<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON APRIL 17, 1998.
================================================================================
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
THE COLONIAL BANCGROUP, INC.
POST OFFICE BOX 1108
MONTGOMERY, ALABAMA 36101-1108
TELEPHONE: 334-240-5315
FACSIMILE: 334-240-5326
(Name and address of agent for service)
---------------------
COPIES TO:
<TABLE>
<S> <C>
WILLARD H. HENSON MARK HAYNIE
MILLER, HAMILTON, SNIDER & ODOM 14651 DALLAS PARKWAY
ONE COMMERCE ST., STE. 305 SUITE 136
MONTGOMERY, ALABAMA 36101 DALLAS, TEXAS 75240
TELEPHONE: 334-834-5550 TELEPHONE: 972-716-1855
FACSIMILE: 334-265-4533 FACSIMILE: 972-716-1850
</TABLE>
---------------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon as
practicable after the effective date of the proposed merger of Commercial Bank
of Nevada ("Commercial") with and into Colonial Bank, a subsidiary of the
Registrant (the "Merger") as described in the Agreement and Plan of Merger,
dated as of February 25, 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 TO BE OFFERING PRICE AGGREGATE REGISTRATION
SECURITIES TO BE REGISTERED REGISTERED(1) PER UNIT OFFERING PRICE(2) FEE
- ----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Common Stock, par value
$2.50 per share 1,263,235 Not Applicable 10,291,158 3,035.89
================================================================================================================
</TABLE>
(1) This Registration Statement covers the maximum number of shares of the
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 pursuant
to Rule 457(f)(2) under the Securities Act of 1933, as amended, and based
upon the book value as of December 31, 1997 of $12.22 per share of 842,157
shares of Commercial common stock.
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 SAID SECTION 8(A),
MAY DETERMINE.
================================================================================
<PAGE> 2
COMMERCIAL BANK OF NEVADA
2820 W. CHARLESTON BOULEVARD
LAS VEGAS, NEVADA 89012
(702) 258-9990
---------------------
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 Commercial Bank of Nevada ("Commercial") will be held at
, , on , 1998, at .m., local
time, for the following purposes:
1. Merger. To consider and vote upon an Agreement and Plan of Merger,
dated as of February 25, 1998, between Commercial, The Colonial BancGroup,
Inc. ("BancGroup") and Colonial Bank, a wholly owned subsidiary of
BancGroup (the "Agreement"), and the proposed merger (the "Merger") of
Commercial with and into Colonial Bank, pursuant to the Agreement. Colonial
Bank will be the surviving corporation in the Merger. Each share of common
stock of Commercial, par value $1.00 (the "Commercial Common Stock")
outstanding at the Effective Date of the Merger will be converted into one
share of common stock of BancGroup, par value $2.50 (the "BancGroup Common
Stock"), provided that the Market Value of BancGroup Common Stock is
neither greater than $38.00 nor less than $30.00. However, if the Market
Value of BancGroup Common Stock is greater than $38.00, each share of
Commercial Common Stock will be converted at the Effective Date of the
Merger into a number of shares of BancGroup Common Stock equal to $38.00
divided by the Market Value, and if the Market Value of BancGroup Common
Stock is less than $30.00, then each share of Commercial Common Stock will
be converted at the Effective Date of the Merger into a number of shares of
BancGroup Common Stock equal to $30.00 divided by the Market Value. The
"Market Value" means the average of the closing prices for BancGroup Common
Stock for the ten trading days ending on the trading day five calendar days
before the Effective Date of the Merger. Cash will be paid in lieu of
fractional shares at the Market Value of such fractional shares, as
described more fully in the accompanying Proxy Statement and Prospectus. A
copy of 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 Commercial 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. Holders of Commercial
Common Stock as of the Record Date are entitled to exercise dissenters' rights
of appraisal pursuant to Section 92A.300 et seq. of the Nevada Revised Statutes
("NRS"). A holder of Commercial Common Stock who complies with the provisions of
applicable law relating to dissenters' rights will be entitled to object to the
Agreement and Plan of Merger and make written demand that BancGroup pay in cash
the fair value of the shares of Commercial Common Stock held as determined in
accordance with statutory provisions. A copy of the dissenters' rights
provisions under applicable Nevada law is attached to the enclosed Proxy
Statement and Prospectus as Appendix C. Pursuant to Commercial's Articles of
Incorporation and assuming the Merger is consummated, a dissenting shareholder
will be entitled to receive for each share of Commercial Common Stock as to
which dissenters' rights are perfected not less than the greater of the value
per share received by non-dissenting shareholders in the Merger and the
per-share book value of Commercial Common Stock as of the end of the most
recently completed fiscal quarter.
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 Commercial, by executing a
later dated proxy and delivering it to the Secretary of Commercial, or by
attending the Special Meeting and voting in person.
BY ORDER OF THE BOARD OF DIRECTORS
Chairman
<PAGE> 3
PROSPECTUS
COMMON STOCK, $2.50 PAR VALUE
THE COLONIAL BANCGROUP, INC.
PROXY STATEMENT
FOR SPECIAL MEETING OF SHAREHOLDERS OF
COMMERCIAL BANK OF NEVADA
---------------------
This Proxy Statement and Prospectus (the "Prospectus") relates to the
proposed merger (the "Merger") of Commercial Bank of Nevada, a Nevada state bank
("Commercial"), with and into Colonial Bank, an Alabama banking corporation
("Colonial Bank"). Colonial Bank is a wholly owned subsidiary of The Colonial
BancGroup, Inc. ("BancGroup"), a Delaware corporation. This Prospectus is being
furnished to the shareholders of Commercial in connection with the solicitation
of proxies by the Board of Directors of Commercial for use at a special meeting
of the shareholders of Commercial (the "Special Meeting") to be held on
, 1998, at .m., local time, at
, , , including any adjournments or
postponements thereof. At the Special Meeting, shareholders of Commercial will
consider and vote upon the matters set forth in the preceding Notice of Special
Meeting of Shareholders, as more fully described in this Prospectus.
The Merger will be consummated pursuant to the terms of a certain Agreement
and Plan of Merger dated as of February 25, 1998, by and among BancGroup,
Colonial Bank and Commercial (the "Agreement"). The Agreement provides that,
subject to the approval of the Agreement by the shareholders of Commercial 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,
Commercial will be merged with and into Colonial Bank, and Colonial Bank will be
the surviving corporation. Each issued and outstanding share of common stock,
par value $1.00 per share (the "Commercial Common Stock"), will be converted
into one share of common stock of BancGroup, par value $2.50 per share (the
"BancGroup Common Stock"), provided that the Market Value of BancGroup Common
Stock is not less than $30.00 per share or greater than $38.00 per share. If the
Market Value of BancGroup Common Stock is less than $30.00 per share, then each
share of Commercial Common Stock shall be converted into a number of shares of
BancGroup Common Stock equal to $30.00 divided by the Market Value. If the
Market Value of BancGroup Common Stock is greater than $38.00, then each share
of Commercial Common Stock shall be converted into a number of shares of
BancGroup Common Stock equal to $38.00 divided by the Market Value. The Market
Value of BancGroup Common Stock will be the average of the closing prices of
BancGroup Common Stock as reported on the New York Stock Exchange ("NYSE") on
each of the ten consecutive trading days ending on the trading day five calendar
days preceding the day on which the Merger become effective (the "Effective
Date"). Cash will be paid in lieu of fractional shares at the Market Value of
such fractional shares. See "The Merger -- Conversion of Commercial Common
Stock." The shares of BancGroup Common Stock are listed on the NYSE. The closing
price per share of the BancGroup Common Stock on the NYSE on March 27, 1998 was
$35.875.
Consummation of the Merger requires, among other things, the affirmative
vote of the holders of at least a majority of the outstanding shares of
Commercial 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 Commercial in connection with the solicitation
of proxies by Commercial for the Special Meeting 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 Commercial on or about the date set forth below.
THE BOARD OF DIRECTORS OF COMMERCIAL BANK OF NEVADA 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 Commercial are 2820 W.
Charleston Boulevard, Las Vegas, Nevada 89012, (telephone 702-258-9990), 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> 4
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, proxy and information statements, 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: 7 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. 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
Commercial has been furnished by Commercial.
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 another
banking institution (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)
changes 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 Commercial, nor have such
accountants applied any procedures thereto. Accordingly, such accountants do not
express an opinion or any other form of assurance on them. 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. 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.
ii
<PAGE> 5
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 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 COMMERCIAL 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 Reports on Form 8-K dated March 16, 1998 and April 15,
1998; and
(4) The description of the current management and Board of Directors
contained in the Proxy Statement 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 Commercial regarding the
Merger described herein. Various provisions of the Agreement are summarized or
referred to in this Prospectus, and are qualified in their entirety by reference
to the Agreement which 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
36101 (telephone 334-240-5000).
iii
<PAGE> 6
TABLE OF CONTENTS
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PAGE
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<S> <C>
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............ 11
Effect of Merger on Outstanding BancGroup Common Stock.... 11
THE MERGER.................................................. 12
General................................................... 12
Background of the Merger.................................. 12
Commercial's Board of Directors' Reasons for Approving the
Merger................................................. 13
Fairness Opinion.......................................... 14
Recommendation of the Board of Directors of Commercial.... 17
BancGroup's Reasons for the Merger........................ 17
Related Transactions -- Stock Option...................... 17
Interests of Certain Persons in the Merger................ 18
Conversion of Commercial Common Stock..................... 19
Surrender of Commercial Common Stock Certificates......... 20
Certain Federal Income Tax Consequences................... 20
Other Possible Consequences............................... 22
Conditions to Consummation of the Merger.................. 22
Amendment or Termination.................................. 23
Regulatory Approvals...................................... 23
Conduct of Business Pending the Merger.................... 25
Commitments with Respect to Other Offers.................. 26
Rights of Dissenting Shareholders......................... 26
Resale of BancGroup Common Stock Issued in the Merger..... 28
Accounting Treatment...................................... 29
NYSE Reporting of BancGroup Common Stock Issued in the
Merger................................................. 29
COMPARATIVE MARKET PRICES AND DIVIDENDS..................... 30
BancGroup................................................. 30
Commercial................................................ 30
BANCGROUP CAPITAL STOCK AND DEBENTURES...................... 31
BancGroup Common Stock.................................... 31
Preference Stock.......................................... 32
1986 Debentures........................................... 32
Other Indebtedness........................................ 33
Changes in Control........................................ 33
COMPARATIVE RIGHTS OF SHAREHOLDERS.......................... 35
Director Elections........................................ 35
Removal of Directors...................................... 35
Voting.................................................... 35
Preemptive Rights......................................... 35
Directors' Liability...................................... 36
Indemnification........................................... 36
Special Meetings of Shareholders; Action Without a
Meeting................................................ 37
Mergers, Share Exchanges and Sales of Assets.............. 37
Amendment of Certificate of Incorporation and Bylaws...... 38
Rights of Dissenting Shareholders......................... 38
Preferred Stock........................................... 39
</TABLE>
iv
<PAGE> 7
<TABLE>
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PAGE
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<S> <C>
Effect of the Merger on Commercial Shareholders........... 39
THE COLONIAL BANCGROUP, INC. AND SUBSIDIARIES............... 40
Condensed Pro Forma Statements of Condition (Unaudited)... 40
COMPLETED BUSINESS COMBINATIONS............................. 41
PENDING BUSINESS COMBINATION................................ 43
Condensed Pro Forma Statements of Income (Unaudited)...... 44
Selected Financial and Operating Information.............. 49
COMMERCIAL BANK OF NEVADA................................... 51
Selected Financial Data................................... 51
Management's Discussion and Analysis of Financial
Condition and Results of Operations.................... 52
General................................................... 52
Regulation and Legislation................................ 52
Credit Risk............................................... 52
Results of Operations..................................... 56
Rate/Volume Analysis...................................... 57
Liquidity and Capital Resources........................... 57
Regulatory Capital Requirements........................... 58
Asset and Liability Management............................ 59
Loan Maturities........................................... 61
Comparison of Years Ended December 31, 1997 and December
31, 1996............................................... 62
Comparison of Years Ended December 31, 1996 and December
31, 1995............................................... 62
Impact of Inflation and Changing Prices................... 63
Current Accounting Development............................ 63
Year 2000 Compliance...................................... 63
BUSINESS OF BANCGROUP....................................... 64
General................................................... 64
Recently Completed and Other Proposed Business
Combinations........................................... 64
Year 2000 Compliance...................................... 64
Voting Securities and Principal Shareholders.............. 65
Security Ownership of Management.......................... 67
Management Information.................................... 68
BUSINESS OF COMMERCIAL...................................... 69
General................................................... 69
Market Area............................................... 69
Properties................................................ 69
Competition............................................... 69
Principal Holders of Common Stock......................... 70
ADJOURNMENT OF SPECIAL MEETING.............................. 70
OTHER MATTERS............................................... 71
DATE FOR SUBMISSION OF BANCGROUP SHAREHOLDER PROPOSALS...... 71
LEGAL MATTERS............................................... 71
EXPERTS..................................................... 71
INDEX TO FINANCIAL STATEMENTS............................... F-1
APPENDIX A -- Agreement and Plan of Merger.................. A-1
APPENDIX B -- Fairness Opinion of Hoefer & Arnett,
Incorporated.............................................. B-1
APPENDIX C -- Section 92A.300-92A.500 of the Nevada Revised
Statutes Regarding Dissenters' Rights..................... C-1
APPENDIX D -- Stock Option Agreement........................ D-1
</TABLE>
v
<PAGE> 8
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 Commercial 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 Commercial with and into Colonial
Bank, a wholly owned subsidiary of BancGroup.
THE SPECIAL MEETING
The Special Meeting will be held at , on , 1998,
at .m., local time, for the purpose of considering and voting upon
the Agreement and the Merger. Only holders of record of Commercial 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,
842,157 shares of Commercial 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, Georgia, Florida 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 an agreement to acquire one additional
bank. Colonial Mortgage Company, a subsidiary of Colonial Bank, is a mortgage
banking company which, as of December 31, 1997, serviced approximately $12.9
billion in residential loans and which originates residential mortgages in 34
states through four divisional offices. At December 31, 1997, BancGroup had
consolidated total assets of $6.9 billion and consolidated shareholders' equity
of $494.3 million.
Commercial. Commercial is a Nevada state bank which is headquartered in
Las Vegas, Nevada. Currently, the Bank operates three offices located in the
greater Las Vegas area. At December 31, 1997, Commercial had total assets of
approximately $120.1 million, total deposits of approximately $108.7 million and
total shareholders' equity of approximately $10.3 million. See "Business of
Commercial."
THE MERGER
The Agreement provides for the Merger of Commercial with and into Colonial
Bank, with Colonial Bank to be the surviving corporation. Upon the date of
consummation of the Merger (the "Effective Date"), each outstanding share of
Commercial 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 one share of BancGroup Common Stock. If the Market Value of
BancGroup Common Stock is greater than $38.00 per share or less than $30.00 per
share, then each share of Commercial Common Stock will be converted into a
number of shares of BancGroup Common Stock obtained by dividing the Market Value
into $38.00 or $30.00, as the case may be. Cash will be paid in lieu of
fractional shares at the Market Value of such fractional shares. 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 trading days ending on the trading
day five calendar days immediately preceding the Effective Date. If the Market
Value is neither greater than $38.00 nor less than $30.00, then a total of
842,157 shares of BancGroup Common Stock will be issued in the Merger. If the
Market Value falls outside those thresholds, then the total number of shares of
BancGroup Common Stock issued in the Merger will increase proportionally as the
Market Value falls below $30.00 and will decrease proportionally as the Market
Value exceeds $38.00.
1
<PAGE> 9
No fractional shares of BancGroup Common Stock will be issued in the
Merger. Each shareholder of Commercial 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, Commercial shareholders will be given
notice of the consummation of the Merger and instructions for the exchange of
such shareholders' certificates representing shares of Commercial Common Stock
for certificates representing shares of BancGroup Common Stock. Certificates for
the shares of BancGroup Common Stock issued will not be distributed or dividends
paid on such shares until shareholders surrender their certificates representing
their shares of Commercial Common Stock in accordance with those instructions.
COMMERCIAL SHAREHOLDERS SHOULD NOT SEND IN THEIR CERTIFICATES UNTIL THEY RECEIVE
THE INSTRUCTIONS.
See "The Merger -- Conversion of Commercial Common Stock," "-- Surrender of
Commercial Common Stock Certificates."
For certain information concerning dissenters' rights, voting at the
Special Meeting, and management of BancGroup and Commercial, see "The
Merger -- Rights of Dissenting Shareholders," "-- Conversion of Commercial
Common Stock;" "The Special Meeting -- Solicitation, Voting and Revocation of
Proxies," "-- Record Date; Shares Entitled to Vote; Vote Required;" "Business of
BancGroup -- Voting Securities and Principal Stockholders," "-- Security
Ownership of Management;" and "Business of Commercial -- Principal Holders of
Common Stock."
OPINION OF FINANCIAL ADVISORS
Commercial has received an opinion from Hoefer & Arnett, Incorporated that
the terms of the Agreement are fair, from a financial point of view, to the
shareholders of Commercial. The full text of Hoefer & Arnett, Incorporated's
opinion is set forth in Appendix B to this Prospectus and should be read in its
entirety by Commercial shareholders. For additional information regarding Hoefer
& Arnett, Inc's. opinion, see "The Merger -- Opinion of Financial Advisor."
RECOMMENDATION OF COMMERCIAL'S BOARD OF DIRECTORS
The Board of Directors of Commercial has unanimously approved the
Agreement. THE BOARD OF DIRECTORS OF COMMERCIAL BELIEVES THAT THE MERGER IS FAIR
TO, AND IN THE BEST INTERESTS OF, THE SHAREHOLDERS OF COMMERCIAL 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 "-- Commercial's Board of
Director's Reasons for Approving the Merger."
RELATED TRANSACTIONS -- STOCK OPTION
In connection with the Agreement, Commercial has granted to BancGroup an
option to purchase up to 19.9% of the Commercial Common Stock at a purchase
price of $34.00 per share. The option will become exercisable upon the
occurrence of certain events which are generally related to the potential
acquisition of Commercial by another party. The option is intended to increase
the likelihood that the Merger will be consummated by making it more difficult
and expensive for any third party to acquire control of Commercial while
BancGroup is seeking to consummate the Merger. See "The Merger -- Related
Transactions -- Stock Option."
INTERESTS OF CERTAIN PERSONS IN THE MERGER
Certain members of Commercial's management and its Board of Directors have
interests in the Merger in addition to, or different from, the interests of
shareholders of Commercial generally. These interests are related to certain
agreements and arrangements as described below.
John Gaynor, Commercial's President and Chief Executive Officer and Richard
Helgren, Commercial's Executive Vice President and Chief Operating Officer, have
each agreed to enter into employment contracts
2
<PAGE> 10
with Colonial Bank. The agreements will commence at the Effective Date of the
Merger and will terminate on the third anniversary of the Effective Date. Mr.
Gaynor and Mr. Helgren will serve as President and Executive Vice President,
respectively, of the Las Vegas Region of Colonial Bank. Mr. Gaynor will receive
a salary of $132,500 annually and will be granted options under BancGroup's
stock option plans respecting 30,000 shares of BancGroup Common Stock. Mr.
Helgren will receive a salary of $105,000 annually and will be granted options
under BancGroup's stock option plans respecting 20,000 shares of BancGroup
Common Stock. These options granted to Mr. Gaynor and Mr. Helgren shall vest
ratably over a period of five years from the date of the grant. See "The
Merger -- Interests of Certain Person in the Merger -- Employment Contracts."
Prior to the Effective Date certain key employees of Commercial shall enter
into agreements with Commercial providing that they will not compete with
BancGroup for a period of at least one year from the Effective Date. As
consideration, the employees shall receive compensation which shall not total
more than $200,000. The amount of such compensation which each key employee
shall receive shall be proposed by Commercial's President subject to the
approval of BancGroup, provided that no one key employee shall receive more than
50% of the total compensation.
On February 10, 1998 the Board of Directors of Commercial resolved to pay
$100,000 to be shared equally by Jerry E. Polis, Gerald L. Ehrens and William K.
Stephan, M.D., members of the Merger Negotiating Committee of the Board in
recognition of their efforts on behalf of Commercial in connection with the
Merger. The $100,000 is payable upon consummation of the transactions
contemplated in the Merger Agreement.
On the Effective Date and subject to the existing agreements discussed
above, all employees of Commercial 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 Commercial 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.
Except as indicated above, none of the directors or executive officers of
Commercial, and no associate of any such person, has any substantial direct or
indirect interest in the Merger, other than an interest arising from the
ownership of Commercial Common Stock.
See "The Merger -- Interests of Certain Persons in the Merger."
VOTE REQUIRED
Under Nevada law, the Agreement must be approved by the affirmative vote of
the holders of at least a majority of issued and outstanding shares of
Commercial Common Stock. Each share of Commercial 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, Alabama, Nevada 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 Commercial 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, 842,157 shares of Commercial Common Stock were issued and
outstanding. As of the Record Date, the directors and executive officers of
Commercial beneficially owned approximately % of the outstanding shares of
Commercial Common Stock. As of the same date, the directors, executive officers
and affiliates of BancGroup held no shares of Commercial Common Stock. See "The
Special Meeting."
As of the Record Date, the directors of Commercial beneficially owned
250,250 shares of Commercial Common Stock representing approximately 29.71% 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
10.24% of BancGroup's outstanding shares.
3
<PAGE> 11
Proxies should be returned to Commercial in the envelope enclosed herewith.
Shareholders of Commercial submitting proxies may revoke their proxies by (i)
giving notice of such revocation in writing to the Secretary of Commercial at or
prior to the Special Meeting, (ii) by executing and delivering a proxy bearing a
later date to the Secretary of Commercial at or prior to the Special Meeting, or
(iii) by 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 Commercial 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 Commercial Common Stock as of the Record Date are entitled to
exercise dissenters' rights of appraisal pursuant to Section 92A.300 et seq. of
the Nevada Revised Statutes ("NRS"). A holder of Commercial Common Stock who
complies with the provisions of applicable law relating to dissenters' rights
will be entitled to object to the Agreement and Plan of Merger and make written
demand that BancGroup pay in cash the fair value of the shares of Commercial
Common Stock held as determined in accordance with statutory provisions.
Shareholders wishing to exercise dissenters' rights of appraisal must follow
exactly all requirements for the exercise of such rights as set forth in NRS
Section 92A.300 et seq., a copy of which is attached as Appendix C to this
Prospectus. Pursuant to Commercial's Articles of Incorporation and assuming the
Merger is consummated, a dissenting shareholder will be entitled to receive for
each share of Commercial Common Stock as to which dissenters' rights are
perfected not less than the greater of the value per share received by
non-dissenting shareholders in the Merger and the per-share book value of
Commercial Common Stock as of the end of the most recently completed fiscal
quarter. See "The Merger -- Rights of Dissenting Shareholders." Any shareholder
who properly exercises dissenters' rights of appraisal and receives cash for his
or her shares will encounter income tax treatment different from the treatment
for shareholders who do not exercise dissenters' rights. See "The
Merger -- Certain Federal Income Tax Consequences."
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 obligations of Commercial 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 issued and outstanding shares of Commercial
Common Stock; (ii) the approval of the Merger by the Board of Governors of the
Federal Reserve Board (the "Federal Reserve"), the Alabama Banking Department
(the "Alabama Department") and by the Commissioner, Financial Institutions
Division, Nevada Department of Business and Industry (the "Nevada
Commissioner"); (iii) each party's having obtained consents of third parties
required for the consummation of the Merger or for the prevention of default
under material contracts or permits of such party; (iv) the Registration
Statement of which this Prospectus forms a part having become effective, with no
stop order or proceedings for such purpose suspending the effectiveness of the
Registration Statement pending or in effect; (v) the absence of pending or
threatened litigation with a view to restraining or prohibiting consummation of
the Merger or in which it is sought to obtain divestiture, rescission or damages
in connection with the Merger; (vi) the absence of any investigation by any
governmental agency which might result in any such proceeding; (vii)
consummation of the Merger no later than September 30, 1998; (vii) receipt of an
opinion of Coopers & Lybrand L.L.P. regarding certain tax matters; and, (ix)
receipt of opinions of counsel.
The obligation of Commercial to consummate the Merger is further subject to
several other conditions, including, among others: (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 having
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.
4
<PAGE> 12
The obligation of BancGroup to consummate the Merger is subject to several
other conditions, including, among others: (i) the absence of any material
adverse change in the financial condition or affairs of Commercial; (ii) the
number of shares as to which holders of Commercial Common Stock exercise
dissenters' rights not exceeding 10% of the outstanding shares of Commercial
Common Stock; (iii) the receipt of a letter from Coopers & Lybrand L.L.P.
concurring with the conclusions of BancGroup's and Commercial'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 Commercial contained in the
Agreement, and the performance by Commercial of all of its covenants and
agreements under the Agreement; and, (v) the receipt by BancGroup of certain
undertakings from holders of Commercial Common Stock who may be deemed to be
"affiliates" of Commercial pursuant to the rules of the Commission.
Applications for appropriate regulatory approvals by the Federal Reserve,
the Nevada Commissioner and the Alabama Department were filed with such agencies
on April 6, 1998. The Federal Reserve's approval is anticipated before the
Special Meeting. Approval of the Alabama Department and the Nevada Commissioner
is anticipated after the Special Meeting, if the shareholders of Commercial
approve the Merger. It is currently anticipated that the Merger will be
consummated during the second quarter 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.
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, after adoption of the Agreement
and the merger by the holders of Commercial Common Stock, no amendment
decreasing the consideration to be received by Commercial shareholders may be
made without the further approval of such shareholders. Such amendments may
require the filing with the Commission of an amendment of the Registration
Statement, of which this Prospectus forms a part. 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 Commercial, by the mutual
consent of the respective Boards of Directors of Commercial and BancGroup, or by
the Board of Directors of either BancGroup or Commercial under certain
circumstances including, but not limited to, the failure of the transactions
contemplated by the Agreement to be consummated on or prior to September 30,
1998, if such failure to consummate is not caused by any breach of the Agreement
by the party electing to terminate. See "The Merger -- Amendment or Termination
of Agreement."
COMPARATIVE RIGHTS OF SHAREHOLDERS
The rights of the holders of the Commercial 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."
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"). No ruling with respect to the federal income tax
consequences of the Merger to Commercial's shareholders will be requested from
the Internal Revenue Service (the "IRS"). Commercial has received an opinion
from Coopers & Lybrand L.L.P., that, among other things, a shareholder of
Commercial who exchanges shares of Commercial Common Stock for BancGroup Common
Stock will not recognize gain, except that shareholders of Commercial 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 Commercial Common Stock upon perfection of dissenters' rights
also 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." TAX CONSEQUENCES
5
<PAGE> 13
OF THE MERGER FOR INDIVIDUAL TAX PAYERS CAN VARY, HOWEVER, AND COMMERCIAL
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 Commercial 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
Commercial. There is no established public trading market for the
Commercial Common Stock. The shares of Commercial Common Stock are not actively
traded, and such trading activity, as it occurs, takes place in privately
negotiated transactions. Management of Commercial is aware of certain
transactions in shares of Commercial that have occurred since January 1, 1996,
although the trading prices of all stock transactions are not known. The
following table sets forth the trading prices for the shares of Commercial
Common Stock that have occurred since January 1, 1996 for transactions in which
the trading prices are known to management of Commercial:
<TABLE>
<CAPTION>
PRICE PER SHARE
OF COMMON STOCK
----------------
HIGH LOW
------ ------
<S> <C> <C>
1996
First Quarter............................................... $15.00 $12.00
Second Quarter.............................................. 13.00 13.00
Third Quarter............................................... 15.00 15.00
Fourth Quarter.............................................. 15.00 12.00
1997
First Quarter............................................... 12.00 12.00
Second Quarter.............................................. 14.00 14.00
Third Quarter............................................... 12.00 12.00
Fourth Quarter.............................................. N/A N/A
1998
First Quarter............................................... N/A N/A
</TABLE>
6
<PAGE> 14
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 for the last two full
fiscal years and the first quarter of 1998.
<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 3/18
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 (through March 27, 1998)...................... 36 1/4 31 1/2
</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 February 25, 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 $34.8125 per share. The following table presents the market
value of BancGroup Common Stock per share on that date, and the per share
market value and equivalent per share value of Commercial Common Stock on
that date:
<TABLE>
<CAPTION>
EQUIVALENT
BANCGROUP COMMERCIAL BANCGROUP
COMMON STOCK(1) COMMON STOCK(2) COMMON STOCK(3)
--------------- --------------- ---------------
<S> <C> <C> <C>
Comparative Market Value.............. $34.8125 $12.00 $34.8125
</TABLE>
- ---------------
(1) Closing price as reported by the NYSE on February 25, 1998.
(2) There is no established public trading market for the shares of Commercial
Common Stock. The value shown is the price at which shares of Commercial
Common Stock were sold in the third quarter of 1997, which was the last sale
price prior to the public announcement of the Merger on February 26, 1998,
of which management of Commercial is aware.
(3) If the Merger had closed on February 25, 1998, then one share of BancGroup
Common Stock would have been exchanged for each share of Commercial 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 provisions with the Federal Reserve have been
satisfied.
BancGroup's Restated Certificate of Incorporation (the "BancGroup
Certificate") and 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: (i) a classified board of directors, (ii) super
majority voting requirements for certain "business combinations" that exceed the
provisions of Delaware law described above,
7
<PAGE> 15
(iii) flexibility for the Board of Directors to consider non-economic and other
factors in evaluating a "business combination," (iv) inability of shareholders
to call special meetings and act by written consent, and (v) 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 Commercial 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 those pro forma
statements.
<TABLE>
<CAPTION>
YEAR YEAR YEAR
ENDED ENDED ENDED
1997 1996 1995
------ ------ -------
<S> <C> <C> <C>
BANCGROUP-HISTORICAL:
Net Income
Basic.................................................. $ 1.84 $ 1.30 $ 1.30
Diluted................................................ 1.78 1.25 1.21
Book value at end of period................................. 11.62 10.29 9.43
Dividends per share:
Common Stock........................................... 0.60 0.54 0.3375
Common A(a)............................................ 0.1125
Common B(a)............................................ 0.0625
COMMERCIAL BANK OF NEVADA
Net Income
Historical:
Basic.................................................. 1.15 1.11 (0.47)
Diluted................................................ 1.15 1.05 (0.47)
Pro forma equivalent assuming combination with Commercial
Bank and completed business combinations(b):
Basic.................................................. 1.75 1.31 1.25
Diluted................................................ 1.70 1.26 1.17
Book value at end of period
Historical................................................ 12.22 11.07 9.68
Pro forma equivalent assuming combination with Commercial
Bank and completed business combinations(b)............ 11.66 N/A N/A
Dividends per share
Historical................................................ -- -- --
Pro forma equivalent assuming combination with Commercial
Bank and completed business combinations(c)............ 0.60 0.54 0.45
BANCGROUP-PRO FORMA COMBINED (COMMERCIAL BANK AND COMPLETED
BUSINESS COMBINATIONS):
Net Income
Basic.................................................. 1.75 1.31 1.25
Diluted................................................ 1.70 1.26 1.17
Book value at end of period................................. 11.66 N/A N/A
</TABLE>
- ---------------
N/A Not applicable due to pro forma balance sheet being presented only at
December 31, 1997 which assumes the transaction consummated on the latest
balance sheet date in accordance with Rule 11.02(b) of Regulation S-X.
8
<PAGE> 16
(a) Before February 21, 1995, BancGroup had two classes of common stock
outstanding, Class A and Class B. Class B was not publicly traded. Class A
was traded on the Nasdaq National Market System under the symbol of "CLBGA"
until February 24, 1995. On February 21, 1995, the Class A and Class B
common stock were reclassified into the BancGroup Common Stock. Trading on
the NYSE commenced on February 24, 1995.
(b) 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
Commercial Bank. For these pro forma equivalent per share amounts, a 1.00
BancGroup common stock conversion ratio is utilized.
(c) Pro forma equivalent dividends per share are shown at BancGroup's Common
Stock dividend per share rate multiplied by the 1.00 conversion ratio per
share of Commercial Bank 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> 17
THE SPECIAL MEETING
GENERAL
This Prospectus is being furnished to the shareholders of Commercial in
connection with the solicitation of proxies by the Board of Directors of
Commercial for use at the Special Meeting and 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 Commercial with and into
Colonial Bank. Colonial Bank will be the surviving corporation in the Merger.
THE BOARD OF DIRECTORS OF COMMERCIAL BELIEVES THAT THE MERGER IS IN THE
BEST INTERESTS OF COMMERCIAL AND ITS 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 Commercial has fixed the close of business on
, 1998, as the Record Date for determination of shareholders
entitled to vote at the Special Meeting. As of the Record Date, there were
record holders of Commercial Common Stock and 842,157 shares of
Commercial Common Stock outstanding, each entitled to one vote per share.
The presence at the Special Meeting, in person or by proxy, of the holders
of a majority of the outstanding shares of Commercial 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 Commercial shareholders holding the requisite
number of shares of Commercial 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 Commercial Common Stock, whether or not
present or represented at the Special Meeting, is required to approve the
Agreement. Broker nonvotes 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 Commercial 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.
Pursuant to Commercial's Articles of Incorporation and assuming the Merger
is consummated, a dissenting shareholder will be entitled to receive for each
share of Commercial Common Stock as to which dissenters' rights are perfected
not less than the greater of the value per share received by non-dissenting
shareholders in the Merger and the per-share book value of Commercial Common
Stock as of the end of the most recently completed fiscal quarter.
As of the Record Date, directors of Commercial owned shares of
Commercial Common Stock representing approximately % of the outstanding
shares. These individuals have agreed with BancGroup to vote their shares in
favor of the Merger. As of the Record Date, the directors, executive officers
and affiliates of BancGroup held no shares of Commercial Common Stock.
If the Agreement is approved at the Special Meeting, Commercial is expected
to merge with and into Colonial Bank promptly after the other conditions to the
Agreement are satisfied. See "The Merger -- Conditions to Consummation of the
Merger."
THE BOARD OF DIRECTORS OF COMMERCIAL URGES THE SHAREHOLDERS OF COMMERCIAL
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.
10
<PAGE> 18
SOLICITATION, VOTING AND REVOCATION OF PROXIES
In addition to soliciting proxies by mail, directors, officers and other
employees of Commercial, without receiving special compensation therefor, may
solicit proxies from Commercial'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 Commercial Common Stock.
Commercial will bear the cost of assembling and mailing this Prospectus and
other materials furnished to shareholders of Commercial. It will also pay all
other expenses of solicitation, including the expenses of brokers, custodians,
nominees, and other fiduciaries who, at the request of Commercial, 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 Commercial 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 Commercial 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 Commercial 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 Commercial, prior to or at the Special Meeting, a
written notice revoking the proxy; (ii) delivering to the Secretary of
Commercial, 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 Commercial's proxies should be
addressed to:
COMMERCIAL BANK OF NEVADA
2820 W. Charleston Boulevard
Las Vegas, Nevada 89012
Attention: Ms. Diana Swaim
Proxies marked as abstentions and shares held in a 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 Commercial 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 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 approval of the Agreement. Proxies voted against
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 and that the Market Value of BancGroup Common Stock will be neither less
than $30.00 nor more than $38.00 on the Effective Date, BancGroup will issue
842,157 shares of BancGroup Common Stock to the shareholders of Commercial
pursuant to the Merger. (As of March 18, 1998, the ten-day average of closing
prices for BancGroup Common Stock was $34.394.) Based on those assumptions, the
842,157 shares of BancGroup Common Stock would 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.
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THE MERGER
The following sets forth a summary of the material provisions of the
Agreement and the Option 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 and the Option Agreement, copies of which are
attached hereto as Appendix A and Appendix D, respectively, and certain
provisions of Nevada law relating to the rights of dissenting shareholders, a
copy of which is attached hereto as Appendix C. All Commercial 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
Commercial, receipt of necessary regulatory approval and satisfaction of certain
other conditions described below at "Conditions to Consummation of the Merger,"
Commercial will merge with and into Colonial Bank. Upon completion of the
Merger, the corporate existence of Commercial will cease, and Colonial Bank will
succeed to the business formerly conducted by Commercial.
BACKGROUND OF THE MERGER
On December 15, 1997, three members of Commercial's Board of Directors,
Jerry E. Polis, Gerald L. Ehrens and William K. Stephan, M.D. informally met
with Hoefer & Arnett, Incorporated ("Hoefer & Arnett"), an investment banking
firm, to consider long range planning issues. These individuals believed that
Commercial was at a crossroads in its planning process. Hoefer & Arnett was
hired to assist these individuals, on an informal basis, in determining whether
Commercial should remain independent and continue its existing growth strategies
or whether Commercial should enter into a strategic alliance with a larger
banking organization. Hoefer & Arnett informally advised these individuals that
an appropriate value for a sale of control of Commercial would be approximately
$25 million.
The individual board members determined that if a qualified banking
organization would pay a price higher than $25 million, it would be in the best
interests of Commercial to align itself with such a banking organization rather
than remain independent. On this basis, these individuals instructed Hoefer &
Arnett to pursue an informal process of confidentially contacting a select group
of potential purchasers. Given the uncertainty of the outcome of this process,
management of Commercial was not initially informed that Hoefer & Arnett was
contacting prospective acquirors.
In mid January 1998, Hoefer & Arnett delivered information regarding
Commercial to three interested parties. The three organizations were selected
based upon strength of financial performance, geographic scope of operations,
and history of completing acquisitions. One of the potential purchasers
expressed interest at a price of approximately $25 million. Two potential
purchasers, including BancGroup, orally indicated an interest at prices higher
than $25 million. On February 4, 1998, the individual board members met with
representatives of the two potential purchasers. BancGroup orally offered to pay
the price reflected in the Merger Agreement at the meeting with these
individuals. The other potential purchaser did not make an offer at the meeting
with the individual board members and never formally responded in a timely
fashion. Based on these responses, the individual board members decided to
proceed with a transaction with BancGroup.
At about this same time, one of the individual board members, Gerald L.
Ehrens, and John S. Gaynor, Commercial's President and Chief Executive Officer,
attended a seminar conducted by a national consulting firm regarding the sale of
community banks. The information gathered at this seminar further supported the
position that an alliance with BancGroup was in the best interests of
Commercial.
Following the seminar, the individual board members informed management of
its informal discussions with BancGroup and arranged for a meeting between
management and BancGroup. On February 10, 1998, management met with
representatives of BancGroup to discuss the proposed transaction and various
aspects of aligning the two organizations. Pursuant to these discussions, Mr.
Gaynor and Richard M. Helgren, Commercial's Executive Vice President and Chief
Operating Officer, and BancGroup agreed upon the terms of employment contracts.
The purpose of this arrangement was to induce Mr. Gaynor and Mr. Helgren to
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remain in the employ of Commercial and to encourage BancGroup to maintain their
status and principal responsibilities following a change in control.
On February 10, 1998, the individual board members and management formally
informed the Board of Directors of Commercial of the discussions with BancGroup
and the process undertaken to identify BancGroup as a potential purchaser. After
extensive deliberations, the Board of Directors decided to proceed with
negotiations with BancGroup. The Board of Directors also formally formed a
Merger Negotiating Committee to consist of the three individual board members,
Jerry E. Polis, Gerald L. Ehrens, and William K. Stephan, M.D., who had
informally been acting as a committee, plus board member Andras F. Babero, Esq.,
and John Gaynor, the President and Chief Executive Officer of Commercial. The
Board of Directors determined that, as compensation for their services in
arranging for and negotiating the proposed transaction, Commercial will pay
$100,000 to the three initial members of the Merger Negotiating Committee, Mr.
Polis, Mr. Ehrens and Dr. Stephan, upon consummation of the transaction. At the
meeting, the Board of Directors also formally engaged Hoefer & Arnett to serve
as its investment advisor with respect to the transaction.
From February 10 through February 25, 1998 BancGroup and Commercial and
their respective representatives negotiated the financial and other terms of the
Agreement on an "arm's length" basis. During the week of February 16, 1998,
BancGroup performed a due diligence review of Commercial. On February 20, 1998,
the Board of Directors held a meeting, attended by legal counsel, to review the
terms and conditions of the Agreement. During this meeting, legal counsel
reviewed generally the fiduciary obligations of directors in mergers of
financial institutions. In addition, a representative of Hoefer & Arnett orally
advised the Board of Directors that the terms of the Agreement were fair to the
shareholders of Commercial from a financial point of view. Following discussion
and review, the Commercial Board of Directors unanimously approved the
Agreement. The Agreement between Commercial and BancGroup was entered into as of
February 25, 1998.
COMMERCIAL'S BOARD OF DIRECTORS' REASONS FOR APPROVING THE MERGER
In connection with its decision to approve the Merger and recommend the
transaction to the shareholders of Commercial, the Board of Directors of
Commercial, with the assistance of its financial advisor, Hoefer & Arnett,
reviewed the adequacy and fairness of the consideration to be received by
shareholders of Commercial in the Merger.
The Board considered that Commercial's stock trades infrequently and that
the liquidity for larger blocks of stock is virtually nonexistent. The
consideration to be received for Commercial as a whole was valued at
approximately $30 million as of the date of the Agreement. The level of the
consideration represents a $19.7 million premium over the book value of
Commercial as of December 31, 1997.
The Board further considered the future prospects for Commercial and its
business. In its informal review of Commercial, Hoefer & Arnett developed a
consensus estimate of Commercial's earnings prospects operating as an
independent bank. The forecast included net income of $1.5 to $1.8 million in
1998. Based in part on these financial prospects, Hoefer & Arnett estimated a
value for Commercial in a sale of control environment of approximately $25
million.
In addition, the Board considered the potential social and economic impact
of the Merger on Commercial's employees, depositors and other customers and
vendors as well as the potential social and economic impact of the Merger on the
community in which Commercial operates. Of particular importance to the Board
was the fact that BancGroup had no existing presence in the western United
States. This should enhance the likelihood that BancGroup will allow Commercial
to continue its operations as presently conducted, allowing it to continue to
serve its community with its existing employees.
Finally, the Board considered the business and financial condition and
earnings prospects of BancGroup and the competence, experience and integrity of
its management. The long term performance trend for BancGroup has been notably
positive. BancGroup's 1996 Annual Report notes that operating earnings per share
have increased an average of 23.7% per year since 1992. In addition, the Board
reviewed two independent equity research reports on BancGroup, including those
issued by: (1) Morgan Keegan & Company, Inc. dated January 9, 1998 which
indicated that "traditional measures at this company continue to
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improve and excel", and (2) Stephen, Inc. dated September 9, 1997 which
indicated 1997 and 1998 earnings per share growth of 10% annually.
FAIRNESS OPINION
Commercial's Board of Directors retained Hoefer & Arnett to render a
written opinion (the "Fairness Opinion") as investment bankers as to the
fairness, from a financial point of view, to the shareholders of Commercial of
the terms of the proposed Merger. No limitations were imposed by the Board of
Directors upon Hoefer & Arnett with respect to the investigations made or
procedures followed in rendering the Fairness Opinion.
A copy of the Fairness Opinion of Hoefer & Arnett, dated as of March 30,
1998, which sets forth certain assumptions made, matters considered and limits
on the review undertaken by Hoefer & Arnett, is attached as an Appendix B to
this Prospectus. Shareholders are urged to read the Fairness Opinion in its
entirety. The following summary of the procedures and analyses performed, and
assumptions used by Hoefer & Arnett is qualified in its entirety by reference to
the text of such Fairness Opinion. Hoefer & Arnett's Fairness Opinion is
directed to Commercial's Board of Directors only and is directed only to the
financial terms of the transaction and does not constitute a recommendation to
any Commercial shareholder as to how such shareholder should vote at the Special
Meeting.
In arriving at its opinion, Hoefer & Arnett reviewed and analyzed, among
other things, the following: (i) the Agreement; (ii) Annual Reports to
Shareholders of BancGroup for the year ended December 31, 1997 and of Commercial
and BancGroup for the year ended December 31, 1996; (iii) Quarterly FDIC Call
Reports for the quarters ended December 31, 1997, September 30, 1997, June 30,
1997, March 31, 1997 and December 31, 1996; (iv) certain other publicly
available financial and other information concerning Commercial and BancGroup;
(v) the historical market prices and trading activity for the common stock of
BancGroup; and (vi) publicly available information concerning other banks and
holding companies, the trading markets for their securities and the nature and
terms of certain other merger transactions Hoefer & Arnett believed relevant to
its inquiry. Hoefer & Arnett held discussions with senior management of
Commercial and BancGroup concerning their past and current operations, financial
condition and prospects, as well as the results of regulatory examinations.
Hoefer & Arnett reviewed with senior management of Commercial earnings
projections for 1998 through 2002 for Commercial as a stand-alone entity,
assuming the Merger does not occur, prepared by Commercial. Hoefer & Arnett
reviewed with senior management of BancGroup earnings projections for 1998
through 2002 as a stand-alone entity, assuming the Merger does not occur, as
well as projected operating cost savings and earnings enhancement opportunities
expected to be achieved in each such years resulting from the Merger. Such
projections were prepared by BancGroup senior management. Certain pro forma
financial projections for the years 1998 through 2002 for the combined entity
were derived by Hoefer & Arnett based partially upon the projections discussed
above, as well as Hoefer & Arnett's own assessment of general economic, market
and financial conditions. In certain cases, such combined pro forma financial
projections included projected operating cost savings derived by Hoefer & Arnett
partially based upon the projections discussed above to be realizable in the
Merger.
In conducting its review and in arriving at its opinion, Hoefer & Arnett
relied upon and assumed the accuracy and completeness of the financial and other
information provided to it or publicly available, and did not attempt to
independently verify the same. Hoefer & Arnett relied upon the managements of
Commercial and BancGroup as to the reasonableness of the financial and operating
forecasts, projections and projected operating cost savings and earnings
enhancement opportunities (and the assumptions and bases therefor) provided to
it. Hoefer & Arnett assumed that such forecasts, projections and projected
operating cost savings and earnings enhancement opportunities reflect the best
currently available estimates and judgments of the applicable managements.
Hoefer & Arnett also assumed, without independent verification, that the
aggregate allowance for loan losses for Commercial and BancGroup are adequate to
cover such losses. Hoefer & Arnett did not make or obtain any evaluations or
appraisals of the property of Commercial or BancGroup, nor did it examine any
individual loan credit files. For purposes of its opinion, Hoefer & Arnett
assumed that the Merger
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will have the tax, accounting and legal effects described in the Agreement and
relied, as to legal matters, exclusively on counsel to Commercial, as to the
accuracy of the disclosures set forth in the Agreement. Hoefer & Arnett's
opinion is limited to the fairness, from a financial point of view, to the
holders of the Commercial Common Stock of the terms of the proposed Merger and
does not address Commercial's underlying business decision to proceed with the
Merger.
As more fully discussed below, Hoefer & Arnett considered such financial
and other factors as it deemed appropriate under the circumstances, including
among others the following: (i) the historical and current financial position
and results of operations of Commercial and BancGroup, including interest
income, interest expense, net interest income, net interest margin, provision
for loan losses, non-interest income, non-interest expense, earnings, dividends,
internal capital generation, book value, intangible assets, return on assets,
return on shareholders' equity, capitalization, the amount and type of
nonperforming assets, loan losses and the reserve for loan losses, all as set
forth in the financial statements for Commercial and BancGroup; (ii) the assets
and liabilities of Commercial and BancGroup, including the loan, investment and
mortgage portfolios, deposits, other liabilities, historical and current
liability sources and costs and liquidity; and (iii) the nature and terms of
certain other merger transactions involving banks and bank holding companies.
Hoefer & Arnett also took into account its own assessment of general economic,
market and financial conditions and its experience in other transactions, as
well as its experience in securities valuation and its knowledge of the banking
industry generally. Hoefer & Arnett's opinion is based upon conditions as they
existed and could be evaluated on the date of its opinion and the information
made available to it through that date.
In connection with rendering its Fairness Opinion to Commercial's Board of
Directors, Hoefer & Arnett performed certain financial analyses, which are
summarized below. Hoefer & Arnett believes that its analysis must be considered
as a whole and that selecting portions of such analysis and the factors
considered therein, without considering all factors and analysis, could create
an incomplete view of the analysis and the processes underlying the Fairness
Opinion. The preparation of a fairness opinion is a complex process involving
subjective judgments and is not necessarily susceptible to partial analysis or
summary description. In its analyses, Hoefer & Arnett made numerous assumptions
with respect to industry performance, business and economic conditions, and
other matters, many of which are beyond the control of Commercial and BancGroup.
Any estimates contained in Hoefer & Arnett's analyses are not necessarily
indicative of future results or values, which may be significantly more or less
favorable than such estimates. Estimates of values of companies do not purport
to be appraisals or necessarily reflect the prices at which companies or their
securities may actually be sold. None of the financial analyses performed by
Hoefer & Arnett was assigned a greater significance by Hoefer & Arnett than any
other.
The financial forecasts and projections of Commercial and BancGroup
prepared by Hoefer & Arnett were based on projections provided by the respective
companies as well as Hoefer & Arnett's own assessment of general economic,
market and financial conditions. All such information was reviewed with the
management of Commercial. Commercial does not publicly disclose internal
management financial forecasts and projections of the type provided to Hoefer &
Arnett in connection with its review of the proposed Merger. Such forecasts and
projections were not prepared with a view towards public disclosure. The
forecasts, projections, and possible operating cost savings prepared by Hoefer &
Arnett were based on numerous variables and assumptions, which are inherently
uncertain, including, without limitation, factors related to general economic
and market conditions. Accordingly, actual results could vary significantly from
those set forth in such forecasts and projections.
Summary of Proposal. Hoefer & Arnett reviewed the terms of the proposed
transaction, including the Exchange Ratio and the aggregate transaction value. A
transaction value of approximately $30.3 million, or $36.00 per share,
represents a price to stated book value at December 31, 1997 of 2.95, a price to
1997 earnings of 31.19 and a price to assets ratio of 25.20%. (Based on the
issuance of 842,157 shares of BancGroup Common Stock and a market price of
$36.00 per share for BancGroup Common Stock, the approximate closing price on
March 30, 1998.)
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Comparable Transaction Analysis. Hoefer & Arnett reviewed certain
information relating to the announced sale of 54 banking organizations in
western United States from January 1, 1997 through March 25, 1998 (the
"Comparable Transactions"). This data was obtained from Sheshunoff Information
Services, Inc.
On the basis of the Comparable Transactions, Hoefer & Arnett calculated a
range of purchase prices as a multiple of stated book value for the Comparable
Transactions from a low of 1.03 to a high of 4.21, with an average of 2.43.
These transactions indicated a range of $12.58 per share to $51.40 per share,
with an average of $29.67 per share for Commercial (based on December 31, 1997
equity). On the basis of the Comparable Transactions, Hoefer & Arnett calculated
a range of purchase prices as a multiple of earnings for the Comparable
Transactions from a low of 5.98 to a high of 35.56, with an average of 18.26.
These transactions indicated a range of $6.88 per share to $40.89 per share,
with an average of $21.00 per share for Commercial (based on Commercial's 1997
earnings). Finally, Hoefer & Arnett calculated a range of purchase prices as a
percentage of total assets for the Comparable Transactions from a low of 7.39%
to a high of 47.43%, with an average of 21.24%. These transactions indicated a
range of $10.56 per share to $67.75 per share, with an average of $30.34 per
share for Commercial (based on December 31, 1997 total assets for Commercial).
The price to book value multiple, the price to earnings multiple and the
price to assets ratio resulting from the terms of the Agreement all compare
favorably with the prices paid in the Comparable Transactions.
Additionally, Hoefer & Arnett reviewed pricing information on BancGroup's
13 previous acquisitions over the past two years. Based on data obtained from
Sheshunoff Information Services, Inc., BancGroup paid an average of 2.14 times
book value, 17.84 times trailing 12 months earnings and 20.35% of total assets.
The multiples resulting from the terms of the Agreement in this transaction all
compare favorably with the average of the prices paid in the previous
acquisitions by BancGroup.
Present Value Analysis. Hoefer & Arnett calculated the present value of
Commercial assuming that Commercial remained independent. Based on projected
earnings for Commercial for 1998 through 2002 and using a discount rate of 12%,
an acceptable discount rate considering the risk-return relationship most
investors would demand for an investment of this type as of the valuation date,
the present value equaled $32.13 per share, which is below the transaction value
of $36.00.
Contribution Analysis. Hoefer & Arnett reviewed the relative contributions
in terms of various balance sheet items, net income and market capitalization to
be made by Commercial and BancGroup to the combined institution based on (i)
balance sheet at December 31, 1997, and (ii) actual 1997 earnings. The income
statement and balance sheet components analyzed included total assets, total
loans (net), total deposits, shareholders' equity and net income. This analysis
showed that, while Commercial shareholders would own approximately 1.90% of the
aggregate outstanding shares of the combined institution (on a fully-diluted
basis) based on the issuance of 842,157 shares of BancGroup Common Stock,
Commercial was contributing 1.73% of total assets, 1.60% of total loans (net),
2.03% of total deposits, 2.04% of shareholders' equity, and 1.24% of 1997
earnings. On balance, this contribution analysis reflects favorably on this
transaction.
Pro Forma Analysis. Hoefer & Arnett compared the changes in the amount of
earnings, book value and dividends attributable to one share of Commercial
Common Stock before the Merger with the amounts attributable to the shares of
BancGroup Common Stock for which such shares of Commercial would be exchanged
under the Agreement.
Hoefer & Arnett's analysis utilized an exchange ratio of 1 for 1 and
included pre-tax merger savings and earnings enhancements of $250,000 in 1999
through 2002. On an earnings per share basis, Commercial shareholders are
projected to experience appreciation of 7.01% in 1998 and dilution ranging from
3.78% to 18.74% from 1999 to 2002. On a book value per share basis, Commercial
shareholders are projected to experience dilution ranging from 3.41% to 6.72%.
However, on a dividend per share basis, Commercial shareholders are projected to
experience substantial appreciation in that Commercial does not currently, and
would not, on a standalone basis, pay a dividend. Even though this analysis
shows long-term dilution for Commercial shareholders on an earnings per share
and equity per share basis, Hoefer & Arnett's opinion is
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that this dilution is outweighed by the dividend appreciation and the favorable
aspects of all of the other analyses performed.
Stock Trading History. Hoefer & Arnett reviewed and analyzed the
historical trading prices and volumes for BancGroup Common Stock on a monthly
basis from January 31, 1997 to March 30, 1998. The BancGroup Common Stock price
has ranged from a low of $20.625 to a high of $36.00. The stock price to
trailing 12 months earnings per share has ranged from a low of 13.0 to a high of
20.22. The stock price to book value has ranged from a low of 2.00 to a high of
3.10. The volume of shares traded during a one-month period has ranged from
570,200 to 1,271,400 indicating an active market for BancGroup Common Stock.
Other Analysis. Hoefer & Arnett also reviewed selected investment research
reports on and earnings estimates for BancGroup. In addition, Hoefer & Arnett
prepared an overview of historical financial performance of both Commercial and
BancGroup.
The opinion expressed by Hoefer & Arnett was based upon market, economic
and other relevant considerations as they existed and have been evaluated as of
the date of the opinion. Events occurring after the date of issuance of the
opinion, including but not limited to, changes affecting the securities markets,
the results of operations or material changes in the assets or liabilities of
Commercial could materially affect the assumptions used in preparing the
opinion.
Financial Advisory Fees. Pursuant to an engagement letter dated February
10, 1998, Commercial engaged Hoefer & Arnett to review the terms of the
transaction and to render a fairness opinion in connection with the Merger for
$100,000 excluding out-of-pocket expenses.
RECOMMENDATION OF THE BOARD OF DIRECTORS OF COMMERCIAL
The Board of Directors of Commercial has determined that the Merger is in
the best interests of Commercial and its shareholders. THE BOARD OF DIRECTORS
UNANIMOUSLY RECOMMENDS THAT THE SHAREHOLDERS OF COMMERCIAL VOTE IN FAVOR OF THE
APPROVAL AND ADOPTION OF THE AGREEMENT AND THE MERGER.
BANCGROUP'S REASONS FOR THE MERGER
The Boards of Directors of BancGroup and Colonial Bank have unanimously
approved the Agreement and the Merger. BancGroup currently operates Colonial
Bank as a network of "community banks" in the Southeastern United States and
operates Colonial Mortgage Company, a subsidiary of Colonial Bank, as a mortgage
banking company in 34 states. Responding to the advent of interstate banking and
its experience outside of the Southeast through Colonial Mortgage Company,
BancGroup has identified the opportunity to make selective acquisitions
nationwide in areas of unusually favorable demographic characteristics. The
Boards of Directors regard the Merger as an opportunity for Colonial Bank to
enter the rapidly growing Las Vegas, Nevada market area.
In approving the Merger and the Agreement, the Board of Directors of
BancGroup took into account, among other things: (i) the rapid population growth
of the State of Nevada in general and the city of Las Vegas in particular, (ii)
the experience of Colonial Mortgage Company in the Las Vegas market area, (iii)
the financial performance and condition of Commercial, including it strong
capital and good asset quality, (iv) similarities in the philosophies of
Commercial and BancGroup, including Commercial's commitment to delivering high
quality personalized financial services to its customers, and (v) Commercial's
management's knowledge of and experience in the Las Vegas market area.
RELATED TRANSACTIONS -- STOCK OPTION
Commercial and BancGroup have entered into a stock option agreement dated
as of February 25, 1998 (the "Option Agreement") whereby Commercial has granted
to BancGroup an option to purchase up to 167,589 shares, or 19.9% of Commercial
Common Stock at a purchase price of $34.00 per share. The Option Agreement is
attached hereto as Appendix D. Both the number of shares subject to the option
and the purchase price per option share are subject to adjustment in certain
circumstances. The Option Agreement
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was entered into as an inducement for, and as a condition to, BancGroup's
execution of the Agreement. The Option Agreement is intended to increase the
likelihood that the Merger will be consummated by making it more difficult and
expensive for a third party to acquire control of Commercial while BancGroup is
seeking to consummate the Merger.
The option granted under the Option Agreement may be exercised by
BancGroup, in whole or in part, in the event a "Purchase Event" precedes the
termination of the Agreement. If the option becomes exercisable, Commercial may
be required to repurchase the option or any shares issued thereunder at a price
calculated in accordance with the Option Agreement. In addition, under certain
circumstances, the option may be converted into a similar option to acquire
shares of an entity engaging in certain transactions with Commercial.
The term "Purchase Event" is defined in the Option Agreement to include:
(i) Commercial's agreement, without BancGroup's prior written consent, to effect
an "Acquisition Transaction" with any person other than BancGroup, or
Commercial's authorization, recommendation, or public proposal of (or public
announcement of its intention to authorize, recommend, or propose) such an
agreement; or (ii) the acquisition by any person of beneficial ownership of 25%
or more of the outstanding shares of Commercial Common Stock. The term
"Acquisition Transaction" is defined to include: (i) a merger, consolidation, or
other business combination involving Commercial; (ii) the disposition, by sale,
exchange, lease, or otherwise, of substantially all of the consolidated assets
of Commercial; or (iii) the issuance of securities representing 25% or more of
the voting power of Commercial.
The Option Agreement and the option granted thereunder terminate upon the
earliest to occur of: (i) the Effective Date; (ii) termination of the Agreement
in accordance with its terms prior to the occurrence of a Purchase Event or a
"Preliminary Purchase Event" (generally, a tender offer or exchange offer by a
third party to acquire more than 25% of the outstanding shares of Commercial
Common Stock or the failure of Commercial's shareholders to approve the
Agreement following the public announcement of a proposed Acquisition
Transaction or tender offer); (iii) termination of the Agreement by BancGroup
prior to the occurrence of a Purchase Event or a Preliminary Purchase Event for
reasons other than a breach of the Agreement by Commercial or the failure to
occur of certain conditions precedent to the Merger; or (iv) the passage of
eighteen months after termination of the Agreement by BancGroup because of a
material breach of the Agreement by Commercial or the failure to occur of
certain conditions precedent to the consummation of the Merger.
To the knowledge of Commercial, no event that would permit the exercise of
the option has occurred as of the date hereof. The rights and obligations of
Commercial and BancGroup under the Option Agreement are subject to receipt of
any required regulatory approval, including approval by the Federal Reserve
under the BHCA.
The Option Agreement, together with Commercial's agreement not to solicit
or negotiate any proposals for the sale of Commercial or its subsidiaries to
another party (see "The Merger -- Commitments with Respect to Other Offers"),
have the effect of discouraging persons who might now, or prior to the Effective
Date, be interested in acquiring all or a significant interest in Commercial
from considering or proposing such an acquisition, even if such persons were
prepared to pay a higher price per share for the Commercial Common Stock than
the price per share to be paid by BancGroup in the Merger. The option granted to
BancGroup under the Option Agreement will become exercisable in the event of the
occurrence of certain proposals to acquire Commercial. The possibility that
BancGroup might exercise the option, and thus acquire a substantial block of
Commercial Common Stock, might deter offers of other persons or entities
interested in such an acquisition.
INTERESTS OF CERTAIN PERSONS IN THE MERGER
Certain members of Commercial's management and its Board of Directors have
interests in the Merger in addition to, or different from, the interests of
shareholders of Commercial generally. These interests are related to certain
agreements and arrangements as described below.
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Employment Agreements. John Gaynor, Commercial's President and Chief
Executive Officer and Richard Helgren, Commercial's Executive Vice President and
Chief Operating Officer, have each agreed to enter into employment contracts
with Colonial Bank. The agreements will commence at the Effective Date of the
Merger and will terminate on the third anniversary of the Effective Date. Mr.
Gaynor and Mr. Helgren will serve as President and Executive Vice President,
respectively, of the Las Vegas Region of Colonial Bank. Mr. Gaynor will receive
a salary of $132,500 annually and will be granted options under BancGroup's
stock option plans respecting 30,000 shares of BancGroup Common Stock. Mr.
Helgren will receive a salary of $105,000 annually and will be granted options
respecting 20,000 shares of BancGroup Common Stock. These options granted to Mr.
Gaynor and Mr. Helgren shall vest ratably over a period of five years from the
date of the grant. See "The Merger -- Interests of Certain Person in the
Merger -- Employment Contracts."
Noncompete Agreements. Prior to the Effective Date certain key employees
of Commercial shall enter into agreements with Commercial providing that they
will not compete with BancGroup for a period of at least one year from the
Effective Date. As consideration, the employees shall receive compensation which
shall not total more than $200,000. The amount of such compensation which each
key employee shall receive shall be proposed by Commercial's President subject
to the approval of BancGroup, provided that no one key employee shall receive
more than 50% of the total compensation.
Director Payments. On February 10, 1998 the Board of Directors of
Commercial resolved to pay $100,000 to be shared equally by Jerry E. Polis,
Gerald L. Ehrens and William K. Stephan, M.D., members of the Merger Negotiating
Committee in recognition of their efforts on behalf of Commercial in connection
with the Merger. The $100,000 is payable upon consummation of the transactions
contemplated in the Merger Agreement.
On the Effective Date, all employees of Commercial (including its executive
officers) will, at BancGroup's option, either become employees of BancGroup or
its subsidiaries or be entitled to severance benefits in accordance with the
severance policy of Colonial Bank, as in effect as of the date of the Agreement,
except that such severance policy will be modified and will apply to employees
of Commercial who become employees of BancGroup. All employees of Commercial 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.
Except as described above, none of the directors or executive officers of
Commercial, and no associate of any such person, has any substantial direct or
indirect interest in the Merger, other than an interest arising from the
ownership of Commercial Common Stock.
CONVERSION OF COMMERCIAL COMMON STOCK
On the Effective Date, each share of Commercial Common Stock outstanding
and held by Commercial's shareholders (except shares as to which dissenters'
rights of appraisal are perfected) will be converted by operation of law and
without any action by any holder thereof into one share of BancGroup Common
Stock, provided that the Market Value of BancGroup Common Stock is neither
greater than $38.00 nor less than $30.00. The Market Value shall be the average
of the closing prices of BancGroup Common Stock as reported on the NYSE on each
of the ten consecutive trading days ending on the trading day five calendar days
immediately preceding the Effective Date of the Merger. If the Market Value is
greater than $38.00, then each share of Commercial Common Stock will be
converted into the number of shares of BancGroup Common Stock obtained by
dividing $38.00 by the Market Value. If the Market Value is less than $30.00,
then each share of Commercial Common Stock will be converted into the number of
shares of BancGroup Common Stock obtained by dividing $30.00 by the Market
Value. For example, if the Market Value is $25.00, each share of Commercial
Common Stock will be converted into 1.200 ($30.00 / $25.00) shares of BancGroup
Common Stock; but, if the Market Value is $45.00, each share of Commercial
Common Stock will be converted into 0.8444 ($38.00 / $45.00) shares of BancGroup
Common Stock. If the Market Value is neither greater than $38.00 nor less than
$30.00, then all of the issued and outstanding Commercial Common Stock will be
converted into 842,157 shares of BancGroup Common Stock. If the Market Value is
greater than $38.00 or less than $30.00, the total number of shares of BancGroup
Common Stock into which the
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issued and outstanding Commercial Common Stock to be converted will decrease
proportionally as the Market Value rises above $38.00 and increase
proportionally as the Market Value falls below $30.00.
No fractional shares of BancGroup Common Stock will be issued in the
Merger. Each shareholder of Commercial 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.
As of March 18, 1998, the ten-day average of the closing prices of
BancGroup Common Stock was $34.394. Shareholders are advised to obtain current
market quotations for BancGroup Common Stock. The Market Value of BancGroup
Common Stock at the Effective Date, or the market price of BancGroup Common
Stock on the date on which certificates representing such shares are received by
Commercial 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 proportional adjustment will be made in the number of shares
of BancGroup Common Stock into which the Commercial Common Stock will be
converted in the Merger.
SURRENDER OF COMMERCIAL COMMON STOCK CERTIFICATES
Upon the Effective Date and subject to the conditions described at "The
Merger -- Conditions to Consummation of the Merger," Commercial's shareholders
(except to the extent that such holders perfect dissenters' rights of appraisal
under the NBC) will automatically, and without further action by such
shareholders or by BancGroup, become holders of BancGroup Common Stock as
described herein. Outstanding certificates representing shares of the Commercial
Common Stock will represent shares of BancGroup Common Stock. Thereafter, upon
surrender of the certificates formerly representing shares of Commercial 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
Commercial unless and until such shareholder surrenders for cancellation his
certificate for Commercial 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 Commercial Common Stock surrendered in
connection with the Merger.
A detailed explanation of these arrangements will be mailed to Commercial
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 Code. The obligation of the
parties to consummate the Merger is conditioned on the receipt of an opinion in
form and substance reasonably satisfactory to Commercial and BancGroup from
Coopers & Lybrand L.L.P., which serves as BancGroup's independent public
accountant, to the effect that the Merger will constitute such a reorganization.
A copy of such opinion has been delivered to Commercial. In delivering its
opinion, Coopers & Lybrand L.L.P., has received and relied upon certain
representations contained in certificates of officers of BancGroup and
Commercial and certain other information, data, documentation and other
materials as it deems necessary. The tax opinion is based upon customary
assumptions contained therein, including the assumption that Commercial has no
knowledge of any plan or intention on the part of the Commercial 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 Commercial Common Stock outstanding
immediately upon consummation of the Merger.
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Neither Commercial nor BancGroup intends to seek a ruling from the IRS as
to the federal income tax consequences of the Merger. Commercial's shareholders
should be aware that the opinion of Coopers & Lybrand L.L.P will not be binding
on the IRS or the courts. Commercial'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 Commercial's shareholders who exchange their shares of Commercial
Common Stock for shares of BancGroup Common Stock:
(i) No gain or loss will be recognized by Commercial's shareholders on
the exchange of shares of Commercial Common Stock for shares of BancGroup
Common Stock;
(ii) The aggregate basis of BancGroup Common Stock received by each
Commercial 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 Commercial Common Stock surrendered in
exchange therefor;
(iii) The holding period of the shares of BancGroup Common Stock
received by each Commercial shareholder will include the period during
which the shares of Commercial Common Stock exchanged therefor were held,
provided that the shares of Commercial Common Stock were a capital asset in
the holder's hands as of the Effective Date;
(iv) Cash payments received by each Commercial 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 Commercial Common Stock is a capital asset in the hands of
the holder;
(v) No gain or loss will be recognized by Commercial upon the transfer
of its assets and liabilities to BancGroup. No gain or loss will be
recognized by Colonial Bank upon the receipt of the assets and liabilities
of Commercial;
(vi) The basis of the assets of Commercial acquired by Colonial Bank
will be the same as the basis of the assets in the hands of Commercial
immediately prior to the Merger;
(vii) The holding period of the assets of Commercial in the hands of
Colonial Bank will include the period during which such assets were held by
Commercial; and
(vii) A Commercial 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 Commercial Common Stock converted, if the shares of Commercial
Common Stock were held as capital assets. However, a Commercial 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 Commercial 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 COMMERCIAL, TO
COMMERCIAL 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
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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 COMMERCIAL COMMON STOCK AS "CAPITAL ASSETS" WITHIN THE
MEANING OF SECTION 1221 OF THE CODE, AND SHAREHOLDERS WHO ACQUIRED THEIR SHARES
OF COMMERCIAL 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; MOREOVER, THE TAX CONSEQUENCES TO HOLDERS OF COMMERCIAL
OPTIONS ARE NOT DISCUSSED. 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. COMMERCIAL 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 Commercial, a Nevada
state bank, will become shareholders of BancGroup, a Delaware business
corporation.
For a discussion of the differences, if any, in the rights, preferences,
and privileges attaching to Commercial Common Stock as compared with BancGroup
Common Stock, see "Comparative Rights of Shareholders."
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 Commercial 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 Commercial Common Stock; (ii) the approval of
the Merger by the Federal Reserve, the Nevada Commissioner and by the Alabama
Department; (iii) each party's having obtained consents of third parties
required for the consummation of the Merger or for the prevention of default
under material contracts or permits of such party; (iv) the Registration
Statement of which this Prospectus forms a part having become effective, with no
stop order or proceedings for such purpose suspending the effectiveness of the
Registration Statement pending or in effect; (v) the absence of pending or
threatened litigation with a view to restraining or prohibiting consummation of
the Merger or to obtaining divestiture, rescission or damages in connection with
the Merger; (vi) the absence of any investigation by any governmental agency
which might result in any such proceeding; (vii) consummation of the Merger no
later than September 30, 1998; (vii) receipt of an opinion of Coopers & Lybrand
L.L.P. regarding certain matters; and, (ix) receipt of opinions of counsel.
The obligation of Commercial to consummate the Merger is further subject to
several other conditions, including, among others: (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, among others: (i) the absence of any material
adverse change in the financial condition or affairs of Commercial; (ii) the
number of shares as to which holders of Commercial Common Stock exercise
dissenters' rights not exceeding 10% of the outstanding shares of Commercial
Common Stock; (iii) the receipt of a letter from Coopers & Lybrand L.L.P.
concurring with the conclusions of BancGroup's and Commercial's
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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 Commercial
contained in the Agreement, and the performance by Commercial of all of its
covenants and agreements under the Agreement; and, (v) the receipt by BancGroup
of certain undertakings from holders of Commercial Common Stock who may be
deemed to be "affiliates" of Commercial 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 by
each party of all representations, warranties and covenants, will be satisfied.
The Agreement provides that Commercial and BancGroup may waive all conditions to
their respective obligations to consummate the Merger, other than the receipt of
the requisite approvals of regulatory authorities and Commercial shareholder
approval of the Merger. 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 Commercial 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
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, after adoption of the Agreement
and approval of the Merger by the holders of Commercial Common Stock, no
amendment decreasing the consideration to be received by Commercial stockholders
may be made without the further approval of such shareholders. Such amendments
may require the filing with the Commission of an amendment of the Registration
Statement, of which this Prospectus forms a part. 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 Commercial, by the mutual
consent of the respective Boards of Directors of Commercial and BancGroup, or by
the Board of Directors of either BancGroup or Commercial under certain
circumstances including, but not limited to, the failure of the transactions
contemplated by the Agreement to be consummated on or prior to September 30,
1998, if such failure to consummate is not caused by any breach of the Agreement
by the party electing to terminate.
REGULATORY APPROVALS
The approval of the Federal Reserve, the Nevada Commissioner and the
Alabama Department must be obtained prior to consummation of the Merger.
Applications were filed with the Federal Reserve, the Nevada Commissioner and
the Alabama Department on April 6, 1998. The Federal Reserve and the Nevada
Commissioner's approval is anticipated before the Special Meeting. Approval of
the Alabama Department is anticipated after the Special Meeting, if the
shareholders of Commercial approve the Merger.
Alabama Department Approval. The 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 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 Merger is consistent with the
convenience and needs of the communities to be served by the resulting bank in
the State of Alabama and is otherwise in the public interest, the Merger shall
be approved by the Superintendent.
Federal Reserve Approval. The Federal Reserve's approval of the Merger is
required. The Federal Reserve is prohibited from approving the 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 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 Merger are clearly outweighed in the public
interest by the probable effect of the Merger in meeting the
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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 Merger constitutes an interstate bank merger, certain
additional requirements are applicable to the Merger. For example, subject to
certain exceptions, the Federal Reserve is prohibited from approving the Merger
if Colonial Bank materially fails to comply with filing requirements imposed by
the Nevada Commissioner for interstate bank merger transactions. In addition,
the Federal Reserve is prohibited from approving the Merger if the bank
resulting from the 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 Merger if either party to the Merger has a branch
in any state in which any other bank involved in the Merger has a branch, and
the resulting bank, upon consummation of the 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 Merger.
The Bank Merger Act imposes a waiting period which prohibits 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.
Nevada Commissioner Approval. The Merger must be approved by the
Commissioner, Financial Institutions Division, Nevada Department of Business and
Industry (the "Nevada Commissioner") pursuant to applicable provisions of the
NRS. Subsequent to filing an application with the Nevada Commissioner, the
Nevada Commissioner conducts an investigation of each depository institution
which is party to the Merger to determine (a) whether the interests of the
depositors, creditors, and stockholders or members of each party are protected;
(b) that the Merger is in the public interest; (c) that the Merger is made for
legitimate purposes; and (d) whether each depository institution has a good
record of compliance with the Community Reinvestment Act of 1997 (12 U.S.C.
sec. 2901 to sec. 2905, inclusive).
The Nevada Commissioner's approval or rejection of the Merger shall be
based upon his investigation. Under Nevada law, the Nevada Commissioner shall
disapprove an application for a Merger if he finds that (a) the proposed
transaction would be detrimental to the safety and soundness of any institution
which is a party to the transaction; (b) any of the principals of the parties
have not established a record of sound performance, efficient management,
financial responsibility and integrity so that it would be against the interests
of the depositors, other customers, creditors, stockholders or members of an
institution or to the general public to authorize the proposed merger; (c) the
financial condition of the applicant or any other institution which is a party
to the proposed transaction might jeopardize the financial stability of the
applicant or the institution, or prejudice the interest of depositors or other
customers of the applicant or other institution; (d) the consummation of the
proposed merger would tend to lessen competition substantially, unless the
Nevada Commissioner finds that the anti-competitive effects of the proposed
transaction are clearly outweighed by the benefit of accommodating the
convenience and needs of the relevant markets to be served; or (e) the applicant
has not established a record of meeting the needs for credit of the community
which it or its subsidiary depository institution serves.
The Agreement provides that the obligation of each of BancGroup, Colonial
Bank and Commercial to consummate the Merger is conditioned upon the receipt of
all necessary regulatory approvals. There can be no assurance that the
applications necessary for Colonial Bank to consummate the Merger with
Commercial 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
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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 other governmental approvals or actions that
may be required for consummation of the Merger except for the Federal Reserve,
the Nevada Commissioner and the Alabama 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 Commercial pending consummation of the Merger. The Agreement prohibits
Commercial 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 Commercial:
(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);
(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 (except for cash dividends at then-current rates in accordance
with past practice) 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;
(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;
(ix) Except in accordance with normal and usual 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 normal and usual 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 Commercial or any of its subsidiaries shall, directly or indirectly,
own, manage, operate, join, control, be employed by or participate
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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 Commercial or its subsidiaries.
The Agreement also provides that (i) Commercial will consult with BancGroup
respecting loan requests outside the ordinary course of business or in excess of
$100,000, except for single-family residential loan requests and renewals of
existing loans which do not increase the outstanding principal amount of the
loan, and (ii) Commercial will consult with BancGroup respecting business issues
on a basis mutually satisfactory to BancGroup and Commercial.
COMMITMENTS WITH RESPECT TO OTHER OFFERS
Until the termination of the Agreement, and except for the Merger, neither
Commercial nor any of its directors or officers (or any person representing any
of the foregoing) shall 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, Commercial or
any business combination involving Commercial (collectively, an "Acquisition
Proposal") other than as contemplated by the Agreement. Commercial will notify
BancGroup immediately if any such inquiries or proposals are received by
Commercial, if any such information is requested from Commercial, or if any such
negotiations or discussions are sought to be initiated with Commercial.
Commercial is required to instruct its officers, directors, agents or affiliates
or their subsidiaries to refrain from doing any of the above. Commercial may
communicate information about an Acquisition Proposal to its shareholders if and
to the extent that legal counsel provides a written opinion to Commercial that
it is required to do so in order to comply with its legal obligations.
In connection with the Agreement, Commercial has granted to BancGroup the
option to purchase up to 19.9% of the Commercial Common Stock at a purchase
price of $34.00 per share. The option will become exercisable upon the
occurrence of certain events which are generally related to the potential
acquisition of Commercial by another party. The option is intended to increase
the likelihood that the Merger will be consummated by making it more difficult
and expensive for any third party to acquire control of Commercial while
BancGroup is seeking to consummate the Merger. See "The Merger -- Related
Transactions -- Stock Option."
RIGHTS OF DISSENTING SHAREHOLDERS
A holder of shares of Commercial is entitled to exercise the rights of a
dissenting shareholder under Nevada General Corporation Law, Nevada Revised
Statutes ("NRS") sec.sec. 92A.300 et seq., to object to the Agreement and Plan
of Merger and make written demand that BancGroup pay in cash the fair value of
the shares of Commercial Stock held as determined in accordance with all
pertinent provisions of Commercial's Articles of Incorporation, Bylaws and
statutory provisions. Consummation of the Merger is subject to, among other
things, the holders of no more than 10% of the outstanding Commercial Common
Stock electing to exercise their dissenters' rights.
In order to exercise dissenters' rights, a dissenting shareholder of
Commercial (a "Dissenting Shareholder") must strictly comply with the statutory
procedures of NRS 92A.300 et seq., which are summarized below. A copy of the
text provisions of these statutes is attached hereto as Appendix C. Shareholders
of Commercial are urged to read these statutes in their entirety and to consult
with their legal advisors. Nevada law requires that holders of Commercial Stock
follow certain prescribed procedures in the exercise of their statutory right to
dissent in connection with the Merger. The failure to follow such procedures on
a timely basis and in the precise manner required by Nevada law may result in a
loss of a shareholder's dissenters' rights. Pursuant to Commercial's Articles of
Incorporation and assuming the Merger is consummated, a dissenting shareholder
will be entitled to receive for each share of Commercial Common Stock as to
which dissenters' rights are perfected not less than the greater of the value
per share received by non-dissenting shareholders in the Merger and the
per-share book value of Commercial Common Stock as of the end of the most
recently completed fiscal quarter. The following summary does not purport to be
a complete statement of
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the dissenters rights provision of Nevada law and is qualified in its entirety
by reference to the full text of the provisions of the NRS pertaining to
dissenters rights attached hereto as Appendix C.
Overview. Holders of Commercial Common Stock have the right under Nevada
Law to dissent from the Merger and obtain payment of the fair value of his or
her shares. Fair value means the value of the shares immediately before the
Special Meeting, excluding any appreciation or depreciation in anticipation of
the corporate action unless exclusion would be inequitable. If BancGroup and a
Dissenting Shareholder are not able to agree on a fair value, BancGroup must
petition a court in Clark County, Nevada for a determination of fair value.
Procedure for Dissenting. A shareholder wishing to dissent from the Merger
must deliver to Commercial, before the Special Meeting, written notice of his or
her intent to demand payment for his or her shares if the Merger is consummated.
The written notice should be sent to Commercial at 2820 W. Charleston Blvd., Las
Vegas, Nevada 89012, Attn: Ms. Diane Swaim so that Commercial receives it before
the Special Meeting. A shareholder wishing to dissent may not vote in favor of
the Merger. If a shareholder's written notice of intent to demand payment is not
received by Commercial before the Special Meeting, or if the shareholder votes
in favor of the Merger, such shareholder will not have the right to dissent and
will be required to participate in the Merger.
Within 10 days after the Special Meeting, Commercial will deliver to each
Dissenting Shareholder a written notice instructing the Dissenting Shareholder
to demand payment and send his or her Commercial Common Stock certificates to
Commercial. The notice will include a copy of NRS 92A.300 et seq. and a form for
demanding payment and will show the deadline for submitting the payment demand
form and the Commercial Common Stock certificates. The form will also show the
date that the merger was first announced to the news media or the shareholders,
and the Dissenting Shareholder will be required to state whether or not he or
she acquired his or her shares before that date.
The Dissenting Shareholder must then properly complete and sign the payment
demand form, and submit it to Commercial along with his or her Commercial Common
Stock certificates by the deadline shown in the notice from Commercial. If the
payment demand form and the Commercial Common Stock certificates are not
submitted by the deadline, the shareholder will no longer be a Dissenting
Shareholder and will not be entitled to receive payment of the fair value of his
or her shares. Such a shareholder will be required to participated in the
Merger. The payment demand form and Commercial Common Stock certificate should
be sent to Commercial at 2820 W. Charleston Blvd., Las Vegas, NV 89012, Attn:
Ms. Diane Swaim.
Payment for Shares. Within 30 days after receiving a Dissenting
Shareholder's payment demand form and Commercial Common Stock certificates,
BancGroup will pay such Dissenting Shareholder, in accordance with Commercial's
Articles of Incorporation and Bylaws, BancGroup's estimate of the fair value of
the Commercial Common Stock for which certificates were submitted, plus accrued
interest. Accompanying the payment will be financial information for Commercial
as of the end of a fiscal year ending not more than 16 months before the date of
payment, and for the year then ended, as well as the latest available interim
financial information. Also accompanying the payment will be a statement of
BancGroup's estimate of the fair value of the shares, an explanation of how the
interest was calculated, a statement of the Dissenting Shareholder's rights to
demand additional payment and a copy of the relevant Nevada statutes.
BancGroup's obligation to pay fair value may be enforced by a court. However, if
the Dissenting Shareholder did not own the shares before the date the Merger was
first announced to the news media or to the shareholders, BancGroup will have
the right to withhold payment, and instead to offer to pay BancGroup's estimate
of the fair value of the shares. Such an offer will be accompanied by a
statement of BancGroup's estimate of the fair value of the shares, an
explanation of how the interest was calculated and a statement of the Dissenting
Shareholder's rights to demand payment.
If a Dissenting Shareholder estimates the fair value of his or her shares
and the amount of accrued interest to be higher than the amount paid by
BancGroup, the Dissenting Shareholder may send a notice to BancGroup demanding
payment of the difference between the Dissenting Shareholder's estimate and the
amount paid by BancGroup. Or, if the Dissenting Shareholder was only entitled to
receive BancGroup's offer to pay fair value, the Dissenting Shareholder may
reject the offer and demand payment of the Dissenting
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<PAGE> 35
Shareholder's estimate of the fair value of his or her shares and accrued
interest. If a Dissenting Shareholder does not send a notice demanding payment
within 30 days after BancGroup has made its payment or offer, the Dissenting
Shareholder will not have the right to receive any amount in excess of the fair
value plus interest already paid or offered by BancGroup.
Court Proceeding to Determine Fair Value. If a demand for payment remains
unsettled for 60 days following Commercial's receipt of the demand, BancGroup
will petition a court in Clark county to determine the fair value of the shares
and accrued interest. Court costs will be paid by BancGroup unless the court
finds that one or more Dissenting Shareholders acted arbitrarily, vexatiously or
not in good faith in demanding payment, in which case some or all court costs
may be allocated to such Dissenting Shareholder or Shareholders. Attorneys' and
experts' fees may be assessed against BancGroup if the court finds that
BancGroup did not comply with the applicable statute or acted arbitrarily,
vexatiously or not in good faith, or such fees may be assessed against one or
more Dissenting Shareholders if the same acted arbitrarily, vexatiously or not
in good faith.
Holders of Commercial Common Stock considering seeking appraisal by
exercising their dissenters' rights should be aware that the fair value of their
Commercial Common Stock determined pursuant to Nevada law, the Articles of
Incorporation or the Bylaws could be more than, the same as, or less than the
value of the securities that they are entitled to receive pursuant to the Merger
Agreement if they do not seek appraisal of their Commercial Common Stock.
THE FOREGOING DOES NOT PURPORT TO BE A COMPLETE STATEMENT OF THE PROCEDURES
TO BE FOLLOWED BY HOLDERS OF COMMERCIAL COMMON STOCK DESIRING TO EXERCISE
APPRAISAL RIGHTS AND, IN VIEW OF THE FACT THAT EXERCISE OF SUCH RIGHTS REQUIRES
STRICT ADHERENCE TO THE RELEVANT PROVISIONS OF THE NEVADA GENERAL CORPORATION
LAW, EACH SHAREHOLDER WHO MAY DESIRE TO EXERCISE APPRAISAL RIGHTS IS ADVISED
INDIVIDUALLY TO CONSULT THE LAW (AS SET FORTH IN APPENDIX C HERETO) AND COMPLY
WITH THE PROVISIONS THEREOF.
HOLDERS OF THE COMMERCIAL COMMON STOCK WISHING TO EXERCISE DISSENTERS'
RIGHTS ARE ADVISED TO CONSULT THEIR OWN COUNSEL TO ENSURE THAT THEY FULLY AND
PROPERLY COMPLY WITH THE REQUIREMENTS OF NEVADA LAW.
The foregoing discussion is only a summary of the provisions of Nevada law,
does not purport to be complete and is qualified in its entirety by reference to
NRS 92A.300 et seq., which is attached hereto as Appendix C. Any shareholder who
intends to dissent from the Merger should review the text of NRS 92A.300 et seq.
carefully and should also consult with his or her attorney. Any shareholder who
fails to follow strictly the procedures set forth in said statute will forfeit
dissenters' rights.
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 NEVADA LAW RELATING TO
DISSENTERS' APPRAISAL RIGHTS, SHAREHOLDERS WHO ARE CONSIDERING DISSENTING FROM
THE MERGER ARE URGED TO CONSULT WITH 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
has been registered under the Securities Act. As a result, shareholders of
Commercial who are not "affiliates" of Commercial (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 Commercial are subject to restrictions on the
resale of the BancGroup Common Stock which they receive in the Merger.
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<PAGE> 36
The BancGroup Common Stock received by affiliates of Commercial 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 Commercial affiliate has held the BancGroup Common
Stock for at least one year. BancGroup Common Stock held by affiliates of
Commercial who become affiliates of BancGroup, if any, will be subject to
additional restrictions on the ability of such persons to resell such shares.
Commercial 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 Commercial. Commercial 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 Securities Act. Receipt of such an undertaking is a
condition to BancGroup's obligation to close the Merger. The undertaking will
also require each affiliate of Commercial to agree not to 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 Commercial 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 Commercial Common Stock.
Under this accounting treatment, assets and liabilities of Commercial 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 will be restated to reflect the consolidated operations of
BancGroup and Commercial 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
Commercial Common Stock will be reported on the NYSE.
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<PAGE> 37
COMPARATIVE MARKET PRICES AND DIVIDENDS
BANCGROUP
BancGroup Common Stock is listed for trading on the NYSE. The following
tables shows the dividends paid per share and indicates the high and low closing
prices for BancGroup Common Stock as reported by the NYSE.
<TABLE>
<CAPTION>
PRICE(1)
-----------
HIGH LOW DIVIDENDS
---- --- ---------
<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 (through March 27, 1998)...................... 36 1/4 31 1/2 0.17
</TABLE>
- ---------------
(1) Price and dividends have been 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 February 25, 1998, the business day immediately prior to the public
announcement of the Merger, the closing price as reported on the NYSE of the
BancGroup Common Stock was $34.8125 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.
COMMERCIAL
There is no established public trading market for the Commercial Common
Stock. The shares of Commercial Common Stock are not actively traded, and such
trading activity, as it occurs, takes place in privately negotiated
transactions.
Management of Commercial is aware of certain transactions in shares of
Commercial that have occurred since January 1, 1996, although the trading prices
of all stock transactions are not known. The following table sets forth the
trading prices for the shares of Commercial Common Stock that have occurred
since January 1, 1996 for transactions in which the trading prices are known to
management of Commercial:
30
<PAGE> 38
<TABLE>
<CAPTION>
PER PER SHARE OF
COMMON STOCK DIVIDENDS
----------------- PER
HIGH LOW SHARE
------- ------- ---------
<S> <C> <C> <C>
1996
First Quarter............................................... $15.00 $12.00 --
Second Quarter.............................................. 13.00 13.00 --
Third Quarter............................................... 15.00 15.00 --
Fourth Quarter.............................................. 15.00 12.00 --
1997
First Quarter............................................... 12.00 12.00 --
Second Quarter.............................................. 14.00 14.00 --
Third Quarter............................................... 12.00 12.00 --
Fourth Quarter.............................................. N/A N/A --
1998
First Quarter............................................... N/A N/A --
</TABLE>
The Agreement restricts Commercial's ability to pay dividends prior to the
Effective Date. See "The Merger -- Conduct of Business Pending the Merger."
BANCGROUP CAPITAL STOCK AND DEBENTURES
BancGroup's authorized capital stock consists of 100,000,000 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 December 31, 1997, there were
issued and outstanding a total of 42,545,425 shares of BancGroup Common Stock.
No shares of Preference Stock are issued and outstanding. In 1986, BancGroup
issued $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. On February 5, 1998, BancGroup
issued subordinated debentures in the aggregate principal amount of $7,725,000
with a ten-year maturity that rank pari passu with the 1986 Debentures. As of
December 31, 1997, there were 1,803,259 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 its Common Stock in pending acquisitions. See
"Business of BancGroup -- Proposed Affiliate Banks." On January 29, 1997,
BancGroup issued, through a special purpose trust, $70.0 million of Trust
Preferred Securities, all of which was outstanding at December 31, 1997.
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, as amended (the "BancGroup Certificate"),
and bylaws of BancGroup (the "BancGroup Bylaws"), do not purport to be complete
and are qualified in their entirety by reference to the foregoing.
BANCGROUP COMMON STOCK
Dividends. Subject to the rights of holders of BancGroup's 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 shareholders.
Preemptive Rights. The holders of BancGroup Common Stock have no
preemptive rights to acquire any additional shares of BancGroup.
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<PAGE> 39
Issuance of Stock. The BancGroup Certificate authorizes the BancGroup
Board to issue authorized shares of BancGroup Common Stock without shareholder
approval. However, BancGroup's Common Stock is listed on the NYSE, which
requires shareholder 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 shareholders 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 in 1986 its 7 1/2% Convertible Subordinated Debentures due
2011 (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, 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 $14.00 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, a total of 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 to 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 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 $940 million. Such debt includes all
short-term debt consisting of federal funds purchased, securities purchased
under repurchase agreements and borrowing with the Federal Home Loan Bank but
excludes all federally-insured deposits. BancGroup may from time to time incur
additional indebtedness
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<PAGE> 40
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 at any time after
January 29, 2007 through January 2027. It is unlikely that redemption will occur
prior to maturity. 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
Preference Stock with such rights and privileges, including voting rights, as it
may deem appropriate may enable the BancGroup Board of Directors to prevent a
change in control despite a shift in ownership of the BancGroup Common Stock.
See 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 shareholders each year. With this provision, two annual elections
are required in order to change a majority of the Board of Directors. There are
currently 22 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 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 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
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<PAGE> 41
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 and Executive Officers that
could be desired by a majority of BancGroup's stockholders. As of February 27,
1998, the Board of Directors of BancGroup as a group beneficially 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 shareholders from
calling special shareholders' 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 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 shareholder meetings but could make it more
difficult for shareholders to nominate directors or introduce business at
shareholder 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 Shareholder"), unless
the BancGroup Board 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 Shareholder if (i) the business
combination is approved by the BancGroup 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 Shareholder or (ii) upon
consummation of the transaction which resulted in the shareholder becoming an
Interested Shareholder, such shareholder owned at least 85% of the outstanding
stock of BancGroup (excluding BancGroup stock held by officers and 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,
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<PAGE> 42
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 Commercial (except those
perfecting dissenters' rights of appraisal) will become holders of BancGroup
Common Stock. The rights of the holders of the Commercial Common Stock who
become holders of the 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 shareholders of Commercial
Common Stock with the rights of the holders of the BancGroup Common Stock. For a
more complete description of the rights of the holders of BancGroup Common
Stock, particularly provisions in BancGroup's Certificate that may limit or
discourage changes in control of BancGroup, see "BancGroup Capital Stock and
Debentures."
The following information is qualified in its entirety by the BancGroup
Certificate, the BancGroup Bylaws, and Commercial's Articles of Incorporation
and Bylaws, the Delaware General Corporation Law (the "DGCL") and the NRS.
DIRECTOR ELECTIONS
Commercial. Commercial's Directors are elected annually by a plurality of
the votes cast by the shareholders of its Common Stock. Commercial's
shareholders have cumulative voting rights in the election of Directors.
BancGroup. BancGroup's directors are elected to terms of three years with
approximately one-third of the Board of Directors 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
Commercial. Pursuant to the Nevada Corporate Code, no Director may be
removed from office except upon the vote of stockholders owning sufficient
shares to have prevented his election to office in the first instance.
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
Commercial. Each shareholder of Commercial is entitled to one vote for
each share of Commercial stock held, and with regard to the election of
Directors, such shareholders are entitled to as many votes as equal the number
of the holder's shares of stock multiplied by the number of Directors to be
elected.
BancGroup. Each shareholder 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
Commercial. Holders of Commercial Common Stock have no preemptive rights
to acquire any additional shares of Commercial Common Stock.
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.
35
<PAGE> 43
DIRECTORS' LIABILITY
Commercial. The Commercial Articles of Incorporation provides that no
Director of Commercial shall be personally liable to Commercial or any of its
stockholders for damages for breach of fiduciary duty as a Director; provided,
however, that the foregoing provision shall not eliminate or limit the liability
of a Director (i) for acts or omissions which involve intentional misconduct,
fraud or knowing violation of law, or (ii) the payment of unlawful distributions
or dividends in violation of sec.78.300 of the Nevada Revised Statutes. This
provision would absolve Directors of personal liability for negligence in the
performance of duties, including gross negligence.
BancGroup. The BancGroup Certificate provides that a director of BancGroup
will have no personal liability to BancGroup or its shareholders 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 shareholders, (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 shareholders, and it would not affect the availability of
injunctive or other equitable relief as a remedy.
INDEMNIFICATION
Commercial. Commercial's Bylaws direct that Commercial shall, to the
fullest extent permitted by Nevada law, advance expenses to and indemnify any of
its directors, officers or any other person serving at the request of Commercial
against expenses, judgments, fines, settlements and other amounts actually and
reasonably incurred in connection with any action, suit or proceeding arising
because such Person is or was a director, officer or agent of Commercial. A
"Person" is defined to include a director, officer, employee or other agent of
Commercial or a predecessor corporation, who is or was serving at the request of
Commercial or a predecessor corporation as a director, officer, employee or
agent of another corporation, partnership, joint venture, trust or other
enterprise. The character of expenses subject to indemnification or advancement
include attorneys' fees, costs, judgments, fines, and amounts paid in settlement
actually and reasonably incurred by the Person in connection with the
litigation, but excluding judgments in favor of the corporation and amounts paid
in settlement with the corporation and attorneys' fees and costs incurred in
connection with such judgments and settlements. Commercial's Bylaws provide that
Commercial shall indemnify the costs of Persons incurred in litigation,
regardless of the conduct of the Person, unless a final adjudication establishes
that the Person's acts or omissions involved intentional misconduct, fraud or
knowing violation of the law and was material to the cause of action.
BancGroup. The BancGroup Certificate provides that BancGroup shall
indemnify its officers, directors, agents and employees 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 indemnitee acted in good faith and in a manner he or she
reasonably believed to be in or not opposed to the best interests of BancGroup
and, with respect to any criminal action or proceeding, had no reasonable cause
to believe his or her 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 indemnitee acted in good faith and in a manner he or she
reasonably believed to be in or not opposed to the best interests of 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.
36
<PAGE> 44
To the extent that the proposed indemnitee has been successful on the
merits or otherwise in defense of any action, suit or proceeding (or any claim,
issue or matter therein), he or she must be indemnified against expenses
(including attorneys' fees) actually and reasonably incurred by him in
connection therewith.
BancGroup maintains an officers' and directors' insurance policy and a
separate indemnification agreement pursuant to which directors and certain
officers 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
Commercial. Pursuant to the Bylaws of Commercial, a Special Meeting of
Commercial shareholders may only be called by the President, the Board of
Directors, or the holder or holders of not less than one-tenth of all the shares
of Commercial stock entitled to vote at the Meeting.
BancGroup. Under the BancGroup Certificate, a special meeting of
BancGroup's shareholders 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
Commercial. Pertinent provisions of the Nevada Revised Statutes provides
that mergers and sales of substantially all of the assets of Nevada corporations
must be approved by a majority of the outstanding stock of the corporation
entitled to vote thereon. Except as described below, the Commercial Articles of
Incorporation and Bylaws have no provisions governing voting approval for
extraordinary corporate transactions.
The Commercial Articles of Incorporation and Bylaws provide that Commercial
elects not to apply the provisions of the Nevada Business Combination Statute,
NRS 78.411 to 78.444, inclusive, to the corporation. These Nevada statutes
prohibit business combinations or mergers between Nevada corporations and
certain interested stockholders for a period of three years after the interested
stockholder's date of acquiring shares unless the combination or the purchase of
the shares made by the interested stockholder is approved by the Board of
Directors. These Nevada statutes also prohibit such business combinations after
the expiration of three years after the interested stockholder's date of
acquiring shares unless the combination meets certain statutory requirements.
The Nevada statute defines interested stockholders to include persons who, along
or together with affiliates, beneficially own ten percent of the outstanding
stock of the corporation. As permitted by Nevada law, Commercial has opted out
of the application of these provisions to Commercial.
Under the Nevada Control Shares statute, NRS 78.378 to 78.3793, a
corporation denies voting rights to a stockholder who acquires a controlling
interest in a Nevada corporation, unless such voting rights are approved by a
majority of the voting powers of the corporation. As permitted by Nevada law,
and pursuant to Commercial's Articles of Incorporation, Commercial has elected
to opt out of the application of the Nevada Control Shares statutes.
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 shareholders 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
37
<PAGE> 45
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.
AMENDMENT OF CERTIFICATE OF INCORPORATION AND BYLAWS
Commercial. Under Nevada Law, a Nevada corporation's Articles of
Incorporation may be amended by the affirmative vote of 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 Articles
of Incorporation require the vote of a larger portion of the stock.
Under Commercial's Bylaws, new Bylaws may be adopted or the existing Bylaws
of Commercial may be amended or repealed by the vote or written assent of
stockholders entitled to exercise a majority of the voting power of Commercial,
except as otherwise provided by Nevada law or the Articles of Incorporation. The
Commercial Bylaws provide that subject to the foregoing right of the
stockholders to make, amend or repeal Bylaws, the Bylaws may be adopted, amended
or repealed by the Board of Directors; provided, however, that a Bylaw or
amendment thereof changing the authorized number of Directors may be adopted,
amended or repealed only by the stockholders.
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 "supermajority" 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 director evaluation of business combination procedures. See "BancGroup
Capital Stock and Debentures -- Changes in Control."
As is permitted by the DGCL, the BancGroup Certificate gives the Board of
Directors the power to adopt, amend or repeal the bylaws. The shareholders
entitled to vote have concurrent power to adopt, amend or repeal the BancGroup
Bylaws.
RIGHTS OF DISSENTING SHAREHOLDERS
Commercial. Sections 92A.300 to 92A.500 of the Nevada Revised Statutes
provides statutory appraisal rights to certain shareholders who may be
dissenting from certain corporate reorganizations such as mergers or sales of
all or substantially all of the corporation's assets. Commercial's Articles of
Incorporation provides that a dissenting shareholder will be entitled to receive
for each share of Commercial Common Stock as to which dissenters' rights are
perfected not less than the greater of the value per share received by
non-dissenting shareholders in the Merger and the per-share book value of
Commercial Common Stock as of the end of the most recently completed fiscal
quarter. See "The Merger Rights of Dissenting Shareholders."
BancGroup. Under the DGCL, a shareholder 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 shareholders of a
corporation (i) if the shares are listed on a national securities exchange (as
is BancGroup Common Stock) or quoted on the Nasdaq NMS, or held of record by
more than 2,000 shareholders (as is BancGroup Common Stock), and (ii)
shareholders 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 shareholders, (c) cash
in lieu of fractional shares of such stock, or (d) any combination thereof.
Shareholders are not
38
<PAGE> 46
permitted appraisal rights in a merger if such corporation is the surviving
corporation and no vote of its shareholders is required.
PREFERRED STOCK
Commercial. The Commercial Articles of Incorporation do not authorize the
issuance of any 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 BancGroup
Board of Directors. Currently, no shares of Preference Stock are issued and
outstanding. See "BancGroup Capital Stock and Debentures -- Preference Stock."
EFFECT OF THE MERGER ON COMMERCIAL SHAREHOLDERS
As of the Record Date, Commercial had shareholders of record and
842,157 outstanding shares of common stock. As of February 27, 1998, BancGroup
had 48,092,093 shares of BancGroup Common Stock outstanding with 8,476
shareholders of record.
Assuming that no dissenters' rights of appraisal are exercised in the
Merger, a Market Value of BancGroup Common Stock between $30.00 and $38.00 on
the Effective Date (as of March 18, 1998, the ten-day average of the closing
prices of BancGroup Common Stock was $34.394 per share), an aggregate number of
842,157 shares of BancGroup Common Stock would be issued to the shareholders of
Commercial pursuant to the Merger. Based on those assumptions, the 842,157
shares of BancGroup Common Stock would 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.
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 shareholder and each director and officer of BancGroup. Based
upon the foregoing assumptions, as a group, the directors and executive officers
of BancGroup who own approximately 10.24% of BancGroup's outstanding shares
would own approximately 10.07% after the Merger.
BancGroup has entered into agreements pursuant to which additional shares
of BancGroup Common Stock will be issued. See "Business of BancGroup -- Proposed
Affiliate Banks."
39
<PAGE> 47
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 December 31, 1997, (ii) the
combined presentation of the condensed consolidated statement of condition of
the completed business combinations with United American Holding Corporation,
ASB Bancshares, Inc., First Central Bank and South Florida Banking Corp.
("Completed Business Combinations") as of December 31, 1997, (iii) adjustments
to give effect to the completed pooling-of-interests method business
combinations with United American Holding Corporation, First Central Bank and
South Florida Banking Corp. and the completed purchase method business
combination with ASB Bancshares, Inc., (iv) the condensed consolidated statement
of condition of Commercial Bank of Nevada, (v) adjustments to give effect to the
proposed pooling-of-interests method business combination with Commercial Bank
of Nevada, (vi) the pro forma combined condensed statement of condition of
BancGroup and subsidiaries as if such combinations had occurred on December 31,
1997.
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>
DECEMBER 31, 1997
-------------------------------------------------------------------------------------
CONSOLIDATED COMPLETED COMMERCIAL PRO FORMA
COLONIAL BUSINESS ADJUSTMENTS/ BANK OF ADJUSTMENTS/ COMBINED
BANCGROUP COMBINATIONS (DEDUCTIONS) NEVADA (DEDUCTIONS) TOTAL
------------ ------------ ------------ ---------- ------------ ----------
<S> <C> <C> <C> <C> <C> <C>
ASSETS
Cash and due from banks................... $ 254,252 $ 42,505 $ 7,086 $ 303,843
Interest-bearing deposits in banks........ 19,160 11,024 16,950 47,134
Securities available for sale............. 485,318 118,999 $ 396(3) 604,713
Investment securities..................... 264,230 19,889 10,168 294,287
Mortgage loans held for sale.............. 225,331 225,331
Loans, net of unearned income............. 5,176,926 520,789 84,108 5,781,823
Less: Allowance for possible loan
losses................................... (62,182) (6,135) (1,067) (69,384)
---------- -------- -------- -------- ---------- ----------
Loans, net................................ 5,114,744 514,654 83,041 5,712,439
Premises and equipment, net............... 129,588 20,047 (120)(3) 1,880 151,395
Excess of cost over tangible and
identified intangible assets acquired,
net...................................... 67,128 2,105 8,844(3) 78,077
Mortgage servicing rights................. 141,800 141,800
Other real estate owned................... 12,631 1,201 13,832
Accrued interest and other assets......... 136,646 10,298 454(3) 983 148,381
---------- -------- -------- -------- ---------- ----------
Total Assets....................... $6,850,828 $740,722 $ 9,574 $120,108 $ -- $7,721,232
========== ======== ======== ======== ========== ==========
LIABILITIES AND SHAREHOLDERS' EQUITY
Deposits.................................. $5,255,830 $648,754 $108,661 $6,013,245
FHLB short-term borrowings................ 645,000 645,000
Other short-term borrowings............... 276,769 24,055 300,824
Subordinated debt......................... 6,088 6,088
Trust preferred securities................ 70,000 70,000
Other long-term debt...................... 14,164 900 $ 7,725(3) 22,789
Other liabilities......................... 88,723 5,412 1,534(3) 1,157 $ 225(1) 97,899
129(2)
607(4)
112(5)
---------- -------- -------- -------- ---------- ----------
Total liabilities......................... 6,356,574 679,121 10,107 109,818 225 7,155,845
Preferred Stock
Common Stock.............................. 106,364 2,876 (2,876) 842 (842)(1) 121,202
4,800(2) 2,105(1)
5,043(4)
1,722(5)
1,168(3)
Additional paid in capital................ 193,619 29,973 (29,973) 8,264 (8,264)(1) 232,595
5,241(2) 7,001(1)
13,940(4)
1,054(5)
11,740(3)
Retained earnings......................... 194,317 28,908 (11,982)(3) 1,184 (225)(1) 211,354
(129)(2)
(607)(4)
(112)(5)
Treasury Stock............................ (534) 534(3) --
Unearned compensation..................... (1,682) (69) (1,751)
Unrealized gain (loss) on securities
available for sale, net of taxes......... 1,636 447 (96)(3) 1,987
---------- -------- -------- -------- ---------- ----------
Total shareholders' equity................ 494,254 61,601 (533) 10,290 (225) 565,387
---------- -------- -------- -------- ---------- ----------
Total liabilities and equity.............. $6,850,828 $740,722 $ 9,574 $120,108 $ -- $7,721,232
========== ======== ======== ======== ========== ==========
Capital Ratios:
Capital Ratio............................ 8.14% 8.33%
Tangible Leverage Ratio.................. 7.47% 7.45%
Tier One Capital Ratio*.................. 9.93% 9.98%
Total Capital Ratio*..................... 11.30% 11.47%
</TABLE>
- ---------------
* Based on risk weighted assets
Note: The above pro forma statement of condition excludes the effect of an
immaterial pending business combination with CNB Holding Corp. of Daytona
Beach, Fla.
40
<PAGE> 48
COMPLETED BUSINESS COMBINATIONS
SOUTH FLORIDA BANKING CORP.
(pooling of interests)
(2)(A) To record the issuance of 1,920,170 shares fo BancGroup Common Stock
in exchange for all of the outstanding shares of South Florida Banking Corp.
("South Florida")
<TABLE>
<CAPTION>
OUTSTANDING
SHARES
-----------
<S> <C> <C>
South Florida outstanding shares............................ 1,219,465
Conversion ratio............................................ 1.5746
BancGroup shares to be issued............................... 1,920,170
Par value of 1,920,170 shares issued at $2.50 per share..... $ 4,800
Shares issued at par value.................................. $ 4,800
Total capital stock of South Florida........................ 10,041
Excess recorded as an increase to contributed capital....... 5,241
---------
10,041
To eliminate South Florida
Common stock, at par value................................ $ (1,219)
Contributed capital....................................... (8,822)
---------
(10,041)
---------
Net change in equity.............................. $ --
=========
(B) To record possible nonrecurring charges associated with severance
payable to terminated employees and fixed assets write-offs, net of
taxes................................................................ $ (129)
=========
</TABLE>
ASB BANCSHARES, INC.
(purchase)
(3) To assign the amount by which the estimated value of BancGroup's
investment in ASB Bancshares, Inc. ("ASB") is in excess of the historical
carrying value amount of the net assets acquired, based on their estimated fair
value of such assets:
<TABLE>
<S> <C>
Equity in carrying value of net assets of ASB............... $12,593
Adjustments to state assets at fair value:
Write-off computer software and hardware.................. (120)
Write-up investment securities............................ 396
Write-off prepaid expenses................................ (24)
Write-off intangibles..................................... (46)
Acquisition accruals:
Present value of deferred compensation (calculated
assuming retirement in 1998, monthly payments of
$8,333.33 beginning January 1, 2002 for 84 months at
8%).................................................... (393)
Noncompete agreement...................................... (350)
Professional, travel, computer and other.................. (391)
Salary and severance accrual.............................. (400)
Tax effect of purchase adjustments.......................... 478
Goodwill.................................................... 8,890
-------
8,040
Adjusted equity in carrying value of net assets............. $20,633
=======
Allocated as follows:
Subordinated Debentures for 31,506 shares of ASB.......... $ 7,725
Shares to be issued at par value 467,387.................. 1,168
Additional Paid In Capital................................ 11,740
-------
Total purchase price to be paid in stock and debt......... $20,633
=======
</TABLE>
41
<PAGE> 49
UNITED AMERICAN HOLDING CORPORATION
(pooling of interests)
(4)(A) To record the issuance of 2,017,177 shares of BancGroup Common Stock
in exchange for all of the outstanding shares of United American Holding
Corporation ("United American")
<TABLE>
<CAPTION>
OUTSTANDING
SHARES
-----------
<S> <C> <C>
United American outstanding shares.......................... 1,779,600
Conversion ratio............................................ 1.1335
BancGroup shares to be issued............................... 2,017,177
Par value of 2,017,177 shares issued at $2.50 per share..... $ 5,043
Shares issued at par value.................................. $ 5,043
Total capital stock of United American...................... 18,983
Excess recorded as an increase to contributed capital....... 13,940
---------
18,983
To eliminate United American Common stock, at par value..... $ (18)
Contributed capital....................................... (18,965)
---------
(18,983)
---------
Net change in equity.............................. $ --
=========
(B) To record possible nonrecurring charges associated with severance
payable to terminated employees, salary continuation agreements and
fixed assets write-offs, net of taxes................................ $ (607)
=========
</TABLE>
FIRST CENTRAL BANK
(pooling of interests)
(5)(A) To record the issuance of 688,742 shares of BancGroup Common Stock
in exchange for all of the outstanding shares of First Central Bank ("First
Central")
<TABLE>
<CAPTION>
OUTSTANDING
SHARES
-----------
<S> <C> <C>
First Central outstanding shares............................ 327,500
Conversion ratio............................................ 2.103
BancGroup shares to be issued............................... 688,742
Par value of 688,742 shares issued at $2.50 per share....... $ 1,722
Shares issued at par value.................................. $ 1,722
Total capital stock of First Central........................ 2,776
Excess recorded as a decrease to contributed capital........ 1,054
---------
2,776
To eliminate First Central
Common stock, at par value................................ $ (1,638)
Contributed capital....................................... (1,138)
---------
(2,776)
---------
Net change in equity.............................. $ --
=========
(B) To record possible nonrecurring charges associated with severance
payable to terminated employees and salary continuation agreements,
net of taxes......................................................... $ (112)
=========
</TABLE>
42
<PAGE> 50
PENDING BUSINESS COMBINATION
COMMERCIAL BANK OF NEVADA
(pooling of interests)
(1)(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>
OUTSTANDING
SHARES
-----------
<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................................... $ 0
=======
(B) To record possible nonrecurring charges associated with
severance payable to terminated employees, noncompete
agreements and fixed assets write-offs, net of taxes.... ($ 225)
=======
</TABLE>
43
<PAGE> 51
THE COLONIAL BANCGROUP, INC. AND SUBSIDIARIES
CONDENSED PRO FORMA STATEMENTS OF INCOME (UNAUDITED)
The following summary includes (i) the condensed consolidated statements of
income of BancGroup and subsidiaries on a historical basis for the years ended
December 31, 1997, 1996 and 1995, (ii) the condensed consolidated statements of
income of the completed business combinations with United American Holding
Corporation, First Central Bank, South Florida Banking Corp. and ASB Bancshares,
Inc. ("Completed Business Combinations"), for the years ended December 31, 1997,
1996 and 1995 (see note below), (iii) adjustments to give effect to the
pooling-of-interests method business combinations with United American Holding
Corporation, First Central Bank and South Florida Banking Corp. and the
completed purchase method business combination with ASB Bancshares, Inc. (iv)
the condensed statements of income of Commercial Bank of Nevada 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, (vi) the pro forma statements of income of BancGroup and subsidiaries
as if such business combinations had occurred on January 1, 1994.
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.
NOTE: For the purchase method business combination, Article 11 of Regulation
S-X requires the pro forma statements of income to be presented only for the
most recent fiscal year and interim period. Accordingly, only the condensed
consolidated statements of income for the year ended December 31, 1997 are
included in (ii) and (iii) above for ASB.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, 1997
--------------------------------------------------------------------------------------
CONSOLIDATED COMPLETED COMMERCIAL PRO FORMA
COLONIAL BUSINESS ADJUSTMENTS/ BANK OF ADJUSTMENTS/ COMBINED
BANCGROUP COMBINATIONS (DEDUCTIONS) NEVADA (DEDUCTIONS) TOTAL
------------ ------------ ------------ ---------- ------------ ----------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
Interest income...... $ 497,987 $ 54,005 $ 8,381 $ -- $ 560,373
Interest expense..... 249,488 23,216 $ 579(1) 3,286 -- 276,569
---------- --------- ---------- ------- -------- ----------
Net interest
income............. 248,499 30,789 (579) 5,095 -- 283,804
Provision for
possible loan
losses............. 13,026 1,894 874 15,794
---------- --------- ---------- ------- -------- ----------
Net interest income
after provision for
loan losses........ 235,473 28,895 (579) 4,221 -- 268,010
---------- --------- ---------- ------- -------- ----------
Noninterest income... 87,759 6,268 362 -- 94,389
Noninterest
expense............ 200,131 24,668 (24)(1) 3,108 -- 228,555
672(1)
---------- --------- ---------- ------- -------- ----------
Income before income
taxes.............. 123,101 10,495 (1,227) 1,475 -- 133,844
Applicable income
taxes.............. 45,910 3,495 (217) 507 49,695
---------- --------- ---------- ------- -------- ----------
Net income........... $ 77,191 $ 7,000 $ (1,010) $ 968 $ -- $ 84,149
========== ========= ========== ======= ======== ==========
Average basic shares
outstanding........ 42,034,000 3,305,900 (3,305,900) 842,157 (842,157) 48,125,093
5,248,936 842,157
Average diluted
shares
outstanding........ 43,436,000 3,305,900 (3,305,900) 842,157 (842,157) 49,748,065
5,469,908 842,157
Earnings per share:
Basic.............. $1.84 $1.75
Diluted............ 1.78 1.70
</TABLE>
NOTE: The above pro forma statement of income excludes the effect of an
immaterial pending business combination with CNB Holding Corp. of Daytona Beach,
Fla.
44
<PAGE> 52
THE COLONIAL BANCGROUP, INC. AND SUBSIDIARIES
CONDENSED PRO FORMA STATEMENTS OF INCOME (UNAUDITED) -- (CONTINUED)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, 1996
-----------------------------------------------------------------------------------
CONSOLIDATED COMPLETED COMMERCIAL PRO FORMA
COLONIAL BUSINESS ADJUSTMENTS/ BANK OF ADJUSTMENTS/ COMBINED
BANCGROUP COMBINATIONS (DEDUCTIONS) NEVADA (DEDUCTIONS) TOTAL
------------ ------------ ------------ ---------- ------------ ----------
<S> <C> <C> <C> <C> <C> <C>
Interest income.......... $ 408,532 $ 35,549 $ -- $ 4,031 $ -- $ 448,112
Interest expense......... 205,843 13,651 -- 1,194 -- 220,688
---------- --------- ---------- ------- -------- ----------
Net interest income...... 202,689 21,898 -- 2,837 -- 227,424
Provision for possible
loan losses............ 12,545 1,019 344 13,908
---------- --------- ---------- ------- -------- ----------
Net interest income after
provision for loan
losses................. 190,144 20,879 -- 2,493 -- 213,516
---------- --------- ---------- ------- -------- ----------
Noninterest income....... 70,888 3,972 -- 225 -- 75,085
Noninterest expense...... 183,514 15,457 -- 1,896 -- 200,867
---------- --------- ---------- ------- -------- ----------
Income before income
taxes.................. 77,518 9,394 -- 822 -- 87,734
Applicable income
taxes.................. 27,304 3,327 -- 93 30,724
---------- --------- ---------- ------- -------- ----------
Net income............... $ 50,214 $ 6,067 $ -- $ 729 $ -- $ 57,010
========== ========= ========== ======= ======== ==========
Average basic shares
outstanding............ 38,615,000 3,046,607 (3,046,607) 658,452 (658,452) 43,498,616
4,225,164 658,452
Average diluted shares
outstanding............ 40,385,000 3,046,607 (3,046,607) 692,490 (692,490) 45,469,610
4,392,120 692,490
Earnings per share:
Basic.................. $1.30 $1.31
Diluted................ 1.25 1.26
</TABLE>
NOTE: The above pro forma statement of income excludes the effect of an
immaterial pending business combination with CNB Holding Corp. of Daytona Beach,
Fla.
45
<PAGE> 53
THE COLONIAL BANCGROUP, INC. AND SUBSIDIARIES
CONDENSED PRO FORMA STATEMENTS OF INCOME (UNAUDITED) -- (CONTINUED)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, 1995
-----------------------------------------------------------------------------------
CONSOLIDATED COMPLETED COMMERCIAL PRO FORMA
COLONIAL BUSINESS ADJUSTMENTS/ BANK OF ADJUSTMENTS/ COMBINED
BANCGROUP COMBINATIONS (DEDUCTIONS) NEVADA (DEDUCTIONS) TOTAL
------------ ------------ ------------ ---------- ------------ ----------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
Interest income.......... $ 341,826 $ 30,159 $ -- $ 1,492 $ -- $ 373,477
Interest expense......... 170,483 11,958 -- 297 -- 182,738
---------- --------- ---------- ------- -------- ----------
Net interest income...... 171,343 18,201 -- 1,195 -- 190,739
Provision for possible
loan losses............ 8,986 1,194 192 10,372
---------- --------- ---------- ------- -------- ----------
Net interest income after
provision for loan
losses................. 162,357 17,007 -- 1,003 -- 180,367
---------- --------- ---------- ------- -------- ----------
Noninterest income....... 60,527 2,953 -- 76 -- 63,556
Noninterest expense...... 150,654 14,085 -- 1,316 -- 166,055
---------- --------- ---------- ------- -------- ----------
Income (loss) before
income taxes........... 72,230 5,875 -- (237) -- 77,868
Applicable income
taxes.................. 25,765 1,697 -- -- 27,462
---------- --------- ---------- ------- -------- ----------
Net income (loss)........ $ 46,465 $ 4,178 $ -- $ (237) $ -- $ 50,406
========== ========= ========== ======= ======== ==========
Average basic shares
outstanding............ 35,696,000 2,886,759 (2,886,759) 508,088 (508,088) 40,295,187
4,091,099 508,088
Average diluted shares
outstanding............ 39,421,000 2,886,759 (2,886,759) 508,088 (508,088) 44,157,476
4,228,388 508,088
Earnings per share:
Basic.................. $1.30 $1.25
Diluted................ 1.21 1.17
</TABLE>
NOTE: The above pro forma statement of income excludes the effect of an
immaterial pending business combination with CNB Holding Corp. of Daytona Beach,
Fla.
46
<PAGE> 54
THE COLONIAL BANCGROUP, INC. AND SUBSIDIARIES
CONDENSED PRO FORMA STATEMENTS OF INCOME (UNAUDITED) -- (CONTINUED)
PRO FORMA ADJUSTMENTS
Completed business combinations
Adjustments applicable to the purchase method business combination with ASB
Bancshares:
(1) To amortize the assignment of estimated fair value in excess of the
carrying amount of assets acquired. The amortization consists of the following:
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31, 1997
-----------------
<S> <C>
Increases in income:
Amortization of write-down on fixed assets (5 year
period)................................................ $ 24
-------
Total............................................. 24
-------
Increase in expense:
Interest on subordinated debentures (assumed at 7.5%)..... (579)
Write-up of investment securities (5 year period)......... (79)
Amortization of goodwill (15 year period)................. (593)
-------
Total............................................. (1,251)
-------
Net decrease in income before tax........................... (1,227)
-------
Tax effect of the pro forma adjustments (other than goodwill
amortization)............................................. 217
-------
Net decrease in income............................ $(1,010)
=======
</TABLE>
NONRECURRING CHARGES
(IN THOUSANDS)
The following table reflects the primary components of the 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. (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 Commercial Bank:
<TABLE>
<S> <C>
Increase in expense:
Noncompete agreements..................................... $(183)
Potential severance payable to terminated employees....... (52)
Write-off of fixed assets................................. (116)
-----
Net decrease in income before tax........................... (351)
Tax effect of the pro forma adjustments..................... 126
-----
Net decrease in income............................ $(225)
=====
</TABLE>
(2) Possible adjustments applicable to the purchase method business
combination with ASB.
<TABLE>
<S> <C>
Increase in expense:
Write-off of fixed assets................................. $ (32)
Accretion of deferred compensation (over 84 months)....... (33)
-----
Net decrease in income before taxes......................... (65)
Tax effect of the pro forma adjustment...................... 23
-----
Net decrease in income............................ $ (42)
=====
</TABLE>
47
<PAGE> 55
THE COLONIAL BANCGROUP, INC. AND SUBSIDIARIES
CONDENSED PRO FORMA STATEMENTS OF INCOME (UNAUDITED) -- (CONTINUED)
(3) Possible adjustments applicable to the pooling-of-interests method
business combination with South Florida:
<TABLE>
<S> <C>
Increase in expense:
Potential severance payable to terminated employees....... $(167)
Write-off of fixed assets................................. (34)
-----
Net decrease in income before tax........................... (201)
Tax effect of the pro forma adjustments..................... 72
-----
Net decrease in income............................ $(129)
=====
</TABLE>
(4) Possible adjustments applicable to the pooling-of-interests method
business combination with United American:
<TABLE>
<S> <C>
Increase in expense:
Adjustment for immediate vesting under salary continuation
agreements............................................. $(424)
Potential severance payable to terminated employees....... (91)
Write-off of fixed assets................................. (433)
-----
Net decrease in income before tax........................... (948)
Tax effect of the pro forma adjustments..................... 341
-----
Net decrease in income............................ $(607)
=====
</TABLE>
(5) Possible adjustments applicable to the pooling-of-interests method
business combination with First Central:
<TABLE>
<S> <C>
Increase in expense:
Adjustment for immediate vesting under salary continuation
agreements............................................. $(169)
Potential severance payable to terminated employees....... (6)
-----
Net decrease in income before tax........................... (175)
Tax effect of the pro forma adjustments..................... 63
-----
Net decrease in income............................ $(112)
=====
</TABLE>
48
<PAGE> 56
THE COLONIAL BANCGROUP, INC. AND SUBSIDIARIES
SELECTED FINANCIAL AND OPERATING INFORMATION
The following tables present certain financial information for BancGroup on
a historical basis for the years ended December 31, 1997, 1996, 1995, 1994 and
1993 and as of December 31, 1997, 1996, 1995, 1994 and 1993 and on a pro forma
basis for the years ended December 31, 1997, 1996 and 1995 and as of December
31, 1997.
The pro forma information includes consolidated BancGroup and subsidiaries
and South Florida, United American, ASB, First Central and Commercial Bank of
Nevada. The pro forma balance sheet data gives effect to the combinations as if
they had occurred on December 31, 1997 and the pro forma operating data gives
effect to the combinations as if they occurred at the beginning of the earliest
period presented. Note that for the purchase method business combination with
ASB, Article 11 of Regulation S-X requires pro forma statements to be presented
for only the most recent fiscal year and interim period. Accordingly, ASB is
only included in the pro forma information as of and for the year ended December
31, 1997.
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>
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........ $560,373 $448,112 $373,477 $497,987 $408,532 $341,826 $255,758 $204,322
Interest expense....... 276,569 220,688 182,738 294,488 205,843 170,483 105,797 81,008
-------- -------- -------- -------- -------- -------- -------- --------
Net interest income.... 283,804 227,424 190,739 248,499 202,689 171,343 149,961 123,314
Provision for possible
loan losses.......... 15,794 13,908 10,372 13,026 12,545 8,986 8,254 11,767
-------- -------- -------- -------- -------- -------- -------- --------
Net interest income
after provision for
loan losses.......... 268,010 213,516 180,367 235,473 190,144 162,357 141,707 111,547
Noninterest income..... 94,389 75,085 63,556 87,759 70,888 60,527 54,149 50,990
Noninterest expense.... 228,555 196,402 166,055 200,131 179,049 150,654 144,119 125,901
SAIF special
assessment........... -- 4,465 -- -- 4,465 -- -- --
-------- -------- -------- -------- -------- -------- -------- --------
Income before income
taxes................ 133,844 87,734 77,868 123,101 77,518 72,230 51,737 36,636
Applicable income
taxes................ 49,695 30,724 27,462 45,910 27,304 25,765 17,243 11,249
-------- -------- -------- -------- -------- -------- -------- --------
Income before
extraordinary
items................ 84,149 57,010 50,406 77,191 50,214 46,465 34,494 25,387
Extraordinary items.... -- -- -- -- -- -- -- (396)
Cumulative effect of a
change in
accounting........... -- -- -- -- -- -- -- 3,890
-------- -------- -------- -------- -------- -------- -------- --------
Net income............. $ 84,149 $ 57,010 $ 50,406 $ 77,191 $ 50,214 $ 46,465 $ 34,494 $ 28,881
======== ======== ======== ======== ======== ======== ======== ========
EARNINGS PER SHARE
Income before
extraordinary items:
Basic................ $ 1.75 $ 1.31 $ 1.25 $ 1.84 $ 1.30 $ 1.30 $ 1.02 $ 0.86
Diluted.............. 1.70 1.26 1.17 1.78 1.25 1.21 0.95 0.82
Net income:
Basic................ 1.75 1.31 1.25 1.84 1.30 1.30 1.02 0.97
Diluted.............. $ 1.70 $ 1.26 $ 1.17 $ 1.78 $ 1.25 $ 1.21 $ 0.95 $ 0.93
Average shares
outstanding
Basic................ 48,125 43,499 40,295 42,034 38,615 35,696 33,907 29,644
Diluted.............. 49,748 45,470 44,157 43,436 40,385 39,421 37,441 32,806
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>
- ---------------
* The pro forma cash dividends are equal to the historical BancGroup cash
dividends.
49
<PAGE> 57
THE COLONIAL BANCGROUP, INC. AND SUBSIDIARIES
SELECTED FINANCIAL AND OPERATING INFORMATION -- (CONTINUED)
<TABLE>
<CAPTION>
DECEMBER 31,
---------------------------------------------------------------------------
BANCGROUP BANCGROUP BANCGROUP BANCGROUP BANCGROUP BANCGROUP
PRO FORMA HISTORICAL HISTORICAL HISTORICAL HISTORICAL HISTORICAL
1997 1997 1996 1995 1994 1993
---------- ---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
STATEMENT OF CONDITION
DATA
At year end:
Total assets.............. $7,721,232 $6,850,828 $5,669,761 $4,960,165 $3,865,936 $3,728,270
Loans, net of unearned
inc.................. 5,781,823 5,176,926 4,216,178 3,645,727 2,736,041 2,289,233
Mortgage loans held for
sale................. 225,331 225,331 157,966 112,203 61,556 368,515
Deposits................ 6,013,245 5,255,830 4,299,821 3,869,012 3,067,500 2,990,190
Long-term debt.......... 98,877 90,252 39,092 47,688 86,662 57,397
Shareholders' equity.... 565,387 494,254 402,708 352,731 275,319 256,866
Average daily balances
Total assets............ 7,146,677 6,368,047 5,288,444 4,373,227 3,708,350 3,015,787
Interest-earning
assets............... 6,546,474 5,826,333 4,836,969 3,985,649 3,349,026 2,681,428
Loans, net of unearned
income............... 5,341,080 4,803,874 3,932,282 3,123,407 2,477,768 1,813,569
Mortgage loans held for
sale................. 149,309 149,309 135,135 98,785 135,046 248,502
Deposits................ 5,568,257 4,971,043 4,065,341 3,420,881 2,994,868 2,407,015
Shareholders' equity.... 527,539 459,666 385,881 308,532 269,353 200,217
Book value per share...... 11.66 11.62 10.29 9.43 7.93 7.69
Tangible book value per
share................... $ 10.05 $ 10.04 $ 9.53 $ 8.62 $ 7.35 $ 7.18
SELECTED RATIOS
Income before
extraordinary items and
the cumulative effect of
a change in accounting
for income taxes to:
Average assets.......... 1.18% 1.21% 0.95% 1.06% 0.93% 0.84%
Average stockholders'
equity............... 15.95 16.79 13.01 15.06 12.81 12.68
Net income to:
Average assets.......... 1.18 1.21 0.95 1.06 0.93 0.96
Average stockholders'
equity............... 15.95 16.79 13.01 15.06 12.81 14.42
Efficiency ratio(1)(2).... 61.91 57.56 60.52 63.64 69.19 71.31
Dividend payout........... 29.65 32.61 41.54 34.62 39.22 36.60
Average equity to average
assets.................. 7.38 7.22 7.30 7.06 7.26 6.64
Allowance for possible
loan losses to total
loans
(Net of unearned
income)................. 1.20 1.20 1.27 1.29 1.55 1.61
</TABLE>
- ---------------
(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.
(2) Excludes acquisition expenses which reflect costs and related restructuring
expense of business combinations.
50
<PAGE> 58
COMMERCIAL BANK OF NEVADA
SELECTED FINANCIAL DATA
The following tables present selected historical financial data for
Commercial Bank of Nevada. These tables should be read in conjunction with the
historical financial statements and notes thereto included elsewhere in this
Prospectus.
<TABLE>
<CAPTION>
AT AND FOR THE YEAR ENDED DECEMBER 31,
---------------------------------------------
1997 1996 1995 1994(1)
--------- --------- --------- ---------
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C>
At Period End:
Cash and cash equivalents, including Federal funds
sold............................................. $ 20,486 $ 27,235 $ 7,538 $ 6,227
Interest-bearing deposits........................... 3,550 1,000 1,000 --
Investment securities............................... 10,168 3,611 5,043 3,374
Loans, net.......................................... 83,041 36,470 15,879 1,841
Other assets........................................ 2,863 1,016 831 760
-------- -------- -------- --------
Total assets................................ $120,108 $ 69,332 $ 30,291 $ 12,202
======== ======== ======== ========
Deposits............................................ $108,661 $ 59,696 $ 23,953 $ 7,423
Other liabilities................................... 1,157 314 31 55
Shareholders' equity................................ 10,290 9,322 6,307 4,724
-------- -------- -------- --------
Total liabilities and shareholders'
equity.................................... $120,108 $ 69,332 $ 30,291 $ 12,202
======== ======== ======== ========
For the Period:
Total interest income............................... $ 8,380 $ 4,031 $ 1,492 $ 105
Total interest expense.............................. 3,286 1,194 297 26
-------- -------- -------- --------
Net interest income......................... 5,094 2,837 1,195 79
Provision for loan losses........................... 874 344 192 23
-------- -------- -------- --------
Net interest income after provision for loan
losses.................................... 4,220 2,493 1,003 56
Noninterest income.................................. 362 225 76 40
Noninterest expense................................. 3,108 1,896 1,316 372
-------- -------- -------- --------
Income (loss) before income taxes........... 1,474 822 (237) (276)
Income tax expense.................................. 507 93 -- --
-------- -------- -------- --------
Net income (loss)........................... $ 967 $ 729 $ (237) $ (276)
======== ======== ======== ========
Net income (loss) per share......................... $ 1.15 $ 1.11 $ (0.47) $ (0.55)
======== ======== ======== ========
Weighted average number of shares outstanding....... 842,157 658,452 508,088 500,000
======== ======== ======== ========
Actual shares outstanding at year end................. 842,157 842,157 651,617 500,000
======== ======== ======== ========
Book value per share.................................. $ 12.22 $ 11.07 $ 9.68 $ 9.45
======== ======== ======== ========
Ratios and Other Data:
Return (loss) on average assets..................... 1.02% 1.62% (1.19)% (13.44)%
Return (loss) on average equity..................... 9.82 10.85 (5.20) (27.27)
Average equity to average assets.................... 10.36 14.95 22.97 49.27
Net yield on average earning assets................. 9.70 9.98 8.59 5.62
Average earning assets to average interest-bearing
liabilities...................................... 1.37 1.53 1.73 2.26
Noninterest expense to average assets............... 3.27 4.22 6.62 18.11
Nonperforming assets as percent of total assets..... -- -- -- --
Allowance for loan losses to total loans............ 1.27 1.50 1.34 1.23
Dividend payout ratio............................... -- -- -- --
</TABLE>
- ---------------
(1) Period from date of inception (April 22, 1994) through December 31, 1994.
51
<PAGE> 59
COMMERCIAL BANK OF NEVADA
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion is provided to afford the reader an understanding
of the major elements of Commercial's financial condition, results of operation,
capital resources and liquidity. It should be read in conjunction with the
financial statements and notes thereto and other information appearing elsewhere
in this Prospectus.
GENERAL
Commercial is an FDIC-insured, state chartered bank headquartered in Las
Vegas, Nevada. Commercial commenced operations on October 17, 1994. Commercial
has two branch offices located in the greater Las Vegas area, and its main
business is to attract deposits and to invest those funds in loans, including
both secured and unsecured commercial loans, consumer loans, construction and
residential mortgage loans, and the origination of loans secured by commercial
real estate properties.
At December 31, 1997, Commercial had total assets of $120.1 million, an
increase of 73.2% over the $69.3 million recorded at December 31, 1996, and
total shareholders' equity of $10.3 million, up 10.4% over the $9.3 million at
December 31, 1996. For the twelve months ended December 31, 1997 it had net
earnings of $967,000, an improvement of approximately $238,000 from the earnings
reported for the twelve months ending December 31, 1996 of $729,000.
During the year ended December 31, 1997, net loans increased 127.7% to
$83.0 million from $36.5 million as of December 31, 1996. Commercial's portfolio
of investment securities increased 181.6% to $10.2 million as of December 31,
1997 from $3.6 million at December 31, 1996. Commercial's deposits increased to
$108.6 million as of December 31, 1997 from $59.7 million at December 31, 1996.
The 82.0% increase in deposits reflected Commercial's strategy of continuing to
accept and retain deposit accounts for which funds can be prudently invested.
REGULATION AND LEGISLATION
As a state-chartered bank, Commercial is subject to extensive regulation by
the Nevada Department of Business and Industry, Financial Institutions Division
("Nevada Department") and the FDIC. Commercial files reports with the Nevada
Department and the FDIC concerning its activities and financial condition, in
addition to obtaining regulatory approvals prior to entering into certain
transactions such as opening additional branch offices and mergers with or
acquisitions of other financial institutions. Periodic examinations are
performed by the Nevada Department and the FDIC to monitor Commercial's
compliance with various regulatory requirements and safety and soundness. As a
Nevada corporation, Commercial is subject to that state's banking laws and to
certain regulations by the Nevada Department.
CREDIT RISK
Commercial's business activity entails potential loan losses, the magnitude
of which depend on a variety of economic factors affecting borrowers which are
beyond the control of Commercial. While Commercial has instituted underwriting
guidelines and credit review procedures to protect Commercial from avoidable
credit losses, some losses will inevitably occur.
52
<PAGE> 60
The following tables set forth certain information regarding non-accrual
loans and other real estate owned, the ratios of such loans and real estate
owned to total assets as of the dates indicated, and certain other related
information:
<TABLE>
<CAPTION>
AT DECEMBER 31,
-------------------------------------
1997 1996 1995 1994
------- ------- ------- -------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C>
Nonaccrual loans:
Real estate loans:
Residential............................... $ -- $ -- $ -- $ --
Commercial................................ -- -- -- --
Commercial loans............................. -- -- -- --
Consumer and other loans..................... -- -- -- --
------- ------- ------- -------
Total nonaccrual loans............... -- -- -- --
Loans 90 or more days past due and accruing.... -- -- -- --
------- ------- ------- -------
Total nonperforming loans............ -- -- -- --
Other real estate owned:
Real estate acquired by foreclosure or deed
in lieu of foreclosure or in-substance
foreclosures.............................. -- -- -- --
------- ------- ------- -------
Total nonperforming assets........... $ -- $ -- $ -- $ --
======= ======= ======= =======
Total nonperforming loans to total
assets............................. --% --% --% --%
======= ======= ======= =======
Total nonperforming assets to total
assets............................. --% --% --% --%
======= ======= ======= =======
</TABLE>
The composition of Commercial's loan portfolio is as follows:
<TABLE>
<CAPTION>
AT DECEMBER 31,
-------------------------------------
1997 1996 1995 1994
------- ------- ------- -------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C>
Real estate loans:
Construction and land development............ $28,933 $12,994 $ 7,042 $ 113
Commercial................................... 22,554 6,966 686 --
Residential.................................. 8,463 2,473 868 --
------- ------- ------- -------
Total real estate loans.............. 59,950 22,433 8,596 113
Commercial, financial and industrial........... 23,270 13,208 6,830 1,737
Consumer installment........................... 1,532 1,702 746 16
------- ------- ------- -------
84,752 37,343 16,172 1,866
Less unearned net loan fees.................... 644 319 78 2
------- ------- ------- -------
Total loans.......................... $84,108 $37,024 $16,094 $ 1,864
======= ======= ======= =======
</TABLE>
53
<PAGE> 61
The following tables set forth information with respect to activity in
Commercial's allowance for loan losses during the periods indicated:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
----------------------------------------
1997 1996 1995 1994(1)
------- ------- ------- -------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C>
Average loans outstanding.................... $56,341 $28,475 $ 7,867 $ 147
======= ======= ======= ======
Allowance at beginning of period............. $ 554 $ 215 $ 23 $ --
------- ------- ------- ------
Loans charged off:
Real estate loans....................... -- -- -- --
Commercial loans........................ 370 -- -- --
Consumer loans.......................... -- 4 -- --
------- ------- ------- ------
Total loans charged-off............ 370 4 -- --
Recoveries................................. 9 -- -- --
------- ------- ------- ------
Net charge-offs......................... 361 4 -- --
Provision for loan losses charged to
operating expenses.................... 874 343 192 23
------- ------- ------- ------
Allowance at end of period.............. $ 1,067 $ 554 $ 215 $ 23
======= ======= ======= ======
Net charge-offs to average loans
outstanding........................... 0.64% 0.01% --% --%
======= ======= ======= ======
Allowance to period-end loans........... 1.27% 1.50% 1.34% 1.23%
======= ======= ======= ======
Period end total loans............. $84,108 $37,024 $16,094 $1,864
======= ======= ======= ======
</TABLE>
- ---------------
(1) Period from date of inception (April 22, 1994) through December 31, 1994.
The allowance for loan losses is established through a provision for loan
losses charged to expense. Loans are charged against the allowance for loan
losses when management believes that collectibility of the principal is
unlikely. The allowance is an amount that management believes will be adequate
to absorb estimated losses on existing loans that may become uncollectible,
based on evaluation of the collectibility of loans and prior loan loss
experience.
This evaluation also takes into consideration such factors as changes in
the nature and volume of the loan portfolio, overall portfolio quality, review
of specific problem loans, and current economic conditions that may affect the
borrower's ability to pay. While management uses the best information available
to make its evaluation, future adjustments to the allowance may be necessary if
there are significant changes in economic or other conditions.
In addition, the Federal Deposit Insurance Corporation (FDIC) and the
Financial Institutions Division of the Department of Business and Industry of
the State of Nevada, as an integral part of their examination processes,
periodically review Commercial's allowance for loan losses, and may require
Commercial to make additions to the allowance based on their judgment about
information available to them at the time of their examinations.
54
<PAGE> 62
The following tables set forth the allocation of the allowance for loan
losses at the end of each reported period:
<TABLE>
<CAPTION>
AT DECEMBER 31, 1997
-------------------------
% OF LOANS IN
EACH CATEGORY TO
AMOUNT TOTAL LOANS
------ ----------------
<S> <C> <C>
Real estate loans:
Construction.............................................. $ 136 34.1%
Other..................................................... 506 36.6
Commercial, financial and industrial........................ 287 27.5
Consumer installment........................................ 26 1.8
Unallocated................................................. 112 N/A
------ -----
Total allowance................................... $1,067 100.0%
====== =====
</TABLE>
<TABLE>
<CAPTION>
AT DECEMBER 31, 1996
-------------------------
% OF LOANS IN
EACH CATEGORY TO
AMOUNT TOTAL LOANS
------ ----------------
<S> <C> <C>
Real estate loans:
Construction.............................................. $ 41 34.8%
Other..................................................... 101 25.3
Commercial, financial and industrial........................ 391 35.3
Consumer installment........................................ 9 4.6
Unallocated................................................. 12 N/A
---- -----
Total allowance................................... $554 100.0%
==== =====
</TABLE>
<TABLE>
<CAPTION>
AT DECEMBER 31, 1995
-------------------------
% OF LOANS IN
EACH CATEGORY TO
AMOUNT TOTAL LOANS
------ ----------------
<S> <C> <C>
Real estate loans:
Construction.............................................. $ 13 43.5%
Other..................................................... 72 9.6
Commercial, financial and industrial........................ 125 42.3
Consumer installment........................................ 4 4.6
Unallocated................................................. 1 N/A
---- -----
Total allowance................................... $215 100.0%
==== =====
</TABLE>
<TABLE>
<CAPTION>
AT DECEMBER 31, 1994
-------------------------
% OF LOANS IN
EACH CATEGORY TO
AMOUNT TOTAL LOANS
------ ----------------
<S> <C> <C>
Real estate loans:
Construction.............................................. $-- 6.0%
Other..................................................... -- --
Commercial, financial and industrial........................ 23 93.1
Consumer installment........................................ -- 0.9
Unallocated................................................. -- N/A
--- -----
Total allowance................................... $23 100.0%
=== =====
</TABLE>
55
<PAGE> 63
RESULTS OF OPERATIONS
The operating results of Commercial depend primarily on its net interest
income, which is equal to the difference between interest income on
interest-earning assets and interest expense on interest-bearing liabilities,
which consist primarily of deposits.
Net interest income is determined by reference to (i) the difference
between yields earned on interest-earning assets and rates paid on
interest-bearing liabilities ("net interest spread"), and (ii) the relative
amounts of interest-earning assets and interest bearing liabilities.
Commercial's net interest spread is affected by regulatory, economic and
competitive factors that influence interest rates, loan demand and deposit
flows.
In addition, Commercial's net earnings are also affected by the level of
nonperforming loans and real estate owned, as well as the level of its
non-interest income and non-interest expenses, such as salaries and employee
benefits, occupancy, check and data processing and equipment costs and
provisions for loan losses.
The following tables set forth for the periods indicated information
regarding (i) the total dollar amount of interest income of Commercial from
earning assets and the resultant average yields; (ii) the total dollar amount of
interest expense on interest-bearing liabilities and the resultant average cost;
(iii) net interest income; (iv) net interest spread; and (v) net interest
margin. Average balances are based upon daily balances.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
----------------------------------------------------------------------------------------
1997 1996 1995
---------------------------- --------------------------- ---------------------------
AVERAGE YIELD/ AVERAGE YIELD/ AVERAGE YIELD/
BALANCE INTEREST RATE BALANCE INTEREST RATE BALANCE INTEREST RATE
-------- -------- ------ ------- -------- ------ ------- -------- ------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Earning assets:
Loans....................... $ 56,341 $6,540 11.61% $28,475 $3,325 11.68% $ 7,867 $ 896 11.39%
Investment securities....... 13,525 916 6.77 3,666 246 6.71 4,002 263 6.57
Federal funds sold.......... 14,893 818 5.49 7,290 399 5.47 4,716 276 5.85
Interest-bearing deposits... 1,639 106 6.47 944 61 6.46 776 57 7.35
-------- ------ ------- ------ ------- ------
Total earning assets........ 86,398 8,380 9.70 40,375 4,031 9.98 17,361 1,492 8.59
------ ----- ------ ------ ------ -----
Non-earning assets............ 8,680 4,538 2,504
-------- ------- -------
Total assets......... $ 95,078 $44,913 $19,865
======== ======= =======
Interest-bearing liabilities
Money market and NOW
accounts.................. $ 24,048 956 3.98 $15,192 580 3.82 $ 8,127 224 2.76
Savings accounts............ 1,434 56 3.91 587 20 3.41 148 3 2.03
Certificates of deposit..... 37,422 2,274 6.08 10,623 594 5.59 1,788 70 3.91
-------- ------ ------- ------ ------- ------
Total
interest-bearing
liabilities........ 62,904 3,286 5.22 26,402 1,194 4.52 10,063 297 2.95
------ ----- ------ ------ ------ -----
Noninterest-bearing
liabilities................. 22,327 11,795 5,240
Shareholders' equity.......... 9,847 6,716 4,562
-------- ------- -------
Total liabilities and
shareholders'
equity............. $ 95,078 $44,913 $19,865
======== ======= =======
Net interest income........... $5,094 $2,837 $1,195
====== ====== ======
Net interest spread(1)........ 4.48% 5.46% 5.64%
===== ====== =====
Net interest margin(2)........ 5.90% 7.03% 6.88%
===== ====== =====
Ratio of average earning
assets to average
interest-bearing
liabilities................. 1.37 1.53 1.73
======== ======= =======
</TABLE>
- ---------------
(1) Represents the difference between the yield on earning assets and the cost
of interest-bearing liabilities.
(2) Represents the net interest income divided by average earning assets.
56
<PAGE> 64
RATE/VOLUME ANALYSIS
The following tables set forth certain information regarding changes in
interest income and interest expense of Commercial for the periods indicated.
For each category of earning assets and interest bearing liabilities,
information is provided on changes attributable to (1) changes in rate (change
in rate multiplied by prior volume), (2) changes in volume (change in volume
multiplied by prior rate) and (3) changes in rate-volume (change in rate
multiplied by change in volume).
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, 1997 VS. 1996
----------------------------------------
INCREASE (DECREASE) DUE TO
----------------------------------------
RATE/
RATE VOLUME VOLUME TOTAL
------- -------- -------- --------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
Interest earning assets:
Loans.................................................... $ (20) $3,255 $ (20) $3,215
Investment securities.................................... 2 662 6 670
Federal funds sold....................................... 1 416 2 419
Interest-bearing deposits................................ -- 45 -- 45
----- ------ ----- ------
Total............................................ (17) 4,378 (12) 4,349
----- ------ ----- ------
Interest-bearing liabilities:
Deposits:
Money market and NOW accounts......................... 24 338 14 376
Savings accounts...................................... 3 29 4 36
Certificates of deposit............................... 52 1,498 130 1,680
----- ------ ----- ------
Total............................................ 79 1,865 148 2,092
----- ------ ----- ------
Net change in net interest income.......................... $ (96) $2,513 $(160) $2,257
===== ====== ===== ======
</TABLE>
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, 1996 VS. 1995
----------------------------------------
INCREASE (DECREASE) DUE TO
----------------------------------------
RATE/
RATE VOLUME VOLUME TOTAL
------- -------- -------- --------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
Interest earning assets:
Loans.................................................... $ 23 $2,347 $ 59 $2,429
Investment securities.................................... 6 (22) (1) (17)
Federal funds sold....................................... (18) 151 (10) 123
Interest-bearing deposits................................ (7) 12 (1) 4
----- ------ ----- ------
Total............................................ 4 2,488 47 2,539
----- ------ ----- ------
Interest-bearing liabilities:
Deposits:
Money market and NOW accounts......................... 86 195 75 356
Savings accounts...................................... 2 9 6 17
Certificates of deposit............................... 30 346 148 524
----- ------ ----- ------
Total............................................ 118 550 229 897
----- ------ ----- ------
Net change in net interest income.......................... $(114) $1,938 $(182) $1,642
===== ====== ===== ======
</TABLE>
LIQUIDITY AND CAPITAL RESOURCES
Liquidity management assures that adequate funds are available to meet
deposit withdrawals, loan demand and maturing liabilities. Insufficient
liquidity can result in higher costs of obtaining funds, while excessive
liquidity can lead to a decline in earnings due to the cost of foregoing
alternative investments. The ability to renew and acquire additional deposit
liabilities is a major source of liquidity. Commercial's principal
57
<PAGE> 65
source of funds is primarily within the local market of Commercial and consists
of deposits, interest and principal payments on loans and investment securities
and borrowings.
Asset liquidity is provided by cash and assets which are readily
marketable, or which can be pledged, or which will mature in the near future.
These include cash, federal funds sold and U.S. Government backed securities,
U.S. Government Agencies Securities, and Municipal Securities. Total fair market
value of all pledged securities are not included as liquid assets. Liability
liquidity is provided by access to core funding sources, principally various
customers' interest bearing and noninterest bearing deposit accounts. Commercial
does not have nor does it solicit brokered deposits. Federal funds purchased and
short term borrowings are additional sources of liquidity. These sources are
short term in nature and are used, as necessary, to fund asset growth and meet
short term liquidity needs.
As of December 31, 1997 and December 31, 1996, Commercial's liquidity ratio
was approximately 28.93% and 49.95% respectively of total deposits.
The following table sets forth the carrying value of Commercial's
investment portfolio as of the dates indicated:
<TABLE>
<CAPTION>
DECEMBER 31,
-----------------------------
1997 1996 1995
------- ------- -------
(IN THOUSANDS)
<S> <C> <C> <C>
Securities Held-to-Maturity:
U.S. Government agencies............................ $ 8,650 $ 2,500 $ 3,999
Municipal bonds..................................... 1,210 245 --
Small Business Administration loan pool............. 308 866 1,044
------- ------- -------
Total investment securities................. $10,168 $ 3,611 $ 5,043
======= ======= =======
</TABLE>
The following table sets forth the contractual maturity distribution by
carrying amount and weighted average yield to maturity of Commercial's
investment securities portfolio at December 31, 1997:
<TABLE>
<CAPTION>
ONE THROUGH FIVE THROUGH
ONE YEAR OR LESS FIVE YEARS TEN YEARS OVER TEN YEARS
---------------- ---------------- ---------------- ---------------- TOTAL
AMOUNT % YIELD AMOUNT % YIELD AMOUNT % YIELD AMOUNT % YIELD AMOUNT
------ ------- ------ ------- ------ ------- ------ ------- -------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Securities Held-to-Maturity:
U.S. Government agencies... $901 5.33 $5,249 6.40 $2,500 6.94 $ -- -- $ 8,650
Municipal bonds............ -- -- 45 4.70 200 4.96 965 5.11 1,210
Small Business
Administration loan
pool..................... -- -- 308 9.23 -- -- -- -- 308
---- ------ ------ ---- -------
Total............... $901 $5,602 $2,700 $965 $10,168
==== ====== ====== ==== =======
</TABLE>
REGULATORY CAPITAL REQUIREMENTS
For the purpose of evaluating the minimum capital adequacy of a financial
institution, Federal banking regulators have adopted regulations which make
reference to the institution's "Tier 1 leverage" capital and also to its "total"
capital. In most instances, "Tier 1 leverage" capital will consist solely of
funds permanently committed to the institution (i.e., shareholders' equity),
less net intangible assets.
Conversely, "total" capital (comprised of the sum of Tier 1 and
supplementary, or Tier 2 capital) includes not only shareholders' equity, but
the allowance for loan losses (subject to limitations). Under FDIC regulations,
Commercial is required to meet certain minimum capital thresholds. The
requirement is not a valuation allowance and has not been created by charges
against earnings; rather, it represents a restriction on shareholders' equity.
58
<PAGE> 66
The following chart compares the minimum capital ratios required by the
FDIC to the ratios maintained by Commercial.
<TABLE>
<CAPTION>
MINIMUM AMOUNT AND
ACTUAL RATIO REQUIRED
---------------------- ----------------------
AMOUNT RATIO AMOUNT RATIO
------ ----- ------ -----
(IN THOUSANDS) (IN THOUSANDS)
<S> <C> <C> <C> <C>
As of December 31, 1997:
Total Capital (to Risk Weighted Assets)............. $11,310 12.4% $7,325 8.0%
Tier 1 Capital (to Risk Weighted Assets)............ 10,243 11.2 3,663 4.0
Tier 1 Capital (to Average Assets).................. 10,243 9.3 4,403 4.0
</TABLE>
ASSET AND LIABILITY MANAGEMENT
As part of its asset and liability management, Commercial has emphasized
establishing and implementing internal asset-liability decision processes, as
well as communications and control procedures to aid in managing Commercial's
earnings. Management believes that these processes and procedures provide
Commercial with better capital planning, asset mix and volume controls, loan
pricing guidelines, and deposit interest rate guidelines which should result in
controls and less exposure to interest rate risk.
The matching of assets and liabilities may be analyzed by examining the
extent to which such assets and liabilities are "interest rate sensitive" and by
monitoring an institution's interest rate sensitive "gap." An asset or liability
is said to be interest rate sensitive within a specific time period if it will
mature or reprice within that time period. The interest rate sensitivity gap is
defined as the difference between interest earning assets and interest bearing
liabilities maturing or repricing within a given time period. The gap ratio is
computed as rate-sensitive assets to rate-sensitive liabilities. A gap ratio of
1.0 represents perfect matching. A gap is considered positive when the interest
rate sensitive assets exceed interest rate sensitive liabilities. A gap is
considered negative when interest rate sensitive liabilities exceed interest
rate sensitive assets. During a period of rising interest rates, a negative gap
would adversely affect net interest income, while a positive gap would result in
an increase in net interest income. During a period of falling interest rates, a
negative gap would result in an increase in net interest income, while a
positive gap would adversely affect net interest income.
In order to minimize the potential for adverse effects of material and
prolonged increases in interest rates on Commercial's results of operations,
management continues to monitor asset and liability management policies to
better match the maturities and repricing terms of Commercial's interest earning
assets and interest bearing liabilities. Such policies have consisted primarily
of: (i) emphasizing the origination of adjustable-rate loans; (ii) maintaining a
stable core deposit base; and (iii) maintaining a significant portion of liquid
assets (cash and short-term investments).
Commercial has also maintained a relative large portfolio of liquid assets
(cash and assets maturing or repricing in one year or less) in order to reduce
its vulnerability to shifts in market rates of interest. At December 31, 1997
and December 31, 1996, 17.81% and 40.00%, respectively, of Commercial's total
assets consisted of cash, federal funds sold, and short-term U.S. Government
securities, and its overall liquidity ratio was approximately 28.93% and 49.95%
of total deposits.
Commercial seeks to maintain a large stable core deposit base by providing
quality service to its customers without significantly increasing its cost of
funds or operating expenses. The success of Commercial's core deposit strategy
is demonstrated by the growth of its money-market deposit accounts, savings
accounts and NOW accounts, which, in the aggregate, totaled $26.0 million,
representing 24% of total deposits at December 31, 1997 and $18.7 million or 31%
of such deposits at December 31, 1996.
As of December 31, 1997, Commercial's cumulative one-year interest rate
sensitivity gap ratio was 13.5%. Although management believes that the
implementation of the referenced strategies has reduced the potential adverse
effects of changes in interest rates on Commercial's results of operation, any
substantial and prolonged increase in market interest rates could have an
adverse impact on Commercial's results of operations. Management monitors
Commercial's interest rate sensitivity gap on a monthly basis. Commercial's
management monitors interest rate risk by reviewing several areas of
Commercial's operation, such as
59
<PAGE> 67
liquidity, volatile liability dependence and rate sensitivity, operating within
the targets and guidelines of Commercial's Funds Management policy.
The following table sets forth certain information relating to Commercial's
earning assets and interest-bearing liabilities at December 31, 1997 that are
estimated to mature or are scheduled to reprice within the period shown:
<TABLE>
<CAPTION>
MORE THAN MORE
ONE YEAR TO THAN
ONE YEAR FIVE YEARS FIVE YEARS TOTAL
-------- ----------- ---------- --------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C>
EARNING ASSETS
Mortgage and Commercial Loans(1):
Adjustable Rate (all property types)........ $62,859 $ 1,357 $ -- $ 64,216
Fixed Rate.................................. 8,593 2,207 6,494 17,294
------- ------- ------- --------
Total mortgage and commercial
loans............................. 71,452 3,564 6,494 81,510
Consumer and other loans(1)................... 1,205 326 -- 1,531
Investment securities(2)...................... 901 5,602 3,665 10,168
Federal funds sold............................ 13,400 -- -- 13,400
Interest-bearing deposits..................... 3,550 -- -- 3,550
------- ------- ------- --------
Total Earning Assets................ 90,508 9,492 10,159 110,159
------- ------- ------- --------
INTEREST BEARING LIABILITIES(3):
Money market and NOW accounts............... 24,409 -- -- 24,409
Savings accounts............................ 1,623 -- -- 1,623
Certificates of deposit..................... 49,597 57 -- 49,654
------- ------- ------- --------
Total Interest-Bearing
Liabilities....................... 75,629 57 -- 75,686
------- ------- ------- --------
Rate Sensitivity GAP........................ $14,879 $ 9,435 $10,159 $ 34,473
------- ------- ------- --------
Cumulative Rate Sensitivity GAP............. $14,879 $24,314 $34,473 $ 34,473
======= ======= ======= ========
Rate Sensitivity GAP Ratio.................. 1.20% 166.53% --% 1.46%
Cumulative Rate Sensitivity GAP Ratio....... 1.20% 1.32% 1.46% 1.46%
Ratio of Cumulative GAP to Total Earning
Assets................................... 13.51% 22.07% 31.29% 31.29%
</TABLE>
- ---------------
(1) In preparing the table above, adjustable-rate loans are included in the
period in which interest rates are next scheduled to adjust rather than in
the period in which loans mature. Fixed-rate loans are scheduled, including
repayment, according to their maturities.
(2) Investments are scheduled based on maturity dates.
(3) Checking accounts, NOW accounts, savings accounts and money market deposit
accounts are regarded as ready accessible withdrawable accounts. All other
time accounts are scheduled through the maturity dates.
60
<PAGE> 68
LOAN MATURITIES
The table below sets forth the contractual maturity of Commercial's
commercial loan and construction loan portfolios at December 31, 1997. Demand
loans, secured exclusively by passbook savings or CD's and having no stated
schedule of repayments and no stated maturity, are reported as due within one
year. The table does not reflect anticipated prepayments.
MATURITY SCHEDULE OF SELECTED LOANS
<TABLE>
<CAPTION>
0 - 12 1 - 5 OVER 5
MONTHS YEARS YEARS TOTAL
------- ------- ------ -------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
Commercial, financial, and agricultural.................... $14,831 $ 7,865 $ 575 $23,271
Real Estate -- Construction................................ 16,630 7,982 4,320 28,932
------- ------- ------ -------
Total............................................ $31,461 $15,847 $4,895 $52,203
======= ======= ====== =======
Fixed Interest Rate........................................ $ 6,257 $ 1,396 $ 27 $ 7,680
Variable Interest Rate..................................... 25,204 14,451 4,868 44,523
</TABLE>
The following table shows the distribution of, and certain other
information relating to Commercial's deposit accounts, by type:
<TABLE>
<CAPTION>
AT DECEMBER 31,
----------------------------------------------------------
1997 1996 1995
------------------ ----------------- -----------------
% OF % OF % OF
AMOUNT DEPOSIT AMOUNT DEPOSIT AMOUNT DEPOSIT
-------- ------- ------- ------- ------- -------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
Demand deposits............................. $ 32,975 30.3% $17,105 28.6% $10,586 44.2%
Money market and NOW deposits............... 24,409 22.5 17,768 29.8 11,649 48.6
Savings deposits............................ 1,623 1.5 947 1.6 315 1.3
-------- ----- ------- ----- ------- -----
Subtotal........................... 59,007 54.3 35,820 60.0 22,550 94.1
-------- ----- ------- ----- ------- -----
Certificates of deposit
2.00-3.99%................................ 457 0.4 29 -- 715 3.0
4.00-5.99................................. 4,598 4.2 11,867 19.9 688 2.9
6.00-7.99 44,599 41.1 11,980 20.1 -- --
8.00-9.99................................. -- -- -- -- -- --
-------- ----- ------- ----- ------- -----
Total certificates of deposit...... 49,654 45.7 23,876 40.0 1,403 5.9
-------- ----- ------- ----- ------- -----
Total deposits..................... $108,661 100.0% $59,696 100.0% $23,953 100.0%
======== ===== ======= ===== ======= =====
</TABLE>
The following table shows the average amount of and the average rate paid
on each of the following deposit accounts categories during the periods
indicated.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
---------------------------------------------------------
1997 1996 1995
----------------- ----------------- -----------------
AVERAGE AVERAGE AVERAGE AVERAGE AVERAGE AVERAGE
BALANCE RATE BALANCE RATE BALANCE RATE
------- ------- ------- ------- ------- -------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
Noninterest bearing checking accounts........ $21,583 0.00% $11,602 0.00% $ 5,200 0.00%
Money market and NOW accounts................ 24,048 3.98 15,192 3.82 8,127 2.76
Savings accounts............................. 1,434 3.91 587 3.41 148 2.03
Certificates of deposit...................... 37,422 6.08 10,623 5.59 1,788 3.91
------- ------- -------
Total deposits...................... $84,487 3.89 $38,004 3.14 $15,263 1.95
======= ======= =======
</TABLE>
61
<PAGE> 69
The following table presents for various interest rate categories the
amount of outstanding certificates of deposit at December 31, 1997 which mature
during the periods indicated:
<TABLE>
<CAPTION>
MATURITY (IN THOUSANDS)
- -------- --------------
<S> <C>
1998........................................................ $49,597
1999........................................................ 57
-------
Total............................................. $49,654
=======
</TABLE>
Jumbo certificates ($100,000 and over) outstanding as of December 31, 1997
mature as follows:
<TABLE>
<CAPTION>
MATURITY (IN THOUSANDS)
- -------- --------------
<S> <C>
Due within three months or less............................. $ 7,499
Due over three months to six months......................... 9,884
Due over six months to one year............................. 8,608
Due over one year........................................... --
-------
Total............................................. $25,991
=======
</TABLE>
COMPARISON OF YEARS ENDED DECEMBER 31, 1997 AND DECEMBER 31, 1996
General. Net income for the year ended December 31, 1997 was $967,000 or
$1.15 per share compared to a net income of $729,000 or $1.11 per share for
December 31, 1996. The increase in earnings of $238,000 was due primarily to an
increase in Commercial's assets, particularly loans.
Interest Income and Expense. Interest income increased $4,349,000, or
108%, to $8,380,000 during the year ended December 31, 1997. Interest on loans
increased $3,215,000 to $6,540,000 due to an increase in the average loan
portfolio from $28,475,000 during 1996 to $56,341,000 during 1997. Interest on
investment securities increased $670,000 to $916,000 due to an increase in the
average securities portfolio from $3,666,000 during 1996 to $13,525,000 in 1997.
Interest expense increased $2,092,000, or 175%, to $3,286,000 during the
year ended December 31, 1997. The increase is due to an increase in average
interest bearing liabilities form $26,402,000 during 1996 to $62,904,000 during
1997.
Provisions for Credit Losses. The provision for loan losses increased from
$344,000 for the year ended December 31, 1996 to $874,000 during 1997. The
allowance for loan losses increased from $554,000 at December 31, 1996 to
$1,067,000 at December 31, 1997. Commercial had no nonperforming loans as of
December 31, 1997 and December 31, 1996.
Noninterest Income and Expense. Total noninterest income increased 61%
from $225,000 for the year ended December 31, 1996 to $362,000 for the year
ended December 31, 1997. This increase is due to normal growth. Total
noninterest expense increased 64% from $1,896,000 for the year ended December
31, 1996 to $3,108,000 for the year ended December 31, 1997. This increase is
due to normal growth.
COMPARISON OF YEARS ENDED DECEMBER 31, 1996 AND DECEMBER 31, 1995
General. The net income for the year ended December 31, 1996 was $729,000
or $1.11 per share compared to a net loss of $237,000 or ($0.47) per share for
1995. The increase in earnings was due primarily to increases in both net
interest income and noninterest income.
Interest Income. Interest income increased $2,539,000 or 170% during the
year ended December 31, 1996. Interest on loans increased $2,429,000 to
$3,325,000 due to an increase in the average loan portfolio from $7,867,000
during 1995 to $28,475,000 during 1996. Interest on investment securities
decreased $17,000 from $263,000 during 1995 to $246,000 during 1996, due to a
decrease in the average amount invested in securities during 1996 as compared to
1995.
62
<PAGE> 70
Interest Expense. Interest expense increased from $297,000 for the year
ended December 31, 1995 to $1,194,000 for the year ended December 31, 1996. This
increase was due primarily to an increase in average interest bearing
liabilities from $10,063,000 during 1995 to $26,402,000 during 1996.
Noninterest Income and Expense. Total noninterest income increased 196%,
from $76,000 for the year ended December 31, 1995 to $225,000 for the year ended
December 31, 1996. The increase is primarily due to normal growth. Total
noninterest expense increased 44% from $1,316,000 for the year ended December
31, 1995 to $1,896,000 for the year ended December 31, 1996. The increase was
primarily due to normal growth.
Income tax expense. Income tax expense differs from the amount of income
tax determined by applying the U.S. Federal income tax rate of 34% to pretax
income for the years ended December 31, 1996 and 1995 due primarily to a
$176,000 decrease in the deferred tax asset valuation allowance in 1996 and a
$78,000 increase in the valuation allowance in 1995.
IMPACT OF INFLATION AND CHANGING PRICES
The financial statements and related data presented herein have been
prepared on the traditional basis of accounting, which requires 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. Unlike most industrial companies, substantially all of the
assets and liabilities of Commercial are monetary in nature. As a result,
interest rates have a more significant impact on Commercial's performance than
the effects of general levels of inflation. Interest rates do not necessarily
move in the same direction or in the same magnitude as the prices of goods and
services, since such prices are affected by inflation to a larger extent than
interest rates.
CURRENT ACCOUNTING DEVELOPMENT
The FASB issued Statement No. 131 Disclosures about Segments of an
Enterprise and Related Information. Statement No. 131 modifies the disclosure
requirements for reportable segments and is effective for Commercial's year
ending after December 31, 1997. Commercial has not determined the effect of the
adoption of this Statement would have on Commercial's financial statements.
YEAR 2000 COMPLIANCE
Commercial is conducting a comprehensive review of computer systems to
identify the systems that could be affected by the Year 2000 Issue, and is
developing an implementation plan to resolve the issue.
The issue is whether computer systems will properly recognize
date-sensitive information when the year changes to 2000. Systems that do not
properly recognize such information could generate erroneous data or cause a
system to fail. Commercial is heavily dependent on computer processing in the
conduct of its business activities.
Based on the review of the computer systems, management does not believe
the cost of making the systems Year 2000 compliant will be significant to their
results of operations or financial position.
63
<PAGE> 71
BUSINESS OF BANCGROUP
GENERAL
BancGroup is a bank holding company registered under the BHCA. It was
organized in 1988 under the laws of Delaware 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, Georgia, Florida
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 two additional banks (including Commercial). Colonial Mortgage
Company, a subsidiary of Colonial Bank, is a mortgage banking company which
services approximately $12.9 billion in residential loans and which originates
residential mortgages in 37 states through four divisional offices. The above
amounts and numbers were calculated as of December 31, 1997. At December 31,
1997, BancGroup had consolidated total assets of $6.9 billion and consolidated
stockholders' equity of $494.3 million. BancGroup's commercial banking loan
portfolio is comprised primarily of commercial real estate loans (27%) and
residential real estate loans (42%), a significant portion of which is located
within the States of Alabama and Florida, 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 merged four banking institution into
BancGroup: 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 are included in the pro
forma statements contained herein.
See "The Colonial BancGroup, Inc. and Subsidiaries -- Condensed Pro Forma
Statements of Condition (Unaudited)."
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
64
<PAGE> 72
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 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 SHAREHOLDERS
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 100,000,000 shares of BancGroup Common Stock authorized.
65
<PAGE> 73
The following table shows those persons who are known to BancGroup to be
beneficial owners as of February 27, 1998 of more than five 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.
(3) Includes 191,020 shares of BancGroup Common Stock subject to options under
BancGroup's stock option plans.
66
<PAGE> 74
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.
<TABLE>
<CAPTION>
SHARES OF BANCGROUP
BENEFICIALLY OWNED
----------------------------
PERCENTAGE
COMMON OF CLASS
DIRECTORS NAME 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 *
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.......................................... -- *
John C.H. Miller, Jr........................................ 38,352(7) *
Joe D. Mussafer............................................. 20,679 *
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.
67
<PAGE> 75
(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 (ii) BancGroup's Proxy
Statement for its 1998 Annual Meeting, at items 10, 11 and 13.
68
<PAGE> 76
BUSINESS OF COMMERCIAL
GENERAL
Commercial was chartered by the State of Nevada as a bank on October 1,
1994. Commercial's deposits are insured by the FDIC.
Commercial has operated as a traditional commercial financial institution
attracting checking, savings and money market account deposits from individuals
and businesses, and using such deposits to originate commercial and residential
real estate loans which are secured by property located primarily in the cities
of Las Vegas, North Las Vegas, and Henderson, Nevada. Commercial also originates
commercial loans, lines of credit and consumer loans. Its income is primarily
derived from interest and fees received in connection with lending activities.
Interest on deposits and general administrative expenses are Commercial's major
expense items.
Commercial currently employs 54 individuals and engages in the general
business of personal and commercial banking primarily in the greater Las Vegas
area. For its primary sources of funds, Commercial relies on personal and
business deposits, money market deposit accounts, and certificates of deposit.
Commercial's primary sources of income include interest and fees earned from
residential and commercial mortgage loans, including construction and permanent
mortgage loans, secured and unsecured commercial and consumer loans, revolving
credit lines, and automobile loans. Interest on deposits and general
administrative expenses are Commercial's major expense items.
MARKET AREA
Commercial operates three locations in the greater Las Vegas area. Las
Vegas is one of the fastest growing metropolitan areas in the United States. The
major economic base in Commercial's market area includes tourism, retail and
real estate development and construction businesses. Commercial believes that
its offices are situated so as to take advantage of the economic and demographic
growth in the market area.
PROPERTIES
Commercial's main facility is in a commercial office suite located at 2820
West Charleston Boulevard, Las Vegas, Nevada 89102. Commercial leases six
separate office suites at this location, occupying approximately 10,500 square
feet. Commercial also operates a branch facility located at 4299 East Sunset
Road, Henderson, Nevada 89014. Commercial owns the Henderson location which is a
2,500 square foot building situated on a 21,000 square foot parcel of property
from which this branch operates. The last location is a 4,932 square foot branch
facility leased at 7451 West Lake Mead, Las Vegas, Nevada 89128.
Management of Commercial believes that its offices are convenient to both
commercial and individual customers and that such accessibility is a competitive
advantage.
COMPETITION
Commercial ranks 7th among Nevada financial institutions in Las Vegas area
deposits with a market share of 2.13%. Total deposits held by financial
institutions in Las Vegas totaled $5.1 billion as of December 31, 1997. The
market share leaders in Las Vegas include First Republic Savings Bank with a
29.68% market share, First Security Bank with a 16.04% market share, Nevada
State Bank with a 15.41% market share, Citibank with a 15.03% market share and
Pioneer Citizens with a 14.43% market share.
Total population in Clark County is estimated at 1,119,705 as of July,
1996. Population growth for Clark County is forecast at a rate of 6.8%. The
total population of Las Vegas as of July, 1996 is estimated at 485,622, an
increase of 7.9% from 1995. The projected population growth for Las Vegas and
Clark County is estimated to be 5.1% for 1998 and 4.8% for 1999.
69
<PAGE> 77
PRINCIPAL HOLDERS OF COMMON STOCK
Commercial's authorized capital stock consists of 2,500,000 shares of
Commercial Common Stock, par value $1.00 per share, of which 842,157 shares are
issued and outstanding as of the Record Date.
The following table sets forth information as of the Record Date regarding
the ownership of Commercial Common Stock by each director and executive officer
of Commercial, by each person known to Commercial to be the beneficial owner of
more than five percent of the Commercial Common Stock 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
BENEFICIALLY PERCENTAGE
NAME AND POSITION OF BENEFICIAL OWNER OWNED(1) OWNERSHIP
- ------------------------------------- ------------ ----------
<S> <C> <C>
Andras F. Babero, Esq., Director............................ 6,200 0.73%
William E. Bannen, M.D., Director........................... 5,100 0.61
Robyne J. Brooks-Townsend, Director......................... 8,500 1.01
Gerald L. Ehrens, Director.................................. 3,150 0.37
Robert Forbuss, Director.................................... 12,700 1.51
John S. Gaynor, President and CEO........................... 4,850 0.58
Leonard E. Goodall, Ph.D., Director......................... 11,950 1.42
Richard M. Helgren, Executive Vice President and COO........ 8,000 0.95
Sue Lowden, Director........................................ 10,100 1.20
Perry E. Muscelli, Director................................. 23,000 2.73
Robin Panek, Senior Vice President and CFO.................. 500 0.06
Jerry E. Polis, Chairman of the Board....................... 134,700 15.99
William K. Stephan, M.D., Director.......................... 7,500 0.89
Edward A. Wilson, CPA, Director............................. 14,000 1.66
All Directors, Executive Officers and Principal Shareholders
as a Group (14 persons) 250,250 29.71%
</TABLE>
- ---------------
(1) The stock ownership information shown has been furnished to Commercial by
the named persons and group. Beneficial ownership as reported in the table
and elsewhere in the Proxy Statement has been determined in accordance with
Commission regulations.
ADJOURNMENT OF SPECIAL MEETING
Approval of the Merger Agreement by Commercial 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 Commercial Common Stock present in person or by proxy at the Special Meeting
to approve the Agreement, Commercial'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 the 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 effect of any such adjournment would be to permit Commercial to solicit
additional proxies for approval of the Merger 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 files
by shareholders voting against the Agreement, an adjournment would afford
Commercial time to solicit additional proxies in favor of the Agreement.
70
<PAGE> 78
OTHER MATTERS
The Board of Directors of Commercial 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 accompanying proxy
will vote such proxy on such matters as determined by a majority of the Board of
Directors of Commercial.
DATE FOR SUBMISSION OF BANCGROUP SHAREHOLDER 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 14, 1998.
LEGAL MATTERS
Certain legal matters 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 owns 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
Commercial by the law firm of Kolesar & Leatham, Chtd., Las Vegas, Nevada.
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.
Commercial's financial statements as of December 31, 1997 and 1996, and for
each of the three years ended December 31, 1997, included in this Prospectus
have been audited by McGladrey & Pullen, LLP, independent public accountants, as
indicated in their report with respect thereto, and are included herein in
reliance upon the authority of said firm as experts in accounting and auditing
in giving said reports.
PLEASE SIGN AND DATE THE ENCLOSED PROXY CARD AND RETURN IT IN THE
ACCOMPANYING ENVELOPE AS PROMPTLY AS POSSIBLE. YOU MAY REVOKE THE PROXY BY
GIVING WRITTEN NOTICE OF REVOCATION TO THE SECRETARY OF COMMERCIAL PRIOR TO THE
SPECIAL MEETING, BY EXECUTING A LATER DATED PROXY AND DELIVERING IT TO THE
SECRETARY OF COMMERCIAL PRIOR TO THE SPECIAL MEETING OR BY ATTENDING THE SPECIAL
MEETING VOTING IN PERSON.
71
<PAGE> 79
COMMERCIAL BANK OF NEVADA
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
INDEPENDENT AUDITOR'S REPORT................................ F-2
FINANCIAL STATEMENTS
Balance sheets as of December 31, 1997 and 1996........... F-3
Statements of operations for the years ended December 31,
1997, 1996 and 1995.................................... F-4
Statements of stockholders' equity for the years ended
December 31, 1997, 1996 and 1995....................... F-5
Statements of cash flows for the years ended December 31,
1997, 1996 and 1995.................................... F-6
Notes to financial statements............................. F-7
</TABLE>
F-1
<PAGE> 80
INDEPENDENT AUDITOR'S REPORT
To the Board of Directors
Commercial Bank of Nevada
Las Vegas, Nevada
We have audited the accompanying balance sheets of Commercial Bank of
Nevada as of December 31, 1997 and 1996, and the related statements of
operations, 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 Bank's management. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Commercial Bank of Nevada,
as of December 31, 1997 and 1996 and the results of its operations and its cash
flows for each of the three years in the period ended December 31, 1997 in
conformity with generally accepted accounting principles.
/s/ MCGLADREY & PULLEN, LLP
McGLADREY & PULLEN, LLP
Las Vegas, Nevada
March 4, 1998
F-2
<PAGE> 81
COMMERCIAL BANK OF NEVADA
BALANCE SHEETS
DECEMBER 31, 1997 AND 1996
<TABLE>
<CAPTION>
1997 1996
------------ -----------
<S> <C> <C>
ASSETS
Cash and due from banks (Notes 2 and 9)..................... $ 7,086,043 $ 5,580,387
Federal funds sold (Note 9)................................. 13,400,000 21,655,000
------------ -----------
Cash and cash equivalents......................... 20,486,043 27,235,387
Interest-bearing deposits in other financial institutions
(Note 9).................................................. 3,550,000 1,000,000
Securities held-to-maturity, estimated fair values of
$10,207,478 in 1997 and $3,642,823 in 1996 (Notes 3 and
8)........................................................ 10,167,574 3,611,077
Loans receivable, net of allowance for loan losses of
$1,066,970 in 1997 and $554,000 in 1996 (Notes 4, 5 and
13)....................................................... 83,040,972 36,470,139
Accrued interest receivable................................. 642,885 293,292
Bank premises and equipment, net (Note 6)................... 1,879,510 523,472
Deferred tax asset (Note 7)................................. 80,000 71,000
Other assets................................................ 260,549 127,795
------------ -----------
Total assets...................................... $120,107,533 $69,332,162
============ ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Deposits:
Non-interest bearing demand............................... $ 32,975,001 $17,105,247
Interest bearing:
Demand................................................. 24,408,707 17,767,518
Savings................................................ 1,622,853 947,300
Time, $100,000 and over................................ 25,991,064 12,386,130
Other time............................................. 23,663,018 11,490,044
------------ -----------
Total deposits.................................... 108,660,643 59,696,239
Accrued interest and other liabilities...................... 1,157,361 313,830
------------ -----------
Total liabilities................................. 109,818,004 60,010,069
------------ -----------
Commitments and Contingencies (Notes 9, 12 and 15)
Stockholders' Equity (Notes 10, 11 and 16)
Common stock, $1.00 par value, 2,500,000 shares
authorized; 842,157 shares issued and outstanding...... 842,157 842,157
Surplus................................................... 8,263,727 8,263,727
Retained earnings......................................... 1,183,645 216,209
------------ -----------
Total stockholders' equity........................ 10,289,529 9,322,093
------------ -----------
Total liabilities and stockholders' equity........ $120,107,533 $69,332,162
============ ===========
</TABLE>
See Notes to Financial Statements.
F-3
<PAGE> 82
COMMERCIAL BANK OF NEVADA
STATEMENTS OF OPERATIONS
YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995
<TABLE>
<CAPTION>
1997 1996 1995
---------- ---------- ----------
<S> <C> <C> <C>
Interest income on:
Loans receivable....................................... $6,539,753 $3,325,182 $ 896,549
Securities held-to-maturity............................ 916,746 245,766 263,325
Federal funds sold..................................... 817,865 398,751 275,956
Interest-bearing deposits in other financial
institutions........................................ 106,161 61,197 56,710
---------- ---------- ----------
Total interest income.......................... 8,380,525 4,030,896 1,492,540
Interest expense on deposits............................. 3,286,126 1,194,488 297,450
---------- ---------- ----------
Net interest income............................ 5,094,399 2,836,408 1,195,090
Provision for loan losses (Note 5)....................... 874,362 343,592 192,200
---------- ---------- ----------
Net interest income after provision for loan
losses....................................... 4,220,037 2,492,816 1,002,890
---------- ---------- ----------
Other income:
Service charges........................................ 172,825 118,958 56,882
Mortgage loan pre-underwriting fees.................... 111,743 49,115 --
Other.................................................. 77,910 56,618 19,518
---------- ---------- ----------
362,478 224,691 76,400
---------- ---------- ----------
Other expense:
Salaries, wages and employee benefits (Note 12)........ 1,500,805 861,267 582,700
Occupancy, including rent expense to a related party of
$203,000 in 1997, $160,000 in 1996 and $118,000 in
1995 (Note 9)....................................... 283,501 217,864 156,058
Advertising and public relations....................... 163,164 146,822 94,053
Depreciation and amortization.......................... 234,566 136,310 118,825
Supplies............................................... 103,702 59,174 80,844
Data processing........................................ 143,571 91,993 77,130
Professional fees...................................... 92,664 111,682 42,154
Insurance.............................................. 45,063 29,549 30,242
Directors fees......................................... 157,442 71,258 --
Other.................................................. 383,401 170,024 134,426
---------- ---------- ----------
3,107,879 1,895,943 1,316,432
---------- ---------- ----------
Income (loss) before income taxes.............. 1,474,636 821,564 (237,142)
Income tax expense (Note 7).............................. 507,200 92,500 --
---------- ---------- ----------
Net income (loss).............................. $ 967,436 $ 729,064 $ (237,142)
========== ========== ==========
Basic earnings (loss) per share................ $ 1.15 $ 1.11 $ (0.47)
========== ========== ==========
Diluted earnings (loss) per share.............. $ 1.15 $ 1.05 $ (0.47)
========== ========== ==========
</TABLE>
See Notes to Financial Statements.
F-4
<PAGE> 83
COMMERCIAL BANK OF NEVADA
STATEMENTS OF STOCKHOLDERS' EQUITY
YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995
<TABLE>
<CAPTION>
COMMON STOCK
---------------------- RETAINED
OUTSTANDING EARNINGS
SHARES AMOUNT SURPLUS (DEFICIT) TOTAL
----------- -------- ---------- ---------- -----------
<S> <C> <C> <C> <C> <C>
Balance, December 31, 1994............ 500,000 $500,000 $4,500,000 $ (275,713) $ 4,724,287
Exercise of warrants (Note 10)...... 151,617 151,617 1,667,787 -- 1,819,404
Net loss............................ -- -- -- (237,142) (237,142)
------- -------- ---------- ---------- -----------
Balance, December 31, 1995............ 651,617 651,617 6,167,787 (512,855) 6,306,549
Exercise of warrants (Note 10)...... 190,540 190,540 2,095,940 -- 2,286,480
Net income.......................... -- -- -- 729,064 729,064
------- -------- ---------- ---------- -----------
Balance, December 31, 1996............ 842,157 842,157 8,263,727 216,209 9,322,093
Net income.......................... -- -- -- 967,436 967,436
------- -------- ---------- ---------- -----------
Balance, December 31, 1997............ 842,157 $842,157 $8,263,727 $1,183,645 $10,289,529
======= ======== ========== ========== ===========
</TABLE>
See Notes to Financial Statements.
F-5
<PAGE> 84
COMMERCIAL BANK OF NEVADA
STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995
<TABLE>
<CAPTION>
1997 1996 1995
------------ ------------ ------------
<S> <C> <C> <C>
Cash Flows from Operating Activities:
Net income (loss).................................. $ 967,436 $ 729,064 $ (237,142)
Adjustments to reconcile net income (loss) to net
cash provided by (used in) operating activities:
Depreciation and amortization................... 234,566 136,310 118,825
Provision for loan losses....................... 874,362 343,592 192,200
Deferred taxes.................................. (9,000) (71,000) --
(Increase) in accrued interest receivable and
other assets.................................. (507,847) (58,030) (68,444)
Increase (decrease) in accrued interest and
other liabilities............................. 843,531 282,263 (23,555)
------------ ------------ ------------
Net cash provided by (used in) operating
activities............................... 2,403,048 1,362,199 (18,116)
------------ ------------ ------------
Cash Flows from Investing Activities:
Purchase of securities held-to-maturity............ (21,241,558) (1,495,000) (8,469,547)
Proceeds from maturities of securities
held-to-maturity................................ 14,685,061 2,927,379 6,800,000
Purchase of interest-bearing deposits.............. (3,550,000) (1,000,000) (1,000,000)
Maturity of interest-bearing deposits.............. 1,000,000 1,000,000 --
Net increase in loans receivable................... (47,445,195) (20,935,141) (14,229,639)
Purchase of bank premises and equipment............ (1,565,104) (191,994) (120,808)
------------ ------------ ------------
Net cash used in investing activities...... (58,116,796) (19,694,756) (17,019,994)
------------ ------------ ------------
Cash Flows from Financing Activities:
Net increase in deposits........................... 48,964,404 35,743,358 16,530,030
Proceeds from exercise of stock warrants........... -- 2,286,480 1,819,404
------------ ------------ ------------
Net cash provided by financing
activities............................... 48,964,404 38,029,838 18,349,434
------------ ------------ ------------
Increase (decrease) in cash and cash
equivalents.............................. (6,749,344) 19,697,281 1,311,324
Cash and cash equivalents, beginning of year......... 27,235,387 7,538,106 6,226,782
------------ ------------ ------------
Cash and cash equivalents, end of year............... $ 20,486,043 $ 27,235,387 $ 7,538,106
============ ============ ============
Supplemental Disclosure of Cash Flow Information
Cash payments for:
Interest........................................ $ 2,846,616 $ 987,126 $ 286,076
============ ============ ============
Income taxes.................................... $ 254,512 $ 63,500 $ --
============ ============ ============
</TABLE>
See Notes to Financial Statements.
F-6
<PAGE> 85
COMMERCIAL BANK OF NEVADA
NOTES TO FINANCIAL STATEMENTS
NOTE 1. NATURE OF BANKING ACTIVITIES AND SIGNIFICANT ACCOUNTING POLICIES
Nature of operations
Commercial Bank of Nevada (the Bank) provides a full range of banking
services to its commercial and consumer customers through two branches located
in the Las Vegas, Nevada metropolitan area.
The Bank grants commercial, construction, residential and consumer loans to
customers. The Bank's business is concentrated in Southern Nevada, and the loan
portfolio includes a significant credit exposure to the real estate industry of
this area. As of December 31, 1997, real estate loans accounted for
approximately 71% of total loans. Substantially all of these loans are secured
by first liens with an initial loan to value ratio of generally not more than
75%. In addition, approximately 35% of commercial loans are unsecured. The loans
are expected to be repaid from cash flows or proceeds from the sale of selected
assets of the borrowers. The Bank's policy for requiring collateral is to obtain
collateral whenever it is available or desirable, depending upon the degree of
risk the Bank is willing to take.
A summary of the Bank's significant accounting policies follows:
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
disclosures 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.
Cash and cash equivalents
For purposes of reporting cash flows, cash and cash equivalents includes
cash on hand, amounts due from banks (including cash items in process of
clearing) and federal funds sold. Cash flows from loans originated by the Bank
and deposits are reported net.
The Bank maintains amounts due from banks which, at times, may exceed
federally insured limits. The Bank has not experienced any losses in such
accounts.
Securities held-to-maturity
Securities classified as held-to-maturity are those debt securities the
Bank has both the intent and ability to hold to maturity regardless of changes
in market conditions, liquidity needs or changes in general economic conditions.
These securities are carried at cost adjusted for amortization of premiums and
accretion of discounts that are recognized in interest income, computed by the
interest method over their contractual lives.
The sale of a security within three months of its maturity date or after at
least 85% of the principal outstanding has been collected is considered a
maturity for purposes of classification and disclosure.
Loans receivable
Loans receivable are stated at the amount of unpaid principal, reduced by
unearned fees and an allowance for loan losses.
The allowance for loan losses is established through a provision for loan
losses charged to expense. Loans are charged against the allowance for loan
losses when management believes that collectibility of the principal is
unlikely. The allowance is an amount that management believes will be adequate
to absorb estimated losses on existing loans that may become uncollectible,
based on evaluation of the collectibility of loans and prior
F-7
<PAGE> 86
COMMERCIAL BANK OF NEVADA
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
loan loss experience. This evaluation also takes into consideration such factors
as changes in the nature and volume of the loan portfolio, overall portfolio
quality, review of specific problem loans, and current economic conditions that
may affect the borrower's ability to pay. While management uses the best
information available to make its evaluation, future adjustments to the
allowance may be necessary if there are significant changes in economic or other
conditions. In addition, the Federal Deposit Insurance Corporation (FDIC) and
the Financial Institutions Division of the Department of Business and Industry
of the State of Nevada, as an integral part of their examination processes,
periodically review the Bank's allowance for loan losses, and may require the
Bank to make additions to the allowance based on their judgment about
information available to them at the time of their examinations.
Impaired loans are measured based on the present value of expected future
cash flows discounted at the loan's effective interest rate or, as a practical
expedient, at the loan's observable market price or the fair value of the
collateral if the loan is collateral dependent. A loan is impaired when it is
probable the Bank will be unable to collect all contractual principal and
interest payments due in accordance with the terms of the loan agreement. The
amount of impairment, if any, and any subsequent changes are included in the
allowance for loan losses.
Interest and fees on loans
Interest on loans is recognized over the terms of the loans and is
calculated under the effective interest method. The accrual of interest on
impaired loans is discontinued when, in management's opinion, the borrower may
be unable to meet payments as they become due. When interest accrual is
discontinued, all unpaid accrued interest is reversed. Interest income is
subsequently recognized only to the extent cash payments are received.
Loan origination and commitment fees and certain direct loan origination
costs are deferred and the net amount amortized as an adjustment of the related
loan's yield. The Bank is generally amortizing these amounts over the
contractual life.
As a service for customers, the Bank has entered into agreements with
unaffiliated mortgage companies to complete applications, loan documents and
perform pre-underwriting activities for long-term residential mortgages. The
mortgage loan pre-underwriting fees from these agreements are recognized as
income when received.
Bank premises and equipment
Bank premises and equipment are stated at cost less accumulated
depreciation and amortization. Depreciation is computed using the straight-line
method over the estimated useful lives of the assets. Improvements to leased
property are amortized over the lesser of the term of the lease or life of the
improvements.
Organizational expenses
Certain organizational expenses have been capitalized and included in other
assets. These assets are being amortized using the straight-line method over 60
months.
Income taxes
Deferred taxes are provided on a liability method whereby deferred tax
assets are recognized for deductible temporary differences and operating loss
and tax credit carryforwards and deferred tax liabilities are recognized for
taxable temporary differences. Temporary differences are the differences between
the reported amounts of assets and liabilities and their tax bases. Deferred tax
assets are reduced by a valuation allowance when, in the opinion of management,
it is more likely than not that some portion or all of the deferred tax
F-8
<PAGE> 87
COMMERCIAL BANK OF NEVADA
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
assets will not be realized. Deferred tax assets and liabilities are adjusted
for the effects of changes in tax laws and rates on the date of enactment.
Off-balance-sheet instruments
In the ordinary 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 statement when they are
funded.
Earnings (loss) per share
Basic earnings (loss) per share has been computed on the weighted average
number of shares outstanding for 1997, 1996 and 1995 of 842,157, 658,452 and
508,088, respectively. Pursuant to FASB Statement No. 128, Earnings per Share,
no adjustment is made to the weighted average shares in 1995 for diluted
earnings per share purposes since the Bank reported a net loss and common stock
equivalents would result in anti-dilutive per share amounts. The incremental
shares attributed to outstanding warrants during 1996 was 34,038 under the
treasury stock method resulting in adjusted weighted average number of shares of
692,490. There were no common stock equivalents outstanding during 1997.
Fair values of financial instruments
FASB Statement No. 107, Disclosures About Fair Value of Financial
Instruments, requires disclosure of fair value information about financial
instruments, whether or not recognized in the balance sheet, for which it is
practicable to estimate that value.
Management uses its best judgment in estimating the fair value of the
Bank's financial instruments; however, there are inherent weaknesses in any
estimation technique. Therefore, for substantially all financial instruments,
the fair value estimates presented herein are not necessarily indicative of the
amounts the Bank could have realized in a sales transaction at December 31,
1997. The estimated fair value amounts for 1997 have been measured as of its
year end, and have not been reevaluated or updated for purposes of these
financial statements subsequent to that date. As such, the estimated fair values
of these financial instruments subsequent to the reporting date may be different
than the amounts reported at year end.
The information in Note 14 should not be interpreted as an estimate of the
fair value of the entire Bank since a fair value calculation is only required
for a limited portion of the Bank's assets.
Due to the wide range of valuation techniques and the degree of
subjectivity used in making the estimate, comparisons between the Bank's
disclosures and those of other companies or banks may not be meaningful.
The following methods and assumptions were used by the Bank in estimating
the fair values of its financial instruments:
Cash and cash equivalents and interest-bearing deposits in other financial
institutions
The carrying amounts reported in the balance sheet for cash and due
from banks, federal funds sold and interest-bearing deposits in other
financial institutions approximate their fair value.
Securities held-to-maturity
Fair value for securities held-to-maturity is based on quoted market
prices where available or on quoted markets for similar securities in the
absence of quoted prices on the specific security.
Loans receivable
For variable rate loans that reprice frequently and that have
experienced no significant change in credit risk, fair value is based on
carrying value. Variable rate loans comprised approximately 79% of the loan
portfolio at December 31, 1997. Fair value of all other loans is estimated
based on discounted cash flows using interest rates currently being offered
for loans with similar terms to borrowers with similar
F-9
<PAGE> 88
COMMERCIAL BANK OF NEVADA
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
credit quality. Prepayments prior to the repricing date are not expected to
be significant. Loans are expected to be held to maturity and any
unrealized gains or losses are not expected to be realized.
Accrued interest receivable and payable
The carrying amounts reported in the balance sheet for accrued
interest receivable and payable approximate their fair value.
Deposit liabilities
The fair value disclosed for demand deposits approximate their
carrying amounts which represent the amount payable on demand. The carrying
amount for variable rate certificates of deposit approximate their fair
value. Fair values for fixed rate certificates of deposit are estimated
using a discounted cash flow calculation that applies interest rates
currently being offered on certificates of deposit to a schedule of
aggregated expected monthly maturities on time deposits. Substantially all
of the Bank's certificates of deposit at December 31, 1997 mature in less
than one year. Early withdrawals of fixed rate certificates of deposit are
not expected to be significant.
Off-balance-sheet instruments
Fair value for off-balance-sheet instruments (lending commitments and
standby letters of credit) are based on quoted fees currently charged to
enter into similar agreements, taking into account the remaining terms of
the agreements and the counterparties' credit standing.
Current accounting development
The FASB issued Statement No. 131 Disclosures about Segments of an
Enterprise and Related Information. Statement No. 131 modifies the disclosure
requirements for reportable segments and is effective for the Bank's year ending
after December 31, 1997. The Bank has not determined the effect of the adoption
of this Statement would have on the Bank's financial statements.
NOTE 2. RESTRICTIONS ON CASH AND DUE FROM BANKS
The Bank is required to maintain reserve balances in cash or on deposit
with the Federal Reserve Bank. The total of these reserve balances was
approximately $384,000 at December 31, 1997.
NOTE 3. SECURITIES HELD-TO-MATURITY
Carrying amounts and estimated fair values of securities held-to-maturity
as of December 31 are summarized as follows:
<TABLE>
<CAPTION>
1997
---------------------------------------------------
AMORTIZED UNREALIZED UNREALIZED FAIR
COST GAINS (LOSSES) VALUES
----------- ---------- ---------- -----------
<S> <C> <C> <C> <C>
U. S. Government agencies................ $ 8,649,611 $10,059 $(3,939) $ 8,655,731
Municipal bonds.......................... 1,209,935 36,415 -- 1,246,350
Small Business Administration loan
pool................................... 308,028 -- (2,631) 305,397
----------- ------- ------- -----------
$10,167,574 $46,474 $(6,570) $10,207,478
=========== ======= ======= ===========
</TABLE>
F-10
<PAGE> 89
COMMERCIAL BANK OF NEVADA
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
<TABLE>
<CAPTION>
1996
-------------------------------------------------
AMORTIZED UNREALIZED UNREALIZED FAIR
COST GAINS (LOSSES) VALUES
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
U. S. Government agencies................. $2,499,808 $ 1,490 $(2,662) $2,498,636
Municipal bonds........................... 245,000 -- -- 245,000
Small Business Administration loan pool... 866,269 32,918 -- 899,187
---------- ------- ------- ----------
$3,611,077 $34,408 $(2,662) $3,642,823
========== ======= ======= ==========
</TABLE>
Securities held-to-maturity with carrying amounts of $1,558,028 and
$866,269 at December 31, 1997 and 1996, respectively, were pledged as collateral
on a line of credit or for other purposes as required or permitted by law.
The amortized cost and fair value of securities held-to-maturity as of
December 31, 1997 by contractual maturities are shown below. Maturities may
differ from contractual maturities in the Small Business Administration (SBA)
loan pool because the loans underlying the security may be repaid without any
penalties. Therefore, this security is listed separately in the maturity
summary.
<TABLE>
<CAPTION>
AMORTIZED FAIR
COST VALUE
----------- -----------
<S> <C> <C>
Due in one year or less..................................... $ 900,730 $ 897,343
Due after one year through five years....................... 5,293,966 5,298,375
Due after five years through ten years...................... 2,699,915 2,712,739
Due after ten years......................................... 964,935 993,624
SBA loan pool............................................... 308,028 305,397
----------- -----------
$10,167,574 $10,207,478
=========== ===========
</TABLE>
No sales of securities, or realized gains or losses, were recorded during
the years ended December 31, 1997, 1996 and 1995.
NOTE 4. LOANS RECEIVABLE
The composition of the Bank's loan portfolio as of December 31 is as
follows:
<TABLE>
<CAPTION>
1997 1996
----------- -----------
<S> <C> <C>
Commercial, financial and industrial........................ $23,269,550 $13,208,024
Real estate:
Construction and land development......................... 28,933,000 12,994,000
Commercial................................................ 22,554,000 6,966,000
Residential............................................... 8,463,000 2,473,000
Consumer installment........................................ 1,532,000 1,702,000
----------- -----------
84,751,550 37,343,024
Less:
Allowance for loan losses................................. (1,066,970) (554,000)
Unearned net loan fees.................................... (643,608) (318,885)
----------- -----------
$83,040,972 $36,470,139
=========== ===========
</TABLE>
As of December 31, 1997 and 1996, the Bank had no loans which were
classified as impaired loans.
F-11
<PAGE> 90
COMMERCIAL BANK OF NEVADA
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 5. ALLOWANCE FOR LOAN LOSSES
Changes in the allowance for loan losses for the years ended December 31
are as follows:
<TABLE>
<CAPTION>
1997 1996 1995
---------- -------- --------
<S> <C> <C> <C>
Balance, beginning.................................... $ 554,000 $214,840 $ 22,640
Provision charged to operating expense.............. 874,362 343,592 192,200
Amounts charged off, net of recoveries.............. (361,392) (4,432) --
---------- -------- --------
Balance, ending....................................... $1,066,970 $554,000 $214,840
========== ======== ========
</TABLE>
NOTE 6. BANK PREMISES AND EQUIPMENT
The major classes of bank premises and equipment and the total accumulated
depreciation and amortization as of December 31 are as follows:
<TABLE>
<CAPTION>
1997 1996
---------- ---------
<S> <C> <C>
Land........................................................ $ 425,000 $ --
Equipment and furniture..................................... 1,048,827 570,020
Building and leasehold improvements......................... 746,116 121,016
Automobiles................................................. 76,411 52,476
---------- ---------
2,296,354 743,512
Less accumulated depreciation and amortization.............. (416,844) (220,040)
---------- ---------
$1,879,510 $ 523,472
========== =========
</TABLE>
NOTE 7. INCOME TAX MATTERS
The cumulative tax effects of the primary temporary differences as of
December 31 are shown in the following table:
<TABLE>
<CAPTION>
1997 1996
--------- --------
<S> <C> <C>
Deferred tax asset, allowance for loan losses............... $ 277,000 $146,000
--------- --------
Deferred tax liabilities:
Premises and equipment.................................... (46,000) (31,000)
Other..................................................... (151,000) (44,000)
--------- --------
Total deferred tax liabilities.............................. (197,000) (75,000)
--------- --------
Net deferred tax asset...................................... $ 80,000 $ 71,000
========= ========
</TABLE>
At December 31, 1997 and 1996, no valuation allowance was considered
necessary as management believes it is more likely than not that the deferred
tax assets will be realized due to taxes paid in prior years or future
operations.
The provision for income taxes charged to operations for the years ended
December 31 consist of the following:
<TABLE>
<CAPTION>
1997 1996 1995
-------- -------- --------
<S> <C> <C> <C>
Current tax expense.................................... $516,200 $163,500 $ --
Deferred tax (credit).................................. (9,000) (71,000) --
-------- -------- --------
$507,200 $ 92,500 $ --
======== ======== ========
</TABLE>
F-12
<PAGE> 91
COMMERCIAL BANK OF NEVADA
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
The income tax provision differs from the amount of income tax determined
by applying the U.S. Federal income tax rate of 34% to pretax income for the
years ended December 31, as follows:
<TABLE>
<CAPTION>
1997 1996 1995
-------- --------- --------
<S> <C> <C> <C>
Computed "expected" tax expense....................... $501,400 $ 279,300 $(80,600)
Increase (decrease) in income taxes resulting from:
Change in valuation allowance....................... -- (176,000) 78,000
Other............................................... 5,800 (10,800) 2,600
-------- --------- --------
$507,200 $ 92,500 $ --
======== ========= ========
</TABLE>
NOTE 8. FEDERAL FUNDS LINES
The Bank has entered into agreements under which it can borrow up to
$5,600,000 of federal funds purchased. The interest rate charged on borrowings
is determined by the lending institutions at the time of borrowings. A
$1,000,000 line is secured by the Small Business Administration loan pool with
an amortized cost of approximately $308,000 at December 31, 1997. The $4,600,000
line is unsecured. The agreements can be terminated by the lending institutions
at any time. There was no balance outstanding at December 31, 1997 or 1996,
respectively.
NOTE 9. COMMITMENTS AND CONTINGENCIES
Financial instruments with off-balance-sheet risk
The Bank is party to financial instruments with off-balance-sheet risk in
the normal course of business to meet the financing needs of its customers.
These financial instruments include commitments to extend credit and standby
letters of credit. They involve, to varying degrees, elements of credit risk in
excess of amounts recognized on the balance sheets.
The Bank's exposure to credit loss in the event of nonperformance by the
other parties to the financial instrument for these commitments is represented
by the contractual amounts of those instruments. The Bank uses the same credit
policies in making commitments and conditional obligations as it does for
on-balance-sheet instruments.
A summary of the contract amount of the Bank's exposure to
off-balance-sheet risk as of December 31 is as follows:
<TABLE>
<CAPTION>
1997 1996
----------- -----------
<S> <C> <C>
Commitments to extend credit............................... $34,319,000 $20,221,000
Unsecured credit card commitments.......................... 497,000 256,000
Standby letters of credit.................................. 296,000 50,000
----------- -----------
$35,112,000 $20,527,000
=========== ===========
</TABLE>
Commitments to extend credit
Commitments to extend credit are agreements to lend to a customer as long
as there is no violation of any condition established in the contract.
Commitments generally have fixed expiration dates or other termination clauses
and may require payment of a fee. Since many of the commitments are expected to
expire without being drawn upon, the total commitment amounts do not necessarily
represent future cash requirements. The Bank evaluates each customer's
creditworthiness on a case-by-case basis. The amount of collateral obtained, if
deemed necessary by the Bank upon extension of credit, is based on management's
credit evaluation of the party. Collateral held varies, but may include accounts
receivable, inventory, property
F-13
<PAGE> 92
COMMERCIAL BANK OF NEVADA
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
and equipment, residential real estate and income-producing commercial
properties. Commitments to extend credit includes approximately $5,328,000 in
unsecured commitments as of December 31, 1997.
Standby letters of credit
Standby letters of credit are conditional commitments issued by the Bank to
guarantee the performance of a customer to a third party. Those guarantees are
primarily issued to support public and private borrowing arrangements. The
credit risk involved in issuing letters of credit is essentially the same as
that involved in extending loan facilities to customers. Collateral held varies
as specified above and is required as the Bank deems necessary.
Lease commitments
The Bank leases certain premises under noncancelable operating leases
expiring from February 1999 to June 2001 from an entity owned by a shareholder
of the Bank. Included in the schedule below is the Bank's operating lease for
its third branch, which opened in the first quarter of 1998, of which payments
began in January 1998 and expire in December 2012. The following is a schedule
of future minimum rental payments under these leases at December 31, 1997:
<TABLE>
<CAPTION>
RELATED
PARTY OTHER TOTAL
---------- ---------- ----------
<S> <C> <C> <C>
1998............................................... $ 249,178 $ 149,000 $ 398,178
1999............................................... 154,374 149,000 303,374
2000............................................... 139,462 149,000 288,462
2001............................................... 71,562 149,000 220,562
2002............................................... -- 149,000 149,000
Thereafter......................................... -- 1,842,013 1,842,013
---------- ---------- ----------
Total.................................... $ 614,576 $2,587,013 $3,201,589
========== ========== ==========
</TABLE>
Rental expense from these operating leases for the years ended December 31,
1997, 1996 and 1995, was approximately $203,000, $160,000 and $118,000,
respectively.
Concentration by institution
The Bank has a concentration of funds on deposit at Zion's First National
Bank (Zion's), First USA Bank (First USA) and First Security Bank (First
Security) at December 31, 1997 as follows:
<TABLE>
<CAPTION>
ZION'S FIRST USA FIRST SECURITY
---------- ---------- --------------
<S> <C> <C> <C>
Federal funds sold................................ $8,400,000 $5,000,000 $ --
Due from banks.................................... 598,000 -- 917,000
Interest-bearing deposits......................... -- 500,000 3,000,000
---------- ---------- ----------
$8,998,000 $5,500,000 $3,917,000
========== ========== ==========
</TABLE>
F-14
<PAGE> 93
COMMERCIAL BANK OF NEVADA
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 10. STOCK WARRANTS
During the years ended December 31, 1996 and 1995, the Bank issued shares
of common stock upon the exercise of certain warrants. The following is a
summary of warrant activity for the years ended December 31, 1996 and 1995:
<TABLE>
<CAPTION>
EXERCISE
WARRANTS PRICE
-------- --------
<S> <C> <C>
Outstanding at December 31, 1994............................ 500,000 $12.00
Exercised................................................. 151,617 12.00
Expired................................................... 98,383 12.00
-------
Outstanding at December 31, 1995............................ 250,000 12.00
Exercised................................................. 190,540 12.00
Expired................................................... 59,460 12.00
-------
Outstanding at December 31, 1996............................ -- --
=======
</TABLE>
NOTE 11. REGULATORY CAPITAL
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 possibly 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.
As of December 31, 1997, the most recent notification from the FDIC
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 below. There are no conditions or events since that
notification that management believes have changed the Bank's category.
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.
F-15
<PAGE> 94
COMMERCIAL BANK OF NEVADA
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
At December 31, 1997 and 1996, the Bank's actual capital amounts and ratios
are presented in the following table:
<TABLE>
<CAPTION>
TO BE WELL
FOR CAPITAL CAPITALIZED UNDER
ADEQUACY PROMPT CORRECTIVE
ACTUAL PURPOSES ACTION PROVISIONS
------------------- ------------------ ------------------
AMOUNT RATIO AMOUNT RATIO AMOUNT RATIO
----------- ----- ---------- ----- ---------- -----
<S> <C> <C> <C> <C> <C> <C>
As of December 31, 1997:
Total Capital (to Risk-Weighted
Assets)....................... $11,310,000 12.4% $7,325,000 8.0% $9,157,000 10.0%
Tier I Capital (to Risk-Weighted
Assets)....................... 10,243,000 11.2 3,663,000 4.0 5,494,000 6.0
Tier I Capital (to Average
Assets)....................... 10,243,000 9.3 4,403,000 4.0 5,504,000 5.0
As of December 31, 1996:
Total Capital (to Risk-Weighted
Assets)....................... $ 9,827,000 21.7% $3,621,000 8.0% $4,527,000 10.0%
Tier I Capital (to Risk-Weighted
Assets)....................... 9,273,000 20.5 1,811,000 4.0 2,716,000 6.0
Tier I Capital (to Average
Assets)....................... 9,273,000 15.8 2,354,000 4.0 2,943,000 5.0
</TABLE>
Additionally, State of Nevada banking regulations restrict distribution of
the net assets of the Bank because such regulations require the sum of the
Bank's stockholders' equity and reserve for loan losses to be at least 6% of the
average of the Bank's total daily deposit liabilities for the preceding 60 days.
As a result of these regulations, approximately $6,066,000 and $3,324,000 of the
Bank's stockholders' equity was restricted at December 31, 1997 and 1996,
respectively.
NOTE 12. 401(K) PLAN
The Bank adopted a qualified 401(k) plan in April 1997 for all employees
who have completed one year of service and have attained the age of 21.
Participants are able to defer between 1% and 15% of their annual compensation.
The Bank contributes matching funds (100% of the first 3% deferred up to $1,500
per eligible employee) which amounted to approximately $29,000 in 1997.
NOTE 13. LOANS AND OTHER TRANSACTIONS WITH RELATED PARTIES
Stockholders of the Bank and officers and directors, including their
families and companies of which they are principal owners, are considered to be
related parties. These related parties were loan customers of, and had other
transactions with, the Bank in the ordinary course of business. In management's
opinion, these loans and transactions were on the same terms as those for
comparable loans and transactions with nonrelated parties.
The aggregate activity in such loans for the years ended December 31 is as
follows:
<TABLE>
<CAPTION>
1997 1996 1995
----------- ---------- ---------
<S> <C> <C> <C>
Balance, beginning........................................ $ 2,110,000 $ 352,000 $ --
New loans, including renewals........................... 5,316,000 2,402,000 543,000
Repayments.............................................. (2,078,000) (644,000) (191,000)
----------- ---------- ---------
Balance, ending........................................... $ 5,348,000 $2,110,000 $ 352,000
=========== ========== =========
</TABLE>
F-16
<PAGE> 95
COMMERCIAL BANK OF NEVADA
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 14. FAIR VALUE OF FINANCIAL INSTRUMENTS
The estimated fair value of the Bank's financial instruments at December
31, 1997 is as follows:
<TABLE>
<CAPTION>
CARRYING FAIR
AMOUNT VALUE
------------ ------------
<S> <C> <C>
Financial assets:
Cash and due from banks................................. $ 7,086,043 $ 7,086,043
Federal funds sold...................................... 13,400,000 13,400,000
Interest-bearing deposits in other financial
institutions......................................... 3,550,000 3,550,000
Securities held-to-maturity............................. 10,167,574 10,207,478
Loans receivable, net................................... 83,040,972 83,040,972
Accrued interest receivable............................. 642,885 642,885
Financial liabilities:
Deposits................................................ 108,660,643 109,130,431
Accrued interest payable................................ 670,324 670,324
Unrecognized financial instruments:
Commitments to extend credit............................ -- --
Standby letters of credit............................... -- --
</TABLE>
Interest rate risk
The Bank assumes interest rate risk (the risk that general interest rate
levels will change) as a result of its normal operations. As a result, the fair
values of the Bank's financial instruments will change when interest rate levels
change and that change may be either favorable or unfavorable to the Bank.
Management attempts to match maturities of assets and liabilities to the extent
believed necessary to minimize interest rate risk. However, borrowers with fixed
rate obligations are less likely to prepay in a rising rate environment and more
likely to prepay in a falling rate environment. Also, depositors who are
receiving fixed rates are more likely to withdraw funds before maturity in a
rising rate environment and less likely to do so in a falling rate environment.
Management monitors rates and maturities of assets and liabilities and attempts
to minimize interest rate risk by adjusting terms of new loans and deposits and
by investing in securities with terms that mitigate the Bank's overall interest
rate risk.
Fair value of commitments
The estimated fair value of fee income on letters of credit at December 31,
1997 is insignificant. Loan commitments on which the committed interest rate is
less than the current market rate are also insignificant at December 31, 1997.
NOTE 15. YEAR 2000 COMPLIANCE
The Bank is conducting a comprehensive review of computer systems to
identify the systems that could be affected by the Year 2000 Issue, and is
developing an implementation plan to resolve the issue.
The issue is whether computer systems will properly recognize
date-sensitive information when the year changes to 2000. Systems that do not
properly recognize such information could generate erroneous data or cause a
system to fail. The Bank is heavily dependent on computer processing in the
conduct of its business activities.
Based on the review of the computer systems, management does not believe
the cost of making the systems Year 2000 compliant will be significant to their
results of operations or financial position.
F-17
<PAGE> 96
COMMERCIAL BANK OF NEVADA
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 16. SUBSEQUENT EVENT
In February 1998, the Bank entered into an agreement and plan of merger
with The Colonial BancGroup, Inc. (Colonial). Under the terms of the agreement,
stockholders of the Bank will be entitled to shares of Colonial's common stock
in a 1 to 1 exchange ratio, which may be adjusted as defined in the agreement.
In addition, the agreement provides Colonial the right to purchase up to 19.9%
of the Bank's stock at $34 per share given the occurence of certain events which
are generally related to the potential acquisition of Commercial Bank of Nevada
by another party. The agreement is subject to the approval of the stockholders
of the Bank as well as approval of certain regulatory agencies. It is intended
that the transaction will be accounted for as a pooling of interests under
generally accepted accounting principles.
F-18
<PAGE> 97
APPENDIX A
AGREEMENT AND PLAN OF MERGER
BY AND AMONG
THE COLONIAL BANCGROUP, INC.,
COLONIAL BANK
AND
COMMERCIAL BANK OF NEVADA
DATED AS OF
FEBRUARY 25, 1998
A-1
<PAGE> 98
THIS AGREEMENT AND PLAN OF MERGER is made and entered into as of this the
25(th)day of February 1998, by and among COMMERCIAL BANK OF NEVADA ("Acquired
Bank"), a Nevada state-chartered bank, COLONIAL BANK ("Colonial Bank"), an
Alabama banking corporation and THE COLONIAL BANCGROUP, INC. ("BancGroup"), a
Delaware corporation.
WITNESSETH
WHEREAS, Acquired Bank operates as a Nevada state-chartered bank with its
principal office in Las Vegas, Nevada; and
WHEREAS, BancGroup is a bank holding company with its Subsidiary bank,
Colonial Bank, operating in Alabama, Florida, Georgia and Tennessee; and
WHEREAS, Acquired Bank wishes to merge with Colonial Bank as of the
Effective Date; and
WHEREAS, it is the intention of BancGroup, Colonial Bank and Acquired Bank
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
"Colonial Bank."
ARTICLE 2
MERGER -- TERMS AND CONDITIONS
2.1 Applicable Law. On the Effective Date, Acquired Bank shall be merged
with and into Colonial Bank (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 ABC and the ABCA and, to the extent applicable, the NBC. The
offices and facilities of Acquired Bank and of Colonial Bank shall become the
offices and facilities of the Resulting Corporation.
2.2 Corporate Existence. On the Effective Date, the corporate existence of
Acquired Bank and of Colonial Bank shall, as provided in the ABC and the ABCA
and the NBC, as applicable, be merged into and continued in the Resulting
Corporation, and the Resulting Corporation shall be deemed to be the same
corporation as Acquired Bank and Colonial Bank. All rights, franchises and
interests of Acquired Bank and Colonial Bank, respectively, in and to every type
of property (real, personal and mixed) and choses 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
Bank and Colonial Bank, 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 articles of incorporation and bylaws of Colonial Bank as they exist
immediately before the Effective Date.
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<PAGE> 99
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 Colonial Bank as of the Effective
Date.
2.5 Shareholder Approval. This Agreement shall be submitted to the
shareholders of Acquired Bank at the Shareholders 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 Bank 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 Bank or Colonial Bank, acquired
as a result of the Merger, or (ii) otherwise to carry out the purposes of this
Agreement, Colonial Bank 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 Bank or
Colonial Bank, 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 Articles of Merger to be issued by the
appropriate authority under the ABCA (such time being herein called the
"Effective Date"). Assuming all other conditions to the Closing 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 Shareholder Meeting or all required regulatory approvals under
Section 8.2, or at such other place and time that the Parties may mutually
agree.
ARTICLE 3
CONVERSION OF ACQUIRED BANK STOCK
3.1 Conversion of Acquired Bank Stock. On the Effective Date, each share
of common stock of Acquired Bank outstanding and held by Acquired Bank's
shareholders (the "Acquired Bank Stock") shall be converted by operation of law
and without any action by any holder thereof into one share of BancGroup Common
Stock (1:1 exchange ratio)(the "Merger Consideration"), provided that the Market
Value for BancGroup is not less than $30.00 per share or greater than $38.00 per
share. If the Market Value is less than $30.00, then each share of Acquired Bank
Stock outstanding at the Effective Date shall be converted into the number of
shares of BancGroup Common Stock that shall equal $30.00 divided by the Market
Value. If the Market Value is greater than $38.00, then each share of Acquired
Bank Stock shall be converted into such number of shares of BancGroup Common
Stock that shall equal $38.00 divided by the Market Value. The appropriate ratio
that is used to calculate the Merger Consideration based upon the Market Value
as set forth above is referred to as 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 NYSE on each of the ten
consecutive trading days ending on the trading day five calendar days preceding
the Effective Date. As of the date hereof, there are 842,157 shares of Acquired
Bank Stock outstanding.
3.2 Surrender of Acquired Bank Stock. After the Effective Date, each
holder of an outstanding certificate or certificates which prior thereto
represented shares of Acquired Bank 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 Bank 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,
A-3
<PAGE> 100
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 Bank 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 Bank 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 Bank 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 Bank 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 Bank 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 Bank Stock
shall be converted.
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 BancGroup after the Effective Date.
3.6 Dissenters' Rights. Any shareholder of Acquired Bank who shall not
have voted in favor of this Agreement, or who votes against this Agreement, and
who has complied with the applicable procedures set forth in the NBC, relating
to rights of dissenting shareholders, shall be entitled to receive payment for
the fair value of his Acquired Bank Stock. If after the Effective Date a
dissenting shareholder of Acquired Bank fails to perfect, or effectively
withdraws or loses, his right to appraisal and payment for his shares of
Acquired Bank Stock, BancGroup shall issue and deliver the consideration to
which such holder of shares of Acquired Bank Stock is entitled under Section 3.1
(without interest) upon surrender of such holder of the certificate or
certificates representing shares of Acquired Bank Stock held by him.
ARTICLE 4
REPRESENTATIONS, WARRANTIES AND COVENANTS OF BANCGROUP
BancGroup represents, warrants and covenants to and with Acquired Bank as
follows:
4.1 Organization. (a) 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.
(b) Colonial Bank is an Alabama state banking corporation duly organized,
validly existing and in good standing under the Laws of the State of Alabama.
Colonial Bank has the necessary corporate powers to carry on its business as
presently conducted.
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 January 22, 1998, 42,724,780 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. The shares
of BancGroup Common Stock to be issued in the Merger are duly authorized and,
A-4
<PAGE> 101
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 Bank.
(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
Bank copies of the following financial statements of BancGroup.
(i) Consolidated balance sheets as of December 31, 1995, December 31,
1996, and September 30, 1997;
(ii) Consolidated statements of operations for each of the three years
ended December 31, 1994, 1995 and 1996, and for the nine months ended
September 30, 1997;
(iii) Consolidated statements of cash flows for each of the three
years ended December 31, 1994, 1995 and 1996, and for the nine months ended
September 30, 1997; and
(iv) Consolidated statements of changes in shareholders' equity for
the three years ended December 31, 1994, 1995 and 1996, and for the nine
months ended September 30, 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
generally accepted accounting principles 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. The foregoing representations, insofar as they relate to the
unaudited interim financial statements of BancGroup for the nine months ended
September 30, 1997, are subject in all cases to normal recurring year-end
adjustments and the omission of footnote disclosure.
(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
A-5
<PAGE> 102
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 Agreements. Prior to the Effective Date, the board of
directors of Colonial Bank shall have approved this Agreement and the
transactions contemplated by it and shall have authorized the execution and
delivery of this Agreement. This Agreement constitutes the legal, valid and
binding obligation of Colonial Bank and BancGroup, enforceable against them in
accordance with its terms. Approval of this Agreement by the shareholders of
BancGroup is not required by applicable Law. Subject to the matters referred to
in section 8.2, and subject to BancGroup's board of directors' approval of the
shares to be issued in the merger, BancGroup and Colonial Bank have 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 Bank, subsequent to the Merger, and
BancGroup intends to continue the historic business of Acquired Bank.
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.
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; the banking Subsidiary 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 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
A-6
<PAGE> 103
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. To the Knowledge of
BancGroup, each of BancGroup and its Subsidiaries 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 BancGroup and its
Subsidiaries taken as a whole.
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 Shareholders' 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 Bank or any of its representatives expressly
for use in the Proxy Statement or information included in the Proxy Statement
regarding the business of Acquired Bank, its operations, Assets and capital.
4.14 SEC Filings. (a) BancGroup has heretofore delivered to Acquired Bank
copies of BancGroup's: (i) Annual Report on Form 10-K for the fiscal year ended
December 31, 1996; (ii) 1996 Annual Report to Shareholders; (iii) Quarterly
Reports on Form 10-Q for the fiscal quarters ended March 31, June 30, and
September 30, 1997; and (iv) all reports on Form 8-K, filed by BancGroup with
the SEC since December 31, 1996. 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.
(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 Shareholders 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 Bank 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.
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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 Bank 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.
4.20 Environment Laws. The officers signing this agreement are not aware
of any violation of Environment Laws which taken in the aggregate would have a
Material Adverse Effect.
ARTICLE 5
REPRESENTATIONS, WARRANTIES AND COVENANTS OF ACQUIRED BANK
Acquired Bank represents, warrants and covenants to and with BancGroup, as
follows:
5.1 Organization. Acquired Bank is a Nevada state bank. Each Acquired Bank
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 Bank consisted of 2,500,000 shares of common stock,
$1.00 par value per share, 842,157 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. Except for the foregoing,
and except for the Stock Option Agreement, Acquired Bank 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. There are no outstanding options or warrants.
5.3 Subsidiaries. Acquired Bank has no Subsidiaries.
5.4 Financial Statements; Taxes. (a) Acquired Bank has delivered to
BancGroup copies of the following financial statements of Acquired Bank:
(i) Statements of financial condition as of December 31, 1995 and
1996, and as of September 30, 1997;
(ii) Statements of income for each of the three years ended December
31, 1994, 1995 and 1996, and for the nine months ended September 30, 1997;
(iii) Statements of stockholders' equity for each of the three years
ended December 31, 1994, 1995, and 1996, and for the nine months ended
September 30, 1997; and
(iv) Statements of cash flows for the three years ended December 31,
1994, 1995 and 1996, and for the nine months ended September 30, 1997.
All of the foregoing financial statements are in all material respects in
accordance with the books and records of Acquired Bank and have been prepared in
accordance with generally accepted accounting principles applied on a consistent
basis throughout the periods indicated, except for changes required by GAAP, all
as
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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 Bank. Except as and to the extent reflected or reserved against in such
balance sheets (including the notes thereto), Acquired Bank 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 Bank for the periods indicated. The foregoing representations
insofar as they relate to the unaudited interim financial statements of Acquired
Bank for the nine months ended September 30, 1997, are subject in all cases to
normal recurring year-end adjustments and the omission of footnote disclosure.
(b) Except as set forth on Schedule 5.4(b), all Tax returns required to be
filed by or on behalf of Acquired Bank 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 Bank, 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 Bank
accrued for or applicable to the period ended on the dates thereof, and all
years and periods prior thereto and for which Acquired Bank 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
Bank, 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 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 Acquired Bank. Acquired Bank 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 Bank 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 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 Bank 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 Bank 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);
(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 Bank may pay cash dividends at its current rate and at times consistent
with past practice;
(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;
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(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;
(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 Bank 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 Bank 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. Except as set forth in Schedule 5.6(a), Acquired Bank has good
and marketable title to all the properties, interest in properties and Assets,
real and personal, that are material to the business of Acquired Bank, 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 Bank, the material structures
and equipment of each Acquired Bank 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 Bank Company, either as
lessor or lessee.
(c) Personal Property. Schedule 5.6(c) sets forth a depreciation schedule
of each Acquired Bank Company's fixed Assets as of September 30, 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 Bank Company. Acquired
Bank is not aware of any defects, irregularities or problems with any of its
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computer hardware or software which renders such hardware or software unable to
perform satisfactorily the tasks and functions to be performed by them in the
business of any Acquired Bank Company.
5.7 Commitments. Except as set forth in Schedule 5.7, no Acquired Bank
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 Bank Company. Complete and accurate copies of all
Contracts, plans and other items so listed have been made or will be 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 Bank 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.
5.9 Litigation. There is no Litigation (whether or not purportedly on
behalf of Acquired Bank) pending or, to the Knowledge of Acquired Bank,
threatened against or affecting any Acquired Bank Company (nor does Acquired
Bank 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 Bank,
and no Acquired Bank 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 Bank. To the
Knowledge of Acquired Bank, each Acquired Bank 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 Bank.
5.10 Material Contract Defaults. Except as disclosed on Schedule 5.10, no
Acquired Bank 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 Bank,
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 Bank Company is a party and will not conflict with any
provision of the charter or bylaws of any Acquired Bank Company.
5.12 Governmental Authorization. Each Acquired Bank Company has all
Permits that, to the Knowledge of Acquired Bank, are or will be legally required
to enable any Acquired Bank Company to conduct its business in all material
respects as now conducted by each Acquired Bank Company.
5.13 Absence of Regulatory Communications. Except as provided in Schedule
5.13, no Acquired Bank Company is subject to, nor has any Acquired Bank Company
received during the past three years, any written
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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
Bank, 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 Bank Company.
5.15 Insurance. Each Acquired Bank Company has in effect insurance
coverage and bonds with reputable insurers which, in respect to amounts, types
and risks insured, management of Acquired Bank reasonably believes to be
adequate for the type of business conducted by such company. No Acquired Bank
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 Bank 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, and except as set forth on Schedule 5.15, no Acquired Bank
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 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
Bank 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 Bank, all employee benefit plans of each
Acquired Bank 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 Bank 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 401(k) plan of Acquired Bank 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 Bank, 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 Bank
Company.
(b) To the Knowledge of Acquired Bank, no amounts payable to any employee
of any Acquired Bank 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 Agreement. To the Knowledge of Acquired Bank, 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 Bank, any
similar agreement or any voting agreement or voting trust in respect of any such
shares.
5.18 Brokers. Except as set forth in Schedule 5.18, all negotiations
relative to this Agreement and the transactions contemplated by this Agreement
have been carried on by Acquired Bank directly with BancGroup and without the
intervention of any other person, either as a result of any act of Acquired
Bank, or otherwise, in such manner as to give rise to any valid claim against
Acquired Bank for a finder's fee, brokerage commission or other like payment.
5.19 Approval of Agreements. The board of directors of Acquired Bank has
approved this Agreement and the transactions contemplated by this Agreement and
has authorized the execution and delivery by Acquired Bank of this Agreement.
Subject to the matters referred to in section 8.2, Acquired Bank has full power,
authority and legal right to enter into this Agreement, and, upon appropriate
vote of the shareholders of Acquired Bank in accordance with this Agreement,
Acquired Bank shall have full power, authority and legal right to consummate the
transactions contemplated by this Agreement.
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5.20 Disclosure. No representation or warranty, nor any statement or
certificate furnished or to be furnished to BancGroup by Acquired Bank, 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 Shareholders 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 Bank, its Assets, properties, operations, and capital
stock or to information furnished in writing by Acquired Bank 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 Bank
have been calculated in accordance with prudent and customary banking practices
and are adequate in all material respects to reflect the risk inherent in the
loans of Acquired Bank. Acquired Bank 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 Bank 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 Bank does not have in
its portfolio any loan exceeding its legal lending limit, and except as
disclosed on Schedule 5.22, Acquired Bank 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 Bank, each Acquired Bank 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 Bank has no Knowledge
that any Acquired Bank Company has not complied with all regulations and
requirements promulgated by the Occupational Safety and Health Administration
that are applicable to any Acquired Bank Company. To the Knowledge of Acquired
Bank, there is no Litigation pending or threatened with respect to any violation
or alleged violation of the Environmental Laws. To the Knowledge of Acquired
Bank, with respect to Assets of by any Acquired Bank 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 Bank Company. Acquired Bank has no
Knowledge of any facts which might suggest that any Acquired Bank 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 Bank
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
Bank, no Acquired Bank 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 Collective Bargaining. There are no labor contracts, collective
bargaining agreements, letters of undertakings or other arrangements, formal or
informal, between any Acquired Bank Company and any union or labor organization
covering any of Acquired Bank Company's employees and none of said employees are
represented by any union or labor organization.
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5.25 Labor Disputes. To the Knowledge of Acquired Bank, each Acquired Bank
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 Bank Company is or has been engaged in any unfair labor
practice, and, to the Knowledge of Acquired Bank, no unfair labor practice
complaint against any Acquired Bank Company is pending before the National Labor
Relations Board. Relations between management of each Acquired Bank Company and
the employees are amicable and there have not been, nor to the Knowledge of
Acquired Bank, are there presently, any attempts to organize employees, nor to
the Knowledge of Acquired Bank, are there plans for any such attempts.
5.26 Derivative Contracts. No Acquired Bank 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 currency protection
contract or derivative security not included in Acquired Bank's financial
statements delivered under section 5.4 hereof which is a financial derivative
contract (including various combinations thereof).
ARTICLE 6
ADDITIONAL COVENANTS
6.1 Additional Covenants of BancGroup. BancGroup covenants to and with
Acquired Bank as follows:
(a) Registration Statement and Other Filings. Provided that Acquired
Bank cooperates fully and supplies all requested relevant information on a
timely basis, BancGroup shall as soon as reasonably practicable 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 Bank 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. BancGroup shall provide to
counsel for Acquired Bank (i) copies of drafts of all filings made pursuant
to this section 6.1(a) in advance of filing, (ii) copies of documents as
filed, and (iii) copies of any correspondence between BancGroup and any
Agencies, including the SEC, respecting the filings made pursuant to this
section 6.1(a).
(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 Bank:
(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
(iv) With reasonable promptness, such additional financial data as
Acquired Bank may reasonably request.
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(d) No Control of Acquired Bank by BancGroup. Notwithstanding any
other provision hereof, until the Effective Date, the authority to
establish and implement the business policies of Acquired Bank shall
continue to reside solely in Acquired Bank'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. (i) On the Effective Date, all
employees of any Acquired Bank 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 Bank
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 Bank 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 Bank 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 Bank 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 any group health plan of the Resulting Corporation
and its Subsidiaries, each such Acquired Bank Company employee shall be
given credit for covered expenses paid by that employee under comparable
employee benefit plans of the Acquired Bank 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 two 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
Bank (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 Bank and applicable 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 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
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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 Bank, such director
or officer of the Acquired Bank 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 Bank. In the letter, the directors or officers shall: (i)
acknowledge the assumption by BancGroup as of the Effective Date of all
Liability (to the extent Acquired Bank 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 Bank;
(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 Bank 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 Bank Company after the date of the letter.
(iv) Acquired Bank 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 Bank. Acquired Bank covenants to and
with BancGroup as follows:
(a) Operations. (i) Acquired Bank will conduct its business and the
business of each Acquired Bank 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 Bank 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 Bank 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 Bank 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 Bank 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 with the meaning
of Section 368 of the Code.
(ii) If requested by BancGroup, Acquired Bank shall use its best
efforts to cause all officers and directors that own any stock of Acquired
Bank and all other shareholders of Acquired Bank who own more than 5% of
Acquired Bank's outstanding shares of common stock, to execute an
acknowledgment that such person has no present plan, intention, or binding
commitment to sell or otherwise dispose of the BancGroup Common Stock to be
received in the Merger within twelve (12) months after the Effective Date.
(b) Shareholders Meeting; Best Efforts. Acquired Bank will cooperate
with BancGroup in the preparation of the Registration Statement and any
regulatory filings and will cause the Shareholders Meeting to be held for
the purpose of approving the Merger as soon as reasonably practicable after
the effective date of the Registration Statement, and will use its best
efforts to bring about the transactions
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contemplated by this Agreement, including shareholder approval of this
Agreement, as soon as practicable unless this Agreement is terminated as
provided herein.
(c) Prohibited Negotiations. Except with respect to this Agreement
and the transactions contemplated hereby, no Acquired Bank Company nor any
affiliate thereof nor any investment banker, attorney, accountant, or other
representative (collectively, "Representatives") retained by an Acquired
Bank 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 Bank's Board of Directors as advised in writing by
counsel to such Board of Directors, no Acquired Bank 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
Bank Company shall direct and use its reasonable efforts to cause all of
its Representatives not to engage in any of the foregoing, but Acquired
Bank 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 Bank shall promptly notify BancGroup orally
and in writing in the event that any Acquired Bank Company receives any
inquiry or proposal relating to any such Acquisition Proposal. Acquired
Bank 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.
Acquired Bank shall enter into the Stock Option Agreement with BancGroup
dated as of the date of this Agreement.
(d) Director Recommendation. The members of the Board of Directors of
Acquired Bank agree to support publicly the Merger.
(e) Shareholder Voting. Acquired Bank shall on the date of execution
of this Agreement obtain and submit to BancGroup an agreement from its
directors substantially in the form set forth in Exhibit A.
(f) Financial Statements and Monthly Status Reports. Acquired Bank
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
Bank 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 Bank 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 Bank by independent auditors in connection with
each annual, interim or special audit of the books of Acquired Bank made
by such accountants;
(iii) As soon a 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 Bank 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 ten 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 section 6.2, 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 Bank Company; (c) copies of minutes of
any meeting of the board of directors of any Acquired Bank Company and
any committee
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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 Bank 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 Bank
Company, (ii) all Executives, at all times, shall satisfy their fiduciary
duties to Acquired Bank and its Subsidiaries, and (iii) such Executives
shall not (except as required in the course of his or her employment with
any Acquired Bank 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 Bank, any
confidential information which is possessed, owned or used by or licensed
by or to any Acquired Bank Company or confidential information belonging to
third parties which any Acquired Bank 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 Bank Company.
(h) Certain Practices. (a) Beginning with the date of this Agreement,
(i) Acquired Bank shall consult with BancGroup and advise BancGroup in
advance of all of the Acquired Bank's loan requests over $100,000 or of any
other loan request outside the normal course of business, except for
single-family residential loan requests and renewals of existing loans
which do not increase the outstanding principal amount of the loan, (ii)
Acquired Bank shall furnish to BancGroup promptly upon their availability
copies of all minutes of loan committee meetings of the Bank for meetings
occurring after the date of this Agreement, and (iii) Acquired Bank will
consult with BancGroup to coordinate various business issues on a basis
mutually satisfactory to Acquired Bank and BancGroup. Acquired Bank shall
not be required to undertake any of such activities, however, except as
such activities may be in compliance with existing Law and Regulation.
ARTICLE 7
MUTUAL COVENANTS AND AGREEMENTS
7.1 Best Efforts; Cooperation. Subject to the terms and conditions herein
provided, BancGroup and Acquired Bank each agrees to use its best efforts
promptly to take, or cause to betaken, 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,
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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.
ARTICLE 8
CONDITIONS TO OBLIGATIONS OF ALL PARTIES
The obligations of BancGroup and Acquired Bank 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 Shareholders 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 Bank as is required by applicable Law
and Acquired Bank'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 Bank, 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 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 contem-
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plated 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 Bank 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 Bank; (iii) no gain or loss will be
recognized by the shareholders of Acquired Bank 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
Bank prior to the Effective Date; (iv) the basis of the BancGroup Common Stock
received in the Merger will be equal to the sum of the basis of the shares of
Acquired Bank common stock exchanged in the Merger and the amount of gain, if
any, which was recognized by the exchanging Acquired Bank 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
Bank common stock exchanged therefor if such shares of Acquired Bank common
stock were capital assets in the hands of the exchanging Acquired Bank
shareholder; and (vi) cash received by an Acquired Bank 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 Bank common stock was a capital asset in his or her hands as of the
Effective Date).
ARTICLE 9
CONDITIONS TO OBLIGATIONS OF ACQUIRED BANK
The obligations of Acquired Bank 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
Bank may waive such conditions in writing:
9.1 Representations, Warranties and Covenants. Notwithstanding any
investigation made by or on behalf of Acquired Bank, 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 Bank or its shareholders
pursuant to this Agreement.
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9.3 Closing Certificate. In addition to any other deliveries required to
be delivered hereunder, Acquired Bank 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 Bank'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 not express a
statement as to information concerning or provided by Acquired Bank 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 Bank shall have received an opinion of
Miller, Hamilton, Snider & Odom, L.L.C., counsel to BancGroup, dated as of the
Closing, reasonably acceptable to Acquired Bank and containing the legal
opinions set forth in Exhibit B hereto subject to such qualifications and
exceptions as counsel for BancGroup shall deem appropriate.
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 Bank 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 Bank 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 Bank 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
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made on and as of the Effective Date, and Acquired Bank 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
Bank which constitute a Material Adverse Effect, nor shall there have been any
material changes in the Laws governing the business of Acquired Bank 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 Bank executed by the President or Vice President and from the Secretary
or Assistant Secretary of Acquired Bank dated as of the Closing certifying that:
(a) the Board of Directors of Acquired Bank 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 Bank 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;
(c) each person executing this Agreement on behalf of Acquired Bank is
an officer of Acquired Bank 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 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 Bank'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 Bank for
inclusion in such Proxy Statement); and
(f) the conditions set forth in this Article 10 insofar as they relate
to Acquired Bank have been satisfied.
10.4 Opinion of Counsel. BancGroup shall have received an opinion of
Kolesar and Leatham, counsel to Acquired Bank, dated as of the Closing,
reasonably acceptable to BancGroup and containing the legal opinions set forth
in Exhibit C hereto subject to such qualifications and exceptions as counsel for
Acquired Bank shall deem appropriate.
10.5 Controlling Shareholders. Each shareholder of Acquired Bank who may
be an "affiliate" of Acquired Bank, 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 or she 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 Bank 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 Bank and copies
of such other documents as such counsel may reasonably have requested for such
purpose.
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10.7 Dissenters. The number of shares as to which shareholders of Acquired
Bank have exercised dissenters rights of appraisal under section 3.6 does not
exceed 10% of the outstanding shares of common stock of Acquired Bank.
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 Interests. 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 Employment Agreement. Employment Agreements, in form and substance
reasonably satisfactorily to BancGroup, shall have been executed by John Gaynor
and Richard Helgren.
10.11 Non Compete Agreement. Certain key employees selected by Acquired
Bank's President and approved by BancGroup shall, 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. In consideration
for this agreement the key employees shall each receive compensation which shall
not exceed in the aggregate $200,000. The amount of such compensation which each
key employee is to receive shall be proposed (within thirty (30) days of the
execution of this Agreement) by the Acquired Bank's President subject to the
approval of BancGroup, provided that no one such key employee shall receive more
that 50% of the aggregate compensation.
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 sentences of Sections 7.4 and 6.2(c), and Sections 7.2, 13.3, Article
11, Article 12, Article 15, any applicable definitions of Article 14, 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. Information provided
in such Exhibits and Schedules is provided only in response to the specific
section of this Agreement which calls for such information.
ARTICLE 12
NOTICES
All notices or other communications which are required or permitted
hereunder shall be in writing and 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 Bank to John Gaynor, at Commercial Bank of Nevada,
2820 West Charleston Boulevard, Las Vegas, Nevada 89102, facsimile
702-877-1174, with copies to Mark Haynie, 14651 Dallas Parkway, Suite 136,
Dallas, Texas 75240, facsimile 972-716-1850, or as may otherwise be
specified by Acquired Bank in writing to BancGroup.
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(b) If to BancGroup, to W. Flake Oakley, IV and William A. McCrary,
One Commerce Street, Suite 803, Montgomery, Alabama, 36104, facsimile (334)
240-5069, with a copy to Willard H. Henson, Miller, Hamilton, Snider &
Odom, L.L.C., One Commerce Street, Suite 802, Montgomery, Alabama 36104,
facsimile (334) 265-4533, or as may otherwise be specified in writing by
BancGroup to Acquired Bank.
ARTICLE 13
AMENDMENT OR TERMINATION
13.1 Amendment. This Agreement may be amended by the mutual consent of
BancGroup and Acquired Bank before or after approval of the transactions
contemplated herein by the shareholders of Acquired Bank.
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 Bank, as follows:
(a) by the mutual consent of the respective boards of directors of
Acquired Bank 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 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 Bank;
(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 Bank or
Article 10 as to BancGroup shall not have been satisfied in full;
(d) by the board of directors of either BancGroup or Acquired Bank if
all transactions contemplated by this Agreement shall not have been
consummated on or prior to September 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); or
13.3 Damages. In the event of termination pursuant to section 13.2, this
Agreement shall become void and have no effect, except as provided in Article 11
and except that Acquired Bank and BancGroup shall be liable for damages for any
willful 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:
ABC........................ The Alabama Banking Code.
ABCA....................... The Alabama Business Corporation Act.
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Acquired Bank.............. Commercial Bank of Nevada, a Nevada state bank.
Acquired Bank Company...... Shall mean Acquired Bank, any Subsidiary of
Acquired Bank, or any person or entity acquired as
a Subsidiary of Acquired Bank in the future and
owned by Acquired Bank at the Effective Date.
Acquired Bank Stock........ Shares of common stock, par value $1.00 per share,
of Acquired Bank.
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 Subsidiaries or the acquisition
of a substantial equity interest in, or a
substantial portion of the assets of, such Party or
any of its Subsidiaries.
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.
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.
Colonial Bank.............. An Alabama state banking corporation which is a
wholly owned subsidiary of BancGroup.
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
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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.
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 as set forth in Section 3.1(a).
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.
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 Bank, in the case of
knowledge of Acquired Bank.
Law........................ Any code, law, ordinance, regulation, reporting or
licensing requirement, rule, or statute applicable
to a Person or its Assets, Liabilities or business,
including those promulgated, interpreted or
enforced by any Agency.
Liability.................. Any direct or indirect, primary or secondary,
liability, indebtedness, obligation, penalty, cost
or expense (including 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
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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 relating to or affecting a Party,
its business, its Assets (including Contracts
related to it), or the transactions contemplated by
this Agreement, but shall not include regular,
periodic examinations of depository institutions
and their Affiliates by Regulatory Authorities,
relating to or affecting a Party, its business, its
Assets (including Contracts related to it) or
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.
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 Bank with Colonial Bank as
contemplated in this Agreement.
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Merger Consideration....... The distribution of BancGroup Common Stock for each
share of Acquired Bank Stock (and cash for
fractional shares) as provided in section 3.1(a)
hereof.
NBC........................ The Nevada Banking Code, or where applicable, the
Nevada Corporation Code.
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 Bank, or BancGroup, and
"Parties" shall mean Acquired Bank, Colonial Bank
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 Bank 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 Bank.
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
Bank, to register the shares of BancGroup Common
Stock offered to stockholders of the Bank pursuant
to his Agreement, including the Proxy Statement.
Resulting Corporation...... Colonial Bank, as the surviving corporation
resulting from the Merger.
SEC........................ United States Securities and Exchange Commission.
Shareholders Meeting....... The special meeting of shareholders of Acquired
Bank called to approve the transactions
contemplated by this Agreement.
Stock Option Agreement..... The agreement dated as of the date hereof between
BancGroup and Acquired Bank granting to BancGroup
the right to acquire up to 19.9% of Acquired Bank
Stock.
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.
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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.
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 as the provisions of the NBC 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
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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 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 reasonable
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 Bank 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: COMMERCIAL BANK OF NEVADA
By: /s/ JOHN S. GAYNOR By: /s/ JERRY E. POLIS
------------------------------------------------ ------------------------------------------------
Its: President & CEO Its: Chairman
(CORPORATE SEAL)
ATTEST: THE COLONIAL BANCGROUP, INC.
By: /s/ GLENDA ALLRED By: /s/ W. FLAKE OAKLEY
------------------------------------------------ ------------------------------------------------
Its: Assistant Secretary Its: Chief Financial Officer
(CORPORATE SEAL)
ATTEST: COLONIAL BANK
By: /s/ GLENDA ALLRED By: /s/ W. FLAKE OAKLEY
------------------------------------------------ ------------------------------------------------
Its: Assistant Secretary Its: Chief Financial Officer
(CORPORATE SEAL)
</TABLE>
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APPENDIX B
March 30, 1998
Members of the Board of Directors
Commercial Bank of Nevada
2820 West Charleston Blvd.
Las Vegas, Nevada 89102
Members of the Board:
You have requested our opinion as investment bankers as to the fairness,
from a financial point of view, to the shareholders of Commercial Bank of
Nevada, Las Vegas, Nevada ("Bank") of the terms of the proposed merger of Bank
with and into Colonial Bank, a wholly owned subsidiary of The Colonial
BancGroup, Inc., Montgomery, Alabama ("BancGroup") as defined in the Agreement
and Plan of Merger, executed on February 25, 1998 (the "Agreement"). Pursuant to
the Agreement and subject to the terms and conditions therein, each share of
Bank Stock issued and outstanding immediately prior to the Effective Date of the
Merger shall, on and at the Effective Date of the Merger, pursuant to the
Agreement and without any further action on the part of Bank or the holders of
Bank Stock, be cancelled and cease to be an issued and outstanding share of Bank
Stock, and shall be exchanged for and converted into the right to receive one
share of BancGroup Stock, provided that the Market Value for BancGroup is not
less than $30.00 per share or greater than $38.00 per share. If the Market Value
is less than $30.00, then each share of Bank Stock outstanding at the Effective
Date shall be converted into the number of shares of BancGroup Common Stock that
shall equal $30.00 divided by the Market Value. If the Market Value is greater
than $38.00, then each share of Bank Stock shall be converted into such number
of shares of BancGroup Common Stock that shall equal $38.00 divided by the
Market Value.
As part of its investment banking business, Hoefer & Arnett, Incorporated
is continually engaged in the valuation of bank, bank holding company and thrift
securities in connection with mergers and acquisitions nationwide. We have not
previously provided investment banking and financial advisory services to Bank.
In arriving at our opinion, we have reviewed and analyzed, among other
things, the following: (i) the Agreement; (ii) Annual Reports to Shareholders of
BancGroup for the year ended December 31, 1997 and of Bank and BancGroup for the
year ended December 31, 1996; (iii) Quarterly FDIC Call reports for the quarters
ended December 31, 1997, September 30, 1997, June 30, 1997, March 31, 1997 and
December 31, 1996; (iv) certain other publicly available financial and other
information concerning Bank and BancGroup; and (v) publicly available
information concerning other banks and holding companies, the trading markets
for their securities and the nature and terms of certain other merger
transactions we believe relevant to our inquiry. We have held discussions with
senior management of Bank and BancGroup concerning their past and current
operations, financial condition and prospects, as well as the results of
regulatory examinations.
We have reviewed with senior management of Bank earnings projections for
1998 through 2002 for Bank as a stand-alone entity, assuming the merger does not
occur, prepared by Bank. We reviewed with senior management of BancGroup
earnings projections for 1998 through 2002 for BancGroup as a stand-alone
entity, assuming the merger does not occur, as well as projected operating cost
savings and earnings enhancement opportunities expected to be achieved in each
such years resulting from the merger. Certain pro forma financial projections
for the combined entity were derived by us based partially upon the projections
discussed above, as well as our own assessment of general economic, market and
financial conditions. In certain cases, such combined pro forma financial
projections included projected operating cost savings and earnings enhancement
opportunities derived by us partially based upon the projections discussed above
to be realizable in the merger.
In conducting our review and in arriving at our opinion, we have relied
upon and assumed the accuracy and completeness of the financial and other
information provided to us or publicly available, and we have not assumed any
responsibility for independent verification of the same. We have relied upon the
managements of Bank and BancGroup as to the reasonableness of the financial and
operating forecasts, projections and
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projected operating cost savings and earnings enhancement opportunities (and the
assumptions and bases therefor) provided to us, and we have assumed that such
forecasts, projections and projected operating cost savings and earnings
enhancement opportunities reflect the best currently available estimates and
judgments of the applicable managements. We have also assumed, without assuming
any responsibility for the independent verification of the same, that the
aggregate allowances for loan losses for Bank and BancGroup are adequate to
cover such losses. We have not made or obtained any evaluations or appraisals of
the property of Bank or BancGroup, nor have we examined any individual loan
credit files. For purposes of this opinion, we have assumed that the merger will
have the tax, accounting and legal effects described in the Agreement and
assumed the accuracy of the disclosures set forth in the Agreement. Our opinion
as expressed herein is limited to the fairness, from a financial point of view,
to the holders of the Common Shares of Bank of the terms of the proposed merger
of Bank with and into Colonial Bank and does not address Bank's underlying
business decision to proceed with the merger.
We have considered such financial and other factors as we have deemed
appropriate under the circumstances, including among others the following: (i)
the historical and current financial position and results of operations of Bank
and BancGroup, including interest income, interest expense, net interest income,
net interest margin, provision for loan losses, non-interest income,
non-interest expense, earnings, dividends, internal capital generation, book
value, intangible assets, return on assets, return on shareholders' equity,
capitalization, the amount and type of non-performing assets, loan losses and
the reserve for loan losses, all as set forth in the financial statements for
Bank and BancGroup; (ii) the assets and liabilities of Bank and BancGroup,
including the loan, investment and mortgage portfolios, deposits, other
liabilities, historical and current liability sources and costs and liquidity;
and (iii) the nature and terms of certain other merger transactions involving
banks and bank holding companies. We have also taken into account our assessment
of general economic, market and financial conditions and our experience in other
transactions, as well as our experience in securities valuation and our
knowledge of the banking industry generally. Our opinion is necessarily based
upon conditions as they exist and can be evaluated on the date hereof and the
information made available to us through the date hereof.
Based upon and subject to the foregoing, we are of the opinion as
investment bankers that, as of the date hereof, the terms of proposed merger of
Bank with and into Colonial Bank are fair, from a financial point of view, to
the holders of the Common Shares of Bank.
It is understood that this letter is for the information of the Board of
Directors of Bank and does not constitute a recommendation to the Board of
Directors or to any shareholder of Bank with respect to any approval of the
merger. We hereby consent to the reference to our firm in the proxy statement or
prospectus related to the merger transaction and to the inclusion of our opinion
as an exhibit to the proxy statement or prospectus related to the merger
transaction.
Respectfully Submitted,
/s/ HOEFER & ARNETT, INCORPORATED
Hoefer & Arnett, Incorporated
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APPENDIX C
NEVADA REVISED STATUTES, SECTIONS 92A.300 THROUGH 92A.500
MERGERS AND EXCHANGES OF INTEREST -- RIGHTS OF DISSENTING OWNERS
NRS 92A.300. Definitions.
As used in NRS 92A.300 to 92A.500, inclusive, unless the context otherwise
requires, the words and terms defined in NRS 92A.305 to 92A.335, inclusive, have
the meanings ascribed to them in those sections. (Added to NRS by 1995, 2086)
NRS 92A.305. "Beneficial stockholder" defined.
"Beneficial stockholder" means a person who is a beneficial owner of shares
held in a voting trust or by a nominee as the stockholder of record. (Added to
NRS by 1995, 2087)
NRS 92A.310. "Corporate action" defined.
"Corporate action" means the action of a domestic corporation. (Added to
NRS by 1995, 2087).
NRS 92A.315. "Dissenter" defined.
"Dissenter" means a stockholder who is entitled to dissent from a domestic
corporation's action under NRS 92A.380 and who exercises that right when and in
the manner required by NRS 92A.410 to 92A.480, inclusive. (Added to NRS by 1995,
2087).
NRS 92A.320. "Fair value" defined.
"Fair value," with respect to a dissenter's shares, means the value of the
shares immediately before the effectuation of the corporate action to which he
objects, excluding any appreciation or depreciation in anticipation of the
corporate action unless exclusion would be inequitable. (Added to NRS by 1995,
2087).
NRS 92A.325. "Stockholder" defined.
"Stockholder" means a stockholder of record or a beneficial stockholder of
a domestic corporation. (Added to NRS by 1995, 2087).
NRS 92A.330. "Stockholder of record" defined.
"Stockholder of record" means the person in whose name shares are
registered in the records of a domestic corporation or the beneficial owner of
shares to the extent of the rights granted by a nominee's certificate on file
with the domestic corporation. (Added to NRS by 1995, 2087).
NRS 92A.335. "Subject corporation" defined.
"Subject corporation" means the domestic corporation which is the issuer of
the shares held by a dissenter before the corporate action creating the
dissenter's rights becomes effective or the surviving or acquiring entity of
that issuer after the corporate action becomes effective. (Added to NRS by 1995,
2087).
NRS 92A.340. Computation of interest.
Interest payable pursuant to NRS 92A.300 to 92A.500, inclusive, must be
computed from the effective date of the action until the date of payment, at the
average rate currently paid by the entity on its principal bank loans or, if it
has no bank loans, at a rate that is fair and equitable under all of the
circumstances. (Added to NRS by 1995, 2087).
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NRS 92A.350. Rights of dissenting partner of domestic limited partnership.
A partnership agreement of a domestic limited partnership or, unless
otherwise provided in the partnership agreement, an agreement of merger or
exchange, may provide that contractual rights with respect to the partnership
interest of a dissenting general or limited partner of a domestic limited
partnership are available for any class or group of partnership interests in
connection with any merger or exchange in which the domestic limited partnership
is a constituent entity. (Added to NRS by 1995, 2088).
NRS 92A.360. Rights of dissenting member of domestic limited-liability company.
The articles of organization or operating agreement of a domestic
limited-liability company or, unless otherwise provided in the articles of
organization or operating agreement, an agreement of merger or exchange, may
provide that contractual rights with respect to the interest of a dissenting
member are available in connection with any merger or exchange in which the
domestic limited-liability company is a constituent entity. (Added to NRS by
1995, 2088).
NRS 92A.370. Rights of dissenting member of domestic nonprofit corporation.
1. Except as otherwise provided in subsection 2, and unless otherwise
provided in the articles or bylaws, any member of any constituent domestic
nonprofit corporation who voted against the merger may, without prior notice,
but within 30 days after the effective date of the merger, resign from
membership and is thereby excused from all contractual obligations to the
constituent or surviving corporations which did not occur before his resignation
and is thereby entitled to those rights, if any, which would have existed if
there had been no merger and the membership had been terminated or the member
had been expelled.
2. Unless otherwise provided in its articles of incorporation or bylaws, no
member of a domestic nonprofit corporation, including, but not limited to, a
cooperative corporation, which supplies services described in chapter 704 of NRS
to its members only, and no person who is a member of a domestic nonprofit
corporation as a condition of or by reason of the ownership of an interest in
real property, may resign and dissent pursuant to subsection 1. (Added to NRS by
1995, 2088).
NRS 92A.380. Right of stockholder to dissent from certain corporate actions and
to obtain payment for shares.
1. Except as otherwise provided in NRS 92A.370 and 92A.390, a stockholder
is entitled 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 domestic corporation
is a party:
(1) If approval by the stockholders is required for the merger by
NRS 92A.120 to 92A.160, inclusive, or the articles of incorporation and
he is entitled to vote on the merger; or
(2) If the domestic corporation is a subsidiary and is merged with
its parent under NRS 92A.180.
(b) Consummation of a plan of exchange to which the domestic
corporation is a party as the corporation whose subject owner's interests
will be acquired, if he is entitled to vote on the plan.
(c) Any corporate action taken pursuant to a vote of the stockholders
to the event that the articles of incorporation, bylaws or a resolution of
the board of directors provides that voting or nonvoting stockholders are
entitled to dissent and obtain payment for their shares.
2. A stockholder who is entitled to dissent and obtain payment under NRS
92A.300 to 92A.500, inclusive, may not challenge the corporate action creating
his entitlement unless the action is unlawful or fraudulent with respect to him
or the domestic corporation. (Added to NRS by 1995, 2087).
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NRS 92A.390. Limitations on right of dissent: Stockholders of certain classes
or series; action of stockholders not required for plan of merger.
1. There is no right of dissent with respect to a plan of merger or
exchange in favor of stockholders of any class or series which, at the record
date fixed to determine the stockholders entitled to receive notice of and to
vote at the meeting at which the plan of merger or exchange is to be acted on,
were either listed on a national securities exchange, included in the national
market system by the National Association of Securities Dealers, Inc., or held
by at least 2,000 stockholders of record, unless:
(a) The articles of incorporation of the corporation issuing the
shares provide otherwise; or
(b) The holders of the class or series are required under the plan of
merger or exchange to accept for the shares anything except:
(1) Cash, owner's interests or owner's interests and cash in lieu
of fractional owner's interests of:
(I) The surviving or acquiring entity; or
(II) Any other entity which, at the effective date of the plan
of merger or exchange, were either listed on a national securities
exchange, included in the national market system by the National
Association of Securities Dealers, Inc., or held of record by a least
2,000 holders of owner's interests of record; or
(2) A combination of cash and owner's interests of the kind
described in sub-subparagraphs (I) and (II) of subparagraph (1) of
paragraph (b).
2. There is no right of dissent for any holders of stock of the surviving
domestic corporation if the plan of merger does not require action of the
stockholders of the surviving domestic corporation under NRS 92A.130. (Added to
NRS by 1995, 2088).
NRS 92A.400. Limitations on right of dissent: Assertion as to portions only to
shares registered to stockholder; assertion by beneficial
stockholder.
1. A stockholder of record may assert dissenter's rights as to fewer than
all of the shares registered in his name only if he dissents with respect to all
shares beneficially owned by any one person and notifies the subject corporation
in writing of the name and address of each person on whose behalf he asserts
dissenter's rights. The rights of a partial dissenter under this subsection are
determined as if the shares as to which he dissents and his other shares were
registered in the names of different stockholders.
2. A beneficial stockholder may assert dissenter's rights as to shares held
on his behalf only if:
(a) He submits to the subject corporation the written consent of the
stockholder of record to the dissent not later than the time the beneficial
stockholder asserts dissenter's rights;
and
(b) He does so with respect to all shares of which he is the
beneficial stockholder or over which he has power to direct the vote.
(Added to NRS by 1995, 2089).
NRS 92A.410. Notification of stockholders regarding right of dissent.
1. If a proposed corporate action creating dissenters' rights is submitted
to a vote at a stockholders' meeting, the notice of the meeting must state that
stockholders are or may be entitled to assert dissenters' rights under NRS
92A.300 to 92A.500, inclusive, and be accompanied by a copy of those sections.
2. If the corporate action creating dissenters' rights is taken by written
consent of the stockholders or without a vote of the stockholders, the domestic
corporation shall notify in writing all stockholders entitled to assert
dissenters' rights that the action was taken and send them the dissenter's
notice described in NRS 92A.430. (Added to NRS by 1995, 2089; A 1997, 730).
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NRS 92A.420. Prerequisites to demand for payment for shares.
1. If a proposed corporate action creating dissenters' rights is submitted
to a vote at a stockholders' meeting, a stockholder who wishes to assert
dissenter's rights:
(a) Must deliver to the subject corporation, before the vote is taken,
written notice of his intent to demand payment for his shares if the
proposed action is effectuated; and
(b) Must not vote his shares in favor of the proposed action.
2. A stockholder who does not satisfy the requirements of subsection 1 is
not entitled to payment for his shares under this chapter. (Added to NRS by
1995, 2089).
NRS 92A.430. Dissenter's notice: Delivery to stockholders entitled to assert
rights; contents.
1. If a proposed corporate action creating dissenters' rights is authorized
at a stockholders' meeting, the subject corporation shall deliver a written
dissenter's notice to all stockholders who satisfied the requirements to assert
those rights.
2. The dissenter's notice must be sent no later than 10 days after the
effectuation of the corporate action, and must:
(a) State where the demand for payment must be sent and where and when
certificates, if any, for shares must be deposited;
(b) Inform the holders of shares not represented by certificates to
what extent the transfer of the shares will be restricted after the demand
for payment is received;
(c) Supply a form for demanding payment that includes the date of the
first announcement to the news media or to the stockholders of the terms of
the proposed action and requires that the person asserting dissenter's
rights certify whether or not he acquired beneficial ownership of the
shares before that date;
(d) Set a date by which the subject corporation must receive the
demand for payment, which may not be less than 30 nor more than 60 days
after the date the notice is delivered; and
(e) Be accompanied by a copy of NRS 92A.300 to 92A.500, inclusive.
(Added to NRS by 1995, 2089).
NRS 92A.440. Demand for payment and deposit of certificates; retention of
rights of stockholder.
1. A stockholder to whom a dissenter's notice is sent must:
(a) Demand payment;
(b) Certify whether he acquired beneficial ownership of the shares
before the date required to be set forth in the dissenter's notice for this
certification; and
(c) Deposit his certificates, if any, in accordance with the terms of
the notice.
2. The stockholder who demands payment and deposits his certificates, if
any, before the proposed corporate action is taken retains all other rights of a
stockholder until those rights are canceled or modified by the taking of the
proposed corporate action.
3. The stockholder who does not demand payment or deposit his certificates
where required, each by the date set forth in the dissenter's notice, is not
entitled to payment for his shares under this chapter. (Added to NRS by 1995,
2090; A 1997, 730).
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NRS 92A.450. Uncertificated shares: Authority to restrict transfer after demand
for payment; retention of rights of stockholder.
1. The subject corporation may restrict the transfer of shares not
represented by a certificate from the date the demand for their payment is
received.
2. The person for whom dissenter's rights are asserted as to shares not
represented by a certificate retains all other rights of a stockholder until
those rights are canceled or modified by the taking of the proposed corporate
action. (Added to NRS by 1995, 2090).
NRS 92A.460. Payment for shares: General requirements.
1. Except as otherwise provided in NRS 92A.470, within 30 days after
receipt of a demand for payment, the subject corporation shall pay each
dissenter who complied with NRS 92A.440 the amount the subject corporation
estimates to be the fair value of his shares, plus accrued interest. The
obligation of the subject corporation under this subsection may be enforced by
the district court:
(a) Of the county where the corporation's registered office is
located; or
(b) At the election of any dissenter residing or having its registered
office in this state, of the county where the dissenter resides or has its
registered office. The court shall dispose of the complaint promptly.
2. The payment must be accompanied by:
(a) The subject corporation's balance sheet as of the end of a fiscal
year ending not more than 16 months before the date of payment, a statement
of income for that year, a statement of changes in the stockholders' equity
for that year and the latest available interim financial statements, if
any;
(b) A statement of the subject corporation's estimate of the fair
value of the shares;
(c) An explanation of how the interest was calculated;
(d) A statement of the dissenter's rights to demand payment under NRS
92A.480; and
(e) A copy of NRS 92A.300 to 92A.500, inclusive. (Added to NRS by
1995, 2090)
NRS 92A.470. Payment for shares: Shares acquired on or after date of
dissenter's notice.
1. A subject corporation may elect to withhold payment from a dissenter
unless he was the beneficial owner of the shares before the date set forth in
the dissenter's notice as the date of the first announcement to the news media
or to the stockholders of the terms of the proposed action.
2. To the extent the subject corporation elects to withhold payment, after
taking the proposed action, it shall estimate the fair value of the shares, plus
accrued interest, and shall offer to pay this amount to each dissenter who
agrees to accept it in full satisfaction of his demand. The subject corporation
shall send with its offer a statement of its estimate of the fair value of the
shares, an explanation of how the interest was calculated, and a statement of
the dissenters' right to demand payment pursuant to NRS 92A.480. (Added to NRS
by 1995, 2091).
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NRS 92A.480. Dissenter's estimate of fair value: Notification of subject
corporation; demand for payment of estimate.
1. A dissenter may notify the subject corporation in writing of his own
estimate of the fair value of his shares and the amount of interest due, and
demand payment of his estimate, less any payment pursuant to NRS 92A.460, or
reject the offer pursuant to NRS 92A.470 and demand payment of the fair value of
his shares and interest due, if he believes that the amount paid pursuant to NRS
92A.460 or offered pursuant to NRS 92A.470 is less than the fair value of his
shares or that the interest due is incorrectly calculated.
2. A dissenter waives his right to demand payment pursuant to this section
unless he notifies the subject corporation of his demand in writing within 30
days after the subject corporation made or offered payment for his shares.
(Added to NRS by 1995, 2091).
NRS 92A.490. Legal proceeding to determine fair value: Duties of subject
corporation; powers of court; rights of dissenter.
1. If a demand for payment remains unsettled, the subject corporation shall
commence a proceeding within 60 days after receiving the demand and petition the
court to determine the fair value of the shares and accrued interest. If the
subject corporation does not commence the proceeding within the 60-day period,
it shall pay each dissenter whose demand remains unsettled the amount demanded.
2. A subject corporation shall commence the proceeding in the district
court of the county where its registered office is located. If the subject
corporation is a foreign entity without a resident agent in the state, it shall
commence the proceeding in the county where the registered office of the
domestic corporation merged with or whose shares were acquired by the foreign
entity was located.
3. The subject corporation shall make all dissenters, whether or not
residents of Nevada, whose demands remain unsettled, parties to the proceeding
as in an action against their shares. All parties must be served with a copy of
the petition. Nonresidents may be served by registered or certified mail or by
publication as provided by law.
4. The jurisdiction of the court in which the proceeding is commenced under
subsection 2 is plenary and exclusive. The court may appoint one or more persons
as appraisers to receive evidence and recommend a decision on the question of
fair value. The appraisers have the powers described in the order appointing
them, or any amendment thereto. The dissenters are entitled to the same
discovery rights as parties in other civil proceedings.
5. Each dissenter who is made a party to the proceeding is entitled to a
judgment:
(a) For the amount, if any, by which the court finds the fair value of
his shares, plus interest, exceeds the amount paid by the subject
corporation; or
(b) For the fair value, plus accrued interest, of his after-acquired
shares for which the subject corporation elected to withhold payment
pursuant to NRS 92A.470. (Added to NRS by 1995, 2091).
NRS 92A.500. Legal proceeding to determine fair value: Assessment of costs and
fees.
1. The court in a proceeding to determine fair value shall determine all of
the costs of the proceeding, including the reasonable compensation and expenses
of any appraisers appointed by the court. The court shall assess the costs
against the subject corporation, except that the court may assess costs against
all or some of the dissenters, in amounts the court finds equitable, to the
extent the court finds the dissenters acted arbitrarily, vexatiously or not in
good faith in demanding payment.
2. The court may also assess the fees and expenses of the counsel and
experts for the respective parties, in amounts the court finds equitable:
(a) Against the subject corporation and in favor of all dissenters if
the court finds the subject corporation did not substantially comply with
the requirements of NRS 92A.300 to 92A.500, inclusive; or
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(b) Against either the subject corporation or a dissenter in favor of
any other party, if the court finds that the party against whom the fees
and expenses are assessed acted arbitrarily, vexatiously or not in good
faith with respect to the rights provided by NRS 92A.300 to 92A.500,
inclusive.
3. If the court finds that the services of counsel for any dissenter were
of substantial benefit to other dissenters similarly situated, and that the fees
for those services should not be assessed against the subject corporation, the
court may award to those counsel reasonable fees to be paid out of the amounts
awarded to the dissenters who were benefitted.
4. In a proceeding commenced pursuant to NRS 92A.460, the court may assess
the costs against the subject corporation, except that the court may assess
costs against all or some of the dissenters who are parties to the proceeding,
in amounts the court finds equitable, to the extent the court finds that such
parties did not act in good faith in instituting the proceeding.
5. This section does not preclude any party in a proceeding commenced
pursuant to NRS 92A.460 or 92A.490 from applying the provisions of N.R.C.P. 68
or NRS 17.115. (Added to NRS by 1995, 2092).
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APPENDIX D
STOCK OPTION AGREEMENT
STOCK OPTION AGREEMENT, dated as of February 25, 1998 (the "Agreement"), by
and between Commercial Bank of Nevada, a Nevada state-chartered bank ("Issuer"),
and The Colonial BancGroup, Inc., a Delaware corporation ("Grantee").
WHEREAS, Grantee and Issuer have entered into an Agreement and Plan of
Merger dated as of February 25, 1998 (the "Merger Agreement"), providing for,
among other things, the merger of Issuer with and into Colonial Bank, a wholly
owned subsidiary of Grantee, with Colonial Bank as the surviving corporation;
and
WHEREAS, as a condition and inducement to Grantee's execution of the Merger
Agreement, Grantee has required that Issuer agree, and Issuer has agreed, to
grant Grantee the Option (as defined below);
NOW THEREFORE, in consideration of the foregoing and the respective
representations, warranties, covenants, and agreements set forth herein and in
the Merger Agreement, and intending to be legally bound hereby, Issuer and
Grantee agree as follows:
1. Defined Terms. Capitalized terms which are used but not defined
herein shall have the meanings ascribed to such terms in the Merger
Agreement.
2. Grant of Option. Subject to the terms and conditions set forth
herein, Issuer hereby grants to Grantee an irrevocable option (the
"Option") to purchase from time to time up to 167,589 shares (as adjusted
as set forth herein) (the "Option Shares"), of Common Stock, par value
$1.00 per share ("Issuer Common Stock"), of Issuer at a purchase price per
Option Share (the "Purchase Price") equal to $34.00; provided, however,
that in no event shall the number of shares for which this option is
exercisable exceed 19.9% of the outstanding shares of Issuer Common Stock.
3. Exercise of Option. (a) Provided that (i) Grantee shall not be in
material breach of the agreements or covenants contained in this Agreement
or the Merger Agreement, and (ii) no preliminary or permanent injunction or
other order against the delivery of shares covered by the Option issued by
any court of competent jurisdiction in the United States shall be in
effect, Grantee may exercise the Option, in whole or in part, at any time
and from time to time following the occurrence of a Purchase Event (as
defined below); provided that the Option shall terminate and be of no
further force or effect upon the earliest to occur of (A) the Effective
Date, or (B) termination of the Merger Agreement in accordance with the
terms thereof prior to the occurrence of a Purchase Event or a Preliminary
Purchase Event, (C) termination of the Merger Agreement in accordance with
the terms thereof after the occurrence of a Purchase Event or a Preliminary
Purchase Event (other than a termination of the Merger Agreement by Grantee
due to a material breach by Issuer in accordance with Section 13.2(b) of
the Merger Agreement or a termination due to the failure to fulfill
conditions set forth in Sections 8.1, 10.1, 10.3, 10.4, 10.6, 10.7 or 10.9
of the Merger Agreement), or (D) eighteen months after termination of the
Merger Agreement following the occurrence of a Purchase Event or a
Preliminary Purchase Event, provided that the termination of the Merger
Agreement was due to one of the reasons listed in the parenthetical of
Clause (C) above; and provided further, that any purchase of shares upon
exercise of the Option shall be subject to compliance with applicable law
including, without limitation, the Bank Holding Company Act of 1956, as
amended (the "BHC Act"). The rights set forth in Section 8 shall terminate
when the right to exercise the Option terminates (other than as a result of
a complete exercise of the Option) as set forth herein.
(b) As used herein, a "Purchase Event" means any of the following
events:
(i) Without Grantee's prior written consent, Issuer shall have
authorized, recommended, publicly proposed, or publicly announced an
intention to authorize, recommend, or propose, or shall have entered
into any agreement with any person (other than Grantee or any
subsidiary of Grantee) to effect an Acquisition Transaction (as
defined below). As used herein, the term Acquisition Transaction
shall mean (A) a merger, consolidation, or other business combination
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involving Issuer, (B) the disposition, by sale, lease, exchange, or
otherwise, of assets of Issuer or any of its subsidiaries
representing in either case all or substantially all of the
consolidated assets of Issuer, or (C) the issuance, sale, or other
disposition of (including by way of merger, consolidation, share
exchange, or any similar transaction) securities representing 25% or
more of the voting power of Issuer; or
(ii) any person (other than Grantee or any subsidiary of
Grantee) shall have acquired beneficial ownership (as such term is
defined in Rule 13d-3 promulgated under the Securities Exchange Act
of 1934 (the "1934 Act")) of or the right to acquire beneficial
ownership of, or any "group" (as such term is defined under the 1934
Act) shall have been formed which beneficially owns or has the right
to acquire beneficial ownership of, 25% or more of the then
outstanding shares of Issuer Common Stock.
(c) As used herein, a "Preliminary Purchase Event" means any of the
following events:
(i) any person (other than Grantee or any subsidiary of Grantee)
shall have commenced (as such term is defined in Rule 14d-2 under the
1934 Act), or shall have filed a registration statement under the
1933 Act with respect to, a tender offer or exchange offer to
purchase any shares of Issuer Common Stock such that, upon
consummation of such offer, such person would own or control 25% or
more of the then outstanding shares of Issuer Common Stock (such an
offer being referred to herein as a "Tender Offer" or an "Exchange
Offer," respectively); or
(ii) (1) the holders of Issuer Common Stock shall not have
approved the Merger Agreement at the meeting of such stockholders
held for the purpose of voting on the Merger Agreement, (2) such
meeting shall not have been held or shall have been canceled prior to
termination of the Merger Agreement, (3) the Issuer's Board of
Directors or any person representing such Board shall have commenced
negotiations with any person other than Grantee regarding an
Acquisition Transaction, or (4) Issuer's Board of Directors shall
have withdrawn or modified in a manner adverse to Grantee the
recommendation of Issuer's Board of Directors with respect to the
Merger Agreement, in each case after it shall have been publicly
announced (or otherwise disclosed to the Issuer prior to such public
announcement) that any person (other than Grantee or any subsidiary
of Grantee) shall have (A) made, or disclosed to Issuer an intention
to make, a proposal to engage in an Acquisition Transaction, (B)
commenced a Tender Offer or filed a registration statement under the
1933 Act with respect to an Exchange Offer, or (C) filed an
application (or given a notice), whether in draft or final form,
under the BHC Act, the Bank Merger Act, or the Change in Bank Control
Act of 1978, or other appropriate banking agency, for approval to
engage in an Acquisition Transaction.
As used in this Agreement, "person" shall have the meaning specified in Sections
3(a)(9) and 13(d)(3) of the 1934 Act.
(d) In the event Grantee wishes to exercise the Option, it shall
send to Issuer a written notice (the date of which being herein referred
to as the "Notice Date") specifying (i) the total number of Option
Shares it intends to purchase pursuant to such exercise and (ii) a place
and date not earlier than three business days nor later than 15 business
days from the Notice Date for the closing (the "Closing") of such
purchase (the "Closing Date"). If prior notification to or approval of
the Board of Governors of the Federal Reserve System (the "Federal
Reserve Board") or any other regulatory authority is required in
connection with such purchase, Issuer shall cooperate with Grantee in
the filing of the required notice or application for approval and the
obtaining of such approval and the Closing shall occur immediately
following such regulatory approvals (and any mandatory waiting periods).
4. Payment and Delivery of Certificates. (a) On each Closing Date,
Grantee shall (i) pay to Issuer, in immediately available funds by wire
transfer to a bank account designated by Issuer, an amount
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equal to the Purchase Price multiplied by the number of Option Shares to be
purchased on such Closing Date, and (ii) present and surrender this
Agreement to the Issuer at the address of the Issuer specified in Section
11(f) hereof.
(b) At each Closing, simultaneously with the delivery of
immediately available funds and surrender of this Agreement as provided
in Section 4(a), (i) Issuer shall deliver to Grantee (A) a certificate
or certificates representing the Option Shares to be purchased at such
Closing, which Option Shares shall be free and clear of all liens,
claims, charges, and encumbrances of any kind whatsoever and subject to
no pre-emptive rights, and (B) if the Option is exercised in part only,
an executed new agreement with the same terms as this Agreement
evidencing the right to purchase the balance of the shares of Issuer
Common Stock purchasable hereunder, and (ii) Grantee shall deliver to
Issuer a letter agreeing that Grantee shall not offer to sell or
otherwise dispose of such Option Shares in violation of applicable
federal and state law or of the provisions of this Agreement.
(c) In addition to any other legend that is required by applicable
law, certificates for the Option Shares delivered at each Closing shall
be endorsed with a restrictive legend which shall read substantially as
follows:
THE STOCK REPRESENTED BY THIS CERTIFICATE HAS NOT BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933 OR ANY STATE LAW AND THE TRANSFER OF THE STOCK
REPRESENTED BY THIS CERTIFICATE IS SUBJECT TO RESTRICTIONS ARISING UNDER
THE SECURITIES ACT OF 1933, AS AMENDED, AND PURSUANT TO THE TERMS OF A
STOCK OPTION AGREEMENT DATED AS OF FEBRUARY 25, 1998. A COPY OF SUCH
AGREEMENT WILL BE PROVIDED TO THE HOLDER HEREOF WITHOUT CHARGE UPON RECEIPT
BY THE ISSUER OF A WRITTEN REQUEST THEREFOR.
It is understood and agreed that: (i) the reference to restrictions arising
under the 1933 Act in the above legend shall be removed by delivery of
substitute certificate(s) without such reference if Grantee shall have delivered
to Issuer a copy of a letter from the staff of the United States Securities and
Exchange Commission ("SEC"), or an opinion of counsel in form and substance
reasonably satisfactory to Issuer and its counsel, to the effect that such
legend is not required for purposes of the 1933 Act; and (ii) the reference to
restrictions pursuant to this Agreement in the above legend shall be removed by
delivery of a substitute certificate without such reference if the Option Shares
evidenced by such certificate containing such reference have been sold or
transferred in compliance with the provisions of this Agreement under
circumstances that do not require the retention of such reference.
5. Representations and Warranties of Issuer. Issuer hereby represents
and warrants to Grantee as follows:
(a) Issuer has all requisite corporate power and authority to enter
into this Agreement and, subject to any approvals referred to herein, to
consummate the transactions contemplated hereby. The execution and
delivery of this Agreement and the consummation of the transactions
contemplated hereby have been duly authorized by all necessary corporate
action on the part of Issuer. This Agreement has been duly executed and
delivered by Issuer.
(b) Issuer has taken all necessary corporate and other action to
authorize and reserve and to permit it to issue (and at all times from
the date hereof until the obligation to deliver Issuer Common Stock upon
the exercise of the Option terminates, will have reserved for issuance),
upon exercise of the Option, the number of shares of Issuer Common Stock
necessary for Grantee to exercise the Option, and Issuer will take all
necessary corporate action to authorize and reserve for issuance all
additional shares of Issuer Common Stock or other securities which may
be issued pursuant to Section 7 upon exercise of the Option. The shares
of Issuer Common Stock to be issued upon due exercise of the Option,
including all additional shares of Issuer Common Stock or other
securities which may be issuable pursuant to Section 7, upon issuance
pursuant hereto, shall be duly and validly issued, fully paid and
nonassessable, and shall be delivered free and clear of all liens,
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claims, charges, and encumbrances of any kind or nature whatsoever,
including any statutory preemptive rights of any stockholder of Issuer.
6. Representations and Warranties of Grantee. Grantee hereby
represents and warrants to Issuer that:
(a) Grantee has all requisite corporate power and authority to
enter into this Agreement and, subject to any approvals or consents
referred to herein, to consummate the transactions contemplated hereby.
The execution and delivery of this Agreement and the consummation of the
transactions contemplated hereby have been duly authorized by all
necessary corporate action on the part of Grantee. This Agreement has
been duly executed and delivered by Grantee.
(b) This Option is not being, and any Option Shares or other
securities acquired by Grantee upon exercise of the Option will not be,
acquired with a view to the public distribution thereof and will not be
transferred or otherwise disposed of except in a transaction registered
or exempt from registration under the 1933 Act.
7. Adjustment upon Changes in Capitalization, etc. (a) In the event
of a change in Issuer Common Stock by reason of a stock dividend, stock
split, split-up, recapitalization, combination, exchange of shares, or
similar transaction, the type and number of shares or securities subject to
the Option, and the Purchase Price therefor, shall be adjusted
appropriately, subject to the limitation set forth in Section 2 hereof, and
proper provision shall be made in the agreements governing such transaction
so that Grantee shall receive, upon exercise of the Option, the number and
class of shares or other securities or property that Grantee would have
received in respect of Issuer Common stock if the Option had been exercised
immediately prior to such event, or the record date therefor, as
applicable. If any additional shares of Issuer Common Stock are issued
after the date of this Agreement (other than pursuant to an event described
in the first sentence of this Section 7(a) or a sale of the Issuer Common
Stock for cash at its fair market value), the number of shares of Issuer
Common Stock subject to the Option shall be adjusted so that, after such
issuance, the shares of Issuer Common Stock subject to the Option, together
with any shares of Issuer Common Stock previously issued pursuant hereto,
equal 19.9% of the number of shares of Issuer Common Stock then issued and
outstanding.
(b) In the event that Issuer shall enter into an agreement: (i) to
consolidate with or merge into any person, other than Grantee or one of
its subsidiaries, and shall not be the continuing or surviving
corporation of such consolidation or merger; (ii) to permit any person,
other than Grantee or one of its subsidiaries, to merge into Issuer and
Issuer shall be the continuing or surviving corporation, but, in
connection with such merger, the then-outstanding shares of Issuer
Common Stock shall be changed into or exchanged for stock or other
securities of the Issuer or any other person or cash or any other
property or the outstanding shares of Issuer Common Stock immediately
prior to such merger shall after such merger represent less than 50% of
the outstanding shares and share equivalents of the merged company; or
(iii) to sell or otherwise transfer all or substantially all of its
assets to any person, other than Grantee or one of its subsidiaries,
then, and in each such case, the agreement governing such transaction
shall make proper provisions so that the Option shall, upon the
consummation of any such transaction and upon the terms and conditions
set forth herein, be converted into, or exchanged for, an option (the
"Substitute Option"), at the election of Grantee, of either (x) the
Acquiring Corporation (as defined below), (y) any person that controls
the Acquiring Corporation, or (z) in the case of a merger described in
clause (ii), the Issuer (in each case, such person being referred to as
the "Substitute Option Issuer").
(c) The Substitute Option shall have the same terms as the Option,
provided that, if the terms of the Substitute Option cannot, for legal
reasons, be the same as the Option, such terms shall be as similar as
possible and in no event less advantageous to Grantee. The Substitute
Option Issuer shall also enter into an agreement with the then-holder or
holders of the Substitute Option in substantially the same form as this
Agreement, which shall be applicable to the Substitute Option.
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(d) The Substitute Option shall be exercisable for such number of
shares of the Substitute Common Stock (as hereinafter defined) as is
equal to the Assigned Value (as hereinafter defined) multiplied by the
number of shares of the Issuer Common Stock for which the Option was
theretofore exercisable, divided by the Average Price (as hereinafter
defined). The exercise price of the Substitute Option per share of the
Substitute Common Stock (the "Substitute Purchase Price") shall then be
equal to the Purchase Price multiplied by a fraction in which the
numerator is the number of shares of the Issuer Common Stock for which
the Option was theretofore exercisable and the denominator is the number
of shares for which the Substitute Option is exercisable.
(e) The following terms have the meanings indicated:
(i) "Acquiring Corporation" shall mean (x) the continuing or
surviving corporation of a consolidation or merger with the Issuer
(if other than the Issuer), (y) the Issuer in a merger in which the
Issuer is the continuing or surviving person, and (z) the transferee
of all or substantially all of the Issuer's assets.
(ii) "Substitute Common Stock" shall mean the common stock
issued by the Substitute Option Issuer upon exercise of the
Substitute Option.
(iii) "Assigned Value" shall mean the highest of (x) the price
per share of the Issuer Common Stock at which a Tender Offer or
Exchange Offer therefor has been made by any person after the date
hereof (other than Grantee), (y) the price per share of the Issuer
Common Stock to be paid by any person (other than the Grantee)
pursuant to an agreement with the Issuer, or (z) the highest closing
sales price per share of Issuer Common Stock quoted on the National
Association of Securities Dealers Automated Quotation National Market
System ("NASDAQ/NMS") (or if Issuer Common Stock is not quoted on the
NASDAQ/NMS, the highest bid price per share on any day as quoted on
the principal trading market or securities exchange on which such
shares are traded as reported by a recognized source chosen by
Grantee or, if there is no such information available, the value of
such shares as determined by a nationally recognized investment
banking firm compensated and selected by Grantee) within the
six-month period immediately preceding the Agreement; provided,
however, that in the event of a sale of all or substantially all of
the Issuers' assets, the Assigned Value shall be the sum of the price
paid in such sale for such assets and the current market value of the
remaining assets of the Issuer as determined by a nationally
recognized investment banking firm selected by Grantee (or by a
majority in interest of the Grantees if there shall be more than one
Grantee (a "Grantee Majority")), divided by the number of shares of
the Issuer Common Stock outstanding at the time of such sale.
(iv) "Average Price" shall mean the average closing price of a
share of the Substitute Common Stock for the one year immediately
preceding the consolidation, merger or sale in question, but in no
event -- higher than the closing price of the shares of the
Substitute Common Stock on the day preceding such consolidation,
merger, or sale, provided that if Issuer is the issuer of the
Substitute Option, the Average Price shall be computed with respect
to a share of common stock issued by the Issuer, the person merging
into the Issuer or by any company which controls or is controlled by
such merger person, as Grantee may elect, and provided further that
if there is no such trading information available, the price of such
shares shall be determined by a nationally recognized investment
banking firm selected by Grantee.
(f) In no event pursuant to any of the foregoing paragraphs shall
the Substitute Option be exercisable for more than 19.9% of the
aggregate of the shares of the Substitute Common Stock outstanding prior
to exercise of the Substitute Option. In the event that the Substitute
Option would be exercisable for more than 19.9% of the aggregate of the
shares of Substitute Common Stock but for this clause (f), the
Substitute Option Issuer shall make a cash payment to Grantee equal to
the excess of (i) the value of the Substitute Option without giving
effect to the limitation in this clause (f) over (ii) the value of the
Substitute Option after giving effect to the limitation in this clause
(f).
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This difference in value shall be determined by a nationally recognized
investment banking firm selected by Grantee (or a Grantee Majority).
(g) Issuer shall not enter into any transaction described in
subsection (b) of this Section 7 unless the Acquiring Corporation and
any person that controls the Acquiring Corporation assumes in writing
all the obligations of Issuer hereunder and takes all other actions that
may be necessary so that the provisions of this Section 7 are given full
force and effect (including, without limitation, any action that may be
necessary so that the shares of Substitute Common Stock are in no way
distinguishable from or have lesser economic value than other shares of
common stock issued by the Substitute Option Issuer) (other than any
diminution in value resulting from the fact that the shares of
Substitute Common Stock are restricted securities as defined in Rule 144
under the 1933 Act or any successor provision).
(h) The provisions of Sections 8, 9, and 10 shall apply, with
appropriate adjustments, to any securities for which the Option becomes
exercisable pursuant to this Section 7 and, as applicable, references in
such sections to "Issuer," "Option," "Purchase Price," and "Issuer
Common Stock" shall be deemed to be references to "Substitute Option
Issuer," "Substitute Option," "Substitute Purchase Price," and
"Substitute Common Stock," respectively.
8. Repurchase at the Option of Grantee. (a) Subject to the last
sentence of Section 3(a), at the request of Grantee at any time commencing
upon the first occurrence of a Repurchase Event (as defined in Section
8(d)) and ending 30 days immediately thereafter, Issuer shall, to the
extent permitted by applicable law, repurchase from Grantee the Option and
all shares of Issuer Common Stock purchased by Grantee pursuant hereto with
respect to which Grantee then has beneficial ownership. The date on which
Grantee exercises its right under this Section 8 is referred to as the
"Request Date". Such repurchase shall be at an aggregate price (the
"Section 8 Repurchase Consideration") equal to the sum of:
(i) The aggregate Purchase Price paid by Grantee for any shares
of Issuer Common Stock acquired pursuant to the Option with respect
to which Grantee then has beneficial ownership;
(ii) The excess, if any, of (x) the Applicable Price (as defined
below) for each share of Issuer Common Stock over (y) the Purchase
Price (subject to adjustment pursuant to Section 7), multiplied by
the number of shares of Issuer Common Stock with respect to which the
Option has not been exercised; and
(iii) The excess, if any, of the Applicable Price over the
Purchase Price (subject to adjustment pursuant to Section 7) paid
(or, in the case of Option Shares with respect to which the Option
has been exercised but the Closing Date has not occurred, payable) by
Grantee for each share of Issuer Common Stock with respect to which
the Option has been exercised and with respect to which Grantee then
has beneficial ownership, multiplied by the number of such shares.
(b) If Grantee exercises its right under this Section 8, Issuer
shall, to the extent permitted by applicable law, with 10 business days
after the Request Date, pay the Section 8 Repurchase Consideration to
Grantee in immediately available funds, and contemporaneously with such
payment Grantee shall surrender to Issuer the Option and the
certificates evidencing the shares of Issuer Common Stock purchased
thereunder with respect to which Grantee then has beneficial ownership,
and Grantee shall warrant that it has sole record and beneficial
ownership of such shares and that the same are then free and clear of
all liens, claims, charges, and encumbrances of any kind whatsoever.
Notwithstanding the foregoing, to the extent that prior notification to
or approval of the Board of Governors of the Federal Reserve System or
other regulatory authority is required in connection with the payment of
all or any portion of the Section 8 Repurchase Consideration, Grantee
shall have the ongoing option to revoke its request for repurchase
pursuant to this Section 8, in whole or in part, or to require that
Issuer deliver from time to time that portion of the Section 8
Repurchase Consideration that it is not then so prohibited from paying
and promptly file the
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required notice or application for approval and expeditiously process
the same (and each party shall cooperate with the other in the filing of
any such notice or application and the obtaining of any such approval).
If the Board of Governors of the Federal Reserve System or any other
regulatory authority disapproves of any part of Issuer's proposed
repurchase pursuant to this Section 8, Issuer shall promptly give notice
of such fact to Grantee. If the Board of Governors of the Federal
Reserve System or other agency prohibits the repurchase in part but not
in whole, then Grantee shall have the right (i) to revoke the repurchase
request, or (ii) to the extent permitted by the Board of Governors of
the Federal Reserve System or other agency, determine whether the
repurchase should apply to the Option and/or Option Shares and to what
extent to each, and Grantee shall thereupon have the right to exercise
the Option as to the number of Options Shares for which the Option was
exercisable at the Request Date less the sum of the number of shares
covered by the Option in respect of which payment has been made pursuant
to Section 8(a)(ii) and the number of shares covered by the portion of
the Option (if any) that has been repurchased. Grantee shall notify
Issuer of its determination under the preceding sentence within five (5)
days of receipt of notice of disapproval of the repurchase.
Notwithstanding anything herein to the contrary, all of the
Grantee's rights under this Section 8 shall terminate on the date of
termination of this Option pursuant to Section 3(a).
(c) For purposes of this Agreement, the "Applicable Price" means
the highest of (i) the highest price per share of Issuer Common Stock
paid for any such share by the person or groups described in Section
8(d)(i); (ii) the price per share of Issuer Common Stock received by
holders of Issuer Common Stock in connection with any merger or other
business combination transaction described in Section 7(b)(i), 7(b)(ii)
or 7(b)(iii); or (iii) the highest closing sales per share of Issuer
Common Stock quoted on the NASDAQ/NMS (or if Issuer Common Stock is not
quoted on the market or securities exchange on which such shares are
traded as traded as reported by a recognized source chosen by Grantee
and reasonably acceptable to Issuer) during the 60 business days
preceding the Request Date; provided, however, that in the event of a
sale of less than all of Issuer's assets, the Applicable Price shall be
the sum of the price paid in such sale for such assets and the current
market value of the remaining assets of Issuer as determined by a
nationally recognized investment banking firm selected by Grantee,
divided by the number of shares of the Issuer Common Stock outstanding
at the time of such sale. If the consideration to be offered, paid or
received pursuant to either of the foregoing clauses (i) or (ii) shall
be other than in cash, the value of such consideration shall be
determined in good faith by an independent nationally recognized
investment banking firm selected by Grantee and reasonably acceptable to
Issuer, which determination shall be conclusive for all purposes of the
Agreement.
(d) As used herein, "Repurchase Event" shall occur if (i) any
person (other than Grantee or any subsidiary of Grantee) shall have
acquired beneficial ownership of (as such term is defined in Rule 13d-3
promulgated under the 1934 Act), or the right to acquire beneficial
ownership of, or any "group" (as such term is defined under the 1934
Act) shall have been formed which beneficially owns or has the right the
acquire beneficial ownership of, 50% or more of the then outstanding
shares of Issuer Common Stock, or (ii) any of the transactions described
in Section 7(b)(i), 7(b)(ii), or 7(b)(iii) shall be consummated.
(e) In connection with the application of the provisions of this
Section 8, Grantee acknowledges that Issuer's ability to fund the
Section 8 Repurchase Consideration in accordance with the provisions of
this Section 8 may be dependant upon the ability of Issuer to obtain the
prior approval of the Board of Governors of the Federal Reserve System
and applicable provisions of Florida law and that, unless there has been
an agreement of the type described in Section 7(b), Issuer's obligations
under this Section 8 do not impose on the Issuer an obligation to
otherwise finance the payment of the Section 8 Repurchase Consideration
through the incurrence of indebtedness or the issuance of capital
instruments or securities by Issuer in either case sufficient in amount
to satisfy the payment of the Section 8 Repurchase Consideration.
Accordingly, Issuer shall not be deemed to be
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in breach of this Section 8 if, after making its best efforts to obtain
regulatory authorization for a capital distribution required to pay the
Section 8 Repurchase Consideration, it is unable to do so.
9. Quotation: Listing. If the Issuer Common Stock or any other
securities to be acquired upon exercise of the Option are then authorized
for quotation or trading or listing on the NASDAQ/NMS or any securities
exchange, Issuer, upon the request of Grantee, will promptly file an
application, if required, to authorize for quotation or trading or listing
shares of Issuer Common Stock or other securities to be acquired upon
exercise of the Option on the NASDAQ/NMS or such other securities exchange
and will use its best efforts to obtain approval, if required, of such
quotation or listing as soon as practicable.
10. Division of Option. This Agreement (and the Option granted
hereby) are exchangeable, without expense, at the Option of the Grantee,
upon presentation and surrender of this Agreement at the principal office
of Issuer for other Agreements providing for Options of different
denominations entitling the holder thereof to purchase in the aggregate the
same number of shares of Issuer Common Stock purchasable hereunder. The
terms "Agreement" and "Option" as used herein include any other Agreements
and related Options for which this Agreement (and the Option granted
hereby) may be exchanged. Upon receipt by Issuer of evidence reasonably
satisfactory to it of the loss, theft, destruction, or mutilation of this
Agreement, and (in the case of loss, theft, or destruction) of reasonably
satisfactory indemnification, and upon surrender and cancellation of this
Agreement, if mutilated, Issuer will execute and deliver a new Agreement of
like tenor and date. Any such new Agreement executed and delivered shall
constitute an additional contractual obligation on the part of the Issuer,
whether or not the Agreement so lost, stolen, destroyed or mutilated shall
at any time be enforceable by anyone.
11. Miscellaneous.
(a) Expenses. Each of the parties hereto shall bear and pay all
costs and expenses incurred by it or on its behalf in connection with
the transactions contemplated hereunder, including fees and expenses of
its own financial consultants, investment bankers, accountants and
counsel.
(b) Waiver and Amendments. Any provision of this Agreement may be
waived at any time in writing by the party that is entitled to the
benefits of such provision. This Agreement may not be modified, amended,
altered, or supplemented except upon the execution and delivery of a
written agreement executed by the parties hereto.
(c) Entire Agreement: No Third-Party Beneficiary:
Severability. This Agreement, together with the Merger Agreement and
the other documents and instruments referred to herein and therein,
between Grantee and Issuer (a) constitutes the entire agreement and
supersedes all prior agreements and understandings, both written and
oral, between the parties with respect to the subject matter hereof and
(b) is not intended to confer upon any person other than the parties
hereto (other than any transferee of the Option Shares or any permitted
transferee of this Agreement pursuant to Section 11(h)) any rights or
remedies hereunder. If any terms, provision, covenant, or restriction of
this Agreement is held by a court of competent jurisdiction or a federal
or state regulatory agency to be invalid, void or unenforceable, the
remainder of the terms, provisions, covenants, and restrictions of this
Agreement shall remain in full force and effect and shall in no way be
affected, impaired, or invalidated. If for any reason such court or
regulatory agency determines that the Option does not permit Grantee to
Acquire, or does not require Issuer to repurchase, the full number of
shares of Issuer Common Stock as provided in Sections 3 and 8 (as
adjusted pursuant to Section 7), it is the express intention of Issuer
to allow Grantee to Acquire or to require Issuer to repurchase such
lesser number of shares as may be permissible without any amendment or
modification hereof.
(d) Governing Law. This Agreement shall be governed and construed
in accordance with the laws of the State of Alabama without regard to
any applicable conflicts of law rules.
(e) Descriptive Headings. The description headings contained
herein are for convenience of reference only and shall not affect in any
way the meaning or interpretation of this Agreement.
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(f) Notices. All notices and other communications hereunder shall
be in writing and shall be deemed given if delivered personally,
telecopied (with confirmation), or mailed by registered or certified
mail (return receipt requested) to the parties at the following
addresses (or at such other address for a party as shall be specified by
like notice):
If to Issuer to: Commercial Bank of Nevada
2820 West Charleston Boulevard
Las Vega, Nevada 89102
Telecopy Number: (702) 877-1174
Attention: John Gaynor
President and CEO
with a copy to: Haynie, Rake & Repass, P.C.
14651 Dallas Parkway
Dallas, Texas 75240
Telecopy Number: (972) 716-1850
Attention: Mark Haynie
If to Grantee to: The Colonial BancGroup, Inc.
P.O. Box 1108
Montgomery, Alabama 36101
Telecopy Number: (334) 240-5069
Attention: W. Flake Oakley, IV
Chief Financial Officer
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with a copy to: William A. McCrary
Vice President & Legal Counsel
One Commerce Street
Montgomery, Alabama 36104
Telecopy Number: (334) 240-5315
(g) Counterparts. This Agreement and all amendments hereto may be
executed in two counterparts, each of which shall be considered one and
the same agreement and shall become effective when both counterparts
have been signed, it being understood that both parties need not sign
the same counterpart.
(h) Assignment. Neither this Agreement nor any of the rights,
interests, or obligations hereunder or under the Option shall be
assigned by any of the parties hereto (whether by operation of law or
otherwise) without the prior written consent of the other party, except
that Grantee may assign this Agreement to a wholly owned subsidiary of
Grantee. Subject to the preceding sentence, this Agreement shall be
binding upon, inure to the benefit of and be enforceable by the parties
and their respective successors and assigns.
(i) Further Assurances. In the event of any exercise of the Option
by Grantee, Issuer and Grantee shall execute and deliver all other
documents and instruments and take all other action that may be
reasonably necessary in order to consummate the transactions provided
for by such exercise.
(j) Specific Performance. The parties hereto agree that this
Agreement may be enforced by either party through specific performance,
injunctive relief, and other equitable relief. Both parties further
agree to waive any requirement for the securing or posting of any bond
in connection with the obtaining of any such equitable relief and that
this provision is without prejudice to any other rights that the parties
hereto may have for any failure to perform this Agreement.
IN WITNESS WHEREOF, Issuer and Grantee have caused this agreement to be
signed by their respective officers thereunto duly authorized, all as of the day
and year first written above.
<TABLE>
<S> <C> <C> <C>
ATTEST: COMMERCIAL BANK OF NEVADA
By: /s/ JERRY E. POLIS By: /s/ JOHN S. GAYNOR
------------------------------------------------ ------------------------------------------------
Its: Chairman Its: President & CEO
(CORPORATE SEAL)
ATTEST: THE COLONIAL BANCGROUP, INC.
By: /s/ GLENDA ALLRED By: /s/ W. FLAKE OAKLEY
------------------------------------------------ ------------------------------------------------
Its: Assistant Secretary Its: Chief Financial Officer
(CORPORATE SEAL)
</TABLE>
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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> 148
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> 149
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., Colonial Bank and Commercial Bank of Nevada, dated as of
February 25, 1998, included in the Prospectus portion of this
Registration Statement at Appendix A and incorporated herein
by reference.
2.2 Stock Option Agreement between The Colonial BancGroup, Inc.
and Commercial Bank of Nevada, dated as of February 25, 1998,
included in the Prospectus portion of this Registration
Statement at Appendix D 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.
3
<PAGE> 150
4.2 Amendment to Article 4 of Registrant's Restated Certificate of
Incorporation, dated April 16, 1997, filed as Exhibit 4(A)(2)
to the Registrant's Registration Statement on Form S-4 (File
No. 333- 26217), effective May 9, 1997, and incorporated
herein by reference.
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.
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 Consent of Coopers & Lybrand L.L.P.
23.2 Consent of McGladrey & Pullen, LLP
23.3 Consent of Hoefer & Arnett, Incorporated
23.4 Consent of Miller, Hamilton, Snider & Odom, L.L.C.
Exhibit 24 Power of Attorney
Exhibit 99 Additional exhibits:
99.1 Form of Proxy of Commercial Bank of Nevada
4
<PAGE> 151
(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.
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
5
<PAGE> 152
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 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
6
<PAGE> 153
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.
7
<PAGE> 154
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 17th day of April, 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.
SIGNATURES TITLE DATE
/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, Jr.
8
<PAGE> 155
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
9
<PAGE> 156
* 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
10
<PAGE> 157
* Director **
- -----------------------------
Simuel Sippial
Director
- -----------------------------
Ed V. Welch
* 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: April 17, 1998
11
<PAGE> 158
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)
12
<PAGE> 159
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT PAGE
- ------- ----
<S> <C> <C> <C>
Exhibit 2 Plan of acquisition, reorganization, arrangement,
liquidation of successor:
2.1 Agreement and Plan of Merger between The Colonial BancGroup,
Inc., Colonial Bank and Commercial Bank of Nevada, dated as of
February 25, 1998, included in the Prospectus portion of this
registration statement at Appendix A and incorporated herein
by reference.
2.2 Stock Option Agreement between The Colonial BancGroup, Inc.
and Commercial Bank of Nevada, dated as of February 25, 1998,
included in the Prospectus portion of this Registration
Statement at Appendix D 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 or Registrant's Restated Certificate of
Incorporation, dated April 16, 1997, filed as Exhibit 4(A)(2)
to the Registrant's Registration Statement on Form S-4 (File
No. 333- 26217), effective May 9, 1997, and incorporated
herein by reference.
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
</TABLE>
13
<PAGE> 160
<TABLE>
<S> <C> <C>
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 Consent of Coopers & Lybrand L.L.P.
23.2 Consent of McGladrey & Pullen, LLP
23.3 Consent of Hoefer & Arnett, Incorporated
23.4 Consent of Miller, Hamilton, Snider & Odom, L.L.C.
Exhibit 24 Power of Attorney
Exhibit 99 Additional exhibits:
99.1 Form of Proxy of Commercial Bank of Nevada
</TABLE>
14
<PAGE> 1
EXHIBIT 5
OPINION AS TO CERTAIN DELAWARE LAW ISSUES OF THE SECURITIES
BEING REGISTERED
15
<PAGE> 2
April 15, 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 Commercial Bank
of Nevada (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 February 25, 1998
(the "Agreement"), by and among the Company, Colonial Bank and Commercial Bank
of Nevada and the issuance by the Company of its Common Stock pursuant to stock
options being assumed by the Company in accordance with the Agreement. 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
April 15, 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/mfm
17
<PAGE> 1
EXHIBIT 8
TAX OPINION
18
<PAGE> 2
EXHIBIT 8
Mr. Flake Oakley
Chief Financial Officer
Colonial BancGroup, Inc.
P.O. Box 1109
Montgomery, AL 36101
Dear Mr. Oakley:
For valid business reasons, Commercial Bank Of Nevada (Acquired Bank) and The
Colonial BancGroup, Inc. (BancGroup) have entered into an Agreement and Plan of
Merger (Agreement) on February 25, 1998. Pursuant to your request, our letter
addresses the 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 income tax consequences to Acquired
Bank, BancGroup, and shareholders.
BACKGROUND
Acquired Bank operates as a Nevada state bank with its principal office in Las
Vegas, Nevada. BancGroup, a Delaware corporation, is a bank holding company
with a wholly-owned subsidiary, Colonial Bank. Colonial Bank currently operates
in Alabama, Georgia, Tennessee, and Florida.
CERTAIN TERMS OF THE MERGER
At the effective date of the merger, Acquired Bank will merge with and into
Colonial Bank, with Colonial Bank as the surviving corporation. Pursuant to the
terms of the transaction, each share of common stock of Acquired Bank
outstanding and held by Acquired Bank'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 (1:1 exchange ratio).
No fractional shares of BancGroup common stock will be issued. Instead, each
holder of shares of Acquired Bank 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
Bank stock, be paid by BancGroup an amount in cash. Any shareholder of Acquired
Bank 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 Bank stock.
<PAGE> 3
REPRESENTATIONS OF PARTIES
- - BancGroup and Acquired Bank 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 Bank pursuant to the terms of the Agreement will be approximately
equal to the fair market value of Acquired Bank stock surrendered in the
exchange. The terms of the Agreement are the result of arm's-length
negotiations between unrelated parties.
- - No stock of Colonial Bank will be issued in the transaction.
- - There is no plan or intention by the shareholders of Acquired Bank to sell,
exchange, or otherwise dispose of a number of shares of BancGroup stock
received in the transaction that will reduce the Acquired Bank 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 Bank as of the same date. For purposes
of this representation, shares of Acquired Bank 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 Bank stock on the
date of the transaction. Shares of Acquired Bank stock and shares of BancGroup
stock held by Acquired Bank 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 Bank or use a significant portion of Acquired Bank's historic business
assets in a business.
- - Acquired Bank, BancGroup and Acquired Bank 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.
- - The fair market value of the assets of Acquired Bank 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 Bank transferred to
BancGroup will equal or exceed the sum of the liabilities assumed by BancGroup
plus the amount of liabilities, if any, to which
<PAGE> 4
the assets transferred are subject.
- - Colonial Bank will acquire "substantially all" of the assets of Acquired Bank
as part of the merger per Regulation Section 1.368-2(b)(2). Generally, the
"substantially all" requirement will be satisfied if there is a transfer of
assets representing at least 90% of the fair market value of the net assets and
at least 70% of the fair market value of the gross assets held by Acquired Bank
immediately prior to the transfer.
TAX CONSEQUENCES TO ACQUIRED BANK, COLONIAL BANK, AND BANCGROUP
The merger of Acquired Bank with and into Colonial Bank will constitute a
merger within the meaning of I.R.C. Sections 368(a)(1)(A) and 368(a)(2)(D),
provided that the merger qualifies as a statutory merger pursuant to state law.
Acquired Bank, Colonial Bank, 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 Bank will recognize no gain or
loss when it transfers its assets to Colonial Bank in a constructive exchange
solely for BancGroup's stock and the assumption of Acquired Bank's liabilities
by BancGroup. Acquired 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 BancGroup or Colonial Bank upon the acquisition by Colonial Bank of the
assets of Acquired Bank in exchange for BancGroup common stock and the
assumption of Acquired 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 Acquired 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 Acquired Bank's asset received in the merger will include the period
during which the asset was held by Acquired Bank immediately before the
transaction. The basis of Colonial Bank stock in the hands of BancGroup will be
increased by an amount equal to the basis of the Acquired Bank assets acquired
by Colonial Bank and decreased by the sum of the amount of liabilities of
Acquired Bank assumed by Colonial Bank and the amount of liabilities to which
the assets of Acquired Bank are subject.
Pursuant to I.R.C. Section 381(a), Colonial Bank will succeed to and take into
account the items of Acquired 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
Acquired Bank 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 ACQUIRED BANK SHAREHOLDERS
I.R.C. Section 354 states that a shareholder who receives solely BancGroup
common stock in exchange for Acquired Bank 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 Bank
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 Bank 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 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 Bank Common Stock who receive cash upon the
exercise of any appraisal rights will incur 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 Bank
shareholder could be treated as a dividend (to the extent of the shareholder's
ratable share of applicable earnings and profits) if the shareholder
constructively owns shares of Acquired Bank 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 Bank 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.
<PAGE> 6
Where the complete termination of interest test is not satisfied with respect
to a particular shareholder (because, for example, Acquired Bank 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 Bank shareholders who constructively own stock in Acquired Bank should
consult a tax advisor regarding the characterization of cash payments received
in the reorganization in exchange for Acquired Bank stock as either capital
gain income or dividend income.
SUMMARY
The merger of Colonial Bank and Acquired Bank will qualify as a tax-free
reorganization within the meaning of I.R.C. Sections 368(a)(1)(A) and
368(a)(2)(D), provided that the merger qualifies as a statutory merger pursuant
to state law. Colonial Bank's basis in Acquired Bank's assets will be the same
as Acquired Bank's basis in its assets before the merger. Acquired Bank
shareholders will retain a substituted basis in the shares of BancGroup stock
received in the merger decreased by the amount of cash received and increased
by the amount of gain recognized in the transaction. 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 Bank and
BancGroup stock for purposes of determining the tax consequences of the cash
payments.
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 February 27, 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
April 15, 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
April 15, 1998
19
<PAGE> 1
EXHIBIT 23.2
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
We hereby consent to the use in this Registration Statement on Form S-4 of our
report, dated March 4, 1998, with respect to the financial statements of
Commercial Bank of Nevada. We also consent to the reference of our Firm under
the heading "Experts" in the Prospectus.
/s/ McGladrey & Pullen, LLP
McGLADREY & PULLEN, LLP
Las Vegas, Nevada
April 15, 1998
<PAGE> 1
EXHIBIT 23.3
CONSENT OF HOEFER & ARNETT, INCORPORATED
Agreement and Plan of Merger between Commercial Bank of Nevada, Las Vegas,
Nevada, The Colonial BancGroup, Inc., Montgomery, Alabama, and Colonial Bank,
and the proposed merger of Commercial Bank of Nevada with and into Colonial
Bank, the undersigned, acting as an independent financial analyst to the common
shareholders of Commercial Bank of Nevada, hereby consents to the reference to
our firm in the proxy statement and to the inclusion of our fairness opinion as
an exhibit to the proxy statement.
April 15, 1998
/s/ Hoefer & Arnett, Incorporated
---------------------------------
HOEFER & ARNETT, INCORPORATED
AUSTIN, TEXAS
20
<PAGE> 1
EXHIBIT 23.4
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.
April 15, 1998
21
<PAGE> 1
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> 2
<TABLE>
<S> <C>
/s/ Robert E. Lowder Chairman of the Board
- ------------------------ and Chief Executive
Robert E. Lowder Officer
Director
- ------------------------
Lewis Beville
/s/ Young J. Boozer, Jr. Director
- ------------------------
Young J. Boozer, Jr.
Director
- ------------------------
William Britton
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
Director
- ------------------------
Clinton Holdbrooks
Director
- ------------------------
D. B. Jones
/s/ Harold D. King Director
- ------------------------
Harold D. King
</TABLE>
2
<PAGE> 3
<TABLE>
<S> <C>
/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.
Director
- ------------------------
Joe D. Mussafer
Director
- ------------------------
William E. Powell, III
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
Director
- ------------------------
Ed V. Welch
</TABLE>
3
<PAGE> 1
EXHIBIT 99.1
PROXY FOR SPECIAL SHAREHOLDERS MEETING OF
COMMERCIAL BANK OF NEVADA
LAS VEGAS, NEVADA
KNOW ALL MEN BY THESE PRESENTS, that I, the undersigned shareholder of
Commercial Bank of Nevada ("Commercial"), do hereby nominate, constitute, and
appoint, and , or any one of them (with
full power and substitution for me and in my name, place and stead) to vote all
the common stock of Commercial standing in my name on its books on ,
1998 at the Special Meeting of its shareholders to be held at the main office of
Commercial, 2820 W. Charleston Boulevard, Las Vegas, Nevada, on , 1998
at .m., local time, or any adjournments thereof with all the powers the
undersigned would possess if personally present as follows:
1. To ratify, confirm, approve and adopt an Agreement and Plan of Merger dated
February 25, 1998 (the "Agreement"), by and between Commercial, Colonial
BancGroup, Inc. and Colonial Bank with such agreement providing for, among
other things, the merger of Commercial with and into Colonial Bank. Each
outstanding share of Commercial common stock will be converted into common
shares of Colonial BancGroup, Inc. in accordance with the terms of the
Agreement.
[ ] FOR [ ] AGAINST [ ] ABSTAIN
2. To transact such other business as may properly come before the meeting or
any adjournment thereof.
(Continued and to be dated and signed on reverse side)
This proxy confers authority to vote "FOR" the propositions listed above
unless "AGAINST" or "ABSTAIN" is indicated. If any business is presented at said
meeting, this proxy shall be voted in accordance with the recommendations of
management. All shares represented by properly-executed proxies will be voted as
directed.
The Board of Directors recommends a vote "FOR" the propositions. THIS PROXY IS
SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS and may be revoked prior to its
exercise by either written notice or personally at the meeting or by a
subsequently-dated proxy.
Dated:
------------------------, 1998
------------------------------
------------------------------
Signature of Shareholder(s)
(When signing as Attorney,
Executor, Administrator,
Trustee or Guardian, please
give full title. If more than
one Trustee, all should sign.
All joint owners must sign.)
