As filed with the Securities and Exchange Commission on July 30, 1999
Registration No. 333-82167
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
____________________
Amendment No. 1 to
Form S-4
REGISTRATION STATEMENT
Under
THE SECURITIES ACT OF 1933
____________________
SOUTH ALABAMA BANCORPORATION, INC.
(Exact name of registrant as specified in its charter)
Alabama 6712 63-0909434
(State or other (Primary Standard Industrial (I.R.S. Employer
jurisdiction of Classification Code Number) Identification No.)
incorporation or
organization)
____________________
100 Saint Joseph Street
P. O. Box 3067
Mobile, Alabama 36652
(334) 431-7800
(Address, including zip code, and telephone number of registrant's
principal executive office)
____________________
F. MICHAEL JOHNSON
Secretary and Chief Financial Officer
100 Saint Joseph Street
P. O. Box 3067
Mobile, Alabama 36652
(334) 431-7800
(Name, address, including zip code, and telephone number, including area code,
of agent for service)
____________________
Copies to:
BROOKS P. MILLING
Hand Arendall, L.L.C.
3000 AmSouth Bank Bldg.
107 Saint Francis Street
Mobile, Alabama 36602
(334) 432-5511
HUGH C. NICKSON
Miller Hamilton Snider & Odom,
L.L.C.
One Commerce Street, Suite 305
Montgomery, Alabama 36104
(334) 834-5550
Approximate date of commencement of proposed sale of the securities to
the public: As soon as practicable after this Registration Statement has
become effective.
If the securities being registered on this Form are being offered in
connection with the formation of a holding company and there is compliance
with General Instruction G, check the following box. [ ]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, check the following box and
list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. [ ]..................
If this Form is a post-effective amendment filed pursuant to Rule 462(d)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ].................
The Registrant hereby amends this Registration Statement on such date or
dates as may be necessary to delay its effective date until the Registrant
shall file a further amendment which specifically states that this
Registration Statement shall thereafter become effective in accordance with
Section 8(a) of the Securities Act of 1933 or until the Registration Statement
shall become effective on such date as the Commission, acting pursuant to said
Section 8(a), may determine.
SWEET WATER STATE BANCSHARES, INC.
101 Main Street
Sweet Water, Alabama 36782-0128
August 4, 1999
Dear Shareholder:
You are cordially invited to attend a special meeting of the shareholders
of Sweet Water State Bancshares, Inc., to be held at Sweet Water's principal
executive office, 101 Main Street, Sweet Water, Alabama, on Thursday,
September 9, 1999, at 10:00 a.m. local time.
At this important meeting, you will be asked to consider and vote upon
the approval of an Agreement and Plan of Merger, dated as of April 5, 1999
(the "Merger Agreement"), which provides for the merger of Sweet Water with
and into South Alabama Bancorporation, Inc. (the "Merger"). If the Merger
takes place, outstanding shares of Sweet Water common stock will be converted
into the right to receive 14.17 shares of the common stock, par value $.01,
of South Alabama Bancorporation, Inc., subject to adjustment for fluctuations
in South Alabama's stock price. The accompanying Prospectus, which also
serves as a Proxy Statement, provides a detailed description of the proposed
Merger, including the proposed exchange ratio and the conditions to
consummation of the Merger.
The affirmative vote of the holders of at least two-thirds of the shares
of Sweet Water's common stock entitled to vote at the special meeting is
required for approval of the Merger Agreement. Accordingly, your vote is
important, no matter how large or how small your holdings are.
Enclosed are the Notice of Special Meeting, Prospectus and proxy for the
Special Meeting, together with copies of the South Alabama Bancorporation,
Inc. 1998 Annual Report to Shareholders and 1999 First Quarter Report on Form
10-Q. Please give this information your careful attention.
The Board of Directors of Sweet Water has carefully reviewed and
considered the terms and conditions of the proposed Merger Agreement and has
received an opinion from its financial advisor, Alex Sheshunoff & Co.
Investment Banking, that the Merger is fair to the Sweet Water shareholders
from a financial point of view. The Board of Directors has unanimously
approved the Merger Agreement and unanimously recommends that you vote FOR
approval of the Merger Agreement.
In view of the importance of the action to be taken, we urge you to
complete, sign and date the enclosed proxy and to return it promptly in the
enclosed envelope, whether or not you plan to attend the Special Meeting.
Sending in your proxy now will not interfere with your rights to attend the
Special Meeting or to vote your shares personally at the Special Meeting if
you wish to do so.
Sincerely,
/s/Stratton F. Lewis, Jr.
SWEET WATER STATE BANCSHARES, INC.
101Main Street
Sweet Water, Alabama 36782-0128
____________
NOTICE OF SPECIAL MEETING OF SHAREHOLDERS
TO BE HELD ON SEPTEMBER 9, 1999
__________________
August 4, 1999
To the Shareholders of Sweet Water State Bancshares, Inc.
NOTICE IS HEREBY GIVEN that a special meeting of shareholders (the
"Special Meeting") of Sweet Water State Bancshares, Inc. ("Sweet Water")
will be held at Sweet Water's principal executive office, 101 Main Street,
Sweet Water, Alabama, on Thursday, September 9, 1999, at 10:00 a.m. 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 April 5, 1999 (the "Merger Agreement"), by and between
Sweet Water and South Alabama Bancorporation, Inc. ("South Alabama"),
pursuant to which, among other matters (a) Sweet Water would be merged with
and into South Alabama and (b) each share of Sweet Water common stock will be
converted into the right to receive 14.17 shares of South Alabama common
stock, subject to adjustment for fluctuations in South Alabama's stock price,
as more fully described in the accompanying Prospectus (the "Prospectus"),
which also serves as a Proxy Statement. A copy of the Merger Agreement is
set forth in Appendix A to 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 July 27, 1999
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 two-thirds of the shares of Sweet
Water Common Stock entitled to vote at the Special Meeting.
The Board of Directors of Sweet Water 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 or her 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 D 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
/s/Stratton F. Lewis, Jr
Stratton F. Lewis, Jr., 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.
[Sweet Water Logo] [South Alabama Logo]
Proxy Statement of Prospectus of
Sweet Water State Bancshares, Inc. South Alabama Bancorporation, Inc.
_______________________
Sweet Water State Bancshares' Board of Directors has unanimously approved
a merger transaction in which Sweet Water will merge into South Alabama
Bancorporation. In the merger each share of Sweet Water common stock you own
will be converted into 14.17 shares of South Alabama common stock, subject to
adjustment if the price of South Alabama common stock immediately before the
merger is less than $13.00 per share or more than $17.00 per share. This
represents a per share value of $191.86 based on the July 27, 1999, market
price of South Alabama common stock. South Alabama's stock price fluctuates,
and we encourage you to get a current price quote. We expect Sweet Water
shareholders to own about 9.9% of South Alabama after the merger. The
conversion of your shares of Sweet Water common stock generally will not be
taxable.
In order to complete this merger, Sweet Water needs your approval. This
document is being furnished to you as part of the solicitation of proxies by
Sweet Water's Board of Directors for its use at a special meeting of
shareholders of Sweet Water. This meeting will be held at Sweet Water State
Bank, 101 Main Street, Sweet Water, Alabama 36782-0128, at 10:00 a.m. on
Thursday, September 9, 1999. At this special meeting you will be asked to
consider and vote upon the merger.
Your Board of Directors believes that the merger is in the best interests
of Sweet Water and its shareholders and strongly encourages you to vote "FOR"
the merger proposal. Sweet Water's financial advisor, Alex Sheshunoff & Co.
Investment Banking, has issued its opinion to the Sweet Water Board of
Directors that the amount of South Alabama common stock you will receive in
the merger is fair from a financial point of view to the Sweet Water
shareholders.
South Alabama Bancorporation, Inc. common stock is publicly traded on
the Nasdaq Stock Market under the symbol SABC.
You should rely on the information contained in this document or
information that we have referred you to. We have not authorized anyone to
provide you with information that is different.
The securities South Alabama is offering through this document (1) are
not savings accounts or bank deposits, (2) are not obligations of a bank or
saving association, and (3) are not insured by the Federal Deposit Insurance
Corporation or any other governmental agency.
Neither the Securities and Exchange Commission nor any state securities
commission has approved or disapproved of these securities or passed upon the
adequacy or accuracy of this proxy statement/prospectus. Any representation
to the contrary is a criminal offense.
_______________________
This proxy statement/prospectus and the accompanying form of proxy are
dated, and are first being mailed to shareholders on or about, August 4,
1999. The information in this document is true on this date but may change
in the future.
<TABLE>
<CAPTION>
TABLE OF CONTENTS
Page
<S> <C>
QUESTIONS AND ANSWERS ABOUT THE MERGER. . . . . . . . . . . . .5
SUMMARY. . . . . . . . . . . . . . . . . . . . . . . . . . . . .6
What You Will Receive in the Merger . . . . . . . . . . . . 6
Market Prices of South Alabama and Sweet Water Common Stock . .7
We Expect The Merger to Be Essentially Tax Free . . . . . . . .7
The Sweet Water Board of Directors Recommends That You Vote For
The Merger . . . . . . . . . . . . . . . . . . . . . . . . . .7
The Basis of Our Recommendation . . . . . . . . . . . . . . . .8
South Alabama Common Stock is Publicly Traded and Most of You
Will Be Free to Trade it After the Merger Whereas Sweet Water
Common Stock is Not Publicly Traded 8
Your Rights as a Shareholder Will Change. . . . . . . . . . . .8
You Have Dissenter's Appraisal Rights . . . . . . . . . . . . .8
Why Your Approval is Requested at the Special Meeting on
September 9, 1999. . . . . . . . . . . . . . . . . . . . . . .9
Financial Interests of Officers and Directors in the Merger
That May Be Different from Yours . . . . . . . . . . . . . .9
South Alabama Acquires Sweet Water State Bank in The Merger . .9
Information About South Alabama and Sweet Water . . . . . . . .10
We Expect Sweet Water Shareholders to Own 9.9% of South
Alabama After the Merger . . . . . . . . . . . . . . . . . . .10
Things That May Prevent the Merger from Happening . . . . . . .10
Pooling of Interests Accounting Treatment . . . . . . . . . . .11
Selected Consolidated Financial Data. . . . . . . . . . . . . .11
Comparative Per Share Data. . . . . . . . . . . . . . . . . . .14
Summary Capital Ratios. . . . . . . . . . . . . . . . . . . . .15
INFORMATION REQUESTS . . . . . . . . . . . . . . . . . . . . . .17
A WARNING ABOUT FORWARD-LOOKING STATEMENTS . . . . . . . . . . .17
GENERAL INFORMATION. . . . . . . . . . . . . . . . . . . . . . .18
Special Meeting, Record Date and Vote Required. . . . . . . . .18
Proxies . . . . . . . . . . . . . . . . . . . . . . . . . . . .18
Dissenters' Rights. . . . . . . . . . . . . . . . . . . . . . .19
Recommendation of Sweet Water Board of Directors. . . . . . . .21
THE MERGER . . . . . . . . . . . . . . . . . . . . . . . . . . .21
Terms of the Merger; Exchange Ratio . . . . . . . . . . . . . .21
Waiver and Amendment; Termination . . . . . . . . . . . . . . .22
Opinion of Sweet Water's Financial Advisor. . . . . . . . . . .22
Effective Date and Effective Time . . . . . . . . . . . . . . .26
Background of and Reasons for the Merger. . . . . . . . . . . .26
Surrender of Certificates . . . . . . . . . . . . . . . . . . .27
Conditions to Consummation of the Merger. . . . . . . . . . . .28
Regulatory Approvals. . . . . . . . . . . . . . . . . . . . . .29
Conduct of Business Pending the Merger. . . . . . . . . . . . .30
Commitments with Respect to Other Offers. . . . . . . . . . . .30
Management and Operations After the Merger. . . . . . . . . . .30
Interests of Certain Persons in the Merger. . . . . . . . . . .30
Certain Federal Income Tax Consequences . . . . . . . . . . . .31
Accounting Treatment. . . . . . . . . . . . . . . . . . . . . .32
Expenses and Fees . . . . . . . . . . . . . . . . . . . . . . .32
Resales of South Alabama Common Stock . . . . . . . . . . . . .32
PRO FORMA FINANCIAL INFORMATION. . . . . . . . . . . . . . . . .32
Pro Forma Combined Condensed Consolidated Statement of
Condition . . . . . . . . . . . . . . . . . . . . . . . . . . .32
Pro Forma Combined Condensed Consolidated Statements of
Income . . . . . . . . . . . . . . . . . . . . . . . . . . . .33
COMPARATIVE MARKET PRICES AND DIVIDENDS. . . . . . . . . . . . .34
Market Prices . . . . . . . . . . . . . . . . . . . . . . . . .34
Dividends . . . . . . . . . . . . . . . . . . . . . . . . . . .35
DESCRIPTION OF SOUTH ALABAMA CAPITAL STOCK . . . . . . . . . . .35
EFFECT OF MERGER ON RIGHTS OF SHAREHOLDERS . . . . . . . . . . .36
Required Shareholder Votes . . . . . . . . . . . . . . . . . .36
Action by Written Consent . . . . . . . . . . . . . . . . . . .37
Amendment of Articles of Incorporation. . . . . . . . . . . . .37
Amendment of Bylaws . . . . . . . . . . . . . . . . . . . . . .37
Directors . . . . . . . . . . . . . . . . . . . . . . . . . . .37
Director Liability. . . . . . . . . . . . . . . . . . . . . . .37
Effect of the Merger on Sweet Water Shareholders. . . . . . . .38
SWEET WATER MANAGEMENT'S DISCUSSION AND ANALYSIS . . . . . . . .38
FINANCIAL CONDITION . . . . . . . . . . . . . . . . . . . . . .39
Average Assets and Liabilities. . . . . . . . . . . . . . . . .39
Loans . . . . . . . . . . . . . . . . . . . . . . . . . . . . .40
Investment Securities . . . . . . . . . . . . . . . . . . . . .41
Deposits and Short-Term Borrowings. . . . . . . . . . . . . . .42
Asset/Liability Management. . . . . . . . . . . . . . . . . . .43
Liquidity . . . . . . . . . . . . . . . . . . . . . . . . . . .43
Interest Rate Sensitivity . . . . . . . . . . . . . . . . . . .43
Capital Resources . . . . . . . . . . . . . . . . . . . . . . .44
RESULTS OF OPERATIONS. . . . . . . . . . . . . . . . . . . . . .45
Net Interest Revenue. . . . . . . . . . . . . . . . . . . . . .45
Provision for Loan Losses and Allowance for Loan Losses . . . .47
NON-PERFORMING ASSETS. . . . . . . . . . . . . . . . . . . . . .48
Non-Interest Revenue and Non-Interest Expense . . . . . . . . .49
Income Taxes and Other Issues . . . . . . . . . . . . . . . . .50
Year 2000 Compliance . . . . . . . . . . . . . . . . . . . . .50
FIRST THREE MONTHS OF 1999 . . . . . . . . . . . . . . . . . . .51
Financial Condition. . . . . . . . . . . . . . . . . . . . . .51
Results of Operation . . . . . . . . . . . . . . . . . . . . .51
Loan Loss Experience and Non-Performing Assets. . . . . . . . .51
BUSINESS OF SWEET WATER. . . . . . . . . . . . . . . . . . . . .52
General . . . . . . . . . . . . . . . . . . . . . . . . . . . .52
Deposit Activities. . . . . . . . . . . . . . . . . . . . . . .52
Lending Activities. . . . . . . . . . . . . . . . . . . . . . .53
Investments . . . . . . . . . . . . . . . . . . . . . . . . . .54
Employees . . . . . . . . . . . . . . . . . . . . . . . . . . .54
Properties. . . . . . . . . . . . . . . . . . . . . . . . . . .54
Legal Proceedings . . . . . . . . . . . . . . . . . . . . . . .54
Certain Management Information. . . . . . . . . . . . . . . . .54
Executive Compensation. . . . . . . . . . . . . . . . . . . . .55
Voting Securities and Principal Shareholders. . . . . . . . . .55
Security Ownership of Management. . . . . . . . . . . . . . . .56
SUPERVISION, REGULATION, AND EFFECTS OF GOVERNMENTAL POLICY. . .57
Bank Holding Company Regulation . . . . . . . . . . . . . . . .57
Bank Regulation . . . . . . . . . . . . . . . . . . . . . . . .59
Capital Adequacy. . . . . . . . . . . . . . . . . . . . . . . .61
Effects of Governmental Policies. . . . . . . . . . . . . . . .62
LEGAL MATTERS . . . . . . . . . . . . . . . . . . . . . . . . .63
EXPERTS. . . . . . . . . . . . . . . . . . . . . . . . . . . . .63
SHAREHOLDER PROPOSALS. . . . . . . . . . . . . . . . . . . . . .63
WHERE YOU CAN FIND MORE INFORMATION. . . . . . . . . . . . . . .64
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE. . . . . . . . .64
Appendix A Agreement and Plan of Merger
Appendix B Opinion of Alex Sheshunoff & Co. Investment Banking
Appendix C Sweet Water State Bancshares, Inc. Financial Statements
Appendix D Provisions of Alabama Business Corporation Act Relating to
Dissenters' Rights
</TABLE>
QUESTIONS AND ANSWERS ABOUT THE MERGER
Q: What do I need to do now?
A: Just indicate on your proxy card how you want your shares to be
voted, then sign and mail it in the enclosed prepaid return envelope
marked "Proxy" as soon as possible, so that your shares may be
represented and voted at the special meeting to be held on September 9,
1999. We urge you to exercise your right to vote, and we unanimously
recommend that you vote "FOR" the proposed merger.
Q: Can I change my vote after I have mailed my signed proxy card?
A: Yes. There are three ways for you to revoke your proxy and change
your vote. First, you may send a written notice to Sweet Water State
Bancshares, Inc., 101 Main Street, Sweet Water, Alabama 36782-0128
stating that you wish to revoke your proxy. Second, you may complete
and submit a new proxy card. Sweet Water State Bank will have extra
proxy cards at its office at 101 Main Street, Sweet Water, Alabama.
Third, you may vote in person at the special meeting.
Q: Should I send in my stock certificates now?
A: No. Shortly after the merger is completed, South Alabama will send
you written instructions for exchanging your stock certificates for one
or more South Alabama stock certificates.
Q: When do you expect the merger to be completed?
A: We expect the merger to be completed by September 15, 1999. We are
working towards completing the merger as quickly as possible. While
there are certain things that must happen before the merger is completed,
we do not anticipate anything which would prevent the merger.
Q: Whom should I contact with questions or to obtain additional copies
of this proxy statement/prospectus?
A: You should call Mike Johnson at (334) 431-7800, or you can write
him at Post Office Box 3067, Mobile, Alabama 36652.
SUMMARY
This summary highlights selected information from this proxy statement/
prospectus and may not contain all of the information that is important to you.
You should carefully read this entire proxy statement/prospectus and the
other documents we refer to in this document. These will give you a more
complete description of the proposed merger. For more information about South
Alabama, see "Where You Can Find More Information" on page 64. We have
included page references in this Summary to direct you to other sections of
the proxy statement/prospectus containing a more complete description of
the topics covered in this Summary. By "you," we mean owners of Sweet Water
common stock on July 27, 1999, the record date.
What You Will Receive in the Merger (Page 21)
Assuming the merger occurs, South Alabama will issue its common stock to
you in exchange for your Sweet Water common stock. The number of shares of
South Alabama common stock you will receive is dependant upon the price at
which South Alabama common stock is trading immediately prior to the time
of the merger. The following table shows the number of shares of South
Alabama common stock you will receive for each share of Sweet Water common
stock, and the market value of that stock, under various scenarios, assuming
the merger occurs:
<TABLE>
<CAPTION>
Market Price Number of Shares of South Alabama
(Average South Alabama Per Stock You Will Receive for Each Market Value of Per
Share Stock Price Share of Sweet Water Stock Share Consideration
Immediately Prior to Merger)
<S> <C> <C>
$11.00 16.75 $184.21
11.50 16.02 184.21
12.00 15.35 184.21
12.50 14.74 184.21
13.00 14.17 184.21
13.50 14.17 191.30
14.00 14.17 198.38
14.50 14.17 205.47
15.00 14.17 212.55
15.50 14.17 219.64
16.00 14.17 226.72
16.50 14.17 233.81
17.00 14.17 240.89
17.50 13.77 240.89
18.00 13.38 240.89
18.50 13.02 240.89
19.00 12.68 240.89
</TABLE>
South Alabama will not issue fractional shares and will pay cash for any
fractional shares to which you would otherwise be entitled.
Market Prices of South Alabama and Sweet Water Common Stock (Pages 34-35)
On October 26, 1998, the last full trading day prior to the public
announcement of the merger, South Alabama common stock closed at $14.50 per
share. On April 1, 1999, the last full trading day prior to the execution of
the definitive merger agreement, South Alabama common stock closed at $13.875
per share. The last known sale of Sweet Water common stock took place on
April 15, 1997, at the price of $100.00 per share. We can give no assurance
that this sale was on an arm's length basis. Sales of Sweet Water common
stock are infrequent and are negotiated privately by the parties to such
transactions.
Based on the exchange ratio in the merger, which is 14.17, subject to
adjustment for fluctuations in South Alabama's stock price, the market value
of the consideration that Sweet Water shareholders will receive in the
proposed merger for each share of Sweet Water common stock will be $205.47
based on South Alabama's October 26, 1998 closing price of $14.50 and $196.61,
based on South Alabama's April 1, 1999 closing price of $13.875. Of course,
the market price of South Alabama common stock will fluctuate prior to and
after completion of the proposed merger, while the exchange ratio is
essentially fixed, although subject to certain adjustments. Therefore, you
should obtain current stock price quotations for South Alabama common stock.
We Expect The Merger to Be Essentially Tax Free (Page 31-32)
We have structured the merger so that most or all of you should not
recognize any gain or loss for U. S. Federal income tax purposes on the
exchange of all of your shares of Sweet Water common stock for shares of
South Alabama common stock in the merger, except in connection with cash
received instead of fractional shares. We have conditioned the merger on our
receipt of a legal opinion from South Alabama's counsel that this will be the
case, but this opinion will not bind the Internal Revenue Service, which may
take a different view.
This tax treatment may not apply to certain Sweet Water shareholders
including the types of Sweet Water shareholders discussed at the bottom of
page 31, and will not apply to any Sweet Water shareholder who dissents from
the merger under Alabama law. Determining the actual tax consequences of the
proposed merger to you can be complicated. These consequences will depend on
your specific situation and many variables not within our control. You should
consult your own tax advisor for a full understanding of the proposed
merger's tax consequences.
The Sweet Water Board of Directors Recommends That You Vote For The Merger
(Page 21)
Your Board of Directors believes that the merger is fair to you and in
your best interest. The Board unanimously recommends that you vote "FOR" the
proposal to approve the merger.
The Basis of Our Recommendation (Pages 26-27)
Before deciding to approve and recommend the proposed merger, your Board
of Directors considered the financial condition and prospects of Sweet Water,
information about South Alabama, the financial terms of the proposed merger,
the likelihood that bank regulators will approve the proposed merger, the
federal income tax consequences of the proposed merger, the advice of your
Board's legal and financial advisors, and other factors the Board believes to
be relevant. Your Board of Directors, based on the information it considered,
decided that the proposed merger is advisable and is in your best interests
as shareholders.
In deciding to approve the proposed merger, your Board considered the
opinion of its financial advisor, Alex Sheshunoff & Co. Investment Banking,
that as of the date of the opinion the consideration you will receive in the
merger is fair from a financial point of view to you as Sweet Water
shareholders. We have attached this opinion as Appendix B to this proxy
statement/prospectus. You should read it and the description of the methods
used to arrive at that opinion (found on pages 22-25) carefully.
South Alabama Common Stock is Publicly Traded and Most of You Will Be Free
to Trade it After the Merger Whereas Sweet Water Common Stock is Not Publicly
Traded (Pages 34-35)
South Alabama common stock is publicly traded on the NASDAQ Stock Market
under the symbol SABC. The South Alabama common stock to be issued in the
merger will be registered stock and generally freely tradable; however,
securities laws and the rules governing the proposed accounting treatment for
the merger impose certain restrictions on affiliates (generally directors,
executive officers and 10% shareholders of Sweet Water and South Alabama)
regarding how and when they may trade both Sweet Water and South Alabama
common stock. Shares of Sweet Water are not quoted on any established
market.
Your Rights as a Shareholder Will Change (Pages 36-38)
Once the proposed merger occurs, Sweet Water shareholders who do not
dissent from the merger will become South Alabama shareholders. Although
your rights as a shareholder will continue to be governed by Alabama
corporate law, they will be governed by South Alabama's Articles of
Incorporation and Bylaws instead of Sweet Water's Articles of Incorporation
and Bylaws. Because of certain differences between Sweet Water's Articles of
Incorporation and Bylaws and South Alabama's Articles of Incorporation and
Bylaws, your current rights will change after the merger.
You Have Dissenter's Appraisal Rights (Pages 19-20)
Alabama law permits you to dissent from the merger and to require South
Alabama to pay to you the fair value of your Sweet Water common stock in cash.
To do this, you must follow certain procedures, including the filing of
certain notices in a timely fashion and refraining from voting your shares in
favor of the proposed merger. If you dissent from the proposed merger, your
shares of Sweet Water common stock will not be exchanged for shares of South
Alabama common stock in the proposed merger, and your only right will be to
receive the appraised value of your shares in cash. Please note that the
procedures for exercising dissenter's rights are complicated and technical,
and if you wish to dissent from the merger you must strictly observe these
requirements to avoid waiving your dissenter's rights of appraisal.
Why Your Approval is Requested at the Special Meeting on September 9, 1999
(Page 18)
We cannot complete the merger without the approval of at least two-thirds,
or 66.67%, of the Sweet Water common stock. You are entitled to vote on the
merger if you own shares of Sweet Water common stock at the close of business
on July 27, 1999, the record date. If you own Sweet Water common stock on
the record date, you will be able to cast your vote at the special meeting of
the shareholders of Sweet Water to be held at 101 Main Street, Sweet Water,
Alabama, 36782-0128 at 10:00 a.m., local time, on Thursday, September 9,
1999. At the special meeting, we will ask you:
(1) To approve the merger; and
(2) To act on any other matters that may come before the
special meeting, although we know of no such other matters at this
time.
On the record date 60,000 shares of Sweet Water common stock were
outstanding. You will be entitled to one vote for each share of Sweet Water
common stock you own on the record date. You may vote either by attending
the special meeting and voting your shares, or by completing the enclosed proxy
card and mailing it to us in the enclosed envelope.
Assuming all of the Directors and Executive Officers of Sweet Water, who
collectively own, directly or beneficially, 16,081 shares, or approximately
26.8%, of the Sweet Water common stock, vote in favor of the merger, the
approval of an additional 23,939 shares, or 39.9% of the outstanding shares,
of Sweet Water common stock would be needed to approve the merger.
Financial Interests of Officers and Directors in the Merger That May Be
Different from Yours (Pages 30-31)
Sweet Water's Board of Directors and certain officers may have interests
in the merger that differ from the interests of Sweet Water shareholders
generally. Those interests include, among others, provisions in the merger
agreement regarding indemnification, insurance and continued service as a
director or officer of Sweet Water State Bank or service as a director or
officer of South Alabama. The Board of Directors of Sweet Water was aware of
these interests and considered them in approving and recommending the
merger.
South Alabama Acquires Sweet Water State Bank in The Merger (Page 21)
Sweet Water proposes to merge into South Alabama. South Alabama will be
the surviving corporation in the merger, and, as such, will be the owner of
all the stock of Sweet Water State Bank. Sweet Water State Bank will continue
to operate but will be owned by South Alabama instead of Sweet Water.
Information About South Alabama and Sweet Water (See pages 4-9 of the
enclosed Annual Report for South Alabama, pages 52-56 for Sweet Water)
South Alabama Bancorporation, Inc.
100 St. Joseph Street
Mobile, Alabama 36602
(334) 431-7800
South Alabama is an Alabama corporation that owns four banks and one
trust company that conduct banking and related business in several cities and
communities in Southwest Alabama. It currently owns all of the stock of, and
conducts its business through, South Alabama Bank, formerly known as The Bank
of Mobile, First National Bank, Brewton, The Monroe County Bank, The
Commercial Bank of Demopolis, and South Alabama Trust Company, Inc. At
December 31, 1998, South Alabama had total assets of approximately $504
million, total deposits of approximately $428 million, total loans of
approximately $278 million and total shareholders' equity of approximately
$59 million.
Sweet Water State Bancshares, Inc.
101 Main Street
Sweet Water, Alabama 36782-0128
(334) 994-4113
Sweet Water is an Alabama corporation that owns all of the stock of
Sweet Water State Bank. Sweet Water State Bank provides a broad range of
banking and financial services to customers in the commercial and retail
banking fields and has offices located in Sweet Water, Linden, and Thomasville,
Alabama. At December 31, 1998, Sweet Water had total assets of approximately
$54 million, total deposits of approximately $47.4 million, total net loans
of approximately $35.0 million and total shareholders' equity of
approximately $5.9 million.
We Expect Sweet Water Shareholders to Own 9.9% of South Alabama After the 3
Merger (Page 38)
South Alabama will issue approximately 850,200 shares of South Alabama
common stock to Sweet Water shareholders in the merger. Based on that number,
after the merger Sweet Water shareholders will own approximately 9.9% of the
outstanding shares of South Alabama common stock. This information is based
on the number of shares of Sweet Water and South Alabama common stock
outstanding on July 27, 1999. It omits shares that South Alabama may issue
due to the exercise of South Alabama stock options or for other purposes, and
it assumes no dissenters.
Things That May Prevent the Merger from Happening (Pages 22 and 28-29)
The merger agreement contains numerous conditions to consummation of the
merger, including, among others, approval of the shareholders of Sweet Water,
certain regulatory approvals (which we have already received), receipt of a
letter regarding pooling of interest accounting treatment from South Alabama's
outside auditors, and the non-occurrence of certain events which would have a
material negative impact on South Alabama or Sweet Water. Furthermore, in
certain circumstances, South Alabama and Sweet Water, or one or either of
them, have the right to terminate the merger agreement and abandon the
merger. If all of the conditions to consummation of the merger are not
either fulfilled or waived, or if Sweet Water and/or South Alabama terminate
the merger agreement, then the merger will not occur.
Pooling of Interests Accounting Treatment (Page 32)
We expect the merger to qualify for pooling of interests accounting
treatment.
Selected Consolidated Financial Data
The following tables present for South Alabama and Sweet Water, 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 Sweet Water, appearing
elsewhere in this Prospectus, and should be read in conjunction therewith and
with the notes thereto. See "Available Information," "Incorporation of
Certain Documents by Reference," "Pro Forma Financial Information" and
Appendix C hereto. The financial data as of March 31, 1999 and 1998, and the
three month periods then ended are derived from unaudited financial
statements; however, in the opinion of management of South Alabama and Sweet
Water, all adjustments necessary to arrive at a fair statement of results of
interim period operation of the respective companies have been included and
are solely of a normal recurring nature. Results for the three months ended
March 31, 1999, are not necessarily indicative of results to be expected for
the entire year or for any future period.
<TABLE>
South Alabama Selected Financial Data (Historical)
(Dollars In Thousands Except Per Share Amounts)
<CAPTION>
Three Months Ended
March 31, Year Ended December 31,
------------------- --------------------------------------------------------
1999 1998 1998(1) 1997(1) 1996(1) 1995 1994
<S> <C> <C> <C> <C> <C> <C> <C>
RESULTS OF OPERATIONS
Interest revenue $ 8,718 $ 7,936 $ 33,826 $ 30,897 $ 24,734 $ 22,778 $ 19,605
Interest expense 3,929 3,650 15,577 13,433 9,702 7,112 10,561
Net interest revenue 4,789 4,286 18,249 17,464 14,173 13,076 12,493
Provision for loan losses 142 95 301 308 78 84 396
Non-interest revenue 956 832 4,113 3,675 3,034 2,693 2,664
Non-interest expense 3,659 3,294 14,332 13,242 11,040 10,279 10,130
Income before income taxes 1,944 1,729 7,729 7,501 5,859 5,412 4,943
Income taxes 544 476 2,154 1,996 1,733 1,646 1,439
Net income $ 1,400 $ 1,253 $ 5,575 $ 5,505 $ 4,126 $ 3,766 $ 3,504
Basic net income per share $ 0.18 $ 0.17 $ 0.73 $ .73 $ .69 $ .66 $ .62
Diluted net income per share $ 0.18 $ 0.16 $ 0.72 $ .73 $ .69 $ .66 $ .62
PERIOD-END STATEMENT OF
CONDITION
Total assets $503,982 $448,346 $503,847 $437,592 $413,863 $306,740 $275,579
Loans, Net Unearned Income 302,323 237,759 278,011 244,628 232,153 182,850 169,808
Deposits 428,684 383,105 428,076 371,991 349,660 264,748 234,983
Shareholders' equity 59,193 53,686 58,946 52,664 53,586 34,921 31,190
AVERAGE BALANCES
Total assets $497,141 $436,862 $464,728 $412,087 $323,673 $288,320 $274,459
Average earning assets 462,131 405,255 431,737 381,218 298,687 266,819 253,633
Loans 291,306 241,714 257,241 239,044 197,518 177,932 157,867
Deposits 420,810 371,282 393,427 349,810 276,702 246,868 235,846
Shareholders' equity 59,332 52,507 55,539 51,963 38,901 33,128 30,822
PERFORMANCE RATIOS(2)
Net income to:
Average total assets 1.14% 1.16% 1.20% 1.34% 1.27% 1.31% 1.28%
Average shareholders' equity 9.57% 9.68% 10.04% 10.59% 10.61% 11.37% 11.37%
Average shareholders' equity to
average total assets 11.93% 12.02% 11.95% 12.61% 12.02% 11.49% 11.23%
Dividend payout ratio 47.22% 36.47% 43.56% 132.60%(3) 35.80% 39.72% 27.49%
__________________
(1) The results of operations of South Alabama include The Monroe County
Bank from October 31, 1996, the date it was acquired in a purchase
business combination.
(2) Annualized for three month periods.
(3) Includes special dividend of $0.833 per share.
</TABLE>
<TABLE>
Sweet Water Selected Financial Data (Historical)
(Dollars in Thousands Except Per Share Amounts)
<CAPTION>
Three Months Ended
March 31, Year Ended December 31,
------------------ ---------------------------------------------------
1999 1998 1998 1997 1996 1995 1994
<S> <C> <C> <C> <C> <C> <C> <C>
RESULTS OF OPERATIONS
Interest revenue $ 1,094 $ 1,005 $ 4,244 $ 3,565 $ 3,505 $ 3,354 $ 2,902
Interest expense 551 443 1,975 1,608 1,654 1,470 1,229
Net interest revenue 543 562 2,269 1,957 1,851 1,884 1,673
Provision for loan losses 9 30 270 23 30 60 33
Non-interest revenue 115 98 402 369 301 289 355
Non-interest expense 446 424 1,774 1,516 1,234 1,237 1,155
Income before income taxes 203 206 627 787 888 876 840
Income taxes 52 52 113 178 188 190 225
Net income $ 151 $ 154 $ 514 $ 609 $ 700 $ 686 $ 615
Earnings per share:
Basic net income per share $ 2.52 $ 2.57 $ 8.57 $ 10.15 $ 11.67 $ 11.43 $ 10.25
Diluted net income per
share $ 2.52 $ 2.57 $ 8.57 $ 10.15 $ 11.67 $ 11.43 $ 10.25
PERIOD-END STATEMENT
OF CONDITION:
Total assets $56,231 $48,193 $53,502 $47,070 $42,420 $41,318 $39,932
Loans,net of unearned income 33,769 31,231 35,020 28,702 24,714 23,345 24,418
Deposits 49,926 42,210 47,369 41,352 36,590 36,328 35,516
Shareholders' equity 5,821 5,695 5,784 5,539 5,105 4,755 4,220
AVERAGE BALANCES
Total assets $55,860 $46,749 $49,810 $43,795 $42,851 $40,086 $39,052
Average earning assets 51,041 43,456 46,653 41,348 40,221 37,605 36,413
Loans, net of unearned income34,153 29,571 32,111 25,733 23,692 22,962 23,619
Deposits 49,482 40,911 43,629 37,997 37,424 35,189 34,653
Shareholders' equity 5,785 5,607 5,846 5,423 5,040 4,611 4,131
PERFORMANCE RATIOS (1)
Net income to:
Average total assets 1.10% 1.34% 1.03% 1.39% 1.63% 1.71% 1.57%
Average shareholders' equity 10.59% 11.14% 8.79% 11.23% 13.89% 14.88% 14.89%
Average shareholders' equity
to average total assets 10.36% 11.99% 11.74% 12.38% 11.76% 11.50% 10.58%
Dividend payout ratio 47.68% 0.00% 52.53% 41.87% 34.29% 32.80% 31.71%
(1) Annualized for three month periods.
</TABLE>
The following table sets forth pro forma combined selected consolidated
financial data and ratios giving effect to the Merger on a pooling-of-
interests accounting basis. The data is not necessarily indicative of the
results of the future operations of either entity or the actual results that
would have occurred during the period indicated below and should be read in
conjunction with the Unaudited Pro Forma Combined Condensed Consolidated
Financial Statements appearing elsewhere in this Prospectus and the
consolidated financial statements of South Alabama, incorporated herein by
reference, and Sweet Water, appearing elsewhere in this Prospectus. See
"Incorporation of Certain Documents by Reference," "Pro Forma Financial
Information" and Appendix C.
<TABLE>
Combined Pro Forma Selected Consolidated Financial Data
(Dollars In Thousands Except Per Share Amounts)
Three Months Ended
March 31, Year Ended December 31,
-------------------- --------------------------------------------------------
1999 1998 1998(1) 1997(1) 1996(1) 1995 1994
<S> <C> <C> <C> <C> <C> <C> <C>
RESULTS OF OPERATIONS
Interest revenue $ 9,812 $ 8,941 $ 38,070 $ 34,462 $ 28,239 $ 26,132 $ 22,507
Interest expense 4,480 4,093 17,552 15,041 12,215 11,172 8,341
Net interest revenue 5,332 4,848 20,518 19,421 16,024 14,960 14,166
Provision for loan losses 151 125 571 419 338 138 117
Non-interest revenue 1,071 930 4,515 4,044 3,335 2,982 3,019
Non-interest expense 4,105 3,718 16,106 14,758 12,274 11,516 11,285
Income before income taxes 2,147 1,935 8,356 8,288 6,747 6,288 5,783
Income taxes 596 528 2,267 2,174 1,921 1,836 1,664
Net income $ 1,551 $ 1,407 $ 6,089 $ 6,114 $ 4,826 $ 4,452 $ 4,119
Net Income per share $ 0.18 $ 0.17 $ 0.72 $ 0.73 $ 0.71 $ 0.68 $ 0.63
Diluted net income per share $ 0.18 $ 0.17 $ 0.71 $ 0.72 $ 0.70 $ 0.68 $ 0.63
PERIOD-END
STATEMENT OF CONDITION:
Total assets $560,213 $496,539 $557,349 $484,662 $456,283 $348,058 $315,511
Loans, Net Unearned Income 336,092 268,990 313,031 273,330 256,867 206,195 194,226
Deposits 478,610 425,315 475,445 413,343 386,250 301,076 270,499
Shareholders' equity 65,014 59,381 64,730 58,203 58,691 39,676 35,410
AVERAGE BALANCES
Total assets $553,001 $483,611 $514,538 $455,882 $366,524 $328,406 $313,511
Average earning assets 513,172 448,711 478,390 422,566 338,908 304,424 290,046
Loans 325,459 271,285 289,352 264,777 221,210 200,894 181,486
Deposits 470,292 412,193 437,056 387,807 314,126 282,057 270,499
Shareholders' equity 65,117 58,114 61,385 57,386 43,941 37,739 34,953
PERFORMANCE RATIOS(2)
Net income to:
Average total assets 1.14% 1.18% 1.18% 1.34% 1.32% 1.36% 1.31%
Average shareholders' equity 9.66% 9.82% 9.92% 10.65% 10.98% 11.80% 11.78%
Average shareholders' equity to
average total assets 11.78% 12.02% 11.93% 12.59% 11.99% 11.49% 11.15%
Dividend payout ratio 46.98% 33.30% 44.70% 123.49%(3) 36.74% 31.04% 28.12%
________________
(1) The results of operations of South Alabama include The Monroe County Bank from October 31, 1996, the date it was
acquired in a purchase business combination.
(2) Annualized for three month periods.
(3) Includes special dividend of $.833 per share
</TABLE>
Comparative Per Share Data
The following table presents selected comparative per share data for
South Alabama common stock and Sweet Water common stock on a historical basis,
for South Alabama common stock on a pro forma basis reflecting consummation
of the Merger and for Sweet Water common stock on an equivalent pro forma
basis reflecting consummation of the Merger. Such information has been
prepared giving effect to the Merger on a pooling-of-interests accounting
basis. See "The Merger Accounting Treatment." The data is not necessarily
indicative of the results of the future operations of either entity or the
actual results that would have occurred had the Merger been consummated as of
the first date of each income statement presented. The information is
derived from and should be read in conjunction with the historical
consolidated financial statements of South Alabama, including related notes
thereto, which are incorporated by reference, and the historical financial
statements of Sweet Water, including the notes thereto, and the unaudited pro
forma financial information appearing elsewhere in this Prospectus. See
"Available Information," "Incorporation of Certain Documents by Reference,"
"Pro Forma Financial Information" and Appendix C hereto.
<TABLE>
<CAPTION>
Three Months Ended Year Ended December 31,
March 31, 1999 1998 1997 1996
<S> <C> <C> <C> <C>
South Alabama Common Stock
Net income per common share:
Historical:
Basic $0.18 0.73 0.73 0.69
Diluted 0.18 0.72 0.73 0.69
Pro forma combined:
Basic 0.18 0.72 0.73 0.71
Diluted 0.18 0.71 0.72 0.70
Dividends paid per common share:
Historical 0.085 0.32 0.97 0.25
Pro forma combined 0.085 0.32 0.90 0.25
Book value per common share
(at end of period):
Historical 7.66 7.64 6.97 7.12
Pro forma combined 7.58 7.56 6.92 7.01
Sweet Water Common Stock
Net income per common share:
Historical:
Basic and Diluted 2.52 8.57 10.15 11.67
Pro forma equivalent (1)
Basic 2.56 10.14 10.33 9.99
Diluted 2.54 10.00 10.26 9.95
Dividends paid per common share:
Historical 1.20 4.50 4.25 4.00
Pro forma equivalent (1) 1.202 4.51 12.76 3.56
Book value per common share
(at end of period):
Historical 97.02 96.40 92.31 86.68
Pro forma equivalent (1) 107.38 107.10 98.09 99.40
(1) Sweet Water pro forma equivalent amounts are computed by applying an assumed
Exchange Ratio of 14.17 shares of South Alabama common stock for each share
of Sweet Water 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 and Sweet Water and pro forma ratios for the combined company,
together with the minimum ratios required by regulatory agencies, as of
March 31, 1999. See "Supervision, Regulation, and Effects of Governmental
Policy Capital Adequacy."
<TABLE>
<CAPTION>
South Sweet Pro Forma
Alabama Water Combined
<S> <C> <C> <C>
Risk-based capital ratios
Tier I capital 15.66% 15.92% 15.69%
Total capital (Tier I and II) 16.62% 17.08% 16.67%
Minimum risk-based capital ratios
TierI capital 4.00% 4.00% 4.00%
Total capital (Tier I and II) 8.00% 8.00% 8.00%
Tier I leverage ratio 10.90% 10.11% 10.82%
Minimum Tier I leverage ratio 4.00%-5.00% 4.00%-5.00% 4.00%-5.00%
</TABLE>
INFORMATION REQUESTS
This proxy statement/prospectus incorporates important business and
financial information about South Alabama that is not included in or
delivered with this document. On your written request, South Alabama will
provide, without charge, a copy of any or all of such excluded information.
You may request this information from:
F. Michael Johnson
Chief Financial Officer and Secretary
South Alabama Bancorporation, Inc.
Post Office Box 3067
Mobile, Alabama 36652
(334) 431-7800.
In order to insure timely delivery of such documents any requests should
be made by September 2, 1999.
A WARNING ABOUT FORWARD-LOOKING STATEMENTS
This Prospectus contains forward looking statements about South Alabama
and Sweet Water and about South Alabama following the Merger. These statements
can be identified by our use of words like "expect," "may," "could," "intend,"
"project," "estimate" or "anticipate." These forward-looking statements
reflect our current views, but they are based on assumptions and are subject
to risks, uncertainties and other variables, which you should consider in
voting on the merger, including the following:
1. Expected cost savings from the merger (and other acquisitions) are
less than anticipated;
2. Deposit attrition, customer loss, or revenue loss following the
merger is greater than expected;
3. Competitive pressure in the banking industry increases significantly;
4. Costs or difficulties related to the integration of the businesses of
South Alabama and Sweet Water are greater than expected;
5. Changes in the interest rate environment reduce margins;
6. General economic conditions, either locally or regionally, are less
favorable than expected, resulting in, among other things, a
deterioration in credit quality;
7. Changes occur in the regulatory environment;
8. Changes occur in business conditions and inflation;
9. Changes occur in the securities markets; and
10. Disruptions of the operations of South Alabama, Sweet Water, or any
of their subsidiaries, or any other private or governmental entity as a
result of the "Year 2000 problem."
GENERAL INFORMATION
Special Meeting, Record Date and Vote Required
Sweet Water Special Meeting. The Special Meeting of Shareholders of Sweet
Water (the "Sweet Water Meeting") will be held at 101 Main Street, Sweet
Water, Alabama, at 10:00 a.m., local time, on September 9, 1999. The
purpose of the meeting is to consider and vote upon a proposal to approve
the Agreement and Plan of Merger attached hereto as Appendix A (the "Merger
Agreement"), which provides for, among other things, the merger of Sweet
Water with and into South Alabama (the "Merger"). Only holders of record
of Sweet Water common stock at the close of business on the Sweet Water
Record Date, July 27, 1999, will be entitled to notice of and to vote at
the Sweet Water Meeting. As of the Sweet Water Record Date, there were
60,000 shares of Sweet Water common stock issued, outstanding and entitled
to be voted. There were 162 Sweet Water shareholders of record on the
Sweet Water Record Date. Each share of Sweet Water common stock will be
entitled to one vote at the Sweet Water Meeting.
The presence, in person or by proxy, of holders of a majority of the issued
and outstanding shares of Sweet Water common stock entitled to vote at the
Sweet Water Meeting is necessary to constitute a quorum at such meeting.
Approval of the Merger Agreement on behalf of Sweet Water, pursuant to the
Alabama Business Corporation Act (the "ABCA"), will require the affirmative
vote of the holders of at least two-thirds of the outstanding shares of
Sweet Water common stock entitled to be voted thereon. For this purpose,
a failure to return the enclosed proxy, a vote to abstain and a broker non-vote
will have the same effect as a vote against approval of the Merger Agreement.
As of the Sweet Water Record Date, 16,081 shares of Sweet Water common stock,
or 26.8% of the total shares of Sweet Water common stock outstanding, were
held, either of record or beneficially, by directors and executive officers of
Sweet Water and certain family members and related entities. Assuming all
such shares are voted in favor of the Merger, 23,939 additional affirmative
votes of shares of Sweet Water common stock will be required for approval.
Dissenters' rights may be demanded by Sweet Water shareholders who do not
vote in favor of the Merger and who follow the specified procedures of the ABCA.
See "Dissenters' Rights" below.
Proxies
Sweet Water. The enclosed proxy is solicited on behalf of the Board of
Directors of Sweet Water for use in connection with the Sweet Water Meeting and
any adjournment or adjournments thereof. Holders of Sweet Water common
stock are requested to complete, date and sign the accompanying proxy and return
it promptly to Sweet Water in the enclosed envelope. Failure to return a
properly executed proxy or to vote at the Sweet Water Meeting will have the
same effect as a vote against approval of the Merger Agreement.
A Sweet Water 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 Sweet Water, provided such later proxy or
revocation is actually received by Sweet Water before the vote of the
shareholders, or by voting in person at the Sweet Water Meeting. Any
shareholder attending the Sweet Water 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 Sweet Water 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. Sweet Water will bear the costs of any solicitation of
proxies for the Sweet Water Meeting, except that South Alabama will pay the
costs of preparing (exclusive of Sweet Water's legal fees), 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 Sweet Water, but no written materials other
than those included herewith will be used to solicit proxies.
The management of Sweet Water is not aware of any business to be acted
upon at the Sweet Water Meeting other than approval of a proposal to approve
the Merger Agreement. If other matters are properly brought before the Sweet
Water Meeting or any adjournment thereof, any proxy, if properly signed,
dated and returned, will be voted in accordance with the recommendation of
Sweet Water'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.
Sweet Water Dissenters' Rights. If the Merger is consummated, holders of
record of Sweet Water 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. Sweet Water
shareholders who elect to follow such procedures are referred to herein as
"Dissenting Sweet Water Shareholders".
A vote in favor of the Merger Agreement by a holder of Sweet Water 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 D to this Prospectus, and is qualified in its entirety by reference
thereto.
A holder of Sweet Water common stock electing to exercise dissenters'
rights (1) must deliver to Sweet Water, before the vote at the Sweet Water
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 Sweet Water 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 Sweet Water before the vote on the Merger Agreement.
Both holders of record and beneficial owners of Sweet Water 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 Sweet Water 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 Sweet Water 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 Sweet Water 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, South Alabama will send a
written dissenters' notice to each Dissenting Sweet Water 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 South Alabama must receive a payment
demand from such Dissenting Sweet Water 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 any Dissenting Sweet Water Shareholder to initiate all necessary action to
perfect his or her dissenters' rights within the time periods prescribed in
Article 13 and the dissenters' notice. If no payment demand is timely received
from a Dissenting Sweet Water Shareholder, all dissenters' rights will be lost,
notwithstanding any previously submitted written notice of intent to demand
payment. Each Dissenting Sweet Water Shareholder who demands payment retains
all other rights of a shareholder until those rights are cancelled or modified
by the Merger. A Dissenting Sweet Water 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 South Alabama
consents thereto.
Within 20 days of the formal payment demand, a Dissenting Sweet Water
Shareholder who has made a demand must submit his or her share certificate
or certificates to South Alabama so that a notation to that effect may be
placed on such certificate or certificates and the shares returned to the
Dissenting Sweet Water Shareholder with the notation thereon. A shareholder's
failure to submit shares for notation will, at South Alabama'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,
South Alabama shall offer to pay each Dissenting Sweet Water Shareholder who
complied with Article 13 the amount South Alabama estimates to be the fair value
of such Dissenting Sweet Water Shareholder's shares, plus accrued interest.
Each Dissenting Sweet Water Shareholder who agrees to accept the above
referenced offer of payment in full satisfaction of his or her demand must
surrender to South Alabama the certificate or certificates representing his or
her shares in accordance with the terms of the dissenters' notice. Upon
receiving the certificate or certificates, South Alabama shall pay each
Dissenting Sweet Water Shareholder the fair value of his or her shares, plus
accrued interest. Upon receiving payment, a Dissenting Sweet Water Shareholder
ceases to have any interest in the shares.
A Dissenting Sweet Water Shareholder who has made a payment demand may
notify South Alabama 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 Sweet Water 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) South Alabama fails to make an offer as
required by Article 13 within sixty (60) days after the date set for demanding
payment; or (iii) Sweet Water 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
Sweet Water Shareholder waives his or her right to demand payment different
from that offered unless he or she notifies South Alabama of his or her demand
in writing within thirty (30) days after South Alabama offered payment for his
or her shares.
If a demand for payment remains unsettled, South Alabama 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 Sweet Water 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 Sweet Water
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 South Alabama of the
certificate or certificates representing the judicially appraised shares, a
Dissenting Sweet Water 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 Sweet Water Shareholders, in amounts the court finds
equitable, to the extent the court finds that such Dissenting Sweet Water
Shareholders acted arbitrarily, vexatiously, or not in good faith in demanding
payment different from that initially offered by South Alabama. The Court may
also assess the reasonable fees and expenses of counsel and experts against all
or some of the Dissenting Sweet Water Shareholders if the court finds that such
Dissenting Sweet Water Shareholders acted arbitrarily, vexatiously or not in
good faith with respect to the rights provided in Article 13.
Recommendation of Sweet Water Board of Directors
The Board of Directors of Sweet Water has recommended that the shareholders
of Sweet Water 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, Sweet Water will merge with and into South Alabama
with South Alabama as the surviving corporation. In the Merger, each share of
Sweet Water common stock outstanding immediately prior to the Effective Time,
other than certain shares held by Sweet Water or by South Alabama or their
subsidiaries, if any, in each case other than in a fiduciary capacity or as a
result of debts previously contracted, will be converted into and exchanged for
the right to receive 14.17 shares (rounded to the nearest hundredth) of South
Alabama common stock (the "Exchange Ratio"), if the Market Price (defined
below) of South Alabama common stock is between $13.00 and $17.00 per share,
inclusive. If the Market Price of South Alabama common stock is greater than
$17.00, then the Exchange Ratio shall be the number of shares of South Alabama
common stock having an aggregate Market Price of $240.89. If the Market Price
of South Alabama common stock is less than $13.00, then the Exchange Ratio
shall be the number of shares of South Alabama common stock having an aggregate
Market Price of $184.21.
The "Market Price" of a share of South Alabama common stock is the average
of the closing bid and closing ask price, as reported on NASDAQ, during the
period of 20 consecutive NASDAQ trading days ending on the trading day
preceding by two trading days the Effective Time. The Merger Agreement provides
for adjustment of 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 Sweet Water.
As an example, if the Market Price is $13.54 (which, as of July 27,
1999, was the average Market Value of South Alabama common stock during the
preceding 20 trading days), then each share of Sweet Water common stock
will be converted into 14.17 shares of South Alabama common stock. As a result,
a shareholder of Sweet Water who owns 100 shares of Sweet Water common stock
would receive 1,417 shares of South Alabama common stock (14.17 multiplied
by 100). If the Market Price of South Alabama common stock is $12.50, then each
share of Sweet Water common stock will be converted into the right to receive
14.74 shares of South Alabama common stock ($184.21 divided by $12.50). If
the Market Price of South Alabama common stock is $17.50, then each share of
Sweet Water common stock will be converted into the right to receive 13.77
shares of South Alabama common stock ($240.89 divided by $17.50).
Shareholders are advised to obtain current market quotations for South
Alabama common stock. The Market Price of South Alabama common stock at the
Effective Time or on the date on which certificates representing such shares
are received by Sweet Water shareholders may be higher or lower than the
Market Price of South Alabama common stock as of the date of this Prospectus or
at the time of the Sweet Water Meeting.
No fractional shares of South Alabama common stock will be issued in
exchange for Sweet Water 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 Price of South Alabama common stock.
Waiver and Amendment; Termination
Prior to the Effective Time, either South Alabama or Sweet Water 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 and Sweet
Water may, to the extent permitted by law, amend the Merger Agreement in
writing with the approval of the Board of Directors of each of Sweet Water 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
shareholders of Sweet Water fail to approve the Merger as required; (v) by
South Alabama if the Market Price of a share of South Alabama common stock
is less than $10.00; (vi) by Sweet Water if South Alabama enters into a letter
of intent or agreement concerning its acquisition by a third party; (vii) by
either party in the event the Merger shall not have been consummated by October
31, 1999, unless such failure is caused by a breach on the part of the party
electing to terminate; or (viii) 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 October 31, 1999.
In determining whether to elect to terminate the Merger Agreement in these
circumstances, the Sweet Water 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 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 Sweet Water
common stock will permit the Sweet Water Board of Directors to determine,
in the exercise of its fiduciary duties, to proceed with the Merger even
though the Merger is not consummated, or any conditions precedent thereto
cannot be satisfied or fulfilled, by October 31, 1999.
In the event of the termination of the Merger Agreement, it shall become
void and have no effect, except that the confidentiality requirements shall
survive such termination and such termination will not relieve a breaching party
from liability for an uncured willful breach of the representation, warranty,
covenant or agreement giving rise to the termination.
Opinion of Sweet Water's Financial Advisor
Sweet Water retained Alex Sheshunoff & Co. Investment Banking (the
"Advisor") to provide its opinion of the fairness from a financial viewpoint,
of the Merger consideration to be received by the shareholders of Sweet Water in
connection with the Merger. As part of its investment banking business, the
Advisor is regularly engaged in the valuation of securities in connection with
mergers and acquisitions and valuations for estate, corporate and other
purposes. The Board of Directors of Sweet Water retained the Advisor based
upon its experience as a financial advisor in mergers and acquisitions of
financial institutions and its knowledge of financial institutions. Sweet Water
did not retain the Advisor to negotiate the proposed merger, and the terms and
conditions of the merger were negotiated directly by and between Sweet
Water and South Alabama.
On March 30, 1999, the Advisor rendered its oral opinion that, as of such
date, the Merger consideration was fair, from a financial point of view, to the
shareholders of Sweet Water. The Advisor rendered its written Fairness Opinion
as of June 24, 1999. The full text of the Fairness Opinion which sets forth,
among other things, assumptions made, procedures followed, matters considered,
and limitations on the review undertaken, is attached as Appendix B to this
Prospectus. The shareholders of Sweet Water are urged to read the Advisor's
Fairness Opinion carefully and in its entirety. The Fairness Opinion is
addressed to the Board of Directors of Sweet Water and does not constitute a
recommendation to any shareholders of Sweet Water as to how such shareholders
should vote at the Sweet Water Meeting.
In connection with the Fairness Opinion, the Advisor:
1. reviewed the Merger Agreement;
2. reviewed certain publicly available financial statements and
regulatory information concerning South Alabama and Sweet Water, respectively;
3. reviewed certain internal financial statements and other financial and
operating data of Sweet Water provided to the Advisor by the management of Sweet
Water;
4. reviewed the reported market prices and trading activity for South
Alabama's common stock;
5. discussed the past and current operations, financial condition, and
future prospects of Sweet Water with executive management;
6. compared Sweet Water and South Alabama from a financial point of view
with certain other banking companies that the Advisor deemed to be relevant;
7. compared the financial performance of South Alabama and the market
prices and trading activity of South Alabama's common stock with that of
certain other indices of publicly traded equity securities;
8. reviewed the financial terms, to the extent publicly available, of
certain comparable merger transactions in the Southeastern United States and
in Alabama; and
9. performed such other analyses and reviews as the Advisor deemed
appropriate.
In connection with its review, the Advisor relied upon and assumed the
accuracy and completeness of all of the foregoing information provided to it or
made publicly available, and the Advisor did not assume any responsibility for
independent verification of such information. The Advisor assumed that
internal confidential financial projections provided by Sweet Water were
reasonably prepared reflecting the best currently available estimates and
judgments of the future financial performance of Sweet Water and did not
independently verify the validity of such assumptions. The Advisor did
not make any independent evaluation or appraisal of the assets or liabilities
of Sweet Water nor was the Advisor furnished with any such appraisals. The
Advisor did not examine any individual loan files of Sweet Water. The Advisor
is not an expert in the evaluation of loan portfolios for the purposes of
assessing the adequacy of the allowance for losses with respect thereto and
has assumed that such allowance is, in the aggregate, adequate to cover such
losses.
With respect to South Alabama, the Advisor did not conduct any independent
evaluation or appraisal of the assets, liabilities or business prospects of
South Alabama, was not furnished with any evaluations or appraisals, and
did not review any individual loan files of South Alabama.
The Fairness Opinion is necessarily based on economic, market and other
conditions as in effect on, and the information made available to the
Advisor as of June 23, 1999.
In rendering the Fairness Opinion, the Advisor performed a variety of
financial analyses. The preparation of an opinion involves various
determinations as to the most appropriate and relevant methods of financial
analysis and the application of those methods to the particular circumstances.
Consequently, the Fairness Opinion is not readily susceptible to partial
analysis of summary description. Moreover, the evaluation of fairness, from a
financial point of view, of the Merger consideration is to some extent
subjective, based on the experience and judgment of the Advisor, and not merely
the result of mathematical analysis of financial data. Accordingly,
notwithstanding the separate factors summarized below,the Advisor believes
that its analyses must be considered as a whole and that selecting portions of
its analyses and of the factors considered by it, without considering all
analyses and factors, could create an incomplete view of the evaluation
process underlying its opinion. The ranges of valuations resulting from any
particular analysis described below should not be taken to be the Advisor's
view of the actual value of Sweet Water.
In performing its analyses, the Advisor made numerous assumptions with
respect to industry performance, business and economic conditions and other
matters, many of which are beyond the control of Sweet Water. The analyses
performed by the Advisor are not necessarily indicative of actual values or
future results, which may be significantly more or less favorable than suggested
by such analyses, nor are they appraisals. In addition, the Advisor's analyses
should not be viewed as determinative of the opinion of the Board of Directors
or the management of Sweet Water with respect to the value of Sweet Water.
The following is a summary of the analyses performed by the Advisor in
connection with the Fairness Opinion updated as of June 24, 1999. The following
discussion contains financial information concerning Sweet Water and South
Alabama as of December 30, 1998 and market information as of June 23, 1999.
Analysis of Selected Transactions . The Advisor performed an analysis of
premiums paid in selected pending or recently completed acquisitions of banking
organizations in Alabama and in the Southeastern United States with comparable
characteristics to the Merger. Two sets of comparable transactions were
analyzed to ensure a thorough comparison.
The first set of comparable transactions consisted of a group of comparable
transactions based upon the geographic market area of Alabama for which pricing
data were available. These comparable transactions consisted of three mergers
and acquisitions of banks located in Alabama with assets of less than $100
million which were announced or completed between January 1, 1998 and June 23,
1999. The analysis yielded multiples of the purchase price in these
transactions relative to:
1. Book value ranging from 1.64 times to 2.95 times with an average of
2.36 times and a median of 2.50 times (compared with the multiples implied in
the Merger of 1.85 times December 30, 1998 book value for Sweet Water);
2. Last twelve months earnings ranging from 14.2 times to 40.6 times with
an average of 26.1 times and a median of 23.4 times (compared with the multiples
implied in the Merger of 16.4 times last twelve months earnings as
of December 30, 1998 for Sweet Water);
3. Total assets ranging between 17.7% and 26.8% with an average of 22.3%
and a median of 22.4% (compared with the multiples implied in the Merger of
20.0% of December 30, 1998 total assets for Sweet Water); and
4. Total deposits ranging from 20.0% to 31.6% with an average of 25.4%
and a median of 24.6% (compared with the multiples implied in the Merger of
22.5% of deposits as of December 30, 1998 for Sweet Water).
The second set of comparable transactions consisted of a group of
comparable transactions based upon the profitability, asset size and
geographic market area of Sweet Water for which pricing data were available.
These comparable transactions specifically consisted of forty-five mergers and
acquisitions of banks in the Southeast with total assets of less than $100
million and which were announced or completed between June 1, 1998 and June
23, 1999. The analysis yielded multiples of the purchase price in these
transactions relative to:
1. Book value ranging from 1.27 times to 3.49 times with an average of
2.36 times and a median of 2.27 times (compared with the multiples implied in
the Merger of 1.85 times December 30, 1998 book value for Sweet Water);
2. Last twelve months earnings ranging from 12.9 times to 58.1 times with
an average of 26.2 times and a median of 21.5 times (compared with the multiples
implied in the Merger of 16.4 times last twelve months earnings as
of December 30, 1998 for Sweet Water);
3. Total assets ranging between 7.5% and 51.1% with an average of 24.2%
and a median of 22.9% (compared with the multiples implied in the Merger of
20.0% of December 30, 1998 total assets for Sweet Water); and
4. Total deposits ranging from 7.9% to 88.1% with an average of 28.6%
and a median of 25.5% (compared with the multiples implied in the Merger of
22.5% of deposits as of December 30, 1998 for Sweet Water).
Discounted Cash Flow Analysis. Using discounted cash flow analysis, the
Advisor estimated the present value of the future after-tax cash flow streams
that Sweet Water could produce through the year 2003, under various
circumstances, assuming that it performed in accordance with the earnings/return
projections provided by management.
The Advisor estimated the terminal value for Sweet Water at the end of
2003 by capitalizing the final period projected earnings by the quotient of
(i) the assumed annual growth rate of the earnings of Sweet Water plus one and
(ii) the difference between a range of required rates of return and the assumed
annual growth rate of earnings in (i) above. This produced a range of terminal
values per share of $147.00 to $184.00. The Advisor then discounted the annual
cash flow streams (defined as all earnings in excess of that required to
maintain a tangible equity to asset ratio of 6.0%) and the terminal values
using discount rates ranging from 12% to 14%. The discount range was chosen to
reflect different assumptions regarding the required rates of return of Sweet
Water and the inherent risk surrounding the underlying projections. This
discounted cash flow analysis indicated a range of values per share of $128.00
to $159.00, compared to the value per share of the Merger consideration to Sweet
Water stockholders of $178.02 as of June 23, 1999.
Comparable Company Analysis. The Advisor compared selected stock market
results of South Alabama to the publicly available corresponding data of other
composites which the Advisor deemed to be relevant, including SNL
Securities, L.P.'s (i) index of all publicly traded banks and (ii) the SNL index
of banks with assets of less than $500 million and (iii) the S&P 500. Although
South Alabama's common stock price has exhibited some recent weakness relative
to the selected indices, this weakness in itself is not material to the fairness
from a financial point of view of the Merger consideration to be received by
stockholders of Sweet Water as of the date of the Fairness Opinion.
No company or transaction used in the comparable company and comparable
transaction analyses is identical to Sweet Water, South Alabama or the Merger.
Accordingly, an analysis of the results of the foregoing necessarily involves
complex considerations and judgments concerning differences in financial and
operating characteristics of Sweet Water and South Alabama and other factors
that could affect the public trading value of the companies to which they are
being compared. Mathematical analysis (such as determining the average or
median) is not in itself a meaningful method of using comparable transaction
data or comparable company data.
Pursuant to an engagement letter dated January 22, 1999, between Sweet
Water and the Advisor, Sweet Water agreed to pay the Advisor a fee of $10,000.
Sweet Water also agreed to indemnify and hold harmless the Advisor and its
officers and employees against certain liabilities in connection with its
services under the engagement letter, except for liabilities resulting from the
negligence, violation of law or regulation or bad faith of the Advisor or any
matter for which the Advisor may have strict liability.
The Fairness Opinion is directed only to the question of whether the Merger
consideration is fair from a financial perspective and does not constitute a
recommendation to any Sweet Water shareholder to vote in favor of the Merger.
No limitations were imposed on the Advisor regarding the scope of its
investigation or otherwise by Sweet Water.
Based on the results of the various analyses described above, the Advisor
concluded that the Merger consideration to be received by Sweet Water
shareholders pursuant to the Merger is fair from a financial point of view.
Effective Date and Effective Time
Articles of Merger will be filed with the Secretary of State of the State
of Alabama (the "Secretary of State") 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 Sweet Water. The Effective Time of the Merger will be
the later of the time stated in the Articles of Merger or the time the Articles
of Merger are filed with the Secretary of State. The Effective Date of the
Merger will be the day on which the Effective Time occurs.
Background of and Reasons for the Merger
Since 1991, management of South Alabama has considered various
possibilities for increased asset and earnings growth, including possible new
branches, acquisition of existing branches of other area banks and the
chartering of new banks within southern Alabama. Since 1993, South Alabama has
acquired through mergers four banks in southern Alabama.
Background of the Merger. In the past several years, Sweet Water has been
approached by several institutions who expressed an interest in merging with
Sweet Water. About two years ago, Sweet Water received an unsolicited and
very informal call to discuss a possible merger with a much larger bank in a
city about one hour from Sweet Water. Representatives of each of the banks held
several meetings by phone and in person to discuss a possible merger. After
careful consideration, the Board of Directors of Sweet Water determined that
the proposed merger consideration was not of sufficient value to the
shareholders of Sweet Water, and those merger negotiations were discontinued.
Sweet Water was next approached by a holding company in West Central
Alabama in June of 1996. Again, the Board of Directors determined the offered
consideration was insufficient, and the merger negotiations were terminated.
In July of 1996, Sweet Water was approached by a holding company of a large
bank in the middle of the state to discuss the possibility of a merger.
Executives of Sweet Water met with the holding company chairman and his
attorney on several occasions, and talks progressed to the point that the
chairman and the attorney made a formal presentation to the Sweet Water
Board of Directors. After several weeks of further discussions and
negotiations, the Sweet Water Board declined to sign a letter of intent.
The Board of Directors of Sweet Water determined that the consideration being
offered was inadequate and that the two companies were not compatible in
their philosophies of management.
In June of 1998, The Commercial National Bank of Demopolis announced that
it intended to merge with South Alabama Bancorporation. Several Executives
and Board Members of Sweet Water had contacts with The Commercial National
Bank. These contacts spoke well of South Alabama and its philosophies of
business and bank management.
In July of 1998, representatives from Sweet Water were approached by
representatives of South Alabama Bancorporation to entertain the
possibility of a merger. After several meetings, a team of executive
officers from South Alabama made a presentation to Sweet Water's
Board on the history of South Alabama and their plans for the future.
The Board of Directors of Sweet Water was impressed with this presentation
and South Alabama's system of bank management. After a period of
negotiation on per share price, a plan for the tax-free exchange of Sweet
Water common stock for South Alabama common stock was agreed on, and a
letter of intent was signed.
Sweet Water held several more meetings and negotiated with South Alabama
in December of 1998 and the first quarter of 1999. The Board engaged Alex
Sheshunoff & Co. to examine the fairness of the merger consideration to the
Sweet Water shareholders. At a meeting of the Board of Directors of Sweet Water
on March 30, 1999, Alex Sheshunoff & Co. rendered a preliminary opinion that
the merger consideration was fair to the shareholders of Sweet Water from a
financial point of view. The Board of Directors approved the Merger
Agreement and authorized its executive offers to execute and fulfill the
agreement.
Reasons for the Merger. Numerous factors were considered by the two
Boards in approving the Merger and, in the case of Sweet Water, 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
Sweet Water, the composition of the businesses of the two organizations, the
overall compatibility of the management of the organizations, the tax free
nature of the transaction, and the outlook for both organizations in the
banking and financial services industry.
In the last several years South Alabama has focused on expanding its
franchise into new markets in the southern half of Alabama, especially in the
southwest quadrant of the state. South Alabama's management believes that it
must grow to remain competitive in the rapidly changing banking environment.
The addition of Sweet Water is expected to increase the resources available
to South Alabama, add stability to its deposit base, allow for a wider
distribution of risk and enhance its ability to keep pace with the technological
and competitive changes in banking.
Sweet Water's Board of Directors believes that the Merger is in the best
interests of Sweet Water and its shareholders. The Board of Directors of Sweet
Water considered a number of factors in deciding to approve and recommend
the terms of the Agreement to Sweet Water shareholders. These factors included,
among other things: (i) the terms of the proposed transaction; (ii) the
financial condition, results of operations, and future prospects of Sweet Water;
(iii)the likelihood that Sweet Water would continue to face significant
additional competitive pressures in its market area from larger banking and
other financial institutions capable of offering a broad array of financial
services, especially considering the general trend in the banking industry
favoring mergers:(iv)the economies of scale to be afforded by combining the
strengths of Sweet Water State Bank and South Alabama;(v)as a part of a larger
and more diverse financial institution, it is anticipated that the Merger
will help Sweet Water State Bank reach more customers, add additional products
for its customers, diversify its risks, enchance its ability to make larger
loans, and, in general, compete more effectively with larger banking
institutions (vi) the market value of the consideration to be received by Sweet
Water shareholders relative to the book value and earnings per share of Sweet
Water common stock; (vii) the competitive and regulatory environment for
financial institutions generally; (viii) the fact that the Merger will enable
Sweet Water shareholders to exchange their shares of Sweet Water common stock
(for which there is no established public trading market) for shares of common
stock of a larger and more diversified entity, the stock of which is more
widely held and more actively traded; (ix) that the Merger will continue to
enable Sweet Water shareholders to hold stock in a financial institution that
has historically paid cash dividends to its shareholders; (x) the likelihood
of receiving the requisite regulatory approvals; (xi) that it is expected
that the Merger will be a tax-free transaction (except in respect of cash
received for Sweet Water common stock) for federal income tax purposes; (xii)
the appeal of South Alabama's current philosophy of maintaining local
management and allowing local management a high level of autonomy,
particularly as to loan decisions; (x) the fact that South Alabama presently
contemplates continuing to use Sweet Water State Bank's long established name
in the community; (xiv) the expectation that the Merger will decrease Sweet
Water's dependency on the local timber industry; and (xv) the prospect of
minimal job displacement among the two companies. The Board of Directors also
took into account an opinion received from Alex Sheshunoff & Co. Investment
Banking that the consideration to be received by the shareholders of Sweet
Water in the Merger, as determined in the Agreement, is fair, from a financial
point of view, to them. See "-Opinion of Financial Advisor." The foregoing
discussion of the information and factors considered by the Sweet Water Board
of Directors is not intended to be exhaustive of the factors considered by
the Board of Directors. The Sweet Water Board of Directors did not assign any
relative or specific weights to the foregoing factors, and individual
directors may have given different weights to different factors. In addition,
management of South Alabama made it clear to Sweet Water's Board of
Directors that there could be no assurance that factors (xii) and (xiii) listed
above would continue indefinitely. See "Available Information," "Incorporation
of Certain Documents by Reference," "Comparative Market Prices and Dividends"
and "Business of Sweet Water."
Surrender of Certificates
As promptly as practicable after the Effective Time, South Alabama Trust
Company, acting in the capacity of exchange agent for South Alabama (the
"Exchange Agent"), will mail to each former holder of record at the record
date of Sweet Water 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' Sweet Water common stock
certificates for cash and certificates representing shares of South Alabama
common stock. Holders of Sweet Watwe 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 Sweet Water
common stock should complete the letter of transmittal in accordance with
the instructions and mail the letter of transmittal together with all their
stock certificates representing shares of Sweet Water 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 Sweet Water common stock a
check in the amount of any payment in respect of fractional shares of South
Alabama 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 Sweet Water common stock
unless and until such holder shall have delivered to the Exchange Agent
certificates representing the shares of Sweet Water 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 Sweet Water on the Record Date will be
entitled to vote after the Effective Time at any meeting of South Alabama
shareholders the number of whole shares of South Alabama common stock into
which such holders' respective shares of Sweet Water common stock are
converted, regardless of whether such holders have exchanged their
certificates representing Sweet Water 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 Sweet Water common stock will be paid to the
holder of an unsurrendered Sweet Water 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 Sweet Water's stock
transfer books of shares of Sweet Water common stock issued and outstanding at
the Effective Time. If certificates representing shares of Sweet Water 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 nor the Exchange Agent shall be liable to a holder of
Sweet Water common stock for any amounts paid or properly delivered in good
faith to a public official pursuant to any applicable abandoned property
law.
Conditions to Consummation of the Merger
The respective obligations of South Alabama and Sweet Water to effect the
Merger are subject to the satisfaction of the following conditions prior to the
Effective Time: (i) approval of the Merger Agreement and the transactions
contemplated thereby by the holders of at least two-thirds (2/3) of the Sweet
Water common stock; (ii) approval of the Merger Agreement and the transactions
contemplated thereby by the Federal Reserve 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; (vi) South Alabama shall have received a satisfactory letter from
Arthur Andersen LLP to the effect that the merger will qualify for
pooling-of-interests accounting treatment; and (vii) South Alabama and Sweet
Water shall have received an opinion from counsel to South Alabama to the effect
that, for federal income tax purposes, the exchange of Sweet Water common
stock for South Alabama common stock will not give rise to recognition of gain
or loss to shareholders of Sweet Water (other than to the extent any cash is
received) and neither South Alabama nor Sweet Water will recognize gain or loss
as a consequence of the Merger.
The obligations of South Alabama to effect the Merger are further subject
to the satisfaction or waiver of the following conditions: (i) each of the
representations and warranties of Sweet Water set forth in the Merger Agreement
shall be true and correct as of the Effective Time, each of the agreements and
covenants of Sweet Water 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 Sweet Water to the effect that such obligations
have been complied with; (ii) South Alabama shall have received an opinion of
counsel to Sweet Water in the form attached to the Merger Agreement; and (iii)
Sweet Water's Book Value (as defined in the Merger Agreement) shall be at least
$96.40 per share.
The obligations of Sweet Water to effect the Merger are further subject to
the satisfaction or waiver by Sweet Water of the following conditions:
i) each of the representations and warranties of South Alabama set forth in the
Merger Agreement shall be true and correct as of the Effective Time, each of the
agreements and covenants of South Alabama to be performed pursuant to the
Merger Agreement prior to the Effective Time shall have been duly performed, and
Sweet Water shall have received a certificate of South Alabama to the effect
that such obligations have been complied with; (ii) Sweet Water shall have
received an opinion of counsel to South Alabama in the form attached to the
Merger Agreement; (iii) the approval for listing on NASDAQ of the shares of
South Alabama common stock to be issued in the Merger; and (iv) Sweet Water
shall have received the Fairness Opinion from Alex Sheshunoff & Co.
Investment Banking.
Regulatory Approvals
The Merger will not proceed in the absence of receipt of the requisite
regulatory approvals. There can be no assurance that such regulatory approvals
will be obtained or as to the timing of such approvals. There also can be no
assurance that such approvals will not be accompanied by a conditional
requirement which causes such approvals to fail to satisfy the conditions set
forth in the Merger Agreement. Applications for approvals described below have
been submitted to the appropriate regulatory agencies.
South Alabama and Sweet Water are not aware of any material government
approvals or actions that are required for consummation of the Merger, except
as described below. Should any other approval or action be required, it
presently is contemplated that such approval or action would be sought.
The Merger requires the prior approval of the Federal Reserve, pursuant to
Section 3 of the Bank Holding Company Act (the "BHC Act"). In granting its
approval under Section 3 of the BHC Act, the Federal Reserve must take
into consideration, among other factors, the financial and managerial resources
and future prospects of the institutions and the convenience and needs of the
communities to be served. The relevant statutes prohibit the Federal Reserve
from approving the Merger (i) if it would result in a monopoly or be in
furtherance of any combination or conspiracy to monopolize or attempt to
monopolize the business of banking in any part of the United States, or (ii) if
its effect in any section of the country may be to lessen substantially
competition or to tend to create a monopoly, or (iii) if it would be a
restraint of trade in any manner, unless the Federal Reserve finds that any
anti-competitive effects are outweighed clearly by the public interest and the
probable effect of the transaction in meeting the convenience and needs of the
communities to be served. Under the BHC Act, the Merger generally may not be
consummated until the 15th day following the date of Federal Reserve approval,
during which time the United States Department of Justice may challenge the
transaction on antitrust grounds. The commencement of any antitrust action
would stay the effectiveness of the Federal Reserve's approval, unless a court
specifically orders otherwise.
The Federal Reserve approved the Merger on June 3, 1999, and the 15-day
waiting period expired on June 18, 1999.
Conduct of Business Pending the Merger
The Merger Agreement requires that each of Sweet Water and South Alabama
preserve intact its business relationships and goodwill, and take no action that
would adversely affect the ability of either party to obtain any necessary
consents or its ability to perform under the Merger Agreement. In addition,
Sweet Water has agreed that, without the consent of South Alabama, it will not:
(i) amend its charter or bylaws; (ii) incur any additional debt except in the
ordinary course of business or permit any lien on its assets to exist; (iii)
repurchase, redeem or otherwise acquire any of its common stock or declare or
pay any dividend, except that it may alter its dividend patterns as required or
permitted for pooling-of-interests accounting treatment; (iv) issue or sell any
of its common stock or any right to acquire such stock; (v) take any
action with respect to any adjustment or reclassification of its common stock or
dispose of or encumber any stock of a subsidiary or any other of its assets
other than in the ordinary course of business; (vi) acquire any equity interest
in any third party other than in connection with foreclosures or by a subsidiary
acting in a fiduciary capacity; (vii) grant any increase in compensation to
employees or directors or pay any bonus or severance payments, all except in
accordance with past practice; (viii) enter into any employment contracts
without an unconditional right of termination; (ix) adopt any new
employee benefit plan or make any material change to an existing employee
benefit plan unless necessary to maintain the tax qualified status of such plan;
(x) make any significant change in accounting method except as required to meet
regulatory or other requirements; (xi) commence any litigation other than in
accordance with past practice, settle any litigation involving any material
liability, or modify, amend or terminate, except in the ordinary course of
business, any material contract; (xii) operate other than in the ordinary
course of business; or (xiii) fail to file timely any report required
to be filed by it with any Regulatory Authority.
Each party has also agreed to give written notice to the other promptly
upon becoming aware of the occurrence of any event which is likely to constitute
a Material Adverse Effect within the meaning given to such term in the Merger
Agreement or constitute a breach of any of its representations, warranties or
covenants contained in the Merger Agreement and to use its reasonable efforts to
remedy any such condition or breach.
Commitments with Respect to Other Offers
Until the termination of the Merger Agreement, and except for the Merger,
neither Sweet Water nor any of its directors or officers (or any person
representing any of the foregoing) shall solicit inquiries or proposals with
respect to, furnish any non-public information it is not legally obligated to
furnish, or enter into any contract concerning any acquisition or purchase of
all or of a substantial portion of the assets of, or of a substantial equity
interest in, Sweet Water or any business combination involving Sweet Water
(collectively, an "Acquisition Proposal") other than as contemplated
by the Merger Agreement. Sweet Water will notify South Alabama immediately
if any such inquiries or proposals are received by Sweet Water. SwSeet Water
shall instruct its officers, directors, agents or affiliates or their
subsidiaries to refrain from doing any of the above. Sweet Water may
communicate information about an Acquisition Proposal to its shareholders
to the extent that it is required to do so in order to comply with its legal
obligations.
South Alabama shall promptly notify Sweet Water orally and in writing if it
receives any inquiry or proposal relating to an Acquisition Proposal. Sweet
Water shall keep any such information confidential.
Management and Operations After the Merger
The Merger Agreement provides for the appointment of the Chairman of Sweet
Water's Board of Directors, Stratton F. Lewis, Jr., and Jack O. Kerby, Sr.,
to the Board of Directors of South Alabama and the election of Stratton F.
Lewis, Jr., as an executive officer of South Alabama.
Interests of Certain Persons in the Merger
Certain of the directors and executive officers of Sweet Water, members of
their families and certain of their associates own, or have interests in, 2,700
shares of South Alabama common stock in the aggregate.
South Alabama has agreed in the Merger Agreement to indemnify present and
former directors and officers of Sweet Water against liabilities arising out of
actions or omissions occurring at or prior to the Effective Time to the extent
South Alabama would have been authorized under the ABCA and Sweet Water's
Articles and Bylaws.
In the normal course of business, South Alabama Bank, The Monroe County
Bank, First National Bank, Brewton and The Commercial Bank of Demopolis make
loans to their directors and officers and to directors and officers of South
Alabama, and Sweet Water State Bank makes loans to its directors and officers
and to directors and officers of Sweet Water, 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 Sweet Water, do not involve more than
the normal risk of collectibility. The amount of these loans by South
Alabama Bank, The Monroe County Bank, First National Bank, Brewton and The
Commercial Bank of Demopolis to their and South Alabama's directors and
officers was 40.0% of shareholders' equity for South Alabama, and the amount
of loans by Sweet Water State Bank to its and Sweet Water's directors and
officers was 47.1% of shareholders' equity for Sweet Water, both as of March
31, 1999.
Certain Federal Income Tax Consequences
Neither South Alabama nor Sweet Water has requested or will receive an
advance ruling from the Internal Revenue Service as to the tax consequences
of the Merger. Hand Arendall, L.L.C., counsel for South Alabama, has delivered
an opinion that, for federal income tax purposes, under current law, assuming
that the Merger will take place as described in the Merger Agreement and that
certain factual matters represented by South Alabama and Sweet Water (including
the representation that Sweet Water shareholders will maintain sufficient
equity ownership interests in South Alabama after the Merger) are true and
correct at the time of consummation of the Merger, the Merger will constitute a
reorganization within the meaning of Section 368(a) of the Code, and South
Alabama and Sweet Water 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 and
Sweet Water (including the representation that Sweet Water shareholders will
maintain sufficient equity ownership interests in South Alabama after the
Merger) are true and correct at the time of consummation of the Merger, then,
in the opinion of Hand Arendall, L.L.C., the following will be certain of the
federal income tax consequences of the Merger: (i) no gain or loss will be
recognized by South Alabama and Sweet Water in the Merger; (ii) the shareholders
of Sweet Water will recognize no gain or loss upon the exchange of their Sweet
Water common stock solely for shares of South Alabama common stock; (iii) the
basis of the South Alabama common stock received by the Sweet Water shareholders
in the proposed transaction will, in each instance, be the same as the basis of
the Sweet Water common stock surrendered in exchange therefor; (iv) the holding
period of the South Alabama common stock received by the Sweet Water
shareholders will, in each instance, include the period during which the Sweet
Water common stock surrendered in exchange therefor was held, provided that the
Sweet Water common stock was held as a capital asset on the date of the
exchange; (v) the payment of cash to Sweet Water 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 Sweet Water shareholder in exchange
for his Sweet Water common stock pursuant to the exercise of dissenters' rights,
such cash will be treated as having been received in redemption of his or her
Sweet Water 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 opinion of Hand Arendall, L.L.C., and applies only to
Sweet Water Shareholders who hold Sweet Water common stock as a capital
asset, and may not apply to special situations, such as Sweet Water
Shareholders, if any, who received their Sweet Water common stock upon exercise
of employee stock options or otherwise as compensation and Sweet Water
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 Sweet Water Shareholder should consult
his or her own tax advisor with respect to the specific tax consequences of the
Merger to him or her, including the application and effect of state, local
and foreign tax laws.
Accounting Treatment
The Merger is expected to be accounted for as a pooling-of-interests.
The pooling-of-interests method accounts for a business combination as the
uniting of ownership interests of two or more companies by exchange of equity
securities. The recorded assets and liabilities of South Alabama and Sweet Water
will be carried forward to the combined corporation at their recorded amounts.
Income of the combined corporation will include income of South Alabama and
Sweet Water for the entire fiscal period in which the combination occurs. The
reported income of South Alabama and Sweet Water for prior periods will be
combined and restated as income for the combined corporation. The unaudited
pro forma financial information contained in this Prospectus has been prepared
using the pooling-of-interests method of accounting. The Merger Agreement
provides that a condition to consummation of the Merger is receipt of a letter
from Arthur Andersen LLP, the independent auditor for South Alabama, confirming
that the Merger qualifies for pooling-of-interests accounting treatment.
Expenses and Fees
The Merger Agreement provides that each of the parties will bear and pay
all costs and expenses incurred by it in connection with the transactions
contemplated by the Agreement. It is expected that the total expenses and fees
for South Alabama and Sweet Water will be approximately $42 thousand and
$60 thousand, 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 certain principal shareholders of Sweet Water) for purposes of
Rule 145 under the Securities Act as of the date Sweet Water 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 Sweet Water 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, Sweet Water 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 Sweet Water.
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 Sweet Water giving effect to the Merger, which
will be accounted for as a pooling-of-interests, as if it had been completed,
and the issuance of 850,200 shares of South Alabama common stock occurred, on
March 31, 1999, after giving effect to the pro forma adjustments described in
the accompanying footnotes. No provision has been reflected for expenses
related to the Merger, which are not expected to have a material impact on
financial condition. This financial data should be read in conjunction with
the historical consolidated financial statements, including the respective
notes thereto, of South Alabama, which are incorporated by reference in this
Prospectus, and the historical consolidated financial statements of Sweet
Water, which appear elsewhere in this Prospectus, and with the condensed
consolidated historical and other pro forma financial information, including
the notes thereto, appearing elsewhere in this Prospectus. See "Available
Information," "Incorporation of Certain Documents by Reference," and Appendix
C hereto. This pro forma financial information is not necessarily indicative
of the actual financial position that would have occurred had the Merger been
consummated on March 31, 1999, nor is it necessarily indicative of future
financial position.
<TABLE>
Pro Forma Condensed Consolidated Statement of Condition
As of March 31, 1999 (Unaudited)
(In Thousands)
<CAPTION>
HISTORICAL
South Sweet PRO FORMA PRO FORMA
Alabama Water ADJUSTMENTS COMBINED
<S> <C> <C> <C> <C>
ASSETS
Cash and cash equivalents $ 28,322 $ 6,196 $ 34,518
Investment securities 154,556 14,288 168,844
Loans, net 298,998 33,344 332,342
Premises and equipment, net 11,196 1,279 12,475
Intangible assets 4,527 0 4,527
Other assets 6,383 1,124 7,507
Total assets $503,982 $56,231 $560,213
LIABILITIES
Deposits $428,684 $49,926 $478,610
Short-term borrowings 6,386 0 6,386
Federal Home Loan Bank
borrowings 6,000 0 6,000
Other liabilities 3,719 484 4,203
Total liabilities 444,789 50,410 495,199
SHAREHOLDERS' EQUITY
Common stock 77 60 $(51)a 86
Capital surplus 37,126 648 51 37,825
Accumulated other
comprehensive income 854 (30) 824
Retained earnings 21,136 5,143 26,279
Total shareholders' equity 59,193 5,821 0 65,014
Total liabilities and
shareholders' equity $503,982 $56,231 $ 0 $560,213
(a) Reflects issuance of 850,200 shares of South Alabama common stock in
exchange for the 60,000 shares outstanding of Sweet Water.
</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 850,200 shares of South Alabama
common stock occurred, on March 31, 1999, presented on a pooling-of-interest
accounting basis. No provision has been reflected for expenses related to
the Merger, which are not expected to have a material impact on results of
operations. This financial data should be read in conjunction with the
historical consolidated financial statements, including the respective notes
thereto, of South Alabama, which are incorporated by reference in this
Prospectus, and of Sweet Water, which appear elsewhere in the Prospectus, and
with the condensed consolidated historical and other pro forma financial
information, including the notes thereto, appearing elsewhere in this
Prospectus. See "Available Information," "Incorporation of Certain Documents
by Reference," and Appendix C hereto. This pro forma financial information
is not necessarily indicative of the actual operating results that would have
occurred had the Merger been consummated on March 31, 1999, nor is it
necessarily indicative of future operating results.
<TABLE>
Pro Forma Combined Condensed Consolidated Statement of Income (Unaudited)
(In Thousands Except Per Share Data)
<CAPTION>
Three Months Ended
March 31, 1999 Year Ended December 31,
1998 1997 1996
<S> <C> <C> <C> <C>
Interest revenue $ 9,812 $ 38,070 $ 34,462 $ 28,239
Interest expense 4,480 17,552 15,041 12,215
Net interest revenue 5,332 20,518 19,421 16,024
Provision for loan losses 151 571 419 338
Non-interest revenue 1,071 4,515 4,044 3,335
Non-interest expense 4,105 16,106 14,758 12,274
Income before income
taxes 2,147 8,356 8,288 6,747
Income taxes 596 2,267 2,174 1,921
Net income $ 1,551 $ 6,089 $ 6,114 $ 4,826
Basic net earnings
per share: $ 0.18 $ 0.72 $ 0.73 $ 0.71
Diluted earnings
per share: $ 0.18 $ 0.71 $ 0.72 $ 0.70
</TABLE>
COMPARATIVE MARKET PRICES AND DIVIDENDS
Market Prices
South Alabama. The South Alabama common stock is traded on the NASDAQ
Stock Market under the symbol "SABC." The following table sets forth the high
and low closing sale prices for the South Alabama common stock, adjusted for
a three-for-two stock split that occurred in mid-1998 (the "Stock Split").
The stock prices do not include retail mark-up, mark-down or commissions.
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>
Closing Sales Prices Per Share
High Low
<S> <C> <C>
1999
First Quarter $16.50 $13.63
1998
First Quarter $18.83 $14.00
Second Quarter 20.67 15.33
Third Quarter 24.75 15.00
Fourth Quarter 16.25 13.50
1997
First Quarter $10.50 $ 8.33
Second Quarter 12.00 8.67
Third Quarter 14.30 8.83
Fourth Quarter 16.37 13.17
</TABLE>
On October 26, 1998, the last business day prior to public
announcement that South Alabama and Sweet Water had agreed in principle to
combine, and on April 1, 1999, the last business day prior to the execution of
the Merger Agreement, the closing sales prices per share of South Alabama common
stock, as reported on NASDAQ, were $14.50 and $13.875, respectively.
Sweet Water shareholders should obtain current market quotations for South
Alabama common stock.
Sweet Water. There has been no active or established public trading
market for the common stock of Sweet Water, and, accordingly, there is no
published information with respect to market prices of Sweet Water common stock.
Management is aware that shares of Sweet Water's common stock were sold in one
private transaction during the past three years, although sales may have taken
place of which, and at prices at which, management is unaware. The most
recent sale of which management is aware occurred in April, 1997, when 100
shares were sold at a price of $100 per share. Such price may or may not
reflect the market price of Sweet Water common stock, and the Board of Directors
of Sweet Water makes no representation to that effect.
Dividends
South Alabama declared regular quarterly cash dividends per share, as
adjusted for the Stock Split, totaling $.247 in 1996, $.266 in 1997, and $.318
in 1998. In 1997, a special cash dividend of $.833, as adjusted for the Stock
Split, was declared. During the past two years, Sweet Water has declared cash
dividends of $4.25 per share for 1997 and $4.50 per share for 1998. Future
dividends on shares of South Alabama (assuming the Merger is consummated) or of
both South Alabama and Sweet Water (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 20,000,000 shares of common stock, $0.01 par value, and up to 500,000 shares
of preferred stock. As of the date of this Prospectus, 7,735,425 shares
of South Alabama common stock are issued and outstanding, and no preferred
stock has been issued. In addition, approximately 151,587 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 Bank Insurance Fund, 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. South Alabama Trust Company
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 South Alabama's 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.
South Alabama's 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 Sweet Water are both Alabama corporations subject to the
provisions of the ABCA. Shareholders of Sweet Water, whose rights are
governed by Sweet Water's Articles of Incorporation and Bylaws 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 will continue to
be governed by the ABCA.
The following summary sets forth certain material differences between the
rights of a Sweet Water shareholder under Sweet Water's Articles of
Incorporation and Bylaws, and the rights of a South Alabama shareholder under
South Alabama's Articles of Incorporation and Bylaws, but does not purport to be
a complete discussion of, and is qualified in its entirety by reference to, the
ABCA and the Articles of Incorporation and Bylaws of Sweet Water and South
Alabama.
Authorized Capital Stock
South Alabama's Articles of Incorporation authorize the issuance of up to
20,000,000 shares of South Alabama common stock ($0.01 par value each), and
500,000 shares of preferred stock (no par value), of which 7,735,425 shares
of South Alabama common stock were issued and outstanding as of July 27, 1999.
Sweet Water's Articles of Incorporation authorize the issuance of up to
60,000 shares of Sweet Water common stock ($1.00 par value each), of which
all 60,000 shares were issued and outstanding as of July 27, 1999.
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.
Sweet Water's Articles of Incorporation and Bylaws contain no similar
provision.
Action by Written Consent
The ABCA provides that shareholders may take action without a meeting if
consent in writing to such action is signed by all of the shareholders entitled
to vote on the action, unless otherwise provided in the Articles of
Incorporation. South Alabama's Articles of Incorporation prohibit shareholder
action by unanimous written consent.
Sweet Water's Bylaws specifically authorize shareholder action by unanimous
written consent.
Amendment of Articles of Incorporation
South Alabama's Articles of Incorporation may be amended as permitted by
the ABCA, but require a vote of the shareholders holding at least 75% of the
stock to change any of those sections of its Articles of Incorporation relating
to (i) mergers with related corporations, (ii) action by shareholders by
written consent, (iii) calling of special meeting of the shareholders or
(iv) nomination of a director for election at an annual meeting of the
shareholders, provided, however, that this 75% vote requirement does not
apply if the amendment in question receives the affirmative vote of not less
than 75% of the directors.
Sweet Water's Articles of Incorporation may be amended as permitted by the
ABCA.
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 shareholders if
notice of such amendment is included in notice of the meeting.
Sweet Water's Bylaws may be amended by either its shareholders or
directors, except that its directors may not amend the Bylaws to change the
number of shares necessary to constitute a quorum at a shareholder meeting.
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. 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. South Alabama's Bylaws permit the Board of Directors to
fill vacancies and newly created board seats.
Sweet Water's Bylaws require at least 60 but not more than 90 days notice
to nominate a director. The number of directors for Sweet Water is set by
its Board of Directors. Sweet Water's Bylaws require the shareholders to elect
directors to fill newly created board seat.
Director Liability
South Alabama's Articles of Incorporation contain a provision which limits,
to the extent permitted by the ABCA, the liability of South Alabama directors
for action or inaction as a director.
Sweet Water's Articles of Incorporation do not contain any provision
limiting the liability of directors.
Effect of the Merger on Sweet Water Shareholders
As of July 27, 1999 , Sweet Water had 162 shareholders of record
and 60,000 outstanding shares of common stock. As of July 27, 1999
South Alabama had 7,735,425 shares of South Alabama common stock
outstanding with 989 stockholders of record.
Assuming that no dissenters' rights of appraisal are exercised in the
Merger, and assuming a Market Price of South Alabama common stock of
$13.54 at the Effective Time (which was the average market value during the
preceding 20 trading days calculated as of July 27, 1999), an aggregate amount
of 850,200 shares of South Alabama common stock would be issued to the
shareholders of Sweet Water pursuant to the Merger. These shares would
represent approximately 9.9% of the total shares of South Alabama common
stock outstanding after the Merger.
The issuance of South Alabama common stock pursuant to the Merger will
reduce the percentage interest of South Alabama common stock currently held
by each principal shareholder and each director and officer of South
Alabama. Based upon the foregoing assumptions, as a group, the current
directors and officers of South Alabama, who own approximately 25.98% of
South Alabama's outstanding shares, would own approximately 23.41% after
the Merger.
As noted above, the foregoing statements are based on assumptions, and the
Market Price of South Alabama common stock may differ from those assumptions,
causing actual results in the Merger to vary from the assumed results set
forth above.
SWEET WATER 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 Sweet Water and its subsidiary on a consolidated basis 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 1998,
1997, 1996, 1995 and 1994. 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 Sweet Water
and its subsidiary on a consolidated basis 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 non-performing loans and other loans;
(b) the effect of the market's perception of future economic conditions,
future inflation, real returns and the monetary policies of the Federal
Reserve Board on short and long term interest rates;
(c) the effect of interest rate changes on liquidity and interest rate
sensitivity management; and
(d) possible disruptions relating to the "Year 2000 problem."
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) Sweet Water encounters difficulty in integrating with the operations
of South Alabama; and
(b) general economic conditions, either nationally or in Alabama, are
less favorable than expected.
At December 31, 1998, Sweet Water had total assets of approximately $53.5
million and operated two banking locations in Marengo County and one banking
location in Clarke County. Sweet Water's sole business is banking; therefore,
loans and investments are the principal sources of income.
FINANCIAL CONDITION
From 1994 to 1997 Sweet Water experienced slow but steady growth in
average assets. Average net loans grew from $23.4 million in 1994 to $25.4
million in 1997, and average deposits grew from $34.7 million to $38.0 million
during the same period. The loan to deposit ratio remained fairly constant
during this period, ranging from 62% to 68%. In 1998, average assets began to
grow at a faster pace, increasing 13.7% from 1997 to 1998. Deposits increased
14.8% from 1997 to 1998 and this increase was used to partially fund an
increase of 25.2% in net loans during the same period. The remaining increase
in loans was funded by a decrease in the investment portfolio. Average
shareholders' equity grew from $4.1 million in 1994 to $5.8 million in 1998.
<TABLE>
Average Assets and Liabilities
Distribution of Average Assets, Liabilities and Shareholders' Equity
(In Thousands)
<CAPTION>
1998 1997 1996 1995 1994
<S> <C> <C> <C> <C> <C>
Average Assets:
Cash and non-interest bearing deposits $ 1,625 $ 1,193 $ 1,370 $ 1,396 $ 1,361
Interest bearing deposits 43 100 100 78 873
Federal funds sold 2,027 1,455 1,202 1,129 1,430
Investment securities - taxable 5,506 7,875 8,245 6,668 5,325
Investment securities - nontaxable 6,966 6,185 6,982 6,768 5,166
Loans, net 31,866 25,446 23,397 22,700 23,392
Premises and equipment, net 749 579 520 548 568
Other real estate owned, net 5 85 153 11 0
Deferred tax asset 53 87 81 63 48
Intangible assets 0 0 0 0 0
Other assets 970 790 801 725 889
Average Total Assets $49,810 $43,795 $42,851 $40,086 $39,052
Average Liabilities:
Non-interest bearing demand deposits $ 5,666 $ 4,945 $ 5,150 $ 5,012 $ 4,780
Interest bearing demand deposits 4,802 5,704 5,242 4,042 4,060
Savings deposits 3,793 3,834 3,776 3,407 3,153
Time deposits 29,368 23,514 23,256 22,728 22,660
Total Deposits $43,629 $37,997 $37,424 $35,189 $34,653
Short-term borrowings 0 0 0 1 1
Long term debt 0 0 0 0 0
Deferred tax liability 9 11 19 14 8
Other liabilities 326 364 368 271 259
Shareholders' equity 5,846 5,423 5,040 4,611 4,131
Average Total Liabilities and
Shareholders' Equity $49,810 $43,795 $42,851 $40,086 $39,052
</TABLE>
Loans
Loan growth was slow at Sweet Water from 1994 to 1996. In September, 1997,
a branch of Sweet Water State Bank was opened in Thomasville in Clarke County.
The branch has experienced rapid growth in loans and contributed most of the
21.5% increase from year-end 1997 to year-end 1998. At December 31, 1998,
commercial, financial and agricultural loans represented 18.3%, real estate
represented 47.7%, and consumer loans represented 34.0% of total loans,
respectively.
Of the commercial, financial and agricultural loans and real estate loans
outstanding at year-end 1998, $19.4 million or 80.9% were available for
repricing within one year either because of maturities or because they contained
variable rate terms.
The table below shows the classification of loans by major category at
December 31, 1998 and 1997. 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,
---------------------------------------------------
1998 1997 1996 1995 1994
<S> <C> <C> <C> <C> <C>
Commercial, financial and agricultural $ 6,661 $ 7,113 $ 4,778 $ 4,611 $ 5,799
Real estate - construction 0 0 91 0 61
Real estate - mortgage 17,323 12,583 11,355 11,355 11,629
Installment 12,346 10,171 8,973 7,898 7,444
Total Loans $36,330 $29,867 $25,197 $23,864 $24,933
Less unearned loan income (1,310) (1,165) (483) (519) (515)
Allowance for loan losses (416) (227) (307) (287) (237)
Net Loans $34,604 $28,475 $24,407 $23,058 $24,181
</TABLE>
<TABLE>
Selected Loans by Type and Maturity
(In Thousands)
<CAPTION>
December 31, 1998
Maturing
----------------------------------------------
After One
Within But Within After
One Year Five Years Five Years Total
<S> <C> <C> <C> <C> <C>
Commercial, financial
and agricultural $ 6,661 $ 0 $0 $ 6,661
Real estate - Construction 0 0 0 0
Real Estate - Mortgage 12,746 4,577 0 17,323
Total $19,407 $4,577 $0 $23,984
Loans maturing after
one year with:
Fixed interest rates $4,577 $0
Floating interest rates 0 0
Total $4,577 $0
</TABLE>
Sweet Water'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 Sweet Water has the positive intent and ability to hold
to maturity be classified as to be held-to-maturity and reported at amortized
cost; all other debt securities are reported at fair value. SFAS No. 115
further requires that unrealized gains and losses on securities classified as
trading account assets be recognized in current operations. Securities not
classified as to be held-to-maturity or trading are classified as
available-for-sale, and the related unrealized gains and losses are excluded
from earnings and reported net of tax as a separate component of shareholders'
equity until realized.
Investment securities not classified as available-for-sale or trading are
carried at cost, adjusted for amortization of premiums and accretion of
discounts. Premiums and discounts are amortized and accreted to operations
using the straight line method, adjusted to prepayments as applicable.
Management has the intent and Sweet Water 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 Sweet Water'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, 1998, are presented in the following
table using the average stated contractual maturities. The average stated
contractual maturities may differ from the average expected life, because
borrowers may have the right to call or prepay obligations. Taxable equivalent
adjustments, using a 37% tax rate, have been made when calculating yields on
tax-exempt obligations. For purposes of the following table, securities
available for sale are shown at amortized cost.
<TABLE>
Maturity Distribution of Investment Securities
(Dollars in Thousands)
<CAPTION>
December 31, 1998 Maturity
----------------------------------------------------------------------------------
After one After five
Within one but within but within After ten
year five years ten years years Total
------------- ------------ ------------ ------------ -------------
Amount Yield Amount Yield Amount Yield Amount Yield Amount Yield
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Securities Held to Maturity
US Treasury securities $ 14 7.92% $ 752 6.28% $ 752 6.28%
US Government Agencies 705 8.36 79 7.28 $ 380 7.81% $ 564 7.82% 1,037 7.78
State and political subdivisions 144 8.01 2,399 8.42 3,272 8.27 343 9.55 6,719 8.40
Other Investments 200 7.68 344 7.82
Total Securities Held to Maturity 863 8.29 3,430 7.88 3,652 8.22 907 8.47 8,852 8.12
Securities Available for Sale
US Treasury securities 250 5.85 751 6.28 1,001 6.17
U.S. Government Agencies 1,000 6.46 1,402 6.12 2,402 6.26
State and Political Subdivisions 80 9.24 80 9.24
Other investments 151 7.25 151 7.25
Total Securities Available
for sale 250 5.85 831 6.56 1,000 6.46 1,553 6.23 3,634 6.34
Total Investments $1,113 7.75% $4,261 7.62% $4,652 7.84% $2,460 7.06% $12,486 7.61%
</TABLE>
<TABLE>
Book Value of Available for Sale Securities
(In Thousands)
<CAPTION>
December 31,
1998 1997
<S> <C> <C>
Securities available for sale
U.S. Treasury Securities $1,001 $1,000
U.S. Government Agencies 2,402 599
State and Political Subdivisions 80 0
Other Investments 151 100
Total $3,634 $1,699
</TABLE>
Deposits and Short-Term Borrowings
The deposit base at Sweet Water remained relatively stable during the
years 1993 through 1997, with an average growth of 3.1 percent per year
experienced. The mix of deposits remained fairly constant during this period.
Increased growth was realized in 1998 compared to 1997, and this growth was
aided by the addition of the Thomasville branch. The largest increase occurred
in time deposits, a result of special promotional efforts in the Thomasville
area.
<TABLE>
Average Deposits
(Dollars in Thousands)
<CAPTION>
Average for the Year
--------------------------------------------------------------------
1998 1997 1996
-------------------- -------------------- --------------------
Average Average Average Average Average Average
Amount Rate Amount Rate Amount Rate
Outstanding Paid Outstanding Paid Outstanding Paid
<S> <C> <S> <C> <S> <C> <S>
Non-interest bearing
demand deposits $ 5,666 N/A $ 4,945 N/A $ 5,150 N/A
Interest bearing
demand deposits 4,802 3.35% 5,704 3.35% 5,242 3.53%
Savings deposits 3,793 3.72 3,834 3.73 3,776 3.73
Time deposits 29,368 5.70 23,514 5.42 23,256 5.71
Total average deposits $43,629 $37,997 $37,424
</TABLE>
The following table reflects maturities of time deposits of $100,000 or
more at December 31, 1998. These time deposits include both certificates of
deposit and time deposit open accounts. Deposits of $11.9 million in this
category represented 25.1% of total deposits at year-end 1998. 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, 1998
Under Over
3 3-12 12
Months Months Months Total
<C> <C> <C> <C>
$4.4 $5.2 $2.3 $11.9
</TABLE>
Asset/Liability Management
Effective asset/liability management requires an analysis of liquidity
and interest rate risk factors. Decisions relating to the structure of the
balance sheet are made after management considers the impact on current and
future liquidity needs as well as the effect on the interest rate sensitivity
gap.
Sweet Water's primary market risk is its exposure to interest rate
changes. Interest rate risk management strategies are designed to optimize
net interest income while minimizing fluctuations caused by changes in the
interest rate environment. It is through these strategies that Sweet Water
seeks to manage the maturity and repricing characteristics of its balance
sheet.
The modeling techniques used by Sweet Water simulate net interest income
and impact on fair values under various rate scenarios. Important elements
of these techniques include the mix of floating versus fixed rate assets and
liabilities, and the scheduled, as well as expected, repricing and maturing
volumes and rates of the existing balance sheet. Under a scenario simulating
a hypothetical 100 basis point increase applied to all interest earning assets
and interest-bearing liabilities, Sweet Water would expect a net loss in fair
value of the underlying instruments of $3.9 million. This hypothetical loss
is not a precise indicator of future events. Instead, it is a reasonable
estimate of the results anticipated if the assumptions used in the modeling
techniques were to occur.
Liquidity
Liquidity represents the ability of a bank to meet loan commitments as
well as deposit withdrawals. Liquidity is derived from both the asset side
and liability side of the balance sheet. On the asset side, liquidity is
provided by marketable investment securities, maturing loans, federal funds
sold and cash and cash equivalents. On the liability side, liquidity is
provided by a stable base of core deposits. Additionally, Sweet Water has
federal funds lines of credit available if needed.
Interest Rate Sensitivity
By monitoring Sweet Water's interest rate sensitivity, management
attempts to maintain a desired balance between the growth of net interest
revenue and the risks that might result from significant changes in interest
rates in the market. One tool for measurement of this risk is gap analysis,
whereby the repricing of assets and liabilities are matched across certain
time frames. The interest sensitivity analysis presented in the table below
is based on this type of gap analysis, which assumes that rates earned on
interest earning assets and rates paid on interest bearing liabilities will
move simultaneously in the same direction and to the same extent. However,
the rates associated with these assets and liabilities actually change at
different times and in varying amounts. Management must consider various
interest rate scenarios in order to make the decisions which will maximize
net interest revenue and maintain the desired range of interest rate risk.
The Interest Sensitivity Analysis table below shows a cumulative one
year net asset sensitive position of $10.9 million at December 31, 1998. This
positive gap position indicates that in a rising rate environment Sweet Water
might experience an increase of its net interest revenue as interest rates
earned on interest earning assets would increase faster than rates paid on
interest bearing liabilities. Conversely, the table would indicate that in a
falling rate environment, Sweet Water might experience a narrowing of the net
interest margin.
<TABLE>
Interest Sensitivity Analysis
(Dollars in Thousands)
<CAPTION>
December 31, 1998
--------------------------------------
Interest Sensitive Within (Cumulative) Non-Interest
-------------------------------------- Sensitive
3 months 3-12 months 1-5 years Within 5 years Total
<S> <C> <C> <C> <C> <C>
EARNING ASSETS
Loans(1) $10,332 $28,946 $36,239 $ 91 $36,330
Unearned Income 0 0 0 (1,310) (1,310)
Less allowance for loan losses 0 0 0 (416) (416)
Net loans 10,332 28,946 36,239 (1,635) 34,604
Investment securities 670 1,560 5,953 6,557 12,510
Federal funds sold and resale
agreements 2,360 2,360 2,360 0 2,360
Interest bearing deposits in
other financial institutions 0 0 0 0 0
Total earning assets $13,362 $32,866 $44,552 $ 4,922 $49,474
LIABILITIES
Non-Interest bearing demand
deposits 0 0 0 $ 4,985 $ 4,985
Interest bearing demand
deposits (2) $ 1,030 $ 1,030 $ 1,030 4,764 5,794
Savings deposits (2) 0 0 0 3,979 3,979
Large denomination time
deposits 4,383 9,607 11,899 0 11,899
Other time deposits 5,506 15,857 20,712 0 20,712
Short-term borrowing 0 0 0 0 0
Long-term debt 0 0 0 0 0
Total interest bearing
liabilities $10,919 $26,494 $33,641 $13,728 $47,369
Interest sensitivity gap $ 2,443 $ 6,372 $10,911
Earning assets
/Interest bearing liabilities 1.22 1.24 1.32
Interest sensitivity gap
/Earning assets 0.18 0.19 0.24
(1) Non-accrual loans are included in the "Non-Interest Sensitive Within
5 Years" category.
(2) Certain types of savings and NOW accounts are included in the "Non-
Interest Sensitive Within 5 Years" category. In Management's opinion these
liabilities do not reprice in the same proportions as rate sensitive assets,
as they are not responsive to general interest rate changes in the economy.
</TABLE>
Capital Resources
The Federal Reserve and the FDIC require that bank holding companies and
banks have a minimum of Tier I capital equal to not less than 4% of risk
adjusted assets and total capital equal to not less than 8% of risk adjusted
assets. Tier I capital consists of common shareholders' equity. Tier II
capital includes reserves for loan losses up to 1.25% of risk adjusted assets.
Sweet Water's Tier I capital was $5.7 million at December 31, 1998, and total
(Tier I plus Tier II) capital was $6.1 million at December 31, 1998. Tier I
and total capital ratios were 13.42% and 14.40%, respectively at December 31,
1998. Both ratios were well above the regulatory minimums.
<TABLE>
Risk-Based Capital
(Dollars in Thousands)
<CAPTION>
December 31,
1998 1997
<S> <C> <C>
Tier I capital
Tangible common shareholders' equity $ 5,729 $ 5,528
Tier II capital
Allowable portion of the allowance for
loan losses 416 227
Total capital (Tier I and Tier II) $ 6,145 $ 5,755
Risk-adjusted assets $42,675 $31,282
Quarterly average assets 53,862 46,695
Risk-adjusted capital ratios:
Tier I capital 13.42% 17.67%
Total capital (Tier I and Tier II) 14.40% 18.40%
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 10.72% 11.84%
</TABLE>
RESULTS OF OPERATIONS
Net Interest Revenue
Net interest revenue increased 5.73% in 1997 compared to 1996 and 15.9%
in 1998 compared to 1997. The net yield on interest earning assets increased
to 5.36% in 1997 from 5.28% in 1996 and remained relatively unchanged in 1998.
In 1997 increased loan volume combined with lower cost time deposit portfolio
contributed to the increased margin.
Presented below is an analysis of net interest income, weighted average
yields on earning assets and weighted average rates paid on interest bearing
liabilities for the past three years. In order to facilitate comparisons,
federally tax-exempt interest on obligations of state and local governments
and on industrial revenue bonds has been reflected on a fully taxable
equivalent basis, assuming a tax rate of 37%.
<TABLE>
Net Interest Revenue
(Dollars in Thousands)
<CAPTION>
1998 1997 1996
------------------------------ ------------------------------ ------------------------------
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 $ 5,506 6.90% $ 380 $ 7,875 5.52% $ 435 $ 8,245 5.92% $ 488
Non-taxable securities 6,966 5.57% 388 6,185 7.21% 446 6,982 6.72% 469
Total securities 12,472 6.16% 768 14,060 6.27% 881 15,227 6.28% 957
Loans(1) 32,111 10.45% 3,357 25,733 10.15% 2,611 23,692 10.46% 2,477
Federal funds sold 2,027 5.72% 116 1,455 4.54% 66 1,202 5.32% 64
Deposits 43 6.98% 3 100 7.00% 7 100 7.00% 7
Total interest
earning assets 46,653 9.10% 4,244 41,348 8.62% 3,565 40,221 8.71% 3,505
Non-interest earning assets:
Cash and due from banks 1,625 1,193 1,370
Premises and
equipment, net 749 579 520
Other real estate 5 85 153
Deferred tax asset 53 87 81
Other assets 970 790 801
Intangible assets 0 0 0
Allowance for loan losses (245) (287) (295)
Total $49,810 $43,795 $42,851
Interest bearing liabilities
Interest bearing demand
and savings deposits $ 8,595 3.51% $ 302 $ 9,538 3.50% $ 334 $ 9,018 3.61% $ 326
Time deposits 29,368 5.70% 1,673 23,514 5.42% 1,274 23,256 5.71% 1,328
Short-term borrowing 0 0.00% 0 0 0.00% 0 0 0.00% 0
Long-term debt 0 0.00% 0 0 0.00% 0 0 0.00% 0
Total interest
bearing liabilities 37,963 5.20% 1,975 33,052 4.87% 1,608 32,274 5.12% 1,654
Non-interest bearing liabilities
Demand deposits 5,666 4,945 5,150
Deferred Tax Liability 9 11 19
Other 326 364 368
6,001 5,320 5,537
Shareholders' equity 5,846 5,423 5,040
Total $49,810 $43,795 $42,851
Net Interest Revenue 3.90% $2,269 3.75% $1,957 3.59% $1,851
Net yield on interest
earning assets 4.86% 4.73% 4.60%
Tax equivalent adjustment 0.49% 0.63% 0.68%
Net yield on interest
earning assets (tax equivalent) 5.35% 5.36% 5.28%
(1) Loans classified as non-accruing are included in the average
volume classification. Loan Fees for all years shown are included in the
interest amounts for loans.
</TABLE>
The following table reflects the sources of interest income and expense
between 1998 and 1997 and between 1997 and 1996. The variances resulting from
changes in interest rates and the variances resulting from changes in volume
are shown.
<TABLE>
Analysis of Taxable -Equivalent Interest Increases (Decreases)
(Dollars In Thousands)
<CAPTION>
1998 Change From 1997 1997 Change From 1996
--------------------- ---------------------
Due to(1) Due to (1)
------------- ------------
Amount Volume Rate Amount Volume Rate
<S> <C> <C> <C> <C> <C> <C>
Interest Revenue
Taxable securities $ (55) $(141) $ 86 $(53) $ (21) $(32)
Non-taxable securities (92) 75 (167) (36) (87) 51
Total securities (147) (66) (81) (89) (108) 19
Total loans 746 650 96 134 212 (78)
Federal funds sold 50 29 21 2 12 (10)
Deposits (4) (4) 0 0 0 0
Total 645 609 36 47 116 (69)
Interest Expense
Interest bearing demand
deposits and savings
deposits (32) (33) 1 8 19 (11)
Other time deposits 399 320 79 (54) 14 (68)
Short-term borrowing 0 0 0 0 0 0
Long term debt 0 0 0 0 0 0
Total 367 287 80 (46) 33 (79)
Net interest revenue $278 $322 $(44) $ 93 $ 83 $ 10
_____________
(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 Sweet Water's control.
While it is possible that in particular periods Sweet Water 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 Sweet
Water's average loans, allowance for loan losses, charge-offs and recoveries
for the three years ended December 31, 1998.
<TABLE>
Summary of Loan Loss Experience
(Dollars in Thousands)
<CAPTION>
Year Ended December 31,
---------------------------------------------------
1998 1997 1996 1995 1994
<S> <C> <C> <C> <C> <C>
Allowance for loan losses-
balance at beginning of period $ 227 $ 307 $ 287 $ 237 $ 228
Charge-offs:
Commercial, financial and
agricultural 5 13 0 3 0
Real estate - construction 0 0 0 0 0
Real estate - mortgage 17 23 0 0 23
Installment 81 77 20 15 16
Total charge-offs 103 113 20 18 39
Recoveries:
Commercial, financial and
agricultural 5 1 3 1 1
Real estate - construction
Real estate - mortgage 0 0 0 1 6
Installment 17 9 7 6 8
Total recoveries 22 10 10 8 15
Net charge-offs 81 103 10 10 24
Addition to allowance charged to
operating expense 270 23 30 60 33
Allowance for loan losses-
balance at end of period $ 416 $ 227 $ 307 $ 287 $ 237
Loans at end of year, net of
unearned income $35,020 $28,702 $24,714 $23,345 $24,418
Ratio of ending allowance to
ending loans 1.19% 0.79% 1.24% 1.23% 0.97%
Average loans, net of unearned income $32,111 $25,733 $23,692 $22,962 $23,619
Non-performing loans $ 156 $ 170 $ 224 $ 58 $ 123
Ratio of net charge-offs to average
loans 0.25% 0.40% 0.04% 0.04% 0.10%
Ratio of ending allowance to
total non-performing loans 266.67% 133.53% 137.05% 494.83% 192.68%
</TABLE>
Net charge offs in the years 1994, 1995 and 1996 were $24 thousand, $10
thousand and $10 thousand, respectively. In 1997 net charge-offs increased to
$103 thousand, primarily a result of one $42 thousand loss. In 1998 net
charge-offs decreased to $81 thousand. The ratio of loan loss reserve allowance
compared to outstanding loans for the years ended 1998, 1997, 1996, 1995 and
1994 were 1.19%, 0.79%, 1.24%, 1.23% and 0.97%, respectively. Abnormally
high charge-offs in 1997 and 1998, an increase in the installment loan
portfolio, which traditionally has a higher charge-off percentage, and
identification of problem loans required an increase of $270 thousand to loan
loss reserves in 1998.
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 percentage of loans and other real estate
owned at year-end 1998 was .45% compared to .90 % at year-end 1997. Total
non-performing assets decreased from $412 thousand at year-end 1996 to $260
thousand at year-end 1997 and then were further reduced to $156 thousand at
year-end 1998.
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 $957 thousand at
December 31, 1998 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>
Year Ended December 31,
1998 1997 1996
<S> <C> <C> <C>
Accruing loans 90 days or
more past due $ 65 $ 80 $108
Loans on non-accrual 91 90 116
Renegotiated loans
Total non-performing loans 156 170 224
Other real estate owned 90 188
Total Non-performing assets $156 $260 $412
Loans 90 days or more past due
as a percent of loans 0.19% 0.28% 0.44%
Total non-performing loans
as a percent of loans 0.45% 0.59% 0.91%
Total non-performing assets as
a percent of loans and other
real estate owned 0.45% 0.90% 1.65%
</TABLE>
Non-Interest Revenue and Non-Interest Expense
Service charges on deposit accounts grew 8.0% in 1997 from 1996 and
increased 17.8% in 1998 from 1997. The increases were generated by growth in
the number of accounts as well as an increase in certain service charges in
1998. Security gains/losses over the three year period reflect slight
repositioning of the investment portfolio. Other revenue increased 52.5% in
1997 compared to 1996 and then decreased 17.8% in 1998 compared to 1997. The
increase in 1997 resulted from increases in NSF charges.
Total non-interest expense increased 22.9% in 1997 and then 17.0% in 1998.
The increases were allocated among all categories and primarily resulted from
the opening on Sweet Water State Bank's third office in Thomasville in
September, 1998. Additional increases resulted from general salary increases
and increased building maintenance, office supplies and equipment.
<TABLE>
Non-Interest Revenue
(In Thousands)
Year Ended December 31,
<CAPTION>
1998 1997 1996
<S> <C> <C> <C>
Service charges on deposit accounts $317 $269 $249
Security gains (losses) 11 10 (7)
Other revenue 74 90 59
Total $402 $369 $301
</TABLE>
<TABLE>
Non-Interest Expense
(In Thousands)
Year Ended December 31,
<CAPTION>
1998 1997 1996
<S> <C> <C> <C>
Salaries $ 939 $ 808 $ 687
Pension and other employee benefits 174 158 133
Net occupancy expenses 88 78 49
Furniture and equipment expenses 98 85 72
Other expenses 475 387 293
Total $1,774 $1,516 $1,234
</TABLE>
Income Taxes and Other Issues
Income tax expense was $113 thousand in 1998 compared to $178 thousand
in 1997.
Because Sweet Water's assets and liabilities are essentially monetary in
nature, the effect of inflation on Sweet Water'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 Sweet Water's financial results
are influenced more by its ability to react to changes in interest rates than
by inflation.
Year 2000 Compliance
Sweet Water has conducted its own internal work regarding Year 2000 and
is in the process of testing for compliance. It is also upgrading its
mainframe computer and expects to be Year 2000 compliant by the end of 1999.
To date, Sweet Water has spent approximately $22 thousand and expects to
incur approximately $5 thousand in additional expense for this purpose.
Sweet Water is in the process of identifying its current loan customers
for the potential risk presented by these customers and their strategies for
addressing the Year 2000 issue. For this purpose, commercial loan customers
with loan amounts of $50 thousand and higher are being reviewed and contacted
by Sweet Water for purposes of evaluating the risks presented by Year 2000.
Management believes it has an adequate plan in place to address the Year
2000 issue, and the final outcome is not anticipated to have a material
adverse effect on the results of operations of the financial condition of
Sweet Water.
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 Sweet Water. Management is not aware of
any current recommendations by regulatory authorities which, if they were
implemented, would have such an effect.
FIRST THREE MONTHS OF 1999
Financial Condition
Total assets at March 31, 1999, were $56.2 million compared to $48.2
million at March 31, 1998. Total deposits grew $7.7 million from $42.2
million to $49.9 million. The increase in deposits was used to partially
fund an increase of $2.5 million in loans, an increase in federal funds sold
of $4.5 million and the increase in the investment portfolio.
Results of Operation
Net income for the first three months of 1999 was $151 thousand compared
to $154 thousand during the same period in 1998. Net interest income decreased
3.5%, primarily due to increased volume in time deposits. Non-interest income
increased $17 thousand in the first three months in 1999 compared to the same
period in 1998, a result of increased service charges on deposit accounts.
Non-interest expense increased 5.0%, or $21 thousand, with most of the
increase resulting from an increase in salaries and insurance premiums.
Loan Loss Experience and Non-Performing Assets
The allowance for loan losses at March 31, 1999, and at March 31, 1998,
was, in management's opinion, adequate. Additions to the allowance through
the provision are made after an analysis of the portfolio considering past
experience, size of the portfolio and current economic conditions. A summary
of the activity in the allowance for loan losses for the three month period
ending March 31, 1999, and March 31, 1998, are presented below.
<TABLE>
Summary of Non-Performing Assets
(Dollars in Thousand)
<CAPTION>
March 31, 1999
<S> <C>
Accruing loans 90 days or
more past due $282
Loans on non-accrual 140
Renegotiated loans 0
Total non-performing loans 422
Other real estate owned 0
Total non-performing assets $422
Loans 90 days or more past due
as a percent of loans .84%
Total non-performing loans as
a percent of loans 1.25%
Total non-performing assets as
a percent of loans and
other real estate owned 1.25%
</TABLE>
Total non-performing assets increased to $422 thousand on March 31,1999,
from $156 thousand at year-end 1998. Most of the increase occurred in loans
90 days or more past due. Consequently, total non-performing loans as a
percent of loans increased to 1.25% at March 31, 1999, compared to 0.42% at
December 31, 1998.
<TABLE>
Summary of Loan Loss Experience
(In Thousands)
<CAPTION>
Three Months Ended
March 31, 1999 March 31, 1998
<S> <C> <C>
Allowance for loan losses -
balance at beginning of period $416 $227
Charge-Offs (13) (22)
Recoveries 13 4
Addition to allowance charged to
operating expense 9 30
Balance at end of period $425 $239
</TABLE>
BUSINESS OF SWEET WATER
General
Sweet Water was incorporated under the laws of the State of Alabama on
November 8, 1988. Sweet Water is a registered bank holding company under
the Bank Holding Company Act of 1956, as amended (the "BHC Act"), and owns
all of the voting shares of Sweet Water State Bank.
Sweet Water State Bank commenced operations in 1913. Sweet Water State
Bank is a state banking corporation subject to regulation by the Federal
Deposit Insurance Corporation ("FDIC") and the Alabama Department of Banking
(the "Alabama Department"). Sweet Water State Bank's operations are conducted
from its main office located in Sweet Water, Alabama, and branch offices
located in Linden and Thomasville, Alabama.
Sweet Water State Bank provides a range of consumer and commercial banking
services to individuals, businesses and industries. The basic services
offered by Sweet Water State Bank include: demand interest bearing and
noninterest bearing accounts, money market deposit accounts, NOW accounts,
time deposits, safe deposit services, credit cards, cash management, direct
deposits, notary services, money orders, night depository, travelers' checks,
cashier's checks, domestic collections, savings bonds, bank drafts, drive-in
tellers, and banking by mail. In addition, Sweet Water State Bank makes
secured and unsecured commercial and real estate loans and issues stand-by
letters of credit. Sweet Water State Bank does not have trust powers and,
accordingly, no trust services are provided.
The revenues of Sweet Water State Bank are primarily derived from interest
on, and fees received in connection with, real estate loans and other loans,
and from interest and dividends from investment and mortgage-backed securities,
and short-term investments. The principal sources of funds for Sweet Water
State Bank's lending activities are its deposits, repayment of loans, and the
sale and maturity of investment securities. The principal expenses of Sweet
Water State Bank are the interest paid on deposits, and operating and general
administrative expenses.
As is the case with banking institutions generally, Sweet Water State
Bank's operations are materially and significantly influenced by general
economic conditions and by related monetary and fiscal policies of financial
institution regulatory agencies, including the Federal Reserve, the FDIC, and
the Alabama Department. Deposit flows and costs of funds are influenced by
interest rates on competing investments and general market rates of interest.
Lending activities are affected by the demand for financing of real estate
and other types of loans, which in turn is affected by the interest rates at
which such financing may be offered and other factors affecting local demand
and availability of funds. Sweet Water State Bank faces strong competition in
the attraction of deposits (its primary source of lendable funds) and in the
origination of loans.
Deposit Activities
Deposits are the major source of Sweet Water State Bank's funds for
lending and other investment activities. Sweet Water State Bank considers the
majority of its regular savings, demand, NOW and money market deposit
accounts to be core deposits. These accounts comprised 29% of Sweet Water
State Bank's total deposits at March 31, 1999. At March 31, 1999, 68% of
Sweet Water State Bank's deposits were certificates of deposit. Generally,
Sweet Water State Bank attempts to maintain the rates paid on its deposits at
a competitive level. Time deposits of $100,000 and over made up 25% of Sweet
Water State Bank's total deposits at March 31, 1999. The majority of the
deposits of Sweet Water State Bank are generated from Clarke, Marengo and
Choctaw Counties. Sweet Water State Bank does not accept brokered deposits.
For additional information on Sweet Water State Bank's deposit activities,
see "Sweet Water Management's Discussion and Analysis of Financial Condition
and Results of Operations Financial Condition Deposits and Short-Term
Borrowings".
Lending Activities
Sweet Water State Bank offers a range of lending services, including
real estate, consumer and commercial loans, to individuals and small
businesses and other organizations that are located in or conduct a
substantial portion of their business in Sweet Water State Bank's market
area. Sweet Water State Bank's loans receivable, net at March 31, 1999 were
$31.9 million, or 59% of total assets. The interest rates charged on loans
vary with the degree of risk, maturity, and amount of the loan, and are
further subject to competitive pressures, money market rates, availability of
funds, and government regulations. Sweet Water State Bank has no foreign loans
or loans for highly leveraged transactions.
Sweet Water State Bank's loans are concentrated in three major areas:
real estate loans, commercial loans, and consumer loans. As of March 31, 1999,
30% of Sweet Water State Bank's loan portfolio consisted of loans secured by
mortgages on real estate and 9% of the loan portfolio consisted of commercial
loans. At the same date, 41% of Sweet Water State Bank's loan portfolio
consisted of consumer loans.
Sweet Water State Bank's real estate loans are secured by mortgages and
consist primarily of loans to individuals and businesses for the purchase,
improvement of or investment in real estate and for the construction of
single-family residential units or the development of single-family
residential building lots. These real estate loans may be made at fixed- or
variable-interest rates. Sweet Water State Bank generally does not make
fixed-interest rate commercial real estate loans for terms exceeding five years.
Loans in excess of three years generally have adjustable-interest rates.
Sweet Water State Bank's residential real estate loans generally are
repayable in monthly installments based on up to a 15-year amortization
schedule with variable-interest rates.
Sweet Water State Bank's commercial loans include loans to individuals
and small-to-medium sized businesses located primarily in Clarke County for
working capital, equipment purchases, and various other business purposes. A
majority of Sweet Water State Bank's commercial loans are secured by
equipment or similar assets, but these loans may also be made on an unsecured
basis. Commercial loans may be made at variable or fixed interest rates.
Commercial lines of credit are typically granted on a one year basis, with
loan covenants and monetary thresholds. Other commercial loans with terms or
amortization schedules of longer than one year will normally carry interest
rates which vary with the prime lending rate and will become payable in full
and are generally refinanced in three to five years.
Sweet Water State Bank's consumer loan portfolio consists primarily of
loans to individuals for various consumer purposes, but includes some
business purpose loans which are payable on an installment basis. The
majority of these loans are for terms of less than five years and are secured
by liens on various personal assets of the borrowers, but consumer loans may
also be made on an unsecured basis. Consumer loans are made at fixed and
variable interest rates, and are often based on up to a five year
amortization schedule.
Loan originations are derived from a number of sources, including direct
solicitation by Sweet Water State Bank's loan officers, existing customers and
borrowers, advertising, walk-in customers and, in some instances, referrals
from brokers.
For additional information on Sweet Water State Bank's lending
activities, see "Sweet Water Management's Discussion and Analysis of
Financial Condition and Results of Operations Financial Condition
Loans," and "Non-Performing Assets."
Investments
Sweet Water State Bank invests a portion of its assets in U.S. Treasury
and U.S. Government agency obligations, FHLMC and FNMA mortgage-backed
securities, state, county and municipal obligations, certificates of deposit,
collateralized mortgage obligations ("CMO's"), and federal funds sold. Sweet
Water State Bank's investments are managed in relation to loan demand and
deposit growth, and are generally used to provide for the investment of
excess funds at reduced yields and risks relative to yields and risks of the
loan portfolio, while providing liquidity to fund increases in loan demand or
to offset fluctuations in deposits. For additional information relating to
Sweet Water's investments, see "Sweet Water Management's Discussion and
Analysis of Financial Condition and Results of Operations Financial
Condition Investment Securities" and Note 3 to the Notes to Sweet Water's
Consolidated Financial Statements.
Employees
As of March 31, 1999, Sweet Water employed 34 full-time employees and 5
part-time employees. The employees are not represented by a collective
bargaining unit. Sweet Water and Sweet Water State Bank consider relations
with employees to be good.
Properties
The main office of Sweet Water and Sweet Water State Bank is located at
101 Main Street, Sweet Water, Alabama 36782, in a two story building of
approximately 9,500 square feet, which is owned by Sweet Water State Bank.
Sweet Water State Bank also owns a 3,000 square foot banking office in
Linden, at 206 South Main, Linden, Alabama 36748, and a 3,960 square foot
banking office in Thomasville, at 1531 Highway 43 North, Thomasville, Alabama
36784.
Legal Proceedings
Sweet Water and Sweet Water State Bank are periodically parties to or
otherwise involved in legal proceedings arising in the normal course of
business, such as claims to enforce liens, claims involving the making and
servicing of real property loans, and other issues incident to their
respective businesses. Management does not believe that there is any pending
or threatened proceeding against Sweet Water or Sweet Water State Bank which,
if determined adversely, would have a material adverse effect on Sweet
Water's consolidated financial position.
Certain Management Information
Under the rules established by the Commission, Sweet Water is required
to provide certain information in regard to each director and officer who is
or will be a director or officer of South Alabama after consummation of the
Merger. It is presently anticipated that Jack O. Kerby, Sr. will be a director
and that Stratton F. Lewis, Jr. will be a director and executive office of
South Alabama following the consummation of the Merger.
Mr. Lewis, age 49, is President, Chief Executive Officer and
Chairman of the Board of Sweet Water. Mr. Lewis was employed by Sweet Water
State Bank in 1985 and has served as President and CEO of Sweet Water State
Bank since 1987 and as President and CEO of Sweet Water since its
incorporation in 1988. Mr. Lewis has served as Chairman of Sweet Water since
1994.
Mr. Kerby, age 71, has served as a director and secretary of Sweet
Water since its incorporation in 19988 and as a director of Sweet Water State
Bank since 1973. Mr. Kerby retired in 1993 from Alabama Southern Community
College where he served as the Dean of Instruction from 1965 to 1993.
Executive Compensation
SUMMARY COMPENSATION TABLE
Because it is presently anticipated that Stratton F. Lewis, Jr. will serve
as an executive officer of South Alabama after the Merger, the following table
presents the compensation paid to Mr. Lewis for the last three fiscal years
of Sweet Water.
<TABLE>
<CAPTION>
Annual Compensation
Name and Principal Position Year Salary Bonus All Other Compensation (1)
<S> <C> <C> <C> <C>
Stratton F. Lewis 1998 $105,500 $8,791 $7,600
Cairman, President 1997 102,500 8,541 7,000
and CEO of Sweet Water 1996 97,500 8,125 6,700
</TABLE>
Voting Securities and Principal Shareholders
As of March 31, 1999, Sweet Water had issued and outstanding 60,000
shares of Sweet Water common stock with 168 shareholders of record.
Each such share is entitled to one vote. As of March 31, 1999, no shares of
Sweet Water common stock were subject to issue upon exercise of any options
or warrants. There are currently 60,000 shares of Sweet Water common stock
authorized.
The following table shows those persons who are known to Sweet Water to
be beneficial owners as of March 31, 1999 of more than five percent of
outstanding Sweet Water common stock.
<TABLE>
<CAPTION>
Name and Address Number of Shares Percentage of Class
of Common Stock Outstanding
<S> <C> <C>
Stratton F. Lewis, Jr. 4,692(1) 7.82%
P. O. Box 37
Sweet Water, Alabama 36782
Mary Jane Lewis Loftin 3,337(2) 5.56
P. O. Box 36
Sweet Water, Alabama 36782
Helen Lewis Johnston 3,359(3) 5.60
1706 Pineneedle Road
Montgomery, Alabama 36106
Jack O. Kerby, Sr. 4,021 6.70
1507 Elmwood Drive
Demopolis, Alabama 36732
Grace Whitley 3,060 5.10
345 5th Avenue
Thomaston, Alabama 36783
Betty Young Owensby 3,315 5.52
339 Plantation Drive
Linden, Alabama 36748
Stratton F. Lewis, III 4,042(4) 6.74
Post Office Box 25
Sweet Water, Alabama 36782
(1) Includes 2,021 shares of Sweet Water common stock jointly owned by
Stratton F. Lewis, Jr. and his son, Stratton Ford Lewis, III. Stratton
Ford Lewis, III disclaims any voting interest in these shares. Stratton
F. Lewis, Jr. is the brother of Mary Jane Lewis Loftin and Helen Lewis
Johnston.
(2) Includes 2,021 shares of Sweet Water common stock jointly owned by
Mary Jane Lewis Loftin and her nephew, Stratton Ford Lewis, III.
Stratton Ford Lewis, III disclaims any voting interest in these shares.
Mary Jane Lewis Loftin is the sister of Stratton F. Lewis, Jr. and Helen
Lewis Johnston.
(3) Helen Lewis Johnston is the sister of Stratton F. Lewis, Jr. and Mary
Jane Lewis Loftin.
(4) Consists of 2,021 shares of Sweet Water common stock jointly owned
with Stratton F. Lewis, Jr., and 2,021 shares jointly owned with Mary
Jane Lewis Loftin. Strattion Ford Lewis, III disclaims any voting
interest in these shares.
</TABLE>
Security Ownership of Management
The following table indicates for each director, executive officer, and all
executive officers and directors of Sweet Water as a group, the number of
shares of outstanding Sweet Water common stock of beneficially owned as of
March 31, 1999.
<TABLE>
SHARES OF SWEET WATER BENEFICIALLY OWNED
<CAPTION>
Number of Shares
Directors Name of Common Stock Percentage of Class Outstanding
<S> <C> <C>
Stratton F. Lewis, Jr. 4,692(1) 7.82%
Mary Jane Lewis Loftin 3,337(2) 5.56
Jack O. Kerby, Sr. 4,021 6.70
James Lewis 252 *
Rentz S. Lewis, Sr. 2,760 4.60
A. W. Compton, Jr. 672 1.12
T. Patrick Young 275 *
William B. Booker 70 *
CERTAIN EXECUTIVE OFFICERS WHO ARE NOT ALSO DIRECTORS
Number of Shares
Officers Name of Common Stock Percentage of Class Outstanding
Betty Callahan 2 *
All Executive Officers
and Directors as a
group 16,081 26.80
_________________________
*Represents less than 1%.
(1) Includes 2,021 shares of Sweet Water common stock jointly owned
by Stratton F. Lewis, Jr. and his son, Stratton Ford Lewis, III.
Stratton Ford Lewis, III disclaims any beneficial ownership interest in
these shares. Stratton F. Lewis, Jr. is the brother of Mary Jane
Lewis Loftin and Helen Lewis Johnston.
(2) Includes 2,021 shares of Sweet Water common stock jointly owned
by Mary Jane Lewis Loftin and her nephew, Stratton Ford Lewis, III.
Stratton Ford Lewis, III disclaims any beneficial ownership interest
in these shares. Mary Jane Lewis Loftin is the sister of Stratton F.
Lewis, Jr. and Helen Lewis Johnston.
</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, Sweet Water and their
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, Sweet Water or their 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 and Sweet Water are both bank holding companies under the
BHCA and are registered with, and subject to supervision by, the Federal
Reserve. As a bank holding company, South Alabama and Sweet Water are
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 Sweet Water and their 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 or 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.
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: Bank Insurance Fund, 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 Bank Insurance Fund and expanded regulation of
depository institutions and their affiliates, including parent holding
companies. A significant portion of the additional Bank Insurance Fund
funding has been in the form of borrowings to be repaid by insurance premiums
assessed on Bank Insurance Fund members. These premium increases were in
addition to the increase in deposit premiums made during 1991. FDICIA
provides for an increase in the Bank Insurance Fund's ratio of reserves to
insured deposits to 1.25% within the next 15 years, which was attained in 1995,
resulting in a reduction in current premiums. FDICIA provides authority
for special assessments against insured deposits and for the development of a
system of assessing deposit insurance premiums based upon the institution's
risk.
In September 1992, the FDIC adopted a new transitional risk-based premium
schedule which increases the assessment rates for depository institutions.
Each financial institution is assigned to one of three capital groups--well
capitalized, adequately capitalized or undercapitalized, as defined in the
regulations implementing the prompt corrective action provisions of FDICIA
described below--and further assigned to one of three subgroups within a
capital group on the basis of supervisory evaluation by the institution's
primary federal and, if applicable, state supervisors and other information
relevant to the institution's financial condition and the risk posed to the
applicable insurance fund. The actual assessment rate applicable to a
particular institution depends upon the risk assessment classification so
assigned to the institution by the FDIC.
Among other things, FDICIA requires the federal banking agencies to take
"prompt corrective action" in respect of banks that do not meet minimum
capital requirements. The five capital tiers established by the FDICIA and
the banking regulators' minimum requirements for each are summarized as
follows:
<TABLE>
<CAPTION>
Total Risk-Based Tier I Risk Based Leverage
Capital Ratio Capital Ratio Ratio
<S> <C> <C> <C>
Well capitalized 10% or above 6% or above Less than 3%
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 Sweet Water, 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
Sweet Water'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
South Alabama Bank, The Monroe County Bank, and The Commercial Bank of
Demopolis, Alabama banking corporations, and South Alabama Trust Company, an
Alabama trust corporation, are wholly owned subsidiaries of South Alabama,
operating under the Alabama Banking Code. South Alabama Bank, The Monroe
County Bank, The Commercial Bank of Demopolis and South Alabama Trust Company
are subject to regulation, supervision and examination by the Superintendent
of Banks, as is Sweet Water State Bank. In addition, deposits of South
Alabama Bank, The Monroe County Bank, The Commercial Bank of Demopolis and
Sweet Water State Bank are insured by the FDIC up to the maximum amount
permitted by law, and South Alabama Bank, The Monroe County Bank, The
Commercial Bank of Demopolis and Sweet Water State Bank are therefore subject
to regulation, supervision and examination by the FDIC. First National Bank,
Brewton, a national banking association, is a wholly owned subsidiary of
South Alabama and is subject to regulation, supervision and examination by
the Comptroller. Its deposits are insured by the FDIC up to the maximum
amount permitted by law.
South Alabama and Sweet Water are legal entities separate and distinct from
their respective subsidiary banks and trust company. Various legal
limitations restrict the subsidiary banks from lending or otherwise supplying
funds to South Alabama, Sweet Water or any nonbank subsidiaries of South
Alabama and Sweet Water (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 and Sweet Water's subsidiary banks and trust
company, including reserves, loans, mortgages, capital, issuance of securities,
payment of dividends and establishment of branches. Federal and state bank
regulatory agencies also have the general authority to limit the dividends
paid by insured banks and bank holding companies if such payments should be
deemed to constitute an unsafe and unsound practice. The primary federal
regulators of South Alabama's and Sweet Water'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 and Sweet Water. The amount of
dividends payable by the subsidiary banks to South Alabama and Sweet Water
depends upon the banks' earnings and capital position and is limited by
federal and state laws, regulations and policies. National bank subsidiaries
(such as First National Bank, Brewton) are subject to dividend regulations of
the Comptroller. State non-member bank subsidiaries (such as South Alabama
Bank, The Monroe County Bank and The Commercial Bank of Demopolis) are subject
to the dividend laws of the states under which such banks are chartered.
Subject to restrictions as described below, at March 31, 1999, the subsidiary
banks of South Alabama had $3.8 million of undivided profits legally available
for the payment of dividends, and Sweet Water's subsidiary bank had $682
thousand of undivided profits available for payment of dividends. The amount
of dividends actually paid during any one period is strongly influenced by
South Alabama's and Sweet Water's management policy of maintaining strong
capital positions in South Alabama's and Sweet Water'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.
South Alabama Bank's, The Monroe County Bank's and The Commercial Bank of
Demopolis's and Sweet Water State Bank's surplus exceeded that percentage as of
March 31, 1999. South Alabama Bank, The Monroe County Bank , The Commercial
Bank of Demopolis and Sweet Water State Bank 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. Sweet Water and Sweet Water State Bank are
required to comply with the applicable capital adequacy guidelines of the
Federal Reserve and the FDIC. Currently, there are two basic measures of
capital adequacy: a "risk-based" measure and a "leverage" measure. All
applicable capital standards must be satisfied for an institution to be
considered in compliance.
The capital-based prompt corrective action provisions of the FDIA and the
implementing regulations apply to FDIC-insured depository institutions and
are not directly applicable to holding companies that control such institutions.
However, the Federal Reserve has indicated that, in regulating bank holding
companies, it will take appropriate action at the holding company level based
on an assessment of the effectiveness of supervisory actions imposed upon
subsidiary depository institutions pursuant to such provisions and regulations
Although the capital categories defined under the prompt corrective
action regulations are not directly applicable to South Alabama and Sweet
Water under existing law and regulations, if South Alabama or Sweet Water was
placed in a capital category, then South Alabama and Sweet Water would
qualify as well-capitalized as of March 31, 1999.
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 I capital"). The remainder
("Tier II 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 I capital and Tier II 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 II 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 II capital.
The release states that as a general rule, previously issued debt may qualify
as Tier II 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 I 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 Sweet Water 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 March 31,
1999, for each of South Alabama, South Alabama Bank ("SAB"), First National
Bank, Brewton ("FNBB"), The Monroe County Bank ("MCB"), The Commercial Bank
of Demopolis ("CBD"), Sweet Water and Sweet Water State Bank "(SWSB").
<TABLE>
<CAPTION>
South Sweet
Alabama SAB FNBB MCB CBD Water SWSB
<S> <C> <C> <C> <C> <C> <C> <C>
Tier I Capital
Tangible Common
shareholders' equity $ 53,812 $ 17,035 $ 14,012 $ 12,675 $ 7,793 $ 5,851 $ 5,808
Tier II Capital
Allowable portion of the
allowance for loan losses 3,324 1,508 775 493 548 425 425
Total Capital (Tier I and
Tier II) $ 57,136 $ 18,543 $ 14,787 $ 13,168 $ 8,341 $ 6,276 $ 6,233
Risk-weighted assets $343,685 $154,625 $ 79,725 $ 71,308 $45,704 $ 36,486 $ 36,486
Quarterly average assets $493,868 $192,081 $113,295 $112,816 $74,361 $ 57,472 $ 57,472
Tier I capital 15.66% 11.02% 17.58% 17.78% 17.05% 16.04% 15.92%
Total capital (Tier I and
Tier II) 16.62% 11.99% 18.55% 18.47% 18.25% 17.20% 17.08%
Leverage Ratio 10.90% 8.87% 12.37% 11.24% 10.48% 10.18% 10.11%
</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 South Alabama Bank, The Monroe
County Bank, The Commercial Bank of Demopolis and Sweet Water State Bank were
well capitalized as of March 31, 1999, South Alabama believes that brokered
deposits regulation will have no material effect on the funding liquidity of
South Alabama Bank, The Monroe County Bank, The Commercial Bank of Demopolis
and Sweet Water State Bank.
Effects of Governmental Policies
Many FDICIA provisions will be implemented through adoption of regulations
that have been or will be proposed by the various federal banking agencies.
Accordingly, the full effect on South Alabama and Sweet Water and their
subsidiaries cannot be assessed 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 Sweet Water
or their respective subsidiaries may be affected thereby.
The Riegle-Neal Interstate Banking and Branching Efficiency Act of 1994 (the
"IBBEA") authorized interstate acquisitions of banks and bank holding
companies without geographic limitations beginning September 29, 1995. In
addition, beginning June 1, 1997, the IBBEA authorizes a bank to merge with a
bank in another state as long as neither of the states has opted out of
interstate branching by May 31, 1997. A bank may establish and operate a de
novo branch in a state in which the bank does not maintain a branch if that
state expressly permits de novo branching. Once a bank has established
branches in a state through an interstate merger transaction, the bank may
establish and acquire additional branches at any location in the state where
any bank involved in the interstate merger transaction could have established
or acquired branches under applicable Federal or state law. A bank that has
established a branch in a state through de novo branching may establish and
acquire additional branches in such state in the same manner and to the same
extent as a bank having a branch in such state as a result of an interstate
merger. If a state opts out of interstate branching within the specific time
period, no bank in any other state may establish a branch in the opting out
state, whether through an acquisition or de novo. The State of Alabama has
opted in with respect to interstate branching effective on or before June 1,
1997.
LEGAL MATTERS
The legality of the South Alabama common stock to be issued in the Merger
will be passed upon by Hand Arendall, L.L.C., Mobile, Alabama ("Hand
Arendall"). Hand Arendall attorneys own beneficially approximately
192,998 shares of the outstanding South Alabama common stock, and
Stephen G. Crawford, a member, is a director of South Alabama. During 1998,
South Alabama and its subsidiaries paid fees aggregating approximately
$166,000 to Hand Arendall for legal services.
Certain legal matters in connection with the Merger will be passed upon for
Sweet Water by Miller, Hamilton, Snider & Odom, L.L.C., Montgomery, Alabama.
Hand Arendall has rendered an opinion with respect to the federal tax
consequences of the Merger. See "The Merger Certain Federal Income Tax
Consequences."
EXPERTS
The Consolidated Financial Statements of South Alabama Bancorporation, Inc.,
incorporated by reference in this Prospectus and elsewhere in the
Registration Statement, have been audited by Arthur Andersen LLP, independent
public accountants, as indicated in their report with respect thereto and
are included herein in reliance upon the authority of said firm as experts in
giving said reports.
The Consolidated Financial Statements of Sweet Water State Bancshares, Inc.
as of December 31, 1998 and 1997, and for each of the two years then
ended, included in this Prospectus have been audited by McKean & Associates,
P.A., independent public accountants, as indicated in their report with
respect thereto and are so included herein in reliance upon the authority of
said firm as experts in giving said reports.
SHAREHOLDER PROPOSALS
Shareholder proposals intended to be submitted for consideration at the
2000 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 15, 1999, to be included in South Alabama's proxy statement and form
of proxy relating to that meeting. The named proxies for the 2000 annual
meeting will have discretionary voting authority with respect to any
shareholder proposal not received in writing by South Alabama by February 28,
2000, and they will exercise their authority in accordance with the
recommendations of South Alabama's Board of Directors.
WHERE YOU CAN FING MORE INFORMATION
The Securities Exchange Act of 1934, as amended (the "Exchange Act"),
requires South Alabama to file reports, proxy statements and other
information with the Securities and Exchange Commission (the "Commission").
These documents may 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 at:
7 World Trade Center, Suite 1300
New York, New York 10048
and Chicago at:
Northwestern Atrium Center
500 West Madison Street, Suite 1400
Chicago, Illinois 60661).
Copies of such materials can be obtained from the Securities and Exchange
Commission at:
450 Fifth Street, N.W.
Washington, D.C. 20549.
The Commission also maintains a Web Site that contains reports, proxy and
information statements and other information regarding registrants, including
South Alabama, that file electronically with the Commission at
http://www.sec.gov.
You may obtain further information about the Public Reference Section by
calling 1-800-SEC-0330.
South Alabama has filed with the Commission a Registration Statement
(No. 333-82167) 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.
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, 1998;
2. South Alabama's Quarterly Reports on Form 10-Q for the
quarters ended 1999; and
3. South Alabama's Proxy Statement for its 1999 Annual Meeting of
Shareholders.
South Alabama's Annual Report on Form 10-K for the year ended December 31,
1998, incorporates by reference specific portions of South Alabama's Annual
Report to Shareholders for that year (the "Annual Report to Shareholders")
but does not incorporate other portions of the Annual Report to Shareholders.
Those portions of the Annual Report to Shareholders captioned "Consolidated
Financial Highlights," "Letter to Shareholders," "Return on Average Assets"
and "Directors and Officers," as well as the Introduction and the text on
2, are NOT incorporated herein. Other portions of the Annual Report
to Shareholders are incorporated herein and are a part of the Registration
Statement.
Any statement contained herein or in a document incorporated by reference
herein shall be deemed to be modified or superseded for purposes of the
Registration Statement and this Prospectus to the extent that another
statement contained herein, in any supplement hereto or in any other
subsequently filed document which also is incorporated by reference herein,
modifies or supersedes such statement. Any such statement so modified or
superseded shall not be deemed, except as so modified or superseded, to
constitute a part of the Registration Statement, this Prospectus or any
supplement hereto.
APPENDIX A
AGREEMENT AND PLAN OF MERGER
BY AND BETWEEN
SWEET WATER STATE BANCSHARES, INC.
AND
SOUTH ALABAMA BANCORPORATION, INC.
DATED AS OF
APRIL 5, 1999
TABLE OF CONTENTS
PAGE
AGREEMENT AND PLAN OF MERGER . . . . . . . . . . . . . . . . . . . . 1
Preamble . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
DEFINITIONS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
ARTICLE ONE. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
TRANSACTIONS AND TERMS OF MERGER. . . . . . . . . . . . . . . . 9
1.1 Merger. . . . . . . . . . . . . . . . . . . . . . . . 9
1.2 Time and Place of Closing . . . . . . . . . . . . . . 9
1.3 Effective Time. . . . . . . . . . . . . . . . . . . .10
ARTICLE TWO. . . . . . . . . . . . . . . . . . . . . . . . . . . . .10
TERMS OF MERGER . . . . . . . . . . . . . . . . . . . . . . . .10
2.1 Articles of Incorporation . . . . . . . . . . . . . .10
2.2 Bylaws. . . . . . . . . . . . . . . . . . . . . . . .10
2.3 Directors and Officers. . . . . . . . . . . . . . . .10
ARTICLE THREE. . . . . . . . . . . . . . . . . . . . . . . . . . . .10
MANNER OF CONVERTING SHARES . . . . . . . . . . . . . . . . . .10
3.1 Conversion of Shares. . . . . . . . . . . . . . . . .11
3.2 Anti-Dilution Provisions. . . . . . . . . . . . . . .11
3.3 Shares Held by Sweet Water or South Alabama . . . . .11
3.4 Dissenting Shareholders . . . . . . . . . . . . . . .11
3.5 Fractional Shares . . . . . . . . . . . . . . . . . .12
ARTICLE FOUR . . . . . . . . . . . . . . . . . . . . . . . . . . . .12
EXCHANGE OF SHARES. . . . . . . . . . . . . . . . . . . . . . .12
4.1 Exchange Procedures . . . . . . . . . . . . . . . . .12
4.2 Rights of Former Sweet Water Shareholders . . . . . .13
ARTICLE FIVE . . . . . . . . . . . . . . . . . . . . . . . . . . . .13
REPRESENTATIONS AND WARRANTIES OF SWEET WATER . . . . . . . . .13
5.1 Organization, Standing, and Power . . . . . . . . . .13
5.2 Authority; No Breach By Agreement . . . . . . . . . .14
5.3 Capital Stock . . . . . . . . . . . . . . . . . . . .15
5.4 Sweet Water Subsidiaries. . . . . . . . . . . . . . .15
5.5 Financial Statements. . . . . . . . . . . . . . . . .16
5.6 Absence of Undisclosed Liabilities. . . . . . . . . .16
5.7 Absence of Certain Changes or Events. . . . . . . . .16
5.8 Tax Matters . . . . . . . . . . . . . . . . . . . . .16
5.9 Allowance for Possible Loan Losses. . . . . . . . . .17
5.10 Assets. . . . . . . . . . . . . . . . . . . . . . . .17
5.11 Environmental Matters . . . . . . . . . . . . . . . .18
5.12 Compliance with Laws. . . . . . . . . . . . . . . . .19
5.13 Labor Relations . . . . . . . . . . . . . . . . . . .19
5.14 Employee Benefit Plans. . . . . . . . . . . . . . . .20
5.15 Material Contracts. . . . . . . . . . . . . . . . . .21
5.16 Legal Proceedings . . . . . . . . . . . . . . . . . .22
5.17 Statements True and Correct . . . . . . . . . . . . .22
5.18 Accounting, Tax and Regulatory Matters. . . . . . . .23
5.19 Charter Provisions. . . . . . . . . . . . . . . . . .23
5.20 Year 2000 Compliance. . . . . . . . . . . . . . . . .23
ARTICLE SIX. . . . . . . . . . . . . . . . . . . . . . . . . . . . .23
REPRESENTATIONS AND WARRANTIES OF SOUTH ALABAMA . . . . . . . .23
6.1 Organization, Standing, and Power . . . . . . . . . .23
6.2 Authority; No Breach By Agreement . . . . . . . . . .23
6.3 Reports . . . . . . . . . . . . . . . . . . . . . . .24
6.4 Capital Stock . . . . . . . . . . . . . . . . . . . .25
6.5 Financial Statements. . . . . . . . . . . . . . . . .25
6.6 Absence of Material Adverse Change. . . . . . . . . .26
6.7 Subsidiaries. . . . . . . . . . . . . . . . . . . . .26
6.8 Legal Proceedings.. . . . . . . . . . . . . . . . . .26
6.9 Statements True and Correct.. . . . . . . . . . . . .26
6.10 Year 2000 Compliance.. . . . . . . . . . . . . .27
6.11 Environmental Matters. . . . . . . . . . . . . .27
ARTICLE SEVEN. . . . . . . . . . . . . . . . . . . . . . . . . . . .28
CONDUCT OF BUSINESS PENDING CONSUMMATION. . . . . . . . . . . .28
7.1 Covenants of Both Parties . . . . . . . . . . . . . .28
7.2 Covenants of Sweet Water. . . . . . . . . . . . . . .28
7.3 Covenants of South Alabama. . . . . . . . . . . . . .30
7.4 Adverse Changes in Condition. . . . . . . . . . . . .31
7.5 Reports . . . . . . . . . . . . . . . . . . . . . . .31
ARTICLE EIGHT. . . . . . . . . . . . . . . . . . . . . . . . . . . .32
ADDITIONAL AGREEMENTS . . . . . . . . . . . . . . . . . . . . .32
8.1 Registration Statement; Proxy Statement;
Shareholder Approval. . . . . . . . . . . . . . . . .32
8.2 Applications. . . . . . . . . . . . . . . . . . . . .33
8.3 Filings with State Offices. . . . . . . . . . . . . .33
8.4 Agreement as to Efforts to Consummate . . . . . . . .33
8.5 Investigation and Confidentiality . . . . . . . . . .34
8.6 Press Releases. . . . . . . . . . . . . . . . . . . .34
8.7 Certain Actions . . . . . . . . . . . . . . . . . . .34
8.8 Accounting and Tax Treatment. . . . . . . . . . . . .35
8.9 Charter Provisions. . . . . . . . . . . . . . . . . .35
8.10 Agreement of Affiliates . . . . . . . . . . . . . . .36
ARTICLE NINE . . . . . . . . . . . . . . . . . . . . . . . . . . . .38
CONDITIONS PRECEDENT TO OBLIGATIONS TO CONSUMMATE . . . . . . .38
9.1 Conditions to Obligations of Each Party . . . . . . .38
9.2 Conditions to Obligations of South Alabama. . . . . .39
9.3 Conditions to Obligations of Sweet Water. . . . . . .40
ARTICLE TEN. . . . . . . . . . . . . . . . . . . . . . . . . . . . .41
TERMINATION . . . . . . . . . . . . . . . . . . . . . . . . . .41
10.1 Termination . . . . . . . . . . . . . . . . . . . . .41
10.2 Effect of Termination. . . . . . . . . . . . . .42
10.3 Termination of Representations and Covenants. . . . .43
ARTICLE ELEVEN . . . . . . . . . . . . . . . . . . . . . . . . . . .43
MISCELLANEOUS . . . . . . . . . . . . . . . . . . . . . . . . .43
11.1 Expenses. . . . . . . . . . . . . . . . . . . . . . .43
11.2 Brokers and Finders. . . . . . . . . . . . . . .43
11.3 Entire Agreement . . . . . . . . . . . . . . . .43
11.4 Amendments . . . . . . . . . . . . . . . . . . .44
11.5 Waivers. . . . . . . . . . . . . . . . . . . . .44
11.6 Assignment . . . . . . . . . . . . . . . . . . .44
11.7 Notices. . . . . . . . . . . . . . . . . . . . .45
11.8 Governing Law . . . . . . . . . . . . . . . . . . . .46
11.9 Counterparts. . . . . . . . . . . . . . . . . . . . .46
11.10 Captions . . . . . . . . . . . . . . . . . . . .46
11.11 Enforcement of Agreement . . . . . . . . . . . .46
11.12 Severability . . . . . . . . . . . . . . . . . .46
AGREEMENT AND PLAN OF MERGER
THIS AGREEMENT AND PLAN OF MERGER (this "Agreement") is
made and entered into as of April 5, 1999 by and between SWEET WATER STATE
BANCSHARES, INC. ("Sweet Water"), a corporation organized and existing under the
laws of the State of Alabama, with its principal office located in Sweet
Water, Alabama, and SOUTH ALABAMA BANCORPORATION, INC. ("South Alabama"), a
corporation organized and existing under the laws of the State of Alabama,
with its principal office located in Mobile, Alabama.
PREAMBLE
The Boards of Directors of Sweet Water and South Alabama are of the
opinion that the transactions described herein are in the best interests of
the parties and their respective shareholders. This Agreement provides for the
merger of Sweet Water with and into South Alabama. At the effective time of
such merger, the outstanding shares of the capital stock of Sweet Water shall
be converted into the right to receive shares of the common stock of South
Alabama (except as provided herein).
As a result, shareholders of Sweet Water shall become shareholders of South
Alabama and South Alabama shall continue to conduct the business and
operations of SweetWater. The transactions described in this Agreement are
subject to the approvals of the shareholders of Sweet Water, the Board of
Governors of the Federal Reserve System, and the satisfaction of certain other
conditions described in this Agreement.
It is the intention of the parties to this Agreement that the Merger (i) for
federal income tax purposes shall qualify as a "reorganization" within the
meaning of Section 368(a) of the Internal Revenue Code, and (ii) for
accounting purposes shall qualify for treatment as a "pooling of interests."
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, April 5, 1999.
"ALLOWANCE" shall have the meaning provided in Section 5.9 of
this Agreement.
"ARTICLES OF MERGER" shall mean the Articles of Merger to be
executed by South Alabama and filed with the Secretary of State of the
Stateof 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.
"BROKER FEES" shall have the meaning provided in Section 11.2 of
this Agreement.
"BOOK VALUE," with respect to Sweet Water Common Stock, shall
mean the book value of one share of Sweet Water Common Stock on the last day
of the last fiscal quarter ending prior to or contemporaneously with the
day of the Effective Time, according to the Sweet Water Financial Statements
computed in accordance with GAAP, plus the after-tax impact of (a) the
booked or accrued amount of any one-time special assessment by the Federal
Deposit Insurance Fund after the date of this Agreement; (b) fees, except
for those already reserved for as of December 31, 1998, paid to Miller,
Hamilton, Snider & Odom, L.L.C. in connection with this Agreement and the
transactions contemplated herein; (c) fees paid to Alex Sheshunoff & Co.
Investment Banking pursuant to Section 11.2 of this Agreement; and (d) any
other fees or payments required to be paid or accrued to be paid or accrued
bySweet Water in connection with this Agreement or the proposed transaction.
"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, arrange-
ment, 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(a) of this Agreement.
"DEFAULT" shall mean (i) any breach or violation of or default
under any Contract, Order or Permit, (ii) any occurrence of any event that with
the passage of time or the giving of notice or both would constitute a
breach or violation of or default under any Contract, Order or Permit, or (iii)
any occurrence of any event that with or without the passage of time or the
giving of notice would give rise to a right to terminate or revoke, change the
current terms of, or renegotiate, or to accelerate, increase, or impose any
Liability under, any Contract, Order or Permit, where, in any such event, such
Default is reasonably likely to have, individually or in the aggregate, a
Material Adverse Effect on a Party.
"EFFECTIVE TIME" shall mean the date and time at which the
Merger becomes effective as defined in Section 1.3 of this Agreement.
"ENVIRONMENTAL LAWS" shall mean all Laws which are administered,
interpreted or enforced by the United States Environmental Protection
Agency and state and local agencies with jurisdiction over pollution or
protection of the environment.
"EQUITABLE DISCRETION" shall have the meaning provided in
Section 5.2(a) 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 4, inclusive, shall mean the Exhibits so
marked, copies of which are attached to this Agreement. Such Exhibits are
hereby incorporated by reference herein and made a part hereof, and may be
referred to in this Agreement and any other related instrument or document
without being attached hereto.
"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
actual Knowledge after due inquiry of the Chairman, President, Chief
Financial Officer, Chief Accounting Officer, Chief Credit Officer, General
Counsel, any Assistant or Deputy General Counsel, or any Senior or Executive
Vice President of such Person.
"LAW" shall mean any code, law, ordinance, regulation, reporting
or licensing requirement, rule, or statute applicable to a Person or its Assets,
Liabilities or business, including, without limitation, those promulgated,
interpreted or enforced by any of the Regulatory Authorities.
"LIABILITY" shall mean any direct or indirect, primary or
secondary, liability, indebtedness, obligation, penalty, cost or expense
(including, without limitation, costs of investigation, collection and defense),
claim, deficiency, guaranty or endorsement of or by any Person (other than
endorsements of notes, bills, checks, and drafts presented for collection or
depositin the ordinary course of business) of any type, whether accrued,
absolute or contingent, liquidated or unliquidated, matured or unmatured,
or otherwise.
"LIEN" shall mean any conditional sale agreement, default of
title, easement, encroachment, encumbrance, hypothecation, infringement, lien,
mortgage, pledge, reservation, restriction, security interest, title
retention or other security arrangement, or any adverse right or interest,
charge, or claim of any nature whatsoever of, on, or with respect to any
property or property interest, other than (i) Liens for current property Taxes
not yet due and payable,(ii) for depository institution Subsidiaries of a Party,
pledges to secure deposits and other Liens incurred in the ordinary course of
the banking business, and (iii) Liens which are not reasonably likely to have,
individually or in the aggregate, a Material Adverse Effect on a Party.
"LITIGATION" shall mean any action, arbitration, cause of action,
claim, complaint, criminal prosecution, demand letter, governmental or other
examination or investigation, hearing, inquiry, administrative or other
proceeding, or notice (written or oral) by any Person alleging potential
Liability or requesting information relating to or affecting a Party, its busi-
ness, 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 PRICE," when used with reference to South Alabama
Common Stock, shall mean the per share average Market Value during the
Valuation Period.
"MARKET VALUE," when used with reference to South Alabama
Common Stock, shall mean the per share 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" and derivations thereof 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 Sweet Water with and into
South Alabama referred to in Section 1.1 of this Agreement.
"NASD" shall mean the National Association of Securities Dealers,
Inc.
"NASDAQ" shall mean the National Association of Securities
Dealers Automated Quotations System.
"1933 ACT" shall mean the Securities Act of 1933, as amended.
"1934 ACT" shall mean the Securities Exchange Act of 1934, as
amended.
"ORDER" shall mean any administrative decision or award, decree,
injunction, judgment, order, quasi-judicial decision or award, ruling, or
writ of any federal, state, local or foreign or other court, arbitrator,
mediator, tribunal, administrative agency or Regulatory Authority.
"PARTICIPATION FACILITY" shall means any facility in which the
Party in question or any of its Subsidiaries participates in the management
and, where required by the context, includes the owner or operator or such
property, but only with respect to such property.
"PARTY" shall mean either Sweet Water or South Alabama, and
"PARTIES" shall mean both Sweet Water and South Alabama.
"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 Sweet Water to solicit the approval of its shareholders of the
transactions contemplated by this Agreement and used by South Alabama in
connection with the issuance of South Alabama Common Stock to holders of Sweet
Water Common Stock and which shall be filed with the SEC as part of the
Registration Statement.
"REGISTRATION STATEMENT" shall mean the Registration Statement
on Form S-4, or other appropriate form, filed with the SEC by South Alabama
under the 1933 Act in connection with the transactions contemplated by this
Agreement.
"REGULATORY AUTHORITIES" shall mean, collectively, the Federal
Trade Commission, the United States Department of Justice, the Board of the
Governors of the Federal Reserve System, the Office of the Comptroller of the
Currency, the Federal Deposit Insurance Corporation, all state regulatory
agencies having jurisdiction over the Parties and their respective Subsidiaries,
the NASD, and the SEC.
"SEC" shall mean the United States Securities and Exchange
Commission.
"SEC DOCUMENTS" shall mean all reports and registration
statements filed, or required to be filed, by a Party or any of its Subsidiaries
with any Regulatory Authority pursuant to the Securities Laws.
"SECURITIES LAWS" shall mean the 1933 Act, the 1934 Act, the
Investment Company Act of 1940, as amended, the Investment Advisors Act of
1940, as amended, the Trust Indenture Act of 1939, as amended, and the
rules and regulations of any Regulatory Authority promulgated thereunder.
"SHAREHOLDERS' MEETING" shall mean the Meeting of the
shareholders of Sweet Water to be held pursuant to Section 8.1 of this Agree-
ment, including any adjournment or adjournments thereof.
"SOUTH ALABAMA COMMON STOCK" shall mean the $.01 par value
common stock of South Alabama.
"SOUTH ALABAMA COMPANIES" shall mean, collectively, South
Alabama and all South Alabama Subsidiaries.
"SOUTH ALABAMA SUBSIDIARIES" shall mean the Subsidiaries of
South Alabama, which have been Previously Disclosed to Sweet Water, and any
corporation, bank, savings association, or other organization acquired as a
Subsidiary of South Alabama in the future and owned by South Alabama at the
Effective Time.
"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 South Alabama as the
surviving corporation resulting from the Merger.
"SWEET WATER BENEFIT PLANS" shall have the meaning set forth in
Section 5.14 of this Agreement.
"SWEET WATER COMMON STOCK" shall mean the $1.00 par value
common stock of Sweet Water.
"SWEET WATER COMPANIES" shall mean, collectively, Sweet Water
and all Sweet Water Subsidiaries.
"SWEET WATER FINANCIAL STATEMENTS" shall mean (i) the
consolidated balance sheets (including related notes and schedules, if
any) of Sweet Water as of December 31, 1998 and 1997, and the related statements
of income, changes in shareholders' equity, and cash flows (including
related notes and schedules, if any) for each of the three fiscal years ended
December 31, 1998, 1997, and 1996, as delivered by Sweet Water to South Alabama,
and (ii) the consolidated balance sheets of Sweet Water (including related
notes and schedules, if any) and related statements of income, changes in share-
holders' equity, and cash flows (including related notes and schedules, if any)
delivered by Sweet Water to South Alabama with respect to periods ended
subsequent to December 31, 1998.
"SWEET WATER REPRESENTATIVES" shall mean the meaning set forth
in Section 8.7(a) of this Agreement.
"SWEET WATER SUBSIDIARIES" shall mean the Subsidiaries of Sweet
Water, which shall include the Sweet Water Subsidiaries described in Section
5.4 of this Agreement and any corporation, bank, savings association, or other
organization acquired as a Subsidiary of Sweet Water in the future and owned
by Sweet Water at the Effective Time.
"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, Sweet Water shall be merged with and into South
Alabama in accordance with the provisions of Article 11 of the ABCA and
with the effect provided in Section 11.06 of the ABCA (the "Merger").
South Alabama 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 Sweet Water and South Alabama.
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 specified
in the Articles of Merger or at the time the Articles of Merger are duly filed
with the Secretary of State or the State of Alabama, whichever is later (the
"Effective Time"). Subject to the terms and conditions hereof, unless otherwise
mutually agreed upon in writing by the chief executive officers or chief
financial officers of each Party, the Parties shall use their reasonable efforts
to cause the Effective Time to occur as soon as practicable after the last to
occur of (i) the effective date (including expiration of any applicable waiting
period) of the last required Consent of any Regulatory Authority having
authority over and approving or exempting the Merger, and (ii) the date on
which the shareholders of Sweet Water approve this Agreement to the extent such
approval is required by applicable Law, or such later date within ninety (90)
days thereof as may be specified by South Alabama.
ARTICLE TWO
TERMS OF MERGER
2.1 ARTICLES OF INCORPORATION. The Articles of Incorporation of
South Alabama 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, until
otherwise amended or repealed.
2.2 BYLAWS. The Bylaws of South Alabama 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 seventeen (17) incumbent directors of
South Alabama. All such persons shall serve in accordance with the Bylaws of
the Surviving Corporation. The members of the standing committees of the Board
of Directors of the Surviving Corporation shall be determined by such Board of
Directors.
(b) The principal officers of the Surviving Corporation upon the
Effective Time shall be the incumbent officers of South Alabama, 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 South Alabama Common Stock issued and outstanding
immediately prior to the Effective Time shall remain issued and outstand-
ing from and after the Effective Time.
(b) Each share of Sweet Water Common Stock (excluding shares to be
canceled pursuant to Section 3.3 of this Agreement and shares held by
shareholders who perfect their dissenters' rights of appraisal as
provided in Section 3.4 of this Agreement) issued and outstanding at the
Effective Time shall cease to be outstanding and shall be converted into
and exchanged for the right to receive 14.17 shares (rounded to the
nearest hundredth of a share) of South Alabama Common Stock(the "Exchange
Ratio"); provided, that (subject to the provisions of Section 10.1):
(i) in the event the Market Price of South Alabama Common Stock is greater
than $17.00, then the Exchange Ratio shall be the number of shares of South
Alabama Common Stock having an aggregate Market Price equal to $240.89 for
each share of Sweet Water Common Stock; and (ii) in the event the Market
Price of South Alabama Common Stock is less than $13.00, then the Exchange
Ratio shall be the number of shares of South Alabama Common Stock having an
aggregate Market Price equal to $184.21 for each share of Sweet Water
Common Stock.
3.2 ANTI-DILUTION PROVISIONS. In the event Sweet Water changes the
number of shares of Sweet Water Common Stock issued and outstanding prior to the
Effective Time as a result of a stock split, stock dividend or similar
recapitalization with respect to such stock and the record date therefor shall
be prior to the Effective Time, the Exchange Ratio shall be proportionately
adjusted.
3.3 SHARES HELD BY SWEET WATER OR SOUTH ALABAMA. Each of the
shares of Sweet Water Common Stock held by any Sweet Water Company 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.
3.4 DISSENTING SHAREHOLDERS. Any holder of shares of Sweet Water
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
shareholder unless and until such dissenting shareholder has complied with the
applicable provisions of the ABCA and surrendered to the Surviving Corporation
the certificate or certificates representing the shares for which payment is
being made. In the event that after the Effective Time a dissenting shareholder
of Sweet Water fails to perfect, or effectively withdraws or loses, his right
to appraisal and of payment for his shares, the Surviving Corporation shall
issue and deliver the consideration to which such holder of shares of Sweet
Water Common Stock is entitled under this Article Three (without interest)
upon surrender by such holder of the certificate or certificates representing
shares of Sweet Water Common Stock held by him.
3.5 FRACTIONAL SHARES. Notwithstanding any other provision of this
Agreement, each holder of shares of Sweet Water 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 Price of one share of South
Alabama Common Stock. No such holder will be entitled to dividends, voting
rights, or any other rights as a shareholder in respect of any fractional
shares.
ARTICLE FOUR
EXCHANGE OF SHARES
4.1 EXCHANGE PROCEDURES. Promptly after the Effective Time, the
Surviving Corporation shall cause the exchange agent selected by it (the
"Exchange Agent") to mail to the former shareholders of Sweet Water appropriate
transmittal Materials (which shall specify that delivery shall be effected, and
risk of loss and title to the certificates theretofore representing shares of
Sweet Water Common Stock shall pass, only upon proper delivery of such certifi-
cates to the Exchange Agent). After the Effective Time, each holder of shares
of Sweet Water Common Stock (other than shares to be canceled pursuant to
Section 3.3 of this Agreement or as to which dissenters' rights of appraisal
have been perfected as provided in Section 3.4 of this Agreement)issued and
outstanding at the Effective Time shall surrender the certificate or
certificates representing such shares to the Exchange Agent and shall promptly
upon surrender thereof receive in exchange therefor the consideration provided
in Section 3.1 of this Agreement, together with all undelivered dividends or
distributions in respect of such shares (without interest thereon) pursuant to
Section 4.2 of this Agreement. To the extent required by Section 3.5 of this
Agreement, each holder of shares of Sweet Water 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 South Alabama Common Stock to which such holder may be
otherwise entitled (without interest). The Surviving Corporation shall not be
obligated to deliver the consideration to which any former holder of Sweet
Water Common Stock is entitled as a result of the Merger until such holder
surrenders his certificate or certificates representing the shares of Sweet
Water Common Stock for exchange as provided in this Section 4.1. The certi-
ficate or certificates of Sweet Water Common Stock so surrendered shall be duly
endorsed as the Exchange Agent may require. Any other provision of this
Agreement notwithstanding, neither the Surviving Corporation nor the Exchange
Agent shall be liable to a holder of Sweet Water 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 SWEET WATER SHAREHOLDERS. At the Effective
Time, the stock transfer books of Sweet Water shall be closed as to holders of
Sweet Water Common Stock immediately prior to the Effective Time and no transfer
of Sweet Water 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 Sweet Water Common Stock ("Sweet Water Certificate"), other than
shares to be canceled pursuant to Sections 3.3 and 3.4 of this Agreement, shall
from and after the Effective Time represent for all purposes only the right to
receive the consideration provided in Sections 3.1 and 3.5 of this Agreement in
exchange therefor. To the extent permitted by Law, former shareholders of
record of Sweet Water shall be entitled to vote after the Effective Time at any
meeting of Surviving Corporation shareholders the number of whole shares of
South Alabama Common Stock into which their respective shares of Sweet Water
Common Stock are converted, regardless of whether such holders have exchanged
their Sweet Water Certificates for certificates representing South Alabama
Common Stock in accordance with the provisions of this Agreement. Whenever a
dividend or other distribution is declared by the Surviving Corporation on the
South Alabama 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 Sweet Water 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 South Alabama Common Stock, which dividend or other distribution is
attributable to such person's South Alabama Common Stock represented by said
Sweet Water Certificate held after the Cutoff, until such person surrenders said
Sweet Water Certificate for exchange as provided in Section 4.1 of this
Agreement. However, upon surrender of such Sweet Water Certificate, both the
South Alabama 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 Sweet Water
Certificate.
ARTICLE FIVE
REPRESENTATIONS AND WARRANTIES OF SWEET WATER
Sweet Water hereby represents and warrants to South Alabama as
follows:
5.1 ORGANIZATION, STANDING, AND POWER. Sweet Water 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.
Sweet Water 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 and in which the failure to
be so qualified or licensed would be reasonably expected to, individually or in
the aggregate, have a Material Adverse Effect on Sweet Water. Sweet Water has
delivered to South Alabama complete and correct copies of its Articles of
Incorporation and Bylaws and the articles of incorporation, bylaws and other,
similar governing instruments of each of its Subsidiaries, in each case as
amended through the date hereof.
5.2 AUTHORITY; NO BREACH BY AGREEMENT.
(a) Sweet Water has the corporate power and authority
necessary to execute, deliver and, subject to Article Nine hereof, perform its
obligations under this Agreement and to consummate the transactions contemplated
hereby. The execution, delivery and performance of this Agreement and the
consummation of the transactions contemplated herein, including the Merger,
have been duly and validly authorized by all necessary corporate action in
respect thereof on the part of Sweet Water, subject to the approval of this
Agreement by the holders of Sweet Water Common Stock in accordance with the
ABCA. Subject to such requisite shareholder approval, this Agreement
represents a legal, valid, and binding obligation of Sweet Water, enforceable
against Sweet Water 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
Sweet Water, nor the consummation by Sweet Water of the transactions
contemplated hereby, nor compliance by Sweet Water with any of the provisions
hereof, will (i) conflict with or result in a breach of any provision of Sweet
Water's Articles of Incorporation or Bylaws, or (ii) constitute or result in a
Default under, or require any Consent pursuant to, or result in the creation of
any Lien on any Asset of any Sweet Water Company under, any Contract or Permit
of any Sweet Water Company, where any failure to obtain such Consent is
reasonably likely to have, individually or in the aggregate, a Material Adverse
Effect on Sweet Water, 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 Sweet Water Company or any of their respective Assets.
(c) Other than in connection or compliance with the provisions
of the Securities Laws, applicable state corporate and securities Laws, and
other than Consents required from Regulatory Authorities, and other than notices
to or filings with the Internal Revenue Service or the Pension Benefit Guaranty
Corporation with respect to any employee benefit plans, no notice to, filing
with, or Consent of, any public body or authority is necessary for the
consummation by Sweet Water of the Merger and the other transactions
contemplated in this Agreement.
5.3 CAPITAL STOCK.
(a) The authorized capital stock of Sweet Water consists only of
60,000 shares of Sweet Water Common Stock, of which 60,000 shares are issued and
outstanding. All of the issued and outstanding shares of capital stock of
Sweet Water 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 Sweet Water has been issued in violation of any preemptive rights of the
current or past shareholders of Sweet Water.
(b) There are no shares of capital stock or other equity
securities of Sweet Water 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 Sweet Water or contracts, commitments,
understandings, or arrangements by which Sweet Water 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 SWEET WATER SUBSIDIARIES. Sweet Water has Previously Disclosed
all of the Sweet Water Subsidiaries as of the date of this Agreement. Except as
Previously Disclosed, Sweet Water or one of its Subsidiaries owns all of the
issued and outstanding shares of capital stock of each Sweet Water Subsidiary.
No equity securities of any Sweet Water Subsidiary are or may become required
to be issued by reason of any options, warrants, scrip, rights to subscribe to,
calls, or commitments of any character whatsoever relating to, or securities or
rights convertible into or exchangeable for, shares of the capital stock of any
such Subsidiary, and there are no Contracts by which any Sweet Water Subsidiary
is bound to issue additional shares of its capital stock or options, warrants,
or rights to purchase or acquire any additional shares of its capital stock or
by which any Sweet Water Company is or may be bound to transfer any shares of
the capital stock of any Sweet Water Subsidiary. There are no Contracts
relating to the rights of any Sweet Water Company to vote or to dispose of any
shares of the capital stock of any Sweet Water Subsidiary. All of the shares of
capital stock of each Sweet Water Subsidiary held by a Sweet Water Company are
fully paid nonassessable under the applicable corporation Law of the
jurisdiction in which such Subsidiary is incorporated or organized and are owned
by the Sweet Water Company free and clear of any Lien. Each Sweet Water
Subsidiary is either a bank or a corporation, and is duly organized, validly
existing, and in good standing under the Laws of the jurisdiction in which it
is incorporated or organized, and has the corporate power and authority
necessary for it to own, lease and operate its Assets and to carry on its
business as now conducted. Each Sweet Water Subsidiary is duly qualified or
licensed to transact business as a foreign corporation in good standing in the
States of the United States and foreign jurisdictions where the character of its
Assets or the nature or conduct of its business requires it to be so qualified
or licensed. Each Sweet Water Subsidiary that is a depository institution is
an "insured institution" as defined in the Federal Deposit Insurance Act and
applicable regulations thereunder; and the businesses of any non-bank
subsidiaries of Sweet Water are permitted to subsidiaries of registered bank
holding companies.
5.5 FINANCIAL STATEMENTS. Sweet Water has delivered to South
Alabama prior to the execution of this Agreement copies of all Sweet Water
Financial Statements for periods ended December 31,1998, 1997 and 1996 and will
deliver to South Alabama copies of all Sweet Water Financial Statements prepared
subsequent to the date hereof. The Sweet Water Financial Statements (as of the
dates thereof and for the periods covered thereby) (i) are or, if dated after
the date of this Agreement, will be in accordance with the books and records of
the Sweet Water Companies, which are or will be, as the case may be, complete
and correct and which have been or will have been, as the case may be,
maintained in accordance with good business practices, and (ii) present or will
present, as the case may be, fairly the consolidated financial position of the
Sweet Water Companies as of the dates indicated and the consolidated
results of operations, changes in shareholders' equity, and cash flows of the
Sweet Water Companies for the periods indicated, all in accordance with GAAP.
The Financial Statements for December 31, 1998, have not yet been audited and
are subject to normal year-end adjustments.
5.6 ABSENCE OF UNDISCLOSED LIABILITIES. No Sweet Water Company
has any Liabilities that are reasonably likely to have, individually or in the
aggregate, a Material Adverse Effect on Sweet Water, except Liabilities which
have been Previously Disclosed or are accrued or reserved against in the
consolidated balance sheets of Sweet Water as of December 31, 1998, included in
the Sweet Water Financial Statements or reflected in the notes thereto. No
Sweet Water Company has incurred or paid any Liability since December 31, 1998,
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 Sweet
Water.
5.7 ABSENCE OF CERTAIN CHANGES OR EVENTS. Since December 31, 1998,
except as disclosed in the Sweet Water 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 Sweet Water, and (ii) the Sweet Water Companies have
not taken any action, or failed to take any action, prior to the date of this
Agreement, which action or failure, if taken after the date of this Agreement,
would represent or result in a Material breach or violation of any of the
covenants and agreements of Sweet Water provided in Article Seven of this
Agreement.
5.8 TAX MATTERS.
(a) All Tax returns required to be filed by or on behalf of
any of the Sweet Water Companies have been timely filed or requests for
extensions have been timely filed, granted, and have not expired for periods
ended on or before September 30, 1998, and on or before the date of the most
recent fiscal year end immediately preceding the Effective Time, and all returns
filed are complete and accurate. All Taxes shown on filed returns have been
paid. There is no audit examination, deficiency, or refund Litigation with
respect to any Taxes, except as reserved against in the Sweet Water Financial
Statements delivered prior to the date of this Agreement or as Previously
Disclosed. All Taxes and other Liabilities due with respect to completed and
settled examinations or concluded Litigation have been paid.
(b) None of the Sweet Water Companies has executed an
extension or waiver of any statute of limitations on the assessment or
collection of any Tax due (excluding such statutes that relate to years
currently under examination by the Internal Revenue Service or other applicable
taxing authorities) that is currently in effect.
(c) To Sweet Water's Knowledge, adequate provision for any
Taxes due or to become due for any of the Sweet Water Companies for the period
or periods through and including the date of the respective Sweet Water
Financial Statements has been made and is reflected on such Sweet Water
Financial Statements.
(d) Deferred Taxes of the Sweet Water Companies have been
provided for in accordance with GAAP.
(e) Sweet Water is in compliance with, and its records contain
the information and documents (including properly completed IRS Forms W-9)
necessary to comply with applicable information reporting and Tax Withholding
Requirements under federal, state and local Tax Laws, and such records
identify the accounts subject to backup withholding under section 3406 of the
Internal Revenue Code.
5.9 ALLOWANCE FOR POSSIBLE LOAN LOSSES. The allowance for possible
loan or credit losses (the "Allowance") shown on the consolidated balance
sheets of Sweet Water included in the most recent Sweet Water Financial
Statements dated prior to the date of this Agreement was, and the Allowance
shown on the consolidated balance sheets of Sweet Water included in the Sweet
Water Financial Statements as of dates subsequent to the execution of this
Agreement will be, as of the dates thereof, adequate (within the meaning of GAAP
and applicable regulatory requirements or guidelines) to provide for losses
relating to or inherent in the loan and lease portfolios (including accrued
interest receivables) of the Sweet Water Companies and other extensions of
credit (including letters of credit and commitments to make loans or
extend credit) by the Sweet Water Companies as of the dates thereof.
5.10 ASSETS. Except as Previously Disclosed or as disclosed or
reserved against in the Sweet Water Financial Statements, the Sweet Water
Companies have good and marketable title, free and clear of all Liens, to
all of their respective Assets. All tangible properties used in the businesses
of the Sweet Water Companies are in good condition, reasonable wear and tear
excepted, and are usable in the ordinary course of business consistent with
Sweet Water's past practices. All Assets which are Material to Sweet Water's
business on a consolidated basis, held under leases or subleases by any of the
Sweet Water Companies, 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 the Sweet Water
Companies provide adequate coverage under current industry practices against
loss or Liability, and the fidelity and blanket bonds in effect as to which any
of the Sweet Water Companies is a named insured are reasonably sufficient. The
Assets of the Sweet Water Companies include all assets required to operate the
business of the Sweet Water Companies as presently conducted.
5.11 ENVIRONMENTAL MATTERS.
(a) Each Sweet Water Company, its Participation Facilities, and
to its Knowledge its Loan Properties are, and have been, in compliance with all
Environmental Laws, except where instances of noncompliance, individually or
in the aggregate, would not be reasonably likely to result in a Material Adverse
Effect on Sweet Water.
(b) There is no Litigation pending or, to Sweet Water's
Knowledge, threatened before any court, governmental agency or authority or
other forum in which any Sweet Water Company or any of its Participation
Facilities has been or, to its Knowledge with respect to threatened Litigation,
may be named as a defendant (i) for alleged noncompliance (including by any
predecessor) with any Environmental Law or (ii) relating to the release into
the environment of any Hazardous Material (as defined below) or oil, whether or
not occurring at, on, under or involving a site owned, leased or operated by any
Sweet Water Company or any of its Participation Facilities.
(c) There is, to Sweet Water's Knowledge, no Litigation pending
or threatened before any court, governmental agency or board or other forum in
which any of its Loan Properties (or Sweet Water in respect of such Loan
Property) has been or may be named as a defendant or potentially responsible
party (i) for alleged noncompliance (including by any predecessor) with any
Environmental Law or (ii) relating to the release into the environment of any
Hazardous Material or oil, whether or not occurring at, on, under or involving
a Loan Property.
(d) To the Knowledge of Sweet Water, there is no reasonable
basis for any Litigation of a type described in subsections (b) or (c).
(e) During the period of (i) any Sweet Water Company's
ownership or operation of any of their respective current properties, (ii) any
Sweet Water Company's participation in the management of any Participation
Facility, or (iii) any Sweet Water Company's holding of a security interest in a
Loan Property, there have, to Sweet Water's Knowledge with respect to (ii) and
iii), been no releases of Hazardous Material or oil in, on, under or affecting
such properties. Prior to the period of (i) any Sweet Water Company's ownership
or operation of any of their respective current properties, (ii) any Sweet Water
Company's participation in the management of any Participation Facility, or
(iii) any Sweet Water Company's holding of a security interest in a Loan
Property, to the Knowledge of Sweet Water, there were no releases of Hazardous
Material or oil in, on, under or affecting any such property, Participation
Facility or Loan Property. It is acknowledged by the Parties that Sweet Water
has made no additional inquiry in regard to the matters reflected in
this Section 5.11 as to its Loan Properties for the purpose of making the
representations and warranties contained herein.
5.12 COMPLIANCE WITH LAWS. Sweet Water is duly registered as a bank
holding company under the BHC Act. Each Sweet Water Company has in effect all
Permits necessary for it to own, lease or operate its Assets and to carry on
its business
as now conducted and there has occurred no Default under any such Permit.
None of the Sweet Water Companies:
(a) Is in material violation of any Laws, Orders or Permits
applicable to its business or employees conducting its business; and
(b) Has received any notification or communication from any
agency or department of federal, state, or local government or any
Regulatory Authority or the staff thereof (i) asserting that any Sweet Water
Company is not in compliance with any of the Laws or Orders which such
governmental authority or Regulatory Authority enforces (ii) threatening to
revoke any Permits or (iii) requiring any Sweet Water Company to enter into
or consent to the issuance of a cease and desist order, formal agreement,
directive, commitment or memorandum of understanding, or to adopt any Board
resolution or similar undertaking, which restricts Materially the conduct of
its business, or in any manner relates to its capital adequacy, its credit or
reserve policies, its management, or the payment of dividends.
5.13 LABOR RELATIONS. No Sweet Water Company is the subject of any
Litigation asserting that it or any other Sweet Water Company has committed an
unfair labor practice (within the meaning of the National Labor Relations Act or
comparable state law) or seeking to compel it or any other Sweet Water Company
to bargain with any labor organization as to wages or conditions of employment,
nor is there any strike or other labor dispute involving any Sweet Water
Company, pending or threatened, or to its Knowledge, is there any activity
involving any Sweet Water Company's employees seeking to certify a collective
bargaining unit or engaging in any other organization activity.
5.14 EMPLOYEE BENEFIT PLANS.
(a) Sweet Water has delivered or made available to South
Alabama prior to the execution of this Agreement copies of all pension,
retirement, profit-sharing, deferred compensation, stock option, employee stock
ownership, severance pay, vacation, bonus, or other incentive plan, all other
written employee programs, arrangements, or agreements, all medical, vision,
dental, or other health plans, all life insurance plans, and all other employee
benefit plans or fringe benefit plans, including, without limitation,
"employee benefit plans" as that term is defined in Section 3(3) of ERISA,
currently adopted, maintained by, sponsored in whole or in part by, or
contributed to by any Sweet Water Company or Affiliate thereof for the
benefit of employees, retirees, dependents, spouses, directors, independent
contractors, or other beneficiaries and under which employees, retirees,
dependents, spouses, directors, independent contractors, or other beneficiaries
are eligible to participate (collectively, the "Sweet Water Benefit Plans").
Any of the Sweet Water 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 "Sweet Water ERISA Plan." Each Sweet Water 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 "Sweet Water Pension
Plan." No Sweet Water Pension Plan is or has been a multiemployer plan
within the meaning of Section 3(37) of ERISA.
(b) All Sweet Water Benefit Plans are in compliance with the
applicable terms of ERISA, the Internal Revenue Code, and any other applicable
Laws, the breach or violation of which are reasonably likely to have,
individually or in the aggregate, a Material Adverse Effect on Sweet Water.
Each Sweet Water 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 Sweet Water is not aware of any
circumstances likely to result in revocation of any such favorable determination
letter. No Sweet Water Company has engaged in a transaction with respect to
any Sweet Water Benefit Plan that, assuming the taxable period of such
transaction expired as of the date hereof, would subject any Sweet Water
Company to a tax or penalty imposed by either Section 4975 of the Internal
Revenue Code or Section 502(i) of ERISA.
(c) No Sweet Water 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 Sweet Water Pension Plan, (ii) no
change in the actuarial assumptions with respect to any Sweet Water Pension
Plan, and (iii) no increase in benefits under any Sweet Water Pension Plan as
a result of plan amendments or changes in applicable Law. Neither any Sweet
Water Pension Plan nor any "single-employer plan," within the meaning of
Section 4001(a)(15) of ERISA, currently or formerly maintained by any Sweet
Water Company, or the single-employer plan of any entity which is considered
one employer with Sweet Water under Section 4001 of ERISA or Section 414
of the Internal Revenue Code or Section 302 of ERISA (whether or not waived)
(an "ERISA Affiliate") has an "accumulated funding deficiency" within the
meaning of Section 412 of the Internal Revenue Code or Section 302 of ERISA,
which is reasonably likely to have a Material Adverse Effect on Sweet
Water. No Sweet Water Company has provided, or is required to provide,
security to a Sweet Water Pension Plan or to any single-employer plan of an
ERISA Affiliate pursuant to Section 401(a)(29) of the Code.
(d) No Liability under Subtitle C or D of Title IV or ERISA has
been or is expected to be incurred by any Sweet Water Company with respect to
any ongoing, frozen or terminated single-employer plan or the single-employer
plan of any ERISA Affiliate. No Sweet Water Company has incurred any
withdrawal Liability with respect to a multiemployer plan under Subtitle B of
Title IV or ERISA (regardless of whether based on contributions of an ERISA
Affiliate). 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 Sweet Water Pension Plan or by any
ERISA Affiliate within the 12-month period ending on the date hereof.
(e) Except as Previously Disclosed, (i) no Sweet Water Company
has any obligations for retiree health and life benefits under any of the
Sweet Water Benefit Plans and (ii) there are no restrictions on the rights of
such Sweet Water Company 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 any Sweet Water Company from any Sweet Water Company under
any Sweet Water Benefit Plan or otherwise, (ii) increase any benefits
otherwise payable under any Sweet Water Benefit Plan, or (iii) result in any
acceleration of the time of payment or vesting of any such benefit, where
such payment, increase or acceleration is reasonably likely to have,
individually or in the aggregate, a Material Adverse Effect on Sweet Water.
5.15 MATERIAL CONTRACTS. Except as Previously Disclosed or otherwise
reflected in the Sweet Water Financial Statements, none of the Sweet Water
Companies, nor any of their respective Assets, businesses or operations, is a
party to, or is bound or affected by, or receives benefits under, (i) any
employment, severance, termination, consulting or retirement Contract with
any Person, (ii) any Contract relating to the borrowing of money by any Sweet
Water Company or the guarantee by any Sweet Water Company of any such
obligation (other than Contracts evidencing deposit liabilities, purchases of
federal funds, fully-secured repurchase agreements, and Federal Home Loan Bank
advances of depository institution Subsidiaries, trade payables, and Contracts
relating to borrowings or guarantees made in the ordinary course of business),
(iii) any Contracts between or among Sweet Water Companies; and
(iv) any other Contract or amendment thereto that requires any Sweet Water
Company to make payments aggregating $10,000 or more in any 12-month period
(together with all Contracts referred to in Sections 5.10 and 5.14(a) of this
Agreement, the "Sweet Water Contracts"). None of the Sweet Water Companies is
in Default under any Sweet Water Contract. All of the indebtedness of any
Sweet Water Company for money borrowed is prepayable at any time by such
Sweet Water Company without penalty or premium.
5.16 LEGAL PROCEEDINGS. Except as Previously Disclosed, there is
no Litigation instituted or pending, or, to the Knowledge of Sweet Water,
threatened (or unasserted but considered probable of assertion and which if
asserted would have at least a reasonable probability of an unfavorable outcome)
against any Sweet Water Company, or against any Asset, interest, or right of
any of them, that is reasonably likely to have, individually or in the
aggregate, a Material Adverse Effect on Sweet Water, nor are there any Orders
of any Regulatory Authorities, other governmental authorities, or arbitrators
outstanding against any Sweet Water Company that are reasonably likely to have,
individually or in the aggregate, a material Adverse Effect on Sweet Water.
5.17 STATEMENTS TRUE AND CORRECT. No statement, certificate,
instrument or other writing furnished or to be furnished for inclusion in the
Proxy Statement by any Sweet Water Company or any Affiliate thereof to South
Alabama pursuant to this Agreement or any other document, agreement or
instrument referred to herein contains or will contain any untrue statement
of Material fact or will omit to state a Material fact necessary to make the
statements therein, in light of the circumstances under which they were made,
not misleading. None of the information supplied or to be supplied by any
Sweet Water Company or any Affiliate thereof for inclusion in the
Registration Statement to be filed by South Alabama with the SEC
will, when the Registration Statement becomes effective, be false or
misleading with respect to any Material fact, or omit to state any Material
fact necessary to make the statements therein not misleading. None of the
information supplied or to be supplied by any Sweet Water Company or any
Affiliate thereof for inclusion in the Proxy Statement to be mailed to Sweet
Water's shareholders in connection with the Shareholders' Meeting, and any
other documents to be filed by a Sweet Water Company or any Affiliate thereof
with the SEC or any other Regulatory Authority in connection with the
transactions contemplated hereby, will, at the respective time
such documents are filed, and with respect to the Proxy Statement, when first
mailed to the shareholders of Sweet Water, 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 or supplement thereto, at the time of the Shareholders' 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
Shareholders' Meeting. All documents that any Sweet Water Company or any
Affiliate thereof is responsible for filing with any Regulatory Authority in
connection with the transactions contemplated hereby will comply as to form
in all Material respects with the provisions of applicable Law.
5.18 ACCOUNTING, TAX AND REGULATORY MATTERS. Sweet Water has not,
and to Sweet Water's Knowledge, no Sweet Water Company or any Affiliate
thereof has taken any action, and Sweet Water has no Knowledge of any fact or
circumstance, that is reasonably likely to (i) prevent the transactions
contemplated hereby, including the Merger, from qualifying for pooling-of-
interests accounting treatment or as a reorganization within the meaning of
Section 368(a) of the Internal Revenue Code, or
(ii) Materially impede or delay receipt of any Consents of Regulatory
Authorities referred to in Section 9.1(b) of this Agreement or result in the
imposition of a condition or restriction of the type referred to in the last
sentence of such Section.
5.19 CHARTER PROVISIONS. Each Sweet Water Company has taken all
action so that the entering into of this Agreement and the consummation of
the Merger and the other transactions contemplated by this Agreement do not
and will not result in the grant of any rights to any Person under the Articles
or Certificate of Incorporation, Bylaws or other governing instruments of any
Sweet Water Company or restrict or impair the ability of the Surviving
Corporation to vote, or otherwise to exercise the rights of a shareholder
with respect to, shares of any Sweet Water Company that may be acquired or
controlled by it.
5.20 YEAR 2000 COMPLIANCE. Each Sweet Water Company has taken
and is taking commercially reasonable steps to cause all of its computer
systems, phone systems and other affected systems or equipment, including
without limitation hardware and software, to be Year 2000 compliant and
suffer no failure as a result of the arrival of January 1, 2000.
ARTICLE SIX
REPRESENTATIONS AND WARRANTIES OF SOUTH ALABAMA
South Alabama hereby represents and warrants to Sweet Water as
follows:
6.1 ORGANIZATION, STANDING, AND POWER. South Alabama is a
corporation duly organized, validly existing, and in good standing under the
Laws of the State of Alabama, and has the corporate power and authority to
carry on its businesses as now conducted and to own, lease and operate its
Material Assets.
6.2 AUTHORITY; NO BREACH BY AGREEMENT.
(a) South Alabama has the corporate power and authority necessary
to execute, deliver and, subject to Article Nine hereof, perform its
obligations under this Agreement and to consummate the transactions
contemplated hereby. The execution, delivery and performance of this
Agreement and the consummation of the transactions contemplated herein,
including the Merger, have been duly and validly authorized by all
necessary corporate action in respect thereof on the part of South
Alabama. This Agreement represents a legal, valid, and binding
obligation of South Alabama, enforceable against South Alabama 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 South
Alabama, nor the consummation by South Alabama of the transactions
contemplated hereby, nor compliance by South Alabama with any of the
provisions hereof, will (i) conflict with or result in a breach of any
provision of its Articles of Incorporation or Bylaws, or (ii) constitute
or result in a Default under, or require any Consent pursuant to, or
result in the creation of any Lien on any Asset of any South Alabama
Company under, any Contract or Permit of any South Alabama Company,
where any failure to obtain such Consent is reasonably likely to have,
individually or in the aggregate, a Material Adverse Effect on South
Alabama, 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 South Alabama Company or any of their respective Assets.
(c) Other than in connection or compliance with the provisions of the
Securities Laws, applicable state corporate and securities Laws, and
rules of the NASD, and other than Consents required from Regulatory
Authorities, and other than notices to or filings with the Internal
Revenue Service or the Pension Benefit Guaranty Corporation with respect
to any employee benefit plans and other than Consents, filings or
notifications which, if not obtained or made, are not reasonably likely
to have, individually or in the aggregate, a Material Adverse Effect on
South Alabama, no notice to, filing with, or Consent of, any public body
or authority is necessary for the consummation by South Alabama
of the Merger and the other transactions contemplated in this Agreement.
6.3 REPORTS. Since January 1, 1995, or the date of organization
if later, each South Alabama 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 South Alabama). As of their
respective dates, each of such reports and documents, including the financial
statements, exhibits, and schedules thereto, complied in all Material respects
with all applicable Laws. As of its respective date, each such report and
document did not, in all Material respects, contain any untrue statement of a
Material fact or omit to state a Material fact required to be stated therein
or necessary to make the statements made therein, in light of the circumstances
under which they were made, not misleading.
6.4 CAPITAL STOCK.
(a) The authorized capital stock of South Alabama consists of (A)
10,000,000 shares of Common Stock, $.01 par value per share, of which as
of March 5, 1999, 7,729,425 shares (not counting additional shares subject
to issue pursuant to stock option and other plans) were validly issued and
outstanding, fully paid and nonassessable, and (B) 500,000 shares of
Preferred stock, no par value per share, none of which are issued and
outstanding. Shares of South Alabama Common Stock are not subject to
preemptive rights. The shares of South Alabama Common Stock to be issued
in the Merger are duly authorized and, when so issued, will be validly
issued and outstanding, fully paid and nonassessable.
(b) The authorized capital stock of each Subsidiary of South Alabama
is validly issued and outstanding, fully paid and nonassessable, and each
Subsidiary is wholly owned, directly or indirectly, by South Alabama.
6.5 FINANCIAL STATEMENTS. South Alabama has Previously Disclosed
to Sweet Water copies of the following financial statements of South Alabama:
(a) Consolidated balance sheets as of December 31, 1996, December 31,
1997, and December 31, 1998;
(b) Consolidated statements of operations for each of the three years
ended December 31,1996, 1997, and 1998;
(c) Consolidated statements of cash flows for each of the three years
ended December 31,1995, 1996, and 1997, and for the nine months ended
September 30, 1998;
(d) Consolidated statements of changes in shareholders' equity for
the three years ended December 31,1996 and 1997, and for the nine months
ended September 30, 1998.
All such financial statements are in all Material respects in accordance with
the books and records of South Alabama and have been prepared in accordance
with GAAP applied on a consistent basis throughout the periods indicated,
all as more particularly set forth in the notes to such statements. Each of
the consolidated balance sheets presents fairly as of its date the
consolidated financial condition of South Alabama and its Subsidiaries.
Except as and to the extent reflected or reserved against in such balance
sheets (including the notes thereto), South Alabama did not have, as of the
dates of such balance sheets, any Material Liabilities or obligations
(absolute or contingent) of a nature customarily reflected in a balance sheet or
the notes thereto. The statements of consolidated income, shareholders'
equity and changes in consolidated financial position present fairly the
results of operations and changes in financial position of South Alabama and
its Subsidiaries for the periods indicated. The foregoing representations,
insofar as they relate to the unaudited financial statements of South Alabama
for periods ending December 31, 1998, and the unaudited interim financial
statements of South Alabama for the nine months ended September 30, 1998,
are subject in all cases to normal recurring year-end adjustments and the
omission of footnote disclosure.
6.6 ABSENCE OF MATERIAL ADVERSE CHANGE. Since the date of the most
recent balance sheet provided under Section 6.5 above, there have been no
events, changes or occurrences which have had or are reasonably likely to
have, individually or in the aggregate, a Material Adverse Effect on South
Alabama.
6.7 SUBSIDIARIES. Each Subsidiary of South Alabama has been duly
incorporated and is validly existing as a corporation or association in good
standing under the Laws of the jurisdiction of its incorporation, and each
Subsidiary has been duly qualified as a foreign corporation to transact
business and is in good standing under the Laws of each other jurisdiction
in which it owns or leases properties, or conducts any business so as to
require such qualification and in which the failure to be duly qualified
could have a Material Adverse Effect upon South Alabama and its Subsidiaries
considered as one enterprise; each of the banking Subsidiaries of South
Alabama has its deposits fully insured by the Federal Deposit Insurance
Corporation to the extent provided by the Federal Deposit Insurance Act;
and the businesses of the non-bank Subsidiaries of South Alabama are
permitted to subsidiaries of registered bank holding companies.
6.8 LEGAL PROCEEDINGS. Except as Previously Disclosed, there is
no litigation instituted or pending, or to South Alabama's Knowledge,
threatened (or unasserted but considered probable of assertion and which if
asserted would have at least a reasonable probability of an unfavorable
outcome) against South Alabama, or against any Material Asset, interest,
or right of South Alabama, that is reasonably likely to have, individually
or in the aggregate, a Material Adverse Effect on South Alabama, nor are
there any orders of any Regulatory Authorities, other governmental agencies,
or arbitrators outstanding against South Alabama that are reasonably likely
to have, individually or in the aggregate, a Material Adverse Effect on
South Alabama.
6.9 STATEMENTS TRUE AND CORRECT. No statement of South Alabama
or certificate of South Alabama to Sweet Water pursuant to this Agreement
contains or will contain any untrue statement of Material fact or will omit
to state a Material fact necessary to make statements therein, in light of
the circumstances under which they were made, not misleading. None of the
information supplied or to be supplied by South Alabama for inclusion in the
'Registration Statement to be filed by South Alabama with the SEC will, when
the Registration Statement becomes effective, be false or misleading with
respect to any Material fact, or omit to state any Material fact necessary
to make the statements therein not misleading. None of the information
supplied or to be mailed to Sweet Water's shareholders in connection with the
Shareholders' Meeting, and any other documents to be filed by South Alabama
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
Shareholders of Sweet Water, be false or misleading with respect to any
Material fact, or omit to state any Material fact necessary to make the
statements therein, in light of the of the circumstances under which they
were made, not misleading, or, in the case of the Proxy Statement or any
amendment thereof or supplement thereto, at the time of the Shareholders'
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
Shareholders' Meeting. All documents that South Alabama is responsible for
filing with any Regulatory Authority in connection with the transactions
contemplated hereby will comply as to form in all Material respects with the
provisions of applicable Law.
6.10 YEAR 2000 COMPLIANCE. South Alabama has taken and is taking
commercially reasonable steps to cause all of South Alabama's computer systems,
phone systems and other affected systems or equipment, including without
limitation, hardware and software, to be year 2000 compliant and suffer no
failure as a result of the arrival of January 1, 2000.
6.11 ENVIRONMENTAL MATTERS. Except as Previously Disclosed:
(a) South Alabama, its Participation Facilities, and, to its Knowledge,
its Loan Properties, are, and have at all times been, in Material compliance
with all Environmental Laws, except where instances of noncompliance,
individually or in the aggregate, would not be reasonably likely to result
in a Material Adverse Effect on South Alabama.
(b) There is, to South Alabama's Knowledge, no Litigation pending or
threatened before any court, governmental agency or authority or other forum
in which South Alabama or any of its Participation Facilities have been or,
to its Knowledge, with respect to threatened Litigation, may be named as a
defendant (i) for alleged non-compliance (including by any predecessor) with
any Environmental Law or (ii) relating to the release into the environment of
any Hazardous Material, whether or not occurring at, on, under or involving
a site owned, leased or operated by South Alabama or any of its Participation
Facilities.
(c) There is, to South Alabama's Knowledge, no Litigation pending or
threatened before any court, governmental agency or board or other forum in
which any of its Loan Properties (or South Alabama in respect to such Loan
Property) have been or may be named as a defendant or potentially responsible
party (i) for alleged non-compliance (including by any predecessor) with any
Environmental Law or (ii) relating to the release into the environment of
any Hazardous Material, whether or not occurring at, on, under or involving
a Loan Property.
(d) To South Alabama'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) South Alabama s ownership or operation of
any of its current properties, (ii) South Alabama's participation in the
management of any Participation Facility, or (iii) South Alabama s holding
of a security interest in a Loan Property, there have been, to South
Alabama's Knowledge with respect to (ii)and (iii), no releases of
Hazardous Material in, on, under or affecting such properties. Prior to
the period of (i) South Alabama's ownership or operation of any of its
current properties, (ii) South Alabama s participation in the management of
any Participation Facility, or (iii) South Alabama's holding of a security
interest in a Loan Property, there were, to South Alabama s Knowledge, no
releases of Hazardous Material in, on, under or affecting any such property,
Participation Facility or Loan Property. It is acknowledged by the Parties
that South Alabama has made no additional inquiry in regard to the matters
reflected in this Section 6.11 as to its Loan Properties for the
purpose of making the representations and warranties contained herein.
ARTICLE SEVEN
CONDUCT OF BUSINESS PENDING CONSUMMATION
7.1 COVENANTS OF BOTH PARTIES. Unless the prior written consent of
the other Party shall have been obtained, and except as otherwise expressly
contemplated herein, each Party shall and shall cause each of its Subsidiaries
to (a) preserve intact its business organizations, goodwill, relationships
with depositors, customers and employees, and Assets and maintain its rights
and franchises, and (b) take no action which would (i) adversely affect the
ability of any Party to obtain any Consents required for the transactions
contemplated hereby without imposition of a condition or restriction of the
type referred to in the last sentences of Section 9.1(b) or 9.1(c) of this
Agreement, or (ii) adversely affect the ability of any Party to perform its
covenants and agreements under this Agreement.
7.2 COVENANTS OF SWEET WATER. From the date of this Agreement
until the earlier of the Effective Time or the termination of this Agreement,
Sweet Water covenants and agrees that it will not do or agree or commit to do,
or permit any of its Subsidiaries to do or agree or commit to do, any of the
following without the prior written consent of the chief executive officer,
president or chief financial officer of South Alabama, which consent shall
not be unreasonably withheld:
(a) Amend the Articles of Incorporation, Bylaws or other
governing instruments of any Sweet Water Company; or
(b) incur any additional debt obligation or other obligation
for borrowed money (other than indebtedness of a Sweet Water Company
to another Sweet Water Company) except in the ordinary course of the
business of Sweet Water Subsidiaries consistent with past practices
(which shall include, for Sweet Water Subsidiaries that are depository
institutions, creation of deposit liabilities, purchases of federal funds,
advances from the Federal Reserve Bank or the Federal Home Loan Bank,
and entry into repurchase agreements fully secured by U.S. government or
agency securities), or impose, or suffer the imposition, on any share of
stock held by any Sweet Water Company of any Lien or permit any such Lien
to exist; or
(c) repurchase, redeem, or otherwise acquire or exchange (other
than exchanges in the ordinary course under employee benefit plans),
directly or indirectly, any shares, or any securities convertible into any
shares, of the capital stock of any Sweet Water Company, or declare or pay
any dividend or make any other distribution in respect of Sweet Water's
capital stock, except that Sweet Water will pay quarterly one-fourth of its
normal annual cash dividend, in accordance with past practice Previously
Disclosed, (or a dividend equivalent to that which would be paid by South
Alabama if the Merger had been consummated) as and to the extent permitted
or required for the Merger to qualify for pooling-of-interests accounting
treatment; or
(d) except for this Agreement, issue, sell, pledge, encumber,
enter into any Contract to issue, sell, pledge, or encumber, authorize the
issuance of, or otherwise permit to become outstanding, any additional
shares of Sweet Water Common Stock or any other capital stock of any Sweet
Water Company, or any stock appreciation rights, or any option, warrant,
conversion, or other right to acquire any such stock, or any security
convertible into any such stock; or
(e) adjust, split, combine or reclassify any capital stock of
any Sweet Water Company or issue or authorize the issuance of any other
securities in respect of or in substitution for shares of its capital
stock or sell, lease, mortgage or otherwise dispose of or otherwise
encumber any shares of capital stock of any Sweet Water Subsidiary
(unless any such shares of stock are sold or otherwise transferred to
another Sweet Water Company) or any Asset other than in the ordinary
course of business for full and adequate consideration; or
(f) acquire any direct or indirect equity interest in any
Person, other than in connection with (i) foreclosures in the ordinary
course of business, and (ii) acquisitions of control by a depository
institution Subsidiary in its fiduciary capacity; or
(g) grant any increase in compensation or benefits to the
employees or officers of any Sweet Water Company, except in accordance
with past practice Previously Disclosed or as required by Law; pay any
bonus except in accordance with past practice Previously Disclosed or
the provisions of any applicable program or plan adopted by its Board of
Directors prior to the date of this Agreement; enter into or amend any
severance agreements with officers of any Sweet Water Company; grant any
Material increase in fees or other increases in compensation or other
benefits to directors of any Sweet Water Company except in accordance
with past practice Previously Disclosed; or
(h) enter into or amend any employment Contract between any
Sweet Water Company and any Person (unless such amendment is required by
Law) that the Sweet Water Company does not have the unconditional right
to terminate without Liability (other than Liability for services already
rendered), at any time on or after the Effective Time;
(i) adopt any new employee benefit plan of any Sweet Water
Company or make any Material change in or to any existing employee benefit
plans of any Sweet Water Company other than any such change that is
required by Law or that, in the opinion of counsel, is necessary or
advisable to maintain the tax qualified status of any such plan; or
(j) make any change in any accounting methods or systems of
internal accounting controls, except as may be appropriate to conform to
changes in regulatory accounting requirements or GAAP;
(k) commence any Litigation other than in accordance with past
practice, settle any Litigation involving any Liability of any Sweet
Water Company for Material money damages or restrictions upon the
operations of any Sweet Water Company, or modify, amend or terminate any
Material Contract or waive, release, compromise or assign any Material
rights or claims;
(l) operate its business otherwise than in the ordinary course
of business; or
(m) fail to file timely any report required to be filed by it
with any Regulatory Authority.
7.3 COVENANTS OF SOUTH ALABAMA. From the date of this Agreement
until the earlier of the Effective Time or the termination of this Agreement,
South Alabama covenants and agrees that it shall and shall cause each of its
Subsidiaries to continue to conduct its business and the business of its
Subsidiaries in a manner designed in its reasonable judgment to enhance the
long-term value of the South Alabama Common Stock and the business prospects
of the South Alabama Companies and to the extent consistent therewith use all
reasonable efforts to preserve intact the South Alabama Companies' core
businesses and goodwill with their respective employees and the communities
they serve, and will not do or agree or commit to do,or permit any of its
Subsidiaries to do or agree or commit to do, any of the following without the
prior written consent of the chief executive officer, president or chief
financial officer of Sweet Water, which consent shall not be unreasonably
withheld:
(a) fail to file timely any report required to be filed by it
with Regulatory Authorities, including the SEC;
(b) take any action which would cause the South Alabama
Common Stock to cease to be traded on the NASDAQ;
(c) take no action which would materially adversely affect
the ability of any Party to obtain any Consents required for the
transactions contemplated hereby;
(d) take no action which would materially adversely affect the
ability of any Party to perform its covenants and agreements under this
Agreement; or
(e) amend the Articles of Incorporation or Bylaws of South
Alabama, in each case, in any manner which is adverse to, and
discriminates against, the holders of Sweet Water Common Stock.
7.4 ADVERSE CHANGES IN CONDITION. Each Party agrees to give
written notice promptly to the other Party upon becoming aware of the
occurrence or impending occurrence of any event or circumstance relating to
it or any of its Subsidiaries which (i) is reasonably likely to have,
individually or in the aggregate, a Material Adverse Effect on it or
(ii) would cause or constitute a Material breach of any of it's
representations, warranties, or covenants contained herein, and to use its
reasonable efforts to prevent or promptly to remedy the same.
7.5 REPORTS. Each Party and its Subsidiaries shall deliver to the
other Party copies of all reports with Regulatory Authorities promptly after
the same are filed.
ARTICLE EIGHT
ADDITIONAL AGREEMENTS
8.1 REGISTRATION STATEMENT; PROXY STATEMENT; SHAREHOLDER
APPROVAL.
(a) As soon as practicable after execution of this Agreement,
South Alabama 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 South Alabama Common Stock upon
consummation of the Merger. Sweet Water shall furnish all information
concerning it and the holders of its capital stock as South Alabama may
reasonably request in connection with such action. Sweet Water shall call
the Shareholders' 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 Shareholders'
Meeting, (i) Sweet Water and South Alabama shall prepare and file a Proxy
Statement with the SEC and mail it to Sweet Water's shareholders, (ii) the
Parties shall furnish to each other all information concerning them that
they may reasonably request in connection with such Proxy Statement,
(iii) the Board of Directors of Sweet Water shall recommend (subject to
compliance with its fiduciary duties as advised by counsel) to its
shareholders the approval of this Agreement, and (iv) the Board of
Directors and officers of Sweet Water shall use their reasonable efforts to
obtain such shareholders' approval (subject to compliance with their
fiduciary duties as advised by counsel).
(b) From and after the Effective Time South Alabama shall
indemnify and hold harmless Sweet Water, each of its directors and
officers, and each Person, if any, who controls Sweet Water within the
meaning of the 1933 Act against any losses, claims, damages, or
Liabilities, joint, several, or solitary, to which they or any of them may
become subject, under the 1933 Act or otherwise, insofar as such losses,
claims, damages, or Liabilities (or actions in respect thereof) arise out
of or are based upon an untrue statement or alleged untrue statement of
Material fact contained in the Registration Statement or the Proxy
Statement, or arising out of or based upon the omission or alleged
omission to state therein a Material fact required to be stated therein or
necessary to make the statements therein not misleading, and will reimburse
each such Person for any legal or other expenses reasonably incurred by
such person in connection with investigating or defending any such action
or claim; provided, however, that South Alabama shall not be liable in any
such case to the extent that any such loss, claim, damage, or Liability
(or action in respect thereof) arises out of or is based upon any untrue
statement or alleged untrue statement or omission or alleged omission made
in the Registration Statement or the Proxy Statement in reliance upon and
in conformity with information furnished to South Alabama by Sweet Water
or an indemnified Person or information concerning Sweet Water or any
indemnified Person. Promptly after receipt by an indemnified Person of
notice of the commencement of any action, such indemnified Person shall, if
a claim in respect thereof is to be made against South Alabama under this
Section 8.1(b), notify South Alabama in writing of the commencement
thereof, but failure to give prompt notice shall deprive the indemnified
Person of his or her right to be indemnified only to the extent that South
Alabama is thereby prejudiced. In case any such action shall be brought
against any indemnified Person and it shall notify South Alabama of the
commencement thereof, South Alabama shall be entitled to participate
therein, and to the extent that it shall wish, to assume the defense
thereof, with counsel satisfactory to such indemnified Person, and, after
notice from South Alabama to such indemnified Person of its election to so
assume the defense thereof, South Alabama shall not be liable to such
indemnified party under this Section 8.1(b) for any legal expenses of other
counsel or any other expenses subsequently incurred by such indemnified
Person, except that if South Alabama elects not to assume such defense or
counsel for an indemnified Person or Persons advises in writing that there
are material substantive issues which raise conflicts of interests between
South Alabama and one or more indemnified Persons, such indemnified Person
or Persons may retain counsel satisfactory to them, and South Alabama shall
pay all reasonable fees and expenses of such counsel for the indemnified
Persons, promptly as statements therefor are received; provided that
(i) South Alabama shall be obligated pursuant to this Section 8.1(b) to pay
for only one firm of counsel for all indemnified Persons in any
jurisdiction and (ii) South Alabama shall not be liable for any settlement
effected without its prior written consent.
8.2 APPLICATIONS. South Alabama shall promptly prepare and file,
and Sweet Water 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, South Alabama shall execute and file the
Articles of Merger with the Secretary of State of the State of Alabama in
connection with the Closing.
8.4 AGREEMENT AS TO EFFORTS TO CONSUMMATE. Subject to the terms
and conditions of this Agreement, each Party agrees to use, and to cause its
Subsidiaries to use, its reasonable efforts to take, or cause to be taken,
all actions, and to do, or cause to be done, all things necessary, proper, or
advisable under applicable Laws to consummate and make effective, as soon as
practicable after the date of this Agreement, the transactions contemplated by
this Agreement, including, without limitation, using its reasonable efforts to
lift or rescind any Order adversely affecting its ability to consummate the
transactions contemplated herein and to cause to be satisfied the conditions
referred to in Article Nine of this Agreement. Each Party shall use, and shall
cause each of its Subsidiaries to use, its reasonable efforts to obtain all
Consents necessary or desirable for the consummation of the transactions
contemplated by this Agreement.
8.5 INVESTIGATION AND CONFIDENTIALITY.
(a) Prior to the Effective Time, Sweet Water will keep South
Alabama advised of all Material developments relevant to its business and
to consummation of the Merger and shall permit South Alabama to make or
cause to be made such investigation of the business and properties of it
and its Subsidiaries and of its financial and legal conditions as South
Alabama reasonably requests, provided that such investigation shall be
reasonably related to the transactions contemplated hereby and shall not
interfere unnecessarily with normal operations. No such investigation
shall affect the representations and warranties of Sweet Water.
(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 or otherwise and which represents, or is reasonably
likely to represent, either a Material breach of any representation,
warranty, covenant or agreement of the other Party or which has had
or is reasonably likely to have a Material Adverse Effect on the other
Party.
8.6 PRESS RELEASES. Prior to the Effective Time, Sweet Water and
South Alabama shall consult with each other as to the form and substance of
any press release or other public disclosure Materially related to this
Agreement or any other transaction contemplated hereby; provided, however, that
nothing in this Section 8.6 shall be deemed to prohibit any Party from making
any disclosure which its counsel deems necessary or advisable in order to
satisfy such Party's disclosure obligations imposed by Law.
8.7 CERTAIN ACTIONS.
(a) Except with respect to this Agreement and the transactions
contemplated hereby, no Sweet Water Company or any Affiliate thereof or
any investment banker, attorney, accountant or other representative
retained by any Sweet Water Company (collectively, "Sweet Water
Representatives") shall directly or indirectly solicit any Acquisition
Proposal by any Person. No Sweet Water Company or any Affiliate or
Representative thereof shall furnish any non-public information that it
is not legally obligated to furnish, negotiate with respect to, or enter
into any Contract with respect to, any Acquisition Proposal, but Sweet
Water or its directors may communicate information about such an
Acquisition Proposal to its shareholders if and to the extent that it is
required to do so in order to comply with its or their fiduciary or legal
obligations. Sweet Water shall promptly notify South Alabama orally and
in writing in the event that it receives any inquiry or proposal relating
to any such transaction. Sweet Water 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 Sweet Water Representatives not to engage in any of the foregoing.
(b) South Alabama shall promptly notify Sweet Water orally and
in writing in the event that it receives any inquiry or proposal relating
to an Acquisition Proposal with respect to the acquisition of South
Alabama; provided, that if requested by South Alabama Sweet Water shall
keep the information provided pursuant to this Section 8.7(b) confidential
until such Acquisition Proposal is made public by South Alabama or another
party thereto.
8.8 ACCOUNTING AND TAX TREATMENT. Each of the Parties undertakes
and agrees to use its reasonable efforts to cause the Merger, and to take no
action which would cause the Merger not, to qualify for pooling-of-interests
accounting treatment and treatment as a "reorganization" within the meaning of
Section 368(a) of the Internal Revenue Code for federal income tax purposes.
8.9 CHARTER PROVISIONS.
(a) Each Sweet Water Company shall take all necessary action
to ensure that the entering into of this Agreement and the consummation of
the Merger and the other transactions contemplated hereby do not and will
not result in the grant of any rights to any Person under the Articles of
Incorporation, Bylaws or other governing instruments of any Sweet Water
Company or restrict or impair the ability of South Alabama to vote, or
otherwise to exercise the rights of a shareholder with respect to, shares
of any Sweet Water Company that may be acquired or controlled by
it.
(b) Each South Alabama Company shall take all necessary
action to ensure that the entering into of this Agreement and
the consummation of the Merger and the other transactions
contemplated hereby do not and will not result in the grant of
any rights to any Person under the Articles of Incorporation,
Bylaws or other governing instruments of any South Alabama
Company or restrict or impair the ability of any Sweet Water
shareholder to vote, or otherwise exercise the rights of a
shareholder with respect to, shares of South Alabama Common Stock
that may be acquired or controlled by it.
8.10 AGREEMENT OF AFFILIATES. Sweet Water shall use its reasonable
best efforts to cause each Person who is an "affiliate" within the meaning of
SEC Rule 145 to deliver to South Alabama 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 Sweet Water 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 South Alabama 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 South Alabama and
Sweet Water 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 South
Alabama Common Stock issued to such affiliates of Sweet Water in exchange for
shares of Sweet Water Common Stock (and shares of South Alabama Common Stock
held by persons who are "affiliates" of South Alabama) shall not be transferable
until such time as financial results covering at least thirty (30)
days of combined operations of South Alabama and Sweet Water have been published
within the meaning of Section 201.01 of the SEC's Codification of Financial
Reporting Policies, regardless of whether each such affiliate has provided the
written agreement referred to in this Section 8.10 (and South Alabama shall be
entitled to place restrictive legends upon certificates for shares of South
Alabama Common Stock issued to affiliates of Sweet Water pursuant to this
Agreement to enforce the provisions of this Section 8.10). South Alabama shall
not be required to maintain the effectiveness of the Registration Statement
under the 1933 Act for the purposes of resale of South Alabama Common Stock
by such affiliates.
8.11 COMPENSATION AND EMPLOYEE BENEFITS. The Parties contemplate
that at the Effective Time the compensation and employee benefit plans of
neither the Sweet Water Companies nor the South Alabama Companies shall be
affected by the Merger and that such plans shall continue in effect as though
the Merger had not occurred. The Parties further contemplate, however, that it
is desirable that the Surviving Corporation and its Subsidiaries offer more
uniform employee compensation and benefits and that at some point after the
Effective Time the Surviving Corporation and its Subsidiaries will adopt uniform
policies and plans, giving due regard to the benefits offered to current
employees.
8.12 DIRECTOR AND EXECUTIVE OFFICER. Promptly after the Effective
Time, South Alabama shall appoint the current Chairman of Sweet Water,
Stratton F. Lewis, Jr., and Jack O. Kerby as directors of South Alabama.
Promptly after the Effective Time, South Alabama shall elect the Chief Executive
Officer of Sweet Water, Stratton F. Lewis, Jr., as an Executive Officer of South
Alabama. The persons named by the Parties as members of the Board of Directors
of the Surviving Corporation shall be named in the Proxy Statement and the
Registration Statement, subject to receipt of the consent of such individuals to
be so named.
8.13 INDEMNIFICATION.
(a) From and after the Effective Time, South Alabama shall indemnify
and advance costs and expenses (including reasonable attorneys fees,
disbursements and expenses) and hold harmless each present and former
director and/or officer of Sweet Water determined as of the Effective Time
(the "Indemnified Parties"), against any costs or expenses (including
reasonable attorney's fees), judgments, fines, losses, claims, damages,
settlements or liabilities (collectively, "Costs") incurred in connection
with any claim, action, suit, proceeding or investigation, whether civil,
criminal, administrative or investigative (each a "Claim"), arising out of
or pertaining to matters existing or occurring at or prior to the Effective
Time, whether asserted or claimed prior to, at or after the Effective Time
to the fullest extent that Sweet Water would have been permitted to
indemnify such person under Alabama Law, Sweet Water's Articles of
Incorporation or Bylaws in effect on the date hereof.
(b) Any Indemnified Party wishing to claim indemnification under
this Section 8.13 shall notify South Alabama within forty-five (45) days
after the Indemnified Party's receipt of a notice of any Claim, but the
failure to so notify shall not relieve South Alabama of any Liability it
may have to such Indemnified Party, unless such failure Materially
prejudices South Alabama. In the event of any claim (whether arising
before or after the Effective Time), (i) South Alabama shall have the right
to assume the defense thereof, and South Alabama shall not be liable to
such Indemnified Parties for any legal expenses of other counsel or any
other expenses subsequently incurred by such Indemnified Parties in
connection with the defense thereof, except that if South Alabama elects
not to assume such defense, or counsel for the Indemnified Parties advises
that there are issues which raise conflicts of interest between South
Alabama and the Indemnified Parties, the Indemnified Parties may retain
counsel satisfactory to them, and South Alabama shall pay the reasonable
fees and expense of such counsel for the Indemnified Parties promptly after
statements therefor are received; provided, however, that South Alabama
shall be obligated pursuant to this paragraph (ii) to pay for only one firm
of counsel for all Indemnified Parties in any jurisdiction unless the use
of one counsel for such Indemnified Parties will present such counsel with
a conflict of interest, (iii) the Indemnified Parties will cooperate in the
defense of any such matter, and (iv) South Alabama shall not be liable for
any settlement effected without its prior written consent which shall not
be unreasonably withheld. If such indemnity with respect to any
Indemnified Party is unenforceable against South Alabama, then South
Alabama and the Indemnified Party shall contribute to the amount payable in
such proportion as is appropriate to reflect relative faults and benefits.
(c) South Alabama shall purchase such "tail" or extended reporting
period insurance coverage as it deems advisable to insure the obligations
for which it is providing indemnification hereunder, which coverage shall
be in an amount and for a term deemed appropriate by South Alabama.
(d) If South Alabama or any of its successors and assigns (i) shall
consolidate with or merge into any other corporation or entity and shall
not be the continuing or surviving corporation or entity of such
consolidation or merger, or (ii) shall transfer all or substantially all of
its property and assets to any individual, corporation or other entity,
then, in each such case, proper provision shall be made so that the
successors and assigns of South Alabama and its Subsidiaries shall assume
the obligations set forth in this section.
(e) The provisions of this Section 8.13 are intended to be for the
benefit of, and shall be enforceable by each Indemnified Party, and each
Indemnified Party's heirs and representatives.
ARTICLE NINE
CONDITIONS PRECEDENT TO OBLIGATIONS TO CONSUMMATE
9.1 CONDITIONS TO OBLIGATIONS OF EACH PARTY. The respective
obligations of each Party to perform this Agreement and consummate the Merger
and the other transactions contemplated hereby are subject to the satisfaction
of the following conditions, unless waived by both Parties pursuant to Section
11.5 of this Agreement:
(A) SHAREHOLDER APPROVAL. The shareholders of Sweet Water
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 South Alabama
Common Stock issuable pursuant to the Merger shall have been received.
(F) POOLING LETTER. South Alabama shall have received a letter,
dated as of the Effective Time, in form and substance reasonably
acceptable to it, from Arthur Andersen LLP to the effect that the Merger
will qualify for pooling-of-interests accounting treatment.
(G) TAX MATTERS. Sweet Water and South Alabama shall have
received a written opinion of counsel from Hand Arendall, L.L.C., in form
reasonably satisfactory to them (the "Tax Opinion"), to the effect that
(i) the Merger will constitute a reorganization within the meaning of
Section 368(a) of the Internal Revenue Code, (ii) the exchange in the
Merger of Sweet Water Common Stock for South Alabama Common Stock will not
give rise to gain or loss to the shareholders of Sweet Water with respect
to such exchange (except to the extent of any cash received),and (iii)
neither Sweet Water nor South Alabama 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, Hand Arendall, L.L.C. shall
be entitled to rely upon representations of officers of Sweet Water and
South Alabama reasonably satisfactory in form and substance to such
counsel.
9.2 CONDITIONS TO OBLIGATIONS OF SOUTH ALABAMA. The obligations
of South Alabama 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 South Alabama pursuant to Section 11.5(a)
of this Agreement:
(A) REPRESENTATIONS AND WARRANTIES. The representations
and warranties of Sweet Water 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 Sweet Water to be performed and
complied with pursuant to this Agreement and the other agreements contem-
plated hereby prior to the Effective Time shall have been duly performed
and complied with in all respects.
(C) CERTIFICATES. Sweet Water shall have delivered to South
Alabama (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 Sweet Water's Board of Directors and
shareholders 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 South Alabama and its counsel shall request.
(D) OPINION OF COUNSEL. Sweet Water shall have delivered to
South Alabama an opinion of Miller, Hamilton, Snider & Odom, L.L.C.,
counsel to Sweet Water, dated as of the Closing, in substantially the form
of Exhibit 4 hereto.
(E) BOOK VALUE THRESHOLD. Sweet Water's Book Value shall
not be less than $96.40 per share.
9.3 CONDITIONS TO OBLIGATIONS OF SWEET WATER. The obligations of
Sweet Water 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 Sweet Water pursuant to Section 11.5(b)
of this Agreement:
(A) REPRESENTATIONS AND WARRANTIES. The representations
and warranties of South Alabama 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 South Alabama to be performed and
complied with pursuant to this Agreement and the other agreements contem
plated hereby prior to the Effective Time shall have been duly performed
and complied with in all Material respects.
(C) CERTIFICATES. South Alabama shall have delivered to Sweet
Water (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 South Alabama's Board of Directors
and shareholders 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 Sweet Water and its counsel shall request.
(D) OPINION OF COUNSEL. South Alabama shall have delivered
to Sweet Water an opinion of Hand Arendall, L.L.C., counsel to South
Alabama, dated as of the Effective Time, in substantially the form of
Exhibit 5 hereto.
(E) EXCHANGE LISTING. The shares of South Alabama Common
Stock issuable pursuant to the Merger shall have been approved, subject to
official notice of issuance, for listing on the NASDAQ Stock Market.
(F) FAIRNESS OPINION. Sweet Water shall have received from
Alex Sheshunoff & Co. investment Banking prior to the mailing of the Proxy
Statement a letter setting forth its opinion that the Exchange Ratio is
fair to the shareholders of Sweet Water from a financial point of view,
and such opinion shall not have been withdrawn as of the Effective Time.
ARTICLE TEN
TERMINATION
10.1 TERMINATION. Notwithstanding any other provision of this
Agreement, and notwithstanding the approval of this Agreement by the
shareholders of Sweet Water, 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 South
Alabama and the Board of Directors of Sweet Water; 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 shareholders of Sweet Water fail to vote their
approval of this Agreement and the transactions contemplated hereby as
required by the ABCA and the rules of the NASD at the Shareholders' Meeting
where the transactions were presented to such shareholders for approval and
voted upon; or
(e) By the Board of Directors of South Alabama in the event the
Market Price is less than $10.00 per share;
(f) By the Board of Directors of Sweet Water if South Alabama
enters into a letter of intent, acquisition agreement, merger agreement or
similar agreement with another entity for the purpose of South Alabama
being subject to an Acquisition Proposal; or
(g) By the Board of Directors of either Party in the event that
the Merger shall not have been consummated by October 31, 1999, if the
failure to consummate the transactions contemplated hereby on or before
such date is not caused by any breach of this Agreement by the Party
electing to terminate pursuant to this Section 10.1(g);
(h) 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(f) 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 TERMINATION OF REPRESENTATIONS AND COVENANTS. All
representations and warranties provided in Articles 5 and 6 of this Agreement
or in any closing certificate pursuant to Articles 8 and 9 shall terminate and
be extinguished at and shall not survive the Effective Time. All covenants,
agreements and undertakings required by this Agreement to be performed by any
Party hereto following the Effective Time shall survive such Effective Time and
be binding upon such Party. Items disclosed in the Exhibits and items and
matters Previously Disclosed are incorporated into this Agreement and form a
part of the representations, warranties, covenants or agreements to which they
relate.
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 South
Alabama and/or its attorneys and advisors to prepare and file the Registration
Statement and print the Prospectus shall not be deemed to be done on behalf of
Sweet Water, and the costs and expenses therefor shall not be the responsibility
of Sweet Water.
11.2 BROKERS AND FINDERS. Except for fees incurred for the
services of Alex Sheshunoff & Co. Investment Banking, 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. 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 Sweet Water or South Alabama, each
of Sweet Water and South Alabama, 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 Sweet Water Common
Stock, there shall be made no amendment that pursuant to the ABCA requires
further approval by the Sweet Water shareholders without the further approval of
the Sweet Water shareholders.
11.5 WAIVERS.
(a) Prior to or at the Effective Time, South Alabama, 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 Sweet Water, to waive or extend the time for the
compliance or fulfillment by Sweet Water of any and all of its obligations under
this Agreement, and to waive any or all of the conditions precedent to the
obligations of South Alabama under this Agreement, except any condition which,
if not satisfied, would result in the violation of any Law. No such waiver shall
be effective unless in writing signed by the chief executive officer of South
Alabama.
(b) Prior to or at the Effective Time, Sweet Water, 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 South Alabama, to waive or extend the time for the
compliance or fulfillment by South Alabama of any and all of its obligations
under this Agreement, and to waive any or all of the conditions precedent to the
obligations of Sweet Water under this Agreement, except any condition which, if
not satisfied, would result in the violation of any Law. No such waiver shall
be effective unless in writing signed by the chief executive officer of Sweet
Water.
(c) The failure of any Party at any time or times to require
performance of any provision hereof shall in no manner affect the right of
such Party at a later time to enforce the same or any other provision of this
Agreement. No waiver of any condition or of the breach of any term contained
in this Agreement in one or more instances shall be deemed to be construed as a
further or continuing waiver of such condition or breach or a waiver of any
other condition or of the breach or any other term of this Agreement.
11.6 ASSIGNMENT. Except as expressly contemplated hereby,
neither this Agreement nor any of the rights, interests or obligations
hereunder shall be assigned by any Party hereto (whether by operation of Law or
otherwise) without the prior written consent of the other Party. Subject to the
preceding sentence, this Agreement will be binding upon, inure to the benefit of
and be enforceable by the Parties and their respective successors and assigns.
11.7 NOTICES. All notices or other communications which are
required or permitted hereunder shall be in writing and sufficient if delivered
by hand, by facsimile transmission, by registered or certified mail, postage
pre-paid, or by courier or overnight carrier, to the persons at the addresses
set forth below (or at such other address as may be provided hereunder), and
shall be deemed to have been delivered as of the date so delivered:
Sweet Water: Sweet Water State Bancshares, Inc.
P. O. Box 128 (36782-0128)
101 Main Street
Sweet Water, Alabama 36782-0128
Telephone Number: 334-994-4113
Facsimile Number: 334-994-4716
Attention: Stratton F. Lewis, Jr., President
Copy to Counsel: Miller, Hamilton, Snider & Odom, L.L.C.
P. O. Box 19 (36101)
One Commerce Street, Suite 305
Montgomery, Alabama 36104
Telephone Number: (334) 834-5550
Facsimile Number: (334) 265-4533
Attention: Willard H. Henson
South Alabama: South Alabama Bancorporation, Inc.
P. O. Box 3067 (36652)
100 St. Joseph Street
Mobile, Alabama 36602
Telephone Number: (334) 431-7800
Facsimile Number: (334) 431-7851
Attention: W. Bibb Lamar, Jr., President
Copy to Counsel: Hand Arendall, L.L.C.
P. O. Box 123 (36601)
3000 AmSouth Bank Building
107 St. Francis Street
Mobile, Alabama 36602
Telephone Number: (334) 432-5511
Facsimile Number: (334) 694-6375
Attention: Brooks P. Milling
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 counter-
parts, 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 was not performed in accordance with its specific terms or was
otherwise breached. It is accordingly agreed that the Parties shall be entitled
to an injunction or injunctions to prevent breaches of this Agreement and to
enforce specifically the terms and provisions hereof in any court of the United
States or any state having jurisdiction, this being in addition to any other
remedy to which they are entitled at law or in equity.
11.12 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 respectively authorized officers as of the day and year first
above written.
ATTEST: SWEET WATER STATE BANCSHARES,
INC.
/s/Jack O. Kerby By:/s/Stratton F. Lewis, Jr.
Secretary Stratton F. Lewis, Jr., President
[CORPORATE SEAL]
ATTEST: SOUTH ALABAMA BANCORPORATION,
INC.
/s/F. Michael Johnson By: /s/W. Bibb Lamar, Jr.,
Secretary W. Bibb Lamar, Jr., President
[CORPORATE SEAL]
LIST OF EXHIBITS
EXHIBIT NUMBER DESCRIPTION
1. Amendment to the Articles of Incorporation of South Alabama
Bancorporation, Inc. (section 2.1).
2. Amendment to the Bylaws of South Alabama Bancorporation, Inc.
(section 2.2)
3. Form of agreement of affiliates of Sweet Water. (section 8.10).
4. Form of opinion of counsel for Sweet Water. (section 9.2(d)).
5. Form of opinion of counsel for South Alabama. (section 9.3(d)).
EXHIBIT 1
AMENDMENT TO THE ARTICLES OF INCORPORATION OF
SOUTH ALABAMA BANCORPORATION, INC.
None.
EXHIBIT 2
AMENDMENT TO THE BYLAWS OF
SOUTH ALABAMA BANCORPORATION, INC.
None.
EXHIBIT 3
AFFILIATE AGREEMENT
South Alabama Bancorporation, Inc.
Mobile, Alabama
Attention: W. Bibb Lamar, Jr.
President
Gentlemen:
The undersigned is a shareholder of Sweet Water Bancshares, Inc. ("Sweet
Water"), an Alabama corporation located in Sweet Water, Alabama, and will become
a shareholder of the South Alabama Bancorporation, Inc. ("South Alabama")
pursuant to the transactions described in the Agreement and Plan of Merger,
dated as of_____________, 1999, (the "Agreement"), by and between South Alabama
and Sweet Water. Under the terms of the Agreement, Sweet Water will be merged
with and into South Alabama (the "Merger"), and the shares of the common stock
of Sweet Water ("Sweet Water Common Stock") will be converted into and exchanged
for shares of the common stock of South Alabama ("South Alabama Common Stock").
This Affiliate Agreement represents an agreement between the undersigned and
South Alabama regarding certain rights and obligations of the undersigned in
connection with the shares of South Alabama 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 South Alabama hereby agree as follows:
1. Affiliate Status. The undersigned understands and agrees that as to
Sweet Water he or she is an "affiliate" under Rule 145(c) as defined in
Rule 405 of the Rules and Regulations of the Securities and Exchange
Commission ("SEC") under the Securities Act of 1933, as amended ("1933
Act"), and the undersigned anticipates that he or she will be such an
"affiliate" at the time of the Merger.
2. Initial Restriction on Disposition. The undersigned agrees that he
or she will not sell, transfer or otherwise dispose of his or her interests in,
or reduce his or her risk relative to, any of the shares of South Alabama Common
Stock into which his or her shares of Sweet Water Common Sock are converted upon
consummation of the Merger until such time as South Alabama notifies the
undersigned that the requirements of SEC Accounting Series Release Nos. 130 and
135 ("ASR 130 and 135") have been met. The undersigned understands that ASR 130
and 135 relate to publication of financial results of post-Merger combined
operations of South Alabama and Sweet Water. South Alabama agrees that it will
publish such results within forty-five (45) days after the end of the first
fiscal quarter of South Alabama containing the required period of post-Merger
combined operations and that it will notify the undersigned promptly following
such publication.
3. Covenants and Warranties of Undersigned. The undersigned represents,
warrants and agrees that:
(a) The South Alabama Common Stock received by the undersigned
as a result of the Merger will be taken for his or her own account and
not for others, directly or indirectly, in whole or in part.
(b) South Alabama has informed the undersigned that any distribution
by the undersigned of South Alabama Common Stock has not been registered
under the 1933 act and that shares of South Alabama 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 under stands that South Alabama is under no obligation to file
a registration statement with the SEC covering the disposition of the
undersigned's shares of South Alabama Common Stock.
(c) The undersigned is aware that South Alabama 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 South Alabama for
federal income tax purposes. The undersigned acknowledges that the Income
Tax Regulations require "continuity of interest" in order for the Merger to
be treated as tax-free under Section 368 of the Code. The undersigned
has no prearrangement, plan or intention to sell or otherwise dispose of an
amount of his or her South Alabama Common Stock to be received in the
Merger which would cause the foregoing requirement not to be satisfied.
4. Restrictions on Transfer. The undersigned understands and agrees that
stop transfer instructions with respect to the shares of South Alabama Common
Stock received by the undersigned pursuant to the Merger will be given to South
Alabama's Transfer Agent and that there will be placed on the certificates of
such shares, or shares issued in substitution thereof, a legend stating in
substance:
The shares represented by this certificate were issued pursuant to a
business combination which is accounted for as a "pooling of interests"
and may not be sold, nor may the owner thereof reduce his or her risks
relative thereto in any way, until such time as South Alabama
Bancorporation, Inc. (the "Corporation") has published the financial
results covering at least thirty (30) days of combined operations after the
effective date of the merger through which the business combination was
effected. In addition, the shares represented by this certificate may not
be sold, transferred or otherwise disposed of except or unless (1) covered
by an effective registration statement under the Securities Act of 1933, as
amended, (2) in accordance with (i) Rule 145(d) (in the case of shares
issued to an individual who is not an affiliate of 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 South Alabama
securities issued subsequent to the original issuance of the South Alabama
Common Stock pursuant to the Merger as a result of any stock dividend, stock
split, or other recapitalization as long as the South Alabama Common Stock
issued to the undersigned pursuant to the Merger has not been transferred in
such manner to justify the removal of the legend therefrom. Upon the request of
the undersigned, South Alabama shall cause the certificates representing the
shares of South Alabama Common Stock issued to the undersigned in connection
with the Merger to be reissued free of any legend relating to restrictions on
transfer by virtue of ASR 130 and 135 as soon as practicable after the
requirements of ASR 130 and 135 have been met. In addition, if the provisions
of Rules 144 and 145 are amended to eliminate restrictions applicable of the
South Alabama Common Stock received by the undersigned pursuant to the Merger,
or at the expiration of the restrictive period set forth in Rule 145(d),
South Alabama, upon the request of the undersigned, will cause the certificates
representing the shares of South Alabama 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 South Alabama
of an opinion of its counsel to the effect that such legend may be removed.
5. Understanding of Restrictions on Dispositions. The undersigned has
carefully read the Agreement and this Affiliate Agreement and discussed their
requirements and impact upon his or her ability to sell, transfer, or
otherwise dispose of the shares of South Alabama Common Stock received by the
undersigned, to the extent he or she believes necessary, with his or her counsel
or counsel for Sweet Water.
6. Filing of Reports by South Alabama. South Alabama 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 South Alabama Common Stock issued to the undersigned
pursuant to the Merger.
7. Transfer Under Rule 145(d). If the undersigned desires to sell or
otherwise transfer the shares of South Alabama Common Stock received by him
or her in connection with the Merger at any time during the restrictive
period set forth in Rule 145(d), the undersigned will provide the necessary
representation letter to the transfer agent for South Alabama Common Stock
together with such additional information as the transfer agent may reasonably
request. If South Alabama's counsel concludes that such proposed sale or
transfer complies with the requirements of Rule 145(d), South Alabama shall
cause such counsel to provide such opinions as may be necessary to
South Alabama's Transfer Agent so that the undersigned may complete the proposed
sale or transfer.
8. Acknowledgments. The undersigned recognizes and agrees that the
foregoing provisions also apply to (i) the undersigned's spouse, (ii) any
relative of the undersigned or of the undersigned's spouse who has the same home
as the undersigned, (iii) any trust or estate in which the undersigned, the
undersigned's spouse, and any such relative collectively own at least a 10%
beneficial interest or of which any of the foregoing serves as trustee,
executor, or in any similar capacity, and (iv) any corporation or other
organization in which the undersigned, the undersigned's spouse and any such
relative collectively own at least 10% of any class of equity securities or of
the equity interest. The undersigned further recognizes that, in the
event that the undersigned is a director or officer of South Alabama or
becomes a director or officer of South Alabama upon consummation of the Merger,
among other things, any sale of South Alabama common Stock by the undersigned
within a period of less than six months following the effective time of the
Merger may subject the undersigned to liability pursuant to Section 16(b) of the
Securities Exchange Act of 1934, as amended.
9. Miscellaneous. This Affiliate Agreement is the complete agreement
between South Alabama and the undersigned concerning the subject matter
hereof. Any notice required to be sent to any party hereunder shall be sent by
registered or certified mail, return receipt requested, using the addresses set
forth herein or such other address as shall be furnished in writing by the
parties. This Affiliate Agreement shall be governed by the laws of the State
of Alabama.
This Affiliate Agreement is executed as of the day of
_______________, 1999.
Very truly yours,
Signature
Print Name
Address
AGREED TO AND ACCEPTED as of
, 1999
SOUTH ALABAMA BANCORPORATION, INC.
By:
South Alabama Bancorporation, Inc.
________________, 199___ EXHIBIT 4
[LETTERHEAD OF MILLER, HAMILTON, SNIDER & ODOM]
, 199__
South Alabama Bancorporation, Inc.
Mobile, Alabama
Re: Merger of Sweet Water State Bancshares, Inc. with and into South
Alabama Bancorporation, Inc.
Gentlemen:
We are counsel to Sweet Water State Bancshares, Inc. ("Sweet Water"), a
corporation organized and existing under the laws of the State of Alabama, and
have represented Sweet Water in connection with the execution and delivery of
the Agreement and Plan of Merger, dated as of __________, 1999 (the "Agree-
ment"), by and between South Alabama Bancorporation, Inc. ("South Alabama") and
Sweet Water.
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 Sweet Water and made such other investigations as we have deemed necessary.
We have relied upon certificates of public officials and officers of Sweet Water
as to certain questions of fact.
Based upon and subject to the foregoing, we are of the opinion that:
1. Sweet Water is a corporation duly organized, validly existing and in good
standing under the laws of the State of Alabama with full corporate power
and authority to carry on the business in which it is engaged and to own
the properties owned by it.
2. The execution and delivery of the Agreement and compliance with its terms
do not and will not violate or contravene any provision of the Articles of
Incorporation or Bylaws of Sweet Water or, to the best of our knowledge,
result in any conflict with, breach of, or default or acceleration under
any mortgage, agreement, lease, indenture, or other instrument, order,
judgment or decree to which Sweet Water is a party or by which Sweet Water
is bound.
3. In accordance with the Bylaws of Sweet Water and pursuant to resolutions
duly adopted by its Board of Directors and shareholders, the Agreement has
been duly adopted and approved by the Board of Directors of Sweet Water and
by the shareholders of Sweet Water at the Shareholders' Meeting.
4. The Agreement has been duly and validly executed and delivered by Sweet
Water.
5. The authorized capital stock of Sweet Water consists of __________ shares
of Sweet Water Common Stock, of which _____________ shares were issued and
outstanding as of ________________, 1999. The shares of Sweet Water 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. To our knowledge, there are no options,
subscriptions, warrants, calls, rights or commitments obligating Sweet
Water to issue any equity securities or acquire any of its equity
securities.
This opinion is delivered solely for reliance by South Alabama.
Sincerely,
Sweet Water State Bancshares, Inc.
_________________, 199___ EXHIBIT 5
[LETTERHEAD OF HAND ARENDALL, L.L.C.]
Sweet Water State Bancshares, Inc.
_________________________________
_________________________________
Re: Merger of Sweet Water State Bancshares, Inc. with and into South
Alabama Bancorporation, Inc.
Gentlemen:
We are counsel to South Alabama Bancorporation, Inc. ("South Alabama"), a
corporation organized and existing under the laws of the State of Alabama, and
have represented South Alabama in connection with the execution and delivery of
the Agreement and Plan of Merger, dated as of _______________, 1999, (the
"Agreement"), by and between Sweet Water State Bancshares, Inc. ("Sweet Water")
and South Alabama.
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 South Alabama, and made such other investigations as we have deemed
necessary. We have relied upon certificates of public officials and officers of
South Alabama as to certain questions of fact.
Based upon and subject to the foregoing, we are of the opinion that:
1. South Alabama is a corporation duly organized, validly existing and in good
standing under the laws of the State of Alabama with full corporate power
and authority to carry on the business in which it is engaged and to own
the properties owned by it.
2. The execution and delivery of the Agreement and compliance with its terms
do not and will not violate or contravene any provision of the Articles of
Incorporation or Bylaws of South Alabama 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 South Alabama is a party or by which South Alabama is
bound.
3. In accordance with the Bylaws of South Alabama and pursuant to resolutions
duly adopted by its Board of Directors and shareholders, the Agreement has
been duly adopted and approved by the Board of Directors of South Alabama.
4. The Agreement has been duly and validly executed and delivered by South
Alabama.
5. The authorized capital stock of South Alabama consists of 10,000,000
shares of South Alabama Common Stock, of which ____________ shares were
issued and outstanding as of ____________, 1999, and 500,000 shares of
preferred stock, no par value, none of which is issued and outstanding.
The shares of South Alabama 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 South Alabama Common
Stock to be issued to the shareholders of Sweet Water 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 Sweet Water.
Yours very truly,
HAND ARENDALL, L.L.C.
By:_________________________________________
Appendix B
June 24, 1999
Board of Directors
Sweet Water State Bancshares, Inc.
101 Main Street
Sweet Water, Alabama 36782
Members of the Board:
You have requested us to update our oral opinion rendered on March 30, 1999,
as to the fairness, from a financial point of view, to the holders of the
outstanding shares of common stock of Sweet Water Bancshares, Inc. ("Sweet
Water") of the Merger Consideration to be received in the proposed merger
between Sweet Water and South Alabama Bancorporation, Inc., Mobile, Alabama,
(the "Corporation"). In consideration of the Merger, the Corporation has
offered to exchange $12,753,000 of its shares of common stock (the "Merger
Consideration") for the outstanding shares of Sweet Water common stock
subject to an exchange ratio based upon the formula contained in the Merger
Agreement. The shares will be exchanged pursuant to the Agreement and Plan
of Merger effective as of March 30, 1999 (the "Merger Agreement"). Pursuant
to the Merger Agreement, the Corporation shall cause Sweet Water to be merged
with and into the Corporation (the "Merger). Sweet Water did not retain
Sheshunoff to act as its financial advisor in the proposed Merger and the
terms and conditions of the Merger were negotiated directly between Sweet
Water and the Corporation. Alex Sheshunoff & Co. Investment Banking
("Sheshunoff") is regularly engaged in the valuation of securities in
connection with mergers and acquisitions, private placements, and valuations
for estate, corporate and other purposes.
In connection with our opinion, we have, among other things:
1. Evaluated Sweet Water's consolidated results based upon a review of
its annual financial statements for the two-year period ending
December 31, 1997 and the unaudited consolidated results for the
period ending December 31, 1998;
2. Reviewed Call Report information as of December 1998 for Sweet
Water;
3. Conducted conversations with executive management regarding recent
and projected financial performance of Sweet Water;
4. Compared Sweet Water's recent operating results with those of
certain other banks in the Southeast region of the United States
which have recently been acquired;
5. Compared Sweet Water's recent operating results with those of
certain other banks in Alabama which have recently been acquired;
6. Compared the pricing multiples for Sweet Water in the Merger to
those of certain other banks in the Southeast region of the United
States which have recently been acquired;
7. Compared the pricing multiples for Sweet Water in the Merger to
those of certain other banks in Alabama which have recently been
acquired;
8. Analyzed the net present value of the after-tax cash flows Sweet
Water could produce through the year 2003, based on assumptions
provided by management;
9. Performed an affordability analysis based on the projections of
earnings for the combined entity subsequent to the Merger;
10.Reviewed the historical stock price data and trading volume of the
Corporation common stock and the lack of any active market for the
common stock of Sweet Water; and
11.Performed such other analyses as we deemed appropriate.
We have assumed and relied upon, without independent verification, the
accuracy and completeness of the information provided to us by Sweet Water
for the purposes of this opinion. In addition, where appropriate, we have
relied upon publicly available information that we believe to be reliable,
accurate, and complete; however, we cannot guarantee the reliability,
accuracy, or completeness of any such publicly available information.
We have not made an independent evaluation of the assets or liabilities of
Sweet Water or the Corporation, nor have we been furnished with any such
appraisals. We are not experts in the evaluation of loan portfolios for the
purposes of assessing the adequacy of the allowance for loan and lease
losses and have assumed that such allowances for each of the companies are,
in the aggregate, adequate to cover such losses.
We have assumed that all required regulatory approvals will be received in a
timely fashion and without any conditions or requirements that could
adversely affect the Merger or the Corporation's operations following the
Merger. Based upon management's representations, we assumed that the
Company and Sweet Water are in compliance with all of the Y2K requirements
of their respective regulatory authorities.
Our opinion is necessarily based on economic, market, and other conditions
as in effect on, and the information made available to us as of, the date
hereof. Events occurring after the date hereof could materially affect the
assumptions used in preparing this opinion.
Our opinion is limited to the fairness of the Merger Consideration, from a
financial point of view, to the holders of Sweet Water common stock.
Moreover, this letter and the opinion expressed herein do not constitute a
recommendation to any stockholder as to any approval of the Merger or the
Merger Agreement. It is understood that this letter is for the information
of the Board of Directors of Sweet Water and may not be used for any other
purpose without our prior written consent.
Based on the foregoing and such other matters we have deemed relevant, it is
our opinion, as of the date hereof, that the Merger Consideration to be
received by the Sweet Water stockholders pursuant to the Merger is fair,
from a financial point of view.
Very truly yours,
/s/ Alex Sheshunoff & Co. Investment Banking
ALEX SHESHUNOFF & CO.
INVESTMENT BANKING
APPENDIX C
AUDITED FINANCIAL STATEMENTS
SWEET WATER STATE BANCSHARES, INC.
AND SUBSIDIARY
member FDIC
SWEET WATER, ALABAMA
DECEMBER 31, 1998 & 1997
SWEET WATER STATE BANCSHARES, INC. AND SUBSIDIARY
SWEET WATER STATE BANK
Page
Independent Auditor's Report 2
Consolidated Statements of Income 3
Consolidated Statements of Comprehensive Income 4
Consolidated Balance Sheets 5
Consolidated Statements of Stockholders' Equity 6
Consolidated Statements of Cash Flows 7
Notes to Consolidated Financial Statements 8
INDEPENDENT AUDITOR'S REPORT
Board of Directors
and Stockholders
Sweet Water State Bancshares, Inc.
Sweet Water, Alabama
We have audited the consolidated balance sheets of Sweet Water State
Bancshares, Inc. and its subsidiary, Sweet Water State Bank, as of December
31, 1998 and 1997, and the related statements of income, stockholders'
equity and cash flows for the years then ended. These consolidated financial
statements are the responsibility of the Corporation'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 consolidated financial statements are
free of material misstatement. An audit includes examining on a test basis,
evidence supporting amounts and disclosures in the consolidated financial
statements. An audit also includes assessing the accounting principles used
and significant estimates made by management, as well as evaluating the
overall consolidated financial statement presentation. We believe that our
audit provides a reasonable basis for our opinion.
In our opinion, the consolidated statements referred to above present fairly,
in all material respects, the financial position of Sweet Water State
Bancshares, Inc. and its subsidiary, Sweet Water State Bank, as of December
31, 1998 and 1997, and the consolidated results of their operations and cash
flows for the years then ended, in conformity with generally accepted
accounting principles.
/s/McKean & Associates, P.A.
McKEAN & ASSOCIATES, P.A.
February 19, 1999 Certified Public Accountants
<TABLE>
SWEET WATER STATE BANCSHARES, INC. AND SUBSIDIARY
SWEET WATER STATE BANK
CONSOLIDATED STATEMENTS OF INCOME
<CAPTION>
For the Years Ended December 31, 1998 1997
<S> <C> <C>
INTEREST INCOME
Loans $ 3,354,532 $ 2,609,829
Investment securities 773,050 889,706
Federal funds sold 116,463 65,653
Total interest income 4,244,045 3,565,188
INTEREST EXPENSE
Deposits 1,974,610 1,607,552
Total interest expense 1,974,610 1,607,552
Net interest income before
provision for loan losses 2,269,435 1,957,636
Provision for loan losses 270,000 23,000
NET INTEREST INCOME 1,999,435 1,934,636
NON-INTEREST INCOME
Service charges on deposits 316,958 269,209
Other income 73,528 89,644
Gains on disposal of securities 11,263 9,980
Total non-interest income 401,749 368,833
NON-INTEREST EXPENSE
Salaries 939,052 807,992
Depreciation 104,127 82,091
Insurance 66,223 67,246
Payroll tax 65,413 55,423
Merger 60,000 0
Retirement plan 47,012 39,710
Advertising 43,571 45,189
Losses on disposal of securities 0 7,013
Other expenses 448,837 411,429
Total non-interest expense 1,774,235 1,516,093
INCOME BEFORE INCOME TAXES 626,949 787,376
Provision for income taxes 113,441 177,982
NET INCOME $ 513,508 $ 609,394
Average number of shares outstanding
adjusted for stock exchanges 60,000 60,000
Net income per common share $ 8.56 $ 10.16
See notes to the consolidated financial statements.
</TABLE>
<TABLE>
SWEET WATER STATE BANCSHARES, INC. AND SUBSIDIARY
SWEET WATER STATE BANK
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
<CAPTION>
For the Years Ended December 31, 1998 1997
<S> <C> <C>
NET INCOME $513,508 $609,394
OTHER COMPREHENSIVE INCOME, net of tax
Unrealized losses / (gains) on securities 1,920 (16,701)
Total other comprehensive income 1,920 (16,701)
COMPREHENSIVE INCOME $515,428 $592,693
SWEET WATER STATE BANCSHARES, INC. AND SUBSIDIARY
SWEET WATER STATE BANK
CONSOLIDATED BALANCE SHEETS
December 31, 1998 1997
ASSETS
Cash and due from banks $ 1,823,311 $ 1,147,310
Federal funds sold 2,360,000 3,110,000
Investment securities, at carrying value 12,510,433 12,674,360
Loans, net of unearned interest and allowance
for loan losses 34,604,104 28,475,241
Bank premises and equipment 1,044,695 667,755
Accrued interest receivable 996,532 827,885
Other assets 162,853 167,174
TOTAL $53,501,928 $47,069,725
LIABILITIES
Deposits
Demand - non-interest bearing $ 4,984,758 $ 5,978,936
Demand - interest bearing 5,794,417 5,585,157
Savings 3,979,235 3,751,148
Time certificates of deposit 32,610,980 26,037,246
TOTAL DEPOSITS 47,369,390 41,352,487
Accrued interest payable 219,445 173,106
Other liabilities 129,070 5,537
47,717,905 41,531,130
STOCKHOLDERS' EQUITY
Common stock, par value $1.00 per share;
60,000 shares authorized and issued 60,000 60,000
Surplus 640,000 640,000
Additional paid-in capital - treasury stock 7,781 7,781
Accumulated other comprehensive income 12,301 10,381
Undivided profits 5,063,941 4,820,433
5,784,023 5,538,595
TOTAL $53,501,928 $47,069,725
See notes to the consolidated financial statements.
</TABLE>
<TABLE>
SWEET WATER STATE BANCSHARES, INC. AND SUBSIDIARY
SWEET WATER STATE BANK
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
<CAPTION>
For the Years Ended December 31, 1998 1997
<S> <C> <C>
COMMON STOCK
Balance at beginning, end of year $ 60,000 $ 60,000
SURPLUS
Balance at beginning, end of year 640,000 640,000
ADDITIONAL PAID-IN CAPITAL - TREASURY STOCK
Balance at beginning, end of year 7,781 7,781
ACCUMULATED OTHER COMPREHENSIVE INCOME
Balance at beginning of year 10,381 27,082
Other comprehensive income 1,920 (16,701)
Balance at end of year 12,301 10,381
UNDIVIDED PROFITS
Balance at beginning of year 4,820,433 4,466,039
Net income 513,508 609,394
Cash dividends - $4.50 per share
1998 and $4.25 per share 1997 (270,000) (255,000)
Balance at end of year 5,063,941 4,820,433
TOTAL $5,784,023 $5,538,595
See notes to the consolidated financial statements.
</TABLE>
<TABLE>
SWEET WATER STATE BANCSHARES, INC. AND SUBSIDIARY
SWEET WATER STATE BANK
CONSOLIDATED STATEMENTS OF CASH FLOWS
<CAPTION>
For the Years Ended December 31, 1998 1997
<S> <C> <C>
OPERATING ACTIVITIES
Net income $ 513,508 $ 609,394
Adjustments to reconcile net income to
net cash flows from operating activities:
Provision for loan losses 270,000 23,000
Depreciation and amortization 104,127 82,091
Gains on disposal of assets (11,263) (5,351)
Amortization and accretion of
investment securities, net 10,930 9,750
(Increase) Decrease in assets
Other assets 4,321 129,764
Interest receivable (168,647) (101,259)
Increase (Decrease) in liabilities
Other liabilities 123,534 (555,070)
Interest payable 46,339 9,045
NET CASH FLOWS FROM OPERATING ACTIVITIES 892,849 201,364
INVESTING ACTIVITIES
Proceeds from sales and maturities of
investment securities
Held to maturity 3,078,213 857,570
Available for sale 909,026 3,281,634
Purchases of investment securities
Held to maturity (955,466) (1,079,779)
Available for sale (2,862,341) (852,102)
Net increase in loans (6,398,863) (4,091,343)
Net purchases of Bank premises & equipment (484,320) (162,778)
NET CASH FLOWS FROM INVESTING ACTIVITIES (6,713,751) (2,046,798)
FINANCING ACTIVITIES
Net increase in deposits 6,016,903 4,765,898
Cash dividends (270,000) (255,000)
NET CASH FLOWS FROM FINANCING ACTIVITIES 5,746,903 4,510,898
(Decrease) Increase in cash and cash equivalents (73,999) 2,665,464
Cash and cash equivalents at beginning of year 4,257,310 1,591,846
CASH AND CASH EQUIVALENTS AT END OF YEAR $ 4,183,311 $ 4,257,310
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
Cash paid during the year for:
Interest $ 1,928,271 $ 1,598,508
Income taxes $ 112,492 $ 223,813
See notes to the consolidated financial statements.
</TABLE>
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The Corporation's accounting and reporting policies are in conformity
with generally accepted accounting principles and comply with reporting
guidelines prescribed by banking regulatory authorities in all material
respects. The Bank does not record accrued interest receivable on
student loans, and it does not record accrued interest payable on money
market and NOW deposit accounts. Neither of these unaccrued amounts are
significant to the financial statements presented as a whole.
Basis of Consolidation
The consolidated financial statements include the accounts of Sweet Water
State Bancshares, Inc. (Bancshares) and its wholly-owned subsidiary,
Sweet Water State Bank (Bank). Significant intercompany accounts have
been eliminated.
Statement of Cash Flows
Cash and cash equivalents include demand deposits with correspondent
banks and federal funds sold on a daily basis to other banks.
Investment Securities
Investment securities are classified as held-to-maturity when the Bank
has the positive intent and ability to hold the securities to maturity.
Securities held-to-maturity are carried at amortized cost. The
amortization of premiums and accretion of discounts are recognized in
interest income using methods approximating the interest method over the
period to maturity.
Investment securities not classified as held-to-maturity are classified
as available-for-sale. Securities available-for-sale are carried at fair
value with unrealized gains and losses reported separately net of tax,
through a separate component of stockholders' equity. Gains and losses
on sales of securities are determined on the specific-identification
method.
Loans and Allowance for Loan Losses
Loans are reported at principal amounts outstanding less unearned
interest and allowance for loan losses. Interest on installment loans is
recognized using the sum-of-the-digits method which approximates the
interest method. Interest on other loans is calculated by using the
simple interest method on daily balances on the principal amount
outstanding.
The allowance for loan losses is increased by charges to operations.
Loans are charged against the allowance for loan losses when management
believes that the collectibility of the principal is unlikely. The
allowance is an amount that management believes will be adequate to
absorb possible losses on existing loans that may become uncollectible
and is based on evaluations of the collectibility of loans and prior loan
loss experience. The evaluations of the collectibility of loans take
into consideration such factors as changes in the nature and volume of
the loan portfolio, overall portfolio quality, review of specific problem
loans and current economic conditions that may affect the borrower's
ability to pay. Accrual of interest is discontinued on a loan when
management believes, after considering economic and business conditions
and collection efforts, that the borrower's financial condition is such
that collection of interest is doubtful.
SWEET WATER STATE BANCSHARES, INC. AND SUBSIDIARY
SWEET WATER STATE BANK
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Bank Premises and Equipment
Bank premises and equipment are reported at cost less an allowance for
depreciation which is computed using the straight-line and accelerated
methods over the estimated useful lives of the related assets. Costs
incurred for maintenance and repairs are expensed currently. On disposal
of properties, the related costs and allowances for depreciation are
removed from the appropriate accounts, and any gains or losses are
recognized.
Other Real Estate
Real estate properties acquired through or in lieu of foreclosure are
initially recorded at the lower of the Bank's carrying amount or fair
value. Any write-downs based on the asset's fair value at the date of
acquisition are charged to the allowance for loan losses. After
foreclosure, these assets are carried at the lower of their new cost
basis or fair value. Costs of significant property improvements are
capitalized, while costs relating to holding property are expenses.
Income Taxes
The Bank accounts for certain income and expense items in different time
periods for financial reporting purposes versus income tax purposes.
Provisions for deferred income taxes are made in recognition of these
timing differences. Operations of the Bank were included in the
consolidated income tax return for the Parent. Income taxes for the Bank
are calculated as if the Bank had filed a separate return.
The Bank adopted SFAS No. 109, Accounting for Income Taxes, as of January
1, 1993. Under SFAS 109, income taxes are accounted for using the asset
and liability method where deferred tax assets and liabilities are
recognized at current tax rates for future tax consequences of
differences between the carrying value of assets and liabilities and their
tax base and operating loss and tax credit carryforwards.
Nature of Operations
Sweet Water State Bank provides banking services in Sweet Water, Alabama
and the surrounding areas of Marengo County and Clarke County, Alabama.
Use of Estimates in the Preparation of Financial Statements
The preparation of financial statements in conformity with generally
accepted accounting principles requires the use of management's estimates.
2. DEPOSITS WITH CORRESPONDENT BANKS
In the normal course of business, the Bank had deposits with
correspondent banks in excess of the federally insured limit.
3. INVESTMENT SECURITIES
The carrying amounts and approximate market value of investment securities
are summarized as follows:
<TABLE>
<CAPTION>
Carrying Approximate
December 31, 1998 Amount Market Value
<S> <C> <C>
U.S. Treasury $ 1,778,049 $ 1,820,000
U.S. Government Agencies 2,197,013 2,212,047
States and political subdivisions 6,805,369 7,093,570
Mortgage-backed securities 1,234,675 1,264,816
Corporate securities 344,227 364,660
Other securities 151,100 151,100
TOTAL $12,510,433 $12,906,193
Carrying Approximate
December 31, 1997 Amount Market Value
U.S. Treasury $ 1,764,563 $ 1,782,109
U.S. Government Agencies 2,469,593 2,482,047
States and political subdivisions 7,194,342 7,471,231
Mortgage-backed securities 799,831 802,037
Corporate securities 346,031 361,854
Other securities 100,000 100,000
TOTAL $12,674,360 $12,999,278
</TABLE>
Investment securities with a carrying value of $3,729,992 and $5,688,598
at December 31, 1998 and 1997, respectively, were pledged to secure
public deposits. Market value of these securities amounted to $3,902,395
at December 31, 1998 and $5,803,359 at December 31, 1997.
The income from investment securities for the years 1998 and 1997 is as
follows:
<TABLE>
<CAPTION>
For the Years Ended December 31, 1998 1997
<S> <C> <C>
Taxable $ 385,773 $ 444,937
Non-taxable 387,277 444,769
TOTAL $ 773,050 $ 889,706
</TABLE>
3. INVESTMENT SECURITIES (CONTINUED)
The following table reflects the carrying amount and market value of
investment securities held at December 31, 1998 and 1997, grouped by
type and maturity.
<TABLE>
<CAPTION>
Carrying Approximate
December 31, 1998 Amount Market Value
<S> <C> <C>
U.S. Treasury
Within one year $ 250,000 $ 250,000
After one but within five years 1,528,049 1,570,000
After five but within ten years 0 0
After ten years 0 0
Total 1,778,049 1,820,000
U.S. Government Agencies
Within one year 946,891 946,735
After one but within five years 250,122 265,156
After five but within ten years 500,000 500,156
After ten years 500,000 500,000
Total 2,197,013 2,212,047
States and political subdivisions
Within one year 661,159 663,332
After one but within five years 2,615,102 2,713,578
After five but within ten years 3,424,108 3,603,362
After ten years 105,000 113,298
Total 6,805,369 7,093,570
Corporate securities
Within one year 143,517 148,910
After one but within five years 200,710 215,750
After five but within ten years 0 0
After ten years 0 0
Total 344,227 364,660
Mortgage-backed securities 1,234,675 1,264,816
Other securities 151,100 151,100
TOTAL $12,510,433 $12,906,193
</TABLE>
SWEET WATER STATE BANCSHARES, INC. AND SUBSIDIARY
SWEET WATER STATE BANK
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
3. INVESTMENT SECURITIES (CONTINUED)
<TABLE>
<CAPTION>
Carrying Approximate
December 31, 1997 Amount Market Value
<S> <C> <C>
U.S. Treasury
Within one year $ 0 $ 0
After one but within five years 1,262,820 1,270,234
After five but within ten years 501,743 511,875
After ten years 0 0
Total 1,764,563 1,782,109
U.S. Government Agencies
Within one year 598,843 598,843
After one but within five years 698,694 698,141
After five but within ten years 1,172,056 1,185,063
After ten years 0 0
Total 2,469,593 2,482,047
States and political subdivisions
Within one year 175,055 177,079
After one but within five years 2,983,257 3,083,020
After five but within ten years 3,126,992 3,250,467
After ten years 909,038 960,665
Total 7,194,342 7,471,231
Corporate securities
Within one year 0 0
After one but within five years 346,031 361,854
After five but within ten years 0 0
After ten years 0 0
Total 346,031 361,854
Mortgage-backed securities 799,831 802,037
Other securities 100,000 100,000
TOTAL $12,674,360 $12,999,278
</TABLE>
3. INVESTMENT SECURITIES (CONTINUED)
The amortized cost, gross unrealized gains, gross unrealized losses and
estimated market value for each major category of securities are
summarized as follows.
<TABLE>
<CAPTION>
Gross Gross Estimated
Amortized Unrealized Unrealized Market
December 31, 1998 Cost Gains Losses Value
<S> <C> <C> <C> <C>
U.S. Treasury - HTM $ 752,190 $ 41,951 $ 0 $ 794,141
U.S. Treasury - AFS 1,001,187 24,672 0 1,025,859
Total 1,753,377 66,623 0 1,820,000
U.S. Government
Agencies-HTM 250,122 15,034 0 265,156
U.S. Government
Agencies-AFS 1,951,083 156 (4,348) 1,946,891
Total 2,201,205 15,190 (4,348) 2,212,047
State and political
subdivisions - HTM 6,719,470 288,201 0 7,007,671
State and political
subdivisions - AFS 80,000 5,899 0 85,899
Total 6,799,470 294,100 0 7,093,570
Mortgage-backed
securities - HTM 786,593 32,181 (223) 818,551
Mortgage backed
securities - AFS 451,190 0 (4,925) 446,265
Total 1,237,783 32,181 (5,148) 1,264,816
Corporate securities-
HTM 344,227 20,433 0 364,660
Corporate securities-
AFS 0 0 0 0
Total 344,227 20,433 0 364,660
Other securities 151,100 0 0 151,100
TOTAL $12,487,162 $428,527 $ (9,496) $12,906,193
</TABLE>
3. INVESTMENT SECURITIES (CONTINUED)
<TABLE>
<CAPTION>
Gross Gross Estimated
Amortized Unrealized Unrealized Market
December 31, 1997 Cost Gains Losses Value
<S> <C> <C> <C> <C>
U.S. Treasury - HTM $ 752,767 $ 17,546 $ 0 $ 770,313
U.S. Treasury - AFS 999,888 11,908 0 1,011,796
Total 1,752,655 29,454 0 1,782,109
U.S. Government
Agencies-HTM 1,870,749 13,398 (944) 1,883,203
U.S. Government
Agencies-AFS 598,692 563 (411) 598,844
Total 2,469,441 13,961 (1,355) 2,482,047
State and political
subdivisions - HTM 7,108,147 277,024 (134) 7,385,037
State and political
subdivisions - AFS 80,000 6,194 0 86,194
Total 7,188,147 283,218 (134) 7,471,231
Mortgage-backed
securities - HTM 799,831 2,206 0 802,037
Mortgage backed
securities - AFS 0 0 0 0
Total 799,831 2,206 0 802,037
Corporate securities-
HTM 346,031 15,823 0 361,854
Corporate securities-
AFS 0 0 0 0
Total 346,031 15,823 0 361,854
Other securities 100,000 0 0 100,000
TOTAL $12,656,105 $344,662 $ (1,489) $12,999,278
</TABLE>
Included in the other securities category is the following:
<TABLE>
<CAPTION>
December 31, 1998 1997
<S> <C> <C>
Federal Home Loan Bank stock $151,000 0
CD's due to us 0 100,000
</TABLE>
This stock is recorded at cost, and the issuing bank determines the
investment amount. The stock in the Federal Home Loan Bank (FHLB) is not
pledged to secure FHLB borrowings. These borrowings are secured by
mortgage loans on 1 to 4 family residences.
The Certificate of Deposit was recorded at cost and was issued by the
First Commercial Bank. This certificate matured and was not renewed
during 1998.
4 LOANS AND ALLOWANCES FOR LOAN LOSSES
The composition of the loan portfolio was as follows:
<TABLE>
<CAPTION>
December 31, 1998 1997
<S> <C> <C>
Commercial and single pay $21,213,697 $16,253,643
Student loans 106,579 132,425
Installments 14,949,971 13,421,407
Overdrafts 60,079 59,565
Unearned interest (1,309,835) (1,164,807)
Total 35,020,491 28,702,233
Allowance for loan losses (416,386) (226,992)
Net loans $34,604,105 $28,475,241
</TABLE>
Loans on which the accrual of interest has been discontinued or reduced
total $92,077 at December 31, 1998, and $89,954 at December 31, 1997.
If interest on non-accrual loans had been accrued, such income would have
approximated $963 and $1,920 for 1998 and 1997, respectively.
A summary of transactions in the allowance for loan losses is as follows:
<TABLE>
<CAPTION>
For the Years Ended December 31, 1998 1997
<S> <C> <C>
Balance at beginning of year $ 226,992 $ 307,257
Provision charged to operations 270,000 23,000
Recoveries 22,446 20,264
Loans charged off (103,052) (123,529)
Balance at end of year $ 416,386 $ 226,992
</TABLE>
5. LOANS TO RELATED PARTIES
The Bank has granted loans to officers and directors and their associates.
Related party loans are made on substantially the same terms, including
interest rates and collateral, as those prevailing at the time for
comparable transactions with unrelated persons and do not involve more
than the normal risk of collectibility. The aggregate dollar amount was
$2,240,277 and $2,128,629 at December 31, 1998 and 1997, respectively.
6. BANK PREMISES AND EQUIPMENT
Bank premises and equipment are summarized as follows:
<TABLE>
<CAPTION>
December 31, 1998 1997
<S> <C> <C>
Bank premises $ 1,382,009 $ 1,019,037
Furniture, fixtures and equipment 801,459 686,616
2,183,468 1,705,653
Allowances for depreciation (1,138,773) (1,037,898)
TOTAL $ 1,044,695 $ 667,755
</TABLE>
7 TIME DEPOSITS
Time deposits in denominations of $100,000 or more are summarized as
follows:
<TABLE>
<CAPTION>
December 31, 1998 1997
<S> <C> <C>
Certificates of deposit $10,793,951 $7,839,524
Other time deposits-State of Alabama 1,105,000 1,105,000
TOTAL $11,898,951 $8,944,524
</TABLE>
Interest expense on time deposits of $100,000 or more totaled $487,904 in
1998 and $384,244 in 1997.
Maturities for each of the next five years for time deposits follows:
<TABLE>
<CAPTION>
For the Year Ended December 31, Amount
<S> <C>
1999 $25,037,693
2000 4,849,202
2001 505,501
2002 278,994
2003 346,588
TOTAL $31,017,978
</TABLE>
8. ADVANCES FROM FEDERAL HOME LOAN BANK
The Bank had no outstanding advances from the Federal Home Loan Bank
(FHLB) at December 31, 1998 and 1997. The Bank has an unused line of
credit with the FHLB of $5,000,000. Specific mortgage loans were pledged
to the FHLB as collateral in the event the Bank requests future advances.
9. INCOME TAXES
The components of the income tax provision were as follows:
<TABLE>
<CAPTION>
For the Years Ended December 31, 1998 1997
<S> <C> <C>
Currently payable
Federal $144,358 $112,485
State 40,977 31,460
Total 185,335 143,945
Deferred
Federal (60,530) 29,221
State (11,364) 4,816
Total (71,894) 34,037
Provision for income taxes
Federal 83,828 141,706
State 29,613 36,276
Total $113,441 $177,982
</TABLE>
The components of deferred taxes resulting from timing differences in the
recognition of income and expenses for tax and financial reporting
purposes were as follows:
<TABLE>
<CAPTION>
For the Years Ended December 31, 1998 1997
<S> <C> <C>
Provision for loan losses $(74,903) $34,195
Income tax expense 3,009 (158)
Total deferred taxes $(71,894) $34,037
</TABLE>
The provision for income taxes included in the accompanying statements of
income differ from the expected tax provisions computed by multiplying
income before taxes by the statutory rates. The primary reason for this
difference is tax exempt interest on obligations of states and political
subdivisions.
10. SIMPLIFIED EMPLOYEE PENSION PLAN
The Bank has adopted a simplified employee pension plan (SEP) for the
benefit of its officers and employees. The Bank makes contributions to
this plan each year from current or accumulated profits in an amount
determined by its Board of Directors. The contribution to the simplified
employee pension plan was $47,012 for 1998 and $39,710 for 1997.
11. FINANCIAL INSTRUMENTS WITH OFF-BALANCE-SHEET RISK
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. These financial instruments include commitments to extend
credit and standby letters of credit.
Financial instruments whose contract amounts represent credit risk are as
follows:
<TABLE>
<CAPTION>
December 31, 1998 1997
<S> <C> <C>
Commitments to extend credit $1,657,384 $2,273,686
Standby letters of credit 195,000 106,000
</TABLE>
Commitments to extend credit are agreements to lend to a customer
provided there are no violations of the contract. Commitments generally
have fixed expiration dates or other termination clauses. Since many of
the commitments are expected to expire without being drawn upon, the
total commitment amounts do not necessarily represent future cash
requirements. The Bank evaluates each customer's credit-worthiness on a
case-by-case basis. The amount of collateral obtained, if deemed
necessary by the Bank upon extension of credit, is based on management's
credit evaluation of the customer.
Standby letters of credit are conditional commitments issued by the Bank
to guarantee the performance of a customer to a third party. The credit
risk involved in issuing letters of credit is essentially the same as
that involved in extending loans to customers.
It is the opinion of management than any losses resulting from these
off-balance-sheet risks will not have a material effect on the financial
statements.
12. RESTRICTIONS ON SUBSIDIARY'S DIVIDENDS
Certain restrictions exist regarding the ability of Bancshares' subsidiary
to transfer funds to the Corporation in the form of dividends. The
approval of the Bank's primary regulatory authority shall be required if
the total of all dividends declared by its subsidiary in any calendar
year shall exceed the total of its net income of that year combined with
its retained net income of the two preceding years. As of December 31,
1998, approximately $1,450,000 of the subsidiary's earnings were
available for distribution.
13. SUBSEQUENT EVENTS
On October 27, 1998, the Bank announced an agreement in principle whereby
the Bank will become a wholly-owned subsidiary of South Alabama
Bancorporation, Inc., through the merger of Sweet Water State Bancshares,
Inc. with South Alabama Bancorporation, Inc. Shareholders of Bancshares
will receive an agreed-upon number of shares of the acquiring corporation
to consummate the merger. As of December 31, 1998, the merger had yet to
be completed, as consummation of the transaction is subject to the
negotiation and execution of a definitive agreement, certain regulatory
approvals, and approval of the shareholders of Bancshares.
14. CONDENSED PARENT COMPANY FINANCIAL STATEMENTS
SWEET WATER STATE BANCSHARES, INC. (PARENT COMPANY)
<TABLE>
INCOME STATEMENTS
<CAPTION>
For the Years Ended December 31, 1998 1997
<S> <C> <C>
INCOME
Dividends received $274,000 $160,000
Excess of income of subsidiary over
dividends received 239,758 447,510
Gain on sale of real estate 0 2,384
TOTAL INCOME 513,758 609,894
EXPENSES
Miscellaneous 250 500
NET INCOME $513,508 $609,394
</TABLE>
14. CONDENSED PARENT COMPANY FINANCIAL STATEMENTS (CONTINUED)
SWEET WATER STATE BANCSHARES, INC. (PARENT COMPANY)
<TABLE>
BALANCE SHEETS
<CAPTION>
December 31, 1998 1997
<S> <C> <C>
ASSETS
Cash on deposit $ 529 $ 779
Real estate 4,000 0
Investment in Sweet Water State Bank 5,782,746 5,537,816
TOTAL $5,787,275 $5,538,595
STOCKHOLDERS' EQUITY
Stockholders' equity $5,787,275 $5,538,595
TOTAL $5,787,275 $5,538,595
</TABLE>
14. CONDENSED PARENT COMPANY FINANCIAL STATEMENTS (CONTINUED)
SWEET WATER STATE BANCSHARES, INC. (PARENT COMPANY)
<TABLE>
STATEMENTS OF CASH FLOWS
<CAPTION>
For the Years Ended December 31, 1998 1997
<S> <C> <C>
OPERATING ACTIVITIES
Net income $ 513,508 $ 609,394
Adjustments to reconcile net income to
net cash flows from operating activities:
Excess of income of subsidiary over
dividends received (239,758) (447,510)
Proceeds from sale of assets 0 (2,384)
NET CASH FLOWS FROM OPERATING ACTIVITIES 273,750 159,500
INVESTING ACTIVITIES
Purchase of assets (4,000)
Sale of assets 0 95,000
NET CASH FLOWS FROM INVESTING ACTIVITIES (4,000) 95,000
FINANCING ACTIVITIES
Cash dividends paid (270,000) (255,000)
NET CASH FLOWS FROM FINANCING ACTIVITIES (270,000) (255,000)
Increase (Decrease) in cash and cash equivalents (250) (500)
Cash and cash equivalents at beginning of year 3,163 3,663
CASH AND CASH EQUIVALENTS AT END OF YEAR $ 2,913 $ 3,163
</TABLE>
15. REGULATORY CAPITAL DISCLOSURES
The Bank is subject to various regulatory capital requirements
administered by its primary federal regulator, the Federal Deposit
Insurance Corporation (FDIC). Failure to meet the minimum regulatory
capital requirements can initiate certain mandatory, and possible
additional discretionary actions by regulators, that if undertaken, could
have a direct and material effect on the Bank's financial statements.
Under the regulatory capital adequacy guidelines and the regulatory
framework for prompt corrective action, the Bank must meet specific
capital guidelines involving quantitative measures of the Bank's assets,
liabilities and certain off-balance-sheet items as calculated under
regulatory accounting practices. The Bank's capital amounts and
classifications under the prompt corrective action guidelines are also
subject to qualitative judgments by the regulators about components, risk
weightings and other factors.
Quantitative measures established by regulation to ensure capital adequacy
require the Bank to maintain minimum amounts and ratios of total
risk-based capital and Tier 1 capital to risk-weighted assets (as defined
in the regulations) and Tier 1 capital to adjusted total assets (as
defined). Management believes, as of December 31, 1998, that the Bank
meets all the capital adequacy requirements to which it is subject.
As of December 31, 1998, the most recent notification from the FDIC, the
Bank was categorized as well capitalized under the regulatory framework
for prompt corrective action. To remain categorized as well capitalized,
the Bank will have to maintain minimum total risk-based, Tier 1 risk-based
and Tier 1 leverage ratios as disclosed in the table below. There are no
conditions or events since the most recent notification that management
believes have changed the Bank's prompt corrective action category.
<TABLE>
<CAPTION>
To Be Well
Capitalized Under
For Capital Prompt Corrective
Actual Adequacy Purposes Action Provisions
------------------- ------------------- -------------------
Amount Ratio Amount Ratio Amount Ratio
<S> <C> <C> <C> <C> <C> <C>
As of December 31, 1998:
Total Risk-Based Capital
(to Risk-Weighted Assets) $6,145,261 14.4% $3,410,695 8.0% $4,263,368 10.0%
Tier 1 Capital
(to Risk-Weighted Assets) $5,728,874 13.4% $1,705,347 4.0% $2,558,021 6.0%
Tier 1 Capital
(to Adjusted Total Assets) $5,728,874 10.0% $2,154,480 4.0% $2,693,100 5.0%
As of December 31, 1997:
Total Risk-Based Capital
(to Risk-Weighted Assets) $5,754,428 18.4% $2,500,524 8.0% $3,125,656 10.0%
Tier 1 Capital
(to Risk-Weighted Assets) $5,527,435 17.6% $1,250,652 4.0% $1,875,393 6.0%
Tier 1 Capital
(to Adjusted Total Assets) $5,527,435 11.0% $1,867,800 4.0% $2,334,750 5.0%
</TABLE>
16. COMPREHENSIVE INCOME
The related tax effect allocated to other comprehensive income is as
follows:
<TABLE>
<CAPTION>
Before-Tax (Expense) Net-of-Tax
For the Year Ended December 31, 1998 Amount or Benefit Amount
<S> <C> <C> <C>
Unrealized gains on securities $3,048 $(1,128) $1,920
Other comprehensive income $3,048 $(1,128) $1,920
Tax
Before-Tax (Expense) Net-of-Tax
For the Year Ended December 31, 1997 Amount or Benefit Amount
Unrealized losses on securities $(26,510) $9,809 $(16,701)
Other comprehensive income $(26,510) $9,809 $(16,701)
</TABLE>
16. COMPREHENSIVE INCOME (CONTINUED)
The balance in accumulated other comprehensive income is as follows:
<TABLE>
<CAPTION>
Unrealized
Gains / (Losses)
For the Year Ended December 31, 1998 on Securities
<S> <C>
Beginning balance $10,381
Current-period change 1,920
Ending balance $12,301
Unrealized
Gains / (Losses)
For the Year Ended December 31, 1997 on Securities
Beginning balance $ 27,082
Current-period change (16,701)
Ending balance $ 10,381
</TABLE>
COMPILED FINANCIAL STATEMENTS
SWEET WATER STATE BANCSHARES, INC.
AND SUBSIDIARY
member FDIC
SWEET WATER, ALABAMA
MARCH 31, 1999 & 1998
COMPILATION REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
To the Board of Directors
and Stockholders
Sweet Water State Bancshares, Inc. and Subsidiary
Sweet Water, Alabama
We have compiled the accompanying consolidated balance sheets of Sweet Water
State Bancshares, Inc., and its subsidiary, Sweet Water State Bank, as of
March 31, 1999 and 1998, and the related consolidated statements of income,
consolidated statements of comprehensive income, consolidated statements of
stockholders' equity, and consolidated statements of cash flows for the three
months then ended in accordance with Statement on Standards for Accounting
and Review Services issued by the American Institute of Certified Public
Accountants.
A compilation is limited to presenting in the form of financial statements
information that is the representation of management. We have not audited or
reviewed the accompanying financial statements, and accordingly, do not
express an opinion or any other form of assurance on them.
Management has elected to omit substantially all of the disclosures required
by generally accepted accounting principles. If the omitted disclosures were
included in the financial statements, they might influence the user's
conclusions about the Company's financial condition, results of operations
and cash flows. Accordingly, these financial statements are not designed for
those who are not informed about such matters.
/s/McKean & Associates, P.A.
MCKEAN & ASSOCIATES, P.A.
June 16, 1999 Certified Public Accountants
<TABLE>
SWEET WATER STATE BANCSHARES, INC. AND SUBSIDIARY
SWEET WATER STATE BANK
CONSOLIDATED STATEMENTS OF INCOME
<CAPTION>
For the Three Months Ended March 31, 1999 1998
<S> <C> <C>
INTEREST INCOME
Loans $ 845,395 $ 781,143
Investment securities 205,426 205,701
Federal funds sold 42,783 18,369
Total interest income 1,093,604 1,005,213
INTEREST EXPENSE
Deposits 550,998 442,865
Total interest expense 550,998 442,865
Net interest income before provision for loan losses 542,606 562,348
Provision for loan losses 9,000 30,000
NET INTEREST INCOME 533,606 532,348
NON-INTEREST INCOME
Service charges on deposits 91,055 72,918
Other income 22,619 22,731
Gains on disposal of securities 1,057 2,750
Total non-interest income 114,731 98,399
NON-INTEREST EXPENSE
Salaries 251,582 241,009
Depreciation 25,042 18,579
Insurance 28,093 21,618
Payroll tax 13,320 16,382
Merger 0 0
Retirement plan 14,550 10,995
Advertising 8,422 10,124
Losses on disposal of securities 0 0
Other expenses 104,393 105,776
Total non-interest expense 445,402 424,483
INCOME BEFORE INCOME TAXES 202,935 206,264
Provision for income taxes 51,554 51,987
NET INCOME $ 151,381 $ 154,277
Average number of shares outstanding
adjusted for stock exchanges 60,000 60,000
Net income per common share $ 2.52 $ 2.57
</TABLE>
<TABLE>
SWEET WATER STATE BANCSHARES, INC. AND SUBSIDIARY
SWEET WATER STATE BANK
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
<CAPTION>
For the Three Months Ended March 31, 1999 1998
<S> <C> <C>
NET INCOME $151,381 $154,277
OTHER COMPREHENSIVE INCOME, net of tax
Unrealized losses / (gains) on securities (42,452) 1,489
Total other comprehensive income $108,929 $155,766
COMPREHENSIVE INCOME $108,929 $155,766
</TABLE>
<TABLE>
SWEET WATER STATE BANCSHARES, INC. AND SUBSIDIARY
SWEET WATER STATE BANK
CONSOLIDATED BALANCE SHEETS
<CAPTION>
March 31, 1999 1998
<S> <C> <C>
ASSETS
Cash and due from banks $ 1,135,540 $ 2,106,443
Federal funds sold 5,060,000 560,000
Investment securities, at carrying value 14,287,543 12,807,839
Loans, net of unearned interest and allowance
for loan losses 33,344,012 30,991,589
Bank premises and equipment 1,279,425 721,952
Accrued interest receivable 933,793 926,998
Other assets 190,770 78,266
TOTAL $56,231,083 $48,193,087
LIABILITIES
Deposits
Demand - non-interest bearing $ 5,069,404 $ 5,411,550
Demand - interest bearing 5,439,909 5,219,896
Savings 4,247,451 3,932,682
Time certificates of deposit 35,169,284 27,645,550
TOTAL DEPOSITS 49,926,048 42,209,678
Accrued interest payable 251,205 202,963
Other liabilities 232,878 86,085
50,410,131 42,498,726
STOCKHOLDERS' EQUITY
Common stock, par value $1.00 per share;
60,000 shares authorized and issued 60,000 60,000
Surplus 640,000 640,000
Additional paid-in capital - treasury stock 7,781 7,781
Accumulated other comprehensive income (30,151) 11,870
Undivided profits 5,143,322 4,974,710
5,820,952 5,694,361
TOTAL $56,231,083 $48,193,087
</TABLE>
<TABLE>
SWEET WATER STATE BANCSHARES, INC. AND SUBSIDIARY
SWEET WATER STATE BANK
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
<CAPTION>
For the Three Months Ended March 31, 1999 1998
<S> <C> <C>
COMMON STOCK
Balance at beginning, end of period $ 60,000 $ 60,000
SURPLUS
Balance at beginning, end of period 640,000 640,000
ADDITIONAL PAID-IN CAPITAL - TREASURY STOCK
Balance at beginning, end of period 7,781 7,781
ACCUMULATED OTHER COMPREHENSIVE INCOME
Balance at beginning of period 12,301 10,381
Other comprehensive income (42,452) 1,489
Balance at end of period (30,151) 11,870
UNDIVIDED PROFITS
Balance at beginning of period 5,063,941 4,820,433
Net income 151,381 154,277
Cash dividends - $1.20 per share
through 3/31/99 (72,000) 0
Balance at end of period 5,143,322 4,974,710
TOTAL $5,820,952 $5,694,361
</TABLE>
<TABLE>
SWEET WATER STATE BANCSHARES, INC. AND SUBSIDIARY
SWEET WATER STATE BANK
CONSOLIDATED STATEMENTS OF CASH FLOWS
<CAPTION>
For the Three Months Ended March 31, 1999 1998
<S> <C> <C>
OPERATING ACTIVITIES
Net income $ 151,381 $ 154,277
Adjustments to reconcile net income to
net cash flows from operating activities:
Provision for loan losses 9,000 30,000
Depreciation and amortization 25,042 18,579
Gains on disposal of investment securities (1,057) (2,750)
Amortization and accretion of
investment securities, net 4,075 1,802
(Increase) Decrease in assets
Other assets 384 87,915
Interest receivable 62,739 (99,113)
Increase (Decrease) in liabilities
Other liabilities 103,808 80,548
Interest payable 31,760 29,857
NET CASH FLOWS FROM OPERATING ACTIVITIES 387,132 301,115
INVESTING ACTIVITIES
Proceeds from sales and maturities of
investment securities
Held to maturity 476,585 484,167
Available for sale 294,534 0
Purchases of investment securities
Held to maturity (605,000) (614,216)
Available for sale (2,017,000) 0
Net decrease / (increase) in loans 1,251,092 (2,546,348)
Net purchases of Bank premises & equipment (259,772) (72,776)
NET CASH FLOWS FROM INVESTING ACTIVITIES (859,561) (2,749,173)
FINANCING ACTIVITIES
Net increase in deposits 2,556,658 857,191
Cash dividends (72,000) 0
NET CASH FLOWS FROM FINANCING ACTIVITIES 2,484,658 857,191
(Decrease) Increase in cash and cash equivalents 2,012,229 (1,590,867)
Cash and cash equivalents at beginning of period 4,183,311 4,257,310
CASH AND CASH EQUIVALENTS AT END OF PERIOD $6,195,540 $2,666,443
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
Cash paid during the period for:
Interest $ 496,671 $ 411,505
Income taxes $ 30,000 $ 0
</TABLE>
Appendix D
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") provides that South Alabama will indemnify
its directors and officers against reasonable expenses, judgments, fines and
amounts paid in settlement in connection with any claim, action, suit or
proceeding based on such person's status as a director or officer of the
corporation, provided such person acted in good faith and in a manner
reasonably believed to be in or, if not acting in such person's official
capacity, not opposed to the best interests of South Alabama. With respect
to a criminal action or proceeding, the director or officer must also have
had no reasonable cause to believe his conduct was unlawful. No
indemnification shall be made in the case of an action by or in the right of
the corporation against a director or officer where the director or officer
has been adjudged to be liable to South Alabama, unless and only to the
extent that the court in which such action or suit was brought or another
court of competent jurisdiction shall determine upon application that,
despite the adjudication of liability but in view of all circumstances of the
case, such person is fairly and reasonably entitled to indemnity for such
expenses as such court shall deem proper.
Under Article 11, South Alabama may advance expenses in defending a
civil or criminal claim, action, suit or proceeding to a director or officer
seeking indemnification, provided such director or officer provides a written
affirmation of a good faith belief that he has met the standard of conduct
required under Article 11, and provided that such director or officer
provides an undertaking as an unlimited general obligation by or on behalf of
the director or officer to repay such amount if and to the extent that it
shall be ultimately determined that he is not entitled to be indemnified by
South Alabama. Furthermore, those responsible for making the determination
of whether or not indemnification is proper must determine that the facts
then known to them would not preclude indemnification under Article 11.
Under Article 11, South Alabama may purchase and maintain insurance on
behalf of any person who is or was a director, officer, employee or agent of
South Alabama, or is or was serving at the request of South Alabama as a
director, officer, partner, employee or agent of another corporation,
partnership, joint venture, trust or other enterprise against any liability
asserted against such person and incurred by him in any such capacity or
arising out of his status as such, whether or not South Alabama had the power
to indemnify such person against such liability under the provisions of
Article 11.
Pursuant to a policy of liability insurance with St. Paul Mercury
Insurance Company having a $4,000,000 directors' and officers' liability
limit per year, the directors and officers of South Alabama are insured,
subject to the limits, retentions, exceptions and other terms and conditions
of the policy, against liability for any actual or alleged error, omission,
act, misstatement, misleading statement or breach of duty actually or
allegedly committed or attempted by a director or officer, or any matter
claimed against a director or officer solely by reason of such persons being
a director or officer of South Alabama. The policy also has a $2,000,000
Trust Errors and Omissions limit per year, wherein directors and officers are
indemnified for any actual or alleged error, omission, act or breach of duty
while acting solely in the capacity of (among other things) personal
representative of an estate, trustee, conservator, attorney in fact, escrow
agent, registrar, tax withholding agent, trustee under bond indenture,
fiduciary under an employee benefit plan or trust or a trustee exercising any
fiduciary powers permitted by law.
Item 21. Exhibits and Financial Statement Schedules.
(a) Exhibits:
2.1 Agreement and Plan of Merger dated as
of April 5, 1999, 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,
1996, filed as Exhibit (3).1 to South Alabama's Quarterly
Report on Form 10-Q for the quarter ended March 31, 1997
(No. 0-15423), are incorporated herein by reference.
3.4 Articles of Amendment to the Articles
of Incorporation of South Alabama Bancorporation, Inc.,
dated May 7, 1998, filed as Exhibit (3).1 to South
Alabama's Quarterly Report on Form 10-Q/A for the quarter
ended June 30, 1998 (No. 0-15423), are incorporated
herein by reference.
3.5 Articles of Amendment to the Articles
of Incorporation of South Alabama Bancorporation, Inc.,
dated May 27, 1999.
3.6 Bylaws of SAB Newco, Inc. filed as
Exhibit (3).3 to South Alabama's Form 10-K for the year
1996 (No. 0-15423), are incorporated herein by reference.
4.1 Specimen of Common Stock Certificate,
filed as Exhibit 4.4 to South Alabama's Annual Report
Form on 10-K for the year 1996 (No. 0-15423), is
incorporated herein by reference.
4.2 Articles of Incorporation of SAB
Newco, Inc., filed as Exhibit B to South Alabama's
Definitive Proxy Statement on Schedule 14A on November
15, 1996, are incorporated herein by reference.
4.3 Certificate of Ownership and Merger
dated December 20, 1996, filed as Exhibit (4).2
to South Alabama's Form 10-K for the year 1996
(no. 0-15423), is incorporated herein by reference.
4.4 Articles of Merger dated December 20,
1996, filed as Exhibit (3).1 to South Alabama's Quarterly
Report on Form 10-Q for the quarter ended March 31, 1997
(No. 0-15423), are incorporated herein by reference.
4.5 Articles of Amendment to the Articles
of Incorporation of South Alabama Bancorporation, Inc.,
dated May 7, 1998, filed as Exhibit (3).1 to South
Alabama's Quarterly Report on Form 10-Q/A for the quarter
ended June 30, 1998 (No. 0-15423), are incorporated
herein by reference.
4.6 Articles of Amendment to the Articles
of Incorporation of South Alabama Bancorporation, Inc.,
dated May 27, 1999, are filed as Exhibit 3.5 hereto.
5.1 Opinion of Hand Arendall, L.L.C. re
legality dated July 1, 1999, is filed as Exhibit 5.1.
8.1 Opinion of Hand Arendall, L.L.C. re
tax matters dated July 5, 1999, is filed as Exhibit 8.1.
10.1 Lease, entered into March 11, 1986
between Dauphin 65 Partners, Ltd. and The Bank of Mobile,
N.A, filed as Exhibit (10).3 to South Alabama's annual
report on Form 10-K for the year 1986 (No. 0-15423), is
incorporated herein by reference.
10.2 Lease Renewal and Extension Agreement,
dated March 18, 1992, between Dauphin 65 Partners, Ltd.
and The Bank of Mobile, filed as Exhibit (10).2 to South
Alabama's annual report on Form 10-K for the year 1991
(No. 0-15423), is incorporated herein by reference.
10.3 Lease, entered into June 21, 1994
between Staples-Pake Realty, Inc. and The Bank of Mobile,
filed as Exhibit (10).3 to South Alabama's annual report
on Form 10-K for the year 1994 (No. 0-15423), is
incorporated herein by reference.
10.4 Sublicense Agreement dated July 18,
1990, between National Commerce Bancorporation and The
Bank of Mobile, N.A, filed as Exhibit (10).5 to South
Alabama's annual report on Form 10-K for the year 1991
(No. 0-15423), is incorporated herein by reference.
10.5 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.
10.6 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.
10.7 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.
10.8 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.
10.9 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.
10.10 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.
10.11 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.
10.12 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.
10.13 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.
10.14 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.
10.15 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.
10.16 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.
10.17 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.
10.18 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.
10.19 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.
10.20 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.
10.21 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.
10.22 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.
10.23 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.
10.24 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.
10.25 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.
10.26 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.
10.27 Agreement and Plan of Merger,
dated as of October 14, 1998, as amended by Mutual
Waiver and Agreement dated as of March 25, 1998, between
South Alabama, MCB and Peterman State Bank, filed as
Exhibit 2.1 to South Alabama's Registration Statement on
Form S-4 filed on April 2, 1998 (No. 333-49203), is
incorporated herein by reference.
10.28 Amended and Restated Agreement
and Plan of Reorganization dated as of October 26, 1998,
by and between South Alabama, and The Commercial National
Bank of Dempolis, filed as Appendix A to South Alabama's
Registration Statement on Form S-4/A filed on November
4, 1998 (No. 333-63701), is incorporated hereby by
reference.
10.29 Ground Lease Agreement, dated
March 31, 1999, by and between Northside, Ltd. and South
Alabama Bank.
10.30 Amendment Number Two to South
Alabama Bancorporation 1993 Incentive Compensation Plan.
10.31 South Alabama Bancorporation
Employee Savings and Profit Sharing Plan.
10.32 Agreement and Plan of Merger,
dated as of April 5, 1999, is found at Appendix A to
the Prospectus which is included in Part I hereof.
13.1 South Alabama's Annual Report on Form
10-K for the year ended December 31, 1998 (No. 0-15423),
is incorporated herein by reference.
13.2 South Alabama's Quarterly Report on
Form 10-Q for the quarter ended March 31, 1999
(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 ended
December 31, 1998 (No. 0-15423), is incorporated herein
by reference.
23.1 Consent of Arthur Andersen LLP.
23.2 Consent of McKean & Associates, P.A.
23.3 Consent of Hand Arendall, L.L.C. is
included in its opinion re legality filed as Exhibit
5.1 hereto.
23.4 Consent of Hand Arendall, L.L.C. is
included in its opinion re tax matters filed as Exhibit
8.1 hereto.
23.5 Consent of Alex Sheshunoff & Co.
Investment Banking
23.6 Consents of persons named to become
directors of South Alabama upon consummation of the
Merger.
99.1 Form of Proxy to be used at Sweet
Water State Bancshares, Inc. special meeting.
(b) Financial Statement Schedules:
None.
Item 22. Undertakings.
(a) The undersigned Registrant hereby
furnishes the following undertakings required by Item 512
of Regulation S-K:
(1) The undersigned Registrant
hereby undertakes that, for purposes of determining
any liability under the Securities Act of 1933, each
filing of the Registrant's annual report pursuant to
Section 13(a) or Section 15(d) of the Securities
Exchange Act of 1934 (and, where applicable, each
filing of an employee benefit plan's annual report
pursuant to Section 15(d) of the Securities Exchange
Act of 1934) that is incorporated by reference in
the Registration Statement shall be deemed to be a
new Registration Statement relating to the
securities offered therein, and the offering of such
securities at that time shall be deemed to be the
initial bona fide offering thereof.
(2) The undersigned Registrant
hereby undertakes as follows:
(i) That prior to any
public re-offering of the securities registered
hereunder through use of a prospectus which is
a part of this Registration Statement, by any
person or party who is deemed to be an
underwriter within the meaning of Rule 145(c),
the issuer undertakes that such re-offering
prospectus will contain the information called
for by the applicable registration form with
respect to re-offerings by persons who may be
deemed to be underwriters, in addition to the
information called for by other Items of the
applicable forms.
(ii) That every
prospectus (a) that is filed pursuant to
paragraph (2)(i) immediately preceding, or (b)
that purports to meet the requirements of
Section 10(a)(3) of the Act and is used in
connection with an offering of securities
subject to Rule 415, will be filed as a part of
an amendment to the Registration Statement
and will not be used until such amendment is
effective, and that, for purposes of
determining any liability under the Securities
Act of 1933, each such post-effective amendment
shall be deemed to be a new Registration
Statement relating to the securities offered
therein, and the offering of such securities at
that time shall be deemed to be the initial
bona fide offering thereof.
(3) Insofar as indemnification
for liabilities arising under the Securities Act of
1933 may be permitted to directors, officers and
controlling persons of the Registrant pursuant to
the foregoing provisions, or otherwise, the
Registrant has been advised that in the opinion of
the Securities and Exchange Commission such
indemnification is against public policy as
expressed in the Act and is, therefore,
unenforceable. In the event that a claim for
indemnification against such liabilities (other than
the payment by the Registrant of expenses incurred
or paid by a director, officer or controlling
person of the Registrant in the successful defense
of any action, suit or proceeding) is asserted by
such director, officer or controlling person in
connection with the securities being registered, the
Registrant will, unless in the opinion of its
counsel the matter has been settled by controlling
precedent, submit to a court of appropriate
jurisdiction the question whether such
indemnification by it is against public policy as
expressed in the Act and will be governed by the
final adjudication of such issue.
(4) The undersigned Registrant
hereby undertakes to deliver or cause to be
delivered with the prospectus, to each person to
whom the prospectus is sent or given, the latest
annual report to security holders that is
incorporated by reference in the prospectus and
furnished pursuant to and meeting the requirements
of Rule 14a-3 or Rule 14c-3 under the Securities
Exchange Act of 1934; and where interim financial
information required to be presented by Article 3 of
Regulation S-X are not set forth in the prospectus,
to deliver, or cause to be delivered, to each person
to whom the prospectus is sent or given, the latest
quarterly report that is specifically incorporated
by reference in the prospectus to provide such
interim financial information.
(b) The undersigned Registrant hereby
undertakes to respond to requests for information that is
incorporated by reference into the prospectus pursuant to
Items 4, 10(b), 11, or 13 of this Form, within one
business day of receipt of such request, and to send the
incorporated documents by first class mail or other
equally prompt means. This includes information contained
in documents filed subsequent to the effective date of
the Registration Statement through the date of responding
to the request.
(c) The undersigned Registrant hereby
undertakes to supply by means of a post-effective
amendment all information concerning a transaction, and
the company being acquired involved therein, that was not
the subject of and included in the Registration Statement
when it became effective.
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, South
Alabama has duly caused this Registration Statement to be signed on its
behalf by the undersigned, thereunto duly authorized, in the City of Mobile,
State of Alabama, on the 29th day of July , 1999.
SOUTH ALABAMA BANCORPORATION, INC.
By: /s/ W. Bibb Lamar, Jr.
W. Bibb Lamar, Jr., President and
Chief Executive Officer
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed below by the following persons in the
capacities indicated on the dates indicated below.
Signatures Title Date
(1) Principal Executive Officer
/s/ W. Bibb Lamar, Jr. President and Chief 7/29/99
W. Bibb Lamar, Jr. Executive Officer
(2) & (3) Principal Financial and
Accounting Officer
/s/ F. Michael Johnson Chief Financial Officer 7/29/99
F. Michael Johnson and Secretary
(4) Directors
*/s/ John B. Barnett, III Director 7/29/99
John B. Barnett, III
*/s/ Stephen G. Crawford Director 7/29/99
Stephen G. Crawford
*/s/ Haniel F. Croft Director 7/29/99
Haniel F. Croft
Director
David C. De Laney
Director
Lowell J. Friedman
*/s/ Broox G. Garrett, Jr. Director 7/29/99
Broox G. Garrett, Jr.
Director
W. Dwight Harrigan
Director
James P. Hayes, Jr.
Director
Clifton C. Inge
/s/ W. Bibb Lamar, Jr. Director 7/29/99
W. Bibb Lamar, Jr.
Director
Richard S. Manley
Director
Kenneth R. McCartha
*/s/ Thomas E. McMillan, Jr. Director 7/29/99
Thomas E. McMillan, Jr.
Director
J. Richard Miller, III
*/s/ Harris V. Morrissette Director 7/29/99
Harris V. Morrissette
*/s/ J. Stephen Nelson Director 7/29/99
J. Stephen Nelson
*/s/ Paul D. Owens, Jr. Director 7/29/99
Paul D. Owens, Jr.
*/s/ Earl H. Weaver Director 7/29/99
Earl H. Weaver
Director
A. G. Westbrook
*By: /s/ F. Michael Johnson 7/29/99
F. Michael Johnson
As Attorney-in-Fact
EXHIBIT INDEX
SEC Assigned
Exhibit
Number Description of Exhibit Page No.
8.1 Opinion of Hand Arendall, L.L.C. re tax
matters dated July 5, 1999
23.1 Consent of Arthur Andersen LLP
23.2 Consent of McKean & Associates, P.A.
23.5 Consent of Alex Sheshunoff & Co.
Investment Banking
99.1 Form of Proxy to be used at special meeting
Exhibit 8.1
[HAND ARENDALL, L.L.C. LETTERHEAD]
July 5, 1999
South Alabama Bancorporation, Inc.
P. O. Box 3067
Mobile, Alabama 36652
Sweet Water State Bancshares, Inc.
P. O. Box 128
Sweet Water, Alabama 36782-0128
Re: Proposed Merger of Sweet Water State Bancshares, Inc.
into South Alabama Bancorporation, Inc. - Certain Tax Consequences
Gentlemen:
We have acted as counsel to South Alabama Bancorporation, Inc. ("South
Alabama"), an Alabama corporation, in connection with the proposed merger of
Sweet Water State Bancshares, Inc. ("Sweet Water"), an Alabama corporation,with
and into South Alabama (the "Merger"), pursuant to the Agreement and Plan of
Merger dated as of April 5, 1999 (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 Proxy Statement and 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 and Sweet Water.
You have advised us that the proposed transaction is being entered into
for good corporate business reasons, including, without limitation, to grow
to enhance the ability of the combined organization to remain competitive in
the rapidly changing banking environment; to increase the resources available
to the combined organization; to add stability to its deposit base; to reach
more customers; to allow for a wider distribution of risk; to decrease Sweet
Water's dependency on its local timber industry; and to enhance the ability
of the combined organization to keep pace with the technological and
competitive changes in banking. To achieve these goals, the following will
occur pursuant to the Merger Agreement:
(A) Sweet Water will merge with and into South Alabama pursuant
to the laws of the State of Alabama. South Alabama will acquire all the
assets and assume all the liabilities of Sweet Water. Sweet Water's separate
corporate existence will cease to exist upon consummation of the Merger and
South Alabama will be the surviving corporation. Thereafter, South Alabama
will continue to operate the subsidiary corporations and businesses of South
Alabama and Sweet Water conducted prior to the Merger.
(B) Each share of 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 Sweet Water Common Stock (excluding shares
held by any Sweet Water Company 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 shareholders who perfect their
dissenters' rights of appraisal as provided in Section 3.4 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 14.17 shares of South Alabama Common Stock (and cash in lieu of
fractional shares). The exchange ratio is subject to adjustment in the event
the Market Price of South Alabama Common Stock rises above $17.00 per share
or falls below $13.00 per share.
(D) Each of the shares of Sweet Water Common Stock held at the
time of the Merger by any Sweet Water Company 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 Sweet Water 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 Sweet Water
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 Price of one share of South Alabama Common Stock at the Effective
Time. No such holder will be entitled to dividends, voting rights, or any
other rights as a shareholder 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 shareholders of Sweet Water will be,
in each instance, approximately equal to the fair market value of the Sweet
Water Common Stock surrendered in exchange therefor.
(ii) There is no plan or intention on the part of the
shareholders of Sweet Water who own one percent (1%) or more of the Sweet
Water stock and, to the best of the knowledge of the management of Sweet
Water, there is no plan or intention on the part of the remaining
shareholders of Sweet Water 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 Sweet Water outstanding immediately prior to the transaction.
For purposes of this representation, shares of Sweet Water 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 Sweet Water stock as of the Effective Time. Moreover, shares of
Sweet Water stock and shares of South Alabama stock held by Sweet Water
shareholders 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 reacquire
any of its stock issued in the transaction.
(iv) South Alabama has no plan or intention to sell or
otherwise dispose of any of the assets of Sweet Water acquired in the
transaction, except for dispositions made in the ordinary course of business
or transfers described in Section 368(a)(2)(C).
(v) The liabilities of Sweet Water assumed by South Alabama
and the liabilities to which the transferred assets of Sweet Water are
subject were incurred by Sweet Water in the ordinary course of business.
(vi) Following the transaction, South Alabama will continue
the historic businesses of South Alabama and Sweet Water and use a significant
portion of South Alabama's and Sweet Water's historic business assets in a
business.
(vii) South Alabama and Sweet Water each agree to pay all
expenses incurred by it or on its behalf in connection with the Merger. Work
done by South Alabama and/or its attorneys and advisors to prepare and file
the Registration Statement and print the Prospectus shall not be deemed to be
done on behalf of Sweet Water, and the costs and expenses therefor shall not
be the responsibility of Sweet Water. The shareholders of Sweet Water will
pay their respective expenses, if any, incurred in connection with the Merger.
(viii) There is and will be at the date of the Merger no
intercorporate indebtedness existing between Sweet Water and South Alabama that
was issued, acquired, or will be settled at a discount.
(ix) Neither of the parties to the Merger is an "investment
company" as defined in Section 368(a)(2)(F)(iii) and (iv).
(x) Sweet Water is not under the jurisdiction of a court in a
Title 11 or similar case within the meaning of Section 368(a)(3)(A).
(xi) The fair market value and the total adjusted basis of the
assets of Sweet Water transferred to South Alabama will each equal or exceed
the sum of the liabilities assumed by South Alabama plus the amount of the
liabilities, if any, to which the transferred assets are subject.
(xii) 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 Sweet Water shareholders 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 Sweet Water shareholders in exchange for their shares of Sweet Water
stock. The fractional share interests of each Sweet Water shareholder will
be aggregated, and no Sweet Water shareholder will receive cash in an amount
equal to or greater than the value of one full share of South Alabama stock.
(xiii) None of the compensation received by any shareholder-
employees of Sweet Water will be separate consideration for, or allocable to,
any of their shares of Sweet Water stock; none of the shares of South Alabama
stock received by any shareholder-employees of Sweet Water will be separate
consideration for, or allocable to, any employment agreement; and the
compensation paid to any shareholder-employees of Sweet Water will be for
services actually rendered and will be commensurate with amounts paid to third
parties bargaining at arm's length for similar services.
(xiv) The Merger Agreement and the documents referred to
therein represent the entire understanding of Sweet Water and South Alabama
with respect to the Merger.
Based solely on the information submitted and the representations set
forth above and assuming that the Merger will take place as described in the
Merger Agreement and that the representations made by South Alabama and Sweet
Water (including the representation that Sweet Water shareholders will
maintain sufficient equity ownership interests in South Alabama after the
Merger) are true and correct at the 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). Sweet Water 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 on receipt
of Sweet Water's assets in exchange for South Alabama Common Stock. Section
1032(a).
3. Sweet Water will recognize no gain or loss upon the transfer of
its assets to South Alabama in exchange solely for South Alabama Common Stock
and the assumption by South Alabama of the liabilities of Sweet Water. Sections
361(a) and 357(a).
4. The basis of Sweet Water's assets in the hands of South Alabama
will, in each case, be the same as the basis of those assets in the hands of
Sweet Water immediately prior to the transaction. Section 362(b).
5. The holding period of the assets of Sweet Water in the hands of
South Alabama will, in each case, include the period during which such assets
were held by Sweet Water. Section 1223(2).
6. The shareholders of Sweet Water will recognize no gain or loss
upon the exchange of their Sweet Water 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
Sweet Water shareholders in the proposed transaction will, in each instance, be
the same as the basis of the Sweet Water Common Stock surrendered in exchange
therefor. Section 358(a)(1).
8. The holding period of the South Alabama Common Stock
received by the Sweet Water shareholders will, in each instance, include the
period during which the Sweet Water Common Stock surrendered in exchange
therefor was held, provided that the Sweet Water Common Stock was held as a
capital asset on the date of the exchange. Section 1223(1).
9. The payment of cash to Sweet Water 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 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 Sweet Water shareholder in
exchange for his Sweet Water Common Stock pursuant to the exercise of
dissenters' rights, such cash will be treated as having been received in
redemption of his Sweet Water 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 Proxy Statement
and Prospectus included in the Registration Statement. This opinion is being
provided solely for the use of South Alabama and Sweet Water. 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.
As a Member
Exhibit 23.1
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent accounts, we hereby consent to the incorporation
by reference in this Registration Statement of our report dated
January 29, 1999 incorporated by reference in South Alabama
Bancorporation's Form 10-K for the year ended December 31, 1998
and all references to our Firm included in or made a part of this
Registration Statement.
/s/ Arthur Andersen LLP
Birmingham, Alabama
July 29, 1999
Exhibit 23.2
CPA
ACCOUNTANT'S CONSENT
The Board of Directors
Sweet Water State Bancshares, Inc.
We consent to the use of our report from the 1997 through 1998, which our
firm has submitted, signed, and to the reference to our firm under the
heading "Experts" in the Prospectus and Registration Statement on Form S-4
filed with the SEC, in connection with your merger with and into South
Alabama Bancorporation, Inc.
June 29, 1999
/s/ McKean & Associates, P.A.
McKean & Associates, P.A.
Certified Public Accountants
A:\exhibit23.2.wpd
Exhibit 23.5
ALEX SHESHUNOFF & CO.
INVESTMENT BANKING
CONSENT OF ALEX SHESHUNOFF & CO. INVESTMENT BANKING
We hereby consent to the incorporation by reference in the Registration
Statement on Form S-4 of South Alabama Bancorporation, Inc. of our
updated opinion, dated June 24, 1999 with respect to the merger of South
Alabama Bancorporation, Inc. and Sweet Water Bancshares, Inc., and to
our firm, respectively, included in the Registration Statement No.
333-82167 of South Alabama Bancorporation, Inc. and to the inclusion
of such opinion as an annex to the Registration Statement. By giving
such consent, we do not thereby admit that we come within the category
of persons whose consent is required under Section 7 of the Securities
Act of 1933 or the rules and regulations of the Securities and Exchange
Commission thereunder.
ALEX SHESHUNOFF & CO.
INVESTMENT BANKING
By: /s/ James E. Magee
AUSTIN, TX
July 29, 1999
Exhibit 99.1
SWEET WATER STATE BANCSHARES, INC.
Proxy for Special Meeting of Shareholders, September 9, 1999
Solicited by the Board of Directors
KNOW ALL MEN BY THESE PRESENTS that I, the undersigned shareholder of Sweet
Water State Bancshares, Inc., do hereby nominate, constitute and appoint
William B. Booker and Stratton F. Lewis, Jr., 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 Sweet Water State Bancshares, Inc. standing in my name on its books on
July 27, 1999, at the Special Meeting of its Shareholders to be held at 101
Main Street, Sweet Water, Alabama, on September 9, 1999 at 10:00 a.m.,
Central Time, and at any adjournment thereof, with all powers that the
undersigned would possess if personally present, conferring upon my said
attorneys and proxies all discretionary authority permitted by applicable law
and regulations, as follows:
1. Plan of Merger. Adoption of the Agreement and Plan of Merger, as
described in the Prospectus dated August 4, 1999, whereby: (i) Sweet
Water State Bancshares, Inc. will be merged with and into South Alabama
Bancorporation, Inc.; and (ii) shareholders of Sweet Water State
Bancshares, Inc. will receive 14.17 shares of South Alabama
Bancorporation, Inc. Common Stock subject to adjustment for fluctuation
of South Alabama Bancorporation, Inc.'s stock price, for each share of
their stock of Sweet Water State Bancshares, Inc..
FOR ________
AGAINST ________
ABSTAIN ________
2. Other Business. The proxies are authorized to vote in their
discretion upon such other business as may be brought before the meeting
or any adjournment thereof. The Board of Directors currently knows of
no other business to be presented.
If properly executed and returned, the shares represented by this 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 August 4, 1999, "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 Sweet Water State
Bancshares, Inc..
Please date, sign and mail this proxy in the envelope provided.
Postage not necessary if mailed in the United States.
Proxy Number Number of Shares
DATED:_____________________, 1999
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.)
