<PAGE> 1
As filed with the Securities and Exchange Commission on February 17, 1999
Registration No. 333-_______
- -------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
---------------------
FORM S-4
REGISTRATION STATEMENT UNDER
THE SECURITIES ACT OF 1933
---------------------
THE PEOPLES HOLDING COMPANY
(Exact name of registrant as specified in its charter)
Mississippi 6712 64-0676974
(State or other (Primary Standard (I.R.S. Employer
jurisdiction of Industrial Classification Identification No.)
incorporation) Code Number)
---------------------
209 Troy Street
Tupelo, Mississippi 38801-4827
(601)680-1001
(Address, including zip code, and telephone number, including
area code, of registrant's principal executive offices)
---------------------
John W. Smith
The Peoples Holding Company
209 Troy Street
Tupelo, Mississippi 38801-4827
(601)680-1001
(Name, address, including zip code, and telephone number,
including area code, of agent for service)
---------------------
COPIES TO:
Ann W. Langston Kathryn L. Knudson
GERRISH & MCCREARY, P.C. POWELL, GOLDSTEIN, FRAZER & MURPHY LLP
700 Colonial Road, Suite 200 191 Peachtree Street, N.E.
Memphis, TN 38117 16th Floor
(901) 767-0900 Atlanta, GA 30303
(404) 572-6952
Approximate date of commencement of proposed sale of securities to the public:
As soon as practicable after this Registration Statement 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, 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(d) 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. ___
Calculation of Registration Fee
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------------------
Title of each class of Proposed maximum Proposed maximum
securities to be offering price per aggregate offering Amount of
registered Amount to be share(2) price(3) registration fee
registered(1)
<S> <C> <C> <C> <C>
Common Stock par value
$5.00 per share 347,405 $5,167,344 $1,436.00
- -----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) Calculated as of February 1, 1999, as the product of the 124,966
outstanding shares of Inter-City Federal Bank for Savings
("Inter-City") to be exchanged based on an exchange ratio of 2.78.
(2) Not applicable.
(3) Calculated as the product of outstanding shares of Inter-City times the
book value per share on February 1, 1999 of $41.35 per share, pursuant
to Rule 457(f)(2).
The Registrant hereby amends this Registration Statement on such date or dates
as may be necessary to delay its effective date until the Registrant shall file
a further amendment which specifically states that this Registration Statement
shall thereafter become effective under Section 8(a) of the Securities Act of
1933 or until the Registration Statement shall become effective on such date as
the Commission, acting pursuant to said Section 8(a), may determine.
<PAGE> 2
INTER-CITY FEDERAL BANK FOR SAVINGS
228 MAIN STREET
LOUISVILLE, MISSISSIPPI 39339
MERGER PROPOSED - YOUR VOTE IS IMPORTANT.
The board of directors of Inter-City Federal Bank for Savings and The Peoples
Holding Company have agreed on a merger between Inter-City and The Peoples Bank
& Trust Company. In the merger Inter-City shareholders will receive 2.78 shares
of Peoples Holding common stock for each share of Inter-City common stock, and
generally will not have to pay federal income taxes on the Peoples Holding
common stock they receive in the merger.
Peoples Holding common stock trades on the American Stock Exchange under the
symbol "PHC."
I cordially invite you to attend our special meeting of shareholders to vote on
the merger. We cannot complete the merger unless the holders of two-thirds of
Inter-City common stock approve it. Your board of directors believes the merger
is in the best interest of Inter-City shareholders and unanimously recommends
that our shareholders vote to approve the merger. No vote of Peoples Holding
shareholders is required to approve the merger.
The date, time and place of the meeting are:
March ___, 1999
2:00 p.m., local time
Inter-City Federal Bank for Savings
228 Main Street
Louisville, Mississippi
This proxy statement/prospectus gives you detailed information about the
proposed merger. We encourage you to read this entire document carefully.
YOUR VOTE IS IMPORTANT. Whether or not you plan to attend the special meeting,
please take the time to vote by completing and mailing the enclosed proxy card
to us. If you fail to return your proxy card or vote in person, the effect will
be a vote against approval of the merger. You can revoke your proxy by sending a
later-dated proxy card to Inter-City's Secretary anytime before the special
meeting or by attending the meeting and voting in person.
THE BOARD OF DIRECTORS ENTHUSIASTICALLY SUPPORTS THE MERGER AND WE URGE YOU TO
VOTE "FOR" THE MERGER AGREEMENT.
Thank you for your support.
Terry L. Woods
President
NEITHER THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES
REGULATORS HAVE APPROVED THE PEOPLES HOLDING COMMON STOCK TO BE ISSUED IN THE
MERGER OR DETERMINED IF THIS PROXY STATEMENT/PROSPECTUS IS ACCURATE OR COMPLETE.
ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
This proxy statement/prospectus is dated February __, 1999 and was first mailed
to shareholders of Inter-City on February __, 1999.
<PAGE> 3
INTER-CITY FEDERAL BANK FOR SAVINGS
LOUISVILLE, MISSISSIPPI
NOTICE OF SPECIAL MEETING OF SHAREHOLDERS
TO BE HELD ON MARCH ___, 1999
NOTICE IS HEREBY GIVEN that the Board of Directors of Inter-City Federal Bank
for Savings has called a special meeting of shareholders of Inter-City to be
held at the main office of Inter-City, at 228 Main Street, Louisville,
Mississippi, on March ___, 1999, at 2:00 p.m., local time, for the following
purposes:
1. To consider and vote on the Agreement and Plan of Merger, dated
December 14, 1998, between Inter-City Federal Bank for Savings, The
Peoples Holding Company and The Peoples Bank & Trust Company. The
merger agreement provides that Peoples Holding will acquire all the
issued and outstanding common stock of Inter-City through the merger of
Inter-City into Peoples Bank. In the merger, each outstanding share of
common stock, par value $.01, of Inter-City will be converted into 2.78
shares of Peoples Holding common stock, par value $5.00 per share,
except for shares as to which dissenters' rights have been exercised
and perfected under applicable Federal law, and each Inter-City
shareholder will receive cash in lieu of any remaining fractional
share, all as described more fully in the accompanying proxy
statement/prospectus. We are attaching the merger agreement as Appendix
A to this proxy statement/prospectus.
2. To transact such other business as may be properly brought before the
special meeting or any adjournments of that meeting.
Only shareholders of record of Inter-City common stock at the close of business
on February __, 1999, are entitled to receive notice of and to vote at the
special meeting and any adjournments or postponements of that meeting.
Inter-City shareholders are invited to attend the special meeting in person.
Whether or not you plan to attend the special meeting, your board of directors
urges you to complete, sign and date and return as soon as possible the enclosed
proxy card. A proxy may be revoked by the record holder of the shares it
represents at any time before it is voted by signing and returning a later dated
proxy with respect to the same shares, by filing with the Secretary of
Inter-City a written withdrawal bearing a later date, or by attending and voting
at the special meeting in person. The affirmative vote of the record holders of
two-thirds of the outstanding stock of Inter-City is required to approve the
proposed Agreement and Plan of Merger.
AS A SHAREHOLDER OF INTER-CITY, YOU MAY DISSENT TO THE PROPOSED MERGER IF YOU
COMPLY WITH THE PROCEDURES REQUIRED BY TITLE 12 OF THE CODE OF FEDERAL
REGULATIONS PART 552.14, AND YOU WILL BE ENTITLED TO DEMAND PAYMENT OF THE FAIR
VALUE OF YOUR SHARES OF INTER-CITY COMMON STOCK. WE HAVE ATTACHED A COPY OF THIS
LAW AS APPENDIX B TO THIS PROXY STATEMENT/PROSPECTUS. IF YOU ARE CONSIDERING
EXERCISING DISSENTERS' RIGHTS, YOU SHOULD CAREFULLY REVIEW THESE MATERIALS AND
INFORMATION BEFORE VOTING AT THE SPECIAL MEETING.
By order of the Board of Directors,
Louisville, Mississippi Terry L. Woods
February __, 1999 President
<PAGE> 4
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
QUESTIONS AND ANSWERS ABOUT THE MERGER............................................................................3
SUMMARY...........................................................................................................4
COMPARATIVE PER SHARE DATA........................................................................................6
SELECTED FINANCIAL INFORMATION....................................................................................8
THE SPECIAL MEETING..............................................................................................11
Purposes of the Special Meeting.........................................................................11
Time, Date and Place of the Special Meeting.............................................................11
Record Date; Shares Outstanding and Entitled to Vote....................................................11
Required Vote of Shareholders...........................................................................11
Voting and Withdrawal of Proxies .......................................................................11
Solicitation of Proxies ................................................................................11
THE PROPOSED MERGER..............................................................................................12
Background of the Merger................................................................................12
Reasons for the Merger..................................................................................13
Opinion of Inter-City's Financial Advisor...............................................................13
General Information about the Merger....................................................................19
How to Exchange Inter-City Common Stock for
Peoples Holding Common Stock........................................................................19
Conditions for the Merger...............................................................................20
Termination Provisions..................................................................................20
Effective Date..........................................................................................21
Expenses and Fees Related to the Merger.................................................................21
Regulatory Approvals....................................................................................21
Rights of Dissenting Shareholders of Inter-City.........................................................21
Accounting Treatment....................................................................................22
Directors and Executive Officers Following the Merger...................................................23
Interests of Inter-City's Board and Management in the Merger............................................23
Material Federal Income Tax Consequences of the Merger..................................................23
Resales of Peoples Holding Common Stock to be Received by Affiliates
of Inter-City.........................................................................................24
Differences in Rights of Peoples Holding and Inter-City Shareholders....................................24
COMPARATIVE MARKET PRICES AND DIVIDENDS..........................................................................26
Peoples Holding Market Prices...........................................................................26
Inter-City Market Prices................................................................................27
Dividends...............................................................................................27
DESCRIPTION OF PEOPLES HOLDING COMMON STOCK......................................................................27
UNAUDITED PRO FORMA COMBINED CONDENSED FINANCIAL STATEMENTS......................................................28
INFORMATION ABOUT PEOPLES HOLDING................................................................................37
Business of Peoples Holding ............................................................................37
Recent Developments.....................................................................................37
Selected Historical Financial Data of Peoples Holding ..................................................38
SUPERVISION AND REGULATION.......................................................................................39
INFORMATION ABOUT INTER-CITY.....................................................................................41
Business of Inter-City..................................................................................41
Security Ownership of Management of Inter-City.........................................................42
Selected Historical Financial Data of Inter-City........................................................43
Management's Discussion and Analysis of Financial
Condition and Results of Operations of Inter-City.....................................................44
EXPERTS..........................................................................................................50
</TABLE>
1
<PAGE> 5
<TABLE>
<S> <C>
LEGAL MATTERS....................................................................................................50
WHERE YOU CAN FIND MORE INFORMATION..............................................................................50
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE..................................................................51
CAUTIONARY STATEMENT CONCERNING FORWARDING-LOOKING INFORMATION...................................................51
APPENDICES
Appendix A - Agreement and Plan of Merger by and between Peoples Holding, Peoples Bank and Inter-City, dated December 14,
1998.
Appendix B - Rights of Dissenting Shareholders as set forth in Title 12 of the Code of Federal Regulations Part 552.14.
Appendix C - Opinion of The Carson Medlin Company
FINANCIAL STATEMENTS
INDEX TO FINANCIAL STATEMENTS OF INTER-CITY.....................................................................F-1
</TABLE>
2
<PAGE> 6
QUESTIONS AND ANSWERS ABOUT THE MERGER
Q: WHAT WILL HAPPEN IN THE MERGER?
A: The businesses and operations of Inter-City and Peoples Bank will be
combined into a single, larger financial institution.
Q: HOW WILL I BE AFFECTED BY THE MERGER?
A: If the merger is completed, you will receive 2.78 shares of Peoples
Holding common stock in exchange for each share of Inter-City common
stock you own. You will receive cash instead of any fractional Peoples
Holding shares.
Q: WHAT DO I NEED TO DO NOW?
A: Just indicate on your proxy card how you want to vote, and sign and
mail the proxy card in the enclosed envelope as soon as possible so
that your shares of Inter-city common stock will be represented at the
special meeting even if you cannot attend.
Q: WHAT DO I DO IF I WANT TO CHANGE MY VOTE?
A: You may send in a later-dated proxy card or you may attend the special
meeting and vote your shares in person. If you have already mailed your
proxy card and want to vote in person, before the meeting you should
notify the Secretary of Inter-City.
Q: SHOULD I SEND IN MY STOCK CERTIFICATES NOW?
A: No. Peoples Holding will send you written instructions for exchanging
your Inter-City common stock certificates for Peoples Holding common
stock certificates.
Q: WHAT ARE THE TAX CONSEQUENCES TO ME?
A: We expect that the exchange of shares by Inter-City shareholders
generally to be tax free to Inter-City, Peoples Holding and Inter-City
shareholders for U.S. federal income tax purposes. You will have to pay
taxes on a portion of any cash you receive instead of fractional shares
or if you dissent and receive cash payment for your Inter-City shares.
YOUR TAX CONSEQUENCES DEPEND ON YOUR PERSONAL SITUATION. YOU ARE
ENCOURAGED TO CONSULT YOUR TAX ADVISOR.
Q: WHEN WILL THE MERGER BE COMPLETED?
A: We are working to complete the merger during the first quarter of 1999.
There could be delays.
Q: WHO CAN HELP ANSWER MY QUESTIONS?
A: If you want additional copies of this document of if you want to ask
any questions about the merger, you should contact:
Inter-City Federal Bank for Savings
Mr. Terry Woods
228 Main Street
Louisville, MS 29325
Telephone (601) 773-8061
Please rely only on the information in this proxy statement/prospectus or
information that we have referred you to review. We have not authorized anyone
to provide you with different information.
3
<PAGE> 7
SUMMARY
THIS SUMMARY HIGHLIGHTS SELECTED INFORMATION FROM THIS PROXY
STATEMENT/PROSPECTUS. THIS SUMMARY IS NOT COMPLETE AND YOU ARE ENCOURAGED TO
READ THE MORE DETAILED INFORMATION IN THIS PROXY STATEMENT/PROSPECTUS.
PARTIES TO THE MERGER
The Peoples Holding Company and The Peoples Bank & Trust Company
209 Troy Street
Tupelo, Mississippi 38801
(601) 680-1001
Peoples Holding is the holding company for Peoples Bank. See "Information about
Peoples Holding - Business of Peoples Holding," page __.
Inter-City Federal Bank for Savings
228 Main Street
Louisville, Mississippi 39339
(601) 773-8061
Inter-City is a federally chartered savings bank. See "Information about
Inter-City - Business of Inter-City," page __.
MEETING TO BE HELD ON MARCH __, 1999
The special meeting will be held at 2:00 p.m., local time, at Inter-City's main
office, 228 Main Street, Louisville, Mississippi, on March __, 1999. At this
meeting you will vote on the merger agreement and conduct any other business
that properly arises. See "The Special Meeting," page __.
RECORD DATE SET AT FEBRUARY __, 1999; ONE VOTE PER SHARE
You can vote at the special meeting only if you owned shares of Inter-City
common stock at the close of business on February __, 1999. On February _, 1999,
there were 124,966 shares of Inter-City common stock outstanding. Each share has
one vote.
TWO-THIRDS INTER-CITY VOTE REQUIRED
The merger requires the approval of the holders of two-thirds of the outstanding
shares of Inter-City common stock. As of __________ __, 1999, Inter-City's
directors, executive officers and holders of 5% or more of Inter-City's
outstanding shares owned about 35.31% of the Inter-City common stock entitled to
vote at the special meeting, and we expect all of the directors and executive
officers to vote all their shares in favor of the merger. See "The Inter-City
Special Meeting - Required Vote of Inter-City Shareholders," page __.
RECOMMENDATION OF THE INTER-CITY BOARD OF DIRECTORS
The board of directors of Inter-City believes that the proposed merger of
Peoples Bank and Inter-City is in the best interests of its shareholders, and
unanimously recommends a vote FOR approval of the merger agreement. See "The
Proposed Merger Reasons for the Merger," page __.
THE MERGER AGREEMENT
We have attached the merger agreement as Appendix A to this proxy
statement/prospectus. We encourage you to read the merger agreement, as it is
the legal document that governs the merger.
HOW TO EXCHANGE INTER-CITY COMMON STOCK FOR PEOPLES HOLDING COMMON STOCK
Promptly after the merger is completed, Peoples Holding will select an exchange
agent to mail to the former shareholders of Inter-City a letter of transmittal,
along with instructions for exchanging certificates for shares of Inter-City
common stock for
4
<PAGE> 8
certificates for shares of Peoples Holding common stock. Inter-City shareholders
should not send your stock certificates until you receive the form letter of
transmittal and instructions. See "The Proposed Merger - How to Exchange
Inter-City Common Stock for Peoples Holding Common Stock," page ___.
REGULATORY APPROVALS AND OTHER CONDITIONS FOR THE MERGER
The merger must be approved by the Federal Deposit Insurance Corporation, the
Mississippi Department of Banking and Consumer Finance and the Office of Thrift
Supervision. Applications for the required approvals have been filed and are
pending at this time.
These conditions must be met for us to complete the merger:
- - Approval of the merger agreement by the Inter-City shareholders
- - Receipt of legal opinions
- - Completion of the merger as a pooling-of-interests
- - No material adverse change in the financial condition or results of
operations of Inter-City or Peoples Holding.
See "The Proposed Merger - Conditions to Consummation of the Merger," page ___.
TERMINATION PROVISIONS OF THE MERGER AGREEMENT
The merger agreement may be terminated at any time before the merger is
completed:
- - by the mutual consent of the boards of directors of Peoples Holding and
Inter-City
- - by the board of directors of Peoples Holding or Inter-City in the event
of material breach of any agreement, covenant, representation or
warranty by the other party
- - by either party if the merger is not completed by June 30, 1999
- - by Inter-City if the Inter-City shareholders fail to approve the
merger.
See "The Proposed Merger - Termination Provisions," page __.
INTERESTS OF INTER-CITY'S BOARD AND MANAGEMENT IN THE MERGER
Please be aware that some directors and officers of Inter-City's may have
interests in the merger that are in addition to their interests as Inter-City
shareholders. One current member of the board of directors of Inter-City will be
appointed to the boards of directors of Peoples Holding and Peoples Bank.
Peoples Holding will indemnify the directors and officers of Inter-City to the
fullest extent permitted by federal law and the charter and bylaws of Inter-City
against all liabilities and the expense of defending claims of liabilities. See
"The Proposed Merger - Interests of Inter-City's Board and Management in the
Merger," page __.
PEOPLES HOLDING TO USE POOLING-OF-INTERESTS ACCOUNTING TREATMENT
The merger is expected to be accounted for as a pooling-of-interests.
DIFFERENCES IN SHAREHOLDERS' RIGHTS
When the merger is completed, Inter-City shareholders will automatically become
Peoples Holding shareholders, and your rights as Peoples Holding shareholders
will be determined by Peoples Holding's articles of incorporation and bylaws and
Mississippi law.
The rights of Peoples Holding shareholders differ from the rights of Inter-City
shareholders in several ways, some of which constitute anti-takeover provisions
provided for in the governing documents of Peoples Holding. See "The Proposed
Merger - Differences in Rights of Peoples Holding and Inter-City Shareholders,"
page __.
COMPARATIVE PRICES OF PEOPLES HOLDING COMMON STOCK AND INTER-CITY COMMON STOCK
Peoples Holding common stock is traded on the American Stock Exchange under the
symbol "PHC."
5
<PAGE> 9
Inter-City common stock is not listed for quotation on any stock exchange and is
not actively traded.
The following table sets forth the closing sales prices reported on the American
Stock Exchange for Peoples Holding common stock on October 19, 1998, the last
trading date preceding the date of the announcement of the merger, the most
recent known sales price for Inter-City common stock before October 20, 1998, as
well as the per share equivalent price for Inter-City common stock on October
19, 1998.
<TABLE>
<CAPTION>
Per Share Price On
October 19, 1998
(before announcement)
---------------------
<S> <C>
Peoples Holding Common Stock - historical $33.38
Inter-City Common Stock - historical $45.00
- equivalent (1) $92.80
</TABLE>
(1) The equivalent per share price of Inter-City common stock represents
the closing sales price of a share of Peoples Holding common stock on
October 19, 1998 multiplied by the exchange ratio of 2.78.
COMPARATIVE PER SHARE DATA
The following table sets forth at the dates and for the periods indicated, (1)
selected comparative per share data for Peoples Holding and Inter-City on an
historical basis, and (2) selected unaudited pro forma comparative per share
data reflecting the completion of the merger. The unaudited pro forma data has
been prepared giving effect to the merger as a pooling-of-interests. The
equivalent pro forma per share data for Inter-City is computed by multiplying
the pro forma combined information by the exchange ratio of 2.78 shares of
Peoples Holding common stock for each share of Inter-City common stock. The
following information is not necessarily indicative of the results of operations
or combined financial position that would have resulted had the merger been
completed at the beginning of the periods presented, nor is it necessarily
indicative of the results of operations of future periods or of future combined
financial position.
The information shown below should be read in conjunction with, and is qualified
in its entirety by, the historical financial statements of Peoples Holding and
Inter-City, including the notes thereto, incorporated by reference or appearing
elsewhere in this proxy statement/prospectus, and the pro forma financial
information included herein. See "Incorporation of Certain Documents By
Reference," and "Unaudited Pro Forma Combined Condensed Financial Statements."
6
<PAGE> 10
<TABLE>
<CAPTION>
For the
Nine Months
Ended For the Year Ended December 31,
September 30, ----------------------------------------------
1998 1997 1996 1995
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
NET INCOME PER COMMON SHARE:
Peoples Holding historical - basic and diluted $ 1.45 $ 1.82 $ 1.62 $ 1.57
Inter-City historical - basic $ 2.18 $ 2.91 $ 1.74 $ 2.56
Inter-City historical - diluted $ 2.18 $ 2.91 $ 1.74 $ 2.55
Pro forma combined:
Peoples Holding/Inter-City - basic $ 1.41 $ 1.77 $ 1.57 $ 1.54
Peoples Holding/Inter-City - diluted $ 1.41 $ 1.77 $ 1.57 $ 1.54
Pro forma equivalents for Inter-City:
Peoples Holding/Inter-City - basic $ 3.92 $ 4.92 $ 4.36 $ 4.28
Peoples Holding/Inter-City - diluted $ 3.92 $ 4.92 $ 4.36 $ 4.28
CASH DIVIDENDS DECLARED PER
COMMON SHARE:
Peoples Holding historical $ 0.52 $ 0.57 $ 0.50 $ 0.46
Inter-City historical $ 1.00 $ 0.75 $ 2.64 $ 0.45
Pro forma equivalents:
For Inter-City $ 1.43 $ 1.55 $ 1.46 $ 1.23
BOOK VALUE PER COMMON SHARE (PERIOD END):
Peoples Holding historical $ 18.03 $ 16.75 $ 15.46 $ 14.50
Inter-City historical $ 40.87 $ 39.67 $ 37.56 $ 40.93
Pro forma combined:
Peoples Holding/Inter-City $ 17.81 $ 16.61 $ 15.41 $ 14.52
Pro forma equivalents for Inter-City:
Peoples Holding/Inter-City $ 49.51 $ 46.18 $ 42.83 $ 40.35
WEIGHTED AVERAGE COMMON SHARES
OUTSTANDING:
Peoples Holding historical - basic and diluted 5,856,782 5,859,472 5,859,472 5,859,472
Inter-City historical - basic 124,966 124,966 116,391 113,476
Inter-City historical - diluted 124,966 124,966 116,391 114,138
Pro forma combined:
Peoples Holding/Inter-City - basic 6,204,187 6,206,877 6,183,038 6,174,937
Peoples Holding/Inter-City - diluted 6,204,187 6,206,877 6,183,038 6,176,776
</TABLE>
7
<PAGE> 11
SELECTED FINANCIAL INFORMATION
The following table sets forth (1) Summary selected financial information for
each of Peoples Holding and Inter-City on an historical basis, and (2) summary
unaudited pro forma selected financial information reflecting the completion of
the merger. The pro forma information assumes the companies had been combined
for each period presented on a pooling-of-interests accounting basis and is
based on the historical statements of income of Peoples Holding and Inter-City,
giving effect to the pro forma adjustments described in the Notes to the
Unaudited Pro Forma Combined Condensed Financial Statements on page ____. See
"The Proposed Merger - Accounting Treatment." The summary selected financial
information for each of Peoples Holding and Inter-City and the unaudited pro
forma selected financial information have been prepared based on the historical
financial statements of Peoples Holding and Inter-City for each of the three
years in the period ended December 31, 1997, and the nine months ended September
30, 1998 and 1997. Peoples Holding's fiscal year end is December 31 while
Inter-City's fiscal year end is March 31. For purposes of the following tables,
Inter-City financial data is presented consistently with the fiscal year end of
Peoples Holding.
The data should be read in conjunction with the historical financial statements,
related notes and other financial information for Peoples Holding and Inter-City
incorporated by reference or included elsewhere in this proxy
statement/prospectus. The results of operations for the nine-month period ended
September 30, 1998, may not be indicative of the results of operations to be
achieved for the year ending December 31, 1998, or for future interim periods.
The unaudited pro forma selected financial information does not purport to
represent the actual results of operations or the financial condition of the
combined companies had the merger actually occurred in the periods or on the
dates indicated. The September 30, 1998 financial information presented is
unaudited. In the opinion of management, such information is fairly stated and
has been prepared in accordance with generally accepted accounting principles.
See "Unaudited Pro Forma Combined Condensed Financial Statements."
8
<PAGE> 12
SUMMARY OF CONSOLIDATED FINANCIAL INFORMATION
<TABLE>
<CAPTION>
Nine Months Ended Year Ended
September 30, December 31,
------------------------ ----------------------------------------
1998 1997 1997 1996 1995
---------- ------- ---------- -------- --------
(In thousands, except ratios)
<S> <C> <C> <C> <C> <C>
FINANCIAL CONDITION
(At end of period)
Total assets
Peoples Holding $1,041,866 946,486 $ 971,055 $893,089 $841,699
Inter-City 43,632 38,791 40,884 34,015 32,572
Pro forma combined:
Peoples Holding/Inter-City 1,085,498 985,277 1,011,939 927,104 874,271
Investment securities
Peoples Holding $ 304,057 261,635 248,632 246,110 217,744
Inter-City 2,259 4,173 2,298 829 2,311
Pro forma combined:
Peoples Holding/Inter-City 306,316 265,808 250,930 246,939 220,055
Loans, net
Peoples Holding $ 651,988 600,944 618,841 553,443 509,973
Inter-City 36,256 33,119 33,524 30,546 29,025
Pro forma combined:
Peoples Holding/Inter-City 688,244 634,063 652,365 583,989 538,998
Total deposits
Peoples Holding $ 890,059 792,166 834,914 772,842 739,545
Inter-City 37,811 33,161 35,147 28,335 27,076
Pro forma combined:
Peoples Holding/Inter-City 927,870 825,327 870,061 804,174 766,621
Borrowed funds
Peoples Holding $ 23,680 45,251 24,555 17,529 6,713
Inter-City 467 518 505 554 600
Pro forma combined:
Peoples Holding/Inter-City 24,147 45,769 25,060 18,083 7,313
Stockholders' equity
Peoples Holding $ 105,380 96,026 98,151 90,560 84,960
Inter-City 5,107 4,886 4,958 4,693 4,675
Pro forma combined:
Peoples Holding/Inter-City 110,487 100,912 103,109 95,254 89,635
</TABLE>
9
<PAGE> 13
SELECTED FINANCIAL RATIOS
<TABLE>
<CAPTION>
Nine Months Year Ended
Ended December 31,
September 30, -------------------------------------
1998 1997 1996 1995
------- ------- ------- -------
<S> <C> <C> <C> <C>
Return on average assets
Peoples Holding 1.12% 1.14% 1.10% 1.13%
Inter-City 0.88% 0.97% 0.61% 0.91%
Pro forma combined:
Peoples Holding/Inter-City 1.11% 1.13% 1.08% 1.12%
Return on average stockholders' equity
Peoples Holding 11.20% 11.25% 10.88% 11.45%
Inter-City 7.30% 7.52% 4.31% 6.38%
Pro forma combined:
Peoples Holding/Inter-City 11.02% 11.07% 10.54% 11.18%
Tier 1 risk-based capital (at end of period)
Peoples Holding 14.15% 14.46% 15.10% 14.87%
Inter-City 17.59% 19.29% 20.35% 21.63%
Pro forma combined:
Peoples Holding/Inter-City 14.29% 14.65% 15.30% 15.15%
Total risk-based capital (at end of period)
Peoples Holding 15.40% 15.71% 16.35% 16.14%
Inter-City 18.05% 19.74% 20.79% 22.04%
Pro forma combined:
Peoples Holding/Inter-City 15.51% 15.87% 16.52% 16.37%
Tier 1 leverage (at end of period)
Peoples Holding 9.39% 9.86% 9.91% 9.67%
Inter-City 11.70% 12.12% 13.79% 14.35%
Pro forma combined:
Peoples Holding/Inter-City 9.49% 9.96% 10.06% 9.85%
</TABLE>
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<PAGE> 14
THE SPECIAL MEETING
PURPOSES OF THE SPECIAL MEETING
The purposes of the special meeting are to:
- - Vote on the merger agreement, and
- - Act on any matters that may properly come before the special meeting.
TIME, DATE AND PLACE OF THE SPECIAL MEETING
The Inter-City Special Meeting will be held at the main office of Inter-City,
228 Main Street, Louisville, Mississippi, at 2:00 p.m., local time, on March __,
1999.
RECORD DATE; SHARES OUTSTANDING AND ENTITLED TO VOTE
Only the record holders of Inter-City common stock at the close of business on
the Inter-City record date of February __, 1999 are entitled to notice of and to
vote at the Inter-City special meeting and any postponement or adjournments of
that meeting. On February __, 1999, there were 124,966 shares of Inter-City
common stock outstanding, with each share being entitled to one vote on each
matter properly coming before the Inter-City special meeting.
REQUIRED VOTE OF SHAREHOLDERS
The merger agreement must be approved by the affirmative vote of the holders of
two-thirds of the outstanding shares of Inter-City common stock. Accordingly,
abstentions and broker non-votes will have the same effect as votes against
approval of the merger agreement. As of the Inter-City record date, Inter-City's
directors and executive officers beneficially owned as a group approximately
44,130 shares (35.31%) of the outstanding Inter-City common stock. All of the
directors and executive officers of Inter-City have indicated their intention to
vote all their shares in favor of approval of the merger agreement.
VOTING AND WITHDRAWAL OF PROXIES
The proxies for Inter-City shareholders which accompany this proxy
statement/prospectus permit each holder of record of Inter-City common stock on
the Inter-City record date to vote on all matters to come before the Inter-City
special meeting. Inter-City common stock represented by properly executed
proxies, unless previously revoked, will be voted at the Inter-City special
meeting by the instructions on the proxy card. IF NO INSTRUCTIONS ARE INDICATED,
THE SHARES WILL BE VOTED FOR APPROVAL OF THE MERGER AGREEMENT.
No additional business is presently scheduled to be conducted at the Inter-City
special meeting, and it is not anticipated that other matters will be brought
before the Inter-City special meeting. If, however, other appropriate matters
are brought before the Inter-City special meeting, the persons appointed as
proxies will have discretion to vote or act on those matters according to their
best judgment.
An Inter-City shareholder executing and returning a proxy card has the power to
revoke it at any time before it is voted. An Inter-City shareholder who wishes
to revoke a proxy may do so by filing with the Secretary of Inter-City prior to
the Inter-City special meeting, a written withdrawal or a duly executed proxy
bearing a later date or by voting in person at the special meeting. ATTENDANCE
AT THE SPECIAL MEETING ALONE DOES NOT WITHDRAW A PROXY. Written withdrawal can
be made to Ms. Lisa Henderson, Secretary, Inter-City Federal Bank for Savings,
228 Main Street, Louisville, Mississippi 39339.
SOLICITATION OF PROXIES
In addition to solicitation by mail, directors, officers and other employees of
Inter-City, who will not be specially compensated for such service, may solicit
proxies from the shareholders of Inter-City, personally or by telephone or by
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telegraph or other forms of communication. Brokerage houses, banks and other
custodians, nominees and fiduciaries will be requested to forward the
solicitation to the beneficial owners and to obtain authorization for the
execution of proxies. Upon request, those persons and entities will be
reimbursed for their reasonable expenses incurred in forwarding the proxy
statement/prospectus to beneficial owners of Inter-City common stock.
Each party to the merger will bear its own costs and expenses of soliciting
proxies and the printing costs and expenses incurred in connection with this
proxy statement/prospectus and the registration statement filed by Peoples
Holding with the Securities and Exchange Commission.
INTER-CITY SHAREHOLDERS SHOULD NOT SEND ANY STOCK CERTIFICATES WITH THEIR PROXY
CARD.
THE PROPOSED MERGER
This section of the proxy statement/prospectus describes some aspects of the
merger. The following descriptions are not complete and are qualified in their
entirety by reference to the merger agreement, which is attached as Appendix A
to this proxy statement/prospectus and incorporated by reference in this
document. All shareholders of Inter-City are urged to read all of the merger
agreement carefully.
BACKGROUND OF THE MERGER
During the second quarter of 1998, the Inter-City board of directors began to
discuss whether it would be in the best interests of Inter-City to combine with
a larger institution. On May 12, 1998, the Inter-City board appointed a merger
committee consisting of three of its directors, Henry Fair, Niles McNeel and
Terry Woods, to engage an investment banker to help Inter-City decide among its
strategic alternatives.
On July 17, 1998, Inter-City entered into an engagement letter with The Carson
Medlin Company for Carson Medlin to identify possible acquirers and to assist
Inter-City with its negotiations with them.
Carson Medlin proceeded to prepare a confidential memorandum to assist parties
who had expressed an interest in affiliating with Inter-City in making their own
evaluation of Inter-City. The confidential memorandum was approved by the
Inter-City board of directors on September 9, 1998 and was furnished to five
potential acquirers. Certain of the potential acquirers, including Peoples
Holding, returned indications of interest to Carson Medlin on September 23,
1998.
On September 29, 1998, Inter-City's executive committee met with a
representative of Carson Medlin to discuss the proposals received from potential
acquirers. After reviewing the analysis prepared by Carson Medlin and discussing
the relative merits of the proposals, the Inter-City executive committee
authorized Carson Medlin to continue negotiations with Peoples Holding.
Thereafter, Inter-City (through Carson Medlin) and Peoples Holding negotiated
various terms of the proposed merger, including price, and on October 20, 1998,
Inter-City and Peoples Holding executed a letter of intent and issued a joint
press release announcing the proposed merger.
From October 20, 1998 through November 24, 1998, Inter-City and Peoples Holding
conducted due diligence investigations of each other. Inter-City and Peoples
Holding also proceeded to negotiate the merger agreement.
On November 24, 1998, at a special meeting of the board of directors of
Inter-City, counsel to Inter-City reviewed the proposed merger agreement with
the board and also conveyed Carson Medlin's oral opinion that the offer from
Peoples Holding was fair to the shareholders of Inter-City from a financial
point of view. Following the presentation and subsequent discussion, the
Inter-City board authorized its chairman and its president to execute the merger
agreement substantially in the form presented to the board of directors, with
such changes (other than to the exchange ratio) as Inter-City's merger committee
might approve. The board also reconstituted
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<PAGE> 16
the merger committee to consist of Joseph K. Suttle, Terry Woods and Niles
McNeel.
Following the November 24, 1998 Inter-City board meeting, Inter-City and Peoples
Holding continued to negotiate certain aspects of the merger agreement,
resulting in its execution on December 14, 1998.
REASONS FOR THE MERGER
Inter-City's board of directors has unanimously approved the merger agreement
and has determined that the merger is in the best interests of Inter-City and
its shareholders. The terms of the merger were the result of arms'-length
negotiations between representatives of Inter-City and representatives of
Peoples Holding. Without assigning any relative or specific weights to the
factors, the board of directors of Inter-City considered the following material
factors:
(1) The value of the consideration to be received by Inter-City
shareholders compared to the book value and earnings per share
of Inter-City common stock;
(2) Certain information concerning the financial condition,
results of operations and business prospects of Peoples
Holding;
(3) The financial terms of recent business combinations in the
financial services industry and a comparison of the multiples
of selected combinations with the terms of the proposed
transaction with Peoples Holding;
(4) The alternatives to the merger, including remaining an
independent institution;
(5) The competitive and regulatory environment for financial
institutions generally;
(6) The fact that the merger will enable Inter-city shareholders
to exchange their shares of Inter-City common stock in a
tax-free transaction for shares of common stock of a regional
bank holding company, the stock of which is more widely held
and more actively traded; and
(7) Carson Medlin's opinion that the consideration to be received
by Inter-City shareholders as a result of the merger is fair
from a financial point of view.
Each director of Inter-City has also agreed to vote his shares of Inter-City
common stock in favor of the merger.
INTER-CITY'S BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS THAT INTER-CITY
SHAREHOLDERS VOTE FOR THE PROPOSAL TO APPROVE THE MERGER AGREEMENT.
OPINION OF INTER-CITY'S FINANCIAL ADVISOR
Pursuant to an engagement letter dated July 17, 1998, Inter-City retained Carson
Medlin to serve as its financial advisor relating to a proposed transaction that
would lead to the merger of Inter-City into or the purchase of substantially all
of the stock or assets of Inter-City by one of certain potential acquiring
financial institutions. As part of its engagement, Carson Medlin agreed to
render its opinion as to the fairness, from a financial point of view, of the
terms of such a transaction to Inter-City's unaffiliated shareholders. Carson
Medlin is a National Association of Securities Dealers, Inc. member investment
banking firm that specializes in the securities of southeastern United States
financial institutions. As part of its investment banking activities, Carson
Medlin is regularly engaged in the valuation of southeastern United States
financial institutions and transactions relating to their securities, including
mergers and acquisitions.
Carson Medlin rendered its verbal opinion on November 24, 1998 that the
aggregate consideration is fair to Inter-City's unaffiliated shareholders from a
financial point of view. Carson Medlin subsequently confirmed its opinion as of
the date of
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<PAGE> 17
this proxy statement/prospectus. The full text of Carson Medlin's written
opinion dated ____________ is attached as Appendix C to this proxy
statement/prospectus and you are encouraged to read it in its entirety. The
written opinion explains the procedures followed, assumptions made, matters
considered and qualifications of and limitations on the review undertaken by
Carson Medlin. Carson Medlin's opinion is addressed to Inter-City's board only,
and the opinion does not constitute a recommendation to any Inter-City
shareholder as to how a shareholder should vote at Inter-City's special meeting
or as to any other matter. The summary of the opinion of Carson Medlin set forth
in this proxy statement/prospectus is qualified in its entirety by reference to
the full text of the opinion attached as Appendix C.
Carson Medlin has relied upon, without independent verification, the accuracy
and completeness of the information reviewed by it for the purpose of rendering
its opinion. Carson Medlin did not undertake any independent evaluation or
appraisal of the assets and liabilities of Inter-City or Peoples Holding, nor
was it furnished with any such appraisals. Carson Medlin assumed that the
financial forecasts reviewed by it have been reasonably prepared on a basis
reflecting the best currently available judgments and estimates of the
managements of Inter-City and Peoples Holding, and that such projected financial
results will be realized in the amounts and at the times contemplated.
Carson Medlin is not expert in the evaluation of loan portfolios,
underperforming or nonperforming assets, net charge-offs of such assets or the
adequacy of allowances for losses; has not reviewed any individual credit files;
and has assumed that the loan loss allowances for each of Inter-City and Peoples
Holding are adequate to cover such losses. Carson Medlin is not expert in bank
operations and has not examined the data processing or other systems of either
Inter-City or Peoples Holding with respect to their readiness to satisfy
requirements specific to the year 2000 or to similar issues. Carson Medlin
assumed that the merger will be recorded as a pooling-of-interests under
generally accepted accounting principles. Carson Medlin's opinion is necessarily
based on economic, market and other conditions as in effect on the date of its
analysis, and on information made available to it dated as of various earlier
dates.
In connection with rendering its opinion, Carson Medlin performed a variety of
financial analyses. The preparation of a financial fairness opinion of this
nature 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, cannot easily be partially analyzed or
summarized. Carson Medlin believes that its analyses must be considered together
as a whole and that selecting portions of such analyses and the facts considered
therein, without considering all other factors and analyses, could create an
incomplete view of the analyses and the process underlying Carson Medlin's
opinion. In its analyses, Carson Medlin made many assumptions about industry
performance, business and economic conditions, and other matters, many of which
are beyond the control of Inter-City and Peoples Holding and which may not be
realized. Any estimates contained in Carson Medlin's analyses will not
necessarily predict future results or values, which may be significantly more or
less favorable than such estimates. Estimates of values of companies are not
appraisals and do not necessarily reflect the prices at which such companies or
their securities may actually be sold. Carson Medlin did not assign a greater
significance to any of its analyses over any other.
To prepare its opinion dated ___________, Carson Medlin reviewed:
(1) the Agreement and Plan of Merger dated as of December 14,
1998;
(2) the annual reports to shareholders of Inter-City, including
audited financial statements for the five years ended March
31, 1997;
(3) the proxy statement of Inter-City dated June 19, 1998 for the
annual meeting of shareholders held on July 15, 1998;
(4) the Thrift Financial Report of Inter-City as of September 30,
1998;
(5) the Uniform Thrift Performance Report for Inter-City for the
quarter ended September 30, 1998;
(6) the annual reports to shareholders of Peoples Holding,
including audited financial statements for the five years
ended December 31, 1997;
(7) the annual report on Form 10-K405 of Peoples Holding for the
year ended December 31, 1997;
(8) the proxy statement of Peoples Holding for the annual meeting
of shareholders held on April 14, 1998;
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<PAGE> 18
(9) the quarterly report on Form 10-Q of Peoples Holding for the
quarter ended September 30, 1998;
(10) the Consolidated Report of Condition and Income of The Peoples
Bank & Trust Company as of June 30, 1998;
(11) the Uniform Bank Performance Report for The Peoples Bank &
Trust Company as of September 30, 1998;
(12) a preliminary copy of the proxy statement/prospectus prepared
for the special meeting of the shareholders of Inter-City to
consider the merger; and
(13) certain other financial and operating information with respect
to the business, operations and prospects of Inter-City and
Peoples Holding.
Carson Medlin also (1) held discussions with members of the senior management of
Inter-City and Peoples Holding; (2) reviewed the historical market prices and
trading activity for the common stocks of Inter-City and Peoples Holding, to the
extent available, and compared them with those of certain publicly traded
companies which it deemed to be relevant; (3) compared the results of operations
of Inter-City and Peoples Holding with those of certain publicly traded
companies which it deemed to be relevant; (4) compared the proposed financial
terms of the merger with the financial terms, to the extent publicly available,
of certain other recent business combinations of commercial banking and thrift
organizations; (5) analyzed the pro forma financial impact of the merger on
Peoples Holding; and (6) conducted such other studies, analyses, inquiries and
examinations as Carson Medlin deemed appropriate.
The following is a summary of the principal analyses performed by Carson Medlin
in connection with its opinion.
SUMMARY OF TRANSACTION CONSIDERATION. Carson Medlin reviewed the terms of the
proposed transaction, including the exchange ratio of Inter-City shares of
common stock for Peoples Holding shares of common stock and the total
transaction value. Carson Medlin reviewed the implied value of the consideration
offered based upon the closing price of Peoples Holding common stock on January
14, 1999 which showed that the implied value of the proposed transaction was
approximately $85.14 per share of Inter-City's common stock and the total
transaction value was approximately $10.6 million. Carson Medlin calculated that
the value of the consideration to Inter-City's shareholders, based on the
$30.625 closing price of Peoples Holding' common stock on January 14, 1999
represented 208% of Inter-City's stated book value per share at September 30,
1998, 258% of Inter-City's book value per share adjusted pro forma to reflect
Inter-City's capital equal to 8% of September 30, 1998 total assets, and 30.6
times Inter-City's basic and fully diluted earnings per share for the trailing
twelve months ended September 30, 1998. Carson Medlin calculated that the total
transaction value represented an 18.5% premium on Inter-City's core deposits
(defined as the total transaction value minus stated book value, as a percentage
of core deposits) and 24.4% of the total assets of Inter-City at September 30,
1998.
COMPARABLE TRANSACTION ANALYSIS. Carson Medlin reviewed certain information
relating to 20 selected southeastern thrift and bank mergers announced between
January of 1997 and September of 1998 in which the acquired institutions had
total assets of from $20 million to $1.5 billion (the "Comparable
Transactions"). The Comparable Transactions are (acquiree/acquiror): Seaboard
Savings Bank, FSB/1st United Bancorp; BankBoynton, A Federal Savings
Bank/Fidelity Bankshares, Inc.; Consumers Bancorp, Inc./Bank United Financial
Corporation; UniFirst Federal Savings Bank/Republic Security Financial
Corporation; GF Bancshares, Inc./Regions Financial Corporation; Duck Hill
Bank/Union Planters Holding Corporation; First Bolivar Capital Corporation/First
M&F Corporation; Hollandale Capital Corporation/Guaranty Capital Corporation;
United Federal Savings Bank/Triangle Bancorp, Inc.; HFNC Financial
Corporation/First Charter Corporation; Scotland Bancorp, Inc./Centura Banks,
Inc.; Home Savings Bank of Siler City, Inc., SSB/Capital Bank; Lowcountry
Savings Bank, Inc./Carolina First Corporation; First Southeast Financial
Corporation/Carolina First Corporation; Investors Savings Bank of South
Carolina, Inc./First Financial Holdings, Inc.; Palfed, Inc./Regions Financial
Corporation; Virginia First Financial Corporation/BB&T Corporation; Life
Bancorp, Inc./BB&T Corporation; and FFVA Financial Corp./One Valley Bancorp.,
Inc. Carson Medlin considered, among other factors, the earnings, capital level,
asset size and quality
15
<PAGE> 19
of assets of the acquired financial institutions. Carson Medlin compared the
transaction prices to the then recently reported annual earnings, stated book
values, adjusted book values (book value adjusted to 8% of total assets), total
assets and core deposits.
Carson Medlin calculated a range of purchase prices as a percentage of stated
book value for the Comparable Transactions from a low of 122.3% to a high of
323.3%, with a mean of 188.9%. These transactions indicated a range of values
for each share of Inter-City Common Stock from $49.98 per share to $132.12 per
share, with a mean of $77.20 per share (based on Inter-City's stated book value
of $40.87 per share at September 30, 1998). The value of the transaction is an
indicated $85.14 per share of Inter-City Common Stock (based on the price of
Peoples Holding's common stock on January 14, 1999 of $30.625), which is above
the mean for the Comparable Transactions.
Carson Medlin calculated a range of purchase prices as a percentage of book
value (adjusted to 8% of total assets) for the Comparable Transactions from a
low of 129.4% to a high of 383.8%, with a mean of 211.6%. These transactions
indicated a range of values for each share of Inter-City common stock from
$49.08 per share to $120.15 per share, with a mean of $72.04 per share (based on
Inter-City's stated book value of $40.87 per share at September 30, 1998). The
value of the transaction is an indicated $85.14 per share of Inter-City common
stock (based on the price of Peoples Holding's common stock on January 14, 1999
of $30.625), which is above the mean for the Comparable Transactions.
Carson Medlin calculated a range of purchase prices as a multiple of earnings
for the Comparable Transactions from a low of 13.5 times to a high of 58.1
times, with a mean of 29.1 times. These transactions indicated a range of values
for each share of Inter-City Common Stock from $37.53 per share to $161.52 per
share, with a mean of $80.90 per share (based on Inter-City's earnings per
common share for the twelve months ended September 30, 1998 of $2.78). The value
of the transaction is an indicated $85.14 per share of Inter-City common stock,
which is above the mean for the Comparable Transactions.
Carson Medlin calculated the core deposit premiums for the Comparable
Transactions and found a range of values from a low of 3.4% to a high of 35.2%,
with a mean of 13.8%. The premium on Inter-City's core deposits implied by the
terms of the Agreement is 18.5%, which is above the mean for the Comparable
Transactions.
Finally, Carson Medlin calculated a range of purchase prices as a percentage of
total assets for the Comparable Transactions from a low of 9.5% to a high of
37.7%, with a mean of 19.3%. The aggregate consideration as a percentage of
total assets implied by the terms of the Merger is approximately 24.4%, which is
above the mean for the Comparable Transactions.
INDUSTRY COMPARATIVE ANALYSIS. Carson Medlin compared selected operating results
of Inter-City to those of 16 publicly-traded thrifts in Alabama, Florida,
Georgia, Mississippi, North Carolina, South Carolina and Virginia (the "STR
Institutions") as contained in the SOUTHEASTERN THRIFT REVIEW(TM), a proprietary
research publication prepared by Carson Medlin quarterly since 1994. The STR
Institutions range in asset size from approximately $124 million to $1.8 billion
and in shareholders' equity from approximately $18 million to $264 million.
Carson Medlin considers this group of financial institutions to be generally
comparable to Inter-City. Carson Medlin compared, among other factors, the
profitability, capitalization, and asset quality of Inter-City to those of the
STR Institutions. Carson Medlin noted that for the quarter ended September 30,
1998: (1) Inter-City had a return on average assets (ROA) of 0.75% compared to
1.05% on average for the STR Institutions; (2) Inter-City had a return on
average equity (ROE) of 6.4% compared to 9.2% on average for the STR
Institutions; (3) Inter-City had common equity to total assets of 11.7% compared
to 13.0% on average for the STR Institutions; and (4) Inter-City's
non-performing assets ratio (defined as loans 90 days past due, nonaccrual loans
and other real estate to total loans and other real estate) was 0.65% compared
to 0.77% on average for the STR Institutions.
Carson Medlin also compared selected operating results of Peoples Holding to
those of 57 publicly-traded community commercial banks in Alabama, Florida,
Georgia,
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<PAGE> 20
Mississippi, North Carolina, South Carolina, Virginia and West Virginia (the
"SIBR Banks") as contained in the SOUTHEASTERN INDEPENDENT BANK REVIEW(TM), a
proprietary research publication prepared by Carson Medlin quarterly since 1991.
The SIBR Banks range in asset size from approximately $115 million to $2.8
billion and in shareholders' equity from approximately $13 million to $337
million. Carson Medlin considers this group of financial institutions to be
generally comparable to Peoples Holding. Carson Medlin compared, among other
factors, the profitability, capitalization, and asset quality of Peoples Holding
to those of the SIBR Banks. Carson Medlin noted that for the nine months ended
September 30, 1998: (1) Peoples Holding had a return on average assets (ROA) of
1.13% compared to 1.22% on average for the SIBR Banks; (2) Peoples Holding had a
return on average equity (ROE) of 11.1% compared to 11.9% on average for the
SIBR Banks; (3) Peoples Holding had common equity to total assets of 10.1%
compared to 10.2% on average for the SIBR Banks; and (4) Peoples Holding
non-performing assets ratio (defined as loans 90 days past due, nonaccrual loans
and other real estate to total loans and other real estate) was 0.61% compared
to 100% on average for the SIBR Banks.
No company or transaction used in the preceding Industry Comparative or
Comparable Transaction Analyses is identical to Inter-City, Peoples Holding or
the merger. Accordingly, evaluating the results of these analyses necessarily
involves complex considerations and judgments concerning differences in
financial and operating characteristics of Inter-City, Peoples Holding and other
factors that could affect the 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 industry or transaction
data.
CONTRIBUTION ANALYSIS. Carson Medlin reviewed the relative contributions in
terms of various balance sheet items, net income and market capitalization to be
made by Inter-City and Peoples Holding to the combined institution based on (1)
balance sheet data at September 30, 1998, and (2) income statement data for the
nine months ended September 30, 1998. The income statement and balance sheet
components analyzed included total assets, loans (net of unearned income and the
allowance for loan and lease losses), total deposits, shareholders' equity, core
earnings (defined as income before taxes and nonrecurring gains and expenses),
and net income. This analysis showed that, while Inter-City's shareholders would
own approximately 5.6% of the aggregate outstanding shares of the combined
institution based on the exchange ratio, Inter-City is contributing
approximately 4.0% of total assets, 5.3% of total net loans (net of unearned
income and the allowance for loan and lease losses), 4.1% of total deposits,
4.6% of shareholders' equity, 4.9% of tangible shareholders equity (total
shareholders equity less goodwill and other intangible assets such as core
deposit intangibles), 3.1% of core earnings, and 3.2% of net income. This
comparison revealed that Inter-City's shareholders are receiving a higher
proportion of ownership relative to most financial components, which Inter-City
is contributing, in the merger.
PRESENT VALUE ANALYSIS. Carson Medlin calculated the present value of
Inter-City's common stock assuming that Inter-City remains an independent
institution. For purposes of this analysis, Carson Medlin utilized certain
projections of Inter-City's future earnings through the year 2003. The analysis
assumes that Inter-City would continue to pay a dividend and that in 1999 and
each year thereafter the dividend would be approximately equal to 35% of
projected net income and that Inter-City would be acquired at the end of 2003.
The present value of the annual dividends plus the merger consideration at the
end of 2003 was then calculated using discount rates of 13% through 15% per
annum. These rates were selected to reflect the rates that investors in
securities such as Inter-City's common stock might be expected to require in
order to be competitive with alternative investments with similar
characteristics. Carson Medlin considered two scenarios to determine the
terminal value of Inter-City at the end of 2003. For the first scenario, Carson
Medlin assumed that at the end of 2003, Inter-City would be acquired at a
multiple of 200% of book value. On the basis of these assumptions, Carson Medlin
calculated that the present value to the shareholders of Inter-City's common
stock ranged from $66.47 to $72.56 per share. For the second scenario, Carson
Medlin assumed that Inter-City would be acquired at the end of 2003 at a
multiple of 17 times projected net income. On the basis of these assumptions,
Carson Medlin calculated that the present value to the shareholders of
Inter-City's common stock ranged from $42.19 per share to $46.06 per share. The
value of the transaction is an indicated $85.14
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<PAGE> 21
per share based on the price of Peoples Holding common stock on January 14, 1999
of $30.625, which is above the high end of the range of the calculated present
values were Inter-City to remain independent through 2003. Carson Medlin
considered the present value analysis because it is a widely used valuation
methodology, but noted that the results of this methodology depend greatly upon
the many assumptions that must be made, including earnings growth rates,
dividend payout rates, terminal values and discount rates.
STOCK TRADING HISTORY. Carson Medlin reviewed and analyzed the historical
trading prices and volumes for Peoples Holding common stock from 1992 through
January 14, 1999. Carson Medlin also compared performance of People's common
stock to the Dow Jones Southeastern U.S. Banks Index and the Dow Jones Equity
Market Index and reviewed the trading history of Peoples Holding common stock
and compared it to the trading history of the SIBR Banks for the three quarters
ended December 31, 1998.
For the one-year period ended January 14, 1999, the total return for People's
common stock (all cash distributions and dividends reinvested on the ex-dividend
date) was a negative 4% compared to 17% for the Dow Jones Southeastern U.S.
Banks Index and 27% for the Dow Jones Equity Market Index. For the two-year
period ended January 14, 1998 the average annual return for People's common
stock (all cash distributions and dividends reinvested on the ex-dividend date)
was 17% compared to 24% for the Dow Jones Southeastern U.S. Banks Index and 27%
for the Dow Jones Equity Market Index. For the five-year period ended January
14, 1999, the average annual return for Peoples Holding common stock (all cash
distributions and dividends reinvested on the ex-dividend date) was 16% compared
to 28% for the Dow Jones Southeastern U.S. Banks Index and 23% for the Dow Jones
Equity Market Index.
For the three quarters ended December 31, 1998, the ratio of stock price to
trailing 12 months earnings per share (at quarter end) for the SIBR Banks was: a
low of 17.4 times, a high of 19.5 times, and a mean of 18.6 times. For the same
periods, Peoples Holding price to earnings ratio ranged from a low of 16.7 times
to a high of 19.4 times with a mean of 17.8 times. Peoples Holding common stock
has traded on average at a lower price to earnings ratio than the SIBR Banks.
For the three quarters ended December 31, 1998, the stock price as a percentage
of book value (at quarter end) for the SIBR Banks was: a low of 208%, a high of
265%, and a mean of 233%. For the same periods, Peoples Holding's price to book
ratio ranged from a low of 179% to a high of 212% with a mean of 192%. Peoples
Holding common stock has traded on average at a lower price to book value basis
compared to the SIBR Banks.
Carson Medlin also examined the recent trading volume in Peoples Holding common
stock, which began trading on the American Stock Exchange on August 18, 1997.
Before that time it traded on the NASDAQ National Market. Carson Medlin
considers Peoples Holding common stock to be liquid and marketable.
Carson Medlin also examined recent trading prices and volumes, to the extent
available, of Inter-City's common stock, which is not listed on any recognized
exchange and trades infrequently. Carson Medlin considered, but assigned little
weight to the market price of Inter-City's common stock in its analysis.
SHAREHOLDER CLAIMS ANALYSIS. Carson Medlin compared the ownership of one share
of Inter-City's common stock to the ownership of the number of shares of Peoples
Holding common stock, determined by the Exchange Ratio, from the perspective of
claims on various balance sheet and income statement variables. Carson Medlin
found that Inter-City's shareholders would have a claim to $5.26 of estimated
pro forma 1998 diluted earnings per share versus $2.96 without the merger.
Inter-City's shareholders would have had a claim to $60.9 million of September
30, 1998 total assets compared to $43.6 million without the merger. Inter-City's
shareholders would have had a claim to $49.61 of September 30, 1998 pro forma
book value per share, compared to $40.87 before the merger. Furthermore,
Inter-City's shareholders would be expected, assuming Peoples Holding recently
declared cash dividend rate, to receive cash dividends at the annual rate of
$2.11 per Inter-City share after the merger versus $1.00 per share prior to the
merger.
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OTHER ANALYSES. Carson Medlin also performed a dilution analysis and such other
analyses and comparisons that it deemed appropriate.
The opinion expressed by Carson Medlin was based upon market, economic and other
relevant considerations as they existed and were evaluated as of the date of the
opinion. Carson Medlin confirmed that it was appropriate to rely on the
analyses it used to render its opinion dated ___________ by performing
procedures to update certain of its analyses and by reviewing assumptions on
which its analyses were based and the factors it considered. Events occurring
after the date of the opinion, including but not limited to, changes affecting
the securities markets, the results of operations or material changes in the
assets or liabilities of Inter-City or Peoples Holding could materially affect
the assumptions used in preparing the opinion.
Carson Medlin will be compensated for its services as financial advisor to
Inter-City. Carson Medlin's compensation will be equal to 1.25% of the total
value of the consideration received by Inter-City's shareholders in the merger.
The value of the consideration will be based on a recent average of the price of
Peoples Holding common stock prior to completion of the merger.
GENERAL INFORMATION ABOUT THE MERGER
On December 14, 1998, Peoples Holding, Peoples Bank and Inter-City executed the
merger agreement. Pursuant to the merger agreement, Inter-City will merge into
Peoples Bank at the effective date of the merger, and:
(1) Each share of Inter-City common stock, $.01 par value, issued
and outstanding immediately prior to the effective date of the
merger, other than shares whose holders have perfected their
right of dissent, will be converted into and exchanged for
2.78 shares of newly issued Peoples Holding common stock, par
value $5.00 per share;
(2) Inter-City shareholders will become shareholders of Peoples
Holding;
(3) Peoples Bank will survive the merger and retain the name "The
Peoples Bank & Trust Company;" and
(4) The Inter-City shareholders entitled to fractional shares of
Peoples Holding common stock will be paid cash by Peoples
Holding for such fractional shares, based on the closing price
of a share of Peoples Holding common stock on the American
Stock Exchange (as reported by The Wall Street Journal, or, if
not reported there, by another authoritative source selected
by Peoples Holding) on the effective date of the merger.
HOW TO EXCHANGE INTER-CITY COMMON STOCK FOR PEOPLES HOLDING COMMON STOCK
As soon as practical after the effective date of the merger, Peoples Holding
will have delivered to each of the former shareholders of Inter-City of record
immediately prior to the effective date, a transmittal letter for use in
delivering their Inter-City common stock certificates. After the exchange agent
for Peoples Holding receives a properly completed transmittal letter and the
certificates representing an Inter-City shareholder's shares of Inter-City
common stock, the exchange agent for Peoples Holding will issue and mail a
certificate representing the Peoples Holding common stock into which the
Inter-City common stock has been converted, and a check for the cash, if any,
payable for any fractional Peoples Holding common stock issuable. Certificates
for shares of Inter-City common stock surrendered for exchange by any person who
is an "affiliate" of Inter-City will not be exchanged for certificates
representing Peoples Holding common stock until Peoples Holding has received a
written agreement from such person as required under the terms of the merger
agreement. See "The Proposed Merger - Resales of Peoples Holding Common Stock to
be Received by Affiliates of Inter-City."
The registered holder of any certificate(s) representing Inter-City common stock
who has lost or destroyed such certificates can obtain certificates for Peoples
Holding common stock (and cash for any fractional share) to which such
Inter-City shareholder is entitled, if the Inter-City shareholder delivers to
the exchange agent for Peoples Holding: (1) a sworn statement certifying such
loss or destruction and specifying the
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circumstances thereof, and (2) a lost instrument bond with a corporate security,
satisfactory to the exchange agent, indemnifying Peoples Holding against any
loss or expense which it may incur as a result of such lost or destroyed
certificates presented at a later time.
CONDITIONS FOR THE MERGER
Completion of the merger is subject to certain material conditions, including,
but not limited to:
(1) Approval of the merger agreement by the holders of at least
two-thirds of the issued and outstanding shares of Inter-City
common stock;
(2) Receipt of all necessary state and federal regulatory
approvals, including approval by the Federal Deposit Insurance
Corporation ("FDIC"), the Mississippi Department of Banking
and Consumer Finance ("Mississippi Department") and the Office
of Thrift Supervision;
(3) Receipt by Inter-City and Peoples Holding of opinions of each
other's legal counsel;
(4) Receipt by Peoples Holding and Inter-City of an opinion from
Peoples Holding's counsel to the effect that the merger will
constitute a tax-free merger under Section 368(a)(1)(A) of the
Internal Revenue Code, and no gain or loss will be recognized
by the shareholders of Inter-City for Federal income tax
purposes, except for cash paid to dissenting shareholders of
Inter-City and cash paid in lieu of fractional shares;
(5) The merger will be accounted for as a pooling-of-interests;
(6) The shares of Peoples Holding common stock to be issued to the
Inter-City shareholders will have been approved for listing on
the American Stock Exchange;
(7) The number of shares of Inter-City common stock for which cash
is to be paid pursuant to dissenter's rights of appraisal
under the federal savings bank law and in lieu of fractional
shares of Peoples Holding common stock will not exceed in the
aggregate 10% of the outstanding shares of Inter-City common
stock;
(8) There will not have been any material adverse change in the
financial position or results of operations of Inter-City or
Peoples Holding;
(9) Inter-City's capital will not be less than $5,100,000 on the
effective date of the merger; and
(10) Inter-City's allowance for possible loan and lease losses will
not be less than .37% of Inter-City's total outstanding loans
and leases and will be adequate to absorb Inter-City's
anticipated loan and lease losses.
TERMINATION PROVISIONS
The merger agreement may be terminated at any time before the effective date of
the merger:
(1) by the mutual consent of the boards of directors of Peoples
Holding and Inter-City;
(2) by the board of directors of either party in the event of a
material breach of any covenant, agreement, representation or
warranty by the other, if the breaching party fails to correct
the breach within 30 days after written notice of the breach
has been given;
(3) by the board of directors of Peoples Holding or Inter-City if
the merger is not consummated by June 30, 1999; or
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(4) by Inter-City's board of directors if the required shareholder
approval is not obtained at the Inter-City special meeting (or
any adjournment of that meeting).
EFFECTIVE DATE
Subject to the conditions to the obligations of the parties to consummate the
merger, the effective date will be the tenth business day after the fulfillment
or waiver of all such conditions and the granting of all required regulatory
approvals.
Peoples Holding and Inter-City anticipate that all conditions to complete the
merger will be satisfied so that the merger can be consummated in the first
quarter of 1999. However, delays in the consummation of the merger could occur.
EXPENSES AND FEES RELATED TO THE MERGER
Each party to the merger agreement will pay its own expenses incurred in
connection with the merger, including the cost of soliciting proxies for the
Inter-City special meeting and the printing costs and expenses incurred in
connection with this proxy statement/prospectus and the Peoples Holding
registration statement.
REGULATORY APPROVALS
The merger may not proceed until Peoples Holding and Peoples Bank have received
the required regulatory approvals from the FDIC, the Mississippi Department and
the Office of Thrift Supervision. Neither Peoples Holding nor Inter-City is
aware of any other material governmental approvals or actions that are required
for completion of the merger. If any other approval or action should be
required, Peoples holding and Inter-City presently contemplate seeking such
approval or action.
RIGHTS OF DISSENTING SHAREHOLDERS OF INTER-CITY
Inter-City is a federal stock association organized under the laws of the United
States. Regulations promulgated by the Office of Thrift Supervision, and found
at 12 C.F.R. Section 552.14, establish dissenter and appraisal rights for
stockholders of a federal stock association.
Under the provisions of 12 C.F.R. Section 552.14 (the text of which is
reproduced in full as Appendix B to this proxy statement/prospectus), each
shareholder of Inter-City is entitled to demand payment of the fair or appraised
value of his stock in the event of the completion of the merger ("Dissenter's
Rights").
A SHAREHOLDER OF INTER-CITY WHO WISHES TO ASSERT HIS DISSENTER'S RIGHTS:
1. MUST GIVE INTER-CITY, BEFORE VOTING ON THE MERGER, WRITTEN NOTICE
IDENTIFYING HIMSELF AND STATING HIS INTENTION TO DEMAND APPRAISAL OF
AND PAYMENT FOR HIS SHARES, AND
2. MUST NOT VOTE HIS SHARES, IN PERSON OR BY PROXY, IN FAVOR OF THE
PROPOSED MERGER.
A SHAREHOLDER OF INTER-CITY WHO DOES NOT MEET THE REQUIREMENTS OF PARAGRAPHS 1.
AND 2. ABOVE IS NOT ENTITLED TO DEMAND PAYMENT OF THE FAIR VALUE OF HIS STOCK
PURSUANT TO HIS DISSENTER'S RIGHTS.
A shareholder's failure to vote against the proposed merger will not in itself
constitute a waiver of his Dissenter's Rights. A vote against the proposed
merger will not by itself meet the requirements of paragraphs 1. and 2. above
with respect to asserting Dissenters' Rights.
Shareholders of Inter-City who elect to demand payment of the fair value of
their stock must give the written notice required by paragraph 1. above to Ms.
Lisa Henderson, Secretary, Inter-City Federal Bank for Savings, 228 Main
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Street, Louisville, Mississippi 39339. If the merger is completed, Peoples
Holding will deliver a written dissenter's notice ("Dissenters' Notice") to all
Inter-City shareholders who have complied with the requirements for asserting
Dissenter's Rights, and who have not voted in favor of the merger. Peoples
Holding must deliver the Dissenter's Notice no later than 10 days after the
effective date of the merger, and the Dissenter's Notice must include the
information described below.
Dissenters' Notices to shareholders of Inter-City must:
(1) Give notice of the effective date of the merger;
(2) Make a written offer to each dissenting shareholder to pay for his
shares at a specified price deemed by Peoples Holding to be their fair
value;
(3) Inform each dissenting shareholder who does not accept Peoples
Holding's offer that, within 60 days of the effective date of the
merger, he must file a petition for a determination of the fair market
value of the stock, and submit his stock certificates to the transfer
agent; and
(4) Be accompanied by a balance sheet and statement of income of Inter-City
for a fiscal year ending not more than 16 months before the date of
notice and offer, together with the latest available interim financial
statements.
If a petition for a determination of the fair value of the stock is filed, the
Director of the Office of Thrift Supervision shall either appoint one or more
independent persons or direct appropriate Office of Thrift Supervision staff to
appraise the shares to determine their fair market value as of the effective
date of the merger, excluding any element of value arising from the
accomplishment or expectation of the merger. The Director of the Office of
Thrift Supervision, after considering an appraisal report and the advice of the
appropriate staff, and if he concurs with the valuation, shall direct payment by
Peoples Holding of the fair market value of the shares, upon surrender of the
certificates representing such stock. Payment shall be made, together with
interest from the effective date of the merger, at a rate deemed equitable by
the Director of the Office of Thrift Supervision. The costs and expenses of any
proceeding may be apportioned and assessed by the Director of the Office of
Thrift Supervision against all or some of the parties as the Director may deem
equitable.
THE FOREGOING SUMMARY IS NOT A COMPLETE STATEMENT OF THE LAW WITH RESPECT TO
DISSENTER'S RIGHTS; IT MERELY TELLS THE SHAREHOLDERS OF INTER-CITY THAT SUCH
RIGHTS EXIST. ANY SHAREHOLDER OF INTER-CITY WHO INTENDS TO OR MAY EXERCISE
RIGHTS TO DISSENT SHOULD CAREFULLY READ TITLE 12 OF THE CODE OF FEDERAL
REGULATIONS PART 552.14, WHICH IS ATTACHED TO THIS PROXY STATEMENT/PROSPECTUS AS
APPENDIX B. FAILURE TO COMPLY STRICTLY WITH THE STATUTORY PROCEDURES IN THE CODE
OF FEDERAL REGULATIONS MAY RESULT IN THE FORFEITURE OF DISSENTER'S RIGHTS.
ACCOUNTING TREATMENT
The merger will be accounted for as a pooling-of-interests. Accordingly, under
generally accepted accounting principles the assets and liabilities of Peoples
Holding and Inter-City will be carried forward on the consolidated books of
Peoples Holding after the effective date of the merger at the amounts recorded
on the books of each party before the merger. Net income of Peoples Holding for
the year ended in which the merger occurs will include the net income of Peoples
Holding as well as Inter-City for the entire fiscal period in which the merger
occurs. After the merger, the reported income of Peoples Holding for each year
before the merger will be combined with that of Inter-City and restated as
income of the combined company. The unaudited pro forma financial information
included in this proxy statement/prospectus reflects the merger using the
"pooling-of-interests" method of accounting.
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DIRECTORS AND EXECUTIVE OFFICERS FOLLOWING THE MERGER
The officers and directors of Peoples Holding and Peoples Bank will remain the
same following the proposed merger, except that one additional person will be
named to the boards of directors of Peoples Holding and Peoples Bank.
The merger agreement provides that the one additional director will be
designated for the boards of directors of Peoples Holding and Peoples Bank from
the current directors of Inter-City. The new director to be designated for the
boards of directors of Peoples Holding and Peoples Bank shall serve on such
boards from and after the effective date of the merger under the articles of
incorporation and bylaws of Peoples Holding and Peoples Bank until his successor
is elected and qualified. As of the date of this proxy statement/prospectus, the
identity of the additional director has not been determined.
INTERESTS OF INTER-CITY'S BOARD AND MANAGEMENT IN THE MERGER
The merger agreement provides that from and after the effective date of the
merger, Peoples Holding will indemnify each director, officer and employee of
Inter-City to the fullest extent that Inter-City would have been permitted under
applicable federal law or Inter-City's charter or bylaws against all liabilities
and the expense of defending claims of liability connected with or arising out
of such director's or officer's service.
MATERIAL FEDERAL INCOME TAX CONSEQUENCES OF THE MERGER
THE FOLLOWING IS A SUMMARY OF MATERIAL, ANTICIPATED FEDERAL INCOME TAX
CONSEQUENCES OF THE MERGER. THIS SUMMARY IS BASED ON THE FEDERAL INCOME TAX LAWS
NOW IN EFFECT AND AS CURRENTLY INTERPRETED; IT DOES NOT TAKE INTO ACCOUNT
POSSIBLE CHANGES IN SUCH LAWS OR INTERPRETATIONS, INCLUDING AMENDMENTS TO
APPLICABLE STATUTES OR REGULATIONS OR CHANGES IN JUDICIAL OR ADMINISTRATIVE
RULINGS, SOME OF WHICH MAY HAVE RETROACTIVE EFFECT. THIS SUMMARY DOES NOT
PURPORT TO ADDRESS ALL ASPECTS OF THE POSSIBLE FEDERAL INCOME TAX CONSEQUENCES
OF THE MERGER AND IS NOT INTENDED AS TAX ADVICE TO ANY PERSON. IN PARTICULAR,
AND WITHOUT LIMITING THE FOREGOING, THIS SUMMARY DOES NOT ADDRESS THE FEDERAL
INCOME TAX CONSEQUENCES OF THE MERGER TO SHAREHOLDERS BECAUSE OF THEIR
PARTICULAR CIRCUMSTANCES OR STATUS, NOR DOES THIS SUMMARY ADDRESS ANY
CONSEQUENCES OF THE MERGER UNDER ANY STATE, LOCAL, ESTATE OR FOREIGN TAX LAWS.
SHAREHOLDERS OF INTER-CITY ARE URGED TO CONSULT THEIR OWN TAX ADVISORS AS TO THE
SPECIFIC TAX CONSEQUENCES TO THEM OF THE MERGER, AS APPLICABLE, INCLUDING TAX
RETURN REPORTING REQUIREMENTS, THE APPLICATION AND EFFECT OF FEDERAL, FOREIGN,
STATE, LOCAL AND OTHER TAX LAWS, AND THE IMPLICATIONS OF ANY PROPOSED CHANGES IN
THE TAX LAWS.
A federal income tax ruling with respect to the proposed merger was not
requested from the Internal Revenue Service. Peoples Holding has received an
opinion of its legal counsel, Gerrish & McCreary, P.C., Memphis, Tennessee,
concerning certain federal income tax consequences of the proposed merger under
federal income tax law, and this discussion is qualified in its entirety by such
opinion.
It is the opinion of Gerrish & McCreary, P.C. that:
1. The merger will be treated for federal income tax purposes as a
tax-free merger under Section 368(a)(1)(A) of the Internal Revenue Code
of 1986, as currently in effect.
2. No gain or loss will be recognized by Peoples Holding or Inter-City or
the shareholders of Inter-City upon the exchange of the common stock of
Inter-City for Peoples Holding common stock, except by the shareholders
of Inter-City who receive cash in lieu of any fractional share
otherwise issuable.
3. Shareholders of Inter-City who dissent from the merger will be treated
as having received such payment as a distribution and redemption of
their shares of stock as required by Section 356(a) of the Internal
Revenue Code. Holders of Inter-City common stock electing to exercise
their Dissenter's Rights should consult their own tax advisors as to
the tax treatment in their particular circumstance.
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4. The total tax basis of Peoples Holding common stock received by
shareholders of Inter-City will be the same as the basis of Inter-City
common stock surrendered in exchange for the Peoples Holding shares.
5. The holding period of Peoples Holding common stock received by the
shareholders of Inter-City common stock will include the period in
which Inter-City common stock surrendered therefor was held, provided
that the Inter-City common stock is a capital asset in the hands of the
shareholders of Inter-City on the date of exchange.
Among other things, the opinion of Gerrish & McCreary, P.C. was based on the
representation of management of Peoples Holding that it has no plan or intention
to cause Peoples Holding to redeem or otherwise reacquire the shares of Peoples
Holding common stock issued in the merger. In addition to the foregoing
requirements, additional factual matters must be true with respect to the merger
and Peoples Holding believes that these factual matters will be satisfied.
RESALES OF PEOPLES HOLDING COMMON STOCK TO BE RECEIVED BY AFFILIATES OF
INTER-CITY
Peoples Holding has registered under the Securities Act of 1933, as currently in
effect (the "Securities Act"), the Peoples Holding common stock to be issued to
Inter-City shareholders in the merger. Such registration does not cover resales
by shareholders of Inter-City who may be deemed to control or to be controlled
by or to be under common control with Inter-City at the time of the special
meeting (the "Affiliates") or those who were Affiliates of Peoples Holding
before the merger.
Peoples Holding common stock issued pursuant to the merger to persons who are
not Affiliates of Inter-City will be freely transferable without restriction.
Peoples Holding common stock issued pursuant to the merger to persons who are
Affiliates of Inter-City will be subject to certain restrictions on transfer as
set forth in Rule 145 of the Securities and Exchange Commission.
Inter-City has agreed to use its best efforts to induce each person who may be
deemed to be an Affiliate of Inter-City to execute and deliver to Peoples
Holding an agreement not to transfer any Peoples Holding common stock issued to
such Affiliate until financial statements covering at least 30 days of
post-merger combined operations of Peoples Holding and Inter-City have been
published by Peoples Holding. The Affiliates also must agree that they will not
transfer any Peoples Holding common stock received in the merger except in
compliance with the Securities Act, the rules and regulations of the Securities
and Exchange Commission promulgated under the Securities Act and applicable
restrictions regarding pooling-of-interests accounting treatment.
DIFFERENCES IN RIGHTS OF PEOPLES HOLDING AND INTER-CITY SHAREHOLDERS
As a result of the merger, on the effective date, shareholders of Inter-City
will exchange their shares of common stock in Inter-City for shares of common
stock in Peoples Holding and will become shareholders of Peoples Holding. The
rights of Peoples Holding's shareholders are determined by Peoples Holding's
articles of incorporation and bylaws.
The following is a summary of the material differences in the rights of
shareholders of Peoples Holding and Inter-City. Peoples Holding is a Mississippi
corporation governed by the Mississippi Business Corporation Act ("Mississippi
Act"). Inter-City is a federal savings bank governed by the rules and
regulations of the Office of Thrift Supervision. Accordingly, there are material
differences between the rights of a Peoples Holding shareholder and the rights
of a shareholder of Inter-City. This summary is not a complete discussion of,
and is qualified in its entirety by reference to, the Mississippi Act, the rules
and regulations of the Office of Thrift Supervision, the articles of
incorporation and bylaws of Peoples Holding and the charter and bylaws of
Inter-City.
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Authorized Capital Stock. Peoples Holding currently is authorized to issue
15,000,000 shares of common stock, par value $5.00 per share, of which _______
shares were issued and outstanding as of February __, 1999. No other class of
capital stock is authorized.
Inter-City is authorized to issue 2,000,000 shares of Inter-City common stock,
par value $.01 per share, of which 124,966 shares were issued and outstanding as
of February , 1999, and 500,000 shares of serial preferred stock, of which no
shares are issued and outstanding.
Preemptive Rights. Shareholders of Peoples Holding have no preemptive rights.
Shareholders of Inter-City have no preemptive rights. Preemptive rights are
rights to purchase a pro rata amount of subsequently issued common stock. The
absence of preemptive rights may cause dilution of a shareholder's interest in
the company without specific shareholder authority. The board of directors of
each company may issue authorized shares of each company's stock without further
shareholder vote, unless required for a particular transaction by applicable
law.
Voting Rights. The shareholders of Peoples Holding and Inter-City are entitled
to one vote per share in the election of directors and all matters to come
before the their shareholders. The shareholders of Peoples Holding and
Inter-City are not entitled to cumulate their votes for the election of
directors. The right to cumulate votes means that shareholders are entitled to
multiply the number of votes they are entitled to vote and to cast the product
for a single candidate or distribute the product among two or more candidates.
Special Meetings of Shareholders. Special meetings of the shareholders of
Peoples Holding may be called by the written request of persons owning as much
as 50% of the outstanding capital stock of Peoples Holding, by authority of the
board of directors in regular session, or by request in writing of the board of
directors. Special meetings of the shareholders of Inter-City may be called by
the chairman of the board, the president, or a majority of the board of
directors, and shall be called by the chairman of the board, the president, or
the secretary upon the written request of the holders of not less than one-tenth
of all outstanding stock entitled to vote at the meeting. However, special
meetings of stockholders relating to changes in control of Inter-City or
amendments to its charter may be called only by direction of the board of
directors.
Quorum. The holders of a majority of the shares of Peoples Holding and
Inter-City entitled to vote at the shareholder meetings of these companies,
represented in person or by proxy, will constitute a quorum for the transaction
of business.
Directors. Peoples Holding's articles of incorporation and bylaws provide for a
board of directors to serve one-year terms. The members of the board of
directors of Inter-City serve staggered three-year terms. Shareholders of
Inter-City vote only for candidates in the class of directors whose terms expire
at the time of the annual shareholders' meeting.
The staggered classification and election of members to Inter-City's board of
directors could make it more difficult for shareholders to effect a significant
change in the overall composition of Inter-City's board, thus perpetuating the
tenure of management.
Peoples Holding's articles of incorporation provide that any of the directors of
Peoples Holding may be removed by a vote of the majority of the entire board for
"cause," which shall mean fraudulent or dishonest acts or gross abuse of
authority in the discharge of the director's duties to the corporation. The
holders of a majority of the outstanding shares of Peoples Holding common stock
may remove directors with or without cause.
The bylaws of Inter-City provide that any of the directors of Inter-City may be
removed for "cause" by vote of the holders of a majority of the shares entitled
to vote in an election of directors. If less than the entire board is to be
removed, no one of the directors may be removed if the votes cast against the
removal will be sufficient to elect a director if then cumulatively voted at an
election of the class of directors of which such director is a part.
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Amendment of the Articles of Incorporation and Bylaws. Unless applicable law or
the articles of incorporation of Peoples Holding requires a different vote to
amend or repeal such articles of incorporation, Peoples Holding's articles of
incorporation may be amended or repealed by a two-thirds vote of the
shareholders entitled to vote thereon.
Peoples Holding's articles of incorporation require that certain of the articles
of incorporation may only be amended or repealed by the affirmative vote of
holders of at least 80% of all outstanding voting shares. These provisions
render more difficult the accomplishment of a merger or the assumption of
control by a principal shareholder, and such provisions make the removal of
management more difficult. The specific items in Peoples Holding's articles of
incorporation requiring 80% approval for amendment or repeal include:
(1) The capital stock of Peoples Holding may be issued for valid
corporate purposes upon authorization by the board of
directors of Peoples Holding without shareholder approval.
Such authorization by the board may be made by a majority or
other vote of the Board as may be provided in the bylaws of
Peoples Holding. The affirmative vote of the holders of not
less than 80% of the outstanding voting stock of Peoples
Holding is required to amend or repeal these provisions.
(2) The affirmative vote of the holders of not less than 80% of
the outstanding voting stock of Peoples Holding is required if
the board of Peoples Holding does not recommend to the
shareholders of Peoples Holding a vote in favor of (a) a
merger or consolidation of Peoples Holding with another
company, or (b) a sale, exchange or lease of all or
substantially all of the assets of Peoples Holding to any
person or entity. The affirmative vote of the holders of not
less than 80% of the outstanding voting stock of Peoples
Holding is required to amend or repeal these provisions.
(3) The Board of Peoples Holding shall consist of a maximum of 14
persons. The affirmative vote of the holders of not less than
80% of the outstanding voting stock of Peoples Holding is
required to amend or repeal this provision.
Unless applicable law requires a different vote with respect to a particular
provision in the Peoples Holding bylaws, such bylaws may be amended or repealed
by a majority vote of the entire board of Peoples Holding.
Inter-City's charter may be amended if the amendment is proposed by the board of
directors, then preliminarily approved by the Office of Thrift Supervision, and
thereafter approved by the stockholders by a majority of the total votes
eligible to be cast at a legal meeting.
The Inter-City bylaws provide that they may be amended by a majority vote of the
board of directors or by a majority vote of the votes cast by the shareholders
at any legal meeting of Inter-City.
THE FOREGOING DISCUSSION OF SOME SIMILARITIES AND MATERIAL DIFFERENCES BETWEEN
THE RIGHTS OF PEOPLES HOLDING AND INTER-CITY SHAREHOLDERS IS ONLY A SUMMARY OF
THESE PROVISIONS, IS NOT A COMPLETE DESCRIPTION OF SUCH SIMILARITIES AND
DIFFERENCES AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO THE MISSISSIPPI
ACT, THE OFFICE OF THRIFT SUPERVISION RULES AND REGULATIONS GOVERNING FEDERAL
SAVINGS BANKS AND THE FULL TEXT OF THE ARTICLES OF INCORPORATION AND BYLAWS OF
PEOPLES HOLDING AND CHARTER AND BYLAWS OF INTER-CITY.
COMPARATIVE MARKET PRICES AND DIVIDENDS
PEOPLES HOLDING MARKET PRICES
Peoples Holding common stock is listed on the American Stock Exchange ("AMEX")
under the symbol "PHC," and the Peoples Holding common stock began trading on
AMEX on
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August 18, 1997. Prior to that date, Peoples Holding common stock was listed for
trading on the National Association of Securities Dealers Automated Quotation
System ("Nasdaq") and was traded in the local over-the-counter market. High and
low prices for the first and second quarters of 1997 and all of 1996 reflect
actual trades as reported in the Nasdaq Stock Bulletin. High and low prices for
the third and fourth quarters of 1997, all of 1998 and through February , 1999
reflect actual trades as reported by AMEX. Dividends per share and market prices
have been adjusted to reflect the fifty percent stock dividend issued in 1998 by
Peoples Holding.
<TABLE>
<CAPTION>
CALENDAR PERIOD SALES PRICE
--------------- ---------------------
High Low
---- ---
<S> <C> <C>
1996
First Quarter $23.56 $21.78
Second Quarter $24.00 $22.83
Third Quarter $24.67 $23.33
Fourth Quarter $25.33 $23.67
1997
First Quarter $26.00 $23.66
Second Quarter $26.67 $23.83
Third Quarter $28.67 $25.67
Fourth Quarter $37.00 $27.50
1998
First Quarter $36.50 $34.50
Second Quarter $45.50 $36.25
Third Quarter $39.50 $32.00
Fourth Quarter $34.00 $31.38
1999 First Quarter
(thru February __, 1999)
</TABLE>
INTER-CITY MARKET PRICES
Inter-City common stock is not listed for quotation on any stock exchange and is
not actively traded. The price of Inter-City common stock in the last sales
transaction reported to Inter-City's management before October 20, 1998 (the
date the merger was publicly announced) was $45.00 per share and occurred on
June 8, 1998.
DIVIDENDS
Peoples paid total cash dividends of $.57 per share during 1997 and $.53 per
share during 1998.
No representations can be made as to when or if Peoples Holding will pay
dividends in the future. Peoples Holding's ability to pay dividends to its
shareholders depends primarily upon the ability of Peoples Bank to pay dividends
to Peoples Holding.
Inter-City paid total cash dividends of $2.75 per share during the year ended
March 31, 1997, and total cash dividends of $1.00 per share during the year
ended March 31, 1998.
DESCRIPTION OF PEOPLES HOLDING COMMON STOCK
Peoples Holding has authorized capital stock consisting of 15,000,000 shares of
common stock, par value $5.00 per share, of which 5,844,472 shares were issued
and outstanding at February ___, 1999, all of which are validly issued, fully
paid and non-assessable. Peoples Holding anticipates that it will issue an
additional 347,305 shares of its common stock in the merger.
There are no other outstanding securities or other obligations which are
convertible into shares or options, warrants, rights, calls or other commitments
of any nature relating to the unissued shares of Peoples Holding common stock.
27
<PAGE> 31
Holders of Peoples Holding common stock are entitled to one vote per share in
the election of directors and all matters to come before the shareholders.
Holders of Peoples Holding common stock are entitled to receive dividends as may
be declared by Peoples Holding's board of directors out of funds legally
available for the payment of dividends. In the event of liquidation, dissolution
or winding-up of the affairs of Peoples Holding, holders of Peoples Holding
common stock are entitled to share ratably in Peoples Holding's assets and funds
legally available for distribution to its shareholders.
Holders of Peoples Holding common stock have no preemptive, subscription,
redemption or conversion rights. See "The Proposed Merger - Differences in
Rights of Peoples Holding and Inter-City Shareholders."
UNAUDITED PRO FORMA COMBINED CONDENSED FINANCIAL STATEMENTS
The following unaudited pro forma combined condensed balance sheet combines the
historical condensed balance sheets of Peoples Holding and Inter-City as of
September 30, 1998, to reflect completion of the proposed merger. Such pro forma
information assumes the proposed merger occurred as of September 30, 1998, and
is based on the historical balance sheets of Peoples Holding and Inter-City as
of that date, giving effect to the proposed merger using the
pooling-of-interests method of accounting and to the pro forma adjustments
described in the Notes to the Unaudited Pro Forma Combined Condensed Financial
Statements.
The following unaudited pro forma combined condensed statements of income
include the historical condensed statements of income of Peoples Holding and
Inter-City to reflect completion of the proposed merger. Such pro forma
information assumes the companies had been combined for each period presented on
a pooling-of-interests accounting basis and is based on the historical
statements of income of Peoples Holding and Inter-City, giving effect to the pro
forma adjustments described in the Notes to the Unaudited Pro Forma Combined
Condensed Financial Statements. Peoples Holding's fiscal year end is December 31
while Inter-City's fiscal year end is March 31. For the purposes of the
statements below, Inter-City financial data is presented consistently with the
fiscal year end of Peoples Holding.
The pro forma adjustments are based on currently available information and upon
certain assumptions that management believes to be reasonable in the
circumstances. The unaudited pro forma combined condensed financial statements
are for illustrative purposes only and should not be viewed as a projection or
forecast of the combined company's performance for any future period. The
unaudited pro forma combined condensed financial statements do not present the
combined company's actual financial position or results of operations had the
merger actually occurred on the dates assumed for purposes of preparation.
For a description of the pooling-of interests accounting basis with respect to
the merger and the related effects on historical financial statements of Peoples
Holding, see "The Proposed Merger - Accounting Treatment." The unaudited pro
forma combined condensed financial statements should be read with the historical
financial statements of Peoples Holding and Inter-City, including the notes to
those financial statements which are incorporated by reference or included
elsewhere in this proxy statement/prospectus.
28
<PAGE> 32
PRO FORMA COMBINED CONDENSED BALANCE SHEET (UNAUDITED)
September 30, 1998
(Dollars in thousands)
<TABLE>
<CAPTION>
Peoples Peoples
Holding/ Holding/
Inter-City Inter-City
Peoples Pro Forma Pro Forma
Holding Inter-City Adjustments Combined
----------- ---------- ----------- ----------
<S> <C> <C> <C> <C>
ASSETS
Cash and due from $ 34,242 $ 3,925 $ 38,167
Federal funds sold 0 0 0
Investment securities 304,057 2,259 306,316
Loans 661,625 36,390 698,015
Less - reserve for loan losses (9,637) (134) (9,771)
----------- -------- --------- ----------
Net loans 651,988 36,256 688,244
----------- -------- --------- ----------
Premises and equipment 25,178 463 25,641
Intangible assets 6,662 0 6,662
Other assets 19,739 729 20,468
----------- -------- --------- ----------
Total assets $ 1,041,866 $ 43,632 $ 0 $1,085,498
=========== ======== ========= ==========
LIABILITIES AND
STOCKHOLDERS' EQUITY
Liabilities:
Deposits:
Noninterest-bearing deposits $ 122,552 2,685 125,237
Interest-bearing deposits 767,507 35,139 802,646
----------- -------- --------- ----------
Total Deposits 890,059 37,824 927,883
Federal funds purchased and
securities sold under repurchase
agreements 8,444 0 8,444
Borrowings 23,680 467 24,147
Other liabilities 14,303 234 14,537
----------- -------- --------- ----------
Total Liabilities 936,480 38,525 975,011
----------- -------- --------- ----------
Stockholders' Equity:
Common Stock 29,222 1 1,736 30,959
Surplus 39,876 1,142 (1,736) 39,282
Other capital accounts 36,282 3,964 40,246
----------- -------- --------- ----------
Total stockholders' equity 105,380 5,107 110,487
----------- -------- --------- ----------
Total liabilities and
stockholders' equity $ 1,041,866 $ 43,632 $ 0 $1,085,498
=========== ======== ========= ==========
</TABLE>
See accompanying notes to pro forma financial statements.
29
<PAGE> 33
PRO FORMA COMBINED CONDENSED STATEMENT OF INCOME (UNAUDITED)
(Dollars in thousands except per share data)
<TABLE>
<CAPTION>
Nine Months Ended
September 30, Years Ended December 31,
--------------------------- --------------------------------------------
1998 1997 1997 1996 1995
---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
Interest income $ 60,449 $ 55,812 $ 75,282 $ 69,193 $ 65,565
Interest expense 27,812 24,655 33,431 29,713 26,940
---------- ---------- ---------- ---------- ----------
Net interest income 32,637 31,157 41,851 39,480 38,625
Provision for loan losses 1,940 1,731 2,307 2,837 2,847
---------- ---------- ---------- ---------- ----------
Net interest income after
provision for loan losses 30,697 29,426 39,544 36,643 35,778
Noninterest income 10,489 8,919 12,218 11,214 10,887
Noninterest expense 28,889 26,802 36,043 33,988 33,067
---------- ---------- ---------- ---------- ----------
Income before taxes 12,297 11,543 15,719 13,869 13,598
Provision for income taxes 3,522 3,471 4,716 4,151 4,103
---------- ---------- ---------- ---------- ----------
Net income $ 8,775 $ 8,072 $ 11,003 $ 9,718 $ 9,495
========== ========== ========== ========== ==========
Net income per share-basic $ 1.41 $ 1.30 $ 1.77 $ 1.57 $ 1.54
Net income per share-diluted $ 1.41 $ 1.30 $ 1.77 $ 1.57 $ 1.54
Weighted average common
shares outstanding-basic 6,204,187 6,206,877 6,206,877 6,183,038 6,174,937
Weighted average common
shares outstanding-diluted 6,204,187 6,206,877 6,206,877 6,183,038 6,176,776
</TABLE>
See accompanying notes to unaudited pro forma combined condensed financial
statements.
30
<PAGE> 34
PRO FORMA COMBINED CONDENSED STATEMENT OF INCOME (UNAUDITED)
Nine months ended September 30, 1998
(Dollars in thousands except per share data)
<TABLE>
<CAPTION>
PEOPLES HOLDING/ PEOPLES HOLDING/
INTER-CITY INTER-CITY
PEOPLES PRO FORMA PRO FORMA
HOLDING INTER-CITY ADJUSTMENTS COMBINED
---------- ---------- --------------- ---------------
<S> <C> <C> <C> <C>
Interest income $ 57,964 $ 2,485 $ $ 60,449
Interest expense 26,484 1,328 27,812
---------- -------- -------- ----------
Net interest income 31,480 1,157 32,637
Provision for loan losses 1,922 18 1,940
---------- -------- -------- ----------
Net interest income after
provision for loan losses 29,558 1,139 30,697
Noninterest income 10,339 150 10,489
Noninterest expense 28,024 865 28,889
---------- -------- -------- ----------
Income before taxes 11,873 424 12,297
Provision for income taxes 3,370 152 3,522
---------- -------- -------- ----------
Net income $ 8,503 $ 272 $ 0 $ 8,775
========== ======== ======== ==========
Net income per share-basic $ 1.45 $ 2.18 $ 1.41
Net income per share-diluted $ 1.45 $ 2.18 $ 1.41
Weighted average common
shares outstanding-basic 5,856,782 124,966 6,204,187
Weighted average common
shares outstanding-diluted 5,856,782 124,966 6,204,187
</TABLE>
See accompanying notes to unaudited pro forma combined condensed financial
statements.
31
<PAGE> 35
PRO FORMA COMBINED CONDENSED STATEMENT OF INCOME (UNAUDITED)
Nine months ended September 30, 1997
(Dollars in thousands except per share data)
<TABLE>
<CAPTION>
PEOPLES HOLDING/ PEOPLES HOLDING/
INTER-CITY INTER-CITY
PEOPLES PRO FORMA PRO FORMA
HOLDING INTER-CITY ADJUSTMENTS COMBINED
---------- ---------- --------------- ---------------
<S> <C> <C> <C> <C>
Interest income $ 53,537 $ 2,275 $ 55,812
Interest expense 23,457 1,198 24,655
---------- -------- -------- ----------
Net interest income 30,080 1,077 31,157
Provision for loan losses 1,710 21 1,731
---------- -------- -------- ----------
Net interest income after
provision for loan losses 28,370 1,056 29,426
Noninterest income 8,768 151 8,919
Noninterest expense 26,078 724 26,802
---------- -------- -------- ----------
Income before taxes 11,060 483 11,543
Provision for income taxes 3,281 190 3,471
---------- -------- -------- ----------
Net income $ 7,779 $ 293 $ 0 $ 8,072
========== ======== ======== ==========
Net income per share-basic $ 1.33 $ 2.34 $ 1.30
Net income per share-diluted $ 1.33 $ 2.34 $ 1.30
Weighted average common
shares outstanding-basic 5,859,472 124,966 6,206,877
Weighted average common
shares outstanding-diluted 5,859,472 124,966 6,206,877
</TABLE>
See accompanying notes to unaudited pro forma combined condensed financial
statements.
32
<PAGE> 36
PRO FORMA COMBINED CONDENSED STATEMENT OF INCOME (UNAUDITED)
For the year ended December 31, 1997
(Dollars in thousands except per share data)
<TABLE>
<CAPTION>
PEOPLES HOLDING/ PEOPLES HOLDING/
INTER-CITY INTER-CITY
PEOPLES PRO FORMA PRO FORMA
HOLDING INTER-CITY ADJUSTMENTS COMBINED
---------- ---------- --------------- ---------------
<S> <C> <C> <C> <C>
Interest income $ 72,201 $ 3,081 $ 75,282
Interest expense 31,804 1,627 33,431
---------- -------- -------- ----------
Net interest income 40,397 1,454 41,851
Provision for loan losses 2,280 27 2,307
---------- -------- -------- ----------
Net interest income after
provision for loan losses 38,117 1,427 39,544
Noninterest income 12,020 198 12,218
Noninterest expense 35,009 1,034 36,043
---------- -------- -------- ----------
Income before taxes 15,128 591 15,719
Provision for income taxes 4,488 228 4,716
---------- -------- -------- ----------
Net income $ 10,640 $ 363 $ 0 11,003
========== ======== ======== ==========
Net income per share-basic $ 1.82 $ 2.91 $ 1.77
Net income per share-diluted $ 1.82 $ 2.91 $ 1.77
Weighted average common
shares outstanding-basic 5,859,472 124,966 6,206,877
Weighted average common
shares outstanding-diluted 5,859,472 124,966 6.206,877
</TABLE>
See accompanying notes to unaudited pro forma combined condensed financial
statements.
33
<PAGE> 37
PRO FORMA COMBINED CONDENSED STATEMENT OF INCOME (UNAUDITED)
For the year ended December 31, 1996
(Dollars in thousands except per share data)
<TABLE>
<CAPTION>
PEOPLES HOLDING/ PEOPLES HOLDING/
INTER-CITY INTER-CITY
PEOPLES PRO FORMA PRO FORMA
HOLDING INTER-CITY ADJUSTMENTS COMBINED
---------- ---------- --------------- ---------------
<S> <C> <C> <C> <C>
Interest income $ 66,425 $ 2,768 $ 69,193
Interest expense 28,244 1,469 29,713
---------- -------- -------- ----------
Net interest income 38,181 1,299 39,480
Provision for loan losses 2,813 24 2,837
---------- -------- -------- ----------
Net interest income after
provision for loan losses 35,368 1,275 36,643
Noninterest income 11,030 184 11,214
Noninterest expense 32,830 1,158 33,988
---------- -------- -------- ----------
Income before taxes 13,568 301 13,869
Provision for income taxes 4,052 99 4,151
---------- -------- -------- ----------
Net income $ 9,516 $ 202 $ 0 $ 9,718
========== ======== ======== ==========
Net income per share-basic $ 1.62 $ 1.74 $ 1.57
Net income per share-diluted $ 1.62 $ 1.74 $ 1.57
Weighted average common
shares outstanding-basic 5,859,472 116,391 6,183,038
Weighted average common
shares outstanding-diluted 5,859,472 116,391 6,183,038
</TABLE>
See accompanying notes to unaudited pro forma combined condensed financial
statements.
34
<PAGE> 38
PRO FORMA COMBINED CONDENSED STATEMENT OF INCOME (UNAUDITED)
For the year ended December 31, 1995
(Dollars in thousands except per share data)
<TABLE>
<CAPTION>
PEOPLES HOLDING/ PEOPLES HOLDING/
INTER-CITY INTER-CITY
PEOPLES PRO FORMA PRO FORMA
HOLDING INTER-CITY ADJUSTMENTS COMBINED
---------- ---------- --------------- ---------------
<S> <C> <C> <C> <C>
Interest income $ 63,009 $ 2,556 $ 65,565
Interest expense 25,621 1,319 26,940
---------- -------- -------- ----------
Net interest income 37,388 1,237 38,625
Provision for loan losses 2,827 20 2,847
---------- -------- -------- ----------
Net interest income after
provision for loan losses 34,561 1,217 35,778
Noninterest income 10,740 147 10,887
Noninterest expense 32,166 901 33,067
---------- -------- -------- ----------
Income before taxes 13,135 463 13,598
Provision for income taxes 3,931 172 4,103
---------- -------- -------- ----------
Net income $ 9,204 $ 291 $ 0 $ 9,495
========== ======== ======== ==========
Net income per share-basic $ 1.57 $ 2.56 $ 1.54
Net income per share-diluted $ 1.57 $ 2.55 $ 1.54
Weighted average common
shares outstanding-basic 5,859,472 113,476 6,174,937
Weighted average common
shares outstanding-diluted 5,859,472 114,138 6,176,776
</TABLE>
See accompanying notes to unaudited pro forma combined condensed financial
statements.
35
<PAGE> 39
NOTES TO THE UNAUDITED PRO FORMA COMBINED
CONDENSED FINANCIAL STATEMENTS
Note 1 - Basis of Presentation
On December 14, 1998, The Peoples Holding Company and The Peoples Bank & Trust
Company entered into a definitive agreement and plan of merger with Inter-City
Federal Bank for Savings. Upon consummation of the merger, Inter-City Federal
Bank for Savings will be merged into The Peoples Bank & Trust Company, which
will continue to operate as a subsidiary of Peoples Holding. The merger calls
for a tax-free exchange of 2.78 shares of Peoples Holding common stock for each
outstanding share of Inter-City common stock.
The unaudited Pro Forma Combined Condensed Financial Statements have been
prepared assuming that the merger will be accounted for under the
pooling-of-interests method and are based on the historical consolidated
financial statements of Peoples Holding and Inter-City. The fiscal year end of
Peoples Holding is December 31 while the fiscal year end of Inter-City is March
31. For purposes of the unaudited Pro Forma Combined Condensed Financial
Statements, Inter-City financial data is presented consistently with the fiscal
year end of Peoples Holding.
The unaudited Pro Forma Combined Condensed Financial Statements presented are
not necessarily indicative of the results of operations or the combined
financial position that would have resulted had the merger been consummated at
the beginning of the periods indicated, nor are they necessarily indicative of
the results of operations in future periods or of the future financial position
of the combined entities.
The unaudited Pro Forma Combined Condensed Financial Statements should be read
in conjunction with the historical consolidated financial statements and the
related notes thereto of each of Peoples Holding and Inter-City, incorporated by
reference or appearing elsewhere herein.
Note 2 - Stockholders' Equity
In conjunction with the merger, Peoples Holding will exchange 2.78 shares of its
common stock for each share of common stock of Inter-City. The pro forma
adjustments herein reflect, where applicable, the 2.78 Exchange Ratio for each
of the 124,966 shares of Inter-City common stock which were issued and
outstanding at September 30, 1998.
The capital accounts have been adjusted to reflect the issuance of 347,405
shares of Peoples Holding common stock in exchange for all of the outstanding
shares of Inter-City based on the Exchange Ratio.
Note 3 - Per Share Data
Net income per share - basic has been computed by dividing the pro forma
combined net income applicable to common stockholders of Peoples Holding and
Inter-City by the weighted average number of common shares outstanding of
Peoples Holding common stock and the weighted average number of common shares,
adjusted to equivalent shares of Peoples Holding common stock.
Net income per share - diluted has been computed by dividing the pro forma
combined net income applicable to common shareholders of Peoples Holding and
Inter-City by the weighted average number of common shares outstanding of
Peoples Holding common stock and the weighted average number of common shares
outstanding, adjusted to equivalent shares of Peoples Holding common stock, of
Inter-City common stock, using the treasury stock method. Dilutive common share
equivalents include common shares issuable upon exercise of stock options
outstanding. Peoples Holding has no dilutive common share equivalents.
Note 4 - Merger Costs
In connection with the merger, Peoples Holding expects to incur merger-related
expenses of approximately $110,000, after tax. The impact of these costs has not
been reflected in the Pro Forma Combined Condensed Balance Sheet as of September
30, 1998.
Peoples Holding and Inter-City expect that the combined company resulting from
the merger will achieve benefits from the merger in the form of operating cost
savings. However, the unaudited Pro Forma Combined Condensed Financial
Statements do not reflect any direct costs or potential savings which are
expected to result from the consolidation of operations of the combining
companies, and, therefore, do not purport to be indicative of future operations.
36
<PAGE> 40
INFORMATION ABOUT PEOPLES HOLDING
BUSINESS OF PEOPLES HOLDING
Additional information about Peoples Holding and its subsidiaries is included in
documents incorporated by reference in this proxy statement/prospectus. See
"Where You Can Find More Information" and "Incorporation of Certain Documents By
Reference."
RECENT DEVELOPMENTS
Peoples Holding's income for the fourth quarter 1998 was $2,865,020 (unaudited),
or $.49 per common share, compared to $2,861,405, or $.49 per share for the
fourth quarter 1997, up .13% in quarterly earnings. Peoples Holding's net income
per share for the year ended December 31, 1998 was $1.95, up from $1.82 for
1997. Peoples Holding's net income totaled $11,367,934, up 6.84% from
$10,640,236, representing annualized returns of 11.08% on stockholders' equity.
Peoples Holding's total deposits at the end of the fourth quarter 1998 were
$921,685,903, up 10.39% from $834,914,185 for the same period in 1997. Total
loans were up 10.56% to $694,283,577 at December 31, 1998, from $627,945,380 at
December 31, 1997.
Peoples Holding's total capital at year-end 1998 was $105,058,679, up 7.04% from
$98,150,917 at year-end 1997. As a percentage of assets, total capital was
9.88%, at year-end 1998 and 10.11% at year-end 1997. Return on average assets
was 1.11% at year-end compared to 1.14% at year-end 1997.
Peoples Holding paid cash dividends of $.1750 per share for the first three
quarters in 1998 and paid $.1900 per share for the fourth quarter.
On July 14, Peoples Holding's board of directors approved a stock repurchase
program aimed at stabilizing the level of capital at approximately 10% of total
assets and enabling Peoples Holding to manage its capital position more
efficiently. Subsequently, Peoples Holding has modified its existing stock
repurchase plan in order to provide it with flexibility in pursuing
acquisitions.
37
<PAGE> 41
SELECTED HISTORICAL FINANCIAL DATA OF PEOPLES HOLDING
The following table presents consolidated selected financial data for Peoples
Holding for each of the five years in the period ended December 31, 1997. This
financial data is derived in part from and should be read with the historical
Consolidated Financial Statements and the related notes to those financial
statements contained in Peoples Holding's Annual Report on Form 10-K for
December 31, 1997.
(Dollars in thousands, except per share amounts)
<TABLE>
<CAPTION>
Nine Months Ended
September 30, YEARS ENDED DECEMBER 31
----------------------- ------------------------------------------------------------
1998 1997 1997 1996 1995 1994 1993
---------- -------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
Interest Income . . . . . $ 57,964 $ 53,537 $ 72,201 $ 66,425 $ 63,009 $ 53,069 $ 48,439
Interest expense . . . . . 26,484 23,457 31,804 28,244 25,621 18,890 16,963
Net interest income . . . . 31,480 30,080 40,397 38,181 37,388 34,179 31,476
Provision for loan losses . 1,922 1,710 2,280 2,813 2,827 2,001 2,866
Noninterest income . . . . 10,339 8,768 12,020 11,031 10,740 9,699 9,354
Noninterest expense . . . . 28,024 26,078 35,009 32,830 32,166 31,047 27,685
Provision for income taxes 3,370 3,281 4,488 4,052 3,931 2,621 3,066
Cumulative effect of
changes in accounting
principles . . . . . . . 522
Net income . . . . . . . . 8,503 7,779 10,640 9,517 9,204 8,209 7,735
PER SHARE DATA:
Net income - basic . . . . $ 1.45 $ 1.33 $ 1.82 $ 1.62 $ 1.57 $ 1.40 $ 1.32
Net income - diluted . . . 1.45 1.33 1.82 1.62 1.57 1.40 1.32
Cash dividends declared . . .52 .43 .57 .50 .46 .40 .37
Book value . . . . . . . . 18.03 16.39 16.75 15.46 14.50 12.58 12.19
Average total equity . . . $ 101,520 $ 93,667 $ 94,596 $ 87,495 $ 80,404 $ 73,042 $ 68,805
Average total assets . . . 1,014,254 923,661 932,157 868,721 817,933 781,644 722,696
Total assets . . . . . . . 1,041,866 946,486 971,055 893,089 841,699 787,066 739,312
Investment securities . . . 304,057 261,635 248,632 246,110 214,219 210,148 228,510
Total loans . . . . . . . . 661,625 610,453 627,945 562,753 522,314 502,048 439,877
Net loans . . . . . . . . . 651,988 600,944 618,842 553,443 513,499 493,865 433,489
Total deposits . . . . . . 890,059 792,166 834,914 772,842 739,545 696,280 655,545
Total liabilities . . . . . 936,486 850,460 872,904 802,529 756,739 713,333 667,874
Total stockholders' equity 105,380 96,026 98,151 90,561 84,960 73,734 71,438
</TABLE>
38
<PAGE> 42
SUPERVISION AND REGULATION
BANK HOLDING COMPANIES
Peoples Holding is under the supervisory and regulatory authority granted the
Federal Reserve Board of Governors by the Bank Holding Company Act of 1956, as
currently in effect ("BHCA"). Peoples Holding is required to file with the
Federal Reserve an annual report and such additional information as the Federal
Reserve may require pursuant to the BHCA. The Federal Reserve also may make
examinations of Peoples Holding and its subsidiaries.
The BHCA requires every bank holding company to obtain the prior approval of the
Federal Reserve before it may acquire substantially all the assets of any bank
or ownership or control, directly or indirectly, of more than five percent of
the voting shares of any such bank. The Riegle-Neal Interstate Banking and
Branching Efficiency Act of 1994 ("Interstate Act") provides for nationwide
interstate banking and branching with certain limitations. The Interstate Act
permits bank holding companies to acquire banks without regard to state
boundaries after September 29, 1996. The Federal Reserve may approve an
interstate acquisition only if, as a result of the acquisition, the bank holding
company would control 10% or less of the total amount of insured deposits in the
United States or 30% of the deposits in the home state of the bank being
acquired. The home state can waive the 30% limit as long as there is no
discrimination against out-of-state institutions.
Pursuant to the Interstate Act, interstate branching took effect on June 1,
1997, except under certain circumstances. Once a bank has established branches
in a host state (a state other than its headquarters state) through an
interstate merger transaction, the bank may establish and acquire additional
branches at any location in the host state where any bank involved in the
interstate merger transaction could have established or acquired branches under
applicable federal or state law. The Interstate Act further provides that
individual states may opt out of interstate branching. If a state did not opt
out of interstate branching before May 31, 1997, then a bank in that state may
merge with a bank in another state provided that neither of the states have
opted out.
Under the BHCA, bank holding companies are prohibited, with certain exceptions,
from acquiring direct or indirect ownership or control of more than five percent
of the voting shares of any company engaging in activities other than banking or
managing or controlling banks or furnishing services to or performing services
for their banking subsidiaries. However, the BHCA authorizes the Federal Reserve
to permit bank holding companies to engage in, and to acquire or retain shares
of companies that engage in, activities which the Federal Reserve determines to
be so closely related to banking or managing or controlling banks as to be a
proper incident thereto.
The BHCA generally imposes certain limitations on extensions of credit and other
transactions by and between banks which are members of the Federal Reserve
System and other affiliates (which includes any holding company of which such
bank is a subsidiary and any other non-bank subsidiary of such holding company).
Further, under Section 106 of the 1970 Amendments to the BHCA, a bank holding
company and its subsidiaries are prohibited from engaging in certain tie-in
arrangements in connection with any extension of credit, lease or sale of
property, or the furnishing of services.
SUBSIDIARY BANKS
In December 1991, the Federal Deposit Insurance Corporation Improvement Act of
1991 ("FDICIA") was enacted. This act recapitalized the Bank Insurance Fund, of
which Peoples Bank is a member, substantially revised bank regulations,
including capital standards, restricted certain powers of state banks, gave
regulators the authority to limit officer and director compensation and required
bank holding companies in certain circumstances to guarantee the capital
compliance of their banks. Among other things, FDICIA required the federal
banking agencies to take "prompt corrective action" in respect of banks that do
not meet minimum capital requirements. FDICIA established five capital tiers:
"well capitalized," "adequately capitalized," "undercapitalized," "significantly
undercapitalized," and "critically undercapitalized," as defined by regulations
adopted by the Federal Reserve, the FDIC, and the other federal depository
institution regulatory agencies. A depository institution is well capitalized if
it significantly exceeds the minimum level required by regulation for each
relevant capital measure, adequately capitalized if it
39
<PAGE> 43
meets such measure, undercapitalized if it fails to meet any such measure,
significantly undercapitalized if it is significantly below such measure, and
critically undercapitalized if it fails to meet any critical capital level set
forth in the regulations. The critical capital level must be a level of tangible
equity capital equal to not less than 2% of total tangible assets and not more
than 65% of the minimum leverage ratio to be prescribed by regulation (except to
the extent that 2% would be higher than such 65% level). An institution may be
deemed to be in a capitalization category that is lower than is indicated by its
actual capital position if it receives an unsatisfactory examination rating.
If a depository institution fails to meet regulatory capital requirements, the
regulatory agencies can require submission and funding of a capital restoration
plan by the institution, place limits on its activities, require the raising of
additional capital and, ultimately, require the appointment of a conservator or
receiver for the institution. The obligation of a controlling bank holding
company under FDICIA to fund a capital restoration plan is limited to the lesser
of 5% of an undercapitalized subsidiary's assets or the amount required to meet
regulatory capital requirements. If the controlling bank holding company fails
to fulfill its obligation under FDICIA and files (or has filed against it) a
petition under the Federal Bankruptcy Code, the FDIC's claim may be entitled to
a priority in such bankruptcy proceeding over third party creditors of the bank
holding company.
An insured depository institution may not pay management fees to any person
having control of the institution nor may an institution, except under certain
circumstances and with prior regulatory approval, make any capital distribution
if, after making such payment or distribution, the institution would be
undercapitalized. FDICIA also restricts the acceptance of brokered deposits by
insured depository institutions and contains a number of consumer banking
provisions, including disclosure requirements and substantive contractual
limitations with respect to deposit accounts.
At December 31, 1998, Peoples Bank and Inter-city were "well capitalized" and
were not subject to any of the foregoing restrictions.
FDICIA contains numerous other provisions, including reporting requirements,
termination of the "too big to fail" doctrine except in special cases,
limitations on the FDIC's payment of deposits at foreign branches and revised
regulatory standards for, among other things, real estate lending and capital
adequacy. In addition, FDICIA required the FDIC to establish a system of
risk-based assessments for federal deposit insurance, by which banks that pose a
greater risk of loss to the FDIC (based on their capital levels and the FDIC's
level of supervisory concern) pay a higher insurance assessment.
As a state nonmember bank with deposits insured by the FDIC, Peoples Bank is
subject to the supervisory and regulatory authority of the FDIC and the
Mississippi Department of Banking and Consumer Finance. The Mississippi
Department regulates all areas of commercial banking operations of state
chartered banks under its supervision, including reserves, loans, mergers,
payment of dividends, interest rates, establishment of branches, and other
aspects of operations.
Peoples Bank is also subject to various requirements and restrictions under
federal and state law, including requirements to maintain reserves against
deposits, restrictions on the types and amounts of loans that may be granted and
the interest that may be charged thereon and limitations on the types of
investments that may be made and the types of services that may be offered.
Various consumer laws and regulations affect the operations of the Peoples Bank.
In addition to the impact of regulation, commercial banks are affected
significantly by the actions of the Federal Reserve as it attempts to control
the money supply and credit availability in order to influence the economy.
Peoples Holding generally depends upon payments of dividends by Peoples Bank in
order to pay dividends to its shareholders and to meet its other needs for cash
or to pay expenses. Various statutory restrictions govern the ability of Peoples
Bank to pay dividends to the holding company. Federal law provides that no
insured depository institution may make any capital distribution (which would
include a cash dividend) if, after making the distribution, the institution
would not satisfy one or more of its minimum capital requirements. Moreover, the
federal bank regulatory agencies also have the general authority to limit the
dividends paid by insured banks if such payments may be deemed to constitute an
unsafe and unsound practice. An insured bank is prohibited from paying dividends
on its capital stock while in default in the
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<PAGE> 44
payment of any assessment due to the FDIC except in those cases where the amount
of the assessment is in dispute and the insured bank has deposited satisfactory
security for the payment thereof.
The Community Reinvestment Act of 1977 ("CRA") and the related regulations of
the Comptroller of the Currency, the Federal Reserve, the Office of Thrift
Supervision and the FDIC are intended to encourage regulated financial
institutions to help meet the credit needs of their local community or
communities, including low and moderate income neighborhoods, consistent with
the safe and sound operation of such financial institutions. The CRA and such
regulations provide that the appropriate regulatory authority will assess the
records of regulated financial institutions in satisfying their continuing and
affirmative obligations to help meet the credit needs of their local communities
as part of their regulatory examination of the institution. The results of such
examinations are made public and are taken into account upon the filing of any
application to establish a domestic branch, to merge or to acquire the assets or
assume the liabilities of a bank. In the case of a bank holding company, the CRA
performance record of the subsidiary banks involved in the transaction are
reviewed in connection with the filing of an application to acquire ownership or
control of shares or assets of a bank or to merge with any other bank holding
company. An unsatisfactory record can substantially delay or block the
transaction.
OTHER
Other legislative and regulatory proposals regarding changes in banking, and the
regulation of banks, thrifts, and other financial institutions, are being
considered by the executive branch of the Federal government, Congress, and
various state governments, including Mississippi. Certain of these proposals, if
adopted, could significantly change the regulation of banks and the financial
services industry. It cannot be predicted whether any of these proposals will be
adopted or, if adopted, how these proposals will affect Peoples Holding, Peoples
Bank or Inter-City.
INFORMATION ABOUT INTER-CITY
BUSINESS OF INTER-CITY
Inter-City is a federally chartered savings bank in Louisville, Mississippi,
established in 1934 as a mutual savings and loan association. In 1988 Inter-City
converted to a federal savings bank charter. In 1991 Inter-city converted to a
federal stock savings bank and issued stock through subscription and community
offerings. Inter-City conducts its business from two offices located in
Louisville, the county seat for Winston County, Mississippi.
As of September 30, 1998, Inter-City had total assets of $43.63 million and
total shareholders' equity of $5.11 million. At September 30, 1998, Inter-City
had 17 full-time equivalent employees.
Inter-City offers a full range of deposit services, and its deposits are insured
by the FDIC under the Savings Association Insurance Fund ("SAIF"). Inter-City's
involvement in residential lending has been the core of its business since its
founding in 1934. In recent years, Inter-City has diversified its business and
expanded into commercial lending to small businesses and consumer lending.
FACILITIES
Inter-City has its principal office at 228 Main Street, Louisville, Mississippi,
and has a drive through facility in a nearby shopping center located at 536 N.
Church Avenue in Louisville.
COMPETITION
The primary market area for Inter-City is Winston County in east central
Mississippi. Winston County has a population of approximately 20,000. There are
five depository institutions with offices in Winston County. As of June 30,
1998, deposits in the county totaled $231.20 million.
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<PAGE> 45
Inter-City competes with commercial banks, savings and loan associations, credit
unions and other financial institutions operating in its market area. Some of
these institutions offer services which Inter-City does not offer and some of
these competitors have more capital than Inter-City and thus higher lending
limits than Inter-City. Inter-City faces competition for loans and deposits from
both local and nonlocal financial institutions.
SECURITY OWNERSHIP OF MANAGEMENT OF INTER-CITY
DIRECTORS AND EXECUTIVE OFFICERS
The following table sets forth as of __, 1999, the number and percentage of
outstanding shares of Inter-City common stock beneficially owned by each
executive officer and director of Inter-City and by all executive officers and
directors of Inter-City as a group. Inter-City does not have any shareholders
other than the three executive officers and directors included in this list who
beneficially own 5% or more of the outstanding shares of Inter-City's common
stock.
<TABLE>
<CAPTION>
NUMBER OF SHARES
NAME TITLE BENEFICIALLY PERCENT OF
OWNED(1) CLASS
<S> <C> <C> <C>
Joseph K. Suttle Chairman of the Board and
Chief Executive Officer 6,525 5.22
Terry Lee Woods President and Director 9,378 7.50
Charles E. McCool Director 5,812 4.65
Jason N. McNeel Director 6,630 5.30
Henry J. Fair Director 5,524 4.42
Charles D. McCool Director 4,737 3.79
Samuel K. Suttle Director 5,524 4.42
All Directors and Executive Officers
as a group (7 persons) 44,130 35.31
</TABLE>
- -----------------------------
(1) Includes shares held directly as well as shares held in retirement
accounts or by certain members of the named individuals' families, over
which shares the named individuals may be deemed to have sole voting
and investment power.
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<PAGE> 46
SELECTED HISTORICAL FINANCIAL DATA OF INTER-CITY
The following table sets forth certain selected financial data concerning
Inter-City. The selected financial data has been derived from the financial
statements of Inter-City which have been audited by T.E. Lott & Company,
independent accountants. This information should be read with Management's
Discussion and Analysis of Financial Condition and Results of Operations of
Inter-City.
(Dollars in thousands, except per share amounts)
<TABLE>
<CAPTION>
Six Months Ended
September 30, YEARS ENDED MARCH 31,
------------------- -------------------------------------------------------
1998 1997 1998 1997 1996 1995 1994
- --------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Interest income .......... $ 1,671 $ 1,542 $ 3,163 $ 2,838 $ 2,621 $ 2,326 $ 2,268
Interest expense ......... 897 809 1,669 1,508 1,370 1,181 1,170
Net interest income ...... 774 733 1,494 1,330 1,251 1,145 1,098
Provision for loan losses 12 12 24 24 23 20 8
Noninterest income ....... 100 98 192 190 143 121 180
Noninterest expense ...... 589 508 1,085 1,155 913 878 839
Provision for income taxes 96 119 216 127 168 139 159
Net income ............... 177 192 361 215 290 229 272
PER SHARE DATA:
Net income - basic ....... $ 1.42 $ 1.54 $ 2.89 $ 1.81 $ 2.52 $ 2.03 $ 2.43
Net income - diluted ..... 1.42 1.54 2.89 1.81 2.46 1.89 2.24
Cash dividends declared .. -- -- 1.00 2.75 .50 .45 .45
Book value ............... 40.87 40.50 39.46 37.57 40.93 39.29 37.90
Average total equity ..... $ 5,038 $ 4,790 $ 4,851 $ 4,752 $ 4,593 $ 4,376 $ 4,157
Average total assets ..... 42,406 38,128 39,278 34,925 32,116 31,280 31,290
Total assets ............. 43,632 38,779 41,124 37,860 33,354 31,099 31,571
Investment securities .... 2,274 2,033 2,506 2,033 590 602 1,614
Total loans .............. 36,391 33,567 34,114 31,526 29,026 28,184 26,827
Net loans ................ 36,256 33,453 33,992 31,421 28,933 28,100 26,748
Total deposits ........... 37,811 33,130 35,367 32,390 27,817 26,384 26,899
Total liabilities ........ 38,525 33,892 36,194 33,165 28,649 26,641 27,299
Total stockholders' equity 5,107 4,887 4,930 4,695 4,705 4,458 4,272
</TABLE>
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<PAGE> 47
MANAGEMENT'S DISCUSSION, AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
OF INTER-CITY
GENERAL
Inter-City is primarily engaged in the business of attracting savings deposits
from the general public and investing such funds in loans secured by one-to-four
family residential real estate located primarily in Winston and Neshoba Counties
of Mississippi. In recent years, Inter-City has increased its origination of
consumer loans, primarily loans for the purchase of automobiles. Inter-City also
originates loans secured by multifamily real estate (over four units) and
nonresidential real estate, other types of consumer loans, including home
equity, home improvement loans, and secured and unsecured lines-of-credit, and
commercial loans. Inter-City also invests in U. S. Government and agency
obligations, interest-bearing deposits in other banks, and other investments
permitted by applicable law.
Inter-City's profitability primarily depends upon its net interest income, which
is the difference between interest income on its loan and investment portfolios
and interest paid on deposits and other borrowed funds. Net interest income is
directly affected by the relative amounts of interest-earning assets and
interest-bearing liabilities and the interest rates earned or paid on such
amounts. Inter-City's profitability is also affected by the provision for loan
losses and the level of other income and other expenses. Other income consists
primarily of service charges, other fees on deposits and dividends on Federal
Home Loan Bank stock. Other expenses include salaries and employee benefits,
occupancy of premises, federal deposit insurance premiums, data processing,
advertising, and other operating expenses.
The operating results of Inter-City are also affected by general economic
conditions, the monetary and fiscal policies of federal agencies and the
regulatory policies of agencies that regulate financial institutions.
Inter-City's cost of funds is influenced by interest rates on competing
investments and general market rates of interest. Lending activities are
influenced by the demand for real estate loans and other types of loans, which
is in turn affected by the interest rates at which such loans are made, general
economic conditions affecting loan demand and the availability of funds for
lending activities.
RESULTS OF OPERATIONS, SIX MONTHS ENDED SEPTEMBER 30, 1998, COMPARED TO SIX
MONTHS ENDED SEPTEMBER 30, 1997
Net earnings for the six months ended September 30, 1998, were $177,000, a
decrease of $15,000 from net earnings of $192,000 for the same period in 1997.
The decrease was primarily attributable to an increase in noninterest expense of
approximately $81,000 offset by an increase in net interest income of
approximately $41,000 and a decrease in the provision for income taxes of
$23,000.
Net interest income increased $41,000 for the six-month period ended September
30, 1998, compared to the same six-month period in 1997. The increase was
primarily due to a $129,000 increase in interest earned on loans and securities,
offset by an increase of $88,000 in interest paid on deposits and borrowed
funds.
Noninterest income for the six months ended September 30, 1998, remained stable
when compared to the same period in 1997.
Noninterest expense for the six months ended September 30, 1998, was $589,000,
an increase of $81,000 from the $508,000 reported for the same period in 1997.
The increase was due primarily to an increase in compensation and benefits of
$70,000.
RESULTS OF OPERATIONS, YEAR ENDED MARCH 31, 1998, COMPARED TO YEAR ENDED MARCH
31, 1997
Net earnings were $361,000 for the year ended March 31, 1998, as compared to
$215,000 for the year ended March 31, 1997. The $146,000 increase in net
earnings
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<PAGE> 48
resulted primarily from an increase in net interest income of $164,000, a
decrease in noninterest expense of $70,000 and an increase in the provision for
income taxes of $89,000.
Net interest income is the major component of Inter-City's income and represents
the amount by which interest and fees generated by earning assets exceeds the
total costs of funds used to support the earning assets. Interest income for the
year 1998 was $3,163,000, an increase of approximately $325,000 over the amount
reported for 1997. The increase in interest income was attributable to an
increase in average earning assets, principally loans, in 1998. Interest expense
increased $161,000 from $1,508,000 for 1997 to $1,669,000 in 1998. The increase
was primarily due to an increase in interest-bearing deposits for 1998 as
compared to 1997.
Noninterest income remained stable for the year ended March 31, 1998, compared
to the same period in 1997, with an increase from $190,000 in 1997 to $192,000
in 1998.
Noninterest expense, excluding the Savings Association Insurance Fund special
assessment of $171,000 in 1997, increased $101,000 to $1,085,000 in 1998
compared to $984,000 in 1997. The increase was due primarily to an increase in
compensation and benefits of $65,000 and an increase in other expenses of
$45,000.
Income tax expense totaled $216,000 and $127,000 for the years ended March 31,
1998 and 1997, respectively. These amounts represent effective tax rates of
37.5% and 37.1%, respectively.
FINANCIAL CONDITION, SEPTEMBER 30, 1998, COMPARED TO MARCH 31, 1998
Inter-City's total assets increased by $2.5 million, from $41.1 million at March
31, 1998, to $43.6 million at September 30, 1998. The increase in total assets
resulted primarily from an increase in loans.
Loans receivable increased by $2.3 million to $36.3 million at September 30,
1998, from $34.0 million at March 31, 1998. The loans receivable increase was
composed of increases in real estate loans of $1.6 million and consumer loans of
$706,000. Loans were originated using Inter-City's normal underwriting
standards, rates, and terms.
Securities at September 30, 1998, totaled $2.3 million compared to $2.5 million
at March 31, 1998. During the six months ended September 30, 1998, approximately
$2.2 million of government agency obligations were purchased, and securities
which matured during this period amounted to $2.5 million.
Inter-City's deposit accounts consist of certificates of deposit, savings
accounts, and NOW and money market accounts. Inter-City's deposits of $37.8
million at September 30, 1998, reflected an increase of $2.4 million in deposits
when compared to $35.4 million at March 31, 1998.
Total stockholders' equity at September 30, 1998, was $5.1 million compared to
$4.9 million at March 31, 1998. The increase was attributable to $177,000 in net
earnings for the six months ended September 30, 1998.
FINANCIAL CONDITION, MARCH 31, 1998, COMPARED TO MARCH 31, 1997
At March 31, 1998, Inter-City's total assets amounted to $41.1 million as
compared to $37.8 million at March 31, 1997. The $3.3 million or 8.6% increase
was primarily due to an increase of $2.6 million in loans receivable and a
$473,000 increase in securities.
Loans receivable increased by $2.6 million to $34.0 million at March 31, 1998,
from $31.4 million at March 31, 1997. The increase was composed of an increase
in real estate loans of $394,000 and an increase in consumer loans of $2.2
million.
Securities consist of obligations of U. S. Government agencies and
mortgage-backed securities. Securities increased $473,000 from $2.0 million at
March 31, 1997, to $2.5 million at March 31, 1998.
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<PAGE> 49
Total deposits increased by 9.2% to $35.4 million at March 31, 1998, as compared
to $32.4 million at March 31, 1997. This increase was principally due to an
increase in certificates of deposit of approximately $2.0 million.
Total stockholders' equity as of March 31, 1998, was $4.9 million compared to
$4.7 million at March 31, 1997. The increase was attributable to $361,000 in net
income for the 1998 fiscal year net of $125,000 in dividends declared.
ASSET AND LIABILITY MANAGEMENT
Inter-City's profitability, like that of many financial institutions, depends to
a large extent upon its net interest income, which is the difference between its
interest income on interest-earning assets, such as loans and investments, and
its interest expense on interest-bearing liabilities, such as deposits. When
interest-earning liabilities mature or reprice more quickly than
interest-earning assets in a given period, a significant increase in market
rates of interest could adversely affect net interest income. Similarly, when
interest-earning assets mature or reprice more quickly than interest-bearing
liabilities, falling interest rates could result in a decrease in net interest
income. Finally, a flattening of the "yield curve" (i.e., a decline in the
difference between long- and short-term interest rates), could adversely impact
net interest income to the extent that Inter-City's assets have a longer average
term than its liabilities. At September 30, 1998, the ratio of the Company's
average interest-earning assets to average interest-bearing liabilities amounted
to 112.3%.
As part of its efforts to maximize net interest income and manage the risks
associated with changing interest rates, management of Inter-City uses the
"market value of portfolio equity" ("NPV") methodology which the Office of
Thrift Supervision has adopted as part of its capital regulations. Although
Inter-City would not be subject to the NPV regulation because it does not apply
to institutions with less than $300 million in assets and risk based capital in
excess of 12%, the application of the NPV methodology may illustrate
Inter-City's interest rate risk.
Under this methodology, interest rate risk exposure is assessed by reviewing the
estimated changes in Inter-City's NPV which would hypothetically occur if
interest rates rapidly rise or fall all along the yield curve. Projected values
of NPV at both higher and lower regulatory defined rate scenarios are compared
to base case values (no changes in rates) to determine the sensitivity to
changing interest rates.
Presented below, as of September 30, 1998, is an analysis of Inter-City's
interest rate risk ("IRR") as measured by changes in NPV for instantaneous and
sustained parallel shifts of 100 basis points in market interest rates. The
table also contains the policy that the Board of Directors deems advisable in
the event of various changes in interest rates. Such limits have been
established considering the impact of various rate changes and Inter-City's
currently strong capital position.
46
<PAGE> 50
<TABLE>
<CAPTION>
As of September 30, 1998
Market Value of Portfolio Equity
Change in -------------------------------------
Interest Rates Board Limit $ Change in NPV % Change
(Basis Points) % Change (In Thousands) In NPV
-------------- -------- -------------- ------
<S> <C> <C> <C>
+400 (50)% $ (671) (12)%
+300 (40)% (335) (6)%
+200 (30)% (93) (2)%
+100 (20)% 10 0 %
- - - -
(100) (20)% 45 1 %
(200) (30)% 192 3 %
(300) (40)% 377 7 %
(400) (50)% 581 10 %
</TABLE>
LIQUIDITY AND CAPITAL RESOURCES
Inter-City's liquidity, represented by cash and cash equivalents and eligible
investment securities, is a product of its operating, investing and financing
activities. Its primary sources of funds are deposits, amortization, prepayment
and maturities of outstanding loans, maturities of investment securities and
other short-term investments, and funds provided from operations. While
scheduled loan amortization and maturing investment securities and short-term
investments are relatively predictable sources of funds, deposit flows and loan
prepayments are greatly influenced by general interest rates, economic
conditions and competition. Inter-City manages the pricing of its deposits to
maintain a steady deposit balance. Generally, Inter-City has been able to
generate enough cash through the retail deposit market, its traditional funding
source, to offset the cash utilized in investing activities. As an additional
source of funds, Inter-City has borrowed from the Federal Home Loan Bank of
Dallas. At September 30, 1998, outstanding advances from the Federal Home Loan
Bank of Dallas amounted to $467,000. Such advances were used in normal operating
and investing activities.
All savings institutions are required to maintain an average daily balance of
liquid assets equal to a certain percentage of the sum of its average daily
balance of net withdrawable deposit accounts and borrowings payable in one year
or less. The liquidity requirement may vary from time to time (between 4% and
10%) depending upon economic conditions and savings flows of all savings
institutions. At the present time, the required minimum liquid asset ratio is
4%. At September 30, 1998, Inter-City's liquidity ratio exceeded the minimum.
Liquidity management is both a daily and long-term function of business
management. Excess liquidity is generally invested in short-term investments
such as overnight deposits. On a longer-term basis, Inter-City maintains a
strategy of investment in various lending products. Inter-City uses its sources
of funds primarily to meet its ongoing commitments, to pay maturing savings
certificates and savings withdrawals and to fund loan commitments.
As of September 30, 1998, Inter-City's regulatory capital was well in excess of
all applicable regulatory requirements. At September 30, 1998, Inter-City's
tangible, core, Tier 1 risk-based capital, and total risk-based capital ratios
amounted to 11.70%, 11.70%, 17.59%, and 18.05%, respectively.
IMPACT OF INFLATION AND CHANGING PRICES
The financial statements and related financial data presented herein have been
prepared in accordance with generally accepted accounting principles, which
require the measurement of financial position and operating results in terms of
historical dollars, without considering changes in relative purchasing power
over time due to inflation. Unlike most industrial companies, virtually all of
Inter-City's assets and liabilities are monetary in nature. As a result,
interest rates generally have a more significant impact on a financial
institution's performance than does the effect of inflation.
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<PAGE> 51
THE YEAR 2000 ISSUE
Inter-City is aware of the issues associated with the programming code in
existing computer systems as the year 2000 approaches. The year 2000 issue is
the result of computer programs being written using two digits rather than four
digits to define the applicable year. Computer programs that have time-sensitive
coding may recognize a date using "00" as the year 1900 rather than the year
2000. Systems that do not properly recognize such information could generate
erroneous data or cause a system to fail.
Inter-City has conducted a review of its computer systems to identify the
systems that could be affected by the year 2000 issue and has developed an
implementation plan to resolve the issue. The majority of Inter-City's data
processing is provided by a third party service bureau. The service bureau is
actively involved in resolving year 2000 issues and has provided Inter-City with
frequent updates regarding their progress. The service bureau has advised
Inter-City that the majority of the year 2000 issues were resolved before the
end of 1998 which allows Inter-City to test the system for year 2000 compliance.
Inter-City presently believes that, based on the progress of Inter-City's
service bureau, the year 2000 problem will not pose significant operational
problems for its computer operations.
Inter-City could be adversely affected by year 2000 problems experienced by
others (including its customers, service providers, vendors, customers' vendors,
correspondent banks, government agencies, and the financial services industry in
general) over which it has no control. If, for example, one of Inter-City's
major borrowers were unable to conduct its operations as a result of a year 2000
problem, that borrower could be unable to maintain its cash flow and might
default on its loan, which would lead to loan losses for Inter-City.
Consequently, if Inter-City or any of its service providers, correspondents,
vendors or customers experiences a disruption of business resulting from a year
2000 problem, the financial condition, results of operations and liquidity of
Inter-City could be materially adversely affected.
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<PAGE> 52
TABLE I
INTER-CITY FEDERAL BANK FOR SAVINGS
NONPERFORMING ASSETS
<TABLE>
<CAPTION>
(Dollars In Thousands)
March 31,
September 30, ----------------------
1998 1998 1997
------------- ---------- ------
<S> <C> <C> <C>
Nonaccrual loans $ -- $ 13 $ 4
Loans contractually past due ninety days or more
as to interest or principal payments and still
accruing 240 349 143
Restructured loans -- -- --
Loans now current about which there are serious
doubts as to the ability of the borrower to comply
with present loan repayment terms -- -- --
</TABLE>
SUMMARY OF LOAN LOSS EXPERIENCE
<TABLE>
<CAPTION>
(Dollars In Thousands)
Six Months
Ended Years Ended March 31,
September 30, ---------------------------------
1998 1998 1997
------- -------- --------
<S> <C> <C> <C>
Average amount of loans outstanding $35,124 $ 32,706 $ 30,177
======= ======== ========
Balance of reserve for loan
losses at beginning of period $ 122 $ 105 $ 93
Loans charged off:
Real estate -- -- --
Other -- (9) (15)
------- -------- --------
Total charge-offs -- (9) (15)
------- -------- --------
Recoveries:
Real estate -- -- --
Other -- 2 3
------- -------- --------
Total recoveries -- 2 3
------- -------- --------
Net charge-offs -- (7) (12)
------- -------- --------
Provision for loan losses charged to operations 12 24 24
------- -------- --------
Balance of reserve for loan losses at end of period $ 134 $ 122 $ 105
======= ======== ========
Ratio of net loans charged-off to average loans
outstanding -- .02% .04%
Reserve for loan losses to loans at end of period .37% .36% .33%
</TABLE>
49
<PAGE> 53
EXPERTS
Ernst & Young LLP, independent auditors, have audited the consolidated financial
statements of The Peoples Holding Company incorporated by reference in the
Annual Report on Form 10-K for the year ended December 31, 1997, as set forth
in their report, which is incorporated by reference in this proxy
statement/prospectus. These financial statements are incorporated by reference
in reliance on Ernst & Young LLP's report, given on their authority as experts
in accounting and auditing.
The financial statements of Inter-City as of March 31, 1998 and 1997, and for
each of the three years in the period ended March 31, 1998 included in this
proxy statement/prospectus, have been audited by T.E. Lott & Company,
independent auditors, as stated in their report appearing in this proxy
statement/prospectus, and have been so included in reliance upon the report of
such firm given their authority as experts in accounting and auditing.
LEGAL MATTERS
Gerrish & McCreary, P.C., counsel to Peoples Holding, has passed upon the
validity of the issuance of shares of Peoples Holding common stock to be issued
in connection with the merger and the federal income tax treatment of the
merger. Powell, Goldstein, Frazer & Murphy LLP, Atlanta, Georgia, counsel to
Inter-City, will also pass on matters relating to the merger.
WHERE YOU CAN FIND MORE INFORMATION
This proxy statement/prospectus incorporates important business and financial
information about Peoples Holding that is not included in or delivered with this
document. You can obtain free copies of this information by writing or calling:
The Peoples Holding Company
Mr. John W. Smith
209 Troy Street
Tupelo, MS 38801
Telephone (601) 680-1001
IN ORDER TO OBTAIN TIMELY DELIVERY OF THE DOCUMENTS, YOU MUST REQUEST THE
INFORMATION BY ___________, 1999.
This proxy statement/prospectus has been prepared as of February __, 1999. There
may be changes in the affairs of Peoples, Peoples Bank or Inter-City since that
date which are not reflected in this document.
AVAILABLE INFORMATION
Peoples Holding is subject to the reporting requirements of the Securities
Exchange Act of 1934, as currently in effect (the "Exchange Act") and, under the
Exchange Act, Peoples files reports, proxy statements and other information with
the Securities and Exchange Commission. Copies of these reports, proxy
statements and other information can be obtained, at prescribed rates, at the
Public Reference Section of the Commission at 450 Fifth Street, NW, Room 1024,
Washington, DC 20549. You can obtain information on the operation of the Public
Reference Room by calling the Commission at 1-800-SEC-0330. Such reports, proxy
statements and other information can be inspected and copied at the public
reference facilities maintained by the Commission in Washington, D.C. and at the
Commission's Regional Offices located at 7 World Trade Center, Suite 1300, New
York, NY 10048 and Citicorp Center, 500 West Madison Street, Suite 1400,
Chicago, IL 60661. The Commission also maintains a site on the World Wide Web
regarding issuers like Peoples that file electronically with the Commission. The
Web site contains reports, proxy and information statements and other
information, and the address of that Web site is http://www.sec.gov.
50
<PAGE> 54
Peoples Holding has filed a Registration Statement on Form S-4 under the
Securities Act relating to the Peoples common stock being offered by this proxy
statement/prospectus. This proxy statement/prospectus does not contain all the
information included in the registration statement, certain portions of which
have been omitted under the rules and regulations of the Commission. For further
information regarding Peoples Holding and the common stock being offered,
reference is made to the registration statement, including all amendments and
the schedules and exhibits filed as part of it. The registration statement and
the schedules and the exhibits filed as part of it may be inspected and copied,
at prescribed rates, at the addresses of the Commission set forth above.
Statements contained in this proxy statement/prospectus concerning provisions of
documents are summaries of the documents, and each statement is qualified in its
entirety by reference to the copy of the applicable document filed as an exhibit
to the registration statement with the Commission. Peoples Holding common stock
is traded on the American Stock Exchange. Reports, proxy statements and other
information concerning Peoples may be inspected at the offices of the American
Stock Exchange, 86 Trinity Place, New York, New York 10006-1881.
All information contained in or incorporated by reference in this proxy
statement/prospectus relating to Peoples Holding was supplied by Peoples
Holding. All information relating to Inter-City was supplied by Inter-City.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The documents listed below and previously filed with the Commission by Peoples
Holding are incorporated by reference in this proxy statement/prospectus:
1. Peoples Holding's Annual Report on Form 10-K for the year ended
December 31, 1997 (File No. 0-13253);
2. Peoples Holding's Quarterly Reports on Form 10-Q for the quarters ended
March 31, 1998, June 30, 1998 and September 30, 1998 (File No.
0-13253);
3. Peoples Holding's Current Reports on Form 8-K, dated July 31, 1998
(File No. 001-13255);
4. The description of Peoples Holding's directors and executive officers,
executive compensation and certain relationships and related
transactions contained in Peoples Holding's definitive Proxy Statement,
dated March 23, 1998, relating to its 1998 Annual Meeting of
Shareholders held on April 14, 1998 (File No. 0-13253).
All documents subsequently filed by Peoples Holding with the Commission pursuant
to Sections 13(a), 13(c), 14 or 15(d) of the Exchange Act after the date of this
proxy statement/prospectus and before the date of the Inter-City special meeting
shall be deemed to be incorporated by reference in this proxy
statement/prospectus and to be a part of this proxy statement/prospectus from
the date of filing of such documents. No statement made in this proxy
statement/prospectus will be deemed to modify or supersede any statement
contained in a document incorporated or deemed to be incorporated by reference.
Any statement so modified or superseded will not be deemed, except as so
modified or superseded, to constitute a part of this proxy statement/prospectus.
CAUTIONARY STATEMENT CONCERNING FORWARD-LOOKING INFORMATION FOR PEOPLES
This proxy statement/prospectus may contain or incorporate by reference
statements which may constitute "forward-looking statements' within the meaning
of Section 27A of the Securities Act and Section 21 of the Exchange Act.
Prospective investors are cautioned that any such forward-looking statements are
not guarantees for future performance and involve risks and uncertainties, and
that actual results may differ materially from those contemplated by such
forward-looking statements. Important factors currently known to managements of
Peoples Holding and Inter-City that could cause actual results to differ
materially from those in forward-looking statements include significant
fluctuations in interest rates, inflation, economic recession, significant
changes in the federal and state legal and regulatory environment, significant
underperformance in Peoples Holding's or Inter-City's portfolio of outstanding
loans, and competition in Peoples Holding's or Inter-City's markets. Peoples
Holding undertakes no obligation to update or revise forward-looking statements
to reflect changed assumptions, the occurrence of unanticipated events or
changes to future operating results over time.
51
<PAGE> 55
INDEX TO FINANCIAL STATEMENTS
Inter-City Federal Bank for Savings
<TABLE>
<S> <C>
Unaudited Balance Sheet as of September 30, 1998.............................................................F-2
Unaudited Statements of Earnings for the six months ended September 30, 1998 and 1997........................F-3
Unaudited Statement of Stockholders' Equity for the six months ended September 30, 1998......................F-4
Unaudited Statements of Cash Flows for the six months ended September 30, 1998 and 1997......................F-5
Notes to Unaudited Financial Statements......................................................................F-7
Report of Independent Certified Public Accountants...........................................................F-8
Balance Sheets as of March 31, 1998 and 1997.................................................................F-9
Statements of Earnings for the years ended March 31, 1998, 1997, and 1996...................................F-10
Statements of Stockholders' Equity for the years ended March 31, 1998, 1997, and 1996.......................F-12
Statements of Cash Flows for the years ended March 31, 1998, 1997, and 1996.................................F-13
Notes to the Financial Statements...........................................................................F-15
</TABLE>
F-1
<PAGE> 56
INTER-CITY FEDERAL BANK FOR SAVINGS
UNAUDITED BALANCE SHEET
SEPTEMBER 30, 1998
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
ASSETS
<S> <C>
Cash $ 496
Interest-bearing deposits 3,414
---------
Total cash and cash equivalents 3,910
Securities 2,274
Federal Home Loan Bank stock 266
Loans receivable 36,256
Accrued interest receivable 339
Premises and equipment 463
Other assets 124
---------
$ 43,632
=========
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities:
Deposits $ 37,811
Accrued interest payable on deposits 63
Borrowed funds 467
Accrued expenses and other liabilities 184
---------
Total liabilities 38,525
Stockholders' Equity:
Common stock - par value $.01 per share, 2,000,000 shares
authorized; 124,966 issued and outstanding 1
Additional paid-in capital 1,142
Retained earnings - substantially restricted 3,964
---------
Total stockholders' equity 5,107
---------
$ 43,632
=========
</TABLE>
The accompanying notes are an integral part of this statement.
F-2
<PAGE> 57
INTER-CITY FEDERAL BANK FOR SAVINGS
UNAUDITED STATEMENTS OF EARNINGS
SIX MONTHS ENDED SEPTEMBER 30, 1998 AND 1997
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
1998 1997
------ ------
<S> <C> <C>
INTEREST INCOME
Interest and fees on loans $1,529 $1,426
Interest on mortgage-backed and related securities 3 3
Interest on investment securities 135 105
FHLB stock dividends 4 8
------ ------
1,671 1,542
INTEREST EXPENSE
Interest on deposits 883 793
Interest on borrowed funds 14 16
------ ------
897 809
------ ------
Net interest income 774 733
Provision for loan losses 12 12
------ ------
Net interest income after provision for loan losses 762 721
NONINTEREST INCOME
Loan origination and commitment fees 32 29
Checking account charges 61 63
Other 7 6
------ ------
100 98
NONINTEREST EXPENSE
Compensation and benefits 312 242
Occupancy expense 24 19
Furniture and equipment expense 27 24
Deposit insurance premiums 18 16
Data processing 53 44
Other 155 163
------ ------
589 508
------ ------
Earnings before income taxes 273 311
Provision for income taxes 96 119
------ ------
Net Earnings $ 177 $ 192
====== ======
Net earnings per share:
Basic $ 1.42 $ 1.54
Diluted 1.42 1.54
</TABLE>
The accompanying notes are an integral part of these statements.
F-3
<PAGE> 58
INTER-CITY FEDERAL BANK FOR SAVINGS
UNAUDITED STATEMENT OF STOCKHOLDERS' EQUITY
SIX MONTHS ENDED SEPTEMBER 30, 1998
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
Additional
Common Paid-in Retained
Total Stock Capital Earnings
--------- -------- ---------- ---------
<S> <C> <C> <C> <C>
Balance at April 1, 1998 $ 4,930 $ 1 $ 1,142 $ 3,787
Net earnings for the six months
ended September 30, 1998 177 -- -- 177
--------- -------- --------- ---------
Balance at September 30, 1998 $ 5,107 $ 1 $ 1,142 $ 3,964
========= ======== ========= =========
</TABLE>
The accompanying notes are an integral part of this statement.
F-4
<PAGE> 59
INTER-CITY FEDERAL BANK FOR SAVINGS
UNAUDITED STATEMENTS OF CASH FLOWS
SIX MONTHS ENDED SEPTEMBER 30, 1998 AND 1997
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
1998 1997
------- -------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net earnings $ 177 $ 192
Adjustments to reconcile net earnings to net cash:
Depreciation 32 29
Amortization and accretion, net (56) (15)
Provision for loan losses 12 12
FHLB stock dividends (4) (8)
Increase in accrued interest receivable (23) (31)
Increase in other assets (80) (70)
Increase (decrease) in accrued interest payable on deposits 7 (7)
Increase in accrued expenses and other liabilities 35 110
------- -------
Net cash provided by operating activities 100 212
CASH FLOWS FROM INVESTING ACTIVITIES
Purchases of held-to-maturity securities (2,202) --
Proceeds from maturities and calls of held-to-maturity securities 2,490 --
Net increase in loans receivable (2,276) (1,710)
Additions of premises and equipment (9) (21)
------- -------
Net cash used in investing activities (1,997) (1,731)
CASH FLOWS FROM FINANCING ACTIVITIES
Increase in deposits 2,444 759
Net decrease in FHLB borrowings (30) (28)
Payment of dividends on common stock (125) (94)
------- -------
Net cash provided by financing activities 2,289 637
------- -------
Net increase (decrease) in cash and cash equivalents 392 (882)
</TABLE>
(Continued)
The accompanying notes are an integral part of these statements.
F-5
<PAGE> 60
INTER-CITY FEDERAL BANK FOR SAVINGS
UNAUDITED STATEMENTS OF CASH FLOWS
SIX MONTHS ENDED SEPTEMBER 30, 1998 AND 1997
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
1998 1997
------ ------
<S> <C> <C>
Net increase in cash and cash equivalents
(brought forward) $ 392 $ (882)
Cash and cash equivalents at beginning of period 3,518 3,427
------ ------
Cash and cash equivalents at end of period $3,910 $2,545
====== ======
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid during the year for:
Interest on customer deposits $ 876 $ 500
Interest on FHLB advances 14 16
Income taxes 218 57
</TABLE>
The accompanying notes are an integral part of these statements.
F-6
<PAGE> 61
INTER-CITY FEDERAL BANK FOR SAVINGS
NOTES TO UNAUDITED FINANCIAL STATEMENTS
NOTE A - BASIS OF PRESENTATION
The accompanying unaudited financial statements reflect all adjustments
which are, in the opinion of management, necessary to a fair statement of
the results for the interim periods presented. The statements should be read
in conjunction with the summary of accounting policies and notes to
financial statements included in the Bank's financial statements for the
year ended March 31, 1998. Certain information and footnote disclosures
normally included in financial statements prepared in accordance with
generally accepted accounting principles have been omitted in accordance
with the rules of the Securities and Exchange Commission.
NOTE B - ACCOUNTING POLICIES
The Bank adopted Financial Accounting Standards Board Statement No. 130,
"Reporting Comprehensive Income" as of April 1, 1998. Comprehensive income
is defined as the change in equity from transactions or other events and
circumstances from non-owner sources and includes net earnings. For the
six-month period ended September 30, 1998, the Bank had no transactions or
events other than its net earnings which resulted in comprehensive income.
Reference is also made to the accounting policies of the Bank described in
the notes to the financial statements for the year ended March 31, 1998. The
Bank has consistently followed those policies in preparing this report.
NOTE C - PROPOSED MERGER
On December 14, 1998, the Bank executed an Agreement and Plan of Merger with
the Peoples Holding Company and its subsidiary bank, The Peoples Bank &
Trust Company. Consummation of the merger is dependent upon the approval of
the shareholders and various regulatory agencies.
F-7
<PAGE> 62
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
Board of Directors
Inter-City Federal Bank for Savings
Louisville, Mississippi
We have audited the accompanying balance sheets of Inter-City Federal Bank for
Savings as of March 31, 1998 and 1997, and the related statements of earnings,
stockholders' equity and cash flows for each of the three years in the period
ended March 31, 1998. These financial statements are the responsibility of the
Bank's management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Inter-City Federal Bank for
Savings as of March 31, 1998 and 1997, and the results of its operations and its
cash flows for each of the three years in the period ended March 31, 1998, in
conformity with generally accepted accounting principles.
/s/ T. E. Lott & Company
Columbus, Mississippi
May 6, 1998 (Except for Note N as to which
the date is December 14, 1998)
F-8
<PAGE> 63
INTER-CITY FEDERAL BANK FOR SAVINGS
BALANCE SHEETS
MARCH 31, 1998 AND 1997
<TABLE>
<CAPTION>
ASSETS 1998 1997
----------- -----------
<S> <C> <C>
Cash $ 327,702 $ 312,708
Interest-bearing deposits 3,190,089 3,114,474
----------- -----------
Total cash and cash equivalents 3,517,791 3,427,182
Securities (Notes A-4 and B) 2,506,145 2,033,342
Federal Home Loan Bank stock (Note E) 262,500 247,400
Loans receivable (Notes A-5 and C) 33,991,874 31,421,169
Accrued interest receivable 315,603 245,973
Premises and equipment (Notes A-6 and D) 486,448 439,750
Other assets 43,644 45,033
----------- -----------
$41,124,005 $37,859,849
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities:
Deposits (Note F) $35,366,895 $32,389,563
Accrued interest payable on deposits 56,253 71,550
Borrowed funds (Note G) 496,981 546,089
Dividends payable 124,966 93,724
Accrued expenses and other liabilities 148,831 64,409
----------- -----------
Total liabilities 36,193,926 33,165,335
Stockholders' Equity:
Common stock - par value $.01 per share, 2,000,000 shares
authorized; 124,966 issued and outstanding 1,250 1,250
Additional paid-in capital 1,142,100 1,142,100
Retained earnings - substantially restricted 3,786,729 3,551,164
----------- -----------
Total stockholders' equity 4,930,079 4,694,514
----------- -----------
$41,124,005 $37,859,849
=========== ===========
</TABLE>
The accompanying notes are an integral part of these statements.
F-9
<PAGE> 64
INTER-CITY FEDERAL BANK FOR SAVINGS
STATEMENTS OF EARNINGS
YEARS ENDED MARCH 31, 1998, 1997 AND 1996
<TABLE>
<CAPTION>
1998 1997 1996
---------- ---------- ----------
<S> <C> <C> <C>
INTEREST INCOME
Interest and fees on loans $2,910,792 $2,619,849 $2,492,726
Interest on mortgage-backed and related securities 6,075 30,344 25,926
Interest on investment securities 231,354 173,746 87,905
FHLB stock dividends 15,199 13,949 14,406
---------- ---------- ----------
3,163,420 2,837,888 2,620,963
INTEREST EXPENSE
Interest on deposits 1,638,852 1,475,699 1,358,964
Interest on borrowed funds 30,365 31,915 11,441
---------- ---------- ----------
1,669,217 1,507,614 1,370,405
---------- ---------- ----------
Net interest income 1,494,203 1,330,274 1,250,558
Provision for loan losses 24,000 24,000 23,000
---------- ---------- ----------
Net interest income after provision for loan losses 1,470,203 1,306,274 1,227,558
NONINTEREST INCOME
Loan origination and commitment fees 55,788 47,462 54,202
Checking account charges 125,376 122,769 80,318
Other 10,540 19,957 8,741
---------- ---------- ----------
191,704 190,188 143,261
NONINTEREST EXPENSE
Compensation and benefits 550,575 486,025 457,153
Occupancy expense 40,886 35,456 38,086
Furniture and equipment expense 55,630 49,057 41,164
Deposit insurance premiums (Note J) 32,678 230,568 71,642
Data processing 93,455 87,287 61,677
Other 312,046 266,756 242,861
---------- ---------- ----------
1,085,270 1,155,149 912,403
---------- ---------- ----------
Net earnings before income taxes 576,637 341,313 458,416
</TABLE>
(Continued)
The accompanying notes are an integral part of these statements.
F-10
<PAGE> 65
INTER-CITY FEDERAL BANK FOR SAVINGS
STATEMENTS OF EARNINGS
YEARS ENDED MARCH 31, 1998, 1997 AND 1996
<TABLE>
<CAPTION>
1998 1997 1996
-------- -------- --------
<S> <C> <C> <C>
Net earnings before income taxes
(brought forward) $576,637 $341,313 $458,416
Provision for income taxes (Note H):
Current 222,081 124,381 161,600
Deferred (5,975) 2,100 6,820
-------- -------- --------
216,106 126,481 168,420
-------- -------- --------
Net Earnings $360,531 $214,832 $289,996
======== ======== ========
Net earnings per share:
Basic $ 2.89 $ 1.81 $ 2.52
Diluted 2.89 1.81 2.46
</TABLE>
The accompanying notes are an integral part of these statements.
F-11
<PAGE> 66
INTER-CITY FEDERAL BANK FOR SAVINGS
STATEMENTS OF STOCKHOLDERS' EQUITY
YEARS ENDED MARCH 31, 1998, 1997 AND 1996
<TABLE>
<CAPTION>
Additional
Common Paid-in Retained
Total Stock Capital Earnings
---------- ------ ---------- ----------
<S> <C> <C> <C> <C>
Balance at April 1, 1995 $4,457,630 $1,134 $1,009,023 $3,447,473
Issuance of 1,500 shares of
common stock 15,000 15 14,985 --
Net earnings for the year
ended March 31, 1996 289,996 -- -- 289,996
Cash dividend - $.50 per share (57,480) -- -- (57,480)
---------- ------ ---------- ----------
Balance at March 31, 1996 4,705,146 1,149 1,024,008 3,679,989
Issuance of 10,007 shares of
common stock 118,193 101 118,092 --
Net earnings for the year
ended March 31, 1997 214,832 -- -- 214,832
Cash dividend - $2.75 per share (343,657) -- -- (343,657)
---------- ------ ---------- ----------
Balance at March 31, 1997 4,694,514 1,250 1,142,100 3,551,164
Net earnings for the year
ended March 31, 1998 360,531 -- -- 360,531
Cash dividend - $1.00 per share (124,966) -- -- (124,966)
---------- ------ ---------- ----------
Balance at March 31, 1998 $4,930,079 $1,250 $1,142,100 $3,786,729
========== ====== ========== ==========
</TABLE>
The accompanying notes are an integral part of these statements.
F-12
<PAGE> 67
INTER-CITY FEDERAL BANK FOR SAVINGS
STATEMENTS OF CASH FLOWS
YEARS ENDED MARCH 31, 1998, 1997 AND 1996
<TABLE>
<CAPTION>
1998 1997 1996
----------- ----------- -----------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net earnings $ 360,531 $ 214,832 $ 289,996
Adjustments to reconcile net earnings to net cash:
Deferred income tax expense (benefit) (5,975) 2,100 6,820
Depreciation 61,055 54,861 47,993
Amortization and accretion, net (94,493) (43,706) (606)
Provision for loan losses 24,000 24,000 23,000
FHLB stock dividends (15,100) (13,800) (14,200)
Increase in accrued interest receivable (69,630) (18,319) (40,178)
(Increase) decrease in other assets 1,389 (44,282) 82,251
Increase (decrease) in accrued interest payable
on deposits (15,297) 10,474 7,952
Increase (decrease) in accrued expenses and
other liabilities 90,398 (22,924) 68,237
----------- ----------- -----------
Net cash provided by operating activities 336,878 163,236 471,265
CASH FLOWS FROM INVESTING ACTIVITIES
Purchases of held-to-maturity securities (4,397,680) (3,668,942) --
Proceeds from maturities and calls of
held-to-maturity securities 4,019,370 2,269,437 12,707
Net increase in loans receivable (2,594,705) (2,512,141) (856,507)
Additions of premises and equipment (107,753) (40,205) (30,062)
----------- ----------- -----------
Net cash used in investing activities (3,080,768) (3,951,851) (873,862)
CASH FLOWS FROM FINANCING ACTIVITIES
Issuance of common stock -- 118,193 15,000
Increase in deposits 2,977,332 4,573,022 1,432,992
Net increase (decrease) in FHLB borrowings (49,108) (46,424) 492,513
Payment of dividends on common stock (93,725) (307,412) (51,057)
----------- ----------- -----------
Net cash provided by financing activities 2,834,499 4,337,379 1,889,448
----------- ----------- -----------
Net increase in cash and cash equivalents 90,609 548,764 1,486,851
</TABLE>
(Continued)
The accompanying notes are an integral part of these statements.
F-13
<PAGE> 68
INTER-CITY FEDERAL BANK FOR SAVINGS
STATEMENTS OF CASH FLOWS
YEARS ENDED MARCH 31, 1998, 1997 AND 1996
<TABLE>
<CAPTION>
1998 1997 1996
---------- ---------- ----------
<S> <C> <C> <C>
Net increase in cash and cash equivalents
(brought forward) $ 90,609 $ 548,764 $1,486,851
Cash and cash equivalents at beginning of year 3,427,182 2,878,418 1,391,567
---------- ---------- ----------
Cash and cash equivalents at end of year $3,517,791 $3,427,182 $2,878,418
========== ========== ==========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid during the year for:
Interest on customer deposits $1,654,149 $1,465,225 $1,351,012
Interest on FHLB advances 30,601 32,128 11,441
Income taxes 123,418 187,981 80,000
Noncash financing activities and investing activities:
Dividends declared on common stock $ 124,966 $ 93,724 $ 57,480
</TABLE>
The accompanying notes are an integral part of these statements.
F-14
<PAGE> 69
INTER-CITY FEDERAL BANK FOR SAVINGS
NOTES TO THE FINANCIAL STATEMENTS
MARCH 31, 1998 AND 1997
NOTE A - SUMMARY OF ACCOUNTING POLICIES
A summary of the significant accounting policies consistently applied in the
preparation of the accompanying financial statements follows.
1. NATURE OF OPERATIONS
Inter-City Federal Bank for Savings provides banking services. It is subject
to regulations of the Office of Thrift Supervision ("OTS"). Inter-City
Federal Bank serves the Winston and Neshoba Counties, Mississippi areas.
2. 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.
3. STATEMENTS OF CASH FLOWS
For purposes of the statements of cash flows, all highly liquid debt
instruments with a maturity of three months or less are considered to be
cash equivalents.
4. SECURITIES
Investments in securities are classified into three categories and are
accounted for as follows:
Available-for-Sale Securities
Securities classified as available-for-sale are those securities that are
intended to be held for an indefinite period of time, but not necessarily to
maturity. Any decision to sell a security classified as available-for-sale
would be based on various factors, including movements in interest rates,
liquidity needs, security risk assessments, changes in the mix of assets and
liabilities and other similar factors. These securities are carried at their
estimated fair value, and the net unrealized gain or loss is reported in
stockholders' equity, net of tax, until realized.
Gains and losses on the sale of available-for-sale securities are determined
using the adjusted cost of the specific security sold.
Premiums and discounts are recognized in interest income using the interest
method.
(Continued)
F-15
<PAGE> 70
INTER-CITY FEDERAL BANK FOR SAVINGS
NOTES TO THE FINANCIAL STATEMENTS
MARCH 31, 1998 AND 1997
NOTE A - SUMMARY OF ACCOUNTING POLICIES (Continued)
4. SECURITIES (Continued)
Securities to be Held-to-Maturity
Securities classified as held-to-maturity are those securities for which
there is a positive intent and ability to hold to maturity. These securities
are carried at cost adjusted for amortization of premiums and accretion of
discounts, computed by the interest method.
Trading Account Securities
Trading account securities are those securities which are held for the
purpose of selling them at a profit. There were no trading account
securities on hand at March 31, 1998 and 1997.
5. LOANS RECEIVABLE
Loans receivable are stated at unpaid principal balances, less the allowance
for loan losses.
The allowance for loan losses is increased by charges to income and
decreased by charge-offs (net of recoveries). Loans are charged against the
allowance for loan losses when management believes that the collectibility
of the principal is unlikely. Management's periodic evaluation of the
adequacy of the allowance is based on the Bank's past loan loss experience,
known and inherent risks in the portfolio, adverse situations that may
affect the borrower's ability to repay, the estimated value of any
underlying collateral, and current economic conditions.
The Bank's policy is to provide an allowance for uncollected interest on
loans delinquent for 90 days or more.
Direct loan costs and any related loan origination fees are recognized
currently as period costs and income, respectively, and do not vary
materially from the results that would be recorded using the deferral method
prescribed by SFAS No. 91, "Accounting for Nonrefundable Fees and Costs
Associated with Originating or Acquiring Loans and Initial Direct Costs of
Leases."
(Continued)
F-16
<PAGE> 71
INTER-CITY FEDERAL BANK FOR SAVINGS
NOTES TO THE FINANCIAL STATEMENTS
MARCH 31, 1998 AND 1997
NOTE A - SUMMARY OF ACCOUNTING POLICIES (Continued)
6. PREMISES AND EQUIPMENT
Premises and equipment are stated at cost less accumulated depreciation.
Depreciation is computed on the straight-line basis over the estimated
useful life of each type of asset. Expenditures for maintenance and repairs
which do not materially prolong the useful life of the assets are charged to
operating expenses as incurred. Renewals and improvements are capitalized.
Gains and losses on sale of assets are reflected in current operations.
7. OTHER REAL ESTATE
Real estate acquired by foreclosure is recorded at the lower of cost or
estimated fair value, less estimated cost to sell. Costs relating to holding
the property are charged to expense. Subsequent gains or losses on
foreclosed real estate are reported in other operating income or expense.
8. INCOME TAXES
Deferred income taxes are provided to reflect the future tax consequences of
differences between the tax bases of assets and liabilities and their
reported amounts in the balance sheet. Deferred tax assets and liabilities
are included in the financial statements at currently enacted income tax
rates. The effect on deferred tax assets and liabilities of a change in tax
rates is recognized in earnings in the period that includes the enactment
date.
9. EARNINGS PER SHARE
Basic earnings per share is computed by dividing net earnings by the
weighted average number of common shares outstanding during the periods.
Diluted earnings per share is computed by dividing net earnings by the
weighted average number of common shares outstanding during the periods plus
the common share equivalents related to outstanding stock options. Weighted
average common shares outstanding and diluted shares deemed outstanding were
as follows:
<TABLE>
<CAPTION>
Years Ended March 31,
---------------------------------
1998 1997 1996
------- ------- -------
<S> <C> <C> <C>
Weighted average common shares outstanding 124,966 118,845 115,152
Common share equivalents related to outstanding
stock options -- -- 3,055
------- ------- -------
Adjusted weighted average common shares
deemed to be outstanding 124,966 118,845 118,207
======= ======= =======
</TABLE>
(Continued)
F-17
<PAGE> 72
INTER-CITY FEDERAL BANK FOR SAVINGS
NOTES TO THE FINANCIAL STATEMENTS
MARCH 31, 1998 AND 1997
NOTE A - SUMMARY OF ACCOUNTING POLICIES (Continued)
10. ACCOUNTING PRONOUNCEMENTS
In June, 1997, the Financial Accounting Standards Board (FASB) issued
Statement of Financial Accounting Standards No. 130, Reporting Comprehensive
Income (SFAS No. 130). SFAS No. 130 requires that all items that are
components of comprehensive income (defined as "the change in equity (net
assets) 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"), be reported in a financial statement that is
displayed with the same prominence as other financial statements. Companies
will be required to (a) classify items of other comprehensive income by its
nature in a financial statement and (b) 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.
SFAS No. 130 is effective for fiscal years beginning after December 31,
1997, and requires reclassification of prior periods presented. SFAS No.
130's requirements are disclosure-related and its implementation will have
no impact on the Bank's financial condition or results of operations.
NOTE B - SECURITIES
Securities at March 31, 1998 and 1997, consisted of securities to be
held-to-maturity with a carrying amount of $2,506,145 and $2,033,342,
respectively. The amortized cost, gross unrealized gains, gross unrealized
losses and estimated fair value of these securities at March 31, 1998 and
1997, are as follows:
<TABLE>
<CAPTION>
March 31, 1998
--------------------------------------------------------
Gross Gross Estimated
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
--------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Held-to-maturity securities:
Obligations of other U.S.
Government agencies $2,442,886 $ 4,296 $ 403 $2,446,779
Mortgage-backed securities 63,259 3,789 -- 67,048
---------- ---------- ---------- ----------
$2,506,145 $ 8,085 $ 403 $2,513,827
========== ========== ========== ==========
</TABLE>
( Continued )
F-18
<PAGE> 73
INTER-CITY FEDERAL BANK FOR SAVINGS
NOTES TO THE FINANCIAL STATEMENTS
MARCH 31, 1998 AND 1997
NOTE B - SECURITIES (Continued)
<TABLE>
<CAPTION>
March 31, 1997
-----------------------------------------------------
Gross Gross Estimated
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
--------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Held-to-maturity securities:
Obligations of other U. S
Government agencies $1,958,038 $ -- $ 9,200 $1,948,838
Mortgage-backed securities 75,304 2,113 -- 77,417
---------- ---------- ---------- ----------
$2,033,342 $ 2,113 $ 9,200 $2,026,255
========== ========== ========== ==========
</TABLE>
The scheduled maturities of securities at March 31, 1998 and 1997, are as
follows:
<TABLE>
<CAPTION>
March 31, 1998 March 31, 1997
------------------------- ------------------------
Estimated Estimated
Amortized Fair Amortized Fair
Cost Value Cost Value
--------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Held-to-maturity securities:
Due in one year or less $2,442,886 $2,446,779 $1,958,038 $1,948,838
Mortgage-backed securities 63,259 67,048 75,304 77,417
---------- ---------- ---------- ----------
$2,506,145 $2,513,827 $2,033,342 $2,026,255
========== ========== ========== ==========
</TABLE>
There were no gains and losses on the sale of securities during the years ended
March 31, 1998 and 1997.
Securities with a carrying value of $2,442,886 and $1,958,038 are pledged to
secure public deposits as required by law at March 31, 1998 and 1997,
respectively.
F-19
<PAGE> 74
INTER-CITY FEDERAL BANK FOR SAVINGS
NOTES TO THE FINANCIAL STATEMENTS
MARCH 31, 1998 AND 1997
NOTE C - LOANS RECEIVABLE
<TABLE>
<CAPTION>
Loans receivable consist of the following: (In Thousands)
March 31,
-------------------
1998 1997
------- -------
<S> <C> <C>
Loans collateralized by real estate:
One-four family residential $18,320 $18,186
Other residential 208 48
Commercial 5,141 5,191
Construction and land 400 250
Other loans:
Deposit account 653 364
Automobile 3,642 3,249
Home equity and second mortgage 1,972 1,086
Commercial 1,150 927
Other 2,628 2,225
------- -------
34,114 31,526
Less allowance for loan losses 122 105
------- -------
$33,992 $31,421
======= =======
</TABLE>
Activity in the allowance for loan losses is as follows:
<TABLE>
<CAPTION>
Years Ended March 31,
----------------------------------------
1998 1997 1996
--------- --------- --------
<S> <C> <C> <C>
Balance, beginning of period $ 105,400 $ 93,416 $ 84,053
Additions:
Provision for loan losses 24,000 24,000 23,000
Recoveries 1,998 2,790 1,077
--------- --------- --------
25,998 26,790 24,077
Deductions:
Charge-offs (9,474) (14,806) (14,714)
--------- --------- --------
Balance, end of period $ 121,924 $ 105,400 $ 93,416
========= ========= ========
</TABLE>
F-20
<PAGE> 75
INTER-CITY FEDERAL BANK FOR SAVINGS
NOTES TO THE FINANCIAL STATEMENTS
MARCH 31, 1998 AND 1997
NOTE D - PREMISES AND EQUIPMENT
<TABLE>
<CAPTION>
Premises and equipment consist of the following: March 31,
----------------------------
1998 1997
----------- ------------
<S> <C> <C>
Land $ 14,000 $ 14,000
Office building 315,572 250,572
Leasehold improvements 139,778 139,778
Furniture and equipment 464,145 426,354
----------- ------------
933,495 830,704
Less accumulated depreciation 447,047 390,954
----------- ------------
$ 486,448 $ 439,750
=========== ============
</TABLE>
Depreciation expense totaled $61,055, $54,861, and $47,993 for the years
ended March 31, 1998, 1997, and 1996, respectively.
NOTE E - FEDERAL HOME LOAN BANK STOCK
The Bank is a member of the Federal Home Loan Bank system. As a member, it is
required to maintain an investment in capital stock of the Federal Home Loan
Bank. No ready market exists for such stock, and it has no quoted market
value; therefore, the stock is assumed to have a market value which is equal
to cost.
NOTE F - DEPOSITS
Deposits are summarized as follows:
<TABLE>
<CAPTION>
March 31, 1998 March 31, 1997
--------------------------- ---------------------------
Average Average
Interest Interest
Amount Rate Amount Rate
----------- ------- ----------- --------
<S> <C> <C> <C> <C>
NOW accounts $ 6,444,490 2.90% $ 5,705,091 2.52%
Money market demand 485,690 3.22% 453,649 3.22%
Passbook 1,040,009 3.56% 883,923 3.49%
Certificates of deposit 27,396,706 5.49% 25,346,900 5.54%
----------- ------- ----------- -----
$35,366,895 4.93% $32,389,563 4.92%
=========== ======= =========== =====
</TABLE>
( Continued )
F-21
<PAGE> 76
INTER-CITY FEDERAL BANK FOR SAVINGS
NOTES TO THE FINANCIAL STATEMENTS
MARCH 31, 1998 AND 1997
NOTE F - DEPOSITS (Continued)
The certificates of deposit are scheduled to mature as follows:
<TABLE>
<CAPTION>
March 31, 1998 March 31, 1997
------------------------------- -------------------------------
Percent Percent
Of Of
Amount Total Amount Total
---------------- ---------- ---------------- -----------
<S> <C> <C> <C> <C>
Within one year $ 19,866,806 72.52% $ 17,711,913 69.88%
More than one year
through three years 5,277,670 19.26% 4,701,880 18.55%
Thereafter 2,252,230 8.22% 2,933,107 11.57%
---------------- --------- ---------------- ----------
$ 27,396,706 100.00% $ 25,346,900 100.00%
================ ========= ================ ==========
</TABLE>
Contractual interest rates of certificates of deposit are:
<TABLE>
<CAPTION>
March 31,
------------------------------------------------------------------
1998 1997
------------------------------ ------------------------------
Percent Percent
of of
Amount Total Amount Total
---------------- --------- ----------------- ----------
<S> <C> <C> <C> <C>
3.01% to 4.00% $ 54,726 .20% $ 50,018 .20%
4.01% to 5.00% 4,013,169 14.65% 1,319,666 5.21%
5.01% to 6.00% 21,019,936 76.72% 20,669,288 81.55%
6.01% to 7.00% 2,308,875 8.43% 3,307,928 13.04%
---------------- --------- ----------------- ----------
$ 27,396,706 100.00% $ 25,346,900 100.00%
================ ========= ================= ==========
</TABLE>
At March 31, 1998 and 1997, certificates of deposits with a balance greater than
$100,000 totaled approximately $6,457,000 and $5,145,000, respectively.
F-22
<PAGE> 77
INTER-CITY FEDERAL BANK FOR SAVINGS
NOTES TO THE FINANCIAL STATEMENTS
MARCH 31, 1998 AND 1997
NOTE G - BORROWED FUNDS
Advances from the Federal Home Loan Bank are collateralized by the
residential mortgage loan portfolio, Federal Home Loan Bank stock and
amounts on deposit with the Federal Home Loan Bank.
<TABLE>
<CAPTION>
March 31,
----------------------------
1998 1997
----------- ------------
<S> <C> <C>
5.633% note payable in monthly installments with
final payment due January 2, 2006. $ 496,981 $ 546,089
=========== ============
</TABLE>
Future expected maturities of the advances are as follows:
<TABLE>
<CAPTION>
March 31,
----------
<S> <C>
1999 $ 51,967
2000 54,849
2001 58,126
2002 61,486
2003 and Thereafter 270,553
</TABLE>
NOTE H - INCOME TAXES
In 1996, Congress passed the Small Business Job Protection Act of 1996. This
Act requires all savings banks to change their method of accounting for bad
debts for tax reporting purposes. Bad debt reserves accumulated after 1987
are subject to recapture over a six year period. Pre-1988 reserves will not
be recaptured unless the bank enters into certain transactions as specified
in the Act. The tax bad debt reserves accumulated after 1987 totaled
approximately $194,000, and the pre-1988 reserves totaled approximately
$824,000. The Bank qualifies for a recapture deferral provision of the Act
which allows for the deferral of the recapture period until the year
beginning April 1, 1998.
The provision for current income taxes differs from that computed at the
statutory 34% corporate rates as follows:
<TABLE>
<CAPTION>
Years Ended
March 31,
--------------------------------------------
1998 1997 1996
------------ ------------ -----------
<S> <C> <C> <C>
Tax at statutory rates $ 196,057 $ 116,046 $ 155,861
State income taxes and other, net 20,049 10,435 12,559
------------ ------------ -----------
$ 216,106 $ 126,481 $ 168,420
============ ============ ===========
</TABLE>
( Continued )
F-23
<PAGE> 78
INTER-CITY FEDERAL BANK FOR SAVINGS
NOTES TO THE FINANCIAL STATEMENTS
MARCH 31, 1998 AND 1997
NOTE H - INCOME TAXES (Continued)
The components of the net deferred tax liability included in other
liabilities as of March 31, 1998 and 1997, are as follows:
<TABLE>
<CAPTION>
1998 1997
------------ -----------
<S> <C> <C>
Assets:
Premises and equipment $ 760 $ --
------------ -----------
Total deferred tax assets 760 --
------------ -----------
Liabilities:
Premises and equipment -- 4,560
Reserve for loan losses 34,685 35,360
------------ -----------
Total deferred tax liabilities 34,685 39,900
------------ -----------
Net deferred tax liability $ 33,925 $ 39,900
============ ===========
</TABLE>
NOTE I - CONTINGENCIES AND COMMITMENTS
In the normal course of business, there are outstanding various commitments
and contingent liabilities, such as commitments to extend credit, which are
not reflected in the accompanying statement of financial condition. No
losses are anticipated as a result of these commitments. At March 31, 1998
and 1997, there were $272,000 and $-0-, respectively, commitments to extend
variable and fixed rate mortgage loans.
The Bank has entered into an agreement to rent certain real estate for use
as a branch bank site. The lease, which is classified as an operating lease,
requires annual lease payments of $12,000, and expires in 2004.
The Bank is a defendant in an action brought by a former employee alleging
sex and age discrimination as well as rate of pay discrimination. The
Circuit Court of Winston County granted a motion to dismiss the case.
However, the case has been appealed to the Mississippi Supreme Court.
Management, based upon consultation with counsel, is unable to evaluate the
outcome of the appeal or estimate the amount or range of any potential loss
to the Bank.
The Bank has entered into an agreement with a company to provide certain
data processing services and reports. The agreement is for a period of five
years beginning February, 1995, and automatically continues after the
initial term for three years unless terminated by either party.
F-24
<PAGE> 79
INTER-CITY FEDERAL BANK FOR SAVINGS
NOTES TO THE FINANCIAL STATEMENTS
MARCH 31, 1998 AND 1997
NOTE J - REGULATORY MATTERS
The Bank is subject to various regulatory capital requirements administered
by federal banking agencies. Failure to meet minimum capital requirements
can initiate certain mandatory, and possibly additional discretionary
actions by regulators that, if undertaken, could have a direct material
effect on the financial statements. Under capital adequacy guidelines and
the regulatory framework for prompt corrective action, the Bank must meet
specific capital guidelines that involve 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 are also subject to qualitative judgments by the regulators
about components, risk weighing, and other factors.
To ensure capital adequacy, quantitative measures have been established by
the Bank's primary regulator, the OTS. Current OTS standards require that
the Bank maintain tangible capital (as defined) equal to at least 1.5% of
tangible assets, core capital (as defined) equal to at least 3% of adjusted
tangible assets, and risk-based capital (as defined) equal to at least 8% of
risk-weighted assets. Management believes, as of March 31, 1998, that the
Bank exceeds all capital adequacy requirements.
At March 31, 1998, the Bank was categorized by regulators as
well-capitalized under the regulatory framework for prompt corrective
action. A financial institution is deemed to be well-capitalized if it has
total risk-based capital of 10% or more, has a Tier 1 risk-based capital
ratio of 6% or more, and has a Tier 1 leverage capital ratio of 5% or more.
At March 31, 1998, the Bank's capital exceeded all of the capital standards
of a well-capitalized institution. There are no conditions or anticipated
events that, in the opinion of management, would change the category.
The Bank's actual capital amounts and ratios at March 31, 1998 and 1997, are
presented in the following table. No amount was deducted from capital for
interest-rate risk exposure.
<TABLE>
<CAPTION>
($ In Thousands)
--------------------------------------------------
March 31, 1998 March 31, 1997
-------------------- ----------------------
Amount Ratio Amount Ratio
------- ----- -------- -----
<S> <C> <C> <C> <C>
Tangible capital $ 4,930 12.0% $ 4,695 12.4%
Core/leverage capital 4,930 12.5% 4,695 13.2%
Tier 1 risk-based capital 4,930 18.3% 4,695 19.4%
Total risk-based capital 5,052 18.8% 4,800 19.8%
</TABLE>
Regulations also include restrictions on loans to one borrower, on certain
types of investments and loans, on loans to officers, directors, and
principal shareholders, on brokered deposits and on transactions with
affiliates.
( Continued )
F-25
<PAGE> 80
INTER-CITY FEDERAL BANK FOR SAVINGS
NOTES TO THE FINANCIAL STATEMENTS
MARCH 31, 1998 AND 1997
NOTE J - REGULATORY MATTERS (Continued)
To qualify under the Qualified Thrift Lender (QTL) test, approximately 65%
of assets must be maintained in housing related finance and other specified
areas. If the QTL test is not met, limits are placed on growth, branching,
new investments, FHLB advances, and dividends or the Bank must convert to a
commercial bank charter.
In September, 1996, banking legislation was enacted requiring that all
institutions with SAIF (Savings Association Insurance Fund) deposits pay a
one-time special assessment. This assessment was $170,861 and is included in
deposit insurance premiums in the statement of earnings for the year ended
March 31, 1997.
NOTE K - EMPLOYEE BENEFIT PLANS
An officer of the Bank is employed under a special termination agreement for
a term of three years, renewing and extending annually unless written notice
is provided in writing within ten days of the anniversary date of the
agreement. If, during the term of the agreement, the officer's employment is
terminated, except for cause, he shall be entitled to termination pay equal
to 299% of his annual base compensation.
The Bank has a recognition and retention plan whereby certain executive
officers are awarded restricted stock. Awards vest at a rate of one-fifth of
the restricted stock granted per year. A total of 3,315 shares have been
awarded under the plan. All shares awarded have vested and have been issued.
The Bank also has an incentive stock option plan to encourage ownership of
the Bank's common stock by granting stock options to certain key officers,
directors and employees. Under this plan, options are granted at a price
equal to the fair market value of the shares on the date the option is
granted. Options to purchase shares granted under the plan can be exercised
over a ten-year period. At March 31, 1998, of the 11,059 shares available
under the plan, options for all shares had been granted and all shares
exercised.
The Bank has elected to continue to measure compensation cost relative to
its stock option compensation plans using Accounting Principles Board
Opinion No. 25. If the Bank had adopted SFAS Statement No. 123, Accounting
for Stock Based Compensation, the pro forma net income would not be
materially different from net income as reported.
The Bank adopted a Simplified Employee Pension ("SEP") Plan covering
substantially all employees. The Plan calls for benefits to be paid to
eligible employees at retirement determined on the basis of an amount equal
to 5% of each employee's compensation on a monthly basis. For the years
ended March 31, 1998 and 1997, the Bank contributed $20,136 and $18,118,
respectively, to the SEP Plan.
F-26
<PAGE> 81
INTER-CITY FEDERAL BANK FOR SAVINGS
NOTES TO THE FINANCIAL STATEMENTS
MARCH 31, 1998 AND 1997
NOTE L - RELATED PARTY TRANSACTIONS
In the normal course of business, the Bank makes loans to its directors and
executive officers and to companies in which they have significant ownership
interest. These loans are made on substantially the same terms as those
prevailing at the time for comparable transactions with other persons and,
in the opinion of management, are consistent with sound banking practices
and are within applicable regulatory and lending limits. Such loans amounted
to approximately $400,000 and $380,000 at March 31, 1998 and 1997,
respectively.
NOTE M - CONCENTRATIONS OF CREDIT RISK
The Bank's loans, which are mostly collateralized by real estate mortgages,
are granted primarily to borrowers in Winston and Neshoba Counties of
Mississippi. Generally, such customers are also depositors of the Bank. The
concentrations of credit by type of loan are set forth in Note C. The
distribution of commitments to extend credit approximates the distribution
of loans outstanding.
NOTE N - MERGER AGREEMENT
On December 14, 1998, the Bank executed an Agreement and Plan of Merger with
the Peoples Holding Company and its subsidiary bank, The Peoples Bank &
Trust Company. Consummation of the merger is dependent upon the approval of
the shareholders and various regulatory agencies.
NOTE O - FAIR VALUE OF FINANCIAL INSTRUMENTS
The following methods and assumptions were used to estimate the fair value
of each class of financial instruments at March 31, 1998 and 1997.
Cash and cash equivalents: The balance sheet carrying amounts for cash and
short-term instruments approximate the estimated fair values of such assets.
Securities: Fair values for investment securities are based on quoted market
prices, if available. If quoted market prices are not available, fair values
are based on quoted market prices of comparable instruments.
( Continued )
F-27
<PAGE> 82
INTER-CITY FEDERAL BANK FOR SAVINGS
NOTES TO THE FINANCIAL STATEMENTS
MARCH 31, 1998 AND 1997
NOTE O - FAIR VALUE OF FINANCIAL INSTRUMENTS (Continued)
Loans receivable: For variable rate loans that reprice frequently and which
entail no significant change in credit risk, fair values are based on the
carrying values. The estimated fair values of fixed rate loans are estimated
based on discounted cash flow analyses using interest rates currently
offered for loans with similar terms to borrowers of similar credit quality.
Nonperforming loans have not been discounted. Because of an insignificant
amount of long-term fixed rate loans and portfolio rates which are
comparable with rates currently offered, the fair value of such loans was
determined to approximate carrying value at March 31, 1998 and 1997. The
carrying amount of accrued interest receivable approximates its fair value.
Off-balance-sheet instruments: Fair values for off-balance-sheet lending
commitments are based on fees currently charged to enter into similar
agreements. The aggregate amount of these fees is not material.
Deposit liabilities: The fair values estimated for interest-bearing checking
accounts, savings and certain types of money market accounts are, by
definition, equal to the amount payable on demand at the reporting date
(i.e., their carrying amounts). The carrying amounts of variable rate,
fixed-term money market accounts and certificates of deposit approximate
their fair values at the reporting date. Fair values of fixed rate
certificates of deposit are estimated using a discounted cash flow
calculation that applies interest rates currently being offered to a
schedule of aggregated expected monthly time deposit maturities. Because of
insignificant amounts of long-term fixed rate certificates of deposit and
portfolio rates which are comparable with rates currently offered, the fair
value was determined to approximate carrying value at March 31, 1998 and
1997. The carrying amount of accrued interest payable approximates its fair
value.
Advances from Federal Home Loan Bank: The fair value of advances from the
Federal Home Loan Bank (FHLB) are estimated using discounted cash flow
analysis based on current FHLB borrowing rates for similar types of
borrowing arrangements. Because current FHLB borrowing rates are comparable
to Bank rates, the fair value was determined to approximate carrying value
at March 31, 1998 and 1997.
The following tables provide summary information on the fair value of
financial instruments. Such information does not purport to represent the
aggregate net fair value of the Bank. Further, the fair value estimates are
based on various assumptions, methodologies and subjective considerations,
which vary widely among different financial institutions and which are
subject to change. The carrying amounts are the amounts at which the
financial instruments are reported in the financial statements.
( Continued )
F-28
<PAGE> 83
INTER-CITY FEDERAL BANK FOR SAVINGS
NOTES TO THE FINANCIAL STATEMENTS
MARCH 31, 1998 AND 1997
NOTE O - FAIR VALUE OF FINANCIAL INSTRUMENTS (Continued)
<TABLE>
<CAPTION>
March 31, 1998 March 31, 1997
--------------------------------- ---------------------------------
Carrying Estimated Carrying Estimated
Amount of Fair Value Amount of Fair Value
Assets and of Assets and Assets and of Assets and
(Liabilities) (Liabilities) (Liabilities) (Liabilities)
-------------- -------------- ------------- -------------
(In Thousands)
<S> <C> <C> <C> <C>
Cash and cash equivalents $ 3,518 $ 3,518 $ 3,427 $ 3,427
Securities 2,506 2,514 2,033 2,026
Loans 33,992 33,992 31,421 31,421
Deposits:
Savings and interest checking (7,970) (7,970) (7,043) (7,043)
Time deposits (27,397) (27,397) (25,347) (25,347)
Advances from Federal Home
Loan Bank (497) (497) (546) (546)
</TABLE>
F-29
<PAGE> 84
APPENDIX A
AGREEMENT AND PLAN OF MERGER
BETWEEN
THE PEOPLES HOLDING COMPANY,
THE PEOPLES BANK &TRUST COMPANY
AND
INTER-CITY FEDERAL BANK FOR SAVINGS
DATED DECEMBER 14, 1998
<PAGE> 85
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
<S> <C>
PREAMBLE..........................................................................................................1
RECITALS..........................................................................................................1
DEFINITIONS.......................................................................................................2
ARTICLE I. MERGER................................................................................................7
1.1 THE MERGER......................................................................................7
1.2 EFFECTIVE DATE..................................................................................8
ARTICLE II. MERGER CONSIDERATION.................................................................................8
2.1 CONSIDERATION...................................................................................8
2.2 SHAREHOLDER RIGHTS; STOCK TRANSFERS.............................................................8
2.3 FRACTIONAL SHARES...............................................................................9
2.4 EXCHANGE PROCEDURES.............................................................................9
2.5 DISSENTING SHARES...............................................................................9
2.6 RESERVATION OF RIGHT TO REVISE TRANSACTION.....................................................10
2.7 ANTI-DILUTION ADJUSTMENTS......................................................................10
ARTICLE III. INTER-CITY ACTIONS PENDING CONSUMMATION............................................................10
3.1 CAPITAL STOCK..................................................................................10
3.2 DISTRIBUTIONS..................................................................................11
3.3 LIABILITIES....................................................................................11
3.4 OPERATIONS.....................................................................................11
3.5 LIENS AND ENCUMBRANCES.........................................................................11
3.6 EMPLOYMENT ARRANGEMENTS........................................................................11
3.7 BENEFIT PLANS..................................................................................12
3.8 CONTINUANCE OF BUSINESS........................................................................12
3.9 AMENDMENTS.....................................................................................12
3.10 CLAIMS.........................................................................................12
3.11 CONTRACTS......................................................................................12
3.12 LOANS..........................................................................................12
ARTICLE IV. PEOPLES ACTIONS PENDING CONSUMMATION ...............................................................13
ARTICLE V. REPRESENTATIONS AND WARRANTIES ......................................................................13
5.1 INTER-CITY'S REPRESENTATIONS AND WARRANTIES....................................................13
5.2 PEOPLES' REPRESENTATIONS AND WARRANTIES........................................................24
5.3 EXCEPTIONS TO REPRESENTATIONS..................................................................28
</TABLE>
i
<PAGE> 86
<TABLE>
<CAPTION>
PAGE
<S> <C>
ARTICLE VI. COVENANTS...........................................................................................28
6.1 BEST EFFORTS...................................................................................28
6.2 THE PROXY......................................................................................28
6.3 REGISTRATION STATEMENT - COMPLIANCE
WITH SECURITIES LAWS...........................................................................29
6.4 REGISTRATION STATEMENT EFFECTIVENESS...........................................................29
6.5 PRESS RELEASES.................................................................................29
6.6 ACCESS; INFORMATION............................................................................30
6.7 ACQUISITION PROPOSALS..........................................................................30
6.8 REGISTRATION STATEMENT PREPARATION; REGULATORY
APPLICATIONS PREPARATION.......................................................................31
6.9 EMPLOYMENT AGREEMENTS/SEVERANCE PAYMENTS ......................................................31
6.10 BLUE SKY FILINGS...............................................................................32
6.11 AFFILIATE AGREEMENTS...........................................................................32
6.12 TAKEOVER LAW...................................................................................32
6.13 NO RIGHTS TRIGGERED............................................................................33
6.14 SHARES LISTED..................................................................................33
6.15 CURRENT INFORMATION............................................................................33
6.16 INDEMNIFICATION................................................................................33
6.17 APPOINTMENT OF DIRECTOR........................................................................35
6.18 CREDIT FOR EMPLOYMENT BY INTER-CITY............................................................35
6.19 HEALTH PLAN COVERAGE...........................................................................35
ARTICLE VII. CONDITIONS TO CONSUMMATION
OF THE MERGER..................................................................................................35
7.1 CONDITIONS TO EACH PARTY'S OBLIGATIONS.........................................................35
7.2 CONDITIONS TO OBLIGATIONS OF PEOPLES...........................................................37
7.3 CONDITIONS TO OBLIGATIONS OF INTER-CITY........................................................38
ARTICLE VIII. TERMINATION.......................................................................................39
8.1 EVENTS OF TERMINATION..........................................................................39
8.2 CONSEQUENCES OF TERMINATION....................................................................40
ARTICLE IX. OTHER MATTERS.......................................................................................40
9.1 SURVIVAL.......................................................................................40
9.2 WAIVER; AMENDMENT..............................................................................40
9.3 COUNTERPARTS...................................................................................41
9.4 GOVERNING LAW..................................................................................41
</TABLE>
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<TABLE>
<CAPTION>
PAGE
<S> <C>
9.5 EXPENSES.......................................................................................41
9.6 CONFIDENTIALITY................................................................................41
9.7 NOTICES........................................................................................41
9.8 ENTIRE UNDERSTANDING; NO THIRD PARTY
BENEFICIARIES..................................................................................43
9.9 HEADINGS.......................................................................................43
9.10 BROKERS........................................................................................43
EXHIBITS
A Affiliate Agreement
B Opinion of Powell, Goldstein, Frazer & Murphy
C Noncompetition Agreement
D Opinion of Gerrish & McCreary, P.C.
</TABLE>
-iii-
<PAGE> 88
AGREEMENT AND PLAN OF MERGER
THIS AGREEMENT AND PLAN OF MERGER, dated as of December 14, 1998 (the
"Agreement"), is made and entered into by and between THE PEOPLES HOLDING
COMPANY ("Peoples"), a Mississippi corporation, THE PEOPLES BANK & TRUST COMPANY
(the "Bank"), a Mississippi banking corporation and a wholly-owned subsidiary of
Peoples, and INTER-CITY FEDERAL BANK FOR SAVINGS ("Inter-City"), a federal
savings bank.
PREAMBLE
The management and Boards of Directors of Peoples, the Bank and
Inter-City believe, respectively, that the business combination transaction
provided for herein, in which Inter-City will, subject to the terms and
conditions set forth herein, merge with and into the Bank so that the Bank is
the surviving corporation in the Merger, and the shareholders of Inter-City will
become shareholders of Peoples is in the best interests of Peoples, the Bank and
Inter-City's shareholders.
RECITALS
A. PEOPLES. Peoples is a corporation duly organized and validly
existing under Mississippi law and is a registered bank holding company under
the Bank Holding Company Act of 1956, as amended, with its principal offices
located at 209 Troy Street, Tupelo, Mississippi. As of the date of this
Agreement, Peoples has 15,000,000 authorized shares of common stock, $5.00 par
value per share ("Peoples Common Stock") (no other class of capital stock being
authorized), of which 5,859,472 shares of Peoples Common Stock are issued and
outstanding.
B. THE BANK. The Bank is a banking corporation duly organized and
validly existing under Mississippi law, with its principal offices located at
209 Troy Street, Tupelo, Mississippi. As of the date of this Agreement, the Bank
has 772,822 authorized shares of common stock, all of which are owned by
Peoples.
C. INTER-CITY. Inter-City is a federal savings bank duly organized and
validly existing under the laws of the United States of America, with its
principal offices located at 228 Main, Louisville, Mississippi. As of the date
of this Agreement, Inter-City has 2,000,000 authorized shares of common stock,
par value $.01 per share ("Inter-City Common Stock") and 500,000 authorized
shares of serial preferred stock (no other class of capital stock being
authorized), of which 124,966 of Inter-City Common Stock are issued and
outstanding.
<PAGE> 89
C. APPROVALS. At meetings of the respective Boards of Directors of
Peoples, the Bank and Inter-City, each such Board has approved and authorized
the execution of this Agreement.
D. INTENTION OF THE PARTIES. The Parties intend the Merger to qualify,
for accounting purposes, as a "pooling of interests." The Parties intend the
Merger to qualify, for federal income tax purposes, as a tax-free reorganization
under Section 368(a)(1)(A) and Section 368(a)(2)(D) of the Internal Revenue Code
of 1986, as amended.
In consideration of their mutual promises and obligations, Peoples, the
Bank and Inter-City agree as follows:
DEFINITIONS
A. DEFINITIONS. Capitalized terms used in this Agreement have the
following meanings:
"Acquisition Proposal" has the meaning assigned in Section 6.7(A).
"Agreement" means this Agreement and Plan of Merger.
"Appraisal Laws" has the meaning assigned in Section 2.5.
"Asset Classification" has the meaning assigned in Section 5.1(S).
"Bank" means The Peoples Bank & Trust Company, a Mississippi banking
corporation with offices in the following Mississippi locations:
Aberdeen, Amory, Batesville, Booneville, Calhoun City,
Coffeeville, Corinth, Grenada, Guntown, Hernando, Iuka,
Louisville, New Albany, Okolona, Olive Branch, Plantersville,
Pontotoc, Saltillo, Sardis, Shannon, Smithville, South Haven,
Tupelo, Verona, Water Valley, West Point, Winona
"Code" has the meaning assigned in Section 5.1(P)(2).
"Compensation and Benefit Plans" has the meaning assigned in Section
5.1(P)(1).
"Derivatives Contract" means an exchange traded or over-the-counter
swap, forward, future, option, cap, floor or collar financial contract or any
other contract that (1) is not included on the balance sheet of the Inter-City
Financial Reports, and (2) is a derivative contract (including various
combinations of the foregoing).
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"Dissenting Shares" means the shares of Inter-City Common
Stock held by those shareholders of Inter-City who have timely and properly
exercised their dissenters' rights in accordance with the Appraisal Laws.
"Effective Date" has the meaning assigned in Section 1.2.
"Eligible Inter-City Common Stock" means shares of Inter-City
Common Stock validly issued and outstanding on the Effective Date other than
Dissenting Shares.
"Environmental Law" means (1) any federal, state, and/or local
law, statute, ordinance, rule, regulation, code, license, permit, authorization,
approval, consent, legal doctrine, order, judgment, decree, injunction,
requirement or agreement with any governmental entity, relating to (a) the
protection, preservation or restoration of the environment (including air, water
vapor, surface water, groundwater, drinking water supply, surface land,
subsurface land, plant and animal life or any other natural resource) or human
health or safety, or (b) the exposure to, or the use, storage, recycling,
treatment, generation, transportation, processing, handling, labeling,
production, release or disposal of Hazardous Material, in each case as amended
and as now in effect, including the Comprehensive Environmental Response,
Compensation, and Liability Act of 1980, amended by Superfund Amendments and
Reauthorizations Act of 1986, the Clean Water Act; the Clean Air Act; the
Resource Conservation and Recovery Act of 1976; the Solid Waste Disposal Act;
the Toxic Substances Control Act; the Federal Insecticide, Fungicide and
Rodenticide Act; and the Occupational Safety and Health Act of 1970, and (2) any
common law or equitable doctrine (including injunctive relief and tort doctrines
such as negligence, nuisance, trespass and strict liability) that may impose
liability or obligations for injuries or damages due to, or threatened as a
result of, the presence of or exposure to any Hazardous Material.
"ERISA" has the meaning assigned in Section 5.1(P)(2).
"ERISA Affiliate" has the meaning assigned in Section
5.1(P)(3).
"ERISA Plans" has the meaning assigned in Section 5.1(P)(2).
"Exchange Act" means the Securities Exchange Act of 1934, as
amended, together with the rules and regulations promulgated under such statute.
"Exchange Agent" has the meaning assigned in Section 2.4.
"Exchange Ratio" has the meaning assigned in Section 2.1(B).
"FDIC" means the Federal Deposit Insurance Corporation.
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<PAGE> 91
"Federal Reserve Board" means the Board of Governors of the
Federal Reserve System.
"GAAP" means generally accepted accounting principles
consistently applied, as applicable to financial institutions.
"Hazardous Material" means any substance presently listed,
defined, designated or classified as hazardous, toxic, radioactive or dangerous,
or otherwise regulated, under any Environmental Law, whether by type or
quantity, including any oil or other petroleum product, toxic waste, pollutant,
contaminant, hazardous substance, toxic substance, hazardous waste, special
waste or petroleum or any derivative or by-product thereof, radon, radioactive
material, asbestos, asbestos containing material, urea formaldehyde foam
insulation, lead and polychlorinated biphenyl.
"Indemnified Party" has the meaning assigned in Section 6.16.
"Inter-City" means Inter-City Federal Bank for Savings, a
federal savings bank.
"Inter-City Common Stock" has the meaning assigned in Recital
C.
"Inter-City Financial Reports" has the meaning assigned in
Section 5.1(H).
"Knowledge" with respect to Peoples, Inter-City and their
respective Subsidiaries means the actual knowledge of the executive officers of
such entity.
"Loan/Fiduciary Property" means any property owned or
controlled by Inter-City or in which Inter-City holds a security or other
interest, and, where required by the context, includes any such property where
Inter-City constitutes the owner or operator of such property, but only with
respect to such property.
"Material Adverse Effect" means, with respect to any Party, an
event, occurrence or circumstance (including (1) the making of any provisions
for possible loan and lease losses, write-downs of other real estate owned and
taxes, and (2) any breach of a representation or warranty contained in this
Agreement by such Party) that (a) has or is reasonably likely to have a material
adverse effect on the financial condition, results of operations, business or
prospects of such Party and its Subsidiaries, taken as a whole, or (b) would
materially impair such party's ability to perform its obligations under this
Agreement or the consummation of any of the transactions contemplated by this
Agreement.
"Meeting" has the meaning assigned in Section 6.2.
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<PAGE> 92
"Merger" has the meaning assigned in Section 1.1.
"Multiemployer Plans" has the meaning assigned in Section
5.1(P)(2).
"NASDAQ" means the National Association of Securities Dealers
Automated Quotations system.
"OTS" means the Office of Thrift Supervision.
"Participation Facility" means any facility in which
Inter-City participates in the management and, where required by the context,
includes the owner or operator of such facility.
"Party" means each of Peoples, the Bank and Inter-City, as
applicable..
"Parties" means, collectively, Peoples, the Bank and
Inter-City.
"Pension Plan" has the meaning assigned in Section 5.1(P)(2).
"Peoples" means The Peoples Holding Company, a Mississippi
corporation.
"Peoples Common Stock" has the meaning assigned in Recital A.
"Peoples Financial Reports" has the meaning assigned in
Section 5.2(G).
"Person" means any individual, corporation (including any
non-profit corporation), general or limited partnership, limited liability
company, joint venture, estate, trust, association, organization, labor union,
governmental body or other entity.
"Proxy Statement" has the meaning assigned in Section 6.2.
"Registration Statement" has the meaning assigned in Section
6.2.
"Regulatory Authorities" means federal or state governmental
agencies, authorities or departments charged with the supervision or regulation
of depository institutions or engaged in the insurance of deposits.
"Rights" means securities or obligations convertible into or
exchangeable for, or giving any Person any right to subscribe for or acquire, or
any options, calls or commitments relating to, shares of capital stock.
"Schedule" refers to information provided by a Party in a
Schedule that is delivered not less than three (3) days before the date of this
Agreement.
"Securities Act" means the Securities Act of 1933, as amended,
together with the rules and regulations promulgated under such statute.
"SEC" means the Securities and Exchange Commission.
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<PAGE> 93
"State Board" means the Mississippi Department of Banking and
Consumer Finance.
"Subsidiary" means, with respect to any entity, each
partnership, limited liability company, or corporation the majority of the
outstanding partnership interests, membership interests, capital stock or voting
power of which is (or upon the exercise of all outstanding warrants, options and
other rights would be) owned, directly or indirectly, at the time in question by
such entity, and specifically includes, with respect to Peoples, the Bank.
"Tax Returns" has the meaning assigned in Section 5.1(Z).
"Taxes" means federal, state, local or foreign income, gross
receipts, windfall profits, severance, property, production, sales, use,
license, excise, franchise, employment, withholding or similar taxes imposed on
the income, properties or operations of the respective Party or its
Subsidiaries, together with any interest, additions, or penalties relating to
such taxes and any interest charged on those additions or penalties.
"Third Party" means a person within the meaning of Sections
3(a)(9) and 13(d)(3) of the Securities Exchange Act of 1934, as amended,
excluding (1) Inter-City, and (2) Peoples or any Subsidiary of Peoples.
"Transaction Expenses" means all fees and expenses of
Inter-City's consultants and advisors, including legal counsel, accountants and
financial advisors incurred in connection with the Merger, but shall not include
the fees and expenses of The Carson Medlin Company disclosed to Peoples prior to
the execution of this Agreement.
"Year 2000 Compliance" has the meaning assigned in Section
5.1(M)(5).
B. GENERAL INTERPRETATION. Except as otherwise expressly provided in
this Agreement or unless the context clearly requires otherwise, the following
rules of interpretation apply: (1) the terms defined in this Agreement include
the plural as well as the singular; (2) the phrase "in this Agreement" and other
words of similar import refer to this Agreement as a whole and not to any
particular Article, Section or other subdivision; and (3) references in this
Agreement to Articles, Sections, Schedules, and Exhibits refer to Articles and
Sections of and Schedules and Exhibits to this Agreement. Whenever the words
"include," "includes," or "including" are used in this Agreement, they will be
deemed to be followed by the words "without limitation." Unless otherwise stated
references to Subsections refer to the Subsections of the Section in which the
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<PAGE> 94
reference appears. All pronouns used in this Agreement include the masculine,
feminine and neuter gender, as the context requires.
The Parties have participated jointly in the negotiation and
drafting of this Agreement. In the event of an ambiguity or question of intent
or interpretation arises, this Agreement shall be construed as if drafted
jointly by the Parties and no presumption or burden of proof shall arise
favoring or disfavoring any Party by virtue of the authorship of any of the
provisions of this Agreement. Any reference to any federal, state, local or
foreign statute or laws shall be deemed also to refer to all rules and
regulations promulgated thereunder, unless the context requires otherwise. The
Parties intend that each representation, warranty and covenant contained herein
shall have independent significance. If any party has breached any
representation, warranty or covenant contained herein in any respect, the fact
that there exists another representation, warranty or covenant relating to the
same subject matter (regardless of the relative levels of specificity) which the
Party has not breached shall not detract from or mitigate the fact that the
Party is in breach of the first representation, warranty or covenant.
The Schedules of each of Peoples and Inter-City referred to in
this Agreement shall consist of the information, agreements and other
documentation described and referred to in this Agreement as being included in
the Schedules with respect to such Party, which Schedules were delivered by each
of Peoples and Inter-City to the other not less than three (3) business days
before the date of this Agreement. Disclosure of any fact or item required by
this Agreement to be disclosed in any Schedule or Exhibit hereto referenced by a
particular paragraph or section in this Agreement shall, should the existence of
the fact or item or its contents be clearly relevant by the content of such
disclosure to any other paragraph or section of this Agreement, be deemed to be
disclosed with respect to that other paragraph or section. In the event of any
inconsistency between the statements in the body of this Agreement and those in
the Schedules (other than an exception expressly set forth as such in the
Schedules with respect to a specifically identified representation or warranty
or as described in the immediately preceding sentence), the statements in the
body of this Agreement will control.
ARTICLE I. MERGER
1.1 THE MERGER. Subject to the provisions of this Agreement and in
accordance with the terms of Section 81-5-85 of the Mississippi Code Annotated,
as amended (the "Mississippi
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<PAGE> 95
Code"), on the Effective Date, Inter-City will merge with and into the Bank,
under the Charter of the Bank (the "Merger"), and the resulting corporation will
operate under the name "The Peoples Bank & Trust Company" (the "Merged Bank").
After the Effective Date, the Charter and By-Laws of the Bank will be the
Charter and By-Laws of the Merged Bank, and the Board of Directors of the Merged
Bank will consist of the directors of the Bank immediately preceding the
Effective Date.
1.2 EFFECTIVE DATE. Unless the Parties agree upon another date, the
"Effective Date" will be the tenth business day after the fulfillment or waiver
of all conditions precedent set forth in, and the granting of all approvals (and
expiration of any waiting period) required by, Article VII of this Agreement. A
business day is any day other than a Saturday, Sunday or legal holiday in the
State of Mississippi. If the Merger is not consummated in accordance with this
Agreement on or before June 30, 1999, Peoples or Inter-City may terminate this
Agreement in accordance with Article VIII.
ARTICLE II. MERGER CONSIDERATION
2.1 CONSIDERATION. Subject to the provisions of this Agreement, on the
Effective Date:
(A) OUTSTANDING PEOPLES COMMON STOCK. The shares of Peoples
Common Stock issued and outstanding immediately prior to the Effective Date
will, on and after the Effective Date, remain as issued and outstanding shares
of Peoples Common Stock.
(B) OUTSTANDING INTER-CITY COMMON STOCK. Except as provided
below in Section 2.3, each share of Eligible Inter-City Common Stock (which does
not include Dissenting Shares) issued and outstanding immediately prior to the
Effective Date will, by virtue of the Merger, automatically and without any
action on the part of the holder of the share, be converted into the right to
receive 2.78 shares of Peoples Common Stock (the "Exchange Ratio").
2.2 SHAREHOLDER RIGHTS; STOCK TRANSFERS. On the Effective Date, all
shares, other than Dissenting Shares, of Inter-City Common Stock issued and
outstanding immediately prior to the Effective Date will be converted into
shares of Peoples Common Stock in accordance with Section 2.1(B) by virtue of
the Merger. After the Effective Date, there will be no transfers on the stock
transfer books of Inter-City of the shares of Inter-City Common Stock that were
issued and outstanding immediately prior to the Effective Date.
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2.3 FRACTIONAL SHARES. Notwithstanding any other provision of this
Agreement, no fractional shares of Peoples Common Stock and no certificates or
other evidence of ownership of such fractional shares will be issued in the
Merger. Peoples will pay to each holder of Inter-City Common Stock who would
otherwise be entitled to a fractional share an amount in cash (without interest)
determined by multiplying such fractional part of a share of Peoples Common
Stock by the closing price of Peoples Common Stock on the Effective Date on the
American Stock Exchange (as reported in The Wall Street Journal or, if not
reported thereby, any other authoritative source selected by Peoples).
2.4 EXCHANGE PROCEDURES. As promptly as practicable after the Effective
Date, Peoples will send or cause to be sent to each former shareholder of
Inter-City of record immediately prior to the Effective Date transmittal
materials for use in exchanging such shareholder's certificates for Peoples
Common Stock for the consideration set forth in this Article II. The
certificates representing the shares of Peoples Common Stock for which shares of
such shareholder's Inter-City Common Stock are exchanged on the Effective Date,
and any fractional share checks that such shareholder will be entitled to
receive, will be delivered to such shareholder only upon delivery to Peoples'
exchange agent (the "Exchange Agent") of the certificates representing all such
shares of Inter-City Common Stock (or indemnity satisfactory to Peoples and the
Exchange Agent, in their reasonable judgment, if any of such certificates are
lost, stolen or destroyed). Certificates surrendered for exchange by any person
constituting an "affiliate" of Inter-City for purposes of Rule 145 of the
Securities Act will not be exchanged for certificates representing Peoples
Common Stock until Peoples has received a written agreement from such person as
specified in Section 6.11.
2.5 DISSENTING SHARES. Notwithstanding anything to the contrary in this
Agreement, each Dissenting Share whose holder, as of the Effective Date of the
Merger, has not effectively withdrawn or lost his dissenters' rights under
Section 552.14, Title 12, of the Code of Federal Regulations (the "Appraisal
Laws") will not be converted into or represent a right to receive Peoples Common
Stock, but the holder of such Dissenting Share will be entitled only to such
rights as are granted by the Appraisal Laws. Each holder of Dissenting Shares
who becomes entitled to payment for his Inter-City Common Stock pursuant to the
provisions of the Appraisal Laws will receive payment for such Dissenting Shares
from Peoples or the Bank (but only after the amount of payment is agreed upon or
finally determined pursuant to the Appraisal Laws).
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2.6 RESERVATION OF RIGHT TO REVISE TRANSACTION. In its sole discretion,
and notwithstanding any other provision of this Agreement to the contrary,
Peoples may at any time change the method of effecting its acquisition of
Inter-City, but no such change will (1) change the amount or kind of
consideration to be issued to holders of Inter-City Common Stock as provided for
in this Agreement, (2) adversely affect the tax treatment to the Inter-City
shareholders as a result of receiving such consideration, or (3) materially
delay the acquisition. If Peoples elects to change the method of acquisition,
Inter-City will cooperate with and assist Peoples with any necessary amendment
to this Agreement, and with the preparation and filing of such applications,
documents, instruments and notices as may be necessary or desirable, in the
opinion of counsel for Peoples, to obtain all necessary shareholder approvals
and approvals of any regulatory agency, administrative body or governmental
entity.
2.7 ANTI-DILUTION ADJUSTMENTS. In the event Peoples changes the number
of shares of Peoples Common Stock issued and outstanding prior to the Effective
Date as a result of a stock split, stock dividend or similar recapitalization
with respect to Peoples Common Stock, and the record date therefor (in the case
of a stock dividend) or the effective date thereof (in the case of a stock split
or similar recapitalization for which a record date is not established) shall be
prior to the Effective Date, the Exchange Ratio shall be proportionately
adjusted.
ARTICLE III. INTER-CITY ACTIONS PENDING CONSUMMATION
From the date hereof until the Effective Date or the termination of
this Agreement, unless otherwise agreed to in writing by Peoples, Inter-City
will conduct its business in the ordinary and usual course consistent with past
practice and will use its best efforts to maintain and preserve its business
organizations, employees and advantageous business relationships and retain the
services of its officers and key employees identified by Peoples, and
Inter-City, without the prior written consent of Peoples which will not be
unreasonably withheld, will not:
3.1 CAPITAL STOCK. Issue, sell or otherwise permit to become
outstanding any additional shares of capital stock of Inter-City, or grant any
Rights with respect to its capital stock, or enter into any agreement to do any
of the foregoing, or permit any additional shares of Inter-City Common Stock to
become subject to grants of employee stock options, stock appreciation rights or
similar stock-based employee compensation rights.
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3.2 DISTRIBUTIONS. Except as approved in advance in writing by Peoples,
and unless in accordance with past practices, Inter-City shall not make, declare
or pay any dividend on or in respect of, or declare or make any distribution on,
or directly or indirectly combine, redeem, reclassify, purchase or otherwise
acquire, any shares of, its capital stock or authorize the creation or issuance
of, or issue, any additional shares of its capital stock or grant any Rights
with respect to its capital stock; provided, however, in the event that the
Merger is not consummated in accordance with this Agreement on or before March
31, 1999, Inter-City may declare and pay dividends in an amount that is
consistent with Inter-City's past practices.
3.3 LIABILITIES. 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
or liable for the obligations of any other individual corporation or other
entity.
3.4 OPERATIONS. Except as disclosed in Schedule 3.4 or as may be
directed by any regulatory agency, (1) change its lending, investment, liability
management or other material banking policies in any material respect, or (2)
commit to incur any capital expenditures other than in the ordinary course of
business and not exceeding $25,000 individually or $50,000 in the aggregate.
3.5 SUBSIDIARIES, LIENS AND ENCUMBRANCES. Create or acquire any
Subsidiary; or impose, or suffer the imposition, on any shares of stock of any
of its Subsidiaries, any lien, charge or encumbrance, or permit any such lien,
charge or encumbrance to exist, except such liens, charges or encumbrances
currently existing, as set forth on Schedule 3.5, and those occurring in the
ordinary course of business which do not have a Material Adverse Effect on
Inter-City.
3.6 EMPLOYMENT ARRANGEMENTS. Except as disclosed on Schedule 3.6, hire
any new employees, increase the number of full time employees disclosed in
Schedule 3.6, enter into or amend any employment, severance or similar agreement
or arrangement with any of its directors, officers or employees, or grant any
salary or wage increase, or increase any employee benefit (including incentive
or bonus payments), except normal individual increases in regular compensation
to employees in the ordinary course of business consistent with past practice or
as disclosed in Schedule 3.6.
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3.7 BENEFIT PLANS. Enter into or modify (except as may be required by
applicable law or to continue coverage) any pension, retirement, stock option,
stock purchase, savings, profit sharing, deferred compensation, consulting,
bonus, group insurance or other employee benefit, incentive or welfare contract,
plan or arrangement, or any trust agreement related thereto, in respect of any
of its directors, officers or other employees, including taking any action that
accelerates the vesting or exercise of any benefits payable thereunder.
3.8 CONTINUANCE OF BUSINESS. Except as disclosed in Schedule 3.8,
dispose of or discontinue any portion of its assets, business or properties,
that is material to Inter-City or any one of its Subsidiaries taken as a whole,
or merge or consolidate with, or acquire all or any portion of, the business or
property of any other entity that is material to Inter-City or any one of its
Subsidiaries taken as a whole (except foreclosures or acquisitions by Inter-City
or any one of its Subsidiaries in its fiduciary capacity, in each case in the
ordinary course of business consistent with past practice).
3.9 AMENDMENTS. Amend its Charter or By-laws.
3.10 CLAIMS. Settle any claim, litigation, action or proceeding
involving any liability for material money damages or restrictions upon the
operations of Inter-City, other than any such claim, litigation, action or
proceeding that can be settled by the payment by Inter-City of not more than
$25,000.
3.11 CONTRACTS. Except as disclosed in Schedule 3.11, enter into,
renew, terminate or make any change in any material contract, agreement or
lease, except in the ordinary course of business consistent with past practice
with respect to contracts, agreements and leases that are terminable by it
without penalty on no more than 60 days prior written notice.
3.12 LOANS. Extend credit or account for loans and leases other than in
accordance with existing lending policies and accounting practices. With regard
to any new extension of credit in excess of $250,000, the President or Chief
Executive Officer of Inter-City will report to the Chief Executive Officer of
Peoples, as expeditiously as possible following the approval of the extension of
credit, the substance and nature of the transaction for the purpose of keeping
Peoples abreast of the ongoing credit quality at Inter-City.
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ARTICLE IV. PEOPLES ACTIONS PENDING CONSUMMATION
From the date of this Agreement until the earlier of the Effective Date
or the termination of this Agreement, Peoples will continue to conduct the
business of Peoples and its Subsidiaries in a manner designed in its reasonable
judgment to enhance the long-term value of Peoples Common Stock and the business
prospects of Peoples, and will not: (1) make any distributions with respect to
its capital stock except its regular quarterly dividends made in accordance with
its past practices; or (2) take any action which would materially adversely
affect the ability of Peoples, the Bank or Inter-City to obtain any regulatory
approvals or other consents required for the Merger described in this Agreement
without imposition of any condition or restriction that would adversely impact
the transactions contemplated hereby or prevent the Merger from qualifying as a
pooling of interests for accounting purposes or as a tax-free reorganization
within the meaning of Section 368(a)(1)(A) and Section 368(a)(2)(D) of the Code,
or materially adversely affect the ability of any party to this Agreement to
perform its covenants or agreements under this Agreement; or (3) without the
prior written consent of Inter-City, amend the articles of incorporation or
by-laws of Peoples in any manner which is adverse to, and discriminates against,
the holders of Inter-City Common Stock.
ARTICLE V. REPRESENTATIONS AND WARRANTIES
5.1 INTER-CITY'S REPRESENTATIONS AND WARRANTIES. Subject to the
limitations and qualifications stated in Section 5.3, Inter-City hereby
represents and warrants to Peoples as follows:
(A) RECITALS. The facts set forth in the Recitals of this
Agreement with respect to Inter-City are true and correct.
(B) ORGANIZATION, STANDING AND AUTHORITY. Inter-City is duly
qualified to do business and is in good standing in the States of the United
States and foreign jurisdictions where the failure to be duly qualified,
individually or in the aggregate, is reasonably likely to have a Material
Adverse Effect on it. Inter-City has in effect all federal, state, local and
foreign governmental authorizations necessary for it to own or lease its
properties and assets and to carry on its businesses as they are now conducted.
Inter-City is an "insured depository institutions" as defined in the Federal
Deposit Insurance Act, as amended, and applicable regulations under such
statute, and its deposits are insured by the Savings Association Insurance Fund
of the FDIC.
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(C) SHARES. The outstanding shares of Inter-City's capital
stock are validly issued and outstanding, fully paid and nonassessable and were
not issued in violation of the preemptive rights of Inter-City's shareholders.
Except as Inter-City disclosed in Schedule 5.1(C), there are no shares of
capital stock or other equity securities of Inter-City outstanding and no
outstanding Rights with respect to its capital stock or other equity securities.
(D) SUBSIDIARIES. Inter-City has no subsidiaries.
(E) CORPORATE POWER. Inter-City has the corporate power and
authority to carry on its business as it is now being conducted and to own all
its material properties and assets.
(F) CORPORATE AUTHORITY. Subject to any necessary receipt of
approval by its shareholders referred to in Section 7.1(A), this Agreement has
been authorized by all necessary corporate action of Inter-City, and this
Agreement is a valid and binding agreement of Inter-City, enforceable against
Inter-City in accordance with its terms, subject to bankruptcy, insolvency and
other laws of general applicability relating to or affecting creditors' rights
and to general equitable principles.
(G) NO DEFAULTS. Subject to the approval by its shareholders
referred to in Section 7.1(A), the required regulatory approvals referred to in
Section 7.1(B), and the required filings under federal and state securities
laws, and except as set forth on Schedule 5.1(G), the execution, delivery and
performance of this Agreement and the consummation by Inter-City of the
transactions contemplated by this Agreement do not and will not (1) constitute a
breach or violation of, or a default under, any law, rule or regulation or any
judgment, decree, order, governmental permit or license, or agreement, indenture
or instrument of Inter-City or to which Inter-City or its properties is subject
or bound, (2) constitute a breach or violation of, or a default under its
Charter or By-Laws, or (3) require any consent or approval under any such law,
rule, regulation, judgment, decree, order, governmental permit or license or the
consent or approval of any other party to any such agreement, indenture or
instrument.
(H) FINANCIAL REPORTS. Inter-City's audited statements of
financial condition and the related statements of earnings, statements of
stockholders' equity and cash flows for the fiscal years ended March 31, 1998
and 1997 (collectively, the "Inter-City Financial Reports") fairly present the
financial position of Inter-City as of March 31, 1998 and 1997, and the
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results of its operations, changes in stockholders' equity and cash flows, as
the case may be, for the periods set forth therein, in accordance with GAAP.
(I) ABSENCE OF UNDISCLOSED LIABILITIES. Except as set forth on
Schedule 5.1(I), Inter-City has no obligation or liability (contingent or
otherwise) except (1) as reflected in the Inter-City Financial Reports, and (2)
for commitments and obligations made, or liabilities incurred, in the ordinary
course of business consistent with past practice since March 31, 1998.
(J) NO EVENTS. Except as disclosed on Schedule 5.1(J), since
March 31, 1998, no event has occurred that, individually or in the aggregate, is
reasonably likely to have a Material Adverse Effect on Inter-City.
(K) PROPERTIES. Except as disclosed on Schedule 5.1(K) or in
the Inter-City Financial Reports, Inter-City has good and marketable title, free
and clear of all liens, encumbrances, charges, defaults, or equities of any
character, to all of the properties and assets, tangible and intangible,
reflected in the Inter-City Financial Reports as being owned by Inter-City as of
March 31, 1998, except those sold or otherwise disposed of in the ordinary
course of business. All buildings and all material fixtures, equipment, and
other property and assets that are held under leases or subleases by Inter-City
are held under valid leases or subleases enforceable in accordance with their
respective terms.
(L) LITIGATION. Except as disclosed in Schedule 5.1(L), before
the date of this Agreement:
(1) no criminal or administrative investigations or
hearings, before or by any Regulatory Authorities, or civil, criminal or
administrative actions, suits, claims or proceedings, before or by any Person
(including any Regulatory Authority) are pending or, to the Knowledge of
Inter-City, threatened, against Inter-City (including under the Truth in Lending
Act, the Equal Credit Opportunity Act, the Fair Housing Act, the Community
Reinvestment Act of 1977, the Home Mortgage Disclosure Act of 1975, or any fair
lending law or other law relating to discrimination); and
(2) neither Inter-City nor any of its officers, directors,
controlling persons, nor any of its properties is a party to or is subject to
any order, decree, agreement, memorandum of understanding or similar arrangement
with, or a commitment letter or similar
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submission to, any Regulatory Authority charged with the supervision or
regulation of depository institutions or engaged in the insurance of deposits
(including the FDIC) or the supervision or regulation of Inter-City, and it has
not been advised by any such Regulatory Authority that such Regulatory Authority
is contemplating issuing or requesting (or is considering the appropriateness of
issuing or requesting) any such order, decree, agreement, memorandum of
understanding, commitment letter or similar submission.
(M) COMPLIANCE WITH LAWS. Inter-City:
(1) is in compliance in all material respects, in the
conduct of its businesses, with all applicable federal, state, local, and
foreign statutes, laws, regulations, ordinances, rules, judgments, orders or
decrees, including the Bank Secrecy Act, the Truth in Lending Act, the Equal
Credit Opportunity Act, the Fair Housing Act, the Community Reinvestment Act of
1977, the Home Mortgage Disclosure Act of 1975 and all applicable fair lending
laws or other laws relating to discriminations;
(2) has all permits, licenses, certificates of authority,
orders, and approvals of, and has made all filings, applications, and
registrations with, federal, state, local, and foreign governmental or
regulatory bodies that are required in order to permit it to carry on its
businesses as they are presently conducted;
(3) has received no notice or other communication, except
as set forth on Schedule 5.1(M)(3), from any Regulatory Authority (including any
bank, insurance and securities regulatory authorities) or its staff (1)
asserting a failure to comply with any of the statutes, regulations or
ordinances that such Regulatory Authority enforces, (2) threatening to revoke
any license, franchise, permit or governmental authorization, or (3) threatening
or contemplating revocation or limitation of, or action that would have the
effect of revoking or limiting, FDIC deposit insurance (nor do any grounds for
any of the foregoing exist);
(4) is not required to notify any federal banking agency
before adding directors to its board of directors or employing senior executives
(except notifications required as a result of the Merger); and
(5) has adopted or will adopt and are implementing or will
implement a program to address any problems associated with the capacity of the
computer software operated by Inter-City and its vendors to properly process
transactions after December 31, 1999 ("Year 2000
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Compliance"), and has not been notified by any Regulatory Authority that its
Year 2000 Compliance is anything other than satisfactory.
(N) MATERIAL CONTRACTS. Except as disclosed on Schedule
5.1(N), neither Inter-City nor its assets, businesses or operations, is a party
to, or bound or affected by, or receives benefits under, any material contract
or agreement or amendment to such contract or agreement. Inter-City is not in
default under any contract, agreement, commitment, arrangement, lease, insurance
policy or other instrument to which it is a party, by which its assets, business
or operations may be bound or affected or under which it or its respective
assets, business or operations receives benefits, and there has not occurred any
event that, with the lapse of time or the giving of notice or both, would
constitute such a default, except for defaults which are not reasonably likely
to have a Material Adverse Effect on Inter-City. Inter-City is not subject to or
bound by any contract containing covenants that limit its ability to compete in
any line of business or with any Person or that involve any restriction of
geographical area in which, or method by which, it may carry on its business
(other than as may be required by law or any applicable Regulatory Authority).
(O) REPORTS. Since March 31, 1993, Inter-City has filed all
reports and statements, together with any required amendments, that it was
obligated to file with (1) the OTS, (2) the FDIC, (3) any other Regulatory
Authorities having jurisdiction over Inter-City. As of their respective dates
(and without giving effect to any amendments or modifications filed after the
date of this Agreement with respect to reports and documents filed before the
date of this Agreement), each of such reports and documents, including the
financial statements, exhibits and schedules to the financial statements,
complied in all material respects with all of the statutes, rules and
regulations enforced or promulgated by the Regulatory Authority with which they
were filed and did not contain any untrue statement of fact or omit to state any
fact necessary in order to make the statements made therein, in light of the
circumstances under which they were made, not misleading.
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(P) EMPLOYEE BENEFIT PLANS.
(1) Schedule 5.1(P)(1) contains a complete list of all
bonus, deferred compensation, pension, retirement, profit-sharing, thrift
savings, employee stock ownership, stock bonus, stock purchase, restricted stock
and stock option plans, all employment or severance contracts, all medical,
dental, health and life insurance plans, all other employee benefit plans,
contracts or arrangements and any applicable "change of control" or similar
provisions in any plan, contract or arrangement maintained or contributed to by
Inter-City for the benefit of employees, former employees, directors, former
directors or their beneficiaries (the "Compensation and Benefit Plans"). True
and complete copies of all written Compensation and Benefit Plans of Inter-City,
including any trust instruments and/or insurance contracts, if any, forming a
part of such plans, and all related amendments, and detailed information
regarding any such unwritten plans or agreements, have been made available to
Peoples.
(2) All "employee benefit plans" within the meaning of
Section 3(3) of the Employee Retirement Income Security Act of 1974, as amended
("ERISA"), other than "multiemployer plans" within the meaning of Section 3(37)
of ERISA ("Multiemployer Plans"), covering employees or former employees of
Inter-City (the "ERISA Plans"), to the extent subject to ERISA, are in
substantial compliance with ERISA. Except as disclosed on Schedule 5.1(P)(2),
each ERISA Plan which is an "employee pension benefit plan" within the meaning
of Section 3(2) of ERISA ("Pension Plan") and which is intended to be qualified
under Section 401(a) of the Internal Revenue Code of 1986 (as amended, the
"Code") has received a favorable determination letter from the Internal Revenue
Service or a request for such a determination letter has been made, and
Inter-City is not aware of any circumstances reasonably likely to result in the
revocation or denial of any such favorable determination letter or the inability
to receive such favorable determination letter. There is no material pending or,
to its knowledge, threatened litigation relating to the ERISA Plans. Inter-City
has not engaged in a transaction with respect to any ERISA Plan that could
subject Inter-City to a tax or penalty imposed by either Section 4975 of the
Code or Section 502(i) of ERISA.
(3) No liability under Subtitle C or D of Title IV of
ERISA has been or is expected to be incurred by Inter-City with respect to any
ongoing, frozen or terminated "single-employer plan," within the meaning of
Section 4001(a)(15) of ERISA, currently or formerly
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maintained by it, or the single-employer plan of any entity which is considered
one employer with Inter-City under Section 4001(a)(15) of ERISA or Section 414
of the Code (an "ERISA Affiliate"). Inter-City does not presently contribute to
a Multiemployer Plan, nor has it contributed to such a plan within the past five
calendar years. No notice of a "reportable event," within the meaning of Section
4043 of ERISA for which the 30-day reporting requirement has not been waived,
has been required to be filed for any Pension Plan or by any ERISA Affiliate
within the past 12-month period.
(4) All contributions required to be made under the terms
of any ERISA Plan have been timely made. Neither any Pension Plan nor any
single-employer plan of an ERISA Affiliate has an "accumulated funding
deficiency" (whether or not waived) within the meaning of Section 412 of the
Code or Section 302 of ERISA. Inter-City has not provided, or is not required to
provide, security to any Pension Plan or to any single-employer plan of an ERISA
Affiliate pursuant to Section 401(a)(29) of the Code.
(5) Under each Pension Plan which is a single-employer
plan, as of the last day of the most recent plan year, the actuarially
determined present value of all "benefit liabilities," within the meaning of
Section 4001(a)(16) of ERISA (as determined on the basis of the actuarial
assumptions contained in the plan's most recent actuarial valuation) did not
exceed the then current value of the assets of such plan, and there has been no
material changes in the financial condition of such plan since the last day of
the most recent plan year.
(6) Inter-City has no obligations for retiree health and
life benefits under any plan, except as set forth in Schedule 5.1(P)(6). There
are no restrictions on the rights of Inter-City to amend or terminate any such
plan without incurring any liability under the plan.
(7) Except as set forth on Schedule 5.1(P)(7), neither the
execution and delivery of this Agreement nor the consummation of the
transactions contemplated by this Agreement will (a) result in any payment
(including severance, unemployment compensation, golden parachute or otherwise)
becoming due to any director or any employee of Inter-City under any
Compensation and Benefit Plan or otherwise from Inter-City, (b) increase any
benefits otherwise payable under any Compensation and Benefit Plan, or (c)
result in any acceleration of the time of payment or vesting of any such
benefit.
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(Q) NO KNOWLEDGE. Except as disclosed in Schedule 5.1(Q),
Inter-City knows of no reason why the regulatory approvals referred to in
Section 7.1(B) will not be obtained, and of no reason why the Merger will not
qualify, for accounting purposes, as a "pooling of interests" as referred to in
Recital D.
(R) LABOR AGREEMENTS. Inter-City is neither a party to nor
bound by any collective bargaining agreement, contract or other agreement or
understanding with a labor union or labor organization, nor is Inter-City the
subject of a proceeding asserting that it has committed an unfair labor practice
(within the meaning of the National Labor Relations Act) or seeking to compel it
to bargain with any labor organization as to wages and conditions of employment,
nor is there any strike or other labor dispute involving it pending or, to the
best of its Knowledge, threatened, nor is it aware of any activity involving its
employees seeking to certify a collective bargaining unit or engaging in any
other organization activity.
(S) ASSET CLASSIFICATION. Inter-City has disclosed to Peoples
in Schedule 5.1(S) a list, accurate and complete in all material respects, of
the aggregate amounts of loans, extensions of credit or other assets of
Inter-City that have been classified by Inter-City as of September 30, 1998 (the
"Asset Classification") and no amounts of loans, extensions of credit or other
assets that have been classified as of September 30, 1998, by any regulatory
examiner as "Other Loans Specially Mentioned," "Substandard," "Doubtful,"
"Loss," or words of similar import are excluded from the amounts disclosed in
the Asset Classification, other than amounts of loans, extensions of credit or
other assets that were charged off by Inter-City prior to September 30, 1998.
(T) ALLOWANCE FOR POSSIBLE LOAN LOSSES. The allowance for
possible loan losses shown on the balance sheet in the March 31, 1998,
Inter-City Financial Reports and the September 30, 1998 Thrift Financial Report
as filed with the OTS was, and the allowance for possible loan losses to be
shown on subsequent Inter-City audited financial statements and Thrift Financial
Reports will be, adequate in the opinion of the Board of Directors of Inter-City
to provide for possible losses, net of recoveries relating to loans previously
charged off, on loans outstanding (including accrued interest receivable) as of
the dates noted.
(U) INSURANCE. Inter-City has taken all requisite action
(including the making of claims and the giving of notices) pursuant to its
directors' and officers' liability insurance policy or policies in order to
preserve all rights under the policy or policies. Set forth in Schedule
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5.1(U) is a list of all insurance policies maintained by or for the benefit of
Inter-City and its directors, officers, employees or agents.
(V) AFFILIATES. Except as disclosed in Schedule 5.1(V), there
is no person who, as of the date of this Agreement, may be deemed to be an
"affiliate" of Inter-City as that term is used in Rule 145 under the Securities
Act.
(W) TAKEOVER LAWS, ARTICLES OF ASSOCIATION. Inter-City has
taken all necessary action to exempt this Agreement, and the transactions
contemplated by this Agreement from, and this Agreement and such transactions
are exempt from (1) any applicable takeover laws, and (2) any takeover-related
provisions of Inter-City's Charter.
(X) NO FURTHER ACTION. Except as disclosed on Schedule 5.1(X),
Inter-City has taken all action so that entering into this Agreement and the
consummation of the transactions contemplated by this Agreement (including the
Merger) or any other action or combination of actions, or any other
transactions, contemplated by this Agreement do not and will not (1) require a
vote of shareholders (other than as set forth in Section 7.1(A)), or (2) result
in the grant of any rights to any Person under the Charter or By-laws of
Inter-City or under any agreement to which Inter-City is a party, or (3)
restrict or impair in any way the ability of Peoples to exercise the rights
granted under this Agreement.
(Y) ENVIRONMENTAL MATTERS.
(1) To Inter-City's knowledge, the Participation
Facilities and the Loan/Fiduciary Properties are, and have been, in material
compliance with all Environmental Laws.
(2) There is no proceeding pending or, to Inter-City's
knowledge, threatened before any court, governmental agency or board or other
forum in which Inter-City or any Participation Facility has been, or with
respect to threatened proceedings, reasonably would be expected to be, named as
a defendant or potentially responsible party (a) for alleged noncompliance
(including by any predecessor) with any Environmental Law, or (b) relating to
the release or threatened release into the environment of any Hazardous
Material, whether or not occurring at or on a site owned, leased or operated by
Inter-City or any Participation Facility.
(3) There is no proceeding pending or, to Inter-City's
knowledge, threatened before any court, governmental agency or board or other
forum in which any Loan/Fiduciary Property (or Inter-City in respect of any
Loan/Fiduciary Property) has been, or with
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respect to threatened proceedings, reasonably would be expected to be, named as
a defendant or potentially responsible party (a) for alleged noncompliance
(including by any predecessor) with any Environmental Law, or (b) relating to
the release or threatened release into the environment of any Hazardous
Material, whether or not occurring at or on a Loan/Fiduciary Property.
(4) To Inter-City's knowledge, there is no reasonable
basis for any proceeding of a type described in subparagraph (2) or (3) of this
paragraph (Y).
(5) To Inter-City's knowledge, during the period of (a)
ownership or operation by Inter-City of any of its current properties, (b)
participation in the management of any Participation Facility by Inter-City, or
(c) holding of a security or other interest in a Loan/Fiduciary Property by
Inter-City, there have been no releases of Hazardous Material in, on, under or
affecting any such property, Participation Facility or Loan Fiduciary Property,
except for those releases that would not have a Material Adverse Effect on
Inter-City.
(6) To Inter-City's knowledge, prior to the period of (a)
ownership or operation by Inter-City of any of their current properties, (b)
participation in the management of any Participation Facility by Inter-City, or
(c) holding of a security or other interest in a Loan/Fiduciary Property by
Inter-City, there was no release of Hazardous Material in, on, under or
affecting any such property, Participation Facility or Loan/Fiduciary Property,
except for those releases that would not have a Material Adverse Effect on
Inter-City.
(Z) TAX REPORTS. (1) All reports and returns with respect to
Taxes that are required to be filed by or with respect to Inter-City, including
consolidated federal income tax returns of Inter-City (collectively, the "Tax
Returns"), have been duly filed, or requests for extensions have been timely
filed and have not expired, for periods ended on or prior to the most recent
fiscal year-end, and such Tax Returns were true, complete and accurate in all
material respects, (2) all Taxes shown to be due on the Tax Returns have been
paid in full, (3) except for the most recent three (3) years, the Tax Returns
have been examined by the Internal Revenue Service or the appropriate state,
local or foreign taxing authority, or the period for assessment of the Taxes in
respect of which such Tax Returns were required to be filed has expired, (4) all
Taxes due with respect to completed and settled examinations have been paid in
full, (5) no issues have been raised by the relevant taxing authority in
connection with the examination of any of the Tax Returns except as reserved
against in the Inter-City Financial Reports, and (6) no waivers of statutes of
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limitations (excluding such statutes that relate to years under examination by
the Internal Revenue Service) have been given by or requested with respect to
any Taxes of Inter-City.
(AA) ACCURACY OF INFORMATION. The statements with respect to
Inter-City contained in this Agreement, the Schedules and any other written
documents executed and delivered by or on behalf of Inter-City pursuant to the
terms of or relating to this Agreement are true and correct in all material
respects, and such statements do not omit any fact necessary to make such
statements, in light of the circumstances under which they were made, not
misleading.
(BB) DERIVATIVES CONTRACTS. Inter-City is not a party to nor
has it agreed to enter into a Derivatives Contract or to own securities that are
referred to as "structured notes," except as set forth on Schedule 5.1(BB).
(CC) ACCOUNTING CONTROLS. Inter-City has devised and
maintained systems of internal accounting controls sufficient to provide
reasonable assurances that (1) all transactions are executed in accordance with
management's general or specific authorization, (2) all transactions are
recorded as necessary to permit the preparation of financial statements in
conformity with GAAP, and to maintain proper accountability for items, (3)
access to the material property and assets of Inter-City is permitted only in
accordance with management's general or specific authorization, and (4) the
recorded accountability for items is compared with the actual levels at
reasonable intervals and appropriate action is taken with respect to any
differences.
(DD) COMMITMENTS AND CONTRACTS. Inter-City is not a party or
subject to any of the following (whether written or oral, express or implied):
(1) except as disclosed in Schedule 5.1(DD)(1), any
employment contract or understanding (including any understandings or
obligations with respect to severance or termination pay liabilities or fringe
benefits) with any present or former officer, director or employee (other than
those which are terminable at will by Inter-City without any obligation on the
part of Inter-City to make any payment in connection with such termination);
(2) except as disclosed in Schedule 5.1(DD)(2), any real
or personal property lease with annual rental payments aggregating $5,000 or
more; or
(3) except as disclosed on Schedule 5.1(DD)(3), any
material contract with any affiliate.
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(EE) NO LIQUIDATION ACCOUNT. Inter-City is not required to, and
does not, maintain a liquidation account resulting from the conversion of
Inter-City from a mutual savings association to a stock savings association.
5.2 PEOPLES' REPRESENTATIONS AND WARRANTIES. Subject to the limitations
and qualifications stated in Section 5.3, Peoples and the Bank hereby represent
and warrant to Inter-City as follows:
(A) RECITALS. The facts set forth in the Recitals of this Agreement
with respect to Peoples and its Subsidiaries are true and correct.
(B) ORGANIZATION, STANDING AND AUTHORITY. Peoples and each of its
Subsidiaries is duly qualified to do business and in good standing in the States
of the United States and foreign jurisdictions where the failure to be duly
qualified, individually or in the aggregate, is reasonably likely to have a
Material Adverse Effect on it. Peoples and its Subsidiaries have in effect all
federal, state, local and foreign governmental authorizations necessary for them
to own or lease their properties and assets and to carry on their businesses as
they are now conducted.
(C) SHARES. The outstanding shares of Peoples' capital stock are,
and the shares to be issued in exchange for Inter-City Common Stock when issued
will be, validly issued and outstanding, fully paid and nonassessable and
subject to no preemptive rights.
(D) CORPORATE POWER. Peoples and each of its Subsidiaries has the
corporate power and authority to carry on its business as it is now being
conducted or will be conducted and to own all its material properties and
assets.
(E) CORPORATE AUTHORITY. This Agreement has been authorized by all
necessary corporate action of Peoples and the Bank and is a valid and binding
agreement of Peoples and the Bank, enforceable against Peoples in accordance
with its terms, subject to bankruptcy, insolvency and other laws of general
applicability relating to or affecting creditors' rights and to general
equitable principles.
(F) NO DEFAULTS. Subject to receipt of the required regulatory
approvals referred to in Section 7.1(B), and the required filings under federal
and state securities laws, the execution, delivery and performance of this
Agreement and the consummation by Peoples and each of its Subsidiaries of the
transactions contemplated by this Agreement does not and will not (1) constitute
a breach or violation of, or a default under, any law, rule or regulation or any
judgment,
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decree, order, governmental permit or license, or agreement, indenture or
instrument of Peoples or any of its Subsidiaries or to which Peoples or any of
its Subsidiaries or its properties is subject or bound, (2) constitute a breach
or violation of, or a default under the articles of incorporation or By-Laws of
Peoples and its Subsidiaries, or (3) require any consent or approval under any
such law, rule, regulation, judgment, decree, order, governmental permit or
license or the consent or approval of any other party to any such agreement,
indenture or instrument.
(G) FINANCIAL REPORTS. The Annual Report of Peoples on Form 10-K
for the fiscal year ended December 31, 1997, and all other documents filed or to
be filed subsequent to December 31, 1997 under Sections 13(a), 13(c), 14 or
15(d) of the Exchange Act, in the form filed with the SEC (in each such case,
the "Peoples Financial Reports") did not and will not contain any untrue
statement of fact or omit to state a fact required to be stated or necessary to
make the statements made, in light of the circumstances under which they were
made, not misleading; and each of the consolidated balance sheets in or
incorporated by reference into the Peoples Financial Reports (including the
related notes and schedules thereto) fairly presents and will fairly present the
financial position of the entity or entities to which it relates as of its date,
and each of the consolidated statements of income and changes in shareholders'
equity and cash flows or equivalent statements in the Peoples Financial Reports
(including any related notes and schedules thereto) fairly presents and will
fairly present the results of operations, changes in shareholders' equity and
changes in cash flows, as the case may be, of the entity or entities to which it
relates for the periods set forth herein, in each case in accordance with GAAP,
except as may be noted therein.
(H) NO EVENTS. Since December 31, 1997, no event has occurred which
is reasonably likely to have a Material Adverse Effect on Peoples or its
Subsidiaries.
(I) LITIGATION. Except as disclosed in Schedule 5.2(I), before the
date of this Agreement:
(1) no criminal or administrative investigations or hearings,
before or by any Regulatory Authorities, or civil, criminal or administrative
actions, suits, claims or proceedings, before or by any person (including the
SEC and any Regulatory Authority) are pending or, to the knowledge of Peoples or
any of its subsidiaries, threatened, against Peoples or any of its Subsidiaries
(including under the Truth in Lending Act, the Equal Credit Opportunity
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Act, the Fair Housing Act, the Community Reinvestment Act of 1977, the Home
Mortgage Disclosure Act, or any fair lending law or other law relating to
discrimination); and
(2) neither Peoples or any of its Subsidiaries nor any of their
officers, directors, controlling persons, nor any of their material properties
is a party to or is subject to any order, decree, agreement, memorandum of
understanding or similar arrangement with, or a commitment letter or similar
submission to, the SEC or any Regulatory Authority charged with the supervision
or regulation of depository institutions or engaged in the insurance of deposits
(including the FDIC) or the supervision or regulation of Peoples or any of its
Subsidiaries, and they have not been advised by the SEC or any such Regulatory
Authority that the SEC or such Regulatory Authority is contemplating issuing or
requesting (or is considering the appropriateness of issuing or requesting) any
such order, decree, agreement, memorandum of understanding, commitment letter or
similar submission.
(J) REPORTS. Since December 31, 1993, Peoples and its Subsidiaries
have filed all reports and statements, together with any amendments required to
be made with respect thereto, that they were required to file with (1) the FDIC,
(2) the Federal Reserve Board, (3) the SEC, and (4) any other Regulatory
Authorities having jurisdiction with respect to Peoples and its Subsidiaries. As
of their respective dates (and without giving effect to any amendments or
modifications filed after the date of this Agreement with respect to reports and
documents filed before the date of this Agreement), each of such reports and
documents, including the financial statements, exhibits and schedules thereto,
complied in all material respects with all of the statutes, rules and
regulations enforced or promulgated by the SEC or any Regulatory Authority with
which they were filed and did not contain any untrue statement of fact or omit
to state any fact necessary in order to make the statements made therein, in
light of the circumstances under which they were made, not misleading.
(K) ACCURACY OF INFORMATION. The statements with respect to Peoples
and its Subsidiaries contained in this Agreement, the Schedules and any other
written documents executed and delivered by or on behalf of Peoples and its
Subsidiaries pursuant to the terms of this Agreement are true and correct in all
material respects, and such statements do not omit any fact necessary to make
such statements, in light of the circumstances under which they were made, not
misleading.
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(L) ABSENCE OF UNDISCLOSED LIABILITIES. Neither Peoples nor any of
its Subsidiaries has any obligation or liability (contingent or otherwise)
except (1) as reflected in the Peoples Financial Reports prior to the date of
this Agreement, and (2) for commitments and obligations made, or liabilities
incurred, in the ordinary course of business consistent with past practice since
December 31, 1997. Since December 31, 1997, neither Peoples nor any of its
Subsidiaries has incurred or paid any obligation or liability that, individually
or in the aggregate, is reasonably likely to have Material Adverse Effect on
Peoples.
(M) NO KNOWLEDGE. Peoples knows of no reason why the regulatory
approvals referred to in Section 7.1(B) will not be obtained, and of no reason
why the Merger will not qualify, for accounting purposes, as a "pooling of
interests" as referred to in Recital D.
(N) YEAR 2000 COMPLIANCE. Peoples has taken and is taking
appropriate steps to assure, and believes, that computer software operated by
Peoples and its Subsidiaries and their vendors will be able to properly process
transactions and function after December 31, 1999.
(O) TAX REPORTS. (1) All reports and returns with respect to Taxes
that are required to be filed by or with respect to Peoples, including
consolidated federal income tax returns of Peoples (collectively, the "Tax
Returns"), have been duly filed, or requests for extensions have been timely
filed and have not expired, for periods ended on or prior to the most recent
fiscal year end, and such Tax Returns were true, complete and accurate in all
material respects, (2) all Taxes shown to be due on the Tax Returns have been
paid full, (3) except for the most recent three (3) years, the Tax Returns have
been examined by the Internal Revenue Service or the appropriate state, local or
foreign taxing authority, or the period for assessment of the Taxes in respect
of which such Tax Returns were required to be filed has expired, (4) all Taxes
due with respect to completed and settled examinations have been paid in full,
(5) no issues have been raised by the relevant taxing authority in connection
with the examination of any of the Tax Returns, except as reserved against in
the Peoples Financial Reports, and (6) no waivers of statutes of limitations
(excluding such statutes that relate to years under examination by the Internal
Revenue Service) have been given by or requested with respect to any Taxes of
Peoples.
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5.3 EXCEPTIONS TO REPRESENTATIONS.
(A) DISCLOSURE OF EXCEPTIONS. Each exception set forth in a
Schedule is disclosed only for purposes of the representations referred in that
exception, but the following conditions apply:
(1) no exception is required to be set forth in a Schedule
if its absence would not result in the related representation being found untrue
or incorrect under the standard established by Section 5.3(B); and
(2) the mere inclusion of an exception in a Schedule is
not an admission by a party that the exception represents a material fact,
material set of facts, or material event or would result in a Material Adverse
Effect with respect to that Party.
(B) NATURE OF EXCEPTIONS. No representation contained in this
Article V will be found untrue or incorrect and no Party to this Agreement will
have breached a representation due to the following: the existence of any fact,
set of facts, or event if the fact or event individually or taken together with
other facts or events would not, or is not reasonably likely to, have a Material
Adverse Effect with respect to such Party.
ARTICLE VI. COVENANTS
Inter-City and Peoples each hereby covenants to the other as follows:
6.1 BEST EFFORTS. Inter-City covenants to Peoples and Peoples covenants
to Inter-City that, subject to the terms and conditions of this Agreement and to
the exercise by its Board of Directors of such Board's fiduciary duties, it will
use its reasonable best efforts in good faith to take, or cause to be taken, all
actions, and to do, or cause to be done, all things necessary, proper or
desirable, or advisable under applicable laws, so as to permit consummation of
the Merger as soon as practicable and to otherwise enable consummation of the
transactions contemplated by this Agreement and will cooperate fully with the
other Parties to that end.
6.2 THE PROXY. Inter-City will promptly assist Peoples in the
preparation of a joint proxy statement (the "Proxy Statement") to be mailed to
the holders of Inter-City Common Stock in connection with the transactions
contemplated by this Agreement and to be filed by Peoples in a registration
statement (the "Registration Statement") with the SEC as provided in Section
6.8, which will conform to all applicable legal requirements. Inter-City will
call a meeting (the "Meeting") of the holders of Inter-City Common Stock to be
held as soon as practicable for
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purposes of voting upon the transactions contemplated by this Agreement, and
Inter-City will use its reasonable best efforts to solicit and obtain votes of
the holders of Inter-City Common Stock in favor of the transactions contemplated
by this Agreement and, subject to the exercise of its fiduciary duties, the
Board of Directors of Inter-City will recommend approval of such transactions by
its shareholders.
6.3 REGISTRATION STATEMENT -- COMPLIANCE WITH SECURITIES LAWS.
Inter-City covenants to Peoples with respect to all information contained
therein furnished by or on behalf of Inter-City, and Peoples covenants to
Inter-City with respect to all information contained therein furnished by or on
behalf of Peoples, that when the Registration Statement or any post-effective
amendment or supplement to the Registration Statement becomes effective, and at
all times subsequent to such effectiveness, up to and including the date of the
Meeting, such Registration Statement, and all amendments or supplements thereto,
(A) will comply in all material respects with the provisions of the Securities
Act and any other applicable statutory or regulatory requirements, and (B) will
not contain any untrue statement of a material fact or omit to state a material
fact required to be stated therein or necessary to make the statements contained
therein not misleading. But, no Party will be liable for any untrue statement of
a material fact or omission to state a material fact in the Registration
Statement made in reliance upon, and in conformity with, written information
concerning another Party furnished by or on behalf of such other Party
specifically for use in the Registration Statement.
6.4 REGISTRATION STATEMENT EFFECTIVENESS. Peoples covenants that it
will advise Inter-City, promptly after Peoples receives any notice of the time
when the Registration Statement has become effective or any supplement or
amendment has been filed, of the issuance of any stop order or the suspension of
the qualification of the Peoples Common Stock for offering or sale in any
jurisdiction, of the initiation or threat of any proceeding for any such
purpose, or of any request by the SEC for the amendment or supplement of the
Registration Statement or for additional information.
6.5 PRESS RELEASES. Inter-City will not, without the prior approval of
Peoples, and Peoples will not, without the prior approval of Inter-City, issue
any press release or written statement for general circulation relating to the
transactions contemplated by this Agreement, except as otherwise required by
law.
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6.6 ACCESS; INFORMATION.
(A) Upon reasonable notice, each Party will afford the other
Party and its officers, employees, counsel, accountants and other authorized
representatives, access, during normal business hours throughout the period up
to the Effective Date, and subject to legal, fiduciary and reasonable security
requirements, to all of its properties, books, contracts, commitments and
records; and subject to such requirements, during the period up to the Effective
Date, Inter-City will promptly furnish (and cause its accountants and other
agents to promptly furnish) to Peoples (1) a copy of each material report,
schedule and other document filed by Inter-City with any Regulatory Authority,
(2) such representations and certifications as are necessary for purposes of the
pooling letter described in Section 7.2(G), and (3) all other information
concerning the business, properties and personnel of Inter-City as Peoples may
reasonably request, provided that no investigation pursuant to this Section 6.6
will affect or be deemed to modify or waive any representation or warranty made
by Inter-City in this Agreement or the conditions to the obligations of
Inter-City to consummate the transactions contemplated by this Agreement; and
(B) Peoples will not use any information obtained pursuant to
Section 3.12 or this Section 6.6 for any purpose unrelated to the consummation
of the transactions contemplated by this Agreement and, if this Agreement is
terminated, will hold all confidential information and documents obtained
pursuant to this paragraph in confidence (as provided in Section 9.6) unless and
until such time as such information or documents become publicly available other
than by reason of any action or failure to act by Peoples or as it is advised by
counsel that any such information or document is required by law or applicable
stock exchange rule to be disclosed. In the event of the termination of this
Agreement, Peoples will, upon request by Inter-City, deliver to Inter-City all
documents so obtained by Peoples or destroy such documents and, in the case of
destruction, will certify such fact to Inter-City.
6.7 ACQUISITION PROPOSALS.
(A) Except as disclosed in Schedule 6.7(A), Inter-City will
not solicit, initiate or encourage inquiries or proposals with respect to, or,
except as required by the fiduciary duties of the Board of Directors of
Inter-City (as advised in writing by its outside counsel), furnish any nonpublic
information relating to or participate in any negotiations or discussions
concerning, any acquisition or purchase of all or a substantial portion of the
assets of, or a substantial equity interest
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in, Inter-City or any merger or other business combination with Inter-City other
than as contemplated by this Agreement ("Acquisition Proposal"); it will
instruct its officers, directors, agents, advisors and affiliates to refrain
from doing any of the foregoing; and it will notify Peoples immediately if an
executive officer or director of Inter-City acquires knowledge that any such
inquiries or proposals are received by, or any such negotiations or discussions
are sought to be initiated with, Inter-City.
(B) If (1) an Acquisition Proposal occurs prior to the Meeting
of the holders of Inter-City Common Stock, (2) Inter-City shareholder approval
contemplated by Section 7.1(A) is not obtained at the Meeting of the holders of
Inter-City Common Stock, and (3) prior to June 30, 2000, a Third Party acquires
control of Inter-City by merger, purchase of assets, acquisition of stock or
otherwise, then unless any representation or warranty of Peoples in this
Agreement was false in any material respect as of the date of the Meeting of the
holders of Inter-City Common Stock or Peoples was in material default of any
covenant in this Agreement as of such date, Inter-city shall, upon written
demand by Peoples, pay to Peoples liquidated damages in the amount of $250,000;
provided however, the payment of such sum by Inter-City shall in no way limit
the rights of Peoples against any third party. For the purposes of this
Subsection (B), a Third Party will be deemed to have acquired control of
Inter-City when the Third Party possesses, directly or indirectly, the power to
direct or cause the direction of the management and policies of Inter-City
whether through the ownership of voting interests, by contract, or otherwise.
6.8 REGISTRATION STATEMENT PREPARATION; REGULATORY APPLICATIONS
PREPARATION. Peoples will, as promptly as practicable following the date of this
Agreement, prepare and file the Registration Statement with the SEC with respect
to the shares of Peoples Common Stock to be issued to the holders of Inter-City
Common Stock pursuant to this Agreement, and Peoples will use its best efforts
to cause the Registration Statement to be declared effective as soon as
practicable after the filing of the Registration Statement. Peoples will, as
promptly as practicable following the date of this Agreement, prepare and file
all necessary notices or applications with Regulatory Authorities having
jurisdiction with respect to the transactions contemplated by this Agreement.
6.9 EMPLOYMENT AGREEMENTS/SEVERANCE PAYMENTS. (1) Peoples and the Bank
will assume all liability for and will honor the employment agreements and
change-in-
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control agreements between Inter-City and various employees as described on
Schedule 5.1(P)(1). (2) Peoples will pay severance payments to employees of
Inter-City who are terminated in connection with the Merger as set forth in
Schedule 6.9(2). (3) In addition to honoring the agreements referred to in this
Section 6.9(1), Peoples will allow those persons who were employees of
Inter-City immediately prior to the Effective Date the opportunity to
participate in those employee benefit plans maintained by Peoples for its
employees, subject to such terms and conditions relating to eligibility and
participation as are applicable to employees generally; provided, however, that
in applying any such terms and conditions, those persons who were employees of
Inter-City immediately prior to the Effective Date shall be given credit for
service in accordance with Section 6.18. Finally, the accrued sick leave of
those persons who were employees of Inter-City immediately prior to the
Effective Date, determined as of the Effective Date, shall survive the Merger
and shall become obligations of the Bank.
6.10 BLUE-SKY FILINGS. Peoples will use its best efforts to obtain,
prior to the effective date of the Registration Statement, any necessary state
securities laws or "blue sky" permits and approvals, provided that Peoples will
not be required as a result to submit to general jurisdiction in any state.
6.11 AFFILIATE AGREEMENTS. Inter-City will use its reasonable best
efforts to induce each person who may be deemed to be an "affiliate" of
Inter-City for purposes of Rule 145 under the Securities Act to execute and
deliver to Peoples on or before the mailing of the Proxy Statement for the
Inter-City Meeting an agreement in the form attached hereto as Exhibit A
restricting the disposition of such affiliate's shares of Inter-City Common
Stock and the shares of Peoples Common Stock to be received by such person in
exchange for such person's shares of Inter-City Common Stock. In the case of
Peoples, Peoples agrees to use its best efforts to maintain the availability of
Rule 145 for use by such "affiliates".
6.12 TAKEOVER LAW. Inter-City will not take any action that would cause
the transactions contemplated by this Agreement to be subject to any applicable
takeover statute, and Inter-City will take all necessary steps to exempt (or
ensure the continued exemption of) the transactions contemplated by this
Agreement from, or, if necessary, challenge the validity or applicability of,
any applicable takeover law.
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6.13 NO RIGHTS TRIGGERED. Inter-City will take all reasonable necessary
steps to ensure that entering into this Agreement and the consummation of the
transactions contemplated by this Agreement and any other action or combination
of actions, or any other transactions contemplated by this Agreement, do not and
will not result in the grant of any rights to any Person under the Charter or
By-Laws of Inter-City or under any agreement to which Inter-City is a party.
6.14 SHARES LISTED. Peoples will use its best efforts to cause to be
listed, prior to the Effective Date, on The American Stock Exchange, upon
official notice of issuance, the shares of Peoples Common Stock to be issued to
the holders of Inter-City Common Stock.
6.15 CURRENT INFORMATION.
(A) During the period from the date of this Agreement to the
Effective Date, both Inter-City and Peoples will, and will cause its
representatives to, confer on a regular and frequent basis with representatives
of the other.
(B) Both Inter-City and Peoples will promptly notify the other
of (1) any material change in the business or operations of it or its
Subsidiaries, (2) any material complaints, investigations or hearings (or
communications indicating that the same may be contemplated) of any Regulatory
Authority relating to it or its Subsidiaries, (3) the initiation or threat of
material litigation involving or relating to it or its Subsidiaries, or (4) any
event or condition that might reasonably be expected to cause any of its
representations or warranties set forth in this Agreement not to be true and
correct in all material respects as of the Effective Date or prevent it or its
Subsidiaries from fulfilling its or their obligations under this Agreement.
6.16 INDEMNIFICATION.
(A) From and after the Effective Date, Peoples shall
indemnify, defend and hold harmless the present and former directors, officers
and employees of Inter-City (each, an "Indemnified Party") against all costs or
expenses (including reasonable attorneys' fees), judgments, fines, losses,
claims, damages or liabilities occurred in connection with any claim, action,
suit, proceeding or investigation, whether civil, criminal, administrative or
investigative, and arising out of matters existing or occurring at or prior to
the Effective Date, whether asserted or claimed prior to, at or after the
Effective Date, to the fullest extent that Inter-City would have been permitted
under applicable federal laws and regulations and its Charter or By-Laws in
effect on the date of this Agreement to indemnify such person (and Peoples also
will advance expenses as
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incurred to the fullest extent permitted under applicable law or regulation so
long as the person to whom expenses are advanced provides an undertaking to
repay such advances within a reasonable period of time if it is ultimately
determined that applicable law does not allow for such indemnification).
(B) Any Indemnified Party wishing to claim indemnification
under Paragraph (A) of this Section 6.16, upon learning of such claim, action,
suit, proceeding or investigation, shall promptly notify Peoples thereof,
provided, however, that the failure so to notify shall not affect the
obligations of Peoples under Paragraph (A) of this Section 6.16 (unless such
failure materially and adversely increases Peoples' liability under such
Paragraph (A)). In the event of any such claim, action, suit, proceeding or
investigation (whether arising before or after the Effective Date), (1) Peoples
shall have the right and obligation to assume the defense thereof without
admitting any liability or wrongdoing on the part of the Indemnified Party, and
Peoples shall pay all reasonable fees and expenses of such counsel for the
Indemnified Party promptly as statements therefor are received; provided,
however, that Peoples shall be obligated pursuant to this Paragraph (B) to pay
for only one firm of counsel for all Indemnified Parties in any jurisdiction for
any single action, suit or proceeding, (2) the Indemnified Parties will
cooperate in the defense of any such matter, and (3) Peoples shall not be liable
for any settlement effected without its prior written consent which shall not be
unreasonably withheld.
(C) If Peoples or any of its successors or assigns shall
consolidate with or merge into any other entity and shall not be the continuing
or surviving entity of such consolidation or merger or shall transfer all or
substantially all of its assets to any entity, then and in each case, proper
provision shall be made so that the successors and assigns of Peoples shall
assume the obligations set forth in this Section 6.16.
(D) Peoples shall pay all expenses, including attorneys' fees,
that may be incurred by any Indemnified Party in enforcing the indemnity and
other obligations provided for in this Section 6.16. The rights of each
Indemnified Party under this Section 6.16 shall be in addition to any other
rights such Indemnified Party may have under the Charter or By-Laws of
Inter-City or under applicable federal law or regulation.
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6.17 APPOINTMENT OF DIRECTOR. Immediately after the Effective Date,
Peoples will cause the appointment of one director (to be selected by the
Inter-City Board of Directors from the current directors of Inter-City) to the
Board of Directors of Peoples and the Bank to hold office until such time as his
or her successor is elected and qualified. Such person shall neither be an
officer or employee of Peoples or the Bank and shall not, as of the Effective
Date, be more than 72 years of age.
6.18 CREDIT FOR EMPLOYMENT BY INTER-CITY. For purposes of determining
length of service for eligibility, vesting and benefit accrual purposes under
each employee benefit plan or fringe benefit plan maintained by the Merged Bank,
Peoples shall cause the Merged Bank to grant to each person who is employed by
Inter-City immediately prior to the Effective Date service credit for all
periods of employment with Inter-City rendered prior to the Effective Date,
unless such service crediting would be impermissible under ERISA, the Code or
any other applicable law.
6.19 HEALTH PLAN COVERAGE. If the Merged Bank provides coverage under
any group health plan(s), within the meaning of Section 5000(b)(1) of the Code,
that is different from the coverage available to Inter-City employees (and their
eligible dependents) immediately prior to the Effective Date, Peoples shall
cause the Merged Bank to waive waiting periods and pre-existing condition
limitations under any such successor group health plans for Inter-City employees
(and their eligible dependents) who have coverage immediately prior to the
Effective Date under a group health plan maintained by Inter-City. If the first
plan year of participation in any such successor group health plan is a partial
year, Peoples shall cause the Merged Bank to give any such Inter-City employee
credit towards deductible and out-of-pocket limitations for any expenses
incurred by such persons (and their eligible dependents) under Inter-City's
group health plan(s) during that portion of that plan year that precedes their
entry into the Merged Bank's group health plan(s).
ARTICLE VII. CONDITIONS TO
CONSUMMATION OF THE MERGER
7.1 CONDITIONS TO EACH PARTY'S OBLIGATIONS. The respective obligations
of each Party to consummate the transactions contemplated by this Agreement are
subject to the written waiver by such Party or the fulfillment on or prior to
the Effective Date of each of the following conditions:
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(A) SHAREHOLDER VOTE. This Agreement will have been duly
approved by the requisite vote of Inter-City's shareholders under applicable law
and regulation and the Charter and By-Laws of Inter-City.
(B) REGULATORY APPROVALS. The Parties will have procured all
necessary regulatory consents and approvals by the appropriate Regulatory
Authorities (including, but not limited to, any approval by or notice to the OTS
required by Section 552.13 of Title 12 of the Code of Federal Regulations), any
waiting periods relating to such consents and approvals will have expired, and
no such approval or consent will have imposed any condition or requirement that,
in the opinion of Peoples, would deprive Peoples of the material economic or
business benefits of the transactions contemplated by this Agreement.
(C) NO INJUNCTION. There will not be in effect any order,
decree or injunction of any court or agency of competent jurisdiction that
enjoins or prohibits consummation of any of the transactions contemplated by
this Agreement.
(D) EFFECTIVE REGISTRATION STATEMENT. The Registration
Statement will have become effective and no stop order suspending the
effectiveness of the Registration Statement will have been issued and no
proceedings for that purpose will have been initiated or threatened by the SEC
or any other Regulatory Authority.
(E) BLUE SKY PERMITS. Peoples will have received all state
securities laws and "blue sky" permits necessary to consummate the Merger.
(F) TAX OPINION. Peoples, the Bank and Inter-City will have
received an opinion from Gerrish & McCreary, P.C. to the effect that (1) the
Merger constitutes a tax-free reorganization under Section 368(a)(1)(A) and
Section 368(a)(2)(D) of the Code, and (2) no gain or loss will be recognized by
shareholders of Inter-City who receive shares of Peoples Common Stock in
exchange for their shares of the Inter-City Common Stock, except that gain or
loss may be recognized as to cash received in lieu of fractional share
interests. In rendering their opinion, Gerrish & McCreary, P.C. may require and
rely upon representations contained in certificates of officers of Peoples,
Inter-City and others.
(G) AMERICAN STOCK EXCHANGE LISTING. The shares of Peoples
Common Stock to be issued pursuant to this Agreement will have been approved for
listing on the American Stock Exchange subject only to official notice of
issuance.
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7.2 CONDITIONS TO OBLIGATIONS OF PEOPLES. The obligations of Peoples to
consummate the transactions contemplated by this Agreement also are subject to
the written waiver by Peoples or the fulfillment on or prior to the Effective
Date of each of the following conditions:
(A) LEGAL OPINION. Peoples will have received an opinion,
dated the Effective Date, of Powell, Goldstein, Frazer & Murphy LLP, counsel for
Inter-City, incorporating the opinions set forth in Exhibit B.
(B) OFFICERS' CERTIFICATE. (1) Except as otherwise
contemplated by this Agreement, each of the representations and warranties of
Inter-City contained in this Agreement will be true and correct in all material
respects as of the date of this Agreement and upon the Effective Date with the
same effect as though all such representations and warranties had been made on
the Effective Date, except for any such representations and warranties that
specifically relate to an earlier date, which will be true and correct as of
such earlier date, and (2) the president and the chief executive officer of
Inter-City will each sign a certificate, dated the Effective Date, certifying
that each and all of the agreements and covenants of Inter-City to be performed
and complied with pursuant to this Agreement on or prior to the Effective Date
have been duly performed and complied with in all material respects.
(C) RECEIPT OF AFFILIATE AGREEMENTS. Peoples will have
received from each affiliate of Inter-City the agreement referred to in Section
6.11.
(D) RECEIPT OF NON-COMPETE AGREEMENTS. Peoples will have
received from each of the directors of Inter-City, an executed Non-Compete
Agreement with Peoples substantially in the form of Exhibit C attached hereto.
Inter-City agrees that it shall use its reasonable best efforts to cause each of
Inter-City's directors to enter into a Non-Compete Agreements.
(E) ADVERSE CHANGE. During the period from March 31, 1998 to
the Effective Date, there will not have been any material adverse change in the
financial position or results of operations of Inter-City, nor will Inter-City
have sustained any loss or damage to its properties, whether or not insured,
that materially affects its ability to conduct its business; and Peoples will
have received a certificate dated the Effective Date signed by the President and
by the Chief Executive Officer of Inter-City to such effect.
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(F) DISSENTERS' RIGHTS. The number of shares of Inter-City
Common Stock for which cash is to be paid because dissenters' rights of
appraisal under the Appraisal Laws will have been effectively preserved as of
the Effective Date or because of the payment of cash in lieu of fractional
shares of Peoples Common Stock, will not exceed in the aggregate 10% of the
outstanding shares of Inter-City Common Stock.
(G) POOLING LETTER. Peoples will have received a letter dated
as of the Effective Date, in form and substance acceptable to Peoples, from
Ernst & Young LLP to the effect that the Merger will qualify for
pooling-of-interests accounting treatment.
(H) CAPITAL. Inter-City's capital (without giving effect to
Transaction Expenses and fees to and expenses of The Carson Medlin Company) will
not be less than $5,100,000 on the Effective Date. Transaction Expenses will not
exceed $40,000.
(I) ALLOWANCE FOR LOAN AND LEASE LOSSES. Inter-City's
allowance for possible loan and lease losses will not be less than .37% of
Inter-City's total outstanding loans and leases and will be adequate to absorb
Inter-City's anticipated loan and lease losses.
7.3 CONDITIONS TO OBLIGATIONS OF INTER-CITY. The obligations of
Inter-City to consummate the transactions contemplated by this Agreement also
are subject to the written waiver by Inter-City or the fulfillment on or prior
to the Effective Date of each of the following conditions:
(A) OFFICER'S CERTIFICATE. (1) Except as otherwise
contemplated by this Agreement, each of the representations and warranties of
Peoples contained in this Agreement will be true and correct in all material
respects as of the date of this Agreement and upon the Effective Date, with the
same effect as though all such representations and warranties had been made on
the Effective Date, except for any such representations and warranties that
specifically relate to an earlier date, which will be true and correct as of
such earlier date, and (2) each and all of the agreements and covenants of
Peoples to be performed and complied with pursuant to this Agreement on or prior
to the Effective Date will have been duly performed and complied with in all
material respects, and Inter-City will have received a certificate dated the
Effective Date signed by an executive officer of Peoples to such effect.
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(B) ADVERSE CHANGE. During the period from December 31, 1997
to the Effective Date, there will not have been any material adverse change in
the financial position or results of operations of Peoples, nor will Peoples
have sustained any loss or damage to its properties, whether or not insured,
that materially affects its ability to conduct its business; and Inter-City will
have received a certificate dated the Effective Date signed by an executive
officer of Peoples to such effect.
(C) LEGAL OPINION. Inter-City will have received an opinion,
dated the Effective Date, of Gerrish & McCreary, P.C., counsel for Peoples,
incorporating the opinions set forth in Exhibit F.
(D) FAIRNESS OPINION. The Board of Directors of Inter-City
shall have received the opinion of The Carson Medlin Company dated as of the
date of the Proxy Statement to the effect that the Merger is fair to the
shareholders of Inter-City from a financial point of view. The cost of the
Fairness Opinion shall be included in the fees and expenses to be paid to The
Carson Medlin Company disclosed to Peoples prior to the execution of this
Agreement.
ARTICLE VIII. TERMINATION
8.1 EVENTS OF TERMINATION. This Agreement may be terminated prior to
the Effective Date, either before or after receipt of required shareholder
approval:
(A) MUTUAL CONSENT. By the mutual consent of Peoples, the Bank
and Inter-City, if the Board of Directors of each so determines by vote of a
majority of the members of its entire board.
(B) BREACH. By Peoples or Inter-City, if its Board of
Directors so determines by vote of a majority of the members of its entire
Board, in the event of (A) a material breach by the other Party of any
representation or warranty in this Agreement, which breach cannot be or has not
been cured within 30 days after written notice of the breach has been given to
the breaching Party, or (B) a material breach by the other Party of any of the
covenants or agreements in this Agreement, which breach cannot be or has not
been cured within 30 days after written notice of the breach has been given to
the breaching Party.
(C) DELAY. By Peoples or Inter-City, if its Board of Directors
so determines by vote of a majority of the members of the entire Board, in the
event that the Merger is not consummated by June 30, 1999; provided, however,
that no Party that is in material breach of any
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of the provisions of this Agreement will be entitled to terminate this Agreement
pursuant to this Section 8.1(C).
(D) NO SHAREHOLDER APPROVAL. By Inter-City, if its Board of
Directors so determines by a vote of a majority of the members of its entire
Board, if the shareholder approval contemplated by Section 7.1(A) is not
obtained at the Meeting or any adjournment(s) of the Meeting.
8.2 CONSEQUENCES OF TERMINATION.
(A) GENERAL CONSEQUENCES. Subject to Sections 6.6 and 6.7, in
the event of the termination or abandonment of this Agreement pursuant to the
provisions of Section 8.1, this Agreement will become void and have no force or
effect, without any liability on the part of the Parties or any of their
respective directors or officers or shareholders with respect to this Agreement.
(B) OTHER CONSEQUENCES. Notwithstanding anything in this
Agreement to the contrary, no termination of this Agreement will relieve any
Party of any liability for any willful breach of this Agreement or for any
willful misrepresentation under this Agreement or be deemed to constitute a
waiver of any remedy available for such breach or misrepresentation. In any
action or proceeding in connection with such breach or misrepresentation, the
prevailing Party will be entitled to reasonable attorneys' fees and expenses.
ARTICLE IX. OTHER MATTERS
9.1 SURVIVAL. Only those agreements and covenants in this Agreement
that, by their express terms apply in whole or in part after the Effective Date,
will survive the Effective Date. All other representations, warranties, and
covenants will be deemed only to be conditions of the Merger and will not
survive the Effective Date. If the Merger is abandoned and this Agreement is
terminated, the provisions of Article VIII will apply and the agreements of the
Parties in Sections 6.6 and 6.7 will survive such abandonment and termination.
9.2 WAIVER; AMENDMENT. Prior to the Effective Date, any provision of
this Agreement may be (A) waived in writing by the Party benefited by the
provision, or (B) amended or modified at any time (including the structure of
the transactions contemplated by this Agreement) by an agreement in writing
among the Parties approved by their respective Boards of Directors and executed
in the same manner as this Agreement, except that, after the votes by the
40
<PAGE> 128
shareholders of Inter-City, the consideration to be received by the shareholders
of Inter-City for each share of Inter-City Common Stock will not thereby be
decreased. Nothing contained in this Section 9.2 is intended to modify Peoples'
rights pursuant to Section 6.7.
9.3 COUNTERPARTS. This Agreement may be executed in one or more
facsimile counterparts, each of which will be deemed to constitute an original.
This Agreement will become effective when one counterpart has been signed by
each Party.
9.4 GOVERNING LAW. This Agreement will be governed by, and interpreted
in accordance with, the laws of the State of Mississippi, except as federal law
and regulation may be applicable.
9.5 EXPENSES. Each Party will bear all expenses incurred by it in
connection with this Agreement and the transactions contemplated by this
Agreement.
9.6 CONFIDENTIALITY. Except as otherwise provided in Section 6.6(B),
each of the Parties and their respective agents, attorneys and accountants will
maintain the confidentiality of all information provided in connection herewith
which has not been publicly disclosed.
9.7 NOTICES. All notices, requests and other communications hereunder
to a "Party" will be in writing and will be deemed to have been duly given when
delivered by hand, telegram, certified or registered mail, overnight courier,
telecopier or telex (confirmed in writing) to such Party at its address set
forth below or such other address as such Party may specify by notice to the
other Party.
Peoples: The Peoples Holding Company
209 Troy Street
Tupelo, MS 38801-4827
Attn: John W. Smith
Telephone: (601) 680-100
Facsimile: (601) 680-1234
With copies to: Mitchell, Voge, Corban and Morris
108 North Broadway Street
Tupelo, MS 38802-0029
Telephone: (601) 842-4231
Facsimile: (601) 842-2689
41
<PAGE> 129
Gerrish & McCreary, P.C.
700 Colonial Road - Suite 200
Memphis, TN 38117
Attn: Ann W. Langston, Esq.
Telephone: (901) 767-0900
Facsimile: (901) 684-2339
Bank: The Peoples Bank & Trust Company
209 Troy Street
Tupelo, MS 38801-4827
Attn: John W. Smith
Telephone: (601) 680-1001
Facsimile: (601) 680-1234
With copies to: Mitchell, Voge, Corban and Morris
108 North Broadway Street
Tupelo, MS 38802-0029
Telephone: (601) 842-4231
Facsimile: (601) 842-2689
Gerrish & McCreary, P.C.
700 Colonial Road - Suite 200
Memphis, TN 38117
Attn: Ann W. Langston, Esq.
Telephone: (901) 767-0900
Facsimile: (901) 684-2339
Inter-City: Inter-City Federal Bank for Savings
228 Main Street
Louisville, MS 39339
Attn: Terry Lee Woods
Telephone: ((601)773-8061
Facsimile: (601) 773-8062
with a copy to: Powell, Goldstein, Frazer & Murphy LLP
191 Peachtree Street, N.E. - 16th Floor
Atlanta, GA 30303
Attn: Kathryn L. Knudson, Esq.
Telephone: (404) 572-6952
Facsimile: (404) 572-6999
42
<PAGE> 130
9.8 ENTIRE UNDERSTANDING; LIMITED THIRD PARTY BENEFICIARIES. This
Agreement represents the entire understanding of the Parties with reference to
transactions contemplated by this Agreement and supersedes any and all other
oral or written agreements previously made. Nothing in this Agreement, expressed
or implied, is intended to confer upon any Person, other than each Indemnified
Party, the Parties or their respective successors, any rights, remedies,
obligations or liabilities under or by reason of this Agreement.
9.9 HEADINGS. The headings contained in this Agreement are for
reference purposes only and are not part of this Agreement.
9.10 BROKERS. No action has been taken by any Party hereto that would
give rise to any valid claim against any Party hereto for a brokerage
commission, finder's fee or other like payment with respect to the transactions
contemplated hereby excluding, in the case of Inter-City, fees to be paid to The
Carson Medlin Company pursuant to agreements which have been disclosed in full
to Peoples.
THE PEOPLES HOLDING COMPANY
By: /s/
------------------------------------------
John W. Smith
Its: President and Chief Executive Officer
43
<PAGE> 131
THE PEOPLES BANK & TRUST COMPANY
By: /s/
------------------------------------------
John W. Smith
Its: President and Chief Executive Officer
INTER-CITY FEDERAL BANK FOR SAVINGS
By: /s/
------------------------------------------
Joseph K. Suttle
Its: Chairman of the Board
44
<PAGE> 132
EXHIBIT A
, 1999
----------
The Peoples Holding Company
209 Troy Street
Tupelo, MS 38801-4827
Gentlemen:
I have been advised that I may be considered to be an "affiliate" of Inter-City
Federal Bank for Savings ("Inter-City") for purposes of Rule 145 of the General
Rules and Regulations (the "Rules and Regulations") of the Securities and
Exchange Commission (the "Commission") under the Securities Act of 1933, as
amended (the "1933 Act"). Pursuant to the Agreement and Plan of Merger by and
among Inter-City and The Peoples Holding Company ("Peoples"), dated
__________________, 1998 (the "Agreement"), I will receive shares of common
stock, $5.00 par value, of Peoples ("Peoples Common Stock") in exchange for my
shares of common stock, par value $.01 per share, of Inter-City owned by me at
the Effective Date of the merger provided for in the Agreement (the "Merger").
This agreement is hereinafter referred to as the "Affiliate's Agreement."
I represent and warrant to, and agree with, Peoples that:
A. I shall not make any sale, transfer or other disposition of my Peoples
Common Stock in violation of the 1933 Act or the Rules and Regulations
promulgated thereunder.
B. I have been advised that the offering, sale and delivery of Peoples
Common Stock to me pursuant to the Merger has been registered under the
1933 Act in a Registration Statement on Form S-4. I also have been
advised, however, that, since I may be deemed to be an "affiliate" of
Peoples at the time the Agreement is to be submitted for a vote of the
stockholders of Peoples, any public offering or sale by me of any
shares of Peoples Common Stock will, under current law, require either
(i) the further registration under the 1933 Act of Peoples Common Stock
to be offered and sold, (ii) compliance with Rule 145 promulgated by
the Commission under the 1933 Act, or (iii) the availability of another
exemption from such registration under the 1933 Act.
<PAGE> 133
The Peoples Holding Company
November ___, 1999
Page 2
C. I have read this Affiliate's Agreement and the Agreement and have
discussed their requirements and other applicable limitations upon my
ability to sell, transfer or otherwise dispose of Peoples Common Stock,
to the extent I felt necessary, with my counsel or counsel for
Inter-City.
D. I have been informed by Peoples that Peoples Common Stock has not been
registered under the 1933 Act for distribution by me and that Peoples
Common Stock must be held by me for at least one year unless (i) such
shares of Peoples Common Stock have been registered for distribution
under the 1933 Act, (ii) a sale of the shares of Peoples Common Stock
is made in conformity with the volume and/or other limitations of Rule
145 promulgated by the Commission under the 1933 Act, or (iii) in the
opinion of counsel acceptable to Peoples, some other exemption from
registration under the 1933 Act is available with respect to any such
proposed sale, transfer or other disposition of the shares of Peoples
Common Stock.
E. I understand that stop transfer instructions similar to the limitations
referred to in paragraph D above will be given to Peoples' transfer
agent with respect to the Peoples Common Stock delivered to me pursuant
to the Merger and that there will be placed on the certificates for
such shares of Peoples Common Stock, or any substitutions therefor, a
legend stating in substance:
The shares represented by this certificate were issued in a
transaction to which Rule 145 promulgated under the Securities
Act of 1933, as amended (the "Act") applies and prior to
__________________ may be sold or otherwise transferred only
in compliance with the limitations of such Rule 145, or upon
receipt by The Peoples Holding Company of an opinion of
counsel acceptable to it that some other exemption from
registration under the Act is available, or pursuant to a
registration statement under the Act.
F. I hereby agree that, for a period of one (1) year following the
Effective Date of the Merger provided for in the Agreement, I will
obtain an agreement similar to this from each transferee of Peoples
Common Stock (acquired by me pursuant to the Agreement) if such
transfer is effected other than in a transaction involving a registered
public offering or as a sale pursuant to Rule 145.
G. Notwithstanding the above, I hereby agree that I will not sell any of
my Peoples Common Stock received pursuant to the Merger or in any other
way reduce my risk relative to any Peoples Common Stock received
pursuant to the Merger, until such time as financial results covering
at least 30 days post-Merger consolidated operations have been
published by Peoples pursuant to the filing of a Form 10-Q, Form 10-K
or Form 8-K, as applicable, with the United States Securities and
Exchange Commission or otherwise.
<PAGE> 134
The Peoples Holding Company
November ___, 1999
Page 3
It is understood and agreed that this Affiliate's Agreement shall terminate and
be of no further force and effect and the legend set forth in paragraph E above
shall be removed by delivery of substitute certificates without such legend, and
the related stop transfer restrictions shall be lifted forthwith if (i) my
shares of Peoples Common Stock shall have been registered under the 1933 Act for
sale, transfer or other disposition by me or on my behalf, or (ii) I am not at
the time an affiliate of Peoples and have held my Peoples Common Stock for at
least one (1) year (or such other period as may be prescribed by the 1933 Act,
and the Rules and Regulations promulgated thereunder), and Peoples has filed
with the Commission all of the reports it is required to file under the
Securities Exchange Act of 1934, as amended, during the preceding twelve (12)
months, or (iii) I am not at the time an affiliate of Peoples and have not been
an affiliate of Peoples for at least three months and have held the Peoples
Common Stock for at least two (2) years (or such other period as may be
prescribed by the 1933 Act and the Rules and Regulations promulgated
thereunder), or (iv) Peoples shall have received a letter from the staff of the
Commission, or an opinion of counsel acceptable to Peoples, to the effect that
the stop transfer restrictions and the legend are not required.
Sincerely,
SOCIAL SECURITY NUMBER OR
FEDERAL TAX ID NUMBER
- ---------------------------- ----------------------------
(Name of Stockholder)
ACCEPTED:
INTER-CITY FEDERAL BANK FOR SAVINGS
By
----------------------------------
, 1999
- ------------------------------------
<PAGE> 135
EXHIBIT B
[LETTERHEAD OF POWELL, GOLDSTEIN, FRAZER & MURPHY LLP]
, 1999
---------------
Board of Directors
The Peoples Holding Company
209 Troy Street
Tupelo, MS 38801-4877
Gentlemen:
We have acted as counsel to Inter-City Federal Bank for Savings ("Inter-City"),
a federal savings bank, in connection with the Agreement and Plan of Merger
dated November _____, 1998 by and between The Peoples Holding Company
("Peoples") and Inter-City (the "Agreement"). As such counsel, we have reviewed
such organizational documents, indentures, contracts, deeds, instruments,
minutes, actions of the Board of Directors and shareholders of Inter-City, and
such other information as we have deemed necessary as a basis for the opinions
expressed herein, which are being delivered to you pursuant to Section 7.2(A) of
the Agreement. Capitalized terms appearing herein and not otherwise defined are
used as defined in the Agreement.
In reviewing the documents and information referred to above, we have assumed
without inquiry the genuineness of all signatures and the conformity with
originals of all documents submitted to us as copies. We have assumed that
Peoples has and had the power to enter into and to perform the Agreement and all
other instruments in which Peoples' joinder is contemplated in connection with
the Agreement. We have also assumed Peoples' due authorization, execution and
delivery of the Agreement and the validity, binding effect and enforceability
thereof against Peoples with respect to and in accordance with its terms. We
have relied as to certain factual matters on representations of Inter-City
contained in the Agreement, and on certificates of officers of Inter-City and
certain public officials or agencies.
Based upon and subject to the foregoing and to the qualifications set forth
below, it is our opinion that, except as disclosed in the Registration
Statement, the Agreement or a schedule of exceptions given by Inter-City in
connection therewith:
1. Inter-City is a federal savings bank duly organized, validly existing
and in good standing under the laws of the United States of America
and, to our knowledge, has all requisite power and authority to own,
lease and operate its properties and the corporate power to carry on
its business as now and where being conducted (excepting any authority
or
<PAGE> 136
Board of Directors
________________, 1999
Page 2
power, the absence of which in the aggregate would not have a material
adverse effect upon the financial condition or operations, business or
prospects of Inter-City).
2. Inter-City is authorized to do business in Mississippi and each
jurisdiction in which the failure to be so authorized would have a
material adverse effect on its business.
3. Inter-City has the full corporate power and authority to execute and
deliver the Agreement as well as all other documents referred to in the
Agreement to be executed and delivered by Inter-City and to consummate
the transactions and perform its obligations as contemplated by the
Agreement.
4. The Board of Directors of Inter-City, at a lawfully convened meeting,
has unanimously and validly approved the Merger, authorized execution
of the Agreement, and has taken all such other action to approve the
Merger as is required by law, its Charter, its By-Laws, or any
indenture or other agreement to which it is a party and of which we
have knowledge.
5. The shareholders of Inter-City, at a lawfully convened meeting of
Inter-City, have validly approved the Agreement.
6. The Agreement has been duly executed and delivered by and constitutes
the valid and binding obligation of Inter-City, enforceable against
Inter-City in accordance with its terms (except as such enforceability
may be limited by applicable bankruptcy, insolvency, reorganization,
moratorium or similar laws from time to time in effect which affect
creditors' rights generally and by legal and equitable limitations on
the availability of injunctive relief, specific performance and other
equitable remedies and by laws or court decisions which may be
applicable limiting the enforceability of indemnification proceedings).
7. Neither the execution and delivery of the Agreement nor the
consummation of the transactions contemplated by the Agreement will:
(i) violate any provision of the Charter or By-Laws of Inter-City; (ii)
violate or cause a default or termination of any material rights or
obligations existing by virtue of any provision of any indentures,
leases, contracts or agreements to which Inter-City is a party and of
which we have knowledge; (iii) violate or require any consent under any
judgment, order, injunction, decree, award or agreement against, or
binding upon Inter-City or upon the securities, properties or business
of Inter-City, of which we have knowledge, which violation or failure
to obtain consent would have a material adverse effect upon the
business or assets of Inter-City; or (iv) require the approval of any
third party or regulatory agency other than consents or approvals
already obtained.
<PAGE> 137
Board of Directors
________________, 1999
Page 3
8. The authorized capital stock of Inter-City consists of 2,000,000 shares
of common stock having par value of $.01 per share (the "Inter-City
Common Stock") and 500,000 shares of serial preferred stock. To our
knowledge after due inquiry, (i) all of the outstanding shares of
Inter-City Common Stock are validly issued, fully-paid and
nonassessable and have not been issued in violation of any preemptive
rights of any shareholder; (ii) there are no shares of Inter-City
Common Stock held in treasury; no outstanding securities or other
obligations which are convertible into shares of Inter-City Common
Stock or other Inter-City securities; (iii) there are no outstanding
options, warrants, rights, calls or other commitments of any nature
which entitle the holder, upon exercise thereof, to be issued shares of
Inter-City Common Stock or any other equity security of Inter-City; and
(iv) Inter-City does not have outstanding and is not obligated to issue
any subscriptions, options or other arrangements or commitments
obligating it to issue or dispose of any shares of stock or other
securities.
9. The Proxy Statement delivered to the shareholders of Inter-City
complies as to form in all material respects with any applicable laws
of the United States of America.
10. Inter-City has no subsidiaries.
11. The Merger will become effective at the Effective Date as specified in
the Agreement and upon the taking of such action as is required to
consummate the Merger under the laws of the State of Mississippi and
the United States of America.
12. To our knowledge after due inquiry, Inter-City is not subject to any
continuing court or administrative order, writ, injunction, decree or
memorandum, applicable specifically to it or to its business, property,
directors or employees, and Inter-City is not in default with respect
to any order, writ, injunction, decree or understanding of any court or
other governmental instrumentality.
We have participated in conferences with representatives of Inter-City and its
accountants in connection with the preparation of the Registration Statement and
the Proxy Statement and have considered the matters required to be stated
therein and the statements contained therein and, based on the foregoing (and,
in certain circumstances relying as to materiality on the opinions of officers
and representatives of Inter-City) nothing has come to our attention which would
lead us to believe that, solely as to information provided by or on behalf of
Inter-City, the Registration Statement at the time it became effective, or the
Proxy Statement, at the time it became effective, or the Proxy Statement, at the
time it was distributed to shareholders, contained any untrue statement of a
material fact or omitted to state a material fact required to be stated therein
or necessary to make the statements therein not misleading (except in each such
case for the financial statements and other financial and statistical data
included therein, as to which we make no statement).
<PAGE> 138
Board of Directors
________________, 1999
Page 4
Based on the limitations and qualifications set forth herein, we confirm to you
that, to our knowledge, except as is specifically disclosed in the financial
statements referred to in Section 5.1(H) of the Agreement and except as set
forth on Schedule 5.1(L) to the Agreement, there is no material action, suit,
litigation or investigation by governmental authorities or otherwise pending, or
overtly threatened by a written communication to Inter-City, against or
affecting Inter-City, or any property or rights of Inter-City or any of
Inter-City's officers or directors in their capacities as officers or directors
of Inter-City.
Whenever any opinion or confirmation of fact set forth in this opinion letter is
qualified by the words "to our knowledge," the quoted words mean the current
awareness by lawyers in the primary lawyer group of factual matters such lawyers
recognize as being relevant to the opinion or confirmation so qualified.
"Primary lawyer group" means the lawyer who signs this opinion letter and,
solely as to information relevant to an opinion issue, any lawyer in this law
firm who is primarily responsible for providing the response concerning the
particular issue.
We express no opinion herein concerning any statutes, ordinances, administrative
decisions, rules or regulations of any county, town, municipality or special
political subdivision (whether created or enabled through legislative action at
the federal, state or regional level). This opinion is given as of the date
hereof and we assume no obligation to advise you of changes that may hereafter
be brought to our attention.
This opinion is solely for the information of Peoples and is not to be quoted in
whole or in part or otherwise used, circulated or referred to, nor is it to be
filed with any governmental agency or any other person without our prior written
consent. No one other than Peoples is entitled to rely on this opinion. This
opinion is rendered solely for purposes of the Agreement and should not be
relied upon for any other purpose.
Yours very truly,
POWELL, GOLDSTEIN, FRAZER & MURPHY LLP
<PAGE> 139
EXHIBIT C
NON-COMPETITION AGREEMENT
THIS NON-COMPETITION AGREEMENT made and entered into as of the _____
day of _______________, 1999, by and between THE PEOPLES HOLDING COMPANY
("Peoples"), a Mississippi corporation having its principal office located in
Tupelo, Mississippi; INTER-CITY FEDERAL BANK FOR SAVINGS ("Inter-City"), a
federal savings bank, having its principal office located in Louisville,
Mississippi; and _____________________, an adult resident citizen of the State
of Mississippi, and who serves as an executive officer or director of Inter-City
("Person").
WHEREAS, Peoples and Inter-City have entered into that certain
Agreement and Plan of Merger dated as of November _______, 1998 (the "Merger
Agreement"), providing for the Merger of Inter-City with and into The Peoples
Bank & Trust Company (the "Bank"), a wholly-owned subsidiary of Peoples, with
the Bank surviving the merger (the "Merger"); and
WHEREAS, Person is a shareholder, as well as a director or executive
officer of Inter-City and has long been associated with Inter-City and has
developed a relationship with the customer base of Inter-City and possesses
confidential information regarding the direct and indirect business operation of
Inter-City; and
WHEREAS, as a condition precedent to Peoples' agreement to consummate
the transactions contemplated by the Merger Agreement, Peoples has required, and
Person has agreed to enter into this Non-Competition Agreement.
NOW, THEREFORE, for and in consideration of Peoples' agreement to
acquire Inter-City pursuant to the Merger Agreement and the additional cash
consideration set forth below, the receipt and sufficiency of which as
consideration for this Non-Competition Agreement are hereby acknowledged by
Person, the parties hereto intending to be legally bound hereby agree as
follows:
1. Consideration. Peoples shall pay to Person the sum of Ten Dollars
($10.00) on the date hereof.
2. Covenant Not to Compete/Term.
a. Inter-City and Person acknowledge and agree that: (i) various
business connections, clientele and customers of Peoples and subsidiaries and
affiliates of Peoples, including after the Merger but not limited to Inter-City
(for purposes hereof the "Peoples Companies"), have been established and are
maintained at a great expense to the Peoples Companies; (ii) by virtue of his or
her close relationship with, and service as a member of the Board of Directors
or executive officer of Inter-City and in connection with the Merger, Person has
become familiar with the names and lists, and the business needs of the
customers and clientele of certain of the Peoples Companies, including, but not
limited to Inter-City; (iii) Person, through his or her representation of or
association with Inter-City and his or her business dealings with the Peoples
Companies, including
<PAGE> 140
but not limited to Inter-City, has become personally acquainted with such
customers and prospective customers of the Peoples Companies; and (iv) the
Peoples Companies will sustain great loss and damage if Person violates the
covenants and agreements hereinafter set forth, for which loss and damages none
of the Peoples Companies has an adequate remedy by law.
b. Based on the foregoing, Person hereby expressly covenants and
agrees, which covenants and agreements are the essence of this Non-Competition
Agreement, that for a period of two (2) years from the later of the Effective
Date of the Merger or the date Person ceases to serve on the Board of Directors
of, or as an officer of, or as a consultant or advisory director for any of the
Peoples Companies, including, but not limited to, Inter-City, Person shall not,
unless acting with the prior written consent of Peoples, directly or indirectly,
for himself or herself or on behalf of or in connection with any other person,
firm, corporation or entity, own, manage, operate, join, control, finance or
participate in the ownership, management, operation or control of, or be
connected with as a director, officer, employee, consultant, partner,
stockholder other than to the extent he is a stockholder therein or a director
thereof as of the date of the Merger Agreement, and further excepting any
ownership, solely as an investment and through market purchases, of securities
of any issuer that are registered under Section 12(b) or 12(g) of the Securities
Exchange Act of 1934, as amended, and that are listed or admitted for trading on
any United States national securities exchange or that are quoted on the
National Association of Securities Dealers Automated Quotations System, or any
similar system for automated dissemination of quotations of securities prices in
common use, so long as Person is not a member of any control group (within the
meaning of the rules and regulations of the Securities and Exchange Commission
or the Federal Reserve Board) of any such issuer, of any business engaged in the
business of banking or that of managing or controlling a bank or banks (which
term shall include, but is not limited to, savings and loan associations and
loan production entities), in each county in which Inter-City has a principal
office or branch on the Effective Date of the Merger, and in each county
contiguous thereto, without regard to state lines.
c. Person further acknowledges and agrees that during his or her
employment with and service on the Board of Directors or as an officer of
Inter-City prior to the date hereof, as well as both prior to and after the
Effective Date of the Merger with or for any of the Peoples Companies, that
certain highly confidential information, including, but not being limited to,
customer lists, individual customer habits, and other confidential customer and
corporate information has been, and will be in the event of continued employment
or service, imparted to him or her. Due to the highly confidential nature of
said information, Person covenants and agrees that he or she will not, during or
for a period of two (2) years after the term of his or her employment or service
with or for any of the Peoples Companies, disclose any such confidential
information to any person or entity not employed by Peoples, or any of the
Peoples Companies, and authorized by Peoples to receive such information.
d. Person acknowledges and agrees that any violation by him or her
of the covenants set forth in this Non-Competition Agreement, whether before or
after the Effective Date of the Merger, would cause irreparable injury to the
Peoples Companies. Person further acknowledges and agrees that in the event of a
breach or injunctive relief against him or her by any court of competent
jurisdiction having the authority to grant such relief. Nothing herein, however,
shall be construed as prohibiting any of the Peoples Companies from pursuing any
other remedies
2
<PAGE> 141
which may be available to them for such a breach or threatened breach, including
the recovery of damages from Person to any other person or entity.
3. Successors and Assigns. This Non-Competition Agreement shall inure
to the benefit of Peoples, Inter-City and their respective successors and
assigns, including, without limitation, any corporation or agency which may
acquire all or substantially all of Peoples' or the Peoples Companies' assets
and businesses or with which Peoples or the Peoples Companies may be
consolidated or merged.
4. Entire Agreement. This Non-Competition Agreement contains the entire
understanding of the parties. It may not be changed orally but only by an
agreement in writing signed by the party against whom enforcement of any waiver,
change, notification or discharge is sought.
5. Severability. The invalidity or unenforceability of any provision
hereof in no way affects the validity or enforceability of any other provision.
6. Waiver of Breach. Failure to insist upon strict compliance with any
terms, covenants, or conditions hereof shall not be deemed a waiver or
relinquishment of such right or power at any other time or times.
7. Agreement Void if Proposed Merger Not Consummated. This
Non-Competition Agreement shall be effective as of the Effective Date of the
Merger and shall be null and void should the proposed Merger fail to be
consummated.
8. Applicable Law. This Non-Competition Agreement shall be governed by
the laws of the State of Mississippi.
THE PEOPLES HOLDING COMPANY
By:
-------------------------------------------
Its:
------------------------------------------
PERSON
- ----------------------------
INTER-CITY FEDERAL BANK FOR SAVINGS
By:
-------------------------------------------
Its:
------------------------------------------
3
<PAGE> 142
EXHIBIT D
[LETTERHEAD OF GERRISH & MCCREARY, P.C.]
, 1999
---------------
Board of Directors
Inter-City Federal Bank for Savings
228 Main Street
Louisville, MS 39379
Gentlemen:
We have acted as special counsel to The Peoples Holding Company ("Peoples"), a
Mississippi corporation, in connection with the Agreement and Plan of Merger
dated November ______, 1998, by and between Peoples and Inter-City Federal Bank
for Savings (the "Agreement"). As such counsel, we have reviewed such
organizational documents, indentures, contracts, deeds, instruments, minutes,
actions of the Board of Directors and shareholders of Peoples, and such other
information as we have deemed necessary as a basis for the opinions expressed
herein, which are being delivered to you pursuant to Section 7.3(C) of the
Agreement. Capitalized terms appearing herein and not otherwise defined are used
as defined in the Agreement.
In reviewing the documents and information referred to above, we have assumed
without inquiry the genuineness of all signatures and the conformity with
originals of all documents submitted to us as copies. We have assumed that
Inter-City has and had the power to enter into and to perform the Agreement and
all other instruments in which Inter-City's joinder is contemplated in
connection with the Agreement. We have also assumed Inter-City's due
authorization, execution and delivery of the Agreement and the validity, binding
effect and enforceability thereof against Inter-City with respect to and in
accordance with its terms. We have relied as to certain factual matters on
representations of Peoples contained in the Agreement, and on certificates of
officers of Peoples and certain public officials or agencies.
Based upon and subject to the foregoing and to the qualifications set forth
below, it is our opinion that, except as disclosed in the Registration
Statement, the Agreement or a schedule of exceptions given by Peoples in
connection therewith:
<PAGE> 143
Board of Directors
November ____, 1999
Page 2
1. Peoples is a corporation duly organized, validly existing and in good
standing under the laws of the State of Mississippi and, to our
knowledge, has all requisite power and authority to own, lease and
operate its properties and the corporate power to carry on its business
as now and where being conducted (excepting any authority or power, the
absence of which in the aggregate would not have a material adverse
effect upon the financial condition or operations, business or
prospects of Peoples).
2. Peoples is authorized to do business in Mississippi and each
jurisdiction in which the failure to be so authorized would have a
material adverse effect on its business.
3. Peoples has the full corporate power and authority to execute and
deliver the Agreement as well as all other documents referred to in the
Agreement to be executed and delivered by Peoples and to consummate the
transactions and perform its obligations as contemplated by the
Agreement.
4. The Board of Directors of Peoples, at a lawfully convened meeting, has
unanimously and validly approved the Merger, authorized execution of
the Agreement, and has taken all such other action to approve the
Merger as is required by law, its Articles of Incorporation, its
Bylaws, or any indenture or other agreement to which it is a party and
of which we have knowledge.
5. The Agreement has been duly executed and delivered by and constitutes
the valid and binding obligation of Peoples, enforceable against
Peoples in accordance with its terms (except as such enforceability may
be limited by applicable bankruptcy, insolvency, reorganization,
moratorium or similar laws from time to time in effect which affect
creditors' rights generally and by legal and equitable limitations on
the availability of injunctive relief, specific performance and other
equitable remedies and by laws or court decisions which may be
applicable limiting the enforceability of indemnification proceedings).
6. Neither the execution and delivery of the Agreement nor the
consummation of the transactions contemplated by the Agreement will:
(i) violate any provision of the Articles of Incorporation or Bylaws of
Peoples; (ii) violate or cause a default or termination of any material
rights or obligations existing by virtue of any provision of any
indentures, leases, contracts or agreements to which Peoples is a party
and of which we have knowledge; (iii) violate or require any consent
under any judgment, order, injunction, decree, award or agreement
against, or binding upon Peoples or upon the securities, properties or
business of Peoples, of which we have knowledge, which violation or
failure to obtain consent would have a material adverse effect
<PAGE> 144
Board of Directors
November ____, 1999
Page 3
upon the business or assets of Peoples; or (iv) require the approval of
any third party or regulatory agency other than consents or approvals
already obtained.
7. The authorized capital stock of Peoples consists of 15,000,000 shares
of common stock having $5.00 par value per share (the "Peoples Common
Stock"). All of the outstanding shares of Peoples Common Stock are
validly issued, fully-paid and nonassessable and have not been issued
in violation of any preemptive rights of any shareholder. The shares of
Peoples Common Stock to be issued pursuant to the Merger, when issued
in accordance with the terms of the Agreement, will be validly issued,
fully-paid and nonassessable and will not have been issued in violation
of the preemptive rights of any shareholder. To our knowledge after due
inquiry, (i) there are no shares of Peoples Common Stock held in
treasury; no outstanding securities or other obligations which are
convertible into shares of Peoples Common Stock or other Peoples
securities; (ii) there are no outstanding options, warrants, rights,
calls or other commitments of any nature which entitle the holder, upon
exercise thereof, to be issued shares of Peoples Common Stock or any
other equity security of Peoples; and (iii) Peoples does not have
outstanding and is not obligated to issue any subscriptions, options or
other arrangements or commitments obligating it to issue or dispose of
any shares of stock or other securities.
8. Peoples has the following subsidiaries: The Peoples Bank & Trust
Company and Financial Investment Alternatives, Limited.
9. The Merger will become effective at the Effective Date as specified in
the Agreement and upon the taking of such action as is required to
consummate the Merger under the laws of the State of Mississippi and
the United States of America.
10. To our knowledge after due inquiry, Peoples is not subject to any
continuing court or administrative order, writ, injunction, decree or
memorandum, applicable specifically to it or to its business, property,
directors, or employees, and Peoples is not in default with respect to
any order, writ, injunction, decree or understanding of any court or
other governmental instrumentality.
<PAGE> 145
Board of Directors
November ____, 1999
Page 4
We have participated in conferences with representatives of Peoples and you and
its and your respective accountants and counsel in connection with the
preparation of the Registration Statement and the Proxy Statement and have
considered the matters required to be stated therein and the statements
contained therein and, based on the foregoing (and, in certain circumstances
relying as to materiality on the opinions of officers and representatives of
Peoples) nothing has come to our attention which would lead us to believe that
the Registration Statement at the time it became effective, or the Proxy
Statement, at the time it became effective, or the Proxy Statement, at the time
it was distributed to shareholders, contained any untrue statement of a material
fact or omitted to state a material fact required to be stated therein or
necessary to make the statements therein not misleading (except in each such
case for the financial statements and other financial and statistical data
included therein, as to which we make no statement).
Based on the limitations and qualifications set forth herein, we confirm to you
that, to our knowledge, except as is specifically disclosed in the financial
statements referred to in Section 5.2(H) of the Agreement and except as set
forth on Schedule 5.2(I) to the Agreement, there is no material action, suit,
litigation or investigation by governmental authorities or otherwise pending, or
overtly threatened by a written communication to Peoples or the Bank, against or
affecting Peoples or the Bank, or any property or rights of Peoples or the Bank
or any of Peoples' or the Bank's officers or directors in their capacities as
officers or directors of Peoples or the Bank.
Whenever any opinion or confirmation of fact set forth in this opinion letter is
qualified by the words "to our knowledge," the quoted words mean the current
awareness by lawyers in the primary lawyer group of factual matters such lawyers
recognize as being relevant to the opinion or confirmation so qualified.
"Primary lawyer group" means the lawyer who signs this opinion letter and,
solely as to information relevant to an opinion issue, any lawyer in this law
firm who is primarily responsible for providing the response concerning the
particular issue.
Gerrish & McCreary, P.C. is located in Memphis and Nashville, State of
Tennessee, and we actively practice primarily in Tennessee. However, a member of
the firm is licensed to practice in Mississippi. Accordingly, this opinion is
applicable only insofar as the laws of the State of Mississippi (as limited
above) or the United States of America may be concerned. To the extent this
opinion is based on Mississippi law, we have familiarized ourselves with the
laws of that state. In addition, we express no opinion herein concerning any
statutes, ordinances, administrative decisions, rules or regulations of any
county, town, municipality or special political subdivision (whether created or
enabled through legislative action at the federal, state or regional level).
This opinion is given as of the date hereof and
<PAGE> 146
Board of Directors
November ____, 1999
Page 5
we assume no obligation to advise you of changes that may hereafter be brought
to our attention.
This opinion is solely for the information of Inter-City and is not to be quoted
in whole or in part or otherwise used, circulated or referred to, nor is it to
be filed with any governmental agency or any other person without our prior
written consent. No one other than Inter-City is entitled to rely on this
opinion. This opinion is rendered solely for purposes of the Agreement and
should not be relied upon for any other purpose.
Yours very truly,
GERRISH & McCREARY, P.C.
<PAGE> 147
APPENDIX B
12 C.F.R. SS552.14 DISSENTER AND APPRAISAL RIGHTS.
(a) Right to demand payment of fair or appraised value. Except as
provided in paragraph (b) of this section, only stockholders of a Federal stock
association combining in accordance with ss.552.13 of this part shall have the
right to demand payment of the fair or appraised value of his stock: Provided,
that such stockholder has not voted in favor of the combination and complies
with the provisions of paragraph (c) of this section.
(b) Exceptions. No stockholder required to accept only qualified
consideration for his or her stock shall have the right under this section to
demand payment of the stock's fair or appraised value, if such stock was listed
on a national securities exchange or quoted on the National Association of
Securities Dealers' Automated Quotation System ("NASDAQ") on the date of the
meeting at which the combination was acted upon or stockholder action is not
required for a combination made pursuant to ss.552.13(h)(2) of this part.
"Qualified consideration" means cash, shares of stock of any association or
corporation which at the effective date of the combination will be listed on a
national securities exchange or quoted on NASDAQ, or any combination of such
shares of stock and cash.
(c) Procedure - (1) Notice. Each constituent Federal stock association
shall notify all stockholders entitled to rights under this section, not less
than twenty days prior to the meeting at which the combination agreement is to
be submitted for stockholder approval, of the right to demand payment of
appraised value of shares, and shall include in such notice a copy of this
section. Such written notice shall be mailed to stockholders of record and may
be part of management's proxy solicitation for such meeting.
(2) Demand for appraisal and payment. Each stockholder electing to make
a demand under this section shall deliver to the Federal stock association,
before voting on the combination, a writing identifying himself or herself and
stating his or her intention thereby to demand appraisal of and payment for his
or her shares. Such demand must be in addition to and separate from any proxy or
vote against the combination by the stockholder.
(3) Notification of effective date and written offer. Within ten days
after the effective date of the combination, the resulting association shall:
(i) Give written notice by mail to stockholders of constituent
Federal stock associations who have complied with the provisions of
paragraph (c)(2) of this section and have not voted in favor of the
combination, of the effective date of the combination;
<PAGE> 148
(ii) Make a written offer to each stockholder to pay for
dissenting shares at a specified price deemed by the resulting
association to be the fair value thereof; and
(iii) Inform them that, within sixty days of such date, the
respective requirements of paragraphs (c)(5) and (c)(6) of this section
(set out in the notice) must be satisfied.
The notice and offer shall be accompanied by a balance sheet and
statement of income of the association the shares of which the dissenting
stockholder holds, for a fiscal year ending not more than sixteen months before
the date of notice and offer, together with the latest available interim
financial statements.
(4) Acceptance of offer. If within sixty days of the effective date of
the combination the fair value is agreed upon between the resulting association
and any stockholder who has complied with the provisions of paragraph (c)(2) of
this section, payment therefor shall be made within ninety days of the effective
date of the combination.
(5) Petition to be filed if offer not accepted. If within sixty days of
the effective date of the combination the resulting association and any
stockholder who has complied with the provisions of paragraph (c)(2) of this
section do not agree as to the fair value, then any such stockholder may file a
petition with the Office, with a copy by registered or certified mail to the
resulting association, demanding a determination of the fair market value of the
stock of all such stockholders. A stockholder entitled to file a petition under
this section who fails to file such petition within sixty days of the effective
date of the combination shall be deemed to have accepted the terms offered under
the combination.
(6) Stock certificates to be noted. Within sixty days of the effective
date of the combination, each stockholder demanding appraisal and payment under
this section shall submit to the transfer agent his certificates of stock for
notation thereon that an appraisal and payment have been demanded with respect
to such stock and that appraisal proceedings are pending. Any stockholder who
fails to submit his or her stock certificates for such notation shall no longer
be entitled to appraisal rights under this section and shall be deemed to have
accepted the terms offered under the combination.
(7) Withdrawal of demand. Notwithstanding the foregoing, at any time
within sixty days after the effective date of the combination, any stockholder
shall have the right to withdraw his or her demand for appraisal and to accept
the terms offered upon the combination.
(8) Valuation and payment. The Director shall, as he or she may elect,
either appoint one or more independent persons or direct appropriate staff of
the Office to appraise the shares to determine their fair market value, as of
the effective date of the combination, exclusive of any element of value arising
form the accomplishment or expectation of the combination. Appropriate staff of
the Office shall review and provide
<PAGE> 149
an opinion on appraisals prepared by independent persons as to the suitability
of the appraisal methodology and the adequacy of the analysis and supportive
data. The Director after consideration of the appraisal report and the advice of
the appropriate staff shall, if he or she concurs in the valuation of the
shares, direct payment by the resulting association of the appraised fair market
value of the shares, upon surrender of the certificates representing such stock.
Payment shall be made, together with interest from the effective date of the
combination, at a rate deemed equitable by the Director.
(9) Costs and expenses. The costs and expenses of any proceeding under
this section may be apportioned and assessed by the Director as he or she may
deem equitable against all or some of the parties. In making this determination
the director shall consider whether any party has acted arbitrarily,
vexatiously, or not in good faith in respect to the rights provided by this
section.
(10) Voting and distribution. Any stockholder who has demanded
appraisal rights as provided in paragraph (c)(2) of this section shall
thereafter neither be entitled to vote such stock for any purpose nor be
entitled to the payment of dividends or other distributions on the stock (except
dividends or other distribution payable to, or a vote to be taken by
stockholders of record at a date which is on or prior to, the effective date of
the combination): Provided, That if any stockholder becomes unentitled to
appraisal and payment of appraised value with respect to such stock and accepts
or is deemed to have accepted the terms offered upon the combination, such
stockholder shall thereupon be entitled to vote and receive the distributions
described above.
(11) Status. Shares of the resulting association into which shares of
the stockholders demanding appraisal rights would have been converted or
exchanged, had they assented to the combination, shall have the status of
authorized and unissued shares of the resulting association.
<PAGE> 150
APPENDIX C
_____________, 1999
Board of Directors
Inter-City Federal Bank for Savings
P.O. Box 889
Louisville, MS 39339
Members of the Board:
You have requested our opinion as to the fairness, from a financial point of
view, of the aggregate consideration to be received by the unaffiliated
shareholders of Inter-City Federal Bank for Savings ("Inter-City") under the
terms of a certain proposed Agreement and Plan of Merger dated as of December
14, 1998 (the "Agreement") by and between Inter-City and The Peoples Holding
Company ("Peoples") pursuant to which Inter-City will merge with and into
Peoples (the "Merger"). Under the terms of the Agreement, each of the
outstanding shares of Inter-City Common Stock shall be converted into the right
to receive 2.78 shares of Peoples Common Stock (the "Exchange Rate"). The
foregoing summary of the Merger is qualified in its entirety by reference to the
Agreement.
The Carson Medlin Company is a National Association of Securities Dealers, Inc.
(NASD) member investment banking firm which specializes in the securities of
southeastern United States financial institutions. As part of our investment
banking activities, we are regularly engaged in the valuation of southeastern
United States financial institutions and transactions relating to their
securities. We regularly publish our research on independent community banks and
thrifts regarding their financial and stock price performance. We are familiar
with the commercial banking and thrift industry in Mississippi and the Southeast
and the major commercial banks and thrifts operating in that market. We have
been retained by Inter-City in a financial advisory capacity to render our
opinion hereunder, for which we will receive compensation.
In reaching our opinion, we have analyzed the respective financial positions,
both current and historical, of Inter-City and Peoples. We have reviewed: (i)
the Agreement and Plan of Merger dated as of December 14, 1998; (ii) the annual
reports to shareholders of Inter-City, including audited financial statements
for the five years ended March 31, 1997; (iii) the Proxy Statement of Inter-City
dated June 19, 1998 for the annual meeting of shareholders held on July 15,
1998; (iv) the Thrift Financial Report of Inter-City as of September 30, 1998;
(v) the Uniform Thrift Performance Report for Inter-City for the quarter ended
September 30, 1998; (vi) the annual reports to shareholders of Peoples,
including audited financial statements for the five years ended December 31,
1997; (vii) the annual report on Form 10-K405 of Peoples for the year ended
December 31, 1997; (viii) the Proxy Statement of Peoples for the annual meeting
of shareholders
<PAGE> 151
Board of Directors
Inter-City Federal Bank for Savings
___________,1999
Page 2
held on April 14, 1998; (ix) the quarterly report on Form 10-Q of Peoples for
the quarter ended September 30, 1998; (x) the Consolidated Report of Condition
and Income of The Peoples Bank & Trust Company as of June 30, 1998; (xi) the
Uniform Bank Performance Report for The Peoples Bank & Trust Company as of
September 30, 1998; (xii) a preliminary copy of the Proxy Statement/Prospectus
prepared for the special meetings of the shareholders of Inter-City and Peoples
to consider the Merger; and (xiii) certain other financial and operating
information with respect to the business, operations and prospects of Inter-City
and Peoples. We also: (i) held discussions with members of the senior management
of Inter-City and Peoples regarding their respective historical and current
business operations, financial condition and future prospects; (ii) reviewed the
historical market prices and trading activity for the common stocks of
Inter-City, the extent available, and Peoples and compared them with those of
certain publicly traded companies which we deemed to be relevant; (iii) compared
the results of operations of Inter-City and Peoples with those of certain
banking and thrift companies which we deemed to be relevant; (iv) compared the
proposed financial terms of the Merger with the financial terms, to the extent
publicly available, of certain other recent business combinations of commercial
banking and thrift organizations; (v) analyzed the pro forma financial impact of
the Merger on Peoples; and (vi) conducted such other studies, analyses,
inquiries and examinations as we deemed appropriate.
We have relied upon and assumed, without independent verification, the accuracy
and completeness of all information provided to us. We have not performed or
considered any independent appraisal or evaluation of the assets of Inter-City
or Peoples. The opinion we express herein is necessarily based upon market,
economic and other relevant considerations as they exist and can be evaluated as
of the date of this letter.
Based upon the foregoing, it is our opinion that the aggregate consideration
provided for in the Agreement is fair, from a financial point of view, to the
unaffiliated shareholders of Inter-City Federal Bank for Savings.
Very truly yours,
THE CARSON MEDLIN COMPANY
<PAGE> 152
PART II. INFORMATION NOT REQUIRED IN THE PROSPECTUS
Item 20. Indemnification of Directors and Officers.
The Mississippi Business Corporation Act, as amended (the "Act"), empowers a
corporation to indemnify an individual who is a party to a proceeding because he
is a director against liability incurred in the proceeding if: (1)(i) he
conducted himself in good faith; and (ii) he reasonably believed: (A) in the
case of conduct in his official capacity, that his conduct was in the best
interest; and (B) in all other cases, that his conduct was at least not opposed
to the best interests of the corporation; and (iii) in the case of any criminal
proceeding, he had no reasonable cause to believe his conduct was unlawful; or
(2) he engaged in conduct which broaden indemnification has been made
permissible or obligatory under a provision of the articles of incorporation as
authorized by Section 79-4-2.02(b)(5) of the Act.
The termination of a proceeding by judgment, order, settlement, conviction, or
upon a plea of nolo contendere or its equivalent is not, of itself,
determinative that the director did not meet the relevant standard of conduct.
Unless ordered by a court under Section 79-4-8.54(a)(3) of the Act, a
corporation may not indemnify a director (1) in connection with a proceeding by
or in the right of the corporation except for reasonable expenses incurred in
connection with the proceeding if it is determined that the director has met the
relevant standard of conduct under the Act; or (2) in connection with any
proceeding with respect to conduct for which he was adjudged liable on the basis
that he received a financial benefit to which he was not entitled, whether or
not involving action in his official capacity.
The Act further provides that a corporation shall indemnify a director who was
wholly successful, on the merits or otherwise, in the defense of any proceeding
to which he was a party because he was a director of the corporation against
reasonable expenses incurred by him in connection with the proceeding.
The Act also provides that a corporation may, before final disposition of a
proceeding, advance funds to pay for or reimburse the reasonable expenses
incurred by a director who is a party to a proceeding because he is a director
if he delivers to the corporation: (1) a written affirmation of his good faith
belief that he has met the relevant standard of conduct described in the Act or
that the proceeding involves conduct for which liability has been eliminated
under a provision of the articles of incorporation as authorized by the Act; and
(2) his written undertaking, to repay any funds advanced if he is not entitled
to mandatory indemnification under the Act and is ultimately determined under
the Act that he has not met the relevant standard of conduct described in the
Act. The undertaking required must be an unlimited general obligation of the
director but need not be secured and may be accepted without reference to the
financial ability of the director to make repayment.
A corporation may not indemnify a director as described unless authorized (1) by
the board of directors (i) if there are two or more disinterested directors, by
a majority vote of all the disinterested directors (a majority of whom shall for
such purpose constitute a quorum) or by a majority of the members of a committee
of two or more disinterested directors appointed by such a vote; or (ii) if
there are fewer than two disinterested directors, by the vote necessary for
action by the board in accordance with the Act, in which authorization directors
who do not qualify as disinterested directors may participate; or (2) by the
shareholders, but shares owned by or voted under the control of a director who
at the time does not qualify as a disinterested director may not be voted on the
authorization.
A corporation may also indemnify and advance expenses to an officer of the
corporation who is a party to a proceeding because he is an officer to the same
extent as for a director.
II-1
<PAGE> 153
The Bylaws of The Peoples Holding Company contain the following indemnification
provision:
Any person, his heirs, executors, or administrators, may be indemnified by
the corporation for reasonable expenses (including judgments and
compromise settlements, except where as in a derivative suit situation any
judgment in the matter would run in favor of the corporation) actually
incurred in connection with any action, suit or proceeding, civil or
criminal, to which he was made a party by reason of service as a director,
officer, or employee of the corporation or of any firm, corporation;
provided, however, that no person shall be so indemnified or reimbursed as
to any matter as to which he shall finally be adjudged to have been guilty
of gross negligence, willful misconduct or criminal acts in the
performance of his duty to the corporation; and, provided further, that no
person shall be so indemnified or reimbursed as to any matter in such
action or suit which has been as the subject of a compromise settlement
except with the approval (1) of a court of competent jurisdiction, or (2)
the holders of record of a majority of the outstanding shares of the
corporation, or (3) a majority of the corporation's board of directors,
excluding members who are parties to the same or substantially the same
suit or proceeding. The foregoing right of indemnification or
reimbursement shall not be exclusive of other rights to which such person
may be entitled as a matter of law. The board of directors of the
corporation may, in its discretion, purchase directors' and officers'
liability insurance coverage to provide, in whole or in part, for such
indemnification or reimbursement.
The Peoples Holding Company maintains an insurance policy insuring the
corporation and its directors and officers against certain liabilities.
Item 21. Exhibits and Financial Statement Schedules.
An Index to Exhibits appear at page II-7 hereof.
Item 22. Undertakings
(a) The undersigned Registrant hereby undertakes:
(i) to file, during any period in which offers
or sales are being made pursuant to this Registration
Statement, a post-effective amendment to this Registration
Statement:
(a) to include any prospectus required by
Section 10(a)(3) of the Securities Act of
1933;
(b) to reflect in the prospectus any facts or
events after the effective date of the
Registration Statement (or the most recent
post-effective amendment thereof) which,
individually or in the aggregate, represent
a fundamental change in the information set
forth in the Registration Statement; and
(c) 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;
(ii) 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 Securities Exchange Act
of 1934) that is incorporated by reference in the registration
statement shall be deemed to be a new registration statement
relating to the securities offered
II-2
<PAGE> 154
therein, and the offering of such securities at that time shall
be deemed to be the initial bona fide offering thereof;
(iii) 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 the
persons who may be deemed underwriters, in addition to the
information called for by the other Items of the applicable
form;
(iv) 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;
(v) Insofar as indemnification for liabilities
arising under the Securities Act of 1933 may be permitted to
directors, officers and controlling persons of the Registrant
pursuant to the foregoing provisions or otherwise, the
Registrant has been advised that in the opinion of the
Securities and Exchange Commission such indemnification is
against public policy as expressed in the Act and is,
therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the
payment by the Registrant of expenses incurred or paid by a
director, officer or controlling person of the Registrant in
the successful defense of any action, suit or proceeding) is
asserted by such director, officer or controlling person in
connection with the securities being registered, the Registrant
will, unless in the opinion of its counsel the matter has been
settled by controlling precedent, submit to a court of
appropriate jurisdiction the question whether such
indemnification by it is against public policy as expressed in
the Act and will be governed by the final adjudication of such
issue;
(vi) for purpose of determining any liability
under the Securities Act of 1933, each such post-effective
amendment shall be deemed to be a new registration statement
relating to the securities offered therein, and the offering of
such securities at that time shall be deemed to be the initial
bona fide offering thereof;
(vii) to remove from registration by means of a
post-effective amendment any of the securities being registered
which are not issued pursuant to the merger;
(viii) to respond to requests for information that
is incorporated by reference into the prospectus pursuant to
Items 4, 10(b), 11 or 13 of Form S-4 within one business day of
receipt of such request and to send the incorporated documents
by first class mail or other equally prompt means. This
includes information contained in documents filed subsequent to
the effective date of the registration statement through the
date of responding to the request; and
II-3
<PAGE> 155
(ix) 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.
SIGNATURES
Pursuant to the requirements of the Securities Act, the registrant has duly
caused this registration statement to be signed on its behalf by the undersigned
thereunto duly authorized, in the City of Tupelo, State of Mississippi, on
February 15, 1999.
THE PEOPLES HOLDING COMPANY
By: /s/ John W. Smith
---------------------------------
John W. Smith, President and
Chief Executive Officer
(Principal Executive Officer)
By: /s/ Stuart Johnson
---------------------------------
Stuart R. Johnson, Executive
Vice President and Chief
Financial Officer
(Principal Financial Officer)
II-4
<PAGE> 156
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that each of the undersigned directors of The
Peoples Holding Company, a Mississippi corporation ("Peoples Holding"), does
hereby name, constitute and appoint John W. Smith and Stuart R. Johnson and each
of them (with full power to each of them to act alone), his true and lawful
agents and attorneys-in-fact, for him and on his behalf and in his name, place
and stead, in any and all capacities, to sign, execute, acknowledge, deliver,
and file (a) with the Securities and Exchange Commission (or any other
governmental or regulatory authority), a registration statement on Form S-4 (or
other appropriate form) and any and all amendments (including post-effective
amendments) thereto, with any and all exhibits and any and all other documents
required to be filed with respect thereto or in connection therewith, relating
to the registration under the Securities Act of 1933, as amended, of common
stock of Peoples Holding to be issued in the merger between Peoples Holding and
Inter-City Federal Bank for Savings ("Inter-City") wherein Peoples Holding
agrees to exchange shares of its common stock for all the outstanding shares of
common stock of Inter-City and merge Inter-City into The Peoples Bank, and (b)
with the securities agencies or officials of various jurisdictions, all
applications, qualifications, registrations or exemptions relating to such
offering under the laws of any such jurisdiction, including any amendments
thereto, other documents required to be filed with respect thereto or in
connection therewith, granting unto said agents and attorneys, and each of them,
full power and authority to do and perform each and every act and thing
requisite and necessary to be in and about the premises in order to effectuate
the same as fully to all intents and purposes as the undersigned might or could
do if personally present, and the undersigned hereby ratifies and confirms all
that agents and attorneys-in-fact, or any of them may lawfully do or cause to be
done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, as amended, this
registration statement and power of attorney have been signed below by the
following persons in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
Signature Title
- --------- -----
<S> <C> <C>
/s/ John W. Smith
- ---------------------------------------- President Date: 2-15-99
John W. Smith and Director
(Chief Executive Officer)
/s/ Robert C. Leake
- ---------------------------------------- Director Date: 2-15-99
Robert C. Leake
/s/ William M. Beasley
- ---------------------------------------- Director Date: 2-15-99
William M. Beasley
/s/ George H. Booth, III
- ---------------------------------------- Director Date: 2-15-99
George H. Booth, III
- ---------------------------------------- Director Date:
Frank B. Brooks -------
- ---------------------------------------- Director Date:
John M. Creekmore -------
/s/ Marshall H. Dickerson
- ---------------------------------------- Director Date: 2-15-99
Marshall H. Dickerson
- ---------------------------------------- Director Date:
A. M. Edwards, Jr. -------
</TABLE>
II-5
<PAGE> 157
<TABLE>
<S> <C> <C>
/s/ Eugene B. Gifford, Jr.
- ---------------------------------------- Director Date: 2-15-99
Eugene B. Gifford, Jr.
/s/ C. Larry Michael
- ---------------------------------------- Director Date: 2-15-99
C. Larry Michael
/s/ Jimmy S. Threldkeld
- ---------------------------------------- Director Date: 2-15-99
Jimmy S. Threldkeld
/s/ J. Heywood Washburn
- ---------------------------------------- Director Date: 2-15-99
J. Heywood Washburn
- ---------------------------------------- Director Date:
Robert H. Weaver -------
- ---------------------------------------- Director Date:
J. Larry Young -------
/s/ Stuart Johnson
- ---------------------------------------- Executive Vice Date: 2-15-99
Stuart R. Johnson President and
Chief Financial
Officer
</TABLE>
II-6
<PAGE> 158
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
Exhibit
Number Description of Exhibit
------ ----------------------
<S> <C>
2.1 Agreement and Plan of Merger between The Peoples Holding
Company, The Peoples Bank and Inter-City Federal Bank for
Savings, dated December 14, 1998 (included as Appendix A
to the joint proxy statement/prospectus).
3.1 Articles of Incorporation of The Peoples Holding Company, as
amended.
3.2 Bylaws of The Peoples Holding Company, as amended.
4.1 See Exhibits 3.1 and 3.2 for provisions of the Registrant's
articles of incorporation and bylaws defining the rights of
holders of the Registrant's common stock.
5.1 Opinion of Gerrish & McCreary, P.C. regarding legality.
8.1 Opinion of Gerrish & McCreary, P.C. regarding certain tax
consequences of the merger.
21.1 Subsidiaries of The Peoples Holding Company
23.1 Consent of Ernst & Young, LLP
23.2 Consent of T. E. Lott & Company
23.3 Consent of Gerrish & McCreary, P.C. included in Exhibits 5.1 and
8.1 above
24.1 Power of Attorney (contained in the signatures section of the
registration statement)
99.1 Form of Proxy for Inter-City Federal Bank for Savings
</TABLE>
II-7
<PAGE> 1
EXHIBIT 3.1
ARTICLES OF INCORPORATION
OF
THE PEOPLES HOLDING COMPANY
We, the undersigned natural persons of the age of twenty-one years or
more, acting as incorporators of a corporation under the Mississippi Business
Corporation Act, adopt the following Articles of Incorporation for such
corporation:
FIRST: The name of the corporation is The Peoples Holding Company.
SECOND: The period of its duration is ninety-nine (99) years.
THIRD: The specific purpose or purposes for which the corporation is
organized stated in general terms are:
To exercise all powers of a bank holding company registered with the
Board of Governors of the Federal Reserve System under the Bank Holding
Company Act of 1956, as amended, and to engage in all banking and
non-banking activities allowed for a bank holding company under state
and federal law.
FOURTH: The aggregate number of shares which the corporation shall have
authority to issue is six hundred thousand (600,000) shares of common stock, all
of one class, having a par value of Ten Dollars ($10.00) each.
FIFTH: The corporation will not commence business until consideration
of the value of at least One Thousand Dollars ($1,000.00) has been received for
the issuance of shares.
SIXTH: Provisions granting to shareholders the preemptive right to
acquire additional or treasury shares of the corporation are: None.
<PAGE> 2
SEVENTH: The capital stock of the corporation may be issued for valid
corporate purposes upon authorization by the Board of Directors of the
corporation without prior stockholder approval.
EIGHTH: The street and post office address of its initial registered
office is P. O. Box 709, 209 Troy Street, Tupelo, Mississippi 38801, and the
name of its initial registered agent at such address is E. C. Neelly, III.
NINTH: The number of directors constituting the initial Board of
Directors of the corporation is seventeen (17), and the names and street and
post office addresses of the persons who are to serve as directors until the
first annual meeting of shareholders or until their successors are elected and
qualify are:
Name Street and Post Office Address
- ---- ------------------------------
George F. Adams 520 West Jackson Street
Tupelo, Mississippi 38801
John A. Barron 1344 Mapleview Drive
West Point, Mississippi 38821
Edward C. Bourland 806 McAlpine Drive
Amory, Mississippi 38821
W. L. Dunlap 518 Magnolia
Tupelo, Mississippi 38801
John L. Evans Route 4
Fulton, Mississippi 38843
Robert C. Leake 715 Hillshire Drive
Tupelo, Mississippi 38801
W. P. Mitchell 2405 Parkway Drive
Tupelo, Mississippi 38801
E. C. Neelly, III 2406 Country Club
Tupelo, Mississippi 38801
<PAGE> 3
Theron S. Pounds 101 Foster Park
Booneville, Mississippi 38829
David P. Searcy Route 6, Ruffwood #16
Tupelo, Mississippi 38801
John W. Smith 19 Quail Creek Road
Tupelo, Mississippi 38801
Jimmy S. Threldkeld 35 Debeau
Tupelo, Mississippi 38801
Leonard W. Walden Route 5
Booneville, Mississippi 38829
J. Heywood Washburn 711 Hillshire
Tupelo, Mississippi 38801
Robert H. Weaver 1509 Douglass Drive
Jackson, Mississippi 39211
John B. Wright 10th Avenue North
Amory, Mississippi 38821
J. Larry Young Route 6, Box 216
Pontotoc, Mississippi 38863
TENTH: The name and street and post office address of each incorporator
is:
Name Street and Post Office Address
- ---- ------------------------------
E. C. Neelly, III 2406 Country Club
Tupelo, Mississippi 38801
John W. Smith 19 Quail Creek Road
Tupelo, Mississippi 38801
Dated November 9, 1982.
/s/
----------------------------------------
/s/
----------------------------------------
Incorporators
<PAGE> 4
ARTICLES OF AMENDMENT TO
ARTICLES OF INCORPORATION
OF
THE PEOPLES HOLDING COMPANY
Pursuant to Section 79-3-117, Mississippi Code of 1972 Annotated, The
Peoples Holding Company adopts the following amendments to its articles of
incorporation:
ONE: The name of the corporation is The Peoples Holding Company.
TWO: The following amendments of the articles of incorporation were
adopted by the stockholders of the corporation on the 8th day of April, 1986, in
the manner prescribed by the laws of the State of Mississippi, and the articles
of incorporation of The Peoples Holding Company:
(1) RESOLVED, that Article Fourth of the articles of incorporation of
The Peoples Holding Company be amended to read as follows:
FOURTH: The aggregate number of shares which the corporation shall have
authority to issue is One Million Two Hundred Thousand (1,200,000)
shares of common stock, all of one class, having a par value of Five
Dollars ($5.00) each.
Upon the effective date of this amendment each of the 290,250 issued
and outstanding shares of common stock of the corporation will, without
any action on the part of the holder thereof, become and be converted
into a share of common stock of a par value of Five Dollars ($5.00) per
share; and a "sticker" or "stickers" will be mailed to each shareholder
to be attached to each certificate held by a shareholder indicating the
reduction of par value from $10.00 to $5.00 per share. The corporation
will at the same time also issue and deliver to each shareholder one
additional share of common stock of a par value of $5.00 per share for
each share of common stock already held by each shareholder.
(2) RESOLVED, that Article Ninth of the articles of incorporation of
The Peoples Holding Company be amended by adding thereto the following:
The number of directors of the corporation for each ensuing year shall
be fixed by resolution adopted by the affirmative vote of a majority of
the entire Board of
<PAGE> 5
Directors of the corporation, except that the minimum number of
directors shall be fixed at not less than (7) and the maximum number of
directors shall be fixed at not more than twenty (20). The directors
shall be divided into three (3) classes, designated Class 1, Class 2
and Class 3. Each class shall consist, as nearly as possible, of
one-third of the total number of directors constituting the entire
Board of Directors. At the 1986 meeting of stockholders, Class 1
directors shall be elected for a one-year term, Class 2 directors for a
two-year term and Class 3 directors for a three-year term. At each
succeeding annual meeting of stockholders thereafter, successors of the
class of directors whose term expires at that annual meeting shall be
elected for a three-year term. All directors elected shall be subject
to any maximum age eligibility requirements established by the bylaws
of the corporation. If the number of directors is changed, any increase
or decrease shall be apportioned among the classes so as to maintain
the number of directors in each class as nearly equal as possible.
Notwithstanding anything contained in this certificate of incorporation
to the contrary, the affirmative vote of the holders of at least eighty
percent (80%) of the voting power of all of the shares of the
corporation entitled to vote generally in the election of directors
shall be required to alter, amend, repeal or to adopt any provision
inconsistent with the purpose and intent of this Article Ninth.
(3) RESOLVED, that the articles of incorporation of The Peoples Holding
Company be amended by adding Article Eleventh to read as follows:
The affirmative vote of the holders of not less than 80% of the
outstanding shares of all voting stock of the corporation and the
affirmative vote of the holders of not less than 67% of the outstanding
shares of voting stock held by stockholders other than a Controlling
Party, as defined below, shall be required for the approval or
authorization of any merger, consolidation, approval or authorization
of any merger, consolidation, sale, exchange or lease of all or
substantially all of the assets of the corporation (for purposes of
this provision, "substantially all of the assets", shall mean assets
having a fair market value or book value, whichever is greater, of 25
percent or more of the total assets as reflected on a balance sheet of
the corporation as of a date no earlier than 45 days prior to any
acquisition of such assets) if such transaction involves any
shareholder owning or controlling 20 percent or more of the
corporation's voting stock at the time of the proposed transaction
("Controlling Party"); provided, however, that these voting
requirements shall not be applicable in such transactions in which: (a)
the cash or fair market value of the property, securities or other
consideration to be received (which includes common stock of this
corporation retained by its existing shareholders in such a transaction
in which the corporation is the surviving entity) per share by holders
of common stock of the corporation of such transaction is not less than
the highest per share price (with appropriate adjustments for
recapitalizations, stock splits, stock dividends and distributions)
paid by the Controlling Party in the acquisition of any of its holdings
of the corporation's common stock in the three years preceding the
announcement of the proposed
<PAGE> 6
transaction or (b) the transaction is approved by a majority of the
entire board of directors.
The requirements of this Article Eleventh are in addition to, and
separate from any consent or approval that may be required by any
applicable law to authorize any merger, consolidation, or sale,
exchange or lease of all or substantially all of the assets of the
corporation.
The affirmative vote of not less than eighty percent (80%) of the
outstanding voting stock is required to amend or repeal this Article
Eleventh.
THREE: The number of shares of stock of the corporation outstanding at
the time of such adoption was two hundred ninety thousand two hundred fifty
(290,250) shares of common stock, all of one class, and the number of shares
entitled to vote thereon was two hundred ninety thousand two hundred fifty
(290,250).
FOUR: (1) The number of shares voting for said amendment (1) above was
229,111, and the number of shares voting against such amendment was 3,707.
(2) The number of shares voting for said amendment (2) above was
230,014, and the number of shares voting against such amendment was 2,490.
(3) The number of shares voting for said amendment (3) above was
231,444, and the number of shares voting against such amendment was 1,300
EXECUTED by the undersigned President and Secretary of the corporation,
in duplicate originals, at Tupelo, Mississippi, on this the 8th day of April,
1986.
THE PEOPLES HOLDING COMPANY
By: /s/
----------------------------------------
President
ATTEST:
/s/
- -------------------------------
Secretary
<PAGE> 7
AMENDMENT TO
ARTICLES OF INCORPORATION
OF
THE PEOPLES HOLDING COMPANY
Pursuant to Section 79-3-117, Mississippi Code of 1972 Annotated, The
Peoples Holding Company adopts the following amendments to its articles of
incorporation:
ONE: The name of the corporation is The Peoples Holding Company.
TWO: The following amendment of the articles of incorporation was
adopted by the stockholders of the corporation on the 12th day of March, 1987,
in the manner prescribed by the laws of the State of Mississippi and the
articles of incorporation of The Peoples Holding Company:
RESOLVED, that Articles Fourth of the articles of incorporation of The
Peoples Holding Company be amended to read as follows:
FOURTH: The aggregate number of shares which the corporation shall have
authority to issue is Four Million Two Hundred Thousand (4,200,000)
shares of common stock, all of one class, having a par value of Five
Dollars ($5.00) each.
RESOLVED FURTHER that a stock dividend of two hundred percent (200%) be
declared upon all issued and outstanding shares of common stock and
that this be accomplished by the issuance of One Million Three Hundred
Fifty-four Thousand One Hundred Sixty-two (1,354,162) shares of common
stock of a par value of Five dollars ($5.00) each by issuing and
delivering to each shareholder two (2) additional shares of common
stock of a par value of Five Dollars ($5.00) per share for each share
of common stock already held by each such shareholder of record as of
the effective date of this amendment.
RESOLVED FURTHER that the funds for the additional capital required for
such stock dividend be derived by transferring from surplus to capital
stock the sum of Six Million Seven Hundred Seventy Thousand Eight
Hundred Ten Dollars ($6,770,810.00).
<PAGE> 8
THREE: The number of shares of stock of the corporation outstanding at
the time of such adoption was six hundred seventy-seven thousand eighty-one
(677,081) shares of common stock, all of one class, and the number of shares
entitled to vote thereon was six hundred seventy-seven thousand eighty-one
(677,081).
FOUR: The number of shares voting for said amendment was 538,021, and
the number of shares voting against such amendment was 5,020.
EXECUTED by the undersigned President and Secretary of the corporation,
in duplicate originals, at Tupelo, Mississippi, on this, the 12th day of March,
1987.
THE PEOPLES HOLDING COMPANY
By: /s/
----------------------------------------
President
ATTEST:
/s/
- -------------------------------
Secretary
<PAGE> 9
ARTICLES OF AMENDMENT TO
ARTICLES OF INCORPORATION
OF
THE PEOPLES HOLDING COMPANY
Pursuant to Section 79-4-10.06, Mississippi Code of 1972 Annotated, The
Peoples Holding Company adopts the following amendment to its articles of
incorporation:
ONE: The name of the corporation is The Peoples Holding Company.
TWO: The following amendment of the articles of incorporation was
adopted by the stockholders of the corporation on the 11th day of April, 1995,
in the manner prescribed by the laws of the State of Mississippi and the
articles of incorporation of The Peoples Holding Company:
RESOLVED, that Article Fourth of the Articles of Incorporation of The
Peoples Holding Company, as previously amended, be amended to read as
follows:
FOURTH: The aggregate number of shares which the corporation shall have
authority to issue is Seven Million Five Hundred Thousand (7,500,000)
shares of common stock, all of one class, having a par value of Five
Dollars ($5.00) each.
THREE: The number of shares of stock of the corporation outstanding at
the time of such adoption was Two Million Six Hundred Four Thousand Seven
Hundred Sixty (2,604,760) shares of common stock, all of one class, and the
number of shares entitled to vote thereon was Two Million Six Hundred Four
Thousand Seven Hundred Sixty (2,604,760).
FOUR: The number of shares voting for said amendment was 2,016,016, and
the number of shares voting against such amendment was 27,645.
<PAGE> 10
EXECUTED by the undersigned President and Secretary of the corporation,
in duplicate originals, at Tupelo, Mississippi, on this, the 11th day of April,
1995.
THE PEOPLES HOLDING COMPANY
By: /s/
----------------------------------------
President
ATTEST:
/s/
- -------------------------------
Secretary
<PAGE> 11
ARTICLES OF AMENDMENT TO
ARTICLES OF INCORPORATION
OF
THE PEOPLES HOLDING COMPANY
Pursuant to Section 79-4-10.06, Mississippi Code of 1972 Annotated, The
Peoples Holding Company adopts the following amendments to its articles of
incorporation:
ONE: The name of the corporation is The Peoples Holding Company.
TWO: The following amendment of the articles of incorporation was
adopted by the stockholders of the corporation on the 14th day of April, 1998,
in the manner prescribed by the laws of the State of Mississippi and the
articles of incorporation of The Peoples Holding Company:
RESOLVED, that Article Fourth of the Articles of Incorporation of The
Peoples Holding Company, as previously amended, be amended to read as
follows:
FOURTH: The aggregate number of shares which the corporation shall have
authority to issue is Fifteen Million (15,000,000) shares of common
stock, all of one class, having a par value of Five Dollars ($5.00)
each.
THREE: The number of shares of stock of the corporation outstanding at
the time of such adoption was Five Million Eight Hundred Fifty-Nine Thousand
Four Hundred Seventy-Two (5,859,472) shares of common stock, all of one class,
and the number of shares entitled to vote thereon was Five Million Eight Hundred
Fifty-Nine Thousand Four Hundred Seventy-Two (5,859,472).
FOUR: The number of shares voting for said amendment was 4,517,176, and
the number of shares voting against such amendment was 24,162.
<PAGE> 12
EXECUTED by the undersigned President and Secretary of the corporation,
in duplicate originals, at Tupelo, Mississippi, on this the 14th day of April,
1998.
THE PEOPLES HOLDING COMPANY
By: /s/
----------------------------------------
President
ATTEST:
/s/
- -------------------------------
Secretary
<PAGE> 1
EXHIBIT 3.2
BYLAWS
OF
THE PEOPLES HOLDING COMPANY
ARTICLE I
OFFICES
Section 1. The principal office of the corporation shall be located at
209 Troy Street, City of Tupelo, County of Lee, State of Mississippi.
Section 2. The Board of Directors shall have the power and authority to
establish and maintain branch offices at the locations as the business of the
corporation may require.
ARTICLE II
STOCKHOLDERS
Section 1. The annual meeting of the stockholders of the corporation
shall be held on the second Tuesday of April in each year for the purpose of
electing directors and for the transaction of such other business as may
properly come before the meeting.
Section 2. Special meetings of the stockholders, for any purpose, may
be called by written request of persons owning as much as fifty percent of the
outstanding capital stock of the corporation, or by authority of the board of
directors in regular session or by a request in writing of a majority of the
board of directors. All such communications must be addressed to the president
of the corporation.
Section 3. The annual meetings of the stockholders of the corporation
shall be held at the principal office of the corporation in Tupelo, Mississippi,
or at such other place in the area served by the corporation as may be fixed by
the board of directors. All special meetings of the stockholders shall be held
at the principal office of the corporation in Tupelo, Mississippi.
Section 4. At least ten days written notice shall be given of any
annual or special meeting of stockholders, either personally or by mail, to each
stockholder of record entitled to vote at such meeting. Such notice shall be
issued by the president or secretary of the corporation, which notice shall
state the place, day and hour of the meeting and, in case of a special meeting,
the purposes for which the meeting is called.
<PAGE> 2
Section 5. A majority of the outstanding shares of the corporation
entitled to vote, represented in person or by proxy, shall constitute a quorum
at a meeting of stockholders. In the event of no quorum at the annual meeting,
the holders of a majority of the stock present and represented at the meeting
shall have power to adjourn the meeting from day to day without further notice.
At such adjourned meeting at which a quorum is present or represented, any
business may be transacted that might have been transacted at the meeting as
originally notified.
In special meetings, if a quorum is not present, there shall be no
adjournment but the call of the meeting will be voided and a new call must be
issued for any special meeting.
Section 6. At all meetings of stockholders, a stockholder may vote by
proxy executed in writing by the stockholder or by his duly authorized attorney
in fact. Such proxy shall be filed with the secretary of the corporation before
or at the time of the meeting and shall not be valid after the date of the
meeting at which it was filed.
Section 7. No stockholder will be allowed to vote at any meeting,
either in person or by proxy, unless he is a stockholder of record. Every share
of stock is entitled to one vote which may be voted as provided by the laws of
the State of Mississippi.
Section 8. The chairman of the board of directors shall act as
chairman, and the secretary of the corporation shall act as secretary of all
meetings of the stockholders of the corporation.
ARTICLE III
BOARD OF DIRECTORS
Section 1. The business and affairs of the corporation shall be managed
and controlled by its board of directors.
Section 2. The board of directors of the corporation shall consist of
not less than seven (7) nor more than twenty (20) stockholders, the number of
each ensuing year to be determined by a majority of the entire board of
directors of the corporation prior to the regular annual meeting. Each director
shall be the owner in his own right of unencumbered stock in the corporation to
the amount of at least Two Hundred Dollars ($200.00) par value, and shall have
such other qualifications as may be prescribed for directors under the laws of
the State of Mississippi. No stockholders shall be eligible for election as a
member of the board of directors after attaining the age of seventy-two (72)
years; provided, however, that any director who attains the age of seventy-two
(72) years during his elected term can serve only until the next regular meeting
of stockholders.
Section 3. The term of the office of the directors elected at the
regular annual meeting of the stockholders shall be until the next annual
meeting of the stockholders, and/or until their successors shall have been
elected and qualified.
<PAGE> 3
Section 4. If during the year a vacancy should occur in the offices of
the directors elected for that year, the remaining board of directors shall have
the right, by majority vote, to fill such vacancies as exist by electing to said
vacancies qualified stockholders who shall serve as directors until the next
annual meeting of stockholders, or until a meeting of the stockholders held for
the purpose of electing their successors.
Section 5. The board of directors shall hold regular monthly meetings
on the second Tuesday of each month, except in the month of March. All meetings
of the board of directors, except the meeting immediately following the annual
stockholders' meeting, shall be held in the board of directors room at the
principal office of the bank in Tupelo, Mississippi, unless a different place be
fixed by the board of directors.
Immediately following the annual stockholders' meeting, on the same
date and at the same place, the members of the board of directors, which shall
have been elected at said meeting, shall meet and elect from among themselves a
chairman, a vice chairman and a secretary, who shall serve until the meeting of
the board of directors following the next annual meeting of stockholders, and
until their successors have been elected and qualified.
Section 6. Special meetings of the board of directors shall be held
whenever called by the chairman or upon written request of a majority of the
members of the board of directors.
Section 7. A majority of the members of the board of directors shall
constitute a quorum of any meeting of said board of directors. Whenever there
shall not be a quorum at a regular or special meeting, the members present may
adjourn the meeting from time to time until a quorum shall be obtained, and any
meeting may be adjourned from time to time by vote of a majority of the members
present.
ARTICLE IV
OFFICERS
Section 1. The officers of the corporation shall be president, vice
president or vice presidents (the number thereof to be determined by the board
of directors), secretary and treasurer, each of whom shall be elected by the
board of directors. The office of secretary and treasurer may be held by the
same person. The board of directors may also elect such assistant officers as
may be deemed necessary.
Section 2. The officers of the corporation to be elected by the board
of directors shall be elected annually at the first meeting of the board of
directors held after each annual meeting of stockholders. Such officers so
elected shall serve until the next meeting of the board of directors following
the next annual meeting of stockholders, and until their successors have been
elected and qualified.
<PAGE> 4
A vacancy in any office because of death, resignation, removal,
disqualification or otherwise may be filled by the board of directors for the
unexpired portion of the term.
The powers and duties of the several officers shall be as provided from
time to time by resolution or other directive of the board of directors. In the
absence of such provisions the respective officers shall have the powers and
shall discharge the duties customarily and usually held and performed by like
officers of like or similar corporations.
Section 3. The compensation of such officers shall be fixed from time
to time by the board of directors.
ARTICLE V
COMMITTEES
Section 1. There shall be an executive committee and such other
committees as the board of directors may from time to time constitute. All of
said committees shall be selected by the board of directors from their number,
and their duties shall be as set forth hereinafter and as prescribed by the
board of directors.
Section 2. The executive committee shall consist of the chairman of the
board of directors, the president of the corporation and four other members to
be selected by the board of directors. The executive committee shall have charge
over all matters under the direction and control of the board of directors which
may require attention at any time between regular meetings of said board of
directors.
Section 3. Each committee shall select a chairman and a secretary from
among itself who shall keep a record of the proceedings of each committee and
the action of said committee. In case a secretary be not elected, the chairman
of the committee shall keep such record. Each committee shall meet on the call
of the chairman. The majority of the members of any of said committees shall
constitute a quorum for the transaction of business by such committee, and in
the event of the executive committee at least one of the members present at such
meeting shall be a member of the committee who has been elected to said
committee by the board of directors and is not serving ex officio.
Section 4. The board of directors may at any meeting adopt such
resolutions restricting the power of committees as the board of directors may
deem wise and prudent.
<PAGE> 5
ARTICLE VI
CAPITAL STOCK
Section 1. Certificates representing shares of stock of the corporation
shall be in such form as shall be determined by the board of directors. Such
certificates shall be signed by the president or a vice president and by the
secretary or an assistant secretary. All certificates of shares shall be
consecutively numbered or otherwise identified. The name and address of the
person to whom the shares represented thereby are issued, with the number of
shares and date of issue, shall be entered on the stock transfer books of the
corporation. All certificates surrendered to the corporation for transfer shall
be cancelled, and no new certificates shall be issued until the former
certificate for a like number of shares shall have been surrendered and
cancelled, except that in case of a lost, destroyed or mutilated certificate a
new certificate may be issued therefor on such terms and indemnity to the
corporation as the board of directors may prescribe.
Section 2. Transfers of shares of stock of the corporation shall be
made in the manner specified in the laws of the State of Mississippi. The
corporation shall maintain stock transfer books, and any transfer shall be
registered thereon only on request and surrender of the stock certificate
representing the transferred shares, properly endorsed. The corporation shall
have the absolute right to recognize as the owner of any shares of stock issued
by it, the person or persons in whose name the certificate representing such
shares stand according to the books of the corporation for all proper corporate
purposes, including the voting of the shares represented by the certificate at a
regular or special meeting of the stockholders, and the issuance and payment of
dividends on such shares.
ARTICLE VII
DIVIDENDS
Section 1. The board of directors may from time to time declare, and
the corporation may pay, dividends on its outstanding shares in the manner and
on the terms and conditions provided by law and by its articles of
incorporation.
ARTICLE VIII
SEAL
The Board of Directors shall provide a corporate seal, which shall be
circular in form and shall have inscribed thereon the name of the corporation
and the state of incorporation and the words "CORPORATE SEAL". The impression of
said seal is made a part of these bylaws.
ARTICLE IX
<PAGE> 6
INDEMNIFICATION
Any person, his heirs, executors, or administrators may be indemnified
by the corporation for reasonable expenses (including judgments and compromise
settlements, except where as in a derivative suit situation any judgment in the
matter would run in favor of the corporation) actually incurred in connection
with any action, suit or proceedings, civil or criminal, to which he was made a
party by reason of service as a director, officer or employee of the
corporation, provided, however, that no person shall be indemnified or
reimbursed as to any matter to which he shall finally be adjudged to have been
guilty of gross negligence, willful misconduct or criminal acts in the
performance of his duty to the corporation; and provided further, that no person
shall be so indemnified or reimbursed as to any matter in such action or suit
which has been the subject of a compromise settlement except with the approval
(1) of a court of competent jurisdiction, or (2) the holders of record of a
majority of the outstanding shares of the corporation, or (3) a majority of the
corporation's board of directors, excluding members who are parties to the same
or substantially the same suit or proceeding. The foregoing right of
indemnification or reimbursement shall not be exclusive of other rights to which
such person may be entitled as a matter of law. The board of directors of the
corporation may, in its discretion, purchase directors' and officers' liability
insurance coverage to provide, in whole or in part, for such indemnification or
reimbursement.
ARTICLE X
AMENDMENTS
Section 1. The bylaws may be altered, amended, or repealed by majority
vote of the board of directors of the corporation.
<PAGE> 1
EXHIBIT 5.1
February __, 1999
The Peoples Holding Company
209 Troy Street
Tupelo, Mississippi 38801
Re: The Peoples Holding Company
S-4 Registration Statement
Acquisition of Inter-City Federal Bank for Savings
Gentlemen:
We have acted as counsel for The Peoples Holding Company, a Mississippi
corporation ("Peoples Holding"), in connection with the acquisition of
Inter-City Federal Bank for Savings ("Inter-City") and the merger of Inter-City
with and into The Peoples Bank & Trust Company (the "Merger") and in connection
with the registration of shares of common stock of Peoples Holding, par value
$5.00 per share ("Peoples Holding Common Stock"), on Form S-4 under the
Securities Act of 1933, as amended. The Merger provides for the issuance of
shares of Peoples Holding Common Stock to the stockholders of Inter-City upon
consummation of the Merger. The maximum number of shares of Peoples Holding to
be issued in the Merger is estimated to be 347,405.
We have examined and are familiar with the registration statement on Form S-4
filed by Peoples Holding with the Securities and Exchange Commission. We have
examined and are familiar with the records relating to the organization of
Peoples Holding and the documents and records we have deemed relevant for
purposes of rendering this opinion.
Based on the foregoing, it is our opinion that upon consummation of the Merger,
the shares of Peoples Holding Common Stock issued pursuant to the Merger will be
duly authorized, validly issued and outstanding, fully paid and non-assessable.
We hereby consent to the filing of this opinion as an exhibit to the
registration statement and to the reference to our firm under the caption "Legal
Matters" in the proxy statement/prospectus forming a part of the registration
statement.
Sincerely,
GERRISH & McCREARY, P.C.
<PAGE> 1
EXHIBIT 8.1
February __, 1999
The Peoples Holding Company
209 Troy Street
Tupelo, MS 38801-4827
The Peoples Bank & Trust Company
209 Troy Street
Tupelo, MS 38801-4827
Inter-City Federal Bank for Savings
228 Main Street
Louisville, MS 39339
Re: Proposed Merger of Inter-City Federal Bank for Savings
with and into the Peoples Bank & Trust Company
Ladies and Gentlemen:
You have requested our opinion as to certain federal income tax consequences
resulting from the proposed merger of Inter-City Federal Bank for Savings
("Inter-City"), a federal savings bank organized under the laws of the United
States of America, with and into The Peoples Bank & Trust Company ("Peoples
Bank"), a Mississippi banking corporation, as set forth and more fully described
in the Agreement and Plan of Merger among The Peoples Holding Company ("Peoples
Holding"), a Mississippi corporation, dated December 14, 1998 (the "Agreement"),
including the exhibits attached thereto.
We have acted as special counsel to Peoples Holding and Peoples Bank with
respect to the proposed merger of Inter-City into Peoples Bank (the "Merger").
In this capacity and for purposes of rendering this opinion, we have examined
(i) the Internal Revenue Code of 1986, as amended (the "Code") and Treasury
Regulations, (ii) the legislative history of applicable sections of the Code,
and (iii) appropriate Internal Revenue Service and court decisional authority.
In addition, we have examined such documents as we have deemed appropriate,
including (i) the Agreement, (ii) the Registration Statement on Form S-4 filed
by Peoples Holding (the "Registration Statement") pursuant to which Peoples
Holding is issuing additional shares of its common stock, $5.00 par value, to
the stockholders of Inter-City pursuant to the Merger, which includes the Proxy
Statement/Prospectus for the Inter-City Special Meeting, and (iii) such
additional documents as we have considered relevant. All terms used herein
shall, except where the context otherwise indicates, be deemed to have the
meanings assigned to such terms in the Agreement and Registration Statement.
In our examination of such documents, we have assumed, with your consent, that
all documents submitted to us as photocopies are accurate
<PAGE> 2
The Peoples Holding Company
The Peoples Bank & Trust Company
Inter-City Federal Bank for Savings
February __, 1999
Page 2
reproductions of the originals thereof, that such originals are authentic, that
all such documents have been or will be duly executed to the extent required,
and that all statements set forth in such documents are accurate.
In reaching our opinion, we have relied on certain representations made by the
management of Peoples Holding, Peoples Bank and Inter-City, including the
representations, warranties and covenants in the Agreement, and have examined
such documents, records and other instruments as we have deemed necessary or
appropriate, including, without limitation, the Agreement and the Registration
Statement. We have assumed that Peoples Holding, Peoples Bank and Inter-City
have been previously and will in the future be maintained and operated in
conformance with the laws of the State of Mississippi, as applicable, and the
United States and the terms of the aforementioned documents.
Peoples Holding is a registered bank holding company organized and existing
under the laws of the State of Mississippi. As of December 14, 1998, Peoples
Holding has authorized capital stock consisting of 15,000,000 shares of common
stock, $5.00 par value ("Peoples Holding Common Stock"), of which 5,859,472
shares of Peoples Holding Common Stock are issued and outstanding.
Peoples Bank is a banking corporation organized and existing under the laws of
the State of Mississippi. As of December 14, 1998, Peoples Bank had 772,822
authorized shares of common stock ("Peoples Bank Common Stock"), all of which
shares were owned by Peoples Holding.
Inter-city is a federal savings bank duly organized and existing under the laws
of the United States of America. As of December 14, 1998, Inter-City has
authorized capital stock consisting of 2,000,000 shares of common stock, par
value $0.01 per share ("Inter-City Common Stock"),and 500,000 authorized shares
of serial preferred stock, of which 124,966 shares of Inter-City Common Stock
are issued and outstanding.
There are no outstanding securities or obligations which are convertible into
shares of stock or options, rights, calls or any other commitments of any nature
relating to the unissued shares of Peoples Holding Common Stock, Peoples Bank
Common Stock or Inter-City Common Stock.
Subject to the terms and conditions of the Agreement, at the Effective Date of
the Merger, the following transactions will be consummated:
1. Inter-City shall be merged with and into Peoples Bank, whereby each
share of Inter-City Common Stock (par value $0.01 per share) issued and
outstanding, other than shares whose holders have perfected
<PAGE> 3
The Peoples Holding Company
The Peoples Bank & Trust Company
Inter-City Federal Bank for Savings
February __, 1999
Page 3
their rights to dissent from the Merger, if any, shall be converted
into and exchanged, as described in the Agreement, for shares of newly
issued Peoples Holding Common Stock, $5.00 par value. Peoples Bank
shall survive the Merger and continue to be governed by the laws of the
State of Mississippi. The former stockholders of Inter-City shall
become stockholders of Peoples Holding. No fractional shares of Peoples
Holding Common Stock will be issued. The former Inter-City stockholders
entitled to fractional shares of Peoples Holding Common Stock shall be
paid cash by Peoples Holding in lieu of any fractional share interest,
the value of which shall be computed based on the closing price of
Peoples Holding Common Stock on the Effective Date on The American
Stock Exchange (as reported in The Wall Street Journal, or if not
reported thereby, by any other authoritative source selected by Peoples
Holding). The Merger shall be consummated pursuant to the terms of the
Agreement, which has been approved and adopted by the Boards of
Directors of Peoples Holding, Peoples Bank and Inter-City.
2. The Merger is subject to various conditions, including, among others,
approval at the Inter-City Special Meeting by the requisite vote of
Inter-City's stockholders under applicable law and the Articles of
Incorporation and Bylaws of Inter-City, approval by all applicable
regulatory authorities, and receipt by Peoples Holding of a letter
dated as of the Effective Date from Peoples Holding's independent
accountants to the effect that the Merger will qualify for
pooling-of-interests accounting treatment.
This opinion is conditioned on the following assumptions and representations
being made by management of Peoples Holding, Peoples Bank and Inter-City in
connection with the Merger transaction at or before the Effective Date:
1. The Merger shall be consummated pursuant to and in accordance with the
Agreement which represents the entire understanding of Peoples Holding,
Peoples Bank and Inter-City with respect to the Merger.
2. The fair market value of newly issued Peoples Holding Common Stock,
$5.00 par value, and other consideration, if any, to be received by
Inter-City stockholders will be approximately equal to the fair market
value of the Inter-City Common Stock to be surrendered in exchange
therefor.
3. After consummation of the Merger transaction, Peoples Holding will
continue its historical business in a substantially unchanged manner.
<PAGE> 4
The Peoples Holding Company
The Peoples Bank & Trust Company
Inter-City Federal Bank for Savings
February __, 1999
Page 4
4. The value of the Continuing Proprietary Interest (as defined below), as
of the Effective Date of the Merger, will be at least 50% of the value,
as of the Effective Date, of the Existing Proprietary Interest (as
defined below) of Inter-City. For purpose of this representation:
a. The Continuing Proprietary Interest means all of the shares of
outstanding Inter-City Common Stock as of the Effective Date of the
Merger, other than shares of Inter-City Common Stock: (i) exchanged in
the Merger for consideration other than Peoples Holding Common Stock
(including Inter-City Common Stock surrendered or exchanged for cash or
other property by Dissenters); (ii) acquired in connection with the
Merger (other than in exchange for the Peoples Holding Common Stock) by
Peoples Holding or by a person related to Peoples Holding (within the
meaning of ss.1.368-1(e)(3) of the Income Tax Regulations); (iii)
exchanged in the Merger for Peoples Holding Common Stock that, pursuant
to a plan or intention existing as of the Effective Date, is either
redeemed by Peoples Holding or acquired (other than in exchange for
Peoples Holding Common Stock) by a person related to Peoples Holding
(within the meaning of ss. 1.368-1(e)(3) of the Income Tax
Regulations); or (iv) acquired prior to the Effective Date and in
connection with the Merger by persons related to Inter-City (within the
meaning of ss. 1.368-1(e)(3)(i)(B) of the Income Tax Regulations),
other than in exchange for Peoples Holding Common Stock or Inter-City
Common Stock;
b. The Existing Proprietary Interest means: (i) all of the shares of
outstanding Inter-City Common Stock as of the Effective Date of the
Merger (including shares acquired prior to the Effective Date and in
connection with the Merger by persons related to Inter-City); (ii)
shares of Inter-City Common Stock redeemed prior to the Effective Date
and in connection with the Merger; and (iii) the amount of any
extraordinary distributions made by Inter-City with respect to its
stock prior to the Effective Date and in connection with the Merger.
For purpose of this representation, extraordinary distributions will
not include periodic dividends that are consistent with Inter-City's
historic dividend practice;
c. An acquisition of Peoples Holding Common Stock or of Inter-City Common
Stock by a person acting as an intermediary for Peoples Holding,
Inter-City, or a person related to Peoples Holding or Inter-City
(within the meaning of ss. 1.368-1(e)(3) of the Income Tax Regulations)
will be treated as made by Peoples Holding, Inter-City, or the related
person, respectively; and
<PAGE> 5
The Peoples Holding Company
The Peoples Bank & Trust Company
Inter-City Federal Bank for Savings
February __, 1999
Page 5
d. Any reference to Peoples Holding or Inter-City includes a reference to
any successor or predecessor of such corporation to the extent provided
in ss. 1.368-1(e)(5) of the Income Tax Regulations.
5. Peoples Holding has no intention or plan to reacquire any of its stock
issued in the Merger. To the best of the knowledge of the management of
Peoples Holding, no person related to Peoples Holding (within the
meaning of ss. 1.368-1(e)(3) of the Income Tax Regulations) and no
person acting as an intermediary for Peoples Holding or such a related
person has a plan or intention to acquire any of the Peoples Holding
Common Stock issued in the Merger.
6. Peoples Bank will acquire at least 90% of the fair market value of the
net assets and at least 70% of the fair market value of the gross
assets held by Inter-City immediately prior to the Effective Date of
the Merger. For purposes of this representation, amounts paid by
Inter-City to dissenters prior to and including the Effective Date (if
any), amounts paid by Inter-City to stockholders who receive cash or
other property, Inter-City assets used to pay its reorganization
expenses, and all redemptions and other distributions (except for
regular, normal dividends) made by Inter-City immediately preceding the
transfer, will be included as assets of Inter-City held immediately
prior to the transaction.
7. Prior to the transaction, Peoples Holding will be in control of Peoples
Bank within the meaning of Section 368(c) of the Internal Revenue Code
of 1986, as amended (the "Code").
8. Following the transaction, Peoples Bank will not issue additional
shares of its stock that would result in Peoples Holding losing control
of Peoples Bank within the meaning of Section 368(c) of the Code.
9. Inter-City stockholders who perfect their rights to dissent from the
Merger in accordance with applicable law shall be paid the value for
shares of Inter-City Common Stock. The value to be paid shall be
determined in accordance with Section 552.14, Title 12, of the Code of
Federal Regulations.
10. Peoples Holding has no plan or intention to liquidate Peoples Bank, to
merge Peoples Bank with and into another corporation, to sell or
otherwise dispose of the stock of Peoples Bank or to cause Peoples Bank
to sell or otherwise dispose of any of the assets of Inter-
<PAGE> 6
The Peoples Holding Company
The Peoples Bank & Trust Company
Inter-City Federal Bank for Savings
February __, 1999
Page 6
City acquired in the transaction, except for dispositions made in the
ordinary course of business or transfers described in Section
368(a)(2)(C) of the Code.
11. The liabilities of Inter-City assumed by Peoples Bank and the
liabilities to which the transferred assets of Inter-City are subject
were incurred by Inter-City in the ordinary course of its business.
12. Following the transaction, Peoples Bank will continue the historic
business of Inter-City or use a significant portion of Inter-City's
historic business assets in its business.
13. Each Party to the Merger Agreement will pay its own expenses incurred
in connection with the Merger including the cost of soliciting proxies
for the Inter-City Special Meeting and printing costs and expenses
incurred in connection with the Proxy Statement/Prospectus and the
associated Peoples Holding Registration Statement filed with the
Securities and Exchange Commission of which the Proxy
Statement/Prospectus forms a part.
14. There is no intercorporate indebtedness existing between Peoples
Holding and Inter-City or between Peoples Bank and Inter-City that was
issued, acquired, or will be settled at a discount.
15. No two parties to the transaction are investment companies as defined
in Section 368(a)(2)(F)(iii) and (iv) of the Code.
16. Neither Peoples Holding, Peoples Bank nor Inter-City is under the
jurisdiction of a court in a Title 11 or similar case within the
meaning of Section 368(a)(3)(A) of the Code.
17. The fair market value of the assets of Inter-City transferred to
Peoples Bank will equal or exceed the sum of the liabilities assumed by
Peoples Bank, plus the amount of liabilities, if any, to which the
transferred assets are subject.
18. No stock of Peoples Bank will be issued in the transaction.
19. None of the compensation received by any stockholder-employee of
Inter-City will be separate consideration for, or allocable to, any of
his or her shares of Inter-City stock; none of the shares of Peoples
Holding stock received by any stockholder-employee will be separate
consideration for, or allocable to, any employment agreement; and the
compensation paid to any stockholder-employee will be for services
actually rendered and will be commensurate
<PAGE> 7
The Peoples Holding Company
The Peoples Bank & Trust Company
Inter-City Federal Bank for Savings
February __, 1999
Page 7
with amounts paid to third parties bargaining at arm's-length for
similar services.
Based solely on the information submitted and on the representations set forth
above, it is held as follows:
1. Provided the proposed merger of Inter-City with and into Peoples Bank
qualifies under applicable law, the acquisition by Peoples Bank of
substantially all of the assets of Inter-City solely in exchange for
Peoples Holding Common Stock and the assumption by Peoples Bank of the
liabilities, will qualify as a reorganization under the provisions of
Section 368(a)(1)(A) and 368(a)(2)(D) of the Code. For purposes of this
opinion, "substantially all" means at least 90% of the fair market
value of the net assets and at least 70% of the fair market value of
the gross assets of Inter-City held immediately prior to the proposed
transaction. Peoples Holding, Peoples Bank and Inter-City, will each be
"a party to a reorganization" within the meaning of Section 368(b) of
the Code.
2. No gain or loss will be recognized by Inter-City upon the transfer of
substantially all of its assets to Peoples Bank in exchange for Peoples
Holding Common Stock and the assumption of Inter-City's liabilities by
Peoples Bank (Section 361 and 357(a) of the Code).
3. No gain or loss will be recognized by either Peoples Holding or Peoples
Bank upon the acquisition by Peoples Bank of substantially all of the
assets of Inter-City in exchange for Peoples Holding Common Stock and
the assumption of Inter-City's liabilities (Rev. Rul. 57-278, 1957-1
C.B. 124).
4. The tax basis of the assets of Inter-City acquired by Peoples Bank will
be the same in the hands of Peoples Bank as the tax basis of such
assets in the hands of Inter-City immediately prior to the exchange
(Section 362(b) of the Code).
5. The tax basis of Peoples Bank Common Stock in the hands of Peoples
Holding will be increased by an amount equal to the tax basis of the
Inter-City assets in the hands of Peoples Bank and decreased by the sum
of the amount of the liabilities of Inter-City assumed by Peoples Bank
and the amount of liabilities to which the assets of Inter-City are
subject.
6. The holding period of the assets of Inter-City received by Peoples Bank
will, in each instance, include the period for which such assets were
held by Inter-City (Section 1223(2) of the Code).
<PAGE> 8
The Peoples Holding Company
The Peoples Bank & Trust Company
Inter-City Federal Bank for Savings
February __, 1999
Page 8
7. No gain or loss will be recognized to the stockholders of Inter-City
upon the exchange of Inter-City stock solely for Peoples Holding Common
Stock (Section 354(a)(1) of the Code).
8. The tax basis of the Peoples Holding Common Stock received by the
stockholders of Inter-City will be the same as the basis of the
Inter-City stock surrendered in exchange therefor (Section 358(a)(1) of
the Code).
9. The holding period of the Peoples Holding Common Stock received by the
stockholders of Inter-City will include the period during which
Inter-City stock surrendered therefor was held, provided the stock of
Inter-City is a capital asset in the hands of the stockholders of
Inter-City on the date of the exchange (Section 1223(1) of the Code).
10. As provided by Section 381(c)(2) of the Code and Section 1.381(c)(2)-1
of the Income Tax Regulations, Peoples Bank will succeed to and take
into account the earnings and profits of Inter-City as of the date of
transfer.
11. Where a dissenting Inter-City stockholder receives cash in exchange for
his or her stock, such cash will be treated as having been received by
the stockholder as a distribution in redemption of his or her stock
subject to the provisions and limitations of Section 302 of the Code
(Rev. Rul 74-515, 1974-2 C.B.
118).
No opinion is expressed about the tax treatment of the Merger transaction under
other provisions of the Code and regulations or about the federal income tax or
state income tax treatment of any conditions existing at the time of, or other
tax consequences resulting from the Merger transaction that are not specifically
covered above.
This opinion is addressed only to you and concerns only the transaction
described above. This opinion may be relied upon only by you and the
stockholders of Inter-City.
<PAGE> 9
The Peoples Holding Company
The Peoples Bank & Trust Company
Inter-City Federal Bank for Savings
February __, 1999
Page 9
We consent to the inclusion of this opinion in the Registration Statement (Form
S-4) of Peoples Holding relating to the Merger and to the reference to our firm
under the caption "Legal Matters" in the Proxy Statement/Prospectus which is
part of the Registration Statement.
Very Truly Yours,
GERRISH & McCREARY, P.C.
<PAGE> 1
EXHIBIT 21.1
The Peoples Bank & Trust Company, a Mississippi banking corporation.
<PAGE> 1
EXHIBIT 23.1
CONSENT OF INDEPENDENT AUDITORS
We consent to the reference to our firm under the caption "Experts" in the
Registration Statement (Form S-4, No. 333- ) and related Prospectus of The
Peoples Holding Company for the registration of 347,405 shares of its common
stock and to the incorporation by reference therein of our report dated January
22, 1998, with respect to the consolidated financial statements of The Peoples
Holding Company incorporated by reference in its Annual Report (Form 10-K) for
the year ended December 31, 1997, filed with the Securities and Exchange
Commission.
/s/ Ernst & Young LLP
Memphis, Tennessee
February 15, 1999
<PAGE> 1
EXHIBIT 23.2
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the use in this Registration Statement of The Peoples Holding
Company on S-4 of our report dated May 6, 1998, of Inter-City Federal Bank for
Savings for the years ended March 31, 1998 and 1997, and to the reference to us
under the heading "Experts" in the Prospectus, which is a part of this
Registration Statement.
/s/ T.E. Lott & Company
Columbus, Mississippi
February 12, 1999
<PAGE> 1
EXHIBIT 99.1
PLEASE MARK, SIGN, DATE AND RETURN THIS PROXY PROMPTLY
IN THE ENCLOSED POSTAGE PAID ENVELOPE
PROXY
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
OF INTER-CITY FEDERAL BANK FOR SAVINGS
The undersigned shareholder of Inter-City Federal Bank for Savings
hereby appoints ___________________________ and __________________________, or
either of them, as proxies with full power of substitution and authorizes them
to vote and act for the undersigned as designated below, with respect to all the
shares of common stock, par value $.01 per share, of Inter-City held of record
by the undersigned on February __, 1999, at the Special Meeting of Shareholders
of Inter-City to be held on March __, 1999, and at any adjournments or
postponements of that meeting and, at their discretion, the proxies are
authorized to vote on such other business as may properly come before the
Inter-City special meeting.
THE SHARES REPRESENTED BY THIS PROXY WILL BE VOTED AS DIRECTED ON THIS
PROXY CARD BY THE UNDERSIGNED SHAREHOLDER. IF NO DIRECTION IS SPECIFIED WHEN THE
DULY EXECUTED PROXY IS RETURNED, SUCH SHARES WILL BE VOTED IN ACCORDANCE WITH
THE RECOMMENDATIONS OF THE BOARD OF DIRECTORS OF INTER-CITY, OR, IF A MATTER IS
PROPERLY BROUGHT BEFORE THE INTER-CITY SPECIAL MEETING AS TO WHICH THE BOARD OF
DIRECTORS HAS MADE NO RECOMMENDATION, THE PROXIES WILL VOTE THE SHARES IN THEIR
DISCRETION.
The Board of Directors of Inter-City recommends that you vote FOR
approval of the Agreement and Plan of Merger by and between The Peoples Holding
Company, The Peoples Bank & Trust Company and Inter-City Federal Bank for
Savings, dated December 14, 1998.
1. Proposal to approve the Agreement and Plan of Merger, dated December
14, 1998, by and between Peoples Holding, Peoples Bank and Inter-City
pursuant to which Inter-City will merge with and into Peoples Bank and
each share of Inter-City's common stock (except for dissenting shares
and cash that will be paid instead of fractional shares) will be
converted into 2.78 shares of Peoples Holding common stock, and such
other terms and conditions as are set forth in the agreement.
[ ] FOR [ ] AGAINST [ ] ABSTAIN
2. To transact such other business as may properly come before the
Inter-City special meeting or any adjournment or adjournments of that
meeting.
<PAGE> 2
Please date and sign this proxy exactly as the name appears on your stock
certificate. When shares are held by joint tenants, both should sign. When
signing as attorney, executor, administrator, trustee or guardian, please give
full title as such. If a corporation, please sign the full corporate name by
president or other authorized officer. If a partnership, please sign a
partnership name by authorized person.
Date:
-------------------------
--------------------------------------
Signature of Shareholder
--------------------------------------
Print Name of Shareholder
