<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JUNE 5, 1998
REGISTRATION NO. 333-
================================================================================
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------
FORM S-4
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
------------------
THE COLONIAL BANCGROUP, INC.
(Exact name of Registrant as specified in its charter)
------------------
<TABLE>
<S> <C> <C>
DELAWARE 6711 63-0661573
(State of Incorporation) (Primary Standard Industrial (I.R.S. Employer
Classification Code Number) Identification No.)
ONE COMMERCE STREET, SUITE 800 (334) 240-5000
MONTGOMERY, ALABAMA 36104 (Telephone No.)
(Address of principal executive
offices)
</TABLE>
------------------
WILLIAM A. MCCRARY
VICE PRESIDENT AND LEGAL COUNSEL
POST OFFICE BOX 1108
MONTGOMERY, ALABAMA 36101-1108
(Name and address of agent for service)
------------------
COPIES TO:
<TABLE>
<S> <C>
WILLARD H. HENSON JOHN P. GREELEY, ESQ.
MILLER, HAMILTON, SNIDER & ODOM, SMITH, MACKINNON, GREELEY, BOWDOIN &
L.L.C. EDWARDS, P.A.
ONE COMMERCE STREET CITRUS CENTER, SUITE 800
SUITE 305 255 SOUTH ORANGE AVENUE
MONTGOMERY, ALABAMA 36104 ORLANDO, FLORIDA 32801
TELEPHONE: 334-834-5550 TELEPHONE: 407-843-7300
FACSIMILE: 334-265-4533 FACSIMILE: 407-843-2448
</TABLE>
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon as
practicable after the effective time of the proposed merger of CNB Holding
Company ("CNB") with and into the Registrant (the "Merger") as described in the
Agreement and Plan of Merger, dated as of March 26, 1998, attached as Exhibit A
to the Proxy Statement and Prospectus forming a part of this Registration
Statement.
If the securities being registered on this Form are being offered in
connection with the formation of a holding company and there is compliance with
General Instruction G, check the following box. [ ]
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
=====================================================================================================================
PROPOSED PROPOSED
AMOUNT MAXIMUM MAXIMUM AMOUNT OF
TITLE OF EACH CLASS OF SECURITIES TO BE OFFERING PRICE AGGREGATE REGISTRATION
TO BE REGISTERED REGISTERED(1) PER UNIT OFFERING PRICE(2) FEE
- ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Common Stock, par value $2.50 per
share............................ 952,638 Not Applicable $9,027,760.80 $2,663.19
=====================================================================================================================
</TABLE>
(1) This Registration Statement covers the maximum number of shares of common
stock of the Registrant which is expected to be issued in connection with
the Merger.
(2) Estimated solely for purposes of calculating the registration fee and,
pursuant to Rule 457(f)(2) under the Securities Act of 1933, as amended,
based upon the March 31, 1998 book value of $60.22 per share of 149,913
shares of CNB, including 4,495 shares subject to stock options.
---------------------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON EACH 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 SECTION 8(A), MAY
DETERMINE.
================================================================================
<PAGE> 2
[Commercial National Bank LOGO] Corporate Office
1899 South Clyde Morris Boulevard
Daytona Beach, Florida 32119
CNB HOLDING COMPANY
, 1998
Dear Shareholder:
You are cordially invited to attend the Special Meeting of Shareholders
(the "Special Meeting") of CNB Holding Company ("CNB"), which will be held on
, 1998, at .m. local time. The Special Meeting will
be held at CNB's main office, located at 1899 South Clyde Morris Boulevard,
Daytona Beach, Florida.
At the Special Meeting, shareholders of CNB will be asked to consider and
vote on approval of an Agreement and Plan of Merger, dated as of March 26, 1998
(the "Agreement"), between CNB and The Colonial BancGroup, Inc. ("BancGroup"),
pursuant to which CNB will be merged (the "Merger") with BancGroup. In the
Merger, CNB shareholders will receive whole shares of BancGroup Common Stock in
exchange for shares of CNB Common Stock held by them. Each share of CNB Common
Stock outstanding at the effective time of the Merger will be converted into the
right to receive shares of BancGroup Common Stock (as calculated in accordance
with the terms of the Agreement). Cash will be paid for any fractional shares.
Please see the attached Proxy Statement and Prospectus for a detailed
description of the terms of the Merger and the formula for converting shares of
CNB Common Stock into shares of BancGroup Common Stock in the Merger.
THE BOARD OF DIRECTORS HAS UNANIMOUSLY APPROVED THE AGREEMENT AND THE
MERGER AS BEING IN THE BEST INTERESTS OF CNB SHAREHOLDERS AND RECOMMENDS THAT
YOU VOTE IN FAVOR OF THE APPROVAL OF THE AGREEMENT.
Additional information regarding the Agreement, the Merger, CNB and
BancGroup is set forth in the attached Proxy Statement, which also serves as the
Prospectus for the shares of BancGroup Common Stock to be issued in connection
with the Merger. Please read these materials and carefully consider the
information contained in them.
The affirmative vote of the holders of a majority of the outstanding shares
of CNB Common Stock is required to approve the Agreement. Accordingly, your vote
is important no matter how large or small your holdings may be. Whether or not
you plan to attend the Special Meeting, you are urged to complete, sign and
promptly return the enclosed Proxy Card to assure that your shares will be voted
at the Special Meeting. If you attend the Special Meeting, you may vote in
person if you wish, and your proxy will not be used.
Sincerely,
/s/ Raymond R. Thomas To Come
Raymond R. Thomas
President and Chief Executive Officer
<PAGE> 3
CNB HOLDING COMPANY
1899 SOUTH CLYDE MORRIS BOULEVARD
DAYTONA BEACH, FLORIDA 32119
(904) 761-5111
---------------------
NOTICE OF SPECIAL MEETING OF SHAREHOLDERS
TO BE HELD ON , 1998, AT M.
---------------------
NOTICE IS HEREBY GIVEN that a special meeting of shareholders (the "Special
Meeting") of CNB Holding Company ("CNB") will be held at the main office of CNB,
located at 1899 South Clyde Morris Boulevard, Daytona Beach, Florida, on
, 1998, at m., local time, for the following purposes:
1. Merger. To consider and vote upon the proposed merger (the
"Merger") of CNB with and into The Colonial BancGroup, Inc. ("BancGroup"),
in accordance with an Agreement and Plan of Merger, dated as of March 26,
1997, between CNB and BancGroup (the "Agreement"). BancGroup will be the
surviving corporation in the Merger. Each share of common stock of CNB
outstanding at the time of the Merger will be converted into the right to
receive shares of BancGroup Common Stock (as calculated in accordance with
the terms of the Agreement), with cash paid in lieu of fractional shares at
the market value of such fractional shares, as described in greater detail
in the accompanying Proxy Statement and Prospectus. The Agreement is
attached to the Proxy Statement and Prospectus as Appendix A.
2. Other Matters. To transact such other business as may properly
come before the Special Meeting or any adjournments or postponements
thereof.
The Board of Directors of CNB has fixed the close of business on
, 1998, as the record date for the determination of shareholders entitled
to notice of, and to vote at, the Special Meeting. Only holders of record of the
common stock of CNB at the close of business on that date will be entitled to
notice of, and to vote at, the Special Meeting or any adjournments or
postponements thereof. CNB shareholders are entitled to assert dissenters'
rights pursuant to the Florida Business Corporation Act. A copy of the
dissenters' rights provisions is attached to the enclosed Proxy Statement and
Prospectus as Appendix B.
You are cordially invited to attend the Special Meeting, but whether or not
you plan to attend, please complete and sign the enclosed form of proxy and mail
it promptly in the enclosed envelope. The proxy may be revoked at any time by
filing a written revocation with the Secretary of CNB, by executing a later
dated proxy and delivering it to the Secretary of CNB at or prior to the Special
Meeting, or by attending the Special Meeting and voting in person.
BY ORDER OF THE BOARD OF DIRECTORS
LOGO
Raymond R. Thomas
President and Chief Executive Officer
, 1998
<PAGE> 4
PROSPECTUS
COMMON STOCK, $2.50 PAR VALUE
THE COLONIAL BANCGROUP, INC.
PROXY STATEMENT
FOR SPECIAL MEETING OF SHAREHOLDERS OF
CNB HOLDING COMPANY
TO BE HELD ON , 1998
This Proxy Statement and Prospectus (the "Prospectus") relates to the
proposed merger (the "Merger") of CNB Holding Company, a Florida corporation
("CNB"), with and into The Colonial BancGroup, Inc., a Delaware corporation
("BancGroup"). This Prospectus is being furnished to the shareholders of CNB in
connection with the solicitation of proxies by the Board of Directors of CNB for
use at a special meeting of the shareholders of CNB to be held on ,
1998, at .m., local time, at the main office of CNB, located at 1899 South
Clyde Morris Boulevard, Daytona Beach, Florida, and any adjournments or
postponements thereof (the "Special Meeting"). At the Special Meeting,
shareholders of CNB will consider and vote upon the matters set forth in the
preceding Notice of Special Meeting of the Shareholders, as described in greater
detail in this Prospectus.
The Merger will be consummated pursuant to the terms of a certain Agreement
and Plan of Merger dated as of March 26, 1998 by and between BancGroup and CNB
(the "Agreement"). The Agreement provides that, subject to the approval of the
Agreement by the shareholders of CNB at the Special Meeting and the satisfaction
(or waiver, to the extent that such waiver is permitted by law) of other
conditions contained in the Agreement, CNB will be merged with and into
BancGroup, and BancGroup will be the surviving corporation. Each issued and
outstanding share of common stock, par value $1.00 per share, of CNB (the "CNB
Common Stock"), will be converted into a number of shares of the common stock,
par value $2.50 per share, of BancGroup (the "BancGroup Common Stock") equal to
$191.40 divided by the Market Value. The Market Value will equal the average of
the closing prices of BancGroup Common Stock for the ten trading days ending on
the trading day that is five calendar days immediately preceding the Effective
Date of the Merger. However, the Market Value will not be less than $30.12 or
more than $40.75. Assuming 145,418 shares of CNB Common Stock outstanding as of
the Effective Date, that no outstanding options to acquire CNB Common Stock are
exercised before the Effective Date, and that no holders of CNB Common Stock
exercise dissenters' rights in the Merger, the maximum number of shares of
BancGroup Common Stock that may be issued in the Merger will be 924,071, (based
upon a minimum Market Value of $30.12 and a resulting exchange ratio of 6.3546
shares of BancGroup Common Stock per share of CNB Common Stock), and the minimum
number of shares of BancGroup Common Stock that may be issued in the Merger will
be 683,019 (based upon a maximum Market Value of $40.75 and a resulting exchange
ratio of 4.6969 shares of BancGroup Common Stock per share of CNB Common Stock).
See "The Merger -- Conversion of CNB Common Stock." BancGroup Common Stock is
listed on the New York Stock Exchange ("NYSE"). The closing price per share of
the BancGroup Common Stock on the NYSE on May 27, 1998 was $31.4375.
Consummation of the Merger requires, among other things, the affirmative
vote of the holders of at least a majority of the outstanding shares of CNB
Common Stock.
BancGroup has filed a Registration Statement pursuant to the Securities Act
of 1933, as amended (the "Securities Act"), to register the shares of the
BancGroup Common Stock to be issued in connection with the Merger. This document
constitutes a Proxy Statement of CNB in connection with the solicitation of
proxies by CNB for use at the Special Meeting, and any adjournments or
postponements thereof, and a Prospectus of BancGroup with respect to the
BancGroup Common Stock to be issued in the Merger. This Prospectus and
accompanying form of proxy are first being mailed to shareholders of CNB on or
about the date set forth below.
THE BOARD OF DIRECTORS OF CNB UNANIMOUSLY RECOMMENDS
APPROVAL OF THE AGREEMENT.
------------------
THE SECURITIES TO WHICH THIS PROSPECTUS RELATES HAVE NOT BEEN APPROVED OR
DISAPPROVED BY THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES
COMMISSION, NOR HAS THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE
SECURITIES COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS.
ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
------------------
THE SHARES OF BANCGROUP COMMON STOCK OFFERED HEREBY ARE NOT SAVINGS ACCOUNTS OR
DEPOSITS AND ARE NOT INSURED BY THE FEDERAL DEPOSIT INSURANCE CORPORATION OR ANY
OTHER GOVERNMENTAL AGENCY.
The principal office and mailing address of CNB are 1899 South Clyde Morris
Boulevard, Daytona Beach, Florida 32119 (telephone (904)761-5111), and the
principal office and mailing address of BancGroup are Colonial Financial Center,
One Commerce Street, Post Office Box 1108, Montgomery, Alabama 36101 (telephone
334-240-5000).
THE DATE OF THIS PROSPECTUS IS , 1998.
<PAGE> 5
AVAILABLE INFORMATION
BancGroup is subject to the informational requirements 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"). Such reports and other information filed by
BancGroup, including proxy and information statements, can be inspected and
copied at the public reference facilities of the Commission, Judiciary Plaza,
450 Fifth Street, N.W., Room 1024, Washington, D.C. 20549, and at certain
regional offices: 2 World Trade Center, 13th Floor, New York, New York 10048;
Citicorp Center, 500 West Madison Street, Suite 1400, Chicago, Illinois
60661-2511; 1401 Brickell Avenue, Suite 200, Miami, Florida 33131; 1801
California Street, Suite 4800, Denver, Colorado 80202-2648; and 5670 Wilshire
Boulevard, 11th Floor, Los Angeles, California 90036-3648. Copies of such
material can be obtained from the Public Reference Section of the Commission at
450 Fifth Street, N.W., Washington, D.C. 20549, at prescribed rates.
The Commission also maintains a Web site (http://www.sec.gov) that contains
reports, proxy and information statements and other information regarding
registrants, such as BancGroup, that file electronically with the Commission.
The BancGroup Common Stock is listed for trading on the NYSE. Reports,
including proxy and information statements, of BancGroup and other information
may be inspected at the NYSE, 20 Broad Street, New York, New York 10005.
BancGroup has filed with the Commission a Registration Statement under the
Securities Act to register the shares of BancGroup Common Stock being issued in
connection with the Merger. This Prospectus omits certain information contained
in the Registration Statement and exhibits thereto. Such Registration Statement,
including the exhibits thereto, can be inspected at the Public Reference Section
of the Commission, 450 Fifth Street, N.W., Washington, D.C. 20549, and copies of
such Registration Statement can be obtained at prescribed rates from the
Commission at that address.
The information in this Prospectus concerning BancGroup and its
subsidiaries has been furnished by BancGroup, and the information concerning CNB
and its subsidiary has been furnished by CNB.
This Prospectus contains certain forward-looking statements with respect to
the financial condition, results of operations, and business of BancGroup
following the consummation of the Merger and the proposed acquisition of other
banking institutions (the "Other Pending Acquisitions"), including statements
relating to the expected impact of the Merger and the Other Pending Acquisitions
on BancGroup's financial performance. These forward-looking statements involve
certain risks and uncertainties. Factors that may cause actual results to differ
materially from those contemplated by such forward-looking statements include,
among other things, the following possibilities: (i) expected cost savings from
the Merger and the Other Pending Acquisitions, if any or all of such
transactions are consummated, cannot be fully realized; (ii) deposit attrition,
customer loss, or revenue loss following the Merger and the Other Pending
Acquisitions is greater than expected; (iii) competitive pressure in the banking
industry increases significantly; (iv) costs or difficulties related to the
integration of the businesses of BancGroup and the institutions to be acquired
are greater than expected; (v) changes in the interest rate environment reduce
margins; (vi) general economic conditions, either nationally or regionally, are
less favorable than expected, resulting in, among other things, a deterioration
in credit quality; (vii) changes occur in the regulatory environment; (viii)
changed occur in business conditions and the rate of inflation; and (ix) changes
occur in the securities markets. Forward looking earnings estimates (if any)
included in this Prospectus have not been examined or compiled by the
independent public accountants of BancGroup and CNB, nor have such accountants
applied any procedures thereto. Accordingly, such accountants do not express an
opinion or any other form of assurance on them. When used in this Prospectus,
the words "believes," "estimates," "plans," "expects," "should," "may," "might,"
"outlook," and "anticipates," and similar expressions as they relate to
BancGroup (including its subsidiaries), or its management are intended to
identify forward-looking statements. Further information on other factors that
could affect the financial results of BancGroup after the Merger and the Other
Pending Acquisitions is included in the filings with the Commission incorporated
by reference herein.
(ii)
<PAGE> 6
NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATIONS OTHER THAN THOSE CONTAINED OR INCORPORATED BY REFERENCE IN THIS
PROSPECTUS IN CONNECTION WITH THE SOLICITATION OF PROXIES OR THE OFFERING OF
SECURITIES MADE HEREBY AND, IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATION
MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY BANCGROUP OR CNB. THIS
PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL, OR A SOLICITATION OF AN OFFER
TO BUY, ANY SECURITIES, OR THE SOLICITATION OF A PROXY, IN ANY JURISDICTION, TO
OR FROM ANY PERSON TO WHOM OR FROM WHOM IT IS UNLAWFUL TO MAKE ANY SUCH OFFER OR
SOLICITATION IN SUCH JURISDICTION. NEITHER THE DELIVERY OF THIS PROSPECTUS NOR
ANY DISTRIBUTION OF SECURITIES MADE HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES,
CREATE ANY IMPLICATION THAT THERE HAS BEEN NO CHANGE IN THE AFFAIRS OF BANCGROUP
OR CNB SINCE THE DATE OF THIS PROSPECTUS OR THAT INFORMATION IN THIS PROSPECTUS
OR IN THE DOCUMENTS INCORPORATED BY REFERENCE HEREIN IS CORRECT AS OF ANY TIME
SUBSEQUENT TO THE DATE HEREOF OR THE DATES THEREOF.
DOCUMENTS INCORPORATED BY REFERENCE
THIS PROSPECTUS INCORPORATES DOCUMENTS OF BANCGROUP BY REFERENCE WHICH ARE
NOT PRESENTED HEREIN OR DELIVERED HEREWITH. THESE DOCUMENTS ARE AVAILABLE,
WITHOUT CHARGE, UPON REQUEST FROM THE PERSONS SPECIFIED BELOW. IN ORDER TO
ENSURE TIMELY DELIVERY OF THE DOCUMENTS, ANY REQUEST SHOULD BE RECEIVED BY
BANCGROUP NO LATER THAN FIVE BUSINESS DAYS PRIOR TO THE SPECIAL MEETING.
The following documents filed by BancGroup with the Commission are hereby
incorporated by reference into this Prospectus:
(1) BancGroup's Annual Report on Form 10-K for the fiscal year ended
December 31, 1997;
(2) BancGroup's Registration Statement on Form 8-A dated November 22,
1994, effective February 22, 1995, containing a description of the
BancGroup Common Stock.
(3) BancGroup's Quarterly Report on Form 10-Q for the quarter ended
March 31, 1998;
(4) BancGroup's Reports on Form 8-K dated March 16, 1998, April 15,
1998 and June 2, 1998; and
(5) The description of the current management and Board of Directors
contained in the Proxy Statement distributed pursuant to Section 14(a) of
the Exchange Act for BancGroup's Annual Meeting of shareholders held on
April 15, 1998.
All documents filed by BancGroup pursuant to Section 13(a), 13(c), 14 or
15(d) of the Exchange Act after the date of this Prospectus and prior to the
Special Meeting, shall be deemed incorporated by reference in this Prospectus
and made a part hereof from the date of filing of such documents. Any statement
contained in a document incorporated or deemed incorporated herein by reference
will be deemed to be modified or superseded for the purpose of this Prospectus
to the extent that a statement contained herein or in another subsequently filed
document which also is, or is deemed to be, incorporated herein by reference
modifies or supersedes such statement. Any such statement so modified or
superseded will not be deemed, except as so modified or superseded, to
constitute a part of this Prospectus.
BancGroup has entered into the Agreement with CNB regarding the Merger
described herein. Various provisions of the Agreement are summarized or referred
to in this Prospectus, and the Agreement is incorporated by reference into this
Prospectus and attached hereto as Appendix A.
BancGroup will provide without charge to each person, including any
beneficial owner, to whom this Prospectus is delivered, on the request of any
such person, a copy of any and all of the documents which have been incorporated
herein by reference but not delivered herewith (other than the exhibits to such
documents unless specifically incorporated herein). Such request, in writing or
by telephone, should be directed to W. Flake Oakley, IV, Secretary, The Colonial
BancGroup, Inc., One Commerce Street, Post Office Box 1108, Montgomery, Alabama
36192 (telephone 334-240-5000).
(iii)
<PAGE> 7
TABLE OF CONTENTS
<TABLE>
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PAGE
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SUMMARY..................................................... 1
THE SPECIAL MEETING......................................... 10
General................................................... 10
Record Date; Shares Entitled to Vote; Vote Required for
the Merger............................................. 10
Solicitation, Voting and Revocation of Proxies............ 10
Effect of Merger on Outstanding BancGroup Common Stock.... 11
THE MERGER.................................................. 12
General................................................... 12
Background of the Merger.................................. 12
CNB's Board of Director's Reasons for Approving the
Merger................................................. 13
Recommendation of the Board of Directors of CNB........... 13
BancGroup's Reasons for the Merger........................ 14
Interests of Certain Persons in the Merger................ 14
Conversion of CNB Common Stock............................ 15
Surrender of CNB Common Stock Certificates................ 15
Certain Federal Income Tax Consequences................... 16
Other Possible Consequences............................... 17
Conditions to Consummation of the Merger.................. 17
Amendment or Termination of Agreement..................... 18
Regulatory Approvals...................................... 19
Conduct of Business Pending the Merger.................... 21
Commitments with Respect to Other Offers.................. 22
Indemnification........................................... 22
Rights of Dissenting Shareholders......................... 22
Resale of BancGroup Common Stock Issued in the Merger..... 24
Accounting Treatment...................................... 25
NYSE Reporting of BancGroup Common Stock Issued in the
Merger................................................. 25
Treatment of CNB Options.................................. 25
COMPARATIVE MARKET PRICES AND DIVIDENDS..................... 26
CNB....................................................... 26
BancGroup................................................. 27
BANCGROUP CAPITAL STOCK AND DEBENTURES...................... 27
BancGroup Common Stock.................................... 28
Preference Stock.......................................... 28
1986 Debentures........................................... 28
Other Indebtedness........................................ 29
Changes in Control........................................ 29
COMPARATIVE RIGHTS OF SHAREHOLDERS.......................... 31
Director Elections........................................ 31
Removal of Directors...................................... 31
Voting.................................................... 31
Preemptive Rights......................................... 32
Directors' Liability...................................... 32
Indemnification........................................... 32
Special Meetings of Shareholders; Action Without a
Meeting................................................ 33
Mergers, Share Exchanges and Sales of Assets.............. 33
Amendment of Certificate of Incorporation and Bylaws...... 34
</TABLE>
(iv)
<PAGE> 8
<TABLE>
<CAPTION>
PAGE
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<S> <C>
Rights of Dissenting Stockholders......................... 34
Preferred Stock........................................... 35
Effect of the Merger on CNB Shareholders.................. 35
THE COLONIAL BANCGROUP, INC. AND SUBSIDIARIES
Condensed Pro Forma Statements of Condition (Unaudited)... 36
BUSINESS OF BANCGROUP....................................... 66
General................................................... 66
Recently Completed and Other Proposed Business
Combinations........................................... 66
Year 2000 Compliance...................................... 66
Voting Securities and Principal Stockholders.............. 67
Security Ownership of Management.......................... 68
Management Information.................................... 69
BUSINESS OF CNB............................................. 70
General................................................... 70
Deposit Activities........................................ 70
Lending Activities........................................ 70
Investments............................................... 71
Employees................................................. 71
Properties................................................ 71
Legal Proceedings......................................... 72
Principal Holders of Common Stock......................... 72
ADJOURNMENT OF SPECIAL MEETINGS............................. 72
OTHER MATTERS............................................... 73
DATE FOR SUBMISSION OF BANCGROUP STOCKHOLDER PROPOSALS...... 73
LEGAL MATTERS............................................... 73
EXPERTS..................................................... 73
INDEX TO FINANCIAL STATEMENTS............................... F-1
APPENDIX A -- Agreement and Plan of Merger.................. A-1
APPENDIX B -- Sections 607.1301, 607.1302 and 607.1320 of
the Florida Business Corporation Act Regarding Dissenter's
Rights.................................................... B-1
</TABLE>
(v)
<PAGE> 9
SUMMARY
The following provides a summary of certain information included in this
Prospectus. This summary is qualified in its entirety by the more detailed
information appearing elsewhere herein, the Appendices hereto and the documents
incorporated herein by reference. Shareholders of CNB are urged to read this
Prospectus, including the Appendices, in full.
GENERAL
This Prospectus relates to the issuance of shares of BancGroup Common Stock
in connection with the proposed Merger of CNB with and into BancGroup.
THE SPECIAL MEETING
This Prospectus is being furnished to the holders of CNB Common Stock in
connection with the solicitation by the CNB Board of Directors of proxies for
use at the Special Meeting and at any and all adjournments and postponements
thereof at which CNB shareholders will be asked to vote upon (i) a proposal to
approve the Agreement; and (ii) such other business as may properly come before
the meeting. The Special Meeting will be held at the main office of CNB, located
at 1899 South Clyde Morris Boulevard, Daytona Beach, Florida on ,
, 1998, at m., local time, for the purpose of considering and voting
upon the Merger and the Agreement. Only holders of record of CNB Common Stock at
the close of business on , , 1998 (the "Record Date") are
entitled to the notice of and to vote at the Special Meeting. As of the Record
Date, shares of CNB Common Stock were issued and outstanding. See "The Special
Meeting."
THE COMPANIES
BancGroup. BancGroup is a bank holding company within the meaning of the
Bank Holding Company Act of 1956, as amended (the "BHCA"). It was organized in
Delaware in 1974 and has operated under its current name and management since
1981. BancGroup operates a wholly owned commercial banking subsidiary, Colonial
Bank, in the states of Alabama, Florida, Georgia and Tennessee. Colonial Bank
conducts a full service commercial banking business through 134 branches in
Alabama, five branches in Tennessee, 13 branches in Georgia and 75 branches in
Florida. BancGroup has also entered into agreements to acquire four additional
banks. Colonial Mortgage Company, a subsidiary of the Colonial Bank in Alabama,
is a mortgage banking company which services approximately $13.8 billion in
residential loans and which originates residential mortgages in 44 states
through four divisional offices. At March 31, 1998, BancGroup had consolidated
total assets of $8.0 billion and consolidated stockholders' equity of $571.6
million. See "Business of BancGroup."
CNB. CNB is a bank holding company within the meaning of the BHCA and was
incorporated on December 13, 1985. CNB owns all of the outstanding shares of
Commercial National Bank, a national bank (the "Bank"), which is headquartered
in Daytona Beach, Florida. Currently, the Bank operates four banking offices in
Volusia County, Florida. At March 31, 1998, CNB had total consolidated assets of
approximately $88.0 million, total consolidated deposits of approximately $79.4
million, and total consolidated shareholders' equity of approximately $8.5
million. See "Business of CNB."
THE MERGER
The Agreement provides for the Merger of CNB with and into BancGroup, with
BancGroup to be the surviving corporation. Upon the date of consummation of the
Merger (the "Effective Date"), each outstanding share of CNB Common Stock
(except shares as to which dissenters' rights are perfected) will be converted
by operation of law and without any action by any holder thereof into shares of
BancGroup Common Stock. The number of shares of BancGroup Common Stock into
which each outstanding share of CNB Common Stock will be converted on the
Effective Date will be equal to $191.40 divided by the Market Value (the "Merger
Consideration"). The "Market Value" of the BancGroup Common Stock at the
Effective Date will be determined by calculating the average of the closing
prices of the BancGroup Common Stock as
1
<PAGE> 10
reported by the NYSE on each of the ten trading days ending on the trading day
five calendar days immediately preceding the Effective Date, provided that the
Market Value will not be less than $30.12 or more than $40.75, regardless of the
actual Market Value as calculated. Accordingly, assuming 145,418 shares of CNB
Common Stock are outstanding on the Effective Date, that no outstanding options
to acquire CNB Common Stock are exercised before the Effective Date, and that no
holders of CNB Common Stock exercise dissenters' rights of appraisal in the
Merger, the maximum number of shares of BancGroup Common Stock to be issued in
the Merger will be 924,071 (based upon a minimum Market Value of $30.12), and
the minimum number of shares of BancGroup Common Stock to be issued in the
Merger will be 683,019 (based upon a maximum Market Value of $40.75). The number
of shares of BancGroup Common Stock to be issued in the Merger will increase
proportionally with each share of CNB Common Stock issued pursuant to the
exercise, before the Effective Date, of certain options to acquire CNB Common
Stock and will further increase depending upon the number of shares of BancGroup
Common Stock issued pursuant to a cashless exchange of options to acquire CNB
Common Stock. See "The Merger -- Interest of Certain Persons in the Merger --
Treatment of CNB Options".
The closing sales price on the NYSE of the BancGroup Common Stock on May
27, 1998 was $31.4375 per share. Accordingly, had the Effective Date occurred on
May 27, 1998 the Market Value would have been $33.4125 and CNB shareholders
would have received 5.7284 shares of BancGroup Common Stock for each share of
CNB Common Stock. Shareholders are advised to obtain current market quotations
for BancGroup Common Stock. The market price of BancGroup Common Stock at the
Effective Date, or on the date on which certificates representing such shares
are received by CNB shareholders, may be higher or lower than the Market Price
of BancGroup Common Stock as of the Record Date or at the time of the Special
Meeting.
No fractional shares of BancGroup Common Stock will be issued in connection
with the Merger. Each shareholder of CNB otherwise entitled to receive a
fractional share of BancGroup Common Stock will receive instead a cash payment
(without interest) equal to such fractional share multiplied by the Market
Value.
Promptly after the Effective Date, CNB shareholders will be given notice of
the consummation of the Merger and instructions for the exchange of such
shareholders' certificates representing shares of CNB Common Stock for
certificates representing shares of BancGroup Common Stock. Certificates for the
shares of BancGroup Common Stock issued will not be distributed, and BancGroup
will not pay dividends on such shares until shareholders surrender their
certificates representing their shares of CNB Common Stock in accordance with
those instructions. CNB SHAREHOLDERS SHOULD NOT SEND IN THEIR CNB STOCK
CERTIFICATES UNTIL THEY HAVE RECEIVED THE INSTRUCTIONS. See "The
Merger -- Conversion of CNB Common Stock," "-- Surrender of CNB Common Stock
Certificates" and "-- Treatment of CNB Options."
For certain information concerning management of BancGroup and CNB, see
"Business of BancGroup -- Voting Securities and Principal Shareholders," "--
Security Ownership of Management," and "Business of CNB -- Principal Holders of
Common Stock."
RECOMMENDATION OF CNB'S BOARD OF DIRECTORS
The Board of Directors of CNB has unanimously approved the Agreement. THE
BOARD OF DIRECTORS OF CNB BELIEVES THAT THE MERGER IS IN THE BEST INTEREST OF
THE SHAREHOLDERS OF CNB AND RECOMMENDS THAT SHAREHOLDERS VOTE FOR THE APPROVAL
OF THE AGREEMENT. For a discussion of the factors considered by the Board of
Directors in reaching its conclusions, see "The Merger -- Background of the
Merger" and " -- CNB's Board of Director's Reasons for Approving the Merger."
INTERESTS OF CERTAIN PERSONS IN THE MERGER
As of the date of this Prospectus, CNB had granted options (the "CNB
Options") which entitle the holders thereof to acquire up to 4,495 shares of CNB
Common Stock. Subject to terms of the CNB stock option plan under which such
options were issued, the Agreement provides that, no later than five days prior
to the Effective Date, the holders of CNB Options that have vested for such
holders may provide written notice to CNB (in form and substance reasonably
satisfactory to BancGroup) that they wish to surrender their CNB
2
<PAGE> 11
Options to BancGroup, effective at the Effective Date and to receive in exchange
therefor an amount of BancGroup Common Stock equal in value to the difference
between (i) the total value of the shares of BancGroup Common Stock to be issued
pursuant to such CNB Options (based upon the number of shares of BancGroup
Common Stock issuable pursuant to the CNB Options multiplied by the Market
Value) and (ii) the aggregate exercise price of such CNB Options at the
Effective Date, divided by the Market Value (the "Cashless Exchange"). No
fractions of shares will be issued and fractions will be paid in cash at the
Market Value. Any CNB Options that have not vested at the Effective Date will
terminate. See "The Merger -- Interest of Certain Persons in the
Merger -- Treatment of CNB Options."
On the Effective Date, BancGroup anticipates that Colonial Bank will enter
into an employment agreement with Dennis Brinn, Chief Financial Officer of CNB,
and a consulting agreement with Ray Thomas, President and CEO of CNB. Mr.
Brinn's employment agreement is expected to provide that he will serve as an
Executive Vice President of Colonial Bank in Volusia County for an annual salary
of $83,000. Mr. Thomas' consulting agreement is expected to provide that he will
consult with Colonial Bank to develop its business in the Volusia County market
area for an annual compensation of $112,000. Both agreements are expected to
provide for terms of one year, for severance benefits, and for non-competition
agreements providing that Mr. Brinn and Mr. Thomas will not compete with
Colonial Bank or BancGroup in Volusia and adjoining counties during the terms of
the agreements.
BancGroup and each of six key employees of CNB or the Bank, have agreed to
enter into non-competition agreements on or before the Effective Date. The
agreements will provide that such key employees will not compete with BancGroup
for a period of at least one year if he or she voluntarily terminates his or her
employment with BancGroup or Colonial Bank and, at the time of such termination,
his or her salary is substantially equivalent to what it was on the Effective
Date. The key employees will receive aggregate consideration of $183,000 in
exchange for the agreements not to compete.
BancGroup and each of the non-employee directors of CNB have entered into
non-competition agreements that provide that such individuals will not compete
with BancGroup in Volusia and Flagler Counties for a period of one year
following the Effective Date.
On the Effective Date, and subject to the non-competition agreements
described above, all employees of CNB will, at BancGroup's option, either become
employees of BancGroup or its subsidiaries or be entitled to severance benefits
in accordance with Colonial Bank's severance policy as of the date of the
Agreement. All employees of CNB who become employees of BancGroup or its
subsidiaries on the Effective Date will be entitled, to the extent permitted by
applicable law, to participate in all benefit plans of BancGroup to the same
extent as BancGroup's employees.
Under the Agreement, BancGroup has agreed for a period of five years after
the Effective Date to indemnify persons entitled to indemnification under CNB's
Articles of Incorporation against certain claims and liabilities arising out of
or pertaining to matters existing or occurring at or prior to the Effective
Date, to the extent that CNB would have been authorized under Florida law, or
under its Articles of Incorporation or Bylaws, to indemnify such persons.
See "The Merger -- Interests of Certain Persons in the Merger."
VOTE REQUIRED
Under Florida law, the Agreement must be approved by the affirmative vote
of the holders of at least a majority of the outstanding shares of CNB Common
Stock. Each share of CNB Common Stock is entitled to one vote on the Agreement.
Approval of the Agreement and the Merger by BancGroup shareholders is not
required under Delaware, Florida or other applicable law, or the rules of the
NYSE on which the BancGroup Common Stock is listed. See "The Special Meeting."
Only holders of record of CNB Common Stock at the close of business on the
Record Date are entitled to notice of and to vote at the Special Meeting. As of
such date, shares of CNB Common Stock were issued and outstanding. As of
the Record Date, the directors and executive officers of CNB and the Bank held
approximately % of the outstanding shares of CNB Common Stock. As of the same
date, the directors,
3
<PAGE> 12
executive officers and affiliates of BancGroup held no shares of CNB Common
Stock. See "The Special Meeting."
As of the Record Date, the directors of CNB and holders of 5% or more of
the outstanding CNB Common Stock owned shares of CNB Common Stock
representing approximately % of the outstanding shares and have agreed with
BancGroup to vote their shares in favor of the Agreement. See "The Special
Meeting." As of February 27, 1998, directors and executive officers of BancGroup
beneficially owned in the aggregate 4,965,923 shares of BancGroup Common Stock
representing approximately 9.88% of BancGroup's outstanding shares.
Proxies should be returned to CNB in the envelope enclosed herewith.
Shareholders of CNB submitting proxies may revoke their proxies by (i) giving
notice of such revocation in writing to the Secretary of CNB at or prior to the
Special Meeting, (ii) executing and delivering a proxy bearing a later date to
the Secretary of CNB at or prior to the Special Meeting, or (iii) attending the
Special Meeting and voting in person. Because approval of the Agreement requires
the approval of at least a majority of the outstanding shares of CNB Common
Stock, failure to submit a proxy or failure to vote in person at the Special
Meeting will have the same effect as a negative vote. See "The Special Meeting
- -- Solicitation, Voting and Revocation of Proxies."
RIGHTS OF DISSENTING SHAREHOLDERS
Holders of CNB Common Stock as of the Record Date are entitled to
dissenters' rights of appraisal pursuant to Sections 607.1301, 607.1302 and
607.1320 of the Florida Business Corporation Act (the "FBCA"). The FBCA, as
described in greater detail in "The Merger -- Rights of Dissenting
Shareholders," permits a shareholder to dissent from the Merger and to obtain
payment for the fair value of his or her shares. Such "fair value" may be
determined in a judicial proceeding, the result of which cannot be predicted.
Shareholders wishing to exercise dissenters' rights must follow strictly all
requirements for the exercise of such rights as set forth in Sections 607.1301,
607.1302 and 607.1320 of the FBCA, a copy of which is attached as Appendix B to
this Prospectus. See "The Merger -- Rights of Dissenting Shareholders." Any
shareholder who properly exercises dissenters' rights and receives cash for his
or her shares will encounter income tax treatment different from the tax
treatment of shareholders who do not exercise dissenters' rights. See "The
Merger -- Rights of Dissenting Shareholders."
CONDITIONS TO THE MERGER
The parties' respective obligations to consummate the Merger are subject to
the satisfaction (or waiver, to the extent permitted by law) of various
conditions set forth in the Agreement.
The mutual obligations of the parties to consummate the Merger are subject
to the following conditions, among others: (i) the approval of the Agreement by
the holders of at least a majority of the outstanding shares of CNB Common
Stock; (ii) the notification to, or approval of the Merger by, the Board of
Governors of the Federal Reserve System (the "Federal Reserve") and the Florida
Department of Banking and Finance (the "Florida Department") and the approval of
the merger of the Bank with Colonial Bank (the "Bank Merger") by the Alabama
Banking Department (the "Alabama Department") and the Federal Reserve; (iii) the
absence of any pending or threatened litigation which seeks to restrain or
prohibit the Merger; (iv) the consummation of the Merger on or before November
30, 1998; (v) receipt of opinions of counsel as to certain matters; and (vi)
receipt of an opinion from Coopers & Lybrand L.L.P. as to certain tax matters.
The obligation of CNB to consummate the Merger is further subject to
several conditions, including: (i) the absence of any material adverse changes
in the financial condition or affairs of BancGroup; and (ii) the shares of
BancGroup Common Stock to be issued under the Agreement having been approved for
listing on the NYSE.
The obligations of BancGroup to consummate the Merger are subject to
various conditions, including: (i) the absence of any material adverse change in
the financial condition or affairs of CNB; (ii) the number of shares as to which
holders of CNB Common Stock exercise dissenters' rights not exceeding 10% of the
outstanding shares of CNB Common Stock; (iii) the execution and delivery by each
shareholder of CNB
4
<PAGE> 13
deemed to be an "affiliate" of CNB of an agreement relating to certain
restrictions on resales of BancGroup Common Stock received by such affiliates in
connection with the Merger; and (iv) the receipt of a letter from Coopers &
Lybrand L.L.P., BancGroup's independent accountants, to the effect that the
independent accountants concur with the conclusions of BancGroup's and CNB's
respective managements that no conditions exist with respect to each company
which would preclude accounting for the Merger as a pooling of interests.
Applications for appropriate regulatory approvals by the Federal Reserve,
the Florida Department and the Alabama Department were filed with such agencies
on May 7, 1998. The Federal Reserve approved the Merger as of , 1998,
and the Florida Department approved the Merger as of , 1998. NO
ASSURANCE CAN BE PROVIDED THAT THE NECESSARY SHAREHOLDER AND REGULATORY
APPROVALS CAN BE OBTAINED OR THAT THE OTHER CONDITIONS PRECEDENT TO THE MERGER
CAN OR WILL BE SATISFIED. BANCGROUP AND CNB ANTICIPATE THAT THE MERGER WILL BE
CONSUMMATED DURING THE THIRD QUARTER OF 1998. HOWEVER, DELAYS IN THE
CONSUMMATION OF THE MERGER COULD OCCUR.
See "The Merger -- Conditions to Consummation of the Merger" and
"Regulatory Approvals."
AMENDMENT OR TERMINATION OF AGREEMENT
To the extent permitted by law, the Agreement may be amended by a
subsequent writing signed by each of the parties upon the approval of the Boards
of Directors of each of the parties. However, under applicable law, after
adoption of the Agreement and the approval of the Merger by the holders of CNB
Common Stock, no amendment decreasing the consideration to be received by CNB
shareholders may be made without the further approval of such shareholders. The
Agreement may be terminated at any time prior to or on the Effective Date,
whether before or after adoption of the Agreement by the shareholders of CNB, by
the mutual consent of the respective Boards of Directors of CNB and BancGroup or
by the Board of Directors of either BancGroup or CNB under certain circumstances
including, but not limited to: (i) a material breach which cannot or has not
been cured within 30 days of notice of such breach being given by the
non-breaching party; (ii) failure to consummate the transactions contemplated
under the Agreement by November 30, 1998, provided that such failure to
consummate is not caused by any breach of the Agreement by the party electing to
terminate; and (iii) without further action by either party, upon the execution
by CNB of a legally binding agreement between CNB and any third party with
respect to any Acquisition Proposal, provided that BancGroup will have the right
to demand payment of liquidated damages. See "The Merger -- Commitment with
Respect to Other Offers."
COMMITMENT WITH RESPECT TO OTHER OFFERS
The Agreement provides that, except for the transactions contemplated
therein, neither CNB nor any of its affiliates or representatives may, directly
or indirectly, solicit any "Acquisition Proposal" relating to CNB or the Bank.
In addition, except to the extent required to comply with its fiduciary duties,
the Board of Directors of CNB is prohibited from negotiating or entering into
any contract relating to an Acquisition Proposal. If CNB either (i) enters into
a letter of intent or definitive agreement with respect to an Acquisition
Proposal before the Effective Date or termination of the Agreement in accordance
with its terms (subject to certain exceptions), or (ii) receives an Acquisition
Proposal before termination of the Agreement (subject to certain exceptions) and
consummates the transactions contemplated by such Acquisition Proposal within 12
months of such termination of the Agreement, then CNB will pay BancGroup
$1,000,000 as liquidated damages. See "The Merger -- Commitment with Respect to
Other Offers."
COMPARATIVE RIGHTS OF SHAREHOLDERS
The rights of the holders of the CNB Common Stock may be different from the
rights of the holders of the BancGroup Common Stock. A discussion of these
rights and a comparison thereof is set forth at "Comparative Rights of
Shareholders."
5
<PAGE> 14
FEDERAL INCOME TAX CONSEQUENCES
No ruling with respect to the federal income tax consequences of the Merger
to CNB's shareholders will be requested from the Internal Revenue Service (the
"IRS"). CNB has received an opinion from Coopers & Lybrand L.L.P., that, among
other things, a shareholder of CNB who exchanges shares of CNB Common Stock for
BancGroup Common Stock will not recognize gain except that, shareholders of CNB
will recognize gain to the extent such shareholders receive cash in lieu of
fractional shares of BancGroup Common Stock. Shareholders who receive cash for
their shares of CNB Common Stock upon perfection of dissenters' rights will
realize gain or loss for federal income tax purposes with respect to such
shares. See "Approval of the Merger -- Certain Federal Income Tax Consequences."
CNB shareholders are urged to consult their own tax advisors as to the specific
tax consequences of the Merger to them.
ACCOUNTING TREATMENT
The merger of CNB into BancGroup will be treated as a
"pooling-of-interests" transaction by BancGroup for accounting purposes. See
"The Merger -- Accounting Treatment."
RECENT PER SHARE MARKET PRICES
CNB. There is no established public trading market for the CNB Common
Stock. The shares of CNB Common Stock are not actively traded, and such trading
activity, as it occurs, takes place in privately negotiated transactions.
Management of CNB is aware of certain transactions in shares of CNB that have
occurred since January 1, 1996, although the trading prices of all stock
transactions are not known. The following table sets forth the dividends paid on
CNB Common Stock since January 1, 1996 and the trading prices for the shares of
CNB Common Stock that have occurred since January 1, 1996 for transactions in
which the trading prices are known to management of CNB:
<TABLE>
<CAPTION>
PRICE PER SHARE
OF COMMON STOCK
----------------- DIVIDENDS
HIGH LOW PER SHARE
------- ------- ---------
<S> <C> <C> <C>
1996
First Quarter........................................... $ 57.00 $ 57.00 $1.00
Second Quarter.......................................... 57.00 57.00 1.00
Third Quarter........................................... -- -- 1.00
Fourth Quarter.......................................... 57.00 57.00 1.00
1997
First Quarter........................................... 57.00 30.00 1.00
Second Quarter.......................................... 75.00 57.00 1.00
Third Quarter........................................... 75.00 57.00 1.00
Fourth Quarter.......................................... 118.00 118.00 1.50
1998
First Quarter........................................... 118.00 118.00 1.50
Second Quarter (through May 31, 1998)................... -- -- 3.15
------- -------
</TABLE>
6
<PAGE> 15
BancGroup. BancGroup Common Stock is listed for trading on the NYSE under
the symbol "CNB ." The following table indicates the high and low closing prices
of the BancGroup Common Stock as reported on the NYSE since January 1, 1996.
<TABLE>
<CAPTION>
PRICE PER SHARE OF
COMMON STOCK(1)
-------------------
HIGH LOW
-------- -------
<S> <C> <C> <C> <C>
1996
First Quarter............................................. 18 1/4 15
Second Quarter............................................ 18 1/16 15 5/8
Third Quarter............................................. 17 15/16 15 5/8
Fourth Quarter............................................ 20 1/8 17 3/8
1997
First Quarter............................................. 24 18 2/3
Second Quarter............................................ 24 7/8 22
Third Quarter............................................. 29 3/16 24 1/4
Fourth Quarter............................................ 35 1/16 28 15/16
1998
First Quarter............................................. 36 1/4 31 1/2
Second Quarter (through May 27, 1998)..................... 37 9/16 31 7/16
</TABLE>
- ---------------
(1) Restated to reflect the impact of a two-for-one stock split effected in the
form of a 100% stock dividend paid February 11, 1997.
On March 26, 1998, the business day immediately prior to the public
announcement of the Merger, the closing price of the BancGroup Common Stock on
the NYSE was $36.00 per share. The following table presents the market value per
share of BancGroup Common Stock on that date, and the market value and
equivalent per share value of CNB Common Stock on that date:
<TABLE>
<CAPTION>
BANCGROUP CNB EQUIVALENT
COMMON COMMON PRICE PER
STOCK STOCK CNB
(1) (2) SHARE(3)
--------- ------- ----------
<S> <C> <C> <C>
Comparative Market Value................................ $36.00 $118.00 $191.40
</TABLE>
- ---------------
(1) Closing price as reported by the NYSE on March 26, 1998.
(2) There is no established public trading market for the shares of CNB Common
Stock. The value shown is the price at which shares of CNB Common Stock were
sold on , and was the last sale price prior to the public
announcement of the Merger on March 26, 1998, of which management of CNB is
aware.
(3) The ten-day average of the closing price of BancGroup Common Stock,
calculated in the same manner as the Market Value will be calculated, was
$35.2125 on March 26, 1998. Therefore, if the Merger had closed on March 26,
1998, 5.4356 (191.40 divided by 35.2125) shares of BancGroup Common Stock
would have been exchanged for each share of CNB Common Stock.
See "Comparative Market Prices and Dividends."
CERTAIN LEGAL RESTRICTIONS ON ACQUISITIONS OF CONTROL
Certain restrictions under Delaware law prevent a person who beneficially
owns 15% or more of the BancGroup Common Stock from engaging in a "business
combination" with BancGroup unless certain conditions are satisfied. Also, the
Change in Bank Control Act of 1978 prohibits a person from acquiring "control"
of BancGroup unless certain notice requirements of the Federal Reserve have been
satisfied.
BancGroup's Restated Certificate of Incorporation (the "BancGroup
Certificate") and its Bylaws (the "BancGroup Bylaws") also contain provisions
which may deter or prevent a takeover of BancGroup that is not supported by
BancGroup's Board of Directors. These provisions include: (1) a classified board
of directors, (2) supermajority voting requirements for certain "business
combinations" that exceed the provisions of Delaware law described above, (3)
flexibility for the board to consider non-economic and other factors in
7
<PAGE> 16
evaluating a "business combination," (4) inability of shareholders to call
special meetings and act by written consent, and (5) certain advance notice
provisions for the conduct of business at shareholder meetings.
See "BancGroup Capital Stock and Debentures" and "Comparative Rights of
Shareholders."
PER SHARE DATA
The table below presents on a per share basis the book value, cash
dividends and income from continuing operations of BancGroup and CNB on a
historical basis and on a pro forma equivalent basis assuming consummation of
the Merger. Certain information from the table has been taken from the condensed
pro forma statements of condition and income included elsewhere in this
document. The table should be read in conjunction with these pro forma
statements.
<TABLE>
<CAPTION>
THREE MONTHS THREE MONTHS YEAR YEAR YEAR
ENDED ENDED ENDED ENDED ENDED
MARCH 31, 1998 MARCH 31, 1997 1997 1996 1995
-------------- -------------- ------ ------ -------
<S> <C> <C> <C> <C> <C>
BANCGROUP -- HISTORICAL (AS RESTATED*):
Net Income
Basic................................... $ 0.38 $ 0.42 $ 1.77 $ 1.31 $ 1.27
Diluted................................. 0.37 0.41 1.72 1.27 1.18
Book value at end of period............... 11.88 10.64 11.52 10.23 9.38
Dividends per share:
Common Stock............................ 0.17 0.15 0.60 0.54 0.3375
Common A................................ 0.1125
Common B................................ 0.0625
CNB
Net Income
Historical:
Basic................................ 3.32 2.30 9.97 9.52 8.62
Diluted.............................. 3.25 2.24 9.74 9.27 8.52
Pro forma equivalent assuming
combination with CNB(a):
Basic................................ 2.09 2.31 9.75 7.27 7.05
Diluted.............................. 2.04 2.26 9.48 7.00 6.57
Pro forma equivalent assuming
combination with CNB and other
probable business combinations(a):
Basic................................ 2.15 2.26 9.75 7.22 6.83
Diluted.............................. 2.09 2.20 9.48 7.00 6.40
Book value at end of period
Historical.............................. 60.22 54.99 58.33 53.73 48.51
Pro forma equivalent assuming
combination with CNB(a).............. 65.25 N/A N/A N/A N/A
Pro forma equivalent assuming
combination with CNB and other
probable business combinations(a).... 64.91 N/A N/A N/A N/A
Dividends per share
Historical.............................. 1.50 1.00 4.50 4.00 3.00
Pro forma equivalent assuming
combination with CNB(b).............. 0.94 0.83 3.31 2.98 2.48
Pro forma equivalent assuming
combination with CNB and other
probable business combinations(b).... 0.94 0.83 3.31 2.98 2.48
</TABLE>
8
<PAGE> 17
<TABLE>
<CAPTION>
THREE MONTHS THREE MONTHS YEAR YEAR YEAR
ENDED ENDED ENDED ENDED ENDED
MARCH 31, 1998 MARCH 31, 1997 1997 1996 1995
-------------- -------------- ------ ------ -------
<S> <C> <C> <C> <C> <C>
BANCGROUP -- PRO FORMA COMBINED (CNB
COMBINATION)
Net Income
Basic................................... 0.38 0.42 1.77 1.32 1.28
Diluted................................. 0.37 0.41 1.72 1.27 1.19
Book value at end of period............... 11.84 N/A N/A N/A N/A
BANCGROUP -- PRO FORMA COMBINED (CNB AND
OTHER PROBABLE BUSINESS COMBINATIONS):
Net Income
Basic................................... 0.39 0.41 1.77 1.31 1.24
Diluted................................. 0.38 0.40 1.72 1.27 1.16
Book value at end of period............... 11.78 N/A N/A N/A N/A
</TABLE>
- ---------------
* Restated to give retroactive effect to the February 1998
pooling-of-interests business combinations with United American Holding
Corporation, First Central Bank and South Florida Banking Corp.
N/A Not applicable due to pro forma balance sheet being presented only at March
31, 1998 which assumes the transaction consummated on the latest balance
sheet date in accordance with Rule 11.02(b) of Regulation S-X.
(a) Pro forma equivalent per share amounts are calculated by multiplying the
pro forma combined total income per share and the pro forma combined total
book value per share of BancGroup by the conversion ratio so that the per
share amounts are equated to the respective values for one share of CNB.
For these pro forma equivalent per share amounts, a 5.5104 BancGroup common
stock conversion ratio is utilized.
(b) Pro forma equivalent dividends per share are shown at BancGroup's Common
Stock dividend per share rate multiplied by the 5.5104 conversion ratio per
share of CNB Common Stock (see note (a)). BancGroup presently contemplates
that dividends will be declared in the future. However, the payment of cash
dividends is subject to BancGroup's actual results of operations as well as
certain other internal and external factors. Accordingly, there is no
assurance that cash dividends will either be declared and paid in the
future, or, if declared and paid, that such dividends will approximate the
pro forma amounts indicated.
9
<PAGE> 18
THE SPECIAL MEETING
GENERAL
This Prospectus is being furnished to the shareholders of CNB in connection
with the solicitation of proxies by the Board of Directors of CNB for use at the
Special Meeting and at any adjournments or postponements thereof. The purpose of
the Special Meeting is to consider and vote upon the Agreement which provides
for the proposed Merger of CNB with and into BancGroup. BancGroup will be the
surviving corporation in the Merger.
THE BOARD OF DIRECTORS OF CNB BELIEVES THAT THE MERGER IS IN THE BEST
INTERESTS OF CNB SHAREHOLDERS AND UNANIMOUSLY RECOMMENDS THAT SHAREHOLDERS VOTE
"FOR" THE AGREEMENT (ITEM 1 ON THE PROXY CARD).
This Prospectus is also furnished by BancGroup in connection with the offer
of shares of BancGroup Common Stock to be issued in the Merger. No vote of
BancGroup shareholders is required to approve the Merger.
RECORD DATE; SHARES ENTITLED TO VOTE; VOTE REQUIRED FOR THE MERGER
The Board of Directors of CNB has fixed the close of business on
, 1998, as the Record Date for determination of shareholders
entitled to vote at the Special Meeting. There were record holders of CNB
Common Stock and shares of CNB Common Stock outstanding, each entitled to
one vote per share, as of the Record Date. CNB is obligated to issue up to an
additional 4,495 shares of CNB Common Stock upon the exercise of outstanding CNB
Options.
The presence at the Special Meeting, in person or by proxy, of the holders
of a majority of the outstanding shares of CNB Common Stock on the Record Date
is necessary to constitute a quorum for the transaction of business at the
Special Meeting. In the absence of a quorum, the Special Meeting may be
postponed from time to time until CNB shareholders holding the requisite number
of shares of CNB Common Stock are represented in person or by proxy. If a quorum
is present, the affirmative vote of the holders of at least a majority of the
outstanding shares of CNB Common Stock, whether or not present or represented at
the Special Meeting, is required to approve the Agreement. Broker non-votes and
abstentions will not be counted as votes cast "FOR" or "AGAINST" the proposal to
approve the Agreement, and, as a result, such non-votes will have the same
effect as votes cast "AGAINST" the Agreement. Each holder of record of shares of
CNB Common Stock is entitled to cast, for each share registered in his or her
name, one vote on the Agreement as well as on each other matter presented to a
vote of shareholders at the Special Meeting.
As of the Record Date, directors of CNB and holders of 5% or more of the
outstanding CNB Common Stock owned shares of CNB Common Stock
representing approximately % of the outstanding shares. These individuals
have agreed with BancGroup to vote their shares in favor of the Merger.
If the Agreement is approved at the Special Meeting, CNB is expected to
merge with and into BancGroup promptly after the other conditions to the
Agreement are satisfied. See "The Merger -- Conditions of Consummation of the
Merger."
THE BOARD OF DIRECTORS OF CNB URGES THE SHAREHOLDERS OF CNB TO EXECUTE AND
RETURN THE ENCLOSED PROXY CARD AS SOON AS POSSIBLE AND UNANIMOUSLY RECOMMENDS
THAT THE SHARES REPRESENTED BY THE PROXY BE VOTED IN FAVOR OF THE AGREEMENT.
SOLICITATION, VOTING AND REVOCATION OF PROXIES
In addition to soliciting proxies by mail, directors, officers and other
employees of CNB, without receiving special compensation therefor, may solicit
proxies from CNB's shareholders by telephone, by telegram or in person.
Arrangements will also be made with brokerage firms and other custodians,
nominees and fiduciaries, if any, to forward solicitation materials to any
beneficial owners of shares of CNB Common Stock.
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CNB will bear the cost of assembling and mailing this Prospectus and other
materials furnished to shareholders of CNB. It will also pay all other expenses
of solicitation, including the expenses of brokers, custodians, nominees, and
other fiduciaries who, at the request of CNB, mail material to, or otherwise
communicate with, beneficial owners of the shares held by them. BancGroup will
pay all expenses incident to the registration of the BancGroup Common Stock to
be issued in connection with the Merger.
Shares of CNB Common Stock represented by a proxy properly signed and
received at or prior to the Special Meeting, unless properly revoked, will be
voted in accordance with the instructions on the proxy. If a proxy is signed and
returned without any voting instructions, shares of CNB Common Stock represented
by the proxy will be voted "FOR" the proposal to approve the Agreement and in
accordance with the determination of the majority of the Board of Directors of
CNB as to any other matter which may properly come before the Special Meeting,
including any adjournment or postponement thereof. A shareholder may revoke any
proxy given pursuant to this solicitation by: (i) delivering to the Secretary of
CNB, prior to or at the Special Meeting, a written notice revoking the proxy;
(ii) delivering to the Secretary of CNB, at or prior to the Special Meeting, a
duly executed proxy relating to the same shares and bearing a later date; or
(iii) voting in person at the Special Meeting. Attendance at the Special Meeting
will not, in and of itself, constitute a revocation of a proxy. All written
notices of revocation and other communications with respect to the revocation of
CNB's proxies should be addressed to:
CNB Holding Company
1899 South Clyde Morris Boulevard
Daytona Beach, Florida 32119
Attention: Raymond R. Thomas, President and Chief Executive Officer
Proxies marked as abstentions and shares held in street name which have
been designated by brokers on proxy cards as not voted will not be counted as
votes cast. Such proxies will, however, be counted for purposes of determining
whether a quorum is present at the Special Meeting.
The Board of Directors of CNB is not aware of any business to be acted upon
at the Special Meeting other than consideration of the Agreement and the Merger
described herein. If, however, other matters are properly brought before the
Special Meeting, or any adjournments or postponements thereof, the persons
appointed as proxies will have the discretion to vote or act on such matters
according to their best judgment. Proxies voted in favor of the approval of the
Agreement, or proxies as to which no voting instructions are given, will be
voted to adjourn the Special Meeting, if necessary, in order to solicit
additional proxies in favor of the approval of the Agreement. Proxies voted
against the approval of the Agreement and abstentions will not be voted for an
adjournment. See "Adjournment of the Special Meeting."
EFFECT OF MERGER ON OUTSTANDING BANCGROUP COMMON STOCK
Assuming that no dissenters' rights of appraisal are exercised in the
Merger, that 4,495 CNB Options are exercised prior to the Effective Date, that
no CNB Options are exchanged in the Cashless Exchange, and the Market Value of
BancGroup Common Stock is $40.75 (the maximum Market Value allowable under the
Agreement) on the Effective Date (as of May 27, 1998, the Market Value was
$33.4125), BancGroup will issue 858,762 shares of BancGroup Common Stock to the
shareholders of CNB pursuant to the Merger. Based on those assumptions, the
858,762 shares of BancGroup Common Stock will represent approximately 1.8% of
the total number of shares of BancGroup Common Stock outstanding following the
Merger, not counting any additional shares BancGroup may issue, including shares
to be issued pursuant to other pending acquisitions.
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THE MERGER
The following sets forth a summary of the material provisions of the
Agreement and the transactions contemplated thereby. The description does not
purport to be complete and is qualified in its entirety by reference to the
Agreement, a copy of which is attached hereto as Appendix A, and certain
provisions of Florida law relating to the rights of dissenting shareholders, a
copy of which is attached hereto as Appendix B. All CNB shareholders are urged
to read the Agreement and the Appendices in their entirety.
GENERAL
The Agreement provides that, subject to approval by the shareholders of
CNB, receipt of necessary regulatory approvals and satisfaction of certain other
conditions described below at "Conditions to Consummation of the Merger," CNB
will merge with and into BancGroup. Upon completion of the Merger, the corporate
existence of CNB will cease, and BancGroup will succeed to the business formerly
conducted by CNB.
BACKGROUND OF THE MERGER
In early January, 1998, Raymond R. Thomas (President and Chief Executive
Officer of CNB) was contacted by a representative of BancGroup who indicated
that he would like to arrange for a meeting to discuss BancGroup and CNB. The
representative and Mr. Thomas met on January 12, 1998. The representative
advised Mr. Thomas that BancGroup would be interested in discussing a possible
merger transaction between BancGroup and CNB. Mr. Thomas advised the
representative that he would discuss the matter with the CNB Board of Directors
at their January 20, 1998 meeting.
On January 20, 1998, the CNB Board met to discuss Mr. Thomas' discussion
with the BancGroup representative. As a part of this discussion, the CNB Board
instructed Mr. Thomas to advise BancGroup that the Board would be interested in
pursuing discussions with BancGroup if a transaction with BancGroup would
approximate value to CNB shareholders in certain specified ranges.
On January 21, 1998, the BancGroup represented advised Mr. Thomas that the
ranges of value previously determined by the CNB Board could be obtainable in a
transaction with BancGroup, and that CNB would be contacted for further
discussion by Mr. Charles W. Brinkley, Jr. (Executive Vice President of Colonial
Bank Central Florida).
On February 12, 1998, Mr. Brinkley called Mr. Thomas to arrange a meeting
where representatives of BancGroup could present to the CNB Board information
regarding BancGroup and its interest in acquiring CNB. On February 19, 1998, the
CNB Board met with the following representatives of BancGroup: Robert E. Lowder,
(Chairman and Chief Executive Officer of BancGroup), P. L. "Mac" McLeod, Jr.
(President of BancGroup), W. Flake Oakley IV (Executive Vice President and Chief
Financial Officer of BancGroup), Mr. Brinkley and Mr. Arthur Barksdale (Senior
Lending Officer of Colonial Bank Central Florida). At the meeting, the BancGroup
representatives and the CNB Board and reviewed, among other things, the history
and prospects of BancGroup, and general parameters relating to the terms of a
possible merger transaction between CNB and BancGroup.
On February 25, 1998, George C. Scott (a director of CNB) met with H.E.
Davis (President of Colonial Bank Central Florida), James L. Hewitt (Chairman of
the Board and Chief Executive Officer of Colonial Bank Central Florida), and J.
Donald Prewitt (a director of BancGroup). During the meeting, the BancGroup
representatives discussed a range of value of $28 million to CNB shareholders in
an acquisition transaction with BancGroup and Mr. Scott discussed a value range
of $29 million. The parties concurred that a price range of $28.5 million in a
transaction between CNB and BancGroup would be presented for consideration by
the CNB Board.
At a special meeting of the CNB Board of Directors on February 26, 1998,
Mr. Scott reported the results of his meeting with Messrs. Hewitt, Davis, and
Prewitt, the $28 million and $29 million ranges discussed, and the $28.5 million
amount considered by the participants at the end of the meeting. Also on
February 26, 1998, a letter and a non-binding proposal was received by BancGroup
and considered by the CNB Board. The
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proposal indicated, among other things, that BancGroup was interested in
pursuing a merger transaction with CNB in which CNB shareholders would receive
value of $191.40 per share of CNB Common Stock payable in shares of BancGroup
Common Stock, subject to certain adjustments and conditions. The CNB Board
authorized a committee of directors comprised of Edward F. Simpson and George C.
Scott, with the assistance of Dennis E. Brinn (Executive Vice President of CNB),
to conduct a review of the BancGroup proposal. Among other things, the Committee
contacted certain regional banks in CNB's market area. The contacts by the
Committee indicated that the price range offered by BancGroup was in excess of
those that might be offered by certain other regional financial institutions
operating in CNB's market area.
Thereafter, the Board Committee and CNB's legal counsel contacted BancGroup
to proceed with the preparation and negotiation of the Agreement for review and
consideration by the CNB Board.
On March 3, 1998 BancGroup forwarded to CNB a draft of a proposed
definitive agreement. At a March 9, 1998 special meeting of the CNB Board, Mr.
Simpson discussed issues relating to the draft of the Agreement as discussed
previously with CNB's legal counsel. After additional discussion by the CNB
directors of the terms and conditions of a proposed transaction with BancGroup,
the CNB Board authorized BancGroup to begin a due diligence review of CNB. The
CNB Board also authorized representatives of CNB to continue discussions and
negotiations with BancGroup regarding the terms of a proposed definitive
agreement with BancGroup.
On March 10, 1998 to March 11, 1998, representatives of BancGroup conducted
a due diligence review of CNB, following the signing by CNB and BancGroup of a
confidentiality agreement. From March 9, 1998 to March 25, 1998, representatives
of BancGroup and representatives of CNB negotiated the terms, and exchanged
drafts, of the Agreement.
On March 25, 1998, a special meeting of CNB's Board of Directors was held,
in which CNB's legal counsel participated. During this meeting, legal counsel
reviewed generally for CNB's Directors the fiduciary obligations of directors in
mergers of financial institutions. Following discussion and review by CNB's
Board of Directors of the terms and conditions of the Agreement, the Merger, and
related information and issues, the Board of Directors unanimously approved the
Agreement and the transactions contemplated thereby. BancGroup and CNB signed
the Agreement as of March 26, 1998.
CNB'S BOARD OF DIRECTOR'S REASONS FOR APPROVING THE MERGER
CNB's Board of Directors believes that the Merger is in the best interests
of CNB and its shareholders. The Board of Directors of CNB considered a number
of factors in deciding to approve and recommend the terms of the Agreement to
CNB shareholders, including the terms of the proposed transaction; the financial
condition, results of operations, and future prospects of CNB; the value of the
consideration to be received by CNB shareholders relative to the book value and
earnings per share of CNB Common Stock; the competitive and regulatory
environment for financial institutions generally; the fact that the Merger will
enable CNB shareholders to exchange their shares of CNB Common Stock (for which
there is no established public trading market) for shares of common stock of a
larger and more diversified entity, the stock of which is more widely held and
more actively traded; that the Merger will enable CNB shareholders to hold stock
in a financial institution that has historically paid cash dividends for a
longer term to its shareholders as compared to CNB; the likelihood of receiving
the requisite regulatory approvals; that it is expected that the Merger will be
a tax-free transaction (except in respect of cash received for CNB Common Stock)
for federal income tax purposes; and other information. The foregoing discussion
of the information and factors considered by the CNB Board of Directors is not
intended to be exhaustive of the factors considered by the Board of Directors.
The CNB Board of Directors did not assign any relative or specific weights to
the foregoing factors, and individual directors may have given different weights
to different factors.
RECOMMENDATION OF THE BOARD OF DIRECTORS OF CNB
The Board of Directors of CNB has determined that the Merger is in the best
interest of CNB shareholders. THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS THAT
THE
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SHAREHOLDERS OF CNB VOTE IN FAVOR OF THE APPROVAL AND ADOPTION OF THE
MERGER AND THE AGREEMENT.
BANCGROUP'S REASONS FOR THE MERGER
The Board of Directors of BancGroup has unanimously approved the Merger and
the Agreement. BancGroup has been seeking to expand its banking operations in
the state of Florida. BancGroup currently operates a commercial bank with
branches in the Orlando, Ormond Beach, Tampa, Ft. Myers, Winter Haven, West Palm
Beach, Miami, Miami Beach, Bonita Springs and St. Petersburg. The Board of
Directors of BancGroup believes that the combination with CNB and the Bank is
consistent with that expansion strategy.
In approving the Merger and the Agreement, the Board of Directors of
BancGroup took into account: (i) the financial performance and condition of CNB,
including its capital and asset quality; (ii) similarities in the philosophies
of BancGroup and CNB, including CNB's commitment to delivering high quality
personalized financial services to its customers; and (iii) CNB's management's
knowledge of, and experience in, the East-coast Florida market.
INTERESTS OF CERTAIN PERSONS IN THE MERGER
As of the date of this Prospectus, CNB had granted options (the "CNB
Options") which entitle the holders thereof to acquire up to 4,495 shares of CNB
Common Stock. Subject to terms of the CNB stock option plan under which such
options were issued, the Agreement provides that, no later than five days prior
to the Effective Date, the holders of CNB Options that have vested for such
holders may provide written notice to CNB (in form and substance reasonably
satisfactory to BancGroup) that they wish to surrender their CNB Options to
BancGroup, effective at the Effective Date and to receive in exchange therefor
an amount of BancGroup Common Stock equal in value to the difference between (i)
the total value of the shares of BancGroup Common Stock to be issued pursuant to
such CNB Options (based upon the number of shares of BancGroup Common Stock
issuable pursuant to the CNB Options multiplied by the Market Value) and (ii)
the aggregate exercise price of such CNB Options at the Effective Date, divided
by the Market Value (the "Cashless Exchange"). No fractions of shares will be
issued and fractions will be paid in cash at the Market Value. Any CNB Options
that have not vested at the Effective Date will terminate. See "The
Merger -- Interest of Certain Persons in the Merger -- Treatment of CNB
Options."
Employees. On the Effective Date, BancGroup anticipates that Colonial Bank
will enter into an employment agreement with Dennis Brinn and a consulting
agreement with Ray Thomas. Mr. Brinn's employment agreement is expected to
provide that he will serve as an Executive Vice President of Colonial Bank in
Volusia County for an annual salary of $83,000. Mr. Thomas' consulting agreement
is expected to provide that he will consult with Colonial Bank to develop its
business in the Volusia County market area for an annual compensation of
$112,000. Both agreements are expected to provide for terms of one year, for
severance benefits, and for non-competition agreements providing that Mr. Brinn
and Mr. Thomas will not compete with Colonial Bank or BancGroup in Volusia and
adjoining counties during the terms of the agreements.
BancGroup and each of six key employees of CNB or the Bank, have agreed to
enter into non-competition agreements on or before the Effective Date. The
agreements will provide that such key employees will not compete with BancGroup
for a period of at least one year from the Effective Date, if he or she
voluntarily terminates his or her employment with BancGroup or Colonial Bank
and, at the time of such termination, his or her salary is substantially
equivalent to what it was on the Effective Date. The key employees will receive
aggregate consideration of $183,000 in exchange for the agreement not to
compete.
On the Effective Date, and subject to the non-competition agreements
described above, all employees of CNB will, at BancGroup's option, either become
employees of BancGroup or its subsidiaries or be entitled to severance benefits
in accordance with Colonial Bank's severance policy as of the date of the
Agreement. All employees of CNB who become employees of BancGroup or its
subsidiaries on the Effective Date will be entitled, to the extent permitted by
applicable law, to participate in all benefit plans of BancGroup to the same
extent as BancGroup's employees.
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Directors. BancGroup and each of the non-employee directors of CNB have
entered into non-competition agreements that provide that such individuals will
not compete with BancGroup in Volusia and Flagler Counties for a period of one
year following the Effective Date.
Indemnification. Under the Agreement, BancGroup has agreed for a period of
five years to indemnify the directors and executive officers of CNB against
certain claims and liabilities arising out of or pertaining to matters existing
or occurring at or prior to the Effective Date, to the extent that CNB would
have been authorized under Florida law, or under its Articles of Incorporation
or Bylaws, to indemnify such persons.
CONVERSION OF CNB COMMON STOCK
On the Effective Date, each share of CNB Common Stock outstanding and held
by CNB's shareholders (except shares as to which dissenters' rights are
perfected) will be converted by operation of law and without any action by any
holder thereof into shares of BancGroup Common Stock. The number of shares or
fractions of a share of BancGroup Common Stock into which each outstanding share
of CNB Common Stock on the Effective Date will be converted, will be equal to
$191.40 divided by the Market Value. The Market Value will be the average of the
closing prices of the BancGroup Common Stock as reported by the NYSE on each of
the ten consecutive trading days ending on the trading day five calendar days
immediately preceding the Effective Date, provided that the Market Value will
not be less than $30.12 or more than $40.75, regardless of the actual market
value as calculated. Accordingly, based upon the 145,418 shares of CNB Common
Stock outstanding as of the March 26, 1998 date of the Agreement, that no
outstanding options to acquire CNB Common Stock are exercised before the
Effective Date, and assuming no holders of CNB Common Stock exercise dissenters'
rights of appraisal in the Merger, the maximum number of shares of BancGroup
Common Stock that may be issued in the Merger will be 924,071 (based upon a
minimum Market Value of $30.12) and the minimum number of shares of BancGroup
Common Stock that may be issued in the Merger will be 683,019 (based upon a
maximum Market Value of $40.75). The number of shares of BancGroup Common Stock
to be issued in the Merger will increase proportionally with each share of CNB
Common Stock issued pursuant to the exercise, before the Effective Date, of the
CNB Options. The number of shares of BancGroup Common Stock to be issued in the
Merger will increase further depending on the extent to which holders of CNB
Options elect to exercise their rights under the Cashless Exchange. See
"Interests of Certain Persons in the Merger -- Treatment of CNB Options."
No fractional shares of BancGroup Common Stock will be issued in connection
with the Merger. Each shareholder of CNB otherwise entitled to receive a
fractional share of BancGroup Common Stock will receive instead a cash payment
(without interest) equal to such fractional interest multiplied by the Market
Value.
As an example, if the Market Value is $33.4125 (which was the Market Value
calculated as of May 27, 1998, then each share of CNB Common Stock will be
converted on the Effective Date into 5.7284 shares of BancGroup Common Stock
(i.e., $191.40 divided by $33.4125). As a result, a shareholder of CNB who owns
500 shares of CNB Common Stock would receive 2,864 shares of BancGroup Common
Stock ($191.40 / $33.4125 multiplied by 500) with the .2 of a share paid in cash
equal to $6.68 (.2 X $33.4125). Subject to the maximum and minimum Market Values
of $40.75 and $30.12, as the Market Value of the BancGroup Common Stock rises,
the number of shares of BancGroup Common Stock to be issued in the Merger will
decrease, and as the Market Value falls, the number of such shares to be issued
will increase.
The closing sales price on the NYSE of the BancGroup Common Stock on May
27, 1998 was $31.4375 per share. Shareholders are advised to obtain current
market quotations for BancGroup Common Stock. The market price of BancGroup
Common Stock at the Effective Date, or on the date on which certificates
representing such shares are received by CNB shareholders, may be higher or
lower than the market price of BancGroup Common Stock as of the Record Date or
at the time of the Special Meeting.
The Agreement provides that if, prior to the Effective Date, BancGroup
Common Stock is changed into a different number of shares or a different class
of shares by reason of any recapitalization or reclassification, stock dividend,
combination, stock split, or reverse stock split of the BancGroup Common Stock,
an appropriate and proportionate adjustment will be made in the number of shares
of BancGroup Common Stock into which the CNB Common Stock will be converted in
the Merger.
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For a description of the Cashless Exchange of CNB Options, see "-- Interest
of Certain Persons in the Merger -- Treatment of CNB Options."
SURRENDER OF CNB COMMON STOCK CERTIFICATES
On the Effective Date and subject to the conditions described at
"Conditions to Consummation of the Merger," CNB's shareholders (except those
shareholders who perfect dissenters' rights under applicable law) will
automatically, and without further action by such shareholders or by BancGroup,
become owners of BancGroup Common Stock, as described herein. Outstanding
certificates representing shares of the CNB Common Stock will represent shares
of BancGroup Common Stock. Thereafter, upon surrender of the certificates
formerly representing shares of CNB Common Stock, the holders will be entitled
to receive certificates for the BancGroup Common Stock. Dividends on the shares
of BancGroup Common Stock will accumulate without interest and will not be
distributed to any former shareholder of CNB unless and until such shareholder
surrenders for cancellation his certificate for CNB Common Stock. SunTrust Bank,
Atlanta, Atlanta, Georgia, transfer agent for BancGroup Common Stock, will act
as the Exchange Agent with respect to the shares of CNB Common Stock surrendered
in connection with the Merger. The Exchange Agent will mail a detailed
explanation of these arrangements to CNB shareholders promptly following the
Effective Date. STOCK CERTIFICATES SHOULD NOT BE SENT TO THE EXCHANGE AGENT
UNTIL SUCH NOTICE IS RECEIVED.
CERTAIN FEDERAL INCOME TAX CONSEQUENCES
The Merger is intended to qualify as a "reorganization" for federal income
tax purposes under Section 368(a)(1)(A) of the Internal Revenue Code of 1986, as
amended (the "Code"). The obligation of each of CNB and BancGroup to consummate
the Merger is conditioned on the receipt of an opinion from Coopers & Lybrand
L.L.P., BancGroup's independent public accountant, to the effect that the Merger
will constitute such a reorganization. The opinion has been delivered to
BancGroup. In delivering its opinion, Coopers & Lybrand L.L.P., has received and
relied upon certain representations contained in certificates of officers of
BancGroup and CNB and certain other information, data, documentation and other
materials as it deemed necessary. The tax opinion is based upon customary
assumptions contained therein, including the assumption that CNB has no
knowledge of any plan or intention on the part of the CNB shareholders to sell
or dispose of BancGroup Common Stock that would reduce their holdings to the
number of shares having in the aggregate a fair market value of less than 50% of
the total fair market value of the CNB Common Stock outstanding immediately upon
consummation of the Merger.
Neither CNB nor BancGroup intends to seek a ruling from the IRS as to the
federal income tax consequences of the Merger. CNB's shareholders should be
aware that the opinion will not be binding on the IRS or the courts. CNB's
shareholders also should be aware that some of the tax consequences of the
Merger are governed by provisions of the Code as to which there are no final
regulations and little or no judicial or administrative guidance. There can be
no assurance that future legislation, administrative rulings, or court decisions
will not adversely affect the accuracy of the statements contained herein.
The tax opinion states that, provided the assumptions stated therein are
satisfied, the Merger will constitute a reorganization as defined in Section
368(a) of the Code, and the following federal income tax consequences will
result to CNB's shareholders who exchange their shares of CNB Common Stock for
shares of BancGroup Common Stock:
(i) No gain or loss will be recognized by CNB's shareholders on the
exchange of shares of CNB Common Stock for shares of BancGroup Common
Stock;
(ii) The aggregate basis of BancGroup Common Stock received by each
CNB shareholder (including any fractional shares of BancGroup Common Stock
deemed received, but not actually received), will be the same as the
aggregate tax basis of the shares of CNB Common Stock surrendered in
exchange therefor;
(iii) The holding period of the shares of BancGroup Common Stock
received by each CNB shareholder will include the period during which the
shares of CNB Common Stock exchanged therefor
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were held, provided that the shares of CNB Common Stock were a capital
asset in the holder's hands as of the Effective Date;
(iv) Cash payments received by each CNB shareholder in lieu of a
fractional share of BancGroup Common Stock will be treated for federal
income tax purposes as if the fractional share had been issued in the
exchange and then redeemed by BancGroup. Gain or loss will be recognized on
the redemption of the fractional share and generally will be capital gain
or loss if the CNB Common Stock is a capital asset in the hands of the
holder;
(v) No gain or loss will be recognized by CNB upon the transfer of its
assets and liabilities to BancGroup. No gain or loss will be recognized by
BancGroup upon the receipt of the assets and liabilities of CNB;
(vi) The basis of the assets of CNB acquired by BancGroup will be the
same as the basis of the assets in the hands of CNB immediately prior to
the Merger;
(vii) The holding period of the assets of CNB in the hands of
BancGroup will include the period during which such assets were held by
CNB;
(viii) The Cashless Exchange will result in the CNB Option holders
recognizing ordinary income equal to the fair market value of BancGroup
stock received in the exchange; and
(ix) A CNB shareholder who dissents and receives only cash pursuant to
dissenters, rights will recognize gain or loss. Such gain or loss will, in
general, be treated as capital gain or loss, measured by the difference
between the amount of cash received and the tax basis of the shares of CNB
Common Stock converted, if the shares of CNB Common Stock were held as
capital assets. However, a CNB shareholder who receives only cash may need
to consider the effects of Section 302 and 318 of the Code in determining
the federal income tax consequences of the transaction.
Each CNB shareholder will be required to report on such shareholder's
federal income tax return for the fiscal year of such shareholder in which the
Merger occurs that such shareholder has received BancGroup Common Stock in a
reorganization.
THE FOREGOING DISCUSSION IS INTENDED ONLY AS A SUMMARY OF MATERIAL FEDERAL
INCOME TAX CONSEQUENCES OF THE MERGER TO THE SHAREHOLDERS OF CNB, TO CNB AND TO
BANCGROUP AND DOES NOT PURPORT TO BE A COMPLETE DESCRIPTION OF ALL POTENTIAL TAX
EFFECTS OF THE MERGER. THE DISCUSSION DOES NOT ADDRESS THE TAX CONSEQUENCES THAT
MAY BE RELEVANT TO A PARTICULAR SHAREHOLDER SUBJECT TO SPECIAL TREATMENT UNDER
CERTAIN FEDERAL INCOME TAX LAWS, SUCH AS DEALERS IN SECURITIES, BANKS, INSURANCE
COMPANIES, TAX-EXEMPT ORGANIZATIONS, NON-UNITED STATES PERSONS, STOCKHOLDERS WHO
DO NOT HOLD THEIR SHARES OF CNB COMMON STOCK AS "CAPITAL ASSETS" WITHIN THE
MEANING OF SECTION 1221 OF THE CODE, AND SHAREHOLDERS WHO ACQUIRED THEIR SHARES
OF CNB COMMON STOCK PURSUANT TO THE EXERCISE OF OPTIONS OR OTHERWISE AS
COMPENSATION, NOR ANY CONSEQUENCES ARISING UNDER THE LAWS OF ANY STATE, LOCALITY
OR FOREIGN JURISDICTION. THE DISCUSSION IS BASED UPON THE CODE, TREASURY
REGULATIONS THEREUNDER AND ADMINISTRATIVE RULINGS AND COURT DECISIONS AS OF THE
DATE HEREOF. ALL OF THE FOREGOING IS SUBJECT TO CHANGE, AND ANY SUCH CHANGE
COULD AFFECT THE CONTINUING VALIDITY OF THIS DISCUSSION. CNB SHAREHOLDERS ARE
URGED TO CONSULT THEIR OWN TAX ADVISORS CONCERNING THE PARTICULAR FEDERAL,
STATE, LOCAL AND FOREIGN TAX CONSEQUENCES OF THE MERGER TO THEM.
OTHER POSSIBLE CONSEQUENCES
If the Merger is consummated, the shareholders of CNB, a Florida
corporation, will become shareholders of BancGroup, a Delaware business
corporation. For a discussion of the differences, if any, in the rights,
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preferences, and privileges attaching to CNB Common Stock as compared with
BancGroup Common Stock, see "Comparative Rights of Stockholders."
CONDITIONS TO CONSUMMATION OF THE MERGER
The parties' respective obligations to consummate the Merger are subject to
the satisfaction (or waiver, to the extent permitted by law) of various
conditions set forth in the Agreement.
The obligations of CNB and BancGroup to consummate the Merger are
conditioned upon, among other things, (i) the approval of the Agreement by the
holders of at least a majority of the outstanding shares of CNB Common Stock;
(ii) the notification to, or approval of the Merger by, the Federal Reserve and
the Florida Department and approval of the Bank Merger by the Alabama Department
and the Federal Reserve; (iii) the absence of pending or threatened litigation
with a view to restraining or prohibiting consummation of the Merger or to
obtain divestiture, rescission or damages in connection with the Merger; (iv)
the absence of any investigation by any governmental agency which might result
in any such proceeding; (v) consummation of the Merger no later than November
30, 1998; and (vi) receipt of opinions of counsel regarding certain matters.
The obligation of CNB to consummate the Merger is further subject to
several other conditions, including: (i) the absence of any material adverse
change in the financial condition or affairs of BancGroup; (ii) the shares of
BancGroup Common Stock to be issued under the Agreement shall have been approved
for listing on the NYSE; and (iii) the accuracy in all material respects of the
representations and warranties of BancGroup contained in the Agreement and the
performance by BancGroup of all of its covenants and agreements under the
Agreement.
The obligation of BancGroup to consummate the Merger is subject to several
other conditions, including: (i) the absence of any material adverse change in
the financial condition or affairs of CNB; (ii) the number of shares as to which
holders of CNB Common Stock exercise dissenters' rights not exceeding 10% of the
outstanding shares of CNB Common Stock; (iii) the receipt of a letter from
Coopers & Lybrand L.L.P. concurring with the conclusions of BancGroup's and
CNB's management that no conditions exist with respect to each company which
would preclude accounting for the Merger as a pooling of interests; (iv) the
accuracy in all material respects of the representations and warranties of CNB
contained in the Agreement, and the performance by CNB of all of its covenants
and agreements under the Agreement; and (v) the receipt by BancGroup of certain
undertakings from holders of CNB Common Stock who may be deemed to be
"affiliates" of CNB pursuant to the rules of the Commission.
It is anticipated that the foregoing conditions, as well as certain other
conditions contained in the Agreement, such as the receipt of certificates of
officers of each party as to compliance with the Agreement and satisfaction of
each party of all representations, warranties and covenants, will be satisfied.
The Agreement provides that each of CNB and BancGroup may waive all conditions
to its respective obligation to consummate the Merger, other than the receipt of
the requisite approvals of regulatory authorities and approval of the Agreement
by the shareholders of CNB. In making any decision regarding a waiver of one or
more conditions to consummation of the Merger or an amendment of the Agreement,
the Boards of Directors of CNB and BancGroup would be subject to the fiduciary
duty standards imposed upon such boards by relevant law that would require such
boards to act in the best interests of their respective shareholders.
AMENDMENT OR TERMINATION OF AGREEMENT
To the extent permitted by law, the Agreement may be amended by a
subsequent writing signed by each of the parties upon the approval of the Boards
of Directors of each of the parties. However, under applicable law after
adoption of the Agreement and the approval of Merger by the holders of CNB
Common Stock, no amendment decreasing the consideration to be received by CNB
shareholders may be made without the further approval of such shareholders. The
Agreement may be terminated at any time prior to or on the Effective Date,
whether before or after adoption of the Agreement by the shareholders of CNB, by
the mutual consent of the respective Boards of Directors of CNB and BancGroup or
by the Board of Directors of either BancGroup or CNB under certain circumstances
including, but not limited to: (i) a material breach which
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cannot or has not been cured within 30 days of notice of such breach being given
by the non-breaching party; (ii) failure to consummate the transactions
contemplated under the Agreement by November 30, 1998, provided that such
failure to consummate is not caused by any breach of the Agreement by the party
electing to terminate; and (iii) without further action by either party, upon
the execution by CNB of a legally binding agreement between CNB and any third
party with respect to any Acquisition Proposal, provided that BancGroup will
have the right to demand payment of liquidated damages. See "-- Commitment with
Respect to Other Offers."
REGULATORY APPROVALS
The Merger is subject to prior approval of the Federal Reserve under the
BHCA and by the Florida Department pursuant to applicable provisions of the
Florida Banking Code. It is contemplated that the Bank Merger will occur after
the Merger. The approval of the Federal Reserve and the Alabama Department must
be obtained prior to the Bank Merger. In addition, notification of the Bank
Merger must be filed with the Florida Department. Applications for appropriate
regulatory approvals by the Federal Reserve, the Florida Department and the
Alabama Department were filed with such agencies on May 7, 1998. The Federal
Reserve and the Florida Department are expected to approve the Merger on or
before , 1998.
Federal Reserve Approval. Pursuant to Section 3 of the BHCA, and the
regulations promulgated pursuant thereto, the approval of the Federal Reserve
must be obtained prior to the Merger. The Federal Reserve must withhold approval
of the Merger if it finds that the transaction will result in a monopoly or be
in furtherance of any combination or conspiracy to monopolize or attempt to
monopolize the business of banking in any part of the United States. In
addition, the Federal Reserve may not approve the Merger if it finds that the
effect thereof may be substantially to lessen competition in any section of the
country, or tend to create a monopoly, or would in any other manner be in
restraint of trade, unless it finds that the anti-competitive effects of the
Merger are clearly outweighed by the probable effect of the Merger in meeting
the convenience and needs of the communities to be served. The Federal Reserve
will also take into consideration the financial condition and managerial
resources of BancGroup, its subsidiaries, any banks related to BancGroup through
common ownership or management, and the Bank. Finally, the Federal Reserve will
consider the compliance records of BancGroup's subsidiaries under the Community
Reinvestment Act.
In addition, the Federal Reserve is expressly permitted to approve
applications under Section 3 of the BHCA for a bank holding company that is
adequately capitalized and adequately managed to acquire control of a bank
located in a state other than the home state of such bank holding company (an
"Interstate Acquisition"), without regard to whether such transaction is
prohibited under the law of any state. However, if the law of the state in which
the target bank is located requires the target bank to have been in existence
for some minimum period of time, the Federal Reserve is prohibited from
approving an application by a bank holding company to acquire such target bank
if such target bank does not satisfy this state law requirement, so long as the
state law specifying such minimum period of time does not specify a period of
more than five years.
Also, the Federal Reserve is prohibited from approving an Interstate
Acquisition if the acquiring bank holding company controls, or upon consummation
of the acquisition, would control, more than 10% of the total amount of deposits
of insured depository institutions in the United States. Finally, subject to
certain exceptions, the Federal Reserve may not approve an application
pertaining to an Interstate Acquisition if, among other things, the bank holding
company, upon consummation of the acquisition, would control 30% or more of the
total amount of deposits of insured depository institutions in the state where
the target bank is located.
The BHCA provides for the publication of notice and public comment on the
application and authorizes the Federal Reserve to permit interested parties to
intervene in the proceedings. If an interested party is permitted to intervene,
such intervention could delay the regulatory approvals required for consummation
of the Merger. Section 11 of the BHCA imposes a waiting period which prohibits
the consummation of the Merger, in ordinary circumstances, for a period ranging
from 15 to 30 days following the Federal Reserve's approval of the Merger.
During such period, the United States Department of Justice, should it object to
the Merger for antitrust reasons, may challenge the consummation of the Merger.
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Pursuant to Section 18(c) of the Federal Deposit Insurance Act (the "Bank
Merger Act"), the Federal Reserve's approval also must be obtained prior to the
Bank Merger. The Federal Reserve is prohibited from approving the Bank Merger if
it would result in a monopoly or would be in furtherance of any combination or
conspiracy to monopolize or to attempt to monopolize the business of banking in
any part of the United States. In addition, the Federal Reserve is prohibited
from approving the Bank Merger if its effect, in any section of the country,
would be substantially to lessen competition, or to tend to create a monopoly,
or which in any other manner would be in restraint of trade, unless it finds
that the anti-competitive effects of the Bank Merger are clearly outweighed in
the public interest by the probable effect of the Bank Merger in meeting the
convenience and needs of the community to be served. The Federal Reserve is
required to take into consideration the financial and managerial resources and
future prospects of the existing and proposed institutions, and the convenience
and needs of the community to be served.
In that the Bank Merger constitutes an interstate bank merger, certain
additional requirements are applicable to the Bank Merger. For example, subject
to certain exceptions, the Federal Reserve is prohibited from approving the Bank
Merger if Colonial Bank materially fails to comply with filing requirements
imposed by the Florida Department of Banking and Finance for interstate bank
merger transactions. In addition, the Federal Reserve is prohibited from
approving the Bank Merger if the bank resulting from the Bank Merger, including
all insured depository institutions which are affiliates of such resulting bank,
upon consummation of the transaction, would control more than 10% of the total
amount of deposits of insured depository institutions in the United States. The
Federal Reserve is also prohibited from approving the Bank Merger if either
party to the Bank Merger has a branch in any state in which any other bank
involved in the Bank Merger has a branch, and the resulting bank, upon
consummation of the Bank Merger, would control 30% or more of the total amount
of deposits of insured depository institutions in any such state. Finally, the
Federal Reserve may approve the interstate bank merger only if each bank
involved in the transaction is adequately capitalized as of the date the
application is filed, and the Federal Reserve determines that the resulting bank
will continue to be adequately capitalized and adequately managed upon
consummation of the Bank Merger.
The Bank Merger Act imposes a waiting period which prohibits consummation
of the Bank Merger, in ordinary circumstances, for a period ranging from 15 to
30 days following the Federal Reserve's approval of the Bank Merger. During such
period, the United States Department of Justice, should it object to the Merger
for antitrust reasons, may challenge the consummation of the Merger.
Florida Department Approval. The Florida Department must approve the
change of control of the Bank which would be effected by the Merger. Under
Section 658.28 of the Florida Banking Code, the Florida Department shall issue a
Certificate of Approval for a change of control of a Florida state bank only
after it has made an investigation and has determined that the proposed new
owner of a controlling interest is qualified by reputation, character,
experience and financial responsibility to control and operate the bank in a
legal and proper manner and that the interest of the other shareholders, if any,
and the depositors and creditors of the bank and the interest of the public
generally will not be jeopardized by the proposed change in ownership,
controlling interest or management.
In addition, pursuant to Section 658.295 of the Florida Banking Code, the
Florida Department shall not permit the Merger unless the bank has been in
existence and continuously operating, on the date of its acquisition, for more
than three years. Also, the Florida Department shall not permit the Merger if,
upon consummation of the transaction, BancGroup, including all of its insured
depository institutions that would be "affiliates," as defined in 12 U.S.C.
sec. 1841(k), would control 30% or more of the total amount of deposits held by
all insured depository institutions in the State of Florida.
Alabama Department Approval. The Bank Merger must be approved by the
Alabama Department pursuant to applicable provisions of the Alabama Banking
Code. If the Superintendent of the Alabama Department finds that (1) the
proposed transaction will not be detrimental to the safety and soundness of the
bank resulting from the Bank Merger, (2) any new officers and directors of the
resulting bank are qualified by character, experience, and financial
responsibility to direct and manage the resulting bank, and (3) the proposed
Bank Merger is consistent with the convenience and needs of the communities to
be served by the
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resulting bank in the State of Alabama and is otherwise in the public interest,
the Bank Merger shall be approved by the Superintendent.
The Agreement provides that the obligation of each of BancGroup and CNB to
consummate the Merger is conditioned upon the receipt of all necessary
regulatory approvals. There can be no assurance that the applications necessary
for BancGroup to consummate the Merger with CNB will be approved, and, if such
approvals are received, that such approvals will not be conditioned upon terms
and conditions that would cause the parties to abandon the Merger.
Any approval received from bank regulatory agencies reflects only their
view that the Merger does not contravene applicable competitive standards
imposed by law, and that the Merger is consistent with regulatory policies
relating to safety and soundness. THE APPROVAL OF THE BANK REGULATORY AGENCIES
IS NOT AN ENDORSEMENT OR RECOMMENDATION OF THE MERGER.
BancGroup is not aware of any governmental approvals or actions that may be
required for consummation of the Merger except for the Federal Reserve, Alabama
Department and Florida Department approvals described above. Should any such
approval or action be required, it is presently contemplated that such approval
or action would be sought.
CONDUCT OF BUSINESS PENDING THE MERGER
The Agreement contains certain restrictions on the conduct of the business
of CNB pending consummation of the Merger. The Agreement prohibits CNB from
taking, without the prior written consent of BancGroup, any of the following
actions, prior to the Effective Date, subject to certain limited exceptions
previously agreed to by BancGroup and CNB:
(i) Issuing, delivering or agreeing to issue or deliver any stock,
bonds or other corporate securities (whether authorized and unissued or
held in the treasury), except shares of CNB Common Stock issued upon the
exercise of CNB Options;
(ii) Borrowing or agreeing to borrow any funds or incurring or
becoming subject to, any liability (absolute or contingent) except
borrowings, obligations and liabilities incurred in the ordinary course of
business and consistent with past practice;
(iii) Paying any material obligation or liability (absolute or
contingent) other than current liabilities reflected in or shown on the
most recent balance sheet and current liabilities incurred since that date
in the ordinary course of business and consistent with past practice;
(iv) Declaring or making or agreeing to declare or make, any payment
of dividends or distributions of any assets of any kind whatsoever to
shareholders, or purchasing or redeeming or agreeing to purchase or redeem,
any of its outstanding securities except that CNB may pay cash dividends
equal to $1.50 per share per quarter on dates and at times consistent with
past practice (provided that CNB shareholders will not be entitled to
receive CNB's regular dividend and BancGroup's regular dividend during the
quarter in which the Effective Date occurs) and may pay an additional cash
dividend equal to the aggregate of 39.6% of CNB's net income from January
1, 1998 to the Effective Date, payable within 30 days following the end of
each calendar quarter;
(v) Except in the ordinary course of business, selling or transferring
or agreeing to sell or transfer, any of its assets, property or rights or
canceling, or agreeing to cancel, any debts or claims;
(vi) Except in the ordinary course of business, entering or agreeing
to enter into any agreement or arrangement granting any preferential rights
to purchase any of its assets, property or rights or requiring the consent
of any party to the transfer and assignment of any of its assets, property
or rights;
(vii) Waiving any rights of value which in the aggregate are material;
(viii) Except in the ordinary course of business, making or permitting
any amendment or termination of any contract, agreement or license to which
it is a party if such amendment or termination is material considering its
business as a whole;
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(ix) Except in accordance with past practice, making any accrual or
arrangement for or payment of bonuses or special compensation of any kind
or any severance or termination pay to any present or former officer or
employee;
(x) Except in accordance with past practice, increasing the rate of
compensation payable to or to become payable to any of its officers or
employees or making any material increase in any profit-sharing, bonus,
deferred compensation, savings, insurance, pension, retirement or other
employee benefit plan, payment or arrangement made to, for or with any of
its officers or employees;
(xi) Failing to operate its business in the ordinary course so as to
preserve its business intact and to preserve the goodwill of its customers
and others with whom it has business relations; and
(xii) Entering into any other material transaction other than in the
ordinary course of business.
The Agreement provides that prior to the Effective Date, no director or
officer of CNB or any of its subsidiaries shall, directly or indirectly, own,
manage, operate, join, control, be employed by or participate in the ownership,
proposed ownership, management, operation or control of or be connected in any
manner with, any business, corporation or partnership which is competitive to
the business of CNB or its subsidiaries.
The Agreement also provides that (i) at the request of BancGroup, CNB will
consult with BancGroup and advise BancGroup in advance of all loan requests
outside the ordinary course of business or in excess of $200,000 that are not
single-family residential loan requests; and (ii) CNB will consult with
BancGroup respecting business issues that CNB believes should be brought to the
attention of BancGroup.
COMMITMENTS WITH RESPECT TO OTHER OFFERS
Until the earlier of the Effective Date or, subject to certain limitations,
the termination of the Agreement, neither CNB nor any of its directors or
officers (or any person representing any of the foregoing) may solicit or
encourage inquiries or proposals with respect to, furnish any information
relating to or participate in any negotiations or discussions concerning, any
acquisition or purchase of all or of a substantial portion of the assets of, or
of a substantial equity interest in, CNB or any business combination involving
CNB (collectively, an "Acquisition Proposal") other than as contemplated by the
Agreement. CNB is required to notify BancGroup immediately if any such inquiries
or proposals are received by CNB, if any such information is requested from CNB,
or if any such negotiations or discussions are sought to be initiated with CNB.
CNB is required to instruct its officers, directors, agents or affiliates or
their subsidiaries to refrain from doing any of the above. CNB may communicate
information about an Acquisition Proposal to its shareholders if and to the
extent that legal counsel provides a written opinion to CNB that it is required
to do so in order to comply with its legal obligations. If CNB enters into a
letter of intent or definitive agreement respect to such an Acquisition Proposal
either before the Effective Date or termination of the Agreement (subject to
certain exceptions) or receives an Acquisition Proposal and consummates a
transaction pursuant to it within 12 months of termination of the Agreement
(subject to certain exceptions), then CNB will pay BancGroup the sum of
$1,000,000 as liquidated damages.
INDEMNIFICATION
BancGroup has agreed to indemnify for five years present and former
directors and officers of CNB and the Bank against liabilities arising out of
actions or omissions occurring at or prior to the Effective Date to the extent
provided in the Florida Business Corporation Act and CNB's Articles of
Incorporation and Bylaws.
RIGHTS OF DISSENTING SHAREHOLDERS
Holders of CNB Common Stock as of the Record Date are entitled to
dissenters' rights of appraisal under Florida law. Consummation of the Merger is
subject to, among other things, the holders of no more than 10% of the
outstanding CNB Common Stock electing to exercise their dissenters' rights.
PURSUANT TO SECTION 607.1320 OF THE FBCA, A CNB SHAREHOLDER WHO DOES NOT WISH TO
ACCEPT THE SHARES OF BANCGROUP COMMON STOCK TO BE RECEIVED PURSUANT TO THE TERMS
OF THE AGREEMENT MAY DISSENT FROM THE MERGER AND ELECT TO RECEIVE THE FAIR VALUE
OF HIS SHARES AS OF THE DAY PRIOR TO THE DATE THE MERGER IS APPROVED BY CNB
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SHAREHOLDERS. SUCH FAIR VALUE IS EXCLUSIVE OF ANY APPRECIATION OR DEPRECIATION
IN ANTICIPATION OF THE MERGER, UNLESS EXCLUSION WOULD BE INEQUITABLE.
In order to exercise appraisal rights, a dissenting shareholder of CNB (a
"Dissenting Shareholder") must strictly comply with the statutory procedures of
Sections 607.1320, 607.1301 and 607.1302 of the FBCA, which are summarized
below. A copy of the full text of those Sections is attached hereto as Appendix
B. SHAREHOLDERS OF CNB ARE URGED TO READ APPENDIX B IN ITS ENTIRETY AND TO
CONSULT WITH THEIR LEGAL ADVISORS. EACH SHAREHOLDER OF CNB WHO DESIRES TO ASSERT
HIS OR HER APPRAISAL RIGHTS IS CAUTIONED THAT FAILURE ON HIS OR HER PART TO
ADHERE STRICTLY TO THE REQUIREMENTS OF FLORIDA LAW IN ANY REGARD WILL CAUSE A
FORFEITURE OF ANY APPRAISAL RIGHTS.
Procedures for Exercising Dissenters' Rights of Appraisal. The following
summary of Florida law is qualified in its entirety by reference to the full
text of the provisions of the FBCA attached hereto as Appendix B.
1. A Dissenting Shareholder must file with CNB, prior to the taking of the
vote on the Merger, a written notice of intent to demand payment for his or her
shares if the Merger is effectuated. A vote against the Merger will not alone be
deemed to be the written notice of intent to demand payment. A Dissenting
Shareholder need not vote against the Merger, but cannot vote for the Merger.
2. Within ten days after the vote on the Merger is taken, CNB must give
written notice of the authorization of the Merger, if obtained, to each CNB
shareholder who filed notice of intent to demand payment for his shares. WITHIN
TWENTY DAYS AFTER THE GIVING OF THE FOREGOING NOTICE BY CNB, EACH DISSENTING
SHAREHOLDER MUST FILE WITH CNB A NOTICE OF ELECTION TO DISSENT, STATING HIS OR
HER NAME AND ADDRESS, THE NUMBER OF SHARES AS TO WHICH HE OR SHE DISSENTS AND A
DEMAND FOR PAYMENT OF THE FAIR VALUE OF HIS OR HER SHARES. ANY DISSENTING
SHAREHOLDER FAILING TO FILE SUCH ELECTION WITHIN THE PERIOD WILL LOSE HIS OR HER
APPRAISAL RIGHTS AND BE BOUND BY THE TERMS OF THE AGREEMENT. A Dissenting
Shareholder filing an election to dissent must also deposit the certificate(s)
representing his or her shares with CNB simultaneously with the filing of the
election.
3. Upon filing a notice of election to dissent, a Dissenting Shareholder
shall thereafter be entitled only to payment pursuant to the procedure set forth
in the applicable sections of FBCA and shall not be entitled to vote or to
exercise any other rights of a shareholder. A notice of election may be
withdrawn in writing by the Dissenting Shareholder at any time before an offer
is made by CNB to pay for shares. Upon such withdrawal, the right of the
Dissenting Shareholder to be paid the fair value of his or her shares will
cease, and he or she will be reinstated as a shareholder.
4. Within ten days after the expiration of the period in which a Dissenting
Shareholder may file notice of election to dissent, or within ten days after the
Effective Date of the Merger, whichever is later (but in no event later than
ninety days after the Merger is approved), CNB (or BancGroup after the Effective
Date) must make a written offer to each Dissenting Shareholder who has made
demand for appraisal for his or her shares at a price deemed by CNB to be the
fair value thereof.
5. If, within thirty days after the making of such offer, the Dissenting
Shareholder accepts the offer, payment for the shares of the Dissenting
Shareholder is to be made within ninety days after the making of such offer or
the effective date of the Merger, whichever is later. Upon payment of the agreed
value, the Dissenting Shareholder will cease to have any interest in such
shares.
6. If CNB (or BancGroup, if appropriate) fails to make such offer within
the period specified above or if it makes an offer and a Dissenting Shareholder
fails to accept the same within a period of 30 days thereafter, then CNB, within
30 days after receipt of written demand from any Dissenting Shareholder given
within 60 days after the date on which the Merger was effected, shall, or at its
election at any time within such period of 60 days may, file an action in any
court of competent jurisdiction in Volusia County requesting that the fair value
of such shares be determined by the Court.
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7. If CNB fails to institute such proceeding within the above-prescribed
period, any Dissenting Shareholder may do so in the name of CNB. A copy of the
initial pleading will be served on each Dissenting Shareholder. CNB is required
to pay each Dissenting Shareholder the amount found to be due within ten days
after final determination of the proceedings. The judgment of the court is
payable only upon and concurrently with the surrender to CNB of the
certificate(s) representing the shares. Upon payment of the judgment, the
Dissenting Shareholder ceases to have any interest in such shares.
8. The costs and expenses of the court proceeding are determined by the
court and will be assessed against CNB (or BancGroup, if appropriate) except
that all or any part of such costs and expenses may be apportioned and assessed
against any Dissenting Shareholders who are parties to the proceeding and to
whom CNB has made an offer to pay for their shares, if the court finds their
refusal to accept such offer to have been arbitrary, vexatious or not in good
faith. Expenses include reasonable compensation for, and expenses of,
appraisers, but shall exclude the fees and expenses of counsel for, and experts
employed by, any party. If the value of the shares, as determined by the court,
materially exceeds the amount that CNB offered to pay for the shares then the
court may, in its discretion, award to any Dissenting Shareholder who is a party
to the proceedings, such sum as the court may determine to be reasonable
compensation to any expert(s) employed by the Dissenting Shareholder in the
proceeding.
Any Dissenting Shareholder who perfects his or her right to be paid the
value of his or her shares will recognize gain or loss, if any, for federal
income tax purposes upon the receipt of cash for such shares. The amount of gain
or loss and its character as ordinary or capital gain or loss will be determined
in accordance with applicable provisions of the Code. See "-- Certain Federal
Income Tax Consequences."
BECAUSE OF THE COMPLEXITY OF THE PROVISIONS OF THE FLORIDA LAW RELATING TO
DISSENTERS' APPRAISAL RIGHTS, SHAREHOLDERS WHO ARE CONSIDERING DISSENTING FROM
THE MERGER ARE URGED TO CONSULT THEIR OWN LEGAL ADVISERS.
RESALE OF BANCGROUP COMMON STOCK ISSUED IN THE MERGER
The issuance of the shares of BancGroup Common Stock pursuant to the Merger
(including any shares to be issued pursuant to CNB Options) has been registered
under the Securities Act of 1933 (the "Securities Act"). As a result,
shareholders of CNB who are not "affiliates" of CNB (as such term is defined
under the Securities Act) may resell, without restriction, all shares of
BancGroup Common Stock which they receive in connection with the Merger. Under
the Securities Act, only affiliates of CNB are subject to restrictions on the
resale of the BancGroup Common Stock which they receive in the Merger.
The BancGroup Common Stock received by affiliates of CNB who do not also
become affiliates of BancGroup after the consummation of the Merger may not be
sold except pursuant to an effective registration statement under the Securities
Act covering such shares or in compliance with Rule 145 under the Securities Act
or another applicable exemption from the registration requirements of the
Securities Act. Generally, Rule 145 permits BancGroup Common Stock held by such
shareholders to be sold in accordance with certain provisions of Rule 144 under
the Securities Act. In general, these provisions of Rule 144 permit a person to
sell on the open market in brokers or certain other transactions within any
three-month period a number of shares that does not exceed the greater of 1% of
the then outstanding shares of BancGroup Common Stock or the average weekly
trading volume in BancGroup Common Stock reported on the NYSE during the four
calendar weeks preceding such sale. Sales under Rule 144 are also subject to the
availability of current public information about BancGroup. The restrictions on
sales will cease to apply under most circumstances once the former CNB affiliate
has held the BancGroup Common Stock for at least one year. BancGroup Common
Stock held by affiliates of CNB who become affiliates of BancGroup, if any, will
be subject to additional restrictions on the ability of such persons to resell
such shares.
CNB will provide BancGroup with such information as may be reasonably
necessary to determine the identity of those persons (primarily officers,
directors and principal shareholders) who may be deemed to be affiliates of CNB.
CNB will also obtain from each such person a written undertaking to the effect
that no sale or transfer will be made of any shares of BancGroup Common Stock by
such person except pursuant to Rule 145 or pursuant to an effective registration
statement or an exemption from registration under the
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Securities Act. Receipt of such an undertaking is a condition to BancGroup's
obligation to close the Merger. The undertaking also will require each affiliate
to agree that such person will not sell or otherwise reduce risk relative to any
shares of BancGroup Common Stock received in the Merger until financial results
concerning at least 30 days of post-Merger combined operations have been
published by BancGroup within the meaning of Section 201.01 of the Commission's
Codification of Financial Reporting Policies. If such undertakings are not
received and BancGroup waives receipt of such condition, the certificates for
the shares of BancGroup Common Stock to be issued to such person will contain an
appropriate restrictive legend and appropriate stock transfer orders will be
given to BancGroup's stock transfer agent.
ACCOUNTING TREATMENT
BancGroup will account for the Merger as a pooling-of-interests transaction
in accordance with generally accepted accounting principles, which, among other
things, require that the number of shares of CNB Common Stock acquired for cash
pursuant to the exercise of dissenters' rights or in lieu of fractional shares
not exceed 10% of the outstanding shares of CNB Common Stock. Under this
accounting treatment, assets and liabilities of CNB would be added to those of
BancGroup at their recorded book values, and the shareholders' equity of the two
companies would be combined in BancGroup's consolidated balance sheet. Financial
statements of BancGroup issued after the Effective Date of the Merger may be
restated to reflect the consolidated operations of BancGroup and CNB as if the
Merger had taken place prior to the periods covered by the financial statements.
NYSE REPORTING OF BANCGROUP COMMON STOCK ISSUED IN THE MERGER
Sales of BancGroup Common Stock to be issued in the Merger in exchange for
CNB Common Stock will be reported on the NYSE.
TREATMENT OF CNB OPTIONS
As of the date of this Prospectus, CNB had granted options which entitled
the holders thereof to acquire up to 4,495 shares of CNB Common Stock. The
Agreement provides that, no later than five days prior to the Effective Date,
the holders of CNB Options that have vested for such holders may provide written
notice to CNB (in form and substance reasonably satisfactory to BancGroup) that
they wish to surrender their CNB Options to BancGroup, effective at the
Effective Date and to receive in exchange therefor an amount of BancGroup Common
Stock equal in value to the difference between (i) the total value of the shares
of BancGroup Common Stock to be issued pursuant to such CNB Options (based upon
the number of shares of BancGroup Common Stock issuable pursuant to the CNB
Options multiplied by the Market Value) and (ii) the aggregate exercise price of
such CNB Options at the Effective Date, divided by the Market Value. (the
"Cashless Exercise"). No fractions of shares will be issued and fractions will
be paid in cash at the Market Value. Any CNB Options that have not vested at the
Effective Date will terminate.
The CNB Options are issued pursuant to CNB's Officers' and Employees' Stock
Option Plan (the "Option Plan"). The Option Plan is not qualified under Section
401 of the Code, nor is it subject to the Employee Retirement Income Security
Act of 1974. CNB Options are not transferable except under the laws of descent
and distribution. No further options will be granted under the CNB Option Plan
after the Merger. A total of 11 persons currently hold CNB Options.
Options issued under the Option Plan may qualify as "Incentive Stock
Options," under Section 422 of the Code. If such options so qualify under the
Code, no income will result to a grantee of any such option upon the exercise of
an option, and BancGroup will not be entitled to a tax deduction by reason of
such exercise. If, after exercising the option, the employee holds the stock
obtained through exercise for at least two years after the date of option grant
and at least one year after the stock was obtained, the employee's gain (if any)
on selling the stock will generally be treated as a long term capital gain.
Generally, the employee's alternative minimum taxable income for minimum tax
purposes will be increased by the difference between the option price and the
fair market value of the stock on the date of exercise.
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<PAGE> 34
If the holding period requirements set forth above are not met, then any
gain on the sale of the stock will be taxed partly or entirely at ordinary
income rates. If the stock is held for less than the required holding periods,
then the difference between the option exercise price and the fair market value
of the stock on the date of exercise will be taxed at ordinary income tax rates.
The gain equal to the increase in the fair market value of the stock after the
date of exercise of the option will generally be taxed as capital gain. It
should be understood that the holding periods discussed above relate only to
federal income tax treatment and not to any securities law restrictions that may
apply to the sale of shares obtained through an option.
As discussed under "-- Certain Federal Income Tax Consequences," employees
who utilize the Cashless Exchange will recognize ordinary income equal to the
fair market value of BancGroup stock received in the exchange. See "-- Certain
Federal Income Tax Consequences."
COMPARATIVE MARKET PRICES AND DIVIDENDS
CNB
There is no established public trading market for the CNB Common Stock. The
shares of CNB Common Stock are not actively traded, and such trading activity,
as it occurs, takes place in privately negotiated transactions.
Management of CNB is aware of certain transactions in shares of CNB that
have occurred since January 1, 1996, although the trading prices of all stock
transactions are not known. The following table sets forth the dividends paid on
CNB Common Stock since January 1, 1996 and the trading prices for the shares of
CNB Common Stock that have occurred since January 1, 1996 for transactions in
which the trading prices are known to management of CNB:
<TABLE>
<CAPTION>
PRICE PER SHARE
OF COMMON STOCK
----------------- DIVIDENDS
HIGH LOW PER SHARE
------- ------- ----------
<S> <C> <C> <C>
1996
First Quarter........................................... $ 57.00 $ 57.00 $1.00
Second Quarter.......................................... 57.00 57.00 1.00
Third Quarter........................................... -- -- 1.00
Fourth Quarter.......................................... 57.00 57.00 1.00
1997
First Quarter........................................... 57.00 30.00 1.00
Second Quarter.......................................... 75.00 57.00 1.00
Third Quarter........................................... 75.00 57.00 1.00
Fourth Quarter.......................................... 118.00 118.00 1.50
1998
First Quarter........................................... 118.00 118.00 1.50
Second Quarter (through May 31, 1998)................... -- -- 3.15
</TABLE>
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<PAGE> 35
BancGroup. BancGroup Common Stock is listed for trading on the NYSE under
the symbol "CNB ." The following table indicates the high and low closing prices
of the BancGroup Common Stock as reported on the NYSE since January 1, 1996.
<TABLE>
<CAPTION>
PRICE PER SHARE
OF COMMON STOCK(1)
------------------- DIVIDENDS
HIGH LOW PER SHARE
------- ------ ---------
<S> <C> <C> <C>
1996
First Quarter...................................... $18 1/4 $15 $0.135
Second Quarter..................................... 18 1/16 15 5/8 0.135
Third Quarter...................................... 17 15/16 15 5/8 0.135
Fourth Quarter..................................... 20 1/8 17 3/8 0.135
1997
First Quarter...................................... 24 18 2/3 0.15
Second Quarter..................................... 24 7/8 22 0.15
Third Quarter...................................... 29 3/16 24 1/4 0.15
Fourth Quarter..................................... 35 1/16 28 15/16 0.15
1998
First Quarter...................................... 36 1/4 31 1/2 0.17
Second Quarter (through May 27, 1998).............. 37 9/16 31 7/16 0.17
</TABLE>
- ---------------
(1) Restated to reflect the impact of a two-for-one stock split effected in the
form of a 100% stock dividend paid February 11, 1997.
On March 26, 1998, the business day immediately prior to the public
announcement of the Merger, the closing price of the BancGroup Common Stock on
the NYSE was $36.00 per share.
At December 31, 1997, BancGroup's subsidiaries accounted for approximately
98% of BancGroup's consolidated assets. BancGroup derives substantially all of
its income from dividends received from its subsidiaries. Various statutory
provisions and regulatory policies limit the amount of dividends the subsidiary
banks may pay without regulatory approval. In addition, federal statutes
restrict the ability of subsidiary banks to make loans to BancGroup, and
regulatory policies may also restrict such dividends.
BANCGROUP CAPITAL STOCK AND DEBENTURES
BancGroup's authorized capital stock consists of 200,000,000 shares of
BancGroup Common Stock, par value $2.50 per share, and 1,000,000 shares of its
Preference Stock, par value $2.50 per share. As of April 30, 1998, there were
issued and outstanding a total of 48,194,098 shares of BancGroup Common Stock.
No shares of Preference Stock are issued and outstanding. BancGroup issued in
1986 $28,750,000 in principal amount of its 7 1/2% Convertible Subordinated
Debentures due 2011 (the "1986 Debentures") of which $4,893,000 were outstanding
as of December 31, 1997 and convertible at any time into 349,500 shares of
BancGroup Common Stock, subject to adjustment. As of February 27, 1998 there
were 2,072,913 shares of BancGroup Common Stock subject to issue upon exercise
of options under BancGroup's stock option plans. In addition to BancGroup Common
Stock to be issued in the Merger, BancGroup will issue additional shares of
BancGroup Common Stock in pending acquisitions. On January 20, 1997, BancGroup
issued, through a special purpose trust, $70.0 million of Trust Preferred
Securities. See "Business of BancGroup -- Recently Completed and Other Proposed
Business Combinations."
The following statements with respect to BancGroup Common Stock and
Preference Stock are brief summaries of material provisions of Delaware law, the
Restated Certificate of Incorporation (the "BancGroup Certificate"), as amended,
and Bylaws of BancGroup, do not purport to be complete and are qualified in
their entirety by reference to the foregoing.
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<PAGE> 36
BANCGROUP COMMON STOCK
Dividends. Subject to the rights of holders of Preference Stock, if any,
to receive certain dividends prior to the declaration of dividends on shares of
BancGroup Common Stock, when and as dividends, payable in cash, stock or other
property, are declared by the BancGroup Board of Directors, the holders of
BancGroup Common Stock are entitled to share ratably in such dividends.
Voting Rights. Each holder of BancGroup Common Stock has one vote for each
share held on matters presented for consideration by the stockholders.
Preemptive Rights. The holders of BancGroup Common Stock have no
preemptive rights to acquire any additional shares of BancGroup.
Issuance of Stock. The BancGroup Certificate authorizes the Board of
Directors of BancGroup to issue authorized shares of BancGroup Common Stock
without stockholder approval. However, BancGroup's Common Stock is listed on the
NYSE, which requires stockholder approval of the issuance of additional shares
of BancGroup Common Stock under certain circumstances.
Liquidation Rights. In the event of liquidation, dissolution or winding-up
of BancGroup, whether voluntary or involuntary, the holders of BancGroup Common
Stock will be entitled to share ratably in any of its assets or funds that are
available for distribution to its stockholders after the satisfaction of its
liabilities (or after adequate provision is made therefor) and after preferences
of any outstanding Preference Stock.
PREFERENCE STOCK
The Preference Stock may be issued from time to time as a class without
series, or if so determined by the Board of Directors of BancGroup, either in
whole or in part in one or more series. The voting rights, and such
designations, preferences and relative, participating, optional or other special
rights, if any, and the qualifications, limitations or restrictions thereof, if
any, including, but not limited to, the dividend rights, conversion rights,
redemption rights and liquidation preferences, if any, of any wholly unissued
series of Preference Stock (or of the entire class of Preference Stock if none
of such shares has been issued), the number of shares constituting any such
series and the terms and conditions of the issue thereof may be fixed by
resolution of the Board of Directors of BancGroup. Preference Stock may have a
preference over the BancGroup Common Stock with respect to the payment of
dividends and the distribution of assets in the event of the liquidation or
winding-up of BancGroup and such other preferences as may be fixed by the Board
of Directors of BancGroup.
1986 DEBENTURES
BancGroup issued the 1986 Debentures in the total principal amount of
$28,750,000. The 1986 Debentures were issued under a trust indenture (the "1986
Indenture") between BancGroup and SunTrust Bank, Atlanta, Atlanta, Georgia, as
trustee.
The 1986 Debentures will mature on March 31, 2011, and are convertible at
any time into shares of BancGroup Common Stock at the option of a holder
thereof, at the conversion price of $14 principal amount of the 1986 Debentures
for each share of BancGroup Common Stock. The conversion price is, however,
subject to adjustment upon the occurrence of certain events as described in the
1986 Indenture. In the event all of the outstanding 1986 Debentures are
converted into shares of BancGroup Common Stock in accordance with the 1986
Indenture, as of December 31, 1997 approximately 349,500 shares of such
BancGroup Common Stock will be issued. The 1986 Debentures are redeemable, in
whole or in part, at the option of BancGroup at certain premiums until 1996,
when the redemption price shall be equal 100% of the face amount of the 1986
Debentures plus accrued interest. The payment of principal and interest on the
1986 Debentures is subordinate, to the extent provided in the 1986 Indenture, to
the prior payment when due of all Senior Indebtedness of BancGroup. "Senior
Indebtedness" is defined as any indebtedness of BancGroup for money borrowed, or
any indebtedness incurred in connection with an acquisition or with a merger or
consolidation, outstanding on the date of execution of the 1986 Indenture as
originally executed, or thereafter created, incurred or assumed, and any
renewal, extension, modification or refunding thereof, for the payment
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<PAGE> 37
of which BancGroup (which term does not include BancGroup's consolidated or
unconsolidated subsidiaries) is at the time of determination responsible or
liable as obligor, guarantor or otherwise. Senior Indebtedness does not include
(i) indebtedness as to which, in the instrument creating or evidencing the same
or pursuant to which the same is outstanding, it is provided that such
indebtedness is subordinate in right of payment to any other indebtedness of
BancGroup, and (ii) indebtedness which by its terms states that such
indebtedness is subordinate to or equally subordinate with the 1986 Debentures.
At December 31, 1997, BancGroup's Senior Indebtedness as defined in the
1986 Indenture aggregated approximately $1.1 billion. Such debt includes all
short-term debt consisting of federal funds purchased, securities purchased
under repurchase agreements and borrowings with the Federal Home Loan Bank but
excludes all federally-insured deposits. BancGroup may from time to time incur
additional indebtedness constituting Senior Indebtedness. The 1986 Indenture
does not limit the amount of Senior Indebtedness which BancGroup may incur, nor
does such indenture prohibit BancGroup from creating liens on its property for
any purpose.
OTHER INDEBTEDNESS
On January 29, 1997, BancGroup issued, through a special purpose trust,
$70.0 million of Trust Preferred Securities. The securities bear interest at
8.92% and are subject to redemption in whole or in part any time after January
2007 through January 2027. The securities are subordinated to substantially all
of BancGroup's indebtedness. In BancGroup's consolidated statement of condition,
these securities are shown as long-term debt.
On February 5, 1998, BancGroup consummated a merger with ASB Bancshares,
Inc., a Delaware corporation ("ASB"). As part of the consideration for the
common stock of ASB, BancGroup issued debentures to three ASB shareholders. The
aggregate principal amount of these debentures is $7,724,813. The debentures pay
a rate of interest equal to the New York Prime Rate minus 1% (but in no event
less than 7% per annum) and are due and payable ten years from the date of
issuance. They are senior to the BancGroup Common Stock upon liquidation, but
are subordinate to BancGroup's Senior Indebtedness. See "-- BancGroup Capital
Stock and Debentures." The debentures are redeemable by BancGroup with the
consent of the holders thereof. A holder of a debenture may, subject to
BancGroup's right to decline, request redemption of any or all of the debentures
held by him or her.
CHANGES IN CONTROL
Certain provisions of the BancGroup Certificate and the BancGroup Bylaws
may have the effect of preventing, discouraging or delaying any change in
control of BancGroup. The authority of the BancGroup Board of Directors to issue
BancGroup Preference Stock with such rights and privileges, including voting
rights, as it may deem appropriate may enable BancGroup's Board of Directors to
prevent a change in control despite a shift in ownership of the BancGroup Common
Stock. See "General" and "Preference Stock." In addition, the power of
BancGroup's Board of Directors to issue additional shares of BancGroup Common
Stock may help delay or deter a change in control by increasing the number of
shares needed to gain control. See "BancGroup Common Stock." The following
provisions also may deter any change in control of BancGroup.
Classified Board. BancGroup'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, one-third of BancGroup'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 23 directors of BancGroup. This provision of the BancGroup Certificate
also stipulates that (i) directors can be removed only for cause upon a vote of
80% 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 of
Directors may only be filled by a majority vote of the directors remaining in
office, (iii) the maximum number of directors shall be fixed by resolution of
the Board of Directors, and (iv) the provisions relating to the classified Board
of Directors can only be amended by the
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<PAGE> 38
affirmative vote of the holders of at least 80% of the voting power of the
outstanding shares entitled to vote in the election of directors, voting as a
class.
Business Combinations. Certain "Business Combinations" of BancGroup with a
"Related Person" may only be undertaken with the affirmative vote of at least
75% of the outstanding shares of "Voting Stock," plus the affirmative vote of at
least 67% of the outstanding shares of Voting Stock, not counting shares owned
by the Related Person, unless the Continuing Directors of BancGroup approve such
Business Combination. A "Related Person" is a person, or group, who owns or
acquires 10% or more of the outstanding shares of BancGroup Common Stock,
provided that no person shall be a Related Person if such person would have been
a Related Person on the date of approval of this provision by BancGroup's Board
of Directors, i.e., April 20, 1994. An effect of this provision may be to
exclude Robert E. Lowder, the current Chairman and Chief Executive Officer of
BancGroup, and certain members of his family from the definition of Related
Person. A "Continuing Director" is a director who was a member of the Board of
Directors immediately prior to the time a person became a Related Person. This
provision may not be amended without the affirmative vote of the holders of at
least 75% of the outstanding shares of Voting Stock, plus the affirmative vote
of the outstanding shares of at least 67% of the outstanding Voting Stock,
excluding shares held by a Related Person. This provision may have the effect of
giving the incumbent Board of Directors a veto over a merger or other Business
Combination that could be desired by a majority of BancGroup's stockholders. As
of February 27, 1998, the Board of Directors of BancGroup owned approximately
10.24% of the outstanding shares of BancGroup Common Stock.
Board Evaluation of Mergers. The BancGroup Certificate permits the Board
of Directors to consider certain factors such as the character and financial
stability of the other party, the projected social, legal, and economic effects
of a proposed transaction upon the employees, suppliers, regulatory agencies and
customers and communities of BancGroup, and other factors when considering
whether BancGroup should undertake a merger, sale of assets, or other similar
transaction with another party. This provision may not be amended except by the
affirmative vote of at least 80% of the outstanding shares of BancGroup Common
Stock. This provision may give greater latitude to the Board of Directors in
terms of the factors which the board may consider in recommending or rejecting a
merger or other Business Combination of BancGroup.
Director Authority. The BancGroup Certificate prohibits stockholders from
calling special stockholders' meetings and acting by written consent. It also
provides that only BancGroup's Board of Directors has the authority to undertake
certain actions with respect to governing BancGroup such as appointing
committees, electing officers, and establishing compensation of officers, and it
allows the Board of Directors to act by majority vote.
Bylaw Provisions. The BancGroup Bylaws provide that stockholders wishing
to propose nominees for the Board of Directors or other business to be taken up
at an annual meeting of BancGroup shareholders must comply with certain advance
written notice provisions. These bylaw provisions are intended to provide for
the more orderly conduct of stockholders' meetings but could make it more
difficult for shareholders to nominate directors or introduce business at
shareholders' meetings.
Delaware Business Combination Statute. Subject to some exceptions,
Delaware law prohibits BancGroup from entering into certain "business
combinations" (as defined) involving persons beneficially owning 15% or more of
the outstanding BancGroup Common Stock (or who is an affiliate of BancGroup 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 Board of Directors has approved either (i) the business combination or (ii)
prior to the stock acquisition by which such person's 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 BancGroup to enter into a
business combination with an Interested Stockholder if (i) the business
combination is approved by BancGroup's Board of Directors and authorized by an
affirmative vote of at least 66 2/3% of the outstanding voting stock of
BancGroup which is not owned by the Interested Stockholder or (ii) upon
consummation of the transaction which resulted in the shareholder becoming an
Interested Stockholder, such shareholder owned at least 85% of the outstanding
BancGroup Common Stock (excluding BancGroup Common Stock held by officers and
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<PAGE> 39
directors of BancGroup or by certain BancGroup stock plans). These provisions of
Delaware law apply simultaneously with the provisions of the BancGroup
Certificate relating to business combinations with a related person, described
above at "Business Combinations," but they are generally less restrictive than
the BancGroup Certificate.
Control Acquisitions. As it relates to BancGroup, the Change in 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 notice of its
intent not to disapprove the action. Under a rebuttable 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 BancGroup, 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.
COMPARATIVE RIGHTS OF SHAREHOLDERS
If the Merger is consummated, shareholders of CNB (except those perfecting
dissenters' rights) will become holders of BancGroup Common Stock. The rights of
the holders of the CNB Common Stock who become holders of BancGroup Common Stock
following the Merger will be governed by the BancGroup Certificate and the
BancGroup Bylaws, as well as the laws of Delaware, the state in which BancGroup
is incorporated.
The following summary compares the rights of the holders of CNB Common
Stock with the rights of the holders of the BancGroup Common Stock. For a more
detailed description of the rights of the holders of BancGroup Common Stock,
including certain features of the BancGroup Certificate and the Delaware General
Corporate Law (the "DGCL") that might limit the circumstances under which a
change in control of BancGroup could occur, see "BancGroup Capital Stock and
Debentures."
The following information is qualified in its entirety by the BancGroup
Certificate and the BancGroup Bylaws, and CNB's Articles of Incorporation and
Bylaws, the DGCL and the FBCA.
DIRECTOR ELECTIONS
CNB. CNB's Directors are elected annually. Shareholders may not cumulate
votes in connection with such election (nor for any other purpose).
BancGroup. BancGroup's directors are elected to terms of three years with
approximately one-third of the Board to be elected annually. There is no
cumulative voting in the election of directors. See "BancGroup Capital Stock and
Debentures -- Changes in Control -- Classified Board."
REMOVAL OF DIRECTORS
CNB. CNB Directors may be removed by shareholders with or without cause.
BancGroup. The BancGroup Certificate provides that a director may be
removed from office, but only for cause and by the affirmative vote of the
holders of at least 80% of the voting shares then entitled to vote at an
election of directors.
VOTING
CNB. Each holder of CNB Common Stock is entitled to cast one vote for each
share held on each issue with respect to which a shareholder vote is authorized,
and may not cumulate votes for the election of directors or for any other
purpose.
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<PAGE> 40
BancGroup. Each stockholder of BancGroup is entitled to one vote for each
share of BancGroup Common Stock held, and such holders are not entitled to
cumulative voting rights in the election of directors.
PREEMPTIVE RIGHTS
CNB. Holders of CNB Common Stock have no preemptive rights to subscribe
for additional shares on a pro rata or other basis when and if shares are
offered for sale by CNB.
BancGroup. The holders of BancGroup Common Stock have no preemptive rights
to acquire any additional shares of BancGroup Common Stock or any other shares
of BancGroup capital stock.
DIRECTORS' LIABILITY
CNB. Section 607.0831 of the FBCA provides that a director of CNB will not
be personally liable for monetary damages to CNB or any other person for any
statement, vote, decision or failure to act, regarding corporate management or
policy, unless: (a) the director breached or failed to perform his duties as a
director, and (b) the director's breach of or failure to perform those duties
constitutes: (1) a violation of the criminal law, unless the director had
reasonable cause to believe his conduct was lawful or had no reasonable cause to
believe his conduct was unlawful, (2) a transaction in which the director
derived an improper personal benefit, (3) a payment of certain unlawful
dividends and distributions, (4) in a proceeding by or in the right of CNB to
procure a judgment in its favor or by or in the right of a shareholder,
conscious disregard for the best interests of CNB, or willful misconduct, or (5)
in a proceeding by or in the right of someone other than CNB or a shareholder,
recklessness or an act or omission which was committed in bad faith or with
malicious purpose or in a manner exhibiting wanton and willful disregard of
human rights, safety or property. This provision would absolve directors of CNB
of personal liability for negligence in the performance of their duties,
including gross negligence. It would not permit a director to be exculpated,
however, from liability for actions involving conflicts of interest or breaches
of the traditional "duty of loyalty" to CNB and its shareholders, and it would
not affect the availability of injunctive and other equitable relief as a
remedy.
BancGroup. The BancGroup Certificate provides that a director of BancGroup
will have no personal liability to BancGroup or its stockholders for monetary
damages for breach of fiduciary duty as a director except (i) for any breach of
the director's duty of loyalty to the corporation or its stockholders, (ii) for
acts or omissions not in good faith or that involve intentional misconduct or a
knowing violation of law, (iii) for the payment of certain unlawful dividends
and the making of certain stock purchases or redemptions, or (iv) for any
transaction from which the director derived an improper personal benefit. This
provision would absolve directors of personal liability for negligence in the
performance of duties, including gross negligence. It would not permit a
director to be exculpated, however, for liability for actions involving
conflicts of interest or breaches of the traditional "duty of loyalty" to
BancGroup and its stockholders, and it would not affect the availability of
injunctive or other equitable relief as a remedy.
INDEMNIFICATION
CNB. Under Section 607.0850 of the FBCA, the directors and officers of CNB
may be indemnified against certain liabilities which they may incur in their
capacity as officers and directors. Such indemnification is generally available
if the individual acted in good faith and in a manner he or she reasonably
believed to be in, or not opposed to, the best interest of CNB, and with respect
to any criminal proceeding, had no reasonable cause to believe his or her
conduct was unlawful. Indemnification may also be available unless a court of
competent jurisdiction establishes by final adjudication that the actions or
omissions of the individual are material to the cause of action so adjudicated
and constituted: (a) a violation of the criminal law, unless the individual had
reasonable cause to believe his or her conduct was lawful or had no reasonable
cause to believe his or her conduct was unlawful; (b) a transaction from which
the individual derived an improper personal benefit; or (c) willful misconduct
or conscious disregard for the best interest of CNB in a proceeding by or in the
right of CNB to procure a judgment in its favor or in a proceeding by or in the
right of a shareholder. CNB's Articles and Bylaws authorize CNB to indemnify its
officers and directors to the extent permitted by the statute. Further, to the
extent that the proposed indemnitee is successful on the merits or otherwise in
the
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<PAGE> 41
defense of any action, suit or proceeding (or any claim, issue or matter
therein) he or she must be indemnified against expenses (including attorney's
fees) actually and reasonably incurred by him or her in connection with such
proceeding.
CNB maintains a directors' and officers' insurance policy pursuant to which
officers and directors of CNB would be entitled to indemnification against
certain liabilities, including reimbursement of certain expenses.
BancGroup. The BancGroup Certificate provides that directors, officers,
employees and agents of BancGroup shall be indemnified to the full extent
permitted under the DGCL. Section 145 of the DGCL 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 DGCL, other than an action brought by or
in the right of BancGroup, such indemnification is available if it is determined
that the proposed indemnity acted in good faith and in a manner he or she
reasonably believed to be in or not opposed to the best interests of BancGroup
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
BancGroup, such indemnification is limited to expenses (including attorneys'
fees) actually and reasonably incurred in the defense or settlement of such
action if the indemnity acted in good faith and in a manner he or she reasonably
believed to be in or not opposed to the best interests of BancGroup 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 BancGroup 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 indemnity 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 in connection
therewith.
BancGroup maintains an officers' and directors' insurance policy and a
separate indemnification agreement pursuant to which officers and directors of
BancGroup would be entitled to indemnification against certain liabilities,
including reimbursement of certain expenses that extends beyond the minimum
indemnification provided by Section 145 of the DGCL.
SPECIAL MEETINGS OF SHAREHOLDERS; ACTION WITHOUT A MEETING
CNB. CNB's bylaws authorize a special shareholders meeting to be called by
the board of directors, CNB's chairman of the board or president, or by the
holders of not less than ten percent of the total voting power of all
outstanding shares of voting stock.
Section 607.0704 of the FBCA permits any action required or permitted of
shareholders to be taken instead without a meeting by written consent of
shareholders having not less than the minimum number of votes that would be
necessary to authorize or take such action at a meeting at which all shares
entitled to vote thereon were present and voted.
BancGroup. Under the BancGroup Certificate, a special meeting of
BancGroup's stockholders may only be called by a majority of the BancGroup Board
of Directors or by the chairman of the Board of Directors of BancGroup. Holders
of BancGroup Common Stock may not call special meetings or act by written
consent.
MERGERS, SHARE EXCHANGES AND SALES OF ASSETS
CNB. The FBCA provides that mergers and sales of substantially all of the
property of a Florida corporation must be approved by a majority of the
outstanding shares of the corporation entitled to vote thereon. The FBCA also
provides, however, that the shareholders of a corporation surviving a merger
need not approve the transaction if: (a) the articles of incorporation of the
surviving corporation will not differ from its articles before the merger, and
(b) each shareholder of the surviving corporation whose shares were outstanding
immediately prior to the effective date of the merger will hold the same number
of shares with identical designations, preferences, limitations and relative
rights, immediately after the merger.
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<PAGE> 42
BancGroup. The DGCL provides that mergers and sales of substantially all
of the assets of Delaware corporations must be approved by a majority of the
outstanding stock of the corporation entitled to vote thereon. The DGCL also
provides, however, that the stockholders of the corporation surviving a merger
need not approve the transaction if: (i) the agreement of merger does not amend
in any respect the certificate of incorporation of such corporation; (ii) each
share of stock of such corporation outstanding immediately prior to the
effective date of the merger is to be an identical outstanding or treasury share
of the surviving corporation after the effective date of the merger; and (iii)
either no shares of common stock of the surviving corporation and no shares,
securities or obligations convertible into such stock are to be issued or
delivered under the plan of merger, or the authorized unissued shares or the
treasury shares of common stock of the surviving corporation to be issued or
delivered under the plan of merger plus those initially issuable upon conversion
of any other shares, securities or obligations to be issued or delivered under
such plan do not exceed 20% of the shares of common stock of such corporation
outstanding immediately prior to the effective date of the merger. See also
"BancGroup Capital Stock and Debentures -- Changes in Control" for a description
of the statutory provisions and the provisions of the BancGroup Certificate
relating to changes of control of BancGroup. See "Antitakeover Statutes" for a
description of additional restrictions on business combination transactions.
AMENDMENT OF CERTIFICATE OF INCORPORATION AND BYLAWS
CNB. Section 607.1002 of the FBCA permits the Board of Directors to amend
the Articles of Incorporation in certain minor respects without shareholder
action, but Section 607.1003 requires most amendments to be adopted by the
shareholders upon recommendation of the Board of Directors. Unless the FBCA
requires a greater vote, amendments may be adopted by a majority of the votes
cast, a quorum being present.
Section 607.1020 of the FBCA permits the Board of Directors to amend or
repeal the bylaws unless the FBCA or the shareholders provide otherwise. The
shareholders entitled to vote have concurrent power to amend or repeal the
bylaws.
BancGroup. Under the DGCL, a Delaware corporation's certificate of
incorporation may be amended by the affirmative vote of the holders of a
majority of the outstanding shares entitled to vote thereon, and a majority of
the outstanding stock of each class entitled to vote as a class, unless the
certificate requires the vote of a larger portion of the stock. The BancGroup
Certificate requires "super-majority" Stockholder approval to amend or repeal
any provision of, or adopt any provision inconsistent with, certain provisions
in the BancGroup Certificate governing (i) the election or removal of directors,
(ii) business combinations between BancGroup and a Related Person, and (iii)
board of directors evaluation of business combination procedures. See "BancGroup
Capital Stock and Debentures -- Changes in Control."
As is permitted by the DGCL, the Certificate gives the Board of Directors
the power to adopt, amend or repeal the BancGroup Bylaws. The stockholders
entitled to vote have concurrent power to adopt, amend or repeal the BancGroup
Bylaws.
RIGHTS OF DISSENTING STOCKHOLDERS
CNB. Holders of CNB Common Stock as of the Record Date are entitled to
dissenters' rights of appraisal under Florida law. For a description of such
appraisal rights, see "The Merger -- Rights of Dissenting Stockholders."
BancGroup. Under the DGCL, a stockholder has the right, in certain
circumstances, to dissent from certain corporate transactions and receive the
fair value of his or her shares in cash in lieu of the consideration he or she
otherwise would have received in the transaction. For this purpose, "fair value"
may be determined by all generally accepted techniques of valuation used in the
financial community, excluding any element of value arising from the
accomplishment or expectation of the transaction, but including elements of
future value that are known or susceptible of proof. Such fair value is
determined by the Delaware Court of Chancery, if a petition for appraisal is
timely filed. Appraisal rights are not available, however, to stockholders of a
corporation (i) if the shares are listed on a national securities exchange (as
is BancGroup Common
34
<PAGE> 43
Stock) or quoted on the Nasdaq NMS, or held of record by more than 2,000
stockholders (as is BancGroup Common Stock), and (ii) stockholders are permitted
by the terms of the merger or consolidation to accept in exchange for their
shares (a) shares of stock of the surviving or resulting corporation, (b) shares
of stock of another corporation listed on a national securities exchange or held
of record by more than 2,000 stockholders, (c) cash in lieu of fractional shares
of such stock, or (d) any combination thereof. Stockholders are not permitted
appraisal rights in a merger if such corporation is the surviving corporation
and no vote of its stockholders is required.
PREFERRED STOCK
CNB. CNB's Articles of Incorporation do not authorize the issuance of any
shares of preferred stock.
BancGroup. The BancGroup Certificate authorizes the issuance of 1,000,000
shares of Preference Stock from time to time by resolution of the Board of
Directors of BancGroup. Currently, no shares of Preference Stock are issued and
outstanding. See "BancGroup Capital Stock and Debentures -- Preference Stock."
EFFECT OF THE MERGER ON CNB SHAREHOLDERS
As of , CNB had shareholders of record and outstanding
shares of common stock. As of , there were shares of BancGroup
Common Stock outstanding held by stockholders of record.
Assuming that no dissenters' rights of appraisal are exercised in the
Merger, that the CNB Options are exercised prior to the Effective Date, that no
CNB Options are exchanged in the Cashless Exchange, and the Market Value of
BancGroup Common Stock is $33.4125 on the Effective Date (which was the Market
Value calculated as of May 27, 1998), an aggregate number of 858,762 shares of
BancGroup Common Stock will be issued to the shareholders of CNB pursuant to the
Merger. These shares would represent approximately 1.8% of the total shares of
BancGroup Common Stock outstanding after the Merger, not counting any shares of
BancGroup Common Stock to be issued in other pending acquisitions.
The issuance of the BancGroup Common Stock pursuant to the Merger will
reduce the percentage interest of the BancGroup Common Stock currently held by
each principal stockholder and each director and officer of BancGroup. Based
upon the foregoing assumptions and additional shares issued pursuant to
completed business combinations since March 31, 1998, as a group, the directors
and officers of BancGroup who own approximately 9.88% of BancGroup's outstanding
shares would own approximately 9.72% after the Merger. See "Business of
BancGroup -- Voting Securities and Principal Stockholders."
BancGroup has entered into agreements pursuant to which additional shares
of BancGroup Common Stock will be issued. See "Business of BancGroup -- Recently
Completed and Other Proposed Business Combinations."
35
<PAGE> 44
THE COLONIAL BANCGROUP, INC. AND SUBSIDIARIES
CONDENSED PRO FORMA STATEMENT OF CONDITION (UNAUDITED)
(IN THOUSANDS)
The following summary includes (i) the condensed consolidated statement of
condition of BancGroup and subsidiaries as of March 31, 1998, (ii) the condensed
consolidated statement of condition of CNB Holding Company ("CNB") as of March
31, 1998, (iii) adjustments to give effect to the proposed pooling-of-interests
method business combination with CNB, (iv) statement of condition of the other
probable business combinations with Commercial Bank of Nevada, FirstBank and
First Macon Bank & Trust ("Other Probable Business Combinations") as of March
31, 1998, (v) adjustments to give effect to the proposed pooling-of-interests
method business combinations with Commercial Bank of Nevada, FirstBank and First
Macon Bank & Trust (vi) the pro forma combined condensed statement of condition
of BancGroup and subsidiaries as if such combinations had occurred on March 31,
1998.
The pro forma statement of condition excludes the effect of an immaterial
pending business combination with Prime Bank of Central Florida.
These pro forma statements should be read in conjunction with the
accompanying notes and the separate consolidated statements of condition of
BancGroup and subsidiaries, incorporated by reference herein. The pro forma
information provided below may not be indicative of future results.
<TABLE>
<CAPTION>
MARCH 31, 1998
-------------------------------------------------------------------------------------------------
CONSOLIDATED CNB OTHER PROBABLE PRO FORMA
COLONIAL HOLDING ADJUSTMENTS/ BUSINESS ADJUSTMENTS COMBINED
BANCGROUP COMPANY (DEDUCTIONS) SUBTOTAL COMBINATIONS (DEDUCTIONS) TOTAL
------------ ------- ------------ ---------- -------------- ------------ ----------
<S> <C> <C> <C> <C> <C> <C> <C>
ASSETS
Cash and due from banks....... $ 311,523 $ 3,916 $ 315,439 $ 37,193 $ 352,632
Interest-bearing deposits in
banks........................ 17,949 5,523 23,472 84,278 107,750
Securities held for trading... 24,824 24,824 24,824
Securities available for
sale......................... 745,655 1,993 747,648 25,991 773,639
Investment securities......... 265,711 12,161 277,872 62,430 340,302
Mortgage loans held for
sale......................... 455,716 455,716 455,716
Loans, net of unearned
income....................... 5,724,844 60,683 5,785,527 270,034 6,055,561
Less: Allowance for possible
loan losses.................. (69,680) (431) (70,111) (3,450) (73,561)
---------- ------- ------- ---------- ---------- -------- ----------
Loans, net.................... 5,655,164 60,252 -- 5,715,416 266,584 -- 5,982,000
Premises and equipment, net... 146,448 3,078 149,526 8,861 158,387
Excess of cost over tangible
and identified intangible
assets acquired, net......... 78,861 78,861 78,861
Mortgage servicing rights..... 151,412 151,412 151,412
Other real estate owned....... 12,530 12,530 27.00 12,557
Accrued interest and other
assets....................... 140,566 1,094 141,660 4,065 145,725
---------- ------- ------- ---------- ---------- -------- ----------
Total Assets........... $8,006,359 $88,017 -- $8,094,376 $ 489,429 -- $8,583,805
========== ======= ======= ========== ========== ======== ==========
LIABILITIES AND SHAREHOLDERS' EQUITY
Deposits...................... $6,082,744 $79,389 $6,162,133 $ 435,087 $6,597,220
FHLB short-term borrowings.... 460,000 460,000 460,000
Other short-term borrowings... 287,468 287,468 15,005 302,473
Subordinated debt............. 13,125 13,125 13,125
Trust preferred securities.... 70,000 70,000 70,000
FHLB long-term debt........... 283,693 283,693 283,693
Other long-term debt.......... 93,608 93,608 93,608
Other liabilities............. 144,135 144 $ 649(1) 144,928 4,620 $ 159 (2) 150,399
68 (3)
624 (4)
---------- ------- ------- ---------- ---------- -------- ----------
Total liabilities...... 7,434,773 79,533 649 7,514,955 454,712 851 7,970,518
Common Stock.................. 120,323 153 (153)(1) 122,326 3,079 (842)(2) 131,859
2,003(1) (1,700)(3)
(537)(4)
2,105 (2)
3,029 (3)
4,399 (4)
Additional paid in capital.... 230,682 762 (762)(1) 228,874 24,585 (8,264)(2) 247,005
(1,808)(1) (4,800)(3)
(11,521)(4)
7,001 (2)
3,471 (3)
7,659 (4)
Retained earnings............. 221,544 8,228 (649)(1) 229,123 6,799 (159)(2) 235,071
(68)(3)
(624)(4)
Treasury Stock................ (720) 720(1) -- -- --
Unearned compensation......... (3,604) (3,604) (3,604)
Unrealized gain (loss) on
securities available for
sale, net of taxes........... 2,641 61 2,702 254 2,956
---------- ------- ------- ---------- ---------- -------- ----------
Total shareholders'
equity................ 571,586 8,484 (649) 579,421 34,717 (851) 613,287
---------- ------- ------- ---------- ---------- -------- ----------
Total liabilities and
equity................ $8,006,359 $88,017 $ -- $8,094,376 $ 489,429 $ -- $8,583,805
========== ======= ======= ========== ========== ======== ==========
Capital Ratios:
Capital Ratio................ 8.10% 8.09%
Tangible Leverage Ratio...... 7.36% 7.39%
Tier One Capital Ratio*...... 9.77% 9.88%
Total Capital Ratio*... 11.08% 11.18%
</TABLE>
- ---------------
* Based on risk weighted assets
36
<PAGE> 45
PENDING BUSINESS COMBINATIONS
CNB HOLDING COMPANY
(POOLING OF INTERESTS)
(1) (A) To record the issuance of 801,311 shares of BancGroup Common Stock in
exchange for all of the outstanding shares of CNB Holding Company
<TABLE>
<CAPTION>
<S> <C> <C>
CNB Holding Company outstanding shares...................... 145,418
Conversion ratio............................................ 5.510
-------
BancGroup shares to be issued............................... 801,311
Par value of 801,311 shares issued at $2.50 per share....... $ 2,003
Shares issued at par value.................................. $ 2,003
Total capital stock of CNB Holding Company.................. 195
-------
Excess recorded as a decrease to contributed capital........ (1,808)
-------
195
To eliminate CNB Holding Company
Common stock, at par value................................ $ (153)
Contributed capital....................................... (762)
Treasury stock............................................ 720
-------
(195)
-------
Net change in equity.............................. $ --
=======
(B) To record possible charges associated with severance
payable to terminated employees, noncompete agreements,
fixed assets write-offs and other nonrecurring one-time
restructuring charges, net of taxes..................... $ (649)
=======
</TABLE>
COMMERCIAL BANK OF NEVADA
(POOLING OF INTERESTS)
(2) (A) To record the issuance of 842,157 shares of BancGroup Common Stock in
exchange for all of the outstanding shares of Commercial Bank of Nevada
<TABLE>
<CAPTION>
<S> <C> <C>
Commercial Bank of Nevada outstanding shares................ 842,157
Conversion ratio............................................ 1.000
-------
BancGroup shares to be issued............................... 842,157
Par value of 842,157 shares issued at $2.50 per share....... $ 2,105
Shares issued at par value.................................. $ 2,105
Total capital stock of Commercial Bank of Nevada............ 9,106
-------
Excess recorded as an increase to contributed capital....... 7,001
-------
9,106
To eliminate Commercial Bank of Nevada
Common stock, at par value................................ $ (842)
Contributed capital....................................... (8,264)
-------
(9,106)
-------
Net change in equity $ --
=======
(B) To record possible charges associated with contract
buy-outs, professional fees, fixed assets write-offs and
other nonrecurring one-time restructuring charges, net
of taxes................................................ $ (159)
=======
</TABLE>
37
<PAGE> 46
FIRST BANK
(POOLING OF INTERESTS)
(3) (A) To record the issuance of 1,211,471 shares of BancGroup Common Stock in
exchange for all of the outstanding shares of FirstBank
<TABLE>
<S> <C> <C>
FirstBank outstanding shares................................ 340,000
Conversion ratio............................................ 3.5632
--------
BancGroup shares to be issued............................... 1,211,471
Par value of 1,211,471 shares issued at $2.50 per share..... $ 3,029
Shares issued at par value.................................. $ 3,029
Total capital stock of FirstBank............................ 6,500
--------
Excess recorded as an increase to contributed capital....... 3,471
----------
6,500
To eliminate FirstBank
Common stock, at par value................................ $ (1,700)
Contributed capital....................................... (4,800)
----------
(6,500)
----------
Net change in equity $ --
==========
(B) To record possible charges associated with professional
fees, fixed assets write-offs and other nonrecurring
one-time restructuring charges, net of taxes............ $ (68)
==========
</TABLE>
FIRST MACON BANK & TRUST
(POOLING OF INTERESTS)
(4) (A) To record the issuance of 1,759,521 shares of BancGroup Common Stock in
exchange for all of the outstanding shares of First Macon Bank & Trust
<TABLE>
<S> <C> <C>
First Macon Bank & Trust outstanding shares................. 1,076,604
Conversion ratio............................................ 1.6343
----------
BancGroup shares to be issued............................... 1,759,521
Par value of 1,759,521 shares issued at $2.50 per share..... $ 4,399
Shares issued at par value.................................. $ 4,399
Total capital stock of First Macon Bank & Trust............. 12,058
----------
Excess recorded as an increase to contributed capital....... 7,659
----------
12,058
To eliminate First Macon Bank & Trust
Common stock, at par value................................ $ (537)
Contributed capital....................................... (11,521)
----------
(12,058)
----------
Net change in equity.............................. $ --
==========
(B) To record possible charges associated with severance
payable to terminated employees, contract buy-outs,
fixed assets write-offs and other nonrecurring one-time
restructuring charges, net of taxes..................... $ (624)
==========
</TABLE>
38
<PAGE> 47
THE COLONIAL BANCGROUP, INC. AND SUBSIDIARIES
CONDENSED PRO FORMA STATEMENTS OF INCOME (UNAUDITED)
(IN THOUSANDS)
The following summary includes (i) the condensed consolidated statements of
income of BancGroup and subsidiaries on a historical basis for the three months
ended March 31, 1998 and 1997 and for the years ended December 31, 1997, 1996
and 1995, (ii) the condensed consolidated statements of income CNB Holding
Company for the three months ended March 31, 1998 and 1997 and for the years
ended December 31, 1997, 1996 and 1995, (iii) adjustments to give effect to the
proposed pooling-of-interests method business combination with CNB holding
Company, (iv) the condensed statements of income of Commercial Bank of Nevada,
FirstBank and First Macon Bank & Trust ("Other Probable Business Combinations")
for the three months ended March 31, 1998 and 1997 and for the years ended
December 31, 1997, 1996 and 1995, (v) adjustments to give effect to the proposed
pooling-of-interests method business combination with Commercial Bank of Nevada,
FirstBank and First Macon Bank & Trust (vi) the pro forma statements of income
of BancGroup and subsidiaries as if such business combination had occurred on
January 1, 1995.
The pro forma statements of income exclude the effect of an immaterial
pending business combination with Prime Bank of Central Florida.
These pro forma statements should be read in conjunction with the
accompanying notes and the separate consolidated statements of income of
BancGroup and subsidiaries, incorporated by reference herein. The pro forma
information provided may not necessarily be indicative of future results.
<TABLE>
<CAPTION>
THREE MONTHS ENDED MARCH 31, 1998
--------------------------------------------------------------------------------------------------
CONSOLIDATED CNB OTHER PROBABLE PRO FORMA
COLONIAL HOLDING ADJUSTMENTS/ BUSINESS ADJUSTMENTS/ COMBINED
BANCGROUP COMPANY (DEDUCTIONS) SUBTOTAL COMBINATIONS (DEDUCTIONS) TOTAL
------------ -------- ------------ ----------- -------------- ------------ -----------
<S> <C> <C> <C> <C> <C> <C> <C>
Interest income...... $ 146,034 $ 1,695 $ -- $ 147,729 $ 9,004 $ -- $ 156,733
Interest expense..... 72,602 615 -- 73,217 3,846 -- 77,063
----------- -------- --------- ----------- ---------- ----------- -----------
Net interest
income............. 73,432 1,080 -- 74,512 5,158 -- 79,670
Provision for
possible loan
losses............. 3,670 12 3,682 187 3,869
----------- -------- --------- ----------- ---------- ----------- -----------
Net interest income
after provision for
loan losses........ 69,762 1,068 -- 70,830 4,971 -- 75,801
----------- -------- --------- ----------- ---------- ----------- -----------
Noninterest income... 26,075 138 -- 26,213 548 26,761
Noninterest
expense............ 66,934 624 -- 67,558 3,031 -- 70,589
--
----------- -------- --------- ----------- ---------- ----------- -----------
Income before income
taxes.............. 28,903 582 -- 29,485 2,488 -- 31,973
Applicable income
taxes.............. 10,953 101 11,054 523 -- 11,577
----------- -------- --------- ----------- ---------- ----------- -----------
Net income........... $ 17,950 $ 481 $ -- $ 18,431 $ 1,965 $ -- $ 20,396
=========== ======== ========= =========== ========== =========== ===========
Average basic shares
outstanding........ 47,779,000 145,142 (145,142) 48,578,790 2,256,011 (2,256,011) 52,387,435
799,790 3,808,645
Average diluted
shares
outstanding........ 49,178,000 148,270 (148,270) 49,995,027 2,256,011 (2,256,011) 53,803,672
817,027 3,808,645
Earnings per share:
Basic............ $ 0.38 $ 0.38 $ 0.39
Diluted.......... $ 0.37 $ 0.37 $ 0.38
</TABLE>
39
<PAGE> 48
<TABLE>
<CAPTION>
THREE MONTHS ENDED MARCH 31, 1997
--------------------------------------------------------------------------------------------------
CONSOLIDATED
COLONIAL CNB OTHER PROBABLE PRO FORMA
BANCGROUP HOLDING ADJUSTMENTS/ BUSINESS ADJUSTMENTS/ COMBINED
(RESTATED)* COMPANY (DEDUCTIONS) SUBTOTAL COMBINATIONS (DEDUCTIONS) TOTAL
------------ -------- ------------ ----------- -------------- ------------ -----------
<S> <C> <C> <C> <C> <C> <C> <C>
Interest income...... $ 127,044 $ 1,589 $ -- $ 128,633 $ 6,509 $ -- $ 135,142
Interest expense..... 62,969 612 -- 63,581 2,610 -- 66,191
----------- -------- --------- ----------- ---------- ----------- -----------
Net interest
income............. 64,075 977 -- 65,052 3,899 -- 68,951
Provision for
possible loan
losses............. 3,056 13 3,069 369 3,438
----------- -------- --------- ----------- ---------- ----------- -----------
Net interest income
after provision for
loan losses........ 61,019 964 -- 61,983 3,530 -- 65,513
----------- -------- --------- ----------- ---------- ----------- -----------
Noninterest income... 20,105 125 -- 20,230 473 20,703
Noninterest
expense............ 50,631 574 -- 51,205 2,356 -- 53,561
----------- -------- --------- ----------- ---------- ----------- -----------
Income before income
taxes.............. 30,493 515 -- 31,008 1,647 -- 32,655
Applicable income
taxes.............. 11,021 177 11,198 540 -- 11,738
----------- -------- --------- ----------- ---------- ----------- -----------
Net income........... $ 19,472 $ 338 $ -- $ 19,810 $ 1,107 $ -- $ 20,917
=========== ======== ========= =========== ========== =========== ===========
Average basic shares
outstanding........ 45,969,000 147,451 (147,451) 46,781,514 2,256,368 (2,256,368) 50,597,065
812,514 3,815,551
Average diluted
shares
outstanding........ 47,845,000 151,324 (151,324) 48,678,856 2,256,368 (2,256,368) 52,494,407
833,856 3,815,551
Earnings per share:
Basic.............. $ 0.42 $ 0.42 $ 0.41
Diluted............ $ 0.41 $ 0.41 $ 0.40
</TABLE>
- ---------------
* Restated to give retroactive effect to the February 1998 pooling-of-interests
business combinations with United American Holding Corporation, First Central
Bank and South Florida Banking Corp.
40
<PAGE> 49
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, 1997
--------------------------------------------------------------------------------------------------
CONSOLIDATED
COLONIAL CNB OTHER PROBABLE PRO FORMA
BANCGROUP HOLDING ADJUSTMENTS/ BUSINESS ADJUSTMENTS/ COMBINED
(RESTATED)* COMPANY (DEDUCTIONS) SUBTOTAL COMBINATIONS (DEDUCTIONS) TOTAL
------------ -------- ------------ ----------- -------------- ------------ -----------
<S> <C> <C> <C> <C> <C> <C> <C>
Interest income...... $ 540,699 $ 6,655 $ -- $ 547,354 $ 30,652 $ -- $ 578,006
Interest expense..... 267,084 2,603 -- 269,687 12,683 -- 282,370
----------- -------- --------- ----------- ---------- ----------- -----------
Net interest
income............. 273,615 4,052 -- 277,667 17,969 -- 295,636
Provision for
possible loan
losses............. 14,860 71 14,931 1,119 16,050
----------- -------- --------- ----------- ---------- ----------- -----------
Net interest income
after provision for
loan losses........ 258,755 3,981 -- 262,736 16,850 -- 279,586
----------- -------- --------- ----------- ---------- ----------- -----------
Noninterest income... 92,550 701 -- 93,251 2,105 95,356
Noninterest
expense............ 220,232 2,334 -- 222,566 10,425 -- 232,991
----------- -------- --------- ----------- ---------- ----------- -----------
Income before income
taxes.............. 131,073 2,348 -- 133,421 8,530 -- 141,951
Applicable income
taxes.............. 48,557 881 49,438 2,032 -- 51,470
----------- -------- --------- ----------- ---------- ----------- -----------
Net income........... $ 82,516 $ 1,467 $ -- $ 83,983 $ 6,498 $ -- $ 90,481
=========== ======== ========= =========== ========== =========== ===========
Average basic shares
outstanding........ 46,536,000 147,113 (147,113) 47,346,651 2,255,942 (2,255,942) 51,156,742
810,651 3,810,090
Average diluted
shares
outstanding........ 48,158,000 150,536 (150,536) 48,987,514 2,255,942 (2,255,942) 52,797,604
829,514 3,810,090
Earnings per share:
Basic.............. $ 1.77 $ 1.77 $ 1.77
Diluted............ $ 1.72 $ 1.72 $ 1.72
</TABLE>
- ---------------
* Restated to give retroactive effect to the February 1998 pooling-of-interests
business combinations with United American Holding Corporation, First Central
Bank and South Florida Banking Corp.
41
<PAGE> 50
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, 1996
--------------------------------------------------------------------------------------------------
CONSOLIDATED
COLONIAL CNB OTHER PROBABLE PRO FORMA
BANCGROUP HOLDING ADJUSTMENTS/ BUSINESS ADJUSTMENTS/ COMBINED
(RESTATED)* COMPANY (DEDUCTIONS) SUBTOTAL COMBINATIONS (DEDUCTIONS) TOTAL
------------ -------- ------------ ----------- -------------- ------------ -----------
<S> <C> <C> <C> <C> <C> <C> <C>
Interest income...... $ 444,082 $ 6,183 $ -- $ 450,265 $ 21,523 $ -- $ 471,788
Interest expense..... 219,494 2,368 -- 221,862 8,258 -- 230,120
----------- -------- --------- ----------- ---------- ----------- -----------
Net interest
income............. 224,588 3,815 -- 228,403 13,265 -- 241,668
Provision for
possible loan
losses............. 13,564 58 13,622 765 14,387
----------- -------- --------- ----------- ---------- ----------- -----------
Net interest income
after provision for
loan losses........ 211,024 3,757 -- 214,781 12,500 -- 227,281
----------- -------- --------- ----------- ---------- ----------- -----------
Noninterest income... 74,860 499 -- 75,359 1,742 77,101
Noninterest
expense............ 198,971 2,008 -- 200,979 8,192 -- 209,171
----------- -------- --------- ----------- ---------- ----------- -----------
Income before income
taxes.............. 86,913 2,248 -- 89,161 6,050 -- 95,211
Applicable income
taxes.............. 30,631 847 31,478 1,738 -- 33,216
----------- -------- --------- ----------- ---------- ----------- -----------
Net income........... $ 56,282 $ 1,401 $ -- $ 57,683 $ 4,312 $ -- $ 61,995
=========== ======== ========= =========== ========== =========== ===========
Average basic shares
outstanding........ 42,839,000 147,072 (147,072) 43,649,426 2,067,378 (2,067,378) 47,276,220
810,426 3,626,795
Average diluted
shares
outstanding........ 44,776,000 151,058 (151,058) 45,608,390 2,067,378 (2,067,378) 49,269,223
832,390 3,660,833
Earnings per share:
Basic.............. $ 1.31 $ 1.32 $ 1.31
Diluted............ $ 1.27 $ 1.27 $ 1.27
</TABLE>
- ---------------
* Restated to give retroactive effect to the February 1998 pooling-of-interests
business combinations with United American Holding Corporation, First Central
Bank and South Florida Banking Corp.
42
<PAGE> 51
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, 1995
--------------------------------------------------------------------------------------------------
CONSOLIDATED
COLONIAL CNB OTHER PROBABLE PRO FORMA
BANCGROUP HOLDING ADJUSTMENTS/ BUSINESS ADJUSTMENTS/ COMBINED
(RESTATED)* COMPANY (DEDUCTIONS) SUBTOTAL COMBINATIONS (DEDUCTIONS) TOTAL
------------ -------- ------------ ----------- -------------- ------------ -----------
<S> <C> <C> <C> <C> <C> <C> <C>
Interest income...... $ 371,985 $ 5,686 $ -- $ 377,671 $ 16,089 $ 393,760
Interest expense..... 182,441 2,177 -- 184,618 6,040 -- 190,658
----------- -------- --------- ----------- ---------- ----------- -----------
Net interest
income............. 189,544 3,509 -- 193,053 10,049 -- 203,102
Provision for
possible loan
losses............. 10,180 15 -- 10,195 693 -- 10,888
----------- -------- --------- ----------- ---------- ----------- -----------
Net interest income
after provision for
loan losses........ 179,364 3,494 -- 182,858 9,356 -- 192,214
----------- -------- --------- ----------- ---------- ----------- -----------
Noninterest income... 63,479 481 -- 63,960 1,251 65,211
Noninterest
expense............ 164,739 1,960 -- 166,699 6,609 -- 173,308
----------- -------- --------- ----------- ---------- ----------- -----------
Income before income
taxes.............. 78,104 2,015 -- 80,119 3,998 -- 84,117
Applicable income
taxes.............. 27,462 744 28,206 1,318 -- 29,524
----------- -------- --------- ----------- ---------- ----------- -----------
Net income........... $ 50,642 $ 1,271 $ -- $ 51,913 $ 2,680 $ -- $ 54,593
=========== ======== ========= =========== ========== =========== ===========
Average basic shares
outstanding........ 39,787,000 147,518 (147,518) 40,599,883 1,885,480 (1,885,480) 44,034,158
812,883 3,434,275
Average diluted
shares
outstanding........ 43,649,000 149,270 (149,270) 44,471,537 1,885,480 (1,885,480) 47,905,812
822,537 3,434,275
Earnings per share:
Basic.............. $ 1.27 $ 1.28 $ 1.24
Diluted............ $ 1.18 $ 1.19 $ 1.16
</TABLE>
- ---------------
* Restated to give retroactive effect to the February 1998 pooling-of-interests
business combinations with United American Holding Corporation, First Central
Bank and South Florida Banking Corp.
NONRECURRING CHARGES
(IN THOUSANDS)
The following table reflects the primary components of the estimated
nonrecurring charges and related tax effect which will result directly from the
business combinations and which will be included in BancGroup's results. These
charges are not reflected in the condensed pro forma statements of income but
are reflected in the condensed pro forma statement of condition. (Please refer
to BancGroup's Current Report on Form 8-K dated March 16, 1998 and incorporated
by reference herein.)
(1) Possible adjustments applicable to the pooling-of-interests method
business combination with CNB Holding Company:
<TABLE>
<S> <C>
Increase in expense:
Write-off of fixed assets................................. $ (199)
Potential severance to terminated employees............... (52)
Non-compete agreements.................................... (183)
Contract buy-outs......................................... (570)
Write-off of other assets................................. (34)
-------
Net decrease in income before taxes......................... (1,038)
Tax effect of the pro forma adjustment...................... 389
-------
Net decrease in income............................ $ (649)
=======
</TABLE>
43
<PAGE> 52
(2) Possible adjustments applicable to the pooling-of-interests method
business combination with Commercial Bank:
<TABLE>
<S> <C>
Increase in expense:
Contract buy-outs......................................... $ (24)
Professional fees......................................... (103)
Write-off of fixed assets................................. (128)
-----
Net decrease in income before tax........................... (255)
Tax effect of the pro forma adjustments..................... 96
-----
Net decrease in income............................ $(159)
=====
</TABLE>
(3) Possible adjustments applicable to the pooling-of-interests method
business combination with FirstBank:
<TABLE>
<S> <C>
Increase in expense:
Professional fees......................................... $(100)
Write-off of fixed assets................................. (8)
-----
Net decrease in income before tax........................... (108)
Tax effect of the pro forma adjustment...................... 41
-----
Net decrease in income............................ $ (68)
=====
</TABLE>
(4) Possible adjustments applicable to the pooling-of-interests method
business combination with First Macon
<TABLE>
<S> <C>
Increase in expense:
Contract buy-outs......................................... $(153)
Potential severance payable to terminated employees....... (162)
Professional fees......................................... (305)
Write-off of other assets................................. (51)
Write-off of fixed assets................................. (328)
-----
Net decrease in income before tax......................... (999)
Tax effect of the pro forma adjustments................... 375
-----
Net decrease in income.................................... $(624)
=====
</TABLE>
44
<PAGE> 53
THE COLONIAL BANCGROUP, INC. AND SUBSIDIARIES
SELECTED FINANCIAL AND OPERATING INFORMATION
The following tables present certain financial information for BancGroup on
a historical basis and pro forma basis. The first table presents historical and
pro forma income statement information for the three months ended March 31, 1998
and 1997. The second table presents historical and pro forma income statements
for the years ended December 31, 1997, 1996 and 1995 as well as historical for
the years ended December 31, 1994 and 1993. The final table presents pro forma
and historical statement of condition data and selected ratios as of March 31,
1998 as well as historical as of December 31, 1997, 1996, 1995, 1994 and 1993.
The pro forma information includes consolidated BancGroup and subsidiaries
and CNB Holding Company, Commercial Bank of Nevada, FirstBank and First Macon
Bank and Trust. The pro forma balance sheet data gives effect to the
combinations as if they had occurred on March 31, 1998 and the pro forma
operating data gives effect to the combinations as if they occurred at the
beginning of the earliest period presented.
The following selected financial information should be read in conjunction
with the discussion set forth in "Management's Discussion and Analysis of
Financial Condition and Results of Operations," and all financial statements
included elsewhere in this Prospectus and incorporated by reference. The pro
forma information provided below may not be indicative of future results.
<TABLE>
<CAPTION>
THREE MONTHS ENDED MARCH 31,
-----------------------------------------------
BANCGROUP BANCGROUP BANCGROUP BANCGROUP
PRO FORMA HISTORICAL PRO FORMA HISTORICAL
1998 1998 1997 1997
--------- ---------- --------- ----------
<S> <C> <C> <C> <C>
STATEMENT OF INCOME
Interest income..................................... $156,733 $146,034 $135,142 $127,044
Interest expense.................................... 77,063 72,602 66,191 62,969
-------- -------- -------- --------
Net interest income................................. 79,670 73,432 68,951 64,075
Provision for possible loan losses.................. 3,869 3,670 3,438 3,056
-------- -------- -------- --------
Net interest income after provision for loan
losses............................................ 75,801 69,762 65,513 61,019
Noninterest income.................................. 26,761 26,075 20,703 20,105
Noninterest expense................................. 62,140 58,485 52,804 49,874
Acquisition and restructuring costs and Year 2000
expenses.......................................... 8,449 8,449 757 757
-------- -------- -------- --------
Income before income taxes.......................... 31,973 28,903 32,655 30,493
Applicable income taxes............................. 11,577 10,953 11,738 11,021
-------- -------- -------- --------
Net income.......................................... $ 20,396 $ 17,950 $ 20,917 $ 19,472
======== ======== ======== ========
Income excluding acquisition and restructuring costs
and Year 2000 expenses............................ $ 26,004 $ 23,558 $ 21,523 $ 20,078
======== ======== ======== ========
EARNINGS PER SHARE
Income excluding acquisition and restructuring costs
and Year 2000 expenses:
Basic............................................. $ 0.50 $ 0.49 $ 0.43 $ 0.44
Diluted........................................... $ 0.48 $ 0.48 $ 0.41 $ 0.42
Net income:
Basic............................................. $ 0.39 $ 0.38 $ 0.41 $ 0.42
Diluted........................................... $ 0.38 $ 0.37 $ 0.40 $ 0.41
Average shares outstanding
Basic............................................. 52,387 47,779 50,597 45,969
Diluted........................................... 53,804 49,178 52,494 47,845
Cash dividends:
Common............................................ $ 0.17 $ 0.17 $ 0.15 $ 0.15
</TABLE>
45
<PAGE> 54
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, YEAR ENDED DECEMBER 31,
--------------------------------- --------------------------------------------------------------
BANCGROUP BANCGROUP BANCGROUP BANCGROUP BANCGROUP BANCGROUP BANCGROUP BANCGROUP
PRO FORMA PRO FORMA PRO FORMA HISTORICAL HISTORICAL HISTORICAL HISTORICAL HISTORICAL
1997 1996 1995 1997* 1996* 1995* 1994* 1993*
--------- --------- --------- ---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF INCOME
Interest income........... $578,006 $471,788 $393,760 $540,699 $444,082 $371,985 $278,223 $224,209
Interest expense.......... 282,370 230,120 190,658 267,084 219,494 182,441 113,715 88,568
-------- -------- -------- -------- -------- -------- -------- --------
Net interest income....... 295,636 241,668 203,102 273,615 224,588 189,544 164,508 135,641
Provision for possible
loan losses............. 16,050 14,387 10,888 14,860 13,564 10,180 8,943 14,437
-------- -------- -------- -------- -------- -------- -------- --------
Net interest income after
provision for loan
losses.................. 279,586 227,281 192,214 258,755 211,024 179,364 155,565 121,204
Noninterest income........ 95,356 77,101 65,211 92,550 74,860 63,479 56,567 53,655
Noninterest expense....... 226,528 192,788 171,570 213,769 182,588 163,001 154,083 135,471
SAIF special assessment... -- 4,465 -- -- 4,465 -- -- --
Acquisition and
restructuring costs..... 6,463 11,918 1,738 6,463 11,918 1,738 1,348 960
-------- -------- -------- -------- -------- -------- -------- --------
Income before income
taxes................... 141,951 95,211 84,117 131,073 86,913 78,104 56,701 38,428
Applicable income taxes... 51,470 33,216 29,524 48,557 30,631 27,462 18,610 12,216
-------- -------- -------- -------- -------- -------- -------- --------
Income before
extraordinary items..... 90,481 61,995 54,593 82,516 56,282 50,642 38,091 26,212
Extraordinary items....... -- -- -- -- -- -- -- (396)
Cumulative effect of a
change in accounting.... -- -- -- -- -- -- -- 3,890
-------- -------- -------- -------- -------- -------- -------- --------
Net income................ $ 90,481 $ 61,995 $ 54,593 $ 82,516 $ 56,282 $ 50,642 $ 38,091 $ 29,706
======== ======== ======== ======== ======== ======== ======== ========
Income excluding SAIF
special assessment and
acquisition and
restructuring costs..... $ 95,651 $ 74,432 $ 55,983 $ 87,686 $ 68,719 $ 52,032 $ 39,169 $ 26,980
======== ======== ======== ======== ======== ======== ======== ========
EARNINGS PER SHARE
Income excluding SAIF
special assessment and
acquisition and
restructuring costs:
Basic................... $ 1.87 $ 1.57 $ 1.27 $ 1.88 $ 1.60 $ 1.31 $ 1.05 $ 0.80
Diluted................. $ 1.81 $ 1.51 $ 1.17 $ 1.83 $ 1.54 $ 1.22 $ 0.98 $ 0.76
Income before
extraordinary items:
Basic................... $ 1.77 $ 1.31 $ 1.24 $ 1.77 $ 1.31 $ 1.27 $ 1.02 $ 0.78
Diluted................. $ 1.72 $ 1.27 $ 1.16 $ 1.72 $ 1.27 $ 1.18 $ 0.96 $ 0.74
Net income:
Basic................... $ 1.77 $ 1.31 $ 1.24 $ 1.77 $ 1.31 $ 1.27 $ 1.02 $ 0.89
Diluted................. $ 1.72 $ 1.27 $ 1.16 $ 1.72 $ 1.27 $ 1.18 $ 0.96 $ 0.84
Average shares
outstanding:
Basic................... 51,157 47,276 44,034 46,536 42,839 39,787 37,361 33,512
Diluted................. 52,798 49,269 47,906 48,158 44,776 43,649 40,993 37,465
Cash dividends:
Common**................ $ 0.60 $ 0.54 $ 0.3375 $ 0.60 $ 0.54 $ 0.3375 $ -- $ --
Class A**............... -- -- $ 0.1125 -- -- $ 0.1125 $ 0.400 $ 0.355
Class B**............... -- -- $ 0.0625 -- -- $ 0.0625 $ 0.200 $ 0.155
</TABLE>
- ---------------
* Restated to give retroactive effect to the February 1998 pooling-of-interests
business combinations with United American Holding Corporation, First Central
Bank and South Florida Banking Corp.
** The pro forma cash dividends are equal to the historical BancGroup cash
dividends.
46
<PAGE> 55
<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31,
----------------------- --------------------------------------------------------------
BANCGROUP BANCGROUP BANCGROUP BANCGROUP BANCGROUP BANCGROUP BANCGROUP
PRO FORMA HISTORICAL HISTORICAL HISTORICAL HISTORICAL HISTORICAL HISTORICAL
1998 1998 1997* 1996* 1995* 1994* 1993*
---------- ---------- ---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF CONDITION
DATA
At year end:
Total assets............. $8,583,805 $8,006,359 $7,442,661 $6,165,691 $5,370,361 $4,214,492 $4,022,477
Loans, net of unearned
inc.................. 5,982,154 5,655,164 5,585,901 4,558,780 3,924,785 2,959,565 2,468,564
Mortgage loans held for
sale................. 455,716 455,716 225,331 157,966 116,688 61,556 368,515
Deposits............... 6,597,220 6,082,744 5,771,702 4,728,896 4,223,539 3,378,252 3,252,771
Long-term debt......... 460,426 460,426 315,252 39,092 48,688 89,040 57,397
Shareholders' equity... 613,287 571,586 543,262 443,391 388,770 298,812 279,300
Average daily balances
Total assets........... 8,153,877 7,620,638 6,911,648 5,742,474 4,756,418 4,028,482 3,308,106
Interest-earning
assets............... 7,384,097 6,881,562 6,325,872 5,253,921 4,347,437 3,645,499 2,945,172
Loans, net of unearned
income............... 6,002,919 5,675,060 5,184,653 4,240,554 3,371,192 2,669,363 1,988,563
Mortgage loans held for
sale................. 254,992 254,992 149,309 135,135 98,785 135,046 248,502
Deposits............... 6,238,072 5,852,198 5,442,818 4,463,015 3,787,613 3,280,208 2,666,025
Shareholders' equity... 604,306 562,172 504,739 423,289 339,734 292,892 220,802
Book value per share..... $ 11.77 $ 11.88 $ 11.52 $ 10.23 $ 9.38 $ 7.88 $ 7.66
Tangible book value per
share.................. 10.26 10.24 10.05 9.54 8.65 7.37 7.21
SELECTED RATIOS
Income excluding SAIF
special assessment,
acquisition and
restructuring costs and
Year 2000 expenses to:
Average assets......... 1.21% 1.25% 1.27% 1.20% 1.09% 0.97% 0.82%
Average stockholders'
equity............... 17.21% 16.99% 17.37% 16.23% 15.32% 13.37% 12.22%
Income before
extraordinary items and
the cumulative effect
of a change in
accounting for income
taxes to:
Average assets......... 1.00% 0.96% 1.19% 0.98% 1.06% 0.95% 0.90%
Average stockholders'
equity............... 13.50 12.95 16.35 13.30 14.91 13.01 11.87
Net income to:
Average assets......... 1.00 0.96 1.19 0.98 1.06 0.95 0.90
Average stockholders'
equity............... 13.50 12.95 16.35 13.30 14.91 13.01 13.45
Efficiency ratio(1)...... 68.83 66.81 57.94 60.46 63.89 69.00 71.23
Dividend payout.......... 37.50 44.74 33.90 41.22 35.43 39.22 40.34
</TABLE>
47
<PAGE> 56
<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31,
----------------------- --------------------------------------------------------------
BANCGROUP BANCGROUP BANCGROUP BANCGROUP BANCGROUP BANCGROUP BANCGROUP
PRO FORMA HISTORICAL HISTORICAL HISTORICAL HISTORICAL HISTORICAL HISTORICAL
1998 1998 1997* 1996* 1995* 1994* 1993*
---------- ---------- ---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
Average equity to average
assets................. 7.41 7.38 7.30 7.37 7.14 7.27 6.67
Allowance for possible
loan losses to total
loans (Net of unearned
income)................ 1.23% 1.22% 1.21% 1.27% 1.29% 1.54% 1.59%
</TABLE>
- ---------------
* Restated to give retroactive effect to the February 1998
pooling-of-interests business combinations with United American Holding
Corporation, First Central Bank and South Florida Banking Corp.
(1) Legislation approving a one-time special assessment to recapitalize the
Savings Association Insurance Fund ("SAIF") resulted in $4,465,000 in
expense before income taxes and $2,874,000 net of applicable income taxes in
1996.
48
<PAGE> 57
CNB HOLDING COMPANY
SELECTED FINANCIAL DATA
<TABLE>
<CAPTION>
AT AND FOR THE
THREE MONTHS ENDED
MARCH 31, AT AND FOR THE YEAR ENDED
------------------------- -------------------------------------------------------------------
1998 1997 1997 1996 1995 1994 1993
----------- ----------- ----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
AT PERIOD END:
Cash and cash equivalents..... $ 3,915,990 $ 2,359,226 $ 3,503,730 $ 4,371.064 $ 2,646,109 $ 2,340,522 $ 2,557,880
Federal Funds Sold............ 5,523,000 11,501,000 3,130,000 8,780,000 7,260,000 9,045,000
Securities available for
sale........................ 12,160,883 11,147,050
Securities held to maturity... 1,992,722 10,578,188 4,988,839 22,581,157 22,078,352 21,043,897 19,755,450
Loans, net of unearned........ $60,682,894 $56,728,867 $59,948,717 $54,152,542 $42,483,888 $37,339,178 $33,019,809
Allowance for possible loan
losses...................... (430,534) (396,483) (418,534) (378,606) (336,231) (322,186) (297,660)
----------- ----------- ----------- ----------- ----------- ----------- -----------
Loans, net.................... 60,252,360 56,332,384 59,530,183 53,773,936 42,147,657 37,016,992 32,722,149
----------- ----------- ----------- ----------- ----------- ----------- -----------
Property & Equipment.......... 3,078,190 3,023,849 3,107,632 3,051,026 2,492,629 2,312,914 1,466,653
Accrued Interest receivable... 436,993 416,531 488,686 427,567 415,544 350,795 295,615
Other Assets.................. 656,365 233,607 507,201 187,819 174,941 311,547 989,257
----------- ----------- ----------- ----------- ----------- ----------- -----------
Total assets.............. $88,016,503 $84,444,785 $83,273,321 $87,522,569 $78,735,232 $70,636,667 $66,832,004
=========== =========== =========== =========== =========== =========== ===========
DEPOSITS
Demand........................ $16,290,034 $14,717,745 $15,739,162 $11,804,903 $11,350,636 $ 9,708,129 $ 9,073,586
Interest Bearing.............. 10,234,708 9,845,127 9,442,083 16,539,432 19,216,605 20,980,532 20,047,019
Now Account................... 7,293,230 6,851,225 5,734,663 6,566,616 5,082,893 6,214,405 4,999,561
Savings....................... 4,409,430 4,001,048 3,835,413 4,349,941 4,458,230 4,952,253 4,609,366
Time Deposits .$100,000....... 8,176,710 11,030,494 8,340,376 10,960,233 5,638,683 5,032,591 2,132,364
Other Deposits................ 32,984,905 29,398,974 31,786,289 29,174,334 25,585,769 17,208,743 20,179,803
----------- ----------- ----------- ----------- ----------- ----------- -----------
Total Deposits............ $79,389,017 $75,844,613 $74,877,986 $79,395,459 $71,332,816 $64,096,653 $61,041,699
----------- ----------- ----------- ----------- ----------- ----------- -----------
Other liabilities............. $ 144,226 $ 491,817 $ 117,729 $ 212,252 $ 195,691 $ 203,920 $ 188,701
Notes Payable................. -- -- -- -- -- -- 300,000
----------- ----------- ----------- ----------- ----------- ----------- -----------
Total Liabilities......... $79,533,243 $76,336,430 $74,995,715 $79,607,711 $71,528,507 $64,300,573 $61,530,400
----------- ----------- ----------- ----------- ----------- ----------- -----------
STOCKHOLDERS' EQUITY
Common Stock.................. $ 152,835 $ 149,875 $ 152,355 $ 149,775 $ 148,550 $ 146,875 $ 145,100
Capital Surplus............... 762,363 687,443 750,603 685,143 656,968 618,443 577,618
Unrealized Gains.............. 60,723 -- 19,115 -- -- -- --
Retained Earnings............. 8,227,820 7,403,562 7,964,858 7,212,465 6,401,207 5,570,776 4,578,886
----------- ----------- ----------- ----------- ----------- ----------- -----------
Total..................... $ 9,203,741 $ 8,240,880 $ 8,886,931 $ 8,047,383 $ 7,206,725 $ 6,336,094 $ 5,301,604
----------- ----------- ----------- ----------- ----------- ----------- -----------
Treasury Stock................ (720,481) (132,525) (609,325) (132,525) -- -- --
----------- ----------- ----------- ----------- ----------- ----------- -----------
Total Equity.............. $ 8,483,260 $ 8,108,355 $ 8,277,606 $ 7,914,858 $ 7,206,725 $6,336,094.. $ 5,301,604
----------- ----------- ----------- ----------- ----------- ----------- -----------
Total Liabilities and
stockholders' equity.... $88,016,503 $84,444,785 $83,273,321 $87,522,569 $78,735,232 $70,636,667 $66,832,004
=========== =========== =========== =========== =========== =========== ===========
FOR THE PERIOD:
Total Interest Income......... $ 1,695,333 $ 1,589,424 $ 6,654,990 $ 6,182,623 45,685,540 $ 4,743,727 $ 4,184,884
Total Interest Expense........ 614,808 611,685 2,603,470 2,368,377 2,176,769 1,615,784 1,425,753
----------- ----------- ----------- ----------- ----------- ----------- -----------
Net Interest Income........... 1,080,525 977,739 4,051,520 3,814,246 3,508,771 3,127,943 2,759,131
Provision for possible loan
losses...................... 12,000 13,000 70,500 58,100 15,000 43,000 26,000
Noninterest income............ 137,934 124,688 701,329 499,042 481,431 490,653 487,585
Noninterest expense........... 624,088 574,316 2,334,447 2,007,486 1,959,777 1,967,397 1,901,864
----------- ----------- ----------- ----------- ----------- ----------- -----------
Income before income
taxes..................... 582,371 515,111 2,347,902 2,247,702 2,015,425 1,608,199 1,318,852
Income taxes.................. 100,589 176,564 881,034 846,894 743,694 616,309 482,356
----------- ----------- ----------- ----------- ----------- ----------- -----------
Net Income................ $ 481,782 $ 338,547 $ 1,466,868 $ 1,400,808 $ 1,271,731 $ 991,890 $ 836,496
=========== =========== =========== =========== =========== =========== ===========
Net Income per share.......... 3.25 2.24 9.75 9.28 8.53 6.81 5.76
=========== =========== =========== =========== =========== =========== ===========
Weighted average number of
shares outstanding.......... 148,217 151,279 150,379 150,957 149,044 145,697 145,100
=========== =========== =========== =========== =========== =========== ===========
Actual shares outstanding at
end of period............... 152,835 149,875 152,355 149,775 148,550 146,875 145,100
=========== =========== =========== =========== =========== =========== ===========
Book value per share.......... $ 60.22 $ 54.99 $ 58.33 $ 53.73 $ 48.51 $ 43.14 $ 36.54
=========== =========== =========== =========== =========== =========== ===========
</TABLE>
49
<PAGE> 58
<TABLE>
<CAPTION>
AT AND FOR THE
THREE MONTHS ENDED
MARCH 31, AT AND FOR THE YEAR ENDED
------------------------- -------------------------------------------------------------------
1998 1997 1997 1996 1995 1994 1993
----------- ----------- ----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
RATIOS AND OTHER DATA:
Return on average assets...... 2.25% 1.57% 1.72% 1.69% 1.70% 1.44% 1.31%
Return on average equity...... 23.00 16.90 18.12 18.53 18.78 17.05 17.16
Average equity to average
earning assets.............. 9.79 9.32 9.72 8.64 8.60 8.24 7.30
Net yield on average earning
assets...................... 8.99 8.84 8.72 8.76 9.26 8.56 7.94
Average earning assets to
average interest-bearing
liabilities................. 140.13 133.60 134.77 130.32 130.60 128.89 129.47
Noninterest expense to average
assets...................... 2.91 2.67 2.73 2.41 2.62 2.86 2.99
Nonperforming assets as
percent of total assets..... .13 .13 .15 .14 .00 .37 .27
Allowance for loan losses to
total loans................. .71 .70 .70 .70 .79 .86 .90
</TABLE>
50
<PAGE> 59
CNB HOLDING COMPANY
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
GENERAL
CNB's results of operations are primarily dependent upon the results of
operations of the Bank. The Bank conducts commercial banking business consisting
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 Bank's profitability depends primarily
on net interest income, which is the excess of interest income generated from
interest-bearing assets (i.e., loans, investments and federal funds sold) over
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 earned and paid on these balances. Net interest income is
dependent upon the Bank's interest-rate spread which is the excess of average
yield earned on its interest-earning assets over 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
net interest income. The interest-rate spread is impacted by interest rates and
the amounts of deposits and loans. Additionally, the Bank's profitability is
affected by such factors as the level of non-interest income and expenses and
the provision for credit losses. Non-interest income consists primarily of
service fees on deposit accounts. Non-interest expense consists primarily of
compensation of employee benefits, occupancy and equipment expenses,
professional fees, data processing costs, deposit insurance premiums paid to the
FDIC and other operating expenses.
Management's discussion of earnings and analysis of earnings and related
financial data are presented herein to assist investors in understanding the
financial condition of CNB at, and the results of operations of CNB for the
three months ended, March 31, 1998 and 1997, and the years ended December 31,
1997, 1996 and 1995. This discussion should be read in conjunction with the
consolidated financial statements and related footnotes of CNB presented
elsewhere herein.
LIQUIDITY
Liquidity management involves the ability to meet the cash flow
requirements of customers who may be depositors wanting to withdraw their funds
or borrowers needing assurance that sufficient funds will be available to meet
their credit needs. In the ordinary course of business, the Bank's cash flows
are generated from interest and fee income, as well as from loan repayments and
the maturity of investment securities held-to-maturity. In addition to cash and
due from banks, the Bank considers all securities available-for-sale and federal
funds sold as primary sources of asset liquidity. Many factors affect the
ability to accomplish these liquidity objectives successfully, including the
economic environment, and the asset/liability mix within the balance sheet, as
well as the Bank's reputation in the community. At December 31, 1997 and March
31, 1998, the Bank had commitments to originate loans totaling $7.5 million, and
$8.9 million, respectively. In addition, scheduled maturities of certificates of
deposit during the year ended December 31, 1997 and the first 3 months following
totaled $40.1 million and $41.2 million, respectively. Management believes that
the Bank has adequate resources to fund all of its commitments, that
substantially all of its existing commitments will be funded within 12 months
and, if so desired, that the Bank can adjust the rates and terms on certificates
of deposit and other deposit accounts to retain deposits in a changing interest
rate environment.
A national-chartered commercial bank is required to maintain a liquidity
reserve of at least 3% of its deposits accounts. The liquidity reserve may
consist of cash on hand, cash on demand deposit with other correspondent banks,
and other investments and short-term marketable securities as determined by the
rules of the OCC, such as federal fund sold and United States securities or
securities guaranteed by the United States. As of December 31, 1997 and March
31, 1998, the Bank's liquidity ratio was 25.22% and 23.18% respectively.
51
<PAGE> 60
CAPITAL RESOURCES
CNB's total stockholders' equity was $8.278 and $7.915 million as of
December 31, 1997 and 1996, respectively, which represents an increase of
$363,000. This increase was the result of 1997's net income of $1.467 million,
$68,040 received from stock options exercised, $142,500 in Treasury Stock issued
and a $19,115 change in the unrealized securities gain, offset by payment of
dividends in the amount of $664,975 and payment of $668,800 for stock
repurchases (pursuant to an offer by CNB to its shareholders to repurchase CNB
Common Stock at $57.00 per share in 1995). This amount also includes stock which
was acquired by CNB from shareholders who were not eligible to hold S
corporation stock. In 1997, CNB filed an election to be treated as an S
corporation under the Code as of January 1, 1998. From December 31, 1997 to
March 31, 1998, CNB's stockholders' equity increased $205,000 from $8.278
million to $8.483 million. This increase was the result of net income for the
first three months of 1998 of $481,782, stock options exercised of $12,240, and
the change in unrealized securities gain of $41,608, offset by the repurchase of
stock of $111,156 and the payment of dividends of $218,820. CNB's total
stockholders' equity was 9.94%, 9.04%, and 9.63% of the total assets as of
December 31, 1997, December 31, 1996, and March 31, 1998, respectively.
The Federal banking regulatory authorities have adopted certain "prompt
corrective action" rules with respect to depository institutions. The rules
establish five capital tiers: "well capitalized", "adequately capitalized",
"undercapitalized", "significantly undercapitalized" and "critically
undercapitalized". The various federal bank regulatory agencies have adopted
regulations to implement the capital rules by, among other things, defining the
relevant capital measures for the five capital categories. An institution is
deemed to be "well capitalized" if it has a total risk-based capital ratio of
10% or greater, a Tier 1 risked based capital ratio of 6% or greater, a Tier 1
leverage ratio of 5% or greater and is not subject to a regulatory order,
agreement, or directive to meet and maintain a specific capital level. At
December 31, 1997 and March 31, 1998, the Bank met the capital ratios of a "well
capitalized" financial institution with a total risk-based capital ratio of
16.1% and 16.7%, respectively, a Tier 1 risk-based capital ratio of 15.2% and
15.9%, respectively, and a Tier 1 leverage ratio of 8.9% and 9.4%, respectively.
Depository institutions which fall below the "adequately capitalized" category
generally are prohibited from making any capital distribution, are subject to
growth limitations, and are required to submit a capital restoration plan. There
are a number of requirements and restrictions that may be imposed on
institutions treated as "significantly undercapitalized" and, if the institution
is "critically undercapitalized", the banking regulatory agencies have the right
to appoint a receiver or conservator.
In accordance with risk capital guidelines issued by the OCC, the Bank is
required to maintain a minimum standard of total capital to risk-weighted assets
of 8%. Additionally, the OCC requires banks to maintain a minimum
leverage-capital ratio Tier 1 capital (as defined) to total assets. The
leverage-capital ratio ranges from 3% to 5% based on the bank's rating under the
regulatory rating system. The required leverage-capital ratio for CNB at
December 31, 1997 was 4.0%. The following table summarizes the regulatory
capital levels and ratios for the Bank:
<TABLE>
<CAPTION>
ACTUAL REGULATORY
RATIOS REQUIREMENT
------ -----------
<S> <C> <C>
AT MARCH 31, 1998:
Total capital to risk-weighted assets..................... 16.74% >= 8.0%
Tier 1 capital to risk-weighted assets.................... 15.88 >= 4.0
Tier 1 capital to total assets............................ 9.42 >= 4.0
AT DECEMBER 31, 1997:
Total capital to risk-weighted assets..................... 16.1 >= 8.0
Tier 1 capital to risk-weighted assets.................... 15.2 >= 4.0
Tier 1 capital to total assets............................ 8.9 >= 4.0
AT DECEMBER 31, 1996:
Total capital to risk-weighted assets..................... 14.9 >= 8.0
Tier 1 capital to risk-weighted assets.................... 14.1 >= 4.0
Tier 1 capital to total assets............................ 8.7 >= 4.0
</TABLE>
52
<PAGE> 61
<TABLE>
<CAPTION>
ACTUAL REGULATORY
RATIOS REQUIREMENT
------ -----------
<S> <C> <C>
AT DECEMBER 31, 1995:
Total capital to risk-weighted assets..................... 15.1 >= 8.0
Tier 1 capital to risk-weighted assets.................... 14.3 >= 4.0
Tier 1 capital to total assets............................ 8.2 >= 4.0
</TABLE>
RESULTS OF OPERATIONS
General
CNB's net income before taxes was $582,371 or $3.93 per share for the three
months ended March 31, 1998, as compared to $515,111 or $3.42 per share for the
three months ended March 31, 1997, an increase of $67,260. CNB's net income for
the year ended December 31, 1997 was $1,466,868, as compared to net income for
the year ended December 31, 1996 of $1,400,808 an increase of $66,060 or 4.7%.
The following table presents information regarding (i) the total dollar
amount of CNB's interest income from interest-earning assets and the resulting
average yield; (ii) the total dollar amount of interest expense on
interest-bearing liabilities and the resulting average cost, (iii) net interest
income; (iv) net interest spread; and (v) net interest margin, for the periods
indicated:
<TABLE>
<CAPTION>
THREE MONTHS ENDED MARCH 31,
---------------------------------------------------------------------
1998 1997
--------------------------------- ---------------------------------
AVERAGE YIELD/ AVERAGE YIELD/
BALANCE INTEREST RATE BALANCE INTEREST RATE
----------- ---------- ------ ----------- ---------- ------
<S> <C> <C> <C> <C> <C> <C>
ASSETS
Interest earning assets:
Loans(1)......................... $61,252,358 $1,444,688 9.43% $55,732,520 $1,298,589 9.32%
Investments...................... 13,540,814 207,852 6.14 10,729,170 150,645 5.62
Federal funds sold............... 3,230,589 42,793 5.30 10,857,956 140,181 5.16
----------- ---------- ---- ----------- ---------- ----
Total earning assets............. 78,023,761 1,695,333 8.69 77,319,646 1,589,415 8.22
---------- ---- ---------- ----
Non-earning assets............... 6,487,426 5,623,366
----------- -----------
Total assets..................... $84,511,187 $82,943,012
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Savings and NOW accounts......... $10,663,758 $ 32,894 1.23% $11,038,063 $ 34,180 1.24%
Money market accounts............ 9,823,242 49,566 2.02 11,291,736 60,318 2.14
Certificates of deposit.......... 40,689,071 533,092 5.24 39,852,002 520,008 5.22
Borrowings....................... 31,989 524 6.55 0 00.00
----------- ---------- ---- ----------- ---------- ----
Total interest bearing
liabilities.................... 61,208,060 616,076 4.03 62,181,801 614,506 3.95
----------- ---------- ---- ----------- ---------- ----
Non-interest bearing
liabilities.................... 14,922,695 12,749,704
Shareholders' equity............. 8,380,432 8,011,607
----------- -----------
Total liabilities and
shareholders equity............ $84,511,187 $82,943,012
=========== ===========
Spread and interest differential:
Net interest income.............. $1,079,257 $ 974,909
========== ==========
Interest-rate spread(2).......... 4.66% 4.27%
==== ====
Net interest margin(3)........... 5.53% 5.04%
==== ====
Ratio of average earning assets
to average interest bearing
liabilities.................... 1.23 1.12
==== ====
</TABLE>
53
<PAGE> 62
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
----------------------------------------------------------------------------------------------------
1997 1996 1995
------------------------------- ------------------------------- --------------------------------
AVERAGE YIELD/ AVERAGE YIELD/ AVERAGE YIELD/
BALANCE INTEREST RATE BALANCE INTEREST RATE BALANCE INTEREST RATE
----------- ---------- ---- ----------- ---------- ---- ----------- ---------- -----
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
ASSETS
Interest earning assets:
Loan(1).................. $58,250,103 $5,425,123 9.31% $48,692,381 $4,702,731 9.66% $40,533,686 $4,152,287 10.24%
Invest................... 14,443,684 867,639 6.01 19,517,452 1,103,832 5.66 21,294,018 1,144,793 5.38
Federal funds sold....... 6,782,249 362,228 5.34 7,677,052 373,884 4.87 7,127,818 387,875 5.44
----------- ---------- ---- ----------- ---------- ---- ----------- ---------- -----
Total earning assets....... 79,476,036 6,654,990 8.37 75,886,885 6,180,447 8.14 68,955,522 5,684,955 8.24
----------- ---------- ---- ----------- ---------- ---- ----------- ---------- -----
Non-earning assets......... 5,791,922 57,675 42,797
----------- ----------- -----------
Total assets............... $85,267,958 $75,944,560 $68,998,319
=========== =========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Savings and NOW............ 10,316,823 132,775 1.29 10,863,469 142,882 1.32 10,292,834 182,030 1.77
Money market............... 10,612,701 221,590 2.09 15,722,519 351,380 2.23 16,360,189 428,502 2.62
CD's....................... 42,262,362 2,259,927 5.35 36,174,803 1,887,743 5.22 29,109,173 1,571,142 5.40
Borrowings................. 8,192 500 6.10 15,691 876 5.58 21,130 1,302 6.16
----------- ---------- ---- ----------- ---------- ---- ----------- ---------- -----
Total interest-bearing
liabilities.............. 63,200,078 2,614,792 4.14 62,776,483 2,382,881 3.80 55,783,326 2,182,976 3.91
----------- ---------- ---- ----------- ---------- ---- ----------- ---------- -----
Non-interest bearing
liabilities.............. 13,971,648 12,512,050 10,810,476
Shareholders' equity....... 8,096,232 6,771,410 4,875,496
----------- ----------- -----------
Total liabilities and
shareholders' equity..... $85,267,958 $82,059,943 $71,469,298
=========== =========== ===========
Spread and interest
differential:
Net interest income...... $4,040,198 $3,797,566 $3,501,979
========== ========== ==========
Interest-rate spread(2).... 4.23% 4.34% 4.33%
==== ==== =====
Net Interest margin(3)..... 5.08% 5.00% 5.08%
==== ==== =====
Ratio of average earning
assets to average
interest bearing
liabilities.............. 1.20% 1.07% 1.07%
=== === ===
</TABLE>
- ---------------
(1) Includes loans on non-accrual status.
(2) Interest-rate spread represents the excess of the average yield on
interest-earning assets over the average cost of interest-bearing
liabilities.
(3) Net interest margin represents net interest income (annualized) divided by
average interest-earning assets.
Net Interest Income
Net interest income, which constitutes the principal source of income for
CNB, represents the excess of interest income on interest-earning assets over
interest expense on interest-bearing liabilities. The principal interest earning
assets are federal funds sold, investment securities and loans receivable.
Interest-bearing liabilities primarily consist of time deposits,
interest-bearing checking accounts ("NOW accounts"), savings deposits and money
market accounts. Funds attracted by these interest-bearing liabilities are
invested interest-earning assets. Accordingly, net interest income depends upon
the volume of average interest-earning assets and average interest-bearing
liabilities and the interest rates earned or paid on them.
CNB's net interest income was $1.1 million for the three months ended March
31, 1998 compared to $1.0 million for the three months ended March 31, 1997, an
increase of $.1 million or 10.00%. The change resulted from an increase in
earning assets of $3.5 million or 4.8%. Net interest income was $4.0 million for
the year ended December 31, 1997 compared with $3.8 million for the year ended
December 31, 1996, an increase of $0.2 million or 5.2%.
54
<PAGE> 63
During the three month period ending March 31, 1998, interest income on
investments and federal funds sold decreased by $40,183 from the three month
period ending March 31, 1997. This decrease was attributable almost entirely to
a decrease of $4.8 million in average balances of investments and federal funds
sold from $21.5 million for the three months ending March 31, 1997 to $16.7
million for the period ending March 31, 1998. Interest income on investments and
federal funds sold decreased $247,850 from the year ended December 31, 1996 to
year ended December 31, 1997. Most of this decrease was attributable to a
decrease in investable federal fund balances.
During the three months ending March 31, 1998, interest expense on interest
bearing liabilities increased by $3,123 over the three month period ending March
31, 1997. Most of this increase was attributable to an increase of $1.1 million
in average interest bearing liabilities from $61.1 million for the three months
ended March 31, 1997, to $62.2 million for three months ended March 31, 1998.
Interest expense on interest bearing liabilities increased $.2 million from $2.4
million for the year ended December 31, 1996, to $2.6 million for the year ended
December 31, 1997. This increase was primarily attributable to an increase in
certificate of deposit rates paid. Several special certificate of deposit
programs were promoted offering premium rates with the objective of increasing
deposits. The overall result was an increase in the net interest spread of 40
basis points to 4.66% for the three month period ending March 31, 1998 from
4.27% for the three months ending March 31, 1997.
Provision for Loan Losses
The provision for loan losses is charged to earnings to bring the allowance
for loan losses to a level deemed appropriate by management and is based upon
historical experience, the volume and type of lending conducted by CNB, the
amounts of non-performing loans, general economic conditions, particularly as
they relate to CNB's market area, and other factors related to the
collectibility of CNB's loan portfolio. For the three months ended March 31,
1998, the provision for loan losses was $12,000, as compared to $13,000 for the
three months ended March 31, 1997. This decrease of $1,000 was attributable
solely to management's desire to maintain reserves at consistent level. For the
year ended December 31, 1997, the provision for loan losses was $70,500 as
compared to $58,100 for the year ended December 31, 1996, an increase of
$12,400.
Noninterest Income
Noninterest income is primarily composed of deposit service charges and
fees and mortgage origination fees. Noninterest income was $138,000 for the
three months ended March 31, 1998 versus $125,000 for the three months ended
March 31, 1997, or an increase of $13,000, or 10.4%. This increase was
attributable to service charges and fees on deposit accounts resulting from a
10.15% increase in demand deposits, coupled with an attempt to minimize waived
service charges. During the year ended December 31, 1997, noninterest income
increased to $700,000 from $499,000 during the year ended December 31, 1996, an
increase of $201,000, or 40.3%. Of this increase, $123,000 or 25.0%, was due to
the gain on sale of assets. The increase also was due to management's ongoing
attempts to minimize waived service charges.
Noninterest Expenses
During the three months ended March 31, 1998, noninterest expenses
increased to $624,000 from $574,000 during the three months ended March 31,
1997, or an increase of 8.7%. During the year ended December 31, 1997,
noninterest expenses increased to $2.3 million from $2.0 million during the year
ended December 31, 1996, an increase of $0.3 million, or 15.0%. The following
sets forth additional information on certain noninterest expense categories
which had significant changes.
During the three months ended March 31, 1998, compensation and benefits
were 333,000 compared to $319,000 for the three months ended March 31, 1997, an
increase of $14,000 or 4.4%. During the year ended December 31, 1997,
compensation and benefits increased to $1.3 million from $1.1 million during the
year ended December 31, 1996, an increase of $200,000 or 18.2%. These changes
were primarily due to an increase in the number of employees at the Bank
commensurate with the growth of the Bank and annual compensation and benefit
increases for employees.
55
<PAGE> 64
Occupancy and related furniture and equipment expenses were $84,113 during
the three months ended March 31, 1998 compared to $82,520 during the three
months ended March 31, 1997 an increase of $1,593 or 1.9%. For the year ended
December 31, 1997, occupancy and related furniture and equipment expenses
decreased to $338,987 compared to $393,648 for the period ending December 31,
1996, a decrease of $54,661 or 13.9%. The reason for the moderate increase in
occupancy related expenses for the year to date periods ending March 31, 1997
and March 31, 1998 related to the full depreciation of assets, and the purchase
of new equipment which resulted in lower repair and maintenance expense.
Other Noninterest Expense
For the three months ended March 31, 1998, other noninterest expense
increased to $207,274 from $172,329 for March 31, 1997, an increase of $34,945
or 20.3%. For the year ended December 31, 1997, other noninterest expense
increased to $702,766 from $475,160 at December 31, 1996, an increase of
$227,606 or 47.9%. The cause for the increase was due mainly to the cost of a
data processing system conversion in July 1997 and increased costs of contract
services.
FDIC premium expense increased to $2,414 for the three months ended March
31, 1998 from $1,902 for the period ended March 31, 1997, an increase of $512 or
26.9% due to higher FDIC rates in 1998. For the year ended December 31, 1997,
FDIC premium expense was $9,220 up $7,220 from $2,000 for the year ended
December 31, 1996. The increase was due to year ended December 31, 1996 lower
FDIC assessments, attributable to a significant reduction in FDIC premiums
following recapitalization of the insurance fund in 1996. FDIC premiums
continued to increase in 1998 due to increased deposit balances.
Income Tax Provision
During the three months ended March 31, 1998 the income tax provision
decreased to $100,589 from $176,564 for the three month period ended March 31,
1997, a decrease of $75,975 or 43.03%. The decrease was due to CNB electing to
be treated as an S Corporation for tax purposes as of January 1, 1998. The
income tax expense reflected in the three months ended March 31, 1998 was the
write-off of a net deferred tax asset carried from prior years when the Company
was a taxpaying corporation. During the years ended December 31, 1997 and 1996,
CNB recorded a provision for income taxes of $881,034 and $846,894,
respectively, reflecting a fully effective income tax rate of 37.5% in 1997 and
37.7% in 1996.
Asset/Liability Management
A principal objective of the Bank's asset/liability management strategy is
to minimize its exposure to changes in interest rates by matching the maturity
and repricing horizons of interest-earning assets and interest-bearing
liabilities. The strategy is overseen in part through the direction of the
Bank's Asset and Liability Committee (the "ALCO Committee") which establishes
policies and monitors results to control interest rate sensitivity.
Management evaluates interest rate risk and then formulates guidelines
regarding asset generation and repricing, funding sources and pricing, and
off-balance sheet commitments in order to maintain interest rate risk within
target levels for the appropriate level of risk determined by the ALCO
Committee.
As a part of the Bank's interest-rate risk management policy, the ALCO
Committee examines the extent to which its assets and liabilities are
"interest-rate sensitive" and monitors the Bank's 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 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 interest rate sensitive assets. During a period of
rising interest rates, a negative gap would tend to adversely affect net
interest income. During a period of falling interest rates, a negative gap would
tend to result in an increase of net interest income, while a positive gap would
tend to adversely affect net interest income.
56
<PAGE> 65
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 Committee 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 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-interest 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, repayments (on loans and mortgage-backed securities)
and early withdrawal (of deposit accounts) levels also could deviate
significantly from those assumed in calculating the interest gap. The ability of
many borrowers to service their debts also may decrease in the event of an
interest rate increase.
Management's strategy is to maintain a relatively balanced interest-rate
risk position to protect its net interest margin from market fluctuations. To
this end, the ALCO Committee reviews, on a monthly basis, the maturity and
repricing of assets and liabilities.
Management believes that the type and the amount of the Bank's interest
rate sensitive liabilities may reduce the potential impact that a rise in
interest rates might have on the Bank's net interest income. The Bank seeks to
maintain a core deposit base by providing quality services to its customers
without significantly increasing its cost of funds or operating expenses. The
Bank also maintains a portfolio of liquid assets in order to reduce its overall
exposure to changes in market interest rates. At December 31, 1997 and March 31,
1998, the Bank's liquidity ratios were 25.22% and 23.18%, respectively. The Bank
also maintains a "floor", or minimum rate, on certain of its floating or prime
based loans. These floors allow the Bank to continue to earn a higher rate when
the floating rate falls below the established floor rate.
The following table sets forth certain information on the Bank's
interest-earning assets and interest-bearing liabilities at March 31, 1998 that
are estimated to mature or are scheduled to reprice within the periods shown.
<TABLE>
<CAPTION>
MORE
0 TO 30 31 TO 90 91 TO 365 ONE YEAR TO THAN
DAYS DAYS DAYS FIVE YEARS FIVE YEARS TOTAL
-------- -------- --------- ----------- ---------- -------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
Earning assets:
Loans(1).......................... $ 2,714 $18,481 $ 5,903 $32,733 $ 852 $60,683
Investments(2).................... 0 0 987 10,043 3,124 14,154
Federal funds sold................ 5,523 0 0 0 0 5,523
-------- ------- -------- ------- ------- -------
Total interest-earning
assets.................. 8,237 18,481 6,890 42,776 3,976 80,360
-------- ------- -------- ------- ------- -------
Interest bearing liabilities:
Savings and NOW accounts.......... 11,702 0 0 0 0 11,702
Money market deposits............. 10,235 0 0 0 0 10,235
Certificates of deposit(3)........ 649 11,612 19,000 9,901 0 41,162
Borrowings........................ 0 0 0 0 0 0
-------- ------- -------- ------- ------- -------
Total interest-bearing
liabilities............. 22,586 11,612 19,000 9,901 0 63,099
-------- ------- -------- ------- ------- -------
Rate sensitivity GAP................ (14,349) 6,869 (12,110) 32,875 3,976 $17,260
======== ======= ======== ======= ======= =======
Cumulative rate sensitivity GAP..... $(14,349) $(7,480) $(19,590) $13,285 $17,261
======== ======= ======== ======= =======
</TABLE>
- ---------------
(1) In preparing the table above, adjustable-interest rate loans were included
in the period in which the interest rates are next scheduled to adjust
rather than in the period in which the loans mature. Fixed-interest rate
loans were scheduled according to their contractual maturities.
57
<PAGE> 66
(2) In preparing the table above, adjustable-interest rate investment securities
were included in the period in which the interest rates are next scheduled
to adjust rather than in the period in which the investment securities
mature. Fixed-interest rate investment securities were scheduled to their
contractual maturities.
(3) Time deposits were scheduled according to their contractual maturities.
FINANCIAL CONDITION
Lending Activities
A significant source of CNB's income is the interest earned on its loan
portfolio. The following table shows the relationship of loans to total assets
for the Bank as of the dates indicated:
<TABLE>
<CAPTION>
AT DECEMBER 31,
AT MARCH 31, -----------------
1998 1997 1996
------------ ------- -------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
Total assets........................................... $88,017 $83,273 $87,523
Total loans, net....................................... 60,252 59,530 53,774
Loans as % of total assets............................. 68.5% 71.5% 61.4%
</TABLE>
Lending activities are conducted pursuant to a written policy which has
been adopted by the Bank. Each loan officer has defined lending authority beyond
which loans, depending upon their type and size, must be reviewed and approved
by a loan committee comprised of certain officers and directors of the Bank.
The composition of the Bank's loan portfolio was as follows at the dates
indicated:
<TABLE>
<CAPTION>
AS OF MARCH 31,
------------------------------------
1998 1997
---------------- ----------------
% OF % OF
AMOUNT TOTAL AMOUNT TOTAL
------- ------ ------- ------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C>
Commercial........................................ $ 4,073 6.7% $ 7,245 12.7%
Real estate....................................... 53,264 87.7 48,423 85.2
Consumer and other................................ 3,429 5.6 1,181 2.1
------- ------ ------- ------
Total loans receivable.................. $60,766 $56,849
======= =======
Less:
Unearned income and fees........................ 83 121
Allowance for loan losses....................... 431 396
------- -------
Loans, net...................................... $60,252 100.00% $56,332 100.00%
======= ====== ======= ======
</TABLE>
<TABLE>
<CAPTION>
AS OF DECEMBER 31,
------------------------------------------------------------------------------------------------
1997 1996 1995 1994 1993
---------------- ---------------- ---------------- ---------------- ----------------
% OF % OF % OF % OF % OF
AMOUNT TOTAL AMOUNT TOTAL AMOUNT TOTAL AMOUNT TOTAL AMOUNT TOTAL
------- ------ ------- ------ ------- ------ ------- ------ ------- ------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Commercial........... $ 3,986 6.61% $ 4,453 8.20% $ 4,674 10.63% $ 2,749 7.32% $ 2,505 7.55%
Construction......... 0 0 0 0 0 0 0 0 0 0
Real estate.......... 52,711 87.46 45,525 83.85 33,659 79.22 31,164 83.04 27,339 82.29
Consumer and other... 3,572 5.93 4,318 7.95 4,334 10.15 3,618 9.64 3,376 10.16
------- ------ ------- ------ ------- ------ ------- ------ ------- ------
Total loans
receivable......... 60,269 100.0% 54,296 100.0% 42,667 100.0% 37,531 100.0% 33,220 100.0%
====== ====== ====== ====== ======
Less:
Unearned income and
fees............. (320) (144) (184) (193) (212)
Allowance for loan
losses........... (419) (378) (336) (322) (298)
------- ------- ------- ------- -------
Loans, net......... $59,530 $53,774 $42,147 $37,016 $32,710
======= ======= ======= ======= =======
</TABLE>
58
<PAGE> 67
As of March 31, 1998, the maturities and interest rate sensitivities of the
Bank's loan portfolio, based on remaining scheduled principal repayments, were
as follows:
<TABLE>
<CAPTION>
DUE IN DUE AFTER
ONE ONE YEAR
YEAR THROUGH DUE AFTER
OR LESS FIVE YEARS FIVE YEARS TOTAL
------- ---------- ---------- -------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C>
Commercial...................................... $ 1,891 $ 2,182 $ 0 $ 4,073
Construction.................................... 0 0 0 0
Real Estate..................................... 8,927 39,652 4,685 53,264
Consumer and other.............................. 995 2,434 0 3,429
------- ------- ------- -------
Total................................. $11,813 $44,268 $ 4,685 $60,766
======= ======= ======= =======
Loans with maturities over one year
Fixed interest rate............................. $31,694 $ 1,072 $32,766
Variable interest rate.......................... 7,357 8,830 16,187
------- ------- -------
Total maturities greater than one
year................................ $39,051 $ 9,902 $48,953
======= ======= =======
</TABLE>
ASSET QUALITY
Management seeks to maintain quality asset through sound underwriting and
sound lending practices. The largest category of loans in the Bank's loan
portfolio are collateralized by real estate mortgages. As of March 31, 1998 and
December 31, 1997, 87.55%, and 87.45%, respectively, of the total loan portfolio
were collateralized by this type of property. The level of delinquent loans and
other real estate owned also is relevant to the credit quality of a loan
portfolio.
The real estate mortgage loans in the Bank's portfolio consist of fixed-and
adjustable-interest rate loans which were originated at prevailing market
interest rates. The Bank's policy has been to originate real estate mortgage
loans predominantly in its primary market area. Real estate mortgage loans are
generally made in amounts up to 80% of the appraised value of the property
securing the loan. In marketing real estate loans, the Bank primarily considers
the financial resources and "debt to income ratio" of the borrower, the
marketability of the collateral and the Bank's lending experience with the
borrower.
The Bank provides its real estate loans on the basis of the borrower's
ability to make repayment from his or her employment and other income, and which
are collateralized by real property whose value tends to be more readily
ascertainable.
Commercial loans typically are underwritten on the basis of borrower's
ability to make repayment from the cash flow of his or her business and,
generally, are collateralized by business assets, such as accounts receivable,
equipment and inventory. As a result, the availability of funds for the
repayment of commercial loans may be substantially dependent on the success of
the business itself, which is subject to adverse conditions in the economy.
Commercial loans also entail certain additional risks since they usually involve
large loan balances to single borrowers or a related group of borrowers,
resulting in a more concentrated loan portfolio. Further, the collateral
underlying the loans may depreciate over time, cannot be appraised with as much
precision as residential real estate, and may fluctuate in value based on the
success of the business.
Loan concentrations are defined as amounts loaned to a number of borrowers
engaged in similar activities which would cause them to be similarly impacted by
economic or other conditions. The Bank, on a routine basis, monitors these
concentrations in order to consider adjustments in its lending practices to
reflect economic conditions, loan to deposit ratio, and industry trends.
Management believes as of March 31, 1998 and December 31, 1997, that the Bank
had no significant concentration of risk. Bank loan customers are principally
closely-held businesses and residents concentrated in the East Coast of Florida
area and, as such, the debtors' ability to honor their contract is substantially
dependent upon the general economic conditions of the region. Most of the Bank's
business activity is with customers located within the East Coast of Florida.
The loan committee of the Board of Directors of the Bank concentrates in
efforts and resources, and that of its senior management and lending officers,
on loan review and underwriting procedures. Internal controls
59
<PAGE> 68
include ongoing reviews of loans made to monitor documentation and the existence
and valuations of collateral. In addition, management of the Bank has
established a review process with the objective of identifying, evaluating, and
initiating necessary corrective action for marginal loans. The goal of the loan
review process is to address classified and non-performing loans as early as
possible.
CLASSIFICATION OF ASSETS
Generally, interest on loans accrues and is credited to income based upon
the principal balance outstanding. It is management's policy to discontinue the
accrual of interest income and classify a loan in non-accrual status when in the
opinion of management, principal or interest is not likely to be paid in
accordance with the terms and obligation or when principal or interest is past
due 90 days, unless in the determination of management, the principal and
interest on the loan are well collateralized and in the process of collection.
Consumer installment loans are generally charged-off when a loss is realized
unless adequately collateralized and in the process of collection. Loans are not
returned to accrual status until principal and interest payments are brought
current and future payments appear reasonably certain. Interest accrued and
unpaid at the time a loan is placed on non-accrual status is charged against
interest income.
Real estate acquired by the Bank as a result of foreclosure or by deed in
lieu of foreclosure is classified as other real estate owned ("OREO"). OREO
properties are recorded at the lower of cost or fair value less estimated
selling costs, and the estimated loss, if any, is charged to the allowance for
credit losses at the time it is transferred to OREO. Further write-downs in OREO
are recorded at the time management believes additional deterioration in value
has occurred and are charged to non-interest expense.
Unlike residential mortgage loans, which, generally, are made on the basis
of the borrower's ability to make repayment from his or her employment and other
income, and which are collateralized by real property whose value tends to be
more readily ascertainable, commercial loans typically are underwritten on the
basis of borrower's ability to make repayment from the cash flow of his or her
business and, generally, are collateralized by business assets, such as accounts
receivable, equipment and inventory. As a result, the availability of funds for
the repayment of commercial loans may be substantially dependent on the success
of the business itself, which is subject to adverse conditions in the economy.
Commercial loans also entail certain additional risks since they usually involve
large loan balances to single borrowers or a related group of borrowers,
resulting in a more concentrated loan portfolio. Further, the collateral
underlying the loans may depreciate over time, cannot be appraised with as much
precision as residential real estate, and may fluctuate in value based on the
success of the business.
60
<PAGE> 69
Loans on non-accrual status and other real estate owned, the ratio of such
loans and real estate owned to total assets, and certain other related
information was as follows at the dates indicated:
<TABLE>
<CAPTION>
AT MARCH 31, AT DECEMBER 31,
------------- ----------------
1998 1997 1997 1996
----- ----- ------ ------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C>
Loans on non-accrual status:
Commercial............................................ $ 0 $ 0 $ 0 $ 0
Construction.......................................... 0 0 0 0
Real estate........................................... 194 62 97 63
Installment........................................... 8 24 9 24
---- ---- ---- ----
Total loans on non-accrual status............. 202 86 106 87
Accruing loans over 90 days delinquent.................. 0 0 0 0
---- ---- ---- ----
Total non-performing loans.................... 202 86 106 87
Other real estate owned:................................ 0 0 0 0
---- ---- ---- ----
Total non-performing assets................... $202 $ 86 $106 $ 87
==== ==== ==== ====
As a percentage of total assets:
Total non-performing loans.................... .13% .15% .15% .14%
==== ==== ==== ====
Total non-performing assets................... 0% 0% 0% 0%
==== ==== ==== ====
</TABLE>
As of March 31, 1998 and December 31, 1997, loans on non-accrual status
totaled $193,824 and $97,149, respectively. Additionally, as of March 31, 1998,
loans over 30 days delinquent amounted to $339,931.
ALLOWANCE FOR LOAN LOSSES
In originating loans, the Bank recognizes that credit losses will be
experienced and that the risk of loss will vary with, among other things, the
type of loan being made, the credit worthiness of the borrower over the term of
the loan and, in the case of a collateralized loan, the quality of the
collateral for the loan, as well as general economic conditions. As a matter of
policy, the Bank maintains an allowance for loan losses. The amount provided for
loan losses during any period is based on an evaluation by management of the
amount needed to maintain the allowance at a level sufficient to cover
anticipated losses and the inherent risk of losses in the loan portfolio. In
determining the amount of the allowance, management considers the dollar amount
of loans outstanding, its assessment of known or potential problem loans,
current economic conditions, the risk characteristics of the various
classifications of loans, the credit record of its borrowers, the fair market
value of underlying collateral and other factors. Specific allowances are
provided for individual loans when the ultimate collection is considered
questionable by management after reviewing the current status of loans which are
contractually past due and considering the fair value of the underlying
collateral for each loan.
Management continues to actively monitor the Bank's asset quality and to
charge-off loans against the allowance for loan losses when appropriate or to
provide specific loss allowances when necessary. Although management believes
that it uses the best information available at the time to make determinations
with respect to allowance for loan losses, subsequent adjustments to the
allowance for loan losses may be necessary if future economic conditions or
other facts differ from the assumptions used in making the initial
determinations or if regulatory policies change.
During the three months ended March 31, 1998, the allowance for loan losses
was $430,534, compared to $418,534 during the year ended December 31, 1997, or
an increase of $12,000. Total charged off loans, net of recoveries, were $30,572
for 1997 and $15,725 for 1996. During the three months ended March 31, 1998,
there were no recoveries or charged off loans.
61
<PAGE> 70
The activity in the Bank's allowance for loan losses was as follows at the
dates indicated:
<TABLE>
<CAPTION>
FOR THE THREE
MONTHS ENDED
MARCH 31, FOR THE YEAR ENDED DECEMBER 31,
----------------- -----------------------------------------------
1998 1997 1997 1996 1995 1994 1993
------- ------- ------- ------- ------- ------- -------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C>
Allowance at beginning of period.......... $ 418 $ 378 $ 378 $ 336 $ 323 $ 292 $ 294
Loans charged off:
Commercial.............................. 0 0 20 0 0 0 3
Construction............................ 0 0 0 0 0 0 0
Real estate............................. 0 0 0 0 0 48 20
Installment............................. 0 0 19 16 2 0 8
------- ------- ------- ------- ------- ------- -------
Total loans charged-off.......... 0 0 39 16 2 48 31
------- ------- ------- ------- ------- ------- -------
Recoveries:
Commercial.............................. 0 0 0 0 0 0 0
Construction............................ 0 0 0 0 0 0 0
Real estate............................. 0 6 6 0 0 33 1
Installment............................. 0 0 3 0 0 3 2
------- ------- ------- ------- ------- ------- -------
Total recoveries................. 0 6 9 0 0 36 3
------- ------- ------- ------- ------- ------- -------
Net loans charged-off................... 0 (6) 30 16 2 12 28
------- ------- ------- ------- ------- ------- -------
Provision for loan losses charged to
expense............................... 12 13 70 58 15 43 26
------- ------- ------- ------- ------- ------- -------
Allowance at end of period.............. $ 430 $ 397 $ 418 $ 378 $ 336 $ 323 $ 292
======= ======= ======= ======= ======= ======= =======
Net charge-offs as a percentage of
average loans outstanding............. 0% 0% 0% 0% 0% 0% 0%
======= ======= ======= ======= ======= ======= =======
Allowance to period-end loans
receivable............................ .71% .70% .70% .70% .79% .86% .90%
======= ======= ======= ======= ======= ======= =======
Average loans outstanding............... $61,252 $55,733 $58,250 $48,692 $40,534 $35,179 $33,051
======= ======= ======= ======= ======= ======= =======
Period-end gross loans receivable....... $60,683 $56,728 $59,948 $54,153 $42,484 $37,339 $33,019
======= ======= ======= ======= ======= ======= =======
</TABLE>
INVESTMENT SECURITIES
The total investment portfolio decreased to $16.1 million as of December
31, 1997, from $22.6 million as of December 31, 1996, a decrease of $6.5 million
or 28.8%. The decrease in investment securities in 1997 was due primarily to
increased loan demand and a large deposit account closing. From December 31,
1997 to March 31, 1998, the total investment portfolio decreased $2.0 million or
12.3% due to securities being called, increased federal funds sold and increased
loan volume.
The following table sets forth the carrying value of the Bank's investment
portfolio at the dates indicated:
<TABLE>
<CAPTION>
DECEMBER 31,
MARCH 31, -------------------------
1998 1997 1996
----------- ----------- -----------
<S> <C> <C> <C>
Securities Held to Maturity:
U.S. treasury................................. $ 0 $ 0 $ 2,013,209
U.S. government agency........................ 1,992,722 4,988,839 20,480,848
----------- ----------- -----------
Total securities held to maturity..... 1,992,722 4,988,839 22,494,057
Securities Available for Sale:
U.S. treasury securities...................... $ 7,042,315 $ 6,041,260 $ 0
U.S. government agency obligations............ 1,008,130 1,008,341 0
CMO-fixed rate................................ 3,036,500 3,022,811 0
MBS-variable rate............................. 986,838 987,539 0
Federal reserve bank stock...................... 87,100 87,100 87,100
----------- ----------- -----------
Total available for sale securities... $12,160,883 $11,147,051 $ 87,100
=========== =========== ===========
Total portfolio....................... $14,153,605 $16,135,890 $22,581,157
=========== =========== ===========
</TABLE>
62
<PAGE> 71
The Bank has adopted Statement of Financial Accounting Standards No. 115
("FAS 115"), which requires companies to classify investments securities as
either held-to-maturity, available-for-sale, or trading securities. Securities
classified as held-to-maturity are carried at amortized cost. Securities
classified as available-for-sale are reported at fair value, with unrealized
gains and losses, net of tax effect, reported as a separate component of
stockholders' equity. Securities classified as trading securities are recorded
at fair value, with unrealized gains and losses included in earnings.
The maturity distribution and certain other information pertaining to
investment securities was as follows at March 31, 1998:
<TABLE>
<CAPTION>
AMORTIZED ESTIMATED
COST FAIR VALUE YIELD
----------- ----------- -----
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
Securities Held to Maturity
U.S. Government Agency
Due within one year.............................. $ 0 $ 0 0%
Due one to five years............................ 1,992,722 2,000,940 6.36
Securities Available for Sale
U.S. Treasury Securities
Due within one year.............................. 0 0 0
Due one to five years............................ 6,999,723 7,042,314 5.96
U.S. Government Agency
Due within one year.............................. 0 0 0
Due one to five years............................ 1,000,000 1,008,130 6.55
CMO-Fixed Rate
Due within one year.............................. 0 0 0
Due one to five years............................ 0 0 0
Due five to ten years............................ 1,012,977 1,015,300 6.28
Due after ten years.............................. 2,028,234 2,021,200 6.46
MBS-Variable Rate
Due within one year.............................. 0 0 0
Due one to five years............................ 0 0 0
Due five to ten years............................ 0 0 0
Due after ten years.............................. 972,125 986,838 5.55
Federal Reserve Bank Stock............................ 87,100 87,100 0
----------- ----------- ----
Total securities............................ $14,092,881 $14,161,822 6.12%
=========== =========== ====
</TABLE>
DEPOSIT ACTIVITIES
Deposits are the major source of the Bank's funds for lending and other
investments purposes. Deposits are attracted principally from within the Bank's
primary market area through the offering of a broad variety of deposit
instruments including checking accounts, money market accounts, regular savings
accounts, term certificate accounts (including "jumbo" certificates in
denominations of $100,000 or more) and retirement savings plans.
63
<PAGE> 72
The distribution by type of the Bank's deposit accounts was as follows at
the dates indicated:
<TABLE>
<CAPTION>
AS OF DECEMBER 31,
AS OF MARCH 31, ------------------------------------------------------------
1998 1997 1996 1995
------------------ ------------------ ------------------ ------------------
% OF % OF % OF % OF
AMOUNT DEPOSITS AMOUNT DEPOSITS AMOUNT DEPOSITS AMOUNT DEPOSITS
------- -------- ------- -------- ------- -------- ------- --------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Demand Deposits.................. $16,290 20.52% $15,739 21.02% $11,805 14.87% $11,351 15.91%
NOW accounts..................... 7,293 9.19 5,735 7.66 6,567 8.27 5,083 7.13
Money market accounts............ 10,235 12.89 9,442 12.61 16,539 20.83 19,217 26.94
Savings accounts................. 4,409 5.55 3,836 5.12 4,350 5.48 4,458 6.25
Time deposits:
>=$100,000..................... 32,985 41.55 31,786 42.45 29,174 36.75 25,585 35.87
$100,000....................... 8,177 10.30 8,340 11.14 10,960 13.80 5,639 7.90
------- ------ ------- ------ ------- ------ ------- ------
Total deposits.......... $79,389 100.00% $74,878 100.00% $79,395 100.00% $71,333 100.00%
======= ====== ======= ====== ======= ====== ======= ======
</TABLE>
Time deposits included individual retirement accounts ("IRAs") totaling $42
million, $40 million and $40 million at March 31, 1998 and December 31, 1997 and
1996, respectively, all of which were in the form of certificates of deposit.
The Bank's deposits decreased to $75 million as of December 31, 1997, from
$79.5 million as of December 31, 1996, a decrease of $4.5 million or 5.7%. The
major contributing factor in the decrease was the loss of one of the Bank's
largest commercial depositor to a competitor bank. The overall relationship on
the deposit side was approximately $8 million to $9 million dollars. Excluding
the loss of that customer, the Bank's deposits increased approximately $4.3
million. This growth can be attributed to providing deposit products at
competitive prices.
Maturity terms, service fees and withdrawal penalties are established by
the Bank on a periodic basis. The determination of rates and terms is predicated
on funds acquisition and liquidity requirements, rates paid by competitors,
growth goals and federal regulations.
FDIC regulations limit the ability of certain insured depository
institutions to accept, renew, or rollover deposits by offering rates of
interest which are significantly higher than the prevailing rates of interest on
deposits offered by other insured depository institutions having the same type
of charter in such depository institutions' normal market area. Under these
regulations, "well capitalized" depository institutions may accept, renew, or
roll over deposits at such rates without restriction, "adequately capitalized"
depository institutions may accept, renew or roll over deposits at such rates
with a waiver from the FDIC (subject to certain restrictions on payments of
rates), and "undercapitalized" depository institutions may not accept, renew or
roll over deposits at such rates. As of December 31, 1997 and March 31, 1998,
the Bank met the definition of a "well capitalized" depository institution.
Bank management believes the Bank does not have a concentration of deposits
from any one source, the loss of which would have a material adverse effect.
Management believes that substantially all of the Bank's depositors are
residents in its primary market area and it currently does not accept brokered
deposits.
Time deposits of $100,000 and over, and other large deposit accounts tend
to be short-term in nature and more sensitive to changes in interest rates than
other types of deposits and, therefore, may be a less stable source of funds. In
the event that existing short-term deposits are not renewed, the resulting loss
of the deposited funds could adversely affect the Bank's liquidity. In a rising
interest rate market, such short-term deposits may prove to be a costly source
of funds because their short-term nature facilitates renewal at increasingly
higher interest rates, which may adversely affect the Bank's earnings. However,
the converse is true in a falling interest-rate market where such short-term
deposits would be more favorable.
64
<PAGE> 73
Time deposits of $100,000 and over mature as follows at the dates
indicated:
<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31,
1998 1997
--------- ------------
(DOLLARS IN THOUSANDS)
<S> <C> <C>
Due in three months or less................................. $2,619 $3,054
Due from three months to six months......................... 0 0
Due from six months to one year............................. 3,689 5,075
Due over one year........................................... 1,869 211
------ ------
Total time deposits $100,000 and over............. $8,177 $8,340
====== ======
</TABLE>
IMPACT OF INFLATION AND CHANGING PRICES
The financial statements and related data concerning CNB have been prepared
in accordance with generally accepted accounting principles which require the
measurement of financial position and operating results in terms of historical
dollars without considering changes in the relative purchasing power of money
over time due to inflation. The principal element of CNB's earnings is interest
income which may be significantly affected by the level of inflation and by
government monetary and fiscal policies adopted in response to inflationary or
deflationary pressures.
Inflation affects the reported financial condition and results of
operations of all companies. However, the majority of assets and liabilities of
financial institutions are monetary in nature and therefore differ greatly from
most commercial and industrial companies that have significant investments in
fixed assets or inventories. Inflation does have an important impact on the
growth of total assets and the resulting need to increase equity capital at
higher than normal rates in order to maintain an appropriate equity to assets
ratio. Inflation also is a factor which may influence interest rates, yet the
frequency and magnitude of interest rate fluctuations do not necessarily
coincide with changes in the general inflation rate. In an effort to cope with
the effects of inflation,CNB attempts to monitor its interest-rate sensitivity
gap position, as discussed above. In addition, a periodic review of banking
services and products is conducted to adjust pricing in view of current costs.
65
<PAGE> 74
BUSINESS OF BANCGROUP
GENERAL
BancGroup is a bank holding company registered under the BHCA. It was
organized in 1974 under the laws of Delaware and has operated under its current
name and management since 1981. BancGroup operates Colonial Bank as its wholly
owned commercial banking subsidiary in the states of Alabama, Georgia, Florida
and Tennessee. Colonial Bank, an Alabama banking corporation, conducts a full
service banking business through 134 branches in Alabama, five branches in
Tennessee, 13 branches in Georgia and 75 branches in Florida. Colonial Mortgage
Company, a subsidiary of Colonial Bank in Alabama, is a mortgage banking company
which services approximately $13.8 billion in residential loans and which
originates mortgages in 44 states through four divisional offices. At March 31,
1998, BancGroup had consolidated total assets of $8.0 billion and consolidated
stockholders' equity of $571.6 million. BancGroup's commercial banking loan
portfolio is comprised primarily of commercial real estate loans (28%) and
residential real estate loans (42%), a significant portion of which is located
within the State of Alabama. BancGroup's growth in loans over the past several
years has been concentrated in commercial and residential real estate loans.
RECENTLY COMPLETED AND OTHER PROPOSED BUSINESS COMBINATIONS
Since December 31, 1997, BancGroup has acquired four banking institutions,
ASB, United American Holding Corporation, South Florida Banking Corp. and First
Central Bank, with aggregate assets and stockholders' equity acquired of $740.7
million and $61.6 million. These acquisitions, other than ASB, are included in
BancGroup's restated financial statements incorporated by reference herein.
BancGroup has entered into a definitive agreement dated as of February 25,
1998, to acquire Commercial Bank of Nevada ("Commercial"). Commercial is a
Nevada bank located in Las Vegas, Nevada. Commercial will merge with BancGroup's
bank subsidiary, Colonial Bank. BancGroup will issue a maximum of 842,157 shares
of its Common Stock, depending upon the market value at the time of such merger.
The actual number of shares of BancGroup Common Stock to be issued in this
transaction will depend upon the market value of such Common Stock at the
effective time of the acquisition. This transaction was approved by the
shareholders of Commercial on June 3, 1998. Consummation of the transaction is
subject to final approval of the Alabama Department. At March 31, 1998,
Commercial had assets of $131.3 million, deposits of $119.7 million and
stockholders' equity of $10.6 million.
On May 14, 1998, BancGroup entered into a definitive agreement with First
Macon Bank & Trust Company ("First Macon"). First Macon is located in Macon,
Georgia. First Macon will merge with BancGroup's existing subsidiary bank,
Colonial Bank. BancGroup expects to issue a maximum of 1,844,500 shares of its
Common Stock to the shareholders of First Macon. This transaction is subject to,
among other things, approval by the shareholders of First Macon and by the
appropriate regulatory authorities and is expected to be accounted for as a
pooling of interests. At March 31, 1998, First Macon had assets of $195 million,
deposits of $177 million and stockholders' equity of $15 million.
On May 5, 1998, BancGroup entered into a definitive agreement with
FirstBank ("FirstBank"). FirstBank is located in Dallas, Texas. CBG Acquisition
Corp., a subsidiary of BancGroup, will be merged into FirstBank, and FirstBank
will become a banking subsidiary of BancGroup. BancGroup expects to issue
approximately 1,200,000 shares of its Common Stock to the shareholders of
FirstBank. This transaction is subject to, among other things, approval by the
shareholders of FirstBank and by the appropriate regulatory authorities and is
expected to be accounted for as a pooling of interests. At March 31, 1998,
FirstBank had assets of $163 million, deposits of $138 million and stockholders'
equity of $9 million.
On May 21, 1998, BancGroup entered into a definitive agreement with Prime
Bank of Central Florida ("Prime Bank"). Prime Bank is located in Titusville,
Florida. Prime Bank will merge with Colonial Bank. BancGroup expects to issue a
maximum of 586,560 shares of BancGroup Common Stock to the shareholders of Prime
Bank. This transaction is subject to, among other things, approval by the
shareholders of Prime Bank and by the appropriate regulatory authorities and is
expected to be accounted for as a pooling of interests. At
66
<PAGE> 75
March 31, 1998, Prime Bank had assets of $68 million, deposits of $
million and stockholders' equity of $ million.
YEAR 2000 COMPLIANCE
Most computer software programs and processing systems, including those
used by BancGroup and its subsidiaries in their operations, have not been
designed to accommodate entries beyond the year 1999 in date fields. Failure to
address the anticipated consequences of this design deficiency could have
material adverse effects on the business and operations of any business,
including BancGroup, that relies on computers and associated technologies. In
response to the challenges of addressing such consequences in the banking
industry, bank regulatory agencies, including the Federal Reserve, BancGroup's
primary regulator, have established a Year 2000 Supervision Program and
published guidelines for implementing procedures to bring the computer software
programs and processing systems into year 2000 compliance.
In compliance with the guidelines of the Federal Reserve, BancGroup has
established a full time Year 2000 task force to address all Year 2000 compliance
issues as well as enhancements to computer and communications systems resulting
from upgrades initiated in response to Year 2000 issues. Currently BancGroup is
in the process of implementing its plans to bring all major computer systems
into Year 2000 compliant status by December 31, 1998, allowing the full year
1999 for testing of any systems changes. The major computer systems involved
are:
- Colonial Bank's mainframe based systems: These systems are provided
by third party vendors of national stature. Upgrades to these systems
are in progress which will bring the systems into Year 2000 compliant
status and provide enhancements to current capabilities. The costs
associated with these upgrades are part of BancGroup's ongoing
operating costs.
- Colonial Mortgage Company's (CMC) servicing and production
systems: CMC's systems are primarily in-house systems and are
currently being rewritten to Year 2000 compliant status. The cost of
the rewrites is estimated to be $1.0 million and is incremental to the
Company's ongoing operating costs. In addition, CMC's computer
hardware is being upgraded to Year 2000 compliant status. This upgrade
will also provide additional capacity for the servicing systems as
well as an enhanced capability for the servicing systems and an
enhanced capability for production. The additional annual costs of the
mainframe upgrade (approximately $240,000) are expected to be absorbed
through growth in the servicing portfolio and through increased
production. CMC expects to maintain an average servicing cost per loan
below $48.00 in 1998 and future years.
- Branch automation operating systems: Colonial Bank's branch
automation operating systems are being converted to Windows NT from
OS/2. This conversion along with establishment of any intranet and
increased capacity of communication lines is the most cost effective
method of bringing the operating system to Year 2000 compliant status
while allowing for more efficient flow of information to and from the
branches and provided the highest assurance of continuing vendor
support for the Company's branch automation solution. The incremental
operating cost for these upgrades (approximately $400,000 annually) is
expected to be absorbed through operational efficiencies and increased
revenue. The Company will incur a one-time pretax charge of
approximately $2.0 million to write off the remaining book value of
the current branch automation equipment that is not Windows NT
compatible.
BancGroup expects to incur additional third party costs totaling
approximately $300,000 related to assessing the status of the Company's systems
and defining its strategy to bring all systems in to Year 2000 compliance. These
costs have been and will continue to be expensed as incurred and are not
significant to BancGroup's on-going operating costs. The costs to bring other
miscellaneous systems into Year 2000 compliance are not expected to be material.
The above reflects management's current assessment and estimates. Various
factors could cause actual results to differ materially from those contemplated
by such assessments, estimates and forward-looking
67
<PAGE> 76
statements. Some of these factors may be beyond the control of BancGroup,
including but not limited to, vendor representation, technological advancements,
economic factors and competitive considerations.
Management's evaluation of Year 2000 compliance and technological upgrades
is an on-going process involving continual evaluation. Unanticipated problems
could develop and alternative solutions may be available that could cause
current solutions to be more difficult or costly than currently anticipated.
VOTING SECURITIES AND PRINCIPAL STOCKHOLDERS
As of February 27, 1998, BancGroup had issued and outstanding 48,092,093
shares of BancGroup Common Stock with 8,476 stockholders of record. Each such
share is entitled to one vote. In addition, as of that date, 1,803,259 shares of
BancGroup Common Stock were subject to issue upon exercise of options pursuant
to BancGroup's stock option plans and up to 349,500 shares of BancGroup Common
Stock were issuable upon conversion of BancGroup's 1986 Debentures. There are
currently 200,000,000 shares of BancGroup Common Stock authorized.
The following table shows those persons who are known to BancGroup to be
beneficial owners as of February 27, 1998 of more than four percent of
outstanding BancGroup Common Stock.
<TABLE>
<CAPTION>
PERCENTAGE
COMMON OF CLASS
NAME AND ADDRESS STOCK OUTSTANDING(1)
- ---------------- --------- --------------
<S> <C> <C>
Robert E. Lowder(2)......................................... 2,903,645 6.01%
Post Office Box 1108
Montgomery, AL 36101
James K. Lowder............................................. 2,200,372 4.58%
Post Office Box 250
Montgomery, AL 36142
Thomas H. Lowder............................................ 2,146,488 4.46%
Post Office Box 11687
Birmingham, AL 35202
</TABLE>
- ---------------
(1) Percentages are calculated for each person assuming the issuance of shares
of BancGroup Common Stock pursuant to BancGroup's stock option plans, if
any, that are held by such person.
(2) Robert E. Lowder is the brother of James K. and Thomas H. Lowder. Robert E.
Lowder disclaims any beneficial ownership interest in the shares owned by
his brothers and in shares owned by his mother.
(3) Includes 191,020 shares of BancGroup Common Stock subject to options under
BancGroup's stock option plans.
SECURITY OWNERSHIP OF MANAGEMENT
The following table indicates for each director, executive officer, and all
executive officers and directors of BancGroup as a group the number of shares of
outstanding Common Stock of BancGroup beneficially owned as of February 27,
1998.
SHARES OF BANCGROUP BENEFICIALLY OWNED
<TABLE>
<CAPTION>
PERCENTAGE
OF CLASS
DIRECTORS NAME COMMON STOCK OUTSTANDING
- -------------- ------------ -----------
<S> <C> <C>
Lewis Beville............................................ 1,816 *
Young J. Boozer.......................................... 16,226(1) *
William Britton.......................................... 15,616 *
Jerry J. Chesser......................................... 149,196 *
Augustus K. Clements, III................................ 18,708 *
</TABLE>
68
<PAGE> 77
<TABLE>
<CAPTION>
PERCENTAGE
OF CLASS
DIRECTORS NAME COMMON STOCK OUTSTANDING
- -------------- ------------ -----------
<S> <C> <C>
Robert S. Craft.......................................... 17,458 *
Patrick F. Dye........................................... 30,960(2) *
James L. Hewitt.......................................... 440,692(3) *
Clinton O. Holdbrooks.................................... 276,400(4) *
D. B. Jones.............................................. 21,989(5) *
Harold D. King........................................... 148,581 *
Robert E. Lowder......................................... 2,903,654(6) 6.01%
John Ed Mathison......................................... 29,454 *
Milton E. McGregor....................................... 0 *
John C.H. Miller, Jr..................................... 38,352(7) *
Joe D. Mussafer.......................................... 20,279 *
William E. Powell, III................................... 14,353 *
J. Donald Prewitt........................................ 222,924(8) *
Jack H. Rainer........................................... 2,690 *
Jimmy Rane............................................... 1,108(9) *
Frances E. Roper......................................... 366,814 *
Simuel Sippial........................................... 2,882 *
Ed V. Welch.............................................. 30,949 *
CERTAIN EXECUTIVE OFFICERS WHO ARE NOT ALSO DIRECTORS
Young J. Boozer, III..................................... 71,665(1)(10) *
Michelle Condon.......................................... 19,098(10) *
P.L. ("Mac") McLeod, Jr.................................. 62,343(10) *
W. Flake Oakley, IV...................................... 42,316(10) *
All Executive Officers & Directors as a Group............ 4,965,923 10.24%
</TABLE>
- ---------------
* Represents less than 1%.
(1) Includes 1,000 shares of Common Stock out of 2,000 shares owned by Young J.
Boozer, and Young J. Boozer, III EX U/W Phyllis C. Boozer.
(2) Includes 25,000 shares of Common Stock subject to options exercisable under
BancGroup's stock option plans.
(3) Includes 62,682 shares of Common Stock subject to stock options.
(4) Includes 24,524 shares of Common Stock subject to options under BancGroup's
stock option plans and 64,498 shares held by Mr. Holdbrooks as trustee.
(5) Mr. Jones holds power to vote 20,733 of these shares as trustee.
(6) Includes 191,020 shares of Common Stock subject to options under
BancGroup's stock option plans.
(7) Includes 20,000 shares of Common Stock subject to options under BancGroup's
stock option plans.
(8) Includes 63,604 shares of Common Stock subject to stock options.
(9) Mr. Rane's Keogh Plan owns 1,000 shares of BancGroup Common Stock.
(10) Young J. Boozer, III, Michelle M. Condon, P.L. ("Mac") McLeod, Jr. and W.
Flake Oakley hold options respecting 25,000, 9,245, 28,000 and 18,000
shares of Common Stock, respectively, pursuant to BancGroup's stock option
plans, not counting options that are not exercisable within 60 days due to
vesting requirements.
MANAGEMENT INFORMATION
Certain information regarding the biographies of the directors and
executive officers of BancGroup, executive compensation and related party
transactions is included in (i) BancGroup's Annual Report on Form 10-K for the
fiscal year ending December 31, 1997, at item 10 and (ii) BancGroup's Proxy
Statement for its 1998 Annual Meeting, at items 10, 11 and 13.
69
<PAGE> 78
BUSINESS OF CNB
GENERAL
CNB is a bank holding company within the meaning of the BHCA and was
incorporated on December 13, 1985. CNB owns all of the outstanding shares of the
Bank. The Bank is headquartered in Daytona Beach, Florida and currently operates
four banking offices in Volusia County, Florida. Commercial National Bank was
organized under the laws of the United States on January 9, 1984 and commenced
operations in 1984.
The Bank provides a range of consumer and commercial banking services to
individuals, business and industries. The basic services offered by the Bank
include; demand interest bearing and non-interest bearing accounts, money market
deposit accounts, NOW accounts, time deposits, safe deposit services, direct
deposits, notary services, money orders, night depository, travelers' checks,
cashier's checks, domestic collections, savings bonds, bank drafts, drive-in
tellers, and banking by mail. In addition, the Bank makes secured and unsecured
commercial, real estate, and consumer loans and issues standby letters of
credit. The Bank provides automated teller machine ("ATM") cards, as a part of
the HONOR ATM network, thereby permitting customers to utilize the convenience
of larger ATM networks. The Bank does not have trust powers and, accordingly,
provides no trust services.
The revenues of the Bank are primarily derived from interest on, and fees
received in connection with, real estate and other loans, and from interest from
short-term investments. The principal sources of funds for the Bank's lending
activities are its deposits, repayments of loans, and the sale and maturity of
investment securities. The principal expenses of the Bank are the interest paid
on deposits, and operating and general administrative expenses.
As is the case with banking institutions generally, the Bank's operations
are materially and significantly influenced by general economic conditions and
by related monetary and fiscal policies of financial institution regulatory
agencies, including the Federal Reserve, the FDIC, and the OCC. Deposit flows
and costs of funds are influenced by interest rates on competing investments and
general market shares of interest. Lending activities are affected by the demand
for financing of real estate and other types of loans, which in turn are
affected by the interest rates at which such financing may be offered and other
factors affecting local demand and availability of funds. The Bank faces strong
competition in the attraction of deposits (its primary source of lendable funds)
and in the origination of loans.
DEPOSIT ACTIVITIES
Deposits are the major source of the Bank's funds for lending and other
investment activities. The Bank considers the majority of its regular savings,
demand, NOW and money market deposit accounts to be core deposits. These
accounts comprised 48.5% of the Bank's total deposits at March 31, 1998. At
March 31, 1998, 51.5% of the Bank's deposits were certificates of deposit.
Generally, the Bank attempts to maintain the rates paid on its deposits at a
competitive level. Time deposits of $100,000 and over made up 10.2% of the
Bank's total deposits at March 31, 1998. The majority of the deposits of the
Bank are generated in the Volusia County market. The Bank does not accept
brokered deposits. For additional information on the Bank's deposits activities,
see "CNB Discussion and Analysis of Financial Condition and Results of
Operations -- Financial Condition -- Deposit Activities".
LENDING ACTIVITIES
The Bank offers a range of lending services, including real estate,
consumer and commercial loans, to individuals and small business and other
organizations that are located in, or conduct a substantial portion of their
business in, the Bank's market area. The Bank's loans receivable, net at March
31, 1998 was $60.2 million, or 68.4% of total assets. The interest rates charged
on loans vary with the degree of risk, maturity, and amount of the loan, and are
further subject to competitive pressures, money market rates, availability of
funds, and government regulations. The Bank has no foreign loans or loans for
highly leveraged transactions.
70
<PAGE> 79
The Bank's loans are concentrated in three major areas: real estate loans,
commercial loans, and consumer loans. As of March 31, 1998, 87.5% of the Bank's
loan portfolio consisted of loans secured by mortgages on real estate and 7% of
the loan portfolio consisted of commercial loans. At the same date, 5.5% of the
Bank's loan portfolio consisted of consumer loans and other loans.
The Bank's real estate loans are secured by mortgages and consist primarily
of loans to individuals and businesses for the purchase, improvement of or
investment in real estate and for the construction of single-family residential
units or the development of single-family residential building lots. These real
estate loans may be made at fixed- or variable-interest rates. The Bank
generally does not make fixed-interest rate commercial real estate loans for
terms exceeding five years. The Bank's residential real estate loans generally
are repayable in monthly installments based on up to a 30-year amortization
schedule with fixed-rates for five years or rates which adjust every five years.
The Bank's commercial loans include loans to individuals and
small-to-medium sized businesses located primarily in Volusia County for working
capital, equipment purchases, and various other business purposes. A majority of
the Bank's commercial loans are secured by equipment or similar assets, but
these loans may also be made on an unsecured basis. Commercial loans may be made
at variable- or fixed-interest rates. Commercial lines of credit are typically
granted on a one-year basis, with loan covenants and monetary thresholds. Other
commercial loans with terms or amortization schedules of longer than one year
will normally carry interest rates which vary with the prime lending rate and
will become payable in full and are generally refinanced in three to five years.
The Bank's consumer loan portfolio consists primarily of loans to
individuals for various consumer purposes, which are payable on an installment
basis. The majority of these loans are for terms of five years or less and are
secured by liens on various personal assets of the borrowers, but consumer loans
may also be made on an unsecured basis. Consumer loans are generally made at
fixed-rates.
For additional information on the Bank's lending activities, see "CNB
Management's Discussion and Analysis of Financial Condition and Results of
Operations -- Financial Condition -- Lending Activities", and "-- Asset
Quality".
INVESTMENTS
The Bank invests a portion of its assets in U.S. Treasury and U.S.
Government agency obligations, certificates of deposit, and federal funds sold.
The Bank's investments are managed in relation to loan demand and deposit
growth, and are generally used to provide for the investment of excess funds at
reduced yields and risks relative to yields and risks of the loan portfolio,
while providing liquidity to fund increases in loan demand or to offset
fluctuations in deposits. For additional information relating to CNB
investments, see "CNB Management's Discussion and Analysis of Financial
Condition and Results of Operations -- Financial Condition -- Investment
Securities" and Note 3 to the Notes to CNB Consolidated Financial Statements.
EMPLOYEES
As of March 31, 1998, the Bank employed 37 full-time employees and one
part-time employee. The employees are not represented by a collective bargaining
unit. The Bank considers relations with employees to be good.
PROPERTIES
The main office of the Bank is located at 1899 South Clyde Morris
Boulevard, Daytona Beach, Florida 32119, in a one story building of
approximately 11,000 square feet, which is owned by the Bank.
The Bank also has banking offices as follows: the Ormond Office is located
at 1120 West Granada Avenue, Ormond Beach, Florida 32174, the Port Orange Office
is located at 4410 South Ridgewood Avenue, Port Orange, Florida 32127, and the
Spruce Creek Office is located at 1635 Taylor Road, Port Orange, 32124. All the
foregoing offices are owned by the Bank.
71
<PAGE> 80
LEGAL PROCEEDING
The Bank is periodically a party of or otherwise involved in legal
proceedings arising in the normal course of business, such as claims to enforce
liens, claims involving the making and servicing of real property loans, and
other issues incident to its business. Management does not believe that there is
any pending or threatened proceeding against CNB or the Bank which, if
determined adversely, would have a material adverse effect on CNB's consolidated
financial position.
PRINCIPAL HOLDERS OF COMMON STOCK
The following table sets forth information as of the Record Date, regarding
the ownership of CNB Common Stock by each director of CNB, and by all directors
and executive officers as a group. Unless otherwise indicated, all persons shown
in the table have sole voting and investment power with regard to the shares
shown.
<TABLE>
<CAPTION>
SHARES PERCENTAGE
NAME BENEFICIALLY OWNED(1) OF OWNERSHIP
- ---- --------------------- ------------
<S> <C> <C>
William T. Moore, Jr....................................... 15,158(2) 10.42
George C. Scott............................................ 7,900(3) 5.43
Michael Senkovich.......................................... 5,000 3.44
Edward F. Simpson, Jr...................................... 4,782 3.29
Edmond R. Sanders.......................................... 2,266 1.55
Richard L. Bass............................................ 1,933 1.32
Raymond R. Thomas.......................................... 4,555 3.13
Dennis E. Brinn............................................ 2,724 1.87
Edmund J. Roddy............................................ 160 .11
</TABLE>
- ---------------
(1) Information related to beneficial ownership is based upon information
available to CNB and uses "beneficial ownership" concepts set forth in rules
of the Commission under the Securities Exchange Act of 1934, as amended.
Under such rules, more than one person may be deemed to be a beneficial
owner of the same securities, and a person may be deemed to be a beneficial
owner of the same securities, and a person may be deemed to be a beneficial
owner of securities as to which he may disclaim any beneficial interest.
Accordingly, directors are named as beneficial owners of shares as to which
they may disclaim any beneficial interest. Except as otherwise indicated in
the notes to this table, the individuals possessed sole voting and
investment power as to all shares of CNB Common Stock set forth opposite
their names.
(2) Includes 1,341 shares held jointly with his spouse.
(3) Includes 7,800 shares held by his revocable trust.
ADJOURNMENT OF SPECIAL MEETINGS
Approval of the Agreement by CNB shareholders requires the affirmative vote
of at least a majority of the total votes eligible to be cast at the Special
Meeting. In the event there are an insufficient number of shares of CNB Common
Stock present in person or by proxy at the Special Meeting to approve the
Agreement, CNB's Board of Directors intends to adjourn the Special Meeting to a
later date provided a majority of the shares present and voting on the motion
have voted in favor of such adjournment. The place and date to which the Special
Meeting would be adjourned would be announced at the Special Meeting. Proxies
voted against the Agreement and abstentions will not be voted to adjourn the
Special Meeting. Abstentions and broker non-votes will not be voted on this
matter but will not count as "no votes." If it is necessary to adjourn the
Special Meeting and the adjournment is for a period of not more than 30 days
from the original date of this Special Meeting, no notice of the time and place
of the adjourned meeting need be given the shareholders, other than an
announcement made at the Special Meeting.
The affect of any such adjournment would be to permit CNB to solicit
additional proxies for approval of the Agreement. While such an adjournment
would not invalidate any proxies previously filed as long as the record date for
the adjourned meeting remained the same, including proxies filed by shareholders
voting
72
<PAGE> 81
against the Agreement, an adjournment would afford CNB the opportunity to
solicit additional proxies in favor of the Agreement.
OTHER MATTERS
The board of directors of CNB is not aware of any business to come before
the Special Meeting other than those matters described above in this Prospectus.
If, however, any other matters not now known should properly come before the
Special Meeting, the proxy holders named in the accompany proxy will vote such
proxy on such matters as determined by a majority of the Board of Directors of
CNB.
DATE FOR SUBMISSION OF BANCGROUP STOCKHOLDER PROPOSALS
In order to be eligible for inclusion in BancGroup's proxy solicitation
materials for its 1999 annual meeting of stockholders, any stockholder proposal
to take action at such meeting must be received at BancGroup's main office at
One Commerce Street Post Office Box 1108, Montgomery, Alabama 36101, no later
than 120 calendar days in advance of the date of March 21, 1999.
LEGAL MATTERS
Certain legal matter regarding the shares of BancGroup Common Stock of
BancGroup offered hereby are being passed upon by the law firm of Miller,
Hamilton, Snider & Odom, L.L.C., Mobile, Alabama, of which John C. H. Miller,
Jr., a director of BancGroup, is a partner. Such firm received fees for legal
services performed in 1997 of $1,659,399. John C. H. Miller, Jr., as of February
27, 1998, beneficially owned 38,352 shares of Common Stock. Mr. Miller also
received employee-related compensation from BancGroup in 1997 of $43,485.
Certain legal matters relating to the Merger are being passed upon for CNB by
the law firm of Smith, Mackinnon, Greeley, Bowdoin & Edwards, P.A.
EXPERTS
Coopers & Lybrand L.L.P. serves as the independent accountants for
BancGroup. The consolidated financial statements of BancGroup as of December 31,
1997 and 1996 and for each of the three years ended December 31, 1997 are
incorporated by reference in this Prospectus in reliance upon the report of such
firm, given on the authority of that firm as experts in accounting and auditing.
It is not expected that a representative of such firm will be present at the
Special Meeting.
Camputaro & Associates serves as the independent accountants for CNB. CNB's
consolidated financial statements as of December 31, 1997 and 1996 and for each
of the three years ended December 31, 1997 are included in this Prospectus in
reliance upon the report of such firm, given on the authority of that firm as
experts in accounting and auditing. It is not expected that a representative of
such firm will be present at the Special Meeting.
73
<PAGE> 82
To the Stockholders and
Board of Directors
CNB Holding Company
Daytona Beach, Florida
INDEPENDENT AUDITORS' REPORT
We have audited the consolidated balance sheets of CNB Holding Company and
Subsidiary as of December 31, 1997 and 1996, and the related consolidated
statements of income, changes in stockholders' equity and cash flows for each of
the three years in the period ended December 31, 1997. 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 audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of CNB Holding Company and
Subsidiary at December 31, 1997 and 1996, and the consolidated results of their
operations and their cash flows for each of the three years in the period ended
December 31, 1997 in conformity with generally accepted accounting principles.
/s/ CAMPUTARO & ASSOCIATES
- --------------------------------------
January 15, 1998
F-2
<PAGE> 83
CNB HOLDING COMPANY AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
DECEMBER 31,
<TABLE>
<CAPTION>
1997 1996
----------- -----------
<S> <C> <C>
ASSETS
Cash and due from banks..................................... $ 3,503,730 $ 4,371,064
Federal funds sold.......................................... -- 3,130,000
----------- -----------
Total cash and cash equivalents................... 3,503,730 7,501,064
Investment securities:
Available for sale........................................ 11,059,950 --
Held to maturity.......................................... 5,075,939 22,581,157
Loans, less allowance for loan losses of $418,534 and
$378,606 respectively..................................... 59,530,183 53,773,936
Property and equipment, net................................. 3,107,632 3,051,026
Accrued interest receivable................................. 488,686 427,567
Other assets................................................ 507,201 187,819
----------- -----------
$83,273,321 $87,522,569
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Deposits:
Demand.................................................... $15,739,162 $11,804,903
Interest bearing demand................................... 9,442,083 16,539,432
Now accounts.............................................. 5,734,663 6,566,616
Savings................................................... 3,835,413 4,349,941
Time $100,000 and over.................................... 8,340,376 10,960,233
Other Time................................................ 31,786,289 29,174,334
----------- -----------
74,877,986 79,395,459
Accrued interest, taxes and other liabilities............... 117,729 212,252
----------- -----------
Total liabilities................................. 74,995,715 79,607,711
----------- -----------
Commitments and contingent liabilities (Note 6)
Stockholders' equity
Common stock, $1 par value, 300,000 shares authorized,
152,355 and 149,775 shares issued and outstanding...... 152,355 149,775
Capital surplus........................................... 750,603 685,143
Unrealized holding gain (loss) on investment securities
available for sale, net of income tax effect........... 19,115 --
Retained earnings......................................... 7,964,858 7,212,465
----------- -----------
8,886,931 8,047,383
Treasury stock, at cost................................... (609,325) (132,525)
----------- -----------
Total stockholders' equity........................ 8,277,606 7,914,858
----------- -----------
$83,273,321 $87,522,569
=========== ===========
</TABLE>
The accompanying Auditors' Report and notes should be read with the financial
statements.
F-3
<PAGE> 84
CNB HOLDING COMPANY AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF INCOME
FOR THE YEARS ENDED DECEMBER 31,
<TABLE>
<CAPTION>
1997 1996 1995
---------- ---------- ----------
<S> <C> <C> <C>
Interest income:
Interest and fees on loans............................... $5,425,123 $4,704,906 $4,152,871
Interest on investment securities:
U. S. Treasury Securities............................. 252,998 172,619 65,900
Obligations of other U. S. government agencies and
corporations........................................ 609,415 925,406 1,044,831
Obligations of States and political subdivisions...... -- -- 2,344
Other securities...................................... 5,226 5,807 31,718
Interest on federal funds sold........................... 362,228 373,885 387,876
---------- ---------- ----------
6,654,990 6,182,623 5,685,540
---------- ---------- ----------
Interest expense:
Interest on deposits..................................... 2,603,470 2,368,377 2,176,769
---------- ---------- ----------
Net interest income.............................. 4,051,520 3,814,246 3,508,771
Provision for loan losses.................................. 70,500 58,100 15,000
---------- ---------- ----------
Net interest income after provision for loan
losses......................................... 3,981,020 3,756,146 3,493,771
---------- ---------- ----------
Non-interest income:
Gain on sale of assets................................... 123,106 -- --
Service fees............................................. 524,964 472,681 445,323
Other.................................................... 53,259 26,361 36,108
---------- ---------- ----------
701,329 499,042 481,431
---------- ---------- ----------
Non-interest expense:
Salaries and employee benefits........................... 1,292,694 1,138,678 1,071,844
Occupancy and equipment.................................. 338,987 393,648 242,361
Other operating expense.................................. 702,766 475,160 645,572
---------- ---------- ----------
2,334,447 2,007,486 1,959,777
---------- ---------- ----------
Income before income taxes....................... 2,347,902 2,247,702 2,015,425
Income taxes............................................... 881,034 846,894 743,694
---------- ---------- ----------
Net income....................................... $1,466,868 $1,400,808 $1,271,731
========== ========== ==========
Net income per share of common stock....................... $ 9.75 $ 9.28 $ 8.53
========== ========== ==========
Weighted average common and common equivalent shares
outstanding.............................................. 150,379 150,957 149,044
========== ========== ==========
</TABLE>
The accompanying Auditors' Report and notes should be read with the financial
statements.
F-4
<PAGE> 85
CNB HOLDING COMPANY AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
FOR THE YEARS ENDED DECEMBER 31,
<TABLE>
<CAPTION>
UNREALIZED
GAIN(LOSS)
ON
COMMON STOCK INVESTMENT
------------------ TREASURY STOCK SECURITIES
PAR ------------------ CAPITAL RETAINED AVAILABLE
SHARES VALUE SHARES AMOUNT SURPLUS EARNINGS FOR SALE TOTAL
------- -------- ------ --------- -------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balance, January 1,
1995................... 146,875 $146,875 -- $ -- $618,443 $5,570,776 $ -- $6,336,094
Stock options
exercised.............. 1,675 1,675 -- -- 38,525 -- -- 40,200
Income................... -- -- -- -- -- 1,271,731 -- 1,271,731
Dividends paid........... -- -- -- -- -- (441,300) -- (441,300)
------- -------- ------ --------- -------- ---------- ------- ----------
Balance, December 31,
1995................... 148,550 148,550 -- -- 656,968 6,401,207 -- 7,206,725
Stock options
exercised.............. 1,225 1,225 -- -- 28,175 -- -- 29,400
Treasury stock
acquired............... -- -- 2,325 (132,525) -- -- -- (132,525)
Income................... -- -- -- -- -- 1,400,808 -- 1,400,808
Dividends paid........... -- -- -- -- -- (589,550) -- (589,550)
------- -------- ------ --------- -------- ---------- ------- ----------
Balance, December 31,
1996................... 149,775 149,775 2,325 (132,525) 685,143 7,212,465 -- 7,914,858
Change in unrealized gain
(loss) on investment
securities available
for sale............... -- -- -- -- -- -- 19,115 19,115
Stock options
exercised.............. 2,580 2,580 -- -- 65,460 -- -- 68,040
Treasury stock
acquired............... -- -- 6,650 (668,800) -- -- -- (668,800)
Issuance of treasury
stock.................. -- -- (2,500) 192,000 -- (49,500) -- 142,500
Income................... -- -- -- -- -- 1,466,868 -- 1,466,868
Dividends paid........... -- -- -- -- -- (664,975) -- (664,975)
------- -------- ------ --------- -------- ---------- ------- ----------
Balance, December 31,
1997................... 152,355 $152,355 6,475 $(609,325) $750,603 $7,964,858 $19,115 $8,277,606
======= ======== ====== ========= ======== ========== ======= ==========
</TABLE>
The accompanying Auditors' Report and notes should be read with the financial
statements.
F-5
<PAGE> 86
CNB HOLDING COMPANY AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31,
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS
<TABLE>
<CAPTION>
1997 1996 1995
------------ ------------ ------------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income......................................... $ 1,466,868 $ 1,400,808 $ 1,271,731
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization................... 113,126 103,409 99,558
Provision for loan losses....................... 70,500 58,100 15,000
Accretion/amortization of securities............ 10,458 -- --
Deferred income taxes........................... 15,598 (54,603) 6,503
(Gain) loss on disposal of property and
equipment..................................... (123,106) 49 1,070
Loss on sale of investments..................... 1,719 -- --
(Increase) decrease in other assets............. (347,459) 41,725 130,103
Increase in accrued interest receivable......... (61,119) (12,023) (64,749)
Increase (decrease) in accrued interest, taxes
and other liabilities......................... (94,523) 16,561 (8,229)
------------ ------------ ------------
Net cash provided by operating
activities............................... 1,052,062 1,554,026 1,450,987
------------ ------------ ------------
Cash flows from investing activities:
Proceeds from sale of securities available for
sale............................................ 1,000,781 -- --
Maturities and redemptions of securities held for
sale............................................ 5,048 -- --
Maturities and redemptions of securities held to
maturity........................................ 18,497,500 23,000,000 13,975,000
Purchases of securities available for sale......... (12,038,643) -- --
Purchases of securities held to maturity........... (1,000,000) (23,502,805) (15,009,455)
Net increase in loans.............................. (5,826,747) (11,684,378) (5,145,665)
Proceeds from sale of property and equipment....... 249,367 -- 500
Purchases of property and equipment................ (295,994) (661,856) (280,843)
------------ ------------ ------------
Net cash provided by (used in) investing
activities............................... 591,312 (12,849,039) (6,460,463)
------------ ------------ ------------
Cash flows from financing activities:
Dividends paid..................................... (664,975) (589,550) (441,300)
Stock options exercised............................ 68,040 29,400 40,200
Net increase (decrease) in deposits................ (4,517,473) 8,062,643 7,236,163
Proceeds from sale of treasury stock............... 142,500 -- --
Purchase of treasury stock......................... (668,800) (132,525) --
------------ ------------ ------------
Net cash provided by (used in) financing
activities............................... (5,640,708) 7,369,968 6,835,063
------------ ------------ ------------
Net increase (decrease) in cash and cash
equivalents.............................. (3,997,334) (3,925,045) 1,825,587
Cash and cash equivalents at beginning of year....... 7,501,064 11,426,109 9,600,522
------------ ------------ ------------
Cash and cash equivalents at end of year............. $ 3,503,730 $ 7,501,064 $ 11,426,109
============ ============ ============
Supplemental disclosure of cash flow information:
Interest paid...................................... $ 2,606,571 $ 2,356,450 $ 2,153,897
Income taxes paid.................................. $ 965,557 $ 888,635 $ 752,835
</TABLE>
The accompanying Auditors' Report and notes should be
read with the financial statements.
F-6
<PAGE> 87
CNB HOLDING COMPANY AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Nature of Operations. The Company is a one bank holding company which
operates out of the main office in Daytona Beach with three other branches in
Ormond Beach, Spruce Creek and Port Orange. The bank's primary source of revenue
is providing loans to individuals and businesses in the East Volusia County area
of Florida.
Use of Estimates in the Preparation of Financial Statements. The
preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
Principles of Consolidation. The financial statements include the accounts
of the Company and its consolidated subsidiary, Commercial National Bank. The
acquisition of Commercial National Bank in 1987 has been accounted for as a
pooling of interest. All significant intercompany accounts and transactions have
been eliminated.
Cash and Cash Equivalents. For purposes of reporting cash flows, cash and
cash equivalents include cash on hand, amounts due from banks, and federal funds
sold.
Investment Securities. Investment securities are comprised of securities
classified as available for sale and held to maturity, in conjunction with the
adoption of FASB 115, resulting in investment securities available for sale
being carried at market value and investment securities held to maturity being
carried at cost, adjusted for amortization of premiums and accretions of
discounts.
Gains or losses on disposition are based on the net proceeds and the
adjusted carrying amount of the securities sold, using the specific
identification method.
Loans and Allowance for Loan Losses. Loans are stated at the amount of
unpaid principal, reduced by unearned discount and allowance for loan losses.
Unearned discount on installment loans is recognized using the rule of 78's
method, which approximates the interest method. Interest on other loans is
calculated by using the simple interest method on the principal amounts
outstanding. Loans are charged against the allowance for loan losses when
management believes that the collectibility of the principal is unlikely. The
allowance is an amount that management believes will be adequate to absorb
possible losses on existing loans that may become uncollectible, based on
evaluations of the collectibility of loans and prior loan loss experience. The
evaluations take into consideration such factors as changes in the nature and
volume of the loan portfolio, overall portfolio quality, review of specific
problem loans, and current economic conditions that may affect the borrowers'
ability to pay. Accrual of interest is discontinued on a loan when management
believes, after considering economic and business conditions and collection
efforts, that the borrowers' financial condition is such that collection of
interest is doubtful. Fees and related costs on loans are amortized over the
term of the loan as required by generally accepted accounting principles.
Property and Equipment. Property and equipment are stated at cost less
accumulated depreciation computed principally on the straight-line method over
the estimated useful lives of the assets, which are 40 years for building, 5 to
10 years for furniture and equipment and 5 years for vehicles.
Income Taxes. Income taxes are provided based on earnings reported for
financial statement purposes. The provision for income taxes differs from
amounts currently payable due to temporary differences related to depreciation
of equipment, accretion of discounts on investment securities, and provision for
loan losses. The tax effects of these temporary differences are reported as
deferred income taxes.
Earnings per Share. Earnings per share is calculated on the basis of the
weighted average number of shares outstanding during the year.
F-7
<PAGE> 88
CNB HOLDING COMPANY AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
2. INVESTMENT SECURITIES
Amortized costs and approximate market values of investment securities are
summarized as follows:
<TABLE>
<CAPTION>
GROSS GROSS
CARRYING UNREALIZED UNREALIZED APPROXIMATE
AMOUNT GAINS LOSSES MARKET VALUE
----------- ---------- ---------- ------------
<S> <C> <C> <C> <C>
DECEMBER 31, 1997
Available for Sale:
U. S. Treasury Securities.............. $ 6,001,313 $39,947 $ -- $ 6,041,260
Obligations of other U. S. government
agencies and corporations........... 5,027,042 14,078 (22,430) 5,018,690
----------- ------- -------- -----------
11,028,355 54,025 (22,430) 11,059,950
----------- ------- -------- -----------
Held to Maturity:
Obligations of other U. S. government
agencies and corporations........... 4,988,839 1,880 (9,779) $ 4,980,940
Other securities....................... 87,100 -- -- 87,100
----------- ------- -------- -----------
5,075,939 1,880 (9,779) 5,068,040
----------- ------- -------- -----------
$16,104,294 $55,905 $(32,209) $16,127,990
=========== ======= ======== ===========
DECEMBER 31, 1996
Held to Maturity:
Obligations of other U. S. government
agencies and corporations........... $20,480,848 $ 675 $(66,128) $20,415,395
U. S. Treasury securities.............. 2,013,209 -- (6,644) 2,006,565
Other securities....................... 87,100 -- -- 87,100
----------- ------- -------- -----------
$22,581,157 $ 675 $(72,772) $22,509,060
=========== ======= ======== ===========
</TABLE>
The amortized cost and approximate market values of investment securities
at December 31, 1997, by expected maturity are shown below. Expected maturities
will differ from contractual maturities because borrowers may have the right to
call or prepay obligations with or without call or prepayment penalties.
<TABLE>
<CAPTION>
SECURITIES AVAILABLE SECURITIES HELD
FOR SALE TO MATURITY
------------------------- -----------------------
AMORTIZED MARKET AMORTIZED MARKET
COST VALUE COST VALUE
----------- ----------- ---------- ----------
<S> <C> <C> <C> <C>
Due in one year or less....................... $ -- $ -- $ -- $ --
Due after one year but less than five years... 7,001,313 7,049,601 4,988,839 4,980,940
Due after five years but less than ten
years....................................... 1,014,654 1,008,810 -- --
Due after ten years........................... 2,030,587 2,014,000 -- --
----------- ----------- ---------- ----------
10,046,554 10,072,411 4,988,839 4,980,940
Other securities.............................. -- -- 87,100 87,100
Mortgage backed securities.................... 981,801 987,539 -- --
----------- ----------- ---------- ----------
$11,028,355 $11,059,950 $5,075,939 $5,068,040
=========== =========== ========== ==========
</TABLE>
F-8
<PAGE> 89
CNB HOLDING COMPANY AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Proceeds from the sale of investments in debt securities -- available for
sale, gross realized gains, gross realized losses and the related income taxes
on net realized gains were as follows:
<TABLE>
<CAPTION>
1997 1996
---------- ----------
<S> <C> <C>
Proceeds from sales......................................... $1,000,781 $ --
Gross realized gains........................................ 781 --
Gross realized losses....................................... -- --
Applicable income tax on net realized gains................. 309 --
</TABLE>
Securities pledged at December 31 to secure treasury deposits are as
follows:
<TABLE>
<CAPTION>
1997 1996
-------- --------
<S> <C> <C>
Carrying amount............................................. $200,000 $199,961
Market value................................................ 198,812 199,876
</TABLE>
3. LOANS AND ALLOWANCE FOR LOAN LOSSES
A summary of loan classifications at December 31, 1997 and 1996 follows:
<TABLE>
<CAPTION>
1997 1996
----------- -----------
<S> <C> <C>
Business loans.............................................. $ 3,788,668 $ 7,442,300
Real estate loans........................................... 52,672,476 45,524,936
Personal loans.............................................. 3,575,535 1,329,173
----------- -----------
60,036,679 54,296,409
Unearned discount........................................... (87,962) (143,867)
----------- -----------
59,948,717 54,152,542
Allowance for loan losses................................... (418,534) (378,606)
----------- -----------
$59,530,183 $53,773,936
=========== ===========
</TABLE>
Changes in the allowance for loan losses for the years ended December 31,
1997, 1996 and 1995 were as follows:
<TABLE>
<CAPTION>
1997 1996 1995
-------- -------- --------
<S> <C> <C> <C>
Balance January 1...................................... $378,606 $336,231 $322,186
Provision charged to operations........................ 70,500 58,100 15,000
Recoveries on loans previously charged off............. 9,015 370 916
Loans charged off...................................... (39,587) (16,095) (1,871)
-------- -------- --------
Balance December 31.................................... $418,534 $378,606 $336,231
======== ======== ========
</TABLE>
F-9
<PAGE> 90
CNB HOLDING COMPANY AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
4. PROPERTY AND EQUIPMENT
A summary of property and equipment at December 31, 1997 and 1996 follows:
<TABLE>
<CAPTION>
1997 1996
---------- ----------
<S> <C> <C>
Land........................................................ $1,200,340 $1,178,465
Building and improvements................................... 1,907,257 1,894,820
Furniture and equipment..................................... 826,608 749,760
Vehicles.................................................... 15,407 51,367
---------- ----------
3,949,612 3,874,412
Less accumulated depreciation and amortization.............. 841,980 823,386
---------- ----------
$3,107,632 $3,051,026
========== ==========
</TABLE>
Total depreciation expense for December 31, 1997, 1996 and 1995 was
$113,126, $103,409 and $99,558, respectively.
5. INCOME TAXES
The components of income tax expense for the years ended December 31, 1997,
1996 and 1995 are as follows:
<TABLE>
<CAPTION>
1997 1996 1995
-------- -------- --------
<S> <C> <C> <C>
Currently payable:
Federal.............................................. $756,434 $780,849 $637,166
State................................................ 109,002 120,648 100,025
-------- -------- --------
865,436 901,497 737,191
-------- -------- --------
Deferred:
Federal.............................................. 13,426 (47,000) 5,598
State................................................ 2,172 (7,603) 905
-------- -------- --------
15,598 (54,603) 6,503
-------- -------- --------
$881,034 $846,894 $743,694
======== ======== ========
</TABLE>
Net deferred tax assets included in other assets at December 31 consist of
the following:
<TABLE>
<CAPTION>
1997 1996
-------- --------
<S> <C> <C>
Deferred tax assets:
Allowance for loan losses................................. $153,245 $143,338
Securities amortization & accretion....................... -- 5,281
-------- --------
153,245 148,619
-------- --------
Deferred tax liabilities:
Fixed assets.............................................. (51,357) (32,432)
Securities amortization & accretion....................... (1,298) --
Market valuation reserve.................................. (12,480) --
-------- --------
(65,135) (32,432)
-------- --------
$ 88,110 $116,187
======== ========
</TABLE>
F-10
<PAGE> 91
CNB HOLDING COMPANY AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
A reconciliation of income tax computed at the Federal statutory income tax
rate to total income taxes is as follows for the years ended December 31:
<TABLE>
<CAPTION>
1997 1996 1995
---------- ---------- ----------
<S> <C> <C> <C>
Pretax income..................................... $2,347,902 $2,247,702 $2,015,425
========== ========== ==========
Income tax computed at Federal statutory rate..... 798,287 764,219 685,245
Increase (decrease) resulting from:
State income taxes, net of federal benefit...... 71,941 79,628 66,017
Other, net...................................... 10,806 3,047 (7,568)
---------- ---------- ----------
Provision for income taxes........................ $ 881,034 $ 846,894 $ 743,694
========== ========== ==========
</TABLE>
6. OTHER FINANCIAL INSTRUMENTS, COMMITMENTS AND CONTINGENCIES
In the normal course of business, the Bank has entered into
off-balance-sheet financial instruments consisting of commitments to extend
credit, commercial letters of credit and standby letters of credit. Such
financial instruments are recorded in the financial statements when they are
funded or related fees are incurred or received. At December 31, 1997 and 1996
commitments under standby letters of credit and guarantees aggregated $7,525,744
and $12,297,779, respectively. The bank does not anticipate any material losses
as a result of the commitments and contingent liabilities.
The Bank is not a defendant in legal actions arising from normal business
activities.
7. RELATED PARTY TRANSACTIONS
Certain officers, directors, principal shareholders and companies which
have 10 percent or more beneficial ownership, were indebted to the bank at
December 31, 1997 and 1996 in the aggregate amount of $1,656,382 and $1,329,681,
respectively.
8. FEDERAL RESERVE STOCK
Banking regulations require that the subsidiary bank purchase federal
reserve stock totaling 6% of their capital stock and capital surplus. At
December 31, 1997 and 1996 the subsidiary bank has purchased 1,742 shares of
$100 par value Federal Reserve Stock which satisfies the regulations.
F-11
<PAGE> 92
CNB HOLDING COMPANY AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
9. STOCK OPTION PLAN
The Company has a fixed employee stock-based compensation plan which was
approved by a majority of shareholders on September 18, 1990. Under the plan, a
maximum of 15,000 shares may be issued at an option price of the greater of
$24.00 per share or fair market value at the date of the grant. However, during
the first three years after granting the option, the option shall not be
exercisable. The Company applies APB Opinion 25 in accounting for this stock
option plan. Accordingly, no compensation cost has been recognized for the plan
in 1997 or 1996. Following is a summary of the status of the plan during 1997,
1996 and 1995:
<TABLE>
<CAPTION>
OPTION PRICE
PLAN PER
SHARES SHARE
------ -----
<S> <C> <C>
Outstanding, January 1, 1995................................ 13,200 $27
Exercised................................................. (1,675) 24
Forfeited................................................. (2,225) 24
------
Outstanding, December 31, 1995.............................. 9,300 29
Exercised................................................. (1,225) 24
Forfeited................................................. (800) 33
------
Outstanding, December 31, 1996.............................. 7,275 29
Exercised................................................. (2,580) 26
------
Outstanding, December 31, 1997.............................. 4,695 31
======
Exercisable, December 31, 1996.............................. 3,075 24
======
Exercisable, December 31, 1997.............................. 4,695 31
======
</TABLE>
Following is a summary of the status of fixed stock options outstanding at
December 31, 1997:
<TABLE>
<CAPTION>
OUTSTANDING OPTIONS EXERCISABLE
------------------------------- OPTIONS
WEIGHTED -----------------
AVERAGE WEIGHTED WEIGHTED
REMAINING AVERAGE AVERAGE
CONTRACTUAL EXERCISE EXERCISE
EXERCISE PRICE RANGE NUMBER LIFE PRICE NUMBER PRICE
- -------------------- ------ ----------- -------- ------ --------
<S> <C> <C> <C> <C> <C>
$24........................................ 1,175 3 years $24 1,175 $24
$33........................................ 3,520 7 years 33 3,520 33
----- -----
$24 to $33................................. 4,695 31 4,695 31
===== =====
</TABLE>
10. RESTRICTIONS ON RETAINED EARNINGS
The Bank is subject to certain restrictions on the amount of dividends that
it may declare without prior regulatory approval. At December 31, 1997,
approximately $1,812,000 of retained earnings were available for dividend
declaration without prior regulatory approval.
11. PROFIT-SHARING PLAN
The Bank has a 401(k) profit-sharing plan (the Plan) offered to employees
with more than one year of service. Contributions under the Plan are
discretionary and are determined annually by the Bank's Board of Directors.
The Bank's contributions to the Plan for the years ended December 31, 1997,
1996 and 1995 were $52,400, $53,450 and $48,252, respectively.
F-12
<PAGE> 93
CNB HOLDING COMPANY AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
12. FAIR VALUE OF FINANCIAL INSTRUMENTS
The following table shows the estimated fair value and the related carrying
values of the Company's financial instruments at December 31, 1997. Items which
are not financial instruments are not included.
<TABLE>
<CAPTION>
1997
-------------------------
CARRYING ESTIMATED
AMOUNT FAIR VALUE
----------- -----------
<S> <C> <C>
Cash and due from banks..................................... $ 3,503,730 $ 3,503,730
Investment securities available for sale.................... 11,059,950 11,059,950
Investment securities held to maturity...................... 5,075,939 5,068,040
Loans, net of allowance for loan losses..................... 59,530,183 60,176,636
Accrued interest receivable................................. 488,686 488,686
Deposit liabilities......................................... 74,877,986 75,083,427
</TABLE>
For purposes of the above disclosures of estimated fair value, the
following assumptions were used as of December 31, 1997. The estimated fair
value for cash and due from banks and federal funds sold is considered to
approximate cost. The estimated fair value for investment securities are based
on quoted market values for the individual securities or for equivalent
securities. The estimated fair value for commercial loans is based on estimates
of the difference in interest rates the Company would charge the borrowers for
similar loans with similar maturities made at December 31, 1997, applied for an
estimated time period until the loan is assumed to reprice or be paid. The
estimated fair value for other loans is based on estimates of the rate the
Company would charge for similar loans at December 31, 1997, applied for the
time period until estimated repayment. The estimated fair value for demand,
savings and money market deposits is based on their carrying value. The
estimated fair value for individual retirement account deposits and time
deposits is based on estimates of the rate the Company would pay on such
deposits at December 31, 1997, applied for the period on a discounted cash flow
basis. The estimated fair value for other financial instruments and
off-balance-sheet loan commitments are considered to approximate cost at
December 31, 1997.
While these estimates of fair value are based on management's judgment of
the most appropriate factors, there is no assurance that were the Company to
have disposed of such items at December 31, 1997, the estimated fair values
would necessarily have been achieved at that date, since market values may
differ depending on various circumstances. The estimated fair values at December
31, 1997 should not necessarily be considered to apply at subsequent dates.
In addition other assets and liabilities of the Company that are not
defined as financial instruments are not included in the above disclosures. Also
non-financial instruments typically not recognized in the financial statements
nevertheless may have value but are not included in the above disclosures. These
include the estimated earning power of core deposit accounts, the trained work
force, customer goodwill and similar items.
13. STOCK REPURCHASE AGREEMENT
In December, 1995 the board of directors authorized the corporation to
commence a transaction to repurchase shares of corporation common stock. At this
time, the board of directors of the corporation had not established the maximum
number of shares that the corporation will purchase as a result of the
transaction. The repurchase offer of the corporation commenced on December 22,
1995 and will remain in force until such time as the board of directors
terminate this agreement. As of December 31, 1997, the Corporation has purchased
6,475 shares of corporation common stock at a cost of $609,325.
14. REGULATORY MATTERS
The Bank is subject to various regulatory capital requirements administered
by the federal banking agencies. Failure to meet minimum capital requirements
can initiate certain mandatory -- and possible
F-13
<PAGE> 94
CNB HOLDING COMPANY AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
additional discretionary -- actions by regulators that, if undertaken, could
have a direct material effect on the Bank's financial statements. Under capital
adequacy guidelines and the regulatory framework for prompt corrective action,
the Bank must meet specific capital guidelines that involve quantitative
measures of the Bank's assets, liabilities, and certain off-balance-sheet items
as calculated under regulatory accounting practices. The Bank's capital amounts
and 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 Bank to maintain minimum amounts and ratios (set forth in the table
below) of total and Tier I capital (as defined in the regulations) to
risk-weighted assets (as defined), and of Tier I capital (as defined) to average
assets (as defined). Management believes, as of December 31, 1997, that the Bank
meets all capital adequacy requirements to which it is subject.
As of December 31, 1997, the most recent notification from the Office of
the Comptroller of the Currency categorized the Bank as well capitalized under
the regulatory framework for prompt corrective action. To be categorized as well
capitalized the Bank must maintain minimum total risk-based, Tier I risk-based,
and Tier I leverage ratios as set forth in the table. There are no conditions or
events since that notification that management believes have changed the
institution's category.
The Bank's actual capital amounts and ratios are also presented in the
table.
<TABLE>
<CAPTION>
TO BE WELL
CAPITALIZED UNDER
FOR CAPITAL PROMPT CORRECTIVE
ACTUAL ADEQUACY PURPOSES ACTION PROVISIONS
------------------ ------------------- --------------------
AMOUNT RATIO AMOUNT RATIO AMOUNT RATIO
---------- ----- ----------- ----- ----------- ------
<S> <C> <C> <C> <C> <C> <C>
As of December 31, 1997:
Total Capital (to Risk-Weighted
Assets)............................... $8,203,315 16.1% >=$4,070,141 >=8.0% >=$5,087,676 >=10.0%
Tier I Capital (to Risk-Weighted
Assets)............................... $7,754,209 15.2% >=$2,035,071 >=4.0% >=$3,052,606 >= 6.0%
Tier I Capital (to Average Assets)...... $7,754,209 8.9% >=$3,484,070 >=4.0% >=$4,355,088 >= 5.0%
As of December 31, 1996:
Total Capital (to Risk-Weighted
Assets)............................... $7,637,858 14.9% >=$4,105,244 >=8.0% >=$5,131,555 >=10.0%
Tier I Capital (to Risk-Weighted
Assets)............................... $7,259,252 14.1% >=$2,052,622 >=4.0% >=$3,078,933 >= 6.0%
Tier I Capital (to Average Assets)...... $7,259,252 8.7% >=$3,335,983 >=4.0% >=$4,169,979 >= 5.0%
</TABLE>
15. SUBSEQUENT EVENTS
The Company, with the consent of its shareholders, elected under the
Internal Revenue Code to be an S-Corporation effective for the year beginning
January 1, 1998. Under the provisions for an S-Corporation, the Company does not
pay corporate income taxes on its taxable income. In lieu of corporate income
taxes, the shareholders are taxed on their proportionate share of the Company's
taxable income.
CNB Holding Company and the Colonial Bancgroup Inc. entered into an
agreement to merge the two companies on March 26, 1998. The agreement provides
that, upon consummation of the merger, each outstanding share of CNB Holding
Company common stock shall be converted and exchanged into shares of Bancgroup
common stock at a per share price of $191.40. Specifically, each outstanding
share of CNB Holding Company's stock shall be converted into such number of
shares of Bancgroup common stock equal to $191.40 divided by the market value,
as defined, of Bancgroup's common stock. The merger will be accounted for as a
pooling of interest. The merger is subject to regulatory and shareholder
approval and is anticipated to be consummated in July, 1998.
F-14
<PAGE> 95
CNB HOLDING COMPANY AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
16. CNB HOLDING COMPANY (PARENT COMPANY ONLY)
Presented below are the financial statements of CNB Holding Company:
BALANCE SHEETS
DECEMBER 31,
<TABLE>
<CAPTION>
1997 1996
---------- ----------
<S> <C> <C>
ASSETS
Cash and cash equivalents................................... $ 509,877 $ 662,883
Investment in subsidiary -- Commercial National Bank........ 7,754,209 7,259,252
Other assets................................................ 5,930 5,246
---------- ----------
$8,270,016 $7,927,381
========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Accrued expenses............................................ $ 11,525 $ 12,523
Common stock -- par value $1 per share, 300,000 shares
authorized, 152,355 and 149,775 shares issued and
outstanding, respectively in 1997 and 1996................ 152,355 149,775
Capital surplus............................................. 750,603 685,143
Retained earnings........................................... 7,964,858 7,212,465
---------- ----------
8,879,341 8,059,906
Treasury stock, at cost..................................... (609,325) (132,525)
---------- ----------
$8,270,016 $7,927,381
========== ==========
</TABLE>
STATEMENTS OF INCOME
FOR THE YEARS ENDED DECEMBER 31,
<TABLE>
<CAPTION>
1997 1996 1995
---------- ---------- ----------
<S> <C> <C> <C>
Interest income.................................... $ 11,407 $ 16,679 $ 6,794
Cash dividend from subsidiary bank................. 1,010,000 400,000 1,000,000
Other expense...................................... (72,473) (46,668) (47,404)
---------- ---------- ----------
Income before income taxes and equity in
undistributed earnings of subsidiary bank..... 948,934 370,011 959,390
Provision for income taxes (benefits).............. (22,978) (11,284) (15,281)
---------- ---------- ----------
Income before equity in undistributed earnings of
subsidiary bank............................... 971,912 381,295 974,671
Equity in undistributed earnings of subsidiary
bank............................................. 494,956 1,019,513 297,060
---------- ---------- ----------
Net income.................................... $1,466,868 $1,400,808 $1,271,731
========== ========== ==========
</TABLE>
F-15
<PAGE> 96
CNB HOLDING COMPANY AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31,
<TABLE>
<CAPTION>
1997 1996 1995
----------- ----------- ----------
<S> <C> <C> <C>
Cash flow from operating activities:
Net income..................................... $ 1,466,868 $ 1,400,808 $1,271,731
Adjustments to reconcile net income to cash
used by operating activities:
Undistributed earnings of subsidiary........ (494,956) (1,019,513) (297,060)
(Increase) decrease in other assets......... (685) 550 (1,428)
Increase (decrease) in accrued expenses..... (998) 2,123 10,400
----------- ----------- ----------
Net cash provided by operating activities........ 970,229 383,968 983,643
----------- ----------- ----------
Cash flow from investing activities:
Net (increase) decrease in loans issued........ -- 22,194 (22,194)
----------- ----------- ----------
Net cash provided by (used in) investing
activities..................................... -- 22,194 (22,194)
----------- ----------- ----------
Cash flow from financing activities:
Dividends paid................................. (664,975) (589,550) (441,300)
Stock options exercised........................ 68,040 29,400 40,200
Proceeds from sale of treasury stock........... 142,500 -- --
Purchase of treasury stock..................... (668,800) (132,525) --
----------- ----------- ----------
Net cash used in financing activities............ (1,123,235) (692,675) (401,100)
----------- ----------- ----------
Net increase (decrease) in cash and cash
equivalents.................................... (153,006) (286,513) 560,349
Cash and cash equivalents at beginning of year... 662,883 949,396 389,047
----------- ----------- ----------
Cash and cash equivalents at end of year......... $ 509,877 $ 662,883 $ 949,396
=========== =========== ==========
</TABLE>
F-16
<PAGE> 97
CNB HOLDING COMPANY AND SUBSIDIARY
CONSOLIDATED BALANCE SHEET
MARCH 31, 1998
<TABLE>
<CAPTION>
MARCH 31,
1998
-----------
(UNAUDITED)
<S> <C>
ASSETS
Cash and due from banks..................................... $ 3,915,990
Federal funds sold.......................................... 5,523,000
-----------
Total cash and cash equivalents................... 9,438,990
Investment securities:
Available for sale........................................ 12,160,883
Held to maturity.......................................... 1,992,722
Loans, less allowance for loan losses of $430,534........... 60,252,360
Property and equipment, net................................. 3,078,190
Accrued interest receivable................................. 436,993
Other assets................................................ 656,365
-----------
$88,016,503
===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Deposits:
Demand.................................................... $16,290,035
Interest bearing demand................................... 10,234,707
Now accounts.............................................. 7,293,230
Savings................................................... 4,409,430
Time $100,000 and over.................................... 8,176,710
Other Time................................................ 32,984,905
-----------
79,389,017
Accrued interest, taxes and other liabilities............... 144,226
-----------
Total liabilities................................. 79,533,243
-----------
Stockholders' equity
Common stock, $1 par value, 300,000 shares authorized,
152,835 and 152,355 shares issued and outstanding...... 152,835
Capital surplus........................................... 762,363
Unrealized holding gain (loss) on investment securities
available for sale..................................... 60,723
Retained earnings......................................... 8,227,820
-----------
9,203,741
Treasury stock, at cost................................... (720,481)
-----------
Total stockholders' equity........................ 8,483,260
-----------
$88,016,503
===========
</TABLE>
The accompanying Auditors' Report and notes should be read with the financial
statements.
F-17
<PAGE> 98
CNB HOLDING COMPANY AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF INCOME
FOR THE THREE MONTHS ENDED MARCH 31,
<TABLE>
<CAPTION>
1998 1997
---------- ----------
<S> <C> <C>
Interest income:
Interest and fees on loans................................ $1,444,688 $1,298,596
Interest on investment securities:
U. S. Treasury Securities.............................. 92,341 25,037
Obligations of other U.S. government agencies and
corporations.......................................... 115,497 125,609
Other securities....................................... 14 --
Interest on federal funds sold............................ 42,793 140,182
---------- ----------
1,695,333 1,589,424
---------- ----------
Interest expense:
Interest on deposits...................................... 614,808 611,685
---------- ----------
Net interest income............................... 1,080,525 977,739
Provision for loan losses................................... 12,000 13,000
---------- ----------
Net interest income after provision for loan
losses.......................................... 1,068,525 964,739
---------- ----------
Non-interest income:
Gain on sale of investment securities..................... 6,872 --
Service fees.............................................. 120,559 118,984
Other..................................................... 10,503 5,704
---------- ----------
137,934 124,688
---------- ----------
Non-interest expense:
Salaries and employee benefits............................ 332,701 319,467
Occupancy and equipment................................... 84,113 82,520
Other operating expense................................... 207,274 172,329
---------- ----------
624,088 574,316
---------- ----------
Income before income taxes.................................. 582,371 515,111
Income taxes................................................ 100,589 176,564
---------- ----------
Net income........................................ $ 481,782 $ 338,547
========== ==========
Net income per share of common stock.............. $ 3.25 $ 2.24
========== ==========
Weighted average common and common equivalent shares
outstanding............................................... 148,217 151,279
========== ==========
</TABLE>
The accompanying Accountant's Compilation Report and notes
should be read with the financial statements.
F-18
<PAGE> 99
CNB HOLDING COMPANY AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
FOR THE THREE MONTHS ENDED MARCH 31, 1998
<TABLE>
<CAPTION>
UNREALIZED
GAIN (LOSS)
ON
COMMON STOCK INVESTMENT
------------------ TREASURY STOCK SECURITIES
PAR ------------------ CAPITAL RETAINED AVAILABLE
SHARES VALUE SHARES AMOUNT SURPLUS EARNINGS FOR SALE TOTAL
------- -------- ------ --------- -------- ---------- ----------- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balance, December 31,
1997................. 152,355 $152,355 6,475 $(609,325) $750,603 $7,964,858 $19,115 $8,277,606
Change in unrealized
gain (loss) on
investment securities
available for sale... -- -- -- -- -- -- 41,608 41,608
Stock options
exercised............ 480 480 -- -- 11,760 -- -- 12,240
Treasury stock
acquired............. -- -- 942 (111,156) -- -- -- (111,156)
Income................. -- -- -- -- -- 481,782 -- 481,782
Dividends paid......... -- -- -- -- -- (218,820) -- (218,820)
------- -------- ----- --------- -------- ---------- ------- ----------
Balance, March 31,
1998................. 152,835 $152,835 7,417 $(720,481) $762,363 $8,227,820 $60,723 $8,483,260
======= ======== ===== ========= ======== ========== ======= ==========
</TABLE>
The accompanying Accountant's Compilation Report and notes
should be read with the financial statements.
F-19
<PAGE> 100
CNB HOLDING COMPANY AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE THREE MONTHS ENDED MARCH 31,
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS
<TABLE>
<CAPTION>
1998 1997
----------- -----------
(UNAUDITED)
<S> <C> <C>
Cash flows from operating activities:
Net income................................................ $ 481,782 $ 338,547
Adjustments to reconcile net income to net cash provided
by operating activities:
Depreciation and amortization.......................... 31,450 28,681
Provision for loan losses.............................. 12,000 13,000
Accretion/amortization of securities................... 2,565 2,969
Deferred income taxes.................................. 100,589 (18,845)
Loss on sale of investments............................ (6,872) --
(Increase) decrease in other assets.................... (237,274) (26,943)
Increase in accrued interest receivable................ 51,693 11,036
Increase (decrease) in accrued interest, taxes and
other liabilities..................................... 26,497 279,565
----------- -----------
Net cash provided by operating activities......... 462,430 628,010
----------- -----------
Cash flows from investing activities:
Proceeds from sale of securities available for sale....... 1,007,500 --
Maturities and redemptions of securities available for
sale................................................... 10,728 --
Maturities and redemptions of securities held to
maturity............................................... 2,995,625 13,000,000
Purchases of securities available for sale................ (1,998,282) --
Purchases of securities held to maturity.................. -- (1,000,000)
Net increase in loans..................................... (734,177) (2,571,448)
Purchases of property and equipment....................... (1,859) (1,504)
----------- -----------
Net cash provided by (used in) investing
activities...................................... 1,279,535 9,427,048
----------- -----------
Cash flows from financing activities:
Dividends paid............................................ (218,820) (147,450)
Stock options exercised................................... 12,240 2,400
Net increase (decrease) in deposits....................... 4,511,031 (3,550,846)
Purchase of treasury stock................................ (111,156) --
----------- -----------
Net cash provided by (used in) financing
activities...................................... 4,193,295 (3,695,896)
----------- -----------
Net increase (decrease) in cash and cash
equivalents..................................... 5,935,260 6,359,162
Cash and cash equivalents at beginning of year.............. 3,503,730 7,501,064
----------- -----------
Cash and cash equivalents at end of period.................. $ 9,438,990 $13,860,226
=========== ===========
Supplemental disclosure of cash flow information:
Interest paid............................................. $ 613,590 $ 611,280
Income taxes paid (refunded).............................. $ (36,124) $ 63,997
</TABLE>
The accompanying Accountant's Compilation Report and notes
should be read with the financial statements.
F-20
<PAGE> 101
CNB HOLDING COMPANY AND SUBSIDIARY
NOTE TO UNAUDITED FINANCIAL STATEMENTS
FOR THE THREE MONTHS ENDED MARCH 31, 1998 AND 1997
1. BASIS OF PRESENTATION
The accompanying unaudited financial statements have been prepared in
accordance with the instructions to Form 10-QSB and do not include all of the
information and footnotes required by generally accepted accounting principles
for complete financial statements. In the opinion of the Bank, the financial
statements reflect all adjustments which are of a normal recurring nature and
which are necessary to present fairly the financial position of the Bank as of
March 31, 1998, and the results of operations for the three months ended March
31, 1998 and 1997, and cash flows for the three months ended March 31, 1998 and
1997. The results of operations for the three months ended March 31, 1998 are
not necessarily indicative of the results which may be expected for the entire
fiscal year.
F-21
<PAGE> 102
APPENDIX A
AGREEMENT AND PLAN OF MERGER
BY AND BETWEEN
THE COLONIAL BANCGROUP, INC.,
AND
CNB HOLDING COMPANY
DATED AS OF
MARCH 26, 1998
<PAGE> 103
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C> <C>
ARTICLE 1 -- NAME
1.1 Name........................................................ A-1
ARTICLE 2 -- MERGER -- TERMS AND CONDITIONS
2.1 Applicable Law.............................................. A-1
2.2 Corporate Existence......................................... A-1
2.3 Articles of Incorporation and Bylaws........................ A-1
2.4 Resulting Corporation's Officers and Board.................. A-2
2.5 Stockholder Approval........................................ A-2
2.6 Further Acts................................................ A-2
2.7 Effective Date and Closing.................................. A-2
2.8 Subsidiary Bank Merger...................................... A-2
ARTICLE 3 -- CONVERSION OF ACQUIRED CORPORATION STOCK
3.1 Conversion of Acquired Corporation Stock.................... A-2
3.2 Surrender of Acquired Corporation Stock..................... A-3
3.3 Fractional Shares........................................... A-3
3.4 Adjustments................................................. A-3
3.5 BancGroup Stock............................................. A-3
3.6 Dissenting Rights........................................... A-3
ARTICLE 4 -- REPRESENTATIONS, WARRANTIES AND
COVENANTS OF BANCGROUP
4.1 Organization................................................ A-4
4.2 Capital Stock............................................... A-4
4.3 Financial Statements; Taxes................................. A-4
4.4 No Conflict with Other Instrument........................... A-5
4.5 Absence of Material Adverse Change.......................... A-5
4.6 Approval of Agreement....................................... A-5
4.7 Tax Treatment............................................... A-5
4.8 Title and Related Matters................................... A-5
4.9 Subsidiaries................................................ A-6
4.10 Contracts................................................... A-6
4.11 Litigation.................................................. A-6
4.12 Compliance.................................................. A-6
4.13 Registration Statement...................................... A-6
4.14 SEC Filings................................................. A-6
4.15 Form S-4.................................................... A-7
4.16 Brokers..................................................... A-7
4.17 Government Authorization.................................... A-7
4.18 Absence of Regulatory Communications........................ A-7
4.19 Disclosure.................................................. A-7
ARTICLE 5 -- REPRESENTATIONS, WARRANTIES AND
COVENANTS OF ACQUIRED CORPORATION
5.1 Organization................................................ A-7
5.2 Capital Stock............................................... A-7
5.3 Subsidiaries................................................ A-8
5.4 Financial Statements; Taxes................................. A-8
5.5 Absence of Certain Changes or Events........................ A-9
5.6 Title and Related Matters................................... A-10
5.7 Commitments................................................. A-10
5.8 Charter and Bylaws.......................................... A-10
</TABLE>
i
<PAGE> 104
<TABLE>
<CAPTION>
PAGE
----
<S> <C> <C>
5.9 Litigation.................................................. A-11
5.10 Material Contract Defaults.................................. A-11
5.11 No Conflict with Other Instrument........................... A-11
5.12 Governmental Authorization.................................. A-11
5.13 Absence of Regulatory Communications........................ A-11
5.14 Absence of Material Adverse Change.......................... A-11
5.15 Insurance................................................... A-11
5.16 Pension and Employee Benefit Plans.......................... A-12
5.17 Buy-Sell Agreements......................................... A-12
5.18 Brokers..................................................... A-12
5.19 Approval of Agreements...................................... A-12
5.20 Disclosure.................................................. A-12
5.21 Registration Statement...................................... A-12
5.22 Loans; Adequacy of Allowance for Loan Losses................ A-12
5.23 Environmental Matters....................................... A-13
5.24 Transfer of Shares.......................................... A-13
5.25 Collective Bargaining....................................... A-13
5.26 Labor Disputes.............................................. A-13
5.27 Derivative Contracts........................................ A-13
5.28 Non-Terminable Contracts and Severance Agreements........... A-14
ARTICLE 6 -- ADDITIONAL COVENANTS
6.1 Additional Covenants of BancGroup........................... A-14
6.2 Additional Covenants of Acquired Corporation................ A-16
ARTICLE 7 -- MUTUAL COVENANTS AND AGREEMENTS
7.1 Best Efforts; Cooperation................................... A-19
7.2 Press Release............................................... A-19
7.3 Mutual Disclosure........................................... A-19
7.4 Access to Properties and Records............................ A-19
7.5 Notice of Adverse Changes................................... A-19
ARTICLE 8 -- CONDITIONS TO OBLIGATIONS OF ALL PARTIES
8.1 Approval by Shareholders.................................... A-20
8.2 Regulatory Authority Approval............................... A-20
8.3 Litigation.................................................. A-20
8.4 Registration Statement...................................... A-20
8.5 Tax Opinion................................................. A-20
ARTICLE 9 -- CONDITIONS TO OBLIGATIONS OF ACQUIRED CORPORATION
9.1 Representations, Warranties and Covenants................... A-21
9.2 Adverse Changes............................................. A-21
9.3 Closing Certificate......................................... A-21
9.4 Opinion of Counsel.......................................... A-22
9.5 NYSE Listing................................................ A-22
9.6 Other Matters............................................... A-22
9.7 Material Events............................................. A-22
ARTICLE 10 -- CONDITIONS TO OBLIGATIONS OF BANCGROUP
10.1 Representations, Warranties and Covenants................... A-22
10.2 Adverse Changes............................................. A-22
10.3 Closing Certificate......................................... A-22
10.4 Opinion of Counsel.......................................... A-23
10.5 Controlling Shareholders.................................... A-23
10.6 Other Matters............................................... A-23
</TABLE>
ii
<PAGE> 105
<TABLE>
<CAPTION>
PAGE
----
<S> <C> <C>
10.7 Dissenters.................................................. A-23
10.8 Material Events............................................. A-23
10.9 Pooling of Interest......................................... A-23
10.10 Non Compete Agreements...................................... A-23
ARTICLE 11 -- TERMINATION OF REPRESENTATIONS
AND WARRANTIES.................................... A-24
ARTICLE 12 -- NOTICES................................................ A-24
ARTICLE 13 -- AMENDMENT OR TERMINATION
13.1 Amendment................................................... A-24
13.2 Termination................................................. A-24
13.3 Damages..................................................... A-25
ARTICLE 14 -- DEFINITIONS............................................ A-25
ARTICLE 15 -- MISCELLANEOUS
15.1 Expenses.................................................... A-30
15.2 Benefit and Assignment...................................... A-30
15.3 Governing Law............................................... A-30
15.4 Counterparts................................................ A-30
15.5 Headings.................................................... A-30
15.6 Severability................................................ A-30
15.7 Construction................................................ A-30
15.8 Return of Information....................................... A-30
15.9 Equitable Remedies.......................................... A-30
15.10 Attorneys' Fees............................................. A-31
15.11 No Waiver................................................... A-31
15.12 Remedies Cumulative......................................... A-31
15.13 Entire Contract............................................. A-31
</TABLE>
iii
<PAGE> 106
AGREEMENT AND PLAN OF MERGER
THIS AGREEMENT AND PLAN OF MERGER is made and entered into as of this the
26th day of March 1998, by and between CNB HOLDING COMPANY ("Acquired
Corporation"), a Florida corporation, and THE COLONIAL BANCGROUP, INC.
("BancGroup"), a Delaware corporation.
WITNESSETH
WHEREAS, Acquired Corporation operates as a bank holding company for its
wholly owned subsidiary, Commercial National Bank (the "Bank"), with its
principal office in Daytona Beach, Florida; and
WHEREAS, BancGroup is a bank holding company with a Subsidiary bank,
Colonial Bank, operating in Alabama, Florida, Georgia and Tennessee; and
WHEREAS, Acquired Corporation wishes to merge with BancGroup; and
WHEREAS, it is the intention of BancGroup and Acquired Corporation that
such Merger shall qualify for federal income tax purposes as a "reorganization"
within the meaning of section 368(a) of the Code, as defined herein;
NOW, THEREFORE, in consideration of the mutual covenants contained herein,
the Parties hereto agree as follows:
ARTICLE 1
NAME
1.1 Name. The name of the corporation resulting from the Merger shall be
"The Colonial BancGroup, Inc."
ARTICLE 2
MERGER -- TERMS AND CONDITIONS
2.1 Applicable Law. On the Effective Date, Acquired Corporation shall be
merged with and into BancGroup (herein referred to as the "Resulting
Corporation" whenever reference is made to it as of the time of merger or
thereafter). The Merger shall be undertaken pursuant to the provisions of and
with the effect provided in the DGCL and, to the extent applicable, the FBCA.
The offices and facilities of Acquired Corporation and of BancGroup shall become
the offices and facilities of the Resulting Corporation.
2.2 Corporate Existence. On the Effective Date, the corporate existence of
Acquired Corporation and of BancGroup shall, as provided in the DGCL and the
FBCA, be merged into and continued in the Resulting Corporation, and the
Resulting Corporation shall be deemed to be the same corporation as Acquired
Corporation and BancGroup. All rights, franchises and interests of Acquired
Corporation and BancGroup, respectively, in and to every type of property (real,
personal and mixed) and chooses in action shall be transferred to and vested in
the Resulting Corporation by virtue of the Merger without any deed or other
transfer. The Resulting Corporation on the Effective Date, and without any order
or other action on the part of any court or otherwise, shall hold and enjoy all
rights of property, franchises and interests, including appointments,
designations and nominations and all other rights and interests as trustee,
executor, administrator, transfer agent and registrar of stocks and bonds,
guardian of estates, assignee, and receiver and in every other fiduciary
capacity and in every agency, and capacity, in the same manner and to the same
extent as such rights, franchises and interests were held or enjoyed by Acquired
Corporation and BancGroup, respectively, on the Effective Date.
2.3 Articles of Incorporation and Bylaws. On the Effective Date, the
certificate of incorporation and bylaws of the Resulting Corporation shall be
the restated certificate of incorporation and bylaws of BancGroup as they exist
immediately before the Effective Date.
A-1
<PAGE> 107
2.4 Resulting Corporation's Officers and Board. The board of directors and
the officers of the Resulting Corporation on the Effective Date shall consist of
those persons serving in such capacities of BancGroup as of the Effective Date.
2.5 Stockholder Approval. This Agreement shall be submitted to the
shareholders of Acquired Corporation at the Stockholders Meeting to be held as
promptly as practicable consistent with the satisfaction of the conditions set
forth in this Agreement. Upon approval by the requisite vote of the shareholders
of Acquired Corporation as required by applicable Law, the Merger shall become
effective as soon as practicable thereafter in the manner provided in section
2.7 hereof.
2.6 Further Acts. If, at any time after the Effective Date, the Resulting
Corporation shall consider or be advised that any further assignments or
assurances in law or any other acts are necessary or desirable (i) to vest,
perfect, confirm or record, in the Resulting Corporation, title to and
possession of any property or right of Acquired Corporation or BancGroup,
acquired as a result of the Merger, or (ii) otherwise to carry out the purposes
of this Agreement, BancGroup and its officers and directors shall execute and
deliver all such proper deeds, assignments and assurances in law and do all acts
necessary or proper to vest, perfect or confirm title to, and possession of,
such property or rights in the Resulting Corporation and otherwise to carry out
the purposes of this Agreement; and the proper officers and directors of the
Resulting Corporation are fully authorized in the name of Acquired Corporation
or BancGroup, or otherwise, to take any and all such action.
2.7 Effective Date and Closing. Subject to the terms of all requirements
of Law and the conditions specified in this Agreement, the Merger shall become
effective on the date specified in the Certificate of Merger to be issued by the
Secretary of State of the State of Delaware (such time being herein called the
"Effective Date"). Assuming all other conditions stated in this Agreement have
been or will be satisfied as of the Closing, the Closing shall take place at the
offices of BancGroup, in Montgomery, Alabama, at 5:00 p.m. on a date specified
by BancGroup that shall be as soon as reasonably practicable after the later to
occur of the Stockholder meeting or all required regulatory approvals under
Section 8.2, or at such other place and time that the Parties may mutually
agree.
2.8 Subsidiary Bank Merger. BancGroup and Acquired Corporation anticipate
that on or after the Effective Date the Bank will merge with and into Colonial
Bank, BancGroup's Subsidiary bank. The exact timing and structure of the Bank
Merger have not been finalized at this time, and BancGroup in its discretion
will finalize such timing and structure at a later date. Acquired Corporation
will cooperate with BancGroup in consummating with the Bank Merger, including
the calling of any special meetings of the board of directors of the Bank and
the filing of any regulatory applications.
ARTICLE 3
CONVERSION OF ACQUIRED CORPORATION STOCK
3.1 Conversion of Acquired Corporation Stock. (a) On the Effective Date,
each share of common stock of Acquired Corporation outstanding and held of
record by Acquired Corporation's shareholders (the "Acquired Corporation
Stock"), shall be converted by operation of law and without any action by any
holder thereof into shares of BancGroup Common Stock at a per share price of
$191.40 (the "Merger Consideration") as specified below. Specifically, each
outstanding share of Acquired Corporation Stock shall (subject to section 3.3
hereof), be converted into such number of shares of BancGroup Common Stock equal
to $191.40 divided by the Market Value (the "Exchange Ratio"). The "Market
Value" shall represent the per share market value of the BancGroup Common Stock
at the Effective Date and shall be determined by calculating the average of the
closing prices of the Common Stock of BancGroup as reported by the NYSE on each
of the ten consecutive trading days ending on the trading day five calendar days
immediately preceding the Effective Date. Regardless of the Market Value and
assuming 145,138 shares of Acquired Corporation Stock outstanding on the
Effective Date, however, the maximum number of shares of BancGroup Common Stock
to be issued in the Merger shall be 922,291 (based upon a minimum Market Value
of $30.12) and the minimum number of shares of BancGroup Common Stock to be
issued in the Merger shall be 681,703 (based upon a maximum Market Value of
$40.75). To the extent that the number of shares of Acquired Corporation Stock
A-2
<PAGE> 108
may increase based upon the exercise of Acquired Corporation Options, the
maximum and minimum number of shares of BancGroup Common Stock to be issued in
the Merger shall be increased with each share of Acquired Corporation Stock
outstanding at the Effective Date exchanged for shares of BancGroup Common Stock
equal to $191.40 divided by the Market Value, provided that for this purpose the
Market Value shall be deemed to be no less that $30.12 and no greater $40.75.
(b) No later than five days prior to the Effective Date, the holders of
Acquired Corporation Options may provide written notice to Acquired Corporation
(in form and substance reasonably satisfactory to BancGroup) that they wish to
exercise their Acquired Corporation Options to Acquired Corporation, effective
at the Effective Date, and, in lieu of the treatment provided in Section 3.1(c)
below, to receive an amount of BancGroup Common Stock in exchange therefor equal
to the difference between the total value of the shares of BancGroup Common
Stock to be issued pursuant to such Acquired Corporation Options (based upon the
number of shares of BancGroup Common Stock to be issued pursuant to the Acquired
Corporation Options multiplied by the Market Value) less the aggregate exercise
price of such Acquired Corporation Options at the Effective Date, divided by the
Market Value. No fractions of shares shall be issued and fractions shall be paid
in cash at the Market Value.
(c) On the Effective Date, all Acquired Corporation Options will terminate
pursuant to their own provisions.
3.2 Surrender of Acquired Corporation Stock. After the Effective Date,
each holder of an outstanding certificate or certificates which prior thereto
represented shares of Acquired Corporation Stock who is entitled to receive
BancGroup Common Stock shall be entitled, upon surrender to BancGroup of their
certificate or certificates representing shares of Acquired Corporation Stock
(or an affidavit or affirmation by such holder of the loss, theft, or
destruction of such certificate or certificates in such form as BancGroup may
reasonably require and, if BancGroup reasonably requires, a bond of indemnity in
form and amount, and issued by such sureties, as BancGroup may reasonably
require), to receive in exchange therefor a certificate or certificates
representing the number of whole shares of BancGroup Common Stock into and for
which the shares of Acquired Corporation Stock so surrendered shall have been
converted, such certificates to be of such denominations and registered in such
names as such holder may reasonably request. Until so surrendered and exchanged,
each such outstanding certificate which, prior to the Effective Date,
represented shares of Acquired Corporation Stock and which is to be converted
into BancGroup Common Stock shall for all purposes evidence ownership of the
BancGroup Common Stock into and for which such shares shall have been so
converted, except that no dividends or other distributions with respect to such
BancGroup Common Stock shall be made until the certificates previously
representing shares of Acquired Corporation Stock shall have been properly
tendered.
3.3 Fractional Shares. No fractional shares of BancGroup Common Stock
shall be issued, and each holder of shares of Acquired Corporation Stock having
a fractional interest arising upon the conversion of such shares into shares of
BancGroup Common Stock shall, at the time of surrender of the certificates
previously representing Acquired Corporation Stock, be paid by BancGroup an
amount in cash equal to the Market Value of such fractional share.
3.4 Adjustments. In the event that prior to the Effective Date BancGroup
Common Stock shall be changed into a different number of shares or a different
class of shares by reason of any recapitalization or reclassification, stock
dividend, combination, stock split, or reverse stock split of the BancGroup
Common Stock, an appropriate and proportionate adjustment shall be made in the
number of shares of BancGroup Common Stock into which the Acquired Corporation
Stock shall be converted as well as the maximum and minimum number of BancGroup
Common Stock issuable in the Merger.
3.5 BancGroup Stock. The shares of Common Stock of BancGroup issued and
outstanding immediately before the Effective Date shall continue to be issued
and outstanding shares of the Resulting Corporation.
3.6 Dissenting Rights. Any shareholder of Acquired Corporation who shall
not have voted in favor of this Agreement and who has complied with the
applicable procedures set forth in the FBCA, relating to rights
A-3
<PAGE> 109
of dissenting shareholders, shall be entitled to receive payment for the fair
value of his Acquired Corporation Stock. If after the Effective Date a
dissenting shareholder of Acquired Corporation fails to perfect, or effectively
withdraws or loses his right to appraisal and payment for his shares of Acquired
Corporation Stock, BancGroup shall issue and deliver the consideration to which
such holder of shares of Acquired Corporation Stock is entitled under Section
3.1 (without interest) upon surrender by such holder of the certificate or
certificates representing shares of Acquired Corporation Stock held by him or
her.
ARTICLE 4
REPRESENTATIONS, WARRANTIES AND COVENANTS OF BANCGROUP
BancGroup represents, warrants and covenants to and with Acquired
Corporation as follows:
4.1 Organization. BancGroup is a corporation duly organized, validly
existing and in good standing under the Laws of the State of Delaware. BancGroup
has the necessary corporate powers to carry on its business as presently
conducted and is qualified to do business in every jurisdiction in which the
character and location of the Assets owned by it or the nature of the business
transacted by it requires qualification or in which the failure to qualify
could, individually or in the aggregate, have a Material Adverse Effect.
4.2 Capital Stock. (a) The authorized capital stock of BancGroup consists
of (A) 100,000,000 shares of Common Stock, $2.50 par value per share, of which
as of December 31, 1997, 42,545,425 shares were validly issued and outstanding,
fully paid and nonassessable and are not subject to preemptive rights (not
counting additional shares subject to issue pursuant to stock option and other
plans and convertible debentures), and (B) 1,000,000 shares of Preference Stock,
$2.50 par value per share, none of which are issued and outstanding. Subject to
shareholder approval, BancGroup anticipates that its authorized Common Stock
will increase to 200,000,000 after its 1998 annual meeting. The shares of
BancGroup Common Stock to be issued in the Merger are duly authorized and, when
so issued, will be validly issued and outstanding, fully paid and nonassessable,
will have been registered under the 1933 Act, and will have been registered or
qualified under the securities laws of all jurisdictions in which such
registration or qualification is required, based upon information provided by
Acquired Corporation.
(b) The authorized capital stock of each Subsidiary of BancGroup is validly
issued and outstanding, fully paid and nonassessable, and each Subsidiary is
wholly owned, directly or indirectly, by BancGroup.
4.3 Financial Statements; Taxes. (a) BancGroup has delivered to Acquired
Corporation copies of the following financial statements of BancGroup:
(i) Consolidated balance sheets as of December 31, 1996, and December
31, 1997;
(ii) Consolidated statements of operations for each of the three years
ended December 31, 1995, 1996 and 1997;
(iii) Consolidated statements of cash flows for each of the three
years ended December 31, 1995, 1996 and 1997; and
(iv) Consolidated statements of changes in shareholders' equity for
the three years ended December 31, 1995, 1996 and 1997.
All such financial statements are in all material respects in accordance
with the books and records of BancGroup and have been prepared in accordance
with GAAP applied on a consistent basis throughout the periods indicated, all as
more particularly set forth in the notes to such statements. Each of the
consolidated balance sheets presents fairly as of its date the consolidated
financial condition of BancGroup and its Subsidiaries. Except as and to the
extent reflected or reserved against in such balance sheets (including the notes
thereto), BancGroup did not have, as of the dates of such balance sheets, any
material Liabilities or obligations (absolute or contingent) of a nature
customarily reflected in a balance sheet or the notes thereto. The statements of
consolidated income, shareholders' equity and changes in consolidated financial
position present fairly the results of operations and changes in financial
position of BancGroup and its Subsidiaries for the periods indicated.
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(b) All Tax returns required to be filed by or on behalf of BancGroup have
been timely filed (or requests for extensions therefor have been timely filed
and granted and have not expired), and all returns filed are complete and
accurate in all material respects. All Taxes shown on these returns to be due
and all additional assessments received have been paid. The amounts recorded for
Taxes on the balance sheets provided under section 4.3(a) are, to the Knowledge
of BancGroup, sufficient in all material respects for the payment of all unpaid
federal, state, county, local, foreign or other Taxes (including any interest or
penalties) of BancGroup accrued for or applicable to the period ended on the
dates thereof, and all years and periods prior thereto and for which BancGroup
may at such dates have been liable in its own right or as transferee of the
Assets of, or as successor to, any other corporation or other party. No audit,
examination or investigation is presently being conducted or, to the Knowledge
of BancGroup, threatened by any taxing authority which is likely to result in a
material Tax Liability, no material unpaid Tax deficiencies or additional
liabilities of any sort have been proposed by any governmental representative
and no agreements for extension of time for the assessment of any material
amount of Tax have been entered into by or on behalf of BancGroup. BancGroup has
withheld from its employees (and timely paid to the appropriate governmental
entity) proper and accurate amounts for all periods in material compliance with
all Tax withholding provisions of applicable federal, state, foreign and local
Laws (including without limitation, income, social security and employment Tax
withholding for all types of compensation).
4.4 No Conflict with Other Instrument. The consummation of the
transactions contemplated by this Agreement will not result in a breach of or
constitute a Default (without regard to the giving of notice or the passage of
time) under any material Contract, indenture, mortgage, deed of trust or other
material agreement or instrument to which BancGroup or any of its Subsidiaries
is a party or by which they or their Assets may be bound; will not conflict with
any provision of the restated certificate of incorporation or bylaws of
BancGroup or the articles of incorporation or bylaws of any of its Subsidiaries;
and will not violate any provision of any Law, regulation, judgment or decree
binding on them or any of their Assets.
4.5 Absence of Material Adverse Change. Since the date of the most recent
balance sheet provided under section 4.3(a)(i) above, there have been no events,
changes or occurrences which have had or are reasonably likely to have,
individually or in the aggregate, a Material Adverse Effect on BancGroup.
4.6 Approval of Agreement. The board of directors of BancGroup has, or
will have prior to the Effective Date, approved this Agreement and the
transactions contemplated by it and has, or will have prior to the Effective
Date, authorized the execution and delivery by BancGroup of this Agreement. This
Agreement constitutes the legal, valid and binding obligation of BancGroup,
enforceable against it in accordance with its terms. Approval of this Agreement
by the stockholders of BancGroup is not required by applicable Law. Subject to
the matters referred to in section 8.2, BancGroup has full power, authority and
legal right to enter into this Agreement and to consummate the transactions
contemplated by this Agreement. BancGroup has no Knowledge of any fact or
circumstance under which the appropriate regulatory approvals required by
section 8.2 will not be granted without the imposition of material conditions or
material delays.
4.7 Tax Treatment. BancGroup has no present plan to sell or otherwise
dispose of any of the Assets of Acquired Corporation, subsequent to the Merger,
and BancGroup intends to continue the historic business of Acquired Corporation.
4.8 Title and Related Matters. BancGroup has good and marketable title to
all the properties, interests in properties and Assets, real and personal, that
are material to the business of BancGroup, reflected in the most recent balance
sheet referred to in section 4.3(a), or acquired after the date of such balance
sheet (except properties, interests and Assets sold or otherwise disposed of
since such date, in the ordinary course of business), free and clear of all
mortgages, Liens, pledges, charges or encumbrances except (i) mortgages and
other encumbrances referred to in the notes of such balance sheet, (ii) liens
for current Taxes not yet due and payable and (iii) such imperfections of title
and easements as do not materially detract from or interfere with the present
use of the properties subject thereto or affected thereby, or otherwise
materially impair present business operations at such properties. To the
Knowledge of BancGroup, the material structures and equipment of BancGroup
comply in all material respects with the requirements of all applicable Laws.
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4.9 Subsidiaries. Each Subsidiary of BancGroup has been duly incorporated
and is validly existing as a corporation in good standing under the Laws of the
jurisdiction of its incorporation and each Subsidiary has been duly qualified as
a foreign corporation to transact business and is in good standing under the
Laws of each other jurisdiction in which it owns or leases properties, or
conducts any business so as to require such qualification and in which the
failure to be duly qualified could have a Material Adverse Effect upon BancGroup
and its Subsidiaries considered as one enterprise; each of the banking
Subsidiaries of BancGroup has its deposits fully insured by the Federal Deposit
Insurance Corporation to the extent provided by the Federal Deposit Insurance
Act; and the businesses of the non-bank Subsidiaries of BancGroup are permitted
to subsidiaries of registered bank holding companies.
4.10 Contracts. Neither BancGroup nor any of its Subsidiaries is in
violation of its respective certificate of incorporation or bylaws or in Default
in the performance or observance of any material obligation, agreement, covenant
or condition contained in any Contract, indenture, mortgage, loan agreement,
note, lease or other instrument to which it is a party or by which it or its
property may be bound.
4.11 Litigation. Except as disclosed in or reserved for in BancGroup's
financial statements, there is no Litigation before or by any court or Agency,
domestic or foreign, now pending, or, to the Knowledge of BancGroup, threatened
against or affecting BancGroup or any of its Subsidiaries (nor is BancGroup
aware of any facts which could give rise to any such Litigation) which is
required to be disclosed in the Registration Statement (other than as disclosed
therein), or which is likely to have any Material Adverse Effect or prospective
Material Adverse Effect, or which is likely to materially and adversely affect
the properties or Assets thereof or which is likely to materially affect or
delay the consummation of the transactions contemplated by this Agreement; all
pending legal or governmental proceedings to which BancGroup or any Subsidiary
is a party or of which any of their properties is the subject which are not
described in the Registration Statement, including ordinary routine litigation
incidental to the business, are, considered in the aggregate, not material; and
neither BancGroup nor any of its Subsidiaries have any contingent obligations
which could be considered material to BancGroup and its Subsidiaries considered
as one enterprise which are not disclosed in the Registration Statement as it
may be amended or supplemented.
4.12 Compliance. BancGroup and its Subsidiaries, in the conduct of their
businesses, are to the Knowledge of BancGroup, in material compliance with all
material federal, state or local Laws applicable to their or the conduct of
their businesses.
4.13 Registration Statement. At the time the Registration Statement
becomes effective and at the time of the Stockholders' Meeting, the Registration
Statement, including the Proxy Statement which shall constitute a part thereof,
will comply in all material respects with the requirements of the 1933 Act and
the rules and regulations thereunder, will not contain an untrue statement of a
material fact or omit to state a material fact necessary in order to make the
statements therein, in the light of the circumstances under which they were
made, not misleading; provided, however, that the representations and warranties
in this subsection shall not apply to statements in or omissions from the Proxy
Statement made in reliance upon and in conformity with information furnished in
writing to BancGroup by Acquired Corporation or any of its representatives
expressly for use in the Proxy Statement or information included in the Proxy
Statement regarding the business of Acquired Corporation, its operations, Assets
and capital.
4.14 SEC Filings. (a) BancGroup has heretofore delivered to Acquired
Corporation copies of BancGroup's: (i) Annual Report on Form 10-K for the fiscal
year ended December 31, 1996; (ii) 1997 Annual Report to Shareholders; and (iii)
any reports on Form 8-K, filed by BancGroup with the SEC since December 31,
1997. Since December 31, 1996, BancGroup has timely filed all reports and
registration statements and the documents required to be filed with the SEC
under the rules and regulations of the SEC and all such reports and registration
statements or other documents have complied in all material respects, as of
their respective filing dates and effective dates, as the case may be, with all
the applicable requirements of the 1933 Act and the 1934 Act. As of the
respective filing and effective dates, none of such reports or registration
statements or other documents contained any untrue statement of a material fact
or omitted to state a material fact required to be stated therein or necessary
in order to make the statements therein, in light of the circumstances under
which they were made, not misleading.
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(b) The documents incorporated by reference into the Registration
Statement, at the time they were filed with the SEC, complied in all material
respects with the requirements of the 1934 Act and Regulations thereunder and
when read together and with the other information in the Registration Statement
will not contain an 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 at the time the Registration Statement becomes effective
or at the time of the Stockholders Meeting.
4.15 Form S-4. The conditions for use of a registration statement on SEC
Form S-4 set forth in the General Instructions on Form S-4 have been or will be
satisfied with respect to BancGroup and the Registration Statement.
4.16 Brokers. All negotiations relative to this Agreement and the
transactions contemplated by this Agreement have been carried on by BancGroup
directly with Acquired Corporation and without the intervention of any other
person, either as a result of any act of BancGroup or otherwise in such manner
as to give rights to any valid claim against BancGroup for finders fees,
brokerage commissions or other like payments.
4.17 Government Authorization. BancGroup and its Subsidiaries have all
Permits that, to the Knowledge of BancGroup and its Subsidiaries, are or will be
legally required to enable BancGroup or any of its Subsidiaries to conduct their
businesses in all material respects as now conducted by each of them.
4.18 Absence of Regulatory Communications. Neither BancGroup nor any of
its Subsidiaries is subject to, or has received during the past three (3) years,
any written communication directed specifically to it from any Agency to which
it is subject or pursuant to which such Agency has imposed or has indicated it
may impose any material restrictions on the operations of it or the business
conducted by it or in which such Agency has raised a material question
concerning the condition, financial or otherwise, of such company.
4.19 Disclosure. No representation or warranty, or any statement or
certificate furnished or to be furnished to Acquired Corporation by BancGroup,
contains or will contain any untrue statement of a material fact, or omits or
will omit to state a material fact necessary to make the statements contained in
this Agreement or in any such statement or certificate not misleading.
ARTICLE 5
REPRESENTATIONS, WARRANTIES AND COVENANTS
OF ACQUIRED CORPORATION
Acquired Corporation represents, warrants and covenants to and with
BancGroup, as follows:
5.1 Organization. Acquired Corporation is a Florida corporation, and the
Bank is a National bank. Each Acquired Corporation Company is duly organized,
validly existing and in good standing under the respective Laws of its
jurisdiction of incorporation and has all requisite power and authority to carry
on its business as it is now being conducted and is qualified to do business in
every jurisdiction in which the character and location of the Assets owned by it
or the nature of the business transacted by it requires qualification or in
which the failure to qualify could, individually, or in the aggregate, have a
Material Adverse Effect.
5.2 Capital Stock. (i) As of the date of this Agreement, the authorized
capital stock of Acquired Corporation consisted of 300,000 shares of common
stock, $1.00 par value per share, 145,138 shares of which are issued and
outstanding. All of such shares which are outstanding are validly issued, fully
paid and nonassessable and not subject to preemptive rights. Acquired
Corporation has 4,495 shares of its common stock subject to exercise pursuant to
stock options under its stock option plans. Except for the foregoing, Acquired
Corporation does not have any other arrangements or commitments obligating it to
issue shares of its capital stock or any securities convertible into or having
the right to purchase shares of its capital stock, including the grant or
issuance of Acquired Corporation Options.
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5.3 Subsidiaries. Except as set forth on Schedule 5.3, Acquired
Corporation has no direct Subsidiaries other than the Bank, and there are no
Subsidiaries of the Bank. Acquired Corporation owns all of the issued and
outstanding capital stock of the Bank free and clear of any liens, claims or
encumbrances of any kind. All of the issued and outstanding shares of capital
stock of the Subsidiaries have been validly issued and are fully paid and
non-assessable. As of the date of this Agreement, there were 300,000 shares of
the common stock, par value $10.00 per share, authorized of the Bank, 145,100 of
which are issued and outstanding and wholly owned by Acquired Corporation. The
Bank has no arrangements or commitments obligating it to issue shares of its
capital stock or any securities convertible into or having the right to purchase
shares of its capital stock.
5.4 Financial Statements; Taxes. (a) Acquired Corporation has delivered to
BancGroup copies of the following financial statements of Acquired Corporation:
(i) Consolidated statements of financial condition as of December 31,
1996, and December 31, 1997;
(ii) Consolidated statements of income for each of the three years
ended December 31, 1995, 1996 and 1997; and
(iii) Consolidated statements of stockholders' equity for each of the
three years ended December 31, 1995, 1996, and 1997.
All of the foregoing financial statements are in all material respects in
accordance with the books and records of Acquired Corporation and have been
prepared in accordance with GAAP applied on a consistent basis throughout the
periods indicated, except for changes required by GAAP, all as more particularly
set forth in the notes to such statements. Each of such balance sheets presents
fairly as of its date the financial condition of Acquired Corporation. Except as
and to the extent reflected or reserved against in such balance sheets
(including the notes thereto), Acquired Corporation did not have, as of the date
of such balance sheets, any material Liabilities or obligations (absolute or
contingent) of a nature customarily reflected in a balance sheet or the notes
thereto. The statements of income, stockholders' equity and cash flows present
fairly the results of operation, changes in shareholders equity and cash flows
of Acquired Corporation for the periods indicated.
(b)(i) Acquired Corporation has elected tax treatment under Subchapter S of
the Code and, in connection with such election has (i) taken all steps necessary
to perfect the election; (ii) satisfied all requirements under the Code and
regulations thereunder to qualify for the election, and (iii) taken no action,
failed to take any action or suffered any condition to exist that has or could
give rise to Acquired Corporation's loss of eligibility for tax treatment under
Subchapter S of the Code.
(ii) Except as set forth on Schedule 5.4(b), all Tax returns required to be
filed by or on behalf of Acquired Corporation have been timely filed (or
requests for extensions therefor have been timely filed and granted and have not
expired), and all returns filed are complete and accurate in all material
respects. All Taxes shown on these returns to be due and all additional
assessments received have been paid. The amounts recorded for Taxes on the
balance sheets provided under section 5.4(a) are, to the Knowledge of Acquired
Corporation, sufficient in all material respects for the payment of all unpaid
federal, state, county, local, foreign and other Taxes (including any interest
or penalties) of Acquired Corporation accrued for or applicable to the period
ended on the dates thereof, and all years and periods prior thereto and for
which Acquired Corporation may at such dates have been liable in its own right
or as a transferee of the Assets of, or as successor to, any other corporation
or other party. No audit, examination or investigation is presently being
conducted or, to the Knowledge of Acquired Corporation, threatened by any taxing
authority which is likely to result in a material Tax Liability, no material
unpaid Tax deficiencies or additional liability of any sort has been proposed by
any governmental representative and no agreements for extension of time for the
assessment of any material amount of Tax have been entered into by or on behalf
of Acquired Corporation. Acquired Corporation has not executed an extension or
waiver of any statute of limitations on the assessment or collection of any Tax
due that is currently in effect.
(c) Each Acquired Corporation Company has withheld from its employees (and
timely paid to the appropriate governmental entity) proper and accurate amounts
for all periods in material compliance with all
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Tax withholding provisions of applicable federal, state, foreign and local Laws
(including without limitation, income, social security and employment Tax
withholding for all types of compensation). Each Acquired Corporation Company is
in compliance with, and its records contain all information and documents
(including properly completed IRS Forms W-9) necessary to comply with, all
applicable information reporting and Tax withholding requirements under federal,
state and local Tax Laws, and such records identify with specificity all
accounts subject to backup withholding under section 3406 of the Code.
5.5 Absence of Certain Changes or Events. Except as set forth on Schedule
5.5, since the date of the most recent balance sheet provided under section
5.4(a)(i) above, no Acquired Corporation Company has
(a) issued, delivered or agreed to issue or deliver any stock, bonds
or other corporate securities (whether authorized and unissued or held in
the treasury) except shares of common stock issued upon the exercise of
existing Acquired Corporation Options and shares issued as director's
qualifying shares;
(b) borrowed or agreed to borrow any funds or incurred, or become
subject to, any Liability (absolute or contingent) except borrowings,
obligations (including purchase of federal funds) and Liabilities incurred
in the ordinary course of business and consistent with past practice;
(c) paid any material obligation or Liability (absolute or contingent)
other than current Liabilities reflected in or shown on the most recent
balance sheet referred to in section 5.4(a)(i) and current Liabilities
incurred since that date in the ordinary course of business and consistent
with past practice;
(d) declared or made, or agreed to declare or make, any payment of
dividends or distributions of any Assets of any kind whatsoever to
shareholders, or purchased or redeemed, or agreed to purchase or redeem,
directly or indirectly, or otherwise acquire, any of its outstanding
securities, except that Acquired Corporation may pay cash dividends equal
to $1.50 per share per quarter on dates and times consistent with past
practices and may pay an additional cash dividend equal to the aggregate of
39.6% of Acquired Corporation's Net Income, from January 1, 1998 to the
Effective Date, payable within 30 days following the end of each calendar
quarter. In no event shall the shareholders of Acquired Corporation be
entitled to both Acquired Corporation's regular dividend and to BancGroup's
regular dividend during the quarter in which the Effective Date occurs.
(e) except in the ordinary course of business, sold or transferred, or
agreed to sell or transfer, any of its Assets, or canceled, or agreed to
cancel, any debts or claims;
(f) except in the ordinary course of business, entered or agreed to
enter into any agreement or arrangement granting any preferential rights to
purchase any of its Assets, or requiring the consent of any party to the
transfer and assignment of any of its Assets;
(g) suffered any Losses or waived any rights of value which in either
event in the aggregate are material considering its business as a whole;
(h) except in the ordinary course of business, made or permitted any
amendment or termination of any Contract, agreement or license to which it
is a party if such amendment or termination is material considering its
business as a whole;
(i) except in accordance with normal and usual practice, made any
accrual or arrangement for or payment of bonuses or special compensation of
any kind or any severance or termination pay to any present or former
officer or employee;
(j) except in accordance with normal and usual practice, increased the
rate of compensation payable to or to become payable to any of its officers
or employees or made any material increase in any profit sharing, bonus,
deferred compensation, savings, insurance, pension, retirement or other
employee benefit plan, payment or arrangement made to, for or with any of
its officers or employees;
(k) received notice or had Knowledge or reason to believe that any of
its substantial customers has terminated or intends to terminate its
relationship, which termination would have a Material Adverse Effect on its
financial condition, results of operations, business, Assets or properties;
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(l) failed to operate its business in the ordinary course so as to
preserve its business intact and to preserve the goodwill of its customers
and others with whom it has business relations;
(m) entered into any other material transaction other than in the
ordinary course of business; or
(n) agreed in writing, or otherwise, to take any action described in
clauses (a) through (m) above.
Between the date hereof and the Effective Date, no Acquired Corporation
Company, without the express written approval of BancGroup, will do any of the
things listed in clauses (a) through (n) of this section 5.5 except as permitted
therein or as contemplated in this Agreement, and no Acquired Corporation
Company will enter into or amend any material Contract, other than Loans or
renewals thereof entered into in the ordinary course of business, without the
express written consent of BancGroup.
5.6 Title and Related Matters. (a) Title. Each Acquired Corporation
Company has good and marketable title to all the properties, interest in
properties and Assets, real and personal, that are material to the business of
such Acquired Corporation Company, reflected in the most recent balance sheet
referred to in section 5.4(a)(i), or acquired after the date of such balance
sheet (except properties, interests and Assets sold or otherwise disposed of
since such date, in the ordinary course of business), free and clear of all
mortgages, Liens, pledges, charges or encumbrances except (i) mortgages and
other encumbrances referred to in the notes to such balance sheet, (ii) Liens
for current Taxes not yet due and payable and (iii) such imperfections of title
and easements as do not materially detract from or interfere with the present
use of the properties subject thereto or affected thereby, or otherwise
materially impair present business operations at such properties. To the
Knowledge of Acquired Corporation, the material structures and equipment of each
Acquired Corporation Company comply in all material respects with the
requirements of all applicable Laws.
(b) Leases. Schedule 5.6(b) sets forth a list and description of all real
and personal property owned or leased by any Acquired Corporation Company,
either as lessor or lessee. Complete and accurate copies of all such leases have
been made available to BancGroup for inspection.
(c) Personal Property. Schedule 5.6(c) sets forth a depreciation schedule
of each Acquired Corporation Company's fixed Assets as of December 31, 1997.
(d) Computer Hardware and Software. Schedule 5.6(d) contains a description
of all agreements relating to data processing computer software and hardware now
being used in the business operations of any Acquired Corporation Company.
Acquired Corporation is not aware of any defects, irregularities or problems
with any of its computer hardware or software which renders such hardware or
software unable to satisfactorily perform the tasks and functions to be
performed by them in the business of any Acquired Corporation Company. Complete
and accurate copies of all Contracts, plans and other items so listed have been
made available to BancGroup for inspection.
5.7 Commitments. Except as set forth in Schedule 5.7, no Acquired
Corporation Company is a party to any oral or written (i) Contracts for the
employment of any officer or employee which is not terminable on 30 days' (or
less) notice, (ii) profit sharing, bonus, deferred compensation, savings, stock
option, severance pay, pension or retirement plan, agreement or arrangement,
(iii) loan agreement, indenture or similar agreement relating to the borrowing
of money by such party, (iv) guaranty of any obligation for the borrowing of
money or otherwise, excluding endorsements made for collection, and guaranties
made in the ordinary course of business, (v) consulting or other similar
material Contracts, (vi) collective bargaining agreement, (vii) agreement with
any present or former officer, director or shareholder of such party, or (viii)
other Contract, agreement or other commitment which is material to the business,
operations, property, prospects or Assets or to the condition, financial or
otherwise, of any Acquired Corporation Company. Complete and accurate copies of
all Contracts, plans and other items so listed have been made available to
BancGroup for inspection.
5.8 Charter and Bylaws. Schedule 5.8 contains true and correct copies of
the articles of incorporation and bylaws of each Acquired Corporation Company,
including all amendments thereto, as currently in effect. There will be no
changes in such articles of incorporation or bylaws prior to the Effective Date,
without the prior written consent of BancGroup.
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5.9 Litigation. There is no Litigation (whether or not purportedly on
behalf of Acquired Corporation) pending or, to the Knowledge of Acquired
Corporation, threatened against or affecting any Acquired Corporation Company
(nor does Acquired Corporation have Knowledge of any facts which are likely to
give rise to any such Litigation) at law or in equity, or before or by any
governmental department, commission, board, bureau, agency or instrumentality,
domestic or foreign, or before any arbitrator of any kind, which involves the
possibility of any judgment or Liability not fully covered by insurance in
excess of a reasonable deductible amount or which may have a Material Adverse
Effect on Acquired Corporation, and no Acquired Corporation Company is in
Default with respect to any judgment, order, writ, injunction, decree, award,
rule or regulation of any court, arbitrator or governmental department,
commission, board, bureau, agency or instrumentality, which Default would have a
Material Adverse Effect on Acquired Corporation. To the Knowledge of Acquired
Corporation, each Acquired Corporation Company has complied in all material
respects with all material applicable Laws and Regulations including those
imposing Taxes, of any applicable jurisdiction and of all states,
municipalities, other political subdivisions and Agencies, in respect of the
ownership of its properties and the conduct of its business, which, if not
complied with, would have a Material Adverse Effect on Acquired Corporation.
5.10 Material Contract Defaults. Except as disclosed on Schedule 5.10, no
Acquired Corporation Company is in Default in any material respect under the
terms of any material Contract, agreement, lease or other commitment which is or
may be material to the business, operations, properties or Assets, or the
condition, financial or otherwise, of such company and, to the Knowledge of
Acquired Corporation, there is no event which, with notice or lapse of time, or
both, may be or become an event of Default under any such material Contract,
agreement, lease or other commitment in respect of which adequate steps have not
been taken to prevent such a Default from occurring.
5.11 No Conflict with Other Instrument. The consummation of the
transactions contemplated by this Agreement will not result in the breach of any
term or provision of or constitute a Default under any material Contract,
indenture, mortgage, deed of trust or other material agreement or instrument to
which any Acquired Corporation Company is a party and will not conflict with any
provision of the charter or bylaws of any Acquired Corporation Company.
5.12 Governmental Authorization. Each Acquired Corporation Company has all
Permits that, to the Knowledge of Acquired Corporation, are or will be legally
required to enable any Acquired Corporation Company to conduct its business in
all material respects as now conducted by each Acquired Corporation Company.
5.13 Absence of Regulatory Communications. Except as provided in Schedule
5.13, no Acquired Corporation Company is subject to, nor has any Acquired
Corporation Company received during the past three years, any written
communication directed specifically to it from any Agency to which it is subject
or pursuant to which such Agency has imposed or has indicated it may impose any
material restrictions on the operations of it or the business conducted by it or
in which such Agency has raised any material question concerning the condition,
financial or otherwise, of such company.
5.14 Absence of Material Adverse Change. To the Knowledge of Acquired
Corporation, since the date of the most recent balance sheet provided under
section 5.4(a)(i), there have been no events, changes or occurrences which have
had, or are reasonably likely to have, individually or in the aggregate, a
Material Adverse Effect on any Acquired Corporation Company.
5.15 Insurance. Each Acquired Corporation Company has in effect insurance
coverage and bonds with reputable insurers which, in respect to amounts, types
and risks insured, management of Acquired Corporation reasonably believes to be
adequate for the type of business conducted by such company. No Acquired
Corporation Company is liable for any material retroactive premium adjustment.
All insurance policies and bonds are valid, enforceable and in full force and
effect, and no Acquired Corporation Company has received any notice of any
material premium increase or cancellation with respect to any of its insurance
policies or bonds. Within the last three years, no Acquired Corporation Company
has been refused any insurance coverage which it has sought or applied for, and
it has no reason to believe that existing insurance coverage cannot be renewed
as and when the same shall expire, upon terms and conditions as favorable as
those
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presently in effect, other than possible increases in premiums that do not
result from any extraordinary loss experience. All policies of insurance
presently held or policies containing substantially equivalent coverage will be
outstanding and in full force with respect to each Acquired Corporation Company
at all times from the date hereof to the Effective Date.
5.16 Pension and Employee Benefit Plans. (a) To the Knowledge of Acquired
Corporation, all employee benefit plans of each Acquired Corporation Company
have been established in compliance with, and such plans have been operated in
material compliance with, all applicable Laws. Except as set forth in Schedule
5.16, no Acquired Corporation Company sponsors or otherwise maintains a "pension
plan" within the meaning of section 3(2) of ERISA or any other retirement plan
other than the Section 401K plan of Acquired Corporation that is intended to
qualify under section 401 of the Code, nor do any unfunded Liabilities exist
with respect to any employee benefit plan, past or present. To the Knowledge of
Acquired Corporation, no employee benefit plan, any trust created thereunder or
any trustee or administrator thereof has engaged in a "prohibited transaction,"
as defined in section 4975 of the Code, which may have a Material Adverse Effect
on the condition, financial or otherwise, of any Acquired Corporation Company.
(b) To the Knowledge of Acquired Corporation, no amounts payable to any
employee of any Acquired Corporation Company will fail to be deductible for
federal income tax purposes by virtue of Section 280G of the Code and
regulations thereunder.
5.17 Buy-Sell Agreements. To the Knowledge of Acquired Corporation, there
are no agreements among any of its shareholders granting to any person or
persons a right of first refusal in respect of the sale, transfer, or other
disposition of shares of outstanding securities by any shareholder of Acquired
Corporation, any similar agreement or any voting agreement or voting trust in
respect of any such shares.
5.18 Brokers. All negotiations relative to this Agreement and the
transactions contemplated by this Agreement have been carried on by Acquired
Corporation directly with BancGroup and without the intervention of any other
person, either as a result of any act of Acquired Corporation, or otherwise, in
such manner as to give rise to any valid claim against Acquired Corporation for
a finder's fee, brokerage commission or other like payment.
5.19 Approval of Agreements. The board of directors of Acquired
Corporation has approved this Agreement and the transactions contemplated by
this Agreement and has authorized the execution and delivery by Acquired
Corporation of this Agreement. Subject to the matters referred to in section
8.2, Acquired Corporation has full power, authority and legal right to enter
into this Agreement, and, upon appropriate vote of the shareholders of Acquired
Corporation in accordance with this Agreement, Acquired Corporation shall have
full power, authority and legal right to consummate the transactions
contemplated by this Agreement.
5.20 Disclosure. No representation or warranty, nor any statement or
certificate furnished or to be furnished to BancGroup by Acquired Corporation,
contains or will contain any untrue statement of a material fact, or omits or
will omit to state a material fact necessary to make the statements contained in
this Agreement or in any such statement or certificate not misleading.
5.21 Registration Statement. At the time the Registration Statement
becomes effective and at the time of the Stockholders Meeting, the Registration
Statement, including the Proxy Statement which shall constitute part thereof,
will not contain an untrue statement of a material fact or omit to state a
material fact necessary in order to make the statements therein, in the light of
the circumstances under which they were made, not misleading; provided, however,
that the representations and warranties in this section shall only apply to
statements in or omissions from the Proxy Statement relating to descriptions of
the business of Acquired Corporation, its Assets, properties, operations, and
capital stock or to information furnished in writing by Acquired Corporation or
its representatives expressly for inclusion in the Proxy Statement.
5.22 Loans; Adequacy of Allowance for Loan Losses. All reserves for loan
losses shown on the most recent financial statements furnished by Acquired
Corporation have been calculated in accordance with prudent and customary
banking practices and are adequate in all material respects to reflect the risk
inherent
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in the loans of Acquired Corporation. Acquired Corporation has no Knowledge of
any fact which is likely to require a future material increase in the provision
for loan losses or a material decrease in the loan loss reserve reflected in
such financial statements. Each loan reflected as an Asset on the financial
statements of Acquired Corporation is the legal, valid and binding obligation of
the obligor of each loan, enforceable in accordance with its terms subject to
the effect of bankruptcy, insolvency, reorganization, moratorium, or other
similar laws relating to creditors' rights generally and to general equitable
principles and complies with all Laws to which it is subject. Acquired
Corporation does not have in its portfolio any loan exceeding its legal lending
limit, and except as disclosed on Schedule 5.22, Acquired Corporation has no
known significant delinquent, substandard, doubtful, loss, nonperforming or
problem loans.
5.23 Environmental Matters. Except as provided in Schedule 5.23, to the
Knowledge of Acquired Corporation, each Acquired Corporation Company is in
material compliance with all Laws and other governmental requirements relating
to the generation, management, handling, transportation, treatment, disposal,
storage, delivery, discharge, release or emission of any waste, pollution, or
toxic, hazardous or other substance (the "Environmental Laws"), and Acquired
Corporation has no Knowledge that any Acquired Corporation Company has not
complied with all regulations and requirements promulgated by the Occupational
Safety and Health Administration that are applicable to any Acquired Corporation
Company. To the Knowledge of Acquired Corporation, there is no Litigation
pending or threatened with respect to any violation or alleged violation of the
Environmental Laws. To the Knowledge of Acquired Corporation, with respect to
Assets of any Acquired Corporation Company, including any Loan Property, (i)
there has been no spillage, leakage, contamination or release of any substances
for which the appropriate remedial action has not been completed; (ii) no owned
or leased property is contaminated with or contains any hazardous substance or
waste; and (iii) there are no underground storage tanks on any premises owned or
leased by any Acquired Corporation Company. Acquired Corporation has no
Knowledge of any facts which might suggest that any Acquired Corporation Company
has engaged in any management practice with respect to any of its past or
existing borrowers which could reasonably be expected to subject any Acquired
Corporation Company to any Liability, either directly or indirectly, under the
principles of law as set forth in United States v. Fleet Factors Corp., 901 F.2d
1550 (11th Cir. 1990) or any similar principles. Moreover, to the Knowledge of
Acquired Corporation, no Acquired Corporation Company has extended credit,
either on a secured or unsecured basis, to any person or other entity engaged in
any activities which would require or requires such person or entity to obtain
any Permits which are required under any Environmental Law which has not been
obtained.
5.24 Transfer of Shares. Acquired Corporation has no Knowledge of any plan
or intention on the part of any affiliate of Acquired Corporation to sell or
otherwise dispose of any of Acquired Corporation Common Stock, or the BancGroup
Common Stock to be received by them in the Merger, that could cause the Merger
to fail to qualify for the pooling of interests method of accounting under
generally accepted accounting principles.
5.25 Collective Bargaining. There are no labor contracts, collective
bargaining agreements, letters of undertakings or other arrangements, formal or
informal, between any Acquired Corporation Company and any union or labor
organization covering any Acquired Corporation Company's employees and none of
said employees are represented by any union or labor organization.
5.26 Labor Disputes. To the Knowledge of Acquired Corporation, each
Acquired Corporation Company is in material compliance with all federal and
state laws respecting employment and employment practices, terms and conditions
of employment, wages and hours. No Acquired Corporation Company is or has been
engaged in any unfair labor practice, and, to the Knowledge of Acquired
Corporation, no unfair labor practice complaint against any Acquired Corporation
Company is pending before the National Labor Relations Board. Relations between
management of each Acquired Corporation Company and the employees are amicable
and there have not been, nor to the Knowledge of Acquired Corporation, are there
presently, any attempts to organize employees, nor to the Knowledge of Acquired
Corporation, are there plans for any such attempts.
5.27 Derivative Contracts. No Acquired Corporation Company is a party to
or has agreed to enter into a swap, forward, future, option, cap, floor or
collar financial contract, or any other interest rate or foreign
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currency protection contract or derivative security not included in Acquired
Corporation's financial statements delivered under section 5.4 hereof which is a
financial derivative contract (including various combinations thereof).
5.28 Non-Terminable Contracts or Severance Agreements. With the exception
of (i) an Item Processing Contract with FISERV, dated June 23, 1997, (ii) an EFT
Network Agreement with IBBA, dated April 9, 1997 and (iii) a Remote Data
Processing Agreement with SBS Data Services, Inc., dated December 2, 1996, no
Acquired Corporation Company is a party to or has agreed to enter into a
contract that is not terminable within 90 days or contains an extraordinary
buyout. Assuming a June 1999 termination date, the buyout amounts for the
contracts described in the immediately preceding sentence would be approximately
(i) $65,300, (ii) $32,800 and (iii) $472,280, respectively. With the exception
of certain agreements otherwise referenced in this Agreement, no Acquired
Corporation Company is a party to or has agreed to enter into any employment
agreement, non-competition agreement, salary continuation plan or severance
agreement or similar arrangement with any Acquired Corporation Company employee.
ARTICLE 6
ADDITIONAL COVENANTS
6.1 Additional Covenants of BancGroup. BancGroup covenants to and with
Acquired Corporation as follows:
(a) Registration Statement and Other Filings. As soon as reasonably
practicable after the execution of this Agreement, BancGroup shall prepare
and file with the SEC the Registration Statement on Form S-4 (or such other
form as may be appropriate) and all amendments and supplements thereto, in
form reasonably satisfactory to Acquired Corporation and its counsel, with
respect to the Common Stock to be issued pursuant to this Agreement.
BancGroup shall use reasonable good faith efforts to prepare all necessary
filings with any Agencies which may be necessary for approval to consummate
the transactions contemplated by this Agreement and shall use its
reasonable efforts to cause the Registration Statement to become effective
under the 1933 Act as soon as reasonably practicable after the filing
thereof and take any action required to be taken under other applicable
securities Laws in connection with the issuance of the shares of BancGroup
Common Stock upon consummation of the Merger. As soon as reasonably
practicable after the execution of this Agreement. Copies of all such
filings shall be furnished in advance to Acquired Corporation and its
counsel.
(b) Blue Sky Permits. BancGroup shall use its best efforts to obtain,
prior to the effective date of the Registration Statement, all necessary
state securities Law or "blue sky" Permits and approvals required to carry
out the transactions contemplated by this Agreement.
(c) Financial Statements. BancGroup shall furnish to Acquired
Corporation:
(i) As soon as practicable and in any event within forty-five (45)
days after the end of each quarterly period (other than the last
quarterly period) in each fiscal year, consolidated statements of
operations of BancGroup for such period and for the period beginning at
the commencement of the fiscal year and ending at the end of such
quarterly period, and a consolidated statement of financial condition of
BancGroup as of the end of such quarterly period, setting forth in each
case in comparative form figures for the corresponding periods ending in
the preceding fiscal year, subject to changes resulting from year-end
adjustments;
(ii) Promptly upon receipt thereof, copies of all audit reports
submitted to BancGroup by independent auditors in connection with each
annual, interim or special audit of the books of BancGroup made by such
accountants;
(iii) As soon as practicable, copies of all such financial
statements and reports as it shall send to its stockholders and of such
regular and periodic reports as BancGroup may file with the SEC or any
other Agency; and
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(iv) With reasonable promptness, such additional financial data as
Acquired Corporation may reasonably request.
(d) No Control of Acquired Corporation by BancGroup. Notwithstanding
any other provision hereof, until the Effective Date, the authority to
establish and implement the business policies of Acquired Corporation shall
continue to reside solely in Acquired Corporation's officers and board of
directors.
(e) Listing. Prior to the Effective Date, BancGroup shall use its
reasonable efforts to list the shares of BancGroup Common Stock to be
issued in the Merger on the NYSE or other quotations system on which such
shares are primarily traded.
(f) Employee Benefit Matters. On the Effective Date, all employees of
any Acquired Corporation Company shall, at BancGroup's option, either
become employees of the Resulting Corporation or its Subsidiaries or be
entitled to severance benefits in accordance with Colonial Bank's severance
policy as of the date of this Agreement. All employees of any Acquired
Corporation Company who become employees of the Resulting Corporation or
its Subsidiaries on the Effective Date shall be entitled, to the extent
permitted by applicable Law, to participate in all benefit plans of
Colonial Bank to the same extent as Colonial Bank employees, except as
stated otherwise in this section. Employees of any Acquired Corporation
Company who become employees of the Resulting Corporation or its
Subsidiaries on the Effective Date shall be allowed to participate as of
the Effective Date in the medical and dental benefits plan of Colonial Bank
as new employees of Colonial Bank, and the time of employment of such
employees who are employed at least 30 hours per week with any Acquired
Corporation Company as of the Effective Date shall be counted as employment
under such dental and medical plans of Colonial Bank for purposes of
calculating any 30 day waiting period and pre-existing condition
limitations. To the extent permitted by applicable Law, the period of
service with the appropriate Acquired Corporation Company of all employees
who become employees of the Resulting Corporation or its Subsidiaries on
the Effective Date shall be recognized only for vesting and eligibility
purposes under Colonial Bank's benefit plans. In addition, if the Effective
Date falls within an annual period of coverage under the medical plan of
the Resulting Corporation and its Subsidiaries, each such Acquired
Corporation Company employee shall be given credit for covered expenses
paid by that employee under comparable employee benefit plans of the
Acquired Corporation Company during the applicable coverage period through
the Effective Date towards satisfaction of any annual deductible limitation
and out-of-pocket maximum that may apply under that group health plan of
the Resulting Corporation and its Subsidiaries.
(g) Indemnification. (i) Subject to the conditions set forth in the
succeeding paragraphs, for a period of five years after the Effective Date
BancGroup shall, and shall cause Colonial Bank to, indemnify, defend and
hold harmless each person entitled to indemnification from the Acquired
Corporation (each being an "Indemnified Party") against all liabilities
arising out of actions or omissions occurring upon or prior to the
Effective Date (including without limitation the transactions contemplated
by this Agreement) to the extent authorized under the articles of
incorporation and bylaws of Acquired Corporation and Florida law.
(ii) Any Indemnified Party wishing to claim indemnification under this
subsection (g), upon learning of any such liability or Litigation, shall
promptly notify BancGroup thereof. In the event of any such Litigation
(whether arising before or after the Effective Date) (i) BancGroup or
Colonial Bank shall have the right to assume the defense thereof with
counsel reasonably acceptable to such Indemnified Party and, upon
assumption of such defense, BancGroup shall not be liable to such
Indemnified Parties for any legal expenses of other counsel or any other
expenses subsequently incurred by such Indemnified Parties in connection
with the defense thereof, except that if BancGroup or Colonial Bank elects
not to assume such defense or counsel for the Indemnified Parties advises
that there are substantive issues which raise conflicts of interest between
BancGroup and the Indemnified Parties, the Indemnified Parties may retain
counsel satisfactory to them, and BancGroup or Colonial Bank shall pay all
reasonable fees and expenses of such counsel for the Indemnified Parties
promptly as statements therefor are received; provided, that BancGroup
shall be obligated pursuant to this subsection to pay for
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only one firm of counsel for all Indemnified Parties in any jurisdiction,
(ii) the Indemnified Parties will cooperate in the defense of any such
Litigation; and (iii) BancGroup shall not be liable for any settlement
effected without its prior consent; and provided further provided that
BancGroup and Colonial Bank shall not have any obligation hereunder to any
Indemnified Party when and if a court of competent jurisdiction shall
determine, and such determination shall have become final, that the
indemnification of such Indemnified Party in the manner contemplated hereby
is prohibited by applicable Law.
(iii) In consideration of and as a condition precedent to the
effectiveness of the indemnification obligations provided by BancGroup in
this section to a director or officer of the Acquired Corporation, such
director or officer of the Acquired Corporation shall have delivered to
BancGroup on or prior to the Effective Date a letter in form reasonably
satisfactory to BancGroup concerning claims such directors or officers may
have against Acquired Corporation. In the letter, the directors of officers
shall: (i) acknowledge the assumption by BancGroup as of the Effective Date
of all Liability (to the extent Acquired Corporation is so liable) for
claims for indemnification arising under section 6.1(g) hereof; (ii) affirm
that they do not have nor are they aware of any claims they might have
(other than those referred to in the following clause (iii)) against
Acquired Corporation; (iii) identify any claims or any facts or
circumstances of which they are aware that could give rise to a claim for
indemnification under section 6.1(g)(i) hereof; and (iv) release as of the
Effective Date any and all claims that they may have against any Acquired
Corporation Company other than (A) those referred to in the foregoing
clause (iii) and disclosed in the letter of the director or officer, (B)
claims by third parties which have not yet been asserted against such
director or officer (other than claims arising from facts and circumstances
of which such director or officer is aware but which are not disclosed in
such director or executive officer's letter), (C) claims by third parties
arising from any transaction contemplated by this Agreement or disclosed in
any schedule to this Agreement, and (D) claims by third parties arising in
the ordinary course of business of any Acquired Corporation Company after
the date of the letter.
(iv) Acquired Corporation hereby represents and warrants to BancGroup
that it has no Knowledge of any claim, pending or threatened, or of any
facts or circumstances that could give rise to any obligation by BancGroup
to provide the indemnification required by this section 6.1(g) other than
as disclosed in the letters of the directors and executive officers
referred to in section 6.1(g)(iii) hereof or described in any schedule to
this Agreement and claims arising from any transaction contemplated by this
Agreement.
6.2 Additional Covenants of Acquired Corporation. Acquired Corporation
covenants to and with BancGroup as follows:
(a) Operations. (i) Acquired Corporation will conduct its business
and the business of each Acquired Corporation Company in a proper and
prudent manner and will use its best efforts to maintain its relationships
with its depositors, customers and employees. No Acquired Corporation
Company will engage in any material transaction outside the ordinary course
of business or make any material change in its accounting policies or
methods of operation, nor will Acquired Corporation permit the occurrence
of any change or event which would render any of the representations and
warranties in Article 5 hereof untrue in any material respect at and as of
the Effective Date with the same effect as though such representations and
warranties had been made at and as of such Effective Date. Acquired
Corporation shall contact any person who may be required to execute an
undertaking under Section 10.5 hereof to request such undertaking and shall
take all such reasonable steps as are necessary to obtain such undertaking.
Acquired Corporation will take no action that would prevent or impede the
Merger from qualifying (i) for pooling of interests accounting treatment or
(ii) as a tax-free reorganization within the meaning of Section 368 of the
Code.
(ii) If requested by BancGroup, Acquired Corporation shall use its
best efforts to cause all officers and directors that own any stock of
Acquired Corporation and all other shareholders of Acquired Corporation who
own more than five percent (5%) of Acquired Corporation Stock, to execute
an acknowledgment that such person has no plan, intention, or binding
commitment to sell or otherwise dispose Acquired Corporation Common Stock
or of the BancGroup Common Stock to be received in the Merger from the date
of this Agreement to financial results concerning at least 30 days of
Post-Merger
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combined operations have been published by BancGroup within the meaning of
Section 201.01 of the SEC's codification of Financial Reporting Policies.
(b) Stockholders Meeting; Best Efforts. Acquired Corporation will
cooperate with BancGroup in the preparation of the Registration Statement
and any regulatory filings and will cause the Stockholders Meeting to be
held for the purpose of approving the Merger as soon as practicable after
the effective date of the Registration Statement, and will use its best
efforts to bring about the transactions contemplated by this Agreement,
including stockholder approval of this Agreement, as soon as practicable
unless this Agreement is terminated as provided herein.
(c) Prohibited Negotiations. (i) Except with respect to this
Agreement and the transactions contemplated hereby, no Acquired Corporation
Company nor any affiliate thereof nor any investment banker, attorney,
accountant, or other representative (collectively, "Representatives")
retained by an Acquired Corporation Company shall directly or indirectly
solicit any Acquisition Proposal by any Person. Except to the extent
necessary to comply with the fiduciary duties of Acquired Corporation's
Board of Directors as advised in writing by counsel to such Board of
Directors, no Acquired Corporation Company or any Representative thereof
shall furnish any non-public information that it is not legally obligated
to furnish, negotiate with respect to, or enter into any Contract with
respect to, any Acquisition Proposal, and each Acquired Corporation Company
shall direct and use its reasonable efforts to cause all of its
Representatives not to engage in any of the foregoing, but Acquired
Corporation may communicate information about such an Acquisition Proposal
to its shareholders if and to the extent that it is required to do so in
order to comply with its legal obligations as advised in writing by counsel
to such Board of Directors. Acquired Corporation shall promptly notify
BancGroup orally and in writing in the event that any Acquired Corporation
Company receives any inquiry or proposal relating to any such Acquisition
Proposal. Acquired Corporation shall immediately cease and cause to be
terminated any existing activities, discussions, or negotiations with any
Persons other than BancGroup conducted heretofore with respect to any of
the foregoing.
(ii) If Acquired Corporation (A) enters into a letter of intent or
definitive agreement regarding an Acquisition Proposal with any third party
(other than BancGroup or any of its Subsidiaries) prior to the earlier of
(i) the Effective Date or (ii) the termination of this Agreement pursuant
to Article 13 hereof (other than a termination by either Party pursuant to
paragraph (a) of section 13.2 hereof or by Acquired Corporation pursuant to
paragraphs (b), (c) or (d) of section 13.2 hereof), or (B) if Acquired
Corporation receives or is the subject of an Acquisition Proposal from a
third party (other than BancGroup or its Subsidiaries) prior to the
termination of this Agreement pursuant to Article 13 hereof (other than a
termination by either Party pursuant to paragraph (a) of section 13.2
hereof or by Acquired Corporation pursuant to paragraphs (b), (c) or (d) of
section 13.2 hereof), and within 12 months after termination of this
Agreement pursuant to Article 13 hereof (other than a termination by either
Party pursuant to paragraph (a) of section 13.2 hereof or by Acquired
Corporation pursuant to paragraphs (b), (c) or (d) of section 13.2 hereof)
an Acquisition Proposal is consummated with such third party, Acquired
Corporation covenants and agrees that it shall pay to BancGroup upon demand
at any time (Y) after Acquired Corporation enters into an agreement which
is legally binding on Acquired Corporation regarding an Acquisition
Proposal or (Z) at any time on or after the date of consummation of such
Acquisition Proposal, which ever is the first to occur, the principal sum
of $1,000,000. Such payment shall compensate BancGroup for its direct and
indirect costs and expenses in connection with the transactions
contemplated by this Agreement, including BancGroup's management time
devoted to negotiation and preparation for the Merger and BancGroup's loss
as a result of the Merger not being consummated. The Parties acknowledge
and agree that it would be impracticable or extremely difficult to fix the
actual damages resulting from the foregoing events and, therefore, the
Parties have agreed upon the foregoing payment as liquidated damages which
shall not be deemed to be in the nature of a penalty. Other than the
payment provided for in this section 6.2(c)(ii) and any Liability for
expenses as set forth in sections 13.3 and 15.10 hereof, there shall be no
other Liability or obligation on the part of any Acquired Corporation
Company or their respective directors or officers resulting from any of the
events described in this section 6.2(c)(ii).
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(d) Director Recommendation. The members of the Board of Directors of
Acquired Corporation agree to support publicly the Merger.
(e) Shareholder Voting. Acquired Corporation shall on the date of
execution of this Agreement obtain and submit to BancGroup an agreement
from certain of its directors, executive officers and affiliates
substantially in the form set forth in Exhibit A.
(f) Financial Statements and Monthly Status Reports. Acquired
Corporation shall furnish to BancGroup:
(i) As soon as practicable and in any event within 45 days after
the end of each quarterly period (other than the last quarterly period)
in each fiscal year, consolidated statements of operations of Acquired
Corporation for such period and for the period beginning at the
commencement of the fiscal year and ending at the end of such quarterly
period, and a consolidated statement of financial condition of Acquired
Corporation as of the end of such quarterly period, setting forth in
each case in comparative form figures for the corresponding periods
ending in the preceding fiscal year, subject to changes resulting from
year-end adjustments;
(ii) Promptly upon receipt thereof, copies of all audit reports
submitted to Acquired Corporation by independent auditors in connection
with each annual, interim or special audit of the books of Acquired
Corporation made by such accountants;
(iii) As soon as practicable, copies of all such financial
statements and reports as it shall send to its stockholders and of such
regular and periodic reports as Acquired Corporation may file with the
SEC or any other Agency;
(iv) With reasonable promptness, such additional financial data as
BancGroup may reasonably request; and
(v) Within 10 calendar days after the end of each month (or, if the
financial statements referred to in clause (d) are not then available,
as soon as possible thereafter) commencing with the next calendar month
following the date of this Agreement and ending at the Effective Date, a
written description of (a) any non-compliance with the terms of this
Agreement, together with its then current estimate of the out-of-pocket
costs and expenses incurred or reasonably accruable in connection with
the transactions contemplated by this Agreement; (b) the status, as of
the date of the report, of all existing or threatened litigation against
any Acquired Corporation Company; (c) copies of minutes of any meeting
of the board of directors of any Acquired Corporation Company and any
committee thereof occurring in the month for which such report is made,
including all documents presented to the directors at such meetings; and
(d) monthly financial statements, including a balance sheet and income
statement.
(g) Fiduciary Duties. Prior to the Effective Date, (i) no director or
officer (each an "Executive") of any Acquired Corporation Company shall,
directly or indirectly, own, manage, operate, join, control, be employed by
or participate in the ownership, proposed ownership, management, operation
or control of or be connected in any manner with, any business, corporation
or partnership which is competitive to the business of any Acquired
Corporation Company, (ii) all Executives, at all times, shall satisfy their
fiduciary duties to Acquired Corporation and its Subsidiaries, and (iii)
such Executives shall not (except as required in the course of his or her
employment with any Acquired Corporation Company) communicate or divulge
to, or use for the benefit of himself or herself or any other person, firm,
association or corporation, without the express written consent of Acquired
Corporation, any confidential information which is possessed, owned or used
by or licensed by or to any Acquired Corporation Company or confidential
information belonging to third parties which any Acquired Corporation
Company shall be under obligation to keep secret or which may be
communicated to, acquired by or learned of by the Executive in the course
of or as a result of his or her employment with any Acquired Corporation
Company.
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(h) Certain Practices. At the request of BancGroup, (i) Acquired
Corporation shall consult with BancGroup and advise BancGroup through its
regional office in Orlando, Florida of all of the Bank's loan requests over
$200,000 that are not single-family residential loan requests or of any
other loan request outside the normal course of business, and (ii) Acquired
Corporation will consult with BancGroup to coordinate various business
issues on a basis mutually satisfactory to Acquired Corporation and
BancGroup. Acquired Corporation and the Bank shall not be required to
undertake any of such activities, however, except as such activities may be
in compliance with existing Law and Regulations.
ARTICLE 7
MUTUAL COVENANTS AND AGREEMENTS
7.1 Best Efforts; Cooperation. Subject to the terms and conditions herein
provided, BancGroup and Acquired Corporation each agrees to use its best efforts
promptly to take, or cause to be taken, all actions and do, or cause to be done,
all things necessary, proper or advisable under applicable Laws or otherwise,
including, without limitation, promptly making required deliveries of
stockholder lists and stock transfer reports and attempting to obtain all
necessary Consents and waivers and regulatory approvals, including the holding
of any regular or special board meetings, to consummate and make effective, as
soon as practicable, the transactions contemplated by this Agreement. The
officers of each Party to this Agreement shall fully cooperate with officers and
employees, accountants, counsel and other representatives of the other Parties
not only in fulfilling the duties hereunder of the Party of which they are
officers but also in assisting, directly or through direction of employees and
other persons under their supervision or control, such as stock transfer agents
for the Party, the other Parties requiring information which is reasonably
available from such Party.
7.2 Press Release. Each Party hereto agrees that, unless approved by the
other Parties in advance, such Party will not make any public announcement,
issue any press release or other publicity or confirm any statements by any
person not a party to this Agreement concerning the transactions contemplated
hereby. Notwithstanding the foregoing, each Party hereto reserves the right to
make any disclosure if such Party, in its reasonable discretion, deems such
disclosure required by Law. In that event, such Party shall provide to the other
Party the text of such disclosure sufficiently in advance to enable the other
Party to have a reasonable opportunity to comment thereon.
7.3 Mutual Disclosure. Each Party hereto agrees to promptly furnish to
each other Party hereto its public disclosures and filings not precluded from
disclosure by Law including but not limited to call reports, Form 8-K, Form 10-Q
and Form 10-K filings, Y-3 applications, reports on Form Y-6, quarterly or
special reports to shareholders, Tax returns, Form S-8 registration statements
and similar documents.
7.4 Access to Properties and Records. Each Party hereto shall afford the
officers and authorized representatives of the other Party full access to the
Assets, books and records of such Party in order that such other Parties may
have full opportunity to make such investigation as they shall desire of the
affairs of such Party and shall furnish to such Parties such additional
financial and operating data and other information as to its businesses and
Assets as shall be from time to time reasonably requested. All such information
that may be obtained by any such Party will be held in confidence by such party,
will not be disclosed by such Party or any of its representatives except in
accordance with this Agreement, and will not be used by such Party for any
purpose other than the accomplishment of the Merger as provided herein.
7.5 Notice of Adverse Changes. Each Party agrees to give written notice
promptly to the other Party upon becoming aware of the occurrence or impending
occurrence of any event or circumstance relating to it or any of its
Subsidiaries which (i) is reasonably likely to have, individually or in the
aggregate, a Material Adverse Effect on it or (ii) would cause or constitute a
material breach of any of its representations, warranties, or covenants
contained herein, and to use its reasonable efforts to prevent or promptly to
remedy the same.
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ARTICLE 8
CONDITIONS TO OBLIGATIONS OF ALL PARTIES
The obligations of BancGroup and Acquired Corporation to cause the
transactions contemplated by this Agreement to be consummated shall be subject
to the satisfaction, in the sole discretion of the Party relying upon such
conditions, on or before the Effective Date of all the following conditions,
except as such Parties may waive such conditions in writing:
8.1 Approval by Shareholders. At the Stockholders Meeting, this Agreement
and the matters contemplated by this Agreement shall have been duly approved by
the vote of the holders of not less than the requisite number of the issued and
outstanding voting securities of Acquired Corporation as is required by
applicable Law and Acquired Corporation's articles of incorporation and bylaws.
8.2 Regulatory Authority Approval. (a) Orders, Consents and approvals, in
form and substance reasonably satisfactory to BancGroup and Acquired
Corporation, shall have been entered by the Board of Governors of the Federal
Reserve System and other appropriate bank regulatory Agencies (i) granting the
authority necessary for the consummation of the transactions contemplated by
this Agreement, including the merger of the Bank with Colonial Bank as
structured pursuant to section 2.8 hereof and (ii) satisfying all other
requirements prescribed by Law. No Order, Consent or approval so obtained which
is necessary to consummate the transactions as contemplated hereby shall be
conditioned or restricted in a manner which in the reasonable good faith
judgment of the Board of Directors of BancGroup would so materially adversely
impact the economic benefits of the transaction as contemplated by this
Agreement so as to render inadvisable the consummation of the Merger.
(b) Each Party shall have obtained any and all other Consents required for
consummation of the Merger (other than those referred to in Section 8.2(a) of
this Agreement) for the preventing of any Default under any Contract or Permit
of such Party which, if not obtained or made, is reasonably likely to have,
individually or in the aggregate, a Material Adverse Effect on such Party. No
Consent obtained which is necessary to consummate the transactions contemplated
hereby shall be conditioned or restricted in a manner which in the reasonable
judgment of the Board of Directors of BancGroup would so materially adversely
impact the economic or business benefits of the transactions contemplated by
this Agreement so as to render inadvisable the consummation of the Merger.
8.3 Litigation. There shall be no pending or threatened Litigation in any
court or any pending or threatened proceeding by any governmental commission,
board or Agency, with a view to seeking or in which it is sought to restrain or
prohibit consummation of the transactions contemplated by this Agreement or in
which it is sought to obtain divestiture, rescission or damages in connection
with the transactions contemplated by this Agreement and no investigation by any
Agency shall be pending or threatened which might result in any such suit,
action or other proceeding.
8.4 Registration Statement. The Registration Statement shall be effective
under the 1933 Act and no stop order suspending the effectiveness of the
Registration Statement shall be in effect; no proceedings for such purpose, or
under the proxy rules of the SEC or any bank regulatory authority pursuant to
the 1934 Act, with respect to the transactions contemplated hereby, shall be
pending before or threatened by the SEC or any bank regulatory authority; and
all approvals or authorizations for the offer of BancGroup Common Stock shall
have been received or obtained pursuant to any applicable state securities Laws,
and no stop order or proceeding with respect to the transactions contemplated
hereby shall be pending or threatened under any such state Law.
8.5 Tax Opinion. An opinion of Coopers & Lybrand L.L.P., shall have been
received in form and substance reasonably satisfactory to the Acquired
Corporation and BancGroup to the effect that (i) the Merger will constitute a
"reorganization" within the meaning of section 368 of the Code; (ii) no gain or
loss will be recognized by BancGroup or Acquired Corporation; (iii) no gain or
loss will be recognized by the shareholders of Acquired Corporation who receive
shares of BancGroup Common Stock except to the extent of any taxable "boot"
received by such persons from BancGroup, and except to the extent of any
dividends received from Acquired Corporation prior to the Effective Date; (iv)
the basis of the BancGroup Common
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Stock received in the Merger will be equal to the sum of the basis of the shares
of Acquired Corporation common stock exchanged in the Merger and the amount of
gain, if any, which was recognized by the exchanging Acquired Corporation
shareholder, including any portion treated as a dividend, less the value of
taxable boot, if any, received by such shareholder in the Merger; (v) the
holding period of the BancGroup Common Stock will include the holding period of
the shares of Acquired Corporation common stock exchanged therefor if such
shares of Acquired Corporation common stock were capital assets in the hands of
the exchanging Acquired Corporation shareholder; and (vi) cash received by an
Acquired Corporation shareholder in lieu of a fractional share interest of
BancGroup Common Stock will be treated as having been received as a distribution
in full payment in exchange for the fractional share interest of BancGroup
Common Stock which he or she would otherwise be entitled to receive and will
qualify as capital gain or loss (assuming the Acquired Corporation common stock
was a capital asset in his or her hands as of the Effective Date).
ARTICLE 9
CONDITIONS TO OBLIGATIONS OF ACQUIRED CORPORATION
The obligations of Acquired Corporation to cause the transactions
contemplated by this Agreement to be consummated shall be subject to the
satisfaction on or before the Effective Date of all the following conditions
except as Acquired Corporation may waive such conditions in writing:
9.1 Representations, Warranties and Covenants. Notwithstanding any
investigation made by or on behalf of Acquired Corporation, all representations
and warranties of BancGroup contained in this Agreement shall be true in all
material respects on and as of the Effective Date as if such representations and
warranties were made on and as of such Effective Date, and BancGroup shall have
performed in all material respects all agreements and covenants required by this
Agreement to be performed by it on or prior to the Effective Date.
9.2 Adverse Changes. There shall have been no changes after the date of
the most recent balance sheet provided under section 4.3(a)(i) hereof in the
results of operations (as compared with the corresponding period of the prior
fiscal year), Assets, Liabilities, financial condition or affairs of BancGroup
which in their total effect constitute a Material Adverse Effect, nor shall
there have been any material changes in the Laws governing the business of
BancGroup which would impair the rights of Acquired Corporation or its
shareholders pursuant to this Agreement.
9.3 Closing Certificate. In addition to any other deliveries required to
be delivered hereunder, Acquired Corporation shall have received a certificate
from the President or a Vice President and from the Secretary or Assistant
Secretary of BancGroup dated as of the Closing certifying that:
(a) the Board of Directors of BancGroup has duly adopted resolutions
approving the substantive terms of this Agreement and authorizing the
consummation of the transactions contemplated by this Agreement and such
resolutions have not been amended or modified and remain in full force and
effect;
(b) each person executing this Agreement on behalf of BancGroup is an
officer of BancGroup holding the office or offices specified therein and
the signature of each person set forth on such certificate is his or her
genuine signature;
(c) the certificate of incorporation and bylaws of BancGroup
referenced in section 4.4 hereof remain in full force and effect;
(d) such persons have no knowledge of a basis for any material claim,
in any court or before any Agency or arbitration or otherwise against, by
or affecting BancGroup or the business, prospects, condition (financial or
otherwise), or Assets of BancGroup which would prevent the performance of
this Agreement or the transactions contemplated by this Agreement or
declare the same unlawful or cause the rescission thereof;
(e) to such persons' knowledge, the Proxy Statement delivered to
Acquired Corporation's shareholders, or any amendments or revisions thereto
so delivered, as of the date thereof, did not contain or incorporate by
reference any untrue statement of a material fact or omit to state any
material fact
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required to be stated therein or necessary to make the statements therein
not misleading in light of the circumstances under which they were made (it
being understood that such persons need not express a statement as to
information concerning or provided by Acquired Corporation for inclusion in
such Proxy Statement); and
(f) the conditions set forth in this Article 9 insofar as they relate
to BancGroup have been satisfied.
9.4 Opinion of Counsel. Acquired Corporation shall have received an
opinion of Miller, Hamilton, Snider & Odom, L.L.C., counsel to BancGroup, dated
as of the Closing, substantially in the form set forth in Exhibit B hereto.
9.5 NYSE Listing. The shares of BancGroup Common Stock to be issued under
this Agreement shall have been approved for listing on the NYSE.
9.6 Other Matters. There shall have been furnished to such counsel for
Acquired Corporation certified copies of such corporate records of BancGroup and
copies of such other documents as such counsel may reasonably have requested for
such purpose.
9.7 Material Events. There shall have been no determination by the board
of directors of Acquired Corporation that the transactions contemplated by this
Agreement have become impractical because of any state of war, declaration of a
banking moratorium in the United States or a general suspension of trading on
the NYSE or any other exchange on which BancGroup Common Stock may be traded.
ARTICLE 10
CONDITIONS TO OBLIGATIONS OF BANCGROUP
The obligations of BancGroup to cause the transactions contemplated by this
Agreement to be consummated shall be subject to the satisfaction on or before
the Effective Date of all of the following conditions except as BancGroup may
waive such conditions in writing:
10.1 Representations, Warranties and Covenants. Notwithstanding any
investigation made by or on behalf of BancGroup, all representations and
warranties of Acquired Corporation contained in this Agreement shall be true in
all material respects on and as of the Effective Date as if such representations
and warranties were made on and as of the Effective Date, and Acquired
Corporation shall have performed in all material respects all agreements and
covenants required by this Agreement to be performed by it on or prior to the
Effective Date.
10.2 Adverse Changes. There shall have been no changes after the date of
the most recent balance sheet provided under section 5.4(a)(i) hereof in the
results of operations (as compared with the corresponding period of the prior
fiscal year), Assets, Liabilities, financial condition, or affairs of Acquired
Corporation which constitute a Material Adverse Effect, nor shall there have
been any material changes in the Laws governing the business of Acquired
Corporation which would impair BancGroup's rights pursuant to this Agreement.
10.3 Closing Certificate. In addition to any other deliveries required to
be delivered hereunder, BancGroup shall have received a certificate from
Acquired Corporation executed by the President or Vice President and from the
Secretary or Assistant Secretary of Acquired Corporation dated as of the Closing
certifying that:
(a) the Board of Directors of Acquired Corporation has duly adopted
resolutions approving the substantive terms of this Agreement and
authorizing the consummation of the transactions contemplated by this
Agreement and such resolutions have not been amended or modified and remain
in full force and effect;
(b) the shareholders of Acquired Corporation have duly adopted
resolutions approving the substantive terms of the Merger and the
transactions contemplated thereby and such resolutions have not been
amended or modified and remain in full force and effect;
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(c) each person executing this Agreement on behalf of Acquired
Corporation is an officer of Acquired Corporation holding the office or
offices specified therein and the signature of each person set forth on
such certificate is his or her genuine signature;
(d) the articles of incorporation and bylaws of Acquired Corporation
and the Bank referenced in section 5.8 hereof remain in full force and
effect and have not been amended or modified since the date hereof;
(e) to such persons' knowledge, the Proxy Statement delivered to
Acquired Corporation's shareholders, or any amendments or revisions thereto
so delivered, as of the date thereof, did not contain or incorporate by
reference 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 not misleading in light of the circumstances under which
they were made (it being understood that such persons need only express a
statement as to information concerning or provided by Acquired Corporation
for inclusion in such Proxy Statement); and
(f) the conditions set forth in this Article 10 insofar as they relate
to Acquired Corporation have been satisfied.
10.4 Opinion of Counsel. BancGroup shall have received an opinion of
Smith, Mackinnon, Greeley, Bowdoin & Edwards, P.A., counsel to Acquired
Corporation, dated as of the Closing, substantially as set forth in Exhibit C
hereto.
10.5 Controlling Shareholders. Each shareholder of Acquired Corporation
who may be an "affiliate" of Acquired Corporation, within the meaning of Rule
145 of the general rules and regulations under the 1933 Act shall have executed
and delivered an agreement satisfactory to BancGroup to the effect that such
person shall not make a "distribution" (within the meaning of Rule 145) of the
Common Stock which he receives upon the Effective Date and that such Common
Stock will be held subject to all applicable provisions of the 1933 Act and the
rules and regulations of the SEC thereunder, and that such person will not sell
or otherwise reduce risk relative to any shares of BancGroup Common Stock
received in the Merger until financial results concerning at least 30 days of
post-Merger combined operations have been published by BancGroup within the
meaning of Section 201.01 of the SEC's Codification of Financial Reporting
Policies. Acquired Corporation recognizes and acknowledges that BancGroup Common
Stock issued to such persons may bear a legend evidencing the agreement
described above.
10.6 Other Matters. There shall have been furnished to counsel for
BancGroup certified copies of such corporate records of Acquired Corporation and
copies of such other documents as such counsel may reasonably have requested for
such purpose.
10.7 Dissenters. The number of shares as to which shareholders of Acquired
Corporation have exercised dissenters rights of appraisal under section 3.6 does
not exceed 10% of the outstanding shares of common stock of Acquired
Corporation.
10.8 Material Events. There shall have been no determination by the board
of directors of BancGroup that the transactions contemplated by this Agreement
have become impractical because of any state of war, declaration of a banking
moratorium in the United States or general suspension of trading on the NYSE or
any exchange on which BancGroup Common Stock may be traded.
10.9 Pooling of Interest. BancGroup shall have received the written
opinion of Coopers & Lybrand L.L.P., that the Merger will qualify for the
pooling of interests method of accounting under generally accepted accounting
principles.
10.10 Non Compete Agreements. Key employees as shown by Schedule 5.5(i)
will, prior to the Effective Date, execute agreements in form and substance
reasonably acceptable to BancGroup. The agreements shall provide that such key
employees will not compete with BancGroup for a period of at least one (1) year
from the Effective Date if (i) such employee voluntarily terminated his or her
employment with BancGroup and (ii) at the time of such termination, the
employee's salary is substantially equivalent to what
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it was on the Effective Date. In consideration for this agreement the key
employees will receive compensation in accordance with Schedule 5.5(i) which
will not exceed in the aggregate $183,000.
ARTICLE 11
TERMINATION OF REPRESENTATIONS AND WARRANTIES
All representations and warranties provided in Articles 4 and 5 of this
Agreement or in any closing certificate pursuant to Articles 9 and 10 shall
terminate and be extinguished at and shall not survive the Effective Date. All
covenants, agreements and undertakings required by this Agreement to be
performed by any Party hereto following the Effective Date shall survive such
Effective Date and be binding upon such Party. If the Merger is not consummated,
all representations, warranties, obligations, covenants, or agreements hereunder
or in any certificate delivered hereunder relating to the transaction which is
not consummated shall be deemed to be terminated or extinguished, except that
the last sentence of Section 7.4, and Sections 6.2(c)(ii), 7.2, 13.3, Article
11, Article 12, Article 15, any applicable definitions of Article 14 and the
Confidentiality Agreement shall survive. Items disclosed in the Exhibits and
Schedules attached hereto are incorporated into this Agreement and form a part
of the representations, warranties, covenants or agreements to which they
relate.
ARTICLE 12
NOTICES
All notices or other communications which are required or permitted
hereunder shall be in writing and sufficient if delivered by hand, by facsimile
transmission, by registered or certified mail, postage pre-paid, or by courier
or overnight carrier, to the persons at the addresses set forth below (or at
such other address as may be provided hereunder), and shall be deemed to have
been delivered as of the date so received:
(a) If to Acquired Corporation to Raymond R. Thomas, 1899 South Clyde
Morris Boulevard, Daytona Beach, Florida 32119 facsimile (904) 761-8178,
with copies to John P. Greeley, Esq., Smith, Mackinnon, Greeley, Bowdoin &
Edwards, P.A., Citrus Center, Suite 800, 255 South Orange Avenue, Orlando,
Florida 32801, facsimile (407)843-2448, or as may otherwise be specified by
Acquired Corporation in writing to BancGroup.
(b) If to BancGroup, to W. Flake Oakley, IV, One Commerce Street,
Suite 803, Montgomery, Alabama, 36104, facsimile (334) 240-5069, with
copies to William A. McCrary, Esquire, One Commerce Street, Suite 303,
Montgomery, Alabama 36104, facsimile (334) 240-5069, and Willard H. Henson,
Miller, Hamilton, Snider & Odom, L.L.C., One Commerce Street, Suite 305,
Montgomery, Alabama 36104, facsimile (334) 265-4533, or as may otherwise be
specified in writing by BancGroup to Acquired Corporation.
ARTICLE 13
AMENDMENT OR TERMINATION
13.1 Amendment. This Agreement may be amended by the mutual consent of
BancGroup and Acquired Corporation before or after approval of the transactions
contemplated herein by the shareholders of Acquired Corporation.
13.2 Termination. This Agreement may be terminated at any time prior to or
on the Effective Date whether before or after action thereon by the shareholders
of Acquired Corporation, as follows:
(a) by the mutual consent of the respective boards of directors of
Acquired Corporation and BancGroup;
(b) by the board of directors of either Party (provided that the
terminating Party is not then in material breach of any representation,
warranty, covenant, or other agreement contained in this
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Agreement) in the event of a material breach by the other Party of any
representation or warranty contained in this Agreement which cannot be or
has not been cured within thirty (30) days after the giving of written
notice to the breaching Party of such breach and which breach would provide
the non-breaching Party the ability to refuse to consummate the Merger
under the standard set forth in section 10.1 of this Agreement in the case
of BancGroup and section 9.1 of this Agreement in the case of Acquired
Corporation;
(c) by the board of directors of either Party (provided that the
terminating Party is not then in material breach of any representation,
warranty, covenant, or other agreement contained in this Agreement) in the
event of a material breach by the other Party of any covenant or agreement
contained in this Agreement which cannot be or has not been cured within
thirty (30) days after the giving of written notice to the breaching Party
of such breach, or if any of the conditions to the obligations of such
Party contained in this Agreement in Article 9 as to Acquired Corporation
or Article 10 as to BancGroup shall not have been satisfied in full; or
(d) by the board of directors of either BancGroup or Acquired
Corporation if all transactions contemplated by this Agreement shall not
have been consummated on or prior to November 30, 1998, if the failure to
consummate the transactions provided for in this Agreement on or before
such date is not caused by any breach of this Agreement by the Party
electing to terminate pursuant to this section 13.2(d).
(e) without further action by either Party, upon the execution by
Acquired Corporation of an agreement which is legally binding on Acquired
Corporation with any third party (other than BancGroup or its Subsidiaries)
with respect to an Acquisition Proposal if, in connection therewith,
BancGroup will have the right to demand the payment of the sum described in
section 6.2(c)(ii) by the Acquired Corporation.
13.3 Damages. In the event of termination pursuant to section 13.2, this
Agreement shall become void and have no effect other than as set forth in
section 6.2(c)(ii) and except as provided in Article 11, and except that
Acquired Corporation and BancGroup shall be liable for damages for any wilful
breach of warranty, representation, covenant or other agreement contained in
this Agreement.
ARTICLE 14
DEFINITIONS
(a) The following terms, which are capitalized in this Agreement, shall
have the meanings set forth below for the purpose of this Agreement:
Acquired Corporation....... CNB Holding Company, a Florida corporation.
Acquired Corporation
Company.................. Shall mean Acquired Corporation, the Bank, any
Subsidiary of Acquired Corporation or the Bank, or
any person or entity acquired as a Subsidiary of
Acquired Corporation or the Bank in the future and
owned by Acquired Corporation or the Bank at the
Effective Date.
Acquired Corporation
Options.................... Options respecting the issuance of a maximum of
4,495 shares of Acquired Corporation common stock
pursuant to Acquired Corporation's stock option
plans.
Acquired Corporation
Stock...................... Shares of common stock, par value $1.00 per share,
of Acquired Corporation.
Acquisition Proposal....... Shall mean, with respect to a Party, any tender
offer or exchange offer or any proposal for a
merger, acquisition of all of the stock or assets
of, or other business combination involving such
Party or any of its Subsidiar-
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ies or the acquisition of a substantial equity
interest in, or a substantial portion of the assets
of, such Party or any of its Subsidiaries.
Agencies................... Shall mean, collectively, the Federal Trade
Commission, the United States Department of
Justice, the Board of the Governors of the Federal
Reserve System, the Federal Deposit Insurance
Corporation, the Office of Thrift Supervision, all
state regulatory agencies having jurisdiction over
the Parties and their respective Subsidiaries, HUD,
the VA, the FHA, the GNMA, the FNMA, the FHLMC, the
NYSE, and the SEC.
Agreement.................. Shall mean this Agreement and Plan of Merger and
the Exhibits and Schedules delivered pursuant
hereto and incorporated herein by reference.
Assets..................... Of a Person shall mean all of the assets,
properties, businesses and rights of such Person of
every kind, nature, character and description,
whether real, personal or mixed, tangible or
intangible, accrued or contingent, or otherwise
relating to or utilized in such Person's business,
directly or indirectly, in whole or in part,
whether or not carried on the books and records of
such Person, and whether or not owned in the name
of such Person or any Affiliate of such Person and
wherever located.
BancGroup.................. The Colonial BancGroup, Inc., a Delaware
corporation with its principal offices in
Montgomery, Alabama.
Bank....................... Commercial National Bank, a National bank.
Closing.................... The submission of the certificates of officers,
legal opinions and other actions required to be
taken in order to consummate the Merger in
accordance with this Agreement.
Code....................... The Internal Revenue Code of 1986, as amended.
Common Stock............... BancGroup's Common Stock authorized and defined in
the restated certificate of incorporation of
BancGroup, as amended.
Confidentiality
Agreement.................. Confidentiality Agreement executed by BancGroup and
Acquired Corporation on or around March 9, 1998.
Consent.................... Any consent, approval, authorization, clearance,
exemption, waiver, or similar affirmation by any
Person pursuant to any Contract, Law, Order, or
Permit.
Contract................... Any written or oral agreement, arrangement,
authorization, commitment, contract, indenture,
instrument, lease, obligation, plan, practice,
restriction, understanding or undertaking of any
kind or character, or other document to which any
Person is a party or that is binding on any Person
or its capital stock, Assets or business.
Default.................... Shall mean (i) any breach or violation of or
default under any Contract, Order or Permit, (ii)
any occurrence of any event that with the passage
of time or the giving of notice or both would
constitute a breach or violation of or default
under any Contract, Order or Permit, or (iii) any
occurrence of any event that with or without the
passage of time or the giving of notice would give
rise to a right to terminate or revoke, change the
current terms of, or renegotiate, or to accelerate,
increase, or impose any Liability under, any
Contract, Order or Permit.
DGCL....................... The Delaware General Corporation Law.
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Effective Date............. Means the date and time at which the Merger becomes
effective as defined in section 2.7 hereof.
Environmental Laws......... Means the laws, regulations and governmental
requirements referred to in section 5.23 hereof.
ERISA...................... The Employee Retirement Income Security Act of
1974, as amended.
Exchange Ratio............. The ratio obtained by dividing $191.40 by the
Market Value, as set forth in section 3.1(c).
Exhibits................... A through C, inclusive, shall mean the Exhibits so
marked, copies of which are attached to this
Agreement. Such Exhibits are hereby incorporated by
reference herein and made a part hereof, and may be
referred to in this Agreement and any other related
instrument or document without being attached
hereto.
FBCA....................... The Florida Business Corporation Act.
GAAP....................... Means generally accepted accounting principles
applicable to banks and bank holding companies
consistently applied during the periods involved.
Knowledge.................. Means the actual knowledge of the Chairman,
President, Chief Financial Officer, Chief
Accounting Officer, Chief Credit Officer, General
Counsel or any Senior or Executive Vice President
of BancGroup, in the case of knowledge of
BancGroup, or of Acquired Corporation and the Bank,
in the case of knowledge of Acquired Corporation.
Law........................ Any code, law, ordinance, regulation, reporting or
licensing requirement, rule, or statute applicable
to a Person or its Assets, Liabilities or business,
including, without limitation, those promulgated,
interpreted or enforced by any Agency.
Liability.................. Any direct or indirect, primary or secondary,
liability, indebtedness, obligation, penalty, cost
or expense (including, without limitation, costs of
investigation, collection and defense), deficiency,
guaranty or endorsement of or by any Person (other
than endorsements of notes, bills, checks, and
drafts presented for collection or deposit in the
ordinary course of business) of any type, whether
accrued, absolute or contingent, liquidated or
unliquidated, matured or unmatured, or otherwise.
Lien....................... Any conditional sale agreement, default of title,
easement, encroachment, encumbrance, hypothecation,
infringement, lien, mortgage, pledge, reservation,
restriction, security interest, title retention or
other security arrangement, or any adverse right or
interest, charge, or claim of any nature whatsoever
of, on, or with respect to any property or property
interest, other than (i) Liens for current property
Taxes not yet due and payable, (ii) for depository
institution Subsidiaries of a Party, pledges to
secure deposits and other Liens incurred in the
ordinary course of the banking business, (iii)
Liens in the form of easements and restrictive
covenants on real property which do not materially
adversely affect the use of such property by the
current owner thereof, and (iv) Liens which are not
reasonably likely to have, individually or in the
aggregate, a Material Adverse Effect on a Party.
Litigation................. Any action, arbitration, complaint, criminal
prosecution, governmental or other examination or
investigation, hearing, inquiry, administrative or
other proceeding but shall not include regular,
periodic examinations of
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depository institutions and their Affiliates by
Regulatory Authorities, relating to or affecting a
Party, its business, its Assets (including
Contracts related to it), or the transactions
contemplated by this Agreement, relating to or
affecting a Party, its business, its Assets
(including Contracts related to it), or the
transactions contemplated by this Agreement.
Loan Property.............. Any property owned by the Party in question or by
any of its Subsidiaries or in which such Party or
Subsidiary holds a security interest, and, where
required by the context, includes the owner or
operator of such property, but only with respect to
such property.
Loss....................... Any and all direct or indirect payments,
obligations, recoveries, deficiencies, fines,
penalties, interest, assessments, losses,
diminution in the value of Assets, damages,
punitive, exemplary or consequential damages
(including, but not limited to, lost income and
profits and interruptions of business),
liabilities, costs, expenses (including without
limitation, reasonable attorneys' fees and
expenses, and consultant's fees and other costs of
defense or investigation), and interest on any
amount payable to a third party as a result of the
foregoing.
Market Value............... Shall represent the per share market value of the
BancGroup Common Stock at the Effective Date and
shall be determined by calculating the average of
the closing prices of the Common Stock of BancGroup
as reported by the NYSE on each of the ten (10)
consecutive trading days ending on the trading day
five calendar days preceding the Effective Date.
Regardless of such average, the Market Value shall
be deemed to be no less than $30.12 and no greater
than $40.75.
Material................... For purposes of this Agreement shall be determined
in light of the facts and circumstances of the
matter in question; provided that any specific
monetary amount stated in this Agreement shall
determine materiality in that instance.
Material Adverse Effect.... On a Party shall mean an event, change or
occurrence which has a material adverse impact on
(i) the financial position, Assets, business, or
results of operations of such Party and its
Subsidiaries, taken as a whole, or (ii) the ability
of such Party to perform its obligations under this
Agreement or to consummate the Merger or the other
transactions contemplated by this Agreement,
provided that "material adverse effect" shall not
be deemed to include the impact of (w) changes in
banking and similar laws of general applicability
or interpretations thereof by courts or
governmental authorities, (x) changes in generally
accepted accounting principles or regulatory
accounting principles generally applicable to banks
and their holding companies, (y) actions and
omissions of a Party (or any of its Subsidiaries)
taken with the prior informed consent of the other
Party in contemplation of the transactions
contemplated hereby, and (z) the Merger and
compliance with the provisions of this Agreement on
the operating performance of the Parties.
Merger..................... The merger of Acquired Corporation with BancGroup
as contemplated in this Agreement.
Merger Consideration....... The distribution of BancGroup Common Stock for each
share of Acquired Corporation Stock (and cash for
fractional shares) as provided in section 3.1(a)
hereof.
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Net Income................. Net income in accordance with GAAP.
NYSE....................... The New York Stock Exchange.
Order...................... Any administrative decision or award, decree,
injunction, judgment, order, quasi-judicial
decision or award, ruling, or writ of any federal,
state, local or foreign or other court, arbitrator,
mediator, tribunal, administrative agency or
Agency.
Party...................... Shall mean Acquired Corporation or BancGroup, and
"Parties" shall mean both Acquired Corporation and
BancGroup.
Permit..................... Any federal, state, local, and foreign governmental
approval, authorization, certificate, easement,
filing, franchise, license, notice, permit, or
right to which any Person is a party or that is or
may be binding upon or inure to the benefit of any
Person or its securities, Assets or business.
Person..................... A natural person or any legal, commercial or
governmental entity, such as, but not limited to, a
corporation, general partnership, joint venture,
limited partnership, limited liability company,
trust, business association, group acting in
concert, or any person acting in a representative
capacity.
Proxy Statement............ The proxy statement used by Acquired Corporation to
solicit the approval of its stockholders of the
transactions contemplated by this Agreement, which
shall include the prospectus of BancGroup relating
to the issuance of the BancGroup Common Stock to
the shareholders of Acquired Corporation.
Registration Statement..... The registration statement on Form S-4, or such
other appropriate form, to be filed with the SEC by
BancGroup, and which has been agreed to by Acquired
Corporation, to register the shares of BancGroup
Common Stock offered to stockholders of the Bank
pursuant to his Agreement, including the Proxy
Statement.
Resulting Corporation...... BancGroup, as the surviving corporation resulting
from the Merger.
SEC........................ United States Securities and Exchange Commission.
Shareholders Meeting....... The special meeting of shareholders of Acquired
Corporation called to approve the transactions
contemplated by this Agreement.
Subsidiaries............... Shall mean all those corporations, banks,
associations, or other entities of which the entity
in question owns or controls 5% or more of the
outstanding equity securities either directly or
through an unbroken chain of entities as to each of
which 5% or more of the outstanding equity
securities is owned directly or indirectly by its
parent; provided, however, there shall not be
included any such entity acquired through
foreclosure or any such entity the equity
securities of which are owned or controlled in a
fiduciary capacity.
Tax or Taxes............... Means any federal, state, county, local, foreign,
and other taxes, assessments, charges, fares, and
impositions, including interest and penalties
thereon or with respect thereto.
1933 Act................... The Securities Act of 1933, as amended.
1934 Act................... The Securities Exchange Act of 1934, as amended.
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ARTICLE 15
MISCELLANEOUS
15.1 Expenses. (a) Except as otherwise provided in this Section 15.1, each
of the Parties shall bear and pay all direct costs and expenses incurred by it
or on its behalf in connection with the transactions contemplated hereunder,
including filing, registration and application fees, printing fees, and fees and
expenses of its own financial or other consultants, investment bankers,
accountants, and counsel, except that BancGroup shall bear and pay the filing
fees payable in connection with the Registration Statement and printing costs
incurred in connection with the printing of the Registration Statement.
(b) Nothing contained in this Section 15.1 shall constitute or shall be
deemed to constitute liquidated damages for the willful breach by a Party of the
terms of this Agreement or otherwise limit the rights of the nonbreaching Party.
15.2 Benefit and Assignment. Except as expressly contemplated hereby,
neither this Agreement nor any of the rights, interests, or obligations
hereunder shall be assigned by any Party hereto (whether by operation of Law or
otherwise) without the prior written consent of the other Party. Subject to the
preceding sentence, this Agreement will be binding upon, inure to the benefit
of, and be enforceable by, the Parties and their respective successors and
assigns.
15.3 Governing Law. Except to the extent the Laws of the State of Delaware
and the State of Florida apply to the Merger, this Agreement shall be governed
by, and construed in accordance with the Laws of the State of Alabama without
regard to any conflict of Laws.
15.4 Counterparts. This Agreement may be executed in counterparts, each of
which shall be deemed to constitute an original. Each such counterpart shall
become effective when one counterpart has been signed by each Party thereto.
15.5 Headings. The headings of the various articles and sections of this
Agreement are for convenience of reference only and shall not be deemed a part
of this Agreement or considered in construing the provisions thereof.
15.6 Severability. Any term or provision of this Agreement that is
prohibited or unenforceable in any jurisdiction shall, as to such jurisdiction,
be ineffective to the extent of such prohibition or unenforceability without
invalidating the remaining terms and provisions thereof or affecting the
validity or enforceability of such provision in any other jurisdiction, and if
any term or provision of this Agreement is held by any court of competent
jurisdiction to be void, voidable, invalid or unenforceable in any given
circumstance or situation, then all other terms and provisions, being severable,
shall remain in full force and effect in such circumstance or situation and the
term or provision shall remain valid and in effect in any other circumstances or
situation.
15.7 Construction. Use of the masculine pronoun herein shall be deemed to
refer to the feminine and neuter genders and the use of singular references
shall be deemed to include the plural and vice versa, as appropriate. No
inference in favor of or against any Party shall be drawn from the fact that
such Party or such Party's counsel has drafted any portion of this Agreement.
15.8 Return of Information. In the event of termination of this Agreement
prior to the Effective Date, each Party shall return to the other, without
retaining copies thereof, all confidential or non-public documents, work papers
and other materials obtained from the other Party in connection with the
transactions contemplated in this Agreement and shall keep such information
confidential, not disclose such information to any other person or entity, and
not use such information in connection with its business.
15.9 Equitable Remedies. The parties hereto agree that, in the event of a
breach of this Agreement by either Party, the other Party may be without an
adequate remedy at law owing to the unique nature of the contemplated
transactions. In recognition thereof, in addition to (and not in lieu of) any
remedies at law that may be available to the non-breaching Party, the
non-breaching Party shall be entitled to obtain equitable relief, including the
remedies of specific performance and injunction, in the event of a breach of
this Agreement by the other Party, and no attempt on the part of the
non-breaching Party to obtain such equitable
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relief shall be deemed to constitute an election of remedies by the
non-breaching Party that would preclude the non-breaching Party from obtaining
any remedies at law to which it would otherwise be entitled.
15.10 Attorneys' Fees. If any Party hereto shall bring an action at law or
in equity to enforce its rights under this Agreement (including an action based
upon a misrepresentation or the breach of any warranty, covenant, agreement or
obligation contained herein), the prevailing Party in such action shall be
entitled to recover from the other Party its costs and expenses incurred in
connection with such action (including fees, disbursements and expenses of
attorneys and costs of investigation).
15.11 No Waiver. No failure, delay or omission of or by any Party in
exercising any right, power or remedy upon any breach or Default of any other
Party shall impair any such rights, powers or remedies of the Party not in
breach or Default, nor shall it be construed to be a wavier of any such right,
power or remedy, or an acquiescence in any similar breach or Default; nor shall
any waiver of any single breach or Default be deemed a waiver of any other
breach or default theretofore or thereafter occurring. Any waiver, permit,
consent or approval of any kind or character on the part of any Party of any
provisions of this Agreement must be in writing and be executed by the Parties
to this Agreement and shall be effective only to the extent specifically set
forth in such writing.
15.12 Remedies Cumulative. All remedies provided in this Agreement, by law
or otherwise, shall be cumulative and not alternative.
15.13 Entire Contract. This Agreement and the documents and instruments
referred to herein constitute the entire contract between the parties to this
Agreement and supersede all other understandings with respect to the subject
matter of this Agreement.
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IN WITNESS WHEREOF, Acquired Corporation and BancGroup have caused this
Agreement to be signed by their respective duly authorized officers as of the
date first above written.
<TABLE>
<S> <C> <C> <C>
ATTEST: CNB HOLDING COMPANY
BY: /s/ RAYMOND R. THOMAS BY: /s/ WILLIAM T. MOORE
---------------------------------------- ----------------------------------------
Raymond R. Thomas William T. Moore
ITS: President and CEO ITS: Chairman of the Board
(CORPORATE SEAL)
ATTEST: THE COLONIAL BANCGROUP, INC.
BY: /s/ GLENDA ALLRED BY: /s/ W. FLAKE OAKLEY, IV
---------------------------------------- ----------------------------------------
Glenda Allred W. Flake Oakley, IV
ITS: Assistant Secretary ITS: Executive Vice President, Chief
Financial Officer and Secretary
(CORPORATE SEAL)
</TABLE>
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APPENDIX B
607.1301 DISSENTER'S RIGHTS; DEFINITIONS. The following definitions apply to
sec.sec. 607.1302 and 607.1302 and 607.132:
(1) "Corporation" means the issuer of the shares held by a dissenting
shareholder before the corporate action or the surviving or acquiring
corporation by merger or share exchange of that issuer.
(2) "Fair value," with respect to a dissenter's shares, means the value of
the shares as of the close of business on the day prior to the shareholders'
authorization date, excluding any appreciation or depreciation in anticipation
of the corporate action unless exclusion would be inequitable.
(3) "Shareholders' authorization date" means the date on which the
shareholders' vote authorizing the proposed action was taken, the date on which
the corporation received written consents without a meeting from the requisite
number of shareholders in order to authorize the action, or, in the case of a
merger pursuant to sec.sec. 607.1104, the day prior to the date on which a copy
of the plan of merger was mailed to each shareholder of record of the subsidiary
corporation.
607.1302 RIGHT OF SHAREHOLDERS TO DISSENT. (1) Any shareholder has the
right to dissent from, and obtain payment of the fair value of his shares in the
event of, any of the following corporate actions:
(a) Consummation of a plan of merger to which the corporation is a party:
1. If the shareholder is entitled to vote on the merger, or
2. If the corporation is a subsidiary that is merged with its parent
under sec. 607.1104, and the shareholders would have been entitled to vote
on action taken, except for the applicability of 607.1104;
(b) Consummation of a sale or exchange of all, or substantially all, of the
property of the corporation, other than in the usual and regular course of
business, if the shareholder is entitled to vote on the sale or exchange
pursuant to sec. 607.1202, including a sale in dissolution but not including a
sale pursuant to court order or a sale of cash pursuant to a plan by which all
or substantially all of the net proceeds of the sale will be distributed to the
shareholders within 1 year after the date of sale;
(c) As provided in sec. 607.0902(11), the approval of a control-share
acquisition;
(d) Consummation of a plan of share exchange to which the corporation is a
party as the corporation the shares of which will be acquired, if the
shareholder is entitled to vote on the plan;
(e) Any amendment of the articles of incorporation if the shareholder is
entitled to vote on the amendment and if such amendment would adversely affect
such shareholder by:
1. Altering or abolishing any preemptive rights attached to any of his
shares;
2. Altering or abolishing the voting rights pertaining to any of his
shares, except as such rights may be affected by the voting rights of
new shares then being authorized of any existing or new class or series
of shares;
3. Effecting an exchange, cancellation, or reclassification of any of
his shares, when such exchange, cancellation, or reclassification would
alter or abolish his voting rights or alter his percentage or equity in the
corporation, or effecting a reduction or cancellation of accrued dividends
or other arrearages in respect to such shares;
4. Reducing the stated redemption price of any of his redeemable
shares, altering or abolishing any provision relating to any sinking fund
for the redemption or purchase of any of his shares, or making any of his
shares subject to redemption when they are not otherwise redeemable;
5. Making noncumulative, in whole or in part, dividends of any of his
preferred shares which had theretofore been cumulative;
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6. Reducing the stated dividend preference to any of his preferred
shares; or
7. Reducing any stated preferential amount payable on any of his
preferred shares upon voluntary or involuntary liquidation; or
(f) Any corporate action taken, to the extent the articles of incorporation
provide that a voting or nonvoting shareholder is entitled to dissent and obtain
payment for his shares.
(2) A shareholder dissenting from any amendment specified in paragraph
(1)(e) has the right to dissent only as to those of his shares which are
adversely affected by the amendment.
(3) A Shareholder may dissent as to less than all the shares registered in
his name. In that event, his rights shall be determined as if the shares as to
which he has dissented and his other shares were registered in the names of
different shareholders.
(4) Unless the articles of incorporation otherwise provide, this section
does not apply with respect to a plan of merger or share exchange or a proposed
sale or exchange of property, to the holders of shares of any class or series
which, on the record date fixed to determine the shareholders entitled to vote
at the meeting of shareholders at which such action is to be acted upon or to
consent to any such action without a meeting, were either registered on a
national securities exchange or designated as a national market system security
on a interdealer quotation system by the National Association of Securities
Dealers, Inc., or held of record by not fewer than 2,000 shareholders.
(5) A shareholder entitled to dissent and obtain payment for his shares
under this section may not challenge the corporate action creating his
entitlement unless the action is unlawful or fraudulent with respect to the
shareholder or the corporation.
607.1320 PROCEDURE FOR EXERCISE OF DISSENTERS' RIGHTS. (1)(a) If a
proposed corporate section creating dissenters' rights under sec. 607.1320 is
submitted to a vote at a shareholders' meeting, the meeting notice shall state
that shareholders are or may be entitled to assert dissenters' rights and be
accompanied by a copy of sec.sec. 607.1301, 607.1302, and 607.1320. A
shareholder who wishers to assert dissenter's rights shall:
1. Deliver to the corporation before the vote is taken written notice
of his intent to demand payment for his shares if the proposed action is
effectuated, and
2. Not vote his shares in favor of the proposed action. A proxy or
vote against the proposed action does not constitute such a notice of
intent to demand payment.
(b) If proposed corporate action creating dissenters' rights under sec.
607.1302 is effectuated by written consent without a meeting, the corporation
shall deliver a copy of sec.sec. 607.1301, 607,1302, and 607.1320 to each
shareholder simultaneously with any request for his written consent or, if such
a request is not made, within 10 days after the date the corporation received
written consents without a meeting from the requisite number of shareholders
necessary to authorize the action.
(2) Within 10 days after the shareholders' authorization date, the
corporation shall give written notice of such authorization or consent or
adoption of the plan of merger, as the case may be, to each shareholder who
filed a notice of intent to demand payment for his shares pursuant to paragraph
(1)(a) or, in the case of action authorized by written consent, to each
shareholder, excepting any who voted for, or consented in writing to, the
proposed action.
(3) Within 20 days after the giving of notice to him, any shareholder who
elects to dissent shall file with the corporation a notice of such election,
stating his name and address, the number, classes, and series of shares. Any
shareholder failing to file such election to dissent within the period set forth
shall be bound by the terms of the proposed corporate action. Any shareholder
filing an election to dissent shall deposit his certificates for certificated
shares with the corporation simultaneously with the filing of the election to
dissent. The corporation may restrict the transfer of uncertificated shares from
the date the shareholder's election to dissent is filed with the corporation.
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(4) Upon filing a notice of election to dissent, the shareholder shall
thereafter be entitled only to payment as provided in this section and shall not
be entitled to vote or to exercise any other rights of a shareholder. A notice
of election may be withdrawn in writing by the shareholder at any time before an
offer is made by the corporation, as provided in subsection (5), to pay for his
shares. After such offer, no such notice of election may be withdrawn unless the
corporation consents thereto. However, the right of such shareholder to be paid
the fair value of his shares shall cease, and he shall be reinstated to have all
right of such shareholder to be paid the fair value of his shares shall cease,
and he shall be reinstated to have all his rights as a shareholder as of the
filing of his notice of election, including any intervening preemptive rights
and the right to payment of any intervening dividend or other distribution or,
if any such rights have expired or any such dividend or distribution other than
in cash has been completed, in lieu thereof, at the election of the corporation,
the fair value thereof in cash as determined by the board as of the time of such
expiration or completion, but without prejudice otherwise to any corporate
proceeding that may have been taken in the interim, if:
(a) Such demand is withdrawn as provided in this section;
(b) The proposed corporate action is abandoned or rescinded or the
shareholders revoke the authority to effect such action;
(c) No demand or petition for the determination of fair value by a
court has been made or filed within the time provided in this section; or
(d) A court of competent jurisdiction determines that such shareholder
is not entitled to the relief provided by this section.
(5) Within 10 days after the expiration of the period in which shareholders
may file their notices of election to dissent, or within 10 days after such
corporate action is effected, whichever is later (but in no case later than 90
days from the shareholders' authorization date), the corporation shall make a
written offer to each dissenting shareholder who has made demand as provided in
this section to pay an amount the corporation estimates to be the fair value for
such shares. If the corporate action has not been consummated before the
expiration of the 90-day period after the shareholders' authorization date, the
offer may be made conditional upon the consummation of such action. Such notice
and offer shall be accompanied by:
(a) A balance sheet of the corporation, the shares of which the
dissenting shareholder holds, as of the latest available date and not more
than 12 months prior to the making of such offer; and
(b) A profit and loss statement of such corporation for the 12-month
period ended on the date of such balance sheet or, if the corporation was
not in existence throughout such 12-month period, for the portion thereof
during which it was in existence.
(6) If within 30 days after the making of such offer any shareholder
accepts the same, payment for his shares shall be made within 90 days after the
making of such offer or the consummation of the proposed action, whichever is
later. Upon payment of the agreed value, the dissenting shareholder shall cease
to have any interest in such shares.
(7) If the corporation fails to make such offer within the period specific
therefor in subsection (5) or if it makes the offer and any dissenting
shareholder or shareholders fail to accept the same within the period of 30 days
thereafter, then the corporation, within 30 days after receipt of written demand
from any dissenting shareholder given within 60 days after the date on which
such corporate action was effected, shall, or at its election at any time within
such period of 60 days may, file an action in any court of competent
jurisdiction in the county in this state where the registered office of the
corporation is located requesting that the fair value of such shares be
determined. The court shall also determine whether each dissenting shareholder,
as to whom the corporation requests the court to make such determination, is
entitled to receive payment for his shares. If the corporation fails to
institute the proceeding as herein provided, any dissenting shareholders
(whether or not residents of this state), other than shareholders who have
agreed with the corporation as to the value of their shares, shall be made
parties to the proceeding as an action against their shares. The corporation
shall serve a copy of the initial pleading in such proceeding upon each
dissenting shareholder who is a resident of
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this state in the manner provided by law for the service of a summons and
complaint and upon each nonresident dissenting shareholder either by registered
or certified mail and publication or in such other manner as is permitted by
law. The jurisdiction of the court is plenary and exclusive. All shareholders
who are proper parties to the proceeding are entitled to judgment against the
corporation for the amount of the fair value of their shares. The court may, if
it so elects, appoint one or more persons as appraisers to receive evidence and
recommend a decision on the question of fair value. The appraisers shall have
such power and authority as is specified in the order of their appointment or an
amendment thereof. The corporation shall pay each dissenting shareholder the
amount found to be due him within 10 days after final determination of the
proceedings. Upon payment of the judgment, the dissenting shareholder shall
cease to have any interest in such shares.
(8) The judgment may, at the discretion of the court, include a fair rate
of interest, to be determined by the court.
(9) The costs and expenses of any such proceeding shall be determined by
the court and shall be assessed against the corporation, but all or any part of
such costs and expenses may be apportioned and assessed as the court deems
equitable against any or all of the dissenting shareholders who are parties to
the proceeding, to whom the corporation has made an offer to pay for the shares,
if the court finds that action of such shareholders in failing to accept such
offer was arbitrary, vexatious, or not in good faith. Such expenses shall
include reasonable compensation for, and reasonable expenses of, the appraisers,
but shall exclude the fees and expenses of counsel for, and experts employed by,
any party. If the fair value of the shares, as determined, materially exceeds
the amount which the corporation offered to pay therefor or if no offer was
made, the court in its discretion may award to any shareholder who is a party to
the proceeding such sum as the court determines to be reasonable compensation to
any attorney or expert employed by the shareholder in the proceeding.
(10) Shares acquired by a corporation pursuant to payment of the agreed
value thereof or pursuant to payment of the judgment entered therefor, as
provided in this action, may be held and disposed of by such corporation as
authorized but unissued shares of the corporation, except that, in the case of a
merger, they may be held and disposed of as the plan of merger otherwise
provides. The shares of the surviving corporation into which the shares of such
dissenting shareholders would have been converted had they assented to the
merger shall have the status of authorized but unissued shares of the surviving
corporation.
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PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 20. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
Pursuant to section 145 of the Delaware General Corporation Law, as
amended, and the Restated Certificate of Incorporation of the Registrant,
officers, directors, employees, and agents of the Registrant are entitled to
indemnification against liabilities incurred while acting in such capacities on
behalf of the Registrant, including reimbursement of certain expenses. In
addition, the Registrant maintains an officers and directors insurance policy
pursuant to which certain officers and all directors of the Registrant are
entitled to indemnification against certain liabilities, including reimbursement
of certain expenses, and the Registrant has indemnity agreements
("Indemnification Agreements") with certain officers and all of its directors
pursuant to which such persons may be indemnified by the Registrant against
certain liabilities, including expenses.
The Indemnification Agreements are intended to provide additional
indemnification to directors and officers of BancGroup beyond the specific
provisions of the Delaware General Corporation Law. Under the Delaware General
Corporation Law, a company may indemnify its directors and officers in
circumstances other than those under which indemnification and the advance of
expenses are expressly permitted by applicable statutory provisions.
Under the Delaware General Corporation Law, a director, officer,
employee or agent of a corporation (i) must be indemnified by the corporation
for all expenses incurred by him (including attorneys' fees) when he is
successful on the merits or otherwise in defense of any action, suit or
proceeding brought by reason of the fact that he is or was a director, officer,
employee or agent of the corporation, (ii) may be indemnified by the corporation
against expenses (including attorneys' fees), judgments, fines and amounts paid
in settlement of any such proceeding (other than a proceeding by or in the right
of the corporation) even if he is not successful on the merits if he acted in
good faith and in a manner he reasonably believed to be in or not opposed to the
best interest of the corporation (and, in the case of a criminal proceeding, had
no reasonable cause to believe his conduct was unlawful), and (iii) may be
indemnified by the corporation for expenses (including attorneys' fees) incurred
by him in the defense or settlement of a proceeding brought by or in the right
of the corporation, if he acted in good faith and in a manner he reasonably
believed to be in or not opposed to the best interests of the corporation;
provided that no indemnification may be made under the circumstances described
in clause (iii) if the director, officer, employee or agent is adjudged liable
to the corporation, unless a court determines that, despite the adjudication of
liability but in view of all of the circumstances, he is fairly and reasonably
entitled to indemnification for the expenses which the court shall deem proper.
The indemnification described in clauses (ii) and (iii) above (unless ordered by
a court) may be made only as authorized in a specific case upon determination by
(i) a majority of a quorum of disinterested directors, (ii) independent legal
counsel in a written opinion, or (iii) the stock holders, that indemnification
is proper in the circumstances because the applicable standard of conduct has
been met. Expenses (including attorneys' fees) incurred by an officer or
director in defending a proceeding may be advanced by the corporation prior to
the final disposition of the proceeding upon receipt of an undertaking by or on
behalf of the director or officer to repay
<PAGE> 143
the advance if it is ultimately determined that he is not entitled to be
indemnified by the corporation. Expenses (including attorneys' fees) incurred by
other employees and agents may be advanced by the corporation upon terms and
conditions deemed appropriate by the board of directors.
The indemnification provided by the Delaware General Corporation Law
has at least two limitations that are addressed by the Indemnification
Agreements: (i) BancGroup is under no obligation to advance expenses to a
director or officer, and (ii) except in the case of a proceeding in which a
director or officer is successful on the merits or otherwise, indemnification of
a director or officer is discretionary rather than mandatory.
The Indemnification Agreements, therefore, cover any and all expenses
(including attorneys' fees and all other charges paid or payable in connection
therewith) incurred in connection with investigating, defending, being a witness
or participating in (including an appeal), or preparing to defend, be a witness
in or participate in, any threatened, pending or completed action, suit or
proceeding, or any inquiry or investigation, whether civil, criminal,
administrative or otherwise, related to the fact that such director or officer
is or was a director, officer, employee or agent of BancGroup or is or was
serving at the request of BancGroup as a director, officer, employee, agent,
partner, committee member or fiduciary of another corporation, partnership,
joint venture, employee benefit plan, trust or other enterprise, or by reason of
anything done or not done by such director or officer in any such capacity.
The Indemnification Agreements also provide for the prompt advancement
of all expenses incurred in connection with any proceeding and obligate the
director or officer to reimburse BancGroup for all amounts so advanced if it is
subsequently determined, as provided in the Indemnification Agreements, that the
director or officer is not entitled to indemnification.
The Indemnification Agreements further provide that the director or
officer is entitled to indemnification for, and advancement of, all expenses
(including attorneys' fees) incurred in any proceeding seeking to collect from
BancGroup an indemnity claim or advancement of expenses under the
Indemnification Agreements, BancGroup's Certificate of Incorporation, or the
Delaware General Corporation Law, regardless of whether the director or officer
is successful in such proceeding.
The Indemnification Agreements impose upon BancGroup the burden of
proving that the director or officer is not entitled to indemnification in any
particular case, and the Indemnification Agreements negate certain presumptions
which might otherwise be drawn against a director or officer in certain
circumstances. Further, the Indemnification Agreements provide that if BancGroup
pays a director or officer pursuant to an Indemnification Agreement, BancGroup
will be subrogated to such director's or officer's rights to recover from third
parties.
The Indemnification Agreements stipulate that a director's or officer's
rights under such contracts are not exclusive of any other indemnity rights a
director or officer may have; however, the Indemnification Agreements prevent
double payment. The Indemnification Agreements require the maintenance of
directors' and officers' liability insurance if such insurance can be maintained
on terms, including rates, satisfactory to BancGroup.
<PAGE> 144
The benefits of the Indemnification Agreements would not be available
if (i) the action with respect to which indemnification is sought was initiated
or brought voluntarily by the officer or director (other than an action to
enforce the right to indemnification under the Indemnification Agreements); (ii)
the officer or director is paid for such expense or liability under an insurance
policy; (iii) the proceeding is for an accounting of profits pursuant to Section
16(b) of the Securities Exchange Act of 1934, as amended; (iv) the conduct of
the officer or director is adjudged as constituting an unlawful personal
benefit, or active or deliberate dishonesty or willful fraud or illegality; or
(v) a court determines that indemnification or advancement of expenses is
unlawful under the circumstances.
The Indemnification Agreements would provide indemnification for
liabilities arising under the Securities Act of 1933, as amended. BancGroup has
been advised that in the opinion of the Securities and Exchange Commission such
indemnification is against public policy as expressed in such act and is,
therefore, unenforceable.
ITEM 21. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.
(a) The following is a list of exhibits that are included in Part
II of the Registration Statement. Such exhibits are separately
indexed elsewhere in the Registration Statement.
DESCRIPTION
Exhibit 2 Plan of acquisition, reorganization, arrangement,
liquidation of successor:
2.1 Agreement and Plan of Merger between The Colonial BancGroup,
Inc. and CNB Holding Company, dated as of March 26, 1998,
included in the Prospectus portion of this Registration
Statement at Appendix A and incorporated herein by reference.
Exhibit 4 Instruments defining the rights of security holders:
4.1 Article 4 of the Restated Certificate of Incorporation of the
Registrant filed as Exhibit 4.1 to the Registrant's Current
Report on Form 8-K, dated February 21, 1995, and incorporated
herein by reference.
4.2 Amendment to Article 4 of Registrant's Restated Certificate of
Incorporation, dated May 15, 1998.
4.3 Article II of the Bylaws of the Registrant filed as Exhibit
4.2 to the Registrant's Current Report on Form 8-K, dated
February 21, 1995,
3
<PAGE> 145
and incorporated herein by reference.
4.4 Dividend Reinvestment and Class A Common Stock Purchase Plan
of the Registrant dated January 15, 1986, and Amendment No. 1
thereto dated as of June 10, 1986, filed as Exhibit 4(C) to
the Registrant's Registration Statement on Form S-4 (File No.
33-07015), effective July 15, 1986, and incorporated herein by
reference.
4.5 Trust Indenture dated as of March 25, 1986, included as
Exhibit 4 to the Registrant's Amendment No. 1 to Registration
Statement on Form S-2, file number 33-4004, effective March
25, 1986, and incorporated herein by reference.
4.6 All other instruments defining the rights of holders of
long-term debt of the Registrant and its subsidiaries - not
filed pursuant to clause 4(iii) of Item 601(b) of Regulation
S-K, to be furnished upon request of the Commission.
Exhibit 5 Opinion of Miller, Hamilton, Snider & Odom, L.L.C. as to
certain Delaware law issues of the securities being
registered.
Exhibit 8 Tax Opinion of Coopers & Lybrand L.L.P.
Exhibit 23 Consents of experts and counsel:
23.1 Consents of Coopers & Lybrand L.L.P.
23.2 Consent of Camputaro & Associates
23.3 Consent of Miller, Hamilton, Snider & Odom, L.L.C.
Exhibit 24 Power of Attorney
Exhibit 99 Additional exhibits:
99.1 Form of Proxy of CNB Holding Company
(b) Financial Statement Schedules
The financial statement schedules required to be included
pursuant to this Item are not included herein because they are
not applicable or the required information is shown in the
financial statements or notes thereto.
4
<PAGE> 146
ITEM 22. UNDERTAKINGS.
(a) The undersigned hereby undertakes as follows as required by
Item 512 of Regulation S-K:
(1) That prior to any public reoffering of the securities
registered hereunder through use of a prospectus
which is a part of this Registration Statement, by
any person or party who is deemed to be an
underwriter within the meaning of Rule 145(c), the
issuer undertakes that such reoffering prospectus
will contain the information called for by the
applicable registration form with respect to
reofferings by persons who may be deemed
underwriters, in addition to the information called
for by the other Items of the applicable form.
(2) That every prospectus (i) that is filed pursuant to
paragraph (1) immediately above, or (ii) that
purports to meet the requirements of section 10(a)(3)
of the Act and is used in connection with an offering
of securities subject to Rule 415, will be filed as a
part of an amendment to the Registration Statement
and will not be used until such amendment is
effective, and that, for purposes of determining any
liability under the Securities Act of 1933, each such
post-effective amendment shall be deemed to be a new
Registration Statement relating to such securities
offered therein, and the offering of such securities
at that time shall be deemed to be the initial bona
fide offering thereof.
(3) Insofar as indemnification for liabilities arising
under the Act may be permitted to directors,
officers, and controlling persons of the Registrant,
the Registrant has been advised that in the opinion
of the Securities and Exchange Commission such
indemnification is against public policy as expressed
in the Act and is, therefore, unenforceable. In the
event that a claim for indemnification against such
liabilities (other than the payment by the Registrant
of expenses incurred or paid by a director, officer
or controlling person of the Registrant in the
successful defense of any action, suit or proceeding)
is asserted by such director, officer or controlling
person in connection with the securities being
registered, the Registrant will, unless in the
opinion of its counsel the matter has been settled by
controlling precedent, submit to a court of
appropriate jurisdiction the question whether such
indemnification by it is against public policy as
expressed in the Act and will be governed by the
final adjudication of such issue.
(b) The undersigned Registrant hereby undertakes to respond to
requests for information that is incorporated by reference
into the prospectus pursuant to Items 4, 10(b), 11, or 13 of
Form S-4, within one business day of receipt of such request,
and to send the incorporated documents by first class mail or
other equally prompt means. This
5
<PAGE> 147
includes information contained in documents filed subsequent
to the effective date of the Registration Statement through
the date of responding to the request.
(c) The undersigned Registrant hereby undertakes to supply by
means of a post-effective amendment all information concerning
a transaction, and the company being acquired involved
therein, that was not the subject of and included in the
Registration Statement when it became effective.
(d) The undersigned Registrant hereby undertakes:
(1) To file, during any period in which offers or sales
are being made, a post-effective amendment to this
Registration Statement:
(i) To include any prospectus required by
section 10(a)(3) of the Securities Act of
1933;
(ii) To reflect in the prospectus any facts or
events arising after the effective date of
the Registration Statement (or the most
recent post-effective amendment thereof)
which, individually or in the aggregate,
represent a fundamental change in the
information set forth in the Registration
Statement;
(iii) To include any material information with
respect to the plan of distribution not
previously disclosed in the Registration
Statement or any material change to such
information in the Registration Statement;
(2) That, for the purpose of determining any liability
under the Securities Act of 1933, each such
post-effective amendment shall be deemed to be a new
registration relating to the securities offered
therein, and the offering of such securities at that
time shall be deemed to be the initial bona fide
offering thereof.
(3) To remove from registration by means of a
post-effective amendment any of the securities being
registered which remain unsold at the termination of
the offering.
(e) The undersigned Registrant hereby undertakes that, for
purposes of determining any liability under the Securities Act
of 1933, each filing of the Registrant's annual report
pursuant to section 13(a) or section 15(d) of the Securities
Exchange Act of 1934 (and, where applicable, each filing of an
employee benefit plan's annual report pursuant to section
15(d) of the Securities Exchange Act of 1934) that is
incorporated by reference in the Registration Statement shall
be deemed to be a new Registration Statement relating to the
securities offered therein, and the offering of such
securities at that time shall be deemed to be the initial bona
fide offering thereof.
6
<PAGE> 148
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the
Registrant has duly caused this registration statement to be signed on its
behalf by the undersigned, thereunto duly authorized, in the City of Montgomery,
Alabama, on the 4th day of June, 1998.
THE COLONIAL BANCGROUP, INC.
By: /s/ Robert E. Lowder
-----------------------------------
Robert E. Lowder
Its Chairman of the Board
of Directors and Chief
Executive Officer
Pursuant to the requirements of the Securities Act of 1933, this
registration statement has been signed below by the following persons in the
capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURES TITLE DATE
- ---------- ----- ----
<S> <C> <C>
/s/ Robert E. Lowder Chairman of the Board **
- ------------------------ of Directors and Chief Executive
Robert E. Lowder Officer
/s/ W. Flake Oakley, IV Chief Financial **
- ------------------------ Officer, Secretary
W. Flake Oakley, IV and Treasurer (Principal
Financial Officer and
Principal Accounting
Officer)
* Director **
- ------------------------
Lewis Beville
* Director **
- ------------------------
Young J. Boozer
</TABLE>
7
<PAGE> 149
<TABLE>
<S> <C> <C>
* Director **
- ------------------------
William Britton
* Director **
- ------------------------
Jerry J. Chesser
* Director **
- ------------------------
Augustus K. Clements, III
* Director **
- ------------------------
Robert C. Craft
* Director **
- ------------------------
Patrick F. Dye
* Director **
- ------------------------
James Hewitt
* Director **
- ------------------------
Clinton O. Holdbrooks
* Director **
- ------------------------
D. B. Jones
* Director **
- ------------------------
Harold D. King
</TABLE>
8
<PAGE> 150
<TABLE>
<S> <C> <C>
* Director **
- ------------------------
John Ed Mathison
* Director **
- ------------------------
Milton E. McGregor
* Director **
- ------------------------
John C. H. Miller, Jr.
* Director **
Joe D. Mussafer
* Director **
- ------------------------
William E. Powell
Director **
- ------------------------
J. Donald Prewitt
* Director **
- ------------------------
Jack H. Rainer
* Director **
- ------------------------
Jimmy Rane
* Director **
- ------------------------
Frances E. Roper
</TABLE>
9
<PAGE> 151
<TABLE>
<S> <C> <C>
* Director **
- ------------------------
Simuel Sippial
* Director **
- ------------------------
Ed V. Welch
</TABLE>
* The undersigned, acting pursuant to a power of attorney, has signed
this Registration Statement on Form S-4 for and on behalf of the
persons indicated above as such persons' true and lawful
attorney-in-fact and in their names, places and stead, in the
capacities indicated above and on the date indicated below.
/s/ W. Flake Oakley, IV
- --------------------------
W. Flake Oakley, IV
Attorney-in-Fact
** Dated: June 4, 1998
10
<PAGE> 152
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D. C. 20549
-------------------------
EXHIBITS TO
FORM S-4
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
-------------------------
THE COLONIAL BANCGROUP, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
11
<PAGE> 153
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT PAGE
- ------- ----
<S> <C> <C>
Exhibit 2 Plan of acquisition, reorganization, arrangement,
liquidation of successor:
2.1 Agreement and Plan of Merger between The Colonial BancGroup,
Inc. and CNB Holding Company, dated as of March 26, 1998,
included in the Prospectus portion of this registration
statement at Appendix A and incorporated herein by reference.
Exhibit 4 Instruments defining the rights of security holders:
4.1 Article 4 of the Restated Certificate of Incorporation of the
Registrant filed as Exhibit 4.1 to the Registrant's Current
Report on Form 8-K, dated February 21, 1995, including the
amendment to Article 4 noted at Exhibit 4(B) above, and
incorporated herein by reference.
4.2 Amendment to Article 4 of Registrant's Restated Certificate of
Incorporation, dated May 15, 1998.
4.3 Article II of the Bylaws of the Registrant filed as Exhibit
4.2 to the Registrant's Current Report on Form 8-K, dated
February 21, 1995, and incorporated herein by reference.
4.4 Dividend Reinvestment and Class A Common Stock Purchase Plan
of the Registrant dated January 15, 1986, and Amendment No. 1
thereto dated as of June 10, 1986, filed as Exhibit 4(C) to
the Registrant's Registration Statement on Form S-4 (File No.
33-07015), effective July 15, 1986, and incorporated herein by
reference.
4.5 Trust Indenture dated as of March 25, 1986, included as
Exhibit 4 to the Registrant's Amendment No. 1 to Registration
Statement on Form S-2, file number 33-4004, effective March
25, 1986, and incorporated herein by reference.
4.6 All other instruments defining the rights of holders of
long-term debt of the Registrant and its subsidiaries - not
filed pursuant to clause 4(iii) of Item 601(b) of Regulation
S-K to be furnished upon request of the Commission.
</TABLE>
12
<PAGE> 154
<TABLE>
<S> <C>
Exhibit 5 Opinion of Miller, Hamilton, Snider & Odom, L.L.C. as to
certain Delaware law issues of the securities being
registered.
Exhibit 8 Tax Opinion of Coopers & Lybrand L.L.P.
Exhibit 23 Consents of experts and counsel:
23.1 Consents of Coopers & Lybrand L.L.P.
23.2 Consent of Camputaro & Associates
23.3 Consent of Miller, Hamilton, Snider & Odom, L.L.C.
Exhibit 24 Power of Attorney
Exhibit 99 Additional exhibits:
99.1 Form of Proxy of CNB Holding Company
</TABLE>
13
<PAGE> 1
EXHIBIT 4.2
AMENDMENT TO RESTATED CERTIFICATE OF INCORPORATION
<PAGE> 2
EXHIBIT 4.2
AMENDMENT TO ARTICLE 4 OF REGISTRANT'S
RESTATED CERTIFICATE OF INCORPORATION
DATED MAY 15, 1998
ARTICLE 4
The total number of shares of all classes of stock
which the corporation shall have authority to issue is
201,000,000 shares, of which 1,000,000 shares of the par value
of $2.50 per share are to be Preference Stock (hereinafter
called "Preference Stock") and 200,000,000 shares of the par
value of $2.50 per share are to be Common Stock (hereinafter
sometimes called "Common Stock").
[The remainder of Article 4 is unchanged.]
<PAGE> 1
EXHIBIT 5
OPINION AS TO CERTAIN DELAWARE LAW ISSUES OF THE SECURITIES
BEING REGISTERED
<PAGE> 2
June 3, 1998
Montgomery Office
The Colonial BancGroup, Inc.
P. O. Box 1108
Montgomery, AL 36101
Re: Registration Statement on Form S-4 relating to the issuance of
shares of Common Stock of The Colonial BancGroup, Inc., in
connection with the acquisition by merger of CNB Holding Company
(the "Merger")
Gentlemen:
We are familiar with the proceedings taken and proposed to be taken by
The Colonial BancGroup, Inc., a Delaware corporation (the "Company"), in
connection with the proposed issuance by the Company of shares of its Common
Stock, par value of $2.50 per share, in connection with the Merger and in
accordance with an Agreement and Plan of Merger, dated as of March 26, 1998 (the
"Agreement"), by and between the Company and CNB Holding Company. 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 S-4 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;
<PAGE> 3
The Colonial BancGroup
June 3, 1998
Page 2
(ii) The shares of Common Stock of the Company referred to above, to
the extent actually issued pursuant to the Agreement will, when so issued, be
duly and validly authorized and issued and will be fully paid and nonassessable
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.
We hereby consent to the filing of this opinion as an exhibit to the
above-referenced registration statement. 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,
MILLER, HAMILTON, SNIDER & ODOM, L.L.C.
/s/ Miller, Hamilton, Snider & Odom, L.L.C.
WHH/jvb
<PAGE> 1
EXHIBIT 8
Tax Opinion
<PAGE> 2
June 2, 1998
Mr. Flake Oakley
Chief Financial Officer
Colonial BancGroup, Inc.
P.O. Box 1109
Montgomery, AL 36101
Dear Mr. Oakley:
For various business reasons, CNB Holding Company (Acquired Corporation) and The
Colonial BancGroup, Inc. (BancGroup) have entered into an Agreement and Plan of
Merger (Agreement) on March 26, 1998. Pursuant to your request, our letter
addresses the federal income tax consequences of the proposed transaction as
outlined below. We will address whether the merger will qualify as a
reorganization within the meaning of Section 368(a) of the Internal Revenue Code
of 1986 (I.R.C.). We will also address additional federal income tax
consequences to Acquired Corporation, BancGroup, and shareholders. This letter
is not a comprehensive analysis of the income tax consequences to Acquired
Corporation shareholders. Acquired Corporation shareholders should consult their
own tax advisors regarding the income tax consequences of the merger.
BACKGROUND
Acquired Corporation operates as a bank holding company for its wholly owned
subsidiary, Commercial National Bank (Bank). BancGroup, a Delaware corporation,
is a bank holding company with a wholly owned subsidiary, Colonial Bank.
Colonial Bank currently operates in Alabama, Florida, Georgia, and Tennessee.
CERTAIN TERMS OF THE MERGER
At the effective date of the merger, Acquired Corporation will merge with and
into BancGroup, with BancGroup as the surviving corporation. Pursuant to the
terms of the transaction, each share of common stock of Acquired Corporation
outstanding and held by Acquired Corporation's shareholders other than shares
held by shareholders who perfect their dissenter's rights, will be converted by
operation of law and without any action on the part of the parties or the
holders thereof into shares of BancGroup common stock at a rate $191.40 divided
by the market value of BancGroup common stock as determined by the Agreement.
The holders of Acquired Corporation options may provide written notice, no later
than five days prior to the effective date of the merger, to Acquired
Corporation that they wish to surrender their Acquired Corporation options to
BancGroup in exchange for BancGroup common stock. The amount of BancGroup common
stock issued in exchange for Acquired Corporation options will be equal to the
difference between the total value of the shares of BancGroup common stock to be
issued pursuant to such Acquired Corporation options less the aggregate exercise
price of such Acquired Corporation options divided by the market value.
<PAGE> 3
No fractional shares of BancGroup common stock will be issued. Instead, each
holder of shares of Acquired Corporation stock having a fractional interest
arising upon the conversion of such shares into shares of BancGroup common stock
shall, at the time of surrender of the certificates previously representing
Acquired Corporation stock, be paid by BancGroup an amount in cash. Any
shareholder of Acquired Corporation who does not vote in favor of the Agreement
and who complies with certain procedures relating to the rights of dissenting
shareholders will be entitled to receive payment for the fair value of his or
her Acquired Corporation stock.
Further, after consummation of the merger, BancGroup and Acquired Corporation
anticipate merging two bank subsidiaries, the Bank and Colonial Bank. Colonial
Bank will be the surviving entity.
REPRESENTATIONS OF PARTIES
- BancGroup and Acquired Corporation intend that the merger will qualify for
federal income tax purposes as a "reorganization" within the meaning of
I.R.C. Section 368(a) of the Code.
- The fair market value of the BancGroup stock received by each shareholder of
Acquired Corporation pursuant to the terms of the Agreement will be
approximately equal to the fair market value of Acquired Corporation stock
surrendered in the exchange. The terms of the Agreement are the result of
arm's-length negotiations between unrelated parties.
- There is no plan or intention by the shareholders of Acquired Corporation to
sell, exchange, or otherwise dispose of a number of shares of BancGroup
stock received in the transaction that will reduce the Acquired Corporation
shareholders' ownership of BancGroup stock to a number of shares having a
value, as of the date of the transaction, of less than fifty percent of the
value of all of the formerly outstanding stock of Acquired Corporation as of
the same date. For purposes of this representation, shares of Acquired stock
exchanged for cash, and surrendered by dissenters, or exchanged for cash in
lieu of fractional shares of BancGroup stock will be treated as outstanding
Acquired Corporation stock on the date of the transaction. Shares of
Acquired stock and shares of BancGroup stock held by Acquired Corporation
shareholders and otherwise sold, redeemed or disposed of prior or subsequent
to the transaction will be considered in making this representation.
- Following the merger, BancGroup will continue the historic business of
Acquired Corporation or use a significant portion of Acquired Corporation's
historic business assets in a business.
- Acquired Corporation, BancGroup and Acquired Shareholders will pay their
respective expenses, if any, incurred in connection with the transaction.
- No part of the consideration received by the Acquired Corporation
shareholders will be received by them in their capacity as debtor, creditor,
employee, or any way other than as shareholder.
<PAGE> 4
- The fair market value of the assets of Acquired Corporation transferred to
BancGroup will equal or exceed the sum of the liabilities assumed by
BancGroup plus the amount of liabilities, if any, to which the assets
transferred are subject.
- The total adjusted basis of the assets of Acquired Corporation transferred
to BancGroup will equal or exceed the sum of the liabilities assumed by
BancGroup plus the amount of liabilities, if any, to which the assets
transferred are subject.
TAX CONSEQUENCES TO ACQUIRED CORPORATION AND BANCGROUP
The merger of Acquired Corporation with and into BancGroup will constitute a
merger within the meaning of I.R.C. Section 368(a)(1)(A), provided that the
merger qualifies as a statutory merger pursuant to state law. Acquired
Corporation and BancGroup will each be "a party to the reorganization" within
the meaning of I.R.C. Section 368(b) of the Code. Based upon I.R.C. Sections
357(a) and 361(a), Acquired Corporation will recognize no gain or loss when it
transfers its assets to BancGroup in a constructive exchange solely for
BancGroup's stock and the assumption of Acquired Corporation's liabilities by
BancGroup. Acquired Corporation will also not recognize any gain or loss upon
the receipt of cash in the exchange if it distributes such property as part of
the plan of reorganization under I.R.C. Section 361(b).
IRS Regulation Section 1.368-1(b) requires a continuity of interest therein on
the part of those persons who, directly or indirectly, were the owners of the
enterprise prior to the reorganization. The "continuity of interest" requirement
will be satisfied if there is a continuing interest through stock ownership in
BancGroup on the part of the former shareholders of the Acquired Corporation
which is equal in value, as of the effective date of the reorganization, to at
least 50% of the value of all the formerly outstanding stock of the Acquired
Corporation as of the same date.
Pursuant to I.R.C. Section 1032 of the Code, no gain or loss will be recognized
by BancGroup upon the acquisition by BancGroup of the assets of Acquired
Corporation in exchange for BancGroup common stock and the assumption of
Acquired Corporation's liabilities. BancGroup's basis in the assets acquired in
the transaction will be equal to the basis of the assets in the hands of
Acquired Corporation immediately before the transaction under I.R.C. Section
362(b). I.R.C. Section 1223(2) provides that BancGroup's holding period for each
Acquired Corporation asset received in the merger will include the period during
which the asset was held by Acquired Corporation immediately before the
transaction.
Pursuant to I.R.C. Section 381(a), BancGroup will succeed to and take into
account the items of Acquired Corporation described in I.R.C. Section 381(c),
subject to the conditions and limitations of I.R.C. Sections 381, 382, 383, 384,
and 1502 and the regulations thereunder. BancGroup will succeed to and take into
account the earnings and profits, or deficit in earnings and profits, of
Acquired Corporation as provided by I.R.C. Section 382(c)(2) of the Code and
Section 1.381(c)(2)-1 of the Regulations.
<PAGE> 5
TAX CONSEQUENCES TO BANK AND COLONIAL BANK
The merger of Bank with and into Colonial Bank will constitute a merger within
the meaning of I.R.C. Section 368(a)(1)(A), provided that the merger qualifies
as a statutory merger pursuant to state law. Bank and Colonial Bank will each be
"a party to the reorganization" within the meaning of I.R.C. Section 368(b) of
the Code. Based upon I.R.C. Sections 357(a) and 361(a), Bank will recognize no
gain or loss when it transfers its assets to Colonial Bank in a constructive
exchange solely for Colonial Bank's stock and the assumption of Bank's
liabilities by Colonial Bank. Bank will also not recognize any gain or loss upon
the receipt of cash in the exchange if it distributes such property as part of
the plan of reorganization under I.R.C. Section 361(b).
Pursuant to I.R.C. Section 1032 of the Code, no gain or loss will be recognized
by Colonial Bank upon the acquisition by Colonial Bank of the assets of Bank in
exchange for Colonial Bank's common stock and the assumption of Bank's
liabilities. Colonial Bank's basis in the assets acquired in the transaction
will be equal to the basis of the assets in the hands of Bank immediately before
the transaction per I.R.C. Section 362(b). I.R.C. Section 1223(2) provides that
Colonial Bank's holding period for each Bank asset received in the merger will
include the period during which the asset was held by Bank immediately before
the transaction.
Pursuant to I.R.C. Section 381(a), Colonial Bank's will succeed to and take into
account the items of Bank described in I.R.C. Section 381(c), subject to the
conditions and limitations of I.R.C. Sections 381, 382, 383, 384, and 1502 and
the regulations thereunder. Colonial Bank will succeed to and take into account
the earnings and profits, or deficit in earnings and profits, of Bank as
provided by I.R.C. Section 382(c)(2) of the Code and Section 1.381(c)(2)-1 of
the Regulations.
TAX CONSEQUENCES TO ACQUIRED CORPORATION SHAREHOLDERS
I.R.C. Section 354 states that a shareholder who receives solely BancGroup
common stock in exchange for Acquired Corporation common stock will recognize no
gain or loss on the exchange, except with respect to cash received in lieu of a
fractional interest in BancGroup common stock. I.R.C. Section 358 of the Code
provides that the shareholder's tax basis in the BancGroup common stock received
in the exchange will be the same as the basis of the Acquired Corporation common
stock surrendered, decreased by the amount of cash (if any) received by the
shareholder and increased by the amount of gain (if any) recognized in the
exchange. I.R.C. Section 1223 of the Code provides that such shareholder will
include the period during which Acquired Corporation stock was held in his
holding period for the BancGroup common stock received in the exchange.
The payment of cash in lieu of fractional shares of BancGroup common stock will
be treated as if the fractional shares were issued as part of the exchange and
then redeemed by BancGroup. These cash payments will be treated as having been
received as distributions in full payment in exchange for the stock redeemed as
provided in I.R.C. Section 302(a) of the Code. Generally, any gain or loss
recognized upon such exchange will be capital gain or loss, provided the
fractional share constitutes a capital asset in the hands of the exchanging
shareholder. The
<PAGE> 6
shareholders will recognize capital gain or loss equal to the difference between
the cash received and the basis of the fractional share interest that would have
been issued.
Holders of shares of Acquired Corporation common stock who receive cash upon the
exercise of any appraisal rights will be subject to a taxable transaction for
federal income tax purposes. Such a shareholder will recognize gain or loss
measured by the difference between the tax basis for his or her shares and the
amount of cash received pursuant to I.R.C. Section 1012 of the Code (unless the
receipt of cash is treated as a dividend, as described below).
In certain circumstances, the receipt of solely cash by an Acquired Corporation
shareholder could be treated as a dividend under Section 302(a) (to the extent
of the shareholder's ratable share of applicable earnings and profits) if the
shareholder constructively owns shares of Acquired Corporation Common Stock that
are exchanged for BancGroup Common Stock in the Merger. Generally, a shareholder
constructively owns stock that is owned by members of the shareholder's family,
and by certain controlled or related partnerships, estates, trusts and
corporations, pursuant to the constructive ownership rules of I.R.C. Section 318
of the Code, as well as any shares that the shareholder has an option to
acquire.
The receipt of solely cash by an Acquired Corporation shareholder in exchange
for his stock will not be treated as a dividend if such exchange or receipt
results in a meaningful reduction or a substantially disproportionate reduction
in the shareholder's ownership interest or results in a complete termination of
the shareholder's interest, taking into account, in each case, the constructive
ownership rules described above. A complete termination of a shareholder's
interest will occur if, after the receipt of cash in exchange for stock, the
shareholder owns no shares of stock in BancGroup. Thus, a shareholder who
receives solely cash for all of the stock actually owned by him will generally
qualify for capital gain treatment under the complete termination test if none
of the shares constructively owned by him are exchanged in the merger for
BancGroup Common Stock and the shareholder does not otherwise own, actually or
constructively, any shares of BancGroup Common Stock after the merger.
Where the complete termination of interest test is not satisfied with respect to
a particular shareholder (because, for example, Acquired Corporation shares
owned by a related party are exchanged for BancGroup Common Stock in the
merger), that shareholder will nonetheless generally be entitled to capital gain
treatment if the receipt of cash in exchange for his shares results in a
"substantially disproportionate" reduction or a "meaningful" reduction in his
ownership interest. I.R.C. Section 302 of the Code provides that a shareholder's
reduction in ownership interest should normally be "substantially
disproportionate," and capital gain treatment should normally result, if (1) the
shareholder owns less than 50% of the total combined voting power of all classes
of stock immediately after the merger, and (2) the shareholder's proportionate
stock interest in BancGroup immediately after the merger is 20% or more below
what his proportionate interest in BancGroup would have been if he had received
solely BancGroup Common Stock in the merger.
Acquired Corporation shareholders who constructively own stock in Acquired
Corporation should consult a tax advisor regarding the characterization of cash
payments received in the
<PAGE> 7
reorganization in exchange for Acquired Corporation stock as either capital gain
income or dividend income.
CONVERSION OF ACQUIRED CORPORATION OPTIONS INTO BANCGROUP STOCK
INCENTIVE STOCK OPTIONS
The shareholders of Acquired Corporation can elect to receive shares of
BancGroup common stock for the difference between the exercise price of Acquired
Corporation options and the fair market value of BancGroup stock at the
effective date of the Agreement. This election, if made, is effectively a
"cashless exercise" of an incentive stock option (i.e., the option holder is
treated as exercising all of the options and remitting a portion of the
BancGroup stock to Acquired Corporation in satisfaction of the exercise price
("foregone stock")). The cashless exercise of Acquired Corporation incentive
stock options will result in the option holder recognizing ordinary income equal
to the amount of the bargain purchase element of the BancGroup stock foregone.
In addition, if Acquired Corporation's incentive stock plan does not have a
cashless exercise feature, the cashless exercise of an incentive stock option by
an option holder could be interpreted as a material modification under I.R.C.
Section 424. If the cashless exercise feature constitutes a material
modification, such modifications will result in the deemed granting of new
options to all holders of incentive stock options. The new options will be
subject to the requirements of I.R.C. Section 424 at the date of material
modification. The exercise of a disqualified incentive stock option will entitle
Acquired Corporation to a compensation deduction when the option is exercised.
NONQUALIFIED STOCK OPTIONS
The shareholders of Acquired Corporation can elect to receive shares of
BancGroup common stock for the difference between the exercise price of Acquired
Corporation options and the fair market value of BancGroup stock at the
effective date of the Agreement. The cashless exercise of nonqualified stock
options does not alter the timing or character of income recognition. The
shareholders of Acquired Corporation will recognize ordinary income for the fair
market value of the stock received in conjunction with the exercise of the
options (i.e., the difference between the fair market value of BancGroup stock
and the exercise price). Acquired Corporation is entitled to a corresponding
compensation deduction in the same amount.
SUMMARY
The merger of BancGroup and Acquired Corporation will qualify as a tax-free
reorganization within the meaning of I.R.C. Section 368(a)(1)(A). BancGroup's
basis in Acquired Corporation's assets will be the same as Acquired
Corporation's basis in its assets before the merger. The merger of Colonial Bank
and Bank will also qualify as a tax-free reorganization within the meaning of
I.R.C. Section 368(a)(1)(A). Colonial Bank's basis in Bank's assets will be the
same as Bank's basis in its assets before the merger. Acquired Corporation
shareholders will retain a substituted basis in the shares of BancGroup stock
received in the merger decreased by the
<PAGE> 8
amount of cash received and increased by the amount of gain recognized in the
deal. The only taxable consequences will be to those shareholders who receive
cash in lieu of fractional shares and those shareholders who receive solely cash
in the exchange upon perfecting their dissenter's rights. Shareholders receiving
cash must examine their actual and constructive ownership of Acquired
Corporation and BancGroup stock for purposes of determining the tax consequences
of the cash payments.
The conversion of Acquired Corporation incentive stock options directly into
BancGroup stock will result in the incentive stock option holders recognizing
ordinary income equal to the bargain purchase element of the BancGroup stock
foregone. In addition, if Acquired Corporation's incentive stock option plan
does not have a cashless exercise feature, the conversion of Acquired
Corporation incentive stock options directly into BancGroup stock could be
treated as a material modification of Acquired Corporation's incentive stock
option plan. I.R.C. Section 424 states that a material modification of an
incentive stock option plan results in the deemed granting of new options to all
incentive stock option holders subject to the requirements of I.R.C. Section 424
at the date of the material modification. The conversion of Acquired Corporation
nonqualified stock options directly into BancGroup stock will result in the
nonqualified option holders recognizing ordinary income equal to the fair market
value of BancGroup stock received. Acquired Corporation will be entitled to a
corresponding compensation deduction equal to the amount of ordinary income
recognized by Acquired Corporation option holders on the "cashless exercise" of
both incentive stock options and nonqualified stock options.
If you have any questions or comments, please call Thomas Lee or Mark Borden at
(205) 252-8400.
Very Truly Yours,
/s/ Coopers & Lybrand L.L.P.
Coopers & Lybrand L.L.P.
<PAGE> 1
EXHIBIT 23.1
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the incorporation by reference in this registration statement on
Form S-4 of our report dated March 10, 1998 on our audits of the consolidated
financial statements of The Colonial BancGroup, Inc., as of December 31, 1997
and 1996 and for the three years in the period ended December 31, 1997. We also
consent to the reference to our firm under the caption "experts".
/s/ Coopers & Lybrand L.L.P.
Montgomery, Alabama
June 4, 1998
CONSENT OF TAX ACCOUNTANTS
We consent to the reference in this registration statement on Form S-4
of our firm under the caption "The Merger -- Certain Federal income Tax
Consequences," and to the inclusion of our opinion at Exhibit 8 of this
Registration Statement.
/s/ Coopers & Lybrand L.L.P.
Birmingham, Alabama
June 4, 1998
<PAGE> 1
EXHIBIT 23.2
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the use in this registration statement on Form S-4 of our report
dated January 15, 1998, on our audit of the consolidated financial statements
of CNB Holding Company and to the reference to our firm under the caption
"Experts".
/s/ Camputaro & Associates
June 4, 1998
<PAGE> 1
EXHIBIT 23.3
Consent of Miller, Hamilton, Snider & Odom, L.L.C.
CONSENT OF COUNSEL
The Colonial BancGroup, Inc.
We hereby consent to use in this Form S-4 Registration Statement of The
Colonial BancGroup, Inc., of our name in the Prospectus, which is a part of such
Registration Statement, under the heading "LEGAL MATTERS," to the summarization
of our opinion referenced therein, and to the inclusion of our opinion at
Exhibit 5 of the Registration Statement.
/s/ MILLER, HAMILTON, SNIDER & ODOM, L.L.C.
June 4, 1998
<PAGE> 1
EXHIBIT 24
POWER OF ATTORNEY
<PAGE> 2
EXHIBIT 24
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature
appears below constitutes and appoints Robert E. Lowder, P. L. McLeod, Jr., and
W. Flake Oakley, IV, and each of them, his or her true and lawful
attorney-in-fact and agent, with full power of substitution and resubstitution,
for him or her and in his or her name, place and stead, to sign any reports or
other filings which may be required to be filed with the Securities and Exchange
Commission on behalf of The Colonial BancGroup, Inc. (the "Registrant"), in
relation to the Registrant's acquisition by merger of (i) Commercial Bank of
Nevada pursuant to the terms of the certain Agreement and Plan of Merger dated
as of February 25, 1998 by and among the Registrant, Colonial Bank and
Commercial Bank of Nevada, (ii) CNB Holding Company pursuant to the terms of the
certain Agreement and Plan of Merger dated as of March 26, 1998 by and between
the Registrant and CNB Holding Company and (iii) other financial institutions or
related holding companies upon terms and conditions approved by the Chairman of
the Board and Chief Executive Officer (the "Acquisitions"); to sign any
registration statement of the Registrant on Form S-4 or other appropriate form
and any amendments thereto for the purpose of registering under the Securities
Act of 1933, as amended, shares to be offered and sold by the Registrant in
relation to the Acquisitions; to file such other reports or other filings, such
registration statements and amendments thereto, with all exhibits thereto, and
any documents in connection therewith with the Securities and Exchange
Commission; and to file such notices, reports or registration statements (and
amendments thereto) with any such securities authority of any state which may be
necessary to register or qualify for an exemption from registration any
securities offered or sold by BancGroup in such states in relation to the
Acquisitions, granting unto said attorneys-in-fact and agents full power and
authority to do and perform each and every act and thing requisite to be done in
connection with the Acquisitions as fully and to all intents and purposes as he
or she might or could do in person, hereby ratifying and confirming all that
said attorneys-in-fact and agents, or their substitutes, may lawfully do or
cause to be done by virtue hereof.
Done this 15th day of April, 1998, in Montgomery, Alabama.
[The rest of this page intentionally left blank]
<PAGE> 3
<TABLE>
<S> <C>
/s/ Robert E. Lowder Chairman of the Board
- -------------------------------- and Chief Executive
Robert E. Lowder Officer
/s/ Lewis Beville Director
- --------------------------------
Lewis Beville
/s/ Young J. Boozer, Jr. Director
- --------------------------------
Young J. Boozer, Jr.
/s/ William Britton Director
- --------------------------------
William Britton
/s/ Jerry J. Chesser Director
- --------------------------------
Jerry J. Chesser
/s/ Augustus K. Clements, III Director
- --------------------------------
Augustus K. Clements, III
/s/ Robert Craft Director
- --------------------------------
Robert Craft
/s/ Patrick F. Dye Director
- --------------------------------
Patrick F. Dye
/s/ James L. Hewitt Director
- --------------------------------
James L. Hewitt
/s/ Clinton Holdbrooks Director
- --------------------------------
Clinton Holdbrooks
/s/ D. B. Jones Director
- --------------------------------
D. B. Jones
</TABLE>
<PAGE> 4
<TABLE>
<S> <C>
/s/ Harold D. King Director
- --------------------------------
Harold D. King
/s/ John Ed Mathison Director
- --------------------------------
John Ed Mathison
/s/ Milton McGregor Director
- --------------------------------
Milton McGregor
/s/ John C. H. Miller, Jr. Director
- --------------------------------
John C. H. Miller, Jr.
/s/ Joe D. Mussafer Director
- --------------------------------
Joe D. Mussafer
/s/ William E. Powell, III Director
- --------------------------------
William E. Powell, III
/s/ J. Donald Prewitt Director
- --------------------------------
J. Donald Prewitt
/s/ Jack H. Rainer Director
- --------------------------------
Jack H. Rainer
/s/ Jimmy Rane Director
- --------------------------------
Jimmy Rane
/s/ Frances E. Roper Director
- --------------------------------
Frances E. Roper
/s/ Simuel Sippial Director
- --------------------------------
Simuel Sippial
/s/ Ed V. Welch Director
- --------------------------------
Ed V. Welch
</TABLE>
<PAGE> 1
EXHIBIT 99.1
Form of Proxy of CNB Holding Company
<PAGE> 2
SOLICITED BY
THE BOARD OF
DIRECTORS
PROXY
CNB HOLDING COMPANY
SPECIAL MEETING OF SHAREHOLDERS
_________________, 1998
The undersigned hereby appoints __________________ and______________,
and either of them, or such other persons as the board of directors of CNB
Holding Company ("CNB"), may designate, proxies for the undersigned, with full
power of substitution, to represent the undersigned and to vote all of the
shares of common stock of CNB at the special meeting of shareholders to be held
on __________________, 1998, and at any and all adjournments thereof.
FOR AGAINST ABSTAIN
1. To ratify, adopt, and approve the Agreement [ ] [ ] [ ]
and Plan of Merger dated as of March 26, 1998,
pursuant to which CNB will be merged with
and into The Colonial BancGroup, Inc.
2. In their discretion, to vote on such other matters as may properly come
before the meeting and to vote upon matters incident to the conduct of the
meeting.
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS OF CNB AND WILL
BE VOTED AS DIRECTED HEREIN. IF NO DIRECTION IS GIVEN, THIS PROXY WILL BE VOTED
FOR PROPOSAL 1 AND IN ACCORDANCE WITH THE DISCRETION OF THE PROXY HOLDERS
RESPECTING SUCH OTHER MATTERS AS MAY PROPERLY COME BEFORE THE SPECIAL MEETING
AND TO VOTE UPON MATTERS INCIDENT TO THE CONDUCT OF THE SPECIAL MEETING.
DATED: , 1998
--------------------------------------
PHONE NO:
--------------------------------------
--------------------------------------------------
(Signature of Shareholder)
--------------------------------------------------
(Signature of Shareholder, if more than one)
Please sign exactly as your name appears on
the envelope in which this material was
mailed. If shares are held jointly, each
shareholder must sign. Agents, executors,
administrators, guardians and trustees must
give full title as such. Corporations should
sign by their president or authorized
officer.
