As filed with the Securities and Exchange Commission on _______________, 1998
Registration No. 33-
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
____________________
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 Classification Code Number) Identification No.)
of 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)
____________________
Copy to: R. PRESTON BOLT, JR.
Hand Arendall, L.L.C.
3000 First National Bank Building
107 Saint Francis Street
Mobile, Alabama 36602
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..................
<TABLE>
CALCULATION OF REGISTRATION FEE
<CAPTION>
Title of each class of Amount to be Proposed Maximum Proposed Maximum Amount of
Securities to be registered Registered(2) Offering Price per Unit Aggregate Offering Price(1) Registration Fee
<S> <C> <C> <C> <C>
Common Stock (par value $0.01) 97,600 shares Not Applicable $1,952,000 $575.84
(1) Determined pursuant to Rule 457(f)(2).
(2) Estimated solely for the purpose of calculating the registration fee.
The number of shares is subject to adjustment pursuant to the Merger
Agreement, as described in the Registration Statement, and this
Registration Statement covers such additional indeterminate number of
shares.
</TABLE>
____________________
The Registrant hereby amends this Registration Statement on such date or
dates as may be necessary to delay its effective date until the Registrant
shall file a further amendment which specifically states that this
Registration Statement shall thereafter become effective in accordance with
Section 8(a) of the Securities Act of 1933 or until the Registration Statement
shall become effective on such date as the Commission, acting pursuant to
said Section 8(a), may determine.
CROSS REFERENCE SHEET
1. Forepart of Registration Statement
Outside Front Cover Page of Prospectus . . . Facing Page; Cover Page;
Cross Reference Sheet
2. Inside Front and Outside Back
Cover Pages of Prospectus. . . . . Inside Front Cover Page; AVAILABLE
INFORMATION; TABLE OF CONTENTS
3. Risk Factors, Ratio of Earnings to Fixed
Charges and Other Information. . . . . . . . . . . . . . . . .SUMMARY
4. Terms of the Transaction. . . . . . . . . . SUMMARY; TABLE OF CONTENTS
5. Pro Forma Financial Information . . . .PRO FORMA FINANCIAL INFORMATION
6. Material Contacts with Company
Being Acquired . . . . . . . . . . . . . . . . . . . . . . THE MERGER
7. Additional Information Required for Reoffering by
Persons and Parties Deemed to be Underwriters. . . . . . . . . . . .*
8. Interests of Named Experts and Counsel. . . . . . . . . .LEGAL MATTERS
9. Disclosure of Commission Position on
Indemnification for Securities Liability . . . . . . . . . . . . . .*
10. Information With Respect to S-3 Registrants . . . . . . . . . . . . .*
11. Incorporation of Certain Information by Reference . . . . . . . . . .*
12. Information With Respect to S-2 or S-3 RegistrantsAVAILABLE INFORMATION;
INCORPORATION OF CERTAIN
DOCUMENTS BY REFERENCE
13. Incorporation of Certain Information by ReferenceINCORPORATION OF CERTAIN
DOCUMENTS BY REFERENCE
14. Information With Respect to Registrants Other
Than S-3 or S-2 Registrants. . . . . . . . . . . . . . . . . . . . .*
15. Information With Respect to S-3 Companies . . . . . . . . . . . . . .*
16. Information With Respect to S-2 or S-3 Companies. . . . . . . . . . .*
17. Information With Respect to Companies Other
Than S-3 or S-2 Companies. . . . . . . . . .SUMMARY; PSB MANAGEMENT S
DISCUSSION AND ANALYSIS;
BUSINESS OF PSB; CONSOLIDATED
FINANCIAL STATEMENTS OF
PETERMAN STATE BANK
(Appendix B)
18. Information if Proxies, Consents or
Authorizations are to be Solicited INCORPORATION OF CERTAIN DOCUMENTS
BY REFERENCE; SUMMARY; GENERAL
INFORMATION; THE MERGER
19. Information if Proxies, Consents or
Authorizations are not to be Solicited
or in an Exchange Offer. . . . . . . . . . . . . . . . . . . . . . .*
*Not applicable and therefore not included
PETERMAN STATE BANK
925 Old Peterman Highway
Peterman, Alabama 37471
____________
NOTICE OF SPECIAL MEETING OF SHAREHOLDERS
TO BE HELD ON _____________, 1998
____________
_________________, 1998
To the Shareholders of Peterman State Bank
NOTICE IS HEREBY GIVEN that a special meeting of shareholders (the
"Special Meeting") of Peterman State Bank ("PSB") will be held at PSB's
principal executive office, 925 Old Peterman Highway, Peterman, Alabama, on
__________, 1998, at _______ local time, for the following purposes:
1. To consider and vote upon a proposal to approve the Agreement and
Plan of Merger, dated as of October 14, 1997, as supplemented and amended by
Mutual Waiver and Agreement dated as of March 25, 1998 (the "Merger
Agreement"), by and between PSB, The Monroe County Bank ("MCB") and South
Alabama Bancorporation, Inc. ("South Alabama"), pursuant to which, among other
matters (a) PSB would be merged with and into MCB and (b) the shares of PSB
common stock will be converted into the right to receive the number of shares
of South Alabama common stock having a market value, calculated as provided
in the Merger Agreement, of $3,383.47, subject to adjustment for fluctuations
in South Alabama's stock price, as more fully described in the accompanying
Prospectus. A copy of the Merger Agreement is set forth in Appendix A to the
accompanying Proxy Statement and Prospectus (the "Prospectus") and is hereby
incorporated by reference herein.
2. To transact such other business as may properly come before the
Special Meeting or any adjournment thereof.
Only shareholders of record at the close of business on ________________,
1998 are entitled to receive notice of and to vote at the Special Meeting or
any adjournments thereof. Approval of the Merger Agreement requires the
affirmative vote of the holders of at least a majority of the shares of PSB
Common Stock entitled to vote at the Special Meeting.
THE BOARD OF DIRECTORS OF PSB UNANIMOUSLY RECOMMENDS THAT SHAREHOLDERS
VOTE FOR APPROVAL OF THE MERGER AGREEMENT.
Each shareholder has the right to dissent from the Merger Agreement and
demand payment of the fair value of his shares if the Merger is consummated.
The right of any shareholder to receive such payment is contingent upon
strict compliance with requirements of Article 13 of the Alabama Business
Corporation Act. The full text of Article 13 is set forth in Appendix C to
the Prospectus and is incorporated herein by reference. For a summary of the
requirements of Article 13, see "GENERAL INFORMATION Dissenters Rights" in
the Prospectus.
By order of the Board of Directors
J. Robison Harper, 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 AND PROXY STATEMENT
SOUTH ALABAMA BANCORPORATION, INC.
Common Stock
___________________________
The _______ shares of common stock, $.01 par value per share
(the "Common Stock"), of South Alabama Bancorporation, Inc., an Alabama 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 Peterman State Bank, an Alabama banking corporation
("PSB"), with and into The Monroe County Bank ("MCB"), an Alabama banking
corporation and wholly owned subsidiary of South Alabama, pursuant to the
terms of an Agreement and Plan of Merger dated as of October 14, 1997, and a
Mutual Waiver and Agreement dated as of March 25, 1998 (the "Waiver
Agreement") by and between South Alabama, MCB and PSB (together the "Merger
Agreement").
South Alabama's Common Stock is quoted on the NASDAQ stock market under
the symbol SABC. On _______________, 1998, the last sale price of Common Stock
as reported on the NASDAQ stock market was $___________ per share.
This Prospectus also constitutes a Proxy Statement of PSB and is being
furnished to the shareholders of PSB in connection with the solicitation of
proxies by the Board of Directors of PSB for use at its special meeting of
shareholders, including any adjournment or postponement thereof (the "PSB
Meeting"), to be held on _______________, 1998, to consider and vote upon a
proposal to approve the Merger Agreement and related matters. This Proxy
Statement/Prospectus and the accompanying proxy are first being mailed to
stockholders of PSB on or about _________, 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, PSB and MCB, 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 THE JOINT PROXY STATEMENT.
ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE. THE
SECURITIES OFFERED HEREBY ARE NOT DEPOSITS, SAVINGS ACCOUNTS
OR OTHER OBLIGATIONS OF A BANK AND ARE NOT INSURED BY THE
FEDERAL DEPOSIT INSURANCE CORPORATION OR ANY
OTHER GOVERNMENTAL AGENCY.
___________________________
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 __________, 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 (75 Park
Place, 14th Floor, New York, New York 10007) and Chicago (Northwestern
Atrium Center, 500 West Madison Street, Suite 1400, Chicago, Illinois 60661).
Copies of such materials can be obtained from the Public Reference Section of
the Commission at 450 Fifth Street, N.W., Washington, D.C. 20549, at
prescribed rates. The Commission also maintains a Web Site that contains
reports, proxy and information statements and other information regarding
registrants that file electronically, including South Alabama, with the
Commission at http://www.sec.gov.
South Alabama has filed with the Commission a Registration Statement
(No. 33-________________) 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 Merger Agreement. 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 PSB has been supplied by PSB.
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
PSB 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 for the year ended
December 31, 1997;
2. South Alabama's 1997 Annual Report to Shareholders; and
3. South Alabama's Proxy Statement for its 1998 Annual Meeting of
Shareholders.
Any statement contained herein or in a document incorporated by reference
herein shall be deemed to be modified or superseded for purposes of the
Registration Statement and this 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 deliver of
such documents, any request should be made by ____________, 1998.
TABLE OF CONTENTS
AVAILABLE INFORMATION. . . . . . . . . . . . . . . . . . . . . . . . . . .2
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE. . . . . . . . . . . . . .2
SUMMARY. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .5
Parties to the Merger . . . . . . . . . . . . . . . . . . . . . . . .5
Shareholder Meeting . . . . . . . . . . . . . . . . . . . . . . . . .5
The Merger. . . . . . . . . . . . . . . . . . . . . . . . . . . . . .6
Other Significant Considerations. . . . . . . . . . . . . . . . . . .8
Selected Consolidated Financial Data. . . . . . . . . . . . . . . . .8
Comparative Per Share Data. . . . . . . . . . . . . . . . . . . . . 11
Summary Capital Ratios. . . . . . . . . . . . . . . . . . . . . . . 12
GENERAL INFORMATION. . . . . . . . . . . . . . . . . . . . . . . . . . . 13
Special Meeting, Record Date and Votes Required . . . . . . . . . . 13
Proxies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
Dissenters Rights. . . . . . . . . . . . . . . . . . . . . . . . . 14
Recommendation of PSB Board of Directors. . . . . . . . . . . . . . 15
THE MERGER . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
Terms of the Merger; Exchange Ratio . . . . . . . . . . . . . . . . 15
Waiver and Amendment; Termination . . . . . . . . . . . . . . . . . 16
Background of and Reasons for the Merger. . . . . . . . . . . . . . 17
Surrender of Certificates . . . . . . . . . . . . . . . . . . . . . 18
Conditions to Consummation of the Merger. . . . . . . . . . . . . . 19
Regulatory Approvals. . . . . . . . . . . . . . . . . . . . . . . . 19
Conduct of Business Pending the Merger. . . . . . . . . . . . . . . 19
Management and Operations After the Merger. . . . . . . . . . . . . 20
Interests of Certain Persons in the Merger. . . . . . . . . . . . . 20
Certain Federal Income Tax Consequences . . . . . . . . . . . . . . 21
Accounting Treatment. . . . . . . . . . . . . . . . . . . . . . . . 21
Expenses and Fees . . . . . . . . . . . . . . . . . . . . . . . . . 22
Resales of South Alabama Common Stock . . . . . . . . . . . . . . . 22
PRO FORMA FINANCIAL INFORMATION. . . . . . . . . . . . . . . . . . . . . 22
Pro Forma Combined Condensed Consolidated Statement of Condition. . 22
Pro Forma Combined Condensed Consolidated Statements of Income. . . 23
COMPARATIVE MARKET PRICES AND DIVIDENDS. . . . . . . . . . . . . . . . . 24
Market Prices . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
Dividends . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
DESCRIPTION OF SOUTH ALABAMA CAPITAL STOCK . . . . . . . . . . . . . . . 25
EFFECT OF MERGER ON RIGHTS OF SHAREHOLDERS . . . . . . . . . . . . . . . 26
Authorized Capital Stock. . . . . . . . . . . . . . . . . . . . . . 26
Special Meetings of Shareholders. . . . . . . . . . . . . . . . . . 27
Required Shareholder Votes . . . . . . . . . . . . . . . . . . . . 27
Amendment of Articles or Certificate of Incorporation . . . . . . . 27
Amendment of Bylaws . . . . . . . . . . . . . . . . . . . . . . . . 27
Shareholder Action Without a Meeting. . . . . . . . . . . . . . . . 27
Director Liability. . . . . . . . . . . . . . . . . . . . . . . . . 28
Preemptive Rights . . . . . . . . . . . . . . . . . . . . . . . . . 28
PSB MANAGEMENT'S DISCUSSION AND ANALYSIS . . . . . . . . . . . . . . . . 28
FINANCIAL CONDITION . . . . . . . . . . . . . . . . . . . . . . . . 29
Average Assets and Liabilities . . . . . . . . . . . . . . . . 29
Loans. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
Investment Securities. . . . . . . . . . . . . . . . . . . . . 30
Deposits and Short-Term Borrowings . . . . . . . . . . . . . . 31
Asset/Liability Management . . . . . . . . . . . . . . . . . . 32
Liquidity. . . . . . . . . . . . . . . . . . . . . . . . . . . 32
Interest Rate Sensitivity. . . . . . . . . . . . . . . . . . . 32
Capital Resources. . . . . . . . . . . . . . . . . . . . . . . 33
RESULTS OF OPERATIONS . . . . . . . . . . . . . . . . . . . . . . . 34
Net Interest Revenue . . . . . . . . . . . . . . . . . . . . . 34
Provision for Loan Losses and Allowance for Loan Losses. . . . 36
NON-PERFORMING ASSETS . . . . . . . . . . . . . . . . . . . . . . . 37
Non-Interest Revenue and Non-Interest Expense. . . . . . . . . 38
Income Taxes and Other Issues. . . . . . . . . . . . . . . . . 39
BUSINESS OF PSB. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 39
Bank Activities . . . . . . . . . . . . . . . . . . . . . . . . . . 39
Certain Management Information. . . . . . . . . . . . . . . . . . . 40
PSB Security Ownership. . . . . . . . . . . . . . . . . . . . . . . 40
SUPERVISION, REGULATION, AND EFFECTS OF GOVERNMENTAL POLICY. . . . . . . 42
Bank Holding Company Regulation . . . . . . . . . . . . . . . . . . 42
Bank Regulation . . . . . . . . . . . . . . . . . . . . . . . . . . 44
Capital Adequacy. . . . . . . . . . . . . . . . . . . . . . . . . . 46
Effects of Governmental Policies. . . . . . . . . . . . . . . . . . 47
LEGAL MATTERS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 48
EXPERTS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 48
SHAREHOLDER PROPOSALS. . . . . . . . . . . . . . . . . . . . . . . . . . 48
APPENDICES
Appendix A Agreement and Plan of Merger and Mutual Waiver and Agreement
Appendix B Peterman State Bank Financial Statements
Appendix C Provisions of Alabama Business Corporation Act relating to
Dissenters' Rights
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 (including the Waiver
Agreement), a copy of which is set forth in Appendix A to this Prospectus, is
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") organized in 1985 as Mobile
National Corporation, a corporation under the laws of the State of Delaware.
In 1986, South Alabama acquired all of the stock of The Bank of Mobile, N.A.,
a national banking association, which has since converted to a state chartered
bank under the laws of the State of Alabama, and, in March 1998, changed its
name to South Alabama Bank ("SAB"). In 1993, South Alabama, then named Mobile
National Corporation, merged with South Alabama Bancorporation, Inc. and
changed its name to South Alabama Bancorporation, Inc. South Alabama
currently owns all of the stock of 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"). In 1997, South Alabama
changed its state of domicile from Delaware to Alabama. The deposits of SAB,
FNBB and MCB are all insured by the Bank Insurance Fund ("BIF") of the Federal
Deposit Insurance Corporation ("FDIC").
At December 31, 1997, South Alabama had total assets of approximately
$369.6 million, total deposits of approximately $315.2 million, total loans of
approximately $196.6 million and total shareholders' equity of approximately
$45.5 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."
MCB. MCB is an Alabama banking corporation subject to supervision and
regulation by the FDIC and the Alabama State Banking Department and a wholly
owned subsidiary of South Alabama. MCB provides a diversified range of
banking and financial services to customers in the commercial and retail banking
fields and has two offices located in Monroeville, Alabama
PSB. PSB is an Alabama banking corporation subject to supervision
and regulation by the FDIC and the Alabama State Banking Department. PSB
provides banking services to customers in Peterman and Monroeville, Alabama,
and has one office in each location. Deposits of PSB are insured by the BIF
of the FDIC.
At December 31, 1997, PSB had total assets of approximately $17.1 million,
total deposits of approximately $15.1 million, total loans of approximately
$7.3 million and total shareholders' equity of approximately $1.9 million.
PSB's principal executive offices are located at 925 Old Peterman Highway,
Peterman, Alabama 37471, and its telephone number is (334) 564-2121. See
"Selected Consolidated Financial Data" below, "PSB Management's Discussion
and Analysis" and "Business of PSB."
Shareholder Meeting
PSB. The PSB Meeting will be held at __________ local time, on
_______________, 1998, at PSB's main office at 925 Old Peterman Highway,
Peterman, Alabama. The purpose of the PSB Meeting is to consider and vote
upon approval of the Merger Agreement. The Board of Directors of PSB has
fixed the close of business on ____________, 1998, as the record date for
determining shareholders entitled to notice of and to vote at the PSB Meeting
(the "PSB Record Date"). As of such date, there were 750 shares of PSB
Common Stock issued and outstanding and entitled to be voted at the PSB
Meeting. See General Information -- Special Meeting, Record Date and Votes
Required."
The Merger
Terms. The Merger Agreement provides that PSB will merge with and into
MCB. Each share of PSB Common Stock outstanding immediately prior to the
Effective Time, other than certain shares owned by PSB or South Alabama or
its subsidiaries, will be converted into the right to receive the number of
shares of South Alabama Common Stock having a market value, calculated as
provided in the Merger Agreement, of $3,314.13, subject to adjustment to
$3,383.47 in the event PSB sells certain nonperforming loans prior to the
Merger. As of _____________, 1998, the most recent practicable date prior to
printing this Prospectus, the market value of South Alabama Common Stock as
so calculated was $________ per share, which, if unchanged, would result in
an exchange ratio of ________ shares of South Alabama Common Stock for each
share of PSB Common Stock. The number of shares of South Alabama Common
Stock to be exchanged for each share of PSB Common stock is referred to as
the "Exchange Ratio." The Merger Agreement is subject to termination by
either party in the event the market value of the South Alabama Common Stock
is less than $13.00 per share. In the event the market value of South
Alabama Common Stock is greater than $28.00 per share then the market value of
South Alabama Common Stock shall be set at $28.00 per share for purposes of
determining the Exchange Ratio. Cash will be paid by South Alabama in lieu
of issuance of fractional shares. See "The Merger Terms of the Merger;
Exchange Ratio," and " Waiver and Amendment; Termination."
Effective Time. The Merger will become effective at the time Articles of
Merger become effective with the Secretary of State of Alabama after all
conditions contained in the Merger Agreement have been satisfied or waived,
including receipt of all regulatory approvals, expiration of all statutory
waiting periods and the approval of the Merger Agreement by the shareholders
of PSB. See "The Merger Effective Date and Effective Time."
Recommendation of PSB Board of Directors. The Boards of Directors of
South Alabama, MCB and PSB considered numerous factors in approving the
Merger Agreement. See "The Merger Background of and Reasons for the Merger."
The Board of Directors of PSB unanimously recommends that its shareholders
vote for approval of the Merger Agreement, as supplemented by the Waiver
Agreement.
Vote Required. Approval of the Merger Agreement will require the
affirmative vote of the holders of a majority of the outstanding shares of
PSB Common Stock. The Directors and Executive Officers of PSB (and certain
family members and related entities) beneficially owned, as of the PSB Record
Date, and are entitled to vote, a total of _______ shares of PSB Common Stock
at the PSB Meeting, or _____ percent of the outstanding shares entitled to
vote. The affirmative vote of ________ shares, or ________ percent, of the PSB
Common Stock, when added to those shares of the PSB Common Stock owned by the
Directors and Executive Officers of PSB (and certain family members and
related entities) will be sufficient to approve the Merger on behalf of PSB.
See "General Information Special Meetings, Record Dates and Votes Required.
Exchange of Certificates. Promptly after the Effective Date, South
Alabama Trust Company, Inc., as Exchange Agent, will mail to each holder of
record of PSB Common Stock at the Effective Time a transmittal letter, with
instructions and return envelope, to use in effecting the exchange of
certificates representing such PSB 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 PSB Common Stock certificate only upon
surrender of such certificate. See "The Merger Surrender of Certificates."
Conditions to Consummation. The obligations of South Alabama and PSB to
effect the Merger are subject to various conditions, including (i) approval
of the Merger Agreement and the transactions contemplated thereby by PSB
shareholders, (ii) receipt of regulatory approvals required in connection with
the Merger and expiration of statutory waiting periods, (iii) receipt of any
other consents necessary to consummation of the Merger, and (iv) receipt of
certain opinions of counsel. All applications necessary to obtain required
regulatory approvals have been filed. Approval of the Federal Deposit
Insurance Corporation was obtained on February 24, 1998, and the statutory
30-day waiting period expired on March 26, 1998. 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 PSB and no gain or loss will be recognized by PSB shareholders,
except in respect of cash received for fractional shares. Counsel for each
of South Alabama and PSB have delivered opinions to the effect that, for
federal income tax purposes, under current law, assuming the Merger will take
place as described in the Merger Agreement and that certain factual matters
represented by South Alabama and PSB are true and correct at the time of
consummation of the Merger, the Merger will constitute a reorganization
within the meaning of Section 368(a) of the Internal Revenue Code of 1986, as
amended (the "Code"). See "The Merger Certain Federal Income Tax
Consequences."
BECAUSE CERTAIN TAX CONSEQUENCES OF THE MERGER MAY VARY DEPENDING UPON
THE PARTICULAR CIRCUMSTANCES OF EACH SHAREHOLDER, IT IS RECOMMENDED THAT
SHAREHOLDERS CONSULT THEIR TAX ADVISORS CONCERNING THE FEDERAL (AND ANY STATE,
LOCAL OR FOREIGN) TAX CONSEQUENCES OF THE MERGER IN THEIR PARTICULAR
CIRCUMSTANCES.
Management and Operations after the Merger. 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 will be accounted for by South Alabama
as a purchase. See "The Merger Accounting Treatment."
Resales of South Alabama Stock. The shares of South Alabama Common Stock
issued pursuant to the Merger Agreement will be freely transferable under
federal securities law, except for shares issued to any shareholder who may
be deemed an "affiliate" of PSB for purposes of Rule 145 under the Securities
Act (generally including directors, executive officers and beneficial owners
of ten percent of any class of capital stock). Affiliates may not sell their
shares of 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 PSB may waive
or extend the time for performance by the other of obligations under the
Merger Agreement, and the Boards of Directors of each of South Alabama and
PSB may agree, subject to certain limitations imposed by Alabama law, to
amend the Merger Agreement. The Merger Agreement may be terminated at any
time prior to the Effective Time (i) by mutual consent, (ii) in the event of
a breach of a representation or warranty or covenant or agreement by the
non-breaching party under certain circumstances, (iii) by either party in the
event any required regulatory approval is denied or not obtained or the
shareholders of PSB fail to approve the Merger, (iv) by PSB in the event the
market value of the South Alabama Common Stock (determined as provided in the
Merger Agreement) is less than $13.00 or more than $26.00 per share, (v) by
South Alabama in the event the market value of the South Alabama Common Stock
is less than $13.00 per share, (vi) by South Alabama in the event that Deemed
Book Value (as defined in the Merger Agreement) of PSB is less than $1,900,000
and (vii) by either party in the event the Merger is not consummated by March
31, 1998 (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, 1998. Pursuant to the Waiver Agreement,
the parties waived, until June 30, 1998, the right to terminate the Merger
Agreement in the event the Merger is not consummated or cannot be consummated
by March 31, 1998; PSB waived its right to terminate the Merger Agreement in
the event the market value of South Alabama Common Stock exceeds $26.00 per
share; the parties established $28.00 per share as the ceiling for the market
value of South Alabama Common Stock; and the Deemed Book Value of PSB Common
Stock was set at $1,912,000.00, subject to adjustment to $1,952,000.00 in
the event PSB sells certain non-performing loans prior to the Merger. See
"The Merger Waiver and Amendments; Termination."
Dissenters Rights. PSB shareholders have the right to dissent from the
Merger Agreement and, upon the satisfaction of certain specified procedures,
to receive cash in respect of the "fair value" of their shares of PSB Common
Stock in accordance with applicable Alabama law. South Alabama shareholders
have no right to dissent from the Merger Agreement. The procedures to be
followed by dissenting shareholders are summarized under "General Information
Dissenters Rights." A copy of the applicable Alabama statutory provisions
is set forth in Appendix C to this Prospectus.
In general, any dissenting shareholder who perfects his statutory
dissenters' rights to be paid the "fair value" of his stock in cash will
recognize gain or loss for federal income tax purposes upon receipt of such
cash. In addition, dissent by holders of a significant number of shares of
PSB Common Stock could cause the Merger not to qualify as a tax free
reorganization for federal income tax purposes. See "The Merger Certain
Federal Income Tax Consequences.
Other Significant Considerations
Variability of Stock Prices. The consideration to be received in the
Merger by holders of PSB Common Stock consists of South Alabama Common Stock,
which is traded in the over-the-counter market and quoted on the National
Association of Securities Dealers Automated Quotation System ("NASDAQ"). The
public market for equity securities such as the 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 prices of
South Alabama Common Stock for the period from January 1, 1998, to March 18,
1998, as reported on NASDAQ, were $28.50 and $21.00. 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 PSB (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 PSB to consummate the Merger are subject to the occurrence of any event,
change or circumstance that is reasonably likely to have a "Material Adverse
Effect" on the other party and to other significant conditions set forth in
the Merger Agreement, and there can be no assurance that the Merger will be
consummated. See "The Merger Conditions to Consummation."
Selected Consolidated Financial Data
The following tables present for South Alabama and PSB, 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 PSB, appearing elsewhere in this Prospectus, and
should be read in conjunction therewith and with notes thereto. See
"Available Information," "Incorporation of Certain Documents by Reference,"
"Pro Forma Financial Information" and Appendix B hereto. The financial data
of PSB, other than its Statement of Condition as of December 31, 1997, and
its Statement of Operations for the year ended December 31, 1997, are derived
from unaudited financial statements; however, in the opinion of management
of PSB, all adjustments necessary to arrive at a fair statement of results of
operations of PSB have been included.
<TABLE>
South Alabama Selected Consolidated Financial Data (Historical)
(Dollars In Thousands Except Per Share Amounts)
<CAPTION>
Year Ended December 31,
1997 1996 1995 1994 1993
<S> <C> <C> <C> <C> <C>
RESULTS OF OPERATIONS
Interest revenue $ 25,795 $ 19,837 $ 18,094 $ 15,270 $ 13,520
Interest expense 10,900 8,132 7,397 5,234 4,801
Net interest revenue 14,895 11,705 10,697 10,036 8,719
Provision for loan losses 273 298 78 52 248
Non-interest revenue 3,203 2,589 2,244 2,212 2,322
Non-interest expense 11,327 9,156 8,446 8,177 7,149
Income before income taxes,
cumulative effect of change
in accounting for income
taxes 6,498 4,840 4,417 4,019 3,644
Income taxes 1,770 1,486 1,410 1,237 1,263
Net income before
cumulative effect of change
in accounting for income
taxes 4,728 3,354 3,007 2,782 2,381
Cumulative effect of change in
accounting for income taxes 0 0 0 0 1,010
Net income $ 4,728 $ 3,354 $ 3,007 $ 2,782 $ 3,391
Basic Earnings per share:
Before cumulative effect of
change in accounting for
income taxes $ 1.12 $ 1.05 $ 1.00 $ 0.93 $ 0.79
Basic net income per share $ 1.12 $ 1.05 $ 1.00 $ 0.93 $ 1.13
Diluted earnings per share:
Before cumulative effect of
change in accounting for
income taxes $ 1.11 $ 1.04 $ 0.99 $ 0.92 $ 0.79
Diluted net income
per share $ 1.11 $ 1.04 $ 0.99 $ 0.92 $ 1.13
YEAR-END STATEMENT
OF CONDITION
Total assets $369,595 $350,077 $244,949 $218,506 $218,704
Loans 196,644 189,160 144,147 133,821 118,454
Deposits 315,177 295,287 210,092 185,842 187,392
Shareholders' equity 45,462 47,088 28,797 26,104 24,158
AVERAGE BALANCES
Total assets $346,441 $260,550 $228,358 $216,773 $207,397
Average earning assets 319,895 240,205 211,864 200,333 190,716
Loans 193,381 156,606 140,431 123,839 108,699
Deposits 293,349 221,227 194,023 184,623 178,925
Shareholders' equity 45,087 32,363 27,164 25,602 23,101
PERFORMANCE RATIOS
Net income to:
Average total assets 1.36% 1.29% 1.32% 1.28% 1.64%
Average shareholders'
equity 10.49% 10.36% 11.07% 10.87% 14.68%
Average shareholders'
equity to average
total assets 13.01% 12.42% 11.90% 11.81% 11.14%
Dividend payout ratio 149.11%(1) 38.10% 32.00% 27.96% 19.47%
__________________
(1) Includes special dividend of $1.25 per share.
</TABLE>
<TABLE>
PSB Selected Consolidated Financial Data (Historical
(Dollars in Thousands Except Per Share Amounts)
<CAPTION>
Year Ended December 31,
1997 1996 1995
<S> <C> <C> <C>
RESULTS OF OPERATIONS
Interest revenue $ 1,282 $ 1,475 $ 1,477
Interest expense 639 792 734
Net interest revenue 643 683 743
Provision for loan losses 201 39 15
Non-interest revenue 87 86 99
Non-interest expense 784 645 682
Income (Loss) before income taxes (255) 85 145
Income taxes (Benefit) ( 93) 8 28
Net income (Loss) $ (162) $ 77 $ 117
Basic and Diluted Earnings
Per Share $(215.65) $ 102.67 $ 156.00
PERIOD END STATEMENT
OF CONDITION
Total assets $ 17,093 $ 20,730 $ 21,677
Loans 7,047 9,045 10,253
Deposits 15,105 18,542 19,533
Shareholders' equity 1,895 2,057 1,976
AVERAGE BALANCES
Total assets $ 18,912 $ 21,204 $ 20,648
Average earning assets 16,938 19,133 18,776
Loans 8,190 9,650 10,641
Deposits 16,824 19,038 18,557
Shareholders' equity 1,976 2,017 1,947
PERFORMANCE RATIOS
Net income to:
Average total assets (0.86%) 0.36% 0.57%
Average shareholders' equity (8.20%) 3.82% 6.01%
Average shareholders' equity
to average total assets 10.45% 9.51% 9.43%
Dividend payout ratio 0.00% 14.29% 9.40%
</TABLE>
The following table sets forth pro forma combined selected consolidated
financial data and ratios giving effect to the Merger on a purchase
accounting basis for the year ended December 31, 1997. 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 PSB, appearing elsewhere
in this Prospectus. See "Incorporation of Certain Documents by Reference,"
"Pro Forma Financial Information" and Appendix B.
<TABLE>
Combined Pro Forma Selected Consolidated Financial Data
(Dollars In Thousands Except Per Share Amounts)
<CAPTION>
Year Ended
December 31, 1997
<S> <C>
RESULTS OF OPERATIONS
Interest revenue $ 27,077
Interest expense 11,539
Net interest revenue 15,538
Provision for loan losses 474
Non-interest revenue 3,290
Non-interest expense 12,137
Income before income taxes 6,217
Income taxes 1,677
Net income $ 4,540
Earnings per share:
Basic $ 1.07
Diluted $ 1.06
PERIOD END STATEMENT OF CONDITION
Total assets $387,257
Loans 203,691
Deposits 330,282
Shareholders' equity 47,926
</TABLE>
Comparative Per Share Data
The following table presents selected comparative per share data for
South Alabama Common Stock and PSB Common Stock on a historical basis, for
South Alabama Common Stock on a pro forma basis reflecting consummation of
the Merger and for the PSB Common Stock on an equivalent pro forma basis
reflecting consummation of the Merger. Such information has been prepared
giving effect to the Merger on a purchase accounting basis. See "The Merger
Accounting Treatment." The data is not necessarily indicative of the results
of the future operations of either entity or the actual results that would
have occurred had the Merger been consummated January 1, 1997. 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
consolidated historical financial statements of PSB, 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 B hereto.
<TABLE>
<CAPTION>
Year Ended
December 31,1997
<S> <C>
South Alabama Common Stock
Net income per common share:
Historical:
Basic $ 1.12
Diluted 1.11
Pro forma combined:
Basic 1.07
Diluted 1.06
Dividends paid per common share:
Historical $ 1.67
Pro forma combined 1.63
Book value per common share (at end of period):
Historical $ 10.71
Pro forma combined 11.04
PSB Common Stock
Net income per common share:
Historical:
Basic and Diluted $ (215.65)
Pro forma equivalent (1)
Basic 135.18
Diluted 133.92
Dividends paid per common share:
Historical $ 0.00
Pro forma equivalent (1) 205.93
Book value per common share (at end of period):
Historical $2,526.87
Pro forma equivalent (1) 1,394.79
(1) PSB pro forma equivalent amounts are computed by multiplying the
pro forma combined amount by a factor of 126.34 to reflect an
assumed exchange ratio of 126.34 shares of South Alabama Common
Stock for each share of PSB Common Stock. See "The Merger Terms of
the Merger; Exchange Ratio."
</TABLE>
Summary Capital Ratios
The following table sets forth the historical risk-based capital ratios
for South Alabama, PSB and pro forma ratios for the combined company,
together with the minimum ratios required by regulatory agencies, as of
December 31, 1997. See "Supervision, Regulation, and Effects of Governmental
Policy Capital Adequacy."
<TABLE>
Combined
<CAPTION>
South Alabama PSB (Pro Forma)
<S> <C> <C> <C>
Risk-based capital ratios
Tier I capital 17.24% 18.46% 17.31%
Total capital (Tier I and II) 18.38% 19.71% 18.45%
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 11.48% 10.31% 11.42%
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 Votes Required
PSB Meeting. The Special Meeting of Shareholders of PSB will be held at
_______ p.m., local time, on _______________________, 1998. The purpose of
the meeting is to consider and vote upon a proposal to approve the Merger
Agreement, as supplemented by the Waiver Agreement, which provides for, among
other things, the Merger. Only holders of record of PSB Common Stock at the
close of business on the PSB Record Date, ________________, will be entitled
to notice of and to vote at the PSB Meeting. As of the PSB Record Date, there
were 750 shares of PSB Common Stock issued, outstanding and entitled to be
voted. There were 23 PSB shareholders of record on the PSB Record Date.
Each share of PSB Common Stock will be entitled to one vote at the PSB Meeting.
The presence, in person or by proxy, of holders of a majority of the
issued and outstanding shares of PSB Common Stock entitled to vote at the PSB
Meeting is necessary to constitute a quorum at such meeting.
Approval of the Merger Agreement on behalf of PSB, pursuant to the
Alabama Banking Code, will require the affirmative vote of the holders of at
least a majority of the outstanding shares of PSB Common Stock entitled to be
voted thereon. A failure to return the enclosed proxy or a vote to abstain
will have the same effect as a vote against approval of the Merger Agreement.
As of the PSB Record Date, 379.052 shares of PSB Common Stock, or 50.54% of the
total shares of PSB Common Stock outstanding, were held, either of record or
beneficially, by directors and executive officers of PSB and certain family
members and related entities and by directors and executive officers of SAB
and certain family members and related entities. Assuming all such shares are
voted in favor of the Merger, no additional affirmative votes of shares of PSB
Common Stock will be required for approval.
Dissenters' rights may be demanded by PSB shareholders who do not vote
in favor of the Merger and who follow the specified procedures of Alabama law.
See "Dissenters Rights" below.
Proxies
PSB. The enclosed proxies are solicited on behalf of the Board of
Directors of PSB for use in connection with the PSB Meeting and any
adjournment or adjournments thereof. Holders of PSB common stock are requested
to complete, date and sign the accompanying proxy and return it promptly to
PSB in the enclosed envelope. Failure to return a properly executed proxy
or to vote at the PSB Meeting will have the same effect as a vote against
approval of the Merger Agreement.
A PSB shareholder who has executed and delivered a proxy may revoke it
at any time before such proxy is voted by giving a later written proxy, by
giving written revocation to the Corporate Secretary of PSB, provided such
later proxy or revocation is actually received by PSB before the vote of the
shareholders, or by voting in person at the PSB Meeting. Any shareholder
attending the PSB 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 PSB Meeting, unless said proxies are revoked, will
be voted in accordance with the instructions therein. If instructions are not
given, properly executed proxies received will be voted FOR approval of the
Merger Agreement.
Other Matters. PSB will bear the costs of any solicitation of proxies
for its Special Meeting, except that SAB 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 PSB, but no written materials other than
those included herewith will be used to solicit proxies.
The management of PSB is not aware of any business to be acted upon at
the Special Meeting other than approval of a proposal to approve the Merger
Agreement. 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 PSB'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.
PSB Dissenters' Rights. If the Merger is consummated, holders of record
of PSB Common Stock who follow the procedures specified by Article 13 of the
ABCA ("Article 13") will be entitled to determination and payment in cash
of the "fair value" of their stock immediately before the Effective Time,
excluding value resulting from the anticipation of the Merger but including
"a fair and equitable" rate of interest thereon. PSB shareholders who elect
to follow such procedures are referred to herein as "Dissenting PSB
Shareholders".
A VOTE IN FAVOR OF THE MERGER AGREEMENT BY A HOLDER OF PSB COMMON STOCK
WILL RESULT IN THE WAIVER OF THE SHAREHOLDER'S RIGHT TO DEMAND PAYMENT FOR HIS
OR HER SHARES.
The following summary of the provisions of Article 13 is not intended to
be a complete statement of such provisions, the full text of which is
attached as Appendix C to this Prospectus, and is qualified in its entirety by
reference thereto.
A holder of PSB Common Stock electing to exercise dissenters' rights
(1) must deliver to PSB, before the vote at the PSB Meeting, written notice of
his or her intent to demand payment for his or her shares if the Merger is
effectuated, and (2) must not vote in favor of the Merger Agreement. The
requirement of such written notice is in addition to and separate from the
requirement that such shares not be voted in favor of the Merger Agreement,
and the requirement of such written notice is not satisfied by voting against
the Merger Agreement either in person or by proxy. The requirement that such
shares not be voted in favor of the Merger Agreement will be satisfied if no
proxy is returned and such shares are not voted in person. Because a
properly executed and delivered proxy which is left blank will, unless
revoked, be voted FOR approval of the Merger Agreement, in order to be
assured that such shareholder's shares are not voted in favor of the Merger
Agreement, a Dissenting PSB Shareholder who votes by proxy must not leave the
proxy blank but must (i) vote AGAINST the approval of the Merger Agreement or
(ii) affirmatively ABSTAIN from voting. Neither a vote against approval of the
Merger Agreement nor an abstention will satisfy the requirement that a
written notice of intent to demand payment be delivered to PSB before the
vote on the Merger Agreement.
Both holders of record and beneficial owners of PSB Common Stock are
entitled to assert dissenters' rights for the shares registered in the name
of or held for the benefit of that holder or owner. Dissenters' rights may be
asserted with respect to less than all shares of PSB Common Stock held of
record by such holder only if such holder dissents with respect to all shares
beneficially owned by any one person and notifies PSB in writing of the name
and address of each person on whose behalf such record holder is asserting
dissenters' rights. A beneficial shareholder, in order to assert his
or her dissenters' rights, must submit to PSB the record shareholder's
written consent to the dissent prior to or contemporaneously with such
assertion and must dissent with respect to all shares of which he or she is
the beneficial shareholder or over which he or she has the power to vote.
Where no number of shares is expressly mentioned, the notice of intent to
demand payment will be presumed to cover all shares held in the name of the
record holder.
No later than 10 days after the Effective Time, SAB will send a written
dissenters' notice to each Dissenting PSB Shareholder who did not vote in
favor of the Merger and who duly filed a written notice of intent to demand
payment in accordance with the foregoing. The dissenters' notice will
specify the deadline by which time SAB must receive a payment demand from
such Dissenting PSB Shareholder and will include a form for demanding payment.
The deadline will be no fewer than 30 days or more than 60 days after the date
the dissenters notice is delivered. It is the obligation of Dissenting PSB
Shareholders to initiate all necessary action to perfect their dissenters'
rights within the time periods prescribed in Article 13 and the dissenters'
notice. If no payment demand is timely received from a Dissenting PSB
Shareholder, all dissenters' rights will be lost, notwithstanding any
previously submitted written notice of intent to demand payment. Each
Dissenting PSB Shareholder who demands payment retains all other rights of a
shareholder until those rights are cancelled or modified by the Merger. A
Dissenting PSB Shareholder who demands payment in accordance with the
foregoing may not thereafter withdraw that demand and accept the terms offered
under the Merger Agreement unless SAB shall consent thereto.
Within 20 days of the formal payment demand, a Dissenting PSB Shareholder
who has made a demand must submit his share certificate or certificates to PSB
so that a notation to that effect may be placed on such certificate or
certificates and the shares returned to the Dissenting PSB Shareholder with
the notation thereon. A shareholder's failure to submit shares for notation
will, at SAB's option, terminate the holder's rights as a dissenter, unless
a court of competent jurisdiction determines otherwise.
Promptly after the Effective Time, or upon receipt of a payment demand,
SAB shall offer to pay each Dissenting PSB Shareholder who complied with
Article 13 the amount SAB estimates to be the fair value of such Dissenting
PSB Shareholder's shares, plus accrued interest. Each Dissenting PSB
Shareholder who agrees to accept the above referenced offer of payment in
full satisfaction of his or her demand must surrender to SAB the certificate
or certificates representing his or her shares in accordance with the terms of
the dissenters notice. Upon receiving the certificate or certificates, SAB
shall pay each Dissenting PSB Shareholder the fair value of his or her shares,
plus accrued interest. Upon receiving payment, a Dissenting PSB Shareholder
ceases to have any interest in the shares.
A Dissenting PSB Shareholder who has made a payment demand may notify
SAB in writing of his or her own estimate of the fair value of his or her
shares and the amount of interest due, and demand payment of his or her
estimate, or reject the offer made to such shareholder and demand payment of
the fair value of his or her shares and interest due, if: (i) the Dissenting
PSB Shareholder believes that the amount offered him or her is less than the
fair value of his or her shares or that the interest due is incorrectly
calculated; (ii) SAB fails to make an offer as required by Article 13 within
sixty (60) days after the date set for demanding payment; or (iii) SAB having
failed to consummate the Merger does not release the transfer restrictions
imposed on shares within sixty (60) days after the date set for demanding
payment; provided, however, that a Dissenting PSB Shareholder waives his or
her right to demand payment different from that offered unless he or she
notifies SAB of his or her demand in writing within thirty (30) days after
SAB offered payment for his or her shares.
If a demand for payment remains unsettled, SAB shall commence a
proceeding within sixty (60) days after receiving the second payment demand
and petition the court to determine the fair value of the shares and accrued
interest. If the proceeding is not commenced within the sixty (60) day period,
each Dissenting PSB Shareholder whose demand remains unsettled shall be
entitled to receive the amount demanded. Such a proceeding will be filed in
the Circuit Court of Mobile County, Alabama. Each Dissenting PSB Shareholder
made a party to the proceeding is entitled to judgment for the amount the
court finds to be the fair value of his or her shares, plus accrued interest.
Upon payment of the judgment and surrender to SAB of the certificate or
certificates representing the judicially appraised shares, a Dissenting PSB
Shareholder will cease to have any interest in the shares. The court may
assess costs incurred in such a proceeding against all or some of the
Dissenting PSB Shareholders, in amounts the court finds equitable, to the
extent the court finds that such Dissenting PSB Shareholders acted arbitrarily,
vexatiously, or not in good faith in demanding payment different from that
initially offered by SAB. The Court may also assess the reasonable fees and
expenses of counsel and experts against all or some of the Dissenting PSB
Shareholders if the court finds that such Dissenting PSB Shareholders acted
arbitrarily, vexatiously or not in good faith with respect to the rights
provided in Article 13.
Recommendation of PSB Board of Directors
The Board of Directors of PSB has recommended that the shareholders of
PSB vote FOR the proposal to approve the Merger Agreement. See "The Merger
Background of and Reasons for the Merger."
THE MERGER
The following information concerning the Merger, insofar as it relates to
matters contained in the Merger Agreement, is qualified in its entirety by
reference to the Merger Agreement, which is attached hereto as Appendix A and
incorporated herein by reference.
Terms of the Merger; Exchange Ratio
At the Effective Time, PSB will merge with and into MCB. In the Merger,
each share of PSB Common Stock outstanding immediately prior to the Effective
Time, other than certain shares held by PSB or by South Alabama or its
subsidiaries, in each case other than in a fiduciary capacity or as a result
of debts previously contracted, will be converted into and exchanged for the
right to receive the number of shares of 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 1.3 times the book value, subject to a right of
adjustment by South Alabama ("Deemed Book Value"), of such share of PSB
Common Stock, rounded to the nearest one-hundredth of a share ("Exchange
Ratio"). In the Waiver Agreement the Deemed Book Value of the PSB Common
Stock was set at $1,912,000, subject to adjustment to $1,952,000 in the event
that PSB sells certain nonperforming loans prior to the Merger. Each share of
PSB Common Stock outstanding immediately prior to the Effective Time, other
than certain shares owned by PSB or South Alabama or its subsidiaries, will be
converted into the right to receive the number of shares of South Alabama
Common Stock having a Market Value, calculated as provided in the Merger
Agreement, of $3,314.13, subject to adjustment to $3,383.47 in the event PSB
sells certain nonperforming loans prior to the Merger.
The "Market Value" of South Alabama Common Stock is the average of the
closing bid and closing ask price, as reported on NASDAQ. The Merger
Agreement provides for adjustment in the Exchange Ratio in the event either
party issues additional shares as a result of a stock split, stock dividend or
similar recapitalization. The Exchange Ratio was determined through
negotiations between South Alabama and PSB.
No fractional shares of South Alabama Common Stock will be issued in
respect of PSB Common Stock, and cash will be paid by South Alabama in lieu of
issuance of such fractional shares. The amount paid in lieu of fractional
shares will be calculated by multiplying each such fraction by the Market
Value of South Alabama Common Stock on the Trading Day preceding by two
Trading Days the Effective Time.
Waiver and Amendment; Termination
Prior to the Effective Time, either South Alabama or PSB may waive or
extend the time for the compliance or fulfillment by the other of any and all
of its obligations under the Merger Agreement, and South Alabama, MCB and PSB
may, to the extent permitted by law, amend the Merger Agreement in writing
with the approval of the Board of Directors of each of PSB, MCB and South
Alabama.
The Merger Agreement may be terminated at any time prior to the
Effective Time, as follows: (i) by mutual consent of the parties; (ii) by
either party in the event of a breach by the other party of any representation
or warranty which cannot be cured or is not cured within 30 days after
written notice to the breaching party, to the extent such breach is likely to
result in a Material Adverse Effect on the breaching party; (iii) by either
party in the event of a material breach by the other party of any covenant or
agreement which cannot be cured or is not cured within 30 days after written
notice; (iv) by either party in the event any required regulatory approval is
denied or not obtained or the stockholders of PSB fail to approve the Merger
as required; (v) by PSB, if the average Market Value of South Alabama Common
Stock for the Valuation Period is less than $13.00 per share or more than
$26.00 per share; (vi) by South Alabama, if the average Market Value of South
Alabama Common Stock for the Valuation Period is less than $13.00 per share ;
(vii) by South Alabama in the event that Deemed Book Value as defined in
Merger Agreement is less than $1,900,000; (viii) by either party in the event
the Merger shall not have been consummated by March 31, 1998, 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, 1998. In the Waiver Agreement, South Alabama, MCB and
PSB agreed as follows: (a) PSB waived its right to terminate the Merger
Agreement in the event the Market Value of South Alabama Common Stock during
the Valuation Period exceeds $26.00 per share; (b) $28.00 per share was set as
the maximum Market Value for South Alabama Common Stock for purposes of
determining the Exchange Ratio; (c) South Alabama, MCB and PSB waived,
through June 30, 1998, their right to terminate the Merger Agreement in the
event the Merger is not consummated, or any of the conditions precedent
thereto cannot be satisfied or fulfilled, by March 31, 1998; and (d) the
Deemed Book Value of PSB Common Stock is $1,912,000, subject to adjustment to
$1,952,000 in the event PSB sells certain nonperforming loans prior to
consummation of the Merger.
In determining whether to elect to terminate the Merger Agreement in
these circumstances, the PSB 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 Merger Agreement, the holders of PSB Common Stock will permit
the PSB Board of Directors to determine, in the exercise of its fiduciary
duties, to proceed with the Merger even though the Market Value of South
Alabama Common Stock is less than $13.00 per share or greater than $26.00 per
share, and even through the Merger is not consummated, or any conditions
precedent thereto cannot be satisfied or fulfilled, by March 31, 1998. By
approving the Merger Agreement, PSB shareholders will ratify and approve
the Mutual Waiver, in whicih PSB waived its right to terminate the Merger
Agreement in the event the Market Value of South Alabama Common Stock is
greater than $26.00, subject to a maximum Market Value of $28.00 for purposes
of determining the Exchange Ratio, and, through June 30, 1998, in the event
the Merger is not consummated by March 31, 1998.
In the event of the termination of the Merger Agreement, the Merger
Agreement shall become void and have no effect, except that the
confidentiality requirements shall survive such termination and such termination
will not relieve a breaching party from liability for an uncured willful
breach of the representation, warranty, covenant or agreement giving rise to
the termination.
Effective Date and Effective Time
Articles of Merger will be filed with the Secretary of State of the
State of Alabama as soon as practicable after all conditions contained in the
Merger Agreement have been satisfied or lawfully waived, including receipt of
all regulatory approvals and expiration of all statutory waiting periods, and
the approval of the Merger Agreement by the shareholders of PSB. The
Effective Time of the Merger will be at the time the Articles of Merger
become effective with the Secretary of State of Alabama (or such later time
as the parties may agree). The Effective Date of the Merger will be the day
on which the Effective Time occurs.
Background of and Reasons for the Merger
Since 1991, management of South Alabama (then known as Mobile National
Corporation) has considered various possibilities for increased asset and
earnings growth, including possible new branches, acquisition of existing
branches of other area banks and the chartering of new banks within southern
Alabama. In 1993, South Alabama merged with a holding company in southern
Alabama and acquired all of the stock of FNBB. In 1996, South Alabama merged
with another holding company in southern Alabama and acquired all of the stock
of MCB.
Management of South Alabama and MCB initiated contact with the management
of PSB on February 27, 1997. PSB's size and the age of its management made
necessary significant decisions regarding attracting new and younger
management personnel, the quality of its assets and strategies for growth.
PSB's past experience with attracting qualified management, the deterioration
of the quality of its assets and its inability to achieve growth prompted its
management to investigate the possibilities of a business combination.
There is a long personal history and friendship between the principals of
PSB and MCB. PSB and MCB's former holding company had many common
shareholders. The commitment to community banking is shared by management of
MCB and PSB, which appealed greatly to PSB's management and shareholders.
This philosophy and the history of relationship prompted the initiation of
discussions between the two institutions.
In early June, 1997, the Boards of South Alabama and PSB met to discuss
and approve an agreement in principle to merge. The companies announced an
agreement in principle to the Merger on June 6, 1997. After further
negotiation, the Merger Agreement was executed October 14, 1997, on behalf of
South Alabama, MCB and PSB.
Reasons for the Merger. Numerous factors were considered by the three
Boards in approving the Merger and in the case of PSB, 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
PSB, the composition of the businesses of the two organizations, the overall
compatibility of the management of the organizations and the outlook for both
organizations in the banking and financial services industry. See" Available
Information," "Incorporation of Certain Documents by Reference,"
"Comparative Market Prices and Dividends" and "Business of PSB."
Mobile and Baldwin Counties, the primary market area of SAB, are
experiencing significant and dramatic growth. SAB has experienced strong
loan demand for several years. At the same time, the Monroe County, Alabama
market is not experiencing the same level of loan growth and demand. Its
overall bank deposit structure is stable, however, providing liquidity for
funding the loan demand and growth in Mobile and Baldwin Counties. Bank
deposits have not grown as fast as loans for several years, and the addition
of PSB will add a small, but relatively stable, low cost deposit base with
which to fund the anticipated loan demand in southern Alabama, and in Baldwin
and Mobile Counties specifically. The merger of PSB with and into MCB will,
in addition to allowing South Alabama to capitalize on these growth
opportunities , help to correct management and asset deficiencies at PSB.
In addition, technological changes are dramatic and occurring rapidly in
the financial industry, requiring expensive capital outlay. PSB's size makes
these expenditures prohibitive. South Alabama is better prepared to keep pace
with these changes.
An additional factor in PSB's consideration is the competitive
environment in Monroe County. There are six commercial banks within the City
of Monroeville, a town of about 7,000 population. These six commercial banks
have 12 offices in Monroe County, which has a population of 23,000. One of
these banks is a large regional holding company bank. Even with aggressive
response to the competitive pressures, the prospects of growth and expansion
lie beyond the boundaries of Monroe County. In order to achieve this growth
PSB has the options of branching, de novo entry, acquisition in other markets
or a business combination with a participant in those growth markets. The
first three of these options are not realistically available to PSB because of
its financial condition and relatively small size. The Merger will allow the
resources of PSB to be employed more efficiently and in a wider area of
application. It will provide PSB's customers with a broader array of
financial services.
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 of PSB 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
PSB Common Stock certificates for cash and certificates representing shares of
South Alabama Common Stock. HOLDERS OF PSB 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 PSB Common
Stock should complete the letter of transmittal in accordance with the
instructions and mail the letter of transmittal together with all stock
certificates representing shares of PSB 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 PSB Common Stock a check in the amount of any payment in
respect of fractional shares of PSB 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 Merger
Agreement. No certificates of South Alabama Common Stock and no payment in
respect of fractional shares will be delivered to a holder of PSB Common Stock
unless and until such holder shall have delivered to the Exchange Agent
certificates representing the shares of PSB 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 PSB 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 PSB Common Stock are converted, regardless of whether
such holders have exchanged their certificates representing PSB Common Stock
for certificates representing South Alabama Common Stock.
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 PSB Common Stock will be paid to the holder of
an unsurrendered PSB 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 PSB's stock
transfer books of shares of PSB Common Stock issued and outstanding at the
Effective Time. If certificates representing shares of PSB 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, MCB nor the Exchange Agent shall be liable to a
holder of PSB 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, MCB and PSB to effect the
Merger are subject to the satisfaction of the following conditions prior to
the Effective Time: (i) approval of the Merger Agreement and the transactions
contemplated thereby by a majority of the holders of the PSB Common Stock;
(ii) approval of the Merger Agreement and the transactions contemplated
thereby by the Federal Deposit Insurance Corporation 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 Merger Agreement; (iv) absence of any law, regulation,
rule, judgment, ruling or order which prohibits or restricts consummation of
the transactions contemplated by the Merger Agreement; (v) the Registration
Statement of which this 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; and (vi) South Alabama and
PSB shall have received opinions from their respective counsel to the effect
that, for federal income tax purposes, the exchange of PSB Common Stock for
South Alabama Common Stock will not give rise to recognition of gain or loss
to shareholders of PSB (other than to the extent any cash is received) and
neither South Alabama nor PSB will recognize gain or loss as a consequence of
the Merger.
The obligations of South Alabama and MCB to effect the Merger are
further subject to the satisfaction or waiver of the following conditions:
(i) each of the representations and warranties of PSB 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 PSB to be performed pursuant to the Merger Agreement prior to
the Effective Time shall have been duly performed, and South Alabama shall
have received a certificate of PSB to the effect that such obligations have
been complied with; and (ii) South Alabama shall have received an opinion of
counsel to PSB in the form attached to the Merger Agreement.
The obligations of PSB to effect the Merger are further subject to the
satisfaction or waiver by PSB of the following conditions: (i) each of the
representations and warranties of South Alabama and MCB 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 and MCB to be performed pursuant to the Merger
Agreement prior to the Effective Time shall have been duly performed, and PSB
shall have received a certificate of South Alabama to the effect that such
obligations have been complied with; and (ii) PSB shall have received an
opinion of counsel to South Alabama in the form attached to the Merger
Agreement.
Regulatory Approvals
The Merger is subject to prior approval by the Federal Deposit Insurance
Corporation ("FDIC") under Section 18(c) of the Federal Deposit Insurance Act,
as amended (the "FDIA"), which requires that the FDIC take into consideration,
among other factors, the financial and managerial resources and future
prospects of the institutions, the effect of the Merger on competition and
the convenience and needs of the communities to be served. Generally mergers
subject to approval by the FDIC may not be consummated until the 30th day
following the date of FDIC approval, during which time the United States
Department of Justice (the "Justice Department") may challenge the Merger on
antitrust grounds. The commencement of an antitrust action would stay the
effectiveness of the FDIC's approval unless a court specifically ordered
otherwise. The Merger is also subject to approval by the Alabama State
Banking Department. The FDIC approved the Merger on February 24, 1998, and the
30 day waiting period expired on March 26, 1998.
Conduct of Business Pending the Merger
The Merger Agreement requires that each of PSB and South Alabama
preserve its business organization, goodwill, relationships with depositors,
customers and employees and take no action that would adversely affect its
ability to perform under the Merger Agreement. In addition, PSB 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; (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.
Management and Operations After the Merger
The Merger Agreement does not provide for any change in the directors or
principal officers of either MCB or SAB, although it is expected that J.
Robison Harper, President of PSB, and Albert A. Nettles, Vice President of
PSB, will serve as officers of MCB.
Interests of Certain Persons in the Merger
Certain of the directors and executive officers of PSB, members of their
families and certain of their associates own, or have interests in, shares of
South Alabama Common Stock. As of March 24, 1998, they were as follows:
Dr. W. W. Eddins: 300 shares are owned by Dr. Eddins; 1,357 shares are
owned by his spouse, Anna Ruth Eddins; 2,493 shares are owned jointly
with his spouse and 519 shares are owned by the Estate of Leon Eddins
c/o Dr. Eddins.
J. Robison Harper: 25,977 shares are owned by Mr. Harper and 11,430
shares are owned by his spouse, Alice Earle Harper.
Albert A. Nettles, Jr.: 1,662 shares are owned by Mr. Nettles and his
brother, Joseph F. Nettles as co-trustees of the family trust under will
of Albert A. Nettles, Sr.
Jack Finklea Nettles: 18,288 shares are owned by Mr. Nettles. Mr. J. F.
Nettles is the uncle of Albert A. and Joseph F. Nettles.
In the normal course of business, SAB, FNBB and MCB make loans to
directors and officers of SAB, FNBB and MCB to directors and officers of
South Alabama, and PSB makes loans to directors and officers of PSB,
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 PSB, do not
involve more than the normal risk of collectibility. The amount of these
loans by SAB, FNBB and MCB to South Alabama, SAB, FNBB and MCB directors and
officers was 31.5% of shareholders' equity for South Alabama and the amount of
loans by PSB to its directors and officers was 24.4% of shareholders' equity
for PSB as of December 31, 1997.
Certain Federal Income Tax Consequences
Neither South Alabama nor PSB 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 and MCB, and Capell,
Howard, Knabe & Cobbs, P.A., counsel for PSB, have delivered opinions that,
for federal income tax purposes, under current law, assuming that the Merger
will take place as described in the Merger Agreement and that certain factual
matters represented by South Alabama, MCB and PSB (including the
representation that PSB 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, MCB and PSB will each be a party to the reorganization within the
meaning of Section 368(b) of the Code.
Assuming that the Merger will take place as described in the Merger
Agreement and that certain factual matters represented by South Alabama, MCB
and PSB (including the representation that PSB 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
respective opinions of Hand Arendall, L.L.C., and Capell, Howard, Knabe &
Cobbs, P.A., the following will be certain federal income tax consequences of
the Merger: (i) no gain or loss will be recognized by South Alabama, MCB and
PSB in the Merger; (ii) the shareholders of PSB will recognize no gain or
loss upon the exchange of their PSB Common Stock solely for shares of South
Alabama Common Stock; (iii) the basis of the South Alabama Common Stock
received by the PSB shareholders in the proposed transaction will, in each
instance, be the same as the basis of the PSB Common Stock surrendered in
exchange therefor; (iv) the holding period of the South Alabama Common Stock
received by the PSB shareholders will, in each instance, include the period
during which the PSB Common Stock surrendered in exchange therefor was held,
provided that the PSB Common Stock was held as a capital asset on the date of
the exchange; (v) the payment of cash to PSB 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 PSB shareholder in
exchange for his PSB Common Stock pursuant to the exercise of dissenters'
rights, such cash will be treated as having been received in redemption of
his PSB Common Stock, subject to the provisions and limitations of Code
Section 302.
THE DISCUSSION SET FORTH ABOVE IS INCLUDED FOR GENERAL INFORMATION ONLY
AND IS BASED UPON THE RESPECTIVE OPINIONS OF HAND ARENDALL, L.L.C., AND
CAPELL, HOWARD, KNABE & COBBS, P.A., AND APPLIES ONLY TO PSB SHAREHOLDERS WHO
HOLD PSB COMMON STOCK AS A CAPITAL ASSET, AND MAY NOT APPLY TO SPECIAL
SITUATIONS, SUCH AS PSB SHAREHOLDERS, IF ANY, WHO RECEIVED THEIR PSB COMMON
STOCK UPON EXERCISE OF EMPLOYEE STOCK OPTIONS OR OTHERWISE AS COMPENSATION
AND PSB 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 PSB
SHAREHOLDER SHOULD CONSULT HIS OR HER OWN TAX ADVISOR WITH RESPECT TO THE
SPECIFIC TAX CONSEQUENCES OF THE MERGER TO HIM OR HER, INCLUDING THE
APPLICATION AND EFFECT OF STATE, LOCAL AND FOREIGN TAX LAWS.
Accounting Treatment
The Merger will be accounted for as a purchase of PSB by South Alabama
in accordance with generally accepted accounting principles. Accordingly,
PSB's results of operations will be included in South Alabama's consolidated
results of operations only from and after the Effective Time. For purposes of
preparing South Alabama's consolidated financial statements South Alabama will
establish a new accounting basis for PSB's assets and liabilities based upon
the fair values thereof and South Alabama's purchase price, including the
costs of the acquisition. Furthermore, such earnings of PSB will be reduced
by certain depreciation and amortization charges arising out of the ultimate
purchase accounting adjustments. However, a final determination of the
required purchase accounting adjustments and of the fair value of the assets
and liabilities of PSB has not yet been made. Accordingly, the purchase
accounting adjustments made in connection with the development of the
comparative pro forma per share financial information appearing elsewhere in
this Prospectus are preliminary and subject to change.
Expenses and Fees
The Merger Agreement provides that each of the parties will bear and pay
all costs and expenses incurred by it in connection with the transactions
contemplated by the Agreement. It is expected that the total expenses and
fees for South Alabama and PSB will be approximately $35,000.00 and
$42,000.00, respectively.
Resales of South Alabama Common Stock
The shares of South Alabama Common Stock issued pursuant to the Merger
Agreement will be freely transferrable under the Securities Act, except for
shares issued to any shareholder who may be deemed to be an "affiliate"
(generally including, without limitation, directors, certain executive
officers and beneficial owners of 10% or more of a class of capital stock) of
PSB for purposes of Rule 145 under the Securities Act as of the date PSB
shareholders voted on the Merger Agreement. 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 PSB
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, PSB 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
PSB.
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 PSB giving effect to the Merger, which will be
accounted for as a purchase, as if it had been completed, and the issuance of
94,757 shares of South Alabama Common Stock occurred, on December 31, 1997,
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 of PSB,
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
B hereto. This pro forma financial information is not necessarily indicative
of the actual financial position that would have occurred had the Merger been
consummated on December 31, 1997, nor is it necessarily indicative of future
financial position.
<TABLE>
Pro Forma Condensed Consolidated Statement of Condition
As of December 31, 1997 (Unaudited)
(In Thousands)
<CAPTION>
HISTORICAL
South PRO FORMA PRO FORMA
Alabama PSB ADJUSTMENTS COMBINED
<S> <C> <C> <C> <C>
ASSETS
Cash and cash equivalents $ 41,897 $ 5,448 $ 47,345
Investments available for sale 110,255 2,400 112,655
Investments 8,345 1,453 $ 19 (a) 9,817
Loans, net 193,832 7,047 200,879
Premises and equipment 7,064 225 50 (a) 7,339
Intangible assets 3,993 507 (b) 4,500
Other assets 4,209 520 (7) (a) 4,722
Total assets $369,595 $17,093 $ 569 $387,257
LIABILITIES
Deposits $315,177 $15,105 $330,282
Short-term borrowings 6,468 0 6,468
Other liabilities 2,488 93 2,581
Total liabilities 324,133 15,198 0 339,331
SHAREHOLDERS' EQUITY
Common stock 42 75 ( 74)(b) 43
Additional paid-capital 33,244 75 2,388 (b) 35,707
Net unrealized gain (loss) on
securities available for sale 815 5 (5)(a) 815
Retained earnings 11,361 1,740 (1,740)(b) 11,361
Total shareholders' equity 45,462 1,895 569 47,926
Total liabilities and
shareholders' equity $369,595 $17,093 $ 569 $387,257
(a) Reflects adjustment of Fixed Assets to and Investment Securities
Held to Maturity to Fair Value.
(b) Reflects issuance of 94,757 shares of South Alabama Bancorporation,
Inc. common stock at $26.00 per share in exchange for the 750 shares
outstanding of PSB. The exchange price of $26.00 per share is the
price believed by South Alabama to be the most likely "Market
Value" of the South Alabama Common Stock during the Valuation
Period, as determined under the Merger Agreement. The pro forma
statement included adjustments for the excess of the cost over the
fair value of the net assets acquired as follows:
December 31, 1997
Purchase Price $2,464
Historical net tangible assets acquired 1,895
Estimated fair value adjustment 62
Estimated fair value of net assets 1,957
Excess cost over net assets acquired $ 507
</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 94,757 shares of South Alabama Common
Stock occurred, on January 1 for the year ended December 31, 1997, presented
on a purchase accounting basis, after giving effect to the pro forma
adjustments described in the accompanying footnotes. No provision has been
reflected for expenses related to the Merger, which are not expected to have
a material impact on results of operations. This financial data should be
read in conjunction with the historical consolidated financial statements,
including the respective notes thereto, of South Alabama, which are
incorporated by reference in this Prospectus, and of PSB, 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 B 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 period presented, nor is it
necessarily indicative of future operating results.
<TABLE>
Pro Forma Combined Condensed Consolidated Statement of Income (Unaudited)
Year Ended December 31, 1997
(In Thousands Except Per Share Data)
<CAPTION>
HISTORICAL
---------------------- PRO FORMA PRO FORMA
South Alabama PSB ADJUSTMENTS COMBINED
<S> <C> <C> <C> <C>
Interest revenue $25,795 $1,282 $27,077
Interest expense 10,900 639 11,539
Net interest revenue 14,895 643 15,538
Provision for loan losses 273 201 474
Non-interest revenue 3,203 87 3,290
Non-interest expense 11,327 784 26 (a) 12,137
Income before income taxes 6,498 (255) 6,217
Income taxes (Benefit) 1,770 (93) 1,677
Net income $ 4,728 $ (162) $ 4,540
Earnings Per Share:
Basic $ 1.12 $(215.65) $ 1.07
Diluted $ 1.11 $(215.65) $ 1.06
Average number of shares
outstanding (000's) (b) 4,234 1 4,329
(a) Amortization of goodwill of $20 over 25 years and depreciation of
$6 fixed asset fair value adjustment.
(b) Average number of shares outstanding was computed by applying the
midrange conversion ratio of 126.34 to PSB's average shares
outstanding and adding the result to South Alabama's historical
average shares outstanding. Average shares outstanding do not
include shares issuable upon the exercise of stock options because
the effect is not significant.
</TABLE>
COMPARATIVE MARKET PRICES AND DIVIDENDS
Market Prices
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 represent inter-dealer prices without
adjustment for retail mark-up, mark-down or commission and do not represent
actual transactions. Trades have generally occurred in small lots, and the
prices quoted are not necessarily indicative of the market value of a
substantial block.
<TABLE>
<CAPTION>
Bid Prices Per Share
High Low
<S> <C> <C>
1997
First Quarter $15 1/2 $12 1/2
Second Quarter 18 13
Third Quarter 21 1/2 16 1/4
Fourth Quarter 24 1/4 19 3/4
1996
First Quarter $14 1/2 $13
Second Quarter 14 1/2 13 1/4
Third Quarter 14 1/2 13
Fourth Quarter 14 1/2 12 1/2
</TABLE>
On June 5, 1997, the last business day prior to public announcement
that MCB and PSB had agreed in principle to merge, and on October 13, 1997,
the last business day prior to public announcement of the execution of the
Merger Agreement, the closing bid prices per share of South Alabama Common
Stock, as reported on NASDAQ, were $15.25 and$20.50, respectively.
South Alabama and PSB shareholders should obtain current market
quotations for South Alabama Common Stock.
PSB. PSB Common Stock is not traded on an exchange or any organized
trading market, but there have been private transactions in the shares. PSB
management has no knowledge of any trades of PSB Common Stock in the last
two years.
Dividends
South Alabama declared regular quarterly cash dividends per share totaling
$.32 in 1995, $.40 in 1996, and $.42 in 1997. In 1997, a special cash
dividend of $1.25 was declared. For the years 1995 and 1996, PSB declared
cash dividends on PSB Common Stock of $14.00 per share per year. No cash
dividends were declared in 1997. Future dividends on shares of South Alabama
(assuming the Merger is consummated) or of both South Alabama and PSB
(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 5,500,000 shares of Common Stock, $0.01 par value, and up to
500,000 shares of preferred stock. On March 25, 1998, the Board of Directors
approved an amendment of South Alabama's Articles of Incorporation to provide
an increase in authorized Common Stock to 10,000,000 shares. This amendment
is subject to approval at the annual meeting of South Alabama shareholders on
May 7, 1998. As of the date of this Prospectus, 4,247,586 shares of South
Alabama Common Stock are issued and outstanding, and no preferred stock has
been issued. In addition, approximately 155,000 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 and PSB are both Alabama corporations subject to the
provisions of the Alabama Business Corporation Act (the "ABCA").
Shareholders of PSB, whose rights are governed by PSB's Certificate of
Incorporation, Bylaws and the ABCA, 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 such rights will continue to be
governed by the ABCA.
Except as set forth below, there are no material differences between the
rights of a PSB shareholder under PSB's Certificate of Incorporation and
Bylaws and the rights of an South Alabama shareholder under South Alabama's
Articles of Incorporation and Bylaws. The following summary does not purport
to be a complete discussion of, and is qualified in its entirety by reference
to, the ABCA and the Certificate of Incorporation or Articles of
Incorporation, as the case may be, and Bylaws of PSB and South Alabama.
Authorized Capital Stock
South Alabama's Articles of Incorporation authorize the issuance of up to
5,500,000 shares of South Alabama Common Stock ($0.01 par value each),
subject to increase to 10,000,000 shares upon approval of the South Alabama
shareholders, and 500,000 shares of preferred stock (no par value), of which
4,247,586 shares of South Alabama Common Stock were issued and outstanding as
of February 28, 1998.
PSB's Certificate of Incorporation authorizes the issuance of up to 750
shares of PSB Common Stock ($100.00 par value each), of which 750 shares were
issued and outstanding as of February 28, 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.
Under PSB's Certificate of Incorporation , special meetings of the
shareholders may be called at any time by the Board of Directors, or by the
holders of at least ten percent of the then outstanding shares of any class of
stock. Further, under the ABCA the President or Secretary shall call a meeting
upon presentment of a written demand for a meeting from the holders of at
least ten percent of all votes entitled to be cast on any issue proposed to be
considered at the meeting.
Required Shareholder Votes
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.
PSB's Certificate of Incorporation contains no provisions altering the
provisions of the ABCA regarding shareholder voting.
Amendment of Articles or Certificate of Incorporation
South Alabama's Articles of Incorporation may be amended as permitted by
the ABCA, but require a 75% vote of the shareholders 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.
PSB's Certificate of Incorporation may be amended by the Board of
Directors in limited circumstances, but amendment generally requires a
majority vote of the shareholders.
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.
PBS's Bylaws provide that they may be amended or repealed by the Board of
Directors at any regular or special meeting, except that the Board of
Directors may not amend or repeal any Bylaws establishing what constitutes a
quorum at shareholders' meetings.
Shareholder Action Without a Meeting
South Alabama's Articles of Incorporation and Bylaws prohibit any
shareholder action by written consent without a meeting. PSB's Bylaws
specifically permit any shareholder action to be taken by the written consent
of all shareholders entitled to vote on the action.
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.
PSB's Bylaws require that directors must own at least two shares of PSB
stock to be eligible for election. PSB's Certificate of Incorporation and
Bylaws contain no specific requirements for shareholder nomination of
directors. PSB's Bylaws provide that the number of directors shall be
between five and twelve, inclusive.
Director Liability
South Alabama's Articles of Incorporation contains a provision which
limits, to the extent permitted by the ABCA, the liability of South Alabama
directors for action or inaction as a director. PSB's Certificate of
Incorporation contains no such provision; however, PSB's bylaws provide for
indemnification of costs and claims made against directors acting in the
scope of their duties unless there was gross neglect or gross misconduct.
Preemptive Rights
Shareholders of South Alabama, pursuant to South Alabama's Articles of
Incorporation, have no preemptive rights. Shareholders of PSB have
preemptive rights as granted by the ABCA.
PSB 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 PSB 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 and 1995. 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 PSB 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) PSB encounters difficulty in integrating with the operations of MCB
and SAB; and
(b) general economic conditions, either nationally or in Alabama, are less
favorable than expected.
At December 31, 1997, PSB had total assets of approximately $17.1 million
and operated two banking locations in Monroe County. PSB's sole business is
banking; therefore, loans and investments are the principal sources of
income. PSB recorded a loss of $162 thousand in 1997. The loss was caused
by a $201 thousand addition to the allowance for loan losses and a loss of
$143 thousand on the sale of other real estate.
FINANCIAL CONDITION
From 1996 to 1997 PSB experienced a decline in average assets of $2.3
million, or 10.8%. The decrease occurred in loans. A corresponding decrease
in average time deposits of $2.9 million was caused by management's decision
not to pay higher than normal interest rates on these deposits, since the
funds were not needed to support loans. The other categories of deposits
grew 10.5% in total from 1996 to 1997.
<TABLE>
Average Assets and Liabilities
Distribution of Average Assets, Liabilities and Shareholders' Equity
(In Thousands)
<CAPTION>
1997 1996
<S> <C> <C>
Average Assets:
Cash and non-interest bearing deposits $ 1,372 $ 1,360
Interest bearing deposits 0 0
Federal funds sold 4,625 4,500
Investment securities 4,123 4,983
Loans, net 7,999 9,541
Premises and equipment, net 233 252
Other assets 560 568
Average Total Assets $18,912 $21,204
Average Liabilities and Shareholder's Equity:
Non-interest bearing demand deposits $ 1,894 $ 1,980
Interest bearing demand deposits 3,002 2,106
Savings deposits 2,155 2,294
Time deposits 9,773 12,658
Total Deposits 16,824 19,038
Other liabilities 112 149
Shareholders' equity 1,976 2,017
Average Total Liabilities and
Shareholders Equity $18,912 $21,204
</TABLE>
PSB carried no foreign loans or deposits in any of the periods shown.
Loans
Loans at December 31, 1997, were $7.3 million, a decrease of $1.7
million, or 18.9 percent, from $9.0 million at December 31, 1996. The
decrease in total loans between December 31, 1997, and December 31, 1996, is
attributable to decreased loan demand in PSB market area and to the pay off of
several large loans. At December 31, 1997, commercial, financial and
agricultural loans represented 47.6 percent, real estate represented 14.2
percent, and consumer loans represented 38.2 percent of total loans,
respectively.
Of the commercial, financial and agricultural loans and real estate
loans outstanding at year end 1997, $2.2 million, or 49.5 percent, may be
repriced within one year due to maturity. Of the loans in these categories
maturing after one year, 98.9 percent have a fixed interest rate. Of total
loans outstanding at December 31, 1997, $3.5 million, or 47.7 percent,
mature in one year or have a variable 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 $3,487 $5,112
Real estate 1,038 1,508
Consumer 2,807 2,425
Total Loans 7,332 9,045
Allowance for loan losses 286 95
Net Loans $7,046 $8,950
</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 $1,839 $1,466 $182 $3,487
Real estate 401 544 93 1,038
Total $2,240 $2,010 $275 $4,525
Loans maturing after one year with:
Fixed interest rates $1,986 $275
Floating interest rates 24 0
$2,010 $275
</TABLE>
PSB'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 PSB 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. PSB adopted SFAS No. 115 effective January 1, 1994, which resulted
in a $5,000 net unrealized gain as a separate component of shareholders equity.
Investment securities not classified as available-for-sale or trading
are carried at cost, adjusted for amortization of premiums and accretion of
discounts. Premiums and discounts are amortized and accreted to operations
using the level yield method, adjusted to prepayments as applicable.
Management has the intent and PSB 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
PSB'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 34 percent tax rate, have been made when
calculating yields on tax-exempt obligations. For purposes of the following
table, securities available for sale are shown at amortized cost.
<TABLE>
Maturity Distribution of Investment Securities
(Dollars in Thousands)
<CAPTION>
December 31, 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>
Securities held to maturity
U.S. Government Agencies $ 302 5.92% $ 256 4.94% $ 150 7.20% $ 708 5.36%
States and Political Subdivisions 75 8.90 670 7.78 745 7.78
Total securities held to maturity $ 377 6.51% $ 926 6.53% $ 150 7.20% $1,453 6.60%
Securities available for sale:
U.S. Treasury securities $1,497 5.98% $ 895 6.05% $2,392 6.01%
Total investments $1,874 6.09% $1,821 6.29% $ 150 7.20% $3,845 6.23%
</TABLE>
<TABLE>
Book Value of Available for Sale Securities
(In Thousands)
<CAPTION>
December 31,
1997 1996
<S> <C> <C>
U.S. Treasuries $2,400 $2,403
</TABLE>
PSB carries only U.S. Treasury Securities as Available for Sale.
Deposits and Short-Term Borrowings
The core deposit base at PSB remained stable from 1996 to 1997. The
decrease of $2.9 million in average time deposits resulted from the decision
by Management to refrain from paying higher than normal interest rates on
certain large certificates of deposit.
<TABLE>
Average Deposits
(Dollars in Millions)
<CAPTION>
Average for the Year
1997 1996
-------------------- ---------------------
Average Average Average Average
Amount Rate Amount Rate
Outstanding Paid Outstanding paid
<S> <C> <C> <C> <C>
Non-interest bearing
demand deposits $ 1.8 N/A $ 1.9 N/A
Interest bearing
demand deposits 3.0 2.91% 2.1 3.23%
Savings deposits 2.2 3.05 2.3 2.91
Time deposits 9.8 5.40 12.7 5.51
Total average deposits $16.8 $19.0
</TABLE>
The following table reflects maturities of time deposits of $100,000 or
more at December 31, 1997 Time deposits include both certificates of
deposit and time deposit open accounts. Deposits of $2.2 million in this
category represented 14.4% 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>
$1.7 $0.3 $0.2 $0 $2.2
</TABLE>
During the years 1995, 1996 and 1997, PSB had no short-term borrowing.
PSB had no month-end balance of short-term borrowings in 1995, 1996 or 1997.
Asset/Liability Management
Effective asset/liability management requires an analysis of liquidity
and interest rate risk factors. Decisions relating to the structure of the
balance sheet are made after management considers the impact on current and
future liquidity needs as well as the effect on the interest rate sensitivity
gap.
Liquidity
Liquidity represents the ability of a bank to meet loan commitments as
well as deposit withdrawals. Liquidity is derived from both the asset side
and liability side of the balance sheet. On the asset side, liquidity is
provided by marketable investment securities, maturing loans, federal funds
sold and cash and cash equivalents. On the liability side, liquidity is
provided by a stable base of core deposits. PSB has federal funds lines of
credit available if needed.
Interest Rate Sensitivity
By monitoring PSB'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 $3.4 million at December 31, 1997. This
negative gap position indicates that in a rising rate environment PSB 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, PSB would experience a widening of the net interest margin.
However, included in the $13.4 million of rate sensitive liabilities
are $2.1 million in savings accounts which, in management's opinion and based
on experience, would not reprice in the same proportions as rate sensitive
assets. For example, in the event that interest rates in the economy rise
substantially over a short period of time, management would not expect a
corresponding increase in rates paid on savings deposits. Thus, the impact of
the negative gap on PSB's net interest margin would not be as great as the
table might indicate.
<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 $ 2,105 $ 3,513 $ 6,946 $ 422 $ 7,368
Unearned Income (36) (36)
Less allowance for loan losses 0 0 0 (286) (286)
Net loans 2,105 3,513 6,946 100 7,046
Investment securities 600 1,877 3,704 150 3,854
Federal funds sold and resale
agreements 4,250 4,250 4,250 0 4,250
Interest bearing deposits in other
financial institutions 0 0 0 0 0
Total earning assets $ 6,955 $ 9,640 $14,900 $ 250 $15,150
LIABILITIES
Non-Interest bearing demand $ 1,672 $ 1,672
deposits
Interest bearing demand deposits (1) $ 3,901 $ 3,901 $ 3,901 3,901
Savings deposits (1) 2,078 2,078 2,078 2,078
Large denomination time deposits 1,711 2,177 2,177 2,177
Other time deposits 2,452 4,859 5,277 5,277
Total interest bearing liabilities $10,142 $13,015 $13,433 $ 1,672 $15,105
Interest sensitivity gap $(3,187) $(3,375) $ 1,467
Earning assets/Interest bearing
liabilities 0.69 0.74 1.11
Interest sensitivity gap/Earning
assets (0.46) (0.35) 0.10
</TABLE>
Capital Resources
Shareholders' equity was $162 thousand lower on December 31, 1997
compared to December 1996, and this decrease resulted almost entirely from
the net loss of $162 thousand in 1997.
The Federal Reserve and the FDIC require that bank holding companies and
banks have a minimum of Tier I capital equal to not less than 4% of risk
adjusted assets and total capital equal to not less than 8% of risk adjusted
assets. Tier I capital consists of common shareholders equity. Tier II
capital includes reserves for loan losses up to 1.25% of risk adjusted assets.
Tier I capital was $1.9 million at December 31, 1997, and total (Tier I plus
Tier II) capital was $2.0 million at December 31, 1997. Tier I and total
capital ratios were 18.46% and 19.71%, 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 $ 1,890 $ 2,052
Tier II capital
Allowable portion of the allowance for
loan losses 128 95
Total capital (Tier I and Tier II) $ 2,018 $ 2,147
Risk-adjusted assets $10,238 $11,051
Quarterly average assets 18,336 20,768
Risk-adjusted capital ratios:
Tier I capital 18.46% 18.57%
Total capital (Tier I and Tier II) 19.71% 19.43%
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 10.31% 9.88%
</TABLE>
RESULTS OF OPERATIONS
Net Interest Revenue
Net interest revenue, the difference between rates earned on assets and
rates paid on liabilities, is the largest component of a bank's earnings. Net
interest revenue decreased 8.1% in 1996 compared to 1995 and 5.9% in 1997
compared to 1996. The decrease in loan volume over these periods was the
largest contributor to the decline in net interest revenue. The net yield on
interest earning asset assets improved to 3.80% in 1997 compared to 3.57% in
1996.
Presented below is an analysis of net interest income, weighted average
yields on earning assets and weighted average rates paid on interest bearing
liabilities for the past three years. In order to facilitate comparisons,
federally tax-exempt interest on obligations of state and local governments
and on industrial revenue bonds has been reflected on a fully taxable
equivalent basis, assuming a tax rate of 34%.
<TABLE>
Net Interest Revenue
(Dollars in Thousands)
<CAPTION>
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 $ 3,373 6.14% $ 207 $ 4,374 5.40% $ 236 $ 5,514 5.11% $ 282
Non-taxable securities 750 5.60% 42 609 5.58% 34 621 5.31% 33
Total securities 4,123 6.04% 249 4,983 5.42% 270 6,135 5.13% 315
Loans 8,190 9.87% 808 9,650 10.03% 968 10,641 10.01% 1,065
Federal funds sold 4,625 4.86% 225 4,500 5.27% 237 2,000 4.85% 97
Total interest earning assets 16,938 7.57% 1,282 19,133 7.71% 1,475 18,776 7.87% 1,477
Non-interest earning assets:
Cash and due from banks 1,372 1,360 1,247
Premises and equipment, net 233 252 256
Other real estate
Deferred tax asset
Other assets 560 568 520
Goodwill
Allowance for possible
loan losses (191) (109) (151)
Total $18,912 $21,204 $20,648
Interest bearing liabilities
Interest bearing demand
and savings deposits $ 5,157 3.72% 192 $ 4,400 4.39% 193 $ 5,814 3.51% 204
Time deposits 9,773 4.57% 447 12,658 4.73% 599 10,795 4.91% 530
Total interest bearing
liabilities 14,930 4.28% 639 17,058 4.64% 792 16,609 4.42% 734
Non-interest bearing liabilities
Demand deposits 1,894 1,980 1,948
Other 112 149 144
Total non-interest bearing
liabilities 2,006 2,129 2,092
Shareholders' equity 1,976 2,017 1,947
Total $18,912 $21,204 $20,648
Net Interest Revenue 3.29% $ 643 3.07% $ 683 3.45% $ 743
Net yield on interest earning
assets 3.80% 3.57% 3.96%
_______________________
(1) Loans classified as non-accruing are included in the average volume
classification. Loan fees for all years shown are included in the
interest amounts for loans.
</TABLE>
Loans as a percent of earning assets have remained low over the past
several years as a result of lack of growth in the local economy, weak loan
demand and intense competition from other financial institutions. Management
of PSB believes the Merger will permit PSB to gain access to a larger and
expanding market, as well as to introduce new loan products in its market,
thus reversing the decline in loan volume and thereby increasing loan income.
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 Interest Increases (Decreases)
(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 $ (29) $ (73) $ 44 $ (46) $ (63) $ 17
Non-taxable securities 8 8 0 1 (1) 2
Total securities (21) (65) 44 (45) (64) 19
Total loans (160) (144) (16) (97) (99) 2
Federal funds sold (12) 7 (19) 140 131 9
Total (193) (202) 9 (2) (32) 30
Interest Expense
Interest bearing demand
and savings deposits (1) (8) 7 (11) (135) 124
Other time deposits (152) (133) (19) 69 87 (18)
Total (153) (141) (12) 58 (48) 106
Net interest revenue $ (40) $ (61) $ 21 $ (60) $ 16 $ (76)
(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 PSB'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 PSB 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 PSB'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 $ 95 $ 122 $ 160
Charge-offs:
Commercial, financial and agricultural 0 0 14
Real estate - construction 0 0 0
Real estate - mortgage 0 0 28
Consumer 49 74 26
Total charge-offs 49 74 68
Recoveries:
Commercial, financial and agricultural 0 0 0
Real estate - construction 0 0 0
Real estate - mortgage 0 0 6
Consumer 39 8 9
Total recoveries 39 8 15
Net charge-offs (recoveries) 10 66 53
Addition to allowance charged to
operating expense 201 39 15
Allowance for loan losses-
balance at end of period $ 286 $ 95 $ 122
Loans at end of period, net of
unearned income $ 7,332 $ 9,045 $ 10,253
Ratio of ending allowance to ending loans 3.90% 1.05% 1.19%
Average loans, net of unearned income $ 8,190 $ 9,650 $ 10,641
Ratio of net charge-offs to average loans 0.12% 0.68% 0.50%
</TABLE>
Net charge offs exceeded additions to the allowance for loan losses
during the years 1995 and 1996, however, outstanding loans decreased $2.9
million for year-end 1995 to year end 1997. In response to a deteriorating
local real estate market and other economic conditions in its market,
management of PSB conducted a detailed, comprehensive loan review process
which resulted in the addition to the loan reserve of $201 thousand in 1997.
This addition increased the ratio of ending allowance to ending loans to
3.90% at December 31, 1997.
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 1.76% compared to 4.23% at year-end 1996. Loans on
non-accrual decreased 66.3% while all of the properties held in other real
estate at year end 1996 were disposed of, resulting in a loss of $143 thousand.
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 $580 thousand
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 $ 0 $ 0 $ 0
Loans on non-accrual 129 383 140
Renegotiated loans 0 0 0
Total non-performing loans 129 383 140
Other real estate owned 0 202 169
Total Non-performing assets $ 129 $ 585 $ 309
Loans 90 days or more past due as a
percent of loans 0.00% 0.00% 0.00%
Total non-performing loans as a
percent of loans 1.76% 4.23% 1.37%
Total non-performing assets as a
percent of loans and other real
estate owned 1.76% 6.33% 2.96%
</TABLE>
Non-Interest Revenue and Non-Interest Expense
Both total non-interest revenue and total non-interest expense were
relatively unchanged in 1995, 1996 and 1997 except that in 1997 a loss of
$143 thousand on the sale of other real estate was realized. Salaries and
benefits combined were $302 thousand in 1997 compared to $363 thousand in
1996, and the decrease resulted from the retirement in early 1997 of a senior
officer of PSB. The category "other expenses" increased to $259 thousand in
1997 compared to $201 thousand in 1996. The most significant increases
within this category were legal and accounting expenses and expenses relating
to the disposition of other real estate owned.
<TABLE>
Non-Interest Revenue
(In Thousands)
<CAPTION>
Year Ended December 31,
1997 1996 1995
<S> <C> <C> <C>
Service charges on deposit accounts $ 67 $ 74 $ 62
Other revenue 20 12 37
Total $ 87 $ 86 $ 99
</TABLE>
<TABLE>
Non-Interest Expense
(In Thousands)
<CAPTION>
Year Ended December 31,
1997 1996 1995
<S> <C> <C> <C>
Salaries $261 $313 $317
Pension and other employee benefits 41 50 50
Net occupancy expenses 34 47 55
Furniture and equipment expenses 47 31 28
Loss on sale of other real estate 143 3 0
Other expenses 259 201 232
Total $785 $645 $682
</TABLE>
Income Taxes and Other Issues
Because PSB incurred a net loss in 1997, an income tax benefit of $93
thousand was realized. Tax expense in 1996 and 1995 was $8 thousand and $28
thousand, respectively.
Because PSB's assets and liabilities are essentially monetary in nature,
the effect of inflation on PSB'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 PSB's financial results are
influenced more by its ability to react to changes in interest rates than by
inflation.
Except as discussed in this Management's Discussion and Analysis,
management is not aware of trends, events or uncertainties that will have or
that are reasonably likely to have a material effect on the liquidity, capital
resources or operations of South Alabama. Management is not aware of any
current recommendations by regulatory authorities which, if they were
implemented, would have such an effect.
BUSINESS OF PSB
PSB is a state bank organized under the laws of Alabama. PSB provides
community banking services in Monroe County, Alabama. At December 31, 1997,
PSB had total assets of approximately $17.1 million, total deposits of
approximately $15.1 million and total shareholders' equity of approximately
$1.9 million.
Bank Activities
PSB's business consists of: (i) the acceptance of demand, savings and
other time deposits; (ii) the making of loans to individuals, businesses and
institutions; (iii) investment of excess funds in U.S. Treasury and agency
obligations and state, county and municipal bonds and through the sale of
federal funds; and (iv) other miscellaneous financial services usually
handled for customers by commercial banks. PSB offers commercial lending
services, including lines of credit, revolving credit, term loans, real
estate loans and other forms of secured financing. PSB also offers
installment and other personal loans, home improvement loans, automobile
loans, boat loans and other consumer financing, safe deposit services and
mortgage loans. PSB extends credit to its customers located primarily within
the market area of Monroe County. Although real estate is taken as collateral
on the majority of 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 "PSB's
Management Discussion and Analysis" for a more complete discussion of PSB's
business.
Certain Management Information
Under the rules established by the Commission, PSB is required to
provide certain information in regard to each director and executive officer
who is or will be a director or executive officer of MCB after consummation
of the merger. As of the date of this prospectus, the following are directors
or executive officers who have been identified as potential officers of MCB:
J. Robison Harper and Albert A. Nettles, Jr.
Mr. Harper, age 74, is President and CEO and Chairman of the Board of
PSB. Mr. Harper was employed by PSB in 1948 and has served as its President
and CEO since 1960. He has been Chairman of the Board since 1963. It is
anticipated that Mr. Harper will serve as Senior Vice President of MCB.
Mr. Nettles, age 62, is Executive Vice-President and Cashier of PSB. Mr.
Nettles was employed by PSB in 1962 and has served as Secretary to the Board
since 1963. He has served as Executive Vice-President since January, 1998 and
served as Vice President from 1965 through January 1998. It is anticipated
that Mr. Nettles will serve as Vice President of MCB.
The table below sets forth certain elements of compensation for Mr. J.
Robison Harper and Mr. Albert A. Nettles, Jr. for the periods indicated:
<TABLE>
SUMMARY COMPENSATION TABLE
Annual compensation
<CAPTION>
Name and Principal Position Year Salary Bonus All other Compensation ($)
<S> <C> <C> <C> <C>
J. Robison Harper
President and CEO 1997 $47,160 $12,000 0
1996 47,160 12,000 0
1995 47,160 12,000 0
Albert A. Nettles, Jr.
Executive Vice President and
Cashier 1997 $37,344 $ 9,000 0
1996 37,344 9,000 0
1995 37,344 9,000 0
</TABLE>
PSB Security Ownership
The table below sets forth (i) the name and address of each shareholder
known by PSB to be the beneficial owners of more than five percent of the
outstanding shares of PSB Common Stock as of the Record Date; (ii) the number
of shares so owned; (iii) the percent of the total outstanding shares of PSB
Common Stock so owned; (iv) the name of each director of PSB (and all
directors and executive officers as a group); (v) the number of shares of PSB
Common Stock they beneficially owned as of the Record Date; and (vi) the
percent of the total outstanding shares of PSB Common Stock so owned.
<TABLE>
<CAPTION>
PRINCIPAL SHAREHOLDERS
Name and Address Shares Owned Percent Owned
<S> <C> <C>
J. Robison Harper 167.517 22.34%
P. O. Drawer 705
Monroeville, AL 36461
Nellie N. Jackson(2)(3) 121.575 16.21%
5209 North Asaph Street
Alexandria, VA 22304
Jo Ann Jackson Harris(2)(3) 118.575 15.81%
5209 Westwood Drive
Bethesda, MD 20816
Jack Finklea Nettles(3) 81.392 10.85%
P. O. Box 187
Peterman, AL 36471
Albert A. Nettles, Jr.(2)(3) 61.364(4) 8.18%
430 Broughton Street
Monroeville, AL 36360
David F. Steele and 60.255 8.03%
Harvel Hines Steele, Jr.,
Joint Tenants
P. O. Box 288
Beatrice, AL 36425
DIRECTORS
Name and Address Shares Owned(1) Percent Owned
Dr. W. W. Eddins 2 .27%
Armistead R. Harper(5) 2 .27%
J. Robison Harper(5) 167.517 22.34%
William C. Harper(5) 2 .27%
Albert A. Nettles, Jr.(4) 61.364(4) 4.44%
David F. Steele 60.255(6) 8.03%
(1) Based on information furnished by the respective individuals.
Under applicable regulations, shares are deemed to be beneficially
owned by a person if he directly or indirectly has or shares the
power to vote or to dispose or direct the disposition of the shares,
whether or not he/she has any economic interest in the shares.
Unless otherwise indicated, the named beneficial owner has sole
voting and dispositive power with respect to the shares.
(2) Nellie N. Jackson and Jo Ann Jackson Harris are sisters. They are
also nieces of Jack Finklea Nettles and first cousins of Albert A.
Nettles, Jr.
(3) Jack Finklea Nettles is the uncle of Jo Ann Jackson Harris, Nellie
N. Jackson and Albert A. Nettles, Jr.
(4) Includes 28.055 shares owned by Mr. Nettles and his brother, Joseph
F. Nettles, as co-trustees of the family trust under will of Albert
A. Nettles, Sr. All voting and investment powers are joint.
(5) Armistead R. Harper and J. Robison Harper are brothers. William C.
Harper is the son of J. Robison Harper and nephew of Armistead R.
Harper.
(6) Held as joint tenants with his brother Harvel Hines Steele, Jr.;
all voting and investment powers are shared.
</TABLE>
SUPERVISION, REGULATION, AND EFFECTS OF GOVERNMENTAL POLICY
Bank holding companies and banks are extensively regulated under both
federal and state law. The following is a brief summary of certain statutes,
rules, and regulations affecting South Alabama, PSB 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, PSB 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 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 in default. " Default" is defined generally
as the existence of certain conditions indicating that a default is likely to
occur in the absence of regulatory assistance.
The Federal Reserve has adopted capital adequacy guidelines applicable to
bank holding companies (see "Capital Adequacy" below). Federal Reserve policy
requires a bank holding company to act as a source of financial strength to
each of its bank subsidiaries and to commit resources to support each of its
subsidiaries. Such policy also requires a bank holding company to take
measures to preserve and protect bank subsidiaries in situations where
additional investments in a troubled bank may not otherwise be warranted. As
a result, a bank holding company may be required to lend money to its
subsidiaries in the form of capital notes or other instruments which qualify
as capital for regulatory purposes. In addition, where a bank holding company
has more than one subsidiary depository institution, the holding company's
other subsidiary depository institutions are responsible under a cross-guarantee
for any losses to the FDIC as a result of the failure of a subsidiary
depository institution. Often, bank holding companies will obtain the funds
to provide such companies subsidiary banks. However, any loans from the
holding company to such subsidiary banks will likely be unsecured and will be
subordinated to such banks' depositors and perhaps to other creditors.
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 Leverage
Capital Ratio Capital Ratio Ratio
<S> <C> <C> <C>
Well capitalized 10% or above 6% or above 5% or above
Adequately capitalized 8% or above 4% or above 4% or above
Undercapitalized Less than 8% Less than 4% Less than 4%
Significantly undercapitalized Less than 6% Less than 3% Less than 3%
Critically undercapitalized 2% or less
</TABLE>
An institution may be deemed to be in a capitalization category that is
lower than is indicated by its actual capital position if it receives an
unsatisfactory examination rating.
If a depository institution should fail to meet regulatory capital
requirements, regulatory agencies can require submission and funding of a
capital restoration plan by the institution, place limits on its activities,
require the raising of additional capital and, ultimately, require the
appointment of a conservator or receiver for the institution. The Federal
Reserve and the other federal depository institution regulatory agencies have
recently adopted regulations to implement the FDICIA "prompt corrective
action" requirements. Under FDICIA, a bank holding company must guarantee
that a subsidiary bank will meet its capital restoration plan, subject to
certain limitations. The obligation of a controlling bank holding company
under FDICIA to fund a capital restoration plan is limited to the lesser of
5% of an undercapitalized subsidiary's assets or the amount required to meet
regulatory capital requirements. If the controlling bank holding company
should fail to fulfill its obligations under FDICIA and files (or has filed
against it) a petition under the federal Bankruptcy Code, the FDIC's claim
may be entitled to a priority in such bankruptcy proceeding over third-party
creditors of the bank holding company.
Undercapitalized depository institutions may be subject to growth
limitations and are required to submit a capital restoration plan. The
federal banking agencies may not accept a capital plan without determining,
among other things, that the plan is based on realistic assumptions, is
likely to succeed in restoring the depository institution's capital and is
guaranteed by the parent holding company. If a depository institution
should fail to submit an acceptable plan, it will be treated as if it were
significantly undercapitalized.
Significantly undercapitalized depository institutions may be subject to
a number of requirements and restrictions, including orders to sell sufficient
voting stock to become adequately capitalized and requirements to reduce total
assets and to cease receiving deposits from correspondent banks. Critically
undercapitalized institutions are subject to appointment of a receiver or
conservator. An institution that is not well capitalized is generally
prohibited from accepting brokered deposits and offering interest rates on
deposits higher than the prevailing rate in its market. In addition, "pass-
through" insurance coverage may not be available for certain employee benefit
accounts.
An insured depository institution may not pay management fees to any
person having control of the institution nor may an institution, except under
certain circumstances and with prior regulatory approval, make any capital
distribution if, after making such payment or distribution, the institution
would be undercapitalized. FDICIA imposes new restrictions upon the
acceptance of brokered deposits by insured depository institutions and
contains a number of consumer banking provisions, including disclosure
requirements and substantive contractual limitations with respect to deposit
accounts.
FDICIA contains numerous other provisions, including new reporting
requirements, termination of the "too big to fail" doctrine except in special
clearly-defined cases, limitations on the FDIC's payment of deposits at
foreign branches and revised regulatory standards for, among other things,
real estate lending and capital adequacy.
FDICIA provides that, in the event of the "liquidation or other
resolution" of an insured depository institution, the claims of depositors of
such institution (including claims by the FDIC as receiver) would be afforded
a priority over other general unsecured claims against the institution. If
an insured depository institution fails, insured and uninsured depositors,
along with the FDIC, will be placed ahead of unsecured, nondeposit creditors,
including a parent holding company such as South Alabama or PSB, 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 PSB'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, are wholly owned subsidiaries
of South Alabama, operating under the Alabama Banking Code. PSB, an Alabama
banking corporation, operates under the Alabama Banking Code also. SAB,
MCB and PSB are subject to regulation, supervision and examination by the
Superintendent of Banks of the State of Alabama. In addition, deposits of SAB,
MCB and PSB 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 Office of the Comptroller of the Currency (the
"Comptroller").
South Alabama is a legal entity separate and distinct from its subsidiary
banks. 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, 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 January
1, 1998, the subsidiary banks of South Alabama had $1.7 million of undivided
profits legally available for the payment of dividends and PSB had no
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, but not PSB's, exceeded that percentage as of
December 31, 1997. SAB, MCB and PSB 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. PSB is required to comply with the applicable
capital adequacy guidelines of the FDIC. Currently, there are two basic
measures of capital adequacy: a "risk-based" measure and a "leverage"
measure. All applicable capital standards must be satisfied for an
institution to be considered in compliance.
The capital-based prompt correction action provisions of the FDIA and
the implementing regulations apply to FDIC-insured depository institutions and
are not directly applicable to holding companies that control such
institutions. However, the Federal Reserve has indicated that, in regulating
bank holding companies, it will take appropriate action at the holding company
level based on an assessment of the effectiveness of supervisory actions
imposed upon subsidiary depository institutions pursuant to such provisions
and regulations. Although the capital categories defined under the prompt
corrective action regulations are not directly applicable to 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
December 31, 1997.
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 PSB 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
December 31, 1997, for each of South Alabama, SAB, FNBB, MCB and PSB:
<TABLE>
<CAPTION>
South Alabama SAB FNBB MCB PSB
<S> <C> <C> <C> <C> <C>
Tier I Capital
Common shareholders' equity $ 45,462 $ 15,066 $ 14,301 $14,930 $ 1,895
Disallowed portion (4,808) (55) (506) (4,247) (5)
Tier I Capital 40,654 15,011 13,795 10,683 1,890
Tier II Capital
Allowable portion of the
allowance for loan losses 2,685 1,422 800 463 128
Total Capital (Tier I and Tier II) $ 43,339 $ 16,433 $ 14,595 $11,146 $ 2,018
Risk-adjusted assets $235,802 $117,243 $ 71,273 $48,823 $10,238
Quarterly average assets $354,042 $156,838 $106,681 $89,831 $18,336
Tier I capital 17.24% 12.80% 19.36% 21.88% 18.46%
Tier II capital 18.38% 14.02% 20.48% 22.83% 19.71%
Leverage Ratio 11.48% 9.57% 12.93% 11.89% 10.31%
</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 December 31,
1997, South Alabama believes that brokered deposits regulation will have no
material effect on the funding liquidity of SAB and MCB.
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 PSB
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 PSB 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 118,550
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 PSB by Capell, Howard, Knabe & Cobbs, P.A., Montgomery, Alabama
("Capell Howard").
Each of Hand Arendall and Capell Howard has rendered opinions with
respect to the federal tax consequences of the Merger. See "The Merger
Certain Federal Income Tax Consequences."
EXPERTS
The Consolidated Financial Statements of South Alabama Bancorporation,
Inc. 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 Consolidated Financial Statements of Peterman State Bank as of
December 31, 1997, and for the year then ended included in this Prospectus
have been audited by Arthur Andersen LLP, 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 6, 1998, to be included in South Alabama's proxy statement and form
of proxy relating to that meeting.
APPENDIX A
AGREEMENT AND PLAN OF MERGER
BY AND BETWEEN
SOUTH ALABAMA BANCORPORATION, INC.
THE MONROE COUNTY BANK
AND
PETERMAN STATE BANK
Dated as of
October 14, 1997
<PAGE>
TABLE OF CONTENTS
Page
AGREEMENT AND PLAN OF MERGER . . . . . . . . . . . . . . . . . . . . . . .1
Preamble . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .1
Definitions. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .1
ARTICLE ONE. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .8
TRANSACTIONS AND TERMS OF MERGER. . . . . . . . . . . . . . . . . . .8
1.1 Merger. . . . . . . . . . . . . . . . . . . . . . . . . . .8
1.2 Time and Place of Closing . . . . . . . . . . . . . . . . .9
1.3 Effective Time. . . . . . . . . . . . . . . . . . . . . . .9
ARTICLE TWO. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .9
TERMS OF MERGER . . . . . . . . . . . . . . . . . . . . . . . . . . .9
2.1 Articles of Incorporation . . . . . . . . . . . . . . . . .9
2.2 Bylaws. . . . . . . . . . . . . . . . . . . . . . . . . . .9
2.3 Directors and Officers. . . . . . . . . . . . . . . . . . .9
ARTICLE THREE. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
MANNER OF CONVERTING SHARES . . . . . . . . . . . . . . . . . . . . 10
3.1 Conversion of Shares. . . . . . . . . . . . . . . . . . . 10
3.2 Shares Held by PSB, MCB or SAB. . . . . . . . . . . . . . 10
3.3 Dissenting Stockholders . . . . . . . . . . . . . . . . . 10
3.4 Fractional Shares.. . . . . . . . . . . . . . . . . . . . 11
ARTICLE FOUR . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
EXCHANGE OF SHARES. . . . . . . . . . . . . . . . . . . . . . . . . 11
4.1 Exchange Procedures . . . . . . . . . . . . . . . . . . . 11
4.2 Rights of Former PSB Stockholders . . . . . . . . . . . . 11
ARTICLE FIVE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
REPRESENTATIONS AND WARRANTIES OF PSB . . . . . . . . . . . . . . . 12
5.1 Organization, Standing, and Power . . . . . . . . . . . . 12
5.2 Authority; No Breach By Agreement . . . . . . . . . . . . 12
5.3 Capital Stock . . . . . . . . . . . . . . . . . . . . . . 13
5.4 PSB Subsidiaries. . . . . . . . . . . . . . . . . . . . . 14
5.5 Financial Statements. . . . . . . . . . . . . . . . . . . 14
5.6 Absence of Undisclosed Liabilities. . . . . . . . . . . . 14
5.7 Absence of Certain Changes or Events. . . . . . . . . . . 14
5.8 Tax Matters . . . . . . . . . . . . . . . . . . . . . . . 14
5.9 Allowance for Possible Loan Losses. . . . . . . . . . . . 15
5.10 Assets. . . . . . . . . . . . . . . . . . . . . . . . . . 15
5.11 Environmental Matters . . . . . . . . . . . . . . . . . . 15
5.12 Compliance with Laws. . . . . . . . . . . . . . . . . . . 16
5.13 Labor Relations . . . . . . . . . . . . . . . . . . . . . 17
5.14 Employee Benefit Plans. . . . . . . . . . . . . . . . . . 17
5.15 Material Contracts. . . . . . . . . . . . . . . . . . . . 18
5.16 Legal Proceedings . . . . . . . . . . . . . . . . . . . . 19
5.17 Reports . . . . . . . . . . . . . . . . . . . . . . . . . 19
5.18 Statements True and Correct . . . . . . . . . . . . . . . 19
5.19 Accounting, Tax and Regulatory Matters. . . . . . . . . . 20
5.20 Charter Provisions. . . . . . . . . . . . . . . . . . . . 20
ARTICLE SIX. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
REPRESENTATIONS AND WARRANTIES OF SAB AND MCB . . . . . . . . . . . 20
6.1 Organization, Standing, and Power . . . . . . . . . . . . 20
6.2 Authority; No Breach By Agreement . . . . . . . . . . . . 20
6.3 Reports . . . . . . . . . . . . . . . . . . . . . . . . . 21
ARTICLE SEVEN. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
CONDUCT OF BUSINESS PENDING CONSUMMATION. . . . . . . . . . . . . . 21
7.1 Covenants of PSB and SAB. . . . . . . . . . . . . . . . . 21
7.2 Negative Covenants of PSB . . . . . . . . . . . . . . . . 22
7.3 Affirmative Covenants of SAB. . . . . . . . . . . . . . . 23
7.4 Affirmative Covenants of PSB. . . . . . . . . . . . . . . 24
ARTICLE EIGHT. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
ADDITIONAL AGREEMENTS . . . . . . . . . . . . . . . . . . . . . . . 24
8.1 Registration Statement; Proxy Statement; Stockholder Approval
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
8.2 Applications. . . . . . . . . . . . . . . . . . . . . . . 24
8.3 Filings with State Offices. . . . . . . . . . . . . . . . 25
8.4 Agreement as to Efforts to Consummate . . . . . . . . . . 25
8.5 Investigation and Confidentiality . . . . . . . . . . . . 25
8.6 Press Releases. . . . . . . . . . . . . . . . . . . . . . 26
8.7 Certain Actions . . . . . . . . . . . . . . . . . . . . . 26
8.8 Charter Provisions. . . . . . . . . . . . . . . . . . . . 26
8.9 Agreement of Affiliates . . . . . . . . . . . . . . . . . 27
8.10 Compensation and Employee Benefits. . . . . . . . . . . . 27
8.11 D & O Coverage. . . . . . . . . . . . . . . . . . . . . . 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 and MCB. . . . . . . . . 29
9.3 Conditions to Obligations of PSB. . . . . . . . . . . . . 30
ARTICLE TEN. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30
TERMINATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30
10.1 Termination . . . . . . . . . . . . . . . . . . . . . . . 30
10.2 Effect of Termination. . . . . . . . . . . . . . . . 32
10.3 Survival of Representations and Covenants. . . . . . 32
ARTICLE ELEVEN . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32
MISCELLANEOUS . . . . . . . . . . . . . . . . . . . . . . . . . . . 32
11.1 Expenses. . . . . . . . . . . . . . . . . . . . . . . . . 32
11.2 Brokers and Finders. . . . . . . . . . . . . . . . . 32
11.3 Entire Agreement . . . . . . . . . . . . . . . . . . 32
11.4 Amendments . . . . . . . . . . . . . . . . . . . . . 33
11.5 Waivers. . . . . . . . . . . . . . . . . . . . . . . 33
11.6 Assignment . . . . . . . . . . . . . . . . . . . . . 33
11.7 Notices. . . . . . . . . . . . . . . . . . . . . . . 33
11.8 Governing Law. . . . . . . . . . . . . . . . . . . . 34
11.9 Counterparts.. . . . . . . . . . . . . . . . . . . . 35
11.10 Captions . . . . . . . . . . . . . . . . . . . . . . 35
11.11 Enforcement of Agreement . . . . . . . . . . . . . . 35
11.12 Severability . . . . . . . . . . . . . . . . . . . . 35
LIST OF EXHIBITS . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37
AGREEMENT AND PLAN OF MERGER
THIS AGREEMENT AND PLAN OF MERGER (this "Agreement") is made
and entered into as of October 14, 1997, by and between SOUTH ALABAMA
BANCORPORATION, INC. ("SAB"), an Alabama corporation with its principal
office located in Mobile, Alabama, THE MONROE COUNTY BANK ("MCB"), an Alabama
banking corporation and wholly owned subsidiary of SAB with its principal
office located in Monroeville, Alabama, and PETERMAN STATE BANK ("PSB" ), an
Alabama banking corporation with its principal office located in Peterman,
Alabama.
Preamble
The Boards of Directors of SAB, MCB and PSB are of the opinion that
the transactions described herein are in the best interests of the Parties
and their respective stockholders. This Agreement provides for the merger
of PSB with and into MCB. At the effective time of such merger, the
outstanding shares of the capital stock of PSB shall be converted into the
right to receive shares of the common stock of SAB (except as provided herein).
As a result, stockholders of PSB shall become stockholders of SAB, and MCB
shall continue to conduct the business and operations of PSB. The
transactions described in this Agreement are subject to the approvals of the
stockholders of PSB and MCB, the Superintendent of Banks and the Federal
Deposit Insurance Corporation, 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.
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:
"ABCA" shall mean the Alabama Business Corporation Act.
"Acquisition Proposal" with respect to a Party shall mean any
tender offer or exchange offer or any proposal for a merger, acquisition
of all of the stock or assets of, or other business combination
involving such Party or any of its Subsidiaries or the acquisition of a
substantial equity interest in, or a substantial portion of the assets
of, such Party or any of its Subsidiaries.
"Affiliate" of a Person shall mean: (i) any other Person
directly, or indirectly through one or more intermediaries, controlling,
controlled by or under common control with such Person; (ii) any
officer, director, partner, employer, or direct or indirect beneficial
owner of any 10% or greater equity or voting interest of such Person;
or (iii) any other Person for which a Person described in clause (ii)
acts in any such capacity.
"Agreement" shall mean this Agreement and Plan of Merger,
including the Exhibits delivered pursuant hereto and incorporated herein
by reference. References to "the date of this Agreement," "the date
hereof" and words of similar import shall refer to the date this
Agreement was first executed, October 14, 1997.
"Allowance" shall have the meaning provided in Section 5.9 of
this Agreement.
Articles of Incorporation shall mean the articles of
incorporation, certificate of incorporation or charter document of like
effect of a corporation.
"Articles of Merger" shall mean the Articles of Merger to be
executed by MCB and filed with the Secretary of State of the State of
Alabama relating to the Merger as contemplated by Section 1.1 of this
Agreement.
"Assets" of a Person shall mean all of the assets, properties,
businesses and rights of such Person of every kind, nature, character
and description, whether real, personal or mixed, tangible or intangible,
accrued or contingent, or otherwise relating to or utilized in such
Person's business, directly or indirectly, in whole or in part, whether
or not carried on the books and records of such Person, and whether or
not owned in the name of such Person or any Affiliate of such Person and
wherever located.
"BHC Act" shall mean the federal Bank Holding Company Act of
1956, as amended.
"Book Value" shall mean the book value according to GAAP,
either per share or in the aggregate, as applicable, of the shares of
PSB Common Stock.
"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.
"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.
"Deemed Book Value" shall be determined as follows: SAB shall
give PSB notice within fifteen (15) days after the approval of the
Merger by the Federal Deposit Insurance Corporation of any adjustments
it deems should be made to the most recent available Book Value. If PSB
agrees to such adjustments or fails to object thereto within ten (10)
days after delivery of such notice, Book Value shall be so adjusted and,
as so adjusted, shall be the Deemed Book Value. If PSB objects to such
adjustment within such ten (10) day period and PSB and SAB are unable to
agree on the Deemed Book Value within fifteen (15) days after delivery
of such notice by SAB, then this Agreement shall terminate with the
effect provided in Section 10.2 hereof.
"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.
"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 5, 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.
"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, General Counsel,
any Assistant or Deputy General Counsel, or any Senior or Executive Vice
President of such Person; provided, however, that for purposes of
Section 5.11 captioned Environmental Matters, Knowledge shall mean actual
knowledge of such Person, without inquiry other than such inquiry at the
time a loan was made as was then reasonable in the course of making a
loan secured by real property.
"Law" shall mean any code, law, ordinance, regulation,
reporting or licensing requirement, rule, or statute applicable to a
Person or its Assets, Liabilities or business, including, without
limitation, those promulgated, interpreted or enforced by any of the
Regulatory Authorities.
"Liability" shall mean any direct or indirect, primary or
secondary, liability, indebtedness, obligation, penalty, cost or expense
(including, without limitation, costs of investigation, collection and
defense), claim, deficiency, guaranty or endorsement of or by any Person
(other than endorsements of notes, bills, checks, and drafts presented
for collection or deposit in the ordinary course of business) of any
type, whether accrued, absolute or contingent, liquidated or
unliquidated, matured or unmatured, or otherwise.
"Lien" shall mean any conditional sale agreement, default of
title, easement, encroachment, encumbrance, hypothecation, infringement,
lien, mortgage, pledge, reservation, restriction, security interest,
title retention or other security arrangement, or any adverse right or
interest, charge, or claim of any nature whatsoever of, on, or with
respect to any property or property interest, other than (i) Liens for
current property Taxes not yet due and payable, (ii) for a depository
institution, pledges to secure deposits and other Liens incurred in the
ordinary course of the banking business, and (iii) Liens which are not
reasonably likely to have, individually or in the aggregate, a Material
Adverse Effect on a Party.
"Litigation" shall mean any action, arbitration, cause of
action, claim, complaint, criminal prosecution, demand letter,
governmental or other examination or investigation, hearing, inquiry,
administrative or other proceeding, or notice (written or oral) by any
Person alleging potential Liability or requesting information relating
to or affecting a Party, its business, its Assets (including, without
limitation, Contracts related to it), or the transactions contemplated
by this Agreement, but shall not include regular, periodic examinations
of depository institutions and their Affiliates by Regulatory
Authorities.
"Loan Property" shall mean any property owned by the Party in
question or by any of its Subsidiaries or in which such Party or
Subsidiary holds a security interest, and, where required by the
context, includes the owner or operator of such property, but only with
respect to such property.
"Market Value," when used with reference to SAB Common Stock,
shall mean the average of the closing bid and closing ask price as
reported by NASDAQ, adjusted for the effect of any stock split, stock
dividend or other similar recapitalization between the date hereof and
the Effective Time.
"Material" for purposes of this Agreement shall be determined
in light of the facts and circumstances of the matter in question;
provided that any specific monetary amount stated in this Agreement
shall determine materiality in that instance.
"Material Adverse Effect" on a Party shall mean an event,
change or occurrence which has a material adverse impact on (i) the
financial position or business of such Party and its Subsidiaries, taken
as a whole, or (ii) the ability of such Party to perform its obligations
under this Agreement or to consummate the Merger or the other
transactions contemplated by this Agreement, provided that "material
adverse impact" shall not be deemed to include the impact 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 PSB with and into MCB
referred to in Section 1.1 of this Agreement.
"NASD" shall mean the National Association of Securities
Dealers, Inc.
"NASDAQ" shall mean the National Association of Securities
Dealers Automated Quotations System.
"1933 Act" shall mean the Securities Act of 1933, as amended.
"1934 Act" shall mean the Securities Exchange Act of 1934, as
amended.
"Order" shall mean any administrative decision or award,
decree, injunction, judgment, order, quasi-judicial decision or award,
ruling, or writ of any federal, state, local or foreign or other court,
arbitrator, mediator, tribunal, administrative agency or Regulatory
Authority.
"Participation Facility" shall means any facility in which the
Party in question or any of its Subsidiaries participates in the
management and, where required by the context, includes the owner or
operator or such property, but only with respect to such property.
"Party" shall mean PSB on the one hand and SAB and MCB on the
other, and "Parties" shall mean PSB, SAB and MCB.
"Permit" shall mean any federal, state, local, and foreign
governmental approval, authorization, certificate, easement, filing,
franchise, license, notice, permit, or right to which any Person is a
party or that is or may be binding upon or inure to the benefit of any
Person or its securities, Assets or business.
"Person" shall mean a natural person or any legal, commercial
or governmental entity, such as, but not limited to, a corporation,
general partnership, joint venture, limited partnership, limited
liability company, trust, business association, group acting in concert,
or any person acting in a representative capacity.
"Previously Disclosed" shall mean information delivered in
writing prior to the date of this Agreement in the manner and to the
Party and counsel described in Section 11.7 of this Agreement and
describing in reasonable detail the matters contained therein.
"Proxy Statement" shall mean the proxy statement/prospectus
used by PSB to solicit the approval of its stockholders of the
transactions contemplated by this Agreement.
"PSB Benefit Plans" shall have the meaning set forth in
Section 5.14 of this Agreement.
"PSB Common Stock" shall mean the $100 par value common stock
of PSB.
"PSB Financial Statements" shall mean (i) the balance sheets
(including related notes and schedules, if any) of PSB as of June 30,
1997, December 31, 1996 and December 31, 1995, and the related
statements of income, changes in stockholders' equity, and cash flows
(including related notes and schedules, if any) for the period ended
June 30, 1997 and each of the two fiscal years ended December 31, 1996,
and 1995, as delivered by PSB to SAB, and (ii) the consolidated balance
sheets of PSB (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 PSB
to SAB with respect to periods ended subsequent to June 30, 1997.
"Registration Statement" shall mean the Registration Statement
on Form S-4, or other appropriate form, filed with the SEC by SAB under
the 1933 Act in connection with the transactions contemplated by this
Agreement.
"Regulatory Authorities" shall mean, collectively, the Federal
Trade Commission, the United States Department of Justice, the Board of
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 Documents" shall mean all reports and registration
statements filed, or required to be filed, by a Party or any of its
Subsidiaries with any Regulatory Authority pursuant to the Securities
Laws.
"Securities Laws" shall mean the 1933 Act, the 1934 Act, the
Investment Company Act of 1940, as amended, the Investment Advisors Act
of 1940, as amended, the Trust Indenture Act of 1939, as amended, and
the rules and regulations of any Regulatory Authority promulgated
thereunder.
"Stockholders' Meeting" shall mean the Meeting of the
stockholders of PSB to be held pursuant to Section 8.1 of this
Agreement, including any adjournment or adjournments thereof.
"Subsidiaries" shall mean all those corporations, banks,
associations, or other entities of which the entity in question owns or
controls 50% or more of the outstanding equity securities either
directly or through an unbroken chain of entities as to each of which
50% or more of the outstanding equity securities is owned directly or
indirectly by its parent; provided, however, there shall not be included
any such entity acquired through foreclosure or any such entity the
equity securities of which are owned or controlled in a fiduciary
capacity.
"Surviving Corporation" shall mean MCB as the surviving
corporation resulting from the Merger.
"Taxes" shall mean any federal, state, county, local, foreign
and other taxes, assessments, charges, fares, and impositions, including
interest and penalties thereon or with respect thereto.
"Trading Day" shall mean a day on which NASDAQ is open for
trading activities.
"Valuation Period" shall mean the period of twenty (20)
consecutive Trading Days ending on the Trading Day preceding by two
Trading Days the Effective Time.
ARTICLE ONE
TRANSACTIONS AND TERMS OF MERGER
1.1 Merger. Subject to the terms and conditions of this Agreement,
at the Effective Time, PSB shall be merged with and into MCB in accordance
with the provisions of Article 11 of the ABCA and Article 7A of the Alabama
Banking Code and with the effect provided in Section 11.06 of the ABCA (the
"Merger"). MCB shall be the Surviving Corporation resulting from the Merger
and shall continue to be governed by the Laws of the State of Alabama. The
Merger shall be consummated pursuant to the terms of this Agreement, which
has been approved and adopted by the respective Boards of Directors of SAB,
MCB and PSB.
1.2 Time and Place of Closing. The Closing will take place at
9:00 A.M. on the date that the Effective Time occurs (or the immediately
preceding day if the Effective Time is earlier than 9:00 A.M.), or at such
other time as the Parties, acting through their chief executive officers or
chief financial officers, may mutually agree. The place of Closing shall
be at the offices of Hand Arendall, L.L.C., Mobile, Alabama, or such other
place as may be mutually agreed upon by the Parties.
1.3 Effective Time. The Merger and other transactions
contemplated by this Agreement shall become effective on the date and at the
time the Certificate of Merger reflecting the Merger shall become effective
with the Secretary of State of the State of Alabama (the "Effective Time").
Subject to the terms and conditions hereof, unless otherwise mutually agreed
upon in writing by the chief executive officers or chief financial officers
of each Party, the Parties shall use their reasonable efforts to cause the
Effective Time to occur 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 MCB and PSB approve this Agreement to the extent such
approval is required by applicable Law, but in no event later than five (5)
business days after such occurrence.
ARTICLE TWO
TERMS OF MERGER
2.1 Articles of Incorporation. The Articles of Incorporation of
MCB in effect immediately prior to the Effective Time shall be the Articles
of Incorporation of the Surviving Corporation immediately following the
Effective Time, with the amendments set forth in Exhibit 1 hereto.
2.2 Bylaws. The Bylaws of MCB in effect immediately prior to the
Effective Time shall be the Bylaws of the Surviving Corporation immediately
following the Effective Time, with the amendments set forth in Exhibit 2
hereto, until otherwise amended or repealed.
2.3 Directors and Officers.
(a) The directors of the Surviving Corporation from and after
the Effective Time shall consist of the incumbent directors of MCB, who shall
serve as directors of the Surviving Corporation from and after the Effective
Time in accordance with the Bylaws of the Surviving Corporation.
(b) The principal officers of the Surviving Corporation upon
the Effective Time shall be the incumbent principal officers of MCB, who
shall serve as officers of the Surviving Corporation from and after the
Effective Time in accordance with the Bylaws of the Surviving Corporation.
ARTICLE THREE
MANNER OF CONVERTING SHARES
3.1 Conversion of Shares. Subject to the provisions of this
Article Three, at the Effective Time, by virtue of the Merger and without any
action on the part of the holders thereof, the shares of the constituent
corporations shall be converted as follows:
(a) Each share of MCB and 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 PSB 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 the number of shares of SAB
Common Stock having an average Market Value during the Valuation Period
of 1.3 times the Deemed Book Value of such share of PSB Common Stock,
rounded to the nearest one-hundreth of a share (the "Exchange Ratio").
3.2 Shares Held by PSB, MCB or SAB. Each of the shares of PSB
Common Stock held by PSB 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 PSB Common
Stock who perfects his dissenters' rights of appraisal in accordance with and
as contemplated by Article 13 of the ABCA, shall be entitled to receive the
value of such shares in cash as determined pursuant to such provision of Law;
provided, however, that no such payment shall be made to any dissenting
stockholder unless and until such dissenting stockholder has complied with the
applicable provisions of the ABCA and surrendered to the 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 PSB 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 PSB
Common Stock is entitled under this Article Three (without interest) upon
surrender by such holder of the certificate or certificates representing
shares of PSB Common Stock held by him.
3.4 Fractional Shares. Notwithstanding any other provision of
this Agreement, each holder of shares of PSB Common Stock exchanged pursuant
to the Merger, who would otherwise have been entitled to receive a fraction
of a share of SAB Common Stock (after taking into account all certificates
delivered by such holder) shall receive, in lieu thereof, cash (without
interest) in an amount equal to such fractional part of a share of SAB Common
Stock multiplied by the Market Value of one share of SAB Common Stock on the
Trading Day preceding by two Trading Days the Effective Time. No such holder
will be entitled to dividends, voting rights, or any other rights as a
stockholder in respect of any fractional shares.
ARTICLE FOUR
EXCHANGE OF SHARES
4.1 Exchange Procedures. Promptly after the Effective Time, SAB
and MCB shall cause the exchange agent selected by them (the "Exchange Agent")
to mail to the former stockholders of PSB appropriate transmittal materials
(which shall specify that delivery shall be effected, and risk of loss and
title to the certificates theretofore representing shares of PSB Common Stock
shall pass, only upon proper delivery of such certificates to the Exchange
Agent). After the Effective Time, each holder of shares of PSB 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 PSB 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 PSB Common Stock is entitled as a result of the Merger
until such holder surrenders his certificate or certificates representing
the shares of PSB Common Stock for exchange as provided in this Section 4.1.
The certificate or certificates of PSB 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 Corporation nor the
Exchange Agent shall be liable to a holder of PSB 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 PSB Stockholders. At the Effective Time,
the stock transfer books of PSB shall be closed as to holders of PSB Common
Stock immediately prior to the Effective Time, and no transfer of PSB 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 PSB Common
Stock ("PSB Certificate"), other than shares to be canceled pursuant to
Sections 3.2 and 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 PSB 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 PSB Common Stock are converted, regardless of whether such holders
have exchanged their PSB 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 PSB 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 PSB Certificate held after the Cutoff, until
such person surrenders said PSB Certificate for exchange as provided in
Section 4.1 of this Agreement. However, upon surrender of such PSB
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 PSB Certificate.
ARTICLE FIVE
REPRESENTATIONS AND WARRANTIES OF PSB
PSB hereby represents and warrants to SAB and MCB as follows:
5.1 Organization, Standing, and Power. PSB is a corporation duly
organized, validly existing and in good standing under the Laws of the State
of Alabama, and has the corporate power and authority to carry on its
business as now conducted and to own, lease and operate its Assets. PSB 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. PSB has delivered to SAB and MCB
complete and correct copies of its Articles of Incorporation and Bylaws.
5.2 Authority; No Breach By Agreement.
(a) PSB 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 PSB, subject to the approval of this Agreement
by the holders of PSB Common Stock in accordance with the ABCA and Section
5-7A-2, Code of Alabama (1975). Subject to such requisite stockholder
approval, this Agreement represents a legal, valid, and binding obligation of
PSB, enforceable against PSB 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
PSB, nor the consummation by PSB of the transactions contemplated hereby,
nor compliance by PSB with any of the provisions hereof, will (i) conflict
with or result in a breach of any provision of PSB's Articles of
Incorporation or Bylaws, or (ii) constitute or result in a Default under, or
require any Consent pursuant to, or result in the creation of any Lien on any
Asset of PSB under, any Contract or Permit of PSB 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 PSB 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 PSB of the Merger and the other
transactions contemplated in this Agreement.
5.3 Capital Stock.
(a) The authorized capital stock of PSB consists only of 750
shares of PSB Common Stock, of which 750 shares are issued and outstanding.
All of the issued and outstanding shares of capital stock of PSB are duly and
validly issued and outstanding and are fully paid and nonassessable under the
ABCA. None of the outstanding shares of capital stock of PSB has been issued
in violation of any preemptive rights of the current or past stockholders
of PSB.
(b) There are no shares of capital stock or other equity
securities of PSB 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 PSB or contracts, commitments, understandings,
or arrangements by which PSB 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 PSB Subsidiaries. PSB has no Subsidiaries.
5.5 Financial Statements. PSB has delivered to SAB prior to the
execution of this Agreement copies of all PSB Financial Statements for
periods ended prior to the date hereof and will deliver to SAB copies of all
PSB Financial Statements prepared subsequent to the date hereof. The PSB
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 PSB, 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 PSB as of the dates indicated and the results of operations,
changes in stockholders' equity, and cash flows of PSB for the periods
indicated, in accordance with GAAP.
5.6 Absence of Undisclosed Liabilities. PSB has no Liabilities
that are reasonably likely to have, individually or in the aggregate, a
Material Adverse Effect on PSB, except Liabilities which are accrued or
reserved against in the balance sheets of PSB as of June 30, 1997, included
in the PSB Financial Statements or reflected in the notes thereto. PSB has
not incurred or paid any Liability since June 30, 1997, except for such
Liabilities incurred or paid in the ordinary course of business consistent
with past business practice and which are not reasonably likely to have,
individually or in the aggregate, a Material Adverse Effect on PSB.
5.7 Absence of Certain Changes or Events. Since June 30, 1997,
except as disclosed in the PSB 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 PSB, and (ii) PSB 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 PSB
provided in Article Seven of this Agreement.
5.8 Tax Matters.
(a) All Tax returns required to be filed by or on behalf of
PSB 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,
1997, 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 PSB, except as
reserved against in the PSB 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) PSB 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
PSB for the period or periods through and including the date of the
respective PSB Financial Statements has been made and is reflected on such
PSB Financial Statements.
(d) Deferred Taxes of PSB have been provided for in
accordance with GAAP.
5.9 Allowance for Possible Loan Losses. The allowance for possible
loan or credit losses (the "Allowance") shown on the balance sheet of PSB
included in the most recent PSB Financial Statements dated prior to the date
of this Agreement was, and the Allowance shown on the balance sheet of PSB
included in the PSB 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 PSB and other
extensions of credit (including letters of credit and commitments to make loans
or extend credit) by PSB as of the dates thereof.
5.10 Assets. Except as Previously Disclosed or as disclosed or
reserved against in the PSB Financial Statements, PSB has good and marketable
title, free and clear of all Liens, to all of its Assets. All tangible
properties used in the business of PSB are in good condition, reasonable wear
and tear excepted, and are usable in the ordinary course of business
consistent with PSB's past practices. All Assets which are material to PSB's
business held under leases or subleases by PSB, 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 PSB provide adequate coverage under current industry practices
against loss or Liability, and the fidelity and blanket bonds in effect as to
which PSB is a named insured are reasonably sufficient. The Assets of PSB
include all assets required to operate the business of PSB as presently
conducted.
5.11 Environmental Matters.
(a) PSB, and to its knowledge its Participation Facilities
and its Loan Properties, are, and have 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 PSB or, to
its knowledge, any of its Participation Facilities have been or, with respect
to threatened Litigation, may be named as a defendant (i) for alleged
noncompliance (including by any predecessor) with any Environmental Law or
(ii) relating to the release into the environment of any Hazardous Material (as
defined below) or oil, whether or not occurring at, on, under or involving a
site owned, leased or operated by PSB or any of its Participation Facilities.
(c) There is no Litigation pending or, to PSB s knowledge,
threatened before any court, governmental agency or board or other forum in
which any of its Loan Properties (or PSB in respect of such Loan Property)
have been or, with respect to threatened Litigation, may, to PSB'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
or oil, whether or not occurring at, on, under or involving a Loan Property.
(d) To PSB 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) PSB's ownership or operation of
any of its current properties, (ii) PSB's participation in the management of
any Participation Facility, or (iii) PSB's holding of a security interest in
a Loan Property, there have been, to PSB's knowledge with respect to (ii) and
(iii), no releases of Hazardous Material or oil in, on, under or affecting
such properties. Prior to the period of (i) PSB's ownership or operation of
any of their respective current properties, (ii) PSB's participation in the
management of any Participation Facility, or (iii) PSB's holding of a
security interest in a Loan Property, there were, to PSB's knowledge with
respect to (ii) and (iii), no releases of Hazardous Material or oil in, on,
under or affecting any such property, Participation Facility or Loan Property.
5.12 Compliance with Laws. PSB is duly registered as a banking
corporation under the Alabama Banking Code. PSB 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. PSB is not or has not, as applicable:
(a) In 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 PSB 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, the revocation of which is reasonably likely to have,
individually or in the aggregate, a Material Adverse Effect on PSB, or
(iii) requiring PSB 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. PSB 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 PSB,
pending or threatened, or to its Knowledge, is there any activity involving
any PSB's employees seeking to certify a collective bargaining unit or
engaging in any other organization activity.
5.14 Employee Benefit Plans.
(a) PSB has delivered or made available to MCB and 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 PSB or any Affiliate of PSB 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 "PSB Benefit Plans"). Any of the PSB 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 "PSB ERISA Plan." Each
PSB 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 "PSB Pension
Plan." No PSB Pension Plan is or has been a multiemployer plan within the
meaning of Section 3(37) of ERISA.
(b) All PSB Benefit Plans are in compliance with the
applicable terms of ERISA, the Internal Revenue Code, and any other
applicable Laws. Each PSB 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 PSB is not aware
of any circumstances likely to result in revocation of any such favorable
determination letter. PSB has not engaged in a transaction with respect to
any PSB Benefit Plan that, assuming the taxable period of such transaction
expired as of the date hereof, would subject PSB to a tax or penalty imposed
by either Section 4975 of the Internal Revenue Code or Section 502(i) of ERISA.
(c) No PSB 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 PSB Pension
Plan, (ii) no change in the actuarial assumptions with respect to any PSB
Pension Plan, and (iii) no increase in benefits under any PSB Pension Plan
as a result of plan amendments or changes in applicable Law. Neither any PSB
Pension Plan nor any "single-employer plan," within the meaning of Section
4001(a)(15) of ERISA, currently or formerly maintained by PSB, or the
single-employer plan of any entity which is considered one employer with PSB
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. PSB has not provided, nor is
it required to provide, security to a PSB 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 PSB with respect to any ongoing,
frozen or terminated single-employer plan or the single-employer plan of any
ERISA Affiliate. PSB 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 PSB Pension Plan or by any ERISA Affiliate within the 12-month
period ending on the date hereof.
(e) Except as Previously Disclosed, (i) PSB has no
obligations for retiree health and life benefits under any of the PSB Benefit
Plans and (ii) there are no restrictions on the rights of PSB 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 PSB from PSB under any PSB Benefit Plan or otherwise, (ii)
increase any benefits otherwise payable under any PSB 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 PSB Financial Statements, neither PSB, 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 PSB or the guarantee by PSB 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 PSB 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 "PSB Contracts"). PSB is
not in Default under any PSB Contract. All of the indebtedness of PSB for
money borrowed is prepayable at any time by PSB 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 PSB, or against any
Asset, interest, or right of PSB, nor are there any Orders of any Regulatory
Authorities, other governmental authorities, or arbitrators outstanding
against PSB.
5.17 Reports. Since January 1, 1994, PSB 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 PSB 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 PSB 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 PSB or any Affiliate thereof for inclusion in the Proxy Statement to be
mailed to PSB's stockholders in connection with the Stockholders' Meeting,
and any other documents to be filed by PSB 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 PSB, 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 PSB 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 PSB 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. PSB 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 Incorporation,
Bylaws or other governing instruments of PSB.
ARTICLE SIX
REPRESENTATIONS AND WARRANTIES OF SAB AND MCB
SAB and MCB hereby jointly and severally represent and warrant to
PSB as follows:
6.1 Organization, Standing, and Power. SAB and MCB are
corporations duly organized, validly existing, and in good standing under the
Laws of the State of Alabama, and have the corporate power and authority to
carry on their businesses as now conducted and to own, lease and operate
their Assets.
6.2 Authority; No Breach By Agreement.
(a) SAB and MCB each have the corporate power and authority
necessary to execute, deliver and, subject to Article Nine hereof, perform
their respective 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 and MCB. This
Agreement represents a legal, valid, and binding obligation of both SAB and
MCB, enforceable against SAB and MCB 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 and MCB, nor the consummation by SAB and MCB of the transactions
contemplated hereby, nor compliance by SAB and MCB with any of the
provisions hereof, will (i) conflict with or result in a breach of any
provision of their respective 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, or under the HSR Act, and other than Consents, filings
or notifications which, if not obtained or made, are not reasonably likely to
have, individually or in the aggregate, a Material Adverse Effect on SAB or
MCB, no notice to, filing with, or Consent of, any public body or authority
is necessary for the consummation by SAB and MCB of the Merger and the other
transactions contemplated in this Agreement.
6.3 Reports. Since January 1, 1994, 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.
ARTICLE SEVEN
CONDUCT OF BUSINESS PENDING CONSUMMATION
7.1 Covenants of PSB and SAB. Unless the prior written consent of
PSB, in the case of SAB, and SAB, in the case of PSB, shall have been
obtained, and except as otherwise expressly contemplated herein, each of PSB
and SAB shall and shall cause itself and/or each of its Subsidiaries, as
applicable, to (a) preserve intact its business organizations, goodwill,
relationships with depositors, customers and employees, and Assets and
maintain its rights and franchises, and (b) take no action which would (i)
adversely affect the ability of any Party to obtain any Consents required
for the transactions contemplated hereby without imposition of a condition
or restriction of the type referred to in the last sentences of Section 9.1(b)
or 9.1(c) of this Agreement, or (ii) adversely affect the ability of any
Party to perform its covenants and agreements under this Agreement.
7.2 Negative Covenants of PSB. From the date of this Agreement
until the earlier of the Effective Time or the termination of this Agreement,
PSB covenants and agrees that PSB will not do or agree or commit to do, any
of the following without the prior written consent of the chief executive
officer, president or chief financial officer of SAB and of MCB, which
consent shall not be unreasonably withheld:
(a) amend its Articles of Incorporation, Bylaws or other
governing instruments; or
(b) incur any additional debt obligation or other obligation
for borrowed money except in the ordinary course of the 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 PSB 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 PSB, or declare or
pay any dividend or make any other distribution in respect of PSB's
capital stock; 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 PSB Common Stock or any other capital stock of PSB,
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
PSB 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 PSB or any Asset other than in the ordinary course
of business for reasonable and adequate consideration; or
(f) acquire any direct or indirect equity interest in any
Person, other than in connection with (i) foreclosures in the ordinary
course of business, and (ii) acquisitions of control by a depository
institution Subsidiary in its fiduciary capacity; or
(g) grant any increase in compensation or benefits to the
employees or officers of PSB, 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 PSB; grant any material increase in fees or
other increases in compensation or other benefits to directors of PSB
except in accordance with past practice Previously Disclosed; or
(h) enter into or amend any employment Contract between PSB
and any Person (unless such amendment is required by Law) that PSB does
not have the unconditional right to terminate without Liability (other
than Liability for services already rendered), at any time on or after
the Effective Time;
(i) adopt any new employee benefit plan or make any material
change in or to any existing employee benefit plans of PSB 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 PSB for
material money damages or restrictions upon the operations of PSB, or,
except in the ordinary course of business, modify, amend or terminate
any material Contract or waive, release, compromise or assign any
material rights or claims;
(l) operate its business otherwise than in the ordinary
course of business; or
(m) fail to file timely any report required to be filed by it
with any Regulatory Authority.
7.3 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;
(c) as a shareholder of MCB, it will vote in favor of the
Merger; and
(d) it will give written notice promptly to PSB 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 PSB.
(a) PSB agrees to give written notice promptly to SAB and MCB
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) PSB shall deliver to SAB and MCB copies of all reports
filed with Regulatory Authorities promptly after the same are filed.
ARTICLE EIGHT
ADDITIONAL AGREEMENTS
8.1 Registration Statement; Proxy Statement; Stockholder Approval.
As soon as practicable after execution of this Agreement, SAB shall file the
Registration Statement with the SEC, and shall use its reasonable efforts to
cause the Registration Statement to become effective under the 1933 Act and
take any action required to be taken under the applicable state Blue Sky or
securities Laws in connection with the issuance of the shares of SAB Common
Stock upon consummation of the Merger. PSB shall furnish all information
concerning it and the holders of its capital stock as SAB may reasonably
request in connection with such action. PSB 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) PSB shall
prepare a Proxy Statement and mail it to its stockholders, (ii) SAB shall
furnish to PSB all information concerning it that PSB may reasonably request
in connection with such Proxy Statement, (iii) the Board of Directors of PSB
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 PSB 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 or MCB shall promptly prepare and file, and
PSB shall cooperate in the preparation and, where appropriate, filing of,
applications with all Regulatory Authorities having jurisdiction over the
transactions contemplated by this Agreement seeking the requisite Consents
necessary to consummate the transactions contemplated by this Agreement.
8.3 Filings with State Offices. Upon the terms and subject to the
conditions of this Agreement, MCB shall execute and file the Articles of
Merger, with the certificate of approval of the Superintendent of Banks, with
the Secretary of State of the State of Alabama in connection with the Closing.
8.4 Agreement as to Efforts to Consummate. Subject to the terms
and conditions of this Agreement, each Party agrees to use, and to cause its
Subsidiaries to use, its reasonable efforts to take, or cause to be taken,
all actions, and to do, or cause to be done, all things necessary, proper, or
advisable under applicable Laws to consummate and make effective, as soon as
practicable after the date of this Agreement, the transactions contemplated
by this Agreement, including, without limitation, using its reasonable
efforts to lift or rescind any Order adversely affecting its ability to
consummate the transactions contemplated herein and to cause to be satisfied
the conditions referred to in Article Nine of this Agreement. Each Party
shall use, and shall cause each of its Subsidiaries to use, its reasonable
efforts to obtain all Consents necessary or desirable for the consummation
of the transactions contemplated by this Agreement.
8.5 Investigation and Confidentiality.
(a) Prior to the Effective Time, PSB will keep SAB and MCB
advised of all material developments relevant to its business and to
consummation of the Merger and shall permit SAB and MCB to make or cause
to be made such investigation of the business and properties of PSB and
of its financial and legal condition as SAB and MCB reasonably request,
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 and MCB shall affect
the representations and warranties of PSB.
(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.
(d) In the event this Agreement is terminated without the
consummation of the Merger, neither Party shall use confidential
information about the other Party obtained pursuant hereto to solicit
customers of the other Party for a period of eighteen (18) months after
the date of such termination, or if the exact date of such termination
is unascertainable, then for a period of twenty-one (21) months after
the date hereof.
8.6 Press Releases. Prior to the Effective Time, PSB, SAB and MCB
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 PSB nor any Affiliate thereof
or any investment banker, attorney, accountant or other representative
retained by PSB (collectively, "PSB Representatives") shall directly or
indirectly solicit any Acquisition Proposal by any Person. Neither PSB
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 PSB 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. PSB shall promptly
notify SAB orally and in writing in the event that it receives any
inquiry or proposal relating to any such transaction. PSB 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 PSB Representatives not to engage in any of the
foregoing.
(b) SAB shall promptly notify PSB orally and in writing in
the event that it receives any inquiry or proposal relating to an
Acquisition Proposal; provided, that no such notice shall be required if
it would violate any confidentiality agreement or would require public
notice of such Acquisition Proposal before such notice would otherwise
be timely made.
8.8 Charter Provisions. PSB 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
Incorporation, Bylaws or other governing instruments of PSB.
8.9 Agreement of Affiliates. PSB shall use its reasonable best
efforts to cause each Person who is an "affiliate" within the meaning of SEC
Rule 145 to deliver to SAB not later than thirty (30) days prior to the
Effective Time, a written agreement, substantially in the form of Exhibit 3,
providing that such Person will not sell, pledge, transfer, or otherwise
dispose of the shares of PSB 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 MCB and PSB 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 PSB in exchange for shares of PSB 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 MCB and PSB 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 8.9 (and SAB shall be
entitled to place restrictive legends upon certificates for shares of SAB
Common Stock issued to Affiliates of PSB pursuant to this Agreement to
enforce the provisions of this Section 8.9). 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.
8.10 Compensation and Employee Benefits. The Parties contemplate
that at the Effective Time neither the compensation and employee benefit
plans of PSB 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 will
adopt uniform policies and plans, giving due regard to the benefits offered
to current employees.
8.11 D & O Coverage. SAB and/or MCB shall purchase what is
customarily known as "tail" insurance coverage for liability arising out of
the actions in their official capacities of the directors and officers of
PSB. Such coverage shall be for liability which arose prior to the Effective
Time and for which claims are made after the Effective Time, and it shall
extend for a period of not less than two (2) years from the Effective Time.
Such coverage shall be in an amount and with an insurance company deemed
reasonable by SAB and MCB. SAB and PSB shall have the right to require PSB
to pay for said coverage, provided such payment does not adversely affect
Deemed Book Value.
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 PSB and MCB
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 PSB shall have received a written
opinion of counsel from Capell, Howard, Knabe & Cobbs, P.A. and Hand
Arendall, L.L.C., respectively, in form reasonably satisfactory to them
(the "Tax Opinions"), to the effect that (i) the Merger will constitute
a reorganization within the meaning of Section 368(a) of the Internal
Revenue Code, (ii) the exchange in the Merger of PSB Common Stock for
SAB Common Stock will not give rise to gain or loss to the stockholders
of PSB with respect to such exchange (except to the extent of any cash
received), and (iii) neither PSB, SAB nor MCB 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
PSB and SAB shall be entitled to rely upon representations of officers
of PSB and SAB reasonably satisfactory in form and substance to such
counsel.
9.2 Conditions to Obligations of SAB and MCB. The obligations of
SAB and MCB 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 PSB 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 PSB 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. PSB 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 PSB'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. PSB shall have delivered to SAB an
opinion of Capell, Howard, Knabe & Cobbs, P.A., counsel to PSB, dated as
of the Closing, in substantially the form of Exhibit 4 hereto.
9.3 Conditions to Obligations of PSB. The obligations of PSB 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 PSB pursuant to Section 11.5(b) of this
Agreement:
(a) Representations and Warranties. The representations and
warranties of SAB and MCB 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 and MCB 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 PSB (i) a
certificate, dated as of the Effective Time and signed on its behalf by
its chief executive officer and its chief financial officer, to the
effect that the conditions of its obligations set forth in Section
9.3(a) and 9.3(b) of this Agreement have been satisfied, and (ii)
certified copies of resolutions duly adopted by SAB's Board of Directors
and MCB's Board of Directors and stockholder 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 PSB and its counsel
shall request.
(d) Opinion of Counsel. SAB and MCB shall have delivered to
PSB an opinion of Hand Arendall, L.L.C., counsel to SAB and MCB, dated
as of the Effective Time, in substantially the form of Exhibit 5 hereto.
ARTICLE TEN
TERMINATION
10.1 Termination. Notwithstanding any other provision of this
Agreement, and notwithstanding the approval of this Agreement by the
stockholders of PSB and MCB or both, this Agreement may be terminated and
the Merger abandoned at any time prior to the Effective Time:
(a) By mutual consent of the Board of Directors of SAB and
MCB and the Board of Directors of PSB; 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 PSB fail to vote their approval of this Agreement and the
transactions contemplated hereby as required by the ABCA and the Alabama
Banking Code 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 PSB in the event the average
Market Value of SAB Common Stock for the Valuation Period is less than
$13.00 or more than $26.00 per share; or
(f) By the Board of Directors of SAB in the event the average
Market Value of SAB Common Stock for the Valuation Period is less than
$13.00 per share; or
(g) By the Board of Directors of SAB in the event that Deemed
Book Value is less than $1,900,000.
(h) By the Board of Directors of either Party in the event
that the Merger shall not have been consummated by March 31, 1998, if
the failure to consummate the transactions contemplated hereby on or
before such date is not caused by any breach of this Agreement by the
Party electing to terminate pursuant to this Section 10.1(h); or
(i) By the Board of Directors of either Party in the event
that any of the conditions precedent to the obligations of such Party to
consummate the Merger cannot be satisfied or fulfilled by the date
specified in Section 10.1(h) of this Agreement.
10.2 Effect of Termination. In the event of the termination
and abandonment of this Agreement pursuant to Section 10.1 of this Agreement,
this Agreement shall become void and have no effect, except that (i) the
provisions of this Section 10.2 and Article Eleven and Section 8.5(b) of this
Agreement shall survive any such termination and abandonment, and (ii) a
termination pursuant to Sections 10.1(b), 10.1(c) or 10.1(h) of this
Agreement shall not relieve the breaching Party from Liability for an
uncured willful breach of a representation, warranty, covenant, or
agreement giving rise to such termination.
10.3 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 MCB and/or their respective attorneys and advisors to prepare
and file the Registration Statement shall not be deemed to be done on behalf
of PSB, and the costs and expenses therefor shall not be the responsibility
of PSB.
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 PSB or SAB, each of PSB 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
PSB Common Stock or MCB Common Stock, there shall be made no amendment that
pursuant to the ABCA requires further approval by the PSB, SAB or MCB
stockholders without the further 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 PSB, to waive or extend the time for the compliance or
fulfillment by PSB of any and all of its obligations under this Agreement,
and to waive any or all of the conditions precedent to the obligations of SAB
under this Agreement, except any condition which, if not satisfied, would
result in the violation of any Law. No such waiver shall be effective unless
in writing signed by a duly authorized officer of SAB.
(b) Prior to or at the Effective Time, PSB, 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 or MCB, to waive or extend the time for the compliance
or fulfillment by SAB or MCB of any and all of their respective obligations
under this Agreement, and to waive any or all of the conditions precedent to
the obligations of PSB under this Agreement, except any condition which, if
not satisfied, would result in the violation of any Law. No such waiver
shall be effective unless in writing signed by a duly authorized officer of
PSB.
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:
PSB: Peterman State Bank
925 Old Peterman Highway
Peterman, Alabama 36471
Telecopy Number: (334) 564-2122
Attention: J. Robison Harper, President
Copy to Counsel: Capell, Howard, Knabe & Cobbs, P.A.
57 Adams Avenue
Montgomery, Alabama 36102-2069
Telecopy Number: (334) 265-7454
Attention: James M. Scott
SAB: South Alabama Bancorporation, Inc.
P. O. Box 3067 (36652)
100 St. Joseph Street
Mobile, Alabama 36602
Telecopy Number: (334) 431-7851
Attention: W. Bibb Lamar, Jr., President
MCB: The Monroe County Bank
P. O. Box 806 (36461-0806)
129 Hines Street
Monroeville, Alabama 36469
Telecopy Number: (334) 575-3135
Attention: Haniel F. Croft, President
Copy to Counsel
for SAB and MCB: Hand Arendall, L.L.C.
3000 First National Bank Building
P. O. Box 123 (36601)
Mobile, Alabama 36602
Telecopy Number: (334) 694-6375
Attention: Stephen G. Crawford
11.8 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 MONROE COUNTY BANK
/s/ Paul P. Redmond, Jr. BY:/s/ Haniel F. Croft
Cashier Haniel F. Croft, President
[CORPORATE SEAL]
ATTEST: PETERMAN STATE BANK
/s/ Albert A. Nettles, Jr. BY:/s/ J. Robison Harper
Vice President J. Robison Harper, President
[CORPORATE SEAL]
LIST OF EXHIBITS
Exhibit Number Description
1. Amendment to the Articles of Incorporation of The Monroe County
Bank (Section 2.1).
2. Amendment to the Bylaws of The Monroe County Bank (Section 2.2)
3. Form of agreement of Affiliates of PSB. (Section 8.9).
4. Form of opinion of counsel for PSB. (Section 9.2(d)).
5. Form of opinion of counsel for SAB. (Section 9.3(d)).
Exhibit 1
AMENDMENTS TO ARTICLES OF INCORPORATION
None.
Exhibit 2
AMENDMENTS TO BYLAWS
None.
Exhibit 3
AFFILIATE AGREEMENT
South Alabama Bancorporation, Inc.
Mobile, Alabama
Attention: W. Bibb Lamar, Jr., President
Gentlemen:
The undersigned is a stockholder of Peterman State Bank ( PSB ), a
corporation organized and existing under the laws of the State of Alabama and
located in Peterman, Alabama, and will become a stockholder of the South
Alabama Bancorporation, Inc. ("SAB") pursuant to the transactions described
in the Agreement and Plan of Merger, dated as of ________, 1997 (the
"Agreement"), by and between SAB, The Monroe County Bank, an Alabama banking
corporation and wholly owned subsidiary of SAB ("MCB"), and PSB. Under
the terms of the Agreement, PSB will be merged into and with MCB (the "Merger"),
and the shares of the common stock of PSB ("PSB 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 PSB
he is an affiliate under Rule 145(c) as defined in Rule 405 of the
Rules and Regulations of the Securities and Exchange Commission ("SEC")
under the Securities Act of 1933, as amended ("1933 Act"), and the
undersigned anticipates that he will be such an affiliate at the time of
the Merger.
2. Covenants and Warranties of Undersigned. The undersigned represents,
warrants and agrees that:
(a) The SAB Common Stock received by the undersigned as a result of
the Merger will be taken for his own account and not for others,
directly or indirectly, in whole or in part.
(b) SAB has informed the undersigned that any distribution by the
undersigned of SAB Common Stock has not been registered under the 1933
act and that shares of SAB Common Stock received pursuant to the Merger
can only be sold by the undersigned (1)following registration under the
1933 Act, or (2) in conformity with the volume and other requirements of
Rule 145(d) promulgated by the SEC as the same now exist or may
hereafter be amended, or (3) to the extent some other exemption from
registration under the 1933 Act might be available. The undersigned
understands that SAB is under no obligation to file a registration
statement with the SEC covering the disposition of the undersigned's
shares of SAB Common Stock.
(c) The undersigned is aware that SAB intends to treat the Merger
as a tax-free reorganization under Section 368 of the Internal Revenue
Code ("Code") for federal income tax purposes. The undersigned agrees
to treat the transaction in the same manner as SAB for federal income
tax purposes. The undersigned acknowledges that Section 1.368-1(b) of
the Income Tax Regulations requires "continuity of interest" in order
for the Merger to be treated as tax-free under Section 368 of the Code.
This requirement is satisfied if, taking into account those PSB
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 PSB 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 PSB Common Stock
outstanding immediately prior to the Merger. The undersigned has no
prearrangement, plan or intention to sell or otherwise dispose of an
amount of his SAB Common Stock to be received in the Merger which would
cause the foregoing requirement not to be satisfied.
3. Restrictions on Transfer. The undersigned understands and agrees that
stop transfer instructions with respect to the shares of SAB Common
Stock received by the undersigned pursuant to the Merger will be given
to SAB's Transfer Agent and that there will be placed on the
certificates of such shares, or shares issued in substitution thereof,
a legend stating in substance:
The shares represented by this certificate may not be sold, transferred
or otherwise disposed of except or unless (1) covered by an effective
registration statement under the Securities Act of 1933, as amended, (2)
in accordance with (i) Rule 145(d) (in the case of shares issued to an
individual who is not an affiliate 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. 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 share of SAB Common
Stock issued to the undersigned in connection with the Merger to be reissued
free of any legend relating to the restrictions set forth in Rules 144 and
145(d) upon receipt by SAB of an opinion of its counsel to the effect that
such legend may be removed.
4. Understanding of Restrictions on Dispositions. The undersigned has
carefully read the Agreement and this Affiliate Agreement and discussed
their requirements and impact upon his ability to sell, transfer, or
otherwise dispose of the shares of SAB Common Stock received by the
undersigned, to the extent he believes necessary, with his counsel
or counsel for PSB.
5. Filing of Reports by SAB. SAB agrees, for a period of three years after
the effective date of the Merger, to file on a timely basis all reports
required to be filed by it pursuant to Section 13 of the Securities
Exchange Act of 1934, as amended, so that the public information
provisions of Rule 145(d) promulgated by the SEC as the same are
presently in effect will be available to the undersigned in the event
the undersigned desires to transfer any shares of SAB Common Stock
issued to the undersigned pursuant to the Merger.
6. Transfer Under Rule 145(d). If the undersigned desires to sell or
otherwise transfer the shares of SAB Common Stock received by him in
connection with the Merger at any time during the restrictive period set
forth in Rule 145(d), the undersigned will provide the necessary
representation letter to the transfer agent for SAB Common Stock together
with such additional information as the transfer agent may reasonably
request. If SAB's counsel concludes that such proposed sale or transfer
complies with the requirements of Rule 145(d), SAB shall cause such
counsel to provide such opinions as may be necessary to SAB's Transfer
Agent so that the undersigned may complete the proposed sale or transfer.
7. 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 Mergers may subject the undersigned
to liability pursuant to Section 16(b) of the Securities Exchange Act of
1934, as amended.
8. Miscellaneous. This Affiliate Agreement is the complete agreement
between SAB and the undersigned concerning the subject matter hereof.
Any notice required to be sent to any party hereunder shall be sent by
registered or certified mail, return receipt requested, using the
addresses set forth herein or such other address as shall be furnished
in writing by the parties. This Affiliate Agreement shall be governed
by the laws of the State of Delaware.
This Affiliate Agreement is executed as of the day of , 1997.
Very truly yours,
Signature
Print Name
Address
AGREED TO AND ACCEPTED as of
, 1997
SOUTH ALABAMA BANCORPORATION, INC.
By:
Exhibit 4
LETTERHEAD OF CAPELL, HOWARD, KNABE & COBBS, P.A.
, 1997
South Alabama Bancorporation, Inc.
Mobile, Alabama
The Monroe County Bank
Monroeville, Alabama
Re: Merger of Peterman State Bank with and into The Monroe County Bank
Gentlemen:
We are counsel to Peterman State Bank ('PSB'), a banking corporation
organized and existing under the laws of the State of Alabama, and have
represented PSB in connection with the execution and delivery of the
Agreement and Plan of Merger, dated as of __________, 1997 (the "Agreement"),
by and between South Alabama Bancorporation, Inc. ("SAB"), The Monroe County
Bank ("MCB") and PSB.
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 PSB, and made such other investigations as we have deemed
necessary. We have relied upon certificates of public officials and
officers of PSB as to certain questions of fact.
Based upon and subject to the foregoing, we are of the opinion that:
9. PSB 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.
10. 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 PSB or, to the best of our
knowledge, result in any conflict with, breach or, or default or
acceleration under any mortgage, agreement, lease, indenture, or other
instrument, order, judgment or decree to which PSB is a party or by
which PSB is bound.
11. In accordance with the Bylaws of PSB 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 PSB and by
the stockholders of PSB at the Stockholders' Meeting.
12. The Agreement has been duly and validly executed and delivered by PSB
and, assuming valid authorization, execution and delivery by SAB and MCB,
constitutes a valid and binding agreement of PSB enforceable in
accordance with its terms, except as enforceability may be limited by
bankruptcy, insolvency, reorganization, or similar laws affecting
creditors' rights generally, provided, however, that we express no
opinion as to the availability of the equitable remedy of specific
performance.
13. The authorized capital stock of PSB consists of _____________ shares of
PSB Common Stock, of which shares were issued and
outstanding as of , 1997. The shares of PSB Common Stock that
are issued and outstanding were not issued in violation of any statutory
preemptive rights of shareholders, were duly issued and are fully paid
and nonassessable under the Alabama Business Corporation Act. To our
knowledge, there are no options, subscriptions, warrants, calls, rights
or commitments obligating PSB to issue any equity securities or acquire
any of its equity securities.
This opinion is delivered solely for reliance by SAB and MCB.
Sincerely,
CAPELL, HOWARD, KNABE & COBBS, P.A.
Exhibit 5
LETTERHEAD OF HAND ARENDALL, L.L.C.
March 26, 1998
Peterman State Bank
Peterman, Alabama
Re: Merger of Peterman State Bank with and into The Monroe County 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 The Monroe County Bank ("MCB"), a banking corporation organized and
existing under the laws of the State of Alabama, and have represented SAB and
MCB in connection with the execution and delivery of the Agreement and
Plan of Merger, dated as of _____________, 1997, (the Agreement ), by and
between Peterman State Bank ("PSB"), MCB 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 MCB, and made such other investigations as we have deemed
necessary. We have relied upon certificates of public officials and
officers of SAB and MCB as to certain questions of fact.
Based upon and subject to the foregoing, we are of the opinion that:
14. 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.
15. MCB 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.
16. 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.
17. 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 MCB 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 MCB is a party or by which MCB is
bound.
18. 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.
19. In accordance with the Bylaws of MCB and pursuant to resolutions duly
adopted by its Board of Directors and stockholders, the Agreement has
been duly adopted and approved by the Board of Directors and
stockholders of MCB.
20. The Agreement has been duly and validly executed and delivered by SAB
and MCB and, assuming valid authorization, execution and delivery by
PSB, constitutes a valid and binding agreement of SAB and MCB
enforceable in accordance with its terms, except as enforceability may
be limited by bankruptcy, insolvency, reorganization, or similar laws
affecting creditors' rights generally, provided, however, that we
express no opinion as to the availability of the equitable remedy of
specific performance.
21. The authorized capital stock of SAB consists of _________ shares of SAB
Common Stock, of which ________ shares were issued and outstanding as of
____________, 1997, and __________ 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 PSB 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 PSB.
Yours very truly,
HAND ARENDALL, L.L.C.
By:___________________________________________
MUTUAL WAIVER AND AGREEMENT
THIS MUTUAL WAIVER AND AGREEMENT is made by and between South Alabama
Bancorporation, Inc., an Alabama bank holding corporation ("South Alabama"),
The Monroe County Bank, an Alabama banking corporation ("MCB"), and Peterman
State Bank, an Alabama banking corporation ("PSB"), who have entered into
that certain Agreement and Plan of Merger dated as of October 14, 1998 (the
"Merger Agreement"). Capitalized terms not defined herein shall have the meaning
ascribed to them in the Merger Agreement.
BACKGROUND
A. The Merger Agreement provides that PSB's Board of Directors may
terminate the Merger Agreement in the event that the average Market Value of
South Alabama's common stock during the Valuation Period is greater than
$26.00 per share ("Price Cap Termination").
B. The Merger Agreement also provides that either South Alabama and
MCB or PSB may terminate the Merger Agreement in the event that the Merger is
not consummated by March 31, 1998, or in the event that all of the conditions
precedent to the Merger cannot be satisfied or fulfilled prior to such date
("Delay Termination").
C. South Alabama's common stock has from time to time within the last
several months traded in excess of $26.00 per share, and it is possible that,
depending on when the Closing occurs, PSB may have the right to invoke Price
Cap Termination.
D. Obtaining regulatory approval of the Merger has taken substantially
longer than either South Alabama, MCB or PSB expected, and it is certain that
the Merger will not be effective before March 31, 1998.
E. Notwithstanding the foregoing, the Parties desire to provide
assurances to each other than they still intend to consummate the Merger.
F. PSB has certain non-performing loans that it has written off its
books and which are described on the attached Exhibit A (the "Loans") which is
incorporated herein by reference.
G. PSB proposes to sell the Loans to an entity owned by certain of its
shareholders for $40,000 (the "Loan Sale").
H. In accordance with the Merger Agreement the parties have agreed upon
the Deemed Book Value for PSB's common stock for purposes of calculating the
Exchange Ratio.
NOW THEREFORE, in consideration of the foregoing and the mutual benefits to
be received by each of the parties hereto upon the consummation of the Merger,
the parties do hereby, state, agree to and confirm the following:
1. PSB hereby waives its right to invoke Price Cap Termination;
provided, however, that in the event the average Market Value for South Alabama
Common Stock during the Valuation Period exceeds $28.00 per share, then the
average Market Value for South Alabama Common Stock shall be set at $28.00 per
share for purposes of determining the Exchange Ratio.
2. South Alabama, MCB and PSB hereby waive their respective rights to
invoke Delay Termination until June 30, 1998.
3. The Deemed Book Value of PSB s common stock is hereby determined to be
$1,912,000.00; provided that in the event the Loan Sale is consummated prior to
Closing, the Deemed Book Value of PSB's common stock shall be increased by
$40,000 to $1,952,000.
4. The undersigned each represents and warrants that it has all
requisite corporate power and authority necessary to execute, deliver and
perform this Mutual Waiver and Agreement and to bind itself hereto.
IN WITNESS WHEREOF, the undersigned have caused this Mutual Waiver and
Agreement to be executed in multiple originals as of the 25th day of
March, 1998.
SOUTH ALABAMA BANCORPORATION, INC.
BY: /s/ W. Bibb Lamar, Jr.
W. Bibb Lamar, Jr.
As its President
THE MONROE COUNTY BANK
BY: /s/ Haniel S. Croft
Haniel F. Croft
As its President
PETERMAN STATE BANK
BY: /s/ J. Robison Harper
J. Robison Harper
As its President
APPENDIX B
Peterman State Bank
Financial Statements as of December 31, 1997
Together With Auditors' Report
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To Peterman State Bank:
We have audited the accompanying statement of condition of PETERMAN STATE BANK
(an Alabama state chartered bank) as of December 31, 1997 and the related
statements of operations, shareholders' equity, and cash flows for the
year then ended. These 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 of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe that our 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 Peterman State Bank as of
December 31, 1997 and the results of its operations and its cash flows for the
year then ended in conformity with generally accepted accounting principles.
/s/ARTHUR ANDERSEN LLP
Birmingham, Alabama
February 13, 1998
<TABLE>
PETERMAN STATE BANK
STATEMENT OF CONDITION
<CAPTION>
DECEMBER 31, 1997
ASSETS
<S> <C>
CASH AND DUE FROM BANKS $ 1,198,275
FEDERAL FUNDS SOLD 4,250,000
Total cash and cash equivalents 5,448,275
INVESTMENT SECURITIES AVAILABLE FOR SALE 2,400,435
INVESTMENT SECURITES HELD TO MATURITY,
fair value of $1,464,523 1,453,420
LOANS, net of allowance for loan
losses of $285,243 7,046,596
PREMISES AND EQUIPMENT, net of
accumulated depreciation of $256,699 224,995
OTHER ASSETS 519,561
$17,093,282
LIABILITIES AND SHAREHOLDERS' EQUITY
DEPOSITS:
Demand, noninterest bearing $ 1,672,111
Demand, interest bearing 3,901,688
Savings 2,077,677
Time, $100,000 and over 2,176,319
Other time 5,277,146
Total deposits 15,104,941
OTHER LIABILITIES 93,187
Total liabilities 15,198,128
COMMITMENTS AND CONTINGENCIES (Note 10)
SHAREHOLDERS' EQUITY:
Common stock, par value $100 per share;
750 shares authorized; 750 shares issued, 75,000
Surplus 75,000
Net unrealized gain on securities available for sale 4,844
Retained earnings 1,740,310
Total shareholders' equity 1,895,154
Total liabilities and shareholders' equity $17,093,282
The accompanying notes are an integral part of this statement.
</TABLE>
<TABLE>
PETERMAN STATE BANK
STATEMENT OF OPERATIONS
<CAPTION>
FOR THE YEAR ENDED DECEMBER 31, 1997
<S> <C>
INTEREST REVENUE:
Interest and fees on loans $ 808,153
Interest on investment securities 248,707
Interest on federal funds sold and interest bearing
bank balances 224,880
Total interest revenue 1,281,740
INTEREST EXPENSE 638,716
NET INTEREST REVENUE 643,024
PROVISION FOR LOAN LOSSES 200,532
Net interest revenue after provision for loan losses 442,492
NONINTEREST REVENUE:
Service and other charges on deposit accounts 67,604
Other income 19,739
Total noninterest revenue 87,343
NONINTEREST EXPENSE:
Salaries 260,879
Employee benefits 41,372
Furniture and equipment expense 46,796
Occupancy expense 33,777
Loss on sale of other real estate owned 143,396
Other expense 258,321
Total noninterest expense 784,541
LOSS BEFORE INCOME TAXES (254,706)
BENEFIT FOR INCOME TAXES (92,966)
NET LOSS $(161,740)
The accompanying notes are an integral part of this statement.
</TABLE>
<TABLE>
PETERMAN STATE BANK
STATEMENT OF SHAREHOLDERS' EQUITY
FOR THE YEAR ENDED DECEMBER 31, 1997
<CAPTION>
Net
Unrealized
Gain(Loss)
on Securities Total
Common Available Retained Shareholders'
Stock Surplus for Sale Earnings Equity
<S> <C> <C> <C> <C> <C>
BALANCE AT DECEMBER 31, 1996 $75,000 $75,000 $5,000 $1,902,050 $2,057,050
Net loss 0 0 0 (161,740) (161,740)
Net change in unrealized
gain on securities
available for sale, net 0 0 (156) 0 (156)
of taxes
BALANCE AT DECEMBER 31, 1997 $75,000 $75,000 $4,844 $1,740,310 $1,895,154
The accompanying notes are an integral part of this statement.
</TABLE>
<TABLE>
PETERMAN STATE BANK
STATEMENT OF CASH FLOWS
<CAPTION>
FOR THE YEAR ENDED DECEMBER 31, 1997
<S> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $ (161,740)
Adjustments:
Depreciation 23,513
Provision for loan losses 200,532
Deferred income taxes (111,191)
Amortization of premium and discounts, net 1,193
Changes in assets and liabilities:
Increase in other assets (9,368)
Decrease in other liabilities (45,969)
Net cash used in operating activities (103,030)
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of investment securities available for sale (500,000)
Purchases of investment securities held to maturity (400,000)
Proceeds from maturities of investment securities held to
maturity 945,000
Proceeds from maturities and prepayments of investment
securities available for sale 500,000
Loan (originations) and principal repayments, net 1,904,872
Purchase of premises and equipment, net (7,508)
Net cash provided by investing activities 2,442,364
CASH FLOWS FROM FINANCING ACTIVITIES:
Net decrease in customer deposits (3,437,059)
Net cash used in financing activities (3,437,059)
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS (1,097,725)
CASH AND CASH EQUIVALENTS, beginning of year 6,546,000
CASH AND CASH EQUIVALENTS, end of year $5,448,275
The accompanying notes are an integral part of this statement.
</TABLE>
PETERMAN STATE BANK
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1997
1. DESCRIPTION OF BUSINESS
Peterman State Bank ("the Bank") provides commercial banking services
to customers located primarily in Monroe County and surrounding
counties in southwest Alabama.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Cash and Cash Equivalents
For purposes of reporting cash flows, cash and cash equivalents
include cash on hand, amounts due from banks, and federal funds
sold. Federal funds are generally purchased and sold for one-day
periods.
Supplemental disclosures of cash flow information related to cash
flows for the year ended December 31, 1997 are as follows:
Cash paid during the period for:
Interest $802,216
Income taxes $ 13,387
Securities
Securities are held in two portfolios: held to maturity securities,
and securities available for sale. Investment securities held to
maturity are carried at cost, adjusted for amortization of premiums
and accretion of discounts. With regard to investment securities held
to maturity, management has the intent and the Bank has the ability to
hold such securities until maturity. Investment securities available
for sale are carried at market value, with any unrealized gains or
losses excluded from earnings and reflected as a separate component of
shareholders' equity net of deferred income taxes. Investment
securities available for sale are so classified since management may
decide to sell certain securities prior to maturity for liquidity, tax
planning, or other valid business purposes.
Interest earned on investment securities held to maturity and investment
securities available for sale is included in interest revenue.
Amortization of premiums and discounts on investment securities is by
the interest method. Gains or losses on the sales of securities is
determined by the specific identification method.
Loans and Interest Income
Loans are reported at the principal amounts outstanding less unearned
income and the allowance for loan losses.
Interest on commercial and real estate loans is accrued and credited
to income based on the principal amount outstanding. Interest on
installment loans is recognized using the interest method and
according to the rule of 78's, which approximates the interest method.
The accrual of interest on loans is discontinued when, in the opinion
of management, there is an indication that the borrower may be unable
to meet payments as they become due. Upon such discontinuance, all
unpaid accrued interest is reversed against current income unless the
collateral for the loan is sufficient to cover the accrued interest.
Interest received on nonaccrual loans generally is either applied
against principal or reported as interest income, according to
management's judgment as to the collectibility of principal.
Generally, loans are restored to accrual status when the obligation is
brought current and has performed in accordance with the contractual
terms for a reasonable period of time and the ultimate collectibility
of the total contractual principal and interest is no longer in doubt.
Allowance for Loan Losses
The allowance for loan losses is increased by a provision for loan
losses, which is charged to expense, and reduced by charge-offs, net
of recoveries. The allowance for loan losses is maintained at a
level which, in management's judgment, is adequate to absorb credit
losses inherent in the loan portfolio. The amount of the allowance is
based on management's evaluation of the collectibility of the loan
portfolio, including the nature of the portfolio, credit concentrations,
historical trends, specific impaired loans, and economic conditions.
Though management believes the allowance for loan losses to be
adequate, ultimate losses may vary from their estimates. However,
estimates are reviewed periodically, and as adjustments become
necessary, they are reported in earnings during periods they become
known.
Losses on individually identified impaired loans are measured based on
the present value of expected future cash flows discounted at each
loan's original effective market interest rate. As a practical
expedient, impairment may be measured based on the loan's observable
market price or the fair value of the collateral if the loan is
collateral dependent. When the measure of the impaired loan is less
than the recorded investment in the loan, the impairment is recorded
through the provision added to the allowance for loan losses.
One-to-four family residential mortgages and consumer installment
loans are evaluated collectively for impairment.
Long-Lived Assets
Premises and equipment are stated at cost less accumulated
depreciation. The provision for depreciation is computed using the
straight-line and accelerated methods over the estimated useful lives
of the assets. Impairment of long-lived assets is evaluated annually
by management based upon changes in circumstances surrounding the
underlying assets.
Other Real Estate
Real estate properties acquired through, or in lieu of, loan
foreclosures are to be sold and are initially recorded at fair value
at the date of foreclosure, establishing a new cost basis. Costs to
maintain or hold the property are expensed and amounts incurred to
improve the property, to the extent that fair value is not exceeded,
are capitalized.Valuations are periodically performed by management,
and a valuation allowance is established by a charge to income if the
carrying value of a property exceeds its fair value less the estimated
costs to sell. Other real estate is included in other assets and
aggregated $233,786, net of a valuation allowance of $143,396 at
December 31, 1997.
Income Taxes
The Bank accounts for income taxes through the use of the asset and
liability method. Under the asset and liability method, deferred
taxes are recognized for the tax-consequences of temporary differences
by applying enacted statutory tax rates applicable to future years
to differences between the financial statement carrying amounts and
the bases of existing assets and liabilities. The effect on deferred
taxes of a change in tax rates would be recognized in income in the
period that includes the enactment date.
Use of Estimates
The accounting principles and reporting policies of the Bank, and the
methods of applying these principles, conform with generally accepted
accounting principles ("GAAP") and with general practices within the
financial services industry. In preparing the financial statements,
management is required to make estimates and assumptions that affect
the reported amounts of assets and liabilities as of the date of the
statement of condition and revenues and expenses for the period.
Actual results could differ significantly from those estimates.
Material estimates that are particularly susceptible to significant
changes in the near-term relate to the determination of the allowance
for loan losses and the valuation of real estate acquired in
connection with foreclosures or in satisfaction of loans. In
connection with the determination of the allowances for loan losses
and real estate owned, management obtains independent appraisals for
significant properties, evaluates the overall portfolio characteristics
and delinquencies and monitors economic conditions.
A substantial portion of the Bank's loans are secured by real estate
in its primary market area. Accordingly, the ultimate collectibility
of a substantial portion of the Bank's loan portfolio and the recovery
of a portion of the carrying amount of foreclosed real estate are
susceptible to changes in economic conditions in the Bank's primary
market.
Pending Accounting Pronouncements
In February 1997, the Financial Accounting Standards Board ("FASB")
issued Statement of Financial Accounting Standards ("SFAS") No. 129,
Disclosure of Information About Capital Structure. This statement
establishes standards for disclosing information about an entity's
capital structure and is effective for financial statement periods
ending after December 15, 1997. In June 1997, the FASB issued SFAS
No. 130, Reporting of Comprehensive Income. This statement
established standards for reporting and display of comprehensive
income and its components (revenues, expenses, gains, and losses) in
a full set of financial statements and is effective for fiscal years
beginning after December 15, 1997. In June 1997, the FASB also
issued SFAS No. 131, Disclosures About Segments of an Enterprise and
Related Information. This statement establishes standards for
reporting financial and descriptive information about operating
segments in annual financial statements and requires that those
enterprises report selected information about operating segments in
interim financial reports issued to stockholders and is effective for
financial statements for periods beginning after December 15, 1997.
The Bank will adopt these new standards governing disclosure and
presentation in 1998 as required.
3. BUSINESS COMBINATION
On December 2, 1997, the Bank's shareholders approved an agreement and
plan of merger with Monroe County Bank, a subsidiary of South Alabama
Bancorporation, Inc. This agreement provides for a taxfree, stock for
stock merger with the shareholders of the Bank receiving South Alabama
Bancorporation stock that will have a market value of 1.3 times the
Bank's book value. The Bank anticipates that the transaction will be
approved by the FDIC for a potential closing date in April of 1998.
4. INVESTMENT SECURITIES
Details of investment securities held to maturity and available for
sale at December 31, 1997 are as follows:
<TABLE>
<CAPTION>
Gross Gross Estimated
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
<S> <C> <C> <C> <C>
Available for sale securities:
U.S. Treasury securities and
obligations of U.S. government agencies $2,392,435 $8,000 $0 $2,400,435
Held to maturity securities:
Obligations of states, counties, and
political subdivisions 744,642 9,608 0 754,250
U.S. Treasury securities and
obligations of U.S. government agencies 708,778 1,495 0 710,273
1,453,420 11,103 0 1,464,523
Total $3,845,855 $19,103 $0 $3,864,958
</TABLE>
The scheduled maturities of investment securities at December 31, 1997 are
presented in the following table:
<TABLE>
<CAPTION>
Available for Sale Held to Maturity
------------------------ ----------------------
Amortized Market Amortized Market
Cost Value Cost Value
<S> <C> <C> <C> <C>
Maturing within one year $1,497,207 $1,499,780 $ 377,300 $ 377,754
Maturing after one but
before five years 895,228 900,655 926,210 935,013
Maturing after five but
before fifteen years 0 0 149,910 151,756
Maturing after fifteen years 0 0 0 0
Total $2,392,435 $2,400,435 $1,453,420 $1,464,523
</TABLE>
Investment securities with a carrying value of $734,495 at December 31,
1997 were pledged to secure public deposits and for other purposes.
5. LOANS
At December 31, 1997, the composition of the loan portfolio was as
follows:
<TABLE>
<S> <C>
Commercial, financial, and agricultural $3,487,340
Real estate mortgage 1,037,792
Installment 2,842,219
Less:
Allowance for loan losses 285,243
Unearned interest 35,512
Total $7,046,596
</TABLE>
The Bank grants commercial, real estate, and installment loans to
customers primarily in Monroe County and surrounding counties in
southwest Alabama. Although the Bank has a diversified loan portfolio,
the ability of a substantial number of the Bank's loan customers to
honor their obligations is dependent upon the timber and
timber-related industries.
In the ordinary course of business, the Bank makes loans to certain
officers and directors of the Bank, including companies with which
they are associated. These loans are made on substantially the same
terms as those prevailing for comparable transactions with others.
Such loans do not represent more than normal risk of collectibility
nor do they present other unfavorable features. The amounts of such
related party loans and commitments at December 31, 1997 were $569,827.
A summary of the transactions in the allowance for loan losses at
December 31, 1997 follows:
<TABLE>
<S> <C>
Balance at beginning of year $ 95,168
Provision for loan losses 200,532
Loans charged off (49,457)
Recoveries of loans previously charged off 39,000
Balance at end of year $285,243
</TABLE>
At December 31, 1997, the Bank had $121,000 in loans considered to be
impaired. The entire amount of these loans were on nonaccrual at
December 31, 1997 and the related specific allowance for loan losses
related to these loans was approximately $75,000.
Loans on which the accrual of interest has been discontinued was not
significant for the year ended December 31, 1997.
6. PREMISES AND EQUIPMENT
Premises and equipment at December 31, 1997 are summarized as follows:
<TABLE>
<S> <C>
Land $114,815
Premises 124,367
Furniture, fixtures, and equipment 242,512
--------
481,694
Less accumulated depreciation 256,699
Total $224,995
</TABLE>
7. INCOME TAXES
The benefit for income taxes for the year ended December 31,1997
was as follows:
<TABLE>
<S> <C>
Federal:
Current $ 16,370
Deferred (98,933)
(82,563)
State:
Current 1,855
Deferred (12,258)
(10,403)
Total $(92,966)
</TABLE>
The tax provision differed from the amount computed by applying the
federal statutory income tax rate to pretax earnings at December 31,
1997 for the following reasons:
<TABLE>
<S> <C>
Income tax expense at federal statutory rate $(86,600)
Decrease resulting from:
State income tax expense net of
federal income tax benefit (6,866)
Other 500
Total $(92,966)
Effective tax rate 36%
</TABLE>
The tax effects of temporary differences that give rise to significant
portion of the deferred tax assets and deferred tax liabilities at
December 31, 1997, are presented below:
<TABLE>
<S> <C>
Deferred tax assets:
Allowance for loan losses $60,010
Other 21,126
Total gross deferred tax assets 81,136
Deferred tax liabilities:
Premises and equipment 19,198
Unrealized gain on securities
available for sale 3,156
Total gross deferred tax liabilities 22,354
Net deferred tax asset $58,782
</TABLE>
8. REGULATORY MATTERS
Dividends payable by a bank in any year, without prior approval of the
appropriate regulatory body, are limited to the bank's net profits (as
defined) for that year combined with its net profits for the two
preceding years. At December 31, 1997, the Bank would require prior
regulatory approval for a distribution.
The Bank is subject to various regulatory capital requirements that
prescribe quantitative measures of the Bank's assets, liabilities, and
certain off-balance sheet items. The Bank's regulators have also
imposed qualitative guidelines for capital amounts and classifications
such as risk weightings, capital components, and other details. The
quantitative measures to ensure capital adequacy require that the Bank
maintain amounts and ratios, as set forth in the schedule below, of
total and Tier I capital (as defined in the regulations) to risk-weighted
assets (as defined) and of Tier I capital to average total assets (as
defined). Failure to meet minimum capital requirements can initiate
certain actions by regulators that, if undertaken, could have a direct
material effect on the Bank's financial statements. Management
believes, as of December 31, 1997, that the Bank meets all capital
adequacy requirements imposed by its regulators.
As of December 31, 1997, the most recent notification from the Federal
Deposit Insurance Corporation categorized the Bank as well capitalized
under the regulatory framework for prompt corrective action. To be
categorized as well capitalized the Bank must maintain minimum total
risk-based, Tier I risk-based, and Tier I risk-based, and Tier I
leverage ratios as set forth in the table. There have been no
conditions or events since that notification that Management believes
have changed the institutions' category.
Actual capital amounts as well as required and well capitalized
Tier I, total, and Tier I leverage ratios as of December 31 for the
Bank are as follows:
<TABLE>
<CAPTION>
To Be Well
Capitalized
Under
Prompt
For Capital Corrective
Actual Adequacy Purposes Action Provisions
--------------- ----------------- -----------------
Amount Ratio Amount Ratio Amount Ratio
(Dollars in Thousands)
<S> <C> <C> <C> <C> <C> <C>
Total Capital (to Risk Weighted Assets) $2,018 19.71% $819 8.00% $102 10.00%
Tier I Capital (to Risk Weighted Assets) 1,890 18.46 410 4.00 614 6.00
Tier I Leverage (to Average Assets) 1,890 10.31 733 4.00 917 5.00
</TABLE>
9. OPERATING LEASES
The Bank leases data processing, and other equipment under operating
leases.
The following is a schedule by years of future minimum rental payments
required under operating leases having initial or remaining
noncancellable terms in excess of one year as of December 31, 1997:
<TABLE>
<CAPTION>
Year ending December 31,
<S> <C>
1998 $8,450
1999 4,000
</TABLE>
10. COMMITMENTS AND CONTINGENCIES
The Bank is a defendant in certain claims and legal action arising in
the normal course of business. In the opinion of management the
ultimate disposition of these matters is not expected to have a
material adverse effect on the financial position or results of
operations of the Bank.
The Bank is a party to financial instruments with off-balance sheet
risk in the normal course of business to meet the financing needs of
its customers and in connection with its interest rate risk management.
These financial instruments include commitments to make loans, and
standby letters of credit.
The Bank's exposure to credit loss in the event of nonperformance by
the other party for commitments to make loans and standby letters of
credit is represented by the contractual amount of those instruments.
The Bank uses the same credit policies in making these commitments as
it does for on-balance sheet instruments.
At December 31, 1997, financial instruments with off-balance sheet
risk are summarized as follows:
Commitments to make loans $142,669
Standby letters of credit 100,000
Since many commitments to make loans expire without being used, the
amount does not necessarily represent future cash commitments.
Collateral obtained upon exercise of the commitment is determined
based on management's credit evaluation of the borrower and may
include accounts receivable, inventory, property, land, and other
items. Upon issuance of standby letters of credit, note agreements
with provisions for collateral are generally signed.
Appendix C
ALABAMA CODE ANNOTATED
TITLE 10. CORPORATIONS, PARTNERSHIPS AND ASSOCIATIONS
CHAPTER 2B. BUSINESS CORPORATIONS
Article 13. Dissenters Rights
Section 10-2B-13. 01. Definitions.
(1) "Corporate action" means the filing of articles of merger or share
exchange by the probate judge or Secretary of State, or other
action giving legal effect to a transaction that is the subject of
dissenters' rights.
(2) "Corporation" means the issuer of shares held by a dissenter before
the corporate action, or the surviving or acquiring corporation by
merger or share exchange of that issuer.
(3) "Dissenter" means a shareholder who is entitled to dissent from
corporate action under Section 10-2B-13.02 and who exercises that
right when and in the manner required by Sections 10-2B-13.20
through 10-2B-13.28.
(4) "Fair Value," with respect to a dissenter's shares, means the value
of the shares immediately before the effectuation of the corporate
action to which the dissenter objects, excluding any appreciation or
depreciation in anticipation of the corporate action unless
exclusion would be inequitable.
(5) "Interest" means interest from the effective date of the corporate
action until the date of payment, at the average rate currently
paid by the corporation on its principal bank loans, or, if none,
at a rate that is fair and equitable under all circumstances.
(6) "Record shareholder" means the person in whose name shares are
registered in the records of a corporation or the beneficial owner
of shares to the extent of the rights granted by a nominee
certificate on file with a corporation.
(7) "Beneficial shareholder" means the person who is a beneficial
owner of shares held in a voting trust or by a nominee as the
record shareholder.
(8) "Shareholder" means the record shareholder or the beneficial
shareholder.
Section 10-2B-13.02. Right to dissent.
(a) A shareholder is entitled to dissent from, and obtain
payment of the fair value of his or her shares in the event
of, any of the following corporate actions:
(1) Consummation of a plan of merger to which the corporation
is a party (i) if shareholder approval is required for the
merger by Section 10-2B-11.03 or the articles of
incorporation and the shareholder is entitled to vote on the
merger or (ii) if the corporation is a subsidiary that is
merged with its parent under Section 10-2B-11.04;
(2) Consummation of a plan of share exchange to which the
corporation is a party as the corporation whose shares will
be acquired, if the shareholder is entitled to vote on the
plan;
(3) Consummation of a sale or exchange by all, or substantially
all, of the property of the corporation other than in the
usual and regular course of business, if the shareholder is
entitled to vote on the sale or exchange, including a sale
in dissolution, but not including a sale pursuant to court
order or a sale for cash pursuant to a plan by which all or
substantially all of the net proceeds of the sale will be
distributed to the shareholders within one year after the
date of sale;
(4) To the extent that the articles of incorporation of the
corporation so provide, an amendment of the articles of
incorporation that materially and adversely affects rights
in respect to a dissenter's shares because it:
(i) Alters or abolishes a preferential right of the
shares;
(ii) Creates, alters, or abolishes a right in respect of
redemption, including a provision respecting a sinking
fund for the redemption or repurchase of the shares;
(iii) Alters or abolishes a preemptive right of the
holder of the shares to acquire shares or other
securities;
(iv) Excludes or limits the right of the shares to vote
on any matter, or to cumulate votes, other than a
limitation by dilution through issuance of shares or
other securities with similar voting rights; or
(v) Reduces the number of shares owned by the
shareholder to a fraction of a share if the fractional
share so created is to be acquired for cash under
Section 10-2B-6.04; or
(5) Any corporate action taken pursuant to a shareholder
vote to the extent the articles of incorporation, bylaws, or
a resolution of the board of directors provides that voting
or nonvoting shareholders are entitled to dissent and obtain
payment for their shares.
(b) A shareholder entitled to dissent and obtain payment for
shares under this chapter may not challenge the corporate
action creating his or her entitlement unless the action is
unlawful or fraudulent with respect to the shareholder or
the corporation.
Section 10-2B-13.03. Dissent by nominees and beneficial owners.
(a) A record shareholder may assert dissenters' rights as to
fewer than all of the shares registered in his or her name
only if he or she dissents with respect to all shares
beneficially owned by any one person and notifies the
corporation in writing of the name and address of each
person on whose behalf he or she asserts dissenters' rights.
The rights of a partial dissenter under this subsection are
determined as if the shares to which he or she dissents and
his or her other shares were registered in the names of
different shareholders.
(b) A beneficial shareholder may assert dissenters' rights as to
shares held on his or her behalf only if:
(1) He or she submits to the corporation the record
shareholder's written consent to the dissent not later
than the time the beneficial shareholder asserts
dissenters' rights; and
(2) He or she does so with respect to all shares of which he
or she is the beneficial shareholder or over which he or she
has power to direct the vote.
Section 10-2B-13.20. Notice of dissenters' rights.
(a) If proposed corporate action creating dissenters' rights
under Section 10-2B-13.02 is submitted to a vote at a
shareholders' meeting, the meeting notice must state that
shareholders are or may be entitled to assert
dissenters' rights under this article and be accompanied by
a copy of this article.
(b) If corporate action creating dissenters' rights under
Section 10-2B-13.02 is taken without a vote of shareholders,
the corporation shall (1) notify in writing all shareholders
entitled to assert dissenters' rights that the action was
taken; and (2) send them the dissenters' notice described in
Section 10-2B-13.22.
Section 10-2B-13.21. Notice of intent to demand payment.
(a) If proposed corporate action creating dissenters' rights
under Section 10-2B-13.02 is submitted to a vote at a
shareholder's meeting, a shareholder who wishes to assert
dissenters' rights (1) must deliver to the corporation
before the vote is taken written notice of his or her intent
to demand payment or [sic] his or her shares if the proposed
action is effectuated; and (2) must not vote his or her
shares in favor of the proposed action.
(b) A shareholder who does not satisfy the requirements of
subsection (a) is not entitled to payment for his or her
shares under this article.
Section 10-2B-13.22. Dissenters' notice.
(a) If proposed corporate action creating dissenters' rights
under Section 10-2B-13.02 is authorized at a shareholders'
meeting, the corporation shall deliver a written dissenters'
notice to all shareholders who satisfied the requirements of
Section 10-2B-13.21.
(b) The dissenters' notice must be sent no later than 10 days
after the corporate action was taken, and must:
(1) State where the payment demand must be sent;
(2) Inform holders of shares to what extent transfer of the
shares will be restricted after the payment demand is
received;
(3) Supply a form for demanding payment;
(4) Set a date by which the corporation must receive the
payment demand, which date may not be fewer than 30 nor more
than 60 days after the date the subsection (a) notice is
delivered; and
(5) Be accompanied by a copy of this article.
Section 10-2B-13.23. Duty to demand payment.
(a) A shareholder sent a dissenters' notice described in
Section 10-2B-13.22 must demand payment in accordance with
the terms of the dissenters' notice.
(b) The shareholder who demands payment retains all other rights
of a shareholder until those rights are canceled or modified
by the taking of the proposed corporate action.
(c) A shareholder who does not demand payment by the date set in
the dissenters' notice is not entitled to payment for his or
her shares under this article.
(d) A shareholder who demands payment under subsection (a) may
not thereafter withdraw that demand and accept the terms
offered under the proposed corporate action unless the
corporation shall consent thereto.
Section 10-2B-13.24. Share restrictions.
(a) Within 20 days after making a formal payment demand, each
shareholder demanding payment shall submit the certificate
or certificates representing his or her shares to the
corporation for (1) notation thereon by the corporation that
such demand has been made and (2) return to the shareholder
by the corporation.
(b) The failure to submit his or her shares for notation shall,
at the option of the corporation, terminate the shareholders'
rights under this article unless a court of competent
jurisdiction, for good and sufficient cause, shall otherwise
direct.
(c) If shares represented by a certificate on which notation has
been made shall be transferred, each new certificate issued
therefor shall bear similar notation, together with the name
of the original dissenting holder of such shares.
(d) A transferee of such shares shall acquire by such transfer
no rights in the corporation other than those which the
original dissenting shareholder had after making demand for
payment of the fair value thereof.
Section 10-2B-13.25. Offer of payment.
(a) As soon as the proposed corporate action is taken, or upon
receipt of a payment demand, the corporation shall offer to
pay each dissenter who complied with Section 10-2B-13.23 the
amount the corporation estimates to be the fair value of his
or her shares, plus accrued interest.
(b) The offer of payment must be accompanied by:
(1) The corporation's balance sheet as of the end of a
fiscal year ending not more than 16 months before the date
of the offer, an income statement for that year, and the
latest available interim financial statements, if any;
(2) A statement of the corporation's estimate of the fair
value of the shares;
(3) An explanation of how the interest was calculated;
(4) A statement of the dissenter's right to demand payment
under Section 10-2B-13.28; and
(5) A copy of this article.
(c) Each dissenter who agrees to accept the corporation's offer
of payment in full satisfaction of his or her demand must
surrender to the corporation the certificate or certificates
representing his or her shares in accordance with terms of
the dissenters' notice. Upon receiving the certificate or
certificates, the corporation shall pay each dissenter the
fair value of his or her shares, plus accrued interest, as
provided in subsection (a). Upon receiving payment, a
dissenting shareholder ceases to have any interest in the
shares.
Section 10-2B-13.26. Failure to take corporate action.
(a) If the corporation does not take the proposed action within
60 days after the date set for demanding payment, the
corporation shall release the transfer restrictions imposed
on shares.
(b) If, after releasing transfer restrictions, the corporation
takes the proposed action, it must send a new dissenters'
notice under Section 10-2B-13.22 and repeat the payment
demand procedure.
Section 10-2B-13.27. Reserved.
Section 10-2B-13.28. Procedure if shareholder dissatisfied with offer of
payment.
(a) A dissenter may notify the corporation in writing of his or
her own estimate of the fair value of his or her shares and
amount of interest due, and demand payment of his or her
estimate, or reject the corporation's offer under Section
10-2B-13.25 and demand payment of the fair value of his or
her shares and interest due, if:
(1) The dissenter believes that the amount offered under
Section 10-2B-13.25 is less than the fair value of his or
her shares or that the interest due is incorrectly
calculated;
(2) The corporation fails to make an offer under Section
10-2B-13.25 within 60 days after the date set for demanding
payment; or
(3) The corporation, having failed to take the proposed
action, does not release the transfer restrictions imposed
on shares within 60 days after the date set for demanding
payment.
(b) A dissenter waives his or her right to demand payment under
this section unless he or she notifies the corporation of
his or her demand in writing under subsection (a) within 30
days after the corporation offered payment for his or her
shares.
Section 10-2B-13.30. Court action.
(a) If a demand for payment under Section 10-2B-13.28 remains
unsettled, the corporation shall commence a proceeding
within 60 days after receiving the payment demand and
petition the court to determine the fair value of the shares
and accrued interest. If the corporation does not commence
the proceeding within the 60 day period, it shall pay each
dissenter whose demand remains unsettled the amount demanded.
(b) The corporation shall commence the proceeding in the circuit
court of the county where the corporation's
principal office (or, if none in this state, its registered
office) is located. If the corporation is a foreign
corporation without a registered office in this state, it
shall commence the proceeding in the county in this state
where the registered office of the domestic corporation
merged with or whose shares were acquired by the foreign
corporation was located.
(c) The corporation shall make all dissenters (whether or not
residents of this state) whose demands remain unsettled
parties to the proceeding as in an action against their
shares, and all parties must be served with a copy of the
petition. Nonresidents may be served by registered or
certified mail or by publication as provided under the
Alabama Rules of Civil Procedure.
(d) After service is completed, the corporation shall deposit
with the clerk of the court an amount sufficient to pay
unsettled claims of all dissenters party to the action in an
amount per share equal to its prior estimate of fair value,
plus accrued interest, under Section 10-2B-13.25.
(e) The jurisdiction of the court in which the proceeding is
commenced under subsection (b) is plenary and exclusive. The
court may appoint one or more persons as appraisers to
receive evidence and recommend decision on the question of
fair value. The appraisers have the powers described in the
order appointing them, or in any amendment to it. The
dissenters are entitled to the same discovery rights as
parties in other civil proceedings.
(f) Each dissenter made a party to the proceeding is entitled to
judgment for the amount the court finds to be the fair value
of his or her shares, plus accrued interest. If the court's
determination as to the fair value of a dissenter's shares,
plus accrued interest, is higher than the amount estimated by
the corporation and deposited with the clerk of the court
pursuant to subsection (d), the corporation shall pay the
excess to the dissenting shareholder. If the court's
determination as to fair value, plus accrued interest, of a
dissenter's shares is less than the amount estimated by the
corporation and deposited with the clerk of the court
pursuant to subsection (d), then the clerk shall return the
balance of funds deposited, less any costs under Section
10-2B-13.31, to the corporation.
(g) Upon payment of the judgment, and surrender to the
corporation of the certificate or certificates representing
the appraised shares, a dissenting shareholder ceases to have
any interest in the shares.
Section 10-2B-13.31. Court costs and counsel fees.
(a) The court in an appraisal proceeding commenced under Section
10-2B-13.30 shall determine all costs of the proceeding,
including compensation and expenses of appraisers appointed
by the court. The court shall assess the costs against the
corporation, except that the court may assess costs against
all or some of the dissenters, in amounts the court finds
equitable, to the extent the court finds the dissenters acted
arbitrarily, vexatiously, or not in good faith in demanding
payment under Section 10-2B-13.28.
(b) The court may also assess the reasonable fees and expenses of
counsel and experts for the respective parties, in amounts
the court finds equitable
(1) Against the corporation and in favor of any or all
dissenters if the court finds the corporation did not
substantially comply with the requirements of Sections
10-2B-13.20 through 10-2B-13.28; or
(2) Against either the corporation or a dissenter, in favor
of any other party, if the court finds that the party
against whom the fees and expenses are assessed acted
arbitrarily, vexatiously, or not in good faith with respect
to the rights provided by this chapter.
(c) If the court finds that the services of counsel for any
dissenter were of substantial benefit to other dissenters
similarly situated, and that the fees for those services
should not be assessed against the corporation, the court
may award to these counsel reasonable fees to be paid out of
the amounts awarded the dissenters who were benefitted.
Section 10-2B-13.32. Status of shares after payment.
Shares acquired by a corporation pursuant to payment of the
agreed value therefor or to payment of the judgment entered therefor, as in
this chapter provided, may be held and disposed of by such corporation as in
the case of other treasury shares, except that, in the case of a merger or
share exchange, they may be held and disposed of as the plan of merger or
share exchange may otherwise provide.
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") provide 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 person 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 Agreement and Plan of Merger dated as of October 14, 1997,
is found at Appendix A to the Prospectus included in
Part I hereof.
2.2 Mutual Agreement and Waiver dated as of March 25, 1998
between South Alabama, MCB and PSB is found at Appendix
A 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, 1993, 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 Bylaws of SAB Newco, Inc. filed as Exhibit (3).3 to South
Alabama's Form 10-K for the year 1996 (No. 0-15423), is
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, 1993, 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
,1998.
8.1 Opinion of Hand Arendall, L.L.C. re tax matters dated
April 1, 1998.
8.2 Opinion of Capell, Howard, Knabe & Cobbs, P.A. re tax
matters dated March 31, 1998.
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 as at October 14, 1998 is
found at Appendix A to the Prospectus which is included
in Part I hereof.
10.31 Mutual Waiver and Agreement dated as of March 25, 1998,
between South Alabama, MCB and PSB is found as Exhibit A
to the Prospectus included in Part I hereof.
13.1 South Alabama s 1997 Annual Report on Form 10-K for the year
ended December 31, 1997 (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 annual report on
form 10-K for the year 1997 (No. 0-15423), is incorporated
herein by reference.
23.1 Consent of Arthur Andersen LLP.
23.2 Consent of Arthur Andersen LLP.
23.3 Consent of Hand Arendall, L.L.C. is included in their
opinion re legality filed as Exhibit 5.1 hereto.
23.4 Consent of Hand Arendall, L.L.C. is included in their
opinion re tax matters filed as Exhibit 8.1 hereto.
23.5 Consent of Capell, Howard, Knabe & Cobbs, P.A. is
included in their opinion re tax matters filed as
Exhibit 8.2 hereto.
99.1 Form of Proxy to be used at Peterman Statement Bank
special meeting.
(b) Financial Statement Schedules:
None.
Item 22. Undertakings.
(a) 1. The undersigned South Alabama hereby undertakes to deliver or
cause to be delivered with the prospectus, to each person to whom
the prospectus is sent or given, the latest annual report to
security holders that is incorporated by reference in the
prospectus and furnished pursuant to and meeting the requirements of
Rule 14a-3 or Rule 14c-3 under the Securities Exchange Act of 1934;
and where interim financial information required to be presented by
Article 3 of Regulation S-X are not set forth in the prospectus, to
deliver, or cause to be delivered to each person to whom the
prospectus is sent or given, the latest quarterly report that is
specifically incorporated by reference in the prospectus to provide
such interim financial information.
2. Insofar as indemnification for liabilities arising under the
Securities Act of 1933 may be permitted to directors, officers and
controlling persons of the South Alabama pursuant to the foregoing
provisions, or otherwise, the South Alabama 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 South Alabama of expenses incurred or paid by a director,
officer or controlling person of the South Alabama 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 South Alabama will, unless in the
opinion of its counsel the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the
question whether such indemnification by it is against public policy
as expressed in the Act and will be governed by the final
adjudication of such issue.
(b) The undersigned South Alabama 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 South Alabama hereby undertakes to supply by means
of a post-effective amendment all information concerning a
transaction, and the company being acquired involved therein, that
was not the subject of and included in the registration statement
when it became effective.
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the 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 25th day of March, 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. By so signing, each of
the undersigned, in his capacity as a director or officer, or both, as the
case may be, of the South Alabama, does hereby appoint F. Michael Johnson and
R. Preston Bolt, Jr., and each of them severally, his true and lawful
attorney to execute in his name, placeand stead, in his capacity as a
director or officer, or both, as the case may be, of the South Alabama, any
and all amendments to this Registration Statement and post-effective
amendments thereto and all instruments necessary or incidental in connection
therewith, and to file the same with the Securities and Exchange Commission.
Each of said attorneys shall have full power and authority to do and perform
in the name and on behalf of each of the undersigned, in any and all
capacities, every act whatsoever requisite or necessary to be done in the
premises as fully, and for all intents and purposes, as each of the
undersigned might or could do in person, the undersigned hereby ratifying and
approving the acts of said attorneys and each of them.
Signatures Title Date
(1) Principal Executive Officer
/s/ W. Bibb Lamar, Jr. President and 3/25/98
W. Bibb Lamar, Jr. Chief Executive Officer
(2) & (3) Principal Financial and
Accounting Officer
/s/ F. Michael Johnson Chief Financial Officer 3/25/98
F. Michael Johnson and Secretary
(4) Directors
/s/ John B. Barnett, III Director 3/27/98
John B. Barnett, III
/s/ Stephen G. Crawford Director 3/27/98
Stephen G. Crawford
/s/ Haniel F. Croft Director 3/27/98
Haniel F. Croft
/s/ David C. De Laney Director 3/27/98
David C. De Laney
/s/ Lowell J. Friedman Director 3/27/98
Lowell J. Friedman
/s/ Broox G. Garrett, Jr. Director 3/27/98
Broox G. Garrett, Jr.
/s/ James P. Hayes, Jr. Director 3/27/98
James P. Hayes, Jr.
/s/ W. Dwight Harrigan Director 3/27/98
W. Dwight Harrigan
/s/ Clifton C. Inge Director 3/27/98
Clifton C. Inge
/s/ W. Bibb Lamar, Jr. Director 3/27/98
W. Bibb Lamar, Jr.
/s/ Kenneth R. McCartha Director 3/27/98
Kenneth R. McCartha
/s/ Thomas E. McMillan, Jr. Director 3/27/98
Thomas E. McMillan, Jr.
Director
J. Richard Miller, III
/s/ Harris V. Morrissette Director 3/27/98
Harris V. Morrissette
/s/ J. Stephen Nelson Director and Chairman 3/27/98
J. Stephen Nelson
/s/ Paul D. Owens, Jr. Director 3/27/98
Paul D. Owens, Jr.
/s/ Earl H. Weaver Director 3/27/98
Earl H. Weaver
EXHIBIT INDEX
SEC Assigned
Exhibit Number Description of Exhibit
5.1 Opinion of Hand Arendall, L.L.C. re legality dated
___________, 1998
8.1 Opinion of Hand Arendall, L.L.C. re tax matters dated
April 1, 1998
8.2 Opinion of Capell, Howard, Knabe & Cobbs, P.A. re tax
matters dated March 31, 1998
23.1 Consent of Arthur Andersen LLP
23.2 Consent of Arthur Andersen LLP
99.1 Form of Proxy to be used at Peterman State Bank
special meeting
Exhibit 5.1
FORM OF OPINION
__________________, 1998
Peterman State Bank
925 Old Peterman Highway
Peterman, Alabama 37471
Re: Merger of Peterman State Bank with and into The Monroe County Bank
Gentlemen:
We have represented South Alabama Bancorporation, Inc. ("South Alabama")
and The Monroe County Bank ("MCB") in connection with the merger of Peterman
State Bank ("PSB") with and into MCB (the "Merger"). In that connection, we
have examined the following:
1. The Agreement and Plan of Merger by and between South Alabama, MCB
and PSB as of October 14, 1997, as supplemented by Mutual Waiver
and Agreement as of March 25, 1998 (the " Agreement");
2. The articles of incorporation and bylaws of South Alabama;
3. Resolutions of the Board of Directors of South Alabama, MCB and PSB
and the stockholders of PSB authorizing the necessary corporate
actions to enable South Alabama and PSB to comply with the terms of
the Agreement and to perform the matters contemplated thereby;
4. The approval of the Merger by the Federal Deposit Insurance
Corporation and Alabama State Banking Department;
5. South Alabama's registration statement under the Securities Act of
1933 filed on Securities and Exchange Commission Form S-4 (the
"Registration Statement"); and
6. Such other documents as we felt necessary to give this opinion.
Based upon our examination of the foregoing, 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 PSB 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 PSB and the shareholders of PSB. No
other purpose or party shall be entitled to rely on this opinion.
Yours very truly,
HAND ARENDALL, L.L.C.
Exhibit 8.1
[Hand Arendall, L.L.C. Letterhead]
April 1,1998
South Alabama Bancorporation, Inc.
Post Office Box 3067
Mobile, Alabama 36652
Re: Proposed Merger of Peterman State Bank into The Monroe County Bank,
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 The Monroe County Bank ("MCB"),
an Alabama banking corporation and wholly-owned subsidiary of South Alabama,
in connection with the proposed merger of Peterman State Bank ("PSB"), an
Alabama banking corporation, into MCB (the "Merger"), pursuant to the
Agreement and Plan of Merger dated as of October 14, 1997, as supplemented by
that certain Mutual Waiver and Agreement dated as of March 25, 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
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 (iii) 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, MCB, and PSB.
You have advised us that the proposed transaction is being entered into
for good business reasons, including, without limitation, to use the deposits
of PSB to help fund strong loan demand in Mobile and Baldwin Counties (strong
loan demand being lacking in Monroe County), to help correct management and
asset deficiencies at PSB, to capitalize on growth opportunities in Mobile
and Baldwin Counties, to keep pace with rapid technological changes in the
banking industry which PSB would find prohibitively expensive on its own, and
to provide a wider array of financial services to PSB's customers. To
achieve these goals, the following will occur pursuant to the Merger
Agreement:
(A) PSB will merge with and into MCB pursuant to the laws of the
State of Alabama. MCB will acquire all the assets and assume all the
liabilities of PSB. PSB's separate corporate existence will cease to exist
upon consummation of the Merger and MCB will be the surviving corporation.
Thereafter, MCB will continue to operate the businesses of MCB and PSB
conducted prior to the Merger and will continue to be a wholly-owned
subsidiary of South Alabama.
(B) Each share of MCB 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 PSB Common Stock (excluding shares held by PSB
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 $3,383.47 (and cash in lieu of fractional shares). The
exchange price is subject to downward adjustment to $3,314.13 in the event a
pending sale by PSB of certain non-performing loans for $40,000 is not
consummated prior to the Effective Time. In the event the market value of
South Alabama Common Stock is greater than $28.00 per share, then the market
value of South Alabama Common Stock shall be set at $28.00 per share for
purposes of determining the Exchange Ratio.
(D) Each of the shares of PSB Common Stock held at the time of the
Merger by PSB 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 PSB 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 PSB 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 Market Value
of one share of South Alabama Common Stock on the Trading Day preceding by
two Trading Days the Effective Time. (In the event the market value of South
Alabama Common Stock is greater than $28.00 per share, then the market value
of South Alabama Common Stock shall be set at $28.00 per share 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 PSB will be, in each
instance, approximately equal to the fair market value of the PSB Common
Stock surrendered in exchange therefor.
(ii) There is no plan or intention on the part of the stockholders
of PSB who own one percent (1%) or more of the PSB stock and, to the best of
the knowledge of the management of PSB, there is no plan or intention on the
part of the remaining stockholders of PSB 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 PSB outstanding immediately prior to the
transaction. For purposes of this representation, shares of PSB 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 PSB stock as of the Effective Time. Moreover, shares of PSB
stock and shares of South Alabama stock held by PSB 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 MCB stock.
(iv) South Alabama has no plan or intention to reacquire any of
its stock issued in the transaction.
(v) MCB does not now own any stock of South Alabama and will not
acquire any such stock prior to the Merger.
(vi) MCB has no plan or intention to sell or otherwise dispose of
any of the assets of PSB 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 PSB assumed by MCB and the liabilities to
which the transferred assets of PSB are subject were incurred by PSB in the
ordinary course of business.
(viii) Following the transaction, MCB will continue the historic
businesses of MCB and PSB and use a significant portion of MCB's and PSB's
historic business assets in a business.
(ix) South Alabama, MCB and PSB each agree to 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 MCB and/or their respective
attorneys and advisors to prepare and file the Registration Statement shall
not be deemed to be done on behalf of PSB and the costs and expenses thereof
shall not be the responsibility of PSB. The stockholders of PSB will pay
their respective expenses, if any, incurred in connection with the Merger.
(x) There is no intercorporate indebtedness existing between
PSB and MCB 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) PSB 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 PSB transferred to MCB will each equal or exceed the sum of the
liabilities assumed by MCB 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 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 in the transaction to the PSB 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 PSB stockholders in exchange for their shares of PSB stock.
The fractional share interests of each PSB stockholder will be aggregated,
and no PSB 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 PSB will be separate consideration for, or allocable to, any of their
shares of PSB stock; none of the shares of South Alabama stock received by any
stockholder-employees of PSB will be separate consideration for, or allocable
to, any employment agreement; and the compensation paid to any
stockholder-employees of PSB 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 PSB, MCB 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, MCB and PSB
(including the representation that PSB 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). PSB, MCB 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 MCB on
receipt by MCB of PSB's assets in exchange for South Alabama Common Stock.
Treas. Reg. Section 1.1032-2.
3. PSB will recognize no gain or loss upon the transfer of its
assets to MCB in exchange solely for South Alabama Common Stock and the
assumption by MCB of the liabilities of PSB. Sections 361(a) and 357(a).
4. The basis of PSB's assets in the hands of MCB will, in each
case, be the same as the basis of those assets in the hands of PSB immediately
prior to the transaction. Section 362(b).
5. The holding period of the assets of PSB in the hands of MCB
will, in each case, include the period during which such assets were held by
PSB. Section 1223(2).
6. The stockholders of PSB will recognize no gain or loss upon the
exchange of their PSB Common Stock solely for shares of South Alabama Common
Stock. Section 354(a)(1).
7. The basis of the South Alabama Common Stock received by the PSB
stockholders in the proposed transaction will, in each instance, be the same
as the basis of the PSB Common Stock surrendered in exchange therefor.
Section 358(a)(1).
8. The holding period of the South Alabama Common Stock received
by the PSB stockholders will, in each instance, include the period during
which the PSB Common Stock surrendered in exchange therefor was held,
provided that the PSB Common Stock was held as a capital asset on the date
of the exchange. Section 1223(1).
9. The payment of cash to PSB 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 PSB stockholder in exchange
for his PSB Common Stock pursuant to the exercise of dissenters' rights, such
cash will be treated as having been received in redemption of his PSB Common
Stock, subject to the provisions and limitations of Section 302.
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. 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 8.2
[Capell, Howard, Knabe & Cobbs, P.A. Letterhead]
March 31,
1998
South Alabama Bancorporation, Inc.
Post Office Box 3067
Mobile, Alabama
36652
Peterman State Bank
P. O. Box Drawer 10
Peterman, AL 36471
Re: Proposed Merger of
Peterman State Bank into The Monroe County Bank, a wholly-owned
subsidiary of South Alabama Bancorporation,
Inc. - Certain Tax Consequences
Gentlemen:
We have acted as counsel to Peterman State Bank ("PSB"), an Alabama
banking corporation, in connection with the proposed merger of PSB (the
"Merger") into The Monroe County Bank ("MCB"), an Alabama banking corporation.
MCB is a wholly owned subsidiary of South Alabama Bancorporation, Inc.
("South Alabama"), an Alabama corporation. The Merger is pursuant to the
Agreement and Plan of Merger dated as of October 14, 1997, as supplemented by
that certain Mutual Waiver and Agreement dated as of March 25, 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 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 (iii) 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, MCB, and PSB.
You have advised us that the proposed transaction is being entered into
for good business reasons, including, without limitation, to use the deposits
of PSB to help fund strong loan demand in Mobile and Baldwin Counties (strong
loan demand being lacking in Monroe County), to help correct management and
asset deficiencies at PSB, to capitalize on growth opportunities in Mobile
and Baldwin Counties, to keep pace with rapid technological changes in the
banking industry which PSB would find prohibitively expensive on its own, and
to provide a wider array of financial services to PSB's customers. To
achieve these goals, the following will occur pursuant to the Merger
Agreement:
(A) PSB will merge with and into MCB pursuant to the laws of the
State of Alabama. MCB will acquire all the assets and assume all the
liabilities of PSB. PSB's separate corporate existence will cease to exist
upon consummation of the Merger and MCB will be the surviving corporation.
Thereafter, MCB will continue to operate the businesses of MCB and PSB
conducted prior to the Merger and will continue to be a wholly-owned
subsidiary of South Alabama.
(B) Each share of MCB 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 PSB Common Stock (excluding shares held by PSB
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 $3,383.47 (and cash in lieu of fractional shares). The
exchange price is subject to downward adjustment to $3,314.13 in the event a
pending sale by PSB of certain non-performing loans for $40,000 is not
consummated prior to the Effective Time. In the event the market value of
South Alabama Common Stock is greater than $28.00 per share, then the market
value of South Alabama Common Stock shall be set at $28.00 per share for
purposes of determining the Exchange Ratio.
(D) Each of the shares of PSB Common Stock held at the time of the
Merger by PSB 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 PSB 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 PSB 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 Market Value
of one share of South Alabama Common Stock on the Trading Day preceding by
two Trading Days the Effective Time. (In the event the market value of South
Alabama Common Stock is greater than $28.00 per share, then the market value
of South Alabama Common Stock shall be set at $28.00 per share 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 PSB will be, in each instance,
approximately equal to the fair market value of the PSB Common Stock
surrendered in exchange therefor.
(ii) There is no plan or intention on the part of the stockholders of
PSB who own one percent (1%) or more of the PSB stock and, to the best of the
knowledge of the management of PSB, there is no plan or intention on the part
of the remaining stockholders of PSB 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 PSB outstanding immediately prior to the transaction.
For purposes of this representation, shares of PSB 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 PSB
stock as of the Effective Time. Moreover, shares of PSB stock and shares of
South Alabama stock held by PSB 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 MCB stock.
(iv) South Alabama has no plan or intention to reacquire any of its
stock issued in the transaction.
(v) MCB does not now own any stock of South Alabama and will not
acquire any such stock prior to the Merger.
(vi) MCB has no plan or intention to sell or otherwise dispose of any
of the assets of PSB 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 PSB assumed by MCB and the liabilities to
which the transferred assets of PSB are subject were incurred by PSB in the
ordinary course of business.
(viii) Following the transaction, MCB will continue the historic
businesses of MCB and PSB and use a significant portion of MCB's and PSB's
historic business assets in a business.
(ix) South Alabama, MCB and PSB each agree to 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 MCB and/or their respective
attorneys and advisors to prepare and file the Registration Statement shall
not be deemed to be done on behalf of PSB and the costs and expenses thereof
shall not be the responsibility of PSB. The stockholders of PSB will pay
their respective expenses, if any, incurred in connection with the Merger.
(x) There is no intercorporate indebtedness existing between PSB
and MCB 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) PSB 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 PSB transferred to MCB will each equal or exceed the sum of the
liabilities assumed by MCB 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 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 in the transaction to the PSB 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 PSB stockholders in exchange for their shares of PSB stock.
The fractional share interests of each PSB stockholder will be aggregated, and
no PSB 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 PSB will be separate consideration for, or allocable to, any of their
shares of PSB stock; none of the shares of South Alabama stock received by
any stockholder-employees of PSB will be separate consideration for, or
allocable to, any employment agreement; and the compensation paid to any
stockholder-employees of PSB 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 PSB, MCB 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, MCB and PSB
(including the representation that PSB 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). PSB, MCB 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 MCB on
receipt by MCB of PSB's assets in exchange for South Alabama Common Stock.
Treas. Reg. Section 1.1032-2.
3. PSB will recognize no gain or loss upon the transfer of its
assets to MCB in exchange solely for South Alabama Common Stock and the
assumption by MCB of the liabilities of PSB. Sections 361(a) and 357(a).
4. The basis of PSB's assets in the hands of MCB will, in each
case, be the same as the basis of those assets in the hands of PSB
immediately prior to the transaction. Section 362(b).
5. The holding period of the assets of PSB in the hands of MCB
will, in each case, include the period during which such assets were held by
PSB. Section 1223(2).
6. The stockholders of PSB will recognize no gain or loss upon
the exchange of their PSB Common Stock solely for shares of South Alabama
Common Stock. Section 354(a)(1).
7. The basis of the South Alabama Common Stock received by the PSB
stockholders in the proposed transaction will, in each instance, be the same
as the basis of the PSB Common Stock surrendered in exchange therefor.
Section 358(a)(1).
8. The holding period of the South Alabama Common Stock received
by the PSB stockholders will, in each instance, include the period during which
the PSB Common Stock surrendered in exchange therefor was held, provided that
the PSB Common Stock was held as a capital asset on the date of the exchange.
Section 1223(1).
9. The payment of cash to PSB 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 PSB stockholder in exchange
for his PSB Common Stock pursuant to the exercise of dissenters' rights, such
cash will be treated as having been received in redemption of his PSB
Common Stock, subject to the provisions and limitations of Section 302.
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. No other
person or party shall be entitled to rely on this opinion.
Very truly yours,
CAPELL, HOWARD, KNABE & COBBS, P.A.
By: /s/ James M. Scott
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 references to our Firm included in or made a
part of this Registration Statement.
/s/ARTHUR ANDERSEN LLP
Birmingham, Alabama
April 1, 1998
Exhibit 23.2
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the use
of our report in this Registration Statement of our report dated
February 13, 1998 of Peterman State Bank for the year ended
December 31, 1997 and to all references to our Firm included in
or made a part of this Registration Statement.
/s/ARTHUR ANDERSEN LLP
Birmingham, Alabama
April 1, 1998
Exhibit 99.1
PETERMAN STATE BANK
Proxy for Special Meeting of Stockholders, __________________, 1998
Solicited by the Board of Directors
KNOW ALL MEN BY THESE PRESENTS that I, the undersigned Stockholder of Peterman
State Bank, do hereby nominate, constitute and appoint ______________________
and ___________________________, 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 Peterman State Bank standing in my name on its books on ___________________,
1998, at the Special Meeting of its Stockholders to be held at 925 Old
Peterman Highway, Peterman, Alabama, on _________________, 1998 at
___________, 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 Agreement and Plan of Merger, as
supplemented and amended by the Mutual Waiver and Agreement, all
as described in the Prospectus dated ______________, 1998, whereby:
(i) Peterman State Bank will be merged into The Monroe County Bank;
and (ii) shareholders of Peterman State Bank will receive the number
of shares of South Alabama Bancorporation, Inc. Common Stock
having a market value, calculated as provided in said Agreement and
Plan of Merger, of $3,383.47, subject to adjustment for fluctuation of
South Alabama Bancorporation, Inc. s stock price, for each share of
their Peterman State Bank stock.
FOR ________
AGAINST ________
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 __________________, 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 Secretary of Peterman
State Bank.
Please date, sign and mail this proxy in the envelope provided.
Postage not necessary if mailed in the United States.
Proxy Number of
Number 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.)
