SOUTH ALABAMA BANCORPORATION, INC.
Post Office Box 3067
Mobile, AL 36652
September 27, 1996
Dear Shareholder:
You are cordially invited to attend a special meeting of the shareholders
of South Alabama Bancorporation, Inc., to be held at South Alabama's principal
executive office, 100 St. Joseph Street, Mobile, Alabama, on October 29,
1996, 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 May 31, 1996, as
amended and restated as of August 21, 1996 (the "Merger Agreement"), which
provides for the merger of First Monco Bancshares, Inc. with and into South
Alabama. If the Merger is consummated, outstanding shares of First Monco
Bancshares, Inc. common stock will be converted into the right to receive the
number of shares of the common stock, par value $.01, of South Alabama having
a market value, calculated as provided in the Merger Agreement, of $1,415.76,
subject to adjustment for fluctuations in South Alabama's stock price. The
accompanying Joint Proxy Statement and Prospectus provides a detailed
description of the proposed Merger, including the proposed exchange ratios and
the conditions to consummation of the Merger.
The affirmative vote of the holders of a majority of the shares of South
Alabama 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 copies of South
Alabama's 1995 Annual Report to Shareholders and 1996 Second Quarter Report
on Form 10-Q. Please give this information your careful attention.
The Board of Directors of South Alabama has carefully reviewed and
considered the terms and conditions of the proposed Merger Agreement and has
received an opinion from its financial advisor, Mercer Capital Management,
Inc., that the Merger is fair to the South Alabama 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 rights to attend the
Special Meeting or to vote your shares personally at the Special Meeting if
you wish to do so.
Sincerely,
W. Bibb Lamar, Jr.
W. Bibb Lamar, Jr.
President
SOUTH ALABAMA BANCORPORATION, INC.
Post Office Box 3067
Mobile, Alabama 36652
____________
NOTICE OF SPECIAL MEETING OF SHAREHOLDERS
TO BE HELD ON OCTOBER 29, 1996
____________
SEPTEMBER 27, 1996
To the Shareholders of South Alabama Bancorporation, Inc.
NOTICE IS HEREBY GIVEN that a special meeting of shareholders (the
"Special Meeting") of South Alabama Bancorporation, Inc. ("SAB") will be held
at SAB's principal executive office, 100 St. Joseph Street, Mobile, Alabama,
on October 29, 1996, 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 May 31, 1996, as amended and restated as of
August 21, 1996 (the "Merger Agreement"), by and between SAB and First Monco
Bancshares, Inc. ("FMB"), pursuant to which, among other matters (a) FMB would
be merged with and into SAB and (b) the shares of FMB common stock will be
converted into the right to receive the number of shares of SAB common stock
having a market value, calculated as provided in the Merger Agreement, of
$1,415.76, subject to adjustment for fluctuations in SAB's stock price, as
more fully described in the accompanying Joint Proxy Statement and Prospectus.
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 September 26,
1996, 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 a majority of the shares of SAB Common
Stock entitled to vote at the Special Meeting.
THE BOARD OF DIRECTORS OF SAB 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 Section 262 of the Delaware General
Corporation Law. The full text of Section 162 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 Section 262, see "GENERAL
INFORMATION-Appraisal and Dissenterss Rights" in the Joint Proxy Statement
and Prospectus.
By order of the Board of Directors
W. Bibb Lamar, Jr.
W. Bibb Lamar, President
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
SOUTH ALABAMA BANCORPORATION, INC. FIRST MONCO BANCSHARES, INC.
For Special Meeting For Special Meeting
Of Shareholders of Shareholders
To Be Held On To Be Held On
October 29, 1996 October 29, 1996
PROSPECTUS
SOUTH ALABAMA BANCORPORATION, INC.
Common Stock
___________________________
This Joint Proxy Statement and Prospectus ("Joint Proxy Statement") is
being furnished to the shareholders of South Alabama Bancorporation, Inc.,
a Delaware corporation ("SAB"), and First Monco Bancshares, Inc., an
Alabama corporation ("FMB"), in connection with the solicitation of proxies
by the Board of Directors of SAB from holders of outstanding shares of
common stock, par value $0.01 per share, of SAB ("SAB Common Stock"), and
the solicitation of proxies by the Board of Directors of FMB from holders
of outstanding shares of common stock, par value $25.00 per share, of FMB
("FMB Common Stock"), for use at their respective special meetings of
shareholders as shown above (the "Special Meetings"). The purpose of each
of the Special Meetings is to consider and vote upon that certain Agreement
and Plan of Merger, dated as of May 31, 1996, as amended and restated as
of August 21, 1996 (the "Merger Agreement"), pursuant to which FMB will
merge with and into SAB (the "Merger"). Except as described herein, each
share of FMB Common Stock issued and outstanding at the Effective
Time (described below) shall be converted into the right to receive the
number of shares of SAB Common Stock having an average market value, during
a valuation period prior to the effective date, calculated as described
herein, of $1,415.76 (and cash in lieu of fractional shares). The exchange
price is subject to adjustment in the event the market value of SAB Common
Stock during the valuation period falls below $12.50 per share or rises
above $15.25 per share. See "The Merger Terms of the Merger; Exchange
Ratio."
Except for the historical information contained herein, the matters
discussed in this Joint Proxy Statement are forward-looking statements
which involve risks and uncertainties, including but not limited
to economic, competitive, regulatory and technological factors affecting
the operations, markets, services, products and prices of SAB and FMB, and
other factors discussed in SAB's filings with the Securities and Exchange
Commission.
This Joint Proxy Statement also serves as a prospectus with respect to
the issuance of up to 1,335,902 shares of SAB Common Stock that are
issuable to the shareholders of FMB upon consummation of the Merger.
See "Summary Other Significant Considerations" for a discussion of
certain factors which should be considered by shareholders of SAB and FMB.
This Joint Proxy Statement, the accompanying Notices of Special
Meeting and the other documents enclosed herewith are being first mailed to
the shareholders of SAB and FMB on or about September 28, 1996.
_________________________
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 THE 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 September 28, 1996
AVAILABLE INFORMATION
SAB 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 SAB 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. The Commission also maintains a Web Site that contains reports,
proxy and information statements and other information regarding
registrants that file electronically, including SAB, with the Commission at
http://www.sec.gov. SAB has filed with the Commission a Registration
Statement (No. 333-11305) 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 SAB 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 SAB and the SAB 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
SAB and its subsidiaries has been supplied by SAB, and all information
pertaining to FMB and its subsidiary has been supplied by FMB.
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 SAB
or FMB 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 SAB with the Commission
(Commission File No. 0-15423)
pursuant to the Exchange Act are hereby incorporated by reference in this
Joint Proxy Statement:
1. SAB's Annual Report on Form 10-K for the year ended December 31,
1995;
2. SAB's Quarterly Reports on Form 10-Q for the quarters ended March
31 and June 30, 1996;
3. SAB's 1995 Annual Report to Shareholders; and
4. SAB s Proxy Statement for its 1996 Annual Meeting of
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, SAB
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 F.
Michael Johnson, Chief Financial Officer and Secretary, South Alabama
Bancorporation, Inc., Post Office Box 3067, Mobile, Alabama 36652, (334)
431-7800. In order to ensure timely delivery of such documents, any request
should be made by October 21, 1996.
TABLE OF CONTENTS
AVAILABLE INFORMATION. . . . . . . . . . . . . . . . . . . . . . . . . . .2
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE. . . . . . . . . . . . . .2
SUMMARY. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .5
Parties to the Merger . . . . . . . . . . . . . . . . . . . . . . . .5
Shareholder Meetings. . . . . . . . . . . . . . . . . . . . . . . . .5
The Merger. . . . . . . . . . . . . . . . . . . . . . . . . . . . . .6
Other Significant Considerations. . . . . . . . . . . . . . . . . . .9
Selected Consolidated Financial Data. . . . . . . . . . . . . . . . .9
Comparative Per Share Data. . . . . . . . . . . . . . . . . . . . . 12
Summary Capital Ratios. . . . . . . . . . . . . . . . . . . . . . . 13
GENERAL INFORMATION. . . . . . . . . . . . . . . . . . . . . . . . . . . 14
Special Meetings, Record Dates and Votes Required . . . . . . . . . 14
Proxies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
Appraisal and Dissenters' Rights . . . . . . . . . . . . . . . . . 16
Recommendations of Boards of Directors. . . . . . . . . . . . . . . 18
THE MERGER . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
Terms of the Merger; Exchange Ratio . . . . . . . . . . . . . . . . 19
Effective Date and Effective Time . . . . . . . . . . . . . . . . . 20
Background of and Reasons for the Merger. . . . . . . . . . . . . . 20
Opinions of Financial Advisors. . . . . . . . . . . . . . . . . . . 21
Amendment of SAB Certificate of Incorporation . . . . . . . . . . . 27
Amendment of SAB Bylaws . . . . . . . . . . . . . . . . . . . . . . 27
Surrender of Certificates . . . . . . . . . . . . . . . . . . . . . 27
Conditions to Consummation of the Merger. . . . . . . . . . . . . . 28
Regulatory Approvals. . . . . . . . . . . . . . . . . . . . . . . . 29
Conduct of Business Pending the Merger. . . . . . . . . . . . . . . 29
Waiver and Amendment; Termination . . . . . . . . . . . . . . . . . 30
Management and Operations After the Merger. . . . . . . . . . . . . 30
Interests of Certain Persons in the Merger. . . . . . . . . . . . . 31
Certain Federal Income Tax Consequences . . . . . . . . . . . . . . 31
Accounting Treatment. . . . . . . . . . . . . . . . . . . . . . . . 32
Expenses and Fees . . . . . . . . . . . . . . . . . . . . . . . . . 32
Resales of SAB Common Stock . . . . . . . . . . . . . . . . . . . . 32
PRO FORMA FINANCIAL INFORMATION. . . . . . . . . . . . . . . . . . . . . 33
Pro Forma Combined Condensed Consolidated Statements of Condition . 33
Pro Forma Combined Condensed Consolidated Statements of Income. . . 35
COMPARATIVE MARKET PRICES AND DIVIDENDS. . . . . . . . . . . . . . . . . 36
Market Prices . . . . . . . . . . . . . . . . . . . . . . . . . . . 36
Dividends . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37
DESCRIPTION OF SAB CAPITAL STOCK . . . . . . . . . . . . . . . . . . . . 37
EFFECT OF MERGER ON RIGHTS OF SHAREHOLDERS . . . . . . . . . . . . . . . 38
Authorized Capital Stock. . . . . . . . . . . . . . . . . . . . . . 38
Special Meetings of Shareholders. . . . . . . . . . . . . . . . . . 39
Required Shareholder Votes. . . . . . . . . . . . . . . . . . . . . 39
Notice of Annual Shareholders Meeting. . . . . . . . . . . . . . . 39
Amendment of Articles or Certificate of Incorporation . . . . . . . 39
Amendment of Bylaws . . . . . . . . . . . . . . . . . . . . . . . . 40
Shareholder Action Without a Meeting. . . . . . . . . . . . . . . . 40
Nomination and Qualification of Directors . . . . . . . . . . . . . 40
Director Liability . . . . . . . . . . . . . . . . . . . . . . . . 40
Transfer Restrictions . . . . . . . . . . . . . . . . . . . . . . . 40
Access to Courts. . . . . . . . . . . . . . . . . . . . . . . . . . 40
FMB MANAGEMENT'S DISCUSSION AND ANALYSIS . . . . . . . . . . . . . . . . 40
BUSINESS OF FMB. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 53
Bank Activities . . . . . . . . . . . . . . . . . . . . . . . . . . 53
Certain Management Information. . . . . . . . . . . . . . . . . . . 53
FMB Security Ownership. . . . . . . . . . . . . . . . . . . . . . . 55
SUPERVISION, REGULATION AND EFFECTS OF GOVERNMENTAL POLICY . . . . . . . 57
Bank Holding Company Regulation . . . . . . . . . . . . . . . . . . 57
Bank Regulation . . . . . . . . . . . . . . . . . . . . . . . . . . 58
Capital Adequacy. . . . . . . . . . . . . . . . . . . . . . . . . . 60
Recent Legislative and Regulatory Developments. . . . . . . . . . . 61
Effects of Governmental Policies. . . . . . . . . . . . . . . . . . 63
LEGAL MATTERS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 63
EXPERTS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 64
SHAREHOLDER PROPOSALS. . . . . . . . . . . . . . . . . . . . . . . . . . 64
APPENDICES
Appendix A Agreement and Plan of Merger
Appendix B Provisions of Delaware General Corporation Law Relating to
Appraisal Rights
Appendix C Provisions of Alabama Business Corporation Act Relating to
Dissenters' Rights
Appendix D First Monco Bancshares, Inc. Consolidated Financial
Statements
Appendix E Opinion of Mercer Capital Management, Inc.
Appendix F Opinion of Alex Sheshunoff & Co. Investment Banking
SUMMARY
The following is a brief summary of certain information relating to
the Merger contained elsewhere in this Joint Proxy Statement. The
following summary is not intended to be a complete description of all
material information regarding SAB, FMB and the matters to be considered at
the Special 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 "SAB" and "FMB" refer to such corporations,
respectively, and where the context so requires, such corporations and
their respective subsidiaries.
Parties to the Merger
SAB. SAB is a registered bank holding company subject to supervision
and regulation by the Board of Governors of the Federal Reserve System
("Federal Reserve") organized in 1985 as a corporation under the laws
of the State of Delaware. In 1986, SAB acquired all of the stock of The
Bank of Mobile, N.A., a national banking association ("BOM"). In 1991, BOM
was converted to a state chartered bank under the laws of the State of Alabama.
BOM, a full service commercial bank, has seven banking offices within the
corporate limits of the City of Mobile, Alabama. In 1993, SAB, then named
Mobile National Corporation, merged with South Alabama Bancorporation, Inc.
and changed its name to South Alabama Bancorporation, Inc. Since the 1993
merger, SAB has owned all of the stock of First National Bank, Brewton, a
national banking association ("FNBB"). The deposits of both BOM and FNBB
are insured by the Bank Insurance Fund ("BIF") of the Federal Deposit
Insurance Corporation ("FDIC").
At June 30, 1996, SAB had total assets of approximately $241.5
million, total deposits of approximately $207.6 million, total net loans of
approximately $148.2 million and total shareholders' equity of
approximately $28.9 million. SAB's principal executive offices are located
at 100 St. Joseph Street, Mobile, Alabama 36602, and its telephone number
is (334) 431-7800. Additional information about SAB 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."
FMB. FMB 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. FMB owns all of the
stock of Monroe County Bank, an Alabama state banking corporation ("MCB").
MCB provides a diversified range of banking and financial services to
customers in the commercial and retail banking fields and has two offices
located in Monroeville, Alabama. Deposits of MCB are insured by the BIF of
the FDIC.
At June 30, 1996, FMB had total assets of approximately $95.3 million,
total deposits of approximately $82.7 million, total net loans of
approximately $22.1 million and total shareholders' equity of approximately
$11.7 million. FMB's principal executive offices are located at 129 Hines
Street, Monroeville, Alabama 36460, and its telephone number is (334)
575-3132. See "Selected Consolidated Financial Data" below, "FMB
Management's Discussion and Analysis" and "Business of FMB."
Shareholder Meetings
SAB. The Special Meeting of Shareholders of SAB (the "SAB Meeting")
will be held at 10:00 a.m., local time, on October 29, 1996, in the
Board Room of The Bank of Mobile, 100 St. Joseph Street, Mobile, Alabama.
The purpose of the SAB Meeting is to consider and vote upon approval of the
Merger Agreement. The Board of Directors of SAB has fixed the close of
business on September 26, 1996, as the record date for determining
shareholders entitled to notice of and to vote at the SAB Meeting (the "SAB
Record Date"). As of such date, there were 3,001,563 shares of SAB Common
Stock issued and outstanding and entitled to be voted at the SAB Meeting.
FMB. The Special Meeting of Shareholders of FMB (the "FMB Meeting")
will be held at 2:00 p.m., local time, on October 29, 1996, in the
Training Room, located on the second floor of Monroe County Bank, 129
Hines Street, Monroeville, Alabama. The purpose of the FMB Meeting is to
consider and vote upon approval of the Merger Agreement. The Board of
Directors of FMB has fixed the close of business on September 26, 1996, as the
record date for determining shareholders entitled to notice of and to vote
at the FMB Meeting (the "FMB Record Date"). As of such date, there were
11,795 shares of FMB Common Stock issued and outstanding and entitled to
be voted at the FMB Meeting.
See "General Information Special Meetings, Record Dates and Votes
Required."
The Merger
Terms. The Merger Agreement provides that FMB will merge with and
into SAB. Each share of FMB Common Stock outstanding immediately prior to
the Effective Time, other than shares with respect to which dissenters'
rights shall have been perfected and certain shares owned by FMB or SAB or
their subsidiaries, will be converted into the right to receive the number
of shares of SAB Common Stoc having a market value, calculated as provided
in the Merger Agreement, of $1,415.76. As of September 13, 1996, the most
recent practicable date prior to printing this Joint Proxy Statement, the
market value of SAB Common Stock as so calculated was $13.48 per share,
which, if unchanged, would result in an exchange ratio of 105.03 shares of
SAB Common Stock for each share of FMB Common Stock. In the event such
market value is less than $12.50 per share, each share of FMB Common Stock
will nevertheless be exchanged for 113.26 shares of SAB Common Stock, and
in the event such market value is greater than $15.25 per share each share
of FMB Common Stock will be exchanged for 92.84 shares of SAB Common Stock.
The number of shares of SAB Common Stock to be exchanged for each share of
FMB Common stock is referred to as the "Exchange Ratio." The Merger
Agreement is subject to termination in the event the market value of the
SAB Common Stock is less than $11.10 per share or greater than $16.65 per
share. Cash will be paid by SAB in lieu of issuance of fractional shares.
See "The Merger Terms of the Merger; Exchange Ratio," and " Waiver and
Amendment; Termination."
Effective Time. The Merger will become effective at the time a
Certificate of Merger becomes effective with the Secretary of State of Delaware
and Articles of Merger become effective with the Secretary of State of Alabama
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 SAB and FMB. See "The Merger Effective Date and 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 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. SAB and FMB have paid, or will pay, their financial
advisors professional fees in the amount of $35,000 and $25,000,
respectively, plus reasonable out of pocket expenses. See "The Merger
Background of and Reasons for the Merger" and " Opinions of Financial
Advisors," and Appendices E and F. Both the Board of Directors of SAB and
the Board of Directors of FMB 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 a majority of the outstanding
shares of SAB Common Stock and the affirmative vote of the holders of at
least two-thirds of the outstanding shares of FMB Common Stock. The
directors and executive officers of SAB (including certain of their related
interests) and the directors and executive officers of FMB beneficially
owned, as of the SAB Record Date, and are entitled to vote, a total of
774,539 shares of SAB Common Stock at the SAB meeting, or 25.8% of the
outstanding shares entitled to be voted. The directors and executive
officers of FMB (and certain family members and related entities)
beneficially owned, as of the FMB Record Date, and are entitled
to vote, a total of 5,765 shares of FMB Common Stock at the FMB Meeting, or
48.9% of the outstanding shares entitled to be voted. The affirmative vote
of 726,242 shares, or 24.2%, of the SAB Common Stock, when added to those
shares beneficially owned by the directors and executive officers of SAB
(and certain of their related interests), will be required to approve the
Merger on behalf of SAB. The affirmative vote of 2,099 shares, or 17.8%,
of the FMB Common Stock, when added to those shares of the FMB Common Stock
owned by the directors and executive officers of FMB (and certain family
members and related entities) will be sufficient to approve the Merger on
behalf of FMB. See "General Information Special Meetings, Record Dates and
Votes Required."
Exchange of Certificates. Promptly after the Effective Date, The Bank
of Mobile, as Exchange Agent, will mail to each holder of record of FMB
Common Stock at the Effective Time a transmittal letter, with instructions
and return envelope, to use in effecting the exchange of certificates
representing such FMB Common Stock for certificates representing shares of
SAB Common Stock and for cash in lieu of fractional shares. Beginning six
months after the Effective Date, dividends and other distributions payable
with respect to SAB Common Stock will be paid to the holder of an
unsurrendered FMB Common Stock certificate only upon surrender of such
certificate. See "The Merger Surrender of Certificates."
Conditions to Consummation. The obligations of SAB and FMB to effect
the Merger are subject to various conditions, including (i) approval of the
Merger Agreement and the transactions contemplated thereby by the SAB
and FMB shareholders, (ii) receipt of regulatory approvals required in
connection with the Merger and expiration of statutory waiting periods,
(iii) receipt of any other consents necessary to consummation of the
Merger, and (iv) receipt of certain opinions of counsel. All applications
necessary to obtain required regulatory approvals have been filed.
Approval of the Federal Reserve was obtained on August 22, 1996, and the
statutory 30-day waiting period expired on September 21, 1996. 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 SAB
or FMB and no gain or loss will be recognized by FMB shareholders,
except in respect of cash received for fractional shares and except for
dissenting shareholders who receive cash payments. Counsel for each of SAB
and FMB 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 SAB and FMB 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
SHAREHOLDERS CONSULT THEIR TAX ADVISORS CONCERNING THE FEDERAL (AND ANY
STATE, LOCAL OR FOREIGN) TAX CONSEQUENCES OF THE MERGER IN THEIR PARTICULAR
CIRCUMSTANCES.
Management and Operations after the Merger. The Merger Agreement
provides that the SAB Board of Directors after the Effective Time will
consist of fourteen directors, of whom eleven will be the incumbent
directors of SAB and three will be named from among the current directors
of FMB. The Merger Agreement provides that the three new directors will be
John B. Barnett, Jr., John B. Barnett, III and Haniel F. Croft. The Merger
Agreement further provides that the principal officers of SAB after the
Effective Time will be W. Bibb Lamar, Jr., President and Chief Executive
Officer; J. Stephen Nelson, Chairman of the Board; F. Michael Johnson,
Secretary and Chief Financial Officer; W. Gaillard Bixler, Executive Vice
President and Chief Operating Officer; and John B. Barnett, III, Executive
Vice President. All directors and officers will serve in accordance with
the Bylaws of SAB after the Effective Time. See "The Merger Management and
Operations After the Merger."
Interests of Certain Persons in the Merger. Certain of the directors
and officers of SAB and FMB have been selected to serve as directors and
officers of SAB after the Effective Time. In addition, certain of the
directors and executive officers of FMB and their family members and
associates have ownership interests in SAB Common Stock. See "The Merger
Interests of Certain Persons in the Merger."
Accounting Treatment. The Merger will be accounted for by SAB as a
purchase. See "The Merger Accounting Treatment."
Resales of SAB Stock. The shares of SAB 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 FMB 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 SAB 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. See "The Merger Resales of SAB Common
Stock."
Waiver and Amendment; Termination. Either SAB or FMB 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 SAB and FMB may
agree, subject to certain limitations imposed by Delaware and 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 SAB or FMB fail to approve the Merger, (iv) by FMB
in the event the market value of the SAB Common Stock (determined as
provided in the Merger Agreement) is less than $11.10 per share, unless SAB
agrees to an adjustment in the Exchange Ratio, (v) by SAB in the event the
market value of the SAB Common Stock is greater than $16.65 per share
unless FMB agrees to an adjustment in the Exchange Ratio, (vi) without
action by either party in the event the market value of the SAB Common
Stock is less than $11.00 per share or greater than $17.00 per share, and
(vii) by either party in the event the Merger is not consummated by March
15, 1997 (unless such failure is caused by the party electing to terminate)
or in the event any of the conditions precedent to the Merger cannot be
satisfied or fulfilled by March 15, 1997. See "The Merger Waiver and
Amendments; Termination."
Appraisal and Dissenters Rights. FMB shareholders and SAB 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 FMB Common Stock in accordance with applicable
Alabama law or SAB Common Stock in accordance with applicable Delaware law.
The procedures to be followed by dissenting shareholders are summarized under
"General Information-Appraisal and Dissenters Rights." A copy of the
applicable Delaware statutory provisions is set forth in Appendix B to this
Joint Proxy Statement, and a copy of the applicable Alabama statutory
provisions is set forth in Appendix C to this Joint Proxy Statement. Failure
to follow precisely such provisions as are applicable may result in loss of
appraisal or 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. In addition, dissent by holders of a significant number of shares of
SAB Common Stock or FMB Common Stock could cause the Merger not to qualify
as a tax free reorganization for federal income tax purposes. See "The
Merger Certain Federal Income Tax Consequences."
Other Significant Considerations
Change of Domicile. SAB and FMB expect to submit to the shareholders of
the combined company a proposal for the reincorporation of SAB as an Alabama
corporation. The change in domicile, if approved, will result in the
application of Alabama corporate law to SAB, which in some cases differ
substantially from Delaware law. See "EFFECT OF MERGER ON RIGHTS OF
SHAREHOLDERS." It is contemplated that the proposal for a change of domicile
will be submitted to the vote of the shareholders at a special shareholders
meeting in the latter part of 1996.
Variability of Stock Prices. The consideration to be received in the
Merger by holders of FMB Common Stock consists of SAB Common Stock, which
is traded in the over-the-counter market and quoted on the National
Association of Securities Dealers Automated Quotation System ("NASDAQ").
The public market for equity securities such as the SAB Common Stock is
inherently subject to fluctuation and there can be no assurance as to
future trading prices of SAB Common Stock. The high and low bid prices of
SAB Common Stock for the period from January 1, 1996 to September 13,
1996, as reported on NASDAQ, were $13.25 and $13.00. See "Comparative
Market Prices and Dividends Market Prices."
Dividends. Future dividends on shares of SAB (assuming the Merger is
consummated) or of both SAB and FMB (assuming the Merger is not
consummated) will depend on their respective earnings, financial condition
and other relevant factors, including governmental policies and
regulations. See "Comparative Market Prices and Dividends Dividends," and
"Supervision, Regulation and Effects of Governmental Policy Bank
Regulation."
Material Adverse Change. The respective obligations of SAB and FMB to
consummate the Merger are subject to the occurrence of any event, change or
circumstance that is reasonably likely to have a "Material Adverse Effect"
on the other party and to other significant conditions set forth in the
Merger Agreement, and there can be no assurance that the Merger will be
consummated. See The Merger Conditions to Consummation."
Selected Consolidated Financial Data
<TABLE>
The following tables present for SAB and FMB, on a historical basis,
selected consolidated financial data and ratios. This information is based
on the consolidated financial statements of SAB, incorporated herein by
reference, and FMB, 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 D hereto. The
financial data as of June 30, 1996 and 1995, and the six month periods then
ended are derived from unaudited financial statements; however, in the
opinion of management of SAB and FMB, all adjustments necessary to arrive
at a fair statement of results of interim period operations of the
respective companies have been included and are solely of a normal
recurring nature. Results for the six months ended June 30, 1996, are not
necessarily indicative of results to be expected for the entire year or for
any future period.<PAGE>
SAB Selected Consolidated Financial Data (Historical)
(Dollars In Thousands Except Per Share Amounts)
<CAPTION>
Six Months Ended
June 30, Year Ended December 31,
1996 1995 1995 1994 1993 1992 1991
<S> <C> <C> <C> <C> <C> <C> <C>
RESULTS OF OPERATIONS
Interest revenue $ 9,247 $ 8,721 $ 18,094 $ 15,270 $ 13,520 $ 13,459 $ 14,413
Interest expense 3,810 3,451 7,397 5,234 4,801 5,751 8,231
Net interest revenue 5,437 5,270 10,697 10,036 8,719 7,708 6,182
Provision for loan losses 131 3 78 52 248 334 192
Non-interest revenue 1,274 1,088 2,244 2,212 2,322 2,403 2,105
Non-interest expense 4,343 4,210 8,446 8,177 7,149 7,062 7,300
Income before income taxes,
cumulative effect of change
in accounting for income
taxes and extraordinary items 2,237 2,145 4,417 4,019 3,644 2,715 795
Income taxes (698) (667) (1,410) (1,237) (1,263) (773) (144)
Net income before
cumulative effect of change
in accounting for income
taxes
and extraordinary item 1,539 1,478 3,007 2,782 2,381 1,942 651
Cumulative effect of change in
accounting for income taxes 0 0 0 0 1,010 57 0
Extraordinary item 0 0 0 0 0 273 3
Net income $ 1,539 $ 1,478 $ 3,007 $ 2,782 $ 3,391 $ 2,272 $ 654
Earnings per share:
Before cumulative effect of
change in accounting for
income taxes
and extraordinary item $ 0.51 $ 0.49 $ 1.00 $ 0.93 $ 0.79 $ 0.67 $ 0.24
Cumulative effect of change in
accounting for income taxes 0.00 0.00 0.00 0.00 0.34 0.02 0.00
Extraordinary item 0.00 0.00 0.00 0.00 0.00 0.09 0.00
Net income per share $ 0.51 $ 0.49 $ 1.00 $ 0.93 $ 1.13 $ 0.78 $ 0.24
Average number of shares
outstanding (000's) 3,002 2,999 2,999 2,999 2,999 2,902 2,770
PERIOD END STATEMENT
OF CONDITION
Total assets $241,518 $228,765 $244,949 $218,506 $218,704 $212,979 $195,489
Loans 150,268 141,175 144,147 133,821 118,454 104,102 95,909
Deposits 207,583 194,880 210,092 185,842 187,392 184,298 166,617
Shareholders' equity 28,875 27,519 28,797 26,104 24,158 21,033 17,260
AVERAGE BALANCES
Total assets $241,273 $220,667 $228,358 $216,773 $207,397 $195,716 $183,098
Average earning assets 222,690 204,604 211,864 200,333 190,716 179,053 165,667
Loans 146,053 141,175 140,431 123,839 108,699 96,348 97,470
Deposits 206,354 186,480 194,023 184,624 178,925 167,619 157,535
Shareholders' equity 29,049 26,811 27,164 25,602 23,101 20,337 17,266
PERFORMANCE RATIOS
Net income to:
Average total assets 1.28% 1.34% 1.32% 1.28% 1.64% 1.16% 0.36%
Average shareholders' equity 10.60% 11.03% 11.07% 10.87% 14.68% 11.17% 3.79%
Average shareholders' equity
to average total assets 12.04% 12.15% 11.90% 11.81% 11.14% 10.39% 9.43%
Dividend payout ratio 39.22% 32.65% 32.00% 27.96% 19.47% 17.95% 62.50%
</TABLE>
<TABLE>
FMB Selected Consolidated Financial Data (Historical)
(Dollars in Thousands Except Per Share Amounts)
<CAPTION>
Six Months Ended
June 30, Year Ended December 31,
1996 1995 1995 1994 1993 1992 1991
<S> <C> <C> <C> <C> <C> <C> <C>
RESULTS OF OPERATIONS
Interest revenue $ 2,930 $ 2,747 $ 5,673 $ 5,058 $ 5,203 $ 5,852 $ 6,550
Interest expense 1,238 1,200 2,439 1,995 1,822 2,129 2,988
Net interest revenue 1,692 1,547 3,234 3,063 3,381 3,723 3,562
Provision for loan losses 0 0 0 0 0 90 105
Non-interest revenue 239 273 518 496 476 504 460
Non-interest expense 1,070 1,057 2,066 2,020 2,086 2,027 1,895
Income before income taxes
and extraordinary item 861 763 1,686 1,539 1,771 2,110 2,022
Income taxes (252) (204) (478) (403) (499) (666) (620)
Net income before
extraordinary item 609 559 1,208 1,136 1,272 1,444 1,402
Extraordinary item 0 0 0 0 0 (296) 0
Net income $ 609 $ 559 $ 1,208 $ 1,136 $ 1,272 $ 1,148 $ 1,402
Earnings per share:
Before extraordinary item $ 50.75 $ 46.58 $ 100.67 $ 75.73 $ 84.80 $ 96.26 $ 93.47
Extraordinary item 0 0 0 0 0 (19.73) 0
Net income per share $ 50.75 $ 46.58 $ 100.67 $ 75.73 $ 84.80 $ 76.53 $ 93.47
Average number of shares
outstanding (000's) 12 12 12 15 15 15 15
PERIOD END STATEMENT
OF CONDITION
Total assets $ 95,270 $ 89,479 $ 94,927 $ 86,947 $ 87,706 $ 91,518 $ 85,460
Loans 22,561 19,060 19,969 19,372 20,276 20,011 25,289
Deposits 82,699 77,923 83,059 76,530 73,546 78,217 72,761
Shareholders' equity 11,733 10,803 11,111 10,008 13,569 12,713 11,990
AVERAGE BALANCES
Total assets $ 91,498 $ 88,653 $ 89,706 $ 90,482 $ 88,288 $ 86,474 $ 82,468
Average earning assets 85,821 83,133 84,534 85,678 83,342 80,738 76,428
Loans 20,468 18,795 19,096 19,315 19,038 20,311 21,886
Deposits 79,051 77,573 78,125 76,620 74,112 73,032 70,130
Shareholders' equity 11,536 10,490 10,745 13,098 13,418 12,696 11,680
PERFORMANCE RATIOS
Net income to:
Average total assets 1.33% 1.26% 1.35% 1.26% 1.44% 1.33% 1.70%
Average shareholders' equity 10.56% 10.66% 11.24% 8.67% 9.48% 9.04% 12.00%
Average shareholders' equity
to average total assets 12.61% 11.83% 11.98% 14.48% 15.20% 14.68% 14.16%
Dividend payout ratio 0.00% 0.00% 26.32% 28.08% 32.70% 33.54% 26.46%
</TABLE>
<TABLE>
The following table sets forth pro forma combined selected
consolidated financial data and ratios giving effect to the Merger on a
purchase accounting basis for the six months ended June 30, 1996 and the
year ended December 31, 1995. The data is not necessarily indicative of the
results of the future operations of either entity or the actual results
that would have occurred during the periods indicated below 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 SAB,
incorporated herein by reference, and FMB, appearing elsewhere in this
Joint Proxy Statement. See "Incorporation of Certain Documents by
Reference," "Pro Forma Financial Information" and Appendix D.
Combined Pro Forma Selected Consolidated Financial Data
(Dollars In Thousands Except Per Share Amounts)
<CAPTION>
Six Months Ended Year Ended
June 30, 1996 December 31, 1995
<S> <C> <C>
RESULTS OF OPERATIONS
Interest revenue $ 12,177 $ 23,767
Interest expense 5,048 9,836
Net interest revenue 7,129 13,931
Provision for loan losses 131 78
Non-interest revenue 1,513 2,762
Non-interest expense 5,536 10,757
Income before income taxes 2,975 5,858
Income taxes (950) (1,888)
Net income $ 2,025 $ 3,970
Net income per share $ 0.48 $ 0.94
Average number of shares 4,226 4,223
outstanding (000's)
PERIOD END STATEMENT OF CONDITION
Total assets $342,119 $345,790
Loans 172,829 164,116
Deposits 290,277 293,151
Shareholders' equity 45,574 45,452
</TABLE>
Comparative Per Share Data
<TABLE>
The following table presents selected comparative per share data for
SAB Common Stock and FMB Common Stock on a historical basis, for SAB Common
Stock on a pro forma basis reflecting consummation of the Merger and for
the FMB 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 purchase 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 January 1, 1996.
The information is derived from and should be read in conjunction with the
consolidated historical financial statements of SAB, including related
notes thereto, which are incorporated by reference, and the consolidated
historical financial statements of FMB, 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 D hereto.
<CAPTION>
Six Months Ended Year Ended
June 30, 1996 December 31,1995
SAB Common Stock
<S> <C> <C>
Net income per common share:
Historical $ 0.51 $ 1.00
Pro forma combined 0.48 0.94
Dividends paid per common share:
Historical $ 0.20 $ 0.32
Pro forma combined 0.14 0.30
Book value per common share
(at end of period):
Historical $ 9.62 $ 9.59
Pro forma combined 10.79 10.76
FMB Common Stock
Net income per common share:
Historical $ 50.75 $ 100.67
Pro forma equivalent (1) 48.96 95.88
Dividends paid per common share:
Historical $ 0.00 $ 27.00
Pro forma equivalent (1) 14.28 30.60
Book value per common share
(at end of period):
Historical $ 977.75 $ 925.92
Pro forma equivalent (1) 1,100.58 1,097.52
(1) FMB pro forma equivalent amounts are computed by multiplying the
pro forma combined amount by a factor of 102.0 to reflect an assumed
exchange ratio of 102.0 shares of SAB Common Stock for each share of FMB
Common Stock. See "The Merger Terms of the Merger; Exchange Ratio."
</TABLE>
Summary Capital Ratios
<TABLE>
The following table sets forth the historical risk-based capital
ratios for SAB, FMB and pro forma ratios for the combined company, together
with the minimum ratios required by regulatory agencies, as of June 30,
1996. See "Supervision, Regulation, and Effects of Governmental Policy
Capital Adequacy."
<CAPTION>
SAB FMB Combined
(Pro Forma)
<S> <C> <C> <C>
Risk-based capital ratios
Tier I capital 11.95% 19.22% 14.76%
Total capital (Tier I and II) 12.75% 19.94% 15.53%
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 12.15% 12.79% 13.82%
Minimum Tier I leverage ratio 4.00%-5.00% 4.00%-5.00% 4.00%-5.00%
</TABLE>
GENERAL INFORMATION
Special Meetings, Record Dates and Votes Required
SAB Meeting. The Special Meeting of Shareholders of SAB will be held
at 10:00 a.m., local time, on October 29, 1996, in the Board Room of
The Bank of Mobile, 100 St. Joseph Street, Mobile, Alabama. The purpose of
the SAB 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 SAB Common Stock at the close of business on the SAB
Record Date, September 26, 1996, will be entitled to notice of
and to vote at the SAB Meeting. As of the SAB Record Date there were
3,001,563 shares of SAB Common Stock issued, outstanding and entitled to be
voted. There were approximately 1,200 SAB shareholders, of record or
through registered clearing agents, on the SAB Record Date. Each share of
SAB Common Stock will be entitled to one vote at the SAB Meeting.
The presence, in person or by proxy, of holders of the majority of the
issued and outstanding shares of SAB Common Stock entitled to vote at the
SAB Meeting is necessary to constitute a quorum at such meeting.
Approval of the Merger Agreement on behalf of SAB, pursuant to the
Delaware General Corporation Law ("DGCL") will require the affirmative vote
of the holders of a majority of the outstanding shares of SAB 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 the Merger. As of
the SAB Record Date, 774,539 shares of SAB Common Stock, or 25.8% of the total
shares of SAB Common Stock outstanding, were owned, either of record or
beneficially, by directors and executive officers of SAB and certain family
members and related entities; no FMB Common Stock was held by directors or
officers of SAB, either of record or beneficially. Assuming all such shares
are voted in favor of the Merger, the affirmative vote of the holders of
726,242 additional shares of SAB Common Stock will be required for approval.
Appraisal rights may be demanded by SAB shareholders who do not vote
in favor of the Merger and who follow the specified procedures of Delaware
law. See "Appraisal and Dissenters' Rights" below.
Approval of the Merger Agreement will be deemed to constitute approval
of (i) the issuance of the number of shares of SAB Common Stock into which
shares of FMB Common Stock may be converted in the Merger and (ii)
authorization of an additional 1,000,000 shares of SAB Common Stock (see
"The Merger Terms of the Merger"). See "The Merger Amendment of SAB
Certificate of Incorporation."
FMB Meeting. The Special Meeting of Shareholders of FMB will be held
at 2:00 p.m., local time, on October 29, 1996, in the Training Room on the
second floor of Monroe County Bank, 129 Hines Street, Monroeville, 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 FMB Common Stock at
the close of business on the FMB Record Date, September 26, 1996, will be
entitled to notice of and to vote at the FMB Meeting. As of the FMB Record
Date, there were 11,795 shares of FMB Common Stock issued, outstanding and
entitled to be voted. There were 100 FMB shareholders of record on the FMB
Record Date. Each share of FMB Common Stock will be entitled to one vote
at the FMB Meeting.
The presence, in person or by proxy, of holders of a majority of the
issued and outstanding shares of FMB Common Stock entitled to vote at the
FMB Meeting is necessary to constitute a quorum at such meeting.
Approval of the Merger Agreement on behalf of FMB, 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 FMB 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 FMB Record Date, 5,765 shares of FMB Common Stock,
or 48.9% of the total shares of FMB Common Stock outstanding, were held, either
of record or beneficially, by directors and executive officers of FMB and
certain family members and related entities and by directors and executive
officers of SAB and certain family members and related entities. Assuming all
such shares are voted in favor of the Merger, 2,099 additional affirmative
votes of shares of FMB Common Stock will be required for approval.
Dissenters' rights may be demanded by FMB shareholders who do not vote
in favor of the Merger and who follow the specified procedures of Alabama
law. See "Appraisal and Dissenters' Rights" below.
Proxies
SAB. The enclosed SAB proxies are solicited on behalf of the Board of
Directors of SAB for use in connection with the SAB Meeting and any
adjournment or adjournments thereof. Holders of SAB Common Stock are
requested to complete, date and sign the accompanying proxy and return it
promptly to SAB in the enclosed envelope. Failure to return a properly
executed proxy or to vote at the SAB Meeting will have the same effect as a
vote against approval of the Merger Agreement.
An SAB 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 SAB, provided
such later proxy or revocation is actually received by SAB before the vote
of the shareholders, or by voting in person at the SAB meeting. Any
shareholder attending the SAB 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 SAB 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.
FMB. The enclosed FMB proxies are solicited on behalf of the Board of
Directors of FMB for use in connection with the FMB Meeting and any
adjournment or adjournments thereof. Holders of FMB Common Stock
are requested to complete, date and sign the accompanying proxy and return
it promptly to FMB in the enclosed envelope. Failure to return a properly
executed proxy or to vote at the FMB Meeting will have the same effect as a
vote against approval of the Merger Agreement. FMB shareholders should not
forward any stock certificates with their proxy.
An FMB 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 FMB, provided
such later proxy or revocation is actually received by FMB before the vote
of the shareholders, or by voting in person at the FMB Meeting. Any
shareholder attending the FMB 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 FMB 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. SAB and FMB will each bear the costs of solicitation
of proxies for their respective Special Meetings, except that SAB will pay
two-thirds, and FMB will pay one-third, of the total costs of preparing,
printing and distributing this Joint Proxy Statement. 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 SAB or FMB, as the case
may be.
Neither the management of SAB nor the management of FMB is aware of
any business to be acted upon at the Special Meetings other than approval
of proposals to approve the Merger Agreement. If other matters are
properly brought before either or both of the Special 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.
Appraisal and Dissenters' Rights
SAB Appraisal Rights. If the Merger is consummated, holders of record of
SAB Common Stock who follow the procedures specified by Section 262 of the DGCL
("Section 262") will be entitled to judicial determination and payment in cash
of the "fair value" of their stock at the Effective Time, excluding value
resulting from the accomplishment or expectation of the Merger but including
"a fair rate of interest" thereon. Shareholders who elect to follow such
procedures are referred to herein as "Dissenting SAB Shareholders."
A VOTE IN FAVOR OF THE MERGER BY A HOLDER OF SAB COMMON STOCK WILL RESULT
IN THE WAIVER OF THE SHAREHOLDER'S RIGHT TO APPRAISAL.
The following summary of the provisions of Section 262 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 SAB Common Stock electing to exercise appraisal rights (1)
must deliver to SAB, before the vote at the SAB Meeting, a written demand
for appraisal of such shares made by or on behalf of the record holder
reasonably informing SAB of the identity of such holder and of such
holder's intention thereby to demand the appraisal of such Dissenting SAB
Shareholder s SAB Common Stock, and (2) must not vote in favor of the
Merger Agreement. The requirement of such written demand 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 demand
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 SAB
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
demand for appraisal be delivered to SAB before the vote on the Merger
Agreement.
Only a holder of record of SAB Common Stock is entitled to assert appraisal
rights for the shares registered in that holder's name. The appraisal rights
may be asserted with respect to all or less than all shares of SAB Common Stock
held of record by such holder. The demand should be executed by or for the
holder of record, fully and correctly, as the holder's name appears on the
holder's stock certificates. If the shares are owned of record in a fiduciary
capacity, such as by a trustee, guardian or custodian, execution of the demand
should be made in that capacity, and if the shares are owned of record by more
than one person, as in a joint tenancy or tenancy in common, the demand should
be executed by or for all joint owners. An authorized agent, including one of
two or more joint owners, may execute the demand for appraisal for a holder of
record; however, the agent must identify the record holder or holders and
expressly disclose the fact that, in executing the demand, the agent is acting
as agent for the record holder. A record holder, such as a broker, who holds
shares as a nominee for the beneficial owner may exercise appraisal rights with
respect to the shares held for one or more beneficial owners while not
exercising such rights for other beneficial owners. In such case, the written
demand should set forth the number of shares covered by it. Where no number of
shares is expressly mentioned, the demand will be presumed to cover all shares
held in the name of the record holder.
Within 10 days after the Effective Time, SAB, as the surviving corporation
in the Merger, will send notice of the effectiveness of the Merger to each
Dissenting SAB Shareholder of record at the Effective Time who duly filed a
written demand for appraisal in accordance with the foregoing. Within 120 days
after the Effective Time, SAB or any shareholder who has satisfied the foregoing
provisions may file a petition in the Delaware Court of Chancery demanding a
determination of the "fair value" of the SAB Common Stock at the Effective Time.
Dissenting SAB Shareholders should not assume that SAB will file a petition with
respect to the appraisal of the value of their stock or that SAB will initiate
any negotiations with respect to the "fair value" of such stock. It is the
obligation of Dissenting SAB Shareholders to initiate all necessary action to
perfect their appraisal rights within the time periods prescribed in Section
262. If no petition is timely filed by either SAB or a Dissenting SAB
Shareholder, all appraisal rights will be lost, notwithstanding any previously
submitted written demand for appraisal.
Within 120 days after the Effective Time, any Dissenting SAB Shareholder
who has complied with the requirements of the exercise of appraisal rights, as
discussed above, is entitled, upon written request, to receive from SAB a
statement setting forth the aggregate number of shares of SAB Common Stock not
voted in favor of the Merger and with respect to which demands for appraisal
have been made and the aggregate number of holders of such dissenting shares.
Such statement must be mailed within 10 days after the written request thereof
has been received by SAB.
If a petition for appraisal is timely filed, at the hearing on such
petition the Court will determine the shareholders who have become entitled to
appraisal rights and will appraise the SAB Common Stock as to which appraisal
rights are applicable, determining the fair value exclusive of any element of
value arising from the accomplishment of or expectation of the Merger, together
with a fair rate of interest, if any, to be paid upon the amount determined to
be the fair value. In determining fair value, the Court will take into account
all relevant factors. In determining the fair rate of interest, the Court may
consider all relevant factors, including the rate of interest which SAB would
have had to pay to borrow money during the pendency of the proceedings. The
costs of the appraisal proceeding may be assessed against one or more parties
to the proceedings as the Court may consider equitable. Upon application of a
shareholder, the Court may order all or a portion of the expenses incurred by
any shareholder in connection with the appraisal proceedings (including, without
limitation, reasonable attorney's fees and the fees and expenses of experts) to
be charged pro rata against the value of all FMB Common Stock and SAB Common
Stock entitled to an appraisal.
From and after the Effective Time, any SAB Shareholder who has duly
demanded an appraisal in compliance with Section 262 will not thereafter be
entitled to vote his or her shares for any purpose or to receive payment of
dividends or other distributions on his or her shares (other than those payable
to shareholders of record as of a date prior to the Effective Time). If no
petition for an appraisal is filed within the time provided by Section 262, or
if a shareholder delivers to SAB a written withdrawal of his or her demand for
an appraisal and an acceptance of the Merger, either within 60 days after the
Effective Time or thereafter with the written approval of SAB, then the right of
such shareholder to an appraisal will cease.
FMB Dissenters' Rights. If the Merger is consummated, holders of record of
FMB Common Stock or SAB 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 FMB
Shareholders".
A VOTE IN FAVOR OF THE MERGER AGREEMENT BY A HOLDER OF FMB 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 C to this Joint Proxy Statement, and is qualified in
its entirety by reference thereto.
A holder of FMB Common Stock electing to exercise dissenters' rights
(1) must deliver to FMB, before the vote at the FMB 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 FMB 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 FMB before the vote on the Merger Agreement.
Both holders of record and beneficial owners of FMB 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. Dissenters' rights
may be asserted with respect to less than all shares of FMB 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 FMB 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 FMB or SAB, 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.
No later than 10 days after the Effective Time, SAB, as the surviving
corporation, will send a written dissenters' notice to each Dissenting FMB
Shareholder who did not vote in favor of the Merger and who duly filed a
written notice of intent to demand payment in accordance with the
foregoing. The dissenters' notice will specify the deadline by which time
SAB must receive a payment demand from such Dissenting FMB Shareholder and will
include a form for demanding payment. 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 FMB 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 FMB Shareholder, all dissenters'
rights will be lost, notwithstanding any previously submitted written
notice of intent to demand payment. Each Dissenting FMB Shareholder who
demands payment retains all other rights of a shareholder until those
rights are cancelled or modified by the Merger. A Dissenting FMB 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 SAB shall consent thereto.
Within 20 days of the formal payment demand, a Dissenting FMB Shareholder
who has made a demand must submit his share certificate or certificates to
FMB so that a notation to that effect may be placed on such certificate or
certificates and the shares returned to the Dissenting FMB Shareholder with
the notation thereon. A shareholder's failure to submit shares for notation
will, at SAB's option, terminate the holder's rights as a dissenter, unless a
court of competent jurisdiction determines otherwise.
Promptly after the Effective Time, or upon receipt of a payment
demand, SAB shall offer to pay each Dissenting FMB Shareholder who complied
with Article 13 the amount SAB estimates to be the fair value of such
Dissenting FMB Shareholder's shares, plus accrued interest. Each Dissenting FMB
Shareholder who agrees to accept the above referenced offer of payment in
full satisfaction of his or her demand must surrender to SAB the
certificate or certificates representing his or her shares in accordance
with the terms of the dissenters notice. Upon receiving the certificate
or certificates, SAB shall pay each Dissenting FMB shareholder the fair value
of his or her shares, plus accrued interest. Upon receiving payment, a
Dissenting FMB Shareholder ceases to have any interest in the shares.
A Dissenting FMB Shareholder who has made a payment demand may notify SAB
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 FMB 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) SAB fails to make an offer as required by
Article 13 within sixty (60) days after the date set for demanding payment;
or (iii) SAB 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 FMB
Shareholder waives his or her right to demand payment different from that
offered unless he or she notifies SAB of his or her demand in writing
within thirty (30) days after SAB offered payment for his or her shares.
If a demand for payment remains unsettled, SAB 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 FMB Shareholder whose demand remains unsettled
shall be entitled to receive the amount demanded. Such a proceeding will
be filed in the Circuit Court of Mobile County, Alabama. Each Dissenting FMB
Shareholder 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. Upon payment of the judgment and surrender to SAB of the
certificate or certificates representing the judicially appraised shares, a
Dissenting FMB 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 FMB Shareholders, in amounts the court finds equitable, to the
extent the court finds that such Dissenting FMB Shareholders acted arbitrarily,
vexatiously, or not in good faith in demanding payment different from that
initially offered by SAB. The Court may also assess the reasonable fees
and expenses of counsel and experts against all or some of the Dissenting FMB
Shareholders if the court finds that such Dissenting FMB 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 SAB recommends that the shareholders of SAB
vote FOR the proposal to approve the Merger Agreement. The Board of
Directors of FMB recommends that the shareholders of FMB 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 SAB and FMB is
qualified in its entirety by reference to the respective opinions of such
financial advisors, which are attached hereto as Appendices E and F and
incorporated herein by reference.
Terms of the Merger; Exchange Ratio
At the Effective Time, FMB will merge with and into SAB. In the
Merger, each share of FMB 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 FMB or its
subsidiary or by SAB or its subsidiaries, 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 the number of shares
of SAB Common Stock having an average "Market Value" (as defined below),
during the twenty trading days on NASDAQ ending on the day preceding the
Effective Time by two trading days (the "Valuation Period"), of $1,415.76,
rounded to the nearest one-hundredth of a share ("Exchange Ratio"), subject
to adjustment as follows:
(a) In the event the average Market Value of SAB Common Stock during
the Valuation Period is less than $12.50 per share, the Exchange Ratio
shall be 113.26 shares of SAB Common Stock for each share of FMB Common
Stock, unless the average Market Value of SAB Common Stock during the
Valuation Period is less than $11.10 per share, in which event the FMB
Board of Directors will be entitled to terminate the Merger Agreement
unless SAB agrees to adjust the Exchange Ratio so that the average Market
Value of the SAB Common Stock during the Valuation Period exchanged for
each share of FMB Common Stock equals $1,257.19.
(b) In the event the Market Value of SAB Common Stock during the
Valuation Period is greater than $15.25 per share, the Exchange Ratio shall
be 92.84 shares of SAB Common Stock for each share of FMB Common Stock,
unless the Market Value of SAB Common Stock is more than $16.65 per share,
in which event the SAB Board of Directors shall be entitled to terminate
the Merger Agreement unless FMB agrees to adjust the Exchange Ratio so
that the Market Value of the SAB Common Stock during the Valuation Period
exchanged for each share of FMB Common Stock equals $1,545.73.
<TABLE>
By way of example, the following table shows the Exchange Ratio and
resulting exchange price for each share of FMB Common Stock, assuming
certain Market Values of SAB Common Stock:
<CAPTION>
Assumed Number of SAB
Market Value of Shares Exchanged Resulting Price Per Share
SAB Common Stock for Each FMB Share of FMB Common Stock
<S> <C> <C>
$11.00 114.29 $1,257.19
11.10 113.26 1,257.19
12.00 113.26 1,359.12
12.50 113.26 1,415.76
13.25 106.85 1,415.76
13.88 102.00 1,415.76
14.50 97.64 1,415.76
15.25 92.84 1,415.76
15.75 92.84 1,462.20
16.65 92.84 1,545.73
17.00 90.93 1,545.73
</TABLE>
In addition, the Merger Agreement will terminate without action of
either party in the event the Market Value of SAB Common Stock during the
Valuation Period is less than $11.00 per share or greater than $17.00 per
share.
The "Market Value" of SAB Common Stock is the average of the closing
bid and closing ask price, as reported on NASDAQ. The Merger Agreement
provides for adjustment in the Exchange Ratio in the event either party
issues additional shares as a result of a stock split, stock dividend or
similar recapitalization. The Exchange Ratio was determined through
negotiations between SAB and FMB, each of which was advised with respect to
such negotiations by its financial advisor.
No fractional shares of SAB Common Stock will be issued in respect to
FMB Common Stock, and cash will be paid by SAB in lieu of issuance of such
fractional shares. The amount paid in lieu of fractional shares will be
calculated by multiplying each such fraction by the Market Value of SAB
Common Stock, on the Trading Day preceding by two Trading Days the
Effective Time.
Holders of FMB Common Stock and SAB 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 or DGCL,
as applicable. See "General Information-Appraisal and Dissenters' Rights."
Effective Date and Effective Time
A Certificate of Merger will be filed with the Secretary of State of the
State of Delaware, and 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 SAB and FMB. The Effective Time of the Merger will be at the time the
Certificate of Merger becomes effective with the Secretary of State of Delaware
and the Articles of Merger become effective with the Secretary of State of
Alabama (or such later time as the parties may agree). The Effective Date of
the Merger will be the day on which the Effective Time occurs.
Background of and Reasons for the Merger
Since 1991, management of SAB (then known as Mobile National
Corporation) has considered various possibilities for increased asset and
earnings growth, including possible new branches, acquisition of existing
branches of other area banks and the chartering of new banks within the
South Alabama region. In 1993, SAB merged with another holding company in
South Alabama and acquired all of the stock of First National Bank,
Brewton.
In an effort by SAB to further explore expansion possibilities, Steve
Nelson and Bibb Lamar of SAB contacted Haniel Croft of FMB by telephone in
November 1994 to request a meeting. A meeting was scheduled for November
18, 1994, in Monroeville, Alabama between Mr. Nelson and Mr. Lamar from SAB
and Messrs. John Barnett III, John Barnett, Jr., and Haniel Croft of FMB.
The purpose of that meeting was to determine whether FMB had any interest
in merging with SAB. No further contact was had between the two companies
until April 1995, when telephone contact was initiated by SAB. Mr. Nelson
and Mr. Lamar were invited to attend a luncheon conference in Monroeville
on May 16, 1995, with FMB s investment advisors. The possibilities of a
merger were not discussed at this meeting. The next substantive discussion
of a possible merger occurred August 3, 1995, when Mr. Barnett III met in
Brewton with Mr. Nelson to discuss management philosophies of the two
institutions and the resulting operations of the three individual banks if
a merger were to occur. A further meeting was held in September 1995, in
which there was a general discussion of a possible merger and the
procedures necessary to accomplish it.
In February 1996, Mr. Nelson and Mr. Lamar again met with both Messrs.
Barnett and Mr. Croft for further preliminary merger discussions. In March
1996, the two SAB officers and a member of the SAB Executive Committee
met in Monroeville with both Messrs. Barnett and Mr. Croft to discuss a
possible merger and a potential exchange ratio. The Executive Committee of
SAB authorized its negotiating committee to continue discussions with FMB
and to agree, if possible, to an exchange ratio within certain parameters.
FMB responded in April with a letter outlining possible terms for a merger.
On April 19, 1996, the SAB Board met to review the FMB letter and at that
time authorized management of SAB to deliver a response to FMB. The
parties met in Mobile on April 23, 1996, to discuss further the terms of a
merger that could be presented to the respective Boards for approval.
On April 25, 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 the Merger on April 29, 1996. After
further negotiation, the Merger Agreement was executed May 31, 1996, on
behalf of both parties.
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 SAB and FMB, 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 investment banks 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 FMB."
South Alabama, especially Mobile and Baldwin Counties, is a growing
market. Loan demand at SAB has been strong for several years, and SAB s
Board of Directors believes that the stable core deposit base, strong
capital position and liquidity of FMB will allow the merged company to
remain competitive in the lending area. Technological changes
are occurring rapidly in the banking industry and SAB s management believes
a larger, expanded company will enhance SAB s ability to keep pace with
these changes.
The FMB Board examined its market area of Monroe County, Alabama.
While this market provides a stable deposit base, the prospects for loan
growth within the market appear limited. Intense competition exists among
financial institutions in Monroe County and Monroeville. There are six
commercial banks with eight offices located in the City of Monroeville.
The FMB Board believes that long term continued viability of FMB will be
derived from diversity and expansion beyond Monroe County. The FMB Board
also believes that FMB should maintain its philosophy of community banking
and service to its customers. The Merger provides opportunities to expand
and employ the resources of FMB in growing markets, to add a wider array of
financial services to the community while maintaining a community bank.
Opinions of Financial Advisors
SAB Advisor. Mercer Capital Management, Inc. ( Mercer Capital ) was
retained by the Board of Directors of SAB on December 18, 1995, to assist
the Board in determining a reasonable price for FMB and to provide to SAB s
shareholders an opinion of the fairness of the proposed merger from a
financial point of view. Mercer Capital rendered its fairness opinion as
of August 27, 1996, a copy of which is presented in the appendices
to this Joint Proxy Statement. SAB shareholders are urged to read the
entire opinion.
The consideration to be received by FMB was determined by FMB and SAB
in their negotiations. Mercer Capital did not participate directly in
those negotiations, though Mercer Capital did advise SAB regarding the
financial aspects of the Merger throughout the negotiations. No
limitations were imposed by SAB s Board of Directors with respect to the
investigations made or the procedures followed by Mercer Capital in
rendering its fairness opinion.
As part of its investigation, Mercer Capital reviewed: (1) the Merger
Agreement; (2) SAB's and FMB's annual reports for fiscal years 1993, 1994
and 1995; (3) SAB's Form 10-K for the fiscal years ended December 31,
1993, 1994 and 1995; (4) SAB s Form 10-Q for the quarter ended June 30,
1996; (5) FMB s Call Reports as of June 30, 1996; (6) SAB s Form Y-9 C and
Y-9 LP as of June 30, 1996; (7) SAB' s and FMB s 1996 budgets; and, (8)
historical market prices and trading volumes for SAB s common shares.
As part of its engagement, a representative of Mercer Capital visited
with FMB management in Monroeville, Alabama and with SAB management via
numerous conference calls and previous on site visits in Mobile, Alabama.
Factors considered in rendering the opinion include: (1) terms of the
Agreement; (2) an analysis of the Merger s pricing in relation to
indications of fair market value for SAB derived through considering
comparable transactions; (3) an analysis of the reasonableness of the
likely exchange ratio based upon the pro forma contribution each
institution will provide to the post-merger organization in terms of
earnings, shareholders equity and the like; (4) an analysis of the
estimated pro-forma changes in book value per share, earnings per share,
dividends per share and overall ownership from the perspective of SAB's
shareholders; (5) a review of FMB's historical financial performance; (6) a
review of SAB s historical stock pricing, the liquidity of its shares and
current pricing in relation to other publicly traded bank holding companies
based in the Southeast; and (7) other factors which may enhance overall
shareholder value.
Mercer Capital did not compile or audit SAB s or FMB s financial
statements, nor did Mercer Capital independently verify the information
reviewed. Mercer Capital relied upon such information as being complete
and accurate in all material respects. Mercer Capital did not make an
independent valuation of the loan portfolio, adequacy of the loan loss
reserve or other assets of either institution.
Mercer Capital s opinion does not constitute a recommendation to any
shareholder as to how the shareholder should vote on the proposed merger
and Mercer Capital has not expressed any opinion as to the prices at which
any security of SAB or FMB might trade in the future.
Terms of the Agreement. The Merger Agreement includes a provision for
both a fixed price/floating exchange ratio and a floating price/fixed
exchange ratio depending upon the market price of SAB s shares.
SAB s market price is defined as the mid-point between the closing bid
price and ask price as reported by NASDAQ for the twenty (20) trading days
ending two (2) days prior to the closing of the Merger (the valuation
period ). Under the terms of the Merger Agreement, FMB shareholders are
entitled to $1,415.76 per share if SAB s market value is between $12.50 per
share and $15.25 per share.
Based upon SAB's most recent trading range of approximately $13.00 per
share (bid) and $14.00 per share (ask), SAB's market price equals $13.50
per share; or, an amount which is near the midpoint between the lower band
($12.50 per share) and upper band ($15.25 per share) of the first collar.
Under the terms of the Agreement, FMB stockholders are entitled to
$1,415.76 per share, or 104.87 SAB shares if SAB's market value is $13.50
per share at closing. The implied aggregate consideration for FMB is $16.7
million. The anticipated purchase price represented 142% of FMB's book
value at June 30, 1996, and 13.3 times reported earnings for the twelve
month period ended June 30, 1996.
Comparable Transaction. The comparable transaction method of analysis
seeks to develop an indication of value for a subject company by analyzing
prices paid for similar institutions which have been acquired. With
regard to the banking industry, most transactions are measured in terms of
price/book ratios ( P/B ), price/tangible book ( P/TB ) ratios and
price/earnings ( P/E ) ratios.
With regard to FMB, Mercer Capital reviewed prices paid for acquired
banks in relation to the sellers book values and earnings as compiled by
SNL Securities. The data was divided into six groups with average and
median P/E, P/B and P/TB ratios calculated for calendar years 1990-1995 and
year-to-date through early May 1996: (1) all privately acquired U.S.
commercial banks; (2) southeastern based commercial banks which have been
acquired; (3) acquisitions in which the consideration received was $10
million to $50 million; (4) acquisitions in which the selling institution s
assets totaled from $50 million to $100 million and the selling
institution's equity/asset ratio exceeded 10%; (5) acquisitions in Alabama
and the surrounding states; and (6) Alabama based commercial banks which
have been acquired.
The table below presents a summary of the median P/E and average P/B
ratios for the six acquisition groups as applied to FMB s 1995 year-end
reported book value per share, tangible book value per share, earnings
per share and budgeted 1996 earnings. (Although SNL does not provide price
to next year s earnings estimates, Mercer Capital assumed, for purposes of
the analysis, that the acquired banks earnings, on average, were expected
to increase 10% in the next twelve month period.) Estimated values for FMB
are calculated based upon the 1995 transaction data.
<TABLE>
FIRST MONCO BANCSHARES, INC.
COMPARABLE TRANSACTIONS PRICING ANALYSIS
1995 Transaction Multiples
Price/ Price/ Price/ Price/
Transaction Group Earnings Earnings Est. Book Tangible Book
<S> <C> <C> <C> <C>
National Averages 15.7 14.3 179% 184%
Southeast 18.3 16.6 191% 197%
Deal Value ($10-$550MM) 16.9 15.4 182% 188%
Assets ($50-$100MM,
Eq./Assets>10%) 16.5 15.0 160% 162%
Alabama and Surrounding States 16.7 15.2 186% 195%
Alabama 13.2 12.0 157% 162%
</TABLE>
<TABLE>
<CAPTION>
Implied Acquisition Values
Price/ Price/ Price/ Price/
Earnings Earnings Est. Book Tangible Book
<S> <C> <C> <C> <C>
National Averages $1,611 $1,626 $1,686 $1,735
Southeast $1,878 $1,888 $1,802 $1,859
Deal Value ($10-$50MM) $1,734 $1,751 $1,716 $1,773
Assets ($50-$100MM,
Eq./Assets>10%) $1,693 $1,706 $1,509 $1,527
Alabama and Surrounding States $1,715 $1,728 $1,759 $1,837
Alabama $1,355 $1,365 $1,480 $1,527
</TABLE>
Mercer Capital determined that the overall range of estimated value
was $1,355 per share to $1,888 per share, with a mid-point of $1,622 per
share. For purposes of the analysis, the transactions involving Alabama
banks and high equity banks with assets between $50 million and $100
million were deemed the most comparable given that the transaction involves
two Alabama institutions and FMB's equity totaled 11.7% of year-end assets.
The range of implied value based upon the Alabama and high equity
transactions was $1,355 per share to $1,706 per share, with a mid-point of
$1,531 per share.
Based upon the above analysis, Mercer Capital concluded that the
implied price for FMB of $1,415.76 per share was reasonable.
Contribution Analysis. The contribution analysis reviews a
transaction based upon the relative value each party provides to the pro
forma organization in relation to each entity's pro forma ownership. The
terms of the Agreement presently imply that FMB stockholders will
collectively own about 29% of SAB after the Merger is consummated.
Mercer Capital noted that the terms of the Agreement are such that the
ownership percentages are very similar in terms of relative amounts of
assets, deposits, stockholders equity and net income that each party will
contribute to the pro forma organization based upon an exchange ratio of
approximately 105 SAB shares per FMB share. Mercer Capital concluded that
the terms of the Agreement are reasonable to both parties and the
ownership structure implied by the Agreement does not penalize the
shareholders of either company.
Pro Forma Per Share Analysis. Mercer Capital analyzed the estimated
changes in dividends per share, earnings per share and book value per share
on a pro forma basis from the perspective of SAB s shareholders after
giving consideration to the impact of the Merger. Mercer Capital did not
represent or warrant that its pro forma estimates would reflect the actual
pro forma results included in this Joint Proxy Statement or any other
documents.
Based upon its analysis, Mercer Capital noted the following:
1. Dividends Per Share. In 1995, SAB paid dividends of $0.32 per
share, or approximately 32% of net income. It is not anticipated that
SAB's per share dividend payment will change as a result of the Merger.
Accordingly, SAB stockholders will not experience a reduction in their
existing dividend payments;
2. Earnings Per Share. Pro-forma 1995 earnings are estimated to
total $0.94 per share, down 6% from SAB s reported earnings of $1.00 per
share. Depending upon the actual market value of SAB during the valuation
period, and the final exchange ratio, the actual earnings dilution may
differ before giving any consideration to any synergies that may boost
overall pro forma earnings; and,
3. Book Value Per Share. Pro-forma book value per share is expected
to increase. Based upon pro forma data at June 30, 1996, book value would
equal $10.79 per share, up from $9.62 per share, as reported. The ultimate
increase to SAB s pro forma book value at closing may differ based
upon the value of SAB's shares and the actual exchange ratio.
Review of FMB. Mercer Capital noted that FMB is a $95 million assets
institution whose primary asset consists of its 100% ownership of MCB, the
largest bank in Monroe County, Alabama.
A review of FMB s and its subsidiary bank s historical financial
statements revealed the following:
- FMB reported net income of $1.21 million in 1995, up 6.3% from
$1.14 million in 1994. Reported 1995 earnings represented a return on
assets and return on equity, respectively, of 1.33% and 11.44%. The
respective return on assets and return on equity for comparable sized peer
institutions for 1995 was 1.27% and 11.97%.
- There has been minimal core balance sheet growth over the last
five years. Year-end demand deposit balances have been distorted by
activity in several large commercial accounts. Due to a low loan-to-
deposit ratio, funding sources have consisted of deposits only.
- The bank is heavily capitalized with year-end 1995 equity of
$11.1 million, or 11.7% of assets.
- There are no significant activities, assets or liabilities at the
holding company level.
- During 1994 the holding company repurchased 3,566 shares (about
25% of the then outstanding shares) for $1,125.00 per share. The
repurchase was funded by a large dividend from the bank.
- The bank has a relatively small loan portfolio. Since year-end
1992, net loans have accounted for only 20% to 22% of total assets. Net
charge-offs have been low in the last five years and no loans were on non-
accrual status at December 31, 1995. The loan loss reserve amounted to
2.3% of total loans at December 31, 1995. The bank has no indirect
consumer loans and only a limited number of loan participations. The
bank has not made a loan loss provision since 1992.
- Except for about $8.0 million in A rated corporate notes, the
investment portfolio appears to contain only the treasury, agency,
municipal and mortgage backed securities normally seen in bank bond
portfolios. At June 30, 1996, there was a $138 thousand unrealized gain in
the held-to-maturity portion of the portfolio, according to the Call
Report.
- The bank has below peer net interest income (3.89% of average
assets in 1995 versus 4.28% for peer sized institutions), primarily as a
result of the low percentage of loans to total assets.
- The bank can be characterized as a low overhead operation.
During 1995, non-interest operating expense amounted to 2.30% of average
assets versus 2.78% for peer institutions. The bank has an above peer
ratio of average assets per employee and a below peer ratio of
compensation expense per employee.
Market for SAB's Shares. Mercer Capital reviewed the historical
pricing for SAB s shares for the period from December 31, 1994, through
late August 1996, and noted that the market for SAB s shares could be
characterized as thin, with trades occurring every few days on average,
ranging from 100 shares to a few thousand shares. During the period
reviewed, a total of 140 thousand shares were traded, or about 5% of the
total outstanding shares.
Given the low liquidity, the bid-ask spread is fairly wide. Presently,
the spread tends to range between $1.00 per share and $1.50 per share.
With regard to the pending merger with FMB, SAB s shares have traded
within the Merger Agreement's primary band of $12.50 per share and $15.25
per share band in which FMB stockholders will receive $1,415.76 per share
since late 1994. Pricing during much of 1996 has centered around $13.00
per share to $14.00 per share. If SAB s market value is $13.50 per share
during the calculation period, 104.87 SAB shares will be issued for each
share of FMB Common Stock.
Other Considerations. Although Mercer Capital made no representations
or warranties regarding the price at which SAB s shares will trade in the
future, it noted the following:
1. Based upon the current exchange ratio, and the use of purchase
accounting, the transaction is modestly dilutive to pro forma earnings per
share. If SAB management can achieve any meaningful operating synergies,
then pro forma earnings per share should improve to an amount which more
closely approximates that which would be reported if the merger did not
occur. The first earnings enhancement opportunity relates to possible
expense economies. Although FMB's subsidiary bank will continue to operate
as a separate entity for the time being, expense savings should be realized
over time through a reduction in certain costs. In addition, MCB s low
loan-to-deposit ratio represents an opportunity to effectively boost
the consolidated loan portfolio by either increasing lending in Monroe
County and/or using MCB's deposits to fund additional loans in Mobile.
2. While pro forma earnings per share will be diluted somewhat, pro
forma book value is expected to rise about $1.00 per share. Thus, any
negative implications of the earnings dilution from the perspective of
investors should be offset by the increase in pro forma book value. Also,
the earnings dilution is expected to be overcome in time through
realizing operating synergies.
3. Upon consummation of the Merger, SAB s shareholder base will
increase by approximately 100. Thus, liquidity may improve somewhat; and,
4. SAB will be a much larger institution post-merger with the
potential to create shareholder value through internal growth and,
possibly, acquiring other banks;
Pursuant to its engagement letter, SAB paid Mercer Capital a
professional fee of $35,000 to render its fairness opinion. SAB agreed to
indemnify Mercer Capital, its officers, employees and agents, and to hold
Mercer Capital, its officers, employees and agents harmless from any and
all obligations, claims, charges, expenses or costs of any nature arising
out of the engagement. The indemnification would not apply if Mercer
Capital were negligent in carrying out its duties.
Mercer Capital is a national valuation consulting firm which renders
independent valuations and related financial advisory services, including
the issuance of fairness opinions for mergers and acquisitions, to
financial institutions and businesses throughout the U.S. Mercer Capital
was formed in 1982 and was selected by the SAB Board of Directors to render
a fairness opinion due to its experience in the banking industry. Mercer
Capital represented SAB (then known as Mobile National Corporation) in its
1993 merger with the holding company of FNBB.
FMB Advisor. FMB retained Alex Sheshunoff & Co. Investment Banking
("Sheshunoff") to act as its financial advisor in connection with the
Merger with SAB. Sheshunoff has rendered an opinion dated August 28,1996,
to FMB's Board of Directors that, based on the matters set forth therein,
the consideration to be received pursuant to the Merger is fair, from a
financial point of view, to FMB s shareholders. The text of such opinion
dated August 28, 1996, is set forth in the exhibits to this Joint Proxy
Statement and should be read in its entirety by shareholders of FMB. Prior
to the issuance of its fairness opinion, Sheshunoff was engaged by FMB to
determine a fair and equitable exchange ratio for the Merger of FMB with
SAB.
The consideration to be received by FMB shareholders in the Merger was
determined by FMB and SAB in their negotiations. No limitations were
imposed by the Board of Directors or management of FMB upon Sheshunoff with
respect to the investigations made or the procedures followed by Sheshunoff
in rendering its opinion.
In connection with rendering its opinion to FMB s Board of Directors,
Sheshunoff performed a variety of financial analyses. However, the
preparation of a fairness opinion involves determinations as to the most
appropriate and relevant methods of financial analysis and the application
of those methods to the particular circumstances, and, therefore, such an
opinion is not readily susceptible to summary description. Sheshunoff, in
conducting its analyses and in arriving at its opinion, has not conducted a
physical inspection of any of the properties or assets of FMB and SAB, and
has not made or obtained any independent valuation or appraisals of any
properties, assets or liabilities of FMB and SAB. Sheshunoff has assumed
and relied upon the accuracy and completeness of the financial and other
information that was provided to it by FMB and SAB or that was publicly
available. Sheshunoff's opinion is necessarily based on economic, market
and other conditions as in effect on, and the information made available to
it as of the date of its analyses. Financial forecasts utilized by
Sheshunoff were prepared by the managements of FMB and SAB, respectively,
and financial forecasts for individual comparative companies were obtained
from Zachs Investment Research provided by SNL Securities, L.P. Sheshunoff
does not express its opinion regarding the ability of FMB and SAB to
achieve such results. Sheshunoff assumed such financial forecasts were
reasonably prepared and reflect the best currently available estimates and
judgments of management or an outside investment research firm and will be
realized in the amounts and at the times contemplated thereby.
Sheshunoff's opinion is necessarily based on economic, market
and other considerations as in effect on August 28, 1996, and the
information made available to it as of the date of its analyses.
In connection with its opinion on the Merger, Sheshunoff performed
three valuation analyses with respect to FMB: (i) an analysis of
comparable prices and terms of recent transactions involving the sale of
banking organizations; (ii) a discounted cash flow analysis; and (iii) an
accretion (dilution) analysis of the pro forma impact on earnings per
share, book value per share and dividends per share of the shares to be
received by FMB s shareholders. In addition, Sheshunoff analyzed the
trading history and stock market valuation ratios of SAB as of August 28,
1996. For purposes of the comparable transaction and stock price
evaluation analyses, SAB's stock was valued at $13.88 per share (which
was the recent trading average of SAB). Each of these analyses is discussed
briefly below.
Comparable Transaction Analyses. Sheshunoff performed analyses of
premiums paid for selected banking organizations with comparable
characteristics to FMB. Sheshunoff selected two sets of comparable
transactions:
The first set of comparable transactions included banks which sold
from January 1, 1995, through August 22, 1996, with total assets less than
$500 million, and were located in Alabama and the surrounding states.
Forty transactions were included in this set. This analysis yielded a
range of purchase price to book value multiples from .93 times to 2.81
times, with an average and median of 1.91 times and 1.91
times. These compare to a transaction value for the Merger of 1.42 times
FMB's book value as of June 30, 1996. The analysis yielded a range of
purchase prices as a multiple of trailing 12-month earnings per share from
5.43 times to 57.80 times, with an average of 18.44 times and a median of
15.05 times. These compare to a transaction value for the Merger of 13.82
times FMB's 1995 earnings and 13.71 times the six months ended June 30,
1996, annualized results. The analysis yielded a range of purchase prices
as a percent of total assets from 7.02 percent to 30.38 percent, with an
average of 17.35 percent and a median of 17.05 percent. These compare to a
transaction value of 17.53 percent of June 30, 1996 total assets for the
Merger.
The second set of comparable transactions included those banks
included above but which reported total equity to assets greater than
10.0%. Thirteen transactions were included in this set. This analysis
yielded a range of purchase price to book value multiples from 1.11 times
to 2.58 times, which an average and median of 1.72 times and 1.71 times.
These compare to a transaction value for the Merger of 1.42 times FMB's
book value as of June 30, 1996. The analysis yielded a range of purchase
prices as a multiple of trailing 12-month earnings per share from 10.32
times to 31.65 times, with an average of 15.34 times and a median of 13.48
times. These compare to a transaction value for the Merger of 13.82 times
FMB's 1995 earnings and 13.71 times the six months ended June 30, 1996,
annualized results. The analysis yielded a range of purchase prices as a
percent of total assets from 13.65 percent to 30.38 percent, with an
average of 21.09 percent and a median of 21.23 percent. These compare to a
transaction value of 17.53 percent of June 30, 1996, total assets for the
Merger.
No company or transaction used in the comparable transaction analyses
is identical to FMB. Accordingly, an analysis of the foregoing necessarily
involves complex considerations and judgments, as well as other factors
that affect the public trading value or the acquisition of the company to
which it is being compared.
Discounted Cash Flow Analysis. Using discounted cash flow analysis,
Sheshunoff estimated the present value of the future stream of after-tax
cash flows that FMB could produce through 2000, under various
circumstances, assuming that FMB performed in accordance with the
earnings/return projections of management. Sheshunoff estimated the
terminal value for FMB at the end of the period by applying multiples
of earnings ranging from 8 times to 12 times and then discounting the cash
flow streams, dividends paid to the shareholders (assuming up to 100
percent of earnings are paid out in dividends while maintaining a minimum
8.0 percent tier 1 leverage ratio) and terminal value using differing
discount rates ranging from 14.0 percent to 18.0 percent chosen to reflect
different assumptions regarding the required rates of return of FMB and the
inherent risk surrounding the underlying projections. This discounted cash
flow analysis indicated a range of $860.48 per share to $1,268.82 per
share.
Sheshunoff also performed a cash flow analysis using an estimated
terminal value for FMB at the end of the period by applying multiples of
book value ranging from 0.80 times to 1.50 times and then discounting the
cash flow streams, dividends paid to the shareholders (assuming up to 100
percent of earnings are paid out in dividends while maintaining a minimum
8.0 percent tier 1 leverage ratio) and terminal value using differing
discount rates ranging from 14.0 percent to 18.0 percent chosen to reflect
different assumptions regarding the required rates of return of FMB and
the inherent risk surrounding the underlying projections. This discounted
cash flow analysis indicated a range of $718.66 per share to $1,163.09 per
share.
Dilution Analysis. Based upon projections prepared by the management
s of FMB and SAB, Sheshunoff estimated the pro forma per share appreciation
(dilution) for FMB's shareholders from the transaction based upon earnings,
equity and dividends. Based upon this analysis, FMB's shareholders were
anticipated to experience earnings per share dilution of 3.47% in 1996 (if
the transaction had been completed on January 1, 1996) and appreciation of
4.35% in 2000. If the Merger was complete as of June 30, 1996, FMB's
shareholders would have experienced equity per share appreciation of 11.2%
and tangible equity per share appreciation of 0% as of that date.
Additionally, FMB's shareholders were anticipated to receive an increase in
dividends per share of 10.54% during 1996 (if the transaction had been
completed on January 1, 1996)and 22.05% during 2000.
Additionally, Sheshunoff analyzed the trading pattern of SAB s shares.
In particular, SAB's trading market valuation ratios were compared to other
publicly traded banking organizations based upon price/book, price/earnings
and price/projected earnings. The comparative group was composed of
publicly traded banking organizations located in the Southeast with total
assets less than $500 million as of August 22, 1996. The comparative group
average price/book ratio was 1.59 times and median was 1.50 times and SAB s
price/book ratio was 1.35 times; the comparative average trailing twelve
month price/earnings ratio was 14.7 times and median was 14.2 times and SAB
s price/earnings ratio was 12.8 times; the comparative group average
estimated 1996 price/earnings ratio was 15.2 times and median was 13.4
times and SAB s ratio was 11.8 times. The 1996 earnings estimates of the
comparative companies were obtained from SNL Securities, L.P. and are
provided by Zachs Investment Research. Sheshunoff did not prepare these
earnings estimates and does not express an opinion on the likelihood that
these estimates will be achieved by any individual comparative company.
Pursuant to an engagement letter dated May 3, 1996, and amended August
21, 1996, between FMB and Sheshunoff, FMB agreed to pay Sheshunoff a
$25,000 fairness opinion fee. FMB has also agreed to indemnify and hold
harmless Sheshunoff and its officers and employees against certain
liabilities in connection with its services under the engagement letter,
except for liabilities resulting from the negligence of Sheshunoff.
As part of its investment banking business, Sheshunoff is regularly
engaged in the valuation of securities in connection with mergers and
acquisitions, private placements, and valuations for estate, corporate and
other purposes. FMB s Board of Directors decided to retain Sheshunoff
based on its experience as a financial advisor in mergers and
acquisitions of financial institutions, and its knowledge of financial
institutions.
Amendment of SAB Certificate of Incorporation
At the Effective Time the Certificate of Incorporation of SAB will be
amended as provided in the Merger Agreement. The amendment will increase
the authorized capital stock of SAB to a total of 6,000,000 shares
consisting of 5,500,000 shares of SAB Common Stock having a par value of
$.01 per share and 500,000 shares of Preferred Stock.
Amendment of SAB Bylaws
At or prior to the Effective Time the Bylaws of SAB will be amended as
provided in the Merger Agreement. The amendment will allow the Board of
Directors of SAB to make an exception to the age 70 mandatory retirement
policy for SAB directors to permit election of SAB directors older than the
mandatory retirement age in connection with a merger, acquisition or other
similar transaction if that director is a director of the company with
which SAB is merged or consolidated.
Surrender of Certificates
As promptly as practicable after the Effective Time, BOM, acting in
the capacity of exchange agent for SAB (the "Exchange Agent"), will mail to
each former holder of record of FMB 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
FMB Common Stock certificates for cash and certificates representing shares
of SAB Common Stock. HOLDERS OF FMB 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 FMB 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 FMB Common Stock to the Exchange Agent
in the return envelope provided. Upon receipt of the certificates and
related documentation, SAB will issue, and the Exchange Agent will mail, to
such holder of FMB Common Stock a check in the amount of any payment in
respect of fractional shares of FMB Common Stock payable to the
surrendering shareholder and a certificate representing the number of
shares of SAB Common Stock to which such holder is entitled pursuant to the
Merger Agreement. No certificates of SAB Common Stock and no payment in
respect of fractional shares will be delivered to a holder of FMB Common
Stock unless and until such holder shall have delivered to the Exchange
Agent certificates representing the shares of FMB 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 FMB will be entitled to vote after
the Effective Time at any meeting of SAB shareholders the number of whole
shares of SAB Common Stock into which such holders' respective shares of
FMB Common Stock are converted, regardless of whether such holders have
exchanged their certificates representing FMB Common Stock for certificates
representing SAB Common Stock.
Beginning six months after the Effective Time, no dividend or other
distribution payable after the Effective Time with respect to SAB Common
Stock issued to replace FMB Common Stock will be paid to the holder of an
unsurrendered FMB 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 FMB's stock
transfer books of shares of FMB Common Stock issued and outstanding at the
Effective Time. If certificates representing shares of FMB 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 SAB nor the Exchange Agent shall be liable to a holder of FMB
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 SAB and FMB to effect the Merger are
subject to the satisfaction of the following conditions prior to the
Effective Time: (i) approval of the Merger Agreement and the transactions
contemplated thereby by the affirmative vote of the holders of a majority
of the SAB Common Stock and two-thirds of the FMB Common Stock; (ii)
approval of the Merger Agreement and the transactions contemplated thereby
by the Federal Reserve and the expiration of any statutory waiting period;
(iii) receipt of all other regulatory and contractual consents necessary to
consummate the transactions contemplated by the Merger Agreement; (iv)
absence of any law, regulation, rule, judgment, ruling or order which
prohibits or restricts consummation of the transactions contemplated by the
Merger Agreement; (v) the Registration Statement of which this Joint Proxy
Statement forms a part will have become effective and no stop order
suspending the effectiveness of the Registration Statement will have been
issued and no proceeding or investigation by the Commission to suspend the
effectiveness thereof shall have been initiated and be continuing, and
all necessary approvals under state securities laws relating to the
issuance or trading of the shares of SAB Common Stock issuable pursuant to
the Merger shall have been received; and (vi) SAB and FMB shall have
received opinions from their respective counsel to the effect that, for
federal income tax purposes, the exchange of FMB Common Stock for SAB
Common Stock will not give rise to recognition of gain or loss to
shareholders of FMB (other than to the extent any cash is received) and
neither SAB nor FMB will recognize gain or loss as a consequence of the
Merger.
The obligations of SAB to effect the Merger are further subject to the
satisfaction or waiver of the following conditions: (i) each of the
representations and warranties of FMB set forth in the Merger Agreement
shall be true and correct as of the Effective Time (except to the extent it
is confined to an earlier date), each of the agreements and covenants of
FMB to be performed pursuant to the Merger Agreement prior to the Effective
Time shall have been duly performed, and SAB shall have received a
certificate of FMB to the effect that such obligations have been complied
with; and (ii) SAB shall have received an opinion of counsel to FMB in the
form attached to the Merger Agreement.
The obligations of FMB to effect the Merger are further subject to the
satisfaction or waiver by FMB of the following conditions: (i) each of the
representations and warranties of SAB set forth in the Merger Agreement
shall be true and correct as of the Effective Time (except to the extent it
is confined to an earlier date), each of the agreements and covenants of
SAB to be performed pursuant to the Merger Agreement prior to the Effective
Time shall have been duly performed, and FMB shall have received a
certificate of SAB to the effect that such obligations have been complied
with; and (ii) FMB shall have received an opinion of counsel to SAB in the
form attached to the Merger Agreement.
Regulatory Approvals
The Merger is subject to prior approval by the Federal Reserve under
Section 3 of the Bank Holding Company Act of 1956, as amended (the "BHCA"),
which requires that the Federal Reserve take into consideration, among
other factors, the financial and managerial resources and future prospects
of the institutions, the effect of the Merger on competition and the
convenience and needs of the communities to be served. The Merger may not
be consummated until the 30th day following the date of Federal Reserve
approval, during which time the United States Department of Justice
may challenge the Merger on antitrust grounds. The commencement of an
antitrust action would stay the effectiveness of the Federal Reserve's
approval unless a court specifically ordered otherwise. On August 22,
1996, the Federal Reserve approved the applications filed with respect to
the Merger, and the 30-day waiting period expired on September 21, 1996.
Conduct of Business Pending the Merger
The Merger Agreement requires that each of FMB and SAB 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, FMB has agreed that,
without the consent of SAB, it will not: (i) amend its charter or bylaws;
(ii) incur any additional debt except in the ordinary course of business or
permit any lien on its assets to exist; (iii) repurchase, redeem or
otherwise acquire any of its Common Stock or declare or pay any dividend
(except that FMB may declare an annual special dividend at a rate
not in excess of $12.00 per share in substantial accordance with its usual
practice); (iv) issue or sell any of its Common Stock or any right to
acquire such stock; (v) take any action with respect to any adjustment or
reclassification of its Common Stock or dispose of or encumber any stock of
a subsidiary or any other of its assets other than in the ordinary course
of business; (vi) acquire any equity interest in any third party other than
in connection with foreclosures or by a subsidiary acting in a fiduciary
capacity; (vii) grant any increase in compensation to employees or
directors or pay any bonus or severance payments, all except in accordance
with past practice; (viii) enter into any employment contracts without an
unconditional right of termination; (ix) adopt any new employee benefit
plan or make any material change to an existing employee benefit plan
unless necessary to maintain the tax qualified status of such plan;
(x) make any significant change in accounting method except as required to
meet regulatory or other requirements; or (xi) commence any litigation
other than in accordance with past practice, settle any litigation
involving any material liability, or modify, amend or terminate, except in
the ordinary course of business, any material contract.
SAB has agreed that, without the consent of FMB, it will not: (i)
fail to file timely any report required to be filed by it with Regulatory
Authorities, including the SEC; (ii) take any action which would cause the
SAB Common Stock to cease to be traded on the NASDAQ; (iii) without giving
prior written notice to FMB, grant any increase in compensation to
employees or directors or pay any bonus or severance payments, all except
in accordance with past practice, (iv) enter into any employment contracts
without an unconditional right of termination; (v) adopt any new employee
benefit plan or make any material change to an existing employee benefit
plan unless necessary to maintain the tax qualified status of such plan;
(vi) make any significant change in accounting method except as required to
meet regulatory or other requirements; or (v) operate its business
otherwise than in the ordinary course of business without giving prior
written notice to FMB.
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 SAB or FMB 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 FMB and SAB (except that pursuant to Section 251(d)
of the DGCL, no amendment to the Merger Agreement subsequent to the adoption
of the Merger Agreement by the holders of SAB Common Stock may be made without
obtaining further approval of such shareholders if such agreement would alter
or change the amount or kind of securities to be received by shareholders,
alter or change any terms of the certificate of incorporation of the surviving
corporation to be effected by the Merger, or alter or change any terms and
conditions of the Merger Agreement if such alteration or change would adversely
affect such shareholders).
The Merger Agreement may be terminated at any time prior to the
Effective Time, as follows: (i) by mutual consent of the parties; (ii) by
either party in the event of a breach by the other party of any
representation or warranty which cannot be cured or is not cured within 30
days after written notice to the breaching party, to the extent such breach
is likely to result in a Material Adverse Effect on the breaching party;
(iii) by either party in the event of a material breach by the other party
of any covenant or agreement which cannot be cured or is not cured within
30 days after written notice; (iv) by either party in the event any
required regulatory approval is denied or not obtained or the stockholders
of either party fail to approve the Merger as required; (v) by FMB, if the
average Market Value of SAB Common Stock for the Valuation Period is less
than $11.10 per share, unless SAB agrees to adjust the Exchange Ratio;
(vi) by SAB, if the average Market Value of SAB Common Stock for the
Valuation Period is greater than $16.65 per share, unless FMB agrees to
adjust the Exchange Ratio; (vii) automatically if the average Market Value
of SAB Common Stock for the Valuation Period is less than $11.00 per share
or more than $17.00 per share; (viii) by either party in the event the
Merger shall not have been consummated by March 15, 1997, unless such
failure is caused by a breach on the part of the party electing to
terminate; or (vi) by either party in the event that any of the conditions
precedent to the obligations of such party to consummate the Merger cannot
be satisfied or fulfilled by March 15, 1997.
FMB may elect not to terminate the Merger Agreement even if the Market
Value of SAB Common Stock falls below $11.10 per share and SAB does not
elect to adjust the Exchange Ratio, and SAB may elect not to terminate the
Merger Agreement even if the Market Value of SAB Common Stock rises above
$16.65 per share and FMB does not elect to adjust the Exchange Ratio. In
determining whether to elect to terminate the Merger Agreement in these
circumstances, the FMB Board of Directors or the SAB Board of Directors, as
the case may be, will take into account, consistent with its fiduciary
duties, all relevant facts and circumstances existing at the time,
including, without limitation, the market for bank holding company stock in
general, the relative value of the SAB Common Stock in the market, and the
advice of its financial advisors and legal counsel. By approving the
Merger Agreement, the holders of FMB Common Stock would be permitting the
FMB Board of Directors to determine, in the exercise of its fiduciary
duties, to proceed with the Merger even though the Market Value of SAB
Common Stock were less than $11.10 per share, and the holders of SAB Common
Stock would be permitting the SAB Board of Directors to determine, in the
exercise of its fiduciary duties, to proceed with the Merger even though
the Market Value of SAB Common Stock were more than $16.65 per share. No
such waiver would be permitted if the Market Value of SAB Common Stock
were less than $11.00 per share or greater than $17.00 per share.
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 SAB
Board of Directors will consist of 14 directors, including the eleven
incumbent directors of SAB and the following current directors of FMB: John
B. Barnett, Jr., John B. Barnett, III, and Haniel F. Croft.
The Merger Agreement further provides that after the Effective Time
the principal officers of SAB shall be W. Bibb Lamar, Jr., President and
Chief Executive Officer; J. Stephen Nelson, Chairman of the Board; F.
Michael Johnson, Chief Financial Officer and Secretary; W. Gaillard Bixler,
Executive Vice President and Chief Operating Officer; and John B. Barnett,
III, Executive Vice President. All directors and officers will serve in
accordance with the Bylaws of SAB after the Effective Time.
The current directors and officers of each of the subsidiaries of SAB
and FMB will continue after the Effective Time to serve in their respective
capacities in accordance with the terms of the Bylaws of each such
subsidiary.
Interests of Certain Persons in the Merger
Certain of the directors of FMB and SAB have been selected as
directors of SAB after the Effective Time. It is anticipated that John B.
Barnett, III, Chairman of the Board of MCB, will serve as an executive
officer of SAB after the Effective Time. As an executive officer, Mr.
Barnett will be compensated for his services. For a description of the
compensation received by officers of SAB see "Incorporation of Certain
Documents by Reference" and "Business of FMB," respectively. The parties
further anticipate that following consummation of the Merger SAB will
issue, either under its existing incentive stock option plan or a new stock
option plan, options for the purchase of SAB Common Stock to officers of
SAB and the subsidiary banks as a part of the compensation of such
officers.
Certain of the directors and executive officers of FMB, members of
their families and certain of their associates own, or have interests in,
shares of SAB Common Stock. As of September 13, 1996, they were as follows:
John B. Barnett, Jr., 100 shares, John B. Barnett, III, 400 shares, and Rayford
A. Smith, Jr., 100 shares.
SAB agreed in the Merger Agreement that it will offer Haniel F. Croft
and John B. Barnett, III the right to enter into a Change in Control
Agreement similar in form and substance to agreements now in effect with
respect to certain officers of SAB and its subsidiaries.
SAB agreed in the Merger Agreement that it will indemnify, among
others, the directors and executive officers of FMB against all liability
arising out of actions or omissions prior to the Effective Time to the full
extent permitted under Delaware law and FMB's Articles of Incorporation and
Bylaws as in effect on the date of the Merger Agreement.
In the normal course of business, BOM and FNBB make loans to directors
and officers of SAB, and MCB makes loans to directors and officers of FMB,
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 SAB and FMB, do not involve more than the normal risk of
collectibility. The amount of these loans by BOM and FNBB to SAB directors
and officers was 37.4% of shareholders' equity for SAB and the amount of
loans by MCB to FMB directors and officers was 1.61% of shareholders
equity for FMB as of December 31, 1995.
Certain Federal Income Tax Consequences
Neither SAB nor FMB has requested or will receive an advance ruling
from the Internal Revenue Service as to the tax consequences of the Merger.
Hand Arendall, L.L.C., counsel for SAB, and Maynard, Cooper & Gale, P.C.,
counsel for FMB, 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 SAB and FMB (including the representation that FMB
shareholders will maintain sufficient equity ownership interests in SAB
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 SAB and FMB 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 SAB and FMB
(including the representation that FMB shareholders will maintain
sufficient equity ownership interests in SAB after the Merger) are true and
correct at the time of consummation of the Merger, then, in the respective
opinions of Hand Arendall, L.L.C., 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 SAB or FMB in the Merger;
(ii) the shareholders of FMB will recognize no gain or loss upon the
exchange of their FMB Common Stock solely for shares of SAB Common Stock;
(iii) the basis of the SAB Common Stock received by the FMB shareholders in
the proposed transaction will, in each instance, be the same as the basis
of the FMB Common Stock surrendered in exchange therefor; (iv) the holding
period of the SAB Common Stock received by the FMB shareholders will, in
each instance, include the period during which the FMB Common Stock
surrendered in exchange therefor was held, provided that the FMB Common
Stock was held as a capital asset on the date of the exchange; (v) the
payment of cash to FMB shareholders in lieu of fractional share interests
of SAB 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 SAB; 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 FMB shareholder in exchange for his FMB Common Stock pursuant
to the exercise of dissenters rights, such cash will be treated as having
been received in redemption of his FMB Common Stock, subject to the
provisions and limitations of Code Section 302.
THE DISCUSSION SET FORTH ABOVE IS INCLUDED FOR GENERAL INFORMATION
ONLY AND IS BASED UPON THE RESPECTIVE OPINIONS OF HAND ARENDALL, L.L.C.,
AND MAYNARD, COOPER & GALE, P.C., AND APPLIES ONLY TO FMB SHAREHOLDERS WHO
HOLD FMB COMMON STOCK AS A CAPITAL ASSET, AND MAY NOT APPLY TO SPECIAL
SITUATIONS, SUCH AS FMB SHAREHOLDERS, IF ANY, WHO RECEIVED THEIR FMB COMMON
STOCK UPON EXERCISE OF EMPLOYEE STOCK OPTIONS OR OTHERWISE AS COMPENSATION
AND FMB 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 SAB COMMON STOCK, INCLUDING ANY
REDEMPTION OR TRANSFER OF SAB 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 FMB
SHAREHOLDER SHOULD CONSULT HIS OR HER OWN TAX ADVISOR WITH RESPECT TO THE
SPECIFIC TAX CONSEQUENCES OF THE MERGER TO HIM OR HER, INCLUDING THE
APPLICATION AND EFFECT OF STATE, LOCAL AND FOREIGN TAX LAWS.
Accounting Treatment
The Merger will be accounted for as a purchase of FMB by SAB in
accordance with generally accepted accounting principles. Accordingly,
FMB's results of operations will be included in SAB's consolidated results
of operations only from and after the Effective Time. For purposes of
preparing SAB's consolidated financial statements SAB will establish a new
accounting basis for FMB's assets and liabilities based upon the fair
values thereof and SAB's purchase price, including the costs of the
acquisition. Furthermore, such earnings of FMB will be reduced by certain
depreciation and amortization charges arising out of the ultimate purchase
accounting adjustments. However, a final determination of the required
purchase accounting adjustments and of the fair value of the assets and
liabilities of FMB has not yet been made. Accordingly, the purchase
accounting adjustments made in connection with the development of the
comparative pro forma per share financial information appearing elsewhere
in this Joint Proxy Statement are preliminary and subject to change.
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 Agreement, except that SAB will pay
two-thirds, and FMB will pay one-third, of all direct, out-of-pocket costs
and expenses incurred after execution of 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 SAB and
FMB will be approximately $150,000 and $75,000, respectively.
Resales of SAB Common Stock
The shares of SAB 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 FMB for
purposes of Rule 145 under the Securities Act as of the date of the Special
Meetings or for purposes of applicable interpretations regarding
pooling-of-interests accounting treatment. Affiliates may not sell their
shares of SAB 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 SAB and FMB after the
Merger have been published. SAB may place restrictive legends on
certificates representing SAB Common Stock issued to all persons who
are deemed "affiliates" under Rule 145. In addition, FMB has agreed to use
its reasonable efforts to cause each person or entity that is an
"affiliate" to enter into a written agreement in substantially the form
attached to the Merger Agreement relating to such restrictions on sale or
other transfer. This Joint Proxy Statement does not cover resales of
SAB Common Stock received by any person who may be deemed to be an
affiliate of FMB.
PRO FORMA FINANCIAL INFORMATION
Pro Forma Combined Condensed Consolidated Statement of Condition
<TABLE>
The following unaudited Pro Forma Combined Condensed Consolidated
Statement of Condition combines the historical consolidated statements of
condition of SAB and FMB giving effect to the Merger, which will be
accounted for as a purchase, as if it had been completed, and the issuance
of 1,203,090 shares of SAB Common Stock occurred, on June 30, 1996, after
giving effect to the pro forma adjustments described in the accompanying
footnotes. No provision has been reflected for expenses related to the
Merger, which are not expected to have a material impact on financial
condition. This financial data should be read in conjunction with the
historical consolidated financial statements, including the respective
notes thereto, of SAB, which are incorporated by reference in this Joint
Proxy Statement, and of FMB, 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 D 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 June 30, 1996, nor is it necessarily indicative of future
financial position.
Pro Forma Combined Condensed Consolidated Statement of Condition
As of June 30, 1996 (Unaudited)
(In Thousands)
<CAPTION>
HISTORICAL
PRO FORMA PRO FORMA
SAB FMB ADJUSTMENTS COMBINED
ASSETS
<S> <C> <C> <C> <C>
Cash and cash equivalents $ 15,500 $ 9,793 $ (5)(a) $ 25,288
Investments available for sale 47,563 6,988 54,551
Investments 20,822 53,797 (250)(b) 74,369
Loans, net 148,198 22,126 170,324
Premises and equipment 5,520 1,116 1,000 (b) 7,636
Other assets 3,915 1,450 5,365
Goodwill 4,586 (c) 4,586
Total assets $241,518 $ 95,270 $ 5,331 $342,119
LIABILITIES
Deposits $207,583 $ 82,699 $ (5)(a) $290,277
Short-term borrowings 3,239 0 3,239
Other liabilities 1,821 838 370 (d) 3,029
Total liabilities 212,643 83,537 365 296,545
SHAREHOLDERS' EQUITY
Common stock 30 388 (376)(c) 42
Additional paid-capital 16,538 450 16,237 (c) 33,225
Net unrealized gain (loss) on
securities available for sale (302) (10) 10 (b) (302)
Retained earnings 12,609 15,123 (15,123)(c) 12,609
Treasury stock 0 (4,218) 4,218 (c) 0
Total shareholders' equity 28,875 11,733 4,966 45,574
Total liabilities and
shareholders' equity $241,518 $ 95,270 $ 5,331 $342,119
(a) Elimination of inter-company transactions.
(b) Reflects adjustment of Fixed Assets to and Investment Securities
Held to Maturity to Fair Value.
(c) Reflects issuance of 1,203,090 shares of South Alabama
Bancorporation, Inc. common stock at $13.88 per share in exchange for the
11,795 shares outstanding of First Monco Bancshares, Inc. and the
retirement of 3,744 shares of First Monco Bancshares, Inc. treasury stock.
The exchange price of $13.88 per share of FMB Common Stock reflects the
midpoint in the primary range of exchange prices under the Merger Agreement
and is the price believed by SAB to be the most likely "Market Value" of
the SAB Common Stock during the Valuation Period, as determined
under the Merger Agreement. The pro forma statement included adjustments
for the excess of the cost over the fair value of the net assets acquired
as follows:
June 30, 1996
Purchase Price $16,699
Historical net tangible assets acquired 11,733
Estimated fair value adjustment 380
Estimated fair value of net assets 12,113
Excess cost over net assets acquired $ 4,586
(d) Additional deferred tax liability on fair market value
adjustments.
</TABLE>
<TABLE>
Pro Forma Combined Condensed Consolidated Statements of Income
The following unaudited Pro Forma Combined Condensed Consolidated
Statements of Income have been prepared giving effect to the Merger as if
it had been completed, and the issuance of 1,203,090 shares of SAB
Common Stock occurred, on January 1 for the period presented, presented on
a purchase accounting basis, after giving effect to the pro forma
adjustments described in the accompanying footnotes. No provision has been
reflected for expenses related to the Merger, which are not expected to
have a material impact on results of operations. This financial data
should be read in conjunction with the historical consolidated financial
statements, including the respective notes thereto, of SAB, which are
incorporated by reference in this Joint Proxy Statement, and of FMB, 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 D 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.
Pro Forma Combined Condensed Consolidated Statement of Income (Unaudited)
Six Months Ended June 30, 1996
(In Thousands Except Per Share Data)
<CAPTION>
HISTORICAL PRO FORMA PRO FORMA
SAB FMB ADJUSTMENTS COMBINED
<S> <C> <C> <C> <C>
Interest revenue $9,247 $2,930 $12,177
Interest expense 3,810 1,238 5,048
Net interest revenue 5,437 1,692 7,129
Provision for loan losses 131 0 131
Non-interest revenue 1,274 239 1,513
Non-interest expense 4,343 1,070 123 (a) 5,536
Income before income taxes 2,237 861 2,975
Income taxes (698) (252) (950)
Net income $1,539 $ 609 $ 2,025
Net Income per share (b) $ 0.51 $50.75 $ 0.48
Average number of shares
outstanding (000's) (b) 3,002 12 4,226
(a) Amortization of goodwill of $115 over 20 years and depreciation
of $8 fixed asset fair value adjustment.
(b) Average number of shares outstanding was computed by applying the
midrange conversion ratio of 102 to FMB's average shares outstanding and
adding the result to SAB'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.
</TABLE>
<TABLE>
Pro Forma Combined Condensed Consolidated Statement of Income (Unaudited)
Year Ended December 31, 1995
(In Thousands Except Per Share Data)
<CAPTION>
HISTORICAL
SAB FMB PRO FORMA PRO FORMA
ADJUSTMENTS COMBINED
<S> <C> <C> <C> <C>
Interest revenue $18,094 $5,673 $23,767
Interest expense 7,397 2,439 9,836
Net interest revenue 10,697 3,234 13,931
Provision for loan losses 78 0 78
Non-interest revenue 2,244 518 2,762
Non-interest expense 8,446 2,066 245(a) 10,757
Income before income taxes 4,417 1,686 5,858
Income taxes (1,410) (478) (1,888)
Net income $ 3,007 $ 1,208 $ 3,970
Net Income per share (b) $ 1.00 $100.67 $ 0.94
Average number of shares
outstanding (000's) (b) 3,999 12 4,223
(a) Amortization of goodwill of $229 over 20 years and depreciation
of $16 fixed asset fair value adjustment.
(b) Average number of shares outstanding was computed by applying the
midrange conversion ratio of 102 to FMB's average shares outstanding and
adding the result to SAB'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.
</TABLE>
COMPARATIVE MARKET PRICES AND DIVIDENDS
Market Prices
SAB. The SAB Common Stock is traded in the over-the-counter market.
Bid and asked prices (symbol "SABC") are quoted on NASDAQ. The high and
low bid prices shown below represent inter-dealer prices without adjustment
for retail mark-up, mark-down or commission and do not represent actual
transactions. Trades have generally occurred in small lots, and the prices
quoted are not necessarily indicative of the market value of a substantial
block.
<TABLE>
<CAPTION>
Bid Prices Per Share
High Low
1996
<S> <C> <C>
First Quarter $14 1/2 $ 13
Second Quarter 14 1/2 13 1/4
1995
First Quarter 12 3/4 12 3/4
Second Quarter 12 3/4 12 1/2
Third Quarter 14 1/4 12 1/2
Fourth Quarter 14 1/4 12 1/2
1994
First Quarter 12 3/4 12 1/4
Second Quarter 12 1/2 12 1/2
Third Quarter 12 3/4 12 1/2
Fourth Quarter 12 3/4 12 1/2
</TABLE>
On April 26, 1996, the last business day prior to public
announcement that SAB and FMB had agreed in principle to merge, and on May
30, 1996, the last business day prior to public announcement of the
execution of the Merger Agreement, the closing bid price per share of SAB
Common Stock, as reported on NASDAQ, was $13.25.
SAB and FMB shareholders should obtain current market quotations for
the SAB Common Stock.
FMB. FMB 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 FMB Common Stock as to which management
has any knowledge of the price paid in the transaction occurred on January
29, 1996, at a price per share of $1,038.40, for 10 shares, and on February
19, 1996, at a price per share of $1,047.93, for 8 shares, each in a
transaction whereby FMB sold treasury stock to individual purchasers.
One of the two transactions involved the acquisition of new qualifying
shares by a director of MCB and FMB.
Dividends
SAB declared quarterly cash dividends per share totaling $.26 in 1994
and $.32 in 1995. For each of the first three quarters of 1996, SAB
declared a cash dividend of $.10 per share. For the years 1994 and 1995,
FMB declared cash dividends on FMB Common Stock of $15.00 per year and a
special dividend of $12.00 near the end of each year. On September 10, 1996,
FBM declared a special dividend of $12.00 per share. Future dividends on
shares of SAB (assuming the Merger is consummated) or of both SAB and FMB
(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 SAB CAPITAL STOCK
SAB's Certificate of Incorporation currently authorizes the issuance of
4,500,000 shares of Common Stock, $0.01 par value, and up to 500,000 shares
of preferred stock. As of the date of this Joint Proxy Statement,
3,001,563 shares of SAB Common Stock are issued and outstanding and no
preferred stock has been issued. In addition, approximately 150,700 shares
of SAB Common Stock are subject to acquisition through the exercise of
options under SAB's Incentive Stock Option Plan. Assuming consummation of
the Merger, the number of authorized shares of SAB Common Stock will be
increased to 5,500,000. The capital stock of SAB 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 SAB Common Stock outstanding is, and all SAB Common Stock
to be issued in connection with the Merger will be, fully paid and
nonassessable. No SAB Common Stock is subject to call.
SAB Common Stock may be issued at such time or times and for such
consideration (not less than the par value thereof) as the SAB 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 SAB and its subsidiaries. BOM is the Registrar and Transfer
Agent for shares of SAB Common Stock.
Holders of SAB Common Stock are entitled to receive, to the extent
permitted by law, such dividends as may be declared from time to time by
the SAB Board of Directors. SAB 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 SAB 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 SAB, after distribution in full of
the preferential amounts, if any, to be distributed to holders of SAB's
preferred stock, should any be issued, holders of SAB Common Stock will be
entitled to receive all of the remaining assets of SAB of whatever kind
available for distribution to shareholders ratably in proportion to the
number of shares of SAB Common Stock held. The SAB Board of Directors may
distribute in kind to the holders of SAB Common Stock such remaining assets
of SAB 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 SAB Common Stock. Neither the
merger or consolidation of SAB 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 SAB of any class, shall be deemed to be a
dissolution, liquidation or a winding-up of SAB for purposes of this
paragraph.
Because SAB is a holding company, its rights and the rights of its
creditors and shareholders, including the holders of SAB 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 SAB itself may be a
creditor having recognized claims against such subsidiary.
Except as provided by law, each holder of SAB Common Stock shall have
one vote on all matters voted upon by shareholders with respect to each
share of SAB Common Stock held. Holders of SAB Common Stock do not have
cumulative voting rights in the election of directors.
Holders of SAB Common Stock are not entitled to preemptive rights with
respect to any shares or other securities of SAB which may be issued.
The SAB Certificate of Incorporation permits the issuance of preferred
stock in one or more series having such voting powers and other terms and
conditions, as may be determined in the discretion of the SAB Board of
Directors.
EFFECT OF MERGER ON RIGHTS OF SHAREHOLDERS
SAB is a Delaware corporation subject to the provisions of the DGCL.
FMB is an Alabama corporation subject to the provisions of the ABCA.
Shareholders of FMB, whose rights are governed by FMB's Articles of
Incorporation and Bylaws and the ABCA, will, upon consummation of the
Merger, become shareholders of SAB. The rights of such shareholders as
shareholders of SAB will then be governed by SAB's Certificate of
Incorporation and Bylaws, and such rights will to be governed by the DGCL.
Except as set forth below, there are no material differences between
the rights of an FMB shareholder under FMB's Articles of Incorporation and
Bylaws and ABCA and the rights of an SAB shareholder under SAB's Certificate of
Incorporation and Bylaws and the DGCL. The following summary does not purport
to be a complete discussion of, and is qualified in its entirety by reference
to, the ABCA and DGCL and the Certificate of Incorporation or Articles of
Incorporation, as the case may be, and Bylaws of each corporation.
Authorized Capital Stock
SAB's Certificate of Incorporation authorizes the issuance of up to
4,500,000 shares of SAB Common Stock ($0.01 par value each) and 500,000
shares of preferred stock (no par value), of which 3,001,563 shares of SAB
Common Stock were issued and outstanding as of the SAB Record Date. The
Merger Agreement increases to 5,500,000 the number of authorized shares of
SAB Common Stock.
FMB's Articles of Incorporation authorize the issuance of up to
250,000 shares of FMB Common Stock ($25.00 par value each), of which 11,795
shares were issued and outstanding as of the FMB Record Date.
Special Meetings of Shareholders
SAB's Certificate of Incorporation provides 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.
Under FMB's Bylaws, 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 a majority of the stock. Further, under the ABCA the
President or Secretary shall call a meeting upon presentment of a written
demand for a meeting from 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
FMB's Articles of Incorporation and Bylaws contain no provisions
altering the provisions of the ABCA regarding shareholder voting, except
that FMB s Bylaws may be amended by vote of the holders of a majority of
the shares entitled to vote. 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.
SAB's Certificate of Incorporation provides that the vote of 75% or more
of the shares entitled to vote will be required to approve any merger or
consolidation of SAB with or into any other "related" corporation or the
sale, lease, exchange or other disposition of a substantial part (20%) of
SAB's assets to such a related corporation, if the related corporation or
its affiliates are the beneficial owners of 5% or more of the outstanding
capital stock of SAB. The above 75% vote requirement does not apply if (i)
a 75% vote of the directors is obtained or (ii) SAB owns 50% or more of the
voting stock of such related corporation. SAB's Certificate of Incorporation
also provides that the affirmative vote of the holders of a majority of the
outstanding shares of the corporation is required to amend the Certificate of
Incorporation to increase or decrease the authorized capital stock of the
Corporation or to merge a corporation not related.
Notice of Annual Shareholders Meeting
SAB's Bylaws provide that notice of the annual meeting of shareholders
shall be given to each shareholder
between 10 and 50 days prior to such meeting.
FMB's Bylaws provide that notice of the annual meeting of shareholders
shall be given to each shareholder at least ten days prior to such meeting,
provided that failure to mail the notice or any defect therein shall not
affect the validity of such meetings or any proceedings thereof. The ABCA
requires that written notice be given to the shareholders no fewer than 10
and no more than 60 days before the meeting date.
Amendment of Articles or Certificate of Incorporation
FMB's Articles of Incorporation may be amended by the Corporation as
permitted under the ABCA, which allows amendment by the Board of Directors
in limited circumstances but generally requires a majority vote of the
shareholders. SAB's Certificate of Incorporation contains a similar provision,
but requires a 75% vote of the shareholders to change any of those sections
of its Certificate of Incorporation relating to (i) mergers with related
corporations, (ii) action by shareholders by written consent, (iii) calling
of special meeting of the shareholders or (iv) nomination of a director for
election at an annual meeting of the shareholders, provided, however, that this
75% vote requirement does not apply if the admendment in question receives the
affirmative vote of not less than 75% of the directors.
Amendment of Bylaws
FMB's Bylaws provide that they may be amended by two-thirds vote of
the directors at any regular or special meeting of the Board of Directors
or by a majority of the stockholders entitled to vote at a regular meeting
of stockholders if notice of such amendment is included in notice of the
meeting. SAB's Bylaws provide that they may be amended by majority vote at
any regular or special meeting of the Board of Directors or the
stockholders if notice of such amendment is included in notice of the
meeting.
Shareholder Action Without a Meeting
SAB's Certificate of Incorporation and Bylaws prohibit any shareholder
action by written consent without a meeting. Neither FMB's Articles of
Incorporation nor its Bylaws contains such a prohibition, thereby allowing
any shareholder action to be taken by the written consent of all
shareholders entitled to vote on the action.
Nomination and Qualification of Directors
SAB's Certificate of Incorporation provides that in order for a
shareholder to nominate a Director for election at an annual shareholders'
meeting, such shareholder must give SAB's Secretary notice of such
nomination no less than 30 and no more than 60 days prior to such meeting.
FMB's Articles of Incorporation contain no such provision. FMB's Bylaws
require that directors be shareholders of FMB. SAB has no such
requirement.
Director Liability
SAB's Certificate of Incorporation contains a provision which limits, to
the extent permitted by the DGCL, the liability of SAB directors for
action or inaction as a director. FMB's Articles of Incorporation contain
no such provision.
Transfer Restrictions
FMB's Bylaws give FMB the right to impose transfer restrictions on any
share of its common stock. Neither SAB's Certificate of Incorporation nor its
Bylaws contain such a provision.
Access to Courts
FMB shareholders currently have access to the courts of the State to
enforce their rights as shareholders. SAB shareholders, as shareholders of
a Delaware corporation, have access to the Chancery Court of the State of
Delaware to enforce their rights as shareholders.
FMB MANAGEMENT'S DISCUSSION AND ANALYSIS
The following discussion and financial information are presented to
aid in an understanding of the current financial position and results of
operations of FMB and should be read in conjunction with the Audited
Financial Statements and Notes thereto included herein. FMB is the parent
holding company of MCB, and it has no operations of consequence other than
the ownership of its subsidiary. The emphasis of this discussion will be
on the years 1995, 1994 and 1993. All yields presented and discussed
herein are based on the cash basis and not on the tax-equivalent basis.
At June 30, 1996, FMB had consolidated assets of approximately $95.3
million and operated two banking locations in Monroe County. FMB s sole
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
FMB and MCB 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
Board 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:
(a) 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 MCB;
(b) FMB encounters difficulty in integrating with the operations of
SAB; and
(c) general economic conditions, either nationally or in Alabama, are
less favorable than expected.
FINANCIAL CONDITION
Average Assets and Liabilities
From 1991 to 1994 FMB's average assets grew $8.0 million or 9.7%.
From 1994 to 1995 average assets decreased $.8 million or .09%. In October
1994, in response to a request from a group of shareholders, FMB purchased
treasury stock totaling $4.1 million and this purchase combined with a $1.5
million increase in average deposits resulted in the net decrease in
average assets in 1995 compared to 1994.
During the period 1991 to 1995 average loans decreased $3.2 million.
Weak loan demand in FMB's market area, slow growth in the local economy,
and the fact that six commercial banks and several credit unions are
represented in the market have kept average loans at FMB at a low level
relative to deposits. During the same period average interest bearing
deposits grew $11.5 million, while non-interest bearing deposits decreased
by $3.5 million. The decrease in average loans, combined with the growth
in deposits, was used to increase average investment securities by $11.4
million from 1991 to 1995.
<TABLE>
Distribution of Average Assets, Liabilities and Shareholders' Equity
(In Thousands)
<CAPTION>
1995 1994 1993 1992 1991
Average Assets:
<S> <C> <C> <C> <C> <C>
Cash and non-interest bearing deposits $ 3,288 $ 3,125 $ 3,099 $ 3,038 $ 3,130
Interest bearing deposits 0 0 0 55 435
Federal funds sold 6,594 5,094 4,919 4,099 7,054
Investment securities 58,844 61,269 59,385 56,328 47,488
Loans, net 18,645 18,840 18,568 20,311 21,886
Premises and equipment, net 1,066 826 865 908 958
Other assets 1,269 1,328 1,452 1,735 1,517
Average Total Assets $89,706 $90,482 $88,288 $86,474 $82,468
Average Liabilities and
Shareholder's Equity:
Non-interest bearing demand deposits $13,829 $14,100 $13,953 $15,310 $17,369
Interest bearing demand deposits 26,392 25,089 23,969 21,557 17,535
Savings deposits 10,687 12,288 11,573 9,560 4,842
Time deposits 27,217 25,143 24,617 26,605 30,384
Total Deposits 78,125 76,620 74,112 73,032 70,130
Other liabilities 836 764 758 746 658
Shareholders' equity 10,745 13,098 13,418 12,696 11,680
Average Total Liabilities and
Shareholders Equity $89,706 $90,482 $88,288 $86,474 $82,468
* FMB carried no foreign loans or deposits in any of the periods
shown.
</TABLE>
Loans
Loans at December 31, 1995, were $19.9 million, a slight increase from
$19.2 million at December 31, 1994. At December 31, 1995, commercial,
financial and agricultural loans represented 17.0% of total loans, real
estate-mortgage and construction loans represented 64.4%, and consumer
loans represented 18.6% of total loans.
Of the outstanding loans in the categories of commercial, financial
and agricultural, real estate-construction and real estate-mortgage, $11.6
million or 71.8% mature within one year and may be used to adjust for
asset/liability management purposes. All loans in these categories
maturing after one year have a fixed rate. Of the total loans outstanding
at December 31, 1995, 66.1% may be repriced within one year due to either
maturity or a variable rate arrangement.
The table below shows the classification of loans by major category at
December 31, 1995 and 1994. The second table depicts maturities of
selected loan categories and the interest rate structure for such loans
maturing after one year.
<TABLE>
Distribution of Loans by Category
(In Thousands)
<CAPTION>
December 31,
1995 1994
<S> <C> <C>
Commercial, financial and agricultural $ 3,376 $ 2,716
Real estate - construction 285 523
Real estate - mortgage 12,554 12,130
Consumer 3,709 3,856
Total Loans $19,924 $19,225
Allowance for loan losses 455 450
Net Loans $19,469 $18,775
</TABLE>
<TABLE>
Selected Loans by Type and Maturity
(In Thousands)
<CAPTION>
December 31, 1995
Maturing
After One
Within But Within After
One Year Five Years Five Years Total
<S> <C> <C> <C> <C>
Commercial, financial and
agricultural $2,889 $ 487 $ 0 $ 3,376
Real estate - construction 241 44 0 285
Real estate - mortgage 8,515 2,584 1,455 12,554
Total $11,645 $3,115 $1,455 $16,215
Loans maturing after one year with:
Fixed interest rates $3,115 $1,455
Floating interest rates 0 0
$3,115 $1,455
</TABLE>
FMB'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 FMB 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. FMB adopted SFAS No. 115
effective January 1, 1994, which resulted in a $107 thousand net unrealized
loss 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 FMB 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 FMB'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 December 31, 1995, 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, 1995 Maturity
After one but After five but
Within one within within ten After
year five years years ten 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 U.S. Government
Agencies $2,007 6.37% $ 7,986 6.86% $ 3,070 7.46% $ 0 0.00% $13,063 6.97%
Obligations of States and
Political Subdivisions 3,232 4.21 5,636 4.79 3,504 4.96 310 5.85 12,682 4.71
Collateralized Mortgage Obligations 552 7.43 3,269 6.84 3,798 6.31 7,482 5.74 15,101 6.18
Mortgage-Backed Securities 0 0.00 1,501 6.41 741 9.49 0 0.00 2,242 7.43
Other 3,807 4.83 4,070 6.22 0 0.00 84 4.08 7,961 5.53
Total securities held to maturity $9,598 5.15% $22,462 6.19% $11,113 5.75% $7,876 5.72% $51,049 5.97%
Securities available for sale:
U.S. Treasury securities $9,993 5.33% $ 1,012 5.05% $ 0 0.00% $ 0 0.00% $11,005 5.30%
U.S. Government Agencies 0 0.00 0 0.00 0 0.00 0 0.00 0 0.00
State and political subdivisions 0 0.00 0 0.00 0 0.00 0 0.00 0 0.00
Other investments 0 0.00 0 0.00 0 0.00 0 0.00 0 0.00
Total securities available
for sale $9,993 5.33% $ 1,012 5.05% $ 0 0.00% $ 0 0.00% $11,005 5.30%
Total investments $19,591 5.24% $23,474 6.14% $11,113 5.75% $7,876 5.72% $62,054 5.87%
</TABLE>
<TABLE>
Book Value of Available for Sale Securities
(In Thousands)
<CAPTION>
December 31,
1995 1994
<S><C> <C> <C>
U.S. Treasuries $11,005 $15,001
* FMB carries only U.S. Treasury Securities as Available for Sale.
</TABLE>
Deposits and Short-Term Borrowings
Between 1993 and 1995 FMB experienced growth in the categories of
interest-bearing demand deposits and time deposits of 10.0% and 10.6%
respectively. No growth occurred in non-interest bearing demand or in
savings deposits. FMB has maintained a stable base of non-interest bearing
demand deposits despite customer trends toward interest bearing deposits.
In 1993, the average balance of non-interest bearing demand deposits was
18.9% of total average deposits and by 1995 this ratio had decreased
slightly to 17.7%.
<TABLE>
Average Deposits
(Dollars in Millions)
Average for the Year
<CAPTION>
1995 1994 1993
Average Average Average Average Average Average
Amount Rate Amount Rate Amount Rate
Outstanding Paid Outstanding Paid Outstanding Paid
<S> <C> <C> <C> <C> <C> <C>
Non-interest bearing
demand deposits $13.8 N/A $14.1 N/A $14.0 N/A
Interest bearing
demand deposits 26.4 2.71% 25.0 2.71% 24.0 2.71%
Savings deposits 10.7 2.95 12.3 2.95 11.5 2.95
Time deposits 27.2 5.14 25.2 3.75 24.6 3.34
Total average deposits $78.1 $76.6 $74.1
</TABLE>
<TABLE>
The following table reflects maturities of time deposits of $100,000
or more at December 31, 1995. Time deposits include both certificates of
deposit and time deposit open accounts. Deposits of $6.0 million in this
category represented 7.3% of total deposits at year-end 1995. Management
does not actively pursue these deposits as a means to fund interest earning
assets, and as a result, rates paid on these deposits do not differ from
rates paid on smaller denomination certificates of deposit.
<CAPTION>
Maturities of Time Deposits of $100,000 or More
(In Millions)
At December 31, 1995
Under Over
3 3-6 3-12 12
Months Months Months Months Total
<C> <C> <C> <C> <C>
$4.3 $1.6 $.1 0 $6.0
</TABLE>
During the years 1993, 1994 and 1995, FMB had no short-term borrowing
except that in 1994 a small amount of federal funds was purchased. The
average federal funds purchased in 1994 was $4 thousand and the weighted
average interest rate was 5.125%. FMB had no month-end balance of
short-term borrowings in 1993, 1994 or 1995.
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 investment securities, maturing loans, federal funds
sold and cash and cash equivalents. On the liability side, liquidity is
provided by a stable base of core deposits. Additionally, FMB has federal
funds lines of credit and Federal Reserve discount window operations
available if needed.
Interest Rate Sensitivity
By monitoring FMB'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 liability sensitive position of $11.6 million at December 31,
1995. This negative gap position implies that in a rising rate environment
FMB would experience a narrowing of its net interest revenue as interest
rates paid on liabilities would increase faster than rates earned on
interest earning assets. Conversely, the table would indicate that in a
falling rate environment, FMB would experience a widening of the net
interest margin. However, included in the $52.6 million of rate sensitive
liabilities are $9.9 million in savings 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 negative gap on FMB s net interest
margin would not be as great as the table might indicate.
<TABLE>
Interest Sensitivity Analysis
(Dollars in Thousands)
<CAPTION>
December 31, 1995
Interest Sensitive Within (Cumulative) Non-Interest
Sensitive
3 months 3-12 months 1-5 years Within 5 years Total
<S> <C> <C> <C> <C> <C>
EARNING ASSETS
Loans $ 9,786 $ 13,206 $ 18,465 $ 1,504 $19,969
Less allowance for loan losses 0 0 0 (455) (455)
Net loans 9,786 13,206 18,465 1,049 19,514
Investment securities 6,755 20,872 44,257 17,791 62,048
Federal funds sold 6,975 6,975 6,975 0 6,975
Total earning assets $ 23,516 $ 41,053 $ 69,697 $18,840 $88,537
INTEREST BEARING LIABILITIES
Interest bearing
demand deposits $ 27,649 $ 27,649 $ 27,649 $ 0 $27,649
Savings deposits 9,878 9,878 9,878 0 9,878
Large denomination time deposits 4,357 6,043 6,043 0 6,043
Other time deposits 2,116 9,056 21,602 0 21,602
Total interest bearing
liabilities $ 44,000 $ 52,626 $ 65,172 $ 0 $65,172
Interest sensitivity gap $(20,484) $(11,573) $ 4,525
Earning assets/Interest bearing
liabilities 53.45% 78.01% 106.94%
Interest sensitivity gap/Earning
assets -87.11% -28.19% 6.49%
</TABLE>
Capital Resources
Shareholders' equity decreased $3.6 million from December 31, 1993, to
December 31, 1994, a result of the purchase of $4.1 million of FMB stock in
October, 1994, now held as treasury stock. At year-end 1995 shareholder s
equity increased to $11.1 million from $10.0 million at year-end 1994.
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 $11.1 million at December 31, 1995,
and total (Tier I plus Tier II) capital was $11.6 million at December 31,
1995. Tier I and total capital ratios were 17.09% and 17.79%, respectively
at December 31, 1995. Both ratios were well above the regulatory minimums.
<TABLE>
Risk-Based Capital
(Dollars in Thousands)
<CAPTION>
December 31,
1995 1994 1993
Tier I capital
<S> <C> <C> <C>
Realized common shareholders' equity $11,115 $10,273 $13,569
Tier II capital
Allowable portion of the allowance for
loan losses 455 450 473
Total capital (Tier I and Tier II) $11,570 $10,723 $14,042
Risk-adjusted assets $65,027 $54,129 $57,051
Quarterly average assets 91,939 86,258 88,768
Risk-adjusted capital ratios:
Tier I capital 17.09% 18.98% 23.78%
Total capital (Tier I and Tier II) 17.79% 19.81% 24.61%
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 12.09% 11.90% 15.29%
</TABLE>
RESULTS OF OPERATIONS
Net Interest Revenue
Net interest revenue, the difference between rates earned on assets
and the rates paid on liabilities, is the largest component of a bank s
earnings. Interest rates in general began to rise in 1994 and the average
rate earned on loans and the average rate paid on interest bearing
liabilities were higher than in 1993. However, maturities of several
securities with high yields in 1993 and 1994 and their replacement with
lower yielding securities caused the net yield on interest earning assets
to decrease from 4.40% in 1993 to 3.95% in 1994. In 1995 the level of
interest rates in the economy was higher, on the average, than in 1994. In
1995, FMB was able to more quickly reprice interest earning assets upward
than interest bearing liabilities resulting in an improved net yield of
4.17% from 3.95% in 1994.
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>
1995 1994 1993
Average Average Interest Average Average Interest Average Average Int.
Amount Rate/ Earned/ Amount Rate/ Earned/ Amount Rate/ Earned/
Outstanding Yield Paid Outstand Yield Paid Outstanding Yield Paid
ing
Interest earning assets
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Taxable securities $48,148 5.96% $2,869 $49,464 5.27% $2,608 $49,845 5.99% $2,987
Non-taxable securities 10,696 4.65 497 11,805 4.82 569 9,540 5.29 505
Total securities 58,844 5.72 3,366 61,269 5.19 3,177 59,385 5.88 3,492
Loans(1) 19,096 10.08 1,924 19,315 8.71 1,683 19,038 8.20 1,562
Federal funds sold 6,594 5.81 383 5,094 3.89 198 4,919 3.03 149
Total interest earning assets 84,534 6.71 5,673 85,678 5.90 5,058 83,342 6.24 5,203
Non-interest earning assets:
Cash and due from banks 3,288 3,125 3,099
Premises and equipment, net 1,066 826 865
Other assets 1,269 1,328 1,452
Allowance for possible loan
losses (451) (475) (470)
Total $89,706 $90,482 $88,288
Interest bearing liabilities
Interest bearing demand and
savings deposits $37,079 2.80 1,040 $37,377 2.81 1,053 $35,542 2.81 1,000
Time deposits 27,217 5.14 1,399 25,143 3.75 942 24,617 3.34 822
Total interest bearing
liabilities 64,296 3.79 2,439 62,520 3.19 1,995 60,159 3.03 1,822
Non-interest bearing liabilities
Demand deposits 13,829 14,100 13,953
Other 836 764 758
Total non-interest bearing
liabilities 14,665 14,864 14,711
Shareholders' equity 10,745 13,098 13,418
Total $89,706 $90,482 $88,288
Net Interest Revenue 2.92 $3,234 2.71 $3,063 3.21 $3,381
Net yield on interest earning assets 3.83 3.58 4.06
Tax equivalent adjustment 0.35 0.37 0.34
Net yield on interest earning assets
(tax equivalent) 4.18% 3.95% 4.40%
_______________________
(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.
</TABLE>
Loans as a percent of earning assets have remained low over the past
several years as a result of lack of growth in the local economy, weak loan
demand and intense competition from other financial institutions.
Management of FMB believes the Merger will permit MCB to gain access to a
larger and expanding market, reversing the decline in loan volume and
thereby increasing loan income.
<TABLE>
The following table reflects the sources of interest income and
expense between 1994 and 1993 and between 1995 and 1994. The variances
resulting from changes in interest rates and the variances resulting from
changes in volume are shown.
Analysis of Interest Increases (Decreases)
(In Thousands)
<CAPTION>
1995 Change From 1994 1994 Change From 1993
Due to(1) Due to (1)
Amount Volume Rate Amount Volume Rate
Interest Revenue
<S> <C> <C> <C> <C> <C> <C>
Taxable securities $ 261 $ (77) $338 $(379) $ (20) $(359)
Non-taxable securities (114) (85) (29) 101 185 (84)
Total securities 147 (162) 309 (278) 165 (443)
Total loans 241 (22) 263 121 24 97
Federal funds sold 185 75 110 49 7 42
Total 573 (109) 682 (108) 196 (304)
Interest Expense
Interest bearing demand
and savings deposits (13) (8) (5) 53 52 1
Other time deposits 457 100 357 120 19 101
Total 444 92 352 173 71 102
Net interest revenue $129 $(201) $330 $(281) $125 $(406)
(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.
</TABLE>
Provision for Loan Losses 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 FMB s
control. Certain loans collateralized by real estate considered by
management to be in-substance foreclosures are recorded at the lower of the
recorded investment in the loan or the fair value of the underlying
collateral.
While it is possible that in particular periods FMB 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 quarter end. Appropriate adjustments to the allowance
are made through the provision for loan losses.
<TABLE>
The table below sets forth certain information with respect to FMB's
average loans, allowance for loan losses, charge-offs and recoveries for
the five years ended December 31, 1995.
Summary of Loan Loss Experience
(Dollars in Thousands)
<CAPTION>
Year Ended December 31,
1995 1994 1993 1992 1991
<S> <C> <C> <C> <C> <C>
Allowance for loan losses-
balance at beginning of period $ 450 $ 473 $ 465 $ 383 $ 300
Charge-offs:
Commercial, financial
and agricultural 16 2 15 3 1
Real estate - construction 0 0 0 1 0
Real estate - mortgage 17 34 15 16 24
Consumer 11 6 4 5 8
Total charge-offs 44 42 34 25 33
Recoveries:
Commercial, financial
and agricultural 15 6 30 2 3
Real estate - construction 0 0 0 0 0
Real estate - mortgage 1 1 2 3 4
Consumer 33 12 10 12 4
Total recoveries 49 19 42 17 11
Net charge-offs (recoveries) (5) 23 (8) 8 22
Addition to allowance charged to
operating expense 0 0 0 90 105
Allowance for loan losses-
balance at end of period $ 455 $ 450 $ 473 $ 465 $ 383
Loans at end of period, net of
unearned income $19,924 $19,225 $20,022 $19,745 $24,938
Ratio of ending allowance to
ending loans 2.28% 2.34% 2.36% 2.36% 1.54%
Average loans, net of
unearned income $19,096 $19,315 $19,038 $19,943 $21,886
Ratio of net charge-offs
to average loans -0.03% 0.12% -0.04% 0.04% 0.10%
</TABLE>
No additions to the allowance for loan losses have been made since
1991 and 1992 when additions of $105 thousand and $90 thousand were made,
respectively. The additions in 1991 and 1992 resulted from management s
concerns about some large loans and general economic conditions in its
market. At year-end 1995 the allowance was $455 thousand as compared to
$450 thousand at year-end 1994 and $473 thousand at year-end 1993. The
allowance at year-end 1995 to ending loans was 2.28%, little changed from
1992, 1993 and 1994. The allowance was considered adequate at December 31,
1995.
FMB experienced net recoveries of $8 thousand in 1993 and $5 thousand
in 1995. Net charge-offs in 1994 were $23 thousand. Management currently
anticipates that 1996 total charge-offs for all categories, as a percent
of average loans in these categories, will be approximately the same as in
1995. Management also anticipates that recoveries in the consumer category
will be approximately $20 thousand lower than in 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.
FMB had no loans on non-accrual, renegotiated loans or other real estate
owned as of year end 1993, 1994 and 1995. Accruing loans 90 days or more
past due for the years 1993, 1994 and 1995 were $14 thousand, $6 thousand
and $10 thousand, respectively.
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.
Not included as non-performing assets are loans totaling $1.2 million
at December 31, 1995 as to which management has concerns about the ability
of the borrowers to comply with present repayment terms. These credits
were considered in determining the adequacy of the allowance for possible
loan losses and, while current, are regularly monitored for changes within
a particular industry or general economic trends which could cause the
borrowers severe financial difficulties. Management does not expect a loss
in any of these loans.
Non-Interest Revenue and Non-Interest Expense
Total non-interest revenue grew 8.8% from 1993 to 1995. FMB did not
adjust its service charge schedule during the years shown, and the increase
in service charges on deposit accounts in 1994 over 1993 and the decrease
in 1995 from 1994 generally reflect changes in the number of and activity
in transaction accounts. Included in other revenue in 1995 was a gain of
approximately $30,000 realized from the sale of a branch building.
<TABLE>
Non-Interest Revenue
(In Thousands)
<CAPTION>
Year Ended December 31,
1995 1994 1993
<S> <C> <C> <C>
Service charges on deposit accounts $399 $423 $398
Other revenue 119 73 78
Total $518 $496 $476
</TABLE>
Total non-interest expense in 1995 was $19 thousand lower than in 1993.
In 1994, several long time employees of FMB retired, resulting in a $129
thousand decrease in salaries, pension and other employee benefits
in 1994 compared to 1993. Increases in furniture and equipment expenses
and in the other expense category in 1995 were related to technology
upgrades.
<TABLE>
Non-Interest Expense
(In Thousands)
<CAPTION>
Year Ended December 31,
1995 1994 1993
<S> <C> <C> <C>
Salaries $ 895 $ 873 $ 990
Pension and other employee benefits 196 203 215
Net occupancy expenses 124 121 131
Furniture and equipment expenses 89 52 53
Other expenses 762 771 697
Total $2,066 $2,020 $2,086
</TABLE>
Income Taxes and Other Issues
Income tax expense was $478,000 in 1995 compared to $403,000 and
$499,000 respectively in 1994 and 1993.
Because FMB's assets and liabilities are essentially monetary in
nature, the effect of inflation on FMB sssets 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 FMB 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 the liquidity,
capital resources or operations of SAB. Management is not aware of any
current recommendations by regulatory authorities which, if they were
implemented, would have such an effect.
FMB FIRST SIX MONTHS 1996
Financial Condition
Total assets at June 30, 1996, were $95.3 million compared to $94.9
million at December 31, 1995, and $89.5 million at June 30, 1995. The
increase between June 30, 1995, and June 30, 1996, was caused primarily
by a $4.9 million increase in demand deposits and a $1.3 million increase
in time deposits. During the period loans increased $3.5 million and
investment securities increased $2.5 million. Total shareholders' equity
at June 30, 1996, was $11.7 million. This compares to shareholders' equity
at December 31, 1995, of $11.1 million and at June 30, 1995, of $10.8
million. The increases for the periods reflect net income less dividends.
Results of Operations
Net income for the first six months of 1996 was $609 thousand compared
to $559 thousand for the same period in 1995. Interest income increased
$183 thousand or 6.7% while interest expense increased $39 thousand,
resulting in an increase in net interest income of $144 thousand.
Non-interest income decreased to $239 thousand in 1996 from $273 thousand
in 1995. Non-interest expense increased $12 thousand or 1.14%.
Loan Loss Experience and Non-Performing Assets
The allowance for loan losses at June 30, 1995, and at June 30, 1996,
was, in management's opinion, adequate. Additions to the allowance through
the provision are made after an analysis of the portfolio considering
past experience, size of the portfolio and current economic conditions. A
summary of the activity in the allowance for loan losses for the six month
periods ending June 30, 1996, and June 30, 1995, are presented below:
<TABLE>
Summary of Loan Loss Experience
(In Thousands)
<CAPTION>
Six Months Ended
June 30,
1996 1995
<S> <C> <C>
Allowance for loan losses-
balance at beginning of period $455 $450
Total charge-offs 36 37
Total recoveries 16 35
Addition to allowance charged
to operating expense 0 0
Allowance for loan losses-
balance at end of period $435 $448
</TABLE>
At June 30, 1996, FMB had no accruing loans 90 days or more past due,
loans on non-accrual, renegotiated loans or other real estate owned.
BUSINESS OF FMB
FMB is a bank holding company registered under the BHCA. Through its
bank subsidiary, MCB, FMB provides community banking services in Southwest
Alabama. At June 30, 1996, FMB had total consolidated assets of
approximately $95.3 million, total consolidated deposits of approximately
$82.7 million and total consolidated shareholders' equity of approximately
$11.7 million.
Bank Activities
MCB'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. FMB offers, through
MCB, commercial lending services, including lines of credit, revolving
credits, term loans, real estate loans and other forms of secured
financing. MCB also offers installment and other personal loans, home
improvement loans, automobile loans, boat loans and other consumer
financing, safe deposit services and mortgage loans. FMB extends
credit to its customers located primarily within the market area of Monroe
County. 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. The broad base of
borrowers and the diverse sources of income prevent any concentrations in
any one borrower or industry. See "FMB's Management Discussion and
Analysis" for a more complete discussion of FMB's business.
Certain Management Information
Under the rules established by the Commission, FMB 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 SAB after
consummation of the Merger. As of the date of this Joint Proxy Statement,
the following are directors or executive officers who have been identified
as directors or executive officers of SAB: John B. Barnett, Jr., John B.
Barnett, III and Haniel F. Croft.
Mr. Barnett, Jr., age 78, is President of FMB and Vice Chairman of the
Board of MCB. Mr. Barnett was employed by MCB in 1946 and served as its
President until retirement in 1982. He remained as Chairman of the
Board until 1994. He has been President of FMB since its formation in
1982. He will serve as a director of SAB. Mr. Barnett is the father
of Mr. Barnett, III.
Mr. Barnett, III, age 44, is Chairman of the Board of MCB and Vice
President of FMB. Mr. Barnett is a partner in the firm of Barnett, Bugg &
Lee, Attorneys at Law, in Monroeville. He was elected Chairman of the
Board of MCB in 1994. He will be Executive Vice President of SAB and a
member of the Board of SAB. Mr. Barnett is the son of Mr. Barnett, Jr.
Mr. Croft, age 56, is Vice President of FMB and President and Chief
Executive Officer of the Monroe County Bank. Mr. Croft has been employed
by MCB since 1970, has been President since 1979 and President and
Chief Executive Officer since 1988. He has been Vice President of FMB
since its formation in 1982. He will serve as a director of SAB.
<TABLE>
The table below sets forth certain elements of compensation for Mr.
Haniel F. Croft for the periods
indicated:
<CAPTION>
SUMMARY COMPENSATION TABLE
Annual Compensation
Name and
Principal Position Year Salary Bonus All Other Compensation ($)(*)
<S> <C> <C> <C> <C>
Haniel F. Croft 1995 $116,000 $ 2,542 $7,736
President & Chief 1994 109,850 0 7,364
Executive Officer 1993 100,002 0 5,187
* Represents employer contributions under the Monroe County Bank
Employees Profit Sharing Plan.
</TABLE>
In addition to the foregoing, MCB maintains a noncontributory,
tax-qualified benefit pension plan (the "Pension Plan") covering eligible
employees of The Monroe County Bank. Those employees who have completed
(or are expected to complete) 1,000 hours of service in their first year of
employment, or in any later calendar year, are eligible to participate in
the plan.
<TABLE>
PENSION PLAN TABLE
<CAPTION>
Remuneration Years of Service
15 20 25 30 35
<S> <C> <C> <C> <C> <C>
$ 10,000 $ 2,175 $ 2,800 $ 3,625 $ 4,360 $ 5,075
20,000 4,350 5,800 7,250 8,700 10,150
30,000 8,525 8,700 10,875 13,050 15,225
40,000 8,700 11,600 14,500 17,400 20,300
50,000 8,875 14,500 18,125 21,750 25,375
60,000 13,050 17,400 21,750 26,100 30,450
70,000 15,226 20,300 25,375 30,450 35,525
80,000 17,400 23,200 29,000 34,800 40,600
90,000 19,575 26,100 32,625 39,150 45,875
100,000 21,750 29,000 38,250 43,500 50,750
110,000 23,925 31,900 39,875 47,850 55,825
120,000 26,100 34,800 43,500 52,200 60,900
130,000 28,275 37,700 47,125 58,550 65,975
140,000 30,450 40,600 50,750 60,900 71,050
</TABLE>
During 1995, annual benefits under the Pension Plan were based upon
the employee s years of service and final average earnings. Final average
earnings for this purpose means the average of earnings for the five
consecutive calendar years out of the last ten years of employment in which
a participant had the highest earnings. For the purposes of the Pension
Plan, earnings means basic pay excluding any bonuses, commissions,
overtime, or other special compensation, plus Section 125 salary
reductions. The table sets forth, in straight life annuity amounts, the
estimated annual benefits payable upon retirement to persons in the
specified compensation and years of service classifications under the
present provisions of the Pension Plan. As of December 31, 1995, Mr. Croft
was credited with 26 years of service.
FMB Security Ownership
<TABLE>
The table below sets forth: (i) the name and address of each
shareholder known by FMB to be the beneficial owner of more than five
percent of the outstanding shares of FMB Common Stock as of the Record
Date; (ii) the number of shares so owned; (iii) the percent of the total
outstanding shares of FMB Common Stock so owned; (iv) the name of each
director of FMB (and all directors and executive officers as a group); (v)
the number of shares of FMB Common Stock they beneficially owned as of the
Record Date; and (vi) the percent of the total outstanding shares of FMB
Common Stock so owned.
<CAPTION>
PRINCIPAL SHAREHOLDERS
Name and Address Shares Owned(1) Percent Owned
<S> <C> <C>
John B. Barnett, Jr. 1,767(2) 14.8%
Post Office Box 806
Monroeville, Alabama 36461
John B. Barnett, III 1,690(3) 14.3%
Post Office Box 278
Monroeville, Alabama 36461
Barbara Lazenby Barnett (4) 851 7.2%
1245 Blueberry Trail
Decatur, Georgia 30033
JoAnn J. Harris 653 5.5%
5209 Westwood Drive
Bethesda, MD 20816
Nellie N. Jackson 653 5.5%
406 Saint Asaph St. N
Alexandria, VA 22314
Estate of Samuel G. Lowrey, Deceased 805 6.8%
4000 Fieldcrest Dr., Apt. 108, Box 7
Montgomery, Alabama 36611
Anne B. Zimmerman (4)(5) 1,006 8.5%
4765 Lafayette Avenue N.W.
Atlanta, Georgia 30327
</TABLE>
<TABLE>
<CAPTION>
DIRECTORS
Name Shares Owned(1) Percent Owned
<S> <C> <C>
John B. Barnett, Jr. 1,767(2) 14.8%
John B. Barnett, III 1,690(3) 14.3%
Haniel F. Croft 16 *
Sloan R. Fountain, Jr. 8 *
Karl Mims Lazenby 79 *
Alice F. Lee 112 *
Dr. Edwin C. Lee, Jr. 8(6) *
John T. Lee, III 10 *
Dr. Lloyd T. McCall, Jr. 40 *
J. C. Niehuss 8 *
Dr. R. A. Smith, Jr. 72 *
Joe R. Whatley 8 *
Directors and Officers as a
Group (12 persons) 3,818 32.3%
* 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) Includes 677 shares held by Mr. Barnett's spouse. Also includes 399
shares owned by Mr. Barnett and Frances B. Turner as Trusete under the Will
of J. B. Barnett, deceased. Mr. Barnett disclaims beneficial ownership of
these shares.
(3) Includes 50 shares held by Mr. Barnett's spouse. Mr. Barnett
disclaims beneficial ownerhsip of these shares. Also includes 96 shares in
each of the following trusts: Courtney Clark Barnett Irrevocable Trust;
John Bigham Barnett, IV Irrevocable Trust; Mallory Hayles Barnett
Irrevocable Trust. Also includes 767 shares held in the Annie Maud Barnett
Grantor Retained Annuity Trust, which will expire on December 3, 1996, at
which time the shares will be divided equally between Mr. Barnett, Anne B.
Zimmerman, and Barbara L. Barnett.
(4) Barbara L. Barnett and Anne B. Zimmerman are daughters of John B.
Barnett, Jr., and sisters to John B. Barnett, III.
(5) Includes 75 shares owned by Mrs. Zimmerman as custodian under the
U/G/M/A for Elizabeth Spencer Zimmerman; 75 shares owned by Mrs. Zimmerman
as custodian under U/G/M/A for Katherine Barnett Zimmerman; 21 shares owned
by Charles Spencer Zimmerman, Mrs. Zimmerman's spouse. Mrs. Zimmerman
disclaims beneficial ownership of these shares.
(6) Includes 25 shares held jointly by Mr. Lazenby and his spouse. Also
includes 30 shares held by the estate of Susye M. Lazenby, Mr. Lazenby s
deceased mother.
</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 SAB, FMB 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 SAB, FMB 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
SAB and FMB are bank holding companies under the BHCA and are
registered with, and subject to supervision by, the Federal Reserve. As
bank holding companies, SAB and FMB 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 SAB, FMB 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, SAB and FMB 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, SAB and FMB 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 in 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
SAB s and FMB 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
BOM, an Alabama banking corporation, is a wholly owned subsidiary of
SAB, operating under the Alabama Banking Code. MCB, an Alabama banking
corporation, is a wholly owned subsidiary of FMB, operating under the
Alabama Banking Code. BOM and MCB are subject to regulation, supervision
and examination by the Superintendent of Banks of the State of Alabama. In
addition, deposits of BOM and MCB are insured by the FDIC up to the maximum
amount permitted by law, and BOM and MCB are therefore subject to
regulation, supervision and examination by the FDIC. FNBB, a national
banking association, is a wholly owned subsidiary of SAB and is subject to
regulation, supervision and examination by the Office of the Comptroller of
the Currency (the Comptroller ). MCB is a member of the Federal Reserve
System and is subject to regulation, supervision and examination by the
Federal Reserve.
SAB and FMB 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 SAB, FMB or
any nonbank subsidiaries of SAB or FMB (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 SAB's and FMB'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 SAB's and FMB'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 provisions of 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 SAB and FMB. The amount of dividends
payable by the subsidiary banks to SAB and FMB depends upon the banks'
earnings and capital position, and is limited by federal and state laws,
regulations and policies. In the case of national bank subsidiaries (such
as FNBB), such banks are subject with respect to the payment of dividends
to the regulations of the Comptroller. In the case of state non-member
bank subsidiaries (such as BOM), such banks are subject to the laws of the
states under which such banks are chartered. As a member of the Federal
Reserve System, MCB's dividends are also subject to regulation by the
Federal Reserve. At June 30, 1996, the subsidiary banks of SAB had $4.6
million of undivided profits legally available for the payment of dividends
and MCB had $10.9 million of undivided profits available for payment of
dividends but subject to restrictions as described below. However, the
amount of dividends actually paid during any one period is strongly
affected by SAB's and FMB's management policy of maintaining strong capital
positions in SAB's and FMB'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.
In October 1994, FMB purchased $4.1 million in FMB Common Stock, which
it holds as treasury stock. In order to fund this purchase, MCB declared
and paid to its parent, FMB a dividend of $4.1 million. The Banking
Laws of Alabama state that the prior written approval of the State
Superintendent of Banks must be obtained before declaring in any calendar
year dividends which exceed the total of the bank s net earnings of that
year combined with the bank s retained earnings of the preceding two years,
less any required transfer to surplus. As a result of the treasury stock
transaction, MCB, in order to pay dividends to its parent company, must
seek the approval of the State Superintendent of Banks prior to declaring a
dividend.
Under Alabama law, a bank may not pay a dividend in excess of 90% of
its net earnings until the bank s surplus is equal to at least 25% of
capital (which BOM's and MCB's surpluses were as of June 30,
1996). BOM and MCB are also required by Alabama law to obtain the proper
approval of the superintendent of the Alabama Banking Department for the
payment of dividends 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
SAB, FMB and their respective subsidiary banks are required to comply
with the applicable capital adequacy standards established by the Federal
Reserve, the Comptroller and 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 SAB or FMB under existing law and regulations, if
SAB or FMB were placed in a capital category, then SAB or FMB would qualify
as well-capitalized as of June 30, 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 standards 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, the Comptroller 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, the Comptroller 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 SAB nor FMB 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.
<TABLE>
The following tables present the regulatory capital position at June
30, 1996, for each of SAB, BOM,
FNBB, FMB and MCB:
<CAPTION>
SAB BOM FNBB FMB MCB
<S> <C> <C> <C> <C> <C>
Tier I Capital
Common shareholders' equity $ 28,875 $ 13,537 $ 14,384 $11,733 $11,731
Disallowed portion 302 221 81 10 10
Tier I Capital 29,177 13,758 14,465 11,743 11,741
Tier II Capital
Allowable portion of the
allowance for loan losses 1,957 1,250 707 435 435
Total Capital (Tier I
and Tier II) $ 31,134 $ 15,008 $ 15,172 $12,178 $12,176
Risk-adjusted assets $244,180 $142,397 $101,092 $61,085 $61,085
Quarterly average assets $240,084 $135,785 $103,608 $91,796 $91,796
Tier I capital 11.95% 9.66% 14.31% 19.22% 19.22%
Tier II capital 12.75% 10.54% 15.01% 19.94% 19.93%
Leverage Ratio 12.15% 10.13% 13.96% 12.79% 12.79%
</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 BOM and MCB were
well capitalized as of June 30, 1996, SAB and FMB believe that brokered
deposits regulation will have no material effect on the funding liquidity
of BOM and MCB.
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. 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 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
SAB or FMB, 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 SAB, FMB 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 SAB, FMB 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.
LEGAL MATTERS
The legality of the SAB Common Stock to be issued in the Merger will
be passed upon by Hand Arendall, L.L.C., Mobile, Alabama ("Hand
Arendall"). Members of Hand Arendall own beneficially approximately
110,850 hares of the outstanding SAB Common Stock, and Stephen G. Crawford,
a Member, is a director of SAB. During 1995, SAB and BOM paid fees
aggregating approximately $79,500 to Hand Arendall for legal services.
Certain legal matters in connection with the Merger will be passed
upon for FMB by Maynard, Cooper & Gale, P.C., Birmingham, Alabama ("Maynard
Cooper").
Each of Hand Arendall and Maynard Cooper has rendered opinions with
respect to the federal tax consequences of the Merger. See "The Merger
Certain Federal Income Tax Consequences."
EXPERTS
The Consolidated Financial Statements of South Alabama Bancorporation,
Inc. as of December 31, 1995 and for the year ended December 31, 1995,
incorporated by reference in this Joint Proxy Statement have been
audited by Arthur Andersen LLP, 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 incorporated by reference from the
annual report on Form 10-K of South Alabama Bancorporation, Inc., as of
December 31, 1994, and for the two years ended December 31, 1994, have been
audited by Deloitte & Touche LLP, independent auditors, as stated in their
report which is incorporated herein by reference and have been so
incorporated in reliance upon the report of such firm given upon their
authority as experts in accounting and auditing.
The Consolidated Financial Statement included in this Joint Proxy
Statement of First Monco Bancshares, Inc. and subsidiary as of December 31,
1995 and 1994 and for each of the two years ended December 31, 1995,
have been audited by Deloitte & Touche LLP, independent auditors, as stated
in their report which is included herein and has been so included in
reliance upon the report of such firm given upon their authority as experts
in accounting and auditing. The Consolidated Financial Statements of First
Monco Bancshares, Inc., and subsidiary as of December 31, 1993, and for the
year ended December 31, 1993, included herein and elsewhere in this
Registration Statement have been included herein and in the Registration
Statement in reliance upon the report of McKean & Associates, certified
public accountants, appearing elsewhere herein, and upon the authority of
that firm as experts in accounting and auditing.
SHAREHOLDER PROPOSALS
Shareholder proposals intended to be submitted for consideration at
the 1997 annual meeting of the shareholders of SAB must be submitted in
writing to and received by the Secretary of SAB not later than December
6, 1996, to be included in SAB's proxy statement and form of proxy relating
to that meeting.
Appendix A
AGREEMENT AND PLAN OF MERGER
BY AND BETWEEN
FIRST MONCO BANCSHARES, INC.
AND
SOUTH ALABAMA BANCORPORATION, INC.
Dated as of
May 31, 1996
As Amended and Restated as of
August 21, 1996
TABLE OF CONTENTS
Page
AGREEMENT AND PLAN OF MERGER
Preamble . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .1
ARTICLE ONE TRANSACTIONS AND TERMS OF MERGER
1.1
Merger
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .1
1.2 Time and Place of Closing . . . . . . . . . . . . . . . . . . . . . .1
1.3 Effective Time. . . . . . . . . . . . . . . . . . . . . . . . . . .1-2
ARTICLE TWO TERMS OF MERGER
2.1 Certificate of Incorporation. . . . . . . . . . . . . . . . . . . . .2
2.2 Bylaws. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .2
2.3 Directors and Officers. . . . . . . . . . . . . . . . . . . . . . . .2
ARTICLE THREE MANNER OF CONVERTING SHARES
3.1 Conversion of Shares. . . . . . . . . . . . . . . . . . . . . . . .2-3
3.2 Anti-Dilution Provisions. . . . . . . . . . . . . . . . . . . . . . .3
3.3 Shares Held by FMB or SAB . . . . . . . . . . . . . . . . . . . . . .3
3.4 Dissenting Stockholders . . . . . . . . . . . . . . . . . . . . . . .3
3.5 Fractional Shares . . . . . . . . . . . . . . . . . . . . . . . . . .3
ARTICLE FOUR EXCHANGE OF SHARES
4.1 Exchange Procedures . . . . . . . . . . . . . . . . . . . . . . . . .4
4.2 Rights of Former FMB Stockholders . . . . . . . . . . . . . . . . . .4
ARTICLE FIVE REPRESENTATIONS AND WARRANTIES OF FMB
5.1 Organization, Standing, and Power . . . . . . . . . . . . . . . . . .5
5.2 Authority; No Breach by Agreement . . . . . . . . . . . . . . . . . .5
5.3 Capital Stock . . . . . . . . . . . . . . . . . . . . . . . . . . . .6
5.4 FMB Subsidiaries. . . . . . . . . . . . . . . . . . . . . . . . . . .6
5.5 Financial Statements. . . . . . . . . . . . . . . . . . . . . . . .6-7
5.6 Absence of Undisclosed Liabilities. . . . . . . . . . . . . . . . . .7
5.7 Absence of Certain Changes or Events. . . . . . . . . . . . . . . . .7
5.8 Tax Matters . . . . . . . . . . . . . . . . . . . . . . . . . . . . .7
5.9 Allowance for Possible Loan Losses. . . . . . . . . . . . . . . . .7-8
5.10 Assets. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .8
5.11 Environmental Matters . . . . . . . . . . . . . . . . . . . . . . .8-9
5.12 Compliance with Laws. . . . . . . . . . . . . . . . . . . . . . . . .9
5.13 Labor Relations . . . . . . . . . . . . . . . . . . . . . . . . . . .9
5.14 Employee Benefit Plans. . . . . . . . . . . . . . . . . . . . . . 9-11
5.15 Material Contracts. . . . . . . . . . . . . . . . . . . . . . . . . 11
5.16 Legal Proceedings . . . . . . . . . . . . . . . . . . . . . . . . . 11
5.17 Reports . . . . . . . . . . . . . . . . . . . . . . . . . . . . .11-12
5.18 Statements True and Correct . . . . . . . . . . . . . . . . . . . . 12
5.19 Accounting, Tax and Regulatory Matters. . . . . . . . . . . . . . . 12
5.20 State Takeover Laws . . . . . . . . . . . . . . . . . . . . . . . . 12
5.21 Charter Provisions. . . . . . . . . . . . . . . . . . . . . . . . . 12
ARTICLE SIX REPRESENTATIONS AND WARRANTIES OF SAB
6.1 Organization, Standing, and Power . . . . . . . . . . . . . . . . . 13
6.2 Authority; No Breach by Agreement . . . . . . . . . . . . . . . . . 13
6.3 Capital Stock . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
6.4 SAB Subsidiaries. . . . . . . . . . . . . . . . . . . . . . . . . . 14
6.5 Financial Statements. . . . . . . . . . . . . . . . . . . . . . .14-15
6.6 Absence of Undisclosed Liabilities. . . . . . . . . . . . . . . . . 15
6.7 Absence of Certain Changes or Events. . . . . . . . . . . . . . . . 15
6.8 Tax Matters . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
6.9 Allowance for Possible Loan Losses. . . . . . . . . . . . . . . .15-16
6.10 Assets. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
6.11 Environmental Matters . . . . . . . . . . . . . . . . . . . . . .16-17
6.12 Compliance with Laws. . . . . . . . . . . . . . . . . . . . . . . . 17
6.13 Labor Relations . . . . . . . . . . . . . . . . . . . . . . . . . . 17
6.14 Employee Benefit Plans. . . . . . . . . . . . . . . . . . . . . .17-19
6.15 Material Contracts. . . . . . . . . . . . . . . . . . . . . . . . . 19
6.16 Legal Proceedings . . . . . . . . . . . . . . . . . . . . . . . . . 19
6.17 Reports . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
6.18 Statements True and Correct . . . . . . . . . . . . . . . . . . .19-20
6.19 Accounting, Tax and Regulatory Matters. . . . . . . . . . . . . . . 20
6.20 State Takeover Laws . . . . . . . . . . . . . . . . . . . . . . . . 20
6.21 Charter Provisions. . . . . . . . . . . . . . . . . . . . . . . . . 20
ARTICLE SEVEN CONDUCT OF BUSINESS PENDING CONSUMMATION
7.1 Covenants of Both Parties . . . . . . . . . . . . . . . . . . . . . 20
7.2 Covenants of FMB. . . . . . . . . . . . . . . . . . . . . . . . .20-22
7.3 Covenants of SAB. . . . . . . . . . . . . . . . . . . . . . . . .22-23
7.4 Adverse Changes in Condition. . . . . . . . . . . . . . . . . . . . 23
7.5 Reports . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
ARTICLE EIGHT ADDITIONAL AGREEMENTS
8.1 Registration Statement; Proxy Statement; Stockholder Approval . . . 23
8.2 Applications. . . . . . . . . . . . . . . . . . . . . . . . . . .23-24
8.3 Filings with State Offices. . . . . . . . . . . . . . . . . . . . . 24
8.4 Agreement as to Efforts to Consummate . . . . . . . . . . . . . . . 24
8.5 Investigation and Confidentiality . . . . . . . . . . . . . . . . . 24
8.6 Press Releases. . . . . . . . . . . . . . . . . . . . . . . . . . . 24
8.7 Certain Actions . . . . . . . . . . . . . . . . . . . . . . . . . . 25
8.8 Accounting and Tax Treatment. . . . . . . . . . . . . . . . . . . . 25
8.9 State Takeover Laws . . . . . . . . . . . . . . . . . . . . . . . . 25
8.10 Charter Provisions. . . . . . . . . . . . . . . . . . . . . . . . . 25
8.11 Agreement of Affiliates . . . . . . . . . . . . . . . . . . . . .25-26
8.12 Indemnification . . . . . . . . . . . . . . . . . . . . . . . . . . 26
8.13 Compensation and Employee Benefits. . . . . . . . . . . . . . . . . 26
8.14 Indemnification . . . . . . . . . . . . . . . . . . . . . . . . .26-27
ARTICLE NINE CONDITIONS PRECEDENT TO OBLIGATIONS
TO
CONSUMMATE
9.1 Conditions to Obligations of Each Party . . . . . . . . . . . . .27-28
9.2 Conditions to Obligations of SAB. . . . . . . . . . . . . . . . . . 28
9.3 Conditions to Obligations of FMB. . . . . . . . . . . . . . . . . . 29
ARTICLE TEN TERMINATION
10.1 Termination . . . . . . . . . . . . . . . . . . . . . . . . . . .29-30
10.2 Effect of Termination . . . . . . . . . . . . . . . . . . . . . . . 30
10.3 Non-Survival of Representations and Covenants . . . . . . . . . .30-31
ARTICLE ELEVEN MISCELLANEOUS
11.1 Definitions . . . . . . . . . . . . . . . . . . . . . . . . . . .31-37
11.2 Expenses. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37
11.3 Brokers and Finders . . . . . . . . . . . . . . . . . . . . . . . . 37
11.4 Entire Agreement. . . . . . . . . . . . . . . . . . . . . . . . . . 37
11.5 Amendments. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37
11.6 Waivers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38
11.7 Assignment. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38
11.8 Notices . . . . . . . . . . . . . . . . . . . . . . . . . . . . .38-39
11.9 Governing Law . . . . . . . . . . . . . . . . . . . . . . . . . . . 39
11.10 Counterparts . . . . . . . . . . . . . . . . . . . . . . . . . 39
11.11 Captions . . . . . . . . . . . . . . . . . . . . . . . . . . . 39
11.12 Enforcement of Agreement . . . . . . . . . . . . . . . . . . . 39
11.13 Severability . . . . . . . . . . . . . . . . . . . . . . . . . 39
LIST OF EXHIBITS . . . . . . . . . . . . . . . . . . . . . . . . . . . . 41
AGREEMENT AND PLAN OF MERGER
THIS AGREEMENT AND PLAN OF MERGER (this "Agreement") is made and
entered into as of May 31, 1996, as amended and restated as of August 21, 1996,
by and between FIRST MONCO BANCSHARES, INC. ("FMB"), a corporation organized
and existing under the laws of the State of Alabama, with its principal office
located in Monroeville, Alabama, and SOUTH ALABAMA BANCORPORATION, INC.
("SAB"), a corporation organized and existing under the laws of the State of
Delaware, with its principal office located in Mobile, Alabama.
Preamble
The Boards of Directors of FMB and SAB are of the opinion that the
transactions described herein are in the best interests of the parties and
their respective stockholders. This Agreement provides for the merger of
FMB with and into SAB. At the effective time of such merger, the outstanding
shares of the capital stock of FMB shall be converted into the right to
receive shares of the common stock of SAB (except as provided herein). As a
result, stockholders of FMB shall become stockholders of SAB and SAB shall
continue to conduct the business and operations of FMB. The transactions
described in this Agreement are subject to the approvals of the stockholders
of FMB, the stockholders of SAB and the Board of Governors of the Federal
Reserve System, and the satisfaction of certain other conditions described
in this Agreement. It is the intention of the parties to this Agreement that
the Merger for federal income tax purposes shall qualify as a
"reorganization" within the meaning of Section 368(a) of the Internal
Revenue Code.
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 ONE
TRANSACTIONS AND TERMS OF MERGER
1.1 Merger. Subject to the terms and conditions of this Agreement,
at the Effective Time, FMB shall be merged with and into SAB in accordance
with the provisions of Section 251 of the DGCL and Article 11 of the ABCA and
with the effect provided in Sections 259 and 261 of the DGCL (the "Merger").
SAB shall be the Surviving Corporation resulting from the Merger and shall
continue to be governed by the Laws of the State of Delaware. 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 FMB and SAB.
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 the immediately preceding
day if the Effective Time is earlier than 9:00 A.M.), 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
Hand Arendall, L.L.C., Mobile, Alabama, or such other place as may be mutually
agreed upon by the Parties.
1.3 Effective Time. The Merger and other transactions contemplated
by this Agreement shall become effective on the date and at the time the
Certificate of Merger reflecting the Merger shall become effective with the
Secretary of State of the State of Delaware (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 last
to occur of (i) the effective date (including expiration of any applicable
waiting period) of the last required Consent of any Regulatory Authority
having authority over and approving or exempting the Merger, and (ii) the
date on which the stockholders of FMB and SAB approve this Agreement to the
extent such approval is required by applicable Law.
ARTICLE TWO
TERMS OF MERGER
2.1 Certificate of Incorporation. The Certificate of Incorporation
of SAB in effect immediately prior to the Effective Time shall be the
Certificate of Incorporation of the Surviving Corporation immediately
following the Effective Time, with the amendments set forth in Exhibit 1
hereto.
2.2 Bylaws. The Bylaws of SAB in effect immediately prior to the
Effective Time shall be the Bylaws of the Surviving Corporation immediately
following the Effective Time, with the amendments set forth in Exhibit 2
hereto, until otherwise amended or repealed.
2.3 Directors and Officers.
(a) The directors of the Surviving Corporation from and after
the Effective Time shall consist of the eleven incumbent directors of SAB and
the following current directors of FMB: John B. Barnett, Jr., John B. Barnett,
III and Haniel F. Croft. 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. The persons named by the Parties as members of the
Board of Directors of the Surviving Corporation shall be named in the Joint
Proxy Statement and the Registration Statement, subject to receipt of the
consent of such individuals to be so named.
(b) The principal officers of the Surviving Corporation upon
the Effective Time shall be J. S. Nelson, Chairman of the Board; W. Bibb
Lamar, Jr., President and Chief Executive Officer; F. Michael Johnson,
Secretary and Chief Financial Officer; W. Gaillard Bixler, Executive Vice
President and Chief Operating Officer; and John B. Barnett, III, Executive
Vice President, who shall serve as officers of the Surviving Corporation
from and after the Effective Time in accordance with the Bylaws of the
Surviving Corporation.
ARTICLE THREE
MANNER OF CONVERTING SHARES
3.1 Conversion of Shares. Subject to the provisions of this
Article Three, 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 SAB Common Stock (excluding shares held by
stockholders who perfect their dissenters' rights of appraisal as
provided in Section 3.4 of this Agreement) issued and outstanding
immediately prior to the Effective Time shall remain issued and
outstanding from and after the Effective Time.
(b) Each share of FMB Common Stock (excluding shares held by any
FMB Company or by any SAB Company, in each case 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 the number of
shares of SAB Common Stock having an average Market Value during the
Valuation Period of $1,415.76, rounded to the nearest one-hundredth of a
share (the Exchange Ratio ); provided, that (subject to the provisions of
Section 10.1): (i) in the event the average Market Value of SAB Common
Stock during the Valuation Period is less than $12.50 per share, the
Exchange Ratio shall be 113.26 shares of SAB Common Stock for each share
of FMB Common Stock; and (ii) in the event the average Market Value of SAB
Common Stock during the Valuation Period is greater than $15.25 per
share, the Exchange Ratio shall be 92.84 shares of SAB Common Stock for
each share of FMB Common Stock.
3.2 Anti-Dilution Provisions. In the event FMB changes the number
of shares of FMB 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 FMB or SAB. Each of the shares of FMB Common
Stock held by any FMB Company or by any SAB Company, in each case other than
in a fiduciary capacity or as a result of debts previously contracted,
shall be canceled and retired at the Effective Time and no consideration shall
be issued in exchange therefor.
3.4 Dissenting Stockholders. Any holder of shares of SAB Common
Stock or FMB Common Stock who perfects his dissenters' rights of appraisal in
accordance with and as contemplated by Section 262 of the DGCL or Article 13
of the ABCA, as applicable, 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 DGCL or ABCA, as applicable, 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 FMB 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 FMB Common Stock is entitled under this Article Three (without
interest) upon surrender by such holder of the certificate or certificates
representing shares of FMB Common Stock held by him.
3.5 Fractional Shares. Notwithstanding any other provision of this
Agreement, each holder of shares of FMB Common Stock exchanged pursuant to the
Merger, who would otherwise have been entitled to receive a fraction of a
share of SAB 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 SAB Common
Stock multiplied by the Market Value of one share of SAB Common Stock on the
Trading Day preceding by two Trading Days the Effective Time. No such holder
will be entitled to dividends, voting rights, or any other rights as a
stockholder in respect of any fractional shares.
ARTICLE FOUR
EXCHANGE OF SHARES
4.1 Exchange Procedures. Promptly
after the Effective Time, the Surviving Corporation shall cause the exchange
agent selected by SAB and FMB (the "Exchange Agent") to mail to the former
stockholders of FMB appropriate transmittal materials (which shall specify
that delivery shall be effected, and risk of loss and title to the certificates
theretofore representing shares of FMB Common Stock shall pass, only upon
proper delivery of such certificates to the Exchange Agent). After the
Effective Time, each holder of shares of FMB 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 in respect of such shares
(without interest thereon) pursuant to Section 4.2 of this Agreement. To the
extent required by Section 3.5 of this Agreement, each holder of shares of
FMB 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 SAB 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 FMB Common Stock is entitled as a result of the Merger until
such holder surrenders his certificate or certificates representing the
shares of FMB Common Stock for exchange as provided in this Section 4.1. The
certificate or certificates of FMB 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 FMB 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 FMB Stockholders. At the Effective Time, the
stock transfer books of FMB shall be closed as to holders of FMB Common Stock
immediately prior to the Effective Time and no transfer of FMB 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 FMB Common
Stock ("FMB Certificate"), other than shares to be canceled pursuant to
Sections 3.3 and 3.4 of this Agreement, shall from and after the Effective
Time represent for all purposes only the right to receive the consideration
provided in Sections 3.1 and 3.5 of this Agreement in exchange therefor. To
the extent permitted by Law, former stockholders of record of FMB shall be
entitled to vote after the Effective Time at any meeting of Surviving
Corporation stockholders the number of whole shares of SAB Common Stock into
which their respective shares of FMB Common Stock are converted, regardless of
whether such holders have exchanged their FMB Certificates for certificates
representing SAB Common Stock in accordance with the provisions of this
Agreement. Whenever a dividend or other distribution is declared by the
Surviving Corporation on the SAB 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 FMB 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 SAB Common Stock, which dividend or other distribution
is attributable to such person s SAB Common Stock represented by said FMB
Certificate held after the Cutoff, until such person surrenders said FMB
Certificate for exchange as provided in Section 4.1 of this Agreement.
However, upon surrender of such FMB Certificate, both the SAB 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 FMB Certificate.
ARTICLE FIVE
REPRESENTATIONS AND WARRANTIES OF FMB
FMB hereby represents and warrants to SAB as follows:
5.1 Organization, Standing, and Power. FMB 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. FMB 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 FMB. FMB has
delivered to SAB complete and correct copies of its Certificate 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) FMB has the corporate power and authority necessary to
execute, deliver and, subject to Article Nine hereof, perform its obligations
under this Agreement and to consummate the transactions contemplated hereby.
The execution, delivery and performance of this Agreement and the consummation
of the transactions contemplated herein, including the Merger, have been duly
and validly authorized by all necessary corporate action in respect thereof
on the part of FMB, subject to the approval of this Agreement by the holders
of a majority of the outstanding FMB Common Stock. Subject to such requisite
stockholder approval, this Agreement represents a legal, valid, and binding
obligation of FMB, enforceable against FMB 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
FMB, nor the consummation by FMB of the transactions contemplated hereby, nor
compliance by FMB with any of the provisions hereof, will (i) conflict with
or result in a breach of any provision of FMB's Certificate 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
FMB Company under, any Contract or Permit of any FMB Company where any failure
to obtain such consent is reasonably likely to have, individually or in the
aggregate, a Material Adverse Effect on FMB, 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 FMB 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, or
under the HSR Act, and other than Consents, filings or notifications which, if
not obtained or made, are not reasonably likely to have, individually or in
the aggregate, a Material Adverse Effect on FMB, no notice to, filing with,
or Consent of, any public body or authority is necessary for the consummation
by FMB of the Merger and the other transactions contemplated in this Agreement.
5.3 Capital Stock.
(a) The authorized capital stock of FMB consists only of 250,000
shares of FMB Common Stock, of which 11,795 shares are issued and outstanding.
All of the issued and outstanding shares of capital stock of FMB 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 FMB has been issued
in violation of any preemptive rights of the current or past stockholders of
FMB.
(b) Except as set forth in Section 5.3(a) of this Agreement,
or as Previously Disclosed, there are no shares of capital stock or other
equity securities of FMB 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 FMB or contracts, commitments,
understandings, or arrangements by which FMB is or may be bound to issue
additional shares of its capital stock or options, warrants, or rights to
purchase or acquire any additional shares of its capital stock.
5.4 FMB Subsidiaries. FMB has Previously Disclosed all of the FMB
Subsidiaries as of the date of this Agreement. Except as Previously Disclosed,
FMB or one of its Subsidiaries owns all of the issued and outstanding shares
of capital stock of each FMB Subsidiary. No equity securities of any FMB
Subsidiary are or may become required to be issued (other than to a FMB
Company) 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 FMB Subsidiary
is bound to issue (other than to a FMB Company) 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 FMB Company is or may
be bound to transfer any shares of the capital stock of any FMB Subsidiary
(other than to a FMB Company). There are no Contracts relating to the rights
of any FMB Company to vote or to dispose of any shares of the capital stock of
any FMB Subsidiary. All of the shares of capital stock of each FMB Subsidiary
held by a FMB Company are fully paid and (except pursuant to 12 USC Section 55
in the case of national banks and comparable, applicable state Law, if any,
in the case of state depository institutions) nonassessable under the
applicable corporation Law of the jurisdiction in which such Subsidiary is
incorporated or organized and are owned by the FMB Company free and clear of
any Lien. Each FMB Subsidiary is either a bank or a corporation, and is
duly organized, validly existing, and in good standing under the Laws of the
jurisdiction in which it is incorporated or organized, and has the corporate
power and authority necessary for it to own, lease and operate its Assets and
to carry on its business as now conducted. Each FMB 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 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 FMB. Each FMB
Subsidiary that is a depository institution is an "insured institution" as
defined in the Federal Deposit Insurance Act and applicable regulations
thereunder.
5.5 Financial Statements. FMB has delivered to SAB prior to the
execution of this Agreement copies of all FMB Financial Statements for
periods ended prior to the date hereof and will deliver to SAB copies of all
FMB Financial Statements prepared subsequent to the date hereof. The FMB
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 FMB 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 FMB Companies as of the dates indicated
and the consolidated results of operations, changes in stockholders' equity,
and cash flows of the FMB Companies for the periods indicated, in accordance
with GAAP (subject to any exceptions as to consistency specified therein or
as may be indicated in the notes thereto or, in the case of interim financial
statements, to normal recurring year-end adjustments that are not material).
5.6 Absence of Undisclosed Liabilities. No FMB Company has any
Liabilities that are reasonably likely to have, individually or in the
aggregate, a Material Adverse Effect on FMB, except Liabilities which are
accrued or reserved against in the consolidated balance sheets of FMB as of
December 31, 1995, included in the FMB Financial Statements or reflected in
the notes thereto. No FMB Company has incurred or paid any Liability since
December 31, 1995, 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 FMB.
5.7 Absence of Certain Changes or Events. Since December 31, 1995,
except as disclosed in the FMB Financial Statements or as Previously Disclosed,
(i) there have been no events, changes or occurrences which have had, or are
reasonably likely to have, individually or in the aggregate, a Material
Adverse Effect on FMB, and (ii) the FMB 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 FMB provided in Article Seven of this Agreement.
5.8 Tax Matters.
(a) All Tax returns required to be filed by or on behalf of
any of the FMB 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 on or before the date of the most recent fiscal
year end immediately preceding the Effective Time, except to the extent that
all such failures to file, taken together, are not reasonably likely to have
a Material Adverse Effect on FMB, and all returns filed are complete and
accurate to the Knowledge of FMB. All Taxes shown on filed returns have been
paid. There is no audit examination, deficiency, or refund Litigation with
respect to any Taxes that is reasonably likely to result in a determination
that would have, individually or in the aggregate, a Material Adverse Effect
on FMB, except as reserved against in the FMB Financial Statements delivered
prior to the date of this Agreement or as Previously Disclosed. All Taxes
and other Liabilities due with respect to completed and settled examinations
or concluded Litigation have been paid.
(b) None of the FMB 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 FMB Companies for the period or periods through and including the
date of the respective FMB Financial Statements has been made and is
reflected on such FMB Financial Statements.
(d) Deferred Taxes of the FMB Companies have been provided
for in accordance with GAAP.
5.9 Allowance for Possible Loan Losses. The allowance for possible
loan or credit losses (the "Allowance") shown on the consolidated balance
sheets of FMB included in the most recent FMB Financial Statements dated prior
to the date of this Agreement was, and the Allowance shown on the consolidated
balance sheets of FMB included in the FMB Financial Statements as of dates
subsequent to the execution of this Agreement will be, as of the dates thereof,
adequate (within the meaning of GAAP and applicable regulatory requirements or
guidelines) to provide for losses relating to or inherent in the loan and
lease portfolios (including accrued interest receivables) of the FMB Companies
and other extensions of credit (including letters of credit and commitments
to make loans or extend credit) by the FMB Companies as of the dates thereof,
except where the failure of such Allowance to be so adequate is not reasonably
likely to have a Material Adverse Effect on FMB.
5.10 Assets. Except as Previously Disclosed or as disclosed or
reserved against in the FMB Financial Statements, the FMB 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 FMB Companies
are in good condition, reasonable wear and tear excepted, and are usable in
the ordinary course of business consistent with FMB's past practices. All
Assets which are material to FMB's business on a consolidated basis, held
under leases or subleases by any of the FMB 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 FMB 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 FMB Companies is a named insured are
reasonably sufficient. The Assets of the FMB Companies include all assets
required to operate the business of the FMB Companies as presently conducted.
5.11 Environmental Matters.
(a) To the Knowledge of FMB, each FMB Company, its
Participation Facilities, and its Loan Properties are, and have been, in
compliance with all Environmental Laws, except for violations which are not
reasonably likely to have, individually or in the aggregate, a Material
Adverse Effect on FMB.
(b) To the Knowledge of FMB, there is no Litigation pending
or threatened before any court, governmental agency or authority or other
forum in which any FMB 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 FMB 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 FMB.
(c) To the Knowledge of FMB, there is no Litigation pending
or threatened before any court, governmental agency or board or other forum
in which any of its Loan Properties (or FMB 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 FMB.
(d) To the Knowledge of FMB, 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 FMB.
(e) During the period of (i) any FMB Company's ownership or
operation of any of their respective current properties, (ii) any FMB
Company's participation in the management of any Participation Facility,
or (iii) any FMB 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 FMB. Prior to
the period of (i) any FMB Company's ownership or operation of any of their
respective current properties, (ii) any FMB Company's participation in the
management of any Participation Facility, or (iii) any FMB Company's holding
of a security interest in a Loan Property, to the Knowledge of FMB, 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 FMB.
5.12 Compliance with Laws. FMB is duly registered as a bank
holding company under the BHC Act. Each FMB 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 FMB, and there has occurred no Default under any such
Permit. Except as Previously Disclosed, none of the FMB Companies:
(a) Is in violation of any Laws, Orders or Permits applicable
to its business or employees conducting its business, except for violations
which are not reasonably likely to have, individually or in the aggregate, a
Material Adverse Effect on FMB; and
(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 FMB Company is not in
compliance with any of the Laws or Orders which such governmental authority
or Regulatory Authority enforces, where such noncompliance is reasonably
likely to have, individually or in the aggregate, a Material Adverse Effect
on FMB, (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 FMB, or (iii) requiring any FMB 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, which restricts materially the conduct of
its business, or in any manner relates to its capital adequacy, its credit or
reserve policies, its management, or the payment of dividends.
5.13 Labor Relations. No FMB Company is the subject of any
Litigation asserting that it or any other FMB 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 FMB 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 FMB Company,
pending or threatened, or to its Knowledge, is there any activity involving
any FMB Company's employees seeking to certify a collective bargaining unit
or engaging in any other organization activity.
5.14 Employee Benefit Plans.
(a) FMB has delivered or made available to SAB 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 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
FMB 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 "FMB Benefit Plans"). Any of the FMB 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 "FMB ERISA Plan." Each FMB
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 "FMB Pension
Plan." No FMB Pension Plan is or has been a multiemployer plan within the
meaning of Section 3(37) of ERISA.
(b) All FMB Benefit Plans are in compliance with the
applicable terms of ERISA, the Internal Revenue Code, and any other applicable
Laws the breach or violation of which are reasonably likely to have,
individually or in the aggregate, a Material Adverse Effect on FMB. Each FMB
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 FMB is not aware of any circumstances likely to
result in revocation of any such favorable determination letter. To the
Knowledge of FMB, no FMB Company has engaged in a transaction with respect to
any FMB Benefit Plan that, assuming the taxable period of such transaction
expired as of the date hereof, would subject any FMB 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 FMB.
(c) No FMB ERISA Plan which is a defined benefit pension plan
has any "unfunded current 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. Since the date of the most recent actuarial valuation, there
has been (i) no material change in the financial position of any FMB Pension
Plan, (ii) no change in the actuarial assumptions with respect to any FMB
Pension Plan, and (iii) no increase in benefits under any FMB 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
FMB or materially adversely affect the funding status of any such plan.
Neither any FMB Pension Plan nor any "single-employer plan," within the
meaning of Section 4001(a)(15) of ERISA, currently or formerly maintained by
any FMB Company, or the single-employer plan of any entity which is considered
one employer with FMB 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 FMB. No FMB
Company has provided, or is required to provide, security to a FMB 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 or ERISA
has been or is expected to be incurred by any FMB 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 FMB. No FMB Company has incurred any withdrawal
Liability with respect to a multiemployer plan under Subtitle B of Title IV
or ERISA (regardless of whether based on contributions of an ERISA Affiliate),
which Liability is reasonably likely to have a Material Adverse Effect on FMB.
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 FMB Pension Plan or by any ERISA Affiliate within
the 12-month period ending on the date hereof.
(e) Except as Previously Disclosed, (i) no FMB Company has any
obligations for retiree health and life benefits under any of the FMB Benefit
Plans and (ii) there are no restrictions on the rights of such FMB 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 FMB.
(f) Except as Previously Disclosed, neither the execution and
delivery of this Agreement nor the consummation of the transactions
contemplated hereby will (i) result in any payment (including, without
limitation, severance, unemployment compensation, golden parachute or
otherwise) becoming due to any director or any employee of any FMB Company
from any FMB Company under any FMB Benefit Plan or otherwise, (ii) increase
any benefits otherwise payable under any FMB 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 FMB.
5.15 Material Contracts. Except as Previously Disclosed or
otherwise reflected in the FMB Financial Statements, none of the FMB
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 FMB
Company or the guarantee by any FMB Company of any such obligation (other
than Contracts evidencing deposit liabilities, purchases of federal funds,
fully-secured repurchase agreements, and Federal Home Loan Bank advances of
depository institution Subsidiaries, trade payables, and Contracts relating
to borrowings or guarantees made in the ordinary course of business), (iii)
any Contracts between or among FMB Companies; and (iv) any other Contract or
amendment thereto that requires any FMB Company to make payments aggregating
$10,000 or more in any 12-month period (together with all Contracts referred
to in Sections 5.10 and 5.14(a) of this Agreement, the "FMB Contracts").
None of the FMB Companies is in Default under any FMB Contract. All of the
indebtedness of any FMB Company for money borrowed is prepayable at any time
by such FMB Company without penalty or premium.
5.16 Legal Proceedings. Except as Previously Disclosed, there is
no Litigation instituted or pending, or, to the Knowledge of FMB, 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 FMB 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 FMB, nor are there any Orders of any Regulatory
Authorities, other governmental authorities, or arbitrators outstanding
against any FMB Company, that are reasonably likely to have, individually or
in the aggregate, a Material Adverse Effect on FMB.
5.17 Reports. Since January 1, 1993, or the date of organization
if later, each FMB 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 FMB). 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. No statement, certificate,
instrument or other writing furnished or to be furnished by any FMB Company or
any Affiliate thereof to SAB 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 FMB Company or any Affiliate thereof for inclusion in the
Registration Statement to be filed by SAB with the SEC will, when the
Registration Statement becomes effective, be false or misleading with respect
to any material fact, or omit to state any material fact necessary to make the
statements therein not misleading. None of the information supplied or to be
supplied by any FMB Company or any Affiliate thereof for inclusion in the
Joint Proxy Statement to be mailed to each Party's stockholders in connection
with the Stockholders' Meetings, and any other documents to be filed by a FMB
Company or any Affiliate thereof with the SEC or any other Regulatory
Authority in connection with the transactions contemplated hereby, will, at
the respective time such documents are filed, and with respect to the Joint
Proxy Statement, when first mailed to the stockholders of FMB and SAB, be
false or misleading with respect to any material fact, or omit to state any
material fact necessary to make the statements therein, in light of the
circumstances under which they were made, not misleading, or, in the case of
the Joint Proxy Statement or any amendment thereof or supplement thereto, at
the time of the Stockholders' Meetings, be false or misleading with respect to
any material fact, or omit to state any material fact necessary to correct
any statement in any earlier communication with respect to the solicitation of
any proxy for the Stockholders' Meetings. All documents that any FMB Company
or any Affiliate thereof is responsible for filing with any Regulatory
Authority in connection with the transactions contemplated hereby will comply
as to form in all material respects with the provisions of applicable Law.
5.19 Accounting, Tax and Regulatory Matters. No FMB 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 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 State Takeover Laws. Each FMB Company has taken all necessary
action to exempt the transactions contemplated by this Agreement from any
applicable state takeover Law.
5.21 Charter Provisions. Each FMB Company has taken all action so
that the entering into of this Agreement and the consummation of the Merger
and the other transactions contemplated by this Agreement do not and will not
result in the grant of any rights to any Person under the Articles or
Certificate of Incorporation, Bylaws or other governing instruments of any FMB
Company or restrict or impair the ability of the Surviving Corporation to
vote, or otherwise to exercise the rights of a stockholder with respect to,
shares of any FMB Company that may be acquired or controlled by it.
ARTICLE SIX
REPRESENTATIONS AND WARRANTIES OF SAB
SAB hereby represents and warrants to FMB as follows:
6.1 Organization, Standing, and Power. SAB is a corporation duly
organized, validly existing, and in good standing under the Laws of the State
of Delaware, and has the corporate power and authority to carry on its
business as now conducted and to own, lease and operate its Assets. SAB 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 SAB.
SAB has delivered to FMB complete and correct copies of its Certificate 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) SAB has the corporate power and authority necessary to
execute, deliver and, subject to Article Nine hereof, perform its obligations
under this Agreement and to consummate the transactions contemplated hereby.
The execution, delivery and performance of this Agreement and the consummation
of the transactions contemplated herein, including the Merger, have been duly
and validly authorized by all necessary corporate action in respect thereof
on the part of SAB, subject to the approval of the holders of a majority of
the outstanding SAB Common Stock. Subject to such requisite stockholder
approval, this Agreement represents a legal, valid, and binding obligation of
SAB, enforceable against SAB 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
SAB, nor the consummation by SAB of the transactions contemplated hereby, nor
compliance by SAB with any of the provisions hereof, will (i) conflict with or
result in a breach of any provision of SAB's Certificate 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
SAB Company under, any Contract or Permit of any SAB Company, where any
failure to obtain such Consent is reasonably likely to have, individually or
in the aggregate, a Material Adverse Effect on SAB, 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 SAB 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
rules of the NASD, 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, or under the HSR Act, and other than Consents, filings
or notifications which, if not obtained or made, are not reasonably likely to
have, individually or in the aggregate, a Material Adverse Effect on SAB, no
notice to, filing with, or Consent of, any public body or authority is
necessary for the consummation by SAB of the Merger and the other transactions
contemplated in this Agreement.
6.3 Capital Stock. The authorized capital stock of SAB consists
of (i) 4,500,000 shares of SAB Common Stock, of which 3,001,563 shares are
issued and outstanding as of the date of this Agreement, and (ii) 500,000
shares of preferred stock, no par value per share, none of which is issued and
outstanding. All of the issued and outstanding shares of SAB Common Stock
are, and all of the shares of SAB Common Stock to be issued in exchange for
shares of FMB 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 DGCL. None of the
outstanding shares of SAB Common Stock has been, and none of the shares of SAB
Common Stock to be issued in exchange for shares of FMB Common Stock upon
consummation of the Merger will be, issued in violation of any preemptive
rights of the current or past stockholders of SAB. SAB has reserved 188,500
shares of SAB Common Stock for issuance under the SAB Stock Plan, pursuant to
which options to purchase no more than 150,692 shares of SAB Common Stock are
outstanding.
6.4 SAB Subsidiaries. SAB has Previously Disclosed all of the SAB
Subsidiaries as of the date of this Agreement. Except as Previously
Disclosed, SAB or one of its Subsidiaries owns all of the issued and
outstanding shares of capital stock of each SAB Subsidiary. No equity
securities of any SAB Subsidiary are or may become required to be issued
(other than to a SAB Company) 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 SAB Subsidiary is bound to issue (other than to a SAB Company)
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
SAB Company is or may be bound to transfer any shares of the capital stock of
any SAB Subsidiary (other than to a SAB Company). There are no Contracts
relating to the rights of any SAB Company to vote or to dispose of any shares
of the capital stock of any SAB Subsidiary. All of the shares of capital
stock of each SAB Subsidiary held by a SAB Company are fully paid and (except
pursuant to 12 USC Section 55 in the case of national banks and comparable,
applicable state Law, if any, in the case of state depository institutions)
nonassessable under the applicable corporation Law of the jurisdiction in
which such Subsidiary is incorporated or organized and are owned by the SAB
Company free and clear of any Lien. Each SAB Subsidiary is either a bank or
a corporation, and is duly organized, validly existing, and (as to
corporations) in good standing under the Laws of the jurisdiction in which it
is incorporated or organized, and has the corporate power and authority
necessary for it to own, lease and operate its Assets and to carry on its
business as now conducted. Each SAB 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 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 SAB. Each SAB Subsidiary that is a
depository institution is an "insured institution" as defined in the Federal
Deposit Insurance Act and applicable regulations thereunder.
6.5 Financial Statements. SAB has delivered to FMB prior to the
execution of this Agreement copies of all SAB Financial Statements for periods
ended prior to the date hereof and will deliver to FMB copies of all SAB
Financial Statements prepared subsequent to the date hereof. The SAB
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 SAB 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 SAB Companies as of the dates indicated
and the consolidated results of operations, changes in stockholders' equity,
and cash flows of the SAB Companies for the periods indicated, in accordance
with GAAP (subject to exceptions as to consistency specified therein or as
may be indicated in the notes thereto or, in the case of interim financial
statements, to normal recurring year-end adjustments that are not material).
6.6 Absence of Undisclosed Liabilities. No SAB Company has any
Liabilities that are reasonably likely to have, individually or in the
aggregate, a Material Adverse Effect on SAB, except Liabilities which are
accrued or reserved against in the consolidated balance sheets of SAB as of
March 31, 1996 included in the SAB Financial Statements or reflected in the
notes thereto. No SAB Company has incurred or paid any Liability since
March 31, 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 SAB.
6.7 Absence of Certain Changes or Events. Since March 31, 1996,
except as disclosed in the SAB Financial Statements or as Previously
Disclosed, (i) there have been no events, changes or occurrences which have
had, or are reasonably likely to have, individually or in the aggregate, a
Material Adverse Effect on SAB, and (ii) the SAB 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 SAB provided in Article Seven of this Agreement.
6.8 Tax Matters.
(a) All Tax returns required to be filed by or on behalf of
any of the SAB 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 on or before the date of the most recent fiscal
year end immediately preceding the Effective Time, except to the extent that
all such failures to file, taken together, are not reasonably likely to have
a Material Adverse Effect on SAB, and all returns filed are complete and
accurate to the Knowledge of SAB. All Taxes shown on filed returns have been
paid. There is no audit examination, deficiency, or refund Litigation with
respect to any Taxes that is reasonably likely to result in a determination
that would have, individually or in the aggregate, a Material Adverse Effect
on SAB, except as reserved against in the SAB Financial Statements delivered
prior to the date of this Agreement or as Previously Disclosed. All Taxes and
other Liabilities due with respect to completed and settled examinations or
concluded Litigation have been paid.
(b) None of the SAB 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 SAB Companies for the period or periods through and including the
date of the respective SAB Financial Statements has been made and is reflected
on such SAB Financial Statements.
(d) Deferred Taxes of the SAB Companies have been provided for
in accordance with GAAP.
6.9 Allowance for Possible Loan Losses. The Allowance shown on
the consolidated balance sheets of SAB included in the most recent SAB
Financial Statements dated prior to the date of this Agreement was, and the
Allowance shown on the consolidated balance sheets of SAB included in the SAB
Financial Statements as of dates subsequent to the execution of this Agreement
will be, as of the dates thereof, adequate (within the meaning of GAAP and
applicable regulatory requirements or guidelines) to provide for losses
relating to or inherent in the loan and lease portfolios (including accrued
interest receivables) of the SAB Companies and other extensions of credit
(including letters of credit and commitments to make loans or extend credit)
by the SAB Companies as of the dates thereof, except where the failure of such
Allowance to be so adequate is not reasonably likely to have a Material
Adverse Effect on SAB.
6.10 Assets. Except as Previously Disclosed or as disclosed or
reserved against in the SAB Financial Statements, the SAB 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 SAB Companies
are in good condition, reasonable wear and tear excepted, and are usable in
the ordinary course of business consistent with SAB's past practices. All
Assets which are material to SAB's business on a consolidated basis, held
under leases or subleases by any of the SAB 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 SAB 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 SAB Companies is a named insured are
reasonably sufficient. The Assets of the SAB Companies include all assets
required to operate the business of the SAB Companies as presently conducted.
6.11 Environmental Matters.
(a) To the Knowledge of SAB, each SAB Company, its
Participation Facilities, and its Loan Properties are, and have been, in
compliance with all Environmental Laws, except for violations which are not
reasonably likely to have, individually or in the aggregate, a Material
Adverse Effect on SAB.
(b) To the Knowledge of SAB, there is no Litigation pending
or threatened before any court, governmental agency or authority or other
forum in which any SAB 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 SAB 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 SAB.
(c) To the Knowledge of SAB, there is no Litigation pending or
threatened before any court, governmental agency or board or other forum in
which any of its Loan Properties (or SAB 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 SAB.
(d) To the Knowledge of SAB, 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 SAB.
(e) During the period of (i) any SAB Company's ownership or
operation of any of their respective current properties, (ii) any SAB
Company's participation in the management of any Participation Facility,
or (iii) any SAB 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 SAB. Prior to
the period of (i) any SAB Company's ownership or operation of any of their
respective current properties, (ii) any SAB Company's participation in the
management of any Participation Facility, or (iii) any SAB Company's holding
of a security interest in a Loan Property, to the Knowledge of SAB, 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 SAB.
6.12 Compliance with Laws. SAB is duly registered as a bank
holding company under the BHC Act. Each SAB 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 SAB, and there has occurred no Default under any such
Permit. Except as Previously Disclosed, no SAB Company:
(a) Is in violation of any Laws, Orders or Permits applicable
to its business or employees conducting its business, except for violations
which are not reasonably likely to have, individually or in the aggregate, a
Material Adverse Effect on SAB; and
(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 SAB Company is not in
compliance with any of the Laws or Orders which such governmental authority
or Regulatory Authority enforces, where such noncompliance is reasonably
likely to have, individually or in the aggregate, a Material Adverse Effect
on SAB, (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 SAB, or (iii) requiring any SAB 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, which restricts materially the conduct of
its business, or in any manner relates to its capital adequacy, its credit or
reserve policies, its management, or the payment of dividends.
6.13 Labor Relations. No SAB Company is the subject of any
Litigation asserting that it or any other SAB 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 SAB 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 SAB Company,
pending or threatened, or to its Knowledge, is there any activity involving
any SAB Company's employees seeking to certify a collective bargaining unit
or engaging in any other organization activity.
6.14 Employee Benefit Plans.
(a) SAB has delivered or made available to FMB 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 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
SAB 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 "SAB Benefit Plans"). Any of the SAB 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 "SAB ERISA Plan." Each SAB
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 "SAB Pension
Plan." No SAB Pension Plan is or has been a multiemployer plan within the
meaning of Section 3(37) of ERISA.
(b) All SAB Benefit Plans are in compliance with the
applicable terms of ERISA, the Internal Revenue Code, and any other applicable
Laws the breach or violation of which are reasonably likely to have,
individually or in the aggregate, a Material Adverse Effect on SAB. Each SAB
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 SAB is not aware of any circumstances likely to
result in revocation of any such favorable determination letter. To the
Knowledge of SAB, no SAB Company has engaged in a transaction with respect to
any SAB Benefit Plan that, assuming the taxable period of such transaction
expired as of the date hereof, would subject any SAB 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 SAB.
(c) No SAB ERISA Plan which is a defined benefit pension plan
has any "unfunded current 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. Since the date of the most recent actuarial valuation, there
has been (i) no material change in the financial position of an SAB Pension
Plan, (ii) no change in the actuarial assumptions with respect to any SAB
Pension Plan, and (iii) no increase in benefits under any SAB 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
SAB or materially adversely affect the funding status of any such plan.
Neither any SAB Pension Plan nor any "single-employer plan", within the
meaning of Section 4001(a)(15) of ERISA, currently or formerly maintained by
any SAB 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 SAB. No SAB Company has provided, or is
required to provide, security to a SAB 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 or ERISA
has been or is expected to be incurred by any SAB 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 SAB. No SAB Company has incurred any withdrawal
Liability with respect to a multiemployer plan under Subtitle B of Title IV
or ERISA (regardless of whether based on contributions of an ERISA Affiliate),
which Liability is reasonably likely to have a Material Adverse Effect on SAB.
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 SAB Pension Plan or by any ERISA Affiliate within
the 12-month period ending on the date hereof.
(e) Except as Previously Disclosed, (i) no SAB Company has any
obligations for retiree health and life benefits under any of the SAB Benefit
Plans and (ii) there are no restrictions on the rights of such SAB 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 SAB.
(f) Except as Previously Disclosed, neither the execution and
delivery of this Agreement nor the consummation of the transactions
contemplated hereby will (i) result in any payment (including, without
limitation, severance, unemployment compensation, golden parachute or
otherwise) becoming due to any director or any employee of any SAB Company
from any SAB Company under any SAB Benefit Plan or otherwise, (ii) increase
any benefits otherwise payable under any SAB 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 SAB.
6.15 Material Contracts. SAB has filed as an exhibit to its annual
report on Form 10-K each Contract required to be so filed under the 1934 Act
and the rules and regulations promulgated thereunder. None of the SAB
Companies is in Default under any SAB Contract, other than Defaults which are
not reasonably likely to have, individually or in the aggregate, a Material
Adverse Effect on SAB. All of the indebtedness of any SAB Company for money
borrowed is prepayable at any time by such SAB Company without penalty or
premium.
6.16 Legal Proceedings. Except as Previously Disclosed, there is
no Litigation instituted or pending, or, to the Knowledge of SAB, 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 SAB 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 SAB, nor are there any Orders of any Regulatory
Authorities, other governmental authorities, or arbitrators outstanding
against any SAB Company, that are reasonably likely to have, individually or
in the aggregate, a Material Adverse Effect on SAB.
6.17 Reports. Since January 1, 1993, or the date of organization if
later, each SAB 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, including, but not limited to, Forms 10-K,
Forms 10-Q, Forms 8-K, and proxy statements, (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 SAB). 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. No statement, certificate,
instrument or other writing furnished or to be furnished by any SAB Company
or any Affiliate thereof to FMB 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 SAB Company or any Affiliate thereof for inclusion in
the Registration Statement to be filed by SAB with the SEC, will, when the
Registration Statement becomes effective, be false or misleading with respect
to any material fact, or omit to state any material fact necessary to make the
statements therein not misleading. None of the information supplied or to be
supplied by any SAB Company or any Affiliate thereof for inclusion in the
Joint Proxy Statement to be mailed to each Party's stockholders in connection
with the Stockholders' Meetings, and any other documents to be filed by any
SAB Company or any Affiliate thereof with the SEC or any other Regulatory
Authority in connection with the transactions contemplated hereby, will, at
the respective time such documents are filed, and with respect to the Joint
Proxy Statement, when first mailed to the stockholders of FMB and SAB, be
false or misleading with respect to any material fact, or omit to state any
material fact necessary to make the statements therein, in light of the
circumstances under which they were made, not misleading, or, in the case of
the Joint Proxy Statement or any amendment thereof or supplement thereto, at
the time of the Stockholders' Meetings, be false or misleading with respect
to any material fact, or omit to state any material fact necessary to correct
any statement in any earlier communication with respect to the solicitation
of any proxy for the Stockholders' Meetings. All documents that any SAB
Company or any Affiliate thereof is responsible for filing with any Regulatory
Authority in connection with the transactions contemplated hereby will
comply as to form in all material respects with the provisions of applicable
Law.
6.19 Accounting, Tax and Regulatory Matters. No SAB 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 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.
6.20 State Takeover Laws. Each SAB Company has taken all necessary
action to exempt the transactions contemplated by this Agreement from any
applicable state takeover Law, including, without limitation, Section 203 of
the DGCL.
6.21 Charter Provisions. Each SAB Company has taken or will take
all action so that the entering into of this Agreement and the consummation of
the Merger and the other transactions contemplated by this Agreement do not
and will not result in the grant of any rights to any Person under the
Certificate of Incorporation, Bylaws or other governing instruments of any SAB
Company or restrict or impair the ability of any FMB stockholder to vote, or
otherwise to exercise the rights of a stockholder with respect to, shares of
SAB Common Stock that may be acquired or controlled by it.
ARTICLE SEVEN
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
contemplated herein, each Party shall and shall cause each of its Subsidiaries
to (a) preserve intact its business organizations, 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
contemplated hereby 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 Covenants of FMB. From the date of this Agreement until the
earlier of the Effective Time or the termination of this Agreement, FMB
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 SAB, which consent shall not be unreasonably
withheld:
(a) except as Previously Disclosed, amend the Certificate of
Incorporation, Bylaws or other governing instruments of any FMB Company,
or
(b) incur any additional debt obligation or other obligation for
borrowed money (other than indebtedness of a FMB Company to another FMB
Company) except in the ordinary course of the business of FMB Subsidiaries
consistent with past practices (which shall include, for FMB Subsidiaries
that are depository institutions, creation of deposit liabilities,
purchases of federal funds, advances from the Federal Reserve Bank or the
Federal Home Loan Bank, and entry into repurchase agreements fully secured
by U.S. government or agency securities), or impose, or suffer the
imposition, on any share of stock held by any FMB Company of any Lien or
permit any such Lien to exist; or
(c) repurchase, redeem, or otherwise acquire or exchange (other
than exchanges in the ordinary course under employee benefit plans),
directly or indirectly, any shares, or any securities convertible into any
shares, of the capital stock of any FMB Company, or declare or pay any
dividend or make any other distribution in respect of FMB's capital stock,
provided that FMB may (to the extent legally and contractually permitted to
do so), but shall not be obligated to, declare and pay special cash
dividends on the shares of FMB Common Stock at a rate not in excess of
$12.00 per share with usual and regular record and payment dates in
accordance with past practice Previously Disclosed; or
(d) except for this Agreement, or as Previously Disclosed,
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 FMB Common Stock or any
other capital stock of any FMB 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 such stock; or
(e) adjust, split, combine or reclassify any capital stock of
any FMB Company or issue or authorize the issuance of any other securities
in respect of or in substitution for shares of its capital stock or sell,
lease, mortgage or otherwise dispose of or otherwise encumber any shares
of capital stock of any FMB Subsidiary (unless any such shares of stock
are sold or otherwise transferred to another FMB Company) or any Asset
other than in the ordinary course of business for reasonable and adequate
consideration; or
(f) 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
(g) grant any increase in compensation or benefits to the
employees or officers of any FMB Company, except in accordance with past
practice Previously Disclosed or as required by Law; pay any bonus except
in accordance with past practice Previously Disclosed or 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 FMB Company; grant any material increase in fees
or other increases in compensation or other benefits to directors of any
FMB Company except in accordance with past practice Previously Disclosed;
or
(h) enter into or amend any employment Contract between any
FMB Company and any Person (unless such amendment is required by Law)
that the FMB 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;
(i) adopt any new employee benefit plan of any FMB Company or
make any material change in or to any existing employee benefit plans of
any FMB Company other than any such change that is required by Law or
that, in the opinion of counsel, is necessary or advisable to maintain
the tax qualified status of any such plan; or
(j) 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;
(k) commence any Litigation other than in accordance with past
practice, settle any Litigation involving any Liability of any FMB Company
for material money damages or restrictions upon the operations of any FMB
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;
(l) operate its business otherwise than in the ordinary course
of business; or
(m) fail to file timely any report required to be filed by it
with any Regulatory Authority.
7.3 Covenants of SAB. From the date of this Agreement until the
earlier of the Effective Time or the termination of this Agreement, SAB
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 FMB, which consent shall not be unreasonably
withheld:
(a) fail to file timely any report required to be filed by it
with Regulatory Authorities, including the SEC;
(b) take any action which would cause the SAB Common Stock to
cease to be traded on the NASDAQ.
(c) without giving prior written notice to FMB: (i) grant any
increase in compensation or benefits to the employees or officers of any
SAB Company, except in accordance with past practice Previously Disclosed
or as required by Law; (ii) pay any bonus except in accordance with past
practice Previously Disclosed or the provisions of any applicable program
or plan adopted by its Board of Directors prior to the date of this
Agreement; (iii) enter into or amend any severance agreements with
officers of any SAB Company; or (iv) grant any material increase in
fees or other increases in compensation or other benefits to directors
of any SAB Company except in accordance with past practice Previously
Disclosed;
(d) enter into or amend any employment Contract between any
SAB Company and any Person (unless such amendment is required by Law)
that the SAB 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;
(e) adopt any new employee benefit plan of any SAB Company or
make any material change in or to any existing employee benefit plans of
any SAB Company other than any such change that is required by Law or
that, in the opinion of counsel, is necessary or advisable to maintain
the tax qualified status of any such plan;
(f) 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
(h) operate its business otherwise than in the ordinary course
of business without giving prior written notice to FMB.
7.4 Adverse Changes in Condition. Each Party agrees to give written
notice promptly to the other Party upon becoming aware of the occurrence or
impending occurrence of any event or circumstance relating to it or any of
its Subsidiaries which (i) is reasonably likely to have, individually or in
the aggregate, a Material Adverse Effect on it or (ii) would cause or
constitute a material breach of any of it's 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 with Regulatory Authorities promptly after
the same are filed.
ARTICLE EIGHT
ADDITIONAL AGREEMENTS
8.1 Registration Statement; Proxy Statement; Stockholder Approval.
As soon as practicable after execution of this Agreement, SAB shall file the
Registration Statement with the SEC, and shall use its reasonable efforts to
cause the Registration Statement to become effective under the 1933 Act and
take any action required to be taken under the applicable state Blue Sky or
securities Laws in connection with the issuance of the shares of SAB Common
Stock upon consummation of the Merger. FMB shall furnish all information
concerning it and the holders of its capital stock as SAB may reasonably
request in connection with such action. FMB and SAB shall call Stockholders'
Meetings, to be held as soon as reasonably practicable after the Registration
Statement is declared effective by the SEC, for the purpose of voting upon
adoption of this Agreement and such other related matters as it deems
appropriate. In connection with the Stockholders' Meetings, (i) FMB and SAB
shall prepare and file a Joint Proxy Statement with the SEC and mail it to
their stockholders, (ii) the Parties shall furnish to each other all
information concerning them that they may reasonably request in connection
with such Joint Proxy Statement, (iii) the Board of Directors of FMB and SAB
shall recommend (subject to compliance with their fiduciary duties as advised
by counsel) to their respective stockholders the approval of this Agreement,
and (iv) the Board of Directors and officers of FMB and SAB shall use their
reasonable efforts to obtain such stockholders' approval (subject to
compliance with their fiduciary duties as advised by counsel).
8.2 Applications. SAB shall promptly prepare and file, and FMB
shall cooperate in the preparation and, where appropriate, filing of,
applications with all Regulatory Authorities having jurisdiction over the
transactions contemplated by this Agreement seeking the requisite Consents
necessary to consummate the transactions contemplated by this Agreement.
8.3 Filings with State Offices. Upon the terms and subject to the
conditions of this Agreement, SAB shall execute and file both the Certificate
of Merger with the Secretary of State of the State of Delaware and the
Articles of Merger with the Secretary of State of the State of Alabama in
connection with the Closing.
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 reasonable 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 contemplated by
this Agreement, including, without limitation, using its reasonable efforts to
lift or rescind any Order adversely affecting its ability to consummate the
transactions contemplated herein and to cause to be satisfied the conditions
referred to in Article Nine 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
contemplated by this Agreement.
8.5 Investigation and Confidentiality.
(a) Prior to the Effective Time, each Party will keep the
other Party advised of all material developments relevant to its business and
to consummation of the Merger and shall permit the other Party to make or
cause to be made such investigation of the business and properties of it and
its Subsidiaries and of their respective financial and legal conditions as
the other Party reasonably requests, provided that such investigation shall
be reasonably related to the transactions contemplated hereby and shall not
interfere unnecessarily with normal operations. No investigation by a Party
shall affect the representations and warranties of the other Party.
(b) Each Party shall, and shall cause its advisers and agents
to, maintain the confidentiality of all confidential information furnished to
it by the other Party concerning its and its Subsidiaries' businesses,
operations, and financial positions and shall not use such information for any
purpose except in furtherance of the transactions contemplated by this
Agreement. If this Agreement is terminated prior to the Effective Time, each
Party shall promptly return all documents and copies thereof, and all work
papers containing confidential information received from the other Party.
(c) Each Party agrees to give the other Party notice as soon
as practicable after any determination by it of any fact or occurrence
relating to the other Party which it has discovered through the course of its
investigation and which represents, or is reasonably likely to represent,
either a material breach of any representation, warranty, covenant or
agreement of the other Party or which has had or is reasonably likely to have
a Material Adverse Effect on the other Party.
8.6 Press Releases. Prior to the Effective Time, FMB and SAB shall
consult with each other as to the form and substance of any press release or
other public disclosure materially related to this Agreement or any other
transaction contemplated hereby; provided, however, that nothing in this
Section 8.6 shall be deemed to prohibit any Party from making any disclosure
which its counsel deems necessary or advisable in order to satisfy such
Party's disclosure obligations imposed by Law.
8.7 Certain Actions.
(a) Except with respect to this Agreement and the
transactions contemplated hereby, no FMB Company or any Affiliate thereof or
any investment banker, attorney, accountant or other representative retained
by any FMB Company (collectively, "FMB Representatives") shall directly or
indirectly solicit any Acquisition Proposal by any Person. No FMB Company or
any Affiliate or Representative thereof shall furnish any non-public
information that it is not legally obligated to furnish, negotiate with
respect to, or enter into any Contract with respect to, any Acquisition
Proposal, but FMB may communicate information about such an Acquisition
Proposal to its stockholders if and to the extent that it is required to do
so in order to comply with its legal obligations. FMB shall promptly notify
SAB orally and in writing in the event that it receives any inquiry or
proposal relating to any such transaction. FMB shall (i) immediately cease
and cause to be terminated any existing activities, discussions or negotiations
with any Persons conducted heretofore with respect to any of the foregoing,
and (ii) direct and use its reasonable efforts to cause all FMB Representatives
not to engage in any of the foregoing.
(b) SAB shall promptly notify FMB orally and in writing in the
event that it receives any inquiry or proposal relating to an Acquisition
Proposal; provided, that no such notice shall be required if it would violate
any confidentiality agreement or would require public notice of such
Acquisition Proposal before such notice would otherwise be timely made.
8.8 Accounting and Tax Treatment. Each of the Parties undertakes
and agrees to use its reasonable efforts to cause the Merger, and to take no
action which would cause the Merger not, to qualify as a "reorganization"
within the meaning of Section 368(a) of the Internal Revenue Code for federal
income tax purposes.
8.9 State Takeover Laws. Each FMB Company and each SAB Company
shall take all necessary steps to exempt the transactions contemplated by this
Agreement from, or if necessary challenge the validity or applicability of,
any applicable state takeover Law, including, without limitation, Section 203
of the DGCL.
8.10 Charter Provisions.
(a) Each FMB Company shall take all necessary action to
ensure that the entering into of this Agreement and the consummation of the
Merger and the other transactions contemplated hereby do not and will not
result in the grant of any rights to any Person under the Certificate of
Incorporation, Bylaws or other governing instruments of any FMB Company or
restrict or impair the ability of SAB to vote, or otherwise to exercise the
rights of a stockholder with respect to, shares of any FMB Company that may
be acquired or controlled by it.
(b) Each SAB Company shall take all necessary action to
ensure that the entering into of this Agreement and the consummation of the
Merger and the other transactions contemplated hereby do not and will not
result in the grant of any rights to any Person under the Certificate of
Incorporation, Bylaws or other governing instruments of any SAB Company or
restrict or impair the ability of any FMB stockholder to vote, or otherwise
exercise the rights of a stockholder with respect to, shares of SAB Common
Stock that may be acquired or controlled by it.
8.11 Agreement of Affiliates. FMB shall use its reasonable best
efforts to cause each Person who is an "affiliate" within the meaning of SEC
Rule 145 to deliver to SAB not later than thirty (30) days prior to the
Effective Time, a written agreement, substantially in the form of Exhibit 3,
providing that such Person will not sell, pledge, transfer, or otherwise
dispose of the shares of FMB Common Stock held by such Person except as
contemplated by such agreement or by this Agreement and will not sell, pledge,
transfer, or otherwise dispose of the shares of SAB Common Stock to be received
by such Person upon consummation of the Merger except in compliance with
applicable provisions of the 1933 Act and the rules and regulations thereunder.
SAB shall not be required to maintain the effectiveness of the Registration
Statement under the 1933 Act for the purposes of resale of SAB Common Stock
by such affiliates.
8.12 Change in Control. The Surviving Corporation shall, within a
reasonable time after the Effective Time, offer Haniel F. Croft and John B.
Barnett, III, the right to enter into an agreement with the Surviving
Corporation or its subsidiary then employing Haniel F. Croft and/or John B.
Barnett, III, as the case may be, which agreement shall provide certain
benefits to Haniel F. Croft and John B. Barnett, III, in the event of certain
changes in the control of SAB, and which agreement shall be similar in form and
substance to agreements now in effect with respect to certain officers of
SAB and its Subsidiaries.
8.13 Compensation and Employee Benefits. The Parties contemplate
that at the Effective Time the compensation and employee benefit plans of
neither the FMB Companies nor the SAB Companies shall be affected by the
Merger and that such plans shall continue in effect as though the Merger had
not occurred. The Parties further contemplate, however, that it is desirable
that the Surviving Corporation and its Subsidiaries offer more uniform
employee compensation and benefits and that at some point after the Effective
Time the Surviving Corporation and its Subsidiaries will adopt uniform policies
and plans, giving due regard to the benefits offered to current employees.
8.14 Indemnification.
(a) The Surviving Corporation shall indemnify, defend and
hold harmless the present and former directors, officers, employees and agents
of the FMB Companies (each, an "Indemnified Party") against all Liabilities
arising out of actions or omissions occurring at or prior to the Effective
Time (including, without limitation, the transactions contemplated by this
Agreement) to the full extent permitted under Delaware Law and by FMB's
Articles of Incorporation and Bylaws as in effect on the date hereof, including
provisions relating to advances of expenses incurred in the defense of any
Litigation. Without limiting the foregoing, in any case in which approval by
the Surviving Corporation is required to effectuate any indemnification, the
Surviving Corporation shall direct, at the election of the Indemnified Party,
that the determination of any such approval shall be made by independent
counsel mutually agreed upon between the Surviving Corporation and the
Indemnified Party.
(b) Any Indemnified Party wishing to claim indemnification
under paragraph (a), upon learning of any such Liability or Litigation, shall
promptly notify the Surviving Corporation thereof. In the event of any such
Litigation (whether arising before or after the Effective Time), the Surviving
Corporation shall have the right to assume the defense thereof and shall not
be liable to such Indemnified Parties for any legal expenses of other counsel
or any other expenses subsequently incurred by such Indemnified Parties in
connection with the defense thereof, except that if the Surviving Corporation
elects not to assume such defense or counsel for the Indemnified Parties
advises that there are substantive issues which raise conflicts of interest
between the Surviving Corporation and the Indemnified Parties, the Indemnified
Parties may retain counsel satisfactory to them, and the Surviving Corporation
shall pay all reasonable fees and expenses of such counsel for the Indemnified
Parties promptly as statements therefor are received; provided, however, that
the Surviving Corporation shall be obligated pursuant to this paragraph (b)
to pay for only one firm of counsel for all Indemnified Parties in any
jurisdiction.
(c) If the Surviving Corporation or any of its successors or
assigns shall consolidate with or merge into any other Person and shall not
be the continuing or surviving Person of such consolidation or merger or
shall transfer all or substantially all of its assets to any Person, then and
in each case, proper provision shall be made so that the successors and
assigns of the Surviving Corporation shall assume the obligations set forth
in this Section 8.12.
ARTICLE NINE
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 contemplated hereby are subject to the satisfaction
of the following conditions, unless waived by both Parties pursuant to Section
11.6 of this Agreement:
(a) Stockholder Approval. The stockholders of FMB and SAB
shall have adopted this Agreement, and the consummation of the transactions
contemplated hereby, including the Merger, as and to the extent required
by Law, by the provisions of any governing instruments, or by the rules
of the NASD.
(b) Regulatory Approvals. All Consents of, filings and
registrations with, and notifications to, all Regulatory Authorities
required for consummation of the Merger shall have been obtained or made
and shall be in full force and effect and all waiting periods required
by Law shall have expired. No Consent obtained from any Regulatory
Authority which is necessary to consummate the transactions contemplated
hereby shall be conditioned or restricted in a manner (including, without
limitation, requirements relating to the raising of additional capital
or the disposition of assets) 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 so as to render inadvisable the consummation of the Merger.
(c) Consents and Approvals. Each Party shall have obtained
any and all Consents required for consummation of the Merger (other than
those referred to in Section 9.1(b) of this Agreement) or for the
preventing of any Default under any Contract or Permit of such Party
which, if not obtained or made, is reasonably likely to have,
individually or in the aggregate, a Material Adverse Effect on such
Party. No Consent so obtained which is necessary to consummate the
transactions contemplated hereby shall be conditioned or restricted in
a manner which in the reasonable judgment of the Board of Directors of
either Party would so materially adversely impact the economic or
business benefits of the transactions contemplated by this Agreement
so as to render inadvisable the consummation of the Merger.
(d) Legal Proceedings. No court or governmental or regulatory
authority of competent jurisdiction shall have enacted, issued,
promulgated, enforced or entered any Law or Order (whether temporary,
preliminary or permanent) or taken any other action which prohibits,
restricts or makes illegal consummation of the transactions contemplated
by this Agreement.
(e) Registration Statement. The Registration Statement shall
be effective under the 1933 Act, no stop orders suspending the
effectiveness of the Registration Statement shall have been issued, no
action, suit, proceeding or investigation by the SEC to suspend the
effectiveness thereof shall have been initiated and be continuing, and
all necessary approvals under state securities Laws or the 1933 Act or
1934 Act relating to the issuance or trading of the shares of SAB Common
Stock issuable pursuant to the Merger shall have been received.
(f) Tax Matters. FMB and SAB shall have received a written
opinion of counsel from Maynard, Cooper & Gale, P.C. and Hand Arendall,
L.L.C., 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 FMB Common Stock for
SAB Common Stock will not give rise to gain or loss to the stockholders
of FMB with respect to such exchange (except to the extent of any cash
received), and (iii) neither FMB nor SAB 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
FMB and SAB shall be entitled to rely upon representations of officers of
FMB and SAB reasonably satisfactory in form and substance to such counsel.
9.2 Conditions to Obligations of SAB. The obligations of SAB to
perform this Agreement and consummate the Merger and the other transactions
contemplated hereby are subject to the satisfaction of the following
conditions, unless waived by SAB pursuant to Section 11.6(a) of this Agreement:
(a) Representations and Warranties. The representations and
warranties of FMB 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 FMB.
(b) Performance of Agreements and Covenants. Each and all of
the agreements and covenants of FMB to be performed and complied with
pursuant to this Agreement and the other agreements contemplated hereby
prior to the Effective Time shall have been duly performed and complied
with in all material respects.
(c) Certificates. FMB shall have delivered to SAB (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 FMB'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 contemplated hereby, all in
such reasonable detail as SAB and its counsel shall request.
(d) Opinion of Counsel. FMB shall have delivered to SAB an
opinion of Maynard, Cooper & Gale, P.C., counsel to FMB, dated as of the
Closing, in substantially the form of Exhibit 4 hereto.
9.3 Conditions to Obligations of FMB. The obligations of FMB to
perform this Agreement and consummate the Merger and the other transactions
contemplated hereby are subject to the satisfaction of the following
conditions, unless waived by FMB pursuant to Section 11.6(b) of this Agreement:
(a) Representations and Warranties. The representations and
warranties of SAB 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 SAB.
(b) Performance of Agreements and Covenants. Each and all of
the agreements and covenants of SAB to be performed and complied with
pursuant to this Agreement and the other agreements contemplated hereby
prior to the Effective Time shall have been duly performed and complied
with in all material respects.
(c) Certificates. SAB shall have delivered to FMB (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 SAB'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 contemplated hereby, all in
such reasonable detail as FMB and its counsel shall request.
(d) Opinion of Counsel. SAB shall have delivered to FMB an
opinion of Hand Arendall, L.L.C., counsel to SAB, dated as of the
Effective Time, in substantially the form of Exhibit 5 hereto.
ARTICLE TEN
TERMINATION
10.1 Termination. Notwithstanding any other provision of this
Agreement, and notwithstanding the approval of this Agreement by the
stockholders of FMB and SAB or both, this Agreement may be terminated and the
Merger abandoned at any time prior to the Effective Time:
(a) By mutual consent of the Board of Directors of SAB and
the Board of Directors of FMB; 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 or agreement
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, or other agreement contained in this
Agreement) in the event (i) any Consent of any Regulatory Authority
required for consummation of the Merger and the other transactions
contemplated hereby 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) if the stockholders
of FMB or SAB fail to vote their approval of this Agreement and the
transactions contemplated hereby as required by the DGCL, the ABCA and
the rules of the NASD at the Stockholders' Meetings where the
transactions were presented to such stockholders for approval and voted
upon; or
(e) By the Board of Directors of FMB in the event the average
Market Value of SAB Common Stock for the Valuation Period is less than
$11.10 per share, unless SAB shall agree to adjust the Exchange Ratio
such that the total average Market Value of the SAB Common Stock for the
Valuation Period exchanged for each share of FMB Common Stock shall equal
$1,257.19; or
(f) By the Board of Directors of SAB in the event the average
Market Value of SAB Common Stock for the Valuation Period is greater
than $16.65 per share, unless FMB shall agree to adjust the Exchange
Ratio such that the total average Market Value of the SAB Common Stock
for the Valuation Period exchanged for each share of FMB Common Stock
shall equal $1,545.73; or
(g) Without action of either SAB or FMB, and notwithstanding
subsections (e) and (f) of this Section 10.1, in the event the average
Market Value of SAB Common Stock for the Valuation Period is less than
$11.00 per share or more than $17.00 per share; or
(h) By the Board of Directors of either Party in the event
that the Merger shall not have been consummated by March 15, 1997, if
the failure to consummate the transactions contemplated hereby on or
before such date is not caused by any breach of this Agreement by the
Party electing to terminate pursuant to this Section 10.1(h); or
(i) By the Board of Directors of either Party in the event
that any of the conditions precedent to the obligations of such Party to
consummate the Merger cannot be satisfied or fulfilled by the date
specified in Section 10.1(h) of this Agreement.
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 Eleven and Section 8.5(b) 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, 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 Two, Three, Four and Eleven and Section 8.12 of this
Agreement. Without limiting the foregoing and in addition thereto, to the
fullest extent permitted by law, from the Effective Time, the Parties release,
discharge and terminate all causes of action, claims and demands arising out
of or in any way connected with this Agreement other than any cause of action,
claim or demand arising out of or in any way connected with Articles Two,
Three, Four and Eleven and Section 8.12 of this Agreement.
ARTICLE ELEVEN
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.
"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; or (iii)
any other Person for which a Person described in clause (ii) acts in
any such capacity.
"Agreement" shall mean this amended and restated Agreement and
Plan of Merger, including the Exhibits 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 prior to its amendment and
restatement, May 31, 1996. Representations and warranties made as of
the date of this Agreement shall be as of such date of first execution.
"Allowance" shall have the meaning provided in Section 5.9 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.
"Broker Fees" shall have the meaning provided in Section 11.3
of this Agreement.
"Certificate of Merger" shall mean the Certificate of Merger
to be executed by SAB and filed with the Secretary of State of the State
of Delaware relating to the Merger as contemplated by Section 1.1 of
this Agreement.
"Closing" shall mean the closing of the transactions
contemplated hereby, as described in Section 1.2 of this Agreement.
"Consent" shall mean any consent, approval, authorization,
clearance, exemption, waiver, or similar affirmation by any Person
pursuant to any Contract, Law, Order, or Permit.
"Contract" shall mean any written or oral agreement,
arrangement, authorization, commitment, contract, indenture, instrument,
lease, obligation, plan, practice, restriction, understanding or
undertaking of any kind or character, or other document to which any
Person is a party or that is binding on any Person or its capital stock,
Assets or business.
"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.
"DGCL" shall mean the Delaware General Corporation Law.
"Effective Time" shall mean the date and time at which the
Merger becomes effective as defined 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.
"ERISA Plan" 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 given such term in
Section 3.1 hereof.
"Exhibits" 1 through 4, inclusive, shall mean the Exhibits so
marked, copies of which are attached to this Agreement. Such Exhibits
are hereby incorporated by reference herein and made a part hereof, and
may be referred to in this Agreement and any other related instrument or
document without being attached hereto.
"FMB Benefit Plans" shall have the meaning set forth in
Section 5.14 of this Agreement.
"FMB Common Stock" shall mean the $25.00 par value common
stock of FMB.
"FMB Companies" shall mean, collectively, FMB and all FMB
Subsidiaries.
"FMB Financial Statements" shall mean (i) the consolidated
balance sheets (including related notes and schedules, if any) of FMB as
of December 31, 1995 and 1994, and the related statements of income,
changes in stockholders' equity, and cash flows (including related notes
and schedules, if any) for each of the three fiscal years ended December
31, 1995, 1994 and 1993, as delivered by FMB to SAB, and (ii) the
consolidated balance sheets of FMB (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 FMB to SAB with respect to periods ended
subsequent to December 31, 1995.
"FMB Subsidiaries" shall mean the Subsidiaries of FMB, which
shall include the FMB Subsidiaries described in Section 5.4 of this
Agreement and any corporation, bank, savings association, or other
organization acquired as a Subsidiary of FMB in the future and owned by
FMB at the Effective Time.
"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. 9601 et seq., or
any similar federal, state or local Law.
"HSR Act" shall mean Section 7A of the Clayton Act, as added
by Title II of the Hart-Scott-Rodino Antitrust Improvements Act of 1976,
as amended, and the rules and regulations promulgated thereunder.
"Internal Revenue Code" shall mean the Internal Revenue Code of
1986, as amended, and the rules and regulations promulgated thereunder.
"Joint Proxy Statement" shall mean the proxy statement/prospectus
used by FMB and SAB to solicit the approval of their stockholders of the
transactions contemplated by this Agreement.
"Knowledge" as used with respect to a Person shall mean the
knowledge after due inquiry of the Chairman, President, Chief Financial
Officer, Chief Accounting Officer, Chief Credit Officer, General
Counsel, any Assistant or Deputy General Counsel, or any Senior or
Executive Vice President of such Person.
"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 (iii) 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 contemplated
by this Agreement, but shall not include regular, periodic examinations
of depository institutions and their Affiliates by Regulatory Authorities.
"Loan Property" shall mean any property owned by the 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.
"Market Value," when used with reference to SAB Common Stock,
shall mean the average of the closing bid and closing ask price as
reported by NASDAQ, adjusted for the effect of any stock split, stock
dividend or other similar recapitalization between the date hereof and
the Effective Time.
"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 which has a material adverse impact on (i) the
financial position 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 contemplated by this Agreement, provided that
"material adverse impact" shall not be deemed to include the impact o
f (x) changes in banking and similar Laws of general applicability or
interpretations thereof by courts or 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 FMB with and into SAB
referred to in Section 1.1 of this Agreement.
"NASD" shall mean the National Association of Securities
Dealers, Inc.
"NASDAQ" shall mean the National Association of Securities
Dealers Automated Quotations System.
"1933 Act" shall mean the Securities Act of 1933, as amended.
"1934 Act" shall mean the Securities Exchange Act of 1934, as
amended.
"Order" shall mean any administrative decision or award,
decree, injunction, judgment, order, quasi-judicial decision or award,
ruling, or writ of any federal, state, local or foreign or other court,
arbitrator, mediator, tribunal, administrative agency or Regulatory
Authority.
"Participation Facility" shall means 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 FMB or SAB, and "Parties" shall mean
both FMB and SAB.
"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.
"Previously Disclosed" shall mean information delivered in
writing prior to the date of this Agreement in the manner and to the
Party and counsel described in Section 11.8 of this Agreement and
describing in reasonable detail the matters contained therein.
"Registration Statement" shall mean the Registration Statement
on Form S-4, or other appropriate form, filed with the SEC by SAB under
the 1933 Act in connection with the transactions contemplated by this
Agreement.
"Regulatory Authorities" shall mean, collectively, the Federal
Trade Commission, the United States Department of Justice, the Board of
the Governors of the Federal Reserve System, the Office of the
Comptroller of the Currency, the Federal Deposit Insurance Corporation,
all state regulatory agencies having jurisdiction over the Parties and
their respective Subsidiaries, the NASD, and the SEC.
"SAB Benefit Plans" shall have the meaning set forth in
Section 6.14 of this Agreement.
"SAB Common Stock" shall mean the $.01 par value common stock
of SAB.
"SAB Companies" shall mean, collectively, SAB and all SAB
Subsidiaries.
"SAB Financial Statements" shall mean (i) the consolidated
statements of condition (including related notes and schedules, if any)
of SAB as of December 31, 1995 and 1994, and the related statements of
income, changes in stockholders' equity, and cash flows (including
related notes and schedules, if any) for each of the three years ended
December 31, 1995, 1994 and 1993, as filed by SAB in SEC Documents, and
(ii) the consolidated statements of condition of SAB (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.
"SAB Stock Plan" shall mean the existing stock option plan of
SAB designated as the "South Alabama Bancorporation 1993 Incentive
Compensation Plan."
"SAB Subsidiaries" shall mean the Subsidiaries of SAB, which
shall include the SAB Subsidiaries described in Section 6.4 of this
Agreement and any corporation, bank, savings association, or other
organization acquired as a Subsidiary of SAB in the future and owned by
SAB at the Effective Time.
"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 Trust Indenture Act of 1939, as amended, and
the rules and regulations of any Regulatory Authority promulgated
thereunder.
"Stockholders' Meetings" shall mean the respective Meetings of
the stockholders of FMB and SAB to be held pursuant to Section 8.1 of
this Agreement, including any adjournment or adjournments thereof.
"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.
"Surviving Corporation" shall mean SAB as the surviving
corporation resulting from the Merger.
"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.
"Trading Day" shall mean a day on which NASDAQ is open for
trading activities.
"Valuation Period" shall mean the period of twenty (20)
consecutive Trading Days ending on the Trading Day preceding by two
Trading Days the Effective Time.
11.2 Expenses.
(a) Except as otherwise provided in this Section 11.2, each of
the Parties shall bear and pay all costs and expenses incurred by it or on
its behalf in connection with the transactions contemplated hereunder.
(b) Notwithstanding the foregoing, SAB agrees to pay
two-thirds, and FMB agrees to pay one-third, of all direct, out-of-pocket
costs and expenses incurred after execution of this Agreement by the Parties
or on their behalf in connection with the transactions contemplated hereunder,
including filing, registration and application fees, printing and mailing fees
and expenses, and fees and expenses of their respective accountants and
counsel. Each Party agrees to cooperate with the other in the determination
of amounts required by this subsection (b) to be shared and to make prompt
payment of amounts required to be paid to the other.
(c) Nothing contained in this Section 11.2 shall constitute or
shall be deemed to constitute liquidated damages for the willful breach by a
Party of the terms of this Agreement or otherwise limit the rights of the
nonbreaching Party under such circumstances.
11.3 Brokers and Finders. 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, except for Alex Sheshunoff
& Co. Investment Banking in the case of FMB and Mercer Capital Management,
Inc. in the case of SAB, incurred any Liability for any financial advisory
fees, investment bankers' fees, brokerage fees, commissions, or finders' fees
in connection with this Agreement or the transactions contemplated hereby
( Broker Fees ). 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 FMB or SAB, each of FMB and SAB, as the case may be, agrees
to indemnify and hold the other Party harmless of and from any Liability in
respect of any such claim. Each Party shall pay its own Broker Fees.
11.4 Entire Agreement. Except as otherwise expressly provided
herein, this Agreement (including the documents and instruments referred to
herein) constitutes the entire agreement between the Parties with respect to
the transactions contemplated hereunder and supersedes all prior arrangements
or understandings with respect thereto, written or oral. Nothing in this
Agreement expressed or implied is intended to confer upon any Person, other
than the Parties or their respective successors, any rights, remedies,
obligations, or liabilities under or by reason of this Agreement, other than
as provided in Section 8.12 of this Agreement.
11.5 Amendments. To the extent permitted by Law, this
Agreement may be amended by a subsequent writing signed by each of the
Parties upon the approval of the Boards of Directors of each of the Parties;
provided, however, that after approval of this Agreement by the holders of
FMB Common Stock or SAB Common Stock, there shall be made no amendment that
(a) pursuant to Section 251(d) of the DGCL requires further approval by such
stockholders without the further approval of the SAB stockholders, or (b)
pursuant to the ABCA requires further approval by the FMB stockholders
without the further approval of the FMB stockholders.
11.6 Waivers.
(a) Prior to or at the Effective Time, SAB, 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 FMB, to waive or extend the time for the compliance or
fulfillment by FMB of any and all of its obligations under this Agreement,
and to waive any or all of the conditions precedent to the obligations of SAB
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 SAB.
(b) Prior to or at the Effective Time, FMB, 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 SAB, to waive or extend the time for the compliance or
fulfillment by SAB of any and all of its obligations under this Agreement,
and to waive any or all of the conditions precedent to the obligations of FMB
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 FMB.
11.7 Assignment. Except as expressly contemplated hereby,
neither this Agreement nor any of the rights, interests or obligations
hereunder shall be assigned by any Party hereto (whether by operation of Law
or otherwise) without the prior written consent of the other Party. Subject
to the preceding sentence, this Agreement will be binding upon, inure to the
benefit of and be enforceable by the Parties and their respective successors
and assigns.
11.8 Notices. All notices or other communications which are
required or permitted hereunder shall be in writing and sufficient if
delivered by hand, by facsimile transmission, by registered or certified
mail, postage pre-paid, or by courier or overnight carrier, to the persons at
the addresses set forth below (or at such other address as may be provided
hereunder), and shall be deemed to have been delivered as of the date so
delivered:
FMB: First Monco Bancshares, Inc.
Monroe County Bank
P. O. Box 806 (36461-0806)
129 Hines Street
Monroeville, Alabama 36460
Telecopy Number: (334) 575-3135
Attention: Haniel F. Croft, Vice President
Copy to Counsel: Maynard, Cooper & Gale, P.C.
901 6th Avenue North
Suite 2400
Birmingham, Alabama 35203-2602
Telecopy Number: (205) 254-1999
Attention: J. Michael Savage
SAB: South Alabama Bancorporation, Inc.
P. O. Box 3067 (36652)
100 St. Joseph Street
Mobile, Alabama 36602
Telecopy Number: (334) 431-7851
Attention: W. Bibb Lamar, Jr., President
Copy to Counsel: Hand Arendall, L.L.C.
3000 First National Bank Building
P. O. Box 123 (36601)
Mobile, Alabama 36602
Telecopy Number: (334) 694-6375
Attention: Stephen G. Crawford
11.9 Governing Law. This Agreement shall be governed by and construed
in accordance with the Laws of the State of Delaware, without regard to any
applicable conflicts of Laws.
11.10 Counterparts. This Agreement may be executed in one or more
counterparts, each of which shall be deemed to be an original, but all of
which together shall constitute one and the same instrument.
11.11 Captions. The captions contained in this Agreement are for
reference purposes only and are not part of this Agreement.
11.12 Enforcement of Agreement. The Parties hereto agree that
irreparable damage would occur in the event that any of the provisions of
this Agreement was not performed in accordance with its specific terms or
was otherwise breached. It is accordingly agreed that the Parties shall be
entitled to an injunction or injunctions to prevent breaches of this
Agreement and to enforce specifically the terms and provisions hereof in any
court of the United States or any state having jurisdiction, this being in
addition to any other remedy to which they are entitled at law or in equity.
11.13 Severability. Any term or provision of this Agreement which
is invalid or unenforceable in any jurisdiction shall, as to that jurisdiction,
be ineffective to the extent of such invalidity or unenforceability without
rendering invalid or unenforceable the remaining terms and provisions of this
Agreement or affecting the validity or enforceability of any 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 Change of Domicile. It is contemplated by SAB and FMB that
SAB will change its state of incorporation from Delaware to Alabama prior to
the Effective Time by the incorporation of an Alabama subsidiary wholly owned
by SAB and the subsequent merger of SAB into that subsidiary (the "SAB
Merger"). The surviving Alabama corporation will be named "South Alabama
Bancorporation, Inc." upon the effectiveness of the SAB Merger and thereafter,
unless later changed. The surviving Alabama corporation will have the same
capitalization, assets, liabilities, directors, officers, employees and
stockholders and essentially the same charter provisions and by-laws as SAB
will have immediately before the Alabama Merger. The sole purpose of the
Alabama Merger will be to change SAB's state of incorporation from Delaware
to Alabama.
Anything in this Agreement to the contrary notwithstanding, in the event
the Alabama Merger occurs as contemplated prior to the Effective Time, all
references in this Agreement and the exhibits attached hereto, to Delaware
or Delaware law shall be deemed for all purposes (except SAB's
representations and warranties effective as of a time prior to the Alabama
Merger) to refer to Alabama or Alabama law, as the case may be, all
references to SAB, a Delaware corporation, shall be deemed to refer to the
surviving Alabama corporation with respect to all time periods subsequent to
the SAB Merger, and the Merger shall become effective upon the filing of
Articles of Merger with the Secretary of State of Alabama.
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 MONCO BANCSHARES, INC.
Paul B. Redmond, Jr. By: John B. Barnett, III
Secretary John B. Barnett, III, Vice President
[CORPORATE SEAL]
ATTEST: SOUTH ALABAMA BANCORPORATION, INC.
F. Michael Johnson By: W. Bibb Lamar, Jr.
Secretary W. Bibb Lamar, Jr., President
[CORPORATE SEAL]
LIST OF EXHIBITS
Exhibit Number Description
1. Amendment to the Certificate of Incorporation of South Alabama
Bancorporation, Inc. (Section 2.1).
2. Amendment to the Bylaws of South Alabama Bancorporation, Inc.
(Section 2.2)
3. Form of agreement of affiliates of FMB. (Section 8.11).
4. Form of opinion of counsel for FMB. (Section 9.2(d)).
5. Form of opinion of counsel for SAB. (Section 9.3(d)).
Exhibit 1
Subparagraph (a) of Article 4 of the Surviving Corporation's
Certificate of Incorporation, as amended, shall read as follows:
(a) The total number of shares of capital stock which the
Corporation shall have authority to issue is 6,000,000 shares of the
par value of $.01 per share, consisting of: (1) 5,500,000 shares of
Common Stock and (2) 500,000 shares of Preferred Stock.
Exhibit 2
AMENDMENT TO THE BYLAWS OF
SOUTH ALABAMA BANCORPORATION, INC.
Section 1 of Article III of SAB s Bylaws shall be amended to read as
follows:
DIRECTORS
SECTION 1. The number of directors which shall constitute
the whole board shall not be less than three nor more than
twenty-five. The board at the time these bylaws become
effective shall consist of three directors. Thereafter, within
the limits above specified, the number of directors shall be
determined by resolution of the board of directors. The
directors shall be elected at the annual meeting of the
stockholders, except as provided in Section 2 of the this
Article, and each director elected shall hold office until his
successor is elected and qualified, unless sooner displaced.
Directors need not be stockholders. No person shall be
eligible for election as a director if he will be over 70 years
of age during the calendar year of election, except that the
board may, by majority vote, permit the nomination and election
of one or more directors without regard to such age limitation in
connection with any merger, acquisition or other similar
transaction in which such otherwise ineligible director is a
director of the company acquired by or merged into the
corporation.
Exhibit 3
AFFILIATE AGREEMENT
South Alabama Bancorporation, Inc.
Mobile, Alabama
Attention: W. Bibb Lamar, Jr.
President
Gentlemen:
The undersigned is a stockholder of First Monco Bancshares, Inc.
("FMB"), a corporation organized and existing under the laws of the State of
Alabama and located in Monroeville, Alabama, and will become a stockholder of
the South Alabama Bancorporation, Inc. ("SAB") pursuant to the transactions
described in the Agreement and Plan of Merger, dated as of May 31, 1996, as
amended and restated as of August , 1996 (the "Agreement"), by and
between SAB and FMB. Under the terms of the Agreement, FMB will be merged
into and with SAB (the "Merger"), and the shares of the common stock of FMB
("FMB Common Stock") will be converted into and exchanged for shares of the
common stock of SAB ("SAB Common Stock"). This Affiliate Agreement represents
an agreement between the undersigned and SAB regarding certain rights and
obligations of the undersigned in connection with the shares of SAB to be
received by the undersigned as a result of the Merger.
In consideration of the Merger and the mutual covenants contained
herein, the undersigned and SAB hereby agree as follows:
1. Affiliate Status. The undersigned understands and agrees that
as to FMB he is an "affiliate" under Rule 145(c) as defined in Rule 405 of
the Rules and Regulations of the Securities and Exchange Commission ("SEC")
under the Securities Act of 1933, as amended ("1933 Act"), and the undersigned
anticipates that he will be such an "affiliate" at the time of the Merger.
2. Covenants and Warranties of Undersigned. The undersigned
represents, warrants and agrees that:
(a) The SAB Common Stock received by the undersigned as a
result of the Merger will be taken for his own account and not for
others, directly or indirectly, in whole or in part.
(b) SAB has informed the undersigned that any distribution by
the undersigned of SAB Common Stock has not been registered under
the 1933 Act and that shares of SAB Common Stock received pursuant
to the Merger can only be sold by the undersigned (1) following
registration under the 1933 Act, or (2) in conformity with the
volume and other requirements of Rule 145(d) promulgated by the SEC
as the same now exist or may hereafter be amended, or (3) to the
extent some other exemption from registration under the 1933 Act
might be available. The undersigned understands that SAB is under
no obligation to file a registration statement with the SEC covering
the disposition of the undersigned's shares of SAB Common Stock.
(c) The undersigned is aware that SAB intends to treat the
Merger as a tax-free reorganization under Section 368 of the
Internal Revenue Code ("Code") for federal income tax purposes. The
undersigned agrees to treat the transaction in the same manner as
SAB for federal income tax purposes. The undersigned acknowledges
that Section 1.368-1(b) of the Income Tax Regulations requires
"continuity of interest" in order for the Merger to be treated as
tax-free under Section 368 of the Code. This requirement is
satisfied if, taking into account those FMB stockholders who receive
cash in exchange for their stock, who receive cash in lieu of
fractional shares, or who dissent from the Merger, there is no plan
or intention on the part of the FMB stockholders to sell or
otherwise dispose of the SAB Common Stock to be received in the
Merger that will reduce such stockholders' ownership to a number of
shares having, in the aggregate, a value at the time of the Merger
of less than 50% of the total fair market value of the FMB Common
Stock outstanding immediately prior to the Merger. The undersigned
has no prearrangement, plan or intention to sell or otherwise
dispose of an amount of his SAB Common Stock to be received in the
Merger which would cause the foregoing requirement not to be
satisfied.
3. Restrictions on Transfer. The undersigned understands and
agrees that stop transfer instructions with respect to the shares of SAB
Common Stock received by the undersigned pursuant to the Merger will be given
to SAB's Transfer Agent and that there will be placed on the certificates of
such shares, or shares issued in substitution thereof, a legend stating in
substance:
The shares represented by this certificate may not be sold,
transferred or otherwise disposed of except or unless (1) covered by
an effective registration statement under the Securities Act of
1933, as amended, (2) in accordance with (i) Rule 145(d) (in the
case of shares issued to an individual who is not an affiliate of
South Alabama Bancorporation, Inc. (the Corporation )) or (ii) Rule
144 (in the case of shares issued to an individual who is an
affiliate of the Corporation) of the Rules and Regulations of such
Act, or (3) in accordance with a legal opinion satisfactory to
counsel for the Corporation that such sale or transfer is otherwise
exempt from the registration requirements of such Act."
Such legend will also be placed on any certificate representing SAB
securities issued subsequent to the original issuance of the SAB Common Stock
pursuant to the Merger as a result of any stock dividend, stock split, or
other recapitalization as long as the SAB Common Stock issued to the
undersigned pursuant to the Merger has not been transferred in such manner to
justify the removal of the legend therefrom. If the provisions of Rules 144
and 145 are amended to eliminate restrictions applicable to the SAB Common
Stock received by the undersigned pursuant to the Merger, or at the
expiration of the restrictive period set forth in Rule 145(d), SAB, upon the
request of the undersigned, will cause the certificates representing the
shares of SAB Common Stock issued to the undersigned in connection with the
Merger to be reissued free of any legend relating to the restrictions set
forth in Rules 144 and 145(d) upon receipt by SAB of an opinion of its
counsel to the effect that such legend may be removed.
4. Understanding of Restrictions on Dispositions. The undersigned
has carefully read the Agreement and this Affiliate Agreement and discussed
their requirements and impact upon his ability to sell, transfer, or
otherwise dispose of the shares of SAB Common Stock received by the
undersigned, to the extent he believes necessary, with his counsel or counsel
for FMB.
5. Filing of Reports by SAB. SAB agrees, for a period of three
years after the effective date of the Merger, to file on a timely basis all
reports required to be filed by it pursuant to Section 13 of the Securities
Exchange Act of 1934, as amended, so that the public information provisions
of Rule 145(d) promulgated by the SEC as the same are presently in effect
will be available to the undersigned in the event the undersigned desires to
transfer any shares of SAB Common Stock issued to the undersigned pursuant to
the Merger.
6. Transfer Under Rule 145(d). If the undersigned desires to sell
or otherwise transfer the shares of SAB Common Stock received by him in
connection with the Merger at any time during the restrictive period set
forth in Rule 145(d), the undersigned will provide the necessary
representation letter to the transfer agent for SAB Common Stock together
with such additional information as the transfer agent may reasonably request.
If SAB's counsel concludes that such proposed sale or transfer complies with
the requirements of Rule 145(d), SAB shall cause such counsel to provide
such opinions as may be necessary to SAB's Transfer Agent so that the
undersigned may complete the proposed sale or transfer.
7. Acknowledgements. The undersigned recognizes and agrees that
the foregoing provisions also apply to (i) the undersigned's spouse, (ii) any
relative of the undersigned or of the undersigned's spouse who has the same
home as the undersigned, (iii) any trust or estate in which the undersigned,
the undersigned's spouse, and any such relative collectively own at least a
10% beneficial interest or of which any of the foregoing serves as trustee,
executor, or in any similar capacity, and (iv) any corporation or other
organization in which the undersigned, the undersigned's spouse and any such
relative collectively own at least 10% of any class of equity securities or
of the equity interest. The undersigned further recognizes that, in the
event that the undersigned is a director or officer of SAB or becomes a
director or officer of SAB upon consummation of the Merger, among other
things, any sale of SAB common Stock by the undersigned within a period of
less than six months following the effective time of the Mergers may subject
the undersigned to liability pursuant to Section 16(b) of the Securities
Exchange Act of 1934, as amended.
8. Miscellaneous. This Affiliate Agreement is the complete
agreement between SAB and the undersigned concerning the subject matter
hereof. Any notice required to be sent to any party hereunder shall be sent
by registered or certified mail, return receipt requested, using the
addresses set forth herein or such other address as shall be furnished in
writing by the parties. This Affiliate Agreement shall be governed by the
laws of the State of .
This Affiliate Agreement is executed as of the day
of , 1996.
Very truly yours,
Signature
Print Name
Address
AGREED TO AND ACCEPTED as of
, 1996.
SOUTH ALABAMA BANCORPORATION, INC.
By:
Exhibit 4
LETTERHEAD OF MAYNARD, COOPER & GALE, P.C.
, 1996
South Alabama Bancorporation, Inc.
Mobile, Alabama
Re: Merger of South Alabama Bancorporation, Inc. and First Monco
Bancshares, Inc.
Gentlemen:
We are counsel to First Monco Bancshares, Inc. ("FMB"), a corporation
organized and existing under the laws of the State of Alabama, and have
represented FMB in connection with the execution and delivery of the Agreement
and Plan of Merger, dated as of May ____, 1996, as amended and restated as of
August _____, 1996 (the "Agreement"), by and between South Alabama
Bancorporation, Inc. ("SAB") and FMB.
This opinion is delivered pursuant to Section 9.2(d) of the
Agreement. Capitalized terms used in this opinion shall have the meaning set
forth in the Agreement.
In rendering this opinion, we have examined the corporate books and
records of FMB, and made such other investigations as we have deemed
necessary. We have relied upon certificates of public officials and officers
of FMB as to certain questions of fact.
Based upon and subject to the foregoing, we are of the opinion that:
1. FMB is a corporation duly organized, validly existing and in
good standing under the laws of the State of Alabama with full corporate power
and authority to carry on the business in which it is engaged as described in
the proxy statement used to solicit the approval by the stockholders of FMB
of the transactions contemplated by the Agreement ("Proxy Statement"), and to
own the properties owned by it.
2. The execution and delivery of the Agreement and compliance with
its terms do not and will not violate or contravene any provision of the
Articles of Incorporation or Bylaws of FMB or, to the best of our knowledge
but without any independent investigation, result in any conflict with,
breach or, or default or acceleration under any mortgage, agreement, lease,
indenture, or other instrument, order, judgment or decree to which FMB is a
party or by which FMB is bound.
3. In accordance with the Bylaws of FMB and pursuant to resolutions
duly adopted by its Board of Directors and stockholders, the Agreement has
been duly adopted and approved by the Board of Directors of FMB and by the
stockholders of FMB at the Stockholders' Meeting.
4. The Agreement has been duly and validly executed and delivered
by FMB and, assuming valid authorization, execution and delivery by SAB,
constitutes a valid and binding agreement of FMB enforceable in accordance
with its terms, except as enforceability may be limited by bankruptcy,
insolvency, reorganization, or similar laws affecting creditors' rights
generally, provided, however, that we express no opinion as to the
availability of the equitable remedy of specific performance.
5. The authorized capital stock of FMB consists of _____________
shares of FMB Common Stock, of which shares were issued and
outstanding as of , 1996. The shares of FMB Common Stock that are
issued and outstanding were not issued in violation of any statutory
preemptive rights of shareholders, were duly issued and are fully paid and
nonassessable under the Alabama Business Corporation Act. To our knowledge,
there are no options, subscriptions, warrants, calls, rights or commitments
obligating FMB to issue any equity securities or acquire any of its equity
securities.
This opinion is delivered solely for reliance by SAB.
Sincerely,
MAYNARD, COOPER & GALE, P.C.
Exhibit 5
LETTERHEAD OF HAND ARENDALL, L.L.C.
, 1996
First Monco Bancshares, Inc.
Monroeville, Alabama
Re: Merger of South Alabama Bancorporation, Inc. and First Monco
Bancshares, Inc.
Gentlemen:
We are counsel to South Alabama Bancorporation, Inc. ("SAB"), a
corporation organized and existing under the laws of the State of Delaware,
and have represented SAB in connection with the execution and delivery of the
Agreement and Plan of Merger, dated as of May ____, 1996, as amended and
restatated as of August ____, 1996 (the "Agreement"), by and between First
Monco Bancshares, Inc. ("FMB") and SAB.
This opinion is delivered pursuant to Section 9.3(d) of the
Agreement. Capitalized terms used in this opinion shall have the meaning
set forth in the Agreement.
In rendering this opinion, we have examined the corporate books and
records of SAB, and made such other investigations as we have deemed
necessary. We have relied upon certificates of public officials and officers
of SAB as to certain questions of fact.
Based upon and subject to the foregoing, we are of the opinion that:
1. SAB is a corporation duly organized, validly existing and in
good standing under the laws of the State of Delaware with full corporate
power and authority to carry on the business in which it is engaged as
described in the proxy statement used to solicit the approval by the
stockholders of SAB of the transactions contemplated by the Agreement
("Proxy Statement"), and to own the properties owned by it.
2. The execution and delivery of the Agreement and compliance with
its terms do not and will not violate or contravene any provision of the
Certificate of Incorporation or Bylaws of SAB or, to the best of our
knowledge but without any independent investigation, result in any conflict
with, breach of, or default or acceleration under any mortgage, agreement,
lease, indenture, or other instrument, order, arbitration award, judgment or
decree to which SAB is a party or by which SAB is bound.
3. In accordance with the Bylaws of SAB and pursuant to resolutions
duly adopted by its Board of Directors and stockholders, the Agreement has
been duly adopted and approved by the Board of Directors and stockholders of
SAB.
4. The Agreement has been duly and validly executed and delivered
by SAB and, assuming valid authorization, execution and delivery by FMB,
constitutes a valid and binding agreement of SAB enforceable in accordance
with its terms, except as enforceability may be limited by bankruptcy,
insolvency, reorganization, or similar laws affecting creditors' rights
generally, provided, however, that we express no opinion as to the
availability of the equitable remedy of specific performance.
5. The authorized capital stock of SAB consists of ____________
shares of SAB Common Stock, of which shares were issued and
outstanding as of , 1996, and 500,000 shares of preferred
stock, no par value, none of which is issued and outstanding. The shares of
SAB Common Stock that are issued and outstanding were not issued in violation
of any statutory preemptive rights of shareholders, were duly issued and are
fully paid and nonassessable under the Delaware General Corporation Law. The
shares of SAB Common Stock to be issued to the stockholders of FMB as
contemplated by the Agreement are duly authorized, have been registered under
the Securities Act of 1933, as amended, and when properly issued and
delivered following consummation of the Merger will be validly issued, fully
paid and non-assessable. To our knowledge, except as set forth in Section
6.3(a) of the Agreement, there are no options, subscriptions, warrants,
calls, rights or commitments obligating SAB to issue any equity securities or
acquire any of its equity securities.
This opinion is delivered solely for reliance by FMB.
Sincerely,
HAND ARENDALL, L.L.C.
Appendix B
DELAWARE CODE ANNOTATED
TITLE 8. CORPORATIONS
CHAPTER 1. GENERAL CORPORATION LAW
SUBCHAPTER IX. MERGER OR CONSOLIDATION
Section 262 Appraisal Rights.
(a) Any stockholder of a corporation of this State who holds shares of
stock on the date of the making of a demand Pursuant to subsection (d) of this
section with respect to such shares, who continuously holds such shares through
the effective date of the merger or consolidation, who has otherwise complied
with subsection (d) of this section and who has neither voted in favor of the
merger or consolidation nor consented thereto in writing pursuant to Section
228 of this title shall be entitled to an appraisal by the Court of Chancery
of the fair value of his shares of stock under the circumstances described in
subsections (b) and (c) of this section. As used in this section, the word
"stockholder" means a holder of record of stock in a stock corporation and
also a member of record of a nonstock corporation; the words "stock" and
"share" mean and include what is ordinarily meant by those words and also
membership or membership interest of a member of a nonstock corporation.
(b) Appraisal rights shall be available for the shares of any class or
series of stock of a constituent corporation in a merger or consolidation to
be effected pursuant to Section 251, 252, 254, 257, 258 or 263 of this title:
(1) Provided, however, that no appraisal rights under this section
shall be available for the shares of any class or series of stock which,
at the record date fixed to determine the stockholders entitled to
receive notice of and to vote at the meeting of stockholders to act upon
the agreement of merger or consolidation, were either (i) listed on a
national securities exchange or designated as a national market system
security on an interdealer quotation system by the National Association
of Securities Dealers, Inc. or (ii) held of record by more than 2,000
stockholders; and further provided that no appraisal rights shall be
available for any shares of stock of the constituent corporation
surviving a merger if the merger did not require for its approval the
vote of the stockholders of the surviving corporation as provided in
subsections (f) or (g) of Section 251 of this title.
(2) Notwithstanding paragraph (1) of this subsection, appraisal
rights under this section shall be available for the shares of any class
or series of stock of a constituent corporation if the holders thereof
are required by the terms of an agreement of merger or consolidation
pursuant to Sections 251, 252, 254, 257, 258 and 263 of this title to
accept for such stock anything except:
a. Shares of stock of the corporation surviving or resulting
from such merger or consolidation;
b. Shares of stock of any other corporation which at the
effective date of the merger or consolidation will be either listed
on a national securities exchange or designated as a national
market system security on an interdealer quotation system by the
National Association of Securities Dealers, Inc. or held of record
by more than 2,000 stockholders;
c. Cash in lieu of fractional shares of the corporations
described in the foregoing subparagraphs a. and b. of this
paragraph; or
d. Any combination of the shares of stock and cash in lieu of
fractional shares described in the foregoing subparagraphs a., b.
and c. of this paragraph.
(3) In the event all of the stock of a subsidiary Delaware
corporation party to a merger effected under Section 253 of this title
is not owned by the parent corporation immediately prior to the merger,
appraisal rights shall be available for the shares of the subsidiary
Delaware corporation.
(c) Any corporation may provide in its certificate of incorporation that
appraisal rights under this section shall be available for the shares of any
class or series of its stock as a result of an amendment to its certificate
of incorporation, any merger or consolidation in which the corporation is a
constituent corporation or the sale of all or substantially all of the assets
of the corporation. If the certificate of incorporation contains such a
provision, the procedures of this section, including those set forth in
subsections (d) and (e) of this section, shall apply as nearly as is
practicable.
(d) Appraisal rights shall be perfected as follows:
(1) If a proposed merger or consolidation for which appraisal
rights are provided under this section is to be submitted for approval
at a meeting of stockholders, the corporation, not less than 20 days
prior to the meeting, shall notify each of its stockholders who was such
on the record date for such meeting with respect to shares for which
appraisal rights are available pursuant to subsection (b) or (c) hereof
that appraisal rights are available for any or all of the shares of the
constituent corporations, and shall include in such notice a copy of
this section. Each stockholder electing to demand the appraisal of his
shares shall deliver to the corporation, before the taking of the vote
on the merger or consolidation, a written demand for appraisal of his
shares. Such demand will be sufficient if it reasonably informs the
corporation of the identity of the stockholder and that the stockholder
intends thereby to demand the appraisal of his shares. A proxy or vote
against the merger or consolidation shall not constitute such a demand.
A stockholder electing to take such action must do so by a separate
written demand as herein provided. Within 10 days after the effective
date of such merger or consolidation, the surviving or resulting
corporation shall notify each stockholder of each constituent corporation
who has complied with this subsection and has not voted in favor of or
consented to the merger or consolidation of the date that the merger or
consolidation has become effective; or
(2) If the merger or consolidation was approved pursuant to Section
228 or 253 of this title, the surviving or resulting corporation, either
before the effective date of the merger or consolidation or within 10 days
thereafter, shall notify each of the stockholders entitled to appraisal
rights of the effective date of the merger or consolidation and that
appraisal rights are available for any or all of the shares of the
constituent corporation, and shall include in such notice a copy of this
section. The notice shall be sent by certified or registered mail,
return receipt requested, addressed to the stockholder at his address as
it appears on the records of the corporation. Any stockholder entitled to
appraisal rights may, within 20 days after the date of mailing of the
notice, demand in writing from the surviving or resulting corporation
the appraisal of his shares. Such demand will be sufficient if it
reasonably informs the corporation of the identity of the stockholder and
that the stockholder intends thereby to demand the appraisal of his
shares.
(e) Within 120 days after the effective date of the merger or
consolidation, the surviving or resulting corporation or any stockholder who
has complied with subsections (a) and (d) hereof and who is otherwise entitled
to appraisal rights, may file a petition in the Court of Chancery demanding a
determination of the value of the stock of all such stockholders.
Notwithstanding the foregoing, at any time within 60 days after the effective
date of the merger or consolidation, any stockholder shall have the right to
withdraw his demand for appraisal and to accept the terms offered upon the
merger or consolidation. Within 120 days after the effective date of the
merger or consolidation, any stockholder who has complied with the requirements
of subsections (a) and (d) hereof, upon written request, shall be entitled to
receive from the corporation surviving the merger or resulting from the
consolidation a statement setting forth the aggregate number of shares not
voted in favor of the merger or consolidation and with respect to which
demands for appraisal have been received and the aggregate number of holders
of such shares. Such written statement shall be mailed to the stockholder
within 10 days after his written request for such a statement is received by
the surviving or resulting corporation or within 10 days after expiration
of the period for delivery of demands for appraisal under subsection (d)
hereof, whichever is later.
(f) Upon the filing of any such petition by a stockholder, service of a
copy thereof shall be made upon the surviving or resulting corporation, which
shall within 20 days after such service file in the office of the Register
in Chancery in which the petition was filed a duly verified list containing
the names and addresses of all stockholders who have demanded payment for
their shares and with whom agreements as to the value of their shares have not
been reached by the surviving or resulting corporation. If the petition shall
be filed by the surviving or resulting corporation, the petition shall be
accompanied by such a duly verified list. The Register in Chancery, if so
ordered by the Court, shall give notice of the time and place fixed for the
hearing of such petition by registered or certified mail to the surviving or
resulting corporation and to the stockholders shown on the list at the
addresses therein stated. Such notice shall also be given by 1 or more
publications at least 1 week before the day of the hearing, in a newspaper of
general circulation published in the City of Wilmington, Delaware or such
publication as the Court deems advisable. The forms of the notices by mail and
by publication shall be approved by the Court, and the costs thereof shall be
borne by the surviving or resulting corporation.
(g) At the hearing on such petition, the Court shall determine the
stockholders who have complied with this section and who have become entitled
to appraisal rights. The Court may require the stockholders who have demanded
an appraisal for their shares and who hold stock represented by certificates
to submit their certificates of stock to the Register in Chancery for
notation thereon of the pendency of the appraisal proceedings; and if any
stockholder fails to comply with such direction, the Court may dismiss the
proceedings as to such stockholder.
(h) After determining the stockholders entitled to an appraisal, the
Court shall appraise the shares, determining their fair value exclusive of
any element of value arising from the accomplishment or expectation of the
merger or consolidation, together with a fair rate of interest, if any, to be
paid upon the amount determined to be the fair value. In determining such
fair value, the Court shall take into account all relevant factors. In
determining the fair rate of interest, the Court may consider all relevant
factors, including the rate of interest which the surviving or resulting
corporation would have had to pay to borrow money during the pendency of the
proceeding. Upon application by the surviving or resulting corporation or by
any stockholder entitled to participate in the appraisal proceeding, the
Court may, in its discretion, permit discovery or other pretrial proceedings
and may proceed to trial upon the appraisal prior to the final determination
of the stockholder entitled to an appraisal. Any stockholder whose name
appears on the list filed by the surviving or resulting corporation pursuant
to subsection (f) of this section and who has submitted his certificates of
stock to the Register in Chancery, if such is required, may participate fully
in all proceedings until it is finally determined that he is not entitled to
appraisal rights under this section.
(i) The Court shall direct the payment of the fair value of the shares,
together with interest, if any, by the surviving or resulting corporation to
the stockholders entitled thereto. Interest may be simple or compound, as the
Court may direct. Payment shall be so made to each such stockholder, in the
case of holders of uncertificated stock forthwith, and the case of holders of
shares represented by certificates upon the surrender to the corporation of
the certificates representing such stock. The Court's decree may be enforced
as other decrees in the Court of Chancery may be enforced, whether such
surviving or resulting corporation be a corporation of this State or of any
state.
(j) The costs of the proceeding may be determined by the Court and taxed
upon the parties as the Court deems equitable in the circumstances. Upon
application of a stockholder, the Court may order all or a portion of the
expenses incurred by any stockholder in connection with the appraisal
proceeding, including, without limitation, reasonable attorney's fees and the
fees and expenses of experts, to be charged pro rata against the value of all
the shares entitled to an appraisal.
(k) From and after the effective date of the merger or consolidation, no
stockholder who has demanded his appraisal rights as provided in subsection
(d) of this section shall be entitled to vote such stock for any purpose or
to receive payment of dividends or other distributions on the stock (except
dividends or other distributions payable to stockholders of record at a date
which is prior to the effective date of the merger or consolidation); provided,
however, that if no petition for an appraisal shall be filed within the time
provided in subsection (e) of this section, or if such stockholder shall
deliver to the surviving or resulting corporation a written withdrawal of his
demand for an appraisal and an acceptance of the merger or consolidation,
either within 60 days after the effective date of the merger or consolidation
as provided in subsection (e) of this section or thereafter with the written
approval of the corporation, then the right of such stockholder to an
appraisal shall cease. Notwithstanding the foregoing, no appraisal
proceeding in the Court of Chancery shall be dismissed as to any stockholder
without the approval of the Court, and such approval may be conditioned upon
such terms as the Court deems just.
(l) The shares of the surviving or resulting corporation to which the
shares of such objecting stockholders would have been converted had they
assented to the merger or consolidation shall have the status of authorized
and unissued shares of the surviving or resulting corporation.
Appendix C
ALABAMA CODE ANNOTATED
TITLE 10. CORPORATIONS, PARTNERSHIPS AND ASSOCIATIONS
CHAPTER 2B. BUSINESS CORPORATIONS
Article 13. Dissenters Rights
Section 10-2B-13. 01. Definitions.
(1) "Corporate action" means the filing of articles of merger or share
exchange by the probate judge or Secretary of State, or other action
giving legal effect to a transaction that is the subject of
dissenters' rights.
(2) "Corporation" means the issuer of shares held by a dissenter before
the corporate action, or the surviving or acquiring corporation by
merger or share exchange of that issuer.
(3) "Dissenter" means a shareholder who is entitled to dissent from
corporate action under Section 10-2B-13.02 and who exercises that
right when and in the manner required by Sections 10-2B-13.20
through 10-2B-13.28.
(4) "Fair Value," with respect to a dissenter's shares, means the value
of the shares immediately before the effectuation of the corporate
action to which the dissenter objects, excluding any appreciation or
depreciation in anticipation of the corporate action unless
exclusion would be inequitable.
(5) "Interest" means interest from the effective date of the corporate
action until the date of payment, at the average rate currently paid
by the corporation on its principal bank loans, or, if none, at
a rate that is fair and equitable under all circumstances.
(6) "Record shareholder" means the person in whose name shares are
registered in the records of a corporation or the beneficial owner
of shares to the extent of the rights granted by a nominee
certificate on file with a corporation.
(7) "Beneficial shareholder" means the person who is a beneficial owner
of shares held in a voting trust or by a nominee as the record
shareholder.
(8) "Shareholder" means the record shareholder or the beneficial
shareholder.
Section 10-2B-13.02. Right to dissent.
(a) A shareholder is entitled to dissent from, and obtain payment
of the fair value of his or her shares in the event of, any of
the following corporate actions:
(1) Consummation of a plan of merger to which the corporation
is a party (i) if shareholder approval is required for the
merger by Section 10-2B-11.03 or the articles of incorporation
and the shareholder is entitled to vote on the merger or (ii)
if the corporation is a subsidiary that is merged with its
parent under Section 10-2B-11.04;
(2) Consummation of a plan of share exchange to which the
corporation is a party as the corporation whose shares will be
acquired, if the shareholder is entitled to vote on the plan;
(3) Consummation of a sale or exchange by all, or
substantially all, of the property of the corporation other
than in the usual and regular course of business, if the
shareholder 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 to the shareholder by the
corporation.
(b) The failure to submit his or her shares for notation shall,
at the option of the corporation, terminate the shareholders'
rights under this article unless a court of competent
jurisdiction, for good and sufficient cause, shall otherwise
direct.
(c) If shares represented by a certificate on which notation has
been made shall be transferred, each new certificate issued
therefor shall bear similar notation, together with the name
of the original dissenting holder of such shares.
(d) A transferee of such shares shall acquire by such transfer no
rights in the corporation other than those which the original
dissenting shareholder had after making demand for payment of
the fair value thereof.
Section 10-2B-13.25. Offer of payment.
(a) As soon as the proposed corporate action is taken, or upon
receipt of a payment demand, the corporation shall offer to
pay each dissenter who complied with Section 10-2B-13.23 the
amount the corporation estimates to be the fair value of his
or her shares, plus accrued interest.
(b) The offer of payment must be accompanied by:
(1) The corporation's balance sheet as of the end of a fiscal
year ending not more than 16 months before the date of the
offer, an income statement for that year, and the latest
available interim financial statements, if any;
(2) A statement of the corporation's estimate of the fair
value of the shares;
(3) An explanation of how the interest was calculated;
(4) A statement of the dissenter's right to demand payment
under Section 10-2B-13.28; and
(5) A copy of this article.
(c) Each dissenter who agrees to accept the corporation's offer of
payment in full satisfaction of his or her demand must
surrender to the corporation the certificate or certificates
representing his or her shares in accordance with terms of
the dissenters' notice. Upon receiving the 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 of
his or her demand in writing under subsection (a) within
30 days after the corporation offered payment for his or
her shares.
Section 10-2B-13.30. 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 D
FIRST MONCO BANCSHARES, INC. AND
SUBSIDIARY
Consolidated Financial Statements
Years Ended December 31, 1995 and 1994,
and Independent Auditors' Report
INDEPENDENT AUDITORS' REPORT
To the Board of Directors of
First Monco Bancshares, Inc.
Monroeville, Alabama:
We have audited the accompanying consolidated statements of
financial condition of First Monco Bancshares, Inc. (the
"Company"), and its subsidiary, The Monroe County Bank, as of
December 31, 1995 and 1994, and the related consolidated
statements of income, stockholders' equity, and cash flows for
the years then ended. These financial statements are the
responsibility of the Company's management. Our responsibility
is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted
auditing standards. Those standards require that we plan and
perform the 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 consolidated financial statements present
fairly, in all material respects, the financial position of
First Monco Bancshares, Inc. and its subsidiary, The Monroe
County Bank, as of December 31, 1995 and 1994, and the results
of their operations and their cash flows for the years then
ended in conformity with generally accepted accounting
principles.
January 26, 1996
<TABLE>
FIRST MONCO BANCSHARES, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
DECEMBER 31, 1995 AND 1994
<CAPTION>
1995 1994
ASSETS
<S> <C> <C>
Cash and due from banks $ 4,113,101 $ 4,622,288
Federal funds sold 6,975,000 3,150,000
Total cash and cash equivalents 11,088,101 7,772,288
Securities available-for-sale,
at market net of unrealized
holding loss of $5,726 in 1995 and
$421,133 in 1994 (Notes 2 and 13) 10,999,060 14,580,000
Securities to be held-to-maturity,
at cost (market value of
$51,652,118 in 1995 and
$42,232,304 in 1994)(Notes 2 and 13) 51,049,306 43,799,013
Loans, net of allowance for credit
losses of $454,964 in 1995 and
$449,808 in 1994 (Notes 3, 4,
10 and 13) 19,469,474 18,775,055
Premises and equipment, net (Note 5) 1,175,511 929,894
Accrued interest receivable 984,865 922,048
Other assets 160,736 168,214
TOTAL $94,927,053 $86,946,512
LIABILITIES AND STOCKHOLDERS' EQUITY
LIABILITIES:
Deposits:
Demand - noninterest-bearing $17,887,377 $15,989,010
Demand - interest-bearing 27,648,771 24,064,446
Savings 9,878,046 11,073,372
Time (Note 6) 27,644,622 25,403,296
Total (Note 13) 83,058,816 76,530,124
Dividends payable 186,387 177,450
Accrued interest payable 239,292 171,901
Other liabilities 331,174 58,788
Total liabilities 83,815,669 76,938,263
COMMITMENTS AND CONTINGENCIES (Note 9)
STOCKHOLDERS' EQUITY
Common stock, par value $25 per
share; authorized 250,000 shares;
issued 15,521 shares 388,025 388,025
Capital surplus 450,000 450,000
Retained Earnings 14,513,353 13,622,952
Net unrealized losses on securities
available-for-sale, net of taxes of
$2,088 in 1995 and $155,789 in 1994 (3,638) (265,344)
Treasury stock - at cost, 3,744
shares in 1995 and 3,691 in 1994 (4,236,356) (4,187,384)
Total stockholders' equity
(Notes 11 and 12) 11,111,384 10,008,249
TOTAL $94,927,053 $86,946,512
See notes to consolidated financial statements.
</TABLE>
-2-
<TABLE>
FIRST MONCO BANCSHARES, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF INCOME
YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993
<CAPTION>
1995 1994 1993
INTEREST INCOME:
<S> <C> <C> <C>
Loans $1,924,187 $1,682,502 $1,561,706
Securities available-
for-sale 664,154 772,319
Securities to be
held-to-maturity:
Taxable 2,204,902 1,835,345 2,987,587
Nontaxable 497,579 569,304 504,783
Federal funds sold 382,568 198,192 148,818
Total interest income 5,673,390 5,057,662 5,202,894
INTEREST EXPENSE
ON DEPOSITS 2,438,966 1,994,626 1,822,395
NET INTEREST INCOME 3,234,424 3,063,036 3,380,499
PROVISION FOR LOAN LOSSES
(Note 4) 0 0 0
NET INTEREST INCOME
AFTER PROVISION FOR
POSSIBLE LOAN LOSSES 3,234,424 3,063,036 3,380,499
OTHER INCOME:
Service charges on
deposit account 398,772 422,655 397,951
Other income, charges and fees 119,049 73,782 78,149
Total 517,821 496,437 476,100
OTHER EXPENSES:
Salaries and employee
benefits (Note 8) 1,090,724 1,076,139 1,205,735
Net occupancy expense 212,709 172,973 183,657
Data processing expenses 131,110 94,822 89,058
Other 631,797 676,214 606,819
Total 2,066,340 2,020,148 2,085,269
NET INCOME BEFORE INCOME TAXES 1,685,905 1,539,325 1,771,330
INCOME TAX EXPENSE (Note 7) 477,528 403,035 499,264
NET INCOME $1,208,377 $1,136,290 $1,272,066
See notes to consolidated financial statements.
</TABLE>
- 3 -
<TABLE>
FIRST MONCO BANCSHARES, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993
<CAPTION>
NET
UNREALIZED
LOSSES ON
SECURITIES
COMMON CAPITAL RETAINED AVAILABLE- TREASURY
STOCK SURPLUS EARNINGS FOR-SALE STOCK TOTAL
<S> <C> <C> <C> <C> <C> <C>
BALANCE, JANUARY 1,
1993 $388,025 $450,000 $11,949,698 $( 75,044) $12,712,679
DIVIDENDS DECLARED
AND PAID (415,692) (415,692)
NET INCOME 1,272,066 1,272,066
BALANCE, DECEMBER 31,
1993 388,025 450,000 12,806,072 ( 75,044) 13,569,053
IMPACT AT JANUARY 1,
1994 OF ADOPTION OF
STATEMENT OF
FINANCIAL ACCOUNTING
STANDARDS NO. 115
(NOTE 1) $(107,070) (107,070)
DIVIDENDS (319,410) (319,410)
NET INCOME 1,136,290 1,136,290
NET CHANGE IN UNREALIZED
LOSSES ON SECURITIES
AVAILABLE-FOR-SALE (158,274) (158,274)
PURCHASE OF
TREASURY STOCK (4,112,340) (4,112,340)
BALANCE, DECEMBER 31,
1994 388,025 450,000 13,622,952 (265,344) (4,187,384) 10,008,249
DIVIDENDS (317,976) (317,976)
NET INCOME 1,208,377 1,208,377
NET CHANGE IN UNREALIZED
LOSSES ON SECURITIES
AVAILABLE-FOR-SALE 261,706 261,706
PURCHASE OF
TREASURY STOCK (48,972) (48,972)
BALANCE, DECEMBER 31,
1995 $388,025 $450,000 $14,513,353 $ (3,638) $(4,236,356) $11,111,384
See notes to consolidated financial statements.
</TABLE>
- 4 -
<TABLE>
FIRST MONCO BANCSHARES, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993
1995 1994 1993
OPERATING ACTIVITIES:
<S> <C> <C> <C>
Net income $ 1,208,377 $ 1,136,290 $ 1,272,066
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation 121,247 73,782 74,885
Amortization of securities premiums 296,594 535,344 875,595
Accretion of securities discounts (29,909) (35,721) (33,141)
Deferred income taxes 34,126 15,136
Gain on sale of securities available-for-sale (3,520)
Gain on sale of premises & equipment (30,280)
Changes in assets and liabilities:
Interest receivable (62,817) 53,693 159,206
Other assets 7,478 (28,044) (1,493)
Interest payable 67,391 34,851 (18,850)
Other liabilities 238,260 (76,507) 20,661
Net cash provided by operating activities 1,850,467 1,705,304 2,348,929
INVESTING ACTIVITIES:
Net (increase) decrease in loans (694,419) 774,563 (268,016)
Purchases of investment securities (37,182,238)
Purchases of securities to be held-to-maturity (19,711,891) (15,317,801) 32,632,227
Proceeds from maturities/calls of securities to be
held-to-maturity 12,043,964 19,688,346
Purchases of securities available-for-sale (12,014,545)
Proceeds from maturities of securities available-
for-sale 4,000,000 7,000,000
Proceeds from sales of securities available-for-sale 1,001,680
Proceeds from sales of premises and equipment 50,000
Purchases of premises and equipment (384,052) (149,965) (41,734)
Net cash provided by (used in) investing
activities (4,696,398) 982,278 (4,859,761)
FINANCING ACTIVITIES:
Net increase (decrease) in deposits 6,528,692 2,976,910 (4,670,939)
Dividends declared and paid (317,976) (319,410) (415,692)
Purchase of treasury shares (48,972) (4,112,340)
Net cash provided by (used) in financing
activities 6,161,744 (1,454,840) (5,086,631)
NET INCREASE (DECREASE) IN CASH AND
CASH EQUIVALENTS 3,315,813 1,232,742 (7,597,463)
CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR 7,772,288 6,539,546 14,137,009
CASH AND CASH EQUIVALENTS, END OF YEAR $11,088,101 $7,772,288 $6,539,546
SUPPLEMENTAL DISCLOSURE OF CASH FLOW
INFORMATION:
Cash paid during the year for:
Interest $ 2,371,602 $2,029,477 $1,841,245
Income taxes $ 369,299 $ 403,433 $ 522,700
</TABLE>
- 5 -
FIRST MONCO BANCSHARES, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Principles of Consolidation - The accompanying consolidated
financial statements include the accounts of First Monco
Bancshares, Inc. and its wholly-owned subsidiary, The Monroe
County Bank ("Bank"). All significant intercompany balances
and transactions are eliminated in consolidation.
Accounting Estimates - The preparation of financial statements
in conformity with generally accepted accounting principles
requires management to make estimates that affect the reported
amounts of 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.
Cash Equivalents - For purposes of reporting cash flows, cash
and cash equivalents are composed of cash and due from banks,
interest-bearing deposits in other banks and Federal funds
sold.
Securities - Statement of Financial Accounting Standards
("SFAS") No. 115, Accounting for Certain Investments in Debt and
Equity Securities requires that only debt securities that the
Company 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,
with the related unrealized gains and losses excluded from
earnings and reported net of tax as a separate component of
stockholders' equity until realized. The Company adopted SFAS
No. 115 effective January 1, 1994, which resulted in a $107,070
net unrealized loss being recorded as a separate component of
stockholders' equity.
Investment securities not classified as available-for-sale or
trading are carried at cost, adjusted for the amortization of
premiums and the accretion of discounts. Premiums and
discounts are amortized and accreted to operations using the
level yield method, adjusted for prepayments as applicable.
Management has the intent and the Company 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 the Company's asset/liability strategy and may be sold
in response to changes in interest rate risk, prepayment risk or
other similar economic factors. The specific identification
method is used to compute gains or losses on the sale of these
assets.
Allowance for Credit Losses - The allowance for credit losses
is a valuation allowance provided for estimated losses on loans.
Throughout the year management estimates the likely level of
future losses to determine whether the allowance is adequate to
absorb losses in the existing portfolio. Management's judgment
as to the level of losses on existing loans involves the
consideration of current and anticipated economic conditions
and their potential effects on specific borrowers; an evaluation
of the existing relationships among loans, potential credit
losses and the present level of the allowance; results of
examinations of the loan portfolio by regulatory agencies; and
management's internal review of the loan portfolio.
-6-
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 the Company's control. Certain loans collateralized by
real estate considered by management to be in-substance
foreclosure are recorded at the lower of the recorded investment
in the loan or the fair value of the underlying collateral.
It should be understood that estimates of credit losses involve
judgment. While it is possible that in particular periods the
Company may sustain losses which are substantial relative to
the allowance for credit losses, it is the judgment of management
that the allowance for credit losses reflected in the
consolidated statements of condition is adequate to absorb
estimated losses which may exist in the current loan portfolio.
Premises and Equipment - Premises and equipment are stated at
cost less accumulated depreciation. Depreciation is computed
generally on the straight-line method over the estimated useful
lives of the assets (31.5 years for buildings and up to 10
years for furniture and equipment). Maintenance and repairs are
charged to operating expense as incurred. Renewals and
betterments which materially increase the value of the property
are capitalized. When an asset is sold or otherwise disposed
of, the cost thereof and related accumulated depreciation are
removed from the respective accounts, and the resulting gain or
loss is reflected in operations.
Interest Income - Interest income on loans is recognized under
the interest method. Accrual of interest is discontinued on
loans when management concludes that the collectibility of such
interest is not probable.
Income Taxes - The Company files a consolidated Federal income
tax return. Certain items of income and expense are recognized
in different years for financial reporting and income tax
purposes. Applicable income taxes in the statements of income
are based on reported income and expenses (exclusive of
nontaxable income). The temporary differences between
financial and taxable income are not significant and primarily
result from the provisions for credit losses and depreciation.
Adoption of New Accounting Pronouncements - The Company adopted
the provisions of SFAS No. 107, Disclosures About Fair Value of
Financial Instruments, in its 1995 financial statements. SFAS
No. 107 requires disclosure of the fair value of financial
instruments, both assets and liabilities recognized and not
recognized in the statement of financial condition, for which
it is practicable to estimate fair value. See Note 13.
Effective January 1, 1995, the Company also adopted SFAS No.
114, Accounting by Creditors for Impairment of a Loan. SFAS No.
114 (later amended by SFAS No. 118) addresses the accounting by
creditors for impairment of certain loans. It requires that
impaired loans be measured based on the present value of
expected cash flows discounted at the loan's effective interest
rate. The adoption of this statement did not have a material
impact on the Company's financial statements.
Reclassifications - Certain reclassifications have been made to
1993 and 1994 amounts to conform to the 1995 presentation.
-7-
2. SECURITIES
The amortized cost and estimated market value of securities at
December 31, 1995 and 1994 are as follows:
<TABLE>
Securities Available-for-Sale
<CAPTION>
December 31, 1995
Gross Gross Estimated
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
<S> <C> <C> <C> <C>
U.S. Treasury securities $11,004,786 $ 21,042 $ 26,768 $10,999,060
</TABLE>
<TABLE>
<CAPTION>
December 31, 1994
Gross Gross Estimated
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
<S> <C> <C> <C> <C>
U.S. Treasury securities $15,001,133 $ 0 $421,133 $14,580,000
</TABLE>
Proceeds and gross gains from the sale of securities
available-for-sale during 1994 were $1,001,680 and $3,520,
respectively. There were no sales of securities
available-for-sale during 1995.
<TABLE>
Securities to be Held-to-Maturity
<CAPTION>
December 31, 1995
Gross Gross Estimated
Carrying Unrealized Unrealized Market
Value Gains Losses Value
<S> <C> <C> <C> <C>
Obligations of U.S.
Government agencies $13,063,069 $365,964 $ 547 $13,428,486
Obligations of states and
political subdivisions 12,682,645 167,353 3,498 12,846,500
Collateralized mortgage
obligations 15,100,854 118,052 116,902 15,102,004
Mortgage-backed securities 2,241,688 50,257 5,294 2,286,651
Other 7,961,050 44,655 17,228 7,988,477
Total $51,049,306 $746,281 $143,469 $51,652,118
</TABLE>
- 8 -
<TABLE>
Secutities to be Held-to-Maturity
<CAPTION>
December 31, 1994
Gross Gross Estimated
Carrying Unrealized Unrealized Market
Value Gains Losses Value
<S> <C> <C> <C> <C>
Obligations of U.S.
Government agencies $10,167,282 $ 113,043 $10,054,239
Obligations of states and
political subdivisions 11,117,597 $ 22,776 321,836 10,818,537
Collateralized mortgage
obligations 14,818,875 310 898,319 13,920,866
Mortgage-backed securities 2,698,355 30,860 70,141 2,659,074
Other 4,996,904 217,316 4,779,588
Total $43,799,013 $ 53,946 $1,620,655 $42,232,304
</TABLE>
The amortized cost and estimated fair value of securities at December 31,
1995, by contractual maturity, are shown below. Expected maturities will
differ from contractual maturities because borrrowers may have the right to
call or prepay obligations with or without call or prepayment penalties.
<TABLE>
<CAPTION>
Held-to-Maturity Available-for-Sale
Estimated Estimated
Amortized Fair Amortized Fair
Cost Value Cost Value
<S> <C> <C> <C> <C>
Due within one year $ 9,128,788 $ 9,190,597 $ 9,992,661 $ 9,992,500
Due after one year but within
five years 18,132,629 18,435,042 1,012,125 1,006,560
ears 310,000 273,655
Total 33,706,764 34,263,462 11,004,786 10,999,060
Collateralized mortgage
obligations 15,100,854 15,102,005
Mortgage-backed securities 2,241,688 2,286,651
Total $51,049,306 $51,652,118 $11,004,786 $10,999,060
</TABLE>
Securities with an amortized cost of $12,607,020 and
$11,355,199 and an estimated market value of $12,758,585 and
$11,055,297 at December 31, 1995 and 1994, respectively, were
pledged to secure public deposits and for other purposes required
or permitted by law.
- 9 -
3. LOANS
A summary of loans at December 31, 1995 and 1994 is as follows:
<TABLE>
<CAPTION>
1995 1994
<S> <C> <C>
Commercial $ 9,970,432 $11,887,147
Real Estate 7,060,081 5,385,322
Installment 2,913,987 2,078,046
Other 24,084 21,016
Total 19,968,584 19,371,531
Unearned discount (44,146) (146,668)
Allowance for credit losses (454,964) (449,808)
Loans, net $19,469,474 $18,775,055
</TABLE>
The majority of the commercial and real estate loans have fixed
interest rates with repayment terms of up to three years.
Installment and other loans are generally fixed rate loans with
repayment terms of up to five years.
4. ALLOWANCE FOR CREDIT LOSSES
The following is a summary of changes in the allowance for
credit losses for the years ended December 31, 1995 and 1994.
<TABLE>
<CAPTION>
1995 1994
<S> <C> <C>
Balance at beginning of year $ 449,808 $ 473,221
Losses charged off (44,362) (42,672)
Recoveries 49,518 19,259
Balance at end of year $ 454,964 $ 449,808
</TABLE>
5.PREMISES AND EQUIPMENT
Premises and equipment at December 31, 1995 and 1994 are
summarized as follows:
<TABLE>
<S> <C> <C>
Land and land improvements $ 295,721 $ 295,721
Bank premises 960,615 1,012,853
Equipment 1,107,255 1,025,212
2,363,591 2,333,786
Less accumulated depreciation 1,188,080 1,403,892
Premises and equipment, net $1,175,511 $ 929,894
</TABLE>
-10-
6. DEPOSITS
Included in time deposits at December 31, 1995, 1994 and 1993 are
$4,351,278, $4,390,579 and $3,815,065, respectively, of certificates of
deposit and state time deposits in amounts of $100,000 or more.
Interest expense for these time deposits was $232,722,
$133,805, and $107,505 for the years ended December 31, 1995,
1994 and 1993, respectively.
Scheduled maturities of time deposits at December 31, 1995 and
1994 were as follows:
<TABLE>
<CAPTION>
1995 1994
<S> <C> <C>
Less than 1 year $19,872,861 $15,472,089
1 - 2 years 1,261,878 3,743,291
No stated maturity 6,509,883 6,187,916
Total $27,644,622 $25,403,296
</TABLE>
7. INCOME TAXES
The effective tax rates for the years ended December 31, 1995,
1994 and 1993 were approximately 28%, 28% and 26%, respectively.
The primary cause for the difference between this rate and the
statutory Federal income tax rate is the effect of excluding
from taxable interest income on tax exempt obligations and the
effect of state income taxes.
The components of the income tax provision were as follows:
<TABLE>
<CAPTION>
Years Ended December 31,
1995 1994 1993
<S> <C> <C> <C>
Current:
Federal $381,318 $316,631 $427,073
State 62,084 71,268 77,875
Total current 443,402 387,899 504,948
Deferred:
Federal 37,366 14,673 (5,641)
State (3,240) 463 (43)
Total deferred 34,126 15,136 (5,684)
Total provision $477,528 $403,035 $499,264
</TABLE>
The balances of deferred tax assets and liabilities are
immaterial at December 31, 1995 and 1994.
-11-
8. PROFIT SHARING AND PENSION PLANS
The Bank has profit sharing and pension plans covering all
eligible employees. The amount contributed to the profit
sharing plan is determined annually at the discretion of the
Bank's Board of Directors. Profit sharing expense was $50,000
for 1995, 1994 and 1993, respectively.
The pension plan is a defined benefit, noncontributory,
trusteed plan covering substantially all employees. Actuarially
determined pension costs are charged to current operations.
The subsidiary's funding policy is to contribute annually the
maximum amount that can be deducted for Federal income tax
purposes. Benefits are based on years of service and the employee's
compensation during the last five years of employment. Plan
assets consist mainly of Pooled Bond and Stock Funds.
The funding status of the plan as of December 31, 1995 and 1994
was as follows:
<TABLE>
<CAPTION>
1995 1994
<S> <C> <C>
Actuarial present value of
projected benefit obligation:
Vested $1,920,428 $1,828,807
Nonvested 4,789 7,825
Accumulated benefit obligation 1,925,217 1,836,632
Effect of projected future
compensation levels 474,898 469,271
Projected benefit obligation 2,400,115 2,305,903
Plan assets at fair value 3,146,835 2,659,146
Plan assets in excess of projected
benefit obligation 746,720 353,243
Unrecognized transition amount (187,014) (210,390)
Unrecognized net gain (489,196) (74,882)
Unrecognized prior service cost 4,433 4,876
Prepaid pension assets (included
in other assets) $ 74,943 $ 72,847
</TABLE>
For 1995, 1994 and 1993, the discount rate and the average
assumed rate of compensation increase used in determining the
present value of the projected benefit obligations was 7% and 5%,
respectively. The expected long-term rate of return on assets
was 8% for all three years.
Net periodic pension income included the following components:
<TABLE>
<CAPTION>
1995 1994 1993
<S> <C> <C> <C>
Return on plan assets $ 614,024 $ 228,240 $ 350,406
Service cost (72,179) (72,532) (75,544)
Interest on projected benefit
obligation (157,064) (149,118) (139,152)
Net amortization and deferral (382,685) 13,864 (134,130)
Net periodic pension income $ 2,096 $ 20,454 $ 1,580
</TABLE>
-12-
9. FINANCIAL INSTRUMENTS WITH OFF-BALANCE SHEET RISK AND
CONCENTRATION OF CREDIT RISK
To meet the financing needs of its customers and to reduce its
own exposure to fluctuations in interest rates, the Company is
a party to various financial instruments with off-balance sheet
risk in the normal course of business. These financial
instruments include commitments to extend credit and standby
letters of credit. These instruments involve, to varying
degrees, elements of credit and interest rate risk in excess of
the amounts recognized in the consolidated statements of
financial condition. The contract or notional amounts of those
instruments reflect the extent of the involvement the Company
has in particular classes of financial instruments. The
Company's exposure to credit loss in the event of nonperformance
by the other party to the financial instrument for commitments to
extend credit and standby letters of credit is represented by the
contractual notional amount of those instruments. The Company
uses the same credit policies in making these commitments and
conditional obligations as it does for on-balance sheet
instruments.
The following is a summary of the various financial instruments
entered into by the Company as of December 31, 1995 whose
contract amount represents credit risk:
Financial instruments:
Commitments to extend credit $5,234,000
Standby letters of credit or financial guarantees 300,000
Commitments to extend credit are agreements to lend to a
customer as long as there is no violation of any condition
established in the contract. Commitments generally have fixed
expiration dates or other termination clauses and may require
payment of a fee. Since many of the commitments expire without
being fully drawn upon, the total commitment amounts disclosed
above do not necessarily represent future cash requirements.
The Company evaluates customers' creditworthiness on a case-by-
case basis. The amount of collateral obtained, if considered
necessary by the Company upon extension of credit, is based on
management's credit evaluation of the customer.
Standby letters of credit are conditional commitments issued by
the Company to guarantee the performance of a customer to a
third party. The credit risk involved in issuing letters of
credit is essentially the same as that involved in extending loan
facilities to its customers.
All of the Company's loans have been granted to customers in
the Company's market area. The Bank's primary market area is
Monroe County, Alabama and surrounding counties.
10.RELATED PARTY TRANSACTIONS
Directors and executive officers of the Company, including the
directors' and officers' families and affiliated companies, are
loan and deposit customers of the Bank and have other
transactions in the ordinary course of business. Total loans
to these persons at December 31, 1995 and 1994 were approximately
$179,369 and $471,408 respectively. These loans were made in
the ordinary course of business and on substantially the same
terms, including interest rates and collateral, as those
prevailing at the same time for comparable transactions with
other persons and involve no unusual risks of collectibility.
-13-
11.DIVIDENDS FROM SUBSIDIARY
Certain restrictions exist regarding the ability of the Bank to
transfer funds to its Parent in the form of cash dividends.
The approval of the State Superintendent of Banks is required to
pay dividends in excess of the Bank's earnings retained in the
current year plus retained net income for the two preceding
years. As of December 31, 1995 and 1994, none of the Bank's
undistributed earnings were available for distribution.
12.REGULATORY MATTERS
Bank regulatory authorities have specified guidelines for
purposes of evaluating a bank's capital adequacy. The Bank is
required to maintain minimum amounts of capital to total "risk
weighted" assets, as defined by the banking regulators. At
December 31, 1995, the Bank is required to have minimum Tier 1
and total capital ratios of 4.00% and 8.00%, respectively. The
Bank's actual ratios at that date were 32.56% and 33.81%,
respectively. The Bank's leverage ratio at December 31, 1995
was 12.88%.
13.FAIR VALUE OF FINANCIAL INSTRUMENTS
SFAS No. 107, Disclosures About Fair Value of Financial
Instruments, requires disclosure of fair values information
about financial instruments, whether or not recognized in the
balance sheet, for which it is practicable to estimate that
value. In cases where quoted market prices are not available,
fair values are based on estimates using present value or other
valuation techniques. Those techniques are significantly
affected by the assumptions used, including the discount rate and
estimates of future cash flows. In that regard, the derived fair
value estimates cannot be substantiated by comparison to
independent markets and, in many cases, could not be realized in
immediate settlement of the instrument. The use of different
market assumptions and/or estimation methodologies may have a
material effect on the estimated fair value amounts. Also, the
fair value estimates presented herein are based on pertinent
information available to management as of December 31, 1995.
The following methods and assumptions were used by the Company
in estimating its fair values disclosures for financial
instruments.
Securities - Fair values for securities are based on quoted
market prices.
Loans - For equity lines and other loans with short-term or
variable rate characteristics, the carrying value reduced by an
estimate of credit losses inherent in the portfolio is a
reasonable estimate of fair value. The fair value of all other
loans is estimated by discounting their future cash flows using
interest rates currently being offered for loans with similar
terms, reduced by an estimate of credit losses inherent in the
portfolio. The discount rates used are commensurate with the
interest rate and prepayment risks involved for the various
types of loans.
Deposits - The fair value for demand deposits (e.g., interest
and non-interest bearing demand, savings and money market
savings) are as required by SFAS No. 107, equal to the amounts
payable on demand at the reporting date (i.e., their carrying
amounts). Fair values for certificates of deposits are estimated
using a discounted cash flow calculation that applies interest rates
currently being offered on certificates to a schedule of
aggregated monthly maturities.
Commitments to Extend Credit and Standby Letters of Credit -
The value of these unrecognized financial instruments is
estimated based on the fee income associated with the
commitments. Such fee income is not material to the Company's
financial statements at December 31, 1995 and, therefore, the
fair value of these commitments is not presented.
-14-
Many of the Company's assets and liabilities are short-term
financial instruments whose carrying amounts reported in the
statement of condition approximate fair value. These items
include cash and due from banks, interest-bearing bank balances
and federal funds sold. The estimated fair values of the
Company's remaining on-balance sheet financial instruments as
of December 31, 1995 are summarized below:
<TABLE>
<CAPTION>
Carrying Estimated
Value Fair Value
Financial assets:
<S> <C> <C>
Securities available-for-sale $10,999,060 $10,999,060
Securities to be held-to-maturity 50,990,529 51,652,118
Loans, net of allowance
for credit losses 19,469,474 20,519,270
Financial liabilities:
Deposits 83,058,816 83,065,946
</TABLE>
14.PARENT COMPANY ONLY FINANCIAL INFORMATION
<TABLE>
FIRST MONCO BANCSHARES, INC. (PARENT COMPANY ONLY)
Condensed Balance Sheets
December 31, 1995 and 1994
<CAPTION>
1995 1994
ASSETS
<S> <C> <C>
Cash $ 200,509 $ 184,942
Investment in The Monroe County Bank 11,097,263 10,002,056
Total assets $11,297,772 $10,186,998
LIABILITIES
Dividends payable $ 186,388 $ 177,450
Other liabilities 1,299
Total liabilities 186,388 178,749
STOCKHOLDERS' EQUITY 11,111,384 10,008,249
Total liabilities and
stockholders' equity $11,297,772 $10,186,998
</TABLE>
- 15-
<TABLE>
Condensed Statements of Income
Years Ended December 31, 1995, 1994 and 1993
<CAPTION>
1995 1994 1993
<S> <C> <C> <C>
Income:
Dividends received
- subsidiary $380,000 $4,456,000 $427,000
Interest income 27 58 110
Total income 380,027 4,456,058 427,110
Expenses:
Supplies 1,160 151 1,136
Franchise tax 3,990 3,990 3,990
Professional fees 22,298 5,111
Total expenses 5,150 26,439 10,237
Income before equity in
undistributed income
of subsidiary 374,877 4,429,619 416,873
Equity in undistributed
income of subsidiary 833,500 855,193
Distribution from
subsidiary in excess of
earnings for the year (3,293,329)
Net income $1,208,377 $1,136,290 $1,272,066
</TABLE>
<TABLE>
Condensed Statements of Cash Flows
Years Ended December 31, 1995, 1994 and 1993
<CAPTION>
1995 1994 1993
<S> <C> <C> <C>
Cash provided by
operating activities:
Net income $1,208,377 $1,136,290 $1,272,066
Adjustments to reconcile
net income to net cash
provided by operating
activities:
Distribution from
subsidiary in excess of
earnings for the year 3,293,329
Undistributed income
of subsidiary (833,500) (855,193)
Increase (decrease)
in liabilities 7,638 (63,903) 8,737
Net cash provided by
operating activities 382,515 4,365,716 425,610
Cash used by
financing activities:
Purchase of treasury stock (48,972) (4,112,340)
Dividends paid (317,976) (319,410) (384,900)
Net cash used in
financing activities (366,948) (4,431,750) (384,900)
Increase (decrease)
in cash 15,567 (66,034) 40,710
Cash at beginning of year 184,942 250,976 210,266
Cash at end of year $ 200,509 $ 184,942 $ 250,976
</TABLE>
-16-
<TABLE>
FIRST MONCO BANCSHARES, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
JUNE 30, 1996 AND DECEMBER 31, 1995
<CAPTION>
1996 1995
ASSETS
<S> <C> <C>
Cash and due from banks $ 3,092,801 $ 4,113,101
Federal funds sold 6,700,000 6,975,000
Total cash and cash equivalents 9,792,801 11,088,101
Securities available-for-sale,
at market net of unrealized
holding loss of 6,987,990 10,999,060
Securities to be held-to-maturity,
at cost 53,797,342 51,049,306
Loans, net of allowance for credit
losses 22,126,102 19,469,474
Premises and equipment, net 1,116,150 1,175,511
Accrued interest receivable 971,546 984,865
Other assets 478,305 160,736
TOTAL $95,270,236 $94,927,053
LIABILITIES AND STOCKHOLDERS' EQUITY
LIABILITIES:
Deposits:
Demand - noninterest-bearing $18,325,391 $17,887,377
Demand - interest-bearing 21,928,087 27,648,771
Savings 13,377,648 9,878,046
Time 29,068,039 27,644,622
Total 82,699,165 83,058,816
Dividends payable 0 186,387
Accrued interest payable 242,763 239,292
Other liabilities 595,053 331,174
Total liabilities 83,536,981 83,815,669
STOCKHOLDERS' EQUITY
Common stock, par value $25 per
share; authorized 250,000 shares;
issued 15,521 shares 388,025 388,025
Capital surplus 450,000 450,000
Retained Earnings 15,122,734 14,513,353
Net unrealized losses on securities
available-for-sale, net of taxes (9,916) (3,638)
Treasury stock - at cost (4,217,588) (4,236,356)
Total stockholders' equity
11,733,255 11,111,384
TOTAL $95,270,236 $94,927,053
</TABLE>
<TABLE>
FIRST MONCO BANCSHARES, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF INCOME
SIX MONTHS ENDED JUNE 30, 1996 AND 1995
<CAPTION>
June 30, June 30,
1996 1995
INTEREST INCOME:
<S> <C> <C>
Loans $1,021,662 $ 932,753
Securities available-
for-sale 228,416 361,367
Securities to be
held-to-maturity:
Taxable 703,450 594,758
Nontaxable 858,145 678,073
Federal funds sold 117,835 179,924
Total interest income 2,929,508 2,746,875
INTEREST EXPENSE
ON DEPOSITS 1,238,180 1,199,547
NET INTEREST INCOME 1,691,328 1,547,328
PROVISION FOR LOAN LOSSES
0 0
NET INTEREST INCOME
AFTER PROVISION FOR
POSSIBLE LOAN LOSSES 1,691,328 1,547,328
OTHER INCOME:
Service charges on
deposit account 194,551 207,798
Other income, charges and fees 43,949 65,284
Total 238,500 273,082
OTHER EXPENSES:
Salaries and employee
benefits 564,727 549,697
Net occupancy expense 52,925 61,859
Data processing expenses 58,729 48,590
Other 392,252 396,962
Total 1,068,633 1,057,108
NET INCOME BEFORE INCOME TAXES 861,195 763,302
INCOME TAX EXPENSE 251,814 203,984
NET INCOME $ 609,381 $ 559,318
</TABLE>
<TABLE>
FIRST MONCO BANCSHARES, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
SIX MONTHS ENDED JUNE 30, 1996
<CAPTION>
June June
1996 1995
OPERATING ACTIVITIES:
<S> <C> <C>
Net income $ 609,381 $ 559,318
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation 81,632 47,139
Amortization of securities premiums 159,419 172,372
Accretion of securities discounts (38,213) (23,257)
Deferred income taxes 156,096 153,628
Gain on sale of securities available-for-sale 0 0
Gain on sale of premises & equipment 0 (30,280)
Changes in assets and liabilities:
Interest receivable 13,319 51,637
Other assets (317,569) (332,557)
Interest payable 3,471 62,395
Other liabilities 111,470 167,716
Net cash provided by operating activities 779,006 828,111
INVESTING ACTIVITIES:
Net (increase) decrease in loans (2,656,628) 162,920
Purchases of investment securities 0
Purchases of securities to be held-to-maturity (10,855,415) (11,943,268)
Proceeds from maturities/calls of securities to be
held-to-maturity 7,982,987 9,219,887
Purchases of securities available-for-sale (995,625) 0
Proceeds from maturities of securities available-
for-sale 4,999,915 3,000,000
Proceeds from sales of securities available-for-sale 0 0
Proceeds from sales of premises and equipment 0 50,000
Purchases of premises and equipment (22,270) (189,445)
Net cash provided by (used in) investing
activities (1,547,036) 300,094
FINANCING ACTIVITIES:
Net increase (decrease) in deposits (359,651) 1,392,822
Dividends declared and paid (186,387) (177,450)
Sales (purchase) of treasury shares 18,768 0
Net cash provided by (used) in financing
activities (527,270) 1,215,372
NET INCREASE (DECREASE) IN CASH AND
CASH EQUIVALENTS (1,295,300) 2,343,577
CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR 11,088,101 7,772,288
CASH AND CASH EQUIVALENTS, END OF YEAR $ 9,792,801 $ 10,115,865
SUPPLEMENTAL DISCLOSURE OF CASH FLOW
INFORMATION:
Cash paid during the year for:
Interest $ 1,234,709 $ 1,137,477
Income taxes $ 315,802 $ 210,899
</TABLE>
Appendix E
MERCER
CAPITAL
5860 Ridgeway Center Parkway, Suite 410 -
Memphis, Tennessee 38120-4048 -
Phone: (901) 685-2120 - Telecopier: (901) 685-2199
August 27, 1996
The Board of Directors
c/o Mr. W. Bibb Lamar, Jr.
President and Chief Executive Officer
South Alabama Bancorporation, Inc.
100 St. Joseph Street
Mobile, Alabama 36602
Re: Updated Fairness Opinion Regarding the Proposed Merger Between
South Alabama Bancorporation, Inc. and First Monco Bancshares, Inc.
Dear Directors:
Mercer Capital Management, Inc. ("Mercer Capital") has been retained by
the Board of Directors of South Alabama Bancorporation, Inc. ("SAB") to issue
a fairness opinion for the proposed merger between SAB and First Monco
Bancshares, Inc. ("FMB"). Mercer Capital previously issued a fairness
opinion on behalf of SAB's shareholders from a financial point of view on
June 28, 1996. This updated fairness opinion is also issued from a financial
point of view on behalf of SAB s shareholders.
It is our understanding that the Agreement and Plan of Merger By and
Between First Monco Bancshares, Inc. and South Alabama Bancorporation, Inc.,
dated May 31, 1996, has been amended and restated as of August 21, 1996
("the Agreement"). The most significant change to the Agreement reflects the
change from SAB's contemplated use of pooling accounting to purchase
accounting to reflect the merger with FMB.
We have reviewed the revised pro forma changes in earnings per share and
book value per share from the perspective of SAB's stockholders after
considering the impact of the merger with FMB using purchase accounting.
Based upon certain accounting data prepared by SAB's management and
accountants, SAB's pro forma book value per share is expected to increase,
while pro forma earnings per share is expected to decline upon consummation
of the merger. The reduction in pro forma earnings per share does not
consider any expense savings or other synergies which may be realized over
time.
The Agreement includes a provision for both a fixed price/floating
exchange ratio and a floating price/fixed exchange ratio depending upon the
market price of SAB's shares. SAB s market price is defined as the
mid-point between the closing bid price and ask price as reported by NASDAQ
for the twenty (20) trading days ending two (2) days prior to the closing of
the merger ("the valuation period").
The Agreement's share exchange mechanism entails three bands, each of
which has its own cuff and collar. Depending upon the band in which SAB's
market value falls during the calculation period, the exchange ratio will be
based upon either a fixed price/floating exchange ratio, or a floating
price/fixed exchange ratio.
Collar One represents the primary band in which FMB stockholders will
receive $1,415.76 per share if SAB's market value is between $12.50 per share
and $15.25 per share. Given the fixed price, the exchange ratio will float
within the band.
Collar Two entails a fixed exchange ratio, floating price if SAB's
market value falls between $11.10 per share and $12.50 per share on the low
end and $15.25 per share and $16.65 per share on the high end. If SAB's
stock price is between $11.10 per share and $12.50 per share, then FMB
stockholders will receive 113.26 SAB shares, while 92.84 SAB shares will be
issued if SAB s market price is between $15.25 per share and $16.65 per
share.
If SAB's stock price falls within the third collar, then the Agreement
will be terminated unless the other party agrees to reinstate the Agreement
by either increasing or decreasing the exchange ratio. For instance, if
SAB's stock price is between $11.00 per share and $11.10 per share, the
Agreement would be reinstated if SAB agreed to increase the exchange ratio so
that the purchase price totaled $1,257.19 per share. Likewise, if SAB's
stock price falls between $16.65 per share and $17.00 per share, the
Agreement would be reinstated if FMB agreed to a lower exchange ratio such
that the purchase price totaled $1,543.73 per share. Finally, the Agreement
will be terminated without the right to reinstate by either party if SAB's
market price is less than $11.00 per share or greater than $17.00 per share.
Based upon SAB's recent trading range of approximately $13.00 per share
(bid) and $14.00 per share (ask), SAB s market price equals $13.50 per share;
or, an amount which is near the mid point between the lower band ($12.50 per
share) and upper band ($15.25 per share) of the first collar. Under the terms
of the Agreement, FMB stockholders are entitled to $1,415.76 per share, or
104.87 SAB shares if SAB s market value is $13.50 per share at closing. The
implied aggregate consideration for FMB is $16.7 million. The anticipated
purchase price represents 142% of FMB s book value at June 30, 1996 and 13.3%
reported earnings for the twelve month period ended June 30, 1996.
As part of the engagement, a representative of Mercer Capital visited
with FMB management in Monroeville, Alabama and SAB management via numerous
telephone conference calls and previous on site visits in Mobile, Alabama.
Factors considered in rendering the opinion include:
1. Terms of the Agreement and Plan of Merger By and Between First
Monco Bancshares, Inc. and South Alabama Bancorporation, Inc.,
dated May 31, 1996, as Amended and Restated as of August
21, 1996;
2. An analysis of the merger's pricing in relation to indications of
fair market value for FMB derived through considering comparable
(guideline) transactions;
3. An analysis of the reasonableness of the likely exchange ratio
based upon the pro forma contribution each institution will provide
to the post-merger organization in terms of earnings, stockholders
equity and the like;
4. An analysis of the estimated pro-forma changes in book value per
share, earnings per share, dividends per share and overall
ownership from the perspective of the SAB shareholders;
5. A review of FMB's historical financial performance;
6. A review of SAB's historical stock pricing, the liquidity of its
shares and current pricing in relation to other publicly traded
bank holding companies based in the Southeast; and,
7. Other factors which may enhance overall shareholder value.
Mercer Capital did not compile nor audit SAB's or FMB's financial
statements, nor have we independently verified the information reviewed. We
have relied upon such information as being complete and accurate in all
material respects. We have not made an independent valuation of the loan
portfolio, adequacy of the loan loss reserve or other assets of either
institution.
Our opinion does not constitute a recommendation to any shareholder as
to how the shareholder should vote on the proposed merger; nor have we
expressed any opinion as to the prices at which any security of SAB or FMB
might trade in the future.
Based upon our analysis of the proposed transaction, it is our opinion
that the acquisition of First Monco Bancshares, Inc. by South Alabama
Bancorporation is fair from a financial point of view for SAB's shareholders.
Sincerely,
MERCER CAPITAL MANAGEMENT, INC.
Jeff K. Davis
eff K
Jeff K. Davis, ASA, CFA
Vice President
CONSENT OF FINANCIAL ADVISOR
Appendix F
ALEX SHESHUNOFF & CO. INVESTMENT BANKING
August 29, 1996
Board of Directors
First Monco Bancshares, Inc.
129 Hines Street
Monroeville, Alabama 36460
Members of the Board:
We understand that First Monco Bancshares, Inc., Monroeville, Alabama,
("FMB"), and South Alabama Bancorporation, Inc., Mobile, Alabama ("SAB"),
entered into an Agreement and Plan of Merger ("the Agreement") dated as of
May 31, 1996, amended August 21, 1996, which provides, among other things,
for the merger ("the Merger") of FMB with SAB. Pursuant to the Agreement,
each share of FMB Common Stock issued and outstanding at the Effective Time
shall cease to be outstanding, and shall be converted into and exchanged for
the right to receive the number of shares of SAB Common Stock having an
average Market Value during the Valuation Period of $1,415.76, rounded to the
nearest one-hundredth of a share (the "Exchange Ratio"); provided, that
(subject to certain termination provisions in the Agreement): (i) in the
event the average Market Value of SAB Common Stock during the Valuation
Period is less than $12.50 per share, the Exchange Ratio shall be 113.26
shares of SAB Common Stock for each share of FMB Common Stock; and (ii) in
the event the average Market Value of SAB Common Stock during the Valuation
Period is greater than $15.25 per share, the Exchange Ratio shall be 92.83
shares of SAB Common Stock for each share of FMB Common Stock.
The terms and conditions of the Merger are more fully set forth in the
Agreement. Based upon the Exchange Ratio set forth in the Agreement, 11,795
shares of FMB Common Stock outstanding and an assumed price of $13.88 per
share (which is the recent trading average of SAB), SAB will issue 1,203,090
common shares to FMB shareholders for a total transaction value of
$16,698,889.
You have requested our opinion, as an independent financial advisor, as to
whether the Exchange Ratio to be received by FMB's shareholders is fair from
a financial point of view to the holders of FMB Common Stock, as of the date
hereof.
In connection with our opinion, we have: (i) reviewed a copy of the
Agreement; (ii) reviewed certain publicly available financial statements and
other information of FMB and SAB; (iii) reviewed certain internal financial
statements and other financial and operating data concerning FMB and SAB;
(iv) discussed the past and current operations and financial condition and
the prospects of FMB and SAB with senior executives; (v) reviewed certain
historical market prices and trading volumes of SAB and compared them to the
SNL Index; (vi) compared FMB and SAB from a financial point of view with
certain other companies which we deemed to be relevant; (vii) reviewed the
financial terms, to the extent publicly available, of certain comparable
merger transactions; and (viii) performed such other analyses and
examinations as we have deemed appropriate.
We have assumed and relied upon without independent verification the accuracy
and completeness of the information reviewed by us for the purposes of this
opinion. In addition, we have not made an independent evaluation of the
assets or liabilities of FMB and SAB, nor have we been furnished with any
such appraisals. In addition, we are not an expert in the evaluation of
loan portfolios for the purposes of assessing the adequacy of the allowance
for losses with respect thereto and have assumed that such allowances for
each of the companies are in the aggregate adequate to cover such losses.
Our opinion is necessarily based on economic, market and other conditions as
in effect on, and the information made available to us as of the date hereof.
With respect to financial forecasts, we have assumed that they have been
reasonably prepared and reflect the best currently available estimates and
judgments of management of FMB and SAB, as to the future financial
performance of FMB and SAB, respectively, and we have assumed such forecasts
and projections will be realized in the amounts and at the times contemplated
thereby.
In arriving at our opinion, we were not authorized to solicit, and did not
solicit, interest from any other party with respect to the acquisition of
FMB or any of its assets.
Our opinion is necessarily based on economic, market and other conditions as
in effect on, and the information made available to us as of, the date
hereof. Events occurring after the date hereof could materially affect the
assumptions used in preparing this opinion.
Our opinion is limited to the fairness, from a financial point of view, to
the holders of FMB Common Stock of the terms of the Merger and does not
address FMB's underlying business decision to undertake the Merger. Moreover,
this letter, and the opinion expressed herein, does not constitute a
recommendation to any stockholder as to any approval of the Merger or the
Agreement. It is understood that this letter is for the information of the
Board of Directors of FMB and may not be used for any other purpose without
our prior written consent, except that this opinion may be included in its
entirety in (i) any filing made by FMB with the Securities and Exchange
Commission with respect to the Merger, and (ii) the Joint Proxy Statement of
FMB and SAB used with respect to shareholders meetings to consider the
Merger.
Based upon and subject to the foregoing, we are of the opinion that, as of
the date hereof, the Exchange Ratio to be received by FMB's shareholders is
fair to the holders of FMB Common Stock from a financial point of view.
Very truly yours,
Alex Sheshunoff & Co. Investment Banking
ALEX SHESHUNOFF & CO.
INVESTMENT BANKING
