As filed with the Securities and Exchange Commission on ________________, 1998
Registration No. 333-63701
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
____________________
Amendment No. 1 to
Form S-4
REGISTRATION STATEMENT
Under
THE SECURITIES ACT OF 1933
____________________
SOUTH ALABAMA BANCORPORATION, INC.
(Exact name of registrant as specified in its charter)
Alabama 6712 63-0909434
(State or other (Primary Standard Industrial (I.R.S. Employer
jurisdiction of Classification Code Number) Identification No.)
incorporation or
organization)
____________________
100 Saint Joseph Street
P. O. Box 3067
Mobile, Alabama 36652
(334) 431-7800
(Address, including zip code, and telephone number of registrant's principal
executive office)
____________________
F. MICHAEL JOHNSON
Secretary and Chief Financial Officer
100 Saint Joseph Street
P. O. Box 3067
Mobile, Alabama 36652
(334) 431-7800
(Name, address, including zip code, and telephone number, including area code,
of agent for service)
____________________
Copies to:
R. PRESTON BOLT, JR.
Hand Arendall, L.L.C.
3000 AmSouth Bank Bldg.
107 Saint Francis Street
Mobile, Alabama 36602
MICHAEL D. WATERS
Balch & Bingham LLP
2 Dexter Avenue
The Winter Building
Montgomery, Alabama 36104
Approximate date of commencement of proposed sale of the securities to
the public: As soon as practicable after this Registration Statement has
become effective.
If the securities being registered on this Form are being offered in
connection with the formation of a holding company and there is compliance
with General Instruction G, check the following box. [ ]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, check the following box and
list the Securities Act registration statement number of the earlier effective
registration statement for the same offering...................
If this Form is a post-effective amendment filed pursuant to Rule 462(d)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering..................
The Registrant hereby amends this Registration Statement on such date or
dates as may be necessary to delay its effective date until the Registrant
shall file a further amendment which specifically states that this Registration
Statement shall thereafter become effective in accordance with Section 8(a)
of the Securities Act of 1933 or until the Registration Statement shall
become effective on such date as the Commission, acting pursuant to said
Section 8(a), may determine.
THE COMMERCIAL NATIONAL BANK OF DEMOPOLIS
201 North Main Avenue
Demopolis, Alabama 36732
November 10, 1998
Dear Shareholder:
You are cordially invited to attend a special meeting of the shareholders
of The Commercial National Bank of Demopolis, to be held at Commercial
National's principal executive office, 201 North Main Avenue, Demopolis,
Alabama, on December 11, 1998, at 11:00 a.m. local time.
At this important meeting, you will be asked to consider and vote upon
the approval of an Amended and Restated Agreement and Plan of Reorganization,
dated as of October 26, 1998, an Agreement and Plan of Merger and an Escrow
Trust Agreement (together the "Agreements"), which provide for the merger of
Commercial National with and into a wholly-owned first tier subsidiary of
South Alabama Bancorporation, Inc. (the "Merger") formed for the purpose of
the Merger. If the Merger is consummated, each outstanding share of
Commercial National common stock will be converted into the right to receive
(i) the number of shares of the common stock, par value $.01, of South
Alabama Bancorporation, Inc. having a market value calculated as provided in
the Reorganization Agreement of $147.94, and (ii) on a deferred basis and
pursuant to the Escrow Trust Agreement described in and included with the
accompanying Prospectus, up to that fraction of a share of South Alabama
common stock having a market value calculated as provided in the Reorganization
Agreement of $2.06, with both amounts subject to adjustment for fluctuations
in South Alabama s stock price. The accompanying Prospectus, which also serves
as a Proxy Statement, provides a detailed description of the proposed Merger,
including the proposed exchange ratio (and escrow stock ratio) and the
conditions to consummation of the Merger.
The affirmative vote of the holders of at least two-thirds of the shares
of Commercial National's common stock entitled to vote at the special meeting
is required for approval of the Agreements. Accordingly, your vote is
important, no matter how large or how small your holdings are.
Enclosed are the Notice of Special Meeting, Prospectus and proxy for the
Special Meeting, together with copies of the South Alabama Bancorporation,
Inc. 1997 Annual Report to Shareholders and 1998 Second Quarter Report on
Form 10-Q and 10-Q/A. Please give this information your careful attention.
The Board of Directors of Commercial National has carefully reviewed and
considered the terms and conditions of the proposed Agreements and has
received an opinion from its financial advisor, Alex Sheshunoff & Co.
Investment Banking, that the Merger is fair to the Commercial National
shareholders from a financial point of view. The Board of Directors has
unanimously approved the Agreements and unanimously recommends that you vote
FOR approval of the Agreements.
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,
/s/ J. Olen Kerby, Jr.
THE COMMERCIAL NATIONAL BANK OF DEMOPOLIS
201 North Main Avenue
Demopolis, Alabama 36732
____________
NOTICE OF SPECIAL MEETING OF SHAREHOLDERS
TO BE HELD ON DECEMBER 11, 1998
____________
November 10, 1998
To the Shareholders of The Commercial National Bank of Demopolis
NOTICE IS HEREBY GIVEN that a special meeting of shareholders (the
"Special Meeting") of The Commercial National Bank of Demopolis ("CNB") will
be held at CNB's principal executive office, 201 North Main Avenue, Demopolis,
Alabama, on December 11, 1998, at 11:00 a.m. local time, for the following
purposes:
1. To consider and vote upon a proposal to approve the Amended and
Restated Agreement and Plan of Reorganization, dated as of October 26, 1998
(the "Reorganization Agreement"), by and between CNB and South Alabama
Bancorporation, Inc. ("South Alabama"), the Agreement and Plan of Merger
(the "Merger Agreement"), to be made by and between CNB and The Commercial
Interim Bank of Demopolis ("Interim"), and the Escrow Trust Agreement (the
"Escrow Agreement") to be made by and between South Alabama, CNB and South
Alabama Trust Company, Inc., as Escrow Agent , pursuant to which, among other
matters (a) CNB would be merged with and into Interim and (b) the shares of
CNB common stock will be converted into the right to receive (i) the number of
shares of South Alabama common stock having a market value, calculated as
provided in the Reorganization Agreement, of $147.94, and (ii) on a deferred
basis and pursuant to the Escrow Trust Agreement described in and included
with the accompanying Prospectus, up to that fraction of a share of South
Alabama common stock having a market value, calculated as provided in the
Reorganization Agreement, of $2.06, with both amounts subject to adjustment
for fluctuations in South Alabama's stock price, as more fully described in
the accompanying Prospectus, which also serves as a Proxy Statement. A copy
of the Reorganization Agreement and the Merger Agreement are set forth in
Appendix A and Appendix B, respectively, to the accompanying Prospectus (the
"Prospectus"), a copy of the Escrow Agreement is set forth as Exhibit 7 to
Appendix A, and all three agreements are 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 November 2, 1998
are entitled to receive notice of and to vote at the Special Meeting or any
adjournments thereof. Approval of the Reorganization Agreement, the Merger
Agreement and the Escrow Agreement (the "Agreements") requires the affirmative
vote of the holders of at least two-thirds of the shares of CNB Common Stock
entitled to vote at the Special Meeting.
THE BOARD OF DIRECTORS OF CNB UNANIMOUSLY RECOMMENDS THAT SHAREHOLDERS
VOTE FOR APPROVAL OF THE AGREEMENTS.
Each shareholder who votes against the Agreements has the right to
dissent from the Agreements and demand payment of the 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 the applicable
dissenter's rights provision of the National Bank Act. The full text of that
provision is set forth in Appendix E to the Prospectus and is incorporated
herein by reference. For a summary of the requirements of 12 U.S.C. Section
214a(b), see "GENERAL INFORMATION Dissenters Rights" in the Prospectus.
By order of the Board of Directors
/s/ A. G. Westbrook
A. G. Westbrook, Chairman
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.
PROSPECTUS
SOUTH ALABAMA BANCORPORATION, INC.
Common Stock
___________________________
PROXY STATEMENT
THE COMMERCIAL NATIONAL BANK OF DEMOPOLIS
For Special Meeting of Shareholders To Be Held
On December 11, 1998
The 1,188,270 shares of common stock, $.01 par value per share (the "Common
Stock"), of South Alabama Bancorporation, Inc., an Alabama corporation and
registered bank holding company ("South Alabama" or the "Company"), covered by
this prospectus (the "Prospectus") will be issued by South Alabama in
connection with the merger ("Merger") of The Commercial National Bank of
Demopolis, a national banking association ("CNB"), with and into a wholly owned
interim Alabama banking corporation subsidiary of South Alabama ("CNB
Interim" or the "Surviving Bank") pursuant to the terms of an Amended and
Restated Agreement and Plan of Reorganization dated as of October 26, 1998, by
and between South Alabama and CNB (the "Merger Agreement") an Agreement and Plan
of Merger to be made between CNB and CNB Interim (the "Plan of Merger"), and the
Escrow Trust Agreement "the "Escrow Trust Agreement") to be entered into by
South Alabama, CNB and South Alabama Trust Company, Inc., as escrow agent (the "
Escrow Agent"). The Merger Agreement, the Plan of Merger and the Escrow Trust
Agreement are collectively referred to herein as the "Agreements."
South Alabama's Common Stock is quoted on the NASDAQ Stock Market under
the symbol SABC. On October 26, 1998, the last sale price of Common Stock as
reported on NASDAQ was $14.50 per share.
This Prospectus also constitutes a Proxy Statement of CNB and is being
furnished to the shareholders of CNB in connection with the solicitation of
proxies by the Board of Directors of CNB for use at its special meeting of
shareholders, including any adjournment or postponement thereof (the "CNB
Meeting"), to be held on December 11, 1998, to consider and vote upon a proposal
to approve the Agreements and related matters. This Prospectus and the
accompanying proxy are first being mailed to stockholders of CNB on or about
November 10, 1998.
Except for the historical information contained herein, the matters
discussed in this Prospectus 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 South Alabama and CNB, and other factors
discussed in South Alabama's filings with the Securities and Exchange
Commission.
See "Summary Other Significant Considerations" for a discussion of certain
factors which should be considered by prospective investors.
_________________________
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION
PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. 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.
___________________________
This Prospectus shall not constitute an offer to sell or the solicitation of any
offer to buy nor shall there be any sale of these securities in any state in
which such offer, solicitation or sale would be unlawful prior to registration
or qualification under the securities laws of any such state.
The date of this Prospectus is November 10, 1998
AVAILABLE INFORMATION
South Alabama 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 South Alabama 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 (7 World Trade Center, Suite
1300, New York, New York 10048) 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, including
South Alabama, that file electronically with the Commission at
http://www.sec.gov.
South Alabama has filed with the Commission a Registration Statement
(No. 333-63701) 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 South Alabama Common Stock to
be issued pursuant to the Agreements. This Prospectus 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 South Alabama
and the South Alabama 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 Prospectus pertaining to South Alabama
and its subsidiaries has been supplied by South Alabama, and all information
pertaining to CNB has been supplied by CNB.
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 South Alabama or
CNB 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 South Alabama with the
Commission (Commission File No. 0-15423) pursuant to the Exchange Act are
hereby incorporated by reference in this Prospectus:
1. South Alabama's Annual Report on Form 10-K and Form 10-K/A for the
year ended December 31, 1997;
2. South Alabama's Quarterly Reports on Form 10-Q for the quarters
ended March 31, and June 30, 1998, and on Form 10-Q/A for the
quarter ended June 30, 1998; and
3. South Alabama's Proxy Statement for its 1998 Annual Meeting of
Shareholders.
South Alabama's Annual Report on Form 10-K for the year ended December 31,
1997, incorporates by reference specific portions of South Alabama's Annual
Report to Shareholders for that year (the "Annual Report to Shareholders") but
does not incorporate other portions of the Annual Report to Shareholders.
Those portions of the Annual Report to Shareholders captioned "Consolidated
Financial Highlights," "Letter to Shareholders," "Return on Average Assets"
and "Directors and Officers," as well as the Introduction and the text on page
4, are NOT incorporated herein. Other portions of the Annual Report to
Shareholders are incorporated herein and are a part of the Registration
Statement.
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 Prospectus 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 Prospectus or any
supplement hereto.
This Prospectus incorporates by reference documents which are not
presented herein or delivered herewith. On the written or oral request of
any person to whom this Prospectus is delivered, South Alabama 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 insure timely
delivery of such documents, any request should be made by December 6, 1998.
<TABLE>
<CAPTION>
TABLE OF CONTENTS
<S> <C>
AVAILABLE INFORMATION. . . . . . . . . . . . . . . . . . . . . . . . . . .2
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE. . . . . . . . . . . . . .2
SUMMARY. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .6
Parties to the Merger . . . . . . . . . . . . . . . . . . . . . . . .6
Recent Developments . . . . . . . . . . . . . . . . . . . . . . . .6
Shareholder Meeting . . . . . . . . . . . . . . . . . . . . . . . . .6
The Merger. . . . . . . . . . . . . . . . . . . . . . . . . . . . . .7
Other Significant Considerations. . . . . . . . . . . . . . . . . . .9
Selected Consolidated Financial Data. . . . . . . . . . . . . . . . 10
Comparative Per Share Data. . . . . . . . . . . . . . . . . . . . . 14
Summary Capital Ratios. . . . . . . . . . . . . . . . . . . . . . . 14
GENERAL INFORMATION. . . . . . . . . . . . . . . . . . . . . . . . . . . 16
Special Meeting, Record Date and Vote Required. . . . . . . . . . . 16
Proxies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
Dissenters Rights. . . . . . . . . . . . . . . . . . . . . . . . . 17
Recommendation of CNB Board of Directors. . . . . . . . . . . . . . 17
THE MERGER . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
Terms of the Merger; Exchange Ratio;Escrow Stock Ratio. . . . . . . 18
Waiver and Amendment; Termination . . . . . . . . . . . . . . . . . 20
Opinion of CNB's Financial Advisor. . . . . . . . . . . . . . . . . 20
Effective Date and Effective Time . . . . . . . . . . . . . . . . . 23
Background of and Reasons for the Merger. . . . . . . . . . . . . . 23
Surrender of Certificates . . . . . . . . . . . . . . . . . . . . . 25
Conditions to Consummation of the Merger. . . . . . . . . . . . . . 25
Regulatory Approvals. . . . . . . . . . . . . . . . . . . . . . . . 26
Conduct of Business Pending the Merger. . . . . . . . . . . . . . . 27
Commitments with Respect to Other Offers. . . . . . . . . . . . . . 27
Management and Operations After the Merger. . . . . . . . . . . . . 27
Interests of Certain Persons in the Merger. . . . . . . . . . . . . 28
Certain Federal Income Tax Consequences . . . . . . . . . . . . . . 28
Accounting Treatment. . . . . . . . . . . . . . . . . . . . . . . . 29
Expenses and Fees . . . . . . . . . . . . . . . . . . . . . . . . . 29
Resales of South Alabama Common Stock . . . . . . . . . . . . . . . 29
RECENT DEVELOPMENTS 30
PRO FORMA FINANCIAL INFORMATION. . . . . . . . . . . . . . . . . . . . . 30
Pro Forma Combined Condensed Consolidated Statement of Condition. . 30
Pro Forma Combined Condensed Consolidated Statements of Income. . . 31
COMPARATIVE MARKET PRICES AND DIVIDENDS. . . . . . . . . . . . . . . . . 32
Market Prices . . . . . . . . . . . . . . . . . . . . . . . . . . . 32
Dividends . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33
DESCRIPTION OF SOUTH ALABAMA CAPITAL STOCK . . . . . . . . . . . . . . . 33
EFFECT OF MERGER ON RIGHTS OF SHAREHOLDERS . . . . . . . . . . . . . . . 34
Authorized Capital Stock. . . . . . . . . . . . . . . . . . . . . . 34
Special Meetings of Shareholders. . . . . . . . . . . . . . . . . . 35
Required Shareholder Votes . . . . . . . . . . . . . . . . . . . . 35
Inspection of Shareholder List. . . . . . . . . . . . . . . . . . . 35
Action by Written Consent . . . . . . . . . . . . . . . . . . . . . 35
Cumulative Voting for Directors . . . . . . . . . . . . . . . . . . 35
Amendment of Articles of Incorporation or Association . . . . . . . 36
Amendment of Bylaws . . . . . . . . . . . . . . . . . . . . . . . . 36
Directors . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36
Director Liability. . . . . . . . . . . . . . . . . . . . . . . . . 36
Effect of the Merger on CNB Shareholders. . . . . . . . . . . . . . 36
CNB MANAGEMENT'S DISCUSSION AND ANALYSIS . . . . . . . . . . . . . . . . 37
FINANCIAL CONDITION . . . . . . . . . . . . . . . . . . . . . . . . 37
Average Assets and Liabilities . . . . . . . . . . . . . . . . 38
Loans. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38
Investment Securities. . . . . . . . . . . . . . . . . . . . . 39
Deposits and Short-Term Borrowings . . . . . . . . . . . . . . 40
Asset/Liability Management . . . . . . . . . . . . . . . . . . 41
Liquidity. . . . . . . . . . . . . . . . . . . . . . . . . . . 42
Interest Rate Sensitivity. . . . . . . . . . . . . . . . . . . 42
Capital Resources. . . . . . . . . . . . . . . . . . . . . . . 43
RESULTS OF OPERATIONS . . . . . . . . . . . . . . . . . . . . . . . 44
Net Interest Revenue . . . . . . . . . . . . . . . . . . . . . 44
Provision for Loan Losses and Allowance for Loan Losses. . . . 46
NON-PERFORMING ASSETS . . . . . . . . . . . . . . . . . . . . . . . 47
Non-Interest Revenue and Non-Interest Expense. . . . . . . . . 48
Income Taxes and Other Issues. . . . . . . . . . . . . . . . . 49
Year 2000 Compliance . . . . . . . . . . . . . . . . . . . . . 49
FIRST SIX MONTHS OF 1998. . . . . . . . . . . . . . . . . . . . . . 49
Financial Condition. . . . . . . . . . . . . . . . . . . . . . 49
Results of Operation . . . . . . . . . . . . . . . . . . . . . 50
Loan Loss Experience and Non-Performing Assets . . . . . . . . 50
BUSINESS OF CNB. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 51
Bank Activities . . . . . . . . . . . . . . . . . . . . . . . . . . 51
Properties. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 51
Competition . . . . . . . . . . . . . . . . . . . . . . . . . . . . 51
Management. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 51
Executive Compensation. . . . . . . . . . . . . . . . . . . . . . . 52
Employee Benefit Plans. . . . . . . . . . . . . . . . . . . . . . . 52
Certain Transactions. . . . . . . . . . . . . . . . . . . . . . . . 53
Principal Shareholders. . . . . . . . . . . . . . . . . . . . . . . 53
Security Ownership of Management. . . . . . . . . . . . . . . . . . 53
Legal Proceedings . . . . . . . . . . . . . . . . . . . . . . . . . 54
SUPERVISION, REGULATION, AND EFFECTS OF GOVERNMENTAL POLICY. . . . . . . 54
Bank Holding Company Regulation . . . . . . . . . . . . . . . . . . 54
Bank Regulation . . . . . . . . . . . . . . . . . . . . . . . . . . 57
Capital Adequacy. . . . . . . . . . . . . . . . . . . . . . . . . . 58
Effects of Governmental Policies. . . . . . . . . . . . . . . . . . 60
LEGAL MATTERS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 61
EXPERTS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 61
SHAREHOLDER PROPOSALS. . . . . . . . . . . . . . . . . . . . . . . . . . 61
APPENDICES
Appendix A Amended and Restated Agreement and Plan of Reorganization
Appendix B Agreement and Plan of Merger
Appendix C The Commercial National Bank of Demopolis Financial
Statements
Appendix D Opinion of Alex Sheshunoff & Co. Investment Banking
Appendix E Provisions of National Bank Act Relating to Dissenters'
Rights
</TABLE>
SUMMARY
The following is a brief summary of certain information contained
elsewhere in this Prospectus. The following summary is not intended to be a
complete description of all material information regarding South Alabama and is
qualified in all respects by the information appearing elsewhere or incorporated
by reference in this Prospectus, the Appendices hereto and the documents
referred to herein. The Merger Agreement and the Plan of Merger, copies of
which are set forth in Appendix A and Appendix B to this Prospectus,
respectively, are incorporated herein and reference is made thereto for a
complete description of the terms of the Merger. As used in this Prospectus,
the term "South Alabama" refers to such corporation and, where the context so
requires, such corporation and its subsidiaries.
Parties to the Merger
South Alabama. South Alabama is a registered bank holding company, subject
to supervision and regulation by the Board of Governors of the Federal Reserve
System ("Federal Reserve"). South Alabama was organized in 1985 as a
corporation under the laws of the State of Delaware. In 1997, South Alabama
changed its state of domicile from Delaware to Alabama. South Alabama
currently owns all of the stock of South Alabama Bank, an Alabama banking
corporation formerly known as The Bank of Mobile ("SAB"), First National Bank,
Brewton, a national banking association ("FNBB"), The Monroe County Bank, an
Alabama banking corporation ("MCB"), and South Alabama Trust Company, Inc.,
an Alabama trust corporation formed in January, 1998 ("SATC"). The deposits
of SAB, FNBB and MCB are all insured by the Bank Insurance Fund ("BIF") of the
Federal Deposit Insurance Corporation ("FDIC").
At June 30, 1998, South Alabama had total assets of approximately $401.1
million, total deposits of approximately $342.2 million, total loans of
approximately $211.5 million and total shareholders' equity of approximately
$49.2 million. South Alabama'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 South Alabama is included in
documents incorporated by reference in this Prospectus. See "Selected
Consolidated Financial Data" below, "Available Information" and "Incorporation
of Certain Documents by Reference."
CNB. CNB is a national banking association subject to supervision
and regulation by the Office of the Comptroller of the Currency ("OCC"). CNB
provides banking services to customers in and around Demopolis, Alabama, and
has two branches located in Marengo County, Alabama. Deposits of CNB are
insured by the BIF of the FDIC.
At June 30, 1998, CNB had total assets of approximately $76.2 million,
total deposits of approximately $59.3 million, total loans of approximately
$50.2 million and total shareholders' equity of approximately $7.6 million.
CNB's principal executive offices are located at 201 North Main Avenue,
Demopolis, Alabama 36732, and its telephone number is (334) 289-3820. See
"Selected Consolidated Financial Data" below, "CNB Management's Discussion and
Analysis" and "Business of CNB."
Recent Developments
On October 27, 1998, South Alabama announced an agreement in principle
with Sweet Water State Bancshares, Inc. whereby Sweet Water State Bank, its
wholly owned subsidiary, will become a wholly owned subsidiary of South Alabama
through the merger of Sweet Water State Bancshares, Inc. with and into South
Alabama. See "Recent Developments."
Shareholder Meeting
CNB. The CNB Meeting will be held at 11:00 a.m. local time, on December
11, 1998, at CNB's main office at 201 North Main Avenue, Demopolis, Alabama.
The purpose of the CNB Meeting is to consider and vote upon approval of the
Agreements. The Board of Directors of CNB has fixed the close of business on
November 2, 1998, as the record date for determining shareholders entitled
to notice of and to vote at the CNB Meeting (the "CNB Record Date"). As of
such date, there were 121,500 shares of CNB Common Stock issued and
outstanding and entitled to be voted at the CNB Meeting. See "General
Information---Special Meeting, Record Date and Votes Required."
The Merger
Terms. The Agreements provide that CNB will merge with and into CNB
Interim. Each share of CNB Common Stock outstanding immediately prior to the
Effective Time, other than certain shares owned by CNB or South Alabama or its
subsidiaries, will be converted into the right to receive (i) the number of
shares of South Alabama Common Stock having an average Market Value during the
Valuation Period, calculated as provided in the Agreements, of $147.94 (The
"Exchange Ratio"), and (ii) on a deferred basis and pursuant and subject to the
terms on the Escrow Stock Agreement, up to that additional fraction of a share
of South Alabama Stock (the "Escrow Stock Right" and collectively the "Escrow
Stock Rights") having an average Market Value during the Valuation Period of
$2.06 (the "Escrow Stock Ratio"). In the event the average Market Value
of South Alabama Common Stock during the Valuation Period is greater than $20.00
per share, it shall be set at $20.00 per share for purposes of determining the
Exchange Ratio and the Escrow Stock Ratio . In the event the average Market
Value of South Alabama Common Stock during the Valuation Period is less than
$15.33 per share, it shall be set at $15.33 per share for purposes of
determining the Exchange Ratio and the Escrow Stock Ratio. Cash will be paid
by South Alabama in lieu of issuance of fractional shares. As of October 26,
1998, the most recent practicable date prior to printing this Prospectus, the
average Market Value during the preceding 20 trading days of South Alabama
Common Stock as so calculated was $15.32 per share. Since $15.32 is less than
$15.33, the average Market Value for purposes of calculating the Exchange Ratio
and Escrow Stock Ratio would be $15.33, which if unchanged, would result in an
Exchange Ratio of 9.65 shares of South Alabama Common Stock for each share of
CNB Common Stock and an Escrow Stock Ratio of .134 shares of South Alabama
Common Stock for each Share of CNB Common Stock. See "The Merger Terms of
the Merger; Exchange Ratio; Escrow Stock Ratio," and "Waiver and Amendment;
Termination."
Opinion of CNB's Financial Advisor. Alex Sheshunoff & Co. Investment
Banking has rendered an opinion to CNB that, based on and subject to the
procedures, matters and limitations described in its opinion and such other
matters as it considers relevant, as of the date of its opinion, the
consideration to be received in the Merger is fair from a financial point of
view to the stockholders of CNB. The opinion of Alex Sheshunoff & Co.
Investment Banking is attached as Appendix D to this Proxy Statement/Prospectus.
CNB Stockholders are urged to read the opinion in its entirety for a
description of the procedures followed, matters considered and limitations
on the reviews undertaken in connection therewith. See "The Merger---Opinion of
CNB's Financial Advisor."
Effective Time. The Merger will become effective at the later of the
time stated in the Articles of Merger filed with the Alabama Secretary of
State's office and the time the Articles of Merger are filed, 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 Agreements by the shareholders of CNB.
See "The Merger Effective Date and Effective Time."
Recommendation of CNB Board of Directors. The Boards of Directors of
South Alabama and CNB considered numerous factors in approving the Agreements.
See "The Merger Background of and Reasons for the Merger." The Board of
Directors of CNB unanimously recommends that its shareholders vote for approval
of the Agreements.
Vote Required. Approval of the Agreements will require the affirmative
vote of the holders of two-thirds of the outstanding shares of CNB Common Stock.
The Directors and Executive Officers of CNB (and certain family members and
related entities) beneficially owned, as of the CNB Record Date, and are
entitled to vote, a total of 33,983 shares of CNB Common Stock at the CNB
Meeting, or 28.0% of the outstanding shares entitled to vote. The affirmative
vote of 46,994 shares of CNB Common Stock, in addition to those shares of CNB
Common Stock owned by the Directors and Executive Officers of CNB (and certain
family members and related entities), will be required to approve the Merger on
behalf of CNB. Directors, executive officers (and certain family members and
related entities) of CNB beneficially own 3,833 shares representing less than
1% of the outstanding shares of South Alabama Common Stock, but no vote of the
South Alabama shareholders is required. See "General Information Special
Meeting, Record Date and Vote Required."
Exchange of Certificates. Promptly after the Effective Date, SATC, as
Exchange Agent, will mail to each holder of record of CNB Common Stock at the
Effective Time a transmittal letter, with instructions and return envelope, to
use in effecting the exchange of certificates representing such CNB Common
Stock for certificates representing shares of South Alabama 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
South Alabama Common Stock will be paid to the holder of an unsurrendered CNB
Common Stock certificate only upon surrender of such certificate. See "The
Merger Surrender of Certificates."
Conditions to Consummation. The obligations of South Alabama and CNB to
effect the Merger are subject to various conditions, including (i) approval of
the Agreements and the transactions contemplated thereby by CNB's 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 Board of Governors of the Federal Reserve
System was obtained on September 21, 1998, and the statutory 30-day waiting
period expired on October 21, 1998. The FDIC approved the Merger on October
23, 1998, with the condition that the Merger not be consummated before
November 8, 1998. The Superintendent of Banks of the State of Alabama
(the "Superintendent of Banks") has yet to approve the Merger, and there can
be no assurance that his approval will be given, or as to the timing or
conditions of such approval. 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 South Alabama or
CNB and no gain or loss will be recognized by CNB shareholders, except in
respect of cash received for fractional shares and cash paid pursuant to the
exercise of dissenters' rights of appraisal. Counsel for South Alabama has
delivered an opinion to the effect that, for federal income tax purposes,
under current law, assuming the Merger will take place as described in the
Agreements and that certain factual matters represented by South Alabama and CNB
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"). CNB shareholders may
incur tax consequences as a result of the escrow arrangement described in the
Escrow Trust Agreement, and counsel for South Alabama has given no opinion with
respect to the tax consequences arising therefrom. 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. See "The Merger---
Management and Operations After the Merger."
Interests of Certain Persons in the Merger. See "The Merger---Interests
of Certain Persons in the Merger."
Accounting Treatment. The Merger is expected to qualify as a "pooling-of-
interests" for accounting and financial reporting purposes. The receipt of a
letter from Arthur Andersen, LLP, the independent accountants for South Alabama,
confirming that the Merger will qualify for pooling-of-interests accounting
treatment is a condition to consummation of the Merger. See "The Merger---
Accounting Treatment."
Resales of South Alabama Stock. The shares of South Alabama Common Stock
issued pursuant to the Agreements will be freely transferable under federal
securities law, except for shares issued to any shareholder who may be deemed
an "affiliate" of CNB for purposes of Rule 145 under the Securities Act
(generally including directors, executive officers and certain principal
shareholders). Affiliates may not sell their shares of South Alabama 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 South Alabama Common Stock."
Waiver and Amendment; Termination. Either South Alabama or CNB may waive
or extend the time for performance by the other of obligations under the
Agreements, and the Boards of Directors of each of South Alabama and CNB may
agree, subject to certain limitations imposed by applicable law, to amend the
Agreements. The Agreements 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 CNB fail to approve
the Merger, and (iv) by either party in the event the Merger is not consummated
by March 31, 1999 (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 31, 1999. See "The Merger---Waiver
and Amendments; Termination."
Dissenters' Rights. CNB shareholders have the right to dissent from the
Agreements and, upon the satisfaction of certain specified procedures, to
receive cash in respect of the "fair value" of their shares of CNB Common
Stock in accordance with applicable provisions of 12 U.S.C. Section 214a(b).
South Alabama shareholders have no right to dissent from the Agreements. The
procedures to be followed by dissenting shareholders are summarized under
"General Information---Dissenters' Rights." A copy of the applicable
statutory provision is set forth in Appendix E to this Prospectus.
In general, any dissenting shareholder who perfects his or her statutory
dissenters' rights to be paid the "fair value" of his or her 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
CNB Common Stock could cause the Merger to fail to qualify as a tax free
reorganization for federal income tax purposes. See "The Merger---Certain
Federal Income Tax Consequences."
Certain Differences in Stockholders' Rights. On the Effective Date of
the Merger, CNB's stockholders, whose rights are governed by CNB's Articles of
Association and Bylaws and the National Bank Act (the "NBA"), will
automatically become South Alabama Stockholders, and their rights as South
Alabama Stockholders will be determined by South Alabama's Articles of
Incorporation and Bylaws and by the Alabama Business Corporation Act (the
"ABCA").
The rights of South Alabama Stockholders differ from the rights of CNB
Stockholders in certain important respects. See "Effect Of Merger On Rights
Of Shareholders."
Other Significant Considerations
Variability of Stock Prices. The consideration to be received in the
Merger by holders of CNB Common Stock consists of South Alabama Common Stock,
which is traded on the NASDAQ Stock Market under the symbol SABC. The
public market for equity securities such as South Alabama Common Stock is
inherently subject to fluctuation, and there can be no assurance as to future
trading prices of South Alabama Common Stock. The high and low bid closing
prices of South Alabama Common Stock for the period from January 1, 1998, to
October 26, 1998, as reported on NASDAQ and as adjusted for a 3 for 2 stock
split effected in the form of a one-half share stock dividend paid July 2,
1998 (the "Stock Split"), were $21.00 and $13.875, respectively. See
"Comparative Market Prices and Dividends---Market Prices."
Dividends. Future dividends on shares of South Alabama (assuming the
Merger is consummated) or of both South Alabama and CNB (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 South Alabama and
CNB 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 Agreements, and there can be no assurance that the Merger will be
consummated. See "The Merger---Conditions to Consummation."
Selected Consolidated Financial Data
The following tables present for South Alabama and CNB, on a historical
basis, selected consolidated financial data and ratios. This information is
based on the consolidated financial statements of South Alabama, incorporated
herein by reference, and CNB, appearing elsewhere in this Prospectus, and
should be read in conjunction therewith and with the notes thereto. See
"Available Information," "Incorporation of Certain Documents by Reference,"
"Pro Forma Financial Information" and Appendix C hereto. The financial data
as of June 30, 1998 and 1997, and the six month periods then ended are
derived from unaudited financial statements; however, in the opinion of
management of South Alabama and CNB, all adjustments necessary to arrive at a
fair statement of results of interim period operation of the respective
companies have been included and are solely of a normal recurring nature.
Results for the six months ended June 30, 1998, are not necessarily indicative
of results to be expected for the entire year or for any future period.
<TABLE>
South Alabama Selected Financial Data (Historical)
(Dollars In Thousands Except Per Share Amounts)
<CAPTION>
Six Months Ended
June 30, Year Ended December 31,
------------------ ----------------------------------------------------
1998 1997 1997(2) 1996(2) 1995 1994 1993
<S> <C> <C> <C> <C> <C> <C> <C>
RESULTS OF OPERATIONS
Interest revenue $ 13,594 $ 12,724 $ 25,795 $ 19,837 $ 18,094 $ 15,270 $ 13,520
Interest expense 6,103 5,209 10,900 8,132 7,397 5,234 4,801
Net interest revenue 7,491 7,515 14,895 11,705 10,697 10,036 8,719
Provision for loan losses 98 106 273 298 78 52 248
Non-interest revenue 1,566 1,408 3,203 2,589 2,244 2,212 2,322
Non-interest expense 5,945 5,505 11,327 9,156 8,446 8,177 7,149
Income before income taxes
and cumulative effect of
change in accounting for
income taxes 3,014 3,312 6,498 4,840 4,417 4,019 3,644
Income taxes 846 949 1,770 1,486 1,410 1,237 1,263
Net income before
cumulative effect of change
in accounting for income
taxes 2,168 2,363 4,728 3,354 3,007 2,782 2,381
Cumulative effect of change in
accounting for income taxes 0 0 0 0 0 0 1,010
Net income $ 2,168 $ 2,363 $ 4,728 $ 3,354 $ 3,007 $ 2,782 $ 3,391
Basic Earnings per share:
Before cumulative effect of
change in accounting for
income taxes $ .34 $ .37 $ .75 $ .70 $ .67 $ .62 $ .53
Cumulative effect of change in
accounting for income taxes 0 0 0 0 0 0 .22
Basic net income per share $ .34 $ .37 $ .75 $ .70 $ .67 $ .62 $ .75
Diluted earnings per share:
Before cumulative effect of
change in accounting for
income taxes $ .33 $ .37 $ .74 $ .69 $ .66 $ .61 $ .53
Cumulative effect of change in
accounting for income taxes 0 0 0 0 0 0 .22
Diluted net income per share
$ .33 $ .37 $ .74 $ .69 $ .66 $ .61 $ .75
PERIOD-END STATEMENT OF
CONDITION
Total assets $401,106 $346,655 $369,595 $350,077 $244,949 $218,506 $218,704
Loans 211,546 195,203 196,644 189,160 144,147 133,821 118,454
Deposits 342,200 294,997 315,177 295,287 210,092 185,842 187,392
Shareholders' equity 49,229 43,462 45,462 47,088 28,797 26,104 24,158
AVERAGE BALANCES
Total assets $376,576 $343,136 $346,441 $260,550 $228,358 $216,773 $207,397
Average earning assets 348,138 316,243 319,895 240,205 211,864 200,333 190,716
Loans 197,104 191,032 193,381 156,606 140,431 123,839 108,699
Deposits 321,543 290,044 293,349 221,227 194,023 184,623 178,925
Shareholders' equity 46,648 45,698 45,087 32,363 27,164 25,602 23,101
PERFORMANCE RATIOS(3)
Net income to:
Average total assets 1.16% 1.39% 1.36% 1.29% 1.32% 1.28% 1.64%
Average shareholders' equity 9.37% 10.43% 10.49% 10.36% 11.07% 10.87% 14.68%
Average shareholders' equity to
average total assets 12.39% 13.32% 13.01% 12.42% 11.90% 11.81% 11.14%
Dividend payout ratio 47.06% 261.08%(1) 149.11%(1) 38.10% 32.00% 27.96% 19.47%
__________________
(1) Includes special dividend of $0.833 per share.
(2) The results of operations of South Alabama include MCB from October
31, 1996, the date it was acquired in a purchase business combination.
(3) Annualized for six month periods.
</TABLE>
<TABLE>
CNB Selected Financial Data
(Dollars in Thousands Except Per Share Amounts)
<CAPTION>
Six Months Ended
June 30, Year Ended December 31,
----------------- -----------------------------------------------
1998 1997 1997 1996 1995 1994 1993
<S> <C> <C> <C> <C> <C> <C> <C>
RESULTS OF OPERATIONS
Interest revenue $ 2,724 $ 2,492 $ 5,102 $ 4,897 $ 4,684 $ 4,335 $ 4,150
Interest expense 1,422 1,219 2,533 2,429 2,305 1,878 1,838
Net interest revenue 1,302 1,273 2,569 2,468 2,379 2,457 2,312
Provision for loan losses 18 63 123 10 0 32 44
Non-interest revenue 196 222 472 445 449 452 482
Non-interest expense 969 932 1,915 1,884 1,833 1,953 1,897
Income before income taxes 511 500 1,003 1,019 995 924 853
Income taxes 123 125 226 247 236 202 190
Net income $ 388 $ 375 $ 777 $ 772 $ 759 $ 722 $ 663
Earnings per share:
Basic and diluted net income
per share $ 3.19 $ 3.08 $ 6.39 $ 6.36 $ 6.25 $ 5.94 $ 5.46
PERIOD-END STATEMENT OF
CONDITION:
Total assets $76,159 $65,033 $67,997 $63,786 $61,791 $57,073 $53,058
Loans 50,210 46,078 48,111 42,993 38,703 35,987 31,337
Deposits 59,336 55,439 56,814 54,373 54,656 49,141 47,191
Shareholders' equity 7,578 6,944 7,288 6,584 6,211 5,086 5,083
AVERAGE BALANCES
Total assets $72,227 $64,734 $65,646 $63,123 $59,962 $57,686 $55,629
Average earning assets 67,999 60,255 61,323 58,482 54,955 53,300 51,578
Loans 48,007 44,085 45,663 40,912 37,501 34,028 30,359
Deposits 59,948 56,691 56,461 55,475 52,845 51,223 50,428
Shareholders' equity 7,452 6,738 6,876 6,538 5,964 5,220 4,882
PERFORMANCE RATIOS(1)
Net income to:
Average total assets 1.08% 1.17% 1.18% 1.22% 1.27% 1.25% 1.19%
Average shareholders'
equity 10.50% 11.22% 11.30% 11.81% 12.73% 13.83% 13.58%
Average shareholders'
equity to average total
assets 10.32% 10.41% 10.47% 10.36% 9.95% 9.05% 8.78%
Dividend payout ratio 33.54% 28.25% 29.26% 27.04% 25.92% 25.53% 26.25%
(1) Annualized for six month periods.
</TABLE>
The following table sets forth pro forma combined selected consolidated
financial data and ratios giving effect to the Merger on a pooling-of-interests
accounting basis. 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 period indicated below and should be read in conjunction
with the Unaudited Pro Forma Combined Condensed Consolidated Financial
Statements appearing elsewhere in this Prospectus and the consolidated
financial statements of South Alabama, incorporated herein by reference, and
CNB, appearing elsewhere in this Prospectus. See "Incorporation of Certain
Documents by Reference," "Pro Forma Financial Information" and Appendix C.
<TABLE>
Combined Pro Forma Selected Consolidated Financial Data
(Dollars In Thousands Except Per Share Amounts)
<CAPTION>
Six Months Ended
June 30, Year Ended December 31,
------------------- ----------------------------------------------------
1998 1997 1997(2) 1996(2) 1995 1994 1993
<S> <C> <C> <C> <C> <C> <C> <C>
RESULTS OF OPERATIONS
Interest revenue $ 16,318 $ 15,216 $ 30,897 $ 24,734 $ 22,778 $ 19,605 $ 17,670
Interest expense 7,525 6,428 13,433 10,561 9,702 7,112 6,639
Net interest revenue 8,793 8,788 17,464 14,173 13,076 12,493 11,031
Provision for loan losses 116 169 396 308 78 84 292
Non-interest revenue 1,762 1,630 3,675 3,034 2,693 2,664 2,804
Non-interest expense 6,914 6,437 13,242 11,040 10,279 10,130 9,046
Income before income taxes and
cumulative effect of change
in accounting for income taxes 3,525 3,812 7,501 5,859 5,412 4,943 4,497
Income taxes 969 1,074 1,996 1,733 1,646 1,439 1,453
Net income before
cumulative effect of change
in accounting for income taxes 2,556 2,738 5,505 4,126 3,766 3,504 3,044
Cumulative effect of change in
accounting for income taxes 0 0 0 0 0 0 1,010
Net Income $ 2,556 $ 2,738 $ 5,505 $ 4,126 $ 3,766 $ 3,504 $ 4,054
Basic Earnings per share:
Before cumulative effect of
change in accounting for
income taxes $ .34 $ .36 $ .73 $ .69 $ .66 $ .62 $ .54
Cumulative effect of change in
accounting for income taxes 0 0 0 0 0 0 .18
Basic net income per share $ .34 $ .36 $ .73 $ .69 $ .66 $ .62 $ .72
Diluted earnings per share:
Before cumulative effect of
change in accounting for
income taxes $ .33 $ .36 $ .73 $ .69 $ .66 $ .62 $ .53
Cumulative effect of change in
accounting for income taxes 0 0 0 0 0 0 .18
Basic net income per share $ .33 $ .36 $ .73 $ .69 $ .66 $ .62 $ .71
PERIOD-END
STATEMENT OF CONDITION:
Total assets $477,265 $411,688 $437,592 $413,863 $306,740 $275,579 $271,762
Loans 261,756 241,281 244,755 232,153 182,850 169,808 149,791
Deposits 401,536 350,436 371,991 349,660 264,748 234,983 234,583
Shareholders' equity 56,807 50,406 52,750 53,672 35,008 31,190 29,241
AVERAGE BALANCES
Total assets $448,803 $407,870 $412,087 $323,673 $288,320 $274,459 $263,026
Average earning assets 416,137 376,498 381,218 298,687 266,819 253,633 242,294
Loans 245,111 235,117 239,044 197,518 177,932 157,867 139,058
Deposits 381,491 346,735 349,810 276,702 246,868 235,846 229,353
Shareholders' equity 54,100 52,436 51,963 38,901 33,128 30,822 27,983
PERFORMANCE RATIOS(3)
Net income to:
Average total assets 1.15% 1.35% 1.34% 1.27% 1.31% 1.28% 1.54%
Average shareholders' equity 9.53% 10.53% 10.59% 10.61% 11.37% 11.37% 14.49%
Average shareholders' equity to
average total assets 12.05% 12.86% 12.61% 12.02% 11.49% 11.23% 10.64%
Dividend payout ratio 45.06% 227.93%(1) 132.52%(1) 37.15% 30.72% 27.49% 20.87%
(1) Includes special dividend of $.833 per share
(2) The results of operations of South Alabama include MCB from October
31, 1996, the date it was acquired in a purchase business combination.
(3) Annualized for six month periods.
</TABLE>
Comparative Per Share Data
The following table presents selected comparative per share data for South
Alabama Common Stock and CNB Common Stock on a historical basis, for South
Alabama Common Stock on a pro forma basis reflecting consummation of the Merger
and for CNB Common Stock on an equivalent pro forma basis reflecting
consummation of the Merger. Such information has been prepared giving effect
to the Merger on a pooling-of-interests accounting basis. See "The Merger
Accounting Treatment." The data is not necessarily indicative of the results of
the future operations of either entity or the actual results that would have
occurred had the Merger been consummated as of the first date of each income
statement presented. The information is derived from and should be read in
conjunction with the consolidated historical financial statements of South
Alabama, including related notes thereto, which are incorporated by reference,
and the historical financial statements of CNB, including the notes thereto,
and the unaudited pro forma financial information appearing elsewhere in this
Prospectus. See "Available Information," "Incorporation of Certain Documents
by Reference," "Pro Forma Financial Information" and Appendix C hereto.
<TABLE>
<CAPTION>
Six Months Ended Year Ended December 31,
---------------- -------------------------
June 30, 1998 1997 1996 1995
<S> <C> <C> <C> <C>
South Alabama Common Stock
Net income per common share:
Historical:
Basic $ .34 $ .75 $ .70 $ .67
Diluted .33 .74 .69 .66
Pro forma combined:
Basic .34 .73 .69 .66
Diluted .33 .73 .69 .66
Dividends paid per common share:
Historical .16 1.11 .27 .21
Pro forma combined .15 .97 .25 .20
Book value per common share (at end of
period):
Historical 7.54 7.14 7.43 6.40
Pro forma combined 7.38 6.99 7.14 6.17
CNB Common Stock
Net income per common share:
Historical:
Basic and Diluted $ 3.19 $ 6.39 $ 6.36 $ 6.25
Pro forma equivalent (1)
Basic 3.28 7.04 6.66 6.37
Diluted 3.18 7.04 6.66 6.37
Dividends paid per common share:
Historical 1.07 1.87 1.72 1.62
Pro forma equivalent (1) 1.45 9.36 2.41 1.93
Book value per common share (at end of
period):
Historical 62.37 59.98 54.19 51.12
Pro forma equivalent (1) 71.21 67.45 68.90 59.54
(1) CNB pro forma equivalent amounts are computed by applying an assumed
Exchange Ratio of 9.65 shares of South Alabama Common Stock for each
share of CNB Common Stock. CNB pro forma equivalent amounts are
calculated on the basis of the Exchange Ratio only and do not take
into account the Escrow Stock Ratio, which does not have a material
effect on the data presented. See "The Merger---Terms of the Merger;
Exchange Ratio; Escrow Stock Ratio."
</TABLE>
Summary Capital Ratios
The following table sets forth the historical risk-based capital ratios
for South Alabama and CNB and pro forma ratios for the combined company,
together with the minimum ratios required by regulatory agencies, as of June
30, 1998. See "Supervision, Regulation, and Effects of Governmental Policy---
Capital Adequacy."
<TABLE>
<CAPTION>
South Pro Forma
Alabama CNB Combined
<S> <C> <C> <C>
SUMMARY CAPITAL RATIOS
Risk-based capital ratios
Tier I capital 16.80% 16.09% 16.69%
Total capital (Tier I and II) 17.87% 17.17% 17.77%
Minimum risk-based capital ratios
Tier I capital 4.00% 4.00% 4.00%
Total capital (Tier I and II) 8.00% 8.00% 8.00%
Tier I leverage ratio 11.51% 10.21% 11.30%
Minimum Tier I leverage ratio 4.00%-5.00% 4.00%-5.00% 4.00%-5.00%
</TABLE>
GENERAL INFORMATION
Special Meeting, Record Date and Vote Required
CNB Meeting. The Special Meeting of Shareholders of CNB will be held at
201 North Main Avenue, Demopolis, Alabama, at 11:00 a.m., local time, on
December 11, 1998. The purpose of the meeting is to consider and vote upon a
proposal to approve the Agreements, which provide for, among other things,
the Merger. Only holders of record of CNB Common Stock at the close of
business on the CNB Record Date, November 2, 1998, will be entitled to notice of
and to vote at the CNB Meeting. As of the CNB Record Date, there were 121,500
shares of CNB Common Stock issued, outstanding and entitled to be voted. There
were 184 CNB shareholders of record on the CNB Record Date. Each share of
CNB Common Stock will be entitled to one vote at the CNB Meeting.
The presence, in person or by proxy, of holders of a majority of the
issued and outstanding shares of CNB Common Stock entitled to vote at the CNB
Meeting is necessary to constitute a quorum at such meeting.
Approval of the Agreements on behalf of CNB, pursuant to the NBA, will
require the affirmative vote of the holders of at least two-thirds of the
outstanding shares of CNB Common Stock entitled to be voted thereon. For this
purpose, a failure to return the enclosed proxy, a vote to abstain and a broker
non-vote will have the same effect as a vote against approval of the
Agreements. As of the CNB Record Date, 33,983 shares of CNB Common Stock, or
28.0% of the total shares of CNB Common Stock outstanding, were held, either
of record or beneficially, by directors and executive officers of CNB and
certain family members and related entities. Assuming all such shares are voted
in favor of the Merger, 46,994 additional affirmative votes of shares of CNB
Common Stock will be required for approval.
Dissenters' rights may be demanded by CNB shareholders who do not vote
in favor of the Merger and who follow the specified procedures of the NBA.
See "Dissenters' Rights" below.
Proxies
CNB. The enclosed proxy is solicited on behalf of the Board of
Directors of CNB for use in connection with the CNB Meeting and any adjournment
or adjournments thereof. Holders of CNB common stock are requested to complete,
date and sign the accompanying proxy and return it promptly to CNB in the
enclosed envelope. Failure to return a properly executed proxy or to vote at
the CNB Meeting will have the same effect as a vote against approval of the
Agreements.
A CNB 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 President of CNB, provided such later proxy or
revocation is actually received by CNB before the vote of the shareholders, or
by voting in person at the CNB Meeting. Any shareholder attending the CNB
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 CNB 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 Agreements.
Other Matters. CNB will bear the costs of any solicitation of proxies for
its Special Meeting, except that South Alabama will pay the costs of preparing,
printing and distributing this Prospectus. 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 CNB, but no written materials other than
those included herewith will be used to solicit proxies.
The management of CNB is not aware of any business to be acted upon at the
Special Meeting other than approval of a proposal to approve the Agreements.
If other matters are properly brought before the Special Meeting or any
adjournment thereof, any proxy, if properly signed, dated and returned, will
be voted in accordance with the recommendation of CNB's management or, if there
is no such recommendation, in the discretion of the individuals named as
proxies therein.
Dissenters' Rights
South Alabama Dissenters' Rights. Shareholders of South Alabama do not
have any right to dissent in connection with the Merger.
CNB Dissenters' Rights. If the Merger is consummated, holders of record
of CNB Common Stock who follow the procedures specified by the NBA will be
entitled to determination and payment in cash of the value of their stock
determined as of the time the Merger is approved by the Shareholders of CNB.
CNB shareholders who elect to follow such procedures are referred to herein
as "Dissenting CNB Shareholders".
A VOTE IN FAVOR OF THE AGREEMENTS BY A HOLDER OF CNB 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 dissenters' rights provisions of the NBA is
not intended to be a complete statement of such provisions, the full text of
which is attached as Appendix E to this Prospectus, and is qualified in its
entirety by reference thereto.
The NBA provides, in substance, that a shareholder of CNB who votes
against the Merger or has given notice to CNB in writing at or prior to the CNB
Meeting that he or she is dissenting from the Merger shall be entitled to
receive, after the consummation of the Merger, in cash the value of his or her
CNB Stock. In order to claim this right, a dissenting CNB shareholder must
(i) either vote against the Merger or give written notice to CNB at or prior
to the CNB Meeting that he or she dissents from the Merger; AND (ii) within
thirty (30) days following the consummation of the Merger, make written demand
upon the Surviving Bank for such payment, accompanied by the surrender of the
certificates representing his or her shares of CNB Stock. Failure to complete
all required steps to perfect the right to dissent will result in the loss of
such right. The Surviving Bank will provide written notice of the
consummation of the Merger to those holders of CNB Stock who voted against the
Merger or gave written notice prior to the meeting of their election to
dissent.
The value of any shares of CNB Stock surrendered by dissenting CNB
Shareholders will be determined as of the date of the CNB Meeting by an
appraisal made by a committee of three persons. This committee will be
comprised of one member selected by the vote of the holders of a majority of
the shares submitted for appraisal, one member selected by the Surviving Bank,
and one member selected by the other two members. If the value determined by
two of the three committee members shall be unsatisfactory to any Dissenting
CNB Shareholder, the Dissenting Shareholder may, within five days after being
notified of the appraised value, appeal to the Comptroller of the Currency
(the "Comptroller"), the federal regulatory agency for CNB, who shall cause a
reappraisal to be made which shall be final and binding. If such committee is
not formed or cannot reach a decision within ninety (90) days following the
Effective Time, upon written request of any interested party, the Comptroller
will cause a binding appraisal to be made. The expenses of the Comptroller in
making such appraisal or reappraisal, as the case may be, will be paid by the
Surviving Bank. Expenses other than those incurred by the Surviving Bank and
those which the Surviving Bank is required to pay will be borne by the
Dissenting CNB Shareholders. The value of the shares ascertained as provided
herein shall then be promptly paid to the Dissenting CNB Shareholders by the
Surviving Bank.
Recommendation of CNB Board of Directors
The Board of Directors of CNB has recommended that the shareholders of
CNB vote FOR the proposal to approve the Agreements. 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 Agreements, is qualified in its entirety by reference
to the Merger Agreement, the Plan of Merger and the Escrow Trust Agreement.
The Merger Agreement and Plan of Merger are attached hereto as Appendix A and
Appendix B, respectively, the Escrow Trust Agreement is Exhibit 7 to the Merger
Agreement, and all of the Agreements are incorporated herein by reference.
Terms of the Merger; Exchange Ratio; Escrow Stock Ratio
Exchange Ratio and Escrow Stock Ratio. At the Effective Time, CNB will
merge with and into CNB Interim. In the Merger, each share of CNB Common
Stock outstanding immediately prior to the Effective Time, other than certain
shares held by CNB or by South Alabama or its subsidiaries, if any, 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 (i)
the number of shares of South Alabama 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 $147.94, rounded to the nearest one-hundredth of a share (the
"Exchange Ratio"), and (ii) on a deferred basis and pursuant to the terms of the
Escrow Trust Agreement, up to that additional fraction of a share of South
Alabama Stock (the "Escrow Stock Right" and collectively the "Escrow Stock
Rights") having an average Market Value during the Valuation Period of $2.06
(the "Escrow Stock Ratio").
The "Market Value" of South Alabama Common Stock is defined as the average
of the closing bid and closing ask price, as reported on NASDAQ, provided
that, for purposes of determining the Exchange Ratio and the Escrow Stock Ratio,
if the average Market Value during the Valuation Period exceeds $20.00 per
share, it shall be deemed to be $20.00 per share; and, if the average Market
Value during the Valuation Period is less than $15.33 per share, it shall be
deemed to be $15.33 per share. Thus, the minimum number of shares of South
Alabama Common Stock, including the Escrow Shares, to be issued will be 911,250
(based upon an average Market Value during the Valuation Period of $20.00 per
share) and the maximum number of shares, including Escrow Shares, of South
Alabama Common Stock to be issued will be 1,188,270 (based upon an average
Market Value during the Valuation Period of $15.33 per share). The Agreements
provide 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 and the Escrow Stock Ratio were determined
through negotiations between South Alabama and CNB.
As an example, if the average Market Value during the Valuation Period is
$15.33 (which, as of October 26, 1998, was the effective average Market Value,
with $15.32 as the actual average Market Value, of South Alabama Common Stock
during the preceding 20 trading days), then each share of CNB Common Stock will
be converted into 9.65 shares of South Alabama Common Stock (i.e., $147.94
divided by $15.33) and Escrow Stock Rights in up to .134 shares of South
Alabama Common Stock (i.e., $2.06 divided by $15.33). As a result, a shareholder
of CNB who owns 100 shares of CNB Common Stock would receive 965 shares of
South Alabama Common Stock ($147.94 divided by $15.33 multiplied by 100) and
Escrow Stock Rights in a maximum of 13.4 shares ($2.06 divided by 15.33
multiplied by 100), with cash to be paid for any fraction of a share issuable
upon termination of the Escrow Trust Agreement.
CNB Shareholders are advised to obtain current market quotations for South
Alabama Common Stock. The market price of South Alabama Common Stock at the
Effective Time or on the date on which certificates representing such shares
are received by CNB shareholders may be higher or lower than the market price
of South Alabama Common Stock as of the date of this Prospectus or at the time
of the CNB Meeting.
No fractional shares of South Alabama Common Stock will be issued in
respect of CNB Common Stock, and cash will be paid by both South Alabama and the
Escrow Agent in lieu of issuance of such fractional shares. The amount paid
in lieu of fractional shares both after consummation of the Merger and upon
termination of the Escrow Trust Agreement (if any) will be calculated by
multiplying each such fraction by the average Market Value of South Alabama
Common Stock during the Valuation Period.
Escrow Trust Agreement. Prior to the Effective Date, South Alabama, the
Escrow Agent, and CNB will enter into the Escrow Trust Agreement in order to
establish an escrow of a certain portion of the consideration to be issued in
the Merger to cover costs and expenses related to a lawsuit currently pending
in Greene County, Alabama against CNB captioned Harold Cannon, Gloria Cannon,
and B & C Developers, L.L.C. (a limited liability company under the laws of
Alabama) v. Commercial National Bank of Demopolis and Donna Bingham, Case
number CV-98-051 (the "Lawsuit"). The costs for which South Alabama and its
affiliates may be reimbursed ("Reimbursable Costs") are defined in the Escrow
Trust Agreement to mean, generally all costs and expenses incurred by CNB,
South Alabama and its affiliates, arising out of or directly related to the
Lawsuit.
On the Effective Date, South Alabama will deposit with the Escrow Agent
that number of whole shares of South Alabama Common Stock (rounding up to the
nearest whole share) equal to the quotient obtained by dividing $250,000 by
the average Market Value of South Alabama Common Stock during the Valuation
Period. After the Effective Date, South Alabama will deposit with the Escrow
Agent that number of additional shares of South Alabama Common Stock necessary
to take into account (i) stock splits and stock dividends with respect to South
Alabama Common Stock and (ii) the failure of any dissenting CNB shareholder to
perfect, or the effective withdrawal or loss of, such holder's dissenter's
right of appraisal. All shares of South Alabama Common Stock delivered to the
Escrow Agent in accordance with the terms of the Escrow Trust Agreement are
referred to as the "Escrow Shares".
Subject to the terms of the Escrow Trust Agreement, South Alabama is not
entitled to reimbursement until Reimbursable Costs exceed $20,000, in which
case South Alabama shall be entitled to reimbursement for all Reimbursable
Costs. South Alabama is only entitled to reimbursement from the Escrow Stock
or other property held by the Escrow Agent pursuant to the Escrow Trust
Agreement, and neither CNB nor CNB's shareholders have any obligation or
liability to South Alabama beyond the several interests of the CNB shareholders
in the Escrow Shares.
After the Lawsuit is over, the Escrow Agent shall, subject to the terms
of the Escrow Stock Agreement, surrender to South Alabama a certificate
representing that number of Escrow Shares (the "Cancelled Escrow Shares")
equal to the aggregate amount of Reimbursable Costs incurred by CNB, South
Alabama and its affiliates. The calculation of the number of shares to be
surrendered to South Alabama shall be based on the value of South Alabama
Common Stock used to determine the Exchange Ratio, and the number of shares
so calculated shall be rounded to the nearest whole share.
To the extent that there are any Escrow Shares remaining after
reimbursement of South Alabama for the Reimbursable Costs incurred in
connection with the Lawsuit, such shares will be distributed to the former
shareholders of CNB in accordance with their respective Percentage Interest
as defined in the Escrow Trust Agreement. In the event that a former CNB
shareholder's Percentage Interest entitles such shareholder to a fractional
share of South Alabama Common Stock, such former shareholder will receive in
lieu of the issuance of a fractional share a cash payment based on the average
Market Value of South Alabama Common Stock during the Valuation Period.
The Escrow Trust Agreement shall remain in effect until the Escrow Agent
has delivered all of the Escrow Shares (and related cash payments) pursuant to
the terms of the Escrow Trust Agreement, which is to be accomplished within 90
days of the final resolution of the Lawsuit.
While the Escrow Shares are held in escrow, South Alabama shall pay
dividends with respect to the Escrow Shares to the Escrow Agent to be held in
escrow and deposited in an non-interest bearing account at SAB in Mobile,
Alabama. Former CNB shareholders will have the right to direct the voting of
Escrow Shares in accordance with their Percentage Interests. In the event of
any stock split or stock dividend with respect to South Alabama Common Stock
that becomes effective during the term of the Escrow Trust Agreement, the
additional shares issued with respect to the Escrow Shares then held by the
Escrow Agent will be added to the Escrow Shares, and the terms of the Escrow
Trust Agreement will be adjusted accordingly to account for such additional
shares. During the term of the Escrow Trust Agreement, The Escrow Stock rights
will not be transferrable otherwise than by operation of law, and such rights
will not be represented by any form of certificate of instrument.
Shareholder approval of the Agreements at the special meeting will be
deemed to include approval of the terms of the Escrow Trust Agreement and the
appointment of the Escrow Agent. South Alabama and CNB expect South Alabama's
subsidiary, SATC, to act as Escrow Agent.
The foregoing is a summary of certain material terms of the Escrow Trust
Agreement, which is attached as Exhibit 7 to Appendix A to this Prospectus and
is incorporated herein by reference.
Waiver and Amendment; Termination
Prior to the Effective Time, either South Alabama or CNB may waive or
extend the time for the compliance or fulfillment by the other of any and all
of its obligations under the Agreements, and South Alabama and CNB may, to the
extent permitted by law, amend the Agreements in writing with the approval of
the Board of Directors of each of CNB and South Alabama.
The Agreements 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 CNB fail to approve the Merger as required; and (v) by
either party in the event the Merger shall not have been consummated by March
31, 1999, 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 31, 1999.
In determining whether to elect to terminate the Agreements in these
circumstances, the CNB Board of Directors or the South Alabama 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 and bank holding company
stock in general, the relative value of the South Alabama Common Stock in the
market, and the advice of its financial advisors and legal counsel. By
approving the Agreements, the holders of CNB Common Stock will permit the CNB
Board of Directors to determine, in the exercise of its fiduciary duties, to
proceed with the Merger even though the Merger is not consummated, or any
conditions precedent thereto cannot be satisfied or fulfilled, by March
31, 1999.
In the event of the termination of the Agreements, the Agreements 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.
Opinion of CNB's Financial Advisor
CNB retained Alex Sheshunoff & Co. Investment Banking ("Sheshunoff") to
provide its opinion of the fairness from a financial viewpoint of the
consideration to be received by CNB's stockholders in connection with the
Merger (the "Merger Consideration").
As part of its investment banking business, Sheshunoff is regularly
engaged in the evaluation of securities in connection with mergers and
acquisitions, and valuations for estate, corporate and other purposes. CNB's
Board of Directors retained Sheshunoff based upon its experience as a
financial advisor in mergers and acquisitions of institutions and its
knowledge of financial institutions. On August 20, 1998, Sheshunoff rendered
its oral opinion that, as of such date, the Merger Consideration is fair, from
a financial point of view, to the holders of CNB's Common Stock. Sheshunoff
reviewed CNB financial data as of June 30, 1998, and bank stock market
conditions since the signing of the Merger Agreement and rendered its written
Fairness Opinion Letter as of August 28, 1998. Sheshunoff updated its
Fairness Opinion Letter as of November 2, 1998 (the "Opinion").
The full text of the Opinion which sets forth, among other things,
assumptions made, procedures followed, matters considered, and limitations on
the review undertaken, is attached as Appendix D to this Prospectus. CNB's
shareholders are urged to read the Sheshunoff Opinion carefully and in its
entirety. Sheshunoff's Opinion is addressed to CNB's Board of Directors and
does not constitute a recommendation to any shareholder of CNB as to how such
shareholder should vote at the CNB Meeting.
In connection with its Opinion, Sheshunoff (i) reviewed the Agreements;
(ii) reviewed certain publicly available financial statements and other
information concerning CNB and South Alabama, respectively; (iii) reviewed
certain internal financial statements and other financial and operating data
of CNB provided to it by CNB's management; (iv) analyzed certain publicly
available financial analyses and projections of South Alabama provided by
independent banking securities analysts; (v) reviewed the reported market
prices and trading activity for South Alabama Common Stock; (vi) discussed the
past and current operations, financial condition, and future prospects of CNB
and South Alabama with their respective executive management; (vii) compared
CNB and South Alabama from a financial point of view with certain other banking
companies that Sheshunoff deemed to be relevant; (viii) compared the financial
performance of South Alabama and the market prices and trading activity of
South Alabama's Common Stock with that of certain other comparable publicly
traded companies and their equity securities; (ix) reviewed the financial terms,
to the extent publicly available, of certain comparable merger transactions
in the Southeastern United States and in Alabama, (x) reviewed the terms of the
pending merger of Sweet Water State Bancshares, Inc. with and into South
Alabama and analyzed the pro forma impact of that transaction on the combined
company's earnings, book value and consolidated capitalization, assuming
consummation of the Merger, (xi) reviewed the terms of the Escrow Trust
Agreement, and (xii) performed such other analyses and reviews as it deemed
appropriate.
In connection with its review, Sheshunoff relied upon and assumed the
accuracy and completeness of all of the foregoing information provided to it
or made publicly available, and Sheshunoff did not assume any responsibility
for independent verification of such information. With respect to internal
confidential financial projections provided by CNB, Sheshunoff assumed that
such projections were reasonably prepared on the basis reflecting the best
currently available estimates and judgments of the future financial
performance of CNB and did not independently verify the validity of such
assumptions. Sheshunoff did not make any independent evaluation or appraisal
of the assets or liabilities of CNB, nor was Sheshunoff furnished with any
such appraisals. Sheshunoff did not examine any individual loan files of CNB.
Sheshunoff is not an expert in the evaluation of loan portfolios for the
purposes of assessing the adequacy of the allowance for losses with respect
thereto and assumed that such allowances for each of the companies are, in the
aggregate, adequate to cover such losses.
With respect to South Alabama, Sheshunoff relied solely upon publicly
available data regarding South Alabama's financial condition and performance.
Sheshunoff met with and discussed this publicly available information with the
management of South Alabama. Sheshunoff did not conduct any independent
evaluation or appraisal of the assets, liabilities or business prospects of
South Alabama, was not furnished with any evaluations or appraisals, and did
not review any individual credit files of South Alabama.
Sheshunoff's Opinion is necessarily based on economic, market and other
conditions as in effect on, and the information made available to Sheshunoff
as of, October 27, 1998.
In connection with rendering its Opinion Sheshunoff performed a variety
of financial analyses. The preparation of a fairness opinion involves various
determinations as to the most appropriate and relevant methods of financial
analysis and the application of those methods to the particular circumstances,
and, therefore, such an opinion is not readily susceptible to summary
description. Moreover, the evaluation of fairness from a financial point of
view of the consideration to be received by holders of CNB Common Stock is to
some extent a subjective one based on the experience and judgment of
Sheshunoff, and not merely the result of mathematical analysis of financial
data. Accordingly, notwithstanding the separate factors summarized below,
Sheshunoff believes that its analyses must be considered as a whole and that
selecting portions of its analyses and of the factors considered by it,
without considering all analyses and factors, could create an incomplete view
of the evaluation process underlying its opinion. The ranges of valuations
resulting from any particular analysis described below should not be taken to
be Sheshunoff's view of the actual value of CNB.
In performing its analyses, Sheshunoff made numerous assumptions with
respect to industry performance, business and economic conditions and other
matters, many of which are beyond the control of CNB or South Alabama. The
analyses performed by Sheshunoff are not necessarily indicative of actual
values or future results, which may be significantly more or less favorable
than suggested by such analyses, nor are they appraisals. In addition,
Sheshunoff's analyses should not be viewed as determinative of CNB's Board's
or CNB's management's opinion with respect to the value of CNB.
The following is a summary of the analyses performed by Sheshunoff in
connection with its Opinion. The following discussion contains financial
information concerning CNB and South Alabama as of June 30, 1998, and market
information as of October 27, 1998.
Analysis of Selected Transactions. Sheshunoff performed an analysis of
premiums paid in selected pending or recently completed acquisitions of
banking organizations in Alabama and in the southeastern United States, with
comparable characteristics to the Merger. Sheshunoff selected two sets of
comparable transactions.
The first set of comparable transactions (the "State Transactions")
consisted of a group of comparable transactions based upon asset size and the
geographical market area of CNB. The State Transactions specifically
consisted of eight (8) mergers and acquisitions of Alabama banks which
announced the terms of their intended transaction between July 31, 1997 and
July 31, 1998. The analysis yielded multiples of the State Transactions'
purchase price relative to: (i) book value ranging from 1.64 times to 3.46
times with an average of 2.45 times and a median of 2.41 times (compared with
the multiple implied in the Merger of 2.40 times June 30, 1998 book value);
(ii) last 12 month's earnings ranging from 16.65 times to 40.56 times with an
average of 25.14 times and a median of 23.34 times (compared with the multiple
implied in the Merger of 23.07 times last 12 months earnings as of June 30,
1998); and (iii) total assets ranging between 17.67% and 45.57% with an
average of 28.62% and a median of 27.42% (compared with the multiple implied
in the Merger of 23.93% of June 30, 1998 total assets).
The second set of comparable transactions (the "Southeastern
Transactions'') consisted of a narrowly defined group of comparable
transactions based upon the asset size, profitability and geographical market
area of CNB. The Southeastern Transactions specifically consisted of eleven
(11) mergers and acquisitions of banks in the Southeast with total assets
below $100 million and a return on average equity between 9% and 14%, which
announced the terms of their intended transaction between July 31, 1997 and
July 31, 1998. The analysis yielded multiples of the Southeastern
Transactions' purchase price relative to: (i) book value ranging from 1.28
times to 3.61 times with an average of 2.62 times and a median of 2.72 times
(compared with the multiple implied in the Merger of 2.40 times June 30, 1998
book value); (ii) last 12 month's earnings ranging from 14.77 times to 34.35
times with an average of 23.19 times and a median of 21.92 times (compared with
the multiple implied in the Merger of 23.07 times last 12 months earnings as
of June 30, 1998); and (iii) total assets ranging between 13.29% and 35.89%
with an average of 25.76% and a median of 25.71% (compared with the multiple
implied in the Merger of 23.93% of June 30, 1998 total assets).
Discounted Cash Flow Analysis. Using discounted cash flow analysis,
Sheshunoff estimated the present value of the future stream of after-tax cash
flow that CNB could produce through June of 2003, under various circumstances,
assuming that CNB performed in accordance with the earnings/return projections
of management. Sheshunoff estimated the terminal value for CNB at the end of
the period by applying multiples of earnings ranging from 20 times to 25
times and then discounting the cash flow streams, dividends paid to the
shareholders (assuming all earnings in excess of that required to maintain an
equity to asset percentage of 7.0% are paid out in dividends), and terminal
value using discount rates ranging from 12% to 14%, which were chosen to
reflect different assumptions regarding the required rates of return of CNB
and the inherent risk surrounding the underlying projections. This discounted
cash flow analysis indicated a range of $112.00 per share to $142.00 per
share based on 121,500 fully diluted shares outstanding, compared to the
Merger Consideration for CNB of $147.94 per share.
Sheshunoff also performed a cash flow analysis using an estimated
terminal value for CNB at the end of the period by applying multiples of book
value ranging from 2.0 times to 3.0 times and then discounting the cash flow
streams, dividends paid to the shareholders (assuming all earnings in excess
of that required to maintain an equity to asset percentage of 7.0% are paid
out in dividends), and terminal value using discount rates ranging from 12% to
14%, which were chosen to reflect different assumptions regarding the required
rates of return of CNB and the inherent risk surrounding the underlying
projections. This discounted cash flow analysis indicated a range of $91.00 per
share to $129.00 per share, compared to the value of the Merger Consideration
for CNB of $147.94 per share.
Comparable Company Analysis. Sheshunoff compared selected balance sheet
data, asset quality, capitalization and profitability measures and market
statistics using financial data at June 30, 1998, and market data as of
October 27, 1998, for South Alabama to a group of selected Southeastern bank
holding companies which Sheshunoff deemed to be relevant. The group of
selected Southeastern bank holding companies (the "Comparable Composite")
included Alabama National Bancorp., AmSouth Bancorp., Auburn National Bancorp.,
Compass Bancshares, Inc., Colonial Bancgroup, Inc., Eufaula BancCorp, Inc.,
First Southern Bancshares, Peoples BancTrust Co., Pinnacle Bancshares, Inc.,
Regions Financial Corp. and SouthTrust Corp. This comparison of South Alabama
and the Comparable Composite reviewed and included, among other things, (i)
equity as a percentage of assets (ii) return on average equity; (iii) return on
average assets; and (iv) nonperforming loans as a percentage of net loans.
As of October 27, 1998, South Alabama's ratio of price per share to June 30,
1998, book value per share was 2.06 times, compared to an average of 2.07
times and median of 2.20 times for the Comparable Composite; and as of October
27, 1998, South Alabama's ratio of price per share to twelve months earnings
per share as of June 30, 1998, was 22.79 times, compared to an average of
17.95 times and median of 17.05 times for the Comparable Composite.
Sheshunoff also compared selected stock market results of South Alabama
to the publicly available corresponding data of other composites which
Sheshunoff deemed to be relevant, including SNL Securities, L.P.'s ("SNL")
index of all publicly traded banks in the southeast, the aforementioned
Comparable Composite and the S&P 500. Results from indexing SNL's index of all
publicly traded banks in the southeast, the S&P 500 and South Alabama's stock
from August 17, 1997, to October 27, 1998, revealed a similar relationship in
price movements of South Alabama's stock to the price movements of the SNL
index and the S&P 500 until December, 1997. South Alabama experienced a
significant increase in its stock price from December, 1997 through mid-July,
1998. However, by the end of August, 1998, South Alabama's stock price
declined to a level comparable to the SNL index and the S & P 500. By the end
of October, 1998, South Alabama's 52 week price change was 17.7% while the
change in the SNL index was 9.18%.
No company or transaction used in the comparable company and comparable
transaction analyses is identical to CNB or the Merger. Accordingly, an
analysis of the results of the foregoing necessarily involves complex
considerations and judgments concerning differences in financial and operating
characteristics of CNB and other factors that could affect the public trading
value of the companies to which they are being compared. Mathematical analysis
(such as determining the average or median) is not in itself a meaningful
method of using comparable transaction data or comparable company data.
Pursuant to an engagement letter dated June 24, 1998, between CNB and
Sheshunoff, CNB agreed to pay Sheshunoff a professional fee of $10,000 at the
delivery of its Opinion and $10,000 upon completion of the Merger. CNB 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. Sheshunoff has previously acted as financial advisor to MCB's
holding company in its merger with South Alabama.
Effective Date and Effective Time
Articles of Merger will be filed with the Secretary of the State of
Alabama (the "Secretary of State") as soon as practicable after all
conditions contained in the Agreements have been satisfied or lawfully waived,
including receipt of all regulatory approvals and expiration of all statutory
waiting periods, and the approval of the Agreements by the shareholders of CNB.
The Effective Time of the Merger will be the later of the time stated in the
Articles of Merger or the time the Articles of Merger are filed with the
Secretary of State. 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 South Alabama 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 southern Alabama. Since 1993, South Alabama
has acquired through mergers three banks in southern Alabama. On October 27,
1998, South Alabama announced an agreement in principle to acquire Sweet Water
State Bank, in Sweet Water, Alabama, by means of the merger of that bank's
parent company with and into South Alabama.
Background of the Merger. In the Spring of 1998, management of CNB was
considering the formation of a one bank holding company for CNB. Management
believed that a holding company could create opportunities for CNB to expand
its business and could provide liquidity for the CNB Common Stock by
permitting the proposed holding company to repurchase shares.
While management was considering the one bank holding company formation,
the Chairman of the Board of CNB was approached by another bank holding
company concerning CNB's interest in an affiliation with that company.
Representatives of that company met with the Board of Directors of CNB in
April, 1998, to discuss possible terms. The Board decided that an affiliation
between CNB and another banking organization might have certain advantages for
shareholders and for CNB, and, after discussing with certain shareholders of
CNB the negotiations the Board was having with that company, those shareholders
recommended that management speak with South Alabama about an affiliation
between CNB and South Alabama.
Representatives of South Alabama and CNB met on several occasions in May,
1998, to discuss a possible transaction. Management considered an affiliation
with South Alabama a more attractive option than the transaction with the bank
holding company that had first approached CNB, because the purchase price
offered by South Alabama was higher and more certain than the price offered by
the other company, and management believed that an affiliation with South
Alabama offered better prospects for long term growth, especially because
South Alabama was a larger and more established company. Also, its
Common Stock is publicly traded and the common stock of the other bank holding
company was at the time closely held with no public market..
The Board of Directors of CNB also considered the existing banking
environment in the State of Alabama, in which the banking industry is highly
competitive, as a factor making an affiliation with South Alabama an option
that was in the best interest of shareholders of CNB and CNB as an entity.
A letter of intent setting forth the basic terms of the Merger was
signed by South Alabama and CNB, and a press release announcing the
transaction was issued June 9, 1998. Representatives of South Alabama and CNB
then negotiated the Agreements, which were approved by the CNB Board of
Directors on July 14, 1998, and by the South Alabama Board of Directors on
July 21, 1998. A representative of Sheshunoff met with the CNB Board on August
20, 1998, to render its oral opinion regarding the fairness of the Merger,
from a financial point of view, to the shareholders of CNB. The Agreements, as
executed July 22, 1998, provided that holders of CNB Common Stock would receive
South Alabama Common Stock having a Market Value of $150 in exchange for each
share of CNB Common Stock. The Agreements were amended as of October 26, 1998,
to establish the Escrow Trust Agreement and the Escrow Stock Rights in order to
account for certain litigation pending against CNB. Sheshunoff also revised its
fairness opinion for those amendments.
Reasons for the Merger. Numerous factors were considered by the two
Boards in approving the Merger and in the case of CNB, in recommending the
terms of the Merger to its shareholders. They included an analysis of the
financial structure, results of operations and prospects of South Alabama and
CNB, the composition of the businesses of the two organizations, the overall
compatibility of the management of the organizations, the tax free nature of
the transaction, and the outlook for both organizations in the banking and
financial services industry. The CNB Board of Directors also considered the
factors outlined above under "Background of the Merger," the ability of the
shareholders of CNB to acquire a security for which there is a public market,
and the condition in the Merger Agreement that CNB receive an opinion
regarding the fairness of the Merger to the shareholders of CNB from a financial
point of view as factors supporting its decision to approve the Agreements.
The Board of Directors of CNB did not assign any relative or specific weight
to any factor it considered in deciding to approve the Agreements. See
"Available Information," "Incorporation of Certain Documents by Reference,"
"Comparative Market Prices and Dividends" and "Business of CNB."
In the last several years South Alabama has focused on expanding its
franchise into new markets in the southern half of Alabama, especially in the
southwest quadrant of the state. South Alabama's management believes that it
must grow to remain competitive in the rapidly changing banking environment.
The addition of CNB will increase the resources available to South Alabama,
add stability to its deposit base, allow for a wider distribution of risk and
enhance its ability to keep pace with the technological and competitive
changes in banking.
The merger will enable CNB as an entity to become part of a larger and
more diverse financial institution. This may help CNB to reach more customers,
add additional products for its customers, diversify its risks, enhance its
ability to make larger loans and, in general, compete more effectively with
larger banking institutions.
Surrender of Certificates
As promptly as practicable after the Effective Time, SATC, acting in the
capacity of exchange agent for South Alabama (the "Exchange Agent"), will
mail to each former holder of record at the record date of CNB 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' CNB Common Stock certificates for cash and certificates representing
shares of South Alabama Common Stock. HOLDERS OF CNB 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 CNB Common
Stock should complete the letter of transmittal in accordance with the
instructions and mail the letter of transmittal together with all their stock
certificates representing shares of CNB Common Stock to the Exchange Agent in
the return envelope provided. Upon receipt of the certificates and related
documentation, South Alabama will issue, and the Exchange Agent will mail,
to such holder of CNB Common Stock a check in the amount of any payment in
respect of fractional shares of CNB Common Stock payable to the surrendering
shareholder and a certificate representing the number of shares of South
Alabama Common Stock to which such holder is entitled pursuant to the
Agreements. No certificates of South Alabama Common Stock and no payment in
respect of fractional shares will be delivered to a holder of CNB Common Stock
unless and until such holder shall have delivered to the Exchange Agent
certificates representing the shares of CNB 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 CNB on the record date will be entitled
to vote after the Effective Time at any meeting of South Alabama shareholders
the number of whole shares of South Alabama Common Stock into which such
holders' respective shares of CNB Common Stock are converted, regardless of
whether such holders have exchanged their certificates representing CNB Common
Stock for certificates representing South Alabama Common Stock. Voting rights
with respect to the Escrow Shares will be passed on to holders of the Escrow
Stock Rights pursuant to the Escrow Trust Agreement.
Beginning six months after the Effective Time, no dividend or other
distribution payable after the Effective Time with respect to South Alabama
Common Stock issued to replace CNB Common Stock will be paid to the holder of
an unsurrendered CNB 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 CNB's stock
transfer books of shares of CNB Common Stock issued and outstanding at the
Effective Time. If certificates representing shares of CNB 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 South Alabama, CNB Interim, the Exchange Agent nor the Escrow
Agent shall be liable to a holder of CNB 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 South Alabama and CNB to effect the Merger
are subject to the satisfaction of the following conditions prior to the
Effective Time: (i) approval of the Agreements and the transactions
contemplated thereby by the holders of at least two-thirds (2/3) of the CNB
Common Stock; (ii) approval of the Agreements and the transactions
contemplated thereby by the FDIC, the Federal Reserve and the Superintendent
of Banks and the expiration of any applicable statutory waiting period; (iii)
receipt of all other regulatory and contractual consents necessary to consummate
the transactions contemplated by the Agreements; (iv) absence of any law,
regulation, rule, judgment, ruling or order which prohibits or restricts
consummation of the transactions contemplated by the Agreements; (v) the
Registration Statement of which this Prospectus 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 South Alabama Common
Stock issuable pursuant to the Merger shall have been received; (vi) South
Alabama and CNB shall have received an opinion from counsel to South Alabama
to the effect that, for federal income tax purposes, the exchange of CNB
Common Stock for South Alabama Common Stock will not give rise to recognition
of gain or loss to shareholders of CNB (other than to the extent any cash is
received) and neither South Alabama nor CNB will recognize gain or loss as a
consequence of the Merger; (vii) the approval for listing on NASDAQ of
the shares of South Alabama Common Stock to be issued in the Merger; and (viii)
the parties to the Escrow Trust Agreement shall have entered into the Escrow
Trust Agreement.
The obligations of South Alabama to effect the Merger are further subject
to the satisfaction or waiver of the following conditions: (i) each of the
representations and warranties of CNB 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 CNB to
be performed pursuant to the Agreements prior to the Effective Time shall have
been duly performed, and South Alabama shall have received a certificate of
CNB to the effect that such obligations have been complied with; (ii) South
Alabama shall have received an opinion of counsel to CNB in the form attached
to the Merger Agreement; and (iii) South Alabama shall have received a
satisfactory letter from Arthur Andersen, LLP to the effect that the Merger
will qualify for pooling-of-interests accounting treatment.
The obligations of CNB to effect the Merger are further subject to the
satisfaction or waiver by CNB of the following conditions: (i) each of the
representations and warranties of South Alabama 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 South Alabama to be performed pursuant to the Agreements prior to the
Effective Time shall have been duly performed, and CNB shall have received a
certificate of South Alabama to the effect that such obligations have been
complied with; (ii) CNB shall have received an opinion of counsel to South
Alabama in the form attached to the Merger Agreement; and (iii) CNB shall have
received the fairness opinion from Alex Sheshunoff & Co. Investment Banking.
Regulatory Approvals
The Merger will not proceed in the absence of receipt of the requisite
regulatory approvals. There can be no assurance that such regulatory
approvals will be obtained or as to the timing of such approvals. There also
can be no assurance that such approvals will not be accompanied by a
conditional requirement which causes such approvals to fail to satisfy the
conditions set forth in the Merger Agreement. Applications for approvals
described below have been submitted to the appropriate regulatory agencies.
South Alabama and CNB are not aware of any material government approvals
or actions that are required for consummation of the Merger, except as
described below. Should any other approval or action be required, it presently
is contemplated that such approval or action would be sought.
The Merger requires the prior approval of the Federal Reserve, pursuant
to Section 3 of the Bank Holding Company Act (the "BHC Act"). In granting
its approval under Section 3 of the BHC Act, the Federal Reserve must take into
consideration, among other factors, the financial and managerial resources and
future prospects of the institutions and the convenience and needs of the
communities to be served. The relevant statutes prohibit the Federal Reserve
from approving the Merger (i) if it would result in a monopoly or be in
furtherance of any combination or conspiracy to monopolize or attempt to
monopolize the business of banking in any part of the United States, or (ii)
if its effect in any section of the country may be to lesson substantially
competition or to tend to create a monopoly, or (iii) if it would be a
restraint of trade in any manner, unless the Federal Reserve finds that any
anti-competitive effects are outweighed clearly by the public interest and
the probable effect of the transaction in meeting the convenience and needs of
the communities to be served. Under the BHC Act, the Merger generally 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 transaction on antitrust grounds. The commencement of any
antitrust action would stay the effectiveness of the Federal Reserve's approval,
unless a court specifically orders otherwise.
The Merger is also subject to the approval of the FDIC and the
Superintendent of Banks. In their evaluations, the FDIC and the
Superintendent of Banks take into account considerations similar to those
applied by the Federal Reserve.
The Federal Reserve and the FDIC approved the Merger on September 21,
1998 and October 12, 1998, respectively. The Superintendent of Banks has not
approved the Merger, and there can be no assurance of his approval or of its
timing or conditions.
Conduct of Business Pending the Merger
The Merger Agreement requires that each of CNB and South Alabama take no
action that would adversely affect its ability to perform under the Agreements.
In addition, CNB has agreed that, without the consent of South Alabama, 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 it may conform its dividend
patterns to South Alabama's as required or permitted for pooling-of-interests
accounting treatment; (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;
(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;
(xii) operate other than in the ordinary course of business; or (xiii) fail to
file timely any report required to be filed by it with any Regulatory
Authority.
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.
Commitments with Respect to Other Offers
Until the termination of the Agreements, and except for the Merger,
neither CNB nor any of its directors or officers (or any person representing
any of the foregoing) shall solicit inquiries or proposals with respect to,
furnish any non-public information it is not legally obligated to furnish, or
enter into any contract concerning any acquisition or purchase of all or of a
substantial portion of the assets of, or of a substantial equity interest in,
CNB or any business combination involving CNB (collectively, an "Acquisition
Proposal") other than as contemplated by the Agreements. CNB will notify South
Alabama immediately if any such inquiries or proposals are received by CNB.
CNB shall instruct its officers, directors, agents or affiliates or their
subsidiaries to refrain from doing any of the above. CNB may communicate
information about an Acquisition Proposal to its shareholders to the extent that
it is required to do so in order to comply with its legal obligations.
Management and Operations After the Merger
The Agreements do not provide for any change in the directors or
principal officers of CNB, who will be the directors and principal officers of
CNB Interim from and after the Effective Date. The Agreements provide for the
appointment of the Chairman of CNB's Board of Director, A. G. Westbrook, and
one other representative of CNB to the Board of Directors of South Alabama and
the election of one representative of CNB as an executive officer of South
Alabama.
Interests of Certain Persons in the Merger
Certain of the directors and executive officers of CNB, members of their
families and certain of their associates own, or have interests in, 3,833
shares of South Alabama Common Stock in the aggregate.
South Alabama has agreed in the Merger Agreement to indemnify present and
former directors and officers of CNB against liabilities arising out of
actions or omissions occurring at or prior to the Effective Time to the
extent South Alabama and the Surviving Bank would have been authorized under
the NBA and CNB's Articles and Bylaws.
In the normal course of business, SAB, MCB and FNBB make loans to their
directors and officers and to directors and officers of South Alabama, and
CNB makes loans to directors and officers of CNB, 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 South Alabama and CNB, do not involve more than the normal
risk of collectibility. The amount of these loans by SAB, MCB and FNBB to
their and South Alabama's directors and officers was 32.5% of shareholders'
equity for South Alabama, and the amount of loans by CNB to its directors and
officers was 6.2% of shareholders' equity for CNB, both as of June 30, 1998.
Certain Federal Income Tax Consequences
Neither South Alabama nor CNB 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 South Alabama, has delivered an
opinion that, for federal income tax purposes, under current law, assuming
that the Merger will take place as described in the Agreements and that
certain factual matters represented by South Alabama and CNB (including the
representation that CNB shareholders will maintain sufficient equity ownership
interests in South Alabama 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 South Alabama and CNB
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 Agreements
and that certain factual matters represented by South Alabama and CNB
(including the representation that CNB shareholders will maintain sufficient
equity ownership interests in South Alabama after the Merger) are true and
correct at the time of consummation of the Merger, then, in the opinion of
Hand Arendall, L.L.C., the following will be certain of the federal income tax
consequences of the Merger: (i) no gain or loss will be recognized by South
Alabama and CNB in the Merger; (ii) the shareholders of CNB will recognize no
gain or loss upon the exchange of their CNB Common Stock solely for shares
of South Alabama Common Stock; (iii) the basis of the South Alabama Common
Stock received by the CNB shareholders in the proposed transaction will, in
each instance, be the same as the basis of the CNB Common Stock surrendered in
exchange therefor, increased by the non-dividend gain, if any, taxable as boot
under the escrow arrangement described in the Escrow Trust Agreement; (iv) the
holding period of the South Alabama Common Stock received by the CNB
shareholders will, in each instance, include the period during which the CNB
Common Stock surrendered in exchange therefor was held, provided that the CNB
Common Stock was held as a capital asset on the date of the exchange; (v) the
payment of cash to CNB shareholders in lieu of fractional share interests of
South Alabama 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 South Alabama; 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 CNB shareholder in exchange for his CNB Common Stock pursuant to
the exercise of dissenters rights, such cash will be treated as having been
received in redemption of his or her CNB Common Stock, subject to the
provisions and limitations of Code Section 302. Hand Arendall, L.L.C. has
expressed no opinion as to the taxibility of the CNB shareholders upon or under
the escrow arrangement provided for in the Escrow Trust Agreement and has
pointed out that such arrangement could result in taxation to the CNB
shareholders of the Escrow Stock held thereunder and in taxation to the CNB
shareholders of imputed interest.
THE DISCUSSION SET FORTH ABOVE IS INCLUDED FOR GENERAL INFORMATION ONLY
AND IS BASED UPON THE OPINION OF HAND ARENDALL, L.L.C., AND APPLIES ONLY TO
CNB SHAREHOLDERS WHO HOLD CNB COMMON STOCK AS A CAPITAL ASSET, AND MAY NOT
APPLY TO SPECIAL SITUATIONS, SUCH AS CNB SHAREHOLDERS, IF ANY, WHO RECEIVED
THEIR CNB COMMON STOCK UPON EXERCISE OF EMPLOYEE STOCK OPTIONS OR OTHERWISE
AS COMPENSATION AND CNB 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 SOUTH ALABAMA COMMON STOCK, INCLUDING ANY
REDEMPTION OR TRANSFER OF SOUTH ALABAMA 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 CNB 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 is expected to be accounted for as a pooling-of-interests.
The pooling-of-interests method accounts for a business combination as the
uniting of ownership interests of two or more companies by exchange of equity
securities. The recorded assets and liabilities of South Alabama and CNB will
be carried forward to the combined corporation at their recorded amounts.
Income of the combined corporation will include income of South Alabama and
CNB for the entire fiscal period in which the combination occurs. The
reported income of South Alabama and CNB for prior periods will be combined and
restated as income for the combined corporation. The unaudited pro forma
financial information contained in this Prospectus has been prepared using
the pooling-of-interests method of accounting. The Merger Agreement provides
that a condition to consummation of the Merger is receipt of a letter from
Arthur Andersen LLP, the independent auditor for South Alabama, confirming
that the Merger qualifies for pooling-of-interests accounting treatment.
Expenses and Fees
The Merger Agreement provides that each of the parties will bear and pay
all costs and expenses incurred by it in connection with the transactions
contemplated by the Agreement. It is expected that the total expenses and fees
for South Alabama and CNB will be approximately $75,000 and $65,000,
respectively.
Resales of South Alabama Common Stock
The shares of South Alabama Common Stock issued pursuant to the Agreements
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 certain
principal shareholders of CNB) for purposes of Rule 145 under the Securities
Act as of the date CNB shareholders voted on the Agreements. Affiliates may
not sell their shares of South Alabama 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 South
Alabama and CNB after the Merger have been published. South Alabama may
place restrictive legends on certificates representing South Alabama Common
Stock issued to all persons who are deemed "affiliates" under Rule 145. In
addition, CNB 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 Prospectus does not cover
resales of South Alabama Common Stock received by any person who may be deemed
to be an affiliate of CNB.
RECENT DEVELOPMENTS
On October 27, 1998, South Alabama announced an agreement in principle
with Sweet Water State Bancshares, Inc., whereby Sweet Water State Bank, its
wholly owned subsidiary, will become a wholly owned subsidiary of South
Alabama through the merger of Sweet Water State Bancshares, Inc. with and into
South Alabama.
Holders ("Sweet Water Stockholders") of the Common Stock of Sweet Water
State Bancshares, Inc. ("Sweet Water Stock") will receive 14.17 shares of South
Alabama Common Stock in exchange for each share of Sweet Water Stock which they
hold at the time of the merger, assuming the market value of a share of South
Alabama Common Stock immediately prior to the merger is from $14.00 to $16.00
(the range in which it is currently trading). If the market value of a share
of South Alabama Common Stock is above $16.00 or below $14.00, the exchange
ratio will vary in accordance with a predetermined formula.
Consummation of this proposed transaction is subject to the negotiation
and execution of a definitive agreement, certain regulatory approvals and
approval of the shareholders of Sweet Water State Bancshares, Inc. Sweet Water
State Bank has locations in Marengo and Clarke Counties, with branches in
Linden, Sweet Water and Thomasville. At June 30, 1998, Sweet Water State
Bankshares, Inc. had assets of approximately $50.3 million and total
shareholders' equity of approximately $5.8 million.
PRO FORMA FINANCIAL INFORMATION
Pro Forma Combined Condensed Consolidated Statement of Condition
The following unaudited Pro Forma Combined Condensed Consolidated
Statement of Condition combines the historical consolidated statements of
condition of South Alabama and CNB giving effect to the Merger, which will be
accounted for as a pooling-of-interests, as if it had been completed, and the
issuance of 1,172,475 shares of South Alabama Common Stock occurred, on June
30, 1998, 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 South Alabama, which are incorporated by reference in this
Prospectus, and the historical financial statements of CNB, which appear
elsewhere in this Prospectus, and with the condensed consolidated historical
and other pro forma financial information, including the notes thereto,
appearing elsewhere in this Prospectus. See "Available Information,"
"Incorporation of Certain Documents by Reference," and Appendix C hereto.
This pro forma financial information is not necessarily indicative of the actual
financial position that would have occurred had the Merger been consummated on
June 30, 1998, nor is it necessarily indicative of future financial position.
<TABLE>
Pro Forma Condensed Consolidated Statement of Condition
As of June 30, 1998 (Unaudited)
(In Thousands)
<CAPTION>
HISTORICAL
South PRO FORMA PRO FORMA
Alabama CNB ADJUSTMENTS COMBINED
<S> <C> <C> <C> <C>
ASSETS
Cash and cash equivalents $ 39,099 $ 2,891 $ 41,990
Investment securities available for sale 129,592 21,102 150,694
Investments 5,765 0 5,765
Loans, net 208,620 49,703 258,323
Premises and equipment 8,189 1,519 9,708
Intangible assets 4,675 0 4,675
Other assets 5,166 944 6,110
Total assets $401,106 $76,159 $477,265
LIABILITIES
Deposits $342,200 $59,336 $401,536
Short-term borrowings 7,158 2,571 9,729
Federal Home Loan Bank borrowings 0 6,000 6,000
Other liabilities 2,519 674 3,193
Total liabilities 351,877 68,581 420,458
SHAREHOLDERS' EQUITY
Common stock 65 122 $(110)(a) 77
Capital surplus 35,769 1,266 110 37,145
Net unrealized gain on
securities available for sale 888 24 912
Retained earnings 12,507 6,166 18,673
Total shareholders' equity 49,229 7,578 0 56,807
Total liabilities and
shareholders' equity $401,106 $76,159 $ 0 $477,265
(a) Reflects issuance of 1,172,475 shares of South Alabama Common Stock in
exchange for the 121,500 shares outstanding of CNB and does not take
into account the stock to be held pursuant to the Escrow Trust Agreement,
which is immaterial.
</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 1,172,745 shares of South Alabama
Common Stock occurred, on January 1 for each period ended June 30, 1998,
presented on a pooling-of-interest accounting basis. 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 South Alabama, which are
incorporated by reference in this Prospectus, and of CNB, which appear
elsewhere in the Prospectus, and with the condensed consolidated historical
and other pro forma financial information, including the notes thereto,
appearing elsewhere in this Prospectus. See "Available Information,"
"Incorporation of Certain Documents by Reference," and Appendix C hereto.
This pro forma financial information is not necessarily indicative of the actual
operating results that would have occurred had the Merger been consummated as
of the beginning of the periods presented, nor is it necessarily indicative of
future operating results.
<TABLE>
Pro Forma Combined Condensed Consolidated Statement of Income (Unaudited)
(In Thousands Except Per Share Data)
<CAPTION>
Six Months Ended Year Ended December 31,
June 30, 1998 ----------------------------
1997 1996 1995
<S> <C> <C> <C> <C>
Interest revenue $16,318 $30,897 $24,734 $22,778
Interest expense 7,525 13,433 10,561 9,702
Net interest revenue 8,793 17,464 14,173 13,076
Provision for loan losses 116 396 308 78
Non-interest revenue 1,762 3,675 3,034 2,693
Non-interest expense 6,914 13,242 11,040 10,279
Income before income taxes 3,525 7,501 5,859 5,412
Income taxes 969 1,996 1,733 1,646
Net income $ 2,556 $ 5,505 $ 4,126 $ 3,766
Basic earnings per share: $ .34 $ .73 $ .69 $ .66
Diluted earnings per share: $ .33 $ .73 $ .69 $ .66
</TABLE>
COMPARATIVE MARKET PRICES AND DIVIDENDS
Market Prices
South Alabama. The South Alabama 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, which have been adjusted for the
Stock Split, 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>
Closing Bid Prices Per Share
----------------------------
<CAPTION>
High Low
<S> <C> <C>
1998
First Quarter $18.66 $14.00
Second Quarter 19.33 15.08
1997
First Quarter $10.33 $ 8.33
Second Quarter 12.00 8.67
Third Quarter 14.33 10.83
Fourth Quarter 16.17 13.17
1996
First Quarter $ 9.67 $ 8.67
Second Quarter 9.67 8.63
Third Quarter 9.67 8.67
Fourth Quarter 9.67 8.33
</TABLE>
On June 8, 1998, the last business day prior to public announcement
that South Alabama and CNB had agreed in principle to combine, and on August
4, 1998, the last business day prior to public announcement of the execution of
the original Merger Agreement, the closing bid prices per share of South
Alabama Common Stock, as reported on NASDAQ, were $18.00 and $19.00,
respectively.
South Alabama and CNB shareholders should obtain current market quotations
for South Alabama Common Stock.
CNB. There has been no active or established public trading market
for the Common Stock of CNB, and, accordingly, there is no published
information with respect to market prices of CNB Common Stock. Management is
aware that shares of CNB's Common Stock have been sold in private transactions
ranging in prices of $54.55 to $65.00 per share during the past two years,
although sales may have taken place of which, and at prices at which,
management is unaware. The most recent sale of which management is aware
occurred in October, 1997, when 75 shares were sold at a price of $65.00 per
share. Such price may or may not reflect the market price of CNB Common Stock,
and the Board of Directors of CNB makes no representation to that effect.
Dividends
South Alabama declared regular quarterly cash dividends per share, as
adjusted for the Stock Split, totaling $.21 in 1995, $.27 in 1996, and $.28 in
1997. In 1997, a special cash dividend of $.833, as adjusted for the Stock
Split, was declared. During the past two years, CNB has declared cash dividends
of $1.72 per share for 1996 and $1.87 per share for 1997. Future dividends on
shares of South Alabama (assuming the Merger is consummated) or of both South
Alabama and CNB (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 SOUTH ALABAMA CAPITAL STOCK
South Alabama's Articles of Incorporation currently authorize the
issuance of 10,000,000 shares of Common Stock, $0.01 par value, and up to
500,000 shares of preferred stock. As of the date of this Prospectus,
6,525,709 shares of South Alabama Common Stock are issued and outstanding,
and no preferred stock has been issued. In addition, approximately 228,000
shares of South Alabama Common Stock are subject to acquisition through the
exercise of options under South Alabama's Incentive Stock Option Plan. The
capital stock of South Alabama 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 South Alabama Common Stock outstanding is, and all South
Alabama Common Stock to be issued in connection with the Merger will be,
fully paid and non-assessable. No South Alabama Common Stock is subject to
call.
South Alabama Common Stock may be issued at such time or times and for
such consideration (not less than the par value thereof) as the South Alabama
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 South Alabama and its subsidiaries. SATC is the Registrar and
Transfer Agent for shares of South Alabama Common Stock.
Holders of South Alabama Common Stock are entitled to receive, to the
extent permitted by law, such dividends as may be declared from time to time
by the South Alabama Board of Directors. South Alabama 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 South Alabama Common Stock. As of the
date of this Prospectus, no such restrictions are in effect.
In the event of the voluntary or involuntary liquidation, dissolution,
distribution of assets or winding up of South Alabama, after distribution in
full of the preferential amounts, if any, to be distributed to holders of
South Alabama's preferred stock, should any be issued, holders of South
Alabama Common Stock will be entitled to receive all of the remaining assets
of South Alabama of whatever kind available for distribution to shareholders
ratably in proportion to the number of shares of South Alabama Common Stock
held. The South Alabama Board of Directors may distribute in kind to the
holders of South Alabama Common Stock such remaining assets of South Alabama
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 South Alabama Common Stock. Neither the merger
or consolidation of South Alabama 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 South Alabama of any class, shall be deemed to be a
dissolution, liquidation or a winding-up of South Alabama for purposes of
this paragraph.
Because South Alabama is a holding company, its rights and the rights of
its creditors and shareholders, including the holders of South Alabama 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 South Alabama itself may be
a creditor having recognized claims against such subsidiary.
Except as provided by law, each holder of South Alabama Common Stock
shall have one vote on all matters voted upon by shareholders with respect to
each share of South Alabama Common Stock held. Holders of South Alabama
Common Stock do not have cumulative voting rights in the election of
directors.
Holders of South Alabama Common Stock are not entitled to preemptive
rights with respect to any shares or other securities of South Alabama which
may be issued.
The South Alabama Articles of Incorporation permit 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 South
Alabama Board of Directors.
EFFECT OF MERGER ON RIGHTS OF SHAREHOLDERS
South Alabama is an Alabama corporation subject to the provisions of the
ABCA. CNB is a national banking association subject to the provisions of the
NBA. Shareholders of CNB, whose rights are governed by CNB's Articles of
Association, Bylaws and the NBA, will, upon consummation of the Merger,
become shareholders of South Alabama. The rights of such shareholders as
shareholders of South Alabama will then be governed by South Alabama's
Articles of Incorporation and Bylaws and by the ABCA.
Except as set forth below, there are no material differences between the
rights of a CNB shareholder under CNB's Articles of Association, Bylaws and
the NBA, and the rights of a South Alabama shareholder under South Alabama's
Articles of Incorporation, Bylaws and the ABCA. The following summary does
not purport to be a complete discussion of, and is qualified in its entirety
by reference to, the ABCA and NBA and the Articles of Association or Articles
of Incorporation, as the case may be, and Bylaws of CNB and South Alabama.
Authorized Capital Stock
South Alabama's Articles of Incorporation authorize the issuance of up
to 10,000,000 shares of South Alabama Common Stock ($0.01 par value each),
and 500,000 shares of preferred stock (no par value), of which 6,525,709 shares
of South Alabama Common Stock were issued and outstanding as of October 26,
1998.
CNB's Articles of Association authorize the issuance of up to 135,000
shares of CNB Common Stock ($1.00 par value each), of which 121,500 shares
were issued and outstanding as of October 26, 1998.
Special Meetings of Shareholders
South Alabama's Articles of Incorporation provide that special meetings
of shareholders may be called for any purpose at any time by only (i) the
Board of Directors; (ii) a majority of the members of the Board of Directors;
or (iii) a committee of the Board which has been given such authority by the
Board.
Shareholders of CNB have the right to call special meetings of
shareholders upon the written request of holders of at least 10 percent of
the outstanding shares of CNB Common Stock.
Required Shareholder Votes
South Alabama's Articles of Incorporation provide that the vote of 75% or
more of the shares entitled to vote will be required to approve any merger or
consolidation of South Alabama with or into any other "related" corporation
or the sale, lease, exchange or other disposition of a substantial part (20%)
of South Alabama'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 South Alabama. The above 75% vote requirement
does not apply if (i) a 75% vote of the directors is obtained or (ii) South
Alabama owns 50% or more of the voting stock of such related corporation.
The holders of CNB Common Stock are entitled to one vote per share on all
matters, including the election of directors. CNB may effect a merger or
consolidation, a sale of assets not in the regular course of business, or a
dissolution pursuant to authority given by persons holding two-thirds of CNB's
outstanding Common Stock.
Inspection of Shareholder List
The ABCA requires that an Alabama corporation prepare an alphabetical
list of shareholders entitled to notice of a shareholders meeting containing
the address of and the number of shares held by each shareholder. The
shareholders' list must be available for inspection by any shareholder,
beginning two business days after notice of the meeting is given and
continuing through the meeting at the corporation's principal office. Any
shareholder, his or her agent, or attorney is entitled on written demand to
inspect and, for a proper purpose, to copy the list during regular business
hours and at his or her expense, during the period it is available for
inspection.
The NBA requires the President and Cashier of every national banking
association to keep a full and correct list of the names and residences of
all the shareholders in the association, and the number of shares held by each,
in the office where its business is transacted. All shareholders and creditors
of the association, and officers authorized to assess taxes under state
authority, may inspect the list during business hours of each legal business
day.
Action by Written Consent
The ABCA provides that shareholders may take action without a meeting if
consent in writing to such action is signed by all of the shareholders
entitled to vote on the action, unless otherwise provided in the Articles of
Incorporation. South Alabama's Articles of Incorporation prohibit shareholder
action by unanimous written consent.
The NBA does not provide for action by the written consent of a national
banking association shareholder; however, the OCC has determined that
shareholders of a national banking association may take action by written
consent unless the subject matter to be considered specifically requires a
meeting.
Cumulative Voting for Directors
Shareholders of CNB are entitled to cumulative voting in the election of
directors. This means that when electing directors, a shareholder shall have
as many votes as the number of directors to be elected multiplied by the
number of shares of record held by the shareholder. The shareholder may cast
all these votes for one candidate, or distribute the votes among as many
candidates as the shareholder chooses. South Alabama shareholders are not
entitled to cumulative voting.
Amendment of Articles of Incorporation or Association
South Alabama's Articles of Incorporation may be amended as permitted by
the ABCA, but require a vote of the shareholders holding at least 75% of the
stock to change any of those sections of its Articles 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
amendment in question receives the affirmative vote of not less than 75% of
the directors.
CNB's Articles of Association may be amended pursuant to a vote of at
least two-thirds of the shares of CNB Common Stock outstanding.
Amendment of Bylaws
South Alabama'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.
CNB's Bylaws may be amended by majority vote of the directors of CNB.
Directors
South Alabama's Articles of Incorporation provide that in order for a
shareholder to nominate a director for election at an annual shareholders'
meeting, such shareholder must give South Alabama's Secretary notice of such
nomination no less than 30 and no more than 60 days prior to such meeting,
unless such requirement is waived in advance of the meeting by the Board of
Directors. Neither South Alabama's Articles of Incorporation nor Bylaws
require directors to be shareholders of South Alabama. South Alabama's
Bylaws provide that the number of directors shall be between three and
twenty-five, inclusive, and shall be set by the directors within that range.
The Board of Directors of CNB consists of not fewer than five nor more
than twenty-five directors with the exact number determined from time to time
by the shareholders of CNB. Directors must also be shareholders. Vacancies on
the Board of Directors may be filled by majority vote of the Board of Directors
or by the shareholders.
Director Liability
South Alabama's Articles of Incorporation contain a provision which
limits, to the extent permitted by the ABCA, the liability of South Alabama
directors for action or inaction as a director.
CNB's Articles of Association do not contain any provision limiting the
liability of directors.
Effect of the Merger on CNB Shareholders
As of October 26, 1998, CNB had 184 shareholders of record and 121,500
outstanding shares of Common Stock. As of October 26, 1998, South Alabama
had 6,525,709 shares of South Alabama Common Stock outstanding with 823
stockholders of record.
Assuming that no dissenters' rights of appraisal are exercised in the
Merger, and a Market Value of South Alabama Common Stock of $15.33 at the
Effective Time (which was the effective average Market Value during the
preceding 20 trading days calculated as of October 26, 1998), an aggregate
amount of 1,188,270 shares (including Escrow Shares) of South Alabama Common
Stock would be issued to the shareholders of CNB and the Escrow Agent pursuant
to the Merger. These shares would represent approximately 15.40% of the total
shares of South Alabama Common Stock outstanding after the Merger.
The issuance of South Alabama Common Stock pursuant to the Merger will
reduce the percentage interest of South Alabama Common Stock currently held by
each principal stockholder and each director and officer of South Alabama.
Based upon the foregoing assumptions, as a group, the directors and officers
of South Alabama, who own approximately 28.28% of South Alabama's outstanding
shares, would own approximately 23.93% after the Merger.
CNB 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 CNB and should be read in conjunction with the Financial Statements and
Notes thereto included herein. The emphasis of this discussion will be on the
years 1997, 1996, 1995, 1994 and 1993. All yields presented and discussed
herein are based on the cash basis and not on the tax-equivalent basis.
This discussion contains certain forward looking statements with respect
to the financial condition, results of operation and business of CNB 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) CNB encounters difficulty in integrating with the operations of SAB;
and
(b) general economic conditions, either nationally or in Alabama, are less
favorable than expected.
At December 31, 1997, CNB had total assets of approximately $68.0 million
and operated two banking locations in Marengo County. CNB's sole business is
banking; therefore, loans and investments are the principal sources of income.
FINANCIAL CONDITION
From 1993 to 1997 CNB experienced slow but steady growth in average
assets. Average net loans, however, grew from $29.8 million in 1993 to $45.2
million in 1997, an increase of $15.4 million or 51.7%. The loan growth from
1993 to 1997 was funded by a $6.0 million increase in deposits and a $5.3
million reduction in investment securities. Additionally, short-term
borrowings increased by $801 thousand, and average shareholder's equity
increased $2.0 million. Long-term debt in 1997 consisted of Federal Home
Loan Bank borrowings.
<TABLE>
Average Assets and Liabilities
Distribution of Average Assets, Liabilities and Shareholders' Equity (1)
(In Thousands)
<CAPTION>
1997 1996 1995 1994 1993
<S> <C> <C> <C> <C> <C>
Average Assets:
Cash and non-interest bearing deposits $ 2,417 $ 2,594 $ 2,660 $ 2,480 $ 2,262
Federal funds sold 655 1,261 771 268 923
Investment securities 15,005 16,309 16,683 19,004 20,296
Loans, net 45,196 40,412 36,915 33,424 29,790
Premises and equipment, net 1,524 1,518 1,588 1,582 1,613
Other assets 849 1,029 1,345 928 745
Average Total Assets $65,646 $63,123 $59,962 $57,686 $55,629
Average Liabilities:
Non-interest bearing demand deposits $ 6,676 $ 7,509 $ 6,708 $ 7,221 $ 7,275
Interest bearing demand deposits 10,318 9,540 12,016 13,794 12,038
Savings deposits 5,354 5,215 4,823 4,756 4,239
Time deposits 34,113 33,211 29,298 25,452 26,876
Total Deposits 56,461 55,475 52,845 51,223 50,428
Short-term borrowings 801 728 768 883 0
Long term debt 1,074 0 0 0 0
Other liabilities 434 382 385 360 319
Shareholders' equity 6,876 6,538 5,964 5,220 4,882
Average Total Liabilities and
Shareholders Equity $65,646 $63,123 $59,962 $57,686 $55,629
(1) Averages for 1996, 1995, 1994 and 1993 are month-end averages.
</TABLE>
CNB carried no foreign loans or deposits in any of the periods shown.
Loans
Total loans at December 31, 1997, were $48.2 million compared to $43.5
million at December 31, 1996, an increase of $4.8 million or 11.0%. Loan
demand in CNB's market was strong in 1996 and 1997. At December 31, 1997,
commercial, financial and agricultural loans represented 27.5%, real estate
represented 47.0%, and consumer loans represented 25.5% of total loans,
respectively.
Of the commercial, financial and agricultural loans and real estate loans
outstanding at year-end 1997, $11.0 million or 22.9% of total loans may be
repriced within one year either because they mature or because they contain
variable rate arrangements. Of total loans in these categories maturing
after one year, $24.5 million or 50.7% of total loans have a fixed interest
rate.
The table below shows the classification of loans by major category at
December 31, 1997 and 1996. 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,
1997 1996
<S> <C> <C>
Commercial, financial and agricultural $13,250 $11,492
Real estate - construction 644 1,197
Real estate - mortgage 22,049 18,545
Consumer 12,302 12,249
Total Loans 48,245 43,483
Less unearned loan income (134) (490)
Allowance for loan losses (481) (473)
Net Loans $47,630 $42,520
</TABLE>
<TABLE>
Selected Loans by Type and Maturity
(In Thousands)
<CAPTION>
December 31, 1997
---------------------------------------------
Maturing
---------------------------------------------
After One
Within But Within After
One Year Five Years Five Years Total
<S> <C> <C> <C> <C>
Commercial, financial and agricultural $ 6,885 $ 6,365 $ 0 $13,250
Real estate - Construction 644 0 0 644
Real Estate - Mortgage 3,508 17,836 705 22,049
Total $11,037 $24,201 $705 $35,943
Loans maturing after one year with:
Fixed interest rates $23,756 $705
Floating interest rates 445 0
</TABLE>
CNB'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 CNB 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.
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 straight line method, adjusted to prepayments as applicable.
Management has the intent and CNB 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 CNB'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, 1997, 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 37% 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, 1997 Maturity
-----------------------------------------------------------------------------------------
After one but After five but
Within one within within ten
year five years years After ten years Total
------------- ------------- -------------- --------------- -------------
Amount Yield Amount Yield Amount Yield Amount Yield Amount Yield
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Available for Sale
U.S. Government Agencies $ 500 4.67% $1,903 4.43% $4,039 6.11% $ 6,442 5.50%
State and Political Subdivisions $230 9.82% 958 8.75 1,561 8.25 5,482 7.88 8,231 8.11
Other investments 129 9.92 267 7.25 396 8.12
Total $230 9.82% $1,587 7.56% $3,464 6.15% $9,788 7.13% $15,069 6.99%
</TABLE>
<TABLE>
Book Value of Available for Sale Securities
(In Thousands)
<CAPTION>
December 31,
1997 1996
<S> <C> <C>
U.S. Government Agencies $ 6,078 $ 7,947
State and Political Subdivisions 8,576 7,830
Other Investments 402 375
Total $15,056 $16,152
</TABLE>
Deposits and Short-Term Borrowings
The deposit base at CNB remained relatively stable during the years 1993
through 1997, with an average growth of 2.4% per year experienced. The
decrease in average interest bearing demand deposits of $2.5 million from 1995
to 1996 resulted from the loss of certain public funds which are traditionally
rotated among several financial institutions in CNB's market.
<TABLE>
Average Deposits
(Dollars in Millions)
<CAPTION>
Average for the Year
---------------------------------------------------------------------
1997 1996 1995
--------------------- --------------------- ---------------------
Average Average Average Average Average Average
Amount Rate Amount Rate Amount Rate
Outstanding Paid Outstanding Paid Outstanding Paid
<S> <C> <S> <C> <S> <C> <S>
Non-interest bearing demand deposits $ 6.7 N/A $ 7.5 N/A $ 6.7 N/A
Interest bearing demand deposits 10.3 3.64% 9.5 3.44% 12.0 3.61%
Savings deposits 5.4 3.23 5.2 3.47 4.8 3.48
Time deposits 34.1 5.51 33.3 5.71 29.3 5.70
Total average deposits $56.5 $55.5 $52.8
</TABLE>
The following table reflects maturities of time deposits of $100,000 or
more at December 31, 1997. These time deposits include both certificates of
deposit and time deposit open accounts. Deposits of $13.3 million in this
category represented 23.4% of total deposits at year-end 1997. 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.
<TABLE>
Maturities of Time Deposits of $100,000 or More
(In Millions)
<CAPTION>
At December 31, 1997
-------------------------------------------------
Under Over
3 3-6 3-12 12
Months Months Months Months Total
<C> <C> <C> <C> <C>
$3.8 $0.0 $5.5 $4.0 $13.3
</TABLE>
<TABLE>
Short-Term Borrowings
(Dollars in Thousands)
<CAPTION>
1997 1996 1995
------------------------------ ------------------------------ ------------------------------
Average Weighted Average Weighted Average Weighted
Maximum Balance Average Maximum Balance Average Maximum Balance Average
Month-end During Interest Month-end During Interest Month-end During Interest
Balance Year Rate Balance Year Rate Balance Year Rate
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Federal funds purchased $2,529 $519 6.55% $1,600 $187 5.35% $ 669 $281 7.12%
Other 658 282 3.90 736 541 2.22 1,500 487 2.67
Total short-term
borrowings $801 5.62% $728 3.02% $768 4.30%
</TABLE>
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.
CNB's primary market risk is its exposure to interest rate changes.
Interest rate risk management strategies are designed to optimize net interest
income while minimizing fluctuations caused by changes in the interest rate
environment. It is through these strategies that CNB seeks to manage the
maturity and repricing characteristics of its balance sheet.
The modeling techniques used by CNB simulate net interest income and
impact on fair values under various rate scenarios. Important elements of these
techniques include the mix of floating versus fixed rate assets and liabilities,
and the scheduled, as well as expected, repricing and maturing volumes and
rates of the existing balance sheet. Under a scenario simulating a hypothetical
100 basis point increase applied to all interest earning assets and interest-
bearing liabilities, CNB would expect a net loss in fair value of the
underlying instruments of $173,000. This hypothetical loss is not a precise
indicator of future events. Instead, it is a reasonable estimate of the results
anticipated if the assumptions used in the modeling techniques were to occur.
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, CNB has federal
funds lines of credit available if needed.
Interest Rate Sensitivity
By monitoring CNB'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 $9.9 million at December 31, 1997.
This negative gap position indicates that in a rising rate environment CNB
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, CNB would experience a widening of the net interest margin.
<TABLE>
Interest Sensitivity Analysis
(Dollars in Thousands)
<CAPTION>
December 31, 1997
--------------------------------------
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(1) $ 4,216 $13,404 $45,617 $ 2,629 $48,246
Unearned Income 0 0 0 (134) (134)
Less allowance for loan losses 0 0 0 (482) (482)
Net loans 4,216 13,404 45,617 2,013 47,630
Investment securities 980 4,478 5,723 9,333 15,056
Federal funds sold and resale
agreements 1,000 1,000 1,000 0 1,000
Total earning assets $ 6,196 $18,882 $52,340 $11,346 $63,686
LIABILITIES
Non-Interest bearing demand deposits $ 0 $ 0 $ 0 $ 6,197 $ 6,197
Interest bearing demand deposits (2) 3,620 3,620 3,620 6,530 10,150
Savings deposits (2) 0 0 0 5,102 5,102
Large denomination time deposits 3,823 9,256 13,295 0 13,295
Other time deposits 3,881 15,594 22,070 0 22,070
Short-term borrowing 311 311 311 0 311
Long-term debt 0 0 2,500 0 2,500
Total interest bearing liabilities $11,635 $28,781 $41,796 $17,829 $59,625
Interest sensitivity gap $(5,439) $(9,899) $10,544
Earning assets/Interest bearing
liabilities .53 .66 1.25
Interest sensitivity gap/Earning
assets (.88) (.52) .20
______________________
(1) Non-accrual loans are included in the "Non-Interest Sensitive
Within 5 years" category.
(2) Certain types of savings and Now Accounts are included in the
"Non-Interest Sensitive Within 5 Years" category. In Management's
opinion these liabilities do not reprice in the same proportions as
rate sensitive assets, as they are not responsive to general
interest rate changes in the economy.
</TABLE>
Capital Resources
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.
CNB's Tier I capital was $7.3 million at December 31, 1997, and total (Tier I
plus Tier II) capital was $7.8 million at December 31, 1997. Tier I and total
capital ratios were 17.10% and 18.23%, respectively at December 31, 1997.
Both ratios were well above the regulatory minimums.
<TABLE>
Risk-Based Capital
(Dollars in Thousands)
<CAPTION>
December 31,
1997 1996
<S> <C> <C>
Tier I capital
Realized common shareholders equity $ 7,297 $ 6,747
Tier II capital
Allowable portion of the allowance for
loan losses 481 472
Total capital (Tier I and Tier II) $ 7,778 $ 7,219
Risk-adjusted assets $42,667 $39,291
Quarterly average assets 68,308 63,920
Risk-adjusted capital ratios:
Tier I capital 17.10% 17.17%
Total capital (Tier I and Tier II) 18.23% 18.37%
Minimum risk-based capital guidelines
Tier I capital 4.00% 4.00%
Total capital (Tier I and Tier II) 8.00% 8.00%
Tier I leverage ratio 10.68% 10.56%
</TABLE>
RESULTS OF OPERATIONS
Net Interest Revenue
Net interest revenue increased 3.7% in 1996 compared to 1995 and 4.1% in
1997 compared to 1996. The net yield on interest earning assets declined
from 4.79% in 1995 to 4.63% in 1996 and then to 4.59% in 1997; however,
increased volume in loans, the largest and highest yielding component of
interest earning assets at CNB, accounted for the increase in net interest
revenue. The 16 basis point decrease in 1996 compared to 1995 was caused by
lower rates earned on taxable investment securities and on loans. Interest
rates in the economy began to decline in 1995 and then remained relatively
stable during 1996 and 1997. Rates earned on interest earning assets and
rates paid on interest bearing liabilities in 1997 compared to 1996 declined
5 basis points and 9 basis points, respectively.
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 37%.
<TABLE>
Net Interest Revenue
(Dollars in Thousands)
<CAPTION>
1997 1996 1995
------------------------------- ----------------------------- ------------------------------
Average Average Interest Average Average Interest Average Average Interest
Amount Rate/ Earned/ Amount Rate/ Earned/ Amount Rate/ Earned/
Outstanding Yield Paid Outstanding Yield Paid Outstanding Yield Paid
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Interest earning assets
Taxable securities $ 7,731 6.33% $ 489 $ 9,406 6.27% $ 590 $ 9,406 7.07% $ 665
Non-taxable securities 7,274 5.80 422 6,903 5.97 412 7,277 5.90 429
Total securities 15,005 6.07 911 16,309 6.14 1,002 16,683 6.56 1,094
Loans 45,663 9.10 4,157 40,912 9.39 3,843 37,501 9.47 3,551
Federal funds sold 655 5.19 34 1,261 4.12 52 771 5.19 40
Deposits 0 0.00 0 0 0.00 0 0 0.00 0
Total interest earning assets 61,323 8.32 5,102 58,482 8.37 4,897 54,955 8.53 4,685
Non-interest earning assets:
Cash and due from banks 2,417 2,594 2,660
Premises and equipment, net 1,524 1,518 1,588
Other real estate 0 0 0
Deferred tax asset 163 135 387
Other assets 686 894 958
Allowance for loan losses (467) (500) (586)
Total $65,646 $63,123 $59,962
Interest bearing liabilities
Interest bearing demand
deposits $10,318 3.64% $ 376 $ 9,540 3.44% $ 328 $12,016 3.61% $ 434
Savings deposits 5,354 3.23 173 5,215 3.47 181 4,823 3.48 168
Time deposits 34,113 5.51 1,881 33,211 5.71 1,898 29,298 5.70 1,670
Short-term borrowing 801 5.62 45 728 3.02 22 768 4.30 33
Long-term debt 1,074 5.40 58 0 0.00 0 0 0.00 0
Total interest bearing
liabilities 51,660 4.90 2,533 48,694 4.99 2,429 46,905 4.91 2,305
Non-interest bearing liabilities
Demand deposits 6,676 7,509 6,708
Other 434 382 385
Total non-interest bearing
liabilities 7,110 7,891 7,093
Shareholders' equity 6,876 6,538 5,964
Total $65,646 $63,123 $59,962
Net Interest Revenue 3.42 $2,569 3.38 $2,468 3.62 $2,380
Net yield on interest earning
assets (tax equivalent) 4.19 4.22 4.33
Tax equivalent adjustment 0.40 0.41 0.46
Net yield on interest earning assets 4.59% 4.63% 4.79%
_______________________
(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>
The following table reflects the sources of interest income and expense
between 1996 and 1995 and between 1997 and 1996. The variances resulting from
changes in interest rates and the variances resulting from changes in volume
are shown.
<TABLE>
Analysis of Taxable -Equivalent Interest Increases (Decreases)
(Dollars In Thousands)
<CAPTION>
1997 Change From 1996 1996 Change From 1995
---------------------- -------------------------
Due to(1) Due to (1)
------------- -------------------
Amount Volume Rate Amount Volume Rate
<S> <C> <C> <C> <C> <C> <C>
Interest Revenue
Taxable securities $(101) $(105) $ 4 $ (75) $ 0 $ (75)
Non-taxable securities 16 35 (19) (27) (35) 8
Total securities (85) (70) (15) (102) (35) (67)
Total loans 314 443 (129) 292 323 (31)
Federal funds sold (18) (26) 8 12 23 (11)
Total 211 347 (136) 202 311 (109)
Interest Expense
Interest bearing demand
deposits 48 27 21 (106) (89) (17)
Savings deposits (8) 5 (13) 13 14 (1)
Other time deposits (17) 50 (67) 228 223 5
Short-term borrowing 23 4 19 (11) (1) (10)
Long term debt 58 29 29 0 0 0
Total 104 115 (11) 124 147 (23)
Net interest revenue $ 107 $ 232 $(125) $ 78 $ 164 $ (86)
(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 level of losses inherent in
the portfolio 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 CNB 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 CNB 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.
The table below sets forth certain information with respect to CNB's
average loans, allowance for loan losses, charge-offs and recoveries for the
three years ended December 31, 1997.
<TABLE>
Summary of Loan Loss Experience
(Dollars in Thousands)
<CAPTION>
Year Ended December 31,
1997 1996 1995
<S> <C> <C> <C>
Allowance for loan losses-
balance at beginning of period $ 473 $ 524 $ 621
Charge-offs:
Commercial, financial and agricultural 112 59 77
Real estate - construction 0 0 0
Real estate - mortgage 0 9 21
Installment 90 93 77
Total charge-offs 202 161 175
Recoveries:
Commercial, financial and agricultural 67 67 23
Real estate - construction 0 0 0
Real estate - mortgage 0 0 15
Installment 21 33 40
Total recoveries 88 100 78
Net charge-offs 114 61 97
Addition to allowance charged to
operating expense 123 10 0
Allowance for loan losses-
balance at end of period $ 482 $ 473 $ 524
Loans at end of period, net of
unearned income $48,111 $42,993 $38,702
Ratio of ending allowance to ending loans 1.00% 1.10% 1.35%
Average loans, net of unearned income $45,663 $40,912 $37,501
Ratio of net charge-offs to average loans 0.25% 0.15% 0.26%
</TABLE>
Net charge offs in 1996 were $61 thousand compared to $97 thousand in 1995, a
result of lower charge offs and higher recoveries in 1996. In 1997,
recoveries decreased from 1996, while charge-offs increased to $202 thousand.
The increase occurred in the commercial, financial and agricultural category
and was the result of several unforeseen bankruptcies. The ratio of ending
allowance to ending loans declined from 1.35% at year-end 1995 to 1.00% at
year-end 1997. The decline was caused primarily by the increase in loan
volume during this period; however, the allowance also declined. In 1997,
$123 thousand was added to the allowance, a result of the increased charge-offs
and the increased loan volume.
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.
Total non-performing assets as a percent of loans and other real estate owned
at year-end 1997 was .06% compared to .55 % at year-end 1996. Both loans on
non-accrual and accruing loans 90 days or more past due were significantly
reduced.
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 $1.6 million at
December 31, 1997 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.
The table below sets forth certain information with respect to accruing loans
90 days or more past due, loans on non-accrual, renegotiated loans and other
real estate owned.
<TABLE>
Summary of Non-Performing Assets
(In Thousands)
<CAPTION>
December 31,
---------------------------
1997 1996 1995
<S> <C> <C> <C>
Accruing loans 90 days or more past due $ 9 $125 $ 69
Loans on non-accrual 21 113 0
Renegotiated loans 0 0 0
Total non-performing loans 30 238 69
Other real estate owned 0 0 85
Total Non-performing assets $30 $238 $154
Loans 90 days or more past due as a percent of loans 0.02% 0.29% 0.18%
Total non-performing loans as a percent of loans 0.06% 0.55% 0.18%
Total non-performing assets as a percent of loans
and other real estate owned 0.06% 0.55% 0.40%
</TABLE>
Non-Interest Revenue and Non-Interest Expense
Service charges on deposit accounts were relatively unchanged from 1995
to 1997. Security gains/losses over the three year period reflect slight
repositioning of the investment portfolio. Other revenue reflected a 45.0%
decline in 1996 compared to 1995 because of accounting reclassifications in
1996. All categories of non-interest expense in the years 1995, 1996 and 1997
reflected little change except that furniture and equipment expenses increased
in 1997 to $131 thousand from $94 thousand in 1996, and this increase resulted
from the purchase of a new computer and related software.
<TABLE>
Non-Interest Revenue
(In Thousands)
<CAPTION>
Year Ended December 31,
-----------------------
1997 1996 1995
<S> <C> <C> <C>
Service charges on deposit accounts $352 $357 $343
Security gains (losses) 14 18 (21)
Other revenue 106 70 127
Total $472 $445 $449
</TABLE>
<TABLE>
Non-Interest Expense
(In Thousands)
<CAPTION>
Year Ended December 31,
----------------------------
1997 1996 1995
<S> <C> <C> <C>
Salaries $ 729 $ 712 $ 717
Pension and other employee benefits 241 247 243
Net occupancy expenses 131 141 133
Furniture and equipment expenses 131 94 85
Other expenses 683 690 655
Total $1,915 $1,884 $1,833
</TABLE>
Income Taxes and Other Issues
Income tax expense was $226 thousand in 1997 compared to $247 thousand
and $236 thousand, respectively, in 1996 and 1995.
Because CNB's assets and liabilities are essentially monetary in nature,
the effect of inflation on CNB's assets differs greatly from that of most
commercial and industrial companies. Inflation can have an impact on the
growth of total assets in the banking industry and the resulting need to
increase capital at higher than normal rates in order to maintain an appropriate
equity to assets ratio. Inflation also can have a significant effect on
other expenses, which tend to rise during periods of general inflation.
Management believes, however, that CNB's financial results are influenced more
by its ability to react to changes in interest rates than by inflation.
Year 2000 Compliance
CNB has conducted its own internal work regarding Year 2000 and is in
the process of testing for compliance. It is also upgrading its mainframe
computer and expects to be Year 2000 compliant by the end of 1998. To date,
CNB has spent approximately $15,000 and expects to incur approximately $5,000
in additional expense for this purpose.
CNB is in the process of identifying its current loan customers for the
potential risk presented by these customers and their strategies for addressing
the Year 2000 issue. For this purpose, commercial loan customers with loan
amounts of $50,000 and higher are being reviewed and contacted by CNB for
purposes of evaluating the risks presented by Year 2000.
CNB believes it has an adequate plan in place to address the Year 2000
issue, and the final outcome is not anticipated to have a material adverse
effect on the results of operations of the financial condition of CNB.
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 CNB. Management is not aware of any current
recommendations by regulatory authorities which, if they were implemented,
would have such an effect.
FIRST SIX MONTHS OF 1998
Financial Condition
Total assets at June 30, 1998, were $76.2 million compared to $65.0
million at June 30, 1997. Total deposits grew $3.9 million from $55.4
million to $59.3 million. The increase in deposits combined with increases of
$2.1 million and $4.6 million in federal funds purchased and Federal Home
Loan Bank borrowings, respectively, were used to fund an increase of $6.1
million in investment securities and an increase of $4.1 million in loans.
Results of Operation
Net income for the first six months of 1998 was $388 thousand compared to
$375 thousand during the same period in 1997. Net interest income grew 2.3%,
primarily from increased volume. Non-interest income decreased $27 thousand
in the first six months in 1998 compared to the same period in 1997, a result
of lower overdraft charges. Non-interest expense increased 3.9%, or $36
thousand, with most of the increase resulting from normal merit increases in
salaries.
Loan Loss Experience and Non-Performing Assets
The allowance for loan losses at June 30, 1998, and at June 30, 1997, 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
period ending June 30, 1998, and June 30, 1997, are presented below.
<TABLE>
Summary of Non-Performing Assets
(Dollars in Thousand)
<CAPTION>
June 30, 1998
<S> <C>
Accruing loans 90 days or more past due $ 38
Loans on non-accrual 169
Renegotiated loans 0
Total non-performing loans 207
Other real estate owned 0
Total non-performing assets $207
Loans 90 days or more past due as a percent of loans .08%
Total non-performing loans as a percent of loans .41%
Total non-performing assets as a percent of loans and
other real estate owned .41%
</TABLE>
Total non-performing assets increased to $207 thousand on June 30, 1998, from
$30 thousand at year-end 1997. Most of the increase occurred in loans on
non-accrual. Consequently, total non-performing loans as a percent of loans
increased to .41% at June 30, 1998, compared to .06% at December 31, 1997.
<TABLE>
Summary of Loan Loss Experience
(In Thousands)
<CAPTION>
Six Months Ended
------------------------------
June 30, 1998 June 30, 1997
<S> <C> <C>
Allowance for loan losses -
balance at beginning of period $ 482 $ 473
Charge-Offs (83) (108)
Recoveries 90 25
Addition to allowance charged to
operating expense 18 63
Balance at end of period $ 507 $ 453
</TABLE>
BUSINESS OF CNB
CNB is a national banking association organized under the laws of the
United States of America. CNB provides community banking services in and
around Demopolis, Alabama. At June 30, 1998, CNB had total assets of
approximately $76.2 million, total deposits of approximately $59.3 million
and total shareholders' equity of approximately $7.6 million.
Bank Activities
CNB'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
provided to customers by commercial banks. CNB offers commercial lending
services, including lines of credit, revolving credit, term loans, real estate
loans and other forms of secured financing. CNB also offers installment and
other personal loans, home improvement loans, automobile loans, boat loans and
other consumer financing, safe deposit services and mortgage loans. CNB
extends credit to its customers located primarily within the market area of
Marengo County. Although real estate is taken as collateral on the majority
of loans in its portfolio, real estate is generally a secondary source of
repayment after the credit-worthiness of the borrower. The lack of a broad
base of borrowers and diverse sources of income could lead to industry
concentration in timber related businesses. See "CNB Management's Discussion
and Analysis" for a more complete discussion of CNB's business.
Properties
CNB 's principal location is at 201 North Main Street in Demopolis.
CNB's main office at this location is a one story building with approximately
7,040 square feet.
CNB operates one branch in addition to its main office. This branch is
located at the intersection of Highway 80 and Highway 43 in Demopolis. Both
of CNB's offices have drive-in tellers, and CNB operates an automatic teller
machine at its branch and two other free standing automatic teller machines in
Demopolis.
Competition
CNB is one of two independent banks located in Demopolis. One of
Alabama's state wide banks operates a branch in Demopolis. Management of CNB
understands that an additional bank plans to open a branch in Demopolis in
the near future. CNB encounters vigorous competition from these institutions
for, among other things, new deposits, loans, savings deposits, certificates of
deposit, interest bearing accounts and other banking and financial services.
Demopolis is in Marengo County, which has a population of approximately
23,000.
Management
The Merger Agreement provides that two directors of CNB, including the
Chairman of the Board, will become directors of South Alabama, and one
executive officer of CNB will become an executive officer of South Alabama.
A.G. Westbrook, as the Chairman of the Board of CNB, will become a director of
South Alabama. J. Olen Kerby, Jr., will become an executive officer of South
Alabama. Richard S. Manley will become a director of South Alabama. The
following table sets forth certain information with respect to the directors
and executive officers of CNB as of the date of this Prospectus.
<TABLE>
<CAPTION>
Name, Age and Year Position with Principal Occupation
Became Director or Officer the Bank for Last Five Years
<S> <C> <C>
Austin A. Caldwell, 71 Director Mayor, City of Demopolis
1969
Hubbard H. Harvey, 71 Director Attorney
1967
Harold Johnson, 66 Director Owner, Johnson Tire, Inc. and Rentals, Inc.
1985
Meador Jones, Jr., 52 Director, Senior Vice President Senior Vice President,
1993 The Commercial National Bank of Demopolis
J. Olen Kerby, Jr., 43 Director, President and CEO President and CEO,
1993 The Commercial National Bank of Demopolis
Director,
Richard S. Manley, 65 Director Attorney
1989
Charles L. Mayton, 72 Director Retired
1977
W.H. Traeger, Jr., 69 Director Retired
1985
Mem S. Webb, 55 Director Owner, Webb Realty
1992
A.G. Westbrook, 68 Director, Chairman of the Board Retired (formerly President of
1968 The Commercial National Bank of Demopolis)
</TABLE>
Non-employee Directors of CNB are paid monthly director fees. The basic
monthly fee is $550 for each non-employee director. Additional fees are paid
to the Chairman of the Board and to members of the loan compliance committee
and the audit committees. The total monthly fees paid to the non-employee
directors, including their regular monthly fee and fees for committee service,
are as follows: Mr. Caldwell, $725; Mr. Harvey, $725; Mr. Johnson, $825; Mr.
Mayton, $825; Mr. Manley, $550; Mr. Traeger, $825; Mr. Webb, $725; and Mr.
Westbrook, $750.
Executive Compensation
CNB's 1997 compensation program for executive officers consisted
principally of salaries, cash bonuses, and compensation pursuant to certain
plans which are described below.
The following table shows the cash compensation paid by CNB, as well as
certain other compensation paid to the Chief Executive Officer during the
fiscal years indicated.
<TABLE>
SUMMARY COMPENSATION TABLE
Annual Compensation
<CAPTION>
Name and Principal Position Year Salary Bonus All Other Compensation (1)
<S> <C> <C> <C> <C>
J. Olen Kerby, Jr. 1997 $82,589 $600 $9,157
President and Chief 1996 81,433 600 8,648
Executive Officer 1995 76,510 600 8,332
(1) All other compensation includes CNB's contributions to its Profit
Sharing and 401(k) Plan of $6,947 in 1997, $6,438 in 1996 and
$6,122 in 1995, respectively, and life insurance premiums paid on
behalf of Mr. Kerby.
</TABLE>
Employee Benefit Plans
CNB provides group health, life and disability insurance to all officers
and employees as well as a profit sharing and 401(k) plan.
Certain Transactions
Directors and executive officers of CNB are customers of, including loan
customers, of CNB from time to time. All outstanding loans and other credit
transactions with directors and officers of CNB, and with principal
shareholders, were made in the ordinary course of business on substantially
the same terms, including interest rates and collateral, as those prevailing
at the time for comparable transactions with other persons and, when made,
did not involve more than the normal risk of collectibility or present other
unfavorable features. In addition to banking and financial transactions, CNB
may have had additional transactions with, or used products or services of,
various organizations with which such directors, executive officers and
principal shareholders are associated. The amounts involved in such
non-credit transactions have in no case been material in relation to the
business of CNB or such other organizations. It is expected that CNB will
continue to have and may enter into similar transactions in the ordinary
course of business with such individuals and their associates in the future.
Principal Shareholders
The following table sets forth, as of October 26, 1998, certain
information with respect to all those known by CNB to beneficially own more
than 5 percent of CNB s outstanding common stock.
<TABLE>
<CAPTION>
Shares Beneficially Owned
---------------------------
Name and Address Number Percent
<S> <C> <C>
Austin A. Caldwell
Post Office Box 1069 6,345(1) 5.2%
Demopolis, AL 36732
Mary Lane Caldwell 7,560(2) 6.2%
Post Office Box 148
Demopolis, AL 36732
John H. Spight 6,910 5.6%
1305 Phil Harper Drive
Demopolis, AL 36732
Carolyn Webb Thomas (5) 13,491(3) 11.1%
500 Hayfield Circle
Mobile, Alabama 36608
Leilia Knight Upchurch (5) 13,221(4) 10.88%
4813 Mums Court
Mobile, Alabama 36608
(1) Includes 2,970 shares held by Mr. Caldwell s wife.
(2) Includes 405 shares held by Ms. Caldwell husband.
(3) Includes 4,140 shares held in trust for her children, over which
Ms. Thomas serves as trustee.
(4) Includes 4,815 shares held in trust for her children, over which Ms.
Upchurch serves as trustee.
(5) Ms. Thomas and Ms. Upchurch are sisters.
</TABLE>
Security Ownership of Management
The following table sets forth, as of October 26, 1998, the number and
percentage of shares of CNB s common stock owned by the directors, executive
officers and all directors and executive officers as a group.
<TABLE>
<CAPTION>
Shares Beneficially Owned
--------------------------
Name Number Percent
<S> <C> <C>
Austin A. Caldwell 6,345(1) 5.2%
Hubbard H. Harvey 5,145 4.2%
Harold Johnson 1,800 1.5%
Meador Jones, Jr. 6,073 4.9%
J. Olen Kerby, Jr. 1,210 1.0%
Richard S. Manley 2,385 1.9%
Charles L. Mayton 5,706 4.7%
W.H. Traeger, Jr. 360 *
Mem S. Webb 120 *
A.G. Westbrook 4,839(2) 3.9%
All Directors and Executive
Officers as a Group
(10 persons) 33,983 27.9%
* Less than one percent
(1) Includes 2,970 shares held by Mr. Caldwell s wife.
(2) Includes 732 shares held by Mr. Westbrook s wife.
</TABLE>
Legal Proceedings
CNB is currently a defendant in litigation described at "The Merger-
Escrow Trust Agreement." The number of shares of South Alabama Common Stock
to be issued to CNB shareholders in the Merger will depend in part upon the
outcome of such litigation.
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 South Alabama, CNB and South Alabama's
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 South Alabama, CNB or South Alabama's
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
South Alabama is a bank holding company under the BHCA and is registered
with, and subject to supervision by, the Federal Reserve. As a bank holding
company, South Alabama is 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 South Alabama and its subsidiaries.
The BHCA requires prior Federal Reserve approval for, among other things,
the acquisition by a bank holding company of direct or of 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, South Alabama is expected to act as a
source of financial strength to, and commit resources to support, its
subsidiary banks. This support may be required at times when, absent such
Federal Reserve policy, South Alabama would not be inclined to provide it. In
addition, any capital loans by a bank holding company to any of its subsidiary
banks are subordinate in right of payment to deposits and to certain other
indebtedness of such subsidiary bank. In the event of a bank holding company's
bankruptcy, any commitment by the bank holding company to a federal bank
regulatory agency to maintain the capital of a subsidiary bank will be
assumed by the bankruptcy trustee and entitled to a priority of payment.
Under the Federal Deposit Insurance Act, as amended ("the FDIA"), insured
depository institutions can be held liable for any loss incurred by, or
reasonably expected to be incurred by, the FDIC in connection with (i) the
default of a commonly controlled FDIC-insured depository institution or (ii)
any assistance provided by the FDIC to any commonly controlled FDIC-insured
depository institution "in danger of default." "Default" is defined generally
as the existence of certain conditions indicating that a default is likely to
occur in the absence of regulatory assistance.
The Federal Reserve has adopted capital adequacy guidelines applicable to
bank holding companies (see "Capital Adequacy" below). Federal Reserve policy
requires a bank holding company to act as a source of financial strength to each
of its bank subsidiaries and to commit resources to support each of its
subsidiaries. Such policy also requires a bank holding company to take
measures to preserve and protect bank subsidiaries in situations where
additional investments in a troubled bank may not otherwise be warranted. As
a result, a bank holding company may be required to lend money to its
subsidiaries in the form of capital notes or other instruments which qualify
as capital for regulatory purposes. In addition, where a bank holding company
has more than one subsidiary depository institution, the holding company's
other subsidiary depository institutions are responsible under a cross-
guarantee for any losses to the FDIC as a result of the failure of a
subsidiary depository institution. Often, bank holding companies will obtain
the funds to provide such companies' subsidiary banks. However, any loans from
the holding company to such subsidiary banks will likely be unsecured and will
be subordinated to such banks' depositors and perhaps to other creditors.
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 in 1995, 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 Based Leverage
Capital Ratio Capital Ratio Ratio
<S> <C> <C> <C>
Well capitalized 10% or above 6% or above 5% or above
Adequately capitalized 8% or above 8% or above 4% or above
Undercapitalized Less than 8% Less than 8% Less than 4%
Significantly undercapitalized Less than 6% Less than 6% 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 South Alabama or CNB, in order of
priority of payment.
The FDIC is authorized to raise insurance premiums in certain
circumstances. Any increase in premiums would have an adverse effect on
South Alabama's and CNB'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
SAB and MCB, Alabama banking corporations, and SATC, an Alabama trust
corporation, are wholly owned subsidiaries of South Alabama, operating under
the Alabama Banking Code. SAB, MCB and SATC are subject to regulation,
supervision and examination by the Superintendent of Banks, as is CNB Interim
and as will be the Surviving Bank. In addition, deposits of SAB and MCB are
insured by the FDIC up to the maximum amount permitted by law, and SAB and
MCB are therefore subject to regulation, supervision and examination by the
FDIC. FNBB, a national banking association, is a wholly owned subsidiary of
South Alabama and is subject to regulation, supervision and examination by the
Comptroller. CNB is also a national banking association subject to regulation,
supervision and examination by the Comptroller.
South Alabama is a legal entity separate and distinct from its subsidiary
banks and trust company. Various legal limitations restrict the subsidiary
banks from lending or otherwise supplying funds to South Alabama or any
nonbank subsidiaries of South Alabama (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 South Alabama's subsidiary banks and trust company, 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 primary federal regulators of
South Alabama's 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 South Alabama. The amount of dividends payable by
the subsidiary banks to South Alabama depends upon the banks' earnings and
capital position and is limited by federal and state laws, regulations and
policies. National bank subsidiaries (such as FNBB) are subject to dividend
regulations of the Comptroller. State non-member bank subsidiaries (such as
SAB and MCB) are subject to the dividend laws of the states under which such
banks are chartered. Subject to restrictions as described below, at June 30,
1998, the subsidiary banks of South Alabama had $2.3 million of undivided
profits legally available for the payment of dividends, and CNB had $1.4
million of undivided profits available for payment of dividends. The amount
of dividends actually paid during any one period is strongly influenced by
South Alabama's management policy of maintaining strong capital positions in
South Alabama's subsidiary banks. Federal law further provides that no
insured depository institution may make any capital distribution (which would
include a cash dividend) if, after making the distribution, the institution
would not satisfy one or more of its minimum capital requirements. Moreover,
the federal bank regulatory agencies also have the general authority to limit
the dividends paid by insured banks if such payments should be deemed to
constitute an unsafe and unsound practice.
Under Alabama law, a bank 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.
SAB's and MCB's surplus exceeded that percentage as of June 30, 1998. SAB
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
South Alabama and its subsidiary banks are required to comply with the
applicable capital adequacy standards established by the Federal Reserve, the
Comptroller and the FDIC. CNB is required to comply with the applicable
capital adequacy guidelines of the Comptroller. 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 corrective 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 South Alabama under existing law
and regulations, if South Alabama was placed in a capital category, then
South Alabama would qualify as well-capitalized as of June 30, 1998.
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 South Alabama nor CNB is able to predict whether or when
higher capital requirements might be imposed.
Any institution which fails to maintain minimum capital requirements may
be subject to a capital directive which is enforceable in the same manner and
to the same extent as a final cease and desist order, and must submit a
capital plan within 60 days to the FDIC. If the leverage ratio should fall
to 2% or less, the institution may be deemed to be operating in an unsafe
or unsound condition, allowing the FDIC to take various enforcement actions,
including possible termination of insurance or placing the institution into
receivership.
The following tables present the regulatory capital position at June 30,
1998, for each of South Alabama, SAB, FNBB, MCB and CNB:
<TABLE>
<CAPTION>
South
Alabama SAB FNBB MCB CNB
-------- -------- -------- -------- -------
<S> <C> <C> <C> <C> <C>
Tier I Capital
Tangible Common shareholders' $ 43,652 $ 15,604 $ 13,296 $ 12,473 $ 7,554
equity
Tier II Capital
Allowable portion of the
allowance for loan losses 2,785 1,432 785 568 507
Total Capital (Tier I and Tier II) $ 46,437 $ 17,036 $ 14,081 $ 13,041 $ 8,061
Risk-adjusted assets $259,792 $122,887 $ 73,171 $ 62,591 $46,943
Quarterly average assets $379,191 $166,773 $113,343 $ 96,767 $73,982
Tier I capital 16.80% 12.70% 18.17% 19.93% 16.09%
Total capital (Tier I and Tier II) 17.87% 13.86% 19.24% 20.84% 17.17%
Leverage Ratio 11.51% 9.36% 11.73% 12.89% 10.21%
</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 SAB and MCB were well capitalized as of June 30, 1998,
and because the Surviving Bank is expected to be well capitalized, South
Alabama believes that brokered deposits regulation will have no material
effect on the funding liquidity of SAB, MCB and the Surviving Bank.
Effects of Governmental Policies
Many FDICIA 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 South Alabama and its subsidiary banks and
CNB 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 South Alabama or its
subsidiaries or CNB 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 South Alabama 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
180,273 shares of the outstanding South Alabama Common Stock, and Stephen
G. Crawford, a member, is a director of South Alabama. During 1997, South
Alabama and its subsidiaries paid fees aggregating approximately $121,000 to
Hand Arendall for legal services.
Certain legal matters in connection with the Merger will be passed upon
for CNB by Balch & Bingham LLP, Montgomery, Alabama.
Hand Arendall has rendered an opinion 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., incorporated by reference in this Prospectus and elsewhere in the
Registration 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 Financial Statements of The Commercial National Bank of Demopolis as
of December 31, 1997, 1996 and 1995, and for each of the three years then
ended, included in this Prospectus have been audited by McKean & Associates,
P.A., independent public accountants, as indicated in their report with
respect thereto and are so included herein in reliance upon the authority of
said firm as experts in giving said reports.
SHAREHOLDER PROPOSALS
Shareholder proposals intended to be submitted for consideration at the
1999 annual meeting of the shareholders of South Alabama must be submitted in
writing to and received by the Secretary of South Alabama not later than
December 8, 1998, to be included in South Alabama's proxy statement and form
of proxy relating to that meeting. The named proxies for the 1999 annual
meeting will have discretionary voting authority with respect to any
shareholder proposal not received in writing by South Alabama by February 21,
1999, and they will exercise their authority in accordance with the
recommendations of South Alabama's Board of Directors.
Appendix A
AMENDED AND RESTATED
AGREEMENT AND PLAN OF REORGANIZATION
BY AND BETWEEN
THE COMMERCIAL NATIONAL BANK OF DEMOPOLIS
AND
SOUTH ALABAMA BANCORPORATION, INC.
Dated as of
October 26, 1998
TABLE OF CONTENTS
Page
AMENDED AND RESTATED
AGREEMENT AND PLAN OF REORGANIZATION. . . . . . . . . . . . . . . . .1
Preamble . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .1
Definitions. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .1
ARTICLE ONE. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .7
TRANSACTIONS AND TERMS OF MERGER. . . . . . . . . . . . . . . . . . .7
1.1 Merger . . . . . . . . . . . . . . . . . . . . . . . . . . . . .7
1.2 Time and Place of Closing. . . . . . . . . . . . . . . . . . . .7
1.3 Effective Time . . . . . . . . . . . . . . . . . . . . . . . . .7
ARTICLE TWO. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .8
TERMS OF MERGER . . . . . . . . . . . . . . . . . . . . . . . . . . .8
2.1 Business of Surviving Bank . . . . . . . . . . . . . . . . . . .8
2.2. Assumption of Rights . . . . . . . . . . . . . . . . . . . . . .8
2.3 Assumption of Liabilities. . . . . . . . . . . . . . . . . . . .8
2.4 Charter. . . . . . . . . . . . . . . . . . . . . . . . . . . . .8
2.5 Bylaws . . . . . . . . . . . . . . . . . . . . . . . . . . . . .8
2.6 Directors and Officers . . . . . . . . . . . . . . . . . . . . .9
ARTICLE THREE. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .9
MANNER OF CONVERTING SHARES . . . . . . . . . . . . . . . . . . . . .9
3.1 Conversion of Shares . . . . . . . . . . . . . . . . . . . . . .9
3.2 Shares Held by CNB or SAB. . . . . . . . . . . . . . . . . . . .9
3.3 Dissenting Stockholders. . . . . . . . . . . . . . . . . . . . .9
3.4 Fractional Shares. . . . . . . . . . . . . . . . . . . . . . . 10
3.5 Anti-Dilution Provision. . . . . . . . . . . . . . . . . . . . 10
ARTICLE FOUR . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
EXCHANGE OF SHARES. . . . . . . . . . . . . . . . . . . . . . . . . 10
4.1 Exchange Procedures. . . . . . . . . . . . . . . . . . . . . . 10
4.2 Rights of Former CNB Stockholders. . . . . . . . . . . . . . . 10
4.3 Establishment of Escrow Trust. . . . . . . . . . . . . . . . . 11
ARTICLE FIVE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
REPRESENTATIONS AND WARRANTIES OF CNB . . . . . . . . . . . . . . . 11
5.1 Organization, Standing, and Power. . . . . . . . . . . . . . . 11
5.2 Authority; No Breach By Agreement. . . . . . . . . . . . . . . 12
5.3 Capital Stock. . . . . . . . . . . . . . . . . . . . . . . . . 12
5.4 CNB Subsidiaries . . . . . . . . . . . . . . . . . . . . . . . 13
5.5 Financial Statements . . . . . . . . . . . . . . . . . . . . . 13
5.6 Absence of Undisclosed Liabilities . . . . . . . . . . . . . . 13
5.7 Absence of Certain Changes or Events . . . . . . . . . . . . . 13
5.8 Tax Matters. . . . . . . . . . . . . . . . . . . . . . . . . . 13
5.9 Allowance for Possible Loan Losses . . . . . . . . . . . . . . 14
5.10 Assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
5.11 Environmental Matters. . . . . . . . . . . . . . . . . . . . . 14
5.12 Compliance with Laws . . . . . . . . . . . . . . . . . . . . . 15
5.13 Labor Relations. . . . . . . . . . . . . . . . . . . . . . . . 15
5.14 Employee Benefit Plans . . . . . . . . . . . . . . . . . . . . 15
5.15 Material Contracts . . . . . . . . . . . . . . . . . . . . . . 17
5.16 Legal Proceedings. . . . . . . . . . . . . . . . . . . . . . . 17
5.17 Reports. . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
5.18 Statements True and Correct. . . . . . . . . . . . . . . . . . 17
5.19 Accounting, Tax and Regulatory Matters . . . . . . . . . . . . 18
5.20 Charter Provisions . . . . . . . . . . . . . . . . . . . . . . 18
5.21 Year 2000 Compliance . . . . . . . . . . . . . . . . . . . . . 18
5.22 Pooling Letter Qualification . . . . . . . . . . . . . . . . . 18
ARTICLE SIX. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
REPRESENTATIONS AND WARRANTIES OF SAB . . . . . . . . . . . . . . . 18
6.1 Organization, Standing, and Power. . . . . . . . . . . . . . . 18
6.2 Authority; No Breach By Agreement. . . . . . . . . . . . . . . 18
6.3 Reports. . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
6.4 Capital Stock. . . . . . . . . . . . . . . . . . . . . . . . . 19
6.5 Financial Statements.. . . . . . . . . . . . . . . . . . . . . 19
6.6 Absence of Material Adverse Change.. . . . . . . . . . . . . . 20
6.7 Subsidiaries.. . . . . . . . . . . . . . . . . . . . . . . . . 20
6.8 Legal Proceedings. . . . . . . . . . . . . . . . . . . . . . . 20
6.9 Statements True and Correct. . . . . . . . . . . . . . . . . . 20
6.10 Year 2000 Compliance. . . . . . . . . . . . . . . . . . . 21
6.11 Environmental Matters.. . . . . . . . . . . . . . . . . . 21
ARTICLE SEVEN. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
CONDUCT OF BUSINESS PENDING CONSUMMATION. . . . . . . . . . . . . . 22
7.1 Covenants of CNB and SAB . . . . . . . . . . . . . . . . . . . 22
7.2 Negative Covenants of CNB. . . . . . . . . . . . . . . . . . . 22
7.3 Affirmative Covenants of SAB . . . . . . . . . . . . . . . . . 23
7.4 Affirmative Covenants of CNB . . . . . . . . . . . . . . . . . 24
ARTICLE EIGHT. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
ADDITIONAL AGREEMENTS . . . . . . . . . . . . . . . . . . . . . . . 24
8.1 Registration Statement; Proxy Statement; Stockholder Approval. 24
8.2 Applications . . . . . . . . . . . . . . . . . . . . . . . . . 24
8.3 Intentionally Omitted. . . . . . . . . . . . . . . . . . . . . 24
8.4 Agreement as to Efforts to Consummate. . . . . . . . . . . . . 24
8.5 Investigation and Confidentiality. . . . . . . . . . . . . . . 25
8.6 Press Releases.. . . . . . . . . . . . . . . . . . . . . . . . 25
8.7 Certain Actions. . . . . . . . . . . . . . . . . . . . . . . . 25
8.8 Accounting and Tax Treatment.. . . . . . . . . . . . . . . . . 26
8.9 Charter Provisions . . . . . . . . . . . . . . . . . . . . . . 26
8.10 Agreement of Affiliates. . . . . . . . . . . . . . . . . . . . 26
8.11 Compensation and Employee Benefits . . . . . . . . . . . . . . 26
8.12 Director and Executive Officer . . . . . . . . . . . . . . . . 26
8.13 CNB Interim Organization . . . . . . . . . . . . . . . . . . . 26
8.14 Indemnification. . . . . . . . . . . . . . . . . . . . . . . . 27
ARTICLE NINE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
CONDITIONS PRECEDENT TO OBLIGATIONS TO CONSUMMATE . . . . . . . . . 28
9.1 Conditions to Obligations of Each Party. . . . . . . . . . . . 28
9.2 Conditions to Obligations of SAB . . . . . . . . . . . . . . . 29
9.3 Conditions to Obligations of CNB . . . . . . . . . . . . . . . 29
ARTICLE TEN. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30
TERMINATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30
10.1 Termination. . . . . . . . . . . . . . . . . . . . . . . . . . 30
10.2 Effect of Termination . . . . . . . . . . . . . . . . . . 31
10.3 Survival of Representations and Covenants . . . . . . . . 31
ARTICLE ELEVEN . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31
MISCELLANEOUS . . . . . . . . . . . . . . . . . . . . . . . . . . . 31
11.1 Expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . 31
11.2 Brokers and Finders . . . . . . . . . . . . . . . . . . . 31
11.3 Entire Agreement. . . . . . . . . . . . . . . . . . . . . 31
11.4 Amendments. . . . . . . . . . . . . . . . . . . . . . . . 32
11.5 Waivers . . . . . . . . . . . . . . . . . . . . . . . . . 32
11.6 Assignment. . . . . . . . . . . . . . . . . . . . . . . . 32
11.7 Notices . . . . . . . . . . . . . . . . . . . . . . . . . 32
11.8 Governing Law. . . . . . . . . . . . . . . . . . . . . . . . . 33
11.9 Counterparts . . . . . . . . . . . . . . . . . . . . . . . . . 33
11.10 Captions. . . . . . . . . . . . . . . . . . . . . . . . . 33
11.11 Enforcement of Agreement. . . . . . . . . . . . . . . . . 33
11.12 Severability. . . . . . . . . . . . . . . . . . . . . . . 33
LIST OF EXHIBITS . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35
AMENDED AND RESTATED
AGREEMENT AND PLAN OF REORGANIZATION
THIS AMENDED AND RESTATED AGREEMENT AND PLAN OF REORGANIZATION (this
"Agreement") is made and entered into as of October 26, 1998, by and between
THE COMMERCIAL NATIONAL BANK OF DEMOPOLIS ("CNB"), a national banking
association with its principal office located in Demopolis, Alabama, and
SOUTH ALABAMA BANCORPORATION, INC. ("SAB"), an Alabama corporation with its
principal office located in Mobile, Alabama.
Preamble
The Boards of Directors of CNB 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 acquisition of CNB
by SAB pursuant to the merger of CNB with and into a wholly owned, first tier
interim subsidiary of SAB ("CNB Interim"). At the effective time of such merger,
the outstanding shares of the capital stock of CNB shall be converted into the
right to receive shares of the common stock of SAB (except as provided herein).
As a result, stockholders of CNB shall become stockholders of SAB, and CNB
Interim shall continue to conduct its business and operations. The
transactions described in this Agreement are subject to the approvals of the
stockholders of CNB, certain Regulatory Authorities 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 and for pooling-of-interest accounting treatment.
This Agreement replaces in its entirety the Agreement and Plan of Reorganization
by and between CNB and SAB dated as of July 22, 1998.
NOW, THEREFORE, in consideration of the above and the mutual
warranties, representations, covenants and agreements set forth herein, the
Parties agree as follows:
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:
"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 Reorganization, 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, October 26, 1998.
"Allowance" shall have the meaning provided in Section 5.9 of
this Agreement.
"Articles of Merger" shall mean the Articles of Merger to be
filed with the Alabama Secretary of State relating to the Merger as
contemplated by Section 1.1 of this Agreement.
"Assets" of a Person shall mean all of the assets, properties,
businesses and rights of such Person of every kind, nature, character
and description, whether real, personal or mixed, tangible or intangible,
accrued or contingent, or otherwise relating to or utilized in such
Person's business, directly or indirectly, in whole or in part, whether
or not carried on the books and records of such Person, and whether or
not owned in the name of such Person or any Affiliate of such Person and
wherever located.
"Broker Fees" shall have the meaning provided in Section 11.2
of this Agreement.
"Closing" shall mean the closing of the transactions
contemplated hereby, as described in Section 1.2 of this Agreement.
"CNB Benefit Plans" shall have the meaning set forth in Section
5.14 of this Agreement.
"CNB Common Stock" shall mean the $1.00 par value common stock
of CNB.
"CNB Financial Statements" shall mean (i) the balance sheets
(including related notes and schedules, if any) of CNB as of December 31,
1997, 1996 and 1995, 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,
1997, 1996 and 1995, as delivered by CNB to SAB, and (ii) the balance
sheets of CNB (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 CNB to SAB
with respect to periods ended subsequent to December 31, 1997.
"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.
Creditor's Laws shall have the meaning provided in Section
5.2 of this Agreement.
"Default" shall mean (i) any breach or violation of or
default under any Contract, Order or Permit, (ii) any occurrence of any
event that with the passage of time or the giving of notice or both would
constitute a breach or violation of or default under any Contract, Order
or Permit, or (iii) any occurrence of any event that with or without the
passage of time or the giving of notice would give rise to a right to
terminate or revoke, change the current terms of, or renegotiate, or to
accelerate, increase, or impose any Liability under, any Contract, Order
or Permit, where, in any such event, such Default is reasonably likely
to have, individually or in the aggregate, a Material Adverse Effect on
a Party.
"Effective Time" shall mean the date and time at which the
Merger becomes effective 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.
"Equitable Discretion" shall have the meaning provided in
Section 5.2 of this Agreement.
"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.
"Escrow Agent" shall mean the escrow agent mutually agreed
upon by SAB and CNB to serve as Escrow Agent under the Escrow Trust
Agreement.
"Escrow Stock Ratio" shall have the meaning provided in
Section 3.1(c) of this Agreement.
"Escrow Stock Right(s)" shall have the meaning provided in
Section 3.1(c) of this Agreement.
"Escrow Trust Agreement" shall mean the Escrow Trust Agreement,
in substantially the form of Exhibit 7, to be entered into prior to the
Effective Time by SAB, the Escrow Agent and CNB.
"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 7, 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.
"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. Section 9601 et seq.,
or any similar federal, state or local Law (and specifically shall
include without limitation asbestos requiring abatement, removal, or
encapsulation pursuant to the requirements of governmental authorities,
polychlorinated biphenyls, and petroleum and petroleum products).
"Internal Revenue Code" shall mean the Internal Revenue Code of
1986, as amended, and the rules and regulations promulgated thereunder.
"Knowledge" as used with respect to a Person shall mean the
knowledge after due inquiry of the Chairman, President, Chief Financial
Officer, Chief Accounting Officer, Chief Credit Officer, 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.
"Lawsuit" shall have the meaning provided in Section 4.3 of
this Agreement.
"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 a depository
institution, pledges to secure deposits and other Liens incurred in the
ordinary course of the banking business, and (iii) such imperfections of
title and encumbrances, if any, 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; provided, however, that for purposes of determining the
Exchange Ratio, if the average Market Value of SAB Common Stock during
the Valuation Period exceeds $20 per share it shall be deemed to be $20
per share, and if the average Market Value of SAB Common Stock during the
Valuation Period is less than $15.3333 per share, it shall be deemed to
be $15.3333 per share.
"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 of
(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 CNB with and into CNB Interim
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.
"OCC" shall mean the Office of the Comptroller of the Currency.
"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 mean any facility or property
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 of such facility or property, but only with respect to such
facility or property.
"Party" shall mean either CNB or SAB, and "Parties" shall mean
both CNB 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.
"Plan of Merger" shall mean the Agreement and Plan of Merger
in substantially the form of Exhibit 1, to be entered into by CNB and,
upon its organization, CNB Interim setting forth the terms of the Merger.
"Previously Disclosed" shall mean information delivered in
writing on or prior to the date of this Agreement in the manner and to
the Party and counsel described in Section 11.7 of this Agreement and
describing in reasonable detail the matters contained therein.
"Proxy Statement" shall mean the proxy statement used by CNB
to solicit the approval of its stockholders of the transactions
contemplated by this Agreement, which shall include the prospectus of
SAB relating to the issuance of SAB Common Stock to holders of CNB Common
Stock and which shall have been filed with the SEC as part of the
Registration Statement.
"Registration Statement" shall mean the Registration Statement
on Form S-4, or other appropriate form, including any pre-effective or
post effective amendments or supplements thereto, filed with the SEC by
SAB under the 1933 Act with respect to the shares of SAB Common Stock to
be issued to shareholder of CNB in connection with the transactions
contemplated by this Agreement and which shall include the Proxy
Statement.
"Regulatory Authorities" shall mean, collectively, the Federal
Trade Commission, the United States Department of Justice, the Board of
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 Common Stock" shall mean the $.01 par value common stock
of SAB.
"SAB Companies" shall mean, collectively, SAB and all SAB
Subsidiaries.
"SAB Subsidiaries" shall mean the current Subsidiaries of SAB
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" shall mean the United States Securities and Exchange
Commission.
"SEC Documents" shall mean all forms, proxy statements,
schedules, reports, registration statements and other documents 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' Meeting" shall mean the Meeting of the
stockholders of CNB 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 Bank" shall mean CNB Interim as the surviving bank
resulting from the Merger.
"Tax" or "Taxes" shall mean any federal, state, county, local
or foreign income, profits, franchise, gross receipts, payroll, sales,
employment, use, property, withholding, excise, occupancy, and other
taxes, assessments, charges, fares, or impositions, including interest,
penalties and additions imposed 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.
ARTICLE ONE
TRANSACTIONS AND TERMS OF MERGER
1.1 Merger. Subject to the terms and conditions of this Agreement,
at the Effective Time, CNB shall be merged with and into CNB Interim in
accordance with the provisions of 12 U.S.C. Section 214a and Chapter 7A of
Title 5 of the Code of Alabama (1975) and with the effect provided in 12
U.S.C. Section 214b and Section 10-2B-11.06 Code of Alabama (1975) (the
"Merger"). CNB Interim shall be the Surviving Bank resulting from the Merger
and shall be a state bank governed by the Laws of the State of Alabama. The
Merger shall be consummated pursuant to the terms of this Agreement, which has
been approved and adopted by the respective Boards of Directors of SAB and
CNB, and the terms of the Plan of Merger to be entered into by CNB and CNB
Interim.
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 stated
in the Articles of Merger or at the time the Articles of Merger are filed,
whichever is later (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 as soon as
practicable after 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 CNB approve this
Agreement to the extent such approval is required by applicable Law or such
later date within ninety (90) days thereof as may be specified by SAB.
ARTICLE TWO
TERMS OF MERGER
2.1 Business of Surviving Bank. The business of the Surviving Bank
from and after the Effective Time shall be that of a state banking corporation
organized under the laws of the State of Alabama. The business shall be
conducted from its main office and at its legally established branches, which
shall also include the main office and all branches, whether in operation or
approved but unopened, at the Effective Time.
2.2. Assumption of Rights. At the Effective Time, the separate
existence and corporate organization of CNB shall be merged into and continued
in the Surviving Bank. Without limiting the generality of the foregoing, and
subject thereto, at the Effective Time and thereafter, except as otherwise
provided herein, all the rights, privileges, immunities, and franchises, of a
public as well as of a private nature, of each of CNB and CNB Interim; and all
property, real, personal and mixed, and all debts due on whatever account, and
all other choses in action, and all and every other interest of or belonging
to or due to each of CNB and CNB Interim shall be taken and deemed to be
transferred to and vested in the Surviving Bank without further act or deed;
and the title to any real estate, or any interest therein, vested in either of
CNB or CNB Interim shall not revert or be in any way impaired by reason of the
Merger. The Surviving Bank, upon consummation of the Merger and without any
order or other action on the part of any court or otherwise, shall hold and
enjoy all rights or property, franchises, and interests, including appointments,
designations, and nominations, and all other rights and interests as trustee,
executor, administrator, registrar of stocks and bonds, guardian of estates,
assignee, receiver, and committee of estates of incompetent persons, and in
every other fiduciary capacity, in the same manner and to the same extent
as such rights, franchises, and interests where held or enjoyed by either CNB
or CNB Interim at the Effective Time.
2.3 Assumption of Liabilities. All liabilities and obligations of
both CNB and CNB Interim of every kind and description shall be assumed by the
Surviving Bank, and the Surviving Bank shall be bound thereby in the same
manner and to the same extent that CNB and CNB Interim were so bound at the
Effective Time.
2.4 Charter. The Articles of Incorporation of CNB Interim in
effect immediately prior to the Effective Time shall be the Articles of
Incorporation of the Surviving Bank immediately following the Effective Time,
with the amendments set forth in Exhibit 2 hereto, until otherwise amended or
repealed.
2.5 Bylaws. The Bylaws of CNB Interim in effect immediately prior
to the Effective Time shall be the Bylaws of the Surviving Bank immediately
following the Effective Time, with the amendments set forth in Exhibit 3
hereto, until otherwise amended or repealed.
2.6 Directors and Officers.
(a) The directors of the Surviving Bank from and after the
Effective Time shall consist of the incumbent directors of CNB, who shall
serve as directors of the Surviving Bank from and after the Effective Time in
accordance with the Bylaws of the Surviving Bank.
(b) The principal officers of the Surviving Bank from and after the
Effective Time shall be the incumbent principal officers of CNB, who shall
serve as officers of the Surviving Bank from and after the Effective Time in
accordance with the Bylaws of the Surviving Bank.
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 banks
shall be converted as follows:
(a) Each share of SAB Common Stock issued and outstanding
immediately prior to the Effective Time shall remain issued and outstanding
from and after the Effective Time.
(b) Each share of CNB Interim Common Stock issued and outstanding
at the Effective Time shall remain issued and outstanding from and after the
Effective time.
(c) Each share of CNB Common Stock (other than shares to be canceled
pursuant to Section 3.2 of this Agreement and shares held by stockholders who
perfect their dissenters' rights of appraisal as provided in Section 3.3 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 (i) the number of shares of SAB Common Stock having an average Market
Value during the Valuation Period of One Hundred Forty-Seven and 94/100 Dollars
($147.94), subject to the adjustments contained in the definition of Market
Value hereinabove (the "Exchange Ratio"), and (ii) on a deferred basis and
pursuant and subject to the terms of the Escrow Trust Agreement, up to that
additional fraction of a share of SAB Common Stock (the "Escrow Stock Right"
and collectively the "Escrow Stock Rights") equal to the quotient obtained
by dividing Two and 06/100 Dollars ($2.06) by the average Market Value of a
share of SAB Common Stock during the Valuation Period (the "Escrow Ratio").
3.2 Shares Held by CNB or SAB. Each of the shares of CNB Common
Stock held by CNB 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.
3.3 Dissenting Stockholders. Any holder of shares of CNB Common
Stock who perfects his dissenters' rights of appraisal in accordance with and
as contemplated by 12 U.S.C. Section 214a(b) 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 12 U.S.C. Section 214a(b) and surrendered to the
Exchange Agent 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 CNB fails to perfect, or effectively withdraws or
loses, his right to appraisal and of payment for his shares, the Exchange A
gent shall issue and deliver the consideration to which such holder of shares
of CNB Common Stock is entitled under this Article Three (without interest and
including Escrow Stock Rights) upon surrender by such holder of the
certificate or certificates representing shares of CNB Common Stock held by
him.
3.4 Fractional Shares. Notwithstanding any other provision of this
Agreement and except with respect to fractional shares that may be otherwise
issuable pursuant to the Escrow Trust Agreement, each holder of shares of CNB
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 average Market Value of one share
of SAB Common Stock during the Valuation Period. No such holder will be
entitled to dividends, voting rights, or any other rights as a stockholder in
respect of any fractional shares.
3.5 Anti-Dilution Provision. In the event CNB changes the number
of shares of CNB 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 (in the case of a
stock dividend) or the effective date thereof (in the case of a stock split or
similar recapitalization for which a record date is not established) shall be
prior to the Effective Time, the Exchange Ratio shall be proportionately
adjusted to reflect such stock split, stock dividend or recapitalization.
ARTICLE FOUR
EXCHANGE OF SHARES
4.1 Exchange Procedures. Promptly after the Effective Time, SAB
shall cause the exchange agent selected by it (the "Exchange Agent") to mail
to the former stockholders of CNB appropriate transmittal materials (which
shall specify that delivery shall be effected, and risk of loss and title to
the certificates theretofore representing shares of CNB Common Stock shall
pass, only upon proper delivery of such certificates to the Exchange Agent).
After the Effective Time, each holder of shares of CNB Common Stock (other than
shares to be canceled pursuant to Section 3.2 of this Agreement or as to which
dissenters' rights of appraisal have been perfected as provided in Section 3.3
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 3.4 of this Agreement, each holder of shares of CNB
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). SAB shall not be obligated to
deliver the consideration to which any former holder of CNB Common Stock is
entitled as a result of the Merger until such holder surrenders his
certificate or certificates representing the shares of CNB Common Stock for
exchange as provided in this Section 4.1. The certificate or certificates of
CNB Common Stock so surrendered shall be duly endorsed as the Exchange Agent
may require. Any other provision of this Agreement notwithstanding, neither
SAB, the Surviving Bank nor the Exchange Agent shall be liable to a holder of
CNB 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 CNB Stockholders. At the Effective Time, the
stock transfer books of CNB shall be closed as to holders of CNB Common Stock
immediately prior to the Effective Time, and no transfer of CNB 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 CNB Common
Stock ("CNB Certificate"), other than shares to be canceled pursuant to
Section 3.2 of this Agreement or as to which dissenters rights of appraisal
have been perfected as provided in Section 3.3 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 3.4 of this Agreement
in exchange therefor. To the extent permitted by Law, former stockholders of
record of CNB shall be entitled to vote after the Effective Time at any
meeting of SAB stockholders the number of whole shares of SAB Common Stock
(including providing voting instructions to the Escrow Agent with respect to
those whole shares subject to the Escrow Stock Rights) into which their
respective shares of CNB Common Stock are converted, regardless of whether
such holders have exchanged their CNB Certificates for certificates representing
SAB Common Stock in accordance with the provisions of this Agreement. Whenever
a dividend or other distribution is declared by SAB 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 CNB 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 CNB Certificate held after the Cutoff, until such person
surrenders said CNB Certificate for exchange as provided in Section 4.1 of
this Agreement. However, upon surrender of such CNB 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 CNB Certificate.
4.3 Establishment of Escrow Trust. Prior to the Effective Time, SAB,
the Escrow Agent and CNB shall enter into the Escrow Trust Agreement in order
to establish an escrow of shares of SAB Common Stock to fund that certain
lawsuit currently pending against CNB in Greene County, Alabama, captioned
Harold Cannon, Gloria Cannon and B&C Developers, L.L.C. (a limited liability
company under the laws of Alabama), Plaintiffs v. Commercial National Bank of
Demopolis and Donna Bingham, Defendants, Case No. CV-98-051 (the "Lawsuit").
Approval of this Agreement by the shareholders of CNB at the Stockholders
Meeting shall constitute approval of the establishment of the Escrow Trust
contemplated by the Escrow Trust Agreement, the appointment of the Escrow
Agent, and CNB s entering into the Escrow Trust Agreement. At the Effective
Time, SAB shall deposit with the Escrow Agent that number of whole shares of
SAB Common Stock (rounded up to the nearest whole share) having an average
Market Value during the Valuation Period equal to Two Hundred Fifty Thousand
Dollars ($250,000.00). After the Effective Time, SAB shall deposit with the
Escrow Agent such additional shares of SAB Common Stock as may be required
under the circumstances set forth in Section 1.2 of the Escrow Trust Agreement.
Such shares of SAB Common Stock shall be held by the Escrow Agent and
distributed to the former Stockholders of CNB or applied to fund the Lawsuit
in accordance with the terms of the Escrow Trust Agreement.
ARTICLE FIVE
REPRESENTATIONS AND WARRANTIES OF CNB
CNB hereby represents and warrants to SAB as follows:
5.1 Organization, Standing, and Power. CNB is a national banking
association duly organized, validly existing and in good standing under the
Laws of the United States of America and is a member of the Federal Reserve
System. CNB has the corporate power and authority to carry on its business
as now conducted and to own, lease and operate its Material Assets. CNB 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. CNB is in good standing in the
State of Alabama. CNB has delivered to SAB complete and correct copies of its
Articles of Association and Bylaws. CNB is an "insured institution" as
defined in the Federal Deposit Insurance Act and applicable regulations
thereunder, and the deposits in which are insured by the Federal Deposit
Insurance Corporation, to the extent provided by applicable law.
5.2 Authority; No Breach By Agreement.
(a) CNB has all 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 CNB, subject to the approval of this Agreement and the Plan of
Merger by the holders of CNB Common Stock in accordance with 12 U.S.C. Section
214a. Subject to such requisite stockholder approval, this Agreement
represents a legal, valid, and binding obligation of CNB, enforceable against
CNB 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 ("Creditor's Laws") 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
("Equitable Discretion")).
(b) Neither the execution and delivery of this Agreement by CNB,
nor the consummation by CNB of the transactions contemplated hereby, nor
compliance by CNB with any of the provisions hereof, will (i) conflict with or
result in a breach of any provision of CNB's Articles of Association 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 CNB under,
any Contract or Permit of CNB 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 CNB or its 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, no notice to,
filing with, or Consent of, any public body or authority is necessary for the
consummation by CNB of the Merger and the other transactions contemplated in
this Agreement.
5.3 Capital Stock.
(a) The authorized capital stock of CNB consists only of 135,000
shares of CNB Common Stock, of which 121,500 shares are issued and outstanding.
All of the issued and outstanding shares of capital stock of CNB are duly and
validly issued and outstanding and are fully paid and, except as provided in
the National Bank Act, nonassessable. None of the outstanding shares of
capital stock of CNB have been issued in violation of any preemptive rights of
the current or past stockholders of CNB.
(b) There are no shares of capital stock or other equity securities
of CNB 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 CNB or contracts, commitments, understandings, or arrangements
by which CNB 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 CNB Subsidiaries. CNB has no Subsidiaries.
5.5 Financial Statements. CNB has delivered to SAB prior to the
execution of this Agreement copies of all CNB Financial Statements for periods
ended prior to the date hereof and will deliver to SAB copies of all CNB
Financial Statements prepared subsequent to the date hereof. The CNB 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 CNB, 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 financial position of CNB as
of the dates indicated and the results of operations, changes in stockholders'
equity, and cash flows of CNB for the periods indicated, all in accordance
with GAAP.
5.6 Absence of Undisclosed Liabilities. CNB has no Liabilities
that are reasonably likely to have, individually or in the aggregate, a
Material Adverse Effect on CNB, except Liabilities which are accrued or
reserved against in the balance sheets of CNB as of June 30, 1998, included in
the CNB Financial Statements or reflected in the notes thereto. CNB has not
incurred or paid any Liability since June 30, 1998, except for 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 CNB.
5.7 Absence of Certain Changes or Events. Since June 30, 1998,
except as disclosed in the CNB 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 CNB, and (ii) CNB has 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 breach or
violation of any of the covenants and agreements of CNB provided in Article
Seven of this Agreement.
5.8 Tax Matters.
(a) All Tax returns required to be filed by or on behalf of CNB
have been timely filed, or requests for extensions have been timely filed,
granted, and have not expired for periods ended on or before June 30, 1998,
and on or before the date of the most recent fiscal year end immediately
preceding the Effective Time, and all returns filed are complete and accurate.
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 CNB, except as reserved against in the
CNB 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) CNB has not 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 CNB
for the period or periods through and including the date of the respective
CNB Financial Statements has been made and is reflected on such CNB Financial
Statements.
(d) Deferred Taxes of CNB have been provided for in accordance
with GAAP.
(e) CNB is in compliance with, and its records contain the
information and documents (including properly completed IRS Forms W-9)
necessary to comply with applicable information reporting and Tax Withholding
Requirements under federal, state and local Tax Laws, and such records
identify the accounts subject to backup withholding under Section 3406 of the
Internal Revenue Code.
5.9 Allowance for Possible Loan Losses. The allowance for possible
loan or credit losses (the "Allowance") shown on the balance sheet of CNB
included in the most recent CNB Financial Statements dated prior to the date
of this Agreement was, and the Allowance shown on the balance sheet of CNB
included in the CNB 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 CNB and other
extensions of credit (including letters of credit and commitments to make
loans or extend credit) by CNB as of the dates thereof.
5.10 Assets. Except as Previously Disclosed or as disclosed or
reserved against in the CNB Financial Statements, CNB has good and marketable
title, free and clear of all Liens, to all of its Assets. All tangible
properties used in the business of CNB are in good condition, reasonable wear
and tear excepted, and are usable in the ordinary course of business
consistent with CNB's past practices. All Assets which are Material to CNB's
business held under leases or subleases by CNB, are held under valid
Contracts enforceable in accordance with their respective terms (except as
enforceability may be limited by Creditor's Laws and Equitable Discretion),
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 CNB provide adequate coverage under current industry
practices against loss or Liability, and the fidelity and blanket bonds in
effect as to which CNB is a named insured are reasonably sufficient. The
Assets of CNB include all assets required to operate the business of CNB as
presently conducted.
5.11 Environmental Matters.
(a) CNB, its Participation Facilities and, to its Knowledge, its
Loan Properties are and have at all times been in compliance with all
Environmental Laws.
(b) There is no Litigation pending or threatened before any court,
governmental agency or authority or other forum in which CNB or any of its
Participation Facilities have been or, to its Knowledge 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,
whether or not occurring at, on, under or involving a site owned, leased or
operated by CNB or any of its Participation Facilities.
(c) There is no Litigation pending or, to CNB's Knowledge,
threatened before any court, governmental agency or board or other forum in
which any of its Loan Properties (or CNB in respect of such Loan Property)
have been or, with respect to threatened Litigation, may, to CNB's Knowledge,
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,
whether or not occurring at, on, under or involving a Loan Property.
(d) To CNB's Knowledge, there is no reasonable basis for any
Litigation of a type described in subsections (b) or (c).
(e) During the period of (i) CNB's ownership or operation of any
of its current properties, (ii) CNB's participation in the management of any
Participation Facility, or (iii) CNB's holding of a security interest in a
Loan Property, there have been, to CNB's Knowledge with respect to (ii) and
(iii), no releases of Hazardous Material in, on, under or affecting such
properties. Prior to the period of (i) CNB's ownership or operation of any of
their respective current properties, (ii) CNB's participation in the
management of any Participation Facility, or (iii) CNB's holding of a security
interest in a Loan Property, there were, to CNB's Knowledge with respect to
(ii) and (iii), no releases of Hazardous Material in, on, under or affecting
any such property, Participation Facility or Loan Property.
5.12 Compliance with Laws. CNB is duly registered as a national
banking association under the National Bank Act. CNB has in effect all
Permits necessary for it to own, lease or operate its Assets and to carry on
its business as now conducted, and there has occurred no Default under any
such Permit. CNB is not or has not, as applicable:
(a) In Material violation of any Laws, Orders or Permits
applicable to its business or employees conducting its business; and
(b) 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 CNB is not in compliance with any of
the Laws or Orders which such governmental authority or Regulatory Authority
enforces, (ii) threatening to revoke any Permits, or (iii) requiring CNB 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. CNB is not the subject of any Litigation
asserting that it has committed an unfair labor practice (within the meaning
of the National Labor Relations Act or comparable state law) or seeking to
compel it to bargain with any labor organization as to wages or conditions of
employment, nor is there any strike or other labor dispute involving CNB,
pending or threatened, or to its Knowledge, is there any activity involving
any of CNB's employees seeking to certify a collective bargaining unit or
engaging in any other organization activity.
5.14 Employee Benefit Plans.
(a) CNB has delivered 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 CNB or any Affiliate of CNB 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 "CNB Benefit
Plans"). Any of the CNB 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 "CNB ERISA Plan." Each CNB 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 "CNB Pension Plan." No CNB Pension Plan is or has been a
multiemployer plan within the meaning of Section 3(37) of ERISA.
(b) All CNB Benefit Plans are in compliance with the applicable
terms of ERISA, the Internal Revenue Code, and any other applicable Laws.
Each CNB 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 CNB is not aware of any circumstances likely
to result in revocation of any such favorable determination letter. CNB has
not engaged in a transaction with respect to any CNB Benefit Plan that,
assuming the taxable period of such transaction expired as of the date hereof,
would subject CNB to a tax or penalty imposed by either Section 4975 of the
Internal Revenue Code or Section 502(i) of ERISA.
(c) No CNB 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 CNB Pension
Plan, (ii) no change in the actuarial assumptions with respect to any CNB
Pension Plan, and (iii) no increase in benefits under any CNB Pension Plan as
a result of plan amendments or changes in applicable Law. Neither any CNB
Pension Plan nor any "single-employer plan," within the meaning of Section
4001(a)(15) of ERISA, currently or formerly maintained by CNB, or the single-
employer plan of any entity which is considered one employer with CNB 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. CNB has not provided, nor is it required to
provide, security to a CNB 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 CNB with respect to any ongoing, frozen
or terminated single-employer plan or the single-employer plan of any ERISA
Affiliate. CNB has not 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). 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 CNB Pension Plan or by any ERISA Affiliate within the 12-month
period ending on the date hereof.
(e) Except as Previously Disclosed, (i) CNB has no obligations for
retiree health and life benefits under any of the CNB Benefit Plans and (ii)
there are no restrictions on the rights of CNB to amend or terminate any such
Plan without incurring any Liability thereunder.
(f) 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
CNB from CNB under any CNB Benefit Plan or otherwise, (ii) increase any
benefits otherwise payable under any CNB Benefit Plan, or (iii) result in any
acceleration of the time of payment or vesting of any such benefit.
5.15 Material Contracts. Except as Previously Disclosed or
otherwise reflected in the CNB Financial Statements, neither CNB, nor any of
its Assets, business 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 CNB or the guarantee by CNB of any such obligation
(other than Contracts evidencing deposit liabilities, purchases of federal
funds, fully-secured repurchase agreements, Federal Home Loan Bank advances,
trade payables, and Contracts relating to borrowings or guarantees made in the
ordinary course of business), and (iii) any other Contract or amendment
thereto that requires CNB 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 "CNB Contracts"). CNB is not in Default under
any CNB Contract. All of the indebtedness of CNB for money borrowed is
prepayable at any time by CNB without penalty or premium.
5.16 Legal Proceedings. Except as Previously Disclosed, there is
no Litigation instituted or pending, or threatened (or unasserted but
considered probable of assertion and which if asserted would have at least a
reasonable probability of an unfavorable outcome) against CNB, or against any
Asset, interest, or right of CNB, nor are there any Orders of any Regulatory
Authorities, other governmental authorities, or arbitrators outstanding
against CNB.
5.17 Reports. Since January 1, 1994, CNB 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. 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 CNB 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 CNB 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 CNB or any
Affiliate thereof for inclusion in the Proxy Statement to be mailed to CNB's
stockholders in connection with the Stockholders' Meeting, and any other
documents to be filed by CNB 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 Proxy Statement, when first mailed to the stockholders of CNB,
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 Proxy Statement or any amendment thereof or supplement thereto, at the
time of the Stockholders' Meeting, 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' Meeting. All documents that CNB 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. Neither CNB nor 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 Charter Provisions. CNB 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 of Association,
Bylaws or other governing instruments of CNB.
5.21 Year 2000 Compliance. CNB has taken and is taking commercially
reasonable steps to cause all of CNB's computer systems, phone systems and
other affected systems or equipment, including without limitation hardware and
software, to be year 2000 compliant and suffer no failure as a result of the
arrival of January 1, 2000.
5.22 Pooling Letter Qualification. CNB has not engaged in any
transactions with respect to treasury stock or other alterations of equity
interest which would render this Merger ineligible for pooling-of-interest
accounting treatment, nor does it have Knowledge of any facts or circumstances
which would cause such ineligibility.
ARTICLE SIX
REPRESENTATIONS AND WARRANTIES OF SAB
SAB hereby represents and warrants to CNB 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 Alabama, and has the corporate power and authority to carry on its
businesses as now conducted and to own, lease and operate its Material Assets.
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. 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 Creditors Laws
and Equitable Discretion).
(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 its Articles of Incorporation or
Bylaws, or (ii) constitute or result in a Default under, or require any
Consent pursuant to, or result in the creation of any Lien on any Asset of any
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 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 Reports. Since January 1, 1995, 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.
6.4 Capital Stock.
(a) The authorized capital stock of SAB consists of (A) 10,000,000
shares of Common Stock, $.01 par value per share, of which as of July 10,
1998, 6,525,709 shares (not counting additional shares subject to issue
pursuant to stock option and other plans) were validly issued and outstanding,
fully paid and nonassessable, and (B) 500,000 shares of Preferred stock, no
par value per share, none of which are issued and outstanding. Shares of SAB
Common Stock are not subject to preemptive rights. The shares of SAB Common
Stock to be issued in the Merger are duly authorized and, when so issued,
will be validly issued and outstanding, fully paid and nonassessable.
(b) The authorized capital stock of each Subsidiary of SAB is
validly issued and outstanding, fully paid and nonassessable, and each
Subsidiary is wholly owned, directly or indirectly, by SAB.
6.5 Financial Statements. SAB has Previously Disclosed to CNB
copies of the following financial statements of SAB:
(a) Consolidated balance sheets as of December 31, 1996, and
December 31, 1997, and as of March 31, 1998;
(b) Consolidated statements of operations for each of the three
years ended December 31,1995, 1996 and 1997, and for the three months ended
March 31, 1998;
(c) Consolidated statements of cash flows for each of the three
years ended December 31, 1995, 1996 and 1997, and for the three months ended
March 31, 1998;
(d) Consolidated statements of changes in shareholders' equity for
the three years ended December 31, 1995, 1996 and 1997, and for the three
months ended March 31, 1998.
All such financial statements are in all Material respects in accordance with
the books and records of SAB and have been prepared in accordance with GAAP
applied on a consistent basis throughout the periods indicated, all as more
particularly set forth in the notes to such statements. Each of the
consolidated balance sheets presents fairly as of its date the consolidated
financial condition of SAB and its Subsidiaries. Except as and to the extent
reflected or reserved against in such balance sheets (including the notes
thereto), SAB did not have, as of the dates of such balance sheets, any
Material Liabilities or obligations (absolute or contingent) of a nature
customarily reflected in a balance sheet or the notes thereto. The statements
of consolidated income, shareholders equity and changes in consolidated
financial position present fairly the results of operations and changes in
financial position of SAB and its Subsidiaries for the periods indicated.
The foregoing representations, insofar as they relate to the unaudited
interim financial statements of SAB for the three months ended March 31,
1998, are subject in all cases to normal recurring year-end adjustments and
the omission of footnote disclosure.
6.6 Absence of Material Adverse Change. Since the date of the
most recent balance sheet provided under Section 6.5 above, 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.
6.7 Subsidiaries. Each Subsidiary of SAB has been duly
incorporated and is validly existing as a corporation or association in good
standing under the Laws of the jurisdiction of its incorporation, and each
Subsidiary has been duly qualified as a foreign corporation to transact
business and is in good standing under the Laws of each other jurisdiction in
which it owns or leases properties, or conducts any business so as to require
such qualification and in which the failure to be duly qualified could have a
Material Adverse Effect upon SAB and its Subsidiaries considered as one
enterprise; each of the banking Subsidiaries of SAB has its deposits fully
insured by the Federal Deposit Insurance Corporation to the extent provided
by the Federal Deposit Insurance Act; and the businesses of the non-bank
Subsidiaries of SAB are permitted to subsidiaries of registered bank holding
companies.
6.8 Legal Proceedings. Except as Previously Disclosed, there is
no litigation instituted or pending, or to SAB's Knowledge, threatened (or
unasserted but considered probable of assertion and which if asserted would
have at least a reasonable probability of an unfavorable outcome) against SAB,
or against any Material Asset, interest, or right of SAB, 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 agencies, or arbitrators outstanding against SAB that are
reasonably likely to have, individually or in the aggregate, a Material
Adverse Effect on SAB.
6.9 Statements True and Correct. No statement, certificate,
instrument or other writing furnished by SAB or any Affiliate thereof to CNB
pursuant to this Agreement or any other documents, 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 statements
therein, in light of the circumstances under which they were made, not
misleading. None of the information supplied or to be supplied by SAB 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 mailed to CNB s Stockholders in
connection with the Stockholders Meeting, and any other documents to be
filed by SAB or any Affiliate 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 Proxy
Statement, when first mailed to the Stockholders of CNB, 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 of the
circumstances under which they were made, not misleading, or, in the case of
the Proxy Statement or any amendment thereof or supplement thereto, at the
time of the Stockholders' Meeting, 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 Meeting. All documents that SAB 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.
6.10 Year 2000 Compliance. SAB has taken and is taking
commercially reasonable steps to cause all of SAB's computer systems, phone
systems and other affected systems or equipment, including without limitation,
hardware and software, to be year 2000 compliant and suffer no failure as a
result of the arrival of January 1, 2000.
6.11 Environmental Matters. Except as Previously Disclosed:
(a) SAB, its Participation Facilities, and, to its Knowledge, its
Loan Properties, are, and have at all times been, in Material compliance with
all Environmental Laws.
(b) There is no Litigation pending or, to SAB's Knowledge,
threatened before any court, governmental agency or authority or other forum
in which SAB or any of its Participation Facilities have been or, to its
Knowledge, with respect to threatened Litigation, may be named as a defendant
(i) for alleged non-compliance (including by any predecessor) with any
Environmental Law or (ii) relating to the release into the environment of any
Hazardous Material, whether or not occurring at, on, under or involving a
site owned, leased or operated by SAB or any of its Participation Facilities.
(c) There is no Litigation pending or, to SAB's Knowledge,
threatened before any court, governmental agency or board or other forum in
which any of its Loan Properties (or SAB in respect to such Loan Property)
have been or, with respect to threatened Litigation, may, to SAB s Knowledge,
be named as a defendant or potentially responsible party (i) for alleged
non-compliance (including by any predecessor) with any Environmental Law or
(ii) relating to the release into the environment of any Hazardous Material,
whether or not occurring at, on, under or involving a Loan Property.
(d) To SAB's Knowledge, there is no reasonable basis for any
Litigation of a type described in subsections (b) or (c).
(e) During the period of (i) SAB s ownership or operation of any
of its current properties, (ii) SAB's participation in the management of any
Participation Facility, or (iii) SAB s holding of a security interest in a
Loan Property, there have been, to SAB's Knowledge with respect to (ii) and
(iii), no releases of Hazardous Material in, on, under or affecting such
properties. Prior to the period of (i) SAB's ownership or operation of any
of its current properties, (ii) SAB s participation in the management of any
Participation Facility, or (iii) SAB's holding of a security interest in a
Loan Property, there were, to SAB s Knowledge, no releases of Hazardous
Material in, on, under or affecting any such property, Participation Facility
or Loan Property.
ARTICLE SEVEN
CONDUCT OF BUSINESS PENDING CONSUMMATION
7.1 Covenants of CNB and SAB. Unless the prior written consent of
CNB, in the case of SAB, and SAB, in the case of CNB, shall have been
obtained, and except as otherwise expressly contemplated herein, each of CNB
and SAB shall and shall cause itself and/or each of its Subsidiaries, as
applicable, to 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 Negative Covenants of CNB. From the date of this Agreement
until the earlier of the Effective Time or the termination of this Agreement,
CNB covenants and agrees that CNB will not do or agree or commit to do, any
of the following without the prior written consent of the chief executive
officer or chief financial officer of SAB, which consent shall not be
unreasonably withheld:
(a) amend its Articles of Association, Bylaws or other governing
instruments; or
(b) incur any additional debt obligation or other obligation for
borrowed money except in the ordinary course of business consistent with past
practices (which shall include 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 CNB 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 CNB, or declare or pay any dividend or make any other
distribution in respect of CNB's capital stock, except that CNB may adopt
SAB's pattern of paying dividends as and to the extent required for this
transaction to qualify for pooling-of-interests accounting treatment; or
(d) except for this Agreement, issue, sell, pledge, encumber,
enter into any Contract to issue, sell, pledge, or encumber, authorize the
issuance of, or otherwise permit to become outstanding, any additional shares
of CNB Common Stock or any other capital stock of CNB, 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 CNB
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 CNB
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 in its fiduciary capacity; or
(g) grant any increase in compensation or benefits to the employees
or officers of CNB, 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 CNB; grant any
Material increase in fees or other increases in compensation or other benefits
to directors of CNB except in accordance with past practice Previously
Disclosed; or
(h) enter into or amend any employment Contract between CNB and
any Person (unless such amendment is required by Law) that CNB does not have
the unconditional right to terminate without Liability (other than Liability
for services already rendered), at any time on or after the Effective Time; or
(i) adopt any new employee benefit plan or make any Material change
in or to any existing employee benefit plans of CNB 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 CNB for Material
money damages or restrictions upon the operations of CNB, or, except in the
ordinary course of business, modify, amend or terminate any Material Contract
or waive, release, compromise or assign any Material rights or claims; or
(l) modify, amend, or terminate any Material Contract or waive,
release, compromise, or assign any Material rights or claims; or
(m) operate its business otherwise than in the ordinary course of
business; or
(n) fail to file timely any report required to be filed by it with
any Regulatory Authority.
7.3 Affirmative Covenants of SAB. SAB agrees and covenants that:
(a) it will cooperate fully in seeking all necessary approvals of
Regulatory Authorities of the Merger;
(b) it will take all necessary corporate action to effect the
issuance of shares of SAB Common Stock as provided in Articles 3 and 4
hereof; and
(c) as a shareholder of CNB Interim, it will vote in favor of the
Merger; and
(d) it will give written notice promptly to CNB upon becoming
aware of the occurrence or impending occurrence of any event or circumstance
relating to it 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 its representations, warranties, or covenants
contained herein, and it will use its reasonable efforts to prevent or promptly
to remedy the same.
7.4 Affirmative Covenants of CNB.
(a) CNB agrees to give written notice promptly to SAB upon
becoming aware of the occurrence or impending occurrence of any event or
circumstance relating to it 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 its representations,
warranties, or covenants contained herein, and to use its reasonable efforts to
prevent or promptly to remedy the same.
(b) CNB shall deliver to SAB copies of all reports filed with
Regulatory Authorities concurrently with the filing of same.
(c) CNB shall preserve intact its business organizations,
goodwill, relationships with depositors, customers and employees, and Assets
and maintain its rights and franchises.
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, a copy of which shall be furnished to CNB
prior to filing, 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. CNB shall furnish all information concerning it
and the holders of its capital stock as SAB may reasonably request in
connection with such action. CNB shall call a Stockholders' Meeting, 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' Meeting, (i) SAB and CNB shall prepare a Proxy Statement
and mail it to CNB's stockholders with the Prospectus, (ii) SAB shall furnish
to CNB all information concerning it that CNB may reasonably request in
connection with such Proxy Statement, (iii) the Board of Directors of CNB shall
recommend (subject to compliance with its fiduciary duties as advised by
counsel) to its stockholders the approval of this Agreement, and (iv) the
Board of Directors and officers of CNB 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 provide
a copy of each to CNB prior to filing), and CNB 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 Intentionally Omitted.
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, CNB will keep SAB advised of all
Material developments relevant to its business and to consummation of the
Merger and shall permit SAB to make or cause to be made such investigation of
the business and properties of CNB and of its financial and legal condition as
SAB 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 SAB shall affect
the representations and warranties of CNB.
(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, CNB 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 SAB 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, neither CNB nor any Affiliate thereof or any investment
banker, attorney, accountant or other representative retained by CNB
(collectively, "CNB Representatives") shall directly or indirectly solicit any
Acquisition Proposal by any Person. Neither CNB nor 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 CNB 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. CNB shall promptly notify SAB orally and in writing in the event
that it receives any inquiry or proposal relating to any such transaction. CNB
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 CNB Representatives not to engage in any of the foregoing.
(b) SAB shall promptly notify CNB orally and in writing in the event
that it receives any inquiry or proposal relating to an Acquisition Proposal
with respect to the acquisition of SAB; 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 for pooling-of-interests
accounting treatment and treatment as a "reorganization" within the meaning of
Section 368(a) of the Internal Revenue Code for federal income tax purposes.
8.9 Charter Provisions. CNB 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 Articles of
Association, Bylaws or other governing instruments of CNB.
8.10 Agreement of Affiliates. CNB 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 4,
providing that such Person will not sell, pledge, transfer, or otherwise
dispose of the shares of CNB 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
and until such time as financial results covering at least thirty (30) days of
combined operations of SAB and CNB have been published within the meaning of
Section 201.01 of the SEC's Codification of Financial Reporting Policies. If
the Merger will qualify for pooling-of-interests accounting treatment, shares
of SAB Common Stock issued to such affiliates of CNB in exchange for shares of
CNB Common Stock (and shares of SAB Common Stock held by persons who are
"affiliates" of SAB) shall not be transferable until such time as financial
results covering at least thirty (30) days of combined operations of SAB and
CNB have been published within the meaning of Section 201.01 of the SEC's
Codification of Financial Reporting Policies, regardless of whether each such
Affiliate has provided the written agreement referred to in this Section 8.10
(and SAB shall be entitled to place restrictive legends upon certificates
for shares of SAB Common Stock issued to Affiliates of CNB pursuant to this
Agreement to enforce the provisions of this Section 8.10). 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.
8.11 Compensation and Employee Benefits. The Parties contemplate that
at the Effective Time neither the compensation and employee benefit plans of
CNB 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 SAB and its
Subsidiaries offer more uniform employee compensation and benefits and that at
some point after the Effective Time SAB and its Subsidiaries, including CNB,
will adopt uniform policies and plans, giving due regard to the benefits offered
to current employees.
8.12 Director and Executive Officer. Promptly after the Effective
Time, SAB shall appoint the current Chairman and one other member of the Board
of Directors of CNB as directors of SAB and shall elect one Executive Officer
of CNB as an Executive Officer of SAB.
8.13 CNB Interim Organization. SAB shall organize CNB Interim as a
state banking corporation subsidiary under the laws of the State of Alabama
with such officers and directors as are appointed by SAB. SAB shall further
cause CNB Interim, upon its organization, to execute the Plan of Merger and,
as the sole shareholder of CNB Interim, shall vote prior to the Effective Time
the shares of CNB Interim Common Stock held by it in favor of the Plan of
Merger.
8.14 Indemnification.
(a) From and after the Effective Time, SAB shall indemnify and
advance costs and expenses (including reasonable attorneys fees, disbursements
and expenses) and hold harmless each present and former director and/or officer
of CNB determined as of the Effective Time (the "Indemnified Parties"), against
any costs or expenses (including reasonable attorney's fees), judgments, fines,
losses, claims, damages, settlements or liabilities (collectively, "Costs")
incurred in connection with any claim, action, suit, proceeding or
investigation, whether civil, criminal, administrative or investigative (each
a "Claim"), arising out of or pertaining to matters existing or occurring at
or prior to the Effective Time, whether asserted or claimed prior to, at or
after the Effective Time to the fullest extent that CNB would have been
permitted to indemnify such person under the National Bank Act or its
Articles of Association or Bylaws in effect on the date hereof.
(b) Any Indemnified Party wishing to claim indemnification under
this Section 8.14 shall notify SAB within forty-five (45) days after the
Indemnified Party's receipt of a notice of any Claim, but the failure to so
notify shall not relieve SAB of any Liability it may have to such Indemnified
Party, unless such failure Materially prejudices SAB. In the event of any
claim (whether arising before or after the Effective Time), (i) SAB shall have
the right to assume the defense thereof, and SAB 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 SAB elects not to assume such defense, or
counsel for the Indemnified Parties advises that there are issues which raise
conflicts of interest between SAB and the Indemnified Parties, the Indemnified
Parties may retain counsel satisfactory to them, and SAB shall pay the
reasonable fees and expense of such counsel for the Indemnified Parties promptly
after statements therefor are received; provided, however, that SAB shall be
obligated pursuant to this paragraph (ii) to pay for only one firm of counsel
for all Indemnified Parties in any jurisdiction unless the use of one counsel
for such Indemnified Parties will present such counsel with a conflict of
interest, (iii) the Indemnified Parties will cooperate in the defense of any
such matter, and (iv) SAB shall not be liable for any settlement effected
without its prior written consent which shall not be unreasonably withheld.
If such indemnity with respect to any Indemnified Party is unenforceable
against SAB, then SAB and the Indemnified Party shall contribute to the amount
payable in such proportion as is appropriate to reflect relative faults and
benefits.
(c) SAB shall purchase or cause the Surviving Bank to purchase such
"tail" or extended reporting period insurance coverage as it deems advisable
to insure the obligations for which it is providing indemnification hereunder,
which coverage shall be in an amount and for a term deemed appropriate by SAB.
(d) If SAB or any of its successors and assigns (i) shall
consolidate with or merge into any other corporation or entity and shall not
be the continuing or surviving corporation or entity of such consolidation
or merger, or (ii) shall transfer all or substantially all of its property
and assets to any individual, corporation or other entity, then, in each such
case, proper provision shall be made so that the successors and assigns of SAB
and its Subsidiaries shall assume the obligations set forth in this section.
(e) The provisions of this Section 8.14 are intended to be for the
benefit of, and shall be enforceable by each Indemnified Party, and each
Indemnified Party's heirs and representatives.
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 11.5 of this Agreement:
(a) Stockholder Approval. The stockholders of CNB 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. SAB and CNB shall have received a written opinion
of counsel from Hand Arendall, L.L.C., in form reasonably satisfactory to
them (the "Tax Opinion"), 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 CNB Common Stock for SAB Common Stock
will not give rise to gain or loss to the stockholders of CNB with respect to
such exchange (except to the extent of any cash received), and (iii) neither
SAB nor CNB 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 SAB shall be entitled to rely upon representations of
officers of CNB and SAB reasonably satisfactory in form and substance to such
counsel.
(g) Exchange Listing. The shares of SAB Common Stock issuable
pursuant to the Merger shall have been approved, subject to official notice of
issuance, for listing on the Nasdaq Exchange.
(h) Escrow Trust Agreement. The parties to the Escrow Trust
Agreement shall have entered into the Escrow Trust Agreement.
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 11.5(a) of this Agreement:
(a) Representations and Warranties. The representations and
warranties of CNB 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.
(b) Performance of Agreements and Covenants. Each and all of the
agreements and covenants of CNB 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 respects.
(c) Certificates. CNB 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 CNB'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. CNB shall have delivered to SAB an opinion
of Balch & Bingham, L.L.P., counsel to CNB, dated as of the Closing, in
substantially the form of Exhibit 5 hereto.
(e) Pooling Letter. SAB shall have received a letter, dated as of
the Effective Time, in form and substance reasonably acceptable to it, from
Arthur Andersen, L.L.P. to the effect that the Merger will qualify for
pooling-of-interests accounting treatment.
9.3 Conditions to Obligations of CNB. The obligations of CNB 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 CNB pursuant to Section 11.5(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.
(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 CNB (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 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 CNB and its counsel shall request.
(d) Opinion of Counsel. SAB shall have delivered to CNB an opinion
of Hand Arendall, L.L.C., counsel to SAB, dated as of the Effective Time, in
substantially the form of Exhibit 6 hereto.
(e) Fairness Opinion. CNB shall have received from Alex
Sheshunoff & Co. Investment Banking prior to the mailing of the Proxy
Statement a letter setting forth its opinion that the Exchange Ratio is fair
to the shareholders of CNB from a financial point of view, and such opinion
shall not have been withdrawn as of the Effective Time.
ARTICLE TEN
TERMINATION
10.1 Termination. Notwithstanding any other provision of this
Agreement, and notwithstanding the approval of this Agreement by the
stockholders of CNB, 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 CNB;
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 CNB fail to vote their approval of this Agreement and the
transactions contemplated hereby as required by 12 U.S.C. Section 214a at the
Stockholders' Meeting where the transactions were presented to such stockholders
for approval and voted upon; or
(e) By the Board of Directors of either Party in the event that the
Merger shall not have been consummated by March 31, 1999, 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(e); or
(f) 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(e) 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 breach
of a representation, warranty, covenant, or agreement giving rise to such
termination.
10.3 Survival of Representations and Covenants. The respective
representations, warranties, obligations, covenants, and agreements of the
Parties shall survive the Effective Time.
ARTICLE ELEVEN
MISCELLANEOUS
11.1 Expenses. 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. It is agreed and understood that work
done by SAB and/or its attorneys and advisors to prepare and file the
Registration Statement and print the Prospectus shall not be deemed to be done
on behalf of CNB, and the costs and expenses therefor shall not be the
responsibility of CNB.
11.2 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 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 CNB or SAB, each of CNB 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.
11.3 Entire Agreement. Except as otherwise expressly provided
herein, this Agreement (including the documents and instruments referred to
herein) constitutes the entire agreement between the Parties with respect to
the transactions 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.
11.4 Amendments. To the extent permitted by Law, this
Agreement may be amended by a subsequent writing signed by each of the Parties
upon the approval of the Boards of Directors of each of the Parties; provided,
however, that after approval of this Agreement by the holders of CNB Common
Stock, there shall be made no amendment that pursuant to Law requires further
approval by the CNB stockholders without the approval of such stockholders.
11.5 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 CNB, to waive or extend the time for the compliance or fulfillment
by CNB 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 the chief executive officer of SAB.
(b) Prior to or at the Effective Time, CNB, 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 CNB
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 the chief executive officer of CNB.
(c) The failure of any Party at any time or times to require
performance of any provision hereof shall in no manner affect the right of
such Party at a later time to enforce the same or any other provision of this
Agreement. No waiver of any condition or of the breach of any term contained
in this Agreement in one or more instances shall be deemed to be construed as
a further or continuing waiver of such condition or breach or a waiver of any
other condition or of the breach or any other term of this Agreement.
11.6 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.
11.7 Notices. All notices or other communications which are
required or permitted hereunder shall be in writing and sufficient if
delivered by hand, by facsimile transmission, by registered or certified mail,
postage pre-paid, or by courier or overnight carrier, to the persons at the
addresses set forth below (or at such other address as may be provided
hereunder), and shall be deemed to have been delivered as of the date so
delivered:
CNB: The Commercial National Bank of Demopolis
Post Office Box 280 (36732-0280)
201 North Main
Demopolis, Alabama 36732-2015
Telephone: (334) 289-3820
Facsimile: (334) 289-9252
Attention: J. Olen Kerby, Jr.
Copy to Counsel: Balch & Bingham
Post Office Box 78
2 Dexter Avenue
Montgomery, Alabama 36101
Telephone: (334) 834-6500
Facsimile: (334) 269-3115
Attention: Michael D. Waters
SAB: South Alabama Bancorporation, Inc.
P. O. Box 3067 (36652)
100 St. Joseph Street
Mobile, Alabama 36602
Telephone: (334) 431-7800
Facsimile: (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
Telephone: (334) 432-5511
Facsimile: (334) 694-6375
Attention: Stephen G. Crawford
11.8 Governing Law. This Agreement shall be governed by and construed
in accordance with the Laws of the State of Alabama, without regard to any
applicable conflicts of Laws.
11.9 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.
11.10 Captions. The captions contained in this Agreement are for
reference purposes only and are not part of this Agreement.
11.11 Enforcement of Agreement. The Parties hereto agree that
irreparable damage would occur in the event that any of the provisions of this
Agreement were 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.
11.12 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.
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 respective duly authorized officers as of the day and year
first above written.
ATTEST: SOUTH ALABAMA BANCORPORATION, INC.
/s/ F. Michael Johnson By: /s/ W. Bibb Lamar, Jr.
Secretary W. Bibb Lamar, Jr., President
[CORPORATE SEAL]
ATTEST: THE COMMERCIAL NATIONAL BANK OF DEMOPOLIS
/s/ William R. Dunn By: /s/ J. Olen Kirby
Cashier J. Olen Kerby, Jr., President
[CORPORATE SEAL]
LIST OF EXHIBITS
Exhibit
Number Description
1. Agreement and Plan of Merger (Definitions "Plan of Merger")
2. Amendment to the Articles of Incorporation of the Surviving
Bank (Section 2.1)
3. Amendment to the Bylaws of the Surviving Bank (Section 2.2)
4. Form of Agreement of Affiliates of The Commercial National Bank
of Demopolis (Section 8.9)
5. Form of opinion of counsel for The Commercial National Bank of
Demopolis (Section 9.2(d))
6. Form of opinion of counsel for South Alabama Bancorporation,
Inc. (Section 9.3(d)).
7. Escrow Trust Agreement (Definitions - "Escrow Trust Agreement")
Exhibit 1
AGREEMENT AND PLAN OF MERGER
THIS AGREEMENT AND PLAN OF MERGER (this "Plan of Merger") is made and
entered into as of the _______ day of __________________, 1998, by and
between THE COMMERCIAL NATIONAL BANK OF DEMOPOLIS ("CNB"), a national banking
association organized and existing under the laws of the United States, and
THE COMMERCIAL INTERIM BANK OF DEMOPOLIS ("Interim"), an Alabama banking
corporation and wholly owned subsidiary of South Alabama Bancorporation, Inc.
("SAB").
PREAMBLE
Each of the Boards of Directors of CNB and Interim deems it
advisable and in the best interests of their respective institutions and the
stockholders thereof for CNB to be merged into Interim (the "Merger") on the
terms and conditions provided in this Plan of Merger. This Plan of Merger is
made and entered into pursuant to an Amended and Restated Agreement and Plan
of Reorganization, dated as of October ___, 1998 (the Agreement ), by and
between CNB and SAB. At the Effective Time of the Merger, the outstanding
shares of the common stock of CNB shall be converted into the right to
receive shares of the common stock of SAB (subject to certain exceptions as
set forth in the Agreement and this Plan of Merger). As a result, stockholders
of CNB shall become stockholders of SAB, and Interim shall continue to
conduct its business and operations as a wholly-owned first tier subsidiary of
SAB. It is intended 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 and for pooling-of-interests accounting treatment.
NOW, THEREFORE, in consideration of the covenants and agreements
contained herein, and for other good and valuable consideration, the receipt
and sufficiency of which are hereby acknowledged, CNB and Interim hereby make,
adopt, and approve this Plan of Merger in order to set forth the terms and
conditions of the merger of Interim into CNB.
ARTICLE ONE
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:
"Agreement" shall mean the Amended and Restated Agreement and Plan of
Reorganization, dated as of October ____, 1998, by and between CNB and SAB,
including each of the supporting agreements and the other exhibits delivered
pursuant thereto and incorporated therein by reference.
"Articles of Merger" shall mean the Articles of Merger to be executed
by Interim and filed with the Alabama Secretary of State in accordance with
Section 5.2 of this Plan of Merger.
"Closing" shall mean the closing of the transactions contemplated
hereunder, as described in Section 5.1 of this Plan of Merger.
"CNB Common Stock" shall mean the $1.00 par value common stock of
CNB.
"Interim Common Stock" shall mean the $1.00 par value common stock of
Interim.
"Effective Time" shall mean the date and time on which the Merger
contemplated by this Plan of Merger becomes effective pursuant to the laws
of the United States, as defined in Section 5.2 of this Plan of Merger.
"Exchange Agent" shall have the meaning specified in Section 4.1 of
this Plan of Merger.
"Exchange Ratio" shall have the meaning specified in Section 3.1(b)
of this Plan of Merger.
"Internal Revenue Code" shall mean the Internal Revenue Code of 1986,
as amended.
"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;
provided, however, that for purposes of determining the Exchange Ratio, if the
average Market Value of SAB Common Stock during the Valuation Period exceeds
$20 per share it shall be deemed to be $20 per share, and if the average
Market Value of SAB Common Stock during the Valuation Period is less than
$15.3333 per share, it shall be deemed to be $15.3333 per share.
"Merger" shall mean the merger of CNB with and into Interim, as
provided in Article Two of this Plan of Merger.
"Nasdaq" shall mean the National Association of Securities Dealers,
Inc. Automated Quotations System.
"Party" shall mean either CNB or Interim and Parties shall mean
both CNB or Interim.
"SAB Common Stock" shall mean the $.01 par value common stock of SAB.
"SAB Companies" shall mean, collectively, SAB and all SAB
subsidiaries.
"Surviving Bank" shall mean Interim, as the surviving bank resulting
from the Merger.
"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.
ARTICLE TWO
TERMS OF MERGER
2.1 Merger. Subject to the terms and conditions of this Plan of
Merger and the Agreement, at the Effective Time, CNB shall be merged with and
into Interim in accordance with the provisions of 12 U.S.C. Section 214a and
Chapter 7A of Title 5 of the Code of Alabama (1975) and with the effect
provided in 12 U.S.C. Section 214b and Section 10-2B-11.06 Code of Alabama
(1975) (the "Merger"). Interim shall be the Surviving Bank resulting from
the Merger and shall be a state bank governed by the Laws of the State of
Alabama. The Merger shall be consummated pursuant to the terms of this Plan
of Merger.
2.2. Business of Surviving Bank. The business of the Surviving Bank
from and after the Effective Time shall be that of a state banking
corporation organized under the laws of the State of Alabama. The business
shall be conducted from its main office and at its legally established branches,
which shall also include the main office and all branches, whether in
operation or approved but unopened, at the Effective Time.
2.3 Assumption of Rights. At the Effective Time, the separate
existence and corporate organization of CNB shall be merged into and
continued in the Surviving Bank. Without limiting the generality of the
foregoing, and subject thereto, at the Effective Time and thereafter, except
as otherwise provided herein, all the rights, privileges, immunities, and
franchises, of a public as well as of a private nature, of each of CNB and
Interim; and all property, real, personal and mixed, and all debts due on
whatever account, and all other choses in action, and all and every other
interest of or belonging to or due to each of CNB and Interim shall be taken
and deemed to be transferred to and vested in the Surviving Bank without
further act or deed; and the title to any real estate, or any interest
therein, vested in either of CNB or Interim shall not revert or be in any way
impaired by reason of the Merger. The Surviving Bank, upon consummation of
the Merger and without any order or other action on the part of any court or
otherwise, shall hold and enjoy all rights or property, franchises, and
interests, including appointments, designations, and nominations, and all
other rights and interests as trustee, executor, administrator, registrar of
stocks and bonds, guardian of estates, assignee, receiver, and committee of
estates of incompetent persons, and in every other fiduciary capacity, in the
same manner and to the same extent as such rights, franchises, and interests
where held or enjoyed by either CNB or Interim at the Effective Time.
2.4 Charter. The Articles of Incorporation of Interim in effect
immediately prior to the Effective Time shall be the Articles of
Incorporation of the Surviving Bank immediately following the Effective Time,
with the amendments set forth in Exhibit 1 hereto, until otherwise amended or
repealed.
2.5 Bylaws. The Bylaws of Interim in effect immediately prior to
the Effective Time shall be the Bylaws of the Surviving Bank immediately
following the Effective Time, with the amendments set forth in Exhibit 2
hereto, until otherwise amended or repealed.
2.6 Directors and Officers.
(a) The directors of the Surviving Bank from and after the
Effective Time shall consist of the incumbent directors of CNB, who shall
serve as directors of the Surviving Bank from and after the Effective Time in
accordance with the Bylaws of the Surviving Bank.
(b) The principal officers of the Surviving Bank upon the
Effective Time shall be the incumbent principal officers of CNB, who shall
serve as officers of the Surviving Bank from and after the Effective Time in
accordance with the Bylaws of the Surviving Bank.
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 banks shall
be converted as follows:
(a) Each share of Interim Common Stock issued and outstanding
at the Effective Time shall remain issued and outstanding from and after the
Effective time.
(b) Each share of CNB Common Stock (other than shares to be
canceled pursuant to Section 3.2 of this Plan of Merger and shares held by
stockholders who perfect their dissenters' rights of appraisal as provided in
Section 3.3 of this Plan of Merger) issued and outstanding at the Effective
Time shall cease to be outstanding and shall be converted into and exchanged
for the right to receive (i) the number of shares of SAB Common Stock having
an average Market Value during the Valuation Period of One Hundred
Forty-Seven and 94/100 Dollars ($147.94), subject to the adjustments contained
in the definition of Market Value hereinabove (the "Exchange Ratio"), and
(ii) on a deferred basis and pursuant and subject to the terms of the Escrow
Trust Agreement, up to that additional fraction of a share of SAB Common Stock
(the "Escrow Stock Right" and collectively the "Escrow Stock Rights") equal
to the quotient obtained by dividing Two and 06/100 Dollars ($2.06) by the
average Market Value of a share of SAB Common Stock during the Valuation
Period (the "Escrow Ratio").
3.2 Shares Held by CNB or SAB. Each of the shares of CNB Common
Stock held by CNB 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.
3.3 Dissenting Stockholders. Any holder of shares of CNB Common
Stock who perfects his dissenters' rights of appraisal in accordance with and
as contemplated by 12 U.S.C. Section 214a(b) 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 12 U.S.C. Section 214a(b) and surrendered to the
Exchange Agent 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 CNB fails to perfect, or effectively withdraws or
loses, his right to appraisal and of payment for his shares, the Exchange
Agent shall issue and deliver the consideration to which such holder of shares
of CNB Common Stock is entitled under this Article Three (without interest and
including Escrow Stock Rights) upon surrender by such holder of the
certificate or certificates representing shares of CNB Common Stock held by
him.
3.4 Fractional Shares. Notwithstanding any other provision of this
Plan of Merger, and except with respect to fractional shares that may be
otherwise issuable pursuant to the Escrow Trust Agreement, each holder of
shares of CNB 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 during the Valuation Period. No such
holder will be entitled to dividends, voting rights, or any other rights as a
stockholder in respect of any fractional shares.
3.5 Anti-Dilution Provision. In the event CNB changes the number of
shares of CNB 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 (in the case of a stock
dividend) or the effective date thereof (in the case of a stock split or
similar recapitalization for which a record date is not established) shall be
prior to the Effective Time, the Exchange Ratio shall be proportionately
adjusted to reflect such stock split, stock dividend or recapitalization.
ARTICLE FOUR
EXCHANGE OF SHARES
4.1 Exchange Procedures. Promptly after the Effective Time, SAB
shall cause the exchange agent selected by it (the "Exchange Agent") to mail
to the former stockholders of CNB appropriate transmittal materials (which
shall specify that delivery shall be effected, and risk of loss and title to
the certificates theretofore representing shares of CNB Common Stock shall
pass, only upon proper delivery of such certificates to the Exchange Agent).
After the Effective Time, each holder of shares of CNB Common Stock (other
than shares to be canceled pursuant to Section 3.2 of this Plan of Merger or
as to which dissenters' rights of appraisal have been perfected as provided
in Section 3.3 of this Plan of Merger) 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 Plan of
Merger, together with all undelivered dividends or distributions in respect of
such shares (without interest thereon) pursuant to Section 4.2 of this Plan of
Merger. To the extent required by Section 3.4 of this Plan of Merger, each
holder of shares of CNB 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). SAB
shall not be obligated to deliver the consideration to which any former
holder of CNB Common Stock is entitled as a result of the Merger until such
holder surrenders his certificate or certificates representing the shares of
CNB Common Stock for exchange as provided in this Section 4.1. The
certificate or certificates of CNB Common Stock so surrendered shall be duly
endorsed as the Exchange Agent may require. Any other provision of this Plan
of Merger notwithstanding, neither SAB, the Surviving Bank nor the Exchange
Agent shall be liable to a holder of CNB 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 CNB Stockholders. At the Effective Time, the
stock transfer books of CNB shall be closed as to holders of CNB Common Stock
immediately prior to the Effective Time, and no transfer of CNB 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 Plan of
Merger, each certificate theretofore representing shares of CNB Common Stock
("CNB Certificate"), other than shares to be canceled pursuant to Section 3.2
of this Plan of Merger or as to which dissenters' rights of appraisal have
been perfected as provided in Section 3.3 of this Plan of Merger, shall from
and after the Effective Time represent for all purposes only the right to
receive the consideration provided in Sections 3.1 and 3.4 of this Plan of
Merger in exchange therefor. To the extent permitted by Law, former
stockholders of record of CNB shall be entitled to vote after the Effective
Time at any meeting of SAB stockholders the number of whole shares of SAB
Common Stock (including providing voting instructions to the Escrow Agent
with respect to those whole shares subject to the Escrow Stock Rights) into
which their respective shares of CNB Common Stock are converted, regardless of
whether such holders have exchanged their CNB Certificates for certificates
representing SAB Common Stock in accordance with the provisions of this Plan
of Merger. Whenever a dividend or other distribution is declared by SAB 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 Plan of Merger. Notwithstanding the
preceding sentence, any person holding any CNB 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 CNB
Certificate held after the Cutoff, until such person surrenders said CNB
Certificate for exchange as provided in Section 4.1 of this Plan of Merger.
However, upon surrender of such CNB 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 CNB Certificate.
4.3 Establishment of Escrow Trust. Prior to the Effective Time,
SAB, the Escrow Agent and CNB shall enter into the Escrow Trust Agreement in
order to establish an escrow of shares of SAB Common Stock to fund that
certain lawsuit currently pending against CNB in Greene County, Alabama,
captioned Harold Cannon, Gloria Cannon and B&C Developers, L.L.C. (a limited
liability Company under the laws of Alabama), Plaintiffs v. Commercial
National Bank of Demopolis and Donna Bingham, Defendants, Case No. CV-98-051
(the" Lawsuit"). Approval of this Agreement by the shareholders of CNB at the
Stockholders' Meeting shall constitute approval of the establishment of the
Escrow Trust contemplated by the Escrow Trust Agreement, the appointment of
the Escrow Agent, and CNB's entering into the Escrow Trust Agreement. At the
Effective Time, SAB shall deposit with the Escrow Agent that number of whole
shares of SAB Common Stock (rounded up to the nearest whole share) having an
average Market Value during the Valuation Period equal to Two Hundred Fifty
Thousand Dollars ($250,000.00). After the Effective Time, SAB shall deposit
with the Escrow Agent such additional shares of SAB Common Stock as may be
required under the circumstances set forth in Section 1.2 of the Escrow Trust
Agreement. Such shares of SAB Common Stock shall be held by the Escrow Agent
and distributed to the former Stockholders of CNB or applied to fund the
Lawsuit in accordance with the terms of the Escrow Trust Agreement.
ARTICLE FIVE
CLOSING AND EFFECTIVE TIME
5.1 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.
5.2 Effective Time. The Merger and other transactions contemplated
by this Plan of Merger shall become effective on the date and at the time
stated in the Articles of Merger or at the time the Articles of Merger are
filed, whichever is later (the "Effective Time"). Subject to the terms and
conditions hereof and of the Agreement, 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 as soon as practicable after 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 CNB approve this Plan of Merger to the extent such approval
is required by applicable Law or such later date within ninety (90) days
thereof as may be specified by SAB.
ARTICLE SIX
CONDITIONS, TERMINATION,
AMENDMENT AND WAIVER
6.1 Conditions Precedent. Consummation of the Merger is conditioned
upon the approval of the Merger by the stockholders of CNB and the sole
stockholder of Interim, as and to the extent required by law, and the receipt
of the requisite Regulatory Approvals as set forth in the Agreement.
Additionally, consummation of the Merger is conditioned upon the fulfillment
of the conditions precedent set forth in Article Nine of the Agreement or the
waiver of such conditions as provided in Section 11.5 of the Agreement.
6.2 Termination. This Plan of Merger may be terminated at any time
prior to the Effective Time by the Parties hereto at any time after
termination of the Plan of Merger as provided in Article Ten of the Agreement.
6.3 Amendment. This Plan of Merger may be amended at any time prior
to the Effective Time as provided in Section 11.4 of the Agreement.
6.4 Waiver.
(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
Plan of Merger or the Agreement by CNB, to waive or extend the time for the
compliance or fulfillment by CNB of any and all of its obligations under this
Plan of Merger or the Agreement, and to waive any or all of the conditions
precedent to the obligations of SAB under this Plan of Merger or the 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 the
chief executive officer of SAB.
(b) Prior to or at the Effective Time, CNB, 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
Plan of Merger or the 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
Plan of Merger or the Agreement, and to waive any or all of the conditions
precedent to the obligations of CNB under this Plan of Merger or the 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
the chief executive officer of CNB.
ARTICLE SEVEN
MISCELLANEOUS
7.1 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 in Section 11.7 of the Agreement (or at such other address as may
be provided thereunder), and shall be deemed to have been delivered as of the
date specified therein.
7.2 Governing Law. This Plan of Merger shall be governed by and
construed in accordance with the laws of the State of Alabama, without regard
to any applicable conflicts of law, except to the extent that the federal laws
of the United States may apply to the Merger.
7.3 Counterparts. This Plan of Merger 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.
7.4 Inconsistent Provisions. The Parties agree that, to the extent
any of the provisions of this Plan of Merger shall conflict or be inconsistent
with any provision of the Agreement, the provisions of the Agreement shall
control and prevail, and the Parties hereto agree to execute such amendments
to this Plan of Merger as may be necessary to conform the provisions hereof
to the provisions of the Agreement.
IN WITNESS WHEREOF, each of the Parties has caused this Plan of
Merger to be executed on its behalf and its corporate seal to be hereunto
affixed and attested by officers thereunto duly authorized all as of the day
and year first above written.
THE COMMERCIAL NATIONAL BANK OF DEMOPOLIS
[NATIONAL BANK SEAL]
By: ___________________________________________
J. Olen Kerby, Jr.
Its President
ATTEST:
__________________________________
Cashier
THE COMMERCIAL INTERIM BANK OF DEMOPOLIS
[SEAL]
By:___________________________________________
W. Bibb Lamar, Jr.
Its President
ATTEST:
_______________________________
Corporate Secretary
Exhibit 1
AMENDMENTS TO ARTICLES OF INCORPORATION
Article One shall be amended to read as follows:
The name of the corporation shall be THE COMMERCIAL BANK OF
DEMOPOLIS .
Exhibit 2
AMENDMENTS TO BYLAWS
The Bylaws shall be amended to replace the name "The Commercial
Interim Bank of Demopolis" with "The Commercial Bank of Demopolis" wherever
the same appears.
Exhibit 2
AMENDMENTS TO ARTICLES OF INCORPORATION
Article One shall be amended to read as follows:
The name of the corporation shall be THE COMMERCIAL BANK OF
DEMOPOLIS .
Exhibit 3
AMENDMENTS TO BYLAWS
The Bylaws shall be amended to replace the name "The Commercial
Interim Bank of Demopolis" with "The Commercial Bank of Demopolis" wherever
the same appears.
Exhibit 4
AFFILIATE AGREEMENT
South Alabama Bancorporation, Inc.
Mobile, Alabama
Attention: W. Bibb Lamar, Jr.
President
Gentlemen:
The undersigned is a stockholder of The Commercial National Bank of
Demopolis ("CNB"), a national banking corporation organized and existing under
the laws of the United States of America and located in Demopolis, Alabama,
and will become a stockholder of the South Alabama Bancorporation, Inc. ("SAB")
pursuant to the transactions described in the Amended and Restated Agreement
and Plan of Reorganization, dated as of October ____, 1998, (the "Agreement"),
by and between SAB and CNB. Under the terms of the Agreement, CNB will be
merged with and into an interim Alabama state banking corporation to be formed
(the "Merger"), and the shares of the common stock of CNB ("CNB 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 CNB he or she 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 or she will be such an "affiliate" at the
time of the Merger.
2. Initial Restriction on Disposition. The undersigned agrees that
he or she will not sell, transfer or otherwise dispose of his or her interests
in, or reduce his or her risk relative to, any of the shares of SAB Common
Stock into which his or her shares of CNB Common Sock are converted upon
consummation of the Merger until such time as SAB notifies the undersigned
that the requirements of SEC Accounting Series Release Nos. 130 and 135
("ASR 130 and 135") have been met. The undersigned understands that ASR 130
and 135 relate to publication of financial results of post-Merger combined
operations of SAB and CNB. SAB agrees that it will publish such results within
forty-five (45) days after the end of the first fiscal quarter of SAB
containing the required period of post-Merger combined operations and that it
will notify the undersigned promptly following such publication.
3. 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 or her 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 CNB 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 CNB 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 CNB 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.
4. 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 were issued pursuant to a
business combination which is accounted for as a "pooling of
interests" and may not be sold, nor may the owner thereof reduce his
or her risks relative thereto in any way, until such time as South
Alabama Bancorporation, Inc. (the "Corporation") has published the
financial results covering at least thirty (30) days of combined
operations after the effective date of the merger through which the
business combination was effected. In addition, 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 or 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. Upon the request of the
undersigned, SAB shall 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 restrictions on transfer by virtue of
ASR 130 and 135 as soon as practicable after the requirements of ASR 130 and
135 have been met. In addition, if the provisions of Rules 144 and 145 are
amended to eliminate restrictions applicable of 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.
5. 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 or she believes necessary, with his or her counsel or counsel for
CNB.
6. 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.
7. Transfer Under Rule 145(d). If the undersigned desires to sell
or otherwise transfer the shares of SAB Common Stock received by him or her
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.
8. Acknowledgments. 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 Merger may subject the undersigned
to liability pursuant to Section 16(b) of the Securities Exchange Act of 1934,
as amended.
9. 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 Alabama.
This Affiliate Agreement is executed as of
the day of _______________, 1998.
Very truly yours,
Signature
Print Name
Address
AGREED TO AND ACCEPTED as of
, 1998
SOUTH ALABAMA BANCORPORATION, INC.
By:
Exhibit 5
[LETTERHEAD OF BALCH & BINGHAM LLP]
, 1998
South Alabama Bancorporation, Inc.
Mobile, Alabama
Re: Merger of The Commercial National Bank of Demopolis with and into
CNB Interim Bank
Gentlemen:
We are counsel to The Commercial National Bank of Demopolis ("CNB"), a
national banking association organized and existing under the laws of the
United States of America, and have represented CNB in connection with the
execution and delivery of the Amended and Restated Agreement and Plan of
Reorganization, dated as of __________, 1998 (the "Agreement"), by and
between South Alabama Bancorporation, Inc. ("SAB") and CNB.
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 CNB and made such other investigations as we have deemed necessary.
We have relied upon certificates of public officials and officers of CNB as
to certain questions of fact.
Based upon and subject to the foregoing, we are of the opinion that:
1. CNB is a national banking association duly organized, validly
existing and in good standing under the laws of the United States of America
with full corporate power and authority to carry on the business in which it
is engaged 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 Association or Bylaws of CNB or, to the best of our knowledge, result in
any conflict with, breach of, or default or acceleration under any mortgage,
agreement, lease, indenture, or other instrument, order, judgment or decree
to which CNB is a party or by which CNB is bound.
3. In accordance with the Bylaws of CNB 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 CNB and by the
stockholders of CNB at the Stockholders' Meeting.
4. The Agreement has been duly and validly executed and delivered by
CNB.
5. The authorized capital stock of CNB consists of 135,000 shares of
CNB Common Stock, of which 121,500 shares were issued and outstanding as
of , 1998. The shares of CNB 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
National Bank Act. To our knowledge, there are no options, subscriptions,
warrants, calls, rights or commitments obligating CNB to issue any equity
securities or acquire any of its equity securities.
This opinion is delivered solely for reliance by SAB.
Sincerely,
Exhibit 6
[LETTERHEAD OF HAND ARENDALL, L.L.C.]
The Commercial National Bank of Demopolis
Re: Merger of The Commercial National Bank of Demopolis with and into
CNB Interim Bank
Gentlemen:
We are counsel to South Alabama Bancorporation, Inc. ("SAB"), a
corporation organized and existing under the laws of the State of Alabama,
and have represented SAB in connection with the execution and delivery of the
Amended and Restated Agreement and Plan of Reorganization, dated as of
, 1998, (the "Agreement"), by and between The Commercial National Bank
of Demopolis ("CNB") 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 Alabama with full corporate power and
authority to carry on the business in which it is engaged 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 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 of SAB.
4. The Agreement has been duly and validly executed and delivered by
SAB.
5. The authorized capital stock of SAB consists of 10,000,000 shares
of SAB Common Stock, of which shares were issued and
outstanding as of , 1998, 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 Alabama Business Corporation Act. The
shares of SAB Common Stock to be issued to the stockholders of CNB 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.
This opinion is delivered solely for reliance by CNB.
Yours very truly,
HAND ARENDALL, L.L.C.
By:_________________________________________
Exhibit 7
ESCROW TRUST AGREEMENT
THIS ESCROW TRUST AGREEMENT (this "Agreement") is made and entered into
this ______ day of_________, 199___, by and among South Alabama Bancorporation,
Inc. ("SAB"), The Commercial National Bank of Demopolis ("CNB") and South
Alabama Trust Company, Inc. (as "Escrow Agent").
PREAMBLE
SAB and CNB are parties to an Amended and Restated Agreement and Plan of
Reorganization, dated as of October ____, 1998 (together with the related
Plan of Merger, the "Merger Agreement"), pursuant to which CNB will merge
(the "Merger") with and into a wholly owned subsidiary of SAB ("CNB Interim"),
with CNB Interim being the surviving bank resulting from the Merger.
Pursuant to Section 3.1(c) of the Merger Agreement, each of the
stockholders of CNB who do not dissent from the Merger (each a "Stockholder"
and collectively the "Stockholders") is entitled to receive, in exchange for
each share of CNB Common Stock held by such Stockholder at the Effective Time,
(i) that number of shares of SAB Common Stock having an average Market Value
during the Valuation Period equal to $147.94, subject to the adjustments
contained in the definition of Market Value (the "Exchange Ratio") and (ii)
the right to receive on a deferred basis and subject to the terms of this
Agreement up to that additional fraction of a share of SAB Common Stock (the
"Escrow Stock Right" and collectively, the "Escrow Stock Rights") equal to the
quotient obtained by dividing $2.06 by the average Market Value of SAB Common
Stock during the Valuation Period (the "Escrow Stock Ratio").
Pursuant to the terms of the Merger Agreement, the number of shares of
SAB Common Stock issued in respect of the Escrow Stock Rights, as calculated
in accordance with Section 4.3 of the Merger Agreement (the "Escrow Shares"),
will be issued and will be held by the Escrow Agent pursuant to the terms of
this Agreement until termination of this Agreement as provided herein.
Capitalized terms not defined herein shall have the meanings ascribed to
them in the Merger Agreement.
NOW, THEREFORE, in consideration of the mutual covenants and agreements
contained herein, and for other good and valuable consideration, the receipt
and sufficiency of which are hereby acknowledged, the parties agree as
follows:
ARTICLE ONE
ESTABLISHMENT OF ESCROW
1.1 Initial Escrow of Shares. At the Closing, SAB shall execute and
deliver to the Escrow Agent a stock certificate in negotiable form
representing the Escrow Shares and naming the Escrow Agent as the registered
holder of such shares. Schedule I to this Agreement shows for each Stockholder
the respective percentage interest (the "Percentage Interest") of each such
Stockholder in the Escrow Shares. For purposes of this Agreement, the
Percentage Interest of each Stockholder (other than Stockholders who have
perfected their dissenters rights of appraisal pursuant to Section 3.3 of
the Merger Agreement and as a result of which shall have no Percentage Interest
and shall not be deemed to be a Stockholder for purposes of this Agreement)
shall equal the quotient obtained by dividing (i) the number of shares of CNB
Common Stock held of record by such Stockholder at the Effective Time by (ii)
the total number of shares of CNB Common Stock outstanding and held by
Stockholders at the Effective time.
1.2 Additional Escrow Shares. The number of Escrow Shares shall be
increased and the Percentage Interest of each Stockholder shall be adjusted
under the circumstances described below. In each case, the additional shares
of SAB Common Stock issuable under the circumstances described below as are
represented by Escrow Stock Rights shall be regarded as additional "Escrow
Shares" for all purposes under this Agreement. In addition, the Escrow Agent
shall make the appropriate revisions to Schedule I to this Agreement (including
appropriate revisions to each Stockholder's Percentage Interest and the
addition of any new Stockholder and such Stockholder's shares) necessary to
reflect the adjustment.
(a) Stock Splits, Stock Dividends. In the event any stock split or
stock dividend with respect to SAB Common Stock becomes effective during the
Term of this Agreement, the additional shares so issued with respect to the
Escrow Shares shall be added to the Escrow Shares, and SAB shall deliver to
the Escrow Agent a stock certificate in negotiable form representing such
additional shares of SAB Common Stock.
(b) Dissenting Shares. In the event that after the Effective Time and
during the Term of this Agreement, a dissenting stockholder of CNB fails to
perfect, or effectively withdraws or loses, such holder's right to appraisal
and of payment for such holder's shares, and SAB issues shares of SAB Common
Stock to such holder in accordance with the provisions of Section 3.3 of the
Merger Agreement, SAB shall deliver to the Escrow Agent a stock certificate
in negotiable form representing that number of whole shares of SAB Common
Stock as are represented by the Escrow Stock Rights issuable to such
Stockholder. Such certificate shall name the Escrow Agent as the registered
holder of such shares, and such holder shall be regarded as a "Stockholder"
with respect to such shares for all purposes under this Agreement.
1.3 Handling of Escrow Shares. The Escrow Agent shall hold the Escrow
Shares as escrow agent on behalf of, and as a convenience to, the Stockholders
with the same force and effect as if such shares had been delivered by SAB to
each Stockholder and subsequently delivered by such Stockholder to the Escrow
Agent. The Escrow Agent shall hold the Escrow Shares for the benefit of SAB
and the Stockholders, as the case may be, pursuant to the terms of this
Agreement.
ARTICLE TWO
REIMBURSEMENT
2.1 Definitions. As used in this Agreement, the following terms shall
have the following meanings:
(a) "Cost Notice" shall mean a written notice, as prescribed in Section
2.3 of this Agreement, provided by SAB to the Escrow Agent setting forth in
reasonable detail the nature and amount of Reimbursable Costs. For
informational purposes, SAB shall provide a copy of any Cost Notice to J.
Olen Kerby, Jr.
(b) "Final Adjudication" with respect to the Lawsuit shall mean the
entry of a final non-appealable order by the Circuit Court of Greene County
or the appropriate appellate court, as applicable.
(c) "Lawsuit" means that certain lawsuit now pending against CNB in
Greene County, Alabama and captioned Harold Cannon, Gloria Cannon and B&C
Developers, L.L.C. (a limited liability company under the laws of Alabama),
Plaintiffs v. Commercial National Bank of Demopolis and Donna Bingham,
Defendants, Case No. CV-98-051.
(d) "Reimbursable Costs" shall mean all costs and expenses (including
without limitation attorney's fees, expert witness fees and all other
expenses incurred in connection with case preparation, depositions, trial
preparation, trying the case, settlement negotiations, and appeals, as well
as any damages, losses and/or settlement amounts), actually incurred or paid
by CNB, SAB or any of SAB's Affiliates which in any way arise out of or
which directly relate to the Lawsuit. Reimbursable Costs shall also
specifically include, without limitation, the amount of any indebtedness
(together with accrued interest) forgiven in settlement or resolution of the
Lawsuit, but Reimbursable Costs shall not include costs and expenses paid by
any insurance company or any Person other than SAB or its Affiliates.
(e) "Term" or "Term of this Agreement" shall have the meaning set forth
in Section 3.1 of this Agreement.
2.2 Reimbursement of Costs Arising From The Lawsuit. Subject to the
express limitations set forth in Section 2.4 of this Agreement, the Escrow
Agent, acting on behalf of the Stockholders, shall reimburse SAB and its
Affiliates from and against all Reimbursable Costs in accordance with the
procedures set forth in this Article Two. Upon the expiration of the Term of
this Agreement, the Escrow Agent shall, upon the direction of SAB, surrender
to SAB a certificate representing that number of Escrow Shares (the "Canceled
Escrow Shares") equal to the aggregate amount of Reimbursable Costs set forth
in the Cost Notices submitted to it by SAB and due to be paid, subject to
Section 2.4 hereof, together with the dividends thereon (without interest)
which are held in escrow. The Escrow Agent and SAB shall use the value of
SAB Common Stock used to determine the Exchange Ratio to calculate the number
of Canceled Escrow Shares, and they shall round the number so calculated to
the nearest whole share. The remaining Escrow Shares, together with the
dividends thereon (without interest) which are held in escrow, shall be
distributed to the Stockholders in accordance with their respective
Percentage Interests.
2.3 Notice of Reimbursable Costs. At any time prior to the Termination
of this Agreement SAB may submit a Cost Notice or Cost Notices to the Escrow
Agent. Cost Notices shall be accompanied by invoices or other appropriate
supporting documentation and evidence of payment of the costs set forth therein.
SAB shall submit its final Cost Notice (which shall be identified as such)
within sixty (60) days of Final Adjudication of the Lawsuit.
2.4 Limitations on Reimbursable Costs. SAB shall not be permitted to
be reimbursed for any Reimbursable Costs until the amount of such costs
exceeds $20,000, in which event SAB shall be entitled to reimbursement for all
Reimbursable Costs; provided, however, that SAB shall not be entitled to
reimbursement for Reimbursable Costs in any form other than return of the
Canceled Escrow Shares or in any amount in excess of the Escrow Shares.
2.5 Exclusive Remedy. If CNB, SAB or its Affiliates incur costs
arising out of or related to the Lawsuit, SAB's sole and exclusive means of
recovery shall be as set forth in this Agreement and the escrow established
hereunder. Neither CNB nor the Stockholders have any obligation or liability
to SAB beyond the several interests of such Stockholders in the Escrow Shares.
SAB agrees that if it incurs any costs arising out of or related to the
Lawsuit, it will not sue or seek recourse against CNB, its Affiliates, the
Stockholders, or any of them, other than as provided in this Agreement.
2.6 Fractional Shares. Notwithstanding any other provision of this
Agreement, each Stockholder who would otherwise have been entitled to receive
a fraction of a share of SAB Common Stock hereunder 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 average Market Value of one
share of SAB Common Stock during the Valuation Period. No Stockholder will
be entitled to dividends, voting rights, or any other rights as a stockholder
in respect of any fractional shares. SAB shall timely pay the Escrow Agent
the amount necessary to fund the obligation contained in this paragraph 2.6,
and the shares of SAB Common Stock resulting from the fractional interests
shall be included in the Canceled Escrow Shares and surrendered to SAB
therewith.
ARTICLE THREE
TERM
3.1 Term. The term of this Agreement shall commence at the Effective
Time and shall terminate when the Escrow Agent has delivered all of the
Escrow Shares (and related cash payments) pursuant to the terms of this
Agreement, which the Escrow Agent shall do within thirty (30) after
receiving SAB's final Cost Notice. After all Escrow Shares have been so
delivered and all cash payments made, all rights, duties, and obligations of
the respective parties hereunder shall terminate.
ARTICLE FOUR
DIVIDENDS; VOTING RIGHTS
4.1 Dividends. The Stockholders shall be entitled to receive, without
interest, on a deferred basis upon distribution of the Escrow Shares any and
all dividends or other distributions payable in cash or other property with
respect to the Escrow Shares other than Canceled Escrow Shares in accordance
with their respective Percentage Interests. The Escrow Agent shall deposit
any cash held in escrow pursuant to this Agreement in a non-interest bearing
account at South Alabama Bank in Mobile, Alabama. The Escrow Agent shall pay
dividends with respect to the Canceled Shares to South Alabama (without
interest) concurrently with delivery of the Canceled Escrow Shares.
4.2 Voting Rights. So long as the Escrow Agent continues to hold Escrow
Shares under this Agreement, the Escrow Agent shall, in connection with all
meetings of stockholders of SAB, vote such Escrow Shares entitled to vote at
each such meeting only in such manner as Stockholders in proportion to their
respective Percentage Interests as set forth in Schedule I shall direct in
written instructions delivered to the Escrow Agent. In any such case, the
Escrow Agent shall mail to the Stockholders copies of each annual report to
stockholders, notice of meetings of stockholders, proxy statement, or other
solicitation material distributed generally to stockholders of SAB in
connection with each meeting of stockholders of SAB, not later than five (5)
business days after receipt by the Escrow Agent of any such materials. In
the absence of such directions, the Escrow Agent shall not vote any such
Escrow Shares.
ARTICLE FIVE
THE ESCROW AGENT
5.1 Liability. The Escrow Agent (and any successor escrow agent) shall
be liable only to hold the Escrow Shares and to deliver the same to the
parties named herein in accordance with the provisions of this Agreement.
The Escrow Agent shall not be bound in any way by any other agreement or
contract between SAB, CNB, or any other party, and the Escrow Agent's only
duties or responsibilities shall be to hold the Escrow Shares as Escrow Agent
and to dispose of the Escrow Shares in accordance with the terms of this
Agreement. By acceptance of this Escrow Agreement, the Escrow Agent (and any
successor escrow agent) is acting in the capacity of a depository only, and
shall not be liable or responsible for any damages, losses, or expenses,
unless such damages, losses, or expenses shall be caused by the negligence or
malfeasance of the Escrow Agent (or in the case of any successor escrow agent,
such successor's negligence or malfeasance). Neither the Escrow Agent nor any
successor escrow agent shall incur any liability with respect to (i) any
action taken or omitted in good faith upon the advice of its counsel with
respect to any questions relating to the duties and responsibilities of the
Escrow Agent under this Agreement or (ii) any action taken or omitted in
reliance upon any instrument, including the written instructions provided for
herein, not only as to the due execution of such instrument, or the identity,
or authority of any person executing such instrument, or the validity and
effectiveness of such instrument, but also as to the truth and accuracy of
any information contained therein, provided that the Escrow Agent shall in
good faith believe such instrument to be genuine, to have been signed by a
proper person or persons, and to conform to the provisions of this Agreement.
5.2 Successor. The Escrow Agent may by written instrument designate a
bank or trust company acceptable to SAB to act as successor escrow agent.
Any such successor escrow agent shall have all the rights, duties, and
responsibilities of the Escrow Agent under this Agreement.
5.3 Expenses. All expenses and fees of the Escrow Agent incurred in
carrying out its obligations under this Agreement shall be borne by SAB.
5.4 Degree of Care. Neither the Escrow Agent nor any successor escrow
agent shall be required to give a greater degree of care to the Escrow Shares
than to its own similar property.
5.5 Escrow Stock Certificates. The Escrow Agent may, at any time,
request SAB to issue new certificates representing the Escrow Shares in such
denominations as may be necessary or appropriate in carrying out the Escrow
Agent's obligations under this Agreement, and SAB agrees to issue, or cause
to be issued, such new certificates promptly upon surrender of certificates
to be exchanged therefor.
ARTICLE SIX
MISCELLANEOUS
6.1 Escrow Stock Rights. The contingent right to receive Escrow Shares
(or cash payments in lieu of any Fractional Escrow Shares) as represented by
the Escrow Stock Rights shall not be (i) transferable by the Stockholders
otherwise than by will or by the laws of descent and distribution or (ii)
represented by any form of certificate or instrument.
6.2 Notices. Each party shall keep each of the other parties hereto
advised in writing of all transactions pursuant to this Agreement. Any
notices or other communications required or permitted under this Agreement
shall be in writing and shall be sufficiently given if given in person or if
sent by overnight delivery service, postage prepaid, addressed as follows, or
by facsimile to the facsimile numbers identified below:
CNB: The Commercial National Bank of Demopolis
Post Office Box 280 (36732-0280)
201 North Main
Demopolis, Alabama 36732-2015
Telephone: (334) 289-3820
Facsimile: (334) 289-9252
Attention: J. Olen Kerby, Jr.
Copy to Counsel: Balch & Bingham
Post Office Box 78 (36101)
2 Dexter Avenue
Montgomery, Alabama 36104
Telephone: (334) 834-6500
Facsimile: (334) 269-3115
Attention: Michael D. Waters
SAB: South Alabama Bancorporation, Inc.
P. O. Box 3067 (36652)
100 St. Joseph Street
Mobile, Alabama 36602
Telephone: (334) 431-7800
Facsimile: (334) 431-7851
Attention: W. Bibb Lamar, Jr., President
Copy to Counsel: Hand Arendall, L.L.C.
P. O. Box 123 (36601)
3000 First National Bank Building
Mobile, Alabama 36602
Telephone: (334) 432-5511
Facsimile: (334) 694-6375
Attention: Stephen G. Crawford
or such other person or address as shall be furnished in writing by any of
the parties and any such notice or communication shall be deemed to have been
given as of the date so mailed.
6.3 Construction. The validity, enforcement, and construction of this
Agreement shall be governed by the Laws of the State of Alabama, without
regard to the principles of conflicts of laws thereof.
6.4 Binding Effect. This Agreement shall inure to the benefit of and
be binding upon the respective successors, and assigns of the parties hereto.
6.5 Severability. If any provision or section of this Agreement is
determined to be void or otherwise unenforceable, it shall not affect the
validity or enforceability of any other provisions of this Agreement which shall
remain enforceable in accordance with their terms.
6.6 Headings. The headings and subheadings contained in this Agreement
are for reference only and for the benefit of the parties and shall not be
considered in the interpretation or construction of this Agreement.
6.7. Execution in Counterparts. This Agreement may be executed in any
number or counterparts, each of which shall be deemed to be an original, but
all of which together shall constitute one and the same instrument.
6.8 Amendments. This Agreement may be amended from time to time but
only by written agreement signed by all of the parties hereto.
IN WITNESS WHEREOF, the parties have executed this Escrow Trust
Agreement as of the day and year first above written.
SOUTH ALABAMA BANCORPORATION, INC.
By:_________________________________________
W. Bibb Lamar, Jr., President
THE COMMERCIAL NATIONAL BANK OF DEMOPOLIS
By: ________________________________________
J. Olen Kerby, Jr., President
SOUTH ALABAMA TRUST COMPANY, INC.
as Escrow Agent
By: ________________________________________
Dan Britton, President
Appendix B
AGREEMENT AND PLAN OF MERGER
THIS AGREEMENT AND PLAN OF MERGER (this "Plan of Merger") is made and
entered into as of the _______ day of __________________, 1998, by and
between THE COMMERCIAL NATIONAL BANK OF DEMOPOLIS ("CNB"), a national banking
association organized and existing under the laws of the United States, and
THE COMMERCIAL INTERIM BANK OF DEMOPOLIS ("Interim"), an Alabama banking
corporation and wholly owned subsidiary of South Alabama Bancorporation, Inc.
("SAB").
PREAMBLE
Each of the Boards of Directors of CNB and Interim deems it advisable
and in the best interests of their respective institutions and the stockholders
thereof for CNB to be merged into Interim (the "Merger") on the terms and
conditions provided in this Plan of Merger. This Plan of Merger is made and
entered into pursuant to an Agreement and Plan of Reorganization, dated as of
July 22, 1998 (the "Agreement"), by and between CNB and SAB. At the Effective
Time of the Merger, the outstanding shares of the common stock of CNB shall be
converted into the right to receive shares of the common stock of SAB
(subject to certain exceptions as set forth in the Agreement and this Plan of
Merger). As a result, stockholders of CNB shall become stockholders of SAB,
and Interim shall continue to conduct its business and operations as a
wholly-owned first tier subsidiary of SAB. It is intended 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 and for
pooling-of-interests accounting treatment.
NOW, THEREFORE, in consideration of the covenants and agreements
contained herein, and for other good and valuable consideration, the receipt
and sufficiency of which are hereby acknowledged, CNB and Interim hereby make,
adopt, and approve this Plan of Merger in order to set forth the terms and
conditions of the merger of Interim into CNB.
ARTICLE ONE
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:
"Agreement" shall mean the Agreement and Plan of Reorganization, dated
as of July 22, 1998, by and between CNB and SAB, including each of the
supporting agreements and the other exhibits delivered pursuant thereto
and incorporated therein by reference.
"Articles of Merger" shall mean the Articles of Merger to be executed by
Interim and filed with the Alabama Secretary of State in accordance with
Section 5.2 of this Plan of Merger.
"Closing" shall mean the closing of the transactions contemplated
hereunder, as described in Section 5.1 of this Plan of Merger.
"CNB Common Stock" shall mean the $1.00 par value common stock of CNB.
"Interim Common Stock" shall mean the $1.00 par value common stock of
Interim.
"Effective Time" shall mean the date and time on which the Merger
contemplated by this Plan of Merger becomes effective pursuant to the
laws of the United States, as defined in Section 5.2 of this Plan of
Merger.
"Exchange Agent" shall have the meaning specified in Section 4.1 of this
Plan of Merger.
"Exchange Ratio" shall have the meaning specified in Section 3.1(b) of
this Plan of Merger.
"Internal Revenue Code" shall mean the Internal Revenue Code of 1986, as
amended.
"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; provided, however, that for purposes of determining the
Exchange Ratio, if the Market Value of SAB Common Stock exceeds $20
per share it shall be deemed to be $20 per share, and if the Market
Value of SAB Common Stock is less than $15.3333 per share, it shall be
deemed to be $15.3333 per share.
"Merger" shall mean the merger of CNB with and into Interim, as provided
in Article Two of this Plan of Merger.
"Nasdaq" shall mean the National Association of Securities Dealers, Inc.
Automated Quotations System.
"Party" shall mean either CNB or Interim and "Parties" shall mean both
CNB or Interim.
"SAB Common Stock" shall mean the $.01 par value common stock of SAB.
"SAB Companies" shall mean, collectively, SAB and all SAB subsidiaries.
"Surviving Bank" shall mean Interim, as the surviving bank resulting
from the Merger.
"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.
ARTICLE TWO
TERMS OF MERGER
2.1 Merger. Subject to the terms and conditions of this Plan of Merger
and the Agreement, at the Effective Time, CNB shall be merged with and into
Interim in accordance with the provisions of 12 U.S.C. Section 214a and
Chapter 7A of Title 5 of the Code of Alabama (1975) and with the effect
provided in 12 U.S.C. Section 214b and Section 10-2B-11.06 Code of Alabama
(1975) (the "Merger"). Interim shall be the Surviving Bank resulting from the
Merger and shall be a state bank governed by the Laws of the State of Alabama.
The Merger shall be consummated pursuant to the terms of this Plan of Merger.
2.2. Business of Surviving Bank. The business of the Surviving Bank from
and after the Effective Time shall be that of a state banking corporation
organized under the laws of the State of Alabama. The business shall be
conducted from its main office and at its legally established branches, which
shall also include the main office and all branches, whether in operation or
approved but unopened, at the Effective Time.
2.3 Assumption of Rights. At the Effective Time, the separate
existence and corporate organization of CNB shall be merged into and continued
in the Surviving Bank. Without limiting the generality of the foregoing, and
subject thereto, at the Effective Time and thereafter, except as otherwise
provided herein, all the rights, privileges, immunities, and franchises, of a
public as well as of a private nature, of each of CNB and Interim; and all
property, real, personal and mixed, and all debts due on whatever account, and
all other choses in action, and all and every other interest of or belonging
to or due to each of CNB and Interim shall be taken and deemed to be transferred
to and vested in the Surviving Bank without further act or deed; and the title
to any real estate, or any interest therein, vested in either of CNB or Interim
shall not revert or be in any way impaired by reason of the Merger. The
Surviving Bank, upon consummation of the Merger and without any order or
other action on the part of any court or otherwise, shall hold and enjoy all
rights or property, franchises, and interests, including appointments,
designations, and nominations, and all other rights and interests as trustee,
executor, administrator, registrar of stocks and bonds, guardian of estates,
assignee, receiver, and committee of estates of incompetent persons, and in
every other fiduciary capacity, in the same manner and to the same extent as
such rights, franchises, and interests where held or enjoyed by either CNB or
Interim at the Effective Time.
2.4 Charter. The Articles of Incorporation of Interim in effect
immediately prior to the Effective Time shall be the Articles of Incorporation
of the Surviving Bank immediately following the Effective Time, with the
amendments set forth in Exhibit 1 hereto, until otherwise amended or
repealed.
2.5 Bylaws. The Bylaws of Interim in effect immediately prior to the
Effective Time shall be the Bylaws of the Surviving Bank immediately following
the Effective Time, with the amendments set forth in Exhibit 2 hereto, until
otherwise amended or repealed.
2.6 Directors and Officers.
(a) The directors of the Surviving Bank from and after the Effective
Time shall consist of the incumbent directors of CNB, who shall serve as
directors of the Surviving Bank from and after the Effective Time in
accordance with the Bylaws of the Surviving Bank.
(b) The principal officers of the Surviving Bank upon the Effective
Time shall be the incumbent principal officers of CNB, who shall serve as
officers of the Surviving Bank from and after the Effective Time in
accordance with the Bylaws of the Surviving Bank.
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 banks shall
be converted as follows:
(a) Each share of Interim Common Stock issued and outstanding at
the Effective Time shall remain issued and outstanding from and after the
Effective time.
(b) Each share of CNB Common Stock (other than shares to be
canceled pursuant to Section 3.2 of this Plan of Merger and shares held by
stockholders who perfect their dissenters' rights of appraisal as provided in
Section 3.3 of this Plan of Merger) 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 One Hundred Fifty Dollars
($150), subject to the adjustments contained in the definition of Market Value
hereinabove (the "Exchange Ratio").
3.2 Shares Held by CNB or SAB. Each of the shares of CNB Common Stock
held by CNB 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.
3.3 Dissenting Stockholders. Any holder of shares of CNB Common Stock
who perfects his dissenters' rights of appraisal in accordance with and as
contemplated by 12 U.S.C. Section 214a(b) 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 12 U.S.C. Section 214a(b) and surrendered to the
Exchange Agent 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 CNB fails to perfect, or effectively withdraws or
loses, his right to appraisal and of payment for his shares, the Exchange
Agent shall issue and deliver the consideration to which such holder of shares
of CNB Common Stock is entitled under this Article Three (without interest)
upon surrender by such holder of the certificate or certificates representing
shares of CNB Common Stock held by him.
3.4 Fractional Shares. Notwithstanding any other provision of this
Plan of Merger, each holder of shares of CNB 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 during
the Valuation Period. No such holder will be entitled to dividends, voting
rights, or any other rights as a stockholder in respect of any fractional
shares.
3.5 Anti-Dilution Provision. In the event CNB changes the number of
shares of CNB 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 (in the case of a stock
dividend) or the effective date thereof (in the case of a stock split or
similar recapitalization for which a record date is not established) shall be
prior to the Effective Time, the Exchange Ratio shall be proportionately
adjusted to reflect such stock split, stock dividend or recapitalization.
ARTICLE FOUR
EXCHANGE OF SHARES
4.1 Exchange Procedures. Promptly after the Effective Time, SAB shall
cause the exchange agent selected by it (the "Exchange Agent") to mail to the
former stockholders of CNB appropriate transmittal materials (which shall
specify that delivery shall be effected, and risk of loss and title to the
certificates theretofore representing shares of CNB Common Stock shall pass,
only upon proper delivery of such certificates to the Exchange Agent). After
the Effective Time, each holder of shares of CNB Common Stock (other than
shares to be canceled pursuant to Section 3.2 of this Plan of Merger or as to
which dissenters' rights of appraisal have been perfected as provided in
Section 3.3 of this Plan of Merger) 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 Plan of
Merger, together with all undelivered dividends or distributions in respect
of such shares (without interest thereon) pursuant to Section 4.2 of this Plan
of Merger. To the extent required by Section 3.4 of this Plan of Merger, each
holder of shares of CNB 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). SAB
shall not be obligated to deliver the consideration to which any former holder
of CNB Common Stock is entitled as a result of the Merger until such holder
surrenders his certificate or certificates representing the shares of CNB
Common Stock for exchange as provided in this Section 4.1. The certificate
or certificates of CNB Common Stock so surrendered shall be duly endorsed as
the Exchange Agent may require. Any other provision of this Plan of Merger
notwithstanding, neither SAB, the Surviving Bank nor the Exchange Agent shall
be liable to a holder of CNB 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 CNB Stockholders. At the Effective Time, the
stock transfer books of CNB shall be closed as to holders of CNB Common Stock
immediately prior to the Effective Time, and no transfer of CNB 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 Plan of
Merger, each certificate theretofore representing shares of CNB Common Stock
( CNB Certificate ), other than shares to be canceled pursuant to Section 3.2
of this Plan of Merger or as to which dissenters' rights of appraisal have
been perfected as provided in Section 3.3 of this Plan of Merger, shall from
and after the Effective Time represent for all purposes only the right to
receive the consideration provided in Sections 3.1 and 3.4 of this Plan of
Merger in exchange therefor. To the extent permitted by Law, former
stockholders of record of CNB shall be entitled to vote after the Effective
Time at any meeting of SAB stockholders the number of whole shares of SAB
Common Stock into which their respective shares of CNB Common Stock are
converted, regardless of whether such holders have exchanged their CNB
Certificates for certificates representing SAB Common Stock in accordance with
the provisions of this Plan of Merger. Whenever a dividend or other
distribution is declared by SAB 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 Plan
of Merger. Notwithstanding the preceding sentence, any person holding any CNB
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 CNB Certificate held after the Cutoff, until such person surrenders said
CNB Certificate for exchange as provided in Section 4.1 of this Plan of Merger.
However, upon surrender of such CNB 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 CNB Certificate.
ARTICLE FIVE
CLOSING AND EFFECTIVE TIME
5.1 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.
5.2 Effective Time. The Merger and other transactions contemplated by
this Plan of Merger shall become effective on the date and at the time stated
in the Articles of Merger or at the time the Articles of Merger are filed,
whichever is later (the "Effective Time"). Subject to the terms and conditions
hereof and of the Agreement, 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 as soon as practicable after 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 CNB
approve this Plan of Merger to the extent such approval is required by
applicable Law or such later date within ninety (90) days thereof as may be
specified by SAB.
ARTICLE SIX
CONDITIONS, TERMINATION,
AMENDMENT AND WAIVER
6.1 Conditions Precedent. Consummation of the Merger is conditioned
upon the approval of the Merger by the stockholders of CNB and the sole
stockholder of Interim, as and to the extent required by law, and the receipt
of the requisite Regulatory Approvals as set forth in the Agreement.
Additionally, consummation of the Merger is conditioned upon the fulfillment
of the conditions precedent set forth in Article Nine of the Agreement or the
waiver of such conditions as provided in Section 11.5 of the Agreement.
6.2 Termination. This Plan of Merger may be terminated at any time
prior to the Effective Time by the Parties hereto at any time after
termination of the Plan of Merger as provided in Article Ten of the Agreement.
6.3 Amendment. This Plan of Merger may be amended at any time prior to
the Effective Time as provided in Section 11.4 of the Agreement.
6.4 Waiver.
(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 Plan of Merger or the Agreement by CNB, to waive or extend the time for
the compliance or fulfillment by CNB of any and all of its obligations under
this Plan of Merger or the Agreement, and to waive any or all of the
conditions precedent to the obligations of SAB under this Plan of Merger or
the 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 the chief executive officer of SAB.
(b) Prior to or at the Effective Time, CNB, 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
Plan of Merger or the 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
Plan of Merger or the Agreement, and to waive any or all of the conditions
precedent to the obligations of CNB under this Plan of Merger or the 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 the
chief executive officer of CNB.
ARTICLE SEVEN
MISCELLANEOUS
7.1 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
in Section 11.7 of the Agreement (or at such other address as may be provided
thereunder), and shall be deemed to have been delivered as of the date
specified therein.
7.2 Governing Law. This Plan of Merger shall be governed by and
construed in accordance with the laws of the State of Alabama, without regard
to any applicable conflicts of law, except to the extent that the federal laws
of the United States may apply to the Merger.
7.3 Counterparts. This Plan of Merger 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.
7.4 Inconsistent Provisions. The Parties agree that, to the extent any
of the provisions of this Plan of Merger shall conflict or be inconsistent
with any provision of the Agreement, the provisions of the Agreement shall
control and prevail, and the Parties hereto agree to execute such amendments
to this Plan of Merger as may be necessary to conform the provisions hereof
to the provisions of the Agreement.
IN WITNESS WHEREOF, each of the Parties has caused this Plan of Merger to
be executed on its behalf and its corporate seal to be hereunto affixed and
attested by officers thereunto duly authorized all as of the day and year
first above written.
THE COMMERCIAL NATIONAL BANK OF DEMOPOLIS
[NATIONAL BANK SEAL]
By: ________________________________________
J. Olen Kerby
Its President
ATTEST:
__________________________________
Cashier
THE COMMERCIAL INTERIM BANK OF DEMOPOLIS
[SEAL]
By:_________________________________________
W. Bibb Lamar, Jr.
Its President
ATTEST:
_______________________________
Corporate Secretary
Exhibit 1
AMENDMENTS TO ARTICLES OF INCORPORATION
Article One shall be amended to read as follows:
The name of the corporation shall be THE COMMERCIAL BANK OF
DEMOPOLIS .
Exhibit 2
AMENDMENTS TO BYLAWS
The Bylaws shall be amended to replace the name "The Commercial
Interim Bank of Demopolis" with "The Commercial Bank of Demopolis"
wherever the same appears.
<TABLE>
Index to Financial Statements
<CAPTION>
The Commercial National Bank of Demopolis Page
<S> <C>
Independent Auditors Report............................................. 1
Statements of Income for the years ended December 31,
1997, 1996, and 1995................................................ 2
Statements of Condition as of December 31, 1997 and 1996................ 4
Statements of Stockholders' Equity for the years ended
December 31, 1997, 1996 and 1995.................................... 5
Statements of Cash Flows for the years ended December 31,
1997, 1996, and 1995................................................ 6
Notes to Financial Statements........................................... 7
Statements of Income for the six months ended June 30,
1998 (unaudited) and 1997 (unaudited)...............................18
Statements of Condition as of June 30, 1998 (unaudited)
and 1997 (unaudited)................................................19
Statements of Cash Flows for the six months ended
June 30, 1998 (unaudited) and 1997 (unaudited)......................21
</TABLE>
Appendix C
AUDITED FINANCIAL STATEMENTS
THE COMMERCIAL NATIONAL BANK
OF DEMOPOLIS
DEMOPOLIS, ALABAMA
DECEMBER 31, 1997
<TABLE>
<CAPTION>
THE COMMERCIAL NATIONAL BANK OF DEMOPOLIS
TABLE OF CONTENTS
PAGE
<S> <C>
INDEPENDENT AUDITOR'S REPORT 1
STATEMENTS OF INCOME 2
STATEMENTS OF CONDITION 4
STATEMENTS OF STOCKHOLDERS' EQUITY 5
STATEMENTS OF CASH FLOWS 6
NOTES TO FINANCIAL STATEMENTS 7
</TABLE>
INDEPENDENT AUDITOR'S REPORT
Board of Directors
The Commercial National Bank of Demopolis
Demopolis, Alabama
We have audited the statements of condition of The Commercial National Bank of
Demopolis as of December 31, 1997, 1996, and 1995 and the related statements
of income, stockholders' equity, and cash flows for the years then ended. These
financial statements are the responsibility of the Bank's management. Our
responsibility is to express an opinion on these financial statements based on
our audit.
We conducted our audit 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 from
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 audit provides a reasonable basis for our
opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of The Commercial National Bank
of Demopolis as of December 31, 1997, 1996, and 1995 and results of operations
and cash flows for the years then ended, in conformity with generally accepted
accounting principles.
McKEAN & ASSOCIATES, P.A.
January 15, 1998 Certified Public Accountants
<TABLE>
THE COMMERCIAL NATIONAL BANK OF DEMOPOLIS
STATEMENTS OF INCOME
<CAPTION>
For the years ended December 31, 1997 1996 1995
<S> <C> <C> <C>
INTEREST INCOME
Loans - taxable $ 4,129,739 $ 3,824,072 $ 3,536,114
Loans - tax exempt 27,143 18,343 14,812
Total 4,156,882 3,842,415 3,550,926
Investment Securities - taxable 488,999 590,104 664,181
Investment Securities - tax exempt 422,340 412,020 428,765
Federal funds sold 33,952 52,421 40,451
Total 945,291 1,054,545 1,133,397
TOTAL INTEREST INCOME 5,102,173 4,896,960 4,684,323
INTEREST EXPENSE
Deposits 2,441,197 2,419,174 2,284,731
FHLB borrowing 57,668 0 0
Federal funds purchased 34,310 9,735 20,237
NET INTEREST INCOME 2,568,998 2,468,051 2,379,355
Provision for loan losses 122,500 10,000 0
NET INTEREST INCOME AFTER
PROVISION FOR LOAN LOSSES 2,446,498 2,458,051 2,379,355
NON-INTEREST INCOME
Service/penalty charges on deposit accounts 351,886 357,037 343,369
Securities gains (losses) 14,169 18,384 (21,149)
Other income 106,392 69,990 127,173
Total 472,447 445,411 449,393
OPERATING INCOME $ 2,918,945 $ 2,903,462 $ 2,828,748
See independent auditor's report and notes to financial statements.
2
THE COMMERCIAL NATIONAL BANK OF DEMOPOLIS
STATEMENTS OF INCOME
For the years ended December 31, 1997 1996 1995
OPERATING INCOME $ 2,918,945 $ 2,903,462 $ 2,828,748
NON-INTEREST EXPENSES
Salaries 728,528 711,880 716,535
Employee benefits 240,506 246,651 243,161
Occupancy 130,984 140,911 132,876
Equipment depreciation and maintenance 130,936 93,889 85,302
Professional fees 105,462 116,710 75,269
Stationery and supplies 74,975 68,245 70,880
Computer expense 42,363 64,990 46,080
Other expenses 462,715 441,351 462,979
TOTAL NON-INTEREST EXPENSE 1,916,469 1,884,627 1,833,082
INCOME BEFORE INCOME TAXES 1,002,476 1,018,835 995,666
Provision for income taxes 225,731 246,667 236,228
NET INCOME $ 776,745 $ 772,168 $ 759,438
Average number of shares outstanding 121,500 121,500 121,500
Net income per common share $ 6.39 $ 6.36 $ 6.25
Cash dividends declared per share $ 1.87 $ 1.72 $ 1.62
See independent auditor's report and notes to financial statements.
3
</TABLE>
<TABLE>
THE COMMERCIAL NATIONAL BANK OF DEMOPOLIS
STATEMENTS OF CONDITION
<CAPTION>
December 31, 1997 1996 1995
ASSETS
<S> <C> <C> <C>
Cash and due from banks $ 1,946,010 $ 2,678,078 $ 3,532,724
Federal funds sold 1,000,000 0 1,875,000
Investment securities 15,056,230 16,151,844 15,920,571
Loans (net of unearned interest and allowance
for loan losses) 47,629,524 42,520,110 38,178,063
Premises and equipment, net 1,477,338 1,546,254 1,467,772
Accrued interest receivable 713,815 629,437 633,551
Other assets 174,029 260,232 183,172
TOTAL $ 67,996,946 $ 63,785,955 $ 61,790,853
LIABILITIES
Deposits
Demand-non-interest bearing $ 6,196,868 $ 6,566,580 $ 5,737,247
Demand-interest bearing 10,150,416 9,835,064 12,305,157
Savings 5,101,700 5,144,362 4,817,464
Time 35,365,199 32,827,789 31,797,031
Total deposits 56,814,183 54,373,795 54,656,899
Federal funds purchased 0 1,600,000 0
Treasury tax and loan 311,319 374,818 303,052
Accrued interest payable 265,745 263,188 251,132
Other liabilities 817,973 590,378 368,905
FHLB borrowings 2,500,000 0 0
60,709,220 57,202,179 55,579,988
STOCKHOLDERS' EQUITY
Common stock - par vale $1 per share;
135,000 shares authorized,
121,500 shares issued and outstanding 121,500 121,500 1,012,500
Surplus 1,266,000 1,266,000 375,000
Unrealized gain (loss) on investment securiti (8,537) (162,947) 27,330
Undivided profits 5,908,763 5,359,223 4,796,035
7,287,726 6,583,776 6,210,865
TOTAL $ 67,996,946 $ 63,785,955 $ 61,790,853
See independent auditor's report and notes to financial statements.
</TABLE>
4
<TABLE>
THE COMMERCIAL NATIONAL BANK OF DEMOPOLIS
STATEMENTS OF STOCKHOLDERS' EQUITY
<CAPTION>
For the years ended December 31, 1997 1996 1995
<S> <C> <C> <C>
COMMON STOCK
Balance at beginning of year $ 121,500 $ 1,012,500 $ 1,012,500
Par value reduction 0 (972,000) 0
Stock dividend - 2:1 0 81,000 0
Balance at end of year 121,500 121,500 1,012,500
SURPLUS
Balance at beginning of year 1,266,000 375,000 375,000
Par value reduction 0 972,000 0
Stock dividend - 2:1 0 (81,000) 0
Balance at end of year 1,266,000 1,266,000 375,000
UNREALIZED GAIN (LOSS) ON INVESTMENT
SECURITIES (8,537) (162,947) 27,330
UNDIVIDED PROFITS
Balance at beginning of year 5,359,223 4,796,035 4,233,022
Net income 776,745 772,168 759,438
Cash dividends - $1.87 per share in 1997,
$1.72 per share in 1996, and $1.62 per
share in 1995 (227,205) (208,980) (196,425)
Balance at end of year 5,908,763 5,359,223 4,796,035
TOTAL STOCKHOLDERS' EQUITY $ 7,287,726 $ 6,583,776 $ 6,210,865
See independent auditor's report and notes to financial statements.
</TABLE>
5
<TABLE>
THE COMMERCIAL NATIONAL BANK OF DEMOPOLIS
STATEMENTS OF CASH FLOWS
<CAPTION>
For the years ended December 31, 1997 1996 1995
<S> <C> <C> <C>
OPERATING ACTIVITIES
Net income $ 776,745 $ 772,168 $ 759,438
Adjustments
Provision for loan losses 122,500 10,000 0
Provision for depreciation 116,077 102,452 93,972
Amortization and accretion of investment
securities (net) (7,277) (5,146) 12,851
(Gain) loss on sale of investment securities (14,169) (18,384) 21,149
(Increase) decrease in assets
Interest receivable (84,378) 4,114 (25,381)
Other assets 6,659 (77,060) 158,499
Increase (decrease) in liabilities
Interest payable 2,557 12,056 251,132
Other liabilities 227,595 30,091 (25,641)
NET CASH FLOWS FROM OPERATING ACTIVITIES 1,146,309 830,291 1,246,019
INVESTING ACTIVITIES
Proceeds from sales and maturities of
investment securities 6,640,874 5,963,695 2,417,990
Purchases of investment securities (5,289,860) (6,170,333) (694,600)
Net increase in loans (5,231,914) (4,352,047) (2,844,418)
Purchases of equipment (47,161) (180,934) (14,687)
NET CASH FLOWS FROM INVESTING ACTIVITIES (3,928,061) (4,739,619) (1,135,715)
FINANCING ACTIVITIES
Net increase (decrease) in deposits 2,440,388 (283,104) 5,516,106
Increase (decrease) in Federal funds purchased (1,600,000) 1,600,000 (2,000,000)
Increase in Treasury Tax and Loan account (63,499) 71,766 22,813
Proceeds from long-term borrowings 2,500,000 0 0
Cash dividends (227,205) (208,980) (196,425)
NET CASH FLOWS FROM FINANCING ACTIVITIES 3,049,684 1,179,682 3,342,494
Increase (decrease) in cash and cash equivalents 267,932 (2,729,646) 3,452,798
Cash and cash equivalents, beginning of year 2,678,078 5,407,724 1,954,926
CASH AND CASH EQUIVALENTS, END OF YEAR $ 2,946,010 $ 2,678,078 5,407,724
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
Cash paid during the year for:
Interest $ 2,535,732 $ 2,418,857 2,231,276
Income taxes $ 254,854 $ 245,627 223,939
See independent auditor's report and notes to financial statements.
</TABLE>
6
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The accounting policies followed by The Commercial National Bank of
Demopolis are in conformity with generally accepted accounting
principles and comply with reporting guidelines prescribed by banking
regulatory authorities in all material respects.
Basis of Consolidation
The financial statements include only the accounts of The Commercial
National Bank.
Statements of Cash Flows
Cash and cash equivalents include demand deposits with correspondent
banks and federal funds sold on a daily basis to other banks.
Investment Securities
Investment securities are stated at cost adjusted for amortization of
premiums and accretion of discounts, which are recognized as
adjustments to interest income. Gains or losses on disposition are
based on the net proceeds from the sale and the adjusted carrying
amount of the securities sold, using the specific identification
method. In accordance with FASB 115, a mark-to-market valuation
account is used to account for unrealized gains or losses on
securities held for sale.
Loans and Allowance for Loan Losses
Loans are reported at principal amounts outstanding less unearned
interest income and allowance for loan losses. Interest on discounted
loans is recognized using the sum-of-the-digits method which
approximates the interest method. Interest on the other loans is
calculated by using the simple interest method on daily balances of
the principal amount outstanding.
The allowance for loan losses is increased by the provision charged to
operations. Loans are charged against the allowance for loan losses
when management believes that the collection of the principal is
unlikely. The allowance is an amount that management believes will
be adequate to absorb possible losses on existing loans that may
become uncollectible, based on evaluations of the collectibility of
loans and prior loan loss experience. The evaluations of the
collectibility of loans take into consideration such factors as
changes in the nature and volume of the loan portfolio, overall
portfolio quality, review of specific problem loans, and the current
economic conditions that may affect the borrower's ability to pay.
Accrual of interest is discontinued on a loan when management believes,
after considering economic and business conditions and collection
efforts, that the borrower's financial condition is such that
collection of interest is doubtful.
Premises and Equipment
Bank premises and equipment are reported at cost less allowances for
depreciation which are computed using straight-line and accelerated
methods over the estimated useful lives of the related assets. Costs
incurred for maintenance and repairs are expensed currently. On
disposal of properties, the related costs and allowances for
depreciation are removed from the appropriate accounts and any gains
and losses are recognized.
Income Taxes
The Bank accounts for certain income and expense items in different
time periods for financial reporting purposes versus income tax
purposes. Provisions for deferred income taxes are made in
recognition of these timing differences.
See independent auditor's report.
7
Other Real Estate
Other real estate is stated at the lower of cost or fair value as of
the date acquired.
Nature of Operations
The Commercial National Bank provides banking services in Demopolis,
Alabama and the surrounding areas of Marengo County, Alabama.
Use of Estimates in the Preparation of Financial Statements
The preparation of financial statements in conformity with generally
accepted accounting principles requires the use of management's
estimates. Actual results could differ from those estimates.
2. INVESTMENT SECURITIES
The carrying amounts and approximate market value of investment
securities are summarized as follows:
<TABLE>
<CAPTION>
Approximate
Carrying Market
<S> <C> <C>
December 31, 1997 Amount Value
U.S. Government Agencies $ 6,442,009 $ 6,078,514
States and Political Subdivisions 8,231,130 8,575,645
Other securities 396,027 402,071
$ 15,069,166 $ 15,056,230
Approximate
Carrying Market
December 31, 1996 Amount Value
U.S. Government Agencies $ 8,406,534 $ 7,947,359
States and Political Subdivisions 7,627,041 7,829,772
Other securities 365,159 374,713
$ 16,398,734 $ 16,151,844
Approximate
Carrying Market
December 31, 1995 Amount Value
U.S. Government Agencies $ 8,173,168 $ 7,811,294
States and Political Subdivisions 7,353,424 7,730,430
Other securities 364,692 378,847
$ 15,891,284 $ 15,920,571
</TABLE>
See independent auditor's report.
8
2. INVESTMENT SECURITIES (CONTINUED)
Investment securities with a carrying value of $7,175,380, $5,570,221,
and $7,762,837 at December 31, 1997, 1996, and 1995, respectively,
were pledged to secure public deposits. Market value of these
securities amounted to $7,288,552, $5,680,484, and $7,730,477 at
December 31, 1997, 1996, and 1995, respectively.
The following table reflects the carrying amount and market value of
investment securities held at December 31, 1997, 1996, and 1995,
grouped by type and maturity:
<TABLE>
<CAPTION>
Approximate
Carrying Market
December 31, 1997 Amount Value
<S> <C> <C>
U.S. Government Agencies - AFS
Due within one year $ 0 $ 0
After one year but within five years 500,000 485,450
After five years but within ten years 1,902,502 1,642,309
After ten years 4,039,507 3,950,755
6,442,009 6,078,514
States and political subdivisions - AFS
Due within one year 230,114 241,973
After one year but within five years 958,416 1,000,902
After five years but within ten years 1,560,867 1,634,126
After ten years 5,481,733 5,698,644
8,231,130 8,575,645
Corporate securities - AFS
After one year but within five years 129,377 135,421
Other 266,650 266,650
Total $ 15,069,166 $ 15,056,230
See independent auditor's report.
9
2. INVESTMENT SECURITIES (CONTINUED)
Approximate
Carrying Market
December 31, 1996 Amount Value
U.S. Government Agencies - AFS
Due within one year $ 0 $ 0
After one year but within five years 1,896,773 1,849,680
After five years but within ten years 2,532,297 2,230,871
After ten years 3,977,464 3,866,808
8,406,534 7,947,359
States and political subdivisions - AFS
Due within one year 200,571 204,289
After one year but within five years 1,961,404 2,042,737
After five years but within ten years 1,577,171 1,649,828
After ten years 3,887,895 3,932,918
7,627,041 7,829,772
Corporate securities - AFS
After one year but within five years 128,909 138,463
Other 236,250 236,250
Total $ 16,398,734 $ 16,151,844
See independent auditor's report.
10
2. INVESTMENT SECURITIES (CONTINUED) Approximate
Carrying Market
December 31, 1995 Amount Value
U.S. Government Agencies - AFS
Due within one year $ 99,850 $ 101,500
After one year but within five years 2,105,663 2,001,673
After five years but within ten years 2,768,497 2,649,572
After ten years 3,199,158 3,058,549
8,173,168 7,811,294
States and political subdivisions - AFS
Due within one year 354,906 355,301
After one year but within five years 1,812,832 1,914,509
After five years but within ten years 2,095,017 2,223,936
After ten years 3,090,669 3,236,684
7,353,424 7,730,430
Corporate securities - AFS
After one year but within five years 128,442 142,597
Other 236,250 236,250
Total $ 15,891,284 $ 15,920,571
</TABLE>
See independent auditor's report.
11
2. INVESTMENT SECURITIES (CONTINUED)
The amortized cost, gross unrealized gains, gross unrealized losses,
and estimated market value for each major category of securities are
summarized as follows:
<TABLE>
<CAPTION>
Gross Gross Estimated
Amortized Unrealized Unrealized Market
December 31, 1997 Cost Gains Losses Value
<S> <C> <C> <C> <C>
U.S. Government Agencies
AFS $ 6,442,009 $ 0 $ (363,495)$ 6,078,514
State and political
subdivisions AFS 8,231,130 344,515 0 8,575,645
Other securities AFS 129,377 6,044 0 135,421
Other securities 266,650 0 0 266,650
Total $ 15,069,166 $ 350,559 $ (363,495)$ 15,056,230
Gross Gross Estimated
Amortized Unrealized Unrealized Market
December 31, 1996 Cost Gains Losses Value
U.S. Government Agencies
AFS $ 8,406,534 $ 20,587 $ (479,762)$ 7,947,359
State and political
subdivisions AFS 7,627,041 261,964 (59,233) 7,829,772
Other securities AFS 128,909 9,554 0 138,463
Other securities 236,250 0 0 236,250
Total $ 16,398,734 $ 292,105 $ (538,995)$ 16,151,844
Gross Gross Estimated
Amortized Unrealized Unrealized Market
December 31, 1995 Cost Gains Losses Value
U.S. Government Agencies
AFS $ 8,173,168 $ 100,833 $ (462,707)$ 7,811,294
State and political
subdivisions AFS 7,353,424 395,610 (18,604) 7,730,430
Other securities AFS 128,442 14,155 0 142,597
Other securities 236,250 0 0 236,250
Total $ 15,891,284 $ 510,598 $ (481,311)$ 15,920,571
</TABLE>
See independent auditor's report.
12
3. LOANS AND ALLOWANCE FOR LOAN LOSSES
The composition of the loan portfolio was as follows:
<TABLE>
<CAPTION>
December 31, 1997 1996 1995
<S> <C> <C> <C>
Commercial $ 46,675,197 $ 39,118,648 $ 33,910,409
Non-accrual 56,173 117,978 163,672
Installment 1,484,638 4,191,011 5,251,127
Overdrafts 29,222 55,577 46,365
Unearned interest (133,965) (490,349) (669,075)
Total 48,111,265 42,992,865 38,702,498
Allowance for loan losses (481,741) (472,755) (524,435)
Net loans $ 47,629,524 $ 42,520,110 $ 38,178,063
</TABLE>
If interest on non-accrual loans had been accrued, such income would have
approximated $3,276, $2,640, and $622 for 1997, 1996, and 1995, respectively.
<TABLE>
A summary of transactions in the allowance for loan losses follows:
<CAPTION>
For the years ended December 31, 1997 1996 1995
<S> <C> <C> <C>
Balance at beginning of year $ 472,755 $ 524,435 $ 621,227
Provision charged to operations 122,500 10,000 0
Recoveries of loans previously
charged off 88,441 98,980 77,079
Loans charged off (201,955) (160,660) (173,871)
Balance at end of year $ 481,741 $ 472,755 $ 524,435
</TABLE>
4. LOANS TO RELATED PARTIES
The Bank has granted loans to executive officers and directors and
their associates. These related party loans are made on substantially
the same terms, including interest rates and collateral, as those
prevailing at the time for comparable transactions with unrelated
persons and do not involve more than the normal risk of collectibility.
The aggregate dollar amount was $458,736, $298,128, and $209,400 at
December 31, 1997, 1996, and 1995, respectively.
See independent auditor's report.
13
5. PREMISES AND EQUIPMENT
Bank premises and equipment are summarized as follows:
<TABLE>
<CAPTION>
December 31, 1997 1996 1995
<S> <C> <C> <C>
Bank premises $ 1,634,276 $ 1,638,035 $ 1,641,794
Furniture, fixtures and equipment 1,113,115 1,065,954 948,011
Total cost 2,747,391 2,703,989 2,589,805
Allowance for depreciation (1,270,053) (1,157,735) (1,122,033)
$ 1,477,338 $ 1,546,254 $ 1,467,772
</TABLE>
Depreciation expense amounted to $116,077, $102,452, and $93,972 in 1997,
1996, and 1995, respectively.
6. TIME DEPOSITS
Time deposits in denominations of $100,000 or more are summarized as
follows:
<TABLE>
<CAPTION>
December 31, 1997 1996 1995
<S> <C> <C> <C>
Certificates of Deposit $ 12,336,594 $ 10,880,317 $ 9,236,372
Other time deposits - State of Alabama 958,000 958,000 958,000
Total $ 13,294,594 $ 11,838,317 $ 10,194,372
</TABLE>
Interest on time deposits in denominations of $100,000 or more was
approximately $677,600, $627,400, and $429,800 in 1997, 1996, and 1995,
respectively.
7. INCOME TAXES
The components of the income tax provision were as follow:
<TABLE>
<CAPTION>
For the years ended December 31, 1997 1996 1995
<S> <C> <C> <C>
Provision for income taxes
Federal $ 191,470 $ 205,148 $ 193,628
State 34,261 41,519 42,600
Total 225,731 246,667 236,228
Deferred income taxes
Federal (2,949) 6,956 409
State (553) 1,306 (4,229)
Total (3,502) 8,262 (3,820)
Currently payable
Federal 188,521 212,104 194,037
State 33,708 42,825 38,371
Total $ 222,229 $ 254,929 $ 232,408
</TABLE>
See independent auditor's report.
14
7. INCOME TAXES (CONTINUED)
The sources of timing differences and the resulting net deferred
income taxes were as follows:
<TABLE>
<CAPTION>
For the years ended December 31, 1997 1996 1995
<S> <C> <C> <C>
Security gains and accretion $ (1,765) $ 7,108 $ (4,825)
Income taxes 251 58 1,975
Depreciation and other (1,988) 1,906 (970)
$ (3,502) $ 9,072 $ (3,820)
</TABLE>
The provisions for income taxes included in the accompanying statements
of income differ from the expected tax provisions computed by
multiplying income before taxes by the statutory rates. The primary
reason for this difference is tax exempt obligations of states and
political subdivisions.
8. PROFIT SHARING PLAN
In June 1986, the Bank adopted The Commercial National Bank of
Demopolis Profit Sharing Retirement Plan for the benefit of its
officers and employees. In October 1996, the Bank added a 401k
provision to the Profit Sharing Retirement Plan. The Bank makes
contributions to this plan each year in an amount determined by its
Board of Directors. The Bank contributed $78,000, $50,000, and
$48,250 in 1997, 1996, and 1995, respectively.
9. FINANCIAL INSTRUMENTS WITH OFF-BALANCE-SHEET RISK
The Bank is party to financial instruments with off-balance-sheet
risk in the normal course of business to meet the financing needs of
its customers. These financial instruments include commitments to
extend credit and standby letters of credit.
Financial contracts representing credit risk:
<TABLE>
<CAPTION>
December 31, 1997 1996 1995
<S> <C> <C> <C>
Commitments to extend credit $ 2,008,823 $ 2,468,256 $ N/A
Standby letters of credit $ 400,755 $ 433,340 $ 368,732
</TABLE>
Commitments to extend credit are agreements to lend to a customer
provided there are no violations of the contract. Commitments
generally have a fixed expiration date or other termination clauses.
Since many of the commitments are expected to expire without being
drawn upon, the total commitment amounts do not necessarily represent
future cash requirements. The Bank evaluates each customer's
credit-worthiness on a case-by-case basis. The amount of collateral
obtained, if deemed necessary by the Bank upon extension of credit,
is based on management's credit evaluation of the customer.
Standby letters of credit are conditional commitments issued by the
Bank 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 loans to customers.
It is the opinion of management that any losses that may result from
these off-balance-sheet risks will not have a material effect on the
financial statements.
See independent auditor's report.
15
10. RESTRICTIONS ON DIVIDENDS
Certain restrictions exist regarding the payment of dividends by the
Bank. The approval of the Comptroller of the Currency is required if
the total of all dividends declared by the Bank in any calendar year
shall exceed the total of its net income of that year combined with
its retained net income of the preceding two years. As of December
31, 1997, approximately $1,600,000 of the Bank's earnings were
available for distribution.
11. RECLASSIFICATION
Certain amounts in prior year financial statements have been
reclassified to conform to the current year presentation.
12. BORROWINGS
In September, 1997, the Bank entered into an agreement with the
Federal Home Loan Bank of Atlanta for a five-year convertible advance
in the amount of $2,000,000, at a fixed rate of 5.66%, maturing
September, 2002.
13. RESTATEMENT OF STOCKHOLDERS' EQUITY
The ending balance of the Surplus and Undivided Profits accounts for
the year ended December 31, 1996 have been restated to correct the
par value reduction and stock dividend declared in 1996. The
correction had no effect on total stockholders' equity for 1996.
14. REGULATORY CAPITAL DISCLOSURES
Banks and savings institutions are required to disclose their actual
and required regulatory capital ratios and whether or not they are in
compliance with regulatory accounting practices. The Bank's capital
amounts and classifications under the prompt corrective action
guidelines are also subject to qualitative judgments by the regulators
about components, risk weightings, and other factors.
Quantitative measures established by regulation to ensure capital
adequacy require the Bank to maintain minimum amounts and ratios of
total risk-based capital and Tier I capital to risk-weighted assets
(as defined in the regulations), and Tier I capital to adjusted total
assets (as defined). Management believes, as of December 31, 1997,
that the Bank meets all the capital adequacy requirements to which it
is subject.
See independent auditor's report.
16
14. REGULATORY CAPITAL DISCLOSURES (CONTINUED)
As of December 31, 1997, the most recent notification from the OCC,
the Bank was categorized as well capitalized under the regulatory
framework for prompt corrective action. To remain categorized as
well capitalized, the Bank will have to maintain minimum total
risk-based, Tier I risk-based, and Tier I leverage ratios as
disclosed in the table below. There are no conditions or events
since the most recent notification that management believes have
changed the Bank's prompt corrective action category.
<TABLE>
<CAPTION>
To Be Well
Capitalized Under
For Capital Prompt Corrective
Actual Adequacy Purposes Action Provisions
Amount Ratio Amount Ratio Amount Ratio
<S> <C> <C> <C> <C> <C> <C>
As of December 31, 1997
Total Risk-Based Capital
(to Risk-Weighted Assets) $7,778,007 18.2% $3,413,365 8.0% $4,266,707 10.0%
Tier I Capital
(to Risk-Weighted Assets) $7,296,266 17.1% $1,706,683 4.0% $2,560,024 6.0%
Tier I Capital
(to Adjusted Total Assets) $7,296,266 10.7% $2,719,536 4.0% $3,399,420 5.0%
As of December 31, 1996
Total Risk-Based Capital
(to Risk-Weighted Assets) $7,219,479 18.4% $3,143,306 8.0% $3,929,133 10.0%
Tier I Capital
(to Risk-Weighted Assets) $6,746,724 17.2% $1,571,653 4.0% $2,357,480 6.0%
Tier I Capital
(to Adjusted Total Assets) $6,746,724 10.6% $2,544,920 4.0% $3,181,150 5.0%
As of December 31, 1995
Total Risk-Based Capital
(to Risk-Weighted Assets) $6,648,359 17.9% $2,974,874 8.0% $3,718,592 10.0%
Tier I Capital
(to Risk-Weighted Assets) $6,183,535 16.6% $1,487,437 4.0% $2,231,155 6.0%
Tier I Capital
(to Adjusted Total Assets) $6,183,535 10.0% $2,471,634 4.0% $3,089,543 5.0%
</TABLE>
See independent auditor's report.
17
<TABLE>
THE COMMERCIAL NATIONAL BANK OF DEMOPOLIS
STATEMENTS OF INCOME
<CAPTION>
(UNAUDITED) (UNAUDITED)
For the Six Months Ended June 30, 1998 1997
<S> <C> <C>
INTEREST INCOME
Loans - taxable $ 2,160,626 $ 1,980,762
Loans - tax exempt 16,593 9,300
Total 2,177,219 1,990,062
Investment securities - taxable 265,970 280,050
Investment securities - tax exempt 242,369 208,770
Federal funds sold 37,854 12,235
Total 546,193 501,055
TOTAL INTEREST INCOME 2,723,412 2,491,117
INTEREST EXPENSE
Deposits 1,303,833 1,193,234
FHLB borrowing 104,183 3,401
Federal funds purchased 13,972 22,217
TOTAL INTEREST EXPENSE 1,421,988 1,218,852
NET INTEREST INCOME 1,301,424 1,272,265
Provision for loan losses 17,500 62,500
NET INTEREST INCOME AFTER
PROVISION FOR LOAN LOSSES 1,283,924 1,209,765
NON-INTEREST INCOME
Service/penalty charges on deposit accounts 161,499 192,203
Securities (losses) gains (3,283) 4,695
Other income 37,337 25,547
Total 195,553 222,445
OPERATING INCOME $ 1,479,477 $ 1,432,210
18
THE COMMERCIAL NATIONAL BANK OF DEMOPOLIS
STATEMENTS OF INCOME
(UNAUDITED) (UNAUDITED)
For the Six Months Ended June 30, 1998 1997
OPERATING INCOME $ 1,479,477 $ 1,432,210
NON-INTEREST EXPENSES
Salaries 393,217 361,203
Employee benefits 127,034 127,958
Occupancy 64,482 61,589
Equipment, depreciation and maintenance 52,018 45,204
Professional fees 52,081 56,413
Stationery and supplies 38,454 39,304
Computer expense 19,735 27,103
Other expenses 221,598 213,731
TOTAL NON-INTEREST EXPENSES 968,619 932,505
INCOME BEFORE INCOME TAXES 510,858 499,705
Provision for income taxes 123,125 125,083
NET INCOME $ 387,733 $ 374,622
Average number of shares outstanding 121,500 121,500
Net income per common share $ 3.19 $ 3.08
Cash dividends declared per share $ 1.07 $ 0.87
</TABLE>
19
<TABLE>
THE COMMERCIAL NATIONAL BANK OF DEMOPOLIS
STATEMENTS OF FINANCIAL CONDITION
<CAPTION>
(Unaudited) (Unaudited)
June 30, 1998 1997
ASSETS
<S> <C> <C>
Cash and due from banks $ 2,890,799 $ 2,052,660
Investment securities 21,101,954 14,962,147
Loans (net of unearned interest and allowance
for loan losses) 49,703,054 45,625,469
Premises and equipment, net 1,518,756 1,545,936
Accrued interest receivable 789,475 673,541
Other assets 154,702 173,315
TOTAL $ 76,158,740 $ 65,033,068
LIABILITIES
Deposits
Demand-non-interest bearing $ 6,975,244 $ 6,644,175
Demand-interest bearing 9,640,112 10,023,952
Savings 5,362,083 5,532,737
Time 37,358,227 33,238,472
Total deposits 59,335,666 55,439,336
Federal funds purchased 2,100,000 0
Treasury tax and loan 470,560 469,395
Accrued interest payable 293,171 258,414
Other liabilities 381,134 521,879
FHLB borrowings 6,000,000 1,400,000
68,580,531 58,089,024
STOCKHOLDERS' EQUITY
Common stock - par value $1 per share;
135,000 shares authorized, 121,500
shares issued and outstanding 121,500 121,500
Surplus 1,266,000 1,266,000
Unrealized gain (loss) on investment securities 24,318 (71,596)
Undivided profits 6,166,391 5,628,140
7,578,209 6,944,044
TOTAL $ 76,158,740 $ 65,033,068
</TABLE>
20
<TABLE>
THE COMMERCIAL NATIONAL BANK OF DEMOPOLIS
STATEMENTS OF CASH FLOWS
<CAPTION>
(UNAUDITED) (UNAUDITED)
For the Six Months Ended June 30, 1998 1997
<S> <C> <C>
OPERATING ACTIVITIES
Net income $ 387,733 $ 374,622
Adjustments
Provision for loan losses 17,500 62,500
Provision for depreciation 48,276 38,896
Amortization and accretion of
investment securities (net) 30,849 1,321
Loss (gain) on sale of investment securities 3,283 (4,695)
(Increase) decrease in assets
Interest receivable (75,660) (44,104)
Other assets 11,280 39,858
Increase (decrease) in liabilities
Interest payable 27,426 (4,774)
Other liabilities (436,839) (68,499)
NET CASH FLOWS FROM OPERATING ACTIVITIES 13,848 395,125
INVESTING ACTIVITIES
Proceeds from sales and maturities of
investment securities 2,618,961 3,803,698
Purchases of investment securities (8,657,915) (2,472,217)
Net increase in loans (2,091,030) (3,167,859)
Purchases of equipment (89,694) (38,578)
NET CASH FLOWS FROM INVESTING ACTIVITIES (8,219,678) (1,874,956)
FINANCING ACTIVITIES
Net increase in deposits 2,521,483 1,065,541
Increase (decrease) in Federal funds purchased 2,100,000 (1,600,000)
Increase in Treasury tax and loan 159,241 94,577
Proceeds from long-term borrowings 3,500,000 1,400,000
Cash dividends (130,105) (105,705)
NET CASH FLOWS FROM FINANCING ACTIVITIES 8,150,619 854,413
Decrease in cash and cash equivalents (55,211) (625,418)
Cash and cash equivalents, beginning of period 2,946,010 2,678,078
CASH AND CASH EQUIVALENTS, END OF PERIOD $ 2,890,799 $ 2,052,660
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
Cash paid during the period for:
Interest $ 1,394,562 $ 1,223,626
Income taxes $ 98,545 $ 158,235
</TABLE>
21
Appendix D
ALEX SHESHUNOFF & CO.
INVESTMENT BANKING
November 2, 1998
Board of Directors
Commercial National Bank of Demopolis
201 N. Main
Demopolis, Alabama 36732-2015
Members of the Board:
We understand The Commercial National Bank of Demopolis, Demopolis,
Alabama, ("CNB") and South Alabama Bancorporation, Inc., Mobile, Alabama,
("SAB") entered into an Amended and Restated Agreement and Plan of
Reorganization dated as of October 26, 1998 (the "Agreement"), which
provides, among other things, for the acquisition of all of the capital
stock of CNB by means of the merger of CNB with and into a wholly owned,
first tier interim subsidiary of SAB ("CNB Interim"). Pursuant to the
Agreement at the Effective Time, each share of CNB Common Stock, issued
and outstanding at the Effective Time, excluding Dissenting Shares, 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 One Hundred Forty-Seven Dollars and Ninety-Four
Cents ($147.94), subject to certain adjustments for changes in the market
value of SAB's Common Stock, (the "Exchange Ratio"). Market Value for
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; provided however, that for purposes of
determining the Exchange Ratio, if the average Market Value of SAB Common
Stock during the Valuation Period exceeds $20.00 per share it shall be
deemed to be $20.00 per share, and if the average Market Value of SAB
Common Stock is less than $15.3333 per share, it shall be deemed to be
$15.3333 per share.
You have requested our opinion, as to whether the Exchange Ratio to be
received by the holders of shares of CNB Common Stock pursuant to the
Agreement is fair from a financial point of view to such holders of CNB's
Common Stock.
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 CNB and SAB, respectively; (iii.) reviewed the
Proxy Statement / Prospectus; (iv.) discussed the past and current
operations, financial condition, future prospects and regulatory
examinations of CNB and SAB with their respective executive management;
(v.) reviewed certain internal financial statements and other financial
and operating data concerning CNB; (vi.) analyzed certain budget and
financial projections of CNB prepared by the management of CNB; (vii.)
analyzed the pro forma impact of the Merger on the combined company's
earnings, book value, consolidated capitalization, market valuation and
financial ratios; (viii.) reviewed the reported prices and trading
activity for SAB; (ix.) compared CNB and SAB from a financial point of
view with certain other companies which we deemed to be relevant; (x.)
reviewed the financial terms, to the extent publicly available, of
certain comparable merger transactions,(xi) reviewed the terms of the
pending merger of Sweet Water State Bancshares, Inc. with and into SAB
and analyzed the pro forma impact of that transaction on the combined
company's earnings, book value and consolidated capitalization, assuming
consummation of the merger, (xii) reviewed the terms of the Escrow Trust
Agreement, and (xiii.) 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 supplied or otherwise made
available to us by CNB and SAB for the purposes of this opinion. We
have not made an independent evaluation of the assets or liabilities of
CNB, nor have we been furnished with any such appraisals. With respect
to budgets and financial forecasts, we have assumed that they have been
reasonably prepared and reflect the best currently available estimates
and judgments of management of CNB, as to the future financial
performance of CNB, and we have assumed such forecasts and projections
will be realized in the amounts and at the times contemplated thereby.
We have assumed that obtaining any necessary regulatory approvals and
third party consents for the merger or otherwise will not have an adverse
effect on CNB, SAB or the combined company pursuant to the Agreement.
We are not experts in the evaluation of loan portfolios for the purpose
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. In addition,
we have not reviewed any individual credit files or made an independent
evaluation, appraisal or physical inspection of the assets or individual
properties of CNB or SAB, nor have we been furnished with any such
evaluations or appraisals. With respect to SAB, we relied upon publicly
available data regarding SAB's financial condition and performance. We
met with and discussed this publicly available information with the
management of SAB. However, we did not conduct any independent
evaluation or appraisal of the assets, liabilities or business prospects
of SAB, were not furnished with any evaluations or appraisals, and did
not review any individual credit files of SAB. 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. We have also assumed that there are no
material changes in CNB's or SAB's assets, financial condition, results
of operations, business or prospects since the respective dates of their
last financial statements and that off-balance sheet activities of CNB
and SAB will not materially and adversely impact the future financial
position or results of operation of CNB and SAB. We have also assumed
the Merger will be completed as set forth in the Agreement and that no
material changes will be made or restrictions imposed by regulatory or
other parties on the terms of the Agreement.
Our opinion is limited to the fairness, from a financial point of view,
to the holders of CNB's Common Stock of the Exchange Ratio and does not
address CNB'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 CNB 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 any filing made by CNB or SAB
with the Securities and Exchange Commission with respect to 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 CNB's Common
stockholders is fair from a financial point of view to the holders of
such shares.
Very truly yours,
/s/ Alex Sheshunoff & Co.
Investment Banking
ALEX SHESHUNOFF & CO.
INVESTMENT BANKING
Appendix E
12 U.S.C. Section 214a.
(b) Rights of dissenting stockholders
A shareholder of a national banking association who votes against the
conversion, merger, or consolidation, or who has given notice in writing to
the bank at or prior to such meeting that he dissents from the plan, shall be
entitled to receive in cash the value of the shares held by him, if and when
the conversion, merger, or consolidation is consummated, upon written request
made to the resulting State bank at any time before thirty days after the date
of consummation of such conversion, merger, or consolidation, accompanied by
the surrender of his stock certificates. The value of such shares shall be
determined as of the date on which the shareholders' meeting was held
authorizing the conversion, merger, or consolidation, by a committee of three
persons, one to be selected by majority vote of the dissenting shareholders
entitled to receive the value of their shares, one by the directors of the
resulting State bank, and the third by the two so chosen. The valuation
agreed upon by any two of three appraisers thus chosen shall govern; but, if
the value so fixed shall not be satisfactory to any dissenting shareholder who
has requested payment as provided herein, such shareholder may within five
days after being notified of the appraised value of his shares appeal to the
Comptroller of the Currency, who shall cause a reappraisal to be made, which
shall be final and binding as to the value of the shares of the appellant. If,
within ninety days from the date of consummation of the conversion, merger, or
consolidation, for any reason one or more of the appraisers is not selected
as herein provided, or the appraisers fail to determine the value of such
shares, the Comptroller shall upon written request of any interested party,
cause an appraisal to be made, which shall be final and binding on all parties.
The expenses of the Comptroller in making the reappraisal, or the appraisal
as the case may be, shall be paid by the resulting State bank. The plan of
conversion, merger, or consolidation shall provide the manner of disposing of
the shares of the resulting State bank not taken by the dissenting
shareholders of the national banking association.
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
Item 20. Indemnification of Directors and Officers.
Consistent with Division E of Article 8 of the Alabama Business
Corporation Act (the "ABCA"), Article 11 of South Alabama's Articles of
Incorporation ("Article 11") provides that South Alabama shall indemnify its
directors and officers against reasonable expenses, judgments, fines and
amounts paid in settlement in connection with any claim, action, suit or
proceeding based on such person's status as a director or officer of the
corporation, provided such person acted in good faith and in a manner
reasonably believed to be in or, if not acting in such person's official
capacity, not opposed to the best interests of South Alabama. With respect
to a criminal action or proceeding, the director or officer must also have
had no reasonable cause to believe his conduct was unlawful. No indemnification
shall be made in the case of an action by or in the right of the corporation
against a director or officer where the director or officer has been adjudged
to be liable to South Alabama, unless and only to the extent that the court
in which such action or suit was brought or another court of competent
jurisdiction shall determine upon application that, despite the adjudication
of liability but in view of all circumstances of the case, such person is
fairly and reasonably entitled to indemnity for such expenses as such court
shall deem proper.
Under Article 11, South Alabama may advance expenses in defending a
civil or criminal claim, action, suit or proceeding to a director or officer
seeking indemnification, provided such director or officer provides a written
affirmation of a good faith belief that he has met the standard of conduct
required under Article 11, and provided that such director or officer
provides an undertaking as an unlimited general obligation by or on behalf of
the director or officer to repay such amount if and to the extent that it
shall be ultimately determined that he is not entitled to be indemnified by
South Alabama. Furthermore, those responsible for making the determination
of whether or not indemnification is proper must determine that the facts
then known to them would not preclude indemnification under Article 11.
Under Article 11, South Alabama may purchase and maintain insurance on
behalf of any person who is or was a director, officer, employee or agent of
South Alabama, or is or was serving at the request of South Alabama as a
director, officer, partner, employee or agent of another corporation,
partnership, joint venture, trust or other enterprise against any liability
asserted against such person and incurred by him in any such capacity or
arising out of his status as such, whether or not South Alabama had the power
to indemnify such person against such liability under the provisions of
Article 11.
Pursuant to a policy of liability insurance with St. Paul Mercury
Insurance Company having a $4,000,000 directors' and officers' liability
limit per year, the directors and officers of South Alabama are insured,
subject to the limits, retentions, exceptions and other terms and conditions
of the policy, against liability for any actual or alleged error, omission,
act, misstatement, misleading statement or breach of duty actually or
allegedly committed or attempted by a director or officer, or any matter
claimed against a director or officer solely by reason of such persons being
a director or officer of South Alabama. The policy also has a $2,000,000
Trust Errors and Omissions limit per year, wherein directors and officers are
indemnified for any actual or alleged error, omission, act or breach
of duty while acting solely in the capacity of (among other things) personal
representative of an estate, trustee, conservator, attorney in fact, escrow
agent, registrar, tax withholding agent, trustee under bond indenture, fiduciary
under an employee benefit plan or trust or a trustee exercising any fiduciary
powers permitted by law.
Item 21. Exhibits and Financial Statement Schedules.
(a) Exhibits:
2.1 Amended and Restated Agreement and Plan of Reorganization
dated as of October 26, 1998, is found at Appendix A to
the Prospectus included in Part I hereof.
2.2 Agreement and Plan of Merger to be made between CNB and
CNB Interim is found at Appendix B to the Prospectus
included in Part I hereof.
3.1 Articles of Incorporation of SAB Newco, Inc., filed as
Exhibit B to South Alabama's Definitive Proxy Statement
on Schedule 14A on November 15, 1996, are incorporated
herein by reference.
3.2 Certificate of Ownership and Merger dated December 20,
1996, filed as Exhibit (4).2 to South Alabama's Form 10-K
for the year 1996 (no. 0-15423), is incorporated herein
by reference.
3.3 Articles of Merger dated December 20, 1996, filed as
Exhibit (3).1 to South Alabama's Quarterly Report on
Form 10-Q for the quarter ended March 31, 1997
(No. 0-15423), are incorporated herein by reference.
3.4 Articles of Amendment to the Articles of Incorporation of
South Alabama Bancorporation, Inc., dated May 7, 1998,
filed as Exhibit (3).1 to South Alabama's Quarterly
Report on Form 10-Q/A for the quarter ended June 30, 1998
(No. 0-15423), are incorporated herein by reference.
3.5 Bylaws of SAB Newco, Inc. filed as Exhibit (3).3 to South
Alabama's Form 10-K for the year 1996 (No. 0-15423), are
incorporated herein by reference.
4.1 Specimen of Common Stock Certificate, filed as Exhibit
4.4 to South Alabama's Annual Report Form on 10-K for the
year 1996 (No. 0-15423), is incorporated herein by
reference.
4.2 Articles of Incorporation of SAB Newco, Inc., filed as
Exhibit B to South Alabama's Definitive Proxy Statement
on Schedule 14A on November 15, 1996, are incorporated
herein by reference.
4.3 Certificate of Ownership and Merger dated December 20,
1996, filed as Exhibit (4).2 to South Alabama's Form 10-K
for the year 1996 (no. 0-15423), is incorporated herein
by reference.
4.4 Articles of Merger dated December 20, 1996, filed as
Exhibit (3).1 to South Alabama's Quarterly Report on Form
10-Q for the quarter ended March 31, 1997 (No. 0-15423),
are incorporated herein by reference.
5.1 Opinion of Hand Arendall, L.L.C. re legality dated
September 17, 1998, is filed as Exhibit 5.1.
8.1 Opinion of Hand Arendall, L.L.C. re tax matters dated
November 2, 1998, is filed as Exhibit 8.1.
10.1 Lease, entered into March 11, 1986 between Dauphin 65
Partners, Ltd. and The Bank of Mobile, N.A, filed as
Exhibit (10).3 to South Alabama's annual report on Form
10-K for the year 1986 (No. 0-15423), is incorporated
herein by reference.
10.2 Lease Renewal and Extension Agreement, dated March 18,
1992, between Dauphin 65 Partners, Ltd. and The Bank of
Mobile, filed as Exhibit (10).2 to South Alabama's annual
report on Form 10-K for the year 1991 (No. 0-15423), is
incorporated herein by reference.
10.3 Lease, entered into June 21, 1994 between Staples-Pake
Realty, Inc. and The Bank of Mobile, filed as Exhibit
(10).3 to South Alabama's annual report on Form 10-K for
the year 1994 (No. 0-15423), is incorporated herein by
reference.
10.4 Sublicense Agreement dated July 18, 1990, between
National Commerce Bancorporation and The Bank of Mobile,
N.A, filed as Exhibit (10).5 to South Alabama's annual
report on Form 10-K for the year 1991 (No. 0-15423), is
incorporated herein by reference.
10.5 Member Institution Agreement entered into July 25, 1986
between The Bank of Mobile, N.A and Alabama Network, Inc.,
filed as Exhibit (10).4 to South Alabama's annual report
on Form 10-K for the year 1986 (No. 0-15423), is
incorporated herein by reference.
10.6 Stock Option Plan of Mobile National Corporation, filed
as Exhibit (10).3 to South Alabama's annual report on
Form 10-K for the year 1985 (No. 0-15423), is incorporated
herein by reference.
10.7 The Bank of Mobile Retirement Plan (Restated), dated
September 12, 1990, filed as Exhibit (10).8 to South
Alabama's annual report on Form 10-K for the year 1991
(No. 0-15423), is incorporated herein by reference.
10.8 Contracts pursuant to Supplemental Retirement Plan of The
Bank of Mobile, N.A, effective January 1, 1988, filed as
Exhibit (10).7 to South Alabama's annual report on Form
10-K for the year 1990 (No. 0-15423), are incorporated
herein by reference.
10.9 Restated Contracts pursuant to Supplement Retirement Plan
of The Bank of Mobile, dated April 1, 1992, filed as
Exhibit (10).10 to South Alabama's Form 10-K for the year
1992 (No. 0-15423), is incorporated herein by reference.
10.10 First National Bank Employees' Profit Sharing Plan, as
amended and restated effective January 1, 1989, filed as
Exhibit (10).12 to South Alabama's annual report on Form
10-K for the year 1993 (No. 0-15423), is incorporated by
reference.
10.11 First National Bank Employees' Pension Plan, as amended
and restated effective January 1, 1989, filed as Exhibit
(10).13 to South Alabama's Form 10-K for the year 1993
(No. 0-15423), is incorporated herein by reference.
10.12 Member Institution Agreement entered into February 16,
1988 between First National Bank and Alabama Network,
Inc., filed as Exhibit (10).14 to South Alabama's annual
report on Form 10-K for the year 1993 (No. 0-15423), is
incorporated herein by reference.
10.13 Split Dollar Insurance Agreements of First National Bank,
filed as Exhibit (10).15 to South Alabama's annual report
on Form 10-K for the year 1993 (No.0-15423), is
incorporated herein by reference.
10.14 Deferred Compensation Agreements of First National Bank,
filed as Exhibit (10).16 to South Alabama's annual report
on Form 10-K for the year 1993 (No.0-15423), is
incorporated herein by reference.
10.15 South Alabama Bancorporation 1993 Incentive Compensation
Plan dated October 19, 1993 as adopted by shareholders
May 3, 1994 filed as Exhibit (10).18 to South Alabama's
form 10-K for the year 1994 (No. 0-15423), is
incorporated herein by reference.
10.16 Lease, entered into April 17, 1995 between Augustine
Meaher, Jr., Robert H. Meaher individually and Executor
of the Estate of R. Lloyd Hill, Joseph L. Meaher and
Augustine Meaher, III, and The Bank of Mobile, filed as
Exhibit (10).1 to South Alabama's Form 10-Q for the
Quarter ended June 30, 1995 (No. 0-15423), is
incorporated herein by reference.
10.17 Lease, entered into April 17, 1995 between Augustine
Meaher, Jr. and Margaret L. Meaher, and The Bank of Mobile,
filed as Exhibit (10).2 to South Alabama's Form 10-Q for
the Quarter ended June 30, 1995 (No. 0-15423), is
incorporated herein by reference.
10.18 Lease, entered into April 17, 1995 between Hermione
McMahon Sellers (f/k/a Hermione McMahon Dempsey) a widow,
William Michael Sellers, married, and Mary S. Burnett,
married, and The Bank of Mobile, filed as Exhibit (10).3
to South Alabama's Form 10-Q for the Quarter ended June
30, 1995 (No. 0-15423), is incorporated herein by
reference.
10.19 Lease, entered into May 1, 1995 between Augustine Meaher,
Jr., Robert H. Meaher individually and Executor of the
Estate of R. Lloyd Hill, Joseph L. Meaher and Augustine
Meaher, III, and The Bank of Mobile, filed as Exhibit
(10).4 to South Alabama's Form 10-Q for the Quarter ended
June 30, 1995 (No. 0-15423), is incorporated herein by
reference.
10.20 Change in Control Compensation Agreement, dated as of
November 14, 1995, between The Bank of Mobile and W. Bibb
Lamar, Jr., filed as Exhibit (10).24 to South Alabama's
annual report on Form 10-K for the year 1995
(No. 0-15423) is incorporated herein by reference.
10.21 Change in control Compensation Agreement, dated as of
November 20, 1995, between First National Bank, Brewton
and J. Stephen Nelson, filed as Exhibit (10).25 to South
Alabama's annual report on Form 10-K for the year 1995
(No. 0-15423), is incorporated herein by reference.
10.22 Change in Control Compensation Agreements, between The
Bank of Mobile or First National Bank, Brewton and
certain officers filed as Exhibit (10).25 to South
Alabama's annual report on Form 10-K for the year 1995
(No. 0-15423) is incorporated herein by reference.
10.23 Monroe County Bank Profit Sharing Plan, Amended and
Restated January 1, 1989, filed as Exhibit (10).23 to
South Alabama's annual report on Form 10-K for the year
1996 (No. 0-15423), is incorporated herein by reference.
10.24 Monroe County Bank Pension Plan as Amended and Restated
January 1, 1989, filed as Exhibit (10).24 to South Alabama's
annual report on Form 10-K for the year 1996
(No. 0-15423), is incorporated herein by reference.
10.25 Agreement and Plan of Merger, dated as of May 31, 1996,
as amended and restated as of August 21, 1996, filed as
Exhibit (2).2 to South Alabama's Registration Statement
on Form S-4 filed on September 3, 1996 (No. 333-11305),
is incorporated herein by reference.
10.26 Option Contract between South Alabama and Morphy's Move,
L.L.C., dated November 17, 1997, filed as Exhibit (10).27
to South Alabama's annual report on form 10-K for the year
1997 (No. 0-15423), is incorporated herein by reference.
10.27 Amendment Number One to South Alabama Bancorporation 1993
Incentive Compensation Plan, dated May 9, 1997, filed as
Exhibit (10).28 to South Alabama's annual report on form
10-K for the year 1997 (No. 0-15423), is incorporated
herein by reference.
10.28 Change in Control Compensation Agreement, dated as of
March 31, 1997 between MCB and John B. Barnett, III,
filed as Exhibit (10).29 to South Alabama's annual report
on form 10-K for the year 1997 (No. 0-15423), is
incorporated herein by reference.
10.29 Change in Control Compensation Agreement, dated as of
March 31, 1997, between MCB and Haniel F. Croft, filed as
Exhibit (10).30 to South Alabama's annual report on form
10-K for the year 1997 (No. 0-15423), is incorporated
herein by reference.
10.30 Agreement and Plan of Merger, dated as of October 14,
1998, as amended by Mutual Waiver and Agreement dated as
of March 25, 1998, between South Alabama, MCB and
Peterman State Bank, filed as Exhibit 2.1 to South
Alabama's Registration Statement on Form S-4 filed on
April 2, 1998 (No. 333-49203), is incorporated herein by
reference.
10.31 Amended and Restated Agreement and Plan of Reorganization
dated as of October 26, 1998, is found at Appendix A to
the Prospectus which is included in Part I hereof.
13.1 South Alabama's 1997 Annual Report on Form 10-K and Form
10-K/A for the year ended December 31, 1997 (No. 0-15423),
is incorporated herein by reference.
13.2 South Alabama's Quarterly Report on Form 10-Q and Form
10-Q/A for the quarter ended June 30, 1998 (No. 0-15423)
is incorporated herein by reference.
13.3 South Alabama's Quarterly Report on Form 10-Q for the
quarter ended March 31, 1998 (No. 0-15423) is
incorporated herein by reference.
21.1 Subsidiaries of South Alabama Bancorporation, Inc., filed
as Exhibit (21).1 to South Alabama's quarterly report on
form 10-Q for the quarter ended March 31, 1998
(No. 0-15423), is incorporated herein by reference.
23.1 Consent of Arthur Andersen LLP.
23.2 Consent of McKean & Associates, P.A.
23.3 Consent of Hand Arendall, L.L.C. is included in its
opinion re legality filed as Exhibit 5.1 hereto.
23.4 Consent of Hand Arendall, L.L.C. is included in its
opinion re tax matters filed as Exhibit 8.1 hereto.
23.5 Consent of Alex Sheshunoff & Co Investment Banking is
included in its fairness opinion found at Appendix D to
the Prospectus included in Part I hereof.
23.6 Consent of Alex Sheshunoff & Co. Investment Banking.
99.1 Form of Proxy to be used at The Commercial National Bank
of Demopolis special meeting.
(b) Financial Statement Schedules:
None.
Item 22. Undertakings.
(a) The undersigned Registrant hereby furnishes the following
undertakings required by Item 512 of Regulation S-K:
(1) The undersigned Registrant hereby undertakes that,
for purposes of determining any liability under the
Securities Act of 1933, each filing of the
Registrant's annual report pursuant to Section
13(a) or Section 15(d) of the Securities Exchange Act
of 1934 (and, where applicable, each filing of an
employee benefit plan's annual report pursuant to
Section 15(d) of the Securities Exchange Act of
1934) that is incorporated by reference in the
Registration Statement shall be deemed to be a new
Registration Statement relating to the securities
offered therein, and the offering of such securities
at that time shall be deemed to be the initial bona
fide offering thereof.
(2) The undersigned Registrant hereby undertakes as
follows:
(i) That prior to any public re-offering of the
securities registered hereunder through use of
a prospectus which is a part of this
Registration Statement, by any person or party
who is deemed to be an underwriter within the
meaning of Rule 145(c), the issuer undertakes
that such re-offering prospectus will contain
the information called for by the applicable
registration form with respect to re-offerings
by persons who may be deemed to be underwriters,
in addition to the information called for by
other Items of the applicable forms.
(ii) That every prospectus (a) that is filed
pursuant to paragraph (2)(i) immediately
preceding, or (b) that purports to meet the
requirements of Section 10(a)(3) of the Act and
is used in connection with an offering of
securities subject to Rule 415, will be filed
as a part of an amendment to the Registration
Statement and will not be used until such
amendment is effective, and that, for purposes
of determining any liability under the
Securities Act of 1933, each such post-effective
amendment shall be deemed to be a new
Registration Statement relating to the securities
offered therein, and the offering of such
securities at that time shall be deemed to be
the initial bona fide offering there of.
(3) Insofar as indemnification for liabilities arising
under the Securities Act of 1933 may be permitted to
directors, officers and controlling persons of the
Registrant pursuant to the foregoing provisions, or
otherwise, the Registrant has been advised that in
the opinion of the Securities and Exchange Commission
such indemnification is against public policy as
expressed in the Act and is, therefore, unenforceable.
In the event that a claim for indemnification
against such liabilities (other than the payment by
the Registrant of expenses incurred or paid by a
director, officer or controlling person of the
Registrant in the successful defense of any action,
suit or proceeding) is asserted by such director,
officer or controlling person in connection with the
securities being registered, the Registrant will,
unless in the opinion of its counsel the matter has
been settled by controlling precedent, submit to a
court of appropriate jurisdiction the question
whether such indemnification by it is against
public policy as expressed in the Act and will be
governed by the final adjudication of such issue.
(4) The undersigned Registrant hereby undertakes to
deliver or cause to be delivered with the prospectus,
to each person to whom the prospectus is sent or
given, the latest annual report to security holders
that is incorporated by reference in the prospectus
and furnished pursuant to and meeting the requirements
of Rule 14a-3 or Rule 14c-3 under the Securities
Exchange Act of 1934; and where interim financial
information required to be presented by Article 3 of
Regulation S-X are not set forth in the prospectus,
to deliver, or cause to be delivered, to each person
to whom the prospectus is sent or given, the latest
quarterly report that is specifically incorporated
by reference in the prospectus to provide such
interim financial information.
(b) The undersigned Registrant hereby undertakes to respond
to requests for information that is incorporated by
reference into the prospectus pursuant to Items 4, 10(b),
11, or 13 of this Form, within one business day of
receipt of such request, and to send the incorporated
documents by first class mail or other equally prompt
means. This includes information contained in documents
filed subsequent to the effective date of the
Registration Statement through the date of responding to
the request.
(c) The undersigned Registrant hereby undertakes to supply by
means of a post-effective amendment all information
concerning a transaction, and the company being acquired
involved therein, that was not the subject of and included
in the Registration Statement when it became effective.
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, South Alabama
has duly caused this Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of Mobile, State of
Alabama, on the 3rd day of November , 1998.
SOUTH ALABAMA BANCORPORATION, INC.
By: /s/ W. Bibb Lamar, Jr.
W. Bibb Lamar, Jr., President and
Chief Executive Officer
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed below by the following persons in the
capacities indicated on the dates indicated below.
Signatures Title Date
(1) Principal Executive Officer
/s/ W. Bibb Lamar, Jr. President and Chief 11/03/1998
W. Bibb Lamar, Jr. Executive Officer
(2) & (3) Principal Financial and
Accounting Officer
/s/ F. Michael Johnson Chief Financial Officer 11/03/1998
F. Michael Johnson and Secretary
(4) Directors
/s/ John B. Barnett, III* Director 11/03/1998
John B. Barnett, III
/s/ Stephen G. Crawford* Director 11/03/1998
Stephen G. Crawford
/s/ Haniel F. Croft* Director 11/03/1998
Haniel F. Croft
Director
David C. De Laney
Director
Lowell J. Friedman
/s/ Broox G. Garrett, Jr.* Director 11/03/1998
Broox G. Garrett, Jr.
Director
W. Dwight Harrigan
Director
James P. Hayes, Jr.
Director
Clifton C. Inge
/s/ W. Bibb Lamar, Jr. Director 11/03/1998
W. Bibb Lamar, Jr.
Director
Kenneth R. McCartha
/s/ Thomas E. McMillan, Jr.* Director
Thomas E. McMillan, Jr. 11/03/1998
Director
J. Richard Miller, III
Director
Harris V. Morrissette
/s/ J. Stephen Nelson* Director 11/03/1998
J. Stephen Nelson
/s/ Paul D. Owens, Jr.* Director 11/03/1998
Paul D. Owens, Jr.
/s/ Earl H. Weaver* Director 11/03/1998
Earl H. Weaver
*BY: /s/ F. Michael Johnson 11/03/1998
F. Michael Johnson
As Attorney-in-Fact
EXHIBIT INDEX
SEC Assigned
Exhibit Number Description of Exhibit Page No.
5.1 Opinion of Hand Arendall, L.L.C.
re legality dated November 2, 1998
8.1 Opinion of Hand Arendall, L.L.C.
re tax matters dated November 2, 1998
23.1 Consent of Arthur Andersen LLP
23.2 Consent of McKean & Associates, P.A.
23.6 Consent of Alex Sheshunoff & Co.
Investment Banking
99.1 Form of Proxy to be used at special
meeting
Exhibit 5.1
[HAND ARENDALL, L.L.C. LETTERHEAD]
November 2, 1998
The Commercial National Bank of Demopolis
201 North Main Avenue
Demopolis, Alabama 36732
Re: Merger of The Commercial National Bank of Demopolis ("CNB") with
and into a wholly owned first tier interim state bank subsidiary
("Interim") of South Alabama Bancorporation, Inc. ("South Alabama")
Gentlemen:
We have represented South Alabama in connection with the proposed merger
of CNB with and into Interim (the "Merger"). In that connection, we have
examined the following:
1. The Amended and Restated Agreement and Plan of Merger by and between
South Alabama and CNB dated as of October 26, 1998, the form of
Agreement and Plan of Merger between CNB and Interim and the form
of Escrow Trust Agreement between South Alabama, CNB and South
Alabama Trust Company, Inc., as Escrow Agent (collectively the
"Agreements");
2. The Articles of Incorporation and Bylaws of South Alabama;
3. A resolution of the Board of Directors of South Alabama authorizing
the necessary corporate actions to enable South Alabama to comply
with the terms of the Agreements and to perform the matters
contemplated thereby;
4. South Alabama's registration statement under the Securities Act of
1933 filed on Securities and Exchange Commission Form S-4 (the
"Registration Statement");
and
5. Such other documents as we felt necessary to give this opinion.
Based upon our examination of the foregoing, and assuming the Merger is
consummated in accordance with the terms of the Agreements, we are of the
opinion that, on the effective date of the Merger, the shares of common
capital stock of South Alabama to be issued to CNB shareholders will be duly
authorized by South Alabama and, when issued, will be legally and validly
issued and will be fully paid and non-assessable.
We consent to the use of this opinion as an exhibit to the Registration
Statement and to the reference to us under the heading "Legal Matters" in the
Prospectus included as part of the Registration Statement. This opinion is
being provided solely for the use of CNB and the shareholders of CNB. No
other person or party shall be entitled to rely on this opinion.
Yours very truly,
HAND ARENDALL, L.L.C.
By: /s/ Stephen G. Crawford
Stephen G. Crawford
A Member
Exhibit 8.1
[HAND ARENDALL LETTERHEAD]
Direct Dial (334) 694-6205
Email: [email protected]
November 2, 1998
South Alabama Bancorporation, Inc.
Post Office Box 3067
Mobile, Alabama 36652
The Commercial National Bank of Demopolis
201 North Main Avenue
Demopolis, Alabama 36372
Re: Proposed Merger of The Commercial National Bank of Demopolis into
a wholly-owned subsidiary of South Alabama Bancorporation, Inc. -
Certain Tax Consequences
Gentlemen:
We have acted as counsel to South Alabama Bancorporation, Inc.
("South Alabama"), an Alabama corporation, and will act as counsel to a new
corporation (referred to hereinafter as "CNB Interim") to be formed as an
Alabama banking corporation and wholly-owned subsidiary of South Alabama, in
connection with the proposed merger of The Commercial National Bank of
Demopolis, an Alabama banking corporation ("CNB"), into CNB Interim (the
"Merger"), pursuant to the Amended and Restated Agreement and Plan of
Reorganization dated as of October 26, 1998 (the "Merger Agreement"). In
such capacity, our opinion has been requested with respect to certain of the
federal income tax consequences of the Merger.
All capitalized terms used herein without definition shall have the
respective meanings specified in the Merger Agreement and, unless otherwise
specified, all Section references herein are to the United States Internal
Revenue Code of 1986, as amended (the "Code").
In rendering the opinions expressed herein, we have examined such
documents as we have deemed appropriate, including: (i) the Merger Agreement;
(ii) the Escrow Trust Agreement referred to in the Merger Agreement; (iii)
the Prospectus included in South Alabama's Registration Statement on Form S-4,
being filed with the Securities and Exchange Commission with respect to the
proposed transaction; and (iv) such additional documents as we have
considered relevant.
In our examination of such documents, we have assumed, with your consent,
that all documents submitted to us as photocopies faithfully reproduce the
originals thereof, that such originals are authentic, that all such documents
have been or will be duly executed to the extent required, and that all
statements set forth in such documents are accurate.
We have also obtained such additional information and representations as
we have deemed relevant and necessary through consultation with various
officers and representatives of South Alabama, CNB Interim, and CNB.
You have advised us that the proposed transaction (including the escrow
arrangement forming a part thereof) is being entered into for good business
reasons, including, without limitation, to increase the size of South Alabama
to allow its subsidiary banks to remain competitive in the rapidly changing
banking environment, to increase the resources available to such banks, to
add stability to South Alabama's deposit base, to allow for a wider
distribution of risk, and to enhance the ability of South Alabama and its
subsidiary banks to keep pace with the technological and competitive changes
in the market. To achieve these goals, the following will occur pursuant to
the Merger Agreement:
(A) CNB will merge with and into CNB Interim pursuant to the laws of the
State of Alabama. CNB Interim will acquire all the assets and assume all the
liabilities of CNB. CNB's separate corporate existence will cease to exist
upon consummation of the Merger and CNB Interim will be the surviving
corporation. Thereafter, CNB Interim will continue to operate the business of
CNB conducted prior to the Merger and will continue to be a wholly-owned
subsidiary of South Alabama. CNB Interim will change its corporate name after
the merger.
(B) Each share of CNB Interim and South Alabama Common Stock issued and
outstanding immediately prior to the Effective Time shall remain issued and
outstanding from and after the Effective Time.
(C) Each share of CNB Common Stock (excluding shares held by CNB or by
any South Alabama 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 3.3 of the Merger Agreement) issued and outstanding immediately prior
to the Merger shall cease to be outstanding and shall be converted into and
exchanged for the right to receive the number of shares of South Alabama
Common Stock having an average Market Value, during a valuation period prior
to the effective date, calculated as described in the Merger Agreement, of
$150.00 (and cash in lieu of fractional shares); provided, however, that in
the event the Market Value of South Alabama Common Stock is greater than
$20.00 per share, then the Market Value of South Alabama Common Stock shall
be deemed to be $20.00 per share for purposes of determining the Exchange
Ratio, and that in the event the Market Value of South Alabama Common
Stock is less than $15.3333 per share, then the Market Value of South Alabama
Common Stock shall be deemed to be $15.3333 per share for purposes of
determining the Exchange Ratio.
(D) Each of the shares of CNB Common Stock held at the time of the
Merger by CNB or by any South Alabama 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.
(E) Any holder of shares of CNB Common Stock who perfects his statutory
dissenters' rights of appraisal shall be entitled to receive the value of such
shares in cash as determined pursuant to such provision of law.
(F) No fractional shares of South Alabama Common Stock will be issued
as a result of the Merger. Each holder of shares of CNB Common Stock exchanged
pursuant to the Merger who would otherwise have been entitled to receive a
fraction of a share of South Alabama 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 South Alabama Common Stock multiplied by the average Market Value of one
share of South Alabama Common Stock during the Valuation Period. (In the
event the average Market Value of South Alabama Common Stock is greater than
$20.00 per share or less than $15.3333 per share, then the Market Value of
South Alabama Common Stock shall be deemed to be as set forth above for this
purpose.) No such holder will be entitled to dividends, voting rights, or any
other rights as a stockholder in respect of any fractional shares.
With your consent, we have also assumed that the following statements
are true on the date hereof and will be true on the date the proposed
transaction is consummated:
(i) The fair market value of the South Alabama Common Stock and
other consideration received by the stockholders of CNB will be, in each
instance, approximately equal to the fair market value of the CNB Common
Stock surrendered in exchange therefor.
(ii) There is no plan or intention on the part of the stockholders
of CNB who own one percent (1%) or more of the CNB stock and, to the best of
the knowledge of the management of CNB, there is no plan or intention on the
part of the remaining stockholders of CNB to sell, exchange or otherwise
dispose of a number of shares of South Alabama Common Stock now owned or to
be received in the proposed transaction that would reduce their holdings in
South Alabama Common Stock to a number of shares having, in the aggregate, a
value as of the Effective Time of less than fifty percent (50%) of the total
value of all of the stock of CNB outstanding immediately prior to the
transaction. For purposes of this representation, shares of CNB stock
exchanged for cash or other property, surrendered by dissenters or exchanged
for cash in lieu of fractional shares of South Alabama stock will be treated
as outstanding CNB stock as of the Effective Time. Moreover, shares of CNB
stock and shares of South Alabama stock held by CNB stockholders and otherwise
sold, redeemed or disposed of prior or subsequent to the transaction will be
considered in making this representation.
(iii) South Alabama has no plan or intention to sell or
otherwise dispose of any of the CNB Interim stock.
(iv) South Alabama has no plan or intention to reacquire any of its
stock issued in the transaction.
(v) CNB Interim does not now own any stock of South Alabama and will
not acquire any such stock prior to the Merger.
(vi) CNB Interim has no plan or intention to sell or otherwise
dispose of any of the assets of CNB acquired in the transaction, except for
dispositions made in the ordinary course of business or transfers described
in Section 368(a)(2)(C).
(vii) The liabilities of CNB assumed by CNB Interim and the
liabilities to which the transferred assets of CNB are subject were incurred
by CNB in the ordinary course of business.
(viii) Following the transaction, CNB Interim will continue the
historic business of CNB and use a significant portion of CNB's historic
business assets in a business.
(ix) South Alabama, CNB Interim and CNB will each pay all expenses
incurred by it or on its behalf in connection with the Merger. It has been
agreed that work done by South Alabama and/or its respective attorneys and
advisors to prepare and file the Registration Statement shall not be deemed
to be done on behalf of CNB and the costs and expenses thereof shall not be
the responsibility of CNB. The stockholders of CNB will pay their respective
expenses, if any, incurred in connection with the Merger.
(x) There is and will be at the date of the Merger no
intercorporate indebtedness existing between CNB and CNB Interim or South
Alabama that was issued, acquired, or will be settled at a discount.
(xi) None of the parties is an "investment company" as defined in
Section 368(a)(2)(F)(iii) and (iv).
(xii) CNB is not under the jurisdiction of a court in a Title
11 or similar case within the meaning of Section 368(a)(3)(A).
(xiii) The fair market value and the total adjusted basis of the
assets of CNB transferred to CNB Interim will each equal or exceed the sum of
the liabilities assumed by CNB Interim plus the amount of the liabilities, if
any, to which the transferred assets are subject.
(xiv) The payment of cash in lieu of fractional shares of South
Alabama stock, both in the original exchange and on later termination of the
escrow arrangement, is solely for the purpose of avoiding the expense and
inconvenience to South Alabama of issuing fractional shares and does not
represent separately bargained for consideration. The total cash
consideration that will be paid to the CNB stockholders instead of issuing
fractional shares of South Alabama stock will not exceed one percent (1%) of
the total consideration that will be issued in the transaction to the CNB
stockholders in exchange for their shares of CNB stock. The fractional share
interests of each CNB stockholder will be aggregated, and no CNB stockholder
will receive cash in an amount equal to or greater than the value of one
full share of South Alabama stock.
(xv) None of the compensation received by any stockholder-employees
of CNB will be separate consideration for, or allocable to, any of their
shares of CNB stock; none of the shares of South Alabama stock received by
any stockholder-employees of CNB will be separate consideration for, or
allocable to, any employment agreement; and the compensation paid to any
stockholder-employees of CNB will be for services actually rendered and will
be commensurate with amounts paid to third parties bargaining at arm's length
for similar services.
(xvi) The Merger Agreement and the documents referred to
therein represent the entire understanding of CNB and South Alabama with
respect to the Merger.
Based solely on the information submitted and the representations set
forth above and assuming that the Merger will take place as described in the
Merger Agreement and that the representations made by South Alabama and CNB
(including the representation that CNB stockholders will maintain sufficient
equity ownership interests in South Alabama after the Merger) are true and
correct at that time of the consummation of the Merger, we are of the opinion
that:
1. Provided the Merger qualifies as a statutory merger under
Alabama law, the Merger will be a reorganization within the meaning of
Section 368(a)(1)(A). CNB, CNB Interim and South Alabama will each be "a
party to a reorganization" within the meaning of Section 368(b).
2. No gain or loss will be recognized by South Alabama or CNB
Interim on receipt by CNB Interim of CNB's assets in exchange for South
Alabama Common Stock. Treas. Reg. Section 1.1032-2.
3. CNB will recognize no gain or loss upon the transfer of its
assets to CNB Interim in exchange solely for South Alabama Common Stock and
the assumption by CNB Interim of the liabilities of CNB. Sections 361(a) and
357(a).
4. The basis of CNB's assets in the hands of CNB Interim will, in
each case, be the same as the basis of those assets in the hands of CNB
immediately prior to the transaction. Section 362(b).
5. The holding period of the assets of CNB in the hands of CNB
Interim will, in each case, include the period during which such assets were
held by CNB. Section 1223(2).
6. The stockholders of CNB will recognize no gain or loss upon the
exchange of their CNB Common Stock solely for shares of South Alabama Common
Stock, except possibly with regard to the escrow arrangement, as discussed in
11 below. Section 354(a)(1).
7. The basis of the South Alabama Common Stock received by the
CNB stockholders in the proposed transaction will, in each instance, be the
same as the basis of the CNB Common Stock surrendered in exchange therefor,
increased by the non-dividend gain, if any, taxable as boot under the escrow
arrangement discussed in 11 below. Section 358(a)(1).
8. The holding period of the South Alabama Common Stock received
by the CNB stockholders will, in each instance, include the period during
which the CNB Common Stock surrendered in exchange therefor was held,
provided that the CNB Common Stock was held as a capital asset on the date of
the exchange. Section 1223(1).
9. The payment of cash to CNB stockholders in lieu of fractional
share interests of South Alabama 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 South Alabama. These cash payments will
be treated as having been received as distributions in full payment in
exchange for the stock redeemed as provided in Section 302(a). Rev. Rul.
66-365, 1966-2 C.B. 116 and Rev. Proc. 77-41, 1977-2 C.B. 574.
10. Where solely cash is received by a CNB stockholder in exchange
for his CNB Common Stock pursuant to the exercise of dissenters' rights, such
cash will be treated as having been received in redemption of his CNB Common
Stock, subject to the provisions and limitations of Section 302.
11. Anything hereinabove to the contrary notwithstanding, no opinion
is expressed as to the taxability of the CNB shareholders upon or under the
escrow arrangement provided for in the Escrow Trust Agreement. The Internal
Revenue Service could contend that the shares of South Alabama placed in
escrow and the rights of the CNB shareholders under the Escrow Trust Agreement
do not constitute "stock" of South Alabama that can be received without the
recognition of gain under Section 354 but instead constitute "other property",
taxable as boot under Section 356. The Internal Revenue Service has set
forth, in Rev. Proc. 84-42, 1984 C.B. 521, guidelines for when it will issue
a favorable ruling on contingent or escrow stock arrangements in connection
with a tax-free reorganization. This transaction does not meet those ruling
guidelines, but those are ruling guidelines only and do not have the effect of
substantive law.
Even if the Internal Revenue Service should contend that the
escrow arrangement here constituted taxable boot, this contention could be
contested in court. See the case of Carlberg v. U.S., 281 F.2d 507 (8 Cir.,
1960), for an unsuccessful challenge by the Internal Revenue Service of a
contingent stock arrangement in connection with a reorganization.
Please note that Section 483 may apply to a deferred
distribution of South Alabama stock from the escrow arrangement, resulting in
the taxation of imputed interest to the CNB shareholders receiving such
distribution.
The opinions expressed herein are based upon existing statutory,
regulatory, and judicial authority, any of which may be changed at any time
with retroactive effect. In addition, our opinions are based solely on the
documents that we have examined, the additional information that we have
obtained, and the statements set out herein, which we have assumed and you
have confirmed to be true on the date hereof and will be true on the date on
which the proposed transaction is consummated. Our opinions cannot be relied
upon if any of the facts contained in such documents or if such additional
information is, or later becomes, inaccurate, or if any of the statements set
out herein is, or later becomes, inaccurate. Finally, our opinions are
limited to the tax matters specifically covered thereby, and we have not been
asked to address, nor have we addressed, any other tax consequences of the
proposed transaction.
We consent to the use of this opinion as an exhibit to the Registration
Statement filed by South Alabama relating to the proposed transaction and to
the reference to us under the heading "Legal Matters" in the Joint Proxy
Statement and Prospectus included in the Registration Statement. This opinion
is being provided solely for the use of South Alabama, CNB Interim, and CNB.
No other person or party shall be entitled to rely on this opinion.
Very truly yours,
HAND ARENDALL, L.L.C.
BY: /s/ G. Porter Brock, Jr.
Exhibit 23.1
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the incorporation by
reference in this Registration Statement of our report dated January 23, 1998
incorporated by reference in South Alabama Bancorporation's Form 10-K for the
year ended December 31, 1997 and to all reference to our firm included in or
made a part of this Registration Statement.
/s/ Arthur Andersen LLP
Birmingham, Alabama
November 2, 1998
Exhibit 23.2
CPA
ACCOUNTANT'S CONSENT
The Board of Directors
The Commercial National Bank of Demopolis
We consent to the use of our report from 1995 through 1997, which our firm
has submitted and signed, and to the reference to our firm under the heading
Experts in the Prospectus and Registration Statement on Form S-4 filed with
the SEC, in connection with your merger with and into a subsidiary of South
Alabama Bancorporation, Inc. to be formed.
November 2, 1998
/s/ McKean & Associates, P.A.
McKean & Associates, P.A.
Certified Public Accountants
Exhibit 23.6
ALEX SHESHUNOFF & CO.
INVESTMENT BANKING
CONSENT OF ALEX SHESHUNOFF & CO. INVESTMENT BANKING
In connection with the proposed merger of The Commercial National Bank
of Demopolis (CNB) with and into South Alabama Bancorporation, Inc., the
undersigned, acting as an independent financial advisor to CNB, hereby
consents to the inclusion of our Fairness Opinion of the transaction to CNB
in the Prospectus.
November 2, 1998
ALEX SHESHUNOFF & CO.
INVESTMENT BANKING
AUSTIN, TEXAS
/s/ Alex Sheshunoff & Co.
Investment Banking
Exhibit 99.1
THE COMMERCIAL NATIONAL BANK OF DEMOPOLIS
Proxy for Special Meeting of Stockholders, December 11, 1998
Solicited by the Board of Directors
KNOW ALL MEN BY THESE PRESENTS that I, the undersigned Stockholder of The
Commercial National Bank of Demopolis, do hereby nominate, constitute and
appoint the proxy committee of the board of directors, and each of them, with
full power to act alone, my true and lawful attorneys and proxies with full
power of substitution, for me and in my name, place and stead to vote all
Common Stock of The Commercial National Bank of Demopolis standing in my name
on its books on November 2, 1998, at the Special Meeting of its Stockholders
to be held at 201 North Main Avenue, Demopolis, Alabama, on December 11, 1998
at 11:00 a.m., Central Time, and at any adjournment thereof, with all powers
that the undersigned would possess if personally present, conferring upon my
said attorneys and proxies all discretionary authority permitted by applicable
law and regulations, as follows:
1. Plan of Merger. Adoption of the Amended and Restated Agreement
and Plan of Reorganization, Plan of Merger and Escrow Trust
Agreement, all as described in the Prospectus dated November 10,
1998, whereby: (i) The Commercial National Bank of Demopolis will
be merged into The Commercial Interim Bank of Demopolis; and (ii)
shareholders of The Commercial National Bank of Demopolis will
receive (x) the number of shares of South Alabama Bancorporation,
Inc. Common Stock having a market value, calculated as provided in
said Agreement and Plan of Reorganization, of $147.94, and (y) on a
deferred basis and pursuant to the Escrow Trust Agreement described
in and included with the accompanying Prospectus, up to that fraction
of a share of South Alabama common stock having a market value,
calculated as provided in said Agreement and Plan of Reorganization,
of $2.06, with both amounts, subject to adjustment for fluctuation of
South Alabama Bancorporation, Inc. s stock price, for each share of
their stock of The Commercial National Bank of Demopolis.
FOR ________
AGAINST ________
ABSTAIN ________
2. Other Business. The proxies are authorized to vote in their discretion
upon such other business as may be brought before the meeting or any
adjournment thereof. The Board of Directors currently knows of no other
business to be presented.
If properly executed and returned, the shares represented by the proxy
will be voted in accordance with the directions given herein. If no specific
directions are given, the shares will be voted, subject to and in accordance
with the provisions contained in the Prospectus dated November 10, 1998, "For"
the approval of the merger. If any other business is presented at the meeting,
the shares will be voted in accordance with the recommendations of the Board
of Directors.
This proxy may be revoked at any time prior to its exercise by written
notice or a subsequently dated proxy delivered to The Commercial National
Bank of Demopolis.
Please date, sign and mail this proxy in the envelope provided.
Postage not necessary if mailed in the United States.
Proxy Number Number of Shares
DATED:_____________________, 1998
SIGNED:
__________________________________________________
(Please sign exactly as the name appears hereon. If
stock is held in the names of joint owners, each
should sign. Attorneys, Executors, Administrators,
etc. should so indicate.)
