<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON January 8, 1999
REGISTRATION NO. 333-28081
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
POST-EFFECTIVE AMENDMENT NO. 4
TO
FORM S-4
REGISTRATION STATEMENT UNDER
THE SECURITIES ACT OF 1933
-----------------
BANCORPSOUTH, INC.
(Exact name of Registrant as specified in its charter)
MISSISSIPPI 6712 64-0659571
(State or other jurisdiction of (Primary Standard Industrial (I.R.S. Employer
incorporation or organization) Classification Code Number) Identification No.)
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. PAUL S. WARE, ESQ.
WALLER LANSDEN DORTCH & DAVIS, PLLC BRADLEY ARANT ROSE & WHITE LLP
511 UNION STREET, SUITE 2100 2001 PARK PLACE, SUITE 1400
NASHVILLE, TENNESSEE 37219 BIRMINGHAM, ALABAMA 35203
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
[HOMEBANC CORPORATION LOGO]
MERGER PROPOSED -- YOUR VOTE IS VERY IMPORTANT
HomeBanc Corporation has entered into a merger agreement with
BancorpSouth, Inc. which provides that, subject to shareholder and regulatory
approval and other conditions, HomeBanc Corporation will merge into
BancorpSouth, Inc. In connection with that transaction, The Home Bank, a
subsidiary of HomeBanc 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 $4.52 billion, deposits
of about $3.82 billion and shareholders' equity of about $404.2 million.
If the merger is completed, shareholders of HomeBanc Corporation will
receive shares of BancorpSouth, Inc. common stock in exchange for their shares
of common stock of HomeBanc Corporation. However, you will not receive any
fractional shares of BancorpSouth common stock. Rather, you will receive cash
for any fraction of a share of BancorpSouth common stock to which you otherwise
would be entitled.
The merger cannot be completed without the approval of HomeBanc
Corporation's shareholders. HomeBanc 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
HomeBanc Corporation must be voted in favor of the merger agreement. The date,
time and place of the special meeting is as follows:
______________, 1999
______ __.m. (local time)
The Home Bank
1301 Gunter Avenue
Guntersville, Alabama 35976.
YOUR VOTE IS VERY IMPORTANT. Whether or not you plan to attend the
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 it 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 HomeBanc Corporation unanimously recommends
that shareholders vote "FOR" approval of the merger agreement.
Very truly yours,
J. R. Kimsey
President
<PAGE> 3
[HOMEBANC CORPORATION LOGO]
NOTICE OF SPECIAL SHAREHOLDERS MEETING
TO BE HELD ON ________, 1999
TO THE SHAREHOLDERS OF HOMEBANC CORPORATION:
This serves as notice to you that a special meeting of shareholders of
HomeBanc Corporation will be held on ___________, 1999 at ____ __.m., local
time, at The Home Bank, 1301 Gunter Avenue, Guntersville, 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 November 4, 1998, between HomeBanc Corporation and BancorpSouth,
Inc., which provides for the merger of HomeBanc 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 HomeBanc Corporation common stock at the
close of business on ________, 1999 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 HomeBanc 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. You may revoke your proxy
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
J. R. Kimsey
President
__________, 1999
THE BOARD OF DIRECTORS OF HOMEBANC 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
2,100,209 SHARES
[BANCORPSOUTH LOGO]
COMMON STOCK
This Prospectus Supplement/Proxy Statement provides you with detailed
information about a proposed merger between BancorpSouth, Inc. and HomeBanc
Corporation. This document also contains information about BancorpSouth and
HomeBanc Corporation. If the merger is completed, HomeBanc Corporation will
merge into BancorpSouth and shareholders of HomeBanc Corporation will be issued
shares of BancorpSouth common stock in exchange for their shares of HomeBanc
Corporation common stock. In connection with that transaction, The Home Bank, a
subsidiary of HomeBanc 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. For information
on how to obtain copies of these documents, you should refer to the section of
this document entitled "WHERE YOU CAN FIND MORE INFORMATION," which begins on
page 83.
BancorpSouth common stock is listed on the New York Stock Exchange
under the symbol "BXS." On ____________, 1999, the closing price per share of
BancorpSouth common stock reported on the New York Stock Exchange was $________.
In connection with an acquisition of BancorpSouth common stock, you should
carefully consider the risk factors described in the section of this document
captioned "RISK FACTORS," which begins on page 22.
---------------
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 ____________, 1999.
<PAGE> 5
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
<S> <C>
QUESTIONS AND ANSWERS ABOUT THE MERGER............................................................................5
SUMMARY...........................................................................................................6
SELECTED FINANCIAL DATA..........................................................................................15
RISK FACTORS.....................................................................................................22
Governmental Organizations Extensively Regulate BancorpSouth and BancorpSouth Bank......................22
Other Bank Holding Companies And Banks Compete With BancorpSouth........................................22
Rising Interest Rates May Result In Higher Interest Rates Being Paid On
Interest Bearing Deposits Than Are Charged On Outstanding Loans................................22
BancorpSouth's Growth Strategy Includes Risks That Could Have An Adverse
Effect On Financial Performance................................................................22
Monetary Policies And Economic Factors May Limit BancorpSouth Bank's Ability
To Attract Deposits Or Make Loans..............................................................23
Year 2000 Could Result in Computer System Malfunctions..................................................23
Legal Limits On The Ability To Declare And Pay Dividends................................................23
Anti-Takeover Provisions May Prevent A Change Of Control................................................23
Limited Geographic Area Increases Risk From Economic Downturn...........................................24
THE SPECIAL MEETING..............................................................................................25
General.................................................................................................25
Proxies ...............................................................................................25
Solicitation Of Proxies.................................................................................26
Record Date And Voting Rights...........................................................................26
Recommendation Of The Board Of Directors................................................................26
Dissenters' Rights......................................................................................27
THE MERGER.......................................................................................................31
Description Of The Merger...............................................................................31
Background Of The Merger................................................................................32
Reasons For The Merger; Recommendation Of The Board Of Directors........................................34
Fairness Opinion........................................................................................36
Regulatory Approval.....................................................................................40
Accounting Treatment....................................................................................41
Certain Federal Income Tax Consequences.................................................................41
Interests Of Certain Persons In The Merger..............................................................42
Comparison Of Rights Of Shareholders....................................................................43
Restrictions On Resales By Affiliates...................................................................43
THE MERGER AGREEMENT.............................................................................................45
Exchange Of Certificates................................................................................45
Conditions To The Merger................................................................................46
Termination Of The Merger Agreement.....................................................................46
Conduct Of Business Prior To The Merger And Other Covenants.............................................47
Amendment Of The Merger Agreement; Waiver; Expenses.....................................................50
Stock Option Agreement..................................................................................50
PRICE RANGE OF COMMON STOCK AND DIVIDENDS........................................................................53
Market Prices...........................................................................................53
Dividends...............................................................................................54
</TABLE>
<PAGE> 6
<TABLE>
<CAPTION>
Page
<S> <C>
HOMEBANC CORPORATION MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.......56
General.................................................................................................56
Summary.................................................................................................56
Financial Condition.....................................................................................56
Balance Sheet Management................................................................................57
Results Of Operations...................................................................................57
Effects Of Inflation And Changing Prices................................................................59
Net Interest Income.....................................................................................61
Rate/Volume Variance Analysis...........................................................................62
Liability And Asset Management..........................................................................62
Deposits................................................................................................63
Assets..................................................................................................64
Investment Portfolio....................................................................................65
Investment Policy.......................................................................................66
Loan Portfolio..........................................................................................66
Loan Policy.............................................................................................68
Credit Risk Management And Reserve For Loan Losses......................................................68
Capital Resources/Liquidity.............................................................................71
Capital Adequacy........................................................................................71
Year 2000...............................................................................................73
INFORMATION ABOUT HOMEBANC CORPORATION...........................................................................75
General.................................................................................................75
Supervision And Regulation..............................................................................76
Risk-Based Capital Guidelines...........................................................................77
Source Of Strength......................................................................................78
Employees...............................................................................................78
Certain Related Party Transactions......................................................................78
Legal Proceedings.......................................................................................79
Principal Shareholders And Management...................................................................79
COMPARISON OF RIGHTS OF SHAREHOLDERS.............................................................................80
Change Of Control.......................................................................................80
Board Of Directors......................................................................................81
Removal Of Directors....................................................................................81
Authorized Capital Stock................................................................................81
Rights Of Shareholders To Call Special Meetings.........................................................81
WHERE YOU CAN FIND MORE INFORMATION..............................................................................83
CAUTIONARY STATEMENT CONCERNING FORWARD-LOOKING INFORMATION......................................................84
LEGAL MATTERS....................................................................................................86
EXPERTS..........................................................................................................86
HOMEBANC CORPORATION CONSOLIDATED FINANCIAL STATEMENTS..........................................................F-1
PROSPECTUS, DATED SEPTEMBER 24, 1998............................................................................P-1
</TABLE>
<PAGE> 7
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
<PAGE> 8
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 HomeBanc
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 HomeBanc
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 HOMEBANC 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 receive written
instructions on how to exchange your shares of common stock of HomeBanc
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:
HomeBanc Corporation
1301 Gunter Avenue
Guntersville, Alabama 35976
Attention: J. R. Kimsey
Phone Number: (256) 582-3252.
5
<PAGE> 9
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. For information on how to
obtain copies of documents referred to in this document, you should read the
section of this document entitled "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 75)
BANCORPSOUTH, INC.
One Mississippi Plaza
Tupelo, Mississippi 38801
(601) 680-2000
BancorpSouth is incorporated in Mississippi and is a registered bank
holding company under the Bank Holding Company Act of 1956. BancorpSouth
conducts its operations through its subsidiary, BancorpSouth Bank, and its
banking-related subsidiaries. BancorpSouth Bank conducts a commercial banking
and trust business through 157 offices in 77 municipalities or communities in 50
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, and recently began operating all
of its branches under the name "BancorpSouth Bank." 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 December 4, 1998, Merchants Capital Corporation, a bank holding
company based in Vicksburg, Mississippi, merged into BancorpSouth. In connection
with that merger, Merchants Bank (a wholly-owned subsidiary of Merchants Capital
Corporation) merged into BancorpSouth Bank. Merchants Bank operated 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.
On December 31, 1998, The First Corporation, a bank holding company
based in Opelika, Alabama, merged into BancorpSouth, and The First National Bank
of Opelika (a wholly-owned subsidiary of The First Corporation) merged into
BancorpSouth Bank. The First National Bank of Opelika operated two banking
locations in Opelika, Alabama and one banking location in Auburn, Alabama. As of
September 30, 1998, The First Corporation and its subsidiary had total assets of
about $143.4 million and total deposits of about $121.5 million.
Each of these recent holding company mergers was structured as a
tax-free exchange of common stock and accounted for as a pooling of interests.
6
<PAGE> 10
HOMEBANC CORPORATION
1301 Gunter Avenue
Guntersville, Alabama 35976
(256) 582-3252
HomeBanc Corporation is incorporated in Alabama and is a registered
bank holding company under the Bank Holding Company Act of 1956. It is based in
Guntersville, Alabama and is the sole shareholder of The Home Bank, which is an
Alabama banking corporation with one banking location in Guntersville, Alabama,
two banking locations in Albertville, Alabama, one banking location in Arab,
Alabama, one banking location in Boaz, Alabama and stand-alone ATM locations in
Guntersville, Alabama and Albertville, Alabama. The Home Bank is the sole
shareholder of Valley Finance, Inc., a consumer finance company located in
Guntersville, Alabama. HomeBanc Corporation's principal asset is the stock of
its subsidiary. As of September 30, 1998, HomeBanc Corporation and its
subsidiary had total assets of about $160.1 million, deposits of about $138.7
million and shareholders' equity of about $15.1 million.
THE MERGER (PAGE 31)
BancorpSouth and HomeBanc Corporation entered into a merger agreement
whereby HomeBanc 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 HomeBanc Corporation will be combined into a single, larger
company and The Home Bank will combine with BancorpSouth Bank into a single,
larger bank. The parties hope to complete the merger by the end of February
1999.
If the merger is completed, HomeBanc Corporation shareholders will
receive 1.5747417 shares of BancorpSouth common stock for each share of HomeBanc
Corporation common stock they own (which is referred to as the "exchange
ratio"). BancorpSouth will not issue any fractional shares of BancorpSouth
common stock. Instead, you will receive cash equal to the product of (1) the
closing price per share of BancorpSouth common stock as reported on the New York
Stock Exchange at the close of trading on the trading day immediately preceding
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 HomeBanc Corporation is fixed at 1.5747417. The
exchange ratio will not be adjusted to reflect any change in the price of the
common stock of BancorpSouth.
BancorpSouth expects the market price of its common stock to fluctuate
due to market factors beyond its control between the date of this Prospectus
Supplement/Proxy Statement and the date on which the merger is completed and
thereafter. Since the exchange ratio is fixed and the market price of the common
stock of BancorpSouth may fluctuate, the value of the shares of BancorpSouth
common stock that the shareholders of HomeBanc Corporation will receive in the
merger may increase or decrease prior to completion of the merger. BancorpSouth
cannot assure you that the market price of BancorpSouth common stock will not
decrease before or after completion of the merger. However, HomeBanc Corporation
may terminate the merger agreement if the price of BancorpSouth common stock
substantially declines from $20.50, its November 4, 1998 closing price, in
relation to other publicly-held banks and bank holding companies located in the
southeast United States, as described in Section 9.1(h) of the merger agreement.
7
<PAGE> 11
SPECIAL SHAREHOLDERS MEETING (PAGE 25)
A special meeting of the shareholders of HomeBanc Corporation will be
held on ______, 1999 at the following time and place. At the special meeting,
shareholders of HomeBanc Corporation will be asked to approve the merger
agreement between HomeBanc Corporation and BancorpSouth.
______________, 1999
______ __.m. (local time)
The Home Bank
1301 Gunter Avenue
Guntersville, Alabama
RECOMMENDATION TO SHAREHOLDERS (PAGE 34)
The Board of Directors of HomeBanc Corporation believes that the merger
between HomeBanc Corporation and BancorpSouth is in the best interests of the
shareholders of HomeBanc Corporation, and unanimously recommends that you vote
"FOR" the proposal to approve the merger agreement. The conclusion of the Board
of Directors of HomeBanc 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 26)
You can vote at the special meeting of shareholders of HomeBanc
Corporation if you owned common stock of HomeBanc Corporation as of the close of
business on ___________, 1999, the record date set by the Board of Directors of
HomeBanc Corporation. Each share of common stock of HomeBanc Corporation is
entitled to one vote. On ______________, 1999, there were 1,333,685 shares of
common stock of HomeBanc Corporation outstanding and entitled to vote on the
merger agreement.
VOTE REQUIRED (PAGE 26)
In order for the merger to be approved, at least two-thirds of the
outstanding shares of common stock of HomeBanc Corporation must be voted in
favor of the merger agreement. HomeBanc 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 HomeBanc Corporation
outstanding on ____________, 1999............................ 1,333,685
Number of votes necessary to approve the merger agreement....
889,124
Number of votes that executive officers and directors of
HomeBanc Corporation and the Home Bank can cast .............
401,847
Percentage of votes that executive officers and directors of
HomeBanc Corporation can cast ............................... 30.1%
</TABLE>
BACKGROUND OF THE MERGER (PAGE 32)
In the latter part of 1997, management of HomeBanc Corporation met
separately with representatives of two financial institutions that had expressed
unsolicited interest in pursuing a
8
<PAGE> 12
possible business combination with HomeBanc Corporation, and, in the early part
of 1998, management of HomeBanc Corporation met with representatives of a third
financial institution that was planning to establish branch locations in The
Home Bank's market. For various reasons, management of HomeBanc Corporation
decided against pursuing business combinations with these three financial
institutions.
On May 13, 1998, the Board of Directors of HomeBanc Corporation engaged
Alex Sheshunoff & Co. Investment Banking, an independent investment advisory
firm, to assist the Board of Directors in establishing a reasonable value of
HomeBanc Corporation and to assist in soliciting additional expressions of
interest regarding a potential business combination with HomeBanc Corporation.
Alex Sheshunoff & Co. Investment Banking contacted 23 financial institutions
(including BancorpSouth) to solicit expressions of interest in acquiring
HomeBanc Corporation. BancorpSouth was contacted on July 23, 1998 by Alex
Sheshunoff & Co. Investment Banking to determine BancorpSouth's interest in
acquiring HomeBanc Corporation. Of these 23 financial institutions, two
(including BancorpSouth) expressed an interest in a business combination with
HomeBanc Corporation.
After reviewing the expressions of interest from the two financial
institutions, the Board of Directors of HomeBanc Corporation determined that
only the offer from BancorpSouth was financially attractive enough to warrant
further consideration. On August 19, 1998, BancorpSouth proposed to Alex
Sheshunoff & Co. Investment Banking the issuance of a fixed number of shares of
BancorpSouth common stock with an aggregate market value of about $39.5 million.
Management of HomeBanc Corporation communicated to BancorpSouth that this offer
was inadequate, and BancorpSouth subsequently increased its offer to a total of
about 2,100,000 shares of BancorpSouth common stock which had an aggregate value
at that time of about $43 million.
After considering BancorpSouth's final offer, the Board of Directors of
HomeBanc Corporation determined that BancorpSouth's offer was attractive for
HomeBanc Corporation and its shareholders. Between October 21, 1998 and November
4, 1998, representatives of BancorpSouth and HomeBanc Corporation negotiated the
merger agreement and the related stock option agreement. On October 26, 1998,
the Board of Directors of HomeBanc Corporation approved the merger, the merger
agreement and the stock option agreement. The Board of Directors of BancorpSouth
approved the merger and the merger agreement on October 28, 1998. BancorpSouth
and HomeBanc Corporation each executed the merger agreement and the stock option
agreement on November 4, 1998.
REASONS FOR THE MERGER (PAGE 34)
The merger will combine the strengths of BancorpSouth and HomeBanc
Corporation and 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 by eliminating overlap in the companies'
operations and by applying BancorpSouth's investments in technology to HomeBanc
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 benefits
to their shareholders.
FEDERAL INCOME TAX CONSEQUENCES (PAGE 41)
The parties intend that HomeBanc 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 for HomeBanc shareholders who
receive cash instead of fractional shares or who dissent from the merger under
Alabama law. The merger is conditioned on receipt of legal opinions that this
will
9
<PAGE> 13
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 41)
The parties expect that the merger of HomeBanc 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 HomeBanc Corporation that, as of the date of the opinion,
the exchange ratio was fair from a financial point of view to the shareholders
of HomeBanc 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 HomeBanc Corporation will be issued
shares of BancorpSouth common stock in the merger on the same basis as other
shareholders of HomeBanc Corporation. The following chart shows the number of
shares of BancorpSouth common stock that may be issued to directors and
executive officers of HomeBanc Corporation in the merger:
Shares of common stock of HomeBanc Corporation beneficially
owned by its executive officers and directors on ___________,
1999...........................................................378,087
Shares of BancorpSouth common stock that may be received by
executive officers and directors based upon this beneficial
ownership......................................................595,389
Mr. J. R. Kimsey, who is currently President of HomeBanc Corporation,
and Mr. W. Lee Matthews, who is currently Guntersville City President of The
Home Bank, will become chairman of the local community bank advisory board and
community bank president, respectively, of the community bank branch locations
of BancorpSouth Bank in the Guntersville, Alabama area after the merger. Each
has entered into an employment agreement with BancorpSouth Bank that is
effective upon completion of the merger. Additionally, HomeBanc Corporation has
entered into employee retention agreements with five employees, including Mr.
Kimsey and Mr. Matthews, whereby each employee will receive a cash payment if
the employee continues his or her employment with HomeBanc Corporation through
completion of the merger.
DISSENTERS' RIGHTS (PAGE 27)
Alabama law permits you to dissent from the merger and to receive the
fair value of your shares of common stock of HomeBanc Corporation in cash. To do
this, you must follow certain procedures, including filing certain notices with
HomeBanc Corporation and refraining from voting your shares in favor of the
merger. If you dissent from the merger, your shares of HomeBanc 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 HomeBanc Corporation in cash.
10
<PAGE> 14
REGULATORY APPROVAL (PAGE 40)
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 ____________________, 1999. Pursuant to the specific terms of the FDIC
approval, the waiting period will expire on __________________, 1999, ____ 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 HomeBanc Corporation in favor of the
merger agreement.
While the companies believe that they will obtain the remaining
regulatory approvals in a timely manner, they cannot be certain if or when they
will obtain them.
CONDITIONS TO COMPLETION OF THE MERGER (PAGE 46)
The completion of the merger depends on a number of conditions being
met, including the following:
1. Shareholders of HomeBanc Corporation approving the merger;
2. New York Stock Exchange listing the shares of BancorpSouth
common stock to be issued to shareholders of HomeBanc
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; and
6. Receipt by BancorpSouth of pooling letters from each company's
certified public accountants that the merger of HomeBanc
Corporation into BancorpSouth will qualify for pooling of
interests accounting treatment under applicable accounting
standards if the merger is consummated in accordance with the
merger agreement.
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 HomeBanc Corporation
have already voted to approve it.
BancorpSouth can terminate the merger agreement if:
11
<PAGE> 15
1. The Board of Directors of HomeBanc Corporation withdraws, or
changes in a manner adverse to BancorpSouth, its
recommendation that its shareholders approve the merger; or
2. BancorpSouth's or HomeBanc Corporation's independent certified
public accountants do not deliver a pooling letter to
BancorpSouth.
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 60 days after the rejection of an application
for a required governmental approval;
2. If the merger isn't completed by June 30, 1999;
3. If the shareholders of HomeBanc 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, HomeBanc Corporation may terminate the merger agreement if
the market price of BancorpSouth common stock declines 25% from its New York
Stock Exchange closing price on November 4, 1998 or substantially declines from
its New York Stock Exchange closing price on November 4, 1998 in relation to
other publicly traded banks and bank holding companies in the southeast United
States. HomeBanc Corporation's right to terminate the merger agreement is based
on a formula contained in Section 9.1(h) of the merger agreement. The
termination right is triggered when the average closing price of BancorpSouth
common stock for the 20 consecutive full trading days ending at the close of
trading on the day when BancorpSouth receives the FDIC's consent for
consummation of the merger declines:
1. 25% below $20.50 (the closing price of BancorpSouth common
stock on November 4, 1998); or
2. 15% below $20.50 and approximately 15% below an index of
publicly-held banks and bank holding companies located in the
southeastern United States.
HomeBanc Corporation must also notify BancorpSouth of its decision to
terminate the merger agreement within three days after BancorpSouth receives the
FDIC's consent for consummation of the merger.
BANCORPSOUTH'S OPTION TO PURCHASE HOMEBANC CORPORATION COMMON STOCK (PAGE 50)
To induce BancorpSouth to enter into the merger agreement, HomeBanc
Corporation granted a stock option to BancorpSouth to purchase up to 166,448
shares of HomeBanc Corporation common stock at a price of $25.00 per share. The
number of shares of HomeBanc Corporation common stock that may be acquired upon
exercise of the stock option may not exceed 11.09653% of the issued and
outstanding shares of HomeBanc Corporation common stock (without counting shares
that are exercisable under the stock option).
12
<PAGE> 16
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 HomeBanc
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 HomeBanc 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 53)
Shares of BancorpSouth common stock are listed on the New York Stock
Exchange. On November 4, 1998, the last full trading day prior to the public
announcement of the merger, BancorpSouth common stock closed at $20.50 per
share. On _____, 1999, 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 is fixed. You
should obtain current stock price quotations for BancorpSouth common stock.
There is no established trading market for shares of HomeBanc
Corporation common stock, which is inactively traded in private transactions.
Therefore, reliable information is not available about the prices at which
shares of HomeBanc Corporation common stock have been bought and sold.
FORWARD-LOOKING STATEMENTS MAY PROVE INACCURATE (PAGE 84)
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.
13
<PAGE> 17
COMPARATIVE UNAUDITED PER SHARE DATA
The following table shows information, for the periods indicated, about
BancorpSouth's and HomeBanc 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 HomeBanc Corporation
(which is referred to as "pro forma" information). In presenting the comparative
pro forma information for certain time periods, it is assumed that HomeBanc
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 HomeBanc Corporation, which was
obtained by multiplying the BancorpSouth and HomeBanc Corporation pro forma
amounts by 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 HomeBanc 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
HomeBanc Corporation historical........................... 10.64 11.31
BancorpSouth and HomeBanc Corporation pro
forma (2)............................................ 8.03 8.64
HomeBanc Corporation pro forma equivalent (3)............. 12.65 13.61
</TABLE>
<TABLE>
<CAPTION>
NINE-MONTHS
NET INCOME PER SHARE: ENDED SEPTEMBER 30,
YEAR ENDED DECEMBER 31,
1995 1996 1997 1998
---- ---- ---- ----
<S> <C> <C> <C> <C>
BancorpSouth historical (1)............................... $ 0.84 $ 1.01 $ 1.01 $0.89
HomeBanc Corporation historical........................... 1.39 1.81 1.63 0.98
BancorpSouth and HomeBanc Corporation pro
forma (2)............................................ 0.85 1.02 1.01 0.88
HomeBanc Corporation pro forma equivalent (3)............. 1.33 1.61 1.60 1.39
</TABLE>
<TABLE>
<CAPTION>
NINE-MONTHS
CASH DIVIDENDS PER SHARE: ENDED SEPTEMBER 30,
YEAR ENDED DECEMBER 31,
1995 1996 1997 1998
---- ---- ---- ----
<S> <C> <C> <C> <C>
BancorpSouth historical (1)............................... $ 0.31 $ 0.35 $ 0.395 $0.33
HomeBanc Corporation historical........................... 0.55 0.38 0.540 0.52
BancorpSouth and HomeBanc Corporation pro
forma (2)............................................ 0.31 0.35 0.395 0.33
HomeBanc Corporation pro forma equivalent (3)............. 0.49 0.55 0.620 0.52
</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 HomeBanc Corporation into BancorpSouth
had been effective throughout the periods presented.
(3) Calculated by multiplying the BancorpSouth and HomeBanc Corporation pro
forma amount by the exchange ratio of 1.5747417.
14
<PAGE> 18
SELECTED FINANCIAL DATA
The following tables show summarized unaudited historical consolidated
financial data for BancorpSouth and for HomeBanc 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 HomeBanc Corporation into BancorpSouth. The pro forma information
does not reflect BancorpSouth's recent mergers with The First Corporation,
Merchants Capital Corporation and Alabama Bancorp., Inc. You can obtain, or
learn how to obtain, more information on these recent mergers in the sections of
this document entitled "SUMMARY -- The Companies" and "WHERE YOU CAN FIND MORE
INFORMATION."
BancorpSouth and HomeBanc 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 HomeBanc 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. For information on how to obtain
BancorpSouth's historical financial information presented in its prior filings,
you should refer to the section of this document entitled "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.
15
<PAGE> 19
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 92,493 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 3,020,276
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 ....... 233,168 252,852 288,095 315,324 360,422 340,014 389,120
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>
16
<PAGE> 20
HomeBanc 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)
--------------------------------------------------------------------------------
EARNINGS SUMMARY: 1993 1994 1995 1996 1997 1997 1998
---- ---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C>
Interest revenue ............... $ 8,763 $ 9,858 $ 12,214 $ 13,267 $ 13,897 $ 10,284 $ 10,688
Interest expense ............... 3,265 3,744 5,214 5,413 5,632 4,129 4,720
--------------------------------------------------------------------------------------
Net interest revenue ......... 5,498 6,114 7,000 7,854 8,265 6,155 5,968
Provision for credit losses .... 556 494 766 675 909 455 819
Other revenue .................. 1,122 958 1,063 900 1,178 838 1,028
Other expense .................. 4,022 4,079 4,507 4,621 5,249 3,824 4,250
--------------------------------------------------------------------------------------
Income before income tax ..... 2,042 2,499 2,790 3,458 3,285 2,714 1,927
Applicable income taxes ........ 622 862 932 1,053 1,111 925 620
--------------------------------------------------------------------------------------
Net income ..................... $ 1,420 $ 1,637 $ 1,858 $ 2,405 $ 2,174 $ 1,789 $ 1,307
======================================================================================
PER SHARE DATA:
Basic earnings ................. $ 1.06 $ 1.22 $ 1.39 $ 1.81 $ 1.63 $ 1.34 $ 0.98
Diluted earnings ............... 1.06 1.22 1.39 1.81 1.63 1.34 0.98
Cash dividends ................. 0.13 0.17 0.55 0.38 0.54 0.39 0.52
Book value ..................... 5.90 6.44 8.12 9.47 10.64 10.47 11.31
BALANCE SHEET DATA (PERIOD END):
Total assets ................... $109,243 $120,490 $134,830 $145,865 $155,559 $152,498 $160,135
Loans, net of unearned income .. 70,813 77,562 90,021 101,576 114,256 111,068 112,704
Allowance for credit losses .... 1,147 1,289 1,267 1,339 1,250 1,427 1,401
Securities ..................... 24,675 28,827 33,958 30,494 28,237 30,324 33,926
Deposits ....................... 97,702 108,327 120,751 129,914 133,285 131,184 138,713
Long-term debt ................. 1,851 1,679 1,614 1,363 4,663 4,663 4,644
Total stockholders' equity ..... 7,909 8,624 10,810 12,618 14,191 13,957 15,089
BALANCE SHEET DATA (AVERAGES):
Total assets ................... $107,400 $114,866 $118,868 $139,884 $148,322 $149,181 $157,847
Total stockholders' equity ..... $ 7,506 $ 8,267 $ 9,717 $ 11,714 $ 13,404 $ 13,288 $ 14,640
Average number of diluted shares
outstanding .................. 1,346 1,340 1,334 1,332 1,333 1,333 1,333
SELECTED RATIOS (ANNUALIZED):
Return on average assets ....... 1.32% 1.43% 1.56% 1.72% 1.47% 1.60% 1.10%
Return on average stockholders'
equity ....................... 18.92 19.80 19.12 20.53 16.22 17.95 11.90
Net interest margin ............ 5.65 5.88 5.99 6.07 6.09 6.05 5.55
Net charge-offs to average loans 0.51 0.47 0.94 0.62 0.93 0.46 0.59
Tier 1 capital to risk-weighted
assets ....................... 9.87 10.67 11.00 12.54 12.21 12.32 12.73
Total capital to risk-weighted
assets ....................... 11.12 11.92 12.25 13.79 13.30 13.57 13.94
Leverage ratio ................. 7.36 8.11 9.01 9.02 9.16 9.30 9.04
</TABLE>
17
<PAGE> 21
Pro Forma Condensed Consolidated Balance Sheet
December 31, 1997
(Unaudited)
<TABLE>
<CAPTION>
Historical
HomeBanc
BancorpSouth Corporation Adjustments Pro Forma
----------- ----------- ----------- -----------
(In thousands)
<S> <C> <C> <C> <C>
ASSETS
Cash and due from banks .................... $ 292,772 $ 4,959 $ 297,731
Held-to-maturity securities ................ 533,419 23,661 557,080
Available-for-sale securities .............. 406,212 4,576 410,788
Federal funds sold ......................... -- 880 880
Loans and leases ........................... 2,852,885 117,476 2,970,361
Less: Unearned discount .................... 93,858 3,219 97,077
Allowance for credit losses .......... 39,877 1,250 41,127
----------- ----------- ----------- -----------
Net loans and leases ..................... 2,719,150 113,007 2,832,157
Mortgages held for sale .................... 39,134 -- 39,134
Premises and equipment, net ................ 101,373 6,297 107,670
Other assets ............................... 88,083 2,179 90,262
----------- ----------- ----------- -----------
Total assets ............................. $ 4,180,143 $ 155,559 -- $ 4,335,702
=========== =========== =========== ===========
LIABILITIES
Deposits:
Non-interest bearing ..................... $ 467,962 $ 20,344 $ 488,306
Interest bearing ......................... 3,072,293 112,941 3,185,234
----------- ----------- -----------
Total deposits ........................... 3,540,255 133,285 3,673,540
Short-term borrowings ...................... 177,450 2,274 179,724
Long-term debt ............................. 47,539 4,663 52,202
Other liabilities .......................... 54,477 1,146 55,623
----------- ----------- -----------
Total liabilities ........................ 3,819,721 141,368 3,961,089
----------- ----------- -----------
SHAREHOLDERS' EQUITY
Common stock ............................... 111,980 134 $ 5,114(1) 117,228
Capital surplus ............................ 95,699 1,671 (5,114)(1) 92,256
Unrealized gain on available-for-sale
securities ............................. 4,482 101 4,583
Retained earnings .......................... 150,580 12,372 162,952
Less cost of treasury stock ................ (2,319) (87) (2,406)
----------- ----------- ----------- -----------
Total shareholders' equity ............... 360,422 14,191 -- 374,613
----------- ----------- ----------- -----------
Total liabilities and shareholders' equity $ 4,180,143 $ 155,559 -- $ 4,335,702
=========== =========== =========== ===========
</TABLE>
- ----------------------
(1) Reclassification of capital accounts to reflect the exchange of
HomeBanc Corporation common stock for BancorpSouth common stock.
18
<PAGE> 22
Pro Forma Condensed Consolidated Balance Sheet
September 30, 1998
(Unaudited)
<TABLE>
<CAPTION>
Historical
HomeBanc
BancorpSouth Corporation Adjustments Pro Forma
----------- ----------- ----------- -----------
(In thousands)
<S> <C> <C> <C> <C>
ASSETS
Cash and due from banks .................... $ 143,246 $ 4,640 $ 147,886
Held-to-maturity securities ................ 601,048 29,896 630,944
Available-for-sale securities .............. 366,071 4,030 370,101
Federal funds sold ......................... 28,000 1,510 29,510
Loans and leases ........................... 3,116,956 114,160 3,231,116
Less: Unearned discount .................... 96,678 1,456 98,134
Allowance for credit losses .......... 43,600 1,401 45,001
----------- ----------- -----------
Net loans and leases ..................... 2,976,678 111,303 3,087,981
Mortgages held for sale .................... 41,327 -- 41,327
Premises and equipment, net ................ 105,563 6,448 112,011
Other assets ............................... 101,081 2,308 103,389
----------- ----------- ----------- -----------
Total assets ............................. $ 4,363,014 $ 160,135 -- $ 4,523,149
=========== =========== =========== ===========
LIABILITIES
Deposits:
Non-interest bearing ..................... $ 481,692 $ 19,877 $ 501,569
Interest bearing ......................... 3,203,479 118,836 3,322,315
----------- ----------- -----------
Total deposits ........................... 3,685,171 138,713 3,823,884
Short-term borrowings ...................... 55,525 228 55,753
Long-term debt ............................. 170,123 4,644 174,767
Other liabilities .......................... 63,075 1,461 64,536
----------- ----------- -----------
Total liabilities ........................ 3,973,894 145,046 4,118,940
----------- ----------- -----------
SHAREHOLDERS' EQUITY
Common stock ............................... 111,980 134 $ 5,116(1) 117,230
Capital surplus ............................ 96,099 1,678 (5,116)(1) 92,661
Unrealized gain on available-for-sale
securities ............................. 7,854 359 8,213
Retained earnings .......................... 174,670 12,999 187,669
Less cost of treasury stock ................ (1,483) (81) (1,564)
----------- ----------- ----------- -----------
Total shareholders' equity ............... 389,120 15,089 -- 404,209
----------- ----------- ----------- -----------
Total liabilities and shareholders' equity $ 4,363,014 $ 160,135 -- $ 4,523,149
=========== =========== =========== ===========
</TABLE>
- -------------------------
(1) Reclassification of capital accounts to reflect the exchange of
HomeBanc Corporation common stock for BancorpSouth common stock.
19
<PAGE> 23
Pro Forma Condensed Consolidated Statements of Income
(Unaudited)
<TABLE>
<CAPTION>
For the years ended December 31,
1995 1996
-------------------------------------------------- -------------------------------------------------
HomeBanc HomeBanc
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 .......... $252,427 $ 12,214 $264,641 $277,919 $ 13,267 $291,186
Interest expense .......... 114,457 5,214 119,671 126,505 5,413 131,918
-------- -------- -------- -------- --------
Net interest revenue ...... 137,970 7,000 144,970 151,414 7,854 159,268
Provision for credit losses 6,206 766 6,972 8,804 674 9,478
-------- -------- -------- -------- -------- --------
Net interest revenue, after
provision for credit losses 131,764 6,234 137,998 142,610 7,180 149,790
Other revenue ............. 31,240 1,063 32,303 40,745 900 41,645
Other expense ............. 111,750 4,507 116,257 118,472 4,622 123,094
-------- -------- -------- -------- -------- -------- -------- --------
Income before income tax .. 51,254 2,790 54,044 64,883 3,458 68,341
Applicable income taxes ... 15,750 932 16,682 22,000 1,053 23,053
-------- -------- -------- -------- -------- -------- -------- --------
Net income ................ $ 35,504 $ 1,858 -- $ 37,362 $ 42,883 $ 2,405 -- $ 45,288
======== ======== ======== ======== ======== ======== ======== ========
EARNINGS PER SHARE
Basic ................... $ 0.85 $ 1.39 $ 0.85 $ 1.02 $ 1.81 $ 1.03
Diluted ................. $ 0.84 $ 1.39 $ 0.85 $ 1.01 $ 1.81 $ 1.02
AVERAGE SHARES
Basic ................... 41,749 1,334 43,850 41,991 1,332 44,089
Diluted ................. 42,031 1,334 44,132 42,259 1,332 44,357
</TABLE>
<TABLE>
<CAPTION>
For the year ended December 31, 1997
HomeBanc
BancorpSouth Corporation
Historical Historical Adjustments Pro Forma
-------- -------- -------- --------
(In thousands, except per share amounts)
<S> <C> <C> <C> <C>
Interest revenue......... $307,094 $ 13,897 $320,991
Interest expense......... 144,055 5,633 149,688
-------- -------- --------
Net interest revenue..... 163,039 8,264 171,303
Provision for credit losses 9,008 909 9,917
-------- -------- --------
Net interest revenue, after
provision for credit 154,031 7,355 161,386
losses...............
Other revenue............ 43,667 1,178 44,845
Other expense............ 131,988 5,248 137,236
-------- -------- -------- --------
Income before income tax. 65,710 3,285 68,995
Applicable income taxes.. 20,360 1,111 21,471
-------- -------- -------- --------
Net income............... $45,350 $ 2,174 -- $ 47,524
======== ======== ======== ========
EARNINGS PER SHARE
Basic.................. $1.02 $1.63 $1.02
Diluted................ $1.01 $1.63 $1.01
AVERAGE SHARES
Basic.................. 44,427 1,333 46,526
Diluted................ 44,789 1,333 46,888
</TABLE>
20
<PAGE> 24
Pro Forma Condensed Consolidated Statements of Income
(Unaudited)
<TABLE>
<CAPTION>
For the nine months ended September 30,
1997 1998
----------------------------------------------- ----------------------------------------------
HomeBanc HomeBanc
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 $ 10,284 $235,366 $250,706 $ 10,688 $261,394
Interest expense .............. 106,431 4,129 110,560 122,890 4,720 127,610
-------- -------- -------- -------- -------- --------
Net interest revenue .......... 118,651 6,155 124,806 127,816 5,968 133,784
Provision for credit losses ... 6,125 455 6,580 9,784 819 10,603
-------- -------- -------- -------- -------- --------
Net interest revenue, after
provision for credit losses 112,526 5,700 118,226 118,023 5,149 123,181
Other revenue ................. 32,211 838 33,049 35,268 1,028 36,296
Other expense ................. 92,493 3,824 96,317 92,752 4,250 97,002
-------- -------- -------- -------- -------- --------
Income before income tax ...... 52,244 2,714 54,958 60,548 1,927 62,475
Applicable income taxes ....... 16,756 925 -- 17,681 20,230 620 -- 20,850
-------- -------- -------- -------- -------- -------- -------- --------
Net income .................... $ 35,488 $ 1,789 -- $ 37,277 $ 40,318 $ 1,307 -- $ 41,625
======== ======== ======== ======== ======== ======== ======== ========
EARNINGS PER SHARE
Basic ....................... $ 0.80 $ 1.34 $ 0.80 $ 0.90 $ 0.98 $ 0.89
Diluted ..................... $ 0.79 $ 1.34 $ 0.80 $ 0.89 $ 0.98 $ 0.88
AVERAGE SHARES
Basic ....................... 44,413 1,333 46,512 44,558 1,333 46,657
Diluted ..................... 44,745 1,333 46,844 45,058 1,333 47,157
</TABLE>
21
<PAGE> 25
RISK FACTORS
If the merger is completed, your shares of HomeBanc Corporation common
stock will be converted into BancorpSouth common stock. In evaluating an
investment in shares of BancorpSouth common stock you should carefully consider
the following factors, along with other matters discussed in reports and other
filings that BancorpSouth has made with the Securities and Exchange Commission.
You should not assume that BancorpSouth has listed below the only risks that
could affect its future performance or the market price of BancorpSouth common
stock.
GOVERNMENTAL ORGANIZATIONS EXTENSIVELY REGULATE BANCORPSOUTH AND BANCORPSOUTH
BANK
BancorpSouth is a registered bank holding company under the Bank
Holding Company Act of 1956, and BancorpSouth Bank is a Mississippi state
banking corporation. Accordingly, both are subject to extensive governmental
regulation, legislation and control. These laws limit the manner in which
BancorpSouth and BancorpSouth Bank operate, including the amount of loans they
can originate, interest they can charge on loans and fees they can charge for
certain services. BancorpSouth cannot predict whether, or the extent to which,
the government and governmental organizations may change any of these laws or
controls. BancorpSouth also cannot predict how any of these changes would
adversely affect BancorpSouth's business and prospects.
OTHER BANK HOLDING COMPANIES AND BANKS COMPETE WITH BANCORPSOUTH
The banking business is extremely competitive in BancorpSouth's service
areas in Mississippi, Tennessee and Alabama. BancorpSouth competes, and will
compete, with well established financial institutions, several of which have
significantly greater resources and lending limits. Some of these competitors
provide certain services that BancorpSouth does not provide.
RISING INTEREST RATES MAY RESULT IN HIGHER INTEREST RATES BEING PAID ON INTEREST
BEARING DEPOSITS THAN ARE CHARGED ON OUTSTANDING LOANS
If interest rates rise, BancorpSouth may pay interest on its customers'
interest-bearing deposits and other liabilities of BancorpSouth at higher rates
than the interest rates paid to BancorpSouth by its customers on outstanding
loans that were made when interest rates were at a lower level. This situation
would result in a negative interest rate spread with respect to those loans and
cause an adverse effect on BancorpSouth's earnings. This adverse effect would
increase if interest rates continued to rise while BancorpSouth had outstanding
loans payable at fixed interest rates that could not be adjusted to a higher
interest rate.
BANCORPSOUTH'S GROWTH STRATEGY INCLUDES RISKS THAT COULD HAVE AN ADVERSE EFFECT
ON FINANCIAL PERFORMANCE
A material element of BancorpSouth's growth strategy is the acquisition
of additional banks and bank holding companies in order to achieve greater
economies of scale. BancorpSouth cannot assure you that the current level of
growth opportunities will continue to exist, that it will be able to acquire
banks and bank holding companies that satisfy BancorpSouth's criteria or that
any such acquisition will be on terms favorable to BancorpSouth. Further,
BancorpSouth's growth strategy will require that it continue to hire qualified
personnel, while currently expanding its managerial and operational
infrastructure. BancorpSouth cannot assure you that it will be able to hire and
retain qualified personnel or that it will be able to successfully expand its
infrastructure to accommodate future acquisitions or growth. As a result of
these factors, BancorpSouth may not realize the expected economic benefits
associated with its acquisitions. This could have a material adverse effect on
BancorpSouth's financial performance.
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<PAGE> 26
MONETARY POLICIES AND ECONOMIC FACTORS MAY LIMIT BANCORPSOUTH BANK'S ABILITY TO
ATTRACT DEPOSITS OR MAKE LOANS
The monetary policies of federal regulatory authorities, particularly
the Board of Governors of the Federal Reserve System, and economic conditions in
BancorpSouth's service area and the United States generally, affect
BancorpSouth's ability to attract deposits and extend loans. BancorpSouth cannot
predict either the nature and timing of any changes in these monetary policies
and economic conditions, or their impact on BancorpSouth's financial
performance. The banking business is subject to various material business risks,
which may become more acute in periods of economic slowdown or recession. During
such periods, foreclosures generally increase, and such conditions also could
lead to a potential decline in deposits and demand for loans.
YEAR 2000 COULD RESULT IN COMPUTER SYSTEM MALFUNCTIONS
Many software applications and operational programs were not designed
to recognize calendar dates beginning in the Year 2000. The failure of these
applications or systems to recognize properly the dates beginning in the Year
2000 could result in miscalculations or system failures. BancorpSouth's business
depends in part upon its ability to store, retrieve, process and manage
significant databases. BancorpSouth has conducted a comprehensive review of its
computer systems to identify the systems that could be affected by the Year 2000
issue and developed an implementation plan to resolve potential problems.
BancorpSouth has obtained applications and hardware that should not malfunction
upon the occurrence of the Year 2000. BancorpSouth has also developed an
installation and testing plan for each of these applications and anticipates
that it will complete all reprogramming efforts on or about December 31, 1998.
While BancorpSouth does not expect its computer systems to malfunction upon the
occurrence of the Year 2000 and believes that it has allowed adequate time for
testing, unforeseen problems may arise with its computer systems that could
cause a material adverse effect on its business. BancorpSouth can only speculate
as to the potential problems, delays or loss of business, or lack thereof, that
may result from the occurrence of the Year 2000.
The Year 2000 issue may affect the systems of various entities with
which BancorpSouth interacts, including depositors, vendors and those to which
it has extended loans. BancorpSouth has corresponded with its primary vendors
and customers regarding their compliance with Year 2000 issues. However,
BancorpSouth cannot assure you that the systems of these or other companies on
which its systems rely will be Year 2000 compliant. Also, BancorpSouth cannot
assure you that a failure by any of these companies to be Year 2000 compliant
will not have a material adverse effect on its business.
LEGAL LIMITS ON THE ABILITY TO DECLARE AND PAY DIVIDENDS
BancorpSouth derives its income solely from dividends received from
owning BancorpSouth Bank's common stock. Federal and state law limits
BancorpSouth Bank's ability to declare and pay dividends. In addition, the Board
of Governors of the Federal Reserve System may impose restrictions on
BancorpSouth's ability to declare and pay dividends on its common stock.
ANTI-TAKEOVER PROVISIONS MAY PREVENT A CHANGE OF CONTROL
BancorpSouth's governing documents contain several provisions which
make a change of control of BancorpSouth difficult to accomplish. Such
anti-takeover provisions may make it more difficult for any person or entity to
acquire control of BancorpSouth without the approval of BancorpSouth's Board of
Directors. These anti-takeover provisions may have an adverse effect on the
market for BancorpSouth's securities. These provisions include the following:
23
<PAGE> 27
1. BancorpSouth's Board of Directors is divided into three classes
so that BancorpSouth shareholders can only elect approximately
one-third of the directors at each annual meeting;
2. At least 80% of the outstanding shares of BancorpSouth's voting
stock must vote in favor of increasing the maximum number of
directors unless BancorpSouth's Board of Directors recommends an
increase;
3. At least 80% of the outstanding shares of BancorpSouth's voting
stock must vote in favor of a merger or consolidation of
BancorpSouth with, or a sale or lease of all or substantially
all of the assets to, any person or entity if BancorpSouth's
Board of Directors does not recommend the proposed transaction;
and
4. At least 80% of the outstanding shares of BancorpSouth common
stock and at least 67% of the outstanding shares of
BancorpSouth's voting stock not held by a person owning or
controlling 20% or more of its voting stock must approve a
merger, consolidation, or sale or lease of all or substantially
all of BancorpSouth's assets with or to a person owning or
controlling 20% of BancorpSouth's voting stock, except in
certain circumstances.
BancorpSouth's shareholder rights plan (which is commonly referred to
as a "poison pill") attaches a common stock purchase right to each share of
BancorpSouth common stock. Upon the occurrence of certain events (including the
acquisition of, or tender offer for, 20% or more of the outstanding shares of
its 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 additional
share of BancorpSouth common stock for a price per share equal to 50% of the
then-market price. The common stock purchase right attaches if BancorpSouth's
Board of Directors does not approve the terms of the acquisition or if certain
other events occur.
LIMITED GEOGRAPHIC AREA INCREASES RISK FROM ECONOMIC DOWNTURN
BancorpSouth conducts business in the limited geographic area of
Mississippi, Tennessee and Alabama. An economic downturn in the economies of
these states or the southern portion of the United States could adversely affect
BancorpSouth's financial performance, particularly its ability to attract
deposits and extend loans.
24
<PAGE> 28
THE SPECIAL MEETING
GENERAL
This Prospectus Supplement/Proxy Statement is first being mailed, on or
about __________, 1999, to all persons who were HomeBanc Corporation
shareholders on _________________, 1999.
This Prospectus Supplement/Proxy Statement is accompanied by a Notice
of Special Meeting from, and form of proxy that is solicited by, the HomeBanc
Corporation Board of Directors for use at the special meeting of HomeBanc
Corporation shareholders and at any adjournments or postponements thereof.
At the HomeBanc Corporation special meeting, HomeBanc Corporation
shareholders will consider and vote upon a proposal to approve and adopt an
Agreement and Plan of Merger, dated as of November 4, 1998 (the "Merger
Agreement"), between HomeBanc Corporation and BancorpSouth, which provides for
the merger of HomeBanc Corporation with and into BancorpSouth.
PROXIES
HomeBanc Corporation shareholders may use the accompanying proxy
solicited by the HomeBanc Corporation Board if any such shareholder is unable to
attend the HomeBanc Corporation special meeting in person or wishes to have his
or her shares voted by proxy even if such shareholder does attend the meeting.
HomeBanc Corporation shareholders may revoke any proxy given pursuant to this
solicitation by:
1. Delivering to the corporate Secretary of HomeBanc Corporation
a written notice revoking the proxy prior to the taking of the
vote at the HomeBanc 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
HomeBanc Corporation special meeting without voting at the
meeting will not in and of itself constitute a revocation of a
proxy).
You should address all written notices of revocation and other
communications with respect to the revocation of proxies to the following:
HomeBanc Corporation
1301 Gunter Avenue
Guntersville, Alabama 35976
Attention: Secretary.
For a notice of revocation or later proxy to be valid, however,
HomeBanc Corporation must actually receive it prior to the vote of HomeBanc
Corporation shareholders at the HomeBanc Corporation special meeting. HomeBanc
Corporation will vote all shares represented by valid proxies received pursuant
to this solicitation, and not revoked before they are exercised in the manner
described above. If no specification is made, HomeBanc Corporation will vote the
proxies in favor of approval of the Merger Agreement.
HomeBanc Corporation is currently unaware of any other matters that may
be presented for action at the HomeBanc Corporation special meeting. If other
matters do properly come before the HomeBanc Corporation special meeting, then
shares represented by proxies will be voted (or not voted) by the persons named
in the proxies in their discretion.
25
<PAGE> 29
SOLICITATION OF PROXIES
In addition to the solicitation of proxies by mail, HomeBanc
Corporation will request banks, brokers and other record holders to send proxies
and proxy material to the beneficial owners of the stock and obtain their voting
instructions, if necessary. HomeBanc Corporation will reimburse such record
holders for their reasonable expenses in so doing. If necessary, HomeBanc
Corporation may also use several of its regular employees, who will not be
specially compensated, to solicit proxies from HomeBanc Corporation
shareholders, either personally or by telephone, telegram, facsimile or special
delivery letter.
RECORD DATE AND VOTING RIGHTS
The HomeBanc Corporation Board has fixed ____________, 1999 as the
record date for the determination of HomeBanc Corporation shareholders entitled
to receive notice of and to vote at the HomeBanc Corporation special meeting.
Accordingly, only HomeBanc Corporation shareholders of record at the close of
business on such date will be entitled to notice of and to vote at the HomeBanc
Corporation special meeting. At the close of business on the HomeBanc
Corporation record date, there were ________ shares of HomeBanc Corporation
common stock entitled to vote at the HomeBanc Corporation special meeting held
by approximately ____ holders of record.
The presence, in person or by proxy, of shares of HomeBanc Corporation
common stock representing a majority of the votes entitled to be cast at the
HomeBanc Corporation special meeting is necessary to constitute a quorum. Each
share of HomeBanc Corporation common stock outstanding on the HomeBanc
Corporation record date entitles its holder to one vote as to the approval of
the Merger Agreement or any other proposal that may properly come before the
HomeBanc Corporation special meeting.
For purposes of determining the presence or absence of a quorum for the
transaction of business, HomeBanc Corporation will count shares of HomeBanc
Corporation common stock present in person at the HomeBanc Corporation special
meeting but not voting, and shares of HomeBanc Corporation common stock for
which it has received proxies but with respect to which holders of such shares
have abstained, as present at the HomeBanc Corporation special meeting.
Abstentions are counted as present at the HomeBanc 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 HomeBanc Corporation special 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, 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. Because approval of the
Merger Agreement requires the affirmative vote of the holders of two-thirds of
the outstanding shares of HomeBanc Corporation common stock, abstentions and
broker non-votes will have the same effect as negative votes. Accordingly, the
HomeBanc Corporation Board urges HomeBanc Corporation shareholders to complete,
date and sign the accompanying proxy and return it promptly in the enclosed,
postage-paid envelope.
RECOMMENDATION OF THE BOARD OF DIRECTORS
The HomeBanc Corporation Board has unanimously approved the Merger
Agreement. The HomeBanc Corporation Board believes that the merger is in the
best interests of HomeBanc Corporation and HomeBanc Corporation shareholders and
unanimously recommends that HomeBanc Corporation shareholders vote "FOR"
approval and adoption of the Merger Agreement. The conclusion of the HomeBanc
Corporation Board with respect to the merger is based on a number
26
<PAGE> 30
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 HomeBanc Corporation common stock is entitled to
dissenters' rights as a result of the merger under Article 13 of the Alabama
Business Corporation Act. A person having a beneficial interest in shares of
HomeBanc 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, or must
submit to HomeBanc Corporation the record shareholder's written consent to the
dissent not later than the time the beneficial owner asserts dissenters' rights
and must do so with respect to all shares that such person beneficially owns.
The following discussion is not a complete statement of the law
pertaining to dissenters' rights under the Alabama Business Corporation Act. Any
HomeBanc 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.
The availability of dissenters' rights is conditioned upon full
compliance with a complicated procedure set forth in Article 13 of the Alabama
Business Corporation Act. Failure to timely and properly comply with the
procedures specified will result in the complete loss of dissenters' rights.
Accordingly, any HomeBanc Corporation shareholder who wishes to dissent from the
merger and receive the value of his or her HomeBanc Corporation common stock in
cash should consult with his or her own legal counsel.
A HomeBanc Corporation shareholder's failure to vote against the Merger
Agreement will not constitute a waiver of his or her appraisal or similar
rights. Moreover, 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.
PROCEDURE FOR THE EXERCISE OF THE HOMEBANC CORPORATION SHAREHOLDERS'
DISSENTERS' RIGHTS. In order to be eligible to exercise the right to dissent, a
HomeBanc Corporation shareholder must:
1. Notify HomeBanc Corporation in writing prior to the vote on
the Merger Agreement that such HomeBanc Corporation
shareholder intends to demand payment for his or her shares of
HomeBanc Corporation common stock if the merger is consummated
(the "Payment Demand"); and
2. Not vote such shares of HomeBanc Corporation common stock in
favor of the Merger Agreement.
If the merger is approved at the HomeBanc Corporation special meeting,
BancorpSouth must deliver a written notice (the "Dissenters' Notice") to all
HomeBanc Corporation shareholders who satisfied the requirements referred to in
the preceding paragraph. BancorpSouth must deliver the Dissenters' Notice within
ten days after completion of the merger. This notice must:
1. State where the Payment Demand must be sent and where HomeBanc
Corporation common stock certificates must be deposited;
2. Inform holders of shares of HomeBanc Corporation common stock
to what extent transfer of the shares will be restricted after
the Payment Demand is received;
27
<PAGE> 31
3. Supply a form for demanding payment;
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 Alabama Business
Corporation Act.
A HomeBanc Corporation 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 HomeBanc
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 HomeBanc 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 HomeBanc Corporation shareholder who demands payment and deposits his
or her stock certificates in accordance with the previous paragraph retains all
other rights of a HomeBanc 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 HomeBanc
Corporation common stock.
BANCORPSOUTH'S OFFER OF PAYMENT. As soon as the merger is effective, or
upon receipt of a Payment Demand, BancorpSouth must offer to pay each dissenting
HomeBanc Corporation shareholder who has complied with his or her obligations
under Section 10-2B-13.23 of the Alabama Business Corporation Act the amount
BancorpSouth estimates to be the fair value of such HomeBanc Corporation
shareholder's shares of HomeBanc Corporation common stock, plus accrued
interest. BancorpSouth must pay the rate of interest in the manner and amount
described in Section 10-2B-13.01(5) of the Alabama Business Corporation Act.
This offer of payment must be accompanied by the following:
1. HomeBanc Corporation's 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 HomeBanc 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 Section 10-2B-13.28 of the Alabama Business
Corporation Act; and
5. A copy of Article 13 of the Alabama Business Corporation Act.
Each dissenter who wishes 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.
28
<PAGE> 32
If dissatisfied with BancorpSouth's offer of payment, a dissenting
shareholder may notify BancorpSouth in writing of such shareholder's own
estimate of the fair value of his or her shares of HomeBanc 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
3. BancorpSouth, having failed to complete the merger, does not
release the transfer restrictions imposed on the shares of
HomeBanc 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 HomeBanc
Corporation common stock.
If BancorpSouth does not complete the merger within 60 days after the
date set for demanding payment of such dissenting shareholder's shares of
HomeBanc Corporation common stock, BancorpSouth must release the transfer
restrictions imposed on such shares of HomeBanc Corporation common stock. If
BancorpSouth, after releasing the transfer restrictions imposed upon the
shareholder's shares of HomeBanc Corporation common stock, completes the merger,
a new Dissenters' Notice must be delivered to the shareholder and the Payment
Demand procedure discussed above must be repeated.
JUDICIAL APPRAISAL OF HOMEBANC CORPORATION COMMON STOCK. If a demand
for payment under Section 10-2B-13.28 of the Alabama Business Corporation Act
remains unsettled, BancorpSouth must commence a proceeding within 60 days after
receiving the Payment Demand and petition the court named below to determine the
fair value of the shares of HomeBanc Corporation common stock and accrued
interest. If BancorpSouth does not commence this proceeding within this 60-day
period, it must pay each dissenting HomeBanc Corporation shareholder whose
demand remains unsettled the amount demanded.
BancorpSouth must commence any such proceeding relating to HomeBanc
Corporation common stock in the circuit court of Marshall County, Alabama (the
"Circuit Court"). BancorpSouth must make all dissenting shareholders, whose
demands remain unsettled, parties to the proceeding and must serve all parties
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 fair value. The
appraisers will have the powers described in the order appointing them.
Dissenting shareholders are entitled to the same discovery rights as parties to
other civil proceedings.
Each dissenting HomeBanc 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 HomeBanc 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
29
<PAGE> 33
Court must assess these costs against BancorpSouth, unless the Circuit Court
determines that the dissenting shareholders acted arbitrarily 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 Sections
10-2B-13.20 through 10-2B-13.28 of the Alabama Business
Corporation Act; 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 acted
arbitrarily, vexatiously or not in good faith with respect to
the rights provided by Article 13 of the Alabama Business
Corporation Act.
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.
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THE MERGER
DESCRIPTION OF THE MERGER
Upon completion of the merger (the "Effective Time"), HomeBanc
Corporation will merge into BancorpSouth, the separate corporate existence of
HomeBanc Corporation will cease and BancorpSouth will be the surviving
corporation. BancorpSouth will continue to exist as a Mississippi corporation.
In addition, The Home Bank, an Alabama state banking corporation and a
wholly-owned subsidiary of HomeBanc Corporation, will merge into BancorpSouth
Bank, a Mississippi state banking corporation and a wholly-owned subsidiary of
BancorpSouth, and BancorpSouth Bank will be the surviving bank. BancorpSouth
Bank will continue its existence under the laws 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 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 Alabama
Business Corporation Act and the Mississippi Business Corporation Act. 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 Alabama
Business Corporation Act and Sections 5-13B-20 et seq. of the Alabama Banking
Code.
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
HomeBanc Corporation Common stock outstanding immediately prior to the Effective
Time will become and be converted into the right to receive 1.5747417 (the
"Exchange Ratio") shares of BancorpSouth common stock. However, shares with
respect to which appraisal or dissenters' rights have been properly demanded in
accordance with Article 13 of the Alabama Business Corporation Act ("Dissenting
Shares"), or held by HomeBanc 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. At the Effective Time, all shares of HomeBanc Corporation common stock
held by HomeBanc 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 HomeBanc Corporation or its subsidiaries, other than Trust Account
Shares or DPC Shares, will 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, BancorpSouth common stock. 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 Alabama Business
Corporation Act. 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, 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 consideration due under the Merger Agreement. See "THE
SPECIAL MEETING --Dissenters' Rights."
At the Effective Time, HomeBanc Corporation shareholders, other than
those who perfect dissenters' rights, will have no further rights as HomeBanc
Corporation shareholders, other than to receive the consideration to be issued
to them in the merger. After the Effective Time, there will be
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no transfers on the stock transfer books of HomeBanc Corporation of shares of
HomeBanc Corporation common stock. If, after the Effective Time, stock
certificates representing shares of HomeBanc 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.
The Exchange Ratio will not be adjusted to reflect any change in the
price of BancorpSouth common stock. BancorpSouth expects the market price of
BancorpSouth common stock to fluctuate due to market factors beyond its control
between the date of this Prospectus Supplement/Proxy Statement and the date on
which the merger is completed and thereafter. Since the Exchange Ratio is fixed
and the market price of BancorpSouth common stock is expected to fluctuate and
may decrease, the implied market value of BancorpSouth common stock that
HomeBanc Corporation shareholders will receive in the merger may increase or
decrease prior to completion of the merger. For further information concerning
the historical market prices of BancorpSouth common stock and HomeBanc
Corporation common stock, see "PRICE RANGE OF COMMON STOCK AND DIVIDENDS."
BancorpSouth cannot assure you that the market price of BancorpSouth common
stock will not decrease before or after the Effective Time. However, HomeBanc
Corporation may terminate the Merger Agreement if the price of BancorpSouth
common stock drops so substantially that it triggers the termination clause in
Section 9.1(h) of the Merger Agreement (which is described in this document at
"THE MERGER AGREEMENT -- Termination of the Merger Agreement").
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 BancorpSouth
common stock with a record date prior to the Effective Time, the Exchange Ratio
will be adjusted accordingly.
BACKGROUND OF THE MERGER
Over the past two years, the HomeBanc Corporation Board spent much time
considering how best to approach challenges of the future and to meet the
responsibility of maximizing shareholder value. The HomeBanc Corporation Board
expected that a number of key officers and directors of HomeBanc Corporation
would retire within the next few years and that competitive pressures in the
banking industry would force HomeBanc Corporation to continue to reduce its
costs in order to remain competitive. Additionally, the HomeBanc Corporation
Board considered it necessary to provide more liquidity to HomeBanc Corporation
shareholders.
During late 1997, management of HomeBanc Corporation received
unsolicited inquiries from two financial institutions, each of which expressed
an interest in pursuing a possible business combination with HomeBanc
Corporation. After representatives of these two financial institutions met with
management of HomeBanc Corporation, the HomeBanc Corporation Board decided that
both offers were inadequate. In early 1998, management of HomeBanc Corporation
met with representatives of a third financial institution that planned to
establish branch locations in The Home Bank's market. Subsequently, management
of this third financial institution and management of HomeBanc Corporation
decided a business combination between these two companies would not be in their
best interest.
After a presentation to the HomeBanc Corporation Board, on May 13,
1998, the HomeBanc Corporation Board engaged the independent investment advisory
firm of Alex Sheshunoff & Co. Investment Banking ("Sheshunoff") to assist the
HomeBanc Corporation Board in establishing a reasonable value of HomeBanc
Corporation and to assist the HomeBanc Corporation Board in soliciting
expressions of interest regarding a business combination with HomeBanc
Corporation. Following its engagement, Sheshunoff contacted 23 financial
institutions (including BancorpSouth) to solicit expressions of interest in
acquiring HomeBanc Corporation. Sheshunoff was familiar with BancorpSouth, and
BancorpSouth had indicated an interest in expansion. Two of the 23 financial
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institutions contacted by Sheshunoff, including BancorpSouth, responded
positively to such solicitation.
On August 10, 1998, representatives of Sheshunoff contacted Mr. Aubrey
B. Patterson, Chairman and Chief Executive Officer of BancorpSouth, to determine
BancorpSouth's interest in pursuing a possible business combination with
HomeBanc 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
HomeBanc Corporation in Guntersville, Alabama on August 14, 1998 to discuss the
possibility of a business combination involving the issuance of a fixed number
of shares of BancorpSouth common stock with an aggregate market value at that
time of about $39.5 million. On August 14, 1998, Mr. Patterson, Mr. L. Nash
Allen, Jr., Mr. Michael W. Weeks and Mr. Harry R. Baxter of BancorpSouth flew to
Guntersville, Alabama and made a presentation to representatives of the HomeBanc
Corporation Board. The presentation was general in nature and consisted
primarily of an introduction to BancorpSouth.
On August 28, 1998, Sheshunoff informed BancorpSouth that the HomeBanc
Corporation Board was interested in continuing its discussions with BancorpSouth
and would permit BancorpSouth to perform a due diligence review of HomeBanc
Corporation upon the submission of a statement of interest, which would contain
a range of proposed prices. BancorpSouth proposed a business combination
involving the issuance of a fixed number of shares of BancorpSouth common stock
having an aggregate market value of approximately $39.5 million. Management of
HomeBanc Corporation communicated to BancorpSouth that this proposal was
inadequate, and BancorpSouth subsequently increased its offer to approximately
2,100,000 shares of BancorpSouth common stock worth an aggregate value at that
time of about $43 million.
Upon completion of the due diligence review by BancorpSouth and
following receipt of the increased offer from BancorpSouth, the HomeBanc
Corporation Board decided to engage in further discussions with BancorpSouth.
This decision was based principally on the economics of the proposed
transaction, the perceived cultural fit between the two organizations and
BancorpSouth's reputation as a community-oriented financial institution.
Between October 21, 1998 and November 4, 1998, representatives of
BancorpSouth and HomeBanc Corporation engaged in discussions and negotiations
with respect to the Merger Agreement and Stock Option Agreement between
BancorpSouth and HomeBanc Corporation.
On October 26, 1998, the HomeBanc Corporation Board held a special
meeting to consider the proposed transaction with BancorpSouth. At this meeting,
a representative of Sheshunoff, via teleconference, and HomeBanc Corporation's
legal counsel outlined the terms and conditions of the proposed transaction.
Legal counsel advised the HomeBanc Corporation Board of its fiduciary duties to
the shareholders of HomeBanc Corporation in the context of evaluating the terms
of the transaction. A representative of Sheshunoff summarized its findings with
respect to the financial analysis and 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, of the consideration that the shareholders of HomeBanc
Corporation would receive in the transaction. Members of the HomeBanc
Corporation Board asked management of HomeBanc Corporation, legal counsel and
Sheshunoff various questions regarding the proposed transaction. These questions
included the anticipated tax effects, the exercise price in the Stock Option
Agreement, termination rights in the event of a decline in the BancorpSouth
stock price, the regulatory application process and the timing of the
transaction. The HomeBanc Corporation Board then deliberated upon the merits of
the transaction. Thereafter, the HomeBanc Corporation Board approved the merger,
the Merger Agreement and the Stock Option Agreement with certain changes
regarding the exercise price in the Stock Option Agreement and termination
rights in the event of a significant decline in the price of BancorpSouth common
stock.
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On October 28, 1998, the Board of Directors of BancorpSouth approved
the Merger Agreement, the Stock Option Agreement and the merger. On November 4,
1998, both parties executed the Merger Agreement and the Stock Option Agreement.
REASONS FOR THE MERGER; RECOMMENDATION OF THE BOARD OF DIRECTORS
BancorpSouth's Board of Directors believes that the market areas of
HomeBanc Corporation and The Home Bank are comparable to certain of
BancorpSouth's existing market areas. In addition, it believes 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 The Home 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 The Home Bank and possesses technology that is not currently possessed by The
Home Bank.
As previously noted, the HomeBanc Corporation Board deliberated and
approved the Merger Agreement at a meeting of the HomeBanc Corporation Board
held on October 26, 1998. In reaching its determination to approve and adopt the
Merger Agreement, the HomeBanc Corporation Board consulted with HomeBanc
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 HomeBanc Corporation Board in reaching this determination.
This discussion is not intended to be exhaustive, but includes all of the
material factors considered by the HomeBanc Corporation Board. In the course of
its deliberations with respect to the merger, the HomeBanc Corporation Board
discussed the anticipated impact of the merger on HomeBanc Corporation, HomeBanc
Corporation shareholders and various other constituencies. The HomeBanc
Corporation Board did 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 HomeBanc Corporation Board did not assign
any relative or specific weights to the factors considered in reaching such
determination, and individual members of the HomeBanc Corporation Board may have
given differing weights to different factors.
The following includes the material factors that were considered by the
HomeBanc Corporation Board:
1. Its review, based in part on presentations by HomeBanc
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 HomeBanc Corporation
shareholders in the common stock of the combined companies
following the merger;
3. The fact that the merger would allow HomeBanc 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;
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4. The presentations of Sheshunoff to the HomeBanc Corporation
Board, the financial information reviewed by Sheshunoff at the
meeting of the HomeBanc Corporation Board held on October 26,
1998, and the oral opinion of Sheshunoff rendered on October
26, 1998, in which Sheshunoff opined that, as of October 26,
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 HomeBanc Corporation shareholders (see " --
Fairness Opinion");
5. The process conducted by HomeBanc Corporation's management and
financial advisor in exploring and determining the potential
value which could be realized by HomeBanc 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 HomeBanc Corporation and The Home 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 September 1, 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
HomeBanc Corporation shareholders in the merger, and the
expectation that the merger will be a tax-free transaction to
HomeBanc Corporation, HomeBanc Corporation shareholders and
BancorpSouth to the extent HomeBanc Corporation shareholders
receive shares of BancorpSouth common stock;
7. The current and prospective economic and competitive
environment facing the financial services industry generally,
and HomeBanc 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 HomeBanc Corporation
shareholders obtainable through implementation of such
alternatives and the timing and likelihood of actually
achieving such value;
9. The belief of the HomeBanc Corporation Board that alternatives
to the merger were not likely to result in greater value for
HomeBanc Corporation shareholders than the value to be
realized in the merger based upon the HomeBanc Corporation
Board's review and consideration of, among other 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 HomeBanc Corporation;
10. The general impact that the merger could be expected to have
on the constituencies served by HomeBanc 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;
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12. The fact that Mr. J. R. Kimsey, President of HomeBanc
Corporation, and W. Lee Matthews, Guntersville City President
of The Home Bank, would serve in the management of the branch
locations of BancorpSouth Bank in the Marshall County, Alabama
area following the merger, and that the directors and officers
of HomeBanc Corporation might otherwise be deemed to have
interests in the merger other than their interests generally
as HomeBanc Corporation shareholders (see " -- Interests of
Certain Persons in the Merger"); and
13. The terms of the Stock Option Agreement between BancorpSouth
and HomeBanc Corporation, including the risk that the Stock
Option Agreement might discourage third parties from offering
to acquire HomeBanc 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 HOMEBANC
CORPORATION BOARD BELIEVES THE MERGER IS IN THE BEST INTERESTS OF HOMEBANC
CORPORATION AND HOMEBANC CORPORATION SHAREHOLDERS. THE HOMEBANC CORPORATION
BOARD UNANIMOUSLY RECOMMENDS THAT HOMEBANC CORPORATION SHAREHOLDERS VOTE "FOR"
APPROVAL AND ADOPTION OF THE MERGER AGREEMENT.
FAIRNESS OPINION
HomeBanc Corporation retained Sheshunoff to provide its opinion of the
fairness, from a financial viewpoint, of the consideration to be received by the
shareholders of HomeBanc Corporation in connection with the Merger Agreement
with BancorpSouth. As part of its investment banking business, Sheshunoff
regularly engages in the valuation of securities in connection with mergers and
acquisitions and valuations for estate, corporate and other purposes. The
HomeBanc 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 October 26, 1998, Sheshunoff rendered
its oral opinion that, as of such date, the consideration to be received under
the Merger Agreement was fair, from a financial point of view, to HomeBanc
Corporation shareholders. Sheshunoff rendered its written Fairness Opinion
Letter ("Opinion Letter") as of January 4, 1999.
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. HomeBanc Corporation shareholders are urged to read
Sheshunoff's Opinion Letter carefully and in its entirety. Sheshunoff's Opinion
Letter is addressed to the HomeBanc Corporation Board, and does not constitute a
recommendation to any HomeBanc shareholder as to how such shareholder should
vote at the HomeBanc 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 HomeBanc
Corporation, respectively;
3. Reviewed certain internal financial statements and other
financial and operating data of HomeBanc Corporation provided
to Sheshunoff by HomeBanc Corporation's management;
4. Reviewed the reported market prices and trading activity for
BancorpSouth common stock;
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5. Discussed the past and current operations, financial condition
and future prospects of HomeBanc Corporation with its
executive management;
6. Compared HomeBanc Corporation and BancorpSouth from a
financial point of view with certain other banking companies
that Sheshunoff deemed to be relevant;
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. Analyzed the net present value of the after-tax cash flows
HomeBanc Corporation could produce through the year 2003 based
on assumptions provided by management;
9. Reviewed the financial terms, to the extent publicly
available, of certain comparable merger transactions in the
southeastern United States and in Alabama; and
10. 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, and Sheshunoff did not assume any responsibility for
independent verification of such information. With respect to internal
confidential financial projections provided by HomeBanc 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 HomeBanc 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 HomeBanc Corporation, nor was
Sheshunoff furnished with any such appraisals. Sheshunoff did not examine any
individual loan files of HomeBanc 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 December 31, 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 or summary description. Moreover, the evaluation of fairness, from a
financial point of view, of the consideration to be received by HomeBanc
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 HomeBanc Corporation.
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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 HomeBanc 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 HomeBanc
Corporation Board and management with respect to the value of HomeBanc
Corporation.
The following is a summary of the analyses performed by Sheshunoff in
connection with its opinion dated as of January 4, 1999. The following
discussion contains financial information concerning HomeBanc Corporation and
BancorpSouth as of September 30, 1998 and market information as of December 11,
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 December 31, 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 2.61 times and a median of 2.53 times (compared
with the implied multiples in the merger of 2.51 times
September 30, 1998 book value for HomeBanc Corporation);
2. Last 12 months earnings ranging from 16.7 times to 32.0 times
with an average of 23.5 times and a median of 23.1 times
(compared with the implied multiples in the merger of 22.4
times last 12 months earnings as of September 30, 1998 for
HomeBanc Corporation);
3. Total assets ranging between 24.4% and 45.6% with an average
of 29.4% and a median of 27.4% (compared with the implied
multiples in the merger of 23.7% of September 30, 1998 total
assets for HomeBanc Corporation); and
4. Total deposits ranging from 27.9% to 54.4% with an average of
34.4% and a median of 32.6% (compared with the implied
multiples in the merger of 27.3% of deposits as of September
30, 1998 for HomeBanc 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
HomeBanc Corporation for which pricing data is available. The Southeastern
Transactions specifically consisted of 80 mergers and acquisitions of banks in
the Southeast with total assets less than $250 million and which sold for stock
between October 1, 1997 and December 31, 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 2.96 times and a median of 2.85 times (compared
with the multiples implied in the merger of 2.51 times
September 30, 1998 book value for HomeBanc Corporation);
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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 22.8 times
(compared with the multiples implied in the merger of 22.4
times last 12 months earnings as of September 30, 1998 for
HomeBanc Corporation);
3. Total assets ranging between 13.3% and 60.6% with an average
of 29.4% and a median of 28.2% (compared with the multiples
implied in the merger of 23.7% of September 30, 1998 total
assets for HomeBanc Corporation); and
4. Total deposits ranging from 15.0% to 68.5% with an average of
34.2% and a median of 33.3% (compared with the multiples
implied in the merger of 27.3% of deposits as of September 30,
1998 for HomeBanc Corporation).
DISCOUNTED CASH FLOW ANALYSIS. Using discounted cash flow analysis,
Sheshunoff estimated the present value of the future after-tax cash flow streams
that HomeBanc 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 HomeBanc Corporation at the
end of 2003 by applying multiples of earnings ranging from 10 times to 22 times
to the final period projected earnings. Sheshunoff then discounted the annual
cash flow streams, defined as all earnings in excess of that required to
maintain a tangible equity to asset ratio of 7.0%, and the terminal value using
discount rates ranging from 13.0% to 17.0%. The discount range was chosen to
reflect different assumptions regarding the required rates of return of HomeBanc
Corporation and the inherent risk surrounding the underlying projections. This
discounted cash flow analysis indicated a range of $15.20 per share to $29.64
per share based on 1,333,685 fully-diluted shares outstanding, compared to the
value of the consideration to be received under the Merger Agreement for
HomeBanc Corporation of $28.42 per share, based on the consideration to be
received under the Merger Agreement of $37,898,700 as of December 31, 1998.
Sheshunoff also performed a cash flow analysis using an estimated
terminal value for HomeBanc Corporation at the end of 2003 by applying multiples
of book value ranging from 1.50 times to 2.80 times to the final period
projected equity. Sheshunoff then discounted the annual cash flow streams,
defined as all earnings in excess of that required to maintain a tangible equity
to tangible asset ratio of 7.0%, and the terminal value using discount rates
ranging from 13.0% to 17.0%. The discount range was chosen to reflect different
assumptions regarding the required rates of return of HomeBanc Corporation and
the inherent risk surrounding the underlying projections. This discounted cash
flow analysis indicated a range of $13.39 per share to $22.14 per share based on
1,333,685 fully-diluted shares outstanding, compared to the value of the
consideration to be received under the Merger Agreement for HomeBanc Corporation
of $28.42 per share, based on the consideration to be received under the Merger
Agreement of $37,898,700 as of December 31, 1998.
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 $1.0 billion and $5.0 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 $1.0 billion and $5.0 billion, the S&P 500 and
BancorpSouth's stock from January 1, 1997 to December 31, 1998 revealed that
BancorpSouth's stock price generally performed as well as the price movements of
the SNL index of all publicly traded banks and the S&P 500. Although
BancorpSouth's stock price has exhibited some recent weakness relative to the
indices utilized in this analysis, this weakness is not material to the fairness
of the Exchange Ratio as of January 4, 1999.
No company or transaction used in the comparable company and comparable
transaction analyses is identical to HomeBanc Corporation, BancorpSouth or the
merger. Accordingly, an
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analysis of the results of the foregoing necessarily involves complex
considerations and judgments concerning differences in financial and operating
characteristics of HomeBanc 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.
COMPENSATION OF FINANCIAL ADVISOR. Pursuant to an engagement letter
dated May 15, 1998, between HomeBanc Corporation and Sheshunoff, HomeBanc
Corporation agreed to pay Sheshunoff a fee based on the consideration received
by HomeBanc Corporation as a result of the merger calculated according to the
following schedule:
1. 1% of the Merger Consideration up to $46,000,000;
2. 1.25% of the Merger Consideration greater than $46,000,000 but
less than $50,000,000; and
3. 1.5% of the Merger Consideration greater than $50,000,000.
HomeBanc 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 a number of things,
including the receipt of approvals by the following governmental authorities
(the "Requisite Regulatory Approvals"): the Federal Deposit Insurance
Corporation (the "FDIC"), the Mississippi Department of Banking and Consumer
Finance, and the Alabama Banking Department. The Board of Governors of the
Federal Reserve System (the "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 December 11, 1998. Following approval of the
application by the FDIC, the United States Department of Justice has between 15
and 30 calendar days to submit any adverse comments relating to competitive
factors resulting from the merger. Such approval is expected to be obtained from
the FDIC on or about ______________, 1999, and the waiting period is expected to
have expired by ______________, 1999.
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 ______________, 1999. 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 HomeBanc Corporation
shareholders.
HomeBanc 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 executed originals of certain documents
required for completion of the merger. Such application was provided to the
Alabama Banking Department on ______________, 1999. Approval of the merger by
the Alabama Banking Department is expected to be received following approval of
the Merger Agreement by HomeBanc Corporation shareholders.
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ACCOUNTING TREATMENT
BancorpSouth intends to account for the merger as a pooling of
interests under generally accepted accounting principles. The merger is
conditioned upon BancorpSouth receiving a letter from each of its and HomeBanc
Corporation's independent certified public accountants that the merger will
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 HomeBanc Corporation shareholders who
hold HomeBanc Corporation common stock as a capital asset. The summary is based
on the Internal Revenue Code of 1986, as amended, 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 (such as non-U.S. persons, financial
institutions, dealers in securities, insurance companies, tax-exempt entities,
holders who acquired HomeBanc Corporation common stock pursuant to the exercise
of an employee stock option or right or otherwise as compensation, and holders
who hold HomeBanc 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. HOMEBANC 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. FEDERAL, STATE, LOCAL, FOREIGN AND OTHER TAX LAWS AND OF
POTENTIAL CHANGES TO APPLICABLE TAX LAW.
HomeBanc Corporation's obligation to consummate the merger is
conditioned upon the receipt of an opinion of Bradley Arant Rose & White LLP,
special counsel to HomeBanc 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, special
counsel to BancorpSouth. Each of these opinions, to be dated the date on which
the merger is completed, are to address the same U.S. federal income tax
consequences listed below and as further described under the caption "THE MERGER
AGREEMENT -- Conditions to the Merger." These opinions were rendered on the
basis of facts, representations and assumptions set forth or referred to in such
opinions which are consistent with the expected state of facts existing at the
Effective Time. In rendering these opinions, such counsel have required and
relied upon representations and covenants, including those contained in
certificates of officers of HomeBanc Corporation and BancorpSouth. The opinions
are 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 Internal Revenue Code of
1986, as amended;
2. No gain or loss will be recognized by BancorpSouth or HomeBanc
Corporation as a result of the merger;
3. No gain or loss will be recognized by HomeBanc 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 HomeBanc Corporation shareholders who exchange all
of their respective shares of HomeBanc
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Corporation common stock solely for BancorpSouth common stock
pursuant to the merger will be the same as the aggregate tax
basis of HomeBanc Corporation common stock surrendered in
exchange therefor (reduced by any amount allocable to a
fractional share interest for which cash is received).
Neither 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 HomeBanc 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 HomeBanc
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 HomeBanc
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 HomeBanc
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
HomeBanc Corporation common stock surrendered in exchange for BancorpSouth
common stock.
INTERESTS OF CERTAIN PERSONS IN THE MERGER
Certain members of management of HomeBanc Corporation and the HomeBanc
Corporation Board may be deemed to have certain interests in the merger that are
in addition to their interests as shareholders generally. The HomeBanc
Corporation Board was aware of these interests and considered them, among other
matters, in approving the Merger Agreement and the merger.
In particular, Mr. J. R. Kimsey, currently the President of HomeBanc
Corporation, will become chairman of the local community bank advisory board of
BancorpSouth Bank in the Guntersville, Alabama area after the merger. Mr. Kimsey
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 one year. The employment agreement also provides that Mr. Kimsey will
receive an annual salary of $142,000 and will be eligible for a discretionary
bonus. In his employment agreement, Mr. Kimsey has agreed that he will not
compete with BancorpSouth Bank within a specified area.
Mr. W. Lee Matthews, currently the Guntersville City President of The
Home Bank, also entered into an employment agreement with BancorpSouth Bank that
is effective upon the completion of the merger. Mr. Matthews will become
community bank president of BancorpSouth Bank in the Guntersville, Alabama area
after the merger. The employment agreement provides for a term of two years. Mr.
Matthews will receive an annual salary of $100,000 with the possibility of a
discretionary bonus while employed by BancorpSouth Bank. He also agreed in his
employment agreement that he will not compete with BancorpSouth within a
specified area.
HomeBanc Corporation has entered into employee retention agreements
with five employees, including Mr. J. R. Kimsey and Mr. W. Lee Matthews, whereby
each employee will receive a cash payment if such employee continues his or her
employment with HomeBanc Corporation through completion of the merger.
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Directors and executive officers of HomeBanc Corporation will receive
shares of BancorpSouth common stock in the merger on the same basis as other
HomeBanc Corporation shareholders. The following chart shows the number of
shares of BancorpSouth common stock that may be issued to directors and
executive officers of HomeBanc Corporation in the merger:
<TABLE>
<S> <C>
Beneficial ownership by executive officers and directors
of HomeBanc Corporation and the Home Bank as of
_____________, 1999........................................... 401,847
Shares of BancorpSouth common stock to be received at
the Effective Time (based on such beneficial ownership)....... 632,805
</TABLE>
Certain members of the management and boards of directors of HomeBanc
Corporation and The Home Bank, respectively, have certain interests under the
Merger Agreement regarding indemnification and the continuation of employee
benefits.
C. Larimore Whitaker, a partner at Bradley Arant Rose & White LLP,
special counsel to HomeBanc Corporation, owns 888 shares of HomeBanc Corporation
common stock and is a brother of J. Mack Whitaker, a director of each of
HomeBanc Corporation and The Home Bank.
COMPARISON OF RIGHTS OF SHAREHOLDERS
At the Effective Time, HomeBanc 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 Mississippi Business Corporation Act, the amended
and restated articles of incorporation of BancorpSouth and the bylaws of
BancorpSouth. HomeBanc Corporation is an Alabama corporation governed by
provisions of the Alabama Business Corporation Act, the articles of
incorporation of HomeBanc Corporation and the bylaws of HomeBanc Corporation.
See "COMPARISON OF RIGHTS OF SHAREHOLDERS."
RESTRICTIONS ON RESALES BY AFFILIATES
The shares of BancorpSouth common stock issuable to HomeBanc
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 deemed to be
"affiliates" of HomeBanc Corporation or BancorpSouth, as that term is defined in
the rules promulgated under the Securities Act.
Shares of BancorpSouth common stock received by those HomeBanc
Corporation shareholders who are deemed to be affiliates of HomeBanc Corporation
at the time of the HomeBanc 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.
HomeBanc Corporation 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) to deliver to the
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other party a written agreement intended to ensure compliance with the
Securities Act 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.
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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
BancorpSouth will deposit with the Exchange Agent, certificates
representing the shares of BancorpSouth common stock (collectively, the
"BancorpSouth Certificates") and cash to be paid in lieu of fractional shares to
which a holder of certificates formerly representing HomeBanc Corporation common
stock (the "HomeBanc Corporation Certificates") would otherwise be entitled
based on the Exchange Ratio (such cash and BancorpSouth Certificates, together
with any dividends or distributions with respect thereto, the "Exchange Fund").
Within three business days after the date on which the Effective Time
occurs, the Exchange Agent will mail to each holder of record of a HomeBanc
Corporation Certificate a form letter of transmittal for use in exchanging such
shareholder's HomeBanc Corporation Certificates for consideration due under the
Merger Agreement. Upon surrender of a HomeBanc Corporation Certificate for
exchange and cancellation to the Exchange Agent, together with a duly executed
letter of transmittal, the holder of a HomeBanc Corporation Certificate will be
entitled to receive the number of whole shares of BancorpSouth common stock and
cash for any fractional shares to which such holder has become entitled pursuant
to the Merger Agreement. BancorpSouth will pay to each HomeBanc Corporation
shareholder who would otherwise be entitled to a fractional share of
BancorpSouth common stock (after taking into account all HomeBanc 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 last sale price of BancorpSouth common stock as reported on the New York
Stock Exchange at the close of trading on the trading day immediately preceding
the Effective Time. HomeBanc 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.
HOMEBANC CORPORATION SHAREHOLDERS SHOULD NOT SEND IN THEIR STOCK
CERTIFICATES UNTIL THEY RECEIVE THE TRANSMITTAL MATERIALS FROM THE EXCHANGE
AGENT.
Any part of the Exchange Fund that remains unclaimed by HomeBanc
Corporation shareholders for 12 months after the Effective Time will be paid to
BancorpSouth. After such time, HomeBanc Corporation shareholders may look only
to BancorpSouth for unpaid dividends and distributions on HomeBanc Corporation
common stock deliverable in respect of each share of HomeBanc Corporation common
stock held by such shareholder, in each case, without interest thereon. None of
HomeBanc Corporation, BancorpSouth or the Exchange Agent, or any other person,
will be liable to any former HomeBanc Corporation shareholder for any amounts
properly delivered to a public official pursuant to applicable abandoned
property, escheat or similar laws.
If any HomeBanc Corporation Certificate is lost, stolen or destroyed,
BancorpSouth can require the holder to give an affidavit of that fact and to
post a bond in an amount that BancorpSouth or the Exchange Agent may direct as
indemnity against any claim that may be made with respect to such HomeBanc
Corporation Certificate. Upon making such affidavit and/or posting such bond,
the Exchange Agent will issue the consideration due under the Merger Agreement.
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
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holder of any unsurrendered HomeBanc Corporation Certificate until the holder
thereof surrenders such HomeBanc Corporation Certificate. After the proper
surrender of a HomeBanc Corporation Certificate, the record holder of the
certificate will receive any such dividends or other distributions, without any
interest thereon, which such holder would have received if he had exchanged his
HomeBanc Corporation Certificate immediately after the Effective Time.
CONDITIONS TO THE MERGER
The obligations of HomeBanc 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 HomeBanc Corporation
shareholders;
2. Receipt of the Requisite Regulatory Approvals;
3. The absence of any legal prohibition to completion of the
merger;
4. The accuracy of the parties' representations and performance
of the parties' obligations under the Merger Agreement; and
5. Receipt of the required tax opinions.
The obligation of BancorpSouth to complete the merger is also
conditioned upon BancorpSouth receiving pooling letters from KPMG LLP, certified
public accountants for BancorpSouth, and Schauer, Taylor, Cox and Edwards, P.C.,
certified public accountants for HomeBanc Corporation, dated as of the Effective
Time that the merger may be accounted for using the pooling of interests method
of accounting.
Further, the obligation of HomeBanc Corporation to complete the merger
is conditioned upon receipt by HomeBanc 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 HomeBanc 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 Merger Agreement may be terminated at any time prior to the
Effective Time, whether before or after approval of the merger by HomeBanc
Corporation shareholders, as set forth in the Merger Agreement, including by
mutual consent of BancorpSouth and HomeBanc 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. HomeBanc 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.
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BancorpSouth may terminate the Merger Agreement if:
1. The HomeBanc Corporation Board has withdrawn or changed in a
manner adverse to BancorpSouth its approval of the merger, or
its recommendation to HomeBanc Corporation shareholders that
such shareholders approve the Merger Agreement and the merger;
and
2. BancorpSouth's and HomeBanc Corporation's independent
certified public accountants do not deliver the pooling
letters to BancorpSouth.
HomeBanc Corporation may terminate the Merger Agreement if the price of
BancorpSouth common stock declines so substantially that it triggers the
termination clause in Section 9.1(h) of the Merger Agreement. The termination
clause consists of a detailed formula. This formula provides that the
termination right will be triggered when the average closing price of
BancorpSouth common stock for the 20 consecutive full trading days ending at the
close of trading on the day on which BancorpSouth receives the FDIC's approval
for consummation of the merger declines:
1. 25% below $20.50 (the closing price of BancorpSouth common
stock on November 4, 1998); or
2. 15% below $20.50 and if the quotient of the above 20 day
average divided by $20.50 is at least 15% less than the
quotient of the SNL Southeastern Bank Index's banks' and bank
holding companies' average closing price for the day when the
FDIC approves the merger divided by the average closing price
of the index's banks and bank holding companies on November 4,
1998.
HomeBanc Corporation must also notify BancorpSouth of its decision to
terminate the Merger Agreement within three days after BancorpSouth receives the
FDIC's approval of the merger to exercise the above termination clause.
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, HomeBanc Corporation agreed that, except as
expressly contemplated or permitted by the Merger Agreement or the Stock Option
Agreement or with the prior written consent of BancorpSouth, HomeBanc
Corporation 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.
HomeBanc Corporation has 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 HomeBanc Corporation may declare and
pay regular quarterly cash dividends of $0.18 per share with
usual and regular record and payment dates in accordance with
past practice);
2. Issuing or acquiring its capital stock;
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<PAGE> 51
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. Entering into any new line of business;
7. Engaging in a material acquisition of another business;
8. Taking any action intended or reasonably expected to result in
any of its representations and warranties in the Merger
Agreement being or becoming untrue, or in any of the
conditions to the merger set forth in the Merger Agreement not
being satisfied;
9. Changing its methods of accounting in effect December 31,
1997, except as required by changes in generally accepted
accounting principles or regulatory accounting principles;
10. Adopting or amending any employee benefit plan or compensation
arrangement;
11. Taking any action that would disqualify the merger as a
pooling of interests;
12. Entering into any loans in an original principal amount in
excess of $2,000,000;
13. Incurring any indebtedness other than in the ordinary course
of business consistent with past practice;
14. Filing any application to relocate or terminate the operations
of any of its or its subsidiaries' banking offices;
15. Taking any action or entering into any agreement that could
reasonably be expected to jeopardize or materially delay the
receipt of any Requisite Regulatory Approval;
16. Disposing of any material assets other than in the ordinary
course of business consistent with past practice; or
17. Entering into, renewing, amending or terminating any material
contract.
In addition, HomeBanc 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 HomeBanc Corporation or the acquisition of a substantial
portion of its capital stock or assets (a "Takeover Proposal"). HomeBanc
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. HomeBanc 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,
HomeBanc Corporation agreed to keep BancorpSouth fully informed of the status
and details of any such request or Takeover Proposal.
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HomeBanc 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 HomeBanc Corporation Board, such
communication is required under applicable law. In addition, HomeBanc
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 HomeBanc Corporation Board has
determined that the failure to do so could cause the members of the HomeBanc
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
HomeBanc 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.
HomeBanc Corporation also agreed to call and hold a special
shareholders meeting and, through the HomeBanc Corporation Board, to recommend
for approval to its shareholders the Merger Agreement and the merger.
BancorpSouth also agreed that employees of HomeBanc Corporation and The
Home Bank ("HomeBanc 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 HomeBanc Corporation will be treated as service with BancorpSouth, except
to the extent that such treatment would result in a duplication or increase in
benefits. Prior service with HomeBanc Corporation and The Home Bank will be
treated as service for vesting purposes for both 401(k) and pension benefits,
but not for accrual of pension benefits or 401(k) eligibility. HomeBanc
Employees are to be given credit for amounts paid under an employee 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 November 4, 1998 between HomeBanc Corporation and
The Home 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 merge any employee benefit plan of HomeBanc
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. HomeBanc
Corporation's employee benefit plan will not be merged into BancorpSouth's
appropriate tax-qualified retirement plan if HomeBanc Corporation's plan is not
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<PAGE> 53
fully funded under Section 412 of the Code and Section 302 of the Employee
Retirement Income Security Act of 1974, as amended, 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 HomeBanc Corporation to the full extent
permitted by law from and after the Effective Time and to provide, for three
years after the Effective Time, directors' and officers' liability insurance for
the directors and officers of HomeBanc Corporation to the maximum extent
available at an annual premium not to exceed 125% of the amount expended by
HomeBanc 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 the HomeBanc
Corporation shareholders approve the merger. However, after any approval of the
Merger Agreement by HomeBanc 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 consideration due under the
Merger Agreement. The Merger Agreement may not be amended except by an
instrument in writing signed on behalf of BancorpSouth and HomeBanc Corporation.
Prior to the Effective Time, BancorpSouth and HomeBanc 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 HomeBanc Corporation executed and delivered the Stock Option Agreement,
which granted to BancorpSouth an option (the "Option") to purchase from HomeBanc
Corporation up to 166,448 shares of HomeBanc Corporation common stock (the
"Option Shares") at an exercise price of $25.00 per share. This number of shares
is subject to adjustment in certain circumstances, but in no event is the number
of shares to exceed 11.09653% of the shares of HomeBanc Corporation common stock
outstanding immediately prior to exercise of the Option. HomeBanc Corporation
approved and entered into the Stock Option Agreement as an inducement to
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 HomeBanc Corporation from considering or proposing such
an acquisition. The acquisition of HomeBanc 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 HomeBanc 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 HomeBanc Corporation than it
50
<PAGE> 54
might otherwise have proposed to pay. The exercise or repurchase of the Option
may prohibit any other acquirer of HomeBanc 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 HomeBanc Corporation common stock subject to
the Option will be increased or decreased, as appropriate, to the extent that
additional shares of HomeBanc Corporation common stock are either (1) issued or
otherwise become outstanding after November 4, 1998 or (2) redeemed,
repurchased, retired or otherwise cease to be outstanding after November 4,
1998, such that, after such issuance, the number of Option Shares will continue
to equal 11.09653% of the shares of HomeBanc Corporation common stock then
issued and outstanding. In the event of any change in, or distributions in
respect of, the number of shares of HomeBanc 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 HomeBanc 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 HomeBanc 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.
Neither BancorpSouth nor HomeBanc 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 (as
defined in Section 2(a) of the Stock Option Agreement), 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
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 HomeBanc
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 HomeBanc 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 HomeBanc Corporation common stock.
Accordingly, BancorpSouth has included or will include in its
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<PAGE> 55
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 HomeBanc
Corporation common stock.
52
<PAGE> 56
PRICE RANGE OF COMMON STOCK AND DIVIDENDS
MARKET PRICES
HOMEBANC CORPORATION
There is no established trading market for shares of HomeBanc
Corporation common stock, which is inactively traded in private transactions.
Therefore, reliable information is not available about the prices at which
shares of HomeBanc Corporation common stock have been bought and sold. As of
_________, 1999, HomeBanc Corporation common stock was held of record by
approximately 419 persons.
BANCORPSOUTH
BancorpSouth is listed on the New York Stock Exchange under the symbol
"BXS." As of __________, 1999, BancorpSouth common stock was held of record by
approximately ________ persons. The following table sets forth the high and low
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>
1999
First Quarter (through ____, 1999).... $ $
1998
First Quarter......................... $ 24.0000 $20.62500
Second Quarter........................ 23.0625 20.31250
Third Quarter......................... 22.4375 16.81250
Fourth Quarter ....................... 24.1875 17.59375
1997
First Quarter......................... $ 15.0000 $13.25000
Second Quarter........................ 14.7500 13.25000
Third Quarter......................... 18.0000 14.50000
Fourth Quarter........................ 24.1875 17.59375
</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.
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<PAGE> 57
DIVIDENDS
The following table sets forth cash dividends declared per share of
BancorpSouth common stock and HomeBanc 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>
1999
First Quarter (through ____, 1999)................... $
1998
First Quarter........................................ $ 0.110
Second Quarter....................................... 0.110
Third Quarter........................................ 0.110
Fourth Quarter....................................... 0.120
1997
First Quarter........................................ $ 0.095
Second Quarter....................................... 0.095
Third Quarter........................................ 0.095
Fourth Quarter....................................... 0.110
</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.
HOMEBANC CORPORATION
<TABLE>
<CAPTION>
DIVIDENDS
PER SHARE
---------
<S> <C>
1999
First Quarter (through ____, 1999)....................... $
1998
First Quarter............................................ $ 0.16
Second Quarter........................................... 0.17
Third Quarter ........................................... 0.18
Fourth Quarter........................................... 0.18
1997
First Quarter............................................ $ 0.12
Second Quarter........................................... 0.13
Third Quarter............................................ 0.14
Fourth Quarter........................................... 0.15
</TABLE>
Dividends paid by HomeBanc Corporation on HomeBanc Corporation common
stock are at the discretion of the HomeBanc Corporation Board and are affected
by certain legal restrictions on the payment of dividends as described below,
HomeBanc Corporation's earnings and financial condition and other relevant
factors. The current policy of HomeBanc Corporation is to pay dividends on a
quarterly basis.
There are certain limitations on the payment of dividends to HomeBanc
Corporation by The Home Bank. As a state banking corporation, the amount of
dividends that The Home Bank may declare in one year, without the approval of
the Alabama Banking Department, is limited to the total
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<PAGE> 58
net earnings of that year plus the two preceding years. Under applicable laws
and regulations, at September 30, 1998, approximately $3,322,606 was available
for payment of dividends to HomeBanc Corporation by The Home Bank.
55
<PAGE> 59
HOMEBANC CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
GENERAL
HomeBanc Corporation's Management's Discussion and Analysis of
Financial Condition and Results of Operations should be read in conjunction with
the information and tables which follow.
SUMMARY
Net income for 1997 was $2,174,142, a 9.6% decrease from HomeBanc
Corporation's net income of $2,404,684 in 1996. Net income for 1996 was 29.4%
higher than the 1995 net income of $1,858,134. Net income per common share for
1997 was $1.63 compared to $1.81 per share for 1996 and $1.39 for 1995. Pretax
income for 1997 decreased $172,491 or 5.0% from 1996 and increased $667,584 or
23.9% from 1995 to 1996.
The decrease in net income from 1996 to 1997 is primarily due to the
overall increase in salaries and employee benefits coupled with a rise in other
operating expenses. The increase in net income from 1995 to 1996 was
attributable primarily to the increase in interest and fees on loans.
The first nine months of 1998 reflected net income of $1,307,234 or
26.9% less than the net income for the same period of 1997.
FINANCIAL CONDITION
EARNING ASSETS. Average earning assets in 1997 increased $6,296,000 or
4.8% over 1996 primarily due to increase in loan volume. Average earning assets
in 1996 increased by $18,424,000 or 16.2% over 1995 also due to an increase in
loan volume.
LOAN PORTFOLIO. HomeBanc Corporation's average loans for 1997 were
$107,436,000, an increase of 10.9% over $96,920,000 in average loans for 1996.
Loan growth for 1997 was primarily funded from deposit growth. The most
significant loan growth was in real estate loans and commercial loans. Real
estate loans increased by $4,973,000 or 8.9% over 1996. Commercial loans
increased by $5,041,000 or 21.0% over 1996. Average loans for 1996 increased by
$19,303,000 over 1995, an increase of 24.9%. The increase in ending balances
from 1996 to 1997 and 1995 to 1996 was consistent with the increase in average
balances.
INVESTMENT PORTFOLIO. HomeBanc Corporation's average investment
securities portfolio decreased by $1,830,000 or 5.7% from 1996 to 1997. The 1996
average investment securities portfolio increased by $762,000 over 1995, an
increase of 2.4%.
HomeBanc Corporation maintains an investment strategy of seeking
portfolio yields within acceptable risk levels, as well as providing liquidity.
HomeBanc Corporation maintains two classifications of investment securities:
"Held to Maturity" and "Available for Sale." The "Available for Sale" securities
are carried at fair market value. At year-end 1997, net unrealized gains in the
investment portfolio amounted to $268,000. At the end of 1996, the investment
portfolio had net unrealized gains of $57,000.
DEPOSITS. HomeBanc Corporation's average deposits increased $4,874,000
or 4.6% from 1996 to 1997. Average deposits increased $15,106,000 or 16.8% from
1995 to 1996. From year-end 1996 to year-end 1997, total deposits increased
$3,371,000 or 2.6%. The largest portion of growth during 1997 was in time
deposits less than $100,000 which increased $5,580,000 or 13.3% from year-end
1996. From 1996 to 1997 interest-bearing transaction deposits increased
$1,712,000 or 12.3%, savings deposits decreased $2,950,000 or 9.9%, time
deposits of less than $100,000 increased
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<PAGE> 60
$5,580,000 or 13.3% and time deposits of $100,000 or more and open time deposits
decreased $1,950,000 or 7.8%.
CAPITAL RESOURCES. Stockholders' equity increased $1,573,000 or 12.5%
to $14,191,000 as of December 31, 1997, compared with $12,618,000 at the end of
1996 and $10,810,000 at the end of 1995. Net income for fiscal year ended 1997
less dividends to shareholders of $721,000, issuance of treasury stock ($20,000)
and an increase in unrealized gains on "Available for Sale" securities ($99,000)
accounted for the increase in stockholders' equity during 1997. As of September
30, 1998, stockholders' equity had increased to $15,089,000 due primarily to net
earnings of $1,307,000, an increase of $258,000 in unrealized gains on available
for sale securities and less dividends to shareholders of $680,000.
BALANCE SHEET MANAGEMENT
LIQUIDITY MANAGEMENT. Liquidity is the ability of a company to convert
assets into cash without significant loss and to raise funds by increasing
liabilities. Liquidity management involves having the ability to meet day-to-day
cash flow requirements of its customers, whether they are depositors wishing to
withdraw funds or borrowers requiring funds to meet their credit needs.
The primary function of asset/liability management is not only to
assure adequate liquidity in order for HomeBanc Corporation to meet the needs of
its customer base, but to maintain an appropriate balance between
interest-sensitive assets and interest-sensitive liabilities so that HomeBanc
Corporation can profitably deploy its assets. Both assets and liabilities are
considered sources of liquidity funding and both are, therefore, monitored on a
daily basis.
The asset portion of the balance sheet provides liquidity through loan
repayments and sales and maturities of investment securities. Additional sources
of liquidity are prepayments from mortgage-backed securities in the investment
portfolio.
The liability portion of the balance sheet provides liquidity through
various interest-bearing and noninterest-bearing deposit accounts. At year-end
1997, HomeBanc Corporation had $6,000,000 of federal funds available and a line
of credit from The Federal Home Loan Bank in the amount of approximately
$19,271,000 available to meet liquidity needs.
RESULTS OF OPERATIONS
NET INTEREST INCOME. Net interest income is the principle component of
a financial institution's income stream and represents the spread between
interest and fee income generated from earning assets and the interest expense
paid on deposits. The following discussion is on a fully taxable equivalent
basis.
Net interest income for 1997 increased $407,000 or 5.1% over 1996,
$857,000 or 12.0% in 1996 over 1995. The increase in net interest income from
1996 to 1997 was primarily due to the increase in total loans. The increase in
the net interest income from 1995 to 1996 was also attributable to an increase
in total loans.
Interest income increased $626,000 or 4.7% in 1997 from 1996, and
increased $1,056,000 or 8.5% in 1996 from 1995. Interest income produced by the
loan portfolio increased $891,000 or 8.0% in 1997 from 1996 and increased
$1,156,000 or 11.5% in 1996 from 1995. Interest income on investment securities
decreased $132,000 or 6.3% from 1996 to 1997 and increased $40,000 or 1.9% from
1995 to 1996. Other interest income decreased by $133,000 or 81.1% from 1996 to
1997. This was due to an 81.6% decrease in the average balance of federal funds
sold in 1997 as compared to 1996.
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<PAGE> 61
Total interest expense increased by $219,000 or 4.0% in 1997 from 1996
and increased $199,000 or 3.8% in 1996 from 1995. The interest expense increase
from 1996 to 1997 and from 1995 to 1996 was primarily due to increases in
interest-bearing time deposits.
The trend in net interest income is commonly evaluated in terms of
average rates using the net interest margin and the interest rate spread. The
net interest margin, or the net yield on earning assets, is computed by dividing
fully taxable equivalent net interest income by average earning assets. The
interest rate spread represents the difference between the average yield on
average earning assets and the average rate paid for all funds used to support
those earning assets including both interest-bearing and noninterest-bearing
sources. The net interest margin increased 2 basis points in 1997 to 6.09% from
6.07% for 1996. The net interest spread increased 14 basis points from 5.12% for
1996 to 5.26% for 1997. The net cost of funds, defined as interest expense
divided by average earning assets, decreased 3 basis points from 4.10% in 1996
to 4.07% in 1997.
The interest rate spread measures the difference between the average
yield on earning assets and the average rate paid on interest bearing sources of
funds. The interest rate spread eliminates the impact of noninterest bearing
funds and gives a direct perspective on the effect of market interest rate
movements. During recent years, the net interest margins and interest rate
spreads have been under intense pressure to maintain historical levels, due in
part to tax laws that discouraged investment in tax-exempt securities and
intense competition for funds with non-bank institutions. As a result of lower
market interest rates during 1997, the interest rate spread increased 14 basis
points from 1996 to 1997. Changes in market interest rates during 1996 resulted
in an interest rate spread decrease of 11 basis points from 1995.
ALLOWANCE FOR LOAN LOSSES. Lending officers are responsible for the
ongoing review and administration of each loan. They make the initial
identification of loans which present some difficulty in collection or where
there is an indication that the probability of loss exists. Lending officers are
responsible for the collection efforts on a delinquent loan. Senior management
is informed of the status of delinquent and problem loans on a monthly basis.
Senior management makes recommendations monthly to the board of
directors as to charge-offs. Senior management reviews the allowance for
possible loan losses on a monthly basis. HomeBanc Corporation's policy is to
discontinue interest accrual when payment of principal and interest is 90 days
or more in arrears.
The allowance for possible loan losses represents management's
assessment of the risks associated with extending credit and its evaluation of
the quality of the loan portfolio. Management analyzes the loan portfolio to
determine the adequacy of the allowance for possible loan losses and the
appropriate provisions required to maintain a level considered adequate to
absorb anticipated loan losses. In assessing the adequacy of the allowance,
management reviews the size, quality and risk of loans in the portfolio.
Management also considers such factors as loan loss experience, the amount of
past due and nonperforming loans, specific known risk, the status and amount of
nonperforming assets, underlying collateral values securing loans, current and
anticipated economic conditions and other factors which affect the allowance for
potential credit losses.
While it is HomeBanc Corporation's policy to charge off in the current
period the loans in which a loss is considered probable, there are additional
risks of future losses which cannot be quantified precisely or attributed to
particular loans or classes of loans. Because these risks include the state of
the economy, management's judgment as to the adequacy of the allowance is
necessarily approximate and imprecise.
Management of HomeBanc Corporation believes that the $1,401,337 as of
September 30, 1998 and the $1,249,749 as of December 31, 1997 in the allowance
for loan losses are adequate to absorb known risks in the portfolio. No
assurance can be given, however, that adverse economic
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<PAGE> 62
circumstances will not result in increased losses in the loan portfolio, and
require greater provisions for possible loan losses in the future.
NONPERFORMING ASSETS. Nonperforming assets include nonperforming loans
and foreclosed real estate held for sale. Nonperforming loans include loans
classified as nonaccrual or renegotiated. HomeBanc Corporation's policy is to
place a loan on nonaccrual status when it is contractually past due 90 days or
more as to payment of principal or interest. At the time a loan is placed on
nonaccrual status, interest previously accrued but not collected is reversed.
Interest accrued during the current year is charged against current earnings.
Interest accrued during previous years is charged against the allowance for loan
losses. Recognition of any interest after a loan has been placed on nonaccrual
is accounted for on a cash basis.
HomeBanc Corporation had nonperforming assets of approximately
$1,286,000 at September 30, 1998 and $643,000 as of December 31, 1997.
NONINTEREST INCOME. Noninterest income consists of revenues generated
from a broad range of financial services and activities including fee-based
services and profits and commissions earned through credit life insurance sales
and other activities. In addition, gains or losses realized from the sale of
investment portfolio securities are included in noninterest income. Total
noninterest income increased by $190,000 or 22.7% for the nine months ended
September 30, 1998 as compared to the same period of 1997. For the year ended
December 31, 1997, total noninterest income increased $278,000 or 30.9% compared
to 1996. Noninterest income for 1996 showed a decrease of $163,000 or 15.3% from
1995. The increase in noninterest income during 1997 was due primarily to a
$113,000 gain on the disposal of assets realized in 1997 compared to a minimal
gain of $1,000 realized in 1996.
Fee income from service charges on deposit accounts increased $42,000
or 7.0% in 1997 following a $42,000 or 7.6% increase in 1996. Nonrecurring items
of noninterest income include investment security gains and gains/losses on the
disposal of other assets. Included in other noninterest income are
gains/<losses> on sales of securities of $0 and <$29,000> in 1997 and 1996,
respectively, and gains/<losses> on disposal of assets of $113,000 and $1,000.
In 1997 HomeBanc Corporation had $170,000 of income from insurance commissions
compared to $ 184,000 in 1996. The income from insurance commissions was
$283,000 in 1995.
NONINTEREST EXPENSES. Noninterest expense for 1997 increased $627,000
or 13.6% from 1996 and increased $115,000 or 2.6% in 1996 from 1995. Salaries
and employee benefits in 1997 increased $255,000 or 10.0% from 1996 to a total
of $2,794,000 for 1997. Salaries and employee benefits in 1996 increased
$119,000 or 4.9% from 1995. The increases in 1997 and 1996 were due to the
addition of executive staff and normal pay incentives. Total noninterest
expenses for the nine months ended September 30, 1998, reflected an increase of
$426,000 or 11.1% as compared to the same period of 1997.
Occupancy expense increased by $32,000 or 5.5% in 1997 following an
increase of $63,000 or 12.2% in 1996. Occupancy expense was higher in 1997 and
1996 due primarily to facilities expenses.
All other noninterest expenses increased by $340,000 or 22.6% in 1997
following a $67,000 or 4.3% decrease in 1996.
EFFECTS OF INFLATION AND CHANGING PRICES
Inflation generally increases the cost of funds and operating overhead,
and to the extent loans and other assets bear variable rates, the yields on such
assets. Unlike most industrial companies, virtually all of the assets and
liabilities of a financial institution are monetary in nature. As a result,
interest rates generally have a more significant impact on the performance of a
financial institution than the effects of general levels of inflation. Although
interest rates do not necessarily
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<PAGE> 63
move in the same direction or to the same extent as the prices of goods and
services, increases in inflation generally have resulted in increased interest
rates. At the beginning of 1996, the Federal Reserve decreased interest rates 75
basis points in an effort to enhance growth in the economy through monetary
policy. The prime rate remained unchanged through 1996. Until March 1997, the
prime rate was 8.25%, but at that time it increased to 8.50% where it remained
through the second quarter of 1998. Subsequent to the second quarter of 1998,
the prime rate decreased to 7.75%. In addition, inflation affects financial
institutions' cost of goods and services purchased, the cost of salaries and
benefits, occupancy expense and similar items. Inflation and related increases
in interest rates generally decrease the market value of investments and loans
held and may adversely affect liquidity, earnings and stockholders' equity.
Mortgage originations and refinancings tend to slow as interest rates increase
and can reduce HomeBanc Corporation's earnings from such activities.
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<PAGE> 64
NET INTEREST INCOME
The following table sets forth weighted yields earned by HomeBanc
Corporation on its earning assets and the weighted average rates paid on its
deposits and other interest-bearing liabilities for the years indicated and
certain other information:
<TABLE>
<CAPTION>
1997 1996
--------------------------------- --------------------------------
Interest Average Interest Average
Average Income/ Yields/ Average Income/ Yields/
Balance Expense Rates Balance Expense Rates
--------- -------- -------- --------- --------- --------
(In thousands)
<S> <C> <C> <C> <C> <C> <C>
ASSETS:
Interest-earning assets:
Loans................................ $ 107,436 $ 12,062 11.23% $ 96,920 $ 11,171 11.53%
Investment securities
Taxable............................ 25,613 1,607 6.27 27,842 1,765 6.34
Tax-exempt......................... 4,712 359 7.62 4,313 333 7.72
--------- --------- --------- ---------
Total investment securities...... 30,325 1,966 6.48 32,155 2,098 6.52
--------- --------- --------- ---------
Interest-bearing deposits in banks...... 19 1 5.26 16 1 6.25
Federal funds sold...................... 550 30 5.45 2,943 163 5.54
--------- --------- --------- ---------
Total interest-earning assets/
Interest income.................. 138,330 14,059 10.16 132,034 13,433 10.17
Cash due from banks..................... 3,923 4,561
Other assets............................ 7,373 4,596
Allowance for loan losses............... (1,304) (1,307)
--------- ---------
Total assets....................... $ 148,322 $ 139,884
========= =========
LIABILITIES AND SHAREHOLDERS' EQUITY:
Interest-earning liabilities:
Demand deposits...................... $ 15,026 479 3.19 $ 12,481 394 3.16
Savings.............................. 26,348 956 3.63 30,587 1,200 3.92
Time deposits........................ 68,782 3,890 5.66 62,214 3,687 5.93
Other borrowings..................... 4,753 307 6.46 1,968 132 6.71
--------- --------- --------- ---------
Total interest-bearing liabilities/
Interest expense................. 114,909 5,632 4.90 107,250 5,413 5.05
Noninterest-bearing demand deposits..... 18,631 18,396
Other liabilities....................... 1,378 2,524
Shareholders' equity.................... 13,404 11,714
--------- ---------
Total liabilities and
shareholders' equity............. $ 148,322 $ 139,884
========= =========
Net interest earnings/net
interest spread...................... 8,427 5.26 8,020 5.12
Net yield on earning assets............. 6.09 6.07
Taxable equivalent adjustment:
Investment securities................ 123 114
Loans................................ 39 52
--------- ---------
Total taxable equivalent
adjustment....................... 162 166
--------- ---------
Net interest income..................... $ 8,265 $ 7,854
========= =========
</TABLE>
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RATE/VOLUME VARIANCE ANALYSIS
Taxable Equivalent Basis
<TABLE>
<CAPTION>
Average Volume Change in Volume Average Rate
------------------------------ -------------------- ------------------------------
1997 1996 1995 1997-96 1996-95 1997 1996 1995
-------- -------- -------- -------- -------- -------- -------- --------
INTEREST-EARNING ASSETS: (In thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Loans ................................. $107,436 $ 96,920 $ 77,617 $ 10,516 $ 19,303 11.23% 11.53% 12.90%
Investment securities
Taxable ............................ 25,613 27,842 27,272 (2,229) 570 6.27 6.34 6.38
Tax exempt ......................... 4,712 4,313 4,121 399 192 7.62 7.72 7.74
-------- -------- -------- -------- --------
Total investment securities ...... 30,325 32,155 31,393 (1,830) 762 6.48 6.52 6.56
-------- -------- -------- -------- --------
Federal funds sold .................... 550 2,943 4,600 (2,393) (1,657) 5.45 5.54 6.61
Interest-bearing deposits in banks .... 19 16 -- 3 16 5.26 6.25
-------- -------- -------- -------- --------
Total interest-earning assets ...... $138,330 $132,034 $113,610 $ 6,296 $ 18,424 10.16 10.17 10.89
======== ======== ======== ======== ========
INTEREST-BEARING LIABILITIES:
Demand deposits ....................... 15,026 12,481 11,158 2,545 1,323 3.19 3.16 3.99
Savings ............................... 26,348 30,587 27,619 (4,239) 2,968 3.63 3.92 5.12
Time certificates ..................... 68,782 62,214 51,399 6,568 10,815 5.66 5.93 6.21
Other borrowings ...................... 4,753 1,968 2,014 2,785 (46) 6.46 6.71 8.09
-------- -------- -------- -------- --------
Total interest-bearing liabilities . $114,909 $107,250 $ 92,190 $ 7,659 $ 15,060 4.90 5.05 5.66
======== ======== ======== ======== ========
Net interest income/net interest spread 5.26 5.12 5.23
Net yield on earning assets ........... 6.09 6.07 6.31
Net cost of funds ..................... 4.07 4.10 4.59
</TABLE>
<TABLE>
<CAPTION>
Income/Expense Variance 1997 1996
------------------------- ---------------- ---------------------- -------------------------
1997 1996 1995 1997-96 1996-95 Volume Rate Mix Volume Rate Mix
------- ------- ------- ------ ------- ------- ----- ---- ------- ------- -----
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
INTEREST-EARNING ASSETS:
Loans ......................... $12,062 $11,171 $10,015 $ 891 $ 1,156 $ 1,212 $(291) $(30) $ 2,490 $(1,063) $(271)
Investment securities:
Taxable ..................... 1,607 1,765 1,739 (158) 26 (141) (19) 2 36 (11) 1
Tax exempt .................. 359 333 319 26 14 31 (5) -- 15 (1) --
------- ------- ------- ------ ------- ------- ----- ---- ------- ------- -----
Total investment
securities ............. 1,966 2,098 2,058 (132) 40 (110) (24) 2 51 (12) 1
------- ------- ------- ------ ------- ------- ----- ---- ------- ------- -----
Federal funds sold ............ 30 163 304 (133) (141) (133) (3) 3 (110) (49) 18
Interest bearing balances ..... 1 1 -- -- 1 -- -- -- -- -- 1
------- ------- ------- ------ ------- ------- ----- ---- ------- ------- -----
Total interest-earning assets $14,059 $13,433 $12,377 $ 626 $ 1,056 $ 969 $(318) $(25) $ 2,431 $(1,124) $(251)
======= ======= ======= ====== ======= ======= ===== ==== ======= ======= =====
INTEREST-BEARING LIABILITIES:
Demand deposits ............... $ 479 $ 394 $ 445 $ 85 $ (51) $ 80 $ 4 $ 1 $ 53 $ (93) $ (11)
Savings ....................... 956 1,200 1,413 (244) (213) (166) (89) 11 152 (331) (34)
Time certificates ............. 3,890 3,687 3,193 203 494 389 (168) (18) 672 (144) (34)
Other borrowings .............. 307 132 163 175 (31) 195 (2) (18) (8) (23) --
------- ------- ------- ------ ------- ------- ----- ---- ------- ------- -----
Total interest-bearing
liabilities ................... $ 5,632 $ 5,413 $ 5,214 $ 219 $ 199 $ 498 $(255) $(24) $ 869 $ (591) $ (79)
======= ======= ======= ====== ======= ======= ===== ==== ======= ======= =====
Net interest income ........... $ 8,427 $ 8,020 $ 7,163 $ 407 $ 857 $ 471 $ (63) $ (1) $ 1,562 $ (533) $(172)
======= ======= ======= ====== ======= ======= ===== ==== ======= ======= =====
</TABLE>
LIABILITY AND ASSET MANAGEMENT
The matching of assets and liabilities may be analyzed by examining the
extent to which such assets and liabilities are "interest rate sensitive" and by
monitoring an institution's interest rate sensitivity "gap." An asset or
liability is said to be interest rate sensitive within a specific time period if
it will mature or reprice within that time period. The interest rate sensitivity
gap is defined as the difference between the amount of interest-earning assets
maturing or repricing within a
62
<PAGE> 66
specific time period and the amount of interest-bearing liabilities maturing or
repricing within that time period. A gap is considered positive when the amount
of interest rate sensitive assets exceeds the amount of interest rate sensitive
liabilities. A gap is considered negative when the amount of interest rate
sensitive liabilities exceeds the amount of interest rate sensitive assets.
During a period of rising interest rates, a negative gap would tend to adversely
affect net interest income while a positive gap would tend to result in an
increase in net interest income. During a period of falling interest rates, a
negative gap would tend to result in an increase in net interest income while a
positive gap would tend to adversely affect net interest income.
The asset/liability committee, which consists of the president and
certain officers, is charged with monitoring the liquidity and funds position of
HomeBanc Corporation. The committee regularly reviews (a) the rate sensitivity
position on a three-month, six-month and one-year time horizon; (b) loans to
deposits ratio; and (c) average maturity for certain categories of liabilities.
The following table represents an interest sensitivity profile for
HomeBanc Corporation as of December 31, 1997. The table represents a static
point in time and does not consider other variables, such as changing spread
relationships or interest rate levels. "Net repricing gap" is the difference
between total earning assets and total interest bearing liabilities repricing in
any given period and "cumulative gap" is the sum of the net repricing gap from
period to period. Since interest-bearing demand deposits and savings accounts do
not reprice on a regular basis, these balances have been included in the "After
5 years and non-rate sensitive" category.
December 31, 1997
<TABLE>
<CAPTION>
After 5 years
Within 3 After 3 months After 12 months and Non-rate
months Within 12 months Within 5 years Sensitive Total
------ ---------------- -------------- --------- -----
(In thousands)
<S> <C> <C> <C> <C> <C>
EARNING ASSETS:
Loans ........................... $ 11,247 $ 23,349 $74,885 $ 4,775 $114,256
Investment securities ........... 1,693 7,169 13,680 5,695 28,237
Federal funds sold .............. 880 -- -- -- 880
-------- -------- ------- -------- --------
Total earning assets ......... 13,820 30,518 88,565 10,470 143,373
-------- -------- ------- -------- --------
INTEREST-BEARING LIABILITIES:
Interest-bearing deposits ....... 17,921 28,147 22,511 44,362 112,941
Other borrowed funds ............ 2,274 186 4,292 185 6,937
-------- -------- ------- -------- --------
Total interest-bearing
liabilities ................ 20,195 28,333 26,803 44,547 119,878
-------- -------- ------- -------- --------
RATE SENSITIVITY GAP:
Net repricing gap ............... $ (6,375) $ 2,185 $61,762 $(34,077) $ 23,495
======== ======== ======= ======== ========
Net repricing gap as a percentage
of total earning assets ...... (4.4)% 1.5% 43.1% (23.8)%
======== ======== ======= ========
Cumulative gap .................. $ (6,375) $ (4,190) $57,572 $ 23,495
======== ======== ======= ========
Cumulative gap as a percentage
of total earning assets ...... (4.4)% (2.9)% 40.2% 16.4%
======== ======== ======= ========
</TABLE>
The above table indicates that in a rising interest rate environment, HomeBanc
Corporation's earnings may be adversely affected in the 0-365 day periods where
liabilities will reprice faster than assets.
DEPOSITS
HomeBanc Corporation's primary sources of funds are interest-bearing
deposits. The following table sets forth HomeBanc Corporation's deposit
structure at December 31, in each of 1997 and 1996.
63
<PAGE> 67
<TABLE>
<CAPTION>
December 31,
-----------------------
1997 1996
--------- ---------
(In thousands)
<S> <C> <C>
Noninterest-bearing deposits:
Individuals, partnerships and corporations................ $ 18,925 $ 18,169
U. S. Government and states and political subdivisions.... 530 464
Certified and official checks............................. 889 732
--------- ---------
Total non-interest-bearing deposits.................... 20,344 19,365
--------- ---------
Interest-bearing deposits:
Interest-bearing demand accounts.......................... 15,655 13,943
Savings accounts.......................................... 26,806 29,756
Certificates of deposit, less than $100,000............... 47,459 41,879
Certificates of deposit, more than $100,000............... 23,021 24,971
--------- ---------
Total interest-bearing deposits........................ 112,941 110,549
--------- ---------
Total deposits......................................... $ 133,285 $ 129,914
========= =========
</TABLE>
The following table presents a breakdown by category of the average
amount of deposits and the average rate paid on deposits for the periods
indicated:
<TABLE>
<CAPTION>
December 31,
----------------------------------------------
1997 1996
-------------------- ---------------------
(Dollars in thousands)
Amount Rate Amount Rate
------- ---- -------- ----
<S> <C> <C> <C> <C>
Noninterest-bearing deposits $ 18,631 0.00% $ 18,396 0.00%
Savings deposits ........... 26,348 3.63 30,587 3.92
Time deposits .............. 68,782 5.66 62,214 5.93
Interest-bearing deposits .. 15,026 3.19 12,481 3.16
-------- ---------
Total deposits ......... $128,787 $ 123,678
======== =========
</TABLE>
At December 31, 1997, time deposits greater than $100,000 aggregated
approximately $23,021,000. The following table indicates, as of December 31,
1997, the dollar amount of $100,000 or more by the time remaining until
maturity:
<TABLE>
<CAPTION>
December 31, 1997
-------------------------------------------
3 Months 3 to 12 1 to 5 Over 5
or less Months Years Years
------- ------- ------- -----
(In thousands)
<S> <C> <C> <C> <C>
Time certificates.............. $ 7,774 $ 9,147 $ 5,387 $ 712
</TABLE>
ASSETS
The management of HomeBanc Corporation considers many criteria in
managing assets, including credit-worthiness, diversification and structural
characteristics, maturity and interest rate sensitivity. The following table
sets forth HomeBanc Corporation's interest-earning assets by category at
December 31, in each of 1997 and 1996.
64
<PAGE> 68
<TABLE>
<CAPTION>
December 31,
--------------------------
1997 1996
-------- --------
(In thousands)
<S> <C> <C>
Investment securities ...................... $ 28,237 $ 30,494
Federal funds sold ......................... 880 3,320
Loans:
Real estate ............................ 60,761 55,788
Commercial and other ................... 53,495 45,788
-------- --------
Total loans ......................... 114,256 101,576
-------- --------
Interest-earning assets .................... $143,373 $135,390
======== ========
</TABLE>
INVESTMENT PORTFOLIO
HomeBanc Corporation has classified its investment securities as either
held to maturity or available for sale. The classification of certain investment
securities as available for sale is consistent with HomeBanc Corporation's
investment philosophy of maintaining flexibility to manage the portfolio.
Approximately $101,000 of unrealized gains was included in shareholders' equity
related to the available for sale investment securities as of December 31, 1997.
At year end 1997, obligations of the United States Government or its
agencies and obligations of states and political subdivisions, including Fannie
Mae, Freddie Mac, Ginnie Mae and Small Business Administration loans represented
approximately 97% of the total investment portfolio. The following table
presents the carrying amounts of HomeBanc Corporation's investment portfolio at
December 31, in each of 1997 and 1996.
<TABLE>
<CAPTION>
December 31,
---------------------
1997 1996
------- -------
(In thousands)
<S> <C> <C>
HELD TO MATURITY:
U.S. Government and agencies ................... $ -- $ --
States and political subdivisions .............. 4,576 4,688
Mortgage-backed securities ..................... -- --
------- -------
Total hold to maturity portfolio ............ $ 4,576 $ 4,688
======= =======
AVAILABLE FOR SALE:
U.S. Government and agencies ................... $19,454 $21,275
States and political subdivisions .............. -- --
Mortgage backed securities ..................... 3,375 3,862
Equity securities .............................. 832 669
------- -------
Total available for sale portfolio .......... $23,661 $25,806
======= =======
Total investment portfolio .................. $28,237 $30,494
======= =======
</TABLE>
The following table presents the maturity distribution of the cost and
estimated market value of HomeBanc Corporation's investment portfolio at
December 31, 1997. The weighted average yields on these instruments are
presented based on final maturity. Yields on obligations of states and political
subdivisions have not been adjusted to a fully-taxable equivalent basis.
65
<PAGE> 69
<TABLE>
<CAPTION>
December 31, 1997
------------------------------------
Amortized Estimated Weighted
Cost Market Value Average Yield
------- ------- ------
(In thousands)
<S> <C> <C> <C>
HELD TO MATURITY:
States and political subdivision:
Due within 1 year ..................... $ 1,145 $ 1,154 4.90%
Due after 1 year but within 5 years ... 2,314 2,376 5.23
Due after 5 years but within 10 years . 1,117 1,144 4.86
Due after 10 years .................... -- -- --
------- -------
Total .............................. 4,576 4,674 5.06
------- -------
Total investments held to maturity . $ 4,576 $ 4,674 5.06%
======= =======
AVAILABLE FOR SALE:
U.S. Government and agencies:
Due within 1 year ..................... $ 7,197 $ 7,179 5.51%
Due after 1 year but within 5 years ... 13,327 13,377 6.25
Due after 5 years but within 10 years . 1,693 1,820 7.12
Due after 10 years .................... 466 454 5.13
------- -------
Total .............................. 22,683 22,830 6.06
------- -------
Equity Securities ......................... 810 832 6.39
------- -------
Total investments available for sale $23,493 $23,662 6.07%
======= =======
Total investments portfolio ........ $28,069 $28,336 5.90%
======= =======
</TABLE>
INVESTMENT POLICY
The objective of HomeBanc Corporation's investment policy is to invest
funds not otherwise needed to meet the loan demand of HomeBanc Corporation to
earn the maximum return for HomeBanc Corporation, yet still maintain sufficient
liquidity to meet fluctuations in HomeBanc Corporation's loan demand and deposit
structure. In doing so, HomeBanc Corporation balances the market and credit risk
against the potential investment return, makes investments compatible with the
pledge requirements of HomeBanc Corporation's deposits of public funds,
maintains compliance with regulatory investment requirements and assists the
various public entities with their financing needs. HomeBanc Corporation's Board
of Directors is ultimately responsible for investment policy and oversight of
all security transactions, but day to day responsibility for execution rests
with the designated Investment Officer. All investment transactions occurring
since the previous board of directors' meeting are reviewed by the board at its
next monthly meeting. Significant limitations on the investment officer's
authority are imposed through the policy and all investment activity is confined
to the parameters as set out under the Code of Federal Regulations, Title 12.
The investment policy allows portfolio holdings to include short-term securities
purchased to provide HomeBanc Corporation's needed liquidity and longer term
securities purchased to generate stable income for HomeBanc Corporation during
periods of interest rate fluctuations.
LOAN PORTFOLIO
The following table sets forth the composition of HomeBanc
Corporation's loan portfolio at December 31 in each of 1997 and 1996.
66
<PAGE> 70
<TABLE>
<CAPTION>
December 31,
------------------------
1997 1996
-------- --------
(In thousands)
<S> <C> <C>
Real estate loans:
Construction and land development ......... $ 1,424 $ 1,254
Secured by residential properties ......... 59,337 54,534
-------- --------
Total real estate loans ............... 60,761 55,788
-------- --------
Commercial and industrial loans ................ 28,990 23,949
Consumer loans ................................. 27,521 25,532
All other loans ................................ 204 51
-------- --------
Total loans ........................... 117,476 105,320
Less:
Unearned income ................................ 3,219 3,744
Allowance for loan losses ...................... 1,250 1,339
-------- --------
Net loans ............................. $113,007 $100,237
======== ========
</TABLE>
The following table summarizes certain information concerning HomeBanc
Corporation's loan portfolio.
<TABLE>
<CAPTION>
December 31, 1997
----------------------
% of
Amount Total Loans
-------- --------
(Dollars in thousands)
<S> <C> <C>
Real estate loans:
Construction and land development ......... $ 1,424 1.21%
Secured by residential properties ......... 59,337 50.51
-------- --------
Total real estate loans ............... 60,761 51.72
-------- --------
Commercial and industrial loans ................ 28,990 24.68
Consumer loans ................................. 27,521 23.43
All other loans ................................ 204 0.17
-------- --------
Total loans ........................... 117,476 100.00
Less:
Unearned income ................................ 3,219 (2.74)
Allowance for loan losses ...................... 1,250 (1.06)
-------- --------
Net loans ............................. $113,007 96.20%
======== ========
</TABLE>
The following table sets forth maturities of HomeBanc Corporation's
loan portfolio.
<TABLE>
<CAPTION>
December 31, 1997
--------
(In thousands)
<S> <C>
Loan maturity:
Three months or less ................................... $ 11,778
Over three months through 12 months .................... 23,806
Over one year through three years ...................... 73,576
Over three years through five years .................... 3,676
Over five years through 15 years ....................... 4,622
Over 15 years .......................................... 18
--------
$117,476
========
</TABLE>
67
<PAGE> 71
LOAN POLICY
All lending activities of HomeBanc Corporation are under the direct
supervision and control of the HomeBanc Corporation Board with secondary
authority vested in the Board Loan Committee. The Officers Loan Committee
consists of the president, vice presidents and other lending officers. The loan
portfolio consists primarily of real estate, commercial, small business,
residential construction and consumer installment loans. Maturity of term loans
is normally limited to 20 years with periodic adjustments of interest rates.
Conventional real estate loans may be made up to 80% of the appraised value or
purchase cost of the real estate for no more than a 20-year term with periodic
adjustments of interest rates. Installment loans are based on the earning
capacity and vocational stability of the borrower.
The HomeBanc Corporation Board at its regularly scheduled meetings
reviews all new loans made the preceding month. Loans which are 30 days or more
past due are reviewed monthly.
The Loan Committee of HomeBanc Corporation reviews the loan portfolio
monthly, particularly nonaccrual and renegotiated loans. Each loan officer is
responsible for monitoring and collecting his or her own loan portfolio. Loan
Committee review may result in a determination that a loan should be placed on a
nonaccrual status for income recognition, subject to HomeBanc Corporation Board
approval. In addition, to the extent that management identifies potential losses
in the loan portfolio and reduces the book value of such loans through
charge-offs, to their estimated collectible value, HomeBanc Corporation's policy
is to classify as nonaccrual any loan on which payment of principal or interest
is 90 days or more past due, where there is adequate collateral to cover
principal and accrued interest and the loan is in the process of collection. No
concessions are granted and late fees are collected. In addition, a loan will be
classified as nonaccrual if, in the opinion of the Loan Committee, based upon a
review of the borrower's or guarantor's financial condition, collateral value or
other factors, payment is questionable, even though payments are not 90 days or
more past due.
When a loan is classified as nonaccrual, any unpaid interest is
reversed against current income. Interest is included in income thereafter only
to the extent received in cash. The loan remains in nonaccrual classification
until such time as the loan is brought current, when it may be returned to
accrual classification. When principal or interest on a nonaccrual loan is
brought current, if in management's opinion future payments are questionable,
the loan would remain classified as nonaccrual. After a nonaccrual or
renegotiated loan is charged off, any subsequent payments of either interest or
principal are applied first to any remaining balance outstanding, then to
recoveries and lastly to income.
The large number of consumer installment loans and the relatively small
dollar amount of each makes an individual review impracticable. It is HomeBanc
Corporation's policy to charge off any consumer installment loan which is past
due 120 days or more.
In addition, mortgage loans secured by real estate are placed on
nonaccrual status when the mortgagor is in bankruptcy, or foreclosure
proceedings are instituted. Any accrued interest receivable remains in interest
income as an obligation of the borrower.
CREDIT RISK MANAGEMENT AND RESERVE FOR LOAN LOSSES
Credit risk and exposure to loss are inherent parts of the banking
business. Management seeks to manage and minimize these risks through its loan
and investment policies and loan review procedures. Management establishes and
continually reviews lending and investment criteria and approval procedures that
it believes reflect the risk sensitive nature of HomeBanc Corporation. The loan
review procedures are set to monitor adherence to the established criteria and
to ensure that on a continuing basis such standards are enforced and maintained.
68
<PAGE> 72
Management's objective in establishing lending and investment standards
is to manage the risk of loans and to provide for income generation through
pricing policies.
The loan portfolio is regularly reviewed and management determines the
amount of loans to be charged-off. In addition, such factors as HomeBanc
Corporation's previous loan loss experience, prevailing and anticipated economic
conditions, industry concentrations and the overall quality of the loan
portfolio are considered. While management uses available information to
recognize losses on loans and real estate owned, future additions to the
allowance may be necessary based on changes in economic conditions. In addition,
various regulatory agencies, as an integral part of their examination process,
periodically review the allowances for losses on loans and real estate owned.
Such agencies may require HomeBanc Corporation to recognize additions to the
allowances based on their judgments about information available at the time of
their examinations. In addition, any loan or portion thereof which is classified
as a "loss" by regulatory examiners is charged-off.
The reserve for loan losses is increased by provisions charged to
operating expense. The reserve is reduced by charging off loans or portions of
loans at the time they are deemed by management to be uncollectible and
increased when loans previously charged off are recovered. The resulting reserve
for loan losses is viewed by management as a single, unallocated reserve
available for all loans and, in management's opinion, is adequate to provide for
reasonably foreseeable potential loan losses. The risk associated with loans
varies with the credit-worthiness of the borrower, the type of loan (consumer,
commercial or real estate) and its maturity. Cash flows adequate to support a
repayment schedule is an element considered for all types of loans. Real estate
loans are impacted by market conditions regarding the value of the underlying
property used as collateral. Commercial loans are also impacted by the
management of the business as well as economic conditions.
The approximate anticipated amount of loan charge-offs by category
during 1998 is as follows (in thousands):
<TABLE>
<S> <C>
Real estate loans ................................................. $ 382
Commercial and industrial loans ................................... 31
All other loans ................................................... 776
--------
Total..................................................... $ 1,189
========
</TABLE>
Management's estimate of charge-offs for 1998 is based upon historical
data as well as the composition of the loan portfolio at December 31, 1997.
Management believes the allowance for loan losses is adequate to absorb such
anticipated charge-offs.
Rules and formulas relative to the adequacy of the reserve, although
useful as guidelines to management, are not rigidly applied. The reserve for
loan losses was $1,401,337 as of September 30, 1998 or 1.24% of net loans
outstanding. The reserve for loan losses was $1,249,749 at year end 1997, or
1.09% of loans outstanding compared to $1,338,517 or 1.32% and $1,267,152 or
1.41% at year ends 1996 and 1995, respectively.
The following table presents data related to HomeBanc Corporation's
reserve for loan losses for the periods indicated.
69
<PAGE> 73
<TABLE>
<CAPTION>
Nine Months December 31,
Ended -----------------------
Sept. 30, 1998 1997 1996
--------- --------- --------
(Dollars in thousands)
<S> <C> <C> <C>
Total loans:
Average outstanding during the period .............. $ 108,980 $ 107,436 $ 96,920
========= ========= ========
Allowance for loan losses:
Balance at beginning period ........................ $ 1,250 $ 1,339 $ 1,266
Charge-offs:
Real estate loans .................................. 381 175 28
Installment loans .................................. 598 957 588
Credit cards and related plans ..................... 10 18 --
Commercial and all other loans ..................... -- -- 150
--------- --------- --------
Total loans charged off ........................ 989 1,150 766
--------- --------- --------
Recoveries:
Real estate loans .................................. 123 7 --
Installment loans .................................. 195 117 163
Credit cards related plans ......................... 3 1 1
Commercial ......................................... -- 27 --
--------- --------- --------
Total recoveries ............................... 321 152 164
--------- --------- --------
Net (charge-offs) recoveries ............................ (668) (998) (602)
--------- --------- --------
Provision charged to income ............................. 819 909 675
--------- --------- --------
Balance at end of period ................................ $ 1,401 $ 1,250 $ 1,339
========= ========= ========
Allowance for loan losses to net (charge-offs) .......... 2.10 1.25 2.22
Net (charge-offs) recoveries to average loans
outstanding ......................................... 0.61% 0.93% 0.62%
Allowance for loan losses to average loans
outstanding ......................................... 1.29 1.16 1.38
</TABLE>
The following table sets forth information with respect to
nonperforming loans of HomeBanc Corporation on the dates indicated. Accrual of
interest is discontinued when there is reasonable doubt as to the full, timely
collections of interest or principal. When a loan becomes contractually past due
90 days with respect to interest or principal, it is reviewed and a
determination is made as to whether it should be placed on nonaccrual status.
When a loan is placed on nonaccrual status, all interest previously accrued but
not collected is reversed against current period interest income. Income on such
loans is then recognized only to the extent that cash is received and where the
future collection of principal is probable. Interest accruals are resumed on
such loans only when they are brought fully current with respect to principal
and interest. Restructured loans are those loans on which concessions in terms
have been granted because of a borrower's financial difficulty. Interest is
generally accrued on such loans in accordance with the new terms.
The information provided below is as of September 30, 1998 and as of
December 31 for the years indicated.
70
<PAGE> 74
<TABLE>
<CAPTION>
Nine Months Ended December 31,
Sept. 30, 1998 1997 1996
---- ---- ----
(Dollars in thousands)
<S> <C> <C> <C>
Nonaccrual loans ...................................... $627 $132 $ 366
Restructured loans .................................... -- -- --
Loans past due 90 days ................................ 659 511 1,186
Nonperforming loans as a percentage of net loans before
allowance for loan losses ........................ 1.14% 0.56% 1.53%
Allowance for loan losses as a percentage of
nonperforming loans .............................. 109% 194% 86%
</TABLE>
CAPITAL RESOURCES/LIQUIDITY
Liquidity. Of primary importance to depositors, creditors and
regulators is the ability to have readily available funds sufficient to repay
fully maturing liabilities. HomeBanc Corporation's liquidity, represented by
cash and cash due from banks, is a result of its operating, investing and
financing activities. In order to insure funds are available at all times,
HomeBanc Corporation devotes resources to projecting on a monthly basis the
amount of funds which will be required and maintains relationships with a
diversified customer base so funds are accessible. Liquidity requirements can
also be met through short-term borrowings or the disposition of short-term
assets which are generally matched to correspond to the maturity of liabilities.
HomeBanc Corporation has a formal liquidity policy, and in the opinion
of management, its liquidity levels are considered adequate. HomeBanc
Corporation is not subject to any specific regulation regarding liquidity
requirements imposed by regulatory authorities. HomeBanc Corporation is subject
to general FDIC guidelines. Management of HomeBanc Corporation believes its
liquidity ratios meet or exceed these guidelines. Management of HomeBanc
Corporation does not know of any trends or demands which are reasonably likely
to result in liquidity increasing or decreasing in any material matter.
The following table sets forth liquidity ratios for the periods
indicated:
<TABLE>
<CAPTION>
December 31,
---------------------------
1997 1996 1995
---- ---- ----
<S> <C> <C> <C>
Average loans to average deposits................ 83.4% 78.4% 73.0%
</TABLE>
CAPITAL ADEQUACY
Capital adequacy refers to the level of capital required to sustain
asset growth over time and to absorb losses. The objective of HomeBanc
Corporation's management is to maintain a level of capitalization that is
sufficient to take advantage of profitable growth opportunities while meeting
regulatory requirements. This is achieved by improving profitability through
effectively allocating resources to more profitable businesses, improving asset
quality, strengthening service quality and streamlining costs. The primary
measures used by management to monitor the results of these efforts are the
ratios of average equity to average assets, average tangible equity to average
tangible assets and average equity to net loans. The Federal Reserve has adopted
capital guidelines governing the activities of bank holding companies. These
guidelines require the maintenance of an amount of capital based on
risk-adjusted assets so that categories of assets with potentially higher credit
risk will require more capital backing than assets with lower risk. In addition,
banks and bank holding companies are required to maintain capital to support, on
a risk-adjusted basis, certain off-balance sheet activities such as loan
commitments.
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<PAGE> 75
The capital guidelines classify capital into two tiers, referred to as
Tier I and Tier II. Under risk-based capital requirements, total capital
accounts consists of Tier I capital which is generally common shareholders'
equity less goodwill and Tier II capital which is primarily a portion of the
allowance for loan losses and certain qualifying debt instruments. In
determining risk-based capital requirements, assets are assigned risk-weights of
0% to 100%, depending primarily on the regulatory assigned levels of credit risk
associated with such assets. Off-balance sheet items are considered in the
calculation of risk-adjusted assets through conversion factors established by
the regulators. The framework for calculating risk-based capital requires banks
and bank holding companies to meet the regulatory minimums of 4% Tier I and 8%
total risk-based capital. In 1990 regulators added a leverage computation to the
capital requirements, comparing Tier I capital to total average assets less
goodwill.
<TABLE>
<CAPTION>
December 31,
1997
--------
(Dollars in thousands)
<S> <C>
Capital:
Tier I capital:
Stockholders' equity ....................................... $ 14,090
Less disallowed intangibles ................................ --
--------
Total Tier I capital ................................... 14,090
Tier II capital:
Qualifying allowance for loan losses ....................... 1,250
--------
Total Tier II capital .................................. 1,250
--------
Total capital ................................................... $ 15,340
========
Risk-adjusted assets ............................................ $115,358
========
Quarterly average assets ........................................ $153,804
========
Ratios:
Tier I capital to risk-adjusted assets .......................... 12.21%
Tier II capital to risk-adjusted assets ......................... 1.08
Total capital to risk-adjusted assets ........................... 13.30
Leverage-Tier I capital to quarterly average assets less
disallowed intangibles ...................................... 9.16
</TABLE>
The Federal Deposit Insurance Corporation Improvement Act of 1991
("FDICIA") established five capital categories for banks and bank holding
companies. The bank regulators adopted regulations defining these five capital
categories in September 1992. Under these new regulations each bank is
classified into one of the five categories based on its level of risk-based
capital as measured by Tier I capital, total risk-based capital, and Tier I
leverage ratios and its supervisory ratings.
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<PAGE> 76
The following table lists the five categories of capital and each of the minimum
requirements for the three risk-based capital ratios.
<TABLE>
<CAPTION>
Total Risk- Tier I Risk-
Based Capital Based Capital
Ratio Ratio Leverage Ratio
----- ----- --------------
<S> <C> <C> <C>
Well-capitalized.................... 10% or above 6% or above 5% or above
Adequately capitalized.............. 8% or above 4% or above 4% or above
Undercapitalized.................... Less than 8% Less than 4% Less than 4%
Significantly undercapitalized ..... Less than 6% Less than 3% Less than 3%
Critically undercapitalized......... ----- ----- 2% or less
</TABLE>
On September 30, 1998, HomeBanc Corporation exceeded the regulatory
minimums and qualified as a well-capitalized institution under the regulations.
YEAR 2000
The Year 2000 issue concerns the inability of certain computer and
operational systems to properly perform calculations and process information
containing four-digit date fields. HomeBanc Corporation has developed and
implemented an enterprise-wide strategy to address and mitigate potential risks
resulting from the Year 2000 issue, which encompasses the following components:
1. Awareness. HomeBanc Corporation has recognized, defined and
publicized the issues to be considered and addressed with
regard to Year 2000 and potential liabilities related to date
programming. A Year 2000 committee has been appointed to
identify, assess and address all areas that could be affected
by the Year 2000 issue.
2. Assessment. HomeBanc Corporation has taken inventory of all
systems and applications that could be affected by the Year
2000 issue. HomeBanc Corporation has identified its mainframe
computer system as the most critical area. This system is
furnished by a reputable third party and is used by several
hundred banks nationwide. A committee of these users has
monitored the progress of corrective work and has tested the
master system with success. HomeBanc Corporation, in turn, has
conducted and will continue to conduct tests, both on-site and
at backup facilities, to insure the system as it is used by
HomeBanc Corporation is fully Year 2000 compliant. Affected
vendors of all other identified applications have been
contacted and are being monitored until HomeBanc Corporation
is satisfied that they are Year 2000 compliant.
Critical applications for all systems have been identified by
HomeBanc Corporation's Year 2000 committee and assigned a
level of priority ranging from 1 to 5. The committee will
monitor Year 2000 testing, with the greatest importance being
given to systems with priority levels of 1 through 3. In
addition to applications, HomeBanc Corporation is conducting
an aggressive review of its customer base, identifying
customers whose businesses may be significantly negatively
affected by Year 2000 issues. Active discussions with these
customers are ongoing.
3. Renovation. HomeBanc Corporation has and will continue to
renovate or replace systems that are not Year 2000 compliant
as necessary to attain full compliance prior to June 30, 1999.
4. Validation. HomeBanc Corporation has established a plan to
test its key internal systems and a plan to address any
problems identified. HomeBanc Corporation is
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<PAGE> 77
committed to complete testing as recommended by the Federal
Financial Institutions Examination Council. Progress is
reported regularly to the President and Board of Directors of
HomeBanc Corporation.
5. Implementation. During the implementation phase of HomeBanc
Corporation's Year 2000 Plan, HomeBanc Corporation strives to
insure that all systems have been verified as Year 2000
compliant and has adopted a contingency plan should mission
critical systems fail compliance benchmarks.
HomeBanc Corporation is currently in the implementation phase of its
strategy and has completed most of the testing of changes made in 1997 and 1998.
HomeBanc Corporation has estimated its total costs of the Year 2000 project to
be between $30,000 and $35,000, of which no costs were incurred in 1997 and
approximately $4,850 has been incurred year-to-date in 1998. Given the nature
and scope of the project, it is not feasible at this stage to estimate the
degree of success of the project. However, management of HomeBanc Corporation
believes an adequate plan is in place to address the issue and the final outcome
is not anticipated to have a material adverse effect on its operations.
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<PAGE> 78
INFORMATION ABOUT HOMEBANC CORPORATION
GENERAL
HOMEBANC CORPORATION. HomeBanc Corporation was incorporated in 1983
under the laws of Alabama to serve as the holding company for The Home Bank.
HomeBanc Corporation is a bank holding company registered under the Bank Holding
Company Act of 1956 (the "Bank Holding Company Act") and owns all of the issued
and outstanding capital stock of The Home Bank.
As of September 30, 1998, HomeBanc Corporation had, on a consolidated
basis, total assets of approximately $160.1 million, total deposits of
approximately $138.7 million, total loans of approximately $111.3 million and
total shareholders' equity of approximately $15.1 million.
HomeBanc Corporation does not, as an entity, engage in separate
business activities of a material nature apart from the activities it performs
for The Home Bank. The primary activities of HomeBanc Corporation are to provide
assistance in the management and coordination of The Home Bank's financial
resources and to provide capital and public relations services for The Home
Bank. The Home Bank has a board of directors separate from that of HomeBanc
Corporation and operates under the day-to-day management of its own officers.
The Home Bank formulates its own policies with respect to banking and business
matters.
As a bank holding company, HomeBanc 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 HomeBanc Corporation are summarized in this section below.
HomeBanc Corporation's primary source of revenues is dividends received
from The Home Bank.
THE HOME BANK. The Home Bank is an Alabama banking corporation with its
main office in Guntersville, Alabama. The bank was originally chartered in 1977
under the laws of Alabama. As an Alabama banking corporation, The Home Bank is
subject to regulation by the Alabama Banking Department, the Federal Reserve
Bank of Atlanta and the FDIC. Certain of these rules and regulations applicable
to The Home Bank are summarized in this section below.
The Home Bank considers its primary market to be Marshall County,
Alabama, which has a total population of approximately 80,000. The majority of
The Home Bank's loan portfolio consists of real estate and commercial loans,
while consumer deposits comprise the majority of The Home Bank's deposit base.
As of September 30, 1998, The Home Bank had total assets of approximately $160.1
million, total deposits of approximately $138.7 million, total loans of
approximately $111.3 million and total shareholders' equity of approximately
$15.1 million.
The Home Bank operates from its main facility in Guntersville, Alabama
and from two banking locations in Albertville, Alabama, one banking location in
Arab, Alabama, one banking location in Boaz, Alabama and stand-alone ATM
locations in Guntersville, Alabama and Albertville, Alabama. Other than the two
ATM locations, which are leased, each of these facilities is owned by The Home
Bank and, collectively, these facilities are considered by management of The
Home Bank to be adequate for the operations of the bank.
The Home 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 checking accounts, savings accounts,
certificates of deposit, individual retirement accounts, commercial and retail
loan products and mortgage products. The Home Bank also offers direct
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<PAGE> 79
deposit services, wire transfer facilities, safe deposit boxes and ATM and debit
cards (with access to local, state and nationwide networks). Deposits of The
Home Bank are insured by the FDIC.
VALLEY FINANCE, INC. Valley Finance, Inc. is an Alabama corporation and
a wholly-owned sub-prime consumer finance subsidiary of The Home Bank. Valley
Finance was formed by The Home Bank in 1991 to engage in the consumer finance
business and capitalize on the need for additional financing alternatives in The
Home Bank's primary markets. As an operating subsidiary of The Home Bank and a
consumer finance company doing business in Alabama, Valley Finance is subject to
regulation by the Alabama Banking Department. Certain of the rules and
regulations applicable to Valley Finance are summarized in this section below.
Valley Finance primarily makes loans to persons who would not otherwise
do business with The Home Bank. Many of these borrowers are less credit-worthy
than typical customers of The Home Bank and this added risk is reflected in the
higher rates charged to these customers generally. In addition, the loan amounts
tend to be significantly smaller than the average bank loan and are renewed or
restructured more frequently and have generally had a higher loss ratio. The
lending activities of Valley Finance are funded primarily through loans obtained
from The Home Bank and/or the sale of loan assets to The Home Bank. Loans to
Valley Finance from The Home Bank are secured by a pledge of substantially all
of the assets of Valley Finance to The Home Bank.
Valley Finance considers its primary market to be Marshall County,
Alabama, which has a total population of approximately 80,000. Although Valley
Finance currently operates only out of its Guntersville, Alabama office, it
previously had offices in Boaz, Alabama and Gadsden, Alabama. Because the Boaz
and Gadsden offices did not achieve profitability benchmarks that management of
Valley Finance set, these locations were sold on March 6, 1998 to First
Community Credit Corporation, Blountsville, Alabama. Valley Finance's operations
in Guntersville, Alabama are generally not considered branches of The Home Bank
and are operated autonomously from branches of The Home Bank. As of September
30, 1998, Valley Finance had total assets of approximately $8.0 million and
total loans of approximately $7.5 million.
SUPERVISION AND REGULATION
HOMEBANC CORPORATION. HomeBanc Corporation is a bank holding company
registered under the Bank Holding Company Act, and it operates one banking
subsidiary, The Home Bank. As a registered bank holding company, HomeBanc
Corporation is subject to supervision and regulation by the Federal Reserve
under the Bank Holding Company Act. As a bank holding company, HomeBanc
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 examinations of HomeBanc
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) HomeBanc Corporation from engaging in non-banking activities or from
acquiring or retaining direct or indirect
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<PAGE> 80
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 or 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, such as undue concentration of resources, decreased or unfair
competition, conflicts of interest or unsound banking practices. For example,
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 have all
been determined by regulations of the Federal Reserve to be 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 holding
company or its subsidiaries to terminate any activity, or terminate its
ownership or control of any subsidiary, when it has reasonable cause to believe
that continuation of such activity or such ownership or control constitutes a
serious risk to the financial safety, soundness or stability of any bank
subsidiary of that holding company.
THE HOME BANK. The Home Bank is an Alabama state banking corporation
and member of the Federal Reserve System. As a state member banking corporation,
The Home Bank is subject to supervision by the Alabama Banking Department, the
Federal Reserve Bank of Atlanta and has its deposits insured by the FDIC. The
bank is regulated and subject to periodic examination by these governmental
authorities, each of which imposes regulations related to reserves, investments,
loans, issuance of securities, establishment of branches and other aspects of
operation.
VALLEY FINANCE, INC. As an operating subsidiary of The Home Bank,
Valley Finance is subject to examination and review in the same manner that The
Home Bank is by the Alabama Banking Department. In addition, Valley Finance is
required to be and is licensed under provisions of the Alabama Consumer Credit
Act, commonly known as the "Mini-Code." As a licensee, Valley Finance is subject
to certain additional restrictions and requirements on its operations which,
except for certain interest rate provisions, are not applicable to The Home
Bank.
RISK-BASED CAPITAL GUIDELINES
Under the Federal Reserve's and the FDIC's risk-based capital
guidelines applicable to HomeBanc Corporation, the minimum ratio of capital to
risk-weighted assets (including certain off-balance sheet items, such as standby
letters of credit) is 8%. To be considered a "well capitalized" bank under the
guidelines, a bank must have a total risk-based capital ratio in excess of 10%.
At December 31, 1997, under these guidelines, The Home Bank was considered "well
capitalized." At least half of the total capital is to be comprised of common
equity, retained earnings and a limited amount of perpetual preferred stock,
after subtracting goodwill, and certain other adjustments ("Tier I capital").
The remainder may consist of perpetual debt, mandatory convertible debt
securities, a limited amount of subordinated debt, other preferred stock not
qualifying for Tier I capital and a limited amount of loan loss reserves ("Tier
II capital"). In addition, the Federal Reserve and the FDIC have adopted a
minimum leverage ratio (Tier I capital to total assets) of 3%. 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 ratio of 3% plus an additional cushion of at
least 1% to 2%. The guidelines also 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. On December 31, 1997,
HomeBanc Corporation had a Tier I capital ratio of 12.21%, a total risk-based
capital ratio of 13.30% and a leverage ratio of 9.16%.
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<PAGE> 81
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.
SOURCE OF STRENGTH
According to Federal Reserve policy, bank holding companies are
expected to act as a source of financial strength to each subsidiary bank and to
commit resources to support each such subsidiary. This support may be required
at times when a bank holding company may not be able to provide such support. In
the event of a loss suffered or anticipated by the FDIC, either as a result of
default of a banking subsidiary of HomeBanc Corporation or related to FDIC
assistance provided to a subsidiary in danger of default, the banking subsidiary
of HomeBanc Corporation may be assessed for the FDIC's loss, subject to certain
exceptions.
HomeBanc Corporation is regulated by the Federal Reserve. As a state
member banking corporation, The Home Bank is subject to regulation by the
Alabama Banking Department, the Federal Reserve Bank of Atlanta and the FDIC.
Periodic examinations of HomeBanc Corporation and The Home Bank are performed by
their respective regulators to monitor their compliance with applicable rules
and regulations.
EMPLOYEES
HomeBanc Corporation is a bank holding company and primarily conducts
its operations through its subsidiary, The Home Bank. HomeBanc Corporation has
no paid employees. Certain employees of The Home Bank conduct the business of
HomeBanc Corporation, but are not specifically compensated as employees of
HomeBanc Corporation. As of September 30, 1998, The Home Bank had approximately
99 full-time equivalent employees, none of whom is represented by a collective
bargaining agreement. Management of The Home Bank considers its relations with
such employees to be good. As of September 30, 1998, Valley Finance had
approximately eight full-time equivalent employees, none of whom is represented
by a collective bargaining agreement. Management of Valley Finance considers its
relation with such employees to be good.
CERTAIN RELATED PARTY TRANSACTIONS
Certain of the officers, directors and principal shareholders of
HomeBanc Corporation and The Home Bank, and their affiliates, have deposit
accounts and other transactions with The Home Bank, including loans in the
ordinary course of business. All loans or other extensions of credit made by The
Home Bank to officers, directors and principal shareholders of HomeBanc
Corporation or The Home 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 nonaccrual, past due, restructured or
potential problem loans. Prior to the merger, The Home Bank expects to continue
to enter into transactions in the ordinary course of business on similar terms
with officers, directors and principal shareholders of HomeBanc Corporation, The
Home Bank and their affiliates.
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<PAGE> 82
LEGAL PROCEEDINGS
HomeBanc Corporation, The Home Bank and Valley Finance 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 HomeBanc
Corporation.
PRINCIPAL SHAREHOLDERS AND MANAGEMENT
The following table sets forth certain information as of ________, 1999
regarding those persons known by HomeBanc Corporation to be beneficial owners of
more than 5% of the outstanding shares of HomeBanc Corporation Common stock, and
the number and percentage of outstanding shares of HomeBanc Corporation Common
stock beneficially owned by each director and executive officer of HomeBanc
Corporation and all directors and executive officers 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 1,333,685 shares of HomeBanc Corporation Common stock eligible to vote
at the HomeBanc Corporation special meeting.
<TABLE>
<CAPTION>
Shares Percentage of
Beneficial Beneficially Shares
Owner Position Owned Outstanding
----- -------- ----- -----------
DIRECTORS AND EXECUTIVE OFFICERS:
<S> <C> <C> <C>
Joe E. Alldredge......................... Director (1) 7,780 0.58%
Larry F. Brown........................... Director (1) 112 0.01
George Carnes............................ Director (1)(2) 10,350 0.78
David Hannah............................. Director (1)(3)(4) 35,910 2.69
J. R. Kimsey............................. President, Director (1)(3) 58,427 4.38
W. Lee Matthews, Jr...................... City President, Director (1)(5) 5,910 0.44
John E. Newman........................... Director (1) 4,560 0.34
Thomas W. Rankin......................... City President, Director (1) 2,000 0.15
Dale B. Rowe............................. Director (1)(3)(6) 92,970 6.97
Terry Scott.............................. Director (1)(6) 1,420 0.11
Charles F. Veazey........................ Chairman, Director (1)(3) 57,016 4.28
John C. Weathers......................... Director (1)(3)(8) 23,308 1.75
J. Mack Whitaker......................... Director (1)(3)(9) 102,084 7.65
All Directors and Executive Officers
as a group (13 Persons).............................................. 401,847 30.13
5% SHAREHOLDERS:
Herbert Hannah
199 Hannah Drive
Albertville, AL 35950.................... Shareholder (10) 80,202 6.01%
Dale B. Rowe
1835 Church Street
Boaz, AL 35957........................... Director (1)(3)(6) 92,970 6.97%
Robert E. Rowe
413 Apple Avenue
Albertville, AL 35950.................... Shareholder (11) 68,904 5.17%
J. Mack Whitaker
1600 Buck Island Drive
Guntersville, AL 39576................... Director (1)(3)(9) 102,084 7.65%
</TABLE>
- -------------------------
(1) Indicates Director of The Home Bank.
(2) Includes 2,430 shares owned jointly with his spouse.
(3) Indicates Director of HomeBanc Corporation.
(4) Includes 18,000 shares held as custodian for his minor children.
(5) Includes 4,710 shares owned jointly with his spouse.
(6) Includes 58,698 shares owned jointly with his spouse and 23,760 shares
with his adult children.
(7) Includes 1,420 shares owned jointly with his spouse.
(8) Includes 6,500 shares owned jointly with his spouse.
(9) Includes 39,738 shares owned jointly with his spouse.
(10) Mr. Hannah owns 3,000 shares individually and is the managing general
partner of Hannah Partners, Ltd., a limited partnership which owns
77,202 shares.
(11) Mr. Rowe owns 59,400 shares individually, 7,128 shares jointly with his
spouse, 1,188 shares jointly with his daughter and 1,188 shares jointly
with his son.
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COMPARISON OF RIGHTS OF SHAREHOLDERS
HomeBanc Corporation shareholders, whose rights are currently governed
by HomeBanc Corporation's Articles of Incorporation and Bylaws and the Alabama
Business Corporation Act, will become shareholders of BancorpSouth upon
completion of the merger. As such, the rights of the former HomeBanc Corporation
shareholders will thereafter be governed by BancorpSouth's Articles of
Incorporation and Bylaws and the Mississippi Business Corporation Act.
While it is impractical to summarize all of the pertinent differences,
set forth below are the material differences between the rights of HomeBanc
Corporation shareholders under HomeBanc Corporation's governing documents and
law and the rights of BancorpSouth shareholders under BancorpSouth's governing
documents and law.
CHANGE OF CONTROL
HOMEBANC CORPORATION. The governing documents of HomeBanc Corporation
do not contain provisions that provide protection against a hostile change of
control.
BANCORPSOUTH. BancorpSouth's governing documents and shareholder rights
plan 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. BancorpSouth's 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. BancorpSouth's Articles of Incorporation 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, 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 attaches to and trades with each
share of BancorpSouth common stock (including shares of
BancorpSouth common stock to be issued to HomeBanc 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.
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BOARD OF DIRECTORS
HOMEBANC CORPORATION. The HomeBanc Corporation Board consists of
between three and 25 members, as determined from time to time by the HomeBanc
Corporation shareholders or the HomeBanc Corporation Board, and on the date of
this Prospectus Supplement/Proxy Statement the HomeBanc Corporation Board
consisted of six members. However, no decrease in the number of directors will
terminate or shorten the term of office of any director then in office. If the
HomeBanc Corporation Board increases the number of directors, a majority of the
directors in office may elect the additional directors at the time of the
increase. The HomeBanc Corporation shareholders will elect the additional
directors at the next meeting convened for the election of directors if the
HomeBanc Corporation Board has not previously elected the additional directors.
Any vacancy or any new directorships may be filled by majority vote of the
directors then in office of the HomeBanc Corporation Board. Each director serves
a one-year term. HomeBanc Corporation shareholders elect all directors at their
annual meeting. Directors of HomeBanc need not be shareholders of HomeBanc
Corporation nor residents of Alabama.
BANCORPSOUTH. The BancorpSouth Board consists of between nine and 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 Bancorp South Board may fill other vacancies.
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
HOMEBANC CORPORATION. HomeBanc Corporation's Bylaws provide that the
HomeBanc Corporation Board may remove a director for cause by a majority of all
directors then in office. HomeBanc Corporation shareholders entitled to vote for
the election of directors of the HomeBanc Corporation Board may remove a
director with or without cause.
BANCORPSOUTH. BancorpSouth's Articles of Incorporation and Bylaws
provide that a director of BancorpSouth may be removed by the affirmative vote
of a majority of the entire BancorpSouth Board and by the BancorpSouth
shareholders, only for cause, at a special meeting called for the purpose of
removing such director.
AUTHORIZED CAPITAL STOCK
<TABLE>
<CAPTION>
Par Value per
Authorized Shares Share
-------------------- ---------------
<S> <C> <C>
HomeBanc Corporation............... 1,500,000 $0.10
BancorpSouth....................... 500,000,000 2.50
</TABLE>
RIGHTS OF SHAREHOLDERS TO CALL SPECIAL MEETINGS
HOMEBANC CORPORATION. HomeBanc Corporation's Bylaws provide that a
special meeting of the HomeBanc Corporation shareholders may be called by the
President of HomeBanc Corporation or the HomeBanc Corporation Board. A special
meeting shall be called by the President or Secretary of HomeBanc Corporation
upon the written request of a majority of the HomeBanc Corporation
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Board or the written request of HomeBanc Corporation shareholders owning at
least 10% of HomeBanc Corporation common stock issued, outstanding and entitled
to vote. Such a request must state the purpose or purposes of the proposed
meeting.
BANCORPSOUTH. BancorpSouth's Articles of Incorporation 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.
82
<PAGE> 86
WHERE YOU CAN FIND MORE INFORMATION
BancorpSouth has filed with the SEC under the Securities Act a
Registration Statement on Form S-4 including a Post-Effective Amendment thereto
that registers the distribution to HomeBanc Corporation shareholders of the
shares of BancorpSouth common stock to be issued in connection with the merger.
The Registration Statement, including the attached exhibits and schedules,
contain additional relevant information about BancorpSouth, HomeBanc 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;
83
<PAGE> 87
6. BancorpSouth's Current Report on Form 8-K dated July 10, 1998;
7. BancorpSouth's Current Report on Form 8-K dated September 3,
1998;
8. BancorpSouth's Current Report on Form 8-K dated January 6,
1998;
9. The description of BancorpSouth common stock contained in
BancorpSouth's Registration Statement on Form 8-A dated May
14, 1997; and
10. 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 HomeBanc 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.
HomeBanc Corporation has supplied all information contained in this
Prospectus Supplement/Proxy Statement relating to HomeBanc Corporation and The
Home 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 ____________________, 1999 TO RECEIVE THEM BEFORE THE HOMEBANC 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 HomeBanc Corporation special meeting. Neither
BancorpSouth nor HomeBanc 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 _______________, 1999. 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 HomeBanc
84
<PAGE> 88
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
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 HomeBanc 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 HomeBanc
Corporation. In addition, neither BancorpSouth nor HomeBanc 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.
85
<PAGE> 89
LEGAL MATTERS
Riley, Ford, Caldwell & Cork, P.A., Tupelo, Mississippi, counsel to
BancorpSouth, will pass upon the validity of the shares of BancorpSouth common
stock to be issued in the merger. Waller Lansden Dortch & Davis, A Professional
Limited Liability Company, Nashville, Tennessee, special counsel to
BancorpSouth, will pass upon certain legal matters concerning the merger on
behalf of BancorpSouth. Bradley Arant Rose & White LLP, Birmingham, Alabama,
special counsel to HomeBanc Corporation, will pass upon certain legal matters
concerning the merger on behalf of HomeBanc Corporation.
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 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 HomeBanc 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 Schauer, Taylor, Cox & Edwards,
P.C., independent certified public accountants, 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.
86
<PAGE> 90
HOMEBANC CORPORATION AND SUBSIDIARIES
CONSOLIDATED FINANCIAL STATEMENTS
CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
SEPTEMBER 30, 1998................................................ F-2
Accountants' Compilation Report.......................... F-2
Consolidated Statement of Financial Condition............ F-3
Consolidated Statements of Income........................ F-4
Consolidated Statement of Shareholders' Equity........... F-5
Consolidated Statements of Cash Flows.................... F-6
Consolidated Statements of Comprehensive Income.......... F-7
Notes to Consolidated Financial Statements............... F-8
DECEMBER 31, 1997 AND 1996........................................ F-9
Independent Auditors' Report..............................F-9
Consolidated Statements of Financial Condition...........F-10
Consolidated Statements of Income........................F-11
Consolidated Statements of Shareholders' Equity..........F-12
Consolidated Statements of Cash Flows....................F-13
Notes to Consolidated Financial Statements...............F-14
DECEMBER 31, 1996 AND 1995........................................F-35
Independent Auditors' Report.............................F-35
Consolidated Statements of Financial Condition...........F-36
Consolidated Statements of Income........................F-37
Consolidated Statements of Shareholders' Equity..........F-38
Consolidated Statements of Cash Flows....................F-39
Notes to Consolidated Financial Statements...............F-40
</TABLE>
F-1
<PAGE> 91
[SCHAUER, TAYLOR, COX & VISE, P.C.]
ACCOUNTANTS' COMPILATION REPORT
Board of Directors
HomeBanc Corporation
Guntersville, Alabama
We have compiled the accompanying consolidated statement of financial condition
of HomeBanc Corporation as of September 30, 1998, and the consolidated
statements of income, shareholders' equity, cash flows and comprehensive income,
for the nine months ended September 30, 1998 and 1997, in accordance with
Statements on Standards for Accounting and Review Services issued by the
American Institute of Certified Public Accountants.
A compilation is limited to presenting in the form of financial statements
information that is the representation of management. We have not audited or
reviewed the accompanying consolidated financial statements and, accordingly, do
not express an opinion or any other form of assurance on them.
Management has elected to omit substantially all of the disclosures required by
generally accepted accounting principles. If the omitted disclosures were
included in the consolidated financial statements, they might influence the
user's conclusions about the Company's financial position, results of operations
and cash flows. Accordingly, these consolidated financial statements are not
designed for those who are not informed about such matters.
Birmingham, Alabama
December 8, 1998
/S/ SCHAUER, TAYLOR, COX & VISE, P.C.
F-2
<PAGE> 92
CONSOLIDATED STATEMENT OF FINANCIAL CONDITION
HOMEBANC CORPORATION AND SUBSIDIARIES
SEPTEMBER 30, 1998
(UNAUDITED)
<TABLE>
<S> <C>
ASSETS
Cash and due from banks........................................ $ 4,639,659
Federal funds sold............................................. 1,510,000
Securities available-for-sale.................................. 29,896,142
Securities held-to-maturity.................................... 4,030,069
Loans.......................................................... 114,160,065
Less: Unearned income.......................................... 1,455,761
Allowance for loan losses................................ 1,401,337
------------
NET LOANS................................................ 111,302,967
Premises and equipment, net.................................... 6,448,238
Accrued interest............................................... 1,374,820
Foreclosed real estate......................................... 401,287
Other assets................................................... 532,146
------------
TOTAL ASSETS............................................. $160,135,328
============
LIABILITIES AND SHAREHOLDERS' EQUITY
LIABILITIES
Deposits:
Noninterest-bearing......................................... $ 19,876,875
Interest-bearing............................................ 118,836,209
------------
TOTAL DEPOSITS............................................ 138,713,084
Other short-term borrowings.................................... 227,642
Long-term debt................................................. 4,644,200
Accrued interest............................................... 736,817
Other liabilities.............................................. 724,592
------------
TOTAL LIABILITIES........................................ 145,046,335
SHAREHOLDERS' EQUITY
Common stock - par value $.10 per share, 1,500,000
shares authorized, 1,339,726 shares issued.................. 133,973
Capital surplus................................................ 1,678,019
Retained earnings.............................................. 12,999,251
Treasury stock, 6,174 shares at cost........................... (81,468)
Accumulated comprehensive income: net unrealized
holding gains on securities available-for-sale,
net of deferred income tax.................................. 359,218
------------
TOTAL SHAREHOLDERS' EQUITY................................ 15,088,993
------------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY................ $160,135,328
============
</TABLE>
See accountants' compilation report and notes to consolidated
financial statements
F-3
<PAGE> 93
CONSOLIDATED STATEMENTS OF INCOME
HOMEBANC CORPORATION AND SUBSIDIARIES
NINE MONTHS ENDED SEPTEMBER 30, 1998 AND 1997
(UNAUDITED)
<TABLE>
<CAPTION>
1998 1997
----------- -----------
INTEREST INCOME
<S> <C> <C>
Interest and fees on loans ............................. $ 9,067,326 $ 8,852,766
Interest and dividends on investment securities:
Taxable securities .................................. 1,154,944 1,231,278
Securities exempt from federal income tax ........... 159,329 178,327
Interest on federal funds sold ......................... 305,998 21,232
Interest on deposits in banks .......................... 501 756
----------- -----------
TOTAL INTEREST INCOME ............................... 10,688,098 10,284,359
----------- -----------
INTEREST EXPENSE
Interest on deposits ................................... 4,459,981 3,913,422
Interest on short-term borrowings ...................... 15,464 66,217
Interest on long-term debt ............................. 244,954 149,631
----------- -----------
TOTAL INTEREST EXPENSE .............................. 4,720,399 4,129,270
----------- -----------
Net interest income ........................................ 5,967,699 6,155,089
Provision for loan losses .................................. 818,722 454,865
----------- -----------
NET INTEREST INCOME AFTER PROVISION FOR LOAN LOSSES ........ 5,148,977 5,700,224
NONINTEREST INCOME
Service charges on deposits ............................ 521,651 468,469
Gain on sale of assets ................................. 77,882 91,582
Other operating income ................................. 429,065 278,109
----------- -----------
TOTAL NONINTEREST INCOME ............................ 1,028,598 838,160
----------- -----------
NONINTEREST EXPENSES
Salaries and employee benefits ......................... 2,225,630 2,085,367
Occupancy and equipment expense ........................ 494,515 439,181
Other operating expenses ............................... 1,529,988 1,299,366
----------- -----------
TOTAL NONINTEREST EXPENSES .......................... 4,250,133 3,823,914
----------- -----------
Income before income taxes ................................. 1,927,442 2,714,470
Provision for income taxes ................................. 620,208 925,061
----------- -----------
NET INCOME ................................................. $ 1,307,234 $ 1,789,409
=========== ===========
Basic earnings per share ................................... $ 0.98 $ 1.34
Basic weighted average shares outstanding .................. 1,333,315 1,332,611
</TABLE>
See accountants' compilation report and notes to consolidated
financial statements
F-4
<PAGE> 94
CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY
HOMEBANC CORPORATION AND SUBSIDIARIES
NINE MONTHS ENDED SEPTEMBER 30,1998
(UNAUDITED)
<TABLE>
<CAPTION>
ACCUMULATED
COMMON CAPITAL RETAINED TREASURY COMPREHENSIVE
STOCK SURPLUS EARNINGS STOCK INCOME TOTAL
-------- ---------- ----------- -------- ---------- -----------
<S> <C> <C> <C> <C> <C> <C>
Balance at
December 31, 1997...... $133,973 $1,670,863 $12,372,042 $(87,139) $ 101,280 $14,191,019
Cash dividends -
common - $.52
per share.............. (680,025) (680,025)
Issuance of 430
treasury shares........ 7,156 5,671 12,827
Net change in
unrealized gains
on securities.......... 257,938 257,938
Net income - 1998.......... 1,307,234 1,307,234
-------- ---------- ----------- -------- ---------- -----------
BALANCE AT
SEPTEMBER 30, 1998..... $133,973 $1,678,019 $12,999,251 $(81,468) $ 359,218 $15,088,993
======== ========== =========== ======== ========== ===========
</TABLE>
See accountants' compilation report and notes to consolidated
financial statements
F-5
<PAGE> 95
CONSOLIDATED STATEMENTS OF CASH FLOWS
HOMEBANC CORPORATION AND SUBSIDIARIES
NINE MONTHS ENDED SEPTEMBER 30, 1998 AND 1997
(UNAUDITED)
<TABLE>
<CAPTION>
1998 1997
----------- ------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income ...................................................... $ 1,307,234 $ 1,789,409
Adjustments to reconcile net income to net cash
provided by operating activities:
Provision for loan losses .................................... 818,722 454,865
Depreciation, amortization, and accretion, net ............... 203,400 138,466
Decrease in accrued interest receivable ...................... 42,735 5,089
Increase in accrued interest payable ......................... 128,376 64,888
Other, net ................................................... (156,483) (466,879)
----------- ------------
NET CASH PROVIDED BY OPERATING ACTIVITIES ................ 2,343,984 1,985,838
----------- ------------
CASH FLOWS FROM INVESTING ACTIVITIES
Sales (purchases) of investment securities available-for-sale ... (5,796,884) 159,447
Maturities of investment securities held-to-maturity ............ 544,999 111,235
Net (increase) decrease in loans to customers ................... 884,918 (9,858,130)
Purchase of premises and equipment .............................. (361,698) (1,630,560)
----------- ------------
NET CASH USED IN INVESTING ACTIVITIES .................... (4,728,665) (11,218,008)
----------- ------------
CASH FLOWS FROM FINANCING ACTIVITIES
Net decrease in demand deposits, NOW accounts,
and savings accounts ......................................... (1,348,902) (3,247,574)
Net increase in certificates of deposit ......................... 6,771,980 4,517,156
Net increase (decrease) in short-term borrowings ................ (2,046,715) 715,358
Net increase (decrease) in long-term debt ....................... (18,550) 3,299,542
Dividends paid to shareholders .................................. (680,025) (520,772)
Proceeds from issuance of stock ................................. 12,827 15,348
----------- ------------
NET CASH PROVIDED BY FINANCING ACTIVITIES ................ 2,695,615 4,779,058
----------- ------------
Increase (decrease) in Cash and Cash Equivalents .................... 310,934 (4,453,112)
Cash and Cash Equivalents at Beginning of Year ...................... 5,838,725 9,062,806
----------- ------------
CASH AND CASH EQUIVALENTS AT END OF PERIOD .......................... $ 6,149,659 $ 4,609,694
=========== ============
SUPPLEMENTAL DISCLOSURES
Cash paid during the year for interest .......................... $ 4,592,023 $ 4,064,382
Net increase in unrealized gains
on securities available for sale ............................. 429,897 92,163
</TABLE>
See accountants' compilation report and notes to consolidated
financial statements
F-6
<PAGE> 96
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
HOMEBANC CORPORATION AND SUBSIDIARIES
NINE MONTHS ENDED SEPTEMBER 30, 1998
(UNAUDITED)
<TABLE>
<CAPTION>
1998 1997
----------- -----------
<S> <C> <C>
NET INCOME....................................................... $ 1,307,234 $ 1,789,409
Other comprehensive income, net of tax:
Unrealized gains on securities
Unrealized holding gains arising during period ........... 429,897 92,163
Less: reclassification adjustments for gains included
in net income.......................................... -0- -0-
----------- -----------
Net unrealized gains...................................... 429,897 92,163
Income tax related to items of other comprehensive
income.................................................... (171,959) (36,865)
----------- -----------
Other comprehensive income....................................... 257,938 55,298
----------- -----------
COMPREHENSIVE INCOME............................................. $ 1,565,172 $ 1,844,707
=========== ===========
</TABLE>
See accountants' compilation report and notes to
consolidated financial statements
F-7
<PAGE> 97
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
HOMEBANC CORPORATION AND SUBSIDIARIES
SEPTEMBER 30, 1998
(UNAUDITED)
NOTE A - BASIS OF PRESENTATION
The accompanying unaudited financial statements have been prepared in
accordance with generally accepted accounting principles for interim financial
information. Accordingly, they do not include all of the information and
footnotes required by generally accepted accounting principles for complete
financial statements. In the opinion of management, all adjustments (consisting
of normal recurring accruals) considered necessary for a fair presentation have
been included. Operating results for the nine month period ending September 30,
1998 are not necessarily indicative of the results that may be expected for the
year ended December 31, 1998. For further information, refer to the financial
statements and footnotes thereto for the year ended December 31, 1997.
NOTE B - PENDING BUSINESS COMBINATION
On November 4, 1998, the Company entered into an Agreement and Plan of Merger
(the "Agreement") with BancorpSouth, Inc. ("BSI"), a Mississippi bank holding
company located in Tupelo, Mississippi. The Agreement calls for the Company to
become a wholly-owned subsidiary of BSI through the exchange of stock, whereby,
each shareholder of the Company will receive shares of BSI based upon an
exchange ratio. As of the date of the Agreement, the exchange ratio provided
for 1.5747417 shares of BSI common stock in consideration of each share of the
Company's common stock surrendered. The transaction is intended to qualify as a
tax-free reorganization and will be accounted for using the pooling of
interests method of accounting. The Agreement will be subject to normal
shareholder and regulatory approvals and is expected to be consummated in the
first quarter of 1999.
See accountants' compilation report
F-8
<PAGE> 98
[SCHAUER, TAYLOR, COX & EDWARDS, P.C.]
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and Shareholders
HomeBanc Corporation and Subsidiaries
Guntersville, Alabama
We have audited the accompanying consolidated statements of financial condition
of HomeBanc Corporation and Subsidiaries as of December 31, 1997 and 1996, and
the related consolidated statements of income, shareholders' equity and cash
flows for the years then ended. These consolidated financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these consolidated financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the consolidated financial statements are
free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the consolidated financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the consolidated financial position of
HomeBanc Corporation and Subsidiaries as of December 31, 1997 and 1996, and the
consolidated results of their operations and their cash flows for the years then
ended in conformity with generally accepted accounting principles.
Birmingham, Alabama
January 30, 1998 /s/ SCHAUER, TAYLOR, COX & EDWARDS, P. C.
F-9
<PAGE> 99
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
HOMEBANC CORPORATION AND SUBSIDIARIES
DECEMBER 31, 1997 AND 1996
<TABLE>
<CAPTION>
1997 1996
------------------ ------------------
<S> <C> <C>
ASSETS
Cash and due from banks............................................. $ 4,958,725 $ 5,742,806
Federal funds sold.................................................. 880,000 3,320,000
Securities available-for-sale....................................... 23,661,642 25,805,633
Securities held-to-maturity, fair value of $4,673,983
and $4,742,155 for 1997 and 1996, respectively................. 4,575,806 4,688,409
Loans ............................................................ 117,475,510 105,319,381
Less: Unearned income............................................... 3,219,154 3,743,624
Allowance for loan losses..................................... 1,249,749 1,338,517
------------------ ------------------
NET LOANS..................................................... 113,006,607 100,237,240
Premises and equipment, net......................................... 6,296,921 4,365,235
Accrued interest.................................................... 1,417,555 1,324,293
Foreclosed real estate.............................................. 439,140 25,957
Other assets........................................................ 323,014 355,466
------------------ ------------------
TOTAL ASSETS................................................... $ 155,559,410 $ 145,865,039
================== ==================
LIABILITIES AND SHAREHOLDERS' EQUITY
LIABILITIES
Deposits:
Noninterest-bearing............................................... $ 20,344,302 $ 19,365,454
Interest-bearing.................................................. 112,940,704 110,548,515
------------------ ------------------
TOTAL DEPOSITS................................................. 133,285,006 129,913,969
Other short-term borrowings......................................... 2,274,357 629,312
Accrued interest.................................................... 608,441 608,595
Long-term debt...................................................... 4,662,750 1,363,208
Other liabilities................................................... 537,837 732,052
------------------ ------------------
TOTAL LIABILITIES.............................................. 141,368,391 133,247,136
SHAREHOLDERS' EQUITY
Common stock, par value $.10 per share,
1,500,000 shares authorized, 1,339,726
shares issued as of December 31, 1997 and 1996.................... 133,973 133,973
Capital surplus..................................................... 1,670,863 1,661,595
Retained earnings................................................... 12,372,042 10,918,640
Treasury stock, 6,604 shares and 7,442 shares at cost
as of December 31, 1997 and 1996, respectively.................... (87,139) (98,192)
Net unrealized holding gains on securities available
for sale, net of deferred income taxes............................ 101,280 1,887
----------------- ------------------
TOTAL SHAREHOLDERS' EQUITY..................................... 14,191,019 12,617,903
------------------ ------------------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY..................... $ 155,559,410 $ 145,865,039
================== ==================
</TABLE>
See notes to consolidated financial statements
F-10
<PAGE> 100
CONSOLIDATED STATEMENTS OF INCOME
HOMEBANC CORPORATION AND SUBSIDIARIES
YEARS ENDED DECEMBER 31, 1997 AND 1996
<TABLE>
<CAPTION>
1997 1996
INTEREST INCOME ------------------ ------------------
<S> <C> <C>
Interest and fees on loans.......................................... $ 12,023,486 $ 11,119,383
Interest and dividends on investment securities:
Taxable securities................................................ 1,606,879 1,765,290
Securities exempt from federal income taxes....................... 235,988 218,680
Interest on federal funds sold...................................... 29,886 163,016
Interest on deposits in banks....................................... 1,010 1,080
------------------ ------------------
TOTAL INTEREST INCOME............................................. 13,897,249 13,267,449
------------------ ------------------
INTEREST EXPENSE
Interest on deposits................................................ 5,325,455 5,281,115
Interest on other short-term borrowings............................. 82,635 18,002
Interest on long-term debt.......................................... 224,445 114,059
------------------ ------------------
TOTAL INTEREST EXPENSE............................................ 5,632,535 5,413,176
------------------ ------------------
Net interest income.................................................... 8,264,714 7,854,273
Provision for loan losses.............................................. 909,041 674,813
------------------ ------------------
NET INTEREST INCOME AFTER PROVISION FOR LOAN LOSSES.................... 7,355,673 7,179,460
NONINTEREST INCOME
Service charges on deposits......................................... 639,883 597,990
Insurance commissions............................................... 170,441 183,570
Investment securities losses........................................ -0- (28,500)
Gain on sale of assets.............................................. 112,684 1,161
Other operating income.............................................. 255,466 145,936
------------------ ------------------
TOTAL NONINTEREST INCOME.......................................... 1,178,474 900,157
------------------ ------------------
NONINTEREST EXPENSES
Salaries and employee benefits...................................... 2,793,768 2,538,986
Occupancy and equipment expense..................................... 609,395 576,908
Other operating expenses............................................ 1,845,598 1,505,846
------------------ ------------------
TOTAL NONINTEREST EXPENSES........................................ 5,248,761 4,621,740
------------------ ------------------
Income before income taxes............................................. 3,285,386 3,457,877
Provision for income taxes ............................................ 1,111,244 1,053,193
------------------ ------------------
NET INCOME ........................................................... $ 2,174,142 $ 2,404,684
================== ==================
EARNINGS PER SHARE OF COMMON STOCK:
Basic earnings per common share........................................ $ 1.63 $ 1.81
Basic weighted average common shares outstanding....................... 1,332,698 1,332,002
</TABLE>
See notes to consolidated financial statements
F-11
<PAGE> 101
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
HOMEBANC CORPORATION AND SUBSIDIARIES
YEARS ENDED DECEMBER 31, 1997 AND 1996
<TABLE>
<CAPTION>
Unrealized
Gains
Common Capital Retained Treasury (Losses) On
Stock Surplus Earnings Stock Securities Total
------------- ------------- ------------- ------------- -------------- -------------
<S> <C> <C> <C> <C> <C> <C>
Balance at
December 31,
1995................ $ 66,986 $ 1,658,456 $ 9,086,124 $ (105,236) $ 104,021 $ 10,810,351
Stock split effected
in the form of a
dividend............ 66,987 (66,987) -0-
Cash dividends -
Common - $.38 per
share............... (505,181) (505,181)
Issuance of 534
treasury shares .... 3,139 7,044 10,183
Net change in
unrealized gains
(losses) on securities (102,134) (102,134)
Net Income - 1996..... 2,404,684 2,404,684
------------- ------------- ------------- ------------- -----------------------------
BALANCE AT
DECEMBER 31,
1996................ 133,973 1,661,595 10,918,640 (98,192) 1,887 12,617,903
CASH DIVIDENDS -
COMMON - $.54 PER
SHARE............... (720,740) (720,740)
ISSUANCE OF 838
TREASURY SHARES .... 9,268 11,053 20,321
NET CHANGE IN
UNREALIZED GAINS
(LOSSES) ON SECURITIES 99,393 99,393
NET INCOME - 1997..... 2,174,142 2,174,142
------------- ------------- ------------- ------------- -------------- -------------
BALANCE AT
DECEMBER 31,
1997................ $ 133,973 $ 1,670,863 $ 12,372,042 $ (87,139) $ 101,280 $ 14,191,019
============= ============= ============= ============= ============= =============
</TABLE>
See notes to consolidated financial statements.
F-12
<PAGE> 102
CONSOLIDATED STATEMENTS OF CASH FLOWS
HOMEBANC CORPORATION AND SUBSIDIARIES
YEARS ENDED DECEMBER 31, 1997 AND 1996
<TABLE>
<CAPTION>
1997 1996
--------------- ---------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income............................................................. $ 2,174,142 $ 2,404,684
Adjustments to reconcile net income to net
cash provided by operating activities:
Provision for loan losses.......................................... 909,041 674,813
Depreciation, amortization and accretion, net...................... 188,608 90,887
Provision for deferred taxes....................................... 70,000 (133,286)
Realized investment security losses................................ -0- 28,500
Gain on disposition of premises and equipment...................... (112,684) (1,161)
Loss on disposition of other real estate........................... 20,561 18,766
(Increase) decrease in accrued interest receivable................. (93,262) 55,243
Increase (decrease) in accrued interest payable.................... (154) (36,601)
Other, net......................................................... (352,440) 457,304
--------------- ---------------
NET CASH PROVIDED BY OPERATING ACTIVITIES........................ 2,810,139 3,559,149
=============== ===============
CASH FLOWS FROM INVESTING ACTIVITIES
Proceeds from sales of investment securities
available-for-sale................................................... -0- 1,319,287
Proceeds from maturities of investments securities
available-for-sale................................................... 5,768,338 4,626,439
Purchases of investments securities available-for-sale................. (3,431,752) (2,316,570)
Proceeds from maturities of investment securities
held-to-maturity..................................................... 415,000 156,600
Purchases of investment securities held-to-maturity.................... (303,765) (465,237)
Net increase in loans to customers..................................... (14,145,371) (12,143,375)
Net proceeds from the sale of assets................................... 192,650 228,873
Net proceeds from disposition of other real estate..................... 33,219 22,423
Purchases of premises and equipment.................................... (2,225,833) (2,360,414)
--------------- ---------------
Net Cash Used In Investing Activities............................ (13,697,514) (10,931,974)
=============== ===============
CASH FLOWS FROM FINANCING ACTIVITIES
Net increase (decrease) in demand deposits, NOW
accounts and savings accounts........................................ (1,659,225) 1,529,126
Net increase in certificates of deposits............................... 5,030,262 7,634,300
Net increase in short-term borrowings.................................. 1,645,044 196,083
Proceeds from issuance of long-term debt............................... 3,550,000 -0-
Repayment of long-term debt............................................ (250,458) (250,459)
Issuance of treasury stock............................................. 20,321 10,183
Cash dividends......................................................... (666,323) (559,393)
--------------- ---------------
NET CASH PROVIDED BY FINANCING ACTIVITIES........................ 7,669,621 8,559,840
=============== ===============
<CAPTION>
1997 1996
--------------- ---------------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS...................... (3,224,081) 1,187,015
Cash and Cash Equivalents at Beginning of Year............................ 9,062,806 7,875,791
--------------- ---------------
CASH AND CASH EQUIVALENTS AT END OF YEAR.................................. $ 5,838,725 $ 9,062,806
=============== ===============
SUPPLEMENTAL DISCLOSURES
Cash paid during the year for interest............................... $ 5,632,689 $ 5,449,777
Cash paid during the year for income taxes........................... 1,357,794 724,778
Loans transferred to foreclosed to real estate
during the year.................................................... 574,487 164,624
Proceeds from sales of foreclosed real estate
financed through loans............................................. 107,524 179,401
Net increase (decrease) in unrealized gains on
securities available-for-sale...................................... 165,655 (170,225)
</TABLE>
F-13
<PAGE> 103
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
HOMEBANC CORPORATION AND SUBSIDIARIES
DECEMBER 31, 1997 AND 1996
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Consolidation
The consolidated financial statements include the accounts of HomeBanc
Corporation, (the "Company") and its wholly owned subsidiaries: The Home Bank
and Valley Finance, Inc., collectively (the "Bank"). All significant
intercompany balances and transactions have been eliminated. Investments in
subsidiaries are carried at the parent company's equity in the underlying net
assets.
Use of Estimates
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions
that affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
Material estimates that are particularly susceptible to significant change
relate to the determination of the allowance for losses on loans and the
valuation of foreclosed real estate. In connection with the determination of
the estimated losses on loans and foreclosed real estate, management obtains
independent appraisals for significant properties.
While management uses available information to recognize losses on loans and
foreclosed real estate, further reductions in the carrying amounts of loans and
foreclosed assets may be necessary based on changes in local economic
conditions. In addition, regulatory agencies, as an integral part of their
examination process, periodically review the estimated losses on loans and
foreclosed real estate. Such agencies may require the Bank to recognize
additional losses based on their judgments about information available to them
at the time of their examination. Because of these factors, it is reasonably
possible that the estimated losses on loans and foreclosed real estate may
change materially in the near term. However, the amount of the change that is
reasonably possible cannot be estimated.
Investment Securities
Trading Securities: Securities that are held for short-term resale are
classified as trading account securities and recorded at their fair values.
Realized and unrealized gains and losses on trading account securities are
included in other income.
Securities Held-to-Maturity: Government, Federal agency, and corporate debt
securities that management has the positive intent and ability to hold to
maturity are reported at cost, adjusted for amortization of premiums and
accretion of discounts that are recognized in interest income using methods
approximating the interest method over the period to maturity. Mortgage-backed
securities represent participating interest in pools of long-term first
mortgage loans originated and serviced by issuers of the securities.
Mortgage-backed securities are carried at unpaid principal balances, adjusted
for unamortized premiums and unearned discounts. Premiums and discounts are
amortized using methods approximating the interest method over the remaining
period to contractual maturity, adjusted for anticipated prepayments.
Securities Available-for-Sale: Available-for-sale securities consist of
investment securities not classified as trading securities nor as
held-to-maturity securities. Unrealized holding gains and
F-14
<PAGE> 104
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
HOMEBANC CORPORATION AND SUBSIDIARIES
DECEMBER 31, 1997 AND 1996
losses, net of tax, on available-for-sale securities are reported as a net
amount in a separate component of shareholders' equity until realized. Gains
and losses on the sale of available-for-sale securities are determined using
the specific-identification method. The amortization of premiums and the
accretion of discounts are recognized in interest income using methods
approximating the interest method over the period of maturity.
Declines in the fair value of individual held-to-maturity and
available-for-sale securities below their cost that are other than temporary
result in write-downs of the individual securities to their fair value. The
related write-downs are included in earnings as realized losses.
The Company and its subsidiaries have no trading securities.
Loans
Loans are stated at unpaid principal balances, less the allowance for loan
losses and net deferred loan fees and unearned discounts.
Unearned discounts on certain consumer installment loans are recognized as
income over the term of the loans using a method that approximates the interest
method.
Loan origination and commitment fees, as well as certain direct origination
costs, when material, are deferred and amortized as a yield adjustment over the
lives of the related loans using the interest method. Amortization of deferred
loan fees is discontinued when a loan is placed on non-accrual status.
Interest income generally is not recognized on specific impaired loans unless
the likelihood of further loss is remote. Interest payments received on such
loans are applied as a reduction of the loan principal balance. Interest income
on other impaired loans is recognized only to the extent of interest payments
received.
The allowance for loan losses is maintained at a level which, in management's
judgment, is adequate to absorb credit losses inherent in the loan portfolio.
The amount of the allowance is based on management's evaluation of the
collectibility of the loan portfolio, including the nature of the portfolio,
credit concentrations, trends in historical loss experience, specific impaired
loans, economic conditions and other risks inherent in the portfolio.
Allowances for impaired loans are generally determined based on collateral
values or the present value of the estimated cash flows. The allowance is
increased by a provision for loan losses, which is charged to expense, and
reduced by charge-offs, net of recoveries.
Premises and Equipment
Premises and equipment are stated at cost less accumulated depreciation.
Expenditures for additions and major improvements that significantly extend the
useful lives of the assets are capitalized. Expenditures for repairs and
maintenance are charged to expense as incurred. The carrying values of assets
traded in are used to adjust the carrying values of the new assets acquired by
trade. Assets which are disposed of are removed from the accounts and the
resulting gains or losses are recorded in operations.
F-15
<PAGE> 105
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
HOMEBANC CORPORATION AND SUBSIDIARIES
DECEMBER 31, 1997 AND 1996
Depreciation is provided generally by accelerated and straight-line methods
based on the estimated useful lives of the respective assets.
Foreclosed Real Estate
Foreclosed real estate includes both formally foreclosed property and
in-substance foreclosed property. In-substance foreclosed properties are those
properties for which the institution has taken physical possession, regardless
of whether formal foreclosure proceedings have taken place.
At the time of foreclosure, foreclosed real estate is recorded at the lower of
the carrying amount or fair value less cost to sell, which becomes the
property's new basis. Any write-downs based on the asset's fair value at date
of acquisition are charged to the allowance for loan losses. After foreclosure,
these assets are carried at the lower of their new cost basis or fair value
less cost to sell. Costs incurred in maintaining foreclosed real estate and
subsequent adjustments to the carrying amount of the property are included in
income (loss) on foreclosed real estate.
Income Taxes
Income taxes are provided for the tax effects of the transactions reported in
the financial statements and consist of taxes currently due plus deferred taxes
related primarily to differences between the basis of available-for-sale
securities, allowance for loan losses, estimated losses on foreclosed real
estate, accumulated depreciation, and accrued employee benefits for financial
and income tax reporting. The deferred tax assets and liabilities represent the
future tax return consequences of those differences, which will either be
taxable or deductible when the assets and liabilities are recovered or settled.
Deferred tax assets and liabilities are reflected at income tax rates
applicable to the period in which the deferred tax assets or liabilities are
expected to be realized or settled. As changes in tax laws or rates are
enacted, deferred tax assets and liabilities are adjusted through the provision
for income taxes.
The Company and its subsidiaries file a consolidated federal income tax return.
The subsidiaries provide for income taxes on a separate return basis, and remit
to the Company amounts determined to be currently payable.
Earnings Per Common Share
Basic earnings per common share are calculated by dividing income available to
common shareholders by the weighted average number of common shares outstanding
during the period.
Profit Sharing Plan
The Company and its subsidiaries have a profit sharing plan which covers
substantially all employees. Contributions are made to the plan as determined
by the Board of Directors.
Off-Balance Sheet Financial Instruments
In the ordinary course of business the Bank has entered into off-balance sheet
financial instruments consisting of commitments to extend credit, commitments
under credit card arrangements, commercial letters of credit and standby
letters of credit. Such financial instruments are recorded in the financial
statements when they become payable.
F-16
<PAGE> 106
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
HOMEBANC CORPORATION AND SUBSIDIARIES
DECEMBER 31, 1997 AND 1996
The Bank has available as a source of short-term financing the purchase of
federal funds from other commercial banks in the amount of $6,000,000. The Bank
also has available a line of credit of $19,271,000 from the Federal Home Loan
Bank of Atlanta.
Cash Flow Information
The Company considers all cash and amounts due from depository institutions and
federal funds sold to be cash equivalents for purposes of the statements of
cash flows.
Fair Values of Financial Instruments
Statement of Financial Accounting Standards No. 107, "Disclosures about Fair
Value of Financial Instruments", requires disclosures of fair value information
about financial instruments, whether or not recognized in the consolidated
statements of financial condition. In cases where quoted market prices are not
available, fair values are based on estimates using present value or other
valuation techniques. Those techniques are significantly affected by the
assumptions used, including the discount rate and estimates of future cash
flows. In that regard, the derived fair value estimates cannot be substantiated
by comparison to independent markets and, in many cases, could not be realized
in immediate settlement of the instruments. Statement No. 107 excludes certain
financial instruments and all nonfinancial instruments from its disclosure
requirements. Accordingly, the aggregate fair value amounts presented do not
represent the underlying value of the Company.
The following methods and assumptions were used by the Company in estimating
its fair value disclosures for financial instruments:
Cash and Cash Equivalents: The carrying amounts reported in the consolidated
statements of financial condition for cash and cash equivalents approximate
those assets' fair values.
Investment Securities (including Trading Account Securities): Fair values for
investment securities are based on quoted market prices, where available. If a
quoted market price is not available, fair values are based on quoted market
prices of comparable instruments.
Loans: For variable-rate loans that reprice frequently and with no significant
change in credit risk, fair values are based on carrying amounts. The fair
values of other loans (for example, fixed rate commercial real estate and
rental property mortgage loans and commercial and industrial loans) are
estimated using discounted cash flow analysis, based on interest rates
currently being offered for loans with similar terms to borrowers of similar
credit quality. Loan fair value estimates include judgments regarding future
expected loss experience and risk characteristics.
Fair values for impaired loans are estimated using discounted cash flow
analysis or underlying collateral values, where applicable.
Accrued Interest and Dividends Receivable: The carrying amount of accrued
interest and dividends receivable approximates its fair value.
Deposits: The fair value disclosed for demand deposits are, by definition,
equal to the amount payable on demand at the reporting date (that is, their
carrying amounts). The carrying amounts of variable-rate, fixed-term money
market accounts and certificates of deposit approximate their fair values. Fair
values for fixed-rate certificates of deposit are estimated using a discounted
cash flow
F-17
<PAGE> 107
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
HOMEBANC CORPORATION AND SUBSIDIARIES
DECEMBER 31, 1997 AND 1996
calculation that applies interest rates currently offered on certificates to a
schedule of aggregated expected monthly maturities on time deposits.
Accrued Interest Payable: The carrying amount of accrued interest payable
approximates its fair value.
Federal Funds Purchased, Short-term Borrowings and Notes Payable: The carrying
amounts of federal funds purchased, short-term borrowings and notes payable
approximate their fair values.
Long-term Debt: For long-term debt, which bears interest at a current rate, the
carrying amount is a reasonable estimate of fair value.
Loan Commitments: Commitments to extend credit were evaluated and fair value
was estimated using the fees currently charged to enter into similar
agreements, taking into account the remaining terms of the agreements and the
present creditworthiness of the counterparties. For fixed-rate loan
commitments, fair value also considers the difference between current levels of
interest rates and the committed rates.
Reclassifications
Certain amounts in 1996 have been reclassified to conform with the 1997
presentation.
Recently Issued Accounting Standards
In March 1995, the Financial Accounting Standards Board (FASB) issued Statement
of Financial Accounting Standards (SFAS) No. 121, "Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed of."
This statement establishes accounting standards for the impairment of
long-lived assets, certain identifiable intangibles, and goodwill related to
those assets to be held and used and for long-lived assets and certain
identifiable intangibles to be disposed of. SFAS No. 121 requires that
long-lived assets and certain identifiable intangibles be reviewed for
impairment whenever events or changes in circumstance indicate that the
carrying amount of an asset may not be recoverable. Recoverability of the
assets described above is measured by a comparison of the carrying amount of
the asset to future undiscounted cash flows expected to be generated by the
asset. If such assets are considered impaired, the amount of impairment to be
recognized is measured by the amount by which the carrying amount of the assets
exceeds the fair value of the assets. Assets to be disposed of are reported at
the lower of the carrying amount or fair value less costs to sell. Adoption of
SFAS No. 121 in 1996 did not have a material impact on the Company's
consolidated financial statements.
In May 1995, the FASB also issued SFAS No. 122, "Accounting for Mortgage
Servicing Rights." This statement amends certain provisions of SFAS No. 65 to
substantially eliminate the accounting distinction between rights to service
mortgage loans for others that are acquired through loan origination activities
and those acquired through purchase transactions. The statement requires an
allocation of the total cost of mortgage loans held for sale to mortgage
servicing rights and mortgage loans held for sale (without mortgage servicing
rights) based on their relative fair values. The adoption of SFAS No. 122 in
1996 did not have a material impact on the Company's consolidated financial
statements.
In October 1995, the FASB issued SFAS No. 123, "Accounting for Stock-Based
Compensation," which defines a fair value based method of accounting for an
employee stock option plan. This statement
F-18
<PAGE> 108
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
HOMEBANC CORPORATION AND SUBSIDIARIES
DECEMBER 31, 1997 AND 1996
establishes financial accounting and reporting standards for stock-based
employee compensation plans and stock-based non-employee compensation. These
transactions must be accounted for based on the fair value of the consideration
received or the fair value of the equity instruments issued, whichever is more
reliably measured. Under the fair value based method, compensation is measured
at the grant date based on the value of the award and is recognized over the
service period, which is usually the vesting period. However, SFAS No. 123
allows an entity to continue to measure compensation costs for those plans
using the intrinsic value based method of accounting as prescribed by APB
Opinion No. 25, "Accounting for Stock Issued to Employees." The adoption of
this statement did not have a material effect on the Company's consolidated
financial statements.
In June 1996, the FASB issued SFAS No. 125, "Accounting for Transfers and
Servicing of Financial Assets and Extinguishments of Liabilities." SFAS No. 125
was amended by SFAS No. 127, which defers the effective date of certain
provisions of SFAS No. 125 until January 1, 1998. SFAS No. 125 is to be applied
prospectively to transfers and servicing of financial assets and
extinguishments of liabilities after December 31, 1996. This statement utilizes
the financial-components approach that focuses on control. Under that approach,
after a transfer of financial assets, an entity recognizes the financial and
servicing assets it controls and the liabilities it has incurred, derecognizes
financial assets when control has been surrendered and derecognizes liabilities
when extinguished. Management does not believe that adoption of SFAS No. 125
will have a material impact on the Company's consolidated financial statements.
Effective for years ending after December 15, 1997, SFAS No. 128, "Earnings Per
Share" was issued by FASB which simplifies previous standards for reporting
earnings per share. Under SFAS No. 128, earnings per share is stated on the
income statement based on two separate measurements: basic and diluted. Basic
earnings per share excludes dilution and is computed by dividing income
available to common stockholders by the weighted average number or common
shares outstanding for the period. Diluted earnings per share reflects the
potential dilution that could occur if securities or other contracts to issue
common stock were exercised or converted into common stock or resulted in the
issuance of common stock that shared in the earnings of the entity. The
adoption of this statement did not have a material effect on the Company's
consolidated financial statements.
Effective for years beginning after December 15, 1997, SFAS No. 130, "Reporting
Comprehensive Income" was issued by FASB which establishes standards for the
reporting and display of comprehensive income and its components in a full set
of general-purpose financial statements. The Statement requires that an
enterprise classify items of other comprehensive income by their nature in the
financial statement and display the accumulated balance of other comprehensive
income separately from retained earnings and additional paid in capital in the
equity section of a statement of financial position. Comprehensive income is
generally defined as the change in equity of a business enterprise during a
period from transactions and other events and circumstances from nonowner
sources. It includes all changes in equity during a period except those
resulting from investments by owners and distributions to owners. Management
does not believe that the adoption of SFAS No. 130 will have a material impact
on the Company's consolidated financial statements.
Effective for years beginning after December 15, 1997, SFAS No. 132,
"Employers' Disclosures about Pensions and Other Postretirement Benefits" was
issued by FASB which standardizes the disclosure requirements for pensions and
other postretirement benefits to the extent practicable, requires additional
information on changes in the benefits obligations and fair values of plan
assets that will facilitate financial analysis, and eliminates certain other
disclosures previously required. Management does not believe that the adoption
of SFAS No. 132 will have a material impact on the Company's consolidated
financial statements.
F-19
<PAGE> 109
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
HOMEBANC CORPORATION AND SUBSIDIARIES
DECEMBER 31, 1997 AND 1996
NOTE 2 - RESTRICTIONS ON CASH AND DUE FROM BANK ACCOUNTS
The Bank is required by regulatory authorities to maintain average reserve
balances either in vault cash or on deposit with the Federal Reserve. The
average amount of those reserves required at December 31, 1997 and 1996, was
approximately $866,000 and $760,000, respectively.
NOTE 3 - INVESTMENT SECURITIES
The carrying amounts of investment securities as shown in the consolidated
statements of financial condition of the Company and their approximate fair
values at December 31, 1997 and 1996 were as follows:
<TABLE>
<CAPTION>
Gross Gross
Unrealized Unrealized Estimated Fair
Amortized Cost Gains Losses Value
-------------- ------------ ------------ -------------
<S> <C> <C> <C> <C>
SECURITIES AVAILABLE-FOR-SALE:
DECEMBER 31, 1997:
U. S. GOVERNMENT AND AGENCY SECURITIES..... $ 19,269,734 $ 297,514 $ 112,798 $ 19,454,450
MORTGAGE-BACKED SECURITIES................. 3,413,508 25,276 63,230 3,375,554
EQUITY SECURITIES.......................... 809,600 22,038 -0- 831,638
-------------- ------------ ------------ -------------
$ 23,492,842 $ 344,828 $ 176,028 $ 23,661,642
============== ============ ============ =============
DECEMBER 31, 1996:
U. S. GOVERNMENT AND AGENCY
SECURITIES................................. $ 21,202,573 $ 265,577 $ 193,552 $ 21,274,598
MORTGAGE-BACKED SECURITIES................. 3,943,215 58,855 139,999 3,862,071
EQUITY SECURITIES.......................... 656,700 12,264 -0- 668,964
-------------- ------------ ------------ -------------
$ 25,802,488 $ 336,696 $ 333,551 $ 25,805,633
============== ============ ============ =============
SECURITIES HELD-TO-MATURITY
DECEMBER 31, 1997:
STATE AND MUNICIPAL SECURITIES............. $ 4,575,806 $ 99,440 $ 1,263 $ 4,673,983
============== ============ ============ =============
December 31, 1996:
State and municipal securities............. $ 4,688,409 $ 74,196 $ 20,450 $ 4,742,155
============== ============ ============ =============
</TABLE>
The contractual maturities of securities held-to-maturity and securities
available-for-sale at December 31, 1997 are shown below. Expected maturities
will differ from contractual maturities because borrowers may have the right to
call or prepay obligations with or without call or prepayment penalties.
<TABLE>
<CAPTION>
Securities Held-to-Maturity Securities Available-for-Sale
------------------------------------ ------------------------------------
Amortized Cost Fair Value Amortized Cost Fair Value
---------------- ----------------- ---------------- ------------------
<S> <C> <C> <C> <C>
Due in one year or less .................. $ 1,145,247 $ 1,153,883 $ 7,196,645 $ 7,179,533
Due after one year through five years..... 2,313,608 2,375,658 13,326,830 13,377,057
Due after five years through ten years.... 1,116,951 1,144,442 1,693,552 1,819,693
Due after ten years....................... -0- -0- 466,215 453,721
Equity securities......................... -0- -0- 809,600 83,.638
---------------- ----------------- ---------------- -----------------
$ 4,575,806 $ 4,673,983 $ 23,492,842 $ 23,661,642
================ ================= ================ =================
</TABLE>
Mortgage-backed securities have been included in the maturity tables based upon
the guaranteed payoff date of each security.
F-20
<PAGE> 110
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
HOMEBANC CORPORATION AND SUBSIDIARIES
DECEMBER 31, 1997 AND 1996
Equity securities include a restricted investment in Federal Home Loan Bank
stock which must be maintained to secure the available lines of credit. The
amount of investment in this stock amounted to $556,600 and $403,700 at
December 31, 1997 and 1996, respectively.
There were no gains or losses on the disposition of investment securities
during 1997.
Sales of securities available-for-sale during 1996 resulted in gross realized
losses of $30,100. Dispositions through calls, maturities and paydowns of
securities held-to-maturity resulted in net gains of $1,600 for 1996.
Investment securities pledged to secure public funds on deposit and for other
purposes as required by law amounted to approximately $12,242,000 and
$13,628,000 at December 31, 1997 and 1996, respectively.
NOTE 4 - LOANS
The Bank grants loans to customers primarily in Marshall County of North
Central Alabama.
The major classifications of loans as of December 31, 1997 and 1996 were as
follows:
<TABLE>
<CAPTION>
1997 1996
------------- -------------
<S> <C> <C>
Commercial, financial and agricultural....................... $ 28,989,870 $ 23,948,589
Real estate - construction................................... 1,423,953 1,254,042
Real estate - mortgage....................................... 59,337,033 54,533,785
Consumer..................................................... 27,520,561 25,531,984
Other (including overdrafts)................................. 204,093 50,981
------------- -------------
117,475,510 105,319,381
Unearned income.............................................. 3,219,154 3,743,624
Allowance for loan losses.................................... 1,249,749 1,338,517
------------- -------------
Net loans.................................................... $ 113,006,607 $ 100,237,240
============= =============
</TABLE>
Certain directors, executive officers and principal shareholders including
their immediate families and associates were loan customers of the Bank during
1997 and 1996. Such loans are made in the ordinary course of business at normal
credit terms, including interest rates and collateral and do not represent more
than a normal risk of collection. Total loans to these persons at December 31,
1997 and 1996, amounted to $5,341,238 and $3,961,285, respectively.
As of December 31, 1997 and 1996, there were no loans which the Bank had
specifically classified as impaired. Other loans on which the accrual of
interest had been discontinued or reduced amounted to approximately $132,000
and $367,000 at December 31, 1997 and 1996, respectively.
For the years ended December 31, 1997 and 1996, the difference between gross
interest income that would have been recorded in such period if non-accruing
loans had been current in accordance with their original terms and the amount
of interest income on those loans that was included in such period's net income
was approximately $5,600 and $20,250, respectively.
The Bank has no commitments to loan additional funds to the borrowers of
non-accrual loans.
F-21
<PAGE> 111
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
HOMEBANC CORPORATION AND SUBSIDIARIES
DECEMBER 31, 1997 AND 1996
NOTE 5 - ALLOWANCE FOR LOAN LOSSES
Changes in the allowance for loan losses for the years ended December 31, 1997
and 1996 were as follows:
<TABLE>
<CAPTION>
1997 1996
----------- -----------
<S> <C> <C>
Balance at beginning of year $ 1,338,517 $ 1,267,152
Charge-offs (1,148,902) (766,932)
Recoveries 151,093 163,484
----------- -----------
Net (charge-offs) recoveries (997,809) (603,448)
Provision for loan losses 909,041 674,813
----------- -----------
Balance at end of year $ 1,249,749 $ 1,338,517
=========== ===========
<CAPTION>
NOTE 6 - PREMISES AND EQUIPMENT
Premises and equipment as of December 31, 1997 and 1996 is as follows:
1997 1996
----------- -----------
<S> <C> <C>
Land .............................................................. $ 1,129,985 $ 485,177
Land improvements ................................................. 416,299 179,024
Buildings ......................................................... 4,595,062 1,259,435
Furniture and equipment ........................................... 1,876,816 1,605,817
Automobiles ....................................................... 16,764 12,427
Construction in process ........................................... -0- 2,503,778
----------- -----------
8,034,926 6,045,658
Less allowance for depreciation ................................... 1,738,005 1,680,423
----------- -----------
$ 6,296,921 $ 4,365,235
=========== ===========
</TABLE>
The provisions for depreciation charged to occupancy and equipment expense for
the years ended December 31, 1997 and 1996 were $214,180 and $146,051.
F-22
<PAGE> 112
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
HOMEBANC CORPORATION AND SUBSIDIARIES
DECEMBER 31, 1997 AND 1996
NOTE 7 - DEPOSITS
The major classifications of deposits as of December 31, 1997 and 1996 were as
follows:
<TABLE>
<CAPTION>
1997 1996
------------ ------------
<S> <C> <C>
Noninterest-bearing demand.................................... $ 20,344,302 $ 19,365,454
NOW accounts.................................................. 15,655,260 13,943,227
Savings....................................................... 26,806,107 29,755,736
Time.......................................................... 47,458,757 41,878,962
Certificates of deposit of $100,000 or more................... 21,362,580 21,912,113
Time deposits open............................................ 1,658,000 3,058,477
------------- -------------
$ 133,285,006 $ 129,913,969
============= =============
</TABLE>
The maturities of time certificates of deposit and other time deposits of
$100,000 or more issued by the Bank at December 31, 1997 are as follows:
<TABLE>
<S> <C>
Three months or less ........................................................................ $ 7,773,869
Over three through twelve months ............................................................ 9,147,547
Over one year through three years ........................................................... 5,387,431
Over three years ............................................................................ 711,733
------------
$ 23,020,580
============
</TABLE>
NOTE 8 - LONG-TERM DEBT
At December 31, 1997 and 1996, the Company had notes totaling $4,662,750 and
$1,363,208, respectively.
On July 31, 1991, the Company entered into a loan agreement with First
Tennessee Bank, National Association for amounts up to $2,000,000. At December
31, 1997 and 1996, the amounts outstanding on this loan were $1,112,750 and
$1,298,208, respectively, due January 15, 2003, bearing interest at a floating
prime, collateralized by 100% of the common stock of the subsidiary bank. The
note agreement contains provisions which limit the Company's right to transfer
or issue shares of subsidiary bank stock in order to maintain one hundred
percent (100%) collateral control. Quarterly interest payments are required
with annual principal reductions.
The Company has long-term advances from the Federal Home Loan Bank totalling
$3,550,000, secured by underlying loans to customers at December 31, 1997. Two
advances totaling $ 1,550,000 bear interest at 5.59%, and are due June, 1999
and one advance of $2,000,000, bearing interest at 5.66% is due September,
2002, but callable September, 1999. Quarterly interest payments are required on
these advances.
The Company also had a mortgage note payable to a former Director, dated
January 21,1993 in the amount of $65,000 at December 31, 1996. Interest was
payable monthly at a floating prime. This note was paid off during 1997.
F-23
<PAGE> 113
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
HOMEBANC CORPORATION AND SUBSIDIARIES
DECEMBER 31, 1997 AND 1996
Maturities of long-term debt following December 31, 1997 are as follows:
<TABLE>
<S> <C>
1998................................................. $ 185,458
1999................................................. 1,735,458
2000 ................................................ 185,458
2001 ................................................ 185,458
2002 ................................................ 2,185,458
Thereafter .......................................... 185,460
-----------
$ 4,662,750
===========
</TABLE>
NOTE 9 - SHAREHOLDERS' EQUITY
On January 2, 1996, the Company issued a 2-for-1 stock split effected in the
form of a dividend, effectively increasing the shares outstanding by 669,863.
At December 31, 1997 and 1996, shareholders' equity of the Company consisted of
the following:
Common Stock: 1,500,000 shares authorized, with a par value of $.10 per share,
1,339,726 shares issued as of December 31, 1997 of which 1,333,122 were
outstanding and 1,339,726 shares issued as of December 31, 1996 of which
1,332,284 were outstanding. Voting rights equal to one vote per share.
Capital Surplus: Represents the funds received in excess of par value upon the
issuance of stock, net of issuance costs.
Retained Earnings: Represents the accumulated net earnings of the Company as
reduced by dividends paid to shareholders.
Treasury Stock: Represents 6,604 and 7,422 shares of common stock at December
31, 1997 and 1996, respectively, recorded at cost.
Net Unrealized Holding Gains (Losses) on Securities: Represents the net
unrealized gains or losses on securities available-for-sale, net of deferred
taxes at December 31, 1997 and 1996. This account adjusts as the market values
of the related investment securities change.
NOTE 10 - REGULATORY CAPITAL MATTERS
The Bank is subject to various regulatory capital requirements administered by
the state and federal banking agencies. Failure to meet minimum capital
requirements can initiate certain mandatory and possible additional
discretionary actions by regulators, that if undertaken, could have a direct
material effect on the Bank and the consolidated financial statements. Under
regulatory capital adequacy guidelines and the regulatory framework for prompt
corrective action, the Bank must meet specific capital guidelines involving
quantitative measures of the Bank's assets, liabilities, and certain
off-balance sheet items as calculated under regulatory accounting practices.
The Bank's capital amounts and classification under the prompt corrective
guidelines are also subject to qualitative judgments by the regulators about
components, risk weightings, and other factors.
Quantitative measures established by regulation to ensure capital adequacy
require the Bank to maintain minimum amounts and ratios of total risk-based
capital and Tier I capital to risk-weighted
F-24
<PAGE> 114
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
HOMEBANC CORPORATION AND SUBSIDIARIES
DECEMBER 31, 1997 AND 1996
assets (as defined in the regulations), and Tier I capital to adjusted total
assets (as defined). Management believes, as of December 31, 1997, that the
Bank meets all capital adequacy requirements to which it is subject.
As of March 17, 1997, the most recent notification from the Alabama State
Banking Department, the Bank was categorized as well capitalized under the
regulatory framework for prompt corrective action. To remain categorized as
well capitalized, the Bank will have to maintain minimum total risk-based, Tier
I risk-based, and Tier I leverage ratios as disclosed in the table below. There
are no conditions or events since the most recent notification that management
believes have changed the Bank's prompt corrective action category.
<TABLE>
<CAPTION>
To Be Well Capitalized
For Capital Adequacy Under Prompt Corrective
Actual Purposes Action Provisions
------------------------- -------------------- ---------------------------
Amount Ratio Amount Ratio Amount Ratio
---------- ---------- --------- --------- ----------- -------------
(In thousands)
<S> <C> <C> <C> <C> <C> <C>
AS OF DECEMBER 31. 1997:
- -----------------------
TOTAL RISK-BASED CAPITAL
(TO RISK-WEIGHTED ASSETS)...... $ 15,656 13.57% => $ 9,229 => 8.0% =>$ 11,536 => 10.0 %
TIER 1 CAPITAL (TO RISK-
WEIGHTED ASSETS)............... 14,406 12.49 => 4,614 => 4.0 => 6,921 => 6.0
TIER 1 CAPITAL
(TO ADJUSTED TOTAL ASSETS)..... 14,406 9.37 => 6,152 => 4.0 => 7,690 => 5.0
As of December 31, 1996:
- -----------------------
Total Risk-Based Capital
(to Risk-Weighted Assets)...... $ 14,412 14.32% => $ 8,051 => 8.0% =>$ 10,064 => 10.0 %
Tier l Capital
(to Risk-Weighted Assets)...... 13,153 13.07 => 4,025 => 4.0 => 6,038 => 6.0
Tier l Capital
(to Adjusted Total Assets)..... 13,153 9.29 => 5,660 => 4.0 => 7,075 => 5.0
</TABLE>
F-25
<PAGE> 115
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
HOMEBANC CORPORATION AND SUBSIDIARIES
DECEMBER 31, 1997 AND 1996
NOTE 11 - OTHER OPERATING EXPENSES
The major components of other operating expenses included in
noninterest expenses at December 31, 1997 and 1996 are as follows:
<TABLE>
<CAPTION>
1997 1996
----------- -----------
<S> <C> <C>
Supplies............................................................. $ 272,623 $ 204,375
Professional fees ................................................... 226,628 220,680
Advertising and promotion ........................................... 188,174 140,374
Postage and freight ................................................. 118,994 93,048
Director and committee fees ......................................... 116,200 115,600
Telephone ........................................................... 86,283 77,974
Insurance expense ................................................... 85,213 60,924
Losses and expense on foreclosed real estate and
repossessions ....................................................... 72,743 47,212
Bank charges ........................................................ 65,636 64,867
Credit card expense ................................................. 54,237 55,088
Taxes and licenses .................................................. 50,519 38,484
ATM fees ............................................................ 44,090 37,350
Dues and subscriptions .............................................. 40,880 42,459
FDIC and State assessments .......................................... 33,672 16,195
Credit services ..................................................... 27,115 21,426
Travel .............................................................. 24,478 32,899
Contributions ....................................................... 20,587 18,513
Education............................................................ 18,860 18,338
Courier ............................................................. 15,977 17,123
Other ............................................................... 282,689 182,917
----------- -----------
$ 1,845,598 $ 1,505,846
=========== ===========
</TABLE>
F-26
<PAGE> 116
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
HOMEBANC CORPORATION AND SUBSIDIARIES
DECEMBER 31, 1997 AND 1996
NOTE 12 - INCOME TAXES
Federal and state income taxes receivable and (payable) as of December 31, 1997
and 1996 included in other assets and other liabilities, respectively, were as
follows:
<TABLE>
<CAPTION>
1997 1996
---------------- -----------------
<S> <C> <C>
Current:
Federal ............................................................. $ 94,576 $ (162,152)
================ =================
State ............................................................... $ (78,662) $ (148,007)
================ =================
</TABLE>
The components of the net deferred income tax asset included in other assets at
December 31,1997 and 1996 are as follows:
<TABLE>
<CAPTION>
1997 1996
---------------- ----------------
<S> <C> <C>
Deferred tax asset:
Federal ............................................................ $ 207,916 $ 240,317
State................................................................ 36,615 53,116
---------------- ----------------
Total deferred income tax asset ..................................... 244,531 293,433
---------------- ----------------
Deferred tax liability:
Federal ............................................................. (177,308) (103,386)
State ............................................................... (32,743) (19,305)
---------------- ----------------
Total deferred income tax liability ................................. (210,051) (122,691)
---------------- ----------------
Net deferred tax asset (liability)................................... $ 34,480 $ 170,742
================ ================
</TABLE>
The tax effects of each type of income and expense item that gave rise to
deferred taxes are:
<TABLE>
<S> <C> <C>
Net unrealized gain (loss) on securities
available-for-sale ................................................. $ (67,520) $ (1,258)
Depreciation ........................................................ (65,671) (55,990)
Allowance for loan losses ........................................... 244,100 282,117
Bond discount accretion ............................................ (76,156) (65,086)
Other .............................................................. (273) 10,959
---------------- ----------------
Net deferred tax asset ............................................. $ 34,480 $ 170,742
================ ================
</TABLE>
F-27
<PAGE> 117
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
HOMEBANC CORPORATION AND SUBSIDIARIES
DECEMBER 31, 1997 AND 1996
The components of income tax expense for the years ended December 31, 1997 and
1996 were as follows:
<TABLE>
<CAPTION>
1997 1996
----------------- -----------------
<S> <C> <C>
Current
Federal..................................................... $ 962,795 $ 1,038,472
State....................................................... 78,449 148,007
Deferred
Federal..................................................... 50,000 (104,504)
State ...................................................... 20,000 (28,782)
----------------- -----------------
$ 1,111,244 $ 1,053,193
================= =================
</TABLE>
Tax effects of securities transactions for the year ended December 31, 1996 was
a decrease in income tax expense of approximately $11,400. There were no tax
effects of securities transactions for the year ended December 31, 1997.
The principal reasons for the difference in the effective tax rate and the
federal statutory rate are as follows for the years ended December 31, 1997 and
1996:
<TABLE>
<CAPTION>
1997 1996
------------ ----------
<S> <C> <C>
Statutory federal income tax rate ..................................... 34.0% 34.0%
Effect on rate of:
Tax-exempt securities ........................................ (2.4) (2.1)
Tax-exempt loan income ....................................... (0.8) (1.0)
State income tax, net of federal tax benefit ................. 2.2 2.0
Interest expense disallowance ................................ 0.4 0.3
Allowance for loan losses .................................... 0.0 (3.0)
Other......................................................... 0.4 0.3
----------- ----------
Effective income tax rate ............................................. 33.8% 30.5%
=========== ==========
</TABLE>
NOTE 13 - COMMITMENTS AND CONTINGENCIES
The Company's consolidated financial statements do not reflect various
commitments and contingent liabilities which arise in the normal course of
business and which involve elements of credit risk, interest rate risk and
liquidity risk. These commitments and contingent liabilities are commitments to
extend credit, commercial letters of credit and standby letters of credit. A
summary of the Bank's commitments and contingent liabilities at December 31,
1997 and 1996 is approximately as follows:
<TABLE>
<CAPTION>
Contract or Notional Amount
-----------------------------------
1997 1996
----------- ------------
<S> <C> <C>
Commitments to extend credit .................................... $ 9,083,000 $ 7,015,000
Credit card arrangements ........................................ 567,000 515,000
Letters of credit ............................................... 898,000 441,000
</TABLE>
F-28
<PAGE> 118
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
HOMEBANC CORPORATION AND SUBSIDIARIES
DECEMBER 31, 1997 AND 1996
Commitments to extend credit, credit card arrangements, commercial letters of
credit and standby letters of credit all include exposure to some credit loss in
the event of nonperformance of the customer. The Bank's credit policies and
procedures for credit commitments and financial guarantees are the same as those
for extension of credit that are recorded on the consolidated statements of
financial condition. Because these instruments have fixed maturity dates, and
because many of them expire without being drawn upon, they do not generally
present any significant liquidity risk to the Bank.
NOTE 14 - CONCENTRATIONS OF CREDIT
The majority of the Bank's loans and commitments and all commercial and standby
letters of credit have been granted to customers in the Bank's market area.
Investments in state and municipal securities also involve governmental entities
within the Bank's market area. The concentrations of credit by type of loan are
set forth in Note 4. The distribution of commitments to extend credit related
primarily to unused commercial working capital lines and unused real estate draw
lines. Commercial and standby letters of credit were granted primarily to
commercial borrowers.
The Bank maintains its cash accounts at the Federal Reserve Bank and at various
commercial banks in Alabama, Georgia and Tennessee. The total cash balances in
commercial banks are insured by the FDIC up to $100,000. At December 31, 1996
total uninsured balances amounted to $3,797,368. There were no uninsured
balances at December 31, 1997.
NOTE 15 - RESTRICTIONS ON SUBSIDIARY DIVIDENDS, LOANS OR ADVANCES
The Bank is subject to the dividend restrictions set forth by the State Banking
Department. Under such restrictions, the Bank may not, without the prior
approval of the State Banking Department, declare dividends in excess of the sum
of the current year's earnings plus the retained earnings from the prior two
years. The dividends, as of December 31, 1997, that the Bank could declare,
without the approval of the State Banking Department, amounted to approximately
$3,777,506.
NOTE 16 - PROFIT-SHARING PLAN
The Company and its subsidiaries have a profit-sharing plan covering all
employees who qualify as to length of service. Annual contributions are made to
the plan as determined by the Board of Directors. The Plan's benefits become
vested according to the following schedule:
<TABLE>
<CAPTION>
Total Completed Percentage of Total
Years of Service Benefit Vested
---------------- --------------
<S> <C>
3 years 20%
4 years 40%
5 years 60%
6 years 80%
7 years 100%
</TABLE>
Profit-sharing expense for the years ended December 31, 1997 and 1996 was
$166,762 and $127,898, respectively.
F-29
<PAGE> 119
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
HOMEBANC CORPORATION AND SUBSIDIARIES
DECEMBER 31, 1997 AND 1996
NOTE 17 - LEASES
The Bank has entered into various operating lease agreements involving land,
buildings and equipment. These leases are noncancellable and expire on various
dates through the year 2011. The leases provide for renewal options and
generally require the Bank to pay maintenance, insurance and property taxes. For
the years ended December 31, 1997 and 1996, rental expense for operating leases
was $57,203 and $109,189, respectively.
Future minimum lease payments under noncancellable operating lease agreements
with initial or remaining terms exceeding one year at December 31, 1997 are as
follows:
<TABLE>
<S> <C>
Years ending December 31,
1998.......................................................... $ 23,882
1999 ......................................................... 18,435
2000.......................................................... 14,365
2001 ......................................................... 12,000
2002.......................................................... 12,000
Thereafter.................................................... 98,000
---------
$ 178,682
=========
</TABLE>
NOTE 18 - LITIGATION
While the Company and its subsidiaries are parties to various legal proceedings
arising from the ordinary course of business, management believes after
consultation with legal counsel that there are no proceedings threatened or
pending against the Company or its subsidiaries that will, individually or in
the aggregate, have a material adverse effect on the business or consolidated
financial condition of the Company.
NOTE 19 - SUBSEQUENT EVENTS
In March 1998, Valley Finance, Inc., a subsidiary of the Company, sold its Boaz
and Gadsden, Alabama locations to Community Bancshares, Inc. for approximately
$6,000,000, representing the approximate book value of the assets sold. The
finance company subsidiary will continue to operate in Guntersville, Alabama.
NOTE 20 - FAIR VALUE OF FINANCIAL INSTRUMENTS
The estimated fair values of the Company's financial instruments as of December
31, 1997 and 1996 are as follows:
F-30
<PAGE> 120
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
HOMEBANC CORPORATION AND SUBSIDIARIES
DECEMBER 31, 1997 AND 1996
<TABLE>
<CAPTION>
1997 1996
---------------------- ------------------------
CARRYING Carrying
AMOUNT FAIR VALUE Amount Fair Value
-------- ---------- -------- ----------
(IN THOUSANDS) (in thousands)
<S> <C> <C> <C> <C>
FINANCIAL ASSETS
Cash and short-term investments $ 5,839 $ 5,839 $ 9,063 $ 9,063
Investment securities ......... 28,237 28,336 30,494 30,548
Loans ......................... 114,256 113,991 101,576 101,455
Accrued interest and dividends
receivable ................ 1,418 1,418 1,324 1,324
-------- -------- -------- --------
TOTAL FINANCIAL ASSETS ........ $149,750 $149,584 $142,457 $142,390
======== ======== ======== ========
FINANCIAL LIABILITIES
Deposits ...................... $113,285 $113,501 $129,914 $130,171
Other short-term borrowings ... 2,274 2,274 629 629
Long-term debt ................ 4,663 4,663 1,363 1,363
Accrued interest payable ...... 608 608 609 609
-------- -------- -------- --------
TOTAL FINANCIAL LIABILITIES ... $140,830 $141,046 $132,515 $132,772
======== ======== ======== ========
UNRECOGNIZED FINANCIAL INSTRUMENTS
Commitments to extend credit .. $ 9,083 $ 9,083 $ 7,015 $ 7,015
Credit card arrangements ...... 567 567 515 515
Stand by letters of credit .... 898 898 441 441
-------- -------- -------- --------
TOTAL UNRECOGNIZED FINANCIAL
INSTRUMENTS ............... $ 10,548 $ 10,548 $ 7,971 $ 7,971
======== ======== ======== ========
</TABLE>
F-31
<PAGE> 121
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
HOMEBANC CORPORATION AND SUBSIDIARIES
DECEMBER 31, 1997 AND 1996
NOTE 21 - CONDENSED PARENT COMPANY INFORMATION
STATEMENTS OF FINANCIAL CONDITION
<TABLE>
<CAPTION>
DECEMBER 31,
----------------------------
1997 1996
----------- -----------
<S> <C> <C>
ASSETS
Cash and due from banks ........................... $ 798,035 $ 833,873
Investment in and amounts due from subsidiaries
(equity method) - eliminated upon consolidation 14,507,262 13,155,026
Other assets ...................................... 329,389 203,727
----------- -----------
TOTAL ASSETS .................................. $15,634,686 $14,192,626
=========== ===========
LIABILITIES AND SHAREHOLDERS' EQUITY
LIABILITIES
Interest bearing deposits ......................... $ 49,586 $ -0-
Long-term debt .................................... 1,112,750 1,363,208
Other liabilities ................................. 281,331 211,515
----------- -----------
Total Liabilities ............................. 1,443,667 1,574,723
Shareholders' Equity .............................. 14,191,019 12,617,903
----------- -----------
Total Liabilities and Shareholders' Equity .... $15,634,686 $14,192,626
=========== ===========
</TABLE>
F-32
<PAGE> 122
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
HOMEBANC CORPORATION AND SUBSIDIARIES
DECEMBER 31, 1997 AND 1996
STATEMENTS OF INCOME
<TABLE>
<CAPTION>
Years Ended December 31,
-----------------------------
1997 1996
----------- -----------
<S> <C> <C>
INCOME
From subsidiaries - eliminated upon consolidation
Dividends ................................... $ 1,000,000 $ 1,098,000
Rent ........................................ 27,840 27,840
----------- -----------
1,027,840 1,125,840
EXPENSES
Interest ........................................ 95,507 114,059
Other expenses .................................. 47,527 39,155
----------- -----------
143,034 153,214
----------- -----------
Income before income taxes and equity in
undistributed earnings of subsidiaries .......... 884,806 972,626
Income tax benefit ................................... (36,493) (43,053)
----------- -----------
Income before equity in undistributed earnings of
subsidiaries .................................... 921,299 1,015,679
Equity in undistributed earnings of subsidiaries ..... 1,252,843 1,389,005
----------- -----------
NET INCOME ........................................... $ 2,174,142 $ 2,404,684
=========== ===========
</TABLE>
F-33
<PAGE> 123
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
HOMEBANC CORPORATION AND SUBSIDIARIES
DECEMBER 31, 1997 AND 1996
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Years Ended December 31.
-----------------------------
1997 1996
----------- -----------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income ....................................... $ 2,174,142 $ 2,404,684
Adjustments to reconcile net income to net cash
provided by operating activities:
Equity in undistributed income of subsidiaries (1,252,843) (1,389,005)
Provision for depreciation and amortization .. 7,326 7,326
Other, net ................................... (117,589) 95,695
----------- -----------
NET CASH PROVIDED BY OPERATING ACTIVITIES .... 811,036 1,118,700
----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES
Net increase in demand deposits .................. 49,586 -0-
Repayment of long-term debt ...................... (250,458) (250,459)
Cash dividends paid .............................. (666,323) (559,393)
Issuance of treasury stock ....................... 20,321 10,183
----------- -----------
NET CASH USED IN FINANCING ACTIVITIES ........ (846,874) (799,669)
----------- -----------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS .. (35,838) 319,031
----------- -----------
Cash and Cash Equivalents at Beginning of Year ........ 833,873 514,842
----------- -----------
CASH AND CASH EQUIVALENTS AT END OF YEAR .............. $ 798,035 $ 833,873
=========== ===========
</TABLE>
F-34
<PAGE> 124
[SCHAUER, TAYLOR, COX & EDWARDS, P.C.]
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and Shareholders
HomeBanc Corporation and Subsidiaries
Guntersville, Alabama
We have audited the accompanying consolidated statements of financial condition
of HomeBanc Corporation and subsidiaries as of December 31, 1996 and 1995, and
the related consolidated statements of income, shareholders' equity and cash
flows for the years then ended. These consolidated financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these consolidated financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the consolidated financial statements are
free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the consolidated financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the consolidated financial position of
HomeBanc Corporation and subsidiaries as of December 31, 1996 and 1995, and the
consolidated results of their operations and their cash flows for the years then
ended in conformity with generally accepted accounting principles.
Birmingham, Alabama
January 10, 1997 /s/ Schauer, Taylor, Cox & Edwards, P.C.
F-35
<PAGE> 125
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
HOMEBANC CORPORATION AND SUBSIDIARIES
DECEMBER 31, 1996 AND 1995
<TABLE>
<CAPTION>
1996 1995
------------- -------------
<S> <C> <C>
ASSETS
Cash and due from banks ................................................ $ 5,742,806 $ 5,895,791
Federal funds sold ..................................................... 3,320,000 1,980,000
Securities available for sale .......................................... 25,805,633 29,577,841
Securities held to maturity, fair value of $4,742,155 and $4,454,917 for
1996 and 1995, respectively ......................................... 4,688,409 4,380,280
Loans .................................................................. 105,319,381 94,512,970
Less: Unearned income .................................................. 3,743,624 4,491,917
Allowance for loan losses ........................................ 1,338,517 1,267,152
------------- -------------
NET LOANS ........................................................ 100,237,240 88,753,901
Premises and equipment, net ............................................ 4,365,235 2,378,584
Accrued interest ....................................................... 1,324,293 1,379,536
Foreclosed real estate ................................................. 25,957 81,923
Other assets ........................................................... 355,466 402,425
------------- -------------
TOTAL ASSETS ..................................................... $ 145,865,039 $ 134,830,281
============= =============
LIABILITIES AND SHAREHOLDERS' EQUITY
LIABILITIES
Deposits:
Noninterest-bearing ................................................. $ 19,365,454 $ 20,198,375
Interest-bearing .................................................... 110,548,515 100,552,168
------------- -------------
TOTAL DEPOSITS ................................................... 129,913,969 120,750,543
Other short-term borrowings ......................................... 629,312 433,230
Accrued interest .................................................... 608,595 645,196
Long-term debt ...................................................... 1,363,208 1,613,667
Other liabilities ................................................... 732,052 577,294
------------- -------------
TOTAL LIABILITIES ................................................ 133,247,136 124,019,930
SHAREHOLDERS' EQUITY
Common stock, par value $.10 per share, 1,500,000 shares
authorized, 1,339,726 and 669,863 shares issued as of
December 31, 1996 and 1995 .......................................... 133,973 66,986
Capital surplus ........................................................ 1,661,595 1,658,456
Retained earnings ...................................................... 10,918,640 9,086,124
Treasury stock, 7,442 shares and 3,988 shares at cost as of
December 31,1996 and 1995, respectively ............................. (98,192) (105,236)
Net unrealized holding gains on securities available for sale,
net of deferred income taxes ........................................ 1,887 104,021
------------- -------------
TOTAL SHAREHOLDERS' EQUITY ....................................... 12,617,903 10,810,351
------------- -------------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY ....................... $ 145,865,039 $ 134,830,281
============= =============
</TABLE>
See notes to consolidated financial statements
F-36
<PAGE> 126
CONSOLIDATED STATEMENTS OF INCOME
HOMEBANC CORPORATION AND SUBSIDIARIES
YEARS ENDED DECEMBER 31, 1996 AND 1995
<TABLE>
<CAPTION>
1996 1995
------------ ------------
<S> <C> <C>
INTEREST INCOME
Interest and fees on loans ..................... $ 11,119,383 $ 9,961,297
Interest and dividends on investment securities:
Taxable securities .......................... 1,765,290 1,739,105
Securities exempt from federal income taxes . 218,680 209,537
Interest on federal funds sold ................. 163,016 303,869
Interest on deposits in banks .................. 1,080 -0-
------------ ------------
TOTAL INTEREST INCOME ....................... 13,267,449 12,213,808
------------ ------------
INTEREST EXPENSE
Interest on deposits ........................... 5,281,115 5,050,581
Interest on other short-term borrowings ........ 18,002 19,934
Interest on long-term debt ..................... 114,059 143,490
------------ ------------
TOTAL INTEREST EXPENSE ...................... 5,413,176 5,214,005
------------ ------------
Net interest income ................................ 7,854,273 6,999,803
Provision for loan losses .......................... 674,813 765,400
------------ ------------
NET INTEREST INCOME AFTER PROVISION FOR LOAN LOSSES 7,179,460 6,234,403
NONINTEREST INCOME
Service charges on deposits .................... 597,990 555,999
Insurance commissions .......................... 183,570 282,681
Investment securities gains (losses) ........... (28,500) 70
Gain on sale of assets ......................... 1,161 111,702
Other operating income ......................... 145,936 112,654
------------ ------------
TOTAL NONINTEREST INCOME .................... 900,157 1,063,106
------------ ------------
NONINTEREST EXPENSES
Salaries and employee benefits ................. 2,538,986 2,419,926
Occupancy and equipment expense ................ 576,908 514,403
Other operating expenses ....................... 1,505,846 1,572,887
------------ ------------
TOTAL NONINTEREST EXPENSES .................. 4,621,740 4,507,216
------------ ------------
Income before income taxes ......................... 3,457,877 2,790,293
Provision for income taxes ......................... 1,053,193 932,159
------------ ------------
NET INCOME ......................................... $ 2,404,684 $ 1,858,134
============ ============
EARNINGS PER SHARE OF COMMON STOCK:
Earnings Per Common Share .......................... $ 1.81 $ 1.39
Weighted average common shares outstanding ......... 1,332,002 1,334,030
</TABLE>
See notes to consolidated financial statements
F-37
<PAGE> 127
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
HOMEBANC CORPORATION AND SUBSIDIARIES
YEARS ENDED DECEMBER 31, 1996 AND 1995
<TABLE>
<CAPTION>
Unrealized
Gains
Common Capital Retained Treasury (Losses) on
Stock Surplus Earnings Stock Securities Total
----- ------- -------- ----- ---------- -----
<S> <C> <C> <C> <C> <C> <C>
Balance at
December 31,
1994....................... $ 66,986 $1,658,456 $ 7,594,419 $ (7,540) $ (688,085) $ 8,624,236
Cash dividends -
Common - $.55 per
share...................... (366,429) (366,429)
Purchase of 4,070
shares of stock............ (108,750) (108,750)
Issuance of 397
treasury shares ........... 11,054 11,054
Net change in
unrealized gains
(losses) on securities..... 792,106 792,106
Net income - 1995.......... 1,858,134 1,858,134
--------- ---------- ----------- -------- ---------- -----------
Balance at
December 31,
1995....................... 66,986 1,658,456 9,086,124 (105,236) 104,021 10,810,351
Stock split effected
in the form of a
dividend .................. 66,987 (66,987) -0-
Cash dividends -
Common - $.38 per
share ..................... (505,181) (505,181)
Issuance of 534
treasury shares............ 3,139 7,044 10,183
Net change in
unrealized gains
(losses) on securities..... (102,134) (102,134)
Net Income - 1996.......... 2,404,684 2,404,684
--------- ---------- ----------- -------- ---------- -----------
Balance at
December 31,
1996 ...................... $133,973 $1,661,595 $10,918,640 $ (98,192) $ 1,887 $12,617,903
========= ========== =========== ========= ========== ===========
</TABLE>
See notes to consolidated financial statements
F-38
<PAGE> 128
CONSOLIDATED STATEMENTS OF CASH FLOWS
HOMEBANC CORPORATION AND SUBSIDIARIES
YEARS ENDED DECEMBER 31, 1996 AND 1995
<TABLE>
<CAPTION>
1996 1995
------------ ------------
CASH FLOWS FROM OPERATING ACTIVITIES
<S> <C> <C>
Net income .......................................................... $ 2,404,684 $ 1,858,134
Adjustments to reconcile net income to net cash provided by operating
activities:
Provision for loan losses ........................................ 674,813 765,400
Depreciation, amortization and accretion, net .................... 90,887 116,707
Provision for deferred taxes ..................................... (133,286) 83,286
Realized investment security (gains) losses ...................... 28,500 (70)
Gain on disposition of premises and equipment .................... (1,161) (111,702)
Loss on disposition of other real estate ......................... 18,766 -0-
(Increase) decrease in accrued interest receivable ............... 55,243 (337,959)
(Decrease) increase in accrued interest payable .................. (36,601) 96,055
Other, net ....................................................... 457,304 (382,512)
------------ ------------
NET CASH PROVIDED BY OPERATING ACTIVITIES ..................... 3,559,149 2,087,339
------------ ------------
CASH FLOWS FROM INVESTING ACTIVITIES
Proceeds from sales of investment securities available for sale ..... 1,319,287 2,622,289
Proceeds from maturities of investments securities available for
sale.............................................................. 4,626,439 661,240
Purchases of investments securities available for sale .............. (2,316,570) (6,515,818)
Proceeds from maturities of investment securities held to maturity .. 156,600 187,351
Purchases of investment securities held to maturity ................. (465,237) (702,496)
Net increase in loans to customers .................................. (12,143,375) (13,507,286)
Net proceeds from the sale of assets ................................ 228,873 679,512
Net proceeds from sale of other real estate ......................... 22,423 179,568
Purchases of premises and equipment ................................. (2,360,414) (467,781)
------------ ------------
NET CASH USED IN INVESTING ACTIVITIES ......................... (10,931,974) (16,863,421)
------------ ------------
CASH FLOWS FROM FINANCING ACTIVITIES
Net increase in demand deposits, NOW accounts and savings accounts .. 1,529,126 4,345,043
Net increase in certificates of deposits ............................ 7,634,300 8,078,348
Net increase (decrease) in short-term borrowings .................... 196,083 (362,148)
Proceeds from long-term debt ........................................ -0- 107,000
Repayment of long-term debt ......................................... (250,459) (172,083)
Issuance of common stock ............................................ -0- 11,054
Purchase of common stock ............................................ -0- (108,750)
Issuance of treasury stock .......................................... 10,183 -0-
Cash dividends ...................................................... (559,393) (287,185)
------------ ------------
NET CASH PROVIDED BY FINANCING ACTIVITIES ..................... 8,559,840 11,611,279
------------ ------------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS .................... 1,187,015 (3,164,803)
Cash and Cash Equivalents at Beginning of Year .......................... 7,875,791 11,040,594
------------ ------------
CASH AND CASH EQUIVALENTS AT END OF YEAR ................................ $ 9,062,806 $ 7,875,791
============ ============
SUPPLEMENTAL DISCLOSURES
Cash paid during the year for interest .............................. $ 5,449,777 $ 5,117,950
============ ============
Cash paid during the year for income taxes .......................... $ 724,778 $ 1,066,657
============ ============
Loans transferred to foreclosed to real estate during the year ...... $ 164,624 $ 261,491
============ ============
Proceeds from sales of foreclosed real estate financed through
loans ............................................................ $ 179,401 $ 146,853
============ ============
Investment securities transferred to securities available for sale .. $ -0- $ 20,944,050
============ ============
Net increase (decrease) in unrealized gains on securities available
for sale) ........................................................ $ (170,225) $ 1,320,178
============ ============
</TABLE>
See notes to consolidated financial statements
F-39
<PAGE> 129
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
HOMEBANC CORPORATION AND SUBSIDIARIES
DECEMBER 31, 1996 and 1995
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Consolidation
The consolidated financial statements include the accounts of HomeBanc
Corporation, (the "Company") and its wholly owned subsidiaries: The Home Bank
and Valley Finance, Inc., collectively (the "Bank"). All significant
intercompany balances and transactions have been eliminated. Investments in
subsidiaries are carried at the parent company's equity in the underlying net
assets.
Use of Estimates
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
Material estimates that are particularly susceptible to significant change
relate to the determination of the allowance for losses on loans and the
valuation of foreclosed real estate. In connection with the determination of the
estimated losses on loans and foreclosed real estate, management obtains
independent appraisals for significant properties.
While management uses available information to recognize losses on loans and
foreclosed real estate, further reductions in the carrying amounts of loans and
foreclosed assets may be necessary based on changes in local economic
conditions. In addition, regulatory agencies, as an integral part of their
examination process, periodically review the estimated losses on loans and
foreclosed real estate. Such agencies may require the Bank to recognize
additional losses based on their judgments about information available to them
at the time of their examination. Because of these factors, it is reasonably
possible that the estimated losses on loans and foreclosed real estate may
change materially in the near term. However, the amount of the change that is
reasonably possible cannot be estimated.
Investment Securities
Trading Securities: Securities that are held for short-term resale are
classified as trading account securities and recorded at their fair values.
Realized and unrealized gains and losses on trading account securities are
included in other income.
Securities Held to Maturity: Government, Federal agency, and corporate debt
securities that management has the positive intent and ability to hold to
maturity are reported at cost, adjusted for amortization of premiums and
accretion of discounts that are recognized in interest income using methods
approximating the interest method over the period to maturity. Mortgage-backed
securities represent participating interest in pools of long-term first mortgage
loans originated and serviced by issuers of the securities. Mortgage-backed
securities are carried at unpaid principal balances, adjusted for unamortized
premiums and unearned discounts. Premiums and discounts are amortized using
methods approximating the interest method over the remaining period to
contractual maturity, adjusted for anticipated prepayments.
Securities Available for Sale: Available for sale securities consist of
investment securities not classified as trading securities nor as held to
maturity securities. Unrealized holding gains and
F-40
<PAGE> 130
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
HOMEBANC CORPORATION AND SUBSIDIARIES
DECEMBER 31, 1996 AND 1995
losses, net of tax, on available for sale securities are reported as a net
amount in a separate component of shareholders' equity until realized. Gains and
losses on the sale of available for sale securities are determined using the
specific-identification method. The amortization of premiums and the accretion
of discounts are recognized in interest income using methods approximating the
interest method over the period of maturity.
Declines in the fair value of individual held to maturity and available for sale
securities below their cost that are other than temporary result in write-downs
of the individual securities to their fair value. The related write-downs are
included in earnings as realized losses.
The Company and its subsidiaries have no trading securities.
Loans
Loans are stated at unpaid principal balances, less the allowance for loan
losses and net deferred loan fees and unearned discounts.
Unearned discounts on certain consumer installment loans are recognized as
income over the term of the loans using a method that approximates the interest
method.
Loan origination and commitment fees, as well as certain direct origination
costs, are deferred and amortized as a yield adjustment over the lives of the
related loans using the interest method. Amortization of deferred loan fees is
discontinued when a loan is placed on non-accrual status.
Interest income generally is not recognized on specific impaired loans unless
the likelihood of further loss is remote. Interest payments received on such
loans are applied as a reduction of the loan principal balance. Interest income
on other impaired loans is recognized only to the extent of interest payments
received.
The allowance for loan losses is maintained at a level which, in management's
judgment, is adequate to absorb credit losses inherent in the loan portfolio.
The amount of the allowance is based on management's evaluation of the
collectibility of the loan portfolio, including the nature of the portfolio,
credit concentrations, trends in historical loss experience, specific impaired
loans, economic conditions and other risks inherent in the portfolio. Allowances
for impaired loans are generally determined based on collateral values or the
present value of the estimated cash flows. The allowance is increased by a
provision for loan losses, which is charged to expense, and reduced by
charge-offs, net of recoveries.
Premises and Equipment
Premises and equipment are stated at cost less accumulated depreciation.
Expenditures for additions and major improvements that significantly extend the
useful lives of the assets are capitalized. Expenditures for repairs and
maintenance are charged to expense as incurred. The carrying values of assets
traded in are used to adjust the carrying values of the new assets acquired by
trade. Assets which are disposed of are removed from the accounts and the
resulting gains or losses are recorded in operations.
Depreciation is provided generally by accelerated and straight-line methods
based on the estimated useful lives of the respective assets.
F-41
<PAGE> 131
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
HOMEBANC CORPORATION AND SUBSIDIARIES
DECEMBER 31, 1996 and 1995
Foreclosed Real Estate
Foreclosed real estate includes both formally foreclosed property and
in-substance foreclosed property. In-substance foreclosed properties are those
properties for which the institution has taken physical possession, regardless
of whether formal foreclosure proceedings have taken place.
At the time of foreclosure, foreclosed real estate is recorded at the lower of
the carrying amount or fair value less cost to sell, which becomes the
property's new basis. Any write-downs based on the asset's fair value at date of
acquisition are charged to the allowance for loan losses. After foreclosure,
these assets are carried at the lower of their new cost basis or fair value less
cost to sell. Costs incurred in maintaining foreclosed real estate and
subsequent adjustments to the carrying amount of the property are included in
income (loss) on foreclosed real estate.
Income Taxes
Income taxes are provided for the tax effects of the transactions reported in
the financial statements and consist of taxes currently due plus deferred taxes
related primarily to differences between the basis of available for sale
securities, allowance for loan losses, estimated losses on foreclosed real
estate, accumulated depreciation, and accrued employee benefits for financial
and income tax reporting. The deferred tax assets and liabilities represent the
future tax return consequences of those differences, which will either be
taxable or deductible when the assets and liabilities are recovered or settled.
Deferred tax assets and liabilities are reflected at income tax rates applicable
to the period in which the deferred tax assets or liabilities are expected to be
realized or settled. As changes in tax laws or rates are enacted, deferred tax
assets and liabilities are adjusted through the provision for income taxes.
The Company and its subsidiaries file a consolidated federal income tax return.
The subsidiaries provide for income taxes on a separate return basis, and remit
to the Company amounts determined to be currently payable.
Earnings Per Common Share
Earnings per common share are calculated on the basis of the weighted average
number of common shares outstanding, after giving retroactive effect to a
2-for-1 stock split for all periods presented.
Profit Sharing Plan
The Company and its subsidiaries have a profit sharing plan which covers
substantially all employees. Contributions are made to the plan as determined by
the Board of Directors.
Off-Balance Sheet Financial Instruments
In the ordinary course of business the Bank has entered into off-balance sheet
financial instruments consisting of commitments to extend credit, commitments
under credit card arrangements, commercial letters of credit and standby letters
of credit. Such financial instruments are recorded in the financial statements
when they become payable.
The Bank has available as a source of short-term financing the purchase of
federal funds from other commercial banks in the amount of $5,500,000. The Bank
also has available a line of credit of
F-42
<PAGE> 132
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
HOMEBANC CORPORATION AND SUBSIDIARIES
DECEMBER 31, 1996 and 1995
$4,000,000 from the Federal Home Loan Bank of Atlanta.
Cash Flow Information
The Company considers all cash and amounts due from depository institutions and
federal funds sold to be cash equivalents for purposes of the statements of cash
flows.
Fair Values of Financial Instruments
Statement of Financial Accounting Standards No. 107, "Disclosures about Fair
Value of Financial Instruments," requires disclosures of fair value information
about financial instruments, whether or not recognized in the consolidated
statements of financial condition. In cases where quoted market prices are not
available, fair values are based on estimates using present value or other
valuation techniques. Those techniques are significantly affected by the
assumptions used, including the discount rate and estimates of future cash
flows. In that regard, the derived fair value estimates cannot be substantiated
by comparison to independent markets and, in many cases, could not be realized
in immediate settlement of the instruments. Statement No. 107 excludes certain
financial instruments and all nonfinancial instruments from its disclosure
requirements. Accordingly, the aggregate fair value amounts presented do not
represent the underlying value of the Company.
The following methods and assumptions were used by the Company in estimating its
fair value disclosures for financial instruments:
Cash and Cash Equivalents: The carrying amounts reported in the consolidated
statements of financial condition for cash and cash equivalents approximate
those assets' fair values.
Investment Securities (including Trading Account Securities): Fair values for
investment securities are based on quoted market prices, where available. If a
quoted market price is not available, fair values are based on quoted market
prices of comparable instruments.
Loans: For variable-rate loans that reprice frequently and with no significant
change in credit risk, fair values are based on carrying amounts. The fair
values of other loans (for example, fixed rate commercial real estate and rental
property mortgage loans and commercial and industrial loans) are estimated using
discounted cash flow analysis, based on interest rates currently being offered
for loans with similar terms to borrowers of similar credit quality. Loan fair
value estimates include judgments regarding future expected loss experience and
risk characteristics. Fair values for impaired loans are estimated using
discounted cash flow analysis or underlying collateral values, where applicable.
Accrued Interest and Dividends Receivable: The carrying amount of accrued
interest and dividends receivable approximates its fair value.
Deposits: The fair value disclosed for demand deposits are, by definition, equal
to the amount payable on demand at the reporting date (that is, their carrying
amounts). The carrying amounts of variable-rate, fixed-term money market
accounts and certificates of deposit approximate their fair values. Fair values
for fixed-rate certificates of deposit are estimated using a discounted cash
flow calculation that applies interest rates currently offered on certificates
to a schedule of aggregated expected monthly maturities on time deposits.
Accrued Interest Payable: The carrying amount of accrued interest payable
approximates its fair
F-43
<PAGE> 133
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
HOMEBANC CORPORATION AND SUBSIDIARIES
DECEMBER 31, 1996 AND 1995
value.
Federal Funds Purchased, Short-term Borrowings and Notes Payable: The carrying
amounts of federal funds purchased, short-term borrowings and notes payable
approximate their fair values.
Long-term Debt: For long-term debt, which bears interest at a current rate, the
carrying amount is a reasonable estimate of fair value.
Loan Commitments: Commitments to extend credit were evaluated and fair value was
estimated using the fees currently charged to enter into similar agreements,
taking into account the remaining terms of the agreements and the present
creditworthiness of the counterparties. For fixed-rate loan commitments, fair
value also considers the difference between current levels of interest rates and
the committed rates.
Reclassifications
Certain amounts in 1995 have been reclassified to conform with the 1996
presentation.
Recently Issued Accounting Standards
In March 1995, the Financial Accounting Standards Board (FASB) issued Statement
of Financial Accounting Standards (SFAS) No. 121, "Accounting for the Impairment
of Long-Lived Assets and for Long-Lived Assets to be Disposed of." This
statement establishes accounting standards for the impairment of long-lived
assets, certain identifiable intangibles, and goodwill related to those assets
to be held and used and for long-lived assets and certain identifiable
intangibles to be disposed of. SFAS No. 121 requires that long-lived assets and
certain identifiable intangibles be reviewed for impairment whenever events or
changes in circumstances indicate that the carrying amount of an asset may not
be recoverable. Recoverability of the assets described above is measured by a
comparison of the carrying amount of the asset to future undiscounted cash flows
expected to be generated by the asset. If such assets are considered impaired,
the amount of impairment to be recognized is measured by the amount by which the
carrying amount of the assets exceeds the fair value of the assets. Assets to be
disposed of are reported at the lower of the carrying amount or fair value less
costs to sell. Adoption of SFAS No. 121 did not have a material impact on the
Company's consolidated financial statements.
In May 1995, the FASB also issued SFAS No. 122, "Accounting for Mortgage
Servicing Rights." This statement amends certain provisions of SFAS No. 65 to
substantially eliminate the accounting distinction between rights to service
mortgage loans for others that are acquired through loan origination activities
and those acquired through purchase transactions. The statement requires an
allocation of the total cost of mortgage loans held for sale to mortgage
servicing rights and mortgage loans held for sale (without mortgage servicing
rights) based on their relative fair values. The adoption of SFAS No. 122 did
not have a material impact on the Company's consolidated financial statements.
In October 1995, the FASB issued SFAS No. 123, "Accounting for Stock-Based
Compensation," which defines a fair value based method of accounting for an
employee stock option plan. This statement establishes financial accounting and
reporting standards for stock-based employee compensation plans and stock-based
non-employee compensation. These transactions must be accounted for based on the
fair value of the consideration received or the fair value of the equity
instruments issued, whichever is more reliably measured. Under the fair value
based method, compensation is measured at the grant date based on the value of
the award and is recognized over the service period, which is
F-44
<PAGE> 134
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
HOMEBANC CORPORATION AND SUBSIDIARIES
DECEMBER 31, 1996 AND 1995
usually the vesting period. However, SFAS No. 123 allows an entity to continue
to measure compensation costs for those plans using the intrinsic value based
method of accounting as prescribed by APB Opinion No. 25, "Accounting for Stock
Issued to Employees". The adoption of this statement did not have a material
effect on the Company's consolidated financial statements.
In June 1996, the FASB issued SFAS No. 125, "Accounting for Transfers and
Servicing of Financial Assets and Extinguishments of Liabilities." SFAS No. 125
was amended by SFAS No. 127, which defers the effective date of certain
provisions of SFAS No. 125 until January 1, 1998. SFAS No. 125 is to be applied
prospectively to transfers and servicing of financial assets and extinguishments
of liabilities after December 31, 1996. This statement utilizes the
financial-components approach that focuses on control. Under that approach,
after a transfer of financial assets, an entity recognizes the financial and
servicing assets it controls and the liabilities it has incurred, derecognizes
financial assets when control has been surrendered, and derecognizes liabilities
when extinguished.
Management does not believe that adoption of SFAS No. 125 will have a material
impact on the Company's consolidated financial statements.
Effective for fiscal years ending after December 15, 1996, SFAS No. 126,
"Exemption from Certain Required Disclosures about Financial Instruments for
Certain Nonpublic Entities," was issued by the FASB which amends FASB No. 107,
"Disclosures about Fair Value of Financial Instruments." This statement allows
an entity to be exempt from the SFAS No. 107 disclosures if the following
criteria are met: the entity is a nonpublic entity, the entity's total assets
are less than $100 million on the date of the financial statements, and the
entity has not held or issued any derivative financial instruments, as defined
in FASB No. 119, "Disclosure about Derivative Financial Instruments and Fair
Value of Financial Instruments," other than loan commitments, during the
reporting period. This statement did not impact the Company's consolidated
financial statements.
NOTE 2 - RESTRICTIONS ON CASH AND DUE FROM BANK ACCOUNTS
The Bank is required by regulatory authorities to maintain average reserve
balances either in vault cash or on deposit with the Federal Reserve. The
average amount of those reserves required at December 31, 1996 and 1995, was
approximately $760,000 and $595,000, respectively.
NOTE 3 - INVESTMENT SECURITIES
The carrying amounts of investment securities as shown in the consolidated
statements of financial condition of the Company and their approximate fair
values at December 31, 1996 and 1995 were as follows:
F-45
<PAGE> 135
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
HOMEBANC CORPORATION AND SUBSIDIARIES
DECEMBER 31, 1996 AND 1995
<TABLE>
<CAPTION>
Gross Gross
Unrealized Unrealized Estimated
Amortized Cost Gains Losses Fair Value
-------------- ---------- ---------- ----------
SECURITIES AVAILABLE FOR SALE
- -----------------------------
DECEMBER 31, 1996:
<S> <C> <C> <C> <C>
U. S. GOVERNMENT AND AGENCY
SECURITIES ................. $21,202,573 $ 265,577 $ 193,552 $21,274,598
MORTGAGE-BACKED SECURITIES ... 3,943,215 58,855 139,999 3,862,071
EQUITY SECURITIES ............ 656,700 12,264 -0- 668,964
----------- ----------- ----------- -----------
$25,802,488 $ 336,696 $ 333,551 $25,805,633
=========== =========== =========== ===========
December 31, 1995:
U. S. Government and agency
securities ................. $23,749,701 $ 492,737 $ 255,491 $23,986,947
Mortgage-backed securities ... 5,191,270 126,517 192,749 5,125,038
Equity securities ............ 463,500 2,356 -0- 465,856
----------- ----------- ----------- -----------
$29,404,471 $ 621,610 $ 448,240 $29,577,841
=========== =========== =========== ===========
SECURITIES HELD TO MATURITY
- ---------------------------
DECEMBER 31, 1996:
STATE AND MUNICIPAL SECURITIES $ 4,688,409 $ 74,196 $ 20,450 $ 4,742,155
=========== =========== =========== ===========
December 31, 1995:
State and municipal securities $ 4,380,280 $ 96,160 $ 21,523 $ 4,454,917
=========== =========== =========== ===========
</TABLE>
The contractual maturities of securities held to maturity and securities
available for sale at December 31, 1996 are shown below. Expected maturities
will differ from contractual maturities because borrowers may have the right to
call or prepay obligations with or without call or prepayment penalties.
F-46
<PAGE> 136
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
HOMEBANC CORPORATION AND SUBSIDIARIES
DECEMBER 31, 1996 AND 1995
<TABLE>
<CAPTION>
Securities Securities
Held to Maturity Available for Sale
---------------------------- -----------------------------
Amortized Amortized
Cost Fair Value Cost Fair Value
------------- --------- --------- ----------
<S> <C> <C> <C> <C>
Due in one year or less .... $ 415,525 $ 418,451 $ 7,307,345 $ 7,315,743
Due after one year through
five years .............. 3,205,092 3,248,901 15,698,887 15,618,791
Due after five years through
ten years ............... 1,067,792 1,074,803 1,673,184 1,771,413
Due after ten years ........ -0- -0- 466,372 430,722
Equity securities .......... -0- -0- 656,700 668,964
----------- ----------- ----------- -----------
$ 4,688,409 $ 4,742,155 $25,802,488 $25,805,633
=========== =========== =========== ===========
</TABLE>
Mortgage-backed securities have been included in the maturity tables based upon
the guaranteed payoff date of each security.
Equity securities include a restricted investment in Federal Home Loan Bank
stock which must be maintained to secure the available lines of credit. The
amount of investment in this stock amounted to $403,700 and $265,300 at December
31, 1996 and 1995, respectively.
Sales of securities available for sale during 1996 resulted in gross realized
losses of $30,100. Dispositions through calls, maturities and paydowns of
securities held to maturity resulted in net gains of $1,600.
During 1995, dispositions through calls, maturities and paydowns of securities
available for sale resulted in net gains of $70.
Investment securities pledged to secure public funds on deposit and for other
purposes as required by law amounted to approximately $13,628,000 and
$11,528,000 at December 31, 1996 and 1995, respectively.
NOTE 4 - LOANS
The Bank grants loans to customers primarily in Marshall County of North Central
Alabama.
F-47
<PAGE> 137
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
HOMEBANC CORPORATION AND SUBSIDIARIES
DECEMBER 31, 1996 AND 1995
The major classifications of loans as of December 31, 1996 and 1995 were as
follows:
<TABLE>
<CAPTION>
1996 1995
--------------- ---------------
<S> <C> <C>
Commercial, financial and agricultural......................... $ 23,948,589 $ 19,799,732
Real estate - construction..................................... 1,254,042 1,398,549
Real estate - mortgage......................................... 54,533,785 46,147,876
Consumer....................................................... 25,531,984 26,492,103
Other (including overdrafts)................................... 50,981 674,710
--------------- ---------------
105,319,381 94,512,970
Unearned income................................................ 3,743,624 4,491,917
Allowance for loan losses...................................... 1,338,517 1,267,152
--------------- ---------------
Net loans...................................................... $ 100,237,240 $ 88,753,901
=============== ================
</TABLE>
Certain directors, executive officers and principal shareholders including their
immediate families and associates were loan customers of the Bank during 1996
and 1995. Such loans are made in the ordinary course of business at normal
credit terms, including interest rates and collateral and do not represent more
than a normal risk of collection. Total loans to these persons at December 31,
1996 and 1995, amounted to $3,961,285 and $3,645,134, respectively.
As of December 31, 1996 and 1995, there were no loans which the Bank had
specifically classified as impaired. Other loans on which the accrual of
interest had been discontinued or reduced amounted to approximately $367,000 and
$140,000 at December 31, 1996 and 1995, respectively.
For the years ended December 31, 1996 and 1995, the difference between gross
interest income that would have been recorded in such period if non-accruing
loans had been current in accordance with their original terms and the amount of
interest income on those loans that was included in such period's net income was
approximately $20,250 and $6,500, respectively.
The Bank has no commitments to loan additional funds to the borrowers of
non-accrual loans.
F-48
<PAGE> 138
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
HOMEBANC CORPORATION AND SUBSIDIARIES
DECEMBER 31, 1996 AND 1995
NOTE 5 - ALLOWANCE FOR LOAN LOSSES
Changes in the allowance for loan losses for the years ended December 31, 1996
and 1995 were as follows:
<TABLE>
<CAPTION>
1996 1995
----------- -----------
<S> <C> <C>
Balance at beginning of year $ 1,267,152 $ 1,288,512
Charge-offs ................ (766,932) (890,068)
Recoveries ................. 163,484 103,308
----------- -----------
Net (charge-offs) recoveries (603,448) (786,760)
Provision for loan losses .. 674,813 765,400
----------- -----------
Balance at end of year ..... $ 1,338,517 $ 1,267,152
=========== ===========
</TABLE>
NOTE 6 - PREMISES AND EQUIPMENT
Premises and equipment as of December 31, 1996 and 1995 is as follows:
<TABLE>
<CAPTION>
1996 1995
---------- ----------
<S> <C> <C>
Land .......................... $ 485,177 $ 515,152
Land improvements ............. 179,024 179,024
Buildings ..................... 1,259,435 1,337,851
Furniture and equipment ....... 1,605,817 1,475,355
Automobiles ................... 12,427 19,427
Construction in process ....... 2,503,778 387,999
---------- ----------
6,045,658 3,914,808
Less allowance for depreciation 1,680,423 1,536,224
---------- ----------
$4,365,235 $2,378,584
========== ==========
</TABLE>
The provisions for depreciation charged to occupancy and equipment expense for
the years ended December 31, 1996 and 1995 were $146,051 and $179,885,
respectively.
F-49
<PAGE> 139
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
HOMEBANC CORPORATION AND SUBSIDIARIES
DECEMBER 31, 1996 AND 1995
NOTE 7 - DEPOSITS
The major classifications of deposits as of December 31, 1996 and 1995 were as
follows:
<TABLE>
1996 1995
------------ ------------
<S> <C> <C>
Noninterest-bearing demand ................ $ 19,365,454 $ 20,198,375
NOW accounts .............................. 13,943,227 11,593,336
Savings ................................... 29,755,736 31,424,057
Time ...................................... 41,878,962 39,954,959
Certificates of deposit of $100,000 or more 21,912,113 16,201,816
Time deposits open ........................ 3,058,477 1,378,000
------------ ------------
$129,913,969 $120,750,543
============ ============
</TABLE>
The maturities of time certificates of deposit and other time deposits of
$100,000 or more issued by the Bank at December 31, 1996 are as follows:
<TABLE>
<CAPTION>
Time
Certificates of Other Time
Deposit Deposits Total
--------------- ---------------- -------------
<S> <C> <C> <C>
Three months or less ........... $ 5,388,312 $ 3,058,477 $ 8,446,789
Over three through twelve months 12,823,942 -0- 12,823,942
Over twelve months ............. 3,699,859 -0- 3,699,859
----------- -------------- -----------
$21,912,113 $ 3,058,477 $24,970,590
=========== ============== ===========
</TABLE>
NOTE 8 - LONG-TERM DEBT
At December 31, 1996 and 1995, the Company had notes totaling $1,363,208 and
$1,613,667, respectively.
On July 31, 1991, the Company entered into a loan agreement with First Tennessee
Bank, National Association for amounts up to $2,000,000. At December 31, 1996
and 1995, the amounts outstanding on this loan were $1,298,208 and $1,483,667,
respectively, due January 15, 2003, bearing interest at a floating prime,
collateralized by 100% of the common stock of all subsidiary banks. The note
agreement contains provisions which limit the Company's right to transfer or
issue shares of subsidiary banks' stock in order to maintain one hundred percent
(100%) collateral control. Quarterly interest payments are required with annual
principal reductions.
The Company also had a mortgage note payable to a former Director, dated January
21, 1993 in the amount of $65,000 and $130,000 at December 31, 1996 and 1995,
respectively. This note bears interest at floating prime and is collateralized
by one of the bank buildings. Interest is payable monthly with principal due on
January 21, 1997.
F-50
<PAGE> 140
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
HOMEBANC CORPORATION AND SUBSIDIARIES
DECEMBER 31, 1996 AND 1995
Maturities of long-term debt following December 31, 1996 are as follows:
<TABLE>
<S> <C>
1997........................................ $ 250,458
1998........................................ 185,458
1999........................................ 185,458
2000........................................ 185,458
2001........................................ 185,458
Thereafter.................................. 370,918
--------------
$ 1,363,208
==============
</TABLE>
NOTE 9 - SHAREHOLDERS' EQUITY
On January 2, 1996, the Company issued a 2-for-1 stock split effected in the
form of a dividend, effectively increasing the shares outstanding by 669,863.
Earnings per share amounts for 1995 have been restated on an equivalent share
basis.
At December 31, 1996 and 1995, shareholders' equity of the Company consisted of
the following:
Common Stock: 1,500,000 shares authorized, with a par value of $.10 per share,
1,339,726 shares issued as of December 31, 1996 of which there were 1,332,284
shares outstanding and 669,863 shares issued as of December 31, 1995 of which
there were 665,875 shares outstanding. Voting rights equal to one vote per
share.
Capital Surplus: Represents the funds received in excess of par value upon the
issuance of stock, net of issuance costs.
Retained Earnings: Represents the accumulated net earnings of the Company as
reduced by dividends paid to shareholders.
Treasury Stock: Represents 7,422 and 3,988 shares of common stock at December
31, 1996 and 1995, respectively.
Net Unrealized Holding Gains (Losses) on Securities: Represents the net
unrealized gains or losses on securities available for sale, net of deferred
taxes at December 31, 1996 and 1995. This account adjusts as the market values
of the related investment securities change.
NOTE 10 - REGULATORY CAPITAL MATTERS
The Bank is subject to various regulatory capital requirements administered by
the state and federal banking agencies. Failure to meet minimum capital
requirements can initiate certain mandatory and possible additional
discretionary actions by regulators, that if undertaken, could have a direct
material effect on the Bank and the consolidated financial statements. Under
regulatory capital adequacy guidelines and the regulatory framework for prompt
corrective action, the Bank must meet specific capital guidelines involving
quantitative measures of the Bank's assets, liabilities, and certain off-balance
sheet items as calculated under regulatory accounting practices. The Bank's
capital amounts and classification under the prompt corrective guidelines are
also subject to qualitative judgments by the regulators about components, risk
weightings, and other factors.
Quantitative measures established by regulation to ensure capital adequacy
require the Bank
F-51
<PAGE> 141
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
HOMEBANC CORPORATION AND SUBSIDIARIES
DECEMBER 31, 1996 AND 1995
maintain minimum amounts and ratios of total risk-based capital and Tier I
capital to risk-weighted assets (as defined in the regulations), and Tier I
capital to adjusted total assets (as defined). Management believes, as of
December 31, 1996, that the Bank meets all capital adequacy requirements to
which it is subject.
As of September 30, 1995, the most recent notification from the Federal Reserve
Bank of Atlanta, the Bank was categorized as well capitalized under the
regulatory framework for prompt corrective action. To remain categorized as
well capitalized, the Bank will have to maintain minimum total risk-based, Tier
1 risk-based, and Tier 1 leverage ratios as disclosed in the table below. There
are no conditions or events since the most recent notification that management
believes have changed the Bank's prompt corrective action category.
<TABLE>
<CAPTION>
To Be Well Capitalized
Under Prompt
For Capital Corrective Action
Actual Adequacy Purposes Provisions
---------------------------- ----------------------------------------------------
Amount Ratio Amount Ratio Amount Ratio
---------------------------------------------------------------------------------
(In thousands)
<S> <C> <C> <C> <C> <C> <C> <C>
AS OF DECEMBER 31, 1996:
TOTAL RISK-BASED CAPITAL
(TO RISK-WEIGHTED ASSETS) $ 14,412 14.32% >$ 8,051 >8.0% >$ 10,064 > 10.0%
- - - -
TIER 1 CAPITAL
(TO RISK-WEIGHTED ASSETS) $ 13,153 13.07% >$ 4,025 >4.0% >$ 6,038 > 6.0%
- - - -
TIER 1 CAPITAL
(TO ADJUSTED TOTAL ASSETS) $ 13,153 9.29% >$ 5,660 >4.0% >$ 7,075 > 5.0%
- - - -
As of December 31, 1995:
Total Risk-Based Capital
(to Risk-Weighted Assets) $ 13,117 13.19% >$ 7,956 8.0% >$ 9,945 > 10.0%
- - -
Tier 1 Capital
(to Risk-Weighted Assets) $ 11,765 11.83% >$ 3,978 4.0% >$ 5,967 > 6.0%
- - -
Tier 1 Capital
(to Adjusted Total Assets) $ 11,765 8.77% >$ 5,365 4.0% >$ 6,707 > 5.0%
- - -
</TABLE>
F-52
<PAGE> 142
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
HOMEBANC CORPORATION AND SUBSIDIARIES
DECEMBER 31, 1996 AND 1995
NOTE 11 - OTHER OPERATING EXPENSES
The major components of other operating expenses included in noninterest
expenses at December 31, 1996 and 1995 are as follows:
<TABLE>
<CAPTION>
1996 1995
---- ----
<S> <C> <C>
Professional fees.................................................. $ 220,680 $ 145,548
Supplies........................................................... 204,375 215,222
Advertising and promotion.......................................... 120,265 144,156
Director and committee fees........................................ 115,600 114,000
Postage............................................................ 93,048 101,060
Telephone.......................................................... 77,974 74,186
Bank charges....................................................... 64,867 64,193
Insurance expense.................................................. 60,924 60,326
Credit card expense................................................ 55,088 41,371
Losses and expense on foreclosed real estate
and repossessions.............................................. 47,212 3,892
Dues and subscriptions............................................. 42,459 42,717
ATM fees........................................................... 37,350 45,370
FDIC and State assessments......................................... 16,195 111,063
Other ............................................................ 349,809 409,783
----------- -----------
$ 1,505,846 $ 1,572,887
=========== ===========
</TABLE>
NOTE 12 - INCOME TAXES
Federal and state income taxes receivable and (payable) as of December 31, 1996
and 1995 included in other assets and other liabilities, respectively, were as
follows:
<TABLE>
<CAPTION>
1996 1995
----- ----
<S> <C> <C>
Current:
Federal........................................................ $ (162,152) $ 225,176
========== ==========
State.......................................................... $ (148,007) $ (73,634)
========== ==========
</TABLE>
F-53
<PAGE> 143
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
HOMEBANC CORPORATION AND SUBSIDIARIES
DECEMBER 31, 1996 AND 1995
The components of the deferred income tax asset (liability) included in other
assets (other liabilities) are as follows:
<TABLE>
<CAPTION>
1996 1995
--------- ---------
<S> <C> <C>
Deferred tax asset:
Federal .......................................................... $ 240,317 $ 206,188
State ............................................................ 53,116 36,386
--------- ---------
Total gross deferred income tax asset .......................... 293,433 242,574
Less valuation allowance ....................................... -0- (118,986)
--------- ---------
Total deferred income tax asset .............................. 293,433 123,588
--------- ---------
Deferred tax liability:
Federal ......................................................... (103,386) (130,499)
State ........................................................... (19,305) (23,723)
--------- ---------
Total deferred income tax liability .......................... (122,691) (154,222)
--------- ---------
Net deferred tax asset (liability) .................................. $ 170,742 $ (30,634)
========= =========
</TABLE>
The tax effects of each type of income and expense item that gave rise to
deferred taxes are:
<TABLE>
<S> <C> <C>
Net unrealized gain (loss) on securities available
for sale ......................................................... $ (1,258) $ (69,348)
Depreciation ........................................................ (55,990) (51,070)
Allowance for loan losses ........................................... 282,117 242,574
Bond discount accretion ............................................. (65,086) (33,545)
Other ............................................................... 10,959 (259)
--------- ---------
170,742 88,352
Less valuation allowance ............................................ -0- (118,986)
--------- ---------
Net deferred tax asset (liability) .................................. $ 170,742 $ (30,634)
========= =========
</TABLE>
The net changes in the total valuation allowance for the years ended December
31, 1996 and 1995 were $118,986, and $1,365, respectively.
The components of income tax expense for the years ended December 31, 1996 and
1995 were as follows:
<TABLE>
<CAPTION>
1996 1995
------------ ------------
<S> <C> <C>
Current
Federal......................................................... $ 1,038,472 $ 775,239
State........................................................... 148,007 73,634
Deferred
Federal......................................................... (104,504) 70,504
State........................................................... (28,782) 12,782
------------ ------------
$ 1,053,193 $ 932,159
============ ============
</TABLE>
F-54
<PAGE> 144
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
HOMEBANC CORPORATION AND SUBSIDIARIES
DECEMBER 31, 1996 AND 1995
Tax effects of securities transactions for the year ended December 31, 1996 was
a decrease in income tax expense of approximately $11,400. The tax effects for
the year ended December 31, 1995 were immaterial.
The principal reasons for the difference in the effective tax rate and the
federal statutory rate are as follows for the years ended December 31, 1996 and
1995:
<TABLE>
<CAPTION>
1996 1995
------ -------
<S> <C> <C>
Statutory federal income tax rate.................................. 34.0% 34.0%
Effect on rate of:
Tax-exempt securities............................................. (2.1) (2.5)
Tax-exempt loan income............................................ (1.0) (1.3)
State income tax, net of federal tax benefit...................... 2.0 2.0
Interest expense disallowance..................................... 0.3 0.4
Allowance for loan losses......................................... (3.0) -0-
Other............................................................. 0.3 0.8
------ ------
Effective income tax rate.......................................... 30.5% 33.4%
====== ======
</TABLE>
NOTE 13 - COMMITMENTS AND CONTINGENCIES
The Company's consolidated financial statements do not reflect various
commitments and contingent liabilities which arise in the normal course of
business and which involve elements of credit risk, interest rate risk and
liquidity risk. These commitments and contingent liabilities are commitments to
extend credit, commercial letters of credit and standby letters of credit. A
summary of the Bank's commitments and contingent liabilities at December 31,
1996 and 1995 is approximately as follows:
<TABLE>
<CAPTION>
Contract or
Notional Amount
--------------------------------
1996 1995
----------- ------------
<S> <C> <C>
Commitments to extend credit....................................... $ 7,015,000 $ 6,382,000
Credit card arrangements........................................... 515,000 478,000
Letters of credit.................................................. 441,000 668,000
</TABLE>
Commitments to extend credit, credit card arrangements, commercial letters of
credit and standby letters of credit all include exposure to some credit loss
in the event of nonperformance of the customer. The Bank's credit policies and
procedures for credit commitments and financial guarantees are the same as
those for extension of credit that are recorded on the consolidated statements
of financial condition. Because these instruments have fixed maturity dates,
and because many of them expire without being drawn upon, they do not generally
present any significant liquidity risk to the Bank.
F-55
<PAGE> 145
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
HOMEBANC CORPORATION AND SUBSIDIARIES
DECEMBER 31, 1996 AND 1995
NOTE 14 - CONCENTRATIONS OF CREDIT
The majority of the Bank's loans and commitments and all commercial and standby
letters of credit have been granted to customers in the Bank's market area.
Investments in state and municipal securities also involve governmental
entities within the Bank's market area. The concentrations of credit by type of
loan are set forth in Note 4. The distribution of commitments to extend credit
related primarily to unused commercial working capital lines and unused real
estate draw lines. Commercial and standby letters of credit were granted
primarily to commercial borrowers.
The Bank maintains its cash accounts at the Federal Reserve Bank and at various
commercial banks in Alabama, Georgia and Tennessee. The total cash balances in
commercial banks are insured by the FDIC up to $100,000. At December 31, 1996
total uninsured balances amounted to $3,797,368. There were no uninsured
balances at December 31, 1995.
NOTE 15 - RESTRICTIONS ON SUBSIDIARY DIVIDENDS, LOANS OR ADVANCES
The Bank is subject to the dividend restrictions set forth by the State Banking
Department. Under such restrictions, the Bank may not, without the prior
approval of the State Banking Department, declare dividends in excess of the
sum of the current year's earnings plus the retained earnings from the prior
two years. The dividends, as of December 31, 1996, that the Bank could declare,
without the approval of the State Banking Department, amounted to approximately
$3,498,835.
NOTE 16 - PROFIT-SHARING PLAN
The Company and its subsidiaries have a profit-sharing plan covering all
employees who qualify as to length of service. Annual contributions are made to
the plan as determined by the Board of Directors. The Plan's benefits become
vested according to the following schedule:
<TABLE>
<CAPTION>
Total Completed Percentage of Total
Years of Service Benefit Vested
---------------- -------------------
<S> <C>
3 years 20%
4 years 40%
5 years 60%
6 years 80%
7 years 100%
</TABLE>
Profit-sharing expense for the years ended December 31, 1996 and 1995 was
$127,898 and $115,601, respectively.
F-56
<PAGE> 146
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
HOMEBANC CORPORATION AND SUBSIDIARIES
DECEMBER 31, 1996 AND 1995
NOTE 17 - LEASES
The Bank has entered into various operating lease agreements involving land,
buildings and equipment. These leases are noncancelable and expire on various
dates through the year 2011. The leases provide for renewal options and
generally require the Bank to pay maintenance, insurance and property taxes.
For the years ended December 31, 1996 and 1995, rental expense for operating
leases were $109,189 and $49,401, respectively.
Future minimum lease payments under these noncancelable operating lease
agreements at December 31, 1996 are as follows:
<TABLE>
<CAPTION>
Years ending December 31,
<S> <C>
1997..................................................... $ 34,226
1998..................................................... 14,460
1999..................................................... 13,095
2000..................................................... 12,000
2001..................................................... 12,000
Thereafter............................................... 110,000
---------
$ 195,781
=========
</TABLE>
NOTE 18 - LITIGATION
While the Company and its subsidiaries are parties to various legal proceedings
arising from the ordinary course of business, management believes after
consultation with legal counsel that there are no proceedings threatened or
pending against the Company or its subsidiaries that will, individually or in
the aggregate, have a material adverse effect on the business or consolidated
financial condition of the Company.
NOTE 19 - BUSINESS COMBINATION
Effective July 1, 1995, The Home Bank and Bank of Albertville were combined in
a tax-free statutory merger. The merger was accounted for under the purchase
method of accounting. As The Home Bank and Bank of Albertville were
consolidated subsidiaries of the Company prior to the merger, this combination
had no effect on the consolidated financial statements of the Company.
NOTE 20 - PLANNED CAPITAL EXPENDITURES
The Home Bank has entered into commitments to construct a new facility in
Guntersville adjacent to their present location at an estimated cost of
approximately $3,000,000. The present facility was sold during 1995 resulting
in proceeds of $535,000 to assist in funding the new premises. Construction is
scheduled to be completed in May, 1997. As of December 31, 1996, accumulated
construction costs were $2,503,778.
F-57
<PAGE> 147
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
HOMEBANC CORPORATION AND SUBSIDIARIES
DECEMBER 31, 1996 AND 1995
NOTE 21 - FAIR VALUE OF FINANCIAL INSTRUMENTS
The estimated fair values of the Company's financial instruments as of December
31, 1996 and 1995 are as follows:
<TABLE>
<CAPTION>
1996 1995
--------------------------------- ----------------------------------
CARRYING FAIR Carrying Fair
AMOUNT VALUE Amount Value
--------------- ---------------- --------------- -----------------
(IN THOUSANDS) (in thousands)
<S> <C> <C> <C> <C>
FINANCIAL ASSETS
Cash and short-term investments.......... $ 9,063 $ 9,063 $ 7,876 $ 7,876
Investment securities.................... 30,494 30,548 33,958 34,033
Loans.................................... 101,576 101,455 90,021 88,862
Accrued interest and dividends
receivable............................ 1,324 1,324 1,380 1,380
--------------- ---------------- --------------- ----------------
TOTAL FINANCIAL ASSETS................... $ 142,457 $ 142,390 $ 133,235 $ 132,151
=============== ================ =============== ================
FINANCIAL LIABILITIES
Deposits................................. $ 129,914 $ 130,171 $ 120,751 $ 120,582
Other short-term borrowings.............. 629 629 433 433
Long-term debt........................... 1,363 1,363 1,614 1,614
Accrued interest payable................. 609 609 645 645
--------------- ---------------- --------------- ----------------
TOTAL FINANCIAL LIABILITIES.............. $ 132,515 $ 132,772 $ 123,443 $ 123,274
=============== ================ =============== ================
UNRECOGNIZED FINANCIAL INSTRUMENTS
Commitments to extend credit............. $ 7,015 $ 7,015 $ 6,382 $ 6,382
Credit card arrangements................. 515 515 478 478
Standby letters of credit................ 441 441 668 668
--------------- ---------------- --------------- ----------------
TOTAL UNRECOGNIZED FINANCIAL
INSTRUMENTS........................... $ 7,971 $ 7,971 $ 7,528 $ 7,528
=============== ================ =============== ================
</TABLE>
F-58
<PAGE> 148
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
HOMEBANC CORPORATION AND SUBSIDIARIES
DECEMBER 31, 1996 AND 1995
NOTE 22 - CONDENSED PARENT COMPANY INFORMATION
STATEMENTS OF FINANCIAL CONDITION
<TABLE>
<CAPTION>
December 31,
-----------------------------------
1996 1995
--------------- ----------------
<S> <C> <C>
ASSETS
Cash and due from banks................................................. $ 833,873 $ 514,842
Investment in and amounts due from subsidiaries
(equity method) - eliminated upon consolidation..................... 13,155,026 11,868,156
Other assets............................................................ 203,727 368,510
--------------- ----------------
TOTAL ASSETS.......................................................... $ 14,192,626 $ 12,751,508
=============== ================
LIABILITIES AND SHAREHOLDERS' EQUITY
Long-term debt.......................................................... $ 1,363,208 $ 1,613,667
Other liabilities....................................................... 211,515 327,490
--------------- ----------------
TOTAL LIABILITIES..................................................... 1,574,723 1,941,157
TOTAL SHAREHOLDERS' EQUITY............................................ 12,617,903 10,810,351
--------------- ----------------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY............................ $ 14,192,626 $ 12,751,508
=============== ================
STATEMENTS OF INCOME
INCOME
From subsidiaries - eliminated upon consolidation
Dividends............................................................. $ 1,098,000 $ 710,000
Rent.................................................................. 27,840 27,840
--------------- ----------------
1,125,840 737,840
EXPENSES
Interest................................................................ 114,059 143,490
Other expenses.......................................................... 39,155 39,224
--------------- ----------------
153,214 182,714
--------------- ----------------
Income before income taxes and equity in
undistributed earnings of subsidiaries.................................. 972,626 555,126
Income tax benefit......................................................... (43,053) (55,827)
--------------- ----------------
Income before equity in undistributed earnings of
subsidiaries............................................................ 1,015,679 610,953
Equity in undistributed earnings of subsidiaries........................... 1,389,005 1,247,181
--------------- ----------------
NET INCOME................................................................. $ 2,404,684 $ 1,858,134
=============== ================
</TABLE>
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
HOMEBANC CORPORATION AND SUBSIDIARIES
DECEMBER 31, 1996 AND 1995
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Years Ended
December 31,
----------------------------------
1996 1995
--------------- -------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income ........................................ $ 2,404,684 $ 1,858,134
Adjustments to reconcile net income to net cash
provided by operating activities:
Equity in undistributed income of subsidiaries .. (1,389,005) (1,247,181)
Provision for depreciation and amortization ..... 7,326 7,417
Other, net ...................................... 95,695 (93,868)
-------------- --------------
NET CASH PROVIDED BY OPERATING ACTIVITIES ..... 1,118,700 524,502
-------------- --------------
CASH FLOWS FROM INVESTING ACTIVITIES ................. -0- -0-
-------------- --------------
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from long-term debt ...................... -0- 107,000
Repayment of long-term debt ....................... (250,459) (172,083)
Cash dividends paid ............................... (559,393) (287,185)
Issuance of common stock .......................... -0- 11,054
Purchase of common stock .......................... -0- (108,750)
Issuance of treasury stock ........................ 10,183 -0-
-------------- --------------
NET CASH USED IN FINANCING ACTIVITIES ......... (799,669) (449,964)
-------------- --------------
NET INCREASE IN CASH AND CASH EQUIVALENTS ............ 319,031 74,538
Cash and Cash Equivalents at Beginning of Year ....... 514,842 440,304
-------------- --------------
CASH AND CASH EQUIVALENTS AT END OF YEAR ............. $ 833,873 $ 514,842
============== ==============
SUPPLEMENTAL DISCLOSURES
Cash paid (received) during the year for:
Interest ........................................ $ 120,754 $ 142,124
Income taxes, net ............................... (145,442) 151,062
</TABLE>
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<PAGE> 150
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
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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
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<PAGE> 152
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.
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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 LLP, independent
certified public accountants, incorporated by reference herein, and upon the
authority of such firm as experts in accounting and auditing.
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<PAGE> 154
ANNEX A
AGREEMENT AND PLAN OF MERGER
AGREEMENT AND PLAN OF MERGER, dated as of November 4, 1998 (this
"Agreement"), between BancorpSouth, Inc., a Mississippi corporation
("BancorpSouth") and HomeBanc Corporation, an Alabama corporation (the
"Company," and together 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 Home Bank, an
Alabama banking corporation ("Home Bank," 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) Home Bank 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 Alabama Banking
Code ("ABC") at the Effective Time (as defined in Section 1.2 hereof), Home Bank
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 Home Bank shall terminate.
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<PAGE> 155
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 "Home Bank 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"), the Alabama Banking
Department ("Alabama Department") and the Alabama Secretary with respect to the
Bank 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 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 $0.10 per share, of the Company (the
"Company Common Stock") issued and outstanding immediately prior to the
Effective Time (other than Company Dissenting Shares (as defined herein) and
other than shares of Company Common Stock held directly or indirectly by
BancorpSouth or the Company or any of their respective Subsidiaries (as defined
below) (except for 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 1.5747417 shares (the "Exchange Ratio") 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. There shall be no adjustment in the Exchange Ratio
in the event of any change in the price of BancorpSouth Common Stock or any
other matter, other than for "Adjustment Events" (as defined below).
(b) 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
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<PAGE> 156
readjustment, or a stock dividend thereon shall be declared with a record date
within said period (any such event, an "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.
(c) 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.
(d) 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 appraised
value of such Company Dissenting Shares in accordance with the provisions of
Section 13 of the ABCA, provided, however, that (i) if any holder of Company
Dissenting Shares shall subsequently deliver a written withdrawal of his demand
for appraisal of such shares, or (ii) if any holder fails to establish his
entitlement to dissenters' rights as provided in Section 13 of the ABCA, such
holder or holders (as the case may be) shall forfeit the right to appraisal of
such shares of Company Common Stock 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.
(e) 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.
(f) At the Effective Time, all shares of Home Bank common
stock, par value $0.10 per share ("Home Bank 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. 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.
1.6. 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
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<PAGE> 157
BancorpSouth Bank, as in effect at the Effective Time, shall be the articles of
association of the Surviving Bank.
1.7. 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.
1.8. 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.
1.9. 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).
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 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
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<PAGE> 158
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 BancorpSouth 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. The "BancorpSouth
Price" means the last sale price 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) at the closing of
trading on the trading day immediately preceding the Closing Date.
(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.
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(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 delivered the Company Disclosure Schedule and
BancorpSouth has delivered the BancorpSouth Disclosure Schedule (and, with the
Company Disclosure Schedule, the "Disclosure Schedules"). 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 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.
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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, 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 Home Bank and except for Home Bank, 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 (other than as set
forth in Section 4.1(b) of the Company Disclosure Schedule), 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) Home Bank is an Alabama banking corporation duly
organized, validly existing and in good standing under the laws of the State of
Alabama. The deposit accounts of Home Bank 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. Home Bank 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 Incorporation and Bylaws of Home Bank, 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. Other than as set
forth in Section 4.1(b) of the Company Disclosure Schedule, Home Bank 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, The Bankers' Bank (Atlanta, GA) and other investment
securities held by Home Bank in the ordinary course of business as reflected on
the financial statements of Home Bank delivered to BancorpSouth.
(c) Valley Finance, Inc. is an Alabama corporation duly
organized, validly existing and in good standing under the laws of Alabama.
Valley Finance, Inc. is a consumer finance company under the laws of the State
of Alabama. Valley Finance, Inc. 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 Incorporation
and Bylaws of Valley Finance, Inc., 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. Valley Finance 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
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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.
(c) The minute books of the Company, Home Bank and Valley
Finance contain true and correct records of all meetings and other corporate
actions held or taken since October 1, 1993 of their respective shareholders and
Boards of Directors (including committees of their respective Boards of
Directors).
4.2. Capitalization.
(a) The authorized capital stock of the Company consists of
1,500,000 shares of Company Common Stock. As the date hereof, there are
1,333,552 shares of Company Common Stock outstanding and 6,174 shares of Company
Common Stock held by the Company as treasury stock. There are no shares of
Company Common Stock reserved for issuance upon exercise of outstanding stock
options or otherwise except for 166,448 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, with no
personal liability attaching to the ownership thereof. Except for options
outstanding under the Stock Option Agreement, 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.
(b) Other than as set forth in Section 4.2(b) of the Company
Disclosure Schedule, the Company owns, directly or indirectly, all of the issued
and outstanding shares of the capital stock of Home Bank, 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. Home Bank 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 Home Bank or any securities representing the right to purchase or
otherwise receive any shares of capital stock or any other equity security of
such Subsidiary.
(c) Home Bank owns, directly or indirectly, all of the issued
and outstanding shares of the capital stock of Valley Finance, Inc., 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. Valley Finance, Inc. 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 Valley Finance, Inc. 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.
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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 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 Home Bank 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) other than as set forth in Section 4.3(b) of the Company
Disclosure Schedule, 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 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") and 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 (including, without limitation, any applicable to consumer finance companies
under the laws of the State of Alabama), (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 BancorpSouth 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 Alabama Department, 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, other than as set forth in Section 4.4 of the Company Disclosure Schedule,
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, Home Bank and Valley Finance, Inc. of the
Merger and the other transactions contemplated hereby and thereby.
4.5. Reports. The Company and Home Bank have timely filed all reports,
registrations and statements, together with any amendments required to be made
with respect thereto, that they
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were required to file since December 31, 1995 with (i) the Federal Reserve
Board, (ii) the FDIC, (iii) any Federal Reserve Bank, (iv) any state banking
commissions, including without limitation the Alabama Department, or any other
state regulatory authority (each a "State Regulator") and (v) 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.
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, in each case accompanied by the audit report of Schauer, Taylor, Cox
& Edwards, P.C., 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, except as set forth in Section 4.6 of the Company
Disclosure Schedule.
4.7. Broker's Fees. Except for Alex Sheshunoff & Co. Investment
Banking, the fees of which are set forth in that certain agreement dated May 13,
1998, 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 June 30, 1998, 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 June 30, 1998 (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
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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) Except as set forth in Section 4.9(a) of the Company
Disclosure Schedule, 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,
Home Bank and Valley Finance, Inc.
(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) 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 financial statements (except that the unaudited interim
financial statements were or are subject to normal and recurring year-end
adjustments which were not or are not expected to be material in amount) of the
Company (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.
(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.
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(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 is 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 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, 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.
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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 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 (x) valid and binding and in full force and effect with
respect to the obligations of the Company or its Subsidiaries and (y) to the
best knowledge of the Company after due inquiry, is valid and binding and in
full force and effect with respect to the obligations of the counterparties
thereto, (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.
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
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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 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 September 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
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original principal amount in excess of $100,000 of the Company or any of its
Subsidiaries that as of September 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) to the best knowledge of the Company after appropriate due
diligence, 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.
4.21. Property. Except as set forth in Section 4.21 of the Company
Disclosure Schedule, 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 the character or location of the
properties and assets owned or leased by it makes such licensing or
qualification necessary. 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.
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(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 Amended and Restated Articles of Association and
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, 1997 (or the date of
incorporation if later) 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 September 30, 1998, there
were 44,792,042 shares of BancorpSouth Common Stock issued as of September 30,
1998, 129,936 shares of BancorpSouth Common Stock were held in BancorpSouth's
treasury and as of September 30, 1998, 44,662,106 shares of BancorpSouth Common
Stock was outstanding. 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"), (i) that certain Agreement and Plan
of Merger, dated as of May 2, 1998, between BancorpSouth and Merchants Capital
Corporation, (ii) that certain Merger Agreement, dated as of June 19, 1998 (as
amended), among BancorpSouth, Alabama Bancorp., Inc., Highland Bank, and First
Community Bank of the South, and (iii) that certain Agreement and Plan of
Merger, dated August 12, 1998, between BancorpSouth and The First Corporation,
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
material 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,
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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. 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 BancorpSouth, and no other 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 constitutes 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 Alabama Department, 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, 1997 with any Regulatory Agency, and
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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,
1997. 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 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, June 30, 1998 and
September 30, 1998, and the related unaudited consolidated statements of income,
changes in shareholders' equity and cash flows for the periods ended March 31,
1998, June 30, 1998 and September 30, 1998 as reported in BancorpSouth's
Quarterly Report on Form 10-Q for the quarters ended March 31, 1998, June 30,
1998 and September 30, 1998, filed with the SEC under the Exchange Act. 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
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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.
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) 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 financial
statements of BancorpSouth (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.
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
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; 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.
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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 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. 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.
5.17. 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.
5.18. 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
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Governmental Entity that it is considering issuing or requesting any
BancorpSouth Regulatory Agreement.
5.19. 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, 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 (i) for alleged noncompliance
(including by any predecessor) with any Environmental Laws, or (ii) 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 (i)
BancorpSouth's or any of its Subsidiaries' ownership or operation of any of
their respective current or former properties, (ii) BancorpSouth's or any of its
Subsidiaries' participation in the management of any Participation Facility, or
(iii) 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 (i)
BancorpSouth's or any of its Subsidiaries' ownership or operation of any of
their respective current or former properties, (ii) BancorpSouth's or any of its
Subsidiaries' participation in the management of any Participation Facility, or
(iii) 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 5.19: (i) "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 (ii)
"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.
5.20. 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
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.
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5.21. Loan Portfolio.
(a) Except as set forth in Section 5.21 of the 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
September 30, 1998, over 90 days delinquent in payment of principal or interest
or in default of any other provision. Section 5.21 of the 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 June 30,
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.
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 regular quarterly cash
dividends of $0.18 per share with usual and regular record and payment dates in
accordance with past practice.
(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, 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;
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(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 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;
(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;
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(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;
(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 Home Bank officers and to Home Bank 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 Home Bank in accordance with prudent
asset/liability management practices;
(m) other than in the ordinary course of business consistent
with past practice, 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:
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(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 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) during the period from the date of this Agreement and
continuing to the Effective Time, except as expressly contemplated and permitted
by this Agreement, or with the prior written consent of the Company, carry out
its businesses outside or the ordinary course or in a manner inconsistent with
past practice; or
(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,
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approvals and authorizations of all third parties and Governmental Entities
necessary or advisable 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 Home Bank shall
permit a Representative of BancorpSouth to have access to the premises and
observe the operations of the Company or Home Bank, as the case may be, without
interfering with the operations of the Company or Home Bank 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 July 30, 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 to the extent provided herein, subject to Section 10.2.
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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. 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 BancorpSouth, as soon as practicable after the date of this
Agreement, a written agreement, in the form of Exhibit 7.5(a).
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 terms all employment, severance and other
compensation agreements and arrangements existing prior to
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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, the Home Bank, or any of their
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, Home Bank, any of the Subsidiaries of the Company or Home Bank, 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 such 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 if 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
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notify 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. Coordination of Dividends. After the date of this Agreement, each
of BancorpSouth and the Company shall coordinate with the other the declaration
of any dividends in respect of the Company Common Stock and the record dates and
payments dates relating thereto, it being the intention of the parties that the
holders of Company Common Stock may (to the extent allowed by law and declared)
receive one, but not more than one, dividend for any period with respect to
their shares of Company Common Stock and any shares of BancorpSouth Common Stock
any holder of Company Common Stock receives in exchange thereof in the Merger.
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 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.
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:
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(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.
(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
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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 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) Payoff Letter. BancorpSouth shall have received a payoff
letter and any related documentation it may reasonably request from First
Tennessee Bank ("First Tennessee").
(f) Legal Opinion. BancorpSouth shall have received an opinion
from Company's counsel, 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 with respect to matters of Mississippi law, Company's
counsel may rely upon an opinion of Mississippi counsel addressed to it or may
cause such opinion to be issued directly to BancorpSouth.
(g) Pooling Treatment. KPMG Peat Marwick LLP, certified public
accountants for BancorpSouth, and Schauer, Taylor, Cox & Edwards, P.C.,
certified public accountants for the Company, shall have each delivered a letter
dated the Closing Date and addressed to BancorpSouth, to the effect that the
Merger will qualify for pooling of interests accounting treatment under
applicable accounting standards if consummated in accordance with this
Agreement. The Company shall use its best efforts to procure drafts of such
letters from its accountants to BancorpSouth and its respective counsel no later
than 10 business days prior to the Closing Date.
(h) Employment Agreements. Jimmy R. Kimsey and Lee Matthews
shall each have entered into a written Employment Agreement with BancorpSouth
Bank in form and substance similar to those agreements attached as Exhibit 8.2
hereto containing non-competition agreements mutually satisfactory to
BancorpSouth and the respective employee in their reasonable discretion.
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 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
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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 Bradley Arant Rose & White LLP (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 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. Investment
Banking 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 Counsel
may rely on an opinion of Mississippi counsel addressed to it or may cause such
opinion to be issued directly to the Company.
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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
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;
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(g) by BancorpSouth, 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
(h) By the Company upon written notice to BancorpSouth at any
time during the three-day period commencing the day after the Determination
Date, if either (x) both of the following conditions are satisfied:
(1) the Average Closing Price shall be less than the
product of (i) 0.85 and (ii) the Starting Price; and
(2) (i) the quotient obtained by dividing the Average
Closing Price by the Starting Price (such number being
referred to herein as the "BancorpSouth Ratio") shall be less
than (ii) the quotient obtained by dividing the Index Price on
the Determination Date by the Index Price on the Starting Date
and subtracting 0.15 from the quotient in the clause (2)(ii)
(such number being referred to herein as the "Index Ratio");
or (y) the Average Closing Price shall be less than the product of (i)
0.75 and (ii) the Starting Price.
For purposes of this Section 9.1(h), the following terms shall
have the meanings indicated:
"Average Closing Price" shall mean the average of the daily
last sales prices of BancorpSouth Common Stock as reported on the NYSE (as
reported by The Wall Street Journal or, if not reported thereby, another
authoritative source as chosen by BancorpSouth) for the 20 consecutive full
trading days in which such share are traded on the NYSE ending at the close of
trading on the Determination Date.
"Determination Date" shall mean the date on which the consent
of the FDIC shall be received.
"Index Group" shall mean the SNL Southeastern Bank Index as
published in The Bank Investor, the common stocks of all of which shall be
publicly traded and as to which there shall not have been, since the Starting
Date and before the Determination Date, any public announcement of a proposal
for such company to be acquired or for such company to acquire another company
or companies in transactions with a value exceeding 25% of the acquiror's market
capitalization as of the Starting Date. In the event that any such company or
companies are removed from the Index Group as a result of any of the events
described in the preceding sentence, the weights (which shall be determined
based upon the number of outstanding shares of common stock) shall be
redistributed proportionately for purposes of determining the Index Price.
"Index Price" on a given date shall mean the weighted average
(weighted in accordance with the factors listed in the definition of "Index
Group") of the closing prices of the companies composing the Index Group.
"Starting Date" shall mean November 4, 1998.
"Starting Price" shall mean the daily last sales price of
BancorpSouth Common Stock as reported on the NYSE (as reported by The Wall
Street Journal or, if not reported thereby, another authoritative source as
chosen by BancorpSouth) on the Starting Date.
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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. In addition, in the event the
Company exercises its termination right under Section 9.1(h), the Company agrees
to pay any and all third party out-of-pocket expenses incurred by BancorpSouth;
provided, however, that in no event shall the Company be obligated to pay more
than $150,000 pursuant to this provision.
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 and
(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) (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.
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.
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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
(b) if to the Company, to:
HomeBanc Corporation
1301 Gunter Avenue
Guntersville, Alabama 35976
Attention: Jimmy R. Kimsey
Facsimile: 256/582-7842
with a copy (which shall not constitute notice) to:
Bradley Arant Rose & White LLP
2001 Park Place, Suite 1400
Birmingham, Alabama 35203
Attention: Paul S. Ware, Esq.
Facsimile: 205/521-8800
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 November 4, 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
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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.]
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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 S. Patterson
---------------------------------------
Name: Aubrey B. Patterson
Title: Chairman & Chief Executive Officer
HOMEBANC CORPORATION
By: /s/ Jimmy R. Kimsey
---------------------------------------
Name: Jimmy R. Kimsey
Title: President
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<PAGE> 192
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
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<PAGE> 193
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.
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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.
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(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
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representing his or her shares in accordance with terms of the dissenters'
notice. Upon receiving the certificate or certificates, the corporation shall
pay each dissenter the fair value of his or her shares, plus accrued interest,
as provided in subsection (a). Upon receiving payment, a dissenting shareholder
ceases to have any interest in the shares.
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
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proceeding in the county in this state where the registered office of the
domestic corporation merged with or whose shares were acquired by the foreign
corporation was located.
(c) The corporation shall make all dissenters (whether or not residents
of this state) whose demands remain unsettled parties to the proceeding as in an
action against their shares, and all parties must be served with a copy of the
petition. Nonresidents may be served by registered or certified mail or by
publication as provided under the Alabama Rules of Civil Procedure.
(d) After service is completed, the corporation shall deposit with the
clerk of the court an amount sufficient to pay unsettled claims of all
dissenters party to the action in an amount per share equal to its prior
estimate of fair value, plus accrued interest, under Section 10-2B-13.25.
(e) The jurisdiction of the court in which the proceeding is commenced
under subsection (b) is plenary and exclusive. The court may appoint one or more
persons as appraisers to receive evidence and recommend decision on the question
of fair value. The appraisers have the powers described in the order appointing
them, or in any amendment to it. The dissenters are entitled to the same
discovery rights as parties in other civil proceedings.
(f) Each dissenter made a party to the proceeding is entitled to
judgment for the amount the court finds to be the fair value of his or her
shares, plus accrued interest. If the court's determination as to the fair value
of a dissenter's shares, plus accrued interest, is higher than the amount
estimated by the corporation and deposited with the clerk of the court pursuant
to subsection (d), the corporation shall pay the excess to the dissenting
shareholder. If the court's determination as to fair value, plus accrued
interest, of a dissenter's shares is less than the amount estimated by the
corporation and deposited with the clerk of the court pursuant to subsection
(d), then the clerk shall return the balance of funds deposited, less any costs
under Section 10-2B-13.31, to the corporation.
(g) Upon payment of the judgment, and surrender to the corporation of
the certificate or certificates representing the appraised shares, a dissenting
shareholder ceases to have any interest in the shares.
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.
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(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.
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.
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ANNEX C
[LETTERHEAD OF ALEX. SHESHUNOFF & CO.
INVESTMENT BANKING]
January 4, 1999
Board of Directors
HomeBanc Corporation
1301 Gunter Avenue
Guntersville, Alabama 35976-1841
Members of the Board:
You have requested an update to our oral opinion delivered on October 26, 1998
as to the fairness, from a financial point of view, to the holders of the
outstanding shares of common stock of HomeBanc Corporation, Guntersville,
Alabama ("HomeBanc") of the Exchange Ratio in the proposed merger between
HomeBanc Corporation and BancorpSouth, Inc., Tupelo, Mississippi, ("Bancorp")
dated October 28, 1998. The shares will be exchanged pursuant to an Agreement
and Plan of Merger (the "Merger Agreement"). Pursuant to the Merger Agreement,
Bancorp shall cause HomeBanc to be merged with and into Bancorp. In
consideration of the merger, Bancorp has offered to exchange 1.5747417 shares of
its common stock for each outstanding share of HomeBanc common stock.
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 31, 1997 and
June 30, 1998 for HomeBanc;
2. Reviewed internal financial and other operating information
provided by HomeBanc;
3. Conducted conversations with executive management regarding
recent and projected financial performance of HomeBanc;
4. Compared HomeBanc'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 HomeBanc'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 HomeBanc in the Merger to those of certain
other banks in the Southeast region of the United States which
have recently been acquired;
7. Compared the pricing multiples for the value to be received by
the stockholders of HomeBanc in the Merger to those of certain
other banks in Alabama which have recently been acquired;
8. Analyzed the net present value of the after-tax cash flows
HomeBanc could produce through the year 2003 based on
assumptions provided by management;
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9. Performed an affordability analysis based on the projections
of earnings, based upon management's assumptions, for the
combined entity subsequent to the Merger;
10. Reviewed the historical stock price and trading volume of
Bancorp common stock and the lack of any active market for the
common stock of HomeBanc;
11. Compared Bancorp's financial characteristics with certain
other banking organizations located in the Southeast region of
the United States, and;
12. 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 HomeBanc 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 HomeBanc 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 HomeBanc 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 HomeBanc'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 HomeBanc 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 HomeBanc.
Very truly yours,
/s/ ALEX SHESHUNOFF & CO. INVESTMENT BANKING
98 San Jacinto Boulevard
Suite 1925
Austin, Texas 78701
Phone 512-479-8200
Fax 512-472- 8953
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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 November 4, 1998, between HomeBanc
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 166,448
fully paid and nonassessable shares of Issuer's Common Stock, $0.10 par value
("Common Stock"), at a price of $25.00 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 11.09653% 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 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
11.09653% 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 right of termination is
non-volitional) or Section 9.1(g) of the Merger Agreement; or (iii) the passage
of 12 months after
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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 entitle Grantee to terminate
the Merger Agreement and (y) shall not have been cured prior to the
Notice Date (as defined below); or
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(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:
"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
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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. 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
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
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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 reason of the fact that there shall be more than one Grantee as a
result of any assignment or division of this Agreement.
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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 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
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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; 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
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<PAGE> 208
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 11.09653% 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 11.09653% 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 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
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<PAGE> 209
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.
(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
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<PAGE> 210
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 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
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<PAGE> 211
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.
[NEXT PAGE IS SIGNATURE PAGE.]
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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.
HOMEBANC CORPORATION
BY: /s/ Jimmy R. Kimsey
-----------------------------------------
Name: Jimmy R. Kimsey
Title: President
BANCORPSOUTH, INC.
BY: /s/ Aubrey B. Patterson
-----------------------------------------
Name: Aubrey B. Patterson
Title: Chairman and Chief Executive Officer
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<PAGE> 213
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.
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<PAGE> 214
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> <C>
2.1 -- Agreement and Plan of Merger, dated as of November 4, 1998, between the Registrant and HomeBanc 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 November 4, 1998, between the Registrant and HomeBanc 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 LLP
23.2 -- Consent of Schauer, Taylor, Cox & Edwards, P.C.
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.
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
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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> 216
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> 217
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the
Registrant has duly caused this 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 24, 1998.
BANCORPSOUTH, INC.
By: /s/ Aubrey B. Patterson
--------------------------------
Aubrey B. Patterson
Chairman of the Board and
Chief Executive Officer
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature
appears below constitutes and appoints Aubrey B. Patterson and L. Nash Allen,
Jr., and each of them, his true and lawful attorney-in-fact, as agent and with
full power of substitution and resubstitution for him and in his name, place and
stead, in any and all capacity, to sign any or all amendments to this
Post-Effective Amendment to the Registration Statement and to file the same,
with all exhibits thereto, and other documents in connection therewith, with the
Securities and Exchange Commission, granting unto said attorney-in-fact and
agents in full power and authority to do and perform each and every act and
thing requisite and necessary to be done in and about the premises, as fully and
to all intents and purposes as they might or be in person, hereby ratifying and
confirming all that said attorneys-in-fact and agents, and their substitute or
substitutes, may lawfully do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, this
Post-Effective Amendment 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 24, 1998
- ---------------------------------- Executive Officer, Director (principal
Aubrey B. Patterson executive officer)
/s/ L. Nash Allen, Jr. Treasurer and Chief Financial November 24, 1998
- ---------------------------------- Officer (principal financial and
L. Nash Allen, Jr accounting officer)
/s/ Shed H. Davis Director November 24, 1998
- ----------------------------------
Shed H. Davis
/s/ Hassell H. Franklin Director November 24, 1998
- ----------------------------------
Hassell H. Franklin
/s/ Fletcher H. Goode, M.D. Director November 24, 1998
- ----------------------------------
Fletcher H. Goode, M.D.
/s/ W. G. Holliman, Jr. Director November 24, 1998
- ----------------------------------
W. G. Holliman, Jr.
</TABLE>
II-5
<PAGE> 218
<TABLE>
<S> <C> <C>
/s/ A. Douglas Jumper Director November 24, 1998
- ----------------------------------
A. Douglas Jumper
/s/ Turner O. Lashlee Director November 24, 1998
- ----------------------------------
Turner O. Lashlee
/s/ Alan W. Perry Director November 24, 1998
- ----------------------------------
Alan W. Perry
/s/ Travis E. Staub Director November 24, 1998
- ----------------------------------
Travis E. Staub
/s/ Dr. Andrew R. Townes Director November 24, 1998
- ----------------------------------
Dr. Andrew R. Townes
/s/ Lowery A. Woodall Director November 24, 1998
- ----------------------------------
Lowery A. Woodall
</TABLE>
II-6
<PAGE> 219
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF EXHIBITS
------ -----------------------
<S> <C> <C>
2.1 -- Agreement and Plan of Merger, dated as of November 4, 1998, between the Registrant and HomeBanc 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 November 4, 1998, between the Registrant and HomeBanc 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 LLP
23.2 -- Consent of Schauer, Taylor, Cox & Edwards, P.C.
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.
<PAGE> 1
EXHIBIT 2.1
AGREEMENT AND PLAN OF MERGER
AGREEMENT AND PLAN OF MERGER, dated as of November 4, 1998 (this
"Agreement"), between BancorpSouth, Inc., a Mississippi corporation
("BancorpSouth") and HomeBanc Corporation, an Alabama corporation (the
"Company," and together 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 Home Bank, an
Alabama banking corporation ("Home Bank," 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) Home Bank 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 Alabama Banking
Code ("ABC") at the Effective Time (as defined in Section 1.2 hereof), Home Bank
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 Home Bank shall terminate.
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<PAGE> 2
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 "Home Bank 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"), the Alabama Banking
Department ("Alabama Department") and the Alabama Secretary with respect to the
Bank 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 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 $0.10 per share, of the Company (the
"Company Common Stock") issued and outstanding immediately prior to the
Effective Time (other than Company Dissenting Shares (as defined herein) and
other than shares of Company Common Stock held directly or indirectly by
BancorpSouth or the Company or any of their respective Subsidiaries (as defined
below) (except for 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 1.5747417 shares (the "Exchange Ratio") 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. There shall be no adjustment in the Exchange Ratio
in the event of any change in the price of BancorpSouth Common Stock or any
other matter, other than for "Adjustment Events" (as defined below).
(b) 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
2
<PAGE> 3
readjustment, or a stock dividend thereon shall be declared with a record date
within said period (any such event, an "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.
(c) 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.
(d) 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 appraised
value of such Company Dissenting Shares in accordance with the provisions of
Section 13 of the ABCA, provided, however, that (i) if any holder of Company
Dissenting Shares shall subsequently deliver a written withdrawal of his demand
for appraisal of such shares, or (ii) if any holder fails to establish his
entitlement to dissenters' rights as provided in Section 13 of the ABCA, such
holder or holders (as the case may be) shall forfeit the right to appraisal of
such shares of Company Common Stock 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.
(e) 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.
(f) At the Effective Time, all shares of Home Bank common
stock, par value $0.10 per share ("Home Bank 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. 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
3
<PAGE> 4
the Effective Time shall be unaffected by the Merger and such shares shall
remain issued and outstanding.
1.6. 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.
1.7. 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.
1.8. 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.
1.9. 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).
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 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
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<PAGE> 5
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 BancorpSouth 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. The "BancorpSouth
Price" means the last sale price 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) at the closing of
trading on the trading day immediately preceding the Closing Date.
(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,
5
<PAGE> 6
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 delivered the Company Disclosure Schedule and
BancorpSouth has delivered the BancorpSouth Disclosure Schedule (and, with the
Company Disclosure Schedule, the "Disclosure Schedules"). 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 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.
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<PAGE> 7
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, 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 Home Bank and except for Home Bank, 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 (other than as set
forth in Section 4.1(b) of the Company Disclosure Schedule), 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) Home Bank is an Alabama banking corporation duly
organized, validly existing and in good standing under the laws of the State of
Alabama. The deposit accounts of Home Bank 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. Home Bank 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 Incorporation and Bylaws of Home Bank, 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. Other than as set
forth in Section 4.1(b) of the Company Disclosure Schedule, Home Bank 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, The Bankers' Bank (Atlanta, GA) and other investment
securities held by Home Bank in the ordinary course of business as reflected on
the financial statements of Home Bank delivered to BancorpSouth.
(c) Valley Finance, Inc. is an Alabama corporation duly
organized, validly existing and in good standing under the laws of Alabama.
Valley Finance, Inc. is a consumer finance company under the laws of the State
of Alabama. Valley Finance, Inc. 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 Incorporation
and Bylaws of Valley Finance, Inc., 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. Valley Finance 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
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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.
(d) The minute books of the Company, Home Bank and Valley
Finance contain true and correct records of all meetings and other corporate
actions held or taken since October 1, 1993 of their respective shareholders and
Boards of Directors (including committees of their respective Boards of
Directors).
4.2. Capitalization.
(a) The authorized capital stock of the Company consists of
1,500,000 shares of Company Common Stock. As the date hereof, there are
1,333,552 shares of Company Common Stock outstanding and 6,174 shares of Company
Common Stock held by the Company as treasury stock. There are no shares of
Company Common Stock reserved for issuance upon exercise of outstanding stock
options or otherwise except for 166,448 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, with no
personal liability attaching to the ownership thereof. Except for options
outstanding under the Stock Option Agreement, 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.
(b) Other than as set forth in Section 4.2(b) of the Company
Disclosure Schedule, the Company owns, directly or indirectly, all of the issued
and outstanding shares of the capital stock of Home Bank, 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. Home Bank 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 Home Bank or any securities representing the right to purchase or
otherwise receive any shares of capital stock or any other equity security of
such Subsidiary.
(c) Home Bank owns, directly or indirectly, all of the issued
and outstanding shares of the capital stock of Valley Finance, Inc., 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. Valley Finance, Inc. 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 Valley Finance, Inc. 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.
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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 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 Home Bank 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) other than as set forth in Section 4.3(b) of the Company
Disclosure Schedule, 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 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") and 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 (including, without limitation, any applicable to consumer finance companies
under the laws of the State of Alabama), (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 BancorpSouth 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 Alabama Department, 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, other than as set forth in Section 4.4 of the Company Disclosure Schedule,
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, Home Bank and Valley Finance, Inc. of the
Merger and the other transactions contemplated hereby and thereby.
4.5. Reports. The Company and Home Bank have timely filed all reports,
registrations and statements, together with any amendments required to be made
with respect thereto, that they
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were required to file since December 31, 1995 with (i) the Federal Reserve
Board, (ii) the FDIC, (iii) any Federal Reserve Bank, (iv) any state banking
commissions, including without limitation the Alabama Department, or any other
state regulatory authority (each a "State Regulator") and (v) 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.
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, in each case accompanied by the audit report of Schauer, Taylor, Cox
& Edwards, P.C., 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, except as set forth in Section 4.6 of the Company
Disclosure Schedule.
4.7. Broker's Fees. Except for Alex Sheshunoff & Co. Investment
Banking, the fees of which are set forth in that certain agreement dated May 13,
1998, 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 June 30, 1998, 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 June 30, 1998 (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
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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) Except as set forth in Section 4.9(a) of the Company
Disclosure Schedule, 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,
Home Bank and Valley Finance, Inc.
(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) 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 financial statements (except that the unaudited interim
financial statements were or are subject to normal and recurring year-end
adjustments which were not or are not expected to be material in amount) of the
Company (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.
(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.
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(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 is 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
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, 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.
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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 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 (x) valid and binding and in full force and effect with
respect to the obligations of the Company or its Subsidiaries and (y) to the
best knowledge of the Company after due inquiry, is valid and binding and in
full force and effect with respect to the obligations of the counterparties
thereto, (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.
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
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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 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 September 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
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Loans in original principal amount in excess of $100,000 of the Company or any
of its Subsidiaries that as of September 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) to the best knowledge of the Company after appropriate due
diligence, 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.
4.21. Property. Except as set forth in Section 4.21 of the Company
Disclosure Schedule, 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 the character or location of the
properties and assets owned or leased by it makes such licensing or
qualification necessary. 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.
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(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 Amended and Restated Articles of Association and
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, 1997 (or the date of
incorporation if later) 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 September 30, 1998, there
were 44,792,042 shares of BancorpSouth Common Stock issued as of September 30,
1998, 129,936 shares of BancorpSouth Common Stock were held in BancorpSouth's
treasury and as of September 30, 1998, 44,662,106 shares of BancorpSouth Common
Stock was outstanding. 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"), (i) that certain Agreement and Plan
of Merger, dated as of May 2, 1998, between BancorpSouth and Merchants Capital
Corporation, (ii) that certain Merger Agreement, dated as of June 19, 1998 (as
amended), among BancorpSouth, Alabama Bancorp., Inc., Highland Bank, and First
Community Bank of the South, and (iii) that certain Agreement and Plan of
Merger, dated August 12, 1998, between BancorpSouth and The First Corporation,
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
material 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,
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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. 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 BancorpSouth, and no other 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 constitutes 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 Alabama Department, 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, 1997 with any Regulatory Agency, and
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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,
1997. 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 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, June 30, 1998 and
September 30, 1998, and the related unaudited consolidated statements of income,
changes in shareholders' equity and cash flows for the periods ended March 31,
1998, June 30, 1998 and September 30, 1998 as reported in BancorpSouth's
Quarterly Report on Form 10-Q for the quarters ended March 31, 1998, June 30,
1998 and September 30, 1998, filed with the SEC under the Exchange Act. 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
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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.
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) 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 financial
statements of BancorpSouth (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.
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
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; 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.
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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 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. 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.
5.17. 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.
5.18. 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
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Governmental Entity that it is considering issuing or requesting any
BancorpSouth Regulatory Agreement.
5.19. 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, 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 (i) for alleged noncompliance
(including by any predecessor) with any Environmental Laws, or (ii) 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 (i)
BancorpSouth's or any of its Subsidiaries' ownership or operation of any of
their respective current or former properties, (ii) BancorpSouth's or any of its
Subsidiaries' participation in the management of any Participation Facility, or
(iii) 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 (i)
BancorpSouth's or any of its Subsidiaries' ownership or operation of any of
their respective current or former properties, (ii) BancorpSouth's or any of its
Subsidiaries' participation in the management of any Participation Facility, or
(iii) 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 5.19: (i) "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 (ii)
"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.
5.20. 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
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.
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5.21. Loan Portfolio.
(a) Except as set forth in Section 5.21 of the 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
September 30, 1998, over 90 days delinquent in payment of principal or interest
or in default of any other provision. Section 5.21 of the 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 June 30,
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.
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 regular quarterly cash
dividends of $0.18 per share with usual and regular record and payment dates in
accordance with past practice.
(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, 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;
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(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 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;
(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;
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(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;
(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 Home Bank officers and to Home Bank 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 Home Bank in accordance with prudent
asset/liability management practices;
(m) other than in the ordinary course of business consistent
with past practice, 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:
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<PAGE> 25
(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 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) during the period from the date of this Agreement and
continuing to the Effective Time, except as expressly contemplated and permitted
by this Agreement, or with the prior written consent of the Company, carry out
its businesses outside or the ordinary course or in a manner inconsistent with
past practice; or
(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,
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<PAGE> 26
approvals and authorizations of all third parties and Governmental Entities
necessary or advisable 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 Home Bank shall
permit a Representative of BancorpSouth to have access to the premises and
observe the operations of the Company or Home Bank, as the case may be, without
interfering with the operations of the Company or Home Bank 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 July 30, 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 to the extent provided herein, subject to Section 10.2.
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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. 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 BancorpSouth, as soon as practicable after the date of this
Agreement, a written agreement, in the form of Exhibit 7.5(a).
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 terms all employment, severance and other
compensation agreements and arrangements existing
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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, the Home Bank, or any of their
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, Home Bank, any of the Subsidiaries of the Company or Home Bank, 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 such 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 if 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
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notify 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. Coordination of Dividends. After the date of this Agreement, each
of BancorpSouth and the Company shall coordinate with the other the declaration
of any dividends in respect of the Company Common Stock and the record dates and
payments dates relating thereto, it being the intention of the parties that the
holders of Company Common Stock may (to the extent allowed by law and declared)
receive one, but not more than one, dividend for any period with respect to
their shares of Company Common Stock and any shares of BancorpSouth Common Stock
any holder of Company Common Stock receives in exchange thereof in the Merger.
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 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.
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:
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(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.
(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
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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 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) Payoff Letter. BancorpSouth shall have received a payoff
letter and any related documentation it may reasonably request from First
Tennessee Bank ("First Tennessee").
(f) Legal Opinion. BancorpSouth shall have received an opinion
from Company's counsel, 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 with respect to matters of Mississippi law, Company's
counsel may rely upon an opinion of Mississippi counsel addressed to it or may
cause such opinion to be issued directly to BancorpSouth.
(g) Pooling Treatment. KPMG Peat Marwick LLP, certified public
accountants for BancorpSouth, and Schauer, Taylor, Cox & Edwards, P.C.,
certified public accountants for the Company, shall have each delivered a letter
dated the Closing Date and addressed to BancorpSouth, to the effect that the
Merger will qualify for pooling of interests accounting treatment under
applicable accounting standards if consummated in accordance with this
Agreement. The Company shall use its best efforts to procure drafts of such
letters from its accountants to BancorpSouth and its respective counsel no later
than 10 business days prior to the Closing Date.
(h) Employment Agreements. Jimmy R. Kimsey and Lee Matthews
shall each have entered into a written Employment Agreement with BancorpSouth
Bank in form and substance similar to those agreements attached as Exhibit 8.2
hereto containing non-competition agreements mutually satisfactory to
BancorpSouth and the respective employee in their reasonable discretion.
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 though
made on and as of the Closing Date; and (ii) the representations and warranties
of
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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 Bradley Arant Rose & White LLP (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 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. Investment
Banking 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 Counsel
may rely on an opinion of Mississippi counsel addressed to it or may cause such
opinion to be issued directly to the Company.
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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
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;
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(g) by BancorpSouth, 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
(h) By the Company upon written notice to BancorpSouth at any
time during the three-day period commencing the day after the Determination
Date, if either (x) both of the following conditions are satisfied:
(1) the Average Closing Price shall be less than the
product of (i) 0.85 and (ii) the Starting Price; and
(2) (i) the quotient obtained by dividing the Average
Closing Price by the Starting Price (such number being
referred to herein as the "BancorpSouth Ratio") shall be less
than (ii) the quotient obtained by dividing the Index Price on
the Determination Date by the Index Price on the Starting Date
and subtracting 0.15 from the quotient in the clause (2)(ii)
(such number being referred to herein as the "Index Ratio");
or (y) the Average Closing Price shall be less than the product of (i) 0.75 and
(ii) the Starting Price.
For purposes of this Section 9.1(h), the following
terms shall have the meanings indicated:
"Average Closing Price" shall mean the average of the
daily last sales prices of BancorpSouth Common Stock as reported on the NYSE (as
reported by The Wall Street Journal or, if not reported thereby, another
authoritative source as chosen by BancorpSouth) for the 20 consecutive full
trading days in which such share are traded on the NYSE ending at the close of
trading on the Determination Date.
"Determination Date" shall mean the date on which the
consent of the FDIC shall be received.
"Index Group" shall mean the SNL Southeastern Bank
Index as published in The Bankinvestor, the common stocks of all of which shall
be publicly traded and as to which there shall not have been, since the Starting
Date and before the Determination Date, any public announcement of a proposal
for such company to be acquired or for such company to acquire another company
or companies in transactions with a value exceeding 25% of the acquiror's market
capitalization as of the Starting Date. In the event that any such company or
companies are removed from the Index Group as a result of any of the events
described in the preceding sentence, the weights (which shall be determined
based upon the number of outstanding shares of common stock) shall be
redistributed proportionately for purposes of determining the Index Price.
"Index Price" on a given date shall mean the weighted
average (weighted in accordance with the factors listed in the definition of
"Index Group") of the closing prices of the companies composing the Index Group.
"Starting Date" shall mean November 4, 1998.
"Starting Price" shall mean the daily last sales
price of BancorpSouth Common Stock as reported on the NYSE (as reported by The
Wall Street Journal or, if not reported thereby, another authoritative source as
chosen by BancorpSouth) on the Starting Date.
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
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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. In addition, in the event the Company exercises its termination
right under Section 9.1(h), the Company agrees to pay any and all third party
out-of-pocket expenses incurred by BancorpSouth; provided, however, that in no
event shall the Company be obligated to pay more than $150,000 pursuant to this
provision.
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 and
(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) (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.
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
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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
(b) if to the Company, to:
HomeBanc Corporation
1301 Gunter Avenue
Guntersville, Alabama 35976
Attention: Jimmy R. Kimsey
Facsimile: 256/582-7842
with a copy (which shall not constitute notice) to:
Bradley Arant Rose & White LLP
2001 Park Place, Suite 1400
Birmingham, Alabama 35203
Attention: Paul S. Ware, Esq.
Facsimile: 205/521-8800
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 November 4, 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
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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.]
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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 & Chief Executive
Officer
HOMEBANC CORPORATION
By: /s/ Jimmy R. Kimsey
---------------------------------
Name: Jimmy R. Kimsey
Title: President
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EXHIBIT 5.1
[LETTERHEAD OF RILEY, FORD, CALDWELL & CORK, P.A.]
January 5, 1999
Board of Directors
BancorpSouth, Inc.
One Mississippi Plaza
Tupelo, Mississippi 38801
Re: Registration Statement on Form S-4 (Reg. No.
333-28081) Post-Effective Amendment No. 4
Ladies and Gentlemen:
We are acting as counsel to BancorpSouth, Inc., a Mississippi
corporation (the "Company"), in connection with the registration under the
Securities Act of 1933, as amended (the "Act"), of 2,100,209 shares of common
stock (the "Shares"), $2.50 par value per share, of the Company, pursuant to the
above-captioned Registration Statement and Post-Effective Amendment No. 4
thereto (the "Registration Statement"). As such counsel and in connection with
the foregoing, we have examined and relied upon such records, documents and
other instruments as in our judgment are necessary or appropriate in order to
express the opinions hereinafter set forth, and have assumed the genuineness of
all signatures, the authenticity of all documents submitted to us as originals
and the conformity to original documents of all documents submitted to us as
certified or photostatic copies.
Based upon and subject to the foregoing and such other matters as we
have deemed relevant, we are of the opinion that the Shares, when issued and
delivered upon payment therefor in the manner and on the terms described in or
incorporated by reference into the Registration Statement (after the same is
effective), will be validly issued, fully paid and non-assessable.
We hereby consent to the filing of this opinion as an exhibit to the
Registration Statement and further consent to the reference to us under the
caption "Legal Matters" in the prospectus included in the Registration
Statement.
Very truly yours,
/s/ RILEY, FORD, CALDWELL & CORK, P.A.
<PAGE> 1
EXHIBIT 8.1
[Letterhead of Waller Lansden Dortch & Davis,
A Professional Limited Liability Company]
January 6, 1999
BancorpSouth, Inc.
One Mississippi Plaza
Tupelo, Mississippi 38801
RE: CERTAIN FEDERAL INCOME TAX CONSEQUENCES OF THE MERGER
OF HOMEBANC CORPORATION WITH AND INTO BANCORPSOUTH,
INC.
Ladies and Gentlemen:
We have acted as tax counsel to BancorpSouth, Inc., a Mississippi
corporation ("BancorpSouth"), in connection with the proposed merger (the
"Merger") of HomeBanc Corporation, an Alabama corporation (the "Company"), with
and into BancorpSouth, pursuant to the terms of the Agreement and Plan of
Merger, dated as of November 4, 1998 (the "Merger Agreement"), by and among
BancorpSouth and the Company. At your request, as an exhibit to Post-Effective
Amendment No. 4 to the Registration Statement on Form S-4 to be filed with the
Securities and Exchange Commission in connection with the Merger (the
"Registration Statement"), we are hereby rendering our opinion regarding certain
federal income tax consequences of the Merger pursuant to Item 601(b)(8) of
Regulation S-K.
INFORMATION RELIED UPON
In rendering the opinion set forth herein, and with your consent, we
have examined and relied upon originals or copies, certified or otherwise
identified to our satisfaction, of the Merger Agreement, the Registration
Statement, the Prospectus Supplement (to Prospectus dated September 24, 1998)
and Proxy Statement included in the Registration Statement (the "Prospectus
Supplement/Proxy Statement"), and the representations (which we have neither
investigated nor verified) given to us by letter, dated January 6, 1999, by
BancorpSouth and by letter, dated January 6, 1999, by the Company, each as
contained and described in the representations section of such letters
(collectively, the "Certificates"), and have assumed that such Certificates will
be complete and accurate on the date given and as of the Effective Time. In
addition, we have examined such other documents, agreements, and certificates
and made such investigations of law and fact as we have deemed necessary or
appropriate as a basis for the opinion set forth below.
In our examination, we have assumed, with your consent, the genuineness
of all signatures, the legal capacity of natural persons, the authenticity of
all documents submitted to us as originals, the conformity to original documents
of all documents submitted to us as certified or photocopies, and the
authenticity of the originals of such copies. As to any facts material to this
opinion which we did not independently establish or verify, we have relied upon
the accuracy and completeness of (i) the statements and representations made by
BancorpSouth and the Company and (ii) the Prospectus Supplement/Proxy Statement,
and we have assumed that such will be complete and accurate through the date
hereof and will continue to remain complete and accurate as of the Effective
Time. In addition, we have assumed, with your consent, that the statements
contained in the Certificates are complete and accurate on the date hereof and
will be complete and accurate as of the Effective Time, and that any
representation made in any of the documents referred to herein "to the best of
the knowledge and belief" (or similar qualification) of any person or party is
now and will be as of the Effective Time complete and accurate without such
qualification. We have also assumed
<PAGE> 2
January 6, 1999
Page 2
that the transactions contemplated by the Merger Agreement will be consummated
in accordance therewith and as described in the Prospectus Supplement/Proxy
Statement and that the Merger will qualify as a statutory merger under the
applicable laws of the States of Mississippi and Alabama.
Unless specified, capitalized terms used herein shall have the meanings
assigned to them in the Prospectus Supplement/Proxy Statement or the appendices
thereto (including the Merger Agreement). All references herein to the Code are
to the Internal Revenue Code of 1986, as amended (the "Code").
OPINION
On the basis of the foregoing, and subject to the assumptions,
qualifications and limitations stated herein, we are of the opinion that:
(i) The Merger will be treated as a reorganization within the
meaning of Section 368(a) of the Code;
(ii) No gain or loss will be recognized by BancorpSouth or the
Company as a result of the Merger;
(iii) 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
(iv) The aggregate tax basis of the BancorpSouth Common Stock
received by the shareholders of the Company 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).
The opinion expressed herein is based upon existing statutory,
regulatory, and judicial authority, any of which may be changed at any time with
retroactive effect. In addition, our opinion is based solely on the documents
that we have examined, the additional information that we have obtained, and the
facts set out in the Certificates that we have assumed, with your consent, to be
true and correct. Our opinion cannot be relied upon if any of the facts
contained in such documents or in any such additional information is, or later
becomes, inaccurate, or if any of the facts set out in the Certificates is, or
later becomes, inaccurate.
Our opinion is limited to the United States federal income tax matters
specifically covered thereby, and we have not been asked to address, nor have we
addressed, any other tax consequences that may result from the Merger or any
other transaction (including any transaction undertaken in connection with the
Merger). We express no opinion regarding the tax consequences of the Merger to
shareholders of the Company that are subject to special tax rules.
We hereby consent to the filing of this opinion with the Securities and
Exchange Commission as an exhibit to the Registration Statement, and to the
references to our firm under the heading "The Merger -- Certain Federal Income
Tax Consequences" and elsewhere in the Prospectus Supplement/Proxy Statement. In
giving such consent, we do not thereby admit that we
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January 6, 1999
Page 3
are in the category of persons whose consent is required under Section 7 of the
Securities Act of 1933, as amended.
Very truly yours,
/s/ WALLER LANSDEN DORTCH & DAVIS, PLLC
3
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EXHIBIT 10.1
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 November 4, 1998, between HomeBanc
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 166,448 fully paid and nonassessable shares of Issuer's Common Stock, $0.10
par value ("Common Stock"), at a price of $25.00 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 11.09653% 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 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
11.09653% 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
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<PAGE> 2
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 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
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<PAGE> 3
contained in the Merger Agreement and such breach (x) would 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:
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<PAGE> 4
"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.
Section 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
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<PAGE> 5
of evidence reasonably satisfactory to it of the loss, theft, destruction or
mutilation of this 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
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<PAGE> 6
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 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 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
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<PAGE> 7
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.
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<PAGE> 8
(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; 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 11.09653% 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 11.09653% 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.
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<PAGE> 9
(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 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
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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.
(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.
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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 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.
[NEXT PAGE IS SIGNATURE PAGE.]
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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.
HOMEBANC CORPORATION
BY: /s/ Jimmy R. Kimsey
---------------------------------
Name: Jimmy R. Kimsey
Title: President
BANCORPSOUTH, INC.
BY: /s/ Aubrey B. Patterson
---------------------------------
Name: Aubrey B. Patterson
Title: Chairman and Chief Executive
Officer
12
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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 LLP
Memphis, Tennessee
January 6, 1999
<PAGE> 1
EXHIBIT 23.2
CONSENT OF SCHAUER, TAYLOR, COX & EDWARDS, P.C.
We hereby consent to the inclusion in the Registration Statement on
Form S-4 of BancorpSouth, Inc., of our reports on the consolidated statements of
financial condition of HomeBanc Corporation and Subsidiary as of September 30,
1998, December 31, 1997 and 1996 and as of December 31, 1996 and 1995 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/ Schauer, Taylor, Cox & Edwards, P.C.
Birmingham, Alabama
January 6, 1999
<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 January 4,
1999, with respect to the merger of BancorpSouth, Inc. and HomeBanc 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
January 4, 1998
<PAGE> 1
EXHIBIT 99.1
PROXY
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS OF
HOMEBANC CORPORATION
PROXY FOR SPECIAL MEETING OF SHAREHOLDERS
The undersigned hereby appoints J. R. Kimsey and Dale B. Rowe, or either of
them, as proxies, with full power of substitution and resubstitution, to vote
all of the shares of common stock which the undersigned is entitled to vote at
the special meeting of shareholders of HomeBanc Corporation, to be held in the
main office of The Home Bank, 1301 Gunter Avenue, Guntersville, Alabama, on
_______, _________, 1999, at __:__ _.m. (Central Time), and at any adjournment
thereof.
In their discretion, the proxies are authorized to vote upon such other
matters as may properly come before the meeting or any adjournment thereof.
THIS PROXY, WHEN PROPERLY EXECUTED, WILL BE VOTED AS SPECIFIED. IF NOT
OTHERWISE SPECIFIED, THIS PROXY WILL BE VOTED "FOR" PROPOSAL 1 AND IN
ACCORDANCE WITH THE RECOMMENDATIONS OF THE BOARD OF DIRECTORS OF
HOMEBANC CORPORATION ON ANY OTHER MATTERS THAT MAY PROPERLY COME BEFORE
THE MEETING.
PROPOSAL 1. To approve and adopt the Agreement and Plan of Merger, dated as of
November 4, 1998, by and between HomeBanc Corporation and BancorpSouth, Inc.,
providing for the merger of HomeBanc Corporation with and into BancorpSouth,
Inc., as described in the Prospectus Supplement/Proxy Statement dated
_____________, 1999.
FOR AGAINST ABSTAIN
IMPORTANT: Please sign The undersigned instructs that this proxy
exactly as your name or be voted as marked.
names appear on this proxy
card. When shares are held Dated: ______________________, 1999
by joint tenants, both
should sign. When signing as
an attorney, executor, _________________________________
administrator, trustee or Signature of Shareholder
guardian, please give full
title as such. If a
corporation, please sign in _________________________________
full corporate name by Signature if held jointly
president or other
authorized officer. If a
partnership, please sign in
partnership name by general
partner or other authorized
person.
