<CORRESP>
Writer's Direct Dial No.: (205) 254-1055
April 4, 1997
VIA EDGAR
Securities and Exchange Commission
450 Fifth Street, NW
Washington, DC 20549
Re: United Security Bancshares, Inc.
Registration Statement on Form S-4
File Number 333-21241
Filed on the date hereof, via EDGAR, is Amendment No. 2 to the
above-referenced Form S-4. This letter is in response to letters
from the staff dated March 7, 1997, and March 20, 1997, regarding
the above-referenced document. This letter is divided into two
sections, the first dealing with the legal comments and responding
to the letter dated March 7, with 25 numbered paragraphs
corresponding to the numbered paragraphs in the March 7 letter.
The second section is in response to the accounting comments
contained in the letter dated March 20, and has 24 numbered
paragraphs corresponding to the numbered paragraphs in that letter.
Two copies each of a clean copy and a copy marked to show
changes from Form S-4, both printed from our word processing
system, have been provided to the staff, along with a copy of this
letter. The references in this letter to page numbers refer to the
page numbers on the marked courtesy copies.
LEGAL COMMENTS
1. The accounting information described in comment 1 was provided
supplementally to the staff, and the March 20 letter
transmitted the staff's comments.
2. The Registration Statement has been amended to unbundle the
merger proposal into separate proposals. The Merger Agreement
was amended to delete the reference to changing the name of
United Security Bancshares, so that proposal is not included.
Also, because USB shareholders will consider the merger
proposal and the other, related, proposals at its annual
meeting, additional annual meeting business proposals have
been included. Proxy Statement disclosure has been revised
and expanded with respect to each separate proposal.
3. The page reference has been included as suggested.
4. The aggregate value of benefits to be derived by insiders has
been quantified and included on pages 10 and 11.
5. The requested information has been included on page 11.
6. The amounts available for payment of dividends is included on
page 18, and the percentage of outstanding common stock to be
held by current FBI shareholders has been included on page 24.
7. The requested information has been included on page 26.
8. The requested information has been included on page 26, and
cross-references "RISK FACTORS" and "--Opinions of Financial
Advisors."
9. The management issues disclosure is included on page 26.
10. A description of action taken by USB and FBI after August 1996
has been included on page 26.
11. The requested information has been included on pages 26 and
27.
12. The requested disclosure appears on page 27.
13. The documents prepared by the financial advisers relating to
the transaction and provided to the Boards of Directors or
their representatives have been provided to the staff on a
supplemental basis.
14. Both financial adviser opinions now speak as of a more current
date.
15. The opinion of Chaffe and Company and related Proxy
Statement/Prospectus disclosure has been amended to address
more specifically the analyses considered material by Chaffe.
See pages 28 and 29.
16. The requested information has been included on page 29.
17. The requested information has been included on page 29.
18. The quoted language has been revised on page 29.
19. The disclosure has been revised to indicate that it is a
summary of all material analyses performed in rendering the
fairness opinion.
20. The fairness opinions from both Baxter Fentriss and Company
and Chaffe & Associates have been revised and are now
addressed to both the Board of Directors and shareholders of
each company.
21. The amended Proxy Statement/Prospectus presents each
substantive proposal separately, with potential negative
effects on shareholders and relevant anti-takeover disclosure
included.
22. The revised Proxy Statement/Prospectus disclosure clarifies
that the federal income tax consequences described therein are
a summary of material federal income tax consequences of the
transaction. See page 39.
23. The quoted language has been deleted from page 40.
24. All exhibits have been filed with Amendment No. 2.
25. Exhibit 23.6 has been revised to make the requested
clarification.
ACCOUNTING COMMENTS
1. The reference to "First Bank Services, Inc." in the summary
was erroneous, and should have referred to "First Banking
Services, Inc." The name of this company has been corrected
in the summary. This corporation's name was First Data
Services, Inc. at the time of entering into the agreement
included as Exhibit 10.5, and subsequently changed its name to
"First Banking Services, Inc." prior to entering into the
agreement included as Exhibit 10.6.
2. The following tables have been revised to include 1993 and
1992:
Loan Distribution Table
Non-Performing Assets Table
Allocation of Allowance for Possible
Allocation of Allowance for Possible Loan Losses
3. The percentages have been corrected to reflect the percent of
loans in each category to total loans for each period
presented.
Non-Performing Assets
4. Future filings will include disclosures regarding Potential
Problem Loans as required by Item III.C.2 of Industry Guide 3.
Condensed Portfolio Maturity Schedule/Condensed Portfolio Repricing
Schedule
5. These schedules have been revised and corrected to identify
the other securities excluded from the charts as Mutual Funds
and Other Marketable Equity Securities.
Short-Term Borrowings
6. Future filings will disclose the average balance outstanding
during each period that is greater than 30% of stockholders'
equity at period end.
Interest Rate Sensitivity Analysis
7. The table has been revised to be consistent with items
included in the average balance sheet.
8. The table has also been revised to be consistent with items
included in the average balance sheet.
9. A note has been added to the table supporting the inclusion of
interest earning assets and interest bearing liabilities in
the table based on historical repricing experience and
expected repayments rather than contractual maturities.
10. The positive and negative implications of United Security's
gap position has been included in the rewritten text.
11. A footnote has been added to the table to indicate the basis
for managements assumptions concerning interest-bearing demand
and savings accounts.
USB 1996 Consolidated Financial Statements Consolidated Statements
of Cash Flows
12. Management did not attribute any of the premium price paid for
the purchase of Brent Banking Company to core deposit
intangible. Management's analysis indicated allocation of a
portion of the premium to core deposit with 10 year
accelerated amortization and goodwill with 25 year
straight-line amortization would not be materially different
than applying the entire amount to goodwill and amortizing
over 20 years straight-line. The premium paid for the
purchase of Brent Banking Company was approximately $2.3
million. Management's primary purpose for the purchase of the
Company and the premium paid was not based on the long-term
relationships of current customers at the time of the
acquisition, but for the potential growth of the market. The
primary market of the acquired bank has a recently completed
$300,000,000 Mercedes Benz manufacturing plant and the area
should experience significant, profitable growth. See the
analysis below for the effect of allocation of a portion of
the premium to core deposits.
<TABLE>
<CAPTION>
Pro Forma(1) Pro Forma(2) Pro Forma Amortization(3) 1996(4) Difference(5)
Core Deposit Goodwill Total Expense Net as a %
Year Amortization Amortization Amortization Per Unit Difference Income of Net Inc.
<C> <C> <C> <C> <C> <C> <C> <C>
1 104,545 69,000 173,454 115,000 (58,545) 4,262,719 1.4%
2 94,091 69,000 163,091 115,000 (48,091) 4,262,719 1.1%
3 83,636 69,000 152,636 115,000 (37,636) 4,262,719 0.9%
4 73,182 69,000 142,182 115,000 (27,182) 4,262,719 0.6%
5 62,727 69,000 131,727 115,000 (16,727) 4,262,719 0.4%
6 52,273 69,000 121,273 115,000 (6,273) 4,262,719 0.1%
7 41,818 69,000 110,818 115,000 4,182 4,262,719 -0.1%
8 31,384 69,000 100,364 115,000 14,636 4,262,719 -0.3%
9 20,909 69,000 89,909 115,000 25,091 4,262,719 -0.6%
10 10,455 69,000 79,455 115,000 35,545 4,262,719 -0.8%
11 69,000 69,000 115,000 46,000 4,262,719 -1.1%
12 69,000 69,000 115,000 46,000 4,262,719 -1.1%
13 69,000 69,000 115,000 46,000 4,262,719 -1.1%
14 69,000 69,000 115,000 46,000 4,262,719 -1.1%
15 69,000 69,000 115,000 46,000 4,262,719 -1.1%
16 69,000 69,000 115,000 46,000 4,262,719 -1.1%
17 69,000 69,000 115,000 46,000 4,262,719 -1.1%
18 69,000 69,000 115,000 46,000 4,262,719 -1.1%
19 69,000 69,000 115,000 46,000 4,262,719 -1.1%
20 69,000 69,000 115,000 46,000 4,262,719 -1.1%
21 69,000 69,000 (69,000) 4,262,719 1.6%
22 69,000 69,000 (69,000) 4,262,719 1.6%
23 69,000 69,000 (69,000) 4,262,719 1.6%
24 69,000 69,000 (69,000) 4,262,719 1.6%
25 69,000 69,000 (69,000) 4,262,719 1.6%
Totals 575,000 1,725,000 2,300,000 2,300,000 0
<FN>
(1) Pro Forma core deposit intangible is estimated at
approximately 25% of the premium paid, based upon comparable
appraisals of similar markets. Amortization is 10 years using
sum-of-the-years'-digits amortization (despite the fact
economic lives of acquired deposits in rural communities well
exceed 10 years).
(2) Pro Forma Goodwill amortization is based on 25 years of
straight line amortization.
(3) Actual current annual amortization of the goodwill based on 20
years straight line.
(4) 1996 consolidated net income of United Security.
(5) Difference between Pro Forma amortization and United
Security's amortization.
</FN>
</TABLE>
Notes to Consolidated Financial Statements
13. Note C will include disclosures required by paragraph 22 of
SFAS No. 115 regarding securities transfers in future filings.
14. The $2 in other real estate as reported in Note H is correct.
15. The weighted average yields presented were incorrect and have
been revised on page 52.
16. The second sentence referred to in this comment has been
revised on page 53.
17. The gain in 1993 was a net gain realized from the sales of
Trading Securities. See page 53.
18. Non-interest rate sensitive assets and liabilities were
eliminated from the table.
19. First Bank and Trust records their equity in earnings (loss)
of the unconsolidated investee before the adjusted earnings
(loss) are available from the investee. So that the Bank's
financial statements will agree with its regulatory reports
(which are filed prior to receipt of final numbers) and
because the amounts are immaterial no adjustments are made.
The unadjusted variances as of December 31 follows:
<TABLE>
<CAPTION>
1996 1995 1994
<S> <C> <C> <C>
Net equity in (loss) of investee
per Consolidated Statements of
Cash Flows $(6,029) $(12,000) $ 19,776
The Bank's shares (50%) of the
net loss of the unconsolidated
investee per Note 1 ( 135) ( 1,040) ( 7,400)
Variance - adjusted in
subsequent period $(5,894) $(10,960) $ 27,176
</TABLE>
20. Note 1 "Equity in Unconsolidated Investee" has been revised to
disclose the investee's year-end of December 31.
21. The intangible assets being amortized over a period of 40
years were recorded as a result of the acquisition of a
financial institution in 1988. The period of amortization was
not changed for this filing per SAB No. 42 because the amounts
are immaterial. Net income as reported is $2,708,271; if the
amortization period was changed to 25 years and amortization
was computed prospectively per SAB No. 42, net income would be
$2,687,043 or a difference of $21,228.
22. The combined dividends per share pro forma has been revised as
requested on page 17.
23. The pro forma combined condensed consolidated statements of
income has been corrected on page 43.
24. The capital adequacy disclosure has been corrected on page 70.
The revisions referred to above are included on Amendment No.
2, filed on the date of this letter. We would like to go effective
with this Registration Statement as soon as possible so that USB
can proceed with its annual meeting of shareholders with minimal
disruption in its schedule. Please call me to discuss any
questions you may have with regard to our response to the staff's
comments, and to discuss a schedule for going effective.
Thank you very much for your time and attention.
Very truly yours,
/s/ J. Michael Savage
J. Michael Savage
JMS/ead
Enclosures
cc: Barry McCarty (Via Federal Express)
Division of Corporation Finance
Room 3164, Mail Stop 3-11
Jack M. Wainwright, III
Fred L. Huggins
C. Henry Marston, Esq.
Kevin M. Rittelmeyer
Charles H. Sherer, Jr.
</CORRESP>
As filed with the Securities and Exchange Commission on April 4, 1997
Registration No. 333-21241
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Amendment No. 2
to
Form S-4
REGISTRATION STATEMENT
Under
THE SECURITIES ACT OF 1933
UNITED SECURITY BANCSHARES, INC.
(Exact name of registrant as specified in its charter)
Alabama 6712 63-0843362
(State or other jurisdiction (Primary Standard (I.R.S. Employer
of incorporation or Industrial Classification Identification
organization) Code Number) No.)
131 West Front Street
P. O. Box 249
Thomasville, AL 36784
(334) 636-5424
(Address, including zip code, and telephone number of
registrant's principal executive office)
JACK M. WAINWRIGHT, III
President and Chief Executive Officer
131 West Front Street
P. O. Box 249
Thomasville, AL 36784
(334) 636-5424
(Name, address, including zip code, and telephone number,
including area code, of agent for service)
Copies to:
C. HENRY MARSTON J. MICHAEL SAVAGE
Walston, Wells, Anderson & Bains, LLP Maynard, Cooper & Gale, P.C.
500 Financial Center 1901 Sixth Avenue North
505 20th Street North Suite 2400
Birmingham, Alabama 35203 Birmingham, Alabama 35203
Approximate date of commencement of proposed sale of the
securities to the public: As soon as practicable after this
Registration Statement has become 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. [ ]
The registrant hereby amends this Registration Statement on
such date or dates as may be necessary to delay its effective date
until the registrant shall file a further amendment which
specifically states that this Registration Statement shall
thereafter become effective in accordance with Section 8(a) of the
Securities Act of 1933 or until the Registration Statement shall
become effective on such date as the Commission, acting pursuant to
said Section 8(a), may determine.
CROSS REFERENCE SHEET
<TABLE>
<S> <C> <C>
1. Forepart of Registration Statement
Outside Front Cover Page of Prospectus Facing Page; Cover Page;
Cross Reference Sheet
2. Inside Front and Outside Back
Cover Pages of Prospectus Inside Front Cover Page; AVAILABLE
INFORMATION; TABLE OF CONTENTS
3. Risk Factors, Ratio of Earnings to Fixed
Charges and Other Information SUMMARY
4. Terms of Termination SUMMARY; THE MERGER
DESCRIPTION OF USB CAPITAL
STOCK; EFFECT OF MERGER ON
RIGHTS OF SHAREHOLDERS
5. Pro Forma Financial Information PRO FORMA FINANCIAL INFORMATION
6. Material Contracts with Company
Being Acquired THE MERGER
7. Additional Information Required for Reoffering By
Persons and Parties Deemed to be Underwriters *
8. Interests of Named Experts and Counsel LEGAL MATTERS
9. Disclosure of Commission Position on
Indemnification for Securities Liability *
10. Information With Respect to S-3 Registrants *
11. Incorporation of Certain Information by Reference *
12. Information With Respect to S-2 or S-3 Registrants AVAILABLE INFORMATION;
INCORPORATION OF CERTAIN
DOCUMENTS BY REFERENCE
13. Incorporation of Certain Information by Reference INCORPORATION OF CERTAIN
DOCUMENTS BY REFERENCE
14. Information With Respect to Registrants Other
Than S-3 or S-2 Registrants *
15. Information With Respect to S-3 Companies *
16. Information With Respect to S-2 or S-3 Companies *
17. Information With Respect to Companies Other
Than S-3 or S-2 Companies SUMMARY; FBI MANAGEMENT'S
DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS
OF OPERATIONS; BUSINESS OF FBI;
FIRST BANCSHARES, INC.
CONSOLIDATED FINANCIAL STATEMENTS
(Appendix C)
18. Information if Proxies, Consents or
Authorizations are to be Solicited INCORPORATION OF CERTAIN DOCUMENTS
BY REFERENCE; SUMMARY; GENERAL
INFORMATION; THE MERGER
19. Information if Proxies, Consents or
Authorizations are not to be Solicited
or in an Exchange Offer *
<FN>
*Not applicable and therefore not included
</FN>
</TABLE>
United Security Bancshares, Inc.
131 West Front Street
Thomasville, Alabama 36784
April ___, 1997
Dear Shareholder:
You are cordially invited to attend the annual meeting of the
shareholders of United Security Bancshares, Inc. ("USB"), to be
held at the principal executive office of United Security Bank, 131
West Front Street, Thomasville, Alabama, on _____________, 1997, at
2:00 p.m., Central Time.
At this important meeting, you will be asked to consider and
vote upon the approval of an Agreement and Plan of Merger, dated as
of August 19, 1996, as amended on March 18, 1997 (the "Merger
Agreement"), which provides for the merger of First Bancshares,
Inc. ("FBI") with and into USB and the merger of FBI's wholly-owned
subsidiary bank, First Bank and Trust, with and into USB's
wholly-owned subsidiary bank, United Security Bank (the "Merger").
The proposal to approve the Merger Agreement includes an increase
in the size of USB's Board of Directors from 10 to 19 and the
election of nine additional directors who currently serve on the
FBI Board of Directors, effective on the effective date of the
Merger. If the Merger is consummated, each outstanding share of
FBI common stock will be converted into the right to receive 5.8321
shares of the common stock, par value $.01, of USB. The
accompanying Joint Proxy Statement and Prospectus provides a
detailed description of the proposed Merger, including the
conditions to consummation of the Merger.
The affirmative vote of the holders of at least two-thirds of
the shares of USB common stock entitled to vote at the Annual
Meeting is required for approval of the Merger Agreement.
Accordingly, your vote is important, no matter how large or how
small your holdings are.
The votes to approve the Merger Agreement will be counted
first. The Merger Agreement provides that the consummation of the
Merger is conditioned upon the adoption of certain amendments to
USB's Restated Articles of Incorporation. If the Merger Agreement
is approved by the required two-thirds vote, you will also be asked
to consider and vote upon an amendment to USB's Restated Articles
of Incorporation to require the affirmative vote of two-thirds of
the directors to approve extraordinary corporate transactions and
for the addition or removal of senior management. You will also be
asked to consider and vote upon amendments to the USB Restated
Articles of Incorporation to (i) eliminate shareholders' preemptive
rights and (ii) increase the authorized capital stock from
2,400,000 shares of common stock authorized to 10,000,000 shares of
common stock authorized.
Approval of each of the amendments described above is a
condition to consummation of the Merger.
Enclosed are the Notice of Annual Meeting, the Joint Proxy
Statement and Prospectus and proxy for the Annual Meeting, together
with a copy of USB's 1996 Annual Report to Shareholders. Please
give this information your careful attention.
The Board of Directors of USB has carefully reviewed and
considered the terms and conditions of the proposed Merger
Agreement and has received an opinion from its financial advisor,
Chaffe & Associates, Inc., that the Merger is fair to the USB
shareholders from a financial point of view. The Board of
Directors has unanimously approved the Merger Agreement and the
amendments to USB's Restated Articles of Incorporation and
unanimously recommends that you vote FOR approval of the Merger
Agreement and the amendments to USB's Restated Articles of
Incorporation.
In addition to considering the Merger Agreement and the
amendments to the Restated Articles of Incorporation set forth
above, you will be asked to consider and vote upon the approval of
the United Security Bancshares, Inc. Long Term Incentive
Compensation Plan (the "LTICP"). The USB Board of Directors has
adopted the LTICP, subject to shareholder approval, and unanimously
recommends that you vote FOR approval of the LTICP. Additionally,
you will be asked to elect 10 directors of USB to serve for the
ensuing year and transact such other business as may properly come
before the Annual Meeting or any adjournments thereof.
In view of the importance of the action to be taken, we urge
you to complete, sign and date the enclosed proxy and to return it
promptly in the enclosed envelope, whether or not you plan to
attend the Annual Meeting. Sending in your proxy now will not
interfere with your right to attend the Annual Meeting or to vote
your shares personally at the Annual Meeting if you wish to do so.
Sincerely,
Jack M. Wainwright, III
President and Chief Executive Officer
United Security Bancshares, Inc.
131 West Front Street
Thomasville, Alabama 36784
_______________
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
TO BE HELD ON ____________, 1997
_______________
April ___, 1997
To the Shareholders of United Security Bancshares, Inc.
NOTICE IS HEREBY GIVEN that the annual meeting of shareholders
(the "Annual Meeting") of United Security Bancshares, Inc. ("USB")
will be held at the principal executive office of United Security
Bank, 131 West Front Street, Thomasville, Alabama, on
_______________, 1997, at 2:00 p.m. Central Time, for the following
purposes:
1. To consider and vote upon a proposal to approve the
Agreement and Plan of Merger, dated as of August19, 1996, as
amended on March 18, 1997 (the "Merger Agreement"), by and between
First Bancshares, Inc. ("FBI") and USB, pursuant to which, among
other matters (a) FBI would be merged with and into USB, (b) FBI's
wholly-owned subsidiary bank, First Bank and Trust, would be merged
with and into USB's wholly-owned subsidiary bank, United Security
Bank, and (c) each share of FBI common stock will be converted into
the right to receive 5.8321 shares of USB common stock. The Merger
Agreement further provides for approval by USB shareholders of an
increase in the number of USB directors from 10 to 19 and for
election of nine incumbent directors of FBI to the USB Board of
Directors, effective at the Effective Time of the Merger. A vote
to approve the Merger Agreement will also serve to approve the
increase in the size of USB's Board of Directors and to elect the
nine individuals to serve in the vacancies created by such
increase. A copy of the Merger Agreement is set forth in Appendix
A to the accompanying Joint Proxy Statement and Prospectus and is
hereby incorporated by reference herein.
2. If the proposal to approve the Merger Agreement is
approved by USB shareholders, to approve an amendment to USB's
Restated Articles of Incorporation to provide for a two-thirds
supermajority voting requirement by the Board of Directors to
approve significant corporate events or to add or remove members of
senior management.
3. To approve an amendment to USB's Restated Articles of
Incorporation to increase USB's authorized capital stock from
2,400,000 shares of common stock, par value $.01 per share, to
10,000,000 shares of common stock, par value $.01 per share.
4. To approve an amendment to USB's Restated Articles of
Incorporation to eliminate shareholders' preemptive rights.
5. To approve the United Security Bancshares, Inc. Long
Term Incentive Compensation Plan.
6. To elect 10 directors of USB to serve for the ensuing
year.
7. To transact such other business as may properly come
before the Annual Meeting or any adjournment thereof.
Only shareholders of record at the close of business on
__________, 1997, are entitled to receive notice of and to vote at
the Annual Meeting or any adjournments thereof. Approval of the
Merger Agreement requires the affirmative vote of the holders of at
least two-thirds of the shares of USB Common Stock entitled to vote
at the Annual Meeting. Approval of the other proposals set forth
above requires the affirmative vote of the holders of at least a
majority of the shares of USB Common Stock entitled to vote at the
Annual Meeting.
THE BOARD OF DIRECTORS OF USB UNANIMOUSLY RECOMMENDS THAT
SHAREHOLDERS VOTE FOR APPROVAL OF THE PROPOSALS SET FORTH ABOVE.
Each shareholder has the right to dissent from the Merger
Agreement and demand payment of the fair value of his shares if the
Merger is consummated. The right of any shareholder to receive
such payment is contingent upon strict compliance with requirements
of Article 13 of the Alabama Business Corporation Act. The full
text of Article 13 is set forth in Appendix B to the Joint Proxy
Statement and Prospectus and is incorporated herein by reference.
For a summary of the requirements of Article 13, see "GENERAL
INFORMATION--Dissenters' Rights" in the Joint Proxy Statement and
Prospectus.
By order of the Board of Directors
Jack M. Wainwright, III
President and Chief Executive Officer
WE URGE YOU TO SIGN AND RETURN THE ENCLOSED PROXY AS PROMPTLY
AS POSSIBLE WHETHER OR NOT YOU PLAN TO ATTEND THE MEETING IN
PERSON. IF YOU DO ATTEND THE MEETING, YOU MAY THEN WITHDRAW YOUR
PROXY IF YOU WISH. THE PROXY MAY BE REVOKED AT ANY TIME PRIOR TO
ITS EXERCISE.
First Bancshares, Inc.
131 Main Street
Grove Hill, Alabama 36451
April ___, 1997
Dear Shareholder:
You are cordially invited to attend a special meeting of the
shareholders of First Bancshares, Inc. ("FBI"), to be held at the
principal executive office of First Bank & Trust, 131 Main Street,
Grove Hill, Alabama, on _____________, 1997, at 10:00 a.m., Central
Time.
At this important meeting, you will be asked to consider and
vote upon the approval of an Agreement and Plan of Merger, dated as
of August 19, 1996, as amended on March 18, 1997 (the "Merger
Agreement"), which provides for the merger of FBI with and into
United Security Bancshares, Inc. ("USB") and the merger of FBI's
wholly-owned subsidiary bank, First Bank and Trust, with and into
USB's wholly-owned subsidiary bank, United Security Bank (the
"Merger"). If the Merger is consummated, each outstanding share of
FBI common stock will be converted into the right to receive 5.8321
shares of the common stock, par value $.01, of USB. The
accompanying Joint Proxy Statement and Prospectus provides a
detailed description of the proposed Merger, including the
conditions to consummation of the Merger.
The affirmative vote of the holders of at least 75% of the
shares of FBI common stock entitled to vote at the Special Meeting
is required for approval of the Merger Agreement. Accordingly,
your vote is important, no matter how large or how small your
holdings are.
Enclosed are the Notice of Special Meeting, the Joint Proxy
Statement and Prospectus and proxy for the Special Meeting,
together with a copy of the USB 1996 Annual Report to Shareholders.
Please give this information your careful attention.
The Board of Directors of FBI has carefully reviewed and
considered the terms and conditions of the proposed Merger
Agreement and has received an opinion from its financial advisor,
Baxter, Fentriss and Company, that the Merger is fair to the FBI
shareholders from a financial point of view. The Board of
Directors has unanimously approved the Merger Agreement and
unanimously recommends that you vote FOR approval of the Merger
Agreement.
In view of the importance of the action to be taken, we urge
you to complete, sign and date the enclosed proxy and to return it
promptly in the enclosed envelope, whether or not you plan to
attend the Special Meeting. Sending in your proxy now will not
interfere with your right to attend the Special Meeting or to vote
your shares personally at the Special Meeting if you wish to do so.
Sincerely,
Fred Huggins
President and Chief Executive Officer
First Bancshares, Inc.
131 Main Street
Grove Hill, Alabama 36451
_______________
NOTICE OF SPECIAL MEETING OF SHAREHOLDERS
TO BE HELD ON ____________, 1997
_______________
April ____, 1997
To the Shareholders of First Bancshares, Inc.
NOTICE IS HEREBY GIVEN that a special meeting of shareholders
(the "Special Meeting") of First Bancshares, Inc. ("FBI") will be
held at the principal executive office of First Bank & Trust, 131
Main Street, Grove Hill, Alabama, on _______________, 1997, at
10:00 a.m. Central Time, for the following purposes:
1. To consider and vote upon a proposal to approve the
Agreement and Plan of Merger, dated as of August19, 1996, as
amended on March 18, 1997 (the "Merger Agreement"), by and between
United Security Bancshares, Inc. ("USB") and FBI, pursuant to
which, among other matters (a) FBI would be merged with and into
USB, (b) FBI's wholly-owned subsidiary bank, First Bank and Trust,
would be merged with and into USB's wholly-owned subsidiary bank,
United Security Bank, and (c) each share of FBI common stock will
be converted into the right to receive 5.8321 shares of USB common
stock. The Merger Agreement further provides for approval by USB
shareholders of an increase in the number of USB directors from 10
to 19, the election of nine incumbent FBI directors to the USB
Board of Directors, and for amendments to USB's Restated Articles
of Incorporation (a) to increase its authorized common stock from
2,400,000 shares to 10,000,000 shares, (b) to eliminate preemptive
rights of USB shareholders, and (c) to provide for a 2/3's
supermajority voting requirement by the Board of Directors to
approve significant corporate events or to add or remove members of
senior management. A copy of the Merger Agreement is set forth in
Appendix A to the accompanying Joint Proxy Statement and Prospectus
and is hereby incorporated by reference herein.
2. To transact such other business as may properly come
before the Special Meeting or any adjournment thereof.
Only shareholders of record at the close of business on
__________, 1997, are entitled to receive notice of and to vote at
the Special Meeting or any adjournments thereof. Approval of the
Merger Agreement requires the affirmative vote of the holders of at
least 75% of the shares of FBI Common Stock entitled to vote at the
Special Meeting.
THE BOARD OF DIRECTORS OF USB UNANIMOUSLY RECOMMENDS THAT
SHAREHOLDERS VOTE FOR APPROVAL OF THE MERGER AGREEMENT.
Each shareholder has the right to dissent from the Merger
Agreement and demand payment of the fair value of his shares if the
Merger is consummated. The right of any shareholder to receive
such payment is contingent upon strict compliance with requirements
of Article 13 of the Alabama Business Corporation Act. The full
text of Article 13 is set forth in Appendix B to the Joint Proxy
Statement and Prospectus and is incorporated herein by reference.
For a summary of the requirements of Article 13, see "GENERAL
INFORMATION--Dissenters' Rights" in the Joint Proxy Statement and
Prospectus.
By order of the Board of Directors
Fred L. Huggins
President and Chief Executive Officer
WE URGE YOU TO SIGN AND RETURN THE ENCLOSED PROXY AS PROMPTLY
AS POSSIBLE WHETHER OR NOT YOU PLAN TO ATTEND THE MEETING IN
PERSON. IF YOU DO ATTEND THE MEETING, YOU MAY THEN WITHDRAW YOUR
PROXY IF YOU WISH. THE PROXY MAY BE REVOKED AT ANY TIME PRIOR TO
ITS EXERCISE.
JOINT PROXY STATEMENT
UNITED SECURITY BANCSHARES, INC. FIRST BANCSHARES, INC.
For Annual Meeting For Special Meeting
Of Shareholders Of Shareholders
To Be Held On To Be Held On
[____________], 1997 [____________], 1997
PROSPECTUS
UNITED SECURITY BANCSHARES, INC.
Common Stock
___________________________
This Joint Proxy Statement and Prospectus ("Joint Proxy
Statement") is being furnished to the shareholders of United
Security Bancshares, Inc., an Alabama corporation ("USB"), and
First Bancshares, Inc., an Alabama corporation ("FBI"), in
connection with the solicitation of proxies by the Board of
Directors of USB from holders of outstanding shares of common
stock, par value $0.01 per share, of USB ("USB Common Stock"), and
the solicitation of proxies by the Board of Directors of FBI from
holders of outstanding shares of common stock, par value $1.00 per
share, of FBI ("FBI Common Stock"), for use at their respective
meetings of shareholders as shown above (the "Meetings"). The
purpose of each of the Meetings is to consider and vote upon that
certain Agreement and Plan of Merger, dated as of August 19, 1996
(the "Merger Agreement"), pursuant to which FBI will merge with and
into USB, and FBI's wholly-owned subsidiary bank, First Bank and
Trust ("First Bank"), will merge with and into USB's wholly-owned
subsidiary bank, United Security Bank ("USB Bank"). The two
mergers are referred to collectively herein as the "Merger."
Except as described herein, each share of FBI Common Stock issued
and outstanding at the Effective Time (described below) shall be
converted into the right to receive 5.8321 shares of USB Common
Stock (the "Exchange Ratio"). See "The Merger--Terms of the
Merger."
Additionally, at the USB Meeting, USB shareholders will
consider certain matters provided for in the Merger Agreement,
elect 10 directors to serve for the ensuing year, and will consider
a proposal to approve the United Security Bancshares, Inc. Long
Term Incentive Compensation Plan (the "LTICP").
This Joint Proxy Statement also serves as a prospectus with
respect to the issuance of up to approximately 1,400,000 shares of
USB Common Stock that are issuable to the shareholders of FBI upon
consummation of the Merger. A copy of USB's Annual Report to
Shareholders for the fiscal year ended December 31, 1996,
accompanies this Joint Proxy Statement.
See "Risk Factors" beginning on page 18 for a discussion of
certain factors which should be considered by shareholders of USB
and FBI.
This Joint Proxy Statement, the accompanying Notices of
Meeting and the other documents enclosed herewith are being first
mailed to the shareholders of USB and FBI on or about [_________],
1997.
_________________________
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES
COMMISSION NOR HAS THE SECURITIES AND EXCHANGE COMMISSION OR ANY
STATE SECURITIES COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY
OF THIS JOINT PROXY STATEMENT. ANY REPRESENTATION TO THE CONTRARY
IS A CRIMINAL OFFENSE. THE SECURITIES OFFERED HEREBY ARE NOT
DEPOSITS, SAVINGS ACCOUNTS OR OTHER OBLIGATIONS OF A BANK AND ARE
NOT INSURED BY THE FEDERAL DEPOSIT INSURANCE CORPORATION OR ANY
OTHER GOVERNMENTAL AGENCY.
___________________________
The date of this Joint Proxy Statement is __________, 1997
AVAILABLE INFORMATION
USB is subject to the informational requirements of the
Securities Exchange Act of 1934, as amended (the "Exchange Act"),
and in accordance therewith files reports, proxy statements and
other information with the Securities and Exchange Commission (the
"Commission"). Such reports, proxy statements and other
information filed by USB can be inspected and copied at the public
reference facilities maintained by the Commission at Room 1024,
Judiciary Plaza, 450 Fifth Street, N.W., Washington D.C. 20549, and
at the Commission's Regional Offices in New York (75 Park Place,
14th Floor, New York, New York 10007) and Chicago (Northwestern
Atrium Center, 500 West Madison Street, Suite 1400, Chicago,
Illinois 60661). Copies of such materials can be obtained from the
Public Reference Section of the Commission at 450 Fifth Street,
N.W., Washington, D.C. 20549, at prescribed rates. USB has filed
with the Commission a Registration Statement (No. 33-21241) on Form
S-4 (together with any amendments thereto, the "Registration
Statement") under the Securities Act of 1933, as amended (the
"Securities Act"), with respect to the shares of USB Common Stock
to be issued pursuant to the Merger Agreement. This Joint Proxy
Statement does not contain all of the information set forth in the
Registration Statement and the exhibits thereto, portions of which
were omitted in accordance with the rules and regulations of the
Commission. For further information regarding USB and the USB
Common Stock offered hereby, reference is made to the complete
Registration Statement, including all amendments thereto and the
schedules and exhibits filed as a part thereof. Statements
contained herein or in any document incorporated by reference
herein as to the contents of documents are necessarily summaries of
the documents, and each statement is qualified in its entirety by
reference to the copy of the applicable document filed with the
Commission.
All information contained in this Joint Proxy Statement
pertaining to USB and its subsidiary has been supplied by USB, and
all information pertaining to FBI and its subsidiaries has been
supplied by FBI.
No person is authorized to give any information or to make any
representations other than those contained herein and, if given or
made, such information or representations must not be relied upon
as having been authorized. This document does not constitute an
offer or solicitation by anyone in any jurisdiction in which such
offer or solicitation is not authorized or in which the person
making such offer or solicitation is not qualified to do so or to
any person to whom it is unlawful to make such offer or
solicitation. Neither the delivery of this document nor any
distribution of securities made hereunder shall under any
circumstances create an implication that there has been no change
in the affairs of USB or FBI since the date hereof or that the
information herein is correct as of any time subsequent to its
date.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The following documents previously filed by USB with the
Commission (Commission File No. 000-14549) pursuant to the Exchange
Act are hereby incorporated by reference in this Joint Proxy
Statement:
1. USB's Annual Report on Form 10-K for the year ended
December 31, 1996; and
2. USB's 1996 Annual Report to Shareholders.
Any statement contained herein or in a document incorporated
by reference herein shall be deemed to be modified or superseded
for purposes of the Registration Statement and this Joint Proxy
Statement to the extent that another statement contained herein, in
any supplement hereto or in any other subsequently filed document
which also is incorporated by reference herein, modifies or
supersedes such statement. Any such statement so modified or
superseded shall not be deemed, except as so modified or
superseded, to constitute a part of the Registration Statement,
this Joint Proxy Statement or any supplement hereto.
This Joint Proxy Statement incorporates by reference documents
which are not presented herein or delivered herewith. On the
written or oral request of any person to whom this Joint Proxy
Statement is delivered, USB will provide, without charge, a copy of
any or all of the documents incorporated herein by reference (other
than exhibits to such documents which are not specifically
incorporated by reference in such documents). Written or telephone
requests for such copies should be directed to Larry M. Sellers,
Secretary, United Security Bancshares, Inc., 131 West Front Street,
Thomasville, Alabama 36784, (334) 636-5424. In order to ensure
timely delivery of such documents, any request should be made by
________________, 1997.
TABLE OF CONTENTS
AVAILABLE INFORMATION 2
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE 2
SUMMARY 7
Parties to the Merger 7
Shareholder Meetings 8
The Merger 8
Selected Consolidated Financial Data 12
Comparative Per Share Data 17
Summary Capital Ratios 18
RISK FACTORS 18
Determination of Terms and Exchange Ratio 18
Restrictions on Dividends 18
Competition 18
Supervision and Regulation 19
Monetary Policies 19
Reserve for Loan Losses 19
Tax Considerations 19
Interests of Certain Persons in the Transaction 20
Restrictions on Resale and USB Common Stock 20
GENERAL INFORMATION 20
Meetings, Record Dates and Votes Required 20
Proxies 21
Dissenters' Rights 22
Recommendations of Boards of Directors 24
THE MERGER 24
Terms of the Merger 24
Effective Time 25
Background of and Reasons for the Merger 25
Opinions of Financial Advisors 27
Increase in Size of USB Board of Directors 31
Amendment of USB Restated Articles of Incorporation 32
Amendment of USB Bylaws 32
Effect on Employee Benefit Plan 32
Surrender of Certificates 32
Conditions to Consummation of the Merger 33
Regulatory Approvals 34
Conduct of Business Pending the Merger 35
Waiver and Amendment; Termination 38
Management and Operations After the Merger 38
Interests of Certain Persons in the Merger 39
Federal Income Tax Consequences 39
Accounting Treatment 40
Expenses and Fees 40
Resales of USB Common Stock 41
PRO FORMA FINANCIAL INFORMATION 42
Pro Forma Combined Condensed Consolidated Statement of
Condition 42
Pro Forma Combined Condensed Consolidated Statements of
Income 43
Notes to Pro Forma Combined Condensed Consolidated
Financial Statements (Unaudited) 44
COMPARATIVE MARKET PRICES AND DIVIDENDS 44
Market Prices 44
Dividends 44
DESCRIPTION OF USB CAPITAL STOCK 45
EFFECT OF MERGER ON RIGHTS OF SHAREHOLDERS 46
Authorized Capital Stock 46
Special Meetings of Shareholders 46
Required Shareholder Votes 46
Director Liability 46
Indemnification 47
Amendment of Articles of Incorporation 47
Responses to Tender Offers 47
Preemptive Rights 47
Proxy Requirements 47
FBI MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS 48
FINANCIAL CONDITION 48
Average Assets and Liabilities 48
Distribution of Average Assets, Liabilities and
Shareholders' Equity 49
Loans 49
Distribution of Loans by Category 50
Selected Loans by Type and Maturity 50
Investment Securities 50
Maturity Distribution of Investment Securities 51
Investment Securities and Investment Securities
Available for Sale 51
Trading Activity 52
Deposits and Short-Term Borrowings 52
Average Deposits 52
Maturities of Time Deposits of $100,000 or More 53
Short Term Borrowings 53
Long Term Debt 53
Asset/Liability Management 53
Liquidity 53
Interest Rate Sensitivity 53
Interest Rate Sensitivity Analysis 54
Capital Resources 55
Risk-Based Capital 55
RESULTS OF OPERATIONS 56
Net Interest Revenue 56
Net Interest Revenue 57
Analysis of Interest Increases (Decreases) 58
Provision and Allowance for Loan Losses 58
Summary of Loan Loss Experience 59
NON-PERFORMING ASSETS 60
Non-Interest Revenue 60
Non-Interest Expense 60
Income Taxes, Inflation and Other Issues 61
BUSINESS OF FBI 61
Bank Activities 61
Certain Management Information 62
FBI Security Ownership 63
SUPERVISION, REGULATION, AND EFFECTS OF GOVERNMENTAL POLICY 64
Bank Holding Company Regulation 64
Bank Regulation 65
Capital Adequacy 67
Recent Legislative and Regulatory Developments 69
Effects of Governmental Policies 70
USB VOTING SECURITIES AND PRINCIPAL SHAREHOLDERS 71
Principal Shareholders 71
Security Ownership of Management 71
ELECTION OF USB DIRECTORS 72
USB COMPLIANCE WITH SECTION 16(a) OF
THE SECURITIES EXCHANGE ACT OF 1934 75
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS OF USB 75
USB COMPENSATION COMMITTEE REPORT 75
Compensation Philosophy and Objective 75
Key Elements of Executive Compensation 76
1996 CEO Compensation 76
Other Executive Compensation 77
Comparative Stock Performance 77
USB COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION 79
USB EXECUTIVE COMPENSATION BENEFITS 79
USB SUMMARY COMPENSATION TABLE 79
USB'S RELATIONSHIP WITH INDEPENDENT PUBLIC ACCOUNTANTS 80
PROPOSALS OF USB SHAREHOLDERS 80
PROPOSED AMENDMENT TO THE USB RESTATED ARTICLES OF
INCORPORATION REQUIRING A TWO-THIRDS SUPERMAJORITY
VOTE OF THE BOARD OF DIRECTORS TO APPROVE
CERTAIN CORPORATE ACTIONS 80
PROPOSED AMENDMENT TO THE USB RESTATED ARTICLES
OF INCORPORATION TO INCREASE NUMBER OF
AUTHORIZED SHARES OF COMMON STOCK 81
PROPOSED AMENDMENT TO THE USB RESTATED ARTICLES OF
INCORPORATION TO ELIMINATE PREEMPTIVE RIGHTS 82
UNITED SECURITY BANCSHARES, INC.
LONG TERM INCENTIVE COMPENSATION PLAN 83
Summary Description of the LTICP 83
Administration 83
Eligibility 83
Stock Available for Issuance Through the LTICP 83
Federal Income Tax Consequences 86
OTHER USB MATTERS 87
LEGAL MATTERS 88
EXPERTS 88
APPENDICES
Appendix A--Agreement and Plan of Merger, as amended
Appendix B--Provisions of Alabama Business Corporation Act
Relating to Dissenters' Rights
Appendix C--First Bancshares, Inc. Consolidated Financial
Statements
Appendix D--Opinion of Chaffe & Associates, Inc.
Appendix E--Opinion of Baxter Fentriss and Company
Appendix F--United Security Bancshares, Inc. Long Term
Incentive Compensation Plan
A copy of USB's Annual Report to Shareholders for the fiscal
year ended December 31, 1996, accompanies this Joint Proxy
Statement.
SUMMARY
The following is a brief summary of certain information
contained elsewhere in this Joint Proxy Statement. The following
summary is not intended to be a complete description of all
material information regarding USB, FBI and the matters to be
considered at the Meetings and is qualified in all respects by the
information appearing elsewhere or incorporated by reference in
this Joint Proxy Statement, the Appendices hereto and the documents
referred to herein. The Merger Agreement, a copy of which is set
forth in Appendix A to this Joint Proxy Statement, is incorporated
herein and reference is made thereto for a complete description of
the terms of the Merger. As used in this Joint Proxy Statement,
the terms "USB" and "FBI" refer to such corporations, respectively,
and where the context so requires, such corporations and their
respective subsidiaries.
Parties to the Merger
USB. USB is a registered bank holding company subject to
supervision and regulation by the Board of Governors of the Federal
Reserve System ("Federal Reserve") and a corporation organized
under the laws of the State of Alabama. USB owns all the stock of
USB Bank, a state chartered bank under the laws of the State of
Alabama, headquartered in Thomasville, Alabama. USB Bank has eight
banking offices in Clarke, Bibb and Choctaw Counties, Alabama. The
deposits of USB Bank are insured by the Bank Insurance Fund ("BIF")
of the Federal Deposit Insurance Corporation ("FDIC").
At December 31, 1996, USB had total assets of approximately
$235.2 million, total deposits of approximately $179.9 million,
total net loans of approximately $64.6 million and total
shareholders' equity of approximately $26.5 million. USB's
principal executive offices are located at 131 West Front Street,
Thomasville, Alabama 36784, and its telephone number is (334)
636-5424. Additional information about USB is included in
documents incorporated by reference in this Joint Proxy Statement.
See "Selected Consolidated Financial Data" below, "Available
Information" and "Incorporation of Certain Documents by Reference."
FBI. FBI is a registered bank holding company subject to
supervision and regulation by the Federal Reserve and is a
corporation organized under the laws of the State of Alabama. FBI
owns all of the stock of First Bank, an Alabama state banking
corporation. First Bank provides a diversified range of banking and
financial services to customers in the commercial and retail
banking fields and has six offices located in Clarke and Bibb
Counties, Alabama. Deposits of First Bank are insured by the BIF
of the FDIC.
FBI also owns all of the stock of I & I, Inc. ("I & I"), which
was organized for the purpose of marketing insurance and investment
securities. I & I is a dormant corporation engaged in no business
activity, and it will be dissolved prior to the Effective Time of
the Merger.
First Bank owns all of the stock of Acceptance Loan Company,
Inc., an Alabama corporation ("Acceptance"). Acceptance is a
finance company organized for the purpose of making consumer loans
and purchasing consumer loans from vendors. At December 31, 1996,
Acceptance had 4,657 loans outstanding totalling approximately $15
million. Acceptance has offices located outside FBI's banking
market area in Monroeville, Alabama; Enterprise, Alabama; and
Greenville, Alabama. FBI owns 50% of the stock of First Banking
Services, Inc., a Florida corporation ("FBS") headquartered in Ft.
Walton Beach, Florida. FBS performs data processing services for
banks, including First Bank and FBS' other shareholder, First
National Bank and Trust of Fort Walton Beach, Florida.
At December 31, 1996, FBI had total assets of approximately
$187.9 million, total deposits of approximately $166.4 million,
total net loans of approximately $139.7 million and total
shareholders' equity of approximately $18.8 million. FBI's
principal executive offices are located at 131 Main Street, Grove
Hill, Alabama 36451, and its telephone number is (334) 275-4111.
See "Selected Consolidated Financial Data" below, "FBI Management's
Discussion and Analysis of Financial Condition and Results of
Operations" and "Business of FBI."
Shareholder Meetings
USB. The Annual Meeting of Shareholders of USB (the "USB
Meeting") will be held at 2:00 p.m., local time, on ______________,
1997, at the main office of USB Bank, 131 West Front Street,
Thomasville, Alabama. The purpose of the USB Meeting is to
consider and vote upon approval of the Merger Agreement, including
increasing the size of the USB Board from 10 to 19 and electing
nine incumbent directors of FBI to USB's Board of Directors,
effective at the Effective Time of the Merger. USB shareholders
will also consider adopting certain amendments to USB's Restated
Articles of Incorporation, the approval of each of which is a
condition to consummation of the Merger. USB shareholders will
also elect 10 directors to serve for the ensuing year and consider
approving the United Security Bancshares, Inc. Long Term Incentive
Compensation Plan (the "LTICP"). The Board of Directors of USB has
fixed the close of business on _______ __, 1997, as the record date
for determining shareholders entitled to notice of and to vote at
the USB Meeting (the "USB Record Date"). As of such date, there
were [2,137,960] shares of USB Common Stock issued and outstanding
and entitled to be voted at the USB Meeting.
FBI. The Special Meeting of Shareholders of FBI (the "FBI
Meeting") will be held at 10:00 a.m., local time, on
_________________, 1997, at the main office of First Bank, 131 Main
Street, Grove Hill, Alabama. The purpose of the FBI Meeting is to
consider and vote upon approval of the Merger Agreement. The Board
of Directors of FBI has fixed the close of business on ________,
1997, as the record date for determining shareholders entitled to
notice of and to vote at the FBI Meeting (the "FBI Record Date").
As of such date, there were [239,843] shares of FBI Common Stock
issued and outstanding and entitled to be voted at the FBI Meeting.
See "General Information--Meetings, Record Dates and Votes
Required."
The Merger
Stock Option Agreements. On July 16, 1996, the Boards of
Directors of USB and FBI approved a letter of intent outlining the
terms of the Merger. Simultaneously with execution of the letter
of intent, USB and FBI executed option agreements in favor of each
other (the "Option Agreements") that are exercisable upon the
occurrence of certain events, including but not limited to the
subsequent agreement by either party to merge or consolidate with
a third party or the purchase by a third party of fifteen percent
or more of the outstanding shares of USB or FBI. In such an event,
the Option Agreements provide for the purchase of up to eight
percent of the outstanding shares of USB or FBI by the other party
at a designated price. Specifically, the option agreement that FBI
executed in favor of USB (the "FBI Option Agreement") provides that
USB may purchase up to 19,200 shares of FBI Common Stock at a price
of $67.00 per share, and the option agreement that USB executed in
favor of FBI (the "USB Option Agreement") provides that FBI may
purchase up to 176,165 shares of USB Common Stock at a price of
$13.13 per share.
If the Merger is consummated, the Option Agreements will
expire on the effective date of the Merger. If the Merger is not
consummated, the Option Agreements will expire upon the termination
of the Merger Agreement, provided that certain conditions are met.
If those conditions are not met, one or both of the Option
Agreements will continue in force for an additional two-month
period.
Terms. The Merger Agreement provides that FBI will merge with
and into USB, and, simultaneously, First Bank will merge with and
into USB Bank (the "Merger"). Each share of FBI Common Stock
outstanding immediately prior to the Effective Time, other than
shares with respect to which dissenters' appraisal rights shall
have been perfected and certain shares owned by FBI or USB or their
subsidiaries, will be converted into the right to receive 5.8321
shares of USB Common Stock. The number of shares of USB Common
Stock to be exchanged for each share of FBI Common stock is
referred to as the "Exchange Ratio." Cash will be paid by USB in
lieu of the issuance of fractional shares. Approval of the Merger
Agreement by USB shareholders will also constitute approval of an
increase in the size of the USB Board of Directors from 10 to 19
and election of nine new directors to fill the created vacancies,
effective at the Effective Time (as defined below). See
"--Management and Operations After the Merger," "Risk Factors,"
"The Merger--Terms of the Merger" and " --Waiver and Amendment;
Termination."
Effective Time. The Merger will become effective on the date
and at the time the Articles of Merger reflecting the merger of USB
and FBI shall be accepted for filing by the Secretary of State of
Alabama, which filing shall not occur until after all conditions
contained in the Merger Agreement have been satisfied or waived,
including receipt of all regulatory approvals, expiration of all
statutory waiting periods and the approval of the Merger Agreement
by the shareholders of USB and FBI (the "Effective Time"). See
"The Merger--Effective Time."
Recommendations of Boards of Directors; Opinions of Financial
Advisors. The two Boards of Directors considered numerous factors
in approving the Merger Agreement. Each Board of Directors also
obtained an opinion from an independent financial advisor with
respect to the fairness of the transaction from the standpoint of
its respective shareholders. Each financial advisor conducted an
analysis of the values of the two companies and determined a range
of values and acceptable exchange ratios and issued preliminary and
final opinions to the effect that the terms of the Merger are fair,
from a financial standpoint, to the shareholders of the respective
companies. USB and FBI have paid, or will pay, their financial
advisors' professional fees in the amount of [$21,500] and
[$10,000], respectively, plus reasonable out of pocket expenses, in
connection with the issuance of the opinions. In addition, FBI's
financial advisor will be paid an amount equal to .33% of the
combined equity of USB and FBI. See "The Merger--Background of and
Reasons for the Merger" and "--Opinions of Financial Advisors," and
Appendices D and E. Both the Board of Directors of USB and the
Board of Directors of FBI unanimously recommend that shareholders
of their respective companies vote for approval of the Merger
Agreement.
Votes Required. Approval of the Merger Agreement will require
the affirmative vote of the holders of at least two-thirds of the
outstanding shares of USB Common Stock and the affirmative vote of
the holders of at least 75% of the outstanding shares of FBI Common
Stock. The approval of the other proposals being considered by the
USB shareholders will require the affirmative vote of at least a
majority of the outstanding shares of USB Common Stock. The
directors and executive officers of USB (including certain family
members and related interests) and the directors and executive
officers of FBI beneficially owned, as of the USB Record Date, and
are entitled to vote, a total of 308,359 shares of USB Common Stock
at the USB Meeting, or 14.42% of the outstanding shares entitled to
be voted. The directors and executive officers of FBI (and certain
family members and related interests) beneficially owned, as of the
FBI Record Date, and are entitled to vote, a total of 25,852 shares
of FBI Common Stock at the FBI Meeting, or 10.78% of the
outstanding shares entitled to be voted. The affirmative vote of
1,116,955 shares, or 52.24%, of the USB Common Stock, when added to
those shares beneficially owned by the directors and executive
officers of USB (and certain family members and related interests)
and the directors and executive officers of FBI, will be required
to approve the Merger on behalf of USB. The affirmative vote of
154,031 shares, or 64.22%, of the FBI Common Stock, when added to
those shares of the FBI Common Stock owned by the directors and
executive officers of FBI (and certain family members and related
interests) will be sufficient to approve the Merger on behalf of
FBI. See "General Information--Meetings, Record Dates and Votes
Required."
Exchange of Certificates. Promptly after the Effective Time,
USB Bank, as Exchange Agent, will mail to each holder of record of
FBI Common Stock at the Effective Time a transmittal letter, with
instructions and return envelope, to use in effecting the exchange
of certificates representing such FBI Common Stock for certificates
representing shares of USB Common Stock and for cash in lieu of
fractional shares. Beginning six months after the Effective Time,
dividends and other distributions payable with respect to USB
Common Stock will be paid to the holder of an unsurrendered FBI
Common Stock certificate only upon surrender of such certificate.
See "The Merger--Surrender of Certificates."
Conditions to Consummation. The obligations of USB and FBI to
effect the Merger are subject to various conditions, including (i)
approval of the Merger Agreement and the transactions provided for
therein by the USB and FBI shareholders, (ii) approval by USB
shareholders of the amendments to USB's Restated Articles of
Incorporation described herein and of the LTICP, (iii) receipt of
regulatory approvals required in connection with the Merger and
expiration of statutory waiting periods, (iv) receipt of any other
consents necessary to consummation of the Merger, and (v) receipt
of certain opinions of counsel and independent accountants. All
required regulatory approvals have been obtained. Approval of the
FDIC was obtained on February 11, 1997, and the 15-day period for
Justice Department objection expired on February 26, 1997.
Approval for the merger of USB Bank and First Bank was obtained
from the Alabama State Banking Department on February 14, 1997.
See "The Merger--Conditions to Consummation of the Merger."
Federal Income Tax Consequences. The Merger is intended to be
a tax-free reorganization in which no gain or loss will be
recognized by USB or FBI and no gain or loss will be recognized by
FBI shareholders, except in respect of cash received for fractional
shares and except for dissenting shareholders who receive cash
payments. Counsel for each of USB and FBI have delivered opinions
to the effect that, for federal income tax purposes, under current
law, assuming the Merger will take place as described in the Merger
Agreement and that certain factual matters represented by USB and
FBI are true and correct at the time of consummation of the Merger,
the Merger will constitute a reorganization within the meaning of
Section 368(a) of the Internal Revenue Code of 1986, as amended
(the "Code"). See "The Merger--Certain Federal Income Tax
Consequences."
BECAUSE CERTAIN TAX CONSEQUENCES OF THE MERGER MAY VARY
DEPENDING UPON THE PARTICULAR CIRCUMSTANCES OF EACH SHAREHOLDER, IT
IS RECOMMENDED THAT EACH SHAREHOLDER CONSULT SUCH HOLDER'S TAX
ADVISOR CONCERNING THE FEDERAL (AND ANY STATE, LOCAL OR FOREIGN)
TAX CONSEQUENCES OF THE MERGER IN SUCH HOLDER'S PARTICULAR
CIRCUMSTANCES.
Amendment of Restated Articles of Incorporation and Bylaws.
The Merger Agreement provides that the Restated Articles of
Incorporation of USB, the surviving corporation in the Merger of
FBI and USB, will at the Effective Time be amended: (i) to provide
for a 2/3's supermajority voting requirement by the Board of
Directors to approve significant corporate events or to add or
remove members of senior management, (ii) to increase the number of
authorized shares of USB Common Stock from 2,400,000 to 10,000,000,
and (iii) to eliminate preemptive rights of USB shareholders. If
the Merger is approved, USB shareholders will be asked to approve
the amendment providing for a 2/3's supermajority voting
requirement by the Board of Directors for certain actions.
Regardless of whether the Merger is approved, USB shareholders will
be asked to consider the amendments eliminating shareholders'
preemptive rights and increasing the number of shares of authorized
common stock. See, "The Merger--Amendment of USB Articles of
Incorporation" and "--Amendment of USB Bylaws."
Management and Operations after the Merger. The Merger
Agreement provides that the USB Board of Directors after the
Effective Time will consist of nineteen directors--the ten
incumbent directors of USB and nine of the incumbent directors of
FBI, Dan Barlow, John Becton, Linda Breedlove, Fred L. Huggins,
John C. Gordon, Ray Sheffield, Clarence Watters, Bruce Wilson and
Ernest Woodson. See "THE MERGER Increase in Size of USB Board of
Directors" and "Management and Operations After the Merger." The
Merger Agreement also provides that, at the Effective Time, (i)
Jack M. Wainwright, III shall be elected to serve as the President
and Chief Executive Officer of USB, (ii) Fred L. Huggins shall be
elected to serve as the Chairman and Chief Executive Officer of
Acceptance, (iii) Jim Miller shall be elected to serve as Chairman
of the Board of USB, with FredL. Huggins and Ray Sheffield serving
as Vice Chairmen of the Board, and (iv) Fred L. Huggins shall be
elected to serve as Chairman of the Board of USB Bank, with Don
Nichols and Hardie Kimbrough serving as Vice Chairmen of the Board.
All USB directors and officers will serve in accordance with the
Bylaws of USB after the Effective Time. See "The Merger Increase
in Size of USB Board of Directors" and "Management and Operations
After the Merger."
Interests of Certain Persons in the Merger. Certain of the
directors and officers of USB and FBI have been selected or will be
selected to serve as directors and officers of USB after the
Effective Time. In addition, certain of the directors and
executive officers of FBI and their family members and associates
have ownership interests in USB Common Stock. Directors and
executive officers of FBI and their family members and associates
will receive shares of USB Common Stock in exchange for their
shares of FBI Common Stock upon consummation of the Merger at the
Exchange Ratio, as will other FBI shareholders. Jack M.
Wainwright, III and USB have entered into an employment agreement
whereby Mr. Wainwright agrees to serve as Chief Executive Officer
of USB as the surviving corporation in the Merger for a period of
not less than three years from the Effective Time. Under Mr.
Wainwright's new employment agreement, if the Merger is
consummated, Mr. Wainwright will receive an annual salary of
$200,000 per year, which is $50,000 per year more than his current
base salary, for an aggregate benefit to Mr. Wainwright of $150,000
over the three year period of his contract. See "The
Merger--Interests of Certain Persons in the Merger."
Accounting Treatment. The Merger is expected to qualify as a
"pooling of interests" for accounting and financial reporting
purposes. The receipt of a letter from Arthur Andersen LLP,
independent certified public accountants, confirming that the
Merger will qualify for pooling-of-interests accounting treatment
is a condition to consummation of the Merger. See "The
Merger--Accounting Treatment."
Market Prices. Neither FBI Common Stock nor USB Common Stock
is traded on an exchange or any organized trading market, but there
have been private transactions in the shares. The most recent
reported trades in USB Common Stock as to which management has any
knowledge of the price paid in the transaction occurred on November
22, 1996, at a price per share of $15.50, for 428 shares, and on
September 5, 1996, at a price per share of $15.00, for 130 shares.
During the two year period ended December 31, 1996, management is
aware of 43 transactions in USB Common Stock at prices ranging from
$10.00 per share to $15.50 per share. The most recent reported
trades in FBI Common Stock as to which management has any knowledge
of the price paid in the transaction occurred on November 1, 1996,
at a price per share of $77.08, for 960 shares, and on May 10,
1996, at a price per share of $70.00, for 10 shares. During the
two year period ended December 31, 1996, management is aware of 46
transactions in FBI Common Stock at prices ranging from $60.00 per
share to $77.08 per share. See "COMPARATIVE MARKET PRICES AND
DIVIDENDS--Market Prices."
Resales of USB Stock. The shares of USB Common Stock issued
pursuant to the Merger Agreement will be freely transferable under
federal securities law, except for shares issued to any shareholder
who may be deemed an "affiliate" of FBI for purposes of Rule 145
under the Securities Act (generally including directors, executive
officers and beneficial owners of ten percent of any class of
capital stock). Affiliates may not sell their shares of USB Common
Stock acquired in the Merger, except upon registration, in
compliance with Rule 145 promulgated under the Securities Act, or
pursuant to another applicable exemption from the registration
requirements of the Securities Act. There is currently no active,
public trading market for USB Common Stock. See "The
Merger--Resales of USB Common Stock," and "Risk Factors."
Waiver and Amendment; Termination. Either USB or FBI may
waive or extend the time for performance by the other of
obligations under the Merger Agreement, and the Boards of Directors
of each of USB and FBI may agree, subject to certain limitations
imposed by Alabama law, to amend the Merger Agreement. The Merger
Agreement may be terminated at any time prior to the Effective Time
(i) by mutual consent, (ii) in the event of a breach of a
representation or warranty or covenant or agreement by the
non-breaching party under certain circumstances, (iii) by either
party in the event any required regulatory approval is denied or
not obtained or the shareholders of either USB or FBI fail to
approve the Merger, (iv) by either party in the event there is a
material adverse effect on the business, operations or financial
conditions of the other party that is not remedied or (v) in the
event any of the conditions precedent to the Merger cannot be
satisfied or fulfilled by March 31, 1997. See "The Merger--Waiver
and Amendment; Termination."
Dissenters' Rights. FBI shareholders and USB shareholders
have the right to dissent from the Merger Agreement and, upon
satisfaction of certain specified procedures, to receive cash in
respect of the "fair value" of their shares of FBI Common Stock or
USB Common Stock in accordance with applicable Alabama law. The
procedures to be followed by dissenting shareholders are summarized
under "General Information--Dissenters' Rights." A copy of the
applicable Alabama statutory provisions is set forth in AppendixB
to this Joint Proxy Statement. Failure to follow precisely such
provisions as are applicable may result in loss of dissenters'
rights.
In general, any dissenting shareholder who perfects his
statutory dissenters' rights to be paid the "fair value" of his
stock in cash will recognize gain or loss for federal income tax
purposes upon receipt of such cash. See "The Merger--Federal
Income Tax Consequences."
If a significant number of shares of FBI Common Stock or USB
Common Stock are held by shareholders who dissent and elect to
receive cash in lieu of their shares, the Merger might not qualify
for pooling-of-interests accounting treatment. Such accounting
treatment is a condition to FBI's and USB's respective obligations
to effect the Merger. In addition, dissent by holders of a
significant number of shares of USB Common Stock or FBI Common
Stock could cause the Merger not to qualify as a tax free
reorganization for federal income tax purposes. See "The
Merger--Accounting Treatment," and "--Federal Income Tax
Consequences."
Selected Consolidated Financial Data
The following tables present for USB and FBI, on a historical
basis, selected consolidated financial data and ratios. This
information is based on the consolidated financial statements of
USB, incorporated herein by reference, and FBI, appearing elsewhere
in this Joint Proxy Statement, and should be read in conjunction
therewith and with notes thereto. See "Available Information,"
"Incorporation of Certain Documents by Reference," "Pro Forma
Financial Information" and Appendix C hereto.
<TABLE>
USB SELECTED CONSOLIDATED FINANCIAL DATA (HISTORICAL)
(Dollars in Thousands Except Per Share Amounts)
<CAPTION>
Year Ended December 31,
1996 1995 1994 1993 1992
<S> <C> <C> <C> <C> <C>
RESULTS OF OPERATIONS
Interest revenue $18,150 $16,167 $14,025 $12,154 $12,348
Interest expense 8,067 7,002 5,420 4,642 5,434
Net interest revenue 10,083 9,165 8,605 7,512 6,914
Provision for loan losses 78 -0- 29 51 135
Non-interest revenue 1,435 1,111 1,041 2,240 2,599
Non-interest expense 5,657 5,229 5,231 5,137 5,187
Income before income taxes 5,783 5,047 4,386 4,564 4,191
Income taxes 1,520 1,432 1,161 1,374 1,134
Net income before
extraordinary items 4,263 3,615 3,225 3,190 3,057
Extraordinary item -0- -0- -0- -0- -0-
Net income 4,263 3,615 3,225 3,190 3,057
Earnings per share:
Before extraordinary item 1.99 1.69 1.51 1.49 1.43
Extraordinary item -0- -0- -0- -0- -0-
Net income 1.99 1.69 1.51 1.49 1.43
Average number of shares
outstanding (000's) 2,138 2,138 2,138 2,136 2,133
PERIOD END STATEMENT
OF CONDITION
Total assets 235,191 197,468 186,441 168,782 149,848
Loans 64,573 54,203 56,733 52,945 49,590
Deposits 179,926 146,515 142,284 132,519 130,816
Shareholders' equity 28,826 25,229 18,721 19,611 17,159
AVERAGE BALANCES
Total assets 222,595 192,868 177,599 158,584 151,445
Average earning assets 209,073 180,417 165,309 148,610 141,911
Loans 63,232 56,956 55,842 51,603 52,264
Deposits 169,553 144,645 140,124 131,654 125,901
Shareholders' equity 26,500 22,981 19,114 18,424 15,643
PERFORMANCE RATIOS
Net income to:
Average total assets 1.92% 1.87% 1.82% 2.01% 2.02%
Average shareholders' equity 16.09% 15.73% 16.87% 17.31% 19.54%
Average shareholders' equity to
average total assets 11.91% 11.92% 10.76% 11.62% 10.33%
Dividend payout ratio 26.08% 26.02% 27.84% 24.36% 22.68%
</TABLE>
<TABLE>
FBI SELECTED CONSOLIDATED FINANCIAL DATA (HISTORICAL)
(Dollars in Thousands Except Per Share Amounts)
<CAPTION>
Year Ended December 31,
1996 1995 1994 1993 1992
<S> <C> <C> <C> <C> <C>
RESULTS OF OPERATIONS
Interest revenue $ 16,401 $ 14,404 $ 9,315 $ 8,847 $ 9,263
Interest expense 7,014 6,296 3,675 3,721 4,215
Net interest revenue 9,387 8,108 5,640 5,126 5,048
Provision for loan losses 722 255 195 335 211
Non-interest revenue 1,290 1,444 1,209 940 788
Non-interest expense 6,108 5,669 5,120 3,252 3,025
Income before income taxes 3,847 3,628 1,534 2,479 2,600
Income taxes 1,139 793 206 690 776
Net income 2,708 2,835 1,328 1,789 1,824
Earnings per share:
Net income 11.29 11.95 5.71 7.69 7.84
Average number of shares
outstanding (000's) 240 237 233 233 233
PERIOD END STATEMENT OF CONDITION
Total assets 195,192 179,652 122,128 122,999 114,875
Loans 139,725 127,797 82,870 75,475 59,930
Deposits 166,380 157,866 105,250 101,782 96,265
Shareholders' equity 18,790 16,566 12,876 12,187 10,606
AVERAGE BALANCES
Total assets 187,946 171,462 123,513 120,607 112,010
Average earning assets 173,385 157,504 114,787 111,440 105,240
Loans 135,095 115,190 79,608 65,987 56,845
Deposits 160,983 149,418 104,664 99,789 93,145
Shareholders' equity 17,544 14,607 13,061 11,842 9,715
PERFORMANCE RATIOS
Net income to:
Average total assets 1.44% 1.65% 1.08% 1.48% 1.63%
Average shareholders' equity 15.44% 19.41% 10.17% 15.11% 18.78%
Average shareholders' equity to
average total assets 9.33% 8.52% 10.57% 9.82% 8.67%
Dividend payout ratio 10.98% 8.04% 14.91% 11.07% 9.54%
</TABLE>
The following table sets forth pro forma combined selected
consolidated financial data and ratios giving effect to the Merger
on a pooling-of-interest accounting basis for the five years ended
December 31, 1996. The data are not necessarily indicative of the
results of the future operations of either entity or the actual
results that would have occurred had the Merger been consummated
December 31, 1996, and should be read in conjunction with the
Unaudited Pro Forma Combined Condensed Consolidated Financial
Statements appearing elsewhere in this Joint Proxy Statement and
the consolidated financial statements of USB, incorporated herein
by reference, and FBI, appearing elsewhere in this Joint Proxy
Statement. See "Incorporation of Certain Documents by Reference,"
"Pro Forma Financial Information" and Appendix C.
<TABLE>
COMBINED PRO FORMA SELECTED CONSOLIDATED FINANCIAL DATA
(Dollars In Thousands Except Per Share Amounts)
<CAPTION>
Year Ended December 31,
1996 1995 1994 1993 1992
<S> <C> <C> <C> <C> <C>
RESULTS OF OPERATIONS
Interest revenue $ 34,551 $ 30,571 $ 23,340 $ 21,001 $ 21,611
Interest expense 15,081 13,298 9,095 8,363 9,649
Net interest revenue 19,470 17,273 14,245 12,638 11,962
Provision for loan losses 800 255 224 386 346
Non-interest revenue 2,725 2,555 2,250 3,180 3,387
Non-interest expense 11,765 10,898 10,351 8,389 8,212
Income before income taxes 9,630 8,675 5,920 7,043 6,791
Income taxes 2,659 2,225 1,367 2,064 1,910
Net income 6,971 6,450 4,553 4,979 4,881
Earnings per share:
Net income 1.97 1.83 1.30 1.42 1.40
Average number of shares
outstanding (000's) 3,537 3,520 3,497 3,495 3,492
PERIOD END STATEMENT
OF CONDITION
Total assets 430,383 377,120 308,569 291,781 264,723
Loans 204,298 182,000 129,603 128,420 109,520
Deposits 346,306 304,381 247,534 234,301 227,081
Shareholders' equity 47,616 41,795 31,597 31,798 27,765
AVERAGE BALANCES
Total assets 410,541 364,330 301,112 279,191 263,455
Average earning assets 382,458 337,921 280,096 260,050 247,151
Loans 198,327 172,146 135,450 117,590 109,109
Deposits 330,536 294,063 244,788 231,443 219,046
Shareholders' equity 44,044 37,588 32,175 30,266 25,358
PERFORMANCE RATIOS
Net income to:
Average total assets 1.70% 1.77% 1.51% 1.78% 1.85%
Average shareholders' equity 15.83% 17.16% 14.15% 16.45% 19.25%
Average shareholders' equity to
average total assets 10.73% 10.32% 10.69% 10.84% 9.63%
Dividend payout ratio 20.21% 18.12% 24.07% 19.58% 17.77%
</TABLE>
Comparative Per Share Data
The following table presents selected comparative per share
data for USB Common Stock and FBI Common Stock on a historical
basis, for USB Common Stock on a pro forma basis reflecting
consummation of the Merger and for the FBI Common Stock on an
equivalent pro forma basis reflecting consummation of the Merger.
Such information has been prepared giving effect to the Merger on
a pooling-of-interests accounting basis. See "The
Merger--Accounting Treatment." The data is not necessarily
indicative of the results of the future operations of either entity
or the actual results that would have occurred had the Merger been
consummated December 31, 1996. The information is derived from and
should be read in conjunction with the consolidated historical
financial statements of USB, including related notes thereto,
incorporated herein by reference, and the consolidated historical
financial statements of FBI, including the notes thereto, and the
unaudited pro forma financial information appearing elsewhere in
this Joint Proxy Statement. See "Available Information,"
"Incorporation of Certain Documents by Reference," "Pro Forma
Financial Information" and Appendix C hereto.
<TABLE>
<CAPTION>
Year Ended December 31,
1996 1995 1994
<S> <C> <C> <C>
USB Common Stock
Net income per common share
before extraordinary item:
Historical 1.99 1.69 1.51
Pro forma combined 1.97 1.83 1.30
Dividends paid per common share:
Historical 0.52 0.44 0.42
Pro forma combined 0.52 0.44 0.42
Book value per common share (at end of period):
Historical 13.48 11.80 8.76
Pro forma combined 13.46 11.82 9.04
FBI Common Stock
Net income per common share
before extraordinary item:
Historical 11.29 11.95 5.71
Pro forma equivalent (1) 11.48 10.67 7.58
Dividends paid per common share:
Historical 1.23 0.95 0.85
Pro forma equivalent (1) 3.03 2.56 2.44
Book value per common share (at end of period):
Historical 78.34 69.07 55.36
Pro forma equivalent (1) 78.50 68.94 52.72
<FN>
(1) FBI pro forma equivalent amounts are computed by multiplying
the pro forma combined amount by a factor of 5.8321 to reflect
the exchange ratio of 5.8321 shares of USB Common Stock for
each share of FBI Common Stock. See "The Merger--Terms of the
Merger."
</FN>
</TABLE>
Summary Capital Ratios
The following table sets forth the risk-based capital ratios
for USB, FBI and pro forma for the combined company, together with
the minimum ratios required by regulatory agencies, as of December
31, 1996. See "Supervision, Regulation, and Effects of
Governmental Policy--Capital Adequacy."
<TABLE>
<CAPTION>
Combined
USB FBI (Pro Forma)
<S> <C> <C> <C>
Risk-based capital ratios
Tier I capital 20.55% 10.76% 15.35%
Total capital (Tier I and II) 21.50% 12.02% 16.44%
Minimum risk-based capital ratios
Tier I capital 4.00% 4.00% 4.00%
Total capital (Tier I and II) 8.00% 8.00% 8.00%
Tier I leverage ratio 11.60% 8.10% 9.99%
Minimum Tier I leverage ratio 4.00% - 5.00% 4.00% - 5.00% 4.00% - 5.00%
</TABLE>
RISK FACTORS
Shareholders of USB and FBI are urged to carefully consider
the following factors:
Determination of Terms and Exchange Ratio
The terms of the Merger, including the Exchange Ratio, were
determined by arms-length negotiations between USB and FBI. USB
and FBI considered the book value, earnings per share, potential
market values and the projected financial performance of the
combined company in evaluating the Exchange Ratio. No effort was
made to determine the going concern or liquidation values of USB
and FBI. See "The Merger--Background of and Reasons for the
Merger" and "The Merger--Opinions of Financial Advisors."
Restrictions on Dividends
The principal business operations of USB and FBI are conducted
through their subsidiary banks (collectively, the "Banks"). Cash
available to pay dividends to stockholders of USB and FBI is
derived primarily, if not entirely, from dividends paid by the
Banks. After the Merger, the ability of USB Bank, as the surviving
subsidiary bank, to pay dividends to USB as well as USB's ability
to pay dividends to its stockholders will be subject to and limited
by certain legal and regulatory restrictions. Further, any lenders
making loans to USB may impose financial covenants that may be more
restrictive than regulatory requirements with respect to the
payment of dividends by USB. There can be no assurance of whether
or when USB may pay dividends after the Merger. As of December 31,
1996, USB Bank had $8,193,418, and First Bank had $4,943,000, of
undivided profits legally available for the payment of dividends
without lender or regulatory approval, with $13,136,418 available
for dividends for the combined company on a pro forma basis. See
"Comparative Market Prices and Dividends" and "Supervision,
Regulation, and Effects of Governmental Policy."
Competition
The banking business is highly competitive, particularly in
the Banks' market areas. The Banks compete as financial
intermediaries with other commercial banks, savings associations,
credit unions, mortgage banking companies, securities brokerage
companies, insurance companies and money market mutual funds
operating in Alabama and elsewhere. Many of these competitors have
substantially greater resources and lending limits than USB and FBI
and the Banks. Additionally, non-depository institution
competitors are generally not subject to the extensive regulations
applicable to USB and FBI and the Banks. As of September 29, 1995,
pursuant to the Riegle-Neal Interstate Banking and Branching
Efficiency Act, commercial banks may now acquire financial
institutions nationwide, further increasing competition.
Supervision and Regulation
The banking industry is heavily regulated. Subsequent to the
Merger, USB and USB Bank will be subject to regulation by the
Federal Reserve, the FDIC and the Alabama State Banking Department.
The success of USB and USB Bank depends not only on competitive
factors but also on state and federal regulations affecting banks,
thrifts, and bank and thrift holding companies. The regulations
are primarily intended to protect depositors, not shareholders.
Recent and proposed changes to the regulation of the financial
institution industry and the ultimate effect of such changes cannot
be predicted. The effects of the implementation of new legislation
applicable to USB and FBI and the Banks, including the Community
Development and Regulatory Improvement Act and the Riegle-Neal
Interstate Banking and Branching Efficiency Act cannot be measured
at this time. The enactment of the Federal Deposit Insurance
Corporation Improvement Act of 1991 ("FDICIA") changed the
framework of federal regulation of banks and contains a number of
provisions that affect the operation of banks, including the
establishment of a system of prompt corrective action for insured
depository institutions that set regulatory capital categories for
such institutions. Regulations now affecting USB and FBI and the
Banks may be modified at any time, and there is no assurance that
such modification will not adversely affect the business of USB and
FBI and the Banks. See "Supervision, Regulation, and Effects of
Governmental Policies."
Monetary Policies
Interest rates are largely dependent on the rate of interest
established from time to time by the Federal Reserve for funds made
available to financial institutions by the Federal Reserve. During
1994 and the first nine months of 1995, the Federal Reserve changed
its discount rate five times. During 1996, Federal Reserve
established interest rates were relatively stable. However, due to
the potential for volatility of such monetary policy, there can be
no assurance that actions by monetary and fiscal authorities will
not have an adverse effect on the deposit levels, net interest
margin, loan demand or the business and earnings of USB Bank.
Reserve for Loan Losses
Management of each Bank maintains an allowance for loan losses
based upon, among other things, historical experience, an
evaluation of economic conditions and regular reviews of
delinquencies and loan portfolio quality. Based upon such factors,
management makes various assumptions and judgments about the
ultimate collectibility of the respective loan portfolios and
provides an allowance for potential loan losses based upon a
percentage of the outstanding balances and for specific loans when
their ultimate collectibility is considered questionable. Although
each of USB and FBI believes that allowances for loan losses at
each of the Banks are adequate, there can be no assurance that such
allowances will prove sufficient to cover future losses. Future
adjustments may be necessary if economic conditions differ or
adverse developments arise with respect to non-performing or
performing loans of the Banks. Material additions to the allowance
for loan losses of USB Bank, as the surviving Bank, would result in
a material decrease in USB's net income, and possibly its capital,
and could result in its inability to pay dividends, among other
adverse consequences. See "Incorporation of Certain Documents by
Reference" and "FBI Management's Discussion and Analysis of
Financial Condition and Results of Operations--Provision and
Allowance for Loan Losses."
Tax Considerations
It is intended that the Merger will be treated as a
reorganization within the meaning of Section 368 of the Code.
Based upon certain representations made by the managements of USB
and FBI, Maynard, Cooper & Gale, P.C. and Walston, Wells, Anderson
& Bains, LLP have each delivered an opinion regarding the federal
income tax effects of the Merger, described under the caption "The
Merger--Federal Income Tax Consequences."
No ruling has been requested from the Internal Revenue Service
("IRS") as to any federal income tax consequences in connection
with the Merger, and the opinions of counsel described above are
not binding on the IRS. Further, because certain tax consequences
of the Merger may vary depending upon the particular circumstances
of each shareholder and other factors, each holder of USB stock or
FBI stock is urged to consult such holder's own tax advisor to
determine the particular tax consequences to such holder of the
Merger (including the application and effect of state, local and
other tax laws).
Interests of Certain Persons in the Transaction
Directors and officers of USB and FBI have personal interests
in the Merger that may present them with conflicts of interest in
connection with the Merger. The Boards of Directors of USB and FBI
are aware of this and have considered personal interests disclosed
in this Joint Proxy Statement in their evaluation of the Merger.
See "The Merger--Background of and Reasons for the Merger" and "The
Merger--Interests of Certain Persons in the Merger."
Restrictions on Resale and USB Common Stock
Affiliates of FBI who receive USB Common Stock pursuant to the
Merger will be restricted on the resale of such USB Common Stock
pursuant to Rule 145 under the Securities Act. Additionally,
individuals who are not affiliates of FBI but who will become
affiliates of USB after the Merger will be restricted on the resale
of any USB Common Stock, whether or not received in the Merger,
pursuant to Rule 144 under the Securities Act. An affiliate of FBI
who will also be an affiliate of USB after the Merger will be
subject to the restrictions on resale of both Rule 145 and Rule
144. An "affiliate" is generally a person that, directly or
indirectly, controls an entity and generally includes all officers,
directors and 10% shareholders of such entity. See "The
Merger--Resales of USB Common Stock."
GENERAL INFORMATION
Meetings, Record Dates and Votes Required
USB Meeting. The Annual Meeting of Shareholders of USB will
be held at 2:00 p.m., local time, on ________________, 1997, at the
main office of USB Bank, 131 West Front Street, Thomasville,
Alabama. The purpose of the USB Meeting is to consider and vote
upon a proposal to approve the Merger Agreement, which provides
for, among other things, the Merger. Additionally, at the USB
Meeting, USB shareholders will consider certain matters provided
for in the Merger Agreement, elect 10 directors to serve for the
ensuing year, and will consider a proposal to approve the United
Security Bancshares, Inc. Long Term Incentive Compensation Plan.
Only holders of record of USB Common Stock at the close of business
on the USB Record Date, ___________________, 1997, will be entitled
to notice of and to vote at the USB Meeting. As of the USB Record
Date there were [2,137,960] shares of USB Common Stock issued,
outstanding and entitled to be voted. There were approximately
[564] USB shareholders, of record or through registered clearing
agents, on the USB Record Date. Each share of USB Common Stock
will be entitled to one vote at the USB Meeting.
Approval of the proposed amendments to USB's Restated Articles
of Incorporation and approval of the LTICP are conditions to
consummation of the Merger. A failure by USB shareholders to
approve the amendment increasing the number of shares of authorized
USB Common Stock will preclude consummation of the Merger because
there are an insufficient number of shares currently authorized.
A failure by USB shareholders to approve the other amendments or
the LTICP will also preclude consummation of the Merger unless the
related condition to closing is waived by both USB and FBI.
The presence, in person or by proxy, of holders of the
majority of the issued and outstanding shares of USB Common Stock
entitled to vote at the USB Meeting is necessary to constitute a
quorum at such meeting.
Approval of the Merger Agreement on behalf of USB, pursuant to
the Alabama Business Corporation Act ("ABCA"), will require the
affirmative vote of the holders of at least two-thirds of the
outstanding shares of USB Common Stock entitled to be voted
thereon. Approval of the other proposals will require the
affirmative vote of the holders of at least a majority of the
outstanding shares of USB Common Stock entitled to be voted
thereon. A failure to return the enclosed proxy or a vote to
abstain will have the same effect as a vote against each proposal.
As of the USB Record Date, 308,359 shares of USB Common Stock, or
14.42% of the total shares of USB Common Stock outstanding, were
beneficially owned and entitled to be voted by directors and
executive officers of USB and certain family members and related
interests and by directors and executive officers of FBI and
certain family members and related interests. Assuming all such
shares are voted in favor of the Merger, the affirmative vote of
the holders of 1,116,955 additional shares of USB Common Stock will
be required for approval.
Dissenters' rights may be demanded by USB shareholders who do
not vote in favor of the Merger, and who follow the specified
procedures of Alabama law. See "Dissenters' Rights" below.
Approval of the Merger Agreement will be deemed to constitute
approval of the issuance of the number of shares of USB Common
Stock into which shares of FBI Common Stock may be converted in the
Merger and approval of an increase in the size of the Board of
Directors of USB from ten to nineteen, and the election of Dan
Barlow, John Becton, Linda Breedlove, Fred L. Huggins, John C.
Gordon, Ray Sheffield, Clarence Watters, Bruce Wilson and Ernest
Woodson to fill the vacancies created by the increase effective at
the Effective Time. See "The Merger--Increase in Size of USB Board
of Directors."
FBI Meeting. The Special Meeting of Shareholders of FBI will
be held at 10:00 a.m., local time, on ___________________, 1997, at
the main office of First Bank, 131 Main Street, Grove Hill,
Alabama. The purpose of the meeting is to consider and vote upon
a proposal to approve the Merger Agreement, which provides for,
among other things, the Merger. Only holders of record of FBI
Common Stock at the close of business on the FBI Record Date,
_____________, 1997, will be entitled to notice of and to vote at
the FBI Meeting. As of the FBI Record Date, there were [239,843]
shares of FBI Common Stock issued, outstanding and entitled to be
voted. There were [274] FBI shareholders of record on the FBI
Record Date. Each share of FBI Common Stock will be entitled to
one vote at the FBI Meeting.
The presence, in person or by proxy, of holders of a majority
of the issued and outstanding shares of FBI Common Stock entitled
to vote at the FBI Meeting is necessary to constitute a quorum at
such meeting.
Approval of the Merger Agreement on behalf of FBI, pursuant to
FBI's Articles of Incorporation, will require the affirmative vote
of the holders of at least 75% of the outstanding shares of FBI
Common Stock entitled to be voted thereon. A failure to return the
enclosed proxy or a vote to abstain will have the same effect as a
vote against approval of the Merger Agreement. As of the FBI
Record Date, 25,852 shares of FBI Common Stock, or 10.78% of the
total shares of FBI Common Stock outstanding, were beneficially
owned and entitled to be voted by directors and executive officers
of FBI and certain family members and related interests. Assuming
all such shares are voted in favor of the Merger, the affirmative
votes of the holders of 154,031 additional shares of FBI Common
Stock will be required for approval.
Dissenters' rights may be demanded by FBI shareholders who do
not vote in favor of the Merger and who follow the specified
procedures of Alabama law. See "Dissenters' Rights" below.
Proxies
USB. The enclosed USB proxies are solicited on behalf of the
Board of Directors of USB for use in connection with the USB
Meeting and any adjournment or adjournments thereof. Holders of
USB Common Stock are requested to complete, date and sign the
accompanying proxy and return it promptly to USB in the enclosed
envelope. Failure to return a properly executed proxy or to vote
at the USB Meeting will have the same effect as a vote against
approval of the Merger Agreement and of each other proposal to be
considered at the USB Meeting.
A USB shareholder who has executed and delivered a proxy may
revoke it at any time before such proxy is voted by giving a later
written proxy, by giving written revocation to the Corporate
Secretary of USB, provided such later proxy or revocation is
actually received by USB before the vote of the shareholders, or by
voting in person at the USB meeting. Any shareholder attending the
USB Meeting may vote in person whether or not a proxy has been
previously filed. The shares represented by all properly executed
proxies received in time for the USB Meeting, unless said proxies
are revoked, will be voted in accordance with the instructions
therein. If instructions are not given, properly executed proxies
received will be voted FOR approval of the Merger Agreement and of
each other proposal to be considered at the USB Meeting.
FBI. The enclosed FBI proxies are solicited on behalf of the
Board of Directors of FBI for use in connection with the FBI
Meeting and any adjournment or adjournments thereof. Holders of
FBI Common Stock are requested to complete, date and sign the
accompanying proxy and return it promptly to FBI in the enclosed
envelope. Failure to return a properly executed proxy or to vote
at the FBI Meeting will have the same effect as a vote against
approval of the Merger Agreement. FBI shareholders should not
forward any stock certificates with their proxy.
An FBI shareholder who has executed and delivered a proxy may
revoke it at any time before such proxy is voted by giving a later
written proxy, by giving written revocation to the Corporate
Secretary of FBI, provided such later proxy or revocation is
actually received by FBI before the vote of the shareholders, or by
voting in person at the FBI Meeting. Any shareholder attending the
FBI Meeting may vote in person whether or not a proxy has been
previously filed. The shares represented by all properly executed
proxies received in time for the FBI Meeting, unless said proxies
are revoked, will be voted in accordance with the instructions
therein. If instructions are not given, properly executed proxies
received will be voted FOR approval of the Merger Agreement.
Other Matters. USB and FBI will each bear the costs of
solicitation of proxies for their respective Meetings. Such
solicitation will be made by mail but also may be made by
telephone, facsimile or in person by the directors, officers and
employees of USB or FBI, as the case may be.
Neither the management of USB nor the management of FBI is
aware of any business to be acted upon at the Meetings other than,
for FBI, approval of the proposal to approve the Merger Agreement,
and, for USB, approval of the proposals set forth in the Notice of
the USB Meeting. If other matters are properly brought before
either or both of the Meetings or any adjournment thereof, the
enclosed proxy, if properly signed, dated and returned, will be
voted in accordance with the recommendation of the respective
company's management or, if there is no such recommendation, in the
discretion of the individuals named as proxies therein.
Dissenters' Rights
If the Merger is consummated, holders of record of USB Common
Stock or FBI Common Stock who follow the procedures specified by
Article 13 of the ABCA ("Article 13") will be entitled to
determination and payment in cash of the "fair value" of their
stock immediately before the Effective Time, excluding value
resulting from the anticipation of the Merger but including "a fair
and equitable" rate of interest thereon. Shareholders who elect to
follow such procedures are referred to herein as "Dissenting
Shareholders".
A VOTE IN FAVOR OF THE MERGER AGREEMENT BY A HOLDER OF USB
COMMON STOCK OR FBI COMMON STOCK WILL RESULT IN THE WAIVER OF THE
SHAREHOLDER'S RIGHT TO DEMAND PAYMENT FOR HIS OR HER SHARES.
The following summary of the provisions of Article 13 is not
intended to be a complete statement of such provisions, the full
text of which is attached as Appendix B to this Joint Proxy
Statement, and is qualified in its entirety by reference thereto.
A holder of FBI Common Stock electing to exercise dissenters'
rights (1) must deliver to FBI, before the vote at the FBI Meeting,
written notice of his or her intent to demand payment for his or
her shares if the Merger is effectuated, and (2) must not vote in
favor of the Merger Agreement. A holder of USB Common Stock
electing to exercise dissenters' rights (1) must deliver to USB,
before the vote at the USB Meeting, written notice of his or her
intent to demand payment for his or her shares if the Merger is
effectuated, and (2) must not vote in favor of the Merger
Agreement. The requirement of such written notice is in addition
to and separate from the requirement that such shares not be voted
in favor of the Merger Agreement, and the requirement of such
written notice is not satisfied by voting against the Merger
Agreement either in person or by proxy. The requirement that such
shares not be voted in favor of the Merger Agreement will be
satisfied if no proxy is returned and such shares are not voted in
person. Because a properly executed and delivered proxy which is
left blank will, unless revoked, be voted FOR approval of the
Merger Agreement, in order to be assured that such shareholder's
shares are not voted in favor of the Merger Agreement, a Dissenting
Shareholder who votes by proxy must not leave the proxy blank but
must (i) vote AGAINST the approval of the Merger Agreement or (ii)
affirmatively ABSTAIN from voting. Neither a vote against approval
of the Merger Agreement nor an abstention will satisfy the
requirement that a written notice of intent to demand payment be
delivered to FBI or USB, as the case may be, before the vote on the
Merger Agreement.
Both holders of record and beneficial owners of FBI Common
Stock or USB Common Stock are entitled to assert dissenters' rights
for the shares registered in the name of or held for the benefit of
that holder or owner. The dissenters' rights may be asserted with
respect to less than all shares of FBI Common Stock or USB Common
Stock held of record by such holder only if such holder dissents
with respect to all shares beneficially owned by any one person and
notifies FBI or USB, as the case may be, in writing of the name and
address of each person on whose behalf such record holder is
asserting dissenters' rights. A beneficial shareholder, in order
to assert his or her dissenters' rights, must submit to FBI or USB,
as the case may be, the record shareholder's written consent to the
dissent prior to or contemporaneously with such assertion and must
dissent with respect to all shares of which he or she is the
beneficial shareholder or over which he or she has the power to
vote. Where no number of shares is expressly mentioned, the
notice of intent to demand payment will be presumed to cover all
shares held in the name of the record holder.
Within 10 days after the Effective Time, USB, as the surviving
corporation in the Merger, will send a written dissenters' notice
to each Dissenting Shareholder of record at the Effective Time who
did not vote in favor of the Merger and who duly filed a written
notice of intent to demand payment in accordance with the
foregoing. The dissenters' notice will specify the deadline by
which time USB must receive a payment demand from such Dissenting
Shareholder. The deadline will be no fewer than 30 days or more
than 60 days after the date the dissenters' notice is delivered.
It is the obligation of Dissenting Shareholders to initiate all
necessary action to perfect their dissenters' rights within the
time periods prescribed in Article 13 and the dissenters' notice.
If no payment demand is timely received from a Dissenting
Shareholder, all dissenters' rights will be lost, notwithstanding
any previously submitted written notice of intent to demand
payment. Each Dissenting Shareholder who demands payment retains
all other rights of a shareholder until those rights are cancelled
or modified by the Merger. A Dissenting Shareholder who demands
payment in accordance with the foregoing may not thereafter
withdraw that demand and accept the terms offered under the Merger
Agreement unless USB shall consent thereto.
Within 20 days of the formal payment demand, a Dissenting
Shareholder who has made a demand must submit his share certificate
or certificates to USB, so that a notation to that effect may be
placed on such certificate or certificates and the shares returned
to the Dissenting Shareholder with the notation thereon. A
shareholder's failure to submit shares for notation will, at USB's
option, terminate the holder's rights as a dissenter, unless a
court of competent jurisdiction determines otherwise.
Promptly after the Effective Time, USB shall offer to pay each
Dissenting Shareholder who complied with Article 13 the amount USB
estimates to be the fair value of such Dissenting Shareholder's
shares, plus accrued interest. Each Dissenting Shareholder who
agrees to accept the above referenced offer of payment in full
satisfaction of his or her demand must surrender to USB the
certificate or certificates representing his or her FBI or USB
shares in accordance with the terms of the dissenters' notice.
Upon receiving the certificate or certificates, USB shall pay each
Dissenting Shareholder the fair value of his or her shares, plus
accrued interest. Upon receiving payment, a Dissenting Shareholder
ceases to have any interest in the shares.
A Dissenting Shareholder who has made a payment demand may
notify USB in writing of his or her own estimate of the fair value
of his or her shares and the amount of interest due, and demand
payment of his or her estimate, or reject the offer made to such
shareholder and demand payment of the fair value of his or her
shares and interest due, if: (i) the Dissenting Shareholder
believes that the amount offered him or her is less than the fair
value of his or her shares or that the interest due is incorrectly
calculated; (ii) USB fails to make an offer as required by Article
13 within sixty (60) days after the date set for demanding payment;
or (iii) USB, having failed to consummate the Merger, does not
release the transfer restrictions imposed on shares within sixty
(60) days after the date set for demanding payment; provided,
however, that a Dissenting Shareholder waives his or her right to
demand payment different from that offered unless he or she
notifies USB of his or her demand in writing within thirty (30)
days after USB offered payment for his or her shares.
If a demand for payment remains unsettled, USB shall commence
a proceeding within sixty (60) days after receiving the second
payment demand and petition the court to determine the fair value
of the shares and accrued interest. If the proceeding is not
commenced within the sixty (60) day period, each Dissenting
Shareholder whose demand remains unsettled shall be entitled to
receive the amount demanded. Such a proceeding will be filed in
the Circuit Court of Clarke County, Alabama. Each Dissenting
Shareholder made a party to the proceeding is entitled to judgment
for the amount the court finds to be the fair value of the his or
her shares, plus accrued interest. Upon payment of the judgment
and surrender to USB of the certificate or certificates
representing the judicially appraised shares, a Dissenting
Shareholder will cease to have any interest in the shares. The
court may assess costs incurred in such a proceeding against all or
some of the Dissenting Shareholders, in amounts the court finds
equitable, to the extent the court finds that such Dissenting
Shareholders acted arbitrarily, vexatiously, or not in good faith
in demanding payment different from that initially offered by USB.
The Court may also assess the reasonable fees and expenses of
counsel and experts against all or some of the Dissenting
Shareholders if the court finds that such Dissenting Shareholders
acted arbitrarily, vexatiously or not in good faith with respect to
the rights provided in Article 13.
Recommendations of Boards of Directors
The Board of Directors of USB recommends that the shareholders
of USB vote FOR each proposal set forth in the Notice of the USB
Meeting, including the proposal to approve the Merger Agreement.
The Board of Directors of FBI recommends that the shareholders of
FBI vote FOR the proposal to approve the Merger Agreement. See
"The Merger--Background of and Reasons for the Merger."
THE MERGER
The following information concerning the Merger, insofar as it
relates to matters contained in the Merger Agreement, is qualified
in its entirety by reference to the Merger Agreement, which is
attached hereto as Appendix A and incorporated herein by reference.
The information contained herein with respect to the opinions of
the financial advisors to USB and FBI is qualified in its entirety
by reference to the respective opinions of such financial advisors,
which are attached hereto as Appendices D and E and incorporated
herein by reference.
Terms of the Merger
At the Effective Time, FBI will merge with and into USB, and
First Bank will merge with and into USB Bank. In the Merger, each
share of FBI Common Stock outstanding immediately prior to the
Effective Time, other than shares with respect to which dissenters'
rights shall have been perfected, and also excluding shares held by
FBI or its subsidiaries or by USB or its subsidiary, in each case
other than in a fiduciary capacity or as a result of debts
previously contracted, will be converted into and exchanged for the
right to receive 5.8321 shares of USB Common Stock. If the Merger
is consummated, approximately 39.6% of the outstanding shares of
USB Common Stock will be held by former FBI shareholders.
No fractional shares of USB Common Stock will be issued in
respect to FBI Common Stock, and cash will be paid by USB in lieu
of issuance of such fractional shares. The amount paid in lieu of
fractional shares will be calculated by multiplying such fractional
part of a share of USB Common Stock by the book value of one share
of USB Common Stock as of the most recent month-end prior to the
Effective Time. No holder of FBI Common Stock who would otherwise
have been entitled to a fractional share of USB Common Stock will
be entitled to dividends, voting rights or any right as holder with
respect to such fractional shares.
Holders of FBI Common Stock and USB Common Stock will have the
right to dissent from the Merger Agreement and receive a cash
payment equal to the fair value of their shares, all in conformity
with the ABCA. See "General Information--Dissenters' Rights."
Effective Time
Articles of Merger will be filed with the Secretary of State
of the State of Alabama, as soon as practicable after all
conditions contained in the Merger Agreement have been satisfied or
lawfully waived, including receipt of all regulatory approvals and
expiration of all statutory waiting periods, and the approval of
the Merger Agreement by the shareholders of both USB and FBI. The
Effective Time of the Merger will be at the time Articles of Merger
shall be accepted for filing by the Secretary of State of Alabama
(or such later time as the parties may agree).
Background of and Reasons for the Merger
Since 1994, management of USB has considered various
possibilities for increased asset and earningsgrowth, including
possible new branches, acquisition of existing branches of other
area banks and the chartering of new banks within USB's market
area.
USB and Brent Banking Company ("Brent") entered into an
Agreement and Plan of Share Exchange on January 15, 1996. The
acquisition was completed on May 31, 1996, and Brent was merged
with USB on June 1, 1996. The shareholders of Brent received
$1,762.50 in cash for each share of Brent stock. There were no
dissenting Brent shares. The 4,000 shares of Brent stock
outstanding resulted in a total cash purchase price of $7,050,000.
The book value of Brent was $4,658,000, resulting in a premium of
$2,392,000 or 1.51 times book value. No borrowing was required to
finance the acquisition of Brent Banking Company. The acquisition
was accounted for as a purchase by USB in accordance with generally
accepted accounting principles, and the USB financial statements
incorporated by reference herein reflect the Brent Banking Company
purchase.
In the early part of 1994, representatives of USB and FBI
began discussions on the feasibility and the practicability of
organizing and operating a community development corporation to
promote, participate in, and fund community projects that might not
otherwise get funded. As a result of these discussions, Allied
Community Development Corporation ("Allied"), an Alabama nonprofit
corporation, was formed by USB, FBI and Merchants Bank, three
independent, community-owned banking corporations in Clarke County,
Alabama. Allied was incorporated to improve the quality of life in
the service areas served by its member banking institutions.
In October of 1995, after a meeting of the board of Allied
Community Development Corporation, the CEO's of USB and FBI were
engaged in a conversation about possible community projects. It
was agreed by both CEOs that community service could be strongly
enhanced and there could be many other benefits available through
efficiencies if USB and FBI were to merge.
Because FBI was searching for a permanent CEO at that time and
had not been successful in locating an acceptable candidate, it was
decided that additional exploratory discussions should be conducted
with USB about the possibility of a merger. On December 14, 1995,
the Boards of USB and FBI met to discuss a merger of equals and the
implications of a merger of the two institutions. At this meeting,
a committee made up of Mr. Jim Miller, Mr. Jack M. Wainwright, III,
Mr. Fred L. Huggins and respective counsel was authorized to meet
informally with the Federal Reserve to discuss the merger issue.
On January 5, 1996, this committee met with representatives of
the Federal Reserve in Atlanta. After this meeting, both Boards
were briefed in separate meetings, and preliminary data was
prepared for the Federal Reserve.
The CEO's of USB and FBI had several discussions, and they, in
turn, discussed the possibility with their respective Boards,
advisors, and counsel. This discussion continued through the
Spring of 1996. In the course of these discussions, the FBI Board
determined that pursuing a merger of equals with USB presented a
higher potential for enhancing FBI shareholder value and service to
its customers than other possible alternatives such as remaining
independent, attempting to negotiate a sale of FBI for cash to USB
or another institution, or seeking a merger of FBI with a banking
organization other than USB. Similarly, USB's Board of Directors
determined that a merger with FBI was the best strategy for
achieving increased asset and earnings growth and shareholder value
as compared with attempting to purchase FBI for cash or seeking an
acquisition of or business combination with an institution other
than FBI.
On June 11, 1996, both Boards met separately with Baxter
Fentriss and Company ("Baxter Fentriss"), an investment banker, to
discuss the merger further. On June 18, 1996, the Board of USB
authorized its CEO, Mr. Jack M. Wainwright, III to meet with FBI's
CEO, Mr. Fred L. Huggins, to work out the details of a merger
agreement. That meeting was held on the same day, and the CEOs
came to a basic understanding concerning the Merger.
On July 16, 1996, the Boards of the respective companies met
to discuss and approve an agreement in principle to merge. The
companies announced an agreement in principle to merge on July 17,
1996. After further negotiation, the Merger Agreement was executed
on August 19, 1996, on behalf of both parties.
The terms of the Merger Agreement, including the Exchange
Ratio, were determined by arms-length negotiations between USB and
FBI. In negotiating the Exchange Ratio, USB and FBI considered the
book value, earnings per share, potential market values, and the
projected financial performance of USB and FBI and their respective
contributions to the combined company resulting from the Merger.
See "--Opinions of Financial Advisors" below and "RISK
FACTORS--Determination of Terms and Exchange Ratio."
USB and FBI resolved issues as to management after the Merger
by specifying in the Merger Agreement the individuals who will
serve as directors and senior officers of USB and USB Bank upon
consummation of the Merger. See "--Management and Operations After
the Merger" below.
During the period after the signing of the Merger Agreement on
August 19, 1996, USB and FBI devoted substantial time to preparing
applications for and obtaining regulatory approvals required for
consummation of the Merger. See "--Regulatory Approvals" below.
Mutual Reasons for the Merger. Numerous factors were
considered by the two Boards in approving and recommending the
terms of the Merger to their respective shareholders. They
included an analysis of the financial structure, results of
operations and prospects of USB and FBI, the composition of the
businesses of the two organizations, the overall compatibility of
the management of the organizations, the outlook for both
organizations in the banking and financial services industry and
the opinions of Baxter Fentriss and Company and Chaffe &
Associates, Inc. as to the fairness of the terms of the Merger from
a financial point of view. See "--Opinions of Financial Advisors"
below, "Available Information," "Incorporation of Certain
Documents by Reference," "Comparative Market Prices and Dividends"
and "Business of FBI."
USB's and FBI's Boards of Directors believe the Merger will
improve shareholder value as well as provide a foundation for
strong, long-term returns. Additionally, the Merger will result in
more diversity in earning assets. FBI has a larger based loan
portfolio, while USB has a larger, more diverse investment
portfolio. The diversity of the combined assets, coupled with the
stable deposit base and strong capital position of both banks, will
strengthen the competitive position of the surviving bank.
USB's Reasons for the Merger. USB has a strong
community-minded philosophy and a commitment to community banking.
By merging with FBI and First Bank, a like-minded bank, the USB
Board believes that opportunities to expand and employ more
resources to the communities financial service needs will be
increased.
The USB Board of Directors based its unanimous decision to
approve and recommend the terms of the Merger to USB shareholders
on the factors considered by both Boards as set forth above, and
also considered a number of additional factors. Among these
factors were the financial and other terms of the Merger Agreement,
the enhanced opportunities for achieving USB's goals of increased
asset and earnings growth that the Merger would make possible,
alternatives for achieving those goals, the anticipated competitive
position of the resulting bank in USB's market area, the
desirability of combining the management resources and expertise of
USB and FBI, the availability of pooling of interests accounting
for the transaction and the likelihood of the Merger being approved
by applicable regulatory authorities without undue conditions or
delay. Certain negative factors were considered by the USB Board,
including the costs to be incurred in connection with the Merger,
the risk that unanticipated difficulties could arise in integrating
the operations of USB and FBI, and the possibility that the
synergies expected from combining the two companies might not be
realized. Because of the variety of factors considered, the USB
Board did not find it practical to, and did not, ascribe relative
weights to specific factors, but, based on its evaluation of all
the factors it considered, concluded that the benefits expected
from the Merger outweighed any potentially negative factors.
FBI's Reasons for the Merger. Technological changes are
occurring rapidly in the financial industry. In addition to the
mutual reasons for the Merger set forth above, the FBI Board of
Directors believes that a combined financial institution will
enhance the merged bank's ability to provide customers the benefits
these changes bring, including more convenient, less costly
delivery systems. The FBI Board also believes that a combined
management team will be capable of operating a stronger, more
productive and efficient financial institution capable of providing
more diverse products and improved methods of service at lower
costs, thus improving the potential for growth in shareholder
value. Moreover, the FBI Board of Directors believes that a
significant number of FBI shareholders prefer to continue as owners
of a banking institution headquartered in Clarke County, with
management having a thorough knowledge of the local market and a
long-term commitment to the local community; the Merger will permit
them to do so as investors in a larger more diverse institution.
Because USB is a reporting company under the Exchange Act and has
more stockholders than FBI, the FBI Board believes USB Common Stock
is more marketable than FBI Common Stock, and therefore the Merger
will create better liquidity for FBI shareholders.
In addition to the matters considered by both Boards as set
forth above, the FBI Board of Directors reviewed and considered
with FBI's management a variety of factors in its deliberations in
arriving at the unanimous decision to approve and recommend the
terms of the Merger to the shareholders of FBI. These factors
included the financial terms and income tax consequences of the
Merger, the prospects of FBI as an independent banking institution,
the likelihood of obtaining regulatory approval of the Merger
without undue conditions or delay, alternatives to the Merger,
increased liquidity for shareholders of FBI, potential cost
savings, increased efficiency and technological capability and
other probable beneficial effects of the Merger on customers and
business, and the financial advice of Baxter Fentriss.
The FBI Board has considered a variety of potentially negative
factors in its deliberations concerning the Merger, including the
possibility of adverse reaction by customers and FBI shareholders
to the public announcement of the Merger, the expenses to be
incurred in connection with the Merger, and the risk that the
expected benefits of the Merger might not be achieved. In view of
the wide variety of factors considered, both positive and negative,
the FBI Board of Directors did not find it practical to, and did
not, quantify or otherwise assign relative weights to the specific
factors considered, but did determine that the anticipated benefits
of the Merger outweighed the potentially negative factors
considered.
Opinions of Financial Advisors
USB Advisor. USB retained Chaffe & Associates, Inc.
("Chaffe") to render a fairness opinion in connection with the
Merger. Chaffe was selected by USB's Board of Directors on the
basis of Chaffe's experience and expertise in transactions similar
to the Merger and Chaffe's reputation in the banking and investment
communities. Chaffe is a recognized investment banking firm and is
experienced in the securities industry, in investment analysis and
appraisal, and in related corporate finance and investment banking
activities, including mergers and acquisitions, corporate
recapitalization, and valuations for estate, corporate and other
purposes. Chaffe is frequently retained to perform similar
services for other banks and bank holding companies.
In connection with Chaffe's engagement to render a fairness
opinion to USB with respect to the Merger, USB instructed Chaffe
to evaluate the fairness to USB's shareholders, from a financial
point of view, of the Exchange Ratio, pursuant to the provisions of
the Merger Agreement, and to conduct such investigations as Chaffe
deemed appropriate for such purposes. USB did not place any
limitations on the scope or manner of Chaffe's investigation and
review. The Exchange Ratio to be received by FBI's shareholders
was determined by USB and FBI in their negotiations.
Chaffe rendered its opinion to USB's Board on March 24, 1997,
to the effect that, based upon and subject to the assumptions made,
the factors considered, the review undertaken and the limitations
stated and based upon such other matters as Chaffe considered
relevant, the Exchange Ratio was fair, from a financial point of
view, to the holders of USB Common Stock ("Fairness Opinion").
The full text of Chaffe's Fairness Opinion is attached hereto
as Appendix D and is incorporated by reference herein. The summary
description of the Fairness Opinion set forth herein is qualified
in its entirety by reference to Appendix D. USB's shareholders are
urged to read the Fairness Opinion in its entirety in connection
with this Joint Proxy Statement for a description of the procedures
followed, assumptions made, matters considered and limitations on
the review undertaken by Chaffe. Chaffe's opinion is directed only
to the fairness of the Exchange Ratio, from a financial point of
view, to USB's shareholders and does not constitute a
recommendation to any USB shareholder as to how such shareholder
should vote at the USB Meeting.
In connection with rendering its opinion, Chaffe, among other
things: (i) reviewed the Joint Proxy Statement of USB and FBI for
this proposed transaction in substantially the same form to be sent
to stockholders, including a copy of the Merger Agreement; (ii)
reviewed and analyzed certain publicly-available financial
statements and other information of USB and FBI, respectively;
(iii) reviewed and analyzed certain internal financial statements
and other financial and operating data concerning USB and FBI,
prepared by the managements of USB and FBI, respectively, including
financial projections; (iv) discussed the past and current
operations and financial condition, and the prospects of USB and
FBI with senior executives of USB and FBI, respectively; (v)
reviewed the historical prices and trading volumes of the shares of
USB Common Stock and FBI Common Stock; (vi) compared the financial
performance of USB and FBI, and the prices and trading activity of
the USB Common Stock and FBI Common Stock, with that of certain
other comparable publicly-traded companies and their securities;
(vii) reviewed and discussed with senior managements of USB and FBI
the strategic objectives of the Merger, and the synergies and
certain other benefits of the Merger; (viii) reviewed the financial
terms of business combinations in the commercial banking industry
specifically and other industries generally, which Chaffe deemed
generally comparable to the proposed transaction; (ix) considered
a number of valuation methodologies, including among others, those
that incorporate book value, capitalization of earnings, relative
contribution and pro forma earnings per share; and (x) performed
such other studies and analyses as Chaffe deemed appropriate to its
opinion.
In its review, Chaffe relied, without independent
verification, upon the accuracy and completeness of the historical
and projected financial information, and all other information
reviewed by it for purposes of its opinion. Chaffe did not make or
obtain an independent review or appraisal of USB's or FBI's assets
or liabilities, nor was Chaffe furnished with any such appraisals.
Chaffe relied solely on USB and FBI for information as to the
adequacy of their respective loan loss reserves and values of other
real estate owned. With respect to projected financial results,
including the estimates of synergies and other benefits expected to
result from the Merger, Chaffe assumed that they were reasonably
prepared on bases reflecting the best currently available estimates
and judgements of the managements of USB and FBI of future
financial performances of their respective companies. This opinion
was necessarily based upon market, economic and other conditions as
they existed on, and could be evaluated as of, the date of the
Fairness Opinion. Chaffe expressed no opinion on the tax
consequences of the proposed transaction.
The following is a summary of selected analyses performed by
Chaffe in connection with its Fairness Opinion. The summary set
forth below does not purport to be a complete description of the
analyses performed in this regard, but does include all material
analyses.
Analysis of Selected Financial Data. Chaffe reviewed USB's
and FBI's financial information for the five year period through
December 31, 1996, and calculated growth rates and various
financial ratios for balance sheet and income statement items. In
particular, Chaffe notes that USB reported an ROA of 1.92% and an
ROE of 16.09% for 1996. Its Tier 1 equity ratio was 11.57% at
December 31, 1996, and non-performing assets to total assets ratio
was 0.72% at the same date. FBI reported an ROA of 1.44% and an
ROE of 15.44% in 1996. Its Tier 1 equity ratio was 8.10%, and its
non-performing assets to total assets ratio was 0.63% at December
31, 1996.
Review of Relative Contribution. Chaffe determined the
relative contribution of FBI to USB after giving pro forma effect
to the Merger. Chaffe determined that based on December 31, 1996,
information, FBI stockholders would receive approximately 40% of
the pro forma ownership of the combined company, while FBI would
contribute to the combined company approximately 45% of the assets,
approximately 36% of the tangible equity, approximately 68% of net
loans, approximately 48% of deposits, and approximately 41% of 1996
net income after giving FBI credit for the synergies anticipated
from the Merger. The anticipated synergies are primarily expected
to come from a reduction in non-interest expense as a result of
economies of scale and reduction in duplicate services.
Review of Pro Forma Earnings Per Share. Chaffe estimated
potential accretion or dilution to USB'S earnings per share for
1997 and 1998 as a result of the Merger. Chaffe took into account
the development plans for Acceptance, the sale of one branch office
to be required by federal regulators, and USB management's estimate
of reduction of non-interest expenses after the Merger, equivalent
to approximately 21% of FBI'S non-interest expense level. Also
considered was the possibility of additional deposit run-off that
may or may not be experienced in the transaction, as per USB
management. Chaffe determined that if additional run-off of
deposits is not material, the transaction should be accretive to
USB'S earnings per share by approximately 1.8% in 1997 and 4.75% in
1998. If USB were to experience as much as an additional 5.0%
deposit run-off, then the transaction should be dilutive to USB'S
earnings per share by less than 1.0% in 1997 and be accretive
thereafter.
In arriving at its Fairness Opinion, Chaffe did not rely on
any single analysis, but relied on a combination of factors derived
from all of the analytical procedures employed. The preparation of
a fairness opinion is a complex process and is not necessarily
susceptible to partial analysis or summary description.
Conclusions based on these analyses are not necessarily
mathematical. Chaffe believes that the summary set forth above and
Chaffe's analysis must be considered as a whole and that selecting
portions of its analyses performed by Chaffe are not necessarily
indicative of actual values or actual future results, which may be
significantly more or less favorable than suggested by such
analyses. Additionally, analyses relating to the value of
businesses do not purport to be appraisals or necessarily reflect
the prices at which businesses actually may be sold. The fact that
any material analysis has been referred to in the summary above is
not meant to indicate that such analysis was given greater weight
than any other material analysis.
Neither Chaffe nor any of its officers or employees has any
interest in USB Common Stock or FBI Common Stock. USB will pay
Chaffe approximately $21,500 in fees plus out-of-pocket expenses
for rendering its Fairness Opinion. The fee to be received by
Chaffe in connection with its services to USB is not dependent or
contingent upon the occurrence or lack thereof of any transaction.
USB has agreed to indemnify and hold harmless Chaffe, its
subsidiaries and affiliates, and its officers, directors,
shareholders, employees, attorneys, agents and representatives, and
the successor and assigns of each of the foregoing parties from and
against any person claiming to have relied on Chaffe's advice or
services, or the performance or nonperformance thereof, or claiming
to have been entitled to some benefit therefrom, or claiming that
such services were not adequately performed, and all related
damage, claim, demand, expense or cost of any kind or nature,
including reasonable attorney fees and expenses, arising directly
or indirectly, from or in any way related to, the opinion or any
other services performed by Chaffe, provided that Chaffe has not
been negligent or guilty of reckless or willful misconduct in
connection with the opinion, or any other services.
FBI Advisor. Baxter Fentriss has acted as financial advisor
to FBI in connection with the Merger. Baxter Fentriss has
delivered to FBI its opinion that, on the basis of matters referred
to herein, the Merger is fair, from a financial point of view, to
the holders of FBI Common Stock. In rendering its opinion Baxter
Fentriss consulted with the management of FBI and USB; reviewed the
Merger Agreement, and certain publicly-available information on the
parties; and reviewed certain additional materials made available
by the management of the respective banks.
In addition, Baxter Fentriss discussed with the management of
FBI and USB their respective businesses and outlook. Baxter
Fentriss was involved in the negotiations with USB. No limitations
were imposed by FBI's Board upon Baxter Fentriss with respect to
the investigation made or procedures followed by it in rendering
its opinion. The full text of Baxter Fentriss' written opinion is
attached as Appendix E to this Joint Proxy Statement and should be
read in its entirety with respect to the procedures followed,
assumptions made, matters considered, and qualifications and
limitations on the review undertaken by Baxter Fentriss in
connection therewith.
Baxter Fentriss' opinion is directed to FBI's Board and
shareholders, and is directed only to the fairness, from a
financial point of view, of the Exchange Ratio. It does not
address FBI's underlying business decision to effect the proposed
merger, nor does it constitute a recommendation to any FBI
shareholder as to how such shareholder should vote with respect to
the Merger at the FBI Meeting or as to any other matter.
Baxter Fentriss' opinion was one of many factors taken into
consideration by FBI's Board in making its determination to approve
the Merger Agreement, and the receipt of Baxter Fentriss' opinion
is a condition precedent to FBI's consummating the Merger. The
opinion of Baxter Fentriss does not address the relative merits of
the Merger as compared to any alternative business strategies that
might exist for FBI or the effect of any other business combination
in which FBI might engage.
Baxter Fentriss, as part of its investment banking business,
is continually engaged in the valuation of financial institutions
and their securities in connection with mergers and acquisitions
and valuations for estate, corporate and other purposes. Baxter
Fentriss is a nationally ranked advisor to firms in the financial
services industry on mergers and acquisitions. FBI selected Baxter
Fentriss as its financial advisor because Baxter Fentriss is an
investment banking firm focusing on banking transactions, and
because of the firm's extensive experience and expertise in
transactions similar to the Merger. Baxter Fentriss is not
affiliated with USB or FBI.
In connection with rendering its opinion, Baxter Fentriss
performed a variety of financial analyses. In conducting its
analyses and arriving at its opinion as expressed herein, Baxter
Fentriss considered the following: (i) the historical and current
financial condition and results of operations of USB and FBI
including interest income, interest expense, interest sensitivity,
noninterest income, noninterest expense, earnings, book value,
returns on assets and equity, capitalization, the amount and type
of non-performing assets, the impact of holding certain non-earning
real estate assets, the reserve for loan losses and possible tax
consequences resulting from the transaction; (ii) the business
prospects of USB and FBI; (iii) the economies of USB's and FBI's
respective market areas; (iv) the historical and current market for
FBI and USB Common Stock; and (v) the nature and terms of certain
other merger transactions that it believed to be relevant. Baxter
Fentriss also considered its assessment of general economic,
market, financial and regulatory conditions and trends, as well as
its knowledge of securities valuation generally, and its knowledge
of merger transactions in Alabama.
In connection with rendering its opinion, Baxter Fentriss
reviewed (i) the Merger Agreement; (ii) drafts of this Joint Proxy
Statement; (iii) the Annual Reports to shareholders, including the
audited financial statements of FBI and USB, and the Annual Reports
of FBI and USB for the year ended December 31, 1996; (iv) pro forma
combined unaudited condensed balance sheets as of December 31,
1996, and pro forma combined statements of income for the year
ended December 31, 1996; and (v) certain additional financial and
operating information with respect to the business, operations and
prospects of USB and FBI as it deemed appropriate. Baxter Fentriss
also (a) held discussions with members of the senior management of
USB and FBI regarding the historical and current business
operation, financial condition and future prospects of their
respective companies; (b) reviewed the historical market prices and
trading activity for the Common Stock of FBI and USB; (c) compared
the results of operations of FBI and USB with those of certain
banking companies that it deemed to be relevant; (d) analyzed the
pro forma financial impact of the Merger on USB; and (e) analyzed
the pro forma financial impact of the Merger on FBI.
The following is a summary of material analyses performed by
Baxter Fentriss in connection with its opinion.
1. Stock Price History. Baxter Fentriss studied the
history of the trading prices and volume for FBI and USB Common
Stock and compared that to publicly traded banks in Alabama and to
the price offered by USB. Baxter Fentriss considered the possible
impact on USB's stock price following the Merger if the company
became listed and began to trade closer to the average Alabama bank
on a price to earnings basis. On this basis there could be an
86.4% improvement in the combined market value of the two banks,
assuming an average Alabama price to earnings ratio of 11.7 for
publicly traded Alabama bank holding companies as of May 31, 1996.
2. Comparative Analysis. Baxter Fentriss compared
ownership received in the resultant merger, versus the relative
equity, earnings, market value and customer relationships
contributed by FBI. As of March 31, 1996, FBI was contributing
38.5% of the capital, 39.0% of the earnings, 36.4% of the market
value and 45.2% of the customers. For this FBI shareholders were
receiving 39.6% of the ownership in the resultant company.
3. Baxter Fentriss considered the pro forma impact of the
transaction and concluded the transaction should have a positive
short and long-term impact on USB's earnings per share, book value
per share and stock price. Assuming similar growth in FBI's and
USB's earnings, and potential economies of scale as high as $1
million through elimination of back office duplication and
facilities, the transaction could add as much as $.10 a share to
USB's earnings per share in 1997.
4. Baxter Fentriss performed a discounted cash flow
analysis to determine hypothetical relative present values for FBI
and USB as a long-term investment. Baxter Fentriss concluded that
based on the relative present values of each company (38.35% for
FBI and 61.65% for USB), the resultant ownership of 39.6% for FBI
shareholders after the Merger was fair.
5. Baxter Fentriss considered the significant
organizational commitments to FBI in the merger with USB. FBI will
staff nine of USB's 19-person Board, provide a Vice Chairman of
USB, provide the Chairman of the combined bank and provide several
key management positions. Such commitments suggest a "marriage of
equals" type transaction as opposed to a premium sale.
Using publicly available information on FBI and USB and
applying the capital guidelines of banking regulators, Baxter
Fentriss' analysis indicated that the Merger would be accretive to
the capital and earnings capacity of USB and would, therefore,
likely not be opposed by the banking regulatory agencies from a
capital perspective. Furthermore, Baxter Fentriss considered the
likely market overlap and the Federal Reserve guidelines with
regard to market concentration and did not believe there to be a
significant issue with regard to possible antitrust concerns.
Baxter Fentriss has relied, without any independent
verification, upon the accuracy and completeness of all financial
and other information reviewed. Baxter Fentriss has assumed that
all estimates, including those as to possible economies of scale,
were reasonably prepared by management, and reflect their best
current judgments. Baxter Fentriss did not make an independent
appraisal of the assets or liabilities of either FBI or USB, and
has not been furnished such an appraisal.
Baxter Fentriss will be paid an amount equal to .33% of the
combined equity of USB and FBI plus reasonable out-of-pocket
expenses for its services. In addition, Baxter Fentriss will be
paid $10,000, plus reasonable out-of-pocket expenses, for issuing
its fairness opinion in connection with the Merger. The parties
have agreed to indemnify Baxter Fentriss against certain
liabilities, including certain liabilities under federal securities
laws.
Increase in Size of USB Board of Directors
Approval of the Merger Agreement by the USB shareholders at
the USB Meeting will also constitute approval of an increase in the
size of the USB Board of Directors from 10 to 19 and election of
Dan Barlow, John Becton, Linda Breedlove, Fred L. Huggins, John C.
Gordon, Ray Sheffield, Clarence Watters, Bruce Wilson and Ernest
Woodson to fill the vacancies created by that increase, effective
at the Effective Time of the Merger.
Amendment of USB Restated Articles of Incorporation
The Merger Agreement requires that, at the Effective Time, the
Restated Articles of Incorporation of USB will be amended (i) to
increase the number of authorized shares of USB from 2,400,000 to
10,000,000, (ii) to eliminate preemptive rights for USB
shareholders, and (iii) to provide for a 2/3's super majority
voting requirement by the Board of Directors to approve significant
corporate events or to add or remove members of senior management.
Additional information regarding each proposed amendment is set
forth below under "Proposed Amendment to the USB Restated Articles
of Incorporation Requiring a Two-Thirds Supermajoriy Vote of the
Board of Directors to Approve Certain Corporate Actions," "Proposed
Amendment to the USB Restated Articles of Incorporation to Increase
Number of Authorized Shares of Common Stock," and "Proposed
Amendment to the USB Restated Articles of Incorporation to
Eliminate Preemptive Rights." The Merger Agreement also requires
that USB adopt a long term incentive compensation plan. See
"United Security Bancshares, Inc. Long Term Incentive Compensation
Plan."
Amendment of USB Bylaws
If the corresponding amendment to USB's Restated Articles of
Incorporation is approved by the USB shareholders, at or prior to
the Effective Time the Bylaws of USB will be amended to provide for
a 2/3's supermajority voting requirement by the Board of Directors
to approve significant corporate events or to add or remove members
of its senior management.
Effect on Employee Benefit Plans
USB maintains the United Security Bancshares, Inc. Employee
Stock Ownership Plan (with 401(k) features) ("USB ESOP"). First
Bank maintains the First Bank and Trust Profit Sharing Retirement
Plan ("First Bank Plan"). The First Bank Plan will be terminated
by First Bank prior to the Merger. First Bank employees will be
eligible to participate in the USB ESOP on and after the Effective
Time and will receive credit for service with First Bank in
determining eligibility to participate and vesting in the USB ESOP.
Surrender of Certificates
As promptly as practicable after the Effective Time, USB Bank,
acting in the capacity of exchange agent for USB (the "Exchange
Agent"), will mail to each former holder of record of FBI Common
Stock a form letter of transmittal, together with instructions and
a return mailing envelope (collectively, the "Exchange Materials"),
for the exchange of such holders' FBI Common Stock certificates for
certificates representing shares of USB Common Stock and cash in
lieu of fractional shares. HOLDERS OF FBI COMMON STOCK SHOULD NOT
SEND IN THEIR CERTIFICATES UNTIL THEY RECEIVE THE EXCHANGE
MATERIALS FROM THE EXCHANGE AGENT.
Upon receipt of the Exchange Materials, former holders of FBI
Common Stock should complete the letter of transmittal in
accordance with the instructions and mail the letter of transmittal
together with all stock certificates representing shares of FBI
Common Stock to the Exchange Agent in the return envelope provided.
Upon receipt of the certificates and related documentation, USB
will issue, and the Exchange Agent will mail, to such holder of FBI
Common Stock a check in the amount of any payment in respect of
fractional shares of FBI Common Stock payable to the surrendering
shareholder and a certificate representing the number of shares of
USB Common Stock to which such holder is entitled pursuant to the
Merger Agreement. No certificates of USB Common Stock and no
payment in respect of fractional shares will be delivered to a
holder of FBI Common Stock unless and until such holder shall have
delivered to the Exchange Agent certificates representing the
shares of FBI Common Stock owned by such holder and in respect of
which such holder claims payment is due, or such documentation and
security in respect of lost or stolen certificates as may be
required by the Exchange Agent.
Former shareholders of record of FBI will be entitled to vote
after the Effective Time at any meeting of USB shareholders the
number of whole shares of USB Common Stock into which such holders'
respective shares of FBI Common Stock are converted, regardless of
whether such holders have exchanged their certificates representing
FBI Common Stock for certificates representing USB Common Stock.
Beginning six months after the Effective Time, no dividend or
other distribution payable after the Effective Time with respect to
USB Common Stock issued to replace FBI Common Stock will be paid to
the holder of an unsurrendered FBI Common Stock certificate until
the holder surrenders such certificate, at which time such holder
will be entitled to receive all previously withheld dividends and
distributions, without interest.
After the Effective Time, there will be no transfers on FBI's
stock transfer books of shares of FBI Common Stock issued and
outstanding at the Effective Time. If certificates representing
shares of FBI Common Stock are presented for transfer after the
Effective Time, they will be returned to the presenter together
with a form of letter of transmittal and exchange instructions.
Neither USB nor the Exchange Agent shall be liable to a holder
of FBI Common Stock for any amounts paid or properly delivered in
good faith to a public official pursuant to any applicable
abandoned property law.
Conditions to Consummation of the Merger
The respective obligations of USB and FBI to effect the Merger
are subject to the satisfaction of the following conditions prior
to the Effective Time:
(i) shareholder approval of FBI and USB shall have
been received;
(ii) all regulatory approvals shall have been
received and waiting periods shall have expired, and no such
approval shall be conditioned or restricted in a manner which,
in the opinion of the Board of Directors of USB or FBI,
materially adversely impacts the Merger so as to render it
inadvisable;
(iii) all consents necessary to avoid a material
adverse effect on the relevant party shall have been obtained;
(iv) no court or regulatory authority shall have
taken any action that restricts, prohibits or makes illegal
the transactions provided for in the Merger Agreement, and no
action shall have been instituted seeking to restrain the
Merger which renders its consummation inadvisable;
(v) USB shall have received a letter, dated as of the
Effective Time, from Arthur Andersen LLP to the effect that
the Merger will qualify for pooling-of-interests accounting
treatment;
(vi) the Registration Statement shall have become
effective under the Securities Act, and no stop order for that
purpose shall have been commenced by the Commission;
(vii) all necessary state securities permits and
consents shall have been received by USB; and
(viii) USB and Jack M. Wainwright, III shall have
entered into an employment agreement whereby Mr. Wainwright
agrees to serve as Chief Executive Officer of USB for a period
of at least three years from the Effective Time.
The obligations of USB to effect the Merger are further
subject to the satisfaction or waiver of the following conditions:
(i) the representations and warranties of FBI in the
Merger Agreement shall be true as if made at the Effective
Time;
(ii) the agreements and covenants of FBI in the
Merger Agreement shall have been performed and complied with
by the Effective Time;
(iii) FBI shall have delivered to USB certain
certificates of its corporate officers provided for in the
Merger Agreement;
(iv) FBI shall have delivered to USB an opinion of
its counsel as provided in the Merger Agreement;
(v) there shall have been no determination by the
Board of Directors of USB that a material adverse event has
occurred with respect to FBI that renders consummation of the
Merger Agreement inadvisable; and
(vi) USB shall have received an opinion from its
financial advisor that the Exchange Ratio is fair to it and
its shareholders.
The obligations of FBI to effect the Merger are further
subject to the satisfaction or waiver of the following conditions:
(i) the representations and warranties of USB in the
Merger Agreement shall be true as if made at the Effective
Time;
(ii) the agreements and covenants of USB in the
Merger Agreement shall have been performed and complied with
by the Effective Time;
(iii) USB shall have delivered to FBI certain
certificates of its corporate officers provided for in the
Merger Agreement;
(iv) USB shall have delivered to FBI an opinion of
its counsel as provided in the Merger Agreement;
(v) there shall have been no determination by the
Board of Directors of FBI that a material adverse event has
occurred with respect to USB that renders consummation of the
Merger Agreement inadvisable; and
(vi) FBI shall have received an opinion from its financial
advisor that the Exchange Ratio is fair to it and its
shareholders.
Regulatory Approvals
The Merger is conditioned upon receipt of the necessary
regulatory approvals. On October 1, 1996, USB Bank and First Bank
filed an application with the Federal Deposit Insurance Corporation
("FDIC") pursuant to Section 18(c) of the Federal Deposit Insurance
Act. USB Bank and First Bank have also made the necessary filings
with the Alabama State Banking Department under the Alabama Banking
Code. An application to the Board of Governors of the Federal
Reserve System under Section 3 of the Bank Holding Company Act is
normally required when a merger involves bank holding companies
such as USB and FBI. On November 8, 1996, however, the Federal
Reserve Bank of Atlanta waived this filing requirement pursuant to
Section 225.12(d)(2) of Title 12 of the Code of Federal
Regulations. This regulation authorizes the Federal Reserve to
issue a waiver when the merging parties have filed an application
with another Federal supervisory agency, such as the FDIC, and
several other conditions have been met.
Pursuant to 12 U.S.C. 1828(c)(4), the FDIC requested a
report on the competitive factors involved in the Merger from
several other Federal agencies, including the United States
Department of Justice (the "Justice Department"). On December 12,
1996, the Justice Department issued its report to the FDIC stating
its belief that the Merger will not have a significantly adverse
effect on competition and concurring in the consummation of the
Merger 15 days after the date of FDIC approval on the condition
that USB Bank complies with certain conditions required by the
Justice Department, including the divestiture of one branch.
Management of USB is of the opinion that the conditions imposed by
the Justice Department will not have a material effect on its
operations or properties. It is anticipated that the branch
divestiture will be consummated within 90 days of the Effective
Time.
On February 11, 1997, the FDIC approved the application filed
with respect to the Merger, and the Justice Department 15-day
waiting period expired on February 26, 1997. The necessary
approval from the Alabama State Banking Department was obtained on
February 14, 1997.
Conduct of Business Pending the Merger
The Merger Agreement requires that each of FBI and USB
preserve its business organization, goodwill, relationships with
depositors, customers and employees and take no action that would
adversely affect its ability to perform under the Merger Agreement.
In addition, FBI has agreed that, without the consent of USB, it
will not:
(i) amend its Articles of Incorporation, Bylaws or
other governing instruments or those of any of its
subsidiaries;
(ii) incur additional debt obligations except in the
ordinary course of business;
(iii) modify, amend or terminate any material
contract, except in the ordinary course of business and for
fair consideration;
(iv) file any application to relocate or terminate
the operation of any of its banking offices or any of its
subsidiaries;
(v) except in accordance with applicable law, change
its or any of its subsidiary's lending, investment, liability
management and other material banking policies in any material
respect;
(vi) repurchase, redeem or otherwise acquire or
exchange any shares, or any securities convertible into any
shares of the stock of itself or any of its subsidiaries or,
other than regular dividends in an amount not in excess of
$.35 per share of FBI Common Stock per quarter, declare or pay
any dividend or make any other distribution in respect of its
capital stock;
(vii) except as provided in the Merger Agreement or
the FBI Option Agreement, issue, sell, pledge, encumber or
enter into any contract to issue, sell, pledge or encumber, or
authorize any of the foregoing, any additional shares of FBI
Common Stock or any other capital stock of FBI or any
subsidiary, or any options, warrants, conversion or other
rights to acquire any such stock;
(viii) adjust, split, combine or reclassify any of
its capital stock or that of any of its subsidiaries, or
authorize any of the foregoing, other than in the ordinary
course of business for reasonable and adequate consideration;
(ix) acquire any direct or indirect equity interest
in any entities, other than in connection with foreclosures in
the ordinary course of business and acquisitions of control by
depository institution subsidiaries in a fiduciary capacity;
(x) grant any increase in compensation of benefits of
the employees or officers of FBI or any of its subsidiaries,
except in accordance with past practices with respect to
employees or enter into, grant or pay bonuses, severance
agreements, or material increases in fees or other
compensation to officers and directors;
(xi) enter into any employment contract without an
unconditional right to terminate without liability;
(xii) adopt any new employee benefit plans or make
any material changes to any existing employee benefit plans
other than as required by law or that is necessary or
advisable to maintain the tax qualified status of any such
plan;
(xiii) make any significant change in any accounting
methods or systems of internal accounting controls, except as
appropriate to conform to changes in regulatory accounting
requirements or generally accepted accounting principles;
(xiv) commence any litigation other than in
accordance with past practice, settle any litigation involving
any liability for material monetary damages or, except in the
ordinary course of business, modify, amend, terminate, waive,
release, compromise or assign any material rights, contracts
or claims;
(xv) operate its business otherwise than in the
ordinary course, or in a manner not consistent with safe and
sound banking practices or applicable law;
(xvi) fail to file timely any report required to be
filed with any regulatory authorities;
(xvii) intentionally take any action reasonably
expected to jeopardize or delay the receipt of any regulatory
approval required to consummate the Merger;
(xviii) make any loan or advance in excess of
$20,000, in the aggregate, to any shareholder owning 2% or
more of the outstanding shares of FBI Common Stock, director
or officer of FBI or any of its subsidiaries, or any of the
members of their immediate families, except on terms
substantially the same as those prevailing at the time of such
loan or advance for comparable transactions with other persons
(except for loans or advances to Acceptance);
(xix) cancel without payment in full, or modify any
contract relating to, any loan or other obligation receivable
from any shareholder, director, officer or employee of FBI or
any of its subsidiaries or any of their immediate families; or
(xxi) enter into any contract for services or
otherwise with any of the holders of 5% or more of FBI Common
Stock, or the directors, officers or employees of FBI or any
of its subsidiaries or any members of their immediate
families.
USB has agreed that, without the consent of FBI, it will not:
(i) except as provided in the Merger Agreement, amend
its Articles of Incorporation, Bylaws or other governing
instruments or those of any of its subsidiaries;
(ii) incur additional debt obligations except in the
ordinary course of business;
(iii) modify, amend or terminate any material
contract, except in the ordinary course of business and for
fair consideration;
(iv) file any application to relocate or terminate
the operation of any of its banking offices or any of its
subsidiaries;
(v) except in accordance with applicable law, change
its or any of its subsidiary's lending, investment, liability
management and other material banking policies in any material
respect;
(vi) repurchase, redeem or otherwise acquire or
exchange any shares, or any securities convertible into any
shares of the stock of itself or any of its subsidiaries or,
other than regular dividends in an amount not in excess of
$.13 per share of USB Common Stock per quarter, declare or pay
any dividend or make any other distribution in respect of its
capital stock;
(vii) except as provided in the Merger Agreement or
the USB Option Agreement, issue, sell, pledge, encumber or
enter into any contract to issue, sell, pledge or encumber, or
authorize any of the foregoing, any additional shares of USB
Common Stock or any other capital stock of USB or any
subsidiary, or any options, warrants, conversion or other
rights to acquire any such stock;
(viii) adjust, split, combine or reclassify any of
its capital stock or that of any of its subsidiaries, or
authorize any of the foregoing, other than in the ordinary
course of business for reasonable and adequate consideration;
(ix) acquire any direct or indirect equity interest
in any entities, other than in connection with foreclosures in
the ordinary course of business and acquisitions of control by
depository institution subsidiaries in a fiduciary capacity;
(x) grant any increase in compensation or benefits to
the employees or officers of USB or any of its subsidiaries,
except in accordance with past practices with respect to
employees or enter into, grant or pay bonuses, severance
agreements, or material increases in fees or other
compensation to officers and directors;
(xi) except as provided in the Merger Agreement,
enter into any employment contract without an unconditional
right to terminate without liability;
(xii) adopt any new employee benefit plans or make
any material changes to any existing employee benefit plans
other than as required by law or required by the Merger
Agreement or that is necessary or advisable to maintain a tax
qualified status of any such plan;
(xiii) make any significant change in any accounting
methods or systems of internal accounting controls, except as
appropriate to conform to changes in regulatory accounting
requirements or generally accepted accounting principles;
(xiv) commence any litigation other than in
accordance with past practice, settle any litigation involving
any liability for material monetary damages or, except in the
ordinary course of business, modify, amend, terminate, waive,
release, compromise or assign any material rights, contracts
or claims;
(xv) operate its business otherwise than in the
ordinary course, or in a manner not consistent with safe and
sound banking practices or applicable law;
(xvi) fail to file timely any report required to be
filed with any regulatory authorities;
(xvii) intentionally take any action reasonably
expected to jeopardize or delay the receipt of any regulatory
approval required to consummate the Merger;
(xviii) make any loan or advance in excess of
$20,000, in the aggregate, to any shareholder owning 2% or
more of the outstanding shares of USB common stock, director
or officer of USB or any of its subsidiaries, or any of the
members of their immediate families, except on terms
substantially the same as those prevailing at the time of such
loan or advance for comparable transactions with other
persons;
(xix) cancel without payment in full, or modify any
contract relating to, any loan or other obligation receivable
from any shareholder, director, officer or employee of USB or
any of its subsidiaries or any of their immediate families; or
(xxi) enter into any contract for services or
otherwise with any of the holders of 5% or more of USB Common
Stock, or the directors, officers or employees of USB or any
of its subsidiaries or any members of their immediate
families.
Each party has also agreed to give written notice to the other
promptly upon becoming aware of the occurrence of any event which
is likely to constitute a Material Adverse Effect within the
meaning given to such term in the Merger Agreement or constitute a
breach of any of its representations, warranties or covenants
contained in the Merger Agreement and to use its reasonable efforts
to remedy any such condition or breach.
Waiver and Amendment; Termination
Prior to the Effective Time, either USB or FBI may waive or
extend the time for the compliance or fulfillment by the other of
any and all of its obligations under the Merger Agreement and may,
to the extent permitted by law, amend the Merger Agreement in
writing with the approval of the Board of Directors of each of FBI
and USB.
The Merger Agreement may be terminated at any time prior to
the Effective Time, as follows: (i) by mutual consent, (ii) in the
event of a breach of a representation or warranty or covenant or
agreement by the non-breaching party under certain circumstances,
(iii) by either party in the event any required regulatory approval
is denied or not obtained or the shareholders of either USB or FBI
fail to approve the Merger, (iv) by either party in the event there
is a material adverse effect on the business, operations or
financial conditions of the other party that is not remedied or (v)
in the event any of the conditions precedent to the Merger cannot
be satisfied or fulfilled by August 10, 1997.
In the event of the termination of the Merger Agreement, the
Merger Agreement shall become void and have no effect, except that
the confidentiality requirements shall survive such termination and
such termination will not relieve a breaching party from liability
for an uncured willful breach of the representation, warranty,
covenant or agreement giving rise to the termination.
Management and Operations After the Merger
The Merger Agreement provides that after the Effective Time,
the USB Board of Directors will consist of 19 directors, including
the ten incumbent directors of USB and nine of the ten current
directors of FBI. See "BUSINESS OF FBI--Certain Management
Information."
The Merger Agreement further provides that, after the
Effective Time, Jack M. Wainwright, III shall be elected to serve
as the President and Chief Executive Officer of USB, Fred L.
Huggins shall be elected to serve as Chairman and Chief Executive
Officer of Acceptance, Jim Miller shall be elected to serve as the
Chairman of the Board of USB, Fred Huggins and Ray Sheffield shall
be elected to serve as Vice Chairmen of the Board of USB, Fred L.
Huggins shall be elected to serve as Chairman of the Board of USB
Bank, and Don Nichols and Hardie Kimbrough shall be elected to
serve as Vice Chairmen of the Board of USB Bank. All directors and
officers will serve in accordance with the Bylaws of USB after the
Effective Time.
All directors and officers of each of the subsidiaries of USB
as the Surviving Corporation will serve in accordance with the
terms of the Bylaws of each such subsidiary.
Interests of Certain Persons in the Merger
The directors of USB and nine of the ten directors of FBI, if
the Merger is approved, have been selected to serve as directors of
USB after the Effective Time. As set forth above under
"--Management and Operations After the Merger," certain officers of
USB, FBI and their subsidiaries have been selected to serve as
officers after the Effective Time. For a description of the
compensation received by officers of USB see "Incorporation of
Certain Documents by Reference." For a description of
compensation received by officers of FBI, see "Business of
FBI--Certain Management Information." The parties further
anticipate that, following consummation of the Merger, USB will
issue options for the purchase of USB Common Stock to officers of
USB and its subsidiaries as a part of the compensation of such
officers.
Certain of the directors and executive officers of FBI,
members of their families and certain of their associates own, or
have interests in, shares of USB Common Stock. As of [December 18,
1996], they were as follows: Dan Barlow: 24 shares, John C. Gordon:
5,280 shares and Clarence Watters: 5,280 shares.
In the normal course of business, USB Bank makes loans to
directors and officers of USB, and First Bank makes loans to
directors and officers of FBI, respectively, including loans to
certain related persons and entities. Such loans are made on
substantially the same terms, including interest rates and
collateral, as those prevailing at the time for comparable
transactions with other customers, and, in the opinion of
management of both USB and FBI, do not involve more than the normal
risk of collectibility. The amount of these loans by USB Bank to
USB directors and officers was 3.18% of shareholders' equity for
USB and the amount of loans by First Bank to FBI directors and
officers was 8.66% of shareholders' equity for FBI as of December
31, 1996.
A condition precedent to the obligations set forth in the
Merger Agreement is that Jack M. Wainwright, III, and USB shall
have entered into an employment agreement (the "Employment
Agreement") whereby Mr. Wainwright agrees, among other things, to
serve as Chief Executive Officer of USB for a period of not less
than three (3) years from the Effective Time. On March 18, Mr.
Wainwright, USB and USB Bank executed the Employment Agreement,
which provides, among other things, that Mr. Wainwright will be
employed for a period of three (3) years commencing at the
Effective Time as President and Chief Executive Officer of USB and
as President and Chief Executive Officer of USB Bank. Mr.
Wainwright will receive a base salary of $200,000, with appropriate
review annually based on performance as determined by the USB and
USB Bank Boards of Directors. The Employment Agreement also
provides that Mr. Wainwright is entitled to receive severance
compensation in an amount equal to three times his average annual
salary for the period of the contract if he is terminated for any
reason other than his death or disability, his resignation, his
conviction of a crime of moral turpitude, or the expiration of the
Employment Agreement. Also, Mr. Wainwright will be entitled to
such severance compensation upon any reduction in the level or a
change in nature of his responsibility to USB or to USB Bank.
Federal Income Tax Consequences
Neither USB nor FBI has requested or will receive an advance
ruling from the Internal Revenue Service as to the tax consequences
of the Merger. Maynard, Cooper & Gale, P.C., counsel for USB, and
Walston, Wells, Anderson & Bains, LLP, counsel for FBI, have
delivered opinions that, for federal income tax purposes, under
current law, assuming that the Merger will take place as described
in the Merger Agreement and that certain factual matters
represented by USB and FBI (including the representation that FBI
shareholders will maintain sufficient equity ownership interests in
USB after the Merger) are true and correct at the time of
consummation of the Merger, the Merger will constitute a
reorganization within the meaning of Section 368(a) of the Code and
USB and FBI will each be a party to the reorganization within the
meaning of Section 368(b) of the Code.
Assuming that the Merger will take place as described in the
Merger Agreement and that certain factual matters represented by
USB and FBI (including the representation that FBI shareholders
will maintain sufficient equity ownership interests in USB after
the Merger) are true and correct at the time of consummation of the
Merger, then, in the respective opinions of Walston, Wells,
Anderson & Bains, LLP, and Maynard, Cooper & Gale, P.C., the
following will be certain federal income tax consequences of the
Merger: (i) no gain or loss will be recognized by USB or FBI in
the Merger; (ii)the shareholders of FBI will recognize no gain or
loss upon the exchange of their FBI Common Stock solely for shares
of USB Common Stock; (iii)the basis of the USB Common Stock
received by the FBI shareholders in the proposed transaction will,
in each instance, be the same as the basis of the FBI Common Stock
surrendered in exchange therefor; (iv)the holding period of the USB
Common Stock received by the FBI shareholders will, in each
instance, include the period during which the FBI Common Stock
surrendered in exchange therefor was held, provided that the FBI
Common Stock was held as a capital asset on the date of the
exchange; (v)the payment of cash to FBI shareholders in lieu of
fractional share interests of USB Common Stock will be treated for
federal income tax purposes as if the fractional shares were
distributed as part of the exchange and then were redeemed by USB;
these cash payments will be treated as having been received as
distributions in full payment in exchange for the stock redeemed as
provided in Code Section 302(a); and (vi)where solely cash is
received by a USB or FBI shareholder in exchange for his USB or FBI
Common Stock pursuant to the exercise of dissenters' rights, such
cash will be treated as having been received in redemption of his
USB or FBI Common Stock, subject to the provisions and limitations
of Code Section 302.
THE DISCUSSION SET FORTH ABOVE IS BASED UPON THE RESPECTIVE
OPINIONS OF WALSTON, WELLS, ANDERSON & BAINS, LLP, AND MAYNARD,
COOPER & GALE, P.C., AND APPLIES ONLY TO FBI SHAREHOLDERS WHO HOLD
FBI COMMON STOCK AS A CAPITAL ASSET, AND MAY NOT APPLY TO SPECIAL
SITUATIONS, SUCH AS FBI SHAREHOLDERS, IF ANY, WHO RECEIVED THEIR
FBI COMMON STOCK UPON EXERCISE OF EMPLOYEE STOCK OPTIONS OR
OTHERWISE AS COMPENSATION AND FBI SHAREHOLDERS THAT ARE INSURANCE
COMPANIES, SECURITIES DEALERS, FINANCIAL INSTITUTIONS OR FOREIGN
PERSONS. IT DOES NOT ADDRESS THE STATE, LOCAL OR FOREIGN TAX
ASPECTS OF THE MERGER OR ANY TAX CONSEQUENCES OF A SUBSEQUENT
TRANSACTION INVOLVING USB COMMON STOCK, INCLUDING ANY REDEMPTION OR
TRANSFER OF USB COMMON STOCK. THIS DISCUSSION IS BASED ON
CURRENTLY EXISTING PROVISIONS OF THE CODE, EXISTING AND PROPOSED
TREASURY REGULATIONS THEREUNDER, AND CURRENT ADMINISTRATIVE RULINGS
AND COURT DECISIONS. ALL OF THE FOREGOING ARE SUBJECT TO CHANGE
AND ANY SUCH CHANGE COULD AFFECT THE CONTINUING VALIDITY OF THIS
DISCUSSION. EACH FBI SHAREHOLDER SHOULD CONSULT HIS OWN TAX
ADVISOR WITH RESPECT TO THE SPECIFIC TAX CONSEQUENCES OF THE
MERGER, INCLUDING THE APPLICATION AND EFFECT OF STATE, LOCAL AND
FOREIGN TAX LAWS.
Accounting Treatment
The Merger is expected to be accounted for as a
pooling-of-interests. The pooling-of-interests method accounts for
a business combination as the uniting of ownership interests of two
or more companies by exchange of equity securities. The recorded
assets and liabilities of USB and FBI will be carried forward to
the combined corporation at their recorded amounts. Income of the
combined corporation will include income of USB and FBI for the
entire fiscal period in which the combination occurs. The reported
income of USB and FBI for prior periods will be combined and
restated as income of the combined corporation. The unaudited pro
forma financial information contained in this Joint Proxy Statement
has been prepared using the pooling-of-interests method of
accounting. The Merger Agreement provides that a condition to
consummation of the Merger is receipt of a letter from Arthur
Andersen LLP, confirming that the Merger qualifies for
pooling-of-interests accounting treatment.
Expenses and Fees
The Merger Agreement provides that each of the parties will
bear and pay all costs and expenses incurred by it in connection
with the transactions contemplated by the Merger Agreement,
including filing, registration and application fees, printing and
mailing fees and expenses, and fees and expenses of their
respective accountants and counsel. It is expected that the total
expenses and fees for USB and FBI will be approximately $________
and $________, respectively.
Resales of USB Common Stock
The shares of USB Common Stock issued pursuant to the Merger
Agreement will be freely transferrable under the Securities Act,
except for shares issued to any shareholder who may be deemed to be
an "affiliate" (generally including, without limitation, directors,
certain executive officers and beneficial owners of 10% or more of
a class of capital stock) of FBI for purposes of Rule 145 under the
Securities Act as of the date of the FBI Meetings or for purposes
of applicable interpretations regarding pooling-of-interests
accounting treatment. Affiliates may not sell their shares of USB
Common Stock acquired in connection with the Merger except pursuant
to an effective registration statement under the Securities Act
covering such shares or in compliance with Rule 145 promulgated
under the Securities Act or another applicable exemption from the
registration requirements of the Securities Act and until such time
as financial results covering at least 30 days of combined
operations of USB and FBI after the Merger have been published.
USB may place restrictive legends on certificates representing USB
Common Stock issued to all persons who are deemed "affiliates" of
FBI under Rule 145. This Joint Proxy Statement does not cover
resales of USB Common Stock received by any person who may be
deemed to be an affiliate of FBI. There is no current active,
public market for USB Common Stock, and no assurance can be given
that one will develop or, if developed, will continue.
PRO FORMA FINANCIAL INFORMATION
Pro Forma Combined Condensed Consolidated Statement of Condition
The following unaudited Pro Forma Combined Condensed
Consolidated Statement of Condition combines the historical
consolidated statements of condition of USB and FBI giving effect
to the Merger, which will be accounted for as a
pooling-of-interests, as if it had been effective on December 31,
1996, after giving effect to the pro forma adjustments described in
the accompanying Notes to Pro Forma Condensed Combined Consolidated
Financial Statements. For a description of pooling-of-interests
accounting treatment, see "The Merger---Accounting Treatment."
This financial data should be read in conjunction with the
historical consolidated financial statements, including the
respective notes thereto, of USB, which are incorporated by
reference in this Joint Proxy Statement, and of FBI, which appear
elsewhere in this Joint Proxy Statement, and with the condensed
consolidated historical and other pro forma financial information,
including the notes thereto, appearing elsewhere in this Joint
Proxy Statement. See "Available Information," "Incorporation of
Certain Documents by Reference," and Appendix C hereto. This pro
forma financial information is not necessarily indicative of the
actual financial position that would have occurred had the Merger
been consummated on December 31, 1996, nor is it necessarily
indicative of future financial position.
<TABLE>
Pro Forma Combined Condensed Consolidated Statement of Condition
As of December 31, 1996 (Unaudited)
(In Thousands)
<CAPTION>
HISTORICAL
PRO FORMA PRO FORMA
USB FBI ADJUSTMENTS COMBINED
<S> <C> <C> <C> <C>
ASSETS
Cash and cash equivalents $ 8,233 $ 7,773 $ 16,006
Investments available for sale 150,839 34,043 184,882
Investments held to maturity -0- 587 587
Investments--other 1,034 3,775 4,809
Loans, net 64,573 139,725 204,298
Premises and equipment 4,119 2,628 6,747
Intangibles, net 2,203 3,659 5,862
Other assets 4,190 3,002 7,192
Total assets 235,191 195,192 430,383
LIABILITIES
Deposits 179,926 166,380 346,306
Short-term borrowings 22,364 5,483 27,847
Other liabilities 3,394 1,535 4,929
Long-term debt 681 3,004 3,685
Total liabilities 206,365 176,402 382,767
SHAREHOLDERS' EQUITY
Common stock 22 240 (226)(1) 36
Additional paid-capital 5,761 2,059 221 (1) 8,041
Net unrealized gain (loss) on
securities available for sale 1,062 (17) 1,045
Retained earnings 22,235 16,513 38,748
Treasury stock (254) (5) 5 (1) (254)
Total shareholders' equity 28,826 18,790 47,616
Total liabilities and
shareholders' equity 235,191 195,192 430,383
<FN>
See Notes to Pro Forma Condensed Combined Consolidated Financial Statements.
</FN>
</TABLE>
Pro Forma Combined Condensed Consolidated Statements of Income
The following unaudited Pro Forma Combined Condensed
Consolidated Statements of Income present the combined consolidated
statements of income of USB and FBI assuming the companies had been
combined for each period presented on a pooling-of-interests
accounting basis, after giving effect to the pro forma adjustments
described in the accompanying Notes to Pro Forma Combined Condensed
Consolidated Financial Statements. For a description of
pooling-of-interests accounting treatment, see "The
Merger---Accounting Treatment." This financial data should be read
in conjunction with the historical consolidated financial
statements, including the respective notes thereto, of USB, which
are incorporated by reference in this Joint Proxy Statement, and of
FBI, which appear elsewhere in the Joint Proxy Statement, and with
the condensed consolidated historical and other pro forma financial
information, including the notes thereto, appearing elsewhere in
this Joint Proxy Statement. See "Available Information,"
"Incorporation of Certain Documents by Reference," and Appendix C
hereto. This pro forma financial information is not necessarily
indicative of the actual operating results that would have occurred
had the Merger been consummated as of the beginning of the periods
presented, nor is it necessarily indicative of future operating
results.
<TABLE>
Pro Forma Combined Condensed Consolidated Statements of Income
(Unaudited)
(In Thousands Except Per Share Data)
<CAPTION>
Year Ended December 31,
1996 1995 1994 1993
<S> <C> <C> <C> <C>
Interest revenue $34,551 $30,571 $23,340 $21,001
Interest expense 15,081 13,298 9,095 8,363
Net interest revenue 19,470 17,273 14,245 12,638
Provision for loan losses (800) (255) (224) (386)
Non-interest revenue 2,725 2,555 2,250 3,180
Non-interest expense (11,765) (10,898) (10,351) (8,389)
Income before income taxes 9,630 8,675 5,920 7,043
Income taxes (2,659) (2,225) (1,367) (2,064)
Net income 6,971 6,450 4,553 4,979
Net income per common share 1.97 1.83 1.30 1.42
Average number of shares
outstanding (000's) 3,537 3,520 3,497 3,495
<FN>
See Notes to Pro Forma Combined Condensed Consolidated Financial Statements.
</FN>
</TABLE>
Notes to Pro Forma Combined Condensed Consolidated
Financial Statements (Unaudited)
(1) The pro forma combined condensed consolidated financial
statements assume the issuance of 1,398,788 shares of USB
Common Stock in the Merger for 100% of the FBI Common Stock
outstanding immediately prior to the Effective Time.
(2) Average number of shares outstanding was computed by applying
the Exchange Ratio of 5.8321 to FBI's average shares
outstanding and adding the result to USB's historical average
shares outstanding. Average shares outstanding do not include
shares issuable upon the exercise of stock options because the
effect is not significant.
(3) In connection with the Merger, USB and FBI may change certain
accounting practices and the classifications of certain
amounts to provide a consistent basis of accounting for and
reporting of the historical and ongoing operations. The
effect of these changes is not expected to affect materially
previously reported amounts. No provision has been reflected
in the condensed combined consolidated financial statements
for expenses related to the Merger, which are not expected to
have a material impact on results of operations or financial
condition.
(4) Except as described in Notes (1) and (2) above, no pro forma
adjustments are reflected in the pro forma combined condensed
consolidated statements of income.
COMPARATIVE MARKET PRICES AND DIVIDENDS
Market Prices
USB. USB Common Stock is not traded on an exchange or any
organized trading market, but there have been private transactions
in the shares. The most recent reported trades in USB Common Stock
as to which management has any knowledge of the price paid in the
transaction occurred on November 22, 1996, at a price per share of
$15.50, for 428 shares, and on September 5, 1996, at a price per
share of $15.00, for 130 shares. During the two year period ended
December 31, 1996, management of USB is aware of 43 transactions in
USB Common Stock at prices ranging from $10.00 per share to $15.50
per share.
FBI. FBI Common Stock is not traded on an exchange or any
organized trading market, but there have been private transactions
in the shares. The most recent reported trades in FBI Common Stock
as to which management has any knowledge of the price paid in the
transaction occurred on November 1, 1996, at a price per share of
$77.08, for 960 shares, and on May 10, 1996, at a price per share
of $70.00, for 10 shares. During the two year period ended
December 31, 1996, management of FBI is aware of 46 transactions in
FBI Common Stock at prices ranging from $60.00 per share to $77.08
per share.
Dividends
USB declared quarterly cash dividends per share totaling $.42
in 1994 and $.44 in 1995. For 1996, USB declared quarterly cash
dividends per share totaling $.52 per share. For the years 1994
and 1995, FBI declared annual cash dividends per share on FBI
Common Stock of $.95 and $.85, respectively. In 1996 FBI declared
quarterly cash dividends totalling $1.24 per share. Future
dividends on shares of USB (assuming the Merger is consummated) or
of both USB and FBI (assuming the Merger is not consummated) will
depend on their respective earnings, financial condition and other
relevant factors, including governmental policies and regulations.
See "Supervision, Regulation, and Effects of Governmental
Policy--Bank Regulation."
DESCRIPTION OF USB CAPITAL STOCK
USB's Certificate of Incorporation currently authorizes the
issuance of 2,400,000 shares of Common Stock, $0.01 par value. As
of the date of this Joint Proxy Statement, 2,137,960 shares of USB
Common Stock are issued and outstanding. If USB shareholders
approve the amendment to USB's Restated Articles of Incorporation
increasing the authorized shares of capital stock, the number of
authorized shares of USB Common Stock will be increased to
10,000,000. See "The Merger Amendment of USB Restated Articles of
Incorporation," and "PROPOSED AMENDMENT TO THE USB RESTATED
ARTICLES OF INCORPORATION TO INCREASE NUMBER OF AUTHORIZED SHARES
OF COMMON STOCK." The capital stock of USB does not represent or
constitute a deposit account and is not insured by the FDIC, the
BIF, the Savings Association Insurance Fund or any governmental
agency.
All of the USB Common Stock outstanding is, and all USB Common
Stock to be issued in connection with the Merger will be, fully
paid and nonassessable. No USB Common Stock is subject to call.
USB Common Stock may be issued at such time or times and for
such consideration (not less than the par value thereof) as the USB
Board of Directors may deem advisable, subject to such limitations
as may be set forth in the law of the State of Alabama or in
regulations or orders applicable to USB and its subsidiary. USB
Bank is the Registrar and Transfer Agent for shares of USB Common
Stock.
Holders of USB Common Stock are entitled to receive, to the
extent permitted by law, such dividends as may be declared from
time to time by the USB Board of Directors. USB has the right to,
and may, from time to time, enter into borrowing arrangements or
issue debt instruments, the provisions of which may contain
restrictions on payment of dividends or other distributions on USB
Common Stock. As of the date of this Joint Proxy Statement, no
such restrictions are in effect.
In the event of the voluntary or involuntary liquidation,
dissolution, distribution of assets or winding up of USB, holders
of USB Common Stock will be entitled to receive all of the
remaining assets of USB of whatever kind available for distribution
to shareholders ratably in proportion to the number of shares of
USB Common Stock held. The USB Board of Directors may distribute
in kind to the holders of USB Common Stock such remaining assets of
USB or may sell, transfer or otherwise dispose of all or any part
of such remaining assets to any other person or entity and receive
payment therefor in cash, stock or obligations of such other person
or entity, and may sell all or any part of the consideration so
received and distribute any balance thereof in kind to holders of
USB Common Stock. Neither the merger or consolidation of USB into
or with any other corporation, nor the merger of any other
corporation into it, nor any purchase or redemption of shares of
stock of USB of any class, shall be deemed to be a dissolution,
liquidation or a winding-up of USB for purposes of this paragraph.
Because USB is a holding company, its rights and the rights of
its creditors and shareholders, including the holders of USB Common
Stock, to participate in the distribution of assets of a subsidiary
on its liquidation or recapitalization may be subject to prior
claims of such subsidiary's creditors, except to the extent that
USB itself may be a creditor having recognized claims against such
subsidiary.
Except as provided by law, each holder of USB Common Stock
shall have one vote on all matters voted upon by shareholders with
respect to each share of USB Common Stock held. Holders of USB
Common Stock do not have cumulative voting rights in the election
of directors.
Holders of USB Common Stock have heretofore been entitled to
preemptive rights with respect to USB Common Stock which may have
been issued. Under the terms of the Merger Agreement, USB's
Articles of Incorporation will be amended, if the Merger is
consummated, to deny preemptive rights to holders of USB Common
Stock. See "The Merger--Amendment of USB Restated Articles of
Incorporation," and "PROPOSED AMENDMENT TO THE USB RESTATED
ARTICLES OF INCORPORATION TO ELIMINATE PREEMPTIVE RIGHTS."
EFFECT OF MERGER ON RIGHTS OF SHAREHOLDERS
USB and FBI are Alabama corporations subject to the provisions
of the ABCA. Shareholders of FBI, whose rights are governed by
FBI's Articles of Incorporation and Bylaws and the ABCA, will, upon
consummation of the Merger, become shareholders of USB. The rights
of such shareholders as shareholders of USB will then be governed
by USB's Restated Articles of Incorporation and Bylaws, and such
rights will continue to be governed by the ABCA.
Except as set forth below, there are no material differences
between the rights of an FBI shareholder under FBI's Articles of
Incorporation and Bylaws and the rights of a USB shareholder under
USB's Restated Articles of Incorporation and Bylaws. The following
summary does not purport to be a complete discussion of, and is
qualified in its entirety by reference to, the ABCA and the
Articles of Incorporation and Bylaws of each corporation.
Authorized Capital Stock
USB's Restated Articles of Incorporation authorize the
issuance of up to 2,400,000 shares of USB Common Stock ($0.01 par
value each), of which [2,137,960] shares of USB Common Stock were
issued and outstanding as of the USB Record Date. The Merger
Agreement requires that the Articles of Incorporation of USB be
amended to increase to 10,000,000 the number of authorized shares
of USB Common Stock. Such amendment will be considered by USB
shareholders at the USB Meeting.
FBI's Articles of Incorporation authorize the issuance of up
to 500,000 shares of FBI Common Stock ($1.00 par value each), of
which [239,843] shares were issued and outstanding as of the FBI
Record Date.
Special Meetings of Shareholders
FBI's Bylaws provide that special meetings of shareholders may
be called for any purpose at any time by only (i) a majority of the
Board of Directors or (ii) a committee of the Board which has been
given such authority by the Board.
USB's Bylaws provide that special meetings of the shareholders
may be called at any time by the President, a majority of the Board
of Directors, or by the holders of at least ten percent of all
votes entitled to be cast on any issue proposed to be considered at
the meeting.
Required Shareholder Votes
USB's Restated Articles of Incorporation and Bylaws contain no
provisions altering the provisions of the ABCA regarding
shareholder voting. Generally, the ABCA requires a majority vote
of the shares voting at a meeting where a quorum is present.
However, a majority of all shares entitled to vote is required to
amend the Articles of Incorporation in a manner giving rise to
dissenters' rights, and two-thirds of all shares entitled to vote
are generally required to approve a merger, or the sale of all or
substantially all of the Corporation's assets.
FBI's Articles of Incorporation provide that the vote of 75%
or more of the shares entitled to vote will be required to approve
any merger or consolidation of FBI with or into any other
corporation, or the sale or other disposition of a substantial part
of FBI's assets.
Director Liability
USB's Restated Articles of Incorporation, as allowed by
Alabama law, provide that a director of USB will have no personal
liability to USB or its shareholders for monetary damages for
breach of his or her fiduciary duty as a director except (a) for
any breach of the director's duty of loyalty to the corporation or
its shareholders, (b) for acts or omissions not in good faith or
that involve intentional misconduct or a knowing violation of laws,
(c) for the payment of certain unlawful dividends in the making of
certain stock purchases or redemptions, or (d) for any transaction
from which the director derived an improper personal benefit. This
provision would absolve directors of personal liability for
negligence in the performance of duties, including gross
negligence. It would not permit a director to be exculpated,
however, for liability for actions involving conflicts of interest
or breaches of the traditional "duty of loyalty" to USB and its
shareholders, and it would not effect the availability of
injunctive or other equitable relief as a remedy. FBI's Articles
of Incorporation contain no such provisions.
Indemnification
USB's Restated Articles of Incorporation provide that a
director of USB shall be indemnified against expenses, judgments,
fines and settlements in connection with litigation. Essentially,
USB's Restated Articles of Incorporation provide that a director of
USB must be indemnified to the fullest extent permitted by Alabama
law. FBI's Articles of Incorporation contain no such provisions.
However, under Alabama law, indemnification is allowable and, in
fact, mandatory for any director who was successful in the defense
of any proceeding relating to such person's actions as a director.
Amendment of Articles of Incorporation
Under the ABCA, an Alabama corporation may amend its Articles
of Incorporation upon recommendation of the Board of Directors and
vote by a majority of the shareholders.
FBI's Articles of Incorporation provide that no merger,
consolidation, liquidation or dissolution of the corporation nor
any action that would result in the sale or other disposition of
all or substantially all the assets of FBI is valid unless first
approved by the affirmative vote of the holders of at least 75% of
the outstanding shares of common stock and that this requirement
may not be amended without approval by the holders of at least 75%
of the outstanding shares of FBI Common Stock.
Responses to Tender Offers
FBI's Articles of Incorporation provide that the Board of
Directors may oppose a tender offer and may consider the
acceptability of the price offered, whether a more favorable price
could be obtained, the impact of the acquisition upon the
employees, depositors and customers of FBI, the reputation and
business practices of the offeror, the value of securities which
the offer is offering, and any antitrust or other legal or
regulatory issues that exist. Moreover, the Board may reject the
offer and is allowed to advise shareholders not to accept the
offer, to engage in litigation against the offer, to file
complaints with regulatory authorities, to acquire the offeror's
securities, to acquire a company to create an antitrust or
regulatory problem for the offeror, or to solicit a more favorable
offer for another individual or entity. USB's Restated Articles of
Incorporation contain no such provisions.
Preemptive Rights
The holders of FBI Common Stock have no preemptive rights to
acquire any additional shares of FBI Common Stock.
The holders of USB Common Stock have preemptive rights as
provided under the ABCA; however, the Merger Agreement requires
that USB's Restated Articles of Incorporation be amended to
eliminate preemptive rights to holders of USB Common Stock at the
Effective Time. Such amendment will be considered by the USB
shareholders at the USB Meeting.
Proxy Requirements
USB's Bylaws require that any Proxy must be filed with the
secretary of the Corporation before or at the time of the meeting.
FBI's Bylaws contain no such requirement.
FBI MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion and financial information are
presented to aid in an understanding of the current financial
position and results of operations of FBI and should be read in
conjunction with the Audited Financial Statements and Notes thereto
included herein. FBI is the parent holding company of First Bank
and Acceptance, and owns 50% of the capital stock of FBS, and it
has no operations of consequence other than the ownership of its
subsidiaries. The emphasis of this discussion will be on the years
1996, 1995 and 1994.
At December 31, 1996, FBI had consolidated assets of
approximately $187.9 million and operated six banking locations in
Clarke and Bibb Counties, Alabama. FBI's primary business is
banking; therefore, loans and investments are the principal source
of income.
This discussion contains certain forward looking statements
with respect to the financial condition, results of operation and
business of FBI and First Bank related to, among other things:
(a) trends or uncertainties which will impact future
operating results, liquidity and capital resources, and
the relationship between those trends or uncertainties
and nonperforming loans and other loans;
(b) the effect of the market's perception of future inflation
and real returns and the monetary policies of the Federal
Reserve on short and long term interest rates; and
(c) the effect of interest rate changes on liquidity and
interest rate sensitivity management.
These forward looking statements involve certain risks and
uncertainties. Factors that may cause actual results to differ
materially from those contemplated by such forward looking
statements include, among others, the following possibilities:
(d) periods of lower interest rates accelerate the rate at
which the underlying obligations of mortgage-backed
securities and collateralized mortgage obligations are
prepaid, thereby affecting the yield on such securities
held by First Bank;
(e) difficulty integrating the operations of USB and FBI; and
(f) general economic conditions, either nationally or in
Alabama, are less favorable than expected.
FINANCIAL CONDITION
Average Assets and Liabilities
From 1992 to 1995 FBI's average assets grew $59.45 million or
53.08%. From 1995 to 1996 average assets increased $16.48 million
or 9.61%.
During the period 1992 to 1996 average loans increased $77.27
million. At the close of business February17, 1995, FBI purchased
from the Peoples Bank in Bibb County, Alabama, assets totaling
approximately $48.43 million and assumed deposit liabilities of
approximately $46.85 million. During the same period average
interest bearing deposits grew $58.73 million, while non-interest
bearing deposits increased by $9.11 million. FBI carried no
foreign loans or deposits in any period discussed.
Average Investment Securities decreased by $10.01 million or
21.33% during the period 1992 to 1996. Loans and deposits
increased significantly during this same period because emphasis
was placed on growth in these areas. The decrease in Average
Investment Securities was used to fund loan growth during the
period.
<TABLE>
Distribution of Average Assets, Liabilities and Shareholders' Equity
(In Thousands)
<CAPTION>
1996 1995 1994 1993 1992
<S> <C> <C> <C> <C> <C>
Average Assets:
Cash and non-interest bearing deposits $ 5,268 $ 5,504 $ 2,972 $ 3,846 $ 2,646
Interest bearing deposits 141 1,064 2,303 201 201
Federal funds sold 1,219 4,265 2,796 3,473 1,250
Investment securities 36,930 36,985 30,080 41,779 46,943
Loans, net(1) 133,372 113,550 78,511 65,070 56,098
Premises and equipment, net 2,277 2,061 1,763 1,797 1,541
Other assets 8,739 8,033 5,088 4,441 3,331
Average Total Assets $187,946 $171,462 $123,513 $120,607 $112,010
Average Liabilities and Shareholder's Equity:
Non-interest bearing demand deposits $ 18,311 $ 18,032 $ 11,395 $ 10,387 $ 9,198
Interest bearing demand deposits 39,972 37,631 31,290 28,746 26,262
Savings deposits 14,480 13,545 9,736 8,729 7,755
Time deposits 88,220 80,210 52,243 51,927 49,930
Total Deposits 160,983 149,418 104,664 99,789 93,145
Other liabilities 9,419 7,437 5,788 8,976 9,150
Shareholders' equity 17,544 14,607 13,061 11,842 9,715
Average Total Liabilities and
Shareholders' Equity $187,946 $171,462 $123,513 $120,607 $112,010
<FN>
(1) FBI carried no foreign loans or deposits in any of the periods
shown.
</FN>
</TABLE>
Loans
Net loans at December 31, 1996, were $139.73 million, an
increase from $126.11 million at December 31, 1995. Of the $44.37
million increase, from 1994 to 1995, $30.54 million is a direct
result of the acquisition of Peoples Bank described above.
Acceptance Loan Company, a wholly-owned subsidiary of First Bank
was organized in 1995 primarily to make consumer loans. At
December 31, 1995, three offices were in operation: Thomasville,
Monroeville, and Jackson. At the present time three additional
offices have been opened: Centreville, Greenville, and Enterprise.
Plans are to open several more offices in the coming year.
Management is pleased with the loan volume that has been originated
in these six offices--loans at year end 1995, were $1.90 million
and $11.33 million at the end of 1996. A significant portion of
FBI's loan growth for 1996 is attributable to Acceptance. At
December 31, 1996, commercial, financial and agricultural loans
represented 14.55% of total loans, real estate-mortgage and
construction loans represented 61.61%, and consumer loans
represented 23.84% of total loans.
For asset and liability management purposes, the outstanding
loans in the categories of commercial, financial and agricultural,
real estate-construction and real estate-mortgage, $68.88 million
or 63.84% mature within one year or may be repriced within one year
due to a variable rate arrangement.
The table below shows the classification of loans by major
category at December 31, 1996 and 1995. The second table depicts
maturities of selected loan categories for loans maturing after one
year.
<TABLE>
Distribution of Loans by Category
(In Thousands)
<CAPTION>
December 31,
1996 1995
<S> <C> <C>
Commercial, financial and agricultural $ 20,617 $ 18,984
Real estate - construction 4,414 2,085
Real estate - mortgage 82,864 80,809
Consumer 33,773 25,920
Total Loans 141,668 127,798
Allowance for loan losses 1,943 1,689
Net Loans $139,725 $126,109
</TABLE>
<TABLE>
Selected Loans by Type and Maturity
(In Thousands)
<CAPTION>
December 31, 1996
Maturing
After One
Within But Within After
One Year Five Years Five Years Total
<S> <C> <C> <C> <C>
Commercial, financial and agricultural $ 11,155 $ 9,462 -0- $ 20,617
Real estate - construction 4,414 -0- -0- 4,414
Real estate - mortgage 53,310 29,554 -0- 82,864
Total 68,879 39,016 -0- 107,895
<FN>
Variable rate loans totaled approximately $29 million and are
included in the one-year category.
</FN>
</TABLE>
FBI's rollover/renewal policy consists of a reevaluation of
maturing loans to determine whether such loans will be renewed (or
rolled over) and, if so, at what amount, rate and maturity.
Investment Securities
Statement of Financial Accounting Standards ("SFAS") No. 115,
Accounting for Certain Investments in Debt and Equity Securities,
requires that only debt securities as to which FBI has the positive
intent and ability to hold to maturity be classified as to be
held-to-maturity and reported at amortized cost; all other debt
securities are reported at fair value. SFAS No. 115 further
requires that unrealized gains and losses on securities classified
as trading account assets be recognized in current operations.
Securities not classified as to be held-to-maturity or trading are
classified as available-for-sale and the related unrealized gains
and losses are excluded from earnings and reported net of tax as a
separate component of shareholders' equity until realized. FBI
adopted SFAS No. 115 effective January 1, 1994, which resulted in
a $477,316 net unrealized loss at December 31, 1994, and a net
unrealized gain of $170,605 at December 31, 1995; at December 31,
1996, the net unrealized loss was $17,069, and is shown as a
separate component of shareholders equity.
Investment securities not classified as available-for-sale or
trading are carried at cost, adjusted for amortization of premiums
and accretion of discounts. Premiums and discounts are amortized
and accreted to operations using the level yield method, adjusted
to prepayments as applicable. Management has the intent and FBI
has the ability to hold these assets as long-term investments until
their estimated maturities.
Securities within the available-for-sale portfolio may be used
as part of FBI's asset/liability strategy and may be sold in
response to changes in interest rate risk, prepayment risk or
similar economic factors. The specific identification method is
used to compute gains or losses on the sale of these assets.
The maturities and weighted average yields of investment
securities and securities held for sale at December31, 1996, are
presented in the following table using the average stated
contractual maturities. The average stated contractual maturities
may differ from the average expected life because borrowers may
have the right to call or prepay obligations. Taxable equivalent
adjustments, using a 34 percent tax rate, have been made when
calculating yields on tax-exempt obligations. For purposes of the
following table, securities available for sale are shown at
amortized cost.
<TABLE>
Maturity Distribution of Investment Securities
(Dollars in Thousands)
<CAPTION>
December 31, 1996 Maturity
Within one Within five Within ten After ten
year years years years Total
Amount Yield Amount Yield Amount Yield Amount Yield Amount Yield
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Securities held to maturity:
Obligations of states and
political subdivisions $ 33 9.09% $ 521 9.30% $ -0- 0.00% $ 33 10.23% $ 587 9.33%
Total securities held to
maturity 33 9.09% 521 9.30% -0- 0.00% 33 10.23% 587 9.33%
Securities available for sale:
U.S. Treasury Securities -0- 0.00% 1,035 6.10% -0- 0.00% -0- 0.00% 1,035 6.10%
U.S. Government Agencies -0- 0.00% 3,452 6.63% 500 8.00% -0- 0.00% 3,952 6.80%
State and political
subdivisions 1,137 7.20% 2,944 9.33% 3,065 9.26% 9,526 8.00% 16,672 8.58%
Mortgage backed securities -0- 0.00% 136 6.03% 255 7.19% 11,213 6.30% 11,604 6.32%
Other investments 808 6.10% -0- 0.00% -0- 0.00% -0- 0.00% 808 6.10%
Total securities available
for sale 1,945 6.74% 7,567 7.58% 3,820 8.95% 20,739 7.08% 34,071 7.46%
</TABLE>
<TABLE>
Investment Securities and Investment Securities Available for Sale
(Dollars in Thousands)
<CAPTION>
December 31,
1996 1995
Amortized Market Amortized Market
Cost Value Cost Value
<S> <C> <C> <C> <C>
Investment securities held to maturity:
State and political subdivisions $ 587 $ 587 $ 719 $ 719
Investment securities available for sale:
U.S. Treasury Securities 1,035 1,042 2,503 2,507
U.S. Government Agencies 3,952 3,997 3,680 3,670
State and political subdivisions 16,672 16,905 12,185 12,803
Mortgage backed securities 11,604 11,291 11,951 11,697
Other investments 808 808 1,096 1,052
Total available for sale 34,071 34,043 31,415 31,729
</TABLE>
Trading Activity
FBI maintained a trading account from 1992 to 1995, during
which time there was very limited trading volume. Securities
carried in a trading account were carried at the lower of cost or
market value prior to the adoption of SFAS No. 115. Fluctuations
in market value result in unrealized gains and losses which are
reflected as gains or losses on Trading Securities on the Income
Statement. The trading account produced a loss of $13,198 in 1992,
a gain of $57,313 in 1993, a loss of $1,473,145 in 1994 and a gain
of $280,303 in 1995. The unrealized loss in 1994 was attributable
to one security which was purchased in 1993 and ultimately sold in
1995. This loss in 1994 was due to the volatile interest rate
environment during 1994 and was the primary reason that First Bank
experienced a much lower level of net income in 1994 than in 1995
or 1993. No trading activity was conducted in 1996.
Deposits and Short-Term Borrowings
Between 1994 and 1996, FBI experienced growth in each category
of deposits as shown in the table below. Average non-interest
bearing demand deposits increase by $6.92 million or 60.69% from
1994 to 1996. Average interest bearing demand deposits increased
$8.68 million or 27.75%, average saving deposits increased $4.74
million, or 48.73%, and average time deposits increased $35.98
million or 68.86% during the same period. Much of the deposit
growth occurred from 1994 to 1995 and was primarily the result of
the acquisition of two offices of the Peoples Bank purchased in
Bibb County with approximately $42.89 million in average deposits.
If the acquisition had not occurred, average deposits would have
increased by approximately $8.90 million, or 8.50% from 1994 to
1996.
FBI has maintained a stable base of non-interest bearing
demand deposits despite consumer trends toward interest bearing
deposits. In 1994, the average balance of non-interest bearing
demand deposits was 10.89% of total average deposits and by 1996
this ratio had increased to 11.37%.
<TABLE>
Average Deposits
(Dollars in Millions)
<CAPTION>
Average for the Year
1996 1995 1994
Average Average Average Average Average Average
Amount Rate Amount Rate Amount Rate
Outstanding Paid Outstanding Paid Outstanding Paid
<S> <C> <S> <C> <S> <C> <S>
Non-interest bearing demand deposits $ 18,311 -- $ 18,032 -- $ 11,395 --
Interest bearing demand deposits 39,972 2.93% 37,631 2.84% 31,290 2.85%
Savings deposits 14,480 3.00% 13,545 2.98% 9,736 2.97%
Time deposits 88,220 5.48% 80,210 5.47% 52,243 4.32%
Total average deposits 160,983 4.00% 149,418 3.92% 104,664 3.29%
</TABLE>
The following table reflects maturities of time deposits of
$100,000 or more at December 31, 1996. Time deposits include both
certificates of deposit and time deposit open accounts. Deposits
of $20 million in this category represented 12.05% of total
deposits at year-end 1996. Management does not actively pursue
these deposits as a means to fund interest earning assets, and as
a result, rates paid on these deposits differ only by an average of
16 basis points from rates paid on smaller denomination
certificates of deposit.
<TABLE>
Maturities of Time Deposits of $100,000 or More
(In Millions)
<CAPTION>
At December 31, 1996
Under Over
3 3-6 3-12 12
Months Months Months Months Total
<S> <C> <C> <C> <C>
*9,400 2,542 4,480 3,809 20,231
<FN>
* Maturities under 3 months include $3.062 million in time
deposit open accounts greater than $100,000.
</FN>
</TABLE>
Short Term Borrowings
At December 31, 1996, short term borrowings consisted of
securities sold under repurchase agreement of $49,260, federal
funds sold of $30,000 and two advances from the Federal Home Loan
Bank of Atlanta totaling $5,403,509. The advances are secured by
Federal Home Loan Bank stock and a blanket floating lien on certain
first mortgage loans in First Bank's loan portfolio. The advance
in the amount of $5,000,000 has a fixed rate of 5.51% with interest
due monthly and a final maturity of February 22, 1999. This
advance was used to fund the purchase of a like amount of tax free
municipal securities. The other advance in the amount of $403,509
has an interest rate of 6.40%, with interest payments due monthly.
Principal payments of $8,771.93 are due quarterly with the final
payment due April 8, 2008. A $17 million line of credit is also
available from the Federal Home Loan Bank of Atlanta.
Long Term Debt
Long term debt consisted of a promissory note in the amount of
$3.04 million as of December 31, 1996. The interest rate on this
note floats with prime minus 10 basis points. Interest on the note
is due quarterly, and principal is to be repaid in annual
installments of $375,500. The debt originated in 1988 to finance
the acquisition of Jackson Bank and Trust and was refinanced in
1995 when an additional $2.7 million was borrowed to finance the
acquisition of the two Bibb County branches discussed previously.
Asset/Liability Management
Effective asset/liability management requires an analysis of
liquidity and interest rate risk factors. Decisions relating to
the structure of the balance sheet are made after management
considers the impact on current and future liquidity needs, as well
as, the effect on the interest rate sensitivity gap.
Liquidity
Liquidity represents the ability of a bank to meet loan
commitments as well as deposit withdrawals. Liquidity is derived
from both the asset side and liability side of the balance sheet.
On the asset side, liquidity is provided by marketable securities
available for sale, maturing loans, federal funds sold and cash and
cash equivalents. On the liability side, liquidity is provided by
a stable base of core deposits. In addition to the lines of credit
described above under Short Term Borrowings, FBI has a federal
funds line of credit with other correspondent banks totaling $12
million.
Interest Rate Sensitivity
By monitoring FBI's interest rate sensitivity, management
attempts to maintain a desired balance between the growth of net
interest revenue and the risks that might result from significant
changes in interest rates in the market. One tool for measurement
of this risk is gap analysis, whereby the repricing of assets and
liabilities are matched across certain time frames. The interest
sensitivity analysis presented in the table below is based on this
type of gap analysis, which assumes that rates earned on interest
earning assets and rates paid on interest bearing liabilities will
move simultaneously in the same direction and to the same extent.
However, the rates associated with these assets and liabilities
actually change at different times and in varying amounts.
Management must consider various interest rate scenarios in order
to make the decisions which will maximize net interest revenue and
maintain the desired range of interest rate risk.
The Interest Sensitivity Analysis table below shows a
cumulative one year net asset sensitive position of $3.27 million
at December 31, 1996. This positive gap position implies that in
a rising rate environment FBI would experience a widening of its
net interest revenue as interest rates paid on liabilities would
increase slower than rates earned on interest earning assets.
Conversely, the table would indicate that in a falling rate
environment, FBI would experience a narrowing of the net interest
margin. However, included in the $55.31 million of rate sensitive
liabilities, in the 12 month time horizon, are $21.45 million in
savings, NOW and money market accounts which, in management's
opinion and based on experience, would not reprice in the same
proportions as rate sensitive assets. For example, in the event
that interest rates in the economy rise substantially over a short
period of time, management would not expect a corresponding
increase in rates paid on savings deposits. Thus, the impact of
the positive gap on FBI's net interest margin would be greater than
the table might indicate.
<TABLE>
Interest Rate Sensitivity Analysis
<CAPTION>
At December 31, 1996
(In Thousands of Dollars)
Over 5 Years
& Non Rate
0-3 months 4-12 months 1-5 years Sensitive Total
<S> <C> <C> <C> <C> <C>
Earning Assets
Loans $52,372 $35,181 $53,098 $ 1,017 $141,668
Investment securities
available for sale 7,754 1,142 8,869 16,306 34,071
Investment securities
held to maturity 11 12 174 390 587
Interest bearing due
from banks 45 -0- -0- -0- 45
Federal funds sold -0- -0- -0- -0- -0-
Other interest bearing assets -0- 1,289 -0- -0- 1,289
Total earning assets 60,182 37,624 62,141 17,713 177,660
Interest Bearing Liabilities
Now & savings accounts 4,414 13,162 34,168 -0- 51,744
Money market 977 2,896 1,904 -0- 5,777
Certificates of deposit 27,688 39,255 17,954 -0- 84,897
Other time deposits 3,062 -0- -0- -0- 3,062
Total interest earning
deposits 36,141 55,313 54,026 -0- 145,480
Borrowings 3,083 -0- 5,404 -0- 8,487
Total interest bearing
liabilities 39,224 55,313 59,430 -0- 153,967
Interest Sensitive Gap 20,958 (17,689) 2,711 -0- 23,693
Cumulative Interest-Sensitive
Gap 20,958 3,269 5,980 -0- 23,693
</TABLE>
Capital Resources
Shareholders' equity increased $3.69 million from December 31,
1994, to December 31, 1996. At year-end 1996 shareholder's equity
increased to $18.79 million from $16.56 million at year-end 1995.
The Federal Reserve and the FDIC require that bank holding
companies and banks have a minimum of Tier I capital equal to not
less than 4% of risk adjusted assets and total capital equal to not
less than 8% of risk adjusted assets. Tier I capital consists of
common shareholders' equity. Tier II capital includes reserves for
loan losses up to 1.25% of risk adjusted assets. Tier I capital
was $15.15 million at December 31, 1996, and total (Tier I plus
Tier II) capital was $16.91 million at December 31, 1996. Tier I
and total capital ratios were 10.76% and 12.02%, respectively at
December 31, 1996. Both ratios were above the regulatory minimums.
<TABLE>
Risk-Based Capital
(Dollars in Thousands)
<CAPTION>
December 31,
1996 1995 1994
<S> <C> <C> <C>
Tier I capital--
Realized common shareholders' equity $ 15,148 $ 12,485 $ 11,965
Tier II capital--
Allowable portion of the allowance for
loan losses 1,762 1,577 1,067
Risk-adjusted assets 140,733 126,135 85,507
Average assets 186,963 179,659 121,174
Risk-adjusted capital ratios:
Tier I capital 10.76% 9.90% 13.99%
Total capital (Tier I and Tier II) 12.02% 11.55% 15.24%
Minimum risk-based capital guidelines
Tier I capital 4.00% 4.00% 4.00%
Total capital (Tier I and Tier II) 8.00% 8.00% 8.00%
Tier I leverage ratio 8.10% 6.95% 9.87%
</TABLE>
RESULTS OF OPERATIONS
Net Interest Revenue
Net interest revenue, the difference between the rates earned
on assets and the rates paid on liabilities, is the largest
component of a bank's earnings. Net interest income increased by
$1.28 million, or 15.78%, in 1996 compared to a 43.75% increase in
1995. Volume, rate and yield changes contributed to the growth in
net interest income. Average interest-earning assets increased by
$15.88 million, or 10.08%, in 1996. This increase in
interest-earning assets is partly offset by the volume increase of
$13.05 million, or 9.45%, in average interest-bearing liabilities.
Average interest-earning assets outgained average interest-bearing
liabilities by $2.83 million. In 1995, most of the volume increase
is the result of the acquisition of two banking offices in Bibb
County. The increase for 1996 is attributable to loan growth at
First Bank and Acceptance.
While the average volume of the interest-bearing liabilities
increased 13.05% in 1996, the average rate of interest paid
increased from 4.56% in 1995 to 4.64% in 1996, an increase of 8
basis points. Average interest-earning assets increased 10.08% in
1996, while the average yield increased from 9.15% in 1995 to 9.46%
in 1996, an increase of 31 basis points. Net yield on average
interest-earning assets, however, increased 23 basis points.
The percentage of earning assets funded by interest-bearing
liabilities also affects FBI's net interest revenue. FBI's earning
assets are funded by interest-bearing liabilities, non
interest-bearing demand deposits and shareholders' equity. The net
return on earning assets funded by non interest-bearing demand
deposits and shareholders equity exceeds the net return on earning
assets funded by interest bearing liabilities. FBI maintains a
relatively consistent percentage of earning assets that are funded
by non interest-bearing liabilities. In 1996, 12.85% of FBI's
average earning assets were funded by non interest-bearing
liabilities as opposed to 12.35% in 1995 and 14.06% in 1994. The
earning assets funded by non interest-bearing liabilities had a
positive impact on the net interest income.
Presented below is an analysis of net interest income,
weighted average yields on earning assets and weighted average
rates paid on interest-bearing liabilities for the past three
years. In order to facilitate comparisons, federally tax-exempt
interest on obligations of state and local governments and on
industrial revenue bonds has been reflected on a fully taxable
equivalent basis, assuming a tax rate of 34%.
<TABLE>
Net Interest Revenue
(Dollars in Thousands)
<CAPTION>
1996 1995 1994
Average Average Interest Average Average Interest Average Average Interest
Amount Rate/ Earned/ Amount Rate/ Earned/ Amount Rate/ Earned/
Outstanding Yield Paid Outstanding Yield Paid Outstanding Yield Paid
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Interest earning assets
Taxable securities $ 19,904 6.46% $ 1,286 $ 23,355 6.75% $ 1,576 $ 16,402 6.41% $ 1,052
Non-taxable securities 17,026 5.42% 923 13,630 5.99% 817 13,678 5.74% 785
Total securities 36,930 5.98% 2,209 36,985 6.47% 2,393 30,080 6.11% 1,837
Loans(1) 135,095 10.45% 14,117 115,190 10.15% 11,692 79,608 9.12% 7,261
Cash balances in
other banks 141 4.96% 7 1,064 5.92% 63 2,303 4.60% 106
Federal funds sold 1,219 5.58% 68 4,265 6.00% 256 2,796 3.97% 111
Total interest
earning assets 173,385 9.46% 16,401 157,504 9.15% 14,404 114,787 8.12% 9,315
Non-interest earning
assets:
Cash and due from
banks 5,268 5,504 2,972
Premises and equipment,
net 2,277 2,061 1,763
Other assets 8,739 8,033 5,088
Allowance for possible
loan losses (1,723) (1,640) (1,097)
Total $187,946 $171,462 $123,513
Interest bearing liabilities
Interest bearing demand and
savings deposits $ 54,452 2.95% 1,605 $ 51,176 2.88% 1,473 $ 41,026 2.88% 1,181
Time deposits 88,220 5.48% 4,837 80,210 5.47% 4,389 52,243 4.32% 2,259
142,672 4.52% 6,442 131,386 4.46% 5,862 93,269 3.69% 3,440
Other short-term
borrowings 5,235 5.58% 292 2,871 4.63% 133 3,274 3.85% 126
Long-term debt 3,192 8.77% 280 3,790 7.94% 301 2,104 5.18% 109
Total interest bearing
liabilities 151,099 4.64% 7,014 138,047 4.56% 6,296 98,647 3.73% 3,675
Non-interest bearing liabilities
Demand deposits 18,311 18,032 11,395
Other 992 776 410
Total non-interest bearing
liabilities 19,303 18,808 11,805
Shareholders' equity 17,544 14,607 13,061
Total $187,946 $171,462 $123,513
Net Interest Revenue 5.41% 9,387 5.15% 8,108 4.91% 5,640
Net yield on interest earning assets
Tax equivalent adjustment 314 421 404
Net yield on interest earning assets
(tax equivalent) 5.60% $9,701 5.42% $8,529 5.27% $6,044
<FN>
(1) Loans classified as non-accruing are included in the
average volume classification. Loan fees for all years
shown are included in the interest amounts for loans.
</FN>
</TABLE>
<TABLE>
Analysis of Interest Increases (Decreases)
(In Thousands)
<CAPTION>
1996 Compared to 1995 1995 Compared to 1994
Increase(Decrease) Increase(Decrease)
Due to Change in (1) Due to Change in (1)
Average Average
Volume Rate Net Volume Rate Net
<S> <C> <C> <C> <C> <C> <C>
Interest Earned On:
Loans $2,070 $ 355 $2,425 $3,537 $ 894 $4,431
Taxable investments (224) (66) (290) 466 58 524
Non-taxable investments 189 (83) 106 (3) 35 32
Federal funds and cash
balances in other banks (220) (24) (244) 10 92 102
Total Interest --
Earning Assets 1,815 182 1,997 4,010 1,079 5,089
Interest Expense On:
Demand and savings
deposits 95 37 132 292 -0- 292
Time deposits 440 8 448 1,422 708 2,130
Other liabilities 119 19 138 65 134 199
Total Interest --
Bearing Liabilities 654 64 718 1,779 842 2,621
Interest in Net
Interest Income 1,161 118 1,279 2,231 237 2,468
<FN>
(1) The change in interest due to both rate and volume has been
allocated to volume and rate changes in proportion to the
relationship of the absolute dollar amount of the change in
each.
</FN>
</TABLE>
Provision and Allowance for Loan Losses
Throughout the year management estimates the likely level of
future losses to determine whether the allowance for loan losses is
adequate to absorb losses in the existing portfolio. The allowance
for loan losses is a valuation allowance which quantifies this
estimate. Management's judgment as to the amount of anticipated
losses on existing loans involves the consideration of current and
anticipated economic conditions and their potential effects on
specific borrowers; results of examinations of the loan portfolio
by regulatory agencies; and management's internal review of the
loan portfolio. In determining the collectibility of certain
loans, management also considers the fair value of any underlying
collateral. The amounts ultimately realized may differ from the
carrying value of these assets due to economic, operating or other
conditions beyond FBI's control.
While it is possible that in particular periods FBI may
sustain losses which are substantial relative to the allowance for
loan losses, it is the judgment of management that the allowance
for loan losses reflected in the consolidated statements of
condition is adequate to absorb estimated losses which may exist in
the current loan portfolio.
Management reviews the loan portfolio and determines the
adequacy of the allowance at each month end. Appropriate
adjustments to the allowance are made through the provision for
loan losses. The provision for 1996 shows a significant increase
over 1995. This increase was necessary to provide for increased
loan losses and to build the reserve at Acceptance. The provision
for loan losses at Acceptance was $25,290 for 1995 and $280,527 for
1996.
The table below sets forth certain information with respect to
FBI's average loans, allowance for loan losses, charge-offs and
recoveries for the five years ended December 31, 1996.
<TABLE>
Summary of Loan Loss Experience
(Dollars in Thousands)
<CAPTION>
Year Ended December 31,
1996 1995 1994 1993 1992
<S> <C> <C> <C> <C> <C> <C> <C>
Allowance for loan losses-
balance at beginning of period $ 1,689 $ 1,707(1) $ 1,042 $ 826 $ 680
Charge-offs:
Commercial, financial and
agricultural 157 149 -0- 40 22
Real estate - construction -0- -0- -0- -0- -0-
Real estate - mortgage 21 6 5 46 6
Consumer 393 154 119 97 70
Total charge-offs 571 309 124 183 98
Recoveries:
Commercial, financial and
agricultural 29 2 -0- 33 4
Real estate - construction -0- -0- -0- -0- -0-
Real estate - mortgage -0- 5 -0- -0- 1
Consumer 74 29 19 31 28
Total recoveries 103 36 19 64 33
Net charge-offs (recoveries) 468 273 105 119 65
Addition to allowance charged to
operating expense 722 255 195 335 211
Allowance for loan losses-
balance at end of period 1,943 1,689 1,132 1,042 826
Loans at end of period, net of
unearned income 141,668 127,797 82,870 75,475 59,930
Ratio of ending allowance to
ending loans 1.37% 1.32% 1.37% 1.38% 1.38%
Average loans, net of unearned
income 133,372 115,190 79,608 65,987 56,845
Ratio of net charge-offs to
average loans .35% .24% .13% .18% .11%
<FN>
(1) $575,000 allowance for loan losses acquired in branch
acquisitions.
</FN>
</TABLE>
At year-end 1996 the allowance was $1.94 million as compared
to $1.69 million at year-end 1995 and $1.13 million at year-end
1994. The allowance at year-end 1996 to ending loans was 1.37%,
and this ratio has been consistent from year to year since 1992.
The allowance was considered adequate at December 31, 1996.
FBI experienced net charge-offs of $105,416 in 1994, $272,440
in 1995, and $467,513 in 1996. The total charge-offs for all
categories in 1996, as a percent of average loans in these
categories, was slightly higher than 1995. Recoveries in the
consumer category were approximately $45,000 higher than in 1995.
The ratio of net charge-offs to average loans for 1996 is .35%
compared to .24% for 1995.
NON-PERFORMING ASSETS
Non-performing assets are loans on a non-accrual basis,
accruing loans 90 days or more past due, renegotiated loans, and
other real estate owned. FBI's accruing loans 90 days or more past
due for the years 1994, 1995, and 1996 were approximately $533,000,
$1.24 million and $274,000, respectively. Non-accrual loans
totaling approximately $301,000 in 1994, none in 1995, and $945,367
in 1996. Other real estate owned was $374,226 in 1994, $63,182 in
1995 and $18,001 in 1996. Total non-performing assets decreased to
$1.24 million in 1996 from $1.30 million in 1995, for a total
decrease of $6,000.
In accordance with regulatory standards, loans are classified
as non-accrual when the collection of principal or interest is 90
days or more past due or when, in management's judgment, such
principal or interest will not be collectible in the ordinary
course of business, unless in the opinion of management the loan is
both adequately secured and in the process of collection.
FBI has identified loans totalling approximately $1.94 million
or 1.37% of the loan portfolio at December 31, 1996 through the
Bank's internal loan evaluation program in which some concerns
exists about the borrowers ability to comply with present repayment
terms. These loans are not included as non-performing assets and
are categorized as "watch" for internal evaluation purposes only.
These credits, however, were considered in determining the adequacy
of the allowance for possible loan losses and, while current, are
regularly monitored for changes with a particular industry or
general economic trends which could cause the borrowers severe
financial difficulties. Management does not expect a significant
loss in any of these loans.
Non-Interest Revenue
Total non-interest revenue increased 6.62% from 1994 to 1996.
However, total non-interest revenue decreased $156,000 from 1995 to
1996 while the largest item in this category, service charges on
deposit accounts increased $184,000. Other items in this category
are commissions on the sale of credit insurance which increased
from $97,334 in 1995 to $186,211 in 1996. Net security gains or
losses are also included in this category; in 1995, this was a net
gain of $28,814 and a net loss in 1996 of $83,158. Net gains on
the trading account decreased from $280,303 in 1995 to none in
1996.
<TABLE>
<CAPTION>
(In Thousands)
Year Ended December 31,
1996 1995 1994
<S> <C> <C> <C>
Service charges on deposit accounts $1,106 $ 922 $ 608
Other revenue 183 523 601
Total 1,289 1,445 1,209
</TABLE>
Non-Interest Expense
Total non-interest expense increased $439,000 from 1995 to
1996. This is a 7.74% increase. The increase from 1994 to 1995
was 10.72%. The largest item in this category is salaries. They
increased $419,000 from 1995 to 1996 or 18.30%. A significant
portion of this increase in employee costs is associated with
employees of Acceptance; fifteen employees have been added to staff
the six offices of Acceptance. The other increase in employee cost
is the result of increased cost of health insurance, cost of living
increases, and the addition of several new employees at First Bank.
Other expenses decreased $259,000 from 1995 to 1996. Included in
1995 totals were approximately $315,000 paid to settle all pending
lawsuits. This amount included related attorney's fees. Another
significant item is amortization of goodwill associated with the
acquisition of the two Bibb county offices; this amounted to
$181,668 in 1996 and $158,960 in 1995.
<TABLE>
<CAPTION>
(In Thousands)
Year Ended December 31,
1996 1995 1994
<S> <C> <C> <C>
Salaries $2,709 $2,290 $1,326
Pension and other employee benefits 558 426 327
Net occupancy expenses 343 259 239
Furniture and equipment expenses 330 267 224
Other expenses 2,168 2,427 3,004
Total 6,108 5,669 5,120
</TABLE>
Income Taxes, Inflation and Other Issues
Income tax expense was $1,138,893 in 1996 compared to $793,364
and $206,591 respectively in 1995 and 1994. Income tax expense was
significantly lower in 1994 due primarily to the previously
discussed loss in the trading account.
Because FBI's assets and liabilities are essentially monetary
in nature, the effect of inflation on FBI's assets differs greatly
from that of most commercial and industrial companies. Inflation
can have an impact on the growth of total assets in the banking
industry and the resulting need to increase capital at higher than
normal rates in order to maintain an appropriate equity to assets
ratio. Inflation also can have a significant effect on other
expenses, which tend to rise during periods of general inflation.
Management believes, however, that FBI's financial results are
influenced more by its ability to react to changes in interest
rates than by inflation.
Except as discussed in this Management's Discussion and
Analysis, management is not aware of trends, events or
uncertainties that will have or that are reasonably likely to have
a material effect on liquidity, capital resources or operations.
Management is not aware of any current recommendations by
regulatory authorities which, if they were implemented, would have
such an effect.
BUSINESS OF FBI
FBI is a bank holding company registered under the BHCA.
Through its bank subsidiary, First Bank, FBI provides community
banking services in Southwest Alabama. At December 31, 1996, FBI
had total consolidated assets of approximately $192.88 million,
total consolidated deposits of approximately $166.38 million, and
total consolidated shareholders' equity of approximately $17.54
million.
Bank Activities
First Bank's business consists of: (i) the acceptance of
demand, savings and other time deposits; (ii) the making of loans
to individuals, businesses and institutions; (iii) investment of
excess funds in U.S. Treasury and agency obligations and state,
county and municipal bonds and through the sale of Federal funds;
and (iv) other miscellaneous financial services usually handled for
customers by commercial banks. FBI offers, through First Bank,
commercial lending services, including lines of credit, revolving
credits, term loans, real estate loans and other forms of secured
financing. First Bank also offers installment and other personal
loans, home improvement loans, automobile loans, boat loans and
other consumer financing, safe deposit services and mortgage loans.
FBI extends credit to its customers located primarily within its
market area of Clarke and Bibb Counties, Alabama. Although real
estate is taken as collateral on the majority of the loans in its
portfolio, real estate is generally a secondary source of repayment
after the credit worthiness of the borrower. See "FBI's Management
Discussion and Analysis of Financial Condition and Results of
Operations" for a more complete discussion of FBI's business.
Certain Management Information
Under the rules established by the Commission, FBI is required
to provide certain information in regard to each director and
executive officer who is or will be a director or executive officer
of USB after consummation of the Merger. Nine of the ten directors
of FBI will become directors of USB upon consummation of the
Merger. The following paragraphs set forth information about each
such director, including the capacities in which each will serve
after the Merger.
Mr. Dan Barlow, age 55, is a director of FBI and is Clarke
County President of First Bank. Mr. Barlow was first employed by
First Bank in 1969, and became a director of FBI in 1972. He will
serve as a director of USB after the Merger.
Mr. John Becton, age 73, is a director of FBI and a former
President and Chief Executive Officer of First Bank. Mr. Becton
joined First Bank in 1966, and retired in 1989. He will serve as
a director of USB after the Merger.
Ms. Linda Breedlove, age 53, is a director of FBI and joint
owner and co-publisher of The South Alabamian, a weekly newspaper
headquartered in Jackson, Alabama. She will serve as a director of
USB after the Merger.
Mr. John C. Gordon, age 39, is a director of FBI and a
businessman engaged in the forestry, timberland and investments
business. He will serve as a director of USB after the Merger.
Mr. Fred L. Huggins, age 61, is President and Chief Executive
Officer and a director of FBI, Chairman of the Board and Chief
Executive Officer of First Bank, and retired Judge of Probate,
Clarke County, Alabama. He will serve as a director and Vice
Chairman of the Board of USB, Chairman of the Board of USB Bank,
and Chairman and Chief Executive Officer of Acceptance after the
Merger.
Mr. Ray Sheffield, age 58, is a director of FBI and is
President of Deas Insurance, an insurance agency headquartered in
Grove Hill, Alabama, and is a retired Sheriff of Clarke County,
Alabama. He will serve as a director and as Vice Chairman of the
Board of USB after the Merger.
Mr. Clarence Watters, age 65, is a director of FBI and is the
Judge of Probate of Clarke County, Alabama. He will serve as a
director of USB after the Merger.
Mr. Bruce Wilson, age 42, is a director of FBI and an attorney
practicing in Grove Hill, Alabama. He will serve as a director of
USB after the Merger.
Mr. Earnest Woodson, age 68, is a director of FBI and a
retired partner in Woodson Furniture Company, located in Jackson,
Alabama. He will serve as a director of USB after the Merger.
The table below sets forth a summary of the compensation paid
or accrued during 1995 and 1996 with regard to FBI's current chief
executive officer. No executive officer of FBI who will continue
as an executive officer of USB after the Merger was paid annual
salary and bonuses of as much as $100,000 for any of the last three
fiscal years.
<TABLE>
SUMMARY COMPENSATION TABLE
<CAPTION>
Annual Compensation
All Other
Name and Principal Position Year Salary Bonus Compensation ($)(1)
<S> <C> <C> <C> <C>
Fred L. Huggins, President 1996 $76,539 $12,429 $8,735
and Chief Executive Officer 1995(2) $58,500 $ 5,607 $9,968
<FN>
(1) Includes FBI's profit sharing plan and 401-K matching
contributions, use of a company automobile and life insurance
premiums paid by FBI. FBI has a contributory-trusteed
profit-sharing plan for the benefit of employees who qualify
as to age and/or length of service. The annual contribution
to the profit-sharing plan for each participant consists of a
discretionary percentage of First Bank's profit, plus a 401(K)
contribution which matches a discretionary percentage of the
participant's salary reductions.
(2) Mr. Huggins was a vice president of First Bank before becoming
acting chief executive officer in 1995. The information in
the table for 1995 includes compensation paid or accrued for
the full year.
</FN>
</TABLE>
FBI Security Ownership
The table below sets forth: (i) the name and address of each
shareholder known by FBI to be the beneficial owner of more than
five percent of the outstanding shares of FBI Common Stock as of
the Record Date; (ii) the number of shares so owned; (iii) the
percent of the total outstanding shares of FBI Common Stock so
owned; (iv) the name of each director of FBI (and all directors and
executive officers as a group); (v) the number of shares of FBI
Common Stock they beneficially owned as of the Record Date; and
(vi) the percent of the total outstanding shares of FBI Common
Stock so owned.
<TABLE>
PRINCIPAL SHAREHOLDERS
<CAPTION>
Name and Address Shares Owned(1) Percent Owned
<S> <C> <C>
Inez G. Whisenhunt 16,080(2) 6.70%
P. O. Box 157
Grove Hill, Alabama 36451
Vivian H. Gordon 12,360(2) 5.15%
P. O. Box 58
Grove Hill, Alabama 36451
</TABLE>
<TABLE>
DIRECTORS
<CAPTION>
Name Shares Owned(1) Percent Owned
<S> <C> <C>
Dan Barlow (Director and Executive Officer) 1,409 *
John Becton 3,400 1.42%
Linda Breedlove 600 *
John C. Gordon 11,883(3) 4.90%
Fred L. Huggins (Director and Executive Officer) 600(4) *
Bobby Leach 200 *
Ray Sheffield 3,900(5) 1.63%
Clarence Watters 1,800(6) *
Bruce Wilson 1,020 *
Ernest Woodson 900 *
</TABLE>
<TABLE>
EXECUTIVE OFFICERS
<CAPTION>
Name Shares Owned(1) Percent Owned
<S> <C> <C>
Robert Steen 140 *
TOTAL DIRECTORS AND EXECUTIVE OFFICERS 25,852 10.78%
<FN>
* Less than 1 percent.
(1) Based on information furnished by the respective individuals.
Under applicable regulations, shares are deemed to be
beneficially owned by a person if he directly or indirectly
has or shares the power to vote or to dispose or direct the
disposition of the shares, whether or not he has any economic
interest in the shares. Unless otherwise indicated, the named
beneficial owner has sole voting and dispositive power with
respect to the shares.
(2) John C. Gordon, a director of FBI, is the son of Vivian H.
Gordon and the nephew of Inez G. Whisenhunt, and he may be
deemed to have shared voting and dispositive power with
respect to these shares under powers of attorney.
(3) Includes 600 shares owned jointly with his spouse and 3,600
shares held by a cousin for whom he is conservator; does not
include 16,080 shares owned by Inez G. Whisenhunt or 12,360
shares owned by Vivian H. Gordon. See note (2).
(4) Includes 400 shares owned jointly with his spouse.
(5) Includes 3,300 shares owned jointly with his spouse.
(6) Includes 600 shares owned jointly with his spouse and 600
shares owned jointly with his son.
</FN>
</TABLE>
SUPERVISION, REGULATION, AND EFFECTS OF
GOVERNMENTAL POLICY
Bank holding companies and banks are extensively regulated
under both federal and state law. The following is a brief summary
of certain statutes, rules, and regulations affecting USB, FBI and
their respective subsidiaries. This summary is qualified in its
entirety by reference to the particular statutory and regulatory
provisions referred to below and is not intended to be an
exhaustive description of the statutes or regulations applicable to
the business of USB, FBI or their respective subsidiaries.
Supervision, regulation and examination of banking institutions by
the regulatory agencies are intended primarily for the protection
of depositors, rather than shareholders.
Bank Holding Company Regulation
USB and FBI are bank holding companies under the Bank Holding
Company Act of 1956 ("BHCA") and are registered with, and subject
to supervision by, the Federal Reserve. As bank holding companies,
USB and FBI are both required to file periodic reports and such
additional information as the Federal Reserve may require pursuant
to the BHCA. The Federal Reserve may also examine USB, FBI and
each of their respective subsidiaries.
The BHCA requires prior Federal Reserve approval for, among
other things, the acquisition by a bank holding company of direct
or indirect ownership or control of more than five percent of the
voting shares of substantially all of the assets of any bank, and
for a merger or consolidation of a bank holding company with
another bank holding company. With certain exceptions, the BHCA
prohibits a bank holding company from acquiring direct or indirect
ownership or control of any voting shares of any company which is
not a bank or bank holding company and from engaging directly or
indirectly in any activity other than banking or managing or
controlling banks or performing services for authorized
subsidiaries. A bank holding company may, however, engage in or
acquire an interest in a company that engages in activities which
the Federal Reserve has determined by order or regulation to be so
closely related to banking or managing or controlling banks as to
be properly incident thereto. Such permitted activities include
acting as fiduciary or investment or financial advisor, selling or
underwriting insurance coverage directly related to extensions of
credit, and the leasing of real and personal property.
Under Federal Reserve policy, USB and FBI are expected to act
as a source of financial strength to, and commit resources to
support, each of their respective subsidiary banks. This support
may be required at times when, absent such Federal Reserve policy,
USB and FBI would not be inclined to provide it. In addition, any
capital loans by a bank holding company to any of its subsidiary
banks are subordinate in right of payment to deposits and to
certain other indebtedness of such subsidiary bank. In the event
of a bank holding company's bankruptcy, any commitment by the bank
holding company to a federal bank regulatory agency to maintain the
capital of a subsidiary bank will be assumed by the bankruptcy
trustee and entitled to a priority of payment.
Under the Federal Deposit Insurance Act, as amended ("the
FDIA"), insured depository institutions can be held liable for any
loss incurred by, or reasonably expected to be incurred by, the
FDIC in connection with (i) the default of a commonly controlled
FDIC-insured depository institution or (ii) any assistance provided
by the FDIC to any commonly controlled FDIC-insured depository
institution "in danger of default." "Default" is defined generally
as the existence of certain conditions indicating that a default is
likely to occur in the absence of regulatory assistance.
The Federal Reserve has adopted capital adequacy guidelines
applicable to bank holding companies (see "Capital Adequacy"
below). Federal Reserve policy requires a bank holding company to
act as a source of financial strength to each of its bank
subsidiaries and to commit resources to support each of its
subsidiaries. Such policy also requires a bank holding company to
take measures to preserve and protect bank subsidiaries in
situations where additional investments in a troubled bank may not
otherwise be warranted. As a result, a bank holding company may be
required to lend money to its subsidiaries in the form of capital
notes or other instruments which qualify as capital for regulatory
purposes. In addition, where a bank holding company has more than
one subsidiary depository institution, the holding company's other
subsidiary depository institutions are responsible under a
cross-guarantee for any losses to the FDIC as a result of the
failure of a subsidiary depository institution. Often, bank
holding companies will obtain the funds to provide such companies'
subsidiary banks. However, any loans from the holding company to
such subsidiary banks will likely be unsecured and will be
subordinated to such banks' depositors and perhaps to other
creditors. (See "Recent Legislative and Regulatory Developments"
below.)
The FDIC is authorized to raise insurance premiums in certain
circumstances. Any increase in premiums would have an adverse
effect on USB's and FBI's earnings.
Under the FDIA, insurance of deposits may be terminated by the
FDIC upon a finding that an institution has engaged in unsafe and
unsound practices, is in an unsafe or unsound condition to continue
operations or has violated any applicable law, regulation, rule,
order or condition imposed by a federal bank's regulatory agency.
The Federal Reserve has the right to prevent the continuance
or development of unsafe or unsound banking practices or other
violations of law and to take certain remedial action. In
particular, the Federal Reserve has the power to order a holding
company or its subsidiaries to terminate any activity or terminate
its ownership or control of any subsidiary, despite prior approval
of such activity or such ownership or control, when it has
reasonable cause to believe that continuation of such activity or
such ownership or control constitutes a serious risk to the
financial safety, soundness or stability of any bank subsidiary of
that bank holding company.
In addition to the impact of regulation, commercial banks
generally are affected significantly by the actions of the Federal
Reserve in its attempt to control the money supply and credit
availability in order to influence the economy.
Bank Regulation
USB Bank, an Alabama banking corporation, is a wholly owned
subsidiary of USB, operating under the Alabama Banking Code. First
Bank, an Alabama banking corporation, is a wholly owned subsidiary
of FBI, operating under the Alabama Banking Code. USB Bank and
First Bank are subject to regulation, supervision and examination
by the Superintendent of Banks of the State of Alabama. In
addition, deposits of USB Bank and First Bank are insured by the
FDIC up to the maximum amount permitted by law, and USB Bank and
First Bank are therefore subject to regulation, supervision and
examination by the FDIC.
USB and FBI are legal entities separate and distinct from
their respective subsidiary banks. Various legal limitations
restrict the subsidiary banks from lending or otherwise supplying
funds to USB, FBI or any nonbank subsidiaries of USB or FBI (each
an "affiliate"), generally limiting such transactions with the
affiliate to 10% of the bank's capital and surplus and limiting all
such transactions to 20% of the bank's capital and surplus. Such
transactions, including extensions of credit, sales of securities
or assets and provision of services, also must be on terms and
conditions consistent with safe and sound banking practices,
including credit standards, that are substantially the same or at
least as favorable to the bank as those prevailing at the time for
transactions with unaffiliated companies.
Federal and state banking laws and regulations govern all
areas of the operation of USB's and FBI's respective subsidiary
banks, including reserves, loans, mortgages, capital, issuance of
securities, payment of dividends and establishment of branches.
Federal and state bank regulatory agencies also have the general
authority to limit the dividends paid by insured banks and bank
holding companies if such payments should be deemed to constitute
an unsafe and unsound practice. The respective primary federal
regulators of USB's and FBI's respective subsidiary banks have
authority to impose penalties, initiate civil and administrative
actions and take other steps intended to prevent the banks from
engaging in unsafe or unsound practices.
Federally insured banks are subject, with certain exceptions,
to certain restrictions on extensions of credit to their parent
holding companies or other affiliates, on investments in the stock
or other securities of affiliates and on the taking of such stock
or securities as collateral from any borrower. In addition, such
banks are prohibited from engaging in certain tie-in arrangements
in connection with any extension of credit or the providing of any
property or service.
Banks are also subject to the Community Reinvestment Act of
1977, which requires the appropriate federal bank regulatory
agency, in connection with its regular examination of a bank, to
assess the bank's record in meeting the credit needs of the
community serviced by the bank, including low and moderate income
neighborhoods. The regulatory agency's assessment of the bank's
record is made available to the public. Further, such assessment
is required of any bank which has applied, among other things, to
establish a new branch office that will accept deposits, relocate
an existing office or merge or consolidate with, or acquire the
assets or assume the liabilities of, a federally regulated
financial institution.
Dividends from its subsidiary banks constitute the major
source of funds for dividends to be paid by USB and FBI. The
amount of dividends payable by the subsidiary banks to USB and FBI
depends upon the banks' earnings and capital position, and is
limited by federal and state laws, regulations and policies. In
the case of state non-member bank subsidiaries, such banks are
subject to the laws of the states under which such banks are
chartered. At December 31, 1996, USB Bank had $8,193,418 of
undivided profits legally available for the payment of dividends
and First Bank had $4,943,000 of undivided profits legally
available for payment of dividends. However, the amount of
dividends actually paid during any one period is strongly affected
by USB's and FBI's management policy of maintaining strong capital
positions in USB's and FBI's respective subsidiary banks. Federal
law further 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 should be deemed to constitute an unsafe and unsound
practice.
Under Alabama law, a bank must transfer to surplus each year
at least 10% of its net earnings until the surplus of the bank is
equal to at least 20% of its capital. During this accumulation
period, a bank may not pay a dividend in excess of 90% of its net
earnings. (As of September 30, 1996, USB Bank and First Bank had
each accumulated a surplus equal to at least 20% of capital.)
After this accumulation period, banks must obtain prior written
approval of the Superintendent of the Alabama State Banking
Department if the total of all dividends declared by the bank in
any calendar year will exceed the total of the bank's net earnings
(as defined by statute) for that year combined with its retained
net earnings for the preceding two years, less any required
transfers to surplus. Also, no dividends may be paid from surplus
without the prior written approval of the superintendent.
Furthermore, if, in the opinion of the appropriate federal
bank regulatory authority, a bank under its jurisdiction is engaged
in or is about to engage in an unsafe or unsound practice (which,
depending on the financial condition of the bank, could include the
payment of dividends), such authority may require, after notice and
hearing, that such bank cease and desist from such practice. The
Federal Reserve has indicated that paying dividends that deplete a
bank's capital base to an inadequate level would be an unsafe and
unsound banking practice. In addition, under the FDIA, an insured
bank may not pay any dividend if it is undercapitalized or if
payment would cause it to become undercapitalized. Moreover, the
Federal Reserve has issued a policy statement that provides that
bank holding companies and state member banks should generally only
pay dividends out of current operating earnings.
Capital Adequacy
USB, FBI and their respective subsidiary banks are required to
comply with the applicable capital adequacy standards established
by the FDIC. Currently, there are two basic measures of capital
adequacy: a "risk-based" measure and a "leverage" measure. All
applicable capital standards must be satisfied for an institution
to be considered in compliance.
The capital-based prompt correction action provisions of the
FDIA and the implementing regulations apply to FDIC-insured
depository institutions and are not directly applicable to holding
companies that control such institutions. However, the Federal
Reserve has indicated that, in regulating bank holding companies,
it will take appropriate action at the holding company level based
on an assessment of the effectiveness of supervisory actions
imposed upon subsidiary depository institutions pursuant to such
provisions and regulations. Although the capital categories
defined under the prompt corrective action regulations are not
directly applicable to USB or FBI under existing law and
regulations, if USB or FBI were placed in a capital category, then
USB or FBI would qualify as well-capitalized as of December 31,
1996.
The risk-based capital standards are designed to make
regulatory capital requirements more sensitive to differences in
risk profile among banks and bank holding companies, to account for
off-balance sheet exposure and to minimize disincentives for
holding liquid assets. Assets and off-balance sheet items are
assigned to broad risk categories, each with appropriate weights.
The resulting capital ratios represent capital as a percentage of
total risk-weighted assets and off-balance sheet items.
The minimum standard for the ratio of capital to risk-weighted
assets (including certain off-balance sheet obligations, such as
standby letters of credit) is 8%. At least 50% of that capital
level must consist of common equity, retained earnings and, within
limitations, perpetual preferred stock, less goodwill and certain
other intangibles ("Tier 1 capital"). The remainder ("Tier 2
capital") may consist of a limited amount of other preferred stock,
mandatory convertible securities, subordinated debt and a limited
amount of loan loss reserves. The sum of Tier 1 capital and Tier
2 capital is "total risk-based capital." The Federal Reserve and
the FDIC have proposed to add an interest rate risk component to
their existing risk-based capital requirements.
In 1992, the Federal Reserve issued an interpretive release
with respect to the classification by bank holding companies of
certain subordinated debt as Tier 2 capital. Previously issued
subordinated debt that does not meet all of the requirements set
forth in the release will be considered on a case-by-case basis to
determine whether such debt qualifies as Tier 2 capital. The
release states that as a general rule, previously issued debt may
qualify as Tier 2 capital as long as the non-qualifying provisions
of such debt: (i) have been commonly used by banking
organizations; (ii) do not provide an unreasonably high degree of
protection to the holder in cases not involving bankruptcy or
receivership; and (iii) do not effectively allow the holder to
stand ahead of the general creditors of the financial institution
in cases of bankruptcy or receivership.
The Federal Reserve and the FDIC also have adopted regulations
which supplement the risk-based guidelines to include a minimum
leverage ratio of 3% Tier 1 capital to total assets less goodwill
(the "leverage ratio"). Such agencies have emphasized that the 3%
leverage ratio constitutes a minimum requirement for well-run
banking organizations having diversified risk including no undue
interest rate risk exposure, excellent asset quality, high
liquidity, good earnings and a composite regulatory rating of 1
under the regulatory rating system for banks. Banking
organizations experiencing or anticipating significant growth, as
well as those organizations which do not satisfy the criteria
described above, will be required to maintain a minimum leverage
ratio ranging generally from 4% to 5%.
Bank regulators continue to indicate their desire to raise
capital requirements applicable to the banking industry beyond
current levels. However, neither USB nor FBI is able to predict
whether or when higher capital requirements might be imposed.
Any institution which fails to maintain minimum capital
requirements may be subject to a capital directive which is
enforceable in the same manner and to the same extent as a final
cease and desist order, and must submit a capital plan within 60
days to the FDIC. If the leverage ratio should fall to 2% or less,
the institution may be deemed to be operating in an unsafe or
unsound condition, allowing the FDIC to take various enforcement
actions, including possible termination of insurance or placing the
institution into receivership.
The following tables present the regulatory capital position
at September 30, 1996, for each of USB, USB Bank, FBI and First
Bank:
<TABLE>
<CAPTION>
(Dollars in Thousands)
USB USB Bank FBI First Bank
<S> <C> <C> <C> <C>
Tier I Capital--
Common shareholders' equity $28,826 $28,773 $18,790 $20,234
Disallowed portion (3,265) (3,265) (3,659) (2,384)
Tier I Capital 25,561 25,508 15,131 17,850
Tier II Capital--
Allowable portion of the
allowance for loan losses 1,191 1,191 1,762 1,767
Total Capital (Tier I and Tier II) 26,752 26,699 16,893 19,617
Risk-adjusted assets 124,414 124,369 140,944 143,247
Quarterly average assets 220,392 220,392 186,963 188,238
Tier I capital 20.55% 20.51% 10.76% 12.48%
Tier II capital 21.50% 21.47% 12.02% 13.71%
Leverage Ratio 11.60% 11.57% 8.10% 9.48%
</TABLE>
The FDIC has adopted regulations under the FDIA governing the
receipt of brokered deposits. Under the regulations, an
FDIC-insured depository institution cannot accept, roll over or
renew brokered deposits unless (i) it is well capitalized or (ii)
it is adequately capitalized and received a waiver from the FDIC.
A depository institution that cannot receive brokered deposits also
cannot offer "pass-through" insurance on certain employee benefit
accounts. Whether or not it has obtained such a waiver, a
depository institution that is not well-capitalized may not pay an
interest rate on any deposits in excess of 75 basis points over
certain prevailing market rates specified by regulation. There are
no such restrictions on a depository institution that is well
capitalized. Because USB Bank and First Bank were well capitalized
as of December 31, 1996, USB and FBI believe that brokered deposits
regulation will have no material effect on the funding liquidity of
USB Bank and First Bank.
Recent Legislative and Regulatory Developments
With the enactment of the Financial Institutions Reform,
Recovery and Enforcement Act of 1989 ("FIRREA") and the Federal
Deposit Insurance Corporation Improvement Act of 1991 ("FDICIA"),
Congress enacted comprehensive legislation affecting the commercial
banking and thrift industries. FIRREA, among other things,
abolished the Federal Savings and Loan Insurance Corporation and
established two new insurance funds under the jurisdiction of the
FDIC: BIF, which insures most commercial banks, and the Savings
Association Insurance Fund, which insures most thrift institutions.
In addition to effecting far-reaching restructuring of the thrift
industry, FIRREA provided for a phased-in increase in the rate of
annual insurance assessments paid by insured depository
institutions. FDICIA provided increased funding for the BIF and
expanded regulation of depository institutions and their
affiliates, including parent holding companies. A significant
portion of the additional BIF funding has been in the form of
borrowings to be repaid by insurance premiums assessed on BIF
members. These premium increases were in addition to the increase
in deposit premiums made during 1991. FDICIA provides for an
increase in the BIF's ratio of reserves to insured deposits to
1.25% within the next 15 years, which was attained within the past
year, resulting in a reduction in current premiums. The result of
these provisions could be a significant increase in the assessment
rate on deposits of BIF members over the next 15 years. FDICIA
provides authority for special assessments against insured deposits
and for the development of a system of assessing deposit insurance
premiums based upon the institution's risk.
In September 1992, the FDIC adopted a new transitional
risk-based premium schedule which increases the assessment rates
for depository institutions. Each financial institution is
assigned to one of three capital groups--well-capitalized,
adequately capitalized or undercapitalized, as defined in the
regulations implementing the prompt corrective action provisions of
FDICIA described below--and further assigned to one of three
subgroups within a capital group on the basis of supervisory
evaluation by the institution's primary federal and, if applicable,
state supervisors and other information relevant to the
institution's financial condition and the risk posed to the
applicable insurance fund. The actual assessment rate applicable
to a particular institution depends upon the risk assessment
classification so assigned to the institution by the FDIC.
Among other things, FDICIA requires the federal banking
agencies to take "prompt corrective action" in respect of banks
that do not meet minimum capital requirements. The five capital
tiers established by the FDICIA and the banking regulators' minimum
requirements for each are summarized as follows:
<TABLE>
<CAPTION>
Total Risk-Based Tier I Risk Based Leverage
Capital Ratio Capital Ratio Ratio
<S> <C> <C> <C>
Well capitalized 10% or above 6% or above 5% or above
Adequately capitalized 8% or above 4% or above 4% or above
Undercapitalized Less than 8% Less than 4% Less than 4%
Significantly undercapitalized Less than 6% Less than 3% Less than 3%
Critically undercapitalized 2% or less
</TABLE>
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 should fail to meet regulatory
capital requirements, 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 Federal Reserve and the other
federal depository institution regulatory agencies have recently
adopted regulations to implement the FDICIA "prompt corrective
action" requirements. Under FDICIA, a bank holding company must
guarantee that a subsidiary bank will meet its capital restoration
plan, subject to certain limitations. 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 should fail to fulfill its obligations 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.
Undercapitalized depository institutions may be subject to
growth limitations and are required to submit a capital restoration
plan. The federal banking agencies may not accept a capital plan
without determining, among other things, that the plan is based on
realistic assumptions, is likely to succeed in restoring the
depository institution's capital and is guaranteed by the parent
holding company. If a depository institution should fail to submit
an acceptable plan, it will be treated as if it were significantly
undercapitalized.
Significantly undercapitalized depository institutions may be
subject to a number of requirements and restrictions, including
orders to sell sufficient voting stock to become adequately
capitalized and requirements to reduce total assets and to cease
receiving deposits from correspondent banks. Critically
undercapitalized institutions are subject to appointment of a
receiver or conservator. An institution that is not well
capitalized is generally prohibited from accepting brokered
deposits and offering interest rates on deposits higher than the
prevailing rate in its market. In addition, "pass-through"
insurance coverage may not be available for certain employee
benefit accounts.
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 imposes new restrictions upon 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.
FDICIA contains numerous other provisions, including new
reporting requirements, termination of the "too big to fail"
doctrine except in special clearly-defined 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.
FDICIA provides that, in the event of the "liquidation or
other resolution" of an insured depository institution, the claims
of depositors of such institution (including claims by the FDIC as
receiver) would be afforded a priority over other general unsecured
claims against the institution. If an insured depository
institution fails, insured and uninsured depositors, along with the
FDIC, will be placed ahead of unsecured, nondeposit creditors,
including a parent holding company such as USB or FBI, in order of
priority of payment.
Effects of Governmental Policies
Many FDICIA provisions did not become effective until December
1992. In addition, many provisions will be implemented through
adoption of regulations that have been or will be proposed by the
various federal banking agencies. Accordingly, the full effect on
USB, FBI and their respective subsidiary banks cannot be assessed
at this time.
Because of concerns relating to the competitiveness and the
safety and soundness of the industry, the Congress is considering,
even after the enactment of FIRREA and FDICIA, a number of
wide-ranging proposals for altering the structure, regulation and
competitive relationships of the nation's financial institutions.
Among such bills are proposals to prohibit banks and bank holding
companies from conducting certain types of activities, to subject
banks to increased disclosure and reporting requirements, to alter
the statutory separation of commercial and investment banking and
to further expand the powers of banks, bank holding companies and
competitors of banks. It cannot be predicted whether or in what
form any of these proposals will be adopted or the extent to which
the business of USB, FBI or their respective subsidiaries may be
affected thereby.
The Riegle-Neal Interstate Banking and Branching Efficiency
Act of 1994 (the "IBBEA") authorized interstate acquisitions of
banks and bank holding companies without geographic limitations
beginning September 29, 1995. In addition, beginning June 1, 1997,
the IBBEA authorizes a bank to merge with a bank in another state
as long as neither of the states has opted out of interstate
branching by May 31, 1997. A bank may establish and operate a de
novo branch in a state in which the bank does not maintain a branch
if that state expressly permits de novo branching. Once a bank has
established branches in a state through an interstate merger
transaction, the bank may establish and acquire additional branches
at any location in the state where any bank involved in the
interstate merger transaction could have established or acquired
branches under applicable Federal or state law. A bank that has
established a branch in a state through de novo branching may
establish and acquire additional branches in such state in the same
manner and to the same extent as a bank having a branch in such
state as a result of an interstate merger. If a state opts out of
interstate branching within the specific time period, no bank in
any other state may establish a branch in the opting out state,
whether through an acquisition or de novo. The State of Alabama
has opted in with respect to interstate branching effective on or
before June 1, 1997.
USB VOTING SECURITIES AND PRINCIPAL SHAREHOLDERS
As of February 18, 1997, USB had issued 2,202,060 shares of
common stock, of which 2,137,960 were outstanding, with
approximately 575 holders of record. USB also holds 64,100 shares
as treasury stock. There are currently 2,400,000 shares of Common
Stock, par value $.01 per share, authorized for issuance.
Principal Shareholders
No shareholder is the beneficial owner of more than 5% of USB
Common Stock.
Security Ownership of Management
The following table indicates for each director the number of
shares of outstanding Common Stock of USB beneficially owned.
Number and Percent of
Shares of Common Stock
Name Owned at February 18, 1997
Gerald P. Corgill 84,080(1)
3.93%
Roy G. Cowan, D.M.D. 23,624
1.10%
William G. Harrison 28,175(2)
1.32%
Hardie B. Kimbrough 14,135(3)
*
James L. Miller 14,080
*
D. C. Nichols 85,000(4)
3.98%
Harold H. Spinks 23,728(5)
1.11%
James C. Stanley, D.M.D. 4,000
*
Jack M. Wainwright, III 17,600(6)
*
Howard M. Whitted 3,696
*
All directors and executive officers
as a group (13 persons,
including the persons named above) 300,806
14.07%
* Represents less than one percent of the outstanding shares.
1 Includes 60,984 shares owned by Mr. Corgill's spouse or
by Mr. Corgill's children. Mr. Corgill disclaims beneficial
ownership of such 60,984 shares. Also includes 2,144 shares owned
by Dozier Hardware Company, of which Mr. Corgill is President.
Also includes 3,620 shares owned by Dozier Hardware Profit Sharing
Plan & Trust.
2 Includes 264 shares with respect to which Mr. Harrison
shares voting and investment power.
3 Includes 140 shares with respect to which Mr. Kimbrough
shares voting and investment power. Also includes 352 shares owned
by Mr. Kimbrough's spouse with respect to which Mr. Kimbrough
disclaims beneficial ownership.
4 Includes 39,376 shares owned by Nichols Trucking
Company, of which Mr. Nichols is President.
5 Includes 8,652 shares owned by Mr. Spinks' spouse with
respect to which Mr. Spinks disclaims beneficial ownership, and
6,424 shares owned by H. I. Spinks, Inc., of which Mr. Spinks is
President.
6 Includes 14,080 shares with respect to which Mr.
Wainwright shares voting and investment power.
ELECTION OF USB DIRECTORS
Regardless of whether or not the Merger is approved and the
USB Board of Directors is increased to 19 members or remains a 10
member board, USB recommends that the shareholders elect the 10
persons named below to hold office until the 1998 annual meeting of
shareholders of USB or until their successors are elected and
qualified. All director-nominees are proposed for election for a
term of one year. It is intended that unless "Withhold Authority"
is noted as to all or some of the nominees, proxies in the
accompanying form will be voted at the USB Meeting for the election
to the Board of Directors of the 10 nominees.
If, prior to the voting at the USB Meeting, any person to be
elected a director is unable to serve or for good cause cannot
serve, the shares represented by all valid proxies electing such
person may be voted for the election of such substitute as the
members of the USB Board of Directors may recommend. USB
management knows of no reason why any person would be unable to
serve as a director.
The following table provides certain biographical information
about the persons who have been nominated for election as directors
of USB. All of such persons are currently directors of USB and USB
Bank. USB, as the sole shareholder of USB Bank, intends to reelect
such persons as directors of USB Bank. Unless otherwise indicated
in the following table, all positions held with USB are also held
with USB Bank. Information regarding the executive officers of USB
and USB Bank who are not directors is also provided.
<TABLE>
<CAPTION>
Name, Age and Year
First Became Director Position With Principal Occupation
or Executive Officer USB and USB Bank Last Five Years
<S> <C> <C>
Gerald P. Corgill Director President of Dozier Hardware
55, 1985 Company (hardware and
building supply firm)
Roy G. Cowan, D.M.D. Director Dentist (Retired)
63, 1990
William G. Harrison Director Insurance Agent &
50, 1976 President, Bedsole Dry
Goods, Inc. (retail
department stores) (Retired)
Hardie B. Kimbrough Director Attorney; Retired Presiding
59, 1986 Judge, First Judicial Circuit
of the State of Alabama
James L. Miller Chairman of the Senior Vice President,
67, 1985 Board of Directors Finance, Administration
and Director and Planning, MacMillan
Bloedel Packaging Inc.
(forest products and container
board manufacturer) (Retired)
D. C. Nichols Vice Chairman of the President, Nichols
69, 1974 Board of Directors Trucking Company (Retired)
and Director
Harold H. Spinks Director Pharmacist and President,
69, 1979 Spinks Drug Company,
retired (retail pharmacy)
James C. Stanley, D.M.D. Director Dentist
60, 1978
Howard M. Whitted Director Industrial Forester,
52, 1985 MacMillan Bloedel Packaging
Inc. (forest products and
container board manufacturer)
Jack M. Wainwright, III President, Chief President and Chief
52, 1986 Executive Officer, Executive Officer of USB Bank
and Director and USB since November 1986
EXECUTIVE OFFICERS WHO
ARE NOT ALSO DIRECTORS
Larry M. Sellers Secretary/Treasurer Secretary/Treasurer of USB
48, 1984 of USB since 1987 Senior Executive Vice
and Senior Executive President and Chief
Vice President and Administrative Officer of
Chief Administrative USB Bank since 1984
Officer of USB Bank
William D. Morgan Assistant Secretary Executive Vice President of
48, 1990 of USB and Executive USB Bank
Vice President of
USB Bank
Rosemary R. Ingram Senior Vice President Senior Vice President of
55, 1984 USB Bank USB Bank
</TABLE>
Leslie E. Pope has served since 1985 as a Director Emeritus of
USB and USB Bank. B. A. Cogle has served since 1989 as a Director
Emeritus of USB and USB Bank. Clyde P. Mahaffey has served since
1990 as a Director Emeritus of USB and USB Bank. L. C. Boney has
served since 1996 as a Director Emeritus of USB and USB Bank.
Directors Emeritus serve in an advisory capacity to the Boards of
Directors of USB and USB Bank and do not vote as members of those
Boards. Directors Emeritus receive fees customarily paid to
members of the Board of Directors of USB Bank.
The Boards of Directors of USB and USB Bank conduct their
business through meetings of the boards and through their
committees. During 1996, the Board of Directors of USB met
fourteen times and the Board of USB Bank met twelve times. In
1996, each director attended at least 75% of the meetings of the
Board of Directors.
There is no nominating committee or other committee performing
similar functions of the Board of Directors of USB Bank. USB
Bank's Board has an audit committee which functions to ensure that
the Bank's and USB's financial statements present fairly the
condition of the Bank and USB, to determine that adequate
accounting and operational controls are in place to protect USB
Bank's and USB's assets, to report to the Board of Directors of the
Bank any of its findings, and to ensure that the affairs of the
Bank and USB are being conducted in accordance with policy and
regulatory and legal requirements. The members of the audit
committee are Hardie B. Kimbrough, Chairman, James C. Stanley, and
Roy G. Cowan. During 1996, the audit committee met five times.
USB Bank's Board has a compensation committee which reviews
officers' salaries, benefits, incentive programs and other items of
compensation. The members of the compensation committee are Howard
Whitted, Chairman, James L. Miller, and Gerald P. Corgill. Jack M.
Wainwright, III and Larry M. Sellers serve in a non-voting
ex-officio capacity. The compensation committee met two times in
1996.
The policy of USB is that the directors of USB receive no fees
for service as directors. All directors of USB also serve as
directors of USB Bank and receive a fee of $450 per regular board
meeting of USB Bank, with the exception of the Chairman of the
Board who receives $900 per regular board meeting. Members of
committees of USB Bank receive fees of $90 per meeting, except
members of the Officers' Loan Committee, who receive $450 per
month.
USB COMPLIANCE WITH SECTION 16(a) OF
THE SECURITIES EXCHANGE ACT OF 1934
Section16(a) of the Securities Exchange Act of 1934 requires
the directors and executive officers of USB, and persons who own
more than 10% of a registered class of USB's equity securities, to
file with the Securities and Exchange Commission ("SEC") the
initial reports of ownership and reports of changes in ownership of
common stock of USB. Officers, directors and greater than 10%
shareholders are required by SEC regulations to furnish USB with
copies of all Section16(a) forms they file.
To USB's knowledge, based solely on review of the copies of
such reports furnished to USB and written representations that no
other reports were required, during the fiscal year ended
December31, 1996, all Section16(a) filing requirements applicable
to its officers, directors and greater than 10% beneficial owners
were met.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS OF USB
Certain directors and officers of USB and USB Bank and their
associates were customers of, and had transactions with, USB Bank
in the ordinary course of business since the beginning of the last
fiscal year, and additional transactions may be expected to take
place in the ordinary course of business. Included in such
transactions are outstanding loans, all of which were made on
substantially the same terms, including interest rates and
collateral, as those prevailing at the time for comparable
transactions with other persons and did not involve more than the
normal risks of collectibility or present other unfavorable
features.
USB COMPENSATION COMMITTEE REPORT
This report is provided by the Compensation Committee of the
USB Bank Board of Directors (the "Committee") to assist
stockholders in understanding the Committee's objectives and
procedures in establishing the compensation of USB Bank's Chief
Executive Officer and other senior executives.
The Committee consists of three outside directors and also
includes the chief executive officer and senior executive officer
who serve in a non-voting ex officio capacity. The committee is
responsible for establishing and administering USB's and USB Bank's
executive compensation program.
The Committee has been provided with competitive pay and
performance information by outside sources. USB Bank's staff
provided additional analysis that was used by the Committee. In
structuring the incentive programs, the Committee has been advised
by external legal counsel, as well as USB Bank's staff, on plan
design.
Compensation Philosophy and Objective
The Committee believes that compensation of USB's or USB
Bank's key executives should:
- link rewards to business results and stockholders'
returns,
- encourage creation of stockholders' value and
achievement of strategic objectives,
- maintain an appropriate balance between salary and
incentive opportunity,
- attract and retain, on a long-term basis, high
caliber personnel,
- provide total compensation opportunity that is
competitive with the banking industry, taking into
account relative company size and performance as
well as individual responsibilities and
performance, and
- continue to provide compensation that is tax
deductible.
Key Elements of Executive Compensation
USB's and USB Bank's existing executive compensation program
consists of two elements: Base Pay and Incentives. Payment of the
incentive depends on performance measured against annual objectives
as described below.
Base Pay
- Salary structures are targeted to average pay levels of
other regional banks of similar size and structure.
Individual base pay within the structures is based on
sustained individual performance toward achieving USB's
goals and objectives.
- Executive salaries are reviewed annually.
Incentive
- The incentive plan is an annual cash incentive plan which
links incentives to performance results of the prior
year. Awards are based on three components: corporate
results, bank operating results and individual
performance.
- Operating and financial targets are set at the beginning
of each year. Targets include a variety of elements such
as: loan growth, expense control, income generation,
return on average equity (ROAE), and loan portfolio
performance. Results are measured against annual
business plan objectives and against industry standards.
- Actual individual incentives depend on assessments of
individual success in meeting targets.
1996 CEO Compensation
In assessing the performance and establishing the base salary
and incentive compensation of the Chief Executive Officer and other
members of USB's or USB Bank's senior management, the Committee
paid particular attention to management's sustained success in
operating USB Bank.
The 1996 base salary of USB Bank's Chief Executive Officer was
set without his participation. In setting the Chief Executive
Officer's base salary, special consideration was given to USB
Bank's superior earnings record since his appointment. Earnings
have increased every year for the past eight years. Consideration
was also given to his personal job performance, expectations of his
anticipated contributions to USB Bank's future and his rights under
his three-year employment agreement dated November 1, 1994,
described herein.
The 1996 incentive compensation for the Chief Executive
Officer was based on the same goals and criteria as the incentive
for all bank loan officers. All employees earned a cash incentive
based on a return on average asset goal of two percent and a return
on average equity goal of fifteen percent. All loan officers were
given additional financial incentives based on the performance of
the loan portfolio they administer and the Chief Executive Officer
participated in this incentive program. For example: the Chief
Executive Officer was awarded a cash incentive for achieving a
growth rate of greater than 12.0% in his loan portfolio, and for
his success in reducing the charge-off loans in his portfolio to
less than .05%. However, since his portfolio had a delinquency
rate of greater than 2.0%, his total cash incentive was reduced.
The Committee's base salary and incentive recommendation for the
Chief Executive Officer was reviewed and approved by the full Board
of Directors.
Based on recommendations to the Committee from the Chief
Executive Officer, the 1996 base salaries for the other executive
officers were set by the Committee, using the same review process
as applied when establishing the chief executive's base salary.
The Committee reviewed their individual recommendations regarding
each named executive officer with the Board of Directors and
secured full board approval.
Other Executive Compensation
USB Bank provides programs to executives that are also
available to other employees including The United Security
Bancshares, Inc. Employee Stock Ownership Plan and health
insurance. USB Bank provides no pension programs.
This report furnished by:
Howard M. Whitted (Chairman)
James L. Miller
Gerald P. Corgill
Comparative Stock Performance
The following graph compares cumulative total shareholder
returns on USB Common Stock for the five years ended December 31,
1996, with that of The Standard and Poor's Composite Index ("S&P
500") and a peer group stock performance index defined as follows:
21 independent community banks located in the Southeast United
States (the "Independent Bank Index"). The graph shows the
comparative values for $100 invested on December 31, 1990.
INSERT CHART
USB COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
No executive officer-company director interlocks existed for
1996. During 1996, Jack M. Wainwright III, President and Chief
Executive Officer, and Larry M. Sellers, Senior Executive
Vice-President, were ex officio non-voting members of the
compensation committee. They participated only in compensation
recommendations, discussions and decisions involving officers other
than themselves.
USB EXECUTIVE COMPENSATION BENEFITS
The following table indicates all compensation paid by USB or
USB Bank for services rendered to USB or USB Bank during 1996 by
Jack M. Wainwright, III and Larry M. Sellers, the only executive
officers whose total cash compensation exceeded $100,000.
<TABLE>
USB SUMMARY COMPENSATION TABLE
<CAPTION>
Name/Title Year Salary Bonus(1) Other(2)
<S> <C> <C> <C> <C>
Jack M. Wainwright, III 1996 $151,915.68 $53,550.28 $16,634.54
President and Chief 1995 137,550.00 48,148.75 17,036.38
Executive Officer of 1994 131,923.00 41,225.94 17,070.15
USB and USB Bank
Larry M. Sellers 1996 $ 83,730.96 $30,143.15 $11,654.12
Secretary/Treasurer of USB 1995 79,736.43 29,901.16 9,432.05
and Executive Vice 1994 75,884.46 24,852.16 9,654.92
President and Chief
Administrative Officer of
USB Bank
<FN>
(1) Bonuses are earned solely through the incentive compensation
program based on (i) a return on average asset goal of two percent;
(ii) a return on average equity goal of fifteen percent; and (iii)
financial incentives based on the performance of the loan portfolio
administered by the named officer.
(2) The totals in this column reflect USB Bank contributions under
The United Security Bancshares, Inc. Employee Stock Ownership Plan
and other perquisites.
</FN>
</TABLE>
USB entered into an employment agreement on November 1, 1994,
with Jack M. Wainwright, III, President and Chief Executive
Officer, which provides, among other things, that Mr. Wainwright
will be employed for a period of three years as President and Chief
Executive Officer of USB Bank and that he would receive a minimum
salary of $131,000 in 1995, with minimum annual salary increases
until the expiration of such contract in 1997. Mr. Wainwright's
employment agreement also provides that he is entitled to receive
severance compensation in an amount equal to three times his
average annual salary for the period of the contract if he is
terminated for any reason other than his death or disability, his
resignation, his conviction of a crime of moral turpitude, or the
expiration of his agreement. Also, Mr. Wainwright will be entitled
to such severance compensation upon any reduction in the level or
a change in nature of his responsibilities to USB or USB Bank. If
the Merger is approved and consummated, this Employment Agreement
will be replaced with the one discussed above in "THE
MERGER--Interests of Certain Persons in the Merger."
USB'S RELATIONSHIP WITH INDEPENDENT PUBLIC ACCOUNTANTS
At its meeting on April 16, 1996, the Board of Directors of
USB, upon recommendation of the Audit Committee of the USB Bank
Board of Directors, approved the engagement of the accounting firm
of Smith, Dukes & Buckalew as the independent public accountants to
audit USB's financial statements for the year ending December31,
1996. Representatives of Smith, Dukes & Buckalew are expected to
be present at the USB Meeting, with the opportunity to make a
statement if they desire to do so, and are expected to be available
to respond to appropriate questions.
The Board of Directors of USB has not yet selected its
principal independent public accountants for the current year. If
the Merger is approved, the Audit Committees of USB and FBI will be
combined to form the post-Merger Audit Committee of USB, which will
then consider proposals and make a recommendation to the Board of
Directors regarding the independent public accountants for the
current year. If the Merger is not approved, the USB Audit
Committee will consider and recommend the independent public
accountants.
PROPOSALS OF USB SHAREHOLDERS
Subject to certain rules of the Securities and Exchange
Commission, proposals by shareholders intended to be presented at
USB's 1998 annual meeting of shareholders must be received at USB's
principal executive office not less than 120 days in advance of May
____, 1998 for inclusion in the proxy or information statement
relating to the 1998 annual meeting.
PROPOSED AMENDMENT TO THE USB RESTATED ARTICLES OF
INCORPORATION REQUIRING A TWO-THIRDS SUPERMAJORITY
VOTE OF THE BOARD OF DIRECTORS TO APPROVE
CERTAIN CORPORATE ACTIONS
The primary purpose for the following proposed amendment to
the Restated Articles of Incorporation of USB is to ensure that
directors from FBI and USB have an adequate voice in major
corporate decisions after the Merger. As described under "THE
MERGER--Background of and Reasons for the Merger" and "--Opinions
of Financial Advisors," the Boards of Directors of FBI and USB
consider the Merger to be a "merger of equals." For a period of
time after the Merger, USB directors will constitute a majority of
the Board of Directors of the surviving corporation -- 10 of the 19
directors. There may also be times in the future when, due to
resignations or other vacancies, former FBI directors constitute a
majority of the Board of Directors of the surviving corporation.
In the process of negotiating the Merger Agreement, FBI's and USB's
respective Boards of Directors agreed that a majority vote to
approve certain major corporate decisions would not ensure that
such decisions reflect the "merger of equals" nature of the Merger.
For various reasons, however, the proposed amendment may not
always be in the best interests of USB or its shareholders. These
reasons include the fact that, if approved, the proposed amendment
(i) makes it difficult to remove senior management even if removal
would be in the best interest of USB and its shareholders; and (ii)
makes it more difficult for shareholders to approve certain
transactions which are not approved by at least two-thirds of the
Board, even if the transactions would be beneficial to USB.
Moreover, if this proposal is approved, the Board, even if its
aggregate share ownership is less than 50%, may be able effectively
to prevent the actions described in the proposed ARTICLE TENTH (the
"Supermajority Actions") by not approving of the proposed
transaction by the affirmative vote of at least two-thirds of the
Board.
The overall effect of this proposed amendment is to render
more difficult the accomplishment of Supermajority Actions.
The USB Board is not aware of any present or proposed future
Supermajority Actions. The USB Board believes, however, that it is
appropriate to act upon the following proposed amendments at the
USB Meeting, when such proposed amendment can be carefully
considered. Approval of the proposed supermajority amendment is a
condition to consummation of the Merger, and failure to approve
this amendment will, unless waived by the Boards of Directors of
both USB and FBI, preclude consummation of the Merger.
Proposed ARTICLE TENTH, which follows, would require an
affirmative vote of two-thirds of the directors of USB for the
approval or authorization of a Supermajority Action. With certain
exceptions, Alabama law currently requires a majority of the
directors of USB to approve such actions.
Proposed ARTICLE TENTH
TENTH: Notwithstanding anything to the contrary in
these Articles of Incorporation, the corporation's Bylaws
or elsewhere, the affirmative vote of two-thirds (2/3) of
the total number of directors is required to approve the
following: (1) any tender offer or exchange offer or any
proposal for a merger made to the corporation; (2) the
sale of all the stock or assets of, or a business
combination involving the corporation or any of its
subsidiaries; (3) the sale of a substantial equity
interest in, or a substantial portion of the assets of
the corporation or any of its subsidiaries, including a
plan of liquidation of the corporation or any of its
subsidiaries; or (4) the addition or removal of any
person with significant influence over major policymaking
decisions of the corporation, including, but not limited
to, those persons who, without regard to title, exercise
the authority of one or more of the following positions:
chief executive officer, president, chief operating
officer, chief financial officer, chief lending officer,
or chief investment officer.
In addition, the proposed amendment which, if approved, would
result in the increase of USB's authorized Common Stock may also
have anti-takeover consequences. See "Proposed Amendment to USB
Restated Articles of Incorporation to Increase Number of Authorized
Shares of Common Stock."
PROPOSED AMENDMENT TO THE USB RESTATED ARTICLES
OF INCORPORATION TO INCREASE NUMBER OF
AUTHORIZED SHARES OF COMMON STOCK
USB's Restated Articles of Incorporation currently authorize
the issuance of a total of 2,400,000 shares of USB Common Stock par
value $.01 per share. Of such 2,400,000 presently authorized
shares of USB Common Stock, [2,202,060] shares are issued and
outstanding. In addition, if the LTICP is approved by USB
shareholders at the USB Meeting, 60,000 shares of USB Common Stock
will be reserved for issuance under the LTICP.
The Board of Directors has adopted a proposed amendment to
USB's Restated Articles of Incorporation to increase the number of
authorized shares of USB Common Stock from 2,400,000 to 10,000,000.
Under the terms of the Merger Agreement, if approved by USB
shareholders, USB will issue 5.8321 shares of USB Common Stock for
each share of FBI Common Stock, or an aggregate of approximately
1,400,000 shares. USB will not have a sufficient number of
authorized shares to consummate the Merger unless the amendment
increasing the number of authorized shares of USB Common Stock is
approved. UNLESS THIS AMENDMENT IS APPROVED, THE MERGER CANNOT BE
CONSUMMATED REGARDLESS OF WHETHER THE MERGER PROPOSAL IS APPROVED.
The additional shares of USB Common Stock, if so authorized,
could be issued at the discretion of the Board of Directors without
any further action by the shareholders, except as required by
applicable law or regulation, in connection with acquisitions,
efforts to raise additional capital for USB, and other corporate
purposes. Shares of USB Common Stock will be issued only upon a
determination by the Board of Directors that a proposed issuance is
in the best interests of USB.
USB currently has no plans or commitments that would involve
the issuance of additional shares of USB Common Stock other than
the Merger. The increase in authorized shares will allow the Board
of Directors of USB to consider and, if in the best interest of the
shareholders, take advantage of other merger or acquisition
possibilities. In addition, the flexibility vested in USB's Board
of Directors to authorize the issuance and sale of authorized by
unissued shares of Common Stock could enhance the Board of
Director's bargaining capability on behalf of USB's shareholders in
a takeover situation and could, under some circumstances, be used
to render more difficult or discourage a merger, tender offer or
proxy contest, the assumption of control by a holder of a large
block of USB's securities, or the removal of incumbent management,
even if such a transaction were favored by the holders of the
requisite number of the then outstanding shares. Accordingly,
shareholders of USB might be deprived of an opportunity to consider
a takeover proposal which a third party might consider if USB did
not have authorized but unissued shares of Common Stock.
USB is not aware of any present efforts to gain control of USB
or to organize a proxy contest. If such a proposal were presented,
management would make a recommendation based upon the best
interests of USB's shareholders. There are no "anti-takeover"
measures which are currently part of USB's charter or bylaws.
However, the proposed amendment requiring a two-thirds
supermajority director vote to approve certain corporate actions,
if approved, would have an anti-takeover effect. See "Proposed
Amendment to the USB Restated Articles of Incorporation Requiring
a Two-Thirds Supermajority Vote of the Board of Directors to
Approve Certain Corporate Actions."
If amended, this provision of the Restated Articles of
Incorporation would read as follows:
FOURTH: The aggregate number of shares which the
corporation shall have authority to issue is 10,000,000
shares of common stock, par value of $.01 per share.
The USB Board of Directors recommends a Vote FOR the proposed
amendment to the Restated Articles of Incorporation. An
affirmative vote by holders of a majority of the outstanding shares
of USB Common Stock entitled to vote at the Annual Meeting is
required to approve the Amendment.
PROPOSED AMENDMENT TO THE USB RESTATED ARTICLES OF
INCORPORATION TO ELIMINATE PREEMPTIVE RIGHTS
Currently, USB's Restated Articles of Incorporation do not
restrict preemptive rights of its shareholders. Therefore, if USB
wishes to offer additional shares of its common stock for cash
(e.g., a public stock offering or a dividend reinvestment plan), it
must first offer to sell the stock proportionately to the current
shareholders on the same terms. Preemptive rights originated at a
time when companies were small, had relatively few shareholders and
there was little opportunity to purchase shares except when a new
issue of stock was offered. The Board of Directors of USB does not
believe that such preemptive rights serve the best interests of the
shareholders, since the preemptive rights procedure would involve
considerable delay and substantial expense to USB if USB were to
determine to sell additional shares of USB Common Stock. With the
elimination of preemptive rights, USB can respond more efficiently
to market conditions. The Board of Directors believes the
elimination of preemptive rights is in the best interests of USB
and recommends a vote in favor of the amendment.
The elimination of preemptive rights from USB's Restated
Articles of Incorporation requires a statement to that effect by
adding the following new ARTICLE ELEVENTH:
ELEVENTH: No shareholder of the corporation shall
have any preemptive right to acquire any unissued shares
of the corporation of any class now or hereafter
authorized, or any securities convertible into, or
exchangeable for, any such shares, or any warrants or any
instruments evidencing rights or options to subscribe
for, purchase or otherwise acquire any such shares,
whether such shares, securities, warrants or other
instruments are now, or shall hereafter be, authorized,
unissued or issued and thereafter acquired by the
corporation.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR" THE AMENDMENT
TO ELIMINATE PREEMPTIVE RIGHTS.
UNITED SECURITY BANCSHARES, INC.
LONG TERM INCENTIVE COMPENSATION PLAN
The success of USB depends, in large measure, on its ability
to recruit and retain employees with outstanding ability and
experience. The Board of Directors of USB also believes there is
a need to align shareholder and employee interests by encouraging
employee stock ownership and to motivate employees with
compensation conditioned upon achievement of USB's financial goals.
In order to accomplish these objectives the Board of Directors
has adopted, subject to approval by the shareholders, the United
Security Bancshares, Inc. Long Term Incentive Compensation Plan
(the "LTICP").
Summary Description of the LTICP
The following summary of the terms of the LTICP is qualified
in its entirety by reference to the text of the plan, which is
attached as Appendix F to this Proxy Statement. If adopted by the
shareholders, the LTICP will be effective as of June 1, 1997.
Administration
The LTICP will be administered by the Executive Compensation
Committee of the USB Bank Board of Directors (the "Committee").
Eligibility
Key employees of USB and its subsidiaries are eligible to
participate in the LTICP. Non-employee Directors of USB are not
eligible.
No more than 10 percent of the employees of USB and its
subsidiaries are expected to be selected to participate; however,
because the LTICP provides for broad discretion in selecting
participants and in making awards, the total number of persons who
will participate and the respective benefits to be accorded to them
cannot be determined at this time.
Stock Available for Issuance Through the LTICP
The LTICP provides for a number of forms of stock-based
compensation, as further described below. Up to 60,000 shares of
USB Common Stock, par value $0.01 per share, are authorized for
issuance through the LTICP.
Based on the sales price of shares sold in a private
transaction on January 6, 1997, the price for a share of USB Common
Stock was $15.50. Provisions in the LTICP permit the reuse or
reissuance by the plan of shares of common stock underlying
canceled, expired, or forfeited awards of stock-based compensation.
Stock-based compensation will typically be issued in
consideration for the performance of services to USB, and no
additional payment need be made at the time of grant. At the time
of exercise, the full exercise price for a stock option must be
paid in cash or, if the Committee so provides, in shares of common
stock.
Description of Awards Under the Plan
The Committee may award to eligible employees incentive and
nonqualified stock options, stock appreciation rights, and
restricted stock, which restricted stock may also be granted in
lieu of cash awards due under certain other USB plans. As
separately described under "Performance Measures", the Committee
may also grant awards with a value tied to specific performance
goals and, after a specified period, pay the value of those awards
with common stock, cash, stock options, or a combination of the
three.
The LTICP also provides that, subject to certain limitations,
the Chief Executive Officer of USB (the "CEO") may also make awards
to eligible employees. The CEO may only make awards to
non-Insiders (employees who are neither officers (as defined under
Section 16(a) of the Securities Exchange Act of 1934), directors
nor ten percent (10%) beneficial owners of any class of USB's
equity securities), and the total number of awards granted by the
CEO each year shall be subject to approval by the Committee.
The forms of awards are described in greater detail below.
The CEO will have substantially the same authority to grant awards
as the Committee, subject to the limitations described above.
Stock Options
The Committee will have discretion to award incentive stock
options ("ISOs"), which are intended to comply with Section 422 of
the Internal Revenue Code, or nonqualified stock options ("NQSOs"),
which are not intended to comply with Section 422 of the Internal
Revenue Code. Each option issued under the LTICP must be exercised
within a period of ten years from the date of grant, and the
exercise price of an option may not be less than the fair market
value of the underlying shares of common stock on the date of
grant. Subject to the specific terms of the plan, the Committee
will have discretion to set such additional limitations on option
grants as it deems appropriate.
Options granted to employees under the LTICP will expire at
such times as the Committee determines at the time of the grant;
provided, however, that no option will be exercisable later than
ten years from the date of grant. Each option will terminate upon
the earliest to occur of: (i) the expiration of the option period
in the award agreement; (ii) the expiration of three (3) months
following retirement for ISOs (after retirement, NQSOs terminate
upon expiration of the option period); (iii) the expiration of
twelve (12) months following death or disability, (iv) immediately
upon termination for cause; or (v) the expiration of thirty (30)
days following termination for any reason other than death,
disability, retirement, cause or change in control. Upon a change
in control, all options will immediately vest 100 percent and
remain exercisable throughout their entire term.
Upon the exercise of an option granted under the LTICP, the
option price is payable in full to USB, either: (i) in cash or its
equivalent, or (ii) if permitted in the award agreement, by
tendering shares having a fair market value at the time of exercise
equal to the total option price (provided such shares have been
held for at least six months prior to their tender), or (iii) if
permitted in the award agreements, a combination of (i) and (ii).
Stock Appreciation Rights
The Committee may grant stock appreciation rights (SARs)
either alone (a "Freestanding SAR"), or in connection with the
issuance of stock options (a "Tandem SAR"). Upon the exercise of
a SAR, the participant will receive payment from USB in an amount
equal to the difference between the fair market value of a share of
common stock on the date of exercise and the grant price of the
SAR. The grant price of a Freestanding SAR will equal the fair
market value of a share of common stock on the date of grant of the
SAR. The grant price of a Tandem SAR will equal the option price
on the related option. The Committee has the right to pay the
value of a SAR in cash, shares of common stock, or partly in cash
and partly in shares of common stock.
The Committee will have complete discretion in determining the
number of SARs granted and in determining the conditions pertaining
to such SARs. The term of a SAR will be determined by the
Committee, in its sole discretion; provided, however, such term
shall not exceed ten (10) years.
A Freestanding SAR may be exercised upon whatever terms and
conditions the Committee, in its sole discretion, specifies. A
Tandem SAR may be exercised only during the period in which the
related option may be exercised. The exercise of a Tandem SAR will
result in cancellation of the related option.
Restricted Stock
The Committee will also be authorized to award shares of
restricted common stock under the LTICP upon such terms and
conditions as it shall establish; provided, however, that no more
than thirty percent (30%) of the total number of shares reserved
for issuance under the plan may be granted as restricted stock.
The award agreement will specify the period(s) of restriction, the
number of shares of restricted common stock granted, the payment of
a stipulated purchase price per share, if any, restrictions based
upon achievement of specific performance objectives and/or
restrictions under applicable federal or state securities laws.
Although recipients will have the right to vote these shares from
the date of grant, they will not have the right to sell or
otherwise transfer the shares during the applicable period of
restriction or until earlier satisfaction of other conditions
imposed by the Committee in its sole discretion. The Committee, in
its discretion, will determine how dividends on restricted shares
are to be paid.
Each award agreement for restricted stock will set forth the
extent to which the participant will have the right to retain
unvested restricted stock following termination of the
participant's employment with USB. The provisions will be
determined in the sole discretion of the Committee, need not be
uniform among all shares of restricted stock issued pursuant to the
LTICP and may reflect distinctions based on reasons for termination
of employment; provided, however, that all restricted stock will
vest immediately upon death, disability or retirement, subject to
any limitations under Section 162(m). Except in the case of
terminations connected with a change in control and terminations by
reason of death or disability, the vesting of restricted stock
which qualifies as performance-based compensation under Section
162(m) and which is held by "covered employees" under Section
162(m) shall occur at the time it otherwise would have, but for the
employment termination.
Performance Measures
The Committee may grant awards under the LTICP to eligible
employees, the value of which awards are based upon the attainment
of certain specified performance measures. The number of
performance-based awards granted to an employee in any year will be
determined by the Committee in its sole discretion.
The value of each performance-based award will be determined
solely upon the achievement of certain preestablished objective
performance goals during each performance period (the "Performance
Period"). The duration of a Performance Period will be set by the
Committee. A new Performance Period may begin every year, or at
more frequent or less frequent intervals, as determined by the
Committee.
The Committee will establish, in writing, the objective
performance goals applicable to the valuation of performance-based
awards granted in each Performance Period, the performance measures
which will be used to determine the achievement of those
performance goals, and any formulas or methods to be used to
determine the value of the performance-based awards.
The value of performance-based awards may be based on absolute
measures or on a comparison of USB's financial measures during a
Performance Period to the financial measures of a group of
competitors. Financial measures selected by the Committee shall be
one or more of the following: net income; return on equity;
earnings per share; return on assets; total shareholder return; and
return on investment.
Following the end of a Performance Period, the Committee will
determine the value of the performance-based awards granted for the
period based on the attainment of the preestablished objective
performance goals. The Committee will also have discretion to
reduce (but not to increase) the value of a performance-based
award.
The Committee will certify, in writing, that the award is
based on the degree of attainment of the preestablished objective
performance goals. As soon as practicable thereafter, payment of
the awards to employees, if any, will be made in the form of cash,
shares of common stock (including restricted shares), options or
any combination of the three.
Adjustments and Amendments
The LTICP provides for appropriate adjustments in the number
of shares of common stock subject to awards and available for
future awards in the event of changes in outstanding common stock
by reason of a merger, stock split or certain other events. In
case of a pending change of control of USB, outstanding options and
stock appreciation rights granted under the LTICP will become
immediately exercisable and will remain exercisable throughout
their entire term, and restriction periods and restrictions imposed
on shares of restricted stock shall immediately lapse.
The LTICP may be modified or amended by the Board of Directors
at any time and for any purpose which the Board of Directors deems
appropriate. However, no such amendment shall adversely affect any
outstanding awards without the affected holder's consent.
Shareholder approval of an amendment will be sought if necessary
under Internal Revenue Service or Securities and Exchange
Commission ("SEC") regulations, the rules of the New York Stock
Exchange or any applicable law.
Nontransferability
No derivative security (including, without limitation, options
and stock appreciation rights) granted pursuant to, and no right to
payment under, the LTICP will be assignable or transferable by a
plan participant except by will or by the laws of descent and
distribution, and any option or similar right will be exercisable
during a participant's lifetime only by the participant or by the
participant's guardian or legal representative. These limitations
may be waived by the Committee, subject to restrictions imposed
under the SEC's short-swing trading rules and federal tax
requirements relating to incentive stock options.
Duration of the Plan
The LTICP will remain in effect until all positions and rights
granted thereunder have been satisfied or terminated pursuant to
the terms of the plan, and all Performance Periods for
performance-based awards granted thereunder have been completed.
However, in no event will an award be granted under the LTICP on or
after May31, 2007.
Federal Income Tax Consequences
Options
With respect to options which qualify as ISOs, an LTICP
participant will not recognize income for federal income tax
purposes at the time options are granted or exercised. If the
participant disposes of shares acquired by exercise of an ISO
either before the expiration of two years from the date the options
are granted or within one year after the issuance of shares upon
exercise of the ISO (the "holding periods"), the participant will
recognize in the year of disposition: (a) ordinary income, to the
extent that the lesser of either (1) the fair market value of the
shares on the date of option exercise or (2) the amount realized on
disposition, exceeds the option price; and (b) capital gain, to the
extent the amount realized on disposition exceeds the fair market
value of the shares on the date of option exercise. If the shares
are sold after expiration of the holding periods, the participant
generally will recognize capital gain or loss equal to the
difference between the amount realized on disposition and the
option price.
With respect to NQSOs, the participant will recognize no
income upon grant of the option, and, upon exercise, will recognize
ordinary income to the extent of the excess of the fair market
value of the shares on the date of option exercise over the amount
paid by the participant for the shares. Upon a subsequent
disposition of the shares received under the option, the
participant generally will recognize capital gain or loss to the
extent of the difference between the fair market value of the
shares at the time of exercise and the amount realized on the
disposition.
SARs
An SAR participant will not realize taxable income on the date
of grant nor will USB be entitled to a deduction at that time. A
participant who exercises an SAR will recognize ordinary income
equal to the fair market value of the shares and any cash received,
and USB will be entitled to a corresponding deduction for federal
income tax purposes.
Restricted Stock
A participant holding restricted stock will, at the time the
shares vest, realize ordinary income in an amount equal to the fair
market value of the shares and any cash received at the time of
vesting, and USB will be entitled to a corresponding deduction for
federal income tax purposes. Dividends paid to the participant on
the restricted stock during the restriction period will generally
be ordinary income to the participant and deductible as such by
USB.
In general, USB will receive an income tax deduction at the
same time and in the same amount which is taxable to the employee
as compensation, except as provided below under "Section 162(m)."
To the extent a participant realizes capital gains, as described
above, USB will not be entitled to any deduction for federal income
tax purposes.
Section 162(m)
Under Section 162(m) of the Internal Revenue Code,
compensation paid by USB in excess of $1 million for any taxable
year to "covered employees" generally is deductible by USB or its
affiliates for federal income tax purposes if it is based on the
performance of USB, is paid pursuant to a plan approved by
shareholders of USB and meets certain other requirements.
Generally "covered employee" under Section 162(m) means the chief
executive officer and the four other highest paid executive
officers of USB as of the last day of the taxable year.
It is presently anticipated that the Committee will at all
times consist of "outside directors" as required for purposes of
Section 162(m), and that the Committee will take the effect of
Section 162(m) into consideration in structuring LTICP awards.
OTHER USB MATTERS
USB does not know of any matters to be presented for action at
the USB Meeting other than those listed in the notice of the annual
meeting and referred to herein.
USB will furnish without charge to its shareholders, upon
written request, a copy of its annual report on Form 10-K,
including the accompanying financial statements and schedules,
required to be filed with the Securities and Exchange Commission
for the year ended December 31, 1996. Copies of the exhibits to
such report will also be available upon payment of a reasonable fee
for copying charges. Requests should be made to LarryM. Sellers,
Treasurer, United Security Bancshares, Inc., 131 West Front Street,
Post Office Box 249, Thomasville, Alabama 36784.
LEGAL MATTERS
The legality of the USB Common Stock to be issued in the
Merger will be passed upon by Maynard, Cooper & Gale, P.C.,
Birmingham, Alabama ("Maynard Cooper").
Certain legal matters in connection with the Merger will be
passed upon for FBI by Walston, Wells, Anderson & Bains, LLP,
Birmingham, Alabama ("Walston Wells").
Each of Maynard Cooper and Walston Wells has rendered opinions
with respect to the federal tax consequences of the Merger. See
"The Merger--Federal Income Tax Consequences."
EXPERTS
The Consolidated Financial Statements of United Security
Bancshares, Inc. as of December 31, 1996 and 1995 and for the three
years ended December 31, 1996, 1995 and 1994 incorporated by
reference in this Joint Proxy Statement have been audited by Smith,
Dukes & Buckalew, independent public accountants, as indicated in
their report with respect thereto and are included herein in
reliance upon the authority of said firm as experts in giving said
reports.
The Consolidated Financial Statements of First Bancshares,
Inc. and subsidiary as of December 31, 1996 and 1995 and for each
of the three years ended December 31, 1996, 1995 and 1994 have been
audited by Dudley, Hopkins, Jones, Sims & Freeman, independent
auditors, as stated in their reports which are included herein and
have been so included in reliance upon the reports of such firm
given upon their authority as experts in accounting and auditing.
<PAGE>
Appendix A
AGREEMENT AND PLAN OF MERGER
by and between
FIRST BANCSHARES, INC.
and
UNITED SECURITY BANCSHARES, INC.
Dated as of
August 19, 1996
AGREEMENT AND PLAN OF MERGER
THIS AGREEMENT AND PLAN OF MERGER (this "Agreement") is made
and entered into as of August 19, 1996 by and between FIRST
BANCSHARES, INC. ("FBI"), an Alabama corporation, and its
wholly-owned subsidiary, FIRST BANK AND TRUST, an Alabama banking
corporation, each with its principal office located in Grove Hill,
Alabama; and UNITED SECURITY BANCSHARES, INC. ("USB"), an Alabama
corporation, and its wholly-owned subsidiary, UNITED SECURITY BANK,
an Alabama banking corporation, each with its principal office
located in Thomasville, Alabama.
Preamble
The board of directors of each of FBI and USB are of the
opinion that the transactions described herein are in the best
interests of the parties and their respective stockholders. Each
such board has unanimously approved the proposed transaction,
subject to an acceptable due diligence investigation and any
necessary approvals, and each board (and all members thereof) has
agreed to use its best efforts to obtain the necessary regulatory
and shareholder approvals. This Agreement provides for, among
other things, the merger of FBI with and into USB. At the
effective time of such merger, the outstanding shares of the
capital stock of FBI shall be converted into the right to receive
shares of the common stock of USB (except as provided herein). As
a result, stockholders of FBI shall become stockholders of USB, and
USB shall continue to conduct the business and operations of FBI.
The transactions described in this Agreement are subject to the
approvals of the stockholders of FBI and USB, necessary regulatory
approvals and the satisfaction of certain other conditions
described in this Agreement. It is the intention of the parties to
this Agreement that the merger (i) for federal income tax purposes
shall qualify as a "reorganization" within the meaning of Section
368(a) of the Internal Revenue Code and (ii) for accounting
purposes shall qualify for treatment as a "pooling of interests."
Certain terms used in this Agreement are defined in Section
11.1 of this Agreement.
NOW, THEREFORE, in consideration of the above and the mutual
warranties, representations, covenants and agreements set forth
herein, the parties agree as follows:
ARTICLE 1
TRANSACTIONS AND TERMS OF MERGER
1.1 Merger. Subject to the terms and conditions of this
Agreement, at the Effective Time, FBI shall be merged with and into
USB in accordance with and with the effect provided in the
provisions of Article 11 of the ABCA (the "Merger"). USB shall be
the Surviving Corporation resulting from the Merger and shall
continue to be governed by the Laws of the State of Alabama. The
Merger shall be consummated pursuant to the terms of this
Agreement, which has been approved and adopted by the respective
Boards of Directors of FBI and USB.
1.2 Time and Place of Closing. The Closing will take
place at 9:00 A.M. on the date that the Effective Time occurs, or
at such other time as the Parties, acting through their chief
executive officers or chief financial officers, may mutually agree.
The place of Closing shall be at the offices of Maynard, Cooper &
Gale, P.C., Birmingham, Alabama, or such other place as may be
mutually agreed upon by the Parties.
1.3 Effective Time. The Merger and other transactions
provided for in this Agreement shall become effective on the date
and at the time the Articles of Merger reflecting the Merger shall
be accepted for filing by the Secretary of State of the State of
Alabama (the "Effective Time"). Subject to the terms and
conditions hereof, unless otherwise mutually agreed upon in writing
by the chief executive officers or chief financial officers of each
Party, the Parties shall use their reasonable efforts to cause the
Effective Time to occur on the last business day of the month in
which occurs the latter to occur of (i) the effective date
(including expiration of any applicable waiting period) of the last
required Consent of any Regulatory Authority having authority over
and approving or exempting the Merger, and (ii) the date on which
the stockholders of FBI and USB approve this Agreement.
1.4 Merger of Banking Subsidiaries. Subject to required
approvals from applicable Regulatory Authorities, at the Effective
Time of the Merger, and contingent upon the occurrence of the
Merger, First Bank and Trust ("First Bank"), an Alabama state bank
and a wholly-owned subsidiary of FBI, shall be merged with and into
United Security Bank ("USB Bank"), an Alabama state bank and the
wholly-owned subsidiary of USB (the "Subsidiary Merger"). USB Bank
shall be the surviving bank (the "Surviving Subsidiary"). The
Board of Directors of each of First Bank and USB Bank, and FBI and
USB, as the sole shareholders of First Bank and USB Bank,
respectively, shall approve the Subsidiary Merger prior to the
Effective Time. The charter and bylaws of USB Bank in effect
immediately prior to the Effective Time shall be the charter and
bylaws of the Surviving Subsidiary, until otherwise amended or
repealed. The directors of the Surviving Subsidiary shall include
six directors selected from the Boards of Directors of each of
First Bank and USB Bank, as determined by the Board of Directors of
the Surviving Corporation.
ARTICLE 2
TERMS OF MERGER
2.1 Articles of Incorporation. The Articles of
Incorporation of USB, amended as provided herein, shall be the
Articles of Incorporation of the Surviving Corporation immediately
following the Effective Time, until thereafter amended in
accordance with applicable Law. As of the Effective Time, the
Articles of Incorporation of USB shall be amended (i) to change the
name of the Surviving Corporation to a new name to be agreed upon
by the parties hereto, (ii) to increase the number of authorized
shares of common stock of the Surviving Corporation from 2,400,000
to 10,000,000, (iii) to increase the maximum size of the Board of
Directors of the Surviving Corporation from fifteen to twenty, (iv)
to deny preemptive rights to its shareholders and (v) to provide
for a 2/3's super majority voting requirement by the Board of
Directors to approve significant corporate events or to add or
remove members of its senior management, all as shall be set forth
in a form of articles of amendment to the articles of incorporation
of USB to be approved by the parties hereto before the calling of
the respective meetings of the stockholders of FBI and the
stockholders of USB which will vote on this Agreement; to the
extent the parties deem necessary or desirable, this Agreement may
be amended or modified to set forth those articles of amendment.
2.2 Bylaws. The Bylaws of USB, as amended hereby, shall
be the Bylaws of the Surviving Corporation immediately following
the Effective Time, until otherwise amended or repealed in
accordance with applicable Law. As of the Effective Time, the
Bylaws of USB shall be amended to provide for the super majority
director voting requirements set forth in Section2.1 above.
2.3 Directors. The directors of the Surviving Corporation
from and after the Effective Time shall consist of the ten
incumbent directors of USB and the ten incumbent directors of FBI.
All such persons shall serve in accordance with the Bylaws of the
Surviving Corporation. The members of the standing committees of
the Board of Directors of the Surviving Corporation shall be
determined by such Board of Directors.
ARTICLE 3
MANNER OF CONVERTING SHARES
3.1 Conversion of Shares. Subject to the provisions of
this Article 3, at the Effective Time, by virtue of the Merger and
without any action on the part of the holders thereof, the shares
of the constituent corporations shall be converted as follows:
(a) Each share of USB Common Stock issued and outstanding
immediately prior to the Effective Time shall remain issued and
outstanding from and after the Effective Time.
(b) Each share of FBI Common Stock (excluding shares held
by any FBI Company, other than in a fiduciary capacity or as a
result of debts previously contracted, and excluding shares held by
stockholders who perfect their dissenters' rights of appraisal as
provided in Section 3.4 of this Agreement) issued and outstanding
at the Effective Time shall cease to be outstanding and shall be
converted into and exchanged for the right to receive 5.8321 shares
of USB Common Stock (the "Exchange Ratio").
3.2 Anti-Dilution Provisions. In the event FBI changes
the number of shares of FBI Common Stock issued and outstanding
prior to the Effective Time as a result of a stock split, stock
dividend or similar recapitalization with respect to such stock and
the record date therefor shall be prior to the Effective Time, the
Exchange Ratio shall be proportionately adjusted. In the event USB
changes the number of shares of USB Common Stock issued and
outstanding prior to the Effective Time as a result of a stock
split, stock dividend or similar recapitalization with respect to
such stock and the record date therefor shall be prior to the
Effective Time, the Exchange Ratio shall be proportionately
adjusted.
3.3 Shares Held by FBI. Each of the shares of FBI Common
Stock held by any FBI Company, other than in a fiduciary capacity
or as a result of debts previously contracted, shall be canceled
and retired at the Effective Time and no consideration shall be
issued in exchange therefor.
3.4 Dissenting Stockholders. Any holder of shares of FBI
Common Stock who perfects his dissenters' rights of appraisal in
accordance with and as contemplated by Article 13 of the ABCA shall
be entitled to receive the value of such shares in cash as
determined pursuant to such provision of Law; provided, however,
that no such payment shall be made to any dissenting stockholder
unless and until such dissenting stockholder has complied with the
applicable provisions of the ABCA and surrendered to the Surviving
Corporation the certificate or certificates representing the shares
for which payment is being made. In the event that after the
Effective Time a dissenting stockholder of FBI fails to perfect, or
effectively withdraws or loses, his right to appraisal and of
payment for his shares, the Surviving Corporation shall issue and
deliver the consideration to which such holder of shares of FBI
Common Stock is entitled under this Article 3 (without interest)
upon surrender by such holder of the certificate or certificates
representing shares of FBI Common Stock held by him.
3.5 Fractional Shares. Notwithstanding any other
provision of this Agreement, each holder of shares of FBI Common
Stock exchanged pursuant to the Merger, who would otherwise have
been entitled to receive a fraction of a share of USB Common Stock
(after taking into account all certificates delivered by such
holder) shall receive, in lieu thereof, cash (without interest) in
an amount equal to such fractional part of a share of USB Common
Stock multiplied by the book value of one share of USB Common Stock
as of the most recent month-end prior to the Effective Time. No
such holder will be entitled to dividends, voting rights or any
other right as a stockholder with respect to any fractional shares.
ARTICLE 4
EXCHANGE OF SHARES
4.1 Exchange Procedures. Promptly after the Effective
Time, the Surviving Corporation shall cause the exchange agent
selected and mutually agreed upon by USB and FBI (the "Exchange
Agent") to mail to the former stockholders of FBI appropriate
transmittal materials (which shall specify that delivery shall be
effected, and risk of loss and title to the certificates
theretofore representing shares of FBI Common Stock shall pass,
only upon proper delivery of such certificates to the Exchange
Agent). After the Effective Time, each holder of shares of FBI
Common Stock (other than shares to be canceled pursuant to Section
3.3 of this Agreement or as to which dissenters' rights of
appraisal have been perfected as provided in Section 3.4 of this
Agreement) issued and outstanding at the Effective Time shall
surrender the certificate or certificates representing such shares
to the Exchange Agent and shall promptly upon surrender thereof
receive in exchange therefor the consideration provided in Section
3.1 of this Agreement, together with all undelivered dividends or
distributions with respect to such shares (without interest
thereon) pursuant to Section 4.2 of this Agreement. To the extent
required by Section 3.5 of this Agreement, each holder of shares of
FBI Common Stock issued and outstanding at the Effective Time also
shall receive, upon surrender of the certificate or certificates
representing such shares, cash in lieu of any fractional share of
USB Common Stock to which such holder may be otherwise entitled
(without interest). The Surviving Corporation shall not be
obligated to deliver the consideration to which any former holder
of FBI Common Stock is entitled as a result of the Merger until
such holder surrenders his certificate or certificates representing
the shares of FBI Common Stock for exchange as provided in this
Section 4.1. The certificate or certificates for FBI Common Stock
so surrendered shall be duly endorsed as the Exchange Agent may
require. Any other provision of this Agreement notwithstanding,
neither the Surviving Corporation nor the Exchange Agent shall be
liable to a holder of FBI Common Stock for any amounts paid or
property delivered in good faith to a public official pursuant to
any applicable abandoned property Law.
4.2 Rights of Former FBI Stockholders. At the Effective
Time, the stock transfer books of FBI shall be closed as to holders
of FBI Common Stock immediately prior to the Effective Time, and no
transfer of FBI Common Stock by any such holder shall thereafter be
made or recognized. Until surrendered for exchange in accordance
with the provisions of Section 4.1 of this Agreement, each
certificate theretofore representing shares of FBI Common Stock
("FBI Certificate"), other than shares to be canceled pursuant to
Section 3.3 of this Agreement or as to which dissenters' rights of
appraisal have been perfected as provided in Section 3.4 of this
Agreement, shall from and after the Effective Time represent for
all purposes only the right to receive the consideration provided
in Sections 3.1 and 3.5 of this Agreement in exchange therefor. To
the extent permitted by Law, former stockholders of record of FBI
Common Stock shall be entitled to vote after the Effective Time at
any meeting of Surviving Corporation stockholders the number of
whole shares of USB Common Stock into which their respective shares
of FBI Common Stock are converted, regardless of whether such
holders have exchanged their FBI Certificates for certificates
representing USB Common Stock in accordance with the provisions of
this Agreement. Whenever a dividend or other distribution is
declared by the Surviving Corporation on the USB Common Stock, the
record date for which is at or after the Effective Time, the
declaration shall include dividends or other distributions on all
shares issuable pursuant to this Agreement. Notwithstanding the
preceding sentence, any person holding any FBI Certificate at or
after six (6) months after the Effective Time (the "Cutoff") shall
not be entitled to receive any dividend or other distribution
payable after the Cutoff to holders of USB Common Stock, which
dividend or other distribution is attributable to such person's USB
Common Stock represented by said FBI Certificate held after the
Cutoff, until such person surrenders said FBI Certificate for
exchange as provided in Section 4.1 of this Agreement. However,
upon surrender of such FBI Certificate, both the USB Common Stock
certificate (together with all such undelivered dividends or other
distributions, without interest) and any undelivered cash payments
to be paid for fractional share interests (without interest) shall
be delivered and paid with respect to each share represented by
such FBI Certificate.
4.3 Lost or Stolen Certificates. If any holder of FBI
Common Stock convertible into the right to receive shares of USB
Common Stock is unable to deliver the FBI Certificate that
represents FBI Common Stock, the Exchange Agent, in the absence of
actual notice that any such shares have been acquired by a bona
fide purchaser, shall deliver to such holder the shares of USB
Common Stock to which the holder is entitled for such shares upon
presentation of the following: (a) evidence to the reasonable
satisfaction of USB that any such FBI Certificate has been lost,
wrongfully taken or destroyed; (b) such security or indemnity as
may be reasonably requested by USB to indemnify and hold USB and
the Exchange Agent harmless; and (c)evidence satisfactory to USB
that such person is the owner of the shares theretofore represented
by each FBI Certificate claimed by the holder to be lost,
wrongfully taken or destroyed and that the holder is the person who
would be entitled to present such FBI Certificate for exchange
pursuant to this Agreement.
ARTICLE 5
REPRESENTATIONS AND WARRANTIES OF FBI
FBI hereby represents and warrants to USB as follows:
5.1 Organization, Standing and Power. FBI is a
corporation duly organized, validly existing and in good standing
under the Laws of the State of Alabama, and has the corporate power
and authority to carry on its business as now conducted and to own,
lease and operate its Assets and to incur its Liabilities. FBI is
duly qualified or licensed to transact business as a foreign
corporation in good standing in the States of the United States and
foreign jurisdictions where the character of its Assets or the
nature or conduct of its business requires it to be so qualified or
licensed, except for such jurisdictions in which the failure to be
so qualified or licensed is not reasonably likely to have,
individually or in the aggregate, a Material Adverse Effect on FBI.
FBI has delivered to USB complete and correct copies of its
Articles of Incorporation and Bylaws and the articles of
incorporation, bylaws and other, similar governing instruments of
each of its Subsidiaries, in each case as amended through the date
hereof.
5.2 Authority; No Breach By Agreement.
(a) FBI has the corporate power and authority necessary to
execute, deliver and perform its obligations under this Agreement
and to consummate the transactions provided for herein. The
execution, delivery and performance of this Agreement and the
consummation of the transactions provided for herein, including the
Merger, have been duly and validly authorized by all necessary
corporate action on the part of FBI, subject to the approval of
this Agreement by the holders of two-thirds of the outstanding
shares of FBI Common Stock. Subject to such requisite stockholder
approval, this Agreement represents a legal, valid and binding
obligation of FBI, enforceable against FBI in accordance with its
terms (except in all cases as such enforceability may be limited by
applicable bankruptcy, insolvency, reorganization, moratorium or
similar Laws affecting the enforcement of creditors' rights
generally and except that the availability of the equitable remedy
of specific performance or injunctive relief is subject to the
discretion of the court before which any proceeding may be
brought).
(b) Neither the execution and delivery of this Agreement
by FBI, nor the consummation by FBI of the transactions provided
for herein, nor compliance by FBI with any of the provisions
hereof, will (i) conflict with or result in a breach of any
provision of FBI's Articles of Incorporation or Bylaws, or (ii)
subject to the receipt of the approval referred to in Schedule
5.2(b)(ii), constitute or result in a Default under, or require any
Consent pursuant to, or result in the creation of any Lien on any
Asset of any FBI Company under, any Contract or Permit of any FBI
Company, or, (iii) subject to receipt of the requisite approvals
referred to in Section 9.1(b) of this Agreement, violate any Law or
Order applicable to any FBI Company or any of their respective
Assets.
(c) Other than in connection or compliance with the
provisions of the Securities Laws, applicable state corporate and
securities Laws, and other than Consents required from Regulatory
Authorities, and other than notices to or filings with the Internal
Revenue Service or the Pension Benefit Guaranty Corporation with
respect to any employee benefit plans, and other than Consents,
filings or notifications which, if not obtained or made, are not
reasonably likely to have, individually or in the aggregate, a
Material Adverse Effect on FBI, no notice to, filing with or
Consent of, any public body or authority is necessary for the
consummation by FBI of the Merger and the other transactions
provided for in this Agreement.
5.3 Capital Stock.
(a) The authorized capital stock of FBI consists of
500,000 shares of FBI Common Stock, of which 239,843 shares are
issued and outstanding. FBI currently holds 157 shares of FBI
Common Stock as treasury stock. All of the issued and outstanding
shares of capital stock of FBI are duly and validly issued and
outstanding and are fully paid and nonassessable under the ABCA.
None of the outstanding shares of capital stock of FBI has been
issued in violation of any preemptive rights of the current or past
stockholders of FBI.
(b) Except as set forth in Section 5.3(a) of this
Agreement, there are no shares of capital stock or other equity
securities of FBI outstanding and no outstanding options, warrants,
scrip, rights to subscribe to, calls or commitments of any
character whatsoever relating to, or securities or rights
convertible into or exchangeable for, shares of the capital stock
of FBI or contracts, commitments, understandings or arrangements by
which FBI is or may be bound to issue additional shares of its
capital stock or options, warrants or rights to purchase or acquire
any additional shares of its capital stock. FBI has no liability
for dividends declared or accrued, but unpaid, with respect to any
of its capital stock.
5.4 FBI Subsidiaries.
(a) The FBI Subsidiaries are First Bank, Acceptance Loan
Company, Inc., I & I, Inc., and First Bank Services, Inc.. First
Bank is a state non-member bank duly organized, validly existing
and in good standing under the laws of the State of Alabama and has
the corporate power and authority necessary for it to own, lease
and operate its Assets and to incur its Liabilities and to carry on
its Business as now conducted. Each of Acceptance Loan Company and
I & I, Inc. is an Alabama corporation duly organized, validly
existing and in good standing under the laws of the State of
Alabama. First Bank Services, Inc. is a Florida corporation duly
organized, validly existing and in good standing under the laws of
the State of Florida. Each FBI Subsidiary has the corporate power
and authority to own, lease and operate its Assets and to incur its
Liabilities and to carry on its business as now conducted. Each
FBI Subsidiary is duly qualified or licensed to transact business
as a foreign corporation in good standing in the States of the
United States and foreign jurisdictions where the character of its
Assets or the nature or conduct of its business requires it to be
so qualified or licensed, except for jurisdictions in which the
failure to be so qualified or licensed is not reasonably likely to
have, individually or in the aggregate, a Material Adverse Effect
on FBI. Each FBI Subsidiary that is a depository institution is an
"insured institution" as defined in the Federal Deposit Insurance
Act and applicable regulations thereunder.
(b) The authorized and issued and outstanding capital
stock of each FBI Subsidiary, and the date with respect to which
each representation in this subsection (b) is made with respect to
each FBI Subsidiary, is set forth on Schedule 5.4. Except as set
forth in Schedule 5.4, (i) no equity securities of any FBI
Subsidiary are or may become required to be issued by reason of any
options, warrants, scrip, rights to subscribe to, calls or
commitments of any character whatsoever relating to, or securities
or rights convertible into or exchangeable for, shares of the
capital stock of any such Subsidiary, and there are no Contracts by
which any FBI Subsidiary is bound to issue additional shares of its
capital stock or options, warrants or rights to purchase or acquire
any additional shares of its capital stock or by which any FBI
Company is or may be bound to transfer any shares of the capital
stock of any FBI Subsidiary, (ii) there are no Contracts relating
to the rights of any FBI Company to vote or to dispose of any
shares of the capital stock of any FBI Subsidiary, and (iii) all of
the shares of capital stock of each FBI Subsidiary held by a FBI
Company are fully paid and nonassessable under the applicable
corporation Law of the jurisdiction in which such Subsidiary is
incorporated and organized and are owned by the FBI Company free
and clear of any Lien. No FBI Subsidiary has any liability for
dividends declared or accrued, but unpaid, with respect to any of
its capital stock.
5.5 Financial Statements. FBI has delivered to USB copies
of all FBI Financial Statements and FBI Call Reports for periods
prior to the date hereof, and FBI will deliver to USB promptly
copies of all FBI Financial Statements and FBI Call Reports
prepared subsequent to the date hereof. The FBI Financial
Statements (as of the dates thereof and for the periods covered
thereby) (i) are or, if dated after the date of this Agreement,
will be in accordance with the books and records of the FBI
Companies, which are or will be, as the case may be, complete and
correct and which have been or will have been, as the case may be,
maintained in accordance with good business practices, and (ii)
present or will present, as the case may be, fairly the
consolidated financial position of the FBI Companies as of the
dates indicated and the consolidated results of operations, changes
in stockholders' equity and cash flows of the FBI Companies for the
periods indicated, in accordance with GAAP (subject to exceptions
as to consistency specified therein or as may be indicated in the
notes thereto or, in the case of interim financial statements, to
normal recurring year-end adjustments that are not material). The
FBI Call Reports have been prepared in material compliance with the
rules and regulations of the respective federal or state banking regulator
with which they were filed.
5.6 Absence of Undisclosed Liabilities. No FBI Company
has any Liabilities that are reasonably likely to have,
individually or in the aggregate, a Material Adverse Effect on FBI,
except Liabilities accrued or reserved against in the consolidated
balance sheets of FBI as of June 30, 1996, included in the FBI
Financial Statements or reflected in the notes thereto. No FBI
company has incurred or paid any Liability since June 30, 1996,
except for such Liabilities incurred or paid in the ordinary course
of business consistent with past business practice and which are
not reasonably likely to have, individually or in the aggregate, a
Material Adverse Effect on FBI.
5.7 Absence of Certain Changes or Events. Except as set
forth on Schedule 5.7, since June 30, 1996 (i) there have been no
events, changes or occurrences that have had, or are reasonably
likely to have, individually or in the aggregate, a Material
Adverse Effect on FBI, and (ii) the FBI Companies have not taken
any action, or failed to take any action, prior to the date of this
Agreement, which action or failure, if taken after the date of this
Agreement, would represent or result in a material breach or
violation of any of the covenants and agreements of FBI provided in
Article 7 of this Agreement.
5.8 Tax Matters.
(a) All Tax returns required to be filed by or on behalf
of any of the FBI Companies have been timely filed or requests for
extensions have been timely filed, granted and have not expired for
periods ended on or before December 31, 1995, and all returns filed
are complete and materially accurate. All Taxes shown as due on
filed returns have been paid. There is no audit examination,
deficiency, refund Litigation or matter in controversy with respect
to any Taxes that might result in a determination that would have,
individually or in the aggregate, a Material Adverse Effect on FBI,
except as reserved against in the FBI Financial Statements
delivered prior to the date of this Agreement. All Taxes and other
Liabilities due with respect to completed and settled examinations
or concluded Litigation have been fully paid.
(b) None of the FBI Companies has executed an extension or
waiver of any statute of limitations on the assessment or
collection of any Tax due (excluding such statutes that relate to
years currently under examination by the Internal Revenue Service
or other applicable taxing authorities) that is currently in
effect.
(c) Adequate provision for any Taxes due or to become due
for any of the FBI Companies for the period or periods through and
including the date of the respective FBI Financial Statements has
been made and is reflected on such FBI Financial Statements.
(d) Deferred Taxes of the FBI Companies have been provided
for in accordance with GAAP.
5.9 Loan Portfolio; Documentation and Reports.
(a) Except as disclosed in Schedule 5.9, none of the FBI
Companies is a creditor as to any written or oral loan agreement,
note or borrowing arrangement including, without limitation,
leases, credit enhancements, commitments and interest-bearing
assets (collectively, the "Loans"), other than Loans the unpaid
principal balance of which does not exceed $1,000 per Loan, under
the terms of which the obligor is, as of the date of this
Agreement, over 90 days delinquent in payment of principal or
interest or in default of any other material provisions. Except as
otherwise set forth in Schedule 5.9, none of the FBI Companies is
a creditor as to any Loan, including without limitation any loan
guaranty, to any director, executive officer or 10% stockholder
thereof, or to the knowledge of FBI, any Person, corporation or
enterprise controlling, controlled by or under common control of
any of the foregoing. All of the Loans held by any of the FBI
Companies were solicited, originated and exist in material
compliance with all applicable FBI loan policies, except for
deviations from such policies that (a) have been approved by
current management of FBI, in the case of Loans with an outstanding
principal balance that exceeds $250,000 or (b) in the judgment of
FBI, will not adversely effect the ultimate collectibility of such
Loan. Except as set forth in Schedule 5.9, none of the FBI
Companies holds any Loans that since January 1, 1995 have been
classified by any bank examiner, whether regulatory or internal, as
other loans Specifically Mentioned, Special Mention, Substandard,
Doubtful, Loss, Classified, Criticized, Credit Risk Assets,
concerned loans or words of similar import.
(b) The documentation relating to each Loan made by any
FBI Company and to all security interests, mortgages and other
liens with respect to all collateral for loans is adequate for the
enforcement of the material terms of such Loan, security interest,
mortgage or other lien, except for inadequacies in such
documentation which will not, individually or in the aggregate,
have a Material Adverse Effect on FBI.
(c) Each of the FBI Companies has timely filed all
material reports, registrations and statements, together with any
amendments required to be made with respect thereto, that it was
required to file since December 31, 1991 with (i) the FRB, (ii) the
FDIC and (iii) any state regulatory authority ("State Regulator")
(collectively "Regulatory Agencies") and all other material reports
and statements required to be filed by it since December 31, 1991,
including, without limitation, any report or statement required to
be filed pursuant to the laws, rules or regulations of the United
States or any Regulatory Agencies, and has paid all fees and
assessments due and payable in connection therewith. Except as set
forth in Schedule 5.9 and as otherwise provided herein, and except
for normal examinations conducted by a Regulatory Agency in the
regular course of the business of the FBI Companies, to the
Knowledge of FBI, no Regulatory Agency has initiated any proceeding
or, to the Knowledge of FBI, investigation into the business or
operations of any FBI Company since December 31, 1991. There is no
unresolved violation, criticism or exception by any Regulatory
Agency with respect to any report or statement or lien or any
examinations of any FBI Company, except for those items that will
not, individually or in the aggregate, have a Material Adverse
Effect on FBI.
5.10 Assets; Insurance. The FBI Companies have good and
marketable title, free and clear of all Liens, to all of their
respective Assets. One of the FBI Companies has good and
marketable fee simple title to the real property described in
Schedule 5.10(a) and has an enforceable leasehold interest in the
real property described in Schedule 5.10(b), if any. All tangible
properties used in the businesses of the FBI Companies are in good
condition, reasonable wear and tear excepted, and are usable in the
ordinary course of business consistent with FBI's past practices.
All Assets that are material to FBI's business on a consolidated
basis, held under leases or subleases by any of the FBI Companies,
are held under valid Contracts enforceable in accordance with their
respective terms (except as enforceability may be limited by
applicable bankruptcy, insolvency, reorganization, moratorium, or
other Laws affecting the enforcement of creditors' rights generally
and except that the availability of the equitable remedy of
specific performance or injunctive relief is subject to the
discretion of the court before which any proceedings may be
brought), and each such Contract is in full force and effect and
there is not under any such Contract any Default or claim of
Default by FBI or any FBI Subsidiary or, to the Knowledge of FBI,
by any other party to the Contract. The policies of fire, theft,
liability and other insurance maintained with respect to the Assets
or businesses of the FBI Companies provide adequate coverage under
current industry practices against loss or Liability, and the
fidelity and blanket bonds in effect as to which any of the FBI
Companies is a named insured are reasonably sufficient. Schedule
5.10(c) contains a list of all such policies and bonds maintained
by any of the FBI Companies. The Assets of the FBI Companies
include all assets required to operate the business of the FBI
Companies as now conducted.
5.11 Environmental Matters.
(a) To the Knowledge of FBI, each FBI Company, its
Participation Facilities and its Loan Properties are, and have
been, in compliance with all Environmental Laws, except for
violations that are not reasonably likely to have, individually or
in the aggregate, a Material Adverse Effect on FBI.
(b) There is no Litigation pending or, to the Knowledge of
FBI, threatened before any court, governmental agency or authority
or other forum in which any FBI Company or any of its Participation
Facilities has been or, with respect to threatened Litigation, may
be named as a defendant (i) for alleged noncompliance (including by
any predecessor) with any Environmental Law or (ii) relating to the
release into the environment of any Hazardous Material (as defined
below) or oil, whether or not occurring at, on, under or involving
a site owned, leased or operated by any FBI Company or any of its
Participation Facilities, except for such Litigation pending or
threatened that is not reasonably likely to have, individually or
in the aggregate, a Material Adverse Effect on FBI.
(c) There is no Litigation pending or, to the Knowledge of
FBI, threatened before any court, governmental agency or board or
other forum in which any of its Loan Properties (or FBI with
respect to such Loan Property) has been or, with respect to
threatened Litigation, may be named as a defendant or potentially
responsible party (i) for alleged noncompliance (including by any
predecessor) with any Environmental Law or (ii) relating to the
release into the environment of any Hazardous Material or oil,
whether or not occurring at, on, under or involving a Loan
Property, except for such Litigation pending or threatened that is
not reasonably likely to have, individually or in the aggregate, a
Material Adverse Effect on FBI.
(d) To the Knowledge of FBI, there is no reasonable basis
for any Litigation of a type described in subsections (b) or (c),
except such as is not reasonably likely to have, individually or in
the aggregate, a Material Adverse Effect on FBI.
(e) To the Knowledge of FBI, during the period of (i) any
FBI Company's ownership or operation of any of its respective
current properties, (ii) any FBI Company's participation in the
management of any Participation Facility or (iii) any FBI Company's
holding of a security interest in a Loan Property, there have been
no releases of Hazardous Material or oil in, on, under or affecting
such properties, except such as are not reasonably likely to have,
individually or in the aggregate, a Material Adverse Effect on FBI.
Prior to the period of (i) any FBI Company's ownership or operation
of any of its respective current properties, (ii) any FBI Company's
participation in the management of any Participation Facility, or
(iii) any FBI Company's holding of a security interest in a Loan
Property, to the Knowledge of FBI, there were no releases of
Hazardous Material or oil in, on, under or affecting any such
property, Participation Facility or Loan Property, except such as
are not reasonably likely to have, individually or in the
aggregate, a Material Adverse Effect on FBI.
5.12 Compliance with Laws. FBI is duly registered as a
bank holding company under the BHC Act. Each FBI Company has in
effect all Permits necessary for it to own, lease or operate its
Assets and to carry on its business as now conducted, except for
those Permits the absence of which are not reasonably likely to
have, individually or in the aggregate, a Material Adverse Effect
on FBI, and there has occurred no Default under any such Permit.
Except as may be disclosed on Schedule 5.12, none of the FBI
Companies:
(a) is in violation of any Laws, Orders or Permits
applicable to its business or employees conducting its business,
except for violations that are not reasonably likely to have,
individually or in the aggregate, a Material Adverse Effect on FBI;
or
(b) has received any notification or communication from
any agency or department of federal, state or local government or
any Regulatory Authority or the staff thereof (i) asserting that
any FBI Company is not in compliance with any of the Laws or Orders
that such governmental authority or Regulatory Authority enforces,
where such noncompliance is reasonably likely to have, individually
or in the aggregate, a Material Adverse Effect on FBI, (ii)
threatening to revoke any Permits, the revocation of which is
reasonably likely to have, individually or in the aggregate, a
Material Adverse Effect on FBI, or (iii) requiring any FBI Company
to enter into or consent to the issuance of a cease and desist
order, formal agreement, directive, commitment or memorandum of
understanding, or to adopt any board resolution or similar
undertaking, that restricts materially the conduct of its business,
or in any manner relates to its capital adequacy, its credit or
reserve policies, its management or the payment of dividends.
5.13 Labor Relations; Employees.
(a) No FBI Company is the subject of any Litigation
asserting that it or any other FBI Company has committed an unfair
labor practice (within the meaning of the National Labor Relations
Act or comparable state Law) or seeking to compel it or any other
FBI Company to bargain with any labor organization as to wages or
conditions of employment, nor is there any strike or other labor
dispute involving any FBI Company, pending or threatened, or to its
Knowledge, is there any activity involving any FBI Company's
employees seeking to certify a collective bargaining unit or
engaging in any other organization activity.
(b) FBI has delivered to USB a true and complete list
showing the names and current annual salaries of all executive
officers of each of the FBI Companies and showing for each such
person the amounts paid, payable or expected to be paid as salary,
bonus payments and other compensation for 1995 and 1996, and also
showing the name and offices held by each officer and director of
each of the FBI Companies.
5.14 Employee Benefit Plans.
(a) Schedule 5.14 lists, and FBI has delivered or made
available to USB prior to the execution of this Agreement copies
of, all pension, retirement, profit-sharing, deferred compensation,
stock option, employee stock ownership, severance pay, vacation,
bonus or other incentive plan, all other written or unwritten
employee programs, arrangements or agreements, all medical, vision,
dental or other health plans, all life insurance plans, and all
other employee benefit plans or fringe benefit plans, including,
without limitation, "employee benefit plans" as that term is
defined in Section 3(3) of ERISA, currently adopted, maintained by,
sponsored in whole or in part by, or contributed to by any FBI
Company or Affiliate thereof for the benefit of employees,
retirees, dependents, spouses, directors, independent contractors
or other beneficiaries and under which employees, retirees,
dependents, spouses, directors, independent contractors or other
beneficiaries are eligible to participate (collectively, the "FBI
Benefit Plans"). Any of the FBI Benefit Plans which is an
"employee pension benefit plan," as that term is defined in Section
3(2) of ERISA, is referred to herein as a "FBI ERISA Plan." Each
FBI ERISA Plan which is also a "defined benefit plan" (as defined
in Section 414(j) of the Internal Revenue Code) is referred to
herein as a "FBI Pension Plan." No FBI Pension Plan is or has been
a multiemployer plan within the meaning of Section 3(37) of ERISA
or a multiple employee plan within the meaning of Section 413(c) of
the Internal Revenue Code.
(b) All FBI Benefit Plans and the administration thereof
are and have at all times been in compliance with the applicable
terms of ERISA, the Internal Revenue Code and any other applicable
Laws, the breach or violation of which are reasonably likely to
have, individually or in the aggregate, a Material Adverse Effect
on FBI. All returns, reports or other filings which are required
by any governmental agency or which must be furnished to any person
have been timely filed or furnished. Each FBI ERISA Plan which is
intended to be qualified under Section 401(a) of the Internal
Revenue Code has received a favorable determination letter from the
Internal Revenue Service, and FBI is not aware of any circumstances
likely to result in revocation of any such favorable determination
letter. To the Knowledge of FBI, no FBI Company has engaged in a
transaction with respect to any FBI Benefit Plan that, assuming the
taxable period of such transaction expired as of the date hereof,
would subject any FBI Company to a tax or penalty imposed by either
Section 4975 of the Internal Revenue Code or Section 502(i) of
ERISA in amounts which are reasonably likely to have, individually
or in the aggregate, a Material Adverse Effect on FBI. There are
no actions, suits, arbitrations or claims, including any
investigations or audits by the Internal Revenue Service or any
other governmental authority, pending (other than routine claims
for benefits) or threatened against, any FBI Benefit Plan or any
FBI Company with regard to any FBI Benefit Plan, any trust which is
a part of any FBI Benefit Plan, any trustee, fiduciary, custodian,
administrator or other person or entity holding or controlling
assets of any FBI Benefit Plan, and no basis to anticipate any such
action, suit, arbitration, claim, investigation or audit exists.
(c) No FBI ERISA Plan which is a defined benefit pension
plan has any "unfunded currently liability," as that term is
defined in Section 302(d)(8)(A) of ERISA, and the fair market value
of the assets of any such plan exceeds the plan's "benefit
liabilities," as that term is defined in Section 4001(a)(16) of
ERISA, when determined under actuarial factors that would apply if
the plan terminated in accordance with all applicable legal
requirements. There is no unfunded liability with respect to any
FBI Benefit Plan. Since the date of the most recent actuarial
valuation, there has been (i) no material change in the financial
position of any FBI Pension Plan, (ii) no change in the actuarial
assumptions with respect to any FBI Pension Plan, (iii) no increase
in benefits under any FBI Pension Plan as a result of plan
amendments or changes in applicable Law which is reasonably likely
to have, individually or in the aggregate, a Material Adverse
Effect on FBI or materially adversely affect the funding status of
any such plan. Neither any FBI Pension Plan nor any
"single-employer plan," within the meaning of Section 4001(a)(15)
of ERISA, currently or formerly maintained by any FBI Company, or
the single-employer plan of any entity which is considered one
employer with FBI under Section 4001 of ERISA or Section 414 of the
Internal Revenue Code or Section 302 of ERISA (whether or not
waived) (an "ERISA Affiliate") has an "accumulated funding
deficiency" within the meaning of Section 412 of the Internal
Revenue Code or Section 302 of ERISA, which is reasonably likely to
have a Material Adverse Effect on FBI. No FBI Company has provided
,or is required to provide, security to a FBI Pension Plan or to
any single-employer plan of an ERISA Affiliate pursuant to Section
401(a)(29) of the Code.
(d) No Liability under Subtitle C or D of Title IV of
ERISA has been or is expected to be incurred by any FBI Company
with respect to any ongoing, frozen or terminated single-employer
plan or the single-employer plan of any ERISA Affiliate, which
Liability is reasonably likely to have a Material Adverse Effect on
FBI. No FBI Company has incurred any withdrawal Liability with
respect to a multiemployer plan under Subtitle B of Title IV of
ERISA (regardless of whether based on contributions of an ERISA
Affiliate), which Liability is reasonably likely to have a Material
Adverse Effect on FBI. 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 FBI Pension Plan or by any ERISA Affiliate within the 12-month
period ending on the date hereof.
(e) No FBI Company has any obligations for retiree health
and life benefits under any of the FBI Benefit Plans, and there are
no restrictions on the rights of such FBI Company to amend or
terminate any such Plan without incurring any Liability thereunder,
which Liability is reasonably likely to have a Material Adverse
Effect on FBI.
(f) Neither the execution and delivery of this Agreement
nor the consummation of the transactions provided for herein will
(i) result in any payment (including, without limitation,
severance, unemployment compensation, golden parachute or
otherwise) becoming due to any director or any employee of any FBI
Company from any FBI Company under any FBI Benefit Plan or
otherwise, (ii) increase any benefits otherwise payable under any
FBI Benefit Plan, or (iii) result in any acceleration of the time
of payment or vesting of any such benefit, where such payment,
increase or acceleration is reasonably likely to have, individually
or in the aggregate, a Material Adverse Effect on FBI.
(g) With respect to all FBI Benefit Plans (whether or not
subject to ERISA and whether or not qualified under Section 401(a)
of the Internal Revenue Code), all contributions due (including any
contributions to any trust account or payments due under any
insurance policy) previously declared or otherwise required by law
or contract to have been made and any employer contributions
(including any contributions to any trust account or payments due
under any insurance policy) accrued but unpaid as of the date
hereof will be paid by the time required by law or contract. All
contributions made or required to be made under any FBI Benefit
Plan have been made and such contributions meet the requirements
for deductibility under the Internal Revenue Code, and all
contributions which are required and which have not been made have
been properly recorded on the books of FBI.
(h) No "prohibited transaction" as defined in Section 406
of ERISA, "reportable event" as defined in Section 4043 of ERISA,
event described in Section 4062(a) or Section 4063(a) of ERISA or
termination or partial termination, or commencement of proceedings
seeking termination with respect to any FBI Pension Plan has
occurred. No notice of intent to terminate an FBI Pension Plan has
been filed with the Pension Benefit Guaranty Corporation ("PBGC")
or provided to affected parties under Section 4041 of ERISA, nor
has any FBI Pension Plan been treated as terminated under Section
4041(e) of ERISA. The PBGC has not instituted proceedings to
terminate, or to appoint a trustee to administer, an FBI Pension
Plan, and no event has occurred or condition exists which might
constitute grounds under Section 4042 of ERISA for the termination
of, or the appointment of a trustee to administer, any FBI Pension
Plan.
(i) With respect to any FBI Benefit Plan that is an
"employee welfare benefit plan" as defined in Section 3(1) of
ERISA, except as disclosed on Schedule 5.14, (i) no such FBI
Benefit Plan is unfunded or funded through a "welfare benefit
fund," as such term is defined in Section 419(e) of the Internal
Revenue Code, (ii) each such FBI Benefit Plan that is a "group
health plan," as such term is defined in Section 5000(b)(1) of the
Internal Revenue Code is in compliance with the applicable
requirements of Section 4980(f) of the Internal Revenue Code, and
(iii) each such FBI Benefit Plan (including any such FBI Benefit
Plan covering retirees or former employees) may be amended or
terminated without material liability to FBI or any of its
Affiliates.
5.15 Material Contracts. Except as set forth on Schedule
5.15, none of the FBI Companies, nor any of their respective
Assets, businesses or operations, is a party to, or is bound or
affected by, or receives benefits under, (i) any employment,
severance, termination, consulting or retirement Contract with any
Person, (ii) any Contract relating to the borrowing of money by any
FBI Company or the guarantee by any FBI Company of any such
obligation (other than Contracts evidencing deposit liabilities,
purchases of federal funds, fully-secured repurchase agreements,
trade payables and Contracts relating to borrowings or guarantees
made and letters of credit) (iii) any Contract relating to
indemnification or defense of any director, officer or employee of
any of the FBI Companies or any other Person; (iv) any Contract
with any labor union; (v) any Contract relating to the disposition
or acquisition of any interest in any business enterprise; (vi)any
Contract relating to the extension of credit to, provision of
services for, sale, lease or license of Assets to, engagement of
services from, or purchase, lease or license of Assets from, any 2%
stockholder, director, officer or employee (other than loans by
First Bank to employees on terms that, as of the time of a
particular loan, are substantially the same as those prevailing for
comparable transactions with other persons) of any of the FBI
Companies, any member of the immediate family of the foregoing or,
to the Knowledge of FBI, any related interest (as defined in
Regulation O promulgated by the FRB) ("Related Interest") of any of
the foregoing; (vii) any Contract which limits the freedom of any
of the FBI Companies to compete in any line of business or with any
Person; (viii) any Contract providing a power of attorney or
similar authorization given by any of the FBI Companies, except as
issued in the ordinary course of business with respect to routine
matters; and (ix) any Contract (other than deposit agreements and
certificates of deposits issued to customers entered into in the
ordinary course of business and letters of credit) that involves
the payment by any of the FBI Companies of amounts aggregating
$25,000 or more in any twelve-month period (together with all
Contracts referred to in Sections 5.10 and 5.14(a) of this
Agreement, the "FBI Contracts"). None of the FBI Companies is in
Default under any FBI Contract. Except as set forth in Schedule
5.15, all of the indebtedness of any FBI Company for money borrowed
is prepayable at any time by such FBI Company without penalty or
premium.
5.16 Legal Proceedings. Except as set forth on Schedule
5.16, there is no Litigation instituted or pending, or, to the
Knowledge of FBI, threatened (or unasserted but considered probable
of assertion and which if asserted would have at least a reasonable
probability of an unfavorable outcome) against any FBI Company, or
against any Asset, interest, or right of any of them, that is
reasonably likely to have, individually or in the aggregate, a
Material Adverse Effect on FBI, nor are there any Orders of any
Regulatory Authorities, other governmental authorities or
arbitrators outstanding against any FBI Company, that are
reasonably likely to have, individually or in the aggregate, a
Material Adverse Effect on FBI.
5.17 Reports. Since January 1, 1993, or the date of
organization if later, each FBI Company has timely filed all
reports and statements, together with any amendments required to be
made with respect thereto, that it was required to file with (i)
the SEC, (ii) other Regulatory Authorities, and (iii) any
applicable state securities or banking authorities (except, in the
case of state securities authorities, failures to file which are
not reasonably likely to have, individually or in the aggregate, a
Material Adverse Effect on FBI). As of their respective dates,
each of such reports and documents, including the financial
statements, exhibits, and schedules thereto, complied in all
material respects with all applicable Laws. As of its respective
date, each such report and document did not, in all material
respects, contain any untrue statement of a material fact or omit
to state a material fact required to be stated therein or necessary
to make the statements made therein, in light of the circumstances
under which they were made, not misleading.
5.18 Statements True and Correct; Information in Filings.
No statement, certificate, instrument or other writing furnished or
to be furnished by any FBI Company or any Affiliate thereof to USB
pursuant to this Agreement or any other document, agreement or
instrument referred to herein contains or will contain any untrue
statement of material fact or will omit to state a material fact
necessary to make the statements therein, in light of the
circumstances under which they were made, not misleading. None of
the information supplied or to be supplied by any FBI Company or
any Affiliate thereof for inclusion in the documents to be prepared
by USB in connection with the transactions provided for in this
Agreement, including, without limitation, (i) documents to be filed
with the Securities and Exchange Commission (the "SEC"), including
without limitation the Registration Statement on Form S-4 of USB
registering the shares of USB Common Stock to be offered to the
holders of FBI Common Stock and all amendments thereto (the
"Registration Statement") and the Proxy Statement and Prospectus in
the form contained in the Registration Statement, and all
amendments and supplements thereto (the "Proxy
Statement/Prospectus"), (ii) filings pursuant to any state
securities and blue sky laws, and (iii) filings made in connection
with the obtaining of Consents from Regulatory Authorities, in the
case of the Proxy Statement/Prospectus, at the time of the mailing
thereof and at the time of the meeting of stockholders to which the
Proxy Statement/Prospectus relates, in the case of the Registration
Statement, at the time the Registration Statement is declared
effective pursuant to the Securities Act of 1933, as amended, and
in the case of any other documents, the time such documents are
filed in final form with any federal or state regulatory authority
and/or at the time they are distributed to stockholders of USB or
FBI, contains or will contain any untrue statement of a material
fact or fails to state any material fact required to be stated
therein or necessary in order to make the statements therein, in
light of the circumstances under which they were made, not
misleading. All documents that any FBI Company or any Affiliate
thereof is responsible for filing with any Regulatory Authority in
connection with the transactions provided for herein will comply as
to form in all material respects with the provisions of applicable
Law.
5.19 Accounting, Tax and Regulatory Matters. No FBI
Company or any Affiliate thereof has taken any action or has any
Knowledge of any fact or circumstance that is reasonably likely to
(i) prevent the transactions contemplated hereby, including the
Merger, from qualifying for pooling-of-interests accounting
treatment or as a reorganization within the meaning of Section
368(a) of the Internal Revenue Code, or (ii) materially impede or
delay receipt of any Consents of Regulatory Authorities referred to
in Section 9.1(b) of this Agreement or result in the imposition of
a condition or restriction of the type referred to in the last
sentence of such Section.
5.20 Offices. The headquarters of each FBI Company and
each other office, branch or facility maintained and operated by
each FBI Company (including without limitation representative and
loan production offices and operations centers) and the locations
thereof are listed on Schedule 5.20. Except as set forth on
Schedule 5.20, none of the FBI Companies maintains any other office
or branch or conducts business at any other location, or has
applied for or received permission to open any additional office or
branch or to operate at any other location.
5.21 Data Processing Systems. Except as set forth in
Schedule 5.21, the electronic data processing systems and similar
systems utilized in processing the work of each of the FBI
Companies, including both hardware and software (a) are supplied by
a third party provider; (b) satisfactorily perform the data
processing function for which they are presently being used; and
(c) are wholly within the possession and control of one of the FBI
Companies or its third party provider such that physical access to
all software, documentation, passwords, access codes, backups,
disks and other data storage devices and similar items readily can
be made accessible to and delivered into the possession of USB or
USB's third party provider.
5.22 Intellectual Property. One of the FBI Companies owns
or possesses valid and binding licenses and other rights to use
without payment all material patents, copyrights, trade secrets,
trade names, service marks and trademarks used in its business; and
none of the FBI Companies has received any notice of conflict with
respect thereto that asserts the rights of others. The FBI
Companies have in all material respects performed all the
obligations required to be performed by them and are not in default
in any material respect under any contract, agreement, arrangement
or commitment relating to any of the foregoing. Schedule 5.23
lists all of the trademarks, trade names, licenses and other
intellectual property used to conduct the businesses of the FBI
Companies.
ARTICLE 6
REPRESENTATIONS AND WARRANTIES OF USB
USB hereby represents and warrants to FBI as follows:
6.1 Organization, Standing, and Power. USB is a
corporation duly organized, validly existing, and in good standing
under the Laws of the State of Alabama, and has the corporate power
and authority to carry on its business as now conducted and to own,
lease and operate its Assets and to incur its Liabilities. USB is
duly qualified or licensed to transact business as a foreign
corporation in good standing in the States of the United States and
foreign jurisdictions where the character of its Assets or the
nature or conduct of its business requires it to be so qualified or
licensed, except for such jurisdictions in which the failure to be
so qualified or licensed is not reasonably likely to have,
individually or in the aggregate, a Material Adverse Effect on USB.
USB has delivered to FBI complete and correct copies of its
Articles of Incorporation and Bylaws and the articles of
incorporation, bylaws and other, similar governing instruments of
each of its Subsidiaries, in each case as amended through the date
hereof.
6.2 Authority; No Breach By Agreement.
(a) USB has the corporate power and authority necessary to
execute, deliver and perform its obligations under this Agreement
and to consummate the transactions provided for herein. The
execution, delivery and performance of this Agreement and the
consummation of the transactions provided for herein, including the
Merger, have been duly and validly authorized by all necessary
corporate action on the part of USB, subject to the approval of
this Agreement by the holders of two-thirds of the outstanding
shares of USB Common Stock. Subject to such requisite stockholder
approval, this Agreement represents a legal, valid and binding
obligation of USB, enforceable against USB in accordance with its
terms (except in all cases as such enforceability may be limited by
applicable bankruptcy, insolvency, reorganization, moratorium or
similar Laws affecting the enforcement of creditors' rights
generally and except that the availability of the equitable remedy
of specific performance or injunctive relief is subject to the
discretion of the court before which any proceeding may be
brought).
(b) Neither the execution and delivery of this Agreement
by USB, nor the consummation by USB of the transactions provided
for herein, nor compliance by USB with any of the provisions
hereof, will (i) conflict with or result in a breach of any
provision of USB's Articles of Incorporation or Bylaws, or (ii)
constitute or result in a Default under, or require any Consent
pursuant to, or result in the creation of any Lien on any Asset of
any USB Company under, any Contract or Permit of any USB Company,
where failure to obtain such Consent is reasonably likely to have,
individually or in the aggregate, a Material Adverse Effect on USB,
or, (iii) subject to receipt of the requisite approvals referred to
in Section 9.1(b) of this Agreement, violate any Law or Order
applicable to any USB Company or any of their respective Assets.
(c) Other than in connection or compliance with the
provisions of the Securities Laws, applicable state corporate and
securities Laws, and other than Consents required from Regulatory
Authorities, and other than notices to or filings with the Internal
Revenue Service or the Pension Benefit Guaranty Corporation with
respect to any employee benefit plans, and other than Consents,
filings or notifications which, if not obtained or made, are not
reasonably likely to have, individually or in the aggregate, a
Material Adverse Effect on USB, no notice to, filing with or
Consent of, any public body or authority is necessary for the
consummation by USB of the Merger and the other transactions
provided for in this Agreement.
6.3 Capital Stock. The authorized capital stock of USB
consists of 2,400,000 shares of USB Common Stock, $.01 par value,
of which 2,137,960 shares are issued and outstanding (not including
treasury shares). USB currently holds 64,100 shares of USB Common
Stock as treasury stock. As a condition precedent to the Merger,
USB will authorize an additional 7,600,000 shares of USB Common
stock. This authorization of additional shares is subject to
stockholder approval. All of the issued and outstanding shares of
USB Common Stock are, and all of the shares of USB Common Stock to
be issued in exchange for shares of FBI Common Stock upon
consummation of the Merger, when issued in accordance with the
terms of this Agreement, will be, duly and validly issued and
outstanding and fully paid and nonassessable under the ABCA. None
of the outstanding shares of USB Common Stock has been, and none of
the shares of USB Common Stock to be issued in exchange for shares
of FBI Common Stock upon consummation of the Merger will be, issued
in violation of any preemptive rights of the current or past
stockholders of USB.
6.4 USB Subsidiaries.
(a) The only USB Subsidiary is United Security Bank, a
state non-member bank, duly organized and validly existing under
the Laws of the State of Alabama. The USB Subsidiary is in good
standing under the Laws of the jurisdiction in which it is
incorporated or organized, and the USB Subsidiary has the corporate
power and authority necessary for it to own, lease and operate its
Assets and to incur its Liabilities and to carry on its business as
now conducted. The USB Subsidiary is duly qualified or licensed to
transact business as a foreign corporation in good standing in the
States of the United States and foreign jurisdictions where the
character of its Assets or the nature or conduct of its business
requires it to be so qualified or licensed, except for
jurisdictions in which the failure to be so qualified or licensed
is not reasonably likely to have, individually or in the aggregate,
a Material Adverse Effect on USB. The USB Subsidiary is a
depository institution and is an "insured institution" as defined
in the Federal Deposit Insurance Act and applicable regulations
thereunder.
(b) The authorized and issued and outstanding capital
stock of the USB Subsidiary, and the date with respect to which
each representation in this subsection (b) is made with respect to
the USB Subsidiary, is set forth on Schedule 6.4(b). USB owns all
of the issued and outstanding shares of capital stock of the USB
Subsidiary. No equity securities of any USB Subsidiary are or may
become required to be issued by reason of any options, warrants,
scrip, rights to subscribe to, calls or commitments of any
character whatsoever relating to, or securities or rights
convertible into or exchangeable for, shares of the capital stock
of any such Subsidiary, and there are no Contracts by which any USB
Subsidiary is bound to issue additional shares of its capital stock
or options, warrants or rights to purchase or acquire any
additional shares of its capital stock or by which any USB Company
is or may be bound to transfer any shares of the capital stock of
any USB Subsidiary. There are no Contracts relating to the rights
of any USB Company to vote or to dispose of any shares of the
capital stock of any USB Subsidiary. All of the shares of capital
stock of the USB Subsidiary held by a USB Company are fully paid
and nonassessable under the applicable corporation Law of the
jurisdiction in which such Subsidiary is incorporated or organized
and are owned by the USB Company free and clear of any Lien. No
USB Subsidiary has any liability for dividends declared or accrued,
but unpaid, with respect to any of its capital stock.
6.5 Financial Statements. USB has delivered to FBI copies
of all USB Financial Statements and USB Call Reports for periods
prior to the date hereof, and USB will deliver to FBI promptly
copies of all USB Financial Statements and USB Call Reports
prepared subsequent to the date hereof. The USB Financial
Statements (as of the dates thereof and for the periods covered
thereby) (i) are or, if dated after the date of this Agreement,
will be in accordance with the books and records of the USB
Companies, which are or will be, as the case may be, complete and
correct and which have been or will have been, as the case may be,
maintained in accordance with good business practices, and (ii)
present or will present, as the case may be, fairly the
consolidated financial position of the USB Companies as of the
dates indicated and the consolidated and the consolidated results
of operations, changes in stockholders' equity, and cash flows of
the USB Companies for the periods indicated, in accordance with
GAAP (subject to exceptions as to consistency specified therein or
as may be indicated in the notes thereto or, in the case of interim
financial statements, to normal recurring year-end adjustments that
are not material). The USB Call Reports have been prepared in
material compliance with the rules and regulations of the
respective federal or state banking regulator with which they were
filed.
6.6 Absence of Undisclosed Liabilities. No USB Company
has any Liabilities that are reasonably likely to have,
individually or in the aggregate, a Material Adverse Effect on USB,
except Liabilities accrued or reserved against in the consolidated
balance sheets of USB as of June 30, 1996 included in the USB
Financial Statements or reflected in the notes thereto. No USB
Company has incurred or paid any Liability since June 30, 1996,
except for such Liabilities incurred or paid in the ordinary course
of business consistent with past business practice and which are
not reasonably likely to have, individually or in the aggregate, a
Material Adverse Effect on USB.
6.7 Absence of Certain Changes or Events. Except as set
forth on Schedule 6.7, since June 30, 1996, (i) there have been no
events, changes or occurrences that have had, or are reasonably
likely to have, individually or in the aggregate, a Material
Adverse Effect on USB, and (ii) the USB Companies have not taken
any action, or failed to take any action, prior to the date of this
Agreement, which action or failure, if taken after the date of this
Agreement, would represent or result in a material breach or
violation of any of the covenants and agreements of USB provided in
Article 7 of this Agreement.
6.8 Tax Matters.
(a) All Tax returns required to be filed by or on behalf
of any of the USB Companies have been timely filed or requests for
extensions have been timely filed, granted, and have not expired
for periods ended on or before December 31, 1995, and all returns
filed are complete and materially accurate. All Taxes shown as due
on filed returns have been paid. There is no audit examination,
deficiency, refund Litigation or matter in controversy with respect
to any Taxes that might result in a determination that would have,
individually or in the aggregate, a Material Adverse Effect on USB,
except as reserved against in the USB Financial Statements
delivered prior to the date of this Agreement. All Taxes and other
Liabilities due with respect to completed and settled examinations
or concluded Litigation have been fully paid.
(b) None of the USB Companies has executed an extension or
waiver of any statute of limitations on the assessment or
collection of any Tax due (excluding such statutes that relate to
years currently under examination by the Internal Revenue Service
or other applicable taxing authorities) that is currently in
effect.
(c) Adequate provision for any Taxes due or to become due
for any of the USB Companies for the period or periods through and
including the date of the respective USB Financial Statements has
been made and is reflected on such USB Financial Statements.
(d) Deferred Taxes of the USB Companies have been provided
for in accordance with GAAP.
6.9 Loan Portfolio; Documentation and Reports.
(a) Except as disclosed in Schedule 6.9, none of the USB
Companies is a creditor as to any written or oral loan agreement,
note or borrowing arrangement including, without limitation,
leases, credit enhancements, commitments and interest-bearing
assets (collectively, the "Loans"), other than Loans the unpaid
principal balance of which does not exceed $1,000 per Loan, under
the terms of which the obligor is, as of the date of this
Agreement, over 90 days delinquent in payment of principal or
interest or in default of any other material provisions. Except as
otherwise set forth in Schedule 6.9, none of the USB Companies is
a creditor as to any Loan, including without limitation any loan
guaranty, to any director, executive officer or 10% stockholder
thereof, or to the knowledge of USB, any Person, corporation or
enterprise controlling, controlled by or under common control of
any of the foregoing. All of the Loans held by any of the USB
Companies were solicited, originated and exist in material
compliance with all applicable USB loan policies, except for
deviations from such policies that (a) have been approved by
current management of USB, in the case of Loans with an outstanding
principal balance that exceeds $250,000 or (b) in the judgment of
USB, will not adversely effect the ultimate collectibility of such
Loan. Except as set forth in Schedule 6.9, none of the USB
Companies holds any Loans that since January 1, 1995 have been
classified by any bank examiner, whether regulatory or internal, as
other loans Specifically Mentioned, Special Mention, Substandard,
Doubtful, Loss, Classified, Criticized, Credit Risk Assets,
concerned loans or words of similar import.
(b) The documentation relating to each Loan made by any
USB Company and to all security interests, mortgages and other
liens with respect to all collateral for loans is adequate for the
enforcement of the material terms of such Loan, security interest,
mortgage or other lien, except for inadequacies in such
documentation which will not, individually or in the aggregate,
have a Material Adverse Effect on USB.
(c) Each of the USB Companies has timely filed all
material reports, registrations and statements, together with any
amendments required to be made with respect thereto, that it was
required to file since December 31, 1991 with (i) the FRB, (ii) the
FDIC and (iii) any state regulatory authority ("State Regulator")
(collectively "Regulatory Agencies") and all other material reports
and statements required to be filed by it since December 31, 1991,
including, without limitation, any report or statement required to
be filed pursuant to the laws, rules or regulations of the United
States or any Regulatory Agencies, and has paid all fees and
assessments due and payable in connection therewith. Except as set
forth in Schedule 6.9 and as otherwise provided herein, and except
for normal examinations conducted by a Regulatory Agency in the
regular course of the business of the USB Companies, to the
Knowledge of USB, no Regulatory Agency has initiated any proceeding
or, to the Knowledge of USB, investigation into the business or
operations of any USB Company since December 31, 1991. There is no
unresolved violation, criticism or exception by any Regulatory
Agency with respect to any report or statement or lien or any
examinations of any USB Company, except for those items that will
not, individually or in the aggregate, have a Material Adverse
Effect on USB.
6.10 Assets; Insurance. The USB Companies have good and
marketable title, free and clear of all Liens, to all of their
respective Assets. All tangible properties used in the businesses
of the USB Companies are in good condition, reasonable wear and
tear excepted, and are usable in the ordinary course of business
consistent with USB's past practices. All Assets which are
material to USB's business on a consolidated basis, held under
leases or subleases by any of the USB Companies, are held under
valid Contracts enforceable in accordance with their respective
terms (except as enforceability may be limited by applicable
bankruptcy, insolvency, reorganization, moratorium, or other Laws
affecting the enforcement of creditors' rights generally and except
that the availability of the equitable remedy of specific
performance or injunctive relief is subject to the discretion of
the court before which any proceedings may be brought), and each
such Contract is in full force and effect. The policies of fire,
theft, liability and other insurance maintained with respect to the
Assets or businesses of the USB Companies provide adequate coverage
under current industry practices against loss or Liability, and the
fidelity and blanket bonds in effect as to which any of the USB
Companies is a named insured are reasonably sufficient. The Assets
of the USB Companies include all assets required to operate the
business of the USB Companies as now conducted.
6.11 Environmental Matters.
(a) To the Knowledge of USB, each USB Company, its
Participation Facilities and its Loan Properties are, and have
been, in compliance with all Environmental Laws, except for
violations that are not reasonably likely to have, individually or
in the aggregate, a Material Adverse Effect on USB.
(b) There is no Litigation pending or, to the Knowledge of
USB, threatened before any court, governmental agency or authority
or other forum in which any USB Company or any of its Participation
Facilities has been or, with respect to threatened Litigation, may
be named as a defendant (i) for alleged noncompliance (including by
any predecessor) with any Environmental Law or (ii) relating to the
release into the environment of any Hazardous Material (as defined
below) or oil, whether or not occurring at, on, under or involving
a site owned, leased or operated by any USB Company or any of its
Participation Facilities, except for such Litigation pending or
threatened that is not reasonably likely to have, individually or
in the aggregate, a Material Adverse Effect on USB.
(c) There is no Litigation pending or, to the Knowledge of
USB, threatened before any court, governmental agency or board or
other forum in which any of its Loan Properties (or USB in respect
of such Loan Property) has been or, with respect to threatened
Litigation, may be named as a defendant or potentially responsible
party (i) for alleged noncompliance (including by any predecessor)
with any Environmental Law or (ii) relating to the release into the
environment of any Hazardous Material or oil, whether or not
occurring at, on, under or involving a Loan Property, except for
such Litigation pending or threatened that is not reasonably likely
to have, individually or in the aggregate, a Material Adverse
Effect on USB.
(d) To the Knowledge of USB, there is no reasonable basis
for any Litigation of a type described in subsections (b) or (c),
except such as is not reasonably likely to have, individually or in
the aggregate, a Material Adverse Effect on USB.
(e) To the Knowledge of USB, during the period of (i) any
USB Company's ownership or operation of any of its respective
current properties, (ii) any USB Company's participation in the
management of any Participation Facility or (iii) any USB Company's
holding of a security interest in a Loan Property, there have been
no releases of Hazardous Material or oil in, on, under or affecting
such properties, except such as are not reasonably likely to have,
individually or in the aggregate, a Material Adverse Effect on USB.
Prior to the period of (i) any USB Company's ownership or operation
of any of its respective current properties, (ii) any USB Company's
participation in the management of any Participation Facility, or
(iii) any USB Company's holding of a security interest in a Loan
Property, to the Knowledge of USB, there were no releases of
Hazardous Material or oil in, on, under or affecting any such
property, Participation Facility or Loan Property, except such as
are not reasonably likely to have, individually or in the
aggregate, a Material Adverse Effect on USB.
6.12 Compliance with Laws. USB is duly registered as a
bank holding company under the BHC Act. Each USB Company has in
effect all Permits necessary for it to own, lease or operate its
Assets and to carry on its business as now conducted, except for
those Permits the absence of which are not reasonably likely to
have, individually or in the aggregate, a Material Adverse Effect
on USB, and there has occurred no Default under any such Permit.
Except as may be disclosed on Schedule 6.12, none of the USB
Companies:
(a) is in violation of any Laws, Orders or Permits
applicable to its business or employees conducting its business,
except for violations that are not reasonably likely to have,
individually or in the aggregate, a Material Adverse Effect on USB;
or
(b) has received any notification or communication from
any agency or department of federal, state or local government or
any Regulatory Authority or the staff thereof (i) asserting that
any USB Company is not in compliance with any of the Laws or Orders
that such governmental authority or Regulatory Authority enforces,
where such noncompliance is reasonably likely to have, individually
or in the aggregate, a Material Adverse Effect on USB, (ii)
threatening to revoke any Permits, the revocation of which is
reasonably likely to have, individually or in the aggregate, a
Material Adverse Effect on USB, or (iii) requiring any USB Company
to enter into or consent to the issuance of a cease and desist
order, formal agreement, directive, commitment or memorandum of
understanding, or to adopt any board resolution or similar
undertaking, that restricts materially the conduct of its business,
or in any manner relates to its capital adequacy, its credit or
reserve policies, its management or the payment of dividends.
6.13 Labor Relations. No USB Company is the subject of
any Litigation asserting that it or any other USB Company has
committed an unfair labor practice (within the meaning of the
National Labor Relations Act or comparable state Law) or seeking to
compel it or any other USB Company to bargain with any labor
organization as to wages or conditions of employment, nor is there
any strike or other labor dispute involving any USB Company,
pending or threatened, or to its Knowledge, is there any activity
involving any USB Company's employees seeking to certify a
collective bargaining unit or engaging in any other organization
activity.
6.14 Employee Benefit Plans.
(a) Schedule 6.14 lists, and USB has delivered or made
available to FBI prior to the execution of this Agreement copies
of, all pension, retirement, profit-sharing, deferred compensation,
stock option, employee stock ownership, severance pay, vacation,
bonus or other incentive plan, all other written or unwritten
employee programs, arrangements or agreements, all medical, vision,
dental or other health plans, all life insurance plans, and all
other employee benefit plans or fringe benefit plans, including,
without limitation, "employee benefit plans" as that term is
defined in Section 3(3) of ERISA, currently adopted, maintained by,
sponsored in whole or in part by, or contributed to by any USB
Company or Affiliate thereof for the benefit of employees,
retirees, dependents, spouses, directors, independent contractors
or other beneficiaries and under which employees, retirees,
dependents, spouses, directors, independent contractors or other
beneficiaries are eligible to participate (collectively, the "USB
Benefit Plans"). Any of the USB Benefit Plans which is an
"employee pension benefit plan," as that term is defined in Section
3(2) of ERISA, is referred to herein as a "USB ERISA Plan." Each
USB ERISA Plan which is also a "defined benefit plan" (as defined
in Section 414(j) of the Internal Revenue Code) is referred to
herein as a "USB Pension Plan." No USB Pension Plan is or has been
a multiemployer plan within the meaning of Section 3(37) of ERISA
or a multiple employee plan within the meaning of Section 413(c) of
the Internal Revenue Code.
(b) All USB Benefit Plans and the administration thereof
are and have at all times been in compliance with the applicable
terms of ERISA, the Internal Revenue Code and any other applicable
Laws the breach or violation of which are reasonably likely to
have, individually or in the aggregate, a Material Adverse Effect
on USB. All returns, reports or other filings which are required
by any governmental agency or which must be furnished to any person
have been timely filed or furnished. Each USB ERISA Plan which is
intended to be qualified under Section 401(a) of the Internal
Revenue Code has received a favorable determination letter from the
Internal Revenue Service, and USB is not aware of any circumstances
likely to result in revocation of any such favorable determination
letter. To the Knowledge of USB, no USB Company has engaged in a
transaction with respect to any USB Benefit Plan that, assuming the
taxable period of such transaction expired as of the date hereof,
would subject any USB Company to a tax or penalty imposed by either
Section 4975 of the Internal Revenue Code or Section 502(i) of
ERISA in amounts which are reasonably likely to have, individually
or in the aggregate, a Material Adverse Effect on USB. There are
no actions, suits, arbitrations or claims, including any
investigations or audits by the Internal Revenue Service or any
other governmental authority, pending (other than routine claims
for benefits) or threatened against, any USB Benefit Plan or any
USB Company with regard to any USB Benefit Plan, any trust which is
a part of any USB Benefit Plan, any trustee, fiduciary, custodian,
administrator or other person or entity holding or controlling
assets of any USB Benefit Plan, and no basis to anticipate any such
action, suit, arbitration, claim, investigation or audit exists.
(c) No USB ERISA Plan which is a defined benefit pension
plan has any "unfunded currently liability," as that term is
defined in Section 302(d)(8)(A) of ERISA, and the fair market value
of the assets of any such plan exceeds the plan's "benefit
liabilities," as that term is defined in Section 4001(a)(16) of
ERISA, when determined under actuarial factors that would apply if
the plan terminated in accordance with all applicable legal
requirements. There is no unfunded liability with respect to any
USB Benefit Plan. Since the date of the most recent actuarial
valuation, there has been (i) no material change in the financial
position of any USB Pension Plan, (ii) no change in the actuarial
assumptions with respect to any USB Pension Plan, (iii) no increase
in benefits under any USB Pension Plan as a result of plan
amendments or changes in applicable Law which is reasonably likely
to have, individually or in the aggregate, a Material Adverse
Effect on USB or materially adversely affect the funding status of
any such plan. Neither any USB Pension Plan nor any
"single-employer plan," within the meaning of Section 4001(a)(15)
of ERISA, currently or formerly maintained by any USB Company, or
the single-employer plan of any ERISA Affiliate has an "accumulated
funding deficiency" within the meaning of Section 412 of the
Internal Revenue Code or Section 302 of ERISA, which is reasonably
likely to have a Material Adverse Effect on USB. No USB Company
has provided, or is required to provide, security to a USB Pension
Plan or to any single-employer plan of an ERISA Affiliate pursuant
to Section 401(a)(29) of the Code.
(d) No Liability under Subtitle C or D of Title IV of
ERISA has been or is expected to be incurred by any USB Company
with respect to any ongoing, frozen or terminated single-employer
plan or the single-employer plan of any ERISA Affiliate, which
Liability is reasonably likely to have a Material Adverse Effect on
USB. No USB Company has incurred any withdrawal Liability with
respect to a multiemployer plan under Subtitle B of Title IV of
ERISA (regardless of whether based on contributions of an ERISA
Affiliate), which Liability is reasonably likely to have a Material
Adverse Effect on USB. 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 USB Pension Plan or by any ERISA Affiliate within the 12-month
period ending on the date hereof.
(e) No USB Company has any obligations for retiree health
and life benefits under any of the USB Benefit Plans, and there are
no restrictions on the rights of such USB Company to amend or
terminate any such Plan without incurring any Liability thereunder,
which Liability is reasonably likely to have a Material Adverse
Effect on USB.
(f) Neither the execution and delivery of this Agreement
nor the consummation of the transactions provided for herein will
(i) result in any payment (including, without limitation,
severance, unemployment compensation, golden parachute or
otherwise) becoming due to any director or any employee of any USB
Company from any USB Company under any USB Benefit Plan or
otherwise, (ii) increase any benefits otherwise payable under any
USB Benefit Plan, or (iii) result in any acceleration of the time
of payment or vesting of any such benefit, where such payment,
increase or acceleration is reasonably likely to have, individually
or in the aggregate, a Material Adverse Effect on USB.
(g) With respect to all USB Benefit Plans (whether or not
subject to ERISA and whether or not qualified under Section 401(a)
of the Internal Revenue Code), all contributions due (including any
contributions to any trust account or payments due under any
insurance policy) previously declared or otherwise required by law
or contract to have been made and any employer contributions
(including any contributions to any trust account or payments due
under any insurance policy) accrued but unpaid as of the date
hereof will be paid by the time required by law or contract. All
contributions made or required to be made under any USB Benefit
Plan have been made and such contributions meet the requirements
for deductibility under the Internal Revenue Code, and all
contributions which are required and which have not been made have
been properly recorded on the books of USB.
(h) No "prohibited transaction" as defined in Section 406
of ERISA, "reportable event" as defined in Section 4043 of ERISA,
event described in Section 4062(a) or Section 4063(a) of ERISA or
termination or partial termination, or commencement of proceedings
seeking termination with respect to any USB Pension Plan has
occurred. No notice of intent to terminate a USB Pension Plan has
been filed with the Pension Benefit Guaranty Corporation ("PBGC")
or provided to affected parties under Section 4041 of ERISA, nor
has any USB Pension Plan been treated as terminated under Section
4041(e) of ERISA. The PBGC has not instituted proceedings to
terminate, or to appoint a trustee to administer, a USB Pension
Plan, and no event has occurred or condition exists which might
constitute grounds under Section 4042 of ERISA for the termination
of, or the appointment of a trustee to administer, any USB Pension
Plan.
(i) With respect to any USB Benefit Plan that is an
"employee welfare benefit plan" as defined in Section 3(1) of
ERISA, except as disclosed on Schedule 6.14, (i) no such USB
Benefit Plan is unfunded or funded through a "welfare benefit
fund," as such term is defined in Section 419(e) of the Internal
Revenue Code, (ii) each such USB Benefit Plan that is a "group
health plan," as such term is defined in Section 5000(b)(1) of the
Internal Revenue Code is in compliance with the applicable
requirements of Section 4980(f) of the Internal Revenue Code, and
(iii) each such USB Benefit Plan (including any such USB Benefit
Plan covering retirees or former employees) may be amended or
terminated without material liability to USB or any of its
Affiliates.
6.15 Material Contracts. Except as set forth on Schedule
6.15, none of the USB Companies, nor any of their respective
Assets, businesses or operations, is a party to, or is bound or
affected by, or receives benefits under, (i) any employment,
severance, termination, consulting or retirement Contract with any
Person, (ii) any Contract relating to the borrowing of money by any
USB Company or the guarantee by any USB Company of any such
obligation (other than Contracts evidencing deposit liabilities,
purchases of federal funds, fully-secured repurchase agreements,
trade payables and Contracts relating to borrowings or guarantees
made and letters of credit) (iii) any Contract relating to
indemnification or defense of any director, officer or employee of
any of the USB Companies or any other Person; (iv) any Contract
with any labor union; (v) any Contract relating to the disposition
or acquisition of any interest in any business enterprise; (vi)any
Contract relating to the extension of credit to, provision of
services for, sale, lease or license of Assets to, engagement of
services from, or purchase, lease or license of Assets from, any 2%
stockholder, director, officer or employee (other than loans by USB
Bank to employees on terms that, as of the time of a particular
loan, are substantially the same as those prevailing for comparable
transactions with other persons) of any of the USB Companies, any
member of the immediate family of the foregoing or, to the
Knowledge of USB, any Related Interest of any of the foregoing;
(vii) any Contract which limits the freedom of any of the USB
Companies to compete in any line of business or with any Person;
(viii) any Contract providing a power of attorney or similar
authorization given by any of the USB Companies, except as issued
in the ordinary course of business with respect to routine matters;
and (ix) any Contract (other than deposit agreements and
certificates of deposits issued to customers entered into in the
ordinary course of business and letters of credit) that involves
the payment by any of the USB Companies of amounts aggregating
$25,000 or more in any twelve-month period (together with all
Contracts referred to in Section 6.10 of this Agreement, the "USB
Contracts"). None of the USB Companies is in Default under any USB
Contract. All of the indebtedness of any USB Company for money
borrowed is prepayable at any time by such USB Company without
penalty or premium.
6.16 Legal Proceedings. Except as set forth on Schedule
6.16, there is no Litigation instituted or pending, or, to the
Knowledge of USB, threatened (or unasserted but considered probable
of assertion and which if asserted would have at least a reasonable
probability of an unfavorable outcome) against any USB Company, or
against any Asset, interest, or right of any of them, that is
reasonably likely to have, individually or in the aggregate, a
Material Adverse Effect on USB, nor are there any Orders of any
Regulatory Authorities, other governmental authorities or
arbitrators outstanding against any USB Company, that are
reasonably likely to have, individually or in the aggregate, a
Material Adverse Effect on USB.
6.17 Reports. Since January 1, 1993, or the date of
organization if later, each USB Company has filed all reports and
statements, together with any amendments required to be made with
respect thereto, that it was required to file with (i) the SEC,
(ii) other Regulatory Authorities, and (iii) any applicable state
securities or banking authorities (except, in the case of state
securities authorities, failures to file which are not reasonably
likely to have, individually or in the aggregate, a Material
Adverse Effect on USB). As of their respective dates, each of such
reports and documents, including the financial statements,
exhibits, and schedules thereto, complied in all material respects
with all applicable Laws. As of its respective date, each such
report and document did not, in all material respects, contain any
untrue statement of a material fact or omit to state a material
fact required to be stated therein or necessary to make the
statements made therein, in light of the circumstances under which
they were made, not misleading.
6.18 Statements True and Correct; Information in Filings.
No statement, certificate, instrument or other writing furnished or
to be furnished by any USB Company or any Affiliate thereof to FBI
pursuant to this Agreement or any other document, agreement or
instrument referred to herein contains or will contain any untrue
statement of material fact or will omit to state a material fact
necessary to make the statements therein, in light of the
circumstances under which they were made, not misleading. None of
the information supplied or to be supplied by any USB Company or
any Affiliate thereof for inclusion in the documents to be prepared
by USB in connection with the transactions provided for in this
Agreement, including, without limitation, (i) documents to be filed
with the SEC, including without limitation the Registration
Statement and the Proxy Statement/Prospectus, (ii) filings pursuant
to any state securities and blue sky laws, and (iii) filings made
in connection with the obtaining of Consents from Regulatory
Authorities, in the case of the Proxy Statement/Prospectus, at the
time of the mailing thereof and at the time of the meeting of
stockholders to which the Proxy Statement/Prospectus relates, in
the case of the Registration Statement, at the time the
Registration Statement is declared effective pursuant to the
Securities Act of 1933, as amended, and in the case of any other
documents, the time such documents are filed in final form with any
federal or state regulatory authority and/or at the time they are
distributed to stockholders of USB or FBI, contains or will contain
any untrue statement of a material fact or fails to state any
material fact required to be stated therein or necessary in order
to make the statements therein, in light of the circumstances under
which they were made, not misleading. All documents that any USB
Company or any Affiliate thereof is responsible for filing with any
Regulatory Authority in connection with the transactions provided
for herein will comply as to form in all material respects with the
provisions of applicable Law.
6.19 Accounting, Tax and Regulatory Matters. No USB
Company or any Affiliate thereof has taken any action or has any
Knowledge of any fact or circumstance that is reasonably likely to
(i) prevent the transactions contemplated hereby, including the
Merger, from qualifying for pooling-of-interests accounting
treatment or as a reorganization within the meaning of Section
368(a) of the Internal Revenue Code, or (ii) materially impede or
delay receipt of any Consents of Regulatory Authorities referred to
in Section 9.1(b) of this Agreement or result in the imposition of
a condition or restriction of the type referred to in the last
sentence of such Section.
ARTICLE 7
CONDUCT OF BUSINESS PENDING CONSUMMATION
7.1 Covenants of Both Parties. Unless the prior written
consent of the other Party shall have been obtained, and except as
otherwise expressly provided for herein, each Party shall and shall
cause each of its Subsidiaries to (a) preserve intact its business
organization, goodwill, relationships with depositors, customers
and employees, and Assets and maintain its rights and franchises,
and (b) take no action which would (i) adversely affect the ability
of any Party to obtain any Consents required for the transactions
provided for herein without imposition of a condition or
restriction of the type referred to in the last sentences of
Section 9.1(b) or 9.1(c) of this Agreement or (ii) adversely affect
the ability of any Party to perform its covenants and agreements
under this Agreement.
7.2 Negative Covenants of FBI. From the date of this
Agreement until the earlier of the Effective Time or the
termination of this Agreement, FBI covenants and agrees that it
will not do or agree or commit to do, or permit any of its
Subsidiaries to do or agree or commit to do, any of the following
without the prior written consent of the chief executive officer of
USB, which consent shall not be unreasonably withheld:
(a) amend the Articles of Incorporation, Bylaws or other
governing instruments of any FBI Company; or
(b) incur any additional debt obligation or other
obligation for borrowed money except in the ordinary course of the
business of FBI Subsidiaries consistent with past practices (which
shall include, for FBI Subsidiaries that are depository
institutions, creation of deposit liabilities, purchases of federal
funds, sales of certificates of deposit, advances from the FRB or
the Federal Home Loan Bank, entry into repurchase agreements fully
secured by U.S. government or agency securities and issuances of
letters of credit), or impose, or suffer the imposition, on any
share of stock held by any FBI Company of any Lien or permit any
such Lien to exist; or
(c) modify, amend or terminate any material Contract or
waive, release, compromise or assign any material rights or claims,
except in the ordinary course of business and for fair
consideration;
(d) file any application to relocate or terminate the
operations of any banking office of it or any of its Subsidiaries;
(e) except in accordance with applicable Law, change its
or any of its Subsidiaries' lending, investment, liability
management and other material banking policies in any material
respect;
(f) repurchase, redeem or otherwise acquire or exchange,
directly or indirectly, any shares, or any securities convertible
into any shares, of the capital stock of any FBI Company, or, other
than regular dividends in an amount not in excess of $.35 per share
of FBI Common Stock per quarter, declare or pay any dividend or
make any other distribution in respect of FBI's capital stock; or
(g) except as specifically set forth in this Agreement or
in the FBI Option Agreement, issue, sell, pledge, encumber, enter
into any Contract to issue, sell, pledge, or encumber, authorize
the issuance of, or otherwise permit to become outstanding, any
additional shares of FBI Common Stock or any other capital stock of
any FBI Company, or any stock appreciation rights, or any option,
warrant, conversion or other right to acquire any such stock, or
any security convertible into any shares of such stock; or
(h) adjust, split, combine or reclassify any capital stock
of any FBI Company or issue or authorize the issuance of any other
securities with respect to or in substitution for shares of its
capital stock or sell, lease, mortgage or otherwise encumber any
shares of capital stock of any FBI Subsidiary or any Asset other
than in the ordinary course of business for reasonable and adequate
consideration; or
(i) acquire any direct or indirect equity interest in any
Person, other than in connection with (i) foreclosures in the
ordinary course of business and (ii) acquisitions of control by a
depository institution Subsidiary in its fiduciary capacity; or
(j) grant any increase in compensation or benefits to the
employees or officers of any FBI Company, except in accordance with
past practices with respect to employees; pay any bonus except in
accordance with the provisions of any applicable program or plan
adopted by its Board of Directors prior to the date of this
Agreement; enter into or amend any severance agreements with
officers of any FBI Company; grant any material increase in fees or
other increases in compensation or other benefits to directors of
any FBI Company; or
(k) enter into or amend any employment Contract between
any FBI Company and any Person (unless such amendment is required
by Law) that the FBI Company does not have the unconditional right
to terminate without Liability (other than Liability for services
already rendered), at any time on or after the Effective Time; or
(l) adopt any new employee benefit plan of any FBI Company
or make any material change in or to any existing employee benefit
plans of any FBI Company other than any such change that is
required by Law or required by this Agreement or that, in the
opinion of counsel, is necessary or advisable to maintain the tax
qualified status of any such plan; or
(m) make any significant change in any accounting methods
or systems of internal accounting controls, except as may be
appropriate to conform to changes in regulatory accounting
requirements or GAAP; or
(n) commence any Litigation other than in accordance with
past practice, settle any Litigation involving any Liability of any
FBI Company for material money damages or restrictions upon the
operations of any FBI Company, or, except in the ordinary course of
business, modify, amend or terminate any material Contract or
waive, release, compromise or assign any material rights or claims;
or
(o) operate its business otherwise than in the ordinary
course of business or enter into any transaction or course of
conduct not in the ordinary course of business, or not consistent
with safe and sound banking practices or applicable Laws; or
(p) fail to file timely any report required to be filed by
it with any Regulatory Authority; or
(q) intentionally take any action that would reasonably be
expected to jeopardize or delay the receipt of any of the approvals
from Regulatory Authorities required in order to consummate the
transactions provided for in this Agreement; or
(r) make any Loan or advance in excess of $20,000, in the
aggregate, to any stockholder owning 2% or more of the outstanding
shares of FBI Common Stock, director or officer of FBI or any of
the FBI Subsidiaries, or any member of the immediate family of the
foregoing, except on terms substantially the same as those
prevailing at the time of such Loan or advance for comparable
transactions with other persons (provided, however, that the
restrictions of this Section 7.2(r) shall not apply to loans or
advances to Acceptance Loan Company, Inc.); or
(s) cancel without payment in full, or modify any Contract
relating to, any loan or other obligation receivable from any
stockholder, director, officer or employee of any FBI Company or
any member of the immediate family of the foregoing, or any Related
Interest (Known to FBI or any of its Subsidiaries) of any of the
foregoing; or
(t) enter into any Contract for services or otherwise with
any of the 5% stockholders, directors, officers or employees of any
FBI Company or any member of the immediate family of the foregoing,
or any Related Interest (Known to FBI or any of its Subsidiaries)
of any of the foregoing.
7.3 Negative Covenants of USB. From the date of this
Agreement until the earlier of the Effective Time or the
termination of this Agreement, USB covenants and agrees that it
will not do or agree or commit to do, or permit any of its
Subsidiaries to do or agree or commit to do, any of the following
without the prior written consent of the chief executive officer,
president or chief financial officer of FBI, which consent shall
not be unreasonably withheld.
(a) except for those items provided for in Article 2
hereof, amend the Articles of Incorporation, Bylaws or other
governing instruments of any USB Company; or
(b) incur any additional debt obligation or other
obligation for borrowed money except in the ordinary course of the
business of USB Subsidiaries consistent with past practices (which
shall include, for USB Subsidiaries that are depository
institutions, creation of deposit liabilities, purchases of federal
funds, sales of certificates of deposit, advances from the FRB or
the Federal Home Loan Bank, entry into repurchase agreements fully
secured by U.S. government or agency securities and issuances of
letters of credit), or impose, or suffer the imposition, on any
share of stock held by any USB Company of any Lien or permit any
such Lien to exist; or
(c) modify, amend or terminate any material Contract or
waive, release, compromise or assign any material rights or claims,
except in the ordinary course of business and for fair
consideration;
(d) file any application to relocate or terminate the
operations of any banking office of it or any of its Subsidiaries;
(e) except in accordance with applicable Law, change its
or any of its Subsidiaries' lending, investment, liability
management and other material banking policies in any material
respect;
(f) repurchase, redeem or otherwise acquire or exchange,
directly or indirectly, any shares, or any securities convertible
into any shares, of the capital stock of any USB Company, or
declare or, other than regular dividends in an amount not in excess
of $.13 per share of USB Common Stock per quarter, pay any dividend
or make any other distribution in respect of USB's capital stock;
or
(g) except as specifically set forth in this Agreement or
in the USB Option Agreement, issue, sell, pledge, encumber, enter
into any Contract to issue, sell, pledge, or encumber, authorize
the issuance of, or otherwise permit to become outstanding, any
additional shares of USB Common Stock or any other capital stock of
any USB Company, or any stock appreciation rights, or any option,
warrant, conversion or other right to acquire any such stock, or
any security convertible into any shares of such stock; or
(h) adjust, split, combine or reclassify any capital stock
of any USB Company or issue or authorize the issuance of any other
securities with respect to or in substitution for shares of its
capital stock or sell, lease, mortgage or otherwise encumber any
shares of capital stock of any USB Subsidiary or any Asset other
than in the ordinary course of business for reasonable and adequate
consideration; or
(i) acquire any direct or indirect equity interest in any
Person, other than in connection with (i) foreclosures in the
ordinary course of business and (ii) acquisitions of control by a
depository institution Subsidiary in its fiduciary capacity; or
(j) grant any increase in compensation or benefits to the
employees or officers of any USB Company, except in accordance with
past practices with respect to employees; pay any bonus except in
accordance with the provisions of any applicable program or plan
adopted by its Board of Directors prior to the date of this
Agreement; enter into or amend any severance agreements with
officers of any USB Company; grant any material increase in fees or
other increases in compensation or other benefits to directors of
any USB Company; or
(k) enter into or amend any employment Contract between
any USB Company and any Person (unless such amendment is required
by Law) that the USB Company does not have the unconditional right
to terminate without Liability (other than Liability for services
already rendered), at any time on or after the Effective Time; or
(l) adopt any new employee benefit plan of any USB Company
or make any material change in or to any existing employee benefit
plans of any USB Company other than any such change that is
required by Law or required by this Agreement or that, in the
opinion of counsel, is necessary or advisable to maintain the tax
qualified status of any such plan; or
(m) make any significant change in any accounting methods
or systems of internal accounting controls, except as may be
appropriate to conform to changes in regulatory accounting
requirements or GAAP; or
(n) commence any Litigation other than in accordance with
past practice, settle any Litigation involving any Liability of any
USB Company for material money damages or restrictions upon the
operations of any USB Company, or, except in the ordinary course of
business, modify, amend or terminate any material Contract or
waive, release, compromise or assign any material rights or claims;
or
(o) operate its business otherwise than in the ordinary
course of business or enter into any transaction or course of
conduct not in the ordinary course of business, or not consistent
with safe and sound banking practices or applicable Laws; or
(p) fail to file timely any report required to be filed by
it with any Regulatory Authority; or
(q) intentionally take any action that would reasonably be
expected to jeopardize or delay the receipt of any of the approvals
from Regulatory Authorities required in order to consummate the
transactions provided for in this Agreement; or
(r) make any Loan or advance in excess of $20,000, in the
aggregate, to any stockholder owning 2% or more of the outstanding
shares of FBI Common Stock, director or officer of USB or any of
the USB Subsidiaries, or any member of the immediate family of the
foregoing, except on terms substantially the same as those
prevailing at the time of such Loan or advance for comparable
transactions with other persons; or
(s) cancel without payment in full, or modify any Contract
relating to, any loan or other obligation receivable from any
stockholder, director, officer or employee of any USB Company or
any member of the immediate family of the foregoing, or any Related
Interest (Known to USB or any of its Subsidiaries) of any of the
foregoing; or
(t) enter into any Contract for services or otherwise with
any of the 5% stockholders, directors, officers or employees of any
USB Company or any member of the immediate family of the foregoing,
or any Related Interest (Known to USB or any of its Subsidiaries)
of any of the foregoing.
7.4 Adverse Changes in Condition. Each Party agrees to
give written notice promptly to the other Party upon becoming aware
of the occurrence or impending occurrence of any event or
circumstance relating to it or any of its Subsidiaries that (i) is
reasonably likely to have, individually or in the aggregate, a
Material Adverse Effect on it or (ii) would cause or constitute a
material breach of any of its representations, warranties or
covenants contained herein, and to use its reasonable efforts to
prevent or promptly to remedy the same.
7.5 Reports. Each Party and its Subsidiaries shall
deliver to the other Party copies of all reports to Regulatory
Authorities promptly after the same are filed.
7.6 Acquisition Proposals. Except with respect to this
Agreement and the transactions contemplated hereby, each of FBI and
USB expressly agrees that neither it nor any of its respective
Subsidiaries, nor any director, officer, employee, investment
banker, attorney, accountant or other representative (collectively,
"Representatives") retained by it or any of its respective
Subsidiaries or any affiliate thereof will solicit, review or
accept any Acquisition Proposal by any Person until the earlier of
the Termination of this Agreement or the consummation of the
Merger. Each Party shall promptly notify the other orally and in
writing in the event it or any of its Subsidiaries receives any
inquiry or proposal relating to any such transaction.
ARTICLE 8
ADDITIONAL AGREEMENTS
8.1 Regulatory Matters.
(a) USB shall promptly prepare and file the Registration
Statement with the SEC. USB shall use all reasonable efforts to
have the Registration Statement declared effective under the
Securities Act as promptly as practicable after such filing, and
USB shall thereafter mail the Proxy Statement/Prospectus to its
stockholders. FBI shall mail the Proxy Statement/Prospectus to its
stockholders simultaneously with delivery of notice of the meeting
of Stockholders called to approve the Merger. USB shall also use
all reasonable efforts to obtain all necessary state securities law
or "Blue Sky" permits and approvals required to carry out the
transaction provided for in this Agreement, and FBI shall furnish
all information concerning FBI and the holders of its common stock
as may be reasonably requested in connection with any such action.
If at any time prior to the Effective Time of the Merger any event
shall occur which should be set forth in an amendment of, or a
supplement to, the Proxy Statement/Prospectus, FBI will promptly
inform USB and cooperate and assist USB in preparing such amendment
or supplement and mailing the same to the stockholders of FBI. As
of the date of the execution of this Agreement, and assuming the
absence of any additional material factors, (i) unless the Board of
Directors of FBI in its good faith judgment determines that it is
otherwise required by law, it is the intent of the Board of
Directors of FBI that the Proxy Statement/Prospectus shall contain
the recommendation of the Board of Directors of FBI in favor of the
Merger and, subject to the foregoing, the Board of Directors shall
recommend that the holders of FBI Common Stock vote for and adopt
the Merger provided for in the Proxy Statement/Prospectus and this
Agreement and (ii) unless the Board of Directors of USB in its good
faith judgment determines that it is otherwise required by law, it
is the intent of the Board of Directors of USB that the Proxy
Statement/Prospectus shall contain the recommendation of the Board
of Directors of USB in favor of the Merger and, subject to the
foregoing, the Board of Directors of USB shall recommend that the
holders of USB Common Stock vote for and adopt the Merger provided
for in the Proxy Statement/Prospectus and this Agreement.
(b) The Parties shall cooperate with each other and use
their best efforts to promptly prepare and file all necessary
documentation, to effect all applications, notices, petitions and
filings and to obtain as promptly as practicable all permits,
consents, approvals and authorizations of all third parties and
Regulatory Authorities which are necessary or advisable to
consummate the transactions provided for in this Agreement. USB
and FBI shall have the right to review in advance, and to the
extent practicable each will consult the other on, in each case
subject to applicable Laws relating to the exchange of information,
all the information relating to USB or FBI as the case may be, and
any of their respective Subsidiaries, which appear in any filing
made with, or written materials submitted to, any third party or
any Regulatory Authority in connection with the transactions
provided for in this Agreement. In exercising the foregoing right,
each of the Parties hereto shall act reasonably and as promptly as
practicable. The Parties hereto agree that they will consult with
each other with respect to the obtaining of all Permits and
Consents, approvals and authorizations of all third parties and
Regulatory Authorities necessary or advisable to consummate the
transaction provided for in this Agreement and each party will keep
the other apprised of the status of matters relating to completion
of the transactions provided for herein.
(c) USB and FBI shall, upon request, furnish each other
all information concerning themselves, their subsidiaries,
directors, officers and stockholders and such other matters that as
may be reasonably necessary or advisable in connection with the
Proxy Statement/Prospectus, the Registration Statement or any other
statement, filing, notice or application made by or on behalf of
USB, FBI or any of their Subsidiaries to any Regulatory Authority
in connection with the Merger and the other transactions provided
for in this Agreement.
(d) USB and FBI shall promptly furnish each other with
copies of written communications received by USB or FBI, as the
case may be, or any of their respective Subsidiaries, affiliates or
associates from, or delivered by any of the foregoing to, any
Regulatory Authority in respect of the transactions provided for
herein.
(e) USB will indemnify and hold harmless FBI and its
respective officers and directors and FBI will indemnify and hold
harmless USB and its directors and officers, from and against any
and all actions, causes of actions, losses, damages, expenses or
liabilities to which any such entity, or any director, officer or
controlling person thereof, may become subject under applicable
Laws (including the Securities Laws) and rules and regulations
thereunder and will reimburse the other, and any such director,
officer or controlling person for any legal or other expenses
reasonably incurred in connection with investigating or defending
any actions, whether or not resulting in liability, insofar as such
losses, damages, expenses, liabilities or actions arise out of or
are based upon any untrue statement or alleged untrue statement of
a material fact contained in any such request, statement,
application, report or material or arise out of or are based upon
the omission or alleged omission to state therein a material fact
required to be stated therein, or necessary in order to make the
statement therein not misleading, but only insofar as any such
statement or omission was made in reliance upon and in conformity
with information furnished in writing in connection therewith by
such indemnifying party for use therein.
8.2 Filings with State Offices. Upon the terms and
subject to the conditions of this Agreement, USB shall execute and
file the Articles of Merger with the Secretary of State of Alabama
in connection with the Closing.
8.3 Access to Information.
(a) Upon reasonable notice and subject to applicable Laws
relating to the exchange of information, for a period of 45 days
from the date of this Agreement, and for an additional 20 days
immediately preceding the Effective Time, USB and FBI shall, and
shall cause each of their respective Subsidiaries to, afford to the
officers, employees, accountants, counsel and other representatives
of the other, access during the period prior to the Effective Time,
to all its properties, books, contracts, commitments and records
and, during such period, each of USB and FBI shall, and shall cause
each of their respective Subsidiaries to, make available to the
other (i) a copy of each report, schedule, registration statement
and other document filed or received by it during such period
pursuant to the requirements of the Securities Laws or Federal or
state banking laws (other than reports or documents which such
party is not permitted to disclose under applicable Law) and (ii)
also other information concerning its business, properties and
personnel as the other party may reasonably request. Neither USB
nor FBI nor any of their respective Subsidiaries shall be required
to provide access to or to disclose information where such access
or disclosure would jeopardize the attorney-client privilege of the
institution in possession or control of such information or would
contravene any Law, Order, fiduciary duty or binding agreement
entered into prior to the date of this Agreement.
(b) All information furnished by USB to FBI or its
respective Representatives or Subsidiaries pursuant hereto shall be
treated as the sole property of USB and, if the Merger shall not
occur, FBI, its Subsidiaries and its Representatives shall return
to USB all of such written information and all documents, notes,
summaries or other materials containing, reflecting or referring
to, or derived from, such information. Each of FBI and its
Subsidiaries shall, and shall use its best efforts to cause its
Representatives to, keep confidential all such information, and
shall not directly or indirectly use such information for any
competitive or other commercial purpose. The obligation to keep
such information confidential shall continue for five years from
the date the proposed Merger is abandoned and shall not apply to
(i) any information which (x) was already in FBI's possession prior
to the disclosure thereof by USB; (y) was then generally known to
the public; or (z) was disclosed to FBI by a third party not bound
by an obligation of confidentiality or (ii) disclosures made as
required by Law.
(c) All information furnished by FBI or its Subsidiaries
to USB, its Subsidiaries or its Representatives pursuant hereto
shall be treated as the sole property of FBI and, if the Merger
shall not occur, USB, its Subsidiaries and its Representatives
shall return to FBI all of such written information and all
documents, notes, summaries or other materials containing,
reflecting or referring to, or derived from, such information. USB
shall, and shall use its best efforts to cause its Representatives
and Subsidiaries to, keep confidential all such information, and
shall not directly or indirectly use such information for any
competitive or other commercial purpose. The obligation to keep
such information confidential shall continue for five years from
the date the proposed Merger is abandoned and shall not apply to
(i) any information which (x) was already in USB's possession prior
to the disclosure thereof by FBI or any of its Subsidiaries; (y)
was then generally known to the public; or (z) was disclosed to USB
by a third party not bound by an obligation of confidentiality or
(ii) disclosures made as required by Law.
(d) No investigation by either of the parties or their
respective Representatives shall affect the representations and
warranties of the other set forth herein.
8.4 Agreement as to Efforts to Consummate. Subject to the
terms and conditions of this Agreement, each Party agrees to use,
and to cause its Subsidiaries to use, its best efforts to take, or
cause to be taken, all actions, and to do, or cause to be done, all
things necessary, proper or advisable under applicable Laws to
consummate and make effective, as soon as practicable after the
date of this Agreement, the transactions provided for in this
Agreement, including, without limitation using its reasonable
efforts to lift or rescind any Order adversely affecting its
ability to consummate the transactions provided for herein and to
cause to be satisfied the conditions referred to in Article 9 of
this Agreement. Each Party shall use, and shall cause each of its
Subsidiaries to use, its reasonable efforts to obtain all Consents
necessary or desirable for the consummation of the transactions
provided for in this Agreement.
8.5 FBI Stockholders' Meeting. FBI shall call a meeting
of its stockholders (the "FBI Stockholders Meeting") to be held as
soon as reasonably practicable after the date of this Agreement for
the purpose of voting upon this Agreement and such other related
matters as it deems appropriate. In connection with the FBI
Stockholders' Meeting (a) FBI shall prepare with the assistance of
USB a notice of meeting; (b) USB shall furnish all information
concerning it that FBI may reasonably request in connection with
conducting the FBI Stockholders' Meeting; (c) USB shall prepare and
furnish to FBI for distribution to FBI's stockholders the Proxy
Statement/Prospectus; (d) FBI shall furnish all information
concerning it that USB may reasonably request in connection with
preparing the Proxy Statement/Prospectus; (e) FBI shall deliver the
notice of meeting, Proxy Statement/Prospectus and such other
information as it deems appropriate to its stockholders as soon as
practicable following the date of this Agreement; (f) the Board of
Directors of FBI shall recommend to its stockholders the approval
of this Agreement; and (g) FBI shall use its reasonable best
efforts to obtain its stockholders' approval. The Parties will use
their reasonable best efforts to prepare a preliminary draft of the
Proxy Statement/Prospectus within 30 days of the date of this
Agreement, and will consult with one another on the form and
content of the Proxy Statement/Prospectus (including the
presentation of draft copies of such proxy materials to the other)
prior to delivery to FBI's stockholders. FBI will use its
reasonable best efforts to deliver notice of meeting and, the Proxy
Statement/Prospectus as soon as practicable after receipt of all
required Regulatory approvals and the expiration of all applicable
waiting periods.
8.6 USB Stockholders' Meeting. USB shall call a meeting
of its stockholders (the "USB Stockholders Meeting") for the
purpose of voting upon this Agreement and such other related
matters as it deems appropriate. In connection with the USB
Stockholders' Meeting (a) USB shall prepare a notice of meeting and
the Proxy Statement; (b) FBI shall furnish all information
concerning it that USB may reasonably request in connection with
preparing the Proxy Statement/Prospectus; (c) USB shall deliver the
notice of meeting and Proxy Statement/Prospectus to its
stockholders as soon as practicable following the date of this
Agreement; (d) the Board of Directors of USB shall recommend to its
stockholders the approval of this Agreement; and (e) USB shall use
its reasonable best efforts to obtain its stockholders' approval.
The Parties will use their reasonable best efforts to prepare a
preliminary draft of the Proxy Statement/Prospectus within 30 days
of the date of this Agreement, and will consult with one another on
the form and content of the Proxy Statement (including the
presentation of draft copies of such proxy materials to the other)
prior to delivery to USB's stockholders. USB will use its
reasonable best efforts to deliver notice of meeting and, the Proxy
Statement/Prospectus within time to hold the USB Stockholders'
Meeting as soon as practicable after receipt of all required
Regulatory approvals and the expiration of all applicable waiting
periods.
8.7 Certificates of Objections.
(a) As soon as practicable (but in no event more than
three business days) after the FBI Stockholders' Meeting, FBI shall
deliver to USB a certificate of the Secretary of FBI containing the
names of the stockholders of FBI that both (a) gave written notice
prior to the taking of the vote on this Agreement at the FBI
Stockholders' Meeting that they dissent from the Merger, and (b)
voted against approval of this Agreement or abstained from voting
with respect to the approval of this Agreement ("FBI Certificate of
Objections"). The FBI Certificate of Objections shall include the
number of shares of FBI Common Stock held by each such stockholder
and the mailing address of each such stockholder.
(b) As soon as practicable (but in no event more than
three business days) after the USB Stockholders' Meeting, USB shall
deliver to FBI a certificate of the Secretary of USB containing the
names of the stockholders of USB that both (a) gave written notice
prior to the taking of the vote on this Agreement at the USB
Stockholders' Meeting that they dissent from the Merger, and (b)
voted against approval of this Agreement or abstained from voting
with respect to the approval of this Agreement ("USB Certificate of
Objections"). The USB Certificate of Objections shall include the
number of shares of USB Common Stock held by each such stockholder
and the mailing address of each such stockholder.
8.8 Press Releases. Prior to the Effective Time, FBI and
USB shall consult with each other as to the form and substance of
any press release or other public disclosure materially related to
this Agreement or any other transaction provided for herein;
provided, however, that nothing in this Section 8.8 shall be deemed
to prohibit any Party from making any disclosure that its counsel
deems necessary or advisable in order to satisfy such Party's
disclosure obligations imposed by Law.
8.9 Expenses. Each Party shall bear and pay its own costs
and expenses incurred in connection with the transactions provided
for herein, including fees and expenses of financial or other
consultants, investment bankers, accountants and counsel. The
fees, costs and expenses of (a) printing and mailing the Proxy
Statement/Prospectus, (b) all filing and other fees paid to the SEC
in connection with the Merger and the transactions provided for
herein, (c) Arthur Andersen & Co. in connection with its loan
review of USB Bank and First Bank and (d) legal counsel and any
consultants in connection with the filings and any other dealings
with bank regulators required in connection herewith, shall be
shared equally by USB and FBI; provided, however, that nothing
contained herein shall limit either Party's rights under the
Termination Provision to recover any damages arising out of the
Party's willful breach of any provision of this Agreement.
8.10 Failure to Close.
(a) USB expressly agrees to consummate the transactions
provided for herein upon the completion of all conditions to
Closing and shall not have taken any action reasonably calculated
to prevent the Closing and shall have not unreasonably delayed any
action reasonably required to be taken by it to facilitate the
Closing. Notwithstanding any other provision of this Agreement, to
the extent required by the fiduciary obligations of the Board of
Directors of USB, as determined in good faith by a majority of the
disinterested members thereof based on the advice of USB's outside
counsel, USB may:
(i) in response to an unsolicited request therefor,
participate in discussions or negotiations with, or furnish
information with respect to USB pursuant to a customary
confidentiality agreement (as determined by USB's outside counsel)
to, any person concerning an Acquisition Proposal involving USB or
any of its Subsidiaries; and
(ii) approve or recommend (and, in connection therewith
withdraw or modify its approval or recommendation of this Agreement
or the Merger) a superior Acquisition Proposal involving USB or any
of its Subsidiaries or enter into an agreement with respect to such
superior Acquisition Proposal (for purposes of this Agreement,
"superior Acquisition Proposal," when used with reference to USB or
any of its Subsidiaries, means a bona fide Acquisition Proposal
involving USB or any of its Subsidiaries made by a third party
which a majority of the disinterested members of the Board of
Directors of USB determines in its good faith judgment (based on
the advice of USB's independent financial advisor) to be more
favorable to USB's stockholders than the Merger, and for which
financing, to the extent required, is then committed or which, in
the good faith judgment of a majority of such disinterested board
members (based on the advice of USB's independent financial
advisor), is reasonably capable of being financed by such third
party).
USB shall promptly advise FBI in writing of any Acquisition
Proposal involving USB or any of its Subsidiaries or any inquiry
with respect to or which could lead to any such Acquisition
Proposal and the identity of the Person making any such Acquisition
Proposal or inquiry. USB will keep FBI fully informed of the
status and details of any such Acquisition Proposal or inquiry.
(b) FBI expressly agrees to consummate the transaction
provided for herein upon the completion of all conditions to
Closing and shall not have taken any action reasonably calculated
to prevent the Closing and shall have not unreasonably delayed any
action reasonably required to be taken by it to facilitate the
Closing. Notwithstanding any other provision of this Agreement, to
the extent required by the fiduciary obligations of the Board of
Directors of FBI, as determined in good faith by a majority of the
disinterested members thereof based on the advice of FBI's outside
counsel, FBI may:
(i) in response to an unsolicited request therefor,
participate in discussions or negotiations with, or furnish
information with respect to FBI pursuant to a customary
confidentiality agreement (as determined by FBI's outside counsel)
to, any person concerning an Acquisition Proposal involving FBI or
any of its Subsidiaries; and
(ii) approve or recommend (and, in connection therewith
withdraw or modify its approval or recommendation of this Agreement
or the Merger) a superior Acquisition Proposal involving FBI or any
of its Subsidiaries or enter into an agreement with respect to such
superior Acquisition Proposal (for purposes of this Agreement,
"superior Acquisition Proposal," when used with reference to FBI or
any of its Subsidiaries, means a bona fide Acquisition Proposal
involving FBI or any of its Subsidiaries made by a third party
which a majority of the disinterested members of the Board of
Directors of FBI determines in its good faith judgment (based on
the advice of FBI's independent financial advisor) to be more
favorable to FBI's stockholders than the Merger, and for which
financing, to the extent required, is then committed or which, in
the good faith judgment of a majority of such disinterested board
members (based on the advice of FBI's independent financial
advisor), is reasonably capable of being financed by such third
party).
FBI shall promptly advise USB in writing of any Acquisition
Proposal involving FBI or any of its Subsidiaries or any inquiry
with respect to or which could lead to any such Acquisition
Proposal and the identity of the Person making any such Acquisition
Proposal or inquiry. FBI will keep USB fully informed of the
status and details of any such Acquisition Proposal or inquiry.
8.11 Fairness Opinions. The Board of Directors of USB and
FBI shall have separately engaged a broker satisfactory to each of
USB and FBI, (collectively, the "Brokers"), to act as advisors to
each of their Board of Directors during the transaction and to
opine as to the fairness from a financial point of view of the
Exchange Ratio recommended by each to its stockholders. Each
fairness opinion shall be reviewed by the respective Board and
shall contain financial projections for each of USB and FBI based
on a review of each of their historical performance, current
financial condition and market area analysis along with the
Broker's understanding of future prospects in the banking industry.
Each of the Brokers shall determine and set forth in its fairness
opinion the range of fair market values of FBI and USB using
standard valuation methods for banks. It is expected that said
fairness opinions shall be issued as soon as practicable after the
signing of this Agreement. Each of the Brokers has also agreed to
issue a second fairness opinion at the time of the distribution of
the proxy materials to the stockholders of the respective
institutions. Each Board may, at its option, elect to have final
fairness opinions issued immediately prior to the Effective Time in
order to account for any Material Adverse Change that may have
occurred with regard to USB or FBI. Notwithstanding anything to
the contrary contained herein, the parties hereto acknowledge and
agree that they may decide to employ only one Broker to issue
fairness opinions for each institution.
8.12 Accounting and Tax Treatment. Each of the Parties
undertakes and agrees to use its best efforts to cause the Merger
to qualify for, and to take no action which would cause the Merger
not to qualify for, pooling-of-interests accounting treatment and
treatment as a "reorganization" within the meaning of Section
368(a) of the Internal Revenue Code for federal income tax
purposes.
8.13 Stock Option/Incentive Program. USB and FBI hereby
covenant and agree that, prior to the Effective Time and subject to
requisite shareholder approval, the resulting entity will adopt a
stock option/incentive program to enhance the retention of key
senior officers, which shall be mutually acceptable to FBI and USB.
8.14 Executive Officers. FBI and USB covenant and agree
that Jack Wainwright shall be elected to serve as the President and
Chief Executive Officer of the Surviving Corporation, and Fred
Huggins shall be elected to serve as the Chairman and Chief
Executive Officer of the Acceptance Loan Company, Inc.; Jim Miller
shall be elected to serve as the Chairman of the Board of the
Surviving Corporation, with Fred Huggins and Ray Sheffield serving
as Vice Chairmen thereof; and Fred Huggins shall be elected to
serve as the Chairman of the Board of the Surviving Subsidiary,
with Don Nichols and Hardie Kimbrough serving as Vice Chairmen
thereof.
8.15 Headquarters. FBI and USB covenant and agree that
the headquarters of the Surviving Corporation shall be located in
Thomasville, Alabama.
ARTICLE 9
CONDITIONS PRECEDENT TO OBLIGATIONS TO CONSUMMATE
9.1 Conditions to Obligations of Each Party. The
respective obligations of each Party to perform this Agreement and
consummate the Merger and the other transactions provided for
herein are subject to the satisfaction of the following conditions,
unless waived by both Parties pursuant to Section 11.5 of this
Agreement:
(a) Stockholder Approval. The stockholders of FBI and USB
shall have approved this Agreement, and the consummation of the
transactions provided for herein.
(b) Regulatory Approvals. All Consents of, filings and
registrations with, and notifications to, all Regulatory
Authorities required for consummation of the Merger shall have been
obtained or made and shall be in full force and effect and all
waiting periods required by Law shall have expired. No Consent
obtained from any Regulatory Authority that is necessary to
consummate the transactions provided for herein shall be
conditioned or restricted in a manner (including without limitation
requirements relating to the raising of additional capital or the
disposition of assets) which in the reasonable judgment of the
Board of Directors of either Party would so materially adversely
impact the economic or business benefits of the transactions
contemplated by this Agreement as to render inadvisable the
consummation of the Merger.
(c) Consents and Approvals. Each Party shall have
obtained any and all Consents required for consummation of the
Merger (other than those referred to in Section 9.1(b) of this
Agreement) or for the preventing of any Default under any Contract
or Permit of such Party which, if not obtained or made, is
reasonably likely to have, individually or in the aggregate, a
Material Adverse Effect on such party. No Consent so obtained
which is necessary to consummate the transactions provided for
herein shall be conditioned or restricted in a manner which in the
reasonable judgment of the Board of Directors of either Party would
so materially adversely impact the economic or business benefits of
the transactions provided for in this Agreement as to render
inadvisable the consummation of the Merger.
(d) Legal Proceedings. No court or governmental or
Regulatory Authority of competent jurisdiction shall have enacted,
issued, promulgated, enforced or entered any Law or Order (whether
temporary, preliminary or permanent) or taken any other action that
prohibits, restricts or make illegal consummation of the
transactions provided for in this Agreement. No action or
proceeding shall have been instituted by any Person, and the
Parties shall not have Knowledge of any threatened action or
proceeding by any Person, which seeks to restrain the consummation
of the transactions provided for in this Agreement which, in the
opinion of the Board of Directors of USB or FBI, renders it
impossible or inadvisable to consummate the transactions provided
for in this Agreement.
(e) Pooling Letters. USB shall have received a letter,
dated as of the Effective Time, in form and substance reasonably
acceptable to it, from Arthur Andersen & Co. to the effect that the
Merger will qualify for pooling-of-interests accounting treatment.
(f) Tax Matters. USB and FBI shall have received a
written opinion of counsel from Maynard, Cooper & Gale, P.C. and
Walston, Stabler, Wells, Anderson & Bains respectively, in form
reasonably satisfactory to them (the "Tax Opinions"), to the effect
that (i) the Merger will constitute a reorganization within the
meaning of Section 368(a) of the Internal Revenue Code, (ii) the
exchange in the Merger of FBI Common Stock for USB Common Stock
will not give rise to gain or loss to the stockholders of FBI with
respect to such exchange (except to the extent of any cash
received), and (iii) neither FBI nor USB will recognize gain or
loss as a consequence of the Merger (except for income and deferred
gain recognized pursuant to Treasury regulations issued under
Section 1502 of the Internal Revenue Code). In rendering such Tax
Opinion, counsel for FBI and USB shall be entitled to rely upon
representations of officer of FBI and USB reasonably satisfactory
in form and substance to such counsel.
(g) Effectiveness of Registration Statement. The
Registration Statement shall have become effective under the
Securities Act and no stop order suspending the effectiveness of
the Registration Statement shall have been issued and no proceeding
for that purpose shall have been initiated or threatened by the
SEC.
(h) Other Securities Laws. All state securities Permits
and Consents necessary to consummate the transactions provided for
herein shall have been received by USB.
(i) Employment Agreement. Jack M. Wainwright, III and USB
shall have entered into an employment agreement reasonably
satisfactory to both parties whereby he agrees, among other things,
to serve as the Chief Executive Officer of the Surviving
Corporation for a period of not less than three years from the
Effective Time.
9.2 Conditions to Obligations of USB. The obligations of
USB to perform this Agreement and consummate the Merger and the
other transactions provided for herein are subject to the
satisfaction of the following conditions, unless waived by USB
pursuant to Section 11.5(a) of this Agreement:
(a) Representations and Warranties. The representations
and warranties of FBI set forth or referred to in this Agreement
shall be true and correct as of the date of this Agreement and as
of the Effective Time with the same effect as though all such
representations and warranties had been made on and as of the
Effective Time (provided that representations and warranties which
are confined to a specified date shall speak only as of such date),
except (i) as expressly contemplated by this Agreement or (ii) for
representations and warranties (other than the representations and
warranties set forth in Section 5.3 of this Agreement, which shall
be true in all material respects) the inaccuracies of which relate
to matters that are not reasonably likely to have, individually or
in the aggregate, a Material Adverse Effect on FBI.
(b) Performance of Agreements and Covenants. Each and all
of the agreements and covenants of FBI to be performed and complied
with pursuant to this Agreement and the other agreements provided
for herein prior to the Effective Time shall have been duly
performed and complied with in all material respects.
(c) Certificates. FBI shall have delivered to USB (i) a
certificate, dated as of the Effective Time and signed on its
behalf by its chief executive officer and its chief financial
officer, to the effect that the conditions of its obligations set
forth in Section 9.2(a) and 9.2(b) of this Agreement have been
satisfied, and (ii) certified copies of resolutions duly adopted by
FBI's Board of Directors and stockholders evidencing the taking of
all corporate action necessary to authorize the execution, delivery
and performance of this Agreement, and the consummation of the
transactions provided for herein, all in such reasonable detail as
USB and its counsel shall request.
(d) Opinion of Counsel to FBI. FBI shall have delivered
to USB the opinion of Walston, Stabler, Wells, Anderson & Bains,
counsel to FBI, dated as of the Effective Time in a form
customarily rendered in transactions of this nature. Said opinion
shall indicate that such counsel is not aware of any untrue
statement of a material fact, or the omission of a material fact
necessary to make any statement not misleading in the context in
which such statement is made, in the Registration Statement, Proxy
Statement/Prospectus, and shall include the representation that FBI
is duly organized under the laws of the State of Alabama and, to
the knowledge of such counsel after due inquiry, is in compliance
with all Securities Laws.
(e) Other Corporate Matters. There shall have been no
determination by the Board of Directors of USB that the
consummation of the Merger or the other transactions contemplated
by this Agreement is not in the best interests of USB or its
stockholders by reason of a Material Adverse Change in the
business, operations or financial condition of FBI which occurs
following the execution of this Agreement.
(f) Comfort Letter. USB shall have received from Dudley,
Hopkins, Jones, Sims and Freeman, independent certified public
accountants, a comfort letter dated as of the Effective Time with
respect to such matters relating to the financial condition of FBI
as USB may reasonably request.
(g) Fairness Opinion. USB shall have received from its
Broker the fairness opinion described in Section 8.11 stating that
the Exchange Ratio provided for in this Agreement and recommended
by USB to its stockholders is fair to USB and its stockholders from
a financial point of view.
9.3 Conditions to Obligations of FBI. The obligations of
FBI to perform this Agreement and consummate the Merger and the
other transactions provided for herein are subject to the
satisfaction of the following conditions, unless waived by FBI
pursuant to Section 11.5(b) of this Agreement:
(a) Representations and Warranties. The representations
and warranties of FBI set forth or referred to in this Agreement
shall be true and correct as of the date of this Agreement and as
of the Effective Time with the same effect as though all such
representations and warranties had been made on and as of the
Effective Time (provided that representations and warranties which
are confined to a specified date shall speak only as of such date),
except (i) as expressly contemplated by this Agreement or (ii) for
representations and warranties (other than the representations and
warranties set forth in Section 6.3 of this Agreement, which shall
be true in all material respects) the inaccuracies of which relate
to matters that are not reasonably likely to have, individually or
in the aggregate, a Material Adverse Effect on USB.
(b) Performance of Agreements and Covenants. Each and all
of the agreements and covenants of USB to be performed and complied
with pursuant to this Agreement and the other agreements provided
for herein prior to the Effective Time shall have been duly
performed and complied with in all material respects.
(c) Certificates. USB shall have delivered to FBI (i) a
certificate, dated as of the Effective Time and signed on its
behalf by its chief executive officer and its chief financial
officer, to the effect that the conditions of its obligations set
forth in Section 9.3(a) and 9.3(b) of this Agreement have been
satisfied, and (ii) certified copies of resolutions duly adopted by
USB's Board of Directors evidencing the taking of all corporate
action necessary to authorize the execution, delivery and
performance of this Agreement, and the consummation of the
transactions contemplated hereby, all in such reasonable detail as
FBI and its counsel shall request.
(d) Opinion of Counsel to USB. USB shall have delivered
to FBI the opinion of Maynard, Cooper & Gale, P.C., counsel to USB,
dated as of the Effective Time in a form customarily rendered in
transactions of this nature. Said opinion shall indicate that such
counsel is not aware of any untrue statement of a material fact, or
the omission of a material fact necessary to make any statement not
misleading in the context in which such statement is made, in the
Registration Statement, Proxy Statement/Prospectus, and shall
include the representation that USB is duly organized under the
laws of the State of Alabama and, to the knowledge of such counsel
after due inquiry, is in compliance with all Securities Laws.
(e) Other Corporate Matters. There shall have been no
determination by the Board of Directors of FBI that the
consummation of the Merger or the other transactions contemplated
by this Agreement is not in the best interests of FBI or its
stockholders by reason of a Material Adverse Change in the
business, operations or financial condition of USB which occurs
following the execution of this Agreement.
(f) Comfort Letter. FBI shall have received from Smith,
Dukes & Buckalew, independent certified public accountants, a
comfort letter dated as of the Effective Time with respect to such
matters relating to the financial condition of USB as FBI may
reasonably request.
(g) Fairness Opinion. FBI shall have received from its
Broker the fairness opinion described in Section8.11, stating that
the Exchange Ratio provided for in this Agreement and recommended
by FBI to its stockholders is fair to FBI and its stockholders from
a financial point of view.
ARTICLE 10
TERMINATION
10.1 Termination. Notwithstanding any other provision of
this Agreement, and notwithstanding the approval of this Agreement
by the stockholders of FBI or USB, this Agreement may be terminated
and the Merger abandoned at any time prior to the Effective Time:
(a) by mutual written consent of the Board of Directors of
USB and the Board of Directors of FBI; or
(b) by the Board of Directors of either Party in the event
of a breach by the other Party of any representation or warranty
contained in this Agreement which cannot be or has not been cured
within thirty (30) days after the giving of written notice to the
breaching Party of such breach and which breach is reasonably
likely, in the opinion of the non-breaching Party, to have,
individually or in the aggregate, a Material Adverse Effect on the
breaching Party; or
(c) by the Board of Directors of either Party in the event
of a material breach by the other Party of any covenant, agreement
or other obligation contained in this Agreement which cannot be or
has not been cured within thirty (30) days after the giving of
written notice to the breaching Party of such breach; or
(d) by the Board of Directors of either Party (provided
that the terminating Party is not then in material breach of any
representation, warranty, covenant, agreement or other obligation
contained in this Agreement) if (i) any Consent of any Regulatory
Authority required for consummation of the Merger and the other
transactions provided for herein shall have been denied by final
nonappealable action of such authority or if any action taken by
such authority is not appealed within the time limit for appeal, or
(ii)the stockholders of either USB or FBI fail to vote their
approval of this Agreement and the transactions provided for herein
as required by the ABCA at their respective stockholders' meetings
where the transactions are presented for approval and voted upon;
or
(e) by USB, upon written notice to FBI, if there shall
have occurred any Material Adverse Effect to the business,
operations or financial condition of FBI taken as a whole and such
Material Adverse Effect shall not have been remedied within 15 days
after receipt by FBI of notice in writing from USB specifying the
nature of such Material Adverse Effect and requesting that it be
remedied; or
(f) by FBI, upon written notice to USB, if there shall
have occurred any Material Adverse Effect to the business,
operations, or financial condition of USB taken as a whole and such
Material Adverse Effect shall not have been remedied within 15 days
after receipt by USB of notice in writing from FBI specifying the
nature of such Material Adverse Effect and requesting that it be
remedied; or
(g) by the Board of Directors of either Party if the
Merger shall not have been consummated by March 31, 1997, if the
failure to consummate the transactions provided for herein on or
before such date is not caused by any breach of this Agreement by
the Party electing to terminate pursuant to this Section 10.1(g);
or
(h) by the Board of Directors of either Party if any of
the conditions precedent to the obligations of such Party to
consummate the Merger cannot be satisfied or fulfilled by the date
specified in Section 10.1(g) of this Agreement; or
(i) by USB, to the extent that a majority of the
disinterested members of the Board of Directors of USB shall have
determined to enter into an agreement with respect to a superior
Acquisition Proposal as contemplated by Section 8.10(a); provided
that, concurrently with such termination, FBI shall have the right
to exercise the option to purchase shares of USB Common Stock as
provided for in the USB Option Agreement; in such an event, FBI
shall not be entitled to receive any additional amounts (for
damages, expenses, costs or otherwise) from USB, its officers,
directors or shareholders; or
(j) by FBI, to the extent that a majority of the
disinterested members of the Board of Directors of FBI shall have
determined to enter into an agreement with respect to a superior
Acquisition Proposal as contemplated by Section 8.10(b); provided
that, concurrently with such termination, USB shall have the right
to exercise the option to purchase shares of FBI Common Stock as
provided for in the FBI Option Agreement; in such an event, USB
shall not be entitled to receive any additional amounts (for
damages, expenses, costs or otherwise) from FBI, its officers,
directors or shareholders.
10.2 Effect of Termination. In the event of the
termination and abandonment of this Agreement pursuant to Section
10.1 of this Agreement, this Agreement shall become void and have
no effect, except that (i) the provisions of this Section 10.2 and
Article 11 and Sections 8.3, 8.9, 8.10, 10.1(i) and 10.1(j) of this
Agreement shall survive any such termination and abandonment, and
(ii) a termination pursuant to Sections 10.1(b), 10.1(c) or 10.1(h)
of this Agreement shall not relieve the breaching Party from
Liability for an uncured willful breach of a representation,
warranty, covenant, obligation or agreement giving rise to such
termination.
10.3 Non-Survival of Representations and Covenants. The
respective representations, warranties, obligations, covenants, and
agreements of the Parties shall not survive the Effective Time,
except this Section 10.3 and Articles 2, 3, 4, and 11 of this
Agreement.
ARTICLE 11
MISCELLANEOUS
11.1 Definitions. Except as otherwise provided herein,
the capitalized terms set forth below (in their singular and plural
forms as applicable) shall have the following meanings:
"ABCA" shall mean the Alabama Business Corporation Act.
"Acquisition Proposal" with respect to a Party shall mean any
tender offer or exchange offer or any proposal for a merger,
acquisition of all of the stock or assets of, or other business
combination involving such Party or any of its Subsidiaries or the
acquisition of a substantial equity interest in, or a substantial
portion of the assets of, such Party or any of its Subsidiaries,
including a plan of liquidation of a Party or any of its
Subsidiaries, other than the transaction provided for in this
Agreement.
"1933 Act" shall mean the Securities Act of 1933, as amended.
"1934 Act" shall mean the Securities Exchange Act of 1934, as
amended.
"Affiliate" of a Person shall mean: (i) any other Person
directly, or indirectly through one or more intermediaries,
controlling, controlled by or under common control with such
Person; (ii) any officer, director, partner, employer, or direct or
indirect beneficial owner of any 10% or greater equity or voting
interest of such Person; and (iii)any other Person for which a
Person described in clause (ii) acts in any such capacity.
"Agreement" shall mean this Agreement and Plan of Merger,
including the Exhibits and Schedules delivered pursuant hereto and
incorporated herein by reference. References to "the date of this
Agreement," "the date hereof" and words of similar import shall
refer to the date this Agreement was first executed, August 19,
1996.
"Allowance" shall have the meaning provided in Section 6.9 of
this Agreement.
"Articles of Merger" shall mean the Articles of Merger to be
executed by USB and filed with the Secretary of State of Alabama
relating to the Merger as contemplated by Section 1.1 of this
Agreement.
"Assets" of a Person shall mean all of the assets, properties,
businesses and rights of such Person of every kind, nature,
character and description, whether real, personal or mixed,
tangible or intangible, accrued or contingent, or otherwise
relating to or utilized in such Person's business, directly or
indirectly, in whole or in part, whether or not carried on the
books and records of such Person, and whether or not owned in the
name of such Person or any Affiliate of such Person and wherever
located.
"BHC Act" shall mean the federal Bank Holding Company Act of
1956, as amended.
"Closing" shall mean the closing of the transactions provided
for herein, as described in Section 1.2 of this Agreement.
"Consent" shall mean any consent, approval, authorization,
clearance, exemption, waiver or similar affirmation by any Person
pursuant to any Contract, Law, Order or Permit.
"Contract" shall mean any written or oral agreement,
arrangement, authorization, commitment, contract, indenture,
instrument, lease, obligation, plan, practice, restriction,
understanding or undertaking of any kind or character, or other
document to which any Person is a party or that is binding on any
Person or its capital stock, Assets or business.
"Cutoff" shall have the same meaning provided in Section 4.2
of this Agreement.
"Default" shall mean (i) any breach or violation of or default
under any Contract, Order or Permit, (ii) any occurrence of any
event that with the passage of time or the giving of notice or both
would constitute a breach or violation of or default under any
Contract, Order or Permit, or (iii) any occurrence of any event
that with or without the passage of time or the giving of notice
would give rise to a right to terminate or revoke, change the
current terms of, or renegotiate, or to accelerate, increase, or
impose any Liability under, any Contract, Order or Permit, where,
in any such event, such Default is reasonably likely to have,
individually or in the aggregate, a Material Adverse Effect on a
Party.
"Effective Time" shall mean the date and time at which the
Merger becomes effective pursuant to applicable Law, as provided in
Section 1.3 of this Agreement.
"Environmental Laws" shall mean all Laws which are
administered, interpreted or enforced by the United States
Environmental Protection Agency and state and local agencies with
jurisdiction over pollution or protection of the environment.
"ERISA" shall mean the Employee Retirement Income Security Act
of 1974, as amended.
"ERISA Affiliate" shall have the meaning provided in Section
5.14 of this Agreement.
"Exchange Agent" shall have the meaning provided in Section
4.1 of this Agreement.
"Exchange Ratio" shall have the meaning provided in Section
3.1 of this Agreement.
"FBI Benefit Plans" shall have the meaning provided in Section
5.14(a) of this Agreement.
"FBI Call Reports" shall mean (i) the Reports of Income and
Condition of First Bank for the years ended December 31, 1995 and
1994, as filed with the FDIC and the FRB and (ii) the Reports of
Income and Condition of First Bank delivered by FBI to USB with
respect to periods ended subsequent to December 31, 1995.
"FBI Certificate" shall have the meaning provided in Section
4.2 of this Agreement.
"FBI Common Stock" shall mean the $5.00 par value Class A
voting common stock of FBI.
"FBI Companies" shall mean, collectively, FBI and all FBI
Subsidiaries.
"FBI Contracts" shall have the meaning set forth in Section
5.15 of this Agreement.
"FBI ERISA Plans" shall have the meaning set forth in Section
5.14(a) of this Agreement.
"FBI Financial Statements" shall mean (i) the consolidated
balance sheets (including related notes and schedules, if any) of
FBI as of December 31, 1995, 1994 and 1993, and the related
statements of income, changes in stockholders' equity and cash
flows (including related notes and schedules, if any) for the years
then ended, as delivered by FBI to USB, and (ii) the consolidated
balance sheets of FBI (including related notes and schedules, if
any) and related statements of income, changes in stockholders'
equity and cash flows (including related notes and schedules, if
any) delivered by FBI to USB with respect to periods ended
subsequent to December 31, 1995.
"FBI Option Agreement" shall mean that certain Stock Option
Agreement dated July 16, 1996 executed by FBI and USB pursuant to
which FBI granted to USB, upon the occurrence of certain
conditions, the option to purchase shares of FBI Common Stock.
"FBI Pension Plans" shall have the meaning set forth in
Section 5.14(a) of this Agreement.
"FBI Representatives" shall have the meaning set forth in
Section 8.7 of this Agreement.
"FBI Stockholders' Meeting" shall mean the meeting of the
stockholders of FBI to be held pursuant to Section 8.5 of this
Agreement, including any adjournment or adjournments thereof.
"FBI Subsidiaries" shall mean the Subsidiaries of FBI, which
shall include the FBI Subsidiaries described in Section 5.4 of this
Agreement and any corporation, bank, savings association or other
organization acquired as a Subsidiary of FBI in the future and
owned by FBI at the Effective Time.
"FDIC" shall mean the Federal Deposit Insurance Corporation.
"First Bank" shall have the meaning set forth in Section
5.4(a) of this Agreement.
"FRB" or "Federal Reserve Board" shall mean Board of Governors
of the Federal Reserve System.
"GAAP" shall mean generally accepted accounting principles,
consistently applied during the periods involved.
"Hazardous Material" shall mean any pollutant, contaminant, or
hazardous substance within the meaning of the Comprehensive
Environment Response, Compensation, and Liability Act, 42 U.S.C.
Section9601 et seq., or any similar federal, state or local Law.
"Internal Revenue Code" shall mean the Internal Revenue Code
of 1986, as amended, and the rules and regulations promulgated
thereunder.
"Knowledge" as used with respect to a Party shall mean the
actual knowledge of the officers and directors of such Party and
that knowledge that any director of the Party would have obtained
upon a reasonable examination of the books, records and accounts of
such Party and that knowledge that any officer of the Party would
have obtained upon a reasonable examination of the books, records
and accounts of such officer and such Party.
"Law" shall mean any code, law, ordinance, regulation,
reporting or licensing requirement, rule, or statute applicable to
a Person or its Assets, Liabilities or business, including without
limitation those promulgated, interpreted or enforced by any of the
Regulatory Authorities.
"Liability" shall mean any direct or indirect, primary or
secondary, liability, indebtedness, obligation, penalty, cost or
expense (including without limitation costs of investigation,
collection and defense), claim, deficiency, guaranty or endorsement
of or by any Person (other than endorsements of notes, bills,
checks and drafts presented for collection or deposit in the
ordinary course of business) of any type, whether accrued, absolute
or contingent, liquidated or unliquidated, matured or unmatured, or
otherwise.
"Lien" shall mean any conditional sale agreement, default of
title, easement, encroachment, encumbrance, hypothecation,
infringement, lien, mortgage, pledge, reservation, restriction,
security interest, title retention or other security arrangement,
or any adverse right or interest, charge or claim of any nature
whatsoever of, on or with respect to any property or property
interest, other than (i) Liens for current property Taxes not yet
due and payable, (ii) for depository institution Subsidiaries of a
Party, pledges to secure deposits and other Liens incurred in the
ordinary course of the banking business, and (ii) Liens which are
not reasonably likely to have, individually or in the aggregate, a
Material Adverse Effect on a Party.
"Litigation" shall mean any action, arbitration, cause of
action, claim, complaint, criminal prosecution, demand letter,
governmental or other examination or investigation, hearing,
inquiry, administrative or other proceeding or notice (written or
oral) by any Person alleging potential Liability or requesting
information relating to or affecting a Party, its business, its
Assets (including without limitation Contracts related to it), or
the transactions provided for in this Agreement, but shall not
include regular, periodic examinations of depository institutions
and their Affiliates by Regulatory Authorities.
"Loan Property" shall mean any property owned by a Party in
question or by any of its Subsidiaries or in which such Party or
Subsidiary holds a security interest, and, where required by the
context, includes the owner or operator of such property, but only
with respect to such property.
"Loans" shall have the meaning set forth in Section 5.9(a) of
this Agreement.
"Material" for purposes of this Agreement shall be determined
in light of the facts and circumstances of the matter in question;
provided that any specific monetary amount stated in this Agreement
shall determine materiality in that instance.
"Material Adverse Effect" on a Party shall mean an event,
change or occurrence that has a material adverse impact on (i) the
financial position, results of operations or business of such Party
and its Subsidiaries, taken as a whole, or (ii) the ability of such
Party to perform its obligations under this Agreement or to
consummate the Merger or the other transactions provided for in
this Agreement; provided that "material adverse impact" shall not
be deemed to include the impact of (x) changes in banking and
similar Laws of general applicability or interpretations thereof by
courts of governmental authorities, (y) changes in generally
accepted accounting principles or regulatory accounting principles
generally applicable to banks and their holding companies and
(z)the Merger on the operating performance of the Parties.
"Merger" shall mean the merger of FBI with and into USB
referred to in Section 1.1 of this Agreement.
"Order" shall mean any administrative decision or award,
decrees, injunction, judgment, order, quasi-judicial decision or
award, ruling, or writ of any federal, state, local or foreign or
other court, arbitrator, mediator, tribunal, administrative agency
or Regulatory Authority.
"Participation Facility" shall mean any facility in which the
Party in question or any of its Subsidiaries participates in the
management and, where required by the context, includes the owner
or operator or such property, but only with respect to such
property.
"Party" shall mean either FBI or USB, and "Parties" shall mean
both FBI and USB.
"Permit" shall mean any federal, state, local and foreign
governmental approval, authorization, certificate, easement,
filing, franchise, license, notice, permit or right to which any
Person is a party or that is or may be binding upon or inure to the
benefit of any Person or its securities, Assets or business.
"Person" shall mean a natural person or any legal, commercial
or governmental entity, such as, but not limited to, a corporation,
general partnership, joint venture, limited partnership, limited
liability company, trust, business association, group acting in
concert or any person acting in a representative capacity.
"Proxy Statement/Prospectus" shall mean the Proxy Statement
and Prospectus in the form contained in the Registration Statement,
and all amendments and supplements thereto, as referenced in
Section 5.18 of this Agreement.
"Registration Statement" shall mean that registration
statement of USB to be filed with the SEC on Form S-4 registering
the shares of USB Common Stock to be offered to the holders of FBI
Common Stock and all amendments thereto, as referenced in Section
5.18 of this Agreement.
"Regulatory Authorities" shall mean, collectively, the Federal
Trade Commission, the United States Department of Justice, the FRB,
the FDIC, all state regulatory agencies having jurisdiction over
the Parties and their respective Subsidiaries and the SEC.
"Related Interests" shall have the meaning set forth in
Section 5.15 of this Agreement.
"Representatives" shall have the meaning set forth in
Section 7.6 of this Agreement.
"SEC" shall mean the Securities and Exchange Commission.
"SEC Documents" shall mean all reports and registration
statements filed, or required to be filed, by a Party or any of its
Subsidiaries with any Regulatory Authority pursuant to the
Securities Laws.
"Securities Laws" shall mean the 1933 Act, the 1934 Act, the
Investment Company Act of 1940 as amended, the Investment Advisors
Act of 1940, as amended, the rust Indenture Act of 1939, as
amended, and the rules and regulations of any Regulatory Authority
promulgated thereunder.
"State Regulator" shall have the meaning set forth in Section
5.9(c) of this Agreement.
"Subsidiaries" shall mean all those corporations, banks,
associations or other entities of which the entity in question owns
or controls 50% or more of the outstanding equity securities either
directly or through an unbroken chain of entities as to each of
which 50% or more of the outstanding equity securities is owned
directly or indirectly by its parent; provided, however, there
shall not be included any such entity acquired through foreclosure
or any such entity the equity securities of which are owned or
controlled in a fiduciary capacity.
"Subsidiary Merger" shall mean the merger of First Bank with
and into USB Bank referred to in Section 1.4 of this Agreement.
"Surviving Corporation" shall mean USB as the surviving
corporation in the Merger.
"Surviving Subsidiary" shall mean USB Bank as the surviving
institution in the Subsidiary Merger.
"Tax Opinions" shall have the meaning set forth in Section
9.1(g) of this Agreement.
"Taxes" shall mean any federal, state, county, local, foreign
and other taxes, assessments, charges, fares, and impositions,
including interest and penalties thereon or with respect thereto.
"USB Bank" shall mean United Security Bank.
"USB Benefit Plan" shall have the meaning set forth in Section
6.14(a) of this Agreement.
"USB Call Reports" shall mean (i) the Reports of Income and
Condition of the respective USB Bank for the years ended December
31, 1995 and 1994, as filed with the FDIC and the FRB and (ii) the
Reports of Income and Condition of the USB Bank delivered by USB to
FBI with respect to periods ended subsequent to December 31, 1995.
"USB Common Stock" shall mean the $.01 par value common stock
of USB.
"USB Companies" shall mean, collectively, USB and all USB
Subsidiaries.
"USB Contracts" shall have the meaning set forth in Section
6.15 of this Agreement.
"USB ERISA Plan" shall have the meaning set forth in Section
6.14(a) of this Agreement.
"USB Financial Statements" shall mean (i) the consolidated
statements of conditions (including related notes and schedules, if
any) of USB as of December 31, 1995, 1994 and 1993, and the related
statements of income, changes in stockholders' equity, and cash
flows (including related notes and schedules, if any) for the years
then ended, as filed by USB in SEC Documents, and (ii) the
consolidated statements of condition of USB (including related
notes and schedules, if any) and related statements of income,
changes in stockholders' equity and cash flows (including related
notes and schedules, if any) included in SEC Documents filed with
respect to periods ended subsequent to December 31, 1995.
"USB Option Agreement" shall mean that certain Stock Option
Agreement dated July 16, 1996 executed by USB and FBI pursuant to
which USB granted to FBI, upon the occurrence of certain
conditions, the option to purchase shares of USB Common Stock.
"USB Pension Plan" shall have the meaning set forth in Section
6.14(a) of this Agreement.
"USB Regulatory Reports" shall mean the Consolidated Financial
Statements for Bank Holding Companies, Form FRY 9C, for the years
ended December 31, 1995 and 1994, as filed by USB with the FRB and
(ii) the Consolidated Financial Statements for Bank Holding
Companies, Form FRY 9C, delivered by USB to FBI with respect to
periods ended subsequent to December 31, 1995.
"USB Stockholders' Meeting" shall mean the meeting of the
stockholders of USB to be held pursuant to Section 8.6 of this
Agreement, including any adjournment or adjournments thereof.
"USB Subsidiary" shall mean the Subsidiary of USB, which shall
include USB Bank, as described in Section 6.4 of this Agreement,
and any corporation, bank, savings association, or other
organization acquired as a Subsidiary of USB in the future and
owned by USB at the Effective Time.
11.2 Expenses. Each Party shall bear and pay its own
costs and expenses incurred in connection with the transactions
provided for herein, including fees and expenses of financial or
other consultants, investment bankers, accountants and counsel;
provided, however, that nothing contained herein shall limit either
Party's rights under the termination provisions contained in
Article 10 hereof to recover any damages arising out of the other
Party's willful breach of any provision of this Agreement.
11.3 Entire Agreement. Except as otherwise expressly
provided herein, this Agreement (including the documents and
instruments referred to herein) constitutes the entire agreement
between the Parties with respect to the transactions provided for
herein and supersedes all prior arrangements or understandings with
respect thereto, written or oral. Nothing in this Agreement
expressed or implied is intended to confer upon any Person, other
than the Parties or their respective successors, any right,
remedies, obligations or liabilities under or by reason of this
Agreement.
11.4 Amendments. To the extent permitted by Law, this
Agreement may be amended by a subsequent writing signed by each of
the Parties upon the approval of the Boards of Directors of each of
the Parties; provided, however, that after approval of this
Agreement by the respective stockholders of FBI and USB, there
shall be made no amendment that pursuant to the ABCA requires
further approval by the FBI or USB stockholders, without the
further approval of such stockholders.
11.5 Waivers.
(a) Prior to or at the Effective Time, USB, acting through
its Board of Directors, chief executive officer or other authorized
officer, shall have the right to waive any Default in the
performance of any term of this Agreement by FBI, to waive or
extend the time for the compliance or fulfillment by FBI of any and
all of its obligations under this Agreement, and to waive any or
all of the conditions precedent to the obligations of USB under
this Agreement, except any condition which, if not satisfied, would
result in the violation of any Law. No such waiver shall be
effective unless in writing signed by a duly authorized officer of
USB.
(b) Prior to or at the Effective Time, FBI, acting through
its Board of Directors, chief executive officer or other authorized
officer, shall have the right to waive any Default in the
performance of any term of this Agreement by USB, to waive or
extend the time for the compliance or fulfillment by USB of any and
all of its obligations under this Agreement, and to waive any or
all of the conditions precedent to the obligations of FBI under
this Agreement, except any condition which, if no satisfied, would
result in the violation of any Law. No such waiver shall be
effective unless in writing signed by a duly authorized officer of
FBI.
11.6 Assignment. Except as expressly provided for herein,
neither this Agreement nor any of the rights, interests or
obligations hereunder shall be assigned by any Party hereto
(whether by operation of Law or otherwise) without the prior
written consent of the other Party. Subject to the preceding
sentence, this Agreement will be binding upon, inure to the benefit
of and be enforceable by the Parties and their respective
successors and assigns.
11.7 Notices. All notices or other communications which
are required or permitted hereunder shall be in writing and
sufficient if delivered by hand, by facsimile transmission, by
registered or certified mail, postage pre-paid, or by courier or
overnight carrier, to the persons at the addresses set forth below
(or at such other address as may be provided hereunder), and shall
be deemed to have been delivered as of the date so delivered:
FBI: First Bancshares, Inc.
131 Main Street
Grove Hill, Alabama 36451
Telecopy Number: (334) 275-8255
Attention: Fred Huggins,
President and Chief Executive Officer
Copy to Counsel: Walston, Stabler, Wells, Anderson & Bains
500 Financial Center
505 20th Street North
Birmingham, Alabama 35203
Telecopy Number: (205) 251-0700
Attention: C. Henry Marston
USB: United Security Bancshares, Inc.
131 Front Street
Thomasville, Alabama 36784
Telecopy Number: (334) 636-9606
Attention: Jack M. Wainwright, III,
President and Chief Executive Officer
Copy to Counsel: Maynard, Cooper & Gale, P.C.
1901 Sixth Avenue North
2400 AmSouth/Harbert Plaza
Birmingham, Alabama 35203
Telecopy Number: (205) 254-1999
Attention: Mark L. Drew
11.8 Brokers and Finders. Other than as described in
Section 8.11 of this Agreement, each of the Parties represents and
warrants that neither it nor any of its officers, directors,
employees or Affiliates has employed any broker or finder or
incurred any Liability for any financial advisory fees, investment
bankers' fees, brokerage fees, commissions or finders' fees in
connection with this Agreement or the transactions provided for
herein. In the event of a claim by any broker or finder based upon
his or its representing or being retained by or allegedly
representing or being retained by FBI or USB, each of FBI and USB,
as the case may be, agrees to indemnify and hold the other Party
harmless of and from any Liability with respect to any such claim.
11.9 Governing Law. This Agreement shall be governed by
and construed in accordance with the Laws of the State of Alabama,
without regard to any applicable conflicts of Laws, except to the
extent federal law shall be applicable.
11.10 Counterparts. This Agreement may be executed in one
or more counterparts, each of which shall be deemed to be an
original, but all of which together shall constitute one and the
same instrument.
11.11 Captions. The captions contained in this Agreement
are for reference purposes only and are not part of this Agreement.
11.12 Enforcement of Agreement. The Parties hereto agree
that irreparable damage would occur in the event that any of the
provisions of this Agreement was not performed in accordance with
its specific terms or was otherwise breached. It is accordingly
agreed that the Parties shall be entitled to an injunction or
injunctions to prevent breaches of this Agreement and to enforce
specifically the terms and provisions hereof in any court of the
USB States or any state having jurisdiction, this being in addition
to any other remedy to which they are entitled at law or in equity.
11.13 Severability. Any term or provision of this
Agreement that is invalid or unenforceable in any jurisdiction
shall, as to that jurisdiction, be ineffective to the extent of
such invalidity or unenforceability without rendering invalid or
unenforceable the remaining terms and provisions of this Agreement
or affecting the validity or enforceability of any of the terms or
provisions of this Agreement in any other jurisdiction. If any
provision of this Agreement is so broad as to be unenforceable, the
provision shall be interpreted to be only so broad as is
enforceable.
11.14 Singular/Plural; Gender. Where the context so
requires or permits, the use of singular form includes the plural,
and the use of the plural form includes the singular, and the use
of any gender includes any and all genders.
IN WITNESS WHEREOF, each of the Parties has caused this
Agreement to be executed on its behalf and its corporate seal to be
hereunto affixed and attested by its respectively authorized
officers as of the day and year first above written.
Attest: FIRST BANCSHARES, INC.
/s/ Bruce Wilson By: /s/ Fred Huggins
Secretary Fred Huggins
Its: President and Chief Executive Officer
[CORPORATE SEAL]
Attest: UNITED SECURITY BANCSHARES, INC.
/s/ Larry M. Sellers By: /s/ Jack M. Wainwright, III
Secretary Jack M. Wainwright, III
Its: President and Chief Executive Officer
[CORPORATE SEAL]
Attest: FIRST BANK AND TRUST
/s/ Bruce Wilson By: /s/ Dan Barlow
Secretary Dan Barlow
Its: Clarke County President
[CORPORATE SEAL]
Attest: UNITED SECURITY BANK
/s/ W.D. Morgan By: /s/ Jack M. Wainwright, III
Assistant Secretary Jack M. Wainwright, III
Its: President and Chief Executive Officer
[CORPORATE SEAL]
[EXECUTION COPY]
AMENDMENT TO AGREEMENT AND PLAN OF MERGER
This AGREEMENT ("Agreement") dated as of March 18, 1997, is
made by and between UNITED SECURITY BANCSHARES, INC., an Alabama
Corporation ("USB") and FIRST BANCSHARES, INC., an Alabama
corporation ("FBI").
W I T N E S S E T H
WHEREAS, USB, FBI and their respective wholly-owned bank
subsidiaries, United Security Bank, an Alabama banking corporation
("USB Bank"), and First Bank and Trust, an Alabama banking
corporation ("First Bank"), entered into an Agreement and Plan of
Merger dated as of August 19, 1996 (the "Merger Agreement") that
generally provides for the merger of FBI with and into USB and for
the simultaneous merger of First Bank with and into USB Bank;
WHEREAS, the parties have agreed to amend the Merger Agreement
to address a number of issues that have arisen since the execution
of the Merger Agreement; and
WHEREAS, section 11.4 of the Merger Agreement provides that
the Merger Agreement may be amended by a subsequent writing signed
by each of USB and FBI upon the approval of the Boards of Directors
of each of USB and FBI;
NOW, THEREFORE, in consideration of the above and the mutual
representations, warranties, covenants and agreements set forth
herein, and subject to the terms and conditions set forth herein,
the parties hereto, intending to be legally bound, agree as
follows:
(a) Article 2 of the Merger Agreement shall be amended by
deleting the existing language in its entirety and inserting in
lieu thereof as follows:
ARTICLE 2
TERMS OF MERGER
2.1 Articles of Incorporation. The Restated Articles of
Incorporation of USB, amended as provided herein, shall be the
Articles of Incorporation of the Surviving Corporation immediately
following the Effective Time, until thereafter amended in
accordance with applicable Law. Immediately prior to the Effective
Time, the Restated Articles of Incorporation of USB shall be
amended to (i) increase the number of authorized shares of common
stock of USB from 2,400,000 to 10,000,000, (ii) eliminate
shareholders' preemptive rights, and (iii) provide for a 2/3's
super majority voting requirement by the USB Board of Directors to
approve significant corporate events or to add or remove members of
senior management, all as shall be set forth in amendments to the
Restated Articles of Incorporation of USB to be approved by the
boards of directors of FBI and USB before the respective meetings
of the stockholders of FBI and the stockholders of USB which will
vote on this Agreement; to the extent the parties deem necessary or
desirable, this Agreement may be amended or modified to set forth
those articles of amendment.
2.2 Bylaws. The Bylaws of USB, as amended hereby, shall
be the Bylaws of the Surviving Corporation immediately following
the Effective Time, until otherwise amended or repealed in
accordance with applicable Law. As of the Effective Time, the
Bylaws of USB shall be amended to provide for the super majority
director voting requirements set forth in Section2.1 above.
2.3 Directors. The directors of the Surviving Corporation
from and after the Effective Time shall consist of the ten
incumbent directors of USB and nine of the ten incumbent directors
of FBI. All such persons shall serve in accordance with the Bylaws
of the Surviving Corporation. The members of the standing
committees of the Board of Directors of the Surviving Corporation
shall be determined by such Board of Directors. In order to
establish the Surviving Corporation's nineteen member Board of
Directors provided for in this Section 2.3, USB's shareholders
shall, prior to the Effective Time, approve a resolution increasing
the size of the USB Board of Directors from ten to nineteen
directors and electing Dan Barlow, John Becton, Linda Breedlove,
John C. Gordon, Fred L. Huggins, Ray Sheffield, Clarence Watters,
Bruce Wilson and Earnest Woodson to fill the nine vacancies on
USB's Board of Directors that will created by such increase. The
terms of the nine new directors elected pursuant to this Section
2.3 shall commence at the Effective Time and continue until the
next annual meeting of the shareholders of USB and until their
successors shall be elected and qualified.
(b) Section 7.3(k) of the Merger Agreement shall be
amended by deleting the existing language in its entirety and
inserting in lieu thereof as follows:
(k) except as provided in Section 9.1(i) hereof, enter
into or amend any employment Contract between any USB Company and
any Person (unless such amendment is required by Law) that the USB
Company does not have the unconditional right to terminate without
Liability (other than Liability for services already rendered), at
any time on or after the Effective Time; or
(c) Section 8.13 of the Merger Agreement shall be amended
by deleting the existing language in its entirety and inserting in
lieu thereof as follows:
8.13 Stock Option/Incentive Program. USB and FBI hereby
covenant and agree that, prior to the Effective Time and subject to
requisite shareholder approval, USB will adopt a stock
option/incentive program to enhance the retention of key senior
officers, which shall be mutually acceptable to FBI and USB.
(d) Section 9.1(i) of the Merger Agreement shall be
amended by deleting the existing language in its entirety and
inserting in lieu thereof as follows:
(i) Employment Agreement. Jack M. Wainwright, III and USB
shall have entered into an employment agreement reasonably
satisfactory to both USB and FBI whereby he agrees, among other
things, to serve as the Chief Executive Officer of the Surviving
Corporation for a period of not less than three years from the
Effective Time.
(e) Section 9.2(f) of the Merger Agreement shall be
amended by deleting the existing language in its entirety and
inserting in lieu thereof as follows:
(f) [Intentionally Omitted]
(f) Section 9.3(f) of the Merger Agreement shall be
amended by deleting the existing language in its entirety and
inserting in lieu thereof as follows:
(f) [Intentionally Omitted]
(g) Section 10.1(g) of the Merger Agreement shall be
amended by deleting the existing language in its entirety and
inserting in lieu thereof as follows:
(g) by the Board of Directors of either Party if the
Merger shall not have been consummated by August 10, 1997, if the
failure to consummate the transactions provided for herein on or
before such date is not caused by any breach of this Agreement by
the Party electing to terminate pursuant to this Section 10.1(g);
or
(h) Except as herein modified and/or supplemented, all
provisions of the Merger Agreement shall remain in full force and
effect.
(i) This Agreement may be executed in two or more
counterparts, each of which may be an original but all of which
together shall be deemed one instrument.
(j) All capitalized terms not defined in this Agreement
shall have the same meaning as such terms in the Merger Agreement.
IN WITNESS WHEREOF, each of the undersigned has caused this
Agreement to be executed on its behalf and its corporate seal to be
hereunto affixed and attested by officers thereto duly authorized
all as the day and year first above written.
Attest: FIRST BANCSHARES, INC.
/s/ Bruce Wilson By: /s/ Fred Huggins
Secretary Fred Huggins
Its: President and Chief Executive Officer
[CORPORATE SEAL]
Attest: UNITED SECURITY BANCSHARES, INC.
/s/ Larry M. Sellers By: /s/ Jack M. Wainwright, III
Secretary Jack M. Wainwright, III
Its: President and Chief Executive Officer
[CORPORATE SEAL]
Appendix B
ALABAMA CODE ANNOTATED
TITLE 10. CORPORATIONS, PARTNERSHIPS AND ASSOCIATIONS
CHAPTER 2B. BUSINESS CORPORATIONS
Article 13. Dissenters' Rights
Section 10-2B-13.01. Definitions.
(A) "Corporate action" means the filing of articles of
merger or share exchange by the probate judge or Secretary of
State, or other action giving legal effect to a transaction that is
the subject of dissenters' rights.
(B) "Corporation" means the issuer of shares held by a
dissenter before the corporate action, or the surviving or
acquiring corporation by merger or share exchange of that issuer.
(C) "Dissenter" means a shareholder who is entitled to
dissent from corporate action under Section 10-2B-13.02 and who
exercises that right when and in the manner required by Sections
10-2B-13.20 through 10-2B-13.28.
(D) "Fair Value," with respect to a dissenter's shares,
means the value of the shares immediately before the effectuation
of the corporate action to which the dissenter objects, excluding
any appreciation or depreciation in anticipation of the corporate
action unless exclusion would be inequitable.
(E) "Interest" means interest from the effective date of
the corporate action until the date of payment, at the average rate
currently paid by the corporation on its principal bank loans, or,
if none, at a rate that is fair and equitable under all
circumstances.
(F) "Record shareholder" means the person in whose name
shares are registered in the records of a corporation or the
beneficial owner of shares to the extent of the rights granted by
a nominee certificate on file with a corporation.
(G) "Beneficial shareholder" means the person who is a
beneficial owner of shares held in a voting trust or by a nominee
as the record shareholder.
(H) "Shareholder" means the record shareholder or the
beneficial shareholder.
Section 10-2B-13.02. Right to dissent.
(a) A shareholder is entitled to dissent from, and obtain
payment of the fair value of his or her shares in the event of, any
of the following corporate actions:
(1) Consummation of a plan of merger to which the
corporation is a party (i) if shareholder approval is required for
the merger by Section 10-2B-11.03 or the articles of incorporation
and the shareholder is entitled to vote on the merger or (ii) if
the corporation is a subsidiary that is merged with its parent
under Section 10-2B-11.04;
(2) Consummation of a plan of share exchange to which
the corporation is a party as the corporation whose shares will be
acquired, if the shareholder is entitled to vote on the plan;
(3) Consummation of a sale or exchange by all, or
substantially all, of the property of the corporation other than in
the usual and regular course of business, if the shareholder is
entitled to vote on the sale or exchange, including a sale in
dissolution, but not including a sale pursuant to court order or a
sale for cash pursuant to a plan by which all or substantially all
of the net proceeds of the sale will be distributed to the
shareholders within one year after the date of sale;
(4) To the extent that the articles of incorporation of
the corporation so provide, an amendment of the articles of
incorporation that materially and adversely affects rights in
respect to a dissenter's shares because it:
(i) Alters or abolishes a preferential right of the
shares;
(ii) Creates, alters, or abolishes a right in respect of
redemption, including a provision respecting a sinking fund for the
redemption or repurchase of the shares;
(iii) Alters or abolishes a preemptive right of the holder
of the shares to acquire shares or other securities;
(iv) Excludes or limits the right of the shares to vote on
any matter, or to cumulate votes, other than a limitation by
dilution through issuance of shares or other securities with
similar voting rights; or
(v) Reduces the number of shares owned by the shareholder
to a fraction of a share if the fractional share so created is to
be acquired for cash under Section 10-2B-6.04; or
(5) Any corporate action taken pursuant to a
shareholder vote to the extent the articles of incorporation,
bylaws, or a resolution of the board of directors provides that
voting or nonvoting shareholders are entitled to dissent and obtain
payment for their shares.
(b) A shareholder entitled to dissent and obtain payment
for shares under this chapter may not challenge the corporate
action creating his or her entitlement unless the action is
unlawful or fraudulent with respect to the shareholder or the
corporation.
Section 10-2B-13.03. Dissent by nominees and beneficial owners.
(a) A record shareholder may assert dissenters' rights as
to fewer than all of the shares registered in his or her name only
if he or she dissents with respect to all shares beneficially owned
by any one person and notifies the corporation in writing of the
name and address of each person on whose behalf he or she asserts
dissenters' rights. The rights of a partial dissenter under this
subsection are determined as if the shares to which he or she
dissents and his or her other shares were registered in the names
of different shareholders.
(b) A beneficial shareholder may assert dissenters' rights
as to shares held on his or her behalf only if:
(1) He or she submits to the corporation the record
shareholder's written consent to the dissent not later than the
time the beneficial shareholder asserts dissenters' rights; and
(2) He or she does so with respect to all shares of
which he or she is the beneficial shareholder or over which he or
she has power to direct the vote.
Section 10-2B-13.20. Notice of dissenters' rights.
(a) If proposed corporate action creating dissenters'
rights under Section 10-2B-13.02 is submitted to a vote at a
shareholders' meeting, the meeting notice must state that
shareholders are or may be entitled to assert dissenters' rights
under this article and be accompanied by a copy of this article.
(b) If corporate action creating dissenters' rights under
Section 10-2B-13.02 is taken without a vote of shareholders, the
corporation shall (1) notify in writing all shareholders entitled
to assert dissenters' rights that the action was taken; and (2)
send them the dissenters' notice described in Section 10-2B-13.22.
Section 10-2B-13.21. Notice of intent to demand payment.
(a) If proposed corporate action creating dissenters'
rights under Section 10-2B-13.02 is submitted to a vote at a
shareholder's meeting, a shareholder who wishes to assert
dissenters' rights (1) must deliver to the corporation before the
vote is taken written notice of his or her intent to demand payment
or [sic] his or her shares if the proposed action is effectuated;
and (2) must not vote his or her shares in favor of the proposed
action.
(b) A shareholder who does not satisfy the requirements of
subsection (a) is not entitled to payment for his or her shares
under this article.
Section 10-2B-13.22. Dissenters' notice.
(a) If proposed corporate action creating dissenters'
rights under Section 10-2B-13.02 is authorized at a shareholders'
meeting, the corporation shall deliver a written dissenters' notice
to all shareholders who satisfied the requirements of Section
10-2B-13.21.
(b) The dissenters' notice must be sent no later than 10
days after the corporate action was taken, and must:
(1) State where the payment demand must be sent;
(2) Inform holders of shares to what extent transfer
of the shares will be restricted after the payment demand is
received;
(3) Supply a form for demanding payment;
(4) Set a date by which the corporation must receive
the payment demand, which date may not be fewer than 30 nor more
than 60 days after the date the subsection (a) notice is delivered;
and
(5) Be accompanied by a copy of this article.
Section 10-2B-13.23. Duty to demand payment.
(a) A shareholder sent a dissenters' notice described in
Section 10-2B-13.22 must demand payment in accordance with the
terms of the dissenters' notice.
(b) The shareholder who demands payment retains all other
rights of a shareholder until those rights are canceled or modified
by the taking of the proposed corporate action.
(c) A shareholder who does not demand payment by the date
set in the dissenters' notice is not entitled to payment for his or
her shares under this article.
(d) A shareholder who demands payment under subsection (a)
may not thereafter withdraw that demand and accept the terms
offered under the proposed corporate action unless the corporation
shall consent thereto.
Section 10-2B-13.24. Share restrictions.
(a) Within 20 days after making a formal payment demand,
each shareholder demanding payment shall submit the certificate or
certificates representing his or her shares to the corporation for
(1) notation thereon by the corporation that such demand has been
made and (2) return the shareholder by the corporation.
(b) The failure to submit his or her shares for notation
shall, at the option of the corporation, terminate the
shareholders' rights under this article unless a court of competent
jurisdiction, for good and sufficient cause, shall otherwise
direct.
(c) If shares represented by a certificate on which
notation has been made shall be transferred, each new certificate
issued therefor shall bear similar notation, together with the name
of the original dissenting holder of such shares.
(d) A transferee of such share shall acquire by such
transfer no rights in the corporation other than those which the
original dissenting shareholder had after making demand for payment
of the fair value thereof.
Section 10-2B-13.25. Offer of payment.
(a) As soon as the proposed corporate action is taken, or
upon receipt of a payment demand, the corporation shall offer to
pay each dissenter who complied with Section 10-2B-13.23 the amount
the corporation estimates to be the fair value of his or her
shares, plus accrued interest.
(b) The offer of payment must be accompanied by:
(1) The corporation's balance sheet as of the end of
a fiscal year ending not more than 16 months before the date of the
offer, an income statement for that year, and the latest available
interim financial statements, if any;
(2) A statement of the corporation's estimate of the
fair value of the shares;
(3) An explanation of how the interest was
calculated;
(4) A statement of the dissenter's right to demand
payment under Section 10-2B-13.28; and
(5) A copy of this article.
(c) Each dissenter who agrees to accept the corporation's
offer of payment in full satisfaction of his or her demand must
surrender to the corporation the certificate or certificates
representing his or her shares in accordance with terms of the
dissenters' notice. Upon receiving the certificate or
certificates, the corporation shall pay each dissenter the fair
value of his or her shares, plus accrued interest, as provided in
subsection (a). Upon receiving payment, a dissenting shareholder
ceases to have any interest in the shares.
Section 10-2B-13.26. Failure to take corporate action.
(a) If the corporation does not take the proposed action
within 60 days after the date set for demanding payment, the
corporation shall release the transfer restrictions imposed on
shares.
(b) If, after releasing transfer restrictions, the
corporation takes the proposed action, it must send a new
dissenters' notice under Section 10-2B-13.22 and repeat the payment
demand procedure.
Section 10-2B-13.27. Reserved.
Section 10-2B-13.28. Procedure if shareholder dissatisfied with
offer of payment.
(a) A dissenter may notify the corporation in writing of
his or her own estimate of the fair value of his or her shares and
amount of interest due, and demand payment of his or her estimate,
or reject the corporation's offer under Section 10-2B-13.25 and
demand payment of the fair value of his or her shares and interest
due, if:
(1) The dissenter believes that the amount offered
under Section 10-2B-13.25 is less than the fair value of his or her
shares or that the interest due is incorrectly calculated;
(2) The corporation fails to make an offer under
Section 10-2B-13.25 within 60 days after the date set for demanding
payment; or
(3) The corporation, having failed to take the
proposed action, does not release the transfer restrictions imposed
on shares within 60 days after the date set for demanding payment.
(b) A dissenter waives his or her right to demand payment
under this section unless he or she notifies the corporation or his
or her demand in writing under subsection (a) within 30 days after
the corporation offered payment for his or her shares.
Section 10-2B-13.30. Court action.
(a) If a demand for payment under Section 10-2B-13.28
remains unsettled, the corporation shall commence a proceeding
within 60 days after receiving the payment demand and petition the
court to determine the fair value of the shares and accrued
interest. If the corporation does not commence the proceeding
within the 60 day period, it shall pay each dissenter whose demand
remains unsettled the amount demanded.
(b) The corporation shall commence the proceeding in the
circuit court of the county where the corporation's principal
office (or, if none in this state, its registered office) is
located. If the corporation is a foreign corporation without a
registered office in this state, it shall commence the proceeding
in the county in this state where the registered office of the
domestic corporation merged with or whose shares were acquired by
the foreign corporation was located.
(c) The corporation shall make all dissenters (whether or
not residents of this state) whose demands remain unsettled parties
to the proceeding as in an action against their shares, and all
parties must be served with a copy of the petition. Nonresidents
may be served by registered or certified mail or by publication as
provided under the Alabama Rules of Civil Procedure.
(d) After service is completed, the corporation shall
deposit with the clerk of the court an amount sufficient to pay
unsettled claims of all dissenters party to the action in an amount
per share equal to its prior estimate of fair value, plus accrued
interest, under Section 10-2B-13.25.
(e) The jurisdiction of the court in which the proceeding
is commenced under subsection (b) is plenary and exclusive. The
court may appoint one or more persons as appraisers to receive
evidence and recommend decision on the question of fair value. The
appraisers have the powers described in the order appointing them,
or in any amendment to it. The dissenters are entitled to the
same discovery rights as parties in other civil proceedings.
(f) Each dissenter made a party to the proceeding is
entitled to judgment for the amount the court finds to be the fair
value of his or her shares, plus accrued interest. If the court's
determination as to the fair value of a dissenter's shares, plus
accrued interest, is higher than the amount estimated by the
corporation and deposited with the clerk of the court pursuant to
subsection (d), the corporation shall pay the excess to the
dissenting shareholder. If the court's determination as to fair
value, plus accrued interest, of a dissenter's shares is less than
the amount estimated by the corporation and deposited with the
clerk of the court pursuant to subsection (d), then the clerk shall
return the balance of funds deposited, less any costs under Section
10-2B-13.31, to the corporation.
(g) Upon payment of the judgment, and surrender to the
corporation of the certificate or certificates representing the
appraised shares, a dissenting shareholder ceases to have any
interest in the shares.
Section 10-2B-13.31. Court costs and counsel fees.
(a) The court in an appraisal proceeding commenced under
Section 10-2B-13.30 shall determine all costs of the proceeding,
including compensation and expenses of appraisers appointed by the
court. The court shall assess the costs against the corporation,
except that the court may assess costs against all or some of the
dissenters, in amounts the court finds equitable, to the extent the
court finds the dissenters acted arbitrarily, vexatiously, or not
in good faith in demanding payment under Section 10-2B-13.28.
(b) The court may also assess the reasonable fees and
expenses of counsel and experts for the respective parties, in
amounts the court finds equitable
(1) Against the corporation and in favor of any or
all dissenters if the court finds the corporation did not
substantially comply with the requirements of Sections 10-2B-13.20
through 10-2B-13.28; or
(2) Against either the corporation or a dissenter, in
favor of any other party, if the court finds that the party against
whom the fees and expenses are assessed acted arbitrarily,
vexatiously, or not in good faith with respect to the rights
provided by this chapter.
(c) If the court finds that the services of counsel for
any dissenter were of substantial benefit to other dissenters
similarly situated, and that the fees for those services should not
be assessed against the corporation, the court may award to these
counsel reasonable fees to be paid out of the amounts awarded the
dissenters who were benefitted.
Section 10-2B-13.32. Status of shares after payment.
Shares acquired by a corporation pursuant to payment of the
agreed value therefor or to payment of the judgment entered
therefor, as in this chapter provided, may be held and disposed of
by such corporation as in the case of other treasury shares, except
that, in the case of a merger or share exchange, they may be held
and disposed of as the plan of merger or share exchange may
otherwise provide.
Appendix C
Independent Auditor's Report
To the Board of Directors
and Stockholders
First Bancshares, Inc.
Grove Hill, Alabama
We have audited the accompanying consolidated statements of
financial condition of First Bancshares, Inc. and subsidiaries as
of December 31, 1996 and 1995, and the related consolidated
statements of income, changes in stockholders' equity and cash
flows for each of the three years in the period ended December 31,
1996. These financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion
on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted
auditing standards. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the
financial statements are free of material misstatement. An audit
includes examining, on a test basis, evidence supporting the
amounts and disclosures in the financial statements. An audit also
includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits
provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present
fairly, in all material respects, the consolidated financial
position of First Bancshares, Inc. and subsidiaries at December 31,
1996 and 1995 and the consolidated results of their operations and
their cash flows for each of the three years in the period ended
December 31, 1996, in conformity with generally accepted accounting
principles.
Birmingham, Alabama
January 24, 1997
<TABLE>
FIRST BANCSHARES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
December 31, 1996 and 1995
<CAPTION>
1996 1995
ASSETS
<S> <C> <C>
Cash and due from banks $ 7,728,077 $ 7,277,436
Interest bearing deposits in other banks 44,506 93,011
Federal funds sold - 1,640,000
Equity in unconsolidated investee 612,640 618,669
Investment securities available for sale 34,042,901 31,728,609
Investment securities held to maturity 587,261 718,879
Other investments 3,162,742 2,712,752
Loans, net of unearned income 141,667,734 127,797,227
Less: Allowance for loan losses (1,942,597) (1,688,588)
Net loans 139,725,137 126,108,639
Premises and equipment, net 2,628,244 2,271,220
Intangibles, net 3,658,657 3,911,221
Accrued interest receivable 2,096,800 1,969,758
Other real estate 18,001 63,182
Deferred taxes 549,989 221,175
Other assets 336,634 317,456
Total assets $195,191,589 $179,652,007
LIABILITIES AND STOCKHOLDERS' EQUITY
Deposits
Noninterest-bearing demand $ 20,899,865 $ 18,392,730
Interest-bearing demand 43,609,191 40,779,678
Savings 14,002,589 13,469,272
Certificates of deposit $100,000 and over 17,169,855 17,948,657
Other time 70,698,808 67,275,430
Total deposits 166,380,308 157,865,767
Advance from FHLB 5,403,509 438,596
Short-term debt 79,260 39,565
Long-term debt 3,004,000 3,594,500
Accrued expenses and other liabilities 1,534,908 1,147,167
Total liabilities 176,401,985 163,085,595
Stockholders' equity
Common stock, par value $1 per share;
authorized 500,000 shares;
issued 240,000 shares 240,000 240,000
Surplus 2,058,985 2,058,985
Retained earnings 16,512,816 14,101,950
Unrealized (loss) gain on securities
available for sale,
net of tax (17,069) 170,605
Treasury stock at cost - 157 shares (5,128) (5,128)
Total stockholders' equity 18,789,604 16,566,412
Total liabilities and
stockholders' equity $195,191,589 $179,652,007
<FN>
See Accompanying Notes to Consolidated Financial Statements.
</FN>
</TABLE>
<TABLE>
FIRST BANCSHARES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
For the Years Ended December 31, 1996, 1995 and 1994
<CAPTION>
1996 1995 1994
Interest income
<S> <C> <C> <C>
Interest and fees on loans $14,117,216 $11,691,974 $ 7,261,119
Interest on investment securities
Taxable 1,127,862 1,431,763 922,263
Exempt from Federal income tax 923,477 817,469 784,750
Interest on federal funds sold 66,357 256,364 111,117
Interest on other investments 165,921 206,835 236,169
Total interest income 16,400,833 14,404,405 9,315,418
Interest expense
Interest on deposits 6,441,643 5,861,878 3,440,198
Interest on short-term debt and FHLB advance 291,665 133,058 125,929
Interest on long-term debt 280,358 301,388 109,033
Total interest expense 7,013,666 6,296,324 3,674,160
Net interest income 9,387,167 8,108,081 5,640,258
Provision for loan losses 721,527 255,290 195,000
Net interest income after provision
for loan losses 8,665,640 7,852,791 5,445,258
Noninterest income
Service charges and fees 1,106,096 922,246 607,508
Commissions 186,211 97,334 108,439
Net investment securities (losses) gains (83,158) 28,814 379,299
Net trading account profit - 280,303 -
Other income 80,275 115,827 114,030
Total noninterest income 1,289,424 1,444,524 1,209,276
Noninterest expenses
Salaries and employee benefits 3,267,710 2,716,163 1,652,605
Net trading account losses - - 1,473,145
Occupancy expense 342,718 258,637 239,093
Furniture and equipment expense 329,650 266,545 224,309
Insurance and assessments 83,778 246,498 268,562
Other operating expenses 2,084,044 2,180,997 1,262,673
Total noninterest expenses 6,107,900 5,668,840 5,120,387
Income before income taxes 3,847,164 3,628,475 1,534,147
Income tax expense 1,138,893 793,364 206,591
Net income $ 2,708,271 $ 2,835,111 $ 1,327,556
Net income per share $ 11.29 $ 11.95 $ 5.71
<FN>
See Accompanying Notes to Consolidated Financial Statements.
</FN>
</TABLE>
<TABLE>
FIRST BANCSHARES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
For the Years Ended December 31, 1996, 1995 and 1994
<CAPTION>
Net Unrelized
Gain (Loss) Treasury Total
Common Retained Availabe for Stock Stockholders'
Stock Surplus Earnings for Sale at Cost Equity
<S> <C> <C> <C> <C> <C> <C>
Balance at January 1, 1994 $240,000 $1,820,000 $10,364,838 $ (36,604) $(201,143) $12,187,091
Adoption of FAS 115 on January 1, 1994,
unrealized gain on securities
available for sale, net of taxes - - - 486,689 - 486,689
Net income - - 1,327,556 - - 1,327,556
Dividend declared - - (197,704) - - (197,704)
Net change in unrealized gain on
securities available for sale,
net of taxes - - - (927,401) - (927,401)
Balance at December 31, 1994 240,000 1,820,000 11,494,690 (477,316) (201,143) 12,876,231
Net income - - 2,835,111 - - 2,835,111
Dividends declared - - (227,851) - - (227,851)
Sale of 7,250 shares of treasury stock - 238,985 - - 196,015 435,000
Net change in unrealized loss on
securities available for sale,
net of taxes - - - 647,921 - 647,921
Balance at December 31, 1995 240,000 2,058,985 14,101,950 170,605 (5,128) 16,566,412
Net income - - 2,708,271 - - 2,708,271
Dividends declared - - (297,405) - - (297,405)
Net change in unrealized gain on
securities available for sale,
net of taxes - - - (187,674) - (187,674)
Balance at December 31, 1996 $240,000 $2,058,985 $16,512,816 $ (17,069) $ (5,128) $18,789,604
<FN>
See Accompanying Notes to Consolidated Financial Statements.
</FN>
</TABLE>
<TABLE>
FIRST BANCSHARES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the Years Ended December 31, 1996, 1995 and 1994
<CAPTION>
1996 1995 1994
Cash flows from operating activities
<S> <C> <C> <C>
Net income $ 2,708,271 $ 2,835,111 $ 1,327,556
Adjustments to reconcile net income to net cash
provided by operations:
Depreciation and amortization 552,203 473,857 255,609
Net premium amortization 51,949 78,786 138,814
Provision for loan losses 721,527 255,290 195,000
Net investment securities losses (gains) 83,158 (28,814) (379,299)
Losses from other real estate - 20,773 45,277
Proceeds from sales of loans held for sale 4,694,493 2,293,904 2,118,649
Originations of loans held for sale (4,916,493) (2,180,177) (2,119,002)
Net decrease in trading account securities - 405,775 1,494,219
Equity in loss (earnings) of investee 6,029 12,000 (19,776)
Increase in accrued interest receivable (127,042) (411,477) (109,393)
(Increase) decrease in other assets (291,396) 224,228 (743,314)
Increase (decrease) in accrued interest payable 3,208 272,509 (34,029)
Increase (decrease) in accrued income taxes payable 254,253 (198,591) 9,200
Increase in other liabilities 197,171 303,922 47,812
Net cash provided by operations 3,937,331 4,357,096 2,227,323
Cash flows from investing activities
Net decrease (increase) in interest bearing deposits in
other banks 48,505 681,401 (573,943)
Net increase (decrease) in federal funds sold 1,640,000 (300,000) (1,340,000)
Purchases of securities available for sale (11,159,372) (20,279,000) (4,205,156)
Proceeds from sales of securities available for sale 4,582,104 21,861,430 10,268,418
Proceeds from maturities of securities available for sale 3,785,486 4,186,876 3,870,124
Proceeds from maturities of investment securities to be
held to maturity 131,618 892,379 37,859
Purchases of investment securities to be held to maturity - (1,343,300) -
Purchase of other investments (373,587) - -
Net increase in loans (14,116,025) (13,908,132) (7,920,159)
Purchases of premises and equipment (656,663) (417,828) (95,071)
Capital contributions to investee - - (100,400)
Purchase of Centreville branch, net of cash acquired - 1,566,943 -
Net cash used in investing activities (16,117,934) (7,059,231) (58,328)
Cash flows from financing activities
Net increase (decrease) in demand and savings deposits 5,869,965 (1,668,742) (422,332)
Net increase in certificates of deposit and other time
deposits 2,644,576 7,315,911 3,890,412
Net increase (decrease) in short-term debt 39,695 (1,352,962) 425,527
Principal payments on long-term debt (590,500) (1,630,500) (750,000)
Proceeds from long-term debt - 3,755,000 -
Net increase (decrease) in advance from FHLB 4,964,913 (35,088) (5,026,316)
Proceeds from sale of treasury stock - 435,000 -
Dividends paid (297,405) (227,851) (197,704)
Net cash provided by (used in) financing activities 12,631,244 6,590,768 (2,080,413)
Net increase in cash and due from banks 450,641 3,888,633 88,582
Cash and due from banks at beginning of year 7,277,436 3,388,803 3,300,221
Cash and due from banks at end of year $ 7,728,077 $ 7,277,436 $ 3,388,803
Supplemental Cash Flow Information
Selected cash payments and noncash activities were as
follows:
Cash payments for income taxes $ 1,058,745 $ 715,874 $ 839,037
Cash payments for interest 7,010,458 6,023,815 3,709,189
Noncash investing and financing activity
Assets acquired by assuming directly related
liabilities - 47,005,426 200,000
<FN>
See Accompanying Notes to Consolidated Financial Statements.
</FN>
</TABLE>
FIRST BANCSHARES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1996, 1995 and 1994
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The accounting policies followed by the Company and its
subsidiaries and the method of applying those policies which affect
the determination of financial condition, results of operations and
cash flows are summarized below.
Consolidation
The consolidated financial statements of the Company include the
accounts of the following:
Percentage
Company Owned Parent Company
First Bank and Trust 100% First Bancshares, Inc.
I & I, Inc. 100% First Bancshares, Inc.
Acceptance Loan Co., Inc. 100% First Bank and Trust
All significant intercompany accounts and transactions have been
eliminated.
Mergers and Acquisition
On February 17, 1995, the Bank acquired the assets of the
Centreville and Woodstock branches of The Peoples Bank of Elba by
assumption of the branches' liabilities and a premium payment of
$2,725,000. The premium payment has been capitalized as goodwill
and is being amortized over a fifteen year period.
On August 19, 1996, the Company signed a definitive agreement to
merge with United Security Bancshares, Inc. of Thomasville,
Alabama. The agreement calls for the exchange of 5.8321 shares of
United Security Bancshares, Inc. common stock for each share of
Company common stock for a total of 1,398,788 shares of United
Security Bancshares, Inc. common stock to be exchanged for 100% of
the Company's common stock. At December 31, 1996, United Security
Bancshares, Inc. had assets of approximately $235 million and
equity of approximately $29 million. The transaction is subject to
regulatory and shareholder approval and is to be accounted for
under the pooling-of-interests method of accounting.
Use of Estimates
The preparation of financial statements in conformity with
generally accepted accounting principles requires management to
make estimates and assumptions that affect the reported amounts of
assets and liabilities and disclosure of contingent assets and
liabilities at the date of the financial statements and the
reported amounts of revenues and expenses during the reporting
period. Actual results could differ from those estimates.
Material estimates that are particularly susceptible to significant
change relate to the determination of the allowance for losses on
loans. While management uses available information to recognize
losses on loans, future additions to the allowances may be
necessary based on changes in local economic conditions. In
addition, regulatory agencies, as an integral part of their
examination process, periodically review the Company's allowance
for losses on loans. Such agencies may require the Company to
recognize additions to the allowances based on their judgments
about information available to them at the time of their
examination.
Investments in Securities
The Bank's investments in securities as of January 1, 1994 and
thereafter are classified in three categories and accounted for as
follows as required by FAS 115.
-- Trading Account Securities. Government bonds and mortgage
backed securities held principally for resale in the near term are
classified as trading securities and recorded at their fair values.
Unrealized gains and losses on trading securities are included in
other income.
-- Investment Securities to Be Held to Maturity. Bonds,
notes and debentures for which the Bank has the positive intent and
ability to hold to maturity are reported at cost, adjusted for
amortization of premiums and accretion of discounts which are
recognized in interest income using the interest method over the
period to maturity.
-- Investment Securities Available for Sale. Securities
available for sale consist of bonds, notes, debentures, and certain
equity securities not classified as trading securities nor as
securities to be held to maturity.
Unrealized holding gains and losses, net of deferred income
tax, on securities available for sale are reported as a net amount
in a separate component of stockholders' equity until realized.
Gains and losses on the sale of securities available for sale
are determined using the specific-identification method.
Loans and Allowance for Loan Losses
Loans are stated at the amount of unpaid principal, reduced by
unearned discount and an allowance for loan losses. Interest
income with respect to loans is accrued on the principal amount
outstanding, except for interest on certain consumer loans, which
is recognized over the term of the loan using a method which
approximates a level yield.
The allowance for loan losses is established through a provision
for loan losses charged to expenses. Loans are charged against the
allowance for loan losses when management believes the
collectibility of principal is unlikely. The allowance is the
amount that management believes will be adequate to absorb possible
losses on existing loans which may become uncollectible, based on
evaluation of the collectibility of loans and prior loan loss
experience. The evaluations take into consideration such factors
as changes in the nature and volume of the loan portfolio, overall
portfolio quality, review of specific problem loans, and current
economic conditions that may affect the borrower's ability to pay.
Accrual of interest is discontinued on a loan when management
believes, after considering economic and business conditions and
collection efforts, that the loan is impaired. Any unpaid interest
previously accrued on those loans is reversed from income.
Interest income generally is not recognized on specific impaired
loans unless the likelihood of further loss is remote. Interest
payments received on such loans are applied as a reduction of the
loan principal balance. Interest income on other nonaccrual loans
is recognized only to the extent of interest payments received.
Equity in Unconsolidated Investee
The Bank's investment in its unconsolidated investee is carried at
cost, adjusted for the Bank's proportionate share of its
undistributed earnings or losses. As of December 31, 1996 and
1995, the Bank owned fifty-percent (50%) of First Banking Services,
Inc., Fort Walton Beach, Florida (Note 10). The investee began
operations in September, 1994 and the following is a summary of its
financial position and results of operations as of and for the
periods ended December 31:
[CAPTION]
<TABLE>
1996 1995 1994
<S> <C> <C> <C>
Current assets $ 307,707 $ 106,188 $ 203,664
Furniture, equipment and software, net 835,992 866,507 965,176
Other assets 112,832 242,584 198,598
Total assets $1,256,531 $1,215,279 $1,367,438
Current liabilities $ 41,522 $ - $ 150,078
Stockholders' equity 1,215,009 1,215,279 1,217,360
Total liabilities and
stockholders' equity $1,256,531 $1,215,279 $1,367,438
Total revenue $1,259,159 $1,173,959 $ 844,609
Net loss $ (271) $ (2,081) $ (14,801)
</TABLE>
Bank Premises and Equipment
Bank premises and equipment are stated at cost less accumulated
depreciation and amortization. Depreciation is computed over the
estimated service lives of the assets using accelerated methods.
The estimated service lives are as follows:
Description Estimated Service Life
Bank premises 10 to 50 years
Furniture and equipment 5 to 10 years
Data processing equipment 5 to 10 years
Expenditures for maintenance and repairs are charged to operations
as incurred; expenditures for renewals and better- ments are
capitalized and written off by depreciation charges. Property
retired or sold is removed from the asset and related accumulated
depreciation accounts and any profit or loss resulting therefrom is
reflected in the statements of income.
Intangibles, Net
Intangibles is the excess of the cost over net assets acquired and
is being amortized over 40 and 15 year periods using the
straight-line method.
Loan Origination Fees
Loan origination fees are capitalized and recognized as an
adjustment of the yield on the related loan.
Other Real Estate
Other real estate, acquired through partial or total satisfaction
of loans, is carried at the lower of cost or fair market value. At
the date of acquisition, losses are charged to the allowance for
loan losses.
Income Tax Expense
Income taxes are based on amounts reported in the statements of
income, after exclusion of nontaxable income such as interest on
state and municipal securities and certain nondeductible expenses
(See Note 9).
Net Income Per Share
Net income per share has been computed based on the weighted
average number of common shares outstanding of 239,843, 237,203 and
232,593, respectively.
Off Balance Sheet Financial Instruments
In the ordinary course of business the Bank has entered into off
balance sheet financial instruments consisting of commitments to
extend credit, commitments under credit card arrangements,
commercial letters of credit and standby letters of credit. Such
financial instruments are recorded in the financial statements when
they become payable.
Cash and Cash Equivalents
For the purpose of presentation in the Statements of Cash Flows,
cash and cash equivalents are defined as those amounts included in
the statement of financial condition caption "Cash and Due from
Banks."
Effect of New Financial Accounting Standards
The Financial Accounting Standards Board has issued Statement of
Financial Accounting Standards (SFAS) No. 114, "Accounting by
Creditors for Impairment of a Loan." SFAS No. 114, as amended by
SFAS No. 118, became effective January 1, 1995 and requires that
impaired loans that are within the scope of this Statement be
measured based on the present value of expected future cash flows
discounted at the loan's effective interest rate or, as a practical
expedient, at the loan's observable market price or the fair value
of the collateral if the loan is collateral dependent. The
adoption of SFAS No. 114 did not have a material effect on
financial position and results of operations.
In December 1991, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards (SFAS) No. 107,
"Disclosures about Fair Value of Financial Instruments." SFAS No.
107 is effective for fiscal years ending after December 15, 1995
for entities with less than $150 million in total assets as of
December 31, 1992. SFAS No. 107 requires disclosure of the fair
value of financial instruments, both assets and liabilities
recognized and not recognized in the statements of financial
position, for which it is practical to estimate fair value.
NOTE 2 - INVESTMENT SECURITIES
The amounts at which investment securities are carried and their
approximate fair values at December 31, 1996 and 1995 are as
follows:
<TABLE>
<CAPTION>
Gross Gross Estimated
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
Available for sale - December 31,1996:
<S> <C> <C> <C> <C>
U.S. Treasury securities and obligations of
U.S. government agencies $ 4,987,633 $ 51,327 $ - $ 5,038,960
Obligations of states and political
subdivisions 16,671,772 391,152 158,295 16,904,629
Mortgage-backed securities 11,604,024 4,184 316,818 11,291,390
Equity securities 807,922 - - 807,922
Totals $34,071,351 $446,663 $475,113 $34,042,901
Held to maturity - December 31, 1996:
Obligations of states and political
subdivisions $ 587,261 $ - $ - $ 587,261
Available for sale - December 31, 1995:
U.S. Treasury securities and obligations of
U.S. government agencies $ 6,182,511 $ 26,698 $ 32,178 $ 6,177,031
Obligations of states and political
subdivisions 12,184,975 633,802 15,840 12,802,937
Mortgage-backed securities 11,951,069 11,242 265,404 11,696,907
Equity securities 1,096,122 - 44,388 1,051,734
Totals $31,414,677 $671,742 $357,810 $31,728,609
Held to maturity - December 31, 1995:
Obligations of states and political
subdivisions $ 718,879 $ - $ - $ 718,879
</TABLE>
Securities with an amortized cost of $17,647,438 and $14,377,064 at
December 31, 1996 and 1995, respectively, were pledged to secure
United States Government deposits and other public funds and for
other purposes as required or permitted by law.
The amortized cost and estimated fair values of debt securities at
December 31, 1996, by contractual maturity, are shown below.
Expected maturities will differ from contractual maturities because
borrowers may have the right to call or prepay obligations with or
without call or prepayment penalties.
<TABLE>
<CAPTION>
Securities Held to Maturity Securities Available for Sale
Estimated Estimated
Amortized Fair Amortized Fair
Cost Value Cost Value
<S> <C> <C> <C> <C>
Due in one year or less $ 18,244 $ 18,244 $ 1,136,545 $ 1,139,299
Due after one year through five years 239,842 239,842 7,431,822 7,582,815
Due after five years through ten years 296,372 296,372 3,565,236 3,719,612
Due after ten years 32,803 32,803 9,525,802 9,501,863
587,261 587,261 21,659,405 21,943,589
Mortgage-backed securities - - 11,604,024 11,291,390
$587,261 $587,261 $33,263,429 $33,234,979
</TABLE>
Other investments are comprised of the following as of December 31,
1996 and 1995:
<TABLE>
<CAPTION>
1996 1995
<S> <C> <C>
Investment in limited partnerships, at cost $1,873,587 $1,500,000
Investment in single premium deferred annuity policies 1,289,155 1,212,752
Total $3,162,742 $2,712,752
</TABLE>
As of December 31, 1996 the bank had cash commitments to a limited
partnership totaling approximately $125,000.
Gross realized gains and losses on sales of securities available
for sale were as follows:
<TABLE>
<CAPTION>
Gross Realized Gains Gross Realized Losses
1996 1995 1994 1996 1995 1994
<S> <C> <C> <C> <C> <C> <C>
Debt securities $5,776 $129,705 $379,612 $27,218 $100,891 $313
Other securities - - - 61,716 - -
</TABLE>
NOTE 3 - LOANS
The Bank grants loans to customers primarily in Clarke and Bibb
Counties, Alabama.
At December 31, 1996 and 1995 the composition of the loan portfolio
was as follows:
<TABLE>
<CAPTION>
1996 1995
<S> <C> <C>
Commercial, industrial and agricultural $ 20,634,218 $ 18,983,872
Real estate - construction 4,414,300 2,085,000
- mortgage 82,944,034 80,808,107
Loans to individuals for personal expenditures 36,608,164 26,178,871
All other loans (including overdrafts) 690,077 737,150
Total loans 145,290,793 128,793,000
Unearned interest and fees (3,623,059) (995,773)
Allowance for loan losses (1,942,597) (1,688,588)
Net loans $139,725,137 $126,108,639
</TABLE>
Information with respect to impaired loans as of and for the years
ended December 31, 1996 and 1995 is as follows:
<TABLE>
<CAPTION>
1996 1995
<S> <C> <C>
Nonaccruing with related loan loss reserve $ - $ -
Nonaccruing with no related loan loss reserve 945,367 -
Total impaired loans $ 945,367 $ -
Allowance provided for impaired loans included
in the allowance for loan losses $ - $ -
Average balance of impaired loans $ 317,591 $ -
Interest income recognized on impaired loans $ 19,729 $ -
</TABLE>
The Bank has no commitments to loan additional funds to the
borrowers whose loans are nonaccruing.
NOTE 4 - ALLOWANCE FOR LOAN LOSSES
A summary of the allowance for loan losses for the years ended
December 31, 1996, 1995 and 1994, follows:
<TABLE>
<CAPTION>
1996 1995 1994
<S> <C> <C> <C>
Balance at beginning of year $1,688,588 $1,131,515 $1,041,931
Allowance acquired in branch acquisition (Note 1) - 575,223 -
Provision charged to operations 721,527 255,290 195,000
Recoveries of loans previously charged off 103,306 36,321 19,000
Loans charged off (570,824) (309,761) (124,416)
Balance at end of year $1,942,597 $1,688,588 $1,131,515
</TABLE>
NOTE 5 - PREMISES AND EQUIPMENT
Components of premises and equipment at December 31, 1996 and 1995
are as follows:
<TABLE>
<CAPTION>
1996 1995
<S> <C> <C>
Land $ 538,898 $ 438,897
Bank premises 2,349,660 2,123,923
Furniture and equipment 2,853,840 2,524,038
5,742,398 5,086,858
Less: Accumulated depreciation (3,114,154) (2,815,638)
Net book value $ 2,628,244 $ 2,271,220
</TABLE>
NOTE 6 - ADVANCE FROM FEDERAL HOME LOAN BANK AND SHORT-TERM DEBT
Advances from the Federal Home Loan Bank as of December 31, 1996
and 1995 totaled $5,403,509 and $438,596, respectively. The
advances are secured by Federal Home Loan Bank stock and a blanket
floating lien on certain first mortgage loans; maturity date is
April 8, 2008.
The Bank has $17,000,000 in available credit from the FHLB and
$12,000,000 available in federal fund lines from correspondent
banks.
NOTE 7 - LONG-TERM DEBT
Long-term debt consisted of the following at December 31, 1996 and
1995:
<TABLE>
<CAPTION>
1996 1995
<S> <C> <C>
Note payable to bank, principal is due annually
through December 31, 2004; interest is payable
quarterly at New York Prime less 10 basis
points; secured by all capital stock of the Bank. $3,004,000 $3,379,500
Promissory note payable to limited partnership for
purchase of investor units, principal is due
annually through June 1, 1996; no stated
interest rate. - 215,000
Total $3,004,000 $3,594,500
</TABLE>
The loan agreement underlying the above bank note includes numerous
covenants that relate to the Company and its subsidiary bank's
operations, financial condition and capital structure. As of
December 31, 1995 the Company and its subsidiary bank were in
compliance with these covenants.
Annual maturities of debt for each of the five years following
December 31, 1996 are as follows:
1997 $ 375,500
1998 375,500
1999 375,500
2000 375,500
2001 375,500
Thereafter 1,126,500
NOTE 8 - PROFIT-SHARING PLAN
The Bank has a contributory-trusteed profit-sharing plan for the
benefit of employees who qualify as to age and/or length of
service. The annual contribution to the profit-sharing plan
consists of a discretionary percentage of the Bank's profit, plus,
a contribution which matches a discretionary percentage of the
participant's salary reductions. The Bank expects to continue the
plan indefinitely; however, the rights to modify, amend or
terminate the plan have been reserved. During 1996, 1995 and 1994,
contributions to the plan charged to operations were $107,910,
$152,326, and $91,986, respectively.
NOTE 9 - INCOME TAX EXPENSE
The components of income tax expense are as follows:
<TABLE>
<CAPTION>
1996 1995 1994
<S> <C> <C> <C>
Currently Payable:
Federal $1,121,291 $ 412,295 $ 727,787
State 191,706 73,389 120,450
Total currently payable 1,312,997 485,684 848,237
Tax effect of temporary differences (174,104) 307,680 (641,646)
Total income tax expense $1,138,893 $793,364 $ 206,591
</TABLE>
As of December 31, 1996 and 1995, the net deferred tax asset
consisted of the following:
<TABLE>
<CAPTION>
1996 1995
<S> <C> <C>
Deferred tax asset, net of $75,903 and
$55,095 valuation allowance, respectively:
Provision for loan losses $441,880 $336,327
Deferred commissions and fees 102,322 -
Net unrealized gain (loss) on securities
available for sale 11,380 (143,329)
Write down of other real estate 1,772 28,177
Other (7,365) -
Net deferred tax asset $549,989 $221,175
</TABLE>
The effective tax rate differs significantly from the Federal tax
rate of 34%. A reconciliation between the expected tax and the
actual income tax follows:
<TABLE>
<CAPTION>
1996 1995 1994
<S> <C> <C> <C>
Expected tax at the Federal statutory rate $1,308,036 $1,233,682 $ 521,609
Increases (decreases) resulting from:
Effect of tax-exempt income (313,982) (277,939) (266,815)
State excise taxes, less federal tax benefit 126,526 48,437 19,331
Low income housing tax credit ( 50,000) (40,000) (14,000)
Disallowed interest expense 41,172 29,713 -
Change in valuation allowance 20,808 (272,438) -
Provision for loan losses - - (13,811)
Other - net 6,333 71,909 (39,723)
$1,138,893 $ 793,364 $ 206,591
</TABLE>
The Company has unused capital loss carryovers of approximately
$163,000 and $61,200 which can be used to offset future capital
gains. The carryovers expire in 1997 and 2001, respectively.
NOTE 10 - RELATED PARTY TRANSACTIONS
The Bank has entered into transactions with its directors,
executive officers, significant shareholders and their affiliates
(related parties). Such transactions were made in the ordinary
course of business on substantially the same terms and conditions,
including interest rates and collateral, as those prevailing at the
same time for comparable transactions with other customers, and did
not, in the opinion of management, involve more than normal credit
risk or present other unfavorable features. The aggregate amount
of loans to such related parties with an aggregate balance greater
than $60,000 at December 31, 1996 and 1995, were $664,655 and
$737,097, respectively. The aggregate amount of such loans
exceeding $60,000 to each person did not exceed 5% of stockholder's
equity.
See Note 13 for data processing fees paid to First Banking
Services, Inc.
NOTE 11 - COMMITMENTS AND CONTINGENCIES
The consolidated financial statements do not reflect the Bank's
various commitments and contingent liabilities which arise in the
normal course of business and which involve elements of credit
risk, interest rate risk and liquidity risk. These commitments and
contingent liabilities are commitments to extend credit and standby
letters of credit. The following is a summary of the Bank's
commitments and contingent liabilities at December 31, 1996 and
1995:
<TABLE>
<CAPTION>
1996 1995
<S> <C> <C>
Commitments to extend credit:
Commercial and other lines of credit $11,097,747 $13,991,629
Home equity lines of credit 2,887,948 716,812
Standby letters of credit 208,400 375,216
</TABLE>
Commitments to extend credit and standby letters of credit all
include exposure to some credit loss in the event of nonperformance
of the customer. The Bank's credit policies and procedures for
credit commitments and financial guarantees are the same as those
for extension of credit that are recorded in the consolidated
statement of financial condition. Because these instruments have
fixed maturity dates, and because many of them expire without being
drawn upon, they do not generally present any significant liquidity
risk to the Bank.
The Bank is party to litigation and claims arising in the normal
course of business. Management, after consultation with legal
counsel, believes that the liabilities, if any, arising from such
litigation and claims will not be material to the consolidated
financial statements.
The Bank originates and sells mortgage loans to a third party
investor under a recourse agreement. This agreement requires the
Bank to repurchase these loans if they become non-performing within
ninety days of sale. The total amount of these loans subject to
such recourse was $1,480,000 and $1,099,015 at December 31, 1996
and 1995, respectively. There have been no losses on these loans.
Acceptance Loan Company, Inc. leases its branch office facilities
under various operating leases. The future minimum lease payments
(including renewal options) for each of the succeeding five years
follows:
1997 $ 37,290
1998 34,440
1999 28,740
2000 28,740
2001 25,463
$154,673
Rent expense was approximately $36,500 and $4,100 for the years
ended December 31, 1996 and 1995, respectively.
NOTE 12 - REGULATORY RESTRICTIONS
The primary source of funds available to the Company is the payment
of dividends by its subsidiary Bank. Banking regulations limit the
amount of dividends that may be paid without prior approval of the
Banks' regulatory agency. Approximately $4,943,000 is available to
be paid as dividends by the Bank subsidiary at December 31, 1996.
The Bank is subject to various regulatory capital requirements
administered by the federal banking agencies. Failure to meet
minimum capital requirements can initiate certain mandatory and
possible additional discretionary actions by regulators that, if
undertaken, could have a direct material effect on the Bank's
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-balancesheet
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
weightings, and other factors.
Quantitative measures established by regulation to ensure capital
adequacy require the Bank to maintain minimum amounts and ratios
(set forth in the table below) of total and Tier I capital (as
defined in the regulations) to risk-weighted assets (as defined),
and of Tier I capital (as defined) to average assets (as defined).
Management believes, as of December 31, 1996, that the Bank meets
all capital adequacy requirements to which it is subject.
As of December 31, 1996, the most recent notification from the FDIC
categorized the Bank as well capitalized under the regulatory
framework for prompt corrective action. To be categorized as well
capitalized the Bank must maintain minimum total risk-based, Tier
I risk-based, Tier I leverage ratios as set forth in the table.
There are no conditions or events since that notification that
management believes have changed the institution's category.
The Bank's actual capital amounts and ratios are also presented in
the table.
<TABLE>
<CAPTION>
To Be Well
Capitalized Under
For Capital Prompt Corrective
Actual Adequacy Purposes Action Provisions
Amount Ratio Amount Ratio Amount Ratio
<C> <C> <C> <C> <C> <C>
As of December 31, 1996:
Total capital
(to Risk Weighted Assets) $19,793,000 14.0% $11,295,520 +/- 8.0% $14,119,400 +/- 10.0%
Tier I Capital
(to Risk Weighted Assets) 17,850,000 12.6 5,647,760 +/- 4.0% 8,471,640 +/- 6.0%
Tier I Capital
(to Average Assets) 17,850,000 9.5 7,529,520 +/- 4.0% 9,411,900 +/- 5.0%
</TABLE>
The subsidiary bank is required by law to maintain minimum cash
reserves to meet regulatory reserve requirements. As of December
31, 1996 and 1995 the Bank's gross reserve requirement totaled
$1,406,000 and $1,265,000.
NOTE 13 - OTHER OPERATING EXPENSES
Other operating expenses for the years 1996, 1995 and 1994 consist
of the following:
<TABLE>
<CAPTION>
1996 1995 1994
<S> <C> <C> <C>
Professional fees $ 108,493 $ 147,931 $ 115,532
Data processing fees 454,381 465,006 346,802
Advertising 105,277 90,697 82,596
Telephone 169,457 88,777 62,629
Postage, stationery and supplies 365,170 302,468 166,529
Consultant fees 54,705 68,686 40,274
Litigation settlement - 265,000 -
Amortization of goodwill and acquisition cost 263,688 257,033 -
Other operating expense 562,873 495,399 448,311
Total $2,084,044 $2,180,997 $1,262,673
</TABLE>
NOTE 14 - CONCENTRATIONS OF CREDIT
All of the Bank's loans, commitments and standby letters of credit
have been granted to customers in the Bank's market area. The
local economy in the Bank's market area is heavily dependent upon
the timber industry. As of December 31, 1996 the amount of loans
directly related to the timber industry totaled approximately
$13,917,000. Investments in state and municipal securities also
involve governmental entities within the Bank's market area. Other
concentrations of credit by type of loan or commitment are set
forth in Notes 3 and 11, respectively.
NOTE 15 - FAIR VALUE OF FINANCIAL INSTRUMENTS
The following methods and assumptions were used to estimate the
fair value of each class of financial instruments for which it is
practicable to estimate that value:
Cash, Due from Banks and Short-term Instruments
The carrying amount of cash and short-term instruments approximate
their fair value.
Loans
For variable-rate loans (non-commercial, consumer and real estate)
that reprice frequently and have no significant change in credit
risk, fair values are based on carrying values. For all other
fixed-rate loans, fair values are based on discounted cash flow
analyses.
Deposit Liabilities
The fair values disclosed for demand deposits are, by definition,
equal to the amount payable on demand at the reporting date. 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 for fixed-rate certificates of deposit
are estimated using a discounted cash flow calculation that applies
interest rates currently being offered on certificates to a
schedule of aggregated expected monthly maturities on time
deposits.
Long-term Debt and Short-term Borrowings
The carrying amounts approximate their fair values.
Off-Balance-Sheet Instruments
Fair values for off-balance-sheet lending commitments are based on
fees currently charged to enter into similar agreements, taking
into account the remaining terms of the agreements and the
counterparties' credit standing.
The estimated fair values of the Bank's financial instruments as of
December 31, 1996 and 1995 are as follows (in thousands):
<TABLE>
<CAPTION>
1996 1995
Estimated Estimated
Carrying Fair Carrying Fair
Amount Value Amount Value
<S> <C> <C> <C> <C>
Financial assets
Cash and due from banks $ 7,773 $ 7,773 $ 7,370 $ 7,370
Federal funds sold - - 1,640 1,640
Investment securities 38,405 38,405 35,779 35,780
Loans 141,668 - 127,798 -
Less: Allowance for loan losses (1,943) - (1,689) -
Loans, net of allowance for loan losses 139,725 140,532 126,109 128,329
Financial liabilities
Deposits 166,380 166,629 157,866 158,078
Long-term debt and short-term borrowings 8,487 8,487 4,073 4,073
Unrecognized financial instruments
Commitments to extend credit 13,986 13,986 14,708 14,709
Standby letters of credit 208 208 375 375
</TABLE>
NOTE 16 - PARENT COMPANY
The condensed financial information for First Bancshares, Inc.
(Parent Company only) is presented as follows:
<TABLE>
Statements of Financial Condition
<CAPTION>
1996 1995
<S> <C> <C>
Assets
Cash $ 122,637 $ 51,217
Investment in subsidiaries, at equity 20,221,777 18,443,479
Intangibles, net 1,295,440 1,364,164
Other assets 201,915 121,420
$21,841,769 $19,980,280
Liabilities
Note payable $ 3,004,000 $ 3,379,500
Other liabilities 48,165 34,368
3,052,165 3,413,868
Stockholders' equity 18,789,604 16,566,412
$21,841,769 $19,980,280
</TABLE>
<TABLE>
Statements of Income
<CAPTION>
1996 1995 1994
<S> <C> <C> <C>
Dividend income $ 953,264 $ 809,569 $ 806,737
Expenses
Interest 280,359 301,389 109,033
Amortization 68,724 68,724 68,724
Miscellaneous 3,510 7,082 4,616
352,593 377,195 182,373
Operating income before income tax benefit 600,671 432,374 624,364
Income tax benefit (141,628) (105,946) (17,624)
Income before undistributed income of
subsidiaries 742,299 538,320 641,988
Undistributed income of subsidiaries
Net income of subsidiaries 2,919,236 3,106,360 1,492,305
Less: Dividends received 953,264 809,569 806,737
Undistributed income of subsidiaries 1,965,972 2,296,791 685,568
Net income $2,708,271 $2,835,111 $1,327,556
</TABLE>
<TABLE>
Statements of Cash Flows
<CAPTION>
1996 1995 1994
<S> <C> <C> <C>
Cash flows from operating activities
Net income $ 2,708,271 $ 2,835,111 $ 1,327,556
Adjustments to reconcile net income to net
cash provided by operating activities:
Undistributed income of subsidiary (1,965,972) (2,296,791) (685,568)
Amortization 68,724 68,724 68,724
Increase in tax receivable from subsidiary (36,560) (112,734) (15,574)
Other (30,138) 34,370 (1,000)
Net cash provided by operating activities 744,325 528,680 694,138
Cash flows used in investing activities
Capital contribution to subsidiary - (3,076,000) -
Cash flows from financing activities
Principal payments on long-term debt (375,500) (1,405,500) (500,000)
Proceeds from long-term debt - 3,755,000 -
Proceeds from sale of treasury stock - 435,000 -
Dividends paid (297,405) (227,851) (194,262)
Net cash provided by (used in) financing
activities (672,905) 2,556,649 (694,262)
Net increase (decrease) in cash 71,420 9,329 (124)
Cash at beginning of year 51,217 41,888 42,012
Cash at end of year $ 122,637 $ 51,217 $ 41,888
Supplemental disclosure of cash flow information
Cash paid or (received) during the year for
Interest $ 280,358 $ 301,388 $ 109,033
Income tax (benefit) (105,068) 6,788 (2,050)
</TABLE> Appendix D
March 24, 1997
The Board of Directors and Shareholders
United Security Bancshares, Inc.
131 W. Front Street
Thomasville, AL 36784-3143
Gentlemen:
We understand that United Security Bancshares, Inc. ("USB")
and First Bancshares, Inc. ("FBI") have entered into an Agreement
and Plan of Merger dated as of August 19, 1996 (the "Merger
Agreement"), which provides, among other things, for the merger of
FBI with and into USB and the merger of FBI's wholly-owned
subsidiary, First Bank and Trust, with and into USB's wholly-owned
subsidiary, United Security Bank, (collectively "the Merger").
Pursuant to the Merger Agreement, each issued and outstanding share
of FBI common stock, par value $5.00 per share (the "FBI Common
Stock"), excluding shares held by stockholders who perfect their
dissenter's rights of appraisal, shall cease to be outstanding and
shall convert into and be exchanged for 5.8321 shares of USB
common stock, par value $0.01 per share (the "USB Common Stock")
(the "Exchange Ratio"). The terms and conditions of the Merger and
the Exchange Ratio are more fully described in the Merger
Agreement.
You have asked our opinion as to whether the Exchange Ratio is
fair, from a financial point of view, to the stockholders of USB.
Chaffe & Associates, Inc. ("Chaffe"), through its experience
in the securities industry, investment analysis and appraisal, and
in related corporate finance and investment banking activities,
including mergers and acquisitions, corporate recapitalization, and
valuations for estate, corporate and other purposes, states that it
is competent to provide an opinion as to the fairness of the
Exchange Ratio contemplated herein. Neither Chaffe nor any of its
officers or employees has an interest in USB or FBI Common Stocks.
The fee received for the preparation and delivery of this opinion
is not dependent or contingent upon any transaction.
In connection with rendering its opinion, Chaffe, among other
things: (i) reviewed the Joint Proxy Statement of USB and FBI for
this proposed transaction in substantially the same form to be sent
to stockholders, including a copy of the Merger Agreement; (ii)
reviewed and analyzed certain publicly-available financial
statements and other information of USB and FBI, respectively;
(iii) reviewed and analyzed certain internal financial statements
and other financial and operating data concerning USB and FBI,
prepared by the managements of USB and FBI, respectively, including
financial projections;
The Board of Directors
United Security Bancshares, Inc.
March 24, 1997
Page 2
(iv) discussed the past and current operations and financial
condition, and the prospects of USB and FBI with senior executives
of USB and FBI, respectively; (v) reviewed the historical prices
and trading volumes of the shares of USB Common Stock and FBI
Common Stock; (vi) compared the financial performance of USB and
FBI, and the prices and trading activity of the USB Common Stock
and FBI Common Stock, with that of certain other comparable
publicly-traded companies and their securities; (vii) reviewed and
discussed with senior managements of USB and FBI the strategic
objectives of the Merger, and the synergies and certain other
benefits of the Merger; (viii) reviewed the financial terms of
business combinations in the commercial banking industry
specifically and other industries generally, which Chaffe deemed
generally comparable to the proposed transaction; (ix) considered
a number of valuation methodologies, including among others, those
that incorporate book value, relative contribution, pro forma
earnings per share, and capitalization of earnings; and (x)
performed such other studies and analyses as we deemed appropriate
to this opinion.
In its review, Chaffe relied, without independent
verification, upon the accuracy and completeness of the historical
and projected financial information, and all other information
reviewed by it for purposes of its opinion. Chaffe did not make or
obtained an independent review or appraisal of USB's or FBI's
assets or liabilities, nor was Chaffe furnished with any such
appraisals. Chaffe relied solely on USB and FBI for information as
to the adequacy of their respective loan loss reserves and values
of other real estate owned. With respect to projected financial
results, including the estimates of synergies and other benefits
expected to result from the Merger, Chaffe assumed that they were
reasonably prepared on bases reflecting the best currently
available estimates and judgements of the managements of USB and
FBI of future financial performances of their respective companies.
This opinion was necessarily based upon market, economic and other
conditions as they existed on, and could be evaluated as of, the
date of this opinion. Chaffe expressed no opinion on the tax
consequences of the proposed transaction.
Based upon and subject to the foregoing and based upon such
other matters as we considered relevant, it is our opinion that on
the date hereof, the Exchange Ratio is fair, from a financial point
of view, to the holders of USB Common Stock.
Very truly yours,
CHAFFE & ASSOCIATES, INC.
/s/ Chaffe & Associates, Inc.
GFGL:mb
Appendix E
March 20, 1997
The Board of Directors and Shareholders
First Bancshares, Inc.
131 Main Street
Grove Hill, Alabama 36451
Gentlemen:
United Security Bancshares, Inc., Thomasville, Alabama ("United")
and First Bancshares, Inc., Grove Hill, Alabama ("FBI") have
entered into an Agreement providing for the merger of FBI into
United ("Merger"). The terms of the Merger are set forth in the
Agreement and Plan of Reorganization and Merger dated August 19,
1996.
The terms of the Merger provide that, with the possible exception
of those shares as to which dissenter's rights may be perfected,
each common share of FBI will be converted into stock of United.
You have asked our opinion as to whether the proposed transaction
pursuant to the terms of the Merger are fair to the respective
shareholders of FBI from a financial point of view.
In rendering our opinion, we have evaluated the consolidated
financial statements of FBI available to us from published sources.
In addition, we have: (a) to the extent deemed relevant, analyzed
selected public information of certain other financial institutions
and compared United and FBI from a financial point of view to the
other financial institutions; (b) considered the historical market
price of the common stock of United and FBI; (c) compared the terms
of the Merger with the terms of certain other comparable
transactions to the extent information concerning such acquisitions
was publicly available; (d) reviewed the Agreement and Plan of
Reorganization and related documents; and (e) made such other
analyses and examinations as we deemed necessary. We also met with
various senior officers of United and FBI to discuss the foregoing
as well as other matters that may be relevant.
We have conducted a due diligence review of United but we have not
reviewed registration statements, proxy materials, regulatory
applications or other documents which must be prepared prior to
completion of any transaction.
We have not independently verified the financial and other
information concerning United, or FBI, or other data which we have
considered in our review. We have assumed the accuracy and
completeness of all such information; however, we have no reason to
believe that such information is not accurate and complete. Our
conclusion is rendered on the basis of securities market conditions
prevailing as of the date hereof and on the conditions and
prospects, financial and otherwise, of United and FBI as they exist
and are known to us as of December 31, 1996.
It is understood that this opinion may be included in its entirety
in any communication by FBI or the Board of Directors to the
stockholders of FBI. The opinion may not, however, be summarized,
excerpted from or otherwise publicly referred to without our prior
written consent.
Based on the foregoing, and subject to the limitations described
above, we are of the opinion that the terms of the Merger are fair
to the shareholders of FBI from a financial point of view.
Very truly yours,
/s/ Baxter Fentriss and Company
Baxter Fentriss and Company
Appendix F
[EXECUTION COPY]
UNITED SECURITY BANCSHARES, INC.
LONG TERM INCENTIVE COMPENSATION PLAN
Contents
Article 1. Establishment, Objectives, and Duration 1
1.1. Establishment of the Plan. 1
1.2. Objectives of the Plan. 1
1.3. Duration of the Plan. 1
Article 2. Definitions 1
Article 3. Administration 6
3.1. The Committee. 6
3.2. Authority of the Committee. 6
3.3. Decisions Binding. 6
3.4. Grants to Non-Insiders by Chief Executive Officer. 6
Article 4. Shares Subject to the Plan and Maximum Awards 6
4.1. Number of Shares Available for Grants. 6
4.2. Lapsed Awards. 7
4.3. Adjustments in Authorized Shares. 7
Article 5. Eligibility and Participation 7
5.1. Eligibility. 7
5.2. Actual Participation. 7
Article 6. Stock Options 7
6.1. Grant of Options. 7
6.2 Award of Agreement. 7
6.3. Option Price. 8
6.4. Duration of Options. 8
6.5. Dividend Equivalents. 8
6.6. Exercise of Options. 8
6.7. Payment. 8
6.8. Restrictions on Share Transferability. 8
6.9. Termination of Employment. 9
6.10. Nontransferability of Options. 9
(a) Incentive Stock Options. 9
(b) Nonqualified Stock Options. 9
Article 7. Stock Appreciation Rights 9
7.1. Grant of SARs. 9
7.2. Exercise of Tandem SARs. 10
7.3. Exercise of Freestanding SARs. 10
7.4. SAR Agreement. 10
7.5. Term of SARs. 10
7.6. Payment of SAR Amount. 10
7.7. Rule 16-3 Requirements. 10
7.8. Termination of Employment. 10
7.9. Nontransferability of SARs. 11
Article 8. Restricted Stock 11
8.1. Grant of Restricted Stock. 11
8.2. Restricted Stock Agreement. 11
8.3. Transferability. 11
8.4. Other Restrictions. 11
8.5. Voting Rights. 12
8.6. Dividends and Other Distributions. 12
8.7. Termination of Employment. 12
Article 9. Performance Measures 12
Article 10. Beneficiary Designation 13
Article 11. Deferrals 13
Article 12. Rights of Employees 14
12.1. Employment. 14
12.2. Participation. 14
Article 13. Change in Control 14
13.1. Treatment of Outstanding Awards. 14
13.2. Termination, Amendment, and Modifications
of Change-in-Control Provisions. 14
Article 14. Amendment, Modification and Termination 14
14.1. Amendment, Modification, and Termination. 14
14.2. Adjustment of Awards Upon the Occurrence
of Certain Unusual or Nonrecurrent Events. 15
14.3. Awards Previously Granted. 15
14.4. Compliance with Code Section 162(m). 15
Article 15. Withholding 15
15.1. Tax Withholding. 15
15.2. Share Withholding. 15
Article 16. Indemnification 16
Article 17. Successors 16
Article 18. Legal Construction 16
18.1. Gender and Number. 16
18.2. Severability. 16
18.3. Requirements of Law. 16
18.4. Securities Law Compliance. 16
18.5. Governing Law. 17
Article 1. Establishment, Objectives, and Duration
1.1. Establishment of the Plan. United Security Bancshares,
Inc., an Alabama corporation (hereinafter referred to as the
"Company"), hereby establishes an incentive compensation plan to be
known as the "United Security Bancshares, Inc. Long Term Incentive
Compensation Plan" (hereinafter referred to as the "Plan"), as set
forth in this document. The Plan permits the grant of Nonqualified
Stock Options, Incentive Stock Options, Stock Appreciation Rights,
and Restricted Stock.
Subject to approval by the Company's stockholders, the Plan
shall become effective as of June 1, 1997 (the "Effective Date")
and shall remain in effect as provided in Section 1.3 hereof.
1.2. Objectives of the Plan. The objectives of the Plan are
to optimize the profitability and growth of the Company through
incentives which are consistent with the Company's objectives and
which link the interests of Participants to those of the Company's
stockholders; to provide Participants with an incentive for
excellence in individual performance; and to promote teamwork among
Participants.
The Plan is further intended to provide flexibility to the
Company in its ability to motivate, attract, and retain the
services of Participants who make significant contributions to the
Company's success and to allow Participants to share in the success
of the Company.
1.3. Duration of the Plan. The Plan shall commence on the
Effective Date, as described in Section 1.1 hereof, and shall
remain in effect, subject to the right of the Board of Directors to
amend or terminate the Plan at any time pursuant to Article 14
hereof, until all Shares subject to it shall have been purchased or
acquired according to the Plan's provisions. However, in no event
may an Award be granted under the Plan on or after May 31, 2007.
Article 2. Definitions
Whenever used in the Plan, the following terms shall have the
meanings set forth below, and when the meaning is intended, the
initial letter of the word shall be capitalized:
2.1. "Award" means, individually or collectively, a grant
under this Plan of Nonqualified Stock Options, Incentive Stock
Options, Stock Appreciation Rights, or Restricted Stock.
2.2. "Award Agreement" means an agreement entered into by the
Company and each Participant setting forth the terms and provisions
applicable to Awards granted under this Plan.
2.3. "Beneficial Owner" or "Beneficial Ownership" shall have
the meaning ascribed to such term in Rule 13d-3 of the General
Rules and Regulations under the Exchange Act.
2.4. "Board" or "Board of Directors" means the Board of
Directors of the Company.
2.5. "Cause" shall be determined by the Committee, in
exercise of good faith and reasonable judgment, and shall mean the
occurrence of any one or more of the following:
(a) The willful and continued failure by the Participant
to substantially perform his duties (other than any such failure
resulting from the Participant's Disability), after a written
demand for substantial performance is delivered by the Committee to
the Participant that specifically identifies the manner in which
the Committee believes that the Participant has not substantially
performed his duties, and the Participant has failed to remedy the
situation within thirty (30) calendar days of receiving such
notice; or
(b) The Participant's conviction for committing an act of
fraud, embezzlement, theft, or another act constituting a felony;
or
(c) The willful engaging by the Participant in gross
misconduct materially and demonstrably injurious to the Company, as
determined by the Committee. However, no act or failure to act, on
the Participant's part shall be considered "willful" unless done,
or omitted to be done, by the Participant not in good faith and
without reasonable belief that his action or omission was in the
best interest of the Company.
2.6. "Change in Control" of the Company shall be deemed to
have occurred as of the first day that any one or more of the
following conditions shall have been satisfied:
(a) Any Person (other than those Persons in control of the
Company as of the Effective Date, or other than a trustee or other
fiduciary holding securities under an employee benefit plan of the
Company, or a corporation owned directly or indirectly by the
stockholders of the Company in substantially the same proportions
as their ownership of stock of the Company) becomes the Beneficial
Owner, directly or indirectly, of securities of the Company
representing twenty percent (20%) or more of the combined voting
power of the Company's then outstanding securities; or
(b) During any period of two (2) consecutive years (not
including any period prior to the Effective Date), individuals who
at the beginning of such period constitute the Board (and any new
Director, whose election by the Company's stockholders was approved
by a vote of at least two-thirds (2/3) of the Directors then still
in office who either were Directors at the beginning of the period
or whose election or nomination for election was so approved),
cease for any reason to constitute a majority thereof; or
(c) The stockholders of the Company approve: (i)a plan of
complete liquidation of the Company; or (ii)an agreement for the
sale or disposition of all or substantially all the Company's
assets; or (iii)a merger, consolidation, or reorganization of the
Company with or involving any other corporation, other than a
merger, consolidation, or reorganization that would result in the
voting securities of the Company outstanding immediately prior
thereto continuing to represent (either by remaining outstanding or
by being converted into voting securities of the surviving entity),
at least fifty percent (50%) of the combined voting power of the
voting securities of the Company (or such surviving entity)
outstanding immediately after such merger, consolidation, or
reorganization.
However, in no event shall a Change in Control be deemed
to have occurred, with respect to the Participant, if the
Participant is part of a purchasing group which consummates the
Change-in-Control transaction. The Participant shall be deemed
"part of a purchasing group" for purposes of the preceding sentence
if the Participant is an equity participant in the purchasing
company or group (except for: (i)passive ownership of less than
three percent (3%) of the stock of the purchasing company; or
(ii)ownership of equity participation in the purchasing company or
group which is otherwise not significant, as determined prior to
the Change in Control by a majority of the nonemployee Directors
who were Directors prior to the transaction, and who continue as
Directors following the transaction).
2.7. "Code" means the Internal Revenue Code of 1986, as
amended from time to time.
2.8. "Committee" means a Committee appointed by the Board to
administer the Plan with respect to grants of Awards, as specified
in Article 3 herein.
2.9. "Company" means United Security Bancshares, Inc., and
also means any corporation of which a majority of the voting
capital stock is owned directly or indirectly by United Security
Bancshares, Inc. or by any of its Subsidiaries, and any other
corporation designated by the Committee as being a Company
hereunder (but only during the period of such ownership or
designation).
2.10. "Covered Employee" means a Participant who, as of the
date of vesting and/or payout of an Award, as applicable, is one of
the group of "covered employees," as defined in the regulations
promulgated under Code Section 162(m), or any successor statute.
2.11. "Director" means any individual who is a member of the
Board of Directors of the Company.
2.12. "Disability" as applied to a Participant, means that
the Participant (i)has established to the satisfaction of the
Committee that the Participant is unable to engage in any
substantial gainful activity by reason of any medically
determinable physical or mental impairment which can be expected to
last for a continuous period of not less than 12 months (all within
the meaning of Section 22(e)(3) of the Code), and (ii)has satisfied
any requirement imposed by the Committee in regard to evidence of
such disability.
2.13. "Effective Date" shall have the meaning ascribed to
such term in Section 1.1 hereof.
2.14. "Employee" means any key officer or employee of the
Company. Directors who are not employed by the Company shall not
be considered Employees under this Plan.
2.15. "Exchange Act" means the Securities Exchange Act of
1934, as amended from time to time, or any successor act thereto.
2.16. "Fair Market Value" shall be determined by the
Committee, except if any Shares are registered under the Exchange
Act, then Fair Market Value shall be determined on the basis of the
closing sale price on the principal securities exchange on which
the Shares are traded or, if there is no such sale on the relevant
date, then on the last previous day on which a sale was reported.
2.17. "Freestanding SAR" means an SAR that is granted
independently of any Options, as described in Article 7 herein.
2.18. "Incentive Stock Option" or "ISO" means an option to
purchase Shares granted under Article 6 herein and which is
designated as an Incentive Stock Option and which is intended to
meet the requirements of Code Section 422.
2.19. "Insider" shall mean an individual who is, on the
relevant date and for purposes of Section 16 of the Securities
Exchange Act of 1934, an officer, director or ten percent (10%)
beneficial owner of any class of the Company's voting securities.
2.20. "Nonemployee Director" means an individual who is a
member of the Board of Directors of the Company but who is not an
Employee of the Company.
2.21. "Nonqualified Stock Option" or "NQSO" means an option
to purchase Shares granted under Article 6 herein and which is not
intended to meet the requirements of Code Section 422.
2.22. "Option" means in Incentive Stock Option or a
Nonqualified Stock Option, as described in Article 6 herein.
2.23. "Option Price" means the price at which a Share may be
purchased by a Participant pursuant to an Option.
2.24. "Participant" means an Employee who has outstanding an
Award granted under the Plan. The term "Participant" shall not
include Nonemployee Directors. Participants shall also include any
non-employees of the Company if and when the Committee authorizes
a grant of a Nonqualified Stock Option to a non-employee as
permitted under Article 5, Section 5.1 and Article 6.
2.25. "Performance-Based Exception" means the
performance-based exception from the tax deductibility limitations
of Code Section 162(m).
2.26. "Period of Restriction" means the period during which
the transfer of Shares of Restricted Stock is limited in some way
(based on the passage of time, the achievement of performance
objectives, or upon the occurrence of other events as determined by
the Committee, at its discretion), and the Shares of Restricted
Stock are subject to a substantial risk of forfeiture, as provided
in Article 8 herein.
2.27. "Person" shall have the meaning ascribed to such term
in Section 3(a)(9) of the Exchange Act and used in Sections 13(d)
and 14(d) thereof, including a "group" as defined in Section 13(d)
thereof.
2.28. "Restricted Stock" means an Award granted to a
Participant pursuant to Article 8 herein.
2.29. "Retirement" as applied to a Participant, means the
Participant's termination of employment in a manner which qualifies
the Participant to receive immediately payable retirement benefits
under the Strategic Medical Systems 401(k) Retirement Plan, under
the successor or replacement of such Retirement Plan if it is then
no longer in effect, or under any other retirement plan maintained
or adopted by the Company which is determined by the Committee to
be the functional equivalent of such Retirement Plan.
2.30. "Shares" means common stock of United Security
Bancshares, Inc., par value $.01 per share.
2.31. "Stock Appreciation Right" or "SAR" means an Award,
granted alone or in connection with a related Option, designated as
an SAR, pursuant to the terms of Article 7 herein.
2.32. "Subsidiary" means any corporation, partnership, joint
venture or other entity in which the Company has a majority voting
interest.
2.33. "Tandem SAR" means an SAR that is granted in connection
with a related Option pursuant to Article 7 herein, the exercise of
which shall require forfeiture of the right to purchase a Share
under the related Option (and when a Share is purchased under the
Option, the Tandem SAR shall similarly be canceled.)
Article 3. Administration
3.1. The Committee. The Plan shall be administered by a
Committee appointed by the Board, which Committee shall satisfy the
"disinterested administration" rules of Rule 16b-3 under the
Exchange Act, or any successor provision if the Company has any
securities registered under the Exchange Act. The members of the
Committee shall be appointed from time to time by, and shall serve
at the discretion of, the Board of Directors.
3.2. Authority of the Committee. Except as limited by law or
by the Certificate of Incorporation or Bylaws of the Company, and
subject to the provisions herein, including Section 3.4, the
Committee shall have full power to select Employees who shall
participate in the Plan; determine the sizes and types of Awards;
determine the terms and conditions of Awards in a manner consistent
with the Plan; construe and interpret the Plan and any agreement or
instrument entered into under the Plan as they apply to Employees;
establish, amend, or waive rules and regulations for the Plan's
administration as they apply to Employees; and (subject to the
provisions of Article 14 herein) amend the terms and conditions of
any outstanding Award to the extent such terms and conditions are
within the discretion of the Committee as provided in the Plan.
Further, the Committee shall make all other determinations which
may be necessary or advisable for the administration of the Plan,
as the Plan applies to Employees. As permitted by law, the
Committee may delegate its authority as identified herein.
3.3. Decisions Binding. All determinations and decisions
made by the Committee pursuant to the provisions of the Plan and
all related orders and resolutions of the Board shall be final,
conclusive and binding on all persons, including the Company, its
stockholders, Employees, Participants, and their estates and
beneficiaries.
3.4. Grants to Non-Insiders by Chief Executive Officer. To
the extent permissible under governing rules and regulations, and,
in particular, Section 10-2B-8.25 of the Alabama Business
Corporations Act, the Chief Executive Officer of the Company shall
have the authority to make and administer grants of Awards under
this Plan to non-Insiders upon such terms and conditions as the
Chief Executive Officer shall determine; provided, however, that
the total number of Awards granted by the Chief Executive Officer
each year shall be subject to advance approval by the Committee.
Article 4. Shares Subject to the Plan and Maximum Awards
4.1. Number of Shares Available for Grants. Subject to
adjustment as provided in Section 4.3 herein, the number of Shares
hereby reserved for issuance to Participants under the Plan shall
be sixty thousand (60,000).
Notwithstanding the foregoing, the maximum number of Shares of
Restricted Stock granted pursuant to Article 8 herein shall be an
amount equal to thirty percent (30%) of the total number of Shares
reserved for issuance under the Plan.
Unless and until the Committee determines that an Award to a
Covered Employee shall not be designed to comply with the
Performance-Based Exception, the maximum aggregate number of Shares
that may be granted or that may vest, as applicable, pursuant to
any Award granted in any one fiscal year to any single Covered
Employee shall be ten thousand (10,000).
4.2. Lapsed Awards. If any Award granted under this Plan is
canceled, terminates, expires, or lapses for any reason (with the
exception of the termination of a Tandem SAR upon exercise of the
related Option, or the termination of a related Option upon
exercise of the corresponding Tandem SAR), any Shares subject to
such Award shall again be available for the grant of an Award under
the Plan.
4.3. Adjustments in Authorized Shares. In the event of any
change in corporate capitalization, such as a stock split, or a
corporate transaction, such as any merger, consolidation,
separation, including a spin-off, or other distribution of stock or
property of the Company, any reorganization (whether or not such
reorganization comes within the definition of such term in Code
Section 368) or any partial or complete liquidation of the Company,
such adjustment shall be made in the number and class of Shares
which may be delivered under Section 4.1, in the number and class
of and/or price of Shares subject to outstanding Awards granted
under the Plan, and in the Award limits set forth in Section 4.1,
as may be determined to be appropriate and equitable by the
Committee, in its sole discretion, to prevent dilution or
enlargement of rights; provided, however, that the number of Shares
subject to any Award shall always be a whole number.
Article 5. Eligibility and Participation
5.1. Eligibility. Persons eligible to participate in this
Plan include all Employees of the Company, including Employees who
are members of the Board. However, non-employees shall be eligible
to participate in Nonqualified Stock Options, as described in
Article 6 herein, as and when the Committee shall determine that a
grant of such an option to a non-employee would satisfy the
objectives of the Plan as described in Article 2, Section 2.1.
5.2. Actual Participation. Subject to the provisions of the
Plan, the Committee may, from time to time, select from all
eligible Employees, those to whom Awards shall be granted and shall
determine the nature and amount of each Award.
Article 6. Stock Options
6.1. Grant of Options. Subject to the terms and provisions
of the Plan, Options may be granted to Participants in such number,
and upon such terms, and at any time and from time to time as shall
be determined by the Committee.
6.2 Award of Agreement. Each Option grant shall be evidenced
by an Award Agreement that shall specify the Option Price, the
duration of the Option, the number of Shares to which the Option
pertains, and such other provisions as the Committee shall
determine. The Award Agreement also shall specify whether the
Option is intended to be an ISO within the meaning of Code Section
422, or an NQSO whose grant is intended not to fall under the
provisions of Code Section 422.
6.3. Option Price. The Option Price for each grant of an
Option under this Plan shall be at least equal to one hundred
percent (100%) of the Fair Market Value of a Share on the date the
Option is granted.
6.4. Duration of Options. Each Option granted to an Employee
shall expire at such time as the Committee shall determine at the
time of grant; provided, however, that no Option shall be
exercisable later than the tenth (10th) anniversary date of its
grant.
6.5. Dividend Equivalents. The Committee may grant dividend
equivalents in connection with Options granted under this Plan.
Such dividend equivalents may be payable in cash or in Shares, upon
such terms as the Committee, in its sole discretion, deems
appropriate.
6.6. Exercise of Options. Options granted under this Article
6 shall be exercisable at such times and be subject to such
restrictions and conditions as the Committee shall in each instance
approve, which need not be the same for each grant or for each
Participant.
6.7. Payment. Options granted under this Article 6 shall be
exercised by the delivery of a written notice of exercise to the
Company, setting forth the number of Shares with respect to which
the Option is to be exercised, accompanied by full payment for the
Shares.
The Option Price upon exercise of any Option shall be payable
to the Company in full either: (a) in cash or its equivalent, or
(b) if permitted in the governing Award Agreement, by tendering
previously acquired Shares having an aggregate Fair Market Value at
the time of exercise equal to the total Option Price (provided that
the Shares which are tendered must have been held by the
Participant for at least six (6) months prior to their tender to
satisfy the Option Price), or (c) if permitted in the governing
Award Agreement, by a combination of (a) and (b).
The Committee also may allow cashless exercise as permitted
under Federal Reserve Board's Regulation T, subject to applicable
securities law restrictions, or by any other means which the
Committee determines to be consistent with the Plan's purpose and
applicable law.
As soon as practicable after receipt of a written notification
of exercise and full payment, the Company shall deliver to the
Participant, in the Participant's name, Share certificates in an
appropriate amount based upon the number of Shares purchased under
the Option(s).
6.8. Restrictions on Share Transferability. The Committee
may impose such restrictions on any Shares acquired pursuant to the
exercise of an Option granted under this Article 6 as it may deem
advisable, including, without limitation, restrictions under
applicable federal securities laws, under the requirements of any
stock exchange or market upon which such Shares are then listed
and/or traded, and under any blue sky or state securities laws
applicable to such Shares.
6.9. Termination of Employment. Each Option, to the extent
it has not been previously exercised, shall terminate upon the
earliest to occur of: (i) the expiration of the Option period set
forth in the Option Award Agreement; (ii) for ISOs, the expiration
of three (3) months following the Participant's Retirement
(following the Participant's Retirement, NQSOs shall terminate upon
the expiration of the Option period set forth in the Option Award
Agreement); (iii) the expiration of twelve (12) months following the
Participant's death or Disability; (iv) immediately upon termination
for Cause; or (v) the expiration of thirty (30) days following the
Participant's termination of employment for any reason other than
Cause, Change in Control, death, Disability, or Retirement. Upon
a termination of employment related to a Change in Control, Options
shall be treated in the manner set forth in Article 13.
6.10. Nontransferability of Options.
(a) Incentive Stock Options. No ISO granted under the Plan
may be sold, transferred, pledged, assigned, or otherwise alienated
or hypothecated, other than by will or by the laws of descent and
distribution. Further, all ISOs granted to a Participant under the
Plan shall be exercisable during his or her lifetime only by such
Participant.
(b) Nonqualified Stock Options. Except as otherwise provided
in a Participant's Award Agreement, no NQSO granted under this
Article 6 may be sold, transferred, pledged, assigned, or otherwise
alienated or hypothecated, other than by will or by the laws of
descent and distribution. Further, except as otherwise provided in
a Participant's Award Agreement, all NQSOs granted to a Participant
under this Article 6 shall be exercisable during his or her
lifetime only by such Participant.
Article 7. Stock Appreciation Rights
7.1. Grant of SARs. Subject to the terms and conditions of
the Plan, SARs may be granted to Participants at any time after the
Shares are registered under the Exchange Act and from time to time
as shall be determined by the Committee. The Committee may grant
Freestanding SARs, Tandem SARs, or any combination of these forms
of SAR.
The Committee shall have complete discretion in determining
the number of SARs granted to each Participant (subject to Article
4 herein) and, consistent with the provisions of the Plan, in
determining the terms and conditions pertaining to such SARs.
The grant price of a Freestanding SAR shall equal the Fair
Market Value of a Share on the date of grant of the SAR. The grant
price of Tandem SARs shall equal the Option Price of the related
Option.
7.2. Exercise of Tandem SARs. Tandem SARs may be exercised
for all or part of the Shares subject to the related Option upon
the surrender of the right to exercise the equivalent portion of
the related Option. A Tandem SAR may be exercised only with
respect to the Shares for which its related Option is then
exercisable.
Notwithstanding any other provision of this Plan to the
contrary, with respect to a Tandem SAR granted in connection with
an ISO: (i) the Tandem SAR will expire no later than the expiration
of the underlying ISO; (ii) the value of the payout with respect to
the Tandem SAR may be for no more than one hundred percent (100%)
of the difference between the Option Price of the underlying ISO
and the Fair Market Value of the Shares subject to the underlying
ISO at the time the Tandem SAR is exercised; and (iii) the Tandem
SAR may be exercised only when the Fair Market Value of the Shares
subject to the ISO exceed the Option Price of the ISO.
7.3. Exercise of Freestanding SARs. Freestanding SARs may be
exercised upon whatever terms and conditions the Committee, in its
sole discretion, imposes upon them.
7.4. SAR Agreement. Each SAR grant shall be evidenced by an
Award Agreement that shall specify the grant price, the term of the
SAR, and such other provisions as the Committee shall determine.
7.5. Term of SARs. The term of an SAR granted under the Plan
shall be determined by the Committee, in its sole discretion;
provided, however, that such term shall not exceed ten (10) years.
7.6. Payment of SAR Amount. Upon exercise of an SAR, a
Participant shall be entitled to receive payment from the Company
in an amount determined by multiplying:
(a) The difference between the Fair Market Value of a
Share on the date of exercise over the grant price; by
(b) The number of Shares with respect to which the SAR is
exercised.
At the discretion of the Committee, the payment upon SAR
exercise may be in cash, in Shares of equivalent value, or in some
combination thereof.
7.7. Section 16 Requirements. Notwithstanding any other
provision of the Plan, the Committee may impose such conditions on
exercise of an SAR (including, without limitation, the right of the
Committee to limit the time of exercise to specified periods) as
may be required to satisfy the requirements of Section 16 of the
Exchange Act (or any successor rule).
7.8. Termination of Employment. Each SAR Award Agreement
shall set forth the extent to which the Participant shall have the
right to exercise the SAR following termination of the
Participant's employment with the Company. Such provisions shall
be determined in the sole discretion of the Committee, shall be
included in the Award Agreement entered into with Participants,
need not be uniform among all SARs issued pursuant to the Plan, and
may reflect distinctions based on the reasons for termination of
employment.
7.9. Nontransferability of SARs. Except as otherwise
provided in a Participant Award Agreement, no SAR granted under the
Plan may be sold, transferred, pledged, assigned, or otherwise
alienated or hypothecated, other than by will or by the laws of
descent and distribution. Further, except as otherwise provided in
a Participant's Award Agreement, all SARs granted to a Participant
under the Plan shall be exercisable during his or her lifetime only
by such Participant.
Article 8. Restricted Stock
8.1. Grant of Restricted Stock. Subject to the terms and
provisions of the Plan, the Committee, at any time and from time to
time, may grant Shares of Restricted Stock to Participants in such
amounts as the Committee shall determine. Without limiting the
generality of the foregoing, Restricted Shares may be granted in
connection with payouts under other compensation programs of the
Company.
8.2. Restricted Stock Agreement. Each Restricted Stock grant
shall be evidenced by a Restricted Stock Award Agreement that shall
specify the Period(s) of Restriction, the number of Shares of
Restricted Stock granted, and such other provisions as the
Committee shall determine.
8.3. Transferability. Except as provided in this Article 8,
the Shares of Restricted Stock granted herein may not be sold,
transferred, pledged, assigned, or otherwise alienated or
hypothecated until the end of the applicable Period of Restriction
established by the Committee and specified in the Restricted Stock
Award Agreement, or upon earlier satisfaction of any other
conditions, as specified by the Committee in its sole discretion
and set forth in the Restricted Stock Award Agreement. All rights
with respect to the Restricted Stock granted to a Participant under
the Plan shall be available during his or her lifetime only to such
Participant.
8.4. Other Restrictions. Subject to Article 9 herein, the
Committee shall impose such other conditions and/or restrictions on
any Shares of Restricted Stock granted pursuant to the Plan as it
may deem advisable including, without limitation, a requirement
that Participants pay a stipulated purchase price for each Share of
Restricted Stock, restrictions based upon the achievement of
specific performance objectives (Company-wide, business unit,
and/or individual), time-based restrictions on vesting following
the attainment of the performance objectives, and/or restrictions
under applicable federal or state securities laws.
At the discretion of the Committee, the Company may retain the
certificates representing Shares of Restricted Stock in the
Company's possession until such time as all conditions and/or
restrictions applicable to such Shares have been satisfied.
Except as otherwise provided in this Article 8, Shares of
Restricted Stock covered by each Restricted Stock grant made under
the Plan shall become freely transferable by the Participant after
the last day of the applicable Period of Restriction.
8.5. Voting Rights. During the Period of Restriction,
Participants holding Shares of Restricted Stock granted hereunder
may exercise full voting rights with respect to those Shares.
8.6. Dividends and Other Distributions. During the Period of
Restriction, Participants holding Shares of Restricted Stock
granted hereunder may be credited with regular cash dividends paid
with respect to the underlying Shares while they are so held. Such
dividends may be paid currently, accrued as contingent cash
obligations, or converted into additional shares of Restricted
Stock, upon such terms as the Committee establishes.
The Committee may apply any restrictions to the dividends that
the Committee deems appropriate. Without limiting the generality
of the preceding sentence, if the grant or vesting of Restricted
Shares granted to a Covered Employee is designed to comply with the
requirements of the Performance-Based Exception, the Committee may
apply any restrictions it deems appropriate to the payment of
dividends declared with respect to such Restricted Shares, such
that the dividends and/or the Restricted Shares maintain
eligibility for the Performance-Based Exception.
In the event that any dividend constitutes a "derivative
security" or an "equity security" pursuant to Rule 16(a) under the
Exchange Act, such dividend shall be subject to a vesting period
equal to the remaining vesting period of the Shares of Restricted
Stock with respect to which the dividend is paid.
8.7. Termination of Employment. Upon a Participant's death,
Disability, or Retirement, all Restricted Shares shall vest
immediately subject to any limitations under Code Section 162(m).
Each Restricted Stock Award Agreement shall set forth the extent to
which the Participant shall have the right to retain unvested
Restricted Shares following termination of the Participant's
employment with the Company in all other circumstances. Such
provisions shall be determined in the sole discretion of the
Committee, shall be included in the Award Agreement entered into
with each Participant, need not be uniform among all Shares of
Restricted Stock issued pursuant to the Plan, and may reflect
distinctions based on the reasons for termination of employment;
provided, however, that, except in the case of terminations by
reason of death or Disability, the vesting of Shares of Restricted
Stock which qualify for the Performance-Based Exception and which
are held by Covered Employees shall occur at the time they
otherwise would have, but for the employment termination.
Article 9. Performance Measures
Unless and until the Committee proposes for stockholder vote
and stockholders approve a change in the general performance
measures set forth in this Article 9, the attainment of which may
determine the degree of payout and/or vesting with respect to
Awards to Covered Employees which are designed to qualify for the
Performance-Based Exception, the performance measure(s) to be used
for purposes of such grants shall be chosen from among the
following alternatives:
(a) Net Income;
(b) Return on Equity;
(c) Earnings per Share;
(d) Return on Assets;
(e) Total Shareholder Return; and
(f) Return on Investment.
Subject to the terms of the Plan, each of these measures shall
be defined by the Committee on a corporation or subsidiary basis or
in comparison with peer group performance, and may include or
exclude specified extraordinary items, as determined by the
Company's auditors.
The Committee shall have the discretion to adjust the
determinations of the degree of attainment of the preestablished
performance objectives; provided, however, that Awards which are
designed to qualify for the Performance-Based Exception, and which
are held by Covered Employees, may not be adjusted upward. The
Committee shall retain the discretion to adjust such Awards
downward.
In the event that applicable tax and/or securities laws change
to permit Committee discretion to alter the governing performance
measures without obtaining stockholder approval of such changes,
the Committee shall have sole discretion to make such changes
without obtaining stockholder approval. In addition, in the event
that the Committee determines that it is advisable to grant Awards
which shall not qualify for the Performance-Based Exception, the
Committee may make such grants without satisfying the requirements
of Code Section 162(m).
Article 10. Beneficiary Designation
Each Participant under the Plan may, from time to time, name
any beneficiary or beneficiaries (who may be named contingently or
successively) to whom any benefit under the Plan is to be paid in
case of his or her death before he or she receives any or all of
such benefit. Each such designation shall revoke all prior
designations by the same Participant, shall be in a form prescribed
by the Company, and will be effective only when filed by the
Participant, in writing with the Company during the Participant's
lifetime. In the absence of any such designation, benefits
remaining unpaid at the Participant's death shall be paid to the
Participant's estate.
Article 11. Deferrals
The Committee may permit or require a Participant to defer
such Participant's receipt of the payment of cash or the delivery
of Shares that would otherwise be due to such Participant by virtue
of the exercise of an Option or SAR, the lapse or waiver of
restrictions with respect to Restricted Stock, or the satisfaction
of any requirements or objectives with respect to Performance
Units/Shares. If any such deferral election is required or
permitted, the Committee shall, in its sole discretion, establish
rules and procedures for such payment deferrals.
Article 12. Rights of Employees
12.1. Employment. Nothing in the Plan shall interfere with
or limit in any way the right of the Company to terminate any
Participant's employment at any time, nor confer upon any
Participant any right to continue in the employ of the Company.
12.2. Participation. No Employee shall have the right to be
selected to receive an Award under this Plan, or, having been so
selected, to be selected to receive a future Award.
Article 13. Change in Control
13.1. Treatment of Outstanding Awards. Upon the occurrence
of a Change in Control, unless otherwise specifically prohibited
under applicable laws, or by the rules and regulations of any
governing governmental agencies or national securities exchanges:
(a) Any and all Options and SARs granted hereunder shall
become immediately exercisable, and shall remain exercisable
throughout their entire term; and
(b) Any restriction periods and restrictions imposed on
Shares of Restricted Stock shall lapse; provided, however, that the
degree of vesting associated with Restricted Stock which has been
conditioned upon the achievement of performance conditions pursuant
to Section 8.4 herein shall be determined in the manner set forth
in Section 8.7 herein.
13.2. Termination, Amendment, and Modifications of
Change-in-Control Provisions. Notwithstanding any other provision
of this Plan or any Award Agreement provision, the provisions of
this Article 13 may not be terminated, amended, or modified on or
after the date of a Change in Control to affect adversely any Award
theretofore granted under the Plan without the prior written
consent of the Participant with respect to said Participant's
outstanding Awards.
Article 14. Amendment, Modification and Termination
14.1. Amendment, Modification, and Termination. Subject to
Section 13.2 herein, the Board may at any time and from time to
time, alter, amend, suspend or terminate the Plan in whole or in
part; provided, however, that no amendment which requires
stockholder approval in order for the Plan to continue to comply
with Rule 16b-3 under the Exchange Act, including any successor to
such Rule, shall be effective unless such amendment shall be
approved by the requisite vote of stockholders of the Company
entitled to vote thereon.
The Committee shall not have the authority to cancel
outstanding Awards and issue substitute Awards in replacement
thereof.
14.2. Adjustment of Awards Upon the Occurrence of Certain
Unusual or Nonrecurrent Events. The Committee may make adjustments
in the terms and conditions of, and the criteria included in,
Awards in recognition of unusual or nonrecurring events (including,
without limitation, the events described in Section 4.3 hereof)
affecting the Company or the financial statements of the Company or
of changes in applicable laws, regulations, or accounting
principles, whenever the Committee determines that such adjustments
are appropriate in order to prevent dilution or enlargement of the
benefits or potential benefits intended to be made available under
the Plan; provided, however, that Awards which are designed to
qualify for the Performance-Based Exception, and which are held by
Covered Employees, may only be adjusted to the extent permissible
under Code Section 162(m).
14.3. Awards Previously Granted. No termination, amendment,
or modification of the Plan shall adversely affect in any material
way any Award previously granted under the Plan, without the
written consent of the Participant holding such Award.
14.4. Compliance with Code Section 162(m). At all times when
Code Section 162(m) is applicable, all Awards granted under this
Plan shall comply with the requirements of Code Section 162(m);
provided, however, that in the event the Committee determines that
such compliance is not desired with respect to any Award or Awards
available for grant under the Plan, then compliance with Code
Section 162(m) will not be required. In addition, in the event
that changes are made to Code Section 162(m) to permit greater
flexibility with respect to any Award or Awards available under the
Plan, the Committee may, subject to this Article 14, make any
adjustments it deems appropriate.
Article 15. Withholding
15.1. Tax Withholding. The Company shall have the power and
the right to deduct or withhold, or require a Participant to remit
to the Company, an amount sufficient to satisfy federal, state, and
local taxes, domestic or foreign, required by law or regulation to
be withheld with respect to any taxable event arising as a result
of this Plan.
15.2. Share Withholding. With respect to withholding
required upon the exercise of Options or SARs, upon the lapse of
restrictions on Restricted Stock, or upon any other taxable event
arising as a result of Awards granted hereunder, Participants may
elect to satisfy the withholding requirement, in whole or in part,
by having the Company withhold Shares having a Fair Market Value on
the date the tax is to be determined equal to the minimum statutory
total tax which could be withheld on the transaction. All such
elections shall be made in writing, signed by the Participant, and
shall be subject to any restrictions or limitations that the
Committee, in its sole discretion, deems appropriate.
Article 16. Indemnification
Each person who is or shall have been a member of the
Committee, or of the Board, shall be indemnified and held harmless
by the Company against and from any loss, cost, liability, or
expense that may be imposed upon or reasonably incurred by him or
her in connection with or resulting from any claim, action, suit,
or proceeding to which he or she may be a party or in which he or
she may be involved by reason of any action taken or failure to act
under this Plan and against and from any and all amounts paid by
him or her in settlement thereof, with the Company's approval, or
paid by him or her in satisfaction of any judgment in any such
action, suit, or proceeding against him or her, provided he or she
shall give the Company an opportunity, at its own expense, to
handle and defend the same before he or she undertakes to handle
and defend it on his or her behalf. The foregoing right of
indemnification shall not be exclusive of any other rights of
indemnification to which such persons may be entitled under the
Company's Certificate of Incorporation or Bylaws, as a matter of
law, or otherwise, or any power that the Company may have to
indemnify them or hold them harmless.
Article 17. Successors
All obligations of the Company under the Plan with respect to
Awards granted hereunder shall be binding on any successor to the
Company, whether the existence of such successor is the result of
a direct or indirect purchase of all or substantially all of the
business and/or assets of the Company, or a merger, consolidation,
or otherwise.
Article 18. Legal Construction
18.1. Gender and Number. Except where otherwise indicated by
the context, any masculine term used herein also shall include the
feminine; the plural shall include the singular and the singular
shall include the plural.
18.2. Severability. In the event any provision of the Plan
shall be held illegal or invalid for any reason, the illegality or
invalidity shall not affect the remaining parts of the Plan, and
the Plan shall be construed and enforced as if the illegal or
invalid provision had not been included.
18.3. Requirements of Law. The granting of Awards and the
issuance of Shares under the Plan shall be subject to all
applicable laws, rules, and regulations, and to such approvals by
any governmental agencies or national securities exchanges as may
be required.
18.4. Securities Law Compliance. With respect to Insiders,
transactions under this Plan are intended to comply with all
applicable conditions of Rule 16b-3 or its successors under the
Exchange Act as if the Company were presently subject to the
Exchange Act. To the extent any provision of the Plan or action by
the Committee fails to so comply, it shall be deemed null and void,
to the extent permitted by law and deemed advisable by the
Committee.
18.5. Governing Law. To the extent not preempted by federal
law, the Plan, and all agreements hereunder, shall be construed in
accordance with and governed by the laws of the State of Alabama.
Dated this the 21st day of March, 1997.
United Security Bancshares, Inc.
By: /s/ Larry M. Sellers
Its: Secretary
<PAGE> PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
Item 20. Indemnification of Directors and Officers.
The Alabama Business Corporation Act (the "ABCA") gives
Alabama corporations broad powers to indemnify their present and
former directors and officers against expenses incurred in the
defense of any lawsuit to which they are made parties by reason of
being or having been such directors or officers. Subject to
specific conditions and exclusions, the ABCA requires an Alabama
corporation to indemnify directors and officers who successfully
defend actions, and it permits a corporation to indemnify its
directors and officers under other circumstances as the corporation
deems appropriate, if certain statutory standards are met. The
indemnification required and permitted under the ABCA is not
exclusive of any other rights to which those indemnified may be
entitled under any statute, provision of the articles of
incorporation, by-law, agreement, vote of shareholders or
disinterested directors or otherwise. The ABCA also authorizes
Alabama corporations to buy directors' and officers' liability
insurance.
Although USB's By-laws are silent regarding director and
officer indemnification, USB's current Articles of Incorporation,
as amended, mandate that USB shall indemnify its directors and
officers in all cases expressly authorized under the ABCA in which
the specified standards have been met. In general, the applicable
standard is that the individual shall have acted in good faith and
in a manner he reasonably believed to be in or not opposed to the
best interests of the corporation and, with respect to any criminal
action or proceeding, had no reasonable cause to believe his
conduct was unlawful. If the director or officer has been
successful in defending a proceeding, however, indemnification is
mandatory without reference to any such standard. On the other
hand, indemnification is not permitted with respect to litigation
brought by or in the right of the corporation in which the officer
or director is adjudged liable to the corporation or in connection
with any proceeding in which the officer or director is adjudged
liable on the basis that personal benefit was improperly received
by him. This restriction does not apply, however, to the extent
that the court in which the action is brought determines that such
officer or director is entitled to indemnity for particular
expenses.
In addition, USB has entered into an Indemnification Agreement
with each of its directors that provides indemnification to the
fullest extent authorized by the law. These Indemnification
Agreements, like the Articles of Incorporation, as amended, take
advantage of the ABCA's provisions allowing for expansion upon
statutory indemnification and are intended to provide the broadest
rights of indemnification available under the ABCA.
USB has in effect a directors' and officers' liability policy
with Continental Insurance in the amount of $3,000,000. This
policy provides for indemnification of USB's officers and directors
against losses arising from claims asserted against them in their
capacities as officers and directors, subject to limitations and
conditions set forth in the policy.
Item 21. Exhibits and Financial Statement Schedules.
(a) Exhibits:
2.1 Agreement and Plan of Merger dated as of August 19,
1996, as amended March18, 1997, is found at
Appendix A to the Joint Proxy Statement and
Prospectus included in Part I hereof.
3.1 Amended and Restated Articles of Incorporation,
filed as Exhibit 3(c) to Registrant's Form 10-Q for
the quarter ended June 30, 1995 (No. 0-14549), is
incorporated herein by reference.
3.2 Bylaws, filed as Exhibit 3(d) to Registrant's Form
10-K for the year 1987 (No. 0-14549), is
incorporated herein by reference.
5.1* Opinion of Maynard, Cooper & Gale, P.C. re legality
dated February 6, 1997.
8.1 Opinion of Maynard, Cooper & Gale, P.C. re tax
matters dated April 2, 1997.
8.2 Opinion of Walston, Wells, Anderson & Bains re tax
matters dated April 2, 1997.
10.1 Employment Contract between Registrant and Jack M.
Wainwright, III dated March 18, 1997.
10.2 Form of Indemnification Agreement filed as Exhibit
10(e) to Registrant's Form 10-K for the year 1994
(No. 0-14549) is incorporated herein by reference.
10.3 Option Agreement dated July 16, 1996, from First
Bancshares, Inc. for the benefit of the Registrant
filed as Exhibit 99.2 to Registrant's Form 8-K
dated July 16, 1996 (No. 0-14549) is incorporated
herein by reference.
10.4 Option Agreement dated July 16, 1996, from the
Registrant for the benefit of First Bancshares,
Inc. filed as Exhibit 99.3 to Registrant's Form 8-K
dated July 16, 1996 (No. 0-14549) is incorporated
herein by reference.
10.5* Agreement for Computer Services dated September 1,
1993, between First Data Services, Inc. and First
Bank and Trust.
10.6* Agreement for Bookkeeping Services dated June 3,
1994, between First Banking Services, Inc. and
First Bank and Trust.
10.7 United Security Bancshares, Inc. Long Term
Incentive Compensation Plan, Appendix F to the Joint
Proxy Statement and Prospectus included in Part I
hereof.
13.1 Registrant's 1996 Annual Report on Form 10-K for
the year ended December 31, 1996 (No. 0-14549), is
incorporated herein by reference.
21.1 Subsidiaries of Registrant, filed as Exhibit (22)
to Registrant's Form 10-K for the year 1996 (No.
0-14549), is incorporated herein by reference.
23.1 Consent of Smith, Dukes & Buckalew.
23.2 Consent of Dudley, Hopton-Jones, Sims & Freeman.
23.3* Consent of Maynard, Cooper & Gale, P.C. is included
in their opinion re legality filed as Exhibit 5.1
hereto.
23.4 Consent of Maynard, Cooper & Gale, P.C. is included
in their opinion re tax matters filed as Exhibit
8.1 hereto.
23.5 Consent of Walston, Wells, Anderson & Bains is
included in their opinion re tax matters filed as
Exhibit 8.2 hereto.
23.6 Consent of Baxter Fentriss and Company
23.7 Consent of Chaffe & Associates, Inc.
23.8* Consents of persons named to become directors of
Registrant upon consummation of the Merger.
24.1 Power of Attorney (contained on signature page of
the Registration Statement).
99.1 Form of Proxy to be used at United Security
Bancshares, Inc. annual meeting.
99.2* Form of Proxy to be used at First Bancshares, Inc.
annual meeting.
_________________________
* Filed with Registration Statement on Form S-4 (333-21241).
(b) Financial Statement Schedules:
None.
Item 22. Undertakings.
(a) 1. The undersigned registrant hereby undertakes to
deliver or cause to be delivered with the prospectus, to
each person to whom the prospectus is sent or given, the
latest annual report to security holders that is
incorporated by reference in the prospectus and furnished
pursuant to and meeting the requirements of Rule 14a-3 or
Rule 14c-3 under the Securities Exchange Act of 1934; and
where interim financial information required to be
presented by Article 3 of Regulation S-X are not set
forth in the prospectus, to deliver, or cause to be
delivered to each person to whom the prospectus is sent
or given, the latest quarterly report that is
specifically incorporated by reference in the prospectus
to provide such interim financial information.
2. Insofar as an indemnification for liabilities arising
under the Securities Act of 1933 (the "Act") may be
permitted to directors, officers and controlling persons
of the registrant pursuant to the foregoing provisions,
or otherwise, the registrant has been advised that in the
opinion of the 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.
(b) The undersigned registrant hereby undertakes to respond
to requests for information that is incorporated by
reference into the prospectus pursuant to Items 4 10(b),
11, or 13 of this Form, within one business day of
receipt of such request, and to send the incorporated
documents by first class mail or other equally prompt
means. This includes information contained in documents
filed subsequent to the effective date of the
registration statement through the date of responding to
the request.
(c) The undersigned registrant hereby undertakes to supply by
means of a post-effective amendment all information
concerning a transaction, and the company being acquired
involved therein, that was not the subject of and
included in the registration statement when it became
effective.
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933,
the registrant has duly caused this Amendment No. 2 to Registration
Statement to be signed on its behalf by the undersigned, thereunto
duly authorized, in the City of Thomasville, Alabama, on the 2nd
day of April, 1997.
UNITED SECURITY BANCSHARES, INC.
By: /s/ Jack M. Wainwright, III
__________________________________________
Jack M. Wainwright, III, President and
Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of
1933, this Amendment No. 2 to Registration Statement has been
signed below by the following persons in the capacities indicated
on the dates indicated below.
Signature Title
/s/ Jack M. Wainwright, III President, Chief Executive April 2, 1997
___________________________ Officer, and Director
Jack M. Wainwright, III (Principal Executive Officer)
/s/ Larry M. Sellers Treasurer (Principal Financial April 2, 1997
___________________________ Officer, Principal Accounting
Larry M. Seller Officer)
* Director April 2, 1997
___________________________
Gerald P. Corgill
___________________________ Director _____________
Roy G. Cowan
* Director April 2, 1997
___________________________
William G. Harrison
* Director April 2, 1997
___________________________
Hardie B. Kimbrough
___________________________ Director _____________
James L. Miller
* Director April 2, 1997
___________________________
D. C. Nichols
* Director April 2, 1997
___________________________
Harold H. Spinks
* Director April 2, 1997
___________________________
James C. Stanley
___________________________ Director _____________
Howard M. Whitted
/s/ Larry M. Sellers
____________________
Larry M. Sellers
Attorney-in-Fact
* By Power-of-Attorney
EXHIBIT 8.1
Exhibit 8.1
April 2, 1997
United Security Bancshares, Inc.
131 West Front Street
Thomasville, AL 36784
Attention: Chairman
Re: Agreement and Plan of Merger dated as of August 19,
1996, as amended on March 18, 1997 (the
"Agreement") between First Bancshares, Inc.
("FBI"); United Security Bancshares, Inc.("USB");
which provides for the merger of FBI with and into
USB, and the merger of FBI's wholly-owned
subsidiary bank, First Bank and Trust ("First
Bank") with and into USB's wholly-owned subsidiary
bank, United Security Bank ("USB Bank")
Gentlemen:
This letter is in response to your request that we provide you
with our opinion with respect to certain of the federal income tax
consequences of consummation of the transactions set forth in the
Agreement. In rendering this opinion, we have relied upon the
facts presented to us in (i) the Agreement and (ii) the Joint Proxy
Statement and Prospectus filed with the Securities and Exchange
Commission as part of USB's Registration Statement on Form S-4,
including the exhibits thereto along with the amendments thereto.
Additionally, we have relied upon the representations of management
of FBI and management of USB set forth in certificates of officers
of those entities, copies of which are attached hereto as Exhibits A
and B, respectively. In the aggregate, the facts relied upon are
as set forth in the Section of this letter denominated "FACTS."
In our examination of such documents, we have assumed, with
your consent, that all documents submitted to us as photocopies
reproduce the originals thereof, that such originals are authentic,
that all such documents have been or will be duly executed to the
extent required, and that all statements set forth in such
documents are accurate.
We have assumed that the stockholders of both USB and FBI
approve the Agreement in accordance with law of Alabama, their
state of incorporation. We have assumed that the transactions
contemplated by the Agreement, including the Holding Company Merger
and the Bank Merger (as hereinafter defined) will qualify as
statutory mergers under Alabama law.
FACTS
USB is a corporation duly organized, validly existing and in
good standing under the laws of the State of Alabama with its
principal executive office located in Thomasville, Alabama. It
presently has 2,400,000 authorized shares of common capital stock,
$.01 par value per share ("USB Common Stock"), of which 2,137,960
shares were issued and outstanding as of December 31, 1996.
Assuming shareholder approval, which is a condition for approval of
the Holding Company Merger described herein, the authorized capital
of USB will be increased to 10,000,000 shares of Common Stock.
Since December 31, 1996, there has been no change in the issued and
outstanding USB Common Stock (except (i) as will be effected by the
transactions described herein including the increase in authorized
capital stock, and (ii) for insignificant changes occurring in the
ordinary course of business).
USB owns all the stock of USB Bank, an Alabama state banking
corporation.
FBI is a corporation duly organized, validly existing and in
good standing under the laws of the State of Alabama with its
principal executive offices located in Grove Hill, Alabama. As of
December 31, 1996, FBI had 500,000 authorized shares of common
capital stock, each of which had a par value of $1.00 per share
(the "FBI Common Stock"), of which 239,843 were issued and
outstanding as of December 31, 1996. FBI has no other class of
stock authorized.
FBI owns all the stock of First Bank, an Alabama state banking
corporation.
Numerous factors were considered by the Boards of Directors of
FBI and USB in approving and recommending to their respective
shareholders the terms of the merger of FBI into USB (the "Holding
Company Merger") and the merger of First Bank into USB Bank (the
"Bank Merger") set forth in the Agreement (collectively where no
distinction is required the "Merger") to their respective
shareholders. These included an analysis of the financial
structure; results of operations; prospects of USB, USB Bank, FBI
and First Bank; the composition of the businesses of the two
organizations; the overall compatibility of the management of the
organizations; the outlook for both organizations in the banking
and financial services industry; and the opinion of investment
bankers as to the fairness of the terms of the Merger from a
financial point of view.
USB's Board of Directors believed that the Merger would
improve shareholder value as well as provide a foundation for
strong, long-term returns. Additionally, the Merger would result
in more diversity in earning assets. First Bank has a large
consumer-based loan portfolio, while USB Bank has a larger, more
diverse investment portfolio. The combined diverse assets, coupled
with the stable deposit base and strong capital position of both
banks, would strengthen the competitive position of the surviving
bank.
USB has a strong community-minded philosophy and a commitment
to community banking. By USB merging with FBI and USB Bank merging
with First Bank, which is a like-minded bank, the USB Board
believed the opportunity to expand and employ more resources to the
communities financial service needs would be increased.
Technological changes are occurring rapidly in the financial
industry, and the FBI Board of Directors believed that a combined
financial institution would enhance the surviving bank's ability to
provide customers the benefits these changes bring, including more
convenient, less costly delivery systems. The FBI Board also
believed that a combined management team would be capable of
operating a stronger, more productive and efficient financial
institution capable of providing more diverse products and improved
methods of service at lower costs.
Prior to the Merger, no FBI Common Stock will be held by FBI
or any subsidiary thereof or by USB or any subsidiary thereof,
other than in a fiduciary capacity and, in the case of FBI, as
treasury stock. Upon consummation of the Holding Company Merger,
each share of FBI Common Stock issued and outstanding immediately
prior to the Holding Company Merger (excluding shares held by
Stockholders who perfect their dissenter's rights) shall cease to
be outstanding and shall be converted into 5.8321 newly issued
shares of USB Common Stock. The USB Common Stock to be issued in
the Merger will have been registered with the Securities and
Exchange Commission under the Securities Act of 1933. The ratio
for the exchange of shares of FBI Common Stock for USB Common Stock
was negotiated through arm's-length bargaining. Accordingly, the
fair market value of the USB Common Stock and cash consideration,
in the case of fractional shares, will be approximately equal to
the fair market value of the FBI Common Stock surrendered in
exchange therefor.
Each share of USB Common Stock (excluding shares held by
stockholders who perfect their dissenter's right of appraisal as
provided in the Agreement) issued and outstanding immediately prior
to the effective time of the Holding Company Merger shall remain
issued and outstanding from and after the effective time.
In structuring the Bank Merger, USB will designate USB Common
Stock as the consideration being constructively exchanged for First
Bank common stock. To avoid the expense and inconvenience of
issuing USB Common Stock in the Bank Merger, the shares of First
Bank common stock constructively obtained by USB in the Holding
Company Merger will be cancelled in the Bank Merger. The fair
market value of the USB Common Stock to be constructively exchanged
in the Bank Merger will be approximately equal to the fair market
value of First Bank common stock to be exchanged therefore. USB
has no plan or intention to reacquire any of the USB Common Stock
to be constructively issued and exchanged in the Bank Merger.
Prior to the Bank Merger, USB will own stock possessing at least 80
percent of the total combined voting power of all classes of stock
of USB Bank entitled to vote and at least 80 percent of the total
number of shares of all other classes of stock of USB Bank.
Following the Bank Merger, USB Bank will not issue additional
shares of its stock that would result in USB owning less than 80
percent of the total combined voting power of all classes of stock
of USB Bank entitled to vote or less than 80 percent of the total
number of shares of all other classes of stock of USB Bank.
As contemplated in the Agreement, FBI will be merged into and
become a part of USB, which will be the surviving corporation.
FBI's separate corporate existence will cease to exist upon
consummation of the Holding Company Merger. The Holding Company
Merger will be effected pursuant to the laws of the State of
Alabama. USB, as the successor corporation, will acquire all of
the assets of FBI (both net and gross) and assume all of FBI's
liabilities. Both the fair market value and adjusted basis of the
assets of FBI to be transferred to USB will equal or exceed the sum
of liabilities to be assumed by USB, plus the amount of
liabilities, if any, to which the transferred assets are subject.
The liabilities of FBI to be assumed by USB and the liabilities to
which transferred assets of FBI are subject were incurred by FBI in
the ordinary course of its business. FBI does not have any
indebtedness of USB or any subsidiary or affiliate of USB that was
issued, acquired or will be settled at a discount, or that was
issued or acquired in connection with this transaction. Nor does
USB have any indebtedness of FBI or any subsidiary or affiliate of
FBI that was issued, acquired or will be settled at a discount, or
that was issued or acquired in connection with this transaction.
Additionally, First Bank will be merged into and become a part
of USB Bank which will be the surviving corporation. First Bank's
separate corporation existence will cease to exist upon
consummation of the Bank Merger. Thereafter, USB Bank will
continue the businesses of USB Bank and First Bank conducted prior
to the Bank Merger. The Bank Merger will be effected pursuant to
the laws of the State of Alabama. USB Bank, as the successor
corporation, will acquire all of the assets of First Bank (both net
and gross) and assume all of First Bank's liabilities. Both the
fair market value and adjusted basis of the assets of First Bank to
be transferred to USB Bank will equal or exceed the sum of
liabilities to be assumed by USB Bank, plus the amount of
liabilities, if any, to which the transferred assets are subject.
The liabilities of First Bank to be assumed by USB Bank and the
liabilities to which transferred assets of First Bank are subject
were incurred by First Bank in the ordinary course of its business.
First Bank does not have any indebtedness of USB, USB Bank or any
subsidiary of USB Bank that was issued, acquired or will be settled
at a discount, or that was issued or acquired in connection with
this transaction. Nor does USB Bank have any indebtedness of FBI,
First Bank or any subsidiary of First Bank that was issued,
acquired or will be settled at a discount, or that was issued or
acquired in connection with this transaction.
USB has no plan or intention to liquidate USB Bank, to merge
USB Bank into another corporation, or to cause USB Bank to sell or
otherwise dispose of any of the assets of First Bank acquired in
the Bank Merger, except for dispositions made in the ordinary
course of business.
No fractional shares will be issued in connection with the
Holding Company Merger. In the event that a fractional share is
computed, the shareholder will receive cash (without interest) in
lieu thereof. The cash payment in lieu of fractional shares is
solely for the purpose of avoiding the expense and inconvenience to
USB of issuing fractional shares and does not represent separately
bargained-for consideration. No one holder of FBI Common Stock
will receive cash greater than the book value of one full share of
USB Common Stock as of the most recent month-end prior to the
effective date of the Holding Company Merger, and in the aggregate
the maximum amount of cash consideration that will be paid in the
transaction to the holders of FBI Common Stock in lieu of
fractional shares will not exceed the product of (i) the number of
holders of FBI Common Stock on the effective date of the Holding
Company Merger, times (ii) the book value of one full share of USB
Common Stock as of the most recent month-end prior to the effective
date of the Holding Company Merger. The total cash consideration
that will be paid in the Holding Company Merger instead of issuing
fractional shares is not expected to exceed one percent of the
total consideration to be received. Any holder of USB Common Stock
or FBI Common Stock who perfects his statutory dissenter's rights
shall be entitled to receive the value of such shares in cash, as
determined pursuant to the Alabama Business Corporation Act.
USB has no plan or intention to sell or otherwise dispose of
any of the assets of FBI acquired in the transaction, except for
dispositions made, or to be made, in the ordinary course of
business. Following the Holding Company Merger, USB will continue
the historic business of FBI and use a significant portion of FBI's
assets in such business, including the operation of the banking
business of FBI conducted through First Bank.
USB Bank has no plan or intention to sell or otherwise dispose
of any of the asset of First Bank acquired in the transaction,
except for disposition made, or to be made, in the ordinary course
of business. Following the Bank Merger, USB Bank will continue the
historic business of First Bank and use a significant portion of
First Bank's asset in such business.
All USB Common Stock to be received by FBI shareholders will
be freely transferable, except for USB Common Stock received by
persons deemed to be "affiliates" of FBI who, under Rule145
pursuant to the Securities Act of 1933, will be restricted as to
future sales. As of the effective date of the Holding Company
Merger, each such affiliate will have entered into an agreement
restricting resale of the USB Common Stock.
To the best knowledge of management of FBI, there is no plan
or intention by any holder of 1% or more of the outstanding shares
of FBI Common Stock to (i) sell, exchange, or otherwise dispose of
any of the USB Common Stock received in the transaction (ii) reduce
the risk associated with the ownership of USB Common Stock by
entering into a transaction such as a short sale of USB Common
Stock (including transactions commonly referred to as
"short-against-the-box"), the granting of a "deep-in-the-money"
call option, or other arrangement, or (iii) enter into, or consent
to, any contract or other arrangement with respect to the sale,
exchange or other disposition of USB Common Stock to be received in
the Holding Company Merger (collectively a "Disposition
Transaction"). To the best knowledge of management of FBI, there
is no plan or intention on the part of the remaining holders of FBI
Common Stock to engage in a Disposition Transaction of a number of
USB Common Stock received in the Holding Company Merger that would
reduce the holders of FBI Common Stock holdings of USB Common Stock
received in the Holding Company Merger to less than 50% of the
value of all FBI Common Stock as of the effective date of the
Holding Company Merger. USB has no plan or intention to reacquire
any USB Common Stock issued in the transaction.
Nine of the ten present directors of FBI will be elected to
the Board of Directors of USB effective on the date of consummation
of the Holding Company Merger and thereafter will receive an annual
fee as a director of USB. The fee to be paid such individuals, as
directors, is not allocable to any of the FBI Common Stock. Fred
Huggins will be elected to serve as Chairman and Chief Executive
Officer of Acceptance Loan Company, Inc., which is presently a
wholly-owned subsidiary of First Bank and which will be a wholly
owned subsidiary of USB Bank as a result of the Bank Merger.
Additionally, Mr. Huggins and Ray Sheffield will be elected as Vice
Chairman of the Board of Directors of USB, and Mr. Huggins will be
elected Chairman of the Board of Directors of USB Bank. Any
consideration to be paid by USB Bank or USB to such individuals for
their employment services is not allocable to any of their FBI
Common Stock. Finally, no shareholder-employee of FBI will receive
any consideration for the FBI Common Stock owned by such
shareholder-employee in the form of compensation for services
rendered or to be rendered, and all compensation to such
shareholder-employees for services rendered or to be rendered will
be commensurate with amounts paid to third parties bargaining at
arm's length for similar services.
None of USB, its subsidiaries (other than in a fiduciary
capacity), directors and executive officers owned as of December
31, 1996 any FBI Common Stock.
USB and FBI will each bear and pay costs and expenses incurred
by it, or on its behalf, in connection with the Merger, including
filing, registration and application fees, printing and mailing
fees and expenses and fees and expenses of their respective
accountants and counsel. Any costs and expenses incurred by a
holder of FBI Common Stock will be for his own account and will not
be paid by USB or FBI.
None of USB, USB Bank, FBI, or First Bank are under the
jurisdiction of a court in a Title11 or similar case.
As of December 31, 1996, the total assets of FBI, exclusive of
cash, cash items (including receivables) and Government securities,
were $180,283,246. Of this amount, the total value of the assets
held for investment constitutes $ 32,753,944, of which $31,464,789
consisted of stock and securities. As of the date hereof, there
has been no substantial change in FBI's total assets, that portion
of FBI's total assets held for investment or that portion
represented by stock and securities.
As of December 31, 1996, the total assets of First Bank,
exclusive of cash, cash items (including receivables) and
Government securities, were $180,283,246. Of this amount, the
total value of the assets held for investment constitutes
$32,753,944, of which $31,464,789 consisted of stock and
securities. As of the date hereof, there has been no substantial
change in First Bank's total assets, that portion of First Bank's
total assets held for investment or that portion represented by
stock and securities.
As of December 31, 1996, the total assets of USB, exclusive of
cash, cash items (including receivables) and Government securities,
were $225,341,581. Of this amount, the total value of the assets
held for investment constitutes $153,851,480 of which $151,873,564
consisted of stock and securities. As of the date hereof, there
has been no substantial change in USB's total assets, that portion
of USB's total assets held for investment or that portion
represented by stock and securities.
As of December 31, 1996, the total assets of USB Bank,
exclusive of cash, cash items (including receivables) and
Government securities, were $225,341,581. Of this amount, the
total value of the assets held for investment constitutes
$153,805,901, of which $151,827,985 consisted of stock and
securities. As of the date hereof, there has been no substantial
change in USB Bank's total assets, that portion of USB Bank's total
assets held for investment or that portion represented by stock and
securities.
LEGAL ANALYSIS
Section 354(a)(1) of the Internal Revenue Code of 1986 (the
"Code")(1) provides that gain or loss will not be recognized to a
transferor stockholder if stock or securities in a corporation that
is a "party to a reorganization" are, pursuant to a "plan of
reorganization," exchanged solely for stock or securities in
another corporation that is also a "party to the reorganization."
The exchange to which Section 354(a)(1) applies must be pursuant to
a "plan of reorganization" and the stock and securities surrendered
and received must be the stock and securities of corporations each
of which is a "party to a reorganization" as those terms are
defined in Section 368. Treas. Reg. Section 1.354-1(a). Section
354(a)(2)(A) provides that the non-recognition rule of Section
354(a)(1) will not apply if either (i) the principal amount of the
securities received by the transferor exceeds the principal amount
of the securities surrendered by the transferor, or (ii) securities
are received by the transferor but no securities are surrendered by
the transferor.
_______________________
(1) Statutory references are to the Code.
Section 356(a)(1) provides that if the non-recognition rule of
Section 354(a)(1) would apply to an exchange except that money or
"other property" is received by the transferor in addition to stock
or securities in a corporation that is a "party to a
reorganization," then gain will be recognized by the transferor to
the extent of the money and fair market value of the "other
property" received. If such an exchange has the effect of the
distribution of a dividend, then each transferor that receives
money or "other property" will have the gain to be recognized
treated as a dividend to the extent of such transferor's ratable
share of the earnings and profits of the corporation in which the
transferor held stock. Code, Section 356(a)(2). Whether a
distribution has the effect of a dividend will be determined based
upon principles developed under Sections 356(a)(2) and 302 for
determining dividend equivalency. Rev. Rul.74-515, 1974-2 C.B.
118. In applying those principles in the context of Section 356,
one compares the interest the shareholder actually received in the
acquiring corporation in the reorganization with the interest the
shareholder would have received in the acquiring corporation if
solely stock had been received. Commissioner v. Clark, 489 U.S.
726 (1989); Rev. Rul.93-61, 1993-2 C.B. 118.
The phrase "other property" does not include "securities" if
such securities would be permitted to be received without the
recognition of gain under the provisions of Section 354. Code,
Section 356(d)(2)(A). Further, if securities of a corporation that
is "a party to a reorganization" are surrendered and securities of
a corporation that is "a party to a reorganization" are received
which exceed the principal amount of the securities surrendered,
the term "other property" includes only the fair market value of
the excess principal amount. Code, Section 356(d)(2)(B).
In a "reorganization" where cash is paid by the acquiring
corporation that is not separately bargained for but is in lieu of
fractional share interests to which shareholders are entitled, such
cash payment will be treated under Section 302(a) as a redemption
of the fractional share interest which will be treated as a
distribution in exchange, provided that the redemption is not
essentially equivalent to a dividend. Rev. Rul.66-365, 1966-2 C.B.
116. The Internal Revenue Service (the "Service") will normally
rule that a cash distribution in lieu of fractional share interests
arising in a "reorganization" will be in part or full payment in
exchange for the stock redeemed if the cash distribution is
undertaken solely for the purpose of saving the corporation the
expense and inconvenience of issuing and transferring fractional
shares and is not separately bargained-for consideration. Rev.
Proc.77-41, 1977-2 C.B. 574.
The term "reorganization" is defined in Section 368(a) and
includes under Section 368(a)(1)(A) a statutory merger or what is
commonly referred to as an "A reorganization." See also, Treas.
Reg. Section 1.368-2(b)(1).
In the present matter, FBI will merge into USB in a statutory
merger under the laws of the State of Alabama. Holders of FBI
Common Stock will exchange their shares for USB Common Stock. Only
in the instance where a fractional share is computed will the
holder of a FBI Common Stock receive cash in lieu of a fractional
share of USB Common Stock. The distribution of cash, as opposed to
distribution of a fractional share of USB Common Stock, is solely
for the purpose of saving USB the expense and inconvenience of
issuing and transferring fractional USB Common Stock and is not
separately bargained-for consideration.
In the case of the Bank Merger, Section 368(a)(2)(D) of the
Code provides that the acquisition by one corporation of
"substantially all" of the properties of another corporation in
exchange for stock of a corporation which is in "control" of the
acquiring corporation, shall not disqualify a transaction under
Section 368(a)(1)(A) if (i) no stock of the acquiring corporation
is used in the transaction and (ii) the transaction would have
otherwise qualified as an A reorganization had the merger been into
the controlling corporation. For purposes of Section
368(a)(2)(D), Section 368(c) provides that a corporation is in
"control" of the acquiring corporation if it holds stock of the
acquiring corporation possessing at least 80% of the total combined
voting power of all classes of stock entitled to vote and at least
80% of the total number of shares of all other classes of stock of
the acquiring corporation. For advance ruling purposes, the
Service has stated in Rev. Proc. 77-37, 1977-2 C.B. 568 that the
"substantially all" requirement will be satisfied if there is a
transfer of assets representing 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 the transferor corporation immediately
prior to the transfer. Payments to dissenters, redemption
payments, distributions other than regular dividends and payment of
expenses are taken into account in applying the "substantially all"
test.
As in the case of the Holding Company Merger, the Bank Merger
will occur as a statutory merger under the laws of the State of
Alabama. USB Bank is a wholly-owned subsidiary of USB so that USB
is in "control" of USB Bank. At least 90% of the fair market value
of the net asset and at least 70% of the fair market value of the
gross assets of First Bank will be transferred to USB Bank.
Accordingly the use of USB Stock as consideration for USB Bank's
acquisition of First Bank will qualify the Bank Merger as an A
reorganization, assuming that other requirements discussed
hereafter are satisfied.
However, in fact, no USB Common Stock will be issued in
connection with the Bank Merger. Instead, to avoid the expense and
inconvenience of issuing USB Common Stock to itself, USB instead
will designate USB Common Stock as the consideration being
constructively exchanged for the First Bank common stock.
It has been consistently held that the physical issuance of
shares is not necessary, if it would be a meaningless gesture.
Davant v. Commissioner, 366 F. 2d 874 (5th Cir. 1966) cert. den.,
386 U.S. 1022 (1967); Commissioner v. Morgan, 288 F. 2d 676 (3rd
Cir. 1966); Liddon v. Commission, 260 F. 2d 304 (6th Cir. 1956),
cert. den., 352 U.S. 824 (1956). Accordingly, the fact that USB
Common Stock is not actually issued in connection with the Bank
Merger should not have any adverse effect on the Bank Merger
qualifying as an A reorganization.
In the case of an exchange to which Section 354 applies, the
basis of the stock or securities received by the transferor,
without the recognition of gain or loss, shall be the same as that
of the stock or securities exchanged, decreased by (i) the fair
market value of any "other property" and money received by the
transferor and (ii) the amount of loss recognized by the taxpayer on
the exchange, and increased by (x) the amount treated as a dividend
and (y) the amount of gain recognized on the exchange, exclusive of
the portion treated as a dividend. Code, Section 358(a)(1).
The holding period of stock of a corporation "a party to a
reorganization" received by a transferor includes the period of
time that the transferor held the stock of the other corporation "a
party to the reorganization" if such stock constitutes a capital
asset in the hands of the transferor. Code, Section 1223(1).
Additionally, for this rule to apply the stock received must have
the same basis, in whole or in part, as the stock exchanged.
Generally, a capital asset will include all property held by a
taxpayer exclusive of (i) stock in trade of a taxpayer or (ii) other
property of a kind which would be properly includible in inventory.
Code, Section 1221(1).
In the present matter, a holder of FBI Common Stock will have
a basis in the USB Common Stock received equal to such holder's
basis in the FBI Common Stock surrendered, decreased by the amount
of any cash received in lieu of a fractional share of USB Common
Stock and increased by the amount of gain recognized as a result of
receiving cash in lieu of a fractional share. Such holder of FBI
Common Stock will include in the holding period of USB Common Stock
the holding period of such holder of FBI Common Stock unless the
FBI Common Stock was not considered as a capital asset in the hands
of such holder.
With respect to the tax treatment of a corporation that is "a
party to a reorganization" which issues stock to a transferor of
stock or securities in another corporation that is a "party to a
reorganization," the basis of the property acquired shall be the
same as the basis in the property surrendered increased by the
amount of gain recognized by the transferor on such transfer.
Code, Section 362(b).
The term "party to a reorganization" is defined in Sections
368(a) and 368(b). The term "plan of reorganization" is defined
in the regulations promulgated under the authority of Section 368.
Two additional requirements for a "reorganization" are a
"continuity of business enterprise" and a "continuity of interest"
therein on the part of those persons who, directly or indirectly,
were the owners of the enterprise prior to the reorganization.
Treas. Reg. Section 1.368-1(b).
The "continuity of business enterprise" requirement is
satisfied if the acquiring corporation either (i) continues the
acquired corporation's historic business, or (ii) uses a significant
portion of the acquired corporation's historic business assets in
a business. Treas. Reg. Section 1.368-1(d)(2). With respect to
continuing the historic business of the acquired corporation, the
fact that the acquiring corporation is in the same line of business
as the acquired corporation tends to establish the requisite
business continuity. The acquired corporation's historic business
is generally the business it has most recently conducted. If the
acquired corporation has more than one line of business, continuity
of business enterprise requires that only a significant line of
business be conducted. Treas. Reg. Section 1.368-1(d)(3). With
respect to the alternative of historic business assets continuity,
it generally will be satisfied if the acquiring corporation
utilizes a significant portion of the acquired corporation's
historic business assets in a business. An acquired corporation's
historic business assets are those assets used in its historic
business. Whether a "significant" portion of the historic assets
are used in a business is based upon the relative importance of the
assets to the operation of the business. Treas. Reg. Section
1.368-1(d)(4).
The "continuity of interest" requirement is satisfied if there
exists among the holders of the stock and securities of either
(i) the acquired corporation or (ii) acquiring corporation, the
requisite continuity of interest in the acquiring corporation.
Treas. Reg. Section 1.368-1(b). For ruling purposes, the Service
has stated that the continuity of interest requirement will be
satisfied if one or more shareholders of the acquired corporation
acquire stock of the acquiring corporation, or a corporation
controlling the acquiring corporation, that is equal in value to at
least 50% of the value of all the outstanding stock of the acquired
corporation on the date of the reorganization. Rev. Proc.77-37,
1977-2 C.B. 568.
In the present matter, USB both will continue FBI's historic
business and use a significant portion of FBI's historic business
assets in such business. In the Bank Merger, USB Bank will
continue First Bank's historic business and use a significant
portion of First Bank's historic business assets in such business.
Additionally, former holders of FBI Common Stock will acquire in
the aggregate USB Common Stock equal in value to at least 50% of
the value of all of the outstanding FBI Common Stock on the date of
the reorganization, and there is no known intent to dispose of a
sufficient number of USB Common Stock to reduce the value of the
USB Common Stock received and retained to less than 50% of the
value of the FBI Common Stock immediately before the Merger.
With respect to the Bank Merger, the Service has ruled that
the acquisition by an acquiring corporation of a parent and its 60%
owned subsidiary constituted two reorganizations. Rev. Rul.
68-526, 1968-2 C.B. 156. In Rev. Rul. 76-528, 1976-2 C.B. 103, the
Service clarified the continuity of interest requirement in the
context of Rev. Rul. 68-526, by holding that ownership by the
former stockholders of the parent in the acquiring corporation
satisfied the continuity of interest requirement as to the 60%
subsidiary that was a party to the reorganization.
In the present matter, the continuing stock ownership of the
FBI stockholders in USB should satisfy the continuity of interest
requirement with respect to the Bank Merger. Alternatively, if the
transaction was viewed as two separate and distinctive
reorganizations, then the Bank Merger should satisfy the continuity
of interest requirement as the merger of two wholly-owned
subsidiaries (USB Bank and First Bank) with USB being the sole
stockholder of each.
Additionally, for a transaction to qualify as a reorganization
by virtue of a statutory merger, there must be a business purpose
for the transaction. Treas. Reg. Sections 1.368-1(b);
1.368-2(b)(2). Whether a transaction has a business purpose is
eventually a factual question with no mathematical safe-harbor
available.
In the present matter, USB should be able by virtue of its
size to realize certain economies of scale and be more competitive
with regional and national providers of financial services.
Additionally, holders of FBI Common Stock will receive in exchange
for such a security registered under the Securities Act of 1933
issued by a company that reports under the Securities Exchange Act
of 1934. Based upon similar facts, the Service has ruled in the
past that a reorganization has occurred.
Assuming that a "reorganization" occurs, a "party to a
reorganization" includes both corporations in a transaction
qualifying as a reorganization when one corporation acquires
properties of another corporation and, in the case of a corporation
controlling the acquiring corporation, such corporation where its
stock is used in the acquisition. Treas. Reg. Section 1.368-2(f).
A "plan of reorganization" is a consummated transaction
specifically defined as a reorganization and is not itself a
broadening of the term "reorganization." Treas. Reg. Section
1.368-2(g).
Although not directly applicable to the present matter, the
Service has held that the "solely for voting stock" requirement of
Sections 368(a)(1)(B) and 368(a)(1)(C) will not be violated if the
acquiring corporation pays expenses of the acquired corporation
that are solely and directly related to the reorganization, but
will be violated if the acquiring corporation pays the individual
expenses of the stockholders of the acquired corporation. Rev.
Rul. 73-54, 1973-1 C.B. 187. Even in statutory mergers, for ruling
purposes, the Service required a representation that each party to
the merger and the stockholders of the acquired corporation will
pay their respective expenses, if any, incurred in connection with
the transaction. Rev. Proc. 86-42, 1986-2 C.B. 722. The Service in
1996 stopped ruling on these types of transactions.
Even though a transaction would otherwise meet all of the
requirements for a "reorganization" as described before, a
transaction will not be considered a "reorganization" if two or
more parties to the transaction are "investment companies," at
least as with respect to such "investment company." Code, Section
368(a)(2)(F)(i). For this purpose, the term "investment company"
means a "regulated investment company," a "real estate investment
trust," or a corporation 50% or more of the value of whose total
assets are stock and securities and 80% or more of the value of
whose total assets are assets held for investment. In making this
calculation, stock and securities in any subsidiary are disregarded
and the parent corporation is deemed to own its ratable share of
the subsidiary assets, considering for this purpose a corporation
as being a subsidiary if another corporation owns 50% or more of
the combined voting power of all classes of stock entitled to vote,
or 50% of more the total value of shares of all classes of stock
outstanding. Code, Section 368(a)(2)(F)(iii). Additionally, in
determining total assets, there is excluded cash and cash items
(including receivables), government securities and in certain
instances other assets acquired. Code, Section 368(a)(2)(F)(iv).
Assets are held for investment if (i) they are held primarily for
gain from appreciation in value, production of passive income or
both and (ii) are not held primarily for sale to customers. Prop.
Treas. Reg. Section 1.368-4(d)(1). Passive income includes
interest income if such interest constitutes passive income for
purposes of S corporation taxation. Prop. Treas. Reg. Section
1.368-4(d)(2). Interest income directly derived in the ordinary
course of a trade or business of lending or financing does not
constitute passive income. Treas. Reg. Section
1.1362-2(c)(5)(iii)(B). Among the requirements to constitute a
"regulated investment company," is that the company files with its
return for the taxable year an election to be a "regulated
investment company" or has made such election for a previous
taxable year. Code, Section 851(d)(1). A similar requirement is
provided to constitute a "real estate investment trust." Code,
Section 856(c)(1).
In the present matter, none of USB, USB Bank, FBI or First
Bank has made an election to be taxed as a regulated investment
company or a real estate investment trust. Accordingly, such
entities can constitute an "investment company" only if 50% or more
of the value of their respective assets are stocks and securities
and 80% or more of the value of the total assets are held for
investment. In making these calculations, cash, cash items
(including receivables) and Government securities are excluded and
stock and securities in a 50%-owned subsidiary are disregarded with
the parent being deemed to own its ratable share of such
subsidiaries' assets. Otherwise, a "security" includes obligations
of state and local governments, commodity futures contracts, shares
of regulated investment companies, real estate investment trusts
and other investments constituting a security within the meaning of
the Investment Company Act of 1940. In the present matter, none of
USB, USB Bank, FBI or First Bank meet the definition of an
"investment company."
With respect to FBI Shareholders who elect to exercise their
right to dissent to the Holding Company Merger, cash received with
respect to a dissenter's FBI Common Stock will be treated as
received by the FBI Shareholder in redemption of their FBI Common
Stock, subject to the provisions and limitations of Section 302 of
the Code.
OPINION
Based upon the facts set forth herein and assuming that the
Holding Company Merger will take place as described in the
Agreement and that the representations made by USB and FBI are true
and correct at the time of consummation of the Holding Company
Merger, it is our opinion that:
(i) the Holding Company Merger will constitute a
reorganization within the meaning of Section 368 of
the Code;
(ii) no gain or loss will be recognized by a holder of
FBI Common Stock upon conversion in the Holding
Company Merger of FBI Common Stock into USB Common
Stock;
(iii) the basis of USB Common Stock to be received in the
Holding Company Merger by a holder of FBI Common
Stock will be the same as such holder's basis in
the FBI Common Stock exchanged therefor;
(iv) the holding period of USB Common Stock to be
received in the Holding Company Merger by a holder
of FBI Common Stock will include the period during
which such holder held the FBI Common Stock
exchanged therefor, provided that such FBI Common
Stock was held as a capital asset immediately prior
to the consummation of the Holding Company Merger;
(v) the receipt of cash in exchange for a fractional
share interest in a share of USB Common Stock will
be treated as received in exchange for such
fractional share interest;
(vi) USB and FBI will each be a "party to a
reorganization" within the meaning of Section
368(b) of the Code;
(vii) no gain or loss will be recognized by USB or FBI in
connection with the reorganization; and
(viii) the receipt of cash by a FBI Shareholder, who
exercises his or her rights to dissent, will be
treated as received in exchange for such FBI Common
Stock.
Based upon the facts set forth herein and assuming that the
Bank Merger will take place as described in the Agreement and that
the representations made by USB and FBI are true and correct at the
time of consummation of the Bank Merger, it is our opinion that:
(i) the Bank Merger will constitute a reorganization
within the meaning of Section 368 of the Code;
(ii) no gain or loss will be recognized by First Bank
upon transfer of substantially all of its assets to
USB Bank in constructive exchange for USB Common
Stock and the assumption of First Bank's
liabilities by USB Bank;
(iii) no gain or loss will be recognized by either USB or
USB Bank upon the acquisition by USB Bank of
substantially all of the assets of First Bank in
constructive exchange for USB Common Stock and the
assumption by USB Bank of First Bank's liabilities;
(iv) the basis of the assets of First Bank to be
received in the Bank Merger by USB Bank will be the
same as the basis of such assets in the hands of
First Bank;
(v) the holding period of the assets of First Bank to
be received in the Bank Merger by USB Bank will
include the period for which such assets were held
by First Bank;
(vi) USB Bank and First Bank will each be a "party to a
reorganization" within the meaning of Section
368(b) of the Code;
The opinions expressed herein are based upon existing
statutory, regulatory, and judicial authority, any of which may be
changed at any time with retroactive effect. In addition, our
opinions are based solely on the documents that we have examined,
the additional information that we have obtained, and the
statements set out therein, which we have assumed and you have
confirmed to be true on the date hereof and will be true on the
date on which the proposed transaction is consummated. Our
opinions cannot be relied upon if any of the facts contained in
such documents or if such additional information is, or later
becomes, inaccurate, or if any of the statements set out herein is,
or later becomes, inaccurate. Finally, our opinions are limited to
the tax matters specifically covered thereby, and we have not been
asked to address, nor have we addressed, any other tax consequences
of the proposed transaction.
We consent to the use of this opinion as an exhibit to the
Registration Statement (Registration No. 333-21241) filed by USB
relating to the proposed Merger and to the reference to us under
the headings "RISK FACTORS - Tax Considerations," "THE MERGER -
Certain Federal Income Tax Consequences" and "LEGAL MATTERS" in the
Joint Proxy Statement and Prospectus included in the Registration
Statement. This opinion is being provided solely for the use of
USB. No other person or party shall be entitled to rely on this
opinion.
Very truly yours,
MAYNARD, COOPER & GALE, P.C.
EXHIBIT A
STATEMENT OF FACTS AND REPRESENTATIONS
This Statement of Facts and Representations is made on behalf
of First Bancshares, Inc., to Maynard, Cooper & Gale, P.C., and is
intended to be relied upon in the issuance of an opinion as to
certain federal tax consequences arising from consummation of the
transactions described in the Agreement and Plan of Merger dated
August 19, 1996, as amended on March 18, 1997, by and between First
Bancshares, Inc. and United Security Bancshares, Inc. Capitalized
terms shall have the meaning assigned to them in the opinion of
Maynard, Cooper & Gale, P.C. dated April 2, 1997, to United Security
Bancshares, Inc.
1. Both the fair market value and adjusted basis of assets
of FBI to be transferred to USB will equal to or exceed the sum of
liabilities to be assumed by USB, plus the amount of liabilities,
if any, to which the transferred assets are subject.
2. The ratio for the exchange of shares of FBI Common Stock
for USB Common Stock was negotiated through arm's-length
bargaining. The fair market value of the USB Common Stock and cash
consideration, in the case of fractional shares, will be
approximately equal to the fair market value of the FBI Common
Stock surrendered in exchange therefor.
3. The liabilities of FBI to be assumed by USB and the
liabilities to which transferred assets of FBI are subject were
incurred by FBI in the ordinary course of its business.
4. To the best knowledge of management of FBI, there is no
plan or intention by any holder of 1% or more of the outstanding
shares of FBI Common Stock to (i) sell, exchange, or otherwise
dispose of any of the USB Common Stock received in the transaction,
(ii) reduce the risk associated with the ownership of USB Common
Stock by entering into a transaction such as a short sale of USB
Common Stock (including transactions commonly referred to as a
"short-against-the-box"), the granting of "deep-in-the-money" call
options, or other arrangement, or (iii) enter into, or consent to,
any contract or other arrangement with respect to the sale,
exchange or other disposition of USB Common Stock to be received
(collectively a "Disposition Transaction"). To the best knowledge
of management of FBI, there is no plan or intention on the part of
the remaining holders of FBI Common Stock to engage in a
Disposition Transaction of a number of shares of USB Common Stock
received in the Holding Company Merger that would reduce the
holders of FBI Common Stock holdings of USB Common Stock received
in the Holding Company Merger to less than 50% of the value of all
FBI Common Stock as of the effective date of the Holding Company
Merger.
5. FBI does not have any indebtedness of USB or any
subsidiary of USB that was issued, acquired or will be settled at
a discount, or that was issued or acquired in connection with this
transaction.
6. Any cost or expense incurred by a holder of FBI Common
Stock will be for his own account and will not be paid by FBI.
7. The payment of cash in lieu of fractional shares of USB
Common Stock is solely for the purpose of avoiding the expense and
inconvenience to USB of issuing fractional shares and does not
represent separately bargained for consideration. The total cash
consideration that will be paid in the transaction to the holders
of FBI Common Stock instead of issuing fractional shares of USB
Common Stock will not exceed one percent (1%) of the total
consideration that will be issued in the transaction to the holders
of FBI in exchange for their shares of FBI Common Stock. The
fractional share interests of each FBI Common Stock will be
aggregated, and no holder of FBI Common Stock will receive cash in
an amount greater than the book value of one full share of USB
Common Stock determined as of the month-end immediately preceding
the effective date of the Merger.
8. The fee to be paid to those individuals who are members
of the Board of Directors of FBI who become directors of USB, is
not allocable to any of the FBI Common Stock. Any consideration to
be paid by USB to Fred Huggins and Ray Sheffield pursuant to
employment arrangements is not allocable to any of the FBI Common
Stock. No shareholder-employee of FBI will receive any
consideration for the FBI Common Stock owned by such
shareholder-employee in the form of compensation for services
rendered or to be rendered and all compensation to such
shareholder-employee for services rendered or to be rendered will
be commensurate with amounts paid to third parties bargaining at
arm's-length for similar services.
9. Neither FBI nor First Bank is under the jurisdiction of
a court in a Title 11 or similar case.
10. As of December 31, 1996, the total assets of FBI,
exclusive of cash, cash items (including receivables) and
Government securities was $180,283,246. Of this amount, the total
value of the assets held for investments constitutes $32,753,944,
of which $31,464,789 consists of stock and securities.
11. As of the date hereof, there has been no substantial
change from December 31, 1996 in FBI's total assets or that portion
of FBI's total assets represented by investment securities.
12. Except as will be effected by the Merger, there has
been no change in the issued and outstanding FBI Common Stock since
December 31, 1996.
13. As of December 31, 1996, the total assets of First
Bank, exclusive of cash, cash items (including receivables) and
Government securities were $180,283,246. Of this amount, the total
value of the assets held for investment constitutes $32,753,944, of
which $31,464,789 consisted of stock and securities. As of the
date hereof, there has been no substantial change in First Bank's
total assets, that portion of First Bank's total assets held for
investment, or that portion represented by stock and securities.
14. The liabilities of First Bank to be assumed by USB Bank
and the liabilities to which transferred assets of First Bank are
subject were incurred by First Bank in the ordinary course of its
business. First Bank does not have any indebtedness of USB, USB
Bank, or any subsidiary of USB Bank that was issued, acquired or
will be settled at a discount, or that was issued or acquired in
connection with this transaction.
15. Neither of FBI or First Bank has elected to be taxed as
a regulated investment company or a real estate investment trust.
FIRST BANCSHARES, INC.
By: Robert Steen
Robert Steen
Its: Treasurer
EXHIBIT B
STATEMENT OF FACTS AND REPRESENTATIONS
This Statement of Facts and Representations is made on behalf
of United Security Bancshares, Inc., to Maynard, Cooper & Gale,
P.C., and is intended to be relied upon in the issuance of an
opinion as to certain federal tax consequences arising from
consummation of the transactions described in the Agreement and
Plan of Merger dated August 19, 1996, as amended on March 18, 1997,
by and between First Bancshares, Inc. and United Security
Bancshares, Inc. Capitalized terms shall have the meaning assigned
to them in the opinion of Maynard, Cooper & Gale, P.C. dated April
2, 1997, to United Security Bancshares, Inc.
1. The ratio for the exchange of shares of FBI Common Stock
for USB Common Stock was negotiated through arm's-length
bargaining. The fair market value of the USB Common Stock and cash
consideration in the case of fractional shares will be
approximately equal to the fair market value of the FBI Common
Stock surrendered in exchange therefor.
2. Each share of USB common stock (excluding shares held by
stockholders who perfect their dissenter's right of appraisal as
provided in the Merger Agreement) issued and outstanding
immediately prior to the effective time of the Merger shall remain
issued and outstanding from and after the effective time.
3. USB does not have any indebtedness of FBI or any
subsidiary of FBI that was issued, acquired or will be settled at
a discount, or that was issued or acquired in connection with this
transaction.
4. USB has no plan or intention to sell or otherwise
dispose of any of the assets of FBI acquired in the transaction,
except for dispositions made, or to be made, in the ordinary course
of business or for transfers to another corporation controlled by
USB. Following the Merger, USB will continue the historic business
of FBI and use a significant portion of FBI's assets in such
business, including the operation of the banking business of FBI
conducted through First Bank.
5. USB has no plan or intention to reacquire any USB Common
Stock issued in this transaction.
6. None of USB, its subsidiaries (other than in a fiduciary
capacity), directors and executive officers owned on December 31,
1996 any FBI Share.
7. The payment of cash in lieu of fractional shares of USB
Common Stock is solely for the purpose of avoiding the expense and
inconvenience to USB of issuing fractional shares and does not
represent separately bargained for consideration. The total cash
consideration that will be paid in the transaction to the holders
of FBI Common Stock instead of issuing fractional shares of USB
Common Stock will not exceed one percent (1%) of the total
consideration that will be issued in the transaction to the holders
of FBI in exchange for their shares of FBI Common Stock. The
fractional share interests of each FBI Common Stock will be
aggregated, and no holder of FBI Common Stock will receive cash in
an amount greater than the book value of one full share of USB
Common Stock determined as of the month-end immediately preceding
the effective date of the Merger.
8. As of December 31, 1996, the total assets of USB,
exclusive of cash, cash items (including receivables) and
Government securities were $225,341,581. Of this amount, the total
value of the assets held for investment constitutes $153,851,480,
of which $151,873,564 consists of stock and securities. As of the
date hereof, there has been no substantial change in USB's total
assets, the portion of USB's total assets held for investment, or
that portion represented by stock and securities.
9. Neither USB nor USB Bank is under the jurisdiction of a
court in a Title 11 or similar case.
10. In structuring the Bank Merger, USB will designate USB
Common Stock as the consideration being constructively exchanged
for First Bank common stock. To avoid the expense and
inconvenience of issuing USB Common Stock in the Bank Merger, the
shares of First Bank common stock constructively obtained by USB in
the Holding Company Merger will be cancelled in the Bank Merger.
The fair market value of the USB Common Stock to be constructively
exchanged in the Bank Merger will be approximately equal to the
fair market value of First Bank common stock to be exchanged
therefore. USB has no plan or intention to re-acquire any of the
USB Common Stock to be constructively issued and exchanged in the
Bank Merger. Prior to the Bank Merger, USB will own stock
possessing at least 80% of the total combined voting power of all
classes of stock of USB Bank entitled to vote and at least 80% of
the total number of shares of all other classes of stock of USB
Bank. Following the Bank Merger USB Bank will not issue any
additional shares of its stock that would result in USB owning less
than 80% of the total combined voting power of all classes of stock
of USB Bank entitled to vote and less than 80% of the total number
of shares of all other classes of stock of USB Bank.
11. USB has no plan or intention to liquidate USB Bank, to
merger USB Bank into another corporation, or to cause USB Bank to
sell or otherwise dispose of any of the assets of First Bank
acquired in the Bank Merger, except for dispositions made in the
ordinary course of business.
12. USB Bank has no plan or intention to sell or otherwise
dispose of any of the assets of First Bank acquired in the
transaction, except for dispositions made, or to be made, in the
ordinary course of business. Following the Bank Merger USB Bank
will continue the historic business of First Bank and use a
significant portion of First Bank's assets in such business.
13. USB Bank, as the successor corporation to First Bank,
will acquire all of the assets (net and gross) of First Bank and
assume all of First Bank's liabilities. Both the fair market value
and adjusted basis of the assets of First Bank to be transferred to
USB Bank will equal or exceed the sum of liabilities to be assumed
by USB Bank, plus the amount of liabilities, if any, to which the
transferred assets are subject. USB Bank does not have any
indebtedness of FBI, First Bank, or any subsidiary of First Bank
that was issued, acquired or will be settled at a discount, or that
was issued or acquired in connection with this transaction.
14. As of December 31, 1996, the total assets of USB Bank,
exclusive of cash, cash items (including receivables) and
Government securities were $225,341,581. Of this amount, the total
value of the assets held for investment constitute $153,805,901, of
which $151,827,985 consisted of stock and securities. As of the
date hereof, there has been no substantial change in USB Bank's
total assets, that portion of USB Bank's total assets held for
investment or that portion represented by stock and securities.
15. Neither of USB or USB Bank has elected to be taxed as a
regulated investment company or a real estate investment trust.
UNITED SECURITY BANCSHARES. INC.
By: Larry M. Sellers
Larry M. Sellers
Its: Secretary/Treasurer
EXHIBIT 8.2
Exhibit 8.2
April 2, 1997
First Bancshares, Inc.
131 Main Street
Grove Hill, AL 36451
Re: Agreement and Plan of Merger dated as of August 19,
1996, as amended on March 18, 1997 (the "Agreement"),
between First Bancshares, Inc. ("FBI") and United
Security Bancshares, Inc. ("USB"), which provides for the
merger of FBI with and into USB, and the merger of FBI's
wholly-owned subsidiary bank, First Bank and Trust
("First Bank"), with and into USB's wholly-owned
subsidiary bank, United Security Bank ("USB Bank")
Gentlemen:
This letter is in response to your request that we provide you
with our opinion with respect to certain of the federal income tax
consequences of consummation of the transactions set forth in the
Agreement. In rendering this opinion, we have relied upon the
facts presented to us in (i) the Agreement and (ii) the Joint Proxy
Statement and Prospectus filed with the Securities and Exchange
Commission as part of USB's Registration Statement on Form S-4,
including the exhibits thereto along with the amendments thereto.
Additionally, we have relied upon the representations of management
of FBI and management of USB set forth in certificates of officers
of those entities, copies of which are attached hereto as Exhibits
A and B, respectively. In the aggregate, the facts relied upon are
as set forth in the Section of this letter denominated "FACTS."
In our examination of such documents, we have assumed, with
your consent, that all documents submitted to us as photocopies
reproduce the originals thereof, that such originals are authentic,
that all such documents have been or will be duly executed to the
extent required, and that all statements set forth in such
documents are accurate.
We have assumed that the stockholders of both USB and FBI
approve the Agreement in accordance with law of Alabama, their
state of incorporation. We have assumed that the transactions
contemplated by the Agreement, including the Holding Company Merger
and the Bank Merger (as hereinafter defined) will qualify as
statutory mergers under Alabama law.
FACTS
USB is a corporation duly organized, validly existing and in
good standing under the laws of the State of Alabama with its
principal executive office located in Thomasville, Alabama. It
presently has 2,400,000 authorized shares of common capital stock,
$.01 par value per share ("USB Common Stock"), of which 2,137,960
shares were issued and outstanding as of December 31, 1996.
Assuming shareholder approval, which is a condition for approval of
the Holding Company Merger described herein, the authorized capital
of USB will be increased to 10,000,000 shares of Common Stock.
Since December 31, 1996, there has been no change in the issued and
outstanding USB Common Stock (except (i) as will be effected by the
transactions described herein including the increase in authorized
capital stock, and (ii) for insignificant changes occurring in the
ordinary course of business).
USB owns all the stock of USB Bank, an Alabama state banking
corporation.
FBI is a corporation duly organized, validly existing and in
good standing under the laws of the State of Alabama with its
principal executive offices located in Grove Hill, Alabama. As of
December 31, 1996, FBI had 500,000 authorized shares of common
capital stock, each of which had a par value of $1.00 per share
(the "FBI Common Stock"), of which 239,843 were issued and
outstanding as of December 31, 1996. FBI has no other class of
stock authorized.
FBI owns all the stock of First Bank, an Alabama state banking
corporation.
Numerous factors were considered by the Boards of Directors of
FBI and USB in approving and recommending to their respective
shareholders the terms of the merger of FBI into USB (the "Holding
Company Merger") and the merger of First Bank into USB Bank (the
"Bank Merger") set forth in the Agreement (collectively where no
distinction is required the "Merger") to their respective
shareholders. These included an analysis of the financial
structure; results of operations; prospects of USB, USB Bank, FBI
and First Bank; the composition of the businesses of the two
organizations; the overall compatibility of the management of the
organizations; the outlook for both organizations in the banking
and financial services industry; and the opinion of investment
bankers as to the fairness of the terms of the Merger from a
financial point of view.
USB's Board of Directors believed that the Merger would
improve shareholder value as well as provide a foundation for
strong, long-term returns. Additionally, the Merger would result
in more diversity in earning assets. First Bank has a large
consumer-based loan portfolio, while USB Bank has a larger, more
diverse investment portfolio. The combined diverse assets, coupled
with the stable deposit base and strong capital position of both
banks, would strengthen the competitive position of the surviving
bank.
USB has a strong community-minded philosophy and a commitment
to community banking. By USB merging with FBI and USB Bank merging
with First Bank, which is a like-minded bank, the USB Board
believed the opportunity to expand and employ more resources to the
communities financial service needs would be increased.
Technological changes are occurring rapidly in the financial
industry, and the FBI Board of Directors believed that a combined
financial institution would enhance the surviving bank's ability to
provide customers the benefits these changes bring, including more
convenient, less costly delivery systems. The FBI Board also
believed that a combined management team would be capable of
operating a stronger, more productive and efficient financial
institution capable of providing more diverse products and improved
methods of service at lower costs.
Prior to the Merger, no FBI Common Stock will be held by FBI
or any subsidiary thereof or by USB or any subsidiary thereof,
other than in a fiduciary capacity and, in the case of FBI, as
treasury stock. Upon consummation of the Holding Company Merger,
each share of FBI Common Stock issued and outstanding immediately
prior to the Holding Company Merger (excluding shares held by
Stockholders who perfect their dissenter's rights) shall cease to
be outstanding and shall be converted into 5.8321 newly issued
shares of USB Common Stock. The USB Common Stock to be issued in
the Merger will have been registered with the Securities and
Exchange Commission under the Securities Act of 1933. The ratio
for the exchange of shares of FBI Common Stock for USB Common Stock
was negotiated through arm's-length bargaining. Accordingly, the
fair market value of the USB Common Stock and cash consideration,
in the case of fractional shares, will be approximately equal to
the fair market value of the FBI Common Stock surrendered in
exchange therefor.
Each share of USB Common Stock (excluding shares held by
stockholders who perfect their dissenter's right of appraisal as
provided in the Agreement) issued and outstanding immediately prior
to the effective time of the Holding Company Merger shall remain
issued and outstanding from and after the effective time.
In structuring the Bank Merger, USB will designate USB Common
Stock as the consideration being constructively exchanged for First
Bank common stock. To avoid the expense and inconvenience of
issuing USB Common Stock in the Bank Merger, the shares of First
Bank common stock constructively obtained by USB in the Holding
Company Merger will be cancelled in the Bank Merger. The fair
market value of the USB Common Stock to be constructively exchanged
in the Bank Merger will be approximately equal to the fair market
value of First Bank common stock to be exchanged therefore. USB
has no plan or intention to reacquire any of the USB Common Stock
to be constructively issued and exchanged in the Bank Merger.
Prior to the Bank Merger, USB will own stock possessing at least 80
percent of the total combined voting power of all classes of stock
of USB Bank entitled to vote and at least 80 percent of the total
number of shares of all other classes of stock of USB Bank.
Following the Bank Merger, USB Bank will not issue additional
shares of its stock that would result in USB owning less than 80
percent of the total combined voting power of all classes of stock
of USB Bank entitled to vote or less than 80 percent of the total
number of shares of all other classes of stock of USB Bank.
As contemplated in the Agreement, FBI will be merged into and
become a part of USB, which will be the surviving corporation.
FBI's separate corporate existence will cease to exist upon
consummation of the Holding Company Merger. The Holding Company
Merger will be effected pursuant to the laws of the State of
Alabama. USB, as the successor corporation, will acquire all of
the assets of FBI (both net and gross) and assume all of FBI's
liabilities. Both the fair market value and adjusted basis of the
assets of FBI to be transferred to USB will equal or exceed the sum
of liabilities to be assumed by USB, plus the amount of
liabilities, if any, to which the transferred assets are subject.
The liabilities of FBI to be assumed by USB and the liabilities to
which transferred assets of FBI are subject were incurred by FBI in
the ordinary course of its business. FBI does not have any
indebtedness of USB or any subsidiary or affiliate of USB that was
issued, acquired or will be settled at a discount, or that was
issued or acquired in connection with this transaction. Nor does
USB have any indebtedness of FBI or any subsidiary or affiliate of
FBI that was issued, acquired or will be settled at a discount, or
that was issued or acquired in connection with this transaction.
Additionally, First Bank will be merged into and become a part
of USB Bank which will be the surviving corporation. First Bank's
separate corporation existence will crease to exist upon
consummation of the Bank Merger. Thereafter, USB Bank will
continue the businesses of USB Bank and First Bank conducted prior
to the Bank Merger. The Bank Merger will be effected pursuant to
the laws of the State of Alabama. USB Bank, as the successor
corporation, will acquire all of the assets of First Bank (both net
and gross) and assume all of First Bank's liabilities. Both the
fair market value and adjusted basis of the assets of First Bank to
be transferred to USB Bank will equal or exceed the sum of
liabilities to be assumed by USB Bank, plus the amount of
liabilities, if any, to which the transferred assets are subject.
The liabilities of First Bank to be assumed by USB Bank and the
liabilities to which transferred assets of First Bank are subject
were incurred by First Bank in the ordinary course of its business.
First Bank does not have any indebtedness of USB, USB Bank or any
subsidiary of USB Bank that was issued, acquired or will be settled
at a discount, or that was issued or acquired in connection with
this transaction. Nor does USB Bank have any indebtedness of FBI,
First Bank or any subsidiary of First Bank that was issued,
acquired or will be settled at a discount, or that was issued or
acquired in connection with this transaction.
USB has no plan or intention to liquidate USB Bank, to merge
USB Bank into another corporation, or to cause USB Bank to sell or
otherwise dispose of any of the assets of First Bank acquired in
the Bank Merger, except for dispositions made in the ordinary
course of business.
No fractional shares will be issued in connection with the
Holding Company Merger. In the event that a fractional share is
computed, the shareholder will receive cash (without interest) in
lieu thereof. The cash payment in lieu of fractional shares is
solely for the purpose of avoiding the expense and inconvenience to
USB of issuing fractional shares and does not represent separately
bargained-for consideration. No one holder of FBI Common Stock
will receive cash greater than the book value of one full share of
USB Common Stock as of the most recent month-end prior to the
effective date of the Holding Company Merger, and in the aggregate
the maximum amount of cash consideration that will be paid in the
transaction to the holders of FBI Common Stock in lieu of
fractional shares will not exceed the product of (i) the number of
holders of FBI Common Stock on the effective date of the Holding
Company Merger, times (ii) the book value of one full share of USB
Common Stock as of the most recent month-end prior to the effective
date of the Holding Company Merger. The total cash consideration
that will be paid in the Holding Company Merger instead of issuing
fractional shares is not expected to exceed one percent of the
total consideration to be received. Any holder of USB Common Stock
or FBI Common Stock who perfects his statutory dissenter's rights
shall be entitled to receive the value of such shares in cash, as
determined pursuant to the Alabama Business Corporation Act.
USB has no plan or intention to sell or otherwise dispose of
any of the assets of FBI acquired in the transaction, except for
dispositions made, or to be made, in the ordinary course of
business. Following the Holding Company Merger, USB will continue
the historic business of FBI and use a significant portion of FBI's
assets in such business, including the operation of the banking
business of FBI conducted through First Bank.
USB Bank has no plan or intention to sell or otherwise dispose
of any of the assets of First Bank acquired in the transaction,
except for dispositions made, or to be made, in the ordinary course
of business. Following the Bank Merger, USB Bank will continue the
historic business of First Bank and use a significant portion of
First Bank's asset in such business.
All USB Common Stock to be received by FBI shareholders will
be freely transferable, except for USB Common Stock received by
persons deemed to be "affiliates" of FBI who, under Rule 145
pursuant to the Securities Act of 1933, will be restricted as to
future sales. As of the effective date of the Holding Company
Merger, each such affiliate, will have entered into an agreement
restricting resale of the USB Common Stock.
To the best knowledge of management of FBI, there is no plan
or intention by any holder of 1% or more of the outstanding shares
of FBI Common Stock to (i) sell, exchange, or otherwise dispose of
any of the USB Common Stock received in the transaction (ii) reduce
the risk associated with the ownership of USB Common Stock by
entering into a transaction such as a short sale of USB Common
Stock (including transactions commonly referred to as
"short-against-the-box"), the granting of a "deep-in-the-money"
call option, or other arrangement, or (iii) enter into, or consent
to, any contract or other arrangement with respect to the sale,
exchange or other disposition of USB Common Stock to be received in
the Holding Company Merger (collectively a "Disposition
Transaction"). To the best knowledge of management of FBI, there
is no plan or intention on the part of the remaining holders of FBI
Common Stock to engage in a Disposition Transaction of a number of
USB Common Stock received in the Holding Company Merger that would
reduce the holders of FBI Common Stock holdings of USB Common Stock
received in the Holding Company Merger to less than 50% of the
value of all FBI Common Stock as of the effective date of the
Holding Company Merger. USB has no plan or intention to reacquire
any USB Common Stock issued in the transaction.
Nine of the ten present directors of FBI will be elected to
the Board of Directors of USB effective on the date of consummation
of the Holding Company Merger and thereafter will receive an annual
fee as a director of USB. The fee to be paid such individuals, as
directors, is not allocable to any of the FBI Common Stock. Fred
Huggins will be elected to serve as Chairman and Chief Executive
Officer of Acceptance Loan Company, Inc., which is presently a
wholly-owned subsidiary of First Bank and which will be a wholly
owned subsidiary of USB Bank as a result of the Bank Merger.
Additionally, Mr. Huggins and Ray Sheffield will be elected as Vice
Chairman of the Board of Directors of USB, and Mr. Huggins will be
elected Chairman of the Board of Directors of USB Bank. Any
consideration to be paid by USB Bank or USB to such individuals for
their employment services is not allocable to any of their FBI
Common Stock. Finally, no shareholder-employee of FBI will receive
any consideration for the FBI Common Stock owned by such
shareholder-employee in the form of compensation for services
rendered or to be rendered, and all compensation to such
shareholder-employees for services rendered or to be rendered will
be commensurate with amounts paid to third parties bargaining at
arm's length for similar services.
None of USB, its subsidiaries (other than in a fiduciary
capacity), directors and executive officers owned as of December
31, 1996 any FBI Common Stock.
USB and FBI will each bear and pay costs and expenses incurred
by it, or on its behalf, in connection with the Merger, including
filing, registration and application fees, printing and mailing
fees and expenses and fees and expenses of their respective
accountants and counsel. Any costs and expenses incurred by a
holder of FBI Common Stock will be for his own account and will not
be paid by USB or FBI.
None of USB, USB Bank, FBI, or First Bank are under the
jurisdiction of a court in a Title 11 or similar case.
As of December 31, 1996, the total assets of FBI, exclusive of
cash, cash items (including receivables) and Government securities,
were $180,243,246. Of this amount, the total value of the assets
held for investment constitutes $32,753,944, of which $31,464,789
consisted of stock and securities. As of the date hereof, there
has been no substantial change in FBI's total assets, that portion
of FBI's total assets held for investment or that portion
represented by stock and securities.
As of December 31, 1996, the total assets of First Bank,
exclusive of cash, cash items (including receivables) and
Government securities, were $180,243,246. Of this amount, the
total value of the assets held for investment constitutes
$32,753,944, of which $31,464,789 consisted of stock and
securities. As of the date hereof, there has been no substantial
change in First Bank's total assets, that portion of First Bank's
total assets held for investment or that portion represented by
stock and securities.
As of December 31, 1996, the total assets of USB, exclusive of
cash, cash items (including receivables) and Government securities,
were $225,341,581. Of this amount, the total value of the assets
held for investment constitutes $153,851,480, of which $151,873,564
consisted of stock and securities. As of the date hereof, there
has been no substantial change in USB's total assets, that portion
of USB's total assets held for investment or that portion
represented by stock and securities.
As of December 31, 1996, the total assets of USB Bank,
exclusive of cash, cash items (including receivables) and
Government securities, were $225,341,581. Of this amount, the
total value of the assets held for investment constitutes
$153,805,901, of which $151,827,985 consisted of stock and
securities. As of the date hereof, there has been no substantial
change in USB Bank's total assets, that portion of USB Bank's total
assets held for investment or that portion represented by stock and
securities.
LEGAL ANALYSIS
Section 354(a)(1) of the Internal Revenue Code of 1986 (the
"Code")(2) provides that gain or loss will not be recognized to a
transferor stockholder if stock or securities in a corporation that
is a "party to a reorganization" are, pursuant to a "plan of
reorganization," exchanged solely for stock or securities in
another corporation that is also a "party to the reorganization."
The exchange to which Section 354(a)(1) applies must be pursuant
to a "plan of reorganization" and the stock and securities
surrendered and received must be the stock and securities of
corporations each of which is a "party to a reorganization" as
those terms are defined in Section 368. Treas. Reg. Section
1.354-1(a). Section 354(a)(2)(A) provides that the
non-recognition rule of Section 354(a)(1) will not apply if either
(i) the principal amount of the securities received by the
transferor exceeds the principal amount of the securities
surrendered by the transferor, or (ii) securities are received by
the transferor but no securities are surrendered by the transferor.
_______________________
(2) Statutory references are to the Code.
Section 356(a)(1) provides that if the non-recognition rule
of Section 354(a)(1) would apply to an exchange except that money
or "other property" is received by the transferor in addition to
stock or securities in a corporation that is a "party to a
reorganization," then gain will be recognized by the transferor to
the extent of the money and fair market value of the "other
property" received. If such an exchange has the effect of the
distribution of a dividend, then each transferor that receives
money or "other property" will have the gain to be recognized
treated as a dividend to the extent of such transferor's ratable
share of the earnings and profits of the corporation in which the
transferor held stock. Code, Section 356(a)(2). Whether a
distribution has the effect of a dividend will be determined based
upon principles developed under Sections 356(a)(2) and 302 for
determining dividend equivalency. Rev. Rul. 74-515, 1974-2 C.B.
118. In applying those principles in the context of Section 356,
one compares the interest the shareholder actually received in the
acquiring corporation in the reorganization with the interest the
shareholder would have received in the acquiring corporation if
solely stock had been received. Commissioner v. Clark, 489 U.S.
726 (1989); Rev. Rul. 93-61, 1993-2 C.B. 118.
The phrase "other property" does not include "securities" if
such securities would be permitted to be received without the
recognition of gain under the provisions of Section 354. Code,
Section 356(d)(2)(A). Further, if securities of a corporation
that is "a party to a reorganization" are surrendered and
securities of a corporation that is "a party to a reorganization"
are received which exceed the principal amount of the securities
surrendered, the term "other property" includes only the fair
market value of the excess principal amount. Code, Section
356(d)(2)(B).
In a "reorganization" where cash is paid by the acquiring
corporation that is not separately bargained for but is in lieu of
fractional share interests to which shareholders are entitled, such
cash payment will be treated under Section 302(a) as a redemption
of the fractional share interest which will be treated as a
distribution in exchange, provided that the redemption is not
essentially equivalent to a dividend. Rev. Rul. 66-365, 1966
2 C.B. 116. The Internal Revenue Service (the "Service") will
normally rule that a cash distribution in lieu of fractional share
interests arising in a "reorganization" will be in part or full
payment in exchange for the stock redeemed if the cash distribution
is undertaken solely for the purpose of saving the corporation the
expense and inconvenience of issuing and transferring fractional
shares and is not separately bargained-for consideration. Rev.
Proc. 77-41, 1977-2 C.B. 574.
The term "reorganization" is defined in Section 368(a) and
includes under Section 368(a)(1)(A) a statutory merger or what is
commonly referred to as an "A reorganization." See also, Treas.
Reg. Section 1.368-2(b)(1).
In the present matter, FBI will merge into USB in a statutory
merger under the laws of the State of Alabama. Holders of FBI
Common Stock will exchange their shares for USB Common Stock. Only
in the instance where a fractional share is computed will the
holder of a FBI Common Stock receive cash in lieu of a fractional
share of USB Common Stock. The distribution of cash, as opposed to
distribution of a fractional share of USB Common Stock, is solely
for the purpose of saving USB the expense and inconvenience of
issuing and transferring fractional USB Common Stock and is not
separately bargained-for consideration.
In the case of the Bank Merger, Section 368(a)(2)(D) of the
Code provides that the acquisition by one corporation of
"substantially all" of the properties of another corporation in
exchange for stock of a corporation which is in "control" of the
acquiring corporation, shall not disqualify a transaction under
Section 368(a)(1)(A) if (i) no stock of the acquiring corporation
is used in the transaction and (ii) the transaction would have
otherwise qualified as an A reorganization had the merger been into
the controlling corporation. For purposes of Section
368(a)(2)(D), Section 368(c) provides that a corporation is in
"control" of the acquiring corporation if it holds stock of the
acquiring corporation possessing at least 80% of the total combined
voting power of all classes of stock entitled to vote and at least
80% of the total number of shares of all other classes of stock of
the acquiring corporation. For advance ruling purposes, the
Service has stated in Rev. Proc. 77-37, 1977-2 C.B. 568 that the
"substantially all" requirement will be satisfied if there is a
transfer of assets representing 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 the transferor corporation immediately
prior to the transfer. Payments to dissenters, redemption
payments, distributions other than regular dividends and payment of
expenses are taken into account in applying the "substantially all"
test.
As in the case of the Holding Company Merger, the Bank Merger
will occur as a statutory merger under the laws of the State of
Alabama. USB Bank is a wholly-owned subsidiary of USB so that USB
is in "control" of USB Bank. At least 90% of the fair market value
of the net asset and at least 70% of the fair market value of the
gross assets of First Bank will be transferred to USB Bank.
Accordingly the use of USB Stock as consideration for USB Bank's
acquisition of First Bank will qualify the Bank Merger as an A
reorganization, assuming that other requirements discussed
hereafter are satisfied.
However, in fact, no USB Common Stock will be issued in
connection with the Bank Merger. Instead, to avoid the expense and
inconvenience of issuing USB Common Stock to itself, USB instead
will designate USB Common Stock as the consideration being
constructively exchanged for the First Bank common stock.
It has been consistently held that the physical issuance of
share is not necessary, if it would be a meaningless gesture.
Davant v. Commissioner, 366 F. 2d 874 (5th Cir. 1966) cert. den.,
386 U.S. 1022 (1967); Commissioner v. Morgan, 288 F. 2d 676 (3rd
Cir. 1966); Liddon v. Commission, 260 F. 2d 304 (6th Cir. 1956),
cert. den., 352 U.S. 824 (1956). Accordingly, the fact that USB
Common Stock is not actually issued in connection with the Bank
Merger should not have any adverse effect on the Bank Merger
qualifying as an A reorganization.
In the case of an exchange to which Section 354 applies, the
basis of the stock or securities received by the transferor,
without the recognition of gain or loss, shall be the same as that
of the stock or securities exchanged, decreased by (i) the fair
market value of any "other property" and money received by the
transferor and (ii) the amount of loss recognized by the taxpayer
on the exchange, and increased by (x) the amount treated as a
dividend and (y) the amount of gain recognized on the exchange,
exclusive of the portion treated as a dividend. Code, Section
358(a)(1).
The holding period of stock of a corporation "a party to a
reorganization" received by a transferor includes the period of
time that the transferor held the stock of the other corporation "a
party to the reorganization" if such stock constitutes a capital
asset in the hands of the transferor. Code, Section 1223(1).
Additionally, for this rule to apply the stock received must have
the same basis, in whole or in part, as the stock exchanged.
Generally, a capital asset will include all property held by a
taxpayer exclusive of (i) stock in trade of a taxpayer or (ii)
other property of a kind which would be properly includible in
inventory. Code, Section 1221(1).
In the present matter, a holder of FBI Common Stock will have
a basis in the USB Common Stock received equal to such holder's
basis in the FBI Common Stock surrendered, decreased by the amount
of any cash received in lieu of a fractional share of USB Common
Stock and increased by the amount of gain recognized as a result of
receiving cash in lieu of a fractional share. Such holder of FBI
Common Stock will include in the holding period of USB Common Stock
the holding period of such holder of FBI Common Stock unless the
FBI Common Stock was not considered as a capital asset in the hands
of such holder.
With respect to the tax treatment of a corporation that is "a
party to a reorganization" which issues stock to a transferor of
stock or securities in another corporation that is a "party to a
reorganization," the basis of the property acquired shall be the
same as the basis in the property surrendered increased by the
amount of gain recognized by the transferor on such transfer.
Code, Section 362(b).
The term "party to a reorganization" is defined in Sections
368(a) and 368(b). The term "plan of reorganization" is defined in
the regulations promulgated under the authority of Section 368.
Two additional requirements for a "reorganization" are a
"continuity of business enterprise" and a "continuity of interest"
therein on the part of those persons who, directly or indirectly,
were the owners of the enterprise prior to the reorganization.
Treas. Reg. Section 1.368-1(b).
The "continuity of business enterprise" requirement is
satisfied if the acquiring corporation either (i) continues the
acquired corporation's historic business, or (ii) uses a
significant portion of the acquired corporation's historic business
assets in a business. Treas. Reg. Section 1.368-1(d)(2). With
respect to continuing the historic business of the acquired
corporation, the fact that the acquiring corporation is in the same
line of business as the acquired corporation tends to establish the
requisite business continuity. The acquired corporation's historic
business is generally the business it has most recently conducted.
If the acquired corporation has more than one line of business,
continuity of business enterprise requires that only a significant
line of business be conducted. Treas. Reg. Section 1.368-1(d)(3).
With respect to the alternative of historic business assets
continuity, it generally will be satisfied if the acquiring
corporation utilizes a significant portion of the acquired
corporation's historic business assets in a business. An acquired
corporation's historic business assets are those assets used in its
historic business. Whether a "significant" portion of the historic
assets are used in a business is based upon the relative importance
of the assets to the operation of the business. Treas. Reg.
Section 1.368-1(d)(4).
The "continuity of interest" requirement is satisfied if there
exists among the holders of the stock and securities of either (i)
the acquired corporation or (ii) acquiring corporation, the
requisite continuity of interest in the acquiring corporation.
Treas. Reg. Section 1.368-1(b). For ruling purposes, the Service
has stated that the continuity of interest requirement will be
satisfied if one or more shareholders of the acquired corporation
acquire stock of the acquiring corporation, or a corporation
controlling the acquiring corporation, that is equal in value to at
least 50% of the value of all the outstanding stock of the acquired
corporation on the date of the reorganization. Rev. Proc. 77-37,
1977-2 C.B. 568.
In the present matter, USB both will continue FBI's historic
business and use a significant portion of FBI's historic business
assets in such business. In the Bank Merger, USB Bank will
continue First Bank's historic business and use a significant
portion of First Bank's historic business assets in such business.
Additionally, former holders of FBI Common Stock will acquire in
the aggregate USB Common Stock equal in value to at least 50% of
the value of all of the outstanding FBI Common Stock on the date of
the reorganization, and there is no known intent to dispose of a
sufficient number of USB Common Stock to reduce the value of the
USB Common Stock received and retained to less than 50% of the
value of the FBI Common Stock immediately before the Merger.
With respect to the Bank Merger, the Service has ruled that
the acquisition by an acquiring corporation of a parent and its 60%
owned subsidiary constituted two reorganizations. Rev. Rul.
68-526, 1968-2 C.B. 156. In Rev. Rul. 76-528, 1976-2 C.B. 103, the
Service clarified the continuity of interest requirement in the
context of Rev. Rul. 68-526, by holding that ownership by the
former stockholders of the parent in the acquiring corporation
satisfied the continuity of interest requirement as to the 60%
subsidiary that was a party to the reorganization.
In the present matter, the continuing stock ownership of the
FBI stockholders in USB should satisfy the continuity of interest
requirement with respect to the Bank Merger. Alternatively, if the
transaction was viewed as two separate and distinctive
reorganizations, then the Bank Merger should satisfy the continuity
of interest requirement as the merger of two wholly-owned
subsidiaries (USB Bank and First Bank) with USB being the sole
stockholder of each.
Additionally, for a transaction to qualify as a reorganization
by virtue of a statutory merger, there must be a business purpose
for the transaction. Treas. Reg. Sections 1.368-1(b);
1.368-2(b)(2). Whether a transaction has a business purpose is
eventually a factual question with no mathematical safe-harbor
available.
In the present matter, USB should be able by virtue of its
size to realize certain economies of scale and be more competitive
with regional and national providers of financial services.
Additionally, holders of FBI Common Stock will receive in exchange
for such a security registered under the Securities Act of 1933
issued by a company that reports under the Securities Exchange Act
of 1934. Based upon similar facts, the Service has ruled in the
past that a reorganization has occurred.
Assuming that a "reorganization" occurs, a "party to a
reorganization" includes both corporations in a transaction
qualifying as a reorganization when one corporation acquires
properties of another corporation and, in the case of a corporation
controlling the acquiring corporation, such corporation where its
stock is used in the acquisition. Treas. Reg. Section 1.368-2(f).
A "plan of reorganization" is a consummated transaction
specifically defined as a reorganization and is not itself a
broadening of the term "reorganization." Treas. Reg. Section
1.368-2(g).
Although not directly applicable to the present matter, the
Service has held that the "solely for voting stock" requirement of
Sections 368(a)(1)(B) and 368(a)(1)(C) will not be violated if the
acquiring corporation pays expenses of the acquired corporation
that are solely and directly related to the reorganization, but
will be violated if the acquiring corporation pays the individual
expenses of the stockholders of the acquired corporation. Rev.
Rul. 73-54, 1973-1 C.B. 187. Even in statutory mergers, for
ruling purposes, the Service required a representation that each
party to the merger and the stockholders of the acquired
corporation will pay their respective expenses, if any, incurred in
connection with the transaction. Rev. Proc. 86-42, 1986-2 C.B.
722. The Service in 1996 stopped ruling on these types of
transactions.
Even though a transaction would otherwise meet all of the
requirements for a "reorganization" as described before, a
transaction will not be considered a "reorganization" if two or
more parties to the transaction are "investment companies," at
least as with respect to such "investment company." Code, Section
368(a)(2)(F)(i). For this purpose, the term "investment company"
means a "regulated investment company," a "real estate investment
trust," or a corporation 50% or more of the value of whose total
assets are stock and securities and 80% or more of the value of
whose total assets are assets held for investment. In making this
calculation, stock and securities in any subsidiary are disregarded
and the parent corporation is deemed to own its ratable share of
the subsidiary assets, considering for this purpose a corporation
as being a subsidiary if another corporation owns 50% or more of
the combined voting power of all classes of stock entitled to vote,
or 50% or more of the total value of shares of all classes of stock
outstanding. Code, Section 368(a)(2)(F)(iii). Additionally, in
determining total assets, there is excluded cash and cash items
(including receivables), government securities and in certain
instances other assets acquired. Code, Section 368(a)(2)(F)(iv).
Assets are held for investment if (i) they are held primarily for
gain from appreciation in value, production of passive income or
both and (ii) are not held primarily for sale to customers. Prop.
Treas. Reg. Section 1.368-4(d)(1). Passive income includes
interest income if such interest constitutes passive income for
purposes of S corporation taxation. Prop. Treas. Reg. Section
1.368-4(d)(2). Interest income directly derived in the ordinary
course of a trade or business of lending or financing does not
constitute passive income. Treas. Reg. Section
1.1362-2(c)(5)(iii)(B). Among the requirements to constitute a
"regulated investment company," is that the company files with its
return for the taxable year an election to be a "regulated
investment company" or has made such election for a previous
taxable year. Code, Section 851(d)(1). A similar requirement is
provided to constitute a "real estate investment trust." Code,
Section 856(c)(1).
In the present matter, none of USB, USB Bank, FBI or First
Bank has made an election to be taxed as a regulated investment
company or a real estate investment trust. Accordingly, such
entities can constitute an "investment company" only if 50% or more
of the value of their respective assets are stocks and securities
and 80% or more of the value of the total assets are held for
investment. In making their calculations, cash, cash items
(including receivables) and Government securities are excluded and
stock and securities in a 50%-owned subsidiary are disregarded with
the parent being deemed to own its ratable share of such
subsidiaries' assets. Otherwise, a "security" includes obligations
of state and local governments, commodity futures contracts, shares
of regulated investment companies, real estate investment trusts
and other investments constituting a security within the meaning of
the Investment Company Act of 1940. In the present matter, none of
USB, USB Bank, FBI or First Bank meet the definition of an
"investment company."
With respect to FBI Shareholders who elect to exercise their
right to dissent to the Holding Company Merger, cash received with
respect to a dissenter's FBI Common Stock will be treated as
received by the FBI Shareholder in redemption of their FBI Common
Stock, subject to the provisions and limitations of Section 302 of
the Code.
OPINION
Based upon the facts set forth herein and assuming that the
Holding Company Merger will take place as described in the
Agreement and that the representations made by USB and FBI are true
and correct at the time of consummation of the Holding Company
Merger, it is our opinion that:
(i) the Holding Company Merger will constitute a
reorganization within the meaning of Section 368
of the Code;
(ii) no gain or loss will be recognized by a holder of
FBI Common Stock upon conversion in the Holding
Company Merger of FBI Common Stock into USB Common
Stock;
(iii) the basis of USB Common Stock to be received in the
Holding Company Merger by a holder of FBI Common
Stock will be the same as such holder's basis in
the FBI Common Stock exchanged therefor;
(iv) the holding period of USB Common Stock to be
received in the Holding Company Merger by a holder
of FBI Common Stock will include the period during
which such holder held the FBI Common Stock
exchanged therefor, provided that such FBI Common
Stock was held as a capital asset immediately prior
to the consummation of the Holding Company Merger;
(v) the receipt of cash in exchange for a fractional
share interest in a share of USB Common Stock will
be treated as received in exchange for such
fractional share interest;
(vi) USB and FBI will each be a "party to a
reorganization" within the meaning of Section
368(b) of the Code;
(vii) no gain or loss will be recognized by USB or FBI in
connection with the reorganization; and
(viii) the receipt of cash by a FBI Shareholder who
exercises his or her rights to dissent, will be
treated as received in exchange for such FBI Common
Stock.
Based upon the facts set forth herein and assuming that the
Bank Merger will take place as described in the Agreement and that
the representations made by USB and FBI are true and correct at the
time of consummation of the Bank Merger, it is our opinion that:
(i) the Bank Merger will constitute a reorganization
within the meaning of Section 368 of the Code;
(ii) no gain or loss will be recognized by First Bank
upon transfer of substantially all of its assets to
USB Bank in constructive exchange for USB Common
Stock and the assumption of First Bank's
liabilities by USB Bank;
(iii) no gain or loss will be recognized by either USB or
USB Bank upon the acquisition by USB Bank of
substantially all of the assets of First Bank in
constructive exchange for USB Common Stock and the
assumption by USB Bank of First Bank's liabilities;
(iv) the basis of the assets of First Bank to be
received in the Bank Merger by USB Bank will be the
same as the basis of such assets in the hands of
First Bank;
(v) the holding period of the assets of First Bank to
be received in the Bank Merger by USB Bank will
include the period for which such assets were held
by First Bank;
(vi) USB Bank and First Bank will each be a "party to a
reorganization" within the meaning of Section
368(b) of the Code;
The opinions expressed herein are based upon existing
statutory, regulatory, and judicial authority, any of which may be
changed at any time with retroactive effect. In addition, our
opinions are based solely on the documents that we have examined,
the additional information that we have obtained, and the
statements set out therein, which we have assumed and you have
confirmed to be true on the date hereof and will be true on the
date on which the proposed transaction is consummated. Our
opinions cannot be relied upon if any of the facts contained in
such documents or if such additional information is, or later
becomes, inaccurate, or if any of the statements set out herein is,
or later becomes, inaccurate. Finally, our opinions are limited to
the tax matters specifically covered thereby, and we have not been
asked to address, nor have we addressed, any other tax consequences
of the proposed transaction.
We consent to the use of this opinion as an exhibit to the
Registration Statement (Registration No. 333-21241) filed by USB
relating to the proposed Merger and to the reference to us under
the headings "RISK FACTORS - Tax Considerations," "THE MERGER -
Federal Income Tax Consequences" and "LEGAL MATTERS" in the Joint
Proxy Statement and Prospectus included in the Registration
Statement. This opinion is being provided solely for the use of
FBI. No other person or party shall be entitled to rely on this
opinion.
Very truly yours,
WALSTON, WELLS, ANDERSON
& BAINS, LLP
EXHIBIT A
STATEMENT OF FACTS AND REPRESENTATIONS
This Statement of Facts and Representations is made on behalf
of First Bancshares, Inc. to Walston, Wells, Anderson & Bains, LLP,
and is intended to be relied upon in the issuance of an opinion as
to certain federal tax consequences arising from consummation of
the transactions described in the Agreement and Plan of Merger
dated August 19, 1996, as amended on March 18, 1997, by and between
First Bancshares, Inc. and United Security Bancshares, Inc.
Capitalized terms shall have the meaning assigned to them in the
opinion of Walston, Wells, Anderson & Bains, LLP dated April 2,
1997, to First Bancshares, Inc.
1. Both the fair market value and adjusted basis of assets
of FBI to be transferred to USB will equal to or exceed the sum of
liabilities to be assumed by USB, plus the amount of liabilities,
if any, to which the transferred assets are subject.
2. The ratio for the exchange of shares of FBI Common
Stock for USB Common Stock was negotiated through arm's-length
bargaining. The fair market value of the USB Common Stock and cash
consideration, in the case of fractional shares, will be
approximately equal to the fair market value of the FBI Common
Stock surrendered in exchange therefor.
3. The liabilities of FBI to be assumed by USB and the
liabilities to which transferred assets of FBI are subject were
incurred by FBI in the ordinary course of its business.
4. To the best knowledge of management of FBI, there is no
plan or intention by any holder of 1% or more of the outstanding
shares of FBI Common Stock to (i) sell, exchange, or otherwise
dispose of any of the USB Common Stock received in the transaction,
(ii) reduce the risk associated with the ownership of USB Common
Stock by entering into a transaction such as a short sale of USB
Common Stock (including transactions commonly referred to as a
"short-against-the-box"), the granting of "deep-in-the-money" call
options, or other arrangement, or (iii) enter into, or consent to,
any contract or other arrangement with respect to the sale,
exchange or other disposition of USB Common Stock to be received
(collectively a "Disposition Transaction"). To the best knowledge
of management of FBI, there is no plan or intention on the part of
the remaining holders of FBI Common Stock to engage in a
Disposition Transaction of a number of shares of USB Common Stock
received in the Holding Company Merger that would reduce the
holders of FBI Common Stock holdings of USB Common Stock received
in the Holding Company Merger to less than 50% of the value of all
FBI Common Stock as of the effective date of the Holding Company
Merger.
5. FBI does not have any indebtedness of USB or any
subsidiary of USB that was issued, acquired or will be settled at
a discount, or that was issued or acquired in connection with this
transaction.
6. Any cost or expense incurred by a holder of FBI Common
Stock will be for his own account and will not be paid by FBI.
7. The payment of cash in lieu of fractional shares of USB
Common Stock is solely for the purpose of avoiding the expense and
inconvenience to USB of issuing fractional shares and does not
represent separately bargained for consideration. The total cash
consideration that will be paid in the transaction to the holders
of FBI Common Stock instead of issuing fractional shares of USB
Common Stock will not exceed one percent (1%) of the total
consideration that will be issued in the transaction to the holders
of FBI in exchange for their shares of FBI Common Stock. The
fractional share interests of each FBI Common Stock will be
aggregated, and no holder of FBI Common Stock will receive cash in
an amount greater than the book value of one full share of USB
Common Stock determined as of the month-end immediately preceding
the effective date of the Merger.
8. The fee to be paid to those individuals who are members
of the Board of Directors of FBI who become directors of USB, is
not allocable to any of the FBI Common Stock. Any consideration to
be paid by USB to Fred Huggins and Ray Sheffield pursuant to
employment arrangements is not allocable to any of the FBI Common
Stock. No shareholder-employee of FBI will receive any
consideration for the FBI Common Stock owned by such
shareholder-employee in the form of compensation for services
rendered or to be rendered and all compensation to such
shareholder-employee for services rendered or to be rendered will
be commensurate with amounts paid to third parties bargaining at
arm's-length for similar service.
9. Neither FBI nor First Bank is under the jurisdiction of
a court in a Title 11 or similar case.
10. As of December 31, 1996, the total assets of FBI,
exclusive of cash, cash items (including receivables) and
Government securities was $180,243,246. Of this amount, the total
value of the assets held for investments constitutes $32,753,944,
of which $31,464,789 consists of stock and securities.
11. As of the date hereof, there has been no substantial
change from December 31, 1996 in FBI's total assets or that portion
of FBI's total assets represented by investment securities.
12. Except as will be effected by the Merger, there has
been no change in the issued and outstanding FBI Common Stock since
December 31, 1996.
13. As of December 31, 1996, the total assets of First
Bank, exclusive of cash, cash items (including receivables) and
Government securities were $180,243,246. Of this amount, the total
value of the assets held for investment constitutes $32,753,944, of
which $31,464,789 consisted of stock and securities. As of the
date hereof, there has been no substantial change in First Bank's
total assets, that portion of First Bank's total assets held for
investment, or that portion represented by stock and securities.
14. The liabilities of First Bank to be assumed by USB
Bank and the liabilities to which transferred assets of First Bank
are subject were incurred by First Bank in the ordinary course of
its business. First Bank does not have any indebtedness of USB,
USB Bank, or any subsidiary of USB Bank that was issued, acquired
or will be settled at a discount, or that was issued or acquired in
connection with this transaction.
15. Neither of FBI or First Bank has elected to be taxed
as a regulated investment company or a real estate investment
trust.
FIRST BANCSHARES, INC.
By: Robert Steen
Robert Steen
Its: Treasurer
EXHIBIT B
STATEMENT OF FACTS AND REPRESENTATIONS
This Statement of Facts and Representations is made on behalf
of United Security Bancshares, Inc., to Walston, Wells, Anderson &
Bains, LLP, and is intended to be relied upon in the issuance of an
opinion as to certain federal tax consequences arising from
consummation of the transactions described in the Agreement and
Plan of Merger dated August 19, 1996, as amended on March 18, 1997,
by and between First Bancshares, Inc. and United Security
Bancshares, Inc. Capitalized terms shall have the meaning assigned
to them in the opinion of Walston, Wells, Anderson & Bains, LLP
dated April 2, 1997, to First Bancshares, Inc.
1. The ratio for the exchange of shares of FBI Common
Stock for USB Common Stock was negotiated through arm's-length
bargaining. The fair market value of the USB Common Stock and cash
consideration in the case of fractional shares will be
approximately equal to the fair market value of the FBI Common
Stock surrendered in exchange therefor.
2. Each share of USB common stock (excluding shares held
by stockholders who perfect their dissenter's right of appraisal as
provided in the Agreement) issued and outstanding immediately prior
to the effective time of the Merger shall remain issued and
outstanding from and after the effective time.
3. USB does not have any indebtedness of FBI or any
subsidiary of FBI that was issued, acquired or will be settled at
a discount, or that was issued or acquired in connection with this
transaction.
4. USB has no plan or intention to sell or otherwise
dispose of any of the assets of FBI acquired in the transaction,
except for dispositions made, or to be made, in the ordinary course
of business or for transfers to another corporation controlled by
USB. Following the Merger, USB will continue the historic business
of FBI and use a significant portion of FBI's assets in such
business, including the operation of the banking business of FBI
conducted through First Bank.
5. USB has no plan or intention to reacquire any USB
Common Stock issued in this transaction.
6. None of USB, its subsidiaries (other than in a
fiduciary capacity), directors and executive officers owned on
December 31, 1996 any FBI Share.
7. The payment of cash in lieu of fractional shares of USB
Common Stock is solely for the purpose of avoiding the expense and
inconvenience to USB of issuing fractional shares and does not
represent separately bargained for consideration. The total cash
consideration that will be paid in the transaction to the holders
of FBI Common Stock instead of issuing fractional shares of USB
Common Stock will not exceed one percent (1%) of the total
consideration that will be issued in the transaction to the holders
of FBI in exchange for their shares of FBI Common Stock. The
fractional share interests of each FBI Common Stock will be
aggregated, and no holder of FBI Common Stock will receive cash in
an amount greater than the book value of one full share of USB
Common Stock determined as of the month-end immediately preceding
the effective date of the Merger.
8. As of December 31, 1996, the total assets of USB,
exclusive of cash, cash items (including receivables) and
Government securities were $225,341,581. Of this amount, the total
value of the assets held for investment constitutes $153,851,480,
of which $151,873,564 consists of stock and securities. As of the
date hereof, there has been no substantial change in USB's total
assets, the portion of USB's total assets held for investment, or
that portion represented by stock and securities.
9. Neither USB nor USB Bank is under the jurisdiction of
a court in a Title 11 or similar case.
10. In structuring the Bank Merger, USB will designate USB
Common Stock as the consideration being constructively exchanged
for First Bank common stock. To avoid the expense and
inconvenience of issuing USB Common Stock in the Bank Merger, the
shares of First Bank common stock constructively obtained by USB in
the Holding Company Merger will be cancelled in the Bank Merger.
The fair market value of the USB Common Stock to be constructively
exchanged in the Bank Merger will be approximately equal to the
fair market value of First Bank common stock to be exchanged
therefore. USB has no plan or intention to re-acquire any of the
USB Common Stock to be constructively issued and exchanged in the
Bank Merger. Prior to the Bank Merger, USB will own stock
possessing at least 80% of the total combined voting power of all
classes of stock of USB Bank entitled to vote and at least 80% of
the total number of shares of all other classes of stock of USB
Bank. Following the Bank Merger USB Bank will not issue any
additional shares of its stock that would result in USB owning less
than 80% of the total combined voting power of all classes of stock
of USB Bank entitled to vote and less than 80% of the total number
of shares of all other classes of stock of USB Bank.
11. USB has no plan or intention to liquidate USB Bank, to
merge USB Bank into another corporation, or to cause USB Bank to
sell or otherwise dispose of any of the assets of First Bank
acquired in the Bank Merger, except for dispositions made in the
ordinary course of business.
12. USB Bank has no plan or intention to sell or otherwise
dispose of any of the assets of First Bank acquired in the
transaction, except for dispositions made, or to be made, in the
ordinary course of business. Following the Bank Merger USB Bank
will continue the historic business of First Bank and use a
significant portion of First Bank's assets in such business.
13. USB Bank, as the successor corporation to First Bank,
will acquire all of the assets (net and gross) of First Bank and
assume all of First Bank's liabilities. Both the fair market value
and adjusted basis of the assets of First Bank to be transferred to
USB Bank will equal or exceed the sum of liabilities to be assumed
by USB Bank, plus the amount of liabilities, if any, to which the
transferred assets are subject. USB Bank does not have any
indebtedness of FBI, First Bank, or any subsidiary of First Bank
that was issued, acquired or will be settled at a discount, or that
was issued or acquired in connection with this transaction.
14. As of December 31, 1996, the total assets of USB Bank,
exclusive of cash, cash items (including receivables) and
Government securities were $225,341,581. Of this amount, the total
value of the assets held for investment constitute $153,805,901, of
which $151,827,985 consisted of stock and securities. As of the
date hereof, there has been no substantial change in USB Bank's
total assets, the portion of USB Bank's total assets held for
investment, or that portion represented by stock and securities.
15. Neither of USB or USB Bank has elected to be taxed as
a regulated investment company or a real estate investment trust.
UNITED SECURITY BANCSHARES. INC.
By: Larry M. Sellers
Larry M. Sellers
Its: Secretary/Treasurer
EXHIBIT 10.1
Exhibit 10.1
EMPLOYMENT AGREEMENT
THIS AGREEMENT made by and between UNITED SECURITY BANCSHARES,
INC., a corporation organized under the laws of Alabama
(hereinafter referred to as "USB"); UNITED SECURITY BANK, a banking
corporation organized under the laws of Alabama (hereinafter
referred to as "USB Bank") (USB and USB Bank are hereinafter
collectively referred to as the "Employer"); and JACK M.
WAINWRIGHT, III (hereinafter referred to as "Wainwright"),
W I T N E S S E T H, T H A T :
WHEREAS, USB and USB Bank have entered into that certain
Agreement and Plan of Merger by and between First Bancshares, Inc.,
First Bank and Trust, USB and USB Bank, dated as of August19, 1996
(the "Merger Agreement");
WHEREAS, a condition precedent to the obligations set forth in
the Merger Agreement is that Wainwright and USB shall have entered
into an employment agreement whereby Wainwright agrees, among other
things, to serve as the chief executive officer of USB (the
Surviving Corporation resulting from the merger) for a period of
not less than three years from the Effective Time, as that term is
defined in the Merger Agreement;
WHEREAS, USB owns all of the issued and outstanding shares of
common capital stock of USB Bank;
WHEREAS, the principal place of business of USB and USB Bank
is in Thomasville, Alabama; and
WHEREAS, USB desires to employ Wainwright as the president and
chief executive officer of USB; USB Bank desires to employ
Wainwright as the president and chief executive officer of USB
Bank; and Wainwright desires to become employed as such;
NOW, THEREFORE, in consideration of the promises and the
mutual agreements hereinafter contained, and for other good and
valuable consideration, the receipt and sufficiency of which are
hereby acknowledged, the parties hereby agree as follows:
16. Employment. Employer will employ Wainwright in the
capacity of president and chief executive officer of USB and
of USB Bank and Wainwright will serve USB and USB Bank in that
capacity for a term of three (3) years, commencing at the
Effective Time, as that term is defined in the Merger
Agreement.
2. Duties. As president and chief executive officer of USB and
of USB Bank, Wainwright will be the principal executive officer of
USB and of USB Bank, and as such he will be responsible for the
implementation of the policies promulgated by the boards of
directors of USB and USB Bank and for the oversight and direction
of all phases of the operations of USB and USB Bank.
3. Time and Efforts. Wainwright shall devote his full time and
best efforts to the discharge of his duties as president and chief
executive officer of USB and USB Bank. However, it is recognized
that in so discharging his duties Wainwright may be called upon to
serve in various civic capacities and on the boards of directors of
various private and eleemosynary organizations.
4. Compensation. As compensation for services to be rendered
to USB and to USB Bank hereunder, Employer will pay or provide to
Wainwright the following:
(a) A base salary of $200,000 with appropriate review
annually based on individual performance and on the
performance of USB and USB Bank, as determined by the boards
of directors of USB and USB Bank. Salary will be payable in
equal monthly or other installments in accordance with the
general payroll practice of USB Bank.
(b) Incentive compensation calculated in accordance with
(i) the plan adopted by the board of directors of USB Bank at
the meeting held on April19, 1994 and all subsequent
modifications, regardless of whether said plan may be
terminated hereafter with respect to all other employees of
USB Bank (the "1994 Plan") and (ii) any other plans
subsequently adopted by USB Bank or USB. For purposes of
Wainwright's participation in the 1994 Plan, he will be
treated as though he had been employed by USB Bank on the
first day of its current fiscal year and as though he shall
have remained employed through the end of USB Bank's fiscal
year following that in which his termination occurred.
(c) Continuation of the "whole-life" insurance policy
issued by New England Mutual Life Insurance Company (policy
number 8591896) on Wainwright's life in the face amount of One
Hundred Thousand and no/100 Dollars ($100,000.00), of which
Wainwright is the owner. All of the premiums on such policy
shall be paid by the Employer during Wainwright's employment
hereunder.
(d) The use of a Chrysler LHS automobile, or its
equivalent, plus an amount equal to the costs of maintenance,
repairs, insurance, and all other costs incident thereto.
(e) An amount equal to the dues incurred by Wainwright for
membership in all local private or civic clubs of which he
shall become a member.
5. Severance Compensation. Upon (a) the termination of
Wainwright's employment hereunder for any reason other than (1) his
death or disability, (2) his resignation, (3) his conviction of a
crime involving moral turpitude, or (4) the termination of this
agreement three years from the Effective Time of the Merger
Agreement, or upon (b)the reduction in the level or a change in
nature of Wainwright's responsibilities as president and chief
executive officer of USB or as president and chief executive
officer of USB Bank, Wainwright will be entitled to the following:
(i) the Employer shall pay to Wainwright an amount equal
to his annualized base salary then in effect at that time,
except in the case of a change in ownership of USB or USB Bank
occurring after the Effective Time (as that term is defined in
the Merger Agreement), in which case the amount will be equal
to three (3) times his annualized base salary in effect at
that time, and
(ii) for a period of three (3) years from the date of
such termination or reduction, the Employer shall at its
expense continue on behalf of Wainwright the medical coverages
and benefits provided to Wainwright at any time during the
90-day period prior to the termination or reduction. The
coverages and benefits provided in this Section 5(ii) shall
be no less favorable to Wainwright than the most favorable of
such coverages and benefits provided to Wainwright by Employer
during the 90-day period referred to above. Employer's
obligation hereunder with respect to the foregoing coverages
and benefits shall be limited to the extent that Wainwright
obtains any such coverages or benefits pursuant to a
subsequent employer's benefit plans, in which case the
Employer may reduce the coverage of any benefits it is
required to provide Wainwright hereunder as long as the
aggregate coverages and benefits of the combined benefit plans
is no less favorable to Wainwright than the coverages and
benefits required to be provided under this Section 5(ii).
6. Disability. In the event of any illness or accident
rendering Wainwright totally disabled, Employer's obligations
hereunder shall terminate twenty-six (26) weeks after the
determination of such total disability. For purposes of this
paragraph, "total disability" shall mean Wainwright's inability to
perform his duties. In the case of any disagreement between the
parties with respect to Wainwright's alleged total disability,
Wainwright shall be examined by a board of three (3) doctors, one
(1)of whom is appointed by him, one (1) of whom is appointed by
Employer, and one (1) of whom is appointed by the two (2) doctors
previously so appointed. The determination of such board of
physicians shall be final, binding, and conclusive on the parties
hereto.
7. Notices. All notices required or permitted to be given
hereunder shall be deemed duly given if in writing and delivered in
person or deposited with the U.S. Postal Service, in a postage paid
envelope marked certified mail, return receipt requested, to the
parties at the following addresses or to such other addresses as
either may designate in writing to the other:
If to USB: United Security Bancshares, Inc.
P. O. Box 249
Thomasville, AL 36784
If to USB Bank: United Security Bank
131 Front Street
Thomasville, AL 36784
If to Wainwright: Jack M. Wainwright, III
P. O. Box 377
Fulton, AL 36446
8. Attorney's Fees. If Employer shall fail to make any payment
due Wainwright hereunder, then Employer will pay Wainwright's cost
of collection, including his reasonable attorney's fees, if the
services of an attorney are utilized, whether or not suit be filed.
9. Entire Agreement. This agreement constitutes the entire
understanding and agreement between Employer and Wainwright with
regard to all matters addressed herein. There are no other
agreements, conditions, or representations, oral or written,
express or implied, with regard thereto. This agreement may be
amended only by a written instrument executed by the parties
hereto.
10. Bank Employment Agreement. Upon the effectiveness of this
Agreement, the Employment Agreement between Wainwright and USB
executed on November1, 1994, whereby Wainwright was employed as the
President and Chief Executive Officer of United Security Bank (the
"Bank Employment Agreement") shall automatically terminate without
further action on the part of any party thereto. To the extent
Wainwright has any claim to compensation from USB or USB Bank
pursuant to Section 5 of the Bank Employment Agreement or
otherwise as a result of said termination of the Bank Employment
Agreement, Wainwright hereby expressly waives such claims and
releases USB and USB Bank from any and all liability in connection
therewith.
11. Governing Law. This agreement shall be construed and
enforced in accordance with the laws of the State of Alabama.
12. Binding Effect. This agreement shall inure to the benefit
of and be binding upon USB and USB Bank, their successors and
assigns, including, without limitation, any person, partnership, or
corporation which may acquire substantially all of USB's and/or USB
Bank's assets or business or with or into which USB and/or USB Bank
may be liquidated, consolidated, merged, or otherwise combined, and
shall inure to the benefit of and be binding upon Wainwright, his
heirs, distributees, and personal representatives.
13. Waiver. The failure of any party to insist in any one or
more instances upon performance of any terms or conditions of this
agreement shall not be construed a waiver of future performance of
any such term, covenant, or condition, but the obligations of
either party with respect thereto shall continue in full force and
effect.
IN WITNESS WHEREOF, United Security Bancshares, Inc. and
United Security Bank have caused their corporate signatures and
seals to be hereunto affixed by their duly authorized officers and
JackM. Wainwright has executed this agreement on this the 18th day
of March, 1997.
UNITED SECURITY BANCSHARES, INC.
ATTEST:
BY: /s/ W. D. Morgan BY: /s/ Larry M. Sellers
ITS: Assistant Secretary ITS: Secretary
[CORPORATE SEAL]
UNITED SECURITY BANK
ATTEST:
BY: /s/ Beverly Dozier BY: /s/ Larry M. Sellers
ITS: Administrative Officer ITS: Senior Executive
Vice-President
[CORPORATE SEAL]
/s/ Jack M. Wainwright, III
Jack M. Wainwright, III
EXHIBIT 23.1
Exhibit 23.1
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the incorporation by reference in this
registration statement on Form S-4 of our report dated January 17,
1997 on our audit of the consolidated financial statements of
United Security Bancshares, Inc. and it's subsidiary United
Security Bank. We also consent to the reference to our firm under
the caption "Experts."
/s/ Smith, Dukes & Buckalew, L.L.P.
Smith, Dukes & Buckalew, L.L.P.
Mobile, Alabama
April 1, 1997
EXHIBIT 23.2
Exhibit 23.2
Consent of Dudley, Hopton-Jones, Sims & Freeman PLLP
We consent to the use in this Registration Statement of United
Security Bancshares, Inc. on Form S-4 of our report dated January
26, 1996 relating to the financial statements of First Bancshares,
Inc. and subsidiaries and to the reference to us under the heading
"Experts" in the Joint Proxy Statement and Prospectus.
/s/ Dudley, Hopton-Jones, Sims & Freeman PLLP
Dudley, Hopton-Jones, Sims & Freeman PLLP
Birmingham, Alabama
April 1, 1997
EXHIBIT 23.6
Exhibit 23.6
CONSENT OF FINANCIAL ADVISORS
We consent to the inclusion of our Fairness Opinion issued to First
Bancshares, Inc. in this registration statement on Form S-4. We
also consent to the references to our firm in this registration
statement on Form S-4.
/s/ BAXTER FENTRISS AND COMPANY
BAXTER FENTRISS AND COMPANY
Richmond, Virginia
March 20, 1997
EXHIBIT 23.7
Exhibit 23.7
Consent of Chaffe & Associates, Inc.
We consent to the inclusion in the Joint Proxy
Statement/Prospectus forming a part of this Registration Statement
on Form S-4 of our opinion to the Board of Directors and
Shareholders of United Security Bancshares, Inc. dated March 24,
1997, and to be included as Appendix D to the Joint Proxy
Statement/ Prospectus, and to the references to our firm in the
Joint Proxy Statement/Prospectus. In giving such consent, we do
not thereby admit that we come within the category of persons whose
consent is required under Section 7 of the Securities Act of 1933
or the rules and regulations of the Securities and Exchange
Commission thereunder.
CHAFFE & ASSOCIATES, INC.
By: /s/ G.F. Gay LeBreton
G. F. Gay LeBreton
Vice President
New Orleans, Louisiana
March 24, 1997
EXHIBIT 99.1
Exhibit 99.1
REVOCABLE PROXY
United Security Bancshares, Inc.
131 West Front Street
Thomasville, Alabama 36784
This Proxy is solicited on behalf of the Board of Directors of
United Security Bancshares, Inc. ("USB") for use only at the Annual
Meeting of Stockholders to be held on _________________, 1997, and
at any postponement or adjournment thereof (the "Annual Meeting").
The undersigned, being a Stockholder of USB, hereby appoints
Jack M. Wainwright, III and Larry M. Sellers, and each of them, as
Proxies, each with the power to appoint his substitute, and hereby
authorizes them, or either of them, to represent the undersigned at
the Annual Meeting and to act with respect to all votes that the
undersigned would be entitled to cast, if then personally present,
on the following matters in accordance with the following
instructions on the reverse side hereof:
1. To consider and vote upon a proposal to approve the
Agreement and Plan of Merger, dated as of August19, 1996, as
amended on March 18, 1997 (the "Merger Agreement"), by and between
First Bancshares, Inc. ("FBI") and USB, pursuant to which, among
other matters (a) FBI would be merged with and into USB, (b) FBI's
wholly-owned subsidiary bank, First Bank & Trust, would be merged
with and into USB's wholly-owned subsidiary bank, United Security
Bank, and (c) each share of FBI common stock will be converted into
the right to receive 5.8321 shares of USB common stock. The Merger
Agreement further provides for approval by USB shareholders of an
increase in the number of USB directors from 10 to 19, and election
of nine incumbent directors of FBI to the USB Board of Directors,
effective at the Effective Time of the Merger. A vote to approve
the Merger Agreement will also serve to approve the increase in the
size of USB's Board of Directors and to elect the nine individuals
to serve in the vacancies created by such increase. A copy of the
Merger Agreement is set forth in Appendix A to the accompanying
Joint Proxy Statement and Prospectus and is hereby incorporated by
reference herein.
2. If the proposal to approve the Merger Agreement is
approved by USB shareholders, to approve an amendment to USB's
Restated Articles of Incorporation to provide for a two-thirds
supermajority voting requirement by the Board of Directors to
approve significant corporate events or to add or remove members of
senior management.
3. To approve an amendment to USB's Restated Articles of
Incorporation to increase USB's authorized capital stock from
2,400,000 shares of common stock, par value $.01 per share, to
10,000,000 shares of common stock, par value $.01 per share.
4. To approve an amendment to USB's Restated Articles of
Incorporation to eliminate shareholders' preemptive rights.
5. To approve the United Security Bancshares, Inc. Long
Term Incentive Compensation Plan.
6. To elect 10 directors of USB to serve for the ensuing
year.
7. To transact such other business as may properly come
before the Annual Meeting or any adjournment thereof.
Please mark, date and sign this Proxy below and return
promptly using the enclosed envelope.
THIS PROXY CARD IS CONTINUED ON THE REVERSE SIDE.
PLEASE SIGN ON THE REVERSE SIDE AND RETURN PROMPTLY.
The undersigned acknowledges that the Annual Meeting may be
postponed or adjourned to a date subsequent to the date set forth
above, and intends that this Proxy shall be effective at the Annual
Meeting after such postponement(s) or adjournment(s). This Proxy
is revocable, and the undersigned may revoke it at any time by
delivery of written notice of such revocation to USB, prior to the
date of the Annual Meeting, or by attendance at the Annual Meeting.
This Proxy when properly executed will be voted in the manner
directed by the undersigned. If no direction is made, this Proxy
will be voted FOR each proposal listed below.
ELECTION TO APPROVE ALL PROPOSALS:
FOR AGAINST ABSTAIN from
Approval of All Approval of All Approval of All
Proposals Proposals Proposals
[ ] [ ] [ ]
ELECTION TO APPROVE THE MERGER:
FOR AGAINST ABSTAIN from
Approval of the Approval of the Approval of the
Merger Merger Merger
[ ] [ ] [ ]
ELECTION TO APPROVE AMENDMENT REQUIRING 2/3's SUPERMAJORITY BOARD
APPROVAL OF CERTAIN CORPORATE ACTIONS:
FOR AGAINST ABSTAIN from
Approval of the Approval of the Approval of the
Amendment Amendment Amendment
[ ] [ ] [ ]
ELECTION TO APPROVE AMENDMENT INCREASING AUTHORIZED CAPITAL STOCK:
FOR AGAINST ABSTAIN from
Approval of the Approval of the Approval of the
Amendment Amendment Amendment
[ ] [ ] [ ]
ELECTION TO APPROVE AMENDMENT TO ELIMINATE SHAREHOLDERS' PREEMPTIVE
RIGHTS:
FOR AGAINST ABSTAIN from
Approval of the Approval of the Approval of the
Amendment Amendment Amendment
[ ] [ ] [ ]
ELECTION TO APPROVE LONG TERM INCENTIVE COMPENSATION PLAN:
FOR AGAINST ABSTAIN from
Approval of the Approval of the Approval of the
Amendment Amendment Amendment
[ ] [ ] [ ]
The election of all the nominees listed below to serve as
directors until the next annual meeting of stockholders or until
their successors shall be elected and qualified.
NOMINEES: Gerald P. Corgill, Roy G. Cowan, William G. Harrison,
Hardie B. Kimbrough, James L. Miller, D.C. Nichols, Harold H.
Spinks, James C. Stanley, Howard M. Whitted, Jack M. Wainwright, III
TO VOTE _____ FOR ALL NOMINEES ______ WITHHOLD AUTHORITY TO VOTE
(except for all (for all nominees listed
nominees whose above)
names have been
struck out)
INSTRUCTION: TO WITHHOLD AUTHORITY TO VOTE FOR ANY INDIVIDUAL
NOMINEE, STRIKE A LINE THROUGH THE NOMINEE'S NAME IN THE LIST
ABOVE.
Signature(s):_________________________
Date: ________________________________
NOTE: Please sign exactly as name appears
above. When signing as attorney,
executor, administrator, trustee or
guardian, please give full title as such.
If a corporation, please sign in full
corporation name by president or other
authorized officer. If a partnership,
please sign in partnership name by
authorized person.
