Corporation Board. The presentation was general in
nature and consisted primarily of an introduction to BancorpSouth.
On July 7, 1998, Sheshunoff informed BancorpSouth that the First
Corporation Board was interested in continuing its discussions with BancorpSouth
and would permit BancorpSouth to perform a due diligence review upon the
submission of a statement of interest, which would contain a range of proposed
prices. On July 14, 1998, Mr. Patterson contacted representatives of Sheshunoff
concerning the requested expression of interest regarding The First Corporation.
BancorpSouth proposed an acquisition value of approximately 2.72 times net book
value or an aggregate value of approximately $40.8 million.
On July 17, 1998, representatives of Sheshunoff again contacted
BancorpSouth to provide an update regarding the status of its offer to acquire
The First Corporation. Sheshunoff indicated that BancorpSouth's proposal was
better from a financial point of view than the other proposal that was under
consideration by the First Corporation Board. Following completion of its due
diligence review of The First Corporation, BancorpSouth increased the amount of
its offer such to an aggregate value of approximately $41.4 million.
Upon completion of due diligence and finalization of offers, members of
the First Corporation Board determined that BancorpSouth's offer was the most
attractive to The First Corporation and its shareholders. This determination was
based principally on the economics of the proposed transaction, the cultural fit
between the two organizations and BancorpSouth's reputation as a
community-oriented financial institution. Discussions with the other financial
institution ceased, and The First Corporation and BancorpSouth began to
negotiate a merger agreement.
Between July 29, 1998 and August 11, 1998, representatives of
BancorpSouth and The First Corporation engaged in discussions and negotiations
with respect to the Merger Agreement and a Stock Option Agreement, dated as of
August 12, 1998, between BancorpSouth and The First Corporation (the "Stock
Option Agreement"). During negotiations, certain issues, including issues
relating to the treatment of employee stock options, were resolved to the
satisfaction of both parties. Sheshunoff also provided due diligence support on
behalf of The First Corporation with respect to BancorpSouth during this period.
On August 12, 1998, the First Corporation Board held a special meeting
to consider the proposed transaction with BancorpSouth. At this meeting,
representatives of Sheshunoff and special legal counsel outlined the terms and
conditions of the proposed transaction. Special counsel advised the First
Corporation Board of its fiduciary duty to the shareholders of The First
Corporation in the context of evaluating the terms of the transaction.
Representatives of Sheshunoff also summarized its findings with respect to the
due diligence investigation of BancorpSouth, explained the financial terms of
the proposed transaction with BancorpSouth and discussed in detail the
methodologies and considerations underlying its analysis. Sheshunoff then
delivered its oral opinion as to the fairness, from a financial point of view,
that the shareholders of The First Corporation will receive in the transaction.
Members of the First Corporation Board asked management of The First Corporation
and Sheshunoff detailed questions and then deliberated upon the merits of the
transaction. Thereafter, the First Corporation Board approved the Merger, the
Merger Agreement and the Stock Option Agreement. Later that day, both parties
executed the Merger Agreement and the Stock
33
<PAGE> 37
Option Agreement. On August 26, 1998, the Board of Directors of BancorpSouth
(the "BancorpSouth Board") ratified the Merger Agreement and approved the
Merger.
REASONS FOR THE MERGER; RECOMMENDATION OF THE BOARD OF DIRECTORS
The BancorpSouth Board believes that the market areas of The First
Corporation and First National Bank are comparable to certain of BancorpSouth's
existing market areas. In addition, it perceives that economies of scale and
cost savings available through combining administrative functions and increased
competitiveness resulting from combined marketing efforts and budgets should
significantly enhance the operations and financial results of BancorpSouth and
BancorpSouth Bank. In addition, the BancorpSouth Board believes that the Merger
should strengthen the ability of First National Bank (as a part of BancorpSouth
Bank) to compete and be successful in its existing markets since BancorpSouth
Bank offers services that are not currently available to customers of First
National Bank and possesses technology that is not currently possessed by First
National Bank.
As previously noted, The First Corporation Board deliberated and
approved the Merger Agreement at a meeting of the First Corporation Board held
on August 12, 1998. In reaching its determination to approve and adopt the
Merger Agreement, the First Corporation Board consulted with The First
Corporation's management and financial and legal advisors, and considered a
number of factors. The following is a discussion of the information and factors
considered by the First Corporation Board in reaching this determination. This
discussion is not intended to be exhaustive but includes all of the material
factors considered by the First Corporation Board. In the course of its
deliberations with respect to the Merger, the First Corporation Board discussed
the anticipated impact of the Merger on The First Corporation, First Corporation
Shareholders and various other constituencies. The First Corporation Board could
not identify any material disadvantages expected to result from the Merger
during these discussions. In reaching its determination to approve and recommend
the Merger, the First Corporation Board did not assign any relative or specific
weights to the factors considered in reaching such determination, and individual
members of the First Corporation Board may have given differing weights to
different factors.
The following include the material factors that were considered by the
First Corporation Board:
1. Its review, based in part on presentations by The First
Corporation's management and financial advisor, of:
(i) the business, operations, technology, dividends,
financial condition and earnings of BancorpSouth on an
historical and a prospective basis and of the combined
company on a pro forma basis,
(ii) the historical stock price performance of BancorpSouth
Common Stock, and
(iii) the potential impact on the market value of BancorpSouth
Common Stock following the Merger;
2. The resulting relative interests of First Corporation
Shareholders in the common stock of the combined companies
following the Merger;
3. The fact that the Merger would allow First Corporation
Shareholders to become shareholders in a well-capitalized
company, whose stock is traded on the New York Stock Exchange
with sufficient trading volume to provide liquidity for
shareholders;
4. The presentations of Sheshunoff to the First Corporation
Board, the financial information reviewed by Sheshunoff at the
meeting of the First Corporation Board held on August 12,
1998, and the opinion of Sheshunoff rendered on October 30,
34
<PAGE> 38
1998, in which Sheshunoff opined that, as of October 30, 1998
and based upon and subject to the procedures followed,
assumptions made, matters considered and limitations on the
analyses undertaken, the calculation of the exchange ratio
provided in the Merger Agreement was fair from a financial
point of view to First Corporation Shareholders (see
"--Fairness Opinion");
5. The process conducted by The First Corporation's management
and financial advisor in exploring and determining the
potential value which could be realized by First Corporation
Shareholders in a business combination transaction (which
included contacting the bank holding companies determined to
be the most likely to be interested in, and financially and
otherwise capable of, engaging in a business combination
transaction with The First Corporation and First National
Bank, reviewing the terms of the proposals received from such
bank holding companies and determining that the indicated
value of the exchange ratios in the BancorpSouth proposal was
higher as of August 12, 1998 than the indicated values of the
per share consideration offered in other submitted proposals)
(see "--Background of the Merger");
6. The terms of the Merger Agreement and the Merger, including
the amount and form of consideration to be received by First
Corporation Shareholders in the Merger, and the expectation
that the Merger will be a tax-free transaction to The First
Corporation, First Corporation Shareholders and BancorpSouth
to the extent First Corporation Shareholders receive shares of
BancorpSouth Common Stock;
7. The current and prospective economic and competitive
environment facing the financial services industry generally,
and The First Corporation in particular, including the
continuing consolidation in the industry and the increasing
importance of operational scale and financial resources in
maintaining efficiency, remaining competitive and capitalizing
on technological developments;
8. Its review, based in part on the presentations of Sheshunoff,
of alternatives to the Merger for enhancing shareholder value,
the range of possible values to First Corporation Shareholders
obtainable through implementation of such alternatives and the
timing and likelihood of actually achieving such value;
9. The belief of the First Corporation Board that alternatives to
the Merger were not likely to result in greater value for
First Corporation Shareholders than the value to be realized
in the Merger based upon the First Corporation Board's review
and consideration of, among other things variables relating to
the ability to continue to generate revenue growth, improved
profitability and superior stockholder returns on a
stand-alone basis and the availability of attractive
acquisition opportunities for The First Corporation;
10. The general impact that the Merger could be expected to have
on the constituencies served by The First Corporation,
including its customers, employees and communities;
11. The anticipated cost savings, operating efficiencies and
opportunities for revenue enhancement available to the
combined companies from the Merger, and the likelihood of the
foregoing being achieved following consummation of the Merger;
12. The fact that Mr. William C. Kent, President of The First
Corporation, would serve as community bank president of the
branch locations of BancorpSouth Bank in the Opelika, Alabama
area following the Merger, and that the directors and officers
of The First Corporation might otherwise be deemed to have
interests in the Merger
35
<PAGE> 39
other than their interests generally as First Corporation
Shareholders (see "-- Interests of Certain Persons in the
Merger"); and
13. The terms of the Stock Option Agreement between BancorpSouth
and The First Corporation, including the risk that the Stock
Option Agreement might discourage third parties from offering
to acquire The First Corporation by increasing the cost of
such an acquisition while recognizing that the execution of
the Stock Option Agreement was a condition to BancorpSouth's
willingness to enter into the Merger Agreement (see "THE
MERGER AGREEMENT -- Stock Option Agreement").
BASED ON A THOROUGH EVALUATION OF THESE FACTORS, THE FIRST CORPORATION
BOARD BELIEVES THE MERGER IS IN THE BEST INTERESTS OF THE FIRST CORPORATION AND
FIRST CORPORATION SHAREHOLDERS. THE FIRST CORPORATION BOARD UNANIMOUSLY
RECOMMENDS THAT FIRST CORPORATION SHAREHOLDERS VOTE "FOR" APPROVAL AND ADOPTION
OF THE MERGER AGREEMENT.
FAIRNESS OPINION
The First Corporation retained Sheshunoff to provide its opinion of the
fairness, from a financial viewpoint, of the Merger Consideration to be received
by First Corporation Shareholders in connection with the Merger with
BancorpSouth. As part of its investment banking business, Sheshunoff is
regularly engaged in the valuation of securities in connection with mergers and
acquisitions and valuations for estate, corporate and other purposes. The First
Corporation Board retained Sheshunoff based upon its experience as a financial
advisor in mergers and acquisitions of financial institutions and its knowledge
of financial institutions. On August 12, 1998, Sheshunoff rendered its oral
opinion that, as of such date, the Merger Consideration was fair, from a
financial point of view, to First Corporation Shareholders. Sheshunoff rendered
its written fairness opinion letter ("Opinion Letter") as of October 30, 1998
and is updated herein as of November 19, 1998.
The full text of Sheshunoff's Opinion Letter which sets forth, among
other things, assumptions made, procedures followed, matters considered, and
limitations on the review undertaken, is attached as Annex C to this Prospectus
Supplement/Proxy Statement. First Corporation Shareholders are urged to read
Sheshunoff's Opinion Letter carefully and in its entirety. Sheshunoff's Opinion
Letter is addressed to the First Corporation Board, and does not constitute a
recommendation to any First Corporation Shareholder as to how such shareholder
should vote at the First Corporation Special Meeting.
In connection with its Opinion Letter, Sheshunoff:
1. Reviewed the Merger Agreement;
2. Reviewed certain publicly available financial statements and
regulatory information concerning BancorpSouth and The First
Corporation, respectively;
3. Reviewed certain internal financial statements and other
financial and operating data of The First Corporation provided
to Sheshunoff by The First Corporation's management;
4. Reviewed the reported market prices and trading activity for
BancorpSouth Common Stock;
5. Discussed the past and current operations, financial
condition, and future prospects of The First Corporation with
its executive management;
6. Compared The First Corporation and BancorpSouth from a
financial point of view with certain other banking companies
that Sheshunoff deemed to be relevant;
36
<PAGE> 40
7. Compared the financial performance of BancorpSouth and the
market prices and trading activity of BancorpSouth Common
Stock with that of certain other indices of publicly traded
equity securities;
8. Reviewed the financial terms, to the extent publicly
available, of certain comparable merger transactions in the
Southeastern United States and in Alabama; and
9. Performed such other analyses and reviews as Sheshunoff deemed
appropriate.
In connection with its review, Sheshunoff relied upon and assumed the
accuracy and completeness of all of the foregoing information provided to it or
made publicly available. Sheshunoff did not assume any responsibility for
independent verification of such information. With respect to internal
confidential financial projections provided by The First Corporation, Sheshunoff
assumed that such projections were reasonably prepared on the basis reflecting
the best currently available estimates and judgments of the future financial
performance of The First Corporation and did not independently verify the
validity of such assumptions. Sheshunoff did not make any independent evaluation
or appraisal of the assets or liabilities of The First Corporation, nor was
Sheshunoff furnished with any such appraisals. Sheshunoff did not examine any
individual loan files of The First Corporation. Sheshunoff is not an expert in
the evaluation of loan portfolios for the purposes of assessing the adequacy of
the allowance for losses with respect thereto and has assumed that such
allowance is, in the aggregate, adequate to cover such losses.
With respect to BancorpSouth, Sheshunoff relied solely upon publicly
available data regarding BancorpSouth's financial condition and performance.
Sheshunoff did not meet with or discuss this publicly available information with
the management of BancorpSouth. Sheshunoff did not conduct any independent
evaluation or appraisal of the assets, liabilities or business prospects of
BancorpSouth, was not furnished with any evaluations or appraisals, and did not
review any individual credit files of BancorpSouth.
Sheshunoff's Opinion Letter is necessarily based on economic, market
and other conditions as in effect on, and the information made available to
Sheshunoff as of November 18, 1998.
In connection with rendering its Opinion Letter, Sheshunoff performed a
variety of financial analyses. The preparation of an opinion involves various
determinations as to the most appropriate and relevant methods of financial
analysis and the application of those methods to the particular circumstances
and, therefore, such an Opinion Letter is not readily susceptible to partial
analysis of summary description. Moreover, the evaluation of fairness, from a
financial point of view, of the consideration to be received by First
Corporation Shareholders is to some extent subjective, based on the experience
and judgment of Sheshunoff, and not merely the result of mathematical analysis
of financial data. Accordingly, notwithstanding the separate factors summarized
below, Sheshunoff believes that its analyses must be considered as a whole and
that selecting portions of its analyses and of the factors considered by it,
without considering all analyses and factors, could create an incomplete view of
the evaluation process underlying its opinion. The ranges of valuations
resulting from any particular analysis described below should not be taken to be
Sheshunoff's view of the actual value of The First Corporation.
In performing its analyses, Sheshunoff made numerous assumptions with
respect to industry performance, business and economic conditions and other
matters, many of which are beyond the control of The First Corporation. The
analyses performed by Sheshunoff are not necessarily indicative of actual values
or future results, which may be significantly more or less favorable than
suggested by such analyses, nor are they appraisals. In addition, Sheshunoff's
analyses should not be viewed as determinative of the opinions of the First
Corporation Board and management with respect to the value of The First
Corporation.
The following is a summary of the analyses performed by Sheshunoff in
connection with its Opinion Letter dated as of October 30, 1998 and updated as
of November 19, 1998. The following discussion contains financial information
37
<PAGE> 41
concerning The First Corporation and BancorpSouth as of September 30, 1998 and
market information as of November 18, 1998.
ANALYSIS OF SELECTED TRANSACTIONS. Sheshunoff performed an analysis of
premiums paid in selected pending or recently completed acquisitions of banking
organizations in Alabama and in the Southeastern United States, with comparable
characteristics to the Merger. Two sets of comparable transactions were analyzed
to ensure a thorough comparison.
The first set of comparable transactions (the "State Transactions")
consisted of a group of comparable transactions based upon the geographical
market area of Alabama for which pricing data was available. The State
Transactions specifically consisted of eight mergers and acquisitions of banks
located in Alabama with assets less than $250 million which sold for stock
between October 1, 1997 and November 18, 1998. The pricing multiples have been
adjusted to reflect the change in BancorpSouth's stock price from the date of
the transaction to the stock price as of October 29, 1998. The analysis yielded
multiples of the State Transactions' purchase price relative to:
1. Book value ranging from 2.10 times to 3.46 times with an
average of 2.62 times and a median of 2.53 times (compared
with the implied multiples in the Merger of 2.52 times the
September 30, 1998 book value for The First Corporation);
2. Last 12 months earnings ranging from 16.7 times to 30.4 times
with an average of 22.3 times and a median of 22.7 times
(compared with the implied multiples in the Merger of 31.5
times the last 12 months earnings as of September 30, 1998 for
The First Corporation);
3. Total assets ranging between 24.4% and 45.6% with an average
of 29.0% and a median of 26.6% (compared with the implied
multiples in the Merger of 28.1% of the September 30, 1998
total assets for The First Corporation); and
4. Total deposits ranging from 27.9% to 54.4% with an average of
33.9% and a median of 31.2% (compared with the implied
multiples in the Merger of 33.1% of deposits as of September
30, 1998 for The First Corporation).
The second set of comparable transactions (the "Southeastern
Transactions") consisted of a narrowly defined group of comparable transactions
based upon the profitability, asset size and geographical market area of The
First Corporation for which pricing data is available. The Southeastern
Transactions specifically consisted of 77 mergers and acquisitions of banks in
the Southeastern United States with total assets less than $250 million and
which sold for stock between October 1, 1997 and November 18, 1998. The analysis
yielded multiples of the Southeastern Transactions' purchase price relative to:
1. Book value ranging from 1.28 times to 5.59 times with an
average of 2.99 times and a median of 2.93 times (compared
with the multiples implied in the Merger of 2.52 times
September 30, 1998 book value for The First Corporation);
2. Last 12 months earnings ranging from 12.4 times to 59.7 times
with an average of 24.8 times and a median of 22.7 times
(compared with the multiples implied in the Merger of 31.5
times last 12 months earnings as of September 30, 1998 for The
First Corporation);
3. Total assets ranging between 13.3% and 60.6% with an average
of 29.5% and a median of 28.2% (compared with the multiples
implied in the Merger of 28.1% of September 30, 1998 total
assets for The First Corporation); and
4. Total deposits ranging from 15.0% to 68.5% with an average of
34.5% and a median of 33.4% (compared with the multiples
implied in the Merger of 33.1% of deposits as of September 30,
1998 for The First Corporation).
38
<PAGE> 42
DISCOUNTED CASH FLOW ANALYSIS. Using discounted cash flow analysis,
Sheshunoff estimated the present value of the future after-tax cash flow streams
that The First Corporation could produce through the year 2003, under various
circumstances, assuming that it performed in accordance with the earnings/return
projections of management.
Sheshunoff estimated the terminal value for The First Corporation at
the end of the period by applying multiples of earnings ranging from 10 times to
22 times and then discounting the cash flow streams, dividends paid to the
shareholders (assuming all earnings in excess of that required to maintain a
tangible equity to asset ratio of 7.0% are paid out in dividends) and terminal
value using discount rates ranging from 13.0% to 17.0% chosen to reflect
different assumptions regarding the required rates of return of The First
Corporation and the inherent risk surrounding the underlying projections. This
discounted cash flow analysis indicated a range of $83.24 per share to $158.02
per share based on 232,321 fully-diluted shares outstanding, compared to the
value of the Merger Consideration for The First Corporation of $173.22 per
share, based on the Merger Consideration of $40,241,887.
Sheshunoff also performed a cash flow analysis using an estimated
terminal value for The First Corporation at the end of the period by applying
multiples of book value ranging from 1.20 times to 2.30 times and then
discounting the cash flow streams, dividends paid to the shareholders (assuming
all earnings in excess of that required to maintain a tangible equity to
tangible asset ratio of 7.0% are paid out in dividends) and terminal value using
discount rates ranging from 13.0% to 17.0% chosen to reflect different
assumptions regarding the required rates of return of The First Corporation and
the inherent risk surrounding the underlying projections. This discounted cash
flow analysis indicated a range of $68.38 per share to $108.87 per share based
on 232,321 fully-diluted shares outstanding, compared to the value of the Merger
Consideration for The First Corporation of $173.22 per share, based on the
Merger Consideration of $40,241,887.
COMPARABLE COMPANY ANALYSIS. Sheshunoff compared selected stock market
results of BancorpSouth to the publicly available corresponding data of other
composites which Sheshunoff deemed to be relevant, including SNL Securities,
L.P.'s ("SNL") index of all publicly traded banks, the SNL index of banks with
assets between $1 billion and $5 billion and the S&P 500. Results from indexing
the SNL's index of all publicly traded banks, the SNL index of banks with assets
between $1 billion and $5 billion, the S&P 500 and BancorpSouth Common Stock
from December 1, 1996 to November 13, 1998 revealed that BancorpSouth's stock
price outperformed the price movements of the SNL index of all publicly traded
banks.
No company or transaction used in the comparable company and comparable
transaction analyses is identical to The First Corporation, BancorpSouth or the
Merger. Accordingly, an analysis of the results of the foregoing necessarily
involves complex considerations and judgments concerning differences in
financial and operating characteristics of The First Corporation and
BancorpSouth, and other factors that could affect the public trading value of
the companies to which they are being compared. Mathematical analysis (such as
determining the average or median) is not in itself a meaningful method of using
comparable transaction data or comparable company data.
Pursuant to an engagement letter between The First Corporation and
Sheshunoff, The First Corporation agreed to pay Sheshunoff a fee equal to 5.0%
of the consideration in excess of $29.5 million received by The First
Corporation as a result of the Merger. The First Corporation also agreed to
indemnify and hold harmless Sheshunoff and its officers and employees against
certain liabilities in connection with its services under the engagement letter,
except for liabilities resulting from the negligence of Sheshunoff.
REGULATORY APPROVAL
Consummation of the Merger is conditioned on, among other things, the
receipt of approvals by governmental authorities required in connection with the
Merger ("Requisite Regulatory Approvals"), including approvals by the Federal
Deposit Insurance Corporation ("FDIC"), the
39
<PAGE> 43
Mississippi Department of Banking and Consumer Finance and the Alabama Banking
Department. The Board of Governors of the Federal Reserve System ("Federal
Reserve") has waived its notification filing requirements with respect to the
Merger.
As a state non-member bank, BancorpSouth Bank must file an application
with the FDIC for approval of the Merger pursuant to Sections 18(c) and 18(d) of
the Federal Deposit Insurance Act. The FDIC may disapprove the application if it
finds that the Merger tends to create or result in a monopoly, substantially
lessen competition or would be in restraint of trade. BancorpSouth Bank filed
such application with the FDIC on September 28, 1998. Following approval of the
application by the FDIC, the United States Department of Justice would have
between 15 and 30 calendar days to submit any adverse comments with regard to
the Merger relating to competitive factors. Such approval was obtained from the
FDIC on November 9, 1998. Pursuant to the specific terms of the FDIC approval,
the waiting period will expire on November 24, 1998, 15 days after receipt of
such FDIC approval.
BancorpSouth must file an application with the Mississippi Department
of Banking and Consumer Finance for approval of the Bank Merger. BancorpSouth
filed such application on September 28, 1998. Approval of the Bank Merger by the
Mississippi Department of Banking and Consumer Finance is expected to be
received following approval of the Merger Agreement by First Corporation
Shareholders.
The First Corporation and BancorpSouth also must file an application
with the Alabama Banking Department for approval of the Merger. Such application
consists primarily of providing to the Alabama Banking Department a copy of the
application filed with the FDIC, and paying any applicable application fees.
Such application was provided to the Alabama Banking Department on September 28,
1998. Approval of the Merger by the Alabama Banking Department is expected to be
received following approval of the Merger Agreement by First Corporation
Shareholders.
ACCOUNTING TREATMENT
It is intended that the Merger will be accounted for as a pooling of
interests under generally accepted accounting principles ("GAAP"). The Merger is
conditioned upon BancorpSouth being satisfied that the Merger will qualify for
pooling of interests accounting treatment. In addition, BancorpSouth can
terminate the Merger Agreement if it is advised in writing by its independent
certified public accountants that the Merger does not qualify for pooling of
interests accounting treatment. The unaudited pro forma financial information
included in this Prospectus Supplement/Proxy Statement reflects the Merger using
the pooling of interests method of accounting. See "SUMMARY -- Comparative
Unaudited Per Share Data" and "SELECTED FINANCIAL DATA."
CERTAIN FEDERAL INCOME TAX CONSEQUENCES
The following is a summary of the material anticipated U.S. federal
income tax consequences of the Merger to First Corporation Shareholders who hold
First Corporation Common Stock as a capital asset. The summary is based on the
Internal Revenue Code of 1986, as amended (the "Code"), Treasury regulations
thereunder, and administrative rulings and court decisions in effect as of the
date hereof, all of which are subject to change at any time, possibly with
retroactive effect. This summary is not a complete description of all of the
consequences of the Merger and, in particular, may not address U.S. federal
income tax considerations applicable to shareholders subject to special
treatment under U.S. federal income tax law. Examples of such shareholders
receiving special tax treatment are non-U.S. persons, financial institutions,
dealers in securities, insurance companies, tax-exempt entities, holders who
acquired First Corporation Common Stock pursuant to the exercise of an employee
stock option or right or otherwise as compensation, and holders who hold First
Corporation Common Stock as part of a hedge, straddle or conversion transaction.
In addition, no information is provided herein with respect to the tax
consequences of the Merger under applicable foreign, state or local laws. FIRST
CORPORATION SHAREHOLDERS ARE URGED TO CONSULT WITH THEIR TAX ADVISORS REGARDING
THE TAX CONSEQUENCES OF THE MERGER TO THEM, INCLUDING THE EFFECTS OF U.S.
40
<PAGE> 44
FEDERAL, STATE, LOCAL, FOREIGN AND OTHER TAX LAWS AND OF POTENTIAL CHANGES TO
APPLICABLE TAX LAW.
BancorpSouth has received an opinion of Waller Lansden Dortch & Davis,
A Professional Limited Liability Company, special counsel to BancorpSouth, dated
November 2, 1998, addressing the U.S. federal income tax consequences of the
Merger described below. Such opinion has been rendered on the basis of facts,
representations and assumptions set forth or referred to in such opinion which
are consistent with the expected state of facts existing at the Effective Time.
In rendering this opinion, such counsel has required and relied upon
representations and covenants, including those contained in certificates of
officers of The First Corporation and BancorpSouth. The opinion is to the effect
that, for U.S. federal income tax purposes:
1. The Merger will be treated as a reorganization within the
meaning of Section 368(a) of the Code;
2. No gain or loss will be recognized by BancorpSouth or The
First Corporation as a result of the Merger;
3. No gain or loss will be recognized by First Corporation
Shareholders who exchange all of their respective common stock
solely for BancorpSouth Common Stock pursuant to the Merger
(except with respect to cash received in lieu of a fractional
share interest in BancorpSouth Common Stock); and
4. The aggregate tax basis of the BancorpSouth Common Stock
received by First Corporation Shareholders who exchange all of
their respective shares of First Corporation Common Stock
solely for BancorpSouth Common Stock pursuant to the Merger
will be the same as the aggregate tax basis of First
Corporation Common Stock surrendered in exchange therefor
(reduced by any amount allocable to a fractional share
interest for which cash is received).
The First Corporation's obligation to consummate the Merger is
conditioned upon the receipt of an opinion of Jenkens & Gilchrist, A
Professional Corporation, and BancorpSouth's obligation to consummate the Merger
is conditioned upon the receipt of an opinion of Waller Lansden Dortch & Davis,
A Professional Limited Liability Company. Each of the opinions, to be dated the
date on which the Merger is completed, are to address the same U.S. federal
income tax consequences discussed in the immediately preceding paragraph and as
further described under the caption "THE MERGER AGREEMENT -- Conditions to the
Merger." None of the tax opinions to be delivered to the parties in connection
with the Merger are binding on the Internal Revenue Service (the "IRS") or the
courts. The parties do not intend to request a ruling from the IRS with respect
to the Merger. Accordingly, there can be no assurance that the IRS will not
challenge the conclusions reflected in such opinions or that a court will not
sustain such challenge.
Generally, cash received by a First Corporation Shareholder in lieu of
a fractional share interest in BancorpSouth Common Stock will be treated as
received in redemption of such fractional share interest, and such First
Corporation Shareholder should generally recognize capital gain or loss for
federal income tax purposes measured by the difference between the amount of
cash received and the portion of the tax basis of the share of First Corporation
Common Stock treated as redeemed. Such gain or loss should be a long-term
capital gain or loss if the holding period for shares of First Corporation
Common Stock is greater than one year at the Effective Time. Generally, in the
case of individual shareholders, such capital gain will be taxed at a maximum
rate of 20% (10%, if the gain would be taxed at 15% if it were treated as
ordinary income) if such shareholder's holding period is more than one year. The
holding period of a share of BancorpSouth Common Stock received in the Merger
(including a fractional share interest deemed received and redeemed as described
above) will include the holder's holding period in First Corporation Common
Stock surrendered in exchange for BancorpSouth Common Stock.
41
<PAGE> 45
INTERESTS OF CERTAIN PERSONS IN THE MERGER
Certain members of management of The First Corporation and the First
Corporation Board may be deemed to have certain interests in the Merger that are
in addition to their interests as shareholders generally. The First Corporation
Board was aware of these interests and considered them, among other matters, in
approving the Merger Agreement and the transactions contemplated thereby.
In particular, Mr. William C. Kent, who is President of The First
Corporation and First National Bank, will become community bank president of the
branch locations of BancorpSouth Bank in the Opelika, Alabama area after the
Merger. Mr. Kent has entered into an employment agreement with BancorpSouth Bank
that is effective upon completion of the Merger. The employment agreement
provides for a term of two years, which may be renewed for additional one year
terms. The employment agreement also provides that Mr. Kent will receive an
annual salary of $118,368 and will be eligible for a discretionary bonus. In his
employment agreement, Mr. Kent has agreed that he will not compete with
BancorpSouth Bank within a specified area.
Directors and executive officers of The First Corporation will be
issued shares of BancorpSouth Common Stock in the Merger on the same basis as
other First Corporation Shareholders. The following chart shows the number of
shares of BancorpSouth Common Stock that may be issued to directors and
executive officers of The First Corporation in the Merger:
Beneficial ownership by executive
officers and directors as of
___________, 1998(1).................. 55,885.41
Shares of BancorpSouth Common Stock to
be received at the Effective Time
(based on such beneficial ownership):
Minimum.......................... 430,557
Maximum.......................... 582,521
-------------------------
(1) Does not include 3,200 shares of common stock of The First
Corporation subject to stock options exercisable on
December 13, 1998. Includes 1,360.41 shares of common
stock of The First Corporation held by such persons as
trustees of the First Corporation ESOP and which shares have
not been allocated to the participants in such plan.
Pursuant to the terms of this plan, the trustees may vote
such unallocated shares in their discretion.
COMPARISON OF RIGHTS OF SHAREHOLDERS
At the Effective Time, First Corporation Shareholders will
automatically become BancorpSouth shareholders (except for those shareholders
who exercise Dissenters' Rights). BancorpSouth is a Mississippi corporation
governed by provisions of the MBCA, the amended and restated articles of
incorporation of BancorpSouth (the "BancorpSouth Articles") and the bylaws of
BancorpSouth (the "BancorpSouth Bylaws"). The First Corporation is an Alabama
corporation governed by provisions of the ABCA, the articles of incorporation of
The First Corporation (the "First Corporation Articles") and the bylaws of The
First Corporation (the "First Corporation Bylaws"). See "COMPARISON OF RIGHTS OF
SHAREHOLDERS."
RESTRICTIONS ON RESALES BY AFFILIATES
The shares of BancorpSouth Common Stock issuable to First Corporation
Shareholders upon consummation of the Merger have been registered under the
Securities Act of 1933 (the "Securities Act"). Such securities may be traded
freely without restriction by those shareholders who are not
42
<PAGE> 46
deemed to be "affiliates" of The First Corporation or BancorpSouth, as that term
is defined in the rules promulgated under the Securities Act.
Shares of BancorpSouth Common Stock received by those First Corporation
Shareholders who are deemed to be affiliates of The First Corporation at the
time of First Corporation Special Meeting may be resold without registration
under the Securities Act only as permitted by Rule 145 under the Securities Act
or as otherwise permitted thereunder. Securities and Exchange Commission (the
"SEC") guidelines regarding qualifying for the pooling of interests method of
accounting also limit sales of shares of the acquiring and acquired company by
affiliates of either company in a business combination. SEC guidelines also
indicate that the pooling of interests method of accounting generally will not
be challenged on the basis of sales by affiliates of the acquiring or acquired
company if such affiliates do not dispose of any of the shares of the
corporation they own, or shares of a corporation they receive in connection with
a merger, during the period beginning 30 days before the merger is consummated
and ending when financial results covering at least 30 days of post-merger
operations of the combined companies have been published.
Each of the parties has agreed in the Merger Agreement to use its
reasonable best efforts to cause each person who is an affiliate (for purposes
of Rule 145 under the Securities Act and for purposes of qualifying the Merger
for pooling of interests accounting treatment) of such party to deliver to the
other party a written agreement intended to ensure compliance with the
Securities Act (in the case of The First Corporation affiliates) and to preserve
the ability of the Merger to be accounted for as a pooling of interests.
BancorpSouth has agreed in the Merger Agreement to use its best efforts
to publish financial results covering at least 30 days of post-Merger combined
operations, as contemplated by Accounting Series Release No. 135 issued by the
SEC, as soon as practical after such financial results are available.
43
<PAGE> 47
THE MERGER AGREEMENT
The following summary of certain terms and provisions of the Merger
Agreement is qualified in its entirety by reference to the Merger Agreement,
which is incorporated into this document by reference and, with the exception of
certain exhibits and schedules thereto, is attached as Annex A to this
Prospectus Supplement/Proxy Statement.
EXCHANGE OF CERTIFICATES
At or prior to the Effective Time, BancorpSouth will deposit, or will
cause to be deposited, with the Exchange Agent, certificates representing the
shares of BancorpSouth Common Stock (collectively, "BancorpSouth Certificates")
and cash to be paid in lieu of fractional shares to which a holder of
certificates formerly representing First Corporation Common Stock ("First
Corporation Certificates") would otherwise be entitled based on the applicable
exchange ratio (such cash and BancorpSouth Certificates, together with any
dividends or distributions with respect thereto, the "Exchange Fund").
As soon as practicable, but in no event more than three business days
after the date on which the Effective Time occurs (the "Effective Date"), the
Exchange Agent will mail to each holder of record of a First Corporation
Certificate a letter of transmittal for use in exchanging such shareholder's
First Corporation Certificates for the Merger Consideration. Upon surrender of a
First Corporation Certificate for exchange and cancellation to the Exchange
Agent, together with a duly executed letter of transmittal, the holder of a
First Corporation Certificate will be entitled to receive in exchange for such
First Corporation Certificate a BancorpSouth Certificate representing the number
of whole shares of BancorpSouth Common Stock to which such holder has become
entitled pursuant to the Merger Agreement. The holder of the First Corporation
Certificate may also receive a check in the amount of cash in lieu of fractional
shares, if any, of BancorpSouth Common Stock to which such holder has become
entitled pursuant to the Merger Agreement. First Corporation Certificates so
surrendered will immediately be canceled. No interest will be paid or accrued on
any cash to be paid upon such surrender, whether in lieu of fractional shares of
BancorpSouth Common Stock or with respect to unpaid dividends or distributions
thereon.
FIRST CORPORATION SHAREHOLDERS SHOULD NOT SEND IN THEIR STOCK
CERTIFICATES UNTIL THEY RECEIVE THE TRANSMITTAL MATERIALS FROM THE EXCHANGE
AGENT.
No fractional shares of BancorpSouth Common Stock, and no BancorpSouth
Certificates or scrip representing such fractional shares, will be issued in the
Merger. Also, no dividend or distribution will be payable on or with respect
thereto, nor will any such fractional share entitle the holder thereof to vote
or to any other rights of a BancorpSouth Shareholder. Instead, BancorpSouth will
pay to each First Corporation Shareholder who would otherwise be entitled to a
fractional share of BancorpSouth Common Stock (after taking into account all
First Corporation Certificates delivered by such shareholder) an amount in cash
to be paid in lieu of fractional shares (without interest) determined by
multiplying such fraction by the Average Closing Price of BancorpSouth Common
Stock.
Any part of the Exchange Fund that remains unclaimed by First
Corporation Shareholders for 12 months after the Effective Time will be paid to
BancorpSouth. After such time First Corporation Shareholders may look only to
BancorpSouth for payment of the Merger Consideration and unpaid dividends and
distributions, if any, on First Corporation Common Stock deliverable in respect
of each share of First Corporation Common Stock held by such shareholder, in
each case, without interest thereon. None of The First Corporation, BancorpSouth
or the Exchange Agent, or any other person, will be liable to any former First
Corporation Shareholder for any amounts properly delivered to a public official
pursuant to applicable abandoned property, escheat or similar laws.
44
<PAGE> 48
If any First Corporation Certificate is lost, stolen or destroyed,
BancorpSouth can require, at its discretion, the making of an affidavit of that
fact by the person claiming the same and/or the posting of a bond by such person
in an amount that BancorpSouth or the Exchange Agent may direct as indemnity
against any claim that may be made against it with respect to such First
Corporation Certificate. Upon making such affidavit and/or posting such bond,
the Exchange Agent will issue in exchange for such First Corporation Certificate
the shares of BancorpSouth Common Stock and cash in lieu of fractional shares
deliverable in respect thereof.
No dividends or other distributions with respect to BancorpSouth Common
Stock declared after the Effective Time and payable to BancorpSouth Shareholders
of record will be paid to the holder of any unsurrendered First Corporation
Certificate until the holder thereof surrenders such First Corporation
Certificate in accordance with the Merger Agreement. After the proper surrender
of a First Corporation Certificate, the record holder of the certificate will be
entitled to receive any such dividends or other distributions, without any
interest thereon, which had become payable with respect to shares of
BancorpSouth Stock represented by such First Corporation Certificate upon
completion of the Merger.
CONDITIONS TO THE MERGER
The obligations of The First Corporation and BancorpSouth to complete
the Merger are subject to the satisfaction (or waiver, where legally allowed),
at or prior to the Effective Time, of a number of conditions, which are set
forth in the Merger Agreement. These conditions include:
1. Approval of the Merger Agreement by First Corporation
Shareholders;
2. Receipt of the Requisite Regulatory Approvals;
3. The absence of any legal prohibition to completion of the
Merger; and
4. The accuracy of the parties' representations and performance
of the parties' obligations under the Merger Agreement.
In addition, the obligation of each party to consummate the Merger is
conditioned upon receipt of an opinion from their respective legal counsel to
the effect that the Merger will be treated as a reorganization within the
meaning of Section 368(a) of the Code and that, accordingly, for federal income
tax purposes:
1. No gain or loss will be recognized by BancorpSouth or The
First Corporation as a result of the Merger;
2. No gain or loss will be recognized by First Corporation
Shareholders who exchange all of their respective shares of
First Corporation Common Stock solely for BancorpSouth Common
Stock pursuant to the Merger (except with respect to cash
received in lieu of a fractional share interest in
BancorpSouth Common Stock); and
3. The aggregate tax basis of the BancorpSouth Common Stock
received by First Corporation Shareholders who exchange all of
their respective shares of First Corporation Common Stock
solely for BancorpSouth Common Stock pursuant to the Merger
will be the same as the aggregate tax basis of First
Corporation Common Stock surrendered in exchange therefor
(reduced by any amount allocable to a fractional share
interest for which cash is received).
The obligation of BancorpSouth to complete the Merger is also
conditioned upon:
1. Mr. William C. Kent, the President of The First Corporation,
entering into an employment agreement with BancorpSouth Bank;
and
45
<PAGE> 49
2. BancorpSouth being satisfied the Merger may be accounted for
using the pooling of interests method of accounting.
Further, the obligation of The First Corporation to complete the Merger
is conditioned upon receipt by The First Corporation of an opinion from Alex
Sheshunoff & Co. Investment Banking to the effect that as of the date of the
opinion and based upon and subject to the matters set forth in the opinion, the
Merger is fair to First Corporation Shareholders from a financial point of view.
See "THE MERGER -- Fairness Opinion."
The parties cannot guarantee that the Requisite Regulatory Approvals
will be obtained or that all of the other conditions precedent to the Merger
will be satisfied or, where legally permitted, waived by the party permitted to
do so.
TERMINATION OF THE MERGER AGREEMENT
The Agreement may be terminated at any time prior to the Effective
Time, whether before or after approval of the Merger by First Corporation
Shareholders, as set forth in the Merger Agreement, including by mutual consent
of BancorpSouth and The First Corporation. In addition, the Merger Agreement may
be terminated by either party if:
1. A governmental entity issues a final order prohibiting the
Merger or (subject to a 60 day waiting period) rejects an
application for a Requisite Regulatory Approval;
2. The Merger is not consummated on or before June 30, 1999;
3. First Corporation Shareholders fail to approve the Merger; or
4. The other party materially breaches its representations or
covenants set forth in the Merger Agreement and fails to cure
that breach within the prescribed time limit.
In addition, BancorpSouth may terminate the Merger Agreement if the
First Corporation Board has withdrawn, modified or changed in a manner adverse
to BancorpSouth its approval of the Merger, or its recommendation to First
Corporation Shareholders that such shareholders approve the Merger Agreement and
the Merger. BancorpSouth may also terminate the Merger Agreement if
BancorpSouth's independent certified public accountants advise BancorpSouth and
The First Corporation in writing that the Merger does not qualify for use of the
pooling of interests method of accounting.
In the event that, without giving effect to the minimum and maximum
exchange ratio limitations, the exchange ratio computed in accordance with the
formula in the Merger Agreement exceeds 11.8132, The First Corporation may, at
its option and without penalty, terminate the Merger Agreement by giving prior
written notice to BancorpSouth, unless within 24 hours after such notice is
given, BancorpSouth agrees to increase the maximum exchange ratio of 10.4235 to
an amount proposed by The First Corporation that is not greater than the
computed exchange ratio. This would occur if the Average Closing Price of
BancorpSouth Common Stock was more than about $24.6643. If, however, the
computed exchange ratio is less than 7.0879, BancorpSouth may, at its option and
without penalty, terminate the Merger Agreement by giving prior written notice
to The First Corporation, unless within 24 hours after such notice is given, The
First Corporation agrees to lower the minimum exchange ratio of 7.7043 to an
amount proposed by BancorpSouth that is not less than the computed exchange
ratio. This would occur if the Average Closing Price of BancorpSouth Common
Stock was less than about $14.7985.
The computed exchange ratio amount below which BancorpSouth can elect
to terminate the Merger Agreement, 7.0879, is less than the minimum exchange
ratio of 7.7043. Therefore, if the computed exchange ratio is less than 7.7043
but not less than 7.0879, the applicable exchange ratio would be limited to the
minimum exchange ratio of 7.7043 and BancorpSouth would not have the
46
<PAGE> 50
right to terminate the Merger Agreement as a result. Similarly, the computed
exchange ratio amount above which The First Corporation can elect to terminate
the Merger Agreement, 11.8132, is more than the maximum exchange ratio of
10.4235. Therefore, if the computed exchange ratio is more than 10.4235 but not
more than 11.8132, the applicable exchange ratio would be limited to the maximum
exchange ratio of 10.4235 and The First Corporation would not have the right to
terminate the Merger Agreement as a result. If the Average Closing Price of
BancorpSouth Common Stock is viewed as an implied value, this could result in
First Corporation Shareholders receiving shares of BancorpSouth Common Stock
with an implied value of less than $174.8178 in exchange for each share of First
Corporation Common Stock.
In the event of termination of the Merger Agreement pursuant to its
terms, the Merger Agreement will become void and have no effect, except with
respect to the parties' obligations regarding confidential information and
expenses as set forth in the Merger Agreement. Termination also will not relieve
or release a breaching party from liability or damages for its willful breach of
the Merger Agreement.
CONDUCT OF BUSINESS PRIOR TO THE MERGER AND OTHER COVENANTS
In the Merger Agreement, each of the parties agreed that, prior to the
Effective Time and except as expressly contemplated or permitted by the Merger
Agreement or the Stock Option Agreement or with the prior written consent of the
other party, such party and its subsidiaries will carry on their businesses in
the ordinary course consistent with past practice. Each of the parties also
agreed to refrain from engaging in, or permitting its subsidiaries to engage in,
certain activities which are described in the Merger Agreement.
The First Corporation agreed to refrain from:
1. Declaring or paying any dividends on, or making other
distributions in respect of any of its capital stock during
any period (except that The First Corporation may declare and
pay a single dividend immediately prior to the Effective Time
of $2.25 per share for The First Corporation's 1998 fiscal
year);
2. Issuing or acquiring its capital stock;
3. Issuing any options or other securities convertible into or
exchangeable for its capital stock;
4. Amending its articles of incorporation or bylaws;
5. Making any capital expenditure in excess of $100,000;
6. Engaging in a material acquisition of another business;
7. Adopting or amending any employee benefit plan or compensation
arrangement;
8. Entering into any loans in an original principal amount in
excess of $2,000,000;
9. Incurring any indebtedness other than in the ordinary course
of business consistent with past practice;
10. Disposing of any material assets other than in the ordinary
course of business consistent with past practice; or
11. Entering into, renewing, amending or terminating any material
contract.
47
<PAGE> 51
In addition, The First Corporation agreed that, prior to the Effective
Time, it will not authorize or permit any of its officers, directors, employees
or agents to, directly or indirectly, solicit, initiate, facilitate, encourage
or participate in any inquiries, proposals, discussions or negotiations relating
to a tender or exchange offer, merger, consolidation or other business
combination involving The First Corporation or the acquisition of a substantial
portion of its capital stock or assets (a "Takeover Proposal"). The First
Corporation agreed to immediately cease and terminate any existing activities,
discussions or negotiations previously conducted with any parties other than
BancorpSouth with respect to any Takeover Proposal, and to notify BancorpSouth
immediately if it receives any Takeover Proposal, inquiry or request for
information. The First Corporation also agreed to promptly inform BancorpSouth
in writing of all of the relevant details with respect to any Takeover Proposal
or request for information, including the material terms and conditions and the
identity of the person or group making such request or proposal. Additionally,
The First Corporation agreed to keep BancorpSouth fully informed of the status
and details (including amendments or proposed amendments) of any such request or
Takeover Proposal.
The First Corporation further agreed that it would not provide third
parties with any nonpublic information relating to any such Takeover Proposal.
It may, however, communicate information about any such Takeover Proposal to its
shareholders if, in the judgment of the First Corporation Board, such
communication is required under applicable law. In addition, The First
Corporation may, and may authorize and permit its officers, directors, employees
or agents to, provide or cause to be provided such information and participate
in such discussions or negotiations if the First Corporation Board has
determined that the failure to do so could cause the members of the First
Corporation Board to breach their fiduciary duties under applicable laws.
The Merger Agreement also contains certain other agreements relating to
the conduct of the parties prior to the Effective Time, including, among other
things, those requiring each party:
1. To apply for and obtain all consents and approvals required to
consummate the Merger;
2. Except for privileged or confidential information, to afford
to the other party and its representatives access during
normal business hours to all of such party's information
concerning its business, properties and personnel as such
other party may reasonably request;
3. To cause each director, executive officer and other person who
is an "affiliate" of such party for purposes of Rule 145 under
the Securities Act and for purposes of qualifying the Merger
for pooling of interests accounting treatment, to deliver to
the other party to the Merger a written agreement intended to
ensure compliance with the Securities Act (in the case of The
First Corporation affiliates) and to preserve the ability of
the Merger to be accounted for as a pooling of interests; and
4. To take all actions required to comply with any legal
requirements to consummate the Merger.
The First Corporation also agreed to call and hold a special
shareholders meeting and, through the First Corporation Board, to recommend for
approval to its shareholders the Merger Agreement and the Merger.
BancorpSouth also agreed that employees of The First Corporation and
First National Bank ("First Corporation Employees") will be eligible to
participate in BancorpSouth's employee benefit plans in a manner comparable to
that of similarly situated employees of BancorpSouth or BancorpSouth Bank. Prior
service with The First Corporation will be treated as service with BancorpSouth
for all such purposes (other than for accrual of pension benefits and 401(k)
plan eligibility) and except to the extent that such treatment would result in a
duplication or increase in benefits. First Corporation Employees are to be given
credit for amounts paid under an employee
48
<PAGE> 52
benefit plan period for purposes of applying deductibles, co-payments and
out-of-pocket maximums as though such amounts had been paid in accordance with
the terms and conditions of BancorpSouth's employee benefit plan.
At the Effective Time, BancorpSouth and its subsidiaries are to assume
and honor all employment, severance and other compensation agreements and
arrangements existing prior to August 12, 1998 between The First Corporation and
the First National Bank and any director, officer or employee thereof that were
disclosed to BancorpSouth. The parties also agreed to cooperate and take all
reasonable actions after the Effective Time to effect the merger of any employee
benefit plan of The First Corporation that is intended to be qualified under
Section 401(a) of the Code into BancorpSouth's appropriate tax-qualified
retirement plan so that the merger of such plan satisfies the requirements of
Section 414(l) of the Code. The First Corporation employee benefit plan will not
be merged into BancorpSouth's appropriate tax-qualified retirement plan if The
First Corporation plan is not fully funded under Section 412 of the Code and
Section 302 of the Employee Retirement Income Security Act of 1974, as amended
("ERISA") or if the merger of the plan would jeopardize the tax-qualified status
of a BancorpSouth plan.
In addition, BancorpSouth agreed to provide indemnification to the
officers, directors and employees of The First Corporation to the full extent
permitted by law from and after the Effective Time and to provide, for a period
of three years after the Effective Time, directors' and officers' liability
insurance for the directors and officers of The First Corporation to the maximum
extent available at an annual premium not to exceed 125% of the amount expended
by The First Corporation as of the date of the Merger Agreement. BancorpSouth
also agreed to cause the shares of BancorpSouth Common Stock to be issued in the
Merger to be approved for listing on the New York Stock Exchange.
AMENDMENT OF THE MERGER AGREEMENT; WAIVER; EXPENSES
Subject to compliance with applicable law, the Merger Agreement may be
amended by the parties thereto, by action taken or authorized by their
respective Boards of Directors, at any time before or after approval of the
matters presented in connection with the Merger by First Corporation
Shareholders. However, after any approval of the Merger Agreement by First
Corporation Shareholders, there may not be, without further approval of such
shareholders, any amendment of the Merger Agreement which reduces the amount or
changes the form of the Merger Consideration. The Merger Agreement may not be
amended except by an instrument in writing signed on behalf of BancorpSouth and
The First Corporation.
Prior to the Effective Time, BancorpSouth and The First Corporation may
extend the time for the performance of any of the obligations or other acts of
the other party to the Merger Agreement, waive any inaccuracies in the
representations or warranties of the other party contained in the Merger
Agreement or waive compliance with any of the agreements or conditions of the
other party contained in the Merger Agreement.
Each party to the Merger Agreement will bear all expenses incurred by
it in connection with the Merger Agreement and the Merger.
STOCK OPTION AGREEMENT
Concurrently with the execution of the Merger Agreement, BancorpSouth
and The First Corporation executed and delivered the Stock Option Agreement.
Under the Stock Option Agreement, The First Corporation granted to BancorpSouth
an option (the "Option") to purchase from The First Corporation up to 47,822
shares of First Corporation Common Stock (the "Option Shares") at an exercise
price of $125 per share. This number of shares is subject to adjustment in
certain circumstances, but in no event is the number of shares to exceed 19.9%
of the shares of First Corporation Common Stock issued and outstanding
immediately prior to exercise of the Option. The First Corporation approved and
entered into the Stock Option Agreement as an inducement to
49
<PAGE> 53
BancorpSouth to enter into the Merger Agreement. The Stock Option Agreement is
included as Annex D to this Prospectus Supplement/Proxy Statement. This
description is qualified in its entirety by reference to the full text of such
agreement.
The Stock Option Agreement is intended to increase the likelihood that
the Merger will be completed. Consequently, certain aspects of the Stock Option
Agreement may have the effect of discouraging persons who might now or at any
other time prior to the Effective Time be interested in acquiring all of or a
significant interest in The First Corporation from considering or proposing such
an acquisition. The acquisition of The First Corporation other than by
BancorpSouth could cause the Option to become exercisable. The existence of the
Option could significantly increase the cost to a potential acquirer of
acquiring The First Corporation compared to its cost had the Stock Option
Agreement and the Merger Agreement not been entered into. Such increased cost
might discourage a potential acquirer from considering or proposing an
acquisition or might result in a potential acquirer proposing to pay a lower per
share price to acquire The First Corporation than it might otherwise have
proposed to pay. The exercise or repurchase of the Option may prohibit any other
acquirer of The First Corporation from accounting for an acquisition thereof
using the pooling of interests accounting method for a period of two years.
The number of shares of First Corporation Common Stock subject to the
Option will be increased or decreased, as appropriate, to the extent that
additional shares of First Corporation Common Stock are either (1) issued or
otherwise become outstanding after August 12, 1998 or (2) redeemed, repurchased,
retired or otherwise cease to be outstanding after August 12, 1998, such that,
after such issuance, the number of Option Shares will continue to equal 19.9% of
the shares of First Corporation Common Stock then issued and outstanding. In the
event of any change in, or distributions in respect of, the number of shares of
First Corporation Common Stock that would be prohibited by the Merger Agreement,
the type and number of Option Shares purchasable upon exercise of the Option,
and the option price, will also be adjusted in such a manner as will fully
preserve the economic benefits of the Option.
The Stock Option Agreement provides that BancorpSouth may exercise the
Option, in whole or in part, subject to regulatory approval, if both an Initial
Triggering Event (as defined in Section 2(b) of the Stock Option Agreement) and
a Subsequent Triggering Event (as defined in Section 2(c) of the Stock Option
Agreement) have occurred prior to the occurrence of an Exercise Termination
Event (as defined in Section 2(a) of the Stock Option Agreement). BancorpSouth
may exercise the Option only if BancorpSouth has sent to The First Corporation
written notice of such exercise within 90 days following such Subsequent
Triggering Event (subject to extension as provided in the Stock Option
Agreement). The terms "Initial Triggering Event" and "Subsequent Triggering
Event" generally relate to attempts by one or more third parties to acquire a
significant interest in The First Corporation. Any exercise of the Option will
be deemed to occur on the date such notice of exercise is sent.
As of the date of this Prospectus Supplement/Proxy Statement,
BancorpSouth is not aware that an Initial Triggering Event or Subsequent
Triggering Event has occurred.
Immediately prior to the occurrence of a Repurchase Event (as defined
in Section 7(d) of the Stock Option Agreement), following a request of
BancorpSouth, delivered prior to an Exercise Termination Event (as defined in
Section 2(a) of the Stock Option Agreement), The First Corporation (or any
successor thereto) will repurchase the Option from BancorpSouth at a price (the
"Option Repurchase Price") equal to the amount by which the Market/Offer Price
(as defined in Section 7(a) of the Stock Option Agreement) exceeds the option
exercise price, multiplied by the number of shares for which the Option may then
be exercised. In addition, at the request of BancorpSouth from time to time,
delivered within 90 days of such occurrence (or such longer period as necessary
to obtain any required regulatory approvals or to avoid liability under Section
16(b) of the Securities Exchange Act of 1934, as amended (the "Exchange Act")),
The First Corporation will repurchase such number of the Option Shares from
BancorpSouth as BancorpSouth designates at a price (the "Option Share
50
<PAGE> 54
Repurchase Price") equal to the Market/Offer Price multiplied by the number of
Option Shares so designated.
Within 90 days after the occurrence of a Subsequent Triggering Event
that occurs prior to an Exercise Termination Date (as defined in Section 2(a) of
the Stock Option Agreement), subject to extension as provided in the Stock
Option Agreement, BancorpSouth may request The First Corporation to prepare,
file and keep current with respect to the Option Shares, a registration
statement with the SEC. The First Corporation is required to use its reasonable
best efforts to cause such registration statement to become effective and then
to remain effective for 180 days or such shorter time as may be reasonably
necessary to effect such sales or other disposition of Option Shares.
BancorpSouth has the right to demand two such registrations.
Neither BancorpSouth nor The First Corporation may assign any of its
rights and obligations under the Stock Option Agreement or the Option to any
other person without the express written consent of the other party. However, if
a Subsequent Triggering Event occurs prior to an Exercise Termination Event,
BancorpSouth, subject to the terms of the Stock Option Agreement, may assign, in
whole or in part, its rights and obligations thereunder, within 90 days (subject
to extension to obtain necessary regulatory approvals or to avoid liability
under Section 16(b) of the Exchange Act) of such Subsequent Triggering Event.
BancorpSouth may not assign its rights under the Option until the date 15 days
after the date on which the Board of Governors of the Federal Reserve System
("Federal Reserve") approves an application by BancorpSouth to acquire the
Option Shares except in:
1. A widely dispersed public distribution;
2. A private placement in which no one party acquires the right
to purchase in excess of 2% of the voting shares of The First
Corporation;
3. An assignment to a single party for the purpose of conducting
a widely dispersed public distribution on BancorpSouth's
behalf; or
4. Any other manner approved by the Federal Reserve.
Certain rights and obligations of The First Corporation under the Stock
Option Agreement are subject to receipt of required regulatory approvals. The
approval of the Federal Reserve is required for the acquisition by BancorpSouth
of more than 5% of the outstanding shares of First Corporation Common Stock.
Accordingly, BancorpSouth has included or will include in its applications with
the Federal Reserve a request for approval of the right of BancorpSouth to
exercise its rights under the Stock Option Agreement, including its right to
purchase more than 5% of the outstanding shares of First Corporation Common
Stock.
51
<PAGE> 55
PRICE RANGE OF COMMON STOCK AND DIVIDENDS
MARKET PRICES
THE FIRST CORPORATION
There is no established trading market for shares of First Corporation
Common Stock, which is inactively traded in private transactions. Therefore,
reliable information is not available about the prices at which shares of First
Corporation Common Stock have been bought and sold. As of ________, 1998, First
Corporation Common Stock was held of record by approximately __________ persons.
The First Corporation ESOP has from time to time purchased shares of First
Corporation Common Stock from The First Corporation. The following chart
provides information about these purchases during 1996, 1997 and 1998.
<TABLE>
<CAPTION>
Numer of
Date of Shares Price Per
Purchase Purchased Share
-------- --------- -----
<S> <C> <C>
March 11, 1998 1,211 $70.00
December 2, 1997 268 $58.75
September 17, 1997 1,555 $58.75
December 9, 1996 241 $55.50
July 31, 1996 1,736 $55.50
</TABLE>
BANCORPSOUTH
BancorpSouth is listed on the New York Stock Exchange under the symbol
"BXS." As of __________, 1998, BancorpSouth Common Stock was held of record by
approximately ________ persons. The following table sets forth the high and low
closing sale prices for BancorpSouth Common Stock as reported on the New York
Stock Exchange since May 15, 1997 and on the Nasdaq Stock Market before May 15,
1997 for the periods indicated:
<TABLE>
<CAPTION>
HIGH (1) LOW (1)
---- ---
<S> <C> <C> <C>
1998
First Quarter............................... $24.00 $20.625
Second Quarter.............................. 23.0625 20.3125
Third Quarter............................... 22.4375 16.8125
Fourth Quarter (through October 31, 1998)... 20.50 17.25
1997
First Quarter............................... $15.00 $13.25
Second Quarter.............................. 14.75 13.25
Third Quarter............................... 18.00 14.50
Fourth Quarter.............................. 24.1875 17.59375
1996
First Quarter............................... $12.75 $11.25
Second Quarter.............................. 12.875 10.6875
Third Quarter............................... 12.00 10.75
Fourth Quarter.............................. 14.25 11.875
</TABLE>
--------------------
(1) Adjusted to reflect a two-for-one stock split of the BancorpSouth
Common Stock, effected in the form of a 100% stock dividend as of
May 15, 1998.
52
<PAGE> 56
DIVIDENDS
The following table sets forth cash dividends declared per share of
BancorpSouth Common Stock and First Corporation Common Stock for the periods
indicated. The ability of either of these companies to pay dividends to its
respective shareholders is subject to certain restrictions.
BANCORPSOUTH
<TABLE>
<CAPTION>
DIVIDENDS
PER SHARE(1)
---------
<S> <C> <C>
1998
First Quarter....................................... $0.11
Second Quarter...................................... 0.11
Third Quarter....................................... 0.11
Fourth Quarter (through October 31, 1998)........... 0.12
1997
First Quarter....................................... $0.095
Second Quarter...................................... 0.095
Third Quarter....................................... 0.095
Fourth Quarter...................................... 0.110
1996
First Quarter....................................... $0.085
Second Quarter...................................... 0.085
Third Quarter....................................... 0.085
Fourth Quarter...................................... 0.095
</TABLE>
--------------------
(1) Adjusted to reflect a two-for-one stock split of the
BancorpSouth Common Stock, effected in the form of a 100% stock
dividend as of May 15, 1998.
THE FIRST CORPORATION
<TABLE>
<CAPTION>
DIVIDENDS
PER SHARE
---------
<S> <C>
1998
First Quarter........................................ --
Second Quarter....................................... --
Third Quarter ....................................... --
Fourth Quarter (through October 31, 1998)............ --
1997
First Quarter........................................ --
Second Quarter....................................... --
Third Quarter........................................ --
Fourth Quarter....................................... $2.15
1996
First Quarter........................................ --
Second Quarter....................................... --
Third Quarter........................................ --
Fourth Quarter....................................... $2.00
</TABLE>
53
<PAGE> 57
THE FIRST CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
This discussion presents an analysis of the consolidated financial
statements of The First Corporation and its subsidiary, First National Bank, at
September 30, 1998 and December 31, 1997 and 1996, and the consolidated results
of operations for the nine-month periods ended September 30, 1998 and September
30, 1997, and for the years ended December 31, 1997, 1996 and 1995. The
following discussion should be read in conjunction with the consolidated
financial statements of The First Corporation and its subsidiary and the related
Notes appearing elsewhere in this Prospectus Supplement/Proxy Statement. The
information is presented on a consolidated basis for The First Corporation and
its subsidiary, First National Bank.
RESULTS OF OPERATIONS FOR THE NINE MONTH PERIOD ENDED SEPTEMBER 30, 1998 AS
COMPARED TO THE NINE MONTH PERIOD ENDED SEPTEMBER 30, 1997
Net income for the nine months ended September 30, 1998 was
approximately $1,009,000, or $4.34 per share, compared to $1,061,000, or $4.63
per share, for the nine months ended September 30, 1997. Net income decreased
4.9% in 1998, as compared to the comparable period in 1997.
The most significant factors affecting net income for the periods
mentioned were increased expenses related to the opening of a new branch office
in Auburn, Alabama, upgrading computer systems, the installation and
implementation of check imaging technology and the anticipated merger with
BancorpSouth.
Net income for the nine months ended September 30, 1998 resulted in an
annualized return on average assets of 0.93% compared to 1.02% in 1997. The
annualized return on average stockholders' equity was 8.86% in 1998, as compared
to 10.34% for the same period in 1997.
NET INCOME
Following is an analysis of the primary components of net income for
the nine-month periods ended September 30, 1998 and September 30, 1997.
Net interest income is the principal source of The First Corporation's
income and represents the difference between interest and fees earned on loans,
securities, and other interest-earning assets, interest paid on interest-bearing
deposits and other borrowings. Net interest income is affected by changes in the
volume of interest-earning assets and interest-bearing liabilities as well as
the rates earned or paid thereon. For the purposes of this earnings analysis,
net interest income has been adjusted to a taxable equivalent basis (assuming a
tax rate of 34% in 1998 and 1997) for non-taxable investment securities included
in interest-earning assets. The amount of the tax-equivalent adjustment was
$202,000 and $166,000 for the nine months ended September 30, 1998 and 1997,
respectively.
54
<PAGE> 58
The following table details average balances of interest-earning assets
and interest-bearing liabilities, the taxable equivalent amount of interest
earned/paid thereon and the taxable equivalent yield/rate for the nine-month
periods ended September 30, 1998 and September 30, 1997.
<TABLE>
<CAPTION>
ASSETS
----------------------------------------------------------------------
1998 1997
-------------------- --------------------------------------------
Average Yield/ Average Yield/
Balance Interest Rate Balance Interest Rate
------- -------- ---- ------- -------- ----
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C>
Interest-earning assets:
Loans..................................... $ 82,972 $ 5,642 9.07% $ 74,870 $ 5,115 9.11%
Investment securities-Taxable............. 35,505 1,713 6.43 46,148 2,265 6.54
Non-taxable securities.................... 10,606 595 7.48 8,713 489 7.48
Federal funds sold........................ 5,685 230 5.39 921 36 5.21
FHLB stock................................ 629 35 7.42 629 34 7.21
-------- ------- ------ -------- ------- -----
Total interest-earning assets............. $135,397 $ 8,215 8.09% $131,281 $ 7,939 8.06%
Total assets.............................. $144,271 $139,277
</TABLE>
<TABLE>
<CAPTION>
LIABILITIES AND STOCKHOLDERS' EQUITY
--------------------------------------------------------------------
1998 1997
-------------------------------- ------------------------------
Average Yield/ Average Yield/
Balance Interest Rate Balance Interest Rate
------- -------- ---- ------- -------- ----
<S> <C> <C> <C> <C> <C> <C>
Interest-bearing liabilities:
NOW accounts.............................. $ 19,461 $ 467 3.20% $ 20,305 $ 493 3.24%
Savings accounts.......................... 5,122 105 2.73 5,166 106 2.74
Money Market Accounts..................... 21,622 674 4.16 19,293 577 3.99
Time deposits............................. 65,100 2,795 5.72 63,024 2,703 5.72
-------- ------- ---- -------- ------- ----
Total deposits............................ $111,305 $ 4,041 4.84% $107,788 $ 3,879 4.80%
Short-term borrowings..................... 501 16 4.26 1,541 57 4.93
Long-term borrowings...................... 5,000 214 5.73 4,297 184 5.68
-------- ------- ---- -------- ------- ----
Total interest-bearing liabilities........ $116,806 $ 4,271 4.88% $113,626 $ 4,120 4.83%
Total liabilities and stockholders'
equity............................... $144,271 $139,277
Net interest income....................... $ 3,944 $ 3,819
Net interest spread....................... 3.21% 3.23%
Net interest margin....................... 3.88% 3.88%
</TABLE>
Interest income on a tax equivalent basis increased only 3.5% to
approximately $8,215,000 for the nine months ended September 30, 1998, as
compared to $7,939,000 for the comparable period in 1997. The annualized net
yield on interest-earning assets rose slightly to 8.09% in 1998, compared to
8.06% in 1997. This increase was primarily attributable to an increase in total
average interest-earning assets and a greater percentage of the interest-earning
assets being in the higher yielding loans and non-taxable securities categories
for the period ended September 30, 1998 as compared to the period ended
September 30, 1997. Although the average annualized yield on average loans
declined to 9.07% for the nine months ended September 30, 1998 from 9.11% for
the nine months ended September 30, 1997, average loans increased by 10.8%
during the same period. Non-taxable securities increased 21.7%
55
<PAGE> 59
during the nine month period ended September 30, 1998 as compared to the same
period in 1997. Interest-earning assets as a percentage of total average assets
decreased from 94.3% in 1997 to 93.8% in 1998.
Interest expense increased to approximately $4,271,000 (a 3.7%
increase) for the nine months ended September 30, 1998, from approximately
$4,120,000 for the comparable 1997 period. The increase in interest expense from
1997 to 1998 was a result of an increase in the dollar amount of
interest-bearing liabilities and a small increase in the average rate being paid
on those liabilities. The annualized average rate paid on interest-bearing
liabilities rose from 4.83% for the nine months ended September 30, 1997 to
4.88% for the same period in 1998. Money market accounts represented 18.5% of
interest-bearing liabilities during the 1998 period as compared to 17.0% during
the same period ended 1997 and the annualized yields paid on money market
accounts during the nine months ended September 30, 1998 and 1997 were 4.16% and
3.99%, respectively.
Net interest income on a tax equivalent basis for the nine months ended
September 30, 1998 increased slightly to $3,944,000 from $3,819,000 for the same
period in 1997. The annualized net interest margin remained unchanged at 3.88%
for the nine months ended September 30, 1998, as compared to the same period in
1997. There are many factors that affect the rates earned on assets and paid on
liabilities. Strong competition for loans and deposits in the markets served has
a major impact on the yields earned and the rates paid. Federal Reserve monetary
policies, the international monetary markets, as well as local competitive
pressures, all have a direct or indirect impact on interest rates and,
therefore, affect the net interest spread and net yields earned by The First
Corporation.
ALLOWANCE AND PROVISION FOR LOAN LOSSES
The provision for loan losses was $70,000 for the nine month period
ended September 30, 1998, as compared to $145,000 for the same period in 1997.
The following table summarizes information concerning the allowance for loan
losses for the nine month period ended September 30, 1998. The First Corporation
management's estimate of the allowance for loan losses and the provision for
loan losses is based on a review of remaining collateral and/or financial
condition of identified loans with characteristically more than a normal degree
of risk, historical loan loss percentages, changes in the nature and volume of
the loan portfolio, current economic conditions that may affect a borrower's
ability to pay, the lending experience of the loan staff and the relationship of
the allowance for loan losses to outstanding loans.
Net charge-offs for the nine month period ended September 30, 1998
were $30,000, as compared to net charge-offs of $59,000 for the comparable
period in 1997. The First Corporation management believes the allowance for loan
losses as of September 30, 1998 is adequate to cover losses inherent in the loan
portfolio.
56
<PAGE> 60
The following table summarizes information concerning the allowance for
loan losses:
<TABLE>
<CAPTION>
Nine Months Ended Year Ended
September 30, 1998 December 31, 1997
------------------ -----------------
(Dollars in thousands)
<S> <C> <C>
Loans, net of unearned income outstanding - during period $ 84,127 $ 82,032
Average net loans - during period ............................. 82,972 75,817
Allowance for loan losses:
Balance - beginning of year........................... 1,153 1,086
Provision charged to expense ......................... 70 195
Recoveries on loans previously charged off............ 34 29
Loans charged off .................................... (64) (157)
-------- ---------
Balance - end of year................................. $ 1,193 $ 1,153
======== =========
For the period:
Net charge-offs as a % of average loans ................ 0.04% 0.17%
Provision for loan losses as a % of net charge-offs ............. 233.33% 152.34%
Provision for loan losses as a % of net average loans ........... 0.08% 0.26%
Period End:
Allowance as a % of loans, net of unearned income 1.42% 1.41%
</TABLE>
NONINTEREST INCOME
Noninterest income increased by 17.6%, or approximately $75,000, to
approximately $501,000 for the nine months ended September 30, 1998, as compared
to approximately $426,000 for the same period in 1997. The increase was
primarily a result of increased service charge income, other fee income and a
non-recurring fee of approximately $23,000 paid by a computer software vendor
for late delivery of their product.
NONINTEREST EXPENSE
Noninterest expense increased to $2,750,000 for the nine months ended
September 30, 1998, or 9.1% higher than for the nine months ended September 30,
1997. This increase of approximately $229,000, as compared to the same period in
1997, is primarily attributable to increased salary expenses, computer expenses,
and depreciation expense directly related to the increased staff, new banking
facility and equipment required to open and operate the new branch office in
Auburn, Alabama, which opened in July 1997. None of those expenses would have
occurred during the first six months of 1997 since the branch was not operating
during that time period. In addition, the equipment and software expenses
related to providing new check imaging technology contributed to the increase in
noninterest expenses. Customers began receiving check imaged statements during
the latter half of 1997.
57
<PAGE> 61
INCOME TAXES
The provision for income taxes for the nine months ended September 30,
1998 and 1997 was $416,000 and $352,000, respectively. The First Corporation's
effective tax rate for the first nine months of 1998 increased to 29.2% from
24.9% for the same period in 1997. The effective tax rates can vary based on
increases and decreases in certain nontaxable income or nondeductible expenses.
FINANCIAL CONDITION FOR THE PERIOD ENDED SEPTEMBER 30, 1998 AS COMPARED TO THE
PERIOD ENDED SEPTEMBER 30, 1997
LOANS
Loans, net of unearned interest, increased $7.8 million, or 10.2%, to
$84.1 million as of September 30, 1998, as compared to September 30, 1997. The
allowance for loan losses was $1,193,000 and $1,172,000 as of September 30, 1998
and 1997, respectively. Allowance for loan losses represented 1.42% of total
loans as of September 30, 1998, as compared to 1.54% as of September 30, 1997.
The allowance for loan losses account is analyzed each quarter and, based on
that analysis, it is believed by management of The First Corporation that the
amount in the account is sufficient to cover inherit losses in the loan
portfolio. The most significant concentration of loans consisted of commercial,
agricultural and industrial loans in addition to real estate secured loans.
SECURITIES
The First Corporation's investment securities portfolio decreased
8.6%, or $4,207,000, to $44,524,000 as of September 30, 1998 from $48,731,000 at
September 30, 1997. The primary reason for the decrease was a decision by
management of The First Corporation to either use the funds generated by
maturing or called securities to fund loans or place them in overnight federal
funds sold to provide liquidity to fund future loan growth. In addition, the
yields on federal funds sold provided a positive and acceptable alternative when
compared to the available yields in the securities market. The First Corporation
maintains an investment strategy of seeking portfolio yields within acceptable
risk levels, as well as providing liquidity. Most of The First Corporation's
investment securities are classified as available for sale in an effort to
maintain maximum liquidity in the portfolio. Securities classified as available
for sale represent securities that The First Corporation intends to hold for an
indefinite period of time or that may be sold in response to changes in interest
rates, liquidity needs, prepayment risk and other similar factors.
DEPOSITS
Total deposits increased 2.6%, or $3,026,000, to $121,539,000 as of
September 30, 1998 from $118,513,000 as of September 30, 1997. Time deposits
increased $2.8 million, or 4.6%, to $65.4 million for the period ended September
30, 1998 from $62.6 million for the comparable period in 1997. NOW and money
market deposits increased $1.8 million, or 4.8%, to $38.9 million for the period
ended September 30, 1998 from $37.1 million for the comparable period in 1997.
Demand deposits were $12.0 million and $13.6 million at September 30, 1998 and
1997, respectively.
RESULTS OF OPERATIONS FOR THE FISCAL YEARS ENDED DECEMBER 31, 1997, 1996 AND
1995
EARNINGS SUMMARY
The First Corporation reported net income of approximately $1,330,000,
or $5.79 per share, for the year ended December 31, 1997, as compared to net
income of approximately $1,321,000, or $5.85 per share, and approximately
$831,000, or $3.70 per share, for the years ended December 31, 1996 and December
31, 1995, respectively. Net income was basically level in 1997 as compared to
1996; however, net income increased by approximately $490,000, or 59.0%, in 1996
as compared to 1995. The primary reasons for the increase in earnings in 1996 as
compared to 1995 was an increase in the net interest margin, security gains
taken to enhance overall yields in the securities portfolio and the stability of
rates paid on interest-bearing liabilities. On a tax equivalent basis
58
<PAGE> 62
(assuming a tax rate of 34% in 1997, 1996, and 1995), the net interest margin
increased to 3.67% in 1996 as compared to 3.43% in 1995. The increase in the net
interest margin was a result of loan growth and increased yields in the
investment portfolio. With management emphasizing quality loan growth in 1996,
average loans increased by approximately $12,493,000, or 22.8%, in 1996, as
compared to 1995. Due to the loan growth, the provision for loan losses was
increased by $80,000, or 61.1% in 1996 as compared to 1995. Net security gains
of $198,000 were recognized in 1996 as compared to $69,000 for the same period
in 1995. The overall tax equivalent yield on the investment portfolio increased
to 6.79% in 1997 from approximately 6.57% and 6.31% in 1996 and 1995,
respectively. Although net income did not increase significantly in 1997 as
compared to 1996 ($9,000), income (before taxes and securities gains) increased
by approximately $284,000, or 19.5%, as compared to 1996. The increase in the
net operating income was attributable to continued loan growth, with average
loans increasing by approximately $8,547,000, or 12.7%, as compared to the same
period in 1996.
Net income for the year ended December 31, 1997 resulted in an
annualized return on average assets of 0.94%, compared to 0.96% and 0.67% in
1996 and 1995, respectively. The annualized return on average stockholders'
equity was 9.51% in 1997, as compared to 10.43% in 1996 and 7.26% in 1995.
NET INTEREST INCOME
For the purposes of this earnings analysis, net interest income has
been adjusted to a taxable equivalent basis (assuming a tax rate of 34% ) for
certain investments included in interest-earning assets. The amount of the
tax-equivalent adjustment for the years ended December 31, 1997, December 31,
1996, and December 31, 1995 was $254,000, $228,000, and $265,000 respectively.
Interest income increased approximately $498,000 to $10.6 million for
the year ended December 31, 1997 from $10.1 million for the comparable period in
1996. Interest income for the year ended December 31, 1996 increased
approximately $1,178,000 from $9.0 million for the comparable period in 1995.
These increases were primarily attributable to the increase in the average yield
on interest-earning assets from 7.64% in 1995 to 7.90% in 1996 and to 8.14% in
1997. In addition, interest-earning assets increased by 1.8% and 9.3% for the
year ended December 31, 1997 and 1996, respectively. Although the average yield
on loans remained level at approximately 9.14% during the 1995-1997 period,
average loans grew at an annualized rate of 12.7% in 1997 and 22.8% in 1996.
Average loans represented 58.0% of average interest-earning assets in 1997 as
compared to 52.4% and 46.7% in 1996 and 1995, respectively. In contrast, average
investment securities declined to 40.5% of average interest-earning assets in
1997, as compared to 46.1% and 51.8% in 1996 and 1995, respectively. Investment
yields increased from 6.31% in 1995 to 6.79% in 1997.
Interest expense increased approximately $69,000, or 1.3%, to
approximately $5.50 million for the year ended December 31, 1997, from
approximately $5.43 million for the comparable 1996 period. Interest expense for
the year ended December 31, 1996 increased approximately $493,000 from $4.9
million for the comparable period in 1995. The slight fluctuations in interest
expense from 1995 through 1997 were attributable to increases and decreases in
the volume of interest-bearing liabilities. The average rate paid on
interest-bearing liabilities was 4.86%, 4.88% and 4.84% for the years ended
December 31, 1997, 1996 and 1995, respectively. Time deposits represented 55.6%
of average interest-bearing liabilities for the year ended December 31, 1997, as
compared to 56.3% and 57.6% for the years ended December 31, 1996 and 1995,
respectively. The yields paid on time deposits during the years ended December
31, 1997, 1996 and 1995 were 5.75%, 5.79% and 5.77%, respectively. Short-term
and long-term borrowings represented 5.28% of interest-bearing liabilities for
the year ended December 31, 1997, as compared to 4.74% and 2.99% for the years
ended December 31, 1996 and 1995, respectively. The yields paid on the
borrowings were 5.52%, 5.28% and 4.46% for the years ended December 31, 1997,
1996 and 1995, respectively.
Net interest income on a tax equivalent basis increased 9.1% to $5.1
million in 1997 from $4.7 million in 1996 and 17.0% in 1996 from $4.0 million in
1995. The net interest margin between interest-earning assets and
interest-bearing liabilities increased to 3.93% for the year ended December 31,
1997 from 3.67% for the year ended December 31, 1996. The net interest margin in
1995 was 3.43%. There are many factors that affect the rates earned on assets
and paid on liabilities. Strong competition for loans and deposits in the
markets we serve has a major impact on the yields earned and the rates paid.
Federal Reserve monetary policies, the international monetary
59
<PAGE> 63
markets, as well as local competitive pressures, all have a direct or indirect
impact on interest rates and, therefore, affect the net interest spread and net
yields earned by The First Corporation.
60
<PAGE> 64
AVERAGE BALANCES AND INTEREST RATES, INTEREST YIELD/RATES ON TAXABLE EQUIVALENTS
The following table details average balances of interest-earning assets
and interest-bearing liabilities, the taxable equivalent amount of interest
earned/paid thereon, and the taxable equivalent yield/rate for each of the three
years ended December 31, 1997, 1996 and 1995.
<TABLE>
<CAPTION>
ASSETS
----------------------------------------------------------------------------------------------------
1997 1996 1995
-------------------------------- ------------------------------- -------------------------------
Average Yield/ Average Yield/ Average Yield/
Balance Interest Rate Balance Interest Rate Balance Interest Rate
------- -------- ---- ------- -------- ---- ------- -------- ----
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Interest-earning assets:
Loans....................... $ 75,817 $ 6,929 9.14% $ 67,270 $ 6,140 9.13% $ 54,777 $ 5,008 9.14%
Investment securities-Taxable 43,041 2,854 6.63 50,461 3,225 6.39 50,964 3,057 6.00
Non-taxable securities...... 9,880 739 7.48 8,690 663 7.63 9,846 780 7.92
Federal funds sold.......... 1,245 67 5.38 1,205 63 5.23 1,097 66 6.02
FHLB stock.................. 629 45 7.15 629 45 7.15 629 47 7.47
-------- -------- --------- -------- -------- -------
Total interest-earning assets $ 130,612 $ 10,634 8.14% $ 128,255 $ 10,136 7.90% $ 117,313 $ 8,958 7.64%
========= ======== ========= ======== ========= ========
Total assets................ $ 139,213 $ 135,931 $ 124,853
</TABLE>
<TABLE>
<CAPTION>
LIABILITIES AND STOCKHOLDERS' EQUITY
---------------------------------------------------------------------------------------------------
1997 1996 1995
-------------------------------- ------------------------------- ------------------------------
Average Yield/ Average Yield/ Average Yield/
Balance Interest Rate Balance Interest Rate Balance Interest Rate
------- -------- ---- ------- -------- ---- ------- -------- ----
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Interest-bearing liabilities:
NOW accounts................ $ 19,482 $ 631 3.24% $ 19,192 $ 625 3.26% $ 16,607 $ 554 3.33%
Savings accounts............ 5,161 140 2.71 5,341 145 2.71 5,404 146 2.70
Money market accounts....... 19,574 783 4.00 18,878 747 3.96 18,178 712 3.92
Time deposits............... 62,925 3,617 5.75 62,764 3,636 5.79 58,791 3,391 5.77
--------- -------- --------- --------- --------- -------
Total deposits.............. $ 107,142 $ 5,171 4.83% $ 106,175 $ 5,153 4.85% $ 98,980 $ 4,803 4.86%
Short-term borrowings....... 1,501 74 4.93 1,738 84 4.83 903 44 4.87
Long-term borrowings........ 4,474 256 5.72 3,547 195 5.50 2,149 92 4.28
--------- -------- --------- --------- --------- -------
Total interest-bearing
liabilities............. $ 113,117 $ 5,501 4.86% $ 111,460 $ 5,432 4.87% $ 102,032 $ 4,939 4.84%
========= ======== ========= ========== ========= =======
Total liabilities and
stockholders' equity.... $ 139,213 $135,931 $124,853
Net interest income......... $ 5,133 $ 4,704 $ 4,019
Net interest spread......... 3.28% 3.03% 2.80%
Net interest margin......... 3.93% 3.67% 3.43%
</TABLE>
61
<PAGE> 65
RATE/VOLUME ANALYSIS
The following table provides the components of changes in net interest
income in the format of a rate/volume analysis and analyzes the dollar amount of
changes in interest income and interest expense for major components of
interest-earning assets and interest-bearing liabilities.
<TABLE>
<CAPTION>
1997 1996
--------------------------------- ---------------------------------
Volume Rate Total Volume Rate Total
------ ---- ----- ------ ---- -----
(In thousands)
<S> <C> <C> <C> <C> <C> <C>
Interest-earning assets:
Loans, Net of unearned income............. $ 781 $ 8 $ 789 $1,140 $ (8) $1,132
Investment securities - taxable........... (478) 107 (371) (30) 198 168
Non-taxable securities.................... 91 (15) 76 (91) (26) (117)
Federal funds sold........................ 2 2 4 6 (9) (3)
FHLB stock................................ -- -- -- -- (2) (2)
------ ------ ------ ------ ------ ------
Total interest-earning assets............. $ 396 $ 102 $ 498 $1,025 $ 153 $1,178
------ ------ ------ ------ ------ ------
Interest-bearing liabilities:
NOW accounts.............................. $ 9 $ (3) $ 6 $ 84 $ (13) $ 71
Savings accounts.......................... (5) -- (5) (1) -- (1)
Money market accounts..................... 28 8 36 28 7 35
Time deposits............................. 9 (28) (19) 231 14 245
Short-term borrowings..................... (11) 1 (10) 41 (1) 40
Long-term borrowings...................... 51 10 61 69 34 103
------ ------ ------ ------ ------ ------
Total interest-bearing liabilities........ $ 81 $ (12) $ 69 $ 452 $ 41 $ 493
------ ------ ------ ------ ------ ------
Net change in interest income............. $ 315 $ 114 $ 429 $ 573 $ 112 $ 685
====== ====== ====== ====== ====== ======
</TABLE>
ALLOWANCE AND PROVISION FOR LOAN LOSSES
The provision for loan losses provides an allowance (the allowance for
loan losses) against which loan losses are charged as those losses become
evident. Management of The First Corporation evaluates the appropriate level of
the allowance for loan losses on a quarterly basis. The analysis takes into
consideration the results of an ongoing loan review process, the purpose of
which is to determine the level of credit risk within the portfolio and to
ensure proper adherence to underwriting and documentation standards. Additional
allowances are provided to those loans which appear to represent a greater than
normal exposure to risk. The quality of the loan portfolio and the adequacy of
the allowance for loan loss is verified by regulatory exams and by First
National Bank's on-going third party loan review. In addition, estimates are
made for potential losses on loans not specifically reviewed based on historical
loan loss experience and other factors and trends.
The First Corporation's provision for loan losses was $195,000 in 1997,
$211,000 in 1996 and $131,000 in 1995. The larger provisions in 1996 and 1997
were made to increase the allowance for loan loss reserve to reflect the loan
growth and absorb the net loan losses experienced during those years. Net
charge-offs for the year ended December 31, 1997 totaled $128,000, an increase
of $139,000 from the net recovery of $11,000 for the year ended December 31,
1996. The net charge-offs for 1995 was $106,000. The First Corporation's
management considers the allowance for loan losses as of December 31, 1997 to be
adequate to cover losses inherent in the loan portfolio.
62
<PAGE> 66
The following table summarizes information concerning the allowance for
loan losses for the three years ended December 31, 1997, 1996 and 1995:
<TABLE>
<CAPTION>
1997 1996 1995
---- ---- ----
(Dollars in thousands)
<S> <C> <C> <C>
Loans, net of unearned income outstanding - year end .............. $ 82,032 $ 70,803 $ 60,522
Average net loans - during year ................................... 75,817 67,270 54,777
Allowance for loan losses:
Balance - beginning of year.................................... 1,086 864 839
Provision charged to expense .................................. 195 211 131
Recoveries on loans previously charged off..................... 29 79 33
Loans charged off ............................................. (157) (68) (139)
--------- -------- --------
Balance - end of year ......................................... $ 1,153 $ 1,086 $ 864
========= ======== ========
For the period:
Net charge-offs as a % of average loans ....................... 0.17% N/A 0.19%
Provision for loan losses as a % of net charge-offs ............... 152.34% N/A 123.58%
Provision for loan losses as a % of net average loans ............. 0.26% 0.31% 0.24%
Period End:
Allowance as a % of loans, net of unearned income ............. 1.41% 1.53% 1.43%
</TABLE>
NONINTEREST INCOME
Noninterest income decreased by 20.02%, or approximately $147,000, to
approximately $587,000 for the year ended December 31, 1997, as compared to
approximately $734,000 for the same period in 1996. The decrease was a result of
a decrease in security gains from $198,000 in 1996 to $12,000 in 1997.
Noninterest income for the year ended December 31, 1995 was $540,000. Service
charges on deposit accounts was $398,000 in 1997, $376,000 in 1996 and $363,000
in 1995.
63
<PAGE> 67
The following table presents an analysis of noninterest income for
1997, 1996 and 1995 together with the amount and percent change from the prior
year for 1997 and 1996:
<TABLE>
<CAPTION>
Change from Prior Year
-----------------------------------------
Year Ended December 31 1997 1996
---------------------- ----------------- -----------------
1997 1996 1995 Amount % Amount %
---- ---- ---- ------ ----- ------ -----
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C> <C>
Service charges.................. $ 398 $ 376 $ 363 $ 22 5.85% $ 13 3.58%
Security gains (losses).......... 12 198 69 (186) (93.94) 129 186.96
Other............................ 177 160 108 17 10.62 52 48.15
------ ----- ------ ------ -----
Total noninterest income......... $ 587 $ 734 $ 540 $ (147) (20.02)% $ 194 35.92%
====== ===== ====== ====== =====
</TABLE>
NONINTEREST EXPENSE
Noninterest expense was $3,519,000 in 1997, $176,000, or 5.26%, higher
than in 1996. Noninterest expense for the years ending December 31, 1996 and
1995 was $3,343,000 and $3,123,000, respectively. Noninterest expense as a
percentage of average assets was 2.53% in 1997, 2.46% in 1996, and 2.50% in
1995. Salaries and employee benefits expenses increased only $5,000, or 0.26%,
in 1997 and increased $237,000, or 13.85%, in 1996. Other expense (excluding
expenses of premises and fixed assets) was $1,023,000 in 1997, $940,000 in 1996
and $986,000 in 1995. Expenses of premises and fixed assets increased $88,000,
or 19.3%, to $543,000 for the year ended December 31, 1997 from $455,000 for the
comparable 1996 period. Expenses of premises and fixed assets for the year ended
December 31, 1995 were $426,000. The increase from 1996 to 1997 was directly
related to establishing and opening a branch office in Auburn, Alabama,
purchasing and installing computer equipment necessary for the additional
facility and to process check imaged statements.
The following table presents an analysis of noninterest expense for
1997, 1996 and 1995 together with the amount and percent change from the prior
year for 1997 and 1996:
<TABLE>
<CAPTION>
Change from Prior Year
------------------------------------------
Year Ended December 31 1997 1996
------------------------------ ------------------- ------------------
1997 1996 1995 Amount % Amount %
---- ---- ---- ------ ----- ------ -----
<S> <C> <C> <C> <C> <C> <C> <C>
Salaries and employee benefits.......... $1,953 $1,948 $1,711 $ 5 0.26% $ 237 13.85%
Expenses of premises and fixed assets... 543 455 426 88 19.34 29 6.81
Other expenses.......................... 1,023 940 986 83 8.83 (46) (4.66)
------ ------ ------ ----- ------
Total Noninterest expense............... $3,519 $3,343 $3,123 $ 176 5.26% $ 220 7.04%
====== ====== ====== ===== ======
</TABLE>
64
<PAGE> 68
INCOME TAXES
The provision for income taxes for the years ended December 31, 1997,
1996 and 1995 was $422,000, $334,000 and $209,000, respectively. The First
Corporation's effective tax rate for years ended December 31, 1997, 1996 and
1995 was 24.1%, 20.2% and 20.1%, respectively. The effective tax rates can vary
based on increases and decreases in certain nontaxable income or nondeductible
expenses. The lower tax rates in 1995 and 1996 can be directly attributed to the
smaller amount of taxable income generated by the company during those years and
the use of prior years accumulated alternative minimum tax credits.
FINANCIAL CONDITION FOR THE FISCAL YEARS ENDED DECEMBER 31, 1997 AND 1996
LOANS
Loans, net of unearned interest, increased $11.2 million, or 15.86%, to
$82.0 million as of December 31, 1997, from $70.8 million for the comparable
1996 period. Loans, net of unearned interest, were $60.5 million at December 31,
1995. The allowance for loan losses was $1,153,000 at year-end 1997, $1,086,000
at year-end 1996 and $846,000 at year-end 1995. The most significant
concentration of loans consisted of commercial, agricultural and industrial
loans in addition to real estate secured loans.
A summary of the loan portfolio at December 31, 1997, 1996 and 1995
follows:
<TABLE>
<CAPTION>
December 31,
-------------------------------------------
1997 1996 1995
---- ---- ----
(In thousands)
<S> <C> <C> <C>
Commercial, agricultural and industrial.................... $ 19,931 $ 14,662 $ 11,242
Real estate................................................ 51,937 46,288 39,851
Consumer................................................... 7,155 7,910 8,269
Other...................................................... 3,009 1,944 1,165
-------- -------- --------
Total Loans................................................ 82,032 70,804 60,527
Unearned income............................................ -- (1) (8)
-------- -------- --------
Total loans, net of unearned income........................ $ 82,032 $ 70,803 $ 60,519
======== ======== ========
</TABLE>
65
<PAGE> 69
A summary of loan interest rate sensitivity at December 31, 1997
follows:
Maturity and repricing schedule for all loans (excluding non-accrual
loans):
<TABLE>
<CAPTION>
December 31, 1997 December 31, 1996
----------------- -----------------
(In thousands)
<S> <C> <C>
Three months or less.............................. $ 19,138 $ 18,315
Over three through twelve months.................. 18,559 12,951
Over one through five years....................... 34,577 27,050
Over five years................................... 9,642 12,455
-------- --------
Total loans, net of unearned income............... $ 81,916 $ 70,771
======== ========
</TABLE>
NONPERFORMING ASSETS
The following table summarizes The First Corporation and its
subsidiary's nonaccrual loans and other real estate owned as of December 31 for
the last five years.
<TABLE>
<CAPTION>
December 31,
----------------------------------------------
1997 1996 1995 1994 1993
---- ---- ---- ---- ----
(In thousands)
<S> <C> <C> <C> <C> <C>
Nonaccrual loans........................ $116 $ 29 $ 85 $242 $ 87
Other real estate owned................. -- -- -- -- 10
</TABLE>
SECURITIES
The First Corporation's and its subsidiary's investment securities
portfolio (excluding Federal Reserve and Federal Home Loan Bank stock) decreased
13.1%, or $7,722,000, to $47,941,000 as of December 31, 1997 from $55,163,000 at
December 31, 1996. The primary reason for the decrease was a decision by
management to either use the funds generated by maturing or called securities to
fund loans or place them in overnight federal funds sold to provide liquidity to
fund future loan growth. In addition, the yields on federal funds sold provided
a positive and acceptable alternative when compared to the available yields in
the securities market. The First Corporation maintains an investment strategy of
seeking portfolio yields within acceptable risk levels, as well as providing
liquidity. All of The First Corporation's investment securities are classified
as available for sale in an effort to maintain maximum liquidity in the
portfolio. Securities classified as available for sale represent securities that
The First Corporation intends to hold for an indefinite period of time or that
may be sold in response to changes in interest rates, liquidity needs,
prepayment risk and other similar factors.
66
<PAGE> 70
DEPOSITS
Total deposits increased 5.7%, or $6,700,000, to $123,852,000 as of
December 31, 1997, from $117,153,000 as of December 31, 1996. Total deposits at
December 31, 1995 were $114,922,000. Time deposits at December 31, 1997 and
December 31, 1996 were $63.0 million and $62.4 million, respectively. NOW and
money market deposits at December 31, 1997 and December 31, 1996 were $43.4
million and $37.6 million, respectively. Demand deposits were $12.4 million and
$12.2 million at December 31, 1997 and December 31, 1996, respectively.
A summary of the daily average balance of interest-bearing deposits
follows:
<TABLE>
<CAPTION>
1997 1996 1995
---- ---- ----
(In thousands)
<S> <C> <C> <C>
Interest-bearing demand....................... $ 19,482 $ 19,192 $ 16,607
Money market demand........................... 19,574 18,878 18,178
Savings....................................... 5,161 5,341 5,404
Time.......................................... 62,925 62,764 58,791
--------- --------- ---------
Total interest-bearing deposits............... $ 107,142 $ 106,175 $ 98,980
========= ========= =========
</TABLE>
Maturities of time deposits at December 31, 1997 are as follows:
<TABLE>
<CAPTION>
December 31, 1997 December 31, 1997
Greater than $100,000 Less than $100,000
--------------------- ------------------
(In thousands)
<S> <C> <C>
Three months or less .......................... $ 11,455 $ 7,663
Over three through twelve months .............. 7,092 15,872
Over one year through three years ............. 2,158 15,732
Over three years .............................. 400 2,632
-------- --------
Total $ 21,105 $ 41,899
======== ========
</TABLE>
LIQUIDITY
The First Corporation and its subsidiary have a formal Asset and
Liability Management Policy which includes a liquidity management policy.
Management recognizes the importance of sound liquidity management to
depositors, creditors and regulators. The goal of the established policy is to
focus The First Corporation attention on the Asset/Liability management process
and, therefore, ensure it's ability to meet liquidity needs to fund asset
growth. The First Corporation must always maintain the ability to have readily
available funds sufficient to repay fully maturing liabilities and fund asset
growth. The First Corporation and its subsidiary's liquidity, represented by
cash and due from banks, is a result of its operating, investing, and financing
activities. To insure funds are available at all times, The First Corporation
and its subsidiary project on a monthly basis the funds required to meet
projected cash flow needs over the next 30 and 90 day periods. Liquidity
requirements can also be met through short-term borrowings or the disposition of
short-term assets
67
<PAGE> 71
which are generally matched to correspond to the maturity of liabilities. In the
event of any unforeseen circumstances that may create temporary cash flow needs
beyond what has been projected, The First Corporation and First National Bank
have established a liquidity contingency funding plan to address those needs.
The First Corporation and First National Bank are not subject to any
specific regulatory liquidity requirements imposed by regulatory authorities.
Management does not know of any cash flow trends or demands which are likely to
result in liquidity increasing or decreasing in any material manner and believes
the liquidity levels are adequate. The following is The First Corporation and
First National Bank's liquidity ratios for the periods indicated:
<TABLE>
<CAPTION>
1997 1996 1995
---- ---- ----
<S> <C> <C> <C>
Average loans to average deposits.................. 63.8% 57.2% 49.8%
</TABLE>
CAPITAL
The Office of the Comptroller of the Currency (the "OCC") and the
Federal Reserve have adopted capital guidelines governing the activities of
banks and 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, bank 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.
Minimum capital requirements for all banks are total capital of at
least 8% of risk-weighted assets, Tier I risk-based capital of at least 4% and a
leverage ratio of at least 3%. Each of The First Corporation and First National
Bank's capital levels at December 31, 1997 and 1996 exceeded the "well
capitalized" levels under the regulatory framework.
The following table provides information regarding The First
Corporation and First National Bank's capital ratios:
<TABLE>
<CAPTION>
December 31,
--------------------
1997 1996
---- ----
<S> <C> <C>
Total risk based capital ratio....................... 16.60% 18.20%
Tier I risk based capital ratio...................... 15.36% 16.95%
Leverage ratio....................................... 10.29% 9.75%
</TABLE>
68
<PAGE> 72
INTEREST SENSITIVITY
The First Corporation monitors and manages the repricing and maturity
of its assets and liabilities through an asset/liability management committee
formed by the First Corporation Board. In order to diminish the potential
adverse impact that changes in interest rates could have on its net interest
income, the asset/liability management committee uses a traditional gap analysis
(as well as other analytical tools) which compares the repricings, maturities
and payments, as applicable, of The First Corporation's rate sensitive interest
earning assets ("RSA") to rate sensitive interest bearing liabilities ("RSL").
The asset/liability management committee uses the GAP analysis and the results
of an asset/liability management computer program to monitor changes in net
interest income due to projected and simulated changes in market interest rates.
The First Corporation's GAP target is to maintain a GAP-to-assets ratio of +/-
15% at the one year time interval. At December 31, 1997, the ratio was within
the target range at (3.83)%.
CUMULATIVE GAP ANALYSIS
<TABLE>
<CAPTION>
As of December 31, 1997
-----------------------------------------------------------------
(Dollars in thousands)
Three Six One Five Thirty
Months Months Year Years Years
------ ------ ---- ----- -----
<S> <C> <C> <C> <C> <C>
Rate Sensitive Assets (RSA):
Cash/Fed Funds Sold........................... $ 9,127 $ 9,127 $ 9,127 $ 9,127 $ 9,127
Government Securities......................... 3,696 4,359 9,145 16,972 37,176
Other Securities.............................. 710 975 1,605 5,932 11,312
Loans......................................... 23,699 31,222 41,443 74,829 82,032
------- -------- -------- -------- --------
Total Rate Sensitive Assets................... $37,232 $ 45,683 $ 61,320 $106,860 $139,647
======= ======== ======== ======== ========
Rate Sensitive Liabilities (RSL):
Time Deposits................................. $19,071 $ 32,330 $ 42,088 $ 63,050 $ 63,050
Demand/Savings Deposits....................... 14,105 16,493 24,291 61,055 61,055
Borrowed Funds................................ 506 506 506 5,506 5,506
------- -------- -------- -------- --------
Total Rate Sensitive Liabilities ............. $33,682 $ 49,329 $ 66,885 $129,611 $129,611
======= ======== ======== ======== ========
GAP .......................................... $ 3,550 $ (3,646) $ (5,565) $(22,751) $ 10,036
GAP/Assets ................................... 2.44% (2.51)% (3.83)% (15.64)% 6.90%
GAP Target ................................... +/- 15%
</TABLE>
As of December 31, 1997, the cumulative GAP analysis indicated that The
First Corporation was liability sensitive in relation to changes in market
interest rates. This means that increases in market interest rates could have a
negative impact, and decreases in market interest rates could have a positive
impact, on net interest income if GAP adjustments are not made.
CENTURY DATE CHANGE (YEAR 2000)
The century date change problem, commonly referred to as the Year 2000
problem, has the potential to affect any computer hardware or software system.
The basis of the problem hinges upon how computer systems store and utilize date
fields in their processing. Systems which store and maintain the year portion of
a numerical date as a two-digit number rather than a four-digit number
69
<PAGE> 73
may incorrectly read the Year 2000 as the Year 1900. This is due to the year
being maintained as the last two digits of the year rather than as the complete
four digit number.
The management of each of The First Corporation and First National Bank
have committed the funds and manpower necessary to ensure that there will be no
negative impact on the daily operations of the company due to the century date
change. Following the guidelines of the Federal Financial Institution
Examination Council (FFIEC) and the OCC, The First Corporation and First
National Bank have completed several major activities in preparation of the
century date change, including the following.
1. The First Corporation and First National Bank have undertaken
an extensive internal and external awareness campaign that
includes not only the initial awareness-raising efforts, but
emphasizes continuing, proactive and ongoing activities to
maintain heightened awareness of century date change
implementations in the future;
2. The institution's core system was purchased from a highly
regarded third party vendor, and testing of this system will
be performed in a user group environment during the fourth
quarter of 1998;
3. Contact and follow up with the computer system vendor is being
maintained to verify that all testing will be handled in
accordance with FFIEC guidelines;
4. An aggressive review has been undertaken of the customer base
in an attempt to identify those customers who might have their
business operations most affected by the century date change,
and members of management have actively engaged these
customers in discussions regarding century date change
remediation;
5 Management at both the senior and Board of Directors level
understands the implications of the century date change and
has actively monitored the progress of century date change
readiness activities;
6. Senior managers of First National Bank participate in an EDP
Steering Committee which monitors and reports to the full
Board of Directors all century date change related efforts
being conducted by The First Corporation and First National
Bank; and
7. Testing is currently on-going, and due to the limited amount
of time remaining prior to the Year 2000, testing has been
prioritized based on the criticality of the system.
The First Corporation has three categories of priority for testing.
These are:
"A" Priority Systems: These are mission critical systems that
will be tested at all costs since they are rated as critical to the
welfare of The First Corporation and First National Bank.
"B" Priority Systems: These are critical systems that must be
tested; however, if they fail, or are not tested, the institution will
continue to operate. These systems will be tested, but to a lesser
degree than "A" Priority items.
"C" Priority Systems: These are systems that will not
materially impact the institution if they are not fixed prior to
December 31, 1999, and as a result, will not require testing prior to
entering the Year 2000. Systems may fall into this category because
they will no longer be used or the system is not mission-critical to
The First Corporation and First National Bank and/or an alternative can
be easily implemented or is readily available.
70
<PAGE> 74
The First Corporation plans to complete century date change testing in
a time frame consistent with that required by the FFIEC. The FFIEC requires that
testing be completed by the end of the first quarter of 1999. Management of The
First Corporation believes the plan in place is adequate to address the issue.
The final outcome of all testing and renovation efforts for The First
Corporation and First National Bank are not expected to have a material adverse
effect on operations.
71
<PAGE> 75
INFORMATION ABOUT THE FIRST CORPORATION
GENERAL
THE FIRST CORPORATION. The First Corporation was incorporated in 1988
under the laws of the State of Alabama to serve as the holding company for First
National Bank. The First Corporation is a bank holding company registered under
the Bank Holding Company Act of 1956, as amended (the "Bank Holding Company
Act"), and owns all of the issued and outstanding capital stock of First
National Bank.
As of September 30, 1998, The First Corporation had, on a consolidated
basis, total assets of approximately $143.4 million, total deposits of
approximately $121.5 million, total loans of approximately $82.9 million (net of
unearned discount and allowance for loan losses) and total shareholders' equity
of approximately $15.95 million.
The First Corporation does not, as an entity, engage in separate
business activities of a material nature apart from the activities it performs
for First National Bank. The primary activities of The First Corporation are to
provide assistance in the management and coordination of First National Bank's
financial resources and to provide capital and public relations services for
First National Bank. First National Bank has a board of directors separate from
that of The First Corporation and operates under the day-to-day management of
its own officers. First National Bank formulates its own policies with respect
to banking and business matters.
As a bank holding company, The First Corporation is subject to
regulation by the Federal Reserve in accordance with the requirements set forth
in the Bank Holding Company Act and by the rules and regulations promulgated
thereunder by the Federal Reserve. Certain of these rules and regulations
applicable to The First Corporation are summarized in this section below.
The First Corporation's primary source of revenues is dividends
received from First National Bank.
THE FIRST NATIONAL BANK OF OPELIKA. First National Bank is a national
banking association with its main office in Opelika, Alabama. The bank was
originally chartered in 1886 under the laws of the United States. As a national
banking association, First National Bank is subject to regulation by the OCC in
accordance with the requirements set forth in the National Bank Act and the
rules and regulations of the OCC thereunder. Certain of these rules and
regulations applicable to First National Bank are summarized in this section
below.
First National Bank considers its primary market to be Lee County,
Alabama, which has a total population of approximately 97,000. The majority of
First National Bank's loan portfolio consists of real estate and commercial
loans, while consumer deposits comprise the majority of First National Bank's
deposit base. As of September 30, 1998, First National Bank had total assets of
approximately $143.4 million, total deposits of approximately $121.5 million,
total loans of approximately $84.1 million (net of unearned discount and
allowance for loan losses) and total shareholders' equity of approximately
$15.95 million.
First National Bank operates from its main facility in Opelika, Alabama
and from two branches located in Opelika and Auburn, Alabama. Each of these
facilities is owned by First National Bank and, collectively, these facilities
are considered by management of First National Bank to be adequate for the
operations of the bank.
First National Bank is a full-service commercial bank offering a wide
variety of traditional banking products and services to the communities it
serves, including depository services such as
72
<PAGE> 76
checking accounts, savings accounts, certificates of deposit, individual
retirement accounts, commercial and retail loan products and mortgage products.
The bank also provides investment services through a third party marketer. First
National Bank has trust powers, but has elected not to provide any trust or
fiduciary services. First National Bank also offers direct deposit services,
wire transfer facilities, safe deposit boxes and ATM and debit cards (with
access to local, state and nationwide networks). Deposits of First National Bank
are insured by the FDIC.
EMPLOYEES
The First Corporation is a bank holding company and primarily conducts
its operations through its subsidiary, First National Bank. The First
Corporation has no paid employees. Certain employees of First National Bank
conduct the business of The First Corporation, but are not specifically
compensated as employees of The First Corporation. As of June 30, 1998, First
National Bank had approximately 60 full-time equivalent employees, none of whom
is represented by a collective bargaining agreement. Management of First
National Bank considers its relations with such employees to be good.
SUPERVISION AND REGULATION
THE FIRST CORPORATION. As a bank holding company under the Bank Holding
Company Act, The First Corporation is registered with and is subject to
regulation and supervision by the Federal Reserve. Among other things, The First
Corporation is required to furnish the Federal Reserve an annual report of its
operations at the end of each fiscal year and to furnish such additional
information as the Federal Reserve may require pursuant to the Bank Holding
Company Act. The Federal Reserve may also make inspections of The First
Corporation.
The Bank Holding Company Act requires, subject to certain exceptions,
every bank holding company to obtain the prior approval of the Federal Reserve:
1. Before it may acquire direct or indirect ownership or control of
any voting shares of any bank if, after such acquisition, such
bank holding company will directly or indirectly own or control
more than 5% of the voting shares of such bank;
2. Before it or any of its subsidiaries, other than a bank, may
acquire all or substantially all of the assets of a bank; or
3. Before it may merge or consolidate with any other bank holding
company.
In addition, the Bank Holding Company Act prohibits (with specific
exceptions) The First Corporation from engaging in nonbanking activities or from
acquiring or retaining direct or indirect control of any company engaged in
nonbanking activities. The Federal Reserve, by regulation or order, may make
exceptions for activities determined to be so closely related to banking,
managing or controlling banks as to be a proper incident thereto. In determining
whether a particular activity is permissible, the Federal Reserve considers
whether the performance of such an activity 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.
Examples of possible adverse effects are undue concentration of resources,
decreased or unfair competition, conflicts of interest or unsound banking
practices. The Federal Reserve has determined that making, acquiring or
servicing loans, leasing personal property, providing certain investment or
financial advice, performing certain data processing services, acting as agent
or broker in selling credit life insurance and certain other types of insurance
in connection with credit transactions by the bank holding company and certain
limited insurance underwriting activities are permissible activities. The Bank
Holding Company Act does not place territorial limitations on permissible
bank-related activities of bank holding companies. However, despite prior
approval, the Federal Reserve has the power to order a bank holding company or
its subsidiaries to terminate any activity, or terminate its
73
<PAGE> 77
ownership or control of any subsidiary, when it has reasonable cause to believe
that continuation of such activity, ownership or control constitutes a serious
risk to the financial safety, soundness or stability of any bank subsidiary of
that bank holding company.
THE FIRST NATIONAL BANK OF OPELIKA. First National Bank is subject to
various requirements and restrictions under the laws of the United States and
the State of Alabama, and to regulation, supervision and regular examination by
the OCC. First National Bank is subject to the power of the OCC to enforce
compliance with applicable banking statutes and regulations.
First National Bank may generally pay dividends on its stock so long as
payment of such dividends is in compliance with applicable law and regulation. A
national bank may not pay dividends from its stated capital. Additionally, if
losses have been sustained at any time by a national bank equal to or exceeding
its undivided profits then on hand, then no dividend can be paid by the bank,
and all dividends must be paid out of net profits then on hand. The net profits
must take into account all expenses, including losses and provisions for loan
losses. The payment of dividends out of net profits of a national bank is
further limited by a provision of the National Bank Act, which prohibits a
national bank from declaring a dividend on its shares of stock until 10% of the
bank's net profits are transferred to surplus each time dividends are declared,
unless such a transfer would increase the surplus of the bank to an amount
greater than the bank's capital.
The prior approval of the OCC is required if the total of all dividends
declared by a national bank in any calendar year exceeds the total of its net
profits for that year combined with its net profits for the two preceding years,
less any required transfers to surplus or to funds for the retirement of any
preferred stock. Section 18 of Title 12 of the United States Code provides that
the OCC has the right to prohibit the payment of dividends by a national bank
where such payment is deemed to be an unsafe and unsound banking practice.
First National Bank is also subject to certain restrictions on the
payment of dividends as a result of the requirement that it maintain adequate
levels of capital in accordance with guidelines promulgated from time to time by
the OCC. In 1989, the OCC issued risk-based capital regulations which require
national banks to maintain minimum capital levels based upon the relative safety
of their assets. Under such regulations, the capital adequacy of First National
Bank is determined in light of the risk, both on- and off-balance sheet,
contained in the bank's assets. Different categories of assets are assigned risk
weightings and, based thereon, are counted at a percentage (from zero to 100%)
of their book value.
These regulations divide capital between Tier 1 capital, or core
capital, and Tier 2 capital, or supplemental capital. Tier 1 capital consists
primarily of common stock, noncumulative perpetual preferred stock, related
surplus and minority interests in consolidated subsidiaries. Tier 2 capital
consists of varying percentages of the allowance for loan losses, all other
types of preferred stock not included in Tier 1 capital, hybrid capital
instruments and term subordinated debt. Investments in and loans to
unconsolidated banking and finance subsidiaries that constitute capital of those
subsidiaries are excluded from capital. The sum of Tier 1 and Tier 2 capital
constitutes qualifying total capital. The Tier 1 component must comprise at
least 50% of qualifying total capital.
Every national bank is required to maintain a minimum ratio of Tier 1
capital to risk weighted assets (a "Core Capital Ratio") of at least 4% and a
minimum ratio of Tier 1 plus Tier 2 capital to risk weighted assets (a
"Risk-Based Capital Ratio") of at least 8%. As of September 30, 1998, the Core
Capital Ratio for First National Bank was 15.81% and its Risk-Based Capital
Ratio was 17.03%. In addition, national banks are required to achieve and
maintain a ratio of Tier 1 capital to total assets (a "Leverage Capital Ratio")
of at least 3%. As of September 30, 1998, the Leverage Capital Ratio for First
National Bank was 10.68%. Generally, banking organizations are expected to
operate well above the minimum required capital level of 3% unless they meet
certain specified criteria, including that they have the highest regulatory
ratings. Most banking organizations are required to maintain a Leverage Capital
Ratio of 3%, plus an additional cushion of at least 1% to 2%. The guidelines
also
74
<PAGE> 78
provide that banking organizations experiencing internal growth or making
acquisitions will be expected to maintain strong capital positions substantially
above the minimum supervisory levels without significant reliance upon
intangible assets.
Under the Financial Institutions Reform, Recovery and Enforcement Act
of 1989, failure to meet the capital guidelines could subject a banking
institution to a variety of enforcement remedies available to federal regulatory
authorities, including the termination of deposit insurance by the FDIC. The
Federal Deposit Insurance Corporation Improvement Act of 1991 ("FDICIA")
substantially revised the depository institution regulatory and funding
provisions of the Federal Deposit Insurance Act as well as several other federal
banking statutes. Among other things, FDICIA requires the federal banking
regulators to take prompt corrective action in respect of depository
institutions that do not meet minimum capital requirements.
FDICIA divides banks into five different categories, depending on their
level of capital. Under regulations adopted by the OCC, a bank is deemed to be
"well capitalized" if it has a total Risk-Based Capital Ratio of 10% or more, a
Core Capital Ratio of 6% or more and a Leverage Capital Ratio of 5% or more, and
the bank is not subject to an order or capital directive to meet and maintain a
certain capital level. Under such regulations, a bank is deemed to be
"adequately capitalized" if it has a total Risk-Based Capital Ratio of 8% or
more, a Core Capital Ratio of 4% or more and a Leverage Capital Ratio of 4% or
more (unless it receives the highest composite rating at its most recent
examination and is not experiencing or anticipating significant growth, in which
instance it must maintain a Leverage Capital Ratio of 3% or more). Under such
regulations, a bank is deemed to be "undercapitalized" if it has a total
Risk-Based Capital Ratio of less than 8%, a Core Capital Ratio of less than 4%
or a Leverage Capital Ratio of less than 4%. Under such regulations, a bank is
deemed to be "significantly undercapitalized" if it has a Risk-Based Capital
Ratio of less than 6%, a Core Capital Ratio of less than 3% and a Leverage Ratio
of less than 3%. Under such regulations, a bank is deemed to be "critically
undercapitalized" if it has a Leverage Capital Ratio of less than or equal to
2%. In addition, the OCC has the ability to downgrade a bank's classification
(but not to "critically undercapitalized") based on other considerations even if
the bank meets the capital guidelines. According to these guidelines, First
National Bank was classified as "well capitalized" as of September 30, 1998.
In addition, if a national bank is classified as undercapitalized, the
bank is required to submit a capital restoration plan to the OCC. Pursuant to
the FDICIA, an undercapitalized national bank is prohibited from increasing its
assets, engaging in a new line of business, acquiring any interest in any
company or insured depository institution or opening or acquiring a new branch
office, except under certain circumstances. These restrictions also include the
acceptance by the OCC of a capital restoration plan for the bank. Furthermore,
if a national bank is classified as undercapitalized, the OCC may take certain
actions to correct the capital position of the bank, but if a bank is classified
as significantly undercapitalized or critically undercapitalized, the OCC would
be required to take one or more prompt corrective actions. These actions would
include, among other things, requiring:
1. Sales of new securities to bolster capital;
2. Improvements in management;
3. Limits on interest rates paid;
4. Prohibitions on transactions with affiliates;
5. Termination of certain risky activities; and
6. Restrictions on compensation paid to executive officers.
75
<PAGE> 79
If a national bank is classified as critically undercapitalized, FDICIA
requires the bank to be placed into conservatorship or receivership within 90
days, unless the OCC and the FDIC concur that other action would better achieve
the purposes of the FDICIA regarding prompt corrective action with respect to
undercapitalized banks.
The capital classification of a bank affects the frequency of
examinations of the bank, impacts the ability of the bank to engage in certain
activities and affects the deposit insurance premiums paid by such bank. Under
the FDICIA, the OCC is required to conduct a full-scope, on-site examination of
every national bank at least once every 12 months. An exception to this rule is
made, however, that provides that national banks (i) with assets of less than
$250 million, (ii) categorized as "well capitalized," (iii) found to be well
managed and its composite rating outstanding and (iv) not subject to a change in
control during the last 12 months, need only be examined by the OCC once every
18 months.
Under the FDICIA, banks may be restricted in their ability to accept
brokered deposits, depending on their capital classification. "Well capitalized"
banks are permitted to accept brokered deposits, but all banks that are not well
capitalized are not permitted to accept such deposits. The FDIC may, on a
case-by-case basis, permit banks that are adequately capitalized to accept
brokered deposits if the FDIC determines that acceptance of such deposits would
not constitute an unsafe or unsound banking practice with respect to the bank.
The FDICIA also provides that the FDIC is authorized to assess
insurance premiums on a bank's deposits at a variable rate depending on the
probability that the deposit insurance fund will incur a loss with respect to
the bank. Under prior law, the deposit insurance assessment was a flat rate,
regardless of the likelihood of loss. In this regard, the FDIC has issued
regulations for a transitional risk-based deposit assessment that determines the
deposit insurance assessment rates on the basis of the bank's capital
classification and supervisory evaluations. Each of these categories have three
subcategories, resulting in nine assessment risk classifications. The three
subcategories with respect to capital are "well capitalized," "adequately
capitalized" and "less than adequately capitalized" (which would include
"undercapitalized," "significantly undercapitalized" and "critically
undercapitalized" banks). The three subcategories with respect to supervisory
concerns are "healthy," "supervisory concern" and "substantial supervisory
concern." A bank is deemed "healthy" if it is financially sound with only a few
minor weaknesses. A bank is deemed subject to "supervisory concern" if it has
weaknesses that, if not corrected, could result in significant deterioration of
the bank and increased risk to the Bank Insurance Fund (the "BIF"). A bank is
deemed subject to "substantial supervisory concern" if it poses a substantial
probability of loss to the BIF.
The federal banking agencies have established guidelines, effective
August 9, 1995, which prescribe standards for depository institutions relating
to internal controls, information systems, internal audit systems, loan
documentation, credit underwriting, interest rate exposure, asset growth and
management compensation. The agencies may require an institution which fails to
meet the standards set forth in the guidelines to submit a compliance plan.
CERTAIN RELATED PARTY TRANSACTIONS
Certain of the officers, directors and principal shareholders of The
First Corporation and First National Bank, and their affiliates, have deposit
accounts and other transactions with First National Bank, including loans in the
ordinary course of business. All loans or other extensions of credit made by
First National Bank to officers, directors and principal shareholders of The
First Corporation or First National Bank and to affiliates of such persons were
made in the ordinary course of business on substantially the same terms,
including interest rates and collateral, as those prevailing at the time for
comparable transactions with independent third parties and did not involve more
than the normal risk taken by the lender or present other unfavorable features.
All loans made to executive officers and directors are believed to be in
compliance with the Financial Institutions Regulatory and Interest Rate Control
Act of 1978. None of such loans are categorized as
76
<PAGE> 80
nonaccrual, past due, restructured or potential problem loans. Prior to the
Merger, First National Bank expects to continue to enter into transactions in
the ordinary course of business on similar terms with officers, directors and
principal shareholders of The First Corporation, First National Bank and their
affiliates.
LEGAL PROCEEDINGS
The First Corporation and First National Bank are involved in routine
legal proceedings occurring in the ordinary course of business that, in the
aggregate, are not believed by management of these companies to be material to
the consolidated financial condition and results of operation of the banks.
77
<PAGE> 81
PRINCIPAL SHAREHOLDERS AND MANAGEMENT
The following table sets forth certain information regarding those
persons known by First Corporation to be beneficial owners of more than 5% of
the outstanding shares of The First Corporation Common Stock, and the number and
percentage of outstanding shares of First Corporation Common Stock beneficially
owned by each director and executive officer of The First Corporation and all
directors, executive officers and 5% shareholders as a group. Unless otherwise
indicated, each person listed is the sole record holder of, and exercises sole
voting power over, the shares listed. Percentages are computed based on 232,321
shares of First Corporation Common Stock eligible to vote at the First
Corporation Special Meeting.
<TABLE>
<CAPTION>
Shares Percentage of
Beneficially Shares
Beneficial Owner Position Owned Outstanding
---------------- -------- ----- -----------
<S> <C> <C> <C>
Joseph L. Dean, Jr.(1)................... Director (2) 30,440.41 13.10%
William C. Kent(3)....................... President, Chief Executive Officer
and Director (2) 3,872 1.67
S. Rainer Meadows (4).................... Secretary and Treasurer 1,658 0.71
Jayne R. Gunter (5)...................... Director (2) 950 0.41
Ronald W. Hillyer........................ Director (2) 700 0.30
Henry Carson Jackson, Sr. (1)............ Chairman of the Board (2) 12,660.41 5.45
Henry Carson Jackson, Jr.(6)............. Director (2) 1,300 0.56
David A. Jones........................... Director (2) 500 0.22
Eugene R. Nyland (1)..................... Director (2) 1,860.41 0.80
Winston Smith T. Jr. (1)................. Director (2) 4,425.41 1.90
C.C. Torbert, Jr......................... Director (2) 3,500 1.51
Timothy N. Turnham....................... Director (2) 500 0.22
All Directors, Executive Officers
and 5% Shareholders as a
group (12 persons) (1)............................................... 55,885.41 24.06
</TABLE>
- -------------------
(1) Includes 1,360.41 shares held by such persons as trustees of the First
Corporation ESOP and which shares have not been allocated to the
participants in such plan. Pursuant to the terms of the First
Corporation ESOP, the trustees may vote such unallocated shares in
their discretion.
(2) Member of the First Corporation Board.
(3) Includes 1,345 shares allocated to Mr. Kent in the First Corporation
ESOP, 427 shares owned jointly with Mr. Kent's spouse and 1,600 shares
subject to unexercised stock options which become exercisable on
December 13, 1998.
(4) Includes 483 shares allocated to Mr. Meadows in the First Corporation
ESOP, 95 shares owned by Mr. Meadows' three minor children and 800
shares subject to unexercised stock options which become exercisable on
December 13, 1998.
(5) Includes 240 shares owned by Ms. Gunter's two minor children.
(6) Includes 600 shares owned by Mr. Jackson's three minor children.
78
<PAGE> 82
COMPARISON OF RIGHTS OF SHAREHOLDERS
First Corporation Shareholders, whose rights are governed by the First
Corporation Articles, the First Corporation Bylaws and the ABCA, will become
shareholders of BancorpSouth upon completion of the Merger. As such, the rights
of the former First Corporation Shareholders will be governed by the
BancorpSouth Articles, the BancorpSouth Bylaws and the MBCA.
While it is impractical to summarize all such differences, set forth
below are the material differences between the rights of First Corporation
Shareholders under The First Corporation's governing documents and governing law
and the rights of BancorpSouth shareholders under the BancorpSouth Articles,
BancorpSouth Bylaws and the MBCA.
VOTING RIGHTS; CUMULATIVE VOTING
THE FIRST CORPORATION. The First Corporation Articles provide for
cumulative voting by First Corporation Shareholders in elections of members of
the First Corporation Board. Cumulative voting entitles each First Corporation
Shareholder to cast a total number of votes equal to the product of (i) the
number of directors being elected, times (ii) the number of shares held in the
shareholder's name as of the record date. This total number of votes may be cast
for one candidate or distributed among as many candidates as the shareholder
desires. In voting on any matter other than the election of directors, such as
approval of the Merger Agreement, each First Corporation Shareholder entitled to
vote on the matter is entitled to one vote for each share of First Corporation
Common Stock held by the shareholder.
BANCORPSOUTH. The BancorpSouth Articles provide that each share of
issued and outstanding BancorpSouth Common Stock entitles the holder to one vote
on each matter with respect to which shareholders are entitled to vote. The
BancorpSouth Articles and Bylaws do not provide for cumulative voting by
shareholders.
PREEMPTIVE RIGHTS
THE FIRST CORPORATION. Each First Corporation Shareholder has the
preemptive right to purchase such shareholder's proportion of the issuance of
any shares of First Corporation Common Stock according to the proportion of such
shareholder's holdings of First Corporation Common Stock, at such price, within
such time and on such terms as shall be fixed and determined by the First
Corporation Board. However, these preemptive rights do not apply to (1)
1,250,000 shares of First Corporation Common Stock which The First Corporation
may issue from time to time, in whole or in part, from authorized and unissued
shares or treasury shares, and (2) shares of First Corporation Common Stock
issued in connection with a merger or consolidation to which The First
Corporation or its direct or indirect subsidiary is a party, or in connection
with the acquisition by The First Corporation or its direct or indirect
subsidiary of all or substantially all of the assets or property of another
corporation or entity.
BANCORPSOUTH. The BancorpSouth Articles and Bylaws do not provide for
preemptive rights for BancorpSouth shareholders.
CHANGE OF CONTROL
THE FIRST CORPORATION. The First Corporation Articles and Bylaws do not
provide for the staggered election of members of the First Corporation Board.
Directors of The First Corporation are elected annually for a one-year term and
hold office until the next succeeding annual meeting of First Corporation
Shareholders and until their successors have been elected and qualified, subject
to earlier resignation and removal. The minimum and maximum number of directors
of The First Corporation may be increased or decreased from time to time at any
regular or special meeting of the
79
<PAGE> 83
First Corporation Board or at any annual meeting or at a special meeting of
First Corporation Shareholders. However, a decrease in the number of directors
of the First Corporation Board may not have the effect of shortening the term of
any incumbent director. The First Corporation has not adopted a shareholder
rights plan.
BANCORPSOUTH. The BancorpSouth Articles contain several provisions
which make a change of control of BancorpSouth more difficult to accomplish
without the approval of the Board of Directors of BancorpSouth, including the
following:
1. The BancorpSouth Board is divided into three classes so that
approximately one-third of the directors will be subject to
reelection at each annual meeting of the shareholders of
BancorpSouth;
2. The BancorpSouth Bylaws provide that a vote of at least 80% of
the outstanding shares of BancorpSouth Common Stock is required
to increase the maximum number of members of the BancorpSouth
Board unless the BancorpSouth Board recommends such an increase;
3. The BancorpSouth Articles provide that the affirmative vote of
the holders of not less than 80% of the outstanding shares of
voting stock of BancorpSouth is required in the event that the
BancorpSouth Board does not recommend to BancorpSouth
Shareholders a vote in favor of a merger or consolidation of
BancorpSouth with, or a sale or lease of all or substantially all
of the assets of BancorpSouth to, any person or entity;
4. The affirmative vote of the holders of not less than 80% of the
outstanding shares of voting stock of BancorpSouth, as well as at
least 67% of the outstanding shares of voting stock of
BancorpSouth not held by a person owning or controlling 20% or
more of BancorpSouth's voting stock ("Controlling Person"), shall
be required for the approval of a merger, consolidation, or sale
or lease of all or substantially all of BancorpSouth's assets
with or to a Controlling Person, except in certain instances; and
5. BancorpSouth has implemented a shareholders' rights plan (which
is commonly referred to as a "poison pill") under which a common
stock purchase right ("BancorpSouth Right") attaches to and
trades with each share of BancorpSouth Common Stock (including
shares of BancorpSouth Common Stock to be issued to First
Corporation Shareholders in connection with the Merger). Upon the
occurrence of certain events, including the acquisition of, or
tender offer for, 20% or more of the outstanding shares of
BancorpSouth Common Stock by any person or entity, then the
holders of each such purchase right (except those held by the
person acquiring the shares or making the tender offer) will be
entitled to purchase one share of BancorpSouth Common Stock at a
price equal to 50% of the then current market price.
BOARD OF DIRECTORS
THE FIRST CORPORATION. The First Corporation Board is to consist of
seven to 25 members, as determined from time to time by resolution of the First
Corporation Shareholders at their annual meeting, and on the date of this
Prospectus Supplement/Proxy Statement the First Corporation Board consisted of
11 members. Any vacancy on the First Corporation Board may be filled by a
majority vote of the remaining directors. Any directorship to be filled by
reason of an increase in the number of directors must be filled by election at
an annual meeting or at a special meeting of First Corporation Shareholders
called for that purpose. Directors of The First Corporation serve one year
80
<PAGE> 84
terms and must be First Corporation Shareholders. Each director of The First
Corporation must own at least 500 shares of First Corporation Common Stock.
BANCORPSOUTH. The BancorpSouth Board is to consist of nine to 24
members, as determined from time to time by the BancorpSouth Board, and on the
date of this Prospectus Supplement/Proxy Statement consisted of 11 members. The
vote of at least 80% of the outstanding shares of BancorpSouth Common Stock is
required to increase the maximum number of members of the BancorpSouth Board
unless the BancorpSouth Board recommends such an increase. Any vacancy arising
from a director's early retirement from the BancorpSouth Board or an increase in
the number of members of the BancorpSouth Board is to be filled by vote of the
shareholders of BancorpSouth. The members of the BancorpSouth Board are divided
into three classes, with the classes elected for staggered three-year terms.
Each director of BancorpSouth must own at least $200 of par value of
unencumbered shares of BancorpSouth Common Stock.
REMOVAL OF DIRECTORS
THE FIRST CORPORATION. The First Corporation Bylaws provide that one or
more directors of The First Corporation may be removed by the affirmative vote
of the holders of a majority of shares of First Corporation Common Stock then
entitled to vote at an election of directors at a special meeting called for the
purpose of such removal. First Corporation Shareholders entitled to vote at such
meeting also may elect a successor director or directors for the unexpired term
of the director or directors removed.
BANCORPSOUTH. The BancorpSouth Articles provide that a director of
BancorpSouth may be removed by the affirmative vote of a majority of the entire
BancorpSouth Board for cause and by the BancorpSouth shareholders only for
cause.
AUTHORIZED CAPITAL STOCK
<TABLE>
<CAPTION>
Par Value per
Authorized Shares Share
----------------- -----
<S> <C> <C>
The First Corporation.................. 5,000,000 $ 0.05
BancorpSouth........................... 500,000,000 2.50
</TABLE>
RIGHTS OF SHAREHOLDERS TO CALL SPECIAL MEETINGS
THE FIRST CORPORATION. The First Corporation Bylaws provide that a
special meeting of First Corporation Shareholders may be called, for any purpose
or purposes prescribed by statute, by the First Corporation Board, the Chairman
of the First Corporation Board, the President of The First Corporation or the
holders of not less than one-tenth of all the outstanding shares of First
Corporation Common Stock entitled to vote at such special meeting.
BANCORPSOUTH. The BancorpSouth Articles provide that a special meeting
of the BancorpSouth shareholders may be called by the Chief Executive Officer or
Secretary of BancorpSouth, or by the holders of not less than a majority of the
shares of BancorpSouth Common Stock entitled to vote at such meeting.
81
<PAGE> 85
WHERE YOU CAN FIND MORE INFORMATION
BancorpSouth has filed with the SEC under the Securities Act a
Registration Statement on Form S-4 and a Post-Effective Amendment thereto that
registers the distribution to First Corporation Shareholders of the shares of
BancorpSouth Common Stock to be issued in connection with the Merger
(collectively, the "Registration Statement"). The Registration Statement,
including the attached exhibits and schedules, contain additional relevant
information about BancorpSouth, The First Corporation and the BancorpSouth
Common Stock. The rules and regulations of the SEC allow the companies to omit
certain information included in the Registration Statement from this Prospectus
Supplement/Proxy Statement.
In addition, BancorpSouth files reports, proxy statements and other
information with the SEC under the Exchange Act. You may read and copy this
information at the following locations of the SEC:
<TABLE>
<S> <C> <C>
Public Reference Room New York Regional Office Chicago Regional Office
450 Fifth Street, N.W. 7 World Trade Center Citicorp Center
Room 1024 Suite 1300 500 West Madison Street
Washington, D.C. 20549 New York, New York 10048 Suite 1400
Chicago, Illinois 60661-2511
</TABLE>
You may also obtain copies of this information by mail from the Public
Reference Section of the SEC, 450 Fifth Street, N.W., Room 1024, Washington,
D.C. 20549, at prescribed rates. You may obtain information on the operation of
the Public Reference Room by calling the SEC at 1-800-SEC-0330.
The SEC also maintains an Internet world wide web site that contains
reports, proxy statements and other information about issuers, like
BancorpSouth, which file electronically with the SEC. The address of that site
is http://www.sec.gov.
You can also inspect reports, proxy statements and other information
about BancorpSouth at the offices of the New York Stock Exchange, 20 Broad
Street, New York, New York 10005.
The SEC allows BancorpSouth to "incorporate by reference" information
into this Prospectus Supplement/Proxy Statement from documents that BancorpSouth
has previously filed with the SEC. This means that BancorpSouth can disclose
important information to you by referring you to another document filed
separately with the SEC. These documents contain important information about
BancorpSouth and its financial condition. The information incorporated by
reference is considered to be a part of this Prospectus Supplement/Proxy
Statement, except for any information that is superseded by other information
that is set forth directly in this document.
This Prospectus Supplement/Proxy Statement incorporates by reference
the following documents with respect to BancorpSouth:
1. BancorpSouth's Annual Report on Form 10-K for the year ended
December 31, 1997;
2. BancorpSouth's Quarterly Report on Form 10-Q for the quarter ended
March 31, 1998;
3. BancorpSouth's Quarterly Report on Form 10-Q for the quarter ended
June 30, 1998;
4. BancorpSouth's Quarterly Report on Form 10-Q for the quarter ended
September 30, 1998.
5. BancorpSouth's Current Report on Form 8-K dated May 18, 1998;
6. BancorpSouth's Current Report on Form 8-K dated July 10, 1998;
82
<PAGE> 86
7. BancorpSouth's Current Report on Form 8-K dated September 3,
1998;
8. The description of BancorpSouth Common Stock contained in
BancorpSouth's Registration Statement on Form 8-A dated May
14, 1997; and
9. The description of BancorpSouth Rights contained in
BancorpSouth's Registration Statement on Form 8-A dated May
14, 1997.
BancorpSouth incorporates by reference additional documents that
BancorpSouth may file with the SEC between the date of this Prospectus
Supplement/Proxy Statement and the date of the First Corporation Special
Meeting. These documents include periodic reports, such as Annual Reports on
Form 10-K, Quarterly Reports on Form 10-Q and Current Reports on Form 8-K, as
well as proxy statements.
BancorpSouth has supplied all information contained or incorporated by
reference in this Prospectus Supplement/Proxy Statement relating to BancorpSouth
and BancorpSouth Bank, as well as all pro forma financial information.
The First Corporation has supplied all information contained in this
Prospectus Supplement/Proxy Statement relating to The First Corporation and
First National Bank.
You can obtain copies of the documents incorporated by reference in
this Prospectus Supplement/Proxy Statement with respect to BancorpSouth without
charge, excluding any exhibits to those documents unless the exhibit is
specifically incorporated by reference as an exhibit in this Prospectus
Supplement/Proxy Statement, by requesting them in writing or by telephone from
BancorpSouth at the following:
BancorpSouth, Inc.
One Mississippi Plaza
Tupelo, Mississippi 38801
(601) 680-2000
Attention: Secretary.
IF YOU WOULD LIKE TO REQUEST DOCUMENTS FROM BANCORPSOUTH, PLEASE DO SO
BY ____________________, 1998 TO RECEIVE THEM BEFORE THE FIRST CORPORATION
SPECIAL MEETING. You can also obtain copies of these documents from the SEC
through the SEC's Internet world wide web site or at the SEC's address described
in this section above.
You should rely only on the information contained in or incorporated by
reference in this Prospectus Supplement/Proxy Statement in considering how to
vote your shares at the First Corporation Special Meeting. Neither BancorpSouth
nor The First Corporation has authorized anyone to provide you with information
that is different from the information in this document. This Prospectus
Supplement/Proxy Statement is dated _______________, 1998. You should not assume
that the information contained in this document is accurate as of any date other
than that date. Neither the mailing of this Prospectus Supplement/Proxy
Statement nor the issuance of BancorpSouth Common Stock in the Merger shall
create any implication to the contrary.
CAUTIONARY STATEMENT CONCERNING FORWARD-LOOKING INFORMATION
This Prospectus Supplement/Proxy Statement contains certain
forward-looking statements about the financial condition, results of operations
and business of BancorpSouth and The First Corporation and about the combined
companies following the Merger. These statements concern the cost savings,
revenue enhancements and other advantages the companies expect to obtain from
the Merger, the anticipated impact of the Merger on BancorpSouth's financial
performance and earnings estimates for the combined company. These statements
appear in several sections of this Prospectus
83
<PAGE> 87
Supplement/Proxy Statement, including "SUMMARY," "THE MERGER -- Reasons for the
Merger" and "THE MERGER -- Fairness Opinion." Also, the forward-looking
statements generally include any of the words "believes," "expects,"
"anticipates," "intends," "estimates," "plans" or similar expressions.
Forward-looking statements are not guarantees of future performance.
They involve risks, uncertainties and assumptions. The future results and
shareholder values of BancorpSouth and The First Corporation, and of the
combined companies, may differ materially from those expressed in these
forward-looking statements. Many of the factors that could influence or
determine actual results are unpredictable and not within the control of
BancorpSouth or The First Corporation. In addition, neither BancorpSouth nor The
First Corporation intends to, nor are they obligated to, update these
forward-looking statements after this Prospectus Supplement/Proxy Statement is
distributed, even if new information, future events or other circumstances have
made them incorrect or misleading as of any future date. For all of these
statements, BancorpSouth claims the protection of the safe harbor for
forward-looking statements provided in the Private Securities Litigation Reform
Act of 1995.
Factors that may cause actual results to differ materially from those
contemplated by these forward-looking statements include, among others, the
following possibilities:
1. Cost savings the companies expect from the Merger might not be
fully realized or realized within the time frame the companies
anticipate;
2. Revenues following the Merger may be lower than expected;
3. Loss of deposits, customers or revenues following the Merger may
be greater than anticipated;
4. Competitive pressure among financial services providers in the
mid-south region of the United States or in the financial
services industry generally may increase significantly;
5. Costs or difficulties related to regulatory requirements involved
in combining the companies, including the subsidiary banks, may
be greater than expected;
6. Interest rates may change in such a way as to reduce the
companies' margins;
7. General economic or monetary conditions, either nationally or
regionally, may be less favorable than expected, resulting in a
deterioration in credit quality or a diminished demand for the
companies' services and products;
8. Changes in laws or government rules, or the way in which courts
interpret these laws or rules, may adversely affect the
companies' businesses; and
9. Business conditions, inflation or securities markets may undergo
significant change.
LEGAL MATTERS
The validity of the shares of BancorpSouth Common Stock to be issued in
the Merger will be passed upon by Riley, Ford, Caldwell & Cork, P.A., Tupelo,
Mississippi, counsel to BancorpSouth. Certain legal matters concerning the
Merger will be passed upon on behalf of BancorpSouth by Waller Lansden Dortch &
Davis, A Professional Limited Liability Company, Nashville, Tennessee, special
counsel to BancorpSouth.
84
<PAGE> 88
EXPERTS
The Consolidated Financial Statements of BancorpSouth 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 in this Prospectus
Supplement/Proxy Statement and in the Registration Statement in reliance upon
the report of KPMG Peat Marwick LLP, independent certified public accountants,
incorporated by reference herein, and upon the authority of such firm as experts
in accounting and auditing.
The Consolidated Financial Statements of The First Corporation at
December 31, 1997 and 1996 and for each of the three years in the period ended
December 31, 1997, included in this Prospectus Supplement/Proxy Statement and
Registration Statement, have been audited by Brantley, Stephens & Boucher LLP,
Opelika, Alabama, independent auditors, as set forth in their report appearing
elsewhere herein, and are included in reliance upon such report given upon the
authority of such firm as experts in accounting and auditing.
85
<PAGE> 89
THE FIRST CORPORATION AND SUBSIDIARY
CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1997 AND 1996
CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
REPORT OF INDEPENDENT AUDITORS......................................... F-2
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION......................... F-3
CONSOLIDATED STATEMENTS OF INCOME...................................... F-4
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY............. F-5
CONSOLIDATED STATEMENTS OF CASH FLOWS.................................. F-6
NOTES TO FINANCIAL STATEMENTS.......................................... F-7
</TABLE>
F-1
<PAGE> 90
INDEPENDENT AUDITOR'S REPORT
The Board of Directors and Shareholders
The First Corporation
Opelika, Alabama
We have audited the accompanying consolidated statements of financial
condition of The First Corporation and subsidiary as of December 31, 1997 and
1996, and the related statements of income, changes in stockholders' equity, and
cash flows for each of the three years in the period ended December 31, 1997.
These consolidated financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present
fairly, in all material respects, the consolidated financial position of The
First Corporation and subsidiary at December 31, 1997 and 1996, and the
consolidated results of its operations and its cash flows for each of the three
years in the period ended December 31, 1997, in conformity with generally
accepted accounting principles.
/s/ Brantley, Stephens & Boucher LLP
Opelika, Alabama
January 30, 1998
F-2
<PAGE> 91
THE FIRST CORPORATION AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
DECEMBER 31, 1997 AND 1996
<TABLE>
<CAPTION>
ASSETS 1997 1996
------ ------
<S> <C> <C>
Cash and due from banks................................ $ 5,100,588 $ 3,556,464
Interest-bearing deposits in other banks............... 15,881 6,074
Federal funds sold..................................... 4,010,000 1,670,000
Securities:
Held-to-maturity (market value: $629,350
and $629,350)....................................... 629,350 629,350
Available-for-sale ................................. 47,941,037 55,162,913
Loans (net unearned income: $39 and $954)............. 82,032,108 70,802,677
Allowance for loan losses.............................. (1,153,064) (1,086,490)
------------- --------------
Net loans.......................................... 80,879,044 69,716,187
Premises and equipment................................. 4,595,935 3,370,373
Interest and dividends receivable...................... 1,194,473 1,211,406
Other assets........................................... 1,108,574 1,184,896
------------- --------------
Total assets..................................... $ 145,474,882 $ 136,507,663
============= ==============
LIABILITIES AND STOCKHOLDERS' EQUITY
Deposits:
Non-interest bearing................................ $ 12,424,737 $ 12,228,344
Interest-bearing.................................... 111,427,980 104,925,013
------------- --------------
Total deposits................................... 123,852,717 117,153,357
Treasury tax and loan.................................. 506,498 559,192
Accrued interest payable............................... 558,292 554,526
Income taxes payable................................... 111,482 284,679
Other liabilities...................................... 866,660 788,398
Advances from Federal Home Loan Bank................... 5,000,000 3,935,000
------------- --------------
Total current liabilities........................ 130,895,649 123,275,152
------------- --------------
Stockholders' equity:
Common stock, $.05 par value;
5,000,000 shares authorized,
issued - 231,110 shares in 1997
and 229,287 shares in 1996........................ 11,556 11,464
Surplus................................................ 1,032,756 925,746
Undivided profits...................................... 13,358,801 12,525,505
Net unrealized gain ( loss) on securities available
for sale (net of taxes).......................... 176,120 (230,204)
------------- -------------
Total stockholders' equity....................... 14,579,233 13,232,511
------------- -------------
Total liabilities and stockholders' equity....... $ 145,474,882 $ 136,507,663
============= =============
</TABLE>
The accompanying summary of significant accounting policies and notes to
financial statements are an integral part of these statements.
F-3
<PAGE> 92
THE FIRST CORPORATION AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF INCOME
YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995
<TABLE>
<CAPTION>
1997 1996 1995
---- ---- ----
<S> <C> <C> <C>
Interest income:
Interest and fees on loans ............. $ 6,868,630 $ 6,071,116 $ 4,966,265
Interest on federal funds sold ......... 67,434 62,611 66,296
Interest on time deposits in other banks 2,110 490 715
Interest on securities:
Taxable interest income ............. 2,952,141 3,336,709 3,145,169
Tax-exempt interest income .......... 489,549 437,326 514,479
----------- ----------- -----------
Total interest income ............ 10,379,864 9,908,252 8,692,924
----------- ----------- -----------
Interest expense:
Interest on deposits ................... 5,170,065 5,154,580 4,803,471
Interest on short-term borrowings ...... 330,338 278,056 135,019
----------- ----------- -----------
Total interest expense .............. 5,500,403 5,432,636 4,938,490
----------- ----------- -----------
Net interest income ................. 4,879,461 4,475,616 3,754,434
Provision for loan losses ................. 195,000 211,500 131,000
----------- ----------- -----------
Net interest income after provisions for
loan losses ............................ 4,684,461 4,264,116 3,623,434
----------- ----------- -----------
Non-interest income:
Service charges on deposit accounts .... 398,437 375,715 363,292
Commissions on insurance and brokerage . 44,848 44,923 17,807
Securities gains (losses) .............. 12,231 198,417 69,172
Other income ........................... 131,671 115,336 89,438
----------- ----------- -----------
Total non-interest income ........... 587,187 734,391 539,709
----------- ----------- -----------
Non-interest expense:
Salaries and employee benefits ......... 1,953,016 1,948,067 1,710,848
Expenses of premises and fixed assets .. 542,558 455,598 426,394
Other expenses ......................... 1,023,444 939,754 985,533
----------- ----------- -----------
Total non-interest expense .......... 3,519,018 3,343,419 3,122,775
----------- ----------- -----------
Income before income taxes .......... 1,752,630 1,655,088 1,040,368
Applicable income taxes ................... 422,448 333,982 209,316
----------- ----------- -----------
Net income .......................... $ 1,330,182 $ 1,321,106 $ 831,052
=========== =========== ===========
Average number of shares outstanding ...... 229,836 227,408 224,802
=========== =========== ===========
Per share:
Net income ............................. $ 5.79 $ 5.81 $ 3.70
=========== =========== ===========
Cash dividends declared ................ $ 2.15 $ 2.00 $ 1.75
=========== =========== ===========
</TABLE>
The accompanying summary of significant accounting policies and notes to
financial statements are an integral part of these statements.
F-4
<PAGE> 93
THE FIRST CORPORATION AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995
<TABLE>
<CAPTION>
UNREALIZED
GAIN (LOSS) FROM
SECURITIES
COMMON UNDIVIDED AVAILABLE FOR
STOCK SURPLUS PROFITS SALE TOTAL
----- ------- ------- ---- -----
<S> <C> <C> <C> <C> <C>
Balance at
December 31, 1994 $ 11,188 $ 628,407 $ 11,228,313 $ (1,261,905) $ 10,606,003
Net income - 1995............. 831,052 831,052
Sale of common stock.......... 138 143,353 143,491
Net change in unrealized gains
and (losses)on securities
available for sale, net of
taxes of $901,258............. 1,351,887 1,351,887
Cash dividends declared -
$1.75 per share............... (396,392) (396,392)
-------- ----------- ------------- ------------ --------------
Balance at
December 31, 1995............. 11,326 771,760 11,662,973 89,982 12,536,041
Net income - 1996............. 1,321,106 1,321,106
Sale of common stock.......... 138 153,986 154,124
Net change in unrealized gains
and (losses) on securities
available for sale, net of
taxes of $(64,495)............ (320,186) (320,186)
Cash dividends declared -
$2.00 per share............... (458,574) (458,574)
-------- ----------- ------------- ------------ --------------
Balance at
December 31, 1996............. 11,464 925,746 12,525,505 (230,204) 13,232,511
Net income - 1997............. 1,330,182 1,330,182
Sale of common stock.......... 92 107,010 107,102
Net change in unrealized
gains and (losses) on
securities available for
sale, net of taxes of $270,883 406,324 406,324
Cash dividends declared -
$2.15 per share............... (496,886) (496,886)
-------- ----------- ------------- ------------ --------------
Balance at
December 31, 1997.............. $ 11,556 $ 1,032,756 $ 13,358,801 $ 176,120 $ 14,579,233
======== =========== ============= ============ ==============
</TABLE>
The accompanying summary of significant accounting policies and notes to
financial statements are an integral part of these statements.
F-5
<PAGE> 94
THE FIRST CORPORATION AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995
<TABLE>
<CAPTION>
1997 1996 1995
---- ---- ----
<S> <C> <C> <C>
Cash flows from operating activities:
Net income..................................................... $ 1,330,182 $ 1,321,106 $ 831,052
Adjustments to reconcile net cash provided by
operating activities:
Depreciation of premises and equipment................... 251,956 213,101 202,878
Provision for loan losses................................ 195,000 211,500 131,000
Recovery of loan losses.................................. 28,530 79,383 32,791
Accretion of interest and discounts and amortization of
premiums included in interest yields..................... 78,568 127,977 293,111
Realized investment security (gains) losses.............. (12,231) (198,417) (69,172)
Realized (gain) loss on sale of premises and equipment... -- (9,390) --
(Increase) decrease in other assets...................... (194,561) (118,239) 434,572
(Increase) decrease in interest receivable............... 16,933 227,949 82,582
Increase (decrease) in taxes payable..................... (173,197) 266,208 (3,881)
Increase (decrease) in accrued expenses.................. 78,262 181,720 (393,887)
Increase (decrease) in accrued interest payable.......... 3,766 (2,662) 173,697
------------- ------------- ---------------
Net cash provided by operating activities............. 1,603,208 2,300,236 1,714,743
------------- ------------- ---------------
Cash flows from investing activities:
Proceeds from sale of securities available for sale............ 4,939,026 10,690,023 11,576,563
Proceeds from maturities of securities available for sale...... 16,617,770 14,906,786 3,601,085
Proceeds from maturities of securities available for sale...... -- -- 1,754,351
Purchases of securities available for sale..................... (13,724,049) (21,225,427) (14,524,466)
Purchases of securities to be held to maturity................. -- -- (1,017,380)
Net (increase) decrease in loans............................... (11,386,388) (10,349,038) (10,388,533)
Purchase of premises and equipment............................. (1,477,518) (525,689) (256,714)
Proceeds from sale of premises and equipment................... -- 10,500 --
------------- ------------- ---------------
Net cash used in investing activities............... (5,031,159) (6,492,845) (9,255,094)
------------- ------------- ---------------
Cash flows from financing activities:
Net increase (decrease) in deposits non-interest bearing....... 196,393 (694,603) 953,894
Net increase (decrease) in deposits-interest bearing........... 6,502,967 2,926,243 8,870,954
Net increase (decrease) Treasury tax and loan.................. (52,694) (593,709) 161,334
Advances from FHLB............................................. 7,970,000 7,000,000 --
Payments on advances FHLB...................................... (6,905,000) (4,075,000) (1,908,000)
Cash dividends................................................. (496,886) (458,574) (396,392)
Proceeds sale of common stock.................................. 107,102 154,124 143,491
------------- ------------- ---------------
Net cash provided by financing activities............. 7,321,882 4,258,481 7,825,281
------------- ------------- ---------------
Increase (decrease) in cash and cash equivalents...... 3,893,931 65,872 284,930
Cash and cash equivalents at beginning of year.................... 5,232,538 5,176,666 4,891,736
------------- ------------- ---------------
Cash and cash equivalents at end of year.......................... $ 9,126,469 $ 5,242,538 $ 5,176,666
============= ============= ===============
Supplemental schedule of cash flow information:
Cash paid during the year for:
Interest....................................................... $ 5,554,895 $ 5,435,298 $ 4,767,528
Income taxes................................................... $ 623,226 $ 165,672 $ 213,197
Decrease (increase) in unrealized loss on
securities available for sale............................... $ 677,207 $ (320,186) $ 1,351,887
</TABLE>
The accompanying summary of significant accounting policies and notes to
financial statements are an integral part of these statements.
F-6
<PAGE> 95
NOTE A - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
A summary of the significant accounting policies of The First
Corporation ("The First Corporation" or the "Company") and subsidiary, which
have been consistently followed in preparing the accompanying financial
statements, is presented to assist the reader in better understanding the
financial statements and other data contained in this report.
BASIS OF PRESENTATION AND PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the accounts of The First
Corporation and its wholly owned subsidiary, The First National Bank of Opelika
("First National" or the "Bank"). Significant intercompany balances and
transactions have been eliminated. The accounting and reporting policies of The
First Corporation conform with generally accepted accounting principles and with
practices of the banking industry. In preparing the financial statements, in
accordance with generally accepted accounting principles, management is required
to make estimates and assumptions that affect the reported amounts of assets and
liabilities and the disclosure of contingent assets and liabilities as of the
date of the balance sheet and revenues and expenses for the period.
Actual results could differ significantly from those estimates.
Material estimates that are particularly susceptible to significant
change relate to the determination of the reserve for loan losses and the
disclosures for contingent assets and liabilities. In connection with the
determination of the reserve for loan losses and the valuation of other real
estate, management obtains independent appraisals for significant properties and
properties collateralizing impaired loans.
STATEMENT OF CASH FLOWS
In the statement of cash flows, cash equivalents consist of cash and
due from banks, interest bearing deposits, and federal funds sold.
INVESTMENT SECURITIES
First National classifies its securities into two categories: held to
maturity and available for sale. Held to maturity securities are those
securities for which First National has the ability and intent to hold until
maturity. All other securities not included in held to maturity are classified
as available for sale.
Securities available for sale are recorded at fair value, with
unrealized gains and losses, net of the related tax effect, reported as a
separate component of shareholders' equity until realized. Held to maturity
securities are recorded at cost, and are adjusted for the amortization of
premiums and accretion of discounts to maturity. Transfers of securities between
categories are recorded at fair value at the date of transfer. Unrealized gains
or losses associated with transfers of securities from held to maturity to
available for sale are recorded as a separate component of shareholders' equity.
The unrealized gains or losses included in the separate component of
shareholders' equity for a security transferred from available for sale to held
to maturity are maintained and amortized into earnings over the remaining life
of the security as an adjustment to yield in a manner consistent with the
amortization or accretion of premium or discount on the associated security.
A decline in the market value of any available for sale or held to
maturity security below cost that is deemed other than temporary results in a
charge to earnings resulting in the establishment of a new cost basis for the
security.
F-7
<PAGE> 96
Premiums and discounts are amortized and accumulated over the life of
the related security as an adjustment to the yield using the effective interest
method. Dividends and interest income are recognized when earned. Realized gains
and losses for securities classified as available for sale and held to maturity
are included in earnings and are derived using the specific identification
method for determining the amortized cost of securities sold.
Management determines the appropriate classification of the security at
the time of purchase and reevaluates such designations as of the date of each
statement of condition.
LOANS
Loans are reported at principal amounts outstanding, less unearned
income and reserve for loan losses.
Interest on loans is accrued based upon the principal amount
outstanding except for interest on some installment loans, which is generally
credited to income based upon the sum-of-the-years digits method. This method
generally approximates the interest method of income recognition.
Loans on which the accrual of interest has been discontinued are
designated as nonaccrual loans. Accrual of interest on loans is discontinued
when, in the opinion of management, reasonable doubt exists that the borrower
may be unable to meet payments of interest or principal when they become
contractually due. When a loan is placed on non accrual status, previously
accrued interest is charged to interest income on loans. Interest payments
received on nonaccrual loans are applied as a reduction of principal. Loans are
returned to accruing status only when they are brought fully current with
respect to interest and principal and when, in the judgment of management, the
loans are estimated to be fully collectible as to both principal and interest.
Such interest, when ultimately collected, is recorded as interest income in the
period received. Interest on accruing impaired loans is recognized as long as
such loans do not meet the criteria for nonaccrual classifications.
RESERVE FOR LOAN LOSSES
The reserve for loan losses is established through provisions for loan
losses charged to operations. Loans are charged against the reserve for loan
losses when management believes that the collection of principal is unlikely.
Subsequent recoveries are added to the reserve. Management's evaluation of the
adequacy of the reserve for loan losses is based on a formal analysis which
assesses the risk within the loan portfolio. This analysis includes
consideration of historical performance, current economic conditions, level of
nonperforming loans, loan concentrations, and review of certain individual
loans.
Management believes that the reserve for loan losses is adequate. While
management uses available information to recognize losses on loans, future
additions to the reserve for loan losses 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 subsidiary bank's
reserve for loan losses. Such agencies may require the subsidiary bank to
recognize additions to the reserve for loan losses based on their judgments
about information available to them at the time of their examination.
Management, considering current information and events regarding a
borrowers' ability to repay its obligations, considers a loan to be impaired
when the ultimate collectibility of all amounts due, according to the
contractual terms of the loan agreement, is in doubt. When a loan is considered
to be impaired, the amount of impairment is measured based on the present value
of expected future cash flows discounted at the loan's effective interest rate.
If the loan is collateral-dependent, the fair value of the collateral is used to
determine the amount of impairment. Impairment losses are
F-8
<PAGE> 97
included in the reserve for loan losses through a charge to the provision for
losses on loans. Subsequent recoveries are added to the reserve for loan losses.
Cash receipts for accruing loans are applied to principal and interest under the
contractual terms of the loan agreement. Cash receipts on impaired loans for
which the accrual of interest has been discontinued are applied first to
principal and then to interest income.
The accounting for impaired loans described above applies to all loans,
except for large pools of smaller-balance, homogeneous loans that are
collectively evaluated for impairment, loans that are measured at fair value or
at the lower of cost or fair value, and debt securities. The reserve for loan
losses for large pools of smaller-balance, homogeneous loans is established
through consideration of such factors as changes in the nature and volume of the
portfolio, overall portfolio quality, adequacy of the underlying collateral,
loan concentrations, historical charge-off trends, and economic conditions that
may affect the borrowers' ability to pay.
PREMISES AND EQUIPMENT
Premises, equipment, and leasehold improvements are reported at cost,
less accumulated depreciation and amortization. The provision for depreciation
is computed using the straight-line or accelerated methods over the estimated
useful lives of the assets.
Estimated useful lives generally are as follows:
<TABLE>
<S> <C>
Premises and leasehold improvements ............ 10-40 years
Furniture and equipment......................... 5-12 years
</TABLE>
Expenditures for maintenance and repairs are charged against income as
incurred. Costs of major additions and improvements are capitalized. The asset
account is relieved of the cost of the item and the allowance for depreciation
and amortization is charged with accumulated depreciation or amortization when
property is disposed of or retired.
OTHER REAL ESTATE
Other real estate, consisting of properties obtained through
foreclosure or in satisfaction of loans, is reported at the lower of cost or
fair value, determined on the basis of current appraisals, comparable sales, and
other estimates of value obtained principally from independent sources, adjusted
for estimated selling costs. Any excess of the loan balance at the time of
foreclosure over the fair value of the real estate held as collateral is treated
as a loan charge-off. Gain or loss on sale and any subsequent adjustment to the
value are recorded as a component of non-interest expense.
INCOME TAXES
The First Corporation uses the asset and liability method to account
for income taxes. Under the asset and liability method, deferred tax assets and
liabilities are recognized for the future tax consequences attributable to
differences between the financial statement carrying amounts of existing assets
and liabilities and their respective tax basis. Deferred tax assets and
liabilities are measured using enacted tax rates expected to apply to taxable
income in the years in which those temporary differences are expected to be
recovered or settled. The effect on deferred tax assets and liabilities of a
change in tax rates is recognized in income in the period that includes the
enactment date.
F-9
<PAGE> 98
DISCLOSURE ABOUT FAIR VALUE OF FINANCIAL INSTRUMENTS
Fair value estimates are made at a specific point in time, based on
relevant market information and information about the financial instrument.
These estimates do not reflect any premium or discount that could result from
offering for sale, at one time, the Bank's entire holding of a particular
financial instrument. Because no market exists for a portion of the Bank's
financial instruments, fair value estimates are based on judgments regarding
future expected loss experience, current economic conditions, risk
characteristics of various financial instruments, and other factors. These
estimates are subjective in nature and involve uncertainties and matters of
significant judgment and therefore cannot be determined with precision. Changes
in assumptions could significantly affect the estimates.
Fair value estimates are based on existing on- and off-balance sheet
financial instruments without attempting to estimate the value of anticipated
future business and the value of assets and liabilities that are not considered
financial instruments. Significant assets and liabilities that are not
considered financial instruments include deferred tax accounts and premises and
equipment. In addition, the tax ramifications related to the realization of the
unrealized gains and losses can have a significant effect on fair value
estimates and have not been considered in any of the estimates.
The following methods and assumptions were used to estimate the fair
value of each class of financial instruments for which it is practicable to
estimate that value.
CASH AND SHORT-TERM INVESTMENTS
For those short-term instruments, the carrying amount is a reasonable
estimate of fair value.
SECURITIES
For securities held to maturity for investment purposes, fair values
are based on quoted market prices or dealer quotes.
LOANS, NET UNEARNED INCOME
The fair value of loans is estimated by discounting the future cash
flows using the current rates at which similar loans would be made to borrowers
with similar credit ratings and for the same remaining maturities.
DEPOSITS
The fair value of demand deposits, savings accounts, and certain money
market deposits is the amount payable on demand at the reporting date. The fair
value of fixed-maturity certificates of deposit and time deposits is estimated
using the rates currently offered for deposits of similar remaining maturities.
LONG-TERM DEBT
Rates currently available to the Bank for similar terms and remaining
maturities are used to estimate fair value of existing debt.
F-10
<PAGE> 99
COMMITMENTS TO EXTEND CREDIT, STANDBY LETTERS OF CREDIT, AND FINANCIAL
GUARANTEES WRITTEN
The fair values of commitments are estimated using the fees charged to
enter into similar agreements, taking into account the remaining terms of the
agreements and the present creditworthiness of the counter parties. For
fixed-rate loan commitments, fair values also consider the difference between
current levels of interest rates and the committed rates. The fair values of
guarantees and letters of credit are estimated based on fees currently charged
for similar agreements.
The following summarizes the fair value of financial instruments at
December 31:
<TABLE>
<CAPTION>
1997
--------------------------------
CARRYING ESTIMATED
AMOUNT FAIR VALUE
------ ----------
<S> <C> <C>
Cash and short-term investments...................... $ 9,126,469 $ 9,126,469
Securities held to maturity.......................... 629,350 629,350
Securities available for sale........................ 47,941,037 47,941,037
Loans, net unearned income........................... 82,032,108 81,965,091
Deposits............................................. 123,852,717 124,111,362
Demand note issued to U.S. Treasury.................. 506,498 506,498
Advances from Federal Home loan bank................. 5,000,000 4,939,753
Commitments.......................................... -- 9,473,735
</TABLE>
RECENT ACCOUNTING PRONOUNCEMENTS
In June 1997, the FASB issued SFAS No. 130, "Reporting Comprehensive
Income". This statement establishes standards for reporting and display of
comprehensive income and its components in a full set of general purpose
financial statements. SFAS No. 130 requires all items that are required to be
recognized under accounting standards as components of comprehensive income be
reported in a financial statement that is displayed in equal prominence with the
other financial statements. The term "comprehensive income" is used in the SFAS
to describe the total of all components of comprehensive income including net
income. "Other comprehensive income" refers to revenues, expenses, gains, and
losses that are included in comprehensive income but excluded from earnings
under current accounting standards. Currently, "other comprehensive income" for
The First Corporation consists of items previously recorded directly in equity
under SFAS No. 115, "Accounting for Certain Investments in Debt and Equity
Securities". SFAS No. 130 is effective for both interim and annual financial
statement periods beginning after December 15, 1997.
NOTE B - RESTRICTIONS ON CASH AND DUE FROM BANKS
First National is not required to maintain a reserve balance with the
Federal Reserve Bank due to the adequate cash reserves on hand.
NOTE C - SECURITIES
The carrying and estimated fair value of investment securities are
summarized as follows:
Securities Held-To-Maturity. The amortized cost and estimated fair
value of securities held-to-maturity were as follows
F-11
<PAGE> 100
<TABLE>
<CAPTION>
GROSS GROSS
AMORTIZED UNREALIZED UNREALIZED
December 31, 1997 COST GAINS LOSSES FAIR VALUE
---- ----- ------ ----------
<S> <C> <C> <C> <C>
U.S. Government Corporations............ $ 629,350 $ -- $ -- $ 629,350
---------- ------- ------ ----------
Total......................... $ 629,350 $ -- $ -- $ 629,350
========== ======= ====== ==========
December 31, 1996
U.S. Government Corporations............ $ 629,350 $ -- $ -- $ 629,350
---------- ------- ------ ----------
Total......................... $ 629,350 $ -- $ -- $ 629,350
========== ======= ====== ==========
</TABLE>
Securities Available-For-Sale
The amortized cost and estimated fair value of securities
available-for-sale were as follows:
<TABLE>
<CAPTION>
GROSS GROSS
AMORTIZED UNREALIZED UNREALIZED FAIR
December 31, 1997 COST GAINS LOSSES VALUE
------------ ------------ ----------- ------------
<S> <C> <C> <C> <C>
Equity securities.......................... $ 1,002,438 $ -- $ 82,282 $ 920,156
U.S. Treasury securities................... 1,488,604 6,683 -- 1,495,287
Federal agency/corporation securities...... 21,476,383 186,679 9,570 21,653,492
Obligation of state & political
subdivisions............................. 9,686,397 152,235 14,923 9,823,709
Mortgage-backed securities................. 13,993,681 106,596 51,884 14,048,393
------------ ------------ ----------- ------------
Total.................................... $ 47,647,503 $ 452,193 $ 158,659 $ 47,941,037
============ ============ =========== ============
</TABLE>
<TABLE>
<CAPTION>
GROSS GROSS
AMORTIZED UNREALIZED UNREALIZED FAIR
December 31, 1996 COST GAINS LOSSES VALUE
------------ ------------ ----------- ------------
<S> <C> <C> <C> <C>
Equity securities.......................... $ 1,002,438 $ -- $ 222,438 $ 780,000
U.S. Treasury securities................... 9,001,119 10,255 14,205 8,997,169
Federal agency/corporation securities...... 19,989,059 70,574 134,754 19,924,879
Obligation of state & political
subdivisions............................. 8,362,543 82,939 66,311 8,379,171
Mortgage-backed securities................. 17,191,428 114,375 224,109 17,081,694
------------ ------------ ----------- ------------
Total.................................... $ 55,546,587 $ 278,143 $ 661,817 $ 55,162,913
============ ============ =========== ============
</TABLE>
The Bank's portfolio of securities generally consists of
investment-grade securities. The fair value of securities are determined with
the assistance of an independent pricing service. They are based on available
market data which often reflects transactions of relatively small size and are
not necessarily indicative of the prices at which large amounts of particular
issues could be readily sold or purchased.
F-12
<PAGE> 101
The amortized cost and estimated fair value of securities at December
31, 1997, are shown below by contractual maturity. Expected maturities will
differ from contractual maturities because borrowers have the right to call or
prepay obligations with or without call or prepayment penalties.
<TABLE>
<CAPTION>
SECURITIES TO BE 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 .......... $ -- $ -- $ 5,109,737 $ 5,096,538
Due from one year to five years... -- -- 8,800,601 8,818,900
Due from five years to ten years.. -- -- 25,245,895 25,490,292
Due after ten years (a) .......... 629,350 629,350 7,488,832 7,615,150
Equity securities ................ -- -- 1,002,438 920,157
----------- ----------- ----------- -----------
$ 629,350 $ 629,350 $47,647,503 $47,941,037
=========== =========== =========== ===========
</TABLE>
Securities with carrying value of $31,009,007 and $27,375,706 at
December 31, 1997 and 1996 respectively, were pledged to secure public funds.
Proceeds from sales of securities available for sale in 1997, were
$4,939,026. Gross realized gains and losses were $22,485 and $10,254,
respectively. Proceeds from sales of investment securities in 1996 were
$10,690,023. In 1996, gross gains of $236,144 and gross losses of $37,727 were
realized. Proceeds from sales of investment securities in 1995 were $15,909,563.
In 1995 gross gains of $122,142 and gross losses of $54,970 were realized.
F-13
<PAGE> 102
NOTE D - LOANS
The composition of the loan portfolio at December 31, is as follows:
<TABLE>
<CAPTION>
1997 1996
---- ----
<S> <C> <C>
Commercial ......................... $ 19,323,464 $ 13,874,282
Real estate - construction ......... 6,333,636 6,306,040
Real estate - other ................ 45,603,094 39,980,238
Installment and single pay ......... 6,505,424 7,035,556
Other loans ........................ 4,266,529 3,607,515
------------ ------------
82,032,147 70,803,631
Unearned income .................... (39) (954)
------------ ------------
Totals ......................... $ 82,032,108 $ 70,802,677
============ ============
Accrued interest receivable ........ $ 594,115 $ 461,402
============ ============
</TABLE>
The following schedule presents the maturity of the Bank's loan
portfolio at December 31:
<TABLE>
<CAPTION>
1997 1996
---- ----
<S> <C> <C>
Amounts due:
Within one year ............... $21,263,150 $31,299,516
1 to 5 years .................. 32,551,933 27,049,413
over 5 years .................. 28,217,064 12,454,702
----------- -----------
Total amount due ............ $82,032,147 $70,803,631
=========== ===========
</TABLE>
The following schedule sets forth the amount of all loans, which have
predetermined interest rates and which have floating or adjustable interest
rates.
<TABLE>
<CAPTION>
FIXED FLOATING OR
RATES ADJUSTABLE RATES TOTAL
----- ---------------- -----
<S> <C> <C> <C>
Loan portfolio................ $ 48,707,722 $ 33,324,425 $ 82,032,147
</TABLE>
Loans on which the accrual of interest has been discontinued or reduced
amounts to $26,072 at December 31, 1997. If interest on those loans had been
accrued, such additional income would have approximated $3,520. Interest income
on those loans, which is recorded only when received, amounted to $2,699.
Directors and executive officers, including the directors' and
officers' families and affiliated companies, are loan and deposit customers and
have other transactions with the Bank in the ordinary course of business. Total
loans to these persons (excluding loans which in the aggregate do not exceed
$60,000 to any such person) at December 31, 1997 and 1996 were approximately
$1,568,428 and $1,668,115 respectively. These loans were made in the ordinary
course of business and with substantially the same terms including interest
rates and collateral, as those prevailing at the same time for comparable
transactions with other persons and involve no unusual risk of collectibility.
F-14
<PAGE> 103
NOTE E - ALLOWANCE FOR LOAN LOSSES
<TABLE>
<CAPTION>
1997 1996 1995
---- ---- ----
<S> <C> <C> <C>
Balance at beginning of year ....... $ 1,086,490 $ 863,997 $ 838,843
Provision for loan losses ........ 195,000 211,500 131,000
Loans charged off ................ (156,956) (68,390) (138,637)
Recoveries of charged off loans... 28,530 79,383 32,791
----------- ----------- -----------
Balance at end of year ............. $ 1,153,064 $ 1,086,490 $ 863,997
=========== =========== ===========
</TABLE>
NOTE F - PREMISES AND EQUIPMENT
A summary of premises and equipment follows:
<TABLE>
<CAPTION>
1997 1996
---- ----
<S> <C> <C>
Land ...................................... $ 971,346 $ 821,346
Buildings and improvements .................. 3,683,516 2,975,478
Furniture and fixtures ...................... 1,804,455 1,306,470
Automobiles ................................. 36,281 36,281
--------- -----------
Total ..................................... 6,495,598 5,139,575
Less: Accumulated depreciation & amortization 1,899,663 1,769,202
---------- -----------
Total ..................................... $4,595,935 $ 3,370,373
=========== ===========
</TABLE>
The allowance for depreciation and amortization charged to operating
expense in 1997 and 1996 amounts to $251,956 and $213,101, respectively.
NOTE G - DEPOSITS
The following schedule presents a comparative summary of the
interest-bearing deposits.
<TABLE>
<CAPTION>
1997 1996
---- ----
<S> <C> <C>
Interest-bearing checking accounts .......... 16,137,614 $ 17,416,771
Savings accounts ............................ 4,993,182 4,926,106
Money market savings accounts ............... 27,260,871 20,215,255
Certificates of deposit ($100,000 or more)... 14,509,832 14,521,770
Certificates of deposit ( under $100,000).... 41,891,481 41,210,111
Time deposits ($100,000 or more) ............ 6,635,000 6,635,000
------------ ------------
Totals .................................... $111,427,980 $104,925,013
============ ============
</TABLE>
F-15
<PAGE> 104
At December 31, 1997 and 1996, the scheduled maturities of certificates
of deposits are as follows:
<TABLE>
<CAPTION>
1997 1996
---- ----
<S> <C> <C>
One year ........................... $35,438,469 $34,829,854
Two years .......................... 11,937,670 10,420,858
Three years ........................ 5,952,565 5,211,679
Four years ......................... 1,549,277 4,180,245
Five years and thereafter .......... 1,523,332 1,089,245
----------- -----------
$56,401,313 $55,731,881
=========== ===========
</TABLE>
The following schedule details interest expense on deposits:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
-----------------------------
1997 1996
---- ----
<S> <C> <C>
Interest-bearing checking accounts ........ $ 630,930 $ 625,229
Savings accounts .......................... 140,849 145,387
Money market savings accounts ............. 783,482 747,789
Certificates of deposit ($100,000 or more) 825,141 825,451
Certificates of deposit (under $100,000) .. 2,444,919 2,468,745
Time deposits ($100,000 or more) .......... 344,744 341,979
---------- ----------
Totals .................................. $5,170,065 $5,154,580
========== ==========
</TABLE>
NOTE H - ADVANCES FROM FEDERAL HOME LOAN BANK OF ATLANTA
The Bank's advances from the Federal Home Loan Bank consist of the
following:
<TABLE>
<CAPTION>
DATE INTEREST RATE MATURITY DECEMBER 31, 1997
---- ------------- -------- -----------------
<S> <C> <C> <C>
09-24-97 5.66% 09-24-02 $ 5,000,000
------------
$ 5,000,000
============
</TABLE>
Federal Home Loan Bank advances represent borrowing from the Federal
Home Loan Bank of Atlanta. These advances are secured by Federal Home Bank
stock, carried at $610,300 and three Federal Home Loan Bank notes and two FHLMC
pool certificates with book amount of $6,240,236.
NOTE I - FINANCIAL INSTRUMENTS WITH OFF-BALANCE SHEET RISK
The Bank is party to financial instruments with off-balance sheet risk
in the normal course of business to meet the financial needs of its customers.
These financial instruments include loan commitments and standby letters of
credit and involve, to varying degrees, elements of credit and interest rate
risk in excess of the amount recognized in the financial statements.
F-16
<PAGE> 105
The Bank's exposure to credit loss in the event of nonperformance by
the other party to the financial instrument for loan commitments and standby
letters of credit is represented by the contractual amount of those instruments.
The Bank has no significant concentrations of credit risk with any individual
counterparty to originate loans. The total amounts of financial instruments with
off-balance sheet risk as of December 31, 1997 are as follows:
<TABLE>
<S> <C>
Loan commitments.................................. $ 8,991,235
Standby letters of credit......................... $ 482,500
</TABLE>
Both loan commitments and standby letters of credit have credit risk
essentially the same as that involved in extending loans to customers and are
subject to normal credit approval procedures and policies. Collateral is
obtained based on management's credit assessment of the customers.
NOTE J - INCOME TAXES
Deferred income taxes reflect the net tax effects of temporary
differences between the carrying amounts of assets and liabilities for financial
reporting purposes and the amounts used for income tax purposes. Components of
The First Corporation's deferred tax liabilities and assets as of December 31,
are listed below:
<TABLE>
<CAPTION>
1997 1996
---- ----
<S> <C> <C>
Deferred tax liabilities:
Loan loss provision ............. $ 368,714 $ 342,676
Deferred taxes retirement ....... 7,746 1,428
--------- ----------
Total deferred tax assets ....... 376,460 344,104
--------- ----------
Deferred tax liabilities:
Accretion of bond discount ...... 9,550 4,776
--------- ----------
Total deferred tax liabilities... 9,550 4,776
--------- ----------
Net deferred tax asset ........... $ 366,910 $ 339,328
========= ==========
</TABLE>
Applicable income taxes for financial reporting purposes differ from
the amount computed by applying the statutory federal income tax rate of 34% for
1997, 1996 and 1995 for the reasons noted below:
<TABLE>
<CAPTION>
1997 1996 1995
---- ---- ----
<S> <C> <C> <C>
Tax computed at statutory federal
income rate ................................. $ 595,894 $ 562,730 $ 353,725
Increase (decreases) in taxes resulting from:
Tax exempt income ........................... (159,521) (126,153) (198,122)
Tax on preference items ..................... (43,074) (17,308) (26,262)
State excise tax, net of federal tax benefit 20,360 61,600 20,655
Other, net .................................. 8,789 (146,887) 59,320
--------- --------- ---------
Totals .................................... $ 422,448 $ 333,982 $ 209,316
========= ========= =========
Effective tax rate ............................. 24.10% 20.18% 20.12%
========= ========= =========
</TABLE>
F-17
<PAGE> 106
The components of income taxes were as follows:
<TABLE>
<CAPTION>
1997 1996 1995
---- ---- ----
<S> <C> <C> <C>
Currently payable:
Federal ............... $ 419,182 $ 338,171 $ 183,829
State ................. 30,848 93,334 31,296
Deferred:
Federal ............... (23,445) (83,109) (4,938)
State ................. (4,137) (14,414) (871)
--------- --------- ---------
Totals .............. $ 422,448 $ 333,982 $ 209,316
========= ========= =========
</TABLE>
NOTE K - PROFIT-SHARING PLAN
The First Corporation amended and restated as of January 1, 1995 the
Bank's Savings and Profit-Sharing Plan. The Plan was a profit sharing and 401(k)
matching contribution plan. Eligible employees may defer a maximum of 15% of
their salary, not to exceed $9,240, which the first 5% deferred will be matched
by the Bank. The restated Plan is a profit sharing and stock bonus plan
containing Section 401(k) features that intended to qualify under Section 401(a)
of the Internal Revenue Code. The Plan is also designed to be an employee stock
ownership plan under Section 4975(e)(7) of the Code. The contributions to the
Plan were $117,500 for 1997 and $105,168 in 1996.
NOTE L - OFFICERS RETIREMENT AND DEATH BENEFIT PLAN
The Bank has a non-qualified supplemental officer retirement benefit
plan. The amount of annual benefit is indexed to the financial performance of an
insurance policy over a selected opportunity cost and is designed to increase
each year. The Bank's obligations under this plan are unfunded; however, the
Bank has purchased life insurance policies on each insurable officer which are
actuarially designed to offset the annual expenses associated with the plan and
will, given reasonable actuarial assumptions, provide over time a complete
recovery of all plan costs.
The life insurance benefit for each officer is the total death benefit
of the policy less the greater of the cash value or an amount equal to the
premiums paid for the policy plus a pro rata share of any interest due.
NOTE M - INCENTIVE STOCK OPTION PLAN
The Company has an incentive stock option plan for certain key
employees that provide for the granting of options to purchase up to 20,000
shares of the Company's common stock. The terms of the options granted are
determined by the recommendation of the Stock Option Committee and approved by
the Board of Directors; however, no options may be granted after ten years from
the plans' adoption and no options may be exercised beyond ten years from the
date granted. The option price per share of incentive stock options can not be
less than the fair market value of the common stock on the date of grant. On
December 12, 1995, the Company granted options for 10,000 shares exercisable
only to the extent that optionees have acquired a vested interest according to
the option plan.
F-18
<PAGE> 107
NOTE N - REGULATORY CAPITAL REQUIREMENTS
First National has always placed great emphasis on maintaining a strong
capital base and continues to exceed all minimum regulatory capital
requirements. Management is committed to maintaining a capital level sufficient
to assure shareholders, customers, and regulators that First National is
financially sound, and to enable the Bank to sustain an appropriate degree of
leverage to provide a desirable level of profitability.
Regulators use a risk-adjusted calculation to aid them in their
determination of capital adequacy by weighting assets based on the credit risk
associated with on- and off-balance sheet assets. The majority of these
risk-weighted assets are on-balance sheet assets for First National in the form
of loans. A small portion of risk-weighted assets are considered off-balance
sheet assets and are primarily made up of letters of credit and loan commitments
that First National enters into in the normal course of business. Capital is
categorized into two types: Tier I and Tier II. The capital guidelines used by
regulators require an 8% total risk-based capital ratio of which 4% must be Tier
I capital. Additionally, the regulatory agencies define a well-capitalized bank
as one which has a leverage ratio of at least 5%, a Tier I capital ratio of at
least 6%, and a total risk-based capital ratio of at least 10%. At the end of
1997, First National was in excess of the minimum capital requirements with a
Tier I capital ratio of 15.36% and a total risk-based capital ratio of 16.60%,
compared to Tier I and total risk-based capital ratios of 16.95% and 18.20%,
respectively, in 1996.
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
----------------------------------
CAPITAL RATIOS 1997 1996
---- ----
<S> <C> <C>
Tier I capital:
Shareholder's equity .......................... $ 14,370,082 $ 13,432,678
Adjustment for SFAS No. 115 ................... (82,281) (230,204)
------------ ------------
Total Tier I capital ........................ 14,287,801 13,202,474
Tier II capital:
Eligible portion of the reserve for loan losses 1,153,064 973,638
------------ ------------
Total Tier II capital ....................... 1,153,064 973,638
------------ ------------
Total risk based capital ......................... $ 15,440,865 $ 14,176,112
============ ============
Total risk-adjusted assets ....................... $ 93,044,000 $ 77,891,000
============ ============
Tier I capital ratio........................... 15.36% 16.95%
Total risk-based capital ratio................. 16.60% 18.20%
Leverage ratio................................. 10.29% 9.75%
Regulatory minimums:
Tier I capital ratio............................ 4.00%
Total risk-based capital ratio.................. 8.00%
Leverage ratio.................................. 3.00%
</TABLE>
F-19
<PAGE> 108
PROSPECTUS
15,000,000 SHARES
BANCORPSOUTH
COMMON STOCK
---------------
BancorpSouth, Inc. may from time to time offer shares of its common
stock in an aggregate amount of up to 15,000,000 shares, on terms and at prices
to be determined at the time of such offerings and set forth in one or more
supplements to this Prospectus. BancorpSouth is a Mississippi corporation and a
bank holding company registered under the Bank Holding Company Act of 1956, as
amended.
Shares of BancorpSouth common stock are to be offered directly by
BancorpSouth in connection with the acquisition of, or business combination
with, certain banking or savings institutions. The specific terms under which
shares of BancorpSouth common stock are being offered in connection with the
delivery of this Prospectus will be set forth in the applicable supplement and
will include the specific number of shares of BancorpSouth common stock and the
issuance price per share. BancorpSouth common stock may not be sold through this
Prospectus without delivery of the applicable supplement.
BancorpSouth common stock is listed on the New York Stock Exchange
under the symbol "BXS."
---------------
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES
COMMISSIONER HAS APPROVED OR DISAPPROVED OF THE SHARES OF BANCORPSOUTH COMMON
STOCK TO BE ISSUED UNDER THIS PROSPECTUS OR DETERMINED IF THIS PROSPECTUS IS
TRUTHFUL OR COMPLETE. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
---------------
SHARES OF BANCORPSOUTH COMMON STOCK ARE NOT SAVINGS OR DEPOSIT ACCOUNTS
AND ARE NOT INSURED BY THE FEDERAL DEPOSIT INSURANCE CORPORATION OR ANY OTHER
GOVERNMENTAL AGENCY.
---------------
The date of this Prospectus is September 24, 1998
P-1
<PAGE> 109
THE COMPANY
BancorpSouth, Inc. ("BancorpSouth") is a bank holding company with
financial services operations in Mississippi and Tennessee. BancorpSouth Bank, a
wholly-owned subsidiary of BancorpSouth, conducts a commercial banking and trust
business through offices located in communities throughout Mississippi and West
Tennessee. In addition, BancorpSouth Bank operates consumer finance, credit life
insurance and insurance agency subsidiaries. BancorpSouth Bank operates under
the trade names "Bank of Mississippi" in Mississippi and "Volunteer Bank" in
Tennessee.
BancorpSouth, through its subsidiaries, provides a range of financial
services to individuals and small-to-medium size businesses. Various types of
checking accounts, both interest bearing and non-interest bearing, are
available. Savings accounts and certificates of deposit with a range of
maturities and interest rates are available to meet the needs of customers.
Other services include safe deposit and night depository facilities. Limited
24-hour banking with automated teller machines is provided in most of its
principal markets. BancorpSouth Bank is an issuing bank for MasterCard, and
overdraft protection is available to approved MasterCard holders maintaining
checking accounts with BancorpSouth Bank.
BancorpSouth offers a variety of services through the trust department
of BancorpSouth Bank, including personal trust and estate services, certain
employee benefit accounts and plans, including individual retirement accounts,
and limited corporate trust functions.
BancorpSouth's lending activities include both commercial and consumer
loans. Loan originations are derived from a number of sources including real
estate broker referrals, mortgage loan companies, direct solicitation by
BancorpSouth's loan officers, present savers and borrowers, builders, attorneys,
walk-in customers and, in some instances, other lenders. BancorpSouth has
established disciplined and systematic procedures for approving and monitoring
loans that vary depending on the size and nature of the loan.
BancorpSouth's principal office is located at One Mississippi Plaza,
Tupelo, Mississippi, 38801 and its telephone number is (601) 680-2000.
AVAILABLE INFORMATION
BancorpSouth has filed a Registration Statement on Form S-4, including
amendments thereto, if any, with respect to BancorpSouth common stock (the
"Registration Statement") with the Securities and Exchange Commission (the
"SEC"). This Prospectus and any accompanying supplement do not contain all of
the information set forth in the Registration Statement and the exhibits and
schedules thereto. Statements contained in this Prospectus as to the contents of
any contract or other document referred to are not necessarily complete and in
each instance reference is made to the copy of such contract or other document
filed as an exhibit to the Registration Statement or as previously filed with
the SEC and incorporated herein by reference. For further information with
respect to BancorpSouth and BancorpSouth common stock, reference is made to such
Registration Statement, exhibits and schedules.
BancorpSouth is subject to the information requirements of the
Securities Exchange Act of 1934 (the "Exchange Act") and, in accordance
therewith, files reports, proxy statements and other information with the SEC.
The Registration Statement, as well as such reports, proxy statements and other
information, may be inspected and copied at prescribed rates at the public
reference facilities maintained by the SEC at Room 1024, Judiciary Plaza, 450
Fifth Street, N.W., Washington, D.C. 20549, and at the SEC's regional offices
located at 500 West Madison Street, Suite 1400, Chicago, Illinois 60661 and
Seven World Trade Center, Suite 1300, New York, New York 10048. You
P-2
<PAGE> 110
can obtain information about the operation of the SEC's Public Reference Room by
calling the SEC at 1-800-SEC-0330. In addition, the SEC maintains a web site
that contains reports, proxy and information statements and other information
regarding registrants that file electronically with the SEC at
http://www.sec.gov. BancorpSouth common stock is listed on The New York Stock
Exchange, Inc., and such reports, proxy statements and other information may be
inspected at the offices of the New York Stock Exchange at 20 Broad Street, New
York, New York 10005.
INCORPORATION OF CERTAIN INFORMATION BY REFERENCE
The following documents or portions of documents filed by BancorpSouth
with the SEC are incorporated herein by reference:
1. BancorpSouth's Annual Report on Form 10-K for the year ended December
31, 1997;
2. BancorpSouth's Quarterly Report on Form 10-Q for the three months ended
March 31, 1998;
3. BancorpSouth's Quarterly Report on Form 10-Q for the three months ended
June 30, 1998;
4. BancorpSouth's Current Report on Form 8-K dated May 18, 1998;
5. BancorpSouth's Current Report on Form 8-K dated July 10, 1998;
6. BancorpSouth's Current Report on Form 8-K dated September 3, 1998;
7. The description of BancorpSouth common stock contained in
BancorpSouth's Registration Statement on Form 8-A, dated May 14, 1997;
and
8. The description of BancorpSouth common stock purchase rights contained
in BancorpSouth's Registration Statement on Form 8-A, dated May 14,
1997.
All documents filed by BancorpSouth pursuant to Sections 13(a), 13(c),
14 or 15(d) of the Exchange Act subsequent to the date of this Prospectus shall
be deemed to be incorporated by reference into this Prospectus. Any statement
contained herein or in a document incorporated or deemed to be incorporated by
reference herein shall be deemed to be modified or superseded for purposes of
this Prospectus to the extent that a statement contained herein or in any
subsequently filed document which also is or is deemed to be incorporated by
reference herein, modifies or supersede such statement. Any such statement so
modified or superseded shall not be deemed, except as so modified or superseded,
to constitute a part of this Prospectus.
This Prospectus incorporates documents by reference which are not
presented herein or delivered herewith. A copy of these documents is available
upon written or oral request, at no charge, from Cathy S. Freeman, Vice
President and Corporate Secretary, BancorpSouth, Inc., One Mississippi Plaza,
Tupelo, Mississippi 38801, (601) 680-2000.
LEGAL MATTERS
The validity of the shares of BancorpSouth common stock to be offered
hereunder will be passed upon by Waller Lansden Dortch & Davis, A Professional
Limited Liability Company, Nashville, Tennessee, special counsel to
BancorpSouth. Certain matters concerning this offering will be passed upon on
behalf of BancorpSouth by Riley, Ford, Caldwell & Cork, P.A., Tupelo,
Mississippi.
P-3
<PAGE> 111
EXPERTS
The Consolidated Financial Statements of BancorpSouth, 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 in this Prospectus and in
the Registration Statement in reliance upon the report of KPMG Peat Marwick LLP,
independent certified public accountants, incorporated by reference herein, and
upon the authority of such firm as experts in accounting and auditing.
P-4
<PAGE> 112
ANNEX A
AGREEMENT AND PLAN OF MERGER
AGREEMENT AND PLAN OF MERGER, dated as of August 12, 1998 (this
"Agreement"), between BancorpSouth, Inc., a Mississippi corporation
("BancorpSouth") and The First Corporation, an Alabama corporation (the
"Company" and collectively with BancorpSouth, the "Holding Companies").
WHEREAS, BancorpSouth is the sole shareholder of BancorpSouth Bank, a
Mississippi banking corporation ("BancorpSouth Bank");
WHEREAS, the Company is the sole shareholder of The First National Bank
of Opelika, a national banking association ("Opelika" and together with
BancorpSouth Bank, the "Banks");
WHEREAS, BancorpSouth and the Company have determined that it is in the
best interests of their respective companies and their shareholders to
consummate the business combination transactions provided for herein in which
(i) the Company will merge with and into BancorpSouth (the "Holding Company
Merger") and (ii) Opelika will merge with and into BancorpSouth Bank (the "Bank
Merger"), each subject to the terms and conditions set forth herein
(collectively, the "Merger"); and
WHEREAS, the parties desire to make certain representations, warranties
and agreements in connection with the Merger and also to prescribe certain
conditions to the Merger.
NOW THEREFORE, in consideration of the mutual covenants,
representations, warranties and agreements contained herein, the receipt and
sufficiency of which is hereby acknowledged, and intending to be legally bound
hereby, the parties agree as follows:
ARTICLE I
THE MERGER
1.1. The Merger.
(a) Subject to the terms and conditions of this Agreement, in
accordance with the Mississippi Business Corporation Act (the "MBCA") and the
Alabama Business Corporation Act (the "ABCA"), at the Effective Time (as defined
in Section 1.2 hereof), the Company shall merge with and into BancorpSouth.
BancorpSouth shall be the surviving corporation (hereinafter sometimes called
the "Surviving Corporation") in the Holding Company Merger, and shall continue
its corporate existence under the laws of the State of Mississippi. The name of
the Surviving Corporation shall continue to be "BancorpSouth, Inc." Upon
consummation of the Holding Company Merger, the separate corporate existence of
the Company shall terminate.
(b) Subject to the terms and conditions of this Agreement, in
accordance with the Mississippi Banking Act (the "MBA") and the National Bank
Act (the "NBA") at the Effective Time (as defined in Section 1.2 hereof), and
immediately after the Holding Company Merger, Opelika shall merge with and into
BancorpSouth Bank. BancorpSouth Bank shall be the surviving banking corporation
(hereinafter sometimes called the "Surviving Bank") in the Bank Merger, and
shall continue its corporate existence under the laws of the State of
Mississippi. The name of the Surviving Bank shall continue to be "BancorpSouth
Bank." Upon consummation of the Bank Merger, the separate corporate existence of
Opelika shall terminate.
A-1
<PAGE> 113
1.2. Effective Time.
(a) The Holding Company Merger shall become effective as set
forth in the articles of merger (the "Company Articles of Merger") which shall
be filed on the Closing Date (as defined in Section 10.1) with the Secretary of
State of the State of Mississippi (the "Mississippi Secretary") and the
Secretary of State of the State of Alabama (the "Alabama Secretary") with
respect to the Holding Company Merger.
(b) The Bank Merger shall become effective as set forth in the
articles of merger (the "Opelika Articles of Merger," and together with the
Company Articles of Merger, the "Articles of Merger") which shall be filed on
the Closing Date (as defined in Section 10.1) with the Mississippi Department of
Banking and Consumer Finance (the "Mississippi Department") and the Office of
the Comptroller of the Currency of the United States Department of Treasury (the
"OCC") with respect to the Bank Merger but shall occur immediately after the
Holding Company Merger.
(c) The term "Effective Time" shall be the date and time when
the Merger becomes effective, as set forth in the Articles of Merger.
1.3. Effects of the Merger.
(a) At and after the Effective Time, the Holding Company
Merger shall have the effects set forth in Section 79-4-11.06 of the MBCA and
Section 10-2B-11.06 of the ABCA.
(b) At and after the Effective Time, the Bank Merger shall
have the effects set forth in Section 3(e) (12 U.S.C.ss.215a(e)) of the NBA and
Section 81-5-85 of the MBA.
1.4. Conversion of Company Common Stock.
(a) At the Effective Time, subject to Section 2.2(e) hereof,
each share of the common stock, par value $0.05 per share, of the Company (the
"Company Common Stock") issued and outstanding immediately prior to the
Effective Time (other than (i) Company Dissenting Shares (as defined herein),
(ii) shares of Company Common Stock held directly or indirectly by BancorpSouth
or the Company or any of their respective Subsidiaries (as defined below), and
(iii) Trust Account Shares and DPC shares, as such terms are defined in Section
1.4(b) hereof), shall, by virtue of this Agreement and without any action on the
part of the holder thereof, be converted into and exchangeable for that number
of shares of the common stock, par value $2.50 per share, of BancorpSouth
("BancorpSouth Common Stock"), together with the number of BancorpSouth Rights
(as defined in Section 5.2 hereof) associated therewith, equal to the Exchange
Ratio (as defined below).
For purposes of this Agreement:
(i) the "Exchange Ratio" means the quotient, rounded
to the nearest 1/10,000, equal to (x) $174.8178, divided by
(y) the Average Closing Price (as defined below); provided,
however, that the Exchange Ratio as computed shall not be less
than 7.7043 nor greater than 10.4235 (the "Collar Provision")
and the Exchange Ratio shall be fixed at the applicable amount
set forth above if the actual Exchange Ratio is beyond such
amounts.
(ii) the "Average Closing Price" means the average of
the daily last sale prices of BancorpSouth Common Stock as
reported on the New York Stock Exchange ("NYSE") Composite
Transactions tape (as reported in the Wall Street Journal, or,
if not reported therein, in another alternative authoritative
source mutually agreeable to the parties) for the 10
consecutive full trading days in which shares of
A-2
<PAGE> 114
BancorpSouth Common Stock are traded on the NYSE ending at the
close of trading on the Determination Date; and
(iii) the "Determination Date" means the third
business day prior to the Closing Date.
(b) In the event that, without giving effect to the
limitations set forth in the Collar Provision, the computation of the Exchange
Ratio, computed in accordance with the definition above, shall result in a
number greater than 11.8132 then the Company may, at its option and without
penalty, terminate this Agreement by giving prior written notice thereof to
BancorpSouth on the Determination Date, unless, within 24 hours following the
giving of such notice, BancorpSouth agrees with the Company to adjust the
Exchange Ratio to an amount proposed by the Company that is not greater than the
Exchange Ratio as computed in accordance with this paragraph.
(c) In the event that, without giving effect to the
limitations set forth in the Collar Provision, the computation of the Exchange
Ratio, computed in accordance with the definition above, shall result in a
number less than 7.0879, then BancorpSouth may, at its option and without
penalty, terminate this Agreement by giving prior written notice thereof to the
Company on the Determination Date, unless, within 24 hours following the giving
of such notice, the Company agrees with BancorpSouth to adjust the Exchange
Ratio to an amount proposed by BancorpSouth that is not less than the Exchange
Ratio as computed in accordance with this paragraph.
(d) All of the shares of Company Common Stock converted into
BancorpSouth Common Stock pursuant to this Article I shall no longer be
outstanding and shall automatically be canceled and shall cease to exist, and
each certificate (each a "Certificate") previously representing any such shares
of Company Common Stock shall thereafter only represent the right to receive (i)
the number of whole shares of BancorpSouth Common Stock and (ii) the cash in
lieu of fractional shares into which the shares of Company Common Stock
represented by such Certificate have been converted pursuant to this Section 1.4
and Section 2.2(e) hereof. Company Certificates previously representing shares
of Company Common Stock shall be exchanged for certificates representing whole
shares of BancorpSouth Common Stock and cash in lieu of fractional shares issued
in consideration therefor upon the surrender of such Company Certificates in
accordance with Section 2.2 hereof, without any interest thereon. If, between
the date of this Agreement and the Effective Time, the shares of BancorpSouth
Common Stock shall be changed into a different number or class of shares by
reason of any reclassification, recapitalization, split-up, combination,
exchange of shares or readjustment, or a stock dividend thereon shall be
declared with a record date within said period (any such event, a "Adjustment
Event"), the Exchange Ratio shall be adjusted to result in the same aggregate
consideration being delivered to the Company's shareholders as would have been
received had such Adjustment Event not occurred.
(e) At the Effective Time, all shares of Company Common Stock
that are owned directly or indirectly by BancorpSouth or the Company or any of
their respective Subsidiaries (other than shares of Company Common Stock (i)
held directly or indirectly in trust accounts, managed accounts and the like or
otherwise held in a fiduciary capacity for the benefit of third parties (any
such shares, and shares of BancorpSouth Common Stock which are similarly held,
whether held directly or indirectly by BancorpSouth or the Company, as the case
may be, being referred to herein as "Trust Account Shares") and (ii) held by
BancorpSouth or the Company or any of their respective Subsidiaries in respect
of a debt previously contracted (any such shares of Company Common Stock, and
shares of BancorpSouth Common Stock which are similarly held, whether held
directly or indirectly by BancorpSouth or the Company, being referred to herein
as "DPC Shares")) shall be canceled and shall cease to exist and no stock of
BancorpSouth or other consideration shall be delivered in exchange therefor. All
shares of BancorpSouth Common Stock that are owned by the Company or any of its
Subsidiaries (other than Trust Account Shares and DPC Shares) shall become
treasury stock of BancorpSouth.
A-3
<PAGE> 115
(f) Notwithstanding anything in this Agreement to the
contrary, shares of Company Common Stock which are outstanding immediately prior
to the Effective Time and with respect to which dissenters' rights shall have
been properly demanded in accordance with Article 13 of the ABCA ("Company
Dissenting Shares") shall not be converted into the right to receive, or be
exchangeable for, BancorpSouth Common Stock or cash in lieu of fractional shares
but, instead, the holders thereof shall be entitled to payment of the "fair
value" of such Company Dissenting Shares in accordance with the provisions of
Section 13 of the ABCA, provided, however, that if any holder fails to satisfy
the requirements of Article 13 of the ABCA, such holder or holders (as the case
may be) shall not be entitled to payment for such shares of Company Common Stock
under such Article, and each of such shares shall thereupon be deemed to have
been converted into the right to receive, and to have become exchangeable for,
as of the Effective Time, BancorpSouth Common Stock and/or cash in lieu of
fractional shares, without any interest thereon, as provided in Section 1.4(a)
and Article II hereof.
(g) BancorpSouth may terminate this Agreement if cash payments
in respect of fractional shares or dissenter's rights exceed the amount
permissible for the utilization of pooling of interests accounting treatment.
(h) At the Effective Time, all shares of Opelika common stock,
par value $1.00 per share ("Opelika Common Stock"), shall be canceled and shall
cease to exist and no stock of BancorpSouth, BancorpSouth Bank, or other
consideration shall be delivered in exchange therefor.
1.5. Stock Options.
(a) At the Effective Time, each option granted by the Company
to purchase shares of Company Common Stock (each a "Company Option") which is
outstanding and unexercised immediately prior thereto shall cease to represent a
right to acquire shares of Company Common Stock and shall be replaced by an
option issued under the appropriate stock option plan of BancorpSouth; provided
that new options shall only be issued to cover 3200 of the current 8000 shares
subject to Company Options and the remainder shall terminate prior to the
Effective Time, with new option being issued pro rata from such amount to
holders of Company Options:
(1) the number of shares of BancorpSouth Common Stock
to be subject to the new option shall be equal to the product
of the number of shares of Company Common Stock subject to the
original option and the Exchange Ratio, provided that any
fractional shares of BancorpSouth Common Stock resulting from
such multiplication shall be rounded down to the nearest whole
share; and
(2) the exercise price per share of BancorpSouth
Common Stock under the new option shall be equal to the
exercise price per share of Company Common Stock under the
original option divided by the Exchange Ratio, provided that
such exercise price shall be rounded down to the nearest cent.
The adjustment provided herein with respect to any options
which are incentive stock options" (as defined in Section 422
of the Internal Revenue Code of 1986, as amended (the "Code"))
shall be and is intended to be effected in a manner which is
consistent with Section 424(a) of the Code and, to the extent
it is not so consistent, such Section 424(a) shall override
anything to the contrary contained herein. The duration and
other terms of the new option shall be the same as the
original option except that all references to the Company
shall be deemed to be references to BancorpSouth.
(b) Prior to the Effective Time, BancorpSouth shall reserve
for issuance the number of shares of BancorpSouth Common Stock necessary to
satisfy BancorpSouth's obligations under this Section 1.5.
A-4
<PAGE> 116
1.6. BancorpSouth Common Stock. Except for shares of BancorpSouth
Common Stock owned by the Company or any of its Subsidiaries (other than Trust
Account Shares and DPC Shares), which shall be converted into treasury stock of
BancorpSouth as contemplated by Section 1.4 hereof, the shares of BancorpSouth
Common Stock issued and outstanding immediately prior to the Effective Time
shall be unaffected by the Merger and such shares shall remain issued and
outstanding.
1.7. Articles. At the Effective Time, the Amended and Restated Articles
of Incorporation of BancorpSouth, as in effect at the Effective Time, shall be
the articles of incorporation of the Surviving Corporation. At the Effective
Time, the Amended and Restated Articles of Association of BancorpSouth Bank, as
in effect at the Effective Time, shall be the articles of association of the
Surviving Bank.
1.8. By-Laws. At the Effective Time, the Bylaws of BancorpSouth, as in
effect immediately prior to the Effective Time, shall be the Bylaws of the
Surviving Corporation until thereafter amended in accordance with applicable
law. At the Effective Time, the Bylaws of BancorpSouth Bank, as in effect
immediately prior to the Effective Time, shall be the Bylaws of the Surviving
Bank until thereafter amended in accordance with applicable law.
1.9. Directors and Officers. The directors and officers of BancorpSouth
immediately prior to the Effective Time shall be the directors and officers of
the Surviving Corporation, each to hold office in accordance with the Restated
Articles of Incorporation and Bylaws of the Surviving Corporation until their
respective successors are duly elected or appointed and qualified. The directors
and officers of BancorpSouth Bank immediately prior to the Effective Time shall
be the directors and officers of the Surviving Bank, each to hold office in
accordance with the Restated Articles of Association and Bylaws of the Surviving
Bank until their respective successors are duly elected or appointed and
qualified
1.10. Tax Consequences; Accounting Treatment. It is intended that the
Merger shall (i) constitute a reorganization within the meaning of Section
368(a) of the Code and that this Agreement shall constitute a "plan of
reorganization" for the purposes of Section 368 of the Code, and (ii) be
accounted for as a "pooling of interests" under GAAP (as defined herein).
BancorpSouth may terminate this Agreement if KPMG Peat Marwick LLP shall advise
BancorpSouth and the Company in writing that the Merger does not qualify for
utilization of pooling of interests accounting treatment.
ARTICLE II
EXCHANGE OF SHARES
2.1. BancorpSouth to Make Shares Available. At or prior to the
Effective Time, BancorpSouth shall deposit, or shall cause to be deposited, with
a bank or trust company (the "Exchange Agent") selected by BancorpSouth and
reasonably satisfactory to the Company, for the benefit of the holders of
Certificates, for exchange in accordance with this Article II, certificates
representing the shares of BancorpSouth Common Stock and the cash in lieu of
fractional shares (such cash and certificates for shares of BancorpSouth Common
Stock, together with any dividends or distributions with respect thereto, being
hereinafter referred to as the "Exchange Fund") to be issued pursuant to Section
1.4 and paid pursuant to Section 2.2(a) in exchange for outstanding shares of
Company Common Stock.
2.2. Exchange of Shares.
(a) As soon as practicable after the Effective Time, and in no
event more than three business days thereafter, the Exchange Agent shall mail to
each holder of record of a
A-5
<PAGE> 117
Certificate or Certificates a form letter of transmittal (which shall specify
that delivery shall be effected, and risk of loss and title to the Certificates
shall pass, only upon delivery of the Certificates to the Exchange Agent) and
instructions for use in effecting the surrender of the Certificates in exchange
for certificates representing the shares of BancorpSouth Common Stock and the
cash in lieu of fractional shares into which the shares of Company Common Stock
represented by such Certificate or Certificates shall have been converted
pursuant to this Agreement. The Company shall have the right to review both the
letter of transmittal and the instructions prior to the Effective Time and
provide reasonable comments thereon. Upon surrender of a Certificate for
exchange and cancellation to the Exchange Agent, together with such letter of
transmittal, duly executed, the holder of such Certificate shall be entitled to
receive in exchange therefor and the Exchange Agent shall mail to such holder
within three business days of such surrender to the Exchange Agent (x) a
certificate representing that number of whole shares of BancorpSouth Common
Stock to which such holder of Company Common Stock shall have become entitled
pursuant to the provisions of Article I hereof and (y) a check representing the
amount of cash in lieu of fractional shares, if any, which such holder has the
right to receive in respect of the Certificate surrendered pursuant to the
provisions of this Article II, and the Certificate so surrendered shall
forthwith be canceled. No interest will be paid or accrued on the cash in lieu
of fractional shares and unpaid dividends and distributions, if any, payable to
holders of Certificates.
(b) No dividends or other distributions declared after the
Effective Time with respect to BancorpSouth Common Stock and payable to the
holders of record thereof shall be paid to the holder of any unsurrendered
Certificate until the holder thereof shall surrender such Certificate in
accordance with this Article II. After the surrender of a Certificate in
accordance with this Article II, the record holder thereof shall be entitled to
receive any such dividends or other distributions, without any interest thereon,
which theretofore had become payable with respect to shares of BancorpSouth
Common Stock represented by such Certificate.
(c) If any certificate representing shares of BancorpSouth
Common Stock is to be issued in a name other than that in which the Certificate
surrendered in exchange therefor is registered, it shall be a condition of the
issuance thereof that the Certificate so surrendered shall be properly endorsed
(or accompanied by an appropriate instrument of transfer) and otherwise in
proper form for transfer, and that the person requesting such exchange shall pay
to the Exchange Agent in advance any transfer or other taxes required by reason
of the issuance of a certificate representing shares of BancorpSouth Common
Stock in any name other than that of the registered holder of the Certificate
surrendered, or required for any other reason, or shall establish to the
satisfaction of the Exchange Agent that such tax has been paid or is not
payable.
(d) After the Effective Time, there shall be no transfers on
the stock transfer books of the Company of the shares of Company Common Stock
which were issued and outstanding immediately prior to the Effective Time. If,
after the Effective Time, Certificates representing such shares are presented
for transfer to the Exchange Agent, they shall be canceled and exchanged for
certificates representing shares of BancorpSouth Common Stock as provided in
this Article II.
(e) Notwithstanding anything to the contrary contained herein,
no certificates or scrip representing fractional shares of BancorpSouth Common
Stock shall be issued upon the surrender for exchange of Certificates, no
dividend or distribution with respect to BancorpSouth Common Stock shall be
payable on or with respect to any fractional share, and such fractional share
interests shall not entitle the owner thereof to vote or to any other rights of
a shareholder of BancorpSouth. In lieu of the issuance of any such fractional
share, BancorpSouth shall pay to each former stockholder of the Company who
otherwise would be entitled to receive a fractional share of BancorpSouth Common
Stock an amount in cash equal to the product of (x) the Average Closing Price
and (y) the fraction of a share of BancorpSouth Common Stock which such holder
would otherwise be entitled to receive pursuant to Article I hereof.
A-6
<PAGE> 118
(f) Any portion of the Exchange Fund that remains unclaimed by
the shareholders of the Company for 12 months after the Effective Time shall be
paid to BancorpSouth. Any shareholders of the Company who have not theretofore
complied with this Article II shall thereafter look only to BancorpSouth for
payment of their shares of BancorpSouth Common Stock, cash in lieu of fractional
shares and unpaid dividends and distributions on BancorpSouth Common Stock
deliverable in respect of each share of Company Common Stock such stockholder
holds as determined pursuant to this Agreement, in each case, without any
interest thereon. Notwithstanding the foregoing, none of BancorpSouth, the
Company, the Exchange Agent or any other person shall be liable to any former
holder of shares of Company Common Stock for any amount properly delivered to a
public official pursuant to applicable abandoned property, escheat or similar
laws.
(g) In the event any Certificate shall have been lost, stolen
or destroyed, upon the making of an affidavit of that fact by the person
claiming such Certificate to be lost, stolen or destroyed and, if required by
BancorpSouth, the posting by such person of a bond in such amount as
BancorpSouth may direct as indemnity against any claim that may be made against
it with respect to such Certificate, the Exchange Agent will issue in exchange
for such lost, stolen or destroyed Certificate the shares of BancorpSouth Common
Stock and cash in lieu of fractional shares deliverable in respect thereof
pursuant to this Agreement.
ARTICLE III
DISCLOSURE SCHEDULES; STANDARDS
FOR REPRESENTATIONS AND WARRANTIES
3.1. Disclosure Schedules. The parties acknowledge that as of the date
of this Agreement, the Company has not delivered the Company Disclosure Schedule
and BancorpSouth has not delivered the BancorpSouth Disclosure Schedule (and,
with the Company Disclosure Schedule, the "Disclosure Schedules"). Both parties
covenant and agree to deliver their respective Disclosure Schedules no later
than the close of business on August 25, 1998, and that the Disclosure Schedules
are subject to the reasonable review of, and acceptance by, the receiving party.
Notwithstanding anything in this Agreement to the contrary, the mere inclusion
of an item in a Disclosure Schedule as an exception to a representation or
warranty shall not be deemed an admission by a party that such item represents a
material exception or material fact, event or circumstance or that such item has
had or could be reasonably expected to have a Material Adverse Effect (as
defined herein) with respect to either the Company or BancorpSouth,
respectively.
3.2. Standards.
(a) No representation or warranty of the Company contained in
Article IV or of BancorpSouth contained in Article V shall be deemed untrue or
incorrect for any purpose under this Agreement as a consequence of the existence
or absence of any fact, circumstance or event, unless such fact, circumstance or
event, individually or when taken together with all other facts, circumstances
or events inconsistent with such representation or warranty contained in Article
IV, in the case of the Company, or Article V, in the case of BancorpSouth, has
had or could be reasonably expected to have a Material Adverse Effect with
respect to (i) the Company or (ii) BancorpSouth, respectively.
(b) As used in this Agreement, the term "Material Adverse
Effect" means, with respect to BancorpSouth or the Company, as the case may be,
a material adverse effect on (i) the business, results of operations or
financial condition of such party and its Subsidiaries taken as a whole, other
than any such effect attributable to or resulting from (w) any change in banking
or similar laws, rules or regulations of general applicability or
interpretations thereof by courts or governmental authorities, (x) any change in
GAAP or regulatory accounting principles applicable to banks or their holding
companies generally, (y) any action or omission of the Company or
A-7
<PAGE> 119
BancorpSouth or any Subsidiary of either of them taken with the express prior
written consent of the other party hereto, or (z) any expenses incurred by such
party where such expenses are contemplated by or reasonably incurred in
connection with this Agreement or the transactions contemplated hereby or (ii)
the ability of such party and its Subsidiaries to consummate the transactions
contemplated hereby. As used in this Agreement, the word "Subsidiary" when used
with respect to any party means any corporation, partnership or other
organization, whether incorporated or unincorporated, which is consolidated with
such party for financial reporting purposes.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
Subject to Article III, the Company hereby represents and warrants to
BancorpSouth as follows:
4.1. Corporate Organization.
(a) The Company is a corporation duly organized, validly
existing and in good standing under the laws of the State of Alabama. The
Company has the corporate power and authority to own or lease all of its
properties and assets and to carry on its business as it is now being conducted,
and is duly licensed or qualified to do business in each jurisdiction in which
the nature of the business conducted by it or the character or location of the
properties and assets owned or leased by it makes such licensing or
qualification necessary. The Company is duly registered as a bank holding
company under the Bank Holding Company Act of 1956, as amended (the "BHC Act").
The Articles of Incorporation and Bylaws of the Company (the "Company Governing
Documents"), copies of which have previously been made available to
BancorpSouth, are true and correct copies of such documents as in effect as of
the date of this Agreement. The Company has no Subsidiaries other than Opelika
and except for Opelika, the Company does not own (other than in a bona fide
fiduciary capacity or in satisfaction of a debt previously contracted)
beneficially, directly or indirectly, any shares of any equity securities or
similar interests of any person, or any interest in a partnership or joint
venture of any kind.
(b) Opelika is a national banking association duly organized,
validly existing and in good standing under the laws of the United States. The
deposit accounts of Opelika are insured by the Federal Deposit Insurance
Corporation (the "FDIC") through the Bank Insurance Fund to the fullest extent
permitted by law, and all premiums and assessments required to be paid in
connection therewith have been paid when due. Opelika has the corporate power
and authority to own or lease all of its properties and assets and to carry on
its business as it is now being conducted and is duly licensed or qualified to
do business in each jurisdiction in which the nature of the business conducted
by it or the character or the location of the properties and assets owned or
leased by it makes such licensing or qualification necessary. The Articles of
Association and Bylaws of Opelika, copies of which have previously been made
available to BancorpSouth, are true and correct copies of such documents as in
effect as of the date of this Agreement. Opelika has no Subsidiaries and does
not own (other than in a bona fide fiduciary capacity or in satisfaction of a
debt previously contracted) beneficially, directly or indirectly, any shares of
any equity securities or similar interests of any person, or any interest in a
partnership or joint venture of any kind except shares in any Federal Home Loan
Bank, any Federal Reserve Bank, the Student Loan Marketing Association, and
other investment securities held by Opelika in the ordinary course of business
as reflected on the financial statements of Opelika delivered to BancorpSouth.
(c) The minute books of the Company and Opelika contain true
and correct records of all meetings and other corporate actions held or taken
since July 1, 1993 of their respective shareholders and Boards of Directors
(including committees of their respective Boards of Directors).
A-8
<PAGE> 120
4.2. Capitalization.
(a) The authorized capital stock of the Company consists of
5,000,000 shares of Company Common Stock. As the date hereof, there are 232,321
shares of Company Common Stock outstanding and no shares of Company Common Stock
held by the Company as treasury stock. At On the Closing Date, no more than
236,818 shares of Company Common Stock will be outstanding and no shares of
Company Common Stock held by the Company as treasury stock. There are (i) no
shares of Company Common Stock reserved for issuance upon exercise of
outstanding stock options or otherwise except for (x) shares of Company Common
Stock reserved for issuance pursuant to the incentive stock option plan of the
under which options to acquire 8000 shares of Company Common Stock are
outstanding, and pursuant to the employee stock ownership with 401 (k) plan, and
(y) 47,822 shares of Company Common Stock reserved for issuance upon exercise of
the option (the "Option") to be issued to BancorpSouth pursuant to the Stock
Option Agreement, to be entered into on the date hereof, between BancorpSouth
and Company (the "Stock Option Agreement"). All of the issued and outstanding
shares of Company Common Stock have been duly authorized and validly issued and
are fully paid, nonassessable, and were issued in compliance with and are
currently free of all preemptive rights (including without limitation, those
granted by Section 4.2 of the Restated Articles of Incorporation of the
Company), with no personal liability attaching to the ownership thereof. Except
for options outstanding under the Company Option Plan and the Option, the
Company does not have and is not bound by any outstanding subscriptions,
options, warrants, calls, commitments or agreements of any character calling for
the purchase or issuance of any shares of Company Common Stock or any other
equity security of the Company or any securities representing the right to
purchase or otherwise receive any shares of Company Common Stock or any other
equity security of the Company. The names of the optionees, the date of each
option to purchase Company Common Stock granted, the number of shares subject to
each such option, the expiration date of each such option, and the price at
which each such option may be exercised under the Company Option Plans, if any,
shall be set forth in Section 4.2(a) of the Company Disclosure Schedule.
(b) The Company owns, directly or indirectly, all of the
issued and outstanding shares of the capital stock of Opelika, free and clear of
all liens, charges, encumbrances and security interests whatsoever, and all of
such shares are duly authorized and validly issued and are fully paid,
nonassessable and free of preemptive rights, with no personal liability
attaching to the ownership thereof. Opelika is not bound by any outstanding
subscriptions, options, warrants, calls, commitments or agreements of any
character calling for the purchase or issuance of any shares of capital stock or
any other equity security of Opelika or any securities representing the right to
purchase or otherwise receive any shares of capital stock or any other equity
security of such Subsidiary.
4.3. Authority; No Violation.
(a) The Company has full corporate power and authority to
execute and deliver this Agreement and the Stock Option Agreement and, upon the
receipt of shareholder approval of the Agreement, to consummate the transactions
contemplated hereby. The execution and delivery of this Agreement and the Stock
Option Agreement and the consummation of the transactions contemplated hereby
and thereby have been duly and validly approved by the Board of Directors of the
Company. The Board of Directors of the Company has directed that this Agreement
and the transactions contemplated hereby be submitted to the Company's
shareholders for approval at a meeting of such shareholders and, except for the
adoption of this Agreement by the requisite vote of the Company's shareholders,
no other corporate proceedings on the part of the Company are necessary to
approve this Agreement and the Stock Option Agreement and to consummate the
transactions contemplated hereby and thereby. This Agreement and the Stock
Option Agreement have been duly and validly executed and delivered by the
Company and constitutes a valid and binding obligation of the Company,
enforceable against the Company in accordance with its terms, except as
enforcement may
A-9
<PAGE> 121
be limited by general principles of equity whether applied in a court of law or
a court of equity and by bankruptcy, insolvency and similar laws affecting
creditors' rights and remedies generally.
(b) Neither the execution and delivery of this Agreement or
the Stock Option Agreement by the Company, nor the consummation by the Company
of the transactions contemplated hereby or thereby, nor compliance by the
Company with any of the terms or provisions hereof or thereof, will (i) violate
any provision of the Company Governing Documents or the Opelika Governing
Documents, or (ii) assuming that the consents and approvals referred to in
Section 4.4 hereof are duly obtained, (x) violate any statute, code, ordinance,
rule, regulation, judgment, order, writ, decree or injunction applicable to the
Company or any of its Subsidiaries, or any of their respective properties or
assets, or (y) violate, conflict with, result in a breach of any provision
under, constitute a default (or an event which, with notice or lapse of time, or
both, would constitute a default) under, result in the termination of or a right
of termination or cancellation under, accelerate the performance required by, or
result in the creation of any lien, pledge, security interest, charge or other
encumbrance upon any of the respective properties or assets of the Company or
any of its Subsidiaries under, any of the terms, conditions or provisions of any
note, bond, mortgage, indenture, deed of trust, license, lease, agreement or
other instrument or obligation to which the Company or any of its Subsidiaries
is a party, or by which they or any of their respective properties or assets may
be bound or affected.
4.4. Consents and Approvals. Except for (a) the filing of applications
and notices, as applicable, with the Board of Governors of the Federal Reserve
System (the "Federal Reserve Board"), the OCC, and with the FDIC, and approval
of such applications and notices, (b) the filing of such applications, filings,
authorizations, orders and approvals as may be required under applicable state
law, (c) the filing with the SEC of a proxy statement in definitive form
relating to the meetings of the Company's shareholders to be held in connection
with this Agreement and the transactions contemplated hereby (the "Proxy
Statement") and the filing and declaration of effectiveness of a post-effective
amendment to the shelf registration statement on Form S-4 (such shelf
registration statement and any post-effective amendment thereto relating to this
transaction, or any other S-4 Registration Statement used in connection with the
Merger, the "S-4") in which the Proxy Statement will be included as a
prospectus, (d) the approval of this Agreement by the requisite vote of the
shareholders of the Company, (e) the filing of the Articles of Merger with the
Mississippi Secretary, the Alabama Secretary, the Mississippi Department and the
OCC, as applicable, and (f) approval for listing of BancorpSouth Common Stock to
be issued in the Merger on the New York Stock Exchange ("NYSE"), no consents or
approvals of or filings or registrations with any court, administrative agency
or commission or other governmental authority or instrumentality (each a
"Governmental Entity") or with any third party are necessary in connection with
(1) the execution and delivery by the Company of this Agreement and the Stock
Option Agreement and (2) the consummation by the Company and Opelika of the
Merger and the other transactions contemplated hereby and thereby.
4.5. Reports. The Company and Opelika have timely filed all reports,
registrations and statements, together with any amendments required to be made
with respect thereto, that they were required to file since December 31, 1996
with (i) the Federal Reserve Board, (ii) the OCC, (iii) the FDIC, (iv) any
Federal Reserve Bank, (v) any state banking commissions or any other state
regulatory authority (each a "State Regulator") and (vi) any other
self-regulatory organization ("SRO") (collectively, the "Regulatory Agencies"),
and have paid all fees and assessments due and payable in connection therewith.
Except for normal examinations conducted by a Regulatory Agency in the regular
course of the business of the Company and its Subsidiaries, no Regulatory Agency
has initiated any proceeding or, to the knowledge of the Company, investigation
into the business or operations of the Company or any of its Subsidiaries since
December 31, 1995. Except as set forth in Section 4.5 of the Company Disclosure
Schedule, there is no unresolved violation, criticism, or exception by any
Regulatory Agency with respect to any report or statement relating to any
examinations of the Company or any of its Subsidiaries.
A-10
<PAGE> 122
4.6. Financial Statements. The Company has previously made available to
BancorpSouth copies of (a) the consolidated statements of condition of the
Company and its Subsidiaries as of December 31 for the fiscal years 1996 and
1997, and the related consolidated statements of earnings, changes in
shareholders' equity and cash flows for the fiscal years 1996 through 1997,
inclusive (collectively, the "Company Financial Statements"), in each case
accompanied by the audit report of Brantley, Stephens, and Boucher, LLP,
independent public accountants with respect to the Company. The December 31,
1997 consolidated statement of condition of the Company (including the related
notes, where applicable) fairly presents the consolidated financial position of
the Company and its Subsidiaries as of the date thereof, and the other financial
statements referred to in this Section 4.6 (including the related notes, where
applicable) fairly present the results of the consolidated operations and
consolidated financial position of the Company and its Subsidiaries for the
respective fiscal periods or as of the respective dates therein set forth; each
of such statements (including the related notes, where applicable) complies with
applicable accounting requirements; and each of such statements (including the
related notes, where applicable) has been prepared in accordance with generally
accepted accounting principles ("GAAP") consistently applied during the periods
involved, except as indicated in the notes thereto. The books and records of the
Company and its Subsidiaries have been, and are being, maintained in accordance
with GAAP and any other applicable legal and accounting requirements.
4.7. Broker's Fees. Except for Alex Sheshunoff & Co. Investment
Banking, neither the Company nor any Subsidiary of the Company nor any of their
respective officers or directors has employed any broker or finder or incurred
any liability for any broker's fees, commissions or finder's fees in connection
with any of the transactions contemplated by this Agreement or the Stock Option
Agreement.
4.8. Absence of Certain Changes or Events.
(a) Since December 31, 1997, except as set forth in Section
4.8 of the Company Disclosure Schedule, (i) there has been no change or
development or combination of changes or developments which, individually or in
the aggregate, has had a Material Adverse Effect on the Company and (ii) the
Company and its Subsidiaries have carried on their respective businesses in the
ordinary course consistent with their past practices.
(b) Neither the Company nor any of its Subsidiaries has,
except as set forth in Section 4.8 of the Company Disclosure Schedule, (i)
increased the wages, salaries, compensation, pension, or other fringe benefits
or perquisites payable to any executive officer, employee, or director from the
amount thereof in effect as of December 31, 1997 (which amounts have been
previously disclosed to BancorpSouth), granted any severance or termination pay,
entered into any contract to make or grant any severance or termination pay, or
paid any bonus (except for salary and benefit increases and bonus payments made
in the ordinary course of business consistent with past practices), (ii)
suffered any strike, work stoppage, slow-down, or other labor disturbance, (iii)
been a party to a collective bargaining agreement, contract or other agreement
or understanding with a labor union or organization, or (iv) had any union
organizing activities.
4.9. Legal Proceedings.
(a) Neither the Company nor any of its Subsidiaries is a party
to any, and there are no pending or, to the Company's knowledge, threatened,
legal, administrative, arbitral or other proceedings, claims, actions or
governmental or regulatory investigations of any nature against the Company or
any of its Subsidiaries or challenging the validity or propriety of the
transactions contemplated by this Agreement or the Stock Option Agreement, other
than regularly scheduled examinations and similar routine investigations made by
bank regulatory officials in the course of their supervision of the Company and
Opelika.
A-11
<PAGE> 123
(b) There is no injunction, order, judgment, decree, or unique
regulatory restriction imposed upon the Company, any of its Subsidiaries or the
assets of the Company or any of its Subsidiaries.
4.10. Taxes.
(a) Each of the Company and its Subsidiaries has (i) duly and
timely filed (including applicable extensions granted without penalty) all Tax
Returns (as hereinafter defined) required to be filed at or prior to the
Effective Time, and such Tax Returns are true and correct, and (ii) paid in full
or made adequate provision in the Company Financial Statements (in accordance
with GAAP) for all Taxes (as hereinafter defined) shown to be due on such Tax
Returns. Except as set forth in Section 4.10 of the Company Disclosure Schedule,
as of the date hereof neither the Company nor any of its Subsidiaries has
requested any extension of time within which to file any Tax Returns in respect
of any fiscal year which have not since been filed and no request for waivers of
the time to assess any Taxes are pending or outstanding, and as of the date
hereof, with respect to each taxable period of the Company and its Subsidiaries,
the federal and state income Tax Returns of the Company and its Subsidiaries
have been audited by the Internal Revenue Service or appropriate state tax
authorities or the time for assessing and collecting income Tax with respect to
such taxable period has closed and such taxable period is not subject to review.
There are no liens with respect to Taxes upon any of the assets of the Company
or its Subsidiaries. Deferred Taxes of the Company and its Subsidiaries have
been provided for in accordance with GAAP.
(b) For the purposes of this Agreement, "Taxes" shall mean all
taxes, charges, fees, levies, penalties or other assessments imposed by any
United States federal, state, local or foreign taxing authority, including, but
not limited to income, excise, property, sales, transfer, franchise, payroll,
withholding, social security or other taxes, including any interest, penalties
or additions attributable thereto. For purposes of this Agreement, "Tax Return"
shall mean any return, report, information return or other document (including
any related or supporting information) with respect to Taxes.
4.11. Employees.
(a) Section 4.11(a) of the Company Disclosure Schedule sets
forth a true and correct list of each deferred compensation plan, incentive
compensation plan, equity compensation plan, "welfare" plan, fund or program
(within the meaning of section 3(l) of the Employee Retirement Income Security
Act of 1974, as amended ("ERISA")); "pension" plan, fund or program (within the
meaning of section 3(2) of ERISA); each employment, termination or severance
agreement; and each other employee benefit plan, fund, program, agreement or
arrangement, in each case, that is sponsored, maintained or contributed to or
required to be contributed to (the "Plans") by the Company, any of its
Subsidiaries or by any trade or business, whether or not incorporated (an "ERISA
Affiliate"), all of which together with the Company would be deemed a "single
employer" within the meaning of Section 4001 of the Employee Retirement Income
Security Act of 1974, as amended ("ERISA") or Section 414(b), (c), (m) or (o) of
the Code, for the benefit of any employee or former employee of the Company, any
Subsidiary thereof or any ERISA Affiliate.
(b) The Company has heretofore made available to BancorpSouth
with respect to each of the Plans true and correct copies of each of the
following documents if applicable: (i) the Plan document; (ii) the actuarial
report, if any, for such Plan for each of the last two years, (iii) the most
recent determination letter from the Internal Revenue Service for such Plan and
(iv) the most recent summary plan description and related summaries of material
modifications.
(c) Except as set forth in Section 4.11(c) of the Company
Disclosure Schedule, each of the Plans are in compliance with the applicable
provisions of the Code and ERISA; each of the Plans intended to be "qualified"
within the meaning of section 401(a) of the Code has received a
A-12
<PAGE> 124
favorable determination letter from the IRS and to the knowledge of the Company,
nothing has occurred which could reasonably be expected to result in the
revocation of such letter; no Plan has an accumulated or waived funding
deficiency within the meaning of section 412 of the Code; neither the Company
nor any ERISA Affiliate has incurred, directly or indirectly, any liability to
or on account of a Plan pursuant to Title IV of ERISA (other than PBGC
premiums); to the knowledge of the Company no proceedings have been instituted
to terminate any Plan that is subject to Title IV of ERISA; no "reportable
event," as such term is defined in section 4043(c) of ERISA, has occurred with
respect to any Plan (other than a reportable event with respect to which the
thirty day notice period has been waived); no condition exists that presents a
material risk to the Company of incurring a liability to or on account of a Plan
pursuant to Title IV of ERISA; no Plan is a multiemployer plan (within the
meaning of section 4001(a)(3) of ERISA) and no Plan is a multiple employer plan
as defined in Section 413 of the Code; and there are no pending, or to the
knowledge of the Company, threatened or anticipated claims (other than routine
claims for benefits) by, on behalf of or against any of the Plans or any trusts
related thereto.
(d) Except as set forth in Section 4.11(d) of the Company
Disclosure Schedule or as otherwise contemplated by this Agreement or any other
agreements entered into by any party hereto in connection with the execution
hereof, neither the execution and delivery of this Agreement nor the
consummation of the transactions contemplated hereby will (either alone or in
conjunction with any other event) (i) result in any payment (including, without
limitation, severance, unemployment compensation, "excess parachute payment"
within the meaning of Section 280G of the Code, forgiveness of indebtedness or
otherwise) becoming due to any officer, director or employee of the Company or
any of its Subsidiaries under any Plan or otherwise, (ii) increase any benefits
payable under any Plan or (iii) result in any acceleration of the time of
payment or vesting of any such benefits.
4.12. Company Information. The information relating to the Company and
its Subsidiaries which is provided to BancorpSouth by the Company or its
representatives for inclusion in the Proxy Statement and the S-4, or in any
other document filed with any other regulatory agency in connection herewith,
will not contain any untrue statement of a material fact or omit to state a
material fact necessary to make the statements therein, in light of the
circumstances in which they are made, not misleading. The Proxy Statement
(except for such portions thereof that relate only to BancorpSouth or any of its
Subsidiaries) will comply with the provisions of the Securities Exchange Act of
1934, as amended (the "Exchange Act"), and the rules and regulations thereunder.
4.13. Compliance with Applicable Law. Except as set forth in Section
4.13 of the Company Disclosure Schedule, the Company and each of its
Subsidiaries hold, and have at all times held, all licenses, franchises, permits
and authorizations necessary for the lawful conduct of their respective
businesses under and pursuant to all, and have complied with and are not in
default in any respect under any, applicable law, statute, order, rule,
regulation, published policy and/or guideline of any Governmental Entity
relating to the Company or any of its Subsidiaries, and neither the Company nor
any of its Subsidiaries has received notice, and the Company does not know, of
any violations of any of the above.
4.14. Certain Contracts.
(a) Except as set forth in Section 4.14 of the Company
Disclosure Schedule, neither the Company nor any of its Subsidiaries is a party
to or bound by any contract (whether written or oral) (i) with respect to the
employment of any directors or consultants, (ii) which, upon the consummation of
the transactions contemplated by this Agreement, will (either alone or upon the
occurrence of any additional acts or events) result in any payment or benefits
(whether of severance pay or otherwise) becoming due, or the acceleration or
vesting of any rights to any payment or benefits, from BancorpSouth, the
Company, the Surviving Corporation or any of their respective Subsidiaries to
any director or consultant thereof, (iii) which is a material contract (as
defined in
A-13
<PAGE> 125
Item 601(b)(10) of Regulation S-K of the Securities and Exchange Commission (the
"SEC")) to be performed after the date of this Agreement, (iv) which is a
consulting agreement (including data processing, software programming and
licensing contracts) not terminable on 90 days or less notice involving the
payment of more than $50,000 per annum, or (v) which materially restricts the
conduct of any line of business by the Company or any of its Subsidiaries. Each
contract, arrangement, commitment or understanding of the type described in this
Section 4.14(a) is referred to herein as a "Company Contract". The Company has
previously delivered or made available to BancorpSouth true and correct copies
of each Company Contract.
(b) (i) Each Company Contract described in clause (iii) of
Section 4.14(a) is valid and binding and in full force and effect, (ii) the
Company and each of its Subsidiaries has performed all obligations required to
be performed by it to date under each Company Contract described in clause (iii)
of Section 4.14(a), (iii) no event or condition exists which constitutes or,
after notice or lapse of time or both, would constitute, a default on the part
of the Company or any of its Subsidiaries under any Company Contract described
in clause (iii) of Section 4.14(a), and (iv) no other party to any Company
Contract described in clause (iii) of Section 4.14(a) is, to the knowledge of
the Company, in default in any respect thereunder.
4.15. Agreements with Regulatory Agencies. Neither the Company nor any
of its Subsidiaries is subject to any cease-and-desist or other order issued by,
or is a party to any written agreement, consent agreement or memorandum of
understanding with, or is a party to any commitment letter or similar
undertaking to, or is subject to any order or directive by, or is a recipient of
any extraordinary supervisory letter from, or has adopted any board resolutions
at the request of (each, a "Regulatory Agreement"), any Regulatory Agency or
other Governmental Entity that restricts the conduct of its business or that in
any manner relates to its capital adequacy, its credit policies, its management
or its business, nor has the Company or any of its Subsidiaries been advised by
any Regulatory Agency or other Governmental Entity that it is considering
issuing or requesting any Regulatory Agreement.
4.16. Business Combination Provision; Takeover Laws. The Company has
taken all action required to be taken by it in order to exempt this Agreement
and the Stock Option Agreement and the transactions contemplated hereby and
thereby from, and this Agreement and the Stock Option Agreement and the
transactions contemplated hereby and thereby are exempt from, the requirements
of any "moratorium", "control share", "fair price" or other anti-takeover laws
and regulations (collectively, "Takeover Laws") of the State of Alabama or other
applicable jurisdiction, if any.
4.17. Administration of Fiduciary Accounts. The Company and each of its
Subsidiaries has properly administered all accounts for which it acts as a
fiduciary, including but not limited to accounts for which it serves as a
trustee, agent, custodian, personal representative, guardian, conservator or
investment advisor, in accordance with the terms of the governing documents and
applicable state and federal law and regulation and common law. Neither the
Company nor any of its Subsidiaries nor any of their respective directors,
officers or employees has committed any breach of trust with respect to any such
fiduciary account, and the accountings for each such fiduciary account are true
and correct and accurately reflect the assets of such fiduciary account.
4.18. Environmental Matters.
(a) Except as set forth in Section 4.18 of the Company
Disclosure Schedule, to the knowledge of the Company, each of the Company and
its Subsidiaries and each of the Participation Facilities and the Loan
Properties (each as hereinafter defined), are in compliance with all applicable
federal, state and local laws, including common law, regulations and ordinances,
and with all applicable decrees, orders and contractual obligations relating to
pollution or the discharge
A-14
<PAGE> 126
of, or exposure to, Hazardous Materials (as hereinafter defined) in the
environment or workplace ("Environmental Laws");
(b) There is no suit, claim, action or proceeding, pending or,
to the knowledge of the Company, threatened, before any Governmental Entity or
other forum in which the Company, any of its Subsidiaries, any Participation
Facility or any Loan Property, has been or, with respect to threatened
proceedings, may be, named as a defendant (x) for alleged noncompliance
(including by any predecessor) with any Environmental Laws, or (y) relating to
the release, threatened release or exposure to any Hazardous Material whether or
not occurring at or on a site owned, leased or operated by the Company or any of
its Subsidiaries, any Participation Facility or any Loan Property;
(c) Except as set forth in Section 4.18 of the Company
Disclosure Schedule, to the knowledge of the Company, during the period of (x)
the Company's or any of its Subsidiaries' ownership or operation of any of their
respective current or former properties, (y) the Company's or any of its
Subsidiaries' participation in the management of any Participation Facility, or
(z) the Company's or any of its Subsidiaries' interest in a Loan Property, there
has been no release of Hazardous Materials in, on, under or affecting any such
property. To the knowledge of the Company, prior to the period of (x) the
Company's or any of its Subsidiaries' ownership or operation of any of their
respective current or former properties, (y) the Company's or any of its
Subsidiaries' participation in the management of any Participation Facility, or
(z) the Company's or any of its Subsidiaries' interest in a Loan Property, there
was no release of Hazardous Materials in, on, under or affecting any such
property, Participation Facility or Loan Property; and
(d) The following definitions apply for purposes of this
Section 4.18: (x) "Hazardous Materials" means any chemicals, pollutants,
contaminants, wastes, toxic substances, petroleum or other regulated substances
or materials, (y) "Loan Property" means any property in which the Company or any
of its Subsidiaries holds a security interest, and, where required by the
context, said term means the owner or operator of such property; and (z)
"Participation Facility" means any facility in which the Company or any of its
Subsidiaries participates in the management and, where required by the context,
said term means the owner or operator of such property.
4.19. Approvals. As of the date of this Agreement, the Company knows of
no reason why all regulatory approvals required for the consummation of the
transactions contemplated hereby (including, without limitation, the Merger)
should not be obtained.
4.20. Loan Portfolio.
(a) Except as set forth in Section 4.20 of the Company
Disclosure Schedule, neither the Company nor any of its Subsidiaries is a party
to any written or oral loan agreement, note or borrowing arrangement (including,
without limitation, leases, credit enhancements, commitments, guarantees and
interest-bearing assets) (collectively, "Loans"), other than Loans the unpaid
principal balance of which does not exceed $100,000, under the terms of which
the obligor was, as of June 30, 1998, over 90 days delinquent in payment of
principal or interest or in default of any other provision. Section 4.20 of the
Company Disclosure Schedule sets forth all of the Loans in original principal
amount in excess of $100,000 of the Company or any of its Subsidiaries that as
of June 30, 1998, were classified as "Doubtful" or "Loss", or words of similar
import, together with the principal amount of and accrued and unpaid interest on
each such Loan and the identity of the borrower thereunder.
(b) Each Loan in original principal amount in excess of
$100,000 (i) is evidenced by notes, agreements or other evidences of
indebtedness which are, to the best knowledge of the Company after appropriate
due diligence, true, genuine and what they purport to be, (ii) to the extent
secured, has been secured by valid liens and security interests which have been
perfected and (iii) is the legal, valid and binding obligation of the obligor
named therein, enforceable in accordance
A-15
<PAGE> 127
with its terms, subject to bankruptcy, insolvency, fraudulent conveyance and
other laws of general applicability relating to or affecting creditors' rights
and to general equity principles.
4.21. Property. Each of the Company and its Subsidiaries has good and
marketable title free and clear of all liens, encumbrances, mortgages, pledges,
charges, defaults or equitable interests to all of the properties and assets,
real and personal, tangible or intangible, which are reflected on the
consolidated statement of financial condition of the Company as of December 31,
1997 or acquired after such date, except (i) liens for taxes not yet due and
payable or contested in good faith by appropriate proceedings, (ii) pledges to
secure deposits and other liens incurred in the ordinary course of business,
(iii) such imperfections of title, easements and encumbrances, if any, as do not
interfere with the use of the respective property as such property is used on
the date of this Agreement, (iv) for dispositions and encumbrances of, or on,
such properties or assets in the ordinary course of business or (v) mechanics',
materialmen's, workmen's, repairmen's, warehousemen's, carrier's and other
similar liens and encumbrances arising in the ordinary course of business. All
leases pursuant to which the Company or any Subsidiary of the Company, as
lessee, leases real or personal property are valid and enforceable in accordance
with their respective terms and neither the Company nor any of its Subsidiaries
nor, to the knowledge of the Company, any other party thereto, is in default
thereunder.
4.22. Accounting for the Merger; Reorganization. As of the date of this
Agreement, the Company has no reason to believe that the Merger will fail to
qualify (i) for pooling-of-interests treatment under GAAP or (ii) as a
reorganization under Section 368(a) of the Code.
ARTICLE V
REPRESENTATIONS AND WARRANTIES OF BANCORPSOUTH
Subject to Article III, BancorpSouth hereby represents and warrants to
the Company as follows:
5.1. Corporate Organization.
(a) BancorpSouth is a corporation duly organized, validly
existing and in good standing under the laws of the State of Mississippi.
BancorpSouth has the corporate power and authority to own or lease all of its
properties and assets and to carry on its business as it is now being conducted,
and is duly licensed or qualified to do business in each jurisdiction in which
the nature of the business conducted by it, or to be conducted by it pursuant to
consequences of the Merger, or the character or location of the properties and
assets owned or leased by it makes such licensing or qualification necessary
(including the State of Alabama). BancorpSouth is duly registered as a bank
holding company under the BHC Act. The Amended and Restated Articles of
Incorporation and Bylaws of BancorpSouth (the "BancorpSouth Governing
Documents"), copies of which have previously been made available to the Company,
are true and correct copies of such documents as in effect as of the date of
this Agreement.
(b) BancorpSouth Bank is a Mississippi state bank validly
existing and in good standing. The deposit accounts of BancorpSouth Bank are
insured by the FDIC through the Bank Insurance Fund or Savings Association
Insurance Fund to the fullest extent permitted by law, and all premiums and
assessments required in connection therewith have been paid when due. Each of
BancorpSouth's other Subsidiaries is duly organized, validly existing and in
good standing under the laws of the jurisdiction of its incorporation. Each
Subsidiary of BancorpSouth has the corporate power and authority to own or lease
all of its properties and assets and to carry on its business as it is now being
conducted, and is duly licensed or qualified to do business in each jurisdiction
in which the nature of the business conducted by it or the character or location
of the properties and assets owned or leased by it makes such licensing or
qualification necessary. The Articles of Association and
A-16
<PAGE> 128
Bylaws of BancorpSouth Bank (the "Bank Governing Documents"), copies of which
have previously been made available to the Company, are true and correct copies
of such documents as in effect as of the date of this Agreement.
(c) The minute books of BancorpSouth and each of its
Subsidiaries contain true and correct records of all meetings and other
corporate actions held or taken since December 31, 1996 of their respective
shareholders and Boards of Directors (including committees of their respective
Boards of Directors).
5.2. Capitalization.
(a) The authorized capital stock of BancorpSouth consists of
500,000,000 shares of BancorpSouth Common Stock. As of June 18, 1998, there were
44,792,042 shares of BancorpSouth Common Stock issued and outstanding, and as of
December 31, 1997, 105,052 shares of BancorpSouth Common Stock were held in
BancorpSouth's treasury. As of the date of this Agreement, no shares of
BancorpSouth Common Stock were reserved for issuance, except with respect to
employee benefit plans, stock option plans, BancorpSouth's rights plan pursuant
to which shareholders have the right to receive common stock under certain
circumstances (the "BancorpSouth Rights"), that certain Agreement and Plan of
Merger, dated as of May 2, 1998, between BancorpSouth and Merchants Capital
Corporation, and that certain Merger Agreement, dated as of June 19, 1998, among
BancorpSouth, Alabama Bancorp., Inc., Highland Bank, and First Community Bank of
the South, and the transactions contemplated therein. All of the issued and
outstanding shares of BancorpSouth Common Stock have been duly authorized and
validly issued and are fully paid, nonassessable and free of preemptive rights,
with no personal liability attaching to the ownership thereof. Except as
referred to above with respect to reserved shares and for BancorpSouth's
dividend reinvestment plan, BancorpSouth does not have and is not bound by any
outstanding subscriptions, options, warrants, calls, commitments or agreements
of any character calling for the purchase or issuance of any shares of
BancorpSouth Common Stock or any other equity securities of BancorpSouth or any
securities representing the right to purchase or otherwise receive any shares of
BancorpSouth Common Stock. The shares of BancorpSouth Common Stock to be issued
pursuant to the Merger will be duly authorized and validly issued and, at the
Effective Time, all such shares will be fully paid, nonassessable and free of
preemptive rights, with no personal liability attaching to the ownership
thereof.
(b) Schedule 22 to BancorpSouth's Annual Report on Form 10-K
for the year ended December 31, 1997, sets forth a true and correct list of all
of BancorpSouth Subsidiaries as of the date of this Agreement. BancorpSouth
owns, directly or indirectly, all of the issued and outstanding shares of
capital stock of each of the Subsidiaries of BancorpSouth, free and clear of all
liens, charges, encumbrances and security interests whatsoever, and all of such
shares are duly authorized and validly issued and are fully paid, nonassessable
and free of preemptive rights, with no personal liability attaching to the
ownership thereof. As of the date of this Agreement, no Subsidiary of
BancorpSouth has or is bound by any outstanding subscriptions, options,
warrants, calls, commitments or agreements of any character with any party that
is not a direct or indirect Subsidiary of BancorpSouth calling for the purchase
or issuance of any shares of capital stock or any other equity security of such
Subsidiary or any securities representing the right to purchase or otherwise
receive any shares of capital stock or any other equity security of such
Subsidiary.
5.3. Authority; No Violation.
(a) BancorpSouth has full corporate power and authority to
execute and deliver this Agreement and the Stock Option Agreement and to
consummate the transactions contemplated hereby and thereby. Other than the
approval of the Boards of Directors of BancorpSouth and BancorpSouth Bank, which
have not been obtained on the date of execution hereof and upon which receipt
the obligations of BancorpSouth and BancorpSouth Bank are expressly conditioned,
no other
A-17
<PAGE> 129
corporate proceedings on the part of BancorpSouth are necessary to approve this
Agreement and the Stock Option Agreement and to consummate the transactions
contemplated hereby and thereby. Each of this Agreement and the Stock Option
Agreement has been duly and validly executed and delivered by BancorpSouth and
when approved and authorized as provided above, will constitute a valid and
binding obligation of BancorpSouth, enforceable against BancorpSouth in
accordance with its terms, except as enforcement may be limited by general
principles of equity whether applied in a court of law or a court of equity and
by bankruptcy, insolvency and similar laws affecting creditors' rights and
remedies generally.
(b) Neither the execution and delivery of this Agreement or
the Stock Option Agreement by BancorpSouth, nor the consummation by BancorpSouth
of the transactions contemplated hereby or thereby, nor compliance by
BancorpSouth with any of the terms or provisions hereof or thereof, will (i)
violate any provision of the BancorpSouth Governing Documents or the Bank
Governing Documents, or (ii) assuming that the consents and approvals referred
to in Sections 5.3(a) and 5.4 are duly obtained, (x) violate any statute, code,
ordinance, rule, regulation, judgment, order, writ, decree or injunction
applicable to BancorpSouth or any of its Subsidiaries or any of their respective
properties or assets, or (y) violate, conflict with, result in a breach of any
provision of or the loss of any benefit under, constitute a default (or an event
which, with notice or lapse of time, or both, would constitute a default) under,
result in the termination of or a right of termination or cancellation under,
accelerate the performance required by, or result in the creation of any lien,
pledge, security interest, charge or other encumbrance upon any of the
respective properties or assets of BancorpSouth or any of its Subsidiaries
under, any of the terms, conditions or provisions of any note, bond, mortgage,
indenture, deed of trust, license, lease, agreement or other instrument or
obligation to which BancorpSouth or any of its Subsidiaries is a party, or by
which they or any of their respective properties or assets may be bound or
affected.
5.4. Consents and Approvals. Except for (a) the filing of applications
and notices, as applicable, with the Federal Reserve Board and the FDIC, and
approval of such applications and notices, (b) such applications, filings,
authorizations, orders and approvals as may be required under applicable state
law, (c) the filing with the SEC of the Proxy Statement and the filing and
declaration of effectiveness of the S-4, (d) the filing of the Articles of
Merger with the Mississippi Secretary, the Alabama Secretary, the Mississippi
Department and the OCC, as applicable, (e) such filings and approvals as are
required to be made or obtained under the securities or "Blue Sky" laws of
various states in connection with the issuance of the shares of BancorpSouth
Common Stock pursuant to this Agreement and (f) approval for listing of
BancorpSouth Common Stock to be issued in the Merger on the NYSE, no consents or
approvals of or filings or registrations with any Governmental Entity or with
any third party are necessary in connection with (1) the execution and delivery
by BancorpSouth of this Agreement and (2) the consummation by BancorpSouth of
the Merger and the other transactions contemplated hereby.
5.5. Reports. BancorpSouth and each of its Subsidiaries have timely
filed all reports, registrations and statements, together with any amendments
required to be made with respect thereto, that they were required to file since
December 31, 1996 with any Regulatory Agency, and have paid all fees and
assessments due and payable in connection therewith. Except for matters
disclosed pursuant to Section 5.16 and normal examinations conducted by a
Regulatory Agency in the regular course of the business of BancorpSouth and its
Subsidiaries, no Regulatory Agency has initiated any proceeding or, to the
knowledge of BancorpSouth, investigation into the business or operations of
BancorpSouth or any of its Subsidiaries since December 31, 1996. Except for
matters disclosed pursuant to Section 5.16, there is no unresolved violation,
criticism, or exception by any Regulatory Agency with respect to any report or
statement relating to any examinations of BancorpSouth or any of its
Subsidiaries.
5.6. Financial Statements. BancorpSouth has previously made available
to the Company copies of (i) the consolidated balance sheets of BancorpSouth and
its Subsidiaries as of December 31
A-18
<PAGE> 130
for the fiscal years 1996 and 1997 and the related consolidated statements of
income, changes in shareholders' equity and cash flows for the fiscal years 1996
through 1997, inclusive, as reported in BancorpSouth's Annual Report on Form
10-K for the fiscal year ended December 31, 1997, filed with the SEC under the
Exchange Act, in each case accompanied by the audit report of KPMG Peat Marwick
LLP, independent public accountants with respect to BancorpSouth, and (ii) the
unaudited consolidated balance sheet of BancorpSouth and its Subsidiaries as of
March 31, 1998, and the related unaudited consolidated statements of income,
changes in shareholders' equity and cash flows for the three months ended March
31, 1998, as reported in BancorpSouth's Quarterly Report on Form 10-Q for the
quarter ended March 31, 1998, filed with the SEC under the Exchange Act
(collectively, the "BancorpSouth Financial Statements") (and will provide to the
Company as soon as available the statements referred to in clause (ii) for the
quarter ending June 30, 1998). The December 31, 1997 consolidated balance sheet
of BancorpSouth (including the related notes, where applicable) fairly presents
the consolidated financial position of BancorpSouth and its Subsidiaries as of
the date thereof, and the other financial statements referred to in this Section
5.6 (including the related notes, where applicable) fairly present and the
financial statements to be filed with the SEC after the date hereof will fairly
present (subject, in the case of the unaudited statements, to recurring audit
adjustments normal in nature and amount), the results of the consolidated
operations and changes in shareholders' equity and consolidated financial
position of BancorpSouth and its Subsidiaries for the respective fiscal periods
or as of the respective dates therein set forth; each of such statements
(including the related notes, where applicable) complies, and the financial
statements to be filed with the SEC after the date hereof will comply, with
applicable accounting requirements and with the published rules and regulations
of the SEC with respect thereto; and each of such statements (including the
related notes, where applicable) has been, and the financial statements to be
filed with the SEC after the date hereof will be, prepared in accordance with
GAAP consistently applied during the periods involved, except as indicated in
the notes thereto or, in the case of unaudited statements, as permitted by Form
10-Q. The books and records of BancorpSouth and its Subsidiaries have been, and
are being, maintained in accordance with GAAP and any other applicable legal and
accounting requirements.
5.7. Broker's Fees. Neither BancorpSouth nor any Subsidiary of
BancorpSouth, nor any of their respective officers or directors, has employed
any broker or finder or incurred any liability for any broker's fees,
commissions or finder's fees in connection with any of the transactions
contemplated by this Agreement or the Stock Option Agreement.
5.8. Absence of Certain Changes or Events. Except as may be disclosed
in any BancorpSouth Report (as defined in Section 5.12) filed with the SEC prior
to the date of this Agreement, since December 31, 1997, there has been no change
or development or combination of changes or developments which, individually or
in the aggregate, has had a Material Adverse Effect on BancorpSouth.
5.9. Legal Proceedings.
(a) Except as set forth in BancorpSouth's Annual Report on
Form 10-K for the year ended December 31, 1997 or as disclosed pursuant to
Section 5.16 hereto, neither BancorpSouth nor any of its Subsidiaries is a party
to any and there are no pending or, to BancorpSouth's knowledge, threatened,
legal, administrative, arbitral or other proceedings, claims, actions or
governmental or regulatory investigations of any nature against BancorpSouth or
any of its Subsidiaries or challenging the validity or propriety of the
transactions contemplated by this Agreement or the Stock Option Agreement.
(b) There is no injunction, order, judgment, decree, or
regulatory restriction imposed upon BancorpSouth, any of its Subsidiaries or the
assets of BancorpSouth or any of its Subsidiaries.
A-19
<PAGE> 131
5.10. Taxes. Except as set forth in Section 5.10 of BancorpSouth
Disclosure Schedule, each of BancorpSouth and its Subsidiaries has (i) duly and
timely filed (including applicable extensions granted without penalty) all Tax
Returns required to be filed at or prior to the Effective Time, and such Tax
Returns are true and correct, and (ii) paid in full or made adequate provision
in the BancorpSouth Financial Statements (in accordance with GAAP) for all Taxes
shown to be due on such Tax Returns. Except as set forth in Section 5.10 of
BancorpSouth Disclosure Schedule, as of the date hereof, neither BancorpSouth
nor any of its Subsidiaries has requested any extension of time within which to
file any Tax Returns in respect of any fiscal year which have not since been
filed and no request for waivers of the time to assess any Taxes are pending or
outstanding, and as of the date hereof, with respect to each taxable period of
BancorpSouth and its Subsidiaries, the federal and state income Tax Returns of
BancorpSouth and its Subsidiaries have been audited by the Internal Revenue
Service or appropriate state tax authorities or the time for assessing and
collecting income Tax with respect to such taxable period has closed and such
taxable period is not subject to review. There are no liens with respect to
Taxes upon any of the assets of BancorpSouth or its Subsidiaries. Deferred Taxes
of the BancorpSouth and its Subsidiaries have been provided for in accordance
with GAAP.
5.11. Employees.
(a) Section 5.11(a) of BancorpSouth Disclosure Schedule sets
forth a true and correct list of each deferred compensation plan, incentive
compensation plan, equity compensation plan, "welfare" plan, fund or program
(within the meaning of Section 3(1) of the ERISA); "pension" plan, fund or
program (within the meaning of Section 3(2) of ERISA); each employment,
termination or severance agreement; and each other employee benefit plan, fund,
program, agreement or arrangement, in each case, that is sponsored, maintained
or contributed to or required to be contributed to as of the date of this
Agreement (the "BancorpSouth Plans") by BancorpSouth, any of its Subsidiaries or
by any trade or business, whether or not incorporated (a "BancorpSouth ERISA
Affiliate"), all of which together with BancorpSouth would be deemed a "single
employer" within the meaning of Section 4001 of ERISA, for the benefit of any
employee or former employee of BancorpSouth, any Subsidiary or any BancorpSouth
ERISA Affiliate.
(b) Each of BancorpSouth Plans is in compliance with the
applicable provisions of the Code and ERISA; each of BancorpSouth Plans intended
to be "qualified" within the meaning of Section 401(a) of the Code has received
or is in the process of obtaining a favorable determination letter from the IRS
and to the knowledge of BancorpSouth, nothing has occurred which could
reasonably be expected to result in the revocation of such letter; or refusal by
the IRS to issue such a letter, no BancorpSouth Plan has an accumulated or
waived funding deficiency within the meaning of Section 412 of the Code; neither
BancorpSouth nor any BancorpSouth ERISA Affiliate has incurred, directly or
indirectly, any liability to or on account of a BancorpSouth Plan pursuant to
Title IV of ERISA (other than PBGC premiums); to the knowledge of BancorpSouth
no proceedings have been instituted to terminate any BancorpSouth Plan that is
subject to Title IV of ERISA; no "reportable event," as such term is defined in
Section 4043(c) of ERISA, has occurred with respect to any BancorpSouth Plan
(other than a reportable event with respect to which the thirty day notice
period has been waived); no condition exists that presents a material risk to
BancorpSouth of incurring a liability to or on account of a BancorpSouth Plan
pursuant to Title IV of ERISA; no BancorpSouth Plan is a multiemployer plan
(within the meaning of Section 4001(a)(3) of ERISA) and no BancorpSouth Plan is
a multiple employer plan as defined in Section 413 of the Code; and there are no
pending, or, to the knowledge of BancorpSouth, threatened or anticipated claims
(other than routine claims for benefits) by, on behalf of or against any of
BancorpSouth Plans or any trusts related thereto.
5.12. SEC Reports. BancorpSouth has previously made available to the
Company a true and correct copy of each (a) final registration statement,
prospectus, report, schedule and definitive proxy statement filed since December
31, 1996 by BancorpSouth with the SEC pursuant to the
A-20
<PAGE> 132
Securities Act of 1933 (the "Securities Act") or the Exchange Act (the
"BancorpSouth Reports") and (b) communication mailed by BancorpSouth to its
shareholders since December 31, 1996, and no such registration statement,
prospectus, report, schedule, proxy statement or communication contained any
untrue statement of a material fact or omitted to state any material fact
required to be stated therein or necessary in order to make the statements
therein, in light of the circumstances in which they were made, not misleading,
except that information as of a later date shall be deemed to modify information
as of an earlier date. BancorpSouth has timely filed all BancorpSouth Reports
and other documents required to be filed by it under the Securities Act and the
Exchange Act, and, as of their respective dates, all BancorpSouth Reports
complied with the published rules and regulations of the SEC with respect
thereto.
5.13. BancorpSouth Information. The information relating to
BancorpSouth and its Subsidiaries to be contained in the Proxy Statement and the
S-4, or in any other document filed with any other regulatory agency in
connection herewith, will not contain any untrue statement of a material fact or
omit to state a material fact necessary to make the statements therein, in light
of the circumstances in which they are made, not misleading. The Proxy Statement
(except for such portions thereof that relate only to the Company or any of its
Subsidiaries) will comply with the provisions of the Exchange Act and the rules
and regulations thereunder. The S-4 will comply with the provisions of the
Securities Act and the rules and regulations thereunder.
5.14. Compliance with Applicable Law. BancorpSouth and each of its
Subsidiaries holds, and has at all times held, all licenses, franchises, permits
and authorizations necessary for the lawful conduct of their respective
businesses under and pursuant to all, and other than matters addressed by
Section 5.16 have complied with and are not in default in any respect under any,
applicable law, statute, order, rule, regulation, policy and/or guideline of any
Governmental Entity relating to BancorpSouth or any of its Subsidiaries and
neither BancorpSouth nor any of its Subsidiaries has received notice, and
BancorpSouth does not know, of any violations of any of the above.
5.15. Ownership of Company Common Stock; Affiliates and Associates. As
of the date hereof, neither BancorpSouth nor any of its affiliates or associates
(as such terms are defined under the Exchange Act) (i) beneficially owns,
directly or indirectly, or (ii) is a party to any agreement, arrangement or
understanding for the purpose of acquiring, holding, voting or disposing of any
shares of capital stock of the Company (other than Trust Account Shares and DPC
Shares).
5.16. Agreements with Regulatory Agencies. Except as disclosed to the
Company orally or in writing, neither BancorpSouth nor any of its Subsidiaries
is subject to any cease-and-desist or other order issued by, or is a party to
any written agreement, consent agreement or memorandum of understanding with, or
is a party to any commitment letter or similar undertaking to, or is subject to
any order or directive by, or is a recipient of any extraordinary supervisory
letter from, or has adopted any board resolutions at the request of (each, a
"BancorpSouth Regulatory Agreement"), any Regulatory Agency or other
Governmental Entity that restricts the conduct of its business or that in any
manner relates to its capital adequacy, its credit policies, its management or
its business, nor has BancorpSouth or any of its Subsidiaries been advised by
any Regulatory Agency or other Governmental Entity that it is considering
issuing or requesting any BancorpSouth Regulatory Agreement.
5.17. Environmental Matters.
(a) Each of BancorpSouth and its Subsidiaries and, to the
knowledge of BancorpSouth, each of the Participation Facilities and the Loan
Properties (each as hereinafter defined), are in compliance with all
Environmental Laws;
(b) There is no suit, claim, action or proceeding, pending or,
to the knowledge of BancorpSouth, threatened, before any Governmental Entity or
other forum in which BancorpSouth,
A-21
<PAGE> 133
any of its Subsidiaries, any Participation Facility or any Loan Property, has
been or, with respect to threatened proceedings, may be, named as a defendant
(x) for alleged noncompliance (including by any predecessor) with any
Environmental Laws, or (y) relating to the release, threatened release or
exposure to any Hazardous Material whether or not occurring at or on a site
owned, leased or operated by BancorpSouth or any of its Subsidiaries, any
Participation Facility or any Loan Property;
(c) To the knowledge of BancorpSouth during the period of (x)
BancorpSouth's or any of its Subsidiaries' ownership or operation of any of
their respective current or former properties, (y) BancorpSouth's or any of its
Subsidiaries' participation in the management of any Participation Facility, or
(z) BancorpSouth's or any of its Subsidiaries' interest in a Loan Property,
there has been no release of Hazardous Materials in, on, under or affecting any
such property. To the knowledge of BancorpSouth, prior to the period of (x)
BancorpSouth's or any of its Subsidiaries' ownership or operation of any of
their respective current or former properties, (y) BancorpSouth's or any of its
Subsidiaries' participation in the management of any Participation Facility, or
(z) BancorpSouth's or any of its Subsidiaries' interest in a Loan Property,
there was no release of Hazardous Materials in, on, under or affecting any such
property, Participation Facility or Loan Property; and
(d) The following definitions apply for purposes of this
Section 5.17: (x) "Loan Property" means any property in which BancorpSouth or
any of its Subsidiaries holds a security interest, and, where required by the
context, said term means the owner or operator of such property; and (y)
"Participation Facility" means any facility in which BancorpSouth or any of its
Subsidiaries participates in the management and, where required by the context,
said term means the owner or operator of such property.
5.18. Approvals. As of the date of this Agreement, BancorpSouth knows
of no reason why all regulatory approvals required for the consummation of the
transactions contemplated hereby (including, without limitation, the Merger)
should not be obtained.
5.19. Loan Portfolio.
(a) Except as set forth in Section 5.19 of BancorpSouth
Disclosure Schedule, neither BancorpSouth nor any of its Subsidiaries is a party
to any written or oral Loan, other than Loans the unpaid principal balance of
which does not exceed $100,000, under the terms of which the obligor was, as of
May 31, 1998, over 90 days delinquent in payment of principal or interest or in
default of any other provision. Section 5.19 of BancorpSouth Disclosure Schedule
sets forth all Loans in original principal amounts in excess of $100,000 of
BancorpSouth or any of its Subsidiaries that were as of May 31, 1998, classified
as "Doubtful" or "Loss", or words of similar import.
(b) Each Loan in original principal amount in excess of
$100,000 (i) is evidenced by notes, agreements or other evidences of
indebtedness which are true, genuine and what they purport to be, (ii) to the
extent secured, has been secured by valid liens and security interests which
have been perfected and (iii) is the legal, valid and binding obligation of the
obligor named therein, enforceable in accordance with its terms, subject to
bankruptcy, insolvency, fraudulent conveyance and other laws of general
applicability relating to or affecting creditors' rights and to general equity
principles.
5.20. Property. Each of BancorpSouth and its Subsidiaries has good and
marketable title free and clear of all liens, encumbrances, mortgages, pledges,
charges, defaults or equitable interests to all of the properties and assets,
real and personal, tangible or intangible, and which are reflected on the
consolidated statement of financial condition of BancorpSouth as of December 31,
1997 or acquired after such date, except (i) liens for taxes not yet due and
payable or contested in good faith by appropriate proceedings, (ii) pledges to
secure deposits and other liens incurred in the ordinary course of business,
(iii) such imperfections of title, easements and encumbrances, if any, as do not
A-22
<PAGE> 134
interfere with the use of the respective property as such property is used on
the date of this Agreement, (iv) for dispositions and encumbrances of, or on,
such properties or assets in the ordinary course of business or (v) mechanics',
materialmen's, workmen's, repairmen's, warehousemen's, carrier's and other
similar liens and encumbrances arising in the ordinary course of business. All
leases pursuant to which BancorpSouth or any Subsidiary of BancorpSouth, as
lessee, leases real or personal property are valid and enforceable in accordance
with their respective terms and neither BancorpSouth nor any of its Subsidiaries
nor, to the knowledge of BancorpSouth, any other party thereto is in default
thereunder.
5.21. Accounting for the Merger; Reorganization. As of the date of this
Agreement, BancorpSouth has no reason to believe that the Merger will fail to
qualify (i) for pooling-of-interests treatment under GAAP or (ii) as a
reorganization under Section 368(a) of the Code.
ARTICLE VI
COVENANTS RELATING TO CONDUCT OF BUSINESS
6.1. Covenants of the Company. During the period from the date of this
Agreement and continuing until the Effective Time, except as expressly
contemplated or permitted by this Agreement and the Stock Option Agreement or
with the prior written consent of BancorpSouth, the Company and its Subsidiaries
shall carry on their respective businesses in the ordinary course consistent
with past practice. Without limiting the generality of the foregoing, and except
as set forth in Section 6.1 of the Company Disclosure Schedule or as otherwise
contemplated by this Agreement and the Stock Option Agreement or as consented to
in writing by BancorpSouth, the Company shall not, and shall not permit any of
its Subsidiaries to:
(a) declare or pay any dividends on, or make other
distributions in respect of any of its capital stock during any period;
provided, however, that the Company may declare and pay a single cash dividend
immediately prior to the Effective Time of $2.25 per share for the Company's
1998 fiscal year.
(b) (i) repurchase, redeem or otherwise acquire (except for
the acquisition of Trust Account Shares and DPC Shares, as such terms are
defined in Section 1.4(b) hereof) any shares of the capital stock of the Company
or any Subsidiary of the Company, or any securities convertible into or
exercisable for any shares of the capital stock of the Company or any Subsidiary
of the Company, (ii) split, combine or reclassify any shares of its capital
stock or issue or authorize or propose the issuance of any other securities in
respect of, in lieu of or in substitution for shares of its capital stock, or
(iii) issue, deliver or sell, or authorize or propose the issuance, delivery or
sale of, any shares of its capital stock or any securities convertible into or
exercisable for, or any rights, warrants or options to acquire, any such shares,
or enter into any agreement with respect to any of the foregoing, except, in the
case of clauses (ii) and (iii), for the issuance of Company Common Stock (x)
upon the exercise or fulfillment of rights or options issued or existing
pursuant to employee benefit plans or in accordance with past practices with
respect to the Company's employee stock ownership and 401(k) plan, programs or
arrangements, all to the extent outstanding and in existence on the date of this
Agreement and in accordance with their present terms or (y) pursuant to the
Stock Option Agreement;
(c) amend its Articles of Incorporation, Bylaws or other
similar governing documents;
(d) authorize or permit any of its officers, directors,
employees or agents to directly or indirectly solicit, initiate, facilitate or
encourage any inquiries relating to, or the making of any proposal which
constitutes, a "takeover proposal" (as defined below), or participate in any
discussions or negotiations, or provide third parties with any nonpublic
information, relating to any
A-23
<PAGE> 135
such inquiry or proposal or otherwise facilitate any effort or attempt to make a
takeover proposal; provided, however, that the Company may communicate
information about any such takeover proposal to its shareholders if, in the
judgment of the Company's Board of Directors, based upon the written advice of
outside counsel addressed to the Company and BancorpSouth, such communication is
required under applicable law, provided further, however, that the Company may,
and may authorize and permit its officers, directors, employees or agents to,
(i) provide or cause to be provided such information, and (ii) participate in
such discussions or negotiations, if in the judgment of the Company's Board of
Directors, based upon the written advice of outside counsel addressed to the
Company and BancorpSouth, the failure to do so would cause the members of such
Board of Directors to breach their fiduciary duties under applicable laws. The
Company will immediately cease and cause to be terminated any existing
activities, discussions or negotiations previously conducted with any parties
other than BancorpSouth with respect to any of the foregoing. The Company will
take all actions necessary or advisable to inform the appropriate individuals or
entities referred to in the first sentence hereof of the obligations undertaken
in this Section 6.1(d). The Company will notify BancorpSouth immediately if any
such inquiries or takeover proposals are received by, any such information is
requested from, or any such negotiations or discussions are sought to be
initiated or continued with, the Company, and the Company will promptly (within
24 hours) inform BancorpSouth in writing of all of the relevant details with
respect to the foregoing including the material terms and conditions of such
request or takeover proposal and the identity of the person or group making such
request or proposal. The Company will keep BancorpSouth fully informed of the
status and details (including amendments or proposed amendments) of any such
request or takeover proposal. As used in this Agreement, "takeover proposal"
shall mean any tender or exchange offer, proposal for a merger, consolidation or
other business combination involving the Company or any Subsidiary of the
Company or any proposal or offer to acquire in any manner a substantial equity
interest in, or a substantial portion of the assets of, the Company or any
Subsidiary of the Company other than the transactions contemplated or permitted
by this Agreement and the Stock Option Agreement;
(e) make any capital expenditures other than those which are
set forth in Section 6.1 of the Company Disclosure Schedule or (i) are made in
the ordinary course of business or are necessary to maintain existing assets in
good repair and (ii) in any event are in an amount of no more than $100,000 in
the aggregate, or except as necessary to comply with regulatory guidelines or
requirements;
(f) enter into any new line of business or cease to carry on
their respective businesses in the ordinary course of business consistent with
past practices;
(g) acquire or agree to acquire, by merging or consolidating
with, or by purchasing a substantial equity interest in or a substantial portion
of the assets of, or by any other manner, any business or any corporation,
partnership, association or other business organization or division thereof or
otherwise acquire any assets, which would be material, individually or in the
aggregate, to the Company, or which could reasonably be expected to impede or
delay consummation of the Merger, other than in connection with foreclosures,
settlements in lieu of foreclosure or troubled loan or debt restructurings in
the ordinary course of business consistent with past practices;
(h) except as contemplated by Article III hereto, take any
action that is intended or may reasonably be expected to result in any of its
representations and warranties set forth in this Agreement being or becoming
untrue, or in any of the conditions to the Merger set forth in Article VIII not
being satisfied;
(i) change its methods of accounting in effect December 31,
1997, except as required by changes in GAAP or regulatory accounting principles
as concurred to by the Company's independent auditors;
A-24
<PAGE> 136
(j) except as set forth in Section 7.7 hereof, as required by
applicable law or as required to maintain qualification pursuant to the Code,
(i) adopt, amend, or terminate any employee benefit plan (including, without
limitation, any Plan) or any agreement, arrangement, plan or policy between the
Company or any Subsidiary of the Company and one or more of its current or
former directors, officers or (ii) except for normal increases and the payment
of incentive compensation to Opelika officers and to Opelika mortgage
originators and processors, in each case in the ordinary course of business
consistent with past practice or except as required by applicable law, increase
in any manner the compensation or fringe benefits of any director, officer or
employee or pay any benefit not required by any Plan or agreement as in effect
as of the date hereof (including, without limitation, the granting of stock
options, stock appreciation rights, restricted stock, restricted stock units or
performance units or shares).
(k) take or permit to be taken any action which would
disqualify the Merger as a "pooling of interests" for accounting purposes or a
reorganization under Section 368(a) of the Code;
(l) other than activities in the ordinary course of business
consistent with past practice, sell, lease, encumber, assign or otherwise
dispose of, or agree to sell, lease, encumber, assign or otherwise dispose of,
any of its material assets, properties or other rights or agreements, other than
sales of investment securities of Opelika in accordance with prudent
asset/liability management practices;
(m) other than in the ordinary course of business consistent
with past practice (it being acknowledged that such practices have included
borrowings from the Federal Home Loan Bank), incur any indebtedness for borrowed
money or assume, guarantee, endorse or otherwise as an accommodation become
responsible for the obligations of any other individual, corporation or other
entity;
(n) file any application to relocate or terminate the
operations of any banking office of it or any of its Subsidiaries;
(o) create, renew, amend or terminate or give notice of a
proposed renewal, amendment or termination of, any material contract, agreement
or lease for goods, services or office space to which the Company or any of its
Subsidiaries is a party or by which the Company or any of its Subsidiaries or
their respective properties is bound, other than the renewal in the ordinary
course of business of any lease the term of which expires prior to the Closing
Date, or amend or waive the provisions of any confidentiality or standstill
agreement to which the Company or any of its affiliates is a party as of the
date hereof;
(p) take any action or enter into any agreement that could
reasonably be expected to jeopardize or materially delay the receipt of any
Requisite Regulatory Approval (as defined in Section 8.1(c));
(q) enter into any Loans in an original principal amount in
excess of $2,000,000; or
(r) agree or commit to do any of the foregoing.
6.2. Covenants of BancorpSouth. Except as otherwise contemplated by
this Agreement or consented to in writing by the Company, BancorpSouth shall
not, and shall not permit any of its Subsidiaries to:
(a) except as contemplated by Article III hereto, take any
action that is intended or may reasonably be expected to result in any of its
representations and warranties set forth in this
A-25
<PAGE> 137
Agreement being or becoming untrue, or in any of the conditions to the Merger
set forth in Article VIII not being satisfied;
(b) take any action or enter into any agreement that could
reasonably be expected to jeopardize or materially delay the receipt of any
Requisite Regulatory Approval;
(c) change its methods of accounting in effect at December 31,
1997, except in accordance with changes in GAAP or regulatory accounting
principles as concurred to by BancorpSouth's independent auditors;
(d) take or permit to be taken any action which would
disqualify the Merger as a "pooling of interests" for accounting purposes or a
reorganization under Section 368(a) of the Code;
(e) take any action, including entering into any agreement
with any other party, the effect of which would be to require BancorpSouth to
authorize additional shares of BancorpSouth common stock in order to fulfill
both BancorpSouth's obligations to Company pursuant to this Agreement and
obligations to any such other party pursuant to any such agreement;
(f) take any action that would unreasonably interfere with the
operations or the customers of the Company or Opelika, jeopardize the business
of the Company or Opelika, including the contacting of Opelika customers or,
take any action that would usurp opportunities belonging to the Company or
Opelika; and
(g) agree or commit to do any of the foregoing.
ARTICLE VII
ADDITIONAL AGREEMENTS
7.1. Regulatory Matters.
(a) BancorpSouth and the Company shall promptly prepare and
file with the SEC the Proxy Statement, and BancorpSouth shall promptly prepare
and file with the SEC the S-4, in which the Proxy Statement will be included as
a prospectus. Each of the Company and BancorpSouth shall use its reasonable best
efforts to have the S-4 declared effective under the Securities Act as promptly
as practicable after such filing, and the Company shall thereafter mail the
Proxy Statement to its shareholders. BancorpSouth shall also use its reasonable
best efforts to obtain all necessary state securities law or "Blue Sky" permits
and approvals required to carry out the transactions contemplated by this
Agreement.
(b) The parties hereto shall cooperate with each other and use
their reasonable best efforts to promptly prepare and file all necessary
documentation, to effect all applications, notices, petitions and filings, and
to obtain as promptly as practicable all permits, consents, approvals and
authorizations of all third parties and Governmental Entities which are
necessary or advisable to consummate the transactions contemplated by this
Agreement (including, without limitation, the Merger). The Company and
BancorpSouth shall have the right to review in advance, and to the extent
practicable each will consult the other on, in each case subject to applicable
laws relating to the exchange of information, all the information relating to
the Company or BancorpSouth, as the case may be, and any of their respective
Subsidiaries, which appears in any filing made with, or written materials
submitted to, any third party or any Governmental Entity in connection with the
transactions contemplated by this Agreement. In exercising the foregoing right,
each of the parties hereto shall act reasonably and as promptly as practicable.
The parties hereto agree that they will consult with each other with respect to
the obtaining of all permits, consents, approvals and authorizations of all
third parties and Governmental Entities necessary or advisable
A-26
<PAGE> 138
to consummate the transactions contemplated by this Agreement and each party
will keep the other apprised of the status of matters relating to completion of
the transactions contemplated herein.
(c) BancorpSouth and the Company shall, upon request, furnish
each other with all information concerning themselves, their Subsidiaries,
directors, officers and shareholders and such other matters as may be reasonably
necessary or advisable in connection with the Proxy Statement, the S-4 or any
other statement, filing, notice or application made by or on behalf of
BancorpSouth, the Company or any of their respective Subsidiaries to any
Governmental Entity in connection with the Merger and the other transactions
contemplated by this Agreement.
(d) BancorpSouth and the Company shall promptly furnish each
other with copies of written communications received by BancorpSouth or the
Company, as the case may be, or any of their respective Subsidiaries, Affiliates
or Associates (as such terms are defined in Rule 12b-2 under the Exchange Act as
in effect on the date of this Agreement) from, or delivered by any of the
foregoing to, any Governmental Entity in respect of the transactions
contemplated hereby.
7.2. Access to Information.
(a) Upon reasonable notice and subject to applicable laws
relating to the exchange of information, each party shall, and shall cause each
of its Subsidiaries to, afford to the officers, employees, accountants, counsel
and other representatives (each, a "Representative") of the other party, access
during normal business hours during the period prior to the Effective Time to
all its properties, books, contracts, commitments, records, officers, employees,
accountants, counsel and other representatives and, during such period, it
shall, and shall cause its Subsidiaries to, make available to the other party
all information concerning its business, properties and personnel as the other
party may reasonably request. In addition, the Company and Opelika shall permit
a Representative of BancorpSouth to have access to the premises and observe the
operations of the Company or Opelika, as the case may be, without interfering
with the operations of the Company or Opelika and only during normal business
hours and to attend each meeting of their respective Boards of Directors and
committees thereof (other than during discussions regarding this Agreement, the
Stock Option Agreement, and the transactions contemplated hereby and thereby).
Neither party nor any of its 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 or its relationship with such customers,
jeopardize any attorney-client privilege or contravene any law, rule,
regulation, order, judgment, decree, fiduciary duty or binding agreement entered
into prior to the date of this Agreement. Such party shall identify the nature
of the limitation on access and disclosure, and the parties hereto will make
appropriate substitute disclosure arrangements under circumstances in which the
restrictions of the preceding sentence apply.
(b) All information furnished to BancorpSouth pursuant to
Section 7.2(a) shall be subject to, and BancorpSouth shall hold all such
information in confidence in accordance with, the provisions of the
confidentiality agreement dated August 10, 1998 (the "Confidentiality
Agreement"), between BancorpSouth and the Company. The Company shall have the
same obligations to BancorpSouth under the Confidentiality Agreement with
respect to information furnished to the Company pursuant to Section 7.2(a) as if
the Company were the receiving party under such Confidentiality Agreement.
(c) Notwithstanding anything in the Confidentiality Agreement
or any other agreement to the contrary, no provision of the Confidentiality
Agreement or investigation by either of the parties or their respective
representatives shall affect the representations, warranties, covenants or
agreements of the other set forth herein and the parties shall remain
responsible for the same.
A-27
<PAGE> 139
7.3. Shareholder Meeting. The Company shall take all steps necessary to
duly call, give notice of, convene and hold a meeting of its shareholders to be
held as soon as is reasonably practicable after the date on which the S-4
becomes effective for the purpose of voting upon the approval and adoption of
this Agreement. The Company will, through its Board of Directors, recommend to
its shareholders approval of this Agreement and the transactions contemplated
hereby and such other matters as may be submitted to its shareholders in
connection with this Agreement.
7.4. Legal Conditions to Merger. Each of BancorpSouth and the Company
shall, and shall cause its Subsidiaries to, use their reasonable best efforts
(a) to take, or cause to be taken, all actions necessary, proper or advisable to
comply promptly with all legal requirements which may be imposed on such party
or its Subsidiaries with respect to the Merger and, subject to the conditions
set forth in Article VIII hereof, to consummate the transactions contemplated by
this Agreement and (b) to obtain (and to cooperate with the other party to
obtain) any consent, authorization, order or approval of, or any exemption by,
any Governmental Entity and any other third party which is required to be
obtained by the Company or BancorpSouth or any of their respective Subsidiaries
in connection with the Merger and the other transactions contemplated by this
Agreement, and to comply with the terms and conditions of such consent,
authorization, order or approval.
7.5. Affiliates. Each of BancorpSouth and the Company shall use its
reasonable best efforts to cause each director, executive officer and other
person who is an "affiliate" (for purposes of Rule 145 under the Securities Act
and for purposes of qualifying the Merger for "pooling-of-interests" accounting
treatment) of such party to deliver to the other party hereto, as soon as
practicable after the date of this Agreement, a written agreement, in the form
of Exhibit 7.5(a) hereto (in the case of affiliates of BancorpSouth) or Exhibit
7.5(b) hereto (in the case of affiliates of the Company).
7.6. Stock Exchange Listing. BancorpSouth shall make all filings
required of it to cause the shares of BancorpSouth Common Stock to be issued in
the Merger to be approved for listing on the NYSE, subject to official notice of
issuance, as of the Effective Time.
7.7. Employee Benefit Plans; Existing Agreements.
(a) As of the Effective Time, the employees of the Company and
its Subsidiaries (the "Company Employees") shall be eligible to participate in
BancorpSouth's employee benefit plans in which similarly situated employees of
BancorpSouth or BancorpSouth Bank participate, to the same extent as similarly
situated employees of BancorpSouth or BancorpSouth Bank (it being understood
that inclusion of Company Employees in BancorpSouth's employee benefit plans may
occur at different times with respect to different plans).
(b) With respect to each BancorpSouth Plan that is an
"employee benefit plan," as defined in Section 3(3)of ERISA, for purposes of
determining eligibility to participate, vesting, and entitlement to benefits,
including for severance benefits and vacation entitlement (but not for accrual
of pension benefits or 401(k) eligibility), service with the Company (or
predecessor employers to the extent the Company provides past service credit)
shall be treated as service with BancorpSouth; provided; however, that such
service shall not be recognized to the extent that such recognition would result
in a duplication or increase of benefits. Such service also shall apply for
purposes of satisfying any waiting periods, evidence of insurability
requirements, or the application of any preexisting condition limitations. Each
BancorpSouth Plan shall waive pre-existing condition limitations to the same
extent waived under the applicable Company Plan. Company Employees shall be
given credit for amounts paid under a corresponding benefit plan during the same
period for purposes of applying deductibles, copayments and out-of-pocket
maximums as though such amounts had been paid in accordance with the terms and
conditions of BancorpSouth Plan.
(c) As of the Effective Time, BancorpSouth shall assume and
honor and shall cause the appropriate Subsidiaries of BancorpSouth to assume and
to honor in accordance with their
A-28
<PAGE> 140
terms all employment, severance and other compensation agreements and
arrangements existing prior to the execution of this Agreement which are between
the Company or any of its Subsidiaries and any director, officer or employee
thereof and which have been disclosed in the Company Disclosure Schedule.
(d) BancorpSouth and the Company agree to cooperate and take
all reasonable actions to effect the merger of any employee benefit plan that is
intended to be qualified under Section 401(a) of the Code into the appropriate
tax-qualified retirement plan of BancorpSouth after the Merger is completed, so
that such plan merger satisfies the requirements of Section 414(l) of the Code;
provided, however, that BancorpSouth shall not be obligated to effect such a
merger of a plan unless such plan is fully funded under Section 412 of the Code
and Section 302 of ERISA, to the extent applicable, and the merger would not
jeopardize the tax-qualified status of any BancorpSouth Plan.
7.8. Indemnification.
(a) In the event of any threatened or actual claim, action,
suit, proceeding or investigation, whether civil, criminal or administrative,
including, without limitation, any such claim, action, suit, proceeding or
investigation in which any person who is now, or has been at any time prior to
the date of this Agreement, or who becomes prior to the Effective Time, a
director, officer or employee of the Company or any of its Subsidiaries (the
"Indemnified Parties") is, or is threatened to be, made a party based in whole
or in part on, or arising in whole or in part out of, or pertaining to (i) the
fact that he is or was a director, officer or employee of the Company, any of
the Subsidiaries of the Company or any of their respective predecessors or
affiliates or (ii) this Agreement or any of the transactions contemplated
hereby, whether in any case asserted or arising before or after the Effective
Time, the parties hereto agree to cooperate and use their best efforts to defend
against and respond thereto. It is understood and agreed that after the
Effective Time, BancorpSouth shall indemnify and hold harmless, as and to the
extent permitted by law, each Indemnified Party against any losses, claims,
damages, liabilities, costs, expenses (including reasonable attorney's fees and
expenses in advance of the final disposition of any claim, suit, proceeding or
investigation to each Indemnified Party to the fullest extent permitted by law
upon receipt of any undertaking required by applicable law), judgments, fines
and amounts paid in settlement in connection with any such threatened or actual
claim, action, suit, proceeding or investigation, and in the event of any such
threatened or actual claim, action, suit, proceeding or investigation (whether
asserted or arising before or after the Effective Time), the Indemnified Parties
may retain counsel reasonably satisfactory to them after consultation with
BancorpSouth; provided, however, that (1) BancorpSouth shall have the right to
assume the defense thereof and upon such assumption BancorpSouth shall not be
liable to any Indemnified Party for any legal expenses of other counsel or any
other expenses subsequently incurred by any Indemnified Party in connection with
the defense thereof, except that if BancorpSouth elects not to assume such
defense or counsel for the Indemnified Parties reasonably advises that there are
issues which raise conflicts of interest between BancorpSouth and the
Indemnified Parties, the Indemnified Parties may retain counsel reasonably
satisfactory to them after consultation with BancorpSouth, and BancorpSouth
shall pay the reasonable fees and expenses of such counsel for the Indemnified
Parties, (2) BancorpSouth shall in all cases be obligated pursuant to this
paragraph to pay for only one firm of counsel for all Indemnified Parties, (3)
BancorpSouth shall not be liable for any settlement effected without its prior
written consent (which consent shall not be unreasonably withheld) and (4)
BancorpSouth shall have no obligation hereunder to any Indemnified Party when
and if a court of competent jurisdiction shall ultimately determine, and such
determination shall have become final and nonappealable, that indemnification of
such Indemnified Party in the manner contemplated hereby is prohibited by
applicable law. Any Indemnified Party wishing to claim Indemnification under
this Section 7.8, upon learning of any such claim, action, suit, proceeding or
investigation, shall promptly notify BancorpSouth thereof, provided that the
failure to so notify shall not affect the obligations of BancorpSouth under this
Section 7.8 except to the extent such failure to notify
A-29
<PAGE> 141
materially prejudices BancorpSouth. BancorpSouth's obligations under this
Section 7.8 shall continue in full force and effect without time limit from and
after the Effective Time.
(b) BancorpSouth shall cause the persons serving as officers
and directors of the Company immediately prior to the Effective Time to be
covered for a period of three years from the Effective Time by the directors'
and officers' liability insurance policy maintained by the Company (provided
that BancorpSouth may substitute therefor policies of at least the same coverage
and amounts containing terms and conditions which are not less advantageous than
such policy) with respect to acts or omissions occurring prior to the Effective
Time which were committed by such officers and directors in their capacity as
such; provided, however, that in no event shall BancorpSouth be required to
expend on an annual basis more than 125% of the current amount expended by the
Company (the "Insurance Amount") to maintain or procure insurance coverage, and
further provided that if BancorpSouth is unable to maintain or obtain the
insurance called for by this Section 7.8(b), BancorpSouth shall use all
reasonable efforts to obtain as much comparable insurance as is available for
the Insurance Amount.
(c) In the event BancorpSouth or any of its successors or
assigns (i) consolidates with or merges into any other person and shall not be
the continuing or surviving corporation or entity of such consolidation or
merger, or (ii) transfers or conveys all or substantially all of its properties
and assets to any person, then, and in each such case, to the extent necessary,
proper provision shall be made so that the successors and assigns of
BancorpSouth assume the obligations set forth in this section.
(d) The provisions of this Section 7.8 are intended to be for
the benefit of, and shall be enforceable by, each Indemnified Party and his or
her heirs and representatives.
7.9. Additional Agreements. In case at any time after the Effective
Time any further action is necessary or desirable to carry out the purposes of
this Agreement or to vest the Surviving Corporation with full title to all
properties, assets, rights, approvals, immunities and franchises of any of the
parties to the Merger, the proper officers and directors of each party to this
Agreement and their respective Subsidiaries shall take all such necessary action
as may be reasonably requested by BancorpSouth.
7.10. [INTENTIONALLY OMITTED].
7.11. Stock Option Agreement. Contemporaneously with the execution and
delivery of this Agreement, the Company and BancorpSouth shall execute and
deliver the Stock Option Agreement.
7.12. Data Processing Conversion. BancorpSouth shall take all steps
necessary and appropriate to cause a smooth, orderly data processing conversion
in connection with the consummation of the Merger and shall initiate appropriate
training of Company and Opelika personnel sufficiently in advance of the
Effective Time to permit Company and Opelika personnel to continue the
operations of the Company and Opelika without undue interruption after the
Merger. Company and Opelika personnel shall cooperate fully with BancorpSouth in
its efforts to provide the training required by this Section 7.12.
7.13 Publication of Combined Results. As soon as practical after the
date that thirty days of combined financial results of the Company and
BancorpSouth are available, BancorpSouth shall publish such results by press
release or the making of an appropriate filing under the Exchange Act.
7.14 BancorpSouth Board Approval. The appropriate officers of
BancorpSouth shall take all action necessary to have the ratification, approval,
and adoption of this Agreement and the transactions contemplated hereby to be
considered by the BancorpSouth Board of Directors at its August 26, 1998 board
meeting.
A-30
<PAGE> 142
ARTICLE VIII
CONDITIONS PRECEDENT
8.1. Conditions to Each Party's Obligation To Effect the Merger. The
respective obligation of each party to effect the Merger shall be subject to the
satisfaction at or prior to the Effective Time of the following conditions:
(a) Shareholder Approvals. This Agreement shall have been
approved and adopted by the requisite vote of the shareholders of the Company
under applicable law.
(b) Listing of Shares. The shares of BancorpSouth Common Stock
which shall be issued to the shareholders of the Company upon consummation of
the Merger shall have been authorized for listing on the NYSE, subject to
official notice of issuance.
(c) Other Approvals. All regulatory approvals required to
consummate the transactions contemplated hereby (including the Merger) shall
have been obtained and shall remain in full force and effect and all statutory
waiting periods in respect thereof shall have expired (all such approvals and
the expiration of all such waiting periods being referred to herein as the
"Requisite Regulatory Approvals").
(d) S-4. The S-4 shall have become effective under the
Securities Act and no stop order suspending the effectiveness of the S-4 shall
have been issued and no proceedings for that purpose shall have been initiated
or threatened by the SEC.
(e) No Injunctions or Restraints; Illegality. No order,
injunction or decree issued by any court or agency of competent jurisdiction or
other legal restraint or prohibition (an "Injunction") preventing the
consummation of the Merger shall be in effect. No statute, rule, regulation,
order, injunction or decree shall have been enacted, entered, promulgated or
enforced by any Governmental Entity which prohibits, restricts or makes illegal
consummation of the Merger.
8.2. Conditions to Obligations of BancorpSouth. The obligation of
BancorpSouth to effect the Merger is also subject to the satisfaction or waiver
by BancorpSouth at or prior to the Effective Time of the following conditions:
(a) Representations and Warranties. (i) Subject to Section
3.2, the representations and warranties of the Company set forth in this
Agreement (other than those set forth in Section 4.2) shall be true and correct
as of the date of this Agreement and (except to the extent such representations
and warranties speak as of an earlier date) as of the Closing Date as though
made on and as of the Closing Date; and (ii) the representations and warranties
of the Company set forth in Section 4.2 of this Agreement shall be true and
correct in all material respects (without giving effect to Section 3.2 of this
Agreement) as of the date of this Agreement and (except to the extent such
representations and warranties speak as of an earlier date) as of the Closing
Date as though made on and as of the Closing Date. BancorpSouth shall have
received a certificate signed on behalf of the Company by the Chief Executive
Officer and the Chief Financial Officer of the Company to the foregoing effect.
(b) Performance of Obligations of the Company. The Company
shall have performed in all material respects all obligations required to be
performed by it under this Agreement at or prior to the Closing Date, and
BancorpSouth shall have received a certificate signed on behalf of the Company
by the Chief Executive Officer and the Chief Financial Officer of the Company to
such effect.
(c) No Pending Governmental Actions. No proceeding initiated
by any Governmental Entity seeking an Injunction shall be pending.
A-31
<PAGE> 143
(d) Federal Tax Opinion. BancorpSouth shall have received an
opinion from Waller Lansden Dortch & Davis, PLLC, counsel to BancorpSouth
("BancorpSouth's Counsel"), in form and substance reasonably satisfactory to
BancorpSouth, dated the Effective Time, substantially to the effect that, on the
basis of facts, representations and assumptions set forth in such opinion which
are consistent with the state of facts existing at the Effective Time, the
Merger will be treated as a reorganization within the meaning of Section 368(a)
of the Code and that, accordingly, for federal income tax purposes:
(i) No gain or loss will be recognized by
BancorpSouth or the Company as a result of the Merger;
(ii) No gain or loss will be recognized by the
shareholders of the Company who exchange all of their Company
Common Stock solely for BancorpSouth Common Stock pursuant to
the Merger (except with respect to cash received in lieu of a
fractional share interest in BancorpSouth Common Stock); and
(iii) The aggregate tax basis of BancorpSouth Common
Stock received by shareholders who exchange all of their
Company Common Stock solely for BancorpSouth Common Stock
pursuant to the Merger will be the same as the aggregate tax
basis of the Company Common Stock surrendered in exchange
therefor (reduced by any amount allocable to a fractional
share interest for which cash is received).
In rendering such opinion, BancorpSouth's Counsel may require
and shall be entitled to rely upon representations and covenants, including
those contained in certificates of officers of BancorpSouth, the Company and
others, reasonably satisfactory in form and substance to such counsel.
(e) Employment Agreement. William C. Kent shall have entered
into a written employment agreement with BancorpSouth containing non-competition
provisions satisfactory to BancorpSouth in its reasonable discretion.
(f) Legal Opinion. BancorpSouth shall have received an opinion
from Jenkens & Gilchrist, in form and substance reasonably satisfactory to
BancorpSouth, dated the Effective Time, relating to the enforceability of this
Agreement and such other matters as BancorpSouth may reasonably request;
provided, however, that as to matters of Alabama law, Jenkens & Gilchrist may
rely upon an opinion of Alabama counsel addressed to it or may cause such
opinion to be issued directly to BancorpSouth.
(g) Pooling Treatment. BancorpSouth shall be satisfied that
the Merger may be accounted for using the "pooling of interests" accounting
method.
(h) Board Approval. This Agreement and the transactions
contemplated hereby shall have been ratified, approved, and adopted by the
Boards of Directors of both BancorpSouth and BancorpSouth Bank.
8.3. Conditions to Obligations of the Company. The obligation of the
Company to effect the Merger is also subject to the satisfaction or waiver by
the Company at or prior to the Effective Time of the following conditions:
(a) Representations and Warranties. (i) Subject to Section
3.2, the representations and warranties of BancorpSouth set forth in this
Agreement (other than those set forth in Section 5.2) shall be true and correct
as of the date of this Agreement and (except to the extent such representations
and warranties speak as of an earlier date) as of the Closing Date as
A-32
<PAGE> 144
though made on and as of the Closing Date; and (ii) the representations and
warranties of BancorpSouth set forth in Section 5.2 of this Agreement shall be
true and correct in all material respects (without giving effect to Section 3.2
of this Agreement) as of the date of this Agreement and (except to the extent
such representations and warranties speak as of an earlier date) as of the
Closing Date as though made on and as of the Closing Date. The Company shall
have received a certificate signed on behalf of BancorpSouth by the Chief
Executive Officer and the principal financial officer of BancorpSouth to the
foregoing effect.
(b) Performance of Obligations of BancorpSouth. BancorpSouth
shall have performed in all material respects all obligations required to be
performed by it under this Agreement at or prior to the Closing Date, and the
Company shall have received a certificate signed on behalf of BancorpSouth by
the Chief Executive Officer and the principal financial officer of BancorpSouth
to such effect.
(c) No Pending Governmental Actions. No proceeding initiated
by any Governmental Entity seeking an Injunction shall be pending.
(d) Federal Tax Opinion. The Company shall have received an
opinion from Jenkens & Gilchrist (the "Company's Counsel"), in form and
substance reasonably satisfactory to the Company, dated the Effective Time,
substantially to the effect that, on the basis of facts, representations and
assumptions set forth in such opinion which are consistent with the state of
facts existing at the Effective Time, the Merger will be treated as a
reorganization within the meaning of Section 368(a) of the Code and that,
accordingly, for federal income tax purposes:
(i) No gain or loss will be recognized by
BancorpSouth or the Company as a result of the Merger;
(ii) No gain or loss will be recognized by the
shareholders of the Company who exchange all of their Company
Common Stock solely for BancorpSouth Common Stock pursuant to
the Merger (except with respect to cash received in lieu of a
fractional share interest in BancorpSouth Common Stock); and
(iii) The aggregate tax basis of BancorpSouth Common
Stock received by shareholders who exchange all of their
Company Common Stock solely for BancorpSouth Common Stock
pursuant to the Merger will be the same as the aggregate tax
basis of the Company Common Stock surrendered in exchange
therefor (reduced by any amount allocable to a fractional
share interest for which cash is received).
In rendering such opinion, the Company's Counsel may require
and shall be entitled to rely upon representations and covenants, including
those contained in certificates of officers of BancorpSouth, the Company and
others, reasonably satisfactory in form and substance to such counsel.
(e) Fairness Opinion. Prior to the mailing of Proxy Statement,
the Company shall have received an opinion from Alex Sheshunoff & Co. to the
effect that as of the date thereof and based upon and subject to the matters set
forth therein, the Merger is fair to the shareholders of the Company from a
financial point of view.
(f) Legal Opinion. The Company shall have received an opinion
from BancorpSouth's Counsel, in form and substance reasonably satisfactory to
the Company, dated the Effective Time, relating to the enforceability of this
Agreement, the validity of the shares of BancorpSouth Common Stock to be issued
in the Merger, and such other matters as the Company may reasonably request;
provided, however, that as to matters of Mississippi law, BancorpSouth's
A-33
<PAGE> 145
Counsel may rely on an opinion of Mississippi counsel addressed to it or may
cause such opinion to be issued directly to the Company.
ARTICLE IX
TERMINATION AND AMENDMENT
9.1. Termination. This Agreement may be terminated at any time prior to
the Effective Time, whether before or after approval of the matters presented in
connection with the Merger by the shareholders of both the Company and
BancorpSouth:
(a) by mutual consent of the Company and BancorpSouth in a
written instrument, if the Board of Directors of each so determines by a vote of
a majority of the members of its entire Board;
(b) By either BancorpSouth or the Company upon written notice
to the other party (i) 60 days after the date on which any request or
application for a Requisite Regulatory Approval shall have been denied or
withdrawn at the request or recommendation of the Governmental Entity which must
grant such Requisite Regulatory Approval, unless within the 60-day period
following such denial or withdrawal a petition for rehearing or an amended
application has been filed with the applicable Governmental Entity, provided,
however, that no party shall have the right to terminate this Agreement pursuant
to this Section 9.1(b)(i) if such denial or request or recommendation for
withdrawal shall be due to the failure of the party seeking to terminate this
Agreement to perform or observe the covenants and agreements of such party set
forth herein or (ii) if any Governmental Entity of competent jurisdiction shall
have issued a final nonappealable order enjoining or otherwise prohibiting the
Merger;
(c) by either BancorpSouth or the Company if the Merger shall
not have been consummated on or before June 30, 1999 unless the failure of the
Closing to occur by such date shall be due to the failure of the party seeking
to terminate this Agreement to perform or observe the covenants and agreements
of such party set forth herein;
(d) by either BancorpSouth or the Company (provided that the
Company may not terminate if it is in material breach of any of its obligations
under Section 7.3) if any approval of the shareholders of the Company required
for the consummation of the Merger shall not have been obtained by reason of the
failure to obtain the required vote at a duly held meeting of such shareholders
or at any adjournment or postponement thereof;
(e) by either BancorpSouth or the Company (provided that the
terminating party is not then in material breach of any representation,
warranty, covenant or other agreement contained herein) if any of the
representations or warranties set forth in this Agreement on the part of the
other party shall be untrue or incorrect in any material respect, which is not
cured within thirty days following written notice to the party making such
representation, or which, by its nature, cannot be cured prior to the Closing;
provided, however, that neither party shall have the right to terminate this
Agreement pursuant to this Section 9.1(e) unless the representation or warranty,
together with all other representations and warranties that are untrue or
incorrect, would entitle the party receiving such representation not to
consummate the transactions contemplated hereby under Section 8.2(a) (in the
case of a representation or warranty by the Company) or Section 8.3(a) (in the
case of a representation or warranty by BancorpSouth);
(f) by either BancorpSouth or the Company (provided that the
terminating party is not then in material breach of any representation,
warranty, covenant or other agreement contained herein) if there shall have been
a material breach of any of the covenants or agreements set forth in this
Agreement on the part of the other party, which breach shall not have been cured
A-34
<PAGE> 146
within thirty days following receipt by the breaching party of written notice of
such breach from the other party hereto, or which breach, by its nature, cannot
be cured prior to the Closing;
(g) by BancorpSouth, (i) if the condition set forth on Section
8.2(h) is not satisfied, (ii) if the Board of Directors of the Company shall
have failed to recommend in the Proxy Statement that the Company's shareholders
approve and adopt this Agreement, or shall have withdrawn, modified or changed
in a manner adverse to BancorpSouth its approval or recommendation of this
Agreement and the transactions contemplated hereby, or (iii) as provided in
Section 1.10 hereof;
9.2. Effect of Termination. In the event of termination of this
Agreement by either BancorpSouth or the Company as provided in Section 9.1, this
Agreement shall forthwith become void and have no effect except (i) Sections
7.2(b), 9.2 and 10.3 shall survive any termination of this Agreement and (ii)
that notwithstanding anything to the contrary contained in this Agreement, no
party shall be relieved or released from any liabilities or damages arising out
of its breach of any provision of this Agreement, it being understood that a
failure to obtain the approvals referred to in Section 8.2(h) shall not
constitute a breach of this Agreement by BancorpSouth or BancorpSouth Bank.
9.3. Amendment. Subject to compliance with applicable law, this
Agreement may be amended by the parties hereto, by action taken or authorized by
their respective Boards of Directors, at any time before or after approval of
the matters presented in connection with the Merger by the shareholders of the
Company; provided, however, that after any approval of the transactions
contemplated by this Agreement by the Company's shareholders, there may not be,
without further approval of such shareholders, any amendment of this Agreement
which reduces the amount or changes the form of the consideration to be
delivered to the Company shareholders hereunder other than as contemplated by
this Agreement. This Agreement may not be amended except by an instrument in
writing signed on behalf of each of the parties hereto.
9.4. Extension; Waiver. At any time prior to the Effective Time, each
of the parties hereto, by action taken or authorized by its Board of Directors,
may, to the extent legally allowed, (a) extend the time for the performance of
any of the obligations or other acts of the other party hereto, (b) waive any
inaccuracies in the representations and warranties of the other party contained
herein or in any document delivered pursuant hereto and (c) waive compliance
with any of the agreements or conditions of the other party contained herein.
Any agreement on the part of a party hereto to any such extension or waiver
shall be valid only if set forth in a written instrument signed on behalf of
such party, but such extension or waiver or failure to insist on strict
compliance with an obligation, covenant, agreement or condition shall not
operate as a waiver of, or estoppel with respect to, any subsequent or other
failure.
ARTICLE X
GENERAL PROVISIONS
10.1. Closing. Subject to the terms and conditions of this Agreement,
the closing of the Merger (the "Closing") will take place at 10:00 a.m. (Central
Standard Time) on the first day which is (a) the last business day of month, (b)
at least two business days after the satisfaction or waiver (subject to
applicable law) of the last to occur of the conditions set forth in Article VIII
hereof (other than those conditions which relate to actions to be taken at the
Closing), and (iii) subject to the satisfaction of 10.1 (b) December 31, 1998
(the "Closing Date"), at Waller Lansden Dortch & Davis, PLLC, 511 Union Street,
Suite 2100, Nashville, Tennessee 37219, or at such other time, date and place as
is agreed to by the parties hereto.
A-35
<PAGE> 147
10.2. Nonsurvival of Representations, Warranties and Agreements. None
of the representations, warranties, covenants and agreements in this Agreement
or in any instrument delivered pursuant to this Agreement (other than pursuant
to the Stock Option Agreement which shall terminate in accordance with its
terms) shall survive the Effective Time, except for those covenants and
agreements contained herein and therein which by their terms apply in whole or
in part after the Effective Time.
10.3. Expenses. All costs and expenses incurred in connection with this
Agreement and the transactions contemplated hereby shall be paid by the party
incurring such costs and expenses. Without limiting the foregoing, the Company
shall be solely responsible for the compensation, if any, owed to the financial
advisor referred to in Section 4.7 hereof.
10.4. Notices. All notices and other communications hereunder shall be
in writing and shall be deemed given if delivered personally, telecopied (with
confirmation), mailed by registered or certified mail (return receipt requested)
or delivered by an express courier (with confirmation) to the parties at the
following addresses (or at such other address for a party as shall be specified
by like notice):
(a) if to BancorpSouth, to:
BancorpSouth, Inc.
One Mississippi Plaza
Tupelo, Mississippi 38801
Attention: Aubrey B. Patterson
Facsimile: 601/680-2006
with a copy (which shall not constitute notice) to:
Waller Lansden Dortch & Davis
A Professional Limited Liability Company
511 Union Street, Suite 2100
Nashville, Tennessee 37219
Attention: Ralph W. Davis, Esq.
Facsimile: 615/244-6804
and
(b) if to the Company, to:
The First Corporation
457 South 10th Street
Opelika, Alabama 36801
Attention: Joseph L. Dean, Jr.
Facsimile: 334/749-5857
with a copy (which shall not constitute notice) to:
Jenkens & Gilchrist, A Professional Corporation
Fountain Place
1445 Ross Avenue, Suite 3200
Dallas, Texas 75202
Attention: Carolyn V. Kelly, Esq.
Facsimile: 214/855-4300
A-36
<PAGE> 148
10.5. Interpretation. When a reference is made in this Agreement to
Sections, Exhibits or Schedules, such reference shall be to a Section of or
Exhibit or Schedule to this Agreement unless otherwise indicated in such
specific provision. The table of contents and headings contained in this
Agreement are for reference purposes only and shall not affect in any way the
meaning or interpretation of this Agreement. Whenever the words "include",
"includes" or "including" are used in this Agreement, they shall be deemed to be
followed by the words "without limitation". The phrases "the date of this
Agreement", "the date hereof" and terms of similar import, unless the context
otherwise requires, shall be deemed to refer to August 12, 1998.
10.6. Counterparts. This Agreement may be executed in counterparts, all
of which shall be considered one and the same instrument and shall become
effective when counterparts have been signed by each of the parties and
delivered to the other parties, it being understood that all parties need not
sign the same counterpart.
10.7. Entire Agreement. This Agreement (including the documents and the
instruments referred to herein) constitutes the entire agreement and supersedes
all prior agreements and understandings, both written and oral, among the
parties with respect to the subject matter hereof, other than the Stock Option
Agreement.
10.8. Governing Law. This Agreement shall be governed and construed in
accordance with the laws of the State of Mississippi, without regard to its
principles of conflicts of laws.
10.9. Enforcement of Agreement. The parties hereto agree that
irreparable damage would occur in the event that the provisions contained in
7.2(b) of this Agreement were not performed in accordance with its specific
terms or were otherwise breached. It is accordingly agreed that the parties
shall be entitled to an injunction or injunctions to prevent breaches of Section
7.2(b) of this Agreement and to enforce specifically the terms and provisions
thereof in any court of the United States or any state having jurisdiction, this
being in addition to any other remedy to which they are entitled at law or in
equity.
10.10. Severability. Any term or provision of this Agreement which is
invalid or unenforceable in any jurisdiction shall, as to that jurisdiction, be
ineffective to the extent of such invalidity or unenforceability without
rendering invalid or unenforceable the remaining terms and provisions of this
Agreement or affecting the validity or enforceability of any of the terms or
provisions of this Agreement in any other jurisdiction. If any provision of this
Agreement is so broad as to be unenforceable, the provision shall be interpreted
to be only so broad as is enforceable.
10.11. Publicity. Except as otherwise required by law or the rules of
the NYSE, so long as this Agreement is in effect, neither BancorpSouth nor the
Company shall, or shall permit any of its Subsidiaries to, issue or cause the
publication of any press release or other public announcement with respect to,
or otherwise make any public statement concerning, the transactions contemplated
by this Agreement without the consent of the other party, which such consent
shall not be unreasonably withheld.
10.12. Assignment; Third Party Beneficiaries. Neither this Agreement
nor any of the rights, interests or obligations hereunder shall be assigned by
any of the parties hereto (whether by operation of law or otherwise) without the
prior written consent of the other parties. 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. Except as otherwise
expressly provided herein, this Agreement (including the documents and
instruments referred to herein) is not intended to confer upon any person other
than the parties hereto any rights or remedies hereunder.
[NEXT PAGE IS SIGNATURE PAGE.]
A-37
<PAGE> 149
IN WITNESS WHEREOF, BancorpSouth and the Company have caused this
Agreement to be executed by their respective officers thereunto duly authorized
as of the date first above written for themselves and their respective
Subsidiaries.
BANCORPSOUTH, INC.
By: /s/ Aubrey B. Patterson
---------------------------------------
Name: Aubrey B. Patterson
Title: Chairman and Chief Executive Officer
THE FIRST CORPORATION
By: /s/ William C. Kent
---------------------------------------
Name: William C. Kent
Title: President
A-38
<PAGE> 150
ANNEX B
CODE OF ALABAMA
ARTICLE 13. DISSENTERS' RIGHTS
Section 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.
Section 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
B-1
<PAGE> 151
is entitled to vote on the sale or exchange, including a sale in
dissolution, but not including a sale pursuant to court order or a sale
for cash pursuant to a plan by which all or substantially all of the
net proceeds of the sale will be distributed to the shareholders within
one year after the date of sale;
(4) To the extent that the articles of incorporation of the
corporation so provide, an amendment of the articles of incorporation
that materially and adversely affects rights in respect to a
dissenter's shares because it:
(i) Alters or abolishes a preferential right of the
shares;
(ii) Creates, alters, or abolishes a right in respect
of redemption, including a provision respecting a sinking fund
for the redemption or repurchase of the shares;
(iii) Alters or abolishes a preemptive right of the
holder of the shares to acquire shares or other securities;
(iv) Excludes or limits the right of the shares to
vote on any matter, or to cumulate votes, other than a
limitation by dilution through issuance of shares or other
securities with similar voting rights; or
(v) Reduces the number of shares owned by the
shareholder to a fraction of a share if the fractional share
so created is to be acquired for cash under Section
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.
Section 10-2B-13.03. Dissent as to fewer than all shares held -- 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.
B-2
<PAGE> 152
Section 10-2B-13.20. Notice of 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.
Section 10-2B-13.21. Requirements for exercise of rights
(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.
Section 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.
Section 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-3
<PAGE> 153
(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.
Section 10-2B-13.24. Share restrictions
(a) Within 20 days after making a formal payment demand, each
shareholder demanding payment shall submit the certificate or certificates
representing his or her shares to the corporation for (1) notation thereon by
the corporation that such demand has been made and (2) return to the shareholder
by the corporation.
(b) The failure to submit his or her shares for notation shall, at the
option of the corporation, terminate the shareholders' rights under this article
unless a court of competent jurisdiction, for good and sufficient cause, shall
otherwise direct.
(c) If shares represented by a certificate on which notation has been
made shall be transferred, each new certificate issued therefor shall bear
similar notation, together with the name of the original dissenting holder of
such shares.
(d) A transferee of such shares shall acquire by such transfer no
rights in the corporation other than those which the original dissenting
shareholder had after making demand for payment of the fair value thereof.
Section 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
B-4
<PAGE> 154
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.
Section 10-2B-13.26. Failure to take 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.
Section 10-2B-13.27. Reserved.
Section 10-2B-13.28. Procedure if shareholder dissatisfied with corporation's
offer or failure to perform
(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
(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.
Section 10-2B-13.30. Commencement of proceedings
(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.
B-5
<PAGE> 155
(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.
Section 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 benefited.
B-6
<PAGE> 156
Section 10-2B-13.32. Powers of corporation as to shares acquired pursuant to
payment
Shares acquired by a corporation pursuant to payment of the agreed
value therefor or to payment of the judgment entered therefor, as in this
chapter provided, may be held and disposed of by such corporation as in the case
of other treasury shares, except that, in the case of a merger or share
exchange, they may be held and disposed of as the plan of merger or share
exchange may otherwise provide.
B-7
<PAGE> 157
ANNEX C
[Letterhead of Alex Sheshunoff & Co. Investment Banking]
November 19, 1998
Board of Directors
The First Corporation
414 South Seventh Street
Opelika, Alabama 36803
Members of the Board:
You have requested an update to our oral opinion delivered on August 12, 1998
and written opinion as of October 30 as to the fairness, from a financial point
of view, to the holders of the outstanding shares of common stock of The First
Corporation, Opelika, Alabama ("First Corporation") of the Exchange Ratio in the
proposed merger between First Corporation and BancorpSouth, Inc., Tupelo,
Mississippi, ("Bancorp"). The shares will be exchanged pursuant to an Agreement
and Plan of Merger (the "Merger Agreement") dated August 12, 1998. Pursuant to
the Merger Agreement, Bancorp shall cause First Corporation to be merged with
and into Bancorp. In consideration of the merger, Bancorp has offered to
exchange $40,600,000 in shares of its common stock for the outstanding shares of
First Corporation common stock. The actual number of Bancorp shares to be
exchanged for each share of First Corporation stock may fluctuate between 7.7043
and 10.4235 as a result of changes in an average price for Bancorp stock as set
forth in the Merger Agreement.
Alex Sheshunoff & Co. Investment Banking ("Sheshunoff") is regularly engaged in
the valuation of securities in connection with mergers and acquisitions, private
placements, and valuations for estate, corporate and other purposes.
In connection with our opinion, we have, among other things:
1. Reviewed Call Report information as of December 1997 and June
30, 1998 for First Corporation;
2. Reviewed internal financial and other operating information
provided by First Corporation;
3. Conducted conversations with executive management regarding
recent and projected financial performance of First
Corporation;
4. Compared First Corporation's recent operating results with
those of certain other banks in the Southeast region of the
United States which have recently been acquired;
5. Compared First Corporation's recent operating results with
those of certain other banks in Alabama which have recently
been acquired;
6. Compared the pricing multiples for the value to be received by
the stockholders of First Corporation in the Merger to those
of certain other banks in Alabama which have recently been
acquired;
C-1
<PAGE> 158
7. Compared the pricing multiples for the value to be received by
the stockholders of First Corporation in the Merger to those
of certain other banks in the Southeast region of the United
States which have recently been acquired;
8. Performed an affordability analysis based on the projections
of earnings, based upon management's assumptions, for the
combined entity subsequent to the Merger;
9. Reviewed the historical stock price and trading volume of
Bancorp common stock and the lack of any active market for the
common stock of First Corporation;
10. Compared Bancorp's financial characteristics with certain
other banking organizations located in the Southeast region of
the United States, and;
11. Performed such other analyses as we deemed appropriate.
We have assumed and relied upon, without independent verification, the accuracy
and completeness of the information provided to us by First Corporation for the
purposes of this opinion. In addition, where appropriate, we have relied upon
publicly available information that we believe to be reliable, accurate and
complete; however, we cannot guarantee the reliability, accuracy or completeness
of any such publicly available information We have not made an independent
evaluation of the assets or liabilities of First Corporation or Bancorp, nor
have we been furnished with any such appraisals. We did not visit Bancorp and
have relied upon publicly available financial information concerning Bancorp and
the market performance of its stock.
We are not experts in the evaluation of loan portfolios for the purposes of
assessing the adequacy of the allowance for losses and have assumed that such
allowances for each of the companies are in the aggregate, adequate to cover
such losses. We have assumed that both First Corporation and Bancorp have
received all required regulatory approvals necessary to consummate the Merger
without conditions that will materially impact the Merger.
Our opinion is necessarily based on economic, market and other conditions as in
effect on, and the information made available to us as of the date hereof.
Events occurring after the date hereof could materially affect the assumptions
used in preparing this opinion.
Our opinion is limited to the fairness, from a financial point of view, of the
Exchange Ratio contained in the Merger to the holders of First Corporation's
common stock. Moreover, this letter, and the opinion expressed herein, do not
constitute a recommendation to any shareholder as to any approval of the Merger
or the Merger Agreement. It is understood that this letter is for the
information of the Board of Directors of First Corporation and may not be used
for any other purpose without our prior written consent.
Based on the foregoing and such other matters we have deemed relevant, it is our
opinion, as of the date hereof, that the Exchange Ratio is fair, from a
financial point of view to the stockholders of First Corporation.
Very truly yours,
/s/ ALEX SHESHUNOFF & CO.
INVESTMENT BANKING
C-2
<PAGE> 159
ANNEX D
THE TRANSFER OF THIS AGREEMENT IS SUBJECT TO CERTAIN PROVISIONS
CONTAINED HEREIN AND TO RESALE RESTRICTIONS UNDER THE SECURITIES ACT OF 1933, AS
AMENDED
STOCK OPTION AGREEMENT, dated as of August 12, 1998, between The First
Corporation, an Alabama corporation ("Issuer"), and BancorpSouth, Inc., a
Mississippi corporation ("Grantee").
W I T N E S S E T H:
WHEREAS, Grantee and Issuer have entered into an Agreement and Plan of
Merger of even date herewith (the "Merger Agreement"), which agreement has been
executed by the parties hereto immediately prior to this Stock Option Agreement
(the "Agreement"); and
WHEREAS, as a condition to Grantee's entering into the Merger Agreement
and in consideration therefor, Issuer has agreed to grant Grantee the Option (as
hereinafter defined);
NOW, THEREFORE, in consideration of the foregoing and the mutual
covenants and agreements set forth herein and in the Merger Agreement, the
parties hereto agree as follows:
1. (a) Issuer hereby grants to Grantee an unconditional, irrevocable
option (the "Option") to purchase, subject to the terms hereof, up to 47,822
fully paid and nonassessable shares of Issuer's Common Stock, $0.05 par value
("Common Stock"), at a price of $125.00 per share (the "Option Price");
provided, however, that in no event shall the number of shares of Common Stock
for which this Option is exercisable exceed 19.9% of the Issuer's issued and
outstanding shares of Common Stock without giving effect to any shares subject
to or issued pursuant to the Option. The number of shares of Common Stock that
may be received upon the exercise of the Option and the Option Price are subject
to adjustment as herein set forth. All shares of Common Stock shall be issued
from shares to which the preemptive rights granted by the Restated Articles of
Incorporation of the Issuer do not apply.
(b) In the event that any additional shares of Common Stock
are either (i) issued or otherwise become outstanding after the date of this
Agreement (other than pursuant to this Agreement) or (ii) redeemed, repurchased,
retired or otherwise cease to be outstanding after the date of the Agreement,
the number of shares of Common Stock subject to the Option shall be increased or
decreased, as appropriate, so that, after such issuance, such number equals
19.9% of the number of shares of Common Stock then issued and outstanding
without giving effect to any shares subject or issued pursuant to the Option.
Nothing contained in this Section 1(b) or elsewhere in this Agreement shall be
deemed to authorize Issuer or Grantee to breach any provision of the Merger
Agreement.
2. (a) The Holder (as hereinafter defined) may exercise the Option, in
whole or part, and from time to time, if, but only if, both an Initial
Triggering Event (as hereinafter defined) and a Subsequent Triggering Event (as
hereinafter defined) shall have occurred prior to the occurrence of an Exercise
Termination Event (as hereinafter defined), provided that the Holder shall have
sent the written notice of such exercise (as provided in subsection (e) of this
Section 2) within 90 days following such Subsequent Triggering Event. Each of
the following shall be an "Exercise Termination Event": (i) the Effective Time
(as defined in the Merger Agreement) of the Merger; (ii) termination of the
Merger Agreement in accordance with the provisions thereof if such termination
occurs prior to the occurrence of an Initial Triggering Event except a
termination by Grantee pursuant to Section 9.1(f) of the Merger Agreement
(unless the breach by Issuer giving rise to such
D-1
<PAGE> 160
right of termination is non-volitional) or Section 9.1(g) of the Merger
Agreement; or (iii) the passage of 12 months after termination of the Merger
Agreement if such termination follows the occurrence of an Initial Triggering
Event or is a termination by Grantee pursuant to Section 9.1(f) of the Merger
Agreement (unless the breach by Issuer giving rise to such right of termination
is non-volitional) or Section 9.1(g) of the Merger Agreement. The term "Holder"
shall mean the Grantee or any future holder or holders of the Option.
(b) The term "Initial Triggering Event" shall mean any of the
following events or transactions occurring after the date hereof:
(i) Issuer or any of its Subsidiaries (each an
"Issuer Subsidiary"), without having received Grantee's prior
written consent, shall have entered into an agreement to
engage in an Acquisition Transaction (as hereinafter defined)
with any person (the term "person" for purposes of this
Agreement having the meaning assigned thereto in Sections
3(a)(9) and 13(d)(3) of the Securities Exchange Act of 1934,
as amended (the "1934 Act"), and the rules and regulations
thereunder) other than Grantee or any of its Subsidiaries
(each a "Grantee Subsidiary") or the Board of Directors of
Issuer shall have recommended that the shareholders of Issuer
approve or accept any Acquisition Transaction. For purposes of
this Agreement, "Acquisition Transaction" shall mean with
respect to any person except Grantee or any Grantee subsidiary
(w) a merger or consolidation, or any similar transaction,
involving Issuer or any Significant Subsidiary (as defined in
Rule 1-02 of Regulation S-X promulgated by the Securities and
Exchange Commission (the "SEC")) of Issuer, (x) a purchase,
lease or other acquisition or assumption of all or a
substantial portion of the assets or deposits of Issuer or any
Significant Subsidiary of Issuer, (y) a purchase or other
acquisition (including by way of merger, consolidation, share
exchange or otherwise) of securities representing 10% or more
of the voting power of Issuer, or (z) any substantially
similar transaction;
(ii) Issuer or any Issuer Subsidiary, without having
received Grantee's prior written consent, shall have
authorized, recommended, proposed or publicly announced its
intention to authorize, recommend or propose, to engage in an
Acquisition Transaction with any person other than Grantee or
a Grantee Subsidiary, or the Board of Directors of Issuer
shall have publicly withdrawn or modified, or publicly
announced its intention to withdraw or modify, in any manner
adverse to Grantee, its recommendation that the shareholders
of Issuer approve the transactions contemplated by the Merger
Agreement in anticipation of engaging in an Acquisition
Transaction;
(iii) Any person other than Grantee, any Grantee
Subsidiary or any Issuer Subsidiary acting in a fiduciary
capacity in the ordinary course of its business shall have
acquired beneficial ownership or the right to acquire
beneficial ownership of 10% or more of the outstanding shares
of Common Stock (the term "beneficial ownership" for purposes
of this Agreement having the meaning assigned thereto in
Section 13(d) of the 1934 Act, and the rules and regulations
thereunder);
(iv) Any person other than Grantee or any Grantee
Subsidiary shall have made a bona fide proposal to Issuer or
its shareholders by public announcement or written
communication that is or becomes the subject of public
disclosure to engage in an Acquisition Transaction;
(v) After an overture is made by a third party to
Issuer or its shareholders to engage in an Acquisition
Transaction, Issuer shall have breached any covenant or
obligation contained in the Merger Agreement and such breach
(x) would
D-2
<PAGE> 161
entitle Grantee to terminate the Merger Agreement and (y)
shall not have been cured prior to the Notice Date (as defined
below); or
(vi) Any person other than Grantee or any Grantee
Subsidiary, other than in connection with a transaction to
which Grantee has given its prior written consent, shall have
filed an application or notice with the Federal Reserve Board,
or other federal or state bank regulatory authority, which
application or notice has been accepted for processing, for
approval to engage in an Acquisition Transaction.
(c) The term "Subsequent Triggering Event" shall mean either
of the following events or transactions occurring after the date hereof:
(i) The acquisition by any person of beneficial
ownership of 25% or more of the then outstanding Common Stock;
or
(ii) The occurrence of the Initial Triggering Event
described in paragraph (i) of subsection (b) of this Section
2, except that the percentage referred to in clause (y) shall
be 25%.
(d) Issuer shall notify Grantee promptly in writing of the
occurrence of any Initial Triggering Event or Subsequent Triggering Event of
which it has notice (together, a "Triggering Event"), it being understood that
the giving of such notice by Issuer shall not be a condition to the right of the
Holder to exercise the Option.
(e) In the event the Holder is entitled to and wishes to
exercise the Option, it shall send to Issuer a written notice (the date of which
being herein referred to as the "Notice Date") specifying (i) the total number
of shares it will purchase pursuant to such exercise and (ii) a place and date
not earlier than three business days nor later than 60 business days from the
Notice Date for the closing of such purchase (the "Closing Date"); provided that
if prior notification to or approval of the Federal Reserve Board or any other
regulatory agency is required in connection with such purchase, the Holder shall
promptly file the required notice or application for approval and shall
expeditiously process the same and the period of time that otherwise would run
pursuant to this sentence shall run instead from the date on which any required
notification periods have expired or been terminated or such approvals have been
obtained and any requisite waiting period or periods shall have passed. Any
exercise of the Option shall be deemed to occur on the Notice Date relating
thereto.
(f) At the closing referred to in subsection (e) of this
Section 2, the Holder shall pay to Issuer the aggregate purchase price for the
shares of Common Stock purchased pursuant to the exercise of the Option in
immediately available funds by wire transfer to a bank account designated by
Issuer, provided that failure or refusal of Issuer to designate such a bank
account shall not preclude the Holder from exercising the Option.
(g) At such closing, simultaneously with the delivery of
immediately available funds as provided in subsection (f) of this Section 2,
Issuer shall deliver to the Holder a certificate or certificates representing
the number of shares of Common Stock purchased by the Holder and, if the Option
should be exercised in part only, a new Option evidencing the rights of the
Holder thereof to purchase the balance of the shares purchasable hereunder, and
the Holder shall deliver to Issuer this Agreement and a letter agreeing that the
Holder will not offer to sell or otherwise dispose of such shares in violation
of applicable law or the provisions of this Agreement.
(h) Certificates for Common Stock delivered at a closing
hereunder may be endorsed with a restrictive legend that shall read
substantially as follows:
D-3
<PAGE> 162
"The transfer of the shares represented by this
certificate is subject to certain provisions of an agreement
between the registered holder hereof and Issuer and to resale
restrictions arising under the Securities Act of 1933, as
amended. A copy of such agreement is on file at the principal
office of Issuer and will be provided to the holder hereof
without charge upon receipt by Issuer of a written request
therefor."
It is understood and agreed that: (i) the reference to the
resale restrictions of the Securities Act of 1933, as amended (the "1933 Act"),
in the above legend shall be removed by delivery of substitute certificate(s)
without such reference if the Holder shall have delivered to Issuer a copy of a
letter from the staff of the SEC, or an opinion of counsel, in form and
substance reasonably satisfactory to Issuer, to the effect that such legend is
not required for purposes of the 1933 Act; (ii) the reference to the provisions
to this Agreement in the above legend shall be removed by delivery of substitute
certificate(s) without such reference if the shares have been sold or
transferred in compliance with the provisions of this Agreement and under
circumstances that do not require the retention of such reference; and (iii) the
legend shall be removed in its entirety if the conditions in the preceding
clauses (i) and (ii) are both satisfied. In addition, such certificates shall
bear any other legend as may be required by law.
(i) Upon the giving by the Holder to Issuer of the written
notice of exercise of the Option provided for under subsection (e) of this
Section 2 and the tender of the applicable purchase price in immediately
available funds, the Holder shall be deemed to be the holder of record of the
shares of Common Stock issuable upon such exercise, notwithstanding that the
stock transfer books of Issuer shall then be closed or that certificates
representing such shares of Common Stock shall not then be actually delivered to
the Holder. Issuer shall pay all expenses, and any and all United States
federal, state and local taxes and other charges that may be payable in
connection with the preparation, issue and delivery of stock certificates under
this Section 2 in the name of the Holder or its assignee, transferee or
designee.
3. Issuer agrees: (i) that it shall at all times maintain, free from
preemptive rights, sufficient authorized but unissued shares of Common Stock so
that the Option may be exercised without additional authorization of Common
Stock after giving effect to all other options, warrants, convertible securities
and other rights to purchase Common Stock; (ii) that it will not, by charter
amendment or through reorganization, consolidation, merger, dissolution or sale
of assets, or by any other voluntary act, avoid or seek to avoid the observance
or performance of any of the covenants, stipulations or conditions to be
observed or performed hereunder by Issuer; (iii) promptly to take all action as
may from time to time be required (including (x) complying with all premerger
notification, reporting and waiting period requirements specified in 15 U.S.C.
ss.ss. 18a and regulations promulgated thereunder and (y) in the event, under
the Bank Holding Company Act of 1956, as amended (the "BHCA"), or the Change in
Bank Control Act of 1978, as amended, or any state banking law, prior approval
of or notice to the Federal Reserve Board or to any state regulatory authority
is necessary before the Option may be exercised, cooperating fully with the
Holder in preparing such applications or notices and providing such information
to the Federal Reserve Board or such state regulatory authority as they may
require) in order to permit the Holder to exercise the Option and Issuer duly
and effectively to issue shares of Common Stock pursuant hereto; and (iv)
promptly to take all action provided herein to protect the rights of the Holder
against dilution.
4. This Agreement (and the Option granted hereby) are exchangeable,
without expense, at the option of the Holder, upon presentation and surrender of
this Agreement at the principal office of Issuer, for other Agreements providing
for Options of different denominations entitling the holder thereof to purchase,
on the same terms and subject to the same conditions as are set forth herein, in
the aggregate the same number of shares of Common Stock purchasable hereunder.
The terms "Agreement" and "Option" as used herein include any Stock Option
Agreements and related Options for which this Agreement (and the Option granted
hereby) may be exchanged. Upon receipt by Issuer of evidence reasonably
satisfactory to it of the loss, theft, destruction or mutilation of this
D-4
<PAGE> 163
Agreement, and (in the case of loss, theft or destruction) of reasonably
satisfactory indemnification, and upon surrender and cancellation of this
Agreement, if mutilated, Issuer will execute and deliver a new Agreement of like
tenor and date. Any such new Agreement executed and delivered shall constitute
an additional contractual obligation on the part of Issuer, whether or not the
Agreement so lost, stolen, destroyed or mutilated shall at any time be
enforceable by anyone.
5. In addition to the adjustment in the number of shares of Common
Stock that are purchasable upon exercise of the Option pursuant to Section 1 of
this Agreement, the number of shares of Common Stock purchasable upon the
exercise of the Option and the Option Price shall be subject to adjustment from
time to time as provided in this Section 5. In the event of any change in, or
distributions in respect of, the Common Stock by reason of stock dividends,
split-ups, mergers, recapitalizations, combinations, subdivisions, conversions,
exchanges of shares, distributions on or in respect of the Common Stock that
would be prohibited under the terms of the Merger Agreement, or the like, the
type and number of shares of Common Stock purchasable upon exercise hereof and
the Option Price shall be appropriately adjusted in such manner as shall fully
preserve the economic benefits provided hereunder and proper provision shall be
made in any agreement governing any such transaction to provide for such proper
adjustment and the full satisfaction of the Issuer's obligations hereunder.
6. Upon the occurrence of a Subsequent Triggering Event that occurs
prior to an Exercise Termination Event, Issuer shall, at the request of Grantee
delivered within 90 days of such Subsequent Triggering Event (whether on its own
behalf or on behalf of any subsequent holder of this Option (or part thereof) or
any of the shares of Common Stock issued pursuant hereto), promptly prepare,
file and keep current a shelf registration statement under the 1933 Act covering
this Option and any shares issued and issuable pursuant to this Option and shall
use its reasonable best efforts to cause such registration statement to become
effective and remain current in order to permit the sale or other disposition of
this Option and any shares of Common Stock issued upon total or partial exercise
of this Option ("Option Shares") in accordance with any plan of disposition
requested by Grantee. Issuer will use its reasonable best efforts to cause such
registration statement first to become effective and then to remain effective
for such period not in excess of 180 days from the day such registration
statement first becomes effective or such shorter time as may be reasonably
necessary to effect such sales or other dispositions. Grantee shall have the
right to demand two such registrations. The foregoing notwithstanding, if, at
the time of any request by Grantee for registration of the Option or Option
Shares as provided above, Issuer is in registration with respect to an
underwritten public offering of shares of Common Stock, and if in the good faith
judgment of the managing underwriter or managing underwriters, or, if none, the
sole underwriter or underwriters, of such offering the inclusion of the Holder's
Option or Option Shares would interfere with the successful marketing of the
shares of Common Stock offered by Issuer, the number of Option Shares otherwise
to be covered in the registration statement contemplated hereby may be reduced;
provided, however, that after any such required reduction the number of Option
Shares to be included in such offering for the account of the Holder shall
constitute at least 25% of the total number of shares to be sold by the Holder
and Issuer in the aggregate; and provided further, however, that if such
reduction occurs, then the Issuer shall file a registration statement for the
balance as promptly as practicable and no reduction shall thereafter occur. Each
such Holder shall provide all information reasonably requested by Issuer for
inclusion in any registration statement to be filed hereunder. If requested by
any such Holder in connection with such registration, Issuer shall become a
party to any underwriting agreement relating to the sale of such shares, but
only to the extent of obligating itself in respect of representations,
warranties, indemnities and other agreements customarily included in secondary
offering underwriting agreements for the Issuer. Upon receiving any request
under this Section 6 from any Holder, Issuer agrees to send a copy thereof to
any other person known to Issuer to be entitled to registration rights under
this Section 6, in each case by promptly mailing the same, postage prepaid, to
the address of record of the persons entitled to receive such copies.
Notwithstanding anything to the contrary contained herein, in no event shall
Issuer be obligated to effect more than two registrations pursuant to this
Section 6 by
D-5
<PAGE> 164
reason of the fact that there shall be more than one Grantee as a result of any
assignment or division of this Agreement.
7. (a) Immediately prior to the occurrence of a Repurchase Event (as
defined below), (i) following a request of the Holder, delivered prior to an
Exercise Termination Event, Issuer (or any successor thereto) shall repurchase
the Option from the Holder at a price (the "Option Repurchase Price") equal to
the amount by which (A) the Market/Offer Price (as defined below) exceeds (B)
the Option Price, multiplied by the number of shares for which this Option may
then be exercised and (ii) at the request of the owner of Option Shares from
time to time (the "Owner"), delivered within 90 days of such occurrence (or such
later period as provided in Section 10), Issuer shall repurchase such number of
the Option Shares from the Owner as the Owner shall designate at a price (the
"Option Share Repurchase Price") equal to the Market/Offer Price multiplied by
the number of Option Shares so designated. The term "Market/Offer Price" shall
mean the highest of (i) the price per share of Common Stock at which a tender
offer or exchange offer therefor has been made, (ii) the price per share of
Common Stock to be paid by any third party pursuant to an agreement with Issuer,
(iii) the highest closing price for shares of Common Stock within the six-month
period immediately preceding the date the Holder gives notice of the required
repurchase of this Option or the Owner gives notice of the required repurchase
of Option Shares, as the case may be, or (iv) in the event of a sale of all or a
substantial portion of Issuer's assets, the sum of the price paid in such sale
for such assets and the current market value of the remaining assets of Issuer
as determined by a nationally recognized investment banking firm selected by the
Holder or the Owner, as the case may be, and reasonably acceptable to the
Issuer, divided by the number of shares of Common Stock of Issuer outstanding at
the time of such sale. In determining the Market/Offer Price, the value of
consideration other than cash shall be determined by a nationally recognized
investment banking firm selected by the Holder or Owner, as the case may be, and
reasonably acceptable to the Issuer.
(b) The Holder and the Owner, as the case may be, may exercise
its right to require Issuer to repurchase the Option and any Option Shares
pursuant to this Section 7 by surrendering for such purpose to Issuer, at its
principal office, this Agreement or certificates for Option Shares, as
applicable, accompanied by a written notice or notices stating that the Holder
or the Owner, as the case may be, elects to require Issuer to repurchase this
Option and/or the Option Shares in accordance with the provisions of this
Section 7. Within the latter to occur of (x) five business days after the
surrender of the Option and/or certificates representing Option Shares and the
receipt of such notice or notices relating thereto and (y) the time that is
immediately prior to the occurrence of a Repurchase Event, Issuer shall deliver
or cause to be delivered to the Holder the Option Repurchase Price and/or to the
Owner the Option Share Repurchase Price therefor or the portion thereof, if any,
that Issuer is not then prohibited under applicable law and regulation from so
delivering.
(c) To the extent that Issuer is prohibited under applicable
law or regulation from repurchasing the Option and/or the Option Shares in full,
Issuer shall immediately so notify the Holder and/or the Owner and thereafter
deliver or cause to be delivered, from time to time, to the Holder and/or the
Owner, as appropriate, the portion of the Option Repurchase Price and the Option
Share Repurchase Price, respectively, that it is no longer prohibited from
delivering, within five business days after the date on which Issuer is no
longer so prohibited; provided, however, that if Issuer at any time after
delivery of a notice of repurchase pursuant to paragraph (b) of this Section 7
is prohibited under applicable law or regulation from delivering to the Holder
and/or the Owner, as appropriate, the Option
D-6
<PAGE> 165
Repurchase Price and the Option Share Repurchase Price, respectively, in full
(and Issuer hereby undertakes to use its best efforts to obtain all required
regulatory and legal approvals and to file any required notices as promptly as
practicable in order to accomplish such repurchase), the Holder or Owner may
revoke its notice of repurchase of the Option or the Option Shares either in
whole or to the extent of the prohibition, whereupon, in the latter case, Issuer
shall promptly (i) deliver to the Holder and/or the Owner, as appropriate, that
portion of the Option Repurchase Price or the Option Share Repurchase Price that
Issuer is not prohibited from delivering; and (ii) deliver, as appropriate,
either (A) to the Holder, a new Stock Option Agreement evidencing the right of
the Holder to purchase that number of shares of Common Stock obtained by
multiplying the number of shares of Common Stock for which the surrendered Stock
Option Agreement was exercisable at the time of delivery of the notice of
repurchase by a fraction, the numerator of which is the Option Repurchase Price
less the portion thereof theretofore delivered to the Holder and the denominator
of which is the Option Repurchase Price, or (B) to the Owner, a certificate for
the Option Shares it is then so prohibited from repurchasing
(d) For purposes of this Section 7, a Repurchase Event shall
be deemed to have occurred (i) upon the consummation of any merger,
consolidation or similar transaction involving Issuer or any purchase, lease or
other acquisition of all or a substantial portion of the assets of Issuer, other
than any such transaction which would not constitute an Acquisition Transaction
pursuant to the provisos to Section 2(b)(i) hereof or (ii) upon the acquisition
by any person of beneficial ownership of 50% or more of the then outstanding
shares of Common Stock, provided that no such event shall constitute a
Repurchase Event unless a Subsequent Triggering Event shall have occurred prior
to an Exercise Termination Event. The parties hereto agree that Issuer's
obligations to repurchase the Option or Option Shares under this Section 7 shall
not terminate upon the occurrence of an Exercise Termination Event unless no
Subsequent Triggering Event shall have occurred prior to the occurrence of an
Exercise Termination Event.
8. (a) In the event that prior to an Exercise Termination Event, Issuer
shall enter into an agreement (i) to consolidate with or merge into any person,
other than Grantee or one of its Subsidiaries, and shall not be the continuing
or surviving corporation of such consolidation or merger, (ii) to permit any
person, other than Grantee or one of its Subsidiaries, to merge into Issuer and
Issuer shall be the continuing or surviving corporation, but, in connection with
such merger, the then outstanding shares of Common Stock shall be changed into
or exchanged for stock or other securities of any other person or cash or any
other property or the then outstanding shares of Common Stock shall after such
merger represent less than 50% of the outstanding voting shares and voting share
equivalents of the merged company, or (iii) to sell or otherwise transfer all or
substantially all of its assets to any person, other than Grantee or one of its
Subsidiaries, then, and in each such case, the agreement governing such
transaction shall make proper provision so that the Option shall, upon the
consummation of any such transaction and upon the terms and conditions set forth
herein, be converted into, or exchanged for, an option (the "Substitute
Option"), at the election of the Holder, of either (x) the Acquiring Corporation
(as hereinafter defined) or (y) any person that controls the Acquiring
Corporation.
(b) The following terms have the meanings indicated:
(1) "Acquiring Corporation" shall mean (i) the
continuing or surviving corporation of a consolidation or
merger with Issuer (if other than Issuer), (ii) Issuer in a
merger in which Issuer is the continuing or surviving person,
and (iii) the transferee of all or substantially all of
Issuer's assets.
(2) "Substitute Common Stock" shall mean the common
stock issued by the issuer of the Substitute Option upon
exercise of the Substitute Option.
(3) "Assigned Value" shall mean the Market/Offer
Price, as defined in Section 7.
(4) "Average Price" shall mean the average closing
price of a share of the Substitute Common Stock for the one
year immediately preceding the consolidation, merger or sale
in question, but in no event higher than the closing price of
the shares of Substitute Common Stock on the day preceding
such consolidation, merger or sale;
D-7
<PAGE> 166
provided that if Issuer is the issuer of the Substitute
Option, the Average Price shall be computed with respect to a
share of common stock issued by the person merging into Issuer
or by any company which controls or is controlled by such
person, as the Holder may elect.
(c) The Substitute Option shall have the same terms as the
Option, provided, that if the terms of the Substitute Option cannot, for legal
reasons, be the same as the Option, such terms shall be as similar as possible
and in no event less advantageous to the Holder. The issuer of the Substitute
Option shall also enter into an agreement with the then Holder or Holders of the
Substitute Option in substantially the same form as this Agreement, which shall
be applicable to the Substitute Option.
(d) The Substitute Option shall be exercisable for such number
of shares of Substitute Common Stock as is equal to the Assigned Value
multiplied by the number of shares of Common Stock for which the Option is then
exercisable, divided by the Average Price. The exercise price of the Substitute
Option per share of Substitute Common Stock shall then be equal to the Option
Price multiplied by a fraction, the numerator of which shall be the number of
shares of Common Stock for which the Option is then exercisable and the
denominator of which shall be the number of shares of Substitute Common Stock
for which the Substitute Option is exercisable.
(e) In no event, pursuant to any of the foregoing paragraphs,
shall the Substitute Option be exercisable for more than 19.9% of the shares of
Substitute Common Stock outstanding prior to exercise of the Substitute Option.
In the event that the Substitute Option would be exercisable for more than 19.9%
of the shares of Substitute Common Stock outstanding prior to exercise but for
this clause (e), the issuer of the Substitute Option (the "Substitute Option
Issuer") shall make a cash payment to Holder equal to the excess of (i) the
value of the Substitute Option without giving effect to the limitation in this
clause (e) over (ii) the value of the Substitute Option after giving effect to
the limitation in this clause (e). This difference in value shall be determined
by a nationally recognized investment banking firm selected by the Holder or the
Owner, as the case may be, and reasonably acceptable to the Acquiring
Corporation.
(f) Issuer shall not enter into any transaction described in
subsection (a) of this Section 8 unless the Acquiring Corporation and any person
that controls the Acquiring Corporation assume in writing all the obligations of
Issuer hereunder.
9. (a) At the request of the holder of the Substitute Option (the
"Substitute Option Holder"), the Substitute Option Issuer shall repurchase the
Substitute Option from the Substitute Option Holder at a price (the "Substitute
Option Repurchase Price") equal to the amount by which (i) the Highest Closing
Price (as hereinafter defined) exceeds (ii) the exercise price of the Substitute
Option, multiplied by the number of shares of Substitute Common Stock for which
the Substitute Option may then be exercised and at the request of the owner (the
"Substitute Share Owner") of shares of Substitute Common Stock (the "Substitute
Shares"), the Substitute Option Issuer shall repurchase the Substitute Shares at
a price (the "Substitute Share Repurchase Price") equal to the Highest Closing
Price multiplied by the number of Substitute Shares so designated. The term
"Highest Closing Price" shall mean the highest closing price for shares of
Substitute Common Stock within the six-month period immediately preceding the
date the Substitute Option Holder gives notice of the required repurchase of the
Substitute Option or the Substitute Share Owner gives notice of the required
repurchase of the Substitute Shares, as applicable.
(b) The Substitute Option Holder and the Substitute Share
Owner, as the case may be, may exercise its respective right to require the
Substitute Option Issuer to repurchase the Substitute Option and the Substitute
Shares pursuant to this Section 9 by surrendering for such purpose to the
Substitute Option Issuer, at its principal office, the agreement for such
Substitute Option (or, in the absence of such an agreement, a copy of this
Agreement) and certificates for
D-8
<PAGE> 167
Substitute Shares accompanied by a written notice or notices stating that the
Substitute Option Holder or the Substitute Share Owner, as the case may be,
elects to require the Substitute Option Issuer to repurchase the Substitute
Option and/or the Substitute Shares in accordance with the provisions of this
Section 9. As promptly as practicable, and in any event within five business
days after the surrender of the Substitute Option and/or certificates
representing Substitute Shares and the receipt of such notice or notices
relating thereto, the Substitute Option Issuer shall deliver or cause to be
delivered to the Substitute Option Holder the Substitute Option Repurchase Price
and/or to the Substitute Share Owner the Substitute Share Repurchase Price
therefor or, in either case, the portion thereof which the Substitute Option
Issuer is not then prohibited under applicable law and regulation from so
delivering.
(c) To the extent that the Substitute Option Issuer is
prohibited under applicable law or regulation from repurchasing the Substitute
Option and/or the Substitute Shares in part or in full, the Substitute Option
Issuer following a request for repurchase pursuant to this Section 9 shall
immediately so notify the Substitute Option Holder and/or the Substitute Share
Owner and thereafter deliver or cause to be delivered, from time to time, to the
Substitute Option Holder and/or the Substitute Share Owner, as appropriate, the
portion of the Substitute Share Repurchase Price, respectively, which it is no
longer prohibited from delivering, within five business days after the date on
which the Substitute Option Issuer is no longer so prohibited; provided,
however, that if the Substitute Option Issuer is at any time after delivery of a
notice of repurchase pursuant to subsection (b) of this Section 9 prohibited
under applicable law or regulation from delivering to the Substitute Option
Holder and/or the Substitute Share Owner, as appropriate, the Substitute Option
Repurchase Price and the Substitute Share Repurchase Price, respectively, in
full (and the Substitute Option Issuer shall use its best efforts to obtain all
required regulatory and legal approvals as promptly as practicable in order to
accomplish such repurchase), the Substitute Option Holder or Substitute Share
Owner may revoke its notice of repurchase of the Substitute Option or the
Substitute Shares either in whole or to the extent of the prohibition,
whereupon, in the latter case, the Substitute Option Issuer shall promptly (i)
deliver to the Substitute Option Holder or Substitute Share Owner, as
appropriate, that portion of the Substitute Option Repurchase Price or the
Substitute Share Repurchase Price that the Substitute Option Issuer is not
prohibited from delivering; and (ii) deliver, as appropriate, either (A) to the
Substitute Option Holder, a new Substitute Option evidencing the right of the
Substitute Option Holder to purchase that number of shares of the Substitute
Common Stock obtained by multiplying the number of shares of the Substitute
Common Stock for which the surrendered Substitute Option was exercisable at the
time of delivery of the notice of repurchase by a fraction, the numerator of
which is the Substitute Option Repurchase Price less the portion thereof
theretofore delivered to the Substitute Option Holder and the denominator of
which is the Substitute Option Repurchase Price, or (B) to the Substitute Share
Owner, a certificate for the Substitute Common Shares it is then so prohibited
from repurchasing.
10. The 90-day period for exercise of certain rights under Sections 2,
6, 7 and 13 shall be extended: (i) to the extent necessary to obtain all
regulatory approvals for the exercise of such rights and for the expiration of
all statutory waiting periods; and (ii) to the extent necessary to avoid
liability under Section 16(b) of the 1934 Act by reason of such exercise.
11. Issuer hereby represents and warrants to Grantee as follows:
(a) Issuer has full corporate power and authority to execute
and deliver this Agreement and to consummate the transactions contemplated
hereby. The execution and delivery of this Agreement and the consummation of the
transactions contemplated hereby have been duly and validly authorized by the
Board of Directors of Issuer and no other corporate proceedings on the part of
Issuer are necessary to authorize this Agreement or to consummate the
transactions so contemplated. This Agreement has been duly and validly executed
and delivered by Issuer and is enforceable against Issuer in accordance with its
terms.
D-9
<PAGE> 168
(b) Issuer has taken all necessary corporate action to
authorize and reserve and to permit it to issue, and at all times from the date
hereof through the termination of this Agreement in accordance with its terms
will have reserved for issuance upon the exercise of the Option, that number of
shares of Common Stock equal to the maximum number of shares of Common Stock at
any time and from time to time issuable hereunder, and all such shares, upon
issuance pursuant hereto, will be duly authorized, validly issued, fully paid,
nonassessable, and will be delivered free and clear of all claims, liens,
encumbrance and security interests and not subject to any preemptive rights.
12. Grantee hereby represents and warrants to Issuer that:
(a) Grantee has all requisite corporate power and authority to
enter into this Agreement and, subject to any approvals or consents referred to
herein, to consummate the transactions contemplated hereby. The execution and
delivery of this Agreement and the consummation of the transactions contemplated
hereby have been duly authorized by all necessary corporate action on the part
of Grantee. This Agreement has been duly executed and delivered by Grantee.
(b) The Option is not being, and any shares of Common Stock or
other securities acquired by Grantee upon exercise of the Option will not be,
acquired with a view to the public distribution thereof and will not be
transferred or otherwise disposed of except in a transaction registered or
exempt from registration under the 1933 Act.
13. Neither of the parties hereto may assign any of its rights or
obligations under this Option Agreement or the Option created hereunder to any
other person, without the express written consent of the other party, except
that in the event a Subsequent Triggering Event shall have occurred prior to an
Exercise Termination Event, Grantee, subject to the express provisions hereof,
may assign in whole or in part its rights and obligations hereunder within 90
days following such Subsequent Triggering Event (or such later period as
provided in Section 10); provided, however, that until the date 15 days
following the date on which the Federal Reserve Board approves an application by
Grantee under the BHCA to acquire the shares of Common Stock subject to the
Option, Grantee may not assign its rights under the Option except in (i) a
widely dispersed public distribution, (ii) a private placement in which no one
party acquires the right to purchase in excess of 2% of the voting shares of
Issuer, (iii) an assignment to a single party (e.g., a broker or investment
banker) for the purpose of conducting a widely dispersed public distribution on
Grantee's behalf, or (iv) any other manner approved by the Federal Reserve
Board.
14. Each of Grantee and Issuer will use its best efforts to make all
filings with, and to obtain consents of, all third parties and governmental
authorities necessary to the consummation of the transactions contemplated by
this Agreement, including without limitation making application to authorize for
quotation the shares of Common Stock issuable hereunder on any exchange or
market on which the shares of Issuer may be listed upon official notice of
issuance and applying to the Federal Reserve Board under the BHCA for approval
to acquire the shares issuable hereunder, but Grantee shall not be obligated to
apply to state banking authorities for approval to acquire the shares of Common
Stock issuable hereunder until such time, if ever, as it deems appropriate to do
so.
15. The parties hereto acknowledge that damages would be an inadequate
remedy for a breach of this Agreement by either party hereto and that the
obligations of the parties hereto shall be enforceable by either party hereto
through injunctive or other equitable relief.
16. If any term, provision, covenant or restriction contained in this
Agreement is held by a court or a federal or state regulatory agency of
competent jurisdiction to be invalid, void or unenforceable, the remainder of
the terms, provisions and covenants and restrictions contained in this Agreement
shall remain in full force and effect, and shall in no way be affected, impaired
or
D-10
<PAGE> 169
invalidated. If for any reason such court or regulatory agency determines that
the Holder is not permitted to acquire, or Issuer is not permitted to repurchase
pursuant to Section 7, the full number of shares of Common Stock provided in
Section 1(a) hereof (as adjusted pursuant to Section 1(b) or 5 hereof), it is
the express intention of Issuer to allow the Holder to acquire or to require
Issuer to repurchase such lesser number of shares as may be permissible, without
any amendment or modification hereof.
17. All notices, requests, claims, demands and other communications
hereunder shall be deemed to have been duly given when delivered in person, by
cable, telegram, telecopy or telex, or by registered or certified mail (postage
prepaid, return receipt requested) at the respective addresses of the parties
set forth in the Merger Agreement.
18. This Agreement shall be governed by and construed in accordance
with the laws of the State of Mississippi, regardless of the laws that might
otherwise govern under applicable principles of conflicts of laws thereof.
19. This Agreement may be executed in two counterparts, each of which
shall be deemed to be an original, but all of which shall constitute one and the
same agreement.
20. Except as otherwise expressly provided herein, each of the parties
hereto shall bear and pay all costs and expenses incurred by it or on its behalf
in connection with the transactions contemplated hereunder, including fees and
expenses of its own financial consultants, investment bankers, accountants and
counsel.
21. Except as otherwise expressly provided herein or in the Merger
Agreement, this Agreement contains the entire agreement between the parties with
respect to the transactions contemplated hereunder and supersedes all prior
arrangements or understandings with respect thereof, written or oral. The terms
and conditions of this Agreement shall inure to the benefit of and be binding
upon the parties hereto and their respective successors and permitted assigns.
Nothing in this Agreement, expressed or implied, is intended to confer upon any
party, other than the parties hereto, and their respective successors and
permitted assigns, any rights, remedies, obligations or liabilities under or by
reason of this Agreement, except as expressly provided herein.
22. Capitalized terms used in this Agreement and not defined herein
shall have the meanings assigned thereto in the Merger Agreement.
D-11
<PAGE> 170
IN WITNESS WHEREOF, each of the parties has caused this Agreement to be
executed on its behalf by its officers thereunto duly authorized, all as of the
date first above written.
THE FIRST CORPORATION
BY: /s/ William C. Kent
-----------------------------------------
Name: William C. Kent
Title: President
BANCORPSOUTH, INC.
BY: /s/ Aubrey B. Patterson
-----------------------------------------
Name: Aubrey B. Patterson
Title: Chairman and Chief Executive Officer
D-12
<PAGE> 171
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 20. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
A. RESTATED ARTICLES OF INCORPORATION AND BYLAWS.
The Registrant's Restated Articles of Incorporation provide that it
will indemnify, and upon request advance expenses to, any person (or his estate)
who was or is a party to any legal proceeding because he is or was a director,
officer or employee of BancorpSouth, or is or was serving at the request of
BancorpSouth as a director, officer, partner, trustee, employee or agent of
another corporation, partnership, or other entity, against any liability
incurred in that proceeding (A) to the full extent permitted by the MBCA, and
(B) despite the fact that such person did not meet the standard of conduct
specified in the MBCA or would be disqualified for indemnification under the
MBCA, if a determination is made that (i) the person seeking indemnity is fairly
and reasonably entitled to indemnification in view of all of the relevant
circumstances, and (ii) his acts or omissions did not constitute gross
negligence or willful misconduct. A request for reimbursement or advancement of
expenses prior to final disposition of the proceeding must be accompanied by an
undertaking to repay the advances if it is ultimately determined that he did not
meet the requisite standard of conduct but it need not be accompanied by an
affirmation that the person seeking indemnity believed he has met the standard
of conduct.
The Registrant's Bylaws provide that it will indemnify officers and
directors who are a party to any legal proceeding because he is or was an
officer or director of BancorpSouth against any expenses or awards in connection
therewith if he acted in good faith and in a manner he reasonably believed to be
in the best interest of BancorpSouth and, with respect to any criminal
proceeding, had no reasonable cause to believe his conduct was unlawful. The
Registrant also will indemnify officers and directors who are a party to any
derivative suit with respect to the Registrant because that person is or was an
officer or director of the Registrant, against expenses incurred in connection
with that action unless he is found to have acted without good faith and without
that degree of care, diligence and skill which ordinarily prudent men would
exercise in similar circumstances and in like positions, unless, despite such
finding of liability, the court determines that he is entitled to indemnity. The
Bylaws also provide that the Registrant may (i) advance to the officer or
director the expenses incurred in defending a proceeding upon receipt of an
undertaking that he will repay amounts advanced unless it ultimately is
determined that he is entitled to be indemnified, and (ii) purchase and maintain
insurance on behalf of an officer or director against any liability arising out
of his acting as such.
B. Mississippi Business Corporation Act.
In addition to the foregoing provisions of the Registrant's Restated
Articles of Incorporation and Bylaws, directors, officers, employees and agents
of the Registrant and its subsidiaries may be indemnified by the Registrant
pursuant to Sections 79-4-8.50 through 79-4-8.58 of the MBCA.
C. Insurance.
The Registrant maintains and pays premiums on an insurance policy on
behalf of its officers and directors against liability asserted against or
incurred by such persons in or arising from their capacity as such.
II-1
<PAGE> 172
D. SEC Policy On Indemnification.
Insofar as indemnification for liabilities arising under the Securities
Act may be permitted to directors, officers or persons controlling the
Registrant pursuant to the foregoing provisions, the Registrant has been
informed that in the opinion of the SEC such indemnification is against public
policy as expressed in the Securities Act and is therefore unenforceable.
ITEM 21. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.
(a) Exhibits
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF EXHIBITS
------ -----------------------
<S> <C>
2.1* -- Agreement and Plan of Merger, dated as of August 12, 1998, between the Registrant and The First Corporation
3.1 -- Restated Articles of Incorporation of the Registrant (1)
3.2 -- Amendment to Articles of Incorporation of Registrant, as filed on May 4, 1994 (1)
3.3 -- Bylaws of the Registrant, as amended(2)
5.1* -- Opinion of Riley, Ford, Caldwell & Cork, P.A.
8.1* -- Opinion of Waller Lansden Dortch & Davis, A Professional Limited Liability Company, as to tax matters
10.1* -- Stock Option Agreement, dated as of August 12, 1998, between the Registrant and The First Corporation
11.1 -- Statement re computation of earnings per share (3)
21.1 -- List of subsidiaries of the Registrant (3)
23.1 -- Consent of KPMG Peat Marwick LLP
23.2 -- Consent of Brantley, Stephens & Boucher LLP
23.3* -- Consent of Waller Lansden Dortch & Davis, A Professional Limited Liability Company (included in opinion filed
as Exhibit 8.1)
23.4 -- Consent of Alex Sheshunoff & Co. Investment Banking
23.5* -- Consent of Riley, Ford, Caldwell & Cork, P.A. (included in opinion filed as Exhibit 5.1)
24.1* -- Power of Attorney (included on page II-5)
99.1* -- Form of Proxy Card
</TABLE>
----------------
(1) Incorporated by reference to exhibits filed with the
Registrant's Registration Statement on Form S-4, filed on
January 5, 1995.
(2) Incorporated by reference to exhibits filed with the
Registrant's Registration Statement on Form 8-A filed on May
14, 1997.
(3) Incorporated by reference to the Registrant's Annual Report on
Form 10-K for the year ended December 31, 1997.
* Previously filed.
ITEM 22. UNDERTAKINGS.
The undersigned Registrant hereby undertakes:
(1) To file, during any period in which offers or sales are being made,
a post-effective amendment to this Registration Statement:
(i) To include any prospectus required by Section
10(a)(3) of the Securities Act;
(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
II-2
<PAGE> 173
thereof) which, individually or in the aggregate,
represent a fundamental change in the information set
forth in the Registration Statement. Notwithstanding
the foregoing, any increase or decrease in volume of
securities offered (if the total dollar value of
securities offered would not exceed that which was
registered) and any deviation from the low or high
end of the estimated maximum offering range may be
reflected in the form of prospectus filed with the
SEC pursuant to Rule 424(b) if, in the aggregate, the
changes in volume and price represent no more than a
20% change in the maximum aggregate offering price
set forth in the "Calculation of Registration Fee"
table in the effective Registration Statement.
(iii) To include any material information with respect to
the plan of distribution not previously disclosed in
the Registration Statement or any material change to
such information in the Registration Statement.
(2) For the purpose of determining any liability under the Securities
Act, each such post-effective amendment shall be deemed to be a new registration
statement relating to the securities offered therein, and the offering of such
securities at that time shall be deemed to be the initial bona fide offering
thereof.
(3) To remove from registration by means of a post-effective amendment
any of the securities being registered which remain unsold at the termination of
the offering.
The undersigned Registrant hereby undertakes that, for purposes of
determining any liability under the Securities Act of 1933, each filing of the
Registrant's annual report pursuant to Section 13(a) or Section 15(d) of the
Securities Exchange Act of 1934 (and, where applicable, each filing of an
employee benefit plan's annual report pursuant to Section 15(d) of the Exchange
Act) 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.
The undersigned Registrant hereby undertakes as follows: that prior to
any public reoffering of the securities registered hereunder through use of a
prospectus which is a part of this registration statement, by any person or
party who is deemed to be an underwriter within the meaning of Rule 145(c), the
issuer undertakes that such reoffering prospectus will contain the information
called for by the applicable registration form with respect to reofferings by
persons who may be deemed underwriters, in addition to the information called
for by the other items of the applicable form.
The Registrant undertakes that every prospectus: (i) that is filed
pursuant to the paragraph immediately preceding, or (ii) that purports to meet
the requirements of Section 10(a)(3) of the Act and is used in connection with
an offering of securities subject to Rule 415, will be filed as part of an
amendment to the Registration Statement and will not be used until such
amendment is effective, and that, for purposes of determining any liability
under the Securities Act of 1933, each such post-effective amendment shall be
deemed to be a new registration statement relating to the securities offered
therein, and the offering of such securities at that time shall be deemed to be
the initial bona fide offering thereof.
Insofar as indemnification for liabilities arising under the Securities
Act may be permitted to directors, officers and controlling persons of the
Registrant, pursuant to the foregoing provisions, or otherwise, the Registrant
has been advised that in the opinion of the SEC such indemnification is against
public policy as expressed in the Securities Act and is, therefore,
unenforceable. In the event that a claim for indemnification against such
liabilities (other than the payment by the Registrant of expenses incurred or
paid by a director, officer or controlling person of the Registrant in the
successful defense of any action, suit or proceeding) is asserted against the
Registrant by such
II-3
<PAGE> 174
director, officer or controlling person in connection with the securities being
registered, the Registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Securities Act and will be governed by the final
adjudication of such issue.
The undersigned Registrant hereby undertakes to respond to requests for
information that is incorporated by reference into the Prospectus pursuant to
Items 4, 10(b), 11, or 13 of this Form, within one business day of receipt of
such request, and to send the incorporated documents by first class mail or
other equally prompt means. This includes information contained in documents
filed subsequent to the effective date of the Registration Statement through the
date of responding to the request.
The undersigned Registrant hereby undertakes to supply by means of a
post-effective amendment all information concerning a transaction, and the
company being acquired involved therein, that was not the subject of and
included in the Registration Statement when it became effective.
II-4
<PAGE> 175
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the
Registrant has duly caused this amendment to a Post-Effective Amendment to the
Registration Statement to be signed on its behalf by the undersigned, thereunto
duly authorized, in the City of Tupelo, State of Mississippi, on November 23,
1998.
BANCORPSOUTH, INC.
By: /s/ Aubrey B. Patterson
----------------------------------
Aubrey B. Patterson
Chairman of the Board and
Chief Executive Officer
Pursuant to the requirements of the Securities Act of 1933, this
amendment to Post-Effective Amendment No. 3 to the Registration Statement has
been signed by the following persons in the capacities and on the dates
indicated.
<TABLE>
<CAPTION>
Name Title Date
- ---- ----- ----
<S> <C> <C>
/s/ Aubrey B. Patterson Chairman of the Board, Chief November 23, 1998
- --------------------------------------- Executive Officer, Director (principal
Aubrey B. Patterson executive officer)
/s/ Nash Allen, Jr. Treasurer and Chief Financial November 23, 1998
- --------------------------------------- Officer (principal financial and
L. Nash Allen, Jr. accounting officer)
* Director November 23, 1998
- ---------------------------------------
Shed H. Davis
* Director November 23, 1998
- ---------------------------------------
Hassell H. Franklin
* Director November 23, 1998
- ---------------------------------------
Fletcher H. Goode, M.D.
* Director November 23, 1998
- ---------------------------------------
W. G. Holliman, Jr.
</TABLE>
II-5
<PAGE> 176
<TABLE>
<S> <C> <C>
* Director November 23, 1998
- ---------------------------------------
A. Douglas Jumper
* Director November 23, 1998
- ---------------------------------------
Turner O. Lashlee
* Director November 23, 1998
- ---------------------------------------
Alan W. Perry
* Director November 23, 1998
- ---------------------------------------
Travis E. Staub
* Director November 23, 1998
- ---------------------------------------
Dr. Andrew R. Townes
* Director November 23, 1998
- ---------------------------------------
Lowery A. Woodall
*By: /s/ Aubrey B. Patterson
- ---------------------------------------
Attorney-in-fact
Aubrey B. Patterson
</TABLE>
II-6
<PAGE> 177
<TABLE>
<CAPTION>
Exhibit
Number Description of Exhibits
------ -----------------------
<S> <C>
2.1* -- Agreement and Plan of Merger, dated as of August 12, 1998, between the Registrant and The First Corporation
3.1 -- Restated Articles of Incorporation of the Registrant (1)
3.2 -- Amendment to Articles of Incorporation of Registrant, as filed on May 4, 1994 (1)
3.3 -- Bylaws of the Registrant, as amended(2)
5.1* -- Opinion of Riley, Ford, Caldwell & Cork, P.A.
8.1* -- Opinion of Waller Lansden Dortch & Davis, A Professional Limited Liability Company, as to tax matters
10.1* -- Stock Option Agreement, dated as of August 12, 1998, between the Registrant and The First Corporation
11.1 -- Statement re computation of earnings per share (3)
21.1 -- List of subsidiaries of the Registrant (3)
23.1 -- Consent of KPMG Peat Marwick LLP
23.2 -- Consent of Brantley, Stephens & Boucher LLP
23.3* -- Consent of Waller Lansden Dortch & Davis, A Professional Limited Liability Company (included in opinion filed
as Exhibit 8.1)
23.4 -- Consent of Alex Sheshunoff & Co. Investment Banking
23.5* -- Consent of Riley, Ford, Caldwell & Cork, P.A. (included in opinion filed as Exhibit 5.1)
24.1* -- Power of Attorney (included on page II-5)
99.1* -- Form of Proxy Card
</TABLE>
----------------
(1) Incorporated by reference to exhibits filed with the
Registrant's Registration Statement on Form S-4, filed on
January 5, 1995.
(2) Incorporated by reference to exhibits filed with the
Registrant's Registration Statement on Form 8-A filed on May
14, 1997.
(3) Incorporated by reference to the Registrant's Annual Report on
Form 10-K for the year ended December 31, 1997.
* Previously filed
<PAGE> 1
EXHIBIT 23.1
ACCOUNTANTS' CONSENT
The Board of Directors
BancorpSouth, Inc.:
We consent to incorporation by reference in the Registration Statement
on Form S-4 of BancorpSouth, Inc. of our report dated January 20, 1998 on the
consolidated balance sheets of BancorpSouth, Inc. and subsidiaries as of
December 31, 1997 and 1996, and the related consolidated statements of income,
shareholders' equity and cash flows for each of the years in the three-year
period ended December 31, 1997, which report is included in the 1997 Annual
Report of BancorpSouth, Inc. on Form 10-K and to the reference to our firm under
the heading "Experts" in the Prospectus.
/s/ KPMG Peat Marwick LLP
Memphis, Tennessee
November 23, 1998
<PAGE> 1
EXHIBIT 23.2
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
We hereby consent to the inclusion in the Registration Statement on Form
S-4 of BancorpSouth, Inc., of our report on the consolidated statements of
financial condition of The First Corporation and Subsidiary as of December 31,
1997 and 1996, and the related statements of income, shareholders' equity, and
cash flows for each of the years in the three-year period ended December 31,
1997. We also consent to the reference to us under the heading "Experts" in the
Prospectus.
/s/ Brantley, Stephens & Boucher LLP
Opelika, Alabama
November 23, 1998
<PAGE> 1
EXHIBIT 23.4
CONSENT OF ALEX SHESHUNOFF & CO. INVESTMENT BANKING
We hereby consent to the incorporation by reference in this Registration
Statement on Form S-4 of BancorpSouth, Inc. of our opinion, dated November 19,
1998, with respect to the merger of BancorpSouth, Inc. and The First Corporation
and to our firm, respectively, included in the Registration Statement No.
333-28081 of BancorpSouth, Inc. (the "Initial Registration Statement") and to
the inclusion of such opinion as an annex to the Initial Registration Statement.
By giving such consent, we do not thereby admit that we come within the category
of persons whose consent is required under Section 7 of the Securities Act of
1933 or the rules and regulations of the Securities and Exchange Commission
thereunder.
/s/ ALEX SHESHUNOFF & CO.
INVESTMENT BANKING
AUSTIN, TX
November 19, 1998
