<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON MARCH 24, 1998.
REGISTRATION NO. 333-
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- -------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
----------------
FORM SB-2
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
----------------
EUFAULA BANCCORP, INC.
(NAME OF SMALL BUSINESS ISSUER IN ITS CHARTER)
DELAWARE 6711 63-0989868
(STATE OF INCORPORATION) (PRIMARY STANDARD (IRS EMPLOYER
INDUSTRIAL IDENTIFICATION NO.)
CLASSIFICATION CODE
NUMBER)
218-220 BROAD STREET
EUFAULA, ALABAMA 36027
(334)687-3581
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING
AREA CODE, OF REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
----------------
GREGORY B. FAISON
PRESIDENT AND CHIEF EXECUTIVE OFFICER
EUFAULA BANCCORP, INC.
218-220 BROAD STREET
EUFAULA, ALABAMA 36027
(334)687-3581
(NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE
NUMBER, INCLUDING AREA CODE, OF AGENT FOR SERVICE)
----------------
Copies to:
MICHAEL D. WATERS WILLIAM K. HOLBROOK
BALCH & BINGHAM LLP BURR & FORMAN LLP
NO. 2 DEXTER AVENUE P.O. BOX 830719
MONTGOMERY, ALABAMA 36104 BIRMINGHAM, ALABAMA 35283-0719
(334) 834-6500 (205) 458-5484
(334) 269-3115 (FAX) (205) 458-5100 (FAX)
----------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon as
practicable following the effective date of this Registration Statement.
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [_]
----------------
CALCULATION OF REGISTRATION FEE
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<TABLE>
<CAPTION>
PROPOSED PROPOSED
MAXIMUM MAXIMUM AMOUNT OF
TITLE OF EACH CLASS OF OFFERING PRICE AGGREGATE REGISTRATION
SECURITIES TO BE REGISTERED PER UNIT(1) OFFERING PRICE(2) FEE(3)
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<S> <C> <C> <C>
Common Stock
$1.00 par
value (1) $5,750,000 $1,696.25
</TABLE>
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(1) To be determined.
(2) Includes shares to cover over-allotments, if any.
(3) Calculated under Rule 457(o) based upon the maximum aggregate offering
price.
----------------
THE REGISTRATION 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.
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<PAGE>
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
+INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A +
+REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE +
+SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY +
+OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT +
+BECOMES EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR +
+THE SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE +
+SECURITIES IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE +
+UNLAWFUL PRIOR TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF +
+ANY SUCH STATE. +
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
SUBJECT TO COMPLETION, DATED MARCH 24, 1998
PROSPECTUS
SHARES
EUFAULA BANCCORP, INC.
COMMON STOCK
-------------
Eufaula BancCorp, Inc. (the "Company") hereby offers for sale (the
"Offering") shares of its Common Stock, par value $1.00 per share ("Common
Stock"), excluding an additional shares that may be sold to the
Underwriters pursuant to an over-allotment option. The Company's Common Stock
is traded in the over-the-counter market and is quoted on the Nasdaq SmallCap
Market ("Nasdaq") under the symbol "EUFA." On , 1998, the closing bid
and asked prices for the Company's Common Stock as reported by Nasdaq were $
and $ , respectively. See "MARKET PRICES OF AND DIVIDENDS DECLARED ON COMMON
STOCK."
The initial public offering price per share and the Underwriters' discount
will be determined by agreement between the Company and the Underwriters. See
"UNDERWRITING."
YOU SHOULD CONSIDER CAREFULLY THE INFORMATION DISCUSSED UNDER "RISK FACTORS"
AT PAGE 7.
-------------
THE SECURITIES OFFERED BY THIS PROSPECTUS ARE NOT SAVINGS ACCOUNTS OR DEPOSITS
AND ARE NOT INSURED BY THE FEDERAL DEPOSIT INSURANCE CORPORATION OR ANY OTHER
GOVERNMENTAL AGENCY. THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED
BY THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES
COMMISSION NOR HAS THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE
SECURITIES COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS
PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
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<TABLE>
<CAPTION>
UNDERWRITING
PRICE TO DISCOUNTS AND PROCEEDS TO
PUBLIC COMMISSIONS(1) COMPANY(2)
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<S> <C> <C> <C>
Per Share............................... $ $ $
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Total(3)................................ $ $ $
</TABLE>
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(1) The Company has agreed to indemnify the Underwriters against certain
liabilities, including liabilities under the Securities Act of 1933, as
amended (the "Securities Act"). See "UNDERWRITING."
(2) Before deducting offering expenses payable by the Company, estimated to be
$ . See "USE OF PROCEEDS."
(3) The Company has granted the Underwriters a 30-day option to purchase up to
additional shares of Common Stock, on the same terms and conditions set
forth above, solely to cover over-allotments, if any. If all such shares
are purchased, the total Price to Public, Underwriting Commissions and
Proceeds to Company will be $ , $ and $ , respectively. See
"UNDERWRITING."
-------------
The shares of Common Stock are being offered by the Underwriters subject to
prior sale, when, as and if received and accepted by the Underwriters. The
Underwriters reserve the right to withdraw, cancel or modify the Offering
without notice and to reject any order in whole or in part. It is expected that
certificates representing the Common Stock will be available for delivery on or
about , 1998.
STERNE, AGEE & LEACH, INC.
THE DATE OF THIS PROSPECTUS IS , 1998
<PAGE>
LOGO
[MAP OF EUFAULA BANCCORP, INC. BANKING LOCATIONS APPEARS HERE]
CERTAIN PERSONS PARTICIPATING IN THIS OFFERING MAY ENGAGE IN TRANSACTIONS
THAT STABILIZE, MAINTAIN, OR OTHERWISE AFFECT THE PRICE OF THE COMMON STOCK
OFFERED HEREBY, INCLUDING OVER-ALLOTMENT STABILIZING TRANSACTIONS AND SHORT
COVERING TRANSACTIONS. FOR A DESCRIPTION OF THESE ACTIVITIES, SEE
"UNDERWRITING."
IN CONNECTION WITH THIS OFFERING, CERTAIN UNDERWRITERS (AND SELLING GROUP
MEMBERS) MAY ENGAGE IN PASSIVE MARKET MAKING ACTIVITIES IN THE COMMON STOCK ON
NASDAQ IN ACCORDANCE WITH RULE 103 OF REGULATION M. SEE "UNDERWRITING."
The Company will provide to holders of the Common Stock annual reports
containing financial statements audited by the Company's independent auditors.
In addition, the Company will furnish annual reports on Form 10-KSB and
quarterly reports on Form 10-QSB free of charge to stockholders who so request
in writing addressed to the Secretary of the Company.
2
<PAGE>
ADDITIONAL INFORMATION
The Company is subject to the informational requirements of Section 12(g) of
the Securities Exchange Act of 1934, as amended (the "Exchange Act"), and in
accordance therewith, files reports and other information with the Securities
and Exchange Commission (the "Commission" or the "SEC"). Such reports and
other information, including proxy and information statements, can be
inspected without charge and copied at prescribed rates at the public
reference facilities maintained by the SEC at Room 1024 Judiciary Plaza, 450
Fifth Street, N.W., Washington, D.C. 20549 and at its regional offices located
at Northwestern Atrium Center, 500 West Madison Street, Suite 1400, Chicago,
Illinois 60661 and 7 World Trade Center, 13th Floor, New York, New York 10048.
Copies of such material can also be obtained at prescribed rates from the
SEC's Public Reference Section, 450 Fifth Street, N.W., Washington, D.C.
20549.
The Commission also maintains a Web Site (http://www.sec.gov) that contains
reports, proxy and information statements and other information regarding
registrants, such as the Company, that file electronically with the
Commission.
The Company has filed with the Commission in Washington, D.C. a Registration
Statement on Form SB-2 (herein, together with all amendments thereto, the
"Registration Statement") under the Securities Act of 1933, as amended (the
"Securities Act"), with respect to the Common Stock offered hereby. This
Prospectus, which constitutes a part of the Registration Statement, does not
contain all the information set forth in the Registration Statement and the
exhibits thereto and reference is made to the Registration Statement and
exhibits thereto for further information with respect to the Company and the
Shares offered hereby. Statements herein concerning the contents of any
contract or other document are not necessarily complete, and in each instance
reference is made to the copy of such contract or other document filed as an
exhibit to the Registration Statement, each such statement being qualified in
all respects by such reference. The Registration Statement, together with
exhibits, may be inspected without charge and copied at prescribed rates at
the principal or regional offices of the Commission at the addresses indicated
above. Copies also may be obtained at prescribed rates from the public
reference facilities maintained by the Commission, at 450 Fifth Street, N.W.,
Washington, D.C.
The principal office and mailing address of the Company are 218-220 Broad
Street, Eufaula, Alabama 36027, telephone (334) 687-3581.
3
<PAGE>
PROSPECTUS SUMMARY
The following summary is qualified in its entirety by reference to the more
detailed information and consolidated financial statements and notes thereto
contained elsewhere in this Prospectus, and you should read this Prospectus in
full. In addition, unless otherwise indicated, the information in this summary
assumes that the Underwriters' over-allotment option will not be exercised. You
should carefully consider the information set forth under the heading "RISK
FACTORS."
THE COMPANY AND THE BANKS
The Company was incorporated under the laws of the State of Delaware in 1988.
The Company is a bank holding company registered with the Board of Governors of
the Federal Reserve System (the "Federal Reserve") under the Bank Holding
Company Act of 1956, as amended (the "BHC Act"). The Company operates two
wholly-owned subsidiary banks (the "Banks"), Southern Bank of Commerce
("Southern Bank"), with branches in Eufaula and Montgomery, Alabama, and First
American Bank of Walton County ("American Bank"), with branches in Santa Rosa
Beach, Grayton Beach, Freeport and Panama City, Florida. The Company's only
significant business activity is the ownership and supervision of the Banks. As
of December 31, 1997, Southern Bank had total assets of $83.4 million, and
American Bank had total assets of $35.7 million. See "BUSINESS."
Southern Bank was incorporated in Eufaula, Alabama in 1926 with the name
"Eufaula Bank and Trust Company." The name of the bank was changed to "Southern
Bank" in 1997 to reflect the growth and expansion of the bank into markets
outside Eufaula. Southern Bank became a wholly owned subsidiary of the Company
pursuant to the formation of the Company in 1988. American Bank was
incorporated as a Florida corporation in 1987 for the purpose of conducting a
commercial banking business in Walton County, Florida. The Company acquired
American Bank in 1991. See "THE COMPANY."
Southern Bank has one subsidiary, Credit Plan, Inc., an Alabama corporation,
which is engaged in the consumer finance business. At December 31, 1997, Credit
Plan, Inc. had 463 consumer loans outstanding totaling $763,000 and net income
of $37,000. See "BUSINESS."
The Company through the Banks offers a broad range of bank and bank-related
services. The Banks perform banking services customary for full service banks
of similar size for customers in their respective service areas. These services
include the making of personal and commercial loans, the furnishing of personal
and commercial checking accounts and the receipt of demand and time deposit
accounts. The Banks do not offer trust services. See "RISK FACTORS," "THE
COMPANY," and "BUSINESS."
The market areas served by the Company have traditionally been rural areas.
From time to time, the Company has sought to acquire other banks, and the
Company may seek to acquire other banks as opportunities arise. The Company has
also decided to expand into other, and more populous, market areas by opening
branches of its existing Banks. Southern Bank opened a branch in Montgomery,
Alabama in 1997 and intends to open a branch in Huntsville, Alabama in 1998.
The Company intends to continue expansion through branching, and in 1999 and
beyond may seek to establish branches in the Birmingham, Mobile, Dothan and
Auburn-Opelika areas in Alabama and in the Pensacola and Tallahassee areas in
Florida. The Company may also seek expansion opportunities in Georgia from time
to time. The Company has as a goal the making of commercial loans in the range
of $500,000 to $3 million, which the Company believes is a type of loan that
the larger banking institutions in the more populous market areas may not be
seeking. See "THE COMPANY," "USE OF PROCEEDS" and "BUSINESS."
4
<PAGE>
Financial highlights of the Company include the following:
Asset and Loan Portfolio Growth--The Company's assets have grown from $82.1
million at December 31, 1993 to $120.9 million at December 31, 1997,
representing a compound annual increase of approximately 10.2%, and the
Company's loan portfolio has increased over the same period from $38.9 million
to $78.6, representing a compound annual increase of approximately 19.2%.
Net Income--Since December 31, 1993, the Company's net income has increased
from $875,000 to $1 million for the year ended December 31, 1997, representing
a compound annual growth rate of 3.6%. The Company considers this growth rate
acceptable as a result of recent expansion.
Shareholders' Equity--The Company's total shareholders' equity has increased
from $8.2 million at December 31, 1993 to $11.9 million at December 31, 1997,
representing a compound annual increase of approximately 9.9%.
Asset Quality--Since December 31, 1993, the Company's ratio of net charge-
offs to average outstanding loans net of unearned income has not exceeded .22%
and was .09% at December 31, 1997. The majority of the Company's loans are
collateralized by real estate and personal guarantees.
See "Summary Consolidated Financial Data."
THE OFFERING
<TABLE>
<C> <S>
Securities To Be Sold............ shares of Common Stock, par value
$1.00 per share. See "UNDERWRITING."
Shares Outstanding After the
Offering........................ . See "UNDERWRITING."
Use of Proceeds.................. To increase capital to support the Banks'
growth and for general corporate purposes.
See "USE OF PROCEEDS."
NASDAQ Symbol.................... EUFA. See "MARKET PRICE OF AND DIVIDENDS
DECLARED ON COMMON STOCK."
</TABLE>
5
<PAGE>
EUFAULA BANCCORP AND SUBSIDIARIES
SUMMARY CONSOLIDATED FINANCIAL DATA
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
---------------------------------------------
1997 1996 1995 1994 1993
-------- -------- ------- ------- -------
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE
DATA)
<S> <C> <C> <C> <C> <C>
SELECTED BALANCE SHEET DATA:
Total assets................... $120,942 $104,816 $95,319 $84,452 $82,116
Total loans.................... 78,604 52,168 48,455 41,428 38,931
Total deposits................. 104,609 90,297 83,614 73,512 71,492
Investment securities.......... 25,458 36,897 33,957 29,795 29,176
Shareholders' equity........... 11,941 10,715 9,948 8,562 8,201
SELECTED INCOME STATEMENT DATA:
Interest income................ $ 8,717 $ 7,445 $ 7,097 $ 5,838 $ 5,341
Interest expense............... 3,755 2,999 2,875 2,135 1,840
-------- -------- ------- ------- -------
Net interest income.......... 4,962 4,446 4,222 3,703 3,401
Provision for loan losses...... 174 81 86 60 51
Other income................... 1,119 985 798 898 937
Other expenses................. 4,473 3,551 3,348 3,155 3,086
-------- -------- ------- ------- -------
Income before tax.............. 1,434 1,799 1,583 1,386 1,201
Income tax expense............. 427 570 471 390 328
-------- -------- ------- ------- -------
Net Income................... $ 1,007 $ 1,229 $ 1,112 $ 886 $ 875
======== ======== ======= ======= =======
PER SHARE DATA:(1)
Net income--Basic.............. $ 0.48 $ 0.60 $ 0.54 $ 0.49 $ 0.43
Net income--Diluted............ 0.45 0.56 0.53 0.48 0.43
Book value..................... 5.69 5.22 4.85 4.17 4.00
Tangible book value............ 4.99 4.47 4.05 3.34 3.13
Dividends...................... 0.14 0.13 0.12 0.11 0.10
PROFITABILITY RATIOS:
Net income to average total
assets........................ 0.90% 1.24% 1.21% 1.16% 1.12%
Net income to average stock-
holders' equity............... 8.89% 11.90% 12.02% 11.47% 11.18%
Net interest margin(2)......... 4.99% 4.99% 5.17% 4.88% 4.88%
Net interest margin on a tax-
able equivalent basis(3)...... 5.23% 5.27% 5.42% 5.21% 5.24%
Efficiency ratio(4)............ 73.56% 65.38% 66.74% 68.57% 71.14%
LOAN QUALITY RATIOS:
Net charge-offs to total
loans......................... 0.09% 0.06% 0.22% -0.02% 0.06%
Allowance for loan losses to
total loans and OREO.......... 0.96% 1.24% 1.25% 1.51% 1.43%
Nonperforming assets to total
loans and OREO................ 1.09% 1.56% 2.11% 0.02% 0.16%
Allowance for loan losses to
nonperforming loans........... 1190.63% 2852.17% 59.08% 7825.00% 2540.91%
Allowance for loan losses to
total nonperforming assets.... 87.69% 79.23% 59.08% 7825.00% 887.30%
LIQUIDITY RATIOS:
Loans to total deposits........ 75.14% 57.77% 57.95% 58.36% 54.46%
Loans to average earning as-
sets.......................... 79.03% 58.59% 59.29% 54.61% 55.85%
Noninterest-bearing deposits
to total deposits............. 17.50% 20.80% 22.21% 22.31% 23.88%
CAPITAL ADEQUACY RATIOS:
Stockholders' equity to total
assets........................ 9.87% 10.22% 10.44% 10.14% 9.99%
Dividend payout ratio.......... 29.17% 21.67% 22.22% 22.45% 23.26%
Tier I Capital (4% required
minimum)(5)................... 13.11% 15.54% 16.30% 15.78% 14.70%
Total risked based capital (8%
required minimum)(6).......... 14.03% 16.60% 17.49% 17.04% 15.95%
Leverage ratio (4% required
minimum)(7)................... 9.20% 9.42% 9.36% 8.33% 8.58%
</TABLE>
- --------
(1) All per share data for prior years have been adjusted to reflect the three-
for-two stock split effected in the form of a 50% stock dividend issued to
shareholders of record as of November 15, 1997 and a two for one stock
split effected in the form of a 100% stock dividend on December 20, 1996.
(2) Net interest income divided by average earning assets.
(3) Net interest income presented on a taxable-equivalent basis assuming a 34%
Federal tax rate divided by average earning assets.
(4) Other expenses divided by the sum of net interest income plus other income.
(5) Total shareholders' equity excluding unrealized losses on securities
available for sale, net of taxes and intangible assets divided by total
risk-weighted assets.
(6) Total shareholders' equity excluding unrealized losses on securities
available for sale, net of taxes and intangible assets plus allowance for
loan losses (limited to 1.25% of risk-weighted assets) divided by total
risk-weighted assets.
(7) Total shareholders' equity excluding unrealized losses on securities
available for sale, net of taxes and intangible assets divided by average
assets less intangible assets.
6
<PAGE>
RISK FACTORS
Before purchasing the Common Stock offered hereby, you should consider the
specific risk factors set forth below as well as the other information set
forth elsewhere in this Prospectus. See "THE COMPANY," "MANAGEMENT'S
DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS" and
"BUSINESS" for a description of other factors affecting the business of the
Company generally.
ADEQUACY OF ALLOWANCE FOR LOAN LOSSES. There are certain risks inherent in
making all loans, including risks with respect to the period of time over
which loans may be repaid, risks resulting from changes in economic and
industry conditions, risks inherent in dealing with individual borrowers and,
in the case of a collateralized loan, risks resulting from uncertainties as to
the future value of the collateral. The Company attempts to maintain in the
Banks an allowance for loan losses at a sufficient level to provide for
potential losses in its loan portfolio. The amount of the allowance for loan
losses is periodically determined by management based upon consideration of
several factors, including: (1) an ongoing review of the quality, mix and size
of the overall loan portfolio; (2) historical loan loss experience; (3)
evaluation of non-performing loans; (4) assessment of economic conditions and
their related effects on the existing portfolio; and (5) the amount and
quality of collateral, including guarantees, securing loans. However, there is
no precise method of predicting loan losses and there can be no assurance that
the allowance for loan losses will be sufficient to absorb future loan losses.
If loan losses exceed the allowance, or if management's view of the risk
inherent in the lending function changes, these changes could have an adverse
impact on the Company's earnings and financial condition. See "MANAGEMENT'S
DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS--
Allocation of the Allowance for Loan Losses."
POTENTIAL IMPACT OF CHANGES IN INTEREST RATE ENVIRONMENT. Significant
changes in the interest rate environment, especially increasing interest
rates, may have a negative impact upon the profitability of the Company. While
management has taken precautions to limit the impact of upward movements in
interest rates, there can be no assurance that the Company will continue to
perform as well as it has previously if interest rates rise. See "MANAGEMENT'S
DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS--
Asset/Liability Management."
ASSET/LIABILITY MANAGEMENT. The Company's profitability is largely dependent
upon its net interest income, which is the difference between interest income
and interest expense. As of December 31, 1997, the Company's cumulative one-
year interest rate sensitivity gap ratio was 73 percent. This indicates that
the Company's interest-bearing liabilities will reprice during this period at
a rate faster than the Company's interest-earning assets. As a result, the
cost of the Company's interest-bearing liabilities will likely adjust to
changes in market interest rates at a faster rate than the yield on the
Company's earning assets. Consequently, the Company's net interest income
could be adversely affected during periods of increasing interest rates.
However, management believes that the type and amount of the Company's
interest rate-sensitive liabilities (a significant portion of which are
composed of money market, NOW and savings accounts whose yields, to a certain
extent, are subject to the discretion of management) may reduce the potential
impact that a rise in interest rates might have on the Company's net interest
income. In addition, the Company has borrowing agreements with three
correspondent banks and the Federal Home Loan Bank in order to provide
temporary liquidity as necessary. However, there can be no assurance that the
Company's asset/liability strategy will be successful or that the Company
could maintain its current level of profitability in a rising interest rate
environment. See "MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS--Asset/Liability Management."
COMPETITION. The banking business is extremely competitive. The Company and
the Banks compete with financial institutions (including mortgage companies
and other finance companies which are not commercial banks) which are well
established, and several of which have significantly greater resources and
lending limits. This is especially true in larger markets where the Banks have
opened, or intend to open, new branches. Such competitors perform certain
services, such as investment and international banking services, which the
Banks do not provide directly. However, the Banks may offer many of these
services through its correspondent banks. Competition is expected to intensify
with interstate banking and branching. Competition for acquisitions is
7
<PAGE>
expected to include money center banks and major regional bank holding
companies. These same institutions, as well as other financial institutions,
also compete intensely for assets and deposits within the Company's markets.
Competition from these institutions could adversely affect the Company's
ability to grow profitably its asset and deposit base especially through the
opening of branch offices in new markets where the Banks have not competed in
the past and to make acquisitions. See "THE COMPANY," and "BUSINESS--General"
and "--Competition."
ABILITY TO SUSTAIN GROWTH; PROFITABILITY. The market areas served by the
Company have historically been rural areas and afford limited, if any,
opportunities for growth. The Company believes its future growth will depend
primarily on the expansion of the business of the Banks through internal
growth and the opening and acquisition of new branch offices in new larger
markets, and, to a lesser extent, on the acquisition of other financial
institutions. The ability to profitably grow through the opening or
acquisition of new branches will depend primarily on, among other things, the
Company's ability to identify profitable and growing markets and branch
locations within such markets, attract necessary deposits to profitably
operate such branches, and locate sound loans and investment opportunities
within such markets. Acquisitions of branches or other banks also involve
risks of adversely changing results of operations, unforseen liabilities or
asset quality problems of the acquired entity, encountering greater than
anticipated costs of incorporating acquired businesses into the Company and
other conditions not within the control of the Company such as adverse
personnel relations, loss of customers because of change in identity,
deterioration of local economic conditions and other risks affecting the
acquired institution. Furthermore, the Company's continued growth and
profitability depends on the ability of its officers and key employees to
manage such growth effectively, to attract and retain skilled employees
including new management, to obtain additional financing, if necessary, at an
acceptable cost and to expand the capabilities of the Company's management
informational system. The Company regularly evaluates the adequacy of its
current policies, procedures, systems and resources. However, as a consequence
of the Company's growth strategy, the Company's profitability could be
negatively impacted as there can be no assurance that the Company will be able
to successfully manage its growth or adequately address all of the changing
demands its planned expansion may impose on its policies, procedures, systems
and resources.
LIMITED NUMBER OF BANKS. The Company currently owns two banks. Due to its
relatively small existing base of banks and total assets, adverse results or
events at a particular Bank could have a more significant impact on the
Company's results of operations or financial condition than would be the case
of a company with a greater number of banks and branches and total assets.
Further, under federal law, a depository institution insured by the FDIC can
be held liable for any loss incurred by, or reasonably expected to be incurred
by, the FDIC in connection with the default of a commonly controlled FDIC-
insured depository institution or any assistance provided by the FDIC to a
commonly controlled FDIC-insured institution in danger of default. These
provisions can have the effect of making subsidiary Banks of the Company
responsible for FDIC-insured losses at another subsidiary Bank. See "THE
COMPANY," "BUSINESS--General" and "SUPERVISION AND REGULATION."
LOCAL ECONOMIC CONDITIONS. The success of the Company is dependent to a
certain extent upon the general economic conditions in the geographic markets
served by the Banks. Although the Company expects that economic conditions
will be favorable in these markets, no assurance can be given that favorable
economic conditions will occur. Adverse changes in economic conditions in the
geographic markets that the Banks serve would likely impair the Banks' ability
to collect loans and could otherwise have a negative effect on the financial
condition of the Company. See "BUSINESS."
GEOGRAPHIC CONCENTRATION; SIGNIFICANCE OF AGRICULTURAL
ECONOMY. Substantially all of the Company's deposits and assets at December
31, 1997, were derived from operations in the relatively rural markets of
Barbour County, Alabama and Walton County, Florida. Consequently, the
Company's profitability may be negatively affected by factors that have a
significant impact on agriculture, including weather. Some of the Banks'
market areas have experienced severe weather in 1998, primarily heavy rains
and flooding. However, in contrast to Barbour County, the economy of Walton
County, Florida depends substantially upon tourism, tourism related industry
and a major military base. See "THE COMPANY" and "BUSINESS--Loan Portfolio."
YEAR 2000 COMPLIANCE COSTS. Like many companies, the Company relies on
computers for the daily conduct of business and for data processing. There is
general concern that on January 1, 2000 computers will be
8
<PAGE>
unable to "read" the new year and as a consequence there could be widespread
computer malfunctions. The Company has implemented steps to address this issue
by hiring a technology consultant to advise it regarding such issue. The
Company expects to incur approximately $25,000 to $50,000 to modify its
information systems to process information in the year 2000 and beyond. The
Company has entered into an agreement with a third party to provide computer
and information services. Although the Company believes that the costs to be
incurred will not have a material adverse effect on the Company, additional
compliance costs could be incurred, especially if the third party provider is
unable to satisfactorily provide the services for which the Company has
contracted. See "MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS--Year 2000 Issue Costs."
GOVERNMENT REGULATION AND LEGISLATION. Banking is a highly regulated
industry. For instance, regulatory agencies have the authority to prohibit or
limit the Banks' activities if the agencies deem such activities to be unsafe
or unsound. From time to time, legislation is proposed or enacted that has the
effect of increasing the cost of doing business, limiting or expanding
permissible activities, or affecting the competitive balance between banks and
other financial and non-financial institutions. Proposals to change the laws
and regulations governing the operations and taxation of banks and other
financial institutions are frequently made in Congress, the Alabama
legislature and the Florida legislature, and before various state and federal
bank regulatory agencies. Most recently, authorization of interstate branching
is likely to facilitate interstate branching and merger activity and enhance
competition among financial institutions. The effects these changes might have
on the Company or the Banks and the likelihood of additional changes are
impossible to predict. See "SUPERVISION AND REGULATION."
RELIANCE ON KEY PERSONNEL. The Company relies heavily on the services of
Greg B. Faison, its President and Chief Executive Officer and on its Board of
Directors. The Company does not hold key man insurance on any of these
persons. The loss of the services of any of these persons could have a
material adverse effect on the Company and the Banks. See "THE COMPANY" and
"MANAGEMENT."
SECURITIES NOT INSURED. The shares of Common Stock being offered are not
savings accounts or deposits and are not insured by the Federal Deposit
Insurance Corporation or any other federal agency.
DIVIDEND POLICY. The Company has paid annual dividends of $.14, $.13 and
$.12 per share for the fiscal years 1997, 1996 and 1995, respectively. The
Company relies upon the payment of dividends to it by the Banks as the source
of revenue for payment of dividends on its Common Stock. The payment of
dividends to the Company by the Banks is limited by law and by the need to
maintain adequate capital in the Banks. The Board of Governors of the Federal
Reserve System has stated that bank holding companies should not pay dividends
except out of current earnings and unless the prospective rate of earnings
retention appears consistent with the capital needs, asset quality and overall
financial condition. Both Alabama law, as applied to Southern Bank, and
Florida law, as applied to American Bank, limit the amount of the dividends
that the Banks may pay to the Company. See "PROSPECTUS SUMMARY--Summary
Consolidated Financial Data"; "MARKET PRICE OF AND DIVIDENDS DECLARED ON
COMMON STOCK"; "SUPERVISION AND REGULATION"; and the Consolidated Financial
Statements and related Notes.
DILUTION. Investors in the Offering will suffer dilution of their equity
interest in the Company due to the fact that the net tangible book value per
share of the Company's common stock at December 31, 1997 was $ , while the
offering price is $ per share. Thus, investors in the Common Stock will
incur an immediate dilution of $ per share. See "DILUTION."
ANTI-TAKEOVER MEASURES. The Company has certain takeover defenses in place,
including (i) certain provisions relating to meetings of stockholders; (ii)
the ability of the Board of Directors to issue additional shares without
stockholder approval; (iii) retirement agreements with directors which provide
for accelerated benefits if the directors' position is terminated after a
change in control of the Company; and (iv) a staggered board of directors. Any
of these measures may impede the takeover of the Company without the approval
of the Company's Board of Directors, may result in the Company being less
attractive to potential acquirers and may result in stockholders receiving
less for their shares than otherwise might be available. See "DESCRIPTION OF
CAPITAL STOCK--Certain Anti-Takeover Effects."
9
<PAGE>
THE COMPANY
The Company was organized in 1988 as a bank holding company for Southern
Bank. The Company acquired American Bank in 1991. The Company attempts to set
and coordinate policy for the Banks, and, in particular, has established
strategies regarding both the expansion of the Company into new markets and
the procedures for Bank operations which are described more fully below.
EXPANSION STRATEGY
The Banks perform banking services typical of commercial banks in their
market areas. Although Southern Bank, which was organized in 1926 as Eufaula
Bank and Trust Company, has operated traditionally in the rural area of
Barbour County, Alabama, the Company has attempted in recent years to expand
its operations and develop its business in more heavily populated areas. The
Board of Directors of the Company believes this expansion strategy will create
a stable banking franchise and provide the best means of returning value to
the Company's shareholders.
First American is the only Bank which the Company has acquired since its
formation. Although the Company may seek to acquire other banks if suitable
opportunities arise, the Board of Directors of the Company realizes that the
Company's ability to acquire other banks may for the foreseeable future be
limited by both the Company's relatively small size in relation to other banks
to be acquired and the relatively large size of other acquiring banks.
Accordingly, the Company has attempted to expand the Company's operations by
opening branch offices in relatively larger and faster growing markets.
Southern Bank opened a branch in Montgomery, Alabama's third largest city and
the state capital, in 1997, and has applied for a branch in Huntsville,
Alabama's fourth largest city, to be opened in 1998. Southern Bank intends to
open branches in Alabama's other major metropolitan areas in 1999 and beyond,
including Birmingham and Mobile, the largest and second largest cities in
Alabama, respectively, and in Dothan and the Auburn-Opelika area.
In Florida, American Bank intends to seek branching opportunities in
Pensacola and Tallahassee during the next two years.
The Company also has under consideration possible expansion into Georgia.
Eufaula is located on the Alabama-Georgia state line, and Southern Bank makes
loans to borrowers located in and otherwise has customers in Quitman County,
Georgia.
Management considers a variety of criteria when evaluating potential branch
expansion, including (i) short- term and long-term growth prospects for the
market and branch location; (ii) the management and other resources required
to integrate the operations, if desirable; (iii) the degree to which the
branch would enhance the geographic diversification of the Company; (iv) the
degree to which the branch would enhance the Company's presence in an existing
market or provide opportunities in a new market; and (v) the costs of
operating such a branch.
OPERATING STRATEGY
The Company's general operating strategy is to (i) attract core deposits
from, and provide an array of financial services to, individuals and small to
medium-sized businesses; (ii) adhere to strict credit administration
standards; (iii) manage interest rate risk; (iv) continue to improve internal
operating systems; (v) manage noninterest expense; and (vi) emphasize
community involvement.
In particular, several banks that compete with the Company have been
acquired by large financial institutions, some of them located out-of-state.
Management believes that, in many cases, the acquiring institutions have
shifted the focus of the acquired banks away from individual service and the
small and
10
<PAGE>
medium-sized businesses that are the core of the Company's marketing efforts.
The Company believes that there is an opportunity in the more heavily
populated areas of Alabama and Florida to make attractive loans to commercial
and small business borrowers who seek financing in the $500,000 to $3 million
range. The Company believes that this loan size may be a size that the larger
financial institutions may not be actively seeking. Thus, the Company operates
as a traditional community bank with conveniently located facilities and a
professional, motivated staff and intends to continue to focus its marketing
efforts on individuals and on the small and medium-sized businesses in its
market areas in order to attract deposits from such individuals and
businesses.
To pursue these goals, the Company has organized Bank management under a
system composed of Bank and city presidents. Each Bank has a president who is
responsible for overall operations of the Bank. In areas where the Banks have
branches outside Eufaula, Alabama (in the case of Southern Bank) and Santa
Rosa Beach, Florida (in the case of American Bank), the Banks have designated
city presidents who are responsible for operations in their respective cities.
This includes a city president for Montgomery, Alabama, as part of Southern
Bank, and a city president for Panama City, Florida, as part of American Bank.
A city president has been designated for Huntsville, Alabama once Southern
Bank opens its branch in that city.
The presidents of the Banks, including city presidents, have considerable
lending and management authority. The Company believes this operating strategy
provides for local autonomy and decision making, which results in better loan
quality and customer service. Thus, although corporate policy, or strategy and
certain administrative policies are established by the Board of Directors of
the Company, lending and local market decisions are made primarily at the
local level to permit each Bank and branch to respond to the differing needs
and demands of its own market.
In order to manage the expansion and operating strategies, the Board of
Directors and management of the Company were reorganized in 1996. The boards
of the Banks are now primarily composed of persons who do not serve on the
Board of the Company. The Company believes that this board composition
provides more local autonomy for the Banks' boards and their management, with
the Board of Directors of the Company having general oversight of Company
expansion and operating strategy. As part of this restructuring, the Board
designated Greg Faison, the CEO of Southern Bank, and the President and CEO of
the Company, as the person to whom the presidents of the Banks and the city
presidents report. As a result, Mr. Faison's responsibility, among other
things, is to coordinate and supervise both the expansion and operating
strategies of the Company and the Banks.
For a further discussion of the business of the Company, see "BUSINESS."
MARKET PRICE OF AND DIVIDENDS ON COMMON STOCK
Shares of the Company's Common Stock are traded in the Nasdaq SmallCap
Market ("Nasdaq") and quoted under the symbol EUFA. Shares of Company Common
Stock have been quoted on Nasdaq since June, 1996. Prior to that time, there
was no active trading market for the Common Stock and shares were traded in
privately negotiated transactions. Upon completion of the Offering, the
Company intends to have the Common Stock included for listing on the Nasdaq
National Market System assuming the appropriate requirements for such listing
are satisfied.
The low and high bid prices (which reflect interdealer prices without
adjusting for retail markup, markdown or commissions and not necessarily
representing actual transactions) and dividends declared for the past two
fiscal years to date on the Company's Common Stock, as reported on Nasdaq are
shown in the table below. On December 12, 1996, the Company undertook a two
for one stock split effected through a stock dividend and on November 15,
1997, the Company undertook a three for two stock split effected through a
stock dividend. The share prices and dividends set forth in the following
table have been adjusted to reflect these stock splits.
11
<PAGE>
<TABLE>
<CAPTION>
BID PRICE OF
COMMON STOCK DIVIDENDS DECLARED ON
------------------ COMMON STOCK
LOW HIGH (PER SHARE)
------ ------ ---------------------
<S> <C> <C> <C>
1996
1st Quarter................ -- -- $ 0.0325
2nd Quarter(1)............. $ 6 3/16 $ 6 11/16 $ 0.0325
3rd Quarter................ 7 7 11/16 $ 0.0325
4th Quarter................ 8 9 $ 0.0325
1997
1st Quarter................ 9 9 21/64 $ 0.035
2nd Quarter................ 9 21/64 10 1/2 $ 0.035
3rd Quarter................ 10 1/2 11 $ 0.035
4th Quarter................ 11 17 5/8 $ 0.035
1998
1st Quarter (through ,
1998).....................
</TABLE>
- --------
(1) Trading on the Nasdaq SmallCap Market commenced in June, 1996.
As of February 28, 1998, there were approximately 270 shareholders of record
of the Company's Common Stock.
The Company derives substantially all of its income from dividends received
from its banking subsidiaries. There are certain regulatory and legal
restrictions on the Company's ability to pay dividends and on the Banks'
ability to pay dividends to the Company. See "SUPERVISION AND REGULATION."
USE OF PROCEEDS
The net proceeds from the sale of all shares of Common Stock offered hereby
(excluding the Underwriters' over-allotment option), will be approximately
$ , after deducting the underwriting discount and estimated offering
expenses payable by the Company. The net proceeds would be increased to
approximately $ if the Underwriters' over-allotment option is exercised
in full.
Approximately $ of the net proceeds of this Offering will be
contributed immediately to the capital of the Banks in order to support the
continued expansion and general corporate purposes of the Banks' businesses,
including the opening or acquisition of new branches and use in the Banks'
lending and investment activities and approximately $ will be contributed
to the Banks for such purposes during approximately the next twenty-four
months. Any remaining funds will be retained by the Company for use as working
capital and general corporate purposes. While the Company does not consider
acquisitions its primary growth strategy, the Company has frequently evaluated
acquisition opportunities and from time to time has entered into discussions
regarding possible acquisitions. Consequently, the net proceeds may also be
used by either the Company or the Banks for the acquisition of other financial
institutions or their assets and related liabilities. However, the Company
does not have any specific plans, arrangements, agreements, or understandings,
written or oral, with any other person for any acquisitions at the current
time.
Pending such uses, the net proceeds will be invested by the Company or the
Banks in government and any of a variety of short-term assets, including
federal funds, interest-bearing deposits in other banks, and similar
investments.
12
<PAGE>
CAPITALIZATION
The following table sets forth the capitalization of the Company, as of
December 31, 1997, and as adjusted to reflect the receipt of the estimated net
proceeds from the sale by the Company of the shares of Common Stock
offered hereby. See "USE OF PROCEEDS."
<TABLE>
<CAPTION>
DECEMBER 31, 1997
------------------------
ACTUAL AS ADJUSTED
----------- -----------
<S> <C> <C>
Stockholders' Equity:
Common stock, $1.00 par value; 5,000,000 shares
authorized, 2,097,916 shares issued and outstanding
(2,XXX,XXX shares as adjusted)*.................... $ 2,098,000
Capital surplus..................................... 108,000
Retained earnings................................... 9,738,000
Unrealized (losses) on securities available for
sale............................................... (2,000)
----------- ----
Total Stockholders equity......................... $11,942,000 $
=========== ====
</TABLE>
- --------
*Outstanding shares and shares as adjusted do not include any shares of
Common Stock which could be acquired upon exercise of outstanding stock
options.
CAPITAL RATIOS
The following table sets forth capital ratios required by the Federal
Reserve to be maintained by the Company and the Company's actual and as
adjusted ratios of capital to total regulatory or risk-weighted assets, as
applicable, at December 31, 1997. The "as adjusted" column assumes that the
net proceeds of the offering were received on December 31, 1997 and were
invested in assets that have a risk weight equivalent to that of investment
securities assigned to the 20% category. See "SUPERVISION AND REGULATION."
<TABLE>
<CAPTION>
ACTUAL AT AS ADJUSTED AT
REGULATORY DECEMBER 31, DECEMBER 31,
MINIMUM 1997 1997
---------- ------------ --------------
<S> <C> <C> <C>
Tier I capital........................... 4.00% 13.11% %
Total risk-based capital................. 8.00% 14.03% %
Leverage ratio........................... 4.00% 9.20% %
</TABLE>
For a description of capital ratios see Notes 5, 6 and 7 of "Notes to
Summary of Consolidated Financial Data."
13
<PAGE>
DILUTION
The net tangible book value of the Company at February 28, 1998 was
approximately $10,581,000 million or $5.04 per share of the Company's Common
Stock. Net tangible book value per share is determined by dividing the net
tangible book value of the Company (tangible assets less liabilities) by the
number of outstanding shares of Common Stock. After giving effect to the
issuance and sale of the shares of Common Stock being offered by the Company
and after deducting the underwriting discount and estimated offering costs
payable by the Company, the pro forma net tangible book value per share at
February 28, 1998, would have been $ . This represents an immediate increase
in the net tangible book value of $ per share to existing shares and an
immediate dilution in net tangible book value of $ per share to the shares
of Common Stock sold in the Offering.
The following table illustrates this per share dilution in net tangible book
value:
<TABLE>
<S> <C> <C>
Public offering price per share................................. $
----
Net tangible book value per share before the Offering........... $
Increase in net tangible book value per share attributable to
sale of shares sold in the Offering ........................... $
----
Pro forma net tangible book value per share after the
Offering(1).................................................... $
----
Dilution per share to new shares sold in the Offering(2)........ $
====
</TABLE>
- --------
(1)After deduction of the underwriting discount and anticipated offering
expenses to be paid by the Company.
(2) Dilution is determined by subtracting net tangible book value per share
after the Offering from the amount of cash paid by a new investor for each
share of Common Stock sold in the Offering.
14
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING INFORMATION
This Prospectus contains forward-looking statements in addition to
historical information. The Company cautions that there are various important
factors that could cause actual results to differ materially from those
indicated in the forward-looking statements; accordingly, there can be no
assurance that such indicated results will be realized. These factors include
legislative and regulatory initiatives regarding deregulation and
restructuring of the banking industry; the extent and timing of the entry of
additional competition in the Company's markets; potential business
strategies, including acquisitions or dispositions of assets or internal
restructuring, that may be pursued by the Company; state and Federal banking
regulations; changes in or application of environmental and other laws and
regulations to which the Company is subject; political, legal and economic
conditions and developments; financial market conditions and the results of
financing efforts; changes in commodity prices and interest rates; weather,
natural disasters and other catastrophic events; and other factors discussed
herein. The words "believe", "expect", "anticipate", "project" and similar
expressions signify forward-looking statements. Readers are cautioned not to
place undue reliance on any forward-looking statements made by or on behalf of
the Company. Any such statement speaks only as of the date the statement was
made. The Company undertakes no obligation to update or revise any forward-
looking statements. Additional information with respect to factors that may
cause results to differ materially from those contemplated by such forward-
looking statements will be included in the Company's current and subsequent
filings with the Securities and Exchange Commission.
GENERAL
The Company's principal asset is its ownership of the Banks. Accordingly,
the Company's results of operations are primarily dependent upon the results
of operations of the Banks. The Banks conduct a commercial banking business
which consists of attracting deposits from the general public and applying
those funds to the origination of commercial, consumer and real estate loans
(including commercial loans collateralized by real estate). The Banks'
profitability depends primarily on net interest income, which is the
difference between interest income generated from interest-earning assets
(i.e., loans and investments) less the interest expense incurred on interest-
bearing liabilities (i.e., customer deposits and borrowed funds). Net interest
income is affected by the relative amounts of interest-earning assets and
interest-bearing liabilities, and the interest rate paid and earned on these
balances. Net interest income is dependent upon the Banks' interest rate
spread, which is the difference between the average yield earned on its
interest-earning assets and the average rate paid on its interest-bearing
liabilities. When interest-earning assets approximate or exceed interest-
bearing liabilities, any positive interest rate spread will generate interest
income. The interest rate spread is impacted by interest rates, deposit flows
and loan demand. Additionally, and to a lesser extent, the Banks'
profitability is affected by such factors as the level of noninterest income
and expenses, the provision for loan losses and the effective tax rate.
Noninterest income consists primarily of loan and other fees and income from
the sale of investment securities. Noninterest expenses consist of
compensation and benefits, occupancy-related expenses, deposit insurance
premiums paid to the FDIC and other operating expenses.
In this "MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITIONS AND
RESULTS OF OPERATIONS," the Company is also referred to as "Eufaula BancCorp."
RESULTS OF OPERATIONS FOR YEARS ENDED DECEMBER 31, 1997 AND 1996
The Company's results of operations are determined by its ability to
effectively manage interest income and expense, to minimize loan and
investment losses, to generate noninterest income and to control noninterest
expense. Since interest rates are determined by market forces and economic
conditions beyond the control of the Company, the ability to generate net
interest income is dependent upon the Bank's ability to obtain an adequate
spread between the rate earned on interest-earning assets and the rate paid on
interest-bearing liabilities. Thus, the key performance measure for net
interest income is the interest margin or net yield, which is taxable-
equivalent net interest income divided by average earning assets.
15
<PAGE>
The primary component of consolidated earnings is net interest income, or
the difference between interest income on interest-earning assets and interest
paid on interest-bearing liabilities. The net interest margin is net interest
income expressed as a percentage of average interest-earning assets. Interest-
earning assets consist of loans, investment securities and Federal funds sold.
Interest-bearing liabilities consist of deposits and other short-term
borrowings. A portion of interest income is earned on tax-exempt investments,
such as state and municipal bonds. In an effort to state this tax-exempt
income and its resultant yield on a basis comparable to all other taxable
investments, an adjustment is made to analyze this income on a taxable-
equivalent basis.
The Company's net interest margin decreased slightly to 5.23% in 1997 as
compared to 5.27% in 1996. The yield on average interest-earning assets
increased 37 basis points or 4.28% to 9.01% in 1997 as compared to 8.64% in
1996. The interest rate paid on average interest-bearing liabilities increased
34 basis points to 4.65% in 1997 as compared to 4.31% in 1996. Net interest
income on a taxable-equivalent basis was $5,203,000 in 1997 as compared to
$4,691,000 in 1996, representing an increase of $512,000 or 10.91%. The
increase resulted from an increase of $680,000 generated on increased volume
and a reduction of $168,000 due primarily to an increase in average rates paid
on interest-bearing liabilities.
Average interest-earning assets increased $10,421,000 to $99,458,000 in 1997
from $89,037,000 in 1996, an increase of 11.70%. Average loans increased
$15,937,000; average investments decreased $4,856,000; and average Federal
funds sold decreased $660,000. The increase in average interest-earning assets
was funded by an increase of $7,534,000, or 8.67%, in average deposits to
$94,390,000 in 1997 from $86,856,000 in 1996. Approximately 19% of the average
deposits were noninterest-bearing deposits in 1997; whereas approximately 21%
of the average deposits were noninterest-bearing deposits in 1996.
The allowance for loan losses represents a reserve for potential losses in
the loan portfolio. The adequacy of the allowance for loan losses is evaluated
periodically based on a review of all significant loans, with a particular
emphasis on nonaccruing, past due and other loans that management believes
require attention.
The provision for loan losses is a charge to earnings in the current period
to replenish the allowance for loan losses and maintain it at a level
management has determined to be adequate. The provision for loan losses
charged to earnings amounted to $174,000 in 1997 and $81,000 in 1996,
representing an increase of $93,000 or 115% in the provision. The increase in
the provision was attributed to an increase in average loans of $15,937,000 in
1997 as compared to 1996. The current years provision for loan losses and the
balance in the allowance for loan losses at December 31, 1997 were based upon
management's evaluation of the loan portfolios and the potential loan risk
associated with specific loans and selected loan categories. Net loan charge-
offs amounted to approximately $68,000 in 1997 as compared to net loan charge-
offs of approximately $30,000 in 1996. The allowance for loan losses as a
percentage of total loans outstanding amounted to .97% at December 31, 1997 as
compared to 1.26% at December 31, 1996. The allowance for loan losses as a
percentage of total loans outstanding and other real estate owned amounts to
.96% at December 31, 1997 as compared to 1.24% at December 31, 1996. The
decrease in this percentage at December 31, 1997, is the result of relatively
high loan growth.
The determination of the amounts allocated for loan losses is based upon
management's judgment concerning factors affecting loan quality and
assumptions about the local and national economy. Management considers the
year-end allowances adequate to cover potential losses in the loan portfolio.
Noninterest income increased $134,000 to $1,119,000 in 1997 from $985,000 in
1996 due primarily to an increase of $53,000 in service charges on deposit
accounts generated on an increase in total average deposits of $7,534,000 in
1997 and an increase of $61,000 in origination fees on mortgage loans. Net
gains on sales of investment securities decreased $8,000 and all other
noninterest income increased $28,000.
Noninterest expense increased $922,000 to $4,473,000 in 1997 from $3,551,000
in 1996, representing an increase of $415,000 in salaries and employee
benefits, an increase of $112,000 in equipment and occupancy
16
<PAGE>
expense and an increase in all other noninterest expense of $395,000. The
increase in salaries and employee benefits was attributable to a normal
increase in salaries and related benefits for employees and the addition of 21
employees during the year. The increase in equipment and occupancy expense was
attributable to the opening of four branches during 1997.
Following is a summary of major items contributing to the increase in other
operating expenses:
<TABLE>
<CAPTION>
Increase in advertising and public relations expense associated
with the opening of new branches.............................. $ 31,000
<S> <C>
Increase in legal and consulting fees associated with branch
expansions and unsuccessful merger negotiations............... 98,000
Increase in outside data processing and courier fees........... 42,000
Professional fees paid for executive searches ................. 35,000
Increase in telephone expense ................................. 20,000
Net increase in other operating expenses ...................... 169,000
---------
$ 395,000
=========
</TABLE>
Average total assets increased $12,152,000 or 12.26% to $111,297,000 in 1997
as compared to $99,145,000 in 1996. Average interest-earning assets increased
11.70% in 1997 over 1996. Loan demand was stronger in 1997 than in 1996 as
evidenced by an average loan to deposit ratio of 70% in 1997 as compared to
58% in 1996. Average loans increased $15,937,000 or 31.69% in 1997 as compared
to 1996 due primarily to the opening of a loan production office in
Montgomery, Alabama, which now operates as a branch of Southern Bank, and the
opening of three new branches for American Bank in Florida. The increase in
average loans was funded by an increase in average deposits of $7,534,000, an
increase in average other borrowings of $3,505,000 and a decrease in average
investments and Federal funds of $5,516,000.
LIQUIDITY AND CAPITAL RESOURCES
Liquidity management involves the matching of the cash flow requirements of
customers who may be either depositors desiring to withdraw funds or borrowers
needing assurance that sufficient funds will be available to meet their credit
needs and the ability of the Company and the Banks to meet those needs. The
Company and the Banks seek to meet liquidity requirements primarily through
management of short-term investments (principally Federal funds sold) and
monthly amortizing loans. Another source of liquidity is the repayment of
maturing single payment loans. Also, the Banks maintain relationships with
correspondent banks, including a $3,000,000 line of credit for the Company,
which would provide funds on short notice, if needed.
The liquidity and capital resources of the Company and the Banks are
monitored on a periodic basis by state and Federal regulatory authorities. As
determined under guidelines established by these regulatory authorities, the
Banks' liquidity ratio at December 31, 1997 was considered satisfactory. At
that date, the Banks' short-term investments were adequate to cover any
reasonable anticipated immediate need for funds. The Company and the Banks
were aware of no events or trends likely to result in a material change in
their liquidity. During 1997, the Company increased its capital by retaining
earnings of $715,000 after payment of dividends. It also increased its capital
by $253,000, representing proceeds from the exercise of common stock options
and by $168,000, representing reduction in income taxes payable for exercise
of non-qualified stock options. After recording an increase in capital of
$90,000 for unrealized gains on securities, net of taxes, total capital
increased $1,226,000 to $11,941,000 from $10,715,000 at December 31, 1996.
The Company estimates that approximately $1,115,000 will be required for
capital expenditures in 1998 for the purchase of land and the construction of
facilities for the branch in Montgomery.
In accordance with risk capital guidelines issued by the Federal Reserve,
Eufaula BancCorp is required to maintain a minimum standard of total capital
to weighted risk assets of 8%. Additionally, all member banks must maintain
"core" or "Tier 1" capital of at least 4% of total assets ("leverage ratio").
Member banks operating
17
<PAGE>
at or near the 4% capital level are expected to have well-diversified risks,
including no undue interest rate risk exposure, excellent control systems,
good earnings, high asset quality, and well managed on- and off-balance sheet
activities; and, in general, be considered strong banking organizations with a
composite 1 rating under the CAMEL rating system of banks. For all but the
most highly rated banks meeting the above conditions, the minimum leverage
ratio is to be 4% plus an additional 100 to 200 basis points.
The following table summarizes the regulatory capital levels of the Company
at December 31, 1997.
<TABLE>
<CAPTION>
ACTUAL REQUIRED EXCESS
--------------- -------------- --------------
AMOUNT PERCENT AMOUNT PERCENT AMOUNT PERCENT
------- ------- ------ ------- ------ -------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
Leverage capital.................. $10,471 9.20% $4,612 4.00% $5,859 5.20%
Risk-based capital:
Core capital.................... 10,471 13.11 3,195 4.00 7,276 9.11
Total capital................... 11,209 14.03 6,391 8.00 4,818 6.03
</TABLE>
Each Bank also met its individual regulatory capital requirements at
December 31, 1997.
YEAR 2000 ISSUE COSTS
Like many companies, the Company relies on computers for the daily conduct
of business and for data processing. There is general concern that on January
1, 2000 computers will be unable to "read" the new year and as a consequence
there could be widespread computer malfunctions. The Company has implemented
steps to address this issue by hiring a technology consultant to advise it on
this issue. Based on estimates by management of the Company, the Company
expects to incur approximately $25,000 to $50,000 to modify its information
systems appropriately to accurately process information in the year 2000 and
beyond. The Company continues to evaluate appropriate courses of corrective
action, including replacement of certain systems whose associated costs would
be recorded as assets and amortized. Management expects that the costs to
convert the Company's information systems to year 2000 compliance will not
have a material impact on the Company's consolidated financial statements. The
Company believes that it and its vendors have satisfactorily addressed the
steps deemed necessary by the Banks' regulators to adopt its data processing
systems for the year 2000 and beyond.
AVERAGE BALANCES AND NET INCOME ANALYSIS
The following table sets forth the amount of the Company's interest income
or interest expense for each category of interest-earning assets and interest-
bearing liabilities and the average interest rate for total interest-earning
assets and total interest-bearing liabilities, net interest spread and net
yield on average interest-earning assets. Federally tax-exempt income is
presented on a taxable-equivalent basis assuming a 34% Federal tax rate.
18
<PAGE>
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------------------------------------------------------------------
1997 1996 1995
---------------------------- --------------------------- ---------------------------
INTEREST AVERAGE INTEREST AVERAGE INTEREST AVERAGE
AVERAGE INCOME/ YIELD/ AVERAGE INCOME/ YIELD/ AVERAGE INCOME/ YIELD/
BALANCE EXPENSE RATE PAID BALANCE EXPENSE RATE PAID BALANCE EXPENSE RATE PAID
-------- -------- --------- ------- -------- --------- ------- -------- ---------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
ASSETS
Interest-earning
assets:
Loans, net of unearned
interest.............. $ 66,235 $6,683 10.09% $50,298 $5,065 10.07% $47,406 $4,913 10.36%
Investment securities:
Taxable............... 23,400 1,487 6.35 28,218 1,802 6.39 23,734 1,519 6.40
Tax exempt............ 8,424 708 8.40 8,462 718 8.48 8,599 752 8.75
Federal funds sold..... 1,399 80 5.72 2,059 105 5.10 1,982 112 5.65
-------- ------ ------- ------ ------- ------
Total interest-earning
assets............... 99,458 8,958 9.01 89,037 7,690 8.64 81,721 7,296 8.93
-------- ------ ------- ------ ------- ------
Noninterest-earning
assets:
Cash................... 4,712 4,906 5,148
Allowance for loan
losses................ (690) (637) (610)
Unrealized gain (loss)
on securities
available for sale ... (203) (247) (130)
Other assets........... 8,020 6,086 6,010
-------- ------- -------
Total noninterest-
earning assets....... 11,839 10,108 10,418
-------- ------- -------
Total assets.......... $111,297 $99,145 $92,139
======== ======= =======
LIABILITIES AND
STOCKHOLDERS' EQUITY
Interest-bearing
liabilities:
Savings and interest-
bearing demand
deposits.............. $ 33,701 $1,114 3.31% $32,620 $1,047 3.21% $32,002 $1,096 3.42%
Time deposits.......... 42,645 2,388 5.60 36,045 1,903 5.28 30,166 1,625 5.39
Other borrowings....... 4,377 253 5.78 872 49 5.62 2,105 142 6.75
-------- ------ ------- ------ ------- ------
Total interest-bearing
liabilities.......... 80,723 3,755 4.65 69,537 2,999 4.31 64,273 2,863 4.45
-------- ------ ------- ------ ------- ------
Noninterest-bearing
liabilities and
stockholders' equity:
Demand deposits........ 18,044 18,191 16,862
Other liabilities...... 1,202 1,086 1,749
Stockholders' equity... 11,328 10,331 9,255
-------- ------- -------
Total noninterest-
bearing liabilities
and stockholders'
equity............... 30,574 29,608 27,866
-------- ------- -------
Total liabilities and
stockholders' equity... $111,297 $99,145 $92,139
======== ======= =======
Interest rate spread.... 4.36% 4.33% 4.48%
===== ===== =====
Net interest income..... $5,203 $4,691 $4,433
====== ====== ======
Net interest margin..... 5.23% 5.27% 5.42%
===== ===== =====
</TABLE>
RATE AND VOLUME ANALYSIS
The following table reflects the changes in net interest income resulting
from changes in interest rates and from asset and liability volume. Federally
tax-exempt interest is presented on a taxable-equivalent basis assuming a 34%
Federal tax rate. The change in interest attributable to rate has been
determined by applying the change in
19
<PAGE>
rate between years to average balances outstanding in the later year. The
change in interest due to volume has been determined by applying the rate from
the earlier year to the change in average balances outstanding between years.
Thus, changes that are not solely due to volume have been consistently
attributed to rate.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
--------------------------------------------------
1997 VS. 1996 1996 VS. 1995
------------------------ ------------------------
CHANGES DUE CHANGES DUE
TO TO
INCREASE ------------- INCREASE -------------
(DECREASE) RATE VOLUME (DECREASE) RATE VOLUME
---------- ----- ------ ---------- ----- ------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
Increase (decrease) in:
Income from earning as-
sets:
Interest and fees on
loans.................. $1,618 $ 13 $1,605 $152 $(148) $300
Interest on securities:
Taxable............... (315) (7) (308) 283 (4) 287
Tax-exempt............ (10) (7) (3) (34) (22) (12)
Interest on Federal
funds.................. (25) 9 (34) (7) (11) 4
------ ----- ------ ---- ----- ----
Total interest in-
come............... 1,268 8 1,260 394 (185) 579
------ ----- ------ ---- ----- ----
Expense from interest-bear-
ing liabilities:
Interest on savings and
interest-bearing
demand deposits.......... 67 32 35 (49) (70) 21
Interest on time deposits. 485 137 348 278 (39) 317
Interest on other
borrowings............... 204 7 197 (93) (10) (83)
------ ----- ------ ---- ----- ----
Total interest ex-
pense.............. 756 176 580 136 (119) 255
------ ----- ------ ---- ----- ----
Net interest income. $ 512 $(168) $ 680 $258 $ (66) $324
====== ===== ====== ==== ===== ====
</TABLE>
NONINTEREST INCOME
Following is a comparison of noninterest income for 1997 and 1996.
<TABLE>
<CAPTION>
1997 1996
---------- --------
<S> <C> <C>
Service charges on deposit accounts................... $ 744,000 $691,000
Securities transactions, net.......................... 20,000 28,000
Origination fees on mortgage loans.................... 172,000 111,000
Other................................................. 183,000 155,000
---------- --------
$1,119,000 $985,000
========== ========
</TABLE>
NONINTEREST EXPENSE
Following is a comparison of noninterest expense for 1997 and 1996.
<TABLE>
<CAPTION>
1997 1996
---------- ----------
<S> <C> <C>
Salaries and employee benefits...................... $2,435,000 $2,020,000
Equipment and occupancy expense..................... 600,000 488,000
Amortization of intangibles......................... 79,000 79,000
Legal and professional expense...................... 163,000 94,000
Director fees....................................... 98,000 88,000
Data processing expenses............................ 101,000 59,000
Other expenses...................................... 997,000 723,000
---------- ----------
$4,473,000 $3,551,000
========== ==========
</TABLE>
20
<PAGE>
ASSET/LIABILITY MANAGEMENT
A principal objective of the Company's asset/liability management strategy
is to minimize the exposure to changes in interest rates by matching the
maturity and repricing horizons of interest-earning assets and interest-
bearing liabilities. In order to assure that the objectives of the Company's
asset/liability policy are adhered to in a consistent manner, an
Asset/Liability Management Committee ("the ALCO") has been formed. The ALCO
consists of senior management and any directors as may be appointed by the
Board of Directors and has the authority to direct the Company's acquisition
and allocation of funds. The ALCO meets quarterly. Additional meetings may be
held if necessary.
As part of the Company's interest rate risk management policy, the ALCO
examines the extent to which the Company's assets and liabilities are
"interest rate-sensitive" and monitors its interest rate-sensitivity "gap". An
asset or liability is considered to be interest rate-sensitive if it will
reprice or mature within the time period analyzed, usually one year or less.
The interest rate-sensitivity gap is the difference between the interest-
earning assets and interest-bearing liabilities scheduled to mature or reprice
within such time period. A gap is considered positive when the amount of
interest rate-sensitive assets exceeds the amount of interest rate-sensitive
liabilities. A gap is considered negative when the amount of interest rate-
sensitive liabilities exceeds the interest rate-sensitive assets. During a
period of rising interest rates, a negative gap would tend to adversely affect
net interest income, while a positive gap would tend to result in an increase
in net interest income. Conversely, during a period of falling interest rates,
a negative gap would tend to result in an increase in net interest income,
while a positive gap would tend to adversely affect net interest income. If
the Company's assets and liabilities were equally flexible and moved
concurrently, the impact of any increase or decrease in interest rates on net
interest income would be minimal.
A simple interest rate "gap" analysis by itself may not be an accurate
indicator of how net interest income will be affected by changes in interest
rates. Accordingly, the ALCO also evaluates how the repayment of particular
assets and liabilities is impacted by changes in interest rates. Income
associated with interest-earning assets and costs associated with interest-
bearing liabilities may not be affected uniformly by changes in interest
rates. In addition, the magnitude and duration of changes in interest rates
may have a significant impact on net interest income. For example, although
certain assets and liabilities may have similar maturities or periods of
repricing, they may react in different degrees to changes in market interest
rates. Interest rates on certain types of assets and liabilities fluctuate in
advance of changes in general market interest rates, while interest rates on
other types may lag behind changes in general market rates. In addition,
certain assets, such as adjustable rate mortgage loans, have features
(generally referred to as "interest rate caps") which limit changes in
interest rates on a short-term basis and over the life of the asset. In the
event of a change in interest rates, prepayment and early withdrawal levels
also could deviate significantly from those assumed in calculating the
interest rate gap. The ability of many borrowers to service their debts also
may decrease in the event of an interest rate increase.
The Company's asset/liability management policy provides a permissible range
for the one-year cumulative gap ratio (rate-sensitive assets divided by rate-
sensitive liabilities) of 90 percent to 120 percent. That is, rate-sensitive
assets should range from 90 percent to 120 percent of rate-sensitive
liabilities. The policy also provides that the ALCO will allow the cumulative
gap ratio to fluctuate with a range of 20 percent above or below the unity
ratio of 100 percent, thus setting a range of 80 percent to 120 percent. As of
December 31, 1997, the Company's cumulative one-year interest rate sensitivity
gap ratio was 73 percent. This indicates that the Company's interest-bearing
liabilities will reprice during this period at a rate faster than the
Company's interest-earning assets. This ratio is below the target range
established by the ALCO. However, management believes that the type and amount
of the Company's interest rate-sensitive liabilities (a significant portion of
which are composed of money market, NOW and savings accounts whose yields, to
a certain extent, are subject to the discretion of management) may reduce the
potential impact that a rise in interest rates might have on the Company's net
income.
In the event that interest rates should rise 100 basis points within the
one-year time period, the Company believes that the reduction in interest
income would not materially impact net interest income or net income. For
example, if interest rates should rise 100 basis points immediately, the
reduction in net interest income resulting
21
<PAGE>
from the immediate shock would be approximately $88,000, or 1.63 percent below
the projection under stable rates, for the twelve months and the reduction in
net income would be approximately $58,000. Should interest rates rise 200
basis points at the rate of 50 basis points per quarter, the reduction in net
interest income for the twelve months would be approximately $94,000, or 1.73
percent below the projection under stable rates, and the reduction in net
income would be approximately $62,000. In the event that interest rates rise
immediately 200 basis points, which management considers to be unlikely, the
reduction in net interest income resulting from the immediate shock would be
approximately $206,000, or 3.8 percent below the projection under stable
rates, for the twelve months and the reduction in net income would be
approximately $136,000. These simulated computations should not be relied upon
as indicative of actual future results. Further, the computations do not
contemplate certain actions that management may undertake in response to
future changes in interest rates.
The following table sets forth the distribution of the repricing of the
Company's earning assets and interest-bearing liabilities as of December 31,
1997, the interest rate sensitivity gap (i.e., interest rate sensitive assets
less interest rate sensitive liabilities), the cumulative interest rate
sensitivity gap ratio (i.e., interest rate sensitive assets divided by
interest rate sensitivity liabilities) and the cumulative sensitivity gap
ratio. The table also sets forth the time periods in which earning assets and
liabilities will mature or may reprice in accordance with their contractual
terms. However, the table does not necessarily indicate the impact of general
interest rate movements on the net interest margin since the repricing of
various categories of assets and liabilities is subject to competitive
pressures and the needs of the Banks customers. In addition, various assets
and liabilities indicated as repricing within the same period may in fact
reprice at different times within such period and at different rates.
<TABLE>
<CAPTION>
AT DECEMBER 31, 1997
------------------------------------------------
MATURING OR REPRICING WITHIN
------------------------------------------------
ZERO TO THREE ONE TO OVER
THREE MONTHS TO THREE THREE
MONTHS ONE YEAR YEARS YEARS TOTAL
-------- --------- --------- ------- --------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
EARNING ASSETS:
Federal funds sold.......... $ 2,450 $ -- $ -- $ -- $ 2,450
Investment securities....... 747 4,131 1,425 19,153 25,456
Loans....................... 31,652 9,533 14,271 23,148 78,604
-------- --------- --------- ------- --------
34,849 13,664 15,696 42,301 106,510
-------- --------- --------- ------- --------
INTEREST-BEARING LIABILITIES:
Interest-bearing demand de-
posits (1)................. 19,180 -- 12,602 -- 31,782
Savings (1)................. -- -- 4,931 -- 4,931
Certificates less than
$100,000................... 8,330 20,008 3,366 953 32,657
Certificates, $100,000 and
over....................... 9,982 6,016 935 -- 16,933
Other borrowings............ 3,100 -- -- -- 3,100
-------- --------- --------- ------- --------
40,592 26,024 21,834 953 89,403
-------- --------- --------- ------- --------
INTEREST RATE SENSITIVITY GAP. $ (5,743) $ (12,360) $ (6,138) $41,348 $ 17,107
======== ========= ========= ======= ========
CUMULATIVE INTEREST RATE SEN-
SITIVITY GAP................. $ (5,743) $ (18,103) $ (24,241) $17,107
======== ========= ========= =======
INTEREST RATE SENSITIVITY GAP
RATIO........................ 0.86 0.53 0.72 44.39
======== ========= ========= =======
CUMULATIVE INTEREST RATE SEN-
SITIVITY GAP RATIO........... 0.86 0.73 0.73 1.19
======== ========= ========= =======
</TABLE>
- --------
(1) The Company has found that NOW checking accounts and savings deposits are
generally not sensitive to changes in interest rates and, therefore, it
has placed such liabilities in the "One to Three Years" category.
22
<PAGE>
MATURITIES AND SENSITIVITY OF LOANS TO CHANGES IN INTEREST RATES
The Company's loan portfolio, as of December 31, 1997, was made up primarily
of short-term fixed rate loans or variable rate loans. The average contractual
life on instalment loans is approximately three years, while mortgages are
generally variable over one to five-year periods. Total loans as of December
31, 1997 are shown in the following table according to maturity
classifications: (i) one year or less, (ii) after one year through five years,
and (iii) after five years.
<TABLE>
<CAPTION>
DUE IN AFTER ONE AFTER
ONE THROUGH FIVE
YEAR FIVE YEARS YEARS TOTAL
------- ---------- ------ -------
(DOLLARS IN THOUSANDS)
---------------------------------
<S> <C> <C> <C> <C>
Commercial, financial and agricultur-
al................................... $ 8,324 $12,084 $ 401 $20,809
Real estate-- construction............ 3,253 -- -- 3,253
Real estate-- mortgage................ 26,807 7,420 5,819 40,046
Consumer installment.................. 2,792 10,955 735 14,482
Other................................. 9 5 -- 14
------- ------- ------ -------
Total............................... $41,185 $30,464 $6,955 $78,604
======= ======= ====== =======
</TABLE>
The following table summarizes loans at December 31, 1997 with the due dates
after one year which (i) have predetermined interest rates and (ii) have
floating or adjustable interest rates.
<TABLE>
<CAPTION>
DECEMBER
31, 1997
(DOLLARS
IN
THOUSANDS)
----------
<S> <C>
Predetermined interest rates.................................. $37,419
Floating or adjustable interest rates......................... --
-------
$37,419
=======
</TABLE>
LOAN PORTFOLIO
The amount of loans outstanding at the indicated dates is shown in the
following table according to type of loans.
<TABLE>
<CAPTION>
DECEMBER 31,
------------------------
1997 1996
----------- -----------
(DOLLARS IN THOUSANDS)
<S> <C> <C>
Commercial, financial and agricultural......... $ 20,809 $ 11,276
Real estate-- construction..................... 3,253 2,896
Real estate-- mortgage......................... 40,046 27,692
Consumer installment loans..................... 14,694 10,468
Other.......................................... 14 41
----------- -----------
78,816 52,373
Unearned discount.............................. (213) (205)
Allowance for loan losses...................... (762) (656)
----------- -----------
Loans, net..................................... $ 77,841 $ 51,512
=========== ===========
</TABLE>
NONPERFORMING ASSETS
A loan is placed on nonaccrual status when, in management's judgment, the
collection of the interest income appears doubtful. Interest receivable that
has been accrued in prior years and is subsequently determined to have
doubtful collectibility is charged to the allowance for loan losses. Interest
on loans that are classified as nonaccrual is recognized when received. Past
due loans are loans whose principal or interest is past due 90 days or more.
In some cases, where borrowers are experiencing financial difficulties, loans
may be restructured to provide terms significantly different from the original
contractual terms.
23
<PAGE>
The following table presents, at the dates indicated, the aggregate
nonperforming assets for the categories indicated.
<TABLE>
<CAPTION>
DECEMBER 31,
-----------------------
1997 1996
----------- -----------
(DOLLARS IN THOUSANDS)
<S> <C> <C>
Loans accounted for on a nonaccrual basis........... $ 50 $ --
Installment loans and terms contractually past due
ninety days or more as to interest or principal
payments and still accruing ....................... 14 23
Loans, the term of which have been renegotiated to
provide a reduction or
deferral of interest or principal because of dete-
rioration in the financial
position of the borrower........................... -- --
Loans now current about which there are serious
doubts as to the ability of the borrower to comply
with present loan repayment terms.................. -- --
Foreclosed assets................................... 805 805
</TABLE>
As of December 31, 1997 and 1996, total nonperforming assets were
approximately 1.09% and 1.56% of total loans and other real estate owned
outstanding at such dates.
In the opinion of management, any loans classified by regulatory authorities
as substandard or special mention that have not been disclosed above do not
(i) represent or result from trends or uncertainties which management
reasonably expects will materially impact future operating results, liquidity
or capital resources, nor (ii) represent material credits about which
management is aware of any information which causes management to have serious
doubts as to the ability of such borrowers to comply with the loan repayment
terms. Any loans classified by regulatory authorities as loss have been
charged off.
SUMMARY OF LOAN LOSS EXPERIENCE
The provision for possible loan losses is created by direct charges to
operations. Losses on loans are charged against the allowance in the period in
which such loans, in managements opinion, become uncollectible. Recoveries
during the period are credited to this allowance. The factors that influence
managements judgment in determining the amount charged to operating expense
are past loan experience, composition of the loan portfolio, evaluation of
possible future losses, current economic conditions and other relevant
factors. The Company's allowance for loan losses was approximately $762,000 at
December 31, 1997, representing 0.97% of year-end total loans outstanding
compared with approximately $656,000 at December 31, 1996, which represented
1.26% year end total loans outstanding.
The allowance for loan losses is reviewed quarterly based on managements
evaluation of current risk characteristics of the loan portfolio, as well as
the impact of prevailing and expected economic business conditions. Management
considers the allowance for loan losses adequate to cover possible loan losses
on each outstanding loan with particular emphasis on any problem loans. No
assurance can be given, however, that adverse economic circumstances will not
result in increased losses in the Banks loan portfolio and require greater
provisions for loan losses in the future.
ALLOCATION OF THE ALLOWANCE FOR LOAN LOSSES
The following table sets forth the breakdown of the allowance for loan
losses by loan category for the periods indicated. Management believes the
allowance can be allocated only on an approximate basis. The
24
<PAGE>
allocation of the allowance to each category is not necessarily indicative of
future losses and does not restrict the use of the allowance to absorb losses
in any other category.
<TABLE>
<CAPTION>
AT DECEMBER 31,
-------------------------------------
1997 1996
------------------ ------------------
PERCENT OF PERCENT OF
LOANS IN LOANS IN
CATEGORY TO CATEGORY TO
AMOUNT TOTAL LOANS AMOUNT TOTAL LOANS
------ ----------- ------ -----------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C>
Commercial, financial, industrial
and agricultural................... $267 26% $230 22%
Real estate......................... 114 55 98 58
Consumer............................ 191 19 164 20
Unallocated......................... 190 -- 164 --
---- --- ---- ---
$762 100% $656 100%
==== === ==== ===
</TABLE>
The following table presents an analysis of the Company's loan loss
experience for the periods indicated:
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------
1997 1996
------- ----------
(DOLLARS IN
THOUSANDS)
<S> <C> <C>
Average amount of loans outstanding.................. $66,235 $ 50,29810
======= ==========
Balance of reserve for possible loan losses at
beginning of period................................. 656 605
------- ----------
Charge-offs:
Commercial, financial and agricultural............. 29 6
Consumer........................................... 52 40
------- ----------
81 46
------- ----------
Recoveries:
Commercial, financial and agricultural............. -- 9
Real estate........................................ -- --
Consumer........................................... 13 7
------- ----------
13 16
------- ----------
Net charge-offs...................................... 68 30
------- ----------
Additions to reserve charged to operating expenses... 174 81
------- ----------
Balance of reserve for possible loan losses.......... $ 762 $ 656
======= ==========
Ratio of net loan charge-offs to average loans....... 0.10% 0.06%
======= ==========
</TABLE>
INVESTMENT PORTFOLIO
The Company manages the mix of asset and liability maturities in an effort
to control the effects of changes in the general level of interest rates on
net interest income. See "--Asset/Liability Management." Except for its effect
on the general level of interest rates, inflation does not have a material
impact on the Company due to the rate variability and short-term maturities of
its earnings assets. In particular, approximately 52% of the loan portfolio is
comprised of loans which mature or reprice within one year or less. Mortgage
loans, primarily with five to fifteen-year maturities, are also made on a
variable rate basis with rates being adjusted every one to five years.
Additionally, 13% of the investment portfolios matures within one year.
25
<PAGE>
TYPES OF INVESTMENTS
The amortized cost and fair value of securities are summarized as follows:
<TABLE>
<CAPTION>
GROSS GROSS
AMORTIZED UNREALIZED UNREALIZED
COST GAIN LOSSES FAIR VALUE
----------- ---------- ---------- -----------
<S> <C> <C> <C> <C>
SECURITIES AVAILABLE FOR SALE
December 31, 1997:
U. S. Government and agency
securities................. $14,195,851 $ 53,641 $ (61,814) $14,187,678
Mortgage-backed securities.. 1,982,581 8,334 (4,067) 1,986,848
----------- -------- --------- -----------
$16,178,432 $ 61,975 $ (65,881) $16,174,526
=========== ======== ========= ===========
December 31, 1996:
U. S. Government and agency
securities................. $23,516,656 $ 39,018 $(204,262) $23,351,412
Mortgage-backed securities.. 3,002,140 6,672 (13,860) 2,994,952
Other securities............ 469,633 18,417 -- 488,050
----------- -------- --------- -----------
$26,988,429 $ 64,107 $(218,122) $26,834,414
=========== ======== ========= ===========
<CAPTION>
GROSS GROSS
AMORTIZED UNREALIZED UNREALIZED
COST GAIN LOSSES FAIR VALUE
----------- ---------- ---------- -----------
<S> <C> <C> <C> <C>
SECURITIES HELD TO MATURITY
December 31, 1997:
U. S. Government and agency
securities................. $ 749,576 $ 502 $ (3,380) $ 746,698
State and municipal securi-
ties....................... 8,110,317 383,651 -- 8,493,968
Mortgage-backed securities.. 421,848 6,235 (1,415) 426,668
----------- -------- --------- -----------
$ 9,281,741 $390,388 $ (4,795) $ 9,667,334
=========== ======== ========= ===========
December 31, 1996:
U. S. Government and agency
securities................. $ 750,000 $ -- $ (11,095) $ 738,905
State and municipal securi-
ties....................... 8,707,202 436,566 (3,415) 9,140,353
Mortgage-backed securities.. 604,889 6,133 (5,891) 605,131
----------- -------- --------- -----------
$10,062,091 $442,699 $ (20,401) $10,484,389
=========== ======== ========= ===========
</TABLE>
26
<PAGE>
MATURITIES
The amounts of investment securities in each category as of December 31,
1997 are shown in the following table according to contractual maturity
classifications (1) one year or less, (2) after one year through five years,
(3) after five years through ten years, and (4) after ten years.
<TABLE>
<CAPTION>
U.S. TREASURY
AND OTHER U.
S. GOVERNMENT STATE AND
AGENCIES AND POLITICAL
CORPORATIONS SUBDIVISIONS
------------- -------------
YIELD YIELD
AMOUNT (1) AMOUNT (1)(2)
------- ----- ------ ------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C>
MATURITY:
One year or less................................. $ 3,753 6.21% $ 837 8.25%
After one year through five years................ 8,621 6.47 2,737 7.98
After five years through ten years............... 4,972 4.20 4,249 8.17
After ten years.................................. -- -- 287 8.83
------- ---- ------ ----
$17,346 5.76% $8,110 8.14%
======= ==== ====== ====
</TABLE>
- --------
(1) Yields were computed using coupon interest, adding discount accretion or
subtracting premium amortization, as appropriate, on a ratable basis over
the life of each security. The weighted average yield for each maturity
range was computed using the acquisition price of each security in that
range.
(2) Yields on securities of state and political subdivisions are stated on a
taxable equivalent basis using a tax rate of 34%.
DEPOSITS
Average amount of deposits and average rate paid thereon, classified as to
noninterest-bearing demand deposits, interest-bearing demand and savings
deposits and time deposits for the periods indicated are presented below.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
--------------------------
1997 1996
------------ ------------
AMOUNT RATE AMOUNT RATE
------- ---- ------- ----
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C>
Noninterest-bearing demand deposits.............. $18,044 -- % $18,191 -- %
Interest-bearing demand and savings deposits..... 33,701 3.31 32,620 3.21
Time deposits.................................... 42,645 5.60 36,045 5.28
------- -------
Total deposits................................. $94,390 $86,856
======= =======
</TABLE>
The Company has a large, stable base of time deposits, with little or no
dependence on volatile deposits of $100,000 or more. The time deposits are
principally certificates of deposit and individual retirement accounts
obtained from individual customers.
27
<PAGE>
The amounts of time certificates of deposit issued in amounts of $100,000 or
more as of December 31, 1997, are shown below by category, which is based on
time remaining until maturity of (i) three months or less, (ii) over three
through twelve months and (iii) over twelve months.
<TABLE>
<CAPTION>
DECEMBER 31,
1997
------------
(DOLLARS IN
THOUSANDS)
<S> <C>
Three months or less........................................ $ 9,982
Over three through twelve months............................ 6,016
Over twelve months.......................................... 935
-------
Total..................................................... $16,933
=======
</TABLE>
RETURN ON ASSETS AND STOCKHOLDERS' EQUITY
The following table shows return on assets (net income divided by average
total assets), return on equity (net income divided by average stockholders'
equity), dividend payout ratio (dividends declared per share divided by net
income per share) and stockholders' equity to asset ratio (average
stockholders' equity divided by average total assets) for the periods
indicated.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------
1997 1996
----------- -----------
<S> <C> <C>
Return on assets................................. 0.90% 1.24%
Return on equity................................. 8.89 11.90
Dividends payout................................. 29.17 21.31
Equity to assets ratio........................... 10.18 10.42
</TABLE>
COMMITMENTS AND LINES OF CREDITS
In the ordinary course of business, the Banks have granted commitments to
extend credit to approved customers. Generally, these commitments to extend
credit have been granted on a temporary basis for seasonal or inventory
requirements and have been approved by each Banks respective Board of
Directors. The Banks have also granted commitments to approved customers for
standby letters of credit. These commitments are recorded in the financial
statements when funds are disbursed or the financial instruments become
payable. The Banks use the same credit policies for these off-balance sheet
commitments as they do for financial instruments that are recorded in the
consolidated financial statements. Commitments generally have fixed expiration
dates or other termination clauses and may require payment of a fee. Because
many of the commitment amounts expire without being drawn upon, the total
commitment amounts do not necessarily represent future cash requirements.
Following is a summary of the commitments outstanding at December 31, 1997
and 1996.
<TABLE>
<CAPTION>
DECEMBER 31,
-----------------------
1997 1996
----------- -----------
(DOLLARS IN THOUSANDS)
<S> <C> <C>
Loans sold with recourse........................ $ 1,647 $ 1,909
Commitments to extend credit.................... 19,518 7,972
Standby letters of credit....................... 1,353 1,390
----------- -----------
$ 22,518 $ 11,271
=========== ===========
</TABLE>
IMPACT OF INFLATION
The consolidated financial statements and related consolidated financial
data presented herein have been prepared in accordance with generally accepted
accounting principles and practices within the banking industry which require
the measurement of financial position and operating results in terms of
historical dollars without considering the changes in the relative purchasing
power of money over time due to inflation. Unlike most industrial companies,
virtually all the assets and liabilities of a financial institution are
monetary in nature. As a result, interest rates have a more significant impact
on a financial institutions performance than the effects of general levels of
inflation.
28
<PAGE>
BUSINESS
GENERAL
The Company was incorporated under the laws of the State of Delaware in
1988. The Company is a bank holding company registered with the Federal
Reserve. The Company operates two wholly-owned subsidiary banks, Southern
Bank, with branches in Eufaula and Montgomery, Alabama, and First American,
with branches in Santa Rosa Beach, Grayton Beach, Freeport and Panama City,
Florida. The Company's only significant business activity is the ownership and
supervision of the Banks. As of December 31, 1997, Southern Bank had total
assets of $83.4 million, and American Bank had total assets of $35.7 million.
Southern Bank was incorporated in Eufaula, Alabama in 1926 with the name
"Eufaula Bank and Trust Company." The name of the bank was changed to
"Southern Bank" in 1997 to reflect the growth and expansion of the bank into
markets outside Eufaula. Southern Bank became a wholly owned subsidiary of the
Company pursuant to the formation of the Company in 1988. American Bank was
incorporated as a Florida corporation in 1987 for the purpose of conducting a
commercial banking business in Walton County, Florida. The Company acquired
American Bank in 1991. See "THE COMPANY."
Southern Bank has one subsidiary, Credit Plan, Inc., an Alabama corporation,
which is engaged in the consumer finance business. At December 31, 1997,
Credit Plan, Inc. had 463 consumer loans outstanding totaling $763,000 and net
income of $37,000.
The Company through the Banks offers a broad range of bank and bank-related
services. The Banks perform banking services customary for full service banks
of similar size for customers in their respective service areas. These
services include the making of personal and commercial loans, the furnishing
of personal and commercial checking accounts and the receipt of demand and
time deposit accounts. The Banks do not offer trust services. See "RISK
FACTORS," and "THE COMPANY."
MARKET
The primary service area for each Bank is a 50 mile radius from each Bank
and branch office location. Hence, Southern Bank seeks customers in Barbour
County, Alabama, the county in which the Bank is headquartered, as well as
Quitman County, Georgia, which is adjacent to Barbour County.
Eufaula is the largest city in Barbour County with a population of
approximately 13,000 persons. As of 1995, Barbour County had a population of
approximately 26,000 persons. Barbour County has a diversified economy
consisting of manufacturing, tourism and agriculture related industries. The
largest employer in Barbour County is American Buildings Co., a firm that
manufacturers prefabricated steel buildings and employs approximately 550
people and Columbus Mills, Inc., a carpet manufacturer, which employs
approximately 375 people. A poultry processing plant which will employ
approximately 1,500 people is expected to be in operation in January, 1999.
Southern Bank also operates a branch in Montgomery, Alabama, the third
largest city in Alabama and the state capital, approximately 90 miles from
Eufaula. Montgomery County, in which the city of Montgomery is located, has a
population of approximately 196,000. Further, Southern Bank plans to open a
branch in Huntsville, Alabama, Alabama's fourth largest city, with a
population of approximately 170,000 in 1998. Huntsville is the site of the
NASA space facility at Redstone Arsenal and is the location of a number of
high technology firms. Huntsville is located approximately 280 miles from
Eufaula.
As of 1995, Walton County had a population of approximately 33,615 persons.
American Bank is one of six banks operating in Walton County. As of 1995, Bay
County had a population of approximately 142,690. Tourism and water-related
sporting activities are significant components of the industry in Walton and
Bay Counties. In addition, the United States military operates two Air Force
bases in the market areas, Tyndall AFB in Bay County and Eglin AFB in Walton
County, each of which have a substantial effect on their local economies.
29
<PAGE>
PROPERTIES
The Company's office and the main banking office of Southern Bank are
located at 218-220 E. Broad Street, Eufaula, Alabama, in a building consisting
of 15,629 square feet owned by Southern Bank. Southern Bank leases a portion
of the real estate upon which the building is situated. Southern Bank also
operates a branch in Eufaula at 1121 South Eufaula Avenue. The land on which
the branch is situated is leased. Southern Bank also operates a branch at 1406
I-85 Parkway in Montgomery, Alabama on leased facilities. Southern Bank has
purchased real estate at 4290 Carmichael Road in Montgomery on which branch
banking facilities are now under construction. It is expected that the
facilities will be available for occupancy in August 1998. Southern Bank
currently leases space for its Montgomery branch on Carmichael Road.
American Bank operates its main office at the corner of Mac Bayou Road and
U.S. Highway 98, Santa Rosa Beach, Florida in a building consisting of 7,500
square feet. American Bank's premises are owned by American Bank. American
Bank also operates branches at 16234 U.S. Highway 331 in Freeport, Florida; at
151 East County Highway 38 in Grayton Beach, Florida; and at 2851 Highway 77
in Panama City, Florida. The facilities in Freeport and Grayton Beach are
owned by American Bank. The facilities in Panama City are currently leased but
American Bank anticipates a site acquisition and construction of a branch
facility to replace its current leased facility in 1999.
BUSINESS STRATEGY
The Company's business strategy is to continue to grow while maintaining
high asset quality. In particular, the Banks intend to seek available
locations for the opening or acquisition of branches in markets in which the
Banks have not previously competed. Southern Bank opened a branch in
Montgomery, Alabama in 1997, and is in the process of seeking a branch
location in Huntsville, Alabama. The Company believes that expanding its
branch locations provides a means by which the Company may diversify its risk,
expand its loan portfolio, and enhance revenue. Thus, franchise value can be
created. From time to time, the Company may attempt to acquire other banks by
acquisition if such acquisitions can be undertaken on terms, including
purchase price, that are acceptable to the Company. See "THE COMPANY."
LOAN PORTFOLIO
The Banks provide a broad range of commercial and retail lending services to
corporations, partnerships and individuals, including commercial business
loans, commercial and residential real estate construction and mortgage loans,
consumer loans, revolving lines of credit and letters of credit. Management
believes that the Banks' loan portfolios are adequately diversified and
contain no significant concentrations of loans in any one industry, to any one
individual or to related groups of borrowers. The Banks' loan portfolios
contain no foreign loans or energy related loans.
30
<PAGE>
At December 31 of each of the years indicated, the Company's consolidated
loan portfolio consisted of the following types and amounts of loans:
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------------------------
1997 1996 1995 1994 1993
------- ------- ------- ------ -------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Commercial and industrial................ $18,995 $ 9,112 $ 6,329 $5,298 $ 7,278
Agricultural............................. 1,814 1,997 2,546 537 960
Real estate--construction................ 3,253 2,986 5,433 4,846 2,582
Real estate--mortgage, farmland 126 167 45 64 51
Real estate--mortgage, commercial 17,807 9,611 7,243 7,321 7,750
Real estate--mortgage, residential....... 22,113 17,991 15,783 14,782 13,295
Consumer installment loans............... 14,694 10,468 11,035 8,802 7,089
Other.................................... 14 41 241 33 141
------- ------- ------- ------ -------
78,816 52,373 48,655 41,683 39,146
Less:
Unearned income......................... 213 205 200 255 215
Allowance for loan losses............... 762 656 605 626 560
------- ------- ------- ------ -------
Net loans.............................. $77,841 $51,512 $47,850 40,802 $38,371
======= ======= ======= ====== =======
</TABLE>
The Banks make loans secured by timberland which in the table above are
included in real estate--mortgage, commercial loans. Such loans totalled $1.2
million as of December 31, 1997. Assuming such loans could be categorized as
"agricultural," the total amount of agricultural loans of the Company at year
end 1997 was 3.97%. The highest percentage of agricultural loans during the
five year period stated above was 6.41%, which occurred in 1995. Nevertheless,
a downturn in the agricultural economy generally could have an effect on all
categories of loans made by Southern Bank.
LENDING POLICY
The Company's Banks seek to make loans that meet the needs of the
communities they serve while making a profit that enhances the Banks' future
operations and increases franchise value. The Banks' typically give primary
consideration to existing or potential customers with economic interests in
the market areas served by the Banks. The Banks emphasize the making of
commercial and consumer loans, especially commercial loans to small and
medium-size businesses. The Banks and their branches establish and implement
certain policies within certain established guidelines, including lending
authority of officers, for loans made by the Banks. The Company's commercial
lending officers actively solicit the business of new companies entering its
market areas as well as longstanding members of the markets' business
communities. Each Bank regularly monitors its loan portfolio to identify areas
of concern and to enable management to take corrective action when necessary.
Lending officers and the Banks' Boards of Directors meet periodically to
review all past due loans, the status of large loans and certain other
matters. Individual lending officers are responsible for reviewing collection
of past due amounts and monitoring any changes in the financial status of
borrowers. The Company has retained an outside consultant to advise the Banks
regarding their loan review and compliance procedures.. The Company seeks to
maintain a loan to deposit ratio between 60 to 75 percent. See "THE COMPANY--
Operating Strategy."
COMPETITION
The banking business in Alabama and Florida is highly competitive with
respect to loans, deposits and other services, and is dominated by a number of
major banks and bank holding companies which have numerous offices and
affiliates operating over wide geographic areas. The Banks compete for
deposits, loans and other business with these institutions, as well as with
savings and loan associations, finance companies, mutual funds, credit unions,
brokerage firms, mortgage companies, insurance companies and other local and
non-local financial institutions. Areas of competition include prices,
interest rates, services and availability of products. Among the
31
<PAGE>
advantages certain of these institutions may have compared to the Company are
the ability to finance extensive advertising campaigns and to allocate and
diversify their assets among loans and securities of the highest yield and in
locations with the greatest demand. See "RISK FACTORS" and "SUPERVISION AND
REGULATION."
Many of the major commercial banks in the Banks' service areas or their
affiliates offer services such as international banking and investment
services which are not offered directly by the Banks. Such competitors,
because of their greater capitalization, also have substantially higher
lending limits than the Banks have.
The risk of non-payment or deferred payment of loans is inherent in
commercial banking. Loans to smaller or medium-sized businesses served by the
Banks may, however, involve certain lending risks not inherent in loans to
larger companies. Smaller companies may have shorter operating histories, less
sophisticated internal record keeping and financial controls, and greater
debt-to-equity ratios. Management of the Banks evaluates all loan applicants
and attempts to minimize its credit risks by using appropriate loan
application, approval and administrative procedures. However, there can be no
assurance that these procedures will significantly reduce such lending risks.
The Banks believe that intense competition for banking business in their
respective service areas will continue. See "THE COMPANY."
EMPLOYEES
As of December 1997, the Company and the Banks had 75 full-time employees
and six part-time employees. The Company provides a variety of benefit
programs including group life, health and accident insurance, stock purchase
and a retirement plan.
LEGAL PROCEEDINGS
While the Company and the Banks are from time to time parties to various
legal proceedings arising from the ordinary course of business, management
believes after consultation with legal counsel that there are currently no
proceedings threatened or pending against the Company or the Banks that will,
individually or in the aggregate, have a material adverse effect on the
business or consolidated financial condition of the Company.
32
<PAGE>
MANAGEMENT
The following table sets forth certain information with respect to the
directors and executive officers of the Company and the Banks as of February
28, 1998.
<TABLE>
<CAPTION>
NAME, AGE AND YEAR POSITION AND OFFICES PRESENT AND
BECAME DIRECTOR OR HELD WITH THE COMPANY PRINCIPAL OCCUPATION
EXECUTIVE OFFICER AND SUBSIDIARIES FOR LAST FIVE YEARS
------------------ --------------------- --------------------
DIRECTOR SERVING FOR TERM EXPIRING IN 1998
<S> <C> <C>
Greg B. Faison* 50, 1988.. President, CEO, Director, the President, CEO, Director the
Company; CEO and Director, Company; CEO and Director
Southern Bank; Director, Southern Bank; Director,
American Bank American Bank
DIRECTORS SERVING FOR TERM EXPIRING IN 1999
Michael C. Dixon** 56, Director, the Company; Co-Owner, Dixon Lumber Company,
1988..................... Director, American Bank Eufaula, Alabama
Robert M. Dixon** 65, Director, the Company; Co-Owner, Dixon Lumber Company,
1988..................... (Chairman of the Board) Eufaula, Alabama
James J. Jaxon, Jr. 50, Director, the Company; Owner, J. J. Jaxon Company
1988..................... Director, Southern Bank (Monument Company) Eufaula
Alabama
DIRECTORS SERVING FOR TERM EXPIRING IN 2000
Janis R. Biggers 46, 1993. Director, the Company Accountant, Eufaula, Alabama
Thomas Harris 49, 1996.... Director, the Company President and Chief Executive
Officer, Merchant Capital
Investments, Inc. (investment
banking) Montgomery, Alabama
Frank McRight 58, 1996.... Director, the Company Attorney, McRight, Jackson,
Dorman, Myrick & Moore, Mobile,
Alabama
</TABLE>
- --------
* Indicates that the director is also an executive officer.
** Michael C. Dixon and Robert M. Dixon are brothers.
The Certificate of Incorporation and Bylaws of the Company provide that the
directors of the Company are divided into three classes, with each class
containing one-third of the total number of directors, as nearly as possible,
so that each director will serve for a term ending on the date of the third
annual meeting of stockholders following the annual meeting at which such
director was elected, or until his or her earlier death, resignation or
removal, and the terms of office of one of the three classes of directors
expires in each year. The Board of Directors of the Banks are elected by the
Company, the sole shareholder of the Banks. The annual meeting of stockholders
will be held on May 12, 1998.
VOTING SECURITIES AND PRINCIPAL STOCKHOLDERS
The Company currently has 5,000,000 shares of Common Stock authorized,
2,109,916 shares outstanding, and approximately 270 stockholders of record. The
Company's profit sharing plan holds 31,929 of these shares for the account of
employees of the Company and its subsidiaries. In addition, 103,500 shares of
Common Stock are subject to immediately exerciseable options.
33
<PAGE>
PRINCIPAL STOCKHOLDERS
The following table shows as of February 28, 1998, those persons who are
known to the Company to be beneficial owners of more than five percent of the
Company's outstanding Common Stock.
SHARES OF COMPANY BENEFICIALLY OWNED
<TABLE>
<CAPTION>
PERCENTAGE OF
COMMON CLASS
NAME AND ADDRESS STOCK OUTSTANDING (1)
---------------- ------- ---------------
<S> <C> <C>
Robert M. Dixon................................. 243,803(2) 11.56%
Post Office Box 280
Eufaula, Alabama 36072
Michael C. Dixon................................ 244,505(3) 11.59%
Post Office Box 280
Eufaula, Alabama 36072
Greg B. Faison.................................. 135,165(4) 6.23%
Post Office Box 1269
Eufaula, Alabama 36072
</TABLE>
- --------
(1) "Beneficial Ownership" includes shares for which an individual, directly
or indirectly, has or shares voting or investment power or both, including
the right to acquire beneficial ownership within 60 days. All of the
listed persons have sole voting and investment power over the shares
listed opposite their names unless otherwise indicated in the notes below.
Beneficial Ownership as reported in the above table has been determined in
accordance with Rule 13d-3 of the Securities Exchange Act of 1934, as
amended. The percentages are based upon 2,109,916 shares of Common Stock
outstanding plus for each person listed the number of shares of Company
common stock which such person has a right to acquire within 60 days under
the Company's stock option plan.
(2) Includes 12,783 shares owned by Mr. Dixon's wife and 4,094 shares out of a
total of 8,188 shares held in the M.C. Dixon testamentary trust over which
Mr. Dixon has voting control as co-trustee. See footnote (3).
(3) Includes 9,249 shares owned by Mr. Dixon's wife, 4094 shares out of a
total of 8,188 shares held in the M.C. Dixon testamentary trust over which
Mr. Dixon has voting control as co-trustee, and 12,324 shares held as
custodian for his children. See footnote (2).
(4) Includes 60,000 shares of Common Stock subject to options currently
exercisable under the Company's stock option plan, 5,236 shares held for
his account in the Company's employee profit sharing plan, and 600 shares
held as custodian for his children.
SECURITY OWNERSHIP OF MANAGEMENT
The following table indicates for each director, certain executive officers,
and all executive officers and directors of the Company as a group the number
of shares of outstanding Common Stock of the Company beneficially owned as of
February 28, 1998.
34
<PAGE>
SHARES OF COMPANY BENEFICIALLY OWNED
<TABLE>
<CAPTION>
PERCENTAGE OF
COMMON CLASS
NAME AND ADDRESS STOCK OUTSTANDING (1)
---------------- ------- ---------------
<S> <C> <C>
Michael C. Dixon............................... 244,505(2) 11.59%
Robert M. Dixon................................ 243,803(3) 11.56%
Greg B. Faison**............................... 135,165(4) 6.23%
James J. Jaxon, Jr............................. 16,724 *
Janis Biggers.................................. 5,589 *
Thomas Harris.................................. 287 *
Frank McRight.................................. 2,523 *
All Executive Officers & Directors as a Group (
7 Persons).................................... 648,596 29.89%(5)
</TABLE>
- --------
* Represents less than one percent.
** Chief Executive Officer.
(1)See footnote (1) to the table above at "Principal Stockholders" for a
definition of "Beneficial Ownership."
(2)See footnote (2) to the table above at "Principal Stockholders."
(3)See footnote (3) to the table above at "Principal Stockholders."
(4)See footnote (4) to the table above at "Principal Stockholders."
(5)Percentage for the group is calculated by including as outstanding shares
60,000 shares subject to options.
35
<PAGE>
EXECUTIVE COMPENSATION
SUMMARY COMPENSATION TABLE
The following table presents for the last three fiscal years of the Company
the compensation paid to the Chief Executive Officer of the Company. The total
annual salary and bonus for 1997 for each of the other executive officers did
not exceed $100,000.
<TABLE>
<CAPTION>
LONG-TERM
ANNUAL COMPENSATION COMPENSATION
--------------------- OTHER ---------------
SALARY BONUS ANNUAL ALL OTHER
NAME AND PRINCIPAL POSITION YEAR ($) ($) COMPENSATION COMPENSATION(1)
--------------------------- ---- -------- ------- ------------ ---------------
<S> <C> <C> <C> <C> <C>
Gregory B. Faison, President
and Chief Executive
Officer.................... 1997 $116,820 $40,000 $2,797 $10,780
1996 111,258 55,953 2,878 10,508
1995 105,960 52,779 2,898 10,936
</TABLE>
- --------
(1) Includes life insurance premiums paid on behalf of Mr. Faison and Company
profit sharing plan contributions.
OPTIONS. The Company has 285,000 shares of Common Stock currently subject to
options. Of those shares, 103,500 are currently exercisable, and the remainder
become exercisable in January of each year in accordance with a vesting
schedule. Also, 165,000 shares of Common Stock are available to be granted
under the Company's 1994 stock option plan but are not yet subject to options.
No options were granted by the Company in 1997.
The following table shows certain information respecting exercised and
unexercised options for Common Stock held by the Company's executive officer
named above in the Summary Compensation Table.
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR AND FY-END OPTION VALUES
<TABLE>
<CAPTION>
NUMBER OF SECURITIES VALUE OF
UNDERLYING UNEXERCISED
UNEXERCISED IN-THE-MONEY
OPTIONS/SARS OPTIONS/SARS
AT DECEMBER 31, DECEMBER 31,
1997 1997
-------------------- -------------
SHARES ACQUIRED VALUE EXERCISABLE/ EXERCISABLE/
NAME ON EXERCISE(#) REALIZED($) UNEXERCISABLE UNEXERCISABLE
---- --------------- ----------- ------------- -------------
<S> <C> <C> <C> <C>
Gregory B. Faison....... 8,000 $97,520 45,000/75,000(1) $663,750/
$1,106,250
</TABLE>
- --------
(1) Mr. Faison holds options to acquire 120,000 shares of Common Stock of the
Company. 60,000 of these shares are exercisable as of the date of this
Prospectus, and the remainder become exercisable at the rate of 15,000
shares per annum on January 1 of each year hereafter through March 31,
2002. These shares reflect a 3 for 2 stock split which took place on
November 15, 1997 and a 2 for 1 split which took place on December 12,
1996.
NON-QUALIFIED SUPPLEMENTAL RETIREMENT BENEFIT AGREEMENTS. The Company has
entered into a non-qualified supplemental retirement benefit agreement with
Gregory B. Faison. Pursuant to this agreement, which is fully financed by life
insurance, the Company has agreed to pay Mr. Faison a benefit upon his
retirement, death or termination of his service as a director of Southern
Bank. The benefit paid by the Company to the beneficiaries of Mr. Faison by
reason of his death shall be an amount equal to the value of his liability
reserve account, if any, at the time of his death. The annual benefit to be
paid by reason of his retirement or termination of his service as a director
of Southern Bank shall commence at the time of his retirement or age 65
whichever occurs later and shall be an amount determined by a formula that
depends upon future events. This benefit will
36
<PAGE>
be paid each year for the life of Mr. Faison and is currently projected to be
approximately $68,360.00 in the first year with a small increase in that
amount thereafter.
If there is a change of control of the Company and Mr. Faison's service on
the board of directors of the Company is subsequently terminated, Mr. Faison
shall receive the benefits provided for under the agreement in the event of
his retirement as if he had continuously served until retirement. All death
benefits under the agreement will continue to be available. A change of
control under the agreement is defined as the cumulative transfer of more than
50 percent of the voting stock of the Company from the date of the agreement
(July 23, 1996) excluding transfers on account of death, gifts, transfers
between family members or transfers to a qualified retirement plan maintained
by the Company.
Four other directors of the Company have similar agreements. The aggregate
benefits to be paid to these directors as a group at retirement, excluding Mr.
Faison, are approximately $194,732 in the aggregate.
Mr. Faison is also a party to an endorsement split dollar agreement that
will provide a life insurance benefit to his beneficiary in an amount that is
projected to be between $430,000 and $850,000 depending upon the time of his
death. The Company is the owner and beneficiary of the life insurance policy
that is the subject of this agreement and has by endorsement given Mr. Faison
the right to designate the beneficiary of 80% of the net-at-risk life
insurance portion of that policy. The net-at-risk life insurance portion of
the policy is defined as the difference between the total death benefit of the
policy and the policy's cash surrender value.
DIRECTOR COMPENSATION. The policy of the Company is that the directors of
the Company who are not employees of the Company receive a fee of $6,500
annually, plus $200 for each board meeting attended. Members of committees
receive fees of $200 for each committee meeting attended.
In addition, the Company has a stock purchase plan for directors pursuant to
which a director may purchase at market value shares of Company Common Stock
in $50 monthly increments up to $200 per month. The Company will contribute
50% of each director's monthly contribution for the purpose of purchasing
additional shares for such director.
As described immediately above, the directors also have supplemental
retirement agreements with the Company.
The Board of Directors of the Company approved on March 20, 1998, a stock
option plan for non-employee directors pursuant to which 200,000 shares of the
Company's common stock would be available for grants of options. Pursuant to
the plan, the Board would grant to each non-employee director on an annual
basis an option to purchase 2,000 shares of Common Stock with each option to
be exercisable over a ten year period. The exercise price for each option will
be the fair market value on the date of grant, and the options would not be
exerciseable until twelve months after the date of grant, except for certain
changes in control of the Company or the death or retirement of the option
holder. The plan and the grant of options would be subject to approval by the
Company's stockholders at the 1998 annual meeting to be held on May 12, 1998.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Certain directors, officers and principal stockholders of the Company and
their affiliated interests were customers of and had transactions with the
Banks in the ordinary course of business during the past year. Additional
transactions may be expected to take place in the ordinary course of business.
Included in such transactions were outstanding loans and commitments of the
Banks, all of which were made in the ordinary course of business on
substantially the same terms, including interest rates and collateral, as
those prevailing at the time for comparable transactions with other persons
and did not involve more than the normal risk of collectability or present
other unfavorable features.
37
<PAGE>
DESCRIPTION OF CAPITAL STOCK
GENERAL
The Company's authorized capital consists of 5,000,000 shares of Common
Stock, $1.00 par value per share, and 50,000 shares of preferred stock, $ .10
par value per share. The following summary describes the Company's capital
stock and does not purport to be complete. Reference is made to the Restated
Certificate of Incorporation (the "Certificate") of the Company, which has
been filed as an exhibit to the Registration Statement of which this
Prospectus is a part, for a detailed description of the provisions of the
Certificate which are summarized below.
COMMON STOCK
Holders of shares of Common Stock are entitled to one vote for each share
held of record on all matters voted upon by the shareholders. Holders of
Common Stock have no cumulative voting rights in the election of directors.
Members of the Board of Directors serve three year terms, with approximately
one-third of the Board elected each year, as described below.
Subject to such preferential rights as may be determined by the Board of
Directors in connection with the future issuance of shares of preferred stock,
holders of Common Stock are entitled to receive such dividends, if any, as may
be declared by the Board of Directors out of legally available funds, and to
share ratably in any distribution of the Company's assets after payment of all
debts and other liabilities upon liquidation, dissolution or winding-up.
Shareholders do not have preemptive rights to subscribe for additional shares
of Common Stock, and the shares of Common Stock are not subject to any
conversion, redemption or sinking fund provisions.
The outstanding shares of Common Stock are, and the shares of Common Stock
to be issued by the Company in connection with this Offering will be, when
issued, fully-paid and non-assessable.
PREFERRED STOCK
The Board of Directors is authorized to fix or alter the distinctive
designation and series, the dividend rights and rates, conversion, exchange or
purchase rights, voting rights, and terms of redemption (including sinking
fund provisions), redemption price or prices and liquidation preferences of
any authorized but unissued shares of preferred stock, and the number of
shares constituting any such series, and to increase or decrease the number of
shares of any series subsequent to issuance of shares of that series.
Issuances of preferred stock, while providing the Company with flexibility in
connection with general corporate purposes, may, among other things, have an
adverse effect on the rights of holders of Common Stock, and in certain
circumstances, such issuances could have the effect of decreasing the market
price of the Common Stock. The Board of Directors, without stockholder
approval, may issue preferred stock with voting or conversion rights which
could adversely affect the voting power of the holders of the Common Stock. No
shares of preferred stock are presently outstanding, and although such shares
may be issued in the future, the Company has no present plans to issue any
preferred stock.
CERTAIN ANTI-TAKEOVER EFFECTS
The provisions of the Certificate, the Bylaws and the Delaware Corporation
Law summarized below may be deemed to have anti-takeover effects and may
delay, defer or prevent a tender offer or takeover attempt that a stockholder
might consider to be in such stockholder's best interest, including those
attempts that might result in a premium over the market price for the shares
held by stockholders, and may make removal of management more difficult.
AUTHORIZED BUT UNISSUED STOCK. The authorized but unissued shares of Common
Stock and preferred stock will be available for future issuance without
stockholder approval. These additional shares may be utilized for a variety of
corporate purposes, including future public offerings to raise additional
capital, corporate acquisitions and employee benefit plans. The existence of
authorized but unissued and unreserved Common Stock and preferred stock may
enable the Board of Directors to issue shares to persons friendly to current
management, which could render more difficult or discourage any attempt to
obtain control of the Company by means of a proxy contest, tender offer,
merger or otherwise, and thereby protect the continuity of the Company's
management.
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CLASSIFIED BOARD. The Company's Board of Directors is classified into three
classes, as nearly equal in number as possible, with the members of each class
elected to three-year terms. Thus, approximately one-third of the Company's
Board of Directors is elected by stockholders each year. With this provision,
two annual elections are required in order to change a majority of the Board
of Directors. There are currently seven directors of the Company. This
provision of the Certificate also stipulates that (i) directors can be removed
only for cause upon a vote of 70% of the voting power of the outstanding
shares entitled to vote in the election of directors, voting as a class, (ii)
vacancies in the Board may only be filled by a majority vote of the directors
remaining in office, (iii) the number of directors (not less than three nor
more than 15) shall be fixed by resolution of the Board of Directors, and (iv)
the provisions relating to the classified Board can only be amended by the
affirmative vote of the holders of at least 70% of the voting power of the
outstanding shares entitled to vote in the election of directors, voting as a
class.
STOCKHOLDER MEETINGS. Stockholders of the Company may not act by written
consent and may only take action at a duly called annual or special meeting of
stockholders. Special meetings of stockholders may only be called by the Board
of Directors.
STOCKHOLDER NOMINATIONS FOR DIRECTOR. In addition to the right of the Board
of Directors to select nominees for director elections, stockholders may
nominate persons to serve as directors by following the procedures set forth
in the Company's Certificate. The Certificate provides that in order to make a
nomination, the stockholder must be entitled to vote for the election of
directors and must provide advance notice to the Company of a proposed
nomination. The notice must be provided not less than 14 days nor more than 50
days prior to any meeting of stockholders at which directors are to be
elected; and the notice must set forth (i) the name, age, citizenship,
business address and residence address of each nominee proposed; (ii) the
principal occupation or employment of each nominee for the five years
preceding such meeting; (iii) the number of shares of stock of the Corporation
which are owned directly or indirectly, by each such nominee; and (iv) all
such other information with respect to each such nominee as is required to be
disclosed in a proxy statement soliciting votes with respect to the election
of directors which complies with the Securities Exchange Act of 1934 and the
rules and regulations thereunder.
The stockholder making the nomination must be present in person or by proxy
at the meeting of the stockholders called for the election of directors. The
chairman of the meeting has the right to determine whether the stockholder has
followed properly the foregoing procedures.
AMENDMENT OF CERTAIN PROVISIONS OF THE CERTIFICATE AND BYLAWS. The
Certificate provides that the affirmative vote of the holders of at least 70%
of the voting power entitled to vote in the election of directors is required
to amend the provisions of the Certificate relating to the classified board of
directors, creation of new directorships and removal of directors, stockholder
nominations of directors and the inability of stockholders to call special
meetings or act by written consent. The Board of Directors may also amend the
Bylaws of the Company. These voting requirements have the effect of making any
amendment by stockholders more difficult, even if a majority of the Company's
stockholders believes that such amendment would be in their best interests.
DELAWARE BUSINESS COMBINATION STATUTE. Subject to some exceptions, Delaware
law prohibits the Company from entering into certain "business combinations"
(as defined) involving persons beneficially owning 15% or more of the
outstanding Common Stock of the Company (or who is an affiliate of the Company
and has over the past three years beneficially owned 15% or more of such
stock) (either, for the purpose of this paragraph, an "Interested
Stockholder"), unless the Company's Board of Directors has approved either (i)
the business combination, or (ii) prior to the stock acquisition by which such
persons' beneficial ownership interest reached 15% (a "Stock Acquisition"),
the Stock Acquisition. The prohibition lasts for three years from the date of
the Stock Acquisition. Notwithstanding the preceding, Delaware law allows the
Company to enter into a business combination with an Interested Stockholder if
(i) the business combination is approved by the Company's Board of Directors
and authorized by an affirmative vote of at least 66 2/3% of the outstanding
voting stock of the Company which is not owned by the Interested Stockholder
or (ii) upon consummation of the transaction which resulted in the stockholder
becoming an Interested Stockholder such stockholder owned at least 85% of the
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outstanding stock of the Company (excluding stock held by officers and
directors of the Company or by certain Company stock plans).
CONTROL ACQUISITIONS
The change in the Bank Control Act of 1978 prohibits a person or group of
persons from acquiring "control" of a bank holding company unless the Federal
Reserve has been given 60 days' prior written notice of such proposed
acquisition and within that time period the Federal Reserve has not issued a
notice disapproving the proposed acquisition or extending for up to another 30
days the period during which such a disapproval may be issued. An acquisition
may be made prior to the expiration of the disapproval period if the Federal
Reserve issues written notices of its intent not to disapprove the action.
Under a rebuttal presumption established by the Federal Reserve, the
acquisition of more than 10% of a class of voting stock of a bank holding
company with a class of securities registered under Section 12 of the Exchange
Act, such as the Company, would, under the circumstances set forth in the
presumption, constitute the acquisition of control. The receipt of revocable
proxies, provided the proxies terminate within a reasonable time after the
meeting to which they relate, is not included in determining percentages for
change in control purposes.
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SHARES ELIGIBLE FOR FUTURE SALE
Upon completion of this Offering, the Company will have outstanding
shares of Common Stock (assuming that the Underwriter's over-allotment option
is not exercised). The shares sold in the Offering will be freely tradable
without restriction under the Securities Act, unless held by persons deemed to
be "affiliates" of the Company. An affiliate of an issuer is defined in Rule
144 under the Securities Act ("Rule 144") as a person that directly or
indirectly, through one or more intermediaries, controls, is controlled by, or
is under common control with the issuer. Rule 405 under the Securities Act
defines the term "control" to mean the possession, direct or indirect, of the
power to direct or cause the direction of the management and policies of the
person whether through the ownership of voting securities, by contract or
otherwise. All directors of the Company will be deemed to be affiliates. The
securities held by affiliates will be subject to restrictions on resale
contained in the provisions of Rule 144.
In general, under Rule 144, a person who has beneficially owned restricted
securities for at least one year, and persons who are affiliates of the
Company, will be entitled to sell within any 90-day period that number of
Shares which does not exceed the greater of 1% of the then outstanding shares
(immediately following the Offering) or the average weekly trading volume of
the shares during the four calendar weeks preceding the sale. A person who is
deemed not to have been an affiliate of the Company during the 90 days
preceding the sale of Shares and who has beneficially owned restricted Shares
for at least two years would be entitled to sell his shares in the public
market under Rule 144 without regard to the volume limitations described
above.
Of the remaining shares of Common Stock, will be "restricted
securities" within the meaning of Rule 144 and may not be sold in the absence
of registration under the Securities Act unless an exemption from registration
is available (including Rule 144), will be held by affiliates, and will
be freely tradeable pursuant to Rule 144. In addition, the Company's executive
officers and directors, who beneficially, hold an aggregate of shares,
have agreed, subject to certain exceptions, not to sell, contract to sell, or
otherwise dispose of such shares for a period of 120 days after the effective
date of the Registration Statement without the prior written consent of the
"Managing Underwriter," as defined below at "UNDERWRITING."
The Company has outstanding options with respect to 285,000 shares of Common
Stock under its Stock Option Plan. No holders of shares of Common Stock or
options have the right to require that the Company undertake the registration
of their shares or to include their shares in any registration statement
undertaken by the Company. See "EXECUTIVE COMPENSATION."
No prediction can be made of the effect, if any, that future sales of shares
of Common Stock, or the availability of shares for future sales, will have on
the market price prevailing from time to time. Sales of substantial amounts of
shares of Common Stock, or the perception that such sales could occur, could
adversely affect the prevailing market price of the shares of Common Stock.
SUPERVISION AND REGULATION
Bank holding companies and banks are regulated extensively under both
Federal and State law. To the extent that the following information describes
statutory and regulatory provisions, it is qualified in its entirety by
reference to the particular statutory and regulatory provisions. Any change in
applicable law or regulation may have a material effect on the business of the
Company and the Bank.
THE COMPANY. The Company is a bank holding company which is registered with,
and subject to supervision by, the Federal Reserve under the BHC Act. As a
bank holding company, the Company is required to file periodic reports and
such additional information as the Federal Reserve may require pursuant to the
BHC Act. The Federal Reserve may examine the Company and the Bank.
The BHC Act 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 5% of the voting shares or substantially
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all the assets of any bank, or for a merger or consolidation of a bank holding
company with another bank holding company. With certain exceptions, the BHC
Act 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 its 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 regulation or order, to be so closely
related to banking or managing or controlling banks as to be properly incident
thereto.
The Company and the Banks are subject to the Federal Reserve Act, Section
23A, as amended by the Banking Affiliates Act of 1982. Section 23A defines
"covered transactions" to include extensions of credit and limits a bank's
covered transactions with any single affiliate to no more than 10% of a bank's
capital and surplus. Covered transactions with all affiliates combined are
limited to no more than 20% of a bank's capital and surplus. All covered and
exempt transactions between a bank and its affiliates must be on terms and
conditions consistent with safe and sound banking practices and a bank and its
subsidiaries are prohibited from purchasing low quality assets from the bank's
affiliates. Finally, Section 23A requires that all of a bank's extensions of
credit to an affiliate be appropriately secured by collateral. The Company and
the Banks are also subject to Federal Reserve Act, Section 23B, which further
limits transactions among affiliates.
The Company's ability to pay dividends depends upon the earnings and
financial condition of the Banks and certain legal requirements. The Board of
Governors of the Federal Reserve System has stated that bank holding companies
should not pay dividends except out of current earnings and unless the
prospective rate of earnings retention by the Company appears consistent with
its capital needs, asset quality and overall financial condition.
The Banks may pay dividends to the Company provided that the payment is not
prohibited by the Banks' Articles of Incorporation and will not render the
Banks insolvent.
In addition, Southern Bank is subject to supervision and regular examination
by the Superintendent of the Alabama State Banking Department (the
"Superintendent"). Under the Alabama Banking Code, a state bank may not
declare or pay a dividend in excess of 90% of the net earnings of such bank
until the surplus of the bank is equal to at least 20% of its capital, and
thereafter the prior written approval of the Superintendent is required if the
total of all dividends declared by the bank in any calendar year exceeds the
total of its net earnings for that year combined with its retained net
earnings for the preceding two years less any required transfers to surplus.
No dividends, withdrawals or transfers may be made from the bank's surplus
without prior written approval of the Superintendent. American Bank is subject
to supervision and regulation by the Florida Department of Banking (the
"Florida Department"). Under the Florida Banking Code, a state bank may, after
making certain charge-offs, declare a dividend in an amount not to exceed its
aggregate net profits of the period combined with its retained net profits of
the preceding two years and, with the approval of the Florida Department, may
declare a dividend from retained net profits which accrued prior to the
preceding two years, provided that the bank carried 20% of its net profits for
such preceding period to its surplus fund, until the same shall at least equal
the amount of its common and preferred stock then issued and outstanding.
THE BANKS. The Banks are state banks organized under the laws of the State
of Alabama (in the case of Southern Bank) and under the laws of the State of
Florida (in the case of American Bank) and their deposits are insured by the
FDIC up to the maximum amount permitted by law. The Banks are subject to
regulation, supervision and regular examination by the FDIC and by the
Superintendent in the case of Southern Bank and by the Florida Department in
the case of American Bank. Federal and state banking laws and regulations
regulate, among other things, the scope of the banking business conducted by
the Banks, their loans and investments, reserves against deposits, payment of
interest on certain deposits, mergers and acquisitions, borrowings, dividends,
minimum capital requirements, and the locations of branch offices and certain
facilities.
In September 1994 Congress enacted the Riegle-Neal Interstate Banking and
Branching Efficiency Act of 1994. This legislation, among other things,
amended the BHC Act to permit bank holding companies, subject to
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certain limitations, to acquire either control or substantial assets of a bank
located in states other than that banking holding company's home state
regardless of state law prohibitions. This legislation became effective on
September 29, 1995. In addition, this legislation also amended the Federal
Deposit Insurance Act to permit, beginning on June 1, 1997 (or earlier where
state legislatures provided express authorization), the merger of insured
banks with banks in other states.
In August 1989, the Financial Institutions Reform, Recovery and Enforcement
Act of 1989 ("FIRREA") was enacted. FIRREA contains major regulatory reforms,
stronger capital standards for savings and loans and stronger civil and
criminal enforcement provisions. FIRREA allows the acquisition of healthy and
failed savings and loans by bank holding companies and imposes no interstate
barriers on such bank holding company acquisitions. With certain
qualifications, FIRREA also allows bank holding companies to merge acquired
savings and loans into their existing commercial bank subsidiaries. FIRREA
also provides that a depository institution insured by the FDIC can be held
liable for any loss incurred by, or reasonably expected to be incurred by, the
FDIC after August 9, 1989, in connection with (i) the default of a commonly
controlled FDIC-insured depository institution or (ii) any assistance provided
by the FDIC to a commonly controlled FDIC-insured depository institution in
danger of default.
In December 1991, the President signed the Federal Deposit Insurance
Corporation Improvement Act of 1991 ("FDICIA") into law. This act
recapitalizes the Bank Insurance Fund ("BIF"), of which the Banks are members,
substantially revises bank regulations, including capital standards, restricts
certain powers of state banks, gives regulators the authority to limit officer
and director compensation and requires bank holding companies to guarantee the
capital compliance of their banks. In addition, the act grants to the FDIC
authority to impose several assessments on insured depository institutions to
repay FDIC borrowings from the Treasury or BIF members or "for any other
purpose the FDIC may deem necessary" and to assess risk-based insurance
premiums upon banks. The FDIC has introduced a risk-based assessment schedule
with assessments to be paid by each BIF member based on the institution's
assessment risk classification, which is determined based on whether the
institution is considered "well capitalized," "adequately capitalized," or
"undercapitalized," as those terms have been defined in applicable Federal
regulations adopted to implement the prompt corrective action provision of
FDICIA, and whether such institution is considered by its supervising agency
to be financially sound or to have supervisory concerns. The Bank is currently
classified as "well-capitalized" under the FDIC risk based assessment system.
There can be no assurance that future regulations required by this act and
adjustments on deposit insurance assessments will not adversely affect the
banking industry or operations of the Company or the Bank.
The various Federal bank regulators, including the Federal Reserve, have
adopted a risk-based capital requirement for assessing bank and bank holding
company capital adequacy. These standards significantly revise the current
definition of capital and establish minimum capital standards in relation to
the relative credit risk of assets and off-balance sheet exposures. Capital is
classified into two tiers. Tier I capital consists of common shareholders'
equity and perpetual preferred stock (subject to certain limitations) and is
reduced by goodwill and minority interests in the common equity accounts of
consolidated subsidiaries. Tier II capital consists of the allowance for
possible loan losses (subject to certain limitations), and certain
subordinated debt. The risk-based capital guidelines require financial
institutions to maintain specific defined credit risk factors (risk-adjusted
assets). The minimum Tier I and the combined Tier I and Tier II capital to
risk-weighted assets ratios are 4.0% and 8.0%, respectively. The Federal
Reserve also has adopted regulations which supplement the risk-based capital
guidelines to include a minimum leverage ratio of Tier I Capital to total
assets of 3.0% to 5.0%. See "MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS--Liquidity and Capital Resources."
The Federal Reserve's risk based capital guidelines are applied to the
Company and the Banks on a consolidated basis. This will limit the Company's
ability to engage in acquisitions financed by debt. The FDIC has adopted
similar risk-based capital requirements that are applicable to the Banks. The
Federal Reserve, the FDIC, the Superintendent and the Florida Department have
imposed minimum capital (leverage) requirements. The Company's management
believes that, in view of the composition of the Company's assets and its
present
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capital, such capital rules do not have a material effect on the Company.
However, those rules may affect the future development of the Company's long-
term business and capital plans, and may affect its ability to acquire
additional financial institutions and other companies.
The Community Reinvestment Act of 1977 (the "CRA") and the Regulations of
the FDIC and the Federal Reserve implementing that act are intended to
encourage regulated financial institutions to help meet the credit needs of
their local community or communities, including low and moderate income
neighborhoods, consistent with the safe and sound operation of such financial
institutions. Such regulations provide that the appropriate regulatory
authority will assess the records of regulated financial institutions in
satisfying their continuing and affirmative obligations to help meet the
credit needs of their local communities. The results of such examinations are
made public and are taken into consideration upon the filing of any
application to establish a branch, to merge or to acquire the assets or assume
the liabilities of a bank. The bank regulators are seeking public comment on
an inter-agency proposal to strengthen federal enforcement of the CRA. The
interagency proposal would replace the subjective factors now being used to
assess an institution's CRA performance with three "tests" using objective,
performance based standards. The tests would apply differently to different
types of institutions, depending on their size or specialties. It cannot be
predicted whether such proposal will be adopted, and if adopted, how the
regulation will affect the Company or the Banks.
Other legislative and regulatory proposals regarding changes in banking, and
the regulation of banks, thrifts and other financial institutions are
considered from time to time by the executive branch of the Federal
government, Congress and various state governments. Some of those proposals,
if adopted, could significantly change the regulation of banks and the
financial services industry. It cannot be predicted whether any proposals will
be adopted, and, if adopted, how these will affect the Company or the Banks.
Banking is a business which depends on interest rate differentials. In
general, the difference between the interest paid by a bank on its deposits
and its other borrowings and the interest received by a bank on its loans to
customers and its securities holdings, constitutes the major portion of a
bank's earnings. Thus, the earnings and growth of the Company and the Banks
will be subject to the influence of economic conditions generally, both
domestic and foreign, and also to the monetary and fiscal policies of the
United States and its agencies, particularly the Federal Reserve. The Federal
Reserve regulates the supply of money through various means, including open-
market dealings in United States government securities, the discount rate at
which members may borrow, and reserve requirements on deposits and funds
availability regulations. These instruments are used in varying combinations
to influence the overall growth of bank loans, investments and deposits and
also affect interest rates charged on loans or paid on deposits. The policies
of the Federal Reserve have had a significant effect on the operating results
of commercial banks in the past and will continue to do so in the future. The
nature and timing of any future changes in Federal Reserve policies and their
impact on the Company cannot be predicted.
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UNDERWRITING
Subject to the terms and conditions of the Underwriting Agreement, the
Company has agreed to sell shares of Common Stock ("Shares") to Sterne,
Agee & Leach, Inc. (the "Managing Underwriter"), and the Managing Underwriter
has agreed to purchase the Shares from the Company. The Underwriting Agreement
provides that the obligation of the Managing Underwriter to pay for and accept
delivery of the Shares is subject to approval of certain legal matters by
counsel and to certain other conditions. The Managing Underwriter is committed
to purchase all the Shares offered hereby, if any are so purchased.
The Company has agreed to sell the Shares to the Managing Underwriter at a
discount of seven percent (7%) of the initial public offering price thereof.
The Managing Underwriter proposes to offer the Shares directly to the public
initially at the offering price set forth on the cover page of this Prospectus
and to certain dealers at such price less a concession not in excess of $
per Share. The Managing Underwriter may allow, and such dealers may re-allow,
concessions not in excess of $ per Share to certain other dealers. The
offering of the Shares is made for delivery when, as and if accepted by the
Managing Underwriter and subject to prior sale and withdrawal, cancellation or
modification of the offer without notice. The Managing Underwriter reserves
the right to reject any order for the purchase of Shares. After the public
offering of the Shares, the public offering price and the concessions may be
changed by the Managing Underwriter.
The Managing Underwriter has been granted an option by the Company,
exercisable within 30 days after the date of this Prospectus, to purchase up
to an additional Shares of Common Stock at the initial public offering price
of the Share offered hereby, less underwriting discounts and commission. Such
option may be exercised only for the purpose of covering over-allotments, if
any, incurred in the sale of the Shares, offered hereby.
The Company has agreed to indemnify the Managing Underwriter against certain
liabilities, including liabilities under the Securities Act or to contribute
to payments the Managing Underwriter may be required to make in respect
thereof. The Managing Underwriter has agreed to indemnify the Company against
any liabilities by reason of misstatements or omissions to state material
facts in connection with the statements made in this Prospectus based on
information relating to the Underwriters and furnished in writing by the
Underwriters specially for inclusion herewith.
Rule 101 of Regulation M of the Exchange Act ("Regulation M") may prohibit
the Managing Underwriter and any broker-dealer participating in the Offering
("Dealer") from engaging in market making activities with regard to the
Company's securities for up to five business days prior to the Offering by the
Company of the Common Stock until the termination of the Offering ("Restricted
Period"). As a result, the Managing Underwriter and Dealers may be unable to
continue to provide a market for the Common Stock during certain periods prior
to and during the Restricted Period.
The Managing Underwriter may engage in over-allotment, stabilizing
transactions and short covering transactions in accordance with Regulation M.
Over-allotment involves sales in excess of the offering size, which create a
short position. Stabilizing transactions permit bids to purchase the
underlying security so long as the stabilizing bids do not exceed a specified
maximum. Short coverage transactions involve purchases of the Shares in the
open market after the distribution has been completed in order to cover short
positions even if over-allotment shares are still available. Such over-
allotment, stabilizing transactions, and short covering transactions may cause
the price of the Shares to be higher than they would otherwise be in the
absence of such transactions. These transactions may be effected on The Nasdaq
SmallCap Market or otherwise and, if commenced, may be discontinued at any
time.
The Company, its executive officers and directors, and each of their
affiliates, have agreed that, for a period ending 120 days following the date
of this Prospectus, they will not, without the prior written consent of the
Managing Underwriter, offer, sell, contract to sell, grant any option for the
sale of, or otherwise dispose of, directly or indirectly, any shares of Common
Stock or any security or other instrument which by its terms is convertible,
into, or exercisable or exchangeable for, shares of Common Stock or other
securities of the
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Company, including, without limitation, any shares of Common Stock issuable
pursuant to the terms of any employee stock options.
Additionally, the Underwriters and Dealers that currently act as market
makers for the Common Stock may engage in "passive market making" in the
Common Stock in accordance with Rule 103 of Regulation M. Rule 103 of
Regulation M permits, upon the satisfaction of certain conditions,
underwriters and selling group members participating in a distribution that
are also market makers in the security being distributed to engage in limited
market making transactions during the period when Rule 101 of Regulation M
would otherwise prohibit such activity. In general, under Rule 103 of
Regulation M, any Underwriter or Dealer engaged in passive market making in
the Common Stock (i) may not effect transactions in, or display bids for, the
Common Stock at a price that exceeds the highest bid for the Common Stock
displayed by a market maker that is not participating in the distribution of
the Common Stock, (ii) may not have net daily purchases of the Common Stock
that exceed the greater of (A) 30% of its average daily trading volume in such
stock for the two full consecutive calendar months immediately preceding, or
any 60 consecutive calendar days ending within the 10 calendar days preceding,
the filing date of the Registration Statement of which this Prospectus forms a
part or (B) 200 shares and (iii) must identify its bids as made by a passive
market maker.
The foregoing is a summary of the principal terms of the Underwriting
Agreement described above and is a materially complete summary of such
principal terms. Reference is made to a copy of each such Agreement which is
filed as an exhibit to the Registration Statement of which this Prospectus
forms a part. See "ADDITIONAL INFORMATION."
LEGAL MATTERS
The validity of the Common Stock offered hereby will be passed upon for the
Company by Balch & Bingham LLP, Montgomery, Alabama. Certain legal matters in
connection with the Offering will be passed upon for the Underwriters by Burr
& Forman LLP, Birmingham, Alabama.
INDEMNIFICATION
The Company's Certificate and By-Laws authorize the Company to indemnify its
directors, officers, employees and agents to the full extent permitted by law.
Section 145 of the Delaware General Corporation Law contains detailed and
comprehensive provisions providing for indemnification of directors and
officers of Delaware corporations against expenses, judgments, fines and
settlements in connection with litigation. Under the Delaware law, other than
an action brought by or in the right of the Company, such indemnification is
available if it is determined that the proposed indemnitee acted in good faith
and in a manner he or she reasonably believed to be in or not opposed to the
best interests of the Company and, with respect to any criminal action or
proceeding, had no reasonable cause to believe his conduct was unlawful. In
actions brought by or in the right of the Company, such indemnification is
limited to expenses (including attorneys' fees) actually and reasonably
incurred in the defense or settlement of such action if the indemnittee acted
in good faith and in a manner he or she reasonably believed to be in or not
opposed to the best interests of the Company and except that no
indemnification shall be made in respect of any claim, issue or matter as to
which such person has been adjudged to be liable to the Company unless and
only to the extent that the Delaware Court of Chancery or the court in which
the action was brought determines upon application that in view of all the
circumstances of the case, such person is fairly and reasonably entitled to
indemnity for such expenses as the court deems proper.
To the extent that the proposed indemnitee has been successful on the merits
or otherwise in defense of any action, suit or proceeding (or any claim, issue
or matter therein), he or she must be indemnified against expenses (including
attorneys' fees) actually and reasonably incurred by him or her in connection
therewith.
Insofar as indemnification for liabilities arising under the Securities Act
may be permitted to directors, officers or persons controlling the Company
pursuant to the foregoing provisions, the Company has been
46
<PAGE>
informed that in the opinion of the SEC such indemnification is against public
policy as expressed in the Securities Act and is therefore unenforceable.
EXPERTS
The consolidated financial statements of the Company included in this
Prospectus have been included herein in reliance upon the report of Mauldin &
Jenkins LLC, Albany, Georgia, independent certified public accountants, and
upon the authority of said firm as experts in accounting and auditing.
47
<PAGE>
EUFAULA BANCCORP, INC.
INDEX TO FINANCIAL STATEMENTS AND SCHEDULES
<TABLE>
<S> <C>
Consolidated financial statements:
Independent Auditor's Report............................................. F-2
Consolidated Balance Sheets--December 31, 1997 and 1996.................. F-3
Consolidated Statements of Income--Years ended December 31, 1997 and
1996.................................................................... F-4
Consolidated Statements of Stockholders' Equity--Years ended December 31,
1997 and 1996........................................................... F-5
Consolidated Statements of Cash Flows--Years ended December 31, 1997 and
1996.................................................................... F-6
Notes to Consolidated Financial Statements............................... F-8
</TABLE>
All schedules are omitted as the required information is inapplicable or the
information is presented in the financial statements or related notes.
F-1
<PAGE>
INDEPENDENT AUDITOR'S REPORT
To the Board of Directors
Eufaula BancCorp, Inc.
Eufaula, Alabama
We have audited the accompanying consolidated balance sheets of EUFAULA
BANCCORP, INC. AND SUBSIDIARIES as of December 31, 1997 and 1996, and the
related consolidated statements of income, stockholders' equity and cash flows
for the years then ended. These financial statements are the responsibility of
the Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of Eufaula
BancCorp, Inc. and subsidiaries as of December 31, 1997 and 1996, and the
results of their operations and their cash flows for the years then ended, in
conformity with generally accepted accounting principles.
Albany, Georgia
February 4, 1998
F-2
<PAGE>
EUFAULA BANCCORP, INC.
AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 1997 AND 1996
<TABLE>
<CAPTION>
ASSETS 1997 1996
------ ------------ --------------
<S> <C> <C>
Cash and due from banks.......................... $ 6,046,465 $ 7,320,627
Interest-bearing deposits in banks............... -- 750,000
Federal funds sold............................... 2,450,000 1,375,000
Securities available for sale, at fair value..... 16,174,526 26,834,414
Securities held to maturity, at cost (fair value
$ 9,667,334 and $10,484,389)........... 9,281,741 10,062,091
Loans............................................ 78,603,624 52,167,811
Less allowance for loan losses................... 762,236 656,256
------------ --------------
Loans, net................................... 77,841,388 51,511,555
------------ --------------
Premises and equipment, net...................... 3,664,429 2,413,164
Other real estate................................ 804,435 804,435
Other assets..................................... 4,678,670 3,744,747
------------ --------------
$120,941,654 $ 104,816,033
============ ==============
<CAPTION>
LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
<S> <C> <C>
Deposits
Noninterest-bearing demand..................... $ 18,305,750 $ 18,783,155
Interest-bearing demand........................ 31,782,198 26,412,239
Savings........................................ 4,930,765 5,530,097
Time, $100,000 and over........................ 16,932,656 13,692,689
Other time..................................... 32,657,315 25,879,298
------------ --------------
Total deposits............................... 104,608,684 90,297,478
Federal funds purchased........................ -- 1,200,000
Securities sold under repurchase agreements.... -- 1,475,000
Other borrowings............................... 3,100,000 --
Other liabilities.............................. 1,291,643 1,128,704
------------ --------------
Total liabilities............................ 109,000,327 94,101,182
------------ --------------
Commitments and contingent liabilities
Stockholders' equity
Preferred stock, par value $.10; 50,000 shares
authorized, none issued
Common stock, par value $1; 5,000,000 shares
authorized, 2,097,916 and 1,353,204 shares is-
sued, respectively............................ 2,097,916 1,353,204
Surplus........................................ 107,779 232,587
Retained earnings.............................. 9,737,976 9,221,469
Unrealized (losses) on securities available for
sale, net of taxes............................ (2,344) (92,409)
------------ --------------
Total stockholders' equity................... 11,941,327 10,714,851
------------ --------------
$120,941,654 $104,816,03310
============ ==============
</TABLE>
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
F-3
<PAGE>
EUFAULA BANCCORP, INC.
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
YEARS ENDED DECEMBER 31, 1997 AND 1996
<TABLE>
<CAPTION>
1997 1996
---------- ----------
<S> <C> <C>
INTEREST INCOME
Interest and fees on loans.............................. $6,683,278 $5,064,734
Interest on taxable securities.......................... 1,464,021 1,776,018
Interest on nontaxable securities....................... 466,530 473,567
Interest on deposits in other banks..................... 22,806 26,085
Interest on Federal funds sold.......................... 80,363 105,007
---------- ----------
8,716,998 7,445,411
---------- ----------
INTEREST EXPENSE
Interest on deposits.................................... 3,502,234 2,950,361
Interest on other borrowings............................ 252,330 48,915
---------- ----------
3,754,564 2,999,276
---------- ----------
Net interest income................................... 4,962,434 4,446,135
PROVISION FOR LOAN LOSSES 173,668 81,000
---------- ----------
Net interest income after provision for loan losses... 4,788,766 4,365,135
---------- ----------
OTHER INCOME
Service charges on deposit accounts..................... 744,254 690,746
Security transactions, net.............................. 19,697 27,470
Origination fees on mortgage loans...................... 171,994 110,738
Other................................................... 182,666 155,558
---------- ----------
1,118,611 984,512
---------- ----------
OTHER EXPENSES
Salaries and employee benefits.......................... 2,435,131 2,019,949
Equipment and occupancy expense......................... 600,493 488,156
Amortization of intangibles............................. 78,745 78,745
Legal and professional expense.......................... 162,549 93,714
Data processing expenses................................ 101,064 58,859
Directors fees.......................................... 97,983 88,250
Other operating expense................................. 997,085 723,407
---------- ----------
4,473,050 3,551,080
---------- ----------
Income before income taxes............................ 1,434,327 1,798,567
APPLICABLE INCOME TAXES 426,935 569,478
---------- ----------
Net income............................................ $1,007,392 $1,229,089
========== ==========
NET INCOME PER COMMON SHARE
Basic................................................... $ 0.48 $ 0.61
========== ==========
Diluted................................................. $ 0.45 $ 0.56
========== ==========
</TABLE>
See Notes to Consolidated Financial Statements.
F-4
<PAGE>
EUFAULA BANCCORP, INC.
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
YEARS ENDED DECEMBER 31, 1997 AND 1996
<TABLE>
<CAPTION>
UNREALIZED
GAINS
(LOSSES) ON
SECURITIES
COMMON STOCK AVAILABLE
-------------------- CAPITAL RETAINED FOR SALE,
SHARES PAR VALUE SURPLUS EARNINGS NET OF TAXES TOTAL
--------- ---------- --------- ---------- ------------ -----------
<S> <C> <C> <C> <C> <C> <C>
BALANCE, DECEMBER 31,
1995................... 676,602 $ 676,602 $ 909,189 $8,263,021 $ 98,972 $ 9,947,784
Net income.............. -- -- -- 1,229,089 -- 1,229,089
Cash dividend declared,
$.13 per share......... -- -- -- (270,641) -- (270,641)
Net change in unrealized
(losses) on securities
available-for-sale, net
of tax................. -- -- -- -- (191,381) (191,381)
Two-for-one common stock
split.................. 676,602 676,602 (676,602) -- -- --
--------- ---------- --------- ---------- --------- -----------
BALANCE, DECEMBER 31,
1996................... 1,353,204 1,353,204 232,587 9,221,469 (92,409) 10,714,851
Net income.............. -- -- -- 1,007,392 -- 1,007,392
Cash dividend declared,
$.14 per share......... -- -- -- (291,584) -- (291,584)
Net change in unrealized
(losses) on securities
available-for-sale, net
of tax................. -- -- -- -- 90,065 90,065
Three-for-two common
stock split............ 699,301 699,301 (699,301) -- -- --
Proceeds from exercise
of stock options....... 45,411 45,411 207,455 -- -- 252,866
Purchase of fractional
shares................. -- -- (85) -- -- (85)
Reduction in income
taxes payable resulting
from exercise of stock
options................ -- -- 167,822 -- -- 167,822
Transfer to surplus..... -- -- 199,301 (199,301) -- --
--------- ---------- --------- ---------- --------- -----------
BALANCE, DECEMBER 31,
1997................... 2,097,916 $2,097,916 $ (91,522) $9,937,277 $ (2,344) $11,941,327
========= ========== ========= ========== ========= ===========
</TABLE>
See Notes to Consolidated Financial Statements.
F-5
<PAGE>
EUFAULA BANCCORP, INC.
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, 1997 AND 1996
<TABLE>
<CAPTION>
1997 1996
----------- -----------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income......................................... $ 1,007,392 $ 1,229,089
----------- -----------
Adjustments to reconcile net income to net cash
provided by operating
activities:
Depreciation..................................... 235,465 184,564
Amortization..................................... 78,745 78,745
Provision for loan losses........................ 173,668 81,000
Provision for deferred taxes..................... (25,438) (913)
Net realized gains on securities available for
sale............................................ (19,697) (27,470)
(Increase) decrease in interest receivable....... 146,513 (44,025)
Increase (decrease) in interest payable.......... 155,509 (5,939)
Increase (decrease) in taxes payable............. 9,257 (58,413)
Other prepaids, deferrals and accruals, net...... (960,132) (620,612)
----------- -----------
Total adjustments.............................. (206,110) (413,063)
----------- -----------
Net cash provided by operating activities...... 801,282 816,026
----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES
(Increase) decrease in interest-bearing deposits in
banks............................................. 750,000 (500,000)
Increase in Federal funds sold..................... (1,075,000) (575,000)
Purchases of securities available for sale......... (5,820,234) (13,110,890)
Proceeds from sales of securities available for
sale.............................................. 6,798,070 6,809,250
Proceeds from maturities of securities available
for sale.......................................... 9,851,858 3,245,913
Purchases of securities held to maturity........... -- (997,428)
Proceeds from maturities of securities held to ma-
turity............................................ 780,350 822,506
Increase in loans, net............................. (26,503,501) (4,547,404)
Proceeds from sale of assets....................... 10,000 --
Purchase of premises and equipment................. (1,496,730) (530,313)
----------- -----------
Net cash used in investing activities.......... 116,705,187) (9,383,366)
----------- -----------
</TABLE>
F-6
<PAGE>
EUFAULA BANCCORP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, 1997 AND 1996
<TABLE>
<CAPTION>
1997 1996
------------ ----------
<S> <C> <C>
CASH FLOWS FROM FINANCING ACTIVITIES
Increase in deposits............................... $ 14,243,546 $6,750,906
Proceeds from the exercise of stock options........ 252,866 --
Increase (decrease) in securities sold under
repurchase agreements............................. (1,475,000) 1,475,000
Increase (decrease) in Federal funds purchased..... (1,200,000) 650,000
Advances from Federal Home Loan Bank............... 3,100,000 --
Dividends paid..................................... (291,584) (202,981)
Purchase of fractional shares...................... (85) --
------------ ----------
Net cash provided by financing activities........ 14,629,743 8,672,925
------------ ----------
Net increase (decrease) in cash and due from banks... (1,274,162) 105,585
Cash and due from banks at beginning of year......... 7,320,627 7,215,042
------------ ----------
Cash and due from banks at end of year............... $ 6,046,465 $7,320,627
============ ==========
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
Cash paid during the year for:
Interest......................................... $ 3,599,055 $3,005,215
Income taxes..................................... $ 443,116 $ 628,804
NONCASH TRANSACTIONS
Unrealized (losses) on securities available for
sale.............................................. $ (150,109) $ (318,966)
Transfer from loans to other real estate........... $ -- $ 804,432
</TABLE>
See Notes to Consolidated Financial Statements.
F-7
<PAGE>
EUFAULA BANCCORP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
NATURE OF BUSINESS
Eufaula BancCorp, Inc. (the Company) is a bank holding company whose
business is presently conducted by its wholly-owned subsidiaries, Southern
Bank of Commerce (formerly Eufaula Bank and Trust Company) in Eufaula, Alabama
and First American Bank of Walton County (First American Bank) in Santa Rosa
Beach, Florida. The Banks provide a full range of banking services to
individual and corporate customers in Eufaula and Montgomery, Alabama and in
northwest Florida. The Banks are subject to the regulations of certain Federal
and state agencies and are periodically examined by certain regulatory
authorities.
BASIS OF PRESENTATION
The consolidated financial statements include the accounts of the Company
and its subsidiaries. Significant intercompany transactions and accounts are
eliminated in consolidation.
The accounting and reporting policies of the Company conform to generally
accepted accounting principles and general practices within the financial
services industry. In preparing the financial statements, management is
required to make estimates and assumptions that affect the reported amounts of
assets and liabilities as of the date of the balance sheet and revenues and
expenses for the period. Actual results could differ from those estimates.
CASH AND CASH EQUIVALENTS
Cash on hand, cash items in process of collection, and amounts due from
banks are included in cash and cash equivalents.
The Company maintains amounts due from banks which, at times, may exceed
Federally insured limits. The Company has not experienced any losses in such
accounts.
SECURITIES
Securities are classified based on management's intention on the date of
purchase. Securities which management has the intent and ability to hold to
maturity are classified as held to maturity and reported at amortized cost.
All other debt securities are classified as available for sale and carried at
fair value with net unrealized gains and losses included in stockholders'
equity net of tax. Marketable equity securities are carried at fair value with
net unrealized gains and losses included in stockholders' equity.
Interest and dividends on securities, including amortization of premiums and
accretion of discounts, are included in interest income. Realized gains and
losses from the sales of securities are determined using the specific
identification method.
LOANS
Loans are carried at their principal amounts outstanding less unearned
income and the allowance for loan losses. Interest income on loans is credited
to income based on the principal amount outstanding.
Loan origination fees and certain direct costs of most loans are recognized
at the time the loan is recorded. Because net origination loan fees and costs
are not material, the results of operations are not materially different than
the results which would be obtained by accounting for loan fees and costs in
accordance with generally accepted accounting principles.
F-8
<PAGE>
EUFAULA BANCCORP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
The allowance for loan losses is maintained at a level that management
believes to be adequate to absorb potential losses in the loan portfolio.
Management's determination of the adequacy of the allowance is based on an
evaluation of the portfolio, past loan loss experience, current economic
conditions, volume, growth, composition of the loan portfolio, and other risks
inherent in the portfolio. In addition, regulatory agencies, as an integral
part of their examination process, periodically review the Company's allowance
for loan losses, and may require the Company to record additions to the
allowance based on their judgment about information available to them at the
time of their examinations.
The accrual of interest on impaired loans is discontinued when, in
management's opinion, the borrower may be unable to meet payments as they
become due. Interest income is subsequently recognized only to the extent cash
payments are received.
A loan is impaired when it is probable the Company will be unable to collect
all principal and interest payments due in accordance with the terms of the
loan agreement. Individually identified impaired loans are measured based on
the present value of payments expected to be received, using the contractual
loan rate as the discount rate. Alternatively, measurement may be based on
observable market prices or, for loans that are solely dependent on the
collateral for repayment, measurement may be based on the fair value of the
collateral. If the recorded investment in the impaired loan exceeds the
measure of fair value, a valuation allowance is established as a component of
the allowance for loan losses. Changes to the valuation allowance are recorded
as a component of the provision for loan losses.
PREMISES AND EQUIPMENT
Premises and equipment are stated at cost less accumulated depreciation.
Depreciation is computed principally by the straight-line method over the
estimated useful lives of the assets.
INTANGIBLE ASSETS
Cost in excess of net assets acquired resulting from a bank acquisition
accounted for as a purchase transaction is being amortized over twenty-five
(25) years on a straight-line basis.
OTHER REAL ESTATE OWNED
Other real estate owned represents properties acquired through foreclosure.
Other real estate owned is held for sale and is carried at the lower of the
recorded amount of the loan or fair value of the properties less estimated
selling costs. Any write-down to fair value at the time of transfer to other
real estate owned is charged to the allowance for loan losses. Subsequent
gains or losses on sale and any subsequent adjustment to the value are
recorded as other expenses.
PROFIT-SHARING PLAN
Profit-sharing plan costs are funded as accrued and are based on a
percentage of individual employee's salary, not to exceed the amount that can
be deducted for Federal income tax purposes.
INCOME TAXES
Income tax expense consists of current and deferred taxes. Current income
tax provisions approximate taxes to be paid or refunded for the applicable
year. Deferred tax assets and liabilities are recognized on the temporary
differences between the bases of assets and liabilities as measured by tax
laws and their bases as reported in the
F-9
<PAGE>
EUFAULA BANCCORP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
financial statements. Deferred tax expense or benefit is then recognized for
the change in deferred tax assets or liabilities between periods.
Recognition of deferred tax balance sheet amounts is based on management's
belief that it is more likely than not that the tax benefit associated with
certain temporary differences, tax operating loss carryforwards, and tax
credits will be realized.
The Company and its subsidiaries file a consolidated income tax return. Each
entity provides for income taxes based on its contribution to income taxes
(benefits) of the consolidated group.
EARNINGS PER COMMON SHARE
Basic earnings per share are calculated on the basis of the weighted average
number of common shares outstanding. Diluted earnings per share are computed
by dividing net income by the sum of the weighted average number of common
shares outstanding and potential common shares. Earnings per common share for
the prior periods have been restated to reflect the adoption of FASB 128. All
per share data for prior years have been adjusted to reflect the three-for-two
stock split effected in the form of a 50% stock dividend to shareholders of
record as of November 15, 1997.
CURRENT ACCOUNTING DEVELOPMENTS
In June 1996, the Financial Accounting Standards Board (the FASB ) issued
Statement of Financial Accounting Standards No. 125, "Accounting for Transfers
and Servicing of Financial Assets and Extinguishments of Liabilities". ("SFAS
No. 125"). This Statement provides standards for distinguishing transfers of
financial assets that are sales from those that are secured borrowings, and
provides guidance on the recognition and measurement of asset servicing
contracts and on debt extinguishments. As issued, SFAS No. 125 is effective
for transactions occurring after December 31, 1996. However, as a result of an
amendment to SFAS No. 125 by the FASB in December 1996, certain provisions of
SFAS No. 125 are deferred for an additional year. Adoption of the new
accounting standard is not expected to have a material impact on the Company's
financial statements.
In February 1997, the FASB issued SFAS No. 128, "Earnings per Share". This
statement simplifies the standards for computing earnings per share previously
set forth in APB Opinion No. 15, "Earnings per Share", and makes them
comparable to international Earnings per Share ("EPS") standards. It replaces
the presentation of primary EPS with a presentation of basic EPS. It also
requires dual presentation of basic and diluted EPS on the face of the income
statement for all entities with complex capital structures and requires a
reconciliation of the numerator and denominator of the basic EPS computation
to the numerator and denominator of the diluted EPS computation. Basic EPS
excludes dilution and is computed by dividing income available to common
stockholders by the weighted-average number of common shares outstanding for
the period. Diluted EPS reflects the potential dilution that could occur if
securities or other contracts to issue common stock were exercised or
converted into common stock or resulted in the issuance of common stock that
then shared in the earnings of the entity. Diluted EPS is computed similarly
to fully diluted EPS pursuant to APB Opinion No. 15. This statement is
effective for financial statements issued for periods ending after December
15, 1997. The adoption of this statement did not have a material impact on the
Company's financial statements.
In June 1997, the FASB issued SFAS No 130, "Reporting Comprehensive Income".
This statement establishes standards for reporting and display of
comprehensive income and its components (revenues, expenses, gains and losses)
in a full set of general-purpose financial statements. This statement requires
that all items that are required to be recognized under accounting standards
as components of comprehensive income be reported
F-10
<PAGE>
EUFAULA BANCCORP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
in a financial statement that is displayed with the same prominence as other
financial statements. This statement does not require a specific format for
that financial statement but requires that an enterprise display an amount
representing total comprehensive income for the period in that financial
statement. This statement requires that an enterprise classify items of other
comprehensive income by their nature in a financial statement and display the
accumulated balance or other comprehensive income by their nature in a
financial statement and display the accumulated balance or other comprehensive
income separately from retained earnings and additional paid-in capital in the
equity section of a statement of financial position. This statement is
effective for fiscal years beginning after December 15, 1997. The adoption of
this statement is not expected to have a material impact on the Company's
financial statements.
In June 1997, The FASB issued SFAS No. 131, "Disclosures about Segments of
an Enterprise and Related Information". This statement requires that a public
business enterprise report financial and descriptive information about its
reportable operating segments. Operating segments are components of an
enterprise about which separate financial information is available that is
evaluated regularly by the chief operating decision maker in deciding how to
allocate resources and in assessing performance. Generally, financial
information is required to be reported on the basis that it is used internally
for evaluating segment performance and deciding how to allocate resources to
segments. The statement requires that a business enterprise report a measure
of segment profit or loss, certain specific revenue and expense items and
segment assets. It requires reconciliations of total segment revenues, total
segment profit or loss, total segment assets and other amounts disclosed for
segments to corresponding amounts in the enterprise's general-purpose
financial statements. It requires that the enterprise report information about
the revenues derived from the enterprise s products or services, about the
countries in which the enterprise earns revenues and hold assets and about
major customers. This Statement is effective for financial Statements for
periods beginning after December 15, 1997. The adoption of this statement is
not expected to have a material impact on the Company's financial statements.
F-11
<PAGE>
EUFAULA BANCCORP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
NOTE 2. SECURITIES
The amortized cost and fair value of securities are summarized as follows:
<TABLE>
<CAPTION>
GROSS GROSS
AMORTIZED UNREALIZED UNREALIZED
COST GAINS LOSSES FAIR VALUE
----------- ---------- ---------- ------------
<S> <C> <C> <C> <C>
Securities Available for Sale
December 31, 1997:
U. S. Government and agency
securities................... $14,195,851 $ 53,641 $ (61,814) $ 14,187,678
Mortgage-backed securities.... 1,982,581 8,334 (4,067) 1,986,848
----------- -------- --------- ------------
$16,178,432 $ 61,975 $ (65,881) $ 16,174,526
=========== ======== ========= ============
December 31, 1996:
U.S. Government and agency se-
curities..................... $23,516,656 $ 39,018 $(204,262) $ 23,351,412
Mortgage-backed securities.... 3,002,140 6,672 (13,860) 2,994,952
Other securities.............. 469,633 18,417 -- 488,050
----------- -------- --------- ------------
$26,988,428 $ 64,107 $(218,122) $ 26,834,414
=========== ======== ========= ============
<CAPTION>
GROSS GROSS
AMORTIZED UNREALIZED UNREALIZED
COST GAINS LOSSES FAIR VALUE
----------- ---------- ---------- ------------
<S> <C> <C> <C> <C>
Securities Held to Maturity
December 31, 1997:
U.S. Government and agency se-
curities..................... $ 749,576 $ 502 $ (3,380) $ 746,698
State and municipal securi-
ties......................... 8,110,317 383,651 -- 8,493,968
Mortgage-backed securities.... 421,848 6,235 (1 ,415) 426,668
----------- -------- --------- ------------
$ 9,281,741 $390,388 $ (4,795) $ 9,667,334
=========== ======== ========= ============
December 31, 1996:
U.S. Government and agency se-
curities..................... $ 750,000 $ -- $ (11,095) $ 738,905
State and municipal securi-
ties......................... 8,707,202 436,566 (3,315) 9,140,353
Mortgage-backed securities.... 604,889 6,133 (5,891) 605,131
----------- -------- --------- ------------
$10,062,091 $442,699 $ (20,401) $ 10,484,389
=========== ======== ========= ============
</TABLE>
The amortized cost and fair value of securities as of December 31, 1997 by
contractual maturity are shown below. Maturities may differ from contractual
maturities in mortgage-backed securities because the mortgages underlying the
securities may be called or prepaid without penalty. Therefore, these
securities are not included in the maturity categories in the following
maturity summary.
<TABLE>
<CAPTION>
SECURITIES AVAILABLE SECURITIES HELD TO
FOR SALE MATURITY
----------------------- ---------------------
AMORTIZED FAIR AMORTIZED FAIR
COST VALUE COST VALUE
----------- ----------- ---------- ----------
<S> <C> <C> <C> <C>
Due in one year or less....... $ 3,512,404 $ 3,503,595 $1,087,104 $1,093,172
Due from one year to five
years........................ 5,659,953 5,712,425 3,236,884 3,328,435
Due from five to ten years.... 5,023,494 4,971,658 4,249,306 4,505,816
Due after ten years........... -- -- 286,599 313,243
Mortgage-backed securities.... 1,982,581 1,986,848 421,848 426,668
----------- ----------- ---------- ----------
$16,178,432 $16,174,526 $9,281,741 $9,667,334
=========== =========== ========== ==========
</TABLE>
F-12
<PAGE>
EUFAULA BANCCORP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Securities with a carrying value of $11,787,849 and $15,681,776 at December
31, 1997 and 1996, respectively, were pledged to secure public deposits and
for other purposes.
Gross realized gains and gross realized losses on sales of securities were:
<TABLE>
<CAPTION>
DECEMBER 31,
-----------------
1997 1996
------- --------
<S> <C> <C>
Gross realized gains on sales of securities.............. $29,555 $ 34,729
Gross losses on sales of securities...................... (9,858) (7,259)
------- --------
Net realized gains on sales of securities available for
sale..................................................... $19,697 $ 27,470
======= ========
</TABLE>
NOTE 3. LOANS AND ALLOWANCE FOR LOAN LOSSES
The composition of loans is summarized as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
------------------------
1997 1996
----------- -----------
<S> <C> <C>
Commercial financial and agricultural............ $20,809,399 $11,276,143
Real estate-construction......................... 3,253,356 2,896,148
Real estate-mortgage............................. 40,046,125 27,691,446
Consumer......................................... 14,694,075 10,468,374
Other............................................ 13,498 41,068
----------- -----------
78,816,453 52,373,179
Unearned income.................................. (212,829) (205,368)
Allowance for loan losses........................ (762,236) (656,256)
----------- -----------
Loans, net....................................... $77,841,388 $51,511,555
=========== ===========
</TABLE>
Changes in the allowance for loan losses for the years ended December 31 are
as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
------------------
1997 1996
-------- --------
<S> <C> <C>
Balance, beginning of year............................. $656,256 $605,163
Provision charged to operations....................... 173,668 81,000
Loans charged off..................................... (82,046) (45,786)
Recoveries of loans previously charged off............ 14,358 15,879
-------- --------
Balance, end of year................................... $762,236 $656,256
======== ========
</TABLE>
The Company has granted loans to certain directors, executive officers, and
related entities of the Company and the Banks. The interest rates on these
loans were substantially the same as rates prevailing at the time of the
transaction and repayment terms are customary for the type of loan involved.
Changes in related party loans for the years ended December 31 were as
follows:
<TABLE>
<CAPTION>
1997 1996
------------ ------------
<S> <C> <C>
Balance, beginning of year.................... $ 2,630,728 $ 2,642,949
Advances.................................... 3,649,877 3,435,657
Repayments.................................. (2,397,799) (3,447,878)
------------ ------------
Balance, end of year.......................... $ 3,882,806 $ 2,630,728
============ ============
</TABLE>
F-13
<PAGE>
EUFAULA BANCCORP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
NOTE 4. PREMISES AND EQUIPMENT
Premises and equipment are summarized as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
------------------------
1997 1996
----------- -----------
<S> <C> <C>
Land and buildings.............................. $ 3,027,225 $ 2,265,503
Equipment....................................... 1,676,093 1,159,753
Construction in progress........................ 336,089 205,207
----------- -----------
5,039,407 3,630,463
Accumulated depreciation........................ (1,374,978) (1,217,299)
----------- -----------
$ 3,664,429 $ 2,413,164
=========== ===========
</TABLE>
Depreciation expense for the years ended December 31, 1997 and 1996 was
$235,465 and $184,564, respectively.
NOTE 5. EMPLOYEE BENEFIT PLANS
The subsidiary banks have noncontributory profit-sharing plans covering all
employees, subject to certain minimum age and service requirements. The
contribution for the years ended December 31, 1997 and 1996 was $68,000 and
$72,383, respectively.
The Company provides a nonqualified Employee Stock Purchase Plan, including
employees of both subsidiary banks. The primary purpose is to enable the
employees to participate in the ownership of the Company. An employee who has
been employed on a full time basis for one year or more is eligible for the
Plan. Employees can contribute from five to seven percent of their
compensation, depending on years of service. The banks contribute an amount
equal to 50% of the employee's contribution. Contributions are used to
purchase shares of Eufaula BancCorp, Inc. common stock. The contribution for
the years ended December 31, 1997 and 1996 was $13,732 and $14,813,
respectively.
The Company has a nonqualified Stock Purchase Plan for directors. The
primary purpose is to enable the directors to participate in the ownership of
the Company. All directors are eligible for the Plan. A director can
contribute in increments of $50 not to exceed $200 per month. The Banks
contribute an amount equal to 50 percent of the director's contribution.
Contributions to the Plan are used to purchase shares of Eufaula BancCorp,
Inc. common stock. The contributions for the years ended December 31, 1997 and
1996 were $19,300 and $16,800, respectively.
NOTE 6. DEFERRED COMPENSATION PLAN
During 1996, Southern Bank of Commerce modified its indexed deferred
compensation plan for certain executive officers and directors. The Plan is
designed to provide supplemental retirement benefits and supersedes the
existing deferred compensation plan. As a result of the modification,
transactions resulted in an expense of $16,517 for 1997 and a net decrease in
expense of $32,636 in 1996.
F-14
<PAGE>
EUFAULA BANCCORP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
NOTE 7. OTHER BORROWINGS
Other borrowings consist of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------
1997 1996
---------- --------
<S> <C> <C>
Advances from Federal Home Loan Bank with interest at
a fixed rate of 6.58% due on March 14, 1999......... $2,500,000 $ --
Advances from Federal Home Loan Bank with interest at
adjustable rates (currently at 6.50% at December 31,
1997) due on September 23, 1998..................... 600,000 --
---------- --------
$3,100,000 $ --
========== ========
</TABLE>
The advances from the Federal Home Loan Bank are collateralized by the
pledging of first mortgage loans on one to four family residences.
NOTE 8. INCOME TAXES
The provision for income taxes consists of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------
1997 1996
-------- ---------
<S> <C> <C>
Current............................................... $284,551 $ 570,391
Benefit from exercise of stock options................ 167,822 --
Deferred.............................................. (25,438) (913)
-------- ---------
Provision for income taxes.......................... $426,935 $ 569,478
======== =========
</TABLE>
The Company's provision for income taxes differs from the amounts computed
by applying the Federal income tax statutory rates to income before income
taxes. A reconciliation of the differences is as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------------------------
1997 1996
------------------ ------------------
AMOUNT PERCENT AMOUNT PERCENT
--------- ------- --------- -------
<S> <C> <C> <C> <C>
Tax provision at statutory rate..... $ 487,670 34% $ 611,513 34%
Tax-exempt interest................. (136,615) (10) (147,057) (8)
Amortization........................ 26,773 2 26,773 1
State income taxes.................. 45,748 3 51,454 3
Other items, net.................... 3,359 1 26,795 2
--------- --- --------- ---
Provision for income taxes........ $ 426,935 30% $ 569,478 32%
========= === ========= ===
</TABLE>
F-15
<PAGE>
EUFAULA BANCCORP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
The components of deferred income taxes are as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
-----------------
1997 1996
-------- --------
<S> <C> <C>
DEFERRED TAX ASSETS:
Loan loss reserves..................................... $101,886 $ 55,031
Deferred compensation.................................. 93,989 76,576
Accounting for other real estate....................... 1,582 1,582
Unrealized losses on securities available for sale..... 1,563 61,607
Stock options.......................................... 5,574 17,095
-------- --------
204,594 211,891
-------- --------
DEFERRED TAX LIABILITIES:
Depreciation and amortization.......................... 110,116 83,969
Accretion.............................................. 5,164 4,002
-------- --------
115,280 87,971
-------- --------
Net deferred tax assets ................................. $ 89,314 $123,920
======== ========
</TABLE>
NOTE 9. STOCK OPTIONS
Prior to 1995, the Company entered into or assumed liability for various
nonqualified stock option agreements with key employees. During 1995, the
Company adopted the 1994 Stock Option Plan whereby the Company may grant
options to certain key employees to purchase up to 600,000 shares of the
Company's $1 par value common stock at an option price of $4 per share. During
1996, the Plan was amended to include the directors of the Company. As of
December 31, 1997, options that had been granted to five key employees to
purchase a total of 297,000 shares of common stock.
A summary of information relating to the stock option plans at December 31,
1997 and 1996 and changes during the years ended on those dates is as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------------------------
1997 1996
-------------------- -----------------
WEIGHTED- WEIGHTED-
AVERAGE AVERAGE
EXERCISE EXERCISE
NUMBER PRICE NUMBER PRICE
--------- --------- ------- ---------
<S> <C> <C> <C> <C>
Under option, beginning of year.... 402,000 $3.83 402,000 $3.83
Granted.......................... 75,000 9.27 -- --
Exercised........................ (68,117) 3.27 -- --
Forfeited........................ (111,883) 4.00 -- --
--------- -------
Under option, end of year.......... 297,000 5.27 402,000 3.83
========= =======
Exercisable at end of year......... 84,000 114,000
========= =======
Available for grant at end of year. 165,000 240,000
========= =======
Weighted average fair value per op-
tion of options granted during the
year.............................. $ 3.38 $ --
========= =======
</TABLE>
F-16
<PAGE>
EUFAULA BANCCORP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Additional information about options outstanding at December 31, 1997 is as
follows:
<TABLE>
<CAPTION>
OPTIONS OUTSTANDING OPTIONS EXERCISABLE
------------------------------------------ ---------------------
WEIGHTED-
AVERAGE WEIGHTED- WEIGHTED-
RANGE OF CONTRACTUAL AVERAGE AVERAGE
EXERCISE NUMBER LIFE IN EXERCISE NUMBER EXERCISE
PRICES OUTSTANDING YEARS PRICE OUTSTANDING PRICE
-------- ----------- ----------- --------- ----------- ---------
<S> <C> <C> <C> <C> <C> <C>
$ 2.54 12,000 0.5 $ 2.54 12,000 $2.54
4.00 120,000 5.0 4.00 45,000 4.00
4.00 90,000 7.0 4.00 27,000 4.00
9.00 45,000 10.0 9.00 -- --
9.67 30,000 10.0 9.67 -- --
------- ------
297,000 6.69 5.27 84,000 3.79
======= ======
</TABLE>
NOTE 10. EARNINGS PER COMMON SHARE
The following is a reconciliation of net income (the numerator) and the
weighted average shares outstanding (the denominator) used in determining
basic and diluted earnings per share:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, 1997
------------------------------
INCOME SHARES PER SHARE
---------- --------- ---------
<S> <C> <C> <C>
Basic earnings per share
Net income.................................. $1,007,392 2,082,715 $0.48
=====
Effect of dilutive securities
Stock options............................... -- 158,464
---------- ---------
Dilutive earnings per share
Net income.................................. $1,007,392 2,241,179 $0.45
========== ========= =====
</TABLE>
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, 1996
------------------------------
INCOME SHARES PER SHARE
---------- --------- ---------
<S> <C> <C> <C>
Basic earnings per share
Net income................................ $1,229,089 2,029,806 $ 0.61
======
Effect of dilutive securities
Stock options ............................ -- 181,714
---------- ---------
Dilutive earnings per share
Net income ............................... $1,229,089 2,211,520 $ 0.56
========== ========= ======
</TABLE>
NOTE 11. COMMITMENTS AND CONTINGENT LIABILITIES
In the normal course of business, the Company has entered into off-balance-
sheet financial instruments which are not reflected in the financial
statements. These financial instruments include commitments to extend credit
and standby letters of credit. Such financial instruments are included in the
financial statements when funds are disbursed or the instruments become
payable. These instruments involve, to varying degrees, elements of credit
risk in excess of the amount recognized in the balance sheet.
F-17
<PAGE>
EUFAULA BANCCORP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
The Company's exposure to credit loss in the event of nonperformance by the
other party to the financial instrument for commitments to extend credit and
standby letters of credit is represented by the contractual amount of those
instruments. A summary of the Company's commitments is as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
-----------------------
1997 1996
----------- -----------
<S> <C> <C> <C>
Commitments to extend credit.................. $19,518,373 $ 7,971,877
Loans sold with recourse ..................... 1,646,904 1,908,879
Standby letters of credit..................... 1,352,889 1,390,239
----------- ----------- ---
$22,518,166 $11,270,995
=========== ===========
</TABLE>
Commitments to extend credit generally have fixed expiration dates or other
termination clauses and may require payment of a fee. 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
credit risk involved in issuing these financial instruments is essentially the
same as that involved in extending loans to customers. The Company evaluates
each customer's creditworthiness on a case-by-case basis. The amount of
collateral obtained, if deemed necessary by the Company upon extension of
credit, is based on management's credit evaluation of the customer. Collateral
held varies but may include real estate and improvements, crops, marketable
securities, accounts receivable, inventory, equipment, and personal property.
Standby letters of credit are conditional commitments issued by the Company
to guarantee the performance of a customer to a third party. Those guarantees
are primarily issued to support public and private borrowing arrangements. The
credit risk involved in issuing letters of credit is essentially the same as
that involved in extending loan facilities to customers. Collateral held
varies as specified above and is required in instances which the Company deems
necessary.
In the normal course of business, the Company is involved in various legal
proceedings. In the opinion of management of the Company, any liability
resulting from such proceedings would not have a material effect on the
Company's financial statements.
Southern Bank of Commerce leases a small tract of land from the family of
the former Chairman of the Board. The lease provides for a monthly rental of
$2,154. It was recomputed in 1996 and will be recomputed again in 2001 based
on the change in the Consumer Price Index. The lease is accounted for as an
operating lease and the total rental expense included in the consolidated
statements of income for each of the years ended December 31, 1997 and 1996
was $25,848.
NOTE 12. CONCENTRATIONS OF CREDIT
The Company's subsidiaries make agricultural, agribusiness, commercial,
residential and consumer loans to customers primarily in the market areas
described in Note 1. A substantial portion of the Company's customers'
abilities to honor their contracts is dependent on the business economy in the
above areas.
Fifty-five percent (55%) of the Company's loan portfolio is concentrated in
real estate loans, of which 4% consists of construction loans. A substantial
portion of these loans are secured by real estate in the Company's primary
market area. In addition, a substantial portion of the other real estate owned
is located in those same markets. Accordingly, the ultimate collectibility of
the loan portfolio and the recovery of the carrying amount of other real
estate owned are susceptible to changes in market conditions in the Company's
primary market area. The other significant concentrations of credit by type of
loan are set forth in Note 3.
F-18
<PAGE>
EUFAULA BANCCORP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
NOTE 13. REGULATORY MATTERS
The Company is subject to certain restrictions on the amount of dividends
that may be declared without prior regulatory approval. At December 31, 1997,
approximately $1,233,722 of retained earnings were available for dividend
declaration without regulatory approval.
The Company and the Banks are subject to various regulatory capital
requirements administered by the federal banking agencies. Failure to meet
minimum capital requirements can initiate certain mandatory, and possibly
additional discretionary, actions by regulators that, if undertaken, could
have a direct material effect on the financial statements. Under capital
adequacy guidelines and the regulatory framework for prompt corrective action,
the Company and Banks must meet specific capital guidelines that involve
quantitative measures of the assets, liabilities, and certain off-balance-
sheet items as calculated under regulatory accounting practices. The Company
and Banks capital amounts and classification are also subject to qualitative
judgments by the regulators about components, risk weightings, and other
factors.
Quantitative measures established by regulation to ensure capital adequacy
require the Company and the Bank to maintain minimum amounts and ratios of
total and Tier I capital to risk-weighted assets and of Tier I capital to
average assets. Management believes, as of December 31, 1997, the Company and
the Banks meet all capital adequacy requirements to which it is subject.
As of December 31, 1997, the most recent notification from the FDIC
categorized the Banks as well capitalized under the regulatory framework for
prompt corrective action. To be categorized as well capitalized, the Banks
must maintain minimum total risk-based, Tier I risk-based, and Tier I leverage
ratios as set forth in the following table. There are no conditions or events
since that notification that management believes have changed the Banks'
category.
F-19
<PAGE>
EUFAULA BANCCORP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
The Company and Banks' actual capital amounts and ratios are presented in
the following table.
<TABLE>
<CAPTION>
TO BE WELL
FOR CAPITAL CAPITALIZED UNDER
ADEQUACY PROMPT CORRECTIVE
ACTUAL PURPOSES ACTION PROVISIONS
------------------ ---------------- -----------------
AMOUNT RATIO AMOUNT RATIO AMOUNT RATIO
----------- ------ ---------- ----- ---------- ------
<S> <C> <C> <C> <C> <C> <C>
As of December 31, 1997
Total Capital (to Risk
Weighted Assets):
Consolidated............ $11,208,977 14.03% $6,390,898 8.00% $7,988,623 10.00%
Southern Bank of
Commerce............... $ 7,848,969 13.91% $4,513,819 8.00% $5,642,274 10.00%
First American Bank..... $ 2,985,802 12.76% $1,871,420 8.00% $2,339,274 10.00%
Tier I Capital (to Risk
Weighted Assets):
Consolidated............ $10,471,419 13.11% $3,195,449 4.00% $4,793,174 6.00%
Southern Bank of
Commerce............... $ 7,289,534 12.92% $2,256,910 4.00% $3,385,364 6.00%
First American Bank..... $ 2,807,679 12.00% $ 935,710 4.00% $1,403,565 6.00%
Tier I Capital (to
Average Assets):
Consolidated............ $10,471,419 9.20% $4,611,564 4.00% $5,764,455 5.00%
Southern Bank of
Commerce............... $ 7,289,534 8.73% $3,339,680 4.00% $4,174,600 5.00%
First American Bank..... $ 2,807,679 8.44% $1,330,680 4.00% $1,663,350 5.00%
As of December 31, 1996
Total Capital (to Risk
Weighted Assets):
Consolidated............ $ 9,887,372 16.60% $4,765,970 8.00% $5,957,462 10.00%
Southern Bank of
Commerce............... $ 7,276,250 17.64% $3,299,268 8.00% $4,124,086 10.00%
First American Bank..... $ 2,453,122 13.40% $1,464,864 8.00% $1,831,080 10.00%
Tier I Capital (to Risk
Weighted Assets):
Consolidated............ $ 9,258,607 15.54% $2,382,985 4.00% $3,574,477 6.00%
Southern Bank of
Commerce............... $ 6,806,624 16.50% $1,649,634 4.00% $2,474,451 6.00%
First American Bank..... $ 2,293,983 12.53% $ 732,432 4.00% $1,098,648 6.00%
Tier I Capital (to
Average Assets):
Consolidated............ $ 9,258,607 9.42% $3,995,359 4.00% $4,994,199 5.00%
Southern Bank of
Commerce............... $ 6,806,624 9.21% $2,956,320 4.00% $3,695,400 5.00%
First American Bank..... $ 2,293,983 8.32% $1,102,560 4.00% $1,378,200 5.00%
</TABLE>
NOTE 14. FAIR VALUE OF FINANCIAL INSTRUMENTS
The following methods and assumptions were used by the Company in estimating
its fair value disclosures for financial instruments. In cases where quoted
market prices are not available, fair values are based on estimates using
discounted cash flow methods. Those methods are significantly affected by the
assumptions used, including the discount rates and estimates of future cash
flows. In that regard, the derived fair value estimates cannot be
substantiated by comparison to independent markets and, in many cases, could
not be realized in immediate settlement of the instrument. The use of
different methodologies may have a material effect on the estimated fair value
amounts. Also, the fair value estimates presented herein are based on
pertinent information available to management as of December 31, 1997 and
1996. Such amounts have not been revalued for purposes of these financial
statements since those dates and, therefore, current estimates of fair value
may differ significantly from the amounts presented herein.
The following methods and assumptions were used by the Company in estimating
fair values of financial instruments as disclosed herein:
CASH, DUE FROM BANKS, AND FEDERAL FUNDS SOLD:
The carrying amounts of cash, due from banks, and Federal funds sold
approximate their fair value.
F-20
<PAGE>
EUFAULA BANCCORP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
AVAILABLE FOR SALE AND HELD TO MATURITY SECURITIES:
Fair values for securities are based on quoted market prices. The carrying
values of equity securities with no readily determinable fair value
approximate fair values.
LOANS:
For variable-rate loans that reprice frequently and have no significant
change in credit risk, fair values are based on carrying values. For other
loans, the fair values are estimated using discounted cash flow methods, using
interest rates currently being offered for loans with similar terms to
borrowers of similar credit quality. Fair values for impaired loans are
estimated using discounted cash flow methods or underlying collateral values.
DEPOSITS:
The carrying amounts of demand deposits, savings deposits, and variable-rate
certificates of deposit approximate their fair values. Fair values for fixed-
rate certificates of deposit are estimated using discounted cash flow methods,
using interest rates currently being offered on certificates.
OTHER BORROWINGS:
The carrying amounts of Federal funds purchased and securities sold under
agreements to repurchase approximate their fair value.
OFF-BALANCE SHEET INSTRUMENTS:
Fair values of the Company's off-balance sheet financial instruments are
based on fees charged to enter into similar agreements. However, commitments
to extend credit and standby letters of credit do not represent a significant
value to the Company until such commitments are funded. The Company has
determined that these instruments do not have a distinguishable fair value and
no fair value has been assigned.
The estimated fair values of the Company's financial instruments were as
follows:
<TABLE>
<CAPTION>
DECEMBER 31, 1997 DECEMBER 31, 1996
------------------------- -----------------------
CARRYING FAIR CARRYING FAIR
VALUE VALUE VALUE VALUE
------------ ------------ ----------- -----------
<S> <C> <C> <C> <C>
Financial assets:
Cash and due from banks,
interest-bearing deposits
with banks and Federal
funds sold................ $ 8,496,465 $ 8,496,465 $ 9,445,627 $ 9,445,627
Securities available for
sale...................... 16,174,526 16,174,526 26,834,414 26,834,414
Securities held to maturity
.......................... 9,281,741 9,667,334 10,062,091 10,484,389
Loans...................... 77,841,388 78,280,325 52,167,811 52,085,279
Financial liabilities:
Deposits................... 104,608,684 105,192,522 90,495,197 89,059,793
Securities sold under re-
purchase agreements....... -- -- 1,475,000 1,475,000
Other borrowings........... 3,100,000 3,100,000 1,200,000 1,200,000
</TABLE>
NOTE 15. PARENT COMPANY FINANCIAL INFORMATION
The following information presents the condensed balance sheets, statements
of income and cash flows of Eufaula BancCorp, Inc. as of and for the years
ended December 31, 1997 and 1996:
F-21
<PAGE>
EUFAULA BANCCORP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
CONDENSED BALANCE SHEETS
<TABLE>
<CAPTION>
1997 1996
------------ ------------
<S> <C> <C>
ASSETS
Cash .......................................... $ 114,799 $ 197,719
Investment in subsidiaries..................... 10,092,538 9,060,478
Other assets................................... 1,823,937 1,571,618
============ ============
Total assets................................. $ 12,031,274 $ 10,829,815
Liabilities, other............................. $ 89,947 $ 114,964
------------ ------------
Shareholders' equity........................... 11,941,327 10,714,851
------------ ------------
Total liabilities and shareholders' equity... $ 12,031,274 $ 10,829,815
============ ============
</TABLE>
CONDENSED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
1997 1996
---------- -----------
<S> <C> <C>
Income, dividends from subsidiaries..................... $ 690,000 $ 452,700
Expense
Amortization ......................................... 78,745 78,745
Other expense......................................... 465,998 253,182
Total expense....................................... 544,743 331,927
Income before income tax benefits and equity in undis-
tributed income of
subsidiaries......................................... 145,257 120,773
Income tax benefits..................................... 170,141 90,115
Income before equity in undistributed income of sub-
sidiaries ........................................... 315,398 210,888
Equity in undistributed income of subsidiaries........ 691,994 1,018,201
---------- -----------
Net income............................................ $1,007,392 $ 1,229,089
========== ===========
</TABLE>
F-22
<PAGE>
EUFAULA BANCCORP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
CONDENSED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
1997 1996
---------- -----------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income.......................................... $1,007,392 $ 1,229,089
---------- -----------
Adjustments to reconcile net income to net cash pro-
vided by operating
activities:
Amortization...................................... 78,745 78,745
Undistributed income of subsidiaries.............. (691,994) (1,018,201)
Increase (decrease) in taxes payable.............. (166,763) 76,574
Provision for deferred taxes...................... 11,521 --
Other prepaids, deferrals and accruals, net....... (33,018) --
---------- -----------
Total adjustments............................... (801,509) (862,882)
---------- -----------
Net cash provided by operating activities....... 205,883 366,207
---------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES
Contribution of capital to subsidiary bank.......... (250,000) --
---------- -----------
Net cash used in investing activities............. (250,000) --
---------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from exercise of stock options............. 252,866 --
Purchase of fractional shares....................... (85) --
Dividends paid...................................... (291,584) (202,981)
Net cash used in financing activities........... (38,803) (202,981)
---------- -----------
Net increase (decrease) in cash....................... (82,920) 163,226
Cash at beginning of year............................. 197,719 34,493
---------- -----------
Cash at end of year................................... $ 114,799 $ 197,719
========== ===========
</TABLE>
F-23
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
NO DEALER, SALES REPRESENTATIVE OR ANY OTHER PERSON HAS BEEN AUTHORIZED TO
GIVE ANY INFORMATION OR TO MAKE ANY REPRESENTATIONS IN CONNECTION WITH THE
OFFERING OTHER THAN THOSE CONTAINED IN THIS PROSPECTUS, AND, IF GIVEN OR MADE,
SUCH INFORMATION AND REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN
AUTHORIZED BY THE COMPANY OR ANY UNDERWRITER. THIS PROSPECTUS DOES NOT
CONSTITUTE AN OFFER TO SELL OR A SOLICITATION OF AN OFFER TO PURCHASE ANY
SECURITIES OTHER THAN THE SHARES OF COMMON STOCK TO WHICH IT RELATES OR AN
OFFER TO ANY PERSON IN ANY JURISDICTION WHERE SUCH OFFER OR SOLICITATION IS NOT
AUTHORIZED OR WOULD BE UNLAWFUL. NEITHER THE DELIVERY OF THIS PROSPECTUS NOR
ANY SALE MADE HEREUNDER SHALL UNDER ANY CIRCUMSTANCES CREATE ANY IMPLICATION
THAT THE INFORMATION HEREIN IS CORRECT AS OF ANY DATE SUBSEQUENT TO THE DATE
HEREOF.
------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Additional Information..................................................... 3
Prospectus Summary......................................................... 4
Risk Factors............................................................... 7
The Company................................................................ 10
Market Price of and Dividends Declared on Common Stock..................... 11
Use of Proceeds............................................................ 12
Capitalization............................................................. 13
Capital Ratios............................................................. 13
Dilution................................................................... 14
Management's Discussion and Analysis of
Financial Condition and Results of
Operations................................................................ 15
Business................................................................... 29
Management................................................................. 33
Voting Securities and Principal
Stockholders.............................................................. 33
Executive Compensation..................................................... 36
Certain Relationships and Related
Transactions.............................................................. 37
Description of Capital Stock............................................... 38
Shares Eligible for Future Sale............................................ 41
Supervision and Regulation................................................. 41
Underwriting............................................................... 45
Legal Matters.............................................................. 46
Indemnification............................................................ 46
Experts.................................................................... 47
Index to Financial Statements.............................................. F-1
</TABLE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Shares
EUFAULA BANCCORP, INC.
COMMON STOCK
----------------
PROSPECTUS
----------------
STERNE, AGEE & LEACH, INC.
, 1998
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 24. INDEMNIFICATION OF DIRECTORS AND OFFICERS
The Registrant's Certificate of Incorporation, subject to certain
exceptions, eliminates the potential personal liability of a director for
monetary damages to the Registrant or its shareholders for breach of a duty as
a director. There is no elimination of liability for (1) any breach of the
director's duty of loyalty to the corporation or its stockholders, (2) acts or
omissions not in good faith or which involve intentional misconduct or a
knowing violation of law, (3) under Section 174 of Title 8 of the Delaware
Code, or (4) any transaction from which the director derived an improper
personal benefit. The Registrant's Certificate of Incorporation does not
eliminate or limit the right of the Company or its shareholders to seek
injunctive or other equitable relief not involving monetary damages.
The Registrant's Certificate of Incorporation and By-Laws provide that the
Registrant shall indemnify its officers, directors, employees and agents to
the extent permitted by the Delaware General Corporation Law, which permits a
corporation to indemnify any person who was or is a party or is threatened to
be made a party or any threatened, pending or completed claim, action, suit or
proceeding by reason of the fact that he is or was a director, officer,
employee or agent of the corporation, against expenses (including attorneys'
fees), judgments, fines and settlements incurred by him in connection with any
such suit or proceeding, if he acted in good faith and in manner reasonably
believed to be in or not opposed to the best interest of the corporation, and,
in the case of a derivative action on behalf of the corporation, permits a
corporation to indemnify any such action only against expenses and then only
if such person is not adjudged liable for negligence or misconduct.
ITEM 25. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The following table sets forth the costs and expenses payable by the
registrant in connection with the sale of the securities being registered. All
amounts are estimates except the SEC registration fee.
<TABLE>
<CAPTION>
AMOUNT
TO BE
PAID
--------
<S> <C>
SEC Registration Fee................ $ 1,696
Printing and Engraving Expenses..... $ 65,000
Legal Fees and Expenses............. $ 50,000
Accounting Fees and Expenses........ $ 25,000
Blue Sky Fees and Expenses.......... $ 6,500
Miscellaneous....................... $ 10,000
--------
Total............................ $158,196
</TABLE>
ITEM 26. RECENT SALES OF UNREGISTERED SECURITIES
The Registrant has a stock option plan under which 285,000 shares of the
Registrant's common stock may be issued with respect to stock options
currently granted to directors and to officers and salaried employees and
under which 165,000 shares remain available for future grant. The Registrant
also has an employee stock purchase plan for employees and a director stock
purchase plan.
II-1
<PAGE>
There have been no sales by the Registrant of its Common Stock during the
last three years except for the issuance of shares of Common Stock to officers
upon exercise of options and sales pursuant to the Company's stock purchase
plan for directors and its stock purchase plan for employees. Sales pursuant
to all of these plans have been made in reliance upon exemptions from
registration under Section 4(2) and 4(6) of the Securities Act and pursuant to
Rule 701, when applicable. During the last three years, four officers have
purchased 57,411 shares pursuant to options at an aggregate purchase price of
$253,206. The following table shows for each purchase plan the number of
persons participating for each year, the totals shares purchased by such
persons under the plan and the total purchase price, which was paid to the
Registrant. Shares are purchased once a month in each plan.
<TABLE>
<CAPTION>
NUMBER OF TOTAL SHARES TOTAL PURCHASE PRICE
YEAR PARTICIPANTS PURCHASED AND CASH PROCEEDS
---- ------------ ------------ --------------------
AS TO THE DIRECTOR STOCK PURCHASE PLAN
<S> <C> <C> <C>
1995 14 0 $0
1996 14 3,868 $61,466
1997 24 4,628 $77,301
AS TO THE EMPLOYEE STOCK PURCHASE PLAN
1995 30 3,428 $45,936
1996 30 1,973 $36,027
1997 26 3,462 $58,892
</TABLE>
ITEM 27. EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF EXHIBITS
------- ------------------------------------------------------------------------------------
<C> <S>
1 Underwriting Agreement
3.1 Restated Certificate of Incorporation of the Registrant, (filed as Exhibit 3.1 to
the Registrant's Annual Report on Form 10-KSB (File Number 33-23062), filed with the
Commission on March 23, 1998 and incorporated herein by reference.)
3.2 Bylaws (amended and restated) of the Registrant (filed as Exhibit 3.2 to the
Registrant's Annual Report on Form 10-KSB (File Number 33-23062), filed with the
Commission on March 23, 1998 and incorporated herein by reference.)
<CAPTION>
4 Articles 4, 5, 8, 9 and 10 of the Certificate of Incorporation and Article II of the
Bylaws contained at Exhibits 3.1 and 3.2, respectively, herein and incorporated
herein by reference.
<C> <S>
5 Opinion of Balch & Bingham LLP regarding legality of shares
10.1 Eufaula Bank & Trust Company Employee Stock Purchase Plan (filed as Exhibit 10.1 to
the Registrant's Annual Report on Form 10-KSB (File Number 33-23062), filed with the
Commission on April 29, 1994 and incorporated herein by reference.)
10.2 Eufaula Bank & Trust Company Profit-Sharing Retirement Plan (filed as Exhibit 10.2
to the Registrant's Annual Report on Form 10-KSB (File Number 33-23062), filed with
the Commission on April 29, 1994 and incorporated herein by reference.)
10.3 Registrant's Stock Option Agreement (filed as Exhibit 10.3 to the Registrant's
Annual Report on Form 10-KSB (File Number 33-23062), filed with the Commission on
April 29, 1994 and incorporated herein by reference).
10.4 Director Stock Purchase Plan (filed as Exhibit 10.4 to the Registrant's Annual
Report on Form 10-KSB (file number 33-23062), filed with the Commission on March 23,
1998, and incorporated by reference.)
10.5 Deferred Compensation Agreement between Eufaula Bank & Trust Company and Director
(Sample Form) effective July 23, 1996 (filed as Exhibit 10.5 to the Registrant's
Annual Report on Form 10-KSB (file number 33-23062), filed with the Commission on
March 31, 1997 and incorporated herein by reference.)
</TABLE>
II-2
<PAGE>
<TABLE>
<S> <C>
21 Subsidiaries of Eufaula BancCorp, Inc. (filed as Exhibit 21 to the Registrant's
Annual Report on Form 10-KSB (file number 33-23062), filed with the Commission on
April 29, 1994, and incorporated herein by reference.)
23.1 Consent of Mauldin & Jenkins
23.2 Consent of Balch & Bingham LLP (contained in their legal opinion at Exhibit 5 above)
24 Power of Attorney (contained on the signature page hereof)
</TABLE>
- --------
ITEM 28. UNDERTAKINGS
(a) Insofar as indemnification for liabilities arising under the Securities
Act may be permitted to directors, officers and controlling persons of the
Registrant pursuant to the provisions described in Item 24 of this Part II, 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 Securities 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 small business issuer 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 small business issuer 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 of whether such indemnification
by it is against public policy as expressed in the Securities Act and will be
governed by the final adjudication of such issue.
(b) For determining any liability under the Securities Act, the Registrant
shall treat the information omitted from the form of prospectus filed as part
of this registration statement in reliance upon Rule 430A and contained in
form of prospectus filed by the registrant pursuant to Rule 424(b)(1) or (4)
or 497(h) under the Securities Act as part of this registration statement as
of the time the Commission declared it effective.
(c) For determining any liability under the Securities Act, the Registrant
shall treat each post-effective amendment that contains a form of prospectus
as a new registration statement for the securities offered in the registration
statement, and the offering of the securities at that time as the initial bona
fide offering of those securities.
II-3
<PAGE>
SIGNATURES
In accordance with the requirements of the Securities Act of 1933, the
Registrant certifies that it has reasonable grounds to believe that it meets
all the requirements of the filing on Form SB-2 and authorizes this
Registration Statement to be signed on its behalf by the undersigned, in
Eufaula, Alabama, on March 18, 1998.
EUFAULA BANCCORP, INC.
By: /s/ Gregory B. Faison
-------------------------
Gregory B. Faison
Chief Executive Officer
We, the undersigned directors of Eufaula BancCorp, Inc., do hereby
constitute and appoint Greg E. Faison our true and lawful attorney-in-fact and
agent, with full power of substitution and resubstitution, for us and in our
name, place and stead, in any and all capacities, to sign any and all
amendments to this Registration Statement on Form SB-2 and to file the same,
with all exhibits thereto, and other documents in connection therewith,
including any amendments thereto, with the Securities and Exchange Commission
and to file such notices, reports or registration statements and amendments
thereto with any state securities authority or securities exchange or market,
and we do hereby ratify and confirm all that said attorneys-in-fact and
agents, or their substitutes, may lawfully do or cause to be done by virtue
hereof.
In accordance with the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities indicated on the dates stated.
SIGNATURE TITLE DATE
Chief Executive
/s/ Gregory B. Faison Officer and Director
- ------------------------- (Principal Executive
Officer)
Gregory B. Faison *
/s/ Gloria Hagler
- -------------------------
Treasurer (Principal
Financial
Officer and Principal
Accounting Officer)
Gloria Hagler *
/s/ Michael C. Dixon
- -------------------------
Director
*
Michael C. Dixon
/s/ Robert M. Dixon
- -------------------------
Director
*
Robert M. Dixon
Director
/s/ James J. Jaxon, Jr. *
- -------------------------
James J. Jaxon, Jr.
Director
/s/ Janis Biggers *
- -------------------------
Janis Biggers
Director
/s/ Thomas Harris *
- -------------------------
Thomas Harris
Director
/s/ Frank McRight
- ------------------------- *
Frank McRight
* March 18, 1998
II-4
<PAGE>
EXHIBIT INDEX
EXHIBIT
NUMBER DESCRIPTION OF EXHIBITS
------------------------------
1 Underwriting Agreement
<TABLE>
<S> <C>
3.1 Restated Certificate of Incorporation of the Registrant, (filed as Exhibit 3.1 to
the Registrant's Annual Report on Form 10-KSB (File Number 33-23062), filed with the
Commission on March 23, 1998 and incorporated herein by reference.)
3.2 Bylaws (amended and restated) of the Registrant (filed as Exhibit 3.2 to the
Registrant's Annual Report on Form 10-KSB (File Number 33-23062), filed with the
Commission on March 23, 1998 and incorporated herein by reference.)
4 Articles 4, 5, 8, 9 and 10 of the Certificate of Incorporation and Article II of the
Bylaws contained at Exhibits 3.1 and 3.2, respectively, herein and incorporated
herein by reference.
5 Opinion of Balch & Bingham LLP regarding legality of shares
10.1 Eufaula Bank & Trust Company Employee Stock Purchase Plan (filed as Exhibit 10.1 to
the Registrant's Annual Report on Form 10-KSB (File Number 33-23062), filed with the
Commission on April 29, 1994 and incorporated herein by reference.)
10.2 Eufaula Bank & Trust Company Profit-Sharing Retirement Plan (filed as Exhibit 10.2
to the Registrant's Annual Report on Form 10-KSB (File Number 33-23062), filed with
the Commission on April 29, 1994 and incorporated herein by reference.)
10.3 Registrant's Stock Option Agreement (filed as Exhibit 10.3 to the Registrant's
Annual Report on Form 10-KSB (File Number 33-23062), filed with the Commission on
April 29, 1994 and incorporated herein by reference).
10.4 Director Stock Purchase Plan (filed as Exhibit 10.4 to the Registrant's Annual
Report on Form 10-KSB (file number 33-23062), filed with the Commission on March 23,
1998, and incorporated by reference.)
10.5 Deferred Compensation Agreement between Eufaula Bank & Trust Company and Director
(Sample Form) effective July 23, 1996 (filed as Exhibit 10.5 to the Registrant's
Annual Report on Form 10-KSB (file number 33-23062), filed with the Commission on
March 31, 1997 and incorporated herein by reference.)
21 Subsidiaries of Eufaula BancCorp, Inc. (filed as Exhibit 21 to the Registrant's
Annual Report on Form 10-KSB (file number 33-23062), filed with the Commission on
April 29, 1994, and incorporated herein by reference.)
23.1 Consent of Mauldin & Jenkins
23.2 Consent of Balch & Bingham LLP (contained in their legal opinion at Exhibit 5 above)
24 Power of Attorney (contained on the signature page hereof)
</TABLE>
- --------
II-5
<PAGE>
EXHIBIT 1
EUFAULA BANCCORP, INC.
___________ SHARES COMMON STOCK
UNDERWRITING AGREEMENT
________________, 1998
STERNE, AGEE & LEACH, INC.
As Representative of the several Underwriters
named in Schedule I attached hereto
1901 Sixth Avenue North, Suite 2100
Birmingham, Alabama 35203-2675
Gentlemen:
The undersigned, Eufaula BancCorp, Inc., a Delaware corporation (the
"Company"), hereby confirms its agreement with Sterne, Agee & Leach, Inc.
(individually, "Sterne Agee"), as representative (the "Representative") of the
several underwriters named in Schedule I hereto (the "Underwriters"), as
follows:
1. INTRODUCTION.
------------
(a) The Company proposes to issue and sell to the Underwriters
________ shares of its common stock, par value $1.00 per share (the "Common
Stock"), as set forth in Schedule I hereto and pursuant to the Underwriters'
agreement to purchase the Common Stock in Section 3(a) hereof. The Common Stock
to be purchased pursuant to Section 3(a) of this Agreement may be hereinafter
referred to as the "Firm Shares".
(b) Solely for the purpose of covering over-allotments, if any, the
Company proposes to grant to the Underwriters a one-time option (the "Over-
allotment Option") to purchase from the Company in the aggregate, up to an
additional _________ shares of Common Stock (15% of the Firm Shares) pursuant to
the terms and conditions of Section 3(b) herein. Such shares of Common Stock
are hereinafter referred to as the "Option Shares."
2. REPRESENTATIONS AND WARRANTIES. The Company represents and warrants
------------------------------
to, and agrees with, the several Underwriters that:
(a) A registration statement on Form SB-2 (File No. 333-_______) with
respect to the Common Stock, including a prospectus subject to completion, has
been prepared by the Company in conformity with the requirements of the
Securities Act of 1933, as amended (the "Act"), and the applicable rules and
regulations (the "Rules and Regulations") of the Securities and Exchange
Commission (the "Commission") under the Act and has been filed with the
Commission; such amendments to such registration statement, such amended
prospectuses subject to completion and such abbreviated registration statements
pursuant to Rule 462(b) of the Rules and Regulations as may have been required
prior to the date hereof have been similarly prepared and filed with the
Commission; and the Company will file such additional amendments to such
registration statement, such amended prospectuses subject to completion and such
abbreviated registration statements as may hereafter be required. Copies of
such registration statement and amendments, of each related prospectus subject
to completion (the "Preliminary Prospectuses") and of any
<PAGE>
abbreviated registration statement pursuant to Rule 462(b) of the Rules and
Regulations have been delivered to Sterne Agee.
If the registration statement relating to the Common Stock has been
declared effective under the Act by the Commission, the Company will prepare and
promptly file with the Commission the information omitted from the registration
statement pursuant to Rule 430A(a) or, if Sterne Agee, on behalf of the
Underwriters, shall agree to the utilization of Rule 434 of the Rules and
Regulations, the information required to be included in any term sheet filed
pursuant to Rule 434(b) or (c), as applicable, of the Rules and Regulations
pursuant to subparagraph (1), (4) or (7) of Rule 424(b) of the Rules and
Regulations or as part of a post-effective amendment to the registration
statement (including a final from of prospectus). If the registration statement
relating to the Common Stock has not been declared effective under the Act by
the Commission, the Company will prepare and promptly file an amendment to the
registration statement, including a final form of prospectus, or, if Sterne Agee
on behalf of the Underwriters, shall agree to the utilization of Rule 434 of the
Rules and Regulations, the information required to be included in any term sheet
filed pursuant to Rule 434(b) or (c), as applicable, of the Rules and
Regulations. The term "Registration Statement" as used in this Agreement shall
mean such registration statement, including financial statements, schedules and
exhibits, in the form in which it became or becomes, as the case may be,
effective (including, if the Company omitted information from the registration
statement pursuant to Rule 430A(a) or files a term sheet pursuant to Rule 434 of
the Rules and Regulations, the information deemed to be a part of the
registration statement at the time it became effective pursuant to Rule 430A(b)
or Rule 434(d) of the Rules and Regulations) and, in the event of any amendment
thereto or the filing of any abbreviated registration statement pursuant to Rule
462(b) of the Rules and Regulations relating thereto after the effective date of
such registration statement, shall also mean (from and after the effectiveness
of such amendment or the filing of such abbreviated registration statement) such
registration statement as so amended, together with any such abbreviated
registration statement. The term "Prospectus" as used in this Agreement shall
mean the prospectus relating to the Common Stock as included in such
Registration Statement at the time it becomes effective (including, if the
Company omitted information from the Registration Statement pursuant to Rule
430A(a) of the Rules and Regulations, the information deemed to be a part of the
Registration Statement at the time it became effective pursuant to Rule 430A(b)
of the Rules and Regulations); provided, however, that if in reliance on Rule
-------- -------
434 of the Rules and Regulations and with the consent of Sterne Agee, on behalf
of the several Underwriters, the Company shall have provided to the Underwriters
a term sheet pursuant to Rule 434(b) or (c), as applicable, prior to the time
that a confirmation is sent or given for purposes of Section 2(10)(a) of the
Act, the term "Prospectus" shall mean the "prospectus subject to completion" (as
defined in Rule 434(g) of the Rules and Regulations) last provided to the
Underwriters by the Company and circulated by the Underwriters to all
prospective purchasers of the Common Stock (including the information deemed to
be a part of the Registration Statement at the time it became effective pursuant
to Rule 434(d) of the Rules and Regulations). Notwithstanding the foregoing, if
any revised prospectus shall be provided to the Underwriters by the Company for
use in connection with the offering of the Common Stock that differs from the
prospectus referred to in the immediately preceding sentence (whether or not
such revised prospectus is required to be filed with the Commission pursuant to
Rule 424(b) of the Rules and Regulations), the term "Prospectus" shall refer to
such revised prospectus from and after the time it is first provided to the
Underwriters for such use. If in reliance on Rule 434 of the Rules and
Regulations and with the consent of Sterne Agee on behalf of the Underwriters,
the Company shall have provided to the Underwriters a term sheet pursuant to
Rule 434(b) or (c), as applicable, prior to the time that a confirmation is sent
or given for purposes of Section 2(10)(a) of the Act, the Prospectus and the
term sheet, together, will not be materially different from the prospectus in
the Registration Statement.
(b) The Commission has not issued an order (a "Stop Order") suspending
the effectiveness of, or preventing or suspending the use of, the Registration
Statement, any Preliminary Prospectus, the Prospectus, or any amendment or
supplement thereto, refusing to permit the effectiveness of the Registration
Statement, or suspending the registration or qualification of the Common Stock
nor has any such authorities instituted or threatened to institute any
proceedings with respect to a Stop Order. In the event a Stop Order is issued
by any "blue sky" or securities authority of any jurisdiction, then either the
Company or the Representative may abandon the Registration Statement or void
this
2
<PAGE>
Agreement. The Registration Statement, Preliminary Prospectus and Prospectus
and any amendments and supplements thereto have conformed in all material
respects to the requirements of the Act and the Rules and Regulations and, as of
its date, has not included any untrue statement of a material fact or omitted to
state a material fact necessary to make the statements therein, in the light of
the circumstances under which they were made, not misleading; and at the time
the Registration Statement became or becomes, as the case may be, effective and
at all times subsequent thereto up to and on the Closing Date (hereinafter
defined) and on any later date on which Option Shares are to be purchased, (i)
the Registration Statement and the Prospectus, and any amendments or supplements
thereto, contained and will contain all material information required to be
included therein by the Act and the Rules and Regulations and will in all
material respects conform to the requirements of the Act and the Rules and
Regulations, (ii) the Registration Statement, and any amendments or supplements
thereto, did not and will not include 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 therein not misleading, and (iii) the Prospectus, and any
amendments or supplements thereto, did not and will not include any untrue
statement of a material fact or omit to state a material fact necessary to make
the statements therein, in the light of the circumstances under which they were
made, not misleading; provided, however, that none of the representations and
-------- -------
warranties contained in this subparagraph (b) shall apply to information
contained in or omitted from the Registration Statement or Prospectus, or any
amendment or supplement thereto, in reliance upon, and in conformity with,
written information relating to any Underwriter furnished to the Company by such
Underwriter specifically for use in the preparation thereof.
(c) The Company and each subsidiary of the Company (as used herein,
the terms "subsidiary" includes any corporation, national or state bank, federal
savings bank, joint venture or partnership in which the Company or any
subsidiary of the Company has an ownership interest) is duly organized and
validly existing and in good standing under the laws of the respective
jurisdictions of their organization or incorporation, as the case may be, with
full power and authority (corporate, partnership and other, as the case may be)
to own their properties and conduct their businesses as now conducted and are
duly qualified or authorized to do business and are in good standing in all
jurisdictions wherein the nature of their business or the character of property
owned or leased may require them to be qualified or authorized to do business,
except for jurisdictions in which the failure to so qualify would not have a
material adverse effect on the Company and its subsidiaries taken as a whole.
The Company has been legally constituted and is validly existing in good
standing as a registered bank holding company under the Bank Holding Company Act
of 1956, as amended (the "BHC Act"), and the rules and, to the extent
applicable, regulations thereunder. Each subsidiary bank of the Company has
been duly incorporated and is a validly existing banking corporation under the
laws of the jurisdiction of its incorporation. The Company and its subsidiaries
hold all licenses, consents and approvals, and have satisfied all eligibility
and other similar requirements imposed by federal and state regulatory bodies,
administrative agencies or other governmental bodies, agencies or officials, in
each case as material to the conduct of the respective businesses in which they
are engaged in the Prospectus. Each of the Company's subsidiaries is set forth
on Exhibit 22 of the Registration Statement.
(d) The outstanding stock of each of the Company's corporate
subsidiaries is duly authorized, validly issued, fully paid and nonassessable
(except, to the extent permitted by the National Bank Act, the stock of the
Company's national bank subsidiaries). All of the outstanding stock of each of
the Company's corporate subsidiaries owned beneficially and of record by the
Company is owned clear of any lien, encumbrance, pledge, equity or claim of any
kind. Neither the Company nor any of its subsidiaries is a partner or joint
venturer in any partnership or joint venture.
(e) The Company has all requisite legal right, power and authority to
execute, deliver, and perform this Agreement. All necessary corporate
proceedings of the Company have been duly taken to authorize the execution,
delivery, and performance by the Company of this Agreement. This Agreement has
been duly authorized, executed, and delivered by the Company, is the legal,
valid, and binding obligation of the Company, and is enforceable as to the
Company in accordance with its terms, subject to applicable bankruptcy,
insolvency, reorganization,
3
<PAGE>
moratorium or other laws affecting the rights of creditors generally, and
subject, as to enforceability, to general principles of equity (regardless of
whether enforcement is sought in a proceeding in equity or at law). No consent,
authorization, approval, order, license, certificate, or permit of or from, or
declaration or filing with, any federal, state, local, or other governmental
authority or any court or other tribunal is required by the Company for the
execution, delivery, or performance by the Company of this Agreement, except as
required by the National Association of Securities Dealer, Inc. or under the Act
or state securities or Blue Sky laws which have been or will be made before the
Closing Date. No consent of any party to any contract, agreement, instrument,
lease, license, arrangement, or understanding to which the Company is a party,
or to which any of its properties or assets is subject, is required for the
execution, delivery, or performance of this Agreement, and the execution,
delivery, and performance of this Agreement will not violate, result in a breach
of, conflict with, result in the creation or imposition of any lien, charge, or
encumbrance upon any properties or assets of the Company pursuant to the terms
of, or, with or without the giving of notice or the passage of time or both,
entitle any party to terminate or call a default under, any such contract,
agreement, instrument, lease, license, arrangement, or understanding, or
violate, result in a breach of, or conflict with any term of the certificate of
incorporation (or other charter document) or by-laws of the Company or any of
its subsidiaries, or violate, result in a breach of, or conflict with, any law,
rule, regulation, order, judgment, or decree binding on the Company or any of
its subsidiaries or to which any of their operations, businesses, properties, or
assets are subject.
(f) There is not any pending or, to the best of the Company's
knowledge, threatened any action, suit, claim or proceeding against the Company,
or any of its officers or any of its properties, assets or rights before any
court, government or governmental agency or body, domestic or foreign, having
jurisdiction over the Company or over its officers or properties or otherwise
which (i) might result in any material adverse change in the condition
(financial or otherwise), earnings, operations, business or business prospects
of the Company or might materially and adversely affect its properties, assets
or rights, (ii) might prevent consummation of the transactions contemplated
hereby or (iii) is required to be disclosed in the Registration Statement or
Prospectus and is not so disclosed; and there are no agreements, contracts,
leases or documents of the Company of a character required to be described or
referred to in the Registration Statement or Prospectus or to be filed as an
exhibit to the Registration Statement by the Act or the Rules and Regulations
which have not been accurately described in all material respects in the
Registration Statement or Prospectus or filed as exhibits to the Registration
Statement.
(g) All outstanding shares of capital stock of the Company have been
duly authorized and validly issued and are fully paid and nonassessable, have
been issued in compliance with all federal and state securities laws, were not
issued in violation of or subject to any preemptive rights or other rights to
subscribe for or purchase securities, and the authorized and outstanding capital
stock of the Company as of March 31, 1998 is as set forth in the Prospectus
under the caption "Capitalization" and conforms in all material respects to the
statements relating thereto contained in the Registration Statement and the
Prospectus under the caption "Description of Capital Stock" (and such statements
correctly state the substance of the instruments defining the capitalization of
the Company); the Firm Shares and the Option Shares have been duly authorized
for issuance and sale to the Underwriters pursuant to this Agreement and, when
issued and delivered by the Company against payment therefor in accordance with
the terms of this Agreement, will be duly and validly issued and fully paid and
nonassessable, and will be sold free and clear of any pledge, lien, security
interest, encumbrance, claim or equitable interest; and no preemptive right, co-
sale right, registration right, right of first refusal or other similar right of
stockholders exists with respect to any of the Firm Shares or Option Shares or
the issuance and sale thereof other than those that have been expressly waived
prior to the date hereof and those that will automatically expire upon the
consummation of the transactions contemplated on the Closing Date. No further
approval or authorization of any stockholder, the Board of Directors of the
Company or others is required for the issuance and sale or transfer of the
Common Stock except as may be required under the Act or under state or other
securities or Blue Sky laws. Except as disclosed in or contemplated by the
Prospectus and the financial statements of the Company, and the related notes
thereto, included in the Prospectus, the Company does not have outstanding any
options to purchase, or any preemptive rights or other rights to subscribe for
or to purchase, any securities or obligations convertible into, or any contracts
or commitments to issue or sell, shares of its capital stock or any such
options, rights,
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convertible securities or obligations. The description of the Company's stock
option, stock bonus and other stock plans or arrangements, and the options or
other rights granted and exercised thereunder, set forth in the Prospectus
accurately and fairly presents the information required to be shown with respect
to such plans, arrangements, options and rights.
(h) Mauldin & Jenkins, LLC, which has examined the financial
statements of the Company, together with the related schedules and notes filed
with the Commission as a part of the Registration Statement, which are included
in the Prospectus, are independent accountants within the meaning of the Act and
the Rules and Regulations; the audited financial statements of the Company,
together with the related schedules and notes, and the unaudited financial
information, forming part of the Registration Statement and Prospectus, fairly
present the financial position and the results of operations and changes in
financial position and cash flow of the Company and its subsidiaries at the
respective dates and for the respective periods to which they apply and have
been prepared in accordance with generally accepted accounting principles
consistently applied throughout the periods involved except as may be otherwise
stated therein. The other financial statements and schedules included in or as
schedules to the Registration Statement conform to the material requirements of
the Act and the Rules and Regulations and present fairly the information
presented therein for the periods shown. All of the financial and statistical
data set forth in the Prospectus under the captions "Prospectus Summary," "Use
of Proceeds," "Capitalization," "Selected Consolidated Financial Data,"
"Management's Discussions and Analysis of Financial Condition and Results of
Operations," "Business" and "Voting Securities and Principal Stockholders,"
fairly present the information set forth therein on the basis stated in the
Prospectus. No other financial statements or schedules are required to be
included in the Registration Statement or Prospectus.
(i) Subsequent to the respective dates as of which information is
given in the Registration Statement and Prospectus, neither the Company nor any
subsidiary has sustained any material loss or interference with its business or
properties from fire, flood, hurricane, earthquake, accident or other calamity,
whether or not covered by insurance or for any labor dispute or court or
governmental action, order or decree, which is not disclosed in the Prospectus;
and subsequent to the respective dates as of which information is given in the
Registration Statement and the Prospectus, (i) neither the Company nor any of
its subsidiaries has incurred any material liabilities or obligations, direct or
contingent, or entered into any material transaction not within the ordinary
course of business, and (ii) there has not been any change in the capital stock,
partnership interest, joint venture interest, long-term debt, obligations under
capital leases or short-term borrowings of the Company or its subsidiaries,
taken as a whole, or any issuance of options, warrants or rights to purchase the
capital stock of the Company, or any adverse change, or any development
involving a prospective material adverse change in the management, business,
prospects, financial position, net worth or results of operations of the Company
or its subsidiaries, taken as a whole, except in each case as described in or
contemplated by the Prospectus.
(j) Except as set forth in the Registration Statement and Prospectus,
(i) the Company and its subsidiaries has good and marketable title to all
properties and assets described in the Registration Statement and Prospectus as
owned by it, free and clear of any pledge, lien, security interest, encumbrance,
claim or equitable interest, other than such as would not have a material
adverse effect on the condition (financial or otherwise), earnings, operations,
business or business prospects of the Company and its subsidiaries, (ii) the
agreements to which the Company and its subsidiaries are a party described in
the Registration Statement and Prospectus are valid agreements, enforceable by
the Company and its subsidiaries, except as the enforcement thereof may be
limited by applicable bankruptcy, insolvency, reorganization, moratorium or
other similar laws relating to or affecting creditors' rights, generally or by
general equitable principles and, to the best of the Company's knowledge, the
other contracting party or parties thereto are not in material breach or
material default under any of such agreements, and (iii) the Company and its
subsidiaries have valid and enforceable leases for all properties described in
the Registration Statement and Prospectus as leased by it, except as the
enforcement thereof may be limited by applicable bankruptcy, insolvency,
reorganization, moratorium or other similar laws relating to or affecting
creditors' rights generally or by general
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<PAGE>
equitable principles. Except as set forth in the Registration Statement and
Prospectus, the Company and its subsidiaries own or lease all such properties as
are necessary to its operations as now conducted or as proposed to be conducted.
(k) The Company and its subsidiaries have timely filed all necessary
federal, state and foreign income and franchise tax returns and have paid all
taxes shown thereon as due, and there is no tax deficiency that has been or, to
the best of the Company's knowledge, might be asserted against the Company or
any of its subsidiaries that might have a material adverse effect on the
condition (financial or otherwise), earnings, operations, business or business
prospects of the Company or its subsidiaries; and all tax liabilities are
adequately provided for on the books of the Company.
(l) The Company and its subsidiaries maintain insurance with insurers
of recognized financial responsibility of the types and in the amounts generally
deemed adequate for their respective businesses and consistent with insurance
coverage maintained by similar companies in similar businesses, including, but
not limited to, insurance covering real and personal property owned or leased by
the Company and its subsidiaries against theft, damage, destruction, acts of
vandalism and all other risks customarily insured against, all of which
insurance is in full force and effect; the Company and its subsidiaries have not
been refused any insurance coverage sought or applied for; and the Company has
no reason to believe that it will not be able to renew its or its subsidiaries
existing insurance coverage as and when such coverage expires or to obtain
similar coverage from similar insurers as may be necessary to continue its
business at a cost that would not materially and adversely affect the condition
(financial or otherwise), earnings, operations, business or business prospects
of the Company.
(m) To the best of the Company's knowledge, no labor disturbance by
the employees of the Company or its subsidiaries exist or is imminent that might
be expected to result in a material adverse change in the condition (financial
or otherwise), earnings, operations, business or business prospects of the
Company. No collective bargaining agreement exists with any of the Company's or
its subsidiaries' employees and, to the best of the Company's knowledge, no such
agreement is imminent.
(n) The Company and its subsidiaries own or possess adequate rights to
use all patents, patent rights, inventions, trade secrets, know-how, trademarks,
service marks, trade names and copyrights which are necessary to conduct its
businesses as described in the Registration Statement and Prospectus; the
expiration of any patents, patent rights, trade secrets, trademarks, service
marks, trade names or copyrights would not have a material adverse effect on the
condition (financial or otherwise), earnings, operations, business or business
prospects of the Company and its subsidiaries; the Company and its subsidiaries
have not received any notice of, and has no knowledge of, any infringement of or
conflict with asserted rights of the Company and it subsidiaries by others with
respect to any patent, patent rights, inventions, trade secrets, know-how,
trademarks, service marks, trade names or copyrights; and neither the Company
nor its subsidiaries have received any notice of, and have any knowledge of, any
infringement of or conflict with asserted rights of others with respect to any
patent, patent rights, inventions, trade secrets, know-how, trademarks, service
marks, trade names or copyrights which, singly or in the aggregate, if the
subject of an unfavorable decision, ruling or finding, would have a material
adverse effect on the condition (financial or otherwise), earnings, operations,
business or business prospects of the Company.
(o) There are no contracts or other documents required by the Act or
by the Rules and Regulations to be described in the Registration Statement, the
Prospectus, or to be filed as exhibits to the Registration Statement which have
not been described or filed as required.
(p) The Company has been advised concerning the Investment Company Act
of 1940, as amended (the "1940 Act"), and the rules and regulations thereunder,
and has in the past conducted, and intends in the future to conduct, its affairs
in such a manner as to ensure that it will not become an "investment company" or
a company "controlled" by an "investment company" within the meaning of the 1940
Act and such rules and regulations.
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<PAGE>
(q) The Company has not distributed and will not distribute prior to
the later of (i) the Closing Date or the Option Closing Date, as the case may
be, and (ii) completion of the distribution of the Firm Shares, any offering
material in connection with the offering and sale of the Firm Shares or the
Option Shares, as the case may be, other than any Preliminary Prospectuses, the
Prospectus, the Registration Statement and other materials, if any, permitted by
the Act.
(r) The Company has not at any time since its inception (i) made any
unlawful contribution to any candidate for foreign office or failed to disclose
fully any contribution in violation of law, or (ii) made any payment to any
federal or state governmental officer or official, or other person charged with
similar public or quasi-public duties, other than payments required or permitted
by the laws of the United States or any jurisdiction thereof.
(s) Neither the Company nor any of its subsidiaries, nor any of the
directors, officers, employees or agents of the Company and its subsidiaries
have taken and will not take, directly or indirectly, any action designed to
cause or result in, or that might reasonably be expected to cause or result in,
stabilization or manipulation of the price of the Common Stock.
(t) Each officer and director of the Company has agreed in writing
pursuant to a lock-up agreement in the form attached hereto as Exhibit A that
such person will not, from the date of the lock-up agreement through a period of
one hundred twenty (120) days after the effective date of the Registration
Statement (the "Lock-up Period"), offer to sell, contract to sell, or otherwise
sell (including without limitation in a short sale), dispose of, loan, pledge or
grant any rights with respect to any shares of Common Stock, or any securities
convertible into or exchangeable for Common Stock, any options or warrants to
purchase any shares of Common Stock, or any securities convertible into or
exchangeable for shares of Common Stock (collectively, "Securities") now owned
or hereafter acquired directly by such person or with respect to which such
person has or hereafter acquires the power of disposition (collectively, a
"Disposition"), otherwise than (i) as a bona fide gift or gifts, provided the
donee or donees thereof agree in writing to be bound by this restriction or (ii)
with the prior written consent of Sterne Agee, provided that the foregoing shall
not apply to any shares sold to the Underwriters pursuant to the Underwriting
Agreement. Following the expiration of the one hundred twenty (120) day period,
the undersigned may dispose of such Common Stock free of any contractual
obligation hereunder. Furthermore, such person will also agree and consent to
the entry of stop transfer instructions with the Company's transfer agent
against the transfer of the securities held by such person, except in compliance
with this Agreement. The Company has provided to counsel for the Underwriters a
complete and accurate list of all security-holders of the Company and the number
and type of securities held by each security-holder. The Company has provided
to counsel for the Underwriters true, accurate and complete copies of all of the
agreements pursuant to which its officers, directors and security-holders have
agreed to such or similar restrictions (the "Lock-up Agreements") presently in
effect or effected hereby. The Company hereby represents and warrants that it
will not release any of its officers, directors or security-holders from any
Lock-up Agreements currently existing or hereafter effected without the prior
written consent of Sterne Agee.
(u) Except as set forth in the Registration Statement and Prospectus,
(i) the Company is in compliance with all rules, laws and regulations relating
to the use, treatment, storage and disposal of toxic substances and protection
of health or the environment ("Environmental Laws") which are applicable to its
business, (ii) the Company has received no notice from any governmental
authority or third party of an asserted claim under Environmental Laws, which
claim is required to be disclosed in the Registration Statement and the
Prospectus, (iii) to the best of the Company's knowledge, the Company will not
be required to make future material capital expenditures to comply with
Environmental Laws and (iv) no property which is owned, leased or occupied by
the Company has been designated as a Superfund site pursuant to the
Comprehensive Response, Compensation, and Liability Act of 1980, as amended (42
U.S.C. (S) 9601, et seq.), or otherwise designated as a contaminated site under
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applicable state or local law.
7
<PAGE>
(v) The Company's system of internal accounting controls taken as a
whole is sufficient to meet the broad objectives of internal accounting control
insofar as those objectives pertain to the prevention or detection of errors or
irregularities in amounts that would be material in relation to the Company's
financial statements; and, except as disclosed in the Prospectus, neither the
Company nor any of its subsidiaries nor any employee or agent of the Company or
any subsidiary has made any payment of funds of the Company or any subsidiary or
received or attained any funds in violation of any law, rule or regulation, the
receipt or payment of which could have a material effect (financial or
otherwise), on the Company.
(w) There are no outstanding loans, advances (except normal advances
for business expenses in the ordinary course of business) or guarantees of
indebtedness by the Company or its subsidiaries to or for the benefit of any of
the officers or directors of the Company or its subsidiaries or any of the
members of the families of any of them, except as disclosed in the Registration
Statement and the Prospectus.
(x) The Company has taken such action as necessary to have the Firm
Shares and Option Shares authorized for trading on The Nasdaq National Market,
or, if the Company is unable to obtain approval of listing on The Nasdaq
National market, then The Nasdaq SmallCap Market, upon the Closing Date and
Option Closing Date, as applicable.
(y) The Company's Common Stock is registered with the Commission
pursuant to Section 12 of the Securities Exchange Act of 1934 ("Exchange Act")
and has complied with and will continue to comply with all registration, filing,
and reporting requirements of the Exchange Act, which have been and will be
applicable to the Company.
3. PURCHASE, SALE, AND DELIVERY OF THE FIRM SHARES AND OPTION SHARES.
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(a) On the basis of the representations, warranties, covenants, and
agreements of the Company herein contained, but subject to the terms and
conditions herein set forth, the Company agrees to issue and sell to the several
Underwriters, and, each of the Underwriters, severally and not jointly, agree to
purchase from the Company at a purchase price of $_____ per share, the number of
Firm Shares as set forth opposite the respective names of the Underwriters in
Schedule I hereto.
(b) The Company hereby grants to the Underwriters the Over-allotment
Option to purchase up to __________ shares of Common Stock, as may be necessary
to cover over-allotments, at the same purchase price per share, to be paid by
the several Underwriters to the Company for the Firm Shares as provided for in
this Section 3. The Over-allotment Option may be exercised only to cover over-
allotments in Common Stock by the Underwriters. The Over-allotment Option may
be exercised as to all or any part of the _______ shares of Common Stock
included therein at any time (but only once) within thirty (30) days after the
date the Registration Statement becomes effective. The Underwriters shall not
be under any obligation to purchase any Option Shares prior to the exercise of
such option. The Over-allotment Option may be exercised by the Representative
of the several Underwriters, by giving written notice to the Company setting
forth the number of Option Shares to be purchased from the Company and the date
and time for delivery of and payment for such Option Shares and stating that the
Option Shares therein are to be used for the purpose of covering over-allotments
in connection with the distribution and sale of the Firm Shares. If such
notice is given prior to the Closing Date, the date set forth therein for such
delivery and payment shall not be earlier than two (2) full business days
thereafter or the Closing Date, whichever occurs later. If such notice is given
on or after the Closing Date, the date set forth therein for such delivery and
payment shall not be earlier than three (3) full business days thereafter. In
either event, the date so set forth shall not be more than fifteen (15) full
business days after the date of such notice. The date and time set forth in
such notice, or such other time not later than the seventh full business day
thereafter as the Representative and the Company may determine, is herein called
the "Option Closing Date". Upon exercise of the option, the Company shall
become obligated to sell to the Representative for the account of the several
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<PAGE>
Underwriters, and, subject to the terms and conditions herein set forth, the
Representative shall become obligated to purchase, for the account of each
Underwriter, from the Company, the number of Option Shares specified in such
notice. The number of Option Shares to be purchased for the account of each
Underwriter shall bear the same ratio to the total number of Option Shares to be
purchased for the account of all Underwriters as the total number of Firm Shares
to be purchased from the Company set forth opposite the name of such Underwriter
on Schedule 1 hereto bears to the total number of Firm Shares to be purchased by
all the Underwriters from the Company, subject in each case to such adjustments
as the Representative in its discretion may make so that allocations may be made
to each Underwriter in round lot amounts to the extent practicable.
(c) Delivery of the definitive certificates for the Firm Shares to be
purchased by the Underwriters pursuant to this Section 3 shall be made against
payment of the purchase price therefor by the several Underwriters in same-day
federal funds by wire transfer to the Company at the offices of Balch & Bingham,
P.O. Box 306, Birmingham, Alabama 35201 (or at such other place as may be agreed
upon between the Representative and the Company), at 10:00 A.M. Atlanta time
either (a) on the third (3rd) full business day after this Agreement becomes
effective or (b) if this Agreement is executed and delivered after 3:30 P.M.,
Atlanta time, the fourth (4th) full business day following the day that this
Agreement becomes effective (or at such time and date to which payment and
delivery shall have been postponed pursuant to Section 9 hereof), such time and
date of payment and delivery being herein called the "Closing Date;" provided,
--------
however, that if the Company has not made available to the Representative copies
- -------
of the Prospectus within the time provided in Section 5(d) hereof, the
Representative may, in its sole discretion, postpone the Closing Date until no
later than two (2) full business days following delivery of copies of the
Prospectus to the Representative. Certificates in definitive form for the Option
Shares which each Underwriter shall have agreed to purchase hereunder shall be
similarly delivered on the Option Closing Date. The certificates in definitive
form for the Firm Shares and the Option Shares to be so delivered will be made
available to Sterne Agee for checking and packaging at such office or such other
location including, without limitation, in New York, New York, as Sterne Agee
may reasonably designate at least one (1) full business day prior to the Closing
Date or the Option Closing Date, as the case may be, and will be in good
delivery form and will be in such names and denominations as Sterne Agee may
request, such request to be made at least two (2) full business days prior to
the Closing Date or the Option Closing Date, as the case may be. If the
Representative so elects, delivery of the Firm Shares and Option Shares may be
made by credit through full fast transfer to the accounts at The Depository
Trust Company designated by the Representative.
(d) It is understood that the Representative may (but shall not be
obligated to) make any and all payments required pursuant to this Section 3 on
behalf of any Underwriters whose check or checks shall not have been received by
the Representative at the time of delivery of the Firm Shares or any Option
Shares to be purchased by such Underwriter or Underwriters. Any such payment by
the Representative shall relieve any such Underwriter or Underwriters of any of
its or their obligations hereunder.
4. OFFERING BY UNDERWRITER AND UNDERWRITER DISCLOSURE.
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(a) After the Registration Statement becomes effective, the several
Underwriters propose to offer for sale to the public the Firm Shares and any
Option Shares which may be sold at the price and upon the terms set forth in the
Prospectus.
(b) The information set forth in (i) the last paragraph on the front
cover page and (ii) the second paragraph under the caption "Underwriting" in
any Preliminary Prospectus and in the final form of Prospectus filed pursuant to
Rule 424(b) constitutes the only information furnished by the Underwriters to
the Company for inclusion in any Preliminary Prospectus, the Prospectus or the
Registration Statement, and Sterne Agee, on behalf of the respective
Underwriters, represents and warrants to the Company that the statements made
therein do not include 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 therein, in the light of the circumstances under which they were
made, not misleading.
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<PAGE>
5. FURTHER AGREEMENTS OF THE COMPANY. The Company agrees with the
---------------------------------
several Underwriters that:
(a) The Company will use its best efforts to cause the Registration
Statement and any amendment thereof, if not effective at the time and date that
this Agreement is executed and delivered by the parties hereto, to become
effective as promptly as possible; the Company will use its best efforts to
cause any abbreviated registration statement pursuant to Rule 462(b) of the
Rules and Regulations as may be required subsequent to the date the Registration
Statement is declared effective to become effective as promptly as possible; the
Company will notify Sterne Agee, promptly after it shall receive notice thereof,
of the time when the Registration Statement, any subsequent amendment to the
Registration Statement or any abbreviated registration statement has become
effective or any supplement to the Prospectus has been filed; if the Company
omitted information from the Registration Statement at the time it was
originally declared effective in reliance upon Rule 430A(a) of the Rules and
Regulations, the Company will provide evidence satisfactory to Sterne Agee that
the Prospectus contains such information and has been filed, within the time
period prescribed, with the Commission pursuant to subparagraph (1) or (4) of
Rule 424(b) of the Rules and Regulations or as part of a post-effective
amendment to such Registration Statement as originally declared effective which
is declared effective by the Commission; if the Company files a term sheet
pursuant to Rule 434 of the Rules and Regulations, the Company will provide
evidence satisfactory to Sterne Agee that the Prospectus and term sheet meeting
the requirements of Rule 434(b) or (c), as applicable, of the Rules and
Regulations, have been filed, within the time period prescribed, with the
Commission pursuant to subparagraph (7) of Rule 424(b) of the Rules and
Regulations; if for any reason the filing of the final form of Prospectus is
required under Rule 424(b)(3) of the Rules and Regulations, it will provide
evidence satisfactory to Sterne Agee that the Prospectus contains such
information and has been filed with the Commission within the time period
prescribed; it will notify Sterne Agee promptly of any request by the Commission
for the amending or supplementing of the Registration Statement or the
Prospectus or for additional information; promptly upon Sterne Agee's request,
it will prepare and file with the Commission any amendments or supplements to
the Registration Statement or Prospectus which, in the opinion of counsel for
the several Underwriters ("Underwriters' Counsel"), may be necessary or
advisable in connection with the distribution of the Firm Shares and any Option
Shares by the Underwriters; it will promptly prepare and file with the
Commission, and promptly notify Sterne Agee of the filing of, any amendments or
supplements to the Registration Statement or Prospectus which may be necessary
to correct any statements or omissions, if, at any time when a prospectus
relating to the Common Stock is required to be delivered under the Act, any
event shall have occurred as a result of which the Prospectus or any other
prospectus relating to the Common Stock as then in effect would include any
untrue statement of a material fact or omit to state a material fact necessary
to make the statements therein, in the light of the circumstances under which
they were made, not misleading; in case any Underwriter is required to deliver a
prospectus nine (9) months or more after the effective date of the Registration
Statement in connection with the sale of the Common Stock, it will prepare
promptly upon request, but at the expense of such Underwriter, such amendment or
amendments to the Registration Statement and such prospectus or prospectuses as
may be necessary to permit compliance with the requirements of Section 10(a)(3)
of the Act; and it will file no amendment or supplement to the Registration
Statement or Prospectus which shall not previously have been submitted to Sterne
Agee a reasonable time prior to the proposed filing thereof or to which Sterne
Agee shall reasonably object in writing, subject, however, to compliance with
the Act and the Rules and Regulations and the provisions of this Agreement.
(b) The Company will advise Sterne Agee, promptly after it shall
receive notice or obtain knowledge, of the issuance of any stop order by the
Commission suspending the effectiveness of the Registration Statement or of the
initiation or threat of any proceeding for that purpose; and it will promptly
use its best efforts to prevent the issuance of any stop order or to obtain its
withdrawal at the earliest possible moment if such stop order should be issued.
(c) The Company will use its best efforts to qualify the Common Stock
for offering and sale under the securities laws of such jurisdictions as Sterne
Agee may designate and to continue such qualifications in effect for so long as
may be required for purposes of the distribution of the Common Stock, except
that the Company shall
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<PAGE>
not be required in connection therewith or as a condition thereof to qualify as
a foreign corporation or to execute a general consent to service of process in
any jurisdiction in which it is not otherwise required to be so qualified or to
so execute a general consent to service of process. In each jurisdiction in
which the Common Stock shall have been qualified as above provided, the Company
will make and file such statements and reports in each year as are or may be
reasonably required by the laws of such jurisdiction.
(d) The Company will deliver without charge to each of the several
Underwriters such number of copies of each Preliminary Prospectus as may
reasonably be requested by the Underwriters and, as soon as the Registration
Statement, or any amendment thereto, becomes effective under the Act or a
supplement is filed with the Commission, deliver without charge to the
Representative who signed copies of the Registration Statement, including
exhibits, or such amendment thereto, as the case may be, and two copies of any
supplement thereto, and delivery without charge to each of the several
Underwriters such number of copies of the Prospectus, the Registration
Statement, and amendments and supplements thereto, if any, without exhibits, as
the Representative may reasonably request for the purposes contemplated by the
Act.
(e) The Company will make generally available to its security-holders
as soon as practicable, but in any event not later than the forty-fifth (45th)
day following the end of the fiscal quarter first occurring after the first
anniversary of the effective date of the Registration Statement, an earnings
statements (which will be in reasonable detail but need not be audited)
complying with the provisions of Section 11(a) of the Act and covering a twelve
(12) month period beginning after the effective date of the Registration
Statement.
(f) During a period of three (3) years after the date hereof, the
Company will furnish to its stockholders as soon as practicable after the end of
each respective period, annual reports (including financial statements audited
by independent certified public accountants), and will furnish to Sterne, Agee
and the other several Underwriters hereunder, (i) concurrently with furnishing
to its stockholders, a balance sheet of the Company as of the end of such fiscal
year, together with statements of operations, of stockholders' equity, and of
cash flows of the Company or such fiscal year, accompanied by a copy of the
certificate or report thereon of independent certified public accountants, (ii)
as soon as they are available, copies of all reports (financial or other) mailed
to stockholders, (iii) as soon as they are available, copies of all reports and
financial statements furnished to or filed with the Commission, any securities
exchange or the National Association of Securities Dealers, Inc. (the "NASD"),
(iv) every material press release and every material news item or article in
respect of the Company or its affairs which was generally released to
stockholders or prepared by the Company or any of its subsidiaries, and (v) any
additional information of a public nature concerning the Company or its
subsidiaries, or its business which Sterne Agee may reasonably request. During
such three (3) year period, if the Company shall have active subsidiaries, the
foregoing financial statements shall be on a consolidated basis to the extent
that the accounts of the Company and any subsidiaries are consolidated, and
shall be accompanied by similar financial statements for any significant
subsidiary which is not so consolidated.
(g) The Company will apply the net proceeds from the sale of the Firm
Shares and any Option Shares being sold by it in the manner set forth under the
caption "Use of Proceeds" in the Prospectus.
(h) The Company will maintain a transfer agent and, if necessary under
the jurisdiction of incorporation of the Company, a registrar (which may be the
same entity as the transfer agent) for the Common Stock.
(i) The Company will comply with all registration, filing, and
reporting requirements of the Exchange Act, which may from time to time be
applicable to the Company.
(j) The Company will comply with all provisions of all undertakings
contained in the Registration Statement.
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(k) Prior to the Closing Date or the Option Closing Date, as the case
may be, the Company will issue no press release or other communication, directly
or indirectly, and hold no press conference with respect to the Company, the
financial condition, results of operations, business, properties, assets,
liabilities of the Company, or this offering, without the prior consent of the
Representative, which consent shall not be unreasonably withheld.
(l) Use its best efforts to list itself in Moody's OTC Industrial
Manual within ten (10) days of the date hereof, and maintain such listing for a
period of at least five years from the date hereof.
(m) If the transactions contemplated hereby are not consummated by
reason of any failure, refusal or inability on the part of the Company to
perform any agreement on its part to be performed hereunder or to fulfill any
condition of the Underwriters' obligations hereunder, or if the Underwriters
shall terminate this Agreement pursuant to Section 11(b)), the Company will
reimburse the several Underwriters for all out-of-pocket expenses (including
fees and disbursement of Underwriters' Counsel) incurred by the Underwriters in
investigating or preparing to market or marketing any Common Stock.
(n) If at any time during the twenty-five (25) day period after the
Registration Statement becomes effective, any rumor, publication or event
relating to or affecting the Company shall occur as a result of which, in the
opinion of Sterne Agee, the market price of the Common Stock has been or is
likely to be materially affected (regardless of whether such rumor, publication
or event necessitates a supplement to or amendment of the Prospectus), the
Company will, after written notice from Sterne Agee advising the Company to the
effect set forth above, forthwith prepare, consult with Sterne Agee concerning
the substance of and disseminate a press release or other public statement,
reasonably satisfactory to Sterne Agee responding to or commenting on such
rumor, publication or event.
(o) During the ninety (90) day period following the effective date of
the Registration Statement, the Company will not file a registration statement
registering shares under the Company's 1994 Stock Option Plan, the Company's
Director Stock Purchase Plan, the Company's Employee Stock Purchase Plan or any
other employee benefit plans.
(p) The Company will not take, directly or indirectly, any action
designed to cause or result in, or which might constitute or might be expected
to constitute, stabilization or manipulation of the price of the Common Stock.
5. PAYMENT OF EXPENSES. The Company hereby agrees to pay all expenses
-------------------
(other than fees of counsel of the Underwriters, except as provided in Section
6(c), below), in connection with (a) the preparation , printing, filing,
distribution, and mailing of the Registration Statement and the Prospectus and
the printing, filing, distribution, and mailing of this Agreement and the Master
Agreement Among Underwriters, any Master Selected Dealer Agreement, and related
documents, including the cost of all copies thereof and of the Preliminary
Prospectuses and of the Prospectus and any amendments or supplements thereto
supplied to the Underwriters in quantities as hereinabove stated, (b) the
issuance, offer, sale, transfer, and delivery (as applicable) of the Common
Stock, including any transfer or other taxes payable thereon, (c) the
qualification of the Common Stock under state or foreign "blue sky" or
securities laws, including the costs of printing and mailing the preliminary and
final "Blue Sky Survey" and the fees of counsel for the Underwriters, and the
disbursements in connection therewith, (d) the filing fees payable to the
Commission, the NASD, and the jurisdictions in which such qualification is
sought, (e) any fees relating to the listing of the Common Stock on either The
Nasdaq National Market, The Nasdaq SmallCap Market or any other market upon
which the Company lists the Common Stock, (f) the cost of printing certificates
representing the Common Stock, (g) the fees of the transfer agent for the Common
Stock, and (h) the cost of a Company "roadshow" including, without limitation,
Sterne Agee's out-of-pocket expenses, expenses associated with presentations of
the Company and the preparation of visual materials associated therewith.
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6. CONDITIONS OF UNDERWRITERS' OBLIGATIONS. The obligations of the
---------------------------------------
several Underwriters to purchase and pay for the Firm Shares and the Option
Shares, as provided herein, shall be subject, in the discretion of the
Representative, to the continuing accuracy in all material respects, of the
representations and warranties of the Company contained herein and in each
certificate and document contemplated under this Agreement to be delivered to
the Underwriters, as of the date hereof and as of the Closing Date (or the
Option Closing Date, as the case may be), to the performance by the Company of
its obligations hereunder, and to the following conditions:
(a) The Registration Statement shall have become effective under the
Act not later than 6:00 P.M., Atlanta local time, on the date of this Agreement
or such later date and time as shall be consented to in writing by the
Representative; on or prior to the Closing Date, or the Option Closing Date, as
the case may be, no Stop Order shall have been issued and no proceeding shall
have been initiated or threatened with respect to a Stop Order; and any request
by the Commission for additional information shall have been complied with by
the Company to the reasonable satisfaction of the Representative. If required,
the Prospectus shall have been filed with the Commission in the manner and
within the time period required by Rule 424(b) under the Act.
(b) All corporate proceedings and other legal matters in connection
with this Agreement, the form of Registration Statement and the Prospectus, and
the registration, authorization, issue, sale and delivery of the Common Stock,
shall have been reasonably satisfactory to Underwriters' Counsel, and such
counsel shall have been furnished with such papers and information as they may
reasonably have requested to enable them to pass upon the matters referred to in
this Section.
(c) Subsequent to the execution and delivery of this Agreement and
prior to the Closing Date, there shall not have been any change in the condition
(financial or otherwise), earnings, operations, business, or business prospects
of the Company from that set forth in the Registration Statement or Prospectus,
which, in Sterne Agee's sole judgment, is material and adverse and that makes
it, in Sterne Agee's sole judgment, impracticable or inadvisable to proceed with
the public offering of the Common Stock as contemplated by the Prospectus.
(d) At the Closing Date and the Option Closing Date, as the case may
be, Sterne Agee shall have received the Opinion of Balch & Bingham LLP, counsel
for the Company, dated the date of delivery, addressed to the Underwriters, and
in form and scope satisfactory to the Representative, with reproduced copies or
signed counterparts thereof for each of the Underwriters, to the effect that:
(i) The Company has been duly incorporated and is validly
existing in good standing as a corporation under the laws of the State of
Delaware, with corporate power and authority to own its properties and conduct
its business as now conducted, and is duly qualified to do business as a foreign
corporation in good standing in all other jurisdictions where the failure to so
qualify would have a material adverse effect upon the Company and its
subsidiaries taken as a whole. The Company holds all licenses, certificates,
permits, franchises and authorizations from governmental authorities which are
material to the conduct of its business in all locations in which such business
is currently being conducted.
(ii) Each of the Company's subsidiaries is validly existing and
in good standing under the laws of the state of its incorporation or
organization, as the case may be, with power and authority to own its properties
and conduct its business as now conducted, and is duly qualified or authorized
to do business and is in good standing in all other jurisdictions where the
failure to so qualify would have a material adverse effect upon the business of
the Company and its subsidiaries taken as a whole. The outstanding stock of
each of the Company's subsidiaries is duly authorized, validly issued and fully
paid. The outstanding stock of each of the Company's subsidiaries is
nonassessable (except, to the extent permitted by the National Bank Act, the
stock of the Company's national bank subsidiaries.) All of the outstanding
stock of each of the corporate subsidiaries owned beneficially and of record by
the Company is owned free and clear of all liens, encumbrances, equities and
claims. No options or warrants or other rights
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to purchase, agreements or other obligations to issue or other rights to convert
any obligations into any shares of capital stock or of ownership interests in
any of the Company's subsidiaries are outstanding. Each of the Company's
subsidiaries holds all licenses, certificates, permits, franchises and
authorizations from governmental authorities which are material to the conduct
of its business in all locations in which such business is currently being
conducted.
(iii) As of the dates specified therein, the Company had
authorized and issued capital stock as set forth under the caption
"Capitalization" in the Prospectus. All of the outstanding shares of the capital
stock of the Company have been duly authorized and are validly issued, fully
paid and nonassessable, and the Firm Shares and Option Shares have been duly
authorized, and upon issuance thereof and payment therefor as provided herein,
will be validly issued, fully paid and nonassessable; none of the issued shares
have been issued in violation of or subject to any preemptive rights provided
for by law or by the Company's Certificate of Incorporation. There are no
preemptive rights or, to the knowledge of such counsel, other rights to
subscribe for or to purchase, or any restriction upon the transfer of, the Firm
Shares or Option Shares pursuant to the Company's Certificate of Incorporation,
bylaws or other governing documents or, to the knowledge of such counsel, any
agreement or other instrument to which the Company is a party or by which it may
be bound except as described in the Prospectus and except for restrictions on
transfer imposed under applicable securities laws. Neither the filing of the
Registration Statement nor the offer or sale of the Firm Shares or Option Shares
as contemplated by this Agreement gives rise to any rights, other than those
which have been waived or satisfied, for or relating to the registration of any
shares of Common Stock or any other securities of the Company. The Underwriters
will receive good and marketable title to the Firm Shares and Option Shares to
be issued and delivered pursuant to this Agreement, free and clear of all liens,
encumbrances, claims, security interests, restrictions, shareholder agreements
and voting trusts whatsoever. The capital stock of the Company and the Firm
Shares and Option Shares conform to the description thereof set forth under the
caption "Description of Capital Stock" in the Prospectus. All offers and sales
of the Company's securities prior to the date hereof were at all relevant times
duly registered or exempt from the registration requirements of the Act and were
duly registered or the subject of an exemption from the registration
requirements of applicable state securities or Blue Sky laws, or if not
registered in compliance with the applicable federal and state securities laws,
any actions arising from such failure to register any such securities are barred
by applicable statute of limitations; provided, however, the foregoing does not
include and no opinion shall be given regarding the issuance of securities
pursuant to the Company's Employee Stock Purchase Plan.
(iv) The Company has full legal right, power and authority to
enter into this Agreement and to issue, sell and deliver the Firm Shares and
Option Shares to be sold by it to the Underwriters as provided herein, and this
Agreement has been duly authorized, executed and delivered by the Company and
constitutes the valid and legally binding obligation of the Company enforceable
against the Company in accordance with its terms, except as enforceability may
be limited by general equitable principles, bankruptcy, insolvency,
reorganization, moratorium, fraudulent transfer, fraudulent conveyance or other
laws affecting creditors' rights generally, including, without limitation, the
United States Bankruptcy Code and applicable state laws.
(v) No consent, approval, authorization or order of any court or
governmental agency or body or third party is required for the performance of
this Agreement by the Company or the consummation by the Company of the
transactions contemplated hereby, except such as have been obtained under the
Act and such as may be required by the NASD and under state securities or Blue
Sky laws in connection with the purchase and distribution of the Firm Shares and
any Option Shares by the several Underwriters. The performance of this
Agreement by the Company and the consummation by the Company of the transactions
contemplated hereby will not conflict with or result in a material breach or
violation by the Company of any of the terms or provisions of, or constitute a
material default by the Company under, any indenture, mortgage, deed of trust,
loan agreement, lease or other agreement or instrument known to such counsel to
which the Company is a party or to which the Company or its properties is
subject, or a violation or breach of the Certificate of Incorporation or bylaws
of the Company, any material breach or violation of any statute, or any
judgment, decree, order, rule or regulation known to such counsel of any court
or governmental agency or body applicable to the Company or any of its
subsidiaries or their properties.
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(vi) Except as described in the Prospectus, there is not pending,
or to the best knowledge of such counsel threatened, any action, suit,
proceeding, inquiry or investigation, to which the Company or any of its
subsidiaries is a party, or to which the property of the Company or any of its
subsidiaries is subject, before or brought by any court or governmental agency
or body, which, if determined adversely to the Company or any of its
subsidiaries, could result in any material adverse change in the business,
financial position, net worth or results of operations, or could materially
adversely affect the properties or assets, of the Company or any of its
subsidiaries.
(vii) To the knowledge of such counsel, no material default
exists, and no event has occurred which with notice or after the lapse of time
to cure or both, would constitute a material default, in the due performance and
observance of any term, covenant or condition of any indenture, mortgage, deed
of trust, loan agreement, lease or other agreement or instrument to which the
Company or any of its subsidiaries is a party or to which they or their
properties are subject, or of the Certificate of Incorporation or bylaws of the
Company or any of its subsidiaries.
(viii) To the knowledge of such counsel after reasonable inquiry,
neither the Company nor any of its subsidiaries is in material violation of any
law, ordinance, administrative or governmental rule or regulation applicable to
the Company and its subsidiaries and material to the Company and its
subsidiaries taken as a whole or any decree of any court or governmental agency
or body having jurisdiction over the Company or any of its subsidiaries.
(ix) The Registration Statement and all post effective amendments
thereto have become effective under the Act, and, to the best knowledge of such
counsel, no stop order suspending the effectiveness of the Registration
Statement has been issued and no proceedings for that purpose have been
instituted or are threatened, pending or contemplated by the Commission. All
filings required by Rule 424 and Rule 430A of the Rules and Regulations have
been made; the Registration Statement, the Prospectus and any amendments or
supplements thereto (except for the financial statements and schedules included
therein as to which such counsel need express no opinion), as of their
respective effective or issue dates, complied as to form in all material
respects with the requirements of the Act and the Rules and Regulations; the
descriptions in the Registration Statement and the Prospectus of statutes,
regulations, legal and governmental proceedings, and contracts and other
documents are accurate in all material respects and present fairly the
information required to be stated; and such counsel does not know of any pending
or threatened legal or governmental proceedings, statutes or regulations
required to be described in the Prospectus which are not described as required
nor of any contracts or documents of a character required to be described in the
Registration Statement or the Prospectus or to be filed as exhibits to the
Registration Statement which are not described and filed as required.
(x) On the basis of the participation of such counsel in
conferences at which the contents of the Registration Statement and the
Prospectus and related matters were discussed, but without independent
verification by such counsel of the accuracy, completeness, or fairness of
statements contained in the Registration Statement, the Prospectus, or any
amendment or supplement thereto, such counsel has no knowledge that (other than
financial statements and other financial schedules which are or should be
contained therein, as to which such counsel need express no opinion): (A) the
Registration Statement, any Rule 430A prospectus, and the Prospectus, and any
amendment or supplement thereto, does not appear on its face to comply as to
form in any material respects with the requirements of the Act and the Rules and
Regulations; (B) the Registration Statement, any Rule 430A prospectus, and the
Prospectus, or any amendment or supplement thereto, 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 therein not misleading; or (C) since
the date of effectiveness under the Act of the Registration Statement, any event
has occurred which should have been set forth in an amendment or supplement to
the Registration Statement or the Prospectus which has not been set forth in
such an amendment or supplement.
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Counsel rendering the foregoing opinion may rely as to questions of law not
involving the laws of the United States, the laws of the State of Alabama or the
corporate laws of the State of Delaware upon opinions of local counsel, and as
to questions of fact upon representations or certificates of the Company and its
officers or other representatives and of governmental officials, in which case
their opinion is to state that they are so relying and that they have no
knowledge of any material misstatement or inaccuracy in any such opinion,
representation or certificate. Copies of any opinion, representation or
certificate so relied upon shall be delivered to Sterne Agee, as representative
of the Underwriter, and to Underwriters' counsel.
(e) On or prior to the Closing Date and the Option Closing Date, as
the case may be, the Underwriters shall have been furnished such information,
documents, certificates, and opinions as they may reasonably require for the
purpose of enabling them to review the matters referred to in Section 7(d), and
in order to evidence the accuracy, completeness, or satisfaction of any of the
representations, warranties, covenants, agreements, or conditions herein
contained, or as the Representative may reasonably request.
(f) At the Closing Date or the Option Closing Date, as the case may
be, (i) the Registration Statement and the Prospectus and any amendments or
supplements thereto shall contain all statements which are required to be stated
therein in accordance with the Act and the Rules and Regulations, and in all
material respects conform to the requirements thereof, and neither the
Registration Statement nor the Prospectus nor any amendment or supplement
thereto shall contain any untrue statement of a material fact or omit to state
any material fact required to be stated therein or necessary to make the
statements therein no misleading, (ii) there shall have been, since the
respective dates as of which information is given in the Registration Statement
and the Prospectus, no material adverse change, or any development involving a
prospective material adverse change, in the business, properties, or condition
(financial or otherwise), results of operations, capital stock, long-term or
short-term debt, or general affairs of the Company from that set forth in the
Registration Statement and the Prospectus, except changes which the Registration
Statement and Prospectus indicate might occur after the date on which the
Registration Statement becomes effective under the Act, and the Company shall
not have incurred any material liabilities or entered into any agreements not in
the ordinary course of business other than as referred to in the Registration
Statement and Prospectus, and (iii) except as set forth in the Prospectus, no
litigation, arbitration, claim, governmental, or other proceeding (formal or
informal) or investigation shall be pending, or, to our knowledge threatened or
in prospect (or any basis therefor), with respect to the Company or any of its
operations, businesses, properties, or assets which would be required to be set
forth in the Registration Statement, wherein an unfavorable decision, ruling, or
finding would materially adversely affect the business, property, condition
(financial or otherwise), results of operations, or general affairs of the
Company.
(g) At the Closing Date and the Option Closing Date, as the case may
be, Sterne Agee shall have received a certificate of the chief executive officer
and the chief financial officer of the Company, dated the Closing Date or the
Option Closing Date, as the case may be, to the effect, among other things, that
(i) the conditions set forth in Section 7(a) and 7(f) have been satisfied, (ii)
as of the date of this Agreement and as of the Closing Date or the Option
Closing Date, as the case may be, the representations and warranties of the
Company contained herein were and are accurate and correct in all material
respects, and (iii) as of the Closing Date or the Option Closing Date, as the
case may be, the obligations to be performed by the Company hereunder on or
prior to such time have been fully performed in all material respects.
(h) At the time this Agreement is executed and at the Closing Date and
the Option Closing Date, as the case may be, Representative shall have received
a letter, addressed to the Underwriters, and in form and substance reasonably
satisfactory to the Representative, from Mauldin & Jenkins, LLC, independent
public accountants for the Company, dated the date of delivery:
(i) confirming that they are, and during the period covered by
their report(s) included in the Registration Statement and the Prospectus were,
independent certified public accountants with respect to the
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Company within the meaning of the Act and the published Rules and Regulations
and stating that the disclosure under the heading entitled "Experts" in the
Registration Statement is correct insofar as it relates to them;
(ii) stating that, in their opinion, the financial statements and
the footnotes thereto of the Company included in the Registration Statement
examined by them comply in form and in all material respects with the applicable
accounting requirements of the Act and the related published rules and
regulations;
(iii) stating that, on the basis of procedures (but not an
examination made in accordance with generally accepted auditing standards)
consisting of a reading of the latest available unaudited interim consolidated
financial statements of the Company (with an indication of the date of the
latest available unaudited interim financial statements), a reading of the
latest available minutes of the shareholders and Boards of Directors of the
Company and committees of such Board of Directors, inquiries to certain officers
and other employees of the Company responsible for financial and accounting
matters, and other specified procedures and inquiries, nothing has come to their
attention that caused them to believe that: (A) any unaudited financial
statements and schedules of the Company included in the Registration Statement
and Prospectus do not comply in form and in all material respects with the
applicable accounting requirements of the Act and the Exchange Act and the
related published rules and regulations under the Act or the Exchange Act or are
not fairly presented in conformity with generally accepted accounting principles
(except to the extent that certain footnote disclosures regarding any stub
period may have been omitted in accordance with the applicable rules and
regulations of the Commission under the Exchange Act) applied on a basis
consistent with that of the audited financial statements appearing therein, (B)
there was any change in the capital stock or long-term debt of the Company or
any decrease in the net current assets or shareholders' equity of the Company as
of the date of the latest available monthly financial statements of the Company
as of a specified date not more than five business days prior to the date of
such letter, each as compared with the amounts shown in the December 31, 1997
balance sheet included in the Registration Statement and Prospectus, other than
as properly described in the Registration Statement and Prospectus or any change
or decrease (which shall be set forth therein) which, in the sole discretion of
the Representative, the Representative shall accept, or (C) there was a net
decrease in net sales or an increase in total or per share losses of the Company
during the period from December 31, 1997 to the date of the latest available
monthly financial statements of the Company or to a specified date nor more than
five business days prior to the date of such letter, each as compared to the
corresponding period from January 1, 1997 to December 31, 1997, other than as
properly described in the Registration Statement and Prospectus or any decrease
(which shall be set forth therein) which, at the sole discretion of the
Representative, the Representative shall accept; and
(iv) stating that they have compared specific numerical data and
financial information pertaining to the Company set forth in the Registration
Statement (including, but not limited to, the number of shareholders of the
Company and the number of issued and outstanding shares of the Common Stock of
the Company as of December 31, 1997), which have been specified by the
Representative prior to the date of this Agreement, to the extent that such data
and information may be derived from the general accounting records of the
Company, and excluding any questions requiring any interpretation by legal
counsel, with the results obtained from the application of specified readings,
inquiries, and other appropriate procedures (which procedures do not constitute
an examination in accordance with generally accepted auditing standards) set
forth in the letter, and found them to be in agreement.
(i) All proceedings taken in connection with the issuance, sale,
transfer, and delivery of the securities offered by the Registration Statement
and Prospectus shall be reasonably satisfactory in form and substance to the
Representative and to counsel for the Underwriters, and the Underwriters shall
have received from such counsel for the Underwriters the opinion, dated as of
the Closing Date and the Option Closing Date, as the case may be, with respect
to the sufficiency of all such corporate proceedings and other legal matters
relating to this Agreement and the transactions contemplated hereby as the
representative may reasonably require, and the Company shall have furnished to
such counsel such documents as they may have requested for the purpose of
enabling them to pass upon such matters.
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(j) The NASD Regulation, Inc., upon review of the terms of the
public offering of the Stock, shall not have objected to the Underwriters'
participation in such offering.
(k) Prior to or on the Closing Date, The Nasdaq Stock Market, Inc.
shall have approved the Firm Shares and Option Shares for listing on The Nasdaq
National Market or, if the Company is unable to obtain approval for listing on
The Nasdaq National Market, then The Nasdaq Stock Market, Inc. shall have
approved the Firm Shares and Option Shares for listing on The Nasdaq SmallCap
Market.
(l) Prior to or on the Closing Date, the Company shall have provided
to the Representative, or its counsel, copies of the Lock-up Agreements referred
to in Section 2(t).
Any certificate or other document signed by any officer of the Company and
delivered to the Representative or to counsel for the Underwriters shall be
deemed a representation and warranty by the Company hereunder to the
Underwriters as to the statements made therein. If any condition to the
Underwriters' obligations hereunder to be fulfilled prior to or at the Closing
Date or the Option Closing Date, as the case may be, is not so fulfilled, the
Representative may, on behalf of the several Underwriters, terminate this
Agreement or, if the Representative so elects, in writing waive any such
conditions which have not been fulfilled or extend the time for their
fulfillment.
7. INDEMNIFICATION AND CONTRIBUTION.
--------------------------------
(a) The Company agrees to indemnify and hold harmless each Underwriter
against any losses, claims, damages or liabilities, joint or several, to which
such Underwriter may become subject (including, without limitation, in its
capacity as an Underwriter or as a "qualified independent underwriter" within
the meaning of SCHEDULE E OF THE BYLAWS OF THE NASD), under the Act, the
Exchange Act or otherwise, specifically including, but not limited to, losses,
claims, damages or liabilities, insofar as such losses, claims, damages or
liabilities (or actions in respect thereof) arise out of or are based upon (i)
any breach of representation, warranty, agreement or covenant of the Company
herein contained, (ii) any untrue statement or alleged untrue statement of any
material fact contained in the Registration Statement or any amendment or
supplement thereto, or 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, or (iii) any untrue statement or alleged untrue
statement of any material fact contained in any Preliminary Prospectus or the
Prospectus or any amendment or supplement thereto, or the omission or alleged
omission to state therein a material fact required to be stated therein or
necessary to make the statements therein, in light of the circumstances under
which they were made, not misleading, and agrees to reimburse each Underwriter
for any legal or other expenses reasonably incurred by it in connection with
investigating or defending any such loss, claim, damage, liability or action;
provided, however, that the Company shall not be liable in any such case to the
- -------- -------
extent that any such loss, claim, damage, liability or action arises out of or
is based upon an untrue statement or alleged untrue statement or omission or
alleged omission made in the Registration Statement, such Preliminary Prospectus
or the Prospectus, or any such amendment or supplement thereto, in reliance
upon, and in conformity with, written information relating to any Underwriter
furnished to the Company by such Underwriter, directly or through Sterne Agee,
specifically for use in the preparation thereof and, provided further, that the
-------- -------
indemnity agreement provided in this Section 8(a) with respect to any
Preliminary Prospectus shall not inure to the benefit of any Underwriter from
whom the person asserting any losses, claims, damages, liabilities or actions
based upon any untrue statement or alleged untrue statement of material fact or
omission or alleged omission to state therein a material fact purchased Common
Stock, if a copy of the Prospectus in which such untrue statement or alleged
untrue statement or omission or alleged omission was corrected had not been sent
or given to such person within the time required by the Act and the Rules and
Regulations, unless such failure is the result of noncompliance by the Company
with Section 5(d) hereof.
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The indemnity agreement in this Section 8(a) shall extend upon the same
terms and conditions to, and shall inure to the benefit of, each person, if any,
who controls any Underwriter within the meaning of the Act or the Exchange Act.
This indemnity agreement shall be in addition to any liabilities which the
Company may otherwise have.
(b) Each Underwriter, severally and not jointly, agrees to indemnify
and hold harmless the Company against any losses, claims, damages or
liabilities, joint or several, to which the Company may become subject under the
Act or otherwise, specifically including, but not limited to, losses, claims,
damages or liabilities, insofar as such losses, claims, damages or liabilities
(or actions in respect thereof) arise out of or are based upon (i) any breach of
any representation, warranty, agreement or covenant of such Underwriter herein
contained, (ii) any untrue statement or alleged untrue statement of any material
fact contained in the Registration Statement or any amendment or supplement
thereto, or 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, or (ii) any untrue statement or alleged untrue statement of any
material fact contained in any Preliminary Prospectus or the Prospectus or any
amendment or supplement thereto, or the omission or alleged omission to state
therein a material fact necessary to make the statements therein not misleading,
or (iii) any untrue statement or alleged untrue statement of any material fact
contained in any Preliminary Prospectus or the Prospectus or any amendment or
supplement thereto, or the omission or alleged omission to state therein a
material fact necessary to make the statements therein, in the light of the
circumstances under which they were made, not misleading, in the case of
subparagraphs (ii) and (iii) of this Section 8(c) to the extent, but only to the
extent, that such untrue statements or alleged untrue statement or omission or
alleged omission was made in reliance upon and in conformity with written
information furnished to the Company by such Underwriter, directly or through
Sterne Agee, specifically for use in the preparation thereof (it being
understood that the only information so provided is the information set forth in
Section 4(b) of this Agreement), and agrees to reimburse the Company for any
legal or other expenses reasonably incurred by the Company in connection with
investigating or defending any such loss, claim, damage, liability or action.
The indemnity agreement in this Section 8(c) shall extend upon the same
terms and conditions to, and shall inure to the benefit of, each officer of the
Company who signed the Registration Statement and each director of the Company,
and each person, if any, who controls the Company within the meaning of the Act
or the Exchange Act. This indemnity agreement shall be in addition to any
liabilities which each Underwriter may otherwise have.
(c) Promptly after receipt by an indemnified party under this Section
8 of notice of the commencement of any action, such indemnified party shall, if
a claim in respect thereof is to be made against any indemnifying party under
this Section 8, notify the indemnifying party in writing of the commencement
thereof but the omission so to notify the indemnifying party will not relieve it
from any liability which it may have to any indemnified party otherwise than
under this Section 8. In case any such action is brought against any
indemnified party, and it notified the indemnifying party of the commencement
thereof, the indemnifying party will be entitled to participate therein and, to
the extent that it shall elect by written notice delivered to the indemnified
party promptly after receiving the aforesaid notice from such indemnified party,
to assume the defense thereof, with counsel reasonably satisfactory to such
indemnified party; provided, however, that if the defendants in any such action
-------- -------
include both the indemnified party and the indemnifying party and the
indemnified party shall have reasonably concluded that there may be legal
defenses available to it and/or other indemnified parties which are different
from or additional to those available to the indemnifying party, the indemnified
party or parties shall have the right to select separate counsel to assume such
legal defenses and to otherwise participate in the defense of such action on
behalf of such indemnified party or parties. Upon receipt of notice from the
indemnifying party to such indemnified party of the indemnifying party's
election so to assume the defense of such action and approval by the indemnified
party of counsel, the indemnifying party will not be liable to such indemnified
party under this Section 8 for any legal or other expenses subsequently incurred
by such indemnified party in connection with the defense thereof unless (i) the
indemnified party shall have employed separate counsel in accordance with the
proviso to the next preceding sentence (it being understood, however, that the
indemnifying party shall not be liable for the expenses of more than one
separate counsel (together with appropriate
19
<PAGE>
local counsel) approved by the indemnifying party representing all the
indemnified parties under Section 8(a) or 8(b) hereof who are parties to such
action), (ii) the indemnifying party shall not have employed counsel
satisfactory to the indemnified party to represent the indemnified party within
a reasonable time (no more than fifteen (15) days) after notice of commencement
of the action or (iii) the indemnifying party has authorized the employment of
counsel for the indemnified party at the expense of the indemnifying party. In
no event shall any indemnifying party be liable in respect of any amounts paid
in settlement of any action unless the indemnifying party shall have approved
the terms of such settlement; provided that such consent shall not be
--------
unreasonably withheld. No indemnifying party shall, without the prior written
consent of the indemnified party, effect any settlement of any pending or
threatened proceeding in respect of which any indemnified party is or could have
been a party or indemnification could have been sought hereunder by such
indemnified party, unless such settlement includes an unconditional release of
such indemnified party from all liability on claims that are the subject matter
of such proceeding.
(d) In order to provide for just and equitable contribution in any
action in which a claim for indemnification is made pursuant to this Section 8
but it is judicially determined (by the entry of a final judgment or decree by a
court of competent jurisdiction and the expiration of time to appeal or the
denial of the last right of appeal) that such indemnification may not be
enforced in such case notwithstanding the fact that this Section 8 provided for
indemnification in such case, all the parties hereto shall contribute to the
aggregate losses, claims, damages or liabilities to which they may be subject
(after contribution from others) in such proportion so that, except as set forth
in Section 8(f) hereof, the Underwriters severally and not jointly are
responsible pro rata for the portion represented by the percentage that the
underwriting discount bears to the initial public offering price, and the
Company are responsible for the remaining portion, provided, however, that (i)
-------- -------
no Underwriter shall be required to contribute any amount in excess of the
underwriting discount applicable to the Common Stock purchased by such
Underwriter in excess of the amount of damages which such Underwriter has
otherwise required to pay and (ii) no person guilty of a fraudulent
misrepresentation (within the meaning of Section 11(f) of the Act) shall be
entitled to contribution from any person who is not guilty of such fraudulent
misrepresentation. The contribution agreement in this Section 8(e) shall extend
upon the same terms and conditions to, and shall inure to the benefit of, each
person, if any, who controls the Underwriters or the Company within the meaning
of the Act or the Exchange Act and each officer of the Company who signed the
Registration Statement and each director of the Company.
(e) The parties of this Agreement hereby acknowledge that they are
sophisticated business persons who are represented by counsel during the
negotiations regarding the provisions hereof including, without limitation, the
provisions of this Section 8, and are fully informed regarding said provisions.
They further acknowledge that the provisions of this Section 8 fairly allocate
the risks in light of the ability of the parties to investigate the Company and
its business in order to assure that adequate disclosure is made in the
Registration Statement and Prospectus as required by the Act and the Exchange
Act.
8. SUBSTITUTION OF UNDERWRITERS.
----------------------------
(a) If any Underwriter or Underwriters shall default in its or their
obligation to purchase Firm Shares or Option Shares hereunder, and if the number
of Firm Shares or Option Shares to which the defaults of all Underwriters in the
aggregate relate does not exceed 10% of the aggregate number of Firm Shares or
Option Shares, as the case may be, which all Underwriters have agreed to
purchase hereunder, then such Firm Shares or Option Shares to which such
defaults relate shall be purchased by the non-defaulting Underwriters in
proportion to their respective commitments hereunder.
(b) If such defaults exceed in the aggregate 10% of the number of
shares of Firm Shares or Option Shares, as the case may be, which all
Underwriters have agreed to purchase hereunder, the Representative may, in its
discretion, arrange to purchase itself or for another party or parties to
purchase such shares of Firm Shares or Option Shares, as the case may be, to
which such default relates on the terms contained herein. If the Representative
20
<PAGE>
does not arrange for the purchase of such Firm Shares or Option Shares, as the
case may be, within one business day after the occurrence of defaults relating
to in excess of 10% of the Firm Shares and Option Shares, as the case may be,
then the Company shall be entitled to a further period of three business days
within which to procure another party or parties reasonably satisfactory to the
Representative to purchase Firm Shares or the Option Shares, as the case may be,
on such terms. If the Representative or the Company does not arrange for the
purchase of Firm Shares or the Option Shares, as the case may be, to which such
defaults relate as provided in this Section 9(b), this Agreement may be
terminated by the Representative or by the Company without liability on the part
of the Company (except that the provisions of Sections 5(a), 6, 8, 10 and 13
shall survive such termination) or the several Underwriters, but nothing in this
Agreement shall relieve a default Underwriter of its liability, if any, to the
other several Underwriters and to the Company for any damages occasioned by its
default hereunder.
(c) If the Firm Shares or Option Shares to which such defaults relate
are to be purchased by the non-defaulting Underwriters, or are to be purchased
by another party or parties as aforesaid, the Representative or the Company
shall have the right to postpone the Closing Date or the Option Closing Date, as
the case may be, for a reasonable period but in any event not more than seven
business days in order to effect whatever changes may thereby be made necessary
in the Registration Statement or the Prospectus or in any other documents and
arrangements with respect to the Firm Shares or the Option Shares, and the
Company agrees to prepare and file promptly any amendment or supplement to the
Registration Statement or the Prospectus which in the opinion of counsel for the
Underwriters may thereby be made necessary. The term "Underwriter" as used in
this Agreement shall include any party substituted under this Section 9 as if
such party had originally been a party to this Agreement and had been allocated
the number of shares of Firm Shares and Option Shares actually purchased by it
as a result this Section 9.
9. REPRESENTATIONS AND AGREEMENTS TO SURVIVE DELIVERY. All
--------------------------------------------------
representations, warranties, covenants, and agreements contained in this
Agreement shall be deemed to be representations, warranties, covenants, and
agreements at the Closing Date and the Option Closing Date, and such
representations, warranties, covenants, and agreements of the Underwriters and
the Company, including the indemnity and contribution agreements contained in
Section 8, shall remain operative and in full force and effect regardless of any
investigation made by, or on behalf of, any Underwriter or any indemnified
person, or by, or on behalf of, the Company, or any person or entity which is
entitled to be indemnified under Section 8(b), and shall survive termination of
this Agreement or the delivery of the Firm Shares and the Option Shares, if any,
to the several Underwriters. In addition, the provisions of Sections 5(a), 6,
8, 10, 11 and 13 shall survive termination of this Agreement, whether such
termination occurs before or after the Closing Date or the Option Closing Date.
Notwithstanding anything in the second sentence of Section 6 hereof to the
contrary, and in addition to the obligations assumed by the Company pursuant to
the first sentence of Section 6 hereof, if the offering should be terminated,
the Company shall be liable to the Underwriters only for out-of-pocket expenses
incurred by the Underwriters in connection with this Agreement or the proposed
offer, sale, and delivery of the Firm Shares and Option Shares.
10. EFFECTIVE DATE OF THIS AGREEMENT AND TERMINATION THEREOF.
--------------------------------------------------------
(a) This Agreement shall become effective at the later to occur of
either (i) the execution of this Agreement or (ii) the earlier of (a) 9:30 A.M.,
Atlanta local time, on the first full business day following the day on which
the Registration Statement becomes effective under the Act or (b) the time of
the initial public offering of any of the Common Stock by the Underwriters after
the Registration Statement becomes effective provided, however, that the
provisions of Sections 6, 8, 10 and 11 hereof shall at all times be effective.
The time of the initial public offering shall mean the time of the release by
Sterne Agee, for publication, of the first newspaper advertisement relating to
the Common Stock, or the time at which the Common Stock are first generally
offered by the Underwriters to the public by letter, telephone, telegram or
telecopy, whichever shall first occur. The Representative or the Company may
prevent this Agreement from becoming effective without liability of any party to
any other party, except as provided in Section
21
<PAGE>
5(n), Section 6 and Section 8, by giving the notice indicated in Section 11(c)
before the time this Agreement becomes effective under this Section 11(a).
(b) In addition to the right to terminate this Agreement pursuant to
Sections 7 and 9 hereof, the Representative shall have the right to terminate
this Agreement at any time prior to the Closing Date or the Option Closing Date,
as the case may be, by giving notice to the Company, and, if exercised, the
Over-allotment Option, at any time prior to the Option Closing Date, by giving
notice to the Company in the event of the following: (i) if any domestic or
international event, act, or occurrence has materially and adversely disrupted,
or, in the reasonable opinion of the Representative, will in the immediate
future materially and adversely disrupt, the securities markets; or (ii) if
there shall have been a general suspension of, or a general limitation on prices
for, trading in securities on the New York Stock Exchange or the American Stock
Exchange or in the over-the-counter market; or (iii) if there shall have been an
outbreak or increase in the level of major hostilities or other national or
international calamity; or (iv) if a banking moratorium has been declared by a
state or federal authority; or (v) if a moratorium in foreign exchange trading
by major international banks or persons has been declared; or (vi) if there
shall have been a material interruption in the mail service or other means of
communication within the United States; or (vii) if the Company shall have
sustained a material or substantial loss by fire, flood, accident, hurricane,
earthquake, theft, sabotage, or other calamity or malicious act, whether or not
such loss shall have been insured, or from any labor dispute or court or
government action, order, or decree, which will, in the reasonable opinion of
the Representative, make it inadvisable to proceed with the offering, sale, or
delivery of the Firm Shares or the Option Shares, as the case may be; or (viii)
if any material governmental restrictions shall have been imposed on trading in
securities in general, which restrictions are not in effect on the date hereof,
or (ix) if there shall be passed by the Congress of the United States or by any
state legislature any act or measure, or adopted by any governmental body or
authoritative accounting institute or board, or any governmental executive, any
orders, rules, or regulations, which the Representative believes likely to have
a material adverse effect on the business, financial condition, or financial
statements of the Company or the market for the Common Stock; or (x) if there
shall have been such material and adverse change in the market for the Company's
securities or securities in general or in political, financial, or economic
conditions as in the judgment of the Representative makes it inadvisable to
proceed with the offering, sale, and delivery of the Firm Shares or the Option
Shares, as the case may be, on the terms contemplated by the Prospectus.
(c) If the Representative elects to prevent this Agreement from
becoming effective, as provided in this Section 11, or to terminate this
Agreement pursuant to Section 7 of this Agreement or this Section 11, the
Representative shall notify the Company promptly by telephone, telex, or
telegram, confirmed by letter. If, as so provided, the Company elects to
prevent this Agreement from becoming effective or to terminate this Agreement,
the Company shall notify the Representative promptly by telephone, telex, or
telegram, confirmed by letter.
(d) Notwithstanding anything herein to the contrary, if this
Agreement shall not become effective by reason of the election of the Company
pursuant to Section 11(a) or if this Agreement shall terminate or shall
otherwise not be carried out by July 1, 1998 by reason of any failure on the
part of the Company to perform any covenant or agreement of this Agreement or
satisfy any condition of this Agreement by it to be performed or satisfied, the
sole liability of the Company to the several Underwriters, in addition to the
obligations the Company assumed pursuant to Section 6, will be to reimburse the
several Underwriters for such out-of-pocket expenses (including the fees and
disbursements of their counsel) as shall have been incurred by them in
connection with this Agreement or the proposed offer, sale, and delivery of the
Firm Shares and Option Shares, and, upon demand, the Company agrees to pay
promptly the full amount thereof to the Representative for the respective
accounts of the Underwriters up to a maximum reimbursement of $60,000 (of which
no more than $40,000 may be attributable to fees of their counsel). Anything in
this Agreement to the contrary notwithstanding other than Section 11(e), if this
Agreement shall not be carried out within the time specified herein for any
reason other than the failure on the part of the Company to perform any covenant
or agreement or satisfy any condition of this Agreement by it to be performed or
satisfied, the Company shall
22
<PAGE>
have no liability to the several Underwriters other than for obligations assumed
by the Company pursuant to Section 6.
(e) Notwithstanding any election hereunder or any termination of this
Agreement, and whether or not this Agreement is otherwise carried out, the
provisions of Sections 5(a), 6, 8, 10 and 13 shall not be in any way affected by
such election or termination or failure to carry out the terms of this Agreement
or any part hereof.
11. NOTICES. All communications hereunder, except as may be otherwise
--------
specifically provided herein, shall be in writing and, if sent to any
Underwriter, shall be mailed, delivered, or telexed or telegraphed and confirmed
by letter, to such Underwriter, c/o Sterne, Agee & Leach, Inc., 1901 Sixth
Avenue North, Suite 2100, Birmingham, Alabama 35203-2675, Attention: James S.
Holbrook, Jr., with a copy to Burr & Forman LLP, 3100 SouthTrust Tower, 420
North Twentieth Street, Birmingham, Alabama 35203, Attention: William K.
Holbrook, Esq., or if sent to the Company, shall be mailed, delivered, or
telexed or telegraphed and confirmed by letter, to the Company, Eufaula
BancCorp, Inc., 218 Broad Street, Eufaula, Alabama 36027, Attention: Greg
Faison, President, with a copy to Balch & Bingham, P.O. Box 78, Montgomery,
Alabama 36101, Attention: Michael D. Waters, Esq. All notices hereunder shall
be effective upon receipt by the party to which it is addressed.
12. PARTIES. Sterne Agee represents that it is authorized to act as
--------
Representative on behalf of the several Underwriters named in Schedule I hereto,
and the Company shall be entitled to act and rely on any request, notice,
consent, waiver, or agreement purportedly given on behalf of the Underwriters
when the same shall have been given by Sterne Agee on such behalf. This
Agreement shall inure solely to the benefit of, and shall be binding upon, the
several Underwriters and the Company and the persons and entities referred to in
Section 8 who are entitled to indemnification or contribution, and their
respective successors, legal representatives, and assigns (which shall not
include any buyer, as such, of the Firm Shares or the Option Shares), and no
other person shall have, or be construed to have, any legal or equitable right,
remedy, or claim under, in respect of, or by virtue of this Agreement or any
provision herein contained. Notwithstanding anything contained in this
Agreement to the contrary, all of the obligations of the Underwriters hereunder
are several and not joint.
13. CONSTRUCTION. This Agreement shall be governed by, and construed in
------------
accordance with, the laws of the State of Alabama, without giving effect to
conflict of laws. TIME IS OF THE ESSENCE IN THIS AGREEMENT.
14. SERVICE OF PROCESS. In any such action or proceeding with respect to
------------------
this Agreement, the Company waives personal service of any summons, complaint,
or other process and agrees that service thereof may be made in accordance with
Section 12.
15. COUNTERPARTS. This Agreement may be signed in several counterparts,
------------
each of which will constitute an original.
23
<PAGE>
If the foregoing correctly sets forth the understandings between the
Representative and the Company, please so indicate in the space provided below
for that purpose, whereupon this letter shall constitute a binding agreement
between us.
Very truly yours,
EUFAULA BANCCORP, INC.
By:______________________
Greg Faison, President
ACCEPTED as of the date first above
written in Birmingham, Alabama
STERNE, AGEE & LEACH, INC.*
By:_________________________________
James S. Holbrook, Jr., President
*On behalf of itself and the other several
Underwriters named in Schedule I hereto
24
<PAGE>
SCHEDULE I
----------
- --------------------------------------------------------------------------------
TOTAL
NUMBER
OF COMMON STOCK
TO BE
Underwriter PURCHASED
----------- ---------------
- --------------------------------------------------------------------------------
Sterne, Agee & Leach, Inc. .............................
- --------------------------------------------------------------------------------
Total..............................................
- --------------------------------------------------------------------------------
25
<PAGE>
EXHIBIT A
---------
LOCK-UP AGREEMENT
March __, 1998
Sterne, Agee & Leach, Inc.
1901 Sixth Avenue North
Suite 2100
Birmingham, Alabama 35203
Gentlemen:
In order to induce you and Eufaula BancCorp, Inc., a Delaware corporation
(the "Company"), to enter into an underwriting agreement with respect to the
public offering (the "Offering") of up to ________________________ shares of
Common Stock, par value $1.00 per share ("Common Stock") (including _______
shares of Common Stock issuable solely to cover over-allotments, if any) of the
Company, I hereby agree that for the period of time ("Period") commencing on the
date hereof and ending on the date 120 days following the date on which the
Company's registration statement, filed with respect to the Offering, under the
Securities Act of 1933, as amended (the "Act"), becomes effective under the Act,
I will not, without your prior written consent, publicly offer, sell, contract
to sell, grant any option for the sale of, or otherwise dispose of, directly or
indirectly, any shares of Common Stock or any security or other instrument which
by its terms is convertible into, or exercisable or exchangeable for, shares of
Common Stock or other securities of the Company, including, without limitation,
any shares of Common Stock issuable pursuant to the terms of any employee stock
options. In order to enable you to enforce the aforesaid restrictions on
transfer, I hereby agree that the Company may impose stop-transfer instructions
with respect to the securities of the Company owned beneficially or of record by
me, and affix to the certificates evidencing such securities a restrictive
legend to such effect, in each case until the end of the Period.
This letter agreement shall be governed by, and construed in accordance
with, the laws of the State of Alabama, without giving effect to conflict of law
principals.
________________________________________
Signature
________________________________________
Name (please print or type)
________________________________________
Address (please print or type)
________________________________________
Print Social Security Number or Taxpayer
Identification Number
26
<PAGE>
EXHIBIT 5
March 20, 1998
Eufaula BancCorp, Inc.
218-220 Broad Street
Eufaula, Alabama 36027
Re: Registration Statement on Form SB-2 relating to the issuance
of shares of common stock of Eufaula BancCorp, Inc.
Gentlemen:
We are familiar with the proceedings taken and proposed to be taken by
Eufaula BancCorp, Inc., a Delaware corporation (the "Company") in connection
with the proposed public issuance by the Company of shares of its common stock,
par value of $1.00 per share, pursuant to an Underwriting Agreement with Sterne,
Agee & Leach, Inc. We have also acted as counsel for the Company in connection
with the preparation and filing with the Securities and Exchange Commission
under the Securities Act of 1933, of the Registration Statement on Form SB-2
referred to in the caption above. In this connection we have reviewed such
documents and matters of law as we have deemed relevant and necessary as a basis
for the opinions expressed herein.
Upon the basis of the foregoing, we are of the opinion that:
(i) The Company is a corporation duly organized and existing under
the laws of the State of Delaware;
(ii) The shares of common stock of the Company referred to above, to
the extent actually issued, will, when so issued, be duly and validly authorized
and issued and will be fully paid and non-assessable shares of common stock of
the Company;
(iii) Under the laws of the State of Delaware, no personal liability
attaches to the ownership of the shares of common stock of the Company.
<PAGE>
March 20, 1998
Page 2
We hereby consent to the filing of this opinion as an exhibit to the above-
referenced registration statement and to the reference to our firm in the
related prospectus under the heading "Legal Matters." In consenting to the
inclusion of our opinion in the Registration Statement, we do not thereby admit
that we are a person whose consent is required pursuant to Section 7 of the
Securities Act of 1933, as amended.
Sincerely yours,
BALCH & BINGHAM LLP
By: /s/ Michael D. Waters
-----------------------
Michael D. Waters
MDW/trh
<PAGE>
EXHIBIT 23.1
CONSENT
-------
We hereby consent to use in this Registration Statement on Form SB-2 of
Eufaula BancCorp, Inc., of our opinion dated February 4, 1998, accompanying the
financial statements and appearing in the prospectus which is a part of the
Registration Statement and to the reference to us in the prospectus under the
heading "Experts."
March 20, 1998
________________________________
Maudlin & Jenkins
