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Filed Pursuant to Rule 424(b)(3)
Registration No. 333-57763
FIRSTBANK
15150 PRESTON ROAD
DALLAS, TEXAS 75248
(972) 788-0007
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NOTICE OF SPECIAL MEETING OF SHAREHOLDERS
TO BE HELD ON AUGUST 25, 1998, AT 4:00 P.M.
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NOTICE IS HEREBY GIVEN that a special meeting of shareholders (the "Special
Meeting") of FirstBank will be held at the principal office of FirstBank, on
August 25, 1998, at 4:00 p.m., local time, for the following purposes:
1. Reorganization. To consider and vote upon an Agreement and Plan of
Reorganization dated as of May 5, 1998, among FirstBank, The Colonial
BancGroup, Inc. ("BancGroup") and CBG Acquisition Corp. ("CBG Corp."), a
wholly-owned subsidiary of BancGroup (the "Agreement"), providing for the
reorganization of FirstBank, BancGroup and CBG Corp. (the "Reorganization")
and the proposed merger (the "Merger") of CBG Corp. with and into FirstBank
as a part of the Reorganization pursuant to the Agreement. FirstBank will
be the surviving corporation in the Merger and will become a wholly owned
subsidiary of BancGroup. Each share of common stock of FirstBank, par value
$5.00 per share (the "FirstBank Common Stock") will be converted by
operation of law into the right to receive a number of shares of common
stock, par value $2.50, of BancGroup (the "BancGroup Common Stock") equal
to $123.53 divided by the Market Value of 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 ("NYSE") on each of the
ten consecutive trading days ending on the trading day that is the fifth
trading date preceding the Effective Date of the Merger. Upon the
conversion of FirstBank Common Stock into the right to receive BancGroup
Common Stock, shareholders of FirstBank will cease to be shareholders of
First Bank and will become shareholders of BancGroup. On the Effective
Date, each share of common stock of CBG Corp., par value $1.00, outstanding
and held by BancGroup, CBG Corp.'s sole shareholder, will be converted into
one share of FirstBank Common Stock, so that BancGroup will be the sole and
exclusive owner of the outstanding FirstBank Common Stock. Cash will be
paid in lieu of fractional shares at the Market Value of such fractional
shares, as described in more 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. Termination of Shareholder Agreement. To consider and vote upon a
proposal to terminate a Shareholders Agreement dated as of November 7, 1996
among the shareholders of FirstBank intended to preserve its election to be
taxed under the provisions of Subchapter S of the Internal Revenue Code of
1986, as amended (the "Code") effective immediately prior to the Effective
Date of the Merger in order to facilitate the Merger.
3. Authorization of Additional Shares. To consider and vote upon a
proposal to amend FirstBank's Articles of Association to increase the
number of authorized shares of Common Stock, par value $5.00 per shares, by
1,000 shares. Such shares shall be issued to BancGroup in the
Reorganization.
4. 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 FirstBank has fixed the close of business on July
1, 1998, as the record date for the determination of shareholders entitled to
notice of and to vote at the Special Meeting. Holders of FirstBank Common Stock
as of the Record Date are entitled to exercise dissenters' rights of appraisal
pursuant to Section 32.303 of the Texas Finance Code and Article 5.11 et. seq.
of the Texas Business Corporation Act. A holder of FirstBank Common Stock who
complies with the provisions of applicable law relating to dissenters' rights
will be entitled to receive in cash the fair value of such holder's First Bank
Common Stock as determined pursuant to these statutes. A copy of the dissenters'
rights provisions under applicable Texas law is attached to the enclosed Proxy
Statement and Prospectus as Appendix B.
You are cordially invited to attend the Special Meeting, but whether or not
you plan to attend, please complete and sign the enclosed form of proxy and mail
it promptly in the enclosed envelope. The proxy may be revoked at any time by
filing a written revocation with the Cashier of FirstBank, by executing a later
dated proxy and delivering it to the Cashier of FirstBank, or by attending the
Special Meeting and voting in person.
BY ORDER OF THE BOARD OF DIRECTORS
/s/ Roy Gene Evans
Chairman
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PROSPECTUS
COMMON STOCK, $2.50 PAR VALUE
THE COLONIAL BANCGROUP, INC.
PROXY STATEMENT
FOR SPECIAL MEETING OF SHAREHOLDERS OF
FIRSTBANK
This Proxy Statement and Prospectus (the "Prospectus") relates to the
proposed reorganization of FirstBank, a Texas state bank, The Colonial
BancGroup, Inc., a Delaware corporation ("BancGroup"), and CBG Acquisition Corp.
("CBG Corp."), a Delaware corporation and a wholly-owned subsidiary of BancGroup
(the "Reorganization"), whereby CBG Corp. will be merged into FirstBank (the
"Merger") and FirstBank will become a wholly-owned subsidiary of BancGroup. This
Prospectus is being furnished to the shareholders of FirstBank in connection
with the solicitation of proxies by the Board of Directors of FirstBank for use
at a special meeting of the shareholders of FirstBank (the "Special Meeting") to
be held on August 25, 1998, at 4:00 p.m., local time, at the principal office of
FirstBank including any adjournments or postponements thereof. At the Special
Meeting, shareholders of FirstBank 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 Reorganization and the Merger will be consummated pursuant to the terms
of a certain Agreement and Plan of Reorganization dated as of May 5, 1998, by
and among FirstBank, BancGroup and CBG Corp. (the "Agreement"). FirstBank will
be the surviving corporation in the Merger and will become a wholly-owned
subsidiary of BancGroup. Each share of common stock of FirstBank, par value
$5.00 per share (the "FirstBank Common Stock") will be converted by operation of
law into the right to receive a number of shares of common stock, par value
$2.50, of BancGroup (the "BancGroup Common Stock") equal to $123.53 divided by
the Market Value of 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 ("NYSE") on each of the ten consecutive trading days ending on
the trading day that is the fifth trading date preceding the Effective Date of
the Merger. Upon the conversion of FirstBank Common Stock into the right to
receive BancGroup Common Stock, shareholders of FirstBank will cease to be
shareholders of First Bank and will become shareholders of BancGroup. On the
Effective Date, each share of common stock of CBG Corp., par value $1.00,
outstanding and held by BancGroup, CBG Corp.'s sole shareholder, will be
converted into one share of FirstBank Common Stock, so that BancGroup will be
the sole and exclusive owner of the outstanding FirstBank Common Stock. Cash
will be paid in lieu of fractional shares at the Market Value of such fractional
shares. See "The Reorganization -- Conversion of FirstBank 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 14, 1998 was $33.50.
Consummation of the Reorganization requires, among other things, the
affirmative vote of the holders of at least 66 2/3% of the total outstanding
shares of FirstBank Common Stock.
BancGroup has filed a Registration Statement pursuant to the Securities Act
of 1933, as amended (the "Securities Act"), to register the shares of the
BancGroup Common Stock to be issued in connection with the Reorganization. This
document constitutes a Proxy Statement of FirstBank in connection with the
solicitation of proxies by FirstBank for the Special Meeting and a Prospectus of
BancGroup with respect to the BancGroup Common Stock to be issued in the
Reorganization. This Prospectus and accompanying form of proxy are first being
mailed to shareholders of FirstBank on or about the date set forth below.
THE BOARD OF DIRECTORS OF FIRSTBANK UNANIMOUSLY RECOMMENDS APPROVAL OF THE
AGREEMENT AND THE OTHER MATTERS SET FORTH IN THE NOTICE OF SPECIAL MEETING OF
SHAREHOLDERS.
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THE SECURITIES TO WHICH THIS PROSPECTUS RELATES HAVE NOT BEEN APPROVED OR
DISAPPROVED BY THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES
COMMISSION, NOR HAS THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE
SECURITIES COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS.
ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
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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 FirstBank are 15150 Preston
Road, Dallas, Texas 75248 (telephone 972-788-0007), 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 JULY 14, 1998.
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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
FirstBank has been furnished by FirstBank.
This Prospectus contains certain forward-looking statements with respect to
the financial condition, results of operations, and business of BancGroup,
FirstBank and organizations BancGroup proposes to acquire following the
consummation of the Reorganization and the proposed acquisition of other banking
institutions (the "Other Pending Acquisitions"), including statements relating
to the expected impact of the Reorganization 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 Reorganization 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 Reorganization 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 FirstBank,
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 Reorganization 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), FirstBank
and organizations BancGroup proposes to acquire, or their management are
intended to identify forward-looking statements.
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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 FIRSTBANK.
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 FIRSTBANK 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 Registration Statement on Form 8-A dated November 22,
1994, effective February 22, 1995, containing a description of the
BancGroup Common Stock.
(4) BancGroup's Reports on Form 8-K dated March 16, 1998, April 15,
1998, June 2, 1998 and July 17, 1998.
(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 FirstBank regarding the
Reorganization, including 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).
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TABLE OF CONTENTS
<TABLE>
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SUMMARY..................................................... 1
General................................................... 1
The Special Meeting....................................... 1
The Companies............................................. 1
The Reorganization........................................ 1
Recommendation of FirstBank's Board of Directors.......... 2
Interests of Certain Persons in the Reorganization........ 2
Vote Required............................................. 3
Rights of Dissenting Shareholders......................... 3
Conditions to the Reorganization.......................... 4
Amendment or Termination of Agreement..................... 5
Comparative Rights of Shareholders........................ 5
Federal Income Tax Consequences........................... 5
Accounting Treatment...................................... 5
Recent Per Share Market Prices............................ 6
Certain Legal Restrictions on Acquisitions of Control..... 7
Per Share Data............................................ 8
THE SPECIAL MEETING......................................... 10
General................................................... 10
Record Date; Shares Entitled to Vote; Vote Required for
the Reorganization..................................... 10
Solicitation, Voting and Revocation of Proxies............ 11
Effect of the Reorganization on Outstanding BancGroup
Common Stock........................................... 12
THE REORGANIZATION.......................................... 13
General................................................... 13
Background of the Reorganization.......................... 13
FirstBank's Board of Director's Reasons for Approving the
Reorganization......................................... 14
Recommendation of the Board of Directors of FirstBank..... 15
BancGroup's Reasons for the Reorganization................ 15
Interests of Certain Persons in the Reorganization........ 15
Conversion of FirstBank Common Stock...................... 16
Surrender of FirstBank Common Stock Certificates.......... 17
Certain Federal Income Tax Consequences................... 17
Other Possible Consequences............................... 19
Conditions to Consummation of the Reorganization.......... 19
Amendment or Termination.................................. 20
Commitments with Respect to Other Offers.................. 20
Regulatory Approvals...................................... 20
Conduct of Business Pending the Reorganization............ 22
Rights of Dissenting Shareholders......................... 23
Resale of BancGroup Common Stock Issued in the
Reorganization......................................... 25
Accounting Treatment...................................... 25
NYSE Reporting of BancGroup Common Stock Issued in the
Reorganization......................................... 25
COMPARATIVE MARKET PRICES AND DIVIDENDS..................... 26
BancGroup................................................. 26
FirstBank................................................. 26
</TABLE>
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<TABLE>
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BANCGROUP CAPITAL STOCK AND DEBENTURES...................... 27
BancGroup Common Stock.................................... 27
Preference Stock.......................................... 28
1986 Debentures........................................... 28
Other Indebtedness........................................ 29
Changes in Control........................................ 29
COMPARATIVE RIGHTS OF SHAREHOLDERS.......................... 31
Director Elections........................................ 31
Removal of Directors...................................... 31
Voting.................................................... 31
Preemptive Rights......................................... 31
Directors' Liability...................................... 32
Indemnification........................................... 32
Special Meetings of Shareholders; Action Without a
Meeting................................................ 33
Mergers, Share Exchanges and Sales of Assets.............. 33
Amendment of Certificate of Incorporation and Bylaws...... 33
Rights of Dissenting Shareholders......................... 34
Preferred Stock........................................... 34
Effect of the Reorganization on FirstBank Shareholders.... 35
THE COLONIAL BANCGROUP, INC. AND SUBSIDIARIES............... 36
Condensed Pro Forma Statement of Condition (Unaudited).... 36
FIRSTBANK................................................... 52
Selected Financial Data................................... 52
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS................................. 53
General................................................... 53
Regulation and Legislation................................ 53
Credit Risk............................................... 53
Results of Operations..................................... 54
Rate/Volume Analysis...................................... 55
Liquidity and Capital Resources........................... 56
Regulatory Capital Requirements........................... 57
Asset and Liability Management............................ 58
Comparison of Three Months Ended March 31, 1998 and March
31, 1997............................................... 60
Comparison of Years Ended December 31, 1997 and December
31, 1996............................................... 60
Comparison of Years Ended December 31, 1996 and December
31, 1995............................................... 61
Comparison of Years Ended December 31, 1995 and December
31, 1994............................................... 61
Impact of Inflation and Changing Prices................... 62
BUSINESS OF BANCGROUP....................................... 63
General................................................... 63
Recently Completed and Other Proposed Business
Combinations........................................... 63
Year 2000 Compliance...................................... 64
Voting Securities and Principal Shareholders.............. 65
Security Ownership of Management.......................... 66
Management Information.................................... 67
</TABLE>
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<TABLE>
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BUSINESS OF FIRSTBANK....................................... 68
General................................................... 68
Market Area............................................... 68
Properties................................................ 68
Competition............................................... 68
Year 2000 Compliance...................................... 69
Principal Holders of Common Stock......................... 69
ADJOURNMENT OF SPECIAL MEETING.............................. 69
OTHER MATTERS............................................... 70
DATE FOR SUBMISSION OF BANCGROUP SHAREHOLDER PROPOSALS...... 70
LEGAL MATTERS............................................... 70
EXPERTS..................................................... 70
INDEX TO FINANCIAL STATEMENTS............................... F-1
APPENDIX A -- AGREEMENT AND PLAN OF REORGANIZATION.......... A-1
APPENDIX B -- ARTICLE 5.11 ET SEQ OF THE TEXAS BUSINESS
CORPORATION ACT REGARDING DISSENTERS' RIGHTS.............. B-1
</TABLE>
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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 FirstBank 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 Reorganization of FirstBank, BancGroup and CBG
Corp., whereby CBG Corp. will be merged into FirstBank, and FirstBank will
become a wholly-owned subsidiary of BancGroup.
THE SPECIAL MEETING
The Special Meeting will be held at the principal offices of FirstBank, on
August 25, 1998, at 4:00 p.m., local time, for the purpose of considering and
voting upon the Agreement and the Reorganization. Only holders of record of
FirstBank Common Stock at the close of business on July 1, 1998 (the "Record
Date") are entitled to the notice of and to vote at the Special Meeting. As of
the Record Date, 340,000 shares of FirstBank 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, 13 branches in Georgia, three branches in
Nevada and 75 branches in Florida. BancGroup has also entered into agreements to
acquire five additional banks. 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 set forth above
were calculated as of March 31, 1998. At March 31, 1998, BancGroup had
consolidated total assets of $8.0 billion and consolidated shareholders' equity
of $571.6 million.
FirstBank. FirstBank is a Texas state chartered bank with a single
location in Dallas, Texas. At March 31, 1998, FirstBank had total assets of
$162.9 million, total deposits of $138.1 million and total shareholders' equity
of approximately $8.8 million. See "Business of FirstBank."
THE REORGANIZATION
The Agreement provides for the Reorganization of FirstBank, BancGroup and
CBG Corp. and the Merger of CBG Corp. with and into FirstBank. FirstBank will be
the surviving corporation in the Merger and will become a wholly owned
subsidiary of BancGroup. On the Effective Date, each share of FirstBank Common
Stock will be converted by operation of law into the right to receive a number
of shares of BancGroup Common Stock equal to $123.53 divided by the Market Value
of BancGroup Common Stock. The Market Value will be the average of the closing
prices of BancGroup Common Stock as reported on the NYSE on each of the ten
consecutive trading days ending on the trading day that is the fifth trading
date preceding the Effective Date of the Merger. Upon the conversion of
FirstBank Common Stock into the right to receive BancGroup Common Stock,
shareholders of FirstBank will cease to be shareholders of First Bank and will
become shareholders of BancGroup. On the Effective Date, each share of common of
CBG Corp., par value $1.00, outstanding and held by BancGroup, CBG Corp.'s sole
shareholder, will be converted into one share of FirstBank Common Stock, so that
BancGroup will be the sole and exclusive owner of the outstanding FirstBank
Common Stock.
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<PAGE> 9
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 July 31, 1998. The additional
shares will be distributed pursuant to the Stock Split on August 14, 1998. As
provided in the Agreement, the shareholders of FirstBank will receive in the
Reorganization an appropriate adjustment to reflect the Stock Split.
No fractional shares of BancGroup Common Stock will be issued in the
Reorganization. Each shareholder of FirstBank otherwise entitled to receive a
fractional share of BancGroup Common Stock will receive instead a cash payment
(without interest) equal to such fractional share multiplied by the Market
Value.
Promptly after the Effective Date, FirstBank shareholders will be given
notice of the consummation of the Reorganization and instructions for the
exchange of such shareholders' certificates representing shares of FirstBank
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 FirstBank Common Stock in accordance
with those instructions. FIRSTBANK SHAREHOLDERS SHOULD NOT SEND IN THEIR
CERTIFICATES UNTIL THEY RECEIVE THE INSTRUCTIONS.
See "The Reorganization -- Conversion of FirstBank Common Stock,"
"-- Surrender of FirstBank Common Stock Certificates."
For certain information concerning dissenters' rights, voting at the
Special Meeting, and management of BancGroup and FirstBank, see "The
Reorganization -- Rights of Dissenting Shareholders," "-- Conversion of
FirstBank 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
FirstBank -- Principal Holders of Common Stock."
RECOMMENDATION OF FIRSTBANK'S BOARD OF DIRECTORS
The Board of Directors of FirstBank has unanimously approved the Agreement.
THE BOARD OF DIRECTORS OF FIRSTBANK BELIEVES THAT REORGANIZATION, INCLUDING THE
MERGER, IS FAIR TO, AND IN THE BEST INTERESTS OF, THE SHAREHOLDERS OF FIRSTBANK
AND RECOMMENDS THAT SHAREHOLDERS VOTE FOR THE APPROVAL OF THE AGREEMENT AND THE
OTHER MATTERS SCHEDULED TO COME BEFORE THE MEETING. For a discussion of the
factors considered by the Board of Directors in reaching its conclusions, see
"The Reorganization -- Background of the Reorganization" and "-- FirstBank's
Board of Director's Reasons for Approving the Reorganization."
INTERESTS OF CERTAIN PERSONS IN THE REORGANIZATION
Certain members of FirstBank's management and its Board of Directors have
interests in the Reorganization in addition to, or different from, the interests
of shareholders of FirstBank generally. These interests relate to certain
agreements and arrangements described below.
Roy Gene Evans, FirstBank's Chairman, has entered into a one-year
consulting agreement with BancGroup pursuant to which Mr. Evans will, among
other things, provide certain consulting services to BancGroup and will agree
not to compete with FirstBank or BancGroup during the term of the agreement. Mr.
Evans will receive $250,000 total compensation under the terms of the agreement.
D. Michael Redden, FirstBank's President and Chief Executive Officer, has
entered into a three-year employment and non-competition agreement with
BancGroup to serve as FirstBank's Chief Executive Officer after the Effective
Date. The agreement provides, among other things, that Mr. Redden will receive
annual compensation not less than his current compensation from FirstBank,
options to acquire 20,000 shares of BancGroup common stock at an exercise price
equal to the Market Value and vesting ratably over a three year period and the
right to
2
<PAGE> 10
participate in BancGroup's discretionary cash bonus and stock option plans. The
remaining employees of FirstBank will be asked to enter into one-year
non-competition agreements which provide for aggregate consideration to all
employees as a group of an amount not to exceed $500,000 and not in excess of
one year's compensation as to any one employee. Execution of these agreements by
Mark Wells and Debra Windham, who are executive officers and directors of
FirstBank is a condition to consummation of this Merger.
On the Effective Date and subject to the existing agreements discussed
above, all employees of FirstBank will, at BancGroup's option, remain employees
of FirstBank, a wholly owned subsidiary of BancGroup, become employees of
BancGroup or its other 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 FirstBank who remain employees of FirstBank, a
wholly owned subsidiary of BancGroup, or become employees of BancGroup or its
subsidiaries on the Effective Date will be entitled, to the extent permitted by
applicable law, to participate in all benefit plans of BancGroup to the same
extent as BancGroup's employees.
Except as indicated above, none of the directors or executive officers of
FirstBank, and no associate of any such person, has any substantial direct or
indirect interest in the Reorganization, other than an interest arising from the
ownership of FirstBank Common Stock.
See "The Reorganization -- Interests of Certain Persons in the
Reorganization."
VOTE REQUIRED
Under Texas law, the Agreement, the Reorganization and the Merger must be
approved by the affirmative vote of the holders of at least 66 2/3% of the
340,000 outstanding shares. Each share of FirstBank Common Stock is entitled to
one vote on the Agreement, the Reorganization and the Merger. Approval of the
Agreement and the Reorganization (including the Merger) by BancGroup
shareholders is not required under Delaware, Alabama, Texas 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 FirstBank 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, 340,000 shares of FirstBank Common Stock were issued and
outstanding. As of the Record Date, the directors and executive officers of
FirstBank beneficially owned approximately 200,282 shares (58.9%) of the
outstanding shares of FirstBank Common Stock. As of the same date, the
directors, executive officers and affiliates of BancGroup held no shares of
FirstBank Common Stock. See "The Special Meeting."
As of the Record Date, the directors of FirstBank beneficially owned
200,282 shares of FirstBank Common Stock representing approximately 58.9% 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 FirstBank in the envelope enclosed herewith.
Shareholders of FirstBank submitting proxies may revoke their proxies by (i)
giving notice of such revocation in writing to the Secretary of FirstBank at or
prior to the Special Meeting, (ii) by executing and delivering a proxy bearing a
later date to the Secretary of FirstBank at or prior to the Special Meeting, or
(iii) by attending the Special Meeting and voting in person. Because approval of
the Agreement, the Reorganization and the Merger requires the approval of at
least 66 2/3% of the 340,000 outstanding shares of FirstBank Common Stock,
failure to submit a proxy or failure to vote in person at the Special Meeting
will have the same effect as a negative vote. See "The Special
Meeting -- Solicitation, Voting and Revocation of Proxies."
RIGHTS OF DISSENTING SHAREHOLDERS
Holders of FirstBank Common Stock are entitled to exercise dissenters'
rights of appraisal pursuant to Section 32.303 of the Texas Finance Code and
Article 5.11 et seq. of the Texas Business Corporation Act (the "TBCA"). A
holder of FirstBank Common Stock who votes against the Agreement and the
Reorganization and otherwise complies with the procedures established by these
statutory provisions is entitled to demand the
3
<PAGE> 11
fair value of such shareholders FirstBank Common Stock in cash, subject to a
condition of the Agreement which conditions completion of the Reorganization on
exercise of dissenters' rights by holders of an aggregate of less than 10% of
the total shares of FirstBank Common Stock outstanding. See "The
Reorganization -- Dissenters' Rights." Shareholders who exercise dissenters'
rights will not have the same tax treatment as FirstBank shareholders whose
FirstBank Common Stock is converted into BancGroup stock. See "The
Reorganization -- Certain Federal Income Tax Consequences."
CONDITIONS TO THE REORGANIZATION
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 FirstBank and BancGroup to consummate the Reorganization
are conditioned upon, among other things: (i) the approval of the Agreement, the
Reorganization and the Merger by the holders of at least 66 2/3% of the 340,000
outstanding shares ; (ii) the approval of the Reorganization and/or the Merger
by the Board of Governors of the Federal Reserve Board (the "Federal Reserve"),
by the Federal Deposit Insurance Corporation (the "FDIC") and by the Texas
Banking Department (the "Texas Department"); (iii) each party's having obtained
consents of third parties required for the consummation of the Reorganization 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 Reorganization or in which it is sought to
obtain divestiture, rescission or damages in connection with the Reorganization;
(vi) the absence of any investigation by any governmental agency which might
result in any such proceeding; (vii) consummation of the Reorganization no later
than December 31, 1998; (vii) receipt of an opinion of PricewaterhouseCoopers
LLP regarding certain tax matters; and, (ix) receipt of opinions of counsel.
The obligation of FirstBank to consummate the Reorganization 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 Reorganization is subject to
several other conditions, including, among others: (i) the absence of any
material adverse change in the financial condition or affairs of FirstBank; (ii)
the number of shares as to which holders of FirstBank Common Stock exercise
dissenters' rights not exceeding 10% of the outstanding shares of FirstBank
Common Stock; (iii) the receipt of a letter from PricewaterhouseCoopers LLP
concurring with the conclusions of BancGroup's and FirstBank'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 FirstBank contained in the
Agreement, and the performance by FirstBank of all of its covenants and
agreements under the Agreement; (v) the execution and delivery of certain
consulting, employment, and non-competition agreements by the Chairman, the
President and other employees of FirstBank; and, (vi) the receipt by BancGroup
of certain undertakings from holders of FirstBank Common Stock who may be deemed
to be "affiliates" of FirstBank pursuant to the rules of the Commission.
Applications for appropriate regulatory approvals by the Federal Reserve,
the FDIC and the Texas Department were filed with such agencies on June 25,
1998. The approvals of the FDIC, the Federal Reserve and the Texas Department
are anticipated before the Special Meeting. It is currently anticipated that the
Reorganization will be consummated during the third 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
Reorganization can or will be satisfied.
4
<PAGE> 12
See "The Reorganization -- Conditions to Consummation of the
Reorganization" 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. 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 approval of the Agreement by the
shareholders of FirstBank, by the mutual consent of the respective Boards of
Directors of FirstBank and BancGroup, or by the Board of Directors of either
BancGroup or FirstBank 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.
See "The Reorganization -- Amendment or Termination of Agreement."
COMPARATIVE RIGHTS OF SHAREHOLDERS
The rights of the holders of the FirstBank 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 are set forth at "Comparative Rights of
Shareholders."
FEDERAL INCOME TAX CONSEQUENCES
The Reorganization is intended to qualify as a "reorganization" for federal
income tax purposes under Section 368(a)(1)(B) of the Internal Revenue Code of
1986, as amended (the "Code"). No ruling with respect to the federal income tax
consequences of the Reorganization to FirstBank's shareholders will be requested
from the Internal Revenue Service (the "IRS"). FirstBank has received an opinion
from PricewaterhouseCoopers LLP, that, among other things, a shareholder of
FirstBank who exchanges shares of FirstBank Common Stock for BancGroup Common
Stock will not recognize gain, except that shareholders of FirstBank 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 FirstBank 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 Reorganization -- Certain Federal Income Tax
Consequences." Tax consequences of the Reorganization for individual tax payers
can vary, however, and FirstBank shareholders are urged to consult their own tax
advisors as to the specific tax consequences of the Reorganization to them.
ACCOUNTING TREATMENT
The Reorganization will be treated as a "pooling-of-interests" transaction
by BancGroup for accounting purposes. See "The Reorganization -- Accounting
Treatment."
5
<PAGE> 13
RECENT PER SHARE MARKET PRICES
FirstBank. There is no established public trading market for the FirstBank
Common Stock. The shares of FirstBank Common Stock are not actively traded, and
such trading activity, as it occurs, takes place in privately negotiated
transactions. Management of FirstBank is aware of certain transactions in shares
of FirstBank that have occurred since January 1, 1996, although there may have
been transactions in FirstBank shares which have not been submitted for
registration and transfer. The following table sets forth the trading prices for
the shares of FirstBank Common Stock that have occurred since January 1, 1996
for transactions in which the trading prices are known to management of
FirstBank:
<TABLE>
<CAPTION>
PRICE PER SHARE
OF COMMON STOCK
---------------
HIGH LOW
------ ------
<S> <C> <C>
1996
First Quarter............................................... $17.50 $17.50
Second Quarter.............................................. -- --
Third Quarter............................................... -- --
Fourth Quarter.............................................. -- --
1997
First Quarter............................................... $24.73 $24.73
Second Quarter.............................................. -- --
Third Quarter............................................... -- --
Fourth Quarter.............................................. -- --
1998
First Quarter............................................... -- --
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 for the last two full
fiscal years and the first quarter of 1998.
<TABLE>
<CAPTION>
PRICE PER SHARE OF
COMMON STOCK(1)
------------------
HIGH LOW
-------- -------
<S> <C> <C> <C> <C>
1996
First Quarter............................................... $18 1/4 $15
Second Quarter.............................................. 18 1/16 15 5/8
Third Quarter............................................... 17 15/16 15 5/8
Fourth Quarter.............................................. 20 1/8 17 3/18
1997
First Quarter............................................... 24 18 2/3
Second Quarter.............................................. 24 7/8 22
Third Quarter............................................... 29 3/16 24 1/4
Fourth Quarter.............................................. 35 1/16 28 15/16
1998
First Quarter............................................... 36 1/4 31 1/2
Second Quarter.............................................. 37 9/16 29 1/2
Third Quarter (through July 14, 1998)....................... 33 11/16 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.
6
<PAGE> 14
On May 4, 1998, the business day immediately prior to the public
announcement of the Reorganization, the closing price of the BancGroup Common
Stock on the NYSE was $35.0625 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 FirstBank Common Stock on that
date:
<TABLE>
<CAPTION>
BANCGROUP FIRSTBANK EQUIVALENT
COMMON COMMON BANCGROUP
STOCK(1) STOCK(2) COMMON STOCK(3)
--------------- --------------- ---------------
<S> <C> <C> <C>
Comparative Market Value.............. $35.0625 $24.73 $123.53
</TABLE>
- ---------------
(1) Closing price as reported by the NYSE on May 4, 1998.
(2) There is no established public trading market for the shares of FirstBank
Common Stock. The value shown is the price at which shares of FirstBank
Common Stock were sold in February, 1997, which was the last sale price
prior to the public announcement of the Reorganization on May 4, 1998, of
which management of FirstBank 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
$36.83125 on May 4, 1998. Therefore, if the Merger had closed on May 4,
1998, 3.3539 ($123.53 divided by $36.83125) shares of BancGroup Common Stock
would have been exchanged for each share of FirstBank 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: (i) a classified board
of directors, (ii) super majority voting requirements for certain "business
combinations" that exceed the provisions of Delaware law described above, (iii)
flexibility for the Board of Directors to consider non-economic and other
factors in evaluating a "business combination," (iv) inability of shareholders
to call special meetings and act by written consent, and (v) certain advance
notice provisions for the conduct of business at shareholder meetings.
See "BancGroup Capital Stock and Debentures" and "Comparative Rights of
Shareholders."
7
<PAGE> 15
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 FirstBank on a
historical basis and on a pro forma equivalent basis assuming consummation of
the Merger. Certain information from the table has been taken from the condensed
pro forma statements of condition and income included elsewhere in this
document. The table should be read in conjunction with these pro forma
statements.
<TABLE>
<CAPTION>
THREE MONTHS THREE MONTHS YEAR YEAR YEAR
ENDED ENDED ENDED ENDED ENDED
MARCH 31, 1998 MARCH 31, 1997 1997 1996 1995
-------------- -------------- ------ ------ ------
<S> <C> <C> <C> <C> <C>
BancGroup -- Historical (as restated*):
Net Income
Basic................................................... $ 0.38 $ 0.42 $ 1.77 $ 1.31 $ 1.27
Diluted................................................. 0.37 0.41 1.72 1.27 1.18
Book value at end of period................................. 11.88 10.64 11.52 10.23 9.38
Dividends per share:
Common Stock............................................ 0.17 0.15 0.60 0.54 0.3375
Common A**.............................................. 0.1125
Common B**.............................................. 0.0625
FirstBank
Net Income
Historical:
Basic................................................... 2.75 0.99 8.19 4.27 3.35
Diluted................................................. 2.75 0.99 8.19 4.27 3.35
Pro forma equivalent assuming combination with FirstBank
and completed business combination(b):
Basic................................................... 1.44 1.56 6.65 4.98 4.71
Diluted................................................. 1.41 1.52 6.46 4.79 4.41
Pro forma equivalent assuming combination with FirstBank,
completed business combination and other probable
business combinations(b):
Basic................................................... 1.44 1.56 6.61 4.94 4.68
Diluted................................................. 1.41 1.52 6.42 4.75 4.37
Book value at end of period
Historical................................................ 25.84 19.17 24.32 19.02 15.28
Pro forma equivalent assuming combination with FirstBank
and completed business combination(b).................... 44.67 N/A N/A N/A N/A
Pro forma equivalent assuming combination with FirstBank,
completed business combination and other probable
business combinations(b)................................. 44.01 N/A N/A N/A N/A
Dividends per share
Historical................................................ -- -- -- -- --
Pro forma equivalent assuming combination with FirstBank
and completed business combination(b).................... 0.65 0.57 2.28 2.05 1.71
Pro forma equivalent assuming combination with FirstBank,
completed business combination and other probable
business combinations(c)................................. 0.65 0.57 2.28 2.05 1.71
BancGroup-Pro Forma Combined (FirstBank and completed
business combination):
Net Income
Basic................................................... 0.38 0.41 1.75 1.31 1.24
Diluted................................................. 0.37 0.40 1.70 1.26 1.16
Book value at end of period................................. 11.75 N/A N/A N/A N/A
BancGroup-Pro Forma Combined (FirstBank, 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................................. 11.58 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.
8
<PAGE> 16
** 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 data in accordance with Rule 11.02(b) of Regulation S-X.
(a) Before February 21, 1995, BancGroup had two classes of common stock
outstanding, Class A and Class B. Class B was not publicly traded. Class A
was traded on the Nasdaq National Market System under the symbol of "CLBGA"
until February 24, 1995. On February 21, 1995, the Class A and Class B
common stock were reclassified into the BancGroup Common Stock. Trading on
the NYSE commenced on February 24, 1995.
(b) Pro forma equivalent per share amounts are calculated by multiplying the
pro forma combined total income per share and the pro forma combined total
book value per share of BancGroup by the conversion ratio so that the per
share amounts are equated to the respective values for one share of
FirstBank. For these pro forma equivalent per share amounts, a 3.8009
BancGroup common stock conversion ratio is utilized.
(c) Pro forma equivalent dividends per share are shown at BancGroup's Common
Stock dividend per share rate multiplied by the 3.8009 conversion ratio per
share of FirstBank common stock (see note (a)). BancGroup presently
contemplates that dividends will be declared in the future. However, the
payment of cash dividends is subject to BancGroup's actual results of
operations as well as certain other internal and external factors.
Accordingly, there is no assurance that cash dividends will either be
declared and paid in the future, or, if declared and paid, that such
dividends will approximate the pro forma amounts indicated.
9
<PAGE> 17
THE SPECIAL MEETING
GENERAL
This Prospectus is being furnished to the shareholders of FirstBank in
connection with the solicitation of proxies by the Board of Directors of
FirstBank 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 Reorganization of FirstBank, BancGroup
and CBG Corp., including the Merger of CBG Corp. with and into FirstBank, with
FirstBank to be the surviving corporation in the Merger as a wholly owned
subsidiary of BancGroup and on other matters ancillary to the Merger.
THE BOARD OF DIRECTORS OF FIRSTBANK BELIEVES THAT THE REORGANIZATION,
INCLUDING THE MERGER, IS IN THE BEST INTERESTS OF FIRSTBANK AND ITS SHAREHOLDERS
AND UNANIMOUSLY RECOMMENDS THAT SHAREHOLDERS VOTE "FOR" THE AGREEMENT (ITEM 1 ON
THE PROXY CARD) AND "FOR" THE OTHER MATTERS SCHEDULED TO COME BEFORE THEM AT THE
SPECIAL MEETING (ITEMS 2 AND 3 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 Reorganization. No vote
of BancGroup shareholders is required to approve the Reorganization, including
the Merger.
RECORD DATE; SHARES ENTITLED TO VOTE; VOTE REQUIRED FOR THE REORGANIZATION
The Board of Directors of FirstBank has fixed the close of business on July
1, 1998, as the Record Date for determination of shareholders entitled to vote
at the Special Meeting. As of the Record Date, there were 30 record holders of
FirstBank Common Stock and 340,000 shares of FirstBank Common Stock outstanding,
each entitled to one vote per share.
The presence at the Special Meeting, in person or by proxy, of the holders
of 170,001 of the outstanding shares of FirstBank Common Stock on the Record
Date is necessary to constitute a quorum for the transaction of business at the
Special Meeting. In the absence of a quorum, the Special Meeting may be
postponed from time to time until FirstBank shareholders holding the requisite
number of shares of FirstBank Common Stock are represented in person or by
proxy. If a quorum is present, the affirmative vote of the holders of at least
66 2/3% of the total outstanding shares is required to approve the Agreement and
the proposed increase in the number of authorized shares; the vote of 67% of the
total shares is required to terminate the Shareholders 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 FirstBank 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.
Assuming the Reorganization is consummated, a dissenting shareholder will
be entitled to receive for each share of FirstBank Common Stock as to which
dissenters' rights are perfected the fair value of such shares in cash as
determined pursuant to applicable statutory provisions.
As of the Record Date, directors of FirstBank owned 200,282 shares of
FirstBank Common Stock representing approximately 58.9% of the outstanding
shares. These individuals have agreed with BancGroup to vote their shares in
favor of the Reorganization. As of the Record Date, the directors, executive
officers and affiliates of BancGroup held no shares of FirstBank Common Stock.
If the Agreement is approved at the Special Meeting, CBG Corp. is expected
to merge with and into FirstBank, with FirstBank to be the surviving corporation
as a wholly owned subsidiary of BancGroup, promptly after the other conditions
to the Agreement are satisfied. See "The Reorganization -- Conditions to
Consummation of the Reorganization."
THE BOARD OF DIRECTORS OF FIRSTBANK URGES THE SHAREHOLDERS OF FIRSTBANK TO
EXECUTE AND RETURN THE ENCLOSED PROXY CARD AS SOON AS POSSIBLE AND UNANIMOUSLY
RECOMMENDS THAT THE SHARES REPRESENTED BY THE
10
<PAGE> 18
PROXY BE VOTED IN FAVOR OF THE AGREEMENT AND THE OTHER MATTERS SCHEDULE TO COME
BEFORE THE MEETING.
SOLICITATION, VOTING AND REVOCATION OF PROXIES
In addition to soliciting proxies by mail, directors, officers and other
employees of FirstBank, without receiving special compensation therefor, may
solicit proxies from FirstBank'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 FirstBank Common Stock.
FirstBank will bear the cost of mailing this Prospectus and other materials
furnished to shareholders of FirstBank. It will also pay all other expenses of
solicitation of proxies, including the expenses of brokers, custodians,
nominees, and other fiduciaries who, at the request of FirstBank, 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 Reorganization.
Shares of FirstBank 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 FirstBank Common Stock
represented by the proxy will be voted "FOR" the proposal to approve the
Agreement and the other matters scheduled to come before the Special Meeting and
in accordance with the determination of the majority of the Board of Directors
of FirstBank 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
Cashier of FirstBank, prior to or at the Special Meeting, a written notice
revoking the proxy; (ii) delivering to the Cashier of FirstBank, 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 FirstBank's proxies should be
addressed to:
FIRSTBANK
15150 Preston Road
Dallas, Texas 75248
Attention: Debra Windham
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 FirstBank is not aware of any business to be
acted upon at the Special Meeting other than consideration of the Agreement and
the Reorganization an increase in the number of authorized shares of common
stock of FirstBank and termination of the FirstBank Shareholders' Agreement
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 and the other matters schedule to come before the Special Meeting, 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."
11
<PAGE> 19
EFFECT OF THE REORGANIZATION ON OUTSTANDING BANCGROUP COMMON STOCK
Assuming that no dissenters' rights of appraisal are exercised in the
Reorganization and prior to giving effect to the Stock Split of BancGroup, to be
effective August 14, 1998, and that the Market Value of BancGroup Common Stock
is $32.50 on the Effective Date, BancGroup will issue 1,292,314 shares of
BancGroup Common Stock to the shareholders of FirstBank pursuant to the
Reorganization. (As of July 14, 1998, the ten-day average of closing prices for
BancGroup Common Stock was $32.50.) Based on those assumptions, the 1,292,314
shares of BancGroup Common Stock would represent approximately 2.56% of the
total number of shares of BancGroup Common Stock outstanding following the
Reorganization, not counting any additional shares BancGroup may issue in other
transactions or for other purposes. See "Business of BancGroup -- Recently
Completed and Other Proposed Business Combinations."
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THE REORGANIZATION
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 Texas law relating to the, a copy of which is attached hereto as
Appendix B. All FirstBank 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
FirstBank, receipt of necessary regulatory approval and satisfaction of certain
other conditions described below at "-- Conditions to Consummation of the
Reorganization," CBG Corp. will merge with and into FirstBank. Upon completion
of the Merger, the corporate existence of CBG Corp. will cease, and FirstBank
will succeed to the business formerly conducted by CBG Corp. as a subsidiary of
BancGroup. In consideration of the Reorganization, issued and outstanding shares
of FirstBank Common Stock will be converted into the right to receive shares of
BancGroup Common Stock, and, on the Effective Date, shareholders of FirstBank
will become shareholders of BancGroup as described below at "-- Conversion of
FirstBank Common Stock" and "-- Surrender of FirstBank Common Stock
Certificates."
BACKGROUND OF THE REORGANIZATION
The banking industry both nationally and in Texas has for several years
been characterized by aggressive consolidation as regulatory barriers to
operating in multiple states have been lowered and technology costs, expansion
of products and services offered by banks and other competitive considerations
have given larger organizations some operating and cost advantages. At the same
time, due to the attractiveness of the Texas economy in general and the Dallas
economy in particular, many out-of-state based organizations have determined to
enter or increase their presence in this market.
While FirstBank's Board of Directors and management never decided to
affirmatively seek out potential acquisition proposals, due to these national
industry trends and local market conditions, FirstBank has received a number of
unsolicited inquiries from organizations interested in discussing an acquisition
of FirstBank and has held preliminary discussions with certain of those parties.
FirstBank was initially approached by BancGroup in February 1998 through an
investment banking firm working for BancGroup. Preliminary discussions between
Messrs. Evans and Redden and BancGroup's management indicated that the two
organizations appeared to share compatible objectives and philosophies, that the
terms of the transaction would be as favorable or more favorable to FirstBank's
shareholders than the other proposals management had received, and that an
affiliation with BancGroup could help solidify and enhance FirstBank's
competitive position in the Dallas market.
In discussions that continued into April 1998, FirstBank's management
sought and obtained from BancGroup an increase in the initial value proposed by
BancGroup and BancGroup's agreement that the value would be fixed and not
dependent on the price of BancGroup's stock at closing. Subsequently, FirstBank
deferred actively pursuing discussions with other potential acquirers which had
indicated an interest in acquiring FirstBank because their proposed values did
not compare favorably to BancGroup's proposal based on the total value and, in
some cases, on the perceived attractiveness or liquidity of securities to be
issued in exchange for FirstBank's stock. No other potential acquirer indicated
an interest at a value greater than that ultimately proposed by BancGroup.
Management of FirstBank also perceived BancGroup's proposal to be preferable
because BancGroup's management philosophies were similar to FirstBank's and so
presented a low risk of potential employee or customer disruption and,
consequently, a lower risk that the transaction would not be completed.
In April 1998 the Board of Directors reviewed and gave preliminary approval
to a non-binding term sheet submitted by BancGroup, and BancGroup completed a
favorable due diligence review of FirstBank's operations and financial records.
On May 5, 1998 the Board of Directors unanimously approved the
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Agreement following extensive discussions and analysis outside of formal
meetings and presentations on the terms of the Agreement by management and
counsel for FirstBank.
FIRSTBANK'S BOARD OF DIRECTOR'S REASONS FOR APPROVING THE REORGANIZATION
In connection with its evaluation of the Reorganization and its ultimate
decision to approve the Reorganization, FirstBank's Board of Directors
considered the near and long term prospects of FirstBank and the interests of
its shareholders as well as the impact of the transaction on FirstBank's
employees, customers and community. The conclusion of the Board of Directors was
that the Reorganization and affiliation with BancGroup were consistent with the
interests of FirstBank and each of these constituent groups for the reasons
discussed below.
With respect to FirstBank itself, the Board of Directors and management
recognized that FirstBank had been successful and a strong competitor in niche
markets, but that its ability to compete against other larger competitors with
respect to a broader market segment was limited by its size, capital base,
single location and other factors. Affiliation with a larger, multi-state
organization gave FirstBank the ability to expand its capabilities and locations
in Texas, to offer a broader array of services to customers and an enhanced
ability to compete for national customers, access to broader capital markets,
and access to technology systems not otherwise available to it. The Board of
Directors and management evaluated BancGroup's management philosophy and found
it consistent with FirstBank's own priority on high customer service standards.
The Board of Directors also believes the Reorganization is in the best
interests of FirstBank's shareholders and believes the consideration to be
received by them in the Reorganization is fair. In making this evaluation, the
Board of Directors and management had access to and considered FirstBank's
historical and projected operating results, publicly available information on
BancGroup's own financial performance and condition, evaluations of BancGroup's
stock by several financial analysts, information on comparable transactions
involving both BancGroup and other organizations active in acquiring community
banks, and information on the volume of trading and price trends of BancGroup's
stock.
FirstBank's Board of Directors took into consideration the fact that
liquidity for its stock is extremely limited and viewed favorably the fact that
BancGroup's stock is listed on the New York Stock Exchange and that trading
volumes appeared sufficient to afford former FirstBank shareholders reasonable
liquidity in the event they desired to sell stock received in the
Reorganization.
With respect to value, the Board of Directors considered retaining an
outside financial advisor to assist it in evaluating the fairness of the Merger
consideration, but decided not to do so because the Board of Directors and
management owned approximately 60% of the stock of FirstBank and so adequately
represented the shareholders as a group, outside directors comprised a majority
of the Board of Directors, and the Board of Directors and management had access
to and the ability to analyze substantially all the information that would have
been available to an outside financial advisor. The Board of Directors also did
not regard the Employment Agreement, Consulting Agreement, or Non-Competition
Agreements to be entered into by Messrs. Redden, Evans and Wells and Ms. Windham
to present material conflicts with the interests of shareholders generally given
the terms of these agreements and the relatively large amounts of stock owned by
those management directors.
In assessing the adequacy and fairness of the consideration to be received
by FirstBank shareholders in the Reorganization, the Board of Directors
considered all of the unsolicited preliminary proposals which had been received
by FirstBank over a several month period, including several which were received
after preliminary discussions with BancGroup had begun. If also considered
summaries of the financial terms of a number of other community and other bank
acquisitions in transactions involving both BancGroup and other banking
organizations. Based on ratios of the value of the Merger Consideration to be
received by FirstBank stockholders to FirstBank's book value, earnings, deposits
and assets, when adjusted to take into account FirstBank's treatment as a
Subchapter "S" corporation for federal income tax purposes, the terms of the
Agreement and the value of the consideration compare favorably to the average of
such ratios for other similar transactions and are comparable to the ratios in
transactions involving high performing community banks.
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Additionally, no other potential acquirers which had approached FirstBank had
proposed terms which were more favorable to FirstBank's shareholders than
BancGroup's proposal.
The Board of Directors did not regard the provisions of the Agreement which
limited their rights to solicit, or in some cases to consider, other proposals
to be likely to come into effect or to be detrimental to shareholders of
FirstBank, and as shareholders, all members of the Board of Directors have
agreed to vote any stock they own in favor of the Reorganization.
The Board of Directors regarded the terms of the Reorganization and
affiliation with BancGroup as consistent with the interests of its employees as
BancGroup contemplated the retention of all employees, continuation of current
management, and comparable compensation and benefits for employees generally.
Affiliation with BancGroup and possible expansion of its Texas operations also
provides enhanced possibilities for employee advancement within the organization
that FirstBank as a stand-alone organization could not offer.
With respect to its customers, FirstBank's management was satisfied that
BancGroup shared their priority for high levels of service and personal
attention to customer needs and offered current and prospective customers
expanded services and products. BancGroup also appeared to be responsive to the
communities in which it operated and to share FirstBank's values with respect to
responsible involvement in civic and charitable activities.
RECOMMENDATION OF THE BOARD OF DIRECTORS OF FIRSTBANK
The Board of Directors of FirstBank has determined that the Reorganization
is in the best interests of FirstBank and its shareholders. THE BOARD OF
DIRECTORS UNANIMOUSLY RECOMMENDS THAT THE SHAREHOLDERS OF FIRSTBANK VOTE IN
FAVOR OF THE APPROVAL AND ADOPTION OF THE AGREEMENT AND THE REORGANIZATION AND
THE OTHER MATTERS ANCILLARY TO THE MERGER SCHEDULED TO COME BEFORE THE SPECIAL
MEETING.
BANCGROUP'S REASONS FOR THE REORGANIZATION
The Board of Directors of BancGroup has unanimously approved the Agreement
and the Reorganization. BancGroup currently operates Colonial Bank as a network
of "community banks" primarily in the Southeastern United States and operates
Colonial Mortgage Company, a subsidiary of Colonial Bank, as a mortgage banking
company in 34 states. Responding to the advent of interstate banking and its
experience outside of the Southeast through Colonial Mortgage Company, BancGroup
has identified the opportunity to make selective acquisitions nationwide in
areas of unusually favorable demographic characteristics. The Board of Directors
regards the Reorganization as an opportunity to enter the Dallas, Texas market
area through the acquisition of FirstBank as a Texas bank subsidiary.
In approving the Reorganization and the Agreement, the Board of Directors
of BancGroup took into account, among other things: (i) the size and strength of
the Texas economy in general and the Dallas economy in particular, (ii) the
experience of Colonial Mortgage Company in the Dallas market area, (iii) the
financial performance and condition of FirstBank, including its strong capital
and good asset quality, (iv) similarities in the philosophies of FirstBank and
BancGroup, including FirstBank's commitment to delivering high quality
personalized financial services to its customers, and (v) FirstBank's
management's knowledge of and experience in the Dallas market area.
INTERESTS OF CERTAIN PERSONS IN THE REORGANIZATION
Certain members of FirstBank's management and its Board of Directors have
interests in the Reorganization in addition to, or different from, the interests
of shareholders of FirstBank generally. These interests relate to certain
agreements and arrangements described below.
Roy Gene Evans, FirstBank's Chairman has entered into a consulting
agreement with BancGroup, pursuant to which Mr. Evans will provide advice and
assistance to BancGroup in connection with expansion opportunities for BancGroup
and FirstBank in Texas. The agreement also provides that, for the term of the
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<PAGE> 23
agreement, Mr. Evans will not compete with the business of FirstBank or
BancGroup. The agreement has a term of one year and provides that Mr. Evans will
receive total compensation of $250,000.
D. Michael Redden, FirstBank's President and Chief Executive Officer, has
entered into an employment and non-competition agreement with BancGroup to serve
as FirstBank's Chief Executive Officer after the Effective Date. The agreement
has a term of three years and provides, among other things, that Mr. Redden (i)
will be paid annually an amount not less than his current aggregate
compensation, (ii) will be eligible to participate in BancGroup's discretionary
cash bonus and stock option plans, and (iii) will be granted options to acquire
up to 20,000 shares of BancGroup Common Stock at an exercise price equal to the
Market Value and vesting ratably over a three-year period.
Each of the employees of FirstBank, other than Mr. Evans and Mr. Redden,
will be afforded rights to enter into an agreement not to compete with BancGroup
for a period of one year, if such employee voluntarily terminates his or her
employment with BancGroup or FirstBank after the Effective Date and his or her
annual compensation at the time of termination is substantially equivalent to
his or her annual compensation from FirstBank on the Effective Date. The
employees will be compensated for their agreement not to compete, provided that
the aggregate consideration paid to all employees as a group may not exceed
$500,000 and no employee receives consideration in excess of his or her 1997
annual compensation from FirstBank. Execution of these agreements by Mark Wells
and Debra Windham, executive officers and directors of FirstBank, is a condition
to consummation of the Merger.
On the Effective Date, all employees of FirstBank (including its executive
officers) will, at BancGroup's option, remain employees of FirstBank, a wholly
owned subsidiary of BancGroup, become employees of BancGroup or its other
subsidiaries, or be entitled to severance benefits in accordance with the
severance policy of BancGroup's wholly owned subsidiary bank, 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 FirstBank who become employees
of BancGroup. All employees of FirstBank who remain employees of FirstBank, a
wholly owned subsidiary of BancGroup, or 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's intention is to retain all
employees.
Except as described above, none of the directors or executive officers of
FirstBank, and no associate of any such person, has any substantial direct or
indirect interest in the Reorganization, other than an interest arising from the
ownership of FirstBank Common Stock.
CONVERSION OF FIRSTBANK COMMON STOCK
On the Effective Date, each share of FirstBank Common Stock outstanding and
held by FirstBank'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 the right to receive shares of BancGroup
Common Stock equal to $123.53 divided by Market Value. The Market Value shall be
the average of the closing prices of BancGroup Common Stock as reported on the
NYSE on each of the ten consecutive trading days ending on the trading day that
is the fifth trading day immediately preceding the Effective Date of the Merger.
For example, if the Market Value is $32.50, each share of FirstBank Common Stock
will be converted into 3.8009 ($123.53 / $32.50) shares of BancGroup Common
Stock.
No fractional shares of BancGroup Common Stock will be issued in the
Reorganization. Each shareholder of FirstBank 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 July 14, 1998, the ten-day average of the closing prices of BancGroup
Common Stock was $32.50. Shareholders are advised to obtain current market
quotations for BancGroup Common Stock. The Market Value of BancGroup Common
Stock at the Effective Date, or the market price of BancGroup Common Stock on
the date on which certificates representing such shares are received by
FirstBank 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.
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The Agreement provides that if, prior to the Effective Date, BancGroup
Common Stock is changed into a different number of shares or a different class
of shares by reason of any recapitalization or reclassification, stock dividend,
combination, stock split, or reverse stock split of the BancGroup Common Stock,
an appropriate and proportional adjustment will be made in the number of shares
of BancGroup Common Stock into which the FirstBank Common Stock will be
converted in the Reorganization.
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 July 31, 1998. The additional
shares will be distributed pursuant to the Stock Split on August 14, 1998. In
accordance with the Agreement, the shareholders of FirstBank will receive an
appropriate adjustment in the amount of BancGroup Common Stock they will receive
in connection with the Reorganization to reflect the Stock Split.
SURRENDER OF FIRSTBANK COMMON STOCK CERTIFICATES
Upon the Effective Date and subject to the conditions described at
"-- Conditions to Consummation of the Reorganization," FirstBank's shareholders
(except to the extent that such holders perfect dissenters' rights of appraisal
under the Texas Finance Code and the TBCA) will automatically, and without
further action by such shareholders or by BancGroup, become holders of BancGroup
Common Stock as described herein. Thereafter, upon surrender of the certificates
formerly representing shares of FirstBank 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 FirstBank unless and until such
shareholder surrenders for cancellation his certificate for FirstBank 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
FirstBank Common Stock surrendered in connection with the Reorganization.
A detailed explanation of these arrangements will be mailed to FirstBank
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 Reorganization is intended to qualify as a "reorganization" for federal
income tax purposes under Section 368(a)(1)(B) of the Code. The obligation of
the parties to consummate the Reorganization is conditioned on the receipt of an
opinion in form and substance reasonably satisfactory to FirstBank and BancGroup
from PricewaterhouseCoopers LLP, which serves as BancGroup's independent public
accountant, to the effect that the Reorganization will constitute such a
reorganization. A copy of such opinion has been delivered to FirstBank. In
delivering its opinion, PricewaterhouseCoopers LLP,, has received and relied
upon certain representations contained in certificates of officers of BancGroup
and FirstBank and certain other information, data, documentation and other
materials as it deems necessary. The tax opinion is based upon customary
assumptions contained therein, including the assumption that FirstBank has no
knowledge of any plan or intention on the part of the FirstBank 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 FirstBank Common Stock outstanding
immediately upon consummation of the Reorganization.
Neither FirstBank nor BancGroup intends to seek a ruling from the IRS as to
the federal income tax consequences of the Reorganization. FirstBank's
shareholders should be aware that the opinion of PricewaterhouseCoopers LLP.
will not be binding on the IRS or the courts. FirstBank's shareholders also
should be aware that some of the tax consequences of the Reorganization 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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<PAGE> 25
The tax opinion states that, provided the assumptions stated therein are
satisfied, the Reorganization will constitute a reorganization as defined in
Section 368(a) of the Code, and the following federal income tax consequences
will result to FirstBank's shareholders who exchange their shares of FirstBank
Common Stock for shares of BancGroup Common Stock:
(i) No gain or loss will be recognized by FirstBank's shareholders on
the exchange of shares of FirstBank Common Stock for shares of BancGroup
Common Stock;
(ii) The aggregate basis of BancGroup Common Stock received by each
FirstBank 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 FirstBank Common Stock surrendered in
exchange therefor;
(iii) The holding period of the shares of BancGroup Common Stock
received by each FirstBank shareholder will include the period during which
the shares of FirstBank Common Stock exchanged therefor were held, provided
that the shares of FirstBank Common Stock were a capital asset in the
holder's hands as of the Effective Date;
(iv) Cash payments received by each FirstBank 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 FirstBank Common Stock is a capital asset in the hands of
the holder;
(v) No gain or loss will be recognized by FirstBank 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 FirstBank;
(vi) The basis of the assets of FirstBank acquired by Colonial Bank
will be the same as the basis of the assets in the hands of FirstBank
immediately prior to the Reorganization;
(vii) The holding period of the assets of FirstBank in the hands of
Colonial Bank will include the period during which such assets were held by
FirstBank; and
(vii) A FirstBank 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 FirstBank Common Stock converted, if the shares of FirstBank
Common Stock were held as capital assets. However, a FirstBank 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 FirstBank shareholder will be required to report on such shareholder's
federal income tax return for the fiscal year of such shareholder in which the
Reorganization 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 FIRSTBANK, TO
FIRSTBANK 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,
SHAREHOLDERS WHO DO NOT HOLD THEIR SHARES OF FIRSTBANK COMMON STOCK AS "CAPITAL
ASSETS" WITHIN THE MEANING OF SECTION 1221 OF THE CODE, AND SHAREHOLDERS WHO
ACQUIRED THEIR SHARES OF FIRSTBANK 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 JURIS-
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DICTION; MOREOVER, THE TAX CONSEQUENCES TO HOLDERS OF FIRSTBANK OPTIONS, IF ANY,
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. FIRSTBANK 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 Reorganization is consummated, the shareholders of FirstBank, a
Texas 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 FirstBank Common Stock as compared with
BancGroup Common Stock, see "Comparative Rights of Shareholders."
CONDITIONS TO CONSUMMATION OF THE REORGANIZATION
The parties' respective obligations to consummate the Reorganization are
subject to the satisfaction (or waiver, to the extent permitted by law) of
various conditions set forth in the Agreement.
The obligations of FirstBank and BancGroup to consummate the Reorganization
are conditioned upon, among other things, (i) the approval of the Agreement by
the holders of 66 2/3% of FirstBank Common Stock; (ii) the approval of the
Merger and/or the Reorganization by the Federal Reserve, the FDIC, and the Texas
Commissioner; (iii) each party's having obtained consents of third parties
required for the consummation of the Reorganization 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 Reorganization; (vi) the absence of any investigation by any governmental
agency which might result in any such proceeding; (vii) consummation of the
Reorganization no later than December 31, 1998; (vii) receipt of an opinion of
PricewaterhouseCoopers LLP regarding certain tax matters; and, (ix) receipt of
opinions of counsel.
The obligation of FirstBank to consummate the Reorganization 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 Reorganization is subject to
several other conditions, including, among others: (i) the absence of any
material adverse change in the financial condition or affairs of FirstBank; (ii)
the number of shares as to which holders of FirstBank Common Stock exercise
dissenters' rights not exceeding 10% of the outstanding shares of FirstBank
Common Stock; (iii) the receipt of a letter from PricewaterhouseCoopers LLP
concurring with the conclusions of BancGroup's and FirstBank's management that
no conditions exist with respect to each company which would preclude accounting
for the Reorganization as a pooling of interests; (iv) the accuracy in all
material respects of the representations and warranties of FirstBank contained
in the Agreement, and the performance by FirstBank of all of its covenants and
agreements under the Agreement; (v) the execution and delivery of Mr. Evans'
consulting agreement, Mr. Redden's employment agreement and the non-competition
agreements of certain FirstBank employees, all as described at "-- Interests of
Certain Persons in the Reorganization"; and, (vi) the receipt by BancGroup of
certain undertakings from holders of FirstBank Common Stock who may be deemed to
be "affiliates" of FirstBank pursuant to the rules of the Commission.
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<PAGE> 27
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 FirstBank and BancGroup may waive all conditions to
their respective obligations to consummate the Reorganization, other than the
receipt of the requisite approvals of regulatory authorities and FirstBank
shareholder approval of the Agreement and the Reorganization. In making any
decision regarding a waiver of one or more conditions to consummation of the
Reorganization or an amendment of the Reorganization, the Boards of Directors of
FirstBank 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. 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 approval of the Agreement by the
shareholders of FirstBank, by the mutual consent of the respective Boards of
Directors of FirstBank and BancGroup, or by the Board of Directors of either
BancGroup or FirstBank 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.
COMMITMENTS WITH RESPECT TO OTHER OFFERS
Until the earlier of the Effective Date or, subject to certain limitations,
the termination of the Agreement, neither FirstBank 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, FirstBank or any business combination
involving FirstBank (collectively, an "Acquisition Proposal") other than as
contemplated by the Agreement. FirstBank is required to notify BancGroup
immediately if any such inquiries or Acquisition Proposals are received by
FirstBank, if any such information is requested from FirstBank, or if any such
negotiations or discussions are sought to be initiated with FirstBank. FirstBank
is required to instruct its officers, directors, agents or affiliates or their
subsidiaries to refrain from doing any of the above. FirstBank may communicate
information about an Acquisition Proposal to its shareholders if and to the
extent that legal counsel provides a written opinion to FirstBank that FirstBank
is required to do so in order to comply with its legal obligations. If FirstBank
enters into a letter of intent or definitive agreement with respect to such an
Acquisition Proposal either before the Effective Date or termination of the
Agreement (subject to certain exceptions) or receives an Acquisition Proposal
and consummates a transaction pursuant to it within 12 months of termination of
the Agreement (subject to certain exceptions), then FirstBank will pay BancGroup
the sum of $750,000.
REGULATORY APPROVALS
The approval of the Federal Reserve, the FDIC, and the Texas Department
must be obtained prior to consummation of the Merger. Applications were filed
with the Federal Reserve, the FDIC, and the Texas Department on June 25, 1998.
The regulatory approval process is expected to take approximately two to three
months from this date.
Federal Reserve Approval. Pursuant to Section 3 of the BHCA, and the
regulations promulgated pursuant thereto, the Federal Reserve must withhold
approval of the Merger if it finds that the transaction will result in a
monopoly or be in furtherance of any combination or conspiracy to monopolize or
attempt to monopolize the business of banking in any geographic area. In
addition, the Federal Reserve may not approve the Merger if it finds that the
effect thereof may be substantially to lessen competition or tend to create a
monopoly or would in any other manner be in restraint of trade, unless it finds
that the anti-competitive effects
20
<PAGE> 28
of the Merger are clearly outweighed by the probable effect of the Merger in
meeting the convenience and needs of the communities to be served. The Federal
Reserve will also take into consideration the financial condition, managerial
resources, and future prospects of BancGroup, its subsidiaries, any banks
related to BancGroup through common ownership or management, and FirstBank.
Finally, the Federal Reserve will consider the compliance records of BankGroup's
subsidiaries under the Community Reinvestment Act.
In addition, the Federal Reserve is expressly permitted to approve
applications under Section 3 of the BHCA for a bank holding company that is
adequately capitalized and adequately managed to acquire control of a bank (the
"Target Bank") located in a state other than the home state of such bank holding
company (an "Interstate Acquisition"), without regard to whether such
transaction is prohibited under the law of any state. However, if the law of the
state in which the Target Bank is located requires the Target Bank to have been
in existence for some minimum period of time, the Federal Reserve is prohibited
from approving an application by a bank holding company to acquire such Target
Bank if such Target Bank does not satisfy this state law requirement, so long as
the state law specifying such minimum period of time does not specify a period
of more than five years. Also, the Board is prohibited from approving an
Interstate Acquisition if the acquiring bank holding company controls, or upon
consummation of the acquisition, would control, more than 10% of the total
amount of deposits of insured depository institutions in the United States.
Finally, subject to certain exceptions, the Federal Reserve may not approve an
application pertaining to an Interstate Acquisition if, among other things, the
bank holding company, upon consummation of the acquisition, would control 30% or
more of the total amount of deposits of insured depository institutions in the
state where the Target Bank is located.
The BHCA provides for the publication of notice and public comment on the
application and authorizes the Federal Reserve to permit interested parties to
intervene in the proceedings. If an interested party is permitted to intervene,
such intervention could delay the regulatory approvals required for consummation
of the Merger. Section 11 of the BHCA imposes a waiting period which prohibits
the consummation of the Merger, in ordinary circumstances, for a period ranging
from 15-30 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.
FDIC Approval. Pursuant to the requirements of the Bank Merger Act, the
FDIC's approval of the Merger must be obtained. The FDIC 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 FDIC 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 FDIC 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.
The Bank Merger Act imposes a waiting period which prohibits consummation
of the Merger, in ordinary circumstances, for a period ranging from 15-30 days
following the FDIC'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.
Texas Department Approval. The Merger is subject to approval of the
Commissioner of the Texas Department pursuant to applicable provisions of the
Texas Finance Code. The Commissioner's evaluation generally is based on issues
of safety and soundness, management experience and integrity, the financial
condition of the parties and the convenience and needs of the communities served
in Texas, and general public interests.
The Agreement provides that the obligation of each of BancGroup, FirstBank
and CBG Corp. to consummate the Merger is conditioned upon the receipt of all
necessary regulatory approvals, including the approval of the Federal Reserve,
the FDIC, and the Texas Department. There can be no assurance that the Federal
Reserve, the FDIC, or the Texas Department will approve BancGroup's applications
to acquire
21
<PAGE> 29
FirstBank, 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 and/or the Reorganization does not contravene applicable
competitive standards imposed by law, and that the Merger and/or the
Reorganization 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 OR THE REORGANIZATION.
BancGroup is not aware of any other governmental approvals or actions that
may be required for consummation of the Merger and/or the Reorganization except
for the approvals of the Federal Reserve, the FDIC and the Texas Department
described above. Should any such approval or action be required, it is presently
contemplated that such approval or action would be sought. FirstBank, BancGroup
and CBG Corp. have agreed that, if consummation of the Reorganization is
materially delayed due to delays in obtaining FDIC approval for the Merger of
CBG Corp., a non-bank entity, into FirstBank, an FDIC-insured bank, the Merger
will be restructured to provide that BancGroup will form a Texas banking
subsidiary with which FirstBank would then merge. Such a structural change, if
required, will not result in a change in either the Exchange Ratio of FirstBank
Common Stock for BancGroup Common Stock or other material terms of the
Agreement.
CONDUCT OF BUSINESS PENDING THE REORGANIZATION
The Agreement contains certain restrictions on the conduct of the business
of FirstBank pending consummation of the Reorganization. The Agreement prohibits
FirstBank 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 FirstBank:
(i) Issuing, delivering or agreeing to issue or deliver any stock,
bonds or other corporate securities (whether authorized and unissued or
held in the treasury);
(ii) Borrowing or agreeing to borrow any funds or incurring or
becoming subject to, any liability (absolute or contingent) except
borrowings, obligations and liabilities incurred in the ordinary course of
business and consistent with past practice;
(iii) Paying any material obligation or liability (absolute or
contingent) other than current liabilities reflected in or shown on the
most recent balance sheet and current liabilities incurred since that date
in the ordinary course of business and consistent with past practice;
(iv) Declaring or making or agreeing to declare or make, any payment
of dividends (except for cash dividends equal to 40% of FirstBank's Net
Income per quarter 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;
22
<PAGE> 30
(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, except as set forth in the Agreement, prior to
the Effective Date, no director or officer of FirstBank 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 FirstBank or
its subsidiaries.
The Agreement also provides that (i) FirstBank 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) FirstBank will consult with BancGroup respecting business issues
on a basis mutually satisfactory to BancGroup and FirstBank.
RIGHTS OF DISSENTING SHAREHOLDERS
A holder of shares of FirstBank is entitled to exercise the rights of a
dissenting shareholder under Article 5.11 of the TBCA which is made applicable
to mergers of Texas state banks by Section 32.303 of the Texas Finance Code to
object to the Agreement and Plan of Merger and make written demand that
BancGroup pay in cash the fair value of the shares of FirstBank Stock held as
determined in accordance with all pertinent statutory provisions. Consummation
of the Merger is subject to, among other things, the holders of no more than 10%
of the outstanding FirstBank Common Stock electing to exercise their dissenters'
rights.
In order to exercise dissenters' rights, a dissenting shareholder of
FirstBank (a "Dissenting Shareholder") must strictly comply with the statutory
procedures of TBCA Article 5.11 et seq., which are summarized below. A copy of
the text provisions of these statutes is attached hereto as Appendix B.
Shareholders of FirstBank are urged to read these statutes in their entirety and
to consult with their legal advisors. Texas law requires that holders of
FirstBank stock follow certain prescribed procedures in the exercise of their
statutory right to dissent in connection with the Merger. The failure to follow
such procedures on a timely basis and in the precise manner required by Texas
law may result in a loss of a shareholders's dissenters' rights. The following
summary does not purport to be a complete statement of the dissenters' rights
provision of Texas law and is qualified in its entirety by reference to the full
text of the provisions of the TBCA pertaining to dissenters' rights attached
hereto as Appendix B.
Overview. Holders of FirstBank Common Stock have the right under Texas law
to dissent from the Merger and obtain payment of the fair value of his or her
shares. Fair value means the value of the shares immediately before the Special
Meeting, excluding any appreciation or depreciation in anticipation of the
Merger. If BancGroup and a Dissenting Shareholder are not able to agree on a
fair value, either FirstBank or a Dissenting Shareholder may petition a court in
Dallas County, Texas for a determination of fair value.
Procedure for Dissenting. A shareholder wishing to dissent from the Merger
must deliver to FirstBank, before the Special Meeting, written notice of his or
her objection to the Merger specifying that the right to dissent will be
exercised if the Merger is consummated. The written notice should be sent to
15150 Preston Road, Dallas, Texas 75248, Attn: Debra Windham, so that FirstBank
receives it before the Special Meeting. A shareholder wishing to dissent may not
vote in favor of the Merger. If a shareholder's written notice of intent to
demand payment is not received by FirstBank before the Special Meeting, or if
the shareholder votes in favor of the Merger, such shareholder will not have the
right to dissent and will be required to participate in the Merger.
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<PAGE> 31
If the Merger is effected and a Dissenting Shareholder shall not have voted
in favor of the Merger, then FirstBank shall within ten (10) days after the
Merger is effected deliver or mail the Dissenting Shareholder written notice
that the Merger was effected and that the Dissenting Shareholder may, within ten
(10) days from the delivery or mailing of such notice, make written demand on
FirstBank for payment of the fair value of that shareholder's shares. The demand
shall state the number and class of shares owned by the notifying shareholder
and the fair value of the shares as estimated by the shareholder. Any
shareholder failing to make demand within such ten (10)-day period shall be
bound by the Merger.
Payment for Shares. Within twenty (20) days after receipt by FirstBank of
a demand for payment made by a Dissenting Shareholder as provided above,
FirstBank shall deliver or mail to such shareholder a written notice that shall
either set out that FirstBank accepts the amount claimed in the demand and
agrees to pay that amount within ninety (90) days after the date the Merger was
effected and upon surrender of certificates representing the shares as to which
dissenters' rights were perfected, duly endorsed, or shall contain an estimate
by FirstBank of the fair value of the shares as to which dissenters' rights were
perfected together with an offer to pay the amount of such estimate within
ninety (90) days after the date the Merger was effected upon receipt of notice
within sixty (60) days after the date the Merger was effected that the
Dissenting Shareholder agrees to accept that amount and surrender of the
certificates representing the shares as to which dissenters' rights were
perfected, duly endorsed.
Court Proceeding to Determine Fair Value. If within a period of sixty (60)
days after the Merger is effected, FirstBank and a Dissenting Shareholder do not
agree on fair value, then either may within sixty (60) days after expiration of
such sixty (60)-day period, file a petition in any court of competent
jurisdiction in Dallas County, Texas asking for a finding of determination of
fair value of the Dissenting Shareholders' shares. Costs of the proceeding,
including fees payable to appraisers appointed by the court, may be allocated
between the parties in a manner the court deems fair and equitable.
In the absence of fraud in the transaction, these remedies are the
exclusive remedies for the value of shares of FirstBank or money damages to a
shareholder of FirstBank with respect to the Merger.
THE FOREGOING DOES NOT PURPORT TO BE A COMPLETE STATEMENT OF THE PROCEDURES
TO BE FOLLOWED BY HOLDERS OF FIRSTBANK COMMON STOCK DESIRING TO EXERCISE
APPRAISAL RIGHTS, AND, IN VIEW OF THE FACT THAT EXERCISE OF SUCH RIGHTS REQUIRES
STRICT ADHERENCE TO THE RELEVANT PROVISIONS OF THE TEXAS BUSINESS CORPORATION
ACT, EACH SHAREHOLDER WHO MAY DESIRE TO EXERCISE APPRAISAL RIGHTS IS ADVISED
INDIVIDUALLY TO CONSULT THE LAW (AS SET FORTH IN APPENDIX B HERETO) AND COMPLY
WITH THE PROVISIONS THEREOF.
HOLDERS OF THE FIRSTBANK COMMON STOCK WISHING TO EXERCISE DISSENTERS'
RIGHTS ARE ADVISED TO CONSULT THEIR OWN COUNSEL TO ENSURE THAT THEY FULLY AND
PROPERLY COMPLY WITH THE REQUIREMENTS OF TEXAS LAW.
The foregoing discussion is only a summary of the provisions of Texas law,
does not purport to be complete and is qualified in its entirety by reference to
TBCA Article 5.11 et seq., which is attached hereto as Appendix B. Any
shareholder who intends to dissent from the Merger should review the text of
TBCA Article 5.11 et seq. carefully and should also consult with his or her
attorney. Any shareholder who fails to follow strictly the procedures set forth
in said statute will forfeit dissenters' rights.
Any Dissenting Shareholder who perfects his or her right to be paid the
value of his or her shares will recognize gain or loss, if any, for federal
income tax purposes upon the receipt of cash for such shares. The amount of gain
or loss and its character as ordinary or capital gain or loss will be determined
in accordance with applicable provisions of the Code. See "-- Certain Federal
Income Tax Consequences."
BECAUSE OF THE COMPLEXITY OF THE PROVISIONS OF THE TEXAS LAW RELATING TO
DISSENTERS' APPRAISAL RIGHTS, SHAREHOLDERS WHO ARE CONSIDERING DISSENTING FROM
THE MERGER ARE URGED TO CONSULT WITH THEIR OWN LEGAL ADVISORS.
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<PAGE> 32
RESALE OF BANCGROUP COMMON STOCK ISSUED IN THE REORGANIZATION
The issuance of the shares of BancGroup Common Stock pursuant to the
Reorganization has been registered under the Securities Act. As a result,
shareholders of FirstBank who are not "affiliates" of FirstBank (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 Reorganization.
Under the Securities Act, only affiliates of FirstBank are subject to
restrictions on the resale of the BancGroup Common Stock which they receive in
the Reorganization.
The BancGroup Common Stock received by affiliates of FirstBank who do not
also become affiliates of BancGroup after the consummation of the Reorganization
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 FirstBank affiliate has held the BancGroup Common
Stock for at least one year. BancGroup Common Stock held by affiliates of
FirstBank who become affiliates of BancGroup, if any, will be subject to
additional restrictions on the ability of such persons to resell such shares.
FirstBank 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
FirstBank. FirstBank has obtained 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 Reorganization. The undertaking will also require each
affiliate of FirstBank to agree not to sell or otherwise reduce risk relative to
any shares of BancGroup Common Stock received in the Reorganization until
financial results concerning at least 30 days of post-Reorganization combined
operations have been published by BancGroup within the meaning of Section 201.01
of the Commission's Codification of Financial Reporting Policies. If such
undertakings are not received and BancGroup waives receipt of such condition,
the certificates for the shares of BancGroup Common Stock to be issued to such
person will contain an appropriate restrictive legend, and appropriate stock
transfer orders will be given to BancGroup's stock transfer agent.
ACCOUNTING TREATMENT
BancGroup will account for the Reorganization as a pooling-of-interests
transaction in accordance with generally accepted accounting principles, which,
among other things, require that the number of shares of FirstBank 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 FirstBank Common
Stock. Under this accounting treatment, assets and liabilities of FirstBank
would be added to those of BancGroup at their recorded book values, and the
shareholders' equity of the two companies would be combined in BancGroup's
consolidated balance sheet. Financial statements of BancGroup issued after the
Effective Date of the Reorganization may be restated to reflect the consolidated
operations of BancGroup and FirstBank as if the Reorganization had taken place
prior to the periods covered by the financial statements.
NYSE REPORTING OF BANCGROUP COMMON STOCK ISSUED IN THE REORGANIZATION
Sales of BancGroup Common Stock to be issued in the Reorganization in
exchange for FirstBank Common Stock will be reported on the NYSE.
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<PAGE> 33
COMPARATIVE MARKET PRICES AND DIVIDENDS
BANCGROUP
BancGroup Common Stock is listed for trading on the NYSE. The following
tables shows the dividends paid per share and indicates the high and low closing
prices for BancGroup Common Stock as reported by the NYSE.
<TABLE>
<CAPTION>
PRICE(1)
-----------
HIGH LOW DIVIDENDS
---- --- ---------
<S> <C> <C> <C>
1996
First Quarter............................................... $18 1/4 $ 15 $ 0.135
Second Quarter.............................................. 18 1/16 15 5/8 0.135
Third Quarter............................................... 17 15/16 15 5/8 0.135
Fourth Quarter.............................................. 20 1/8 17 3/8 0.135
1997
First Quarter............................................... 24 7/8 18 2/3 0.15
Second Quarter.............................................. 24 7/8 23 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 14, 1998)....................... 33 11/16 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 4, 1998, the business day immediately prior to the public
announcement of the Reorganization, the closing price as reported on the NYSE of
the BancGroup Common Stock was $35.0625 per share.
At December 31, 1997, BancGroup's subsidiaries accounted for approximately
98% of BancGroup's consolidated assets. BancGroup derives substantially all of
its income from dividends received from its subsidiaries. Various statutory
provisions and regulatory policies limit the amount of dividends the subsidiary
banks may pay without regulatory approval. In addition, federal statutes
restrict the ability of subsidiary banks to make loans to BancGroup, and
regulatory policies may also restrict such dividends.
FIRSTBANK
There is no established public trading market for the FirstBank Common
Stock. The shares of FirstBank Common Stock are not actively traded, and such
trading activity, as it occurs, takes place in privately negotiated
transactions.
Management of FirstBank is aware of certain transactions in shares of
FirstBank that have occurred since January 1, 1996, although the trading prices
of all stock transactions are not known. The following table sets
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<PAGE> 34
forth the trading prices for the shares of FirstBank Common Stock that have
occurred since January 1, 1996 for transactions in which the trading prices are
known to management of FirstBank:
<TABLE>
<CAPTION>
PER SHARE OF
COMMON STOCK DIVIDENDS
---------------- PER
HIGH LOW SHARE
----- -------- ---------
<S> <C> <C> <C>
1996
First Quarter.............................................. 17.50 17.50
Second Quarter.............................................
Third Quarter.............................................. .50
Fourth Quarter.............................................
1997
First Quarter.............................................. .66
Second Quarter............................................. 24.73 24.73 .66
Third Quarter.............................................. .66
Fourth Quarter............................................. 1.06
1998
First Quarter.............................................. 1.25
</TABLE>
The Agreement restricts FirstBank's ability to pay dividends prior to the
Effective Date. See "The Reorganization -- Conduct of Business Pending the
Reorganization."
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 a
total of 49,116,133 shares of BancGroup Common Stock issued and outstanding. 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 subordinated debentures in the aggregate principal amount of
$7,725,000 with a ten-year maturity that rank pari passu with the 1986
Debentures. As of 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
Reorganization, 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, $70.0 million of Trust Preferred Securities, all of
which was outstanding at March 31, 1998.
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 July 31, 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
BancGroup Certificate, and the BancGroup Bylaws, do not purport to be complete
and are qualified in their entirety by reference to the foregoing.
BANCGROUP COMMON STOCK
Dividends. Subject to the rights of holders of BancGroup's Preference
Stock, if any, to receive certain dividends prior to the declaration of
dividends on shares of BancGroup Common Stock, when and as dividends, payable in
cash, stock or other property, are declared by the BancGroup Board of Directors,
the holders of BancGroup Common Stock are entitled to share ratably in such
dividends.
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<PAGE> 35
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 Board of
Directors of BancGroup to issue authorized shares of BancGroup Common Stock
without shareholder approval. However, BancGroup's Common Stock is listed on the
NYSE, which requires shareholder approval of the issuance of additional shares
of BancGroup Common Stock under certain circumstances.
Liquidation Rights. In the event of liquidation, dissolution or winding-up
of BancGroup, whether voluntary or involuntary, the holders of BancGroup Common
Stock will be entitled to share ratably in any of its assets or funds that are
available for distribution to its shareholders after the satisfaction of its
liabilities (or after adequate provision is made therefor) and after preferences
of any outstanding Preference Stock.
PREFERENCE STOCK
The Preference Stock may be issued from time to time as a class without
series, or if so determined by the Board of Directors of BancGroup, either in
whole or in part in one or more series. The voting rights, and such
designations, preferences and relative, participating, optional or other special
rights, if any, and the qualifications, limitations or restrictions thereof, if
any, including, but not limited to, the dividend rights, conversion rights,
redemption rights and liquidation preferences, if any, of any wholly unissued
series of Preference Stock (or of the entire class of Preference Stock if none
of such shares has been issued), the number of shares constituting any such
series and the terms and conditions of the issue thereof may be fixed by
resolution of the Board of Directors of BancGroup. Preference Stock may have a
preference over the BancGroup Common Stock with respect to the payment of
dividends and the distribution of assets in the event of the liquidation or
winding-up of BancGroup and such other preferences as may be fixed by the Board
of Directors of BancGroup.
1986 DEBENTURES
BancGroup issued in 1986 its 7 1/2% Convertible Subordinated Debentures due
2011 (the "1986 Debentures") in the total principal amount of $28,750,000. The
1986 Debentures were issued under a trust indenture (the "1986 Indenture")
between BancGroup and SunTrust Bank, Atlanta, Georgia, as trustee.
The 1986 Debentures will mature on March 31, 2011, and are convertible at
any time into shares of BancGroup Common Stock at the option of a holder
thereof, at the conversion price of $14.00 principal amount of the 1986
Debentures for each share of BancGroup Common Stock. The conversion price is,
however, subject to adjustment upon the occurrence of certain events as
described in the 1986 Indenture. In the event all of the outstanding 1986
Debentures are converted into shares of BancGroup Common Stock in accordance
with the 1986 Indenture, as of March 31, 1998, approximately 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.
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<PAGE> 36
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,
$70.0 million of Trust Preferred Securities. The securities bear interest at
8.92% and are subject to redemption in whole or in part at any time after
January 29, 2007 through January 2027. It is unlikely that redemption will occur
prior to maturity. The securities are subordinated to substantially all of
BancGroup's indebtedness. In BancGroup's consolidated statement of condition,
these securities are shown as long-term debt.
On February 5, 1998, BancGroup consummated a merger with ASB Bancshares,
Inc., a Delaware corporation ("ASB"). As part of the consideration for the
common stock of ASB, BancGroup issued debentures to three ASB shareholders. The
aggregate principal amount of these debentures is $7,724,813. The debentures pay
a rate of interest equal to the New York Prime Rate minus 1% (but in no event
less than 7% per annum) and are due and payable ten years from the date of
issuance. They are senior to the BancGroup Common Stock upon liquidation, but
are subordinate to BancGroup's Senior Indebtedness. See "BancGroup Capital Stock
and Debentures." The debentures are redeemable by BancGroup with the consent of
the holders thereof. A holder of a debenture may, subject to BancGroup's right
to decline, request redemption of any or all of the debentures held by him or
her.
CHANGES IN CONTROL
Certain provisions of the BancGroup Certificate and The BancGroup bylaws
may have the effect of preventing, discouraging or delaying any change in
control of BancGroup. The authority of the BancGroup Board of Directors to issue
Preference Stock with such rights and privileges, including voting rights, as it
may deem appropriate may enable the BancGroup Board of Directors to prevent a
change in control despite a shift in ownership of the BancGroup Common Stock.
See and "-- Preference Stock." In addition, the power of BancGroup's Board of
Directors to issue additional shares of BancGroup Common Stock may help delay or
deter a change in control by increasing the number of shares needed to gain
control. See "BancGroup Common Stock." The following provisions also may deter
any change in control of BancGroup.
Classified Board. BancGroup's Board of Directors is classified into three
classes, as nearly equal in number as possible, with the members of each class
elected to three-year terms. Thus, one-third of BancGroup's Board of Directors
is elected by shareholders each year. With this provision, two annual elections
are required in order to change a majority of the Board of Directors. There are
currently 23 directors of BancGroup. This provision of the BancGroup Certificate
also stipulates that (i) directors can be removed only for cause upon a vote of
80% of the voting power of the outstanding shares entitled to vote in the
election of directors, voting as a class, (ii) vacancies in the Board 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
29
<PAGE> 37
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 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
30
<PAGE> 38
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 Reorganization is consummated, shareholders of FirstBank (except
those perfecting dissenters' rights of appraisal) will become holders of
BancGroup Common Stock. The rights of the holders of the FirstBank Common Stock
who become holders of the BancGroup Common Stock following the Reorganization
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 FirstBank
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 FirstBank's Articles of Incorporation and
bylaws, the Delaware General Corporation Law (the "DGCL"), the Texas Finance
Code and the Texas Business Corporation Act.
DIRECTOR ELECTIONS
FirstBank. FirstBank's Directors are elected annually by a majority of the
votes cast by the holders of its Common Stock at a meeting at which a quorum is
present. A quorum is comprised of a majority of the 340,000 shares. FirstBank's
Bylaws deny cumulative voting rights in the election of Directors.
BancGroup. BancGroup's directors are elected to terms of three years with
approximately one-third of the Board of Directors to be elected annually. There
is no cumulative voting in the election of directors. See "BancGroup Capital
Stock and Debentures -- Changes in Control -- Classified Board."
REMOVAL OF DIRECTORS
FirstBank. Any FirstBank Director may be removed with or without cause by
vote of a majority of the shares at any special or annual meeting entitled to
vote at such meeting if notice of action of such a matter was given in the
notice of the meeting.
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
FirstBank. Each shareholder of FirstBank is entitled to one vote for each
share of FirstBank stock held.
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
FirstBank. Holders of FirstBank Common Stock have preemptive rights to
acquire any additional shares of First Bank Common Stock, subject to certain
limited exceptions.
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<PAGE> 39
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
FirstBank. The Articles of Association of FirstBank provide that the
liability of its directors to FirstBank or its shareholders for monetary damages
for acts or omissions in their capacity as directors shall be limited to the
fullest extent permitted by applicable law as in effect from time to time.
Currently, under applicable provisions of the TBCA, this provision would
incorporate exculpations from monetary damages for actions or omissions of
directors, acting in that capacity, other than attributable to a breach of a
director's duty of loyalty; an act or omission not in good faith constituting a
breach of a duty to FirstBank; an action or omission that involves intentional
misconduct or a knowing violation of law by a director; a transaction in which a
director receives an improper personal benefit or an act for which liability of
a director is provided by an applicable statute. The Texas Finance Code also
limits state bank directors' liability for monetary damages in the absence of
gross negligence or intentional misconduct.
BancGroup. The BancGroup Certificate provides that a director of BancGroup
will have no personal liability to BancGroup or its shareholders for monetary
damages for breach of fiduciary duty as a director except (i) for any breach of
the director's duty of loyalty to the corporation or its shareholders, (ii) for
acts or omissions not in good faith or that involve intentional misconduct or a
knowing violation of law, (iii) for the payment of certain unlawful dividends
and the making of certain stock purchases or redemptions, or (iv) for any
transaction from which the director derived an improper personal benefit. This
provision would absolve directors of personal liability for negligence in the
performance of duties, including gross negligence. It would not permit a
director to be exculpated, however, for liability for actions involving
conflicts of interest or breaches of the traditional "duty of loyalty" to
BancGroup and its shareholders, and it would not affect the availability of
injunctive or other equitable relief as a remedy.
INDEMNIFICATION
FirstBank. FirstBank's Articles of Association permit directors and
officers of FirstBank to be indemnified and to receive advances of expenses
related to defense of claims made against them in those capacities to the
fullest extent permitted by law. FirstBank's Bylaws require it to indemnify
officers and directors against expenses related to claims against them in those
capacities to the extent they are wholly successful in defending such claims.
They also permit FirstBank to advance expenses and indemnify such persons if the
party seeking an advance or indemnity is determined to have conducted himself in
good faith, reasonably believed his conduct was in the bank's best interest or
at least not opposed to the bank's best interest, and in the case of a criminal
proceeding had no reasonable cause to believe his conduct was unlawful and
generally prohibit or restrict indemnification if the individual is determined
to have received an improper personal benefit, is found liable of willful or
intentional misconduct or is found liable to the bank.
Determination of rights to indemnification must be made by independent
directors or counsel or by the shareholders.
The Bylaws also permit FirstBank to purchase directors and officers
insurance which may provide for coverage broader than the bank's power to
indemnify directors and officers.
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
32
<PAGE> 40
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
FirstBank. Pursuant to the Bylaws of FirstBank, a Special Meeting of
FirstBank shareholders may only be called by the President, the Board of
Directors, or the holder or holders of not less than 10% of all the shares of
FirstBank stock entitled to vote at the Meeting.
BancGroup. Under the BancGroup Certificate, a special meeting of
BancGroup's shareholders may only be called by a majority of the BancGroup Board
of Directors or by the chairman of the Board of Directors of BancGroup. Holders
of BancGroup Common Stock may not call special meetings or act by written
consent.
MERGERS, SHARE EXCHANGES AND SALES OF ASSETS
FirstBank. Pertinent provisions of the TBCA provide that mergers,
consolidations, share exchanges and certain sales of substantially all of the
assets of Texas corporations and banks must be approved by a 66 2/3% of the
outstanding stock of the corporation entitled to vote thereon absent a provision
in the entity's articles of association specifying a greater or lesser
percentage for approval. FirstBank's Articles of Association do not specify any
other percentage, and so a vote of 66 2/3% of the outstanding shares is
necessary to approve the Merger.
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
FirstBank. Under Texas law, a Texas bank's Articles of Association may be
amended by the affirmative vote of holders of a 66 2/3% of the outstanding
shares entitled to vote thereon unless the Articles of Association require the
vote of some other percentage of the stock. FirstBank's Articles of Association
do not provide any other percentage for approval of such actions.
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<PAGE> 41
FirstBank's Bylaws provide that they may be amended by its Board of
Directors subject to the right of its shareholders to make, amend or repeal the
Bylaws. Texas law generally provides that the right of shareholders to make,
amend or repeal bylaws is an independent right which does not require any prior
board action and limits the right of the board to override actions on bylaws
taken by 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
FirstBank. Section 32.303 of the Texas Finance Code provides for
shareholders of Texas state banks the same rights that shareholders of Texas
business corporations have under Article 5.11 et seq. of the TBCA to dissent
from mergers, consolidations, certain sales of assets and share exchanges. Under
these provisions, shareholders who perfect their rights by following prescribed
statutory procedures are entitled to a court determined appraisal of their
shares and to receive the fair value of their shares in cash in lieu of any
other amount of cash or any other type of consideration provided for under the
terms of the transaction to which they have dissented. The Texas provisions
contain exceptions to the availability of these rights similar to those
applicable to Delaware corporations discussed in the following paragraph.
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
FirstBank. FirstBank has no authorized 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."
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<PAGE> 42
EFFECT OF THE REORGANIZATION ON FIRSTBANK SHAREHOLDERS
As of the Record Date, FirstBank is expected to have 30 shareholders of
record and 340,000 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 are exercised in the
Reorganization, prior to giving effect to the Stock Split for BancGroup Common
Stock, an aggregate number of 1,292,314 shares of BancGroup Common Stock will be
issued to the shareholders of FirstBank pursuant to the Reorganization. Based on
those assumptions, the 1,292,314 shares of BancGroup Common Stock would
represent approximately 2.56% of the total number of shares of BancGroup Common
Stock outstanding following the Reorganization, not counting any additional
shares BancGroup may issue.
The issuance of the BancGroup Common Stock pursuant to the Reorganization
will reduce the percentage interest of the BancGroup Common Stock currently held
by each principal shareholder and each director and officer of BancGroup. Based
upon the foregoing assumptions, as a group, the directors and executive officers
of BancGroup who own approximately 9.70% of BancGroup's outstanding shares would
own approximately 9.46% 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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<PAGE> 43
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 FirstBank ("FirstBank")
as of March 31, 1998, (v) adjustments to give effect to the proposed
pooling-of-interests method business combination with FirstBank, (vi) combined
presentation of the condensed statements of condition of the other probable
business combinations with CNB Holding Company, First Macon Bank and Trust and
Prime Bank of Central Florida ("Other Probable Business Combinations") as of
March 31, 1998, (vii) adjustments to give effect to the proposed pooling-of-
interests method business combinations with CNB Holding Company, First Macon
Bank & Trust and Prime Bank of Central Florida, (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
------------------------------------------------------------------------------------------------
OTHER
CONSOLIDATED COMPLETED PROBABLE
COLONIAL BUSINESS ADJUSTMENTS/ ADJUSTMENTS/ BUSINESS
BANCGROUP COMBINATION (DEDUCTIONS) FIRSTBANK (DEDUCTIONS) SUBTOTAL COMBINATIONS
------------ ----------- ------------ --------- ------------ ---------- ------------
<S> <C> <C> <C> <C> <C> <C> <C>
ASSETS
Cash and due from banks...... $ 311,523 $ 7,313 $ 19,880 $ 338,716 $ 16,824
Interest-bearing deposits in
banks....................... 17,949 31,455 43,703 93,107 20,971
Securities held for
trading..................... 24,824 0 24,824
Securities available for
sale........................ 745,655 3,000 22,991 771,646 36,249
Investment securities........ 265,711 4,652 22,663 293,026 28,953
Mortgage loans held for
sale........................ 455,716 455,716
Loans, net of unearned
income...................... 5,724,844 82,414 53,170 5,860,428 237,511
Less: Allowance for possible
loan losses................. (69,680) (1,139) (611) (71,430) (2,593)
---------- -------- ------- -------- ------- ---------- --------
Loans, net................... 5,655,164 81,275 52,559 5,788,998 234,918
Premises and equipment,
net......................... 146,448 2,677 36 149,161 12,110
Excess of cost over tangible
and identified intangible
assets acquired, net........ 78,861 78,861 44
Mortgage servicing rights.... 151,412 151,412
Other real estate owned...... 12,530 12,530 49
Accrued interest and other
assets...................... 140,566 976 1,028 142,570 3,573
---------- -------- ------- -------- ------- ---------- --------
Total Assets.......... $8,006,359 $131,348 $ -- $162,860 $ -- $8,300,567 $353,691
========== ======== ======= ======== ======= ========== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
Deposits..................... $6,082,744 $119,693 $138,121 $6,340,558 $320,300
FHLB short-term borrowings... 460,000 460,000
Other short-term
borrowings.................. 287,468 15,005 302,473
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) 949 $ 68(2) 146,317 3,018
---------- -------- ------- -------- ------- ---------- --------
Total liabilities..... 7,434,773 120,699 159 154,075 68 7,709,774 323,318
Preferred Stock
Common Stock................. 120,323 842 (842)(1) 1,700 (1,700)(2) 125,659 1,090
2,105(1) 3,231(2)
Additional paid in capital... 230,682 8,264 (8,264)(1) 4,800 (4,800)(2) 240,952 14,054
7,001(1) 3,269(2)
Retained earnings............ 221,544 1,543 (159)(1) 2,151 (68)(2) 225,011 15,764
Treasury Stock............... -- -- -- -- (720)
Unearned compensation........ (3,604) -- (3,604)
Unrealized gain (loss) on
securities available for
sale, net of taxes.......... 2,641 -- -- 134 2,775 185
---------- -------- ------- -------- ------- ---------- --------
Total shareholders'
equity............... 571,586 10,649 (159) 8,785 (68) 590,793 30,373
---------- -------- ------- -------- ------- ---------- --------
Total liabilities and
equity............... $8,006,359 $131,348 $ -- $162,860 $ -- $8,300,567 $353,691
========== ======== ======= ======== ======= ========== ========
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...... $ 355,540
Interest-bearing deposits in
banks....................... 114,078
Securities held for
trading..................... 24,824
Securities available for
sale........................ 807,895
Investment securities........ 321,979
Mortgage loans held for
sale........................ 455,716
Loans, net of unearned
income...................... 6,097,939
Less: Allowance for possible
loan losses................. (74,023)
-------- ----------
Loans, net................... 6,023,916
Premises and equipment,
net......................... 161,271
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...................... 146,143
-------- ----------
Total Assets.......... $ -- $8,654,258
======== ==========
LIABILITIES AND SHAREHOLDERS' EQUITY
Deposits..................... $6,660,858
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............ $ 649(3) 150,970
624(4)
362(5)
-------- ----------
Total liabilities..... 1,635 8,034,727
Preferred Stock
Common Stock................. (153)(3) 133,767
(537)(4)
(400)(5)
2,141(3)
4,692(4)
1,275(5)
Additional paid in capital... (762)(3) 247,268
(9,521)(4)
(3,771)(5)
(1,946)(3)
5,366(4)
2,896(5)
Retained earnings............ (649)(3) 239,140
(624)(4)
(362)(5)
Treasury Stock............... 720 --
Unearned compensation........ (3,604)
Unrealized gain (loss) on
securities available for
sale, net of taxes.......... 2,960
-------- ----------
Total shareholders'
equity............... (1,635) 619,531
-------- ----------
Total liabilities and
equity............... $ -- $8,654,258
======== ==========
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
37
<PAGE> 45
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>
38
<PAGE> 46
PENDING BUSINESS COMBINATIONS
FIRSTBANK
(pooling of interests)
(2) (A) To record the issuance of 1,292,314 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............................................ 3.8009
-------
BancGroup shares to be issued............................... 1,292,314
Par value of 1,292,314 shares issued at $2.50 per share..... $ 3,231
Shares issued at par value.................................. $ 3,231
Total capital stock of FirstBank............................ 6,500
-------
Excess recorded as an increase to contributed capital....... 3,269
----------
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)
(3) (A) To record the issuance of 856,400 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............................................ 5.8892
-------
BancGroup shares to be issued............................... 856,400
Par value of 856,400 shares issued at $2.50 per share....... $ 2,141
Shares issued at par value.................................. $ 2,141
Total capital stock of CNB Holding Company.................. 195
-------
Excess recorded as a decrease to contributed capital........ (1,946)
----------
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>
39
<PAGE> 47
FIRST MACON BANK & TRUST
(pooling of interests)
(4)(A) To record the issuance of 1,876,935 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............................................ 1.7434
----------
BancGroup shares to be issued............................... 1,876,935
Par value of 1,876,935 shares issued at $2.50 per share..... $ 4,692
Shares issued at par value.................................. $ 4,692
Total capital stock of First Macon Bank & Trust............. 10,058
----------
Excess recorded as an increase to contributed capital....... 5,366
----------
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>
PRIME BANK OF CENTRAL FLORIDA
(pooling of interests)
(5)(A) To record the issuance of 510,031 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............................................ 1.2751
--------
BancGroup shares to be issued............................... 510,031
Par value of 510,031 shares issued at $2.50 per share....... $ 1,275
Shares issued at par value.................................. $ 1,275
Total capital stock of Prime Bank of Central Florida........ 4,171
--------
Excess recorded as an increase to contributed capital....... 2,896
--------
4,171
To eliminate Prime Bank of Central Florida
Common stock, at par value................................ $ (400)
Contributed capital....................................... (3,771)
--------
(4,171)
--------
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>
40
<PAGE> 48
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 of 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 FirstBank 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 First Bank, (vi) the
condensed statements of income of CNB Holding Company, First Macon Bank & Trust
and Prime Bank of Central Florida ("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/ ADJUSTMENTS/
BANCGROUP COMBINATION (DEDUCTIONS) FIRSTBANK (DEDUCTIONS) SUBTOTAL
------------ ----------- ------------ --------- ------------ -----------
<S> <C> <C> <C> <C> <C> <C>
Interest income...... $ 146,034 $ 2,736 $ -- $ 2,479 $ -- $ 151,249
Interest expense..... 72,602 1,077 -- 957 -- 74,636
----------- -------- --------- -------- ---------- -----------
Net interest
income............. 73,432 1,659 -- 1,522 -- 76,613
Provision for
possible loan
losses............. 3,670 80 17 3,767
----------- -------- --------- -------- ---------- -----------
Net interest income
after provision for
loan losses........ 69,762 1,579 -- 1,505 -- 72,846
----------- -------- --------- -------- ---------- -----------
Noninterest income... 26,075 95 -- 51 -- 26,221
Noninterest
expense............ 66,934 1,116 -- 622 -- 68,672
----------- -------- --------- -------- ---------- -----------
Income before income
taxes.............. 28,903 558 -- 934 -- 30,395
Applicable income
taxes.............. 10,953 199 -- -- 352(1) 11,504
----------- -------- --------- -------- ---------- -----------
Net income........... $ 17,950 $ 359 $ -- $ 934 $ (352) $ 18,891
=========== ======== ========= ======== ========== ===========
Average basic shares
outstanding........ 47,779,000 842,157 (842,157) 340,000 (340,000) 49,913,463
842,157 1,292,306
Average diluted
shares
outstanding........ 49,178,000 842,157 (842,157) 340,000 (340,000) 51,312,463
842,157 1,292,306
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...... $ 6,747 $ -- $ 157,996
Interest expense..... 2,966 -- 77,602
---------- ----------- -----------
Net interest
income............. 3,781 -- 80,394
Provision for
possible loan
losses............. 122 3,889
---------- ----------- -----------
Net interest income
after provision for
loan losses........ 3,659 -- 76,505
---------- ----------- -----------
Noninterest income... 640 26,861
Noninterest
expense............ 2,468 -- 71,140
---------- ----------- -----------
Income before income
taxes.............. 1,831 -- 32,226
Applicable income
taxes.............. 520 -- 12,024
---------- ----------- -----------
Net income........... $ 1,311 $ -- $ 20,202
========== =========== ===========
Average basic shares
outstanding........ 1,618,996 (1,618,996) 53,150,430
3,236,967
Average diluted
shares
outstanding........ 1,618,996 (1,618,996) 54,567,852
3,255,389
Earnings per share:
Basic.............. $ 0.38
Diluted............ $ 0.37
</TABLE>
41
<PAGE> 49
<TABLE>
<CAPTION>
THREE MONTHS ENDED MARCH 31, 1997
----------------------------------------------------------------------------------
CONSOLIDATED
COLONIAL COMPLETED
BANCGROUP BUSINESS ADJUSTMENTS/ ADJUSTMENTS/
(RESTATED)* COMBINATION (DEDUCTIONS) FIRSTBANK (DEDUCTIONS) SUBTOTAL
------------ ----------- ------------ --------- ------------ -----------
<S> <C> <C> <C> <C> <C> <C>
Interest income...... $ 127,044 $ 1,616 $ -- $ 1,660 $ -- $ 130,320
Interest expense..... 62,969 620 -- 576 -- 64,165
----------- -------- --------- -------- ---------- -----------
Net interest
income............. 64,075 996 -- 1,084 -- 66,155
Provision for
possible loan
losses............. 3,056 241 -- 17 -- 3,314
----------- -------- --------- -------- ---------- -----------
Net interest income
after provision for
loan losses........ 61,019 755 -- 1,067 -- 62,841
----------- -------- --------- -------- ---------- -----------
Noninterest income... 20,105 74 -- 58 -- 20,237
Noninterest
expense............ 50,631 662 -- 558 -- 51,851
----------- -------- --------- -------- ---------- -----------
Income before income
taxes.............. 30,493 167 -- 567 -- 31,227
Applicable income
taxes.............. 11,021 57 -- 227 11,305
----------- -------- --------- -------- ---------- -----------
Net income........... $ 19,472 $ 110 $ -- $ 340 $ -- $ 19,922
=========== ======== ========= ======== ========== ===========
Average basic shares
outstanding........ 45,969,000 842,157 (842,157) 343,278 (343,278) 48,115,922
842,157 1,304,765
Average diluted
shares
outstanding........ 47,845,000 842,157 (842,157) 343,278 (343,278) 49,991,922
842,157 1,304,765
Earnings per share:
Basic............ $ 0.42 $ 0.41
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 income...... $ 5,988 $ -- $ 136,308
Interest expense..... 2,529 -- 66,694
---------- ------------ ----------
Net interest
income............. 3,459 -- 69,614
Provision for
possible loan
losses............. 129 -- 3,443
---------- ------------ ----------
Net interest income
after provision for
loan losses........ 3,330 -- 66,171
---------- ------------ ----------
Noninterest income... 567 20,804
Noninterest
expense............ 2,231 -- 54,082
---------- ------------ ----------
Income before income
taxes.............. 1,666 -- 32,893
Applicable income
taxes.............. 546 -- 11,851
---------- ------------ ----------
Net income........... $ 1,120 $ -- $ 21,042
========== ============ ==========
Average basic shares
outstanding........ 1,618,384 (1,618,384) 51,361,395
3,245,473
Average diluted
shares
outstanding........ 1,618,384 (1,618,384) 53,260,204
3,268,282
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.
42
<PAGE> 50
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, 1997
----------------------------------------------------------------------------------
CONSOLIDATED
COLONIAL COMPLETED
BANCGROUP BUSINESS ADJUSTMENTS/ ADJUSTMENTS/
(RESTATED)* COMBINATION (DEDUCTIONS) FIRSTBANK (DEDUCTIONS) SUBTOTAL
------------ ----------- ------------ --------- ------------ -----------
<S> <C> <C> <C> <C> <C> <C>
Interest income...... $ 540,699 $ 8,381 $ -- $ 7,864 $ -- $ 556,944
Interest expense..... 267,084 3,286 -- 2,740 -- 273,110
----------- -------- --------- -------- ---------- -----------
Net interest income.. 273,615 5,095 -- 5,124 -- 283,834
Provision for
possible loan
losses.............. 14,860 874 67 15,801
----------- -------- --------- -------- ---------- -----------
Net interest income
after provision for
loan losses......... 258,755 4,221 -- 5,057 -- 268,033
----------- -------- --------- -------- ---------- -----------
Noninterest income... 92,550 362 -- 184 -- 93,096
Noninterest expense.. 220,232 3,108 -- 2,261 -- 225,601
----------- -------- --------- -------- ---------- -----------
Income before income
taxes............... 131,073 1,475 -- 2,980 -- 135,528
Applicable income
taxes............... 48,557 507 -- 190 913(1) 50,167
----------- -------- --------- -------- ---------- -----------
Net income........... $ 82,516 $ 968 $ -- $ 2,790 $ (913) $ 85,361
=========== ======== ========= ======== ========== ===========
Average basic shares
outstanding......... 46,536,000 842,157 (842,157) 340,808 (340,808) 48,673,534
842,157 1,295,377
Average diluted
shares outstanding.. 48,158,000 842,157 (842,157) 340,808 (340,808) 50,295,534
842,157 1,295,377
Earnings per share:
Basic............... $ 1.77 $ 1.75
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...... $ 25,829 $ -- $ 582,773
Interest expense..... 11,354 -- 284,464
---------- ----------- -----------
Net interest income.. 14,475 -- 298,309
Provision for
possible loan
losses.............. 321 16,122
---------- ----------- -----------
Net interest income
after provision for
loan losses......... 14,154 -- 282,187
---------- ----------- -----------
Noninterest income... 2,718 -- 95,814
Noninterest expense.. 9,345 -- 234,946
---------- ----------- -----------
Income before income
taxes............... 7,527 -- 143,055
Applicable income
taxes............... 2,625 -- 52,792
---------- ----------- -----------
Net income........... $ 4,902 $ -- $ 90,263
========== =========== ===========
Average basic shares
outstanding......... 1,620,090 (1,620,090) 51,920,580
3,247,046
Average diluted
shares outstanding.. 1,620,090 (1,620,090) 53,562,739
3,267,205
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.
43
<PAGE> 51
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, 1996
----------------------------------------------------------------------------------
CONSOLIDATED
COLONIAL COMPLETED
BANCGROUP BUSINESS ADJUSTMENTS/ ADJUSTMENTS/
(RESTATED)* COMBINATION (DEDUCTIONS) FIRSTBANK (DEDUCTIONS) SUBTOTAL
------------ ----------- ------------ --------- ------------ -----------
<S> <C> <C> <C> <C> <C> <C>
Interest income...... $ 444,082 $ 4,031 $ -- $ 6,108 $ -- $ 454,221
Interest expense..... 219,494 1,194 -- 2,047 -- 222,735
----------- -------- --------- -------- ---------- -----------
Net interest income.. 224,588 2,837 -- 4,061 -- 231,486
Provision for
possible loan
losses.............. 13,564 344 44 13,952
----------- -------- --------- -------- ---------- -----------
Net interest income
after provision for
loan losses......... 211,024 2,493 -- 4,017 -- 217,534
----------- -------- --------- -------- ---------- -----------
Noninterest income... 74,860 225 -- 178 -- 75,263
Noninterest expense.. 198,971 1,896 -- 1,960 -- 202,827
----------- -------- --------- -------- ---------- -----------
Income before income
taxes............... 86,913 822 -- 2,235 -- 89,970
Applicable income
taxes............... 30,631 93 -- 762 31,486
----------- -------- --------- -------- ---------- -----------
Net income........... $ 56,282 $ 729 $ -- $ 1,473 $ -- $ 58,484
=========== ======== ========= ======== ========== ===========
Average basic shares
outstanding......... 42,839,000 658,452 (658,452) 345,137 (345,137) 44,809,283
658,452 1,311,831
Average diluted
shares outstanding.. 44,776,000 658,452 (658,452) 345,137 (345,137) 46,780,321
692,490 1,311,831
Earnings per share:
Basic............... $ 1.31 $ 1.31
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...... $ 21,792 $ -- $ 476,013
Interest expense..... 9,208 -- 231,943
---------- ----------- -----------
Net interest income.. 12,584 -- 244,070
Provision for
possible loan
losses.............. 488 14,440
---------- ----------- -----------
Net interest income
after provision for
loan losses......... 12,096 -- 229,630
---------- ----------- -----------
Noninterest income... 2,312 77,575
Noninterest expense.. 8,724 -- 211,551
---------- ----------- -----------
Income before income
taxes............... 5,684 -- 95,654
Applicable income
taxes............... 1,887 -- 33,373
---------- ----------- -----------
Net income........... $ 3,797 $ -- $ 62,281
========== =========== ===========
Average basic shares
outstanding......... 1,610,861 (1,610,861) 48,040,069
3,230,786
Average diluted
shares outstanding.. 1,610,861 (1,610,861) 50,034,582
3,254,261
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.
44
<PAGE> 52
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, 1995
---------------------------------------------------------------------------------
CONSOLIDATED
COLONIAL COMPLETED
BANCGROUP BUSINESS ADJUSTMENTS/ ADJUSTMENTS/
(RESTATED)* COMBINATION (DEDUCTIONS) FIRSTBANK (DEDUCTIONS) SUBTOTAL
------------ ----------- ------------ --------- ------------ ----------
<S> <C> <C> <C> <C> <C> <C>
Interest income.......... $ 371,985 $ 1,492 $ -- $ 5,256 $ -- $ 378,733
Interest expense......... 182,441 297 -- 1,680 -- 184,418
---------- ------- -------- ------- --------- ----------
Net interest income...... 189,544 1,195 -- 3,576 -- 194,315
Provision for possible
loan losses............. 10,180 192 176 10,548
---------- ------- -------- ------- --------- ----------
Net interest income after
provision for loan
losses.................. 179,364 1,003 -- 3,400 -- 183,767
---------- ------- -------- ------- --------- ----------
Noninterest income....... 63,479 76 -- 114 -- 63,669
Noninterest expense...... 164,739 1,316 -- 1,736 -- 167,791
---------- ------- -------- ------- --------- ----------
Income before income
taxes................... 78,104 (237) -- 1,778 -- 79,645
Applicable income
taxes................... 27,462 -- -- 604 28,066
---------- ------- -------- ------- --------- ----------
Net income............... $ 50,642 $ (237) $ -- $ 1,174 $ -- $ 51,579
========== ======= ======== ======= ========= ==========
Average basic shares
outstanding............. 39,787,000 508,088 (508,088) 350,000 (350,000) 41,625,403
508,088 1,330,315
Average diluted shares
outstanding............. 43,649,000 508,088 (508,088) 350,000 (350,000) 45,487,403
508,088 1,330,315
Earnings per share:
Basic................. $ 1.27 $ 1.24
Diluted............... $ 1.18 $ 1.16
<CAPTION>
YEAR ENDED DECEMBER 31, 1995
------------------------------------------
OTHER PROBABLE PRO FORMA
BUSINESS ADJUSTMENTS/ COMBINED
COMBINATIONS (DEDUCTIONS) TOTAL
-------------- ------------ ----------
<S> <C> <C> <C>
Interest income.......... $ 18,806 $ 397,539
Interest expense......... 7,975 -- 192,393
--------- ----------- ----------
Net interest income...... 10,831 -- 205,146
Provision for possible
loan losses............. 386 10,934
--------- ----------- ----------
Net interest income after
provision for loan
losses.................. 10,445 -- 194,212
--------- ----------- ----------
Noninterest income....... 1,986 65,655
Noninterest expense...... 7,484 -- 175,275
--------- ----------- ----------
Income before income
taxes................... 4,947 -- 84,592
Applicable income
taxes................... 1,616 -- 29,682
--------- ----------- ----------
Net income............... $ 3,331 $ -- $ 54,910
========= =========== ==========
Average basic shares
outstanding............. 1,574,910 (1,574,910) 44,795,361
3,169,958
Average diluted shares
outstanding............. 1,574,910 (1,574,910) 48,667,679
3,180,276
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.
PRO FORMA ADJUSTMENTS
Adjustments applicable to the pooling-of-interests method 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.
45
<PAGE> 53
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>
46
<PAGE> 54
PENDING BUSINESS COMBINATIONS
(2) Possible adjustments applicable to the pooling-of-interests method
business combination with FirstBank:
<TABLE>
<S> <C>
Increase in expense:
Professional fees......................................... $(100)
Write-off of fixed assets................................. (8)
-----
Net decrease in income before tax........................... (108)
Tax effect of the pro forma adjustment...................... 40
-----
Net decrease in income............................ $ (68)
=====
</TABLE>
(3) Possible adjustments applicable to the pooling-of-interests method
business combination with CNB Holding Company:
<TABLE>
<S> <C>
Increase in expense:
Write-off of fixed assets................................. $ (199)
Potential severance payable 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>
(4) Possible adjustments applicable to the pooling-of-interests method
business combination with First Macon:
<TABLE>
<S> <C>
Increase in expense:
Contract buy-outs......................................... $(153)
Potential severance payable to terminated employees....... (162)
Professional fees......................................... (305)
Write-off of other assets................................. (51)
Write-off of fixed assets................................. (328)
-----
Net decrease in income before tax........................... (999)
Tax effect of the pro forma adjustments..................... 375
-----
Net decrease in income............................ $(624)
=====
</TABLE>
(5) Possible adjustments applicable to the pooling-of-interests method
business combination with Prime Bank:
<TABLE>
<S> <C>
Decrease (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>
47
<PAGE> 55
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% 1.25%
Average equity............................................ 17.16 17.15
Net income to:
Average assets............................................ 1.13 1.19
Average equity............................................ 15.64 16.29
Efficiency ratio (excluding acquisition and Year 2000
expenses)................................................. 58.60 58.31
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.
48
<PAGE> 56
THE COLONIAL BANCGROUP, INC. AND SUBSIDIARIES
SELECTED FINANCIAL AND OPERATING INFORMATION
The following tables present certain financial information for BancGroup on
a historical 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 proforma and
historical statement of condition data and selected ratios as of 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...................................... $157,996 $146,034 $136,308 $127,044
Interest expense..................................... 77,602 72,602 66,694 62,969
-------- -------- -------- --------
Net interest income.................................. 80,394 73,432 69,614 64,075
Provision for possible loan losses................... 3,889 3,670 3,443 3,056
-------- -------- -------- --------
Net interest income after provision for loan
losses............................................. 76,505 69,762 66,171 61,019
Noninterest income................................... 26,861 26,075 20,804 20,105
Noninterest expense.................................. 62,691 58,485 53,325 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.............................................. 53,150 47,779 51,361 45,969
Diluted............................................ 54,568 49,178 53,260 47,845
Cash dividends:
Common............................................. $ 0.17 $ 0.17 $ 0.15 $ 0.15
</TABLE>
49
<PAGE> 57
<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.......... 228,483 195,168 173,537 213,769 182,588 163,001 154,083 135,471
SAIF special assessment...... -- 4,465 -- -- 4,465 -- -- --
Acquisition and restructuring
costs...................... 6,463 11,918 1,738 6,463 11,918 1,738 1,348 960
-------- -------- -------- -------- -------- -------- -------- --------
Income before income taxes... 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 $ 74,718 $ 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 1.49 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.................... 51,921 48,040 44,795 46,536 42,839 39,787 37,361 33,512
Diluted.................. 53,563 50,035 48,668 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.
50
<PAGE> 58
<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............. $8,654,258 $8,006,359 $7,442,661 $6,165,691 $5,370,361 $4,214,492 $4,022,477
Loans, net of unearned
income............... 6,023,916 5,655,164 5,585,901 4,558,780 3,924,785 2,959,565 2,468,564
Mortgage loans held for
sale................. 455,716 455,716 225,331 157,966 116,688 61,556 368,515
Deposits............... 6,660,858 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... 619,531 571,586 543,262 443,391 388,770 298,812 279,300
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......... 1.26% 1.25% 1.27% 1.20% 1.09% 0.97% 0.82%
Average stockholders'
equity............... 17.07 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......... 0.99 0.96 1.19 0.98 1.06 0.95 0.79
Average stockholders'
equity............... 13.41 12.95 16.35 13.30 14.91 13.01 11.87
Net income to:
Average assets......... 0.99 0.96 1.19 0.98 1.06 0.95 0.90
Average stockholders'
equity............... 13.41 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)................ 1.24% 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.
51
<PAGE> 59
FIRSTBANK
SELECTED FINANCIAL DATA
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
The following tables present selected historical financial data for
FirstBank. These tables should be read in conjunction with the historical
financial statements and notes thereto included elsewhere in this Prospectus.
<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>
At Period End:
Cash and cash equivalents.............. $ 63,584 $ 33,945 $ 55,456 $ 38,252 $ 29,719 $ 35,065 $ 29,519
Investment securities.................. 45,653 33,802 42,492 32,559 26,464 22,855 24,067
Loans, net............................. 52,559 37,606 46,166 35,706 26,594 18,690 11,932
All other assets....................... 1,064 740 880 813 1,718 2,573 422
-------- -------- -------- -------- -------- -------- --------
Total assets..................... $162,860 $106,093 $144,994 $107,330 $ 84,495 $ 79,183 $ 65,940
======== ======== ======== ======== ======== ======== ========
Deposit accounts......................... $138,121 $ 90,608 $125,518 $ 92,088 $ 73,635 $ 68,379 $ 59,151
All other liabilities.................... 15,954 8,968 11,208 8,681 5,512 6,860 3,244
Shareholders' equity..................... 8,785 6,517 8,268 6,561 5,348 3,944 3,545
-------- -------- -------- -------- -------- -------- --------
Total liabilities and
shareholders' equity........... $162,860 $106,093 $144,994 $107,330 $ 84,495 $ 79,183 $ 65,940
======== ======== ======== ======== ======== ======== ========
For the Period:
Total interest income.................. $ 2,479 $ 1,660 $ 7,863 $ 6,108 $ 5,256 $ 3,467 $ 1,930
Total interest expense................. 957 576 2,739 2,047 1,680 1,097 580
-------- -------- -------- -------- -------- -------- --------
Net interest income...................... 1,522 1,084 5,124 4,061 3,576 2,370 1,350
Provision for credit losses.............. 17 17 67 44 176 146 117
-------- -------- -------- -------- -------- -------- --------
Net interest income after provision for
credit losses.......................... 1,505 1,067 5,057 4,017 3,400 2,224 1,233
Other income............................. 51 58 184 178 114 27 100
Other expenses........................... 622 558 2,261 1,960 1,736 1,379 1,016
-------- -------- -------- -------- -------- -------- --------
Earnings before income tax provisions and
extraordinary item..................... 934 567 2,980 2,235 1,778 872 317
Income tax provision(1).................. 0 227 190 762 604 296 102
-------- -------- -------- -------- -------- -------- --------
Net earnings before extraordinary item... 934 340 2,790 1,473 1,174 576 215
Extraordinary item(2).................... 0 0 0 0 0 0 77
-------- -------- -------- -------- -------- -------- --------
Net earnings............................. $ 934 $ 340 $ 2,790 $ 1,473 $ 1,174 $ 576 $ 292
======== ======== ======== ======== ======== ======== ========
Earnings (loss) per share before
extraordinary item..................... $ 2.75 $ .99 $ 8.19 $ 4.27 $ 3.35 $ 1.65 $ .83
======== ======== ======== ======== ======== ======== ========
Net earnings per share................... $ 2.75 $ .99 $ 8.19 $ 4.27 $ 3.35 $ 1.65 $ .83
======== ======== ======== ======== ======== ======== ========
Weighted average number of shares
outstanding............................ 340,000 343,278 340,808 345,137 350,000 350,000 350,000
Ratios and Other Data:
Return on average assets............... 2.60% 1.42% 2.47% 1.69% 1.58% .92% .73%
Return on average equity............... 43.61 22.24 38.16 25.04 25.46 15.37 9.47
Average equity to average assets....... 5.97 6.91 6.46 6.75 6.20 6.01 7.70
Interest-rate spread during the
period............................... 3.32 3.52 3.59 3.63 4.12 3.19 2.27
Net yield on average interest-earning
assets............................... 7.41 7.52 7.61 7.61 7.70 6.08 4.89
Noninterest expense to average
assets............................... 1.71 2.31 2.03 2.25 2.34 2.21 2.35
Ratio of average interest-earning
assets to average interest-bearing
liabilities.......................... 1.77 1.81 1.84 1.87 1.96 1.90 1.79
Dividends declared..................... $ 425 $ 224 $ 1,034 $ 173 $ 0 $ 0 $ 0
Actual number of shares outstanding at
end of period........................ 340,000 340,000 340,000 345,000 350,000 350,000 350,000
Nonperforming loans, in-substance
foreclosed loans and real estate owned
as a percentage of total assets at end
of period.............................. 0% 0% 0% 0% 0% 0% 0%
Allowance for credit losses as a
percentage of total loans at end of
period................................. 1.15 1.43 1.27 1.45 1.79 1.62 1.34
Total number of banking offices.......... 1 1 1 1 1 1 1
Book value per share at end of period.... $ 25.84 $ 19.17 $ 24.32 $ 19.02 $ 15.28 $ 11.26 $ 10.13
</TABLE>
- ---------------
(1) Effective January 1, 1997, FirstBank elected to become a Subchapter "S"
Corporation under the Code for federal income tax reporting purposes.
(2) Reduction of income taxes arising from net operating loss carryforward.
52
<PAGE> 60
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion is provided to afford the reader an understanding
of the major elements of FirstBank financial condition, results of operations,
capital resources and liquidity. It should be read in conjunction with the
financial statements and notes thereto and other information appearing elsewhere
in this Prospectus.
GENERAL
FirstBank (or the "Bank") is an FDIC-insured, state chartered commercial
bank headquartered in Dallas, Texas. The bank commenced operations on October 2,
1992. The Bank has one office located in Dallas, Texas, and its main business is
to attract deposits and to invest those funds in loans, including both secured
and unsecured commercial loans, consumer loans, construction and residential
mortgage loans, and the origination of loans secured by commercial real estate
properties.
At December 31, 1997, FirstBank had total assets of $145 million, an
increase of 35.1% over the $107.3 million recorded at December 31, 1996, and
total shareholders' equity of $8.3 million, up 26.0% over the $6.6 million at
December 31, 1996. For the twelve months ended December 31, 1997 it had net
pretax earnings of $2.8 million, an improvement of approximately $1.3 million
from the net pretax earnings reported for the twelve months ending December 31,
1996 of $1.5 million.
During the year ended December 31, 1997, net loans increased 29% to $46.2
million from $35.7 million as of December 31, 1996. The Bank's portfolio of
investment securities increased to $42.5 million as of December 31, 1997 from
$32.6 million as of December 31, 1996. The Bank's deposits increased to $125.5
million as of December 31, 1997 from $92.1 million at December 31, 1996. The
36.3% increase in deposits reflected the Bank's strategy of continuing to accept
and retain deposit accounts for which funds can be prudently invested.
REGULATION AND LEGISLATION
As a state-chartered commercial bank, the Bank is subject to extensive
regulation by the Texas Department of Banking ("Texas Department") and the
Federal Deposit Insurance Corporation ("FDIC"). The Bank files reports with the
Texas Department and the FDIC concerning its activities and financial condition,
in addition to obtaining regulatory approvals prior to entering into certain
transactions such as opening additional branch offices and mergers with or
acquisitions of other financial institutions. Periodic examinations are
performed by the Texas Department and the FDIC to monitor the Bank's compliance
with various regulatory requirements and safety and soundness. The Bank is also
subject to regulation by the Federal Reserve with respect to reserves required
to be maintained against deposits and certain other matters. As a Texas state
bank, the Bank is subject to that state's banking laws and to certain
regulations by the Texas Department.
CREDIT RISK
The Bank's business activity entails potential loan losses, the magnitude
of which depend on a variety of economic factors affecting borrowers which are
beyond the control of the Bank. While the Bank has instituted underwriting
guidelines and credit review procedures to protect the Bank from avoidable
credit losses, some losses will inevitably occur.
53
<PAGE> 61
The following tables set forth certain information regarding non-accrual
loans and other real estate owned, the ratios of such loans and real estate
owned to total assets as of the dates indicated, and certain other related
information:
<TABLE>
<CAPTION>
AT DECEMBER 31,
------------------------------------
1997 1996 1995 1994 1993
---- ---- ---- ---- ----
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Nonaccrual loans:
Real estate loans
Residential.............................. $ 0 $ 0 $ 0 $ 0 $ 0
Commercial............................... 0 0 0 0 0
Consumer and other loans................. 0 0 0 0 0
---- ---- ---- ---- ----
Total nonperforming loans........... $ 0 $ 0 $ 0 $ 0 $ 0
==== ==== ==== ==== ====
Other real estate owned:
Real estate acquired by foreclosure or deed
in lieu of foreclosure................... 0% 0% 0% 0% 0%
Total nonperforming assets.......... 0 0 0 0
Total nonperforming loans to total
assets............................ 0 0 0 0 0
Total nonperforming assets to total
assets............................ 0 0 0 0 0
</TABLE>
The following tables set forth information with respect to activity in the
Bank's allowance for loan losses during the periods indicated:
<TABLE>
<CAPTION>
1997 1996 1995 1994 1993
------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C>
Average outstanding loans........ $43,118 $32,661 $26,077 $17,142 $ 8,357
Allowance at beginning of
period......................... 527 484 308 162 45
Loans charged-off
Residential real estate
loans..................... 0 0 0 0 0
Commercial real estate
loans..................... 0 0 0 0 0
Commercial loans............ 0 0 0 0 0
Consumer loans.............. 0 1 0 0 0
------- ------- ------- ------- -------
Total loans
charged-off.......... 0 1 0 0 0
------- ------- ------- ------- -------
Recoveries..................... 0 0 0 0 0
------- ------- ------- ------- -------
Net charge-offs (recoveries)... 0 1 0 0 0
Provisions for loan losses
charged to operating
expenses.................... 67 44 176 146 117
------- ------- ------- ------- -------
Allowance at end of year......... $ 594 $ 527 $ 484 $ 308 $ 162
======= ======= ======= ======= =======
Net charge-offs to average loans
outstanding.................... 0.000% 0.000% 0.000% 0.000% 0.00%
Allowance to period end loans.... 1.27% 1.45% 1.79% 1.62% 1.34%
Period end loans, net of deferred
fees........................... $46,760 $36,233 $27,078 $18,998 $12,094
</TABLE>
RESULTS OF OPERATIONS
The operating results of the Bank depend primarily on its net interest
income, which is equal to the difference between interest income on
interest-earning assets and interest expense on interest-bearing liabilities,
which consist primarily of deposits. Net interest income is determined by
reference to (i) the difference between yields earned on interest-earning assets
and rates paid on interest-bearing liabilities ("net interest spread"), and (ii)
the relative amounts of interest-earning assets and interest-bearing
liabilities. The Bank's net interest spread is affected by regulatory, economic
and competitive factors that influence interest rates, loan demand and deposit
flows. In addition, the Bank's net earnings are also affected by the level of
nonperforming loans and real estate owned, as well as the level of its
non-interest income and non-interest expenses, such as salaries and employee
benefits, occupancy, check and data processing and equipment costs and
provisions for loan losses.
54
<PAGE> 62
The following tables set forth for the periods indicated information
regarding (i) the total dollar amount of interest income of the Bank from
earning assets and the resultant average yields; (ii) the total dollar amount of
interest expense on interest-bearing liabilities and the resultant average cost;
(iii) net interest income; (iv) net interest spread; and (v) net interest
margin. Average balances are based upon daily balances.
<TABLE>
<CAPTION>
1997 1996 1995
------------------------------------ --------------------------------- ---------------------------------
AVG. BAL. INTEREST YIELD/RATE AVG. BAL. INTEREST YIELD/RATE AVG. BAL. INTEREST YIELD/RATE
------------ -------- ---------- --------- -------- ---------- --------- -------- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Earning assets:
Loans.............. $ 43,118 $4,296 9.96% $ 32,661 $3,328 10.19% $ 26,077 $2,854 10.95%
Investment
securities....... 36,301 2,245 6.19 31,021 1,895 6.11 25,480 1,427 5.60
Federal funds
sold............. 23,876 1,322 5.54 16,589 885 5.34 16,735 975 5.83
------------ ------ -------- ------ -------- ------
Total earning
assets..... 103,295 7,863 7.61% 80,271 6,108 7.61% 68,292 5,256 7.70%
------ ------ ------
Non-earning assets... 8,387 7,125 5,910
------------ -------- --------
Total
assets..... $ 111,682 $ 87,396 $ 74,202
============ ======== ========
Interest-bearing
liabilities:
Savings accounts... $ 541 $ 11 2.03% $ 504 $ 11 2.18% $ 510 $ 11 2.16%
NOW accounts....... 5,377 66 1.22 4,207 60 1.44 3,372 50 1.48
Money market
deposits......... 42,154 1,773 4.21 30,811 1,280 4.15 23,838 861 3.61
Certificates of
deposit:
IRA.............. 179 8 4.73 343 15 4.42 349 16 4.69
Over $100,000.... 4,770 247 5.17 4,132 204 4.93 3,880 176 4.53
Under $100,000... 3,170 157 4.95 3,016 140 4.64 2,928 134 4.58
Borrowings......... 9,547 478 5.01 6,930 338 4.87 7,944 432 5.43
------------ ------ -------- ------ -------- ------
Total interest-
bearing
liabilities.... 65,738 2,740 4.17% 49,943 2,048 4.10% 42,821 1,680 3.92%
------ ------ ------
Non-interest-
bearing
liabilities.... 38,730 31,562 26,771
Shareholders'
equity............. 7,214 5,891 4,610
------------ -------- --------
Total liabilities
and equity..... $ 111,682 $ 87,396 $ 74,202
============ ======== ========
Net interest
income............. $5,123 $4,060 $3,576
====== ====== ======
Net interest
spread............. 3.44% 3.51% 3.78%
Ratio of average
earning assets to
average
interest-bearing
liabilities........ 157% 161% 159%
</TABLE>
RATE/VOLUME ANALYSIS
The following tables set forth certain information regarding changes in
interest income and interest expense of the Bank for the periods indicated. For
each category of earning assets and interest bearing liabilities, information is
provided on changes attributable to (1) changes in rate (change in rate
multiplied by prior volume), (2) changes in volume (change in volume multiplied
by prior rate), and (3) changes in rate-volume (change in rate multiplied by
change in volume) (in thousands).
55
<PAGE> 63
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, 1997 VS 1996
-------------------------------------
INCREASE (DECREASE) DUE TO
-------------------------------------
RATE VOLUME MIX TOTAL
----- ------- --------- -------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
Interest-earning assets:
Loans..................................................... $ 14 $ 990 $ 4 $1,008
Investment securities..................................... 72 593 22 687
Other earning assets...................................... 62 908 41 1,011
---- ------ --- ------
Total............................................. 148 2,491 67 2,706
---- ------ --- ------
Interest-bearing liabilities:
Deposits:
Savings accounts....................................... (1) 77 (1) 75
Money market accounts.................................. 6 761 4 771
Certificate accounts................................... 23 83 3 109
Borrowings -- repurchase agreements....................... 19 150 8 177
---- ------ --- ------
Total............................................. 47 1,071 14 1,132
---- ------ --- ------
Net change in net interest income........................... $101 $1,420 $53 $1,574
==== ====== === ======
</TABLE>
LIQUIDITY AND CAPITAL RESOURCES
Liquidity management assures that adequate funds are available to meet
deposit withdrawals, loan demand and maturing liabilities. Insufficient
liquidity can result in higher costs of obtaining funds, while excessive
liquidity can lead to a decline in earnings due to the cost of foregoing
alternative investments. The ability to renew and acquire additional deposit
liabilities is a major source of liquidity. The Bank's principal source of funds
is primarily within the local market of the Bank and consists of deposits,
interest and principal payments on loans and investment securities and
borrowings.
Asset liquidity is provided by cash and assets which are readily
marketable, or which can be pledged, or which will mature in the near future.
These include cash, federal funds sold and U.S. Government backed securities and
U.S. Government agencies securities. Total fair market value of all pledged
securities are not included as liquid assets. Liability liquidity is provided by
access to core funding sources, principally various customers' interest bearing
and noninterest bearing deposit accounts. The Bank does not have nor does it
solicit brokered deposits. Federal funds purchased and short term borrowings are
additional sources of liquidity. These sources are short term in nature and are
used, as necessary, to fund asset growth and meet short term liquidity needs.
As of December 31, 1997 and December 31, 1996, the Bank's liquidity ratio
was approximately 75.74% and 74.59%, respectively, of total deposits.
56
<PAGE> 64
The following table sets forth the carrying value of the Bank's investment
portfolio as of the dates indicated:
<TABLE>
<CAPTION>
DECEMBER 31,
---------------------------
1997 1996 1995
------- ------- -------
(IN THOUSANDS)
<S> <C> <C> <C>
Securities held to maturity:
U.S. treasury securities................................ $ 0 $ 1,003 $ 1,511
U.S. government agencies................................ 16,395 16,505 14,851
State, county and municipal............................. 0 0 0
------- ------- -------
Total held to maturity.......................... $16,395 $17,508 $16,362
======= ======= =======
Securities available for sale:
U.S. treasury securities................................ $20,260 $15,083 $ 9,160
U.S. government agencies................................ 5,963 0 1,005
State, county and municipal............................. 0 0 0
------- ------- -------
Total available for sale........................ 26,223 15,083 10,165
------- ------- -------
Total investment securities..................... $42,618 $32,591 $26,527
======= ======= =======
</TABLE>
The following table sets forth, by maturity distribution, certain
information pertaining to the Bank's investment securities portfolio at December
31, 1997:
<TABLE>
<CAPTION>
HELD-TO-MATURITY SECURITIES AVAILABLE-FOR-SALE SECURITIES
--------------------------- -----------------------------
ADJUSTED ESTIMATED ADJUSTED ESTIMATED
COST FAIR VALUE COST FAIR VALUE
------------ ------------ ------------- -------------
<S> <C> <C> <C> <C>
Due in one year or less............. $ -- $ -- $ 9,069,499 $ 9,089,322
Due from one to five years.......... 8,555,166 8,627,228 14,101,076 14,206,068
Due after five to ten years......... 3,057,324 3,071,166 -- --
Due after ten years*................ 4,655,679 4,696,341 2,926,120 2,928,071
----------- ----------- ----------- -----------
$16,268,169 $16,394,735 $26,096,695 $26,223,461
=========== =========== =========== ===========
</TABLE>
- ---------------
* Investment securities due after ten years consist of one year adjustable GNMA
products.
At December 31, 1997 the securities portfolio carried a 6.31% aggregate
yield to maturity.
The Bank's primary sources of funds consist of principal payments on loans
and investment securities, proceeds from sales and maturities of investment
securities and net increases in deposits. The Bank uses its capital resources
principally to purchase investment securities and fund existing and continuing
loan commitments. At December 31, 1997 and December 31, 1996, the Bank had
commitments to originate loans totaling $27.6 million and $20.1 million,
respectively. Scheduled maturities of certificates of deposit during the next 12
months following December 31, 1997 totaled $8.9 million.
REGULATORY CAPITAL REQUIREMENTS
For the purpose of evaluating the minimum capital adequacy of financial
institution, Federal banking regulators have adopted regulations which make
reference to the institution's "Tier 1 leverage" capital and also to its "total"
capital. In most instances, "Tier 1 leverage" capital will consist solely of
funds permanently committed to the institution (i.e., shareholders' equity),
less net intangible assets. Conversely, "total" capital (comprised of the sum of
Tier 1 and supplementary, or Tier 2 capital) includes not only shareholders'
equity, but the allowance for loan losses (subject to limitations). Under FDIC
regulations, the Bank is required to meet certain minimum capital thresholds.
The requirement is not a valuation allowance and has not been
57
<PAGE> 65
created by charges against earnings; rather, it represents a restriction on
shareholders' equity. The following table compares the minimum capital ratios
required by the FDIC to the ratios maintained by FirstBank
<TABLE>
<CAPTION>
FOR CAPITAL
ADEQUACY
ACTUAL PURPOSES
-------------- -------------
<S> <C> <C> <C> <C>
As of December 31, 1997
Total Capital (to risk weighted assets)................ $8,698 15.87% $4,385 8.00%
Tier I Capital (to risk weighted assets)............... 8,104 14.78 2,193 4.00
Tier I Capital (to average assets)..................... 8,104 6.09 5,326 4.00
</TABLE>
ASSET AND LIABILITY MANAGEMENT
As part of its asset and liability management, the Bank has emphasized
establishing and implementing internal asset-liability decision processes, as
well as communications and control procedures to aid in managing the Bank's
earnings. Management believes that these processes and procedures provide the
Bank with better capital planning, asset mix and volume controls, loan-pricing
guidelines, and deposit interest-rate guidelines which should result in controls
and less exposure to interest-rate risk.
The matching of assets and liabilities may be analyzed by examining the
extent to which such assets and liabilities are "interest-rate sensitive" and by
monitoring an institution's interest rate sensitivity "gap." An asset or
liability is said to be interest-rate sensitive within a specific time period if
it will mature or reprice within that time period. The interest-rate sensitivity
gap is defined as the difference between interest-earning assets and
interest-bearing liabilities maturing or repricing within a given time period.
The gap ratio is computed as rate-sensitive assets to rate-sensitive
liabilities. A gap ratio of 1.0 represents perfect matching. A gap is considered
positive when the interest-rate sensitive assets exceed interest-rate sensitive
liabilities. A gap is considered negative when interest-rate sensitive
liabilities exceed interest-rate sensitive assets. During a period of rising
interest rates, a negative gap would adversely affect net interest income, while
a positive gap would result in an increase in net interest income. During a
period of falling interest rates, a negative gap would result in an increase in
net interest income, while a positive gap would adversely affect net interest
income.
In order to minimize the potential for adverse effects of material and
prolonged increases in interest rates on the Bank's results of operations,
management continues to monitor asset and liability management policies to
better match the maturities and repricing terms of the Bank's interest-earning
assets and interest-bearing liabilities. Such policies have consisted primarily
of: (i) emphasizing the origination of adjustable-rate loans; (ii) maintaining a
stable core deposit base; and (iii) maintaining a significant portion of liquid
assets (cash and short-term investments).
The Bank has also maintained a relatively large portfolio of liquid assets
(cash and assets maturing or repricing in one year or less) in order to reduce
its vulnerability to shifts in market rates of interest. At December 31, 1997
and December 31, 1996, 44.52% and 43.10%, respectively, of the Bank's total
assets consisted of cash, federal funds sold, and short-term U.S. Government
securities, and its overall liquidity ratio was approximately 75.74% and 74.59%
of total deposits.
The Bank seeks to maintain a large stable core deposit base by providing
quality service to its customers without significantly increasing its cost of
funds or operating expenses. The success of the Bank's core deposit strategy is
demonstrated by the stability of its money-market deposit accounts, savings
accounts and NOW accounts, which, in the aggregate, totaled $60.2 million,
representing 47.98% of total deposits at December 31, 1997 and $36 million or
39.07% of such deposits at December 31, 1996.
As of December 31, 1997, the Bank's cumulative one-year interest-rate
sensitivity gap ratio was 1.27%. Although management believes that the
implementation of the referenced strategies has reduced the potential adverse
effects of changes in interest rates on the Bank's results of operations, any
substantial and prolonged decrease in market interest rates could have an
adverse impact on the Bank's results of operations. Management monitors the
Bank's interest-rate sensitivity gap on a quarterly basis, having retained an
external consulting firm to provide practical and theoretical gap reports. The
practical gap report is based on the
58
<PAGE> 66
Federal Reserve's March 26, 1993 draft for incorporating Interest-Rate Risk into
Risk-Based Capital Standards.
The Bank's management monitors interest rate risk by reviewing several
areas of the Bank's operation, such as liquidity, volatile liability dependence
and rate sensitivity, operating within the targets and guidelines of the Bank's
Funds Management policy. A positive gap will continue in the one year time
period, but should decline in line with management goals.
The following table sets forth certain information relating to the Bank's
earning assets and interest-bearing liabilities at December 31, 1997 that are
estimated to mature or are scheduled to reprice within the period shown:
<TABLE>
<CAPTION>
MORE THAN MORE
ONE YEAR THAN
ONE YEAR TO FIVE YEARS FIVE YEARS TOTAL
-------- ------------- ---------- --------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C>
Earning assets:
Fixed rate loans......................... $ 821 $ 3,183 $ 76 $ 4,080
Adjustable rate loans.................... 42,450 228 0 42,678
Investments (includes federal funds
sold)................................. 59,316 18,737 7,081 85,134
-------- ------- ------ --------
Total earning assets............. $102,587 $22,148 $7,157 $131,892
======== ======= ====== ========
Interest-bearing liabilities:
Certificates of deposit.................. $ 8,911 $ 297 $ 0 $ 9,208
Savings and NOW accounts................. 11,614 0 0 11,614
Money market accounts.................... 48,607 0 0 48,607
Repurchase agreements.................... 10,811 0 0 10,811
-------- ------- ------ --------
Total interest-bearing
liabilities.................... $ 79,943 $ 297 $ 0 $ 80,240
======== ======= ====== ========
</TABLE>
Loan Maturities. The table below sets forth the contractual maturity of
the Bank's commercial loan and construction loan portfolios at December 31,
1997. The table does not reflect anticipated prepayments.
<TABLE>
<CAPTION>
MATURITY SCHEDULE OF SELECTED LOANS
------------------------------------
0-12 1-5 OVER
MONTHS YEARS 5 YEARS TOTAL
------- ------ ------- -------
<S> <C> <C> <C> <C>
Fixed interest rate...................................... $ 489 $ 74 $ 0 $ 563
Variable interest rate................................... 22,422 5,507 954 28,883
------- ------ ---- -------
Total.......................................... $22,911 $5,581 $954 $29,446
======= ====== ==== =======
</TABLE>
The following table shows the distribution of, and certain other
information relating to the Bank's deposit accounts, by type:
<TABLE>
<CAPTION>
AT DECEMBER 31,
--------------------------------------
1997 1996
------------------ -----------------
% OF % OF
AMOUNT DEPOSIT AMOUNT DEPOSIT
-------- ------- ------- -------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C>
Demand deposits................................. $ 56,089 44.68% $48,547 52.72%
Savings and NOW deposits........................ 11,614 9.25 5,498 5.97
Money market deposits........................... 48,607 38.73 30,484 33.10
Certificates of deposit......................... 9,208 7.34 7,559 8.21
-------- ------ ------- ------
Total................................. $125,518 100.00% $92,088 100.00%
======== ====== ======= ======
</TABLE>
59
<PAGE> 67
The following table shows the average amount of and the average rate paid
on each of the following deposit accounts categories during the periods
indicated:
<TABLE>
<CAPTION>
YEAR ENDING DECEMBER 31,
-----------------------------------------------------------
1997 1996 1995
----------------- ----------------- -----------------
AVERAGE AVERAGE AVERAGE AVERAGE AVERAGE AVERAGE
BALANCE RATE BALANCE RATE BALANCE RATE
------- ------- ------- ------- ------- -------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
Noninterest bearing checking
accounts...................... $37,957 0.00% $30,749 0.00% $26,303 0.00%
NOW accounts.................... 5,377 1.22 4,207 1.44 3,372 1.48
Money market accounts........... 42,154 4.21 30,811 4.15 23,838 3.61
Certificates of deposit......... 8,119 5.07 7,491 4.79 7,157 4.56
Savings accounts................ 541 1.99 504 2.21 510 2.22
------- ---- ------- ---- ------- ----
Total deposits........ $94,148 4.02% $73,762 3.97% $61,180 3.58%
======= ==== ======= ==== ======= ====
</TABLE>
COMPARISON OF THREE MONTHS ENDED MARCH 31, 1998 AND MARCH 31, 1997
General. Net pretax income for the three months ended March 31, 1998 was
$934,000 or $2.75 per share compared to $567,000 or $1.65 per share for the same
period in 1997. The increase in pretax income was due primarily to an increase
in interest income.*
Interest Income and Expense. Interest income increased $819,000 or 49.3%
to $2,479,000 during the three months ended March 31, 1998. Interest on loans
increased $332,000 to $1,236,000 due to an increase in the average loan
portfolio from $37,345,000 for the quarter ended March 31, 1997 to $50,415,000
for the quarter ended March 31, 1998. Interest on investment securities
increased $175,000 to $669,000 due to an increase in average balance of
securities during the first quarter of 1998 compared with 1997.
Interest expense on deposit accounts and short term borrowings increased
$576,000 or 66.1% to $957,000 during the quarter ended March 31, 1998 due to an
increase in the average balance of interest bearing liabilities.
Provisions for Loan Losses. The provision for loan losses is charged to
earnings to bring the total allowance to a level deemed appropriate by
management and is based upon historical experience, the volume and type of
lending conducted by the Bank, industry standards, the amount of nonperforming
loans, general economic conditions, particularly as they relate to the Bank's
market areas, and other factors related to the collectibility of the Bank's loan
portfolio. The provision for loan losses remained constant at $17,000 at March
31, 1997 and 1998. The reserve for possible loan losses increased from $544,000
at March 31, 1997 to $611,000 at March 31, 1998. Nonperforming loans as a
percentage of total assets were 0.0% at March 31, 1998 and 1997. While
management believes that its reserves for possible loan losses was adequate as
of March 31, 1998, future adjustments to the Bank's reserves for possible loan
losses may be necessary if economic and other conditions differ substantially
from the assumptions used in making the determination.
Noninterest Income and Expense. Total noninterest income decreased 12%,
from $58,000 for the three months ended March 31, 1997 to $51,000 for the three
months ended March 31, 1998. Total noninterest expense increased 11.3% from
$559,000 for the three months ended March 31, 1997 to $622,000 for the three
months ended March 31, 1998. This increase was due to normal growth.
COMPARISON OF YEARS ENDED DECEMBER 31, 1997 AND DECEMBER 31, 1996
General. Net income for the year ended December 31, 1997 was $2,790,000 or
$8.19 per share compared to a net income of $1,473,000 or $4.27 per share for
December 31, 1996. The increase in earnings of $1,317,000 was due primarily to
an increase in interest income and an increase in average assets. The income
- ---------------
* It should be noted that the Bank, effective January 1, 1997, files federal
income tax returns as a Subchapter S Corporation.
60
<PAGE> 68
for 1997 does not reflect full taxation as a C corporation. FirstBank began
operations as an S corporation on January 1, 1997.
Interest Income and Expense. Interest income increased $1,755,000 or 28.7%
to $7,863,000 during the year ended December 31, 1997. Interest on loans
increased $969,000 to $4,297,000 due to an increase in the average loan
portfolio from $32,661,000 during 1996 to $43,118,000 during 1997. Interest on
investment securities increased $350,000 to $2,245,000 due to an increase in the
average yield and average balance of securities during 1997 compared with 1996.
Interest expense on deposit accounts and short-term borrowings increased
from $2,047,000 for the year ended December 31, 1996 to $2,740,000 for the year
ended December 31, 1997. This increase was primarily the result of an increase
in the average balances on deposit accounts.
Provisions for Credit Losses. The provision for loan losses increased from
$45,000 for the year ended December 31, 1996 to $67,000 during 1997. The
allowance for loan losses increased from $527,000 at December 31, 1996 to
$594,000 at December 31, 1997. Nonperforming loans as a percentage of total
assets were 0.% at December 31, 1997 and 1996.
Noninterest Income and Expense. Total noninterest expense increased 15.4%,
from $1,960,000 for the year ended December 31, 1996 to $2,261,000 for the year
ended December 31, 1997. This increase is due to an increase in personnel and
other expenses resulting from growth. Total noninterest income increased 4.0%
from $178,000 for the year ended December 31, 1996 to $184,000 for the year
ended December 31, 1997. This increase is due to normal growth.
COMPARISON OF YEARS ENDED DECEMBER 31, 1996 AND DECEMBER 31, 1995
General. Net income for the year ended December 31, 1996 was $1,473,000 or
$4.27 per share compared to a net income of $1,174,000 or $3.35 per share for
December 31, 1995. The increase in earnings of $299,000 was due primarily to an
increase in interest income.
Interest Income and Expense. Interest income increased $852,000 or 16.2%
to $6,108,000 during the year ended December 31, 1996. Interest on loans
increased $474,000 to $3,328,000 due to an increase in the average loan
portfolio from $26,077,000 during 1995 to $32,661,000 during 1996. Interest on
investment securities increased by $469,000 due to an increase in the average
yield and volume of securities during 1996 compared with 1995.
Interest expense on deposit accounts and short-term borrowings increased
from $1,680,000 for the year ended December 31, 1995 to $2,047,000 for the year
ended December 31, 1996. This increase was primarily the result of an increase
in the average balances in deposit accounts.
Provisions for Credit Losses. The provision for loan losses decreased from
$176,000 for the year ended December 31, 1995 to $45,000 during 1996. The
allowance for loan losses increased from $484,000 at December 31, 1995 to
$527,000 at December 31, 1996. Nonperforming loans as a percentage of total
assets were 0% at December 31, 1995 as compared to 0% at December 31, 1996.
Noninterest Income and Expense. Total noninterest income increased 56.1%,
from $114,000 for the year ended December 31, 1995 to $178,000 for the year
ended December 31, 1996. This increase is due to an increase in number of active
accounts and overdraft service charges. Total noninterest expense increased
12.9% from $1,736,000 for the year ended December 31, 1995 to $1,960,000 for the
year ended December 31, 1996. This increase is due to normal growth.
COMPARISON OF YEARS ENDED DECEMBER 31, 1995 AND DECEMBER 31, 1994
General. The net income for the year ended December 31, 1995 was
$1,174,000 or $3.35 per share compared to net income of $576,000 or $1.65 per
share for 1994. The increase in earnings was due primarily to increases in both
net interest income and noninterest income.
61
<PAGE> 69
Interest Income. Interest income increased $1,789,000 or 51.6% during the
year ended December 31, 1995. Interest on loans increased $1,193,000 to
$2,854,000 due to an increase in the average loan portfolio from $17,142,000
during 1994 to $26,077,000 during 1995. Interest on investment securities
increased $241,000 for the year ended 1995 vs. 1994, due to an increase in the
average yield earned on investment securities from 4.66% during 1994 to 5.60%
during 1995, and increased average amount invested in securities during 1995 as
compared to 1994.
Interest Expense. Interest expense on deposit accounts and short-term
borrowings increased from $1,097,000 for the year ended December 31, 1994 to
$1,680,000 for the year ended December 31, 1995. This increase was primarily the
result of an increase in the average yield and average balance of deposits
during 1995 as compared to 1994.
Noninterest Income and Expense. Total noninterest income increased 322%,
from $27,000 for the year ended December 31, 1994 to $114,000 for the year ended
December 31, 1995. This increase is primarily due to the Bank's increased
account base. Total noninterest expense increased 25.9% from $1,379,000 for the
year ended December 31, 1994 to $1,736,000 for the year ended December 31, 1995.
The increase was primarily due to increase in employee compensation and
occupancy expense.
IMPACT OF INFLATION AND CHANGING PRICES
The financial statements and related data presented herein have been
prepared on the traditional basis of accounting, which requires the measurement
of financial position and operating results in terms of historical dollars,
without considering changes in the relative purchasing power of money over time
due to inflation. Unlike most industrial companies, substantially all of the
assets and liabilities of the Bank are monetary in nature. As a result, interest
rates have a more significant impact on the Bank's performance than the effects
of general levels of inflation. Interest rates do not necessarily move in the
same direction or in the same magnitude as the prices of goods and services,
since such prices are affected by inflation to a larger extent than interest
rates.
62
<PAGE> 70
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,
Nevada and Tennessee. Colonial Bank conducts a full service commercial banking
business through 134 branches in Alabama, five branches in Tennessee, 13
branches in Georgia, three branches in Nevada and 75 branches in Florida.
BancGroup has also entered into agreements to acquire five additional banks
(including FirstBank). 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 $131.3 million and $10.6
million.
On June 15, 1998, BancGroup completed the acquisition of Commercial Bank of
Nevada ("Commercial"). Commercial was a Nevada bank located in Las Vegas,
Nevada. Commercial was merged with BancGroup's bank subsidiary, Colonial Bank.
BancGroup issued a maximum of 842,157 shares of its Common Stock in the 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 14, 1998, BancGroup entered into a definitive agreement with First
Macon Bank & Trust Company ("First Macon"). First Macon is located in Macon,
Georgia. First Macon will merge with BancGroup's existing subsidiary bank,
Colonial Bank. BancGroup expects to issue a maximum of 1,844,500 shares of its
Common Stock to the shareholders of First Macon. This transaction is subject to,
among other things, approval by the shareholders of First Macon and by the
appropriate regulatory authorities and is expected to be accounted for as a
pooling of interests. At March 31, 1998, First Macon had assets of $195.2
million, deposits of $177.3 million and stockholders' equity of $15.3 million.
On May 21, 1998, BancGroup entered into a definitive agreement with Prime
Bank of Central Florida ("Prime Bank"). Prime Bank is located in Titusville,
Florida. Prime Bank will merge with Colonial Bank. BancGroup expects to issue a
maximum of 586,560 shares of BancGroup Common Stock to the shareholders of Prime
Bank. This transaction is subject to, among other things, approval by the
shareholders of Prime Bank and by the appropriate regulatory authorities and is
expected to be accounted for as a pooling of interests. At March 31, 1998, Prime
Bank had assets of $70.5 million, deposits of $63.6 million and stockholders'
equity of $6.6 million.
63
<PAGE> 71
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
64
<PAGE> 72
compliance. These costs have been and will continue to be expensed as incurred
and are not significant to BancGroup's on-going operating costs. The costs to
bring other miscellaneous systems into Year 2000 compliance are not expected to
be material.
The above reflects management's current assessment and estimates. Various
factors could cause actual results to differ materially from those contemplated
by such assessments, estimates and forward-looking statements. Some of these
factors may be beyond the control of BancGroup, including but not limited to,
vendor representation, technological advancements, economic factors and
competitive considerations.
Management's evaluation of Year 2000 compliance and technological upgrades
is an on-going process involving continual evaluation. Unanticipated problems
could develop and alternative solutions may be available that could cause
current solutions to be more difficult or costly than currently anticipated.
VOTING SECURITIES AND PRINCIPAL SHAREHOLDERS
As of February 27, 1998, BancGroup had issued and outstanding 48,092,093
shares of BancGroup Common Stock with 8,476 shareholders of record. Each such
share is entitled to one vote. In addition, as of that date, 2,072,913 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.
65
<PAGE> 73
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.
SHARES OF BANCGROUP BENEFICIALLY OWNED
<TABLE>
<CAPTION>
PERCENTAGE
COMMON OF CLASS
DIRECTORS NAME STOCK OUTSTANDING
- -------------- --------- -----------
<S> <C> <C>
Lewis Beville............................................... 1,816 *
Young J. Boozer............................................. 16,226(1) *
William Britton............................................. 15,616 *
Jerry J. Chesser............................................ 149,196 *
Augustus K. Clements, III................................... 18,708 *
Robert S. Craft............................................. 17,458 *
Patrick F. Dye.............................................. 30,960(2) *
James L. Hewitt............................................. 440,692(3) *
Clinton O. Holdbrooks....................................... 276,400(4) *
D. B. Jones................................................. 21,989(5) *
Harold D. King.............................................. 148,581 *
Robert E. Lowder............................................ 2,903,654(6) 6.01%
John Ed Mathison............................................ 29,454 *
Milton E. McGregor.......................................... 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.
66
<PAGE> 74
(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.
67
<PAGE> 75
BUSINESS OF FIRSTBANK
GENERAL
FirstBank was incorporated on October 2, 1992, and chartered by the State
of Texas as a commercial bank on October 2, 1992. FirstBank is a Fed non member
bank, with deposits insured by the FDIC.
FirstBank has operated as a traditional commercial financial institution
attracting checking, savings and money market account deposits from individuals
and businesses, and using such deposits to originate commercial and residential
real estate loans which are secured by property located primarily in Dallas
County, Texas. FirstBank also originates commercial loans, lines of credit and
consumer loans. Its income is primarily derived from interest and fees received
in connection with lending activities. Interest on deposits and general
administrative expenses are FirstBank's major expense items.
FirstBank currently employs 19 full and parttime individuals and engages in
the general business of personal and commercial banking primarily in Dallas
County communities, including the greater Dallas PMSA. For its primary sources
of funds, FirstBank relies on personal and business deposits, money market
deposit accounts, and certificates of deposit. FirstBank's primary sources of
income include interest and fees earned from residential and commercial
construction loans, land acquisition and development loans secured and unsecured
commercial and consumer loans and revolving credit lines.
MARKET AREA
FirstBank operates its business from a single location in the City of
Dallas and is situated in Dallas County, Texas with an estimated population of
1,052,300 as of January 1, 1998. The Dallas/Fort Worth area has a relatively
diversified economy. Major employers include electronics manufacturers (Texas
Instruments, Fujitsu, and Tandy), defense (Lockheed, Vought Aircraft,
Bell-Textron, and Raytheon E-Systems), telecommunications companies (SBC
Communications, GTE Telephone Operations, MCI, and Northern Telecom), computer
services companies (EDS and Perot Systems), energy companies (Exxon, Oryx, and
Fina), transportation companies (American Airlines, Delta Airlines, Southwest
Airlines, Union Pacific Railroad, and Burlington Northern-Santa Fe Railroad),
and large retailers (JC Penney, Southland Corporation, Frito Lay, and CompUSA).
PROPERTIES
FirstBank's office is located at 15150 Preston Rd., Dallas, Texas, with
FirstBank leasing and occupying 8,009 square feet.
Management of FirstBank believes its main office to be convenient to both
commercial and individual customers and that such accessibility is a competitive
advantage.
COMPETITION
FirstBank ranks 26th in Dallas County deposits with a market share of
0.30%. Total deposits held by financial institutions in Dallas County totaled
$35.7 billion based on market share summary of all FDIC-Insured Institutions as
of June 30, 1997.
FirstBank ranks 24th in City of Dallas deposits with a market share of
0.37%. Total deposits held by financial institutions in Dallas totaled $29.9
billion as of June 30, 1997.
The market share leaders in Dallas County include NationsBank with a 37.8%
market share, Bank One with a 15.0% market share, Chase Bank of Texas with a
9.46% market share, Comerica Bank with a 4.71% market share, Bank of America
with a 3.43% market share.
Total population in Dallas County is estimated at 2,004,200 as of 1997.
Population projections for 2001 indicate 10% growth in Dallas County. The
county's total population is estimated at 2,206,149 individuals as of 2001.
68
<PAGE> 76
YEAR 2000 COMPLIANCE
FirstBank has formulated and begun implementation of a plan to address
issues related to its "Mission Critical" computer hardware, software, and
applications impacted by anticipated problems of date-field recognition in and
after the year 2000. FirstBank's plan complies with Federal Financial
Institutions Examination Council Year 2000 compliance guidelines as promulgated
by FirstBank's principal regulatory agency. FirstBank contracts with and hires
third-party vendors to provide certain computer and data processing services
related to its business operations. Some of these services are year 2000
sensitive. FirstBank, in cooperation with its service providers and vendors, has
met all applicable regulatory deadlines and intends to meet the remaining
regulatory deadlines promulgated by FirstBank's principal regulatory agency.
PRINCIPAL HOLDERS OF COMMON STOCK
FirstBank's authorized capital stock consists of 340,000 shares of
FirstBank Common Stock, par value $5.00 per share, of which 340,000 shares are
issued and outstanding as of the Record Date.
The following table sets forth information as of the Record Date regarding
the ownership of FirstBank Common Stock by each director and executive officer
of FirstBank, by each person known to FirstBank to be the beneficial owner of
more than five percent of the FirstBank Common Stock and by all directors and
executive officers as a group. Unless otherwise indicated, all persons shown in
the table have sole voting and investment power with regard to the shares shown.
<TABLE>
<CAPTION>
SHARES
BENEFICIALLY PERCENTAGE
NAME AND POSITION OF BENEFICIAL OWNER OWNED OWNERSHIP
- ------------------------------------- ------------ ----------
<S> <C> <C>
Herschel G. Brown, Director................................. 10,000 2.94
Jim Burnham, Director....................................... 2,500 .74
Jack W. Evans, Jr., Director................................ 21,500 6.32
Roy Gene Evans, Chairman of the Board....................... 85,000 25.00
James R. Parish, Director................................... 5,000 1.47
George W. Reaves, Director.................................. 31,282 9.20
D. Michael Redden, President and CEO........................ 30,000 8.82
Pete Schenkel, Director..................................... 0(1)
Mark W. Wells, Senior Vice President........................ 10,000 2.94
Debra E. Windham, Senior Vice President..................... 5,000 1.47
All Directors and executive officers........................ 200,252 58.90
</TABLE>
- ---------------
(1) Mr. Schenkel disclaims beneficial ownership of 10,000 shares owned by his
wife as separate property.
ADJOURNMENT OF SPECIAL MEETING
Approval of the Agreement by FirstBank shareholders requires the
affirmative vote of at least 66 2/3% of the total outstanding shares of
FirstBank common stock. In the event there are an insufficient number of shares
of FirstBank Common Stock present in person or by proxy at the Special Meeting
to approve the Agreement, FirstBank's Board of Directors intends to adjourn the
Special Meeting to a later date provided a majority of the shares present and
voting on the motion have voted in favor of such adjournment. The place and date
to which the Special Meeting would be adjourned would be announced at the
Special Meeting. Proxies voted against the Agreement and abstentions will not be
voted to adjourn the Special Meeting. Abstentions and broker non-votes will not
be voted on this matter but will not count as "no votes." If it is necessary to
adjourn the Special Meeting and the adjournment is for a period of not more than
30 days from the original date of the Special Meeting, no notice of the time and
place of the adjourned meeting need be given the shareholders other than an
announcement made at the Special Meeting.
The effect of any such adjournment would be to permit FirstBank 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 files by shareholders
voting
69
<PAGE> 77
against the Agreement, an adjournment would afford FirstBank time to solicit
additional proxies in favor of the Agreement.
OTHER MATTERS
The Board of Directors of FirstBank 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 FirstBank.
DATE FOR SUBMISSION OF BANCGROUP SHAREHOLDER PROPOSALS
In order to be eligible for inclusion in BancGroup's proxy solicitation
materials for its 1999 annual meeting of stockholders, any stockholder proposal
to take action at such meeting must be received at BancGroup's main office at
One Commerce Street, Post Office Box 1108, Montgomery, Alabama 36101, no later
than 120 calendar days in advance of the date of March 14, 1998.
LEGAL MATTERS
Certain legal matters regarding the shares of BancGroup Common Stock of
BancGroup offered hereby are being passed upon by the law firm of Miller,
Hamilton, Snider & Odom, L.L.C., Mobile, Alabama, of which John C. H. Miller,
Jr., a director of BancGroup, is a partner. Such firm received fees for legal
services performed in 1997 of $1,659,399. John C. H. Miller, Jr. as of February
27, 1998 beneficially owns 38,352 shares of Common Stock. Mr. Miller also
received employee-related compensation from BancGroup in 1997 of $43,485.
Certain legal matters relating to the Reorganization are being passed upon for
FirstBank by the law firm of Brown McCarroll & Oaks Hartline.
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.
FirstBank's financial statements as of December 31, 1997 and 1996, and for
each of the two years then ended included in this Prospectus have been audited
by Lane Gorman Trubitt, L.L.P., 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 FIRSTBANK PRIOR TO THE
SPECIAL MEETING, BY EXECUTING A LATER DATED PROXY AND DELIVERING IT TO THE
SECRETARY OF FIRSTBANK PRIOR TO THE SPECIAL MEETING OR BY ATTENDING THE SPECIAL
MEETING VOTING IN PERSON.
70
<PAGE> 78
FIRSTBANK
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
-----
<S> <C>
Report of Independent Certified Public Accountants.......... F-2
FINANCIAL STATEMENTS
Balance Sheets as of December 31, 1997 and 1996............. F-3
Statements of Earnings for the years ended December 31, 1997
and 1996.................................................. F-4
Statement of Changes in Stockholders' Equity for the years
ended December 31, 1997 and 1996.......................... F-5
Statements of Cash Flows for the years ended December 31,
1997 and 1996............................................. F-6
Notes to Financial Statements............................... F-7
UNAUDITED INTERIM FINANCIAL STATEMENTS
Balance Sheet as of March 31, 1998.......................... F-15
Statements of Earnings for the three months ended March 31,
1998 and 1997............................................. F-16
Statement of Changes in Stockholders' Equity for the three
months ended March 31, 1998............................... F-17
Statements of Cash Flows for the three months ended March
31, 1998 and 1997......................................... F-18
Notes to Unaudited Financial Statements..................... F-19
</TABLE>
F-1
<PAGE> 79
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
Board of Directors and Stockholders
FIRSTBANK
We have audited the accompanying balance sheets of FIRSTBANK as of December
31, 1997 and 1996, and the related statements of earnings, changes in
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 FIRSTBANK as of 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/ LANE GORMAN TRUBITT, L.L.P.
Dallas, Texas
January 27, 1998
F-2
<PAGE> 80
FIRSTBANK
BALANCE SHEETS
DECEMBER 31,
<TABLE>
<CAPTION>
1997 1996
------------ ------------
<S> <C> <C>
ASSETS
Cash and due from banks..................................... $ 12,813,141 $ 12,487,200
Federal funds sold.......................................... 42,642,970 25,764,952
Securities available-for-sale............................... 26,223,461 15,083,220
Securities to be held-to-maturity........................... 16,268,169 17,476,156
Loans -- net................................................ 46,166,015 35,705,918
Property and equipment -- net............................... 40,942 71,906
Accrued interest receivable................................. 778,912 661,271
Prepaid expenses and other assets........................... 60,797 63,531
Income tax receivable....................................... -- 15,572
------------ ------------
Total assets...................................... $144,994,407 $107,329,726
============ ============
LIABILITIES
Deposits:
Demand.................................................... $ 56,088,575 $ 48,547,107
Money market and savings accounts......................... 49,224,709 30,989,153
NOW accounts.............................................. 10,996,356 4,992,392
Certificates of deposit less than $100,000................ 3,520,861 3,298,770
Certificates of deposit of $100,000 or more............... 5,687,389 4,260,523
------------ ------------
Total deposits.................................... 125,517,890 92,087,945
Repurchase agreements..................................... 10,811,357 7,732,088
Accrued interest.......................................... 117,617 92,397
Deferred income taxes..................................... 148,529 90,775
Other liabilities......................................... 130,800 765,871
------------ ------------
Total liabilities................................. 136,726,193 100,769,076
------------ ------------
STOCKHOLDERS' EQUITY
Common stock -- $5 par value; 391,000 shares authorized;
issued and outstanding -- 340,000 shares in 1997 and
345,000 in 1996........................................... 1,700,000 1,725,000
Paid-in capital............................................. 4,800,000 3,187,500
Retained earnings........................................... 1,641,448 1,595,826
Net unrealized appreciation on available-for-sale
securities, net of tax of
$-0- in 1997 and $26,955 in 1996.......................... 126,766 52,324
------------ ------------
Total stockholders' equity........................ 8,268,214 6,560,650
------------ ------------
$144,994,407 $107,329,726
============ ============
</TABLE>
The accompanying notes are an integral part of these statements.
F-3
<PAGE> 81
FIRSTBANK
STATEMENTS OF EARNINGS
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31,
-----------------------
1997 1996
---------- ----------
<S> <C> <C>
INTEREST INCOME
Loans, including fees..................................... $4,296,624 $3,328,224
Investment securities..................................... 2,245,273 1,895,237
Federal funds sold........................................ 1,321,688 885,029
---------- ----------
Total interest income............................. 7,863,585 6,108,490
---------- ----------
INTEREST EXPENSE
Certificates of deposit................................... 411,987 358,519
Money market and savings accounts......................... 1,784,019 1,290,753
NOW accounts.............................................. 65,584 60,493
Repurchase agreements..................................... 477,965 337,662
---------- ----------
Total interest expense............................ 2,739,555 2,047,427
---------- ----------
Net interest income............................... 5,124,030 4,061,063
PROVISION FOR LOAN LOSSES................................... 67,200 44,543
---------- ----------
Net interest income after provision for loan
losses.......................................... 5,056,830 4,016,520
---------- ----------
OTHER INCOME
Service charges on deposit accounts....................... 146,665 138,054
Other..................................................... 37,407 40,419
---------- ----------
Total other income................................ 184,072 178,473
---------- ----------
OTHER EXPENSE
Salaries and benefits..................................... 1,426,315 1,199,208
Net occupancy of premises................................. 120,024 107,018
Equipment rental, depreciation and maintenance............ 64,011 59,995
Other..................................................... 650,261 593,499
---------- ----------
Total other expense............................... 2,260,611 1,959,720
---------- ----------
Net earnings before income taxes.................. 2,980,291 2,235,273
PROVISION FOR INCOME TAXES
Current................................................... 99,216 739,872
Deferred.................................................. 90,723 21,906
---------- ----------
189,939 761,778
---------- ----------
NET EARNINGS...................................... $2,790,352 $1,473,495
========== ==========
</TABLE>
The accompanying notes are an integral part of these statements.
F-4
<PAGE> 82
FIRSTBANK
STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31, 1997 AND 1996
-------------------------------------------------------------------------------------------------
NET UNREALIZED
APPRECIATION
(DEPRECIATION)
COMMON STOCK TREASURY STOCK ON AVAILABLE
-------------------- ----------------- PAID-IN RETAINED FOR-SALE
SHARES AMOUNT SHARES AMOUNT CAPITAL EARNINGS SECURITIES TOTAL
------- ---------- ------ -------- ---------- ----------- -------------- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balance at December 31,
1995.................... 350,000 $1,750,000 -- $ -- $1,750,000 $ 1,794,831 $ 53,715 $5,348,546
Certify additional
surplus................. -- -- -- -- 1,500,000 (1,500,000) -- --
Cost of common stock
acquired for treasury... -- -- 5,000 (25,000) (62,500) -- -- (87,500)
Retirement of treasury
stock................... (5,000) (25,000) (5,000) 25,000 -- -- -- --
Cash dividends paid, $.50
per share............... -- -- -- -- -- (172,500) -- (172,500)
Net changes in unrealized
appreciation
(depreciation) on
available-for-sale
securities, net of
tax..................... -- -- -- -- -- -- (1,391) (1,391)
Net earnings.............. -- -- -- -- -- 1,473,495 -- 1,473,495
------- ---------- ------ -------- ---------- ----------- -------- ----------
Balance at December 31,
1996.................... 345,000 $1,725,000 -- $ -- $3,187,500 $ 1,595,826 $ 52,324 $6,560,650
Certify additional
surplus................. -- -- -- -- 1,711,130 (1,711,130) -- --
Cost of common stock
acquired for treasury... -- -- 5,000 (25,000) (98,630) -- -- (123,630)
Retirement of treasury
stock................... (5,000) (25,000) (5,000) 25,000 -- -- -- --
Cash distributions paid... -- -- -- -- -- (1,033,600) -- (1,033,600)
Net changes in unrealized
appreciation
(depreciation) on
available-for-sale
securities.............. -- -- -- -- -- -- 74,442 74,442
Net earnings.............. -- -- -- -- -- 2,790,352 -- 2,790,352
------- ---------- ------ -------- ---------- ----------- -------- ----------
Balance at December 31,
1997.................... 340,000 $1,700,000 -- $ -- $4,800,000 $ 1,641,448 $126,766 $8,268,214
======= ========== ====== ======== ========== =========== ======== ==========
</TABLE>
The accompanying notes are an integral part of these statements.
F-5
<PAGE> 83
FIRSTBANK
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31,
---------------------------
1997 1996
------------ ------------
<S> <C> <C>
Cash flows from operating activities:
Net earnings........................................... $ 2,790,352 $ 1,473,495
Adjustments to reconcile net earnings to net cash
provided by operating activities:
Amortization of investment securities premium........ 49,091 64,930
Depreciation and amortization........................ 35,315 39,347
Provision for loan losses............................ 67,200 44,543
Provision for deferred income taxes.................. 84,708 21,906
Changes in assets and liabilities, net:
Accrued interest receivable.......................... (117,641) (126,335)
Prepaid expenses and other assets.................... 1,737 (23,523)
Income tax receivable................................ 15,572 (15,572)
Accrued interest payable............................. 25,220 15,461
Other liabilities.................................... (635,070) 282,473
Due from broker for securities sold.................. -- 1,051,250
Income tax payable................................... -- (303,441)
------------ ------------
Net cash provided by operating activities......... 2,316,484 2,524,534
------------ ------------
Cash flows from investing activities:
Proceeds from maturities of securities held-to-maturity... 9,170,000 4,500,781
Purchases of securities to be held-to-maturity............ (9,116,562) (6,763,660)
Principal payments received on securities to be
held-to-maturity....................................... 1,065,654 970,956
Proceeds from sales of securities available-for-sale...... -- 500,781
Proceeds from maturities of securities
available-for-sale..................................... 6,000,000 6,500,000
Principal payments received on securities
available-for-sale..................................... 76,130 --
Purchases of securities available-for-sale................ (17,129,080) (11,871,074)
Net increase in loans receivable.......................... (10,527,297) (9,156,624)
Purchases of property and equipment....................... (3,354) (19,160)
------------ ------------
Net cash used by investing activities............. (20,464,509) (15,338,000)
------------ ------------
Cash flows from financing activities:
Net increase in demand deposits, NOW, and savings
accounts............................................... 31,780,988 17,516,798
Net increase in certificates of deposit................... 1,648,957 936,830
Net increase in repurchase agreements..................... 3,079,269 3,153,210
Repurchase common stock for treasury...................... (123,630) (87,500)
Cash dividends paid....................................... -- (172,500)
Cash distributions paid................................... (1,033,600) --
------------ ------------
Net cash provided by financing activities......... 35,351,984 21,346,838
------------ ------------
Net increase in cash and cash equivalents................... 17,203,959 8,533,372
Cash and cash equivalents at beginning of year.............. 38,252,152 29,718,780
------------ ------------
Cash and cash equivalents at end of year.................... $ 55,456,111 $ 38,252,152
============ ============
SUPPLEMENTAL CASH FLOW INFORMATION:
Interest paid.......................................... $ 2,714,335 $ 2,031,965
Income taxes paid...................................... $ 87,000 $ 1,058,885
</TABLE>
The accompanying notes are an integral part of these statements.
F-6
<PAGE> 84
FIRSTBANK
NOTES TO FINANCIAL STATEMENTS
BUSINESS ACTIVITY
FIRSTBANK (the Bank) is a closely-held financial institution. The Bank
operates one location in Dallas, Texas. The Bank's primary source of revenue is
providing loans to customers who are predominantly small and middle-market
businesses, residential contractors, and professionals. A summary of the
significant accounting policies applied in the preparation of the accompanying
financial statements follows:
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Cash and Cash Equivalents
Cash on hand, cash items in the process of collection, amounts due from
correspondent banks, the Federal Reserve Bank and Federal funds sold are
considered as cash and cash equivalents. Generally, Federal funds are purchased
and sold for one-day periods.
Investment Securities
Securities are classified based on management's intention at the time of
purchase. Securities which management has the intent and ability to hold to
maturity are classified as held-to-maturity and reported at amortized cost. All
other securities are classified as available-for-sale and carried at fair value
with net unrealized gains and losses included in shareholders' equity on an
after-tax basis. Realized gains and losses from the sales of securities are
determined using the specific identification method.
Loans
Loans are stated at the principal amount outstanding net of loan
participation sold without recourse, unearned discount, and allowance for loan
losses. Interest income on loans is recognized based generally upon the
principal amounts outstanding.
The recognition of income on a loan is generally discontinued, and
previously accrued interest is reversed, when interest or principal payments
become 90 days past due. If, in the opinion of management, the outstanding
principal remains collectible, such a loan remains on the books as a "non
accrual" loan. Interest is recognized only as received until the loan is
returned to accrual status.
Loan origination fees are capitalized and recognized as an adjustment of
the yield on the related loan. Direct origination costs are de minimis.
Allowance for Loan Losses
The allowance for loan losses is established by a charge to income as a
provision for loan losses. Actual loan losses or recoveries are charged or
credited directly to this allowance. The provision for loan losses is based on
management's estimate of the amount required to maintain an allowance adequate
to reflect the risks in the loan portfolio.
Property and Equipment
Property and equipment are carried at cost less accumulated depreciation
and amortization. Depreciation and amortization are provided in amounts
sufficient to relate the cost of depreciable assets to operations over their
estimated service lives by the straight-line method. Leasehold improvements are
amortized over the service lives of the improvements.
Major repairs and replacements of property and equipment are capitalized.
Maintenance, repairs and minor replacements are charged to operations as
incurred.
F-7
<PAGE> 85
FIRSTBANK
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
When units of property are retired or otherwise disposed of, their cost and
related accumulated depreciation are removed from the accounts and any resulting
gain or loss is included in operations.
Estimates
In preparing financial statements in conformity with generally accepted
accounting standards, management is required to make estimates and assumptions
that affect the reported amounts of assets and liabilities and the disclosure of
contingent assets and liabilities at the date of the financial statements and
revenues and expenses during the reporting period. Actual results could differ
from those estimates.
Advertising Costs
The Bank's policy is to expense all advertising costs in the period in
which they are incurred.
1. INVESTMENT SECURITIES
The adjusted cost and approximate fair value of investment securities at
December 31, were as follows:
<TABLE>
<CAPTION>
GROSS GROSS APPROXIMATE
AMORTIZED UNREALIZED UNREALIZED FAIR
COST GAINS LOSSES VALUE
----------- ---------- ---------- -----------
<S> <C> <C> <C> <C>
1997
Available-for-Sale securities:
Mortgage backed securities............. $ 2,926,120 $ 2,155 $ 204 $ 2,928,071
U.S. Treasury securities............... 20,148,017 112,505 424 20,260,098
U.S. Agency securities................. 3,022,558 12,734 -- 3,035,292
----------- -------- ------ -----------
$26,096,695 $127,394 $ 628 $26,223,461
=========== ======== ====== ===========
Held-to-Maturity securities:
Mortgage backed securities............. $ 4,655,679 $ 41,103 $ 441 $ 4,696,341
U.S. Agency securities................. 11,612,490 85,904 -- 11,698,394
----------- -------- ------ -----------
$16,268,169 $127,007 $ 441 $16,394,735
=========== ======== ====== ===========
1996
Available-for-Sale securities:
U.S. Treasury securities............... $15,003,941 $ 81,025 $1,746 $15,083,220
----------- -------- ------ -----------
$15,003,941 $ 81,025 $1,746 $15,083,220
=========== ======== ====== ===========
Held-to-Maturity securities:
U.S. Treasury securities............... $ 999,486 $ 3,771 $ -- $ 1,003,257
U.S. Agency securities................. 10,732,342 9,702 8,314 10,733,730
Mortgage backed securities............. 5,744,328 27,838 1,142 5,771,024
----------- -------- ------ -----------
$17,476,156 $ 41,311 $9,456 $17,508,011
=========== ======== ====== ===========
</TABLE>
F-8
<PAGE> 86
FIRSTBANK
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
The adjusted cost and approximate fair value of investment securities at
December 31, 1997 and 1996, by contractual maturity, are shown below. Expected
maturities will differ from contractual activities because borrowers may have
the right to call or prepay an obligation with or without call or prepayment
penalties:
<TABLE>
<CAPTION>
HELD-TO-MATURITY SECURITIES AVAILABLE-FOR-SALE SECURITIES
--------------------------- -----------------------------
ADJUSTED ESTIMATED ADJUSTED ESTIMATED
COST FAIR VALUE COST FAIR VALUE
------------ ------------ ------------- -------------
<S> <C> <C> <C> <C>
1997
Due in one year or less.......... $ -- $ -- $ 9,069,499 $ 9,089,322
Due from one to five years....... 8,555,166 8,627,228 14,101,076 14,206,068
Due after five to ten years...... 3,057,324 3,071,166 -- --
Due after ten years*............. 4,655,679 4,696,341 2,926,120 2,928,071
----------- ----------- ----------- -----------
$16,268,169 $16,394,735 $26,096,695 $26,223,461
=========== =========== =========== ===========
1996
Due in one year or less.......... $ 1,998,679 $ 2,004,676 $ 5,985,005 $ 6,013,201
Due from one to five years....... 8,734,087 8,733,249 9,018,936 9,070,019
Due after five to ten years...... 999,062 999,062 -- --
Due after ten years *............ 5,744,328 5,771,024 -- --
----------- ----------- ----------- -----------
$17,476,156 $17,508,011 $15,003,941 $15,083,220
=========== =========== =========== ===========
</TABLE>
- ---------------
* Investment securities due after ten years consist of one-year adjustable rate
GNMA products.
Proceeds from sales of available-for-sale securities during 1997 and 1996
were $-0- and $500,781, respectively. Gross realized gains on sales of
available-for-sale securities for the years ending December 31, 1997 and 1996
were $-0- and $2,918, respectively. Gross realized gains on sales of
held-to-maturity securities for the years ending December 31, 1997 and 1996 were
$490 and $958, respectively.
As of December 31, 1997 and 1996, investment securities with an adjusted
cost of $16,025,010 and $11,046,556 were pledged as collateral on certain
deposit accounts, respectively.
2. LOANS AND ALLOWANCE FOR LOAN LOSSES
The loan portfolio at December 31, consists of the following:
<TABLE>
<CAPTION>
1997 1996
----------- -----------
<S> <C> <C>
Commercial................................................. $ 7,593,363 $ 5,164,518
Real estate -- construction................................ 18,817,514 15,984,027
Real estate -- mortgage.................................... 17,157,766 11,117,664
Consumer (simple interest)................................. 3,191,572 3,966,709
----------- -----------
46,760,215 36,232,918
Allowance for loan losses.................................. (594,200) (527,000)
----------- -----------
$46,166,015 $35,705,918
=========== ===========
</TABLE>
The Bank extends commercial and consumer credit primarily to customers in
the state of Texas. At December 31, 1997, substantially all of the Bank's loans
were collateralized with real estate, inventory, accounts receivable, equipment,
marketable securities, and/or other assets.
F-9
<PAGE> 87
FIRSTBANK
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
A summary of the transactions in the allowance for loan losses for the year
ended December 31, is as follows:
<TABLE>
<CAPTION>
1997 1996
-------- --------
<S> <C> <C>
Balance -- beginning of period.............................. $527,000 $484,000
Provision charged to expense................................ 67,200 44,543
Losses charged to the allowance............................. -- (1,543)
Recoveries.................................................. -- --
-------- --------
Balance -- end of period.................................... $594,200 $527,000
======== ========
</TABLE>
3. PROPERTY AND EQUIPMENT
Major classifications of property and equipment and their respective
estimated service lives at December 31, are summarized below:
<TABLE>
<CAPTION>
ESTIMATED
1997 1996 SERVICE LIVES
-------- --------- -------------
<S> <C> <C> <C>
Equipment........................................... $ 64,929 $ 121,954 3 to 5 years
Furniture and fixtures.............................. 16,032 39,369 5 years
Leasehold improvements.............................. 12,597 30,854 5 years
-------- ---------
93,558 192,177
Accumulated depreciation and amortization........... (52,616) (120,271)
-------- ---------
$ 40,942 $ 71,906
======== =========
</TABLE>
Depreciation and amortization expense was $34,318 and $37,820 for 1997 and
1996, respectively.
4. DEPOSITS
A summary of interest-bearing deposits at December 31, is as follows:
<TABLE>
<CAPTION>
TYPE OF ACCOUNT RATE 1997 1996
- --------------- ----------- ----------- -----------
<S> <C> <C> <C>
Certificates of deposit....................... 1.00 - 4.60% $ 1,316,017 $ 3,651,746
Certificates of deposit....................... 4.61 - 5.00% 2,546,518 1,748,908
Certificates of deposit....................... 5.01 - 5.50% 3,635,659 864,699
Certificates of deposit....................... 5.51 - 7.75% 1,710,056 1,293,940
----------- -----------
9,208,250 7,559,293
NOW accounts, including money market.......... 1.25 - 4.30% 59,603,453 35,476,195
Savings....................................... 2.00% 617,612 505,350
----------- -----------
$69,429,315 $43,540,838
=========== ===========
</TABLE>
Maturities of certificates of deposit at December 31, 1997 are as follows:
<TABLE>
<S> <C>
Six months or less.......................................... $6,866,598
Six months to one year...................................... 2,043,991
One to five years........................................... 297,661
----------
$9,208,250
==========
</TABLE>
F-10
<PAGE> 88
FIRSTBANK
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
5. INCOME TAXES
The Bank filed as a Subchapter S Corporation, effective January 1, 1997.
Pursuant to this election, income taxes will be payable personally by the
stockholders beginning in 1997.
There are two components of income tax provision, current and deferred.
Current income tax provisions approximate taxes to be paid or refunded for the
applicable period. Balance sheet amounts of deferred taxes are recognized on the
temporary differences between the bases of assets and liabilities as measured by
tax laws and their bases as reported in the financial statements. Deferred tax
expense or benefit is then recognized for the change in deferred tax liabilities
or assets between periods.
Deferred income taxes arise principally from the temporary differences
between financial statement and income tax recognition of depreciation,
allowance for loan losses, and the cash basis of accounting as permitted for
income tax purposes. Deferred taxes are also recognized on the unrealized
holding gains and losses on securities available-for-sale.
The deferred tax assets and liabilities in the accompanying balance sheet
include the following components:
<TABLE>
<CAPTION>
1997 1996
--------- ---------
<S> <C> <C>
Deferred tax liabilities.................................... $(148,529) $ 275,759
Deferred tax assets......................................... -- (184,984)
--------- ---------
Deferred tax assets (liabilities) -- net.................... $(148,529) $ (90,775)
========= =========
</TABLE>
6. RELATED PARTY TRANSACTIONS
In the ordinary course of business and as is generally customary in the
banking industry, the Bank has loans, deposits, and other transactions with its
officers, directors, and businesses with which such persons are associated. All
such loans have been made on substantially the same terms, including interest
rates and collateral, as those prevailing at the time for comparable
transactions with others and do not involve other than normal risk of
collectibility. In compliance with the Bank's loan policy, no loans to officers
are permitted. Loans to directors amounted to $494,639 and $257,779 at December
31, 1997 and 1996, respectively.
7. COMMITMENTS AND CONTINGENT LIABILITIES
Leases
The Bank conducts operations from leased premises. Rental expense, which
consisted entirely of minimum rentals, was $101,425 and $97,097 for 1997 and
1996, respectively. Management expects that, in the normal course of business,
leases that expire will be renewed or replaced by other leases; thus, it is
anticipated that future minimum lease commitments will not be less than the
current year's expense.
Approximate rental commitments under all noncancellable operating leases
having terms in excess of a month are as follows:
<TABLE>
<CAPTION>
YEAR ENDING
DECEMBER 31,
- ------------
<S> <C>
1998........................................................ $103,783
1999........................................................ 111,459
2000........................................................ 9,344
--------
Total future minimum rentals...................... $224,586
========
</TABLE>
F-11
<PAGE> 89
FIRSTBANK
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
8. CONCENTRATIONS OF CREDIT RISK
Concentrations of credit risk arise when a number of customers are engaged
in similar business activities, or activities in the same geographic region, or
have similar economic features that would cause their ability to meet
contractual obligations to be similarly affected by changes in economic
conditions. Although the Bank has a diversified loan portfolio, a substantial
portion of its customers is located in the Dallas/Fort Worth Metroplex region.
9. REGULATORY MATTERS
The Bank is required to maintain minimum amounts of capital to total "risk
weighted" assets, as defined by the banking regulators. At December 31, 1997,
the Bank is required to have minimum Tier 1 and Total risk-based capital ratios
of 4% and 8%, respectively. The Bank's actual ratios at that date were 15% and
16%, respectively.
The Bank is required to maintain a minimum leverage ratio of 4%. The Bank's
leverage ratio, which is the ratio of Tier 1 capital to total average assets not
risk weighted, at December 31, 1997, was 6%.
10. EMPLOYEES' PROFIT SHARING PLAN
The Bank adopted a qualified profit sharing plan under the Texas Bankers
Association Retirement System effective January 1, 1996 for all eligible
employees. The Plan provides for contributions by the Bank in such amounts as
the Board of Directors may determine annually. The Plan does not currently allow
employees to make contributions to the Plan. The Board of Directors authorized
contributions of $70,400 and $64,000 for 1997 and 1996, respectively.
11. STOCK OPTION PLAN
The Bank has a stock option plan under which options to purchase a maximum
of 51,000 shares of common stock may be issued to employees of the Bank. No
options had been granted as of December 31, 1997. The Bank adopted the
disclosure requirements of Financial Accounting Standards Board Statement No.
123 (FAS 123), "Accounting for Stock-Based Compensation." As permitted under FAS
123, the Bank has retained the intrinsic value method prescribed by Accounting
Principles Board Opinion No. 25 (APB 25), "Accounting for Stock Issued to
Employees," and related Interpretations.
12. FINANCIAL INSTRUMENTS
The financial statements include information about estimated fair values at
December 31, 1997 as required by FASB Statement 107. For the Bank, as for most
financial institutions, the bulk of its assets and liabilities are considered
financial instruments as defined in FASB 107. However, many of these instruments
lack an available trading market, as characterized by a willing buyer and seller
engaging in an exchange transaction. Also, it is the Bank's general practice and
intent to hold its financial instruments to maturity and not to engage in
trading or sales activities with those instruments. Therefore, the Bank had to
use significant estimations and present value calculations to prepare this
disclosure.
Changes in the assumptions or methodologies used to estimate fair values
may materially affect the estimated amounts. Also, management is concerned that
there may not be reasonable comparability between institutions due to the wide
range of permitted assumptions and methodologies in the absence of active
markets. This lack of uniformity gives rise to a high degree of subjectivity in
estimating financial instruments fair values.
Fair values have been estimated using data that management considered the
best available, and estimation methodologies deemed suitable for the pertinent
category of financial instrument. The carrying
F-12
<PAGE> 90
FIRSTBANK
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
amounts are the amounts at which the financial instruments are reported in the
financial statements. The following describes the estimation methodologies, the
resulting fair values, and the recorded carrying amounts at December 31, 1997.
Short-term Financial Instruments
The carrying value of short-term financial instruments, including cash and
cash equivalents, federal funds sold and purchased, approximate the fair value.
Financial Instruments Traded in the Secondary Market with Quoted Market Prices
of Dealer Quotes
Securities held for investment, securities available-for-sale which are
actively traded in the secondary market have been valued using quoted market
prices.
Loans
For variable rate loans that reprice frequently and entail no significant
change in credit risk, estimated fair values are based on the carrying values.
The fair values of loans are estimated based on discounted cash flow analyses
using interest rates currently offered for loans with similar terms to borrowers
of similar credit quality. The carrying amount of accrued interest approximates
its fair value.
Deposit Liabilities
The fair value of deposits with no stated maturity is equal to the amount
payable on demand. The estimated fair value of fixed-rate time deposits is based
on discounted cash flow analysis based on current market rates for instruments
with similar maturities. For variable-rate deposits, the carrying amount was
considered to approximate fair value. The carrying amount of accrued interest
payable approximates its fair value.
The Bank utilizes various financial instruments with off-balance sheet risk
to meet the financing needs of its customers. These financial instruments
include commitments to extend credit and standby letters of credit and financial
guarantees. These instruments involve, to varying degrees, elements of credit
and interest rate risk in excess of the amount recognized as either an asset or
liability in the statement of financial position.
Commitments to Extend Credit and Other Financial Guarantees
Credit risk is the possibility that a loss may occur because a party to a
transaction failed to perform according to the terms of the contract. Interest
rate risk is the possibility that future changes in market prices will cause a
financial instrument to be less valuable or more onerous.
The Bank controls the credit risk arising from these instruments through
its credit approval process. The Bank uses the same credit policies when
entering into financial instruments as it does for on-balance sheet instruments.
It evaluates each customer's credit worthiness on a case by case basis. If
collateral is deemed necessary to reduce the credit risk, the amount and nature
of collateral obtained is based on management's credit evaluation of the
customer. Collateral obtained may include cash, investment securities, accounts
receivable, inventory, property, plant, equipment and real estate.
The following summarizes the financial instruments whose contractual
amounts represent commitments and off-balance sheet financial instruments at
December 31:
<TABLE>
<CAPTION>
1997 1996
----------- -----------
<S> <C> <C>
Unfunded commitments to extend credit....................... $27,354,960 $19,529,236
Outstanding letters of credit............................... 288,385 566,568
</TABLE>
F-13
<PAGE> 91
FIRSTBANK
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
The book and fair values (rounded) of financial instruments on December 31,
1997 were:
<TABLE>
<CAPTION>
BOOK VALUE FAIR VALUE
----------- -----------
<S> <C> <C>
Financial Assets:
Cash and due from banks................................... $12,813,000 $12,813,000
Federal funds sold........................................ 42,643,000 42,643,000
Securities available-for-sale............................. 26,223,000 26,223,000
Securities to be held-to-maturity......................... 16,268,000 16,395,000
Loans -- net of unearned income
Variable rate.......................................... 42,678,000 42,659,000
Real estate............................................ 4,082,000 4,475,000
Allowance for loan losses................................. (594,000) --
Financial Liabilities:
Deposits:
Demand................................................. 56,089,000 56,089,000
Money market and savings accounts...................... 49,225,000 49,225,000
NOW accounts........................................... 10,996,000 10,996,000
Certificates of deposit less than $100,000............. 3,521,000 3,533,000
Certificates of deposit greater than $100,000.......... 5,687,000 5,700,000
Repurchase Agreements..................................... 10,811,000 10,846,000
</TABLE>
The book and fair values (rounded) of financial instruments on December 31,
1996 were:
<TABLE>
<CAPTION>
BOOK VALUE FAIR VALUE
----------- -----------
<S> <C> <C>
Financial Assets:
Cash and due from banks................................... $12,487,000 $12,487,000
Federal funds sold........................................ 25,765,000 25,765,000
Securities available-for-sale............................. 15,083,000 15,083,000
Securities to be held-to-maturity......................... 17,476,000 17,508,000
Loans -- net of unearned income
Commercial............................................. 5,165,000 5,170,000
Real estate............................................ 27,102,000 27,129,000
Consumer............................................... 3,967,000 3,967,000
Allowance for loan losses................................. (527,000) --
Financial Liabilities:
Deposits:
Demand................................................. 48,547,000 48,547,000
Money market and savings accounts...................... 30,989,000 30,989,000
NOW accounts........................................... 4,992,000 4,992,000
Certificates of deposit less than $100,000............. 3,299,000 3,308,000
Certificates of deposit greater than $100,000.......... 4,261,000 4,269,000
Repurchase Agreements..................................... 7,732,000 7,732,000
</TABLE>
F-14
<PAGE> 92
FIRSTBANK
BALANCE SHEET (UNAUDITED)
MARCH 31, 1998
<TABLE>
<S> <C>
ASSETS
Cash and due from banks..................................... $ 19,880,318
Federal funds sold.......................................... 43,703,395
------------
Total cash and cash equivalents................... 63,583,713
Securities.................................................. 45,653,517
Loans, less allowance for loan losses of $611,000........... 52,558,728
Property and equipment, net................................. 36,241
Other assets................................................ 1,027,723
------------
$162,859,922
============
LIABILITIES AND STOCKHOLDERS' EQUITY
Deposits:
Demand.................................................... $ 53,290,831
Interest bearing demand................................... 66,126,107
Now accounts.............................................. 6,668,039
Savings................................................... 599,813
Time $100,000 and over.................................... 7,717,341
Other Time................................................ 3,718,851
------------
138,120,982
Short-term borrowings....................................... 15,005,146
Accrued interest and other liabilities...................... 949,284
------------
Total liabilities................................. 154,075,412
------------
Stockholders' equity
Common stock, $1 par value, 300,000 shares authorized,
340,000 shares issued and outstanding.................. 1,700,000
Capital surplus........................................... 4,800,000
Unrealized holding gain on investment securities available
for sale............................................... 133,568
Retained earnings......................................... 2,150,942
------------
Total stockholders' equity........................ 8,784,510
------------
$162,859,922
============
</TABLE>
The accompanying note should be read with the unaudited financial statements.
F-15
<PAGE> 93
FIRSTBANK
STATEMENTS OF EARNINGS (UNAUDITED)
FOR THE THREE MONTHS ENDED MARCH 31,
<TABLE>
<CAPTION>
1998 1997
---------- ----------
<S> <C> <C>
Interest income:
Interest and fees on loans................................ $1,236,212 $ 904,499
Interest on investment securities:
U.S. treasury securities............................... 280,716 268,578
Obligations of other U.S. government agencies and
corporations.......................................... 262,903 136,005
Mortgage backed securities............................. 125,194 89,679
Interest on federal funds sold............................ 574,000 261,437
---------- ----------
2,479,025 1,660,198
---------- ----------
Interest expense:
Interest on deposits...................................... 956,517 576,151
---------- ----------
Net interest income............................... 1,522,508 1,084,047
Provision for loan losses................................... 16,800 16,800
---------- ----------
Net interest income after provision for loan
losses.......................................... 1,505,708 1,067,247
---------- ----------
Non-interest income:
Service fees.............................................. 38,874 37,138
Other..................................................... 11,986 21,113
---------- ----------
50,860 58,251
---------- ----------
Non-interest expense:
Salaries and employee benefits............................ 414,653 352,142
Occupancy and equipment................................... 39,298 51,399
Other operating expense................................... 168,123 155,230
---------- ----------
622,074 558,771
---------- ----------
Income before income taxes.................................. 934,494 566,727
Income taxes................................................ 0 227,482
---------- ----------
Net income........................................ $ 934,494 $ 339,245
========== ==========
Net income per share of common stock.............. $ 2.75 $ .99
========== ==========
Weighted average common and common equivalent shares
outstanding............................................... 340,000 343,278
========== ==========
</TABLE>
The accompanying note should be read with the unaudited financial statements.
F-16
<PAGE> 94
FIRSTBANK
STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY (UNAUDITED)
FOR THE THREE MONTHS ENDED MARCH 31, 1998
<TABLE>
<CAPTION>
UNREALIZED
GAIN (LOSS)
ON
COMMON STOCK INVESTMENT
-------------------- TREASURY STOCK SECURITIES
PAR --------------- CAPITAL RETAINED AVAILABLE
SHARES VALUE SHARES AMOUNT SURPLUS EARNINGS FOR SALE TOTAL
------- ---------- ------ ------ ---------- ---------- ----------- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balance, December 31,
1997................... 340,000 $1,700,000 -- $-- $4,800,000 $1,641,448 $126,766 $8,268,214
Change in unrealized gain
(loss) on investment
securities available
for sale............... -- -- -- -- -- 6,802 6,802
Income................... -- -- -- -- -- 934,494 -- 934,494
Dividends paid........... -- -- -- -- -- (425,000) -- (425,000)
------- ---------- -- -- ---------- ---------- -------- ----------
Balance, March 31,
1998................... 340,000 $1,700,000 -- -- $4,800,000 $2,150,942 $133,568 $8,784,510
======= ========== == == ========== ========== ======== ==========
</TABLE>
The accompanying note should be read with the unaudited financial statements.
F-17
<PAGE> 95
FIRSTBANK
STATEMENTS OF CASH FLOWS (UNAUDITED)
FOR THE THREE MONTHS ENDED MARCH 31,
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS
<TABLE>
<CAPTION>
1998 1997
----------- -----------
(UNAUDITED)
<S> <C> <C>
Cash flows from operating activities:
Net income................................................ $ 934,494 $ 339,245
Adjustments to reconcile net income to net cash provided
by operating activities:
Depreciation and amortization.......................... 7,701 9,400
Provision for loan losses.............................. 16,800 16,800
Accretion/amortization of securities................... 36,962 8,281
Deferred income taxes.................................. -- 199,910
Decrease in other assets............................... 14,106 17,630
(Increase) decrease in accrued interest receivable..... (202,120) 47,140
Increase (decrease) in accrued interest, taxes and
other liabilities..................................... 552,338 (334,247)
----------- -----------
Net cash provided by operating activities......... 1,360,281 304,159
----------- -----------
Cash flows from investing activities:
Maturities and redemptions of securities available for
sale................................................... 5,263,715 229,360
Maturities and redemptions of securities held to
maturity............................................... 364,966 4,500,000
Purchases of securities available for sale................ (2,029,744) (6,041,719)
Purchases of securities held to maturity.................. (6,790,984) --
Net increase in loans..................................... (6,409,513) (1,917,078)
Purchases of property and equipment....................... (3,000) (2,229)
----------- -----------
Net cash used in investing activities............. (9,604,560) (3,231,666)
----------- -----------
Cash flows from financing activities:
Dividends paid............................................ (425,000) (224,400)
Net increase in short-term borrowings..................... 4,193,789 447,628
Net increase (decrease) in deposits....................... 12,603,092 (1,479,707)
Purchase of treasury stock................................ -- (123,630)
----------- -----------
Net cash provided by (used in) financing
activities...................................... 16,371,881 (1,380,109)
----------- -----------
Net increase (decrease) in cash and cash
equivalents..................................... 8,127,602 (4,307,616)
Cash and cash equivalents at beginning of year.............. 55,456,111 38,252,152
----------- -----------
Cash and cash equivalents at end of period.................. $63,583,713 $33,944,536
=========== ===========
Supplemental disclosure of cash flow information:
Interest paid............................................. $ 905,847 $ 584,387
Income taxes paid (refunded).............................. $ -- $ --
</TABLE>
The accompanying note should be read with the unaudited financial statements.
F-18
<PAGE> 96
FIRSTBANK
NOTE TO UNAUDITED FINANCIAL STATEMENTS
FOR THE THREE MONTHS ENDED MARCH 31, 1998 AND 1997
1. BASIS OF PRESENTATION
The accompanying unaudited financial statements have been prepared in
accordance with the instructions to Form 10-QSB and do not include all of the
information and footnotes required by generally accepted accounting principles
for complete financial statements. In the opinion of the Bank, the financial
statements reflect all adjustments which are of a normal recurring nature and
which are necessary to present fairly the financial position of the Bank as of
March 31, 1998, and the results of operations for the three months ended March
31, 1998 and 1997, and cash flows for the three months ended March 31, 1998 and
1997. The results of operations for the three months ended March 31, 1998 are
not necessarily indicative of the results which may be expected for the entire
fiscal year.
F-19
<PAGE> 97
APPENDIX A
AGREEMENT AND PLAN OF REORGANIZATION
BY AND AMONG
THE COLONIAL BANCGROUP, INC.,
CBG ACQUISITION CORP.
AND
FIRSTBANK
DATED AS OF
MAY 5, 1998
<PAGE> 98
TABLE OF CONTENTS
<TABLE>
<CAPTION>
CAPTION PAGE
------- ----
<C> <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-2
2.4 Resulting Corporation's Officers and Board.................. A-2
2.5 Stockholder Approval........................................ A-2
2.6 Further Acts................................................ A-2
2.7 Effective Date and Closing.................................. A-2
ARTICLE 3 -- CONVERSION OF ACQUIRED BANK STOCK
3.1 Conversion of Acquired Bank Stock and CBG Corp. 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-3
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-5
4.10 Contracts................................................... A-5
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-7
5.4 Financial Statements; Taxes................................. A-7
5.5 Absence of Certain Changes or Events........................ A-8
5.6 Title and Related Matters................................... A-9
5.7 Commitments................................................. A-10
5.8 Charter and Bylaws.......................................... A-10
</TABLE>
i
<PAGE> 99
<TABLE>
<CAPTION>
CAPTION PAGE
------- ----
<C> <S> <C>
5.9 Litigation.................................................. A-10
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-12
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-19
7.2 Press Release............................................... A-19
7.3 Mutual Disclosure........................................... A-19
7.4 Access to Properties and Records............................ A-19
7.5 Notice of Adverse Changes................................... A-19
ARTICLE 8 -- CONDITIONS TO OBLIGATIONS OF ALL PARTIES
8.1 Approval by Shareholders.................................... A-19
8.2 Regulatory Authority Approval............................... A-20
8.3 Litigation.................................................. A-20
8.4 Registration Statement...................................... A-20
8.5 Tax Opinion................................................. A-20
ARTICLE 9 -- CONDITIONS TO OBLIGATIONS OF ACQUIRED BANK
9.1 Representations, Warranties and Covenants................... A-21
9.2 Adverse Changes............................................. A-21
9.3 Closing Certificate......................................... A-21
9.4 Opinion of Counsel.......................................... A-21
9.5 NYSE Listing................................................ A-21
9.6 Other Matters............................................... A-22
9.7 Material Events............................................. A-22
ARTICLE 10 -- CONDITIONS TO OBLIGATIONS OF BANCGROUP
10.1 Representations, Warranties and Covenants................... A-22
10.2 Adverse Changes............................................. A-22
10.3 Closing Certificate......................................... A-22
10.4 Opinion of Counsel.......................................... A-23
10.5 Controlling Shareholders.................................... A-23
10.6 Other Matters............................................... A-23
</TABLE>
ii
<PAGE> 100
<TABLE>
<CAPTION>
CAPTION PAGE
------- ----
<C> <S> <C>
10.7 Dissenters.................................................. A-23
10.8 Material Events............................................. A-23
10.9 Pooling of Interests........................................ A-23
10.10 Consulting Agreement........................................ A-23
10.11 Employment Agreement........................................ A-23
10.12 NonCompete Agreement........................................ A-23
ARTICLE 11 -- TERMINATION OF REPRESENTATIONS AND WARRANTIES........ A-24
ARTICLE 12 -- NOTICES.............................................. A-24
ARTICLE 13 -- AMENDMENT OR TERMINATION
13.1 Amendment................................................... A-24
13.2 Termination................................................. A-24
13.3 Damages..................................................... A-25
ARTICLE 14 -- DEFINITIONS.......................................... A-25
ARTICLE 15 -- MISCELLANEOUS
15.1 Expenses.................................................... A-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-30
15.7 Construction................................................ A-30
15.8 Return of Information....................................... A-30
15.9 Equitable Remedies.......................................... A-30
15.10 Attorneys' Fees............................................. A-30
15.11 No Waiver................................................... A-30
15.12 Remedies Cumulative......................................... A-30
15.13 Entire Contract............................................. A-30
</TABLE>
iii
<PAGE> 101
AGREEMENT AND PLAN OF REORGANIZATION
THIS AGREEMENT AND PLAN OF REORGANIZATION is made and entered into as of
this 5th day of May, 1998, by and among FIRSTBANK ("Acquired Bank"), a Texas
state bank, THE COLONIAL BANCGROUP, INC. ("BancGroup"), a Delaware corporation,
and CBG ACQUISITION CORP. ("CBG Corp."), a Texas business corporation and a
wholly-owned Subsidiary of BancGroup, and provides for Acquired Bank to become a
wholly-owned Subsidiary of BancGroup by merger of CBG Corp. with and into
Acquired Bank, and for the shareholders of Acquired Bank, by such merger, to
become shareholders instead of BancGroup.
WITNESSETH
WHEREAS, Acquired Bank operates as a Texas state bank with its principal
office in Dallas, Texas; and
WHEREAS, BancGroup desires to acquire, on the terms and subject to the
conditions reflected below, the business of Acquired Bank; and
WHEREAS, Acquired Bank believes that it is desirable and in the best
interests of Acquired Bank that its business be combined with that of BancGroup
by merger of CBG Corp. with and into Acquired Bank so that Acquired Bank will
become a wholly-owned Subsidiary of BancGroup as below provided; and
WHEREAS, it is the intention of BancGroup, CBG Corp. 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 if
permissible, be "Colonial Bank" or any other legally permissible name as
BancGroup may in its sole discretion select.
ARTICLE 2
MERGER -- TERMS AND CONDITIONS
2.1 Applicable Law. On the Effective Date, CBG Corp. shall be merged with
and into Acquired 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 Texas Finance Code ("TFC"). The offices and facilities of
Acquired Bank and of CBG Corp. shall become the offices and facilities of
Resulting Corporation.
2.2 Corporate Existence. On the Effective Date, the corporate existence of
Acquired Bank and of CBG Corp. shall, as provided in the TFC, 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 CBG
Corp. However, the Resulting Corporation shall have only the corporate powers of
Acquired Bank. All rights, franchises and interests of Acquired Bank and CBG
Corp., 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 CBG
Corp., respectively, on the Effective Date.
A-1
<PAGE> 102
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 Acquired Bank as they exist
immediately before the Effective Date.
2.4 Resulting Corporation's Officers and Board. The officers and Board of
Directors of the Resulting Corporation on the Effective Date shall consist of
those officers and directors which serve in those capacities immediately prior
to the Effective Date. However, as of the Effective Date BancGroup may elect
additional directors and the Board of Directors may elect additional officers.
The members of the Board of Directors shall serve at the pleasure of BancGroup
and the officers of the Resulting Corporation shall serve at the pleasure of its
Board of Directors (subject to any severance obligations provided for by this
Agreement).
2.5 Stockholder Approval. This Agreement shall be submitted to the
shareholders of Acquired Bank at the Stockholders Meeting to be held as promptly
as practicable consistent with the satisfaction of the conditions set forth in
this Agreement. Upon approval by the requisite vote of the shareholders of
Acquired 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 CBG Corp., acquired as a
result of the Merger, or (ii) otherwise to carry out the purposes of this
Agreement, Acquired 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 CBG
Corp., 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 TFC, (such time being herein called the
"Effective Date"). 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
(i) the Stockholder Meeting or
(ii) the date required regulatory approvals under Section 8.2 and all
other conditions to closing have been satisfied, or
(iii) 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 and CBG Corp. 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 the right to receive, upon surrender of such share of
common stock of Acquired Bank, such number of shares of BancGroup Common Stock
(the "Merger Consideration") equal to $123.53 divided by the Market Value (the
"Exchange Ratio"). The "Market Value" of the BancGroup Common Stock at the
Effective Date 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 that is the fifth
trading day preceding the Effective Date.
(b) On the Effective Date, each share of common stock of CBG Corp.
outstanding and held by CBG Corp.'s stockholder (the "CBG Corp. Stock"), shall
be converted by operation of law and without any action
A-2
<PAGE> 103
by the holder thereof into one share of common stock of Acquired Bank, so that
thereafter BancGroup will be the sole and exclusive owner of equity securities
of Resulting Corporation.
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 TFC, relating to rights of dissenting shareholders,
shall be entitled to receive payment for the fair value of his Acquired Bank
Stock. If after the Effective Date a dissenting shareholder of Acquired Bank
fails to perfect, or effectively withdraws or loses, his right to appraisal and
payment for his shares of Acquired Bank Stock, BancGroup shall issue and deliver
the consideration to which such holder of shares of Acquired Bank Stock is
entitled under Section 3.1 (without interest) upon surrender of such holder of
the certificate or certificates representing shares of Acquired Bank Stock held
by him.
ARTICLE 4
REPRESENTATIONS, WARRANTIES AND COVENANTS OF BANCGROUP
BancGroup represents, warrants and covenants to and with Acquired Bank as
follows:
4.1 Organization. (a) BancGroup is a corporation duly organized, validly
existing and in good standing under the Laws of the State of Delaware. BancGroup
has the necessary corporate powers to carry on its business as presently
conducted and is qualified to do business in every jurisdiction in which the
character and location of the Assets owned by it or the nature of the business
transacted by it requires qualification or in which the failure to qualify
could, individually or in the aggregate, have a Material Adverse Effect.
A-3
<PAGE> 104
(b) CBG Corp. is a Texas business corporation duly organized, validly
existing and in good standing under the Laws of the State of Delaware. CBG Corp.
has the necessary corporate powers to consummate the transactions contemplated
in this Agreement. CBG Corp. was formed for the purpose of consummating the
Merger described herein and has not previously conducted business.
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 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
A-4
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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 BancGroup shall
cause CBG Corp. to approve this Agreement and the transactions contemplated by
it. This Agreement constitutes the legal, valid and binding obligation of
BancGroup and CBG Corp. 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 and CBG Corp. have full power, authority and legal right to enter into
this Agreement and to consummate the transactions contemplated by this
Agreement. BancGroup has no Knowledge of any fact or circumstance under which
the appropriate regulatory approvals required by section 8.2 will not be granted
without the imposition of material conditions or material delays.
4.7 Tax Treatment. BancGroup has no present plan to sell or otherwise
dispose of any of the Assets of Acquired Bank, subsequent to the Merger, and
BancGroup intends to continue the historic business of Acquired Bank.
4.8 Title and Related Matters. BancGroup has good and marketable title to
all the properties, interests in properties and Assets, real and personal,
reflected in the most recent balance sheet referred to in section 4.3(a), or
acquired after the date of such balance sheet (except properties, interests and
Assets sold or otherwise disposed of since such date, in the ordinary course of
business), free and clear of all mortgages, Liens, pledges, charges or
encumbrances except (i) mortgages and other encumbrances referred to in the
notes of such balance sheet, (ii) liens for current Taxes not yet due and
payable and (iii) such imperfections of title and easements as do not materially
detract from or interfere with the present use of the properties subject thereto
or affected thereby, or otherwise materially impair present business operations
at such properties. To the Knowledge of BancGroup, the material structures and
equipment of BancGroup comply in all material respects with the requirements of
all applicable Laws.
4.9 Subsidiaries. Each Subsidiary of BancGroup has been duly incorporated
and is validly existing as a corporation in good standing under the Laws of the
jurisdiction of its incorporation and each Subsidiary has been duly qualified as
a foreign corporation to transact business and is in good standing under the
Laws of each other jurisdiction in which it owns or leases properties, or
conducts any business so as to require such qualification and in which the
failure to be duly qualified could have a Material Adverse Effect upon BancGroup
and its Subsidiaries considered as one enterprise; 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
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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 Stockholders' Meeting, the Registration
Statement, including the Proxy Statement which shall constitute a part thereof,
will comply in all material respects with the requirements of the 1933 Act and
the rules and regulations thereunder, will not contain an untrue statement of a
material fact or omit to state a material fact necessary in order to make the
statements therein, in the light of the circumstances under which they were
made, not misleading; provided, however, that the representations and warranties
in this subsection shall not apply to statements in or omissions from the Proxy
Statement made in reliance upon and in conformity with information furnished in
writing to BancGroup by Acquired 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 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 Stockholders Meeting.
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4.15 Form S-4. The conditions for use of a registration statement on SEC
Form S-4 set forth in the General Instructions on Form S-4 have been or will be
satisfied with respect to BancGroup and the Registration Statement.
4.16 Brokers. All negotiations relative to this Agreement and the
transactions contemplated by this Agreement have been carried on by BancGroup
directly with Acquired Bank and without the intervention of any other person,
either as a result of any act of BancGroup or otherwise in such manner as to
give rights to any valid claim against BancGroup for finders fees, brokerage
commissions or other like payments except for a finders fee to be paid to Bear,
Stearns & Co. Inc. as described on Schedule 4.16.
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 Texas 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 340,000 shares of common stock,
$5.00 par value per share, 340,000 shares of which are issued and outstanding.
All of such shares which are outstanding are validly issued, fully paid and
nonassessable and not subject to preemptive rights. Acquired 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, including the grant or issuance of options or
warrants to purchase Acquired Bank Stock.
5.3 Subsidiaries. Acquired Bank has no Subsidiaries.
5.4 Financial Statements; Taxes. (a) Acquired Bank has delivered to
BancGroup copies of the following financial statements of Acquired Bank:
(i) Statements of financial condition as of December 31, 1996 and
1997;
(ii) Statements of income for each of the three years ended December
31, 1995, 1996 and 1997;
(iii) Statements of stockholders' 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.
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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 known material Liabilities or obligations
(absolute or contingent) of a nature customarily reflected in a balance sheet or
the notes thereto. The statements of income, stockholders' equity and cash flows
present fairly the results of operation, changes in shareholders equity and cash
flows of Acquired Bank for the periods indicated.
(b)(i) Acquired Bank has elected tax treatment under Subchapter S of the
Code and, in connection with such election has (i) taken all steps necessary to
perfect the election; (ii) satisfied all requirements under the Code and
regulations thereunder to qualify for the election, and (iii) other than
consummation of the Merger taken no action, failed to take any action or
suffered any condition to exist that has or could give rise to Acquired Bank's
loss of eligibility for tax treatment under Subchapter S of the Code.
(ii) Except as set forth on Schedule 5.4(b), all Tax returns required to be
filed by or on behalf of Acquired 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 to its Knowledge has withheld from its
employees (and timely paid to the appropriate governmental entity) proper and
accurate amounts for all periods in material compliance with all Tax withholding
provisions of applicable federal, state, foreign and local Laws (including
without limitation, income, social security and employment Tax withholding for
all types of compensation). Each Acquired Bank Company is in compliance with,
and its records contain all information and documents (including properly
completed IRS Forms W-9) necessary to comply with, all applicable information
reporting and Tax withholding requirements under federal, state and local Tax
Laws, and such records identify with specificity all accounts subject to backup
withholding under section 3406 of the Code.
5.5 Absence of Certain Changes or Events. Except as set forth on Schedule
5.5, since the date of the most recent balance sheet provided under section
5.4(a)(i) above, no Acquired Bank Company has
(a) issued, delivered or agreed to issue or deliver any of its stock,
bonds or other corporate securities (whether authorized and unissued or
held in the treasury);
(b) borrowed or agreed to borrow any funds or incurred, or become
subject to, any Liability (absolute or contingent) except borrowings,
obligations (including purchase of federal funds) and Liabilities incurred
in the ordinary course of business and consistent with past practice;
(c) paid any material obligation or Liability (absolute or contingent)
other than current Liabilities reflected in or shown on the most recent
balance sheet referred to in section 5.4(a)(i) and current Liabilities
incurred since that date in the ordinary course of business and consistent
with past practice;
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(d) declared or made, or agreed to declare or make, any payment of
dividends or distributions of any Assets of any kind whatsoever to
shareholders, or purchased or redeemed, or agreed to purchase or redeem,
directly or indirectly, or otherwise acquire, any of its outstanding
securities; except that Acquired Bank may pay cash dividends equal to 40%
of its Net Income per quarter on dates and times consistent with past
practices.
(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, and this
Agreement 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. It is agreed by the parties that Acquired Bank shall be
able to accrue and pay normal and usual employee bonuses, profit sharing
contributions and charitable donations without violating subsections (i) and (j)
above.
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 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
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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 FFEIC 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 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
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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, to
the Knowledge of Acquired Bank 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. To the Knowledge of Acquired Bank,
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 been operated in material
compliance with, all applicable Laws. Except as set forth in Schedule 5.16, no
Acquired Bank Company sponsors or otherwise maintains a "pension plan" within
the meaning of section 3(2) of ERISA or any other retirement plan other than the
FirstBank Profit Sharing Plan, 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
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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. Except as provided by Schedule 5.17, 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. 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. Acquired Bank
has added additional disclosures on Schedule 5.20.
5.21 Registration Statement. To the Knowledge of Acquired Bank, at the
time the Registration Statement becomes effective and at the time of the
Stockholders Meeting, the Registration Statement, including the Proxy Statement
which shall constitute part thereof, will not contain an untrue statement of a
material fact or omit to state a material fact necessary in order to make the
statements therein, in the light of the circumstances under which they were
made, not misleading; provided, however, that the representations and warranties
in this section shall only apply to statements in or omissions from the Proxy
Statement relating to descriptions of the business of Acquired 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 believed to be 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. To Acquired Bank's Knowledge 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.
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
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"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 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 interest method of accounting under generally
accepted accounting principles.
5.25 Collective Bargaining. There are no labor contracts, collective
bargaining agreements, letters of undertakings or other arrangements, formal or
informal, between any Acquired 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). BancGroup agrees to consult with Acquired Bank prior to
filing any schedules to this Agreement and to discuss the advisability of
requesting confidential treatment of such schedules.
(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 the severance policy of
BancGroup's wholly-owned Subsidiary bank, Colonial Bank, an Alabama
commercial bank ("Colonial Bank"), in existence 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
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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 employees of Colonial Bank, and the time of employment of such employees
who are employed at least 30 hours per week with any Acquired Bank Company
as of the Effective Date shall be counted as employment under such dental
and medical plans of Colonial Bank for purposes of calculating any 30 day
waiting period and pre-existing condition limitations. To the extent
permitted by applicable Law, the period of service with the appropriate
Acquired Bank Company of all employees who become employees of the
Resulting Corporation or its Subsidiaries on the Effective Date shall be
recognized only for vesting and eligibility purposes under Colonial Bank's
benefit plans. In addition, if the Effective Date falls within an annual
period of coverage under any group health plan of the Resulting Corporation
and its Subsidiaries, each such Acquired Bank Company employee shall be
given credit for covered expenses paid by that employee under comparable
employee benefit plans of the Acquired Bank Company during the applicable
coverage period through the Effective Date towards satisfaction of any
annual deductible limitation and out-of-pocket maximum that may apply under
that group health plan of the Resulting Corporation and its Subsidiaries.
(g) Indemnification. (i) Subject to the conditions set forth in the
succeeding paragraphs, for a period of three (3) years after the Effective
Date BancGroup shall, and shall cause the Resulting Corporation 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 Texas 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 the
Resulting Corporation 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 the Resulting
Corporation 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 Acquired Bank shall pay all reasonable fees and expenses of such counsel
for the Indemnified Parties promptly as statements therefor are received;
provided, that BancGroup shall be obligated pursuant to this subsection to
pay for only one firm of counsel for all Indemnified Parties in any
jurisdiction, (ii) the Indemnified Parties will cooperate in the defense of
any such Litigation; and (iii) BancGroup shall not be liable for any
settlement effected without its prior consent; and provided further
provided that BancGroup and Acquired 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 of 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
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as of the Effective Date any and all claims that they may have against any
Acquired Bank Company other than (A) those referred to in the foregoing
clause (iii) and disclosed in the letter of the director or officer, (B)
claims by third parties which have not yet been asserted against such
director or officer (other than claims arising from facts and circumstances
of which such director or officer is aware but which are not disclosed in
such director or executive officer's letter), (C) claims by third parties
arising from any transaction contemplated by this Agreement or disclosed in
any schedule to this Agreement, (D) claims by third parties arising in the
ordinary course of business of any Acquired Bank Company after the date of
the letter and (E) claims arising out of then existing contractual
obligations.
(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) BancGroup agrees that it will cause Acquired Bank to elect to file
a short period tax return for the Acquired Bank's 1998 tax year at the
Effective Time and will file a final information return and distribute to
its former shareholders the information needed for their personal tax
returns. BancGroup acknowledges that the Merger will terminate the Acquired
Bank's status as an "S" Corporation.
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 Corporation shall use its
best efforts to cause all executive officers and directors that own any
stock of Acquired Corporation and all other shareholders of Acquired
Corporation who own more than five percent (5%) of Acquired Corporation
Stock, to execute an acknowledgment that such person has no plan,
intention, or binding commitment to sell or otherwise dispose Acquired
Corporation Common Stock or of the BancGroup Common Stock to be received in
the Merger from the date of this Agreement to financial results concerning
at least 30 days of Post-Merger combined operations have been published by
BancGroup within the meaning of Section 201.01 of the SEC's codification of
Financial Reporting Policies.
(b) Stockholders Meeting; Best Efforts. Acquired Bank will cooperate
with BancGroup in the preparation of the Registration Statement and any
regulatory filings and will cause the Stockholders Meeting to be held for
the purpose of approving the Merger as soon as practicable after the
effective date of the Registration Statement, and will use its best efforts
to bring about the transactions contemplated by this Agreement, including
stockholder approval of this Agreement, as soon as practicable unless this
Agreement is terminated as provided herein.
(c) Prohibited Negotiations. 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.
(ii) If Acquired Bank (A) enters into a letter of intent or definitive
agreement regarding an Acquisition Proposal with any third party (other
than BancGroup or any of its Subsidiaries) prior to the earlier of (i) the
Effective Date or (ii) the termination of this Agreement pursuant to
Article 13 hereof (other than a termination by either Party pursuant to
paragraph (a) of section 13.2 hereof or by Acquired Bank pursuant to
paragraphs (b), (c) or (d) of section 13.2 hereof), or (B) if Acquired Bank
receives or is the subject of an Acquisition Proposal from a third party
(other than BancGroup or its Subsidiaries) prior to the termination of this
Agreement pursuant to Article 13 hereof (other than a termination by either
Party pursuant to paragraph (a) of section 13.2 hereof or by Acquired Bank
pursuant to paragraphs (b), (c) or (d) of section 13.2 hereof), and within
12 months after termination of this Agreement pursuant to Article 13 hereof
(other than a termination by either Party pursuant to paragraph (a) of
section 13.2 hereof or by Acquired Bank pursuant to paragraphs (b), (c) or
(d) of section 13.2 hereof) an Acquisition Proposal is consummated with
such third party, Acquired Bank covenants and agrees that it shall pay to
BancGroup upon demand at any time (Y) after Acquired Bank enters into an
agreement which is legally binding on Acquired Bank regarding an
Acquisition Proposal or (Z) at any time on or after the date of
consummation of such Acquisition Proposal, which ever is the first to
occur, the principal sum of $750,000. Such payment shall compensate
BancGroup for its direct and indirect costs and expenses in connection with
the transactions contemplated by this Agreement, including BancGroup's
management time devoted to negotiation and preparation for the Merger and
BancGroup's loss as a result of the Merger not being consummated. The
Parties acknowledge and agree that it would be impracticable or extremely
difficult to fix the actual damages resulting from the foregoing events
and, therefore, the Parties have agreed upon the foregoing payment as
liquidated damages which shall not be deemed to be in the nature of a
penalty. Other than the payment provided for in this section 6.2(c)(ii) and
any Liability for expenses as set forth in sections 13.3 and 15.10 hereof,
there shall be no other Liability or obligation on the part of any Acquired
Bank Company or their respective directors or officers resulting from any
of the events described in this section 6.2(c)(ii).
(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
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in comparative form figures for the corresponding periods ending in the
preceding fiscal year, subject to changes resulting from year-end
adjustments;
(ii) Promptly upon receipt thereof, copies of all audit reports
submitted to Acquired Bank by independent auditors in connection with
each annual, interim or special audit of the books of Acquired Bank made
by such accountants;
(iii) As soon a practicable, copies of all such financial
statements and reports as it shall send to its stockholders and of such
regular and periodic reports as Acquired Bank may file with the SEC or
any other Agency;
(iv) With reasonable promptness, such additional financial data as
BancGroup may reasonably request; and
(v) Within 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 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. Neither (i) ownership of the stock of nor (ii)
service as a director or officer of the Bank of Van Zandt shall constitute
a violation of this Section 6.2(g).
(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.
(i) Federal Reserve Application. Acquired Bank will prepare and file,
as soon as reasonably possible, with the Board of Governors of the Federal
Reserve Board (the "Federal Reserve") a membership application on Form FR
2083A (Application for Membership in the Federal Reserve System). Acquired
Bank will work and consult with BancGroup to become a member of the Federal
Reserve as soon as reasonably possible. However, Acquired Bank's acquiring
membership status prior to the Effective Date shall not be a condition to
be satisfied before closing.
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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 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 or as
required by law.
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 Stockholders Meeting, this Agreement
and the matters contemplated by this Agreement shall have been duly approved by
the vote of the holders of not less than the requisite
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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
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).
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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
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.
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9.6 Other Matters. There shall have been furnished to such counsel for
Acquired Bank certified copies of such corporate records of BancGroup and copies
of such other documents as such counsel may reasonably have requested for such
purpose.
9.7 Material Events. There shall have been no determination by the board
of directors of Acquired Bank that the transactions contemplated by this
Agreement have become impractical because of any state of war, declaration of a
banking moratorium in the United States or a general suspension of trading on
the NYSE or any other exchange on which BancGroup Common Stock may be traded.
ARTICLE 10
CONDITIONS TO OBLIGATIONS OF BANCGROUP
The obligations of BancGroup to cause the transactions contemplated by this
Agreement to be consummated shall be subject to the satisfaction on or before
the Effective Date of all of the following conditions except as BancGroup may
waive such conditions in writing:
10.1 Representations, Warranties and Covenants. Notwithstanding any
investigation made by or on behalf of BancGroup, all representations and
warranties of Acquired Bank contained in this Agreement shall be true in all
material respects on and as of the Effective Date as if such representations and
warranties were 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. Except for the effect of the Merger on Acquired
Bank's subchapter "S" election and for actions contemplated by this Agreement
and transaction costs related to this Agreement there shall have been no changes
after the date of the most recent balance sheet provided under section 5.4(a)(i)
hereof in the results of operations (as compared with the corresponding period
of the prior fiscal year), Assets, Liabilities, financial condition, or affairs
of Acquired Bank which constitute a Material Adverse Effect, nor shall there
have been any material changes in the Laws governing the business of Acquired
Bank which would impair BancGroup's rights pursuant to this Agreement.
10.3 Closing Certificate. In addition to any other deliveries required to
be delivered hereunder, BancGroup shall have received a certificate from
Acquired Bank executed by the President or Vice President and from the Secretary
or Assistant Secretary of Acquired Bank dated as of the Closing certifying that:
(a) the Board of Directors of Acquired Bank has duly adopted
resolutions approving the substantive terms of this Agreement and
authorizing the consummation of the transactions contemplated by this
Agreement and such resolutions have not been amended or modified and remain
in full force and effect;
(b) the shareholders of Acquired Bank have duly adopted resolutions
approving the substantive terms of the Merger and the transactions
contemplated thereby and such resolutions have not been amended or modified
and remain in full force and effect;
(c) each person executing this Agreement on behalf of Acquired Bank is
an officer of Acquired Bank holding the office or offices specified therein
and the signature of each person set forth on such certificate is his or
her genuine signature;
(d) the articles of incorporation and bylaws of Acquired Bank 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
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(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 Brown
McCarroll & Oaks Hartline, 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 Consulting Agreement. Mr. Roy Gene Evans will, prior to the
Effective Date, execute a consulting agreement in form and substance reasonably
acceptable to BancGroup. The consulting agreement with Mr. Evans shall provide
for an annual consulting fee of $250,000 (including salary, bonus and car
allowance) for one year. The agreement shall also provide for a non-competition
agreement to run concurrently with the one year term. Mr. Evans will agree to
assist BancGroup in BancGroup's expansion plans in the State of Texas as well as
continue to serve as chairman of the board of directors of the Resulting
Corporation.
10.11 Employment Agreement. Mr. Michael Redden will, prior to the
Effective Date, execute an employment agreement in form and substance reasonably
acceptable to BancGroup. The employment agreement with Mr. Redden shall provide
for an annual compensation of not less than his current annual compensation
(salary and bonus) and will allow Mr. Redden to participate in BancGroup's
discretionary cash bonus and stock option plans. Mr. Redden will agree to remain
employed with Resulting Corporation for a minimum of three years. The agreement
shall also provide for a non-competition agreement to run concurrently with such
three year term. Mr. Redden shall be granted 20,000 BancGroup options with an
exercise price equal to the closing price of BancGroup Common Stock, as reported
by the NYSE, on the Effective Date. The options will vest ratably over a three
year period.
10.12 NonCompete Agreement. Key employees as shown by Schedule 10.12 will,
prior to the Effective Date, execute agreements in form and substance reasonably
acceptable to BancGroup. The agreements shall provide that such key employees
will not compete with BancGroup for a period of at least one (1) year from the
Effective Date if (i) such employee voluntarily terminated his or her employment
with BancGroup and
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(ii) at the time of such termination, the employee's compensation is
substantially equivalent to what it was on the Effective Date. In consideration
for this agreement all employees who execute the agreement will receive
compensation in accordance with Schedule 10.12 which will not exceed in the
aggregate $500,000. All employees (other than Mr. Evans and Mr. Redden) of
Acquired Bank will be offered the opportunity to sign a noncompete agreement.
Execution of noncompete agreements by "key employees" as designated on Schedule
10.12 will be a condition to Closing, no employee shall receive more than his
calendar year 1997 compensation under this provision.
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
Sections 7.2, 7.4, 6.2(c)(ii), 13.3, 13.4, Article 11, Article 15, any
applicable definitions of Article 14, shall survive. Items disclosed in the
Exhibits and Schedules attached hereto are incorporated into this Agreement and
form a part of the representations, warranties, covenants or agreements to which
they relate. Information provided in such Exhibits and Schedules is provided
only in response to the specific section of this Agreement which calls for such
information.
ARTICLE 12
NOTICES
All notices, 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 Roy Gene Evans, 15150 Preston Road, Dallas
Texas 75248, facsimile (972) 788-2916, with copies to Thomas Hurtekant, 300
Crescent Court, Suite 1400, Dallas, Texas 75201, facsimile (214) 999-6170,
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,
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
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Agreement) in the event of a material breach by the other Party of any
representation or warranty contained in this Agreement which cannot be or
has not been cured within thirty (30) days after the giving of written
notice to the breaching Party of such breach and which breach would provide
the non-breaching Party the ability to refuse to consummate the Merger
under the standard set forth in section 10.1 of this Agreement in the case
of BancGroup and section 9.1 of this Agreement in the case of Acquired
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
13.3 Damages. In the event of termination pursuant to section 13.2, this
Agreement shall become void and have no effect other than as set forth in
section 6.2(c)(ii) and except as provided in Article 11, and except that
Acquired Corporation and BancGroup shall be liable for damages for any wilful
breach of warranty, representation, covenant or other agreement contained in
this Agreement.
ARTICLE 14
DEFINITIONS
(a) The following terms, which are capitalized in this Agreement, shall
have the meanings set forth below for the purpose of this Agreement:
Acquired Bank.............. FirstBank, a Texas state bank.
Acquired................... Bank Company Shall mean Acquired Bank, any
Subsidiary of Acquired Bank, or any person or
entity acquired as a Subsidiary of Acquired Bank
in the future and owned by Acquired Bank at the
Effective Date.
Acquired Bank Stock........ Shares of common stock, par value $5.00 per share,
of Acquired Bank.
Acquisition Proposal....... Shall mean, with respect to a Party, any tender
offer or exchange offer or any proposal for a
merger, acquisition of all of the stock or assets
of, or other business combination involving such
Party or any of its Subsidiaries or the
acquisition of a substantial equity interest in,
or a substantial portion of the assets of, such
Party or any of its Subsidiaries.
Agencies................... Shall mean, collectively, the Federal Trade
Commission, the United States Department of
Justice, the Board of the Governors of the
Federal Reserve System, the Federal Deposit
Insurance Corporation, the Office of Thrift
Supervision, all state regulatory agencies having
jurisdiction over the Parties and their
respective Subsidiaries, HUD, the VA, the FHA,
the GNMA, the FNMA, the FHLMC, the NYSE, and the
SEC.
Agreement.................. Shall mean this Agreement and Plan of Merger and
the Exhibits and Schedules delivered pursuant
hereto and incorporated herein by reference.
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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.
CBG Corp................... CBG Acquisition Corp., a Texas corporation and a
wholly-owned Subsidiary of BancGroup.
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.
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.
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 $123.53 by the
Market Value.
Exhibits................... A through C, inclusive, shall mean the Exhibits so
marked, copies of which are attached to this
Agreement. Such Exhibits are hereby incorporated
by reference herein and made a part hereof, and
may be referred to in this Agreement and any
other related instrument or document without
being attached hereto.
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Knowledge.................. In the case of BancGroup means the actual Knowledge
of the Chairman, President, and Chief Financial
Officer of BancGroup, after due inquiry and
investigation. In the case of Acquired Bank it
means the actual Knowledge of the Directors
(including its chairman), President and Officers
of Acquired Bank after due inquiry and
investigation.
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.
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
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days ending on the trading day five calendar days
preceding the Effective Date.
Material................... For purposes of this Agreement shall be determined
in light of the facts and circumstances of the
matter in question; provided that any specific
monetary amount stated in this Agreement shall
determine materiality in that instance.
Material Adverse Effect.... On a Party shall mean an event, change or
occurrence which has a material adverse impact on
(i) the financial position, Assets, business, or
results of operations of such Party and its
Subsidiaries, taken as a whole, or (ii) the
ability of such Party to perform its obligations
under this Agreement or to consummate the Merger
or the other transactions contemplated by this
Agreement, provided that "material adverse
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 CBG Corp. 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.
Net Income................. Net Income in accordance with GAAP.
NYSE....................... The New York Stock Exchange.
Order...................... Any administrative decision or award, decree,
injunction, judgment, order, quasi-judicial
decision or award, ruling, or writ of any
federal, state, local or foreign or other court,
arbitrator, mediator, tribunal, administrative
agency or Agency.
Party...................... Shall mean Acquired Bank, or BancGroup, and
"Parties" shall mean Acquired Bank, CBG Corp. and
BancGroup.
Permit..................... Any federal, state, local, and foreign governmental
approval, authorization, certificate, easement,
filing, franchise, license, notice, permit, or
right to which any Person is a party or that is
or may be binding upon or inure to the benefit of
any Person or its securities, Assets or business.
Person..................... A natural person or any legal, commercial or
governmental entity, such as, but not limited to,
a corporation, general partnership, joint
venture, limited partnership, limited liability
company, trust, business association, group
acting in concert, or any person acting in a
representative capacity.
Proxy Statement............ The proxy statement used by Acquired Bank to
solicit the approval of its stockholders of the
transactions contemplated by this Agreement,
which shall include the prospectus of BancGroup
relating to the issuance of the BancGroup Common
Stock to the shareholders of Acquired Bank.
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Registration Statement..... The registration statement on Form S-4, or such
other appropriate form, to be filed with the SEC
by BancGroup, and which has been agreed to by
Acquired Bank, to register the shares of
BancGroup Common Stock offered to stockholders of
the Bank pursuant to his Agreement, including the
Proxy Statement.
Resulting Corporation...... Acquired 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.
TFC........................ Texas Finance Code.
1933 Act................... The Securities Act of 1933, as amended.
1934 Act................... The Securities Exchange Act of 1934, as amended.
ARTICLE 15
MISCELLANEOUS
15.1 Expenses. (a) 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.
(b) Nothing contained in this Section 15.1 shall constitute or shall be
deemed to constitute liquidated damages for the willful breach by a Party of the
terms of this Agreement or otherwise limit the rights of the nonbreaching Party.
15.2 Benefit. This Agreement shall inure to the benefit of and be binding
upon Acquired Bank, CBG Corp. and BancGroup, and their respective successors.
This Agreement shall not be assignable by any Party without the prior written
consent of the other Party. Officers, directors and employees of Acquired Bank
are intended third party beneficiaries of Section 6.1(f), 6.1(g) and 6.1(h).
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.
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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.
15.12 Remedies Cumulative. All remedies provided in this Agreement, by law
or otherwise, shall be cumulative and not alternative.
15.13 Entire Contract. This Agreement and the documents and instruments
referred to herein constitute the entire contract between the parties to this
Agreement and supersede all other understandings with respect to the subject
matter of this Agreement.
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IN WITNESS WHEREOF, Acquired Bank, CBG Corp. 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: FIRSTBANK
BY: /s/ D. MICHAEL REDDEN BY: /s/ ROY G. EVANS
------------------------------------------------- -------------------------------------------------
ITS: President & CEO ITS: Chairman
----------------------------------------------- -----------------------------------------------
(CORPORATE SEAL)
ATTEST: THE COLONIAL BANCGROUP, INC.
BY: /s/ GLENDA ALLRED BY: /s/ W. FLAKE OAKLEY
------------------------------------------------- -------------------------------------------------
ITS: Assistant Secretary ITS: Chief Financial Officer
----------------------------------------------- -----------------------------------------------
(CORPORATE SEAL)
ATTEST: CBG ACQUISITION CORP.
BY: /s/ WILLIAM A. MCCRARY BY: /s/ SARAH H. MOORE
------------------------------------------------- -------------------------------------------------
ITS: Secretary ITS: President
----------------------------------------------- -----------------------------------------------
</TABLE>
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<PAGE> 132
APPENDIX B
SEC. 32.303. RIGHTS OF DISSENTERS FROM MERGER
A shareholder, participant, or participant-transferee may dissent from the
merger to the extent, and by following the procedure provided, by the Texas
Business Corporation Act or any rules adopted under this subtitle.
ART. 5.11. RIGHTS OF DISSENTING SHAREHOLDERS IN THE EVENT OF CERTAIN CORPORATE
ACTIONS
A. Any shareholder of a domestic corporation shall have the right to
dissent from any of the following corporate actions:
(1) Any plan of merger to which the corporation is a party if
shareholder approval is required by Article 5.03 or 5.16 of this Act and
the shareholder holds shares or a class or series that was entitled to vote
thereon as a class or otherwise;
(2) Any sale, lease, exchange or other disposition (not including any
pledge, mortgage, deed of trust or trust indenture unless otherwise
provided in the articles of incorporation) of all, or substantially all,
the property and assets, with or without good will, of a corporation if
special authorization of the shareholders is required by this Act and the
shareholders hold shares of a class or series that was entitled to vote
thereon as a class or otherwise;
(3) Any plan of exchange pursuant to Article 5.02 of this Act in which
the shares of the corporation of the class or series held by the
shareholder are to be acquired.
B. Notwithstanding the provisions of Section A of this Article, a
shareholder shall not have the right to dissent from any plan of merger in which
there is a single surviving or new domestic or foreign corporation, or from any
plan of exchange, if:
(1) the shares held by the shareholder are part of a class or series,
shares of which are on the record date fixed to determine the shareholders
entitled to vote on the plan of merger or plan of exchange:
(a) listed on a national securities exchange;
(b) listed on the Nasdaq Stock Market (or successor quotation
system) or designated as a national market security on an interdealer
quotation system by the National Association of Securities Dealers,
Inc., or successor entity; or
(c) held of record by not less than 2,000 holders;
(2) the shareholder is not required by the terms of the plan of merger
or plan of exchange to accept for the shareholder's shares any
consideration that is different than the consideration (other than cash in
lieu of fractional shares that the shareholder would otherwise be entitled
to receive) to be provided to any other holder of shares of the same class
or series of shares held by such shareholder; and
(3) the shareholder is not required by the terms of the plan of merger
or the plan of exchange to accept for the shareholder's shares any
consideration other than:
(a) shares of a domestic or foreign corporation that, immediately
after the effective time of the merger or exchange, will be part of a
class or series, shares of which are:
(i) listed, or authorized for listing upon official notice of
issuance, on a national securities exchange;
(ii) approved for quotation as a national market security on an
interdealer quotation system by the National Association of
Securities Dealers, Inc., or successor entity; or
(iii) held of record by not less than 2,000 holders;
(b) cash in lieu of fractional shares otherwise entitled to be
received; or
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(c) any combination of the securities and cash described in
Subdivisions (a) and (b) of this subsection.
ART. 5.12. PROCEDURE FOR DISSENT BY SHAREHOLDERS AS TO SAID CORPORATE ACTIONS
A. Any shareholder of any domestic corporation who has the right to dissent
from any of the corporate actions referred to in Article 5.11 of this Act may
exercise that right to dissent only by complying with the following procedures:
(1)(a) With respect to proposed corporate action that is submitted to
a vote of shareholders at a meeting, the shareholder shall file with the
corporation, prior to the meeting, a written objection to the action,
setting out that the shareholder's right to dissent will be exercised if
the action is effective and giving the shareholder's address, to which
notice thereof shall be delivered or mailed in that event. If the action is
effected and the shareholder shall not have voted in favor of the action,
the corporation, in the case of action other than a merger, or the
surviving or new corporation (foreign or domestic) or other entity that is
liable to discharge the shareholder's right of dissent, in the case of a
merger, shall, within ten (10) days after the action is effected, deliver
or mail to the shareholder written notice that the action has been
effected, and the shareholder may, within ten (10) days from the delivery
or mailing of the notice, make written demand on the existing, surviving,
or new corporation (foreign or domestic) or other entity, as the case may
be, for payment of the fair value of the shareholder's shares. The fair
value of the shares shall be the value thereof as of the day immediately
preceding the meeting, excluding any appreciation or depreciation in
anticipation of the proposed action. The demand shall state the number and
class of the shares owned by the shareholder and the fair value of the
shares as estimated by the shareholder. Any shareholder failing to make
demand within the ten (10) day period shall be bound by the action.
(b) With respect to proposed corporate action that is approved
pursuant to Section A of Article 9.10 of this Act, the corporation, in the
case of action other than a merger, and the surviving or new corporation
(foreign or domestic) or other entity that is liable to discharge the
shareholder's right of dissent, in the case of a merger, shall, within ten
(10) days after the date the action is effected, mail to each shareholder
of record as of the effective date of the action notice of the fact and
date of the action and that the shareholder may exercise the shareholder's
right to dissent from the action. The notice shall be accompanied by a copy
of this Article and any articles or documents filed by the corporation with
the Secretary of State to effect the action. If the shareholder shall not
have consented to the taking of the action, the shareholder may, within
twenty (20) days after the mailing of the notice, make written demand on
the existing, surviving, or new corporation (foreign or domestic) or other
entity, as the case may be, for payment of the fair value of the
shareholder's shares. The fair value of the shares shall be the value
thereof as of the date the written consent authorizing the action was
delivered to the corporation pursuant to Section A of Article 9.10 of this
Act, excluding any appreciation or depreciation in anticipation of the
action. The demand shall state the number and class of shares owned by the
dissenting shareholder and the fair value of the shares as estimated by the
shareholder. Any shareholder failing to make demand within the twenty (20)
day period shall be bound by the action.
(2) Within twenty (20) days after receipt by the existing, surviving,
or new corporation (foreign or domestic) or other entity, as the case may
be, of a demand for payment made by a dissenting shareholder in accordance
with Subsection (1) of this Section, the corporation (foreign or domestic)
or other entity shall deliver or mail to the shareholder a written notice
that shall either set out that the corporation (foreign or domestic) or
other entity accepts the amount claimed in the demand and agrees to pay
that amount within ninety (90) days after the date on which the action was
effected, and, in the case of shares represented by certificates, upon the
surrender of the certificates duly endorsed, or shall contain an estimate
by the corporation (foreign or domestic) or other entity of the fair value
of the shares, together with an offer to pay the amount of that estimate
within ninety (90) days after the date on which the action was effected,
upon receipt of notice within sixty (60) days after that date from the
shareholder that the shareholder agrees to accept that amount and, in the
case of shares represented by certificates, upon the surrender of the
certificates duly endorsed.
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3. If, within sixty (60) days after the date on which the corporate
action was effected, the value of the shares is agreed upon between the
shareholder and the existing, surviving, or new corporation (foreign or
domestic) or other entity, as the case may be, payment for the shares shall
be made within ninety (90) days after the date of which the action was
effected and, in the case of shares represented by certificates, upon
surrender of the certificates duly endorsed. Upon payment of the agreed
value, the shareholder shall cease to have any interest in the shares or in
the corporation.
B. If, within the period of sixty (60) days after the date on which the
corporate action was effected, the shareholder and the existing, surviving, or
new corporation (foreign or domestic) or other entity, as the case may be, do
not so agree, then the shareholder or the corporation (foreign or domestic) or
other entity may, within sixty (60) days after the expiration of the sixty (60)
day period, file a petition in any court of competent jurisdiction in the county
in which the principal office of the domestic corporation is located, asking of
a finding and determination of the fair value of the shareholder's shares. Upon
the filing of any such petition by the shareholder, service of a copy thereof
shall be made upon the corporation (foreign or domestic) or other entity, which
shall, within ten (10) days after service, file in the office of the clerk of
the court in which the petition was filed a list containing the names and
addresses of all shareholders of the domestic corporation who have demanded
payment for their shares and with whom agreements as to the value of their
shares have not been reached by the corporation (foreign or domestic) or other
entity. If the petition shall be filed by the corporation (foreign or domestic)
or other entity, the petition shall be accompanied by such a list. The clerk of
the court shall give notice of the time and place fixed for the hearing of the
petition by registered mail to the corporation (foreign or domestic) or other
entity and to the shareholders named on the list at the addresses therein
stated. The forms of the notices by mail shall be approved by the court. All
shareholders thus notified and the corporation (foreign or domestic) or other
entity shall thereafter be bound by the final judgment of the court.
C. After the hearing of the petition, the court shall determine the
shareholders who have complied with the provisions of this Article and have
become entitled to the valuation of and payment for their shares, and shall
appoint one or more qualified appraisers to determine that value. The appraisers
shall have power to examine any of the books and records of the corporation the
shares of which they are charged with the duty of valuing, and they shall make a
determination of the fair value of the shares upon such investigation as to them
may seem proper. The appraisers shall also afford a reasonable opportunity to
the parties interested to submit to them pertinent evidence as to the value of
the shares. The appraisers shall also have such power and authority as may be
conferred on Masters in Chancery by the Rules of Civil Procedure or by the order
of their appointment.
D. The appraisers shall determine the fair value of the shares of the
shareholders adjudged by the court to be entitled to payment for their shares
and shall file their report of that value in the office of the clerk of the
court. Notice of the filing of the report shall be given by the clerk to the
parties in interest. The report shall be subject to exceptions to be heard
before the court both upon the law and the facts. The court shall by its
judgment determine the fair value of the shares of the shareholders entitled to
payment for their shares and shall direct the payment of that value by the
existing, surviving, or new corporation (foreign or domestic) or other entity,
together with interest thereon, beginning 91 days after the date on which the
applicable corporate action from which the shareholder elected to dissent was
effected to the date of such judgment, to the shareholders entitled to payment.
The judgment shall be payable to the holders of uncertificated shares
immediately but to the holders of shares represented by certificates only upon,
and simultaneously with, the surrender to the existing, surviving, or new
corporation (foreign or domestic) or other entity, as the case may be, of duly
endorsed certificates for those shares. Upon payment of the judgment, the
dissenting shareholders shall cease to have any interest in those shares or in
the corporation. The court shall allow the appraisers a reasonable fee as court
costs, and all court costs shall be allotted between the parties in the manner
that the court determines to be fair and equitable.
E. Shares acquired by the existing, surviving, or new corporation (foreign
or domestic) or other entity, as the case may be, pursuant to the payment of the
agreed value of the shares or pursuant to payment of the judgment entered for
the value of the shares, as in this Article provided, shall, in the case of a
merger, be
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treated as provided in the plan of merger and, in all other cases, may be held
and disposed of by the corporation as in the case of other treasury shares.
F. The provisions of this Article shall not apply to a merger if, on the
date of the filing of the articles of merger, the surviving corporation is the
owner of all the outstanding shares of the other corporations, domestic or
foreign, that are parties to the merger.
G. In the absence of fraud in the transaction, the remedy provided by this
Article to a shareholder objecting to any corporate action referred to in
Article 5.11 of this Act is the exclusive remedy for the recovery of the value
of his shares or money damages to the shareholder with respect to the action. If
the existing, surviving, or new corporation (foreign or domestic) or other
entity, as the case may be, complies with the requirements of this Article, any
shareholder who fails to comply with the requirements of this Article shall not
be entitled to bring suit for the recovery of the value of his shares or money
damages to the shareholder with respect to the action.
ART. 5.13. PROVISIONS AFFECTING REMEDIES OF DISSENTING SHAREHOLDERS
A. Any shareholder who has demanded payment for his shares in accordance
with either Article 5.12 or 5.16 of this Act shall not thereafter be entitled to
vote or exercise any other rights of a shareholder except the right to receive
payment for his shares pursuant to the provisions of those articles and the
right to maintain an appropriate action to obtain relief on the ground that the
corporate action would be or was fraudulent, and the respective shares for which
payment has been demanded shall not thereafter be considered outstanding for the
purposes of any subsequent vote of shareholders.
B. Upon receiving a demand for payment from any dissenting shareholder, the
corporation shall make an appropriate notation thereof in its shareholder
records. Within twenty (20) days after demanding payment for his shares in
accordance with either Article 5.12 or 5.16 of this Act, each holder of
certificates representing shares so demanding payment shall submit such
certificates to the corporation for notation thereon that such demand has been
made. The failure of holders of certificated shares to do so shall, at the
option of the corporation, terminate such shareholder's rights under Articles
5.12 and 5.16 of this Act unless a court of competent jurisdiction for good and
sufficient cause shown shall otherwise direct. If uncertificated shares for
which payment has been demanded or shares represented by a certificate on which
notation has been so made shall be transferred, any new certificate issued
therefor shall bear similar notation together with the name of the original
dissenting holder of such shares and a transferee of such shares shall acquire
by such transfer no rights in the corporation other than those which the
original dissenting shareholder had after making demand for payment of the fair
value thereof.
C. Any shareholder who has demanded payment for his shares in accordance
with either Article 5.12 or 5.16 of this Act may withdraw such demand at any
time before payment for his shares or before any petition has been filed
pursuant to Article 5.12 or 5.16 of this Act asking for a finding and
determination of the fair value of such shares, but no such demand may be
withdrawn after such payment has been made or, unless the corporation shall
consent thereto, after any such petition has been filed. If, however, such
demand shall be withdrawn as hereinbefore provided, or if pursuant to Section B
of this Article the corporation shall terminate the shareholder's rights under
Article 5.12 or 5.16 of this Act, as the case may be, or if no petition asking
for a finding and determination of fair value of such shares by a court shall
have been filed within the time provided in Article 5.12 or 5.16 of this Act, as
the case may be, or if after the hearing of a petition filed pursuant to Article
5.12 or 5.16, the court shall determine that such shareholder is not entitled to
the relief provided by those articles, then, in any such case, such shareholder
and all persons claiming under him shall be conclusively presumed to have
approved and ratified the corporate action from which he dissented and shall be
bound thereby, the right of such shareholder to be paid the fair value of his
shares shall cease, and his status as a shareholder shall be restored without
prejudice to any corporate proceedings which may have been taken during the
interim, and such shareholder shall be entitled to receive any dividends or
other distributions made to shareholders in the interim.
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SOLICITED BY THE BOARD OF DIRECTORS
PROXY
FIRSTBANK
SPECIAL MEETING OF SHAREHOLDERS
AUGUST 25, 1998
The undersigned hereby appoints Carol Felty and Wanda Hays, and either of
them, or such other persons as the board of directors of FirstBank, may
designate, proxies for the undersigned, with full power of substitution, to
represent the undersigned and to vote all of the shares of common stock of
FirstBank at the special meeting of shareholders to be held on August 25, 1998,
and at any and all adjournments thereof.
1. To ratify, confirm, approve and adopt an Agreement and Plan of Reorganization
dated as of May 5, 1998 (the "Agreement"), by and among FirstBank, The
Colonial BancGroup, Inc. and CBG Acquisition Corp., with such agreement
providing for, among other things, the merger of CBG Acquisition Corp. with
and into FirstBank so that FirstBank will become a wholly owned subsidiary of
The Colonial BancGroup, Inc. Each outstanding share of FirstBank common stock
will be converted into common shares of The Colonial BancGroup, Inc. in
accordance with the terms of the Agreement.
[ ] FOR [ ] AGAINST [ ] ABSTAIN
2. To consider and vote upon a proposal to terminate a Shareholders Agreement
dated as of November 7, 1996 among the shareholders of FirstBank intended to
preserve its election to be taxed under the provisions of Subchapter S of the
Internal Revenue Code of 1986, as amended (the "Code") effective immediately
prior to the Effective Date of the Merger in order to facilitate the Merger.
[ ] FOR [ ] AGAINST [ ] ABSTAIN
3. To consider and vote upon a proposal to amend FirstBank's Articles of
Association to increase the number of authorized shares of Common Stock, par
value $5.00 per shares, by 1,000 shares. Such shares shall be issued to The
Colonial BancGroup, Inc. in the Reorganization.
[ ] FOR [ ] AGAINST [ ] ABSTAIN
4. To transact such other business as may properly come before the meeting or
any adjournment thereof.
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS OF FIRSTBANK AND
WILL BE VOTED AS DIRECTED HEREIN. IF NO DIRECTION IS GIVEN, THIS PROXY WILL BE
VOTED FOR PROPOSALS 1, 2 and 3 AND IN ACCORDANCE WITH THE DISCRETION OF THE
PROXY HOLDERS RESPECTING SUCH OTHER MATTERS AS MAY PROPERLY COME BEFORE THE
SPECIAL MEETING AND TO VOTE UPON MATTERS INCIDENT TO THE CONDUCT OF THE SPECIAL
MEETING.
------------------------------
(Signature of Shareholder)
------------------------------
(Signature of Shareholder, if
more than one)
Dated: , 1998
---------------------
Phone No:
------------------------
Please sign exactly as your
name appears on the envelope
in which this material was
mailed. If shares are held
jointly, each shareholder must
sign. Agents, executors,
administrators, guardians and
trustees must give full title
as such. Corporations should
sign by their president or
authorized officer.
