<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JULY 20, 1998.
REGISTRATION NO. 333-
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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 (I.R.S. Employer
Industrial Identification No.)
Classification Code
Number)
</TABLE>
<TABLE>
<S> <C>
ONE COMMERCE STREET, SUITE 800 (334) 240-5000
MONTGOMERY, ALABAMA 36104 (Telephone No.)
(Address of principal executive
offices)
</TABLE>
---------------------
WILLIAM A. MCCRARY, ESQ.
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>
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WILLARD H. HENSON, ESQ. JOHN P. GREELEY, ESQ.
MILLER, HAMILTON, SNIDER & ODOM, L.L.C. SMITH, MACKINNON, GREELEY,
ONE COMMERCE ST., SUITE 305 BOWDOIN & EDWARDS, P.A.
MONTGOMERY, ALABAMA 36101 SUITE 800, CITRUS CENTER
TELEPHONE: 334-834-5550 255 SOUTH ORANGE AVENUE
FACSIMILE: 334-265-4533 ORLANDO, FLORIDA 32801
TELEPHONE: 407-843-7300
FACSIMILE: 407-843-2448
</TABLE>
---------------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon as
practicable after the effective time of the proposed merger of Prime Bank of
Central Florida ("Prime Bank") with and into Colonial Bank, a subsidiary of the
Registrant (the "Merger") as described in the Agreement and Plan of Merger,
dated as of May 21, 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
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PROPOSED MAXIMUM PROPOSED MAXIMUM
TITLE OF EACH CLASS OF AMOUNT TO BE OFFERING PRICE PER AGGREGATE OFFERING AMOUNT OF
SECURITIES TO BE REGISTERED REGISTERED(1) UNIT PRICE(2) REGISTRATION FEE
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<S> <C> <C> <C> <C>
Common Stock, par value $2.50 per
share.................................. 662,080 Not Applicable $7,454,265 $2,199.01
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</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 March 31, 1998 of $16.51 per share of 451,500
shares of Prime Bank common stock, including 51,500 shares subject to
employee stock options.
---------------------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON EACH SUCH DATE
OR DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT
SHALL FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(A),
MAY DETERMINE.
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<PAGE> 2
PRIME BANK OF CENTRAL FLORIDA
680 COUNTRY CLUB DRIVE
TITUSVILLE, FLORIDA 32780-3461
407/268-3800
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 Prime Bank of Central Florida ("Prime Bank") 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 May 21, 1998, between Prime Bank, The Colonial BancGroup, Inc.
("BancGroup") and Colonial Bank, a wholly owned subsidiary of BancGroup
(the "Agreement"), and the proposed merger (the "Merger") of Prime Bank
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
Prime Bank, par value $1.00 per share (the "Prime Bank Common Stock") will
be converted into a number of shares of common stock of BancGroup, par
value $2.50 per share (the "BancGroup Common Stock"), equal to $41.44
divided by the "Market Value" of BancGroup Common Stock, subject to a
maximum and minimum number of shares of BancGroup Common Stock to be issued
in the Merger. The "Market Value" shall be the average of the closing
prices of BancGroup Common Stock as reported on the New York Stock Exchange
on the ten consecutive trading days ending on the day that is the fifth
trading day 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 in greater detail 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 Prime Bank 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. A holder of Prime Bank
Common Stock who complies with the provisions of applicable law relating to
dissenters' rights will be entitled to receive payment in cash of the value of
only those shares held by the shareholder (i) which are voted against the
approval of the Agreement at the Special Meeting, or (ii) with respect to which
the holder thereof has given written notice to Prime Bank at or prior to the
Special Meeting that the shareholder dissents from the Agreement. A copy of the
dissenters' rights provisions under applicable Florida law is attached to the
enclosed Proxy Statement and Prospectus as Appendix C.
SHARES VOTED AGAINST THE MERGER AT THE SPECIAL MEETING WILL BE TREATED AS
DISSENTING SHARES UNDER APPLICABLE LAW, AND HOLDERS OF SUCH SHARES WILL RECEIVE
CASH FOR THE VALUE OF THE SHARES. SUCH "VALUE" MAY BE DETERMINED BY APPRAISAL,
THE RESULTS OF WHICH CANNOT BE PREDICTED. RECEIPT OF SUCH CASH PAYMENT WILL BE A
TAXABLE EVENT TO THE PRIME BANK SHAREHOLDER.
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 Prime Bank, by executing a
later dated proxy and delivering it to the Secretary of Prime Bank, or by
attending the Special Meeting and voting in person.
BY ORDER OF THE BOARD OF DIRECTORS
--------------------------------------
Joseph V. Marto, Jr.
Chairman, President, and Chief
Executive Officer
, 1998
<PAGE> 3
PROSPECTUS
COMMON STOCK, $2.50 PAR VALUE
THE COLONIAL BANCGROUP, INC.
PROXY STATEMENT
FOR SPECIAL MEETING OF SHAREHOLDERS OF
PRIME BANK OF CENTRAL FLORIDA
This Proxy Statement and Prospectus (the "Prospectus") relates to the
proposed merger (the "Merger") of Prime Bank of Central Florida, a Florida state
bank ("Prime Bank"), 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 Prime Bank in connection with the solicitation
of proxies by the Board of Directors of Prime Bank for use at a special meeting
of the shareholders of Prime Bank (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
Prime Bank will consider and vote upon the matters set forth in the preceding
Notice of Special Meeting of Shareholders, as described in greater detail in
this Prospectus.
The Merger will be consummated pursuant to the terms of a certain Agreement
and Plan of Merger dated as of May 21, 1998, by and between BancGroup, Colonial
Bank and Prime Bank (the "Agreement"). The Agreement provides that, subject to
the approval of the Agreement by the shareholders of Prime Bank 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, Prime Bank
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, of Prime Bank (the "Prime Bank Common Stock"), will be
converted into a number of shares of the common stock of BancGroup, par value
$2.50 per share (the "BancGroup Common Stock"), which is equal to $41.44 divided
by the Market Value of the BancGroup Common Stock. The Market Value will be the
average of the closing prices of BancGroup Common Stock as reported on the New
York Stock Exchange (the "NYSE") for the ten trading days ending on the day that
is the fifth trading day immediately preceding the date on which the Merger is
effective (the "Effective Date"). The Agreement provides that the Market Value
shall not be less than $28.26 per share or more than $38.24 per share. After
giving effect to a two for one stock split, in the form of a 100% stock
dividend, declared by BancGroup with respect to its shares held of record as of
the close of business on August 3, 1998, the Market Value is contractually
limited to a range of between $14.13 and $19.12, and will otherwise be
determined by reference to an average of the closing prices of the BancGroup
shares as reported by the New York Stock Exchange. Assuming 400,000 shares of
Prime Bank Common Stock outstanding as of the Effective Date, that no
outstanding options to acquire Prime Bank Common Stock are exercised and that no
shareholders of Prime Bank exercise dissenters' rights of appraisal in the
Merger, and giving effect to the BancGroup stock split, the maximum number of
shares of BancGroup Common Stock to be issued in the Merger will be 1,173,120
(based upon a minimum Market Value of $14.13 per share and a resulting exchange
ratio of 2.9328 shares of BancGroup Common Stock per share of Prime Bank Common
Stock), and the minimum number of shares of BancGroup Common Stock to be issued
in the Merger will be 866,960 (based upon a maximum Market Value of $19.12 per
share and a resulting exchange ratio of 2.1674 shares of BancGroup Common
Stock). Cash will be paid in lieu of fractional shares at the Market Value of
such fractional shares. See "The Merger -- Conversion of Prime Bank 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 July 10, 1998 was
$33.50.
Consummation of the Merger requires, among other things, the affirmative
vote of the holders of at least a majority of the outstanding shares of Prime
Bank Common Stock. SHARES VOTED AGAINST THE MERGER AT THE SPECIAL MEETING WILL
BE TREATED AS DISSENTING SHARES UNDER APPLICABLE LAW, AND HOLDERS OF SUCH SHARES
WILL RECEIVE CASH FOR THE VALUE OF THE SHARES. SUCH "VALUE" MAY BE DETERMINED BY
APPRAISAL, THE RESULTS OF WHICH CANNOT BE PREDICTED. RECEIPT OF SUCH CASH
PAYMENT WILL BE A TAXABLE EVENT TO THE PRIME BANK SHAREHOLDER.
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 as well as to
register shares of BancGroup Common Stock to be issued upon the exercise of
employee stock options respecting Prime Bank Common Stock assumed by BancGroup
in the Merger. This document constitutes a Proxy Statement of Prime Bank in
connection with the solicitation of proxies by Prime Bank for the Special
Meeting and a Prospectus of BancGroup with respect to the BancGroup Common Stock
to be issued in the Merger and with respect to the BancGroup Common Stock to be
issued upon the exercise employee stock options assumed in the Merger. This
Prospectus and accompanying form of proxy are first being mailed to shareholders
of Prime Bank on or about the date set forth below.
THE BOARD OF DIRECTORS OF PRIME BANK UNANIMOUSLY RECOMMENDS
APPROVAL OF THE AGREEMENT.
---------------------
THE SECURITIES TO WHICH THIS PROSPECTUS RELATES HAVE NOT BEEN APPROVED OR
DISAPPROVED BY THE SECURITIES AND EXCHANGE COMMON 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 Prime Bank are 680 Country Club
Drive, Titusville, Florida 32780-3461 (telephone 407/268-3800), 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
Prime Bank has been furnished by Prime Bank.
This Prospectus contains certain forward-looking statements with respect to
the financial condition, results of operations, and business of BancGroup
following the consummation of the Merger and the proposed acquisition of other
banking institutions (the "Other Pending Acquisitions"), including statements
relating to the expected impact of the Merger and the Other Pending Acquisitions
on BancGroup's financial performance. These forward-looking statements involve
certain risks and uncertainties. Factors that may cause actual results to differ
materially from those contemplated by such forward-looking statements include,
among other things, the following possibilities: (i) expected cost savings from
the Merger and the Other Pending Acquisitions, if any or all of such
transactions are consummated, cannot be fully realized; (ii) deposit attrition,
customer loss, or revenue loss following the Merger and the Other Pending
Acquisitions is greater than expected; (iii) competitive pressure in the banking
industry increases significantly; (iv) costs or difficulties related to the
integration of the businesses of BancGroup and the institutions to be acquired
are greater than expected; (v) changes in the interest rate environment reduce
margins; (vi) general economic conditions, either nationally or regionally, are
less favorable than expected, resulting in, among other things, a deterioration
in credit quality; (vii) changes occur in the regulatory environment; (viii)
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 Prime Bank, 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.
i
<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 BANCGROUP OR PRIME BANK.
THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL, OR A SOLICITATION OF AN
OFFER TO BUY, ANY SECURITIES, OR THE SOLICITATION OF A PROXY, IN ANY
JURISDICTION, TO OR FROM ANY PERSON TO WHOM OR FROM WHOM IT IS UNLAWFUL TO MAKE
ANY SUCH OFFER OR SOLICITATION IN SUCH JURISDICTION. NEITHER THE DELIVERY OF
THIS PROSPECTUS NOR ANY DISTRIBUTION OF SECURITIES MADE HEREUNDER SHALL, UNDER
ANY CIRCUMSTANCES, CREATE ANY IMPLICATION THAT THERE HAS BEEN NO CHANGE IN THE
AFFAIRS OF BANCGROUP OR PRIME BANK 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 Quarterly Report on Form 10-Q for the quarter ended
March 31, 1998;
(3) BancGroup's Reports on Form 8-K dated March 16, 1998, April 15,
1998, June 2, 1998 and July 17, 1998;
(4) BancGroup's Registration Statement on Form 8-A dated November 22,
1994, effective February 22, 1995, containing a description of the
BancGroup Common Stock; and
(5) 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, or, in the case of the exercise of employee stock options that
are being assumed by BancGroup, prior to the exercise of such options, 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 Prime Bank 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).
ii
<PAGE> 6
TABLE OF CONTENTS
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SUMMARY..................................................... 1
THE SPECIAL MEETING......................................... 11
General................................................... 11
Record Date; Shares Entitled to Vote; Vote Required for
the Merger............................................. 11
Solicitation, Voting and Revocation of Proxies............ 12
Effect of Merger on Outstanding BancGroup Common Stock.... 13
THE MERGER.................................................. 14
General................................................... 14
Background of the Merger.................................. 14
Prime Bank's Board of Director's Reasons for Approving the
Merger................................................. 15
Opinion of Financial Advisor.............................. 16
Recommendation of the Board of Directors of Prime Bank.... 19
BancGroup's Reasons for the Merger........................ 20
Interests of Certain Persons in the Merger................ 20
Conversion of Prime Bank Common Stock..................... 21
Surrender of Prime Bank Common Stock Certificates......... 22
Certain Federal Income Tax Consequences................... 22
Other Possible Consequences............................... 24
Conditions to Consummation of the Merger.................. 24
Amendment or Termination.................................. 25
Regulatory Approvals...................................... 25
Conduct of Business Pending the Merger.................... 26
Commitments with Respect to Other Offers.................. 27
Rights of Dissenting Shareholders......................... 28
Resale of BancGroup Common Stock Issued in the Merger..... 29
Accounting Treatment...................................... 30
NYSE Reporting of BancGroup Common Stock Issued in the
Merger................................................. 30
Treatment of Prime Bank Options........................... 30
COMPARATIVE MARKET PRICES AND DIVIDENDS..................... 31
BancGroup................................................. 31
Prime Bank................................................ 32
BANCGROUP CAPITAL STOCK AND DEBENTURES...................... 32
BancGroup Common Stock.................................... 33
Preference Stock.......................................... 33
1986 Debentures........................................... 33
Other Indebtedness........................................ 34
Changes in Control........................................ 34
COMPARATIVE RIGHTS OF SHAREHOLDERS.......................... 36
Director Elections........................................ 36
Removal of Directors...................................... 36
Voting.................................................... 37
Preemptive Rights......................................... 37
Directors' Liability...................................... 37
Indemnification........................................... 37
Special Meetings of Shareholders; Action Without a
Meeting................................................ 38
Mergers, Share Exchanges and Sales of Assets.............. 39
Amendment of Certificate of Incorporation and Bylaws...... 39
Rights of Dissenting Shareholders......................... 39
</TABLE>
iii
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<TABLE>
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Preferred Stock........................................... 40
Effect of the Merger on Prime Bank Shareholders........... 40
THE COLONIAL BANCGROUP, INC. AND SUBSIDIARIES............... 41
Condensed Pro Forma Statement of Condition (Unaudited).... 41
COMPLETED BUSINESS COMBINATION.............................. 43
PENDING BUSINESS COMBINATIONS............................... 44
Condensed Pro Forma Statements of Income (Unaudited)...... 46
Selected Financial and Operating Information.............. 54
PRIME BANK.................................................. 57
Selected Financial Data................................... 57
Management's Discussion and Analysis of Financial
Condition and Results of Operations.................... 58
General................................................... 58
Liquidity................................................. 58
Capital Resources......................................... 59
Results of Operations..................................... 60
Net Interest Income....................................... 62
Asset/Liability Management................................ 65
Financial Condition....................................... 66
Asset Quality............................................. 68
Classification of Assets.................................. 69
Allowance for Credit Losses............................... 71
Investment Securities..................................... 73
Deposit Activities........................................ 74
Impact of Inflation and Changing Prices................... 75
BUSINESS OF BANCGROUP....................................... 77
General................................................... 77
Recently Completed and Other Proposed Business
Combinations........................................... 77
Year 2000 Compliance...................................... 78
Voting Securities and Principal Shareholders.............. 79
Security Ownership of Management.......................... 80
Management Information.................................... 81
BUSINESS OF PRIME BANK...................................... 82
Deposit Activities........................................ 82
Lending Activities........................................ 82
Investments............................................... 83
Employees................................................. 83
Properties................................................ 84
Year 2000 Issues.......................................... 84
Legal Proceedings......................................... 84
Management................................................ 85
Management and Principal Stock Ownership.................. 86
ADJOURNMENT OF SPECIAL MEETING.............................. 87
OTHER MATTERS............................................... 87
DATE FOR SUBMISSION OF BANCGROUP SHAREHOLDER PROPOSALS...... 87
LEGAL MATTERS............................................... 88
EXPERTS..................................................... 88
</TABLE>
iv
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<TABLE>
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INDEX TO FINANCIAL STATEMENTS............................... F-1
APPENDIX A -- Agreement and Plan of Merger.................. A-1
APPENDIX B -- Fairness Opinion of Allen C. Ewing & Co....... B-1
APPENDIX C -- Section 658.44 of the Florida Banking Code
Regarding Dissenters' Rights.............................. C-1
</TABLE>
v
<PAGE> 9
SUMMARY
The following provides a summary of certain information included in this
Prospectus. This summary is qualified in its entirety by the more detailed
information appearing elsewhere herein, the Appendices hereto and the documents
incorporated herein by reference. Shareholders of Prime Bank 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 Prime Bank with and into Colonial
Bank, a wholly owned subsidiary of BancGroup.
THE SPECIAL MEETING
This Prospectus is being furnished to the holders of Prime Bank Common
Stock in connection with solicitation by the Prime Bank Board of Directors of
proxies for use at the Special Meeting and at any and all adjournments and
postponements thereof at which Prime Bank shareholders will be asked to vote
upon (i) a proposal to approve the Agreement; and (ii) such other business as
may properly come before the meeting.
The Special Meeting will be held at on , 1998
at .m., local time, for the purpose of considering
and voting upon the Agreement and the Merger. Only holders of record of Prime
Bank Common Stock at the close of business on , 1998 (the "Record
Date") are entitled to the notice of and to vote at the Special Meeting. As of
the Record Date, shares of Prime Bank 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, Nevada and Tennessee. Colonial
Bank conducts a full service commercial banking business through 134 branches in
Alabama, five branches in Tennessee, 14 branches in Georgia, 75 branches in
Florida, and three branches in Nevada. BancGroup has also entered into
agreements to acquire four additional banks (excluding Prime Bank). Colonial
Mortgage Company, a subsidiary of Colonial Bank, is a mortgage banking company
which services approximately $13.8 billion in residential loans and which
originates residential mortgages in 34 states through four divisional offices.
The numbers and amounts given above were calculated as of March 31, 1998. At
March 31, 1998, BancGroup had consolidated total assets of $8.0 billion and
consolidated stockholders' equity of $571.6 million. Since March 31, 1998,
BancGroup has acquired one banking institution with aggregate assets of $131.3
million and aggregate stockholders' equity of $10.6 million. This acquisition is
included in the pro forma statements included herein. See "Business of
BancGroup."
Prime Bank. Prime Bank is a Florida state bank which is headquartered in
Titusville, Florida. Currently, the Bank operates five offices located in
Brevard County, Florida. At March 31, 1998, Prime Bank had total assets of
approximately $70.5 million, total deposits of approximately $63.1 million, and
total stockholders' equity of approximately $6.6 million. See "Business of Prime
Bank."
THE MERGER
The Agreement provides for the Merger of Prime Bank 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
Prime Bank Common Stock (except shares as to which dissenters' rights are
perfected) will be converted by operation of law and without any action by any
holder thereof into shares of BancGroup Common Stock. The number of shares of
BancGroup Common Stock into which each outstanding share of Prime Bank Common
Stock will be converted on the Effective Date will be equal to $41.44 divided by
the
1
<PAGE> 10
Market Value, subject to a maximum and minimum number of shares to be issued,
with cash 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 day that is the fifth trading day immediately preceding the
Effective Date. However, the Market Value shall not be less than $28.26 per
share or more than $38.24 per share. Subject to the exercise of certain options
to acquire Prime Bank Common Stock described below, the maximum number of shares
of BancGroup Common Stock that may be issued in the Merger shall be 662,080
(based upon a minimum Market Value of $28.26), and the minimum number of shares
of BancGroup Common Stock that may be issued in the Merger shall be 489,282
(based upon a maximum Market Value of $38.24). The number of shares of BancGroup
Common Stock to be issued in the Merger will increase proportionally with each
share of Prime Bank Common Stock issued before the Effective Date upon the
exercise of certain options to acquire Prime Bank Common Stock as described
below (the "Prime Bank Options").
The closing sales price on the NYSE of BancGroup Common Stock on July 10,
1998, was $33.50 per share. Accordingly, had the Effective Date occurred on July
10, 1998, the Market Value would have been 31.9375 and Prime Bank shareholders
would have received 1.2975 shares of BancGroup Common Stock for each share of
Prime Bank Common Stock. Shareholders are advised to obtain current market
quotations for BancGroup Common Stock. The market price of BancGroup Common
Stock at the Effective Date, or on the date on which certificates representing
such shares are received by Prime Bank 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.
On July 15, 1998, BancGroup announced that its Board of Directors had
declared a two for one split of BancGroup's Common Stock to be effected in the
form of a 100% stock dividend (the "Stock Split"). Stockholders of record of
BancGroup Common Stock will receive one share of BancGroup Common Stock for each
share they hold as of the close of business on August 3, 1998. The additional
shares will be distributed pursuant to the Stock Split on August 14, 1998.
The Agreement provides that shareholders of Prime Bank will receive in the
Merger an appropriate adjustment to reflect the Stock Split. Accordingly, the
Market Value as defined in the Agreement will be adjusted so that, following the
Stock Split, the Market Value will not be less than $14.13 and not more than
$19.12. Based upon such adjusted Market Values, the maximum number of shares of
BancGroup Common Stock to be issued in the Merger will be 1,173,120 and the
minimum number of shares to be issued will be 866,960 assuming 400,000 shares of
Prime Bank Common Stock outstanding at the Merger.
No fractional shares of BancGroup Common Stock will be issued in the
Merger. Each shareholder of Prime Bank 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 the date of this Prospectus, Prime Bank had granted Prime Bank
Options which entitle the holders thereof to acquire up to 51,500 shares of
Prime Bank Common Stock. On the Effective Date, BancGroup will assume all Prime
Bank Options outstanding, and each such option will represent the right to
acquire BancGroup Common Stock on substantially the same terms applicable to the
Prime Bank Options. The number of shares of BancGroup Common Stock to be issued
pursuant to such options will equal the number of shares of Prime Bank Common
Stock subject to such Prime Bank Options multiplied by the Exchange Ratio, as
defined below, provided that no fractional shares of BancGroup Common Stock will
be issued. The number of shares of BancGroup Common Stock to be issued upon the
exercise of Prime Bank Options, if a fractional share exists, will equal the
number of whole shares obtained by rounding to the nearest whole number (giving
account to such fraction), or by paying for such fractional share in cash in the
manner set forth in the preceding paragraph. The exercise price for the
acquisition of BancGroup Common Stock will be the exercise price for each share
of Prime Bank Common Stock subject to such options divided by the Exchange
Ratio, adjusted appropriately for any rounding to whole shares that may be
required. The "Exchange Ratio" will mean the result obtained by dividing $41.44
by the Market Value provided, an appropriate adjustment will be made for the
BancGroup Stock Split described above.
2
<PAGE> 11
Promptly after the Effective Date, Prime Bank shareholders will be given
notice of the consummation of the Merger and instructions for the exchange of
such shareholders' certificates representing shares of Prime Bank 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 Prime Bank Common Stock in accordance with those instructions.
PRIME BANK SHAREHOLDERS SHOULD NOT SEND IN THEIR CERTIFICATES UNTIL THEY RECEIVE
THE INSTRUCTIONS. See "The Merger -- Conversion of Prime Bank Common Stock,"
" -- Surrender of Prime Bank Common Stock Certificates," "-- Treatment of Prime
Bank Options."
For certain information concerning dissenters' rights, voting at the
Special Meeting, and management of BancGroup and Prime Bank, see "The
Merger -- Rights of Dissenting Shareholders," "-- Conversion of Prime Bank
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 Prime Bank -- Principal Holders of
Common Stock."
OPINION OF FINANCIAL ADVISOR
Prime Bank has received an opinion from Allen C. Ewing & Co. ("Ewing") that
the consideration to be received by the shareholders of Prime Bank in the
Merger, as described in the terms of the Agreement is fair, from a financial
point of view, to them. The full text of Ewing's opinion is set forth in
Appendix B to this Prospectus and should be read in its entirety by Prime Bank
shareholders. For additional information regarding Allen C. Ewing & Co.'s
opinion, see "The Merger -- Opinion of Financial Advisor."
RECOMMENDATION OF PRIME BANK'S BOARD OF DIRECTORS
The Board of Directors of Prime Bank has unanimously approved the
Agreement. THE BOARD OF DIRECTORS OF PRIME BANK BELIEVES THAT THE MERGER IS FAIR
TO, AND IN THE BEST INTERESTS OF, THE SHAREHOLDERS OF PRIME BANK 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 "-- Prime Bank's Board of
Director's Reasons for Approving the Merger."
INTERESTS OF CERTAIN PERSONS IN THE MERGER
As of the Record Date, certain executive officers of Prime Bank hold,
pursuant to option agreements with Prime Bank, Prime Bank Options which entitle
them to purchase, in the aggregate, up to 51,500 shares of Prime Bank Common
Stock. Under the terms of the Agreement, any Prime Bank Options which are not
exercised prior to the Effective Date will be assumed by BancGroup, and the
holders of such Prime Bank Options will thereafter have the right to acquire
shares of BancGroup Common Stock. See "The Merger -- Conversion of Prime Bank
Common Stock," and "-- Treatment of Prime Bank Options."
On the Effective Date and subject to the agreements discussed in the
following paragraphs, all employees of Prime Bank 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 Prime Bank 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.
BancGroup has agreed that Prime Bank will pay prior to the Effective Date
retention bonuses not to exceed $123,898 in the aggregate to certain key
employees.
BancGroup has agreed to enter into, on the Effective Date, employment
agreements with each of Joseph V. Marto, Jr., Prime Bank's Chairman, President,
and Chief Executive Officer, P. Bryan Fulmer, Prime Bank's Senior Vice President
and Chief Financial Officer, and James S. Tharpe, Prime Bank's Senior Vice
President and Chief Lending Officer. The agreement with Mr. Marto is for a term
of one year and provides for
3
<PAGE> 12
a base salary of $124,000 per year, subject to adjustments in salary and
discretionary bonuses that Colonial Bank may grant from time to time. The
agreements with Mr. Fulmer and Mr. Tharpe are each for a term of six months and
provide for base annual salaries of $57,000 and $66,795, respectively. Each of
the three agreements contains a covenant not to compete that runs in favor of
BancGroup and Colonial Bank for so long as the executive is receiving the
compensation set forth in the employment agreement. See "The Merger -- Interests
of Certain Persons in the Merger."
BancGroup has agreed to indemnify each person entitled to indemnity by
Prime Bank as of the Effective Date for a period of six years following the
Effective Date against claims arising out of acts of omissions prior to the
Effective Date. This group of persons includes the present officers and
directors of Prime Bank. BancGroup will be obligated to indemnify such persons
to the extent authorized under Prime Bank's articles of incorporation and bylaws
and under Florida law. See "Comparative Rights of Shareholders --
Indemnification."
As a condition to BancGroup's obligation to consummate the Merger, each
director of Prime Bank who is not also an officer of Prime Bank has delivered an
agreement providing, among other things, that for a period of two years
following the Effective Date, such director will not compete with BancGroup or
Colonial Bank in the banking business in Brevard County, Florida, or other
counties contiguous thereto. The agreement not to compete limits the ability of
such directors to serve as management officials or to be or become principal
shareholders of financial institutions other than BancGroup or Colonial Bank.
Except as indicated above, none of the directors or executive officers of
Prime Bank, 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 Prime Bank Common Stock.
See "The Merger -- Interests of Certain Persons in the Merger."
VOTE REQUIRED
Under Florida law and Prime Bank's articles of incorporation, the Agreement
must be approved by the affirmative vote of the holders of at least a majority
of the outstanding shares of Prime Bank Common Stock. Each share of Prime Bank
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, Florida or other applicable law, or the rules of the NYSE on which the
BancGroup Common Stock is listed. See "The Special Meeting."
Only holders of record of Prime Bank Common Stock at the close of business
on the Record Date are entitled to notice of and to vote at the Special Meeting.
As of such date, shares of Prime Bank Common Stock were issued
and outstanding. As of the Record Date, the directors and executive officers of
Prime Bank beneficially owned approximately % of the outstanding shares of
Prime Bank Common Stock. As of the same date, the directors, executive officers
and affiliates of BancGroup held no shares of Prime Bank Common Stock. See "The
Special Meeting."
As of the Record Date, the directors of Prime Bank beneficially owned
shares of Prime Bank Common Stock representing approximately
% of the outstanding shares and have agreed with BancGroup to vote their
shares in favor of the Agreement. See "The Special Meeting." As of February 27,
1998, Directors and executive officers of BancGroup beneficially owned in the
aggregate 4,965,923 shares of BancGroup Common Stock representing approximately
10.24% of BancGroup's outstanding shares.
Proxies should be returned to Prime Bank in the envelope enclosed herewith.
Shareholders of Prime Bank submitting proxies may revoke their proxies by (i)
giving notice of such revocation in writing to the Secretary of Prime Bank at or
prior to the Special Meeting, (ii) by executing and delivering a proxy bearing a
later date to the Secretary of Prime Bank 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 Prime Bank 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."
4
<PAGE> 13
RIGHTS OF DISSENTING SHAREHOLDERS
Holders of Prime Bank Common Stock as of the Record Date are entitled to
exercise dissenters' rights of appraisal pursuant to Section 658.44 of the
Florida Banking Code (the "FBC"). A holder of Prime Bank Common Stock who
complies with the provisions of applicable law relating to dissenters' rights
will be entitled to receive payment in cash of the value of only those shares
held by the shareholder (i) which are voted against the approval of the
Agreement at the Special Meeting, or (ii) with respect to which the holder
thereof has given written notice to Prime Bank at or prior to the Special
Meeting that the shareholder dissents from the Agreement. TO THE EXTENT THAT A
PRIME BANK SHAREHOLDER VOTES AGAINST THE MERGER OR OTHERWISE EXERCISES
DISSENTERS' RIGHTS, THAT SHAREHOLDER WILL LOSE THE RIGHT TO RECEIVE BANCGROUP
COMMON STOCK IN THE MERGER AND WILL INSTEAD RECEIVE A CASH PAYMENT FOR THE VALUE
OF HIS OR HER SHARES. Such "value" may be fixed by BancGroup at $41.44 per share
or be set by appraisal, the result of which cannot be predicted. Shareholders
wishing to exercise dissenters' rights of appraisal must follow exactly all
requirements for the exercise of such rights as set forth in Section 658.44 of
the FBC, a copy of which is attached as Appendix C to this Prospectus. 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 -- Rights
of Dissenting Shareholders," " -- 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 Prime Bank and BancGroup to consummate the Merger are
conditioned upon, among other things, (i) the approval of the Agreement by the
holders of at least a majority of the outstanding shares of Prime Bank Common
Stock; (ii) the approval of the Merger by the Board of Governors of the Federal
Reserve Board (the "Federal Reserve") and by the Alabama Banking Department (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 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 December 31, 1998; (viii) receipt of an
opinion of PricewaterhouseCoopers LLP regarding certain matters; and, (ix)
receipt of opinions of counsel.
The obligation of Prime Bank 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.
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 Prime Bank; (ii) the
number of shares as to which holders of Prime Bank Common Stock exercise
dissenters' rights not exceeding 10% of the outstanding shares of Prime Bank
Common Stock; (iii) the receipt of a letter from PricewaterhouseCoopers LLP
concurring with the conclusions of BancGroup's and Prime Bank'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 Prime Bank contained in the
Agreement, and the performance by Prime Bank of all of its covenants and
agreements under the Agreement; and, (v) the receipt by BancGroup of certain
undertakings from holders of
5
<PAGE> 14
Prime Bank Common Stock who may be deemed to be "affiliates" of Prime Bank
pursuant to the rules of the Commission.
Applications for appropriate regulatory approvals by the Federal Reserve
and the Alabama Department were filed with such agencies on , 1998.
The Federal Reserve's approval was received on or about , 1998, and
approval of the Alabama Department is anticipated on or about ,
1998. It is currently anticipated that the Merger will be consummated during the
fourth 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, under applicable law, after
adoption of the Agreement and the Merger by the holders of Prime Bank Common
Stock, no amendment decreasing the consideration to be received by Prime Bank
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 Prime Bank, by the mutual
consent of the respective Boards of Directors of Prime Bank and BancGroup, or by
the Board of Directors of either BancGroup or Prime Bank under certain
circumstances including, but not limited to, the failure of the transactions
contemplated by the Agreement to be consummated on or prior to December 31,
1998, if such failure to consummate is not caused by any breach of the Agreement
by the party electing to terminate. The Agreement also may be terminated without
further action by either party, upon the execution by Prime Bank of a legally
binding agreement between Prime Bank and any third party with respect to any
Acquisition, Proposal, provided that BancGroup will have the right to demand
payment of liquidated damages. See "The Merger -- Commitment with Respect to
Other Offers". See "The Merger -- Amendment or Termination of Agreement."
COMMITMENT WITH RESPECT TO OTHER OFFERS
The Agreement provides that, except for the transactions provided therein,
neither Prime Bank nor any of its affiliates or representatives may, directly or
indirectly, solicit any "Acquisition Proposal" relating to Prime Bank. In
addition, except to the extent required to comply with its fiduciary duties, the
Board of Directors of Prime Bank is prohibited from negotiating or entering into
any contract relating to an Acquisition Proposal. If Prime Bank either (i)
enters into a letter of intent or a definitive agreement with respect to an
Acquisition Proposal before the Effective Date or termination of the Agreement
in accordance with its terms (subject to certain exceptions), or (ii) receives
an Acquisition Proposal before termination of the Agreement (subject to certain
exceptions) and consummates the transactions contemplated by such Acquisition
Proposal, then Prime Bank will pay BancGroup $750,000 as liquidated damages. See
"The Merger -- Commitment with Respect to Other Offers."
COMPARATIVE RIGHTS OF SHAREHOLDERS
The rights of the holders of the Prime Bank 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 Prime Bank's shareholders will be requested from
the Internal Revenue Service (the "IRS"). Prime Bank has received an opinion
from Price-
6
<PAGE> 15
waterhouseCoopers LLP, that, among other things, a shareholder of Prime Bank who
exchanges shares of Prime Bank Common Stock for BancGroup Common Stock will not
recognize gain, except that shareholders of Prime Bank 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 Prime
Bank 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 OF THE MERGER FOR INDIVIDUAL TAXPAYERS CAN VARY, HOWEVER, AND PRIME
BANK 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 Prime Bank 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
Prime Bank. There is no established public trading market for the Prime
Bank Common Stock. The shares of Prime Bank Common Stock are not actively
traded, and such trading activity, as it occurs, takes place in privately
negotiated transactions. Management of Prime Bank is aware of certain
transactions in shares of Prime Bank 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 Prime Bank
Common Stock that have occurred since January 1, 1996 for transactions in which
the trading prices are known to management of Prime Bank:
<TABLE>
<CAPTION>
PRICE PER SHARE
OF COMMON STOCK
---------------
HIGH LOW
------ ------
<S> <C> <C>
1996
First Quarter............................................... $10.50 $10.00
Second Quarter.............................................. -- --
Third Quarter............................................... -- --
Fourth Quarter.............................................. $10.50 $10.50
1997
First Quarter............................................... $11.00 $11.00
Second Quarter.............................................. $11.00 $11.00
Third Quarter............................................... $11.00 $11.00
Fourth Quarter.............................................. $11.50 $11.50
1998
First Quarter............................................... $11.00 $11.00
Second Quarter.............................................. -- --
Third Quarter (through July 15, 1998)....................... -- --
</TABLE>
BancGroup. BancGroup Common Stock is listed for trading on the NYSE under
the symbol "CNB." The following table indicates the high and low closing prices
of the BancGroup Common Stock as reported on the NYSE since January 1, 1996.
7
<PAGE> 16
<TABLE>
<CAPTION>
PRICE PER SHARE
OF COMMON
STOCK(1)
----------------
HIGH LOW
------ -----
<S> <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
1998
First Quarter............................................... 36 1/4 31 1/2
Second Quarter.............................................. 37 9/16 29 1/2
Third Quarter (through July 10, 1998)....................... 33 1/2 32 5/8
</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 May 20, 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 $33.25 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 Prime Bank Common Stock on that date:
<TABLE>
<CAPTION>
EQUIVALENT
BANCGROUP PRIME BANK BANCGROUP
COMMON STOCK(1) COMMON STOCK(2) COMMON STOCK(3)
--------------- --------------- ---------------
<S> <C> <C> <C>
Comparative Market Value.............. $33.25 $11.00 $41.44
</TABLE>
- ---------------
(1) Closing price as reported by the NYSE on May 20, 1998.
(2) There is no established public trading market for the shares of Prime Bank
Common Stock. The value shown is the price at which shares of Prime Bank
Common Stock were sold in January 1998, which was the last sale price prior
to the public announcement of the Merger on May 20, 1998, of which
management of Prime Bank is aware.
(3) The ten-day average of the closing price of BancGroup Common Stock
calculated in the same manner as the Market Value will be calculated, was
$34.85625 on May 20, 1998. Therefore, if the Merger had closed on May 20,
1998, 1.1889 ($41.44 divided by $34.85625) shares of BancGroup Common Stock
would have been exchanged for each share of Prime Bank 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 (the "BancGroup Bylaws") also contain provisions which
may deter or prevent a takeover of BancGroup that is not supported by
BancGroup's Board of Directors. These provisions include: (1) a classified board
of directors, (2) super majority voting requirements for certain "business
combinations" that exceed the provisions of Delaware law described above, (3)
flexibility for the Board of Directors to consider non-economic and other
8
<PAGE> 17
factors in evaluating a "business combination," (4) inability of shareholders to
call special meetings and act by written consent, and (5) certain advance notice
provisions for the conduct of business at shareholder meetings.
See "BancGroup Capital Stock and Debentures" and "Comparative Rights of
Shareholders."
PER SHARE DATA
The table below presents on a per share basis the book value, cash
dividends and income from continuing operations of BancGroup and Prime Bank on a
historical basis and on a pro forma equivalent basis assuming consummation of
the Merger. Certain information from the table has been taken from the condensed
pro forma statements of condition and income included elsewhere in this
document. The table should be read in conjunction with these pro forma
statements.
PER SHARE DATA
<TABLE>
<CAPTION>
THREE MONTHS THREE MONTHS
ENDED ENDED
MARCH 31, MARCH 31, YEAR ENDED YEAR ENDED YEAR ENDED
1998 1997 1997 1996 1995
------------ ------------ ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
BANCGROUP -- HISTORICAL (AS RESTATED*):
Net income
Basic.................................. $ 0.38 $ 0.42 $ 1.77 $ 1.31 $ 1.27
Diluted................................ 0.37 0.41 1.72 1.27 1.18
Book value at end of period................ 11.88 10.64 11.52 10.23 9.38
Dividends per share:
Common Stock........................... 0.17 0.15 0.60 0.54 0.3375
Common A**............................. 0.1125
Common B**............................. 0.0625
PRIME BANK
Net Income
Historical:
Basic.................................. 0.40 0.38 1.74 0.71 0.79
Diluted................................ 0.39 0.38 1.72 0.71 0.79
Pro forma equivalent assuming combination
with Prime Bank and completed business
combination(a):
Basic.................................. 0.48 0.53 2.22 1.64 1.56
Diluted................................ 0.47 0.50 2.14 1.59 1.46
Pro forma equivalent assuming combination
with Prime Bank, completed business
combination and other probable business
combinations(a):.......................
Basic.................................. 0.48 0.52 2.19 1.64 1.55
Diluted................................ 0.47 0.50 2.13 1.57 1.45
Book value at end of period
Historical............................... 16.51 14.58 16.12 14.29 13.61
Pro forma equivalent assuming combination
with Prime Bank and completed business
combination(a): 14.98 N/A N/A N/A N/A
Pro forma equivalent assuming combination
with Prime Bank, completed business
combination and other probable business
combinations(a)........................ 14.60 N/A N/A N/A N/A
</TABLE>
9
<PAGE> 18
<TABLE>
<CAPTION>
THREE MONTHS THREE MONTHS
ENDED ENDED
MARCH 31, MARCH 31, YEAR ENDED YEAR ENDED YEAR ENDED
1998 1997 1997 1996 1995
------------ ------------ ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
Dividends per share
Historical............................... -- -- -- -- 0.08
Pro forma equivalent assuming combination
with Prime Bank and completed business
combination(a)......................... 0.21 0.19 0.76 0.68 0.57
Pro forma equivalent assuming combination
with Prime Bank, completed business
combination and other probable business
combinations(b)........................ 0.21 0.19 0.76 0.68 0.57
BANCGROUP -- PRO FORMA COMBINED (PRIME BANK
AND COMPLETED BUSINESS COMBINATION):
Net income
Basic.................................. 0.38 0.42 1.76 1.30 1.24
Diluted................................ 0.37 0.40 1.70 1.26 1.16
Book value at end of period................ 11.89 N/A N/A N/A N/A
BANCGROUP -- PRO FORMA COMBINED (PRIME
BANK, COMPLETED BUSINESS COMBINATION AND
OTHER PROBABLE BUSINESS COMBINATIONS):
Net income
Basic.................................. 0.38 0.41 1.74 1.30 1.23
Diluted................................ 0.37 0.40 1.69 1.25 1.15
Book value at end of period................ 11.59 N/A N/A N/A N/A
</TABLE>
- ---------------
* Restated to give retroactive effect to the February 1998
pooling-of-interests method business combinations with United American
Holding Corporation, First Central Bank and South Florida Banking Corp.
** 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.
N/A Not applicable due to pro forma balance sheet being presented only at March
31, 1998 which assumes the transaction consummated on the latest balance
sheet date in accordance with Rule 11.02(b) of Regulation S-X.
(a) Pro forma equivalent per share amounts are calculated by multiplying the
pro forma combined total income per share and the pro forma combined total
book value per share of BancGroup by the conversion ratio so that the per
share amounts are equated to the respective values for one share of Prime
Bank. For these pro forma equivalent per share amounts, a 1.2598 BancGroup
common stock conversion ratio is utilized.
(b) Pro forma equivalent dividends per share are shown at BancGroup's Common
Stock dividend per share rate multiplied by the 1.2598 conversion ratio per
share of Prime 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.
10
<PAGE> 19
THE SPECIAL MEETING
GENERAL
This Prospectus is being furnished to the shareholders of Prime Bank in
connection with the solicitation of proxies by the Board of Directors of Prime
Bank 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 Prime Bank with and into
Colonial Bank. Colonial Bank will be the surviving corporation in the Merger.
THE BOARD OF DIRECTORS OF PRIME BANK BELIEVES THAT THE MERGER IS IN THE
BEST INTERESTS OF PRIME BANK 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 Prime Bank 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 Prime Bank Common Stock and
shares of Prime Bank Common Stock outstanding, each entitled to one vote per
share. Prime Bank is obligated to issue an additional shares of Prime Bank
Common Stock upon the exercise of outstanding Prime Bank Options.
The presence at the Special Meeting, in person or by proxy, of the holders
of at least a majority of the outstanding shares of Prime Bank Common Stock 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 Prime Bank shareholders holding the requisite number of
shares of Prime Bank 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 Prime Bank Common Stock 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 Prime Bank 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.
Under Section 658.44 of the FBC, any shares that are voted "AGAINST" the
Merger or respect to which the holder thereof has given written notice to Prime
Bank at or prior to the Special Meeting that the shareholder dissents from the
Agreement, are automatically deemed to be shares of a shareholder exercising
dissenters' rights. If the Merger is consummated, such shares will be paid for
in cash pursuant to the process described in "The Merger -- Rights of Dissenting
Shareholders." Therefore, any shares voted "AGAINST" the Merger or with respect
to which the holder thereof has given written notice to Prime Bank at or prior
to the Special Meeting that the shareholder dissents from the Agreement, will
not be entitled to receive BancGroup Common Stock and will encounter income tax
treatment different from the treatment for shareholders who receive BancGroup
Common Stock in the Merger. See "The Merger -- Certain Federal Income Tax
Consequences." Broker nonvotes and abstentions will NOT result in those shares
being deemed to have exercised dissenters' rights of appraisal.
As of the Record Date, directors of Prime Bank owned shares
of Prime Bank 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 Prime Bank Common Stock.
11
<PAGE> 20
If the Agreement is approved at the Special Meeting, Prime Bank 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 PRIME BANK URGES THE SHAREHOLDERS OF PRIME BANK
TO EXECUTE AND RETURN THE ENCLOSED PROXY CARD AS SOON AS POSSIBLE AND
UNANIMOUSLY RECOMMENDS THAT THE SHARES REPRESENTED BY THE PROXY BE VOTED IN
FAVOR OF THE AGREEMENT.
SOLICITATION, VOTING AND REVOCATION OF PROXIES
In addition to soliciting proxies by mail, directors, officers and other
employees of Prime Bank, without receiving special compensation therefor, may
solicit proxies from Prime Bank'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 Prime Bank Common Stock.
Prime Bank will bear the cost of assembling and mailing this Prospectus and
other materials furnished to shareholders of Prime Bank. It will also pay all
other expenses of solicitation, including the expenses of brokers, custodians,
nominees, and other fiduciaries who, at the request of Prime Bank, 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 Prime Bank 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 Prime Bank 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 Prime Bank 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 Prime Bank, prior to or at the Special Meeting, a
written notice revoking the proxy; (ii) delivering to the Secretary of Prime
Bank, 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 Prime Bank's proxies should be
addressed to:
Prime Bank of Central Florida
680 Country Club Drive
Titusville, Florida 32780-3461
Attention: Joseph V. Marto, Jr.
Chairman, President, and Chief Executive Officer
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 Prime Bank 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."
12
<PAGE> 21
EFFECT OF MERGER ON OUTSTANDING BANCGROUP COMMON STOCK
Assuming (i) that no Prime Bank Options are exercised, (ii) that 400,000
shares of Prime Bank Common Stock are outstanding on the Effective Date, (iii)
that no dissenters' rights of appraisal are exercised in the Merger, (iv) prior
to giving effect to the Stock Split of BancGroup, to be effective August 14,
1998, and (v) a Market Value of BancGroup Common Stock of $28.26 (the minimum
Market Value) on the Effective Date (as of July 10, 1998 the ten day average of
the closing prices of BancGroup Common Stock as reported on the NYSE was
$31.9375), BancGroup will issue approximately 519,014 shares of BancGroup Common
Stock to the shareholders of Prime Bank pursuant to the Merger. Based on those
assumptions, the 519,014 shares of BancGroup Common Stock would represent
approximately 1.05% of the total number of shares of BancGroup Common Stock
outstanding following the Merger, not counting any additional shares BancGroup
may issue, including shares to be issued pursuant to other pending acquisitions.
See "Business of BancGroup -- Recently Completed and Other Proposed Business
Combinations."
13
<PAGE> 22
THE MERGER
The following sets forth a summary of the material provisions of the
Agreement and the transactions contemplated thereby. The description does not
purport to be complete and is qualified in its entirety by reference to the
Agreement, a copy of which is attached hereto as Appendix A, and certain
provisions of Florida law relating to the rights of dissenting shareholders, a
copy of which is attached hereto as Appendix C. All Prime Bank 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
Prime Bank, receipt of necessary regulatory approval and satisfaction of certain
other conditions described below at "Conditions to Consummation of the Merger,"
Prime Bank will merge with and into Colonial Bank. Upon completion of the
Merger, the corporate existence of Prime Bank will cease, and Colonial Bank will
succeed to the business formerly conducted by Prime Bank.
BACKGROUND OF THE MERGER
As early as 1994, the Prime Bank Board began discussing legislation which
had recently been enacted expanding the powers of financial institutions to
acquire banks in other states, the nationwide trend for expansion of banking
franchises, and Prime Bank's prospects in view of these events. It was the
Board's desire to stay abreast of opportunities that might be available and
which could benefit Prime Bank and its shareholders. In early 1996, Prime Bank
entered into agreements with two other financial institutions whereby Prime Bank
and the two financial institutions would be brought together on a "combination
of equals" basis. The agreements between Prime Bank and the other financial
institutions were terminated by mutual consent in August, 1996, primarily as a
result of an increase in one of the financial institution's nonperforming assets
and a decrease in that institution's earnings. Following termination of these
agreements, the directors of Prime Bank asked representatives of Ewing to keep
the directors apprised of other merger opportunities that might be available for
Prime Bank, conditions in the community banking market in Florida, and merger
activity among financial institutions in the state. In this connection, a
representative of Ewing met with Prime Bank's board at a meeting on October 16,
1997, as a part of the Board's preparation for an upcoming strategic planning
session to be held in December, 1997. The representative of Ewing discussed with
the Prime Bank directors merger activity in Florida.
On October 29, 1997, the Prime Bank Board met further to discuss the bank
merger activity presentation that was made to the Board at its October 16, 1997
meeting by the representative of Ewing. The Prime Bank Board and management
discussed generally their assessment of Prime Bank's prospects, including future
performance prospects. The Board also reviewed the range of prices that had been
paid for sales of financial institutions over recent periods. The Board also
discussed the desirability of providing liquidity for holders of Prime Bank
Common Stock, the risk that the prices being received for sales of financial
institutions in the prevailing market could decline over the ensuing years, the
trend in the financial institutions industry for consolidation, the
opportunities that bank mergers presented to Prime Bank, and the financial
institutions that might have an interest in pursuing a transaction with Prime
Bank. The Board also considered the increasingly competitive banking environment
in which Prime Bank operates, the increased competition in both deposit and
lending activities, and the inherent risk in relying on future Prime Bank growth
and market penetration.
While not making any final decision whether any transaction involving a
sale of Prime Bank should be entered into, the Board of Directors authorized Mr.
Marto to retain Ewing to represent Prime Bank in soliciting indications of
interest that might warrant serious consideration and potentially result in an
agreement to merge or Prime Bank otherwise being acquired. Subsequent to this
meeting, Prime Bank entered into an agreement with Ewing on November 14, 1997.
In early February, 1998, Ewing and Prime Bank directors met to discuss
financial institutions that had demonstrated an interest in acquiring banks in
Florida as well as those that might have a special interest in entering into a
transaction with Prime Bank. On February 19, 1998, at Prime Bank's regularly
scheduled Board meeting, Mr. Marto reported that Ewing, with the assistance of
Prime Bank management, had
14
<PAGE> 23
completed a confidential memorandum overviewing, among other things, Prime
Bank's history and financial information. The memorandum was prepared for
distribution to select financial institutions to explore more formally their
interest in acquiring Prime Bank.
Ewing contacted several financial institutions during late February and
early March, 1998 regarding their interest in pursuing a possible acquisition of
Prime Bank. Two institutions, including BancGroup, requested additional
information and held discussions with representatives of Ewing. At a March 19,
1998 meeting, the Prime Bank directors discussed the results of Ewing's
solicitation process. Representatives of Ewing also were in attendance. The
Prime Bank directors authorized Ewing to continue discussions regarding a
possible acquisition of Prime Bank.
On April 24, 1998, a special meeting of the Prime Bank Board was held to
further consider an indication of interest by BancGroup. At the meeting, Messrs.
Robert E. Lowder (Chairman of the Board and Chief Executive Officer of
BancGroup) and W. Flake Oakley, IV (Executive Vice President and Chief Financial
Officer of BancGroup) overviewed for the Prime Bank directors BancGroup's
history and its prospects, as well as its interest in acquiring Prime Bank. Also
in attendance were representatives of Ewing. As a part of the meeting, the
BancGroup representatives advised Prime Bank's Board of BancGroup's interest in
acquiring Prime Bank at a price of $41.44 per share. Following the presentation,
the BancGroup representatives then left the meeting. The Prime Bank Directors
continued to discuss the BancGroup interest as well as other information
relating to BancGroup. Following the discussion, the Board of Directors
unanimously agreed to accept the proposal for the acquisition of Prime Bank by
BancGroup and directed Mr. Marto, with the assistance of Prime Bank's financial
and legal advisors, to commence negotiation of a definitive agreement that would
be brought back to the Prime Bank Board of Directors for review and
consideration.
During the last week of April and the first three weeks of May, Prime Bank
and BancGroup representatives negotiated the terms of a definitive agreement.
The agreement was reviewed and approved by the Board of Directors of Prime Bank
at a meeting held on May 21, 1998. At this meeting, legal counsel reviewed
generally for Prime Bank's directors the fiduciary obligations of directors in
sales of financial institutions and commented on the form of definitive
agreement, the agreement to be entered into between Prime Bank's directors and
BancGroup, and the change of control provisions of employment agreements
previously entered into with several Prime Bank officers (see "-- Interests of
Certain Persons in the Merger") that would arise as a result of the Merger. At
the meeting, representatives of Ewing rendered an oral opinion that the
consideration to be received by the shareholders of Prime Bank in the Merger, as
described in the Agreement, is fair, from a financial point of view, to them.
Prime Bank's Board then unanimously approved the Agreement and the transactions
contemplated thereby. Prime Bank management also was authorized to execute the
Agreement, which was signed by BancGroup and Prime Bank effective May 21, 1998.
PRIME BANK'S BOARD OF DIRECTOR'S REASONS FOR APPROVING THE MERGER
Prime Bank's Board of Directors believes that the Merger is in the best
interests of Prime Bank and its shareholders. The Board of Directors of Prime
Bank considered a number of factors in deciding to approve and recommend the
terms of the Agreement to Prime Bank shareholders, including the terms of the
proposed transaction; the financial condition, results of operations, and future
prospects of Prime Bank; the value of the consideration to be received by Prime
Bank shareholders relative to the book value and earnings per share of Prime
Bank Common Stock; the competitive and regulatory environment for financial
institutions generally; the fact that the Merger will enable Prime Bank
shareholders to exchange their shares of Prime Bank Common Stock (for which
there is no established public trading market) for shares of common stock of a
larger and more diversified entity, the stock of which is more widely held and
more actively traded; that the Merger will enable Prime Bank shareholders to
hold stock in a financial institution that has historically paid cash dividends
to its shareholders as compared to Prime Bank, which has not recently paid cash
dividends; the likelihood of receiving the requisite regulatory approvals; that
it is expected that the Merger will be a tax-free transaction (except in respect
of cash received for Prime Bank Common Stock) for federal income tax purposes;
and other information. The Board of Directors also took into account an opinion
received from Ewing that the consideration to be received by the shareholders of
Prime Bank in the Merger, as described in the Agreement, is fair, from a
financial point of view, to them. See "-- Opinion of Financial Advisor." The
15
<PAGE> 24
foregoing discussion of the information and factors considered by the Prime Bank
Board of Directors is not intended to be exhaustive of the factors considered by
the Board of Directors. The Prime Bank Board of Directors did not assign any
relative or specific weights to the foregoing factors, and individual directors
may have given different weights to different factors.
OPINION OF FINANCIAL ADVISOR
General
Prime Bank retained Ewing as financial advisor in connection with the
Merger. At the May 21, 1998 meeting of the Board of Directors of Prime Bank,
Ewing rendered an oral opinion to the Board of Directors of Prime Bank to the
effect that the consideration to be received by the shareholders of Prime Bank
in the Merger, as described in the Agreement, was fair, from a financial point
of view, to the shareholders of Prime Bank. On May 20, 1998, the day before
Ewing delivered its oral opinion to the Board of Directors of Prime Bank, the
closing price of BancGroup Common Stock was $33.25 per share. This oral opinion
was followed by a written opinion to the same effect dated June 8, 1998. At June
5, 1998, the trading day before Ewing delivered its written opinion, the closing
price of BancGroup Common Stock was $32.125 per share. Ewing subsequently
updated its written opinion to , 1998. At , 1998, the
closing price of BancGroup Common Stock was $ per share. The text of
Ewing's written opinion is set forth in Appendix B to this Prospectus/Proxy
Statement and should be read in its entirety by shareholders of Prime Bank.
Ewing's opinions are directed to the Board of Directors of Prime Bank and
address only the fairness, from a financial point of view, to the Shareholders
of Prime Bank, of the consideration to be received by the shareholders of Prime
Bank in the Merger, based on conditions as they exist and can be evaluated as of
the date of the opinion. Ewing's opinions do not constitute a recommendation to
any Prime Bank shareholder as to how such shareholder should vote at the Special
Meeting nor do Ewing's opinions address the underlying business decision to
effect the Merger.
The terms of the Merger were determined by Prime Bank and BancGroup after
arms-length negotiations between the parties. Representatives of Ewing
participated in the negotiations leading to the Agreement.
No limitations were imposed by Prime Bank on Ewing regarding the scope of
its investigation nor were any specific instructions given to Ewing in
connection with its fairness opinions.
In connection with its opinions, Ewing reviewed, analyzed and relied upon
information and material bearing upon the Merger and the financial and operating
condition of Prime Bank and BancGroup, including, among other things, the
following: (i) the Agreement; (ii) audited financial statements for Prime Bank
for the four years ended December 31, 1997; (iii) certain unaudited interim
financial information for Prime Bank for various periods for the year 1998; (iv)
Annual Reports to Shareholders and Annual Reports on Form 10-K for BancGroup for
the three years ended December 31, 1997; (v) Quarterly Report on Form 10-Q filed
by BancGroup for the first quarter of 1998; (vi) other financial information
concerning the business and operations of Prime Bank furnished to Ewing by Prime
Bank for purposes of its analysis, including certain internal forecasts for
Prime Bank prepared by its senior management; (vii) information concerning the
limited market for the shares of Prime Bank Common Stock; and (viii) certain
publicly available information concerning the trading of, and the trading market
for, BancGroup Common Stock. Ewing also held discussions with the management of
Prime Bank and BancGroup concerning their respective institution's operations,
financial condition, and prospects, as well as the results of regulatory
examinations.
Ewing also considered such further financial, economic, regulatory, and
other factors as it deemed relevant and appropriate under the circumstances,
including among others the following: (i) discussions with certain other banking
companies regarding their possible interest in an acquisition of Prime Bank;
(ii) certain publicly available information concerning the financial terms of
certain mergers and acquisitions of other financial institutions in Florida and
the financial position and operating performance of the institutions acquired in
those transactions; and (iii) certain publicly available information concerning
the trading of, and the trading market for, the publicly-traded common stocks of
certain other financial institutions. Ewing also
16
<PAGE> 25
took into account its 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 and thrift industry
generally.
In conducting its review and arriving at its opinions, Ewing relied upon
and assumed the accuracy and completeness of all of the financial and other
information provided to it or publicly available, and Ewing did not attempt to
verify such information independently. Ewing relied upon the management of Prime
Bank as to the reasonableness and achievability of the financial and operational
forecasts and projections (and the assumptions and bases therefor) provided to
it and assumed that such forecasts and projections reflected the best currently
available estimates and judgments of management and that such forecasts and
projections will be realized in the amounts and in the time periods currently
estimated by management. Ewing also assumed, without independent verification,
that the aggregate allowances for loan and other losses for Prime Bank, Colonial
Bank, and BancGroup are adequate to cover such losses. Ewing did not make or
obtain any inspections, evaluations, or appraisals of the assets or liabilities
of Prime Bank, Colonial Bank, or BancGroup, nor did Ewing examine any individual
loan, property, or securities files. Ewing was informed by Prime Bank, and
assumed for purposes of its opinion, that the Merger will be recorded as a
pooling of interests under generally accepted accounting principles. Ewing also
assumed that the conditions to the Merger as set forth in the Agreement would be
satisfied and that the Merger would be consummated on a timely basis as
contemplated by the Agreement.
Valuation Methodologies
In connection with its opinions, Ewing performed several analyses. Set
forth below is a brief summary of these analyses, as updated in connection with
Ewing's most recent written opinion.
Analysis of Terms of the Merger. Ewing calculated the imputed value of the
Merger to the holders of Prime Bank Common Stock based upon the description of
the conversion of Prime Bank Common Stock contained in the Agreement and varying
assumptions concerning the stock price of BancGroup Common Stock. Under the
terms of the Agreement, each share of Prime Bank Common Stock outstanding at the
Effective Date of the Merger, including any shares issued upon the exercise of
Prime Bank Options prior to the Effective Date of the Merger, will be converted
into a number of shares of BancGroup Common Stock equal to $41.44 divided by the
Market Value. The Market Value shall not be less than $28.26 per share
(resulting in a maximum exchange ratio of 1.4664 shares of BancGroup Common
Stock per share of Prime Bank Common Stock) or more than $38.24 per share
(resulting in a minimum exchange ratio of 1.0837 shares of BancGroup Common
Stock per share of Prime Bank Common Stock). See "The Merger -- Conversion of
Prime Bank Common Stock." Using an assumed Market Value ranging from $26.00 to
$40.00, Ewing's analysis produced an imputed value for each Prime Bank Common
Share ranging from $38.12 to $43.35 ("Assumed Range of Merger Value"). This
analysis showed that the value of BancGroup Common Stock issued for each share
of Prime Bank Common Stock would (i) range from $38.12 to $41.43 if the Market
Value of BancGroup Common Stock is equal to or greater than $26.00 and less than
$28.26; (ii) be fixed at $41.44 if the Market Value of BancGroup Common Stock is
equal to or greater than $28.26 and equal to or less than $38.24; or (iii) range
from $41.45 to $43.35 if the Market Value of BancGroup Common Stock is greater
than $38.24 and less than or equal to $40.00.
Stock Trading History. Ewing examined the recent history of trading prices
for BancGroup Common Stock and the relationship between movements of those stock
prices and movements in the Keefe Bruyette & Woods, Inc. Bank Sector Index (the
"Keefe Index"). The Keefe Index is a capital weighted index traded on the
Philadelphia Stock Exchange (trading symbol BKX) composed of 24 listed and
over-the-counter stocks representing national money center and leading regional
bank holding companies.
This analysis showed that the price growth or (decrease) per share of
BancGroup Common Stock (excluding cash dividends but adjusted for stock splits)
was 0.0%, 5.3%, 63.3%, 24.0%, and 72.2% during the years ended December 31,
1993, 1994, 1995, 1996, and 1997, respectively, and (6.7)% during the period
from December 31, 1997 to June 5, 1998. This analysis also showed that, during
the period from January 1, 1993 through June 5, 1998, the price growth per share
of BancGroup Common Stock generally approximated the
17
<PAGE> 26
growth of the Keefe Index. During this period, the price of BancGroup Common
Stock increased by approximately 242.7% and the Keefe Index increased by
approximately 235.4%. In considering these analyses, Ewing noted that prior
performance is not necessarily indicative of future performance.
Ewing also examined recent trading volume history for BancGroup Common
Stock, which trades on the New York Stock Exchange. Based upon this analysis,
Ewing concluded that an active trading market exists for BancGroup Common Stock.
Ewing also reviewed the prior trading history for Prime Bank Common Stock, and
concluded that no active trading market exists for Prime Bank Common Stock.
Because shares of Prime Bank Common Stock are not traded actively, Ewing placed
relatively little weight on the market price of Prime Bank Common Stock.
Comparable Transaction Analysis. Ewing performed an analysis of the
premiums paid in comparable acquisition transactions. For such purposes, Ewing
considered comparable transactions to be acquisitions announced from January 1,
1997 to May 15, 1998, where the target institution was a bank or bank holding
company located in Florida with total assets between $50 million and $100
million. In each of the selected transactions, Ewing analyzed the premium to the
comparable target institution's book value, tangible book value, trailing twelve
months' earnings, total deposits, and total assets. Ewing then compared the
ranges of these premiums to the Assumed Range of Merger Value premium to Prime
Bank's book value, tangible book value, trailing twelve months' earnings, total
deposits, and total assets, producing the following results: (i) price offered
as a multiple of the comparable target institution's book value of 1.38 times to
3.73 times, with a mean of 2.51 times and a median of 2.43 times, compared to a
premium ranging from 2.27 times to 2.58 times for the Assumed Range of Merger
Value based upon Prime Bank's book value at May 31, 1998; (ii) price offered as
a multiple of the comparable target institution's tangible book value of 1.38
times to 3.73 times, with a mean of 2.52 and a median of 2.47 times, compared to
a premium ranging from 2.29 times to 2.60 times for the Assumed Range of Merger
Value based upon Prime Bank's tangible book value at May 31, 1998; (iii) price
offered as a multiple of the comparable target institution's trailing twelve
months' earnings of 10.17 times to 29.91 times, with a mean of 19.87 times and a
median of 20.16 times, compared to a premium ranging from 21.78 times to 24.77
times for the Assumed Range of Merger Value based upon Prime Bank's trailing
twelve months' earnings at May 31, 1998; (iv) price offered as a percentage of
the comparable target institution's total deposits of 16.41% to 50.83%, with a
mean of 28.00% and a median of 26.54%, compared to 23.77% to 27.02% for the
Assumed Range of Merger Value based upon Prime Bank's total deposits at May 31,
1998; and (v) price offered as a percentage of the comparable target
institution's total assets of 15.12% to 41.34%, with a mean of 24.12% and a
median of 21.93%, compared to 21.41% to 24.35% for the Assumed Range of Merger
Value based upon Prime Bank's total assets at May 31, 1998. No target
institution or transaction used as a comparison in the analysis described above
is identical to Prime Bank or the Merger. Accordingly, an analysis of the
foregoing necessarily involves complex considerations and judgments, as well as
other factors that affect the acquisition value of the companies being compared.
Discounted Cash Flow Analysis. Using discounted cash flow analysis, Ewing
estimated the present value of the future stream of after-tax cash flows that
Prime Bank might be expected to produce through 2002, under various
circumstances, assuming that Prime Bank performed in accordance with the
earnings projections of Prime Bank management. Ewing estimated the terminal
value of Prime Bank at the end of the period by applying multiples of earnings
(ranging from 14.0 times to 16.0 times) and then discounting the cash flow
streams and terminal value using differing discount rates (ranging from 16.0% to
18.0%) chosen to reflect different assumptions about the required rates of
return of Prime Bank and the inherent risk surrounding the underlying
projections by the management of Prime Bank. This discounted cash flow analysis
indicated a reference range of $16.3 million to $19.4 million, or $36.08 to
$43.01 per fully-diluted share of Prime Bank Common Stock (assuming the exercise
of all outstanding Prime Bank Options).
Dividend Analysis. Ewing analyzed the effect of the Merger on the
dividends received by Prime Bank shareholders. Since January 1995, Prime Bank
has not paid a cash dividend on shares of Prime Bank Common Stock. Based upon
the indicated annual cash dividends payable on BancGroup Common Stock at March
31, 1998, Ewing noted that Prime Bank shareholders would receive $0.68 in annual
cash flow for each share of BancGroup Common Stock received in the Merger, or an
estimated annual cash flow of a minimum of $0.74
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and a maximum of $1.00 for each share of Prime Bank Common Stock converted in
the Merger, assuming a minimum exchange ratio of 1.0837 and a maximum exchange
ratio of 1.4664, respectively.
The summary set forth above does not purport to be a complete description
of the analyses performed by Ewing. The preparation of a fairness opinion is not
necessarily susceptible to partial analysis or summary description. Ewing
believes that its analyses and the summary set forth above must be considered as
a whole and that selecting portions of its analyses without considering all
analyses, or selecting part or all of the above summary without considering all
factors and analyses, would create an incomplete view of the processes
underlying the analyses reflected in Ewing's opinions. In addition, Ewing may
have given various analyses more or less weight than other analyses and may have
deemed various assumptions more or less probable than other assumptions, so that
the ranges of valuations resulting from any particular analysis described above
should not be taken to be Ewing's view of the actual value of Prime Bank. The
fact that any specific analysis has been referred to in the summary above is not
intended to indicate that such analysis was given greater weight than any other
analysis.
In performing its analyses, Ewing made numerous assumptions with respect to
industry performance, general business and economic conditions and other
matters, many of which are beyond the control of Prime Bank and BancGroup. The
analyses performed by Ewing are not necessarily indicative of actual values or
actual future results which may be significantly more or less favorable than
suggested by such analyses. Such analyses were prepared solely as part of
Ewing's analysis of the fairness to the shareholders of Prime Bank, from a
financial point of view, of the consideration to be received by the shareholders
of Prime Bank in the Merger. The analyses do not purport to be appraisals or to
reflect the prices at which a company actually might be sold or the prices at
which any securities may trade at the present time or at any time in the future.
In addition, as described above, Ewing's opinion is just one of many factors
taken into consideration by the Board of Directors of Prime Bank in determining
to enter into the Agreement.
Compensation of Ewing
Prime Bank has agreed to pay Ewing a fee, payable at the closing of the
Merger, equal to 1.0% of the aggregate value of any consideration paid by
BancGroup to the shareholders of Prime Bank in the Merger. Prime Bank also has
paid Ewing $7,500 for the fairness opinion issued by it (which amount will be
credited toward the 1.0% fee if the Merger closes). Further, Prime Bank has
agreed to reimburse Ewing for reasonable out-of-pocket expenses incurred in
connection with acting as financial advisor to Prime Bank. Prime Bank has also
agreed to indemnify and hold harmless Ewing and its directors, officers, and
employees against certain liabilities, including liabilities under the federal
securities laws, in connection with its services.
As a part of its investment banking business, Ewing is regularly engaged in
the valuation of securities in connection with mergers and acquisitions,
underwritings, private placements, trading and market making activities, and
valuations for various other purposes. Prime Bank's Board of Directors engaged
Ewing based on its experience as a financial advisor in mergers and acquisitions
of financial institutions, particularly transactions in Florida, and its general
investment banking experience in the financial services industry.
In the ordinary course of its business as a broker/dealer, Ewing may, from
time to time, purchase securities from, and sell securities to, banking and
thrift companies and as a market maker in securities may from time to time have
a long or short position in, and buy or sell, debt or equity securities of
banking and thrift companies for its own account and for the account of its
customers. As of the date of this Proxy Statement, Ewing had no such position in
the securities of Prime Bank or BancGroup.
RECOMMENDATION OF THE BOARD OF DIRECTORS OF PRIME BANK
The Board of Directors of Prime Bank has determined that the Merger is in
the best interests of Prime Bank and its shareholders. THE BOARD OF DIRECTORS
UNANIMOUSLY RECOMMENDS THAT THE SHAREHOLDERS OF PRIME BANK VOTE IN FAVOR OF THE
APPROVAL AND ADOPTION OF THE AGREEMENT AND THE MERGER.
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BANCGROUP'S REASONS FOR THE MERGER
The Boards of Directors of BancGroup and Colonial Bank have unanimously
approved the Agreement and the Merger. BancGroup has been seeking to expand its
banking operations in the state of Florida. BancGroup, through Colonial Bank,
currently operates in the Orlando, Ormond Beach, Tampa, Miami Beach, Miami,
Winter Haven and West Palm Beach areas. The Board of Directors of BancGroup
believes that the combination of Prime Bank with Colonial Bank will strengthen
its banking operations in Florida.
In approving the Agreement and the Merger, the Boards of Directors of
BancGroup and Colonial Bank took into account: (i) the financial performance and
condition of Prime Bank, including the quality of its capital and assets; (ii)
similarities in the philosophies of BancGroup and Prime Bank, including Prime
Bank's commitment to delivering high quality personalized financial services to
its customers; and (iii) Prime Bank's management's knowledge of and experience
in the Brevard County, Florida market.
INTERESTS OF CERTAIN PERSONS IN THE MERGER
As of the Record Date, certain executive officers of Prime Bank held Prime
Bank Options which entitle them to purchase, in the aggregate, up to 51,500
shares of Prime Bank Common Stock. Under the terms of the Agreement, any Prime
Bank Options which are not exercised prior to the Effective Date will be assumed
by BancGroup, and thereafter the holders of such options will have the right to
acquire shares of BancGroup Common Stock. See "The Merger -- Conversion of Prime
Bank Common Stock," "-- Treatment of Prime Bank Options."
On the Effective Date, all employees of Prime Bank (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 Prime Bank who become employees of BancGroup. All employees of Prime Bank 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.
Each of Joseph V. Marto, Jr. Prime Bank's Chairman, Chief Executive
Officer, and President, P. Brian Fulmer, Prime Bank's Chief Financial Officer,
and James S. Tharpe, Prime Bank's Chief Lending Officer, has agreed to enter
into an employment agreement with Colonial Bank as of the Effective Date. Mr.
Marto's agreement has a term of one year and provides that he will serve as an
executive officer of Colonial Bank's Central Florida Region, for which Mr. Marto
will receive base annual compensation of $124,000. The agreements with Mr.
Fulmer and Mr. Tharpe each have a term of six months and provide that both
gentlemen will serve as officers of Colonial Bank's Central Florida Region, for
which they will receive $57,000 and $66,795 annual base compensation,
respectively. Each of the three agreements contains a covenant not to compete,
which provides that the employee will not, so long as he is receiving the
compensation set forth in the employment agreement, serve as a consultant to,
serve as a management official of, or become a major shareholder in, any
financial institution (other than BancGroup or its subsidiaries) then having an
office in Brevard County, Florida or any county contiguous thereto.
The Board of Directors of Prime Bank has resolved to pay retention bonuses
to Messrs. Marto, Fulmer, and Tharpe, each an executive officer of Prime Bank,
as an inducement for them to remain in the employ of Prime Bank pending
consummation of the Merger. The aggregate amount of such bonuses paid to all key
employees will not exceed $123,898.
Each member of Prime Bank's Board of Directors who is not also an officer
of Prime Bank has executed and delivered to BancGroup an agreement which
provides among other things, that the director will not, for a period of two
years after the Effective Date (i) disclose confidential information regarding
BancGroup or Prime, except as required by law or in certain other limited
circumstances, (ii) solicit management personnel of Prime Bank for employment
with any other business, or (iii) control or provide consulting services to any
entity engaged in the banking business (other than BancGroup and its
subsidiaries) in Brevard County, Florida and any counties contiguous thereto.
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BancGroup has agreed to indemnify for a period of six years following the
Effective Date against claims arising out of acts of omissions prior to the
Effective Date each person entitled to indemnity by Prime Bank as of the
Effective Date. This group of persons includes the present officers and
directors of Prime Bank. BancGroup will be obligated to indemnify such persons
to the extent authorized under Prime Bank's articles of incorporation and bylaws
and under Florida law. See "Comparative Rights of Shareholders --
Indemnification."
Except as described above, none of the directors or executive officers of
Prime Bank, 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 Prime Bank Common Stock.
CONVERSION OF PRIME BANK COMMON STOCK
On the Effective Date, subject to certain limitations on the maximum and
minimum number of shares of BancGroup Common Stock to be issued, each share of
Prime Bank Common Stock outstanding and held by Prime Bank'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 a number of shares of BancGroup Common Stock equal to $41.44 divided by the
Market Value. The Market Value will be the average of the closing prices of the
Common Stock of BancGroup as reported by the NYSE on each of the ten consecutive
trading days ending on the day that is the fifth trading day immediately
preceding the Effective Date. However, the Market Value shall be not less than
$28.26 per share or more than $38.24 per share. Assuming 400,000 shares of Prime
Bank Common Stock are outstanding on the Effective Date, the maximum number of
shares of BancGroup Common Stock to be issued in the Merger shall be 586,560
(based upon a minimum Market Value of $28.26 per share), and the minimum number
of shares of BancGroup Common Stock to be issued in the Merger shall be 433,480
(based upon a maximum Market Value of $38.24 per share). The number of shares of
BancGroup Common Stock to be issued in the Merger shall increase proportionally
with each share of Prime Bank Common Stock issued before the Effective Date upon
the exercise of Prime Bank Options.
No fractional shares of BancGroup Common Stock will be issued in the
Merger. Each shareholder of Prime Bank 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.
The Agreement provides that if, 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 Prime Bank Common
Stock shall be converted in the Merger.
On July 15, 1998, BancGroup announced that its Board of Directors had
declared a two for one split of BancGroup's Common Stock to be effected in the
form of a 100% stock dividend (the "Stock Split"). Stockholders of record of
BancGroup Common Stock will receive one share of BancGroup Common Stock for each
share they hold as of the close of business on August 3, 1998. The additional
shares will be distributed pursuant to the Stock Split on August 14, 1998.
Accordingly, the Market Value as defined in the Agreement will be adjusted
so that, following the Stock Split, the Market Value will not be less than
$14.13 and not more than $19.12. Based upon such adjusted Market Values, the
maximum number of shares of BancGroup Common Stock to be issued in the Merger
will be 1,173,120 and the minimum number of shares to be issued will be 866,960
assuming 400,000 shares of Prime Bank Common Stock outstanding at the Merger.
As an example, giving effect to the Stock Split, a shareholder of Prime
Bank who owns 500 shares of Prime Bank Common Stock would be entitled to receive
1,218.85 shares of BancGroup Common Stock if the Market Value were determined to
be $17.00 on the Effective Date ($41.44 divided by $17.00 and multiplied by 500)
and would receive 1,218 shares of BancGroup Common Stock, with the .85 of a
share paid in cash equal to $14.45 (.85 multiplied by $31.9375). Subject to the
maximum and minimum Market Values,
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respectively, as the Market Value of the BancGroup Stock rises the number of
shares of BancGroup Stock to be issued in the Merger will decrease, and as the
Market Value falls the number of such shares to be issued will increase.
The closing sales price on the NYSE of the BancGroup Stock on July 10 was
$33.50 per share. Shareholders are advised to obtain current market quotations
for BancGroup Common Stock. The market price of BancGroup Common Stock at the
Effective Date, or on the date on which certificates representing such shares
are received by Prime Bank 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.
For a description of the assumption of Prime Bank Options, see "The
Merger -- Treatment of Prime Bank Options."
SURRENDER OF PRIME BANK COMMON STOCK CERTIFICATES
Upon the Effective Date and subject to the conditions described at "The
Merger -- Conditions to Consummation of the Merger," Prime Bank's shareholders
(except to the extent that such holders perfect dissenters' rights of appraisal
under the FBC) 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 Prime Bank
Common Stock will represent shares of BancGroup Common Stock. Thereafter, upon
surrender of the certificates formerly representing shares of Prime Bank 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 Prime
Bank unless and until such shareholder surrenders for cancellation his
certificate for Prime Bank 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 Prime Bank Common Stock surrendered in
connection with the Merger.
A detailed explanation of these arrangements will be mailed to Prime Bank
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 Prime Bank and BancGroup from
PricewaterhouseCoopers LLP, 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 Prime Bank. In delivering its
opinion, PricewaterhouseCoopers LLP, has received and relied upon certain
representations contained in certificates of officers of BancGroup and Prime
Bank and certain other information, data, documentation and other materials as
it deemed necessary. The tax opinion is based upon customary assumptions
contained therein, including the assumption that Prime Bank has no knowledge of
any plan or intention on the part of the Prime Bank 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 Prime Bank Common Stock outstanding immediately
upon consummation of the Merger.
Neither Prime Bank nor BancGroup intends to seek a ruling from the Internal
Revenue Service (the "IRS") as to the federal income tax consequences of the
Merger. Prime Bank's shareholders should be aware that the opinion of
PricewaterhouseCoopers LLP, will not be binding on the IRS or the courts. Prime
Bank'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.
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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 Prime Bank's shareholders who exchange their shares of Prime Bank
Common Stock for shares of BancGroup Common Stock:
(i) No gain or loss will be recognized by Prime Bank's shareholders on
the exchange of shares of Prime Bank Common Stock for shares of BancGroup
Common Stock;
(ii) The aggregate basis of BancGroup Common Stock received by each
Prime Bank 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 Prime Bank Common Stock surrendered in
exchange therefor;
(iii) The holding period of the shares of BancGroup Common Stock
received by each Prime Bank shareholder will include the period during
which the shares of Prime Bank Common Stock exchanged therefor were held,
provided that the shares of Prime Bank Common Stock were a capital asset in
the holder's hands as of the Effective Date;
(iv) Cash payments received by each Prime Bank 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 Prime Bank Common Stock is a capital asset in the hands of
the holder;
(v) No gain or loss will be recognized by Prime Bank 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 Prime Bank;
(vi) The basis of the assets of Prime Bank acquired by Colonial Bank
will be the same as the basis of the assets in the hands of Prime Bank
immediately prior to the Merger;
(vii) The holding period of the assets of Prime Bank in the hands of
Colonial Bank will include the period during which such assets were held by
Prime Bank;
(viii) No gain or loss will be recognized by Prime Bank's shareholders
on the assumption and conversion of Prime Bank Options into options to
acquire BancGroup Common Stock; and
(ix) A Prime Bank 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 Prime Bank Common Stock converted, if the shares of Prime Bank
Common Stock were held as capital assets. However, a Prime Bank 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 Prime Bank 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 PRIME BANK, TO
PRIME BANK AND TO BANCGROUP AND DOES NOT PURPORT TO BE A COMPLETE DESCRIPTION OF
ALL POTENTIAL TAX EFFECTS OF THE MERGER. THE DISCUSSION DOES NOT ADDRESS THE TAX
CONSEQUENCES THAT MAY BE RELEVANT TO A PARTICULAR SHAREHOLDER SUBJECT TO SPECIAL
TREATMENT UNDER CERTAIN FEDERAL INCOME TAX LAWS, SUCH AS DEALERS IN SECURITIES,
BANKS, INSURANCE COMPANIES, TAX-EXEMPT ORGANIZATIONS, NON-UNITED STATES PERSONS,
STOCKHOLDERS WHO DO NOT HOLD THEIR SHARES OF PRIME BANK COMMON STOCK AS "CAPITAL
ASSETS" WITHIN THE MEANING OF SECTION 1221 OF THE CODE, AND SHARE-
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HOLDERS WHO ACQUIRED THEIR SHARES OF PRIME BANK 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 PRIME BANK 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. PRIME BANK 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 Prime Bank, a Florida
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 Prime Bank 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 Prime Bank and BancGroup to consummate the Merger are
conditioned upon, among other things, (i) the approval of the Agreement by the
holders of at least a majority of the outstanding shares of Prime Bank Common
Stock; (ii) the approval of the Merger by the Federal Reserve 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 December 31, 1998; (viii) receipt of an opinion of
PricewaterhouseCoopers LLP, regarding certain matters; and (ix) receipt of
opinions of counsel.
The obligation of Prime Bank 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 Prime Bank; (ii) the
number of shares as to which holders of Prime Bank Common Stock exercise
dissenters' rights not exceeding 10% of the outstanding shares of Prime Bank
Common Stock; (iii) the receipt of a letter from PricewaterhouseCoopers LLP,
concurring with the conclusions of BancGroup's and Prime Bank'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 Prime Bank contained in the
Agreement, and the performance by Prime Bank of all of its covenants and
agreements under the Agreement; and, (v) the receipt by BancGroup of certain
undertakings from holders of Prime Bank Common Stock who may be deemed to be
"affiliates" of Prime Bank pursuant to the rules of the Commission.
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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 Prime Bank 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 Prime Bank 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 Prime Bank 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, under applicable law, after
adoption of the Agreement and approval of the Merger by the holders of Prime
Bank Common Stock, no amendment decreasing the consideration to be received by
Prime Bank 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 Prime
Bank, by the mutual consent of the respective Boards of Directors of Prime Bank
and BancGroup, or by the Board of Directors of either BancGroup or Prime Bank
under certain circumstances including, but not limited to, the failure of the
transactions contemplated by the Agreement to be consummated on or prior to
December 31, 1998, if such failure to consummate is not caused by any breach of
the Agreement by the party electing to terminate. The Agreement also may be
terminated without further action by either party, upon the execution by Prime
Bank of a legally binding agreement between Prime Bank and any third party with
respect to any Acquisition, Proposal, provided that BancGroup will have the
right to demand payment of liquidated damages. See "The Merger -- Commitment
with Respect to Other Offers".
REGULATORY APPROVALS
The approval of the Federal Reserve and the Alabama Department must be
obtained prior to consummation of the Merger. In addition, notification of the
Merger must be filed with the Florida Department of Banking and Finance.
Applications were filed with the Federal Reserve and the Alabama Department, and
notification was filed with the Florida Department of Banking and Finance, on
, 1998. The regulatory approval process is expected to take
approximately from that date.
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 was
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 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.
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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 Florida Department of Banking and Finance 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 fifteen 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.
The Federal Reserve approved the Merger on or about , 1998. In
its approval, the Federal Reserve stipulated that the Merger cannot be
consummated before fifteen calendar days from the date of its approval.
The Agreement provides that the obligation of each of BancGroup, Colonial
Bank and Prime Bank 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 Prime
Bank will be approved, and, if such approvals are received, that such approvals
will not be conditioned upon terms and conditions that would cause the parties
to abandon the Merger.
Any approval received from bank regulatory agencies reflects only their
view that the Merger does not contravene applicable competitive standards
imposed by law, and that the Merger is consistent with regulatory policies
relating to safety and soundness. THE APPROVAL OF THE BANK REGULATORY AGENCIES
IS NOT AN ENDORSEMENT OR RECOMMENDATION OF THE MERGER.
BancGroup is not aware of any other governmental approvals or actions that
may be required for consummation of the Merger except for the Federal Reserve
and the Alabama Department approvals, and the notification filed with the
Florida Department of Banking and Finance, 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 Prime Bank pending consummation of the Merger. The Agreement prohibits Prime
Bank 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 Prime Bank:
(i) Issuing, delivering or agreeing to issue or deliver any stock,
bonds or other corporate securities (whether authorized and unissued or
held in the treasury), except shares of Prime Bank Common Stock issued upon
the exercise of Prime Bank Options;
(ii) Borrowing or agreeing to borrow any funds or incurring or
becoming subject to, any liability (absolute or contingent) except
borrowings, obligations and liabilities incurred in the ordinary course of
business and consistent with past practice;
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<PAGE> 35
(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 Prime Bank or any of its subsidiaries shall, directly or indirectly,
own, manage, operate, join, control, be employed by or participate in the
ownership, proposed ownership, management, operation or control of or be
connected in any manner with, any business, corporation or partnership which is
competitive to the business of Prime Bank or its subsidiaries.
The Agreement also provides that (i) Prime Bank 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) Prime Bank will consult with BancGroup respecting business issues
on a basis mutually satisfactory to BancGroup and Prime Bank.
COMMITMENTS WITH RESPECT TO OTHER OFFERS
Until the termination of the Agreement, and except for the Merger, neither
Prime Bank nor any of its directors or officers (or any person representing any
of the foregoing) may solicit or encourage inquiries or proposals with respect
to, furnish any information relating to or participate in any negotiations or
discussions concerning, any acquisition or purchase of all or of a substantial
portion of the assets of, or of a substantial equity interest in, Prime Bank or
any business combination involving Prime Bank (collectively, an "Acquisition
Proposal") other than as contemplated by the Agreement. Prime Bank is required
to notify BancGroup immediately if any such inquiries or proposals are received
by Prime Bank, if any such information is requested from Prime Bank, or if any
such negotiations or discussions are sought to be initiated with Prime Bank.
Prime Bank is required to instruct its officers, directors, agents or affiliates
or their subsidiaries to refrain
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<PAGE> 36
from doing any of the above. Prime Bank may communicate information about an
Acquisition Proposal to its shareholders if and to the extent that legal counsel
provides a written opinion to Prime Bank that it is required to do so in order
to comply with its legal obligations.
The Agreement provides that if Prime Bank's shareholders approve an
Acquisition Proposal before the Effective Date or if Prime Bank or its
shareholders receive an Acquisition Proposal before the Agreement is terminated
(except for termination by Prime Bank for breach of the Agreement by BancGroup)
and, in either case, such Acquisition Proposal is consummated, Prime Bank will
pay BancGroup $750,000 as liquidated damages.
RIGHTS OF DISSENTING SHAREHOLDERS
Holders of Prime Bank Common Stock as of the Record Date are entitled to
dissenters' rights of appraisal under Florida law. Consummation of the Merger is
subject to, among other things, the holders of no more than 10% of the
outstanding Prime Bank Common Stock electing to exercise their dissenters'
rights. PURSUANT TO SECTION 658.44 OF THE FBC, A PRIME BANK SHAREHOLDER WHO
VOTES HIS SHARES AGAINST THE MERGER, OR WHO OTHERWISE GIVES WRITTEN NOTICE TO
PRIME BANK AT OR PRIOR TO THE SPECIAL MEETING THAT THE SHAREHOLDER DISSENTS FROM
THE AGREEMENT, WILL LOSE THE RIGHT TO RECEIVE THE SHARES OF BANCGROUP COMMON
STOCK TO BE RECEIVED PURSUANT TO THE TERMS OF THE AGREEMENT AND WILL INSTEAD
RECEIVE A CASH PAYMENT FOR THE VALUE OF HIS OR HER SHARES AS OF THE EFFECTIVE
DATE.
In order to exercise dissenters' rights, a dissenting shareholder of Prime
Bank (a "Dissenting Shareholder") must strictly comply with the statutory
procedures of Section 658.44 of the FBC, which are summarized below. A copy of
the text Section 658.44 of the FBC is attached hereto as Appendix C.
Shareholders of Prime Bank are urged to read Section 658.44 in its entirety and
to consult with their legal advisors. Each shareholder of Prime Bank who desires
to assert his or her dissenters' rights is cautioned that failure on his or her
part to adhere strictly to the requirements of Florida law in any regard will
cause a forfeiture of any dissenters' rights. The following summary of Florida
law is qualified in its entirety by reference to the full text of the provisions
of the FBC attached hereto as Appendix C.
Any shareholder of Prime Bank who has voted against the Agreement by proxy
or in person at the Special Meeting or has given notice in writing at or prior
to such meeting to the presiding officer that he or she dissents from the
Agreement, will be entitled to receive payment in cash of the value of the
shares so held by him. On or promptly after the Effective Date, BancGroup may
fix an amount which it considers to be not more than the fair market value of
the shares of Prime Bank and which it will pay to the Dissenting Shareholders
(which amount would probably be derived by multiplying the market value by the
number of shares of BancGroup Common Stock that the Dissenting Shareholder would
have received if he or she had not dissented) and, if it fixes such amount, will
offer to pay such amount to the holders of all dissenting shares of Prime Bank.
Dissenting Shareholders who have accepted such offer will be entitled to receive
the amount so offered for such shares in cash upon surrendering the stock
certificates representing such shares at any time within 30 days after the
Effective Date.
The value of dissenting shares of Prime Bank, the owners of which have not
accepted BancGroup's offer for such shares, will be determined as of the
Effective Date by three appraisers, one to be selected by the owners of at least
two-thirds of such dissenting shares, one to be selected by the Board of
Directors of Colonial Bank, and the third to be selected by the two so chosen.
The value agreed upon by any two of the appraisers will control and be final and
binding on all parties. If, within 90 days from the Effective Date for any
reason one or more of the appraisers is not selected, or the appraisers fail to
determine the value of such dissenting shares, the Florida Department will cause
an appraisal of such dissenting shares to be made which will be final and
binding on all parties. The expenses of appraisal will be paid by Colonial Bank.
The Dissenting Shareholders will be entitled to receive the value of such shares
in cash upon surrender of the stock certificates representing such shares at any
time within 30 days after the value of such shares has been determined by
appraisal made on or after the Effective Date.
Any shareholder of Prime Bank who votes against the Agreement in person or
by proxy at the Special Meeting or who gives notice in writing at or prior to
such meeting to the presiding officer that he or she
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<PAGE> 37
dissents, will be notified in writing of the date of consummation of the Merger.
The failure of a shareholder to vote against the Agreement will not constitute a
waiver of the above described dissenters' rights, provided that such shareholder
has given notice in writing at or prior to the Special Meeting to the presiding
officer that such shareholder dissents from the Agreement.
The foregoing discussion is only a summary of the provisions of Florida
law, does not purport to be complete and is qualified in its entirety by
reference to Section 658.44 of the FBC, which is attached hereto as Appendix C.
Any shareholder who intends to dissent from the Merger should review the text of
Section 658.44 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 FLORIDA 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
(including any shares to be issued pursuant to Prime Bank Options) has been
registered under the Securities Act of 1933 (the "Securities Act"). As a result,
shareholders of Prime Bank who are not "affiliates" of Prime Bank (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 Prime Bank are subject to
restrictions on the resale of the BancGroup Common Stock which they receive in
the Merger.
The BancGroup Common Stock received by affiliates of Prime Bank 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 Prime Bank affiliate has held the BancGroup Common
Stock for at least one year. BancGroup Common Stock held by affiliates of Prime
Bank who become affiliates of BancGroup, if any, will be subject to additional
restrictions on the ability of such persons to resell such shares.
Prime Bank 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 Prime Bank. Prime Bank 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 Prime Bank 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
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<PAGE> 38
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 the 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 Prime Bank 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 Prime Bank Common Stock.
Under this accounting treatment, assets and liabilities of Prime Bank will be
added to those of BancGroup at their recorded book values, and the shareholders'
equity of the two companies will be combined in BancGroup's consolidated balance
sheet. Financial statements of BancGroup issued after the Effective Date of the
Merger may be restated to reflect the consolidated operations of BancGroup and
Prime Bank 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
Prime Bank Common Stock will be reported on the NYSE.
TREATMENT OF PRIME BANK OPTIONS
Assumption of Options. As of the date of this Prospectus, Prime Bank had
granted options (the "Prime Bank Options") pursuant to the Prime Bank Stock
Option Plan (the "Option Plan"), which entitle the holders thereof to acquire up
to 51,500 shares of Prime Bank Common Stock. On the Effective Date, BancGroup
will assume all Prime Bank Options outstanding, and each such option will
represent the right to acquire BancGroup Common Stock on substantially the same
terms applicable to the acquisition of Prime Bank Common Stock pursuant to the
Prime Bank Options. The shares of BancGroup Common Stock to be delivered upon
the exercise of Prime Bank Options granted under the Option Plan will be made
available, after the Merger, from the authorized but unissued shares of
BancGroup Common Stock. BancGroup has reserved sufficient authorized but
unissued shares for issuance pursuant to options under the Option Plan and does
not anticipate acquiring any shares in the open market for such purposes. The
Registration Statement, of which this Prospectus forms a part, registering the
shares of BancGroup Common Stock issued pursuant to the Merger also registers
the shares of BancGroup Common Stock to be issued upon the exercise of the Prime
Bank Options assumed by BancGroup. The number of shares of BancGroup Common
Stock to be issued pursuant to such options will equal the number of shares of
Prime Bank Common Stock subject to such Prime Bank Options multiplied by the
Exchange Ratio (as defined below), provided that no fractions of shares of
BancGroup Common Stock will be issued and the number of shares of BancGroup
Common Stock to be issued upon the exercise of Prime Bank Options, if a
fractional share exists, will equal the number of whole shares obtained by
rounding to the nearest whole number, giving account to such fraction, or else
such fractional interest shall be paid in cash. The exercise price for the
acquisition of BancGroup Common Stock will be the exercise price for each share
of Prime Bank Common Stock subject to such options divided by the Exchange
Ratio, adjusted appropriately for any rounding to whole shares that may be done.
For these purposes, the "Exchange Ratio" means the result obtained by dividing
$41.44 by the Market Value.
The Prime Bank Options are issued pursuant to Prime Bank's Stock Option
Plan (the "Option Plan"). The Option Plan is not qualified under Section 401 of
the Code, nor is it subject to the Employee Retirement Income Security Act of
1974. Prime Bank Options are not transferable except under the laws of descent
and distribution. No further options will be granted under the Prime Bank Option
Plan after the Merger. A total of seven persons currently hold Prime Bank
Options.
Options issued under the Option Plan are intended to qualify as "Incentive
Stock Options," under Section 422 of the Code. If such options so qualify under
the Code, no income will result to a grantee of any such option upon the
exercise of an option, and BancGroup will not be entitled to a tax deduction by
reason of such exercise. If, after exercising the option, the employee holds the
stock obtained through exercise for at
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<PAGE> 39
least two years after the date of option grant and at least one year after the
stock was obtained, the employee's gain (if any) on selling the stock will
generally be treated as a long term capital gain. Generally, the employee's
alternative minimum taxable income for minimum tax purposes will be increased by
the difference between the option price and the fair market value of the stock
on the date of exercise.
If the holding period requirements set forth above are not met, then any
gain on the sale of the stock will be taxed partly or entirely at ordinary
income rates. If the stock is held for less than the required holding periods,
then the difference between the option exercise price and the fair market value
of the stock on the date of exercise will be taxed at ordinary income tax rates.
The gain equal to the increase in the fair market value of the stock after the
date of exercise of the option will generally be taxed as capital gain. It
should be understood that the holding periods discussed above relate only to
federal income tax treatment and not to any securities law restrictions that may
apply to the sale of shares obtained through an option.
THE FOREGOING STATEMENTS CONCERNING FEDERAL INCOME TAX TREATMENT ARE
NECESSARILY GENERAL AND MAY NOT APPLY IN A PARTICULAR INSTANCE. OPTION HOLDERS
SHOULD CONTACT THEIR OWN PROFESSIONAL TAX ADVISORS FOR ADVICE CONCERNING THEIR
PARTICULAR TAX SITUATION AND ANY CHANGES IN THE TAX LAW SINCE THE DATE OF THIS
PROSPECTUS.
BancGroup's Board of Directors may amend the Option Plan at any time,
except that no amendment may make any change in any Prime Bank Option already
granted which would adversely affect the rights of any participant in the Option
Plan. It is not anticipated that BancGroup will make any reports to option
holders regarding the amount or status of Prime Bank Options held. Option
holders may obtain such information from BancGroup at the address given above.
COMPARATIVE MARKET PRICES AND DIVIDENDS
BANCGROUP
BancGroup Common Stock is listed for trading on the NYSE. The following
table shows the dividends paid per share and indicates the high and low closing
prices for the BancGroup Common Stock as reported by the NYSE since January 1,
1996.
<TABLE>
<CAPTION>
PRICE(1)
--------------
HIGH LOW DIVIDENDS(1)
---- --- ------------
<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 7/8 18 2/3 0.15
Second Quarter.............................................. 24 7/8 22 0.15
Third Quarter............................................... 29 3/16 24 1/4 0.15
Fourth Quarter.............................................. 35 1/16 28 15/16 0.15
1998
First Quarter............................................... 36 1/4 31 1/2 0.17
Second Quarter.............................................. 37 9/16 29 1/2 0.17
Third Quarter (through July 10, 1998)....................... 33 1/2 32 5/8 --
</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 May 20, 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 $33.25 per share.
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<PAGE> 40
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.
PRIME BANK
There is no established public trading market for the Prime Bank Common
Stock. The shares of Prime Bank Common Stock are not actively traded, and such
trading activity, as it occurs, takes place in privately negotiated
transactions. Management of Prime Bank is aware of certain transactions in
shares of Prime Bank 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 Prime Bank Common Stock that have
occurred since January 1, 1996 for transactions in which the trading prices are
known to management of Prime Bank:
<TABLE>
<CAPTION>
PRICE PER SHARE OF
COMMON STOCK
------------------
HIGH LOW
------- -------
<S> <C> <C>
1996
First Quarter............................................... $10.50 $10.00
Second Quarter.............................................. -- --
Third Quarter............................................... -- --
Fourth Quarter.............................................. $10.50 $10.50
1997
First Quarter............................................... $11.00 $11.00
Second Quarter.............................................. $11.00 $11.00
Third Quarter............................................... $11.00 $11.00
Fourth Quarter (through December 26, 1997).................. $11.50 $11.50
1998
First Quarter............................................... $11.00 $11.00
Second Quarter.............................................. -- --
Third Quarter (through July 15, 1998)....................... -- --
</TABLE>
Prime Bank has not paid any cash dividends on the shares of Prime Bank
Common Stock since January 1995. The Agreement restricts Prime Bank'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 200,000,000 shares of
BancGroup Common Stock, par value $2.50 per share, and 1,000,000 shares of its
Preference Stock, par value $2.50 per share. As of June 30, 1998, there were
issued and outstanding a total of 49,116,133 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 $4,204,686 were outstanding
as of March 31, 1998 and convertible at any time into approximately 300,335
shares of BancGroup Common Stock, subject to adjustment. On February 5, 1998
BancGroup issued $7,725,000 aggregate principal amount of subordinated
debentures with a ten year maturity, that rank pari pasu with the 1986
Debentures. As of March 31, 1998 there were 2,024,957 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 -- Recently Completed and Other
Proposed Business Combinations." On January 29, 1997, BancGroup issued, through
a special purpose trust, $70 million of Trust Preferred Securities, all of which
was outstanding at March 31, 1998.
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<PAGE> 41
On July 15, 1998, BancGroup announced that its Board of Directors had
declared a two for one split of BancGroup's Common Stock to be effected in the
form of a 100% stock dividend. Stockholders of record of BancGroup Common Stock
will receive one share of BancGroup Common Stock for each share they hold as of
the close of business on August 3, 1998. The additional shares will be
distributed pursuant to the Stock Split on August 14, 1998.
The following statements with respect to BancGroup Common Stock and
Preference Stock are brief summaries of material provisions of Delaware law, the
Restated Certificate of Incorporation (the "Certificate"), as amended, and
bylaws of BancGroup, 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.
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 principal amount of the 1986 Debentures
for each share of BancGroup Common Stock. The conversion price is, however,
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<PAGE> 42
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, a total of 300,335 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 $1.1 billion. 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 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
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.
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<PAGE> 43
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 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
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<PAGE> 44
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, 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 Prime Bank (except those
perfecting dissenters' rights of appraisal) will become holders of BancGroup
Common Stock. The rights of the holders of Prime Bank Common Stock who become
holders of BancGroup Common Stock following the Merger will be governed by the
BancGroup Certificate and the BancGroup Bylaws, as well as the laws of Delaware,
the state in which BancGroup is incorporated.
The following summary compares the rights of the shareholders of Prime Bank
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 Prime Bank's Articles of Incorporation
("Prime Bank Articles") and bylaws, the Delaware General Corporation Law (the
"DGCL") and the FBC.
DIRECTOR ELECTIONS
Prime Bank. The Prime Bank Bylaws divide the number of directors into
three classes, as nearly equal in number as reasonably possible, with the term
of office of each class expiring at each succeeding annual meeting of Prime Bank
shareholders.
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
Prime Bank. Prime Bank directors may be removed by shareholders for cause
only, by the holders of a majority of the outstanding shares of Prime Bank
Common Stock.
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<PAGE> 45
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
Prime Bank. Each holder of Prime Bank Common Stock is entitled to cast one
vote for each share held on each issue with respect to which a shareholder vote
is authorized, and may not cumulate votes for the election of directors or for
any other purpose.
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
Prime Bank. Holders of Prime Bank Common Stock have no preemptive rights
to subscribe for additional shares on a pro rata or other basis when and if
shares are offered for sale by Prime Bank
BancGroup. The holders of BancGroup Common Stock have no preemptive rights
to acquire any additional shares of BancGroup Common Stock or any other shares
of BancGroup capital stock.
DIRECTORS' LIABILITY
Prime Bank. Section 658.33 of the FBC provides that each director of a
Florida bank, upon assuming office, shall acknowledge that he is familiar with
his responsibilities as a director and that he will diligently and honestly
administer the affairs of such Bank and will not knowingly, or willfully permit
to be violated, any of the provisions of the financial institutions codes or the
pertinent rules of the Florida Department of Banking Finance. Section 658.30 of
the FBC also provides that, when not in direct conflict with or superceded by
specific provisions of the financial institutions codes, the provisions of the
Florida Business Corporation Act ("FBCA") extend to Florida state banks. Section
607.0831 of the FBCA provides that a director of a corporation will not be
personally liable for monetary damages to the corporation or any other person
for any statement, vote, decision or failure to act, regarding corporate
management or policy, unless: (a) the director breached or failed to perform his
duties as a director, and (b) the director's breach of or failure to perform
those duties constitutes: (1) a violation of the criminal law, unless the
director had reasonable cause to believe his conduct was lawful or had no
reasonable cause to believe his conduct was unlawful, (2) a transaction in which
the director derived an improper personal benefit, (3) a payment of certain
unlawful dividends and distributions, (4) in a proceeding by or in the right of
a corporation to procure a judgment in its favor or by or in the right of a
shareholder, conscious disregard for the best interests of the corporation, or
willful misconduct, or (5) in a proceeding by or in the right of someone other
than a corporation or a shareholder, recklessness or an act or omission which
was committed in bad faith or with malicious purpose or in a manner exhibiting
wanton and willful disregard of human rights, safety or property. This provision
would absolve directors of a corporation of personal liability for negligence in
the performance of their duties, including gross negligence. It would not permit
a director to be exculpated, however, from liability for actions involving
conflicts of interest or breaches of the traditional "duty of loyalty" to Prime
Bank and its shareholders, and it would not affect the availability of
injunctive and other equitable relief as a remedy.
BancGroup. The BancGroup Certificate provides that a director of BancGroup
will have no personal liability to BancGroup or its 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.
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<PAGE> 46
INDEMNIFICATION
Prime Bank. Under Section 607.0850 of the FBCA, the directors and officers
of Prime Bank may be indemnified against certain liabilities which they may
incur in their capacity as officers and directors. Such indemnification is
generally available if the individual acted in good faith and in a manner he or
she reasonably believed to be in, or not opposed to, the best interest of Prime
Bank, and with respect to any criminal proceeding, had no reasonable cause to
believe his or her conduct was unlawful. Indemnification may also be available
unless a court of competent jurisdiction establishes by final adjudication that
the actions or omissions of the individual are material to the cause of action
so adjudicated and constituted: (a) a violation of the criminal law, unless the
individual had reasonable cause to believe his or her conduct was lawful or had
no reasonable cause to believe his or her conduct was unlawful; (b) a
transaction from which the individual derived an improper personal benefit; or
(c) willful misconduct or conscious disregard for the best interest of Prime
Bank in a proceeding by or in the right of Prime Bank to procure a judgment in
its favor or in a proceeding by or in the right of a shareholder. Further, to
the extent that the proposed indemnitee is successful on the merits or otherwise
in the defense of any action, suit or proceeding (or any claim, issue or matter
therein) he or she must be indemnified against expenses (including attorney's
fees) actually and reasonably incurred by him or her in connection with such
proceeding.
Prime Bank maintains a directors' and officers' insurance policy pursuant
to which officers and directors of Prime Bank would be entitled to
indemnification against certain liabilities, including reimbursement of certain
expenses.
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.
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
Prime Bank. Prime Bank's bylaws authorize a special shareholders meeting
to be called by the board of directors, Prime Bank's chairman of the board or
president, or by the holders of not less than 10% of the total voting power of
all outstanding shares of voting stock.
Section 607.0704 of the FBCA permits any action required or permitted of
shareholders to be taken instead without a meeting by written consent of
shareholders having not less than the minimum number of votes that would be
necessary to authorize or take such action at a meeting at which all shares
entitled to vote thereon were present and voted.
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<PAGE> 47
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
Prime Bank. Section 658.44 of the FBC provides that certain mergers,
consolidations and sales of substantially all of the assets of a Florida bank
must be approved by the Florida Department of Banking Finance and by a majority
of the outstanding shares of the bank entitled to vote thereon. The Merger does
not require the prior approval, but does require notification to, of the Florida
Department of Banking Finance.
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 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
Prime Bank. Section 658.23 of the FBC requires amendments to the Articles
of Incorporation of a Florida bank to be approved by the Florida Department of
Banking Finance and to be adopted by the shareholders upon recommendation of the
Board of Directors. Unless the FBC requires a greater vote, amendments may be
adopted by a majority of the votes case, a quorum being present.
Section 658.23 of the FBC provides that, unless the Articles of
Incorporation provide otherwise, the Board of Directors has the authority to
adopt or amend Bylaws that do not conflict with Bylaws that may have been
adopted by the shareholders.
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
Prime Bank. Holders of Prime Bank Common Stock as of the Record Date are
entitled to dissenters' rights of appraisal under Florida law. For a description
of such appraisal rights, see "The Merger -- Rights of Dissenting Stockholders."
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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 permitted appraisal rights in a merger if such corporation
is the surviving corporation and no vote of its shareholders is required.
PREFERRED STOCK
Prime Bank. Prime Bank's Articles do not authorize the issuance of any
shares of preferred stock.
BancGroup. The BancGroup Certificate authorizes the issuance of 1,000,000
shares of Preference Stock from time to time by resolution of the 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 PRIME BANK SHAREHOLDERS
As of , 1998, Prime Bank had shareholders of
record and 400,000 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 or Prime Bank Options are
exercised in the Merger, a Market Value of BancGroup Common Stock of $31.9375 on
the Effective Date (the ten-day average of closing prices of BancGroup Common
Stock as reported by the NYSE as of July 10, 1998), prior to giving effect to
the Stock Split for BancGroup Common Stock, and 400,000 shares of Prime Bank
Common Stock are outstanding on the Effective Date, 519,014 shares of BancGroup
Common Stock will be issued to the shareholders of Prime Bank in the Merger.
Based on those assumptions, the 519,014 shares of BancGroup Common Stock would
represent approximately 1.05% of the total number of shares of BancGroup Common
Stock outstanding following the Merger, not counting any additional shares
BancGroup may issue, including shares to be issued pursuant to other pending
acquisitions.
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 and the additional shares issued pursuant to
completed business combinations since March 31, as a group, the directors and
executive officers of BancGroup who own approximately 9.72% of BancGroup's
outstanding shares would own approximately 9.63% after the Merger.
BancGroup has entered into agreements pursuant to which additional shares
of BancGroup Common Stock will be issued. See "Business of BancGroup -- Recently
Completed and Other Proposed Business Combinations."
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THE COLONIAL BANCGROUP, INC. AND SUBSIDIARIES
CONDENSED PRO FORMA STATEMENT OF CONDITION (UNAUDITED) (IN THOUSANDS)
The following summary includes (i) the condensed consolidated statement of
condition of BancGroup and subsidiaries as of March 31, 1998, (ii) the condensed
statement of condition of Commercial Bank of Nevada ("Completed Business
Combination") as of March 31, 1998, (iii) adjustments to give effect to the
completed pooling-of-interests method business combination with Commercial Bank
of Nevada, (iv) the condensed statement of condition of Prime Bank of Central
Florida ("Prime Bank") as of March 31, 1998, (v) adjustments to give effect to
the proposed pooling-of-interests method business combination with Prime Bank,
(vi) the combined presentation of the condensed consolidated statement of
condition of the other probable business combinations with CNB Holding Company,
FirstBank and First Macon Bank & Trust ("Other Probable Business Combinations")
as of March 31, 1998, (vii) adjustments to give effect to the proposed
pooling-of-interests method business combinations with the Other Probable
Business Combinations, (viii) the pro forma combined condensed statement of
condition of BancGroup and subsidiaries as if such combinations had occurred on
March 31, 1998.
The pro forma statement of condition excludes the effect of an immaterial
pending business combination with InterWest Bancorp located in Reno, Nevada.
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.
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<TABLE>
<CAPTION>
MARCH 31, 1998
---------------------------------------------------------------------------------------------------
CONSOLIDATED COMPLETED OTHER PROBABLE
COLONIAL BUSINESS ADJUSTMENTS/ ADJUSTMENTS/ BUSINESS
BANCGROUP COMBINATION (DEDUCTIONS) PRIME BANK (DEDUCTIONS) SUBTOTAL COMBINATIONS
------------ ----------- ------------ ---------- ------------ ---------- --------------
<S> <C> <C> <C> <C> <C> <C> <C>
ASSETS
Cash and due from banks... $ 311,523 $ 7,313 $ 2,905 $ 321,741 $ 33,796
Interest-bearing deposits
in banks................. 17,949 31,455 6,329 55,733 58,346
Securities held for
trading.................. 24,824 24,824
Securities available for
sale..................... 745,655 3,000 15,728 764,383 43,307
Investment securities..... 265,711 4,652 270,363 51,616
Mortgage loans held for
sale..................... 455,716 455,716
Loans, net of unearned
income................... 5,724,844 82,414 42,377 5,849,635 248,303
Less: Allowance for
possible loan losses..... (69,680) (1,139) (462) (71,281) (2,742)
---------- -------- ------ ------- ------- ---------- --------
Loans, net................ 5,655,164 81,275 41,915 5,778,354 245,561
Premises and equipment,
net...................... 146,448 2,677 2,885 152,010 9,262
Excess of cost over
tangible and identified
intangible assets
acquired, net............ 78,861 44 78,905
Mortgage servicing
rights................... 151,412 151,412
Other real estate owned... 12,530 22 12,552 27
Accrued interest and other
assets................... 140,566 976 634 142,176 4,183
---------- -------- ------ ------- ------- ---------- --------
Total Assets........... $8,006,359 $131,348 $ $70,462 $ $8,208,169 $446,098
========== ======== ====== ======= ======= ========== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
Deposits.................. $6,082,744 $119,693 $63,085 $6,265,522 $394,783
FHLB short-term
borrowings............... 460,000 460,000
Other short-term
borrowings............... 287,468 287,468 15,005.00
Subordinated debt......... 13,125 13,125
Trust preferred
securities............... 70,000 70,000
FHLB long-term debt....... 283,693 283,693
Other long-term debt...... 93,608 93,608
Other liabilities......... 144,135 1,006 $ 159(1) 772 362(2) 146,434 3,758
---------- -------- ------ ------- ------- ---------- --------
Total liabilities...... 7,434,773 120,699 159 63,857 362 7,619,850 413,546
Preferred Stock...........
Common Stock.............. 120,323 842 (842)(1) 400 (400)(2) 123,688 2,390
2,105(1) 1,260(2)
Additional paid in
capital.................. 230,682 8,264 (8,264)(1) 3,770 (3,770)(2) 240,593 15,083
7,001(1) 2,910(2)
Retained earnings......... 221,544 1,543 (159)(1) 2,431 (362)(2) 224,997 15,484
Treasury Stock............ (720)
Unearned compensation..... (3,604) (3,604)
Unrealized gain (loss) on
securities available for
sale, net of taxes....... 2,641 4 2,645 315
---------- -------- ------ ------- ------- ---------- --------
Total shareholders'
equity............... 571,586 10,649 (159) 6,605 (362) 588,319 32,552
---------- -------- ------ ------- ------- ---------- --------
Total liabilities and
equity............... $8,006,359 $131,348 $ -- $70,462 $ -- $8,208,169 $446,098
========== ======== ====== ======= ======= ========== ========
Capital Ratios:
Capital Ratio............ 8.10%
Tangible Leverage
Ratio................... 7.36
Tier One Capital
Ratio*.................. 9.77
Total Capital Ratio*..... 11.08
<CAPTION>
MARCH 31, 1998
--------------------------
PRO FORMA
ADJUSTMENTS/ COMBINED
(DEDUCTIONS) TOTAL
------------ ----------
<S> <C> <C>
ASSETS
Cash and due from banks... $ 355,537
Interest-bearing deposits
in banks................. 114,079
Securities held for
trading.................. 24,824
Securities available for
sale..................... 807,690
Investment securities..... 321,979
Mortgage loans held for
sale..................... 455,716
Loans, net of unearned
income................... 6,097,938
Less: Allowance for
possible loan losses..... (74,023)
------- ----------
Loans, net................ 6,023,915
Premises and equipment,
net...................... 161,272
Excess of cost over
tangible and identified
intangible assets
acquired, net............ 78,905
Mortgage servicing
rights................... 151,412
Other real estate owned... 12,579
Accrued interest and other
assets................... 146,359
------- ----------
Total Assets........... $ $8,654,267
======= ==========
LIABILITIES AND SHAREHOLDERS' EQUITY
Deposits.................. $6,660,305
FHLB short-term
borrowings............... 460,000
Other short-term
borrowings............... 302,473
Subordinated debt......... 13,125
Trust preferred
securities............... 70,000
FHLB long-term debt....... 283,693
Other long-term debt...... 93,608
Other liabilities......... $ 624(3) 151,533
68(4)
649(5)
------- ----------
Total liabilities...... 1,341 8,034,737
Preferred Stock...........
Common Stock.............. (537)(3) 133,631
(1,700)(4)
(153)(5)
4,636(3)
3,192(4)
2,115(5)
Additional paid in
capital.................. (9,521)(3) 247,403
(4,800)(4)
(762)(5)
5,422(3)
3,308(4)
(1,920)(5)
Retained earnings......... (624)(3) 239,140
(68)(4)
(649)(5)
Treasury Stock............ 720(5)
Unearned compensation..... (3,604)
Unrealized gain (loss) on
securities available for
sale, net of taxes....... 2,960
------- ----------
Total shareholders'
equity............... (1,341) 619,530
------- ----------
Total liabilities and
equity............... $ -- $8,654,267
======= ==========
Capital Ratios:
Capital Ratio............ 8.10%
Tangible Leverage
Ratio................... 7.41
Tier One Capital
Ratio*.................. 9.90
Total Capital Ratio*..... 11.19
</TABLE>
- ---------------
* Based on risk weighted assets
42
<PAGE> 51
COMPLETED 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.............................. $ --
========
(B) To record possible nonrecurring charges
associated with contract buy-outs,
professional fees and other nonrecurring
one-time restructuring charges, net of
taxes......................................... $ (159)
========
</TABLE>
43
<PAGE> 52
PENDING BUSINESS COMBINATIONS
PRIME BANK OF CENTRAL FLORIDA
(pooling of interests)
(2) (A) To record the issuance of 503,926 shares of BancGroup Common Stock
in exchange for all of the outstanding shares of Prime Bank of Central Florida
<TABLE>
<S> <C> <C>
Prime Bank of Central Florida outstanding shares............ 400,000
Conversion ratio............................................ 1.2598
--------
BancGroup shares to be issued............................... 503,926
Par value of 503,926 shares issued at $2.50 per share....... $ 1,260
Shares issued at par value.................................. $ 1,260
Total capital stock of Prime Bank of Central Florida........ 4,170
--------
Excess recorded as an increase to contributed capital....... 2,910
--------
4,170
To eliminate Prime Bank of Central Florida
Common stock, at par value................................ $ (400)
Contributed capital....................................... (3,770)
--------
(4,170)
--------
Net change in equity.............................. $ --
========
(B) To record possible nonrecurring charges
associated with severance payable to
terminated employees, contract buy-outs, fixed
assets write-offs and other nonrecurring
one-time restructuring charges, net of
taxes......................................... $ (362)
========
</TABLE>
FIRST MACON BANK & TRUST
(pooling of interests)
(3) (A) To record the issuance of 1,854,467 shares of BancGroup Common
Stock in exchange for all of the outstanding shares of First Macon Bank & Trust
<TABLE>
<S> <C> <C>
First Macon Bank & Trust outstanding shares................. 1,076,604
Conversion ratio............................................ 1.7225
----------
BancGroup shares to be issued............................... 1,854,467
Par value of 1,854,467 shares issued at $2.50 per share..... $ 4,636
Shares issued at par value.................................. $ 4,636
Total capital stock of First Macon Bank & Trust............. 10,058
----------
Excess recorded as an increase to contributed capital....... 5,422
----------
10,058
To eliminate First Macon Bank & Trust
Common stock, at par value................................ $ (537)
Contributed capital....................................... (9,521)
----------
(10,058)
----------
Net change in equity.............................. $ --
==========
(B) To record possible nonrecurring charges
associated with severance payable to
terminated employees, contract buy-outs, fixed
assets write-offs and other nonrecurring
one-time restructuring charges, net of
taxes......................................... $ (624)
==========
</TABLE>
44
<PAGE> 53
FIRSTBANK
(pooling of interests)
(4) (A) To record the issuance of 1,276,844 shares of BancGroup Common
Stock in exchange for all of the outstanding shares of FirstBank
<TABLE>
<S> <C> <C>
FirstBank outstanding shares............................ 340,000
Conversion ratio........................................ 3.7554
-------
BancGroup shares to be issued........................... 1,276,844
Par value of 1,276,844 shares issued at $2.50 per
share................................................. $ 3,192
Shares issued at par value.............................. $ 3,192
Total capital stock of FirstBank........................ 6,500
-------
Excess recorded as an increase to contributed capital... 3,308
----------
6,500
To eliminate FirstBank
Common stock, at par value............................ $ (1,700)
Contributed capital................................... (4,800)
----------
(6,500)
----------
Net change in equity.......................... $ --
==========
(B) To record possible nonrecurring charges associated
with professional fees, fixed asset write-offs and
other nonrecurring one-time restructuring charges,
net of taxes........................................ $ (68)
==========
</TABLE>
CNB HOLDING COMPANY
(pooling of interests)
(5) (A) To record the issuance of 846,149 shares of BancGroup Common Stock
in exchange for all of the outstanding shares of CNB Holding Company
<TABLE>
<S> <C> <C>
CNB Holding Company outstanding shares..................... 145,418
Conversion ratio........................................... 5.8187
-------
BancGroup shares to be issued.............................. 846,149
Par value of 846,149 shares issued at $2.50 per share...... $ 2,115
Shares issued at par value................................. $ 2,115
Total capital stock of CNB Holding Company................. 195
-------
Excess recorded as a decrease to contributed capital....... (1,920)
-------
195
To eliminate CNB Holding Company
Common stock, at par value............................... $ (153)
Contributed capital...................................... (762)
Treasury stock........................................... 720
-------
(195)
-------
Net change in equity............................. $ --
=======
(B) To record possible nonrecurring charges associated with
severance payable to terminated employees, noncompete
agreements, fixed assets write-offs and other
nonrecurring one-time restructuring charges, net of
taxes.................................................. $ (649)
=======
</TABLE>
45
<PAGE> 54
THE COLONIAL BANCGROUP, INC. AND SUBSIDIARIES
CONDENSED PRO FORMA STATEMENTS OF INCOME (UNAUDITED)
(IN THOUSANDS)
The following summary includes (i) the condensed consolidated statements of
income of BancGroup and subsidiaries on a historical basis for the three months
ended March 31, 1998 and 1997 and for the years ended December 31, 1997, 1996
and 1995, (ii) the condensed statements of income Commercial Bank of Nevada for
the three months ended March 31, 1998 and 1997 and for the years ended December
31, 1997, 1996 and 1995, (iii) adjustments to give effect to the completed
pooling-of-interests method business combination with Commercial Bank of Nevada,
(iv) the condensed statements of income of Prime Bank for the three months ended
March 31, 1998 and 1997 and for the years ended December 31, 1997, 1996 and
1995, (v) adjustments to give effect to the proposed pooling-of-interests method
business combination with Prime Bank (vi) the combined presentation of the
condensed consolidated statements of income of CNB Holding Company, FirstBank
and First Macon Bank & Trust ("Other Probable Business Combinations") for the
three months ended March 31, 1998 and 1997 and for the years ended December 31,
1997, 1996 and 1995, (vii) adjustments to give effect to the proposed
pooling-of-interests method business combinations with the Other Probable
Business Combinations, (viii) the pro forma statements of income of BancGroup
and subsidiaries as if such business combinations had occurred on January 1,
1995.
The pro forma statements of income exclude the effect of an immaterial
pending business combination with InterWest Bancorp located in Reno, Nevada.
These pro forma statements should be read in conjunction with the
accompanying notes and the separate consolidated statements of income of
BancGroup and subsidiaries, incorporated by reference herein. The pro forma
information provided may not necessarily be indicative of future results.
<TABLE>
<CAPTION>
THREE MONTHS ENDED MARCH 31, 1998
---------------------------------------------------------------------------------
CONSOLIDATED COMPLETED
COLONIAL BUSINESS ADJUSTMENTS/ PRIME ADJUSTMENTS/
BANCGROUP COMBINATION (DEDUCTIONS) BANK (DEDUCTIONS) SUBTOTAL
------------ ----------- ------------ -------- ------------ -----------
<S> <C> <C> <C> <C> <C> <C>
Interest income........ $ 146,034 $ 2,736 $ -- $ 1,254 $ -- $ 150,024
Interest expense....... 72,602 1,077 -- 544 -- 74,223
----------- -------- --------- -------- --------- -----------
Net interest income.... 73,432 1,659 -- 710 -- 75,801
Provision for possible
loan losses........... 3,670 80 20 3,770
----------- -------- --------- -------- --------- -----------
Net interest income
after provision for
loan losses........... 69,762 1,579 -- 690 -- 72,031
----------- -------- --------- -------- --------- -----------
Noninterest income..... 26,075 95 -- 102 -- 26,272
Noninterest expense.... 66,934 1,116 -- 539 -- 68,589
----------- -------- --------- -------- --------- -----------
Income before income
taxes................. 28,903..... 558 -- 253 -- 29,714
Applicable income
taxes................. 10,953 199 -- 95 11,247
----------- -------- --------- -------- --------- -----------
Net income............. $ 17,950 $ 359 $ -- $ 158 $ -- $ 18,467
=========== ======== ========= ======== ========= ===========
Average basic shares
outstanding........... 47,779,000 842,157 (842,157) 400,000 (400,000) 49,125,077
842,157 503,920
Average diluted shares
outstanding........... 49,178,000 842,157 (842,157) 400,000 (400,000) 50,524,077
842,157 503,920
Earnings per share:
Basic............... $ 0.38 $ 0.38
Diluted............. $ 0.37 $ 0.37
<CAPTION>
THREE MONTHS ENDED MARCH 31, 1998
--------------------------------------------
OTHER PROBABLE PRO FORMA
BUSINESS ADJUSTMENTS/ COMBINED
COMBINATIONS (DEDUCTIONS) TOTAL
-------------- ------------ -----------
<S> <C> <C> <C>
Interest income........ $ 7,963 $ -- $ 157,987
Interest expense....... 3,384 -- 77,607
-------------- ---------- -----------
Net interest income.... 4,579 -- 80,380
Provision for possible
loan losses........... 119 3,889
-------------- ---------- -----------
Net interest income
after provision for
loan losses........... 4,460 -- 76,491
-------------- ---------- -----------
Noninterest income..... 591 26,863
Noninterest expense.... 2,539 -- 71,128
-------------- ---------- -----------
Income before income
taxes................. 2,512 -- 32,226
Applicable income
taxes................. 425 352(1) 12,024
-------------- ---------- -----------
Net income............. $ 2,087 $ (352) $ 20,202
============== ========== ===========
Average basic shares
outstanding........... 1,558,996 (1,558,996) 53,096,208
3,971,131
Average diluted shares
outstanding........... 1,558,996 (1,558,996) 54,513,410
3,989,333
Earnings per share:
Basic............... $ 0.38
Diluted............. $ 0.37
</TABLE>
46
<PAGE> 55
<TABLE>
<CAPTION>
THREE MONTHS ENDED MARCH 31, 1997
---------------------------------------------------------------------------------
CONSOLIDATED
COLONIAL COMPLETED
BANCGROUP BUSINESS ADJUSTMENTS/ PRIME ADJUSTMENTS/
(RESTATED)* COMBINATION (DEDUCTIONS) BANK (DEDUCTIONS) SUBTOTAL
------------ ----------- ------------ -------- ------------ -----------
<S> <C> <C> <C> <C> <C> <C>
Interest................. $ 127,044 $ 1,616 $ -- $ 1,148 $ -- $ 129,808
Interest expense......... 62,969 620 -- 509 -- 64,098
----------- -------- --------- -------- --------- -----------
Net interest income...... 64,075 996 -- 639 -- 65,710
Provision for possible
loan losses............. 3,056 241 5 3,302
----------- -------- --------- -------- --------- -----------
Net interest income after
provision for loan
losses.................. 61,019 755 -- 634 -- 62,408
----------- -------- --------- -------- --------- -----------
Noninterest income....... 20,105 74 -- 115 -- 20,294
Noninterest expense...... 50,631 662 -- 511 -- 51,804
----------- -------- --------- -------- --------- -----------
Income before income
taxes................... 30,493 167 -- 238 -- 30,898
Applicable income
taxes................... 11,021 57 -- 87 11,165
----------- -------- --------- -------- --------- -----------
Net income........ $ 19,472 $ 110 $ -- $ 151 $ -- $ 19,733
=========== ======== ========= ======== ========= ===========
Average basic shares
outstanding............. 45,969,000 842,157 (842,157) 400,000 (400,000) 47,315,077
842,157 503,920
Average diluted shares
outstanding............. 47,845,000 842,157 (842,157) 400,000 (400,000) 49,191,077
842,157 503,920
Earnings per share:
Basic................... $ 0.42 $ 0.42
Diluted................. $ 0.41 $ 0.40
<CAPTION>
THREE MONTHS ENDED MARCH 31, 1997
-----------------------------------------
OTHER
PROBABLE PRO FORMA
BUSINESS ADJUSTMENTS/ COMBINED
COMBINATIONS (DEDUCTIONS) TOTAL
------------ ------------ -----------
<S> <C> <C> <C>
Interest................. $ 6,482 $ -- $ 136,290
Interest expense......... 2,602 -- 66,700
---------- ----------- -----------
Net interest income...... 3,880 -- 69,590
Provision for possible
loan losses............. 141 3,443
---------- ----------- -----------
Net interest income after
provision for loan
losses.................. 3,739 -- 66,147
---------- ----------- -----------
Noninterest income....... 524 20,818
Noninterest expense...... 2,268 -- 54,072
---------- ----------- -----------
Income before income
taxes................... 1,995 -- 32,893
Applicable income
taxes................... 686 -- 11,851
---------- ----------- -----------
Net income........ $ 1,309 $ -- $ 21,042
========== =========== ===========
Average basic shares
outstanding............. 1,561,662 (1,561,662) 51,306,923
3,991,846
Average diluted shares
outstanding............. 1,561,662 (1,561,662) 53,205,460
4,014,383
Earnings per share:
Basic................... $ 0.41
Diluted................. $ 0.40
</TABLE>
- ---------------
* Restated to give retroactive effect to the February 1998 pooling-of-interests
business combinations with United American Holding Corporation, First Central
Bank and South Florida Banking Corp.
47
<PAGE> 56
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, 1997
-------------------------------------------------------------------------------
CONSOLIDATED
COLONIAL COMPLETED
BANCGROUP BUSINESS ADJUSTMENTS/ PRIME ADJUSTMENTS/
(RESTATED)* COMBINATION (DEDUCTIONS) BANK (DEDUCTIONS) SUBTOTAL
------------ ----------- ------------ ------- ------------ ----------
<S> <C> <C> <C> <C> <C> <C>
Interest income...... $ 540,699 $ 8,381 $ -- $ 4,767 $ -- $ 553,847
Interest expense..... 267,084 3,286 -- 2,094 -- 272,464
---------- ------- -------- ------- -------- ----------
Net interest
income............. 273,615 5,095 -- 2,673 -- 281,383
Provision for
possible loan
losses............. 14,860 874 72 15,806
---------- ------- -------- ------- -------- ----------
Net interest income
after provision for
loan losses........ 258,755 4,221 -- 2,601 -- 265,577
---------- ------- -------- ------- -------- ----------
Noninterest income... 92,550 362 -- 458 -- 93,370
Noninterest
expense............ 220,232 3,108 -- 1,955 -- 225,295
---------- ------- -------- ------- -------- ----------
Income before income
taxes.............. 131,073 1,475 -- 1,104 -- 133,652
Applicable income
taxes.............. 48,557 507 -- 409 49,473
---------- ------- -------- ------- -------- ----------
Net income........... $ 82,516 $ 968 $ -- $ 695 $ -- $ 84,179
========== ======= ======== ======= ======== ==========
Average basic shares
outstanding........ 46,536,000 842,157 (842,157) 400,000 (400,000) 47,882,077
842,157 503,920
Average diluted
shares
outstanding........ 48,158,000 842,157 (842,157) 400,000 (400,000) 49,504,077
842,157 503,920
Earnings per share:
Basic.............. $1.77 $1.76
Diluted............ $1.72 $1.70
<CAPTION>
YEAR ENDED DECEMBER 31, 1997
----------------------------------------
OTHER
PROBABLE PRO FORMA
BUSINESS ADJUSTMENTS/ COMBINED
COMBINATIONS (DEDUCTIONS) TOTAL
------------ ------------ ----------
<S> <C> <C> <C>
Interest income...... $ 28,926 $ -- $ 582,773
Interest expense..... 12,000 -- 284,464
--------- ---------- ----------
Net interest
income............. 16,926 -- 298,309
Provision for
possible loan
losses............. 316 16,122
--------- ---------- ----------
Net interest income
after provision for
loan losses........ 16,610 -- 282,187
--------- ---------- ----------
Noninterest income... 2,444 95,814
Noninterest
expense............ 9,651 -- 234,946
--------- ---------- ----------
Income before income
taxes.............. 9,403 -- 143,055
Applicable income
taxes.............. 2,406 913(1) 52,792
--------- ---------- ----------
Net income........... $ 6,997 $ (913) $ 90,263
========= ========== ==========
Average basic shares
outstanding........ 1,560,898 (1,560,898) 51,866,201
3,984,124
Average diluted
shares
outstanding........ 1,560,898 (1,560,898) 53,508,119
4,004,042
Earnings per share:
Basic.............. $1.74
Diluted............ $1.69
</TABLE>
- ---------------
* Restated to give retroactive effect to the February 1998 pooling-of-interests
business combinations with United American Holding Corporation, First Central
Bank and South Florida Banking Corp.
48
<PAGE> 57
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, 1996
-------------------------------------------------------------------------------
CONSOLIDATED
COLONIAL COMPLETED
BANCGROUP BUSINESS ADJUSTMENTS/ PRIME ADJUSTMENTS/
(RESTATED)* COMBINATION (DEDUCTIONS) BANK (DEDUCTIONS) SUBTOTAL
------------ ----------- ------------ ------- ------------ ----------
<S> <C> <C> <C> <C> <C> <C>
Interest income...... $ 444,082 $ 4,031 $ -- $ 4,225 $ -- $ 452,338
Interest expense..... 219,494 1,194 -- 1,823 -- 222,511
---------- ------- -------- ------- -------- ----------
Net interest
income............. 224,588 2,837 -- 2,402 -- 229,827
Provision for
possible loan
losses............. 13,564 344 54 13,962
---------- ------- -------- ------- -------- ----------
Net interest income
after provision for
loan losses........ 211,024 2,493 -- 2,348 -- 215,865
---------- ------- -------- ------- -------- ----------
Noninterest income... 74,860 225 -- 474 -- 75,559
Noninterest
expense............ 198,971 1,896 -- 2,380 -- 203,247
---------- ------- -------- ------- -------- ----------
Income before income
taxes.............. 86,913 822 -- 442 -- 88,177
Applicable income
taxes.............. 30,631 93 -- 157 30,881
---------- ------- -------- ------- -------- ----------
Net income........... $ 56,282 $ 729 $ -- $ 285 $ -- $ 57,296
========== ======= ======== ======= ======== ==========
Average basic shares
outstanding........ 42,839,000 658,452 (658,452) 400,000 (400,000) 44,001,372
658,452 503,920
Average diluted
shares
outstanding........ 44,776,000 658,452 (658,452) 400,000 (400,000) 45,972,410
692,490 503,920
Earnings per share:
Basic.............. $1.31 $1.30
Diluted............ $1.27 $1.26
<CAPTION>
YEAR ENDED DECEMBER 31, 1996
----------------------------------------
OTHER
PROBABLE PRO FORMA
BUSINESS ADJUSTMENTS/ COMBINED
COMBINATIONS (DEDUCTIONS) TOTAL
------------ ------------ ----------
<S> <C> <C> <C>
Interest income...... $ 23,675 $ -- $ 476,013
Interest expense..... 9,432 -- 231,943
--------- ---------- ----------
Net interest
income............. 14,243 -- 244,070
Provision for
possible loan
losses............. 478 14,440
--------- ---------- ----------
Net interest income
after provision for
loan losses........ 13,765 -- 229,630
--------- ---------- ----------
Noninterest income... 2,016 77,575
Noninterest
expense............ 8,304 -- 211,551
--------- ---------- ----------
Income before income
taxes.............. 7,477 -- 95,654
Applicable income
taxes.............. 2,492 -- 33,373
--------- ---------- ----------
Net income........... $ 4,985 $ -- $ 62,281
========= ========== ==========
Average basic shares
outstanding........ 1,555,998 (1,555,998) 47,985,688
3,984,316
Average diluted
shares
outstanding........ 1,555,998 (1,555,998) 49,979,921
4,007,511
Earnings per share:
Basic.............. $1.30
Diluted............ $1.25
</TABLE>
- ---------------
* Restated to give retroactive effect to the February 1998 pooling-of-interests
business combinations with United American Holding Corporation, First Central
Bank and South Florida Banking Corp.
49
<PAGE> 58
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, 1995
-------------------------------------------------------------------------------
CONSOLIDATED
COLONIAL COMPLETED
BANCGROUP BUSINESS ADJUSTMENTS/ PRIME ADJUSTMENTS/
(RESTATED)* COMBINATION (DEDUCTIONS) BANK (DEDUCTIONS) SUBTOTAL
------------ ----------- ------------ ------- ------------ ----------
<S> <C> <C> <C> <C> <C> <C>
Interest income...... $ 371,985 $ 1,492 $ -- $ 3,779 $ -- $ 377,256
Interest expense..... 182,441 297 -- 1,735 -- 184,473
---------- ------- -------- ------- -------- ----------
Net interest
income............. 189,544 1,195 -- 2,044 -- 192,783
Provision for
possible loan
losses............. 10,180 192 46 10,418
---------- ------- -------- ------- -------- ----------
Net interest income
after provision for
loan losses........ 179,364 1,003 -- 1,998 -- 182,365
---------- ------- -------- ------- -------- ----------
Noninterest income... 63,479 76 -- 444 -- 63,999
Noninterest expense.. 164,739 1,316 -- 1,967 -- 168,022
---------- ------- -------- ------- -------- ----------
Income before income
taxes.............. 78,104 (237) -- 475 -- 78,342
Applicable income
taxes.............. 27,462 -- -- 158 27,620
---------- ------- -------- ------- -------- ----------
Net income........... $ 50,642 $ (237) $ -- $ 317 $ -- $ 50,722
========== ======= ======== ======= ======== ==========
Average basic shares
outstanding........ 39,787,000 508,088 (508,088) 400,000 (400,000) 40,799,008
508,088 503,920
Average diluted
shares
outstanding........ 43,649,000 508,088 (508,088) 400,000 (400,000) 44,661,008
508,088 503,920
Earnings per share:
Basic.............. $1.27 $1.24
Diluted............ $1.18 $1.16
<CAPTION>
YEAR ENDED DECEMBER 31, 1995
----------------------------------------
OTHER PRO
PROBABLE FORMA
BUSINESS ADJUSTMENTS/ COMBINED
COMBINATIONS (DEDUCTIONS) TOTAL
------------ ------------ ----------
<S> <C> <C> <C>
Interest income...... $ 20,283 $ 397,539
Interest expense..... 7,920 -- 192,393
--------- ---------- ----------
Net interest
income............. 12,363 -- 205,146
Provision for
possible loan
losses............. 516 10,934
--------- ---------- ----------
Net interest income
after provision for
loan losses........ 11,847 -- 194,212
--------- ---------- ----------
Noninterest income... 1,656 65,655
Noninterest expense.. 7,253 -- 175,275
--------- ---------- ----------
Income before income
taxes.............. 6,250 -- 84,592
Applicable income
taxes.............. 2,062 -- 29,682
--------- ---------- ----------
Net income........... $ 4,188 $ -- $ 54,910
========= ========== ==========
Average basic shares
outstanding........ 1,524,910 (1,524,910) 44,741,488
3,942,480
Average diluted
shares
outstanding........ 1,524,910 (1,524,910) 48,613,683
3,952,675
Earnings per share:
Basic.............. $1.23
Diluted............ $1.15
</TABLE>
- ---------------
* Restated to give retroactive effect to the February 1998 pooling-of-interests
business combinations with United American Holding Corporation, First Central
Bank and South Florida Banking Corp.
50
<PAGE> 59
PRO FORMA ADJUSTMENTS
Adjustments applicable to the pooling-of-interests business combination
with FirstBank
(1) To record a provision for income taxes for FirstBank as if FirstBank
had merged with BancGroup on January 1, 1995. Subsequent to its S-Corporation
election as of January 1, 1997, FirstBank does not include a provision for
income taxes in their 1998 and 1997 financial statements.
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 but are
reflected in the condensed pro forma statement of condition. (Please refer to
BancGroup's Current Report on Form 8-K dated March 16, 1998 and incorporated by
reference herein.)
COMPLETED BUSINESS COMBINATION
(1) Possible adjustments applicable to the pooling of interest method
business combination with Commercial Bank:
<TABLE>
<S> <C>
Increase in expense:
Contract buy-outs......................................... $ (24)
Professional fees......................................... (103)
Write-off of fixed assets................................. (128)
-----
Net decrease in income before tax........................... (255)
Tax effect of the pro forma adjustments..................... 96
-----
Net decrease in income............................ $(159)
=====
</TABLE>
PENDING BUSINESS COMBINATIONS
(2) Possible adjustments applicable to the pooling of interest method
business combination with Prime Bank:
<TABLE>
<S> <C>
Increase in expense:
Contract buy-outs...................................... $ (92)
Potential severance payable to terminated employees.... (35)
Professional fees...................................... (180)
Other noncompete, salary continuation agreements....... (124)
Deferred tax and interest adjustments.................. 50
Write-off of other assets.............................. (88)
Write-off of fixed assets.............................. (128)
-------
Net decrease in income before tax......................... (597)
Tax effect of the pro forma adjustments................... 235
-------
Net decrease in income............................... $ (362)
=======
</TABLE>
51
<PAGE> 60
(3) Possible adjustments applicable to the pooling of interest method
business combination with First Macon:
<TABLE>
<S> <C>
Increase in expense:
Contract buy-outs...................................... $ (153)
Potential severance payable to terminated employees.... (162)
Professional fees...................................... (305)
Write-off of other assets.............................. (51)
Write-off of fixed assets.............................. (328)
-------
Net decrease in income before tax........................... (999)
Tax effect of the pro forma adjustments..................... 375
-------
Net decrease in income............................... $ (624)
=======
</TABLE>
(4) Possible adjustments applicable to the pooling of interest method
business combination with FirstBank:
<TABLE>
<S> <C>
Increase in expense:
Professional fees...................................... $ (100)
Write-off of fixed assets.............................. (8)
-------
Net decrease in income before tax........................... (108)
Tax effect of the pro forma adjustment...................... 41
-------
Net decrease in income............................... $ (68)
=======
</TABLE>
(5) Possible adjustments applicable to the pooling of interest method
business combination with CNB Holding Company:
<TABLE>
<S> <C>
Increase in expense:
Write-off of fixed assets.............................. $ (199)
Potential severance to terminated employees............ (52)
Non-compete agreements................................. (183)
Contract buy-outs...................................... (570)
Write-off of other assets.............................. (34)
-------
Net decrease in income before taxes......................... (1,038)
Tax effect of the pro forma adjustment...................... 389
-------
Net decrease in income............................... $ (649)
=======
</TABLE>
52
<PAGE> 61
RECENT DEVELOPMENTS -- BANCGROUP
BANCGROUP -- RECENT UNAUDITED RESULTS
The following table presents certain unaudited data for BancGroup for the
period ended June 30, 1998. Unaudited data reflect, in the opinion of
management, all adjustments (consisting of normal recurring adjustments)
necessary to presentation of such data. The unaudited financial information is
presented for informational purposes only and is not indicative of the financial
position or results of operations which would have actually occurred if the
transactions had been consummated in the past or which may be obtained in the
future.
THE COLONIAL BANCGROUP, INC.
SELECTED FINANCIAL DATA
(UNAUDITED)
<TABLE>
<CAPTION>
% CHANGE
JUNE 30, JUNE 30, JUNE 30,
1998 1997 1997 TO 1998
---------- ---------- -------------
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE
AMOUNTS)
<S> <C> <C> <C>
STATEMENT OF CONDITION SUMMARY
Total assets................................................ $8,772,533 $6,917,732 27%
Loans, net of unearned income............................... 6,027,489 5,174,845 16
Total earnings assets....................................... 7,933,502 6,328,766 25
Deposits.................................................... 6,193,818 5,460,471 13
Shareholders' equity........................................ 601,771 501,386 20
Book value per share........................................ $ 12.25 $ 10.53 16%
</TABLE>
<TABLE>
<CAPTION>
SIX MONTHS ENDED JUNE 30,
-------------------------------
% CHANGE
1998 1997 97 TO 98
-------- -------- ---------
<S> <C> <C> <C>
EARNINGS SUMMARY
Net interest income (taxable equivalent).................... $154,620 $135,026 15%
Provision for loan losses................................... 7,543 7,288 3
Noninterest income.......................................... 57,420 42,524 35
Noninterest expense......................................... 134,850 106,163 27
Net income.................................................. 42,411 39,680 7
Net income excluding acquisition and restructuring costs and
Year 2000 expenses........................................ 49,438 41,787 18
Average primary shares outstanding.......................... 48,841 46,894
Average fully diluted shares outstanding.................... 50,146 48,532
EARNINGS PER SHARE
Income excluding acquisition and restructuring costs and
Year 2000 expenses:
Basic..................................................... $ 1.01 $ 0.89 13%
Diluted................................................... 0.99 0.86 15
Net income:
Basic..................................................... 0.87 0.85 2
Diluted................................................... 0.85 0.82 4
</TABLE>
<TABLE>
<CAPTION>
SIX MONTHS
ENDED JUNE 30,
--------------
1998 1997
----- ------
<S> <C> <C>
SELECTED RATIOS:
Income excluding acquisition and restructuring costs and
Year 2000 expenses to:
Average assets............................................ 1.24% 0.0125%
Average equity............................................ 17.16 0.1715
Net income to:
Average assets............................................ 1.13 1.19
Average equity............................................ 15.64 16.29
Efficiency ratio (excluding acquisition and Year 2000
expenses)................................................. 63.60 59.79
Equity to assets............................................ 6.86 7.25
Total capital............................................... 7.77 8.22
Tier one leverage........................................... 7.41 7.90
</TABLE>
Operating earnings for the six months ended June 30, 1998 were $49,438,000
compared to $41,787,000 for the same period in 1997, an 18% increase. Diluted
operating earnings per share, net income excluding acquisition and restructuring
costs and Year 2000 expenses, for the six months ended June 30, 1998 was $0.99,
a 15% increase over the same period in 1997. The company's return on average
equity and average assets, excluding acquisition and restructuring costs and
Year 2000 expenses, was 17.16% compared with 17.15% in 1997 and 1.24% compared
to 1.25% for 1997, respectively.
53
<PAGE> 62
THE COLONIAL BANCGROUP, INC. AND SUBSIDIARIES
SELECTED FINANCIAL AND OPERATING INFORMATION
The following tables present certain financial information for BancGroup on
a historical basis and pro forma basis. The first table presents historical and
pro forma information for the three months ended March 31, 1998 and 1997. The
second table presents historical and pro forma income statements for the years
ended December 31, 1997, 1996 and 1995 as well as historical information for the
years ended December 31, 1994 and 1993. The final table presents pro forma and
historical statements of condition data and selected ratios as March 31, 1998 as
well as historical for the years ended December 31, 1997, 1996, 1995, 1994 and
1993.
The pro forma information includes consolidated BancGroup and subsidiaries
and Commercial Bank of Nevada, CNB Holding Company, FirstBank, First Macon Bank
and Trust and Prime Bank of Central Florida. The pro forma balance sheet data
gives effect to the combinations as if they had occurred on March 31, 1998 and
the pro forma operating data gives effect to the combinations as if they
occurred at the beginning of the earliest period presented.
The following selected financial information should be read in conjunction
with the discussion set forth in "Management's Discussion and Analysis of
Financial Condition and Results of Operations," and all financial statements
included elsewhere in this Prospectus and incorporated by reference. The pro
forma information provided below may not be indicative of future results.
<TABLE>
<CAPTION>
THREE MONTHS ENDED MARCH 31,
-----------------------------------------------
BANCGROUP BANCGROUP BANCGROUP BANCGROUP
PRO FORMA HISTORICAL PRO FORMA HISTORICAL
1998 1998 1997 1997
--------- ---------- --------- ----------
<S> <C> <C> <C> <C>
STATEMENT OF INCOME
Interest income....................................... $157,987 $146,034 $136,290 $127,044
Interest expense...................................... 77,607 72,602 66,700 62,969
-------- -------- -------- --------
Net interest income................................... 80,380 73,432 69,590 64,075
Provision for possible loan losses.................... 3,889 3,670 3,443 3,056
-------- -------- -------- --------
Net interest income after provision for loan losses... 76,491 69,762 66,147 61,019
Noninterest income.................................... 26,863 26,075 20,818 20,105
Noninterest expense................................... 62,679 58,485 53,315 49,874
Acquisition and restructuring costs and Year 2000
expenses............................................ 8,449 8,449 757 757
-------- -------- -------- --------
Income before income taxes............................ 32,226 28,903 32,893 30,493
Applicable income taxes............................... 12,024 10,953 11,851 11,021
-------- -------- -------- --------
Net income............................................ $ 20,202 $ 17,950 $ 21,042 $ 19,472
======== ======== ======== ========
Income excluding acquisition and restructuring costs
and Year 2000 expenses.............................. $ 25,810 $ 23,558 $ 21,648 $ 20,078
======== ======== ======== ========
EARNINGS PER SHARE
Income excluding acquisition and restructuring costs
and Year 2000 expenses:
Basic............................................... $ 0.49 $ 0.49 $ 0.42 $ 0.44
Diluted............................................. $ 0.47 $ 0.48 $ 0.41 $ 0.42
Net income:
Basic............................................... $ 0.38 $ 0.38 $ 0.41 $ 0.42
Diluted............................................. $ 0.37 $ 0.37 $ 0.40 $ 0.41
Average shares outstanding
Basic............................................... 53,096 47,779 51,307 45,969
Diluted............................................. 54,513 49,178 53,205 47,845
Cash dividends:
Common.............................................. $ 0.17 $ 0.17 $ 0.15 $ 0.15
</TABLE>
54
<PAGE> 63
<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.............. $582,773 $476,013 $397,539 $540,699 $444,082 $371,985 $278,223 $224,209
Interest expense............. 284,464 231,943 192,393 267,084 219,494 182,441 113,715 88,568
-------- -------- -------- -------- -------- -------- -------- --------
Net interest income.......... 298,309 244,070 205,146 273,615 224,588 189,544 164,508 135,641
Provision for possible loan
losses..................... 16,122 14,440 10,934 14,860 13,564 10,180 8,943 14,437
-------- -------- -------- -------- -------- -------- -------- --------
Net interest income after
provision for loan
losses..................... 282,187 229,630 194,212 258,755 211,024 179,364 155,565 121,204
Noninterest income........... 95,814 77,575 65,655 92,550 74,860 63,479 56,567 53,655
Noninterest expense.......... 228,483 194,879 173,537 213,769 182,588 163,001 154,083 135,471
SAIF special assessment...... -- 4,754 -- -- 4,465 -- -- --
Acquisition and restructuring
costs...................... 6,463 11,918 1,738 6,463 11,918 1,738 1,348 960
-------- -------- -------- -------- -------- -------- -------- --------
Income before income taxes... 143,055 95,654 84,592 131,073 86,913 78,104 56,701 38,428
Applicable income taxes...... 52,792 33,373 29,682 48,557 30,631 27,462 18,610 12,216
-------- -------- -------- -------- -------- -------- -------- --------
Income before extraordinary
items...................... 90,263 62,281 54,910 82,516 56,282 50,642 38,091 26,212
Extraordinary items.......... -- -- -- -- -- -- -- (396)
Cumulative effect of a change
in accounting.............. -- -- -- -- -- -- -- 3,890
-------- -------- -------- -------- -------- -------- -------- --------
Net income................... $ 90,263 $ 62,281 $ 54,910 $ 82,516 $ 56,282 $ 50,642 $ 38,091 $ 29,706
======== ======== ======== ======== ======== ======== ======== ========
Income excluding SAIF special
assessment and acquisition
and restructuring costs.... $ 95,433 $ 74,897 $ 56,300 $ 87,686 $ 68,719 $ 52,032 $ 39,169 $ 26,980
======== ======== ======== ======== ======== ======== ======== ========
EARNINGS PER SHARE
Income excluding SAIF special
assessment and acquisition
and restructuring costs:
Basic...................... $ 1.84 $ 1.56 $ 1.26 $ 1.88 $ 1.60 $ 1.31 $ 1.05 $ 0.80
Diluted.................... $ 1.78 $ 1.50 $ 1.16 $ 1.83 $ 1.54 $ 1.22 $ 0.98 $ 0.76
Income before extraordinary
items:
Basic...................... $ 1.74 $ 1.30 $ 1.23 $ 1.77 $ 1.31 $ 1.27 $ 1.02 $ 0.78
Diluted.................... $ 1.69 $ 1.25 $ 1.15 $ 1.72 $ 1.27 $ 1.18 $ 0.96 $ 0.74
Net income:
Basic...................... $ 1.74 $ 1.30 $ 1.23 $ 1.77 $ 1.31 $ 1.27 $ 1.02 $ 0.89
Diluted.................... $ 1.69 $ 1.25 $ 1.15 $ 1.72 $ 1.27 $ 1.18 $ 0.96 $ 0.84
Average shares outstanding
Basic...................... 51,866 47,986 44,741 46,536 42,839 39,787 37,361 33,512
Diluted.................... 53,508 49,980 48,614 48,158 44,776 43,649 40,993 37,465
Cash dividends:
Common**................... $ 0.60 $ 0.54 $ 0.3375 $ 0.60 $ 0.54 $ 0.3375 $ -- $ --
Class A**.................. -- -- $ 0.1125 -- -- $ 0.1125 $ 0.400 $ 0.355
Class B**.................. -- -- $ 0.0625 -- -- $ 0.0625 $ 0.200 $ 0.155
</TABLE>
- ---------------
* Restated to give retroactive effect to the February 1998 pooling-of-interests
business combinations with United American Holding Corporation, First Central
Bank and South Florida Banking Corp.
** The pro forma cash dividends are equal to the historical BancGroup cash
dividends.
55
<PAGE> 64
<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31,
----------------------- --------------------------------------------------------------
BANCGROUP BANCGROUP BANCGROUP BANCGROUP BANCGROUP BANCGROUP BANCGROUP
PRO FORMA HISTORICAL HISTORICAL HISTORICAL HISTORICAL HISTORICAL HISTORICAL
1998 1998 1997* 1996* 1995* 1994* 1993*
---------- ---------- ---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF CONDITION
DATA
At period end:
Total assets............. $8,654,267 $8,006,359 $7,442,661 $6,165,691 $5,370,361 $4,214,492 $4,022,477
Loans, net of unearned
income............... 6,023,915 5,655,164 5,585,901 4,558,780 3,924,785 2,5959,565 2,468,564
Mortgage loans held for
sale................. 455,716 455,716 225,331 157,966 116,688 61,556 368,515
Deposits............... 6,660,305 6,082,744 5,771,702 4,728,896 4,223,539 3,378,252 3,252,771
Long-term debt......... 460,426 460,426 315,252 39,092 48,688 89,040 57,397
Shareholders' equity... 619,530 571,586 543,262 443,391 388,770 298,812 279,300
Average daily balances
Total assets........... 8,299,455 7,620,638 6,911,648 5,742,474 4,756,418 4,028,482 3,308,106
Interest-earning
assets............... 7,519,092 6,881,562 6,325,872 5,253,921 4,347,437 3,645,499 2,945,172
Loans, net of unearned
income............... 6,052,743 5,675,060 5,184,653 4,240,554 3,371,192 2,669,363 1,988,563
Mortgage loans held for
sale................. 254,992 254,992 149,309 135,135 98,785 135,046 248,502
Deposits............... 6,359,861 5,852,198 5,442,818 4,463,015 3,787,613 3,280,208 2,666,025
Shareholders' equity... 612,996 562,172 504,739 423,289 339,734 292,892 220,802
Book value per share..... $ 11.59 $ 11.88 $ 11.52 $ 10.23 $ 9.38 $ 7.88 $ 7.66
Tangible book value per
share.................. 10.11 10.24 10.05 9.54 8.65 7.37 7.21
SELECTED RATIOS
Income excluding SAIF
special assessment,
acquisition and
restructuring costs and
Year 2000 expenses to:
Average assets....... 1.24% 1.25% 1.27% 1.20% 1.09% 0.97% 0.82%
Average stockholders'
equity............. 16.84% 16.99% 17.37% 16.23% 15.32% 13.37% 12.22%
Income before
extraordinary items and
the cumulative effect
of a change in
accounting for income
taxes to:
Average assets....... 0.97% 0.96% 1.19% 0.98% 1.06% 0.95% 0.79%
Average stockholders'
equity............. 13.18 12.95 16.35 13.30 14.91 13.01 11.87
Net income to:
Average assets......... 0.97 0.96 1.19 0.98 1.06 0.95 0.90
Average stockholders'
equity............... 13.18 12.95 16.35 13.30 14.91 13.01 13.45
Efficiency ratio(1)(2)... 60.65 58.38 57.94 60.46 63.89 69.00 71.23
Dividend payout.......... 43.59 44.74 33.90 41.22 35.43 39.22 39.89
Average equity to average
assets................. 7.39 7.38 7.30 7.37 7.14 7.27 6.67
Allowance for possible
loan losses to total
loans (Net of unearned
income)................ 1.23% 1.22% 1.21% 1.27% 1.29% 1.54% 1.59%
</TABLE>
- ---------------
* Restated to give retroactive effect to the February 1998 pooling-of-interest
business combinations with United American Holding Corporation, First
Central Bank and South Florida Banking Corp.
(1) Legislation approving a one-time special assessment to recapitalize the
Savings Association Insurance Fund ("SAIF") resulted in $4,465,000 in
expense before income taxes and $2,903,000 net of applicable income taxes in
1996.
(2) Acquisition expenses reflect costs and related restructuring expense of
business combinations.
56
<PAGE> 65
PRIME BANK
SELECTED FINANCIAL DATA
<TABLE>
<CAPTION>
AT OR FOR THE
THREE MONTHS ENDED
MARCH 31, AT OR FOR THE YEAR ENDED DECEMBER 31,
------------------ -----------------------------------------------
1998 1997 1997 1996 1995 1994 1993
------- ------- ------- ------- ------- ------- -------
(DOLLARS IN THOUSANDS EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C>
INCOME STATEMENT INFORMATION:
Interest income................... $ 1,254 $ 1,148 $ 4,767 $ 4,225 $ 3,779 $ 3,078 $ 2,766
Interest expense.................. 544 509 2,094 1,823 1,735 1,228 1,118
Net interest income............... 710 639 2,673 2,402 2,044 1,850 1,648
Provision for credit losses....... 20 5 72 54 46 110 31
Net interest income after
provision for credit losses..... 690 634 2,601 2,348 1,998 1,740 1,617
Noninterest income................ 102 115 458 474 444 423 633
Noninterest expenses.............. 539 511 1,955 2,380 1,967 2,041 1,775
Earnings before taxes on income... 253 238 1,104 442 475 122 475
Income taxes...................... 95 87 409 157 158 24 180
Net earnings...................... 158 151 695 285 317 98 295
Basic earnings per share.......... .40 .38 1.74 .71 .79 .24 .74
Cash dividends per share.......... -- -- -- -- .08 -- --
Weighted average common shares and
common share equivalents
outstanding during period....... 400,000 400,000 400,000 400,000 400,000 400,000 400,000
BALANCE SHEET INFORMATION:
Total assets at end of period..... $70,462 $68,298 $60,611 $54,123 $48,062 $41,636
Cash and cash equivalents......... 9,234 7,798 5,708 7,565 3,650 3,481
Investment securities............. 15,728 15,381 14,497 10,702 11,396 10,447
Loans receivable, net of allowance
for loan losses................. 41,915 42,039 38,021 33,474 30,338 25,070
Deposits.......................... 63,085 59,996 53,387 47,604 42,030 36,065
Stockholders' equity.............. 6,605 6,450 5,715 5,442 5,064 5,080
Book value at end of period....... $ 16.51 $ 16.12 $ 14.29 $ 13.61 $ 12.66 $ 12.70
Common shares outstanding at end
of period....................... 400,000 400,000 400,000 400,000 400,000 400,000
Allowance for loan losses as a
per-centage of period-end total
loans........................... 1.09% 1.04% 1.04% 1.02% 1.03% .84%
Allowance for loan losses as a
per-centage of nonperforming
loans........................... 1,026.0% 506.0% 257.0% 118.5% 102.1% N/A
Total nonperforming loans as a
percentage of total loans....... .1% .2% .4% .86% 1.01% N/A
Total nonperforming loans as a
percentage of total assets...... .06% .12% .25% .54% .65% N/A
Total nonperforming loans and real
estate owned as a percentage of
total assets.................... .1% .2% .4% .71% 1.13% .50%
</TABLE>
57
<PAGE> 66
PRIME BANK
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
GENERAL
Prime Bank conducts a commercial banking business which consists of
attracting deposits from the general public and applying those funds to the
origination of commercial, consumer and residential mortgage and commercial real
estate loans. Prime Bank's profitability depends primarily on net interest
income, which is the difference between interest income generated from
interest-earning assets (i.e., loans and investments) less the interest expense
incurred on interest-bearing liabilities (i.e., customer deposits and borrowed
funds). Net interest income is affected by the relative amounts of
interest-earning assets and interest-bearing liabilities, and the interest rates
earned and paid on these balances. Net interest income is dependent upon Prime
Bank's interest-rate spread, which is the difference between the average yield
earned on its interest-earning assets and the average rate paid on its
interest-bearing liabilities. When interest-earning assets approximate or exceed
interest-bearing liabilities, any positive interest rate spread will generate
net interest income. The interest rate spread is impacted by interest rates,
deposit flows, and loan demand. Additionally, and to a lesser extent, Prime
Bank's profitability is affected by such factors as the level of noninterest
income and expenses, the provision for credit losses, and the effective tax
rate. Noninterest income consists primarily of service fees on deposit accounts.
Noninterest expense consists of compensation and employee benefits, occupancy
related expenses, deposit insurance premiums paid to the FDIC, and other
operating expenses.
Management's discussion and analysis of earnings and related financial data
are presented herein to assist investors in understanding the financial
condition of Prime Bank at March 31, 1998 and December 31, 1997 and 1996, and
results of operations of Prime Bank for the three-month periods ended March 31,
1998 and 1997 and the years ended December 31, 1997 and 1996. The following
discussion should be read in conjunction with the financial statements of Prime
Bank and related footnotes presented elsewhere herein.
LIQUIDITY
During the three month period ended March 31, 1998, Prime Bank's cash and
cash equivalents increased $1.4 million, from $7.8 million at December 31, 1997
to $9.2 million at March 31, 1998. That increase was caused primarily by a net
increase in deposit accounts of $3.1 million resulting from the opening of a new
branch office, and offset by decreases in other liabilities and taxes payable of
$1.1 million and net purchases of investment securities of $361,000. During the
three months ended March 31, 1998, total assets increased from $68.3 million at
December 31, 1997 to $70.5 million at March 31, 1998.
Liquidity management involves the ability to meet the cash flow
requirements of customers who may be either depositors wanting to withdraw their
funds or borrowers needing assurance that sufficient funds will be available to
meet their credit needs. In the ordinary course of business, Prime Bank's cash
flows are generated from interest and fee income, as well as from loan
repayments and the maturity of investment securities held-to-maturity. In
addition to cash and due from banks, Prime Bank considers all securities
available-for-sale and federal funds sold as primary sources of asset liquidity.
Many factors affect the ability to accomplish these liquidity objectives
successfully, including the economic environment, and the asset/liability mix
within the balance sheet, as well as Prime Bank's reputation in the community.
Prime Bank's principal sources of funds are net increases in deposits, principal
and interest payments on loans and proceeds from sales and maturities of
investments. Prime Bank used its capital resources primarily to fund existing
and continuing loan commitments and to purchase investment securities. At March
31, 1998, Prime Bank had commitments to originate loans totaling $2.0 million,
and had issued but unused standby letters of credit of $108,000. At March 31,
1998, Prime Bank had commitments to extend credit under the undisbursed portion
of outstanding lines of credit and construction loans in process of $7.3
million. Scheduled maturities of certificates of deposit during the twelve
months following March 31, 1998 totaled $29.1 million. Management believes that
Prime Bank had adequate resources to fund all its commitments, that
substantially all of its existing commitments
58
<PAGE> 67
will be funded in the subsequent twelve months and, if so desired, that it can
adjust the rates on certificates of deposit and other deposit accounts to retain
deposits in a changing interest rate environment.
A state-chartered commercial bank is required to maintain a liquidity
reserve of at least 15% of its transaction deposit accounts and 8% of its
non-transaction deposit accounts. The liquidity reserve may consist of cash on
hand, cash on demand deposit with other correspondent banks, and other
investments and short-term marketable securities as determined by the rules of
the Florida Department, such as federal funds sold and United States securities
or securities guaranteed by the United States. As of March 31, 1998 and December
31, 1997, Prime Bank had a liquidity ratio of 39.5% and 38.5%, respectively.
CAPITAL RESOURCES
Prime Bank's total stockholders' equity was $6.6 million and $6.4 million
at March 31, 1998 and December 31, 1997. The increase in stockholders' equity
during the three months ended March 31, 1998 of $155,000 was primarily from
$158,000 of net earnings. Prime Bank's total stockholders' equity was 9.4%, 9.4%
and 9.4% of total assets as of March 31, 1998, December 31, 1997 and 1996,
respectively.
Prime Bank is subject to various regulatory capital requirement
administered by various regulatory authorities. 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 Prime Bank's financial statements. Under capital adequacy
guidelines and the regulatory framework for prompt corrective action, Prime Bank
must meet specific capital guidelines that involve quantitative measures of
Prime Bank's assets, liabilities, and certain off-balance-sheet items as
calculated under regulatory accounting practices. Prime Bank's capital amounts
and classification are also subject to qualitative judgments by the regulators
about components, risk weightings, and other factors.
Quantitative measures established by regulation to ensure capital adequacy
require Prime Bank to maintain minimum amounts (set forth in the table below) of
total and Tier I capital (as defined in the regulations) to risk-weighted assets
(as defined). Management believes, as of March 31, 1998 and December 31, 1997,
that Prime Bank met all capital adequacy requirements to which it is subject.
As of March 31, 1998 and December 31, 1997, the most recent notification
from Prime Bank's primary regulator categorized Prime Bank as well capitalized
under the regulatory framework for prompt corrective action. To be categorized
as well capitalized, Prime Bank must maintain minimum total risk-based, Tier I
risk-based, and Tier I leverage ratios as set forth in the following table.
There are no conditions or events since that notification that management
believes have changed Prime Bank's category.
Prime Bank's actual capital amounts and ratios are presented in the
following table (dollars in thousands).
<TABLE>
<CAPTION>
TO BE WELL
CAPITALIZED
UNDER
PROMPT
FOR CAPITAL CORRECTIVE
ADEQUACY ACTION
ACTUAL PURPOSES: PROVISIONS
-------------- -------------- --------------
AMOUNT RATIO AMOUNT RATIO AMOUNT RATIO
------ ----- ------ ----- ------ -----
<S> <C> <C> <C> <C> <C> <C>
AS OF MARCH 31, 1998:
Total capital (to Risk-Weighted Assets)..... $7,019 14.05% $3,996 8.00% $4,995 10.00%
Tier I Capital (to Risk-Weighted Assets).... 6,557 13.13% 1,998 4.00% 2,997 6.00%
Tier I Capital (to Average Assets).......... 6,557 9.31% 2,818 4.00% 3,523 5.00%
AS OF DECEMBER 31, 1997:
Total capital (to Risk-Weighted Assets)..... $6,450 13.04% $3,956 8.00% $4,945 10.00%
Tier I Capital (to Risk-Weighted Assets).... 6,394 12.93% 1,978 4.00% 2,967 6.00%
Tier I Capital (to Average Assets).......... 6,394 9.80% 2,610 4.00% 3,262 5.00%
</TABLE>
59
<PAGE> 68
In 1996, the FDIC levied a one-time assessment on all SAIF-insured
deposits, of 65.7 cents per $100 of domestic deposits, held as of March 31,
1995. This one-time assessment was intended to recapitalize the SAIF to the
required level of 1.25% of insured deposits, and was payable in 1996. Prime Bank
recorded the special assessment of $289,000 before taxes in the third quarter of
1996.
RESULTS OF OPERATIONS
General
Prime Bank's net income was $158,000 for the three months ended March 31,
1998 as compared $151,000 for the same period in 1997. Prime Bank's net income
was $695,000 for the year ended December 31, 1997, as compared to $285,000 for
the year ended December 31, 1996, or an increase of $410,000.
For the three months ended March 31, 1998 and 1997, and the years ended
December 31, 1997 and 1996, selected ratios were as follows:
<TABLE>
<CAPTION>
THREE MONTHS
ENDED YEAR ENDED
MARCH 31, DECEMBER 31,
------------- -------------
1998 1997 1997 1996
---- ----- ----- ----
<S> <C> <C> <C> <C>
Average equity as a percentage of average assets...... 9.62% 9.42% 9.61% 9.82%
Return on average assets (annualized)................. .93% .99% 1.10% .51%
Return on average equity (annualized)................. 9.68% 10.46% 11.43% 5.18%
Noninterest expense to average assets (annualized).... 3.18% 3.33% 3.09% 4.24%
</TABLE>
60
<PAGE> 69
The following table sets forth for the periods indicated information
regarding (i) the total dollar amount of interest and dividend income of Prime
Bank from interest-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/dividend income; (iv) interest-rate
spread; (v) net interest margin; and (vi) ratio of average interest-earning
assets to average interest-bearing liabilities.
<TABLE>
<CAPTION>
THREE MONTHS ENDED MARCH 31,
-------------------------------------------------------------
1998 1997
----------------------------- -----------------------------
INTEREST AVERAGE INTEREST AVERAGE
AVERAGE AND YIELD/ AVERAGE AND YIELD/
BALANCE DIVIDENDS RATE BALANCE DIVIDENDS RATE
------- --------- ------- ------- --------- -------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
Interest-earning assets:
Loans.................................... $42,337 $ 986 9.32% $38,661 $ 885 9.16%
Securities............................... 14,982 210 5.61% 15,039 212 5.64%
Other interest-earnings assets(1)........ 4,017 58 5.78% 3,604 51 5.66%
------- ------ ------- ------
Total interest-earning assets.... 61,336 1,254 8.18% 57,304 1,148 8.01%
------ ------
Noninterest-earning assets(2)............ 6,515 4,002
------- -------
Total assets:.................... $67,851 $61,306
======= =======
Interest-bearing liabilities:
Savings and NOW deposits................. 10,948 52 1.90% 8,906 48 2.16%
Money-market deposits.................... 6,204 39 2.51% 6,741 50 2.97%
Time deposits............................ 33,224 453 5.45% 30,931 411 5.32%
------- ------ ------- ------
Total interest-bearing
liabilities.................... 50,376 544 4.32% 46,578 509 4.37%
------ ------
Demand deposits.......................... 10,010 8,167
Noninterest-bearing liabilities.......... 938 788
Stockholders' equity..................... 6,527 5,773
------- -------
Total liabilities and
stockholders' equity........... $67,851 $61,306
======= =======
Net-interest income........................ $ 710 $ 639
====== ======
Interest-rate spread(3).................... 3.86% 3.64%
==== ====
Net interest margin(4)..................... 4.63% 4.46%
==== ====
Ratio of average interest-earning assets to
average interest-bearing liabilities..... 1.22 1.23
======= =======
</TABLE>
- ---------------
(1) Includes interest-bearing deposits, federal funds sold and Federal Home Loan
Bank Stock.
(2) Includes nonaccrual loans.
(3) Interest-rate spread represents the difference between the weighted-average
yield on interest-earning assets and the weighted-average cost of
interest-bearing liabilities.
(4) Net interest margin is net interest income divided by average
interest-earning assets.
61
<PAGE> 70
The following table sets forth for the periods indicated information
regarding (i) the total dollar amount of interest and dividend income of the
Bank from interest-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/dividend income; (iv) interest-rate
spread; (v) net interest margin; and (vi) ratio of average interest-earning
asset to average interest-bearing liabilities.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------------------------------------------
1997 1996
----------------------------- -----------------------------
INTEREST AVERAGE INTEREST AVERAGE
AVERAGE AND YIELD/ AVERAGE AND YIELD/
BALANCE DIVIDENDS RATE BALANCE DIVIDENDS RATE
------- --------- ------- ------- --------- -------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
Interest-earning assets:
Loans.................................... $38,282 $3,633 9.49% $35,392 $3,331 9.41%
Securities............................... 16,365 947 5.79% 12,120 651 5.37%
Other interest-earning assets(1)......... 3,191 187 5.86% 4,477 243 5.43%
------- ------ ------- ------
Total interest-earning assets.... 57,838 4,767 8.24% 51,989 4,225 8.13%
------ ------
Noninterest-earning assets(2)............ 5,484 4,197
------- -------
Total assets:.................... $63,322 $56,186
======= =======
Interest-bearing liabilities:
Savings and NOW deposits................. 9,406 185 1.97% 6,718 132 1.96%
Money-market deposits.................... 6,468 179 2.77% 7,756 209 2.69%
Time deposits............................ 31,531 1,730 5.49% 28,601 1,482 5.18%
------- ------ ------- ------
Total interest-bearing
liabilities.................... 47,405 2,094 4.42% 43,075 1,823 4.23%
------ ------
Demand deposits.......................... 8,844 7,083
Noninterest-bearing liabilities.......... 990 512
Stockholders; equity..................... 6,083 5,516
------- -------
Total liabilities and
stockholders' equity........... $63,322 $56,186
======= =======
Net-interest income...................... $2,673 $2,402
====== ======
Interest-rate spread(3).................. 3.82% 3.90%
==== ====
Net interest margin(4)................... 4.62% 4.62%
==== ====
Ratio of average interest-earning assets
to average interest-bearing
liabilities........................... 1.22 1.21
======= =======
</TABLE>
- ---------------
(1) Includes interest-bearing deposits, federal funds sold and Federal Home Loan
Bank Stock.
(2) Includes nonaccrual loans.
(3) Interest-rate spread represents the difference between the weighted-average
yield on interest-earning assets and the weighted-average cost of
interest-bearing liabilities.
(4) Net interest margin is net interest income divided by average
interest-earning assets.
NET INTEREST INCOME
Net interest income, which constitutes the principal source of income for
Prime Bank, represents the excess of interest income on interest-earning assets
over interest expense on interest-bearing liabilities. The principal
interest-earning assets are federal funds sold, investment securities and loans
receivable. Interest-bearing liabilities primarily consist of time deposits,
interest-bearing checking accounts ("NOW accounts"), retail savings deposits and
money market accounts. Funds attracted by these interest-bearing liabilities are
invested in interest-earning assets. Accordingly, net interest income depends
upon the volume of average interest-earning assets and average interest-bearing
liabilities and the interest rates earned or paid on them.
62
<PAGE> 71
The following table sets forth certain information regarding changes in
Prime Bank's interest income and interest expense during the three months ended
March 31, 1998 compared to the same period in 1997, and the year ended December
31, 1997 as compared to the year ended December 31, 1996. For each category of
interest-earning assets and interest-bearing liabilities, information is
provided on changes attributable to (1) changes in interest rate (change in rate
multiplied by prior volume), (2) changes in the volume (change in volume
multiplied by prior rate) and (3) changes in rate-volume (change in rate
multiplied by change in volume).
<TABLE>
<CAPTION>
THREE MONTHS ENDED MARCH 31
---------------------------------
1998 VS. 1997
INCREASE (DECREASE) DUE TO
---------------------------------
RATE/
RATE VOLUME VOLUME TOTAL
---- ------ ------ -----
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C>
Interest bearing assets:
Loans.................................................. $ 61 337 6 404
Securities............................................. (5) (3) -- (8)
Other interest-earning assets.......................... 5 23 -- 28
---- --- -- ---
Total.......................................... 61 357 6 424
---- --- -- ---
Interest bearing liabilities:
Deposits:
Savings and NOW deposits............................ (23) 44 (5) 16
Money-market deposits............................... (30) (16) 2 (44)
Time deposits....................................... 43 122 3 168
---- --- -- ---
Total.......................................... (10) 150 -- 140
Net change in net interest income........................ $ 71 207 6 284
==== === == ===
</TABLE>
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
1997 VS. 1996
INCREASE (DECREASE) DUE TO
---------------------------------
RATE/
RATE VOLUME VOLUME TOTAL
---- ------ ------ -----
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C>
Interest bearing assets:
Loans................................................... $28 272 2 302
Securities.............................................. 50 228 18 296
Other interest-earning assets........................... 20 (70) (6) (56)
--- --- -- ---
Total........................................... 98 430 14 542
--- --- -- ---
Interest bearing liabilities:
Deposits:
Savings and NOW deposits............................. -- 53 -- 53
Money-market deposits................................ 6 (35) (1) (30)
Time deposits........................................ 87 152 9 248
--- --- -- ---
Total........................................... 93 170 8 271
--- --- -- ---
Net change in net interest income......................... $ 5 260 6 271
=== === == ===
</TABLE>
63
<PAGE> 72
Comparison of Three Months Ended March 31, 1998 and 1997
General -- Net earnings for the three months ended March 31, 1998 were
$158,000 compared to $151,000 for thee three months ended March 31, 1997. The
increase was primarily due to an increase in interest income of $106,000,
partially offset by an increase in interest expense of $35,000.
Interest Income and Expense -- For the three months ended March 31, 1998,
interest income was $1.3 million compared to $1.1 million for the three months
ended March 31, 1997. In 1998, interest on loans was $986,000 and the
weighted-average yield earned on the loan portfolio was 9.32% compared to
$885,000 and a weighted-average yield of 9.16% in 1997. The increase in interest
income on loans in 1998 was due to the increase in the average balance
outstanding and the weighted-average yield earned thereon. Interest on
securities decreased to $210,000 in 1998 compared to $212,000 in 1997. That
decrease was due to decreases in the weighted-average yield earned on
investments from 5.64% in 1998 to 5.61% in 1997. Other interest and dividends
was $58,000 in 1998 compared to $51,000 in 1997. The increase in other interest
and dividends was due to increases in the average balance outstanding and in
weighted-average yield earned during 1998.
Interest expense was $544,000 in 1998 compared to $509,000 in 1997. The
increase is a result of an increase in the average balance on deposits
outstanding, from $46.6 million in 1997 to $50.4 million in 1998, partially
offset by a decrease in the average cost of deposits, from 4.37% in 1997 to
4.32% in 1998.
Provision for Loan Losses -- The Bank recorded a provision for loan losses
of $20,000 for the three months ended March 31, 1998 compared to $5,000 for
1997. At March 31, 1998, the Bank's allowance for loan losses totaled $462,000,
compared to $445,000 at December 31, 1997. The Bank has continued to increase
its allowance for loan losses as the Bank grows and the composition of the loan
portfolio changes.
Noninterest Income -- Noninterest income decreased from $115,000 in 1997 to
$102,000 in 1998. The decrease was due primarily to a decrease in other fees and
service charges of $13,000 during 1998 compared to 1997.
Noninterest Expense -- Noninterest expense increased from $511,000 in 1997
to $539,000 in 1998. The increase was primarily due to an increase in salaries
and employee benefits of $12,000 during 1998 compared to 1997.
Provision for Income Taxes -- The income tax provision increased from
$87,000 (an effective rate of 36.6%) for the three months ended March 31, 1997
to $95,000 (an effective rate of 37.5%) for 1998.
Comparison of Years Ended December 31, 1997 and 1996
General -- Net earnings for the year ended December 31, 1997 were $695,637
compared to $285,641 for the year ended December 31, 1996. The increase was
primarily due to an increase in interest income of $542,241 and a decrease in
noninterest expense of $424,303.
Interest Income and Expense -- For the year ended December 31, 1997,
interest income was $4,767,159 compared to $4,224,918 for the year ended
December 31, 1996. In 1997, interest on loans was $3,633,383 and the
weighted-average yield earned on the loan portfolio was 9.49% compared to
$3,330,766 and a weighted-average yield of 9.41% in 1996. The increase in
interest income on loans in 1997 was due to the increase in the average balance
outstanding and the weighted-average yield earned thereon. Interest on
securities increased to $946,886 in 1997 compared to $651,430 in 1996. That
increase was due to increases in the weighted-average yield earned on
investments from 5.37% in 1996 to 5.79% in 1997 and in the average balance
outstanding from $12.1 million in 1996 to $16.4 million in 1997. Other interest
and dividends was $186,890 in 1997 compared to $242,722 in 1996. The decrease in
other interest and dividends was due to a decrease in the average balance
outstanding partially offset by a decrease in weighted-average yield earned
during 1997.
Interest expense was $2,093,736 in 1997 compared to $1,823,055 in 1996.
Interest expense increased as a result of increases in the average balance on
deposits outstanding, from $43.1 million in 1996 to $47.4 million in 1997 and an
increase in the average cost of deposits, from 4.23% in 1996 to 4.42% in 1997.
64
<PAGE> 73
Provision for Loan Losses -- The Bank recorded a provision for loan losses
of $72,000 for the year ended December 31, 1997 compared to $53,772 for 1996. At
December 31, 1997, the Bank's allowance for loan losses totaled $445,196,
compared to $401,173 at December 31, 1996. The Bank has continued to increase
its allowance for loan losses as the Bank grows and the composition of the loan
portfolio changes.
Noninterest Income -- Noninterest income decreased from $474,022 in 1996 to
$458,196 in 1997. The decrease was due primarily to a decrease in service
charges on deposit accounts of $24,261 during 1997 compared to 1996.
Noninterest Expense -- Noninterest expense decreased from $2,379,687 in
1996 to $1,955,384 in 1997. The decrease was primarily due to the one-time SAIF
assessment of $288,989 in 1996 with no corresponding amount in 1997.
Provision for Income Taxes -- The income tax provision increased from
$156,785 (an effective rate of 35.4%) for the year ended December 31, 1996 to
$408,598 (an effective rate of 37.0%) for 1997.
ASSET/LIABILITY MANAGEMENT
A principal objective of Prime Bank's asset/liability management strategy
is to minimize its exposure to changes in interest rates by matching the
maturity and repricing horizons of interest-earning assets and interest-bearing
liabilities. This strategy is overseen in part through the direction of Prime
Bank's Asset and Liability Committee (the "ALCO Committee") which establishes
policies and monitors results to control interest rate sensitivity.
Management evaluates interest rate risk and then formulates guidelines
regarding asset generation and repricing, funding sources and pricing, and
off-balance sheet commitments in order to maintain interest rate risk within
target levels for the appropriate level of risk which are determined by the ALCO
Committee. The ALCO Committee uses computer models prepared by a third party to
measure the Bank's interest-rate sensitivity. From these reports, the ALCO
Committee can estimate the net interest income effect of various interest-rate
scenarios.
As a part of Prime Bank's interest-rate risk management policy, the ALCO
Committee examines the extent to which its assets and liabilities are
"interest-rate sensitive" and monitors Prime Bank's interest-rate sensitivity
"gap." An asset or liability is considered to be interest-rate sensitive if it
will reprice or mature within the time period analyzed, usually one year or
less. The interest-rate sensitivity gap is the difference between
interest-earning assets and interest-bearing liabilities scheduled to mature or
reprice within such time period. A gap is considered positive when the amount of
interest-rate sensitive assets exceeds the amount of interest-rate sensitive
liabilities. A gap is considered negative when the amount of interest-rate
sensitive liabilities exceeds interest-rate sensitive assets. During a period of
rising interest rates, a negative gap would tend to adversely affect net
interest income, while a positive gap would tend to result in an increase in net
interest income. During a period of falling interest rates, a negative gap would
tend to result in an increase in net interest income, while a positive gap would
tend to adversely affect net interest income.
The ALCO Committee's policy is to maintain a cumulative one-year gap which
falls in the range of (20%) to 20% of total assets. As of December 31, 1997,
Prime Bank's cumulative one-year gap was 2.5% of total assets. Management
attempts to conform to this policy by managing the maturity distribution of its
investment portfolio and emphasizing originations and purchase of
adjustable-interest rate loans, and by managing the product mix and maturity of
its deposit accounts.
A simple interest rate "gap" analysis by itself may not be an accurate
indicator of how net interest income will be affected by changes in interest
rates. Accordingly, the ALCO Committee also evaluates how the repayment of
particular assets and liabilities is impacted by changes in interest rates.
Income associated with interest-earning assets and costs associated with
interest-bearing liabilities may not be affected uniformly by changes in
interest rates. In addition, the magnitude and duration of changes in interest
rates may have a significant impact on net interest income. For example,
although certain assets and liabilities may have similar maturities or period of
repricing, they may react in different degrees to changes in market interest
rates. Interest rates on certain types of assets and liabilities fluctuate in
advance of changes in general market
65
<PAGE> 74
interest rates, while interest rates on other types may lag behind changes in
general market rates. In addition, certain assets, such as adjustable-interest
rate mortgage loans, have features (generally referred to as "interest rate
caps") which limit changes in interest rates on a short-term basis and over the
life of the asset. In the event of a change in interest rates, prepayments (on
loans and mortgage-backed securities) and early withdrawal (of deposit accounts)
levels also could deviate significantly from those assumed in calculating the
interest rate gap. The ability of many borrowers to service their debts also may
decrease in the event of an interest rate increase.
Management's strategy is to maintain a relatively balanced interest-rate
risk position to protect its net interest margin from market fluctuations. To
this end, the ALCO Committee reviews, on a quarterly basis, the maturity and
repricing of assets and liabilities.
Management believes that the type and amount of Prime Bank's interest-rate
sensitive liabilities may reduce the potential impact that a rise in interest
rates might have on Prime Bank's net interest income. Prime Bank seeks to
maintain a core deposit base by providing quality services to its customers
without significantly increasing its cost of funds or operating expenses. Prime
Bank's demand, savings, money market, and NOW deposit accounts, approximated
47.0%, 43.0% and 50.2% of total deposits at March 31, 1998, December 31, 1997
and 1996, respectively. Management anticipates that these accounts will continue
to comprise a significant portion of Prime Bank's total deposit base. At March
31, 1998 and December 31, 1997 and 1996, 13.1%, 11.4% and 9.4%, respectively, of
Prime Bank's total assets consisted of cash and cash equivalents. In addition,
at March 31, 1998, December 31, 1996 and 1996, Prime Bank's liquidity ratio was
40%, 38% and 36%, respectively. Prime Bank also maintains a "floor," or minimum
rate, on certain of its floating or prime based loans. These floors allow Prime
Bank to continue to earn a higher rate when the floating rate falls below the
established floor rate.
The following table sets forth information about rate-sensitive assets and
liabilities that are estimated to mature or are scheduled to be repriced within
the periods shown:
INTEREST RATE SENSITIVITY
AT DECEMBER 31, 1997
<TABLE>
<CAPTION>
SIX MONTHS SIX MONTHS ONE YEAR TO OVER FIVE
OR LESS TO ONE YEAR FIVE YEARS YEARS TOTAL
---------- ----------- ----------- --------- -------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Rate-sensitive assets....................... $10,383 $ 5,492 $28,314 $15,723 $59,912
Rate-sensitive liabilities.................. 3,647 10,489 27,268 18,592 59,996
------- ------- ------- ------- -------
GAP (repricing differences)................. 6,736 (4,997) 1,046 (2,869) (84)
======= ======= ======= ======= =======
Cumulative GAP.............................. $ 6,736 $ 1,739 $ 2,785 $ (84)
======= ======= ======= =======
</TABLE>
FINANCIAL CONDITION
Lending Activities
A significant source of Prime Bank's income is the interest earned on its
loan portfolio. At March 31, 1998, Prime Bank's total assets were $70.5 million
and its loans receivable, net were $41.9 million or 59.4% of total assets. At
December 31, 1997, Prime Bank's total assets were $68.3 million and its loans
receivable, net were $42.0 million or 61.5% of total assets. At December 31,
1996, Prime Bank's total assets were $60.6
66
<PAGE> 75
million and its loans receivable, net were $38.0 million or 62.7% of total
assets. The following table displays loan originations by type of loan and
principal reductions during the periods indicated:
<TABLE>
<CAPTION>
YEAR ENDED
THREE MONTHS ENDED DECEMBER 31,
MARCH 31, -------------------
1998 1997 1996
------------------ -------- --------
(IN THOUSANDS)
<S> <C> <C> <C>
Originations:
Commercial loans.............................. $ 1,328 $ 3,915 $ 7,895
Commercial real estate loans.................. 1,847 11,970 7,530
Residential real estate....................... -- 1,278 2,765
Consumer loans................................ 660 2,776 2,416
------- -------- --------
Total loans originated................ 3,835 19,939 20,606
Principal reductions............................ (3,946) (15,891) (15,307)
------- -------- --------
Increase (decrease) in gross loans............ $ (111) $ 4,048 $ 5,299
======= ======== ========
</TABLE>
The originations noted in the table above exclude originations of loans
held for sale of $817,000 and $3.0 million for years ended December 31, 1997 and
1996, respectively.
Prime Bank's primary market area consists of Brevard County, Florida. This
area is located approximately 40 miles east of Orlando. The principal economic
activities of the area include defense contracting, aerospace, agriculture,
services, miscellaneous manufacturing (including wholesale and retail trade),
and tourism. There is no assurance that this area will continue to experience
economic growth. Over the past several years, the Kennedy Space Center, and the
defense and aerospace industries generally, have experienced a decrease in
employment levels. This trend may have an adverse effect on other sectors of the
Brevard County economy. Adverse conditions in any one or more of the industries
operating in Brevard County or a slow-down in general economic conditions could
have an adverse effect on Prime Bank.
Lending activities are conducted pursuant to a written policy which has
been adopted by Prime Bank. Each loan officer has defined lending authority
beyond which loans, depending upon their type and size, must be reviewed and
approved by a loan committee comprised of certain officers and directors of
Prime Bank.
At March 31, 1998, December 31, 1997 and 1996, the composition of Prime
Bank's loan portfolio was as follows:
<TABLE>
<CAPTION>
AT MARCH 31, AT DECEMBER 31,
--------------- ----------------------------------
1998 1997 1996
--------------- --------------- ---------------
% OF % OF % OF
AMOUNT TOTAL AMOUNT TOTAL AMOUNT TOTAL
------- ----- ------- ----- ------- -----
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
Mortgage loans:
Residential real estate.......... $ 7,058 16.6% $ 8,114 19.1% $11,070 28.7%
Commercial real estate........... 22,439 52.8 21,674 50.9 16,210 42.1
Land............................. 2,299 5.4 2,419 5.7 2,497 6.5
------- ----- ------- ----- ------- -----
Total mortgage loans..... 31,796 74.8 32,207 75.7 29,777 77.3
------- ------- -------
Commercial and other loans......... 7,802 18.4 7,156 16.8 5,755 14.9
Consumer loans..................... 1,397 3.3 1,428 3.3 1,415 3.7
Lines of credit.................... 1,485 3.5 1,800 4.2 1,595 4.1
------- ----- ------- -------
Total loans.............. 42,480 100.0% 42,591 100.0% 38,542 100.0%
------- ===== ------- ===== ------- =====
Deduct:
Allowance for loan losses........ (462) (445) (401)
Deferred loan fees, net.......... (103) (107) (120)
------- ------- -------
Loans receivable, net......... $41,915 $42,039 $38,021
======= ======= =======
</TABLE>
67
<PAGE> 76
At March 31, 1998 and December 31, 1997, the maturities and interest rate
sensitivities of Prime Bank's loan portfolio based on remaining scheduled
principal repayments were as follows:
<TABLE>
<CAPTION>
DUE IN DUE AFTER 1
1 YEAR YEAR THROUGH DUE AFTER
OR LESS 5 YEARS 5 YEARS TOTAL
------- ------------ --------- -------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
AT MARCH 31, 1998:
Commercial and other loans..................... $3,621 $ 3,746 $ 435 $ 7,802
Commercial real estate loans................... 3,818 10,955 7,666 22,439
Residential mortgage and land loans............ 625 3,682 5,050 9,357
Consumer loans and lines of credit............. 640 1,783 459 2,882
------ ------- ------- -------
Total loans.......................... $8,704 $20,166 $13,610 $42,480
====== ======= ======= =======
Loans with maturities over one year:
Fixed-interest rate.......................... $23,542
Variable-interest rate....................... 10,234
-------
Total maturities greater than one
year............................... $33,776
=======
AT DECEMBER 31, 1997:
Commercial and other loans..................... $3,559 $ 3,478 $ 119 $ 7,156
Commercial real estate loans................... 3,346 11,292 7,036 21,674
Residential mortgage and land loans............ 684 3,831 6,018 10,533
Consumer loans and lines of credit............. 655 1,958 615 3,228
------ ------- ------- -------
Total loans.......................... $8,244 $20,559 $13,788 $42,591
====== ======= ======= =======
Loans with maturities over one year:
Fixed-interest rate.......................... $23,248
Variable-interest rate....................... 11,099
-------
Total maturities greater than one
year............................... $34,347
=======
</TABLE>
ASSET QUALITY
Management seeks to maintain a high quality of assets through sound
underwriting and lending practices. As of March 31, 1998 and December 31, 1997
and 1996, approximately 78.3%, 75.6% and 77.3%, respectively, of the total loan
portfolio was collateralized by commercial and residential real estate
mortgages. The level of nonperforming loans and real estate owned also is
relevant to the credit quality of a loan portfolio. As of March 31, 1998 and
December 31, 1997 and 1996, total nonperforming assets were $22,000 or .03%,
$27,000 or .04%, and $173,000, or .28% of total assets, respectively.
The commercial real estate mortgage loans in Prime Bank's portfolio consist
of fixed- and adjustable-interest rate loans which were originated at prevailing
market interest rates. Prime Bank's policy has been to originate commercial real
estate mortgage loans predominantly in its primary market area. Commercial real
estate mortgage loans are generally made in amounts up to 75% of the appraised
value of the property securing the loan and entail significant additional risks
compared to residential mortgage loans. In making commercial real estate loans,
Prime Bank primarily considers the net operating income generated by the real
estate to support the debt service, the financial resources and income level and
managerial expertise of the borrower, the marketability of the collateral and
Prime Bank's lending experience with the borrower.
Unlike residential mortgage loans, which generally are made on the basis of
the borrower's ability to make repayment from his employment and other income
and which are collateralized by real property whose value tends to be more
readily ascertainable, commercial loans typically are underwritten on the basis
of the borrower's ability to make repayment from the cash flow of his business
and generally are collateralized by business assets, such as accounts
receivable, equipment and inventory. As a result, the availability of funds for
the repayment of commercial loans may be substantially dependent on the success
of the business itself, which
68
<PAGE> 77
is subject to adverse conditions in the economy. Commercial loans also entail
certain additional risks since they usually involve large loan balances to
single borrowers or a related group of borrowers, resulting in a more
concentrated loan portfolio. Further, the collateral underlying the loans may
depreciate over time, cannot be appraised with as much precision as residential
real estate, and may fluctuate in value based on the success of the business.
From time to time, Prime Bank will originate loans on an unsecured basis.
At March 31, 1998 and December 31, 1997, unsecured loans totaled $369,000 and
$356,000, respectively.
Loan concentrations are defined as amounts loaned to a number of borrowers
engaged in similar activities which would cause them to be similarly impacted by
economic or other conditions. Prime Bank, on a routine basis, monitors these
concentrations in order to consider adjustments in its lending practices to
reflect economic conditions, loan to deposit ratios, and industry trends. As of
March 31, 1998 and December 31, 1997 and 1996, no concentration of loans within
any portfolio category to any group of borrowers engaged in similar activities
or in a similar business exceeded 10% of total loans, except that as of such
dates loans collateralized with mortgages on real estate represented 78.3%,
75.6% and 77.3%, respectively, of the loan portfolio and were to borrowers in
varying activities and businesses.
CLASSIFICATION OF ASSETS
Generally, interest on loans accrues and is credited to income based upon
the principal balance outstanding. It is management's policy to discontinue the
accrual of interest income and classify a loan on non-accrual status when
principal or interest is past due 90 days or more (unless, in the determination
of management, the principal and interest on the loan are well collateralized
and in the process of collection), or when in the opinion of management,
principal or interest is not likely to be paid in accordance with the terms of
the obligation. Consumer installment loans are generally charged-off after 90
days of delinquency unless adequately collateralized and in the process of
collection. Loans are not returned to accrual status until principal and
interest payments are brought current and future payments appear reasonably
certain. Interest accrued and unpaid at the time a loan is placed on nonaccrual
status is charged against interest income.
Real estate acquired by Prime Bank as a result of foreclosure or by deed in
lieu of foreclosure is classified as other real estate owned ("OREO"). OREO
properties are recorded at the lower of cost or fair value less estimated
selling costs, and the estimated loss, if any, is charged to the allowance for
credit losses at the time it is transferred to OREO. Further write-downs in OREO
are recorded at the time management believes additional deterioration in value
has occurred and are charged to noninterest expense.
Interest income that would have been recorded under the original terms of
loans on nonaccrual status and interest income actually recognized was as
follows:
<TABLE>
<CAPTION>
THREE MONTHS
ENDED YEAR ENDED
MARCH 31, DECEMBER 31,
------------ ------------
1998 1997 1997 1996
---- ---- ---- ----
(IN THOUSANDS)
<S> <C> <C> <C> <C>
Interest income that would have been recorded........... $ -- $ -- $ 1 $ 6
Less interest income recognized......................... -- -- -- (5)
---- ---- ---- ---
Interest income foregone.............................. $ -- $ -- $ 1 $ 1
==== ==== ==== ===
</TABLE>
On January 1, 1995, Prime Bank adopted FAS 114 and FAS 118. These
Statements address the accounting by creditors for impairment of certain loans
and generally require Prime Bank to identify loans, for which Prime Bank
probably will not receive full repayment of principal and interest, as impaired
loans. These Statements require that impaired loans be valued at the present
value of expected future cash flows, discounted at the loan's effective interest
rate, or at the observable market price of the loan, or the fair value of the
underlying collateral if the loan is collateral dependent. Prime Bank has
implemented these Statements by modifying its quarterly review of the adequacy
of the allowance for credit losses to also identify and value impaired loans in
accordance with guidance in these Statements.
69
<PAGE> 78
The following summarizes the amounts of impaired loans, all of which were
considered collateral dependent:
<TABLE>
<CAPTION>
AT MARCH 31, AT DECEMBER 31,
------------ --------------
1998 1997 1996
------------ ---- ----
(IN THOUSANDS)
<S> <C> <C> <C>
Loans identified as impaired:
Gross loans with related allowance for losses recorded.... $253 $272 $ 30
Less: Allowances on these loans........................... (13) (14) (1)
---- ---- ----
Net investment in impaired loans............................ $240 $258 $ 29
==== ==== ====
</TABLE>
The average net investment in impaired loans and interest income recognized
and received on impaired loans during each of the periods indicated was as
follows:
<TABLE>
<CAPTION>
THREE MONTHS
ENDED YEAR ENDED
MARCH 31, DECEMBER 31,
------------- -------------
1998 1997 1997 1996
---- ---- ---- ----
(IN THOUSANDS)
<S> <C> <C> <C> <C>
Average investment in impaired loans............... $263 $24 $65 $537
Interest income recognized on impaired loans....... $ 7 $ 1 $25 $ 33
Interest income received on impaired loans......... $ 7 $ 1 $25 $ 33
</TABLE>
70
<PAGE> 79
As of March 31, 1998, and December 31, 1997 and 1996, loans on non-accrual
status and other real estate owned, the ratio of such loans and real estate
owned to total assets, and certain other related information was as follows:
<TABLE>
<CAPTION>
AS OF MARCH 31, AS OF DECEMBER 31,
--------------- -------------------------------
1998 1997 1996
--------------- -------------- --------------
% OF % OF % OF
TOTAL TOTAL TOTAL
AMOUNT LOANS AMOUNT LOANS AMOUNT LOANS
------- ----- ------ ----- ------ -----
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
Loans on non-accrual status:
Commercial.............................. $ -- --% -- --% -- --%
Real estate construction................ -- -- -- -- -- --
Commercial real estate.................. -- -- -- -- -- --
Residential mortgage.................... -- -- 27 .1 154 .4
Consumer and other...................... -- -- -- -- 2 --
------- --- ----- --- ----- ---
Total loans on non-accrual
status........................ -- -- 27 .1 156 .4
------- --- ----- --- ----- ---
Accruing loans over 90 days delinquent.... -- -- -- -- -- --
Troubled debt restructurings.............. 45 .1 61 .1 -- --
------- --- ----- --- ----- ---
Total non-performing loans...... $ 45 .1% $ 88 .2% $ 156 .4%
------- === ----- === ----- ===
Other real estate owned................... $ 22 $ -- $ --
------- ----- -----
Total non-performing assets..... $ 67 $ 88 $ 156
======= ===== =====
Loans past-due:
30 to 59 days delinquent................ $ 265 .6 $ 60 .1 $ 217 .6
60 to 89 days delinquent................ 169 .4 1 -- 33 .1
------- --- ----- --- ----- ---
Total loans past-due 30 to 89
days.......................... 434 1.0% 61 .1% 250 .7%
======= === ===== === ===== ===
Total nonperforming loans and
loans past-due 30 to 89
days.......................... $ 479 1.2% $ 149 .3% $ 406 1.1%
======= === ===== === ===== ===
As a percentage of total assets:
Total non-performing loans...... .06% .13% .26%
Total non-performing assets..... .10% .13% .26%
Allowance for credit losses as a
percentage of:
Total loans, excluding loans
held-for-sale........................ 1.09% 1.05% 1.04%
Non-performing loans.................... 1,026.0% 506.0% 257.0%
</TABLE>
As of March 31, 1998, there were no loans on nonaccrual. As of March 31,
1998, the 30 to 89 day delinquencies totaled $434,000 consisting of nine
customer relationships. Of those nine relationships, two were loans with
outstanding balances of over $100,000 at March 31, 1998. The first of these two
relationships was an acquisition and development loan ($169,683) secured by
single family residential lots. On May 31, 1998, the loan was brought current
and the balance reduced to $151,849. The second relationship was a residential
first mortgage of $114,745, which was brought current in April 1998.
ALLOWANCE FOR CREDIT LOSSES
In originating loans, Prime Bank recognizes that credit losses will be
experienced and that the risk of loss will vary with, among other things, the
type of loan being made, the credit worthiness of the borrower over the term of
the loan and, in the case of a collateralized loan, the quality of the
collateral for the loan as well as general economic conditions. As a matter of
policy, Prime Bank maintains an allowance for credit losses. The amount provided
for credit losses during any period is based on an evaluation by management of
the amount needed to maintain the allowance at a level sufficient to cover
anticipated losses and the inherent risk of losses in the loan portfolio. In
determining the amount of the allowance, management considers the dollar amount
of loans outstanding, its assessment of known or potential problem loans,
current economic conditions, the risk
71
<PAGE> 80
characteristics of the various classifications of loans, credit record of its
borrowers, the fair market value of underlying collateral and other factors.
Specific allowances are provided for individual loans when ultimate collection
is considered questionable by management after reviewing the current status of
loans which are contractually past due and considering the fair value of the
underlying collateral for each loan. See "-- Results of Operations -- Provision
for Credit Losses."
Management continues to actively monitor Prime Bank's asset quality and to
charge-off loans against the allowance for credit losses when appropriate or to
provide specific loss allowances when necessary. Although management believes
that it uses the best information available at the time to make determinations
with respect to allowance for credit losses, subsequent adjustments to the
allowance for credit losses may be necessary if future economic conditions or
other facts differ from the assumptions used in making the initial
determinations or if regulatory policies change.
As of March 31, 1998, December 31, 1997 and 1996, the allocation of the
allowance for credit losses was as follows:
<TABLE>
<CAPTION>
AT MARCH 31, AT DECEMBER 31,
----------------- -------------------------------------
1998 1997 1996
----------------- ----------------- -----------------
% OF % OF % OF
LOANS TO LOANS TO LOANS TO
TOTAL TOTAL TOTAL
AMOUNT LOANS AMOUNT LOANS AMOUNT LOANS
------ -------- ------ -------- ------ --------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
Commercial loans..................... $ 85 18.4% $ 75 16.9% $ 60 15.0%
Commercial real estate loans......... 244 52.8 226 50.8 169 42.1
Residential real estate and land
loans.............................. 77 16.7 85 19.1 115 28.7
Consumer loans and other............. 56 12.1 59 13.2 57 14.2
---- ----- ---- ----- ---- -----
Total allowance for credit
losses................... $462 100.0% $445 100.0% $401 100.0%
==== ===== ==== ===== ==== =====
</TABLE>
The provision for credit losses increased from $5,000 during the three
months ended March 31, 1997 to $20,000 for the same period in 1998, primarily as
a result of the increase in the average loans outstanding from $38.7 million
during the 1997 period to $42.3 million during the 1998 period. Considering the
nature of Prime Bank's loan portfolio, management believes that the $462,000
allowance for credit losses at March 31, 1998 was adequate as of such date. See
"-- Financial Condition -- Classification of Assets," and "-- Results of
Operations -- Provision for Credit Losses."
72
<PAGE> 81
During the three months ended March 31, 1998 and 1997, and the years ended
December 31, 1997 and 1996, the activity in Prime Bank's allowance for credit
losses was as follows:
<TABLE>
<CAPTION>
THREE MONTHS ENDED YEAR ENDED
MARCH 31, DECEMBER 31,
------------------ -----------------
1998 1997 1996
------------------ ------- -------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
Allowance at beginning of period.................. $ 445 $ 401 $ 347
Loans charged-off:
Commercial...................................... -- -- --
Commercial real estate.......................... -- -- --
Residential mortgage............................ (3) (28) --
Consumer and other.............................. -- -- --
-------- ------- -------
Total loans charged-off................. (3) (28) --
-------- ------- -------
Recoveries:
Commercial...................................... -- -- --
Commercial real estate.......................... -- -- --
Residential..................................... -- -- --
Consumer and other.............................. -- -- --
-------- ------- -------
Total recoveries........................ -- -- --
-------- ------- -------
Net loans charged-off........................... (3) (28) --
-------- ------- -------
Provision for credit losses charged to expense.... 20 72 54
-------- ------- -------
Allowance at end of period........................ $ 462 $ 445 $ 401
======== ======= =======
Net charge-offs as a percentage of average loans
outstanding (annualized for the three-month
period)......................................... .03% .07% --%
Allowance for loan losses as a percentage of
period-end total loans receivable, excluding
loans held-for-sale............................. 1.09% 1.04% 1.04%
Allowance for loan losses as a percentage of non-
performing loans................................ 1,026.0% 506.0% 257.0%
Average loans outstanding during the period....... $ 42,337 $38,282 $35,392
======== ======= =======
Period-end total loans receivable, excluding loans
held-for-sale................................... $ 42,480 $42,591 $38,542
======== ======= =======
</TABLE>
INVESTMENT SECURITIES
The following table sets forth the carrying balances of Prime Bank's
investment portfolio as of March 31, 1998, December 31, 1997 and 1996:
<TABLE>
<CAPTION>
AT MARCH 31, AT DECEMBER 31,
------------ ---------------------
1998 1997 1996
------------ ---------- --------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
Securities available-for-sale:
U.S. Treasury securities.......................... $ 5,008 $ 4,504 $ 2,988
FHLB debentures................................... 2,497 2,993 3,496
FNMA debentures................................... 2,697 3,172 2,710
FHLMC debentures.................................. 5,054 3,960 4,614
GNMA debentures................................... 472 502 --
State, county and municipal securities............ -- 250 689
------- ---------- --------
Total securities available-for-sale....... $15,728 $ 15,381 $ 14,497
Total investment securities......................... $15,728 $ 15,381 $ 14,497
Federal funds sold.................................. $ -- $1,550,000 $630,000
</TABLE>
73
<PAGE> 82
On January 1, 1994, Prime Bank adopted Statement of Financial Accounting
Standards No. 115 ("FAS 115"), which requires companies to classify investments
securities, including mortgage-backed securities as either held-to-maturity,
available-for-sale, or trading securities. Securities classified as
held-to-maturity are carried at amortized cost. Securities classified as
available-for-sale are reported at fair value, with unrealized gains and losses,
net of tax effect, reported as a separate component of stockholders' equity.
Securities classified as trading securities are recorded at fair value, with
unrealized gains and losses included in earnings. At March 31, 1998 and December
31, 1997, all investment securities were classified as available-for-sale. As a
result of the adoption of FAS 115, under which Prime Bank expects to continue to
hold its investment securities classified as available-for-sale, changes in the
underlying market values of such securities could have a material adverse effect
on Prime Bank's capital position. Typically, an increase in interest rates
results in a decrease in underlying market value and an increase in the level of
principal repayments on mortgage-backed securities. As a result of a changes in
market interest rates, changes in the market value of available-for-sale
securities resulted in an increase of $6,000 in stockholders' equity at March
31, 1998 and at December 31, 1997. These fluctuations in stockholders' equity
represent the after-tax impact of changes in interest rates on the value and
maturity of these investments.
The scheduled maturities of securities available for sale at March 31, 1998
and December 31, 1997, were as follows:
<TABLE>
<CAPTION>
MARCH 31, 1998 DECEMBER 31, 1997
---------------------- ----------------------
AMORTIZED AMORTIZED
COST FAIR VALUE COST FAIR VALUE
--------- ---------- --------- ----------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C>
Due in one year or less........................ $ 6,195 $ 6,202 $ 5,691 $ 5,691
Due from one year to five years................ 8,601 8,596 7,747 7,753
Due from five years to ten years............... 452 458 -- --
Due after ten years............................ 474 472 1,933 1,937
------- ------- ------- -------
$15,722 $15,728 $15,371 $15,381
======= ======= ======= =======
</TABLE>
DEPOSIT ACTIVITIES
Deposits are the major source of Prime Bank's funds for lending and other
investment purposes. Deposits are attracted principally from within Prime Bank's
primary market area through the offering of a broad variety of deposit
instruments including checking accounts, money market accounts, regular savings
accounts, term certificate accounts (including "jumbo" certificates in
denominations of $100,000 or more) and retirement savings plans. As of March 31,
1998 and December 31, 1997 and 1996, the distribution by type of Prime Bank's
deposit accounts was as follows:
<TABLE>
<CAPTION>
AT MARCH 31, AT DECEMBER 31,
------------------ ----------------------------------------
1998 1997 1996
------------------ ------------------ ------------------
% OF % OF % OF
AMOUNT DEPOSITS AMOUNT DEPOSITS AMOUNT DEPOSITS
------- -------- ------- -------- ------- --------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
Demand and NOW accounts....... $19,391 30.8% $18,601 31.0% $12,263 23.0%
Money market accounts......... 6,142 9.7 5,785 9.6 6,943 13.0
Savings deposits.............. 3,467 5.5 3,222 5.4 3,169 5.9
------- ----- ------- ----- ------- -----
Subtotal.................... 29,000 46.0 27,608 46.0 22,375 41.9
------- ----- ------- ----- ------- -----
Certificates of deposit:
$100,000 and over........... 4,962 7.9 5,019 8.4 4,716 8.8
Under $100,000.............. 29,123 46.1 27,369 45.6 26,296 49.3
------- ----- ------- ----- ------- -----
Total certificates
of deposit........ 34,085 54.0 32,388 54.0 31,012 58.1
------- ----- ------- ----- ------- -----
Total deposits...... $63,085 100.0% $59,996 100.0% $53,387 100.0%
======= ===== ======= ===== ======= =====
</TABLE>
74
<PAGE> 83
Certificates of deposit included individual retirement accounts ("IRAs")
totaling $3.0 million, $2.9 million and $2.7 million at March 31, 1998 and
December 31, 1997 and 1996, respectively.
Maturity terms, service fees and withdrawal penalties are established by
Prime Bank on a periodic basis. The determination of rates and terms is
predicated on funds acquisition and liquidity requirements, rates paid by
competitors, growth goals and federal regulations.
FDIC regulations limit the ability of certain insured depository
institutions to accept, renew, or rollover deposits by offering rates of
interest which are significantly higher than the prevailing rates of interest on
deposits offered by other insured depository institutions having the same type
of charter in such depository institutions' normal market area. Under these
regulations, "well capitalized" depository institutions may accept, renew, or
roll over deposits at such rates without restriction, "adequately capitalized"
depository institutions may accept, renew or roll over deposits at such rates
with a waiver from the FDIC (subject to certain restrictions on payments of
rates), and "undercapitalized" depository institutions may not accept, renew or
roll over deposits at such rates. The regulations contemplate that the
definitions of "well capitalized," "adequately capitalized" and
"undercapitalized" will be the same as the definitions adopted by the agencies
to implement the prompt corrective action provisions of applicable law. See
"Supervision, Regulation and Governmental Policy -- Capital Requirements." As of
March 31, 1998 and December 31, 1997, Prime Bank met the definition of a "well
capitalized" depository institution.
Prime Bank does not have a concentration of deposits from any one source,
the loss of which would have a material adverse effect on Prime Bank. Management
believes that substantially all of Prime Bank's depositors are residents in its
primary market area. Prime Bank currently does not accept brokered deposits.
Time deposits of $100,000 and over, public fund deposits and other large
deposit accounts tend to be short-term in nature and more sensitive to changes
in interest rates than other types of deposits and, therefore, may be a less
stable source of funds. In the event that existing short-term deposits are not
renewed, the resulting loss of the deposited funds could adversely affect Prime
Bank's liquidity. In a rising interest rate market, such short-term deposits may
prove to be a costly source of funds because their short-term nature facilitates
renewal at increasingly higher interest rates, which may adversely affect Prime
Bank's earnings. However, the converse is true in a falling interest-rate market
where such short-term deposits are more favorable to Prime Bank.
As of March 31, 1998 and December 31, 1997, time deposits of $100,000 and
over mature as follows:
<TABLE>
<CAPTION>
AT MARCH 31, AT DECEMBER 31,
1998 1997
------------ ---------------
(IN THOUSANDS)
<S> <C> <C>
Due in three months or less............................. $1,122 $2,078
Due from three months to six months..................... 958 728
Due from six months to one year......................... 1,918 1,456
Due over one year....................................... 964 757
------ ------
Total......................................... $4,962 $5,019
====== ======
</TABLE>
IMPACT OF INFLATION AND CHANGING PRICES
The financial statements and related data concerning Prime Bank have been
prepared in accordance with generally accepted accounting principles which
require the measurement of financial position and operating results in terms of
historical dollars without considering changes in the relative purchasing power
of money over time due to inflation. The principal element of Prime Bank's
earnings is interest income which may be significantly affected by the level of
inflation and by government monetary and fiscal policies adopted in response to
inflationary or deflationary pressures.
75
<PAGE> 84
Inflation affects the reported financial condition and results of
operations of all companies. However, the majority of assets and liabilities of
financial institutions are monetary in nature and therefore differ greatly from
most commercial and industrial companies that have significant investments in
fixed assets or inventories. Inflation does have an important impact on the
growth of total assets and the resulting need to increase equity capital at
higher than normal rates in order to maintain an appropriate equity to assets
ratio Inflation also is a factor which may influence interest rates, yet the
frequency and magnitude of interest rate fluctuations do not necessarily
coincide with changes in the general inflation rate. In an effort to cope with
the effects of inflation, Prime Bank attempts to monitor its interest-rate
sensitivity gap position, as discussed above. In addition, a periodic review of
banking services and products is conducted to adjust pricing in view of current
costs.
76
<PAGE> 85
BUSINESS OF BANCGROUP
GENERAL
BancGroup is a bank holding company registered under the BHCA. It was
organized in 1974 under the laws of Delaware and has operated under its current
name and management since 1981. BancGroup operates a wholly owned commercial
banking subsidiary, Colonial Bank, in the states of Alabama, Georgia, Florida,
Tennessee, and Nevada. Colonial Bank conducts a full service commercial banking
business through 134 branches in Alabama, five branches in Tennessee, 14
branches in Georgia, 75 branches in Florida, and three branches in Nevada.
BancGroup has also entered into agreements to acquire four additional banks
(excluding Prime Bank). Colonial Mortgage Company, a subsidiary of Colonial
Bank, is a mortgage banking company which services approximately $13.8 billion
in residential loans and which originates residential mortgages in 34 states
through four divisional offices. The above amounts and numbers were calculated
as of March 31, 1998. At March 31, 1998, BancGroup had consolidated total assets
of $8.0 billion and consolidated stockholders' equity of $571.6 million. Since
March 31, 1998, BancGroup has acquired one banking institution with aggregate
assets of $131.3 million and aggregate stockholders' equity of $10.6 million.
This acquisition is included in the pro forma statements included herein. See
"Business of BancGroup." BancGroup's commercial banking loan portfolio is
comprised primarily of commercial real estate loans (28%) and residential real
estate loans (42%), a significant portion of which is located within the 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 March 31, 1998, BancGroup has acquired one banking institution with
aggregate assets and stockholders' equity acquired of $131 million and $10.6
million.
BancGroup acquired Commercial Bank of Nevada ("Commercial") on June 15,
1998. Commercial was a Nevada bank located in Las Vegas, Nevada. Commercial
merged with BancGroup's bank subsidiary, Colonial Bank. BancGroup issued 842,157
shares of its Common Stock at the time of such merger. At March 31, 1998,
Commercial had assets of $131.3 million, deposits of $119.7 million, and
stockholders' equity of $10.6 million.
On March 26, 1998, BancGroup entered into a definitive agreement with CNB
Holding Company ("CNB"). CNB is located in Daytona Beach, Florida. CNB will
merge with BancGroup. BancGroup expects to issue a maximum of 972,291 shares of
its Common Stock to the shareholders of CNB. This transaction is subject to,
among other things, approval by the shareholders of CNB and by the appropriate
regulatory authorities and is expected to be accounted for as a pooling of
interests. At March 31, 1998, CNB had assets of $88.0 million, deposits of $79.4
million, and stockholders' equity of $8.5 million.
On May 5, 1998, BancGroup entered into a definitive agreement with
FirstBank ("FirstBank"). FirstBank is located in Dallas, Texas. CBG Acquisition
Corp., a subsidiary of BancGroup, will be merged into FirstBank, and FirstBank
will become a banking subsidiary of BancGroup. BancGroup expects to issues
approximately 1,200,000 shares of its Common Stock to the shareholders of
FirstBank. This transaction is subject to, among other things, approval by the
shareholders of FirstBank and by the appropriate regulatory authorities, and is
expected to be accounted for as a pooling of interests. At March 31, 1998,
FirstBank had assets of $162.9 million, deposits of $138.1 million, and
stockholders' equity of $8.8 million.
On May 14, 1998, BancGroup entered into a definitive agreement with First
Macon Bank & Trust Company ("First Macon"). First Macon is located in Macon,
Georgia. First Macon will merge with Colonial Bank. BancGroup expects to issue a
maximum of 1,844,500 shares of BancGroup Common Stock to the shareholders of
First Macon. This transaction is subject to, among other things, approval by the
shareholders of First Macon and by the appropriate regulatory authorities, and
is expected to be accounted for as a pooling of interests. At March 31, 1998,
First Macon had assets of $195.2 million, deposits of $177.3 million, and
stockholders' equity of $15.3 million.
77
<PAGE> 86
On June 16, 1998, BancGroup entered into a definitive agreement with
InterWest Bancorp ("InterWest"). InterWest is located in Reno, Nevada. BancGroup
expects to issue a maximum of approximately 735,000 shares of BancGroup Common
Stock to the shareholders of InterWest. This transaction is subject to, among
other things, approval by the shareholders of InterWest and by the appropriate
regulatory authorities, and is expected to be accounted for as a pooling of
interests. At March 31, 1998, InterWest had assets of $116.2 million, deposits
of $102.3 million, and stockholders' equity of $7.3 million.
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 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 Internet 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
78
<PAGE> 87
compliance. These costs have been and will continue to be expenses 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 shareholders of record. Each such
share is entitled to one vote. In addition, as of that date, 1,803,259 shares of
BancGroup Common Stock were subject to issue upon exercise of options pursuant
to BancGroup's stock option plans and up to 349,500 shares of BancGroup Common
Stock were issuable upon conversion of BancGroup's 1986 Debentures. There are
currently 200,000,000 shares of BancGroup Common Stock authorized.
The following table shows those persons who are known to BancGroup to be
beneficial owners as of February 27, 1998 of more than 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)....................................... 2,903,654(3) 6.01%
Post Office Box 1108
Montgomery, AL 36101
</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, who own
2,200,372 and 2,146,488 shares of BancGroup common stock, respectively.
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.
79
<PAGE> 88
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 BancGroup Common Stock of beneficially owned as of February 27,
1998.
<TABLE>
<CAPTION>
SHARES OF BANCGROUP
BENEFICIALLY OWNED
------------------------
PERCENTAGE
COMMON OF CLASS
NAME STOCK OUTSTANDING
- ---- --------- -----------
<S> <C> <C>
DIRECTORS
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.......................................... 0 *
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 BancGroup 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 BancGroup Common Stock subject to options
exercisable under BancGroup's stock option plans.
(3) Includes 62,682 shares of BancGroup Common Stock subject to stock options.
(4) Includes 24,524 shares of BancGroup 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 BancGroup Common Stock subject to options under
BancGroup's stock option plans.
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<PAGE> 89
(7) Includes 20,000 shares of BancGroup Common Stock subject to options under
BancGroup's stock option plans.
(8) Includes 63,604 shares of BancGroup Common Stock subject to stock options.
(9) Mr. Rane's Keogh Plan owns 1,000 shares of BancGroup Common Stock.
(10) Young J. Boozer, III, Michelle M. Condon, P.L. ("Mac") McLeod, Jr. and W.
Flake Oakley hold options respecting 25,000, 9,245, 28,000 and 18,000
shares of BancGroup Common Stock, respectively, pursuant to BancGroup's
stock option plans, not counting options that are not exercisable within 60
days due to vesting requirements.
MANAGEMENT INFORMATION
Certain information regarding the biographies of the directors and
executive officers of BancGroup, executive compensation and related party
transactions is included in (i) BancGroup's Annual Report on Form 10-K for the
fiscal year ending December 31, 1997, at item 10 and (ii) BancGroup's Proxy
Statement for its 1998 Annual Meeting, at items 10, 11 and 13.
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<PAGE> 90
BUSINESS OF PRIME BANK
Prime Bank was organized as a federally-chartered stock savings bank on
June 30, 1987. Prime Bank converted to a Florida-chartered state bank on June
30, 1991. Prime Bank's operations are conducted from its main office located in
Titusville, Florida, one branch office located in Titusville, Florida, two
branch offices located in Melbourne, Florida and a branch office located in Pam
Bay, Florida.
Prime Bank provides a range of consumer and commercial banking services to
individuals, businesses and industries. The basic services offered by Prime Bank
include: demand interest bearing and noninterest bearing accounts, money market
deposit accounts, NOW accounts, time deposits, safe deposit services, credit
cards, direct deposits, notary services, money orders, night depository,
travelers' checks, cashier's checks, domestic collections, savings bonds, bank
drafts, automated teller services, drive-in tellers, and banking by mail. In
addition, Prime Bank makes secured and unsecured commercial and real estate
loans and issues stand-by letters of credit. Prime Bank has five automated
teller machines ("ATM") and provides ATM cards, as a part of the HONOR ATM
network, thereby permitting customers to utilize the convenience of larger ATM
networks. Prime Bank does not have trust powers and, accordingly, no trust
services are provided.
The revenues of the Bank are primarily derived from interest on, and fees
received in connection with, real estate and other loans, and from interest and
dividends from investment securities, and short-term investments. The principal
sources of funds for Prime Bank's lending activities are its deposits, repayment
of loans, and the sale and maturity of investment securities. The principal
expenses of Prime Bank are the interest paid on deposits, and operating and
general administrative expenses.
As is the case with banking institutions generally, Prime Bank's operations
are materially and significantly influenced by general economic conditions and
by related monetary and fiscal policies of financial institution regulatory
agencies, including the FDIC and the Florida Department of Banking and Finance.
Deposit flows and costs of funds are influenced by interest rates on competing
investments and general market rates of interest. Lending activities are
affected by the demand for financing of real estate and other types of loans,
which in turn are affected by the interest rates at which such financing may be
offered and other factors affecting local demand and availability of funds.
Prime Bank faces strong competition in the attraction of deposits (its primary
source of lendable funds) and in the origination of loans.
At March 31, 1998 and December 31, 1997, Prime Bank had total assets of
$70.4 million and $68.3 million, total deposits of $63.1 million and $60.0
million, and total stockholders' equity of $6.6 million and $6.4 million,
respectively. The principal executive offices of Prime Bank are located at 680
Country Club Drive, Titusville, Florida 32780. The telephone number at such
office is (407) 268-3800.
DEPOSIT ACTIVITIES
Deposits are the major source of Prime Bank's funds for lending and other
investment activities. Prime Bank considers the majority of its regular savings,
demand, NOW and money-market deposit accounts to be core deposits. These
accounts comprised 46.0% and 46.0% of Prime Bank's total deposits at March 31,
1998 and December 31, 1997, respectively. Approximately 54.0% and 54.0% of Prime
Bank's deposits at March 31, 1998 and December 31, 1997, respectively, were
certificates of deposit. Generally, Prime Bank attempts to maintain the rates
paid on its deposits at a competitive level. Time deposits of $100,000 and over
made up 7.8% and 8.2% of Prime Bank's total deposits at March 31, 1998 and
December 31, 1997, respectively. The majority of the deposits of Prime Bank are
generated from Brevard County. Prime Bank does not accept brokered deposits. For
additional information regarding Prime Bank's deposit accounts, see "Prime Bank
Management's Discussion and Analysis of Financial Condition and Results of
Operations -- Financial Condition".
LENDING ACTIVITIES
Prime Bank offers a range of lending services, including real estate,
consumer and commercial loans, to individuals and small businesses and other
organizations that are located in or conduct a substantial portion of their
business in Prime Bank's market area. Prime Bank's loans receivable, net at
March 31, 1998 and
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<PAGE> 91
December 31, 1997 were $41.9 million and $42.0 million, or 59.5% and 61.6%,
respectively, of total assets. The interest rates charged on loans vary with the
degree of risk, maturity, and amount of the loan, and are further subject to
competitive pressures, money market rates, availability of funds, and government
regulations. Prime Bank has no foreign loans or loans for highly leveraged
transactions.
Prime Bank's loans are concentrated in three major areas: real estate
loans, commercial loans, and consumer loans. As of March 31, 1998 and December
31, 1997, 74.8% and 75.7%, respectively, of Prime Bank's loan portfolio
consisted of loans secured by mortgages on real estate and 18.4% and 16.8%,
respectively, of the loan portfolio consisted of commercial loans. At March 31,
1998, and December 31, 1997, 6.8% and 7.5%, respectively, of Prime Bank's loan
portfolio consisted of consumer loans and other loans.
Prime Bank's real estate loans are secured by mortgages and consist
primarily of loans to individuals and businesses for the purchase of or
investment in real estate and for the construction of single-family residential
units or the development of single-family residential building lots. These real
estate loans may be made at fixed- or variable-interest rates. Prime Bank
generally does not make fixed-interest rate commercial real estate loans for
terms exceeding five years. Loans in excess of three years generally have
adjustable-interest rates. Prime Bank's residential real estate loans generally
are repayable in monthly installments based on up to a 30-year amortization
schedule with variable-interest rates.
Prime Bank's commercial loans include loans to individuals and
small-to-medium sized businesses located primarily in Brevard County for working
capital, equipment purchases, and various other business purposes. A majority of
Prime Bank's commercial loans are secured by equipment or similar assets, but
these loans may also be made on an unsecured basis. Commercial loans may be made
at variable- or fixed-interest rates. Commercial lines of credit are typically
granted on a one-year basis, with loan covenants and monetary thresholds. Other
commercial loans with terms or amortization schedules of longer than one year
will normally carry interest rates which vary with the prime lending rate and
will become payable in full and are generally refinanced in three to five years.
Prime Bank's consumer loan portfolio consists primarily of loans to
individuals for various consumer purposes, which are payable on an installment
basis. The majority of these loans are for terms of less than five years and are
secured by liens on various personal assets of the borrowers, but consumer loans
may also be made on an unsecured basis. Consumer loans are made at fixed-and
variable-interest rates, and are often based on up to a five-year amortization
schedule.
For additional information on Prime Bank's lending activities, see "Prime
Bank Management's Discussion and Analysis of Financial Condition and Results of
Operations -- Financial Condition -- Lending Activities," and "-- Asset
Quality."
INVESTMENTS
Prime Bank invests a portion of its assets in U.S. Treasury and U.S.
Government agency obligations, FHLMC and FNMA debentures and state, county, and
municipal obligations and federal funds sold. Prime Bank's investments are
managed in relation to loan demand and deposit growth, and are generally used to
provide for the investment of excess funds at reduced yields and risks relative
to yields and risks of the loan portfolio, while providing liquidity to fund
increases in loan demand or to offset fluctuations in deposits. For additional
information relating to Prime Bank's investments, see "Management's Discussion
and Analysis of Financial Condition and Results of Operations -- Financial
Condition -- Investment Securities" and Note 2 to the Notes to Prime Bank's
Financial Statements.
EMPLOYEES
As of March 31, 1998, Prime Bank employed 28 full-time employees and six
part-time employees. The employees are not represented by a collective
bargaining unit. Prime Bank considers relations with employees to be good.
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<PAGE> 92
PROPERTIES
The main office of Prime Bank is located at 680 Country Club Drive,
Titusville, Florida in a two-story building of approximately 7,500 square feet,
which is owned by Prime Bank. Prime Bank also has a branch located at 2460
Washington Avenue, Titusville, Florida, in a one-story building of approximately
1,200 square feet, which is owned by Prime Bank; a branch office located at 5225
Babcock Street N.E., Palm Bay, Florida, in a one-story building of approximately
2.240 square feet, which is owned by Prime Bank; a branch office located at 2495
North Wickham Road, Melbourne, Florida, in a one-story building of approximately
3,240 square feet, leased by Prime Bank (under a lease which, with renewal
options, expires in 1998); and a branch office located at 1801 West Hibiscus
Boulevard, Melbourne, Florida, in a one-story building of approximately 5,100
square feet which is owned by Prime Bank.
YEAR 2000 ISSUES
In the next two years, many companies, including financial institutions
such as Prime Bank, will face potentially serious issues associated with the
inability of existing data processing hardware and software to appropriately
recognize the calendar dates beginning in the year 2000. Many computer programs
that can only distinguish the final two digits of the year entered may read
entries for the year 2000 as the year 1900 and compute payment, interest, or
delinquency based on the wrong date, or are expected to be unable to compute
payment, interest, or delinquency. In June 1996, Prime Bank began the process of
identifying the many software applications and hardware devices expected to be
impacted by this issue. Prime Bank has also formatted and begun implementation
of a plan to address issues related to its "Mission Critical" computer hardware,
software, and applications which complies with Federal Financial Institutions
Examination Council Year 2000 compliance guidelines as promulgated by Prime
Bank's principal regulatory agency. Prime Bank outsources its principal data
processing activities to one or more third parties and purchases most of its
software applications from third party vendors. Prime Bank believes that its
vendors and its significant customers are actively addressing the problems
associated with the "Year 2000" issues. Prime Bank, in cooperation with its
service providers and vendors, has met all applicable regulatory deadlines and
intends to meet the remaining regulatory deadlines promulgated by Prime Bank's
principal regulatory agency. However, there can be no assurance that Prime Bank
will not be adversely affected by the failure of such third party vendors or
significant customers of Prime Bank to become Year 2000 compliant.
LEGAL PROCEEDINGS
Prime Bank is periodically a party to or otherwise involved in legal
proceedings arising in the normal course of business, such as claims to enforce
liens, claims involving the making and servicing of real property loans, and
other issues incident to its businesses. Management does not believe that there
is any pending or threatened proceeding against Prime Bank which, if determined
adversely, would have a material adverse effect on Prime Bank's financial
position.
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<PAGE> 93
MANAGEMENT
Board of Directors. The Board of Directors of Prime Bank currently consist
of seven directors. The members of the Board are divided into three classes,
with the terms of each class staggered so that approximately one-third of the
directors are elected each year. The following table sets forth certain
information with respect to the directors of Prime Bank.
<TABLE>
<CAPTION>
DIRECTOR OR OFFICER CURRENT
OF PRIME BANK TERM PRINCIPAL OCCUPATION AND BUSINESS
NAME AND AGE SINCE EXPIRES EXPERIENCE DURING PAST FIVE YEARS
- ------------ ------------------- ------- ---------------------------------
<S> <C> <C> <C>
Arthur F. Evans, III -- 41....... 1997 1999 Commercial/Industrial Developer
Floyd C. Lemmon -- 56............ 1987 2000 CPA, Owner -- Floyd Lemmon, CPA
Joseph V. Marto, Jr. -- 61....... 1993 2001 Chairman, President and Chief
Executive Officer of Prime Bank
Donald A. Nohrr -- 61............ 1995 1999 Attorney -- Gray, Harris &
Robinson, P.A.
James T. Swann, III -- 50........ 1991 2000 President of EKS, Inc. (real
estate development)
Billy H. White -- 63............. 1987 2000 President -- Play Action Products
(manufacturing)
John D. Williams -- 65........... 1989 2001 President -- John Williams
Communications, Inc.
</TABLE>
Executive Officers. The following sets forth information regarding the
executive officers of Prime Bank. The officers of Prime Bank serve at the
pleasure of the Board of Directors
<TABLE>
<CAPTION>
PRINCIPAL OCCUPATION AND BUSINESS
NAME AND AGE EXPERIENCE DURING PAST FIVE YEARS
- ------------ ---------------------------------
<S> <C>
Chairman, President and Chief Executive
Joseph V. Marto, Jr., 61..................... Officer
James S. Tharpe, 54.......................... Senior Vice President
Paul Bryan Fulmer, 63........................ Senior Vice President
</TABLE>
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<PAGE> 94
MANAGEMENT AND PRINCIPAL STOCK OWNERSHIP
Directors and Officers. The following table sets forth the beneficial
ownership of outstanding shares of Prime Bank Common Stock as of the date of
this Proxy Statement by Prime Bank's current directors, and by current directors
and executive officers as a group.
<TABLE>
<CAPTION>
NAME OF INDIVIDUAL AMOUNT/NATURE OF PERCENT
(AND ADDRESS OF 5% OWNER) BENEFICIAL OWNERSHIP(1) OF CLASS
- ------------------------- ----------------------- --------
<S> <C> <C>
Arthur F. Evans, III........................................ 9,031(5) 2.26%
Floyd C. Lemmon............................................. 17,446 4.37%
Joseph V. Marto, Jr......................................... 41,000(2) 10.75%
460 Oriole Lane
Indialantic, FL 32903
Donald A. Nohrr............................................. 11,006(6) 2.75%
James T. Swann, III......................................... 23,188(3) 5.80%
402 High Point Drive
Cocoa, FL 32926
Billy H. White.............................................. 18,800(4) 4.70%
John D. Williams............................................ 6,400 1.60%
All directors and executive officers as a group (9
persons).................................................. 128,385 32.10%
</TABLE>
- ---------------
(1) Information related to beneficial ownership is based upon the information
available to Prime Bank and uses "beneficial ownership" concepts set forth
in rules of the Securities and Exchange Commission under the Securities
Exchange Act of 1934, as amended. Under such rules, more than one person may
be deemed to be a beneficial owner of the same securities, and a person may
be deemed to be a beneficial owner of securities as to which he or she may
disclaim any beneficial interest. Accordingly, directors are named as
beneficial owners of shares as to which they may disclaim any beneficial
interest. Except as otherwise indicated in the notes to this table, the
individuals possessed sole voting and investment power as to all shares of
Prime Bank Common Stock set forth opposite their names.
(2) Includes 4,700 shares held jointly with his spouse and 5,000 shares owned by
his spouse.
(3) Includes 1,900 shares held by his spouse and 4,000 shares held in trust for
his children.
(4) Includes 5,300 shares held by his spouse.
(5) Includes 6,966 shares held jointly with his spouse.
(6) Includes 7,350 shares held jointly with his spouse.
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<PAGE> 95
Other Principal Shareholders. The following are the only holders, who are
not directors or executive officers, beneficially owning more than 5% of Prime
Bank Common Stock as of the date of this Proxy Statement:
<TABLE>
<CAPTION>
NAME OF INDIVIDUAL AMOUNT/NATURE OF PERCENT
(AND ADDRESS OF 5% OWNER) BENEFICIAL OWNERSHIP(1) OF CLASS
- ------------------------- ----------------------- --------
<S> <C> <C> <C>
Reid B. Hughes........................................... 28,571 7.14%
P. O. Box 590
Daytona Beach, FL 32115
Vera J. Zilber........................................... 38,000 9.50%
c/o Zilber Ltd.
710 North Plankerton
12th Floor
Milwaukee, WI
Bjornar R. Hermansen..................................... 43,203 10.80%
205 Hacienda Drive
Merritt Island, FL 37952
</TABLE>
ADJOURNMENT OF SPECIAL MEETING
Approval of the Agreement by Prime Bank shareholders requires the
affirmative vote of at least a majority of the outstanding shares of Prime Bank
Common Stock. In the event there are an insufficient number of shares of Prime
Bank Common Stock present in person or by proxy at the Special Meeting to
approve the Agreement, Prime Bank'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 to the shareholders other than an
announcement made at the Special Meeting.
The effect of any such adjournment would be to permit Prime Bank to solicit
additional proxies for approval of the Agreement. While such an adjournment
would not invalidate any proxies previously filed as long as the record date for
the adjourned meeting remained the same, including proxies filed by shareholders
voting against the Agreement, an adjournment would afford Prime Bank time to
solicit additional proxies in favor of the Agreement.
OTHER MATTERS
The Board of Directors of Prime Bank 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 Prime Bank.
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, 1999.
87
<PAGE> 96
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 owned 38,352 shares of Common Stock. Mr. Miller also
received employee-related compensation from BancGroup in 1997 of $43,485.
Certain legal matters relating to the Reorganization are being passed upon for
Prime Bank by the law firm of Smith, Mackinnon, Greeley, Bowdoin & Edwards,
P.A., Orlando, Florida.
EXPERTS
PricewaterhouseCoopers LLP 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.
Prime Bank's financial statements as of December 31, 1997 and 1996, and for
each of the two years ended December 31, 1997, included in this Prospectus have
been audited by Hacker, Johnson, Cohen and Grieb, P.A., 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 PRIME BANK PRIOR TO THE
SPECIAL MEETING, BY EXECUTING A LATER DATED PROXY AND DELIVERING IT TO THE
SECRETARY OF PRIME BANK PRIOR TO THE SPECIAL MEETING OR BY ATTENDING THE SPECIAL
MEETING VOTING IN PERSON.
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<PAGE> 97
INDEX TO FINANCIAL STATEMENTS
PRIME BANK OF CENTRAL FLORIDA
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
AUDITED FINANCIAL STATEMENTS
Independent Auditors' Report.............................. F-2
Balance Sheets, December 31, 1997 and 1996................ F-3
Statements of Earnings for the Years Ended December 31,
1997 and 1996.......................................... F-4
Statements of Comprehensive Income for the Years Ended
December 31, 1997 and 1996............................. F-5
Statements of Stockholders' Equity for the Years Ended
December 31, 1997 and 1996............................. F-6
Statements of Cash Flows for the Years Ended December 31,
1997 and 1996.......................................... F-7
Notes to Financial Statements for the Years Ended December
31, 1997 and 1996...................................... F-8
UNAUDITED CONDENSED FINANCIAL STATEMENTS
Condensed Balance Sheet, March 31, 1998 (unaudited)....... F-18
Condensed Statements of Earnings for the Three Months
Ended March 31, 1998 and 1997 (unaudited).............. F-19
Condensed Statements of Comprehensive Income for the Three
Months Ended March 31, 1998 and 1997 (unaudited)....... F-20
Condensed Statement of Stockholders' Equity for the Three
Months Ended March 31, 1998 (unaudited)................ F-21
Condensed Statements of Cash Flows for the Three Months
Ended March 31, 1998 and 1997 (unaudited).............. F-22
Notes to Condensed Financial Statements for the Three
Months Ended March 31, 1998 and 1997 (unaudited)....... F-23
</TABLE>
All schedules are omitted because of the absence of the conditions under
which they are required or because the required information is included in the
financial statements and related notes.
F-1
<PAGE> 98
INDEPENDENT AUDITORS' REPORT
The Board of Directors
Prime Bank of Central Florida
Titusville, Florida:
We have audited the accompanying balance sheets of Prime Bank of Central
Florida (the "Bank") at December 31, 1997 and 1996, and the related statements
of earnings, comprehensive income, stockholders' equity and cash flows for the
years then ended. 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 the Bank at December 31,
1997 and 1996, and the results of its operations and its cash flows for the
years then ended, in conformity with generally accepted accounting principles.
/s/ Hacker, Johnson, Cohen & Grieb PA
HACKER, JOHNSON, COHEN & GRIEB PA
Orlando, Florida
February 6, 1998
F-2
<PAGE> 99
PRIME BANK OF CENTRAL FLORIDA
BALANCE SHEETS
<TABLE>
<CAPTION>
AT DECEMBER 31,
-------------------------
1997 1996
----------- -----------
<S> <C> <C>
ASSETS
Cash and due from banks..................................... $ 6,009,525 $ 3,253,128
Interest-bearing deposits with banks........................ 238,001 1,824,404
Federal funds sold.......................................... 1,550,000 630,000
----------- -----------
Cash and cash equivalents................................. 7,797,526 5,707,532
Securities available for sale............................... 15,380,780 14,497,254
Loans receivable, net of allowance for loan losses of
$445,196 in 1997 and $401,173 in 1996..................... 42,038,758 38,021,169
Loans held for sale, at market.............................. -- 68,650
Accrued interest receivable................................. 413,413 403,934
Premises and equipment...................................... 2,370,333 1,509,083
Refundable income taxes..................................... -- 31,703
Deferred tax assets......................................... 8,138 1,085
Other assets................................................ 289,008 370,666
----------- -----------
Total assets...................................... $68,297,956 $60,611,076
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Deposits:
Demand and NOW accounts................................... $18,600,729 $12,263,133
Money-market accounts..................................... 5,784,602 6,943,080
Savings deposits.......................................... 3,221,895 3,168,784
Time deposits............................................. 32,388,322 31,011,577
----------- -----------
Total deposits.................................... 59,995,548 53,386,574
Other liabilities........................................... 1,524,967 1,509,262
Income taxes payable........................................ 327,538 --
----------- -----------
Total liabilities................................. 61,848,053 54,895,836
----------- -----------
Commitments and contingencies (Notes 5, 8, 9 and 11)
Stockholders' equity:
Common stock, $1.00 par value, 4,000,000 shares
authorized, 400,000 shares issued and outstanding...... 400,000 400,000
Additional paid-in capital................................ 3,770,530 3,770,530
Retained earnings......................................... 2,273,100 1,577,463
Unrealized gain (loss) on securities available for sale,
net of tax of $3,680 in 1997 and $19,223 in 1996....... 6,273 (32,753)
----------- -----------
Total stockholders' equity........................ 6,449,903 5,715,240
----------- -----------
Total liabilities and stockholders' equity........ $68,297,956 $60,611,076
=========== ===========
</TABLE>
See accompanying Notes to Financial Statements.
F-3
<PAGE> 100
PRIME BANK OF CENTRAL FLORIDA
STATEMENTS OF EARNINGS
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------
1997 1996
---------- ----------
<S> <C> <C>
Interest income:
Loans receivable.......................................... $3,633,383 $3,330,766
Securities available for sale............................. 946,886 651,430
Other interest and dividends.............................. 186,890 242,722
---------- ----------
Total interest income............................. 4,767,159 4,224,918
---------- ----------
Interest expense on deposits................................ 2,093,736 1,823,055
---------- ----------
Net interest income......................................... 2,673,423 2,401,863
Provision for loan losses................................... 72,000 53,772
---------- ----------
Net interest income after provision for loan
losses.......................................... 2,601,423 2,348,091
---------- ----------
Noninterest income:
Service charges on deposit accounts....................... 317,048 341,309
Other fees and service charges............................ 111,841 107,830
Gain on sale of loans..................................... 688 1,671
Gain on foreclosed real estate............................ 6,817 5,751
Other..................................................... 21,802 17,461
---------- ----------
Total noninterest income.......................... 458,196 474,022
---------- ----------
Noninterest expense:
Salaries and employee benefits............................ 1,039,170 1,001,502
Occupancy expense......................................... 376,653 413,905
Data processing expense................................... 170,090 149,665
Federal deposit insurance premium......................... 50,125 94,173
SAIF recapitalization assessment.......................... -- 288,989
Stationery and office supplies............................ 58,477 63,473
Postage................................................... 49,432 64,212
Other..................................................... 211,437 303,768
---------- ----------
Total noninterest expense......................... 1,955,384 2,379,687
---------- ----------
Earnings before income taxes................................ 1,104,235 442,426
Income taxes................................................ 408,598 156,785
---------- ----------
Net earnings................................................ $ 695,637 $ 285,641
========== ==========
Earnings per share:
Basic..................................................... $ 1.74 $ .71
========== ==========
Fully diluted............................................. $ 1.72 $ .71
========== ==========
</TABLE>
See accompanying Notes to Financial Statements.
F-4
<PAGE> 101
PRIME BANK OF CENTRAL FLORIDA
STATEMENTS OF COMPREHENSIVE INCOME
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31,
-------------------
1997 1996
-------- --------
<S> <C> <C>
Net earnings................................................ $695,637 $285,641
Other comprehensive income -- change in unrealized gain
arising during year, net of tax (benefit) of $22,903 and
$(7,248).................................................. 39,026 (12,364)
-------- --------
Comprehensive income........................................ $734,663 $273,277
======== ========
</TABLE>
See accompanying Notes to Financial Statements.
F-5
<PAGE> 102
PRIME BANK OF CENTRAL FLORIDA
STATEMENTS OF STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
ACCUMULATED
OTHER
COMPREHENSIVE
INCOME-
UNREALIZED
GAIN(LOSS)
ADDITIONAL ON SECURITIES TOTAL
COMMON PAID-IN RETAINED AVAILABLE STOCKHOLDERS'
STOCK CAPITAL EARNINGS FOR SALE EQUITY
-------- ---------- --------- ------------- -------------
<S> <C> <C> <C> <C> <C>
Balance at December 31, 1995........... $400,000 3,770,530 1,291,822 (20,389) 5,441,963
Net earnings........................... -- -- 285,641 -- 285,641
Change in unrealized loss
on securities available
for sale, net of income taxes of
$7,248............................... -- -- -- (12,364) (12,364)
-------- --------- --------- ------- ---------
Balance at December 31, 1996........... 400,000 3,770,530 1,577,463 (32,753) 5,715,240
Net earnings........................... -- -- 695,637 -- 695,637
Change in unrealized gain
(loss) on securities available
for sale, net of income taxes of
$22,903.............................. -- -- -- 39,026 39,026
-------- --------- --------- ------- ---------
Balance at December 31, 1997........... $400,000 3,770,530 2,273,100 6,273 6,449,903
======== ========= ========= ======= =========
</TABLE>
See accompanying Notes to Financial Statements.
F-6
<PAGE> 103
PRIME BANK OF CENTRAL FLORIDA
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
---------------------------
1997 1996
------------ ------------
<S> <C> <C>
Cash flows from operating activities:
Net earnings.............................................. $ 695,637 $ 285,641
Adjustments to reconcile net earnings to net cash provided
by operating activities:
Depreciation........................................... 123,258 125,235
Provision for loan losses.............................. 72,000 53,772
Provision for loss on foreclosed real estate........... -- 25,204
(Credit) provision for deferred income taxes........... (29,956) 7,396
Amortization of discounts and premiums................. 31,132 28,552
Amortization of deferred loan fees, net................ (13,293) 11,675
Origination for loans held for sale, net of principal
repayments............................................ (816,907) (2,995,476)
Proceeds from sale of loans held for sale.............. 886,245 3,614,623
Gain on sale of loans held for sale.................... (688) (1,671)
Gain on sale of foreclosed real estate................. (12,682) (50,643)
Increase in accrued interest receivable................ (9,479) (45,493)
Decrease (increase) in other assets.................... 81,658 (34,792)
Increase in other liabilities.......................... 15,705 570,085
Increase (decrease) in income taxes.................... 359,241 (170,031)
------------ ------------
Net cash provided by operating activities......... 1,381,871 1,424,077
------------ ------------
Cash flows from investing activities:
Purchase of available-for-sale securities................. (10,010,177) (13,315,765)
Principal repayments on available-for-sale securities..... 729,861 412,543
Proceeds from sale and maturity of available-for-sale
securities............................................. 8,427,587 9,060,000
Net increase in loans..................................... (4,201,137) (5,452,848)
Proceeds from sale of foreclosed real estate.............. 137,523 268,595
Purchase of premises and equipment........................ (984,508) (36,826)
------------ ------------
Net cash used in investing activities............. (5,900,851) (9,064,301)
------------ ------------
Cash flows from financing activities:
Net increase in demand, NOW, money market and savings
deposits............................................... 5,232,229 1,922,138
Net increase in time deposits............................. 1,376,745 3,860,781
------------ ------------
Net cash provided by financing activities......... 6,608,974 5,782,919
------------ ------------
Net increase (decrease) in cash and cash equivalents........ 2,089,994 (1,857,305)
Cash and cash equivalents at beginning of year.............. 5,707,532 7,564,837
------------ ------------
Cash and cash equivalents at end of year.................... $ 7,797,526 $ 5,707,532
============ ============
Supplemental disclosures of cash flow information:
Cash paid during the year for:
Income taxes paid...................................... $ 79,320 $ 319,420
============ ============
Interest expense....................................... $ 2,095,373 $ 1,808,762
============ ============
Noncash investing and financing activities:
Transfer of loans to foreclosed real estate............ $ 124,841 $ 257,204
============ ============
Loans originated on sale of foreclosed real estate..... $ -- $ 103,250
============ ============
</TABLE>
See accompanying Notes to Financial Statements.
F-7
<PAGE> 104
PRIME BANK OF CENTRAL FLORIDA
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1997 AND 1996
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The accounting and reporting policies of Prime Bank of Central Florida (the
"Bank") conform to generally accepted accounting principles and to prevailing
practices within the banking industry. The Bank, through four banking offices,
provides a variety of financial services to individuals and businesses primarily
located in Brevard County, Florida. The deposits of the Bank are insured by the
Federal Deposit Insurance Corporation ("FDIC") through the Savings Association
Insurance Fund ("SAIF"). The following summarizes the more significant of these
policies and practices:
Estimates. The preparation of financial statements in conformity with
generally accepted accounting principles requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date
of the financial statements and the reported amounts of revenues and
expenses during the reporting period. Actual results could differ from
those estimates.
Securities. The Bank must classify its securities as either trading,
held to maturity or available for sale. Trading securities are held
principally for resale and recorded at their fair values. Unrealized gains
and losses on trading securities are included immediately in earnings.
Held-to-maturity securities are those which the Bank has the positive
intent and ability to hold to maturity and are reported at amortized cost.
Available-for-sale securities consist of securities not classified as
trading securities nor as held-to-maturity securities. Unrealized holding
gains and losses, net of tax, on available-for-sale securities are reported
as a net amount in a separate component of stockholders' equity until
realized. Gains and losses on the sale of available-for-sale securities are
determined using the specific-identification method. Premiums and discounts
on securities available for sale and held to maturity are recognized in
interest income using the interest method over the period to maturity.
Loans Receivable. Loans receivable that management has the intent and
ability to hold for the foreseeable future or until maturity or pay-off are
reported at their outstanding principal adjusted for any charge-offs, the
allowance for loan losses, and any deferred fees or costs on originated
loans.
Loan origination fees and certain direct origination costs are
capitalized and recognized as an adjustment of the yield of the related
loan.
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.
The allowance for loan losses is increased by charges against earnings
and decreased by charge-offs (net of recoveries). Management's periodic
evaluation of the adequacy of the allowance is based on the Bank's past
loan loss experience, known and inherent risks in the portfolio, adverse
situations that may affect the borrower's ability to repay, the estimated
value of any underlying collateral, and current economic conditions.
Foreclosed Real Estate. Real estate properties acquired through, or
in lieu of, loan foreclosure are to be sold and are initially recorded at
fair value at the date of foreclosure establishing a new cost basis. After
foreclosure, valuations are periodically performed by management and the
real estate is carried at the lower of carrying amount or fair value less
cost to sell. Revenue and expenses from operations and changes in the
valuation allowance are included in the statements of earnings.
Income Taxes. Deferred tax assets and liabilities are reflected at
currently enacted income tax rates applicable to the period in which the
deferred tax assets or liabilities are expected to be realized or settled.
F-8
<PAGE> 105
PRIME BANK OF CENTRAL FLORIDA
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
As changes in tax laws or rates are enacted, deferred tax assets and
liabilities are adjusted through the provision for income taxes.
Premises and Equipment. Land is carried at cost. The Bank's premises,
furniture and equipment and leasehold improvements are carried at cost,
less accumulated depreciation and amortization computed principally by the
straight-line method.
Off-Balance Sheet Instruments. In the ordinary course of business,
the Bank has entered into off-balance-sheet instruments consisting of
commitments to extend credit, commitments under lines of credit and standby
letters of credit. Such financial instruments are recorded in the financial
statements when they are funded.
Stock-Based Compensation. Statement of Financial Accounting Standards
No. 123, "Accounting for Stock-Based Compensation" establishes a "fair
value" based method of accounting for stock-based compensation plans and
encourages all entities to adopt that method of accounting for all of their
employee stock compensation plans. However, it also allows an entity to
continue to measure compensation cost for those plans using the intrinsic
value based method of accounting prescribed by APB Opinion No. 25,
"Accounting for Stock Issued to Employees." The Bank has elected to follow
APB Opinion 25 and related interpretations in accounting for its employee
stock options.
Intangible Assets. In 1990, the Bank acquired a branch office from
another financial institution. The acquisition has been accounted for using
the purchase method of accounting. A core deposit intangible asset totaling
$217,753 resulted from the acquisition. This intangible asset is being
amortized over a ten-year period using the straight-line method which is
not materially different than the interest method utilized in the core
deposit study. The remaining unamortized balance at December 31, 1997 was
$49,950 and was included in other assets.
Earnings Per Share. Earnings per share ("EPS") of common stock has
been computed on the basis of the weighted-average number of shares of
common stock outstanding. For purposes of calculating diluted EPS, because
there is no active trading market for the Bank's common stock, the average
book value per share was used:
<TABLE>
<CAPTION>
FOR THE YEAR ENDED DECEMBER 31,
-------------------------------------------------------------
1997 1996
----------------------------- -----------------------------
WEIGHTED- PER WEIGHTED- PER
AVERAGE SHARE AVERAGE SHARE
EARNINGS SHARES AMOUNT EARNINGS SHARES AMOUNT
-------- --------- ------ -------- --------- ------
<S> <C> <C> <C> <C> <C> <C>
Basic EPS:
Net earnings available to common
stockholders.......................... $695,637 400,000 $1.74 $285,641 400,000 $.71
===== ====
Effect of dilutive securities --
Incremental shares from assumed exercise
of options............................ 4,668 2,024
------- -------
Diluted EPS:
Net earnings available to common
stockholders and assumed
conversions........................... $695,637 404,668 $1.72 $285,641 402,024 $.71
======== ======= ===== ======== ======= ====
</TABLE>
Reclassification. Certain 1996 amounts have been reclassified to
conform with the 1997 presentation.
F-9
<PAGE> 106
PRIME BANK OF CENTRAL FLORIDA
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
(2) SECURITIES AVAILABLE FOR SALE
Securities have been classified according to management's intent. The
carrying amounts of securities and their approximate fair values at December 31,
were as follows:
<TABLE>
<CAPTION>
GROSS GROSS
AMORTIZED UNREALIZED UNREALIZED FAIR
COST GAINS LOSSES VALUE
----------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
AT DECEMBER 31, 1997
U.S. Treasury notes..................... $ 4,498,839 6,325 (1,809) 4,503,355
FHLB debentures......................... 2,992,491 2,206 (1,262) 2,993,435
FNMA debentures......................... 3,166,473 5,120 (92) 3,171,501
FHLMC debentures........................ 3,962,211 5,784 (7,638) 3,960,357
GNMA debentures......................... 502,651 -- (851) 501,800
Obligations of state and municipal
governments.......................... 248,162 2,170 -- 250,332
----------- ------ ------- ----------
$15,370,827 21,605 (11,652) 15,380,780
=========== ====== ======= ==========
AT DECEMBER 31, 1996
U.S. Treasury notes..................... 2,991,508 830 (4,843) 2,987,495
FHLB debentures......................... 3,494,493 4,140 (2,668) 3,495,965
FNMA debentures......................... 2,708,723 4,563 (3,049) 2,710,237
FHLMC debentures........................ 4,661,652 885 (48,174) 4,614,363
Obligations of state and municipal
governments.......................... 692,854 1,042 (4,702) 689,194
----------- ------ ------- ----------
$14,549,230 11,460 (63,436) 14,497,254
=========== ====== ======= ==========
</TABLE>
The scheduled maturities of securities available for sale at December 31,
1997, were as follows:
<TABLE>
<CAPTION>
AMORTIZED FAIR
COST VALUE
----------- -----------
<S> <C> <C>
Due in one year or less..................................... $ 5,690,740 $ 5,690,578
Due from one year to five years............................. 7,746,936 7,752,958
Due after ten years......................................... 1,933,151 1,937,244
----------- -----------
$15,370,827 $15,380,780
=========== ===========
</TABLE>
For purposes of the maturity table, mortgage-backed securities, which are
not due at a single maturity date, have been allocated over maturity groupings
based on the weighted-average contractual maturities of underlying collateral.
The mortgage-backed securities may mature earlier than their weighted-average
contractual maturities because of principal prepayments.
Available-for-sale securities with book values of $1,989,561 and $1,000,861
were sold during 1997 and 1996, respectively. Gross realized gains and gross
realized losses on sales of available-for-sale securities were $5,226 and
$2,188, respectively, in 1997 and $91 and $952, respectively, in 1996.
Assets, principally securities, with a carrying value of $499,375 at
December 31, 1997 and $496,792 at December 31, 1996, were pledged to secure tax
deposits from customers.
F-10
<PAGE> 107
PRIME BANK OF CENTRAL FLORIDA
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
(3) LOANS
The components of loans were as follows:
<TABLE>
<CAPTION>
AT DECEMBER 31,
-------------------------
1997 1996
----------- -----------
<S> <C> <C>
Mortgage loans:
Residential real estate................................... $ 8,113,604 $11,070,348
Commercial real estate.................................... 21,673,846 16,209,762
Land...................................................... 2,419,327 2,496,940
----------- -----------
Total mortgage loans.............................. 32,206,777 29,777,050
Commercial and other loans.................................. 7,155,907 5,755,562
Consumer loans.............................................. 1,428,439 1,414,754
Lines of credit............................................. 1,799,645 1,595,083
----------- -----------
Total loans....................................... 42,590,768 38,542,449
Deduct:
Allowance for loan losses................................. (445,196) (401,173)
Deferred loan fees, net................................... (106,814) (120,107)
----------- -----------
Loans receivable, net............................. $42,038,758 $38,021,169
=========== ===========
</TABLE>
The following is a summary of the activity in the allowance for loan
losses:
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31,
-------------------
1997 1996
-------- --------
<S> <C> <C>
Allowance at beginning of year.............................. $401,173 $347,146
Provision for loan losses................................... 72,000 53,772
Charge-offs................................................. (28,175) (70)
Recoveries.................................................. 200 325
-------- --------
Allowance at end of year.................................... $445,196 $401,173
======== ========
</TABLE>
The following summarizes the amounts of impaired loans, all of which were
collateral-dependent:
<TABLE>
<CAPTION>
AT DECEMBER 31,
------------------
1997 1996
-------- -------
<S> <C> <C>
Loans identified as impaired:
Gross loans with related allowance for losses recorded.... $271,621 $29,751
Less: Allowances on these loans........................... (13,581) (1,080)
-------- -------
Net investment in impaired loans............................ $258,040 $28,671
======== =======
</TABLE>
The average net investment in impaired loans and interest income recognized
and received on impaired loans was as follows:
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31,
------------------
1997 1996
------- --------
<S> <C> <C>
Average investment in impaired loans........................ $65,405 $536,945
======= ========
Interest income recognized on impaired loans................ $24,786 $ 32,844
======= ========
Interest income received on impaired loans.................. $24,786 $ 32,844
======= ========
</TABLE>
F-11
<PAGE> 108
PRIME BANK OF CENTRAL FLORIDA
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
(4) LOAN SERVICING
Mortgage loans serviced for others are not included in the accompanying
balance sheets. The Bank had no purchased mortgage servicing rights or excess
servicing receivables recorded at December 31, 1997 or 1996. The unpaid
principal balances of loans serviced for others are summarized as follows:
<TABLE>
<CAPTION>
AT DECEMBER 31,
-----------------------
1997 1996
---------- ----------
<S> <C> <C>
Mortgage loans portfolios serviced for:
FNMA...................................................... $6,717,578 $6,756,288
Other investors........................................... 1,249,870 1,208,062
---------- ----------
$7,967,448 $7,964,350
========== ==========
Custodial escrow balances maintained in connection with the
foregoing loans........................................... $ 38,070 $ 30,806
========== ==========
</TABLE>
(5) PREMISES AND EQUIPMENT
Premises and equipment were as follows:
<TABLE>
<CAPTION>
AT DECEMBER 31,
-----------------------
1997 1996
---------- ----------
<S> <C> <C>
Cost:
Land...................................................... $ 938,918 $ 547,244
Buildings................................................. 1,137,700 905,218
Furniture and fixtures.................................... 1,042,552 881,665
---------- ----------
Total cost........................................ 3,119,170 2,334,127
Less accumulated depreciation............................... (748,837) (825,044)
---------- ----------
Net book value.................................... $2,370,333 $1,509,083
========== ==========
</TABLE>
The Bank leases its Lake Washington branch facility under an operating
lease. The lease contains an escalation clause which requires annual increases
in base rent of 4%, and provides for annual adjustments for the Bank's prorata
share of operating expenses. Rental expense was $54,400 in 1997 and $79,300 in
1996.
Future minimum rental commitments under noncancelable leases are:
<TABLE>
<CAPTION>
YEAR ENDING DECEMBER 31, AMOUNT
- ------------------------ --------
<S> <C>
1998........................................................ $ 49,647
1999........................................................ 51,633
2000........................................................ 53,698
2001........................................................ 55,846
2002........................................................ 58,080
2003 and thereafter......................................... 60,403
--------
$329,307
========
</TABLE>
(6) DEPOSITS
The aggregate amount of short-term jumbo certificates of deposit, each with
a minimum denomination of $100,000, was approximately $1.4 million and $3.6
million at December 31, 1997 and 1996, respectively.
F-12
<PAGE> 109
PRIME BANK OF CENTRAL FLORIDA
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
A schedule of maturities of certificate of deposit accounts follows:
<TABLE>
<CAPTION>
YEAR ENDING DECEMBER 31, AT DECEMBER 31, 1997
------------------------ --------------------
<S> <C>
1998................................................... $ 7,565,544
1999................................................... 17,436,949
2000................................................... 3,627,682
2001................................................... 923,447
2002 and thereafter.................................... 2,834,700
-----------
$32,388,322
===========
</TABLE>
(7) INCOME TAXES
The Bank's effective income tax rate differs from the statutory Federal
income tax rate for the following reasons:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
---------------------------------
1997 1996
--------------- ---------------
<S> <C> <C> <C> <C>
Tax provision at statutory rate.................... $375,440 34.0% $150,425 34.0%
Increase (decrease) in taxes resulting from:
State taxes, net of federal income tax benefit... 27,526 2.5 5,348 1.2
Effect of tax exempt income...................... (5,167) (.5) (7,687) (1.7)
Other, net....................................... 10,799 1.0 8,699 2.0
-------- ---- -------- ----
Income tax provision............................. $408,598 37.0% $156,785 35.5%
======== ==== ======== ====
</TABLE>
The provision for income taxes consisted of the following:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------
1997 1996
---------- ----------
<S> <C> <C>
Current:
Federal................................................... $392,468 $142,367
State..................................................... 46,086 7,022
-------- --------
Total............................................. 438,554 149,389
======== ========
Deferred:
Federal................................................... (25,585) 6,315
State..................................................... (4,371) 1,081
-------- --------
Total............................................. (29,956) 7,396
-------- --------
$408,598 $156,785
======== ========
</TABLE>
F-13
<PAGE> 110
PRIME BANK OF CENTRAL FLORIDA
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
The tax effects of temporary differences that give rise to significant
portions of the deferred tax assets and deferred tax liabilities are presented
below.
<TABLE>
<CAPTION>
AT DECEMBER 31,
---------------------
1997 1996
--------- ---------
<S> <C> <C>
Deferred tax assets:
Deferred loan fees........................................ $ 30,780 $ 36,936
Allowance for loan losses................................. 149,852 130,686
Unrealized loss on securities available for sale.......... -- 19,223
Other..................................................... -- 1,002
--------- ---------
Gross deferred tax assets......................... 180,632 187,847
Less valuation allowance.................................. -- --
--------- ---------
180,632 187,847
Deferred tax liabilities:
Federal Home Loan Bank stock dividends.................... (17,498) (17,498)
Depreciation.............................................. (37,665) (49,802)
Accrued income and expense, net........................... (113,651) (119,462)
Unrealized gain on securities available for sale.......... (3,680) --
--------- ---------
Total gross deferred tax liabilities.............. (172,494) (186,762)
--------- ---------
Net deferred tax assets........................... $ 8,138 $ 1,085
========= =========
</TABLE>
(8) FINANCIAL INSTRUMENTS
The Bank is a party to financial instruments with off-balance-sheet risk in
the normal course of business to meet the financing needs of its customers and
to reduce its own exposure to fluctuations in interest rates. These financial
instruments are commitments to extend credit and may involve, to varying
degrees, elements of credit and interest-rate risk in excess of the amount
recognized in the balance sheets. The contract amounts of these instruments
reflect the extent of involvement the Bank has in these financial instruments.
The Bank's exposure to credit loss in the event of nonperformance by the
other party to the financial instrument for commitments to extend credit is
represented by the contractual amount of those instruments. The Bank uses the
same credit policies in making commitments as it does for on-balance-sheet
instruments.
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 some of the commitments are expected to
expire without being drawn upon, the total commitment amounts do not necessarily
represent future cash requirements. The Bank evaluates each customer's credit
worthiness on a case-by-case basis. The amount of collateral obtained if deemed
necessary by the Bank upon extension of credit is based on management's credit
evaluation of the counterparty.
Stand-by letters of credit are conditional commitments issued by the Bank
to guarantee the performance of a customer to a third party. All of the stand-by
letters of credit outstanding at December 31, 1997 expire within one year. The
credit risk involved in issuing letters of credit is essentially the same as
that involved in extending loans to customers.
F-14
<PAGE> 111
PRIME BANK OF CENTRAL FLORIDA
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
A summary of the notional amounts of the Bank's financial instruments with
off-balance-sheet risk at December 31, 1997, follows:
<TABLE>
<CAPTION>
NOTIONAL
AMOUNT
----------
<S> <C>
Commitments to extend credit................................ $1,009,000
==========
Unused lines of credit...................................... $6,611,551
==========
Undisbursed portion of construction loans in process........ $1,955,066
==========
Stand-by letters of credit.................................. $ 188,334
==========
</TABLE>
(9) SIGNIFICANT GROUP CONCENTRATION OF CREDIT RISK
The Bank grants real estate, commercial and consumer loans to customers
primarily in the State of Florida with the majority of such loans in the Brevard
County area. Therefore, the Bank's exposure to credit risk is significantly
affected by changes in the economy of the Brevard County area.
The contractual amounts of credit related financial instruments such as
commitments to extend credit represent the amounts of potential accounting loss
should the contract be fully drawn upon, the customer default and the value of
any existing collateral become worthless.
(10) RELATED PARTIES
Loans to directors and executive officers of the Bank, which were made at
market rates, were made in the ordinary course of business and did not involve
more than normal risk of collectibility or present other unfavorable features.
Activity in loans to directors and executive officers for the years ended
December 31, 1997 and 1996 was as follows:
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31,
----------------------
1997 1996
---------- ---------
<S> <C> <C>
Beginning balance........................................... $ 508,686 $ 459,548
Loans originated............................................ 621,034 415,000
Principal payments.......................................... (115,792) (365,862)
---------- ---------
Ending balance............................................ $1,013,928 $ 508,686
========== =========
</TABLE>
(11) COMMITMENTS AND CONTINGENCIES
In the ordinary course of business, the Bank has various outstanding
commitments and contingent liabilities that are not reflected in the
accompanying financial statements. In the opinion of management, the ultimate
disposition of these matters is not expected to have a material adverse effect
on the financial condition of the Bank.
(12) REGULATORY MATTERS
The Bank is subject to various regulatory capital requirement administered
by various regulatory authorities. 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
F-15
<PAGE> 112
PRIME BANK OF CENTRAL FLORIDA
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
practices. The Bank's capital amounts and classification are also subject to
qualitative judgements by the regulators about components, risk weightings, and
other factors.
Quantitative measures established by regulation to ensure capital adequacy
require the Bank to maintain minimum amounts (set forth in the table below) of
total and Tier I capital (as defined in the regulations) to risk-weighted assets
(as defined). Management believes, as of December 31, 1997, that the Bank meets
all capital adequacy requirements to which it is subject.
As of December 31, 1997, the most recent notification from the Bank's
primary regulator categorized the Bank as well capitalized under the regulatory
framework for prompt corrective action. To be categorized as well capitalized,
the Bank must maintain minimum total risk-based, Tier I risk-based, and Tier I
leverage ratios as set forth in the table. There are no conditions or events
since that notification that management believes have changed the Bank's
category.
The Bank's actual capital amounts and ratios are presented in the table
(dollars in thousands).
<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)............................... $6,450 13.04% $3,956 8.00% $4,945 10.00%
Tier I Capital (to Risk-Weighted
Assets)............................... 6,394 12.93 1,978 4.00 2,967 6.00
Tier I Capital (to Average Assets)....... 6,394 9.80 2,610 4.00 3,262 5.00
AS OF DECEMBER 31, 1996:
Total capital (to Risk-Weighted
Assets)............................... $6,078 10.61% $4,583 8.00% $5,729 10.00%
Tier I Capital (to Risk-Weighted
Assets)............................... 5,677 9.91 2,292 4.00 3,437 6.00
Tier I Capital (to Average Assets)....... 5,677 9.75 2,329 4.00 2,911 5.00
</TABLE>
On September 30, 1996, legislation was enacted which, among other things,
imposed a special one-time assessment on SAIF member institutions, including the
Bank, to recapitalize the SAIF and spread the obligations for payments of
Financing Corporation ("FICO") bonds across all SAIF and Bank Insurance Fund
("BIF") members. The FDIC special assessment levied amounted to 65.7 basis
points on SAIF-assessable deposits held as of March 31, 1995. That legislation
eliminated the substantial disparity between the amount that BIF and SAIF
members had been paying for deposit insurance premiums. The Bank recorded the
special assessment of $288,989 before taxes in the third quarter of 1996.
(13) STOCK OPTION PLAN
On April 21, 1994, the Bank adopted, and the stockholders approved, the
Bank's incentive stock option plan (the "Option Plan"). The Option Plan provides
for a maximum number of shares equal to 20% of the shares of common stock issued
and outstanding to be reserved for future issuance under the Plan. At December
31, 1997, 37,250 shares remain available for grant. The options granted are
exercisable immediately. All options granted terminate at the earlier of ten
years from the date of the grant, or at the date the option holder ceases to be
employed by the Bank. If the termination of employment is due to death or
disability, the option may be exercised at any time up to one year after the
date of death or disability, unless the option by its term expires sooner. If
termination of employment is for reasons other than death, disability or for
cause, the Plan Administrator may allow the option to be exercised up to three
months after termination of the employee, unless the option by its term expires
sooner. No options have been exercised as of
F-16
<PAGE> 113
PRIME BANK OF CENTRAL FLORIDA
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
December 31, 1997. A summary of stock options transactions follows ($ in
thousands, except per share amounts):
<TABLE>
<CAPTION>
NUMBER RANGE OF WEIGHTED-
OF PER SHARE AVERAGE PER
SHARES OPTION PRICE SHARE PRICE
------- ------------ -----------
<S> <C> <C> <C>
Outstanding at December 31, 1995..................... 25,000 $ 12.65 $12.65
Options granted...................................... 5,000 13.60 13.60
------
Outstanding at December 31, 1996..................... 30,000 12.65-13.60 12.81
Options granted...................................... 12,750 14.29 14.29
------
Outstanding at December 31, 1997..................... 42,750 $12.65-14.29 $13.25
====== ============ ======
</TABLE>
The weighted-average remaining contractual life of the outstanding stock
options, all of which were exercisable, at December 31, 1997 was 7.4 years.
In order to calculate the estimated fair value of the options, it was
assumed that the risk-free interest rate was 6.0%, there would be no dividends
paid by the Company over the exercise period, the expected life of the options
would be the entire exercise period and stock volatility would be zero due to
the lack of an active market for the stock. The following information pertains
to the estimated fair value of the options granted to purchase common stock in
1997 and 1996 (in thousands):
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31,
------------
1997 1996
---- ----
<S> <C> <C>
Weighted-average grant-date fair value of options issued
during the year........................................... $ 79 $ 29
==== ====
Proforma net earnings....................................... $617 $257
==== ====
</TABLE>
F-17
<PAGE> 114
PRIME BANK OF CENTRAL FLORIDA
CONDENSED BALANCE SHEET
($ IN THOUSANDS)
<TABLE>
<CAPTION>
AT MARCH 31,
1998
-------------
(UNAUDITED)
<S> <C>
ASSETS
Cash and due from banks..................................... $ 2,905
Interest-bearing deposits with banks........................ 6,329
-------
Total cash and cash equivalents................... 9,234
Securities available for sale............................... 15,728
Loans receivable, net of allowance for loan losses of
$462...................................................... 41,915
Accrued interest receivable................................. 361
Foreclosed real estate...................................... 22
Premises and equipment, net................................. 2,885
Deferred tax asset.......................................... 10
Other assets................................................ 307
-------
Total............................................. $70,462
=======
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities:
Demand and NOW accounts................................... 19,391
Savings deposits.......................................... 3,467
Money-market accounts..................................... 6,142
Time deposits............................................. 34,085
-------
Total deposits.................................... 63,085
Income taxes payable...................................... 72
Other liabilities......................................... 700
-------
Total liabilities................................. 63,857
-------
Stockholders' equity:
Common stock.............................................. 400
Additional paid-in capital................................ 3,770
Retained earnings......................................... 2,431
Unrealized gain on securities available for sale, net of
tax of $2.............................................. 4
-------
Total stockholders' equity........................ 6,605
-------
Total............................................. $70,462
=======
</TABLE>
See accompanying Notes to Condensed Financial Statements.
F-18
<PAGE> 115
PRIME BANK OF CENTRAL FLORIDA
CONDENSED STATEMENTS OF EARNINGS
($ IN THOUSANDS, EXCEPT PER SHARE FIGURES)
<TABLE>
<CAPTION>
THREE MONTHS
ENDED
MARCH 31,
---------------
1998 1997
------ ------
(UNAUDITED)
<S> <C> <C>
Interest income:
Loans receivable.......................................... $ 986 $ 885
Securities available for sale............................. 210 212
Other interest and dividends.............................. 58 51
------ ------
Total interest income............................. 1,254 1,148
------ ------
Interest expense on deposits................................ 544 509
------ ------
Net interest income......................................... 710 639
Provision for loan losses......................... 20 5
------ ------
Net interest income after provision for loan losses......... 690 634
------ ------
Noninterest income:
Service charges on deposit accounts....................... 81 80
Other fees and service charges............................ 18 31
Other..................................................... 3 4
------ ------
Total noninterest income.......................... 102 115
------ ------
Noninterest expenses:
Salaries and employee benefits............................ 290 278
Occupancy expense......................................... 101 102
Data processing expense................................... 46 42
Federal deposit insurance premium......................... 13 12
Stationery and office supplies............................ 22 18
Postage................................................... 13 12
Other..................................................... 54 47
------ ------
Total noninterest expenses........................ 539 511
------ ------
Earnings before income taxes................................ 253 238
Income taxes................................................ 95 87
------ ------
Net earnings................................................ $ 158 $ 151
====== ======
Earnings per share:
Basic..................................................... $ .40 $ .38
====== ======
Fully diluted............................................. $ .39 $ .38
====== ======
</TABLE>
See accompanying Notes to Condensed Financial Statements.
F-19
<PAGE> 116
PRIME BANK OF CENTRAL FLORIDA
CONDENSED STATEMENTS OF COMPREHENSIVE INCOME
($ IN THOUSANDS)
<TABLE>
<CAPTION>
YEAR ENDED
MARCH 31,
-----------
1998 1997
---- ----
<S> <C> <C>
Net earnings................................................ $158 $151
Other comprehensive income -- change in unrealized gain
arising during year, net of tax of $2 and $0.............. (2) (39)
---- ----
Comprehensive income........................................ $156 $112
==== ====
</TABLE>
See Accompanying Notes to Condensed Financial Statements.
F-20
<PAGE> 117
PRIME BANK OF CENTRAL FLORIDA
CONDENSED STATEMENT OF STOCKHOLDERS' EQUITY
THREE MONTHS ENDED MARCH 31, 1998 (UNAUDITED)
($ IN THOUSANDS)
<TABLE>
<CAPTION>
ACCUMULATED
OTHER
COMPREHENSIVE
INCOME --
UNREALIZED
GAIN ON
ADDITIONAL SECURITIES TOTAL
COMMON PAID-IN RETAINED AVAILABLE FOR STOCKHOLDERS'
STOCK CAPITAL EARNINGS SALE EQUITY
------ ---------- -------- ------------- -------------
<S> <C> <C> <C> <C> <C>
Balance at December 31, 1997............... $400 $3,770 $2,273 $ 6 $6,449
Change in unrealized gain on securities
available for sale, net of income taxes
of $2 (unaudited)........................ -- -- -- (2) (2)
Net earnings (unaudited)................... -- -- 158 -- 158
---- ------ ------ --- ------
Balance at March 31, 1998 (unaudited)...... $400 $3,770 $2,431 $ 4 $6,605
==== ====== ====== === ======
</TABLE>
See accompanying Notes to Condensed Financial Statements.
F-21
<PAGE> 118
PRIME BANK OF CENTRAL FLORIDA
CONDENSED STATEMENTS OF CASH FLOWS
($ IN THOUSANDS)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
-------------------
1998 1997
-------- --------
(UNAUDITED)
<S> <C> <C>
Cash flows from operating activities:
Net earnings.............................................. $ 158 $ 151
Adjustments to reconcile net earnings to net cash used in
by operating activities:
Depreciation........................................... 38 34
Provision for loan losses.............................. 20 5
Amortization of discounts and premiums................. 10 8
Amortization of deferred loan fees, net................ (5) (4)
Origination for loans held for sale.................... -- (25)
Proceeds from sale of loans held for sale.............. -- 94
Decrease (increase) in accrued interest receivable..... 52 (2)
(Increase) decrease in other assets.................... (18) 48
Decrease in other liabilities.......................... (825) (720)
(Decrease) increase in income taxes.................... (256) 32
------- -------
Net cash used in operating activities............. (826) (379)
------- -------
Cash flows from investing activities:
Purchase of available-for-sale securities................. (3,509) (3,497)
Principal repayments on available-for-sale securities..... 400 107
Proceeds from sale and maturity of available-for-sale
securities............................................. 2,748 2,000
Net decrease in loans..................................... 87 46
Purchase of premises and equipment........................ (553) (37)
------- -------
Net cash used in investing activities............. (827) (1,381)
------- -------
Cash flows from financing activities:
Net increase in demand, NOW, money-market and savings
deposits............................................... 1,391 2,253
Net increase in time deposits............................. 1,698 112
------- -------
Net cash provided by financing activities......... 3,089 2,365
------- -------
Net increase in cash and cash equivalents................... 1,436 605
Cash and cash equivalents at beginning of period............ 7,798 5,707
------- -------
Cash and cash equivalents at end of period.................. $ 9,234 $ 6,312
======= =======
Supplemental disclosures of cash flow information:
Cash paid during the period for:
Income taxes paid...................................... $ 350 $ --
======= =======
Interest expense....................................... $ 536 $ 512
======= =======
Noncash investing and financing activities --
Transfer of loans to foreclosed real estate............ $ 22 $ --
======= =======
</TABLE>
See accompanying Notes to Condensed Financial Statements.
F-22
<PAGE> 119
PRIME BANK OF CENTRAL FLORIDA
NOTES TO CONDENSED FINANCIAL STATEMENTS (UNAUDITED)
1. BASIS OF PRESENTATION
In the opinion of the management of Prime Bank of Central Florida (the
"Bank"), the accompanying condensed financial statements contain all adjustments
(consisting of normal recurring accruals) necessary to present fairly the
financial position at March 31, 1998 and 1997 and the results of operations and
cash flows for the three-month periods ended March 31, 1998 and 1997. The
results of operations and cash flows for the three months ended March 31, 1998,
are not necessarily indicative of results that may be expected for the year
ending December 31, 1998.
2. LOAN IMPAIRMENT AND LOAN LOSSES
The Bank prepares a quarterly review of the adequacy of the allowance for
loan losses to also identify and value impaired loans in accordance with
guidance in the Statements of Financial Accounting Standards No. 114 and 118.
Impaired loans identified by the Company at March 31, 1998 and 1997 were
$241,000 and $22,000, net of loan loss allowance of $13,000 and $1,000,
respectively.
An analysis of the change in the allowance for loan losses follows (in
thousands):
<TABLE>
<CAPTION>
THREE MONTHS
ENDED
MARCH 31,
-------------
1998 1997
----- -----
<S> <C> <C>
Beginning balance........................................... $445 $401
Provision for loan losses................................... 20 5
Loans charged-off, net of recoveries........................ (3) --
---- ----
Ending balance.............................................. $462 $406
==== ====
</TABLE>
3. IMPACT OF NEW ACCOUNTING ISSUES
In September 1996, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards No. 125, "Accounting for Transfers
and Servicing of Financial Assets and Extinguishments of Liabilities" ("SFAS No.
125"). That Statement provides accounting and reporting standards for transfers
and servicing of financial assets and extinguishments of liabilities. That
Statement also provides consistent standards for distinguishing transfers of
financial assets that are sales from transfers that are secured borrowings. SFAS
No. 125 was effective for transfers and servicing of financial assets as well as
extinguishments of liabilities occurring in 1997. The adoption of SFAS No. 125
had no significant effect on the Bank's financial position at March 31, 1998 or
1997 or results of operations for the three-month periods then ended.
On January 1, 1998, the Bank adopted Financial Accounting Standards Board
Statement No. 130, Reporting Comprehensive Income. Comprehensive income is a
more inclusive financial reporting methodology that includes disclosure of
certain financial information that historically has not been recognized in the
calculation of net earnings. The Standard defines comprehensive income as the
change in equity of an enterprise except those resulting from stockholder
transactions. All components of comprehensive income are required to be reported
in a new financial statement that is displayed with equal prominence as existing
financial statements. As the Statement addresses reporting and presentation
issues only, there was no impact on operating results from the adoption of this
Standard.
F-23
<PAGE> 120
PRIME BANK OF CENTRAL FLORIDA
NOTES TO CONDENSED FINANCIAL STATEMENTS -- (CONTINUED)
4. EARNINGS PER SHARE
Earnings per share ("EPS") of common stock has been computed on the basis
of the weighted-average number of shares of common stock outstanding. For
purposes of calculating diluted EPS, because there is no active trading market
for the Bank's common stock, the average book value per share was used ($ in
thousands, except per share amounts):
<TABLE>
<CAPTION>
FOR THE THREE MONTHS ENDED MARCH 31,
-------------------------------------------------------------
1998 1997
----------------------------- -----------------------------
WEIGHTED- PER WEIGHTED- PER
AVERAGE SHARE AVERAGE SHARE
EARNINGS SHARES AMOUNT EARNINGS SHARES AMOUNT
-------- --------- ------ -------- --------- ------
(UNAUDITED)
<S> <C> <C> <C> <C> <C> <C>
Basic EPS:
Net earnings available to common
stockholders................. $158 400,000 $.40 $151 400,000 $.38
==== ====
Effect of dilutive securities --
Incremental shares from assumed
exercise of options.......... 4,706 2,467
------- -------
Diluted EPS:
Net earnings available to common
stockholders and assumed
conversions.................. $158 404,706 $.39 $151 402,467 $.38
==== ======= ==== ==== ======= ====
</TABLE>
5. PENDING ACQUISITION
On May 21, 1998, the Bank entered into an agreement to merge with a
subsidiary of The Colonial BancGroup, Inc. ("Colonial"). Under the terms of the
agreement, each share of the Bank's common stock will be converted into a number
of shares of Colonial common stock equal to $41.44 divided by the average
closing price of Colonial common stock at the effective date of the merger. The
conversion rate for the Bank's common stock is subject to a maximum and minimum
number of Colonial common stock to be issued in connection with the merger, and
cash will be paid for fractional shares. Outstanding options for the Bank's
common stock will be converted into options for Colonial common stock on the
same terms. The transaction is expected to be accounted for as a
pooling-of-interests, and is expected to be completed in 1998. The proposed
merger is subject to several conditions, including approval by the shareholders
of the Bank and approval by applicable regulatory authorities.
F-24
<PAGE> 121
APPENDIX A
AGREEMENT AND PLAN OF MERGER
BY AND BETWEEN
THE COLONIAL BANCGROUP, INC.,
COLONIAL BANK
AND
PRIME BANK OF CENTRAL FLORIDA
DATED AS OF
MAY 21, 1998
<PAGE> 122
TABLE OF CONTENTS
<TABLE>
<CAPTION>
CAPTION PAGE
- ------- ----
<S> <C>
ARTICLE 1 -- NAME
1.1 Name................................................ A-1
ARTICLE 2 -- MERGER -- TERMS AND CONDITIONS
2.1 Applicable Law...................................... A-1
2.2 Corporate Existence................................. A-1
2.3 Articles of Incorporation and Bylaws................ A-1
2.4 Resulting Corporation's Officers and Board.......... A-2
2.5 Shareholder Approval................................ A-2
2.6 Further Acts........................................ A-2
2.7 Effective Date and Closing.......................... A-2
ARTICLE 3 -- CONVERSION OF ACQUIRED BANK STOCK
3.1 Conversion of Acquired Bank Stock................... A-2
3.2 Surrender of Acquired Bank Stock.................... A-3
3.3 Fractional Shares................................... A-3
3.4 Adjustments......................................... A-3
3.5 BancGroup Stock..................................... A-3
3.6 Dissenting Rights................................... A-3
ARTICLE 4 -- REPRESENTATIONS, WARRANTIES AND COVENANTS OF
BANCGROUP
4.1 Organization........................................ A-4
4.2 Capital Stock....................................... A-4
4.3 Financial Statements; Taxes......................... A-4
4.4 No Conflict with Other Instrument................... A-5
4.5 Absence of Material Adverse Change.................. A-5
4.6 Approval of Agreements.............................. A-5
4.7 Tax Treatment....................................... A-5
4.8 Title and Related Matters........................... A-5
4.9 Subsidiaries........................................ A-6
4.10 Contracts........................................... A-6
4.11 Litigation.......................................... A-6
4.12 Compliance.......................................... A-6
4.13 Registration Statement.............................. A-6
4.14 SEC Filings......................................... A-6
4.15 Form S-4............................................ A-7
4.16 Brokers............................................. A-7
4.17 Government Authorization............................ A-7
4.18 Absence of Regulatory Communications................ A-7
4.19 Disclosure.......................................... A-7
ARTICLE 5 -- REPRESENTATIONS, WARRANTIES AND COVENANTS OF
ACQUIRED BANK
5.1 Organization........................................ A-7
5.2 Capital Stock....................................... A-7
5.3 Subsidiaries........................................ A-8
5.4 Financial Statements; Taxes......................... A-8
5.5 Absence of Certain Changes or Events................ A-9
5.6 Title and Related Matters........................... A-9
5.7 Commitments......................................... A-10
5.8 Charter and Bylaws.................................. A-10
5.9 Litigation.......................................... A-10
</TABLE>
i
<PAGE> 123
<TABLE>
<CAPTION>
CAPTION PAGE
- ------- ----
<S> <C>
5.10 Material Contract Defaults.......................... A-11
5.11 No Conflict with Other Instrument................... A-11
5.12 Governmental Authorization.......................... A-11
5.13 Absence of Regulatory Communications................ A-11
5.14 Absence of Material Adverse Change.................. A-11
5.15 Insurance........................................... A-11
5.16 Pension and Employee Benefit Plans.................. A-11
5.17 Buy-Sell Agreement.................................. A-12
5.18 Brokers............................................. A-12
5.19 Approval of Agreements.............................. A-12
5.20 Disclosure.......................................... A-12
5.21 Registration Statement.............................. A-12
5.22 Loans; Adequacy of Allowance for Loan Losses........ A-12
5.23 Environmental Matters............................... A-13
5.24 Transfer of Shares.................................. A-13
5.25 Collective Bargaining............................... A-13
5.26 Labor Disputes...................................... A-13
5.27 Derivative Contracts................................ A-13
5.28 Non-Terminable Contracts or Severance Agreements.... A-13
ARTICLE 6 -- ADDITIONAL COVENANTS
6.1 Additional Covenants of BancGroup................... A-14
6.2 Additional Covenants of Acquired Bank............... A-16
ARTICLE 7 -- MUTUAL COVENANTS AND AGREEMENTS
7.1 Best Efforts; Cooperation........................... A-18
7.2 Press Release....................................... A-18
7.3 Mutual Disclosure................................... A-18
7.4 Access to Properties and Records.................... A-18
7.5 Notice of Adverse Changes........................... A-19
ARTICLE 8 -- CONDITIONS TO OBLIGATIONS OF ALL PARTIES
8.1 Approval by Shareholders............................ A-19
8.2 Regulatory Authority Approval....................... A-19
8.3 Litigation.......................................... A-19
8.4 Registration Statement.............................. A-19
8.5 Tax Opinion......................................... A-19
ARTICLE 9 -- CONDITIONS TO OBLIGATIONS OF ACQUIRED BANK
9.1 Representations, Warranties and Covenants........... A-20
9.2 Adverse Changes..................................... A-20
9.3 Closing Certificate................................. A-20
9.4 Opinion of Counsel.................................. A-21
9.5 NYSE Listing........................................ A-21
9.6 Other Matters....................................... A-21
9.7 Material Events..................................... A-21
9.8 Fairness Opinion.................................... A-21
ARTICLE 10 -- CONDITIONS TO OBLIGATIONS OF BANCGROUP
10.1 Representations, Warranties and Covenants........... A-21
10.2 Adverse Changes..................................... A-21
10.3 Closing Certificate................................. A-21
10.4 Opinion of Counsel.................................. A-22
10.5 Controlling Shareholders............................ A-22
10.6 Other Matters....................................... A-22
</TABLE>
ii
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<TABLE>
<CAPTION>
CAPTION PAGE
- ------- ----
<S> <C>
10.7 Dissenters................................................... A-22
10.8 Material Events.............................................. A-22
10.9 Pooling of Interests......................................... A-22
10.10 Employment Agreements........................................ A-22
10.11 Non-Competition Agreements................................... A-22
ARTICLE 11 -- TERMINATION OF REPRESENTATIONS AND WARRANTIES.......... A-23
ARTICLE 12 -- NOTICES................................................ A-23
ARTICLE 13 -- AMENDMENT OR TERMINATION
13.1 Amendment.................................................... A-23
13.2 Termination.................................................. A-23
13.3 Damages...................................................... A-24
13.4 Acquisition Proposal; Termination and Fee.................... A-24
ARTICLE 14 -- DEFINITIONS............................................ A-24
ARTICLE 15 -- MISCELLANEOUS.......................................... A-28
15.1 Expenses..................................................... A-29
15.2 Benefit...................................................... A-29
15.3 Governing Law................................................ A-29
15.4 Counterparts................................................. A-29
15.5 Headings..................................................... A-29
15.6 Severability................................................. A-29
15.7 Construction................................................. A-29
15.8 Return of Information........................................ A-29
15.9 Equitable Remedies........................................... A-29
15.10 Attorneys' Fees.............................................. A-29
15.11 No Waiver.................................................... A-29
15.12 Remedies Cumulative.......................................... A-30
15.13 Entire Contract.............................................. A-30
</TABLE>
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<PAGE> 125
AGREEMENT AND PLAN OF MERGER
THIS AGREEMENT AND PLAN OF MERGER is made and entered into as of this the
21st day of May 1998, by and between PRIME BANK OF CENTRAL FLORIDA ("Acquired
Bank"), a Florida state bank, COLONIAL BANK ("Colonial Bank"), an Alabama
banking corporation and THE COLONIAL BANCGROUP, INC. ("BancGroup"), a Delaware
corporation.
W I T N E S S E T H
WHEREAS, Acquired Bank operates as a Florida state bank with its principal
office in Titusville, Florida; and
WHEREAS, BancGroup is a bank holding company with a Subsidiary bank,
Colonial Bank, that conducts business 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 ABCA and, to the extent applicable, the FBC. 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 ABCA and the FBC,
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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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 or the FBC, as applicable (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 11:00 a.m. on a
date specified by BancGroup that shall be as soon as reasonably practicable
after the later to occur of the Shareholders 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. (a) 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 (subject to section 3.3 hereof),
into such number of shares of BancGroup Common Stock (the "Merger
Consideration") equal to $41.44 divided by the Market Value (the "Exchange
Ratio"). The "Market Value" shall represent the per share market value of the
BancGroup Common Stock at the Effective Date and shall be determined by
calculating the average of the closing prices of the Common Stock of BancGroup
as reported by the NYSE on each of the ten (10) consecutive trading days ending
on the trading day five trading days preceding the Effective Date. Regardless of
the Market Value, however, the maximum number of shares of BancGroup Common
Stock to be issued in the Merger shall be 586,560 (based upon a minimum Market
Value of $28.26) and the minimum number of shares of BancGroup Common Stock to
be issued in the Merger shall be 433,480 (based upon a maximum Market Value of
$38.24) assuming 400,000 shares of Acquired Bank Stock outstanding. To the
extent that the number of shares of Acquired Bank Stock may increase based upon
the exercise of Acquired Bank Options, the number of shares of BancGroup Common
Stock to be issued in the Merger shall be increased with each share of Acquired
Bank stock outstanding at the Effective Date exchanged for shares of BancGroup
Common Stock equal to $41.44 divided by the Market Value, provided that for this
purpose the Market Value shall be deemed to be no less than $28.26 and no
greater than $38.24.
(b)(i) On the Effective Date, BancGroup shall assume all Acquired Bank
Options outstanding, and each such option shall cease to represent a right to
acquire Acquired Bank common stock and shall, instead, represent the right to
acquire BancGroup Common Stock on substantially the same terms applicable to the
Acquired Bank Options except as specified below in this section. The number of
shares of BancGroup
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Common Stock to be issued pursuant to such options shall equal the number of
shares of Acquired Bank common stock subject to such Acquired Bank Options
multiplied by the Exchange Ratio, provided that no fractions of shares of
BancGroup Common Stock shall be issued and the number of shares of BancGroup
Common Stock to be issued upon the exercise of Acquired Bank Options, if a
fractional share exists, shall equal the number of whole shares obtained by
rounding to the nearest whole number, giving account to such fraction, or by
paying for such fraction in cash, based upon the Market Value. The exercise
price for the acquisition of BancGroup Common Stock shall be the exercise price
for each share of Acquired Bank common stock subject to such options divided by
the Exchange Ratio, adjusted appropriately for any rounding to whole shares that
may be done. It is intended that the assumption by BancGroup of the Acquired
Bank Options shall be undertaken in a manner that will not constitute a
"modification" as defined in Section 424 of the Code as to any stock option
which is an "incentive stock option." Schedule 3.1 hereto sets forth the names
of all persons holding Acquired Bank Options, the number of shares of Acquired
Bank common stock subject to such options, the exercise price and the expiration
date of such options.
(ii) BancGroup shall file at its expense a registration statement with the
SEC on Form S-8 or such other appropriate form (including the Form S-4 to be
filed in connection with the Merger) with respect to the shares of BancGroup
Common Stock to be issued pursuant to such options and shall use its reasonable
best efforts to maintain the effectiveness of such registration statement for so
long as such options remain outstanding. Such shares shall also be registered or
qualified for sale under the securities laws of any state in which registration
or qualification is necessary.
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, 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 Dissenting Rights. Any shareholder of Acquired Bank who shall not have
voted in favor of this Agreement and who has complied with the applicable
procedures set forth in the FBC, relating to rights of dissenting shareholders,
shall be entitled to receive payment for the fair value of his Acquired Bank
Stock. If
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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. However, in accordance with the FBC, such consideration shall be paid in
cash and not in BancGroup Common Stock.
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) 200,000,000 shares of Common Stock, $2.50 par value per share, of which
as of April 29, 1998, 48,189,312 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,
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, 1996, and December
31, 1997;
(ii) Consolidated statements of operations for each of the three years
ended December 31, 1995, 1996 and 1997;
(iii) Consolidated statements of cash flows for each of the three
years ended December 31, 1995, 1996 and 1997; and
(iv) Consolidated statements of changes in shareholders' equity for
the three years ended December 31, 1995, 1996 and 1997.
All such financial statements are in all material respects in accordance
with the books and records of BancGroup and have been prepared in accordance
with 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
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consolidated financial position present fairly the results of operations and
changes in financial position of BancGroup and its Subsidiaries for the periods
indicated.
(b) All Tax returns required to be filed by or on behalf of BancGroup have
been timely filed (or requests for extensions therefor have been timely filed
and granted and have not expired), and all returns filed are complete and
accurate in all material respects. All Taxes shown on these returns to be due
and all additional assessments received have been paid. The amounts recorded for
Taxes on the balance sheets provided under section 4.3(a) are, to the Knowledge
of BancGroup, sufficient in all material respects for the payment of all unpaid
federal, state, county, local, foreign or other Taxes (including any interest or
penalties) of BancGroup accrued for or applicable to the period ended on the
dates thereof, and all years and periods prior thereto and for which BancGroup
may at such dates have been liable in its own right or as transferee of the
Assets of, or as successor to, any other corporation or other party. No audit,
examination or investigation is presently being conducted or, to the Knowledge
of BancGroup, threatened by any taxing authority which is likely to result in a
material Tax Liability, no material unpaid Tax deficiencies or additional
liabilities of any sort have been proposed by any governmental representative
and no agreements for extension of time for the assessment of any material
amount of Tax have been entered into by or on behalf of BancGroup. BancGroup has
withheld from its employees (and timely paid to the appropriate governmental
entity) proper and accurate amounts for all periods in material compliance with
all Tax withholding provisions of applicable federal, state, foreign and local
Laws (including without limitation, income, social security and employment Tax
withholding for all types of compensation).
4.4 No Conflict with Other Instrument. The consummation of the
transactions contemplated by this Agreement will not result in a breach of or
constitute a Default (without regard to the giving of notice or the passage of
time) under any material Contract, indenture, mortgage, deed of trust or other
material agreement or instrument to which BancGroup or any of its Subsidiaries
is a party or by which they or their Assets may be bound; will not conflict with
any provision of the restated certificate of incorporation or bylaws of
BancGroup or the articles of incorporation or bylaws of any of its Subsidiaries;
and will not violate any provision of any Law, regulation, judgment or decree
binding on them or any of their Assets.
4.5 Absence of Material Adverse Change. Since the date of the most recent
balance sheet provided under section 4.3(a)(i) above, there have been no events,
changes or occurrences which have had or are reasonably likely to have,
individually or in the aggregate, a Material Adverse Effect on BancGroup.
4.6 Approval of Agreements. The board of directors of Colonial Bank will
approve this Agreement and the transactions contemplated by it prior to the
Effective Date. 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 stockholders of
BancGroup is not required by applicable Law. Subject to the matters referred to
in section 8.2, and subject to BancGroup's board approval of the shares to be
issued in the Merger, BancGroup has full power, authority and legal right to
enter into this Agreement and to consummate the transactions contemplated by
this Agreement. BancGroup has no Knowledge of any fact or circumstance under
which the appropriate regulatory approvals required by section 8.2 will not be
granted without the imposition of material conditions or material delays.
4.7 Tax Treatment. BancGroup has no present plan to sell or otherwise
dispose of any of the Assets of Acquired 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,
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
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<PAGE> 130
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; each of the banking
Subsidiaries of BancGroup has its deposits fully insured by the Federal Deposit
Insurance Corporation to the extent provided by the Federal Deposit Insurance
Act; and the businesses of the non-bank Subsidiaries of BancGroup are permitted
to subsidiaries of registered bank holding companies.
4.10 Contracts. Neither BancGroup nor any of its Subsidiaries is in
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 BancGroup, 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.
4.11 Litigation. Except as disclosed in or reserved for in BancGroup's
financial statements, there is no Litigation before or by any court or Agency,
domestic or foreign, now pending, or, to the Knowledge of BancGroup, threatened
against or affecting BancGroup or any of its Subsidiaries (nor is BancGroup
aware of any facts which could give rise to any such Litigation) which is
required to be disclosed in the Registration Statement (other than as disclosed
therein), or which may have any Material Adverse Effect or prospective Material
Adverse Effect, or which is likely to materially and adversely affect the
properties or Assets thereof or which is likely to materially affect or delay
the consummation of the transactions contemplated by this Agreement; all pending
legal or governmental proceedings to which BancGroup or any Subsidiary is a
party or of which any of their properties is the subject which are not described
in the Registration Statement, including ordinary routine litigation incidental
to the business, are, considered in the aggregate, not material; and neither
BancGroup nor any of its Subsidiaries have any contingent obligations which
could be considered material to BancGroup and its Subsidiaries considered as one
enterprise which are not disclosed in the Registration Statement as it may be
amended or supplemented. 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, 1997; (ii) 1997 Annual Report to
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<PAGE> 131
Shareholders; and (iii) all reports on Form 8-K, filed by BancGroup with the SEC
since December 31, 1997. Since December 31, 1997, 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. Except as listed in Section 5.18, 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.
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.
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 Florida 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 4,000,000 shares of common stock,
$1.00 par value per share, 400,000 shares of which are issued
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and outstanding. All of such shares which are outstanding are validly issued,
fully paid and nonassessable and not subject to preemptive rights. Acquired Bank
has 51,500 shares of its common stock subject to exercise at any time pursuant
to Acquired Bank Options. Except for the foregoing, 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. Schedule 5.2 contains complete and accurate copies
of the plan or plans under which the Acquired Bank Options were issued and forms
of the agreements used to issue Acquired Bank Options.
5.3 Subsidiaries. Acquired Bank has no direct 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, 1996 and
1997;
(ii) Statements of income for each of the three years ended December
31, 1995, 1996 and 1997;
(iii) Statements of shareholders' equity for each of the three years
ended December 31, 1995, 1996, and 1997; and
(iv) Statements of cash flows for the three years ended December 31,
1995, 1996 and 1997.
All of the foregoing financial statements are in all material respects in
accordance with the books and records of Acquired 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 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, shareholders' equity and cash flows
present fairly the results of operation, changes in shareholders equity and cash
flows of Acquired Bank for the periods indicated.
(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.
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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) except shares of common stock issued upon the exercise of
existing Acquired Bank Options and shares issued as director's qualifying
shares;
(b) borrowed or agreed to borrow any funds or incurred, or become
subject to, any Liability (absolute or contingent) except borrowings,
obligations (including purchase of federal funds) and Liabilities incurred
in the ordinary course of business and consistent with past practice;
(c) paid any material obligation or Liability (absolute or contingent)
other than current Liabilities reflected in or shown on the most recent
balance sheet referred to in section 5.4(a)(i) and current Liabilities
incurred since that date in the ordinary course of business and consistent
with past practice;
(d) declared or made, or agreed to declare or make, any payment of
dividends or distributions of any Assets of any kind whatsoever to
shareholders, or purchased or redeemed, or agreed to purchase or redeem,
directly or indirectly, or otherwise acquire, any of its outstanding
securities;
(e) except in the ordinary course of business, sold or transferred, or
agreed to sell or transfer, any of its Assets, or canceled, or agreed to
cancel, any debts or claims;
(f) except in the ordinary course of business, entered or agreed to
enter into any agreement or arrangement granting any preferential rights to
purchase any of its Assets, or requiring the consent of any party to the
transfer and assignment of any of its Assets;
(g) suffered any Losses or waived any rights of value which in either
event in the aggregate are material considering its business as a whole;
(h) except in the ordinary course of business, made or permitted any
amendment or termination of any Contract, agreement or license to which it
is a party if such amendment or termination is material considering its
business as a whole;
(i) except in accordance with normal and usual practice, made any
accrual or arrangement for or payment of bonuses or special compensation of
any kind or any severance or termination pay to any present or former
officer or employee;
(j) except in accordance with normal and usual practice, increased the
rate of compensation payable to or to become payable to any of its officers
or employees or made any material increase in any profit sharing, bonus,
deferred compensation, savings, insurance, pension, retirement or other
employee benefit plan, payment or arrangement made to, for or with any of
its officers or employees;
(k) received notice or had Knowledge or reason to believe that any of
its substantial customers has terminated or intends to terminate its
relationship, which termination would have a Material Adverse Effect on its
financial condition, results of operations, business, Assets or properties;
(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, reflected in
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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. Complete and accurate copies of all such leases have been made
available to BancGroup for inspection.
(c) Personal Property. Schedule 5.6(c) sets forth a depreciation schedule
of each Acquired Bank Company's fixed Assets as of April 30, 1998.
(d) (i) 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 computer hardware or software which renders such hardware or software
unable to satisfactorily perform the tasks and functions to be performed by them
in the business of any Acquired Bank Company. Complete and accurate copies of
all contracts, plans and other items so listed have been made available to
BancGroup for inspection.
(ii) Year 2000 Compliance. Except as described in Schedule 5.6 (d)(ii),
Acquired Bank's computer hardware and software (working independently or as a
system) are able to accurately process date data as intended without
interruption (including, but not limited to, calculating, comparing and
sequencing) from, into and between the twentieth and twenty-first centuries,
including leap year calculations, when used in the normal course of business.
Acquired Bank has formulated and begun execution of a plan that complies with
FFIEC Year 2000 compliance guidelines as promulgated by Acquired Bank's
principal regulatory agency. Acquired Bank has met all deadlines and is in full
compliance with this plan.
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. Except as set forth on Schedule 5.9, 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
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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 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
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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 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 for services provided by Allen C. Ewing & Co.,
Investment Bankers, 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.
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.
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.
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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 or owned 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 Transfer of Shares. Acquired Bank has no Knowledge of any plan or
intention on the part of Acquired Bank's shareholders to sell or otherwise
dispose of any of Acquired Bank common stock, or of the BancGroup Common Stock
to be received by them in the Merger, that could cause the Merger to fail to
qualify for the pooling of interests method of accounting under generally
accepted accounting principals.
5.25 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.
5.26 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.
5.27 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).
5.28 Non-Terminable Contracts or Severance Agreements. Except as provided
in Schedule 5.28, no Acquired Bank Company is a party to or has agreed to enter
into a vendor or employment contract that is not terminable without penalty
within 90 days or contains an extraordinary buyout. With the exception of
certain agreements otherwise referenced in this Agreement, no Acquired Bank
Company is a party to or has agreed to enter into any employment agreement,
non-competition agreement, salary continuation plan or severance agreement or
similar arrangement with any Acquired Bank Company employee.
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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. BancGroup shall prepare
and file with the SEC the Registration Statement on Form S-4 (or such other
form as may be appropriate) and all amendments and supplements thereto, in
form reasonably satisfactory to Acquired 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.
(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
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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 paragraph, for a period of six 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 Florida Law.
(ii) Any Indemnified Party wishing to claim indemnification under
this subsection (g), upon learning of any such liability or Litigation,
shall promptly notify BancGroup thereof. In the event of any such
Litigation (whether arising before or after the Effective Date) (i)
BancGroup or Colonial Bank shall have the right to assume the defense
thereof with counsel reasonably acceptable to such Indemnified Party
and, upon assumption of such defense, BancGroup shall not be liable to
such Indemnified Parties for any legal expenses of other counsel or any
other expenses subsequently incurred by such Indemnified Parties in
connection with the defense thereof, except that if BancGroup or
Colonial Bank elects not to assume such defense or counsel for the
Indemnified Parties advises that there are substantive issues which
raise conflicts of interest between BancGroup and the Indemnified
Parties, the Indemnified Parties may retain counsel satisfactory to
them, and BancGroup or Colonial Bank shall pay all reasonable fees and
expenses of such counsel for the Indemnified Parties promptly as
statements therefor are received; provided, that BancGroup shall be
obligated pursuant to this subsection to pay for 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 that BancGroup
and Colonial Bank shall not have any obligation hereunder to any
Indemnified Party when and if a court of competent jurisdiction shall
determine, and such determination shall have become final, that the
indemnification of such Indemnified Party in the manner contemplated
hereby is prohibited by applicable Law.
(iii) In consideration of and as a condition precedent to the
effectiveness of the indemnification obligations provided by BancGroup
in this section to a director or officer of the Acquired 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
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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.
(h) Retention Bonus. BancGroup acknowledges that the board of
directors of Acquired Bank will pay certain key employees retention
bonuses, which will not exceed in the aggregate $123,898.
(i) Employment Agreements. On the Effective Date, BancGroup shall
enter into (i) an employment agreement in the form of the employment
agreement attached hereto as Exhibit D with Joseph V. Marto, Jr., (ii)
an employment agreement in the form of the employment agreement attached
hereto as Exhibit E with P. Bryan Fulmer, and (iii) an employment
agreement in the form of the employment agreement attached hereto as
Exhibit F with James S. Tharpe.
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 five
percent (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 Acquired Bank common
stock or of BancGroup Common Stock to be received in the Merger from the
date of this Agreement 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.
(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 practicable after the
effective date of the Registration Statement, and will use its best efforts
to bring about the transactions contemplated by this Agreement, including
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
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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 the Acquired Bank 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 it
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.
(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 certain
of its directors, executive officers and affiliates substantially in the
form set forth in Exhibit A.
(f) Financial Statements and Monthly Status Reports. Acquired 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 shareholders 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 10 calendar days after the end of each month (or, if the
financial statements referred to in clause (d) are not then available,
as soon as possible thereafter) commencing with the next calendar month
following the date of this Agreement and ending at the Effective Date, a
written description of (a) the actions taken during the preceding month
with respect to its compliance or 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 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
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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. At the request of BancGroup, (i) Acquired Bank
shall consult with BancGroup and advise BancGroup of all of the Acquired
Bank's loan requests over $100,000 that are not single-family residential
loan requests or of any other loan request outside the normal course of
business, and (ii) 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 Regulations.
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 be taken, all actions and do, or cause to be done,
all things necessary, proper or advisable under applicable Laws or otherwise,
including, without limitation, promptly making required deliveries of
stockholder lists and stock transfer reports and attempting to obtain all
necessary Consents and waivers and regulatory approvals, including the holding
of any regular or special board meetings, to consummate and make effective, as
soon as practicable, the transactions contemplated by this Agreement. The
officers of each Party to this Agreement shall fully cooperate with officers and
employees, accountants, counsel and other representatives of the other Parties
not only in fulfilling the duties hereunder of the Party of which they are
officers but also in assisting, directly or through direction of employees and
other persons under their supervision or control, such as stock transfer agents
for the Party, the other Parties requiring information which is reasonably
available from such Party.
7.2 Press Release. Each Party hereto agrees that, unless approved by the
other Parties in advance, such Party will not make any public announcement,
issue any press release or other publicity or confirm any statements by any
person not a party to this Agreement concerning the transactions contemplated
hereby. Notwithstanding the foregoing, each Party hereto reserves the right to
make any disclosure if such Party, in its reasonable discretion, deems such
disclosure required by Law. In that event, such Party shall provide to the other
Party the text of such disclosure sufficiently in advance to enable the other
Party to have a reasonable opportunity to comment thereon.
7.3 Mutual Disclosure. Each Party hereto agrees to promptly furnish to
each other Party hereto its public disclosures and filings not precluded from
disclosure by Law including but not limited to call reports, Form 8-K, Form 10-Q
and Form 10-K filings, Y-3 applications, reports on Form Y-6, quarterly or
special reports to shareholders, Tax returns, Form S-8 registration statements
and similar documents.
7.4 Access to Properties and Records. Each Party hereto shall afford the
officers and authorized representatives of the other Party full access to the
Assets, books and records of such Party in order that such other Parties may
have full opportunity to make such investigation as they shall desire of the
affairs of such Party and shall furnish to such Parties such additional
financial and operating data and other information as to its businesses and
Assets as shall be from time to time reasonably requested. All such information
that may be obtained by any such Party will be held in confidence by such party,
will not be disclosed by such Party or any
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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. 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.
8.3 Litigation. There shall be no pending or threatened Litigation in any
court or any pending or threatened proceeding by any governmental commission,
board or Agency, with a view to seeking or in which it is sought to restrain or
prohibit consummation of the transactions contemplated by this Agreement or in
which it is sought to obtain divestiture, rescission or damages in connection
with the transactions contemplated by this Agreement and no investigation by any
Agency shall be pending or threatened which might result in any such suit,
action or other proceeding.
8.4 Registration Statement. The Registration Statement shall be effective
under the 1933 Act and no stop order suspending the effectiveness of the
Registration Statement shall be in effect; no proceedings for such purpose, or
under the proxy rules of the SEC or any bank regulatory authority pursuant to
the 1934 Act, with respect to the transactions contemplated hereby, shall be
pending before or threatened by the SEC or any bank regulatory authority; and
all approvals or authorizations for the offer of BancGroup Common Stock shall
have been received or obtained pursuant to any applicable state securities Laws,
and no stop order or proceeding with respect to the transactions contemplated
hereby shall be pending or threatened under any such state Law.
8.5 Tax Opinion. An opinion of Coopers & Lybrand L.L.P., shall have been
received in form and substance reasonably satisfactory to the Acquired 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
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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.
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
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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, substantially in the form set forth in Exhibit B hereto.
9.5 NYSE Listing. The shares of BancGroup Common Stock to be issued under
this Agreement shall have been approved for listing on the NYSE.
9.6 Other Matters. There shall have been furnished to such counsel for
Acquired 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.
9.8 Fairness Opinion. Acquired Bank shall have received prior to the
mailing of the Proxy Statement from Allen C. Ewing & Co. a letter setting forth
its opinion that the Merger Consideration to be received by the shareholders of
Acquired Bank under the terms of this Agreement is fair to them from a financial
point of view, and such opinion shall not have been withdrawn as of the
Effective Date.
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 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;
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(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 and the
Bank referenced in section 5.8 hereof remain in full force and effect and
have not been amended or modified since the date hereof;
(e) to such persons' knowledge, the Proxy Statement delivered to
Acquired 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
Smith, Mackinnon, Greeley, Bowdoin & Edwards, P.A., counsel to Acquired Bank,
dated as of the Closing, substantially as set forth in Exhibit C hereto.
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 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.
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 percent 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 Agreements. An Employment Agreement, in the form of the
employment agreement attached hereto as Exhibit D, shall have been executed by
Joseph V. Marto, Jr. Employment Agreements, in the form of the employment
agreements attached hereto as Exhibits E and F, shall have been executed by P.
Bryan Fulmer and James S. Tharpe, respectively.
10.11 Non-Competition Agreements. The directors of Acquired Bank shall
have executed an agreement with BancGroup containing, among other things, a two
year non-competition agreement. A form of this agreement is attached hereto as
Exhibit A.
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ARTICLE 11
TERMINATION OF REPRESENTATIONS AND WARRANTIES
All representations and warranties provided in Articles 4 and 5 of this
Agreement or in any closing certificate pursuant to Articles 9 and 10 shall
terminate and be extinguished at and shall not survive the Effective Date. All
covenants, agreements and undertakings required by this Agreement to be
performed by any Party hereto following the Effective Date shall survive such
Effective Date and be binding upon such Party. If the Merger is not consummated,
all representations, warranties, obligations, covenants, or agreements hereunder
or in any certificate delivered hereunder relating to the transaction which is
not consummated shall be deemed to be terminated or extinguished, except that
the last sentence of 7.4, and Sections 7.2, 13.3, 13.4, Article 11, Article 15,
and 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, requests, demands and other communications under this
Agreement shall be in writing and shall be deemed to have been duly given at the
time given or mailed, first class postage prepaid:
(a) If to Acquired Bank to Joseph V. Marto, Jr., at Prime Bank of
Central Florida, 1801 West Hibiscus Boulevard, Melbourne, Florida 32901,
facsimile (407) 984-1229, with copies to John P. Greeley, Esq., Smith,
Mackinnon, Greeley, Bowdoin & Edwards, P.A., Suite 800 Citrus Center, 255
South Orange Avenue, Orlando, Florida 32801, facsimile 407-843-2448, or as
may otherwise be specified by Acquired Bank in writing to BancGroup.
(b) If to BancGroup, to W. Flake Oakley, IV, One Commerce Street,
Suite 803, Montgomery, Alabama, 36104, facsimile (334) 240-5069, with
copies to William A. McCrary, Esquire, One Commerce Street, Suite 303,
Montgomery, Alabama 36104, facsimile (334) 240-5069, and Willard H. Henson,
Esquire, Miller, Hamilton, Snider & Odom, L.L.C., One Commerce Street,
Suite 305, Montgomery, Alabama 36104, facsimile (334) 265-4533, or as may
otherwise be specified in writing by BancGroup to Acquired 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
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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 December 31, 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
(e) upon payment to BancGroup of the fee as provided in Section 13.4
hereof.
13.3 Damages. In the event of termination pursuant to section 13.2,
Acquired Bank and BancGroup shall not be liable for damages for any breach of
warranty or representation contained in this Agreement made in good faith, and,
in that case, the expenses incurred shall be borne as set forth in section 15.1
hereof.
13.4 Acquisition Proposal; Termination and Fee. During the term of this
Agreement, if (i) an Acquisition Proposal (other than the Merger contemplated by
this Agreement) is submitted to and approved by the shareholders of Acquired
Bank at any time prior to the Effective Date; or (ii) an Acquisition Proposal
(other than the Merger contemplated by this Agreement) is received by Acquired
Bank or is made directly to the shareholders of Acquired Bank at any time prior
to the termination of this Agreement under Section 13.2(b), (c), or (d) (except
for a termination by Acquired Bank for a breach of this Agreement by BancGroup)
and, in the case of (i) or (ii), such Acquisition Proposal is closed, then
Acquired Bank shall pay to BancGroup a termination fee in an amount equal to
$750,000 in cash, as liquidated damages, and not as a penalty, and, upon the
payment in full thereof, this Agreement shall be terminated and no Party shall
have any further liability under this Agreement (except as set forth in Section
13.3). The obligations of the Parties under this Section 13.4 shall survive the
termination of 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:
ABCA The Alabama Business Corporation Act.
Acquired Bank Prime Bank of Central Florida, a Florida 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 Options Options respecting the issuance of a maximum of
51,500 shares of Acquired Bank common stock
pursuant to Acquired Bank's stock option plans.
Acquired Bank Stock Shares of common stock, par value $1.00 per share,
of Acquired Bank.
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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 closing of the transactions contemplated hereby
as described in section 2.7 of this Agreement.
Code The Internal Revenue Code of 1986, as amended.
Colonial Bank An Alabama state banking corporation, which is a
wholly owned subsidiary of BancGroup.
Common Stock BancGroup's Common Stock authorized and defined in
the restated certificate of incorporation of
BancGroup, as amended.
Consent Any consent, approval, authorization, clearance,
exemption, waiver, or similar affirmation by any
Person pursuant to any Contract, Law, Order, or
Permit.
Contract Any written or oral agreement, arrangement,
authorization, commitment, contract, indenture,
instrument, lease, obligation, plan, practice,
restriction, understanding or undertaking of any
kind or character, or other document to which any
Person is a party or that is binding on any Person
or its capital stock, Assets or business.
Default Shall mean (i) any breach or violation of or
default under any Contract, Order or Permit, (ii)
any occurrence of any event that with the passage
of time or the giving of notice or both would
constitute a breach or violation of or default
under any Contract, Order or Permit, or (iii) any
occurrence of any event that with or without the
passage of time or the giving of notice would give
rise to a right to terminate or revoke, change the
current terms of, or renegotiate, or to accelerate,
increase, or impose any Liability under, any
Contract, Order or Permit.
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<PAGE> 150
Effective Date Means the date and time at which the Merger becomes
effective as defined in section 2.7 hereof.
Environmental Laws Means the laws, regulations and governmental
requirements referred to in section 5.23 hereof.
ERISA The Employee Retirement Income Security Act of
1974, as amended.
Exchange Ratio The ratio obtained by dividing $41.44 by the Market
Value.
Exhibits A through F, 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.
FBC The Florida Banking Code.
FFIEC The Federal Financial Institutions Examination
Council
Knowledge Means the actual knowledge (or the knowledge which
should have been obtained) after due investigation
and inquiry of the Chairman, President, Chief
Financial Officer, or any Senior or Executive Vice
President of BancGroup, in the case of knowledge of
BancGroup. In the case of Acquired Bank it means
the actual knowledge (or the knowledge which should
have been obtained) after due investigation and
inquiry by the Chairman, President, Chief Financial
Officer, or any other Executive Officer 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, and (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.
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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.
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 trading days preceding the Effective Date.
Regardless of such average, the Market Value shall
be deemed to be no less than $28.26 and no greater
than $38.24.
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 impact" shall not
be deemed to include the impact of (x) changes in
banking and similar laws of general applicability
or interpretations thereof by courts or
governmental authorities, (y) changes in generally
accepted accounting principles or regulatory
accounting principles generally applicable to banks
and their holding companies, and (z) the Merger 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.
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.
NYSE The New York Stock Exchange.
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<PAGE> 152
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 shareholders 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 shareholders of Acquired 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.
Subsidiaries Shall mean all those corporations, banks,
associations, or other entities of which the entity
in question owns or controls 5% or more of the
outstanding equity securities either directly or
through an unbroken chain of entities as to each of
which 5% or more of the outstanding equity
securities is owned directly or indirectly by its
parent; provided, however, there shall not be
included any such entity acquired through
foreclosure or any such entity the equity
securities of which are owned or controlled in a
fiduciary capacity.
Tax or Taxes Means any federal, state, county, local, foreign,
and other taxes, assessments, charges, fares, and
impositions, including interest and penalties
thereon or with respect thereto.
1933 Act The Securities Act of 1933, as amended.
1934 Act The Securities Exchange Act of 1934, as amended.
ARTICLE 15
MISCELLANEOUS
15.1 Expenses. Each Party hereto shall bear its own legal, auditing,
trustee, investment banking, regulatory and other expenses in connection with
this Agreement and the transactions contemplated hereby.
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<PAGE> 153
15.2 Benefit. This Agreement shall inure to the benefit of and be binding
upon Acquired Bank, Colonial Bank and BancGroup, and their respective
successors. This Agreement shall not be assignable by any Party without the
prior written consent of the other Party.
15.3 Governing Law. This Agreement shall be governed by, and construed in
accordance with the Laws of the State of Alabama.
15.4 Counterparts. This Agreement may be executed in counterparts, each of
which shall be deemed to constitute an original. Each such counterpart shall
become effective when one counterpart has been signed by each Party thereto.
15.5 Headings. The headings of the various articles and sections of this
Agreement are for convenience of reference only and shall not be deemed a part
of this Agreement or considered in construing the provisions thereof.
15.6 Severability. Any term or provision of this Agreement that is
prohibited or unenforceable in any jurisdiction shall, as to such jurisdiction,
be ineffective to the extent of such prohibition or unenforceability without
invalidating the remaining terms and provisions thereof or affecting the
validity or enforceability of such provision in any other jurisdiction, and if
any term or provision of this Agreement is held by any court of competent
jurisdiction to be void, voidable, invalid or unenforceable in any given
circumstance or situation, then all other terms and provisions, being severable,
shall remain in full force and effect in such circumstance or situation and the
term or provision shall remain valid and in effect in any other circumstances or
situation.
15.7 Construction. Use of the masculine pronoun herein shall be deemed to
refer to the feminine and neuter genders and the use of singular references
shall be deemed to include the plural and vice versa, as appropriate. No
inference in favor of or against any Party shall be drawn from the fact that
such Party or such Party's counsel has drafted any portion of this Agreement.
15.8 Return of Information. In the event of termination of this Agreement
prior to the Effective Date, each Party shall return to the other, without
retaining copies thereof, all confidential or non-public documents, work papers
and other materials obtained from the other Party in connection with the
transactions contemplated in this Agreement and shall keep such information
confidential, not disclose such information to any other person or entity, and
not use such information in connection with its business.
15.9 Equitable Remedies. The parties hereto agree that, in the event of a
breach of this Agreement by either Party, the other Party may be without an
adequate remedy at law owing to the unique nature of the contemplated
transactions. In recognition thereof, in addition to (and not in lieu of) any
remedies at law that may be available to the non-breaching Party, the
non-breaching Party shall be entitled to obtain equitable relief, including the
remedies of specific performance and injunction, in the event of a breach of
this Agreement by the other Party, and no attempt on the part of the
non-breaching Party to obtain such equitable relief shall be deemed to
constitute an election of remedies by the non-breaching Party that would
preclude the non-breaching Party from obtaining any remedies at law to which it
would otherwise be entitled.
15.10 Attorneys' Fees. If any Party hereto shall bring an action at law or
in equity to enforce its rights under this Agreement (including an action based
upon a misrepresentation or the breach of any warranty, covenant, agreement or
obligation contained herein), the prevailing Party in such action shall be
entitled to recover from the other Party its costs and expenses incurred in
connection with such action (including fees, disbursements and expenses of
attorneys and costs of investigation).
15.11 No Waiver. No failure, delay or omission of or by any Party in
exercising any right, power or remedy upon any breach or Default of any other
Party shall impair any such rights, powers or remedies of the Party not in
breach or Default, nor shall it be construed to be a wavier of any such right,
power or remedy, or an acquiescence in any similar breach or Default; nor shall
any waiver of any single breach or Default be deemed a waiver of any other
breach or default theretofore or thereafter occurring. Any waiver, permit,
consent or approval of any kind or character on the part of any Party of any
provisions of this Agreement must be in writing and be executed by the Parties
to this Agreement and shall be effective only to the extent specifically set
forth in such writing.
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<PAGE> 154
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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<PAGE> 155
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>
ATTEST: PRIME BANK OF CENTRAL FLORIDA
BY: /s/ P. B. FULMAR BY: /s/ JOSEPH V. MARTO, JR.
- ------------------------------------------------ ------------------------------------------------
ITS: Treasurer ITS: Chairman, President and 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)
ATTEST: COLONIAL BANK
BY: /s/ GLENDA ALLRED BY: /s/ W. FLAKE OAKLEY
- ------------------------------------------------ ------------------------------------------------
ITS: Assistant Secretary ITS: Chief Financial Officer
- ----------------------------------------------- -----------------------------------------------
(CORPORATE SEAL)
</TABLE>
<PAGE> 156
APPENDIX B
June 8, 1998
The Board of Directors
Prime Bank of Central Florida
1801 West Hibiscus Boulevard
Melbourne, Florida 32901
Members of the Board:
Prime Bank of Central Florida ("Prime"), Colonial Bank ("Colonial Bank"),
and The Colonial BancGroup, Inc. ("BancGroup"), have entered into a definitive
Agreement and Plan of Merger dated as of May 21, 1998 (the "Agreement")
providing for Prime to be acquired by BancGroup pursuant to the merger of Prime
with and into Colonial Bank (the "Merger"). Colonial Bank is a subsidiary of
BancGroup. The Agreement provides, among other things, that each share of
outstanding common stock, par value $1.00 per share, of Prime ("Prime Common
Stock"), including any shares issued upon the exercise of Prime stock options
prior to the Effective Date of the Merger (as defined in the Agreement), will be
converted in the Merger into such number of shares of common stock, par value
$2.50 per share, of BancGroup ("BancGroup Common Stock") equal to $41.44 divided
by the Market Value (as defined in the Agreement) of BancGroup Common Stock.
The Agreement also provides that, regardless of the Market Value of
BancGroup Common Stock, the maximum number of shares of BancGroup Common Stock
to be issued in the Merger shall be 586,560 (based upon a minimum Market Value
of $28.26) and the minimum number of shares of BancGroup Common Stock to be
issued in the Merger shall be 433,480 (based upon a maximum Market Value of
$38.24). Reference should be made to the Agreement for a more complete
description of the terms and conditions of the Merger.
You have requested our opinion as investment bankers as to the fairness,
from a financial point of view, to the shareholders of Prime, of the
consideration to be received by them in the Merger.
Allen C. Ewing & Co. is a registered broker-dealer under the Securities
Exchange Act of 1934 and a member of the National Association of Securities
Dealers, Inc. As part of its investment banking business, Allen C. Ewing & Co.
is regularly engaged in the valuation of securities of banking and thrift
companies in connection with mergers and acquisitions, underwritings, private
placements, trading and market making activities, and valuations for various
other purposes.
Allen C. Ewing & Co. was engaged on November 14, 1997 as the financial
advisor to Prime in connection with the Merger and will receive compensation
from Prime upon consummation of the Merger. In the ordinary course of its
business as a broker-dealer, Allen C. Ewing & Co. may, from time to time,
purchase securities from, and sell securities to, banking and thrift companies
and as a market maker in securities may from time to time have a long or short
position in, and buy or sell, debt or equity securities of banking and thrift
companies for its own account and for the accounts of its customers. Allen C.
Ewing & Co. has no such position in the securities of Prime, Colonial Bank, or
BancGroup as of the date of this opinion.
In arriving at the opinion expressed in this letter, we have reviewed,
analyzed, and relied upon information and material bearing upon the Merger and
the financial and operating condition of Prime and BancGroup, including, among
other things, the following: (i) the Agreement; (ii) audited financial
statements for Prime for the four years ended December 31, 1997; (iii) certain
unaudited interim financial information for Prime for various periods during the
year 1998; (iv) Annual Reports to Shareholders and Annual Reports on Form 10-K
for BancGroup for the three years ended December 31, 1997; (v) Quarterly Report
on Form 10-Q filed by BancGroup for the first quarter of 1998; (vi) other
financial information concerning the business and operations of Prime furnished
to us by Prime for purposes of our analysis, including certain internal
forecasts for Prime prepared by its senior management; (vii) information
concerning the limited market for the shares of Prime Common Stock; and (viii)
certain publicly available information concerning the trading of, and the
trading market for, BancGroup Common Stock. We have also held discussions with
the
<PAGE> 157
The Board of Directors
Prime Bank of Central Florida
Page 2
June 8, 1998
management of Prime and BancGroup concerning their respective operations,
financial condition, and prospects, as well as the results of regulatory
examinations.
We have also considered such further financial, economic, regulatory, and
other factors as we have deemed relevant and appropriate under the
circumstances, including among others the following: (i) discussions with
certain other banking companies regarding possible interest in an acquisition of
Prime; (ii) certain publicly available information concerning the financial
terms of certain mergers and acquisitions of other financial institutions in
Florida and the financial position and operating performance of the institutions
acquired in those transactions; and (iii) certain publicly available information
concerning the trading of, and the trading market for, the publicly-traded
common stocks of certain other financial institutions. 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 and thrift industry generally.
In conducting our review and arriving at our opinion, we have relied upon
and assumed the accuracy and completeness of all of the financial and other
information provided to us or publicly available, including that referred to
above, and we have not attempted independently to verify such information. We
have relied upon the management of Prime as to the reasonableness and
achievability of the financial and operational forecasts and projections (and
the assumptions and basis therefor) provided to us, and we have assumed that
such forecasts and projections reflect the best currently available estimates
and judgments of management and that such forecasts and projections will be
realized in the amounts and in the time periods currently estimated by
management. We have also assumed, without independent verification, that the
allowances for loan and other losses of Prime, Colonial Bank, and BancGroup are
adequate to cover any such losses. We have not made or obtained any inspections,
evaluations, or appraisals of any of the assets or liabilities of Prime,
Colonial Bank, or BancGroup, nor have we examined any individual loan, property,
or securities files.
Based upon and subject to the foregoing, we are of the opinion that the
consideration to be received by the shareholders of Prime in the Merger, as
described in the Agreement, is fair, from a financial point of view, to them.
This opinion is necessarily based upon conditions as they exist and can be
evaluated on the date of this letter and the information made available to us
through such date.
Very truly yours,
ALLEN C. EWING & CO.
By: /s/ BRIAN C. BEACH
------------------------------------
Brian C. Beach
Senior Vice President
<PAGE> 158
APPENDIX C
658.44 APPROVAL BY STOCKHOLDERS; RIGHTS OF DISSENTERS; PREEMPTIVE RIGHTS
(1) The department shall not issue a certificate of merger to a resulting
bank or trust company unless the plan of merger and merger agreement, as adopted
by a majority of the entire board of directors of each constituent bank or trust
company, and as approved by each appropriate federal regulatory agency and by
the department, has been approved;
(a) By the stockholders of each constituent national bank as provided
by, and in accordance with the procedures required by, the laws of the
United States applicable thereto, and
(b) After notice as hereinafter provided, by the affirmative vote or
written consent of the holders of at least a majority of the shares
entitled to vote thereon of each constituent state bank or state trust
company, unless any class of shares of any constituent state bank or state
trust company is entitled to vote thereon as a class, in which event as to
such constituent state bank or state trust company the plan of merger and
merger agreement shall be approved by the stockholders upon receiving the
affirmative vote or written consent of the holders of a majority of the
shares of each class of shares entitled to vote thereon as a class and of
the total shares entitled to vote thereon. Such vote of stockholders of a
constituent state bank or state trust company shall be at an annual or
special meeting of stockholders or by written consent of the stockholders
without a meeting as provided in s. 607.0704.
Approval by the stockholders of a constituent bank or trust company of a
plan of merger and merger agreement shall constitute the adoption by the
stockholders of the articles of incorporation of the resulting state bank or
trust company as set forth in the plan of merger and merger agreement.
(2) Written notice of the meeting of, or proposed written consent action
by, the stockholders of each constituent state bank or state trust company shall
be given to each stockholder of record, whether or not entitled to vote, and
whether the meeting is an annual or a special meeting or whether the vote is to
be by written consent pursuant to s. 607.0704, and the notice shall state that
the purpose or one of the purposes of the meeting, or of the proposed action by
the stockholders without a meeting, is to consider the proposed plan of merger
and merger agreement. Except to the extent provided otherwise with respect to
stockholders of a resulting bank or trust company pursuant to subsection (7),
the notice shall also state that dissenting stockholders will be entitled to
payment in cash of the value of only those shares held by the stockholders:
(a) Which at a meeting of the stockholders are voted against the
approval of the plan of merger and merger agreement;
(b) As to which, if the proposed action is to be by written consent of
stockholders pursuant to s. 607.0704, such written consent is not given by
the holder thereof; or
(c) With respect to which the holder thereof has given written notice
to the constituent state bank or trust company, at or prior to the meeting
of the stockholders or on or prior to the date specified for action by the
stockholders without a meeting pursuant to s. 607.0704 in the notice of
such proposed action, that the stockholder dissents from the plan of merger
and merger agreement.
Hereinafter in this section, the term "dissenting shares" means and
includes only those shares, which may be all or less than all the shares of any
class owned by a stockholder, described in paragraphs (a), (b), and (c).
(3) On or promptly after the effective date of the merger, the resulting
state bank or trust company, or a bank holding company which, as set out in the
plan of merger or merger agreement, is offering shares rights, obligations, or
other securities or property in exchange for shares of the constituent banks or
trust companies, may fix an amount which it considers to be not more than the
fair market value of the shares of a constituent bank or trust company and which
it will pay to the holders of dissenting shares of that constituent bank or
trust company and, if it fixes such amount, shall offer to pay such amount to
the holders of all dissenting shares of that constituent bank or trust company.
The amount payable pursuant to any such offer which is accepted by
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the holders of dissenting shares, and the amount payable to the holders of
dissenting shares pursuant to an appraisal, shall constitute a debt of the
resulting state bank or state trust company.
(4) The owners of dissenting shares who have accepted an offer made
pursuant to subsection (3) shall be entitled to receive the amount so offered
for such shares in cash upon surrendering the stock certificates representing
such shares at any time within 30 days after the effective date of the merger,
and the owners of dissenting shares, the value of which is to be determined by
appraisal, shall be entitled to receive the value of such shares in cash upon
surrender of the stock certificates representing such shares at any time within
30 days after the value of such shares has been determined by appraisal made on
or after the effective date of the merger.
(5) The value of dissenting shares of each constituent state bank or state
trust company, the owners of which have not accepted an offer for such shares
made pursuant to subsection (3), shall be determined as of the effective date of
the merger by three appraisers, one to be selected by the owners of at least
two-thirds of such dissenting shares, one to be selected by the board of
directors of the resulting state bank, and the third to be selected by the two
so chosen. The value agreed upon by any two of the appraisers shall control and
be final and binding on all parties. If, within 90 days from the effective date
of the merger, for any reason one or more of the appraisers is not selected as
herein provided, or the appraisers fail to determine the value of such
dissenting shares, the department shall cause an appraisal of such dissenting
shares to be made which will be final and binding on all parties. The expenses
of appraisal shall be paid by the resulting state bank or trust company.
(6) Upon the effective date of the merger, all the shares of stock of every
class of each constituent bank or trust company, whether or not surrendered by
the holders thereof, shall be void and deemed to be canceled, and no voting or
other rights of any kind shall pertain thereto of to the holders thereof except
only such rights as may be expressly provided in the plan of merger and merger
agreement or expressly provided by law.
(7) The provisions of subsection (6) and, unless agreed by all the
constituent banks and trust companies and expressly provided in the plan of
merger and merger agreement, subsections (3), (4), and (5) are not applicable to
a resulting bank or trust company or to the shares or holders of shares of a
resulting bank or trust company the cash, shares, rights, obligations, or other
securities or property of which, in whole or in part, is provided in the plan of
merger or merger agreement to be exchanged for the shares of the other
constituent banks or trust companies.
(8) The stock, rights, obligations, and other securities of a resulting
bank or trust company may be issued as provided by the terms of the plan of
merger and merger agreement, free from any preemptive rights of the holders of
any of the shares of stock or of any of the rights, obligations, or other
securities of such resulting bank or trust company or of any of the constituent
banks or trust companies.
(9) After approval of the plan of merger and merger agreement by the
stockholders as provided in subsection (1), there shall be filed with the
department, within 30 days after the time limit in s. 658.43(5), a fully
executed counterpart of the plan of merger and merger agreement as so approved
if it differs in any respect from any fully executed counterpart thereof
theretofore filed with the department, and copies of the resolutions approving
the same by the stockholders of each constituent bank or trust company,
certified by the president, or chief executive officer if other than the
president, and the cashier or corporate secretary of each constituent bank or
trust company, respectively, with the corporate seal impressed thereon.
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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 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,
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<PAGE> 161
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.
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
<TABLE>
<C> <C> <S>
Exhibit 2 -- Plan of acquisition, reorganization, arrangement,
liquidation of successor:
2.1 -- Agreement and Plan of Merger by and among The Colonial
BancGroup, Inc., Colonial Bank and Prime Bank of Central
Florida, dated as of May 21, 1998, included in the
Prospectus portion of this Registration Statement at
Appendix A and incorporated herein by reference.
2.2 -- Prime Bank of Central Florida Stock Option Plan.
</TABLE>
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<PAGE> 162
<TABLE>
<C> <C> <S>
Exhibit 4 -- Instruments defining the rights of security holders:
4.1 -- Article 4 of the Restated Certificate of Incorporation of
the Registrant filed as Exhibit 4.1 to the Registrant's
Current Report on Form 8-K, dated February 21, 1995, and
incorporated herein by reference.
4.2 -- Amendment to Article 4 of Registrant's Restated Certificate
of Incorporation, dated May 15, 1998, filed as Exhibit 4.2
to the Registrant's Registration Statement on Form S-4 (File
No. 333-56241) effective June 22, 1998, 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 PricewaterhouseCoopers LLP
Exhibit 23 -- Consents of experts and counsel:
23.1 -- Consents of PricewaterhouseCoopers LLP
23.2 -- Consent of Hacker, Johnson, Cohen & Grieb, P.A.
23.3 -- Consent of Miller, Hamilton, Snider & Odom, L.L.C.
23.4 -- Consent of Allen C. Ewing & Co.
Exhibit 24 -- Power of Attorney
Exhibit 99 -- Additional exhibits:
99.1 -- Form of Proxy of Prime Bank of Central Florida
</TABLE>
(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
II-3
<PAGE> 163
Statement and will not be used until such amendment is effective, and that,
for purposes of determining any liability under the Securities Act of 1933,
each such post-effective amendment shall be deemed to be a new Registration
Statement relating to such securities offered therein, and the offering of
such securities at that time shall be deemed to be the initial bona fide
offering thereof.
(3) Insofar as indemnification for liabilities arising under the Act
may be permitted to directors, officers, and controlling persons of the
Registrant, the Registrant has been advised that in the opinion of the
Securities and Exchange Commission such indemnification is against public
policy as expressed in the Act and is, therefore, unenforceable. In the
event that a claim for indemnification against such liabilities (other than
the payment by the Registrant of expenses incurred or paid by a director,
officer or controlling person of the Registrant in the successful defense
of any action, suit or proceeding) is asserted by such director, officer or
controlling person in connection with the securities being registered, the
Registrant will, unless in the opinion of its counsel the matter has been
settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against
public policy as expressed in the Act and will be governed by the final
adjudication of such issue.
(b) The undersigned Registrant hereby undertakes to respond to requests for
information that is incorporated by reference into the prospectus pursuant to
Items 4, 10(b), 11, or 13 of Form S-4, within one business day of receipt of
such request, and to send the incorporated documents by first class mail or
other equally prompt means. This includes information contained in documents
filed subsequent to the effective date of the Registration Statement through the
date of responding to the request.
(c) The undersigned Registrant hereby undertakes to supply by means of a
post-effective amendment all information concerning a transaction, and the
company being acquired involved therein, that was not the subject of and
included in the Registration Statement when it became effective.
(d) The undersigned Registrant hereby undertakes:
(1) To file, during any period in which offers or sales are being
made, a post-effective amendment to this Registration Statement:
(i) To include any prospectus required by section 10(a)(3) of the
Securities Act of 1933;
(ii) To reflect in the prospectus any facts or events arising after
the effective date of the Registration Statement (or the most recent
post-effective amendment thereof) which, individually or in the
aggregate, represent a fundamental change in the information set forth
in the Registration Statement;
(iii) To include any material information with respect to the plan
of distribution not previously disclosed in the Registration Statement
or any material change to such information in the Registration
Statement;
(2) That, for the purpose of determining any liability under the
Securities Act of 1933, each such post-effective amendment shall be deemed
to be a new registration relating to the securities offered therein, and
the offering of such securities at that time shall be deemed to be the
initial bona fide offering thereof.
(3) To remove from registration by means of a post-effective amendment
any of the securities being registered which remain unsold at the
termination of the offering.
(e) The undersigned Registrant hereby undertakes that, for purposes of
determining any liability under the Securities Act of 1933, each filing of the
Registrant's annual report pursuant to section 13(a) or section 15(d) of the
Securities Exchange Act of 1934 (and, where applicable, each filing of an
employee benefit plan's annual report pursuant to section 15(d) of the
Securities Exchange Act of 1934) that is incorporated by reference in the
Registration Statement shall be deemed to be a new Registration Statement
relating to the securities offered therein, and the offering of such securities
at that time shall be deemed to be the initial bona fide offering thereof.
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<PAGE> 164
SIGNATURES AND POWER OF ATTORNEY
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 July, 1998.
THE COLONIAL BANCGROUP, INC.
By: /s/ Robert E. Lowder
------------------------------------
Robert E. Lowder
Its Chairman of the Board of
Directors
and Chief Executive Officer
Pursuant to the requirements of the Securities Act of 1933, this
registration statement has been signed below by the following persons in the
capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<C> <S> <C>
/s/ Robert E. Lowder Chairman of the Board of **
- ----------------------------------------------------- Directors and Chief Executive
Robert E. Lowder Officer
/s/ W. Flake Oakley Chief Financial Officer, **
- ----------------------------------------------------- Secretary and Treasurer
W. Flake Oakley, IV (Principal Financial Officer
and Principal Accounting
Officer)
* Director **
- -----------------------------------------------------
Lewis Beville
* Director **
- -----------------------------------------------------
Young J. Boozer
* 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
</TABLE>
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<PAGE> 165
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<C> <S> <C>
* Director **
- -----------------------------------------------------
D. B. Jones
* Director **
- -----------------------------------------------------
Harold D. King
* 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
* Director **
- -----------------------------------------------------
Simuel Sippial
* Director **
- -----------------------------------------------------
Ed V. Welch
</TABLE>
- ---------------
* The undersigned, acting pursuant to a power of attorney, has signed this
Registration Statement on Form S-4 for and on behalf of the persons indicated
above as such persons' true and lawful attorney-in-fact and in their names,
places and stead, in the capacities indicated above and on the date indicated
below.
** Dated: July 17, 1998
/s/ W. Flake Oakley
--------------------------------------
W. Flake Oakley, IV
Attorney-in-Fact
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<PAGE> 166
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)
<PAGE> 167
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT PAGE
- ------- ----
<S> <C> <C>
Exhibit 2 Plan of acquisition, reorganization, arrangement,
liquidation of successor:
2.1 Agreement and Plan of Merger by and among The Colonial
BancGroup, Inc., Colonial Bank and Prime Bank of Central
Florida, dated as of May 21, 1998, included in the Prospectus
portion of this Registration Statement at Appendix A and
incorporated herein by reference.
2.2 Prime Bank of Central Florida Stock Option Plan.
Exhibit 4 Instruments defining the rights of security holders:
4.1 Article 4 of the Restated Certificate of Incorporation of the
Registrant filed as Exhibit 4.1 to the Registrant's Current
Report on Form 8-K, dated February 21, 1995, including the
amendment to Article 4 noted at Exhibit 4(B) above, and
incorporated herein by reference.
4.2 Amendment to Article 4 of Registrant's Restated Certificate of
Incorporation, dated May 15, 1998, filed as Exhibit 4.2 to the
Registrant's Registration Statement on Form S-4 (File No. 333-
56241) effective June 22, 1998, 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.
</TABLE>
i
<PAGE> 168
<TABLE>
<S> <C> <C>
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 PricewaterhouseCoopers LLP
Exhibit 23 Consents of experts and counsel:
23.1 Consents of PricewaterhouseCoopers LLP
23.2 Consent of Hacker, Johnson, Cohen & Grieb, P.A.
23.3 Consent of Miller, Hamilton, Snider & Odom, L.L.C.
23.4 Consent of Allen C. Ewing & Co.
Exhibit 24 Power of Attorney
Exhibit 99 Additional exhibits:
99.1 Form of Proxy of Prime Bank of Central Florida
</TABLE>
ii
<PAGE> 1
EXHIBIT 2.2
PRIME BANK OF CENTRAL FLORIDA
STOCK OPTION PLAN
Section 1. Purpose. The purpose of Prime Bank of Central Florida's Stock
Option Plan ("Plan") is to promote the growth and general prosperity of the
Bank by permitting the Bank to grant options to purchase shares of its Common
Stock to certain key officers. The Plan is designed to help attract and retain
superior personnel for positions of responsibility with the Bank, or of any
subsidiary, and to provide key employees with an additional incentive to
contribute to the success of the Bank. The Bank intends that options granted
pursuant to the provisions of the Plan will qualify and will be identified as
"incentive stock options" within the meaning of Section 422A of the Internal
Revenue Code of 1986, as amended ("Code").
Section 2. Administration. The Plan shall be administered by a committee
which shall consist of three or more members of the Board of Directors, none of
whom is an officer or employee of the Bank, and each of whom shall be
a "disinterested person" within the meaning of Rule 16b-3 promulgated under the
Securities Exchange Act of 1934, as amended. The committee, when acting to
administer the Plan, is referred to as the "Plan Administrators." Any action of
the Plan Administrators shall be taken by majority vote or the unanimous
written consent of the Plan Administrators. No Plan Administrator shall be
liable for any action or determination made in good faith with respect to the
Plan or to any option granted thereunder.
Section 3. Authority of Plan Administrators. Subject to the other provisions
of this Plan, and with a view to effecting its purpose, the Plan Administrators
shall have sole authority in their absolute discretion: (a) to construe and
interpret the Plan; (b) to define the terms used herein; (c) to prescribe,
amend and rescind rules and regulations relating to the Plan; (d) to determine
the employees to whom options shall be granted under the Plan; (e) to determine
the time or times at which options shall be granted under the Plan; (f) to
determine the number of shares subject to any option under the Plan and the
option price, and the duration of each option, and any other terms and
conditions of options (g) to terminate the Plan; and (h) to make any other
determinations necessary or advisable for the administration of the Plan and to
do everything necessary or appropriate to administer the Plan. All decisions,
determinations and interpretations made by the Plan Administrators shall be
binding and conclusive on all participants in the Plan and on their legal
representatives, heirs and beneficiaries.
Section 4. Maximum Number of Shares Subject to the Plan. The maximum
aggregate number of shares of Common Stock available pursuant to the Plan,
subject to adjustment as provided in Section 7 hereof, shall be an amount
equal to 20.0% of the shares of Common Stock of the Bank issued and outstanding
from time to time. If any of the options granted under this Plan expire or
terminate for any reason before they have been exercised in full, the
unpurchased shares subject to those expired or terminated options shall again
be available for the purposes of the Plan.
<PAGE> 2
Section 5. Eligibility and Participation. Only regular full-time employees
of the Bank, including officers whether or not directors of the Bank, or any
subsidiary, shall be eligible for selection by the Plan Administrators to
participate in the Plan. Directors who are not full-time, salaried employees of
the Bank, or of any subsidiary, shall not be eligible to participate in the
Plan. Full time employees are those employees who work more than 1,000 hours
per year.
Section 6. Effective Date and Term of Plan. The Plan shall become
effective upon its adoption by the Board of Directors of the Bank, approval by
the Florida Department of Banking and Fiance ("Department") and approval by a
majority of the total votes eligible to be cast at a meeting of stockholders,
which vote shall be taken within 12 months of adoption of the Plan by the
Bank's Board of Directors, provided, however, that options may be granted under
this Plan prior to obtaining Department or stockholder approval of the Plan
and, further provided, that any such options shall be contingent upon such
Department and stockholder approval being obtained and may not be exercised
prior to such approval. The Plan shall continue in effect for a term of ten
years unless sooner terminated under Section 3.
Section 7. Adjustments. If the shares of Common Stock of the Bank as a
whole are increased, decreased, changed into or exchanged for a different number
or kind of shares or securities through merger, consolidation, combination,
exchange of shares, other reorganization, recapitalization, reclassification,
stock dividend, stock split or reverse stock split, an appropriate and
proportionate adjustment shall be made in the maximum number and kind of shares
as to which options maybe be granted under this Plan. A corresponding judgment
changing the number or kind of shares allocated to unexercised options or
portions thereof, which shall have been granted prior to any such change, shall
likewise be made. Any such adjustment in outstanding options shall be made
without charge in the aggregate purchase price applicable to the unexercised
portion of the option but with a corresponding adjustment in the price for each
share or other unit of any security covered by the option. In making any
adjustment pursuant to this Section 7, any fractional shares shall be
disregarded.
Section 8. Termination and Amendment of Plan. The Plan shall terminate no
later than ten years from the date such Plan is adopted by the Board of
Directors or the date such Plan is approved by the Stockholders, whichever is
earlier. No options shall be granted under the Plan after that date. Subject to
the limitation contained in Section 9, the Plan Administrators may at any time
amend or revise the terms of the Plan, including the form and substance of the
option, agreements to be used hereunder; provided that no amendment or revision
shall: (a) increase the maximum aggregate number of shares that may be sold,
appreciated or distributed pursuant to options granted under this Plan, except
as permitted under Section 7; (b) change the minium purchase price for shares
under Section 16; (c) increase the maximum term established under the Plans for
any option, or (d) permit the granting of an option, to anyone other than as
provided in Section 5.
2
<PAGE> 3
Section 9. Prior Rights and Obligations. NO amendment, suspension or
termination of the Plan shall, without the consent of the employee who has
received an option, alter or impair any of that employee's rights or
obligations under any option granted under the Plan prior to such amendment,
suspension or termination.
Section 10. Privileges of Stock Ownership. Notwithstanding the exercise of
any options granted pursuant to the terms of this Plan, no employee shall have
any of the rights or privileges of a stockholder of the Bank with respect to
any shares of stock issuable upon the exercise of his or her option until
certificates representing the shares have been issued and delivered. No shares
shall be required to be issued and delivered upon exercise of any option or
unless and until all of the requirements of law and of all regulatory agencies
having jurisdiction over the issuance and delivery of the securities shall have
been fully complied with. No adjustment shall be made for dividends or any
other distributions for which the record date is prior to the date on which
such stock certificate is issued.
Section 11. Reservation of Shares of Common Stock. The Bank, during the
term of this Plan, will at all times reserve and keep available such number of
shares of its Common Stock as shall be sufficient to satisfy the requirements
of the Plan. In addition, the Bank will, from time to time as is necessary to
accomplish the purposes of this Plan, seek to obtain from any regulatory agency
having jurisdiction any requisite authority in order to issue and sell shares
of Common Stock hereunder. The inability of the Bank to obtain from any
regulatory agency having jurisdiction the authority deemed by the Bank's
counsel to be necessary to permit the lawful issuance and sale of any shares of
its stock hereunder shall relieve the Bank of any liability in respect of the
non-issuance or sale of the stock as to which the requisite authority shall not
have been obtained.
Section 12. Tax Withholding. The exercise of any option is subject to the
condition that if at any time the Bank shall determine, in its discretion, that
the satisfaction of withholding tax or other withholding liabilities under any
state or federal law is necessary or desirable as a condition of, or in any
connection with, such exercise or the delivery or purchase of shares pursuant
thereto, then in such event, the exercise of the option shall not be effective
unless such withholding tax or other withholding liabilities shall have been
satisfied in a manner acceptable to the Bank.
Section 13. Employment. Nothing in the Plan or in any option shall confer
upon any eligible employee any right to continued employment by the Bank, or by
any subsidiary corporation or limit in any way the right of the Bank or its
subsidiary corporations at any time to terminate or alter the terms of that
employment.
3
<PAGE> 4
Section 14. Option Terms and Conditions. The terms and conditions of
options granted under the Plan may differ from one another as the Plan
Administrators shall, in their discretion, determine, as long as all options
granted under the Plan satisfy the requirements of the Plan.
Section 15. Duration of Options. Each option and all rights thereunder granted
pursuant to the terms of the Plan shall expire on the date determined by the
Plan Administrators, but in no event shall any option granted under the Plan
expire later than ten years from the date on which the option is granted,
except that any employee who owns more than 10% of the combined voting power of
all classes of stock of the Bank, or of its subsidiaries, must exercise any
options granted thereto within three years from the date of grant. In addition,
each option shall be subject to early termination as provided in the Plan.
Section 16. Purchase Price. The purchase price for shares acquired pursuant to
the exercise, in whole or in part, of any option shall not be less than the
fair market value of the shares at the time of the grant of the option or the
book value of the stock as reflected by the records of the Bank on the last day
of month immediately preceding the grant, whichever is greater; except that for
any employee who owns more than 10% of the combined voting power of all classes
of stock of the Bank, or of its subsidiaries, the purchase price shall not be
less than 110% of fair market value or the book value of the stock as reflected
by the Bank on the last day of month immediately preceding the grant, whichever
is greater.
Section 17. Maximum Amount of Options in Any Calendar Year. The aggregate fair
market value (determined as of the time the option is granted) of the Common
Stock with respect to which stock options are exercisable for the first time by
any employee during any calendar year (under the terms of this Plan and all
such plans of the Bank and any subsidiaries) shall not exceed $100,000.
Section 18. Exercise of Options. Each option shall be exercisable in one or
more installments during its term, and the right to exercise may be cumulative
as determined by the Plan Administrators, provided, however, that no option may
be exercisable for the first six months following the date the option is
granted. No option may be exercised for a fraction of a share of Common Stock.
The purchase price of any shares purchased shall be paid in full in cash or by
certified or cashier's check payable to the order of the Bank or by shares of
Common Stock (including shares acquired pursuant to the exercise of an option),
if permitted by the Plan Administrators, or by a combination of cash, check or
shares of Common Stock, at the time of exercise of the option, provided that
the form(s) of payment allowed the employee shall be established when the
option is granted. If any portion of the purchase price is paid in shares of
Common Stock, those shares be tendered at their then fair market value as
determined by the Plan Administrators in accordance with Section 16 of this
Plan.
4
<PAGE> 5
Section 19. Acceleration of Right of Exercise of Installments. Notwithstanding
the first sentence of Section 18 of this Plan with respect to the ability to
exercise options in installments, in the event the Bank or its stockholders
enter into an agreement to dispose of all or substantially all of the assets or
stock of the Bank by means of a sale, merger or other reorganization,
liquidation or otherwise, any option granted pursuant to the terms of the Plan
shall become immediately exercisable with respect to the full number of shares
subject to that option during the period commencing as of the date of the
agreement to dispose of all or substantially all of the assets or stock of the
Bank and, subject to the provisions hereof, ending when the disposition of
assets or stock contemplated by that agreement is consummated or the option is
otherwise terminated in accordance with its provisions or the provisions of
this Plan, whichever occurs first; provided, however, that no option shall be
immediately exercisable under this Section 19 on account of any agreement to
dispose of all or substantially all of the assets or stock of the Bank by means
of a sale, merger or other reorganization, liquidation or otherwise where the
stockholders of the Bank immediately before the consummation of the transaction
will own at least 50% of the total combined voting power of all classes of
stock of the surviving entity entitled to vote immediately after the
consummation of the transaction whether the Bank or some other entity, and
provided further, that the exercisability of an option may not be accelerated
prior to the sixth month anniversary of the date the option was granted. In the
event the transaction contemplated by the agreement referred to in this Section
19 is not consummated, but rather is terminated, cancelled or expires, the
options granted pursuant to the Plan shall thereafter be treated as if that
agreement had never been entered into.
Notwithstanding the first sentence of Section 18 of this Plan with
respect to the ability to exercise options in installments, and subject to the
provisions of the first paragraph of this Section 19, in the event of a change
in control of the Bank or threatened change in control of the Bank as determined
by a vote of not less than a majority of the Board of Directors of the Bank, all
options granted prior to such change in control or threatened change of control
shall become immediately exercisable, except that any option granted for less
than six months shall not become exercisable until the sixth month anniversary
of the date the option was granted. The term "control" for purposes of this
Section shall refer to the acquisition of 10% or more of the voting securities
of the Bank by an person or by persons acting as a group within the meaning of
Section 13(d) of the Securities Exchange Act of 1934, as amended; provided,
however, that for purposes of this Plan, except under the circumstances as set
forth in the first paragraph of this Section 19, no change in control or
threatened change in control shall be deemed to have occurred if prior to the
acquisition of or offer to acquire 10% or more of the voting securities of the
Bank, the full Board of Directors of the Bank shall have adopted by not less
than two-thirds vote a resolution specifically approving such acquisition or
offer. The term "person" for purposes of this Section refers to an individual or
a corporation, partnership, trust, association, joint venture, pool, syndicate,
sole proprietorship, unincorporated organization or any other form of entity not
specifically listed herein.
5
<PAGE> 6
Section 20. Written Notice Required. Any option granted pursuant to the terms
of the Plan shall be exercised when written notice of that exercise has been
given to the Bank at its principal office by the person entitled to exercise
the option and full payment for the shares with respect to which the option is
exercised has been received by the Bank.
Section 21. Compliance with Securities laws. Shares of Common Stock shall not be
issued with respect to any option granted under the Plan unless the exercise of
that option and the issuance and delivery of those shares pursuant to that
exercise shall comply with all relevant provisions of state and federal law
including, without limitation, the Securities Act of 1933, as amended, the rules
and regulations promulgated thereunder, and the requirements of any stock
exchange or national quotation system upon which the shares may then be listed,
and shall be further subject to the approval of counsel for the Bank with
respect to such compliance. The Plan Administrators may also require an employee
to whom an option has been granted under the Plan ("Optionee") to furnish
evidence satisfactory to the Bank, including a written and signed representation
letter and consent to be bound by any transfer restriction imposed by law,
legend, condition or otherwise, that the shares are being purchased only for
investment and without any present intention to sell or distribute the shares in
violation of any state or federal law, rule or regulation. Further, each
Optionee shall consent to the imposition of a legend on the share of Common
Stock subject to his or option restricting their transferability to the extent
required by law or by this Section 21.
Section 22. Employment of Optionee. Each Optionee, if requested by the Plan
Administrators when the option is granted must agree in writing as a condition
of receiving his or her option that he or she will remain in the employ of the
Bank or any subsidiary of the Bank (or a corporation or a parent or subsidiary
of such corporation issuing or assuming a stock option in a transaction to
which Section 425(a) of the Code applies), as the case may be, following the
date of the granting of that option for a period specified by the Plan
Administrators, which period shall in no event exceed three years. Nothing in
the Plan or in any option granted hereunder shall confer upon any Optionee any
right to continued employment by the Bank, or any subsidiary corporations, or
limit in any way the right of the Bank or any subsidiary corporations at any
time to terminate or alter the terms of that employment.
Section 23. Option Rights Upon Termination of Employment. If an Optionee ceases
to be employed by the Bank or any subsidiary corporation (or a corporation or a
parent or subsidiary of such corporation issuing or assuming a stock option in a
transaction to which Section 425[a] of the Code applies), for any reason other
than death, disability or cause, his or her option shall immediately terminate;
provided, however, that the Plan Administrators may, in their discretion, allows
such option to be exercised (to the extent exercisable on the date of
termination of employment) at any time within three months after the date of
termination of employment, unless either the option or this Plan otherwise
provides for earlier termination. If an Optionee
6
<PAGE> 7
is terminated for cause, any options granted thereto under the provision of
this Plan shall terminate as of the effective date of such termination of
employment.
Section 24. Option Rights upon Disability. If an Optionee becomes disabled
within the meaning of Section 22(e)(3) of the Code while employed by the Bank
or any subsidiary corporation (or a corporation or a parent or subsidiary of
such corporation issuing or assuming a stock option in a transaction to which
Section 425[a] of the Code applies), the option may be exercised, to the extent
exercisable on the date of termination of employment, at any time within one
year after the date of termination of employment due to disability, unless
either the option or this Plan otherwise provides for earlier termination.
Section 25. Option Rights Upon Death of Optionee. Except as otherwise
limited by the Plan Administrators at the time of the grant of an option, if an
Optionee dies while employed by the Bank or any subsidiary corporation (or a
corporation or a parent or subsidiary of such corporation issuing or assuming a
stock option in a transaction to which Section 425[a] of the Code applies), or
within three months after ceasing to be an employee thereof, his or her option
shall expire one year after the date of death unless by its term it expires
sooner. During this one year or shorter period, the option may be exercised,
to the extent that it remains unexercised on the date of death, by the person
or persons to whom the Optionee's rights under the option shall pass by will or
by the laws of descent and distribution, but only to the extent that the
Optionee was entitled to exercise the option at the date of death.
Section 26. Options Not Transferable. Options granted pursuant to the terms
of this Plan may not be sold, pledged, assigned or transferred in any manner
otherwise than by will or the laws of descent and distribution and may be
exercised during the lifetime of an Optionee only by that Optionee or his
guardian or legal representative.
Section 27. Conversion of Option Granted Under Plan. Options granted
pursuant to the terms of this Plan may be converted with the written consent of
the Optionee to compensatory nonqualified stock options.
Adopted by the Board of Directors of the Bank at a meeting called for that
purpose on the 17th day of March, 1994.
/s/ Bruce A. Naylor
--------------------------------------
Bruce A. Naylor, President and
Chief Executive Officer
7
<PAGE> 1
EXHIBIT 5
OPINION AS TO CERTAIN DELAWARE LAW ISSUES OF THE SECURITIES
BEING REGISTERED
<PAGE> 2
July 17, 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 Prime Bank of
Central Florida (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 May 21, 1998 (the
"Agreement"), by and among the Company, Colonial Bank and Prime Bank of Central
Florida. 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
July 17, 1998
Page 2
(ii) The shares of Common Stock of the Company referred to above,
to the extent actually issued pursuant to the Agreement will, when so issued, be
duly and validly authorized and issued and will be fully paid and nonassessable
shares of Common Stock of the Company;
(iii) Under the laws of the State of Delaware, no personal liability
attaches to the ownership of the shares of Common Stock of the Company.
We hereby consent to the filing of this opinion as an exhibit to the
above-referenced registration statement. In consenting to the inclusion of our
opinion in the Registration Statement, we do not thereby admit that we are a
person whose consent is required pursuant to Section 7 of the Securities Act of
1933, as amended.
Sincerely yours,
MILLER, HAMILTON, SNIDER & ODOM, L.L.C.
/s/ Miller, Hamilton, Snider & Odom, L.L.C.
WHH/jvb
<PAGE> 1
EXHIBIT 8
TAX OPINION
July 13, 1998
Mr. Flake Oakley
Chief Financial Officer
Colonial BancGroup, Inc.
P.O. Box 1109
Montgomery, AL 36101
Dear Mr. Oakley:
For valid business reasons, Prime Bank of Central Florida (Acquired Bank) and
The Colonial BancGroup, Inc. (BancGroup) have entered into an Agreement and Plan
of Merger (Agreement) on May 21, 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 Florida state bank with its principal office in
Titusville, Florida. BancGroup, a Delaware corporation, is a bank holding
company with a wholly owned subsidiary, Colonial Bank. Colonial Bank currently
operates in Alabama, Florida, Georgia, Nevada, Tennessee, and Texas.
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 such number of shares of BancGroup Common Stock equal to
$41.44 divided by the Market Value as determined by the agreement.
On the effective date and as a result of the merger, BancGroup will assume all
of the outstanding options of Acquired Bank. Each such option will cease to
represent a right to acquire Acquired Bank stock and will, instead, represent a
right to acquire BancGroup common stock on substantially the same terms
applicable to the Acquired Bank Options except as specified in the Agreement.
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
<PAGE> 2
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.
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 the assets
transferred are subject.
<PAGE> 3
[ ] 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.
[ ] If nonqualified stock options to purchase Acquired Corporation common
stock are exchanged for nonqualified stock options to purchase BancGroup
common stock, then the difference between the option price and fair market
value of BancGroup common stock subject to options immediately after the
exchange will be equal to (or greater than) the difference between the
option price and the fair market value of Acquired Corporation common stock
subject to options immediately before the exchange. All other terms of the
BancGroup nonqualified stock options will be the same as those of Acquired
Corporation's nonqualified stock options.
[ ] Any incentive stock options acquired from Acquired Bank as a part of the
merger and reissued by BancGroup will be issued at substantially the same
terms, so as not to create material modification as defined in I.R.C.
Section 424.
[ ] The compensation to be paid by BancGroup or Acquired Bank to the officers
and employees of Acquired Bank under any stock option, employment, or
noncompete agreement will be at a rate equal to the fair market value of
the services actually performed and will be commensurate with amounts paid
to third parties bargaining at arm's length for similar services. In
addition none of the compensation to be received by the
shareholder-employees of Acquired Bank will be part of the consideration
for their target stock.
[ ] At the time of the merger, Acquired Bank will not have outstanding any
warrants, convertible securities, or any other right pursuant to which any
person could acquire stock in Acquired Bank except for the 51,500 shares of
Acquired Bank Options outstanding.
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
<PAGE> 4
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.
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
<PAGE> 5
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.
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, employees, or directors who receive compensation
from BancGroup in the form of stock options, employment agreements, or
noncompete agreements may have ordinary income and should consult their own tax
advisor. No opinion is rendered regarding the application of Section 280G of the
Internal Revenue Code.
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.
<PAGE> 6
CONVERSION OF ACQUIRED BANK OPTIONS INTO BANCGROUP OPTIONS
INCENTIVE STOCK OPTIONS
The assumption and conversion of Acquired Bank incentive stock options, whether
vested or exercisable, into rights to acquire BancGroup common stock pursuant to
the terms of the Agreement shall not be considered the granting of a new option
as long as the following requirements of I.R.C. Section 424 are met. I.R.C.
Section 424 provides that the excess of the aggregate fair market value of the
shares subject to the options immediately after the substitution or assumption
over the aggregate option price of such shares is not more than the excess of
the aggregate fair market value of all shares subject to the option immediately
before such substitution or assumption over the aggregate option price of such
shares. Section 424 also provides that the new option or the assumption of the
old option must not give the employee additional benefits which he did not have
under the old option. If the terms of the old option are modified, extended, or
renewed, such modification, extension, or renewal shall be considered the
granting of a new option which will disqualify the option as a statutory stock
option.
NONQUALIFIED STOCK OPTIONS
The assumption and conversion of Acquired Bank nonqualified stock options into
BancGroup nonqualified stock options pursuant to the merger will not result in
current federal income tax consequences if neither the nonqualified options to
purchase shares of Acquired Bank stock nor the substituted options to purchase
BancGroup stock have a readily ascertainable value. I.R.C. Section 83(e)
provides that I.R.C. Section 83 does not apply to the transfer of an option
without a readily ascertainable fair market value. The regulations under Section
1.83-7 state that if an option is not actively traded on an established market,
the option does not have a readily ascertainable fair market value when granted
unless a taxpayer can show that the option is transferable by the optionees; the
option is exercisable immediately in full by the optionee; the option or
property subject to the option is not subject to any restriction or condition
that has a significant effect upon the fair market value of the option; and, the
fair market value of the option privilege is readily ascertainable under the
provision for determining fair market value in the case of options not actively
traded on an established market.
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.
<PAGE> 7
The assumption and conversion of Acquired Bank's qualified and nonqualified
options by BancGroup is a tax-free event to the shareholders of Acquired Bank,
assuming certain requirements of Section 424 are met and the nonqualified
options do not have a readily ascertainable fair market value.
If you have any questions or comments, please call Thomas Lee or Mark Borden at
(205) 252-8400.
Very truly yours,
/S/ PricewaterhouseCoopers LLP
PricewaterhouseCoopers LLP
cc: Hugh Nickson, Miller, Hamilton, Snider, & Odom, L.L.C.
<PAGE> 1
EXHIBIT 23.1
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the incorporation by reference in this registration statement on
Form S-4 of our report dated March 10, 1998 on our audits of the consolidated
financial statements of The Colonial BancGroup, Inc., as of December 31, 1997
and 1996 and for the three years in the period ended December 31, 1997. We also
consent to the reference to our firm under the caption "experts".
/s/ PricewaterhouseCoopers LLP
Montgomery, Alabama
July 17, 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/ PricewaterhouseCoopers LLP
Birmingham, Alabama
July 17, 1998
<PAGE> 1
EXHIBIT 23.2
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the incorporation by reference in this registration statement on
Form S-4 of our report dated February 6, 1998, on our audit of the financial
statements of Prime Bank of Central Florida as of December 31, 1997 and 1996 and
for the years then ended, and to the reference to our firm under the caption
"Experts".
/s/ Hacker, Johnson, Cohen & Grieb, P.A.
------------------------------------
HACKER, JOHNSON, COHEN & GRIEB, P.A.
Orlando, Florida
July 17, 1998
<PAGE> 1
EXHIBIT 23.3
Consent of Miller, Hamilton, Snider & Odom, L.L.C.
CONSENT OF COUNSEL
The Colonial BancGroup, Inc.
We hereby consent to use in this Form S-4 Registration Statement of The
Colonial BancGroup, Inc., of our name in the Prospectus, which is a part of such
Registration Statement, under the heading "LEGAL MATTERS," to the summarization
of our opinion referenced therein, and to the inclusion of our opinion at
Exhibit 5 of the Registration Statement.
/s/ MILLER, HAMILTON, SNIDER & ODOM, L.L.C.
July 17, 1998
<PAGE> 1
EXHIBIT 23.4
CONSENT OF FINANCIAL ADVISOR
We hereby consent to the discussion relative to our opinion delivered to the
Board of Directors of Prime Bank of Central Florida in connection with its
proposed acquisition by The Colonial BancGroup, Inc. in the Proxy Statement and
Prospectus included in The Colonial BancGroup, Inc.'s Registration Statement on
Form S-4 under the caption "The Merger - Opinion of Financial Advisor," to the
reference to our firm in such Proxy Statement and Prospectus, to the inclusion
of such opinion as an Appendix to the Proxy Statement and Prospectus.
ALLEN C. EWING & CO.
By: /s/ Brian C. Beach
--------------------------
Brian C. Beach
Senior Vice President
Jacksonville, Florida
July 16, 1998
23
<PAGE> 1
EXHIBIT 24
POWER OF ATTORNEY
<PAGE> 2
EXHIBIT 24
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature
appears below constitutes and appoints Robert E. Lowder, P. L. McLeod, Jr., and
W. Flake Oakley, IV, and each of them, his or her true and lawful
attorney-in-fact and agent, with full power of substitution and resubstitution,
for him or her and in his or her name, place and stead, to sign any reports or
other filings which may be required to be filed with the Securities and Exchange
Commission on behalf of The Colonial BancGroup, Inc. (the "Registrant"), in
relation to the Registrant's acquisition by merger of (i) Prime Bank of Central
Florida, Titusville, Florida pursuant to the terms of the certain Agreement and
Plan of Merger by and between the Registrant and Prime Bank of Central Florida
and (ii) other financial institutions or related holding companies upon terms
and conditions approved by the Chairman of the Board and Chief Executive Officer
(the "Acquisitions"); to sign any registration statement of the Registrant on
Form S-4 or other appropriate form and any amendments thereto for the purpose of
registering under the Securities Act of 1933, as amended, shares to be offered
and sold by the Registrant in relation to the Acquisitions; to file such other
reports or other filings, such registration statements and amendments thereto,
with all exhibits thereto, and any documents in connection therewith with the
Securities and Exchange Commission; and to file such notices, reports or
registration statements (and amendments thereto) with any such securities
authority of any state which may be necessary to register or qualify for an
exemption from registration any securities offered or sold by BancGroup in such
states in relation to the Acquisitions, granting unto said attorneys-in-fact and
agents full power and authority to do and perform each and every act and thing
requisite to be done in connection with the Acquisitions as fully and to all
intents and purposes as he or she might or could do in person, hereby ratifying
and confirming all that said attorneys-in-fact and agents, or their substitutes,
may lawfully do or cause to be done by virtue hereof.
Done this 15th day of April, 1998, in Montgomery, Alabama.
[The rest of this page intentionally left blank]
<PAGE> 3
<TABLE>
<S> <C>
/s/ Robert E. Lowder Chairman of the Board
- -------------------------------------- and Chief Executive
Robert E. Lowder Officer
/s/ Lewis Beville Director
- --------------------------------------
Lewis Beville
/s/ Young J. Boozer, Jr. Director
- --------------------------------------
Young J. Boozer, Jr.
/s/ William Britton Director
- --------------------------------------
William Britton
/s/ Jerry J. Chesser Director
- --------------------------------------
Jerry J. Chesser
/s/ Augustus K. Clements, III Director
- --------------------------------------
Augustus K. Clements, III
/s/ Robert Craft Director
- --------------------------------------
Robert Craft
/s/ Patrick F. Dye Director
- --------------------------------------
Patrick F. Dye
/s/ James L. Hewitt Director
- --------------------------------------
James L. Hewitt
/s/ Clinton Holdbrooks Director
- --------------------------------------
Clinton Holdbrooks
/s/ D. B. Jones Director
- --------------------------------------
D. B. Jones
</TABLE>
<PAGE> 4
<TABLE>
<S> <C>
/s/ Harold D. King Director
- --------------------------------------
Harold D. King
/s/ John Ed Mathison Director
- --------------------------------------
John Ed Mathison
/s/ Milton McGregor Director
- --------------------------------------
Milton McGregor
/s/ John C. H. Miller, Jr. Director
- --------------------------------------
John C. H. Miller, Jr.
/s/ Joe D. Mussafer Director
- --------------------------------------
Joe D. Mussafer
/s/ William E. Powell, III Director
- --------------------------------------
William E. Powell, III
/s/ J. Donald Prewitt Director
- --------------------------------------
J. Donald Prewitt
/s/ Jack H. Rainer Director
- --------------------------------------
Jack H. Rainer
/s/ Jimmy Rane Director
- --------------------------------------
Jimmy Rane
/s/ Frances E. Roper Director
- --------------------------------------
Frances E. Roper
/s/ Simuel Sippial Director
- --------------------------------------
Simuel Sippial
/s/ Ed V. Welch Director
- --------------------------------------
Ed V. Welch
</TABLE>
<PAGE> 1
EXHIBIT 99.1
EXHIBIT 99.1
Form of Proxy of Prime Bank of Central Florida
<PAGE> 2
PROXY FOR SPECIAL SHAREHOLDERS MEETING OF
PRIME BANK OF CENTRAL FLORIDA
KNOW ALL MEN BY THESE PRESENTS, that I, the undersigned shareholder of
Prime Bank of Central Florida ("Prime Bank"), 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 Prime Bank standing in my name on its books on _____________________,
1998 at the Special Meeting of its shareholders to be held at
________________________, 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 as of May 21, 1998 (the "Agreement"), by and among Prime Bank,
The Colonial BancGroup, Inc. and Colonial Bank, with such agreement
providing for, among other things, the merger of Prime Bank with and
into Colonial Bank, with Colonial Bank to be the surviving corporation.
Each outstanding share of Prime Bank 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.
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.
Date: , 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.)
