<PAGE> 1
Filed Pursuant to Rule: 424(b)(3)
Registration No. 333-61875
(INTERWEST LOGO)
September 1, 1998
Dear Shareholder:
You are cordially invited to attend the Special Meeting of Shareholders
(the "Special Meeting") of InterWest Bancorp ("InterWest"), which will be held
on Friday, October 2, 1998, at 9 a.m. local time. The Special Meeting will be
held at 2330 South Virginia Street, Reno, Nevada.
At the Special Meeting, shareholders of InterWest will be asked to consider
and vote on approval of an Agreement and Plan of Merger, dated as of June 16,
1998 (the "Agreement"), between InterWest and The Colonial BancGroup, Inc.
("BancGroup"), pursuant to which InterWest will be merged (the "Merger") with
BancGroup. In the Merger, InterWest shareholders will receive whole shares of
BancGroup Common Stock in exchange for shares of InterWest Common Stock held by
them. Each share of InterWest Common Stock outstanding at the effective time of
the Merger will be converted into the right to receive shares of BancGroup
Common Stock (as calculated in accordance with the terms of the Agreement). Cash
will be paid for any fractional shares. Please see the attached Proxy Statement
and Prospectus for a detailed description of the terms of the Merger and the
formula for converting shares of InterWest Common Stock into shares of BancGroup
Common Stock in the Merger.
THE BOARD OF DIRECTORS HAS UNANIMOUSLY APPROVED THE AGREEMENT AND THE
MERGER AS BEING IN THE BEST INTERESTS OF INTERWEST SHAREHOLDERS AND RECOMMENDS
THAT YOU VOTE IN FAVOR OF THE APPROVAL OF THE AGREEMENT.
Additional information regarding the Agreement, the Merger, InterWest and
BancGroup is set forth in the attached Proxy Statement, which also serves as the
Prospectus for the shares of BancGroup Common Stock to be issued in connection
with the Merger. Please read these materials and carefully consider the
information contained in them.
The affirmative vote of the holders of a majority of the outstanding shares
of InterWest Common Stock is required to approve the Agreement. Whether or not
you plan to attend the Special Meeting, you are urged to complete, sign and
promptly return the enclosed Proxy Card to assure that your shares will be voted
at the Special Meeting. If you attend the Special Meeting, you may vote in
person if you wish, and your proxy will not be used.
Sincerely,
/s/ Richard Martucci, Sr.
RICHARD MARTUCCI, SR.
President and Chief Executive Officer
<PAGE> 2
INTERWEST BANCORP
2330 SOUTH VIRGINIA STREET
RENO, NEVADA 89502
(702) 827-7233
---------------------
NOTICE OF SPECIAL MEETING OF SHAREHOLDERS
TO BE HELD ON OCTOBER 2, 1998, AT 9 A.M.
---------------------
NOTICE IS HEREBY GIVEN that a special meeting of shareholders (the "Special
Meeting") of InterWest Bancorp ("InterWest") will be held at 2330 South Virginia
Street, Reno, Nevada on Friday, October 2, 1998, at 9 a.m., local time, for the
following purposes:
1. Merger. To consider and vote upon the proposed merger (the
"Merger") of InterWest with and into The Colonial BancGroup, Inc.
("BancGroup"), in accordance with an Agreement and Plan of Merger, dated as
of June 16, 1998, between InterWest and BancGroup (the "Agreement").
BancGroup will be the surviving corporation in the Merger. Each share of
common stock of InterWest outstanding at the time of the Merger will be
converted into the right to receive shares of BancGroup Common Stock (as
calculated in accordance with the terms of the Agreement), with cash paid
in lieu of fractional shares at the market value of such fractional shares,
as described in greater detail in the accompanying Proxy Statement and
Prospectus. The Agreement is attached to the Proxy Statement and Prospectus
as Appendix A.
2. Other Matters. To transact such other business as may properly
come before the Special Meeting or any adjournments or postponements
thereof.
The Board of Directors of InterWest has fixed the close of business on
August 26, 1998, as the record date for the determination of shareholders
entitled to notice of, and to vote at, the Special Meeting. Only holders of
record of the common stock of InterWest at the close of business on that date
will be entitled to notice of, and to vote at, the Special Meeting or any
adjournments or postponements thereof. InterWest shareholders are entitled to
assert dissenters' rights of appraisal pursuant to Section 92A.300 et seq. of
the Nevada Revised Statutes. InterWest shareholders who comply with the
provisions of applicable Nevada law relating to dissenters' rights will be
entitled to object to the Agreement and make written demand that BancGroup pay
them in cash the fair value of their shares. A copy of the dissenters' rights
provisions is attached to the enclosed Proxy Statement and Prospectus as
Appendix B.
You are cordially invited to attend the Special Meeting, but whether or not
you plan to attend, please complete and sign the enclosed form of proxy and mail
it promptly in the enclosed envelope. The proxy may be revoked at any time by
filing a written revocation with the Secretary of InterWest, by executing a
later dated proxy and delivering it to the Secretary of InterWest at or prior to
the Special Meeting, or by attending the Special Meeting and voting in person.
BY ORDER OF THE BOARD OF DIRECTORS
/s/ Richard Martucci, Sr.
RICHARD MARTUCCI, SR.
President and Chief Executive Officer
September 1, 1998
<PAGE> 3
PROSPECTUS
COMMON STOCK, $2.50 PAR VALUE
THE COLONIAL BANCGROUP, INC.
---------------------
PROXY STATEMENT
FOR SPECIAL MEETING OF SHAREHOLDERS OF
INTERWEST BANCORP
TO BE HELD ON OCTOBER 2, 1998
This Proxy Statement and Prospectus (the "Prospectus") relates to the
proposed merger (the "Merger") of InterWest Bancorp, a Nevada corporation
("InterWest"), with and into The Colonial BancGroup, Inc., a Delaware
corporation ("BancGroup"). This Prospectus is being furnished to the
shareholders of InterWest in connection with the solicitation of proxies by the
Board of Directors of InterWest for use at a special meeting of the shareholders
of InterWest to be held on Friday, October 2, 1998, at 9 a.m., local time, at
2330 South Virginia Street, Reno, Nevada, and any adjournments or postponements
thereof (the "Special Meeting"). At the Special Meeting, shareholders of
InterWest will consider and vote upon the matters set forth in the preceding
Notice of Special Meeting of the Shareholders, as described in greater detail in
this Prospectus.
The Merger will be consummated pursuant to the terms of a certain Agreement
and Plan of Merger dated as of June 16, 1998 by and between BancGroup and
InterWest (the "Agreement"). The Agreement provides that, subject to the
approval of the Agreement by the shareholders of InterWest at the Special
Meeting and the satisfaction (or waiver, to the extent that such waiver is
permitted by law) of other conditions contained in the Agreement, InterWest will
be merged with and into BancGroup, and BancGroup will be the surviving
corporation. Each issued and outstanding share of common stock without par
value, of InterWest (the "InterWest Common Stock"), will be converted into
0.4714 shares of the common stock, $2.50 par value per share, of BancGroup (the
"BancGroup Common Stock"), provided that the "Market Value" of BancGroup Common
Stock (as defined below) is neither less than $15.00 per share nor more than
$20.00 per share. The "Market Value" of BancGroup Common Stock shall be the
average of the closing prices of BancGroup Common Stock as reported on the New
York Stock Exchange (the "NYSE") on each of the ten trading days ending on the
day that is the fifth trading day immediately preceding the Effective Date. If
the Market Value is less than $15.00 per share, then each share of InterWest
Common Stock will be converted into a number of shares of BancGroup Common Stock
equal to the quotient obtained by dividing the Market Value into the product of
$15.00 and .4714 (($15.00 X .4714) / Market Value). If the Market Value is
greater than $20.00 per share, then each share of InterWest Common Stock will be
converted into a number of shares of BancGroup Common Stock equal to the
quotient obtained by dividing the Market Value into the product of $20.00 and
.4714 (($20.00 X .4714) / Market Value). Assuming (i) 3,088,145 shares of
InterWest Common Stock outstanding on the Effective Date, (ii) a Market Value
between $15.00 and $20.00 per share, (iii) that no InterWest shareholders
exercise dissenters' rights in the Merger and (iv) that no outstanding options
to acquire InterWest Common Stock are exercised before the Effective Date,
approximately 1,455,752 shares of BancGroup Common Stock will be issued in the
Merger. See "The Merger -- Conversion of InterWest Common Stock." BancGroup
Common Stock is listed on the NYSE. The closing price per share of the BancGroup
Common Stock on the NYSE on August 26, 1998 was $13.50.
The values, ratios and share amounts set forth in the preceding paragraph
have been adjusted pursuant to the terms of the Agreement to reflect a
two-for-one stock split effected as a 100% stock dividend paid by BancGroup on
August 14, 1998 to shareholders of record at the close of business on July 31,
1998 (the "Stock Split"). As noted throughout the Prospectus, various historical
financial information and calculations relevant to the Merger have been
similarly adjusted.
Consummation of the Merger requires, among other things, the affirmative
vote of at least a majority of the outstanding shares of InterWest Common Stock.
BancGroup has filed a Registration Statement pursuant to the Securities Act
of 1933, as amended (the "Securities Act"), to register the shares of the
BancGroup Common Stock to be issued in connection with the Merger. This document
constitutes a Proxy Statement of InterWest in connection with the solicitation
of proxies by InterWest for use at the Special Meeting, and any adjournments or
postponements thereof, and a Prospectus of BancGroup with respect to the
BancGroup Common Stock to be issued in the Merger. This Prospectus and
accompanying form of proxy are first being mailed to shareholders of InterWest
on or about the date set forth below.
THE BOARD OF DIRECTORS OF INTERWEST UNANIMOUSLY RECOMMENDS
APPROVAL OF THE AGREEMENT.
---------------------
THE SECURITIES TO WHICH THIS PROSPECTUS RELATES HAVE NOT BEEN APPROVED OR
DISAPPROVED BY THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES
COMMISSION, NOR HAS THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE
SECURITIES COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS.
ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
---------------------
THE SHARES OF BANCGROUP COMMON STOCK OFFERED HEREBY ARE NOT SAVINGS ACCOUNTS OR
DEPOSITS AND ARE NOT INSURED BY THE FEDERAL DEPOSIT INSURANCE CORPORATION OR ANY
OTHER GOVERNMENTAL AGENCY.
The principal office and mailing address of InterWest are 2330 South
Virginia Street, Reno, Nevada 89502 (telephone 702-827-7233), 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 AUGUST 26, 1998.
<PAGE> 4
AVAILABLE INFORMATION
BancGroup is subject to the informational requirements of the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), and in accordance
therewith files reports and other information with the Securities and Exchange
Commission (the "Commission"). Such reports and other information filed by
BancGroup, including proxy and information statements, can be inspected and
copied at the public reference facilities of the Commission, Judiciary Plaza,
450 Fifth Street, N.W., Room 1024, Washington, D.C. 20549, and at certain
regional offices: 2 World Trade Center, 13th Floor, New York, New York 10048;
Citicorp Center, 500 West Madison Street, Suite 1400, Chicago, Illinois
60661-2511; 1401 Brickell Avenue, Suite 200, Miami, Florida 33131; 1801
California Street, Suite 4800, Denver, Colorado 80202-2648; and 5670 Wilshire
Boulevard, 11th Floor, Los Angeles, California 90036-3648. Copies of such
material can be obtained from the Public Reference Section of the Commission at
450 Fifth Street, N.W., Washington, D.C. 20549, at prescribed rates.
The Commission also maintains a Web site (http://www.sec.gov) that contains
reports, proxy and information statements and other information regarding
registrants, such as BancGroup, that file electronically with the Commission.
The BancGroup Common Stock is listed for trading on the NYSE. Reports,
including proxy and information statements, of BancGroup and other information
may be inspected at the NYSE, 20 Broad Street, New York, New York 10005.
BancGroup has filed with the Commission a Registration Statement under the
Securities Act to register the shares of BancGroup Common Stock being issued in
connection with the Merger. This Prospectus omits certain information contained
in the Registration Statement and exhibits thereto. Such Registration Statement,
including the exhibits thereto, can be inspected at the Public Reference Section
of the Commission, 450 Fifth Street, N.W., Washington, D.C. 20549, and copies of
such Registration Statement can be obtained at prescribed rates from the
Commission at that address.
The information in this Prospectus concerning BancGroup and its
subsidiaries has been furnished by BancGroup, and the information concerning
InterWest and its subsidiaries has been furnished by InterWest.
This Prospectus contains certain forward-looking statements with respect to
the financial condition, results of operations, and business of BancGroup
following the consummation of the Merger and the proposed acquisition of other
banking institutions (the "Other Pending Acquisitions"), including statements
relating to the expected impact of the Merger and the Other Pending Acquisitions
on BancGroup's financial performance. These forward-looking statements involve
certain risks and uncertainties. Factors that may cause actual results to differ
materially from those contemplated by such forward-looking statements include,
among other things, the following possibilities: (i) expected cost savings from
the Merger and the Other Pending Acquisitions, if any or all of such
transactions are consummated, cannot be fully realized; (ii) deposit attrition,
customer loss, or revenue loss following the Merger and the Other Pending
Acquisitions is greater than expected; (iii) competitive pressure in the banking
industry increases significantly; (iv) costs or difficulties related to the
integration of the businesses of BancGroup and the institutions to be acquired
are greater than expected; (v) changes in the interest rate environment reduce
margins; (vi) general economic conditions, either nationally or regionally, are
less favorable than expected, resulting in, among other things, a deterioration
in credit quality; (vii) changes occur in the regulatory environment; (viii)
changed occur in business conditions and the rate of inflation; and (ix) changes
occur in the securities markets. Forward looking earnings estimates (if any)
included in this Prospectus have not been examined or compiled by the
independent public accountants of BancGroup and InterWest, nor have such
accountants applied any procedures thereto. Accordingly, such accountants do not
express an opinion or any other form of assurance on them. When used in this
Prospectus, the words "believes," "estimates," "plans," "expects," "should,"
"may," "might," "outlook," and "anticipates," and similar expressions as they
relate to BancGroup (including its subsidiaries), or its management are intended
to identify forward-looking statements. Further information on other factors
that could affect the financial results of BancGroup after the Merger and the
Other Pending Acquisitions is included in the filings with the Commission
incorporated by reference herein.
(ii)
<PAGE> 5
NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATIONS OTHER THAN THOSE CONTAINED OR INCORPORATED BY REFERENCE IN THIS
PROSPECTUS IN CONNECTION WITH THE SOLICITATION OF PROXIES OR THE OFFERING OF
SECURITIES MADE HEREBY AND, IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATION
MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY BANCGROUP OR INTERWEST.
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 INTERWEST SINCE THE DATE OF THIS PROSPECTUS OR THAT
INFORMATION IN THIS PROSPECTUS OR IN THE DOCUMENTS INCORPORATED BY REFERENCE
HEREIN IS CORRECT AS OF ANY TIME SUBSEQUENT TO THE DATE HEREOF OR THE DATES
THEREOF.
DOCUMENTS INCORPORATED BY REFERENCE
THIS PROSPECTUS INCORPORATES DOCUMENTS OF BANCGROUP BY REFERENCE WHICH ARE
NOT PRESENTED HEREIN OR DELIVERED HEREWITH. THESE DOCUMENTS ARE AVAILABLE,
WITHOUT CHARGE, UPON REQUEST FROM THE PERSONS SPECIFIED BELOW. IN ORDER TO
ENSURE TIMELY DELIVERY OF THE DOCUMENTS, ANY REQUEST SHOULD BE RECEIVED BY
BANCGROUP NO LATER THAN FIVE BUSINESS DAYS PRIOR TO THE SPECIAL MEETING.
The following documents filed by BancGroup with the Commission are hereby
incorporated by reference into this Prospectus:
(1) BancGroup's Annual Report on Form 10-K for the fiscal year ended
December 31, 1997;
(2) BancGroup's Registration Statement on Form 8-A dated November 22,
1994, effective February 22, 1995, containing a description of the
BancGroup Common Stock.
(3) BancGroup's Quarterly Reports on Form 10-Q for the quarters ended
March 31 and June 30, 1998;
(4) BancGroup's Reports on Form 8-K dated March 16, 1998, April 15,
1998, June 2, 1998 and July 17, 1998; and
(5) The description of the current management and Board of Directors
contained in the Proxy Statement distributed pursuant to Section 14(a) of
the Exchange Act for BancGroup's Annual Meeting of shareholders held on
April 15, 1998.
All documents filed by BancGroup pursuant to Section 13(a), 13(c), 14 or
15(d) of the Exchange Act after the date of this Prospectus and prior to the
Special Meeting, shall be deemed incorporated by reference in this Prospectus
and made a part hereof from the date of filing of such documents. Any statement
contained in a document incorporated or deemed incorporated herein by reference
will be deemed to be modified or superseded for the purpose of this Prospectus
to the extent that a statement contained herein or in another subsequently filed
document which also is, or is deemed to be, incorporated herein by reference
modifies or supersedes such statement. Any such statement so modified or
superseded will not be deemed, except as so modified or superseded, to
constitute a part of this Prospectus.
BancGroup has entered into the Agreement with InterWest regarding the
Merger described herein. Various provisions of the Agreement are summarized or
referred to in this Prospectus, and the Agreement is incorporated by reference
into this Prospectus and attached hereto as Appendix A.
BancGroup will provide without charge to each person, including any
beneficial owner, to whom this Prospectus is delivered, on the request of any
such person, a copy of any and all of the documents which have been incorporated
herein by reference but not delivered herewith (other than the exhibits to such
documents unless specifically incorporated herein). Such request, in writing or
by telephone, should be directed to W. Flake Oakley, IV, Secretary, The Colonial
BancGroup, Inc., One Commerce Street, Post Office Box 1108, Montgomery, Alabama
36192 (telephone 334-240-5000).
(iii)
<PAGE> 6
TABLE OF CONTENTS
<TABLE>
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<S> <C>
SUMMARY..................................................... 1
THE SPECIAL MEETING......................................... 11
General................................................... 11
Record Date; Shares Entitled to Vote; Vote Required for
the Merger............................................. 11
Solicitation, Voting and Revocation of Proxies............ 11
Effect of Merger on Outstanding BancGroup Common Stock.... 12
THE MERGER.................................................. 13
General................................................... 13
Background of the Merger.................................. 13
InterWest's Board of Director's Reasons for Approving the
Merger................................................. 13
Recommendation of InterWest's Board of Directors.......... 14
BancGroup's Reasons for the Merger........................ 14
Interests of Certain Persons in the Merger................ 14
Conversion of InterWest Common Stock...................... 15
Surrender of InterWest Common Stock Certificates.......... 16
Certain Federal Income Tax Consequences................... 16
Other Possible Consequences............................... 18
Conditions to Consummation of the Merger.................. 18
Repurchase of Minority Shares............................. 19
Amendment or Termination of Agreement..................... 20
Regulatory Approvals...................................... 20
Conduct of Business Pending the Merger.................... 23
Related Transactions -- Stock Option...................... 24
Rights of Dissenting Shareholders......................... 25
Resale of BancGroup Common Stock Issued in the Merger..... 27
Accounting Treatment...................................... 28
NYSE Reporting of BancGroup Common Stock Issued in the
Merger................................................. 28
Treatment of InterWest Options............................ 28
COMPARATIVE MARKET PRICES AND DIVIDENDS..................... 29
InterWest................................................. 29
BANCGROUP CAPITAL STOCK AND DEBENTURES...................... 31
BancGroup Common Stock.................................... 31
Preference Stock.......................................... 31
1986 Debentures........................................... 32
Other Indebtedness........................................ 32
Changes in Control........................................ 33
COMPARATIVE RIGHTS OF SHAREHOLDERS.......................... 34
Director Elections........................................ 35
Removal of Directors...................................... 35
Voting.................................................... 35
Preemptive Rights......................................... 35
Directors' Liability...................................... 35
Indemnification........................................... 36
Special Meetings of Shareholders; Action Without a
Meeting................................................ 36
Mergers, Share Exchanges and Sales of Assets.............. 37
Amendment of Certificate of Incorporation and Bylaws...... 37
Rights of Dissenting Stockholders......................... 38
</TABLE>
(iv)
<PAGE> 7
<TABLE>
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PAGE
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<S> <C>
Preferred Stock........................................... 38
Effect of the Merger on InterWest Shareholders............ 38
THE COLONIAL BANCGROUP, INC. AND SUBSIDIARIES............... 40
Condensed Pro Forma Statements of Condition (Unaudited)... 40
INTERWEST BANCORP........................................... 53
Selected Financial Data................................... 53
Management's Discussion and Analysis of Financial
Condition and Results of Operations.................... 54
BUSINESS OF BANCGROUP....................................... 72
General................................................... 72
Recently Completed and Other Proposed Business
Combinations........................................... 72
Year 2000 Compliance...................................... 73
Voting Securities and Principal Stockholders.............. 74
Security Ownership of Management.......................... 75
Management Information.................................... 76
BUSINESS OF INTERWEST....................................... 77
General................................................... 77
Deposit Activities........................................ 77
Lending Activities........................................ 78
Investments............................................... 78
Employees................................................. 79
Properties................................................ 79
Year 2000 Issues.......................................... 79
Legal Proceedings......................................... 80
Principal Holders of Common Stock......................... 80
ADJOURNMENT OF SPECIAL MEETINGS............................. 80
OTHER MATTERS............................................... 81
DATE FOR SUBMISSION OF BANCGROUP STOCKHOLDER PROPOSALS...... 81
LEGAL MATTERS............................................... 81
EXPERTS..................................................... 81
INDEX TO FINANCIAL STATEMENTS............................... F-1
APPENDIX A -- Agreement and Plan of Merger.................. A-1
APPENDIX B -- Dissenter's Rights Statute.................... B-1
APPENDIX C -- Stock Option Agreement........................ C-1
</TABLE>
(v)
<PAGE> 8
SUMMARY
The following provides a summary of certain information included in this
Prospectus. This summary is qualified in its entirety by the more detailed
information appearing elsewhere herein, the Appendices hereto and the documents
incorporated herein by reference. Shareholders of InterWest are urged to read
this Prospectus, including the Appendices, in full.
GENERAL
This Prospectus relates to the issuance of shares of BancGroup Common Stock
in connection with the proposed Merger of InterWest with and into BancGroup.
THE SPECIAL MEETING
This Prospectus is being furnished to the holders of InterWest Common Stock
in connection with the solicitation by the InterWest Board of Directors of
proxies for use at the Special Meeting and at any and all adjournments and
postponements thereof at which InterWest shareholders will be asked to vote upon
(i) a proposal to approve the Agreement and the Merger; and (ii) such other
business as may properly come before the meeting. The Special Meeting will be
held at 2330 South Virginia Street, on October 2, 1998, at 9 a.m., local time,
for the purpose of considering and voting upon the Merger and the Agreement.
Only holders of record of InterWest Common Stock at the close of business on
Wednesday, August 26, 1998 (the "Record Date") are entitled to the notice of and
to vote at the Special Meeting. As of the Record Date, 3,088,145 shares of
InterWest Common Stock were issued and outstanding. See "The Special Meeting."
THE COMPANIES
BancGroup. BancGroup is a bank holding company within the meaning of the
Bank Holding Company Act of 1956, as amended (the "BHCA"). It was organized in
Delaware in 1974 and has operated under its current name and management since
1981. BancGroup operates a wholly owned commercial banking subsidiary, Colonial
Bank, in the states of Alabama, Florida, Georgia, Nevada and Tennessee. Colonial
Bank conducts a full service commercial banking business through 134 branches in
Alabama, five branches in Tennessee, 14 branches in Georgia, three branches in
Nevada, and 79 branches in Florida. BancGroup has also entered into agreements
to acquire four additional banks. Colonial Mortgage Company, a subsidiary of the
Colonial Bank in Alabama, is a mortgage banking company which services
approximately $14.7 billion in residential loans and which originates
residential mortgages in 34 states through four divisional offices. At June 30,
1998, BancGroup had consolidated total assets of $8.8 billion and consolidated
stockholders' equity of $601.8 million. See "Business of BancGroup."
InterWest. InterWest is a bank holding company within the meaning of the
BHCA and was incorporated on May 23, 1989. InterWest owns (i) 86.07% of the
outstanding shares of the capital stock of InterWest Bank, a Nevada banking
corporation (the "Bank"), which is headquartered in Reno, Nevada, and (ii) 100%
of the outstanding shares of the capital stock of InterWest Mortgage, a Nevada
corporation (the "Mortgage Company"). Currently, the Bank operates four banking
offices, all of which are located in Washoe and Churchill Counties, Nevada. The
Mortgage Company operates six offices which are located in Nevada, Oregon and
Idaho. At June 30, 1998, InterWest had total consolidated assets of
approximately $130.4 million, total consolidated deposits of approximately
$115.7 million, and total consolidated shareholders' equity of approximately
$7.8 million. See "Business of InterWest."
THE MERGER
The Agreement provides for the Merger of InterWest with and into BancGroup,
with BancGroup to be the surviving corporation. Upon the date of consummation of
the Merger (the "Effective Date"), each outstanding share of InterWest Common
Stock (except shares as to which dissenters' rights are perfected) will be
converted by operation of law and without any action by any holder thereof into
0.4714 shares of BancGroup Common Stock, provided that the "Market Value" of
BancGroup Common Stock (as defined below) is neither less than $15.00 per share
nor more than $20.00 per share. The "Market Value" of
1
<PAGE> 9
BancGroup Common Stock shall be the average of the closing prices of BancGroup
Common Stock as reported on the NYSE on each of the ten trading days ending on
the day that is the fifth trading day immediately preceding the Effective Date.
If the Market Value is less than $15.00 per share, then each share of InterWest
Common Stock will be converted into a number of shares of BancGroup Common Stock
equal to the quotient obtained by dividing the Market Value into the product of
$15.00 and .4714 (($15.00 X .4714) / Market Value). If the Market Value is
greater than $20.00 per share, then each share of InterWest Common Stock will be
converted into a number of shares of BancGroup Common Stock equal to the
quotient obtained by dividing the Market Value into the product of $20.00 and
.4714 (($20.00 X .4714) / Market Value). Assuming (i) 3,088,145 shares of
InterWest Common Stock outstanding on the Effective Date, (ii) a Market Value
between $15.00 and $20.00 per share, (iii) that no InterWest shareholders
exercise dissenters' rights in the Merger and (iv) that no outstanding options
to acquire InterWest Common Stock are exercised before the Effective Date,
1,455,752 shares of BancGroup Common Stock will be issued in the Merger. (The
per-share values and ratios disclosed herein have been adjusted pursuant to the
terms of the Agreement to give effect to a two-for-one stock split effected as a
100% stock dividend paid by BancGroup on August 14, 1998 to shareholders of
record at the close of business on July 31, 1998 (the "Stock Split")). The
number of shares of BancGroup Common Stock to be issued in the Merger will
increase proportionally with each share of InterWest Common Stock issued
pursuant to the exercise, before the Effective Date, of certain options to
acquire InterWest Common Stock and will further increase depending upon the
number of shares of BancGroup Common Stock issued pursuant to a cashless
exchange of options to acquire InterWest Common Stock. See "The
Merger -- Interest of Certain Persons in the Merger -- Treatment of InterWest
Options".
The closing sales price on the NYSE of BancGroup Common Stock on August 26,
1998 was $13.50 per share. Accordingly, had the Effective Date occurred on
August 26, 1998 the Market Value would have been $15.45 and InterWest
shareholders would have received 0.4714 shares of BancGroup Common Stock for
each share of InterWest Common Stock. Shareholders are advised to obtain current
market quotations for BancGroup Common Stock. The market price of BancGroup
Common Stock at the Effective Date, or on the date on which certificates
representing such shares are received by InterWest shareholders, may be higher
or lower than the market price of BancGroup Common Stock as of the Record Date
or at the time of the Special Meeting.
No fractional shares of BancGroup Common Stock will be issued in connection
with the Merger. Each shareholder of InterWest 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, InterWest shareholders will be given
notice of the consummation of the Merger and instructions for the exchange of
such shareholders' certificates representing shares of InterWest Common Stock
for certificates representing shares of BancGroup Common Stock. Certificates for
the shares of BancGroup Common Stock issued will not be distributed, and
BancGroup will not pay dividends on such shares until shareholders surrender
their certificates representing their shares of InterWest Common Stock in
accordance with those instructions. INTERWEST SHAREHOLDERS SHOULD NOT SEND IN
THEIR INTERWEST STOCK CERTIFICATES UNTIL THEY HAVE RECEIVED THE INSTRUCTIONS.
See "The Merger -- Conversion of InterWest Common Stock," "-- Surrender of
InterWest Common Stock Certificates" and "-- Treatment of InterWest Options."
For certain information concerning management of BancGroup and InterWest,
see "Business of BancGroup -- Voting Securities and Principal Shareholders," "--
Security Ownership of Management," and "Business of InterWest -- Principal
Holders of Common Stock."
RECOMMENDATION OF INTERWEST'S BOARD OF DIRECTORS
The Board of Directors of InterWest has unanimously approved the Agreement.
THE BOARD OF DIRECTORS OF INTERWEST BELIEVES THAT THE MERGER IS IN THE BEST
INTEREST OF THE SHAREHOLDERS OF INTERWEST AND RECOMMENDS THAT SHAREHOLDERS VOTE
FOR THE APPROVAL OF THE AGREEMENT. For a discussion of the factors considered by
the Board of
2
<PAGE> 10
Directors in reaching its conclusions, see "The Merger -- Background of the
Merger" and " -- InterWest's Board of Director's Reasons for Approving the
Merger."
RELATED TRANSACTIONS -- STOCK OPTION
In connection with the Agreement, InterWest has granted to BancGroup an
option to purchase up to 19.9% of the InterWest Common Stock at a purchase price
of $8.25 per share. The option will become exercisable upon the occurrence of
certain events which are generally related to the potential acquisition of
InterWest by another party. The option is intended to increase the likelihood
that the Merger will be consummated by making it more difficult and expensive
for any third party to acquire control of InterWest while BancGroup is seeking
to consummate the Merger. See "The Merger -- Related Transactions -- Stock
Option."
INTERESTS OF CERTAIN PERSONS IN THE MERGER
As of the Record Date, InterWest has granted options to certain employees
of the Bank and the Mortgage Company which remain outstanding (the "InterWest
Options") and which entitle the holders thereof to acquire up to 80,500 shares
of InterWest Common Stock. Subject to terms of the InterWest stock option
agreements under which such options were issued, the Agreement provides that, no
later than five days prior to the Effective Date, the holders of InterWest
Options that have vested for such holders may provide written notice to
InterWest (in form and substance reasonably satisfactory to BancGroup) that they
wish to surrender their InterWest Options to BancGroup, effective at the
Effective Date and to receive in exchange therefor an amount of BancGroup Common
Stock equal in value to the difference between (i) the total value of the shares
of BancGroup Common Stock to be issued pursuant to such InterWest Options (based
upon the number of shares of BancGroup Common Stock issuable pursuant to the
InterWest Options multiplied by the Market Value) and (ii) the aggregate
exercise price of such InterWest Options at the Effective Date, divided by the
Market Value (the "Cashless Exchange"). No fractions of shares will be issued
and the value of fractional shares will be paid in cash at the Market Value. Any
InterWest Options that have not been exercised or exchanged in the Cashless
Exchange will terminate on the Effective Date. See "The Merger -- Interests of
Certain Persons in the Merger -- Treatment of InterWest Options."
As a condition precedent to BancGroup's obligation to consummate the
Merger, on or before the Effective Date, each of Richard Martucci, the President
and Chief Executive Officer of InterWest, his wife, Carol Martucci, the
Secretary of InterWest, and John Donovan, the President of the Bank shall have
entered into an employment agreement with Colonial Bank. Mr. Martucci's
employment agreement will provide, among other things, that he will serve as an
executive officer of Colonial Bank's Reno Regional Bank or its western area
mortgage loan production office, or both, for a term of three years. For the
remainder of 1998 after the Effective Date, Mr. Martucci will continue to
receive a salary equal to the salary he currently receives from InterWest.
Beginning on January 1, 1999, Mr. Martucci will receive annual compensation of
$250,000 per year. He will be entitled to receive adjustments in salary and such
discretionary bonuses as Colonial Bank may grant from time to time. He will also
be permitted to participate in benefit plans of Colonial Bank for which
executive officers are eligible. Mr. Martucci will also receive a one-time
payment of $250,000 to be paid in part as an inducement for him to enter into
the employment agreement and in part as separate consideration for his agreement
not to compete with Colonial Bank or BancGroup as set forth in the employment
agreement.
Mrs. Martucci's employment agreement will provide that she will serve for a
period of three years as Vice President, Human Resources, of Colonial Bank's
Reno Regional Bank. For the remainder of 1998 after the Effective Date, Mrs.
Martucci will continue to receive a salary equal to the salary she currently
receives from InterWest. Beginning on January 1, 1999, Mrs. Martucci will
receive an annual salary of $59,000. Mr. Donovan's employment agreement will
provide that he will receive $125,000 per year for a period of one year to serve
as Executive Vice President of Colonial Bank's Reno Regional Bank.
Each of Richard Martucci, Carol Martucci, John Donovan and Tom Springer,
the Executive Vice President of the Mortgage Company, will be entitled to
purchase the car currently provided to him or her by
3
<PAGE> 11
InterWest. The purchase price of each car will be the greater of InterWest's
then current basis in each car or its then current wholesale "Blue Book" value.
On the Effective Date, and subject to the agreements described above, all
employees of InterWest will, at BancGroup's option, either become employees of
BancGroup or its subsidiaries or be entitled to severance benefits in accordance
with Colonial Bank's severance policy as of the date of the Agreement. All
employees of InterWest who become employees of BancGroup or its subsidiaries on
the Effective Date will be entitled, to the extent permitted by applicable law,
to participate in all benefit plans of BancGroup to the same extent as
BancGroup's employees.
See "The Merger -- Interests of Certain Persons in the Merger."
VOTE REQUIRED
Under Nevada law, the Agreement must be approved by the affirmative vote of
a majority of the outstanding shares of InterWest Common Stock. Each share of
InterWest Common Stock is entitled to one vote on the Agreement. Approval of the
Agreement and the Merger by BancGroup shareholders is not required under
Delaware, Nevada or other applicable law, or the rules of the NYSE on which the
BancGroup Common Stock is listed. See "The Special Meeting."
Only holders of record of InterWest 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, 3,088,145 shares of InterWest Common Stock were issued and
outstanding. As of the Record Date, the directors and executive officers of
InterWest and the Bank held approximately 99% of the outstanding shares of
InterWest Common Stock. As of the same date, the directors, executive officers
and affiliates of BancGroup held no shares of InterWest Common Stock. See "The
Special Meeting."
As of the Record Date, the directors of InterWest and holders of 5% or more
of the outstanding InterWest Common Stock owned 3,053,880 shares of InterWest
Common Stock representing approximately 99% of the outstanding shares and have
agreed with BancGroup to vote their shares in favor of the Agreement. See "The
Special Meeting." As of June 30, 1998, directors and executive officers of
BancGroup beneficially owned in the aggregate 9,967,304 shares of BancGroup
Common Stock representing approximately 10.06% of BancGroup's outstanding
shares.
Proxies should be returned to InterWest in the envelope enclosed herewith.
Shareholders of InterWest submitting proxies may revoke their proxies by (i)
giving notice of such revocation in writing to the Secretary of InterWest at or
prior to the Special Meeting, (ii) executing and delivering a proxy bearing a
later date to the Secretary of InterWest at or prior to the Special Meeting, or
(iii) attending the Special Meeting and voting in person. Because approval of
the Agreement requires the approval of at least a majority of the outstanding
shares of InterWest 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 InterWest Common Stock as of the Record Date are entitled to
exercise dissenters' rights of appraisal pursuant to Section 92A.300 et seq. of
the Nevada Revised Statutes (the "NRS"). A holder of InterWest Common Stock who
complies with the provisions of applicable law relating to dissenters' rights
will be entitled to object to the Agreement and make written demand that
BancGroup pay in cash the fair value of the shares of InterWest Common Stock
held as determined in accordance with statutory provisions. Shareholders wishing
to exercise dissenters' rights of appraisal must follow exactly all requirements
for the exercise of such rights as set forth in NRS Section 92A.300 et seq., a
copy of which is attached as Appendix B to this Prospectus. Pursuant to NRS
Sections 92A.300 et seq. and assuming the Merger is consummated, a dissenting
shareholder will be entitled to receive for each share of InterWest Common Stock
as to which dissenters' rights are perfected the fair value thereof (as defined
by NRS 92A.320) together with interest as required by NRS 92A.340. See "The
Merger -- Rights of Dissenting Shareholders." Any shareholder who
4
<PAGE> 12
properly exercises dissenters' rights of appraisal and receives cash for his or
her shares will encounter income tax treatment different from the treatment of
shareholders who do not exercise dissenters' rights. See "The Merger -- Certain
Federal Income Tax Consequences."
CONDITIONS TO THE MERGER
The parties' respective obligations to consummate the Merger are subject to
the satisfaction (or waiver, to the extent permitted by law) of various
conditions set forth in the Agreement.
The mutual obligations of the parties to consummate the Merger are subject
to the following conditions, among others: (i) the approval of the Agreement by
the holders of at least a majority of the outstanding shares of InterWest Common
Stock; (ii) the approval of the Merger by the Board of Governors of the Federal
Reserve System (the "Federal Reserve"), approval of the Merger by the Financial
Institutions Division of the Nevada Department of Business & Industry (the
"Nevada Division"), and approval of the merger of the Bank with Colonial Bank
(the "Bank Merger") by the Alabama Banking Department (the "Alabama
Department"), the Nevada Division, and the Federal Reserve; (iii) the absence of
any pending or threatened litigation which seeks to restrain or prohibit the
Merger; (iv) the consummation of the Merger on or before January 15, 1999; (v)
receipt of opinions of counsel as to certain matters; and (vi) receipt of an
opinion from PricewaterhouseCoopers LLP as to certain tax matters.
The obligation of InterWest to consummate the Merger is further subject to
several conditions, including: (i) the absence of any material adverse changes
in the financial condition or affairs of BancGroup; and (ii) the shares of
BancGroup Common Stock to be issued under the Agreement having been approved for
listing on the NYSE.
The obligations of BancGroup to consummate the Merger are subject to
various conditions, including: (i) the absence of any material adverse change in
the financial condition or affairs of InterWest; (ii) the number of shares as to
which holders of InterWest Common Stock exercise dissenters' rights not
exceeding 10% of the outstanding shares of InterWest Common Stock; (iii) the
execution and delivery by each shareholder of InterWest deemed to be an
"affiliate" of InterWest of an agreement relating to certain restrictions on
resales of BancGroup Common Stock received by such affiliates in connection with
the Merger; (iv) InterWest's having (A) purchased or redeemed outstanding shares
of the capital stock of the Bank not presently owned by InterWest (the "Minority
Shares") and owned of record by persons other than InterWest (the "Minority
Shareholders"), (B) entered into definitive agreements with the Minority
Shareholders for the purchase of the Minority Shares on or before the Effective
Date, or (C) taken or having caused the Bank to have taken all necessary and
appropriate steps as permitted under applicable law to ensure that InterWest
will, as of the Effective Date, own 100% of the outstanding capital stock of the
Bank; and (v) the receipt of a letter from PricewaterhouseCoopers LLP,
BancGroup's independent accountants, to the effect that the independent
accountants concur with the conclusions of BancGroup's and InterWest's
respective managements that no conditions exist with respect to each company
which would preclude accounting for the Merger as a pooling of interests.
Applications for appropriate regulatory approvals by the Federal Reserve,
the Alabama Department, and the Nevada Division were filed with such agencies on
August 17, 1998. A notification to the Federal Reserve was also filed on this
date. The approvals of the Federal Reserve, Alabama Department and the Nevada
Division are pending. No assurance can be provided that the necessary
shareholder and regulatory approvals can be obtained or that the other
conditions precedent to the Merger can or will be satisfied. BancGroup and
InterWest anticipate that the Merger will be consummated during the fourth
quarter of 1998. However, delays in the consummation of the Merger could occur.
See "The Merger -- Conditions to Consummation of the Merger" and
"Regulatory Approvals."
AMENDMENT OR TERMINATION OF AGREEMENT
To the extent permitted by law, the Agreement may be amended by a
subsequent writing signed by each of the parties upon the approval of the Boards
of Directors of each of the parties. However, under applicable
5
<PAGE> 13
law, after adoption of the Agreement and the approval of the Merger by the
holders of InterWest Common Stock, no amendment decreasing the consideration to
be received by InterWest shareholders may be made without the further approval
of such shareholders. The Agreement may be terminated at any time prior to or on
the Effective Date, whether before or after adoption of the Agreement by the
shareholders of InterWest, by the mutual consent of the respective Boards of
Directors of InterWest and BancGroup or by the Board of Directors of either
BancGroup or InterWest under certain circumstances including, but not limited
to: (i) a material breach which cannot or has not been cured within 30 days of
notice of such breach being given by the non-breaching party; (ii) failure to
consummate the transactions contemplated under the Agreement by January 15,
1999, provided that such failure to consummate is not caused by any breach of
the Agreement by the party electing to terminate; and (iii) without further
action by either party, upon the execution by InterWest of a legally binding
agreement between InterWest and any third party with respect to any Acquisition
Proposal, provided that BancGroup will have the right to demand InterWest's
performance of the Stock Option Agreement. See "The Merger -- Related
Transactions -- Stock Option Agreement."
COMPARATIVE RIGHTS OF SHAREHOLDERS
The rights of the holders of the InterWest Common Stock may be different
from the rights of the holders of the BancGroup Common Stock. A discussion of
these rights and a comparison thereof is set forth at "Comparative Rights of
Shareholders."
FEDERAL INCOME TAX CONSEQUENCES
No ruling with respect to the federal income tax consequences of the Merger
to InterWest's shareholders will be requested from the Internal Revenue Service
(the "IRS"). InterWest has received an opinion from PricewaterhouseCoopers LLP
that, among other things, a shareholder of InterWest who exchanges shares of
InterWest Common Stock for BancGroup Common Stock will not recognize gain except
that, shareholders of InterWest 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 InterWest Common Stock
upon perfection of dissenters' rights will realize gain or loss for federal
income tax purposes with respect to such shares. See "Approval of the
Merger -- Certain Federal Income Tax Consequences." InterWest shareholders are
urged to consult their own tax advisors as to the specific tax consequences of
the Merger to them.
ACCOUNTING TREATMENT
The merger of InterWest into BancGroup will be treated as a
"pooling-of-interests" transaction by BancGroup for accounting purposes. See
"The Merger -- Accounting Treatment."
6
<PAGE> 14
RECENT PER SHARE MARKET PRICES
InterWest. There is no established public trading market for the InterWest
Common Stock. The shares of InterWest Common Stock are not actively traded, and
such trading activity, as it occurs, takes place in privately negotiated
transactions. Management of InterWest is unaware of any transactions in shares
of InterWest that have occurred since January 1, 1996. The following table sets
forth the dividends paid on InterWest Common Stock since January 1, 1996:
<TABLE>
<CAPTION>
DIVIDENDS
PER
SHARE
---------
<S> <C>
1996
First Quarter............................................. $ 0
Second Quarter............................................ 0
Third Quarter............................................. 0
Fourth Quarter............................................ 0
1997
First Quarter............................................. .06
Second Quarter............................................ 0
Third Quarter............................................. 0
Fourth Quarter............................................ 0
1998
First Quarter............................................. .02
Second Quarter............................................ 0
Third Quarter (through August 26, 1998)................... 0
</TABLE>
BancGroup. BancGroup Common Stock is listed for trading on the NYSE under
the symbol "CNB." The following table indicates the high and low closing prices
of the BancGroup Common Stock as reported on the NYSE since January 1, 1996.
<TABLE>
<CAPTION>
PRICE PER SHARE OF
COMMON STOCK(1)
------------------
HIGH LOW
---- ---
<S> <C> <C> <C> <C>
1996
First Quarter............................................. $ 9 1/8 $ 7 1/2
Second Quarter............................................ 9 1/16 7 13/16
Third Quarter............................................. 9 7 13/16
Fourth Quarter............................................ 10 1/16 8 11/16
1997
First Quarter............................................. 12 9 1/3
Second Quarter............................................ 12 7/16 11
Third Quarter............................................. 14 5/8 12 1/8
Fourth Quarter............................................ 17 9/16 14 1/2
1998
First Quarter............................................. 18 1/8 15 3/4
Second Quarter............................................ 18 13/16 14 3/4
Third Quarter (through August 26, 1998)................... 17 5/16 13 1/2
</TABLE>
- ---------------
(1) Restated to reflect the impact of the two-for-one stock splits effected in
the form of a 100% stock dividend paid February 11, 1997 and August 14,
1998.
7
<PAGE> 15
On June 16, 1998, the business day immediately prior to the public
announcement of the Merger, the closing price of the BancGroup Common Stock on
the NYSE was $29.50 per share. Giving retroactive effect to the Stock Split,
that price would have been $14.75 per share. The following table presents the
market value per share of BancGroup Common Stock on that date, and the market
value and equivalent per share value of InterWest Common Stock on that date
(giving effect to the Stock Split):
<TABLE>
<CAPTION>
BANCGROUP INTERWEST EQUIVALENT
COMMON COMMON PRICE PER
STOCK STOCK INTERWEST
(1) (2) SHARE(3)
--------- --------- ----------
<S> <C> <C> <C>
Comparative Market Value................................ $14.75 $2.52 $33.74
</TABLE>
- ---------------
(1) Closing price as reported by the NYSE on June 16, 1998 after giving effect
to the Stock Split.
(2) There is no established public trading market for the shares of InterWest
Common Stock. The value shown is the June 30, 1998 book value of a share of
InterWest Common Stock. Management of InterWest is unaware of any
transactions of InterWest Common Stock that have occurred since January 1,
1996.
(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
$15.90625 on June 16, 1998. Therefore, if the Merger had closed on June 16,
1998, and giving effect to the Stock Split, .4714 shares of BancGroup Common
Stock would have been exchanged for each share of InterWest Common Stock.
See "Comparative Market Prices and Dividends."
CERTAIN LEGAL RESTRICTIONS ON ACQUISITIONS OF CONTROL
Certain restrictions under Delaware law prevent a person who beneficially
owns 15% or more of the BancGroup Common Stock from engaging in a "business
combination" with BancGroup unless certain conditions are satisfied. Also, the
Change in Bank Control Act of 1978 prohibits a person from acquiring "control'
of BancGroup unless certain notice requirements of the Federal Reserve have been
satisfied.
BancGroup's Restated Certificate of Incorporation (the "BancGroup
Certificate") and its Bylaws (the "BancGroup Bylaws") also contain provisions
which may deter or prevent a takeover of BancGroup that is not supported by
BancGroup's Board of Directors. These provisions include: (1) a classified board
of directors, (2) supermajority voting requirements for certain "business
combinations" that exceed the provisions of Delaware law described above, (3)
flexibility for the board to consider non-economic and other factors in
evaluating a "business combination," (4) inability of shareholders to call
special meetings and act by written consent, and (5) certain advance notice
provisions for the conduct of business at shareholder meetings.
See "BancGroup Capital Stock and Debentures" and "Comparative Rights of
Shareholders."
8
<PAGE> 16
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 InterWest 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>
SIX MONTHS
SIX MONTHS ENDED YEAR YEAR YEAR
ENDED JUNE 30, ENDED ENDED ENDED
BANCGROUP-HISTORICAL (AS RESTATED): JUNE 30, 1998 1997* 1997 1996 1995
----------------------------------- ------------- ------------- ----- ----- ------
<S> <C> <C> <C> <C> <C>
Net Income
Basic(1)........................................... $0.43 $0.42 $0.89 $0.66 $ 0.64
Diluted(1)......................................... 0.43 0.41 0.86 0.63 0.59
Book value at end of period(1).......................... 6.13 5.27 5.76 5.12 4.69
Dividends per share:
Common Stock(1).................................... 0.17 0.15 0.30 0.27 0.1688
Common A**(1)...................................... 0.0563
Common B**(1)...................................... 0.0313
INTERWEST
Net Income
Historical:
Basic.............................................. 0.18 0.08 0.22 0.33 0.34
Diluted............................................ 0.18 0.08 0.22 0.33 0.34
Pro forma equivalent assuming combination with
InterWest and completed business combination(a):
Basic.............................................. 0.21 0.20 0.41 0.31 0.30
Diluted............................................ 0.20 0.19 0.40 0.30 0.28
Pro forma equivalent assuming combination with
InterWest, completed business combination and other
probable business combinations(a):
Basic.............................................. 0.20 0.19 0.41 0.31 0.29
Diluted............................................ 0.20 0.19 0.39 0.29 0.27
Book value at end of period
Historical............................................ 2.52 2.23 2.37 2.22 1.89
Pro forma equivalent assuming combination with
InterWest and completed business combination(a).... 2.87 N/A N/A N/A N/A
Pro forma equivalent assuming combination with
InterWest, completed business combination and other
probable business combinations(a).................. 2.79 N/A N/A N/A N/A
Dividends per share
Historical............................................ -- -- -- -- --
Pro forma equivalent assuming combination with
InterWest and completed business combination(a).... 0.08 0.07 0.14 0.13 0.11
Pro forma equivalent assuming combination with
InterWest, completed business combination and other
probable business combinations(b).................. 0.08 0.07 0.14 0.13 0.11
</TABLE>
9
<PAGE> 17
<TABLE>
<CAPTION>
SIX MONTHS
SIX MONTHS ENDED YEAR YEAR YEAR
ENDED JUNE 30, ENDED ENDED ENDED
BANCGROUP-HISTORICAL (AS RESTATED): JUNE 30, 1998 1997* 1997 1996 1995
----------------------------------- ------------- ------------- ----- ----- ------
<S> <C> <C> <C> <C> <C>
BANCGROUP-PRO FORMA COMBINED (INTERWEST AND COMPLETED
BUSINESS COMBINATION):
Net Income
Basic.............................................. 0.44 0.42 0.87 0.66 0.63
Diluted............................................ 0.43 0.41 0.85 0.64 0.59
Book value at end of period............................. 6.08 N/A N/A N/A N/A
BANCGROUP PRO FORMA COMBINED (INTERWEST, COMPLETED
BUSINESS COMBINATION AND OTHER PROBABLE BUSINESS
COMBINATIONS):
Net Income
Basic.............................................. 0.43 0.41 0.86 0.65 0.61
Diluted............................................ 0.42 0.40 0.83 0.62 0.57
Book value at end of period............................. 5.92 N/A N/A N/A N/A
</TABLE>
- ---------------
<TABLE>
<C> <S>
(1) Restated to reflect the impact of a two-for-one stock split
effected in the form of a 100% stock dividend paid August
14, 1998.
* Restated to give effect to the June 1998
pooling-of-interests method business combination with
Commercial Bank of Nevada.
** Before February 21, 1995, BancGroup had two classes of
common stock outstanding, Class A and Class B. Class B was
not publicly. 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 June 30, 1998 which assumes the
transaction consummated on the latest balance sheet data in
accordance with Rule 11.02(b) of Regulation S-X.
(a) Pro forma equivalent per share amounts are calculated by
multiplying the pro forma combined total income per share
and the pro forma combined total book value per share of
BancGroup by the conversion ratio so that the per share
amounts are equated to the respective values for one share
of InterWest. For these pro forma equivalent per share
amounts, a .4714 BancGroup common stock conversion ratio is
utilized.
(b) Pro forma equivalent dividends per share are shown at
BancGroup's Common Stock dividend per share rate multiplied
by the .4714 conversion ratio per share of InterWest 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.
</TABLE>
10
<PAGE> 18
THE SPECIAL MEETING
GENERAL
This Prospectus is being furnished to the shareholders of InterWest in
connection with the solicitation of proxies by the Board of Directors of
InterWest for use at the Special Meeting and at any adjournments or
postponements thereof. The purpose of the Special Meeting is to consider and
vote upon the Agreement which provides for the proposed Merger of InterWest with
and into BancGroup. BancGroup will be the surviving corporation in the Merger.
THE BOARD OF DIRECTORS OF INTERWEST BELIEVES THAT THE MERGER IS IN THE BEST
INTERESTS OF INTERWEST SHAREHOLDERS AND UNANIMOUSLY RECOMMENDS THAT SHAREHOLDERS
VOTE "FOR" THE AGREEMENT (ITEM 1 ON THE PROXY CARD).
This Prospectus is also furnished by BancGroup in connection with the offer
of shares of BancGroup Common Stock to be issued in the Merger. No vote of
BancGroup shareholders is required to approve the Merger.
RECORD DATE; SHARES ENTITLED TO VOTE; VOTE REQUIRED FOR THE MERGER
The Board of Directors of InterWest has fixed the close of business on
August 26, 1998, as the Record Date for determination of shareholders entitled
to vote at the Special Meeting. There were 22 record holders of InterWest Common
Stock and 3,088,145 shares of InterWest Common Stock outstanding, each entitled
to one vote per share, as of the Record Date. InterWest is obligated to issue up
to an additional 80,500 shares of InterWest Common Stock upon the exercise of
outstanding InterWest Options.
The presence at the Special Meeting, in person or by proxy, of the holders
of a majority of the outstanding shares of InterWest 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 InterWest shareholders holding the requisite
number of shares of InterWest Common Stock are represented in person or by
proxy. If a quorum is present, the affirmative vote of the holders of at least a
majority of the outstanding shares of InterWest Common Stock is required to
approve the Agreement. Broker non-votes and abstentions will not be counted as
votes cast "FOR" or "AGAINST" the proposal to approve the Agreement, and, as a
result, such non-votes will have the same effect as votes cast "AGAINST" the
Agreement. Each holder of record of shares of InterWest Common Stock is entitled
to cast, for each share registered in his or her name, one vote on the Agreement
as well as on each other matter presented to a vote of shareholders at the
Special Meeting.
As of the Record Date, directors of InterWest and holders of 5% or more of
the outstanding InterWest Common Stock owned 3,053,880 shares of InterWest
Common Stock representing approximately 99% of the outstanding shares. These
individuals have agreed with BancGroup, subject to the effectiveness of the
Registration Statement of which this prospectus forms a part, to vote their
shares in favor of the Merger.
If the Agreement is approved at the Special Meeting, InterWest is expected
to merge with and into BancGroup promptly after the other conditions to the
Agreement are satisfied. See "The Merger -- Conditions of Consummation of the
Merger."
THE BOARD OF DIRECTORS OF INTERWEST URGES THE SHAREHOLDERS OF INTERWEST TO
EXECUTE AND RETURN THE ENCLOSED PROXY CARD AS SOON AS POSSIBLE AND UNANIMOUSLY
RECOMMENDS THAT THE SHARES REPRESENTED BY THE PROXY BE VOTED IN FAVOR OF THE
AGREEMENT.
SOLICITATION, VOTING AND REVOCATION OF PROXIES
In addition to soliciting proxies by mail, directors, officers and other
employees of InterWest, without receiving special compensation therefor, may
solicit proxies from InterWest's shareholders by telephone, by telegram or in
person. Arrangements will also be made with brokerage firms and other
custodians, nominees
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and fiduciaries, if any, to forward solicitation materials to any beneficial
owners of shares of InterWest Common Stock.
InterWest will bear the cost of assembling and mailing this Prospectus and
other materials furnished to shareholders of InterWest. It will also pay all
other expenses of solicitation, including the expenses of brokers, custodians,
nominees, and other fiduciaries who, at the request of InterWest, mail material
to, or otherwise communicate with, beneficial owners of the shares held by them.
BancGroup will pay all expenses incident to the registration of the BancGroup
Common Stock to be issued in connection with the Merger.
Shares of InterWest 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 InterWest Common Stock
represented by the proxy will be voted "FOR" the proposal to approve the
Agreement and in accordance with the determination of the majority of the Board
of Directors of InterWest as to any other matter which may properly come before
the Special Meeting, including any adjournment or postponement thereof. A
shareholder may revoke any proxy given pursuant to this solicitation by: (i)
delivering to the Secretary of InterWest, prior to or at the Special Meeting, a
written notice revoking the proxy; (ii) delivering to the Secretary of
InterWest, 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 InterWest's proxies should be
addressed to:
InterWest Bancorp
2330 South Virginia Street
Reno, Nevada 89502
Attention: Richard Martucci, President and Chief Executive Officer
Proxies marked as abstentions and shares held in street name which have
been designated by brokers on proxy cards as not voted will not be counted as
votes cast. Such proxies will, however, be counted for purposes of determining
whether a quorum is present at the Special Meeting.
The Board of Directors of InterWest is not aware of any business to be
acted upon at the Special Meeting other than consideration of the Agreement and
the Merger described herein. If, however, other matters are properly brought
before the Special Meeting, or any adjournments or postponements thereof, the
persons appointed as proxies will have the discretion to vote or act on such
matters according to their best judgment. Proxies voted in favor of the approval
of the Agreement, or proxies as to which no voting instructions are given, will
be voted to adjourn the Special Meeting, if necessary, in order to solicit
additional proxies in favor of the approval of the Agreement. Proxies voted
against the approval of the Agreement and abstentions will not be voted for an
adjournment. See "Adjournment of the Special Meeting."
EFFECT OF MERGER ON OUTSTANDING BANCGROUP COMMON STOCK
Assuming that no dissenters' rights of appraisal are exercised in the
Merger, that no InterWest Options are exercised prior to the Effective Date,
that no InterWest Options are exchanged in the Cashless Exchange, and the Market
Value of BancGroup Common Stock is between $15.00 and $20.00 per share on the
Effective Date (as of August 26, 1998, the ten-day closing price average
calculated in the same manner as the Market Value will be calculated was
$15.45), BancGroup will issue approximately 1,455,752 shares of BancGroup Common
Stock to the shareholders of InterWest pursuant to the Merger. Based on those
assumptions, the 1,455,752 shares of BancGroup Common Stock will represent
approximately 1.46% of the total number of shares of BancGroup Common Stock
outstanding following the Merger, not counting any additional shares BancGroup
may issue, including shares to be issued pursuant to other pending acquisitions.
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THE MERGER
The following sets forth a summary of the material provisions of the
Agreement and the transactions contemplated thereby. The description does not
purport to be complete and is qualified in its entirety by reference to the
Agreement, a copy of which is attached hereto as Appendix A, and certain
provisions of Nevada law relating to the rights of dissenting shareholders, a
copy of which is attached hereto as Appendix B. All InterWest 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
InterWest, receipt of necessary regulatory approvals and satisfaction of certain
other conditions described below at "Conditions to Consummation of the Merger,"
InterWest will merge with and into BancGroup. Upon completion of the Merger, the
corporate existence of InterWest will cease, and BancGroup will succeed to the
business formerly conducted by InterWest.
BACKGROUND OF THE MERGER
In April of 1998, members of InterWest's Board of Directors (the "Board")
met for the purpose of analyzing the Bank's current and expected capital
position and the projected growth of the Bank's assets. The analysis showed that
the increase in capital of the Bank through retained earnings would not be
sufficient to sustain the Bank's current asset growth rate. The Board also
determined that there were insufficient assets of InterWest available to inject
capital into the Bank. The Board concluded that in order for the Bank to
continue its current asset growth rate, a stock offering or merger of InterWest
should be considered.
In early May of 1998, representatives of BancGroup were referred to Mr.
Richard Martucci, President of InterWest, by a representative from another
banking institution in Nevada. Thereafter, Mr. Martucci met on May 8, 1998 with
Mr. P.L. "Mac" McLeod, Jr., President of BancGroup. On May 11, 1998, W. Flake
Oakley, IV, CFO of BancGroup, contacted Mr. Martucci and requested financial
information on InterWest and its subsidiaries for the purpose of performing
financial analyses. Between May 14, 1998 and May 20, 1998 Mr. Oakley and Mr.
Martucci had several conversations regarding a possible merger, exchange ratios,
prices per share and income requirements for Mr. and Mrs. Martucci. The
aggregate value of the proposed exchange would be approximately $26.0 million,
given BancGroup's per share price at that time of approximately $35 per share.
Each share of InterWest Common Stock would be exchanged for .2357 shares of
BancGroup Common Stock (adjusted to .4714 shares subsequent to the agreement as
a result of the Stock Split.) The proposal would be subject to a satisfactory
due diligence and approval of the Board of Directors of InterWest, a majority of
the shares of InterWest Common Stock outstanding and BancGroup.
INTERWEST'S BOARD OF DIRECTOR'S REASONS FOR APPROVING THE MERGER
Mr. Martucci presented BancGroup's offer to the Board of Directors of
InterWest on May 14, 1998. InterWest's Board of Directors considered a number of
factors in deciding to approve the Merger and recommend the terms of the
Agreement to InterWest's shareholders. These factors included, among other
things: (i) the growth constraints that InterWest Bank had been facing would no
longer be a limiting factor if the Merger were consummated; (ii) the
consideration to be received by the shareholders of InterWest upon the
consummation of the Merger; (iii) the Merger would generally not result in the
recognition of taxable gain to InterWest shareholders who received BancGroup
Common Stock in the Merger (except to the extent that cash or property is
received by shareholders); (iv) the Merger would enable the shareholders of
InterWest to exchange their InterWest Common Stock (for which there is no
established public trading market) for BancGroup Common Stock, which is listed
on a national exchange and in which there has been an active trading market; (v)
the appeal of the BancGroup's philosophy of maintaining the community-oriented
style of banking among its acquired banks, including BancGroup's history of
maintaining local management and allowing local management a high level of
autonomy, particularly as to loan decisions; (vi) the prospect of minimal job
displacement among the Bank's and the Mortgage Company's employees; and (vii)
the impact of the Merger on the Bank and the Mortgage Company's customers and
the communities they serve.
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Mr. Martucci provided information on other recent mergers of financial
institutions of similar size and performance results, which supported a
conclusion that the exchange ratio being offered would be a fair price to the
shareholders of InterWest from a financial point of view. Mr. Martucci offered
validation of the price from discussions with investment advisors and published
reports of investment banking firms. Mr. Martucci also offered financial
statements of BancGroup for the Board of Director's review that revealed it's
dividend policies and payment histories. Based upon the review, the Board of
Directors of InterWest concluded that Mr. Martucci should be authorized to
proceed with finalizing the terms of the Merger Agreement.
RECOMMENDATION OF THE BOARD OF DIRECTORS OF INTERWEST
The Board of Directors of InterWest has determined that the Merger is in
the best interest of InterWest shareholders. THE BOARD OF DIRECTORS UNANIMOUSLY
RECOMMENDS THAT THE SHAREHOLDERS OF INTERWEST VOTE IN FAVOR OF THE APPROVAL AND
ADOPTION OF THE MERGER AND THE AGREEMENT.
BANCGROUP'S REASONS FOR THE MERGER
The Board of Directors of BancGroup has unanimously approved the Merger and
the Agreement. BancGroup recently acquired Commercial Bank of Nevada in Las
Vegas and has been seeking to expand its banking operations elsewhere in Nevada.
The acquisition of InterWest will provide BancGroup with a presence in the Reno
market area, the second largest market in Nevada and should better position
BancGroup to benefit from the rapidly expanding economy of Nevada.
In approving the Merger and the Agreement, the Board of Directors of
BancGroup took into account, among other things: (i) the financial performance
and condition of InterWest, including its capital and asset quality; (ii)
similarities in the philosophies of BancGroup and InterWest, including
InterWest's commitment to delivering high quality personalized financial
services to its customers; (iii) the recent growth of the Nevada economy; and
(iv) InterWest's management's knowledge of, and experience in, the Nevada
market.
INTERESTS OF CERTAIN PERSONS IN THE MERGER
As of the Record Date, InterWest has granted options to certain employees
of the Bank and the Mortgage Company (the "InterWest Options") which entitle the
holders thereof to acquire up to 80,500 shares of InterWest Common Stock.
Subject to terms of the InterWest stock option agreements under which such
options were issued, the Agreement provides that, no later than five days prior
to the Effective Date, the holders of InterWest Options that have vested for
such holders may provide written notice to InterWest (in form and substance
reasonably satisfactory to BancGroup) that they wish to surrender their
InterWest Options to BancGroup, effective at the Effective Date, and to receive
in exchange therefor an amount of BancGroup Common Stock equal in value to the
difference between (i) the total value of the shares of BancGroup Common Stock
to be issued pursuant to such InterWest Options (based upon the number of shares
of BancGroup Common Stock issuable pursuant to the InterWest Options multiplied
by the Market Value) and (ii) the aggregate exercise price of such InterWest
Options at the Effective Date, divided by the Market Value (the "Cashless
Exchange"). No fractions of shares will be issued and the value of fractional
shares will be paid in cash at the Market Value. Any InterWest Options that have
not vested at the Effective Date will terminate. See " -- Treatment of InterWest
Options."
As a condition precedent to BancGroup's obligation to consummate the
Merger, on or before the Effective Date, each of Richard Martucci, the President
and Chief Executive Officer of InterWest, his wife, Carol Martucci, the
Secretary of InterWest, and John Donovan, the President of the Bank shall have
entered into an employment agreement with Colonial Bank. Mr. Martucci's
employment agreement will provide, among other things, that he will serve as an
executive officer of Colonial Bank's Reno Regional Bank or its western area
mortgage loan production office, or both, for a term of three years. For the
remainder of 1998 after the Effective Date, Mr. Martucci will continue to
receive a salary equal to that he currently receives from InterWest. Beginning
on January 1, 1999, Mr. Martucci will receive annual compensation of $250,000
per year. He will be entitled to receive adjustments in salary and such
discretionary bonuses as Colonial Bank may
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grant from time to time. He will also be permitted to participate in benefit
plans of Colonial Bank for which executive officers are eligible. Mr. Martucci
will also receive a one-time payment of $250,000 to be paid in part as an
inducement for him to enter into the employment agreement and in part as
separate consideration for his agreement not to compete with Colonial Bank or
BancGroup as set forth in the employment agreement.
Mrs. Martucci's employment agreement will provide that she will serve for a
period of three years as Vice President, Human Resources of Colonial Bank's Reno
Regional Bank. For the remainder of 1998 after the Effective Date, Mrs. Martucci
will continue to receive a salary equal to that she currently receives from
InterWest. Beginning on January 1, 1999, Mrs. Martucci will receive an annual
salary of $59,000. Mr. Donovan's employment agreement will provide that he will
receive $125,000 per year for a period of one year to serve as Executive Vice
President of Colonial Bank's Reno Regional Bank.
Each of Richard Martucci, Carol Martucci, John Donovan and Tom Springer,
the Executive Vice President of the Mortgage Company will be entitled to
purchase the car currently provided to him or her by InterWest. The purchase
price of each car will be the greater of InterWest's then current basis in each
car or its then current wholesale "Blue Book" value.
On the Effective Date, and subject to the agreements described above, all
employees of InterWest will, at BancGroup's option, either become employees of
BancGroup or its subsidiaries or be entitled to severance benefits in accordance
with Colonial Bank's severance policy as of the date of the Agreement. All
employees of InterWest who become employees of BancGroup or its subsidiaries on
the Effective Date will be entitled, to the extent permitted by applicable law,
to participate in all benefit plans of BancGroup to the same extent as
BancGroup's employees.
CONVERSION OF INTERWEST COMMON STOCK
The Agreement provides for the Merger of InterWest with and into BancGroup,
with BancGroup to be the surviving corporation. Upon the date of consummation of
the Merger (the "Effective Date"), each outstanding share of InterWest Common
Stock (except shares as to which dissenters' rights are perfected) will be
converted by operation of law and without any action by any holder thereof into
shares of BancGroup Common Stock, provided that the "Market Value" of BancGroup
Common Stock (as defined below) is neither less than $15.00 per share nor more
than $20.00 per share. The "Market Value" of BancGroup Common Stock shall be the
average of the closing prices of BancGroup Common Stock as reported on the NYSE
on each of the ten trading days ending on the day that is the fifth trading day
immediately preceding the Effective Date. If the Market Value is less than
$15.00 per share, then each share of InterWest Common Stock will be converted
into a number of shares of BancGroup Common Stock equal to the quotient obtained
by dividing the Market Value into the product of $15.00 and .4714 (($15.00 X
.4714) / Market Value). If the Market Value is greater than $20.00 per share,
then each share of InterWest Common Stock will be converted into a number of
shares of BancGroup Common Stock equal to the quotient obtained by dividing the
Market Value into the product of $20.00 and .4714 (($20.00 X .4714) / Market
Value). Assuming (i) 3,088,145 shares of InterWest Common Stock outstanding on
the Effective Date, (ii) a Market Value between $15.00 and $20.00 per share,
(iii) that no InterWest shareholders exercise dissenters' rights in the Merger
and (iv) that no InterWest Options are exercised before the Effective Date and
no shares of BancGroup Common Stock are issued in the Cashless Exchange,
approximately 1,455,752 shares of BancGroup Common Stock will be issued in the
Merger. (The per-share values and ratios disclosed herein have been adjusted,
pursuant to the terms of the Agreement, to give effect to the Stock Split.) The
number of shares of BancGroup Common Stock to be issued in the Merger will
increase proportionally with each share of InterWest Common Stock issued
pursuant to the exercise of InterWest Options and will further increase
depending upon the number of shares of BancGroup Common Stock issued pursuant to
a Cashless Exchange. See " -- Treatment of InterWest Options". No fractional
shares of BancGroup Common Stock will be issued in connection with the Merger.
Each shareholder of InterWest otherwise entitled to receive a fractional share
of BancGroup Common Stock will receive instead a cash payment (without interest)
equal to such fractional interest multiplied by the Market Value.
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As an example, if the Market Value is $15.45 (which was the Market Value
calculated as of August 26, 1998), then each share of InterWest Common Stock
will be converted on the Effective Date into 0.4714 shares of BancGroup Common
Stock. As a result, a shareholder of InterWest who owns 500 shares of InterWest
Common Stock would be entitled to receive 235.7 shares of BancGroup Common Stock
(500 X 0.4714) and would actually receive 235 shares of BancGroup Common Stock,
with the .70 of a share paid in cash equal to $10.82 (.70 X $15.45).
The closing sales price on the NYSE of the BancGroup Common Stock on August
26, 1998 was $13.50 per share. Shareholders are advised to obtain current market
quotations for BancGroup Common Stock. The market price of BancGroup Common
Stock at the Effective Date, or on the date on which certificates representing
such shares are received by InterWest shareholders, may be higher or lower than
the market price of BancGroup Common Stock as of the Record Date or at the time
of the Special Meeting.
The Agreement provides that if, prior to the Effective Date, BancGroup
Common Stock is changed into a different number of shares or a different class
of shares by reason of any recapitalization or reclassification, stock dividend,
combination, stock split, or reverse stock split of the BancGroup Common Stock,
an appropriate and proportionate adjustment will be made in the number of shares
of BancGroup Common Stock into which the InterWest Common Stock will be
converted in the Merger.
SURRENDER OF INTERWEST COMMON STOCK CERTIFICATES
On the Effective Date and subject to the conditions described at
"Conditions to Consummation of the Merger," InterWest's shareholders (except
those shareholders who perfect dissenters' rights under applicable law) will
automatically, and without further action by such shareholders or by BancGroup,
become owners of BancGroup Common Stock, as described herein. Outstanding
certificates representing shares of the InterWest Common Stock will represent
shares of BancGroup Common Stock. Thereafter, upon surrender of the certificates
formerly representing shares of InterWest 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 InterWest unless and until such
shareholder surrenders for cancellation his certificate for InterWest 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
InterWest Common Stock surrendered in connection with the Merger. The Exchange
Agent will mail a detailed explanation of these arrangements to InterWest
shareholders promptly following the Effective Date. Stock certificates should
not be sent to the Exchange Agent until such notice is received.
CERTAIN FEDERAL INCOME TAX CONSEQUENCES
The Merger is intended to qualify as a "reorganization" for federal income
tax purposes under Section 368(a)(1)(A) of the Internal Revenue Code of 1986, as
amended (the "Code"). The obligation of each of InterWest and BancGroup to
consummate the Merger is conditioned on the receipt of an opinion from
PricewaterhouseCoopers LLP, BancGroup's independent public accountant, to the
effect that the Merger will constitute such a reorganization. The opinion has
been delivered to BancGroup. In delivering its opinion, PricewaterhouseCoopers
LLP, has received and relied upon certain representations contained in
certificates of officers of BancGroup and InterWest and certain other
information, data, documentation and other materials as it deemed necessary. The
tax opinion is based upon customary assumptions contained therein, including the
assumption that InterWest has no knowledge of any plan or intention on the part
of the InterWest 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
InterWest Common Stock outstanding immediately upon consummation of the Merger.
Neither InterWest nor BancGroup intends to seek a ruling from the IRS as to
the federal income tax consequences of the Merger. InterWest's shareholders
should be aware that the opinion will not be binding on the IRS or the courts.
InterWest's shareholders also should be aware that some of the tax consequences
of the Merger are governed by provisions of the Code as to which there are no
final regulations and little or no
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judicial or administrative guidance. There can be no assurance that future
legislation, administrative rulings, or court decisions will not adversely
affect the accuracy of the statements contained herein.
The tax opinion states that, provided the assumptions stated therein are
satisfied, the Merger will constitute a reorganization as defined in Section
368(a) of the Code, and the following federal income tax consequences will
result to InterWest's shareholders who exchange their shares of InterWest Common
Stock for shares of BancGroup Common Stock:
(i) No gain or loss will be recognized by InterWest's shareholders on
the exchange of shares of InterWest Common Stock for shares of BancGroup
Common Stock;
(ii) The aggregate basis of BancGroup Common Stock received by each
InterWest 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 InterWest Common Stock surrendered in
exchange therefor;
(iii) The holding period of the shares of BancGroup Common Stock
received by each InterWest shareholder will include the period during which
the shares of InterWest Common Stock exchanged therefor were held, provided
that the shares of InterWest Common Stock were a capital asset in the
holder's hands as of the Effective Date;
(iv) Cash payments received by each InterWest 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 InterWest Common Stock is a capital asset in the hands of
the holder;
(v) No gain or loss will be recognized by InterWest upon the transfer
of its assets and liabilities to BancGroup. No gain or loss will be
recognized by BancGroup upon the receipt of the assets and liabilities of
InterWest;
(vi) The basis of the assets of InterWest acquired by BancGroup will
be the same as the basis of the assets in the hands of InterWest
immediately prior to the Merger;
(vii) The holding period of the assets of InterWest in the hands of
BancGroup will include the period during which such assets were held by
InterWest;
(viii) The Cashless Exchange will result in the InterWest Option
holders recognizing ordinary income equal to the fair market value of
BancGroup stock received in the exchange; and
(ix) An InterWest 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 InterWest Common Stock converted, if the shares of InterWest
Common Stock were held as capital assets. However, an InterWest 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 InterWest shareholder will be required to report on such shareholder's
federal income tax return for the fiscal year of such shareholder in which the
Merger occurs that such shareholder has received BancGroup Common Stock in a
reorganization.
THE FOREGOING DISCUSSION IS INTENDED ONLY AS A SUMMARY OF MATERIAL FEDERAL
INCOME TAX CONSEQUENCES OF THE MERGER TO THE SHAREHOLDERS OF INTERWEST, TO
INTERWEST 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,
STOCK-
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HOLDERS WHO DO NOT HOLD THEIR SHARES OF INTERWEST COMMON STOCK AS "CAPITAL
ASSETS" WITHIN THE MEANING OF SECTION 1221 OF THE CODE, AND SHAREHOLDERS WHO
ACQUIRED THEIR SHARES OF INTERWEST COMMON STOCK PURSUANT TO THE EXERCISE OF
OPTIONS OR OTHERWISE AS COMPENSATION, NOR ANY CONSEQUENCES ARISING UNDER THE
LAWS OF ANY STATE, LOCALITY OR FOREIGN JURISDICTION. THE DISCUSSION IS BASED
UPON THE CODE, TREASURY REGULATIONS THEREUNDER AND ADMINISTRATIVE RULINGS AND
COURT DECISIONS AS OF THE DATE HEREOF. ALL OF THE FOREGOING IS SUBJECT TO
CHANGE, AND ANY SUCH CHANGE COULD AFFECT THE CONTINUING VALIDITY OF THIS
DISCUSSION. INTERWEST SHAREHOLDERS ARE URGED TO CONSULT THEIR OWN TAX ADVISORS
CONCERNING THE PARTICULAR FEDERAL, STATE, LOCAL AND FOREIGN TAX CONSEQUENCES OF
THE MERGER TO THEM.
OTHER POSSIBLE CONSEQUENCES
If the Merger is consummated, the shareholders of InterWest, a Nevada
corporation, 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 InterWest Common Stock as compared with
BancGroup Common Stock, see "Comparative Rights of Shareholders."
CONDITIONS TO CONSUMMATION OF THE MERGER
The parties' respective obligations to consummate the Merger are subject to
the satisfaction (or waiver, to the extent permitted by law) of various
conditions set forth in the Agreement.
The obligations of InterWest and BancGroup to consummate the Merger are
conditioned upon, among other things, (i) the approval of the Agreement by the
holders of at least a majority of the outstanding shares of InterWest Common
Stock; (ii) the approval of the Merger by the Federal Reserve and the Nevada
Division, and approval of the Bank Merger by the Alabama Department, the Nevada
Division, and the Federal Reserve; (iii) the absence of pending or threatened
litigation with a view to restraining or prohibiting consummation of the Merger
or to obtain divestiture, rescission or damages in connection with the Merger;
(iv) the absence of any investigation by any governmental agency which might
result in any such proceeding; (v) consummation of the Merger no later than
January 15, 1999; and (vi) receipt of opinions of counsel regarding certain
matters.
The obligation of InterWest to consummate the Merger is further subject to
several other conditions, including: (i) the absence of any material adverse
change in the financial condition or affairs of BancGroup; (ii) the shares of
BancGroup Common Stock to be issued under the Agreement shall have been approved
for listing on the NYSE; and (iii) the accuracy in all material respects of the
representations and warranties of BancGroup contained in the Agreement and the
performance by BancGroup of all of its covenants and agreements under the
Agreement.
The obligation of BancGroup to consummate the Merger is subject to several
other conditions, including: (i) the absence of any material adverse change in
the financial condition or affairs of InterWest; (ii) the number of shares as to
which holders of InterWest Common Stock exercise dissenters' rights not
exceeding 10% of the outstanding shares of InterWest Common Stock; (iii) the
receipt of a letter from PricewaterhouseCoopers LLP concurring with the
conclusions of BancGroup's and InterWest'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 InterWest contained in the Agreement, and the
performance by InterWest of all of its covenants and agreements under the
Agreement; (v) InterWest's having (A) purchased or redeemed outstanding shares
of the Minority Stock and owned of record by the Minority Shareholders, (B)
entered into definitive agreements with the Minority Shareholders for the
purchase of the Minority Shares on or before the Effective Date, or (C) taken or
having caused the Bank to have taken all necessary and appropriate steps as
permitted under applicable law to ensure that InterWest will, as of the
Effective Date, own 100% of the outstanding capital
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stock of the Bank; and (vi) the receipt by BancGroup of certain undertakings
from holders of InterWest Common Stock who may be deemed to be "affiliates" of
InterWest pursuant to the rules of the Commission. See " -- Repurchase of
Minority Shares."
It is anticipated that the foregoing conditions, as well as certain other
conditions contained in the Agreement, such as the receipt of certificates of
officers of each party as to compliance with the Agreement and satisfaction of
each party of all representations, warranties and covenants, will be satisfied.
The Agreement provides that each of InterWest and BancGroup may waive all
conditions to its respective obligation to consummate the Merger, other than the
receipt of the requisite approvals of regulatory authorities and approval of the
Agreement by the shareholders of InterWest. In making any decision regarding a
waiver of one or more conditions to consummation of the Merger or an amendment
of the Agreement, the Boards of Directors of InterWest 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.
REPURCHASE OF MINORITY SHARES
The Articles of Incorporation of the Bank authorize 250,000 shares of
common stock, without par value, of which 206,580 shares are issued and
outstanding. InterWest holds 177,802 shares or 86.07% of the issued and
outstanding common stock of the Bank. The remaining 28,778 shares or 13.93% (the
"Minority Shares") of the issued and outstanding common stock are owned by 75
individuals or trusts (the "Minority Shareholders").
The Agreement contemplates a merger of subsidiaries whereby the Bank will
merge with and into Colonial Bank, a subsidiary of BancGroup, (the "Bank
Merger"). Although the timing and structure of the Bank Merger have not been
finalized, as a condition to the Merger, InterWest is required to own 100% of
the issued and outstanding stock of the Bank.
TASG, Inc., dba The Alford-Spencer Financial Group of Fair Oaks,
California, was engaged by InterWest to issue an opinion on the fair value of
the Bank's common stock. In issuing its opinion, The Alford-Spencer Financial
Group considered the Merger and the effect thereof on the fair value of the
Bank's common stock. In connection with the opinion, The Alford-Spencer
Financial Group analyzed, among other things, (i) audited financial statements
for InterWest and subsidiaries for the three fiscal years ended December 31,
1997; (ii) Annual Reports to shareholders of InterWest and subsidiaries for the
period ending December 31, 1997; (iii) certain other publicly available
financial and other information concerning InterWest and subsidiaries; (iv) the
trading market for the traded securities of InterWest; and (v) publicly
available information concerning other bank and bank holding companies, the
trading market for their securities and the nature and terms of certain other
merger transactions believed relevant.
In the opinion of David A. Alford, principal of The Alford-Spencer
Financial Group, the estimated value per share of the Minority Shares is $22.40
per share. The opinion of The Alford-Spencer financial Group is expressed in a
Valuation of 28,778 Shares of Capital Stock of InterWest Bank, Reno, Nevada,
dated July 10, 1998; a copy of which may be reviewed upon request at the
principal office of InterWest.
Although the Bank is desirous of entering into written agreements with the
Minority Shareholders for the purchase of the Minority Shares at the fair value
established by The Alford-Spencer Financial Group, the Bank has experienced
previous communication difficulties. Many of the Minority Shareholders have
failed or refused to respond to notices or other matters. Future response or
cooperation cannot be anticipated.
The Board of Directors of the Bank believes that it is in the best interest
of the Bank to consummate the Merger which will require, under the terms of the
Agreement, ownership by InterWest of 100% of the issued and outstanding stock of
the Bank. Recognizing the business purpose of the Merger, the requirements of
the Agreement, the need to act expediently to permit completion of the Merger
and the lack of communication by certain Minority Shareholders, the Board of
Directors of the Bank has resolved that, in fairness to all shareholders of the
Bank, the number of authorized shares of the common stock of the Bank should be
decreased at the ratio of 177,802 to one (the "Decrease"). If any Minority
Shareholders have sold their
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Minority Shares to InterWest before the Decrease, then the ratio of the Decrease
will be adjusted so that, after the Decrease, InterWest will own the sole
remaining share of the Bank and all remaining Minority Shareholders will own a
fractional share of the Bank. The Minority Shareholders holding fractional
shares of the Bank stock after the Decrease becomes effective shall receive cash
in the amount of the fair value ("Fair Value") of the Minority Shares as
determined by the Alford-Spencer Financial Group. The Decrease must be approved
by the holders of a majority of the outstanding stock of the Bank. Any Minority
Shareholder who disagrees with the Fair Value for his or her Minority Shares may
dissent to the Fair Value in accordance with NRS 92A.300 to 92A.500. See "The
Merger -- Rights of Dissenting Shareholders."
AMENDMENT OR TERMINATION OF AGREEMENT
To the extent permitted by law, the Agreement may be amended by a
subsequent writing signed by each of the parties upon the approval of the Boards
of Directors of each of the parties. However, under applicable law after
adoption of the Agreement and the approval of Merger by the holders of InterWest
Common Stock, no amendment decreasing the consideration to be received by
InterWest shareholders may be made without the further approval of such
shareholders. The Agreement may be terminated at any time prior to or on the
Effective Date, whether before or after adoption of the Agreement by the
shareholders of InterWest, by the mutual consent of the respective Boards of
Directors of InterWest and BancGroup or by the Board of Directors of either
BancGroup or InterWest under certain circumstances including, but not limited
to: (i) a material breach which cannot or has not been cured within 30 days of
notice of such breach being given by the non-breaching party; (ii) failure to
consummate the transactions contemplated under the Agreement by January 15,
1999, provided that such failure to consummate is not caused by any breach of
the Agreement by the party electing to terminate; and (iii) without further
action by either party, upon the execution by InterWest of a legally binding
agreement between InterWest and any third party with respect to any Acquisition
Proposal, provided that BancGroup will have the right to demand payment of
liquidated damages. See "-- Related Transaction -- Stock Option."
REGULATORY APPROVALS
Applications will be filed with the Federal Reserve pursuant to Section 3
of the BHCA and the regulations promulgated pursuant thereto, and with the
Nevada Division for their prior approval of the Merger. In addition, a
notification of the Merger will be filed with the Federal Reserve pursuant to
Section 4 of the BHCA and the regulations promulgated pursuant thereto for its
prior approval of the Merger. The approval of the Federal Reserve, the Alabama
Department, and the Nevada Division must be obtained prior to consummation of
the Bank Merger. Applications were filed with the Federal Reserve, the Alabama
Department, and the Nevada Division, and a notification was filed with Federal
Reserve, on August 17, 1998. The regulatory approval process is expected to take
approximately three months from this date.
Federal Reserve Approval. Pursuant to Section 3 of the BHCA, and the
regulations promulgated pursuant thereto, the approval of the Federal Reserve
must be obtained prior to the Merger. The Federal Reserve must withhold approval
of the Merger if it finds that the transaction will result in a monopoly or be
in furtherance of any combination or conspiracy to monopolize or attempt to
monopolize the business of banking in any part of the United States. In
addition, the Federal Reserve may not approve the Merger if it finds that the
effect thereof may be substantially to lessen competition in any section of the
country, or tend to create a monopoly, or would in any other manner be in
restraint of trade, unless it finds that the anti-competitive effects of the
Merger are clearly outweighed by the probable effect of the Merger in meeting
the convenience and needs of the communities to be served. The Federal Reserve
will also take into consideration the financial condition and managerial
resources of BancGroup, its subsidiaries, any banks related to BancGroup through
common ownership or management, and the Bank. Finally, the Federal Reserve will
consider the compliance records of BancGroup's subsidiaries under the Community
Reinvestment Act.
In addition, the Federal Reserve is expressly permitted to approve
applications under Section 3 of the BHCA for a bank holding company that is
adequately capitalized and adequately managed to acquire control of a bank
located in a state other than the home state of such bank holding company (an
"Interstate Acquisition"), without regard to whether such transaction is
prohibited under the law of any state. However, if
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the law of the state in which the target bank is located requires the target
bank to have been in existence for some minimum period of time, the Federal
Reserve is prohibited from approving an application by a bank holding company to
acquire such target bank if such target bank does not satisfy this state law
requirement, so long as the state law specifying such minimum period of time
does not specify a period of more than five years.
Also, the Federal Reserve is prohibited from approving an Interstate
Acquisition if the acquiring bank holding company controls, or upon consummation
of the acquisition, would control, more than 10% of the total amount of deposits
of insured depository institutions in the United States. Finally, subject to
certain exceptions, the Federal Reserve may not approve an application
pertaining to an Interstate Acquisition if, among other things, the bank holding
company, upon consummation of the acquisition, would control 30% or more of the
total amount of deposits of insured depository institutions in the state where
the target bank is located.
The BHCA provides for the publication of notice and public comment on the
application and authorizes the Federal Reserve to permit interested parties to
intervene in the proceedings. If an interested party is permitted to intervene,
such intervention could delay the regulatory approvals required for consummation
of the Merger. Section 11 of the BHCA imposes a waiting period which prohibits
the consummation of the Merger, in ordinary circumstances, for a period ranging
from 15 to 30 days following the Federal Reserve's approval of the Merger.
During such period, the United States Department of Justice, should it object to
the Merger for antitrust reasons, may challenge the consummation of the Merger.
As the result of the Merger, BancGroup will acquire 100% of the outstanding
stock of the Mortgage Company, currently owned by InterWest, which engages in
permissible non-banking activities. BancGroup must file a notice of this
proposed acquisition with the Federal Reserve, and approval of the Federal
Reserve must be obtained pursuant to Section 4 of the BHCA, and regulations
promulgated pursuant thereto, prior to the Merger and BancGroup's acquisition of
the Mortgage Company which will result therefrom.
The Federal Reserve is required to consider whether performance of the
activity by a bank holding company or a subsidiary of such company can
reasonably be expected to produce benefits to the public, such as greater
convenience, increased competition, or gains in efficiency, that outweigh
possible adverse effects, such as undue concentration of resources, decreased or
unfair competition, conflicts of interests, or unsound banking practices. The
Federal Reserve's consideration of these factors includes an evaluation of the
financial and managerial resources of the notificant, including its subsidiaries
and any company to be acquired, the effect of the proposed transaction on those
resources, and the management expertise, internal control and risk-management
systems, and capital of the entity conducting the activity.
Pursuant to Section 18(c) of the Federal Deposit Insurance Act (the "Bank
Merger Act"), the Federal Reserve's prior approval of the Bank Merger must be
obtained. The Federal Reserve is prohibited from approving the Bank Merger if it
would result in a monopoly or would be in furtherance of any combination or
conspiracy to monopolize or to attempt to monopolize the business of banking in
any part of the United States. In addition, the Federal Reserve is prohibited
from approving the Bank Merger if its effect, in any section of the country,
would be substantially to lessen competition, or to tend to create a monopoly,
or which in any other manner would be in restraint of trade, unless it finds
that the anti-competitive effects of the Bank Merger are clearly outweighed in
the public interest by the probable effect of the Bank Merger in meeting the
convenience and needs of the community to be served. The Federal Reserve is
required to take into consideration the financial and managerial resources and
future prospects of the existing and proposed institutions, and the con venience
and needs of the community to be served.
In that the Bank Merger constitutes an interstate bank merger, certain
additional requirements are applicable to the Bank Merger. For example, the
Federal Reserve is prohibited from approving the Bank Merger if the bank
resulting from the Bank Merger, including all insured depository institutions
which are affiliates of such resulting bank, upon consummation of the
transaction, would control more than 10% of the total amount of deposits of
insured depository institutions in the United States. The Federal Reserve is
also prohibited from approving the Bank Merger if either party to the Bank
Merger has a branch in any state in which any other bank involved in the Bank
Merger has a branch, and the resulting bank, upon consummation of the Bank
Merger, would control 30% or more of the total amount of deposits of insured
depository
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institutions in any such state. Finally, the Federal Reserve may approve the
interstate bank merger only if each bank involved in the transaction is
adequately capitalized as of the date the application is filed, and the Federal
Reserve determines that the resulting bank will continue to be adequately
capitalized and adequately managed upon consummation of the Bank Merger.
The Bank Merger Act imposes a waiting period which prohibits consummation
of the Bank Merger, in ordinary circumstances, for a period ranging from 15 to
30 days following the Federal Reserve's approval of the Bank Merger. During such
period, the United States Department of Justice, should it object to the Merger
for antitrust reasons, may challenge the consummation of the Merger.
Alabama Department Approval. The Bank Merger must be approved by the
Alabama Department pursuant to applicable provisions of the Alabama Banking
Code. If the Superintendent of the Alabama Department finds that (1) the
proposed transaction will not be detrimental to the safety and soundness of the
bank resulting from the Bank Merger, (2) any new officers and directors of the
resulting bank are qualified by character, experience, and financial
responsibility to direct and manage the resulting bank, and (3) the proposed
Bank Merger is consistent with the convenience and needs of the communities to
be served by the resulting bank in the State of Alabama and is otherwise in the
public interest, the Bank Merger shall be approved by the Superintendent.
Nevada Commissioner Approval. Applicable provisions of the Nevada banking
statutes provide that the Merger must be approved by the Commissioner of the
Financial Institutions Division of the State of Nevada (the "Nevada Division").
In the application for approval of the Merger, the Commissioner of the Nevada
Division is required to consider BancGroup's record of compliance with the
Community Reinvestment Act of 1977, and whether the Merger will meet the needs
of those counties whose populations are less than 100,000 and whose residents
are not being adequately served by existing financial institutions. In addition,
the Commissioner is required to disapprove the Merger if he finds (a) that the
Merger would be detrimental to the safety and soundness of BancGroup, to any
institution which is a party to the Merger, or to a subsidiary or affiliate of
that institution; (b) BancGroup or its executive officers, directors or
principal stockholders have not established a record of sound performance,
efficient management, financial responsibility and integrity so that it would be
against the interest of the depositors, other customers, creditors or
stockholders of an institution, or the public to authorize the Merger; (c) the
financial condition of BancGroup or any other institution which is a participant
in the Merger might jeopardize the financial stability of BancGroup or the other
institution(s), or prejudice the interests of depositors or other customers of
BancGroup or the other institution(s); (d) the consummation of the Merger will
tend to lessen competition substantially, unless the Commissioner finds that the
anticompetitive effects of the Merger are clearly outweighed by the benefit of
meeting the convenience and needs of the relevant market to be served; or (e)
BancGroup has not established a record of meeting the needs for credit of the
communities which it or its subsidiary depository institution serves.
The Nevada banking statutes also provide that the approval of the
Commissioner must be obtained prior to the Bank Merger. Upon receipt of an
application for approval of the Bank Merger, the Commissioner is required to
determine (a) whether the interests of the depositors, creditors and
stockholders or members of each depository institution are protected; (b) that
the Bank Merger is in the public interest; (c) that the Bank Merger is made for
legitimate purposes; and (d) whether Colonial Bank and the Bank have good
records of compliance with the Community Reinvestment Act of 1977. The
Commissioner is required to disapprove the Bank Merger if he finds (a) that the
Bank Merger would be detrimental to the safety and soundness of Colonial Bank,
to any institution which is a party to the Bank Merger, or to a subsidiary or
affiliate of that institution; (b) Colonial Bank or its executive officers,
directors or principal stockholders have not established a record of sound
performance, efficient management, financial responsibility and integrity so
that it would be against the interest of the depositors, other customers,
creditors, stockholders or members of an institution, or the general public to
authorize the Bank Merger; (c) the financial condition of Colonial Bank or any
other institution which is a participant in the Bank Merger might jeopardize the
financial stability of Colonial Bank or Bank, or prejudice the interests of
depositors or other customers of Colonial Bank or the Bank; (d) the consummation
of the Bank Merger will tend to lessen competition substantially, unless the
Commissioner finds that the anticompetitive effects of the Bank Merger are
clearly outweighed by the benefit of meeting the
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convenience and needs of the relevant market to be served; or (e) Colonial Bank
has not established a record of meeting the needs for credit of the communities
which it or its subsidiary depository institution serves.
The Agreement provides that the obligation of each of BancGroup and
InterWest to consummate the Merger is conditioned upon the receipt of all
necessary regulatory approvals. There can be no assurance that the applications
necessary for BancGroup to consummate the Merger with InterWest will be
approved, and, if such approvals are received, that such approvals will not be
conditioned upon terms and conditions that would cause the parties to abandon
the Merger.
Any approval received from bank regulatory agencies reflects only their
view that the Merger does not contravene applicable competitive standards
imposed by law, and that the Merger is consistent with regulatory policies
relating to safety and soundness. THE APPROVAL OF THE BANK REGULATORY AGENCIES
IS NOT AN ENDORSEMENT OR RECOMMENDATION OF THE MERGER.
BancGroup is not aware of any governmental approvals or actions that may be
required for consummation of the Merger except for the Federal Reserve, Alabama
Department and Nevada Division approvals described above. Should any such
approval or action be required, it is presently contemplated that such approval
or action would be sought.
CONDUCT OF BUSINESS PENDING THE MERGER
The Agreement contains certain restrictions on the conduct of the business
of InterWest pending consummation of the Merger. The Agreement prohibits
InterWest 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 InterWest:
(i) Issuing, delivering or agreeing to issue or deliver any stock,
bonds or other corporate securities (whether authorized and unissued or
held in the treasury), except shares of InterWest Common Stock issued upon
the exercise of InterWest Options;
(ii) Borrowing or agreeing to borrow any funds or incurring or
becoming subject to, any liability (absolute or contingent) except
borrowings, obligations and liabilities incurred in the ordinary course of
business and consistent with past practice;
(iii) Paying any material obligation or liability (absolute or
contingent) other than current liabilities reflected in or shown on the
most recent balance sheet and current liabilities incurred since that date
in the ordinary course of business and consistent with past practice;
(iv) Declaring or making or agreeing to declare or make, any payment
of dividends or distributions of any assets of any kind whatsoever to
shareholders, or purchasing or redeeming or agreeing to purchase or redeem,
any of its outstanding securities except that, if the Effective Date does
not occur before October 30, 1998, InterWest may declare and pay a cash
dividend equal to such dividend as the Board of Directors of BancGroup may
declare at its regular meeting presently set for October 21, 1998
multiplied by the Exchange Ratio, as defined in the Agreement. In no event
shall the shareholders of InterWest be entitled to payment of a dividend
from InterWest and from BancGroup in the quarter in which the Effective
Date occurs.
(v) Except in the ordinary course of business, selling or transferring
or agreeing to sell or transfer, any of its assets, property or rights or
canceling, or agreeing to cancel, any debts or claims;
(vi) Except in the ordinary course of business, entering or agreeing
to enter into any agreement or arrangement granting any preferential rights
to purchase any of its assets, property or rights or requiring the consent
of any party to the transfer and assignment of any of its assets, property
or rights;
(vii) Waiving any rights of value which in the aggregate are material;
(viii) Except in the ordinary course of business, making or permitting
any amendment or termination of any contract, agreement or license to which
it is a party if such amendment or termination is material considering its
business as a whole;
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(ix) Except in accordance with past practice, making any accrual or
arrangement for or payment of bonuses or special compensation of any kind
or any severance or termination pay to any present or former officer or
employee;
(x) Except in accordance with past practice, increasing the rate of
compensation payable to or to become payable to any of its officers or
employees or making any material increase in any profit-sharing, bonus,
deferred compensation, savings, insurance, pension, retirement or other
employee benefit plan, payment or arrangement made to, for or with any of
its officers or employees;
(xi) Failing to operate its business in the ordinary course so as to
preserve its business intact and to preserve the goodwill of its customers
and others with whom it has business relations; and
(xii) Entering into any other material transaction other than in the
ordinary course of business.
The Agreement provides that prior to the Effective Date, no director or
officer of InterWest 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 InterWest or its subsidiaries.
The Agreement also provides that (i) at the request of BancGroup, InterWest
will consult with BancGroup and advise BancGroup in advance of all loan requests
outside the ordinary course of business or in excess of $100,000 that are not
single-family residential loan requests; and (ii) InterWest will consult with
BancGroup respecting business issues that InterWest believes should be brought
to the attention of BancGroup.
RELATED TRANSACTIONS -- STOCK OPTION
InterWest and BancGroup have entered into a stock option agreement dated as
of June 16, 1998 (the "Option Agreement") whereby InterWest has granted to
BancGroup an option to purchase up to 614,541 shares, or 19.9% of InterWest
Common Stock at a purchase price of $8.25 per share. The Option Agreement is
attached hereto as Appendix C. Both the number of shares subject to the option
and the purchase price per option share are subject to adjustment in certain
circumstances. The Option Agreement was entered into as an inducement for, and
as a condition to, BancGroup's execution of the Agreement. The Option Agreement
is intended to increase the likelihood that the Merger will be consummated by
making it more difficult and expensive for a third party to acquire control of
InterWest.
The option granted under the Option Agreement may be exercised by
BancGroup, in whole or in part, in the event a "Purchase Event" precedes the
termination of the Agreement. If the option becomes exercisable, InterWest may
be required to repurchase the option or any shares issued thereunder at a price
calculated in accordance with the Option Agreement. In addition, under certain
circumstances, the option may be converted into a similar option to acquire
shares of an entity engaging in certain transactions with InterWest.
The term "Purchase Event" is defined in the Option Agreement to include:
(i) InterWest's agreement, without BancGroup's prior written consent, to effect
an "Acquisition Transaction" with any person other than BancGroup, or
InterWest's authorization, recommendation, or public proposal of (or public
announcement of its intention to authorize, recommend, or propose) such an
agreement; or (ii) the acquisition by any person of beneficial ownership of 25%
or more of the outstanding shares of InterWest Common Stock. The term
"Acquisition Transaction" is defined to include: (i) a merger, consolidation, or
other business combination involving InterWest; (ii) the disposition, by sale,
exchange, lease, or otherwise, of substantially all of the consolidated assets
of InterWest; or (iii) the issuance of securities representing 25% or more of
the voting power of InterWest.
The Option Agreement and the option granted thereunder terminate upon the
earliest to occur of: (i) the Effective Date; (ii) termination of the Agreement
in accordance with its terms prior to the occurrence of a Purchase Event or a
"Preliminary Purchase Event" (generally, a tender offer or exchange offer by a
third party to acquire more than 25% of the outstanding shares of InterWest
Common Stock or the failure of InterWest's shareholders to approve the Agreement
following the public announcement of a proposed
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<PAGE> 32
Acquisition Transaction or tender offer); (iii) termination of the Agreement by
BancGroup prior to the occurrence of a Purchase Event or a Preliminary Purchase
Event for reasons other than a breach of the Agreement by InterWest or the
failure to occur of certain conditions precedent to the Merger; or (iv) the
passage of eighteen months after termination of the Agreement by BancGroup
because of a material breach of the Agreement by InterWest or the failure to
occur of certain conditions precedent to the consummation of the Merger.
To the knowledge of InterWest, no event that would permit the exercise of
the option has occurred as of the date hereof. The rights and obligations of
InterWest and BancGroup under the Option Agreement are subject to receipt of any
required regulatory approval, including approval by the Federal Reserve under
the BHCA.
The Option Agreement, together with InterWest's agreement not to negotiate
or entertain any proposals for the sale of InterWest or its subsidiaries to
another party (see "The Merger -- Commitments with Respect to Other Offers"),
have the effect of discouraging persons who might now, or prior to the Effective
Date, be interested in acquiring all or a significant interest in InterWest from
considering or proposing such an acquisition, even if such persons were prepared
to pay a higher price per share for the InterWest Common Stock than the price
per share to be paid by BancGroup in the Merger. The option granted to BancGroup
under the Option Agreement will become exercisable in the event of the
occurrence of certain proposals to acquire InterWest. The possibility that
BancGroup might exercise the option, and thus acquire a substantial block of
InterWest Common Stock, might deter offers of other persons or entities
interested in such an acquisition.
RIGHTS OF DISSENTING SHAREHOLDERS
A holder of shares of InterWest is entitled to exercise the rights of a
dissenting shareholder under NRS 92A.300 et seq., to object to the Agreement and
Plan of Merger and make written demand that BancGroup pay in cash the fair value
of the shares of InterWest Stock held as determined in accordance with all
pertinent provisions of InterWest's Articles of Incorporation, Bylaws and
statutory provisions.
In order to exercise dissenters' rights, a dissenting shareholder of
InterWest (a "Dissenting Shareholder") must strictly comply with the statutory
procedures of NRS 92A.300 et seq., which are summarized below. A copy of the
text provisions of these statutes is attached hereto as Appendix B. Shareholders
of InterWest are urged to read these statutes in their entirety and to consult
with their legal advisors. Nevada law requires that holders of InterWest Stock
follow certain prescribed procedures in the exercise of their statutory right to
dissent in connection with the Merger. The failure to follow such procedures on
a timely basis and in the precise manner required by Nevada law may result in a
loss of a shareholder's dissenters' rights. Pursuant to Nevada law and assuming
the Merger is consummated, a Dissenting Shareholder will be entitled to receive
for each share of InterWest Common Stock as to which dissenters' rights are
perfected the fair value thereof defined as the value of the shares immediately
before the Special Meeting approving the Merger, excluding any appreciation or
depreciation in anticipation of the Merger unless exclusion would be inequitable
(NRS 92A.320) together with interest computed from the effective date of the
Merger until the date of payment, at the average rate currently paid by
InterWest on its loans or at a rate that is fair and equitable under all the
circumstances (NRS 92A.340). The following summary does not purport to be a
complete statement of the dissenters rights provision of Nevada law and is
qualified in its entirety by reference to the full text provisions of the NRS
pertaining to dissenters rights attached hereto as Appendix B.
Overview. Holders of InterWest Common Stock have the right under Nevada
law to dissent from the Merger and obtain payment of the fair value of his or
her shares. Fair value means the value of the shares immediately before the
Special Meeting, excluding any appreciation or depreciation in anticipation of
the corporate action unless exclusion would be inequitable. If BancGroup and a
Dissenting Shareholder are not able to agree on a fair value, BancGroup must
petition a court in Washoe County, Nevada, for a determination of fair value.
Procedure for Dissenting. A shareholder wishing to dissent from the Merger
must deliver to InterWest, before the Special meeting, written notice of his or
her intent to demand payment for his or her shares if the
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Merger is consummated. The written notice should be sent to InterWest at 2330
South Virginia Street, Reno, Nevada 89502, Attn: Mr. Richard Martucci, Sr., so
that InterWest 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 InterWest before the Special
Meeting, or if the shareholder votes in favor of the Merger, such shareholder
will not have the right to dissent and will be required to participate in the
Merger.
Within 10 days after the Special Meeting, InterWest will deliver to each
Dissenting Shareholder a written notice instructing the Dissenting Shareholder
to demand payment and send his or her InterWest Common Stock certificates to
InterWest. The notice will include a copy of NRS 92A.300 et seq. and a form for
demanding payment and will show the deadline for submitting the payment demand
form and the InterWest Common Stock certificates. The form will also show the
date that the Merger was first announced to the news media or the shareholders,
and the Dissenting Shareholder will be required to state whether or not he or
she acquired his or her shares before that date.
The Dissenting Shareholder must then properly complete and sign the payment
demand form, and submit it to InterWest along with his or her InterWest Common
Stock certificates by the deadline shown in the notice from InterWest. If the
payment demand form and the InterWest Common Stock certificates are not
submitted by the deadline, the shareholder will no longer be a Dissenting
Shareholder and will not be entitled to receive payment of the fair value of his
or her shares. Such a shareholder will be required to participate in the Merger.
The payment demand form and InterWest Common Stock certificate should be sent to
InterWest at 2330 South Virginia Street, Reno, Nevada 895012, Attn: Mr. Richard
Martucci, Sr.
Payment for Shares. Within 30 days after receiving a Dissenting
Shareholder's payment demand form and InterWest Common Stock certificates,
BancGroup will pay such Dissenting Shareholder, in accordance with Nevada law,
BancGroup's estimate of the fair value of the InterWest Common Stock for which
certificates were submitted, plus accrued interest. Accompanying the payment
will be financial information for InterWest as of the end of a fiscal year
ending not more than 16 months before the date of payment, and for the year then
ended, as well as the latest available interim financial information. Also
accompanying the payment will be a statement of BancGroup's estimate of the fair
value of the shares, an explanation of how the interest was calculated, a
statement of the Dissenting Shareholder's rights to demand additional payment
and a copy of the relevant Nevada statutes. BancGroup's obligation to pay fair
value may be enforced by a court. However, if the Dissenting Shareholder did not
own the shares before the date the Merger was first announced to the news media
or to the shareholders, BancGroup will have the right to withhold payment, and
instead to offer to pay BancGroup's estimate of the fair value of the shares.
Such an offer will be accompanied by a statement of BancGroup's estimate of the
fair value of the shares, an explanation of how the interest was calculated and
a statement of the Dissenting Shareholder's rights to demand payment.
If a Dissenting Shareholder estimates the fair value of his or her shares
and the amount of accrued interest to be higher than the amount paid by
BancGroup, the Dissenting Shareholder may send a notice to BancGroup demanding
payment of the difference between the Dissenting Shareholder's estimate and the
amount paid by BancGroup. Or, if the Dissenting Shareholder was only entitled to
receive BancGroup's offer to pay fair value, the Dissenting Shareholder may
reject the offer and demand payment of the Dissenting Shareholder's estimate of
the fair value of his or her shares and accrued interest. If a Dissenting
Shareholder does not send a notice demanding payment within 30 days after
BancGroup has made its payment or offer, the Dissenting Shareholder will not
have the right to receive any amount in excess of the fair value plus interest
already paid or offered by BancGroup.
Court Proceeding to Determine Fair Value. If a demand for payment remains
unsettled for 60 days following InterWest's receipt of the demand, BancGroup
will petition a court in Washoe County to determine the fair value of the shares
and accrued interest. Court costs will be paid by BancGroup unless the court
finds that one or more Dissenting Shareholders acted arbitrarily, vexatiously or
not in good faith in demanding payment, in which case some or all court costs
may be allocated to such Dissenting Shareholder or Shareholders. Attorneys' and
experts' fees may be assessed against BancGroup if the court finds that
BancGroup did not comply with the applicable statute or acted arbitrarily,
vexatiously or not in good faith, or
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<PAGE> 34
such fees may be assessed against one or more Dissenting Shareholders if the
same acted arbitrarily, vexatiously or not in good faith.
Holders of InterWest Common Stock considering seeking appraisal by
exercising their dissenters' rights should be aware that the fair value of their
InterWest Common Stock determined pursuant to Nevada law could be more than, the
same as, or less than the value of the securities that they are entitled to
receive pursuant to the Merger Agreement if they do not seek appraisal of their
InterWest Common Stock.
THE FOREGOING DOES NOT PURPORT TO BE A COMPLETE STATEMENT OF THE PROCEDURES
TO BE FOLLOWED BY HOLDERS OF INTERWEST COMMON STOCK DESIRING TO EXERCISE
APPRAISAL RIGHTS, AND, IN VIEW OF THE FACT THAT EXERCISE OF SUCH RIGHTS REQUIRES
STRICT ADHERENCE TO THE RELEVANT PROVISIONS OF THE NEVADA GENERAL CORPORATION
LAWS, 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 INTERWEST COMMON STOCK WISHING TO EXERCISE DISSENTERS'
RIGHTS ARE ADVISED TO CONSULT THEIR OWN COUNSEL TO ENSURE THAT THEY FULLY AND
PROPERLY COMPLY WITH THE REQUIREMENTS OF NEVADA LAW.
The foregoing discussion is only a summary of the provisions of Nevada law,
does not purport to be complete and is qualified in its entirety by reference to
NRS 92A.300 et seq., which is attached hereto as Appendix B. Any shareholder who
intends to dissent from the Merger should review the text of NRS 92A.300 et seq.
carefully and should also consult with his or her attorney. Any shareholder who
fails to follow strictly the procedures set forth in said statute will forfeit
dissenters' rights.
Any Dissenting Shareholder who perfects his or her right to be paid the
value of his or her shares will recognize gain or loss, if any, for federal
income tax purposes upon the receipt of cash for such shares. The amount of gain
or loss and its character as ordinary or capital gain or loss will be determined
in accordance with applicable provisions of the code. See " -- Certain Federal
Income Tax Consequences."
BECAUSE OF THE COMPLEXITY OF THE PROVISIONS OF THE NEVADA LAW RELATING TO
DISSENTERS' APPRAISAL RIGHTS, SHAREHOLDERS WHO ARE CONSIDERING DISSENTING FROM
THE MERGER ARE URGED TO CONSULT WITH THEIR OWN LEGAL ADVISERS.
Any Dissenting Shareholder who perfects his or her right to be paid the
value of his or her shares will recognize gain or loss, if any, for federal
income tax purposes upon the receipt of cash for such shares. The amount of gain
or loss and its character as ordinary or capital gain or loss will be determined
in accordance with applicable provisions of the Code. See "-- Certain Federal
Income Tax Consequences."
BECAUSE OF THE COMPLEXITY OF THE PROVISIONS OF THE NEVADA LAW RELATING TO
DISSENTERS' APPRAISAL RIGHTS, SHAREHOLDERS WHO ARE CONSIDERING DISSENTING FROM
THE MERGER ARE URGED TO CONSULT THEIR OWN LEGAL ADVISERS.
RESALE OF BANCGROUP COMMON STOCK ISSUED IN THE MERGER
The issuance of the shares of BancGroup Common Stock pursuant to the Merger
(including any shares to be issued pursuant to InterWest Options) has been
registered under the Securities Act of 1933 (the "Securities Act"). As a result,
shareholders of InterWest who are not "affiliates" of InterWest (as such term is
defined under the Securities Act) may resell, without restriction, all shares of
BancGroup Common Stock which they receive in connection with the Merger. Under
the Securities Act, only affiliates of InterWest are subject to restrictions on
the resale of the BancGroup Common Stock which they receive in the Merger.
The BancGroup Common Stock received by affiliates of InterWest who do not
also become affiliates of BancGroup after the consummation of the Merger may not
be sold except pursuant to an effective registration statement under the
Securities Act covering such shares or in compliance with Rule 145 under the
Securities Act or another applicable exemption from the registration
requirements of the Securities Act. Generally,
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<PAGE> 35
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 InterWest affiliate has held the
BancGroup Common Stock for at least one year. BancGroup Common Stock held by
affiliates of InterWest who become affiliates of BancGroup, if any, will be
subject to additional restrictions on the ability of such persons to resell such
shares.
InterWest 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
InterWest. InterWest will also obtain from each such person a written
undertaking to the effect that no sale or transfer will be made of any shares of
BancGroup Common Stock by such person except pursuant to Rule 145 or pursuant to
an effective registration statement or an exemption from registration under the
Securities Act. Receipt of such an undertaking is a condition to BancGroup's
obligation to close the Merger. The undertaking also will require each affiliate
to agree that such person will not sell or otherwise reduce risk relative to any
shares of BancGroup Common Stock received in the Merger until financial results
concerning at least 30 days of post-Merger combined operations have been
published by BancGroup within the meaning of Section 201.01 of the Commission's
Codification of Financial Reporting Policies. If such undertakings are not
received and BancGroup waives receipt of such condition, the certificates for
the shares of BancGroup Common Stock to be issued to such person will contain an
appropriate restrictive legend and appropriate stock transfer orders will be
given to BancGroup's stock transfer agent.
ACCOUNTING TREATMENT
BancGroup will account for the Merger as a pooling-of-interests transaction
in accordance with generally accepted accounting principles, which, among other
things, require that the number of shares of InterWest 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 InterWest Common Stock. Under
this accounting treatment, assets and liabilities of InterWest would be added to
those of BancGroup at their recorded book values, and the shareholders' equity
of the two companies would be combined in BancGroup's consolidated balance
sheet. Financial statements of BancGroup issued after the Effective Date of the
Merger may be restated to reflect the consolidated operations of BancGroup and
InterWest as if the Merger had taken place prior to the periods covered by the
financial statements.
NYSE REPORTING OF BANCGROUP COMMON STOCK ISSUED IN THE MERGER
Sales of BancGroup Common Stock to be issued in the Merger in exchange for
InterWest Common Stock will be reported on the NYSE.
TREATMENT OF INTERWEST OPTIONS
As of the Record Date, InterWest had granted options to certain employees
of the Bank and the Mortgage Company which entitled the holders thereof to
acquire up to 80,500 shares of InterWest Common Stock. The Agreement provides
that, no later than five days prior to the Effective Date, the holders of
InterWest Options that have vested for such holders may provide written notice
to InterWest (in form and substance reasonably satisfactory to BancGroup) that
they wish to surrender their InterWest Options to BancGroup, effective at the
Effective Date and to receive in exchange therefor an amount of BancGroup Common
Stock equal in value to the difference between (i) the total value of the shares
of BancGroup Common Stock to be issued pursuant to such InterWest Options (based
upon the number of shares of BancGroup Common Stock issuable pursuant to the
InterWest Options multiplied by the Market Value) and (ii) the aggregate
exercise price of such InterWest Options at the Effective Date, divided by the
Market Value. (the "Cashless Exchange"). No fractions of shares will be issued
and fractions will be paid in cash at
28
<PAGE> 36
the Market Value. Any InterWest Options that have not been exercised or
exchanged as provided above at the Effective Date will terminate.
The InterWest Options are issued pursuant to InterWest's Incentive Stock
Option Plan (the "Option Plan"). The Option Plan is not qualified under Section
401 of the Code, nor is it subject to the Employee Retirement Income Security
Act of 1974. InterWest Options are not transferable except under the laws of
descent and distribution. No further options will be granted under the InterWest
Option Plan after the Merger. A total of 18 persons currently hold InterWest
Options.
Options issued under the Option Plan may qualify as "Incentive Stock
Options," under Section 422 of the Code. If such options so qualify under the
Code, no income will result to a grantee of any such option upon the exercise of
an option, and BancGroup will not be entitled to a tax deduction by reason of
such exercise. If, after exercising the option, the employee holds the stock
obtained through exercise for at least two years after the date of option grant
and at least one year after the stock was obtained, the employee's gain (if any)
on selling the stock will generally be treated as a long term capital gain.
Generally, the employee's alternative minimum taxable income for minimum tax
purposes will be increased by the difference between the option price and the
fair market value of the stock on the date of exercise.
If the holding period requirements set forth above are not met, then any
gain on the sale of the stock will be taxed partly or entirely at ordinary
income rates. If the stock is held for less than the required holding periods,
then the difference between the option exercise price and the fair market value
of the stock on the date of exercise will be taxed at ordinary income tax rates.
The gain equal to the increase in the fair market value of the stock after the
date of exercise of the option will generally be taxed as capital gain. It
should be understood that the holding periods discussed above relate only to
federal income tax treatment and not to any securities law restrictions that may
apply to the sale of shares obtained through an option.
As discussed under "-- Certain Federal Income Tax Consequences," employees
who utilize the Cashless Exchange will recognize ordinary income equal to the
fair market value of BancGroup stock received in the exchange. See "-- Certain
Federal Income Tax Consequences."
COMPARATIVE MARKET PRICES AND DIVIDENDS
INTERWEST
There is no established public trading market for the InterWest Common
Stock. The shares of InterWest Common Stock are not actively traded, and such
trading activity, as it occurs, takes place in privately negotiated
transactions.
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<PAGE> 37
Management of InterWest is not aware of any transactions in shares of InterWest
that have occurred since January 1, 1996. The following table sets forth the
dividends paid on InterWest Common Stock since January 1, 1996:
<TABLE>
<CAPTION>
PRICE PER SHARE OF
COMMON STOCK
------------------- DIVIDENDS
HIGH LOW PER SHARE
-------- -------- ----------
<S> <C> <C> <C>
1996
First Quarter............................................ -- -- $ 0
Second Quarter........................................... -- -- 0
Third Quarter............................................ -- -- 0
Fourth Quarter........................................... -- -- 0
1997
First Quarter............................................ -- -- .06
Second Quarter........................................... -- -- 0
Third Quarter............................................ -- -- 0
Fourth Quarter........................................... -- -- 0
1998
First Quarter............................................ -- -- .02
Second Quarter........................................... -- -- 0
Third Quarter (through August 26, 1998).................. -- -- 0
</TABLE>
BancGroup. BancGroup Common Stock is listed for trading on the NYSE under
the symbol "CNB." The following table indicates the high and low closing prices
of the BancGroup Common Stock as reported on the NYSE since January 1, 1996.
<TABLE>
<CAPTION>
PRICE PER
SHARE OF
COMMON STOCK(1)
---------------- DIVIDENDS
HIGH LOW PER SHARE
------ ----- ----------
<S> <C> <C> <C>
1996
First Quarter............................................. $ 9 1/8 $ 7 1/2 $ .0675
Second Quarter............................................ 9 1/16 7 13/16 .0675
Third Quarter............................................. 9 7 13/16 .0675
Fourth Quarter............................................ 10 1/16 8 11/16 .0675
1997
First Quarter............................................. 12 9 1/3 .075
Second Quarter............................................ 12 7/16 11 .075
Third Quarter............................................. 14 5/8 12 1/8 .075
Fourth Quarter............................................ 17 9/16 14 1/2 .075
1998
First Quarter............................................. 18 1/8 15 3/4 .085
Second Quarter............................................ 18 13/16 14 3/4 .085
Third Quarter (through August 26, 1998)................... 17 5/16 13 1/2 .085
</TABLE>
- ---------------
(1) Restated to reflect the impact of the two-for-one stock splits effected in
the form of a 100% stock dividend paid February 11, 1997 and August 14,
1998.
On June 16, 1998, the business day immediately prior to the public
announcement of the Merger, the closing price of the BancGroup Common Stock on
the NYSE was $14.75 per share after giving effect to the Stock Split.
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
30
<PAGE> 38
banks may pay without regulatory approval. In addition, federal statutes
restrict the ability of subsidiary banks to make loans to BancGroup, and
regulatory policies may also restrict such dividends.
BANCGROUP CAPITAL STOCK AND DEBENTURES
BancGroup's authorized capital stock consists of 200,000,000 shares of
BancGroup Common Stock, par value $2.50 per share, and 1,000,000 shares of its
Preference Stock, par value $2.50 per share. As of June 30, 1998, and giving
effect to the Stock Split, there were issued and outstanding a total of
98,232,266 shares of BancGroup Common Stock. No shares of Preference Stock are
issued and outstanding. BancGroup issued in 1986 $28,750,000 in principal amount
of its 7 1/2% Convertible Subordinated Debentures due 2011 (the "1986
Debentures") of which $3,845,672 were outstanding as of June 30, 1998 and
convertible at any time into 549,382 shares of BancGroup Common Stock, subject
to adjustment. As of June 30, 1998 there were 3,858,122 shares of BancGroup
Common Stock subject to issue upon exercise of options under BancGroup's stock
option plans. In addition to BancGroup Common Stock to be issued in the Merger,
BancGroup will issue additional shares of BancGroup Common Stock in pending
business combinations. On January 20, 1997, BancGroup issued, through a special
purpose trust, $70 million of Trust Preferred Securities, all of which was
outstanding at June 30, 1998.
The following statements with respect to BancGroup Common Stock and
Preference Stock are brief summaries of material provisions of Delaware law, the
Restated Certificate of Incorporation (the "BancGroup Certificate"), as amended,
and Bylaws of BancGroup, do not purport to be complete and are qualified in
their entirety by reference to the foregoing.
BANCGROUP COMMON STOCK
Dividends. Subject to the rights of holders of Preference Stock, if any,
to receive certain dividends prior to the declaration of dividends on shares of
BancGroup Common Stock, when and as dividends, payable in cash, stock or other
property, are declared by the BancGroup Board of Directors, the holders of
BancGroup Common Stock are entitled to share ratably in such dividends.
Voting Rights. Each holder of BancGroup Common Stock has one vote for each
share held on matters presented for consideration by the stockholders.
Preemptive Rights. The holders of BancGroup Common Stock have no
preemptive rights to acquire any additional shares of BancGroup.
Issuance of Stock. The BancGroup Certificate authorizes the Board of
Directors of BancGroup to issue authorized shares of BancGroup Common Stock
without stockholder approval. However, BancGroup's Common Stock is listed on the
NYSE, which requires stockholder approval of the issuance of additional shares
of BancGroup Common Stock under certain circumstances.
Liquidation Rights. In the event of liquidation, dissolution or winding-up
of BancGroup, whether voluntary or involuntary, the holders of BancGroup Common
Stock will be entitled to share ratably in any of its assets or funds that are
available for distribution to its stockholders after the satisfaction of its
liabilities (or after adequate provision is made therefor) and after preferences
of any outstanding Preference Stock.
PREFERENCE STOCK
The Preference Stock may be issued from time to time as a class without
series, or if so determined by the Board of Directors of BancGroup, either in
whole or in part in one or more series. The voting rights, and such
designations, preferences and relative, participating, optional or other special
rights, if any, and the qualifications, limitations or restrictions thereof, if
any, including, but not limited to, the dividend rights, conversion rights,
redemption rights and liquidation preferences, if any, of any wholly unissued
series of
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<PAGE> 39
Preference Stock (or of the entire class of Preference Stock if none of such
shares has been issued), the number of shares constituting any such series and
the terms and conditions of the issue thereof may be fixed by resolution of the
Board of Directors of BancGroup. Preference Stock may have a preference over the
BancGroup Common Stock with respect to the payment of dividends and the
distribution of assets in the event of the liquidation or winding-up of
BancGroup and such other preferences as may be fixed by the Board of Directors
of BancGroup.
1986 DEBENTURES
BancGroup issued the 1986 Debentures in the total principal amount of
$28,750,000. The 1986 Debentures were issued under a trust indenture (the "1986
Indenture") between BancGroup and SunTrust Bank, Atlanta, Atlanta, Georgia, as
trustee.
The 1986 Debentures will mature on March 31, 2011, and are convertible at
any time into shares of BancGroup Common Stock at the option of a holder
thereof, at the conversion price of $7 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 June 30, 1998 approximately 549,382 shares of such BancGroup
Common Stock will be issued. The 1986 Debentures are redeemable, in whole or in
part, at the option of BancGroup at certain premiums until 1996, when the
redemption price shall be equal 100% of the face amount of the 1986 Debentures
plus accrued interest. The payment of principal and interest on the 1986
Debentures is subordinate, to the extent provided in the 1986 Indenture, to the
prior payment when due of all Senior Indebtedness of BancGroup. "Senior
Indebtedness" is defined as any indebtedness of BancGroup for money borrowed, or
any indebtedness incurred in connection with an acquisition or with a merger or
consolidation, outstanding on the date of execution of the 1986 Indenture as
originally executed, or thereafter created, incurred or assumed, and any
renewal, extension, modification or refunding thereof, for the payment of which
BancGroup (which term does not include BancGroup's consolidated or
unconsolidated subsidiaries) is at the time of determination responsible or
liable as obligor, guarantor or otherwise. Senior Indebtedness does not include
(i) indebtedness as to which, in the instrument creating or evidencing the same
or pursuant to which the same is outstanding, it is provided that such
indebtedness is subordinate in right of payment to any other indebtedness of
BancGroup, and (ii) indebtedness which by its terms states that such
indebtedness is subordinate to or equally subordinate with the 1986 Debentures.
At December 31, 1997, BancGroup's Senior Indebtedness as defined in the
1986 Indenture aggregated approximately $1.1 billion. Such debt includes all
short-term debt consisting of federal funds purchased, securities purchased
under repurchase agreements and borrowings with the Federal Home Loan Bank but
excludes all federally-insured deposits. BancGroup may from time to time incur
additional indebtedness constituting Senior Indebtedness. The 1986 Indenture
does not limit the amount of Senior Indebtedness which BancGroup may incur, nor
does such indenture prohibit BancGroup from creating liens on its property for
any purpose.
OTHER INDEBTEDNESS
On January 29, 1997, BancGroup issued, through a special purpose trust, $70
million of Trust Preferred Securities. The securities bear interest at 8.92% and
are subject to redemption in whole or in part any time after January 2007
through January 2027. 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
32
<PAGE> 40
Common Stock upon liquidation, but are subordinate to BancGroup's Senior
Indebtedness. See "-- BancGroup Capital Stock and Debentures." The debentures
are redeemable by BancGroup with the consent of the holders thereof. A holder of
a debenture may, subject to BancGroup's right to decline, request redemption of
any or all of the debentures held by him or her.
CHANGES IN CONTROL
Certain provisions of the BancGroup Certificate and the BancGroup Bylaws
may have the effect of preventing, discouraging or delaying any change in
control of BancGroup. The authority of the BancGroup Board of Directors to issue
BancGroup Preference Stock with such rights and privileges, including voting
rights, as it may deem appropriate may enable BancGroup's Board of Directors to
prevent a change in control despite a shift in ownership of the BancGroup Common
Stock. See "General" and "Preference Stock." In addition, the power of
BancGroup's Board of Directors to issue additional shares of BancGroup Common
Stock may help delay or deter a change in control by increasing the number of
shares needed to gain control. See "BancGroup Common Stock." The following
provisions also may deter any change in control of BancGroup.
Classified Board. BancGroup's Board of Directors is classified into three
classes, as nearly equal in number as possible, with the members of each class
elected to three-year terms. Thus, one-third of BancGroup's Board of Directors
is elected by stockholders each year. With this provision, two annual elections
are required in order to change a majority of the Board of Directors. There are
currently 23 directors of BancGroup. This provision of the BancGroup Certificate
also stipulates that (i) directors can be removed only for cause upon a vote of
80% of the voting power of the outstanding shares entitled to vote in the
election of directors, voting as a class, (ii) vacancies in the Board of
Directors may only be filled by a majority vote of the directors remaining in
office, (iii) the maximum number of directors shall be fixed by resolution of
the Board of Directors, and (iv) the provisions relating to the classified Board
of Directors can only be amended by the affirmative vote of the holders of at
least 80% of the voting power of the outstanding shares entitled to vote in the
election of directors, voting as a class.
Business Combinations. Certain "Business Combinations" of BancGroup with a
"Related Person" may only be undertaken with the affirmative vote of at least
75% of the outstanding shares of "Voting Stock," plus the affirmative vote of at
least 67% of the outstanding shares of Voting Stock, not counting shares owned
by the Related Person, unless the Continuing Directors of BancGroup approve such
Business Combination. A "Related Person" is a person, or group, who owns or
acquires 10% or more of the outstanding shares of BancGroup Common Stock,
provided that no person shall be a Related Person if such person would have been
a Related Person on the date of approval of this provision by BancGroup's Board
of Directors, i.e., April 20, 1994. An effect of this provision may be to
exclude Robert E. Lowder, the current Chairman and Chief Executive Officer of
BancGroup, and certain members of his family from the definition of Related
Person. A "Continuing Director" is a director who was a member of the Board of
Directors immediately prior to the time a person became a Related Person. This
provision may not be amended without the affirmative vote of the holders of at
least 75% of the outstanding shares of Voting Stock, plus the affirmative vote
of the outstanding shares of at least 67% of the outstanding Voting Stock,
excluding shares held by a Related Person. This provision may have the effect of
giving the incumbent Board of Directors a veto over a merger or other Business
Combination that could be desired by a majority of BancGroup's stockholders. As
of June 30, 1998, the Board of Directors of BancGroup owned approximately 10.06%
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.
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<PAGE> 41
Director Authority. The BancGroup Certificate prohibits stockholders from
calling special stockholders' meetings and acting by written consent. It also
provides that only BancGroup's Board of Directors has the authority to undertake
certain actions with respect to governing BancGroup such as appointing
committees, electing officers, and establishing compensation of officers, and it
allows the Board of Directors to act by majority vote.
Bylaw Provisions. The BancGroup Bylaws provide that stockholders wishing
to propose nominees for the Board of Directors or other business to be taken up
at an annual meeting of BancGroup shareholders must comply with certain advance
written notice provisions. These bylaw provisions are intended to provide for
the more orderly conduct of stockholders' meetings but could make it more
difficult for shareholders to nominate directors or introduce business at
shareholders' meetings.
Delaware Business Combination Statute. Subject to some exceptions,
Delaware law prohibits BancGroup from entering into certain "business
combinations" (as defined) involving persons beneficially owning 15% or more of
the outstanding BancGroup Common Stock (or who is an affiliate of BancGroup and
has over the past three years beneficially owned 15% or more of such stock)
(either, for the purpose of this paragraph, an "Interested Stockholder"), unless
the Board of Directors has approved either (i) the business combination or (ii)
prior to the stock acquisition by which such person's beneficial ownership
interest reached 15% (a "Stock Acquisition"), the Stock Acquisition. The
prohibition lasts for three years from the date of the Stock Acquisition.
Notwithstanding the preceding, Delaware law allows BancGroup to enter into a
business combination with an Interested Stockholder if (i) the business
combination is approved by BancGroup's Board of Directors and authorized by an
affirmative vote of at least 66 2/3% of the outstanding voting stock of
BancGroup which is not owned by the Interested Stockholder or (ii) upon
consummation of the transaction which resulted in the shareholder becoming an
Interested Stockholder, such shareholder owned at least 85% of the outstanding
BancGroup Common Stock (excluding BancGroup Common Stock held by officers and
directors of BancGroup or by certain BancGroup stock plans). These provisions of
Delaware law apply simultaneously with the provisions of the BancGroup
Certificate relating to business combinations with a related person, described
above at "Business Combinations," but they are generally less restrictive than
the BancGroup Certificate.
Control Acquisitions. As it relates to BancGroup, the Change in Bank
Control Act of 1978 prohibits a person or group of persons from acquiring
"control" of a bank holding company unless the Federal Reserve has been given 60
days' prior written notice of such proposed acquisition and within that time
period the Federal Reserve has not issued a notice disapproving the proposed
acquisition or extending for up to another 30 days the period during which such
a disapproval may be issued. An acquisition may be made prior to the expiration
of the disapproval period if the Federal Reserve issues written notice of its
intent not to disapprove the action. Under a rebuttable presumption established
by the Federal Reserve, the acquisition of more than 10% of a class of voting
stock of a bank holding company with a class of securities registered under
Section 12 of the Exchange Act, such as BancGroup, would, under the
circumstances set forth in the presumption, constitute the acquisition of
control. The receipt of revocable proxies, provided the proxies terminate within
a reasonable time after the meeting to which they relate, is not included in
determining percentages for change in control purposes.
COMPARATIVE RIGHTS OF SHAREHOLDERS
If the Merger is consummated, shareholders of InterWest (except those
perfecting dissenters' rights) will become holders of BancGroup Common Stock.
The rights of the holders of the InterWest Common Stock who become holders of
BancGroup Common Stock following the Merger will be governed by the BancGroup
Certificate and the BancGroup Bylaws, as well as the laws of Delaware, the state
in which BancGroup is incorporated.
The following summary compares the rights of the holders of InterWest
Common Stock with the rights of the holders of the BancGroup Common Stock. For a
more detailed description of the rights of the holders of BancGroup Common
Stock, including certain features of the BancGroup Certificate and the Delaware
34
<PAGE> 42
General Corporate Law (the "DGCL") that might limit the circumstances under
which a change in control of BancGroup could occur, see "BancGroup Capital Stock
and Debentures."
The following information is qualified in its entirety by the BancGroup
Certificate and the BancGroup Bylaws, and InterWest's Articles of Incorporation
and Bylaws, the DGCL and the Nevada Revised Statutes.
DIRECTOR ELECTIONS
InterWest. InterWest's Directors are elected annually by a plurality of
the votes cast by the shareholders of its Common Stock. InterWest's shareholders
do not have cumulative voting rights in the election of Directors.
BancGroup. BancGroup's directors are elected to terms of three years with
approximately one-third of the Board 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
InterWest. At any special meeting of InterWest's shareholders called for
the purpose, shareholders representing not less than two-thirds of the issued
and outstanding stock entitled to voting power, by vote or by written consent,
may remove any one or all of the Board of Directors, with or without cause, in
which event the vacancy or vacancies so created shall be filled by a vote of the
shareholders or, if no action is taken to fill such vacancy or vacancies by the
shareholders, by the surviving Directors as provided in Section 2 of Article III
of InterWest's Bylaws. Such election, if by the shareholders, would be by
plurality vote.
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
InterWest. Each shareholder of InterWest is entitled to one vote for each
share of InterWest Common Stock held, and such holders are not entitled to
cumulative voting rights for the election of Directors.
BancGroup. Each stockholder of BancGroup is entitled to one vote for each
share of BancGroup Common Stock held, and such holders are not entitled to
cumulative voting rights in the election of directors.
PREEMPTIVE RIGHTS
InterWest. Holders of InterWest Common Stock have no preemptive rights to
acquire any additional shares of InterWest Common Stock.
BancGroup. The holders of BancGroup Common Stock have no preemptive rights
to acquire any additional shares of BancGroup Common Stock or any other shares
of BancGroup capital stock.
DIRECTORS' LIABILITY
InterWest. No provision is made in the Articles of Incorporation or Bylaws
of InterWest with regard to Director's Liability. The Articles of Incorporation
and Bylaws do provide for indemnification of Directors. Nevada law imposes
liability upon directors for (i) acts or omissions which involve intentional
misconduct, fraud or knowing violation of law, or (ii) payment of unlawful
distributions or dividends in violation of NRS, Section 78.300.
BancGroup. The BancGroup Certificate provides that a director of BancGroup
will have no personal liability to BancGroup or its stockholders for monetary
damages for breach of fiduciary duty as a director except (i) for any breach of
the director's duty of loyalty to the corporation or its stockholders, (ii) for
acts or omissions not in good faith or that involve intentional misconduct or a
knowing violation of law, (iii) for the payment of certain unlawful dividends
and the making of certain stock purchases or redemptions, or (iv) for
35
<PAGE> 43
any transaction from which the director derived an improper personal benefit.
This provision would absolve directors of personal liability for negligence in
the performance of duties, including gross negligence. It would not permit a
director to be exculpated, however, for liability for actions involving
conflicts of interest or breaches of the traditional "duty of loyalty" to
BancGroup and its stockholders, and it would not affect the availability of
injunctive or other equitable relief as a remedy.
INDEMNIFICATION
InterWest. InterWest's Articles of Incorporation and Bylaws direct that
InterWest shall, to the fullest extent permitted by Nevada law, advance expenses
to and indemnify any of its directors, officers or any other person serving at
the request of InterWest against expenses, judgments, fines, settlements, and
other amounts actually and reasonably incurred in connection with any action,
suit or proceeding arising because such person is or was a director, officer or
agent of InterWest. A "Person" is defined to include a director, officer,
employee or other agent of InterWest who is or was serving at the request of
InterWest or a predecessor corporation as a director, officer, employee or agent
of another corporation, partnership, joint venture, trust or other enterprise.
The character of expenses subject to indemnification or advancement include
attorneys' fees, costs, judgments, fines, and amounts paid in settlement
actually and reasonably incurred by the Person in connection with the
litigation, but excluding judgments against any Person determined by a court of
competent jurisdiction, after all appeals, to be liable to InterWest unless such
court, considering all the circumstances determines that such Person is fairly
and reasonably entitled to indemnify for all such expenses. InterWest's Bylaws
would be interpreted to provide that InterWest shall indemnify the costs of
Persons incurred in litigation, regardless of the conduct of the person, unless
a final adjudication established that the person's acts or omissions involved
intentional misconduct, fraud or knowing violation of the law and was material
to the cause of action.
BancGroup. The BancGroup Certificate provides that directors, officers,
employees and agents of BancGroup shall be indemnified to the full extent
permitted under the DGCL. Section 145 of the DGCL contains detailed and
comprehensive provisions providing for indemnification of directors and officers
of Delaware corporations against expenses, judgments, fines and settlements in
connection with litigation. Under the DGCL, other than an action brought by or
in the right of BancGroup, such indemnification is available if it is determined
that the proposed indemnity acted in good faith and in a manner he or she
reasonably believed to be in or not opposed to the best interests of BancGroup
and, with respect to any criminal action or proceeding, had no reasonable cause
to believe his conduct was unlawful. In actions brought by or in the right of
BancGroup, such indemnification is limited to expenses (including attorneys'
fees) actually and reasonably incurred in the defense or settlement of such
action if the indemnity acted in good faith and in a manner he or she reasonably
believed to be in or not opposed to the best interests of BancGroup and except
that no indemnification shall be made in respect of any claim, issue or matter
as to which such person has been adjudged to be liable to BancGroup unless and
only to the extent that the Delaware Court of Chancery or the court in which the
action was brought determines upon application that in view of all the
circumstances of the case, such person is fairly and reasonably entitled to
indemnity for such expenses as the court deems proper.
To the extent that the proposed indemnity has been successful on the merits
or otherwise in defense of any action, suit or proceeding (or any claim, issue
or matter therein), he or she must be indemnified against expenses (including
attorneys' fees) actually and reasonably incurred by him in connection
therewith.
BancGroup maintains an officers' and directors' insurance policy and a
separate indemnification agreement pursuant to which officers and directors of
BancGroup would be entitled to indemnification against certain liabilities,
including reimbursement of certain expenses that extends beyond the minimum
indemnification provided by Section 145 of the DGCL.
SPECIAL MEETINGS OF SHAREHOLDERS; ACTION WITHOUT A MEETING
InterWest. Pursuant to the Articles of Incorporation of InterWest, a
Special Meeting of InterWest shareholders may be called by the President or the
Board of Directors. In addition thereto, the Bylaws of InterWest permit a
Special Meeting of the shareholders to be called at the request, in writing, of
the holders of a majority of the issued and outstanding common stock of
InterWest. Nevada law, and the Bylaws of
36
<PAGE> 44
InterWest, provide that any action required or permitted to be taken at a
meeting of the shareholders may be taken without a meeting if a written consent
thereto is signed by the shareholders holding at least a majority vote of the
voting power.
BancGroup. Under the BancGroup Certificate, a special meeting of
BancGroup's stockholders may only be called by a majority of the BancGroup Board
of Directors or by the chairman of the Board of Directors of BancGroup. Holders
of BancGroup Common Stock may not call special meetings or act by written
consent.
MERGERS, SHARE EXCHANGES AND SALES OF ASSETS
InterWest. Pertinent provisions of the Nevada Revised Statutes provide
that mergers and sales of substantially all of the assets of Nevada corporations
must be approved by a majority of the outstanding stock of the corporation
entitled to vote thereon. Except as described below, the InterWest Articles of
Incorporation and Bylaws have no provisions governing voting approval for
extraordinary corporate transactions.
Nevada Revised Statutes, Sections 78.411 to 78.444, inclusive, prohibit
business combinations or mergers between Nevada corporations and certain
interested stockholders for a period of three years after the interested
stockholder's date of acquiring shares unless the combination or the purchase of
the shares made by the interested stockholder is approved by the Board of
Directors. These Nevada statutes also prohibit such business combinations after
the expiration of three years after the interested stockholder's date of
acquiring shares unless the combination meets certain statutory requirements.
The Nevada statute defines interested stockholders to include persons who, along
or together with affiliates, beneficially own 10% the outstanding stock of the
corporation.
Under the Nevada Control Shares statute, NRS Sections 78.378 to 78.3793, a
corporation denies voting rights to a stockholder who acquires a controlling
interest in a Nevada corporation, unless such voting rights are approved by a
majority of the voting powers of the corporation.
BancGroup. The DGCL provides that mergers and sales of substantially all
of the assets of Delaware corporations must be approved by a majority of the
outstanding stock of the corporation entitled to vote thereon. The DGCL also
provides, however, that the stockholders of the corporation surviving a merger
need not approve the transaction if: (i) the agreement of merger does not amend
in any respect the certificate of incorporation of such corporation; (ii) each
share of stock of such corporation outstanding immediately prior to the
effective date of the merger is to be an identical outstanding or treasury share
of the surviving corporation after the effective date of the merger; and (iii)
either no shares of common stock of the surviving corporation and no shares,
securities or obligations convertible into such stock are to be issued or
delivered under the plan of merger, or the authorized unissued shares or the
treasury shares of common stock of the surviving corporation to be issued or
delivered under the plan of merger plus those initially issuable upon conversion
of any other shares, securities or obligations to be issued or delivered under
such plan do not exceed 20% of the shares of common stock of such corporation
outstanding immediately prior to the effective date of the merger. See also
"BancGroup Capital Stock and Debentures -- Changes in Control" for a description
of the statutory provisions and the provisions of the BancGroup Certificate
relating to changes of control of BancGroup. See "Antitakeover Statutes" for a
description of additional restrictions on business combination transactions.
AMENDMENT OF CERTIFICATE OF INCORPORATION AND BYLAWS
InterWest. Pursuant to the Articles of Incorporation, and under Nevada
law, the Articles of Incorporation of InterWest may be amended by the
affirmative vote of the holders of a majority of the issued and outstanding
Common Stock. The Bylaws of InterWest authorized an amendment thereto by the
shareholders or Board of Directors provided notice of such amendment is given as
provided by the Articles of Incorporation and Nevada law.
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
37
<PAGE> 45
of a larger portion of the stock. The BancGroup Certificate requires
"super-majority" Stockholder approval to amend or repeal any provision of, or
adopt any provision inconsistent with, certain provisions in the BancGroup
Certificate governing (i) the election or removal of directors, (ii) business
combinations between BancGroup and a Related Person, and (iii) board of
directors evaluation of business combination procedures. See "BancGroup Capital
Stock and Debentures -- Changes in Control."
As is permitted by the DGCL, the Certificate gives the Board of Directors
the power to adopt, amend or repeal the BancGroup Bylaws. The stockholders
entitled to vote have concurrent power to adopt, amend or repeal the BancGroup
Bylaws.
RIGHTS OF DISSENTING STOCKHOLDERS
InterWest. Sections 92A.300 to 92A.500 of the Nevada Revised Statutes
provide statutory appraisal rights to shareholders dissenting from certain
corporate reorganizations such as mergers or sales of all or substantially all
of the corporation's assets which would include the Merger. A Dissenting
Shareholder will be entitled to receive for each share of InterWest Common Stock
as to which dissenters' rights are perfected the fair value of his or her
shares. See "The Merger -- Rights of Dissenting Shareholders."
BancGroup. Under the DGCL, a stockholder has the right, in certain
circumstances, to dissent from certain corporate transactions and receive the
fair value of his or her shares in cash in lieu of the consideration he or she
otherwise would have received in the transaction. For this purpose, "fair value"
may be determined by all generally accepted techniques of valuation used in the
financial community, excluding any element of value arising from the
accomplishment or expectation of the transaction, but including elements of
future value that are known or susceptible of proof. Such fair value is
determined by the Delaware Court of Chancery, if a petition for appraisal is
timely filed. Appraisal rights are not available, however, to stockholders of a
corporation (i) if the shares are listed on a national securities exchange (as
is BancGroup Common Stock) or quoted on the Nasdaq NMS, or held of record by
more than 2,000 stockholders (as is BancGroup Common Stock), and (ii)
stockholders are permitted by the terms of the merger or consolidation to accept
in exchange for their shares (a) shares of stock of the surviving or resulting
corporation, (b) shares of stock of another corporation listed on a national
securities exchange or held of record by more than 2,000 stockholders, (c) cash
in lieu of fractional shares of such stock, or (d) any combination thereof.
Stockholders are not permitted appraisal rights in a merger if such corporation
is the surviving corporation and no vote of its stockholders is required.
PREFERRED STOCK
InterWest. The Articles of Incorporation of InterWest do not authorize the
issuance of any preferred stock.
BancGroup. The BancGroup Certificate authorizes the issuance of 1,000,000
shares of Preference Stock from time to time by resolution of the Board of
Directors of BancGroup. Currently, no shares of Preference Stock are issued and
outstanding. See "BancGroup Capital Stock and Debentures -- Preference Stock."
EFFECT OF THE MERGER ON INTERWEST SHAREHOLDERS
As of August 26, 1998, InterWest had 22 shareholders of record and
3,088,145 outstanding shares of common stock. As of June 30, 1998 and giving
effect to the Stock Split, there were 98,232,266 shares of BancGroup Common
Stock outstanding held by 8,910 stockholders of record.
Assuming that no dissenters' rights of appraisal are exercised in the
Merger, that no InterWest Options are exercised prior to the Effective Date,
that no InterWest Options are exchanged in the Cashless Exchange, and the Market
Value of BancGroup Common Stock is between $15.00 and $20.00 per share on the
Effective Date, an aggregate number of approximately 1,455,752 shares of
BancGroup Common Stock will be issued to the shareholders of InterWest pursuant
to the Merger. These shares would represent approximately 1.46% of
38
<PAGE> 46
the total shares of BancGroup Common Stock outstanding after the Merger, not
counting any shares of BancGroup Common Stock to be issued in other pending
acquisitions.
The issuance of the BancGroup Common Stock pursuant to the Merger will
reduce the percentage interest of the BancGroup Common Stock currently held by
each principal stockholder and each director and officer of BancGroup. Based
upon the foregoing assumptions, as a group, the directors and officers of
BancGroup who own approximately 10.06% of BancGroup's outstanding shares would
own approximately 9.91% after the Merger. See "Business of BancGroup -- Voting
Securities and Principal Stockholders."
BancGroup has entered into agreements pursuant to which additional shares
of BancGroup Common Stock will be issued. See "Business of BancGroup -- Recently
Completed and Other Proposed Business Combinations."
39
<PAGE> 47
THE COLONIAL BANCGROUP, INC. AND SUBSIDIARIES
CONDENSED PRO FORMA STATEMENT OF CONDITION (UNAUDITED)
(IN THOUSANDS)
The following summary includes (i) the condensed consolidated statement of
condition of BancGroup and subsidiaries as of June 30, 1998, (ii) the condensed
consolidated statement of condition of CNB Holding Company ("CNB") as of June
30, 1998, (iii) adjustments to give effect to the completed pooling-of-interests
method business combination with CNB (iv) the condensed statement of condition
of InterWest Bancorp ("InterWest") as of June 30, 1998, (v) adjustments to give
effect to the proposed pooling-of-interests method business combination with
InterWest, (vi) combined presentation of the condensed statements of condition
of the other probable business combinations with FirstBank, First Macon Bank &
Trust and Prime Bank of Central Florida ("Other Probable Business Combinations")
as of June 30, 1998, (vii) adjustments to give effect to the proposed
pooling-of-interests method business combinations with the Other Probable
Business Combinations, (viii) the pro forma combined condensed statement of
condition of BancGroup and subsidiaries as if such combinations had occurred on
June 30, 1998.
The pro forma statement of condition excludes the effect of an immaterial
pending business combination with Texas Bank & Trust located in Dallas, Texas.
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.
40
<PAGE> 48
<TABLE>
<CAPTION>
JUNE 30, 1998
-----------------------------------------------------------------------------------
CONSOLIDATED COMPLETED
COLONIAL BUSINESS ADJUSTMENTS/ ADJUSTMENTS/
BANCGROUP COMBINATION (DEDUCTIONS) INTERWEST (DEDUCTIONS) SUBTOTAL
------------ ----------- ------------ --------- ------------ ----------
<S> <C> <C> <C> <C> <C> <C>
ASSETS
Cash and due from banks........... $ 344,388 $ 3,491 $ 6,088 $ (645)(2) $ 353,322
Interest-bearing deposits in
banks............................ 20,630 7,024 22,896 50,550
Securities available for sale..... 1,117,946 15,216 297 1,133,459
Investment securities............. 235,297 1,993 237,290
Mortgage loans held for sale...... 532,140 532,140
Loans, net of unearned income..... 6,027,489 58,594 95,535 6,181,618
Less: Allowance for possible loan
losses........................... (72,782) (430) (950) (74,162)
---------- ------- ------- -------- -------- ----------
Loans, net........................ 5,954,707 58,164 -- 94,585 -- 6,107,456
Premises and equipment, net....... 156,618 3,274 4,735 164,627
Excess of cost over tangible and
identified intangible assets
acquired, net.................... 78,688 78,688
Mortgage servicing rights......... 174,693 174,693
Other real estate owned........... 10,624 62 10,686
Accrued interest and other
assets........................... 146,802 562 1,853 149,217
---------- ------- ------- -------- -------- ----------
Total Assets................ $8,772,533 $89,786 $130,454 $ (645) $8,992,128
========== ======= ======= ======== ======== ==========
LIABILITIES AND SHAREHOLDERS'
EQUITY
Deposits.......................... $6,193,818 $81,107 $115,728 $6,390,653
FHLB short-term borrowings........ 640,000 640,000
Other short-term borrowings....... 453,482 5,216 458,698
Subordinated debt................. 12,716 12,716
Trust preferred securities........ 70,000 70,000
FHLB long-term debt............... 448,422 448,422
Other long-term debt.............. 200,075 26 200,101
Other liabilities................. 152,249 209 $ 649(1) 791 $ 1,018(2) 154,916
---------- ------- ------- -------- -------- ----------
Total liabilities........... 8,170,762 81,316 649 121,761 1,018 8,375,506
Minority interest................. 936 (936)(2) --
Preferred Stock
Common Stock(1)................... 245,581 153 (153)(1) 1,547 (1,547)(2) 253,624
4,419(1) 3,624(2)
Additional paid in capital(1)..... 115,958 762 (762)(1) -- (2,077)(2) 109,948
(4,224)(1) 291(2)
Retained earnings................. 238,996 8,236 (649)(1) 6,210 (1,018)(2) 251,775
Treasury Stock.................... (720) 720(1)
Unearned compensation............. (3,282) -- (3,282)
Unrealized gain (loss) on
securities available for sale,
net of taxes..................... 4,518 39 -- 4,557
---------- ------- ------- -------- -------- ----------
Total shareholders'
equity..................... 601,771 8,470 (649) 7,757 (727) 616,622
---------- ------- ------- -------- -------- ----------
Total liabilities and
equity..................... $8,772,533 $89,786 $ -- $130,454 $ (645) $8,992,128
========== ======= ======= ======== ======== ==========
Capital Ratios:
Capital Ratio.................... 7.77%
Tangible Leverage Ratio.......... 7.15
Tier One Capital Ratio*.......... 9.40
Total Capital Ratio*............. 10.76
<CAPTION>
JUNE 30, 1998
------------------------------------------
OTHER PROBABLE PRO FORMA
BUSINESS ADJUSTMENTS/ COMBINED
COMBINATIONS (DEDUCTIONS) TOTAL
-------------- ------------ ----------
<S> <C> <C> <C>
ASSETS
Cash and due from banks........... $ 30,949 $ 384,271
Interest-bearing deposits in
banks............................ 60,716 111,266
Securities available for sale..... 18,468 1,151,927
Investment securities............. 76,572 313,862
Mortgage loans held for sale...... 532,140
Loans, net of unearned income..... 232,033 6,413,651
Less: Allowance for possible loan
losses........................... (2,876) (77,038)
-------- -------- ----------
Loans, net........................ 229,157 -- 6,336,613
Premises and equipment, net....... 9,035 173,662
Excess of cost over tangible and
identified intangible assets
acquired, net.................... 39 78,727
Mortgage servicing rights......... 174,693
Other real estate owned........... 49 10,735
Accrued interest and other
assets........................... 3,654 152,871
-------- -------- ----------
Total Assets................ $428,639 $ -- $9,420,767
======== ======== ==========
LIABILITIES AND SHAREHOLDERS'
EQUITY
Deposits.......................... $374,448 $6,765,101
FHLB short-term borrowings........ 5,000 645,000
Other short-term borrowings....... 13,378 472,076
Subordinated debt................. 12,716
Trust preferred securities........ 70,000
FHLB long-term debt............... 448,422
Other long-term debt.............. -- 200,101
Other liabilities................. 3,888 $ 380(3) 160,170
624(4)
362(5)
-------- -------- ----------
Total liabilities........... 396,714 1,366 8,773,586
Minority interest................. --
Preferred Stock
Common Stock(1)................... 2,638 (1,700)(3) 273,425
(538)(4)
(400)(5)
6,955(3)
10,101(4)
2,745(5)
Additional paid in capital(1)..... 20,317 (4,940)(3) 113,102
(11,606)(4)
(3,771)(5)
(315)(3)
2,043(4)
1,426(5)
Retained earnings................. 8,692 (380)(3) 259,101
(624)(4)
(362)(5)
Treasury Stock.................... --
Unearned compensation............. (3,282)
Unrealized gain (loss) on
securities available for sale,
net of taxes..................... 278 4,835
-------- -------- ----------
Total shareholders'
equity..................... 31,925 (1,366) 647,181
-------- -------- ----------
Total liabilities and
equity..................... $428,639 $ -- $9,420,767
======== ======== ==========
Capital Ratios:
Capital Ratio.................... 7.77%
Tangible Leverage Ratio.......... 7.17
Tier One Capital Ratio*.......... 9.45
Total Capital Ratio*............. 10.79
</TABLE>
- ---------------
* Based on risk-weighted assets.
(1) Restated to reflect the impact of a two-for-one stock split in the form of a
100% stock dividend paid August 14, 1998.
41
<PAGE> 49
COMPLETED BUSINESS COMBINATION
CNB HOLDING COMPANY
(pooling of interests)
(1) (A) To record the issuance of 1,767,601 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................. 147,935
Conversion ratio....................................... 11.9485
--------
BancGroup shares to be issued.......................... 1,767,601
Par value of 1,767,601 shares issued at $2.50 per
share................................................. $ 4,419
Shares issued at par value............................. $ 4,419
Total capital stock of CNB Holding Company............. 195
--------
Excess recorded as a decrease to contributed capital... (4,224)
----------
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,
contract buy-outs, noncompete agreements, fixed
assets write-offs and other nonrecurring one-time
restructuring charges, net of taxes................ $ (649)
==========
</TABLE>
PENDING BUSINESS COMBINATIONS
INTERWEST BANCORP
(pooling of interests)
(2) (A) To record the issuance of 1,449,590 shares of BancGroup Common Stock in
exchange for all of the outstanding shares of InterWest
<TABLE>
<S> <C> <C>
InterWest outstanding shares........................... 3,075,075
Conversion ratio....................................... 0.4714
----------
BancGroup shares to be issued.......................... 1,449,590
Par value of 1,449,590 shares issued at $2.50 per
share................................................. $ 3,624
Shares issued at par value............................. $ 3,624
Total capital stock InterWest.......................... 1,547
----------
Excess recorded as a decrease to contributed capital... (2,077)
----------
1,547
To eliminate InterWest
Common stock, at par value........................... $ (1,547)
Contributed capital.................................. --
(1,547)
----------
Net change in equity.............................. $ --
==========
(B) To record purchase of minority interest by
InterWest Bank prior to the merger of InterWest
with BancGroup
Minority interest................................. $ (936)
Additional paid in capital........................ 291
----------
Total purchase price to be paid in cash........... $ (645)
==========
(C) To record possible nonrecurring charges associated
with retention and compensation agreements, stock
options, fixed assets write-offs and other
nonrecurring one-time restructuring charges, net of
taxes.............................................. $ (1,018)
==========
</TABLE>
42
<PAGE> 50
FIRSTBANK
(pooling of interests)
(3) (A) To record the issuance of 2,782,045 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....................................... 8.1825
----------
BancGroup shares to be issued.......................... 2,782,045
Par value of 2,782,045 shares issued at $2.50 per
share................................................. $ 6,955
Shares issued at par value............................. $ 6,955
Total capital stock of FirstBank....................... 6,640
----------
Excess recorded as a decrease to contributed capital... (315)
----------
6,640
To eliminate FirstBank
Common stock, at par value........................... $ (1,700)
Contributed capital.................................. (4,940)
----------
(6,640)
----------
Net change in equity.............................. $ --
==========
(B) To record possible nonrecurring charges associated
with professional fees, employee retention bonuses
and fixed asset write-offs, net of taxes........... $ (380)
==========
</TABLE>
FIRST MACON BANK & TRUST
(pooling of interests)
(4) (A) To record the issuance of 4,040,595 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....................................... 3.7531
----------
BancGroup shares to be issued.......................... 4,040,595
Par value of 4,040,595 shares issued at $2.50 per
share................................................. $ 10,101
Shares issued at par value............................. $ 10,101
Total capital stock of First Macon Bank & Trust........ 12,144
----------
Excess recorded as an increase to contributed
capital............................................... 2,043
----------
12,144
To eliminate First Macon Bank & Trust
Common stock, at par value........................... $ (538)
Contributed capital.................................. (11,606)
----------
(12,144)
----------
Net change in equity.............................. $ --
==========
(B) To record possible nonrecurring charges associated
with severance payable to terminated employees,
professional fees, contract buy-outs, fixed assets
write-offs and other nonrecurring one-time
restructuring charges, net of taxes................ $ (624)
==========
</TABLE>
43
<PAGE> 51
PRIME BANK OF CENTRAL FLORIDA
(pooling of interests)
(5) (A) To record the issuance of 1,097,975 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....................................... 2.7449
--------
BancGroup shares to be issued.......................... 1,097,975
Par value of 1,097,975 shares issued at $2.50 per
share................................................. $ 2,745
Shares issued at par value............................. $ 2,745
Total capital stock of Prime Bank of Central Florida... 4,171
--------
Excess recorded as an increase to contributed
capital............................................... 1,426
----------
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,
professional fees, contract buy-outs, fixed assets
write-offs and other nonrecurring one-time
restructuring charges, net of taxes................ $ (362)
==========
</TABLE>
44
<PAGE> 52
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 six months
ended June 30, 1998 and 1997 and for the years ended December 31, 1997, 1996 and
1995,(ii) CNB Holding Company for the six months ended June 30, 1998 and 1997
and for the years ended December 31, 1997, 1996, 1995, and the condensed
consolidated statements of income Commercial Bank of Nevada for the years ended
December 31, 1997, 1996 and 1995 and (iii) adjustments to give effect to the
completed pooling-of-interests method business combinations with Commercial Bank
of Nevada and CNB Holding Company, (iv) the condensed consolidated statements of
income of InterWest for the six months ended June 30, 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 InterWest,
(vi) the combined presentation of the condensed statements of income of
FirstBank, First Macon Bank & Trust and Prime Bank of Central Florida ("Other
Probable Business Combinations") for the six months ended June 30, 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 Texas Bank & Trust located in Dallas, Texas.
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>
SIX MONTHS ENDED JUNE, 1998
-----------------------------------------------------------------------------------------------------
CONSOLIDATED COMPLETED OTHER PROBABLE
COLONIAL BUSINESS ADJUSTMENTS/ ADJUSTMENTS/ BUSINESS
BANCGROUP COMBINATION (DEDUCTIONS) INTERWEST (DEDUCTIONS) SUBTOTAL COMBINATIONS
------------ ----------- ------------ ---------- ------------ ------------ --------------
<S> <C> <C> <C> <C> <C> <C> <C>
Interest income........ $ 306,662 $ 3,415 $ -- $ 8,500 $ -- $ 318,577 $ 15,682
Interest expense....... 153,441 1,275 -- 2,199 -- 156,915 6,918
------------ ---------- ---------- ---------- ----------- ------------ ----------
Net interest income.... 153,221 2,140 -- 6,301 -- 161,662 8,764
Provision for possible
loan losses........... 7,543 12 126 7,681 236
------------ ---------- ---------- ---------- ----------- ------------ ----------
Net interest income
after provision for
loan losses........... 145,678 2,128 -- 6,175 -- 153,981 8,528
------------ ---------- ---------- ---------- ----------- ------------ ----------
Noninterest income..... 57,420 284 -- 233 -- 57,937 1,148
Noninterest expense.... 134,850 1,362 -- 5,544 -- 141,756 5,032
--
------------ ---------- ---------- ---------- ----------- ------------ ----------
Income before income
taxes................. 68,248 1,050 -- 864 -- 70,162 4,644
Applicable income
taxes................. 25,837 101 -- 319 26,257 902
------------ ---------- ---------- ---------- ----------- ------------ ----------
Net income............. $ 42,411 $ 949 $ -- $ 545 $ -- $ 43,905 $ 3,742
============ ========== ========== ========== =========== ============ ==========
Average basic shares
outstanding(1)........ 97,682,000 145,142 (145,142) 3,027,431 (3,027,431) 100,843,360 1,813,854
1,734,229 1,427,131
Average diluted shares
outstanding(1)........ 100,292,000 148,270 (148,270) 3,027,431 (3,027,431) 103,520,292 1,813,854
1,771,604 1,456,688
Earnings per share:
Basic(1)............ $ 0.43 $ 0.44
Diluted(1).......... $ 0.43 $ 0.43
<CAPTION>
SIX MONTHS ENDED JUNE, 1998
----------------------------
PRO FORMA
ADJUSTMENTS/ COMBINED
(DEDUCTIONS) TOTAL
------------ ------------
<S> <C> <C>
Interest income........ $ -- $ 334,259
Interest expense....... -- 163,833
----------- ------------
Net interest income.... -- 170,426
Provision for possible
loan losses........... 7,917
----------- ------------
Net interest income
after provision for
loan losses........... -- 162,509
----------- ------------
Noninterest income..... 59,085
Noninterest expense.... -- 146,788
--
----------- ------------
Income before income
taxes................. -- 74,806
Applicable income
taxes................. 732(1) 27,891
----------- ------------
Net income............. $ (732) $ 46,915
=========== ============
Average basic shares
outstanding(1)........ (1,813,854) 108,753,651
7,910,291
Average diluted shares
outstanding(1)........ (1,813,854) 111,430,583
7,910,291
Earnings per share:
Basic(1)............ $ 0.43
Diluted(1).......... $ 0.42
</TABLE>
- ---------------
(1) Restated to reflect the impact of a two-for-one stock split in the form of a
100% stock dividend paid August 14, 1998.
45
<PAGE> 53
<TABLE>
<CAPTION>
SIX MONTHS ENDED JUNE 30, 1997
------------------------------------------------------------------------------------
CONSOLIDATED
COLONIAL COMPLETED
BANCGROUP BUSINESS ADJUSTMENTS/ ADJUSTMENTS/
(RESTATED)* COMBINATION (DEDUCTIONS) INTERWEST (DEDUCTIONS) SUBTOTAL
------------ ----------- ------------ ---------- ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
Interest income...... $ 263,403 $ 3,238 $ -- $ 6,376 $ -- $ 273,017
Interest expense..... 129,788 1,217 -- 1,346 -- 132,351
----------- -------- ---------- ---------- ----------- ------------
Net interest
income.............. 133,615 2,021 -- 5,030 -- 140,666
Provision for
possible loan
losses.............. 7,288 56 -- 150 -- 7,494
----------- -------- ---------- ---------- ----------- ------------
Net interest income
after provision for
loan losses......... 126,327 1,965 -- 4,880 -- 133,172
----------- -------- ---------- ---------- ----------- ------------
Noninterest income... 42,524 254 -- 232 -- 43,010
Noninterest
expense............. 106,163 1,124 -- 4,733 -- 112,020
----------- -------- ---------- ---------- ----------- ------------
Income before income
taxes............... 62,688 1,095 -- 379 -- 64,162
Applicable income
taxes............... 23,008 409 -- 145 -- 23,562
----------- -------- ---------- ---------- ----------- ------------
Net income........... $ 39,680 $ 686 $ -- $ 234 $ -- $ 40,600
=========== ======== ========== ========== =========== ============
Average basic shares
outstanding(1)...... 93,788,000 147,451 (147,451) 2,997,080 (2,997,080) 96,962,642
1,761,818 1,412,824
Average diluted
shares
outstanding(1)...... 97,064,000 151,324 (151,324) 2,997,080 (2,997,080) 100,312,138
1,808,095 1,440,043
Earnings per share:
Basic(1).......... $ 0.42 $ 0.42
Diluted(1)........ $ 0.41 $ 0.41
<CAPTION>
SIX MONTHS ENDED JUNE 30, 1997
--------------------------------------------
OTHER PROBABLE PRO FORMA
BUSINESS ADJUSTMENTS/ COMBINED
COMBINATIONS (DEDUCTIONS) TOTAL
-------------- ------------ ------------
<S> <C> <C> <C>
Interest income...... $ 12,355 $ -- $ 285,372
Interest expense..... 5,191 -- 137,542
---------- ----------- ------------
Net interest
income.............. 7,164 -- 147,830
Provision for
possible loan
losses.............. 279 -- 7,773
---------- ----------- ------------
Net interest income
after provision for
loan losses......... 6,885 -- 140,057
---------- ----------- ------------
Noninterest income... 1,018 44,028
Noninterest
expense............. 4,392 -- 116,412
---------- ----------- ------------
Income before income
taxes............... 3,511 -- 67,673
Applicable income
taxes............... 981 -- 24,543
---------- ----------- ------------
Net income........... $ 2,530 $ -- $ 43,130
========== =========== ============
Average basic shares
outstanding(1)...... 1,814,211 (1,814,211) 104,888,793
7,926,151
Average diluted
shares
outstanding(1)...... 1,814,211 (1,814,211) 108,238,289
7,926,151
Earnings per share:
Basic(1).......... $ 0.41
Diluted(1)........ $ 0.40
</TABLE>
- ---------------
* Restated to give retroactive effect to the June 1998 pooling-of-interests
business combination with Commercial Bank of Nevada.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, 1997
-------------------------------------------------------------------------------------
CONSOLIDATED COMPLETED
COLONIAL BUSINESS ADJUSTMENTS/ ADJUSTMENTS/
BANCGROUP COMBINATIONS (DEDUCTIONS) INTERWEST (DEDUCTIONS) SUBTOTAL
------------ ------------ ------------ ---------- ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
Interest income........... $ 540,699 $ 15,036 $ -- $ 14,134 $ -- $ 569,869
Interest expense.......... 267,084 5,889 -- 2,920 -- 275,893
----------- -------- ---------- ---------- ----------- ------------
Net interest income....... 273,615 9,147 -- 11,214 -- 293,976
Provision for possible
loan losses.............. 14,860 945 -- 270 -- 16,075
----------- -------- ---------- ---------- ----------- ------------
Net interest income after
provision for loan
losses................... 258,755 8,202 -- 10,944 -- 277,901
----------- -------- ---------- ---------- ----------- ------------
Noninterest income........ 92,550 1,063 -- 287 -- 93,900
Noninterest expense....... 220,232 5,442 -- 10,161 -- 235,835
--
----------- -------- ---------- ---------- ----------- ------------
Income before income
taxes.................... 131,073 3,823 -- 1,070 -- 135,966
Applicable income taxes... 48,557 1,388 -- 417 -- 50,362
----------- -------- ---------- ---------- ----------- ------------
Net income................ $ 82,516 $ 2,435 $ -- $ 653 $ -- $ 85,604
=========== ======== ========== ========== =========== ============
Average basic shares
outstanding(1)........... 93,072,000 989,270 (989,270) 3,006,139 (3,006,139) 97,931,188
3,442,094 1,417,094
Average diluted shares
outstanding(1)........... 96,316,000 992,693 (992,693) 3,006,139 (3,006,139) 101,239,678
3,482,993 1,440,685
Earnings per share:
Basic(1)............... $ 0.89 $ 0.87
Diluted(1)............. $ 0.86 $ 0.85
<CAPTION>
YEAR ENDED DECEMBER 31, 1997
---------------------------------------------
OTHER PROBABLE PRO FORMA
BUSINESS ADJUSTMENTS/ COMBINED
COMBINATIONS (DEDUCTIONS) TOTAL
-------------- ------------ ------------
<S> <C> <C> <C>
Interest income........... $ 27,038 $ -- $ 596,907
Interest expense.......... 11,491 -- 287,384
---------- ----------- ------------
Net interest income....... 15,547 -- 309,523
Provision for possible
loan losses.............. 317 -- 16,392
---------- ----------- ------------
Net interest income after
provision for loan
losses................... 15,230 -- 293,131
---------- ----------- ------------
Noninterest income........ 2,201 -- 96,101
Noninterest expense....... 9,272 -- 245,107
--
---------- ----------- ------------
Income before income
taxes.................... 8,159 -- 144,125
Applicable income taxes... 1,934 913(2) 53,209
---------- ----------- ------------
Net income................ $ 6,225 $ (913) $ 90,916
========== =========== ============
Average basic shares
outstanding(1)........... 1,813,785 (1,813,785) 105,844,799
7,913,611
Average diluted shares
outstanding(1)........... 1,813,785 (1,813,785) 109,153,289
7,913,611
Earnings per share:
Basic(1)............... $ 0.86
Diluted(1)............. $ 0.83
</TABLE>
- ---------------
(1) Restated to reflect the impact of a two-for-one stock split in the form of a
100% stock dividend paid August 14, 1998.
46
<PAGE> 54
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, 1996
------------------------------------------------------------------------------------
CONSOLIDATED COMPLETED
COLONIAL BUSINESS ADJUSTMENTS/ ADJUSTMENTS/
BANCGROUP COMBINATIONS (DEDUCTIONS) INTERWEST (DEDUCTIONS) SUBTOTAL
------------ ------------ ------------ ---------- ------------ -----------
<S> <C> <C> <C> <C> <C> <C>
Interest income....... $ 444,082 $10,214 $ -- $ 11,648 $ -- $ 465,944
Interest expense...... 219,494 3,562 -- 2,550 -- 225,606
----------- ------- ---------- ---------- ---------- -----------
Net interest income... 224,588 6,652 -- 9,098 -- 240,338
Provision for possible
loan losses.......... 13,564 402 60 14,026
----------- ------- ---------- ---------- ---------- -----------
Net interest income
after provision for
loan losses.......... 211,024 6,250 -- 9,038 -- 226,312
----------- ------- ---------- ---------- ---------- -----------
Noninterest income.... 74,860 724 -- 437 -- 76,021
Noninterest expense... 198,971 3,904 -- 7,947 -- 210,822
----------- ------- ---------- ---------- ---------- -----------
Income before income
taxes................ 86,913 3,070 -- 1,528 -- 91,511
Applicable income
taxes................ 30,631 940 -- 556 32,127
----------- ------- ---------- ---------- ---------- -----------
Net income............ $ 56,282 $ 2,130 $ -- $ 972 $ -- $ 59,384
=========== ======= ========== ========== ========== ===========
Average basic shares
outstanding(1)....... 85,678,000 805,524 (805,524) 2,962,146 (2,962,146) 90,148,550
3,074,194 1,396,356
Average diluted shares
outstanding(1)....... 89,552,000 809,510 (809,510) 2,962,146 (2,962,146) 94,145,016
3,189,897 1,403,119
Earnings per share:
Basic(1)........... $ 0.66 $ 0.66
Diluted(1)......... $ 0.63 $ 0.64
<CAPTION>
YEAR ENDED DECEMBER 31, 1996
--------------------------------------------
OTHER PROBABLE PRO FORMA
BUSINESS ADJUSTMENTS/ COMBINED
COMBINATIONS (DEDUCTIONS) TOTAL
-------------- ------------ ------------
<S> <C> <C> <C>
Interest income....... $ 21,717 $ -- $ 487,661
Interest expense...... 8,887 -- 234,493
---------- ---------- ------------
Net interest income... 12,830 -- 253,168
Provision for possible
loan losses.......... 474 14,500
---------- ---------- ------------
Net interest income
after provision for
loan losses.......... 12,356 -- 238,668
---------- ---------- ------------
Noninterest income.... 1,991 -- 78,012
Noninterest expense... 8,676 -- 219,498
---------- ---------- ------------
Income before income
taxes................ 5,671 -- 97,182
Applicable income
taxes................ 1,802 -- 33,929
---------- ---------- ------------
Net income............ $ 3,869 $ -- $ 63,253
========== ========== ============
Average basic shares
outstanding(1)....... 1,808,926 (1,808,926) 98,063,100
7,914,550
Average diluted shares
outstanding(1)....... 1,808,926 (1,808,926) 102,059,566
7,914,550
Earnings per share:
Basic(1)........... $ 0.65
Diluted(1)......... $ 0.62
</TABLE>
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, 1995
------------------------------------------------------------------------------------
CONSOLIDATED COMPLETED
COLONIAL BUSINESS ADJUSTMENTS/ ADJUSTMENTS/
BANCGROUP COMBINATIONS (DEDUCTIONS) INTERWEST (DEDUCTIONS) SUBTOTAL
------------ ------------ ------------ ---------- ------------ -----------
<S> <C> <C> <C> <C> <C> <C>
Interest income........ $ 371,985 $ 7,178 $ -- $ 11,850 $ -- $ 391,013
Interest expense....... 182,441 2,474 -- 2,306 -- 187,221
----------- ------- ---------- ---------- ---------- -----------
Net interest income.... 189,544 4,704 -- 9,544 -- 203,792
Provision for possible
loan losses........... 10,180 207 -- 70 -- 10,457
----------- ------- ---------- ---------- ---------- -----------
Net interest income
after provision for
loan losses........... 179,364 4,497 -- 9,474 -- 193,335
----------- ------- ---------- ---------- ---------- -----------
Noninterest income..... 63,479 557 -- 166 -- 64,202
Noninterest expense.... 164,739 3,276 -- 7,927 -- 175,942
----------- ------- ---------- ---------- ---------- -----------
Income before income
taxes................. 78,104 1,778 -- 1,713 -- 81,595
Applicable income
taxes................. 27,462 744 -- 733 -- 28,939
----------- ------- ---------- ---------- ---------- -----------
Net income............. $ 50,642 $ 1,034 $ -- $ 980 $ -- $ 52,656
=========== ======= ========== ========== ========== ===========
Average basic shares
outstanding(1)........ 79,574,000 655,606 (655,606) 2,923,880 (2,923,880) 83,731,112
2,778,795 1,378,317
Average diluted shares
outstanding(1)........ 87,298,000 657,358 (657,358) 2,923,880 (2,923,880) 91,476,046
2,799,729 1,378,317
Earnings per share:
Basic(1)............ $ 0.64 $ 0.63
Diluted(1).......... $ 0.59 $ 0.59
<CAPTION>
YEAR ENDED DECEMBER 31, 1995
-------------------------------------------
OTHER PROBABLE PRO FORMA
BUSINESS ADJUSTMENTS/ COMBINED
COMBINATIONS (DEDUCTIONS) TOTAL
-------------- ------------ -----------
<S> <C> <C> <C>
Interest income........ $ 18,376 $ 409,389
Interest expense....... 7,478 -- 194,699
---------- ---------- -----------
Net interest income.... 10,898 -- 214,690
Provision for possible
loan losses........... 547 -- 11,004
---------- ---------- -----------
Net interest income
after provision for
loan losses........... 10,351 -- 203,686
---------- ---------- -----------
Noninterest income..... 1,619 -- 65,821
Noninterest expense.... 7,260 -- 183,202
---------- ---------- -----------
Income before income
taxes................. 4,710 -- 86,305
Applicable income
taxes................. 1,476 -- 30,415
---------- ---------- -----------
Net income............. $ 3,234 $ -- $ 55,890
========== ========== ===========
Average basic shares
outstanding(1)........ 1,777,392 (1,777,392) 91,548,852
7,817,740
Average diluted shares
outstanding(1)........ 1,777,392 (1,777,392) 99,293,786
7,817,740
Earnings per share:
Basic(1)............ $ 0.61
Diluted(1).......... $ 0.57
</TABLE>
- ---------------
(1) Restated to reflect the impact of a two-for-one stock split in the form of a
100% stock dividend paid August 14, 1998.
47
<PAGE> 55
PRO FORMA ADJUSTMENTS
ADJUSTMENTS APPLICABLE TO THE POOLING-OF-INTERESTS BUSINESS COMBINATION WITH
FIRSTBANK
1) To record a provision for income taxes for FirstBank as if FirstBank had
merged with BancGroup on January 1, 1995. Subsequent to its S-Corporation
election as of January 1, 1997, FirstBank does not include a provision for
income taxes in their 1998 and 1997 financial statements.
NONRECURRING CHARGES
(IN THOUSANDS)
The following table reflects the primary components of the nonrecurring
charges and related tax effect which will result directly from the business
combinations and which will be included in BancGroup's results. These charges
are not reflected in the condensed pro forma statements of income but are
reflected in the condensed pro forma statement of condition. (Please refer to
BancGroup's Current Report on Form 8-K dated March 16, 1998 and incorporated by
reference herein.)
COMPLETED BUSINESS COMBINATION
(1) Possible charges applicable to the pooling-of-interests method business
combination with CNB Holding Company:
<TABLE>
<S> <C>
Increase in expense:
Write-off of fixed assets................................. $ (199)
Potential severance to terminated employees............... (52)
Non-compete agreements.................................... (183)
Contract buy-outs......................................... (570)
Write-off of other assets................................. (34)
-------
Net decrease in income before taxes......................... (1,038)
Tax effect of the pro forma adjustment...................... 389
-------
Net decrease in income................................. $ (649)
=======
</TABLE>
PENDING BUSINESS COMBINATIONS
(2) Possible charges applicable to the pooling-of-interests method business
combination with InterWest:
<TABLE>
<S> <C>
Increase in expense:
Write-off of fixed assets................................. $ (480)
Retention bonus agreements................................ (250)
Stock option compensation expense adjustment.............. (727)
Other miscellaneous adjustments........................... (40)
-------
Net decrease in income before taxes......................... (1,497)
Tax effect of the pro forma adjustment...................... 479
-------
Net decrease in income................................. $(1,018)
=======
</TABLE>
48
<PAGE> 56
(3) Possible charges applicable to the pooling-of-interests method business
combination with FirstBank:
<TABLE>
<S> <C>
Increase in expense:
Professional fees......................................... $(100)
Retention bonus agreements................................ (500)
Write-off of fixed assets................................. (8)
-----
Net decrease in income before tax........................... (608)
Tax effect of the pro forma adjustment...................... 228
-----
Net decrease in income................................. ($380)
=====
</TABLE>
(4) Possible charges 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>
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>
49
<PAGE> 57
THE COLONIAL BANCGROUP, INC. AND SUBSIDIARIES
SELECTED FINANCIAL AND OPERATING INFORMATION
The following tables present certain financial information for BancGroup on
a historical basis and pro forma basis. The first table presents historical and
pro forma information for the six months ended June 30, 1998 and 1997. The
second table presents historical and pro forma income statements for the years
ended December 31, 1997, 1996 and 1995 as well as historical for the years ended
December 31, 1994 and 1993. The final table presents proforma and historical
statements of condition as June 30, 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 InterWest Bancorp, 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 June 30, 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>
SIX MONTHS ENDED JUNE 30,
-----------------------------------------------
BANCGROUP BANCGROUP BANCGROUP BANCGROUP
PRO FORMA HISTORICAL PRO FORMA HISTORICAL
1998 1998 1997 1997*
--------- ---------- --------- ----------
<S> <C> <C> <C> <C>
STATEMENT OF INCOME
Interest income...................................... $334,259 $306,662 $285,372 $263,403
Interest expense..................................... 163,833 153,441 137,542 129,788
-------- -------- -------- --------
Net interest income.................................. 170,426 153,221 147,830 133,615
Provision for possible loan losses................... 7,917 7,543 7,773 7,288
-------- -------- -------- --------
Net interest income after provision for loan
losses............................................. 162,509 145,678 140,057 126,327
Noninterest income................................... 59,085 57,420 44,028 42,524
Noninterest expense.................................. 136,194 124,256 113,778 103,529
Acquisition and restructuring costs and Year 2000
expenses........................................... 10,594 10,594 2,634 2,634
-------- -------- -------- --------
Income before income taxes........................... 74,806 68,248 67,673 62,688
Applicable income taxes.............................. 27,891 25,837 24,543 23,008
-------- -------- -------- --------
Net income........................................... $ 46,915 $ 42,411 $ 43,130 $ 39,680
======== ======== ======== ========
Income excluding acquisition and restructuring costs
and Year 2000 expenses............................. $ 53,942 $ 49,438 $ 45,237 $ 41,787
======== ======== ======== ========
EARNINGS PER SHARE
Income excluding acquisition and restructuring costs
and Year 2000 expenses:
Basic(1)........................................... $ 0.50 $ 0.51 $ 0.43 $ 0.45
Diluted(1)......................................... $ 0.48 $ 0.49 $ 0.42 $ 0.43
Net income:
Basic(1)........................................... $ 0.43 $ 0.43 $ 0.41 $ 0.42
Diluted(1)......................................... $ 0.42 $ 0.43 $ 0.40 $ 0.41
Average shares outstanding
Basic(1)........................................... 108,754 97,682 104,889 93,788
Diluted(1)......................................... 111,431 100,292 108,238 97,064
Cash dividends:
Common(1).......................................... $ 0.17 $ 0.17 $ 0.15 $ 0.15
</TABLE>
50
<PAGE> 58
<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............. $596,907 $487,661 $409,389 $540,699 $444,082 $371,985 $278,223 $224,209
Interest expense............ 287,384 234,493 194,699 267,084 219,494 182,441 113,715 88,568
-------- -------- -------- -------- -------- -------- -------- --------
Net interest income......... 309,523 253,168 214,690 273,615 224,588 189,544 164,508 135,641
Provision for possible loan
losses.................... 16,392 14,500 11,004 14,860 13,564 10,180 8,943 14,437
-------- -------- -------- -------- -------- -------- -------- --------
Net interest income after
provision for loan
losses.................... 293,131 238,668 203,686 258,755 211,024 179,364 155,565 121,204
Noninterest income.......... 96,101 78,012 65,821 92,550 74,860 63,479 56,567 53,655
Noninterest expense......... 238,644 202,826 181,464 213,769 182,588 163,001 154,083 135,471
SAIF special assessment..... -- 4,754 -- -- 4,465 -- -- --
Acquisition and
restructuring costs....... 6,463 11,918 1,738 6,463 11,918 1,738 1,348 960
-------- -------- -------- -------- -------- -------- -------- --------
Income before income
taxes..................... 144,125 97,182 86,305 131,073 86,913 78,104 56,701 38,428
Applicable income taxes..... 53,209 33,929 30,415 48,557 30,631 27,462 18,610 12,216
-------- -------- -------- -------- -------- -------- -------- --------
Income before extraordinary
items..................... 90,916 63,253 55,890 82,516 56,282 50,642 38,091 26,212
Extraordinary items......... -- -- -- -- -- -- -- (396)
Cumulative effect of a
change in accounting...... -- -- -- -- -- -- -- 3,890
-------- -------- -------- -------- -------- -------- -------- --------
Net income.................. $ 90,916 $ 63,253 $ 55,890 $ 82,516 $ 56,282 $ 50,642 $ 38,091 $ 29,706
======== ======== ======== ======== ======== ======== ======== ========
Income excluding SAIF
special assessment and
acquisition and
restructuring costs....... $ 96,086 $ 75,877 $ 57,280 $ 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).................. $ 0.91 $ 0.77 $ 0.63 $ 0.94 $ 0.80 $ 0.65 $ 0.52 $ 0.40
Diluted(1)................ 0.88 0.74 0.58 0.91 0.77 0.61 0.49 0.38
Income before extraordinary
items:
Basic(1).................. 0.86 0.65 0.61 0.89 0.66 $ 0.64 $ 0.51 $ 0.39
Diluted(1)................ 0.83 0.62 0.57 0.86 0.63 0.59 0.48 0.37
Net income:
Basic(1).................. 0.86 0.65 0.61 0.89 0.66 0.64 0.51 0.44
Diluted(1)................ 0.83 0.62 0.57 0.86 0.63 0.59 0.48 0.42
Average shares outstanding
Basic(1).................. 105,845 98,063 91,549 93,072 85,678 79,574 74,722 67,024
Diluted(1)................ 109,153 102,060 99,294 96,316 89,552 87,298 81,986 74,930
Cash dividends:
Common**(1)............. $ 0.30 $ 0.27 $ 0.1688 $ 0.30 $ 0.27 $ 0.1688 $ -- $ --
Class A**(1)............ -- -- 0.0563 -- -- 0.0563 0.200 0.178
Class B**(1)............ -- -- 0.0313 -- -- 0.0313 0.100 0.078
</TABLE>
- ---------------
* Restated to give retroactive effect to the June 1998 pooling-of-interests
business combination with Commercial Bank of Nevada.
** The pro forma cash dividends are equal to the historical BancGroup cash
dividends.
(1) Restated to reflect the impact of a two-for-one stock split in the form of a
100% stock dividend paid August 14, 1998.
51
<PAGE> 59
<TABLE>
<CAPTION>
JUNE 30, 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............... $9,420,767 $8,772,533 $7,442,661 $6,165,691 $5,370,361 $4,214,492 $ 4,022,477
Loans, net of unearned
income................. 6,413,651 6,027,489 5,585,901 4,558,780 3,924,785 2,959,565 2,468,564
Mortgage loans held for
sale................... 532,140 532,140 225,331 157,966 116,688 61,556 368,515
Deposits................. 6,765,101 6,193,818 5,771,702 4,728,896 4,223,539 3,378,252 3,252,771
Long-term debt........... 731,239 731,213 315,252 39,092 48,688 89,040 57,397
Shareholders' equity..... 647,181 601,771 543,262 443,391 388,770 298,812 279,300
Average daily balances
Total assets............. 8,638,491 8,023,494 6,911,648 5,742,474 4,756,418 4,028,482 3,308,106
Interest-earning
assets................. 7,821,868 7,247,199 6,325,872 5,253,921 4,347,437 3,645,499 2,945,172
Loans, net of unearned
income................. 6,202,619 5,826,532 5,184,653 4,240,554 3,371,192 2,669,363 1,988,563
Mortgage loans held for
sale................... 327,638 327,638 149,309 135,135 98,785 135,046 248,502
Deposits................. 6,560,651 6,030,070 5,442,818 4,463,015 3,787,613 3,280,208 2,666,025
Shareholders' equity..... 620,714 580,931 504,739 423,289 339,734 292,892 220,802
Book value per share(3).... $ 5.92 $ 6.13 $ 5.76 $ 5.12 $ 4.69 $ 3.94 $ 3.83
Tangible book value per
share(3)................. 5.18 5.33 5.02 4.77 4.33 3.68 3.61
SELECTED RATIOS
Income excluding SAIF
special assessment,
acquisition and
restructuring costs and
Year 2000 expenses to:
Average assets........... 1.26% 1.24% 1.27% 1.20% 1.09% 0.97% 0.82%
Average stockholders'
equity................. 17.50 17.16 17.37 16.23 15.32 13.37 12.22
Income before extraordinary
items and the cumulative
effect of a change in
accounting for income
taxes to:
Average assets........... 1.18 1.13 1.19 0.98 1.06 0.95 0.79
Average stockholders'
equity................. 16.37 15.64 16.35 13.30 14.91 13.01 11.87
Net income to:
Average assets........... 1.18 1.13 1.19 0.98 1.06 0.95 0.90
Average stockholders'
equity................. 16.37 15.64 16.35 13.30 14.91 13.01 13.45
Efficiency ratio(1)(2)..... 61.46 58.60 57.94 60.46 63.89 69.00 71.23
Dividend payout............ 39.53 39.53 33.90 41.22 35.43 39.22 39.89
Average equity to average
assets................... 7.19 7.24 7.30 7.37 7.14 7.27 6.67
Allowance for possible loan
losses to total loans
(Net of unearned
income).................. 1.20% 1.21% 1.21% 1.27% 1.29% 1.54% 1.59%
</TABLE>
- ---------------
(1) Legislation approving a one-time special assessment to recapitalize the
Savings Association Insurance Fund ("SAIF") resulted in $4,754,000 in
expense before income taxes and $3,090,000 net of applicable income taxes in
1996.
(2) Acquisition expenses reflect one-time costs and related restructuring
expense of business combinations.
(3) Restated to reflect the impact of a two-for-one stock split in the form of a
100% stock dividend paid August 14, 1998.
52
<PAGE> 60
INTERWEST BANCORP
SELECTED FINANCIAL DATA
<TABLE>
<CAPTION>
AT AND FOR THE SIX MONTHS
ENDED AT AND FOR THE YEAR ENDED
----------------------------- --------------------------------------------------------------
JUNE 30, 1998 JUNE 30, 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..... $ 28,984 $ 7,297 $ 14,722 $ 11,313 $ 11,223 $ 9,520 $ 8,941
Investment securities......... 297 207 399 153 775 1,552 4,011
Loans, net.................... 94,585 65,034 77,867 57,202 50,387 38,628 35,449
Other assets.................. 6,588 6,222 6,171 6,118 2,546 3,025 2,324
---------- ---------- ---------- ---------- ---------- ---------- ----------
Total assets............ $ 130,454 $ 78,760 $ 99,159 $ 74,786 $ 64,931 $ 52,725 $ 50,725
========== ========== ========== ========== ========== ========== ==========
Deposits...................... $ 115,728 $ 67,997 $ 89,314 $ 62,548 $ 43,778 $ 40,137 $ 34,011
Other liabilities............. 6,033 3,225 1,819 4,826 14,930 7,453 11,619
Minority interest............. 936 818 871 779 695 588 511
Stockholder's Equity.......... 7,757 6,720 7,155 6,633 5,528 4,547 4,584
---------- ---------- ---------- ---------- ---------- ---------- ----------
Total liabilities,
minority interest and
stockholders'
equity................ $ 130,454 $ 78,760 $ 99,159 $ 74,786 $ 64,931 $ 52,725 $ 50,725
========== ========== ========== ========== ========== ========== ==========
For the Period:
Total interest income......... $ 8,500 $ 6,376 $ 14,134 $ 11,648 $ 11,850 $ 8,421 $ 12,473
Total interest expense........ 2,199 1,346 2,920 2,550 2,306 1,432 1,740
---------- ---------- ---------- ---------- ---------- ---------- ----------
Net interest income..... 6,301 5,030 11,214 9,098 9,544 6,989 10,733
Provision for loan losses..... 126 150 270 60 70 60 (77)
---------- ---------- ---------- ---------- ---------- ---------- ----------
Net interest income
after provision for
loan losses........... 6,175 4,880 10,944 9,038 9,474 6,929 10,810
Noninterest income............ 233 232 287 437 166 335 417
Noninterest expense........... 5,474 4,684 10,054 7,821 7,773 7,053 8,345
---------- ---------- ---------- ---------- ---------- ---------- ----------
Income (loss) before income
taxes..................... 934 428 1,177 1,653 1,867 211 2,882
Income taxes.................. 319 145 416 556 733 69 998
---------- ---------- ---------- ---------- ---------- ---------- ----------
Net income (loss) before
minority interest..... 615 283 761 1,097 1,134 142 1,884
Minority interest in income of
subsidiary.................. 70 49 108 125 154 130 103
---------- ---------- ---------- ---------- ---------- ---------- ----------
Net income (loss)....... 545 234 653 972 980 12 1,781
========== ========== ========== ========== ========== ========== ==========
Net income (loss) per share... $ 0.18 $ 0.08 $ 0.22 $ 0.33 $ 0.34 $ 0.00 $ 0.61
========== ========== ========== ========== ========== ========== ==========
Weighted average number of
shares outstanding.......... 3,027,431 2,997,080 3,005,791 2,961,549 2,923,880 2,923,880 2,923,880
========== ========== ========== ========== ========== ========== ==========
Actual shares outstanding at end
of period 3,075,075 3,013,721 3,020,021 2,992,256 2,923,880 2,923,880 2,923,880
========== ========== ========== ========== ========== ========== ==========
Book value per share............ $ 2.52 $ 2.23 $ 2.37 $ 2.22 $ 1.89 $ 1.56 $ 1.57
========== ========== ========== ========== ========== ========== ==========
Ratios and Other Data:
Return on average assets...... 0.49% 0.32% 0.82% 1.44% 1.67% 0.02% 3.37%
Return on average equity...... 7.22 3.54 9.51 15.43 19.56 0.26 44.57
Average equity to average
earning assets.............. 7.52 10.31 9.91 10.75 9.33 10.76 8.51
Net yield on average earning
assets...................... 9.14 10.06 10.14 9.61 9.63 9.17 8.12
Average earning assets to
average interest-bearing
liabilities................. 1.16 1.12 1.15 1.14 1.14 1.15 1.09
Noninterest expense to average
assets...................... 4.90 6.33 12.69 11.63 13.27 14.65 15.81
Nonperforming assets as a
percent of total assets..... 1.03 2.30 0.96 0.95 1.27 0.92 1.42
Allowance for loan losses to
total loans................. 0.99 1.07 1.04 1.01 1.05 1.18 1.13
</TABLE>
53
<PAGE> 61
INTERWEST BANCORP
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
GENERAL
InterWest's results of operations are primarily dependent upon the results
of operations of the Bank, its subsidiary bank, and secondarily upon the results
of operations of the Mortgage Company, its subsidiary mortgage company.
The Bank conducts commercial banking business consisting of attracting
deposits from the general public and applying those funds to the origination of
commercial, consumer and real estate loans (including commercial loans
collateralized by real estate). The Bank's profitability depends primarily on
net interest income, which is the excess of interest income generated from
interest-bearing assets (i.e., loans, investments and federal funds sold) over
interest expense incurred on interest-bearing liabilities (i.e., customer
deposits and borrowed funds). Net interest income is affected by the relative
amounts of interest-earning assets and interest-bearing liabilities, and the
interest rate earned and paid on these balances. Net interest income is
dependent upon the Bank's interest-rate spread which is the excess of average
yield earned on its interest-earning assets over the average rate paid on its
interest-bearing liabilities. When interest-earning assets approximate or exceed
interest-bearing liabilities, any positive interest rate spread will generate
net interest income. The interest-rate spread is impacted by interest rates and
the amounts of deposits and loans. Additionally, the Bank's profitability is
affected by such factors as the level of non-interest income and expenses and
the provision for credit losses. Non-interest income consists primarily of
service fees on deposit accounts. Non-interest expense consists primarily of
compensation, employee benefits, occupancy and equipment expenses, professional
fees, data processing costs, deposit insurance premiums paid to the FDIC and
other operating expenses.
The Mortgage Company conducts mortgage banking business consisting of
originating, marketing and servicing residential real estate loans. The Mortgage
Company originates and sells loans in the secondary market without recourse and
retains servicing on a nominal portion. The loans are sold to approved investors
including, but not limited to, FNMA and FHLMC. The Mortgage company's funding
needs are met through a revolving line of credit at U.S. Bank N.A. The Mortgage
Company also sells pre-approved loans to the Bank under the terms of a Mortgage
Loan Purchase Agreement. Loans that are not pre-committed to the secondary
market are hedged as a means to control interest rate risk exposure and to offer
borrowers more competitive rates. The Mortgage Company's profitability depends
on its ability to originate a sufficient volume of residential real estate loans
on an on-going basis. The Mortgage Company's income is fee based and includes
origination fees, marketing gains, servicing premiums and servicing fees.
Expenses consist primarily of compensation, employee benefits, occupancy and
equipment expenses and other operating expenses.
Management's discussion of earnings and analysis of earnings and related
financial data are presented herein to assist investors in understanding the
financial condition of InterWest at, and the results of operations of InterWest
for the six months ended, June 30, 1998 and 1997, and the years ended December
31, 1997, 1996 and 1995. This discussion should be read in conjunction with the
consolidated financial statements and related footnotes of InterWest presented
elsewhere herein.
LIQUIDITY
Liquidity management involves the ability to meet the cash flow
requirements of customers who may be depositors wanting to withdraw their funds
or borrowers needing assurance that sufficient funds will be available to meet
their credit needs. In the ordinary course of business, the Bank's cash flows
are generated from interest and fee income as well as from loan repayments. In
addition to cash and due from banks, the Bank considers federal funds sold as
the primary source and a line of credit with the Federal Home Loan Bank of San
Francisco as a secondary source of asset liquidity. Many factors affect the
ability to accomplish these liquidity objectives successfully, including the
economic environment, and the asset/liability mix within the balance sheet, as
well as the Bank's reputation in the community. At December 31, 1997 and June
30, 1998,
54
<PAGE> 62
the Bank had unused lines of credit and commitments to fund loans totaling $23.6
million, and $32.5 million, respectively. In addition, scheduled maturities of
certificates of deposit during the year following December 31, 1997 and the 12
months following June 30, 1998 totaled $31.7 million and $46.6 million,
respectively. Management believes that the Bank has adequate resources to fund
all of its commitments, that substantially all of its existing commitments will
be funded within 12 months and, if so desired, that the Bank can adjust the
rates and terms on certificates of deposit and other deposit accounts to retain
deposits in a changing interest rate environment.
The Mortgage Company's cash flows are generated from fee income and the
sale of loans. Once the Mortgage Company's loans are funded, they are
subsequently financed by drawing down on the warehouse line of credit with U.S.
Bank N.A. or by selling the loans on the same day they are funded to the Bank.
CAPITAL RESOURCES
InterWest's total stockholders' equity was $7.155 and $6.633 million as of
December 31, 1997 and 1996, respectively, which represents an increase of $522
thousand. This increase was the result of 1997's net income of $653 thousand,
$62 thousand received from stock options exercised, offset by payment of
dividends in the amount of $193 thousand.
The Federal banking regulatory authorities have adopted certain "prompt
corrective action" rules with respect to depository institutions. The rules
establish five capital tiers: "well capitalized", "adequately capitalized",
"undercapitalized", "significantly undercapitalized" and "critically
undercapitalized". The various federal bank regulatory agencies have adopted
regulations to implement the capital rules by, among other things, defining the
relevant capital measures for the five capital categories. An institution is
deemed to be "well capitalized" if it has a total risk-based capital ratio of
10% or greater, a Tier I risked based capital ratio of 6% or greater, a Tier I
leverage ratio of 5% or greater and is not subject to a regulatory order,
agreement, or directive to meet and maintain a specific capital level. At
December 31, 1997 and June 30, 1998, the Bank met the capital ratios of an
"adequately capitalized" financial institution with a total risk-based capital
ratio of 9.10% and 8.34%, respectively, a Tier I risk-based capital ratio of
8.03% and 7.31%, respectively, and a Tier I leverage ratio of 7.07% and 6.38%,
respectively. Depository institutions which fall below the "adequately
capitalized" category generally are prohibited from making any capital
distribution, are subject to growth limitations, and are required to submit a
capital restoration plan. There are a number of requirements and restrictions
that may be imposed on institutions treated as "significantly undercapitalized"
and, if the institution is "critically undercapitalized", the banking regulatory
agencies have the right to appoint a receiver or conservator.
55
<PAGE> 63
In accordance with risk capital guidelines issued by the FDIC, the Bank is
required to maintain a minimum standard of total capital to risk-weighted assets
of 8%. Additionally, the FDIC requires banks to maintain a minimum
leverage-capital ratio Tier 1 capital (as defined) to total assets. The
leverage-capital ratio ranges from 3% to 5% based on the bank's rating under the
regulatory rating system. The required leverage-capital ratio for the Bank at
December 31, 1997 was 4.0%. The following table summarizes the regulatory
capital levels and ratios for the Bank:
<TABLE>
<CAPTION>
ACTUAL RATIOS
-------------
BANK REGULATORY
SUBSIDIARY REQUIREMENT
------------- -----------
<S> <C> <C>
At June 30, 1998:
Total capital to risk-weighted assets..................... 8.34% 8.00%
Tier 1 capital to risk-weighted assets.................... 7.31 4.00
Tier 1 capital to total assets -- leverage ratio.......... 6.38 4.00
At December 31, 1997:
Total capital to risk-weighted assets..................... 9.10% 8.00%
Tier 1 capital to risk-weighted assets.................... 8.03 4.00
Tier 1 capital to total assets -- leverage ratio.......... 7.07 4.00
At December 31, 1996:
Total capital to risk-weighted assets..................... 11.09% 8.00%
Tier 1 capital to risk-weighted assets.................... 10.03 4.00
Tier 1 capital to total assets -- leverage ratio.......... 9.34 4.00
At December 31, 1995:
Total capital to risk-weighted assets..................... 14.11% 8.00%
Tier 1 capital to risk-weighted assets.................... 12.87 4.00
Tier 1 capital to total assets -- leverage ratio.......... 10.52 4.00
</TABLE>
56
<PAGE> 64
RESULTS OF OPERATIONS
General
InterWest's net income before taxes was $545,060 or $.18 per share for the
six months ended June 30, 1998, as compared to $233,562 or $.08 per share for
the six months ended June 30, 1997, an increase of $311,498. InterWest's net
income for the year ended December 31, 1997 was $652,881 as compared to net
income for the year ended December 31, 1996 of $971,761 a decrease of $318,880
or 32.8%.
The following table presents information regarding (i) the total dollar
amount of InterWest's interest income from interest-earning assets and the
resulting average yield; (ii) the total dollar amount of interest expense on
interest-bearing liabilities and the resulting average cost, (iii) net interest
income; (iv) net interest spread, and (v) net interest margin, for the periods
indicated:
<TABLE>
<CAPTION>
SIX MONTHS ENDED JUNE 30,
---------------------------------------------------------------
1998 1997
------------------------------ -----------------------------
AVERAGE YIELD/ AVERAGE YIELD/
BALANCE INTEREST RATE BALANCE INTEREST RATE
-------- -------- ------ ------- -------- ------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
ASSETS (4):
Interest-earning assets
Loans(1)............................. $ 87,812 $4,209 9.67% $57,901 $3,032 10.56%
Investments.......................... 362 12 6.68 173 5 5.83
Federal funds sold................... 12,289 334 5.48 6,046 163 5.44
-------- ------ ---- ------- ------ -----
Total earning assets............ 100,463 4,555 9.14 64,120 3,200 10.06
------ ---- ------ -----
Non-earning assets....................... 11,294 9,864
-------- -------
Total Assets.................... $111,757 $73,984
======== =======
LIABILITIES, MINORITY INTEREST AND
STOCKHOLDER'S EQUITY (4):
Savings and NOW accounts............. $ 35,647 $ 769 4.35% $30,745 $ 663 4.35%
Money market deposits................ 4,650 87 3.77 3,530 61 3.48
Certificates of deposit.............. 41,495 1,198 5.82 19,849 536 5.45
Borrowings........................... 4,760 145 6.14 3,003 86 5.78
-------- ------ ---- ------- ------ -----
Total interest-bearing
liabilities................... 86,552 2,199 5.12 57,127 1,346 4.75
------ ---- ------ -----
Non-interest bearing liabilities......... 16,739 9,443
Minority Interest........................ 915 802
Stockholder's equity..................... 7,551 6,612
-------- -------
Total liabilities, minority
interest and stockholder's
equity........................ $111,757 $73,984
======== =======
Spread and Interest Differential:
Net interest income...................... $2,356 $1,854
====== ======
Interest-rate spread(2).................. 4.02% 5.31%
==== =====
Net interest margin(3)................... 4.73% 5.83%
==== =====
Ratio of average earning assets to
average interest-bearing liabilities... 1.16 1.12
======== =======
</TABLE>
- ---------------
(1) Includes loans on non-accrual status.
(2) Interest-rate spread represents the excess of the average yield on
interest-earning assets over the average cost of interest-bearing
liabilities.
(3) Net interest margin represents net interest income (annualized) divided by
average interest-earning assets.
(4) Average balances are based upon average daily balances for the Bank,
month-end balances for the Mortgage Company (as daily balances are
unavailable), and quarter-end balances for InterWest (as daily or monthly
balances are unavailable).
57
<PAGE> 65
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, YEAR ENDED DECEMBER 31,
1997 1996
--------------------------- ---------------------------
AVERAGE YIELD/ AVERAGE YIELD/
BALANCE INTEREST RATE BALANCE INTEREST RATE
------- -------- ------ ------- -------- ------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
ASSETS(4):
Interest-earning assets
Loans(1)................................... $64,369 $6,755 10.49% $51,290 $5,252 10.24%
Investments............................. 250 14 5.60 476 14 2.94
Federal funds sold...................... 4,633 255 5.50 6,840 367 5.37
------- ------ ----- ------- ------ -----
Total earning assets............... 69,252 7,024 10.14 58,606 5,633 9.61
------ ----- ------ -----
Non-earning assets........................... 10,000 8,670
------- -------
Total Assets....................... $79,252 $67,276
======= =======
LIABILITIES, MINORITY INTEREST AND
STOCKHOLDER'S EQUITY(4):
Savings and NOW accounts................ $32,224 $1,413 4.38% $14,251 $ 481 3.38%
Money market deposits................... 3,606 128 3.55 3,889 132 3.39
Certificates of deposit................. 20,728 1,158 5.59 24,697 1,377 5.58
Borrowings.............................. 3,550 221 6.23 8,766 560 6.39
------- ------ ----- ------- ------ -----
Total interest-bearing
liabilities...................... 60,108 2,920 4.86 51,603 2,550 4.94
------ ----- ------ -----
Non-interest bearing liabilities............. 11,446 8,621
Minority interest............................ 833 754
Stockholder's equity......................... 6,865 6,298
------- -------
Total liabilities, minority
interest and stockholder's
equity........................... $79,252 $67,276
======= =======
Spread and Interest Differential:
Net interest income.......................... $4,104 $3,083
====== ======
Interest-rate spread(2)...................... 5.28% 4.67%
===== =====
Net interest margin(3)....................... 5.93% 5.26%
===== =====
Ratio of average earning assets to average
interest-bearing liabilities............... 1.15 1.14
======= =======
</TABLE>
58
<PAGE> 66
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, YEAR ENDED DECEMBER 31, YEAR ENDED DECEMBER 31,
1995 1994 1993
--------------------------- --------------------------- ---------------------------
AVERAGE YIELD/ AVERAGE YIELD/ AVERAGE YIELD/
BALANCE INTEREST RATE BALANCE INTEREST RATE BALANCE INTEREST RATE
------- -------- ------ ------- -------- ------ ------- -------- ------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
ASSETS(4):
Interest-earning assets
Loans(1).................. $45,672 $4,728 10.35% $36,049 $3,758 10.42% $39,815 $3,629 9.11%
Investments............. 810 6 0.74 2,797 53 1.89 2,710 55 2.03
Federal funds sold...... 7,218 436 6.04 4,801 190 3.96 4,441 129 2.90
------- ------ ----- ------- ------ ----- ------- ------ ----
Total earning
assets........... 53,700 5,170 9.63 43,647 4,001 9.17 46,966 3,813 8.12
------ ----- ------ ----- ------ ----
Non-earning assets.......... 4,878 4,511 5,833
------- -------
Total Assets....... $58,578 $48,158 $52,799
======= ======= =======
LIABILITIES, MINORITY
INTEREST AND STOCKHOLDER'S
EQUITY(4):
Savings and NOW
accounts.............. $ 9,301 $ 218 2.34% $11,079 $ 263 2.37% $ 9,626 $ 243 2.52%
Money market deposits... 3,545 110 3.10 5,055 133 2.63 5,072 151 2.98
Certificates of
deposit............... 23,479 1,351 5.75 14,389 594 4.13 14,383 609 4.23
Borrowings.............. 10,694 627 5.86 7,270 442 6.08 14,189 737 5.19
------- ------ ----- ------- ------ ----- ------- ------ ----
Total
interest-bearing
liabilities...... 47,019 2,306 4.90 37,793 1,432 3.79 43,270 1,740 4.02
------ ----- ------ ----- ------ ----
Non-interest bearing
liabilities............... 5,893 5,116 5,049
Minority interest........... 657 554 484
Stockholder's equity........ 5,009 4,695 3,996
------- ------- -------
Total liabilities,
minority interest
and stockholder's
equity........... $58,578 $48,158 $52,799
======= ======= =======
Spread and Interest
Differential:
Net interest income......... $2,864 $2,569 $2,073
====== ====== ======
Interest-rate spread(2)..... 4.73% 5.38% 4.10%
===== ===== ====
Net interest margin(3)...... 5.33% 5.89% 4.41%
===== ===== ====
Ratio of average earning
assets to average
interest-bearing
liabilities............... 1.14 1.15 1.09
======= ======= =======
</TABLE>
- ---------------
(1) Includes loans on non-accrual status.
(2) Interest-rate spread represents the excess of the average yield on
interest-earning assets over the average cost of interest-bearing
liabilities.
(3) Net interest margin represents net interest income (annualized) divided by
average interest-earning assets.
(4) Average balances are based upon average daily balances for the Bank,
month-end balances for the Mortgage Company (as daily balances are
unavailable), and quarter-end balances for InterWest (as daily or monthly
balances are unavailable).
59
<PAGE> 67
Net Interest Income
Net interest income, which constitutes the principal source of income for
InterWest, represents the excess of interest income on interest-earning assets
over interest expense on interest-bearing liabilities. The principal interest
earning assets are federal funds sold, investment securities and loans
receivable. Interest-bearing liabilities primarily consist of time deposits,
interest-bearing checking accounts ("NOW accounts"), savings deposits and money
market accounts. Funds attracted by these interest-bearing liabilities are
invested in interest earning assets. Accordingly, net interest income depends
upon the volume of average interest-earning assets and average interest-bearing
liabilities and the interest rates earned or paid on them.
The following table sets forth certain information regarding changes in
InterWest's interest income and interest expense during the year ended December
31, 1997 as compared to the year ended December 31, 1996, and for the six months
ended June 30, 1998 as compared to the six months ended June 30, 1997. For each
category of interest-earning assets and interest-bearing liabilities,
information is provided on changes attributable to (1) changes in interest rate
(change in rate multiplied by prior volume), (2) changes in volume (change in
volume multiplied by prior rate) and (3) changes in rate-volume (changes in rate
multiplied by change in volume).
<TABLE>
<CAPTION>
SIX MONTHS ENDED JUNE 30, YEAR ENDED DECEMBER 31,
1998 VS. 1997 1997 VS. 1996
-------------------------------- -------------------------------
INCREASE (DECREASE) DUE TO INCREASE (DECREASE) DUE TO
-------------------------------- -------------------------------
RATE/ RATE/
RATE VOLUME VOLUME TOTAL RATE VOLUME VOLUME TOTAL
----- ------ ------ ------ ---- ------ ------ ------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Interest-earning assets:
Loans................................................ $(257) $1,567 $(133) $1,177 $131 $1,339 $ 33 $1,503
Investments.......................................... 1 5 1 7 13 (7) (6) 0
Federal funds sold................................... 1 168 2 171 9 (118) (3) (112)
----- ------ ----- ------ ---- ------ ----- ------
Total interest-earning assets.................. (255) 1,740 (130) 1,355 153 1,214 24 1,391
----- ------ ----- ------ ---- ------ ----- ------
Interest-bearing liabilities:
Savings and NOW accounts............................. 0 106 0 106 144 607 181 932
Money market deposits................................ 5 19 2 26 6 (10) 0 (4)
Certificates of deposit.............................. 37 585 40 662 3 (221) (1) (219)
Borrowings........................................... 6 50 3 59 (15) (333) 9 (339)
----- ------ ----- ------ ---- ------ ----- ------
Total interest-bearing liabilities............. 48 760 45 853 138 43 189 370
----- ------ ----- ------ ---- ------ ----- ------
Net change in net-interest income...................... $(303) $ 980 $(175) $ 502 $ 15 $1,171 $(165) $1,021
===== ====== ===== ====== ==== ====== ===== ======
</TABLE>
InterWest's net interest income was $2.3 million for the six months ended
June 30, 1998 compared to $1.8 million for the six months ended June 30, 1997,
an increase of $.5 million or 27.1%. The change resulted primarily from an
increase in earning assets of $36.3 million or 56.7%. Net interest income was
$4.1 million for the year ended December 31, 1997 compared with $3.1 million for
the year ended December 31, 1996, an increase of $1.0 million or 33.1%.
During the six month period ended June 30, 1998, interest income on loans
increased by $1.2 million from the six month period ended June 30, 1997. This
increase was attributable primarily to an increase of $29.9 million in average
balances of loans from $57.9 million for the six months ended June 30, 1997 to
$87.8 million for the six months ended June 30, 1998. Interest income on loans
for the period was affected negatively by a declining interest rate environment
resulting from increased competition. Interest income on loans increased $1.5
million from the year ended December 31, 1996 to year ended December 31, 1997.
Most of this increase was attributable to an increase in average balances of
loans. During the six month period ended June 30, 1998, interest income on
investments and federal funds sold increased by $178 thousand from the six month
period ended June 30, 1997. This increase was attributable almost entirely to an
increase of $6.4 million in average balances of investments and federal funds
sold from $6.2 million for the six months ended June 30, 1997 to $12.6 million
for the six months ended June 30, 1998. Interest income on investments and
federal funds sold decreased $112 thousand from the year ended December 31, 1996
to year ended December 31, 1997. Most of this decrease was attributable to a
decrease in investable federal fund balances.
60
<PAGE> 68
During the six months ended June 30, 1998, interest expense on interest
bearing liabilities increased by $853 thousand over the six month period ended
June 30, 1997. Most of this increase was attributable to an increase of $29.4
million in average interest bearing liabilities from $57.1 million for the six
months ended June 30, 1997, to $86.5 million for six months ended June 30, 1998.
Interest expense on interest bearing liabilities increased $370 thousand from
$2.5 million for the year ended December 31, 1996, to $2.9 million for the year
ended December 31, 1997. This increase was primarily attributable to an increase
in NOW account rates paid. A NOW account type titled "Gold Account" provided
extremely competitive rates for high minimum balance accounts with the objective
of increasing deposits. NOW accounts as a group became a higher yielding
interest bearing liability as a result of the introduction of "GOLD Accounts"
and their sudden growth.
Provision for Loan Losses
The provision for loan losses is charged to earnings to bring the allowance
for loan losses to a level deemed appropriate by management and is based upon
historical experience, the volume and type of lending conducted by the Bank, the
amounts of non-performing loans, general economic conditions, particularly as
they relate to the Bank's market area, and other factors related to the
collectibility of the Bank's loan portfolio. For the six months ended June 30,
1998, the provision for loan losses was $126,000, as compared to $150,000 for
the six months ended June 30, 1997. This decrease of $24,000 was attributable
solely to management's desire to maintain reserves at an appropriate level. For
the year ended December 31, 1997, the provision for loan losses was $270,000 as
compared to $60,000 for the year ended December 31, 1996, an increase of
$210,000.
Noninterest Income
Noninterest income is primarily composed of mortgage origination fees and
deposit service charges and fees. Noninterest income was $4.2 million for the
six months ended June 30, 1998 versus $3.4 million for the six months ended June
30, 1997, for an increase of $.8 million, or 22.6%. This increase was
attributable primarily to an increase of $.7 million in Mortgage Company fee
income. During the year ended December 31, 1997, noninterest income increased to
$7.4 million from $6.4 million during the year ended December 31, 1996, an
increase of $1.0 million, or 14.7%. This increase was attributable primarily to
an increase of $1.0 million in Mortgage Company fee income. The Mortgage Company
is a volume based fee income generator and management believes that fee income
should be shown separate of interest income. The following table details income
from loans separating interest income on loan balances from fee income generated
by the Mortgage Company.
<TABLE>
<CAPTION>
SIX MONTHS
ENDED JUNE 30, YEAR ENDED DECEMBER 31,
--------------- ----------------------------------------------
1998 1997 1997 1996 1995 1994 1993
------ ------ ------- ------- ------- ------ -------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C>
Loan Income
Included in interest income:
Interest income including late
charges and amortization of
fees on loans with
outstanding balances........ $4,209 $3,032 $ 6,755 $ 5,252 $ 4,728 $3,758 $ 3,629
Included in other income:
Fee income on mortgage loans
originated and then sold in
the secondary market
including origination fees,
servicing released premiums,
marketing gain/loss and
servicing fees.............. 3,945 3,176 7,110 6,014 6,681 4,420 8,860
------ ------ ------- ------- ------- ------ -------
Total loan income........ $8,154 $6,208 $13,865 $11,266 $11,409 $8,178 $12,289
====== ====== ======= ======= ======= ====== =======
</TABLE>
61
<PAGE> 69
Noninterest Expenses
During the six months ended June 30, 1998, noninterest expenses increased
to $5.5 million from $4.7 million during the six months ended June 30, 1997, or
an increase of 16.9%. During the year ended December 31, 1997, noninterest
expenses increased to $10.0 million from $7.8 million during the year ended
December 31, 1996, an increase of $2.2 million, or 28.6%. The following sets
forth additional information on certain noninterest expense categories which had
significant changes.
During the six months ended June 30, 1998, compensation and benefits were
$3.4 million compared to $3.0 million for the six months ended June 30, 1997, an
increase of $.4 million, or 14.0%. During the year ended December 31, 1997,
compensation and benefits increased to $6.5 million from $5.0 million during the
year ended December 31, 1996, an increase of $1.5 million or 30.6%. These
changes were primarily due to an increase in the number of employees at the Bank
commensurate with the growth of the Bank, increased commissions paid to Mortgage
Company's loan officers, an overall increase in wages due to the Mortgage
Company only reflecting ten months of expenses in 1996, and annual compensation
and benefit increases for employees.
Occupancy and related furniture and equipment expenses were $589 thousand
during the six months ended June 30, 1998 compared to $554 thousand during the
six months ended June 30, 1997, an increase of $35 thousand or 6.3%. For the
year ended December 31, 1997, occupancy and related furniture and equipment
expenses increased to $1.0 million compared to $.8 million for the period ending
December 31, 1996, an increase of $.2 million or 27.7%. The reason for the
increase in occupancy related expenses for the year to date periods ended
December 31, 1997 and December 31, 1996 was because of the Bank's expansion into
the new main branch in the 2nd quarter 1996, a third branch in the fourth
quarter 1996 and a fourth branch in the 4th quarter 1997.
Other Noninterest Expense
For the six months ended June 30, 1998, other noninterest expense increased
to $1.5 million from $1.2 million for June 30, 1997, an increase of $.3 million,
or 29.1%. For the year ended December 31, 1997, other noninterest expense
increased to $2.5 million from $2.0 million at December 31, 1996, an increase of
$.5 million or 23.8%. The cause for the increase was increases in expenses
associated with an increased number of loan originations at the Mortgage
Company, increased amortization of mortgage servicing rights capitalized at the
Mortgage Company, and increased costs of data processing at the Bank due to
larger numbers of items processed, more ATM's to support and process, and a
larger ATM card base to support.
Income Tax Provision
During the six months ended June 30, 1998 the income tax provision
increased to $319 thousand from $145 thousand for the six month period ended
June 30, 1997, an increase of $174 thousand, or 120.0%. For the year ended
December 31, 1997, the income tax provision decreased to $416 thousand from $555
thousand, or 25.1%. The increases and decreases in the income tax provision are
commensurate with the increases and decreases in net income before taxes for the
comparable periods.
Asset/Liability Management
A principal objective of the Bank's asset/liability management strategy is
to minimize its exposure to changes in interest rates by matching the maturity
and repricing horizons of interest-earning assets and interest-bearing
liabilities. The strategy is overseen in part through the direction of the
Bank's Asset and Liability Committee (the "ALCO Committee") which establishes
policies and monitors results to control interest rate sensitivity.
Management evaluates interest rate risk and then formulates guidelines
regarding asset generation and repricing, funding sources and pricing, and
off-balance sheet commitments in order to maintain interest rate risk within
target levels for the appropriate level of risk determined by the ALCO
Committee.
62
<PAGE> 70
As a part of the Bank's interest-rate risk management policy, the ALCO
Committee examines the extent to which its assets and liabilities are
"interest-rate sensitive" and monitors the Bank's interest-rate sensitivity
"gap". An asset or liability is considered to be interest-rate sensitive if it
will reprice or mature within the time period analyzed, usually one year or
less. The interest-rate sensitivity gap is the difference between interest-
earning assets and interest-bearing liabilities scheduled to mature or reprice
within such time period. A gap is considered positive when the amount of
interest-rate sensitive assets exceeds the amount of interest-rate sensitive
liabilities. A gap is considered negative when the amount of interest rate
sensitive liabilities exceeds interest rate sensitive assets. During a period of
rising interest rates, a negative gap would tend to adversely affect net
interest income. During a period of falling interest rates, a negative gap would
tend to result in an increase of net interest income, while a positive gap would
tend to adversely affect net interest income. A simple interest rate "gap"
analysis by itself may not be an accurate indicator of how net interest income
will be affected by changes in interest rates. Accordingly, the ALCO Committee
also evaluates how the repayment of particular assets and liabilities is
impacted by changes in interest rates. Income associated with interest-earning
assets and costs associated with interest-bearing liabilities may not be
affected uniformly by changes in interest rates. In addition the magnitude and
duration of changes in interest rates may have a significant impact on net
interest income. For example, although certain assets and liabilities have
similar maturities or periods of repricing, they may react in different degrees
to changes in market interest rates. Interest rates on certain types of assets
and liabilities fluctuate in advance of changes in general market interest
rates, while interest rates on other types may lag behind changes in general
market rates. In addition, certain assets, such as adjustable-interest rate
mortgage loans, have features (generally referred to as "interest rate caps")
which limit changes in interest rates on a short-term basis and over the life of
the asset. In the event of a change in interest rates, repayments (on loans and
mortgage-backed securities) and early withdrawal (of deposit accounts) levels
also could deviate significantly from those assumed in calculating the interest
gap. The ability of many borrowers to service their debts also may decrease in
the event of an interest rate increase.
Management's strategy is to maintain a relatively balanced interest-rate
risk position to protect its net interest margin from market fluctuations. To
this end, the ALCO Committee reviews, on a monthly basis, the maturity and
repricing of assets and liabilities.
Management believes that the type and the amount of the Bank's interest
rate sensitive liabilities may reduce the potential impact that a rise in
interest rates might have on the Bank's net interest income. The Bank seeks to
maintain a core deposit base by providing quality services to its customers
without significantly increasing its cost of funds or operating expenses. The
Bank also maintains a portfolio of liquid assets in order to reduce its overall
exposure to changes in market interest rates. At December 31, 1997 and June 30,
1998, the InterWest's liquidity ratios were 15.25% and 22.45%, respectively. The
Bank also maintains a "floor", or minimum rate, on certain of its floating or
prime based loans. These floors allow the Bank to continue to earn a higher rate
when the floating rate falls below the established floor rate.
63
<PAGE> 71
The following table sets forth certain information on InterWest's
interest-earning assets and interest bearing liabilities at June 30, 1998 that
are estimated to mature or are scheduled to reprice within the periods shown.
<TABLE>
<CAPTION>
MORE
ONE YEAR TO THAN
0 TO 30 DAYS 31-90 DAYS 91-365 DAYS FIVE YEARS FIVE YEARS TOTAL
------------ ---------- ----------- ----------- ---------- --------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
Earning Assets:
Loans........................ $55,611 $ 4,622 $ 11,029 $18,715 $ 4,903 $ 94,880
Investments.................. 297 0 0 0 0 297
Federal Funds Sold........... 22,896 0 0 0 0 22,896
------- -------- -------- ------- ------- --------
Total
Interest-Earning
Assets............. 78,804 4,622 11,029 18,715 4,903 118,073
------- -------- -------- ------- ------- --------
Interest-Bearing Liabilities:
Savings and NOW accounts..... 0 33,066 0 3,497 0 36,563
Money Market Accounts........ 0 4,737 0 0 0 4,737
Certificate of deposits...... 3,878 10,976 31,715 2,744 0 49,313
Borrowings................... 5,217 1 5 19 0 5,242
------- -------- -------- ------- ------- --------
Total
Interest-Bearing
Liabilities........ 9,095 48,780 31,720 6,260 0 95,855
------- -------- -------- ------- ------- --------
Rate Sensitivity GAP........... $69,709 $(44,158) $(20,691) $12,455 $ 4,903 $ 22,218
======= ======== ======== ======= ======= ========
Cumulative Rate Sensitivity
GAP.......................... $69,709 $ 25,551 $ 4,860 $17,315 $22,218
======= ======== ======== ======= =======
Rate Sensitivity GAP Ratio..... 59.04% -37.40% -17.52% 10.55% 4.15%
======= ======== ======== ======= =======
Cumulative Rate Sensitivity GAP
Ratio........................ 59.04% 21.64% 4.12% 14.66% 18.82%
======= ======== ======== ======= =======
Ratio of Cumulative GAP to
Total Assets................. 53.44% 19.59% 3.73% 13.27% 17.03%
======= ======== ======== ======= =======
</TABLE>
- ---------------
(1) In preparing the table above, adjustable-interest rate loans were included
in the period in which the interest rates are next scheduled to adjust
rather than in the period in which the loans mature. Fixed interest rate
loans were scheduled according to their contractual maturities.
(2) In preparing the table above, loans available for sale were scheduled
according to their anticipated settlement date with the secondary investor;
the majority of the loans are scheduled to settle in 30 days or less.
(3) Time deposits were scheduled according to their contractual maturities.
(4) Loans on non-accrual have been excluded.
The Mortgage Company's interest-rate risk may occur at two different
intervals. The first would occur when a borrower locks in a particular yield on
a loan with the Mortgage Company and that loan is either then committed at a
comparable yield with a secondary market investor or hedged until the time a
secondary investor actually purchases the loan. The risk would be that market
yields change dramatically in a short period of time and a difference occurs in
the commitment price a secondary investor is willing to pay for committed loans.
There is also the risk that the hedging process would be inadequate and
offsetting securities gains would not be sufficient to offset yield differences
in hedged loans sold at a loss at a later date. In these circumstances, the
result would be an immediate loss reflected when the loans are either committed
or sold. Management is of the opinion that the procedures for committing loans
to investors and for hedging loans in the secondary market is sufficient and
does limit the risk of loss to a minimum. The second risk would be the pricing
difference between the rate it receives on its loans outstanding and the rate
it's charged on its borrowings on the line of credit with U.S. Bank N.A. The
individual amounts borrowed on the line of credit
64
<PAGE> 72
are collateralized by the individual loans outstanding and do not exceed 100% of
the individual loan balances outstanding.
FINANCIAL CONDITION
Lending Activities
A significant source of InterWest's income is the interest earned on its
loan portfolio. The following table shows the relationship of loans to total
assets for the Bank as of the dates indicated:
<TABLE>
<CAPTION>
AT DECEMBER 31,
AT JUNE 30, ------------------
1998 1997 1996
----------- ------- -------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
Total Assets......................................... $130,454 $99,159 $74,786
Total Loans, net..................................... 94,585 77,867 57,202
Loans as a % of Total Assets......................... 72.50% 78.53% 76.49%
</TABLE>
Lending activities are conducted pursuant to a written policy which has
been adopted by the Bank. Each loan officer has defined lending authority beyond
which loans, depending upon their type and size, must be reviewed and approved
by a loan committee comprised of certain officers and directors of the Bank.
Lending activities by the Mortgage Company are conducted pursuant to industry
guidelines and investor requirements. The majority of Mortgage Company lending
decisions are approved by underwriters within the Mortgage Company who have met
the industry requirements for direct endorsement lending.
The composition of InterWest's loan portfolio was as follows at the dates
indicated:
<TABLE>
<CAPTION>
AS OF JUNE 30,
-----------------------------------
1998 1997
---------------- ----------------
% OF % OF
AMOUNT TOTAL AMOUNT TOTAL
------- ------ ------- ------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C>
Commercial.......................................... $14,972 15.61% $ 6,359 9.63%
Construction........................................ 21,299 22.21 20,326 30.78
Real Estate......................................... 55,547 57.92 37,058 56.12
Consumer and other.................................. 4,084 4.26 2,287 3.47
------- ------ ------- ------
Total loans receivable.................... 95,902 100.00% 66,030 100.00%
====== ======
Less:
Unearned income and fees.......................... (367) (292)
Allowance for loan losses......................... (950) 0.99% (704) 1.07%
------- ====== ------- ======
Loans, net........................................ $94,585 $65,034
======= =======
</TABLE>
<TABLE>
<CAPTION>
AS OF DECEMBER 31,
------------------------------------------------------------------------------------------------
1997 1996 1995 1994 1993
---------------- ---------------- ---------------- ---------------- ----------------
% OF % OF % OF % OF % OF
AMOUNT TOTAL AMOUNT TOTAL AMOUNT TOTAL AMOUNT TOTAL AMOUNT TOTAL
------- ------ ------- ------ ------- ------ ------- ------ ------- ------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Commercial..................... $10,064 12.73% $ 4,129 7.11% $ 2,454 4.80% $ 3,133 7.97% $ 2,800 7.76%
Construction................... 20,556 26.01 18,423 31.71 16,974 33.20 14,792 37.65 9,378 26.02
Real Estate.................... 45,970 58.17 33,637 57.91 29,995 58.67 20,045 51.02 22,255 61.74
Consumer and other............. 2,441 3.09 1,897 3.27 1,703 3.33 1,318 3.36 1,614 4.48
------- ------ ------- ------ ------- ------ ------- ------ ------- ------
Total loans receivable...... 79,031 100.00% 58,086 100.00% 51,126 100.00% 39,288 100.00% 36,047 100.00%
====== ====== ====== ====== ======
Less:
Unearned income and fees...... (341) (300) (201) (196) (191)
Allowance for loan losses..... (823) 1.04% (584) 1.01% (538) 1.05% (464) 1.18% (407) 1.13%
------- ====== ------- ====== ------- ====== ------- ====== ------- ======
Loans, net.................... $77,867 $57,202 $50,387 $38,628 $35,449
======= ======= ======= ======= =======
</TABLE>
65
<PAGE> 73
As of June 30, 1998, the maturities and interest rate sensitivities of the
InterWest's loan portfolio, based on remaining scheduled principal repayments,
were as follows:
<TABLE>
<CAPTION>
DUE AFTER
DUE IN ONE ONE YEAR
YEAR OR THROUGH DUE AFTER
LESS FIVE YEARS FIVE YEARS TOTAL
---------- ---------- ---------- -------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C>
Commercial..................................... $10,945 $ 3,189 $ 838 $14,972
Construction................................... 20,205 906 188 21,299
Real Estate.................................... 38,469 13,509 3,569 55,547
Consumer and other............................. 2,666 1,415 3 4,084
------- ------- ------ -------
Total loans receivable............... $72,285 $19,019 $4,598 $95,902
======= ======= ====== =======
Loans with maturities over one year:
Fixed interest rate.......................... $16,705 $3,712 $20,417
Variable interest rate....................... 2,314 886 3,200
------- ------ -------
Total maturities greater than one
year............................... $19,019 $4,598 $23,617
======= ====== =======
</TABLE>
ASSET QUALITY
Management seeks to maintain asset quality through sound underwriting and
sound lending practices. The largest category of loans in the InterWest's loan
portfolio are collateralized by real estate mortgages. As of June 30, 1998 and
December 31, 1997, 80.13%, and 84.18%, respectively, of the total loan portfolio
were collateralized by real estate. The level of delinquent loans and other real
estate owned also is relevant to the credit quality of a loan portfolio.
The real estate mortgage loans in the Bank's portfolio consist of fixed-and
adjustable-interest rate loans which were originated at prevailing market
interest rates. The Bank's policy has been to originate real estate mortgage
loans predominantly in its primary market area. Real estate mortgage loans are
generally made in amounts that do not exceed a percentage of the appraised value
of the property securing the loan. Loan to appraised values can range from 50%
to 90% of the appraised value of the property securing the loan depending upon
the kind of transaction financed. The Bank's limits are set within the
guidelines of FDIC regulation 12CFR 365, Real Estate Lending Standards. The Bank
also purchases real estate loans from the Mortgage Company with loan to
appraised values that conform to accepted FHA and VA standards. In marketing
real estate loans, the Bank primarily considers the financial resources and
"debt to income ratio" of the borrower, the marketability of the collateral and
the Banks lending experience with the borrower.
The Bank provides its real estate loans on the basis of the borrower's
ability to make repayment from his or her employment and other income, and which
are collateralized by real property whose value tends to be more readily
ascertainable.
Commercial loans typically are underwritten on the basis of borrower's
ability to make repayment from the cash flow of his or her business and,
generally, are collateralized by business assets, such as accounts receivable,
equipment and inventory. As a result, the availability of funds for the
repayment of commercial loans may be substantially dependent on the success of
the business itself, which is subject to adverse conditions in the economy.
Commercial loans also entail certain additional risks since they usually involve
large loan balances to single borrowers or a related group of borrowers,
resulting in a more concentrated loan portfolio. Further, the collateral
underlying the loans may depreciate over time, cannot be appraised with as much
precision as residential real estate, and may fluctuate in value based on the
success of the business.
Loan concentrations are defined as amounts loaned to a number of borrowers
engaged in similar activities which would cause them to be similarly impacted by
economic or other conditions. The Bank monitors these concentrations on a
quarterly basis in order to consider adjustments in its lending practices to
reflect economic conditions, loan to deposit ratio, and industry trends.
Management believes as of June 30, 1998 and December 31, 1997, that the Bank had
a significant concentration in real estate secured loans. Bank loan
66
<PAGE> 74
customers are principally closely-held businesses and residents concentrated in
Nevada and, as such, the debtors' ability to honor their contract is
substantially dependent upon the general economic conditions of the region. Most
of the Bank's business activity is with customers located in Nevada.
The Bank concentrates its efforts and resources, and that of its senior
management and lending officers, on loan review and underwriting procedures.
Internal controls include ongoing reviews of loans made to monitor documentation
and the existence and valuations of collateral. In addition, management of the
Bank has established a review process with the objective of identifying,
evaluating, and initiating necessary corrective action for marginal loans. The
goal of the loan review process is to identify and address classified and
non-performing loans as early as possible.
CLASSIFICATION OF ASSETS
Generally, interest on loans accrues and is credited to income based upon
the principal balance outstanding. It is management's policy to discontinue the
accrual of interest income and classify a loan in nonaccrual status when in the
opinion of management, principal or interest is not likely to be paid in
accordance with the terms and obligation or when principal or interest is past
due 90 days, unless in the determination of management, the principal and
interest on the loan are well collateralized and in the process of collection.
Consumer installment loans are generally charged-off when a loss is realized
unless adequately collateralized and in the process of collection. Loans are not
returned to accrual status until principal and interest payments are brought
current and future payments appear reasonably certain. Interest accrued and
unpaid at the time a loan is placed on non-accrual status is charged against
interest income.
Real estate acquired by InterWest as a result of foreclosure or by deed in
lieu of foreclosure is classified as other real estate owned ("OREO"). OREO
properties are recorded at the lower of cost or fair value less estimated
selling costs, and the estimated loss, if any, is charged to the allowance for
credit losses at the time it is transferred to OREO. Further write-downs in OREO
are recorded at the time management believes additional deterioration in value
has occurred and are charged to non-interest expense.
Commercial loans, unlike residential mortgage loans, which, generally, are
made on the basis of the borrower's ability to make repayment from his or her
employment and other income, and which are collateralized by real property whose
value tends to be more readily ascertainable, typically are underwritten on the
basis of borrower's ability to make repayment from the cash flow of his or her
business and, generally, are collateralized by business assets, such as accounts
receivable, equipment and inventory. As a result, the availability of funds for
the repayment of commercial loans may be substantially dependent on the success
of the business itself, which is subject to adverse conditions in the economy.
Commercial loans also entail certain additional risks since they usually involve
large loan balances to single borrowers or a related group of borrowers,
resulting in a more concentrated loan portfolio. Further, the collateral
underlying the loans may depreciate over time, cannot be appraised with as much
precision as residential real estate, and may fluctuate in value based on the
success of the business.
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<PAGE> 75
Loans on non-accrual status and other real estate owned, the ratio of such
loans and real estate owned to total assets, and certain other related
information was as follows at the dates indicated:
<TABLE>
<CAPTION>
AT AND FOR THE SIX
MONTHS ENDED AT AND FOR THE YEAR ENDED
------------------- --------------------------------
06/30/98 06/30/97 1997 1996 1995 1994 1993
-------- -------- ---- ---- ---- ---- ----
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C>
Loans on non-accrual status:
Commercial......................... $ 0 $ 2 $ 1 $ 3 $ 62 $ 8 $ 10
Construction....................... 1,022 1,153 636 0 260 0 0
Real Estate........................ 0 107 0 86 224 293 451
Installment........................ 0 0 0 10 0 0 17
------ ------ ---- ---- ---- ---- ----
Total loans on non-accrual
status................... 1,022 1,262 637 99 546 301 478
Accruing loans over 90 days
delinquent......................... 0 0 0 0 0 0 0
------ ------ ---- ---- ---- ---- ----
Total non-performing
loans.................... 1,022 1,262 637 99 546 301 478
Other real estate owned:............. 317 551 317 614 276 184 242
------ ------ ---- ---- ---- ---- ----
Total non-performing
assets................... $1,339 $1,813 $954 $713 $822 $485 $720
====== ====== ==== ==== ==== ==== ====
As a percentage of total assets:
Total non-performing
loans.................... 0.78% 1.60% 0.64% 0.13% 0.84% 0.57% 0.94%
====== ====== ==== ==== ==== ==== ====
Total non-performing
assets................... 1.03% 2.30% 0.96% 0.95% 1.27% 0.92% 1.42%
====== ====== ==== ==== ==== ==== ====
</TABLE>
As of June 30, 1998 and December 31, 1997, loans on non-accrual status
totaled $1.02 million and $.63 million, respectively. Additionally, as of June
30, 1998, there were no loans over 30 days delinquent and on accrual.
ALLOWANCE FOR LOAN LOSSES
In originating loans, the Bank recognizes that credit losses will be
experienced and that the risk of loss will vary with, among other things, the
type of loan being made, the credit worthiness of the borrower over the term of
the loan and, in the case of a collateralized loan, the quality of the
collateral for the loan, as well as general economic conditions. As a matter of
policy, the Bank maintains an allowance for loan losses. The amount provided for
loan losses during any period is based on an evaluation by management of the
amount needed to maintain the allowance at a level sufficient to cover
anticipated losses and the inherent risk of losses in the loan portfolio. In
determining the amount of the allowance, management considers the dollar amount
of loans outstanding, its assessment of known or potential problem loans,
current economic conditions, the risk characteristics of the various
classifications of loans, the credit record of its borrowers, the fair market
value of underlying collateral and other factors. Specific allowances are
provided for individual loans when the ultimate collection is considered
questionable by management after reviewing the current status of loans which are
contractually past due and considering the fair value of the underlying
collateral for each loan.
Management continues to actively monitor the Bank's asset quality and to
charge-off loans against the allowance for loan losses when appropriate or to
provide specific loss allowances when necessary. Although management believes
that it uses the best information available at the time to make determinations
with respect to allowance for loan losses, subsequent adjustments to the
allowance for loan losses may be necessary if future economic conditions or
other facts differ from the assumptions used in making the initial
determinations or if regulatory policies change.
The Mortgage Company's historical loan losses are nominal, at most. A loan
loss allowance has not been established at the Mortgage Company because of this
fact.
At the six month period ended June 30, 1998, the allowance for loan losses
was $950 thousand, compared to $823 thousand at the year ended December 31,
1997, or an increase of $127 thousand. Total charged off loans, net of
recoveries, were $31 thousand for 1997 and $14 thousand for 1996. During the six
months ended June 30, 1998, total charged off loans, net of recoveries, were
($1) thousand.
68
<PAGE> 76
The activity in the Bank's allowance for loan losses was as follows for the
periods indicated:
<TABLE>
<CAPTION>
AT AND FOR THE SIX
MONTHS ENDED AT AND FOR THE YEAR ENDED
------------------- -----------------------------------------------
06/30/98 06/30/97 1997 1996 1995 1994 1993
-------- -------- ------- ------- ------- ------- -------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C>
Allowance at beginning of
period................... $ 823 $ 584 $ 584 $ 538 $ 464 $ 407 $ 458
Loans charged off:
Commercial............... 0 0 0 4 0 2 10
Construction............. 0 0 0 0 0 0 0
Real Estate.............. 0 0 0 0 0 0 0
Installment.............. 1 32 35 14 4 16 15
------- ------- ------- ------- ------- ------- -------
Total loans
charged off..... 1 32 35 18 4 18 25
------- ------- ------- ------- ------- ------- -------
Recoveries:
Commercial............... 0 0 0 1 3 9 31
Construction............. 0 0 0 0 0 0 0
Real Estate.............. 0 0 0 0 0 0 0
Installment.............. 2 2 4 3 5 6 20
------- ------- ------- ------- ------- ------- -------
Total
recoveries...... 2 2 4 4 8 15 51
------- ------- ------- ------- ------- ------- -------
Net loans charged off.... 1 (30) (31) (14) 4 (3) 26
------- ------- ------- ------- ------- ------- -------
Provision for loan losses
charged to expense....... 126 150 270 60 70 60 (77)
------- ------- ------- ------- ------- ------- -------
Allowance at end of
period................... $ 950 $ 704 $ 823 $ 584 $ 538 $ 464 $ 407
======= ======= ======= ======= ======= ======= =======
Net charge-offs as a
percentage of average
loans outstanding........ 0.00% -0.05% -0.05% -0.03% 0.01% -0.01% 0.07%
======= ======= ======= ======= ======= ======= =======
Allowance to period-end
loans receivable......... 1.00% 1.08% 1.06% 1.02% 1.07% 1.20% 1.15%
======= ======= ======= ======= ======= ======= =======
Average loans
outstanding.............. $87,812 $57,901 $64,369 $51,290 $45,672 $36,049 $39,815
======= ======= ======= ======= ======= ======= =======
Period-end total loans
receivable............... $94,585 $65,034 $77,867 $57,202 $50,387 $38,628 $35,449
======= ======= ======= ======= ======= ======= =======
</TABLE>
INVESTMENT SECURITIES
The total investment portfolio increased to $399 thousand as of December
31, 1997, from $153 thousand as of December 31, 1996, an increase of $246
thousand. The increase in investment securities in 1997 was due to changes in
the minimum amount of Federal Home Loan Bank stock required by membership. From
December 31, 1997 to June 30, 1998, the total investment portfolio decreased
$102 thousand due to changes in the minimum amount of Federal Home Loan Bank
stock required by membership.
The following table sets forth the carrying value of the Bank's investment
portfolio at the dates indicated:
<TABLE>
<CAPTION>
DECEMBER 31,
JUNE 30, -------------
1998 1997 1996
-------- ----- -----
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
Securities Available for Sale:
Federal Home Loan Bank of San Francisco................... $297 $399 $153
==== ==== ====
</TABLE>
The Bank has adopted Statement of Financial Accounting Standards No. 115
("FAS 115"), which requires companies to classify investments securities as
either held-to-maturity, available-for-sale, or trading securities. Securities
classified as held-to-maturity are carried at amortized cost. Securities
classified as available-for-sale are reported at fair value, with unrealized
gains and losses, net of tax effect, reported as a separate component of
stockholders' equity. Securities classified as trading securities are recorded
at fair value, with unrealized gains and losses included in earnings.
69
<PAGE> 77
The maturity distribution and certain other information pertaining to
investment securities was as follows at June 30, 1998:
<TABLE>
<CAPTION>
AMORTIZED ESTIMATED
COST FAIR VALUE YIELD
--------- ---------- -----
<S> <C> <C> <C>
Securities Available for Sale:
Federal Home Loan Bank of San Francisco................... $297 $297 6.68%
==== ==== ====
</TABLE>
DEPOSIT ACTIVITIES
Deposits are the major source of the Bank's funds for lending and other
investments purposes. Deposits are attracted principally from within the Bank's
primary market area through the offering of a broad variety of deposit
instruments including checking accounts, money market accounts, regular savings
accounts, term certificate accounts (including "jumbo" certificates in
denominations of $100,000 or more) and retirement savings plans.
The distribution by type of the Bank's deposit accounts was as follows at
the dates indicated:
<TABLE>
<CAPTION>
AS OF JUNE 30, AS OF DECEMBER 31,
------------------- ------------------------------------------------------------
1998 1997 1996 1995
------------------- ------------------ ------------------ ------------------
% OF % OF % OF % OF
AMOUNT DEPOSITS AMOUNT DEPOSITS AMOUNT DEPOSITS AMOUNT DEPOSITS
-------- -------- ------- -------- ------- -------- ------- --------
DOLLARS IN THOUSANDS
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Demand Deposits.................. $ 25,115 21.70% $17,795 19.92% $ 8,739 13.97% $ 5,373 12.27%
NOW accounts..................... 33,066 28.57 30,966 34.67 22,068 35.28 5,715 13.06
Money market accounts............ 4,737 4.09 3,708 4.15 4,049 6.47 3,788 8.65
Savings accounts................. 3,497 3.02 3,268 3.66 3,809 6.09 3,303 7.55
Time deposits:
Under $100,000................. 27,433 23.71 23,739 26.58 16,196 25.90 18,616 42.52
$100,000 and over.............. 21,880 18.91 9,838 11.02 7,687 12.29 6,983 15.95
-------- ------ ------- ------ ------- ------ ------- ------
Total deposits........... $115,728 100.00% $89,314 100.00% $62,548 100.00% $43,778 100.00%
======== ====== ======= ====== ======= ====== ======= ======
</TABLE>
Time deposits included individual retirement accounts ("IRAs") totaling
$1.8 million, $1.7 million and $1.5 million at June 30, 1998 and December 31,
1997 and 1996, respectively, all of which were in the form of certificates of
deposit.
The Bank's deposits increased to $89.3 million as of December 31, 1997,
from $62.5 million as of December 31, 1996, an increase of $26.8 million or
42.8%. This growth can be attributed to providing deposit products at
competitive prices.
Maturity terms, service fees and withdrawal penalties are established by
the Bank on a periodic basis. The determination of rates and terms is predicated
on funds acquisition and liquidity requirements, rates paid by competitors,
growth goals and federal regulations.
FDIC regulations limit the ability of certain insured depository
institutions to accept, renew, or rollover deposits by offering rates of
interest which are significantly higher than the prevailing rates of interest on
deposits offered by other insured depository institutions having the same type
of charter in such depository institutions' normal market area. Under these
regulations, "well capitalized" depository institutions may accept, renew, or
roll over deposits at such rates without restriction, "adequately capitalized"
depository institutions may accept, renew or roll over deposits at such rates
with a waiver from the FDIC (subject to certain restrictions on payments of
rates), and "undercapitalized" depository institutions may not accept, renew or
roll over deposits at such rates. As of December 31, 1997 and June 30, 1998, the
Bank met the definition of an "adequately capitalized" depository institution.
The Bank maintained, as of December 31, 1997 and June 30, 1998, "brokered
deposits" in the amount $10.7 million and $7.7 million, respectively. A waiver
of the restriction on accepting or renewing "brokered deposits" was obtained. It
is anticipated that all of the "brokered deposits" will mature and be redeemed
prior to the expiration of the waiver. Bank management believes the Bank does
not have a concentration of deposits from any one source, the loss of which
would have a material adverse effect. Management believes that, with the
exception of the above mentioned "brokered deposits", substantially all of the
Bank's depositors are residents in its primary market area.
70
<PAGE> 78
Time deposits of $100,000 and over, and other large deposit accounts tend
to be short-term in nature and more sensitive to changes in interest rates than
other types of deposits and, therefore, may be a less stable source of funds. In
the event that existing short-term deposits are not renewed, the resulting loss
of the deposited funds could adversely affect the Bank's liquidity. In a rising
interest rate market, such short-term deposits may prove to be a costly source
of funds because their short-term nature facilitates renewal at increasingly
higher interest rates, which may adversely affect the Bank's earnings. However,
the converse is true in a falling interest-rate market where such short-term
deposits would be more favorable.
Time deposits of $100,000 and over mature as follows at the dates
indicated:
<TABLE>
<CAPTION>
JUNE 30, 1998 DECEMBER 31, 1997
------------- -----------------
(DOLLARS IN THOUSANDS)
<S> <C> <C>
Due in three months or less.............................. $ 5,226 $2,687
Due from three months to six months...................... 7,608 2,780
Due from six months to one year.......................... 7,521 3,866
Due over one year........................................ 1,525 505
------- ------
Total time deposits $100,000 and over.......... $21,880 $9,838
======= ======
</TABLE>
IMPACT OF INFLATION AND CHANGING PRICES
The financial statements and related data concerning InterWest have been
prepared in accordance with generally accepted accounting principles which
require the measurement of financial position and operating results in terms of
historical dollars without considering changes in the relative purchasing power
of money over time due to inflation. The principal element of InterWest's
earnings is interest income which may be significantly affected by the level of
inflation and by government monetary and fiscal policies adopted in response to
inflationary or deflationary pressures.
Inflation affects the reported financial condition and results of
operations of all companies. However, the majority of assets and liabilities of
financial institutions are monetary in nature and therefore differ greatly from
most commercial and industrial companies that have significant investments in
fixed assets or inventories. Inflation does have an important impact on the
growth of total assets and the resulting need to increase equity capital at
higher than normal rates in order to maintain an appropriate equity to assets
ratio. Inflation also is a factor which may influence interest rates, yet the
frequency and magnitude of interest rate fluctuations do not necessarily
coincide with changes in the general inflation rate. In an effort to cope with
the effects of inflation, InterWest attempts to monitor its interest-rate
sensitivity gap position, as discussed above. In addition, a periodic review of
banking services and products is conducted to adjust pricing in view of current
costs.
71
<PAGE> 79
BUSINESS OF BANCGROUP
GENERAL
BancGroup is a bank holding company registered under the BHCA. It was
organized in 1974 under the laws of Delaware and has operated under its current
name and management since 1981. BancGroup operates Colonial Bank as its wholly
owned commercial banking subsidiary in the states of Alabama, Georgia, Florida
and Tennessee. Colonial Bank, an Alabama banking corporation, conducts a full
service banking business through 134 branches in Alabama, five branches in
Tennessee, 14 branches in Georgia, three branches in Nevada and 79 branches in
Florida. Colonial Mortgage Company, a subsidiary of Colonial Bank in Alabama, is
a mortgage banking company which services approximately $14.7 billion in
residential loans and which originates mortgages in 34 states through four
divisional offices. At June 30, 1998, BancGroup had consolidated total assets of
$8.8 billion and consolidated stockholders' equity of $601.8 million.
BancGroup's commercial banking loan portfolio is comprised primarily of
commercial real estate loans (28%) and residential real estate loans (42%), a
significant portion of which is located within the State of Alabama. BancGroup's
growth in loans over the past several years has been concentrated in commercial
and residential real estate loans.
RECENTLY COMPLETED AND OTHER PROPOSED BUSINESS COMBINATIONS
Since June 30, 1998, BancGroup has acquired one banking institution, CNB
Holding Company, with aggregate assets and stockholders' equity acquired of
$89.8 million and $8.5 million, respectively.
On May 5, 1998, BancGroup entered into a definitive agreement with
FirstBank ("FirstBank"). FirstBank is located in Dallas, Texas. CBG Acquisition
Corp., a subsidiary of BancGroup, will be merged into FirstBank, and FirstBank
will become a banking subsidiary of BancGroup. Giving effect to the Stock Split,
BancGroup expects to issue approximately 2,400,000 shares of its Common Stock to
the shareholders of FirstBank. This transaction is subject to, among other
things, approval by the shareholders of FirstBank and by the appropriate
regulatory authorities and is expected to be accounted for as a pooling of
interests. At June 30, 1998, 1998, FirstBank had assets of $172.9 million,
deposits of $149.5 million and stockholders' equity of $9.4 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. Giving effect to the Stock Split, BancGroup expects to issue a
maximum of 3,689,000 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 June 30, 1998, First
Macon had assets of $199.1 million, deposits of $175.5 million and stockholders'
equity of $15.8 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. Giving effect to the Stock
Split, BancGroup expects to issue a maximum of 1,173,120 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 June 30, 1998, Prime Bank had assets of $71.6 million,
deposits of $64.4 million and stockholders' equity of $6.8 million.
On August 6, 1998, BancGroup entered into a definitive agreement with TB&T,
Inc. ("TB&T") to merge TB&T with and into BancGroup. TB&T is located in Dallas,
Texas. In connection with this transaction, giving effect to the Stock Split,
BancGroup expects to issue approximately 2,369,002 shares of BancGroup Common
Stock to the shareholders of TB&T. This transaction is subject to, among other
things, approval by the shareholders of TB&T and by the appropriate regulatory
authorities, and is expected to be accounted for as a pooling of interest. At
April 30, 1998, TB&T had assets of $100 million, deposits of $90.6 million, and
stockholders equity of $8.4 million.
72
<PAGE> 80
YEAR 2000 COMPLIANCE
Most computer software programs and processing systems, including those
used by BancGroup and its subsidiaries in their operations, have not been
designed to accommodate entries beyond the year 1999 in date fields. Failure to
address the anticipated consequences of this design deficiency could have
material adverse effects on the business and operations of any business,
including BancGroup, that relies on computers and associated technologies. In
response to the challenges of addressing such consequences in the banking
industry, bank regulatory agencies, including the Federal Reserve, BancGroup's
primary regulator, have established a Year 2000 Supervision Program and
published guidelines for implementing procedures to bring the computer software
programs and processing systems into year 2000 compliance.
In compliance with the guidelines of the Federal Reserve, BancGroup has
established a full time Year 2000 task force to address all Year 2000 compliance
issues as well as enhancements to computer and communications systems resulting
from upgrades initiated in response to Year 2000 issues. Currently BancGroup is
in the process of implementing its plans to bring all major computer systems
into Year 2000 compliant status by December 31, 1998, allowing the full year
1999 for testing of any systems changes. The major computer systems involved
are:
- Colonial Bank's mainframe based systems: These systems are provided
by third party vendors of national stature. Upgrades to these
systems are in progress which will bring the systems into Year 2000
compliant status and provide enhancements to current capabilities.
The costs associated with these upgrades are part of BancGroup's
ongoing operating costs.
- Colonial Mortgage Company's (CMC) servicing and production
systems: CMC's systems are primarily in-house systems and are
currently being rewritten to Year 2000 compliant status. The cost of
the rewrites is estimated to be $1.0 million and is incremental to
the Company's ongoing operating costs. In addition, CMC's computer
hardware is being upgraded to Year 2000 compliant status. This
upgrade will also provide additional capacity for the servicing
systems as well as an enhanced capability for the servicing systems
and an enhanced capability for production. The additional annual
costs of the mainframe upgrade (approximately $240,000) are expected
to be absorbed through growth in the servicing portfolio and through
increased production. CMC expects to maintain an average servicing
cost per loan below $48.00 in 1998 and future years.
- Branch automation operating systems: Colonial Bank's branch
automation operating systems are being converted to Windows NT from
OS/2. This conversion along with establishment of any intranet and
increased capacity of communication lines is the most cost effective
method of bringing the operating system to Year 2000 compliant
status while allowing for more efficient flow of information to and
from the branches and provided the highest assurance of continuing
vendor support for the Company's branch automation solution. The
incremental operating cost for these upgrades (approximately
$400,000 annually) is expected to be absorbed through operational
efficiencies and increased revenue. The Company will incur a
one-time pretax charge of approximately $2.0 million to write off
the remaining book value of the current branch automation equipment
that is not Windows NT compatible.
BancGroup expects to incur additional third party costs totaling
approximately $300,000 related to assessing the status of the Company's systems
and defining its strategy to bring all systems in to Year 2000 compliance. These
costs have been and will continue to be expensed as incurred and are not
significant to BancGroup's on-going operating costs. The costs to bring other
miscellaneous systems into Year 2000 compliance are not expected to be material.
The above reflects management's current assessment and estimates. Various
factors could cause actual results to differ materially from those contemplated
by such assessments, estimates and forward-looking 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.
73
<PAGE> 81
Management's evaluation of Year 2000 compliance and technological upgrades
is an on-going process involving continual evaluation. Unanticipated problems
could develop and alternative solutions may be available that could cause
current solutions to be more difficult or costly than currently anticipated.
VOTING SECURITIES AND PRINCIPAL STOCKHOLDERS
As of June 30, 1998, BancGroup had issued and outstanding 98,232,266 shares
of BancGroup Common Stock with 8,910 stockholders of record. Each such share is
entitled to one vote. In addition, as of that date, 3,858,122 shares of
BancGroup Common Stock were subject to issue upon exercise of options pursuant
to BancGroup's stock option plans and up to 549,382 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)......................................... 5,813,590(3) 5.87%
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. Robert E.
Lowder disclaims any beneficial ownership interest in the shares owned by
his brothers.
(3) Includes 382,040 shares of BancGroup Common Stock subject to options under
BancGroup's stock option plans.
74
<PAGE> 82
SECURITY OWNERSHIP OF MANAGEMENT
The following table indicates for each director, executive officer, and all
executive officers and directors of BancGroup as a group the number of shares of
outstanding Common Stock of BancGroup beneficially owned as of June 30, 1998.
SHARES OF BANCGROUP BENEFICIALLY OWNED
<TABLE>
<CAPTION>
PERCENTAGE
OF CLASS
DIRECTORS NAME COMMON STOCK OUTSTANDING
-------------- ------------ -----------
<S> <C> <C>
Lewis Beville............................................... 3,632 *
Young J. Boozer............................................. 33,786(1) *
William Britton............................................. 31,232 *
Jerry J. Chesser............................................ 299,272 *
Augustus K. Clements, III................................... 39,542 *
Robert S. Craft............................................. 35,442 *
Patrick F. Dye.............................................. 61,920(2) *
James L. Hewitt............................................. 901,384(3) *
Clinton O. Holdbrooks....................................... 552,800(4) *
D. B. Jones................................................. 45,178(5) *
Harold D. King.............................................. 297,162 *
Robert E. Lowder............................................ 5,813,590(6) 5.87%
John Ed Mathison............................................ 59,762 *
Milton E. McGregor.......................................... 0 *
John C.H. Miller, Jr........................................ 76,704(7) *
Joe D. Mussafer............................................. 42,058 *
William E. Powell, III...................................... 28,706 *
J. Donald Prewitt........................................... 439,142(8) *
Jack H. Rainer.............................................. 5,380 *
Jimmy Rane.................................................. 2,700(9) *
Frances E. Roper............................................ 735,030 *
Simuel Sippial.............................................. 8,868 *
Ed V. Welch................................................. 62,722 *
CERTAIN EXECUTIVE OFFICERS WHO ARE NOT ALSO DIRECTORS
Young J. Boozer, III........................................ 143,330(1)(10) *
Michelle Condon............................................. 38,196(10) *
P.L. ("Mac") McLeod, Jr..................................... 125,052(10) *
W. Flake Oakley, IV......................................... 84,714(10) *
All Executive Officers & Directors as a Group............... 9,967,304 10.06%
</TABLE>
- ---------------
* Represents less than 1%.
(1) Includes 2,000 shares of Common Stock out of 4,000 shares owned by Young J.
Boozer, and Young J. Boozer, III EX U/W Phyllis C. Boozer. Mr. Boozer
resigned as of July 15, 1998 and currently serves as a Director Emeritus.
(2) Includes 50,000 shares of Common Stock subject to options exercisable under
BancGroup's stock option plans.
(3) Includes 105,364 shares of Common Stock subject to stock options.
(4) Includes 128,996 shares held by Mr. Holdbrooks as trustee.
(5) Mr. Jones holds power to vote 41,466 of these shares as trustee.
(6) Includes 382,040 shares of Common Stock subject to options under
BancGroup's stock option plans.
(7) Includes 40,000 shares of Common Stock subject to options under BancGroup's
stock option plans.
(8) Includes 127,208 shares of Common Stock subject to stock options.
75
<PAGE> 83
(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 50,000, 18,490, 56,000 and 36,000
shares of Common Stock, respectively, pursuant to BancGroup's stock option
plans, not counting options that are not exercisable within 60 days due to
vesting requirements.
MANAGEMENT INFORMATION
Certain information regarding the biographies of the directors and
executive officers of BancGroup, executive compensation and related party
transactions is included in (i) BancGroup's Annual Report on Form 10-K for the
fiscal year ending December 31, 1997, at item 10 and (ii) BancGroup's Proxy
Statement for its 1998 Annual Meeting, at items 10, 11 and 13.
76
<PAGE> 84
BUSINESS OF INTERWEST
GENERAL
InterWest is a bank holding company within the meaning of the BHCA and was
incorporated on March 1, 1991. InterWest owns 86.07% of the outstanding shares
of the Bank and 100% of the outstanding shares of the Mortgage Company. The Bank
operates four branches, one in each of Sparks and Fallon, and two in Reno,
Nevada. The Bank operates under the regulations of the State of Nevada and is a
member of the Federal Reserve Bank and a member of the Federal Homes Loan Bank.
InterWest Mortgage operates full service mortgage loan origination offices in
Portland, Oregon, Idaho Falls, Idaho, and in Las Vegas, Carson City and Reno,
Nevada.
The Bank provides a range of consumer and commercial banking services to
individuals, businesses and industries. The basic services offered by the Bank
include; demand interest bearing and non-interest bearing accounts, money market
deposit accounts, NOW accounts, time deposits, safe deposit services, direct
deposits, notary services, money orders, night depository, travelers' checks,
cashiers' checks, domestic collections, savings bonds, bank drafts, and drive-in
tellers. In addition, the Bank makes secured and unsecured commercial, real
estate, real estate construction, and consumer loans and issues standby letters
of credit. The Bank operates three automated teller machines ("ATM's") and
provides ATM cards, as a part of the CIRRUS ATM network, thereby permitting
customers to utilize the convenience of larger ATM networks. The Bank does not
have trust powers and, accordingly, provides no trust services.
The revenues of the Bank are primarily derived from interest on, and fees
received in connection with, real estate and other loans, and from interest from
short-term investments. The principal sources of funds for the Bank's lending
activities are its deposits, repayments of loans. The principal expenses of the
Bank are the interest paid on deposits, and operating and general administrative
expenses.
The revenues of the Mortgage Company are primarily derived from origination
fees charged on mortgage loan originations, service released premiums on those
mortgages sold in the secondary market, and loan servicing fees on the loans
serviced for investors. The Mortgage Company also has a warehouse line of credit
at U.S. Bank in the amount of $9 million for the purpose of funding mortgage
loan originations.
As is the case with banking institutions generally, the Bank and Mortgage
Company operations are materially and significantly influenced by general
economic conditions and by related monetary and fiscal policies of financial
institution regulatory agencies, including the Federal Reserve and the FDIC.
Deposit flows and costs of funds are influenced by interest rates on competing
investments and general market conditions. Lending activities are affected by
the demand for financing of real estate and other types of loans, which in turn
are affected by the interest rates at which such financing may be offered and
other factors affecting local demand and availability of funds. The Bank faces
strong competition in the attraction of deposits (its primary source of lendable
funds) and in the origination of loans.
DEPOSIT ACTIVITIES
Deposits are the major source of the Bank's funds for lending and other
investment activities. The Bank considers the majority of its regular savings,
demand, NOW and money market deposit accounts to be core deposits. These
accounts comprised 57.6% of the Bank's total deposits at June 30, 1998. At June
30, 1998, 42.4% of the Bank's deposits were certificates of deposit. Generally,
the Bank attempts to maintain the rates paid on its deposits at a competitive
level. Time deposits of $100,000 and over made up 18.8% of the Bank's total
deposits at June 30, 1998. The majority of the deposits of the Bank are
generated in the Washoe and Churchill Counties of Nevada. For additional
information on the Bank's deposits activities, see "InterWest
Bancorp -- Management's Discussion and Analysis of Financial Condition and
Results of Operations -- Financial Condition -- Deposit Activities".
77
<PAGE> 85
LENDING ACTIVITIES
The Bank offers a range of lending services, including real estate,
consumer and commercial loans, to individuals and small business and other
organizations that are located in, or conduct a substantial portion of their
business in, the Bank's market area, which is considered to be all areas where
the Bank or the Mortgage Company has an office. The Bank's loans receivable, net
at June 30, 1998 were $89.2 million, or 72.28% of total assets. The interest
rates charged on loans vary with the degree of risk, maturity, and amount of the
loan, and are further subject to competitive pressures, deposit rates,
availability of funds, and government regulations. The Bank has no foreign
loans.
The Mortgage Company originates FHA/VA and Conventional one- to four-family
real estate loans. These loans are all sold in the secondary market or brokered
to institutional investors, and the Mortgage Company hedges its loans and
commitments to avoid losses due to the interest rate and terms that have been
agreed to with individual borrowers. The Mortgage Company also originates single
family construction loans. These loans are approved and funded by the Bank. The
Mortgage Company services $83.9 million of first mortgage loans for secondary
market investors as of June 30, 1998.
The Bank's loans are concentrated in three major areas: real estate loans,
commercial loans, and consumer loans. As of June 30, 1998, 79.0% of the Bank's
loan portfolio consisted of loans secured by mortgages on real estate and 16.5%
of the loan portfolio consisted of commercial loans. At the same date, 4.5% of
the Bank's loan portfolio consisted of consumer loans and other loans.
The Bank's real estate loans are secured by mortgages and consist primarily
of loans to individuals and businesses for the purchase, improvement of or
investment in real estate and for the construction of single family residential
units or the development of single-family residential building lots. These real
estate loans may be made at fixed- or variable-interest rates. The Bank
generally does not make fixed-interest rate commercial real estate loans with
maturities exceeding five years. The Bank purchases residential real estate
loans from the Mortgage Company on a short term basis. These loans have all been
sold in the secondary market.
The Bank's commercial loans include loans to individuals and
small-to-medium sized businesses located primarily in Washoe and Churchill
Counties for working capital, equipment purchases, and various other business
purposes. A majority of the Bank's commercial loans are secured by business
assets, but these loans may also be made on an unsecured basis. Commercial loans
may be made at variable- or fixed-interest rates. Commercial lines of credit are
typically granted on a one-year basis, with loan covenants and monetary
thresholds. Other commercial loans with terms or amortization schedules of
longer than one year will normally carry interest rates which vary with the
prime lending rate and with maturities of three to five years.
The Bank's consumer loan portfolio consists primarily of loans to
individuals for various consumer purposes, which are payable on an installment
basis. The majority of these loans are for terms of five years or less and are
secured by liens on various personal assets of the borrowers, but consumer loans
may also be made on an unsecured basis. Consumer loans are generally made at
fixed-rates.
For additional information on the Bank's lending activities, see "InterWest
Bancorp -- Management's Discussion and Analysis of Financial Condition and
Results of Operations -- Financial Condition -- Lending Activities", and "Asset
Quality".
INVESTMENTS
The Bank has not historically purchased securities, but has kept its
liquidity in Federal Funds and owns some Federal Home Loan Bank stock. The
Bank's liquidity is managed in relation to loan demand and deposit growth. The
Mortgage Company maintained a security portfolio through 1995, which was
comprised of marketable equity securities traded on a regular basis. Subsequent
to 1995, the Mortgage Company no longer maintains a security portfolio.
78
<PAGE> 86
EMPLOYEES
As of June 30, 1998, the Bank employed 44 full-time employees and nine
part-time employees. The Mortgage Company has 101 full-time employees and four
part-time employees. The employees are not represented by a collective
bargaining unit. InterWest considers relations with employees to be good.
PROPERTIES
The main office of the Bank is located at 2330 South Virginia Street, Reno,
Nevada 89502, in a three story building of approximately 24,000 square feet,
which is owned by the Bank.
The Bank also has banking offices as follows: the Fallon Office is located
at 200 South Maine Street, Fallon, Nevada 89406, the Sparks Office is located at
690 East Prater Way, Sparks, Nevada 89431. These two buildings are also owned by
the Bank. The McCarran Landing Branch is located at 4999 Longley Lane, Reno,
Nevada 89502, which is a leased facility.
The Mortgage Company leases space from the Bank at its 2330 South Virginia
Street, Reno, Nevada facility. The other Reno Mortgage Branch is located at 6880
South McCarran Blvd. #A11, Reno, Nevada 89509. The Mortgage Company has a
satellite office located at 116 East 7th Street, Carson City, Nevada 89701. The
Idaho Falls Branch is located at 1275 East 17th Street, Idaho Falls, Idaho
83404. The Portland Branch is located at 10121 S.E. Sunnyside, Suite 215,
Clackamas, Oregon 97015, and has a satellite office at 3000 Market Street Plaza
N.E., Suite #101, Salem, Oregon 97301. The Las Vegas Branch is located at 770
East Warm Springs Road, Suite 160, Las Vegas, Nevada 89119. The Mortgage Company
leases all of its facilities.
YEAR 2000 ISSUES
In the next two years, many companies, including financial institutions
such as InterWest, will face potentially serious issues associated with the
inability of existing data processing hardware and software to appropriately
recognize calendar dates beginning in the year 2000. Many computer programs that
can only distinguish the final two digits of the year entered may read entries
for the year 2000 as the year 1900 and compute payment, interest or delinquency
based on the wrong date, or are expected to be unable to compute payment,
interest or delinquency. In 1997, InterWest began the process of identifying the
many software applications and hardware devices expected to be impacted by this
issue. InterWest has also formulated and begun implementation of a plan to
address issues related its "Mission Critical" computer hardware, software, and
applications which complies with Federal Financial Institutions Examination
Council Year 2000 compliance guidelines as promulgated by InterWest's principal
regulatory agency. The Bank purchases most of its software applications from
third party vendors. The Bank believes that its vendors and its significant
customers are actively addressing the problems associated with the "Year 2000"
issue. The Bank, in cooperation with its service providers and vendors, has met
all applicable regulatory deadlines and intends to meet the remaining regulatory
deadlines promulgated by the Bank's principal regulatory agency. However, there
can be no assurance that InterWest Bank will not be adversely affected by the
failure of such third party vendors or significant customers of the Bank to
become Year 2000 compliant.
The Mortgage Company also began the process of identifying software and
hardware issues in 1997 along with the Bank and followed the same guidelines.
The Mortgage Company purchases most of its software applications from third
party vendors. The Mortgage Company believes that its vendors and information
suppliers, as well as the agencies and investors that purchase its loans, are
addressing the problems associated with the Year 2000 issue on a timely basis.
The Mortgage Company has also implemented its plan to address issues related to
mission critical items and will begin testing prior to September 1, 1998. The
Mortgage Company intends to meet the remaining regulatory deadlines; however,
full preparedness for Year 2000 will rely somewhat upon the success of its third
party vendors and services.
79
<PAGE> 87
LEGAL PROCEEDINGS
The Bank is periodically a party to or otherwise involved in legal
proceedings arising in the normal course of business, such as claims to enforce
liens, claims involving the making and servicing of real property loans, and
other issues incident to its business. Management does not believe that there is
any pending or threatened proceeding against InterWest, the Bank, or the
Mortgage Company which, if determined adversely, would have a material adverse
effect on InterWest's consolidated financial position.
PRINCIPAL HOLDERS OF COMMON STOCK
The following table sets forth information as of the Record Date, regarding
the ownership of InterWest Common Stock by each director of InterWest, and by
all directors and executive officers as a group. Unless otherwise indicated, all
persons shown in the table have sole voting and investment power with regard to
the shares shown.
<TABLE>
<CAPTION>
SHARES PERCENTAGE
NAME BENEFICIALLY OWNED (1) OF OWNERSHIP
---- ---------------------- ------------
<S> <C> <C>
Richard L. Martucci, Sr.(2)................................. 1,163,278 37.67
Carol T. Martucci(2)........................................ 1,163,278 37.67
Richard L. Martucci, Jr..................................... 91,456 2.76
John N. Donovan............................................. 326,536 10.57
Thomas Springer............................................. 247,472 8.01
Marlene Rimington........................................... 34,116 1.10
Alan L. Horner.............................................. 27,744 .90
All Executive Officers and Directors as a Group............. 3,053,880 98.89
</TABLE>
- ---------------
(1) Information related to beneficial ownership is based upon information
available to InterWest and uses "beneficial ownership" concepts set forth in
rules of the Commission under the Securities Exchange Act of 1934, as
amended. Under such rules, more than one person may be deemed to be a
beneficial owner of the same securities, and a person may be deemed to be a
beneficial owner of the same securities, and a person may be deemed to be a
beneficial owner of securities as to which he may disclaim any beneficial
interest. Accordingly, directors are named as beneficial owners of shares as
to which they may disclaim any beneficial interest. Except as otherwise
indicated in the notes to this table, the individuals possessed sole voting
and investment power as to all shares of InterWest Common Stock set forth
opposite their names.
(2) Shares of Richard L. Martucci, Sr. and Carol T. Martucci are owned jointly.
ADJOURNMENT OF SPECIAL MEETINGS
Approval of the Agreement by InterWest shareholders requires the
affirmative vote of at least a majority of the outstanding shares of InterWest
Common Stock. In the event there are an insufficient number of shares of
InterWest Common Stock present in person or by proxy at the Special Meeting to
approve the Agreement, InterWest's Board of Directors intends to adjourn the
Special Meeting to a later date provided a majority of the shares present and
voting on the motion have voted in favor of such adjournment. The place and date
to which the Special Meeting would be adjourned would be announced at the
Special Meeting. Proxies voted against the Agreement and abstentions will not be
voted to adjourn the Special Meeting. Abstentions and broker non-votes will not
be voted on this matter but will not count as "no votes." If it is necessary to
adjourn the Special Meeting and the adjournment is for a period of not more than
30 days from the original date of this Special Meeting, no notice of the time
and place of the adjourned meeting need be given the shareholders, other than an
announcement made at the Special Meeting.
The affect of any such adjournment would be to permit InterWest to solicit
additional proxies for approval of the Agreement. While such an adjournment
would not invalidate any proxies previously filed as long as the record date for
the adjourned meeting remained the same, including proxies filed by shareholders
80
<PAGE> 88
voting against the Agreement, an adjournment would afford InterWest the
opportunity to solicit additional proxies in favor of the Agreement.
OTHER MATTERS
The board of directors of InterWest is not aware of any business to come
before the Special Meeting other than those matters described above in this
Prospectus. If, however, any other matters not now known should properly come
before the Special Meeting, the proxy holders named in the accompany proxy will
vote such proxy on such matters as determined by a majority of the Board of
Directors of InterWest.
DATE FOR SUBMISSION OF BANCGROUP STOCKHOLDER PROPOSALS
In order to be eligible for inclusion in BancGroup's proxy solicitation
materials for its 1999 annual meeting of stockholders, any stockholder proposal
to take action at such meeting must be received at BancGroup's main office at
One Commerce Street Post Office Box 1108, Montgomery, Alabama 36101, no later
than 120 calendar days in advance of the date of March 21, 1999.
LEGAL MATTERS
Certain legal matter regarding the shares of BancGroup Common Stock of
BancGroup offered hereby are being passed upon by the law firm of Miller,
Hamilton, Snider & Odom, L.L.C., Mobile, Alabama, of which John C. H. Miller,
Jr., a director of BancGroup, is a partner. Such firm received fees for legal
services performed in 1997 of $1,659,399. John C. H. Miller, Jr., as of June 30,
1998, beneficially owned 76,704 shares of Common Stock. Mr. Miller also received
employee-related compensation from BancGroup in 1997 of $43,485. Certain legal
matters relating to the Merger are being passed upon for InterWest by the law
firm of Lyle & Murphy, L.L.P.
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.
Kafoury, Armstrong & Co. serves as the independent accountants for
InterWest. InterWest's consolidated financial statements as of December 31, 1997
and 1996 and for each of the three years ended December 31, 1997 are included in
this Prospectus in reliance upon the report of such firm, given on the authority
of that firm as experts in accounting and auditing. It is not expected that a
representative of such firm will be present at the Special Meeting.
81
<PAGE> 89
INTERWEST BANCORP AND SUBSIDIARIES
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
AUDITED FINANCIAL STATEMENTS
INDEPENDENT AUDITOR'S REPORT................................ F-2
Consolidated Statements of Financial Condition............ F-3
Consolidated Statements of Income......................... F-4
Consolidated Statements of Changes in Stockholders'
Equity................................................. F-5
Consolidated Statements of Cash Flows..................... F-6
Notes to Consolidated Financial Statements................ F-7
UNAUDITED CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
Consolidated Condensed Balance Sheets, June 30, 1998 and
1997................................................... F-19
Consolidated Condensed Statements of Income for the Six
Months Ended June 30, 1998 and 1997.................... F-20
Consolidated Condensed Statements of Cash Flows for the
Six Months Ended June 30, 1998 and 1997................ F-21
Notes to Unaudited Consolidated Condensed Financial
Statements for the Six Months Ended June 30, 1998 and
1997................................................... F-22
</TABLE>
F-1
<PAGE> 90
INDEPENDENT AUDITOR'S REPORT
To the Board of Directors of
InterWest Bancorp and Subsidiaries
We have audited the accompanying consolidated statements of financial
condition of InterWest Bancorp and Subsidiaries as of December 31, 1997 and
1996, and the related consolidated statements of income, changes in
stockholders' equity, and cash flows for each of the three years in the period
ended December 31, 1997. These financial statements are the responsibility of
the Bancorp's management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of InterWest
Bancorp and Subsidiaries as of December 31, 1997 and 1996, and the results of
its operations and cash flows for each of the three years in the period ended
December 31, 1997, in conformity with generally accepted accounting principles.
/s/ Kafoury, Armstrong & Co.
Carson City, Nevada
July 21, 1998
F-2
<PAGE> 91
INTERWEST BANCORP AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
DECEMBER 31, 1997 AND 1996
<TABLE>
<CAPTION>
1997 1996
----------- -----------
<S> <C> <C>
ASSETS
Cash and due from banks..................................... $ 6,572,762 $ 4,085,786
Federal funds sold.......................................... 8,149,000 7,227,000
Loans held for sale -- Note 4............................... 13,341,023 9,958,989
Loans, net of allowance for credit losses of $822,957 and
$583,624 for 1997 and 1996, respectively -- Notes 4 and
5......................................................... 64,526,115 47,243,487
Premises and equipment, net -- Note 6....................... 4,760,297 4,701,586
Deferred tax asset -- Note 7................................ 144,241 101,909
Other assets -- Note 8...................................... 1,665,731 1,466,848
----------- -----------
Total Assets...................................... $99,159,169 $74,785,605
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Deposits:
Demand deposits........................................... $17,795,242 $ 8,739,063
Savings, NOW and money market accounts.................... 37,942,143 29,926,154
Time deposits, $100,000 and over.......................... 9,837,512 7,687,231
Other time deposits....................................... 23,739,483 16,195,647
----------- -----------
Total Deposits.................................... 89,314,380 62,548,095
----------- -----------
Accrued expenses and other liabilities...................... 660,953 514,772
Long-term debt.............................................. 28,964 --
Warehouse notes payable -- Note 9........................... 1,129,070 4,310,280
----------- -----------
Total Liabilities................................. 91,133,367 67,373,147
----------- -----------
Minority interest........................................... 871,356 779,108
----------- -----------
Stockholders' equity:
Common stock -- no par value, authorized 3,500,000 shares,
issued and outstanding 3,020,021 shares and 2,992,256
shares at December 31, 1997 and 1996, respectively..... 1,414,328 1,352,812
Retained earnings......................................... 5,740,118 5,280,538
----------- -----------
Total Stockholders' Equity........................ 7,154,446 6,633,350
----------- -----------
Total Liabilities, Minority Interest, and
Stockholders' Equity............................ $99,159,169 $74,785,605
=========== ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-3
<PAGE> 92
INTERWEST BANCORP AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
FOR THE YEARS ENDED DECEMBER 31, 1997, 1996, AND 1995
<TABLE>
<CAPTION>
1997 1996 1995
----------- ----------- -----------
<S> <C> <C> <C>
INTEREST INCOME
Interest and fees on loans............................ $13,865,280 $11,266,182 $11,408,500
Interest on federal funds sold........................ 254,934 366,959 435,791
Interest on deposits with banks....................... 13,789 14,345 5,823
----------- ----------- -----------
Total Interest Income......................... 14,134,003 11,647,486 11,850,114
----------- ----------- -----------
INTEREST EXPENSE
Interest on deposits.................................. 2,801,357 1,989,680 1,679,388
Interest on long-term debt............................ -- 61,468 114,298
Interest on warehouse notes payable................... 118,352 498,713 512,560
----------- ----------- -----------
Total Interest Expense........................ 2,919,709 2,549,861 2,306,246
----------- ----------- -----------
Net Interest Income........................... 11,214,294 9,097,625 9,543,868
Provision for credit losses -- Note 5................... (270,000) (60,000) (70,000)
----------- ----------- -----------
Net Interest Income After Provision for Credit
Losses...................................... 10,944,294 9,037,625 9,473,868
----------- ----------- -----------
OTHER INCOME
Service charges on deposits........................... 213,558 187,323 178,128
Unrealized gain (loss) on trading securities.......... -- 477,754 (130,919)
Realized gain (loss) on trading securities............ -- (281,542) 1,766
Other income.......................................... 73,405 53,271 117,123
----------- ----------- -----------
286,963 436,806 166,098
----------- ----------- -----------
OTHER EXPENSES
Salaries and employee benefits........................ 6,496,058 4,974,121 4,642,858
Occupancy expense..................................... 693,602 578,859 603,122
Equipment expense..................................... 350,996 239,090 218,580
Loan origination expense.............................. 927,777 756,618 898,157
Office supplies and postage........................... 403,580 355,578 335,650
Other expense......................................... 1,182,010 917,283 1,074,570
----------- ----------- -----------
10,054,023 7,821,549 7,772,937
----------- ----------- -----------
Income Before Income Taxes.................... 1,177,234 1,652,882 1,867,029
----------- ----------- -----------
Provision for income tax expense:
Current............................................... $ 453,709 $ 504,016 $ 706,129
Deferred.............................................. (37,610) 51,536 27,320
----------- ----------- -----------
416,099 555,552 733,449
----------- ----------- -----------
Net Income Before Minority Interest........... 761,135 1,097,330 1,133,580
Minority interest in income of subsidiary............... 108,254 125,569 153,498
----------- ----------- -----------
Net Income.................................... $ 652,881 $ 971,761 $ 980,082
=========== =========== ===========
Basic earnings per share................................ $ 0.22 $ 0.33 $ 0.34
=========== =========== ===========
Average shares outstanding.............................. 3,006,139 2,962,146 2,923,880
=========== =========== ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-4
<PAGE> 93
INTERWEST BANCORP AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
FOR THE YEARS ENDED DECEMBER 31, 1997, 1996, AND 1995
<TABLE>
<CAPTION>
COMMON STOCK TOTAL
---------------------- RETAINED STOCKHOLDERS'
SHARES AMOUNT EARNINGS EQUITY
--------- ---------- ---------- -------------
<S> <C> <C> <C> <C>
BALANCE, December 31, 1994...................... 2,923,880 $1,218,752 $3,328,695 $4,547,447
Net income.................................... -- -- 980,082 980,082
--------- ---------- ---------- ----------
BALANCE, December 31, 1995...................... 2,923,880 1,218,752 4,308,777 5,527,529
Net income.................................... -- -- 971,761 971,761
Issuance of shares under stock option plans... 68,376 134,060 -- 134,060
--------- ---------- ---------- ----------
BALANCE, December 31, 1996...................... 2,992,256 1,352,812 5,280,538 6,633,350
Net income.................................... -- -- 652,881 652,881
Dividends paid................................ -- -- (193,301) (193,301)
Issuance of shares under stock option plans... 27,765 61,516 -- 61,516
--------- ---------- ---------- ----------
BALANCE, December 31, 1997...................... 3,020,021 $1,414,328 $5,740,118 $7,154,446
========= ========== ========== ==========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-5
<PAGE> 94
INTERWEST BANCORP AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1997, 1996, AND 1995
<TABLE>
<CAPTION>
1997 1996 1995
------------ ------------ -----------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income................................................ $ 652,881 $ 971,761 $ 980,082
Adjustments to reconcile net income to net cash provided
by operating activities:
Depreciation and amortization........................... 398,098 262,990 218,958
Minority interest in income of subsidiary............... 108,254 125,569 153,498
Provision for credit (recoveries) losses................ 270,000 60,000 70,000
Provisions for losses on other real estate owned........ 18,353 18,353 26,088
(Gain) loss on sale of other real estate owned.......... (57,154) 2,941 (49,556)
(Gain) loss on sale of fixed assets..................... (27,612) (13,516) (1,364)
(Gain) loss on sale of trading securities............... (1,079) 281,542 (1,766)
Proceeds from sale of trading securities................ 1,079 833,782 603,914
Unrealized (gain) loss on trading securities............ -- (477,754) 130,919
Unrealized (gain) loss on hedged securities............. (8,281) -- --
Unrealized (gain) loss on mortgage servicing rights..... (213) 213 --
Unrealized (gain) loss on purchase of subsidiary's
stock................................................. (1,876) -- --
(Increase) decrease in:
Loans held for sale................................... (3,382,034) 3,781,420 (8,478,657)
Deferred income tax asset............................. (105,717) 50,754 23,056
Other assets.......................................... (222,803) (403,663) 411,165
Increase (decrease) in:
Accrued expenses and other liabilities................ 146,181 (59,655) 179,500
Warehouse note payable................................ (3,181,210) (8,656,398) 8,110,543
------------ ------------ -----------
Net Cash Provided (Used) by Operating Activities.... (5,393,133) (3,221,661) 2,376,380
------------ ------------ -----------
CASH FLOWS FROM INVESTING ACTIVITIES
Sale of Federal Reserve Bank stock........................ -- -- 63,000
Purchase of Federal Home Loan Bank stock.................. (245,600) (16,200) (18,700)
Purchase of subsidiary's stock............................ (3,624) -- --
Net (increase) decrease in loans.......................... (17,552,628) (10,596,968) (3,354,837)
Sale of other real estate owned........................... 798,643 647,109 38,258
Acquisition of other real estate owned.................... (441,474) (1,005,626) --
Acquisition of premises and equipment, net................ (380,138) (3,414,299) (176,856)
(Increase) decrease in deposits........................... (7,433) (9,152) (3,026)
Purchase of other investments............................. (18,594) -- --
Proceeds from sale of other investments................... -- 209,906 --
------------ ------------ -----------
Net Cash Provided (Used) by Investing Activities.... (17,850,848) (14,185,230) (3,452,161)
------------ ------------ -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net increase (decrease) in:
Demand deposits......................................... $ 9,056,179 $ 3,009,753 $ 372,453
Savings and NOW deposits................................ 8,015,989 17,477,288 (1,338,937)
Time deposits -- $100,000 and over...................... 2,150,281 704,624 1,703,964
Other time deposits..................................... 7,543,836 (2,421,264) 2,729,551
Payments on note payable.................................. -- (1,060,000) (190,000)
Payments on long-term debt................................ -- (8,382) (310,424)
Payments on short-term debt............................... -- (297,113) (316,400)
Proceeds of long-term debt................................ 28,964 -- --
Dividends paid by subsidiary to minority stockholders..... (10,507) (42,025) (46,225)
Dividends paid to stockholders............................ (193,301) -- --
Sale of stock............................................. 61,516 134,060 --
------------ ------------ -----------
Net Cash Provided (Used) by Financing Activities.... 26,652,957 17,496,941 2,603,982
------------ ------------ -----------
Net Increase (Decrease) in Cash and Cash
Equivalents....................................... 3,408,976 90,050 1,528,201
CASH AND CASH EQUIVALENTS, Beginning........................ 11,312,786 11,222,736 9,694,535
------------ ------------ -----------
CASH AND CASH EQUIVALENTS, Ending........................... $ 14,721,762 $ 11,312,786 $11,222,736
============ ============ ===========
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
Cash paid during the year for:
Interest................................................ $ 2,865,595 $ 2,544,255 $ 2,300,794
============ ============ ===========
Income taxes............................................ $ 420,401 $ 487,446 $ 699,437
============ ============ ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-6
<PAGE> 95
INTERWEST BANCORP AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1997, 1996, AND 1995
NOTE 1 -- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
PRINCIPLES OF CONSOLIDATION
On March 1, 1991, InterWest Bancorp (the "Bancorp") acquired InterWest Bank
(the "Bank") in a business combination accounted for as a pooling of interest.
InterWest Bank became an 85.67% subsidiary of the Bancorp through the exchange
of 1,769,840 shares of the Bancorp's common stock for 85.67% of the outstanding
stock of InterWest Bank. Significant intercompany accounts and transactions are
eliminated in the consolidation.
Since March 1, 1991, the Bancorp has acquired more shares of the stock and
now holds 85.9725% of the outstanding shares of the stock of InterWest Bank.
Minority interest, reported in these financial statements, represents the
remaining shares of common stock of InterWest Bank owned by minority
stockholders.
On August 1, 1996, the Bancorp acquired InterWest Mortgage in a business
combination accounted for as a pooling of interest. InterWest Mortgage, which
engages in mortgage banking activities, became a wholly-owned subsidiary of the
company through the exchange of 1,154,040 shares of the company's common stock
for all of the outstanding stock of InterWest Mortgage. The accompanying
financial statements for 1996 are based on the assumption that the companies
were combined for the full year, and financial statements of prior years have
been restated to give effect to the combination. All significant intercompany
transactions have been eliminated in the consolidation. Prior to the
acquisition, InterWest Mortgage had a fiscal year end of February 29 and changed
its year end to conform with the year end of InterWest Bancorp for the year
ended December 31, 1996. Therefore, the accompanying financial statements
include ten months of operations for InterWest Mortgage in the 1996 amounts and
twelve months of operations for InterWest Mortgage for the 1997 and 1995
amounts.
BUSINESS OPERATIONS
InterWest Bank is a Nevada State Chartered Bank. The Bank provides a
variety of financial services to individuals and corporate customers through its
branches in Reno, Sparks, and Fallon, Nevada. The Bank's primary deposit
products are non-interest-bearing and interest-bearing checking accounts,
savings, money market, NOW accounts, and certificates of deposit. Its primary
lending products are commercial loans related to the development of single
family homes and commercial properties, and single family residential loans.
Accordingly, its revenues are derived primarily from these products.
InterWest Mortgage is engaged in mortgage banking operations and is a
Nonsupervised Mortgagee under approval of the U.S. Department of Housing and
Urban Development (HUD). The company originates, markets and services
residential real estate mortgage loans to borrowers primarily in the areas where
its offices are located (Nevada, Oregon, and Idaho).
USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
Material estimates that are particularly susceptible to significant change
relate to the determination of the allowance for credit losses on loans and the
valuation of real estate acquired in connection with foreclosures or
F-7
<PAGE> 96
INTERWEST BANCORP AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
in satisfaction of loans. In connection with the determination of the allowances
for losses on loans and foreclosed real estate, management obtains independent
appraisals for significant properties.
While management uses available information to recognize losses on loans
and foreclosed real estate, future additions to the allowances may be necessary
based on changes in local economic conditions or growth in the loan portfolio.
In addition, regulatory agencies, as an integral part of their examination
process, periodically review the Bank's allowances for losses on loans and
foreclosed real estate. Such agencies may require the Bank to recognize
additions to the allowances based on their judgments about information available
to them at the time of their examination. Because of these factors, it is
reasonably possible that the allowances for losses on loans and foreclosed real
estate may change materially in the near term.
STATEMENT OF CASH FLOWS
For purposes of reporting cash flows, cash and cash equivalents include
cash on hand, amounts due from banks and federal funds sold. Generally, federal
funds are purchased and sold for one-day periods.
LOANS
Loans are stated at the principal amount outstanding. Interest is accrued
on a simple interest basis. Related loan fees in excess of the estimate of
management of the cost of processing the loan are generally amortized into
income over the applicable loan periods.
Loans are generally placed on nonaccrual status when management determines
full collectibility is uncertain, which is generally when they are past due
ninety days as to either interest or principal. However, loans that are in the
process of renewal in the normal course of business or are adequately secured
and in the process of legal collection may not be placed, at the judgment of
senior credit management, on nonaccrual status. Generally, when a loan is placed
on nonaccrual status, previously accrued interest is charged back against
interest income on loans. A nonaccrual loan may be restored to an accrual basis
when interest and principal payments are current and when the Bank is satisfied
that the loan is fully collectible.
Loans held for sale are carried at the lower of cost or market. Market is
estimated based on quoted market prices for similar loans.
ALLOWANCE FOR CREDIT LOSSES
The allowance for credit losses is maintained at a level considered
adequate based on management's overall evaluation of the inherent risks in the
loan portfolio and detailed evaluations of the collectibility of specific loans.
PREMISES AND EQUIPMENT
Buildings, leasehold improvements, furniture, fixtures and equipment are
stated at cost less accumulated depreciation and amortization. Provisions for
depreciation and amortization included in operating expenses are computed
according to the straight-line method over the estimated useful lives of the
assets.
OTHER REAL ESTATE OWNED
Other real estate owned from foreclosure on property is valued at the lower
of fair market value or the Bank's recorded investment in the related loan.
Valuations are periodically performed by management, and valuation allowances
are established by a charge to allowance for loss on other real estate owned if
the carrying value of a property exceeds its estimated net realizable value.
F-8
<PAGE> 97
INTERWEST BANCORP AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
LOAN SERVICING
The mortgage company earns fees for servicing first mortgage loans. The
fees are generally based on a percentage of the outstanding principal balances
of the loans serviced and are recorded as income as the loan payments are
collected.
The cost of mortgage servicing rights is amortized in proportion to, and
over the period of, estimated net servicing revenues. Impairment of mortgage
servicing rights is assessed based on the fair value of those rights. Fair
values are estimated using quoted market prices of mortgage backed securities
with similar terms which approximates discounted cash flows based on current
market interest rates. The amount of impairment recognized is the amount by
which the capitalized mortgage servicing rights exceed its fair value.
INCOME TAXES
Deferred tax provisions/benefits are calculated for certain transactions
and events because of differing treatments under generally accepted accounting
principles and the currently enacted tax laws of the federal government. The
results of these differences on a cumulative basis, known as temporary
differences, result in the recognition and measurement of deferred tax assets
and liabilities in the accompanying statement of financial condition.
The Bancorp and Subsidiaries file a consolidated income tax return. Each
provides for income tax expense based on its contribution to taxable income of
the consolidated group.
NET INCOME PER SHARE OF COMMON STOCK
Net income per share of common stock is computed by dividing net income by
the weighted average number of shares of common stock outstanding during the
period.
DIVIDENDS
In accordance with Nevada Revised Statutes, the company's dividend policy
prohibits payments of dividends in excess of its retained earnings.
ADVERTISING COSTS
The company expenses all advertising costs when incurred.
RECLASSIFICATION
Certain amounts in the 1996 and 1995 financial statements have been
reclassified to conform to the current year's presentation. These
reclassifications have no effect on the net income, stockholders' equity or
total cash flow balances previously reported.
NOTE 2 -- LOAN FUNDING AND SERVICING
During 1997, 1996, and 1995, InterWest Mortgage funded, and subsequently
sold, mortgage loans of $242,772,119, $204,985,077, and $209,002,029
respectively.
The mortgage company's loan servicing portfolios at December 31 were as
follows:
<TABLE>
<CAPTION>
1997 1996 1995
----------- ----------- -----------
<S> <C> <C> <C>
Number of mortgage loans........................ 1,037 1,002 961
=========== =========== ===========
Unpaid principal balance of mortgage loans...... $85,915,490 $81,741,259 $80,403,249
=========== =========== ===========
</TABLE>
F-9
<PAGE> 98
INTERWEST BANCORP AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Following is a reconciliation of the net mortgage servicing rights included
in other assets on the statements of financial condition at December 31:
<TABLE>
<CAPTION>
1997 1996 1995
-------- ------- ----
<S> <C> <C> <C>
Beginning balance........................................... $ 63,952 $ -- $--
Amount capitalized, net..................................... 148,724 71,641 --
Amortization................................................ (37,515) (7,476) --
Valuation allowance......................................... -- (213) --
-------- ------- ---
Net Amount........................................ $175,161 $63,952 $--
======== ======= ===
</TABLE>
NOTE 3 -- FUNDS HELD IN TRUST
Funds held in trust represent funds collected by the mortgage company from
mortgagors for insurance premiums, real estate taxes and principal and interest
collections that will be forwarded to insurance carriers, taxing authorities or
permanent investors. The funds held in trust which are not included on the
statements of financial condition in these financial statements are $826,559 and
$811,561 as of December 31, 1997 and 1996, respectively.
NOTE 4 -- LOANS
Details of loans held for sale as of December 31 were as follows:
<TABLE>
<CAPTION>
1997 1996
----------- ----------
<S> <C> <C>
Loans secured by real estate................................ $13,341,023 $9,958,989
=========== ==========
</TABLE>
Details of loan balances as of December 31 are summarized below:
<TABLE>
<CAPTION>
1997 1996
----------- -----------
<S> <C> <C>
Commercial loans............................................ $11,865,677 $ 5,047,432
Loans secured by real estate................................ 51,312,224 41,205,983
Consumer installment loans.................................. 2,200,368 1,781,349
Lease financing............................................. 224,945 80,384
All other loans............................................. 86,128 11,851
----------- -----------
65,689,342 48,126,999
Deferred loan fees.......................................... (311,652) (283,722)
Allowance for credit losses................................. (822,957) (583,624)
Unearned income............................................. (28,618) (16,166)
----------- -----------
$64,526,115 $47,243,487
=========== ===========
</TABLE>
NOTE 5 -- ALLOWANCE FOR CREDIT LOSSES
The following schedule shows the changes in the allowance for credit
losses:
<TABLE>
<CAPTION>
1997 1996 1995
-------- -------- --------
<S> <C> <C> <C>
BALANCE, Beginning of Year............................. $583,624 $538,049 $463,749
Provision charged to operating expense............... 270,000 60,000 70,000
Recoveries of loans previously charged off........... 4,072 3,867 7,810
Loans charged off.................................... (34,739) (18,292) (3,510)
-------- -------- --------
BALANCE, End of Year................................... $822,957 $583,624 $538,049
======== ======== ========
</TABLE>
F-10
<PAGE> 99
INTERWEST BANCORP AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Impairment of loans having carrying values of $637,452 and $99,204 at
December 31, 1997 and 1996, respectively, has been recognized in conformity with
FASB Statement No. 114, Accounting by Creditors for Impairment of a Loan. The
total allowance for credit losses related to those loans was $63,745 and $9,904.
For impairment recognized in conformity with FASB Statement No. 114, the entire
change in present value of expected cash flows is reported as provision for
credit losses in the same manner in which impairment initially was recognized or
as a reduction in the amount of provision for credit losses that otherwise would
be reported.
During 1997 and 1996, the average recorded investment in impaired loans was
$368,328 and $194,810, respectively. The amount of interest income recognized
during 1997 and 1996 on impaired loans was approximately $0, since cash receipts
on impaired loans are recognized as a reduction of the loan investment.
The risk of loss varies with the type of loan being made and the financial
condition of the borrower throughout the term of the loan.
NOTE 6 -- PREMISES AND EQUIPMENT
Premises and equipment owned consisted of the following at December 31:
<TABLE>
<CAPTION>
1997 1996
---------- ----------
<S> <C> <C>
Land........................................................ $1,184,096 $1,184,096
Building and improvements................................... 2,911,093 2,902,241
Furniture, fixtures, and equipment.......................... 2,535,077 2,354,958
---------- ----------
6,630,266 6,441,295
Less: Accumulated depreciation and amortization........... 1,869,969 1,739,709
---------- ----------
$4,760,297 $4,701,586
========== ==========
</TABLE>
Depreciation and amortization expense for the years 1997, 1996, and 1995
amounted to $398,098, $262,990, and $218,958, respectively.
NOTE 7 -- INCOME TAXES
A reconciliation of income tax at the statutory rate to the Company's
effective rate is as follows:
<TABLE>
<CAPTION>
1997 1996 1995
----- ------ -----
<S> <C> <C> <C>
Statutory rate........................................... 34.0% 34.0% 34.0%
Capital loss carryforward with no expected future
benefit................................................ 0.0 0.0 4.6
Benefit of capital loss carryforward..................... 0.0 (1.1) 0.0
Nondeductible expenses................................... 1.3 .5 .3
Other, net..................................... 0.0 .2 .3
----- ----- -----
35.3% 33.6% 39.3%
===== ===== =====
</TABLE>
F-11
<PAGE> 100
INTERWEST BANCORP AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Deferred income taxes result from temporary differences in the basis of
assets and liabilities for financial reporting and income taxes. The source of
these temporary differences and their resulting effect on income tax expense is
as follows:
<TABLE>
<CAPTION>
1997 1996 1995
-------- -------- --------
<S> <C> <C> <C>
Provision for loan losses.............................. $(91,800) $(20,400) $(23,800)
Provision for other real estate owned losses........... (6,240) (1,856) (8,870)
Mortgage servicing rights.............................. 36,747 21,744 --
Sale of assets......................................... 15,914 3,911 (375)
Unrealized gain/loss on securities..................... -- 44,236 44,512
Other, net............................................. 7,769 3,901 15,853
-------- -------- --------
$(37,610) $ 51,536 $ 27,320
======== ======== ========
</TABLE>
Significant components of the deferred tax liabilities and assets at
December 31 are as follows:
<TABLE>
<CAPTION>
1997 1996
-------- --------
<S> <C> <C>
Deferred tax liabilities:
Depreciation.............................................. $ 99,338 $ 80,512
Mortgage servicing rights................................. 59,555 21,816
-------- --------
158,893 102,328
-------- --------
Deferred tax assets:
Loan loss reserve......................................... 233,883 142,083
Other real estate owned reserve........................... 46,419 40,179
Other..................................................... 22,832 21,975
-------- --------
303,134 204,237
-------- --------
Net deferred tax asset...................................... $144,241 $101,909
======== ========
</TABLE>
NOTE 8 -- OTHER ASSETS
Other assets consist of the following at December 31:
<TABLE>
<CAPTION>
1997 1996
---------- ----------
<S> <C> <C>
Interest receivable......................................... $ 394,352 $ 332,117
Other receivables........................................... 199,023 128,569
Federal Home Loan Bank stock................................ 398,900 153,300
Other real estate owned, net of valuation allowance of
$136,527 and $118,174, respectively....................... 316,988 613,668
Mortgage servicing rights................................... 175,161 63,952
Other....................................................... 181,307 175,242
---------- ----------
$1,665,731 $1,466,848
========== ==========
</TABLE>
NOTE 9 -- WAREHOUSE NOTES PAYABLE
The mortgage company finances the funding of mortgage loans through
short-term warehouse lines of credit. Such borrowings are collateralized by
mortgage loans with a carrying amount of $1,160,346 and $4,741,957 at December
31, 1997 and 1996, respectively. Interest is charged at rates of .375% to 1.00%
above each bank's prime interest rate. The U.S. Bank agreement provided for a
line of credit in the amount of $7,000,000 and matures on May 31, 1999. The
agreement with Franklin Federal Bancorp provided for a line of credit in the
amount of $8,500,000. The agreement terminated during 1997 at its maturity.
F-12
<PAGE> 101
INTERWEST BANCORP AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Warehouse notes payable consist of the following at December 31:
<TABLE>
<CAPTION>
1997 1996
---------- ----------
<S> <C> <C>
U.S. Bank................................................... $1,129,070 $1,370,145
Franklin Federal Bancorp.................................... -- 2,940,135
---------- ----------
$1,129,070 $4,310,280
========== ==========
</TABLE>
NOTE 10 -- CREDIT ARRANGEMENT
The Bank subsidiary had a credit line with the Federal Home Loan Bank of
San Francisco (FHLB), whereby the Bank could borrow certain amounts based on the
amount of collateral pledged. This credit line required the Bank to maintain
certain collateral maintenance, credit, and other requirements as set forth by
FHLB. The line was secured by mortgage loans with a carrying value of $9,917,000
as of December 31, 1996, which gave the Bank the ability to borrow $6,257,650.
There were no borrowings on this line during 1996. The Bank closed this line of
credit during 1997 because of a change in reporting requirements for FHLB.
NOTE 11 -- COMMITMENTS AND CONTINGENT LIABILITIES
The Bancorp's financial statements do not reflect various commitments and
contingent liabilities which arise in the normal course of business and which
involve elements of credit risk, interest rate risk, and liquidity risk. These
commitments and contingent liabilities are commitments to extend credit,
commercial letters of credit, and standby letters of credit. A summary of the
Bank's commitments and contingent liabilities at December 31 is as follows:
<TABLE>
<CAPTION>
1997 1996 1995
----------- ----------- -----------
<S> <C> <C> <C>
Commitments to extend credit.................... $23,625,798 $17,403,265 $12,074,000
Letters of credit............................... 1,535,810 1,209,489 477,264
----------- ----------- -----------
$25,161,608 $18,612,754 $12,551,264
=========== =========== ===========
</TABLE>
Commitments to extend credit and letters of credit include exposure to some
credit loss in the event of nonperformance of the customer. The Bank's credit
policies and procedures for credit commitments and financial guarantees are the
same as those for extension of credit that are recorded on the statements of
condition. Because these instruments have fixed maturity dates, and because many
of them expire without being drawn upon, they do not generally present any
significant liquidity risk to the Bank. The Bank has not been required to
perform on any financial guarantees during the past three years. The Bank did
not incur any significant losses on its commitments in 1997, 1996 or 1995.
The Bancorp is involved in ongoing litigation arising in the normal course
of business. Management, after consultation with legal counsel, believes that
the liabilities, if any, arising from such litigation and claims will not be
material to the Bancorp's financial condition.
NOTE 12 -- LEASE COMMITMENTS
The companies rent office space and equipment under various operating
leases. Substantially all rental expense reported in the accompanying statements
of income is attributable to minimum rent under such leases.
F-13
<PAGE> 102
INTERWEST BANCORP AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Future minimum payments by year under operating leases with initial or
remaining noncancellable terms of one year or more, consisted of the following
at December 31, 1997:
<TABLE>
<S> <C>
1998........................................................ $ 373,140
1999........................................................ 273,740
2000........................................................ 215,815
2001........................................................ 210,812
2002........................................................ 198,215
Future years................................................ 455,777
----------
Total Minimum Future Rental Payments.............. $1,727,499
==========
</TABLE>
Total rental expense included in the statements of income for 1997, 1996,
and 1995 was $332,410, $291,979, and $435,303, respectively.
NOTE 13 -- RELATED PARTY TRANSACTIONS
Certain directors and officers of InterWest Bancorp and Subsidiaries and
their associates were customers of, and had transactions with, the Bank in the
ordinary course of business during 1997, 1996, and 1995.
NOTE 14 -- CONCENTRATION OF CREDIT RISK
The Bank grants residential loans and other types of loans to customers
throughout Nevada. Although the Bank has a diversified loan portfolio, a
substantial portion of its debtors' abilities to honor their contracts is
dependent on the economic conditions in Nevada.
The mortgage company originates residential mortgage loans to customers in
Nevada, Idaho, and Oregon. Accordingly, the company's ability to originate
additional loans is dependent on the economic conditions in these areas.
NOTE 15 -- EMPLOYEE BENEFIT PLANS
The company has a Profit Sharing and Thrift Plan (including Section 401(k)
provisions of the Internal Revenue Code). The Plan is available to all employees
who meet certain service requirements. The Profit Sharing and Thrift Plan
contains a matching provision, whereby the company can partially match employee
contributions to the 401(k) Plan. Contributions to the Plan for 1997, 1996, and
1995 were not material.
NOTE 16 -- STOCK OPTION PLAN
During 1996, the company adopted a key employee stock option plan. The
exercise price of each option is equal to the market price of the company's
stock on the date of exercise of the option. Since the strike price of the
option is the same as the fair value of the stock, no compensation cost is
recorded in accordance with FASB Statement No. 123. The maximum term of the
options is five years, and they vest immediately upon issuance. During 1996,
130,000 options were issued, 68,376 options were exercised at strike prices
ranging from $1.88 to $2.18 per share. There were 61,624 options outstanding at
December 31, 1996.
During 1997, 174,000 options were issued and 18,765 were exercised at
strike prices ranging from $2.17 to $2.35 per share. All unexercised options at
December 31, 1997 that were issued during 1997, expired on December 31, 1997. In
addition, 9,000 options issued in 1996 were exercised during 1997 at strike
prices ranging from $2.17 to $2.35 per share.
There were 52,624 options outstanding at December 31, 1997.
F-14
<PAGE> 103
INTERWEST BANCORP AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 17 -- REGULATORY MATTERS
The Bancorp's subsidiary (InterWest Bank) is subject to various regulatory
capital requirements administered by the federal banking agencies. Failure to
meet minimum capital requirements can initiate certain mandatory and possibly
additional discretionary actions by regulators that, if undertaken, could have a
direct material effect on the Bank's financial statements. Under capital
adequacy guidelines and the regulatory framework for prompt corrective action,
the Bank must meet specific capital guidelines that involve quantitative
measures of the Bank's assets, liabilities, and certain off-balance-sheet items
as calculated under regulatory accounting practices. The Bank's capital amounts
and classification are also subject to qualitative judgments by the regulators
about components, risk weightings, and other factors.
Quantitative measures established by regulation to ensure capital adequacy
require the Bank to maintain minimum amounts and ratios (set forth in the table
below) of total and Tier I capital (as defined in the regulations) to
risk-weighted assets (as defined), and of Tier I capital (as defined) to average
assets (as defined). Management believes, as of December 31, 1997, that the Bank
meets all capital adequacy requirements to which it is subject.
As of December 31, 1997, the most recent notification from the federal
banking agencies categorized the Bank as adequately capitalized under the
regulatory framework for prompt corrective action. To be categorized as
adequately capitalized, the Bank must maintain minimum total risk-based, Tier I
risk-based, and Tier I leverage ratios as set forth in the table. There are no
conditions or events since that notification that management believes have
changed the institution's category.
The Bank's actual capital amounts and ratios are presented below.
<TABLE>
<CAPTION>
TO BE WELL
CAPITALIZED UNDER
FOR CAPITAL PROMPT CORRECTIVE
ACTUAL ADEQUACY PURPOSES ACTION PROVISIONS
------------------ ------------------- -------------------
AMOUNT RATIO AMOUNT RATIO AMOUNT RATIO
---------- ----- ----------- ----- ----------- -----
<S> <C> <C> <C> <C> <C> <C>
As of December 31, 1997:
Total Capital
(to Risk Weighted Assets)..... $7,036,000 9.1% >$6,187,000 >8.0% >$7,734,000 >10.0%
- - - -
Tier I Capital
(to Risk Weighted Assets)..... 6,213,000 8.0 > 3,094,000 >4.0 > 4,641,000 > 6.0
- - - -
Tier I Capital
(to Average Assets)........... 6,213,000 7.1 > 3,318,000 >4.0 > 4,148,000 > 5.0
- - - -
As of December 31, 1996:
Total Capital
(to Risk Weighted Assets)..... $6,099,000 11.1% >$4,398,000 >8.0% >$5,498,000 >10.0%
- - - -
Tier I Capital
(to Risk Weighted Assets)..... 5,515,000 10.0 > 2,199,000 >4.0 > 3,299,000 > 6.0
- - - -
Tier I Capital
(to Average Assets)........... 5,515,000 9.3 > 2,360,000 >4.0 > 2,950,000 > 5.0
- - - -
</TABLE>
NOTE 18 -- FAIR VALUE OF FINANCIAL INSTRUMENTS
SFAS No. 107, "Disclosures about Fair Values of Financial Instruments,"
requires disclosure of information about the fair value of financial instruments
for which it is practicable to estimate a value, whether or not recognized in
the statement of condition. Whenever possible, quoted market prices are used to
estimate fair values. In cases where quoted market prices are not available,
fair values are based on estimates using present value or other valuation
techniques. Those techniques are significantly affected by the assumptions used,
including the discount rate and estimates of future cash flows. Therefore, in
many cases, the estimated fair values may not be realized in an immediate sale
of the instruments.
F-15
<PAGE> 104
INTERWEST BANCORP AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
SFAS No. 107 excludes certain financial instruments and all non-financial
instruments from its disclosure requirements. Accordingly, the aggregate of the
estimated fair value amounts is not intended to represent the underlying value
of the Bancorp.
The carrying amounts and the estimated fair values are as follows:
<TABLE>
<CAPTION>
DECEMBER 31, 1997
-------------------------
CARRYING ESTIMATED
AMOUNT FAIR VALUE
----------- -----------
<S> <C> <C>
Assets:
Cash and cash equivalents................................. $14,721,762 $14,721,762
Federal Home Loan Bank Stock.............................. 398,900 398,900
Loans receivable.......................................... 77,867,138 77,945,604
----------- -----------
Total Asset Financial Instruments................. $92,987,800 $93,066,266
=========== ===========
Liabilities:
Deposits.................................................. $89,314,380 $89,336,585
Long-term debt............................................ 28,964 28,964
Warehouse note payable.................................... 1,129,070 1,129,070
----------- -----------
Total Liability Financial Instruments............. $90,472,414 $90,494,619
=========== ===========
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31, 1996
-------------------------
CARRYING ESTIMATED
AMOUNT FAIR VALUE
----------- -----------
<S> <C> <C>
Assets:
Cash and cash equivalents................................. $11,312,786 $11,312,786
Federal Home Loan Bank Stock.............................. 153,300 153,300
Loans receivable.......................................... 57,202,476 57,253,200
----------- -----------
Total Asset Financial Instruments................. $68,668,562 $68,719,286
=========== ===========
Liabilities:
Deposits.................................................. $62,548,095 $62,563,889
Warehouse notes payable................................... 4,310,280 4,310,280
----------- -----------
Total Liability Financial Instruments............. $66,858,375 $66,874,169
=========== ===========
</TABLE>
The following methods and assumptions were used by the Bancorp in
estimating its fair value disclosures for financial instruments.
CASH AND CASH EQUIVALENTS
The carrying amounts reported in the statement of financial condition for
cash and cash equivalents approximate those assets' fair values.
FEDERAL HOME LOAN BANK STOCK
Fair value for Federal Home Loan Bank stock is based on its par value since
it is redeemable at par.
LOANS RECEIVABLE
For variable-rate loans that re-price frequently and with no significant
change in credit risk, fair values are based on carrying amounts. The fair
values of fixed-rate mortgage loans are based on quoted market prices of similar
loans sold, adjusted for differences in loan characteristics. The fair values of
other fixed-rate loans are
F-16
<PAGE> 105
INTERWEST BANCORP AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
estimated using discounted cash flow analysis, at interest rates currently being
offered for loans with similar terms to borrowers of similar credit quality.
DEPOSIT LIABILITIES
The carrying amounts for interest-bearing and non-interest-bearing demand,
savings, money market, and NOW accounts approximate those liabilities' fair
values. Fair values for fixed-rate certificates of deposit are estimated using a
discounted cash flow calculation that applies interest rates currently being
offered on certificates to a schedule of aggregated expected monthly maturities
on time deposits.
LONG-TERM DEBT
The fair value of long-term debt is calculated based on the discounted
value of contracted cash flows. The discount rate is estimated using the rates
currently available for similar debt with similar maturities.
WAREHOUSE NOTES PAYABLE
The carrying value of the warehouse note payable approximates its fair
value because of the relatively short-term nature of the instrument.
NOTE 19 -- PARENT COMPANY STATEMENTS
<TABLE>
<CAPTION>
DECEMBER 31, DECEMBER 31,
1997 1996
------------ ------------
<S> <C> <C>
Condensed Balance Sheets:
Assets:
Cash................................................... $ 74,569 $ 132,855
Due from subsidiaries.................................. -- 1,420
Investment in bank subsidiary.......................... 5,340,861 4,735,829
Investment in non-bank subsidiary...................... 1,731,597 1,752,650
Other assets........................................... 79,491 39,096
---------- ----------
Total Assets...................................... $7,226,518 $6,661,850
========== ==========
Liabilities and Stockholders' Equity:
Liabilities:
Due to subsidiaries.................................... $ 72,145 $ 28,046
Other liabilities...................................... -- 454
---------- ----------
72,145 28,500
Stockholders' equity...................................... 7,154,373 6,633,350
---------- ----------
Total Liabilities and Stockholders' Equity........ $7,226,518 $6,661,850
========== ==========
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31,
-----------------------------------
1997 1996 1995
--------- ----------- ---------
<S> <C> <C> <C>
Condensed Statements of Income:
Cash dividends from bank subsidiary...................... $ 63,863 $ 255,450 $ 255,228
Cash dividends from non-bank subsidiary.................. 14,670 847,600 --
Interest income.......................................... 2,421 1,664 1,468
Other income............................................. 1,876 -- --
Expenses................................................. (8,502) (48,954) (80,412)
--------- ----------- ---------
Income before equity in undistributed net income of
subsidiaries.......................................... 74,328 1,055,760 176,284
</TABLE>
F-17
<PAGE> 106
INTERWEST BANCORP AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
<TABLE>
<CAPTION>
DECEMBER 31,
-----------------------------------
1997 1996 1995
--------- ----------- ---------
<S> <C> <C> <C>
Equity in undistributed net income loss of
subsidiaries.......................................... $ 578,553 $ (83,999) $ 803,798
--------- ----------- ---------
Net Income....................................... $ 652,881 $ 971,761 $ 980,082
========= =========== =========
Condensed Statements of Cash Flows:
Cash flows from operating activities:
Net income............................................ $ 652,881 $ 971,761 $ 980,082
Adjustments to reconcile net income to net cash
provided by operating activities:
Equity in undistributed net income of
subsidiaries..................................... (578,553) 83,999 (803,798)
Amortization..................................... -- 691 4,104
Unrealized (gain) on purchase of subsidiary's
stock.......................................... (1,873) -- --
Change in due from subsidiaries.................. 1,420 7,889 41,718
Change in other assets........................... (40,395) (27,344) (11,752)
Change in due to subsidiaries.................... 44,099 28,046 --
Change in other liabilities...................... (455) (17,851) (57,062)
--------- ----------- ---------
Net Cash Provided (Used) by Operating
Activities..................................... 77,124 1,047,191 153,292
--------- ----------- ---------
Cash Flows from Investing Activities:
Purchase of subsidiary stock............................. (3,624) -- --
--------- ----------- ---------
Net Cash Provided (Used) by Investing
Activities..................................... (3,624) -- --
--------- ----------- ---------
Cash Flows from Financing Activities:
Sale of stock............................................ 61,516 134,060 --
Dividends paid........................................... (193,302) -- --
Payments on note payable................................. -- (1,060,000) (190,000)
--------- ----------- ---------
Net Cash Provided (Used) by Financing
Activities..................................... (131,786) (925,940) (190,000)
--------- ----------- ---------
Net Increase (Decrease) in Cash.................. (58,286) 121,251 (36,708)
Cash, beginning of year.................................... 132,855 11,604 48,312
--------- ----------- ---------
Cash, end of year.......................................... $ 74,569 $ 132,855 $ 11,604
========= =========== =========
</TABLE>
NOTE 20 -- SUBSEQUENT EVENTS
During June of 1998, Colonial Bancgroup, Inc. announced its plan to acquire
InterWest Bancorp. In the transaction, each share of InterWest Bancorp stock
will be exchanged for .2357 shares of Colonial Bancgroup, Inc. stock. The
acquisition is contingent upon approval by the stockholders of both companies
and the applicable regulatory agencies.
F-18
<PAGE> 107
INTERWEST BANCORP AND SUBSIDIARIES
UNAUDITED CONSOLIDATED CONDENSED BALANCE SHEETS
<TABLE>
<CAPTION>
JUNE 30,
------------------
1998 1997
-------- -------
(IN THOUSANDS)
<S> <C> <C>
ASSETS
Cash and due from banks..................................... $ 6,088 $ 4,723
Federal funds sold.......................................... 22,896 2,574
Investment securities available for sale.................... 297 207
Loans receivable (net of allowance for loan losses, deferred
loan fees and unearned discounts of $1,317 in 1998 and
$996 in 1997)............................................. 94,585 65,034
Premises and equipment, net................................. 4,735 4,694
Other assets................................................ 1,853 1,528
-------- -------
Total assets...................................... $130,454 $78,760
======== =======
LIABILITIES
Deposits:
Non-interest bearing demand deposits...................... $ 25,116 $14,683
Savings, NOW and money market accounts.................... 41,299 36,710
Time deposits, $100,000 and over.......................... 21,880 5,739
Other time deposits....................................... 27,433 10,865
-------- -------
Total deposits.................................... 115,728 67,997
Accrued expenses and other liabilities...................... 791 540
Long-term debt.............................................. 26 32
Warehouse notes payable..................................... 5,216 2,653
-------- -------
Total liabilities................................. 121,761 71,222
-------- -------
Minority interest........................................... 936 818
-------- -------
Stockholders' equity:
Common stock -- no par value, authorized 3,500,000 shares,
issued and outstanding 3,075,075 shares and 3,013,721
shares at June 30, 1998 and 1997, respectively......... 1,547 1,399
Retained earnings......................................... 6,210 5,321
-------- -------
Total Stockholders Equity......................... 7,757 6,720
-------- -------
Total Liabilities, Minority Interest, and
Stockholders Equity.............................. $130,454 $78,760
======== =======
</TABLE>
See accompanying notes to unaudited consolidated condensed financial statements.
F-19
<PAGE> 108
INTERWEST BANCORP AND SUBSIDIARIES
UNAUDITED CONSOLIDATED CONDENSED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
SIX MONTHS ENDED JUNE 30,
-------------------------
1998 1997
----------- -----------
(IN THOUSANDS)
<S> <C> <C>
INTEREST INCOME
Interest and fees on loans................................ $ 8,154 $ 6,208
Interest on federal funds sold............................ 334 163
Interest on deposits with banks........................... 12 5
---------- ----------
Total Interest Income............................. 8,500 6,376
---------- ----------
INTEREST EXPENSE
Interest on deposits...................................... 2,054 1,260
Interest on long-term debt................................ 1 7
Interest on warehouse notes payable....................... 144 79
---------- ----------
Total Interest Expense............................ 2,199 1,346
---------- ----------
Net Interest Income.................................... 6,301 5,030
Provision for credit losses................................. 126 150
---------- ----------
Net Interest Income After Provision for Credit
Losses................................................ 6,175 4,880
---------- ----------
OTHER INCOME
Service Charges on deposits............................... 105 107
Realized gain (loss) on trading securities................ 0 1
Other income.............................................. 128 124
---------- ----------
Total Noninterest Income.......................... 233 232
---------- ----------
OTHER EXPENSES
Salaries and employee benefits............................ 3,368 2,955
Occupancy and equipment expense........................... 589 554
Other expense............................................. 1,517 1,175
---------- ----------
Total Noninterest Expense......................... 5,474 4,684
---------- ----------
Income Before Income Taxes............................. 934 428
Provision for income tax expense............................ 319 145
---------- ----------
Net Income Before Minority Interest............... 615 283
Minority Interest in income of subsidiary................... 70 49
---------- ----------
Net Income........................................ $ 545 $ 234
========== ==========
Earnings per share.......................................... $ 0.18 $ 0.08
========== ==========
Weighted average number of common shares outstanding........ 3,027,431 2,997,080
========== ==========
</TABLE>
See accompanying notes to unaudited consolidated condensed financial statements.
F-20
<PAGE> 109
INTERWEST BANCORP AND SUBSIDIARIES
UNAUDITED CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
SIX MONTHS ENDED
JUNE 30,
------------------
1998 1997
-------- -------
(IN THOUSANDS)
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net Income................................................ $ 545 $ 234
Adjustments to reconcile net income to net cash provided
by operating activities:
Depreciation and amortization.......................... 223 202
Minority interest in income of subsidiary.............. 70 49
Provision for credit (recoveries) losses............... 126 150
(Gain) loss on sale of fixed assets.................... (10) (14)
(Increase) decrease in:
Loans held for sale.................................. (5,439) (1,628)
Other assets......................................... (296) (132)
Increase (decrease) in:
Accrued expenses and other liabilities............... 152 24
Warehouse note payable............................... 4,087 (1,657)
-------- -------
Net Cash Provided (Used) by Operating
Activities....................................... (542) (2,772)
-------- -------
CASH FLOWS FROM INVESTING ACTIVITIES
Purchase (Sale) of Federal Home Loan Bank stock........... 102 (54)
Purchase of subsidiary stock.............................. (3) 0
Net (increase) decrease in loans.......................... (11,620) (6,425)
Sale of other real estate owned........................... 0 182
Acquisition of other real estate owned.................... 0 (119)
Acquisition of premises and equipment, net................ (153) (163)
(Increase) decrease in deposits........................... 11 11
-------- -------
Net Cash Provided (Used) by Investing
Activities....................................... (11,663) (6,568)
-------- -------
CASH FLOWS FROM FINANCING ACTIVITIES
Net increase (decrease) in:
Demand deposits........................................ 7,321 5,944
Savings, NOW and Money Market deposits................. 3,357 6,784
Time Deposits -- $100,000 and over..................... 12,042 (1,949)
Other time deposits.................................... 3,693 (5,330)
Net proceeds (payments) on long term debt................. (3) 32
Dividends paid by subsidiary to minority stockholders..... 0 (11)
Dividends paid to stockholders............................ (76) (193)
Sale of stock............................................. 133 47
-------- -------
Net Cash Provided (Used) by Financing
Activities....................................... 26,467 5,324
-------- -------
Net Increase (Decrease) in Cash and Cash
Equivalents...................................... 14,262 (4,016)
CASH AND CASH EQUIVALENTS, Beginning........................ 14,722 11,313
-------- -------
CASH AND CASH EQUIVALENTS, Ending........................... $ 28,984 $ 7,297
======== =======
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
Cash paid during the period for:
Interest............................................. $ 2,128 $ 1,357
======== =======
Income Taxes......................................... $ 267 $ 167
======== =======
</TABLE>
See accompanying notes to unaudited consolidated condensed financial statements.
F-21
<PAGE> 110
INTERWEST BANCORP AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
SIX MONTHS ENDED JUNE 30, 1998 AND 1997
1. BASIS OF PRESENTATION
The accompanying unaudited condensed consolidated financial statements have
been prepared in accordance with the instructions for interim financial
statements and do not include all of the information and footnotes required by
generally accepted accounting principles for complete financial statements.
These unaudited condensed consolidated financial statements should be read in
conjunction with the audited consolidated financial statements and notes thereto
for the years ended December 31, 1997 and 1996. In the opinion of the Company,
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
Company as of June 30, 1998 and the results of operations for the six months
ended June 30, 1998 and 1997, and cash flows for the six months ended June 30,
1998 and 1997. The results of operations for the six months ended June 30, 1998
are not necessarily indicative of the results which may be expected for the
entire fiscal year.
2. STOCK OPTIONS
In April, 1998, 33,000 non-qualified stock options were issued to employees
at an exercise price to be determined based upon book value information
available at each quarter end. As of June 30, 1998, 27.27% were vested. No
compensation expense has been recorded as it is assumed that book value is the
equivalent of market value due to the lack of trading.
F-22
<PAGE> 111
APPENDIX A
AGREEMENT AND PLAN OF MERGER
BY AND BETWEEN
THE COLONIAL BANCGROUP, INC.,
AND
INTERWEST BANCORP
DATED AS OF
JUNE 16, 1998
<PAGE> 112
TABLE OF CONTENTS
<TABLE>
<CAPTION>
CAPTION PAGE
- ------- -----
<S> <C>
ARTICLE 1 -- NAME
1.1 Name............................................... A-1
ARTICLE 2 -- MERGER -- TERMS AND CONDITIONS
2.1 Applicable Law..................................... A-1
2.2 Corporate Existence................................ A-1
2.3 Articles of Incorporation and Bylaws............... A-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
2.8 Subsidiary Bank Merger............................. A-2
2.9 Purchase of Minority Interest of Bank.............. A-2
ARTICLE 3 -- CONVERSION OF ACQUIRED CORPORATION STOCK
3.1 Conversion of Acquired Corporation Stock........... A-3
3.2 Surrender of Acquired Corporation Stock............ A-3
3.3 Fractional Shares.................................. A-4
3.4 Adjustments........................................ A-4
3.5 BancGroup Stock.................................... A-4
3.6 Dissenting Rights.................................. A-4
ARTICLE 4 -- REPRESENTATIONS, WARRANTIES AND COVENANTS OF
BANCGROUP
4.1 Organization....................................... A-4
4.2 Capital Stock...................................... A-4
4.3 Financial Statements; Taxes........................ A-5
4.4 No Conflict with Other Instrument.................. A-5
4.5 Absence of Material Adverse Change................. A-5
4.6 Approval of Agreement.............................. A-6
4.7 Tax Treatment...................................... A-6
4.8 Title and Related Matters.......................... A-6
4.9 Subsidiaries....................................... A-6
4.10 Contracts.......................................... A-6
4.11 Litigation......................................... A-6
4.12 Compliance......................................... A-7
4.13 Registration Statement............................. A-7
4.14 SEC Filings........................................ A-7
4.15 Form S-4........................................... A-7
4.16 Brokers............................................ A-7
4.17 Government Authorization........................... A-7
4.18 Absence of Regulatory Communications............... A-7
4.19 Disclosure......................................... A-7
ARTICLE 5 -- REPRESENTATIONS, WARRANTIES AND COVENANTS OF
ACQUIRED CORPORATION
5.1 Organization....................................... A-8
5.2 Capital Stock...................................... A-8
5.3 Subsidiaries....................................... A-8
5.4 Financial Statements; Taxes........................ A-8
5.5 Absence of Certain Changes or Events............... A-9
5.6 Title and Related Matters.......................... A-10
5.7 Commitments........................................ A-11
</TABLE>
i
<PAGE> 113
<TABLE>
<CAPTION>
CAPTION PAGE
- ------- -----
<S> <C>
5.8 Charter and Bylaws................................. A-11
5.9 Litigation......................................... A-11
5.10 Material Contract Defaults......................... A-12
5.11 No Conflict with Other Instrument.................. A-12
5.12 Governmental Authorization......................... A-12
5.13 Absence of Regulatory Communications............... A-12
5.14 Absence of Material Adverse Change................. A-12
5.15 Insurance.......................................... A-12
5.16 Pension and Employee Benefit Plans................. A-12
5.17 Buy-Sell Agreements................................ A-13
5.18 Brokers............................................ A-13
5.19 Approval of Agreements............................. A-13
5.20 Disclosure......................................... A-13
5.21 Registration Statement............................. A-13
5.22 Loans; Adequacy of Allowance for Loan Losses....... A-13
5.23 Environmental Matters.............................. A-13
5.24 Transfer of Shares................................. A-14
5.25 Collective Bargaining.............................. A-14
5.26 Labor Disputes..................................... A-14
5.27 Derivative Contracts............................... A-14
5.28 Non-Terminable Contracts and Severance
Agreements......................................... A-14
ARTICLE 6 -- ADDITIONAL COVENANTS
6.1 Additional Covenants of BancGroup.................. A-15
6.2 Additional Covenants of Acquired Corporation....... A-16
ARTICLE 7 -- MUTUAL COVENANTS AND AGREEMENTS
7.1 Best Efforts; Cooperation.......................... A-18
7.2 Press Release...................................... A-18
7.3 Mutual Disclosure.................................. A-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-19
8.3 Litigation......................................... A-20
8.4 Registration Statement............................. A-20
8.5 Tax Opinion........................................ A-20
ARTICLE 9 -- CONDITIONS TO OBLIGATIONS OF ACQUIRED
CORPORATION
9.1 Representations, Warranties and Covenants.......... A-20
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-21
9.7 Material Events.................................... A-21
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-22
10.5 Controlling Shareholders........................... A-23
</TABLE>
ii
<PAGE> 114
<TABLE>
<CAPTION>
CAPTION PAGE
- ------- -----
<S> <C>
10.6 Other Matters...................................... A-23
10.7 Dissenters......................................... A-23
10.8 Material Events.................................... A-23
10.9 Pooling of Interest................................ A-23
10.10 Employment Agreements.............................. A-23
10.11 Minority Shares.................................... A-23
ARTICLE 11 -- TERMINATION OF REPRESENTATIONS AND
WARRANTIES......................................... A-23
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 and Assignment............................. A-30
15.3 Governing Law...................................... A-30
15.4 Counterparts....................................... A-30
15.5 Headings........................................... A-30
15.6 Severability....................................... A-30
15.7 Construction....................................... A-30
15.8 Return of Information.............................. A-30
15.9 Equitable Remedies................................. A-30
15.10 Attorneys' Fees.................................... A-30
15.11 No Waiver.......................................... A-30
15.12 Remedies Cumulative................................ A-31
15.13 Entire Contract.................................... A-31
</TABLE>
iii
<PAGE> 115
AGREEMENT AND PLAN OF MERGER
THIS AGREEMENT AND PLAN OF MERGER is made and entered into as of this the
16th day of June 1998, by and between INTERWEST BANCORP ("Acquired
Corporation"), a Nevada corporation, and THE COLONIAL BANCGROUP, INC.
("BancGroup"), a Delaware corporation.
W I T N E S S E T H
WHEREAS, Acquired Corporation operates as a bank holding company for its
86.1% owned subsidiary, InterWest Bank (the "Bank"), with its principal office
in Reno, Nevada and its wholly owned subsidiary, InterWest Mortgage (the
"Mortgage Company"), with its principal office located in Reno, Nevada, and
WHEREAS, BancGroup is a bank holding company with a Subsidiary bank,
Colonial Bank, operating in Alabama, Florida, Georgia and Tennessee; and
WHEREAS, Acquired Corporation wishes to merge with BancGroup; and
WHEREAS, it is the intention of BancGroup and Acquired Corporation that
such Merger shall qualify for federal income tax purposes as a "reorganization"
within the meaning of section 368(a) of the Code, as defined herein;
NOW, THEREFORE, in consideration of the mutual covenants contained herein,
the Parties hereto agree as follows:
ARTICLE 1
NAME
1.1 Name. The name of the corporation resulting from the Merger shall be
"The Colonial BancGroup, Inc."
ARTICLE 2
MERGER -- TERMS AND CONDITIONS
2.1 Applicable Law. On the Effective Date, Acquired Corporation shall be
merged with and into BancGroup (herein referred to as the "Resulting
Corporation" whenever reference is made to it as of the time of merger or
thereafter). The Merger shall be undertaken pursuant to the provisions of and
with the effect provided in the Delaware General Corporation Law (the "DGCL")
and, to the extent applicable, the Nevada Revised Statutes (the "NRS"). The
offices and facilities of Acquired Corporation and of BancGroup shall become the
offices and facilities of the Resulting Corporation.
2.2 Corporate Existence. On the Effective Date, the corporate existence of
Acquired Corporation and of BancGroup shall, as provided in the DGCL and the
NRS, be merged into and continued in the Resulting Corporation, and the
Resulting Corporation shall be deemed to be the same corporation as Acquired
Corporation and BancGroup. All rights, franchises and interests of Acquired
Corporation and BancGroup, respectively, in and to every type of property (real,
personal and mixed) and 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
Corporation and BancGroup, respectively, on the Effective Date.
A-1
<PAGE> 116
2.3 Articles of Incorporation and Bylaws. On the Effective Date, the
certificate of incorporation and bylaws of the Resulting Corporation shall be
the restated certificate of incorporation and bylaws of BancGroup as they exist
immediately before the Effective Date.
2.4 Resulting Corporation's Officers and Board. The board of directors and
the officers of the Resulting Corporation on the Effective Date shall consist of
those persons serving in such capacities of BancGroup as of the Effective Date.
2.5 Stockholder Approval. This Agreement shall be submitted to the
shareholders of Acquired Corporation at the Stockholders Meeting to be held as
promptly as practicable consistent with the satisfaction of the conditions set
forth in this Agreement. Upon approval by the requisite vote of the shareholders
of Acquired Corporation as required by applicable Law, the Merger shall become
effective as soon as practicable thereafter in the manner provided in section
2.7 hereof.
2.6 Further Acts. If, at any time after the Effective Date, the Resulting
Corporation shall consider or be advised that any further assignments or
assurances in law or any other acts are necessary or desirable (i) to vest,
perfect, confirm or record, in the Resulting Corporation, title to and
possession of any property or right of Acquired Corporation or BancGroup,
acquired as a result of the Merger, or (ii) otherwise to carry out the purposes
of this Agreement, BancGroup and its officers and directors shall execute and
deliver all such proper deeds, assignments and assurances in law and do all acts
necessary or proper to vest, perfect or confirm title to, and possession of,
such property or rights in the Resulting Corporation and otherwise to carry out
the purposes of this Agreement; and the proper officers and directors of the
Resulting Corporation are fully authorized in the name of Acquired Corporation
or BancGroup, or otherwise, to take any and all such action.
2.7 Effective Date and Closing. Subject to the terms of all requirements
of Law and the conditions specified in this Agreement, the Merger shall become
effective on the date specified in the Certificate of Merger to be issued by the
Secretary of State of the State of Delaware (such time being herein called the
"Effective Date"). Assuming all other conditions stated in this Agreement have
been or will be satisfied as of the Closing, the Closing shall take place at the
offices of BancGroup, in Montgomery, Alabama, at 5:00 p.m. on a date specified
by BancGroup that shall be as soon as reasonably practicable after the later to
occur of the Stockholder meeting or all required regulatory approvals under
Section 8.2, or at such other place and time that the Parties may mutually
agree.
2.8 Subsidiary Bank Merger. BancGroup and Acquired Corporation anticipate
that on the Effective Date the Bank will merge with and into Colonial Bank,
BancGroup's Subsidiary bank ("the Bank Merger"). The exact timing and structure
of the Bank Merger have not been finalized at this time, and BancGroup in its
sole discretion will finalize such timing and structure at a later date.
Acquired Corporation, as majority shareholder of Bank, will take all necessary
steps to consummate the Bank Merger, including the calling of any special
meetings of the board of directors or shareholders of the Bank, voting its
shares of stock of the Bank in favor of the Bank Merger and the filing of any
regulatory applications.
2.9 Purchase of Minority Interest of Bank. On or before the Effective
Date, Acquired Corporation shall have (i) purchased or redeemed outstanding
shares of common stock of the Bank not presently owned by Acquired Corporation
(the "Minority Shares") and owned of record by persons other than Acquired
Corporation (the "Minority Shareholders") or (ii) entered into agreements in
form and substance satisfactory to BancGroup with the Minority Shareholders,
pursuant to which the Minority Shareholders will agree to sell the Minority
Shares owned by them to Acquired Corporation. If Acquired Corporation shall not
have purchased or redeemed or entered into agreements for the purchase of 100%
of the Minority Shares within the time set forth above, then Acquired
Corporation shall, prior to the Effective Date, have taken and shall have caused
Bank to take all necessary and appropriate steps as permitted under applicable
law to assure BancGroup that as of the Effective Date Acquired Corporation owns
100% of the issued and outstanding Common Stock of Bank. For purposes of
establishing the value of the Minority Shares, Acquired Company and the Bank may
obtain an appraisal of the Minority Shares from an investment advisor
satisfactory to BancGroup.
A-2
<PAGE> 117
ARTICLE 3
CONVERSION OF ACQUIRED CORPORATION STOCK
3.1 Conversion of Acquired Corporation Stock. (a) On the Effective Date,
each share of common stock of Acquired Corporation outstanding and held of
record by Acquired Corporation's shareholders (the "Acquired Corporation
Stock"), shall be converted by operation of law and without any action by any
holder thereof into shares of BancGroup Common Stock. Specifically, each
outstanding share of Acquired Corporation Stock shall (subject to section 3.3
hereof), be converted into 0.2357 shares of BancGroup stock provided that the
market value for BancGroup is not less than $30.00 per share nor greater than
$40.00 per share. If the market value is less than $30.00, then each share of
Acquired Corporation Stock outstanding at the Effective Date shall be converted
into the number of shares of BancGroup Common Stock that shall equal $30.00
times .2357 divided by the market value. If the market value is greater than
$40.00, then each share of Acquired Corporation Stock shall be converted into
such number of shares of BancGroup Common Stock that shall equal $40.00 times
.2357 divided by the market value. The appropriate ratio that is used to
calculate the Merger Consideration based upon the market value as set forth
above is referred to as the "Exchange Ratio". For the purpose of sections 3.1(a)
and 3.1(b), the "market value" shall be the average of the closing prices of the
BancGroup Common Stock as reported by the NYSE on each of the ten trading days
ending on the trading day five trading days immediately preceding the Effective
Date. Examples of the foregoing are set forth on Exhibit E attached hereto.
(b) No later than five days prior to the Effective Date, each holder of
outstanding Acquired Corporation Options should provide written notice to
Acquired Corporation (in form and substance reasonably satisfactory to
BancGroup) that he or she wishes to exchange his or her Acquired Corporation
Options, as of the Effective Date, and, to receive an amount of BancGroup Common
Stock in exchange therefor determined by calculating the difference between (i)
the number obtained by multiplying the number of shares of Acquired Corporation
Common Stock issuable pursuant to his or her Acquired Corporation Options times
the Exchange Ratio times "market value" and (ii) the number obtained by
multiplying the number of shares of Acquired Corporation Common Stock issuable
pursuant to his or her Acquired Corporation Options, times exercise price per
share (as determined pursuant to the applicable stock option plan of the
Acquired Corporation). The dollar amount so determined shall then be divided by
"market value" to determine the number of shares of BancGroup Common Stock to be
received. In the event that the exercise prices of all Acquired Corporation
Options is not the same, the above calculation shall be made for each series of
options and the number of shares of BancGroup Common Stock issued shall be
totaled to obtain the aggregate number of shares to be received by that
individual. No fractions of shares shall be issued and fractions shall be paid
in cash at the market value. A schedule of Acquired Corporation options
outstanding as of June 11, 1998 and the number of shares of Acquired Corporation
Stock subject to those options is set out in Schedule 3.1.
(c) Any Acquired Corporation Options which are not exercised by the
Effective Date or exchanged for BancGroup Common Stock in accordance with
section 3.1(b) above shall terminate in accordance with their terms.
3.2 Surrender of Acquired Corporation Stock. After the Effective Date,
each holder of an outstanding certificate or certificates which prior thereto
represented shares of Acquired Corporation Stock who is entitled to receive
BancGroup Common Stock shall be entitled, upon surrender to BancGroup of their
certificate or certificates representing shares of Acquired Corporation Stock
(or an affidavit or affirmation by such holder of the loss, theft, or
destruction of such certificate or certificates in such form as BancGroup may
reasonably require and, if BancGroup reasonably requires, a bond of indemnity in
form and amount, and issued by such sureties, as BancGroup may reasonably
require), to receive in exchange therefor a certificate or certificates
representing the number of whole shares of BancGroup Common Stock into and for
which the shares of Acquired Corporation Stock so surrendered shall have been
converted, such certificates to be of such denominations and registered in such
names as such holder may reasonably request. Until so surrendered and exchanged,
each such outstanding certificate which, prior to the Effective Date,
represented shares of Acquired Corporation Stock and which is to be converted
into BancGroup Common Stock shall for all purposes evidence ownership of the
BancGroup Common Stock into and for which such shares shall have
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been so converted, except that no dividends or other distributions with respect
to such BancGroup Common Stock shall be made until the certificates previously
representing shares of Acquired Corporation Stock shall have been properly
tendered.
3.3 Fractional Shares. No fractional shares of BancGroup Common Stock
shall be issued, and each holder of shares of Acquired Corporation Stock having
a fractional interest arising upon the conversion of such shares into shares of
BancGroup Common Stock shall, at the time of surrender of the certificates
previously representing Acquired Corporation Stock, be paid by BancGroup an
amount in cash equal to the market value of such fractional share. For purposes
of this section 3.3, the "market value" shall be the average of the closing
prices of the BancGroup Common Stock as reported by the NYSE on each of the ten
trading days ending on the trading day five trading days immediately preceding
the Effective Date.
3.4 Adjustments. In the event that prior to the Effective Date BancGroup
Common Stock shall be changed into a different number of shares or a different
class of shares by reason of any recapitalization or reclassification, stock
dividend, combination, stock split, or reverse stock split of the BancGroup
Common Stock, an appropriate and proportionate adjustment shall be made in the
number of shares of BancGroup Common Stock into which the Acquired Corporation
Stock shall be converted as well as the maximum and minimum number of BancGroup
Common Stock issuable in the Merger.
3.5 BancGroup Stock. The shares of Common Stock of BancGroup issued and
outstanding immediately before the Effective Date shall continue to be issued
and outstanding shares of the Resulting Corporation.
3.6 Dissenting Rights. Any shareholder of Acquired Corporation who shall
not have voted in favor of this Agreement and who has complied with the
applicable procedures set forth in the NRS, relating to rights of dissenting
shareholders, shall be entitled to receive payment for the fair value of his
Acquired Corporation Stock. If after the Effective Date a dissenting shareholder
of Acquired Corporation fails to perfect, or effectively withdraws or loses his
right to appraisal and payment for his shares of Acquired Corporation Stock,
BancGroup shall issue and deliver the consideration to which such holder of
shares of Acquired Corporation Stock is entitled under Section 3.1 (without
interest) upon surrender by such holder of the certificate or certificates
representing shares of Acquired Corporation Stock held by him or her.
ARTICLE 4
REPRESENTATIONS, WARRANTIES AND COVENANTS OF BANCGROUP
BancGroup represents, warrants and covenants to and with Acquired
Corporation as follows:
4.1 Organization. BancGroup is a corporation duly organized, validly
existing and in good standing under the Laws of the State of Delaware. BancGroup
has the necessary corporate powers to carry on its business as presently
conducted and is qualified to do business in every jurisdiction in which the
character and location of the Assets owned by it or the nature of the business
transacted by it requires qualification or in which the failure to qualify
could, individually or in the aggregate, have a Material Adverse Effect.
4.2 Capital Stock. (a) The authorized capital stock of BancGroup consists
of (A) 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 Corporation.
(b) The authorized capital stock of each Subsidiary of BancGroup is validly
issued and outstanding, fully paid and nonassessable, and each Subsidiary is
wholly owned, directly or indirectly, by BancGroup.
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4.3 Financial Statements; Taxes. (a) BancGroup has delivered to Acquired
Corporation copies of the following financial statements of BancGroup:
(i) Consolidated balance sheets as of December 31, 1996, December 31,
1997, and March 31, 1998;
(ii) Consolidated statements of operations for each of the three years
ended December 31, 1995, 1996 and 1997, and for the three months ended
March 31, 1998;
(iii) Consolidated statements of cash flows for each of the three
years ended December 31, 1995, 1996 and 1997, and for the three months
ended March 31, 1998;
(iv) Consolidated statements of changes in shareholders' equity for
the three years ended December 31, 1995, 1996 and 1997, and for the three
months ended March 31, 1998.
All such financial statements are in all material respects in accordance with
the books and records of BancGroup and have been prepared in accordance with
GAAP applied on a consistent basis throughout the periods indicated, all as more
particularly set forth in the notes to such statements. Each of the consolidated
balance sheets presents fairly as of its date the consolidated financial
condition of BancGroup and its Subsidiaries. Except as and to the extent
reflected or reserved against in such balance sheets (including the notes
thereto), BancGroup did not have, as of the dates of such balance sheets, any
material Liabilities or obligations (absolute or contingent) of a nature
customarily reflected in a balance sheet or the notes thereto. The statements of
consolidated income, shareholders' equity and changes in consolidated financial
position present fairly the results of operations and changes in financial
position of BancGroup and its Subsidiaries for the periods indicated. The
foregoing representations, insofar as they relate to the unaudited interim
financial statements of BancGroup for the three months ended March 31, 1998, are
subject in all cases to normal recurring year-end adjustments and the omission
of footnote disclosure.
(b) All Tax returns required to be filed by or on behalf of BancGroup have
been timely filed (or requests for extensions therefor have been timely filed
and granted and have not expired), and all returns filed are complete and
accurate in all material respects. All Taxes shown on these returns to be due
and all additional assessments received have been paid. The amounts recorded for
Taxes on the balance sheets provided under section 4.3(a) are, to the Knowledge
of BancGroup, sufficient in all material respects for the payment of all unpaid
federal, state, county, local, foreign or other Taxes (including any interest or
penalties) of BancGroup accrued for or applicable to the period ended on the
dates thereof, and all years and periods prior thereto and for which BancGroup
may at such dates have been liable in its own right or as transferee of the
Assets of, or as successor to, any other corporation or other party. No audit,
examination or investigation is presently being conducted or, to the Knowledge
of BancGroup, threatened by any taxing authority which is likely to result in a
material Tax Liability, no material unpaid Tax deficiencies or additional
liabilities of any sort have been proposed by any governmental representative
and no agreements for extension of time for the assessment of any material
amount of Tax have been entered into by or on behalf of BancGroup. BancGroup has
withheld from its employees (and timely paid to the appropriate governmental
entity) proper and accurate amounts for all periods in material compliance with
all Tax withholding provisions of applicable federal, state, foreign and local
Laws (including without limitation, income, social security and employment Tax
withholding for all types of compensation).
4.4 No Conflict with Other Instrument. The consummation of the
transactions contemplated by this Agreement will not result in a breach of or
constitute a Default (without regard to the giving of notice or the passage of
time) under any material Contract, indenture, mortgage, deed of trust or other
material agreement or instrument to which BancGroup or any of its Subsidiaries
is a party or by which they or their Assets may be 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.
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4.6 Approval of Agreement. The board of directors of BancGroup has, or
will have prior to the Effective Date, approved this Agreement and the
transactions contemplated by it and has, or will have prior to the Effective
Date, authorized the execution and delivery by BancGroup of this Agreement. This
Agreement constitutes the legal, valid and binding obligation of BancGroup,
enforceable against it in accordance with its terms. Approval of this Agreement
by the stockholders of BancGroup is not required by applicable Law. Subject to
the matters referred to in section 8.2, BancGroup has full power, authority and
legal right to enter into this Agreement and to consummate the transactions
contemplated by this Agreement. BancGroup has no Knowledge of any fact or
circumstance under which the appropriate regulatory approvals required by
section 8.2 will not be granted without the imposition of material conditions or
material delays.
4.7 Tax Treatment. BancGroup has no present plan to sell or otherwise
dispose of any of the Assets of Acquired Corporation, subsequent to the Merger,
and BancGroup intends to continue the historic business of Acquired Corporation.
4.8 Title and Related Matters. BancGroup has good and marketable title to
all the properties, interests in properties and Assets, real and personal, that
are material to the business of BancGroup, reflected in the most recent balance
sheet referred to in section 4.3(a), or acquired after the date of such balance
sheet (except properties, interests and Assets sold or otherwise disposed of
since such date, in the ordinary course of business), free and clear of all
mortgages, Liens, pledges, charges or encumbrances except (i) mortgages and
other encumbrances referred to in the notes of such balance sheet, (ii) liens
for current Taxes not yet due and payable and (iii) such imperfections of title
and easements as do not materially detract from or interfere with the present
use of the properties subject thereto or affected thereby, or otherwise
materially impair present business operations at such properties. To the
Knowledge of BancGroup, the material structures and equipment of BancGroup
comply in all material respects with the requirements of all applicable Laws.
4.9 Subsidiaries. Each Subsidiary of BancGroup has been duly incorporated
and is validly existing as a corporation in good standing under the Laws of the
jurisdiction of its incorporation and each Subsidiary has been duly qualified as
a foreign corporation to transact business and is in good standing under the
Laws of each other jurisdiction in which it owns or leases properties, or
conducts any business so as to require such qualification and in which the
failure to be duly qualified could have a Material Adverse Effect upon BancGroup
and its Subsidiaries considered as one enterprise; each of the banking
Subsidiaries of BancGroup has its deposits fully insured by the Federal Deposit
Insurance Corporation to the extent provided by the Federal Deposit Insurance
Act; and the businesses of the non-bank Subsidiaries of BancGroup are permitted
to subsidiaries of registered bank holding companies.
4.10 Contracts. Neither BancGroup nor any of its Subsidiaries is in
violation of its respective certificate of incorporation or bylaws or in Default
in the performance or observance of any material obligation, agreement, covenant
or condition contained in any Contract, indenture, mortgage, loan agreement,
note, lease or other instrument to which it is a party or by which it or its
property may be bound.
4.11 Litigation. Except as disclosed in or reserved for in BancGroup's
financial statements, there is no Litigation before or by any court or Agency,
domestic or foreign, now pending, or, to the Knowledge of BancGroup, threatened
against or affecting BancGroup or any of its Subsidiaries (nor is BancGroup
aware of any facts which could give rise to any such Litigation) which is
required to be disclosed in the Registration Statement (other than as disclosed
therein), or which is likely to have any Material Adverse Effect or prospective
Material Adverse Effect, or which is likely to materially and adversely affect
the properties or Assets thereof or which is likely to materially affect or
delay the consummation of the transactions contemplated by this Agreement; all
pending legal or governmental proceedings to which BancGroup or any Subsidiary
is a party or of which any of their properties is the subject which are not
described in the Registration Statement, including ordinary routine litigation
incidental to the business, are, considered in the aggregate, not material; and
neither BancGroup nor any of its Subsidiaries have any contingent obligations
which could be considered material to BancGroup and its Subsidiaries considered
as one enterprise which are not disclosed in the Registration Statement as it
may be amended or supplemented.
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4.12 Compliance. BancGroup and its Subsidiaries, in the conduct of their
businesses, are to the Knowledge of BancGroup, in material compliance with all
material federal, state or local Laws applicable to their or the conduct of
their businesses.
4.13 Registration Statement. At the time the Registration Statement
becomes effective and at the time of the Stockholders' Meeting, the Registration
Statement, including the Proxy Statement which shall constitute a part thereof,
will comply in all material respects with the requirements of the 1933 Act and
the rules and regulations thereunder, will not contain an untrue statement of a
material fact or omit to state a material fact necessary in order to make the
statements therein, in the light of the circumstances under which they were
made, not misleading; provided, however, that the representations and warranties
in this subsection shall not apply to statements in or omissions from the Proxy
Statement made in reliance upon and in conformity with information furnished in
writing to BancGroup by Acquired Corporation or any of its representatives
expressly for use in the Proxy Statement or information included in the Proxy
Statement regarding the business of Acquired Corporation, its operations, Assets
and capital.
4.14 SEC Filings. (a) BancGroup has heretofore delivered to Acquired
Corporation copies of BancGroup's: (i) Annual Report on Form 10-K for the fiscal
year ended December 31, 1997; (ii) 1997 Annual Report to Shareholders; (iii) the
Quarterly Report on Form 10-Q for the fiscal quarter ended March 31, 1998; and
(iv) any 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.
4.15 Form S-4. The conditions for use of a registration statement on SEC
Form S-4 set forth in the General Instructions on Form S-4 have been or will be
satisfied with respect to BancGroup and the Registration Statement.
4.16 Brokers. Except as set forth in Schedule 4.16, all negotiations
relative to this Agreement and the transactions contemplated by this Agreement
have been carried on by BancGroup directly with Acquired Corporation and without
the intervention of any other person, either as a result of any act of BancGroup
or otherwise in such manner as to give rights to any valid claim against
BancGroup for finders fees, brokerage commissions or other like payments.
4.17 Government Authorization. BancGroup and its Subsidiaries have all
Permits that, to the Knowledge of BancGroup and its Subsidiaries, are or will be
legally required to enable BancGroup or any of its Subsidiaries to conduct their
businesses in all material respects as now conducted by each of them.
4.18 Absence of Regulatory Communications. Neither BancGroup nor any of
its Subsidiaries is subject to, or has received during the past three (3) years,
any written communication directed specifically to it from any Agency to which
it is subject or pursuant to which such Agency has imposed or has indicated it
may impose any material restrictions on the operations of it or the business
conducted by it or in which such Agency has raised a material question
concerning the condition, financial or otherwise, of such company.
4.19 Disclosure. No representation or warranty, or any statement or
certificate furnished or to be furnished to Acquired Corporation by BancGroup,
contains or will contain any untrue statement of a material
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fact, or omits or will omit to state a material fact necessary to make the
statements contained in this Agreement or in any such statement or certificate
not misleading.
ARTICLE 5
REPRESENTATIONS, WARRANTIES AND COVENANTS OF ACQUIRED CORPORATION
Acquired Corporation represents, warrants and covenants to and with
BancGroup, as follows:
5.1 Organization. Acquired Corporation is a Nevada corporation, the Bank
is a Nevada bank and Mortgage Company is a Nevada corporation. Each Acquired
Corporation Company is duly organized, validly existing and in good standing
under the respective Laws of its jurisdiction of incorporation and has all
requisite power and authority to carry on its business as it is now being
conducted and is qualified to do business in every jurisdiction in which the
character and location of the Assets owned by it or the nature of the business
transacted by it requires qualification or in which the failure to qualify
could, individually, or in the aggregate, have a Material Adverse Effect.
5.2 Capital Stock. (i) As of the date of this Agreement, the authorized
capital stock of Acquired Corporation consisted of 3,500,000 shares of common
stock, without par value, 3,043,768 shares of which are issued and outstanding.
All of such shares which are outstanding are validly issued, fully paid and
nonassessable and not subject to preemptive rights. Acquired Corporation has
178,112 shares of its common stock subject to exercise pursuant to stock options
under its stock option plans. Except for the foregoing and the Stock Option
Agreement, Acquired Corporation does not have any other arrangements or
commitments obligating it to issue shares of its capital stock or any securities
convertible into or having the right to purchase shares of its capital stock.
5.3 Subsidiaries. Except as set forth on Schedule 5.3, Acquired
Corporation has no direct Subsidiaries other than the Bank and Mortgage Company,
and there are no Subsidiaries of the Bank and Mortgage Company. Acquired
Corporation owns all of the issued and outstanding capital stock of the Bank and
Mortgage Company free and clear of any liens, claims or encumbrances of any
kind, except as set forth on Schedule 5.3. The names, addresses and number of
Bank shares owned by all persons who own any Bank stock are listed on Schedule
5.3 All of the issued and outstanding shares of capital stock of the
Subsidiaries have been validly issued and are fully paid and non-assessable. As
of the date of this Agreement, there were 250,000 shares of the common stock,
without par value, authorized by the Bank, 206,580 of which are issued and
outstanding, of which 177,802 are owned by Acquired Corporation. 28,778 of such
shares are owned by Minority Shareholders. The Bank has no arrangements or
commitments obligating it to issue shares of its capital stock or any securities
convertible into or having the right to purchase shares of its capital stock. As
of the date of this Agreement, there were 2,500 shares of common stock, without
par value, authorized by the Mortgage Company, 1,707 of which are issued and
outstanding. All outstanding shares of Mortgage Company are owned by Acquired
Corporation. The Mortgage Company has no arrangements or commitments obligating
it to issue shares of its capital stock or any securities convertible into or
having the right to purchase shares of its capital stock.
5.4 Financial Statements; Taxes. (a) Acquired Corporation has delivered to
BancGroup copies of the following financial statements of Acquired Corporation:
(i) Consolidated statements of financial condition as of December 31,
1996, December 31, 1997 and March 31, 1998;
(ii) Consolidated statements of income for each of the three years
ended December 31, 1995, 1996 and 1997, and for the three months ended
March 31, 1998; and
(iii) Consolidated statements of stockholders' equity for each of the
three years ended December 31, 1995, 1996, and 1997, and for the three
months ended March 31, 1998.
All of the foregoing financial statements are in all material respects in
accordance with the books and records of Acquired Corporation and have been
prepared in accordance with GAAP applied on a consistent
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basis throughout the periods indicated, except for changes required by GAAP, all
as more particularly set forth in the notes to such statements. Each of such
balance sheets presents fairly as of its date the financial condition of
Acquired Corporation. Except as and to the extent reflected or reserved against
in such balance sheets (including the notes thereto), Acquired Corporation did
not have, as of the date of such balance sheets, any material Liabilities or
obligations (absolute or contingent) of a nature customarily reflected in a
balance sheet or the notes thereto. The statements of income, stockholders'
equity and cash flows present fairly the results of operation, changes in
shareholders equity and cash flows of Acquired Corporation for the periods
indicated. The foregoing representations, insofar as they relate to the
unaudited interim financial statements of BancGroup for the three months ended
March 31, 1998, are subject in all cases to normal recurring year-end
adjustments and the omission of footnote disclosure.
(b) Except as set forth on Schedule 5.4(b), all Tax returns required to be
filed by or on behalf of Acquired Corporation have been timely filed (or
requests for extensions therefor have been timely filed and granted and have not
expired), and all returns filed are complete and accurate in all material
respects. All Taxes shown on these returns to be due and all additional
assessments received have been paid. The amounts recorded for Taxes on the
balance sheets provided under section 5.4(a) are, to the Knowledge of Acquired
Corporation, sufficient in all material respects for the payment of all unpaid
federal, state, county, local, foreign and other Taxes (including any interest
or penalties) of Acquired Corporation accrued for or applicable to the period
ended on the dates thereof, and all years and periods prior thereto and for
which Acquired Corporation may at such dates have been liable in its own right
or as a transferee of the Assets of, or as successor to, any other corporation
or other party. No audit, examination or investigation is presently being
conducted or, to the Knowledge of Acquired Corporation, threatened by any taxing
authority which is likely to result in a material Tax Liability, no material
unpaid Tax deficiencies or additional liability of any sort has been proposed by
any governmental representative and no agreements for extension of time for the
assessment of any material amount of Tax have been entered into by or on behalf
of Acquired Corporation. Acquired Corporation has not executed an extension or
waiver of any statute of limitations on the assessment or collection of any Tax
due that is currently in effect.
(c) Each Acquired Corporation Company has withheld from its employees (and
timely paid to the appropriate governmental entity) proper and accurate amounts
for all periods in material compliance with all Tax withholding provisions of
applicable federal, state, foreign and local Laws (including without limitation,
income, social security and employment Tax withholding for all types of
compensation). Each Acquired Corporation Company is in compliance with, and its
records contain all information and documents (including properly completed IRS
Forms W-9) necessary to comply with, all applicable information reporting and
Tax withholding requirements under federal, state and local Tax Laws, and such
records identify with specificity all accounts subject to backup withholding
under section 3406 of the Code.
5.5 Absence of Certain Changes or Events. Except as set forth on Schedule
5.5, since the date of the most recent balance sheet provided under section
5.4(a)(i) above, no Acquired Corporation Company has
(a) issued, delivered or agreed to issue or deliver any stock, bonds or
other corporate securities (whether authorized and unissued or held in the
treasury) except shares of common stock issued upon the exercise of existing
Acquired Corporation Options and shares issued as director's qualifying shares;
(b) borrowed or agreed to borrow any funds or incurred, or become subject
to, any Liability (absolute or contingent) except borrowings, obligations
(including purchase of federal funds) and Liabilities incurred in the ordinary
course of business and consistent with past practice;
(c) paid any material obligation or Liability (absolute or contingent)
other than current Liabilities reflected in or shown on the most recent balance
sheet referred to in section 5.4(a)(i) and current Liabilities incurred since
that date in the ordinary course of business and consistent with past practice;
(d) declared or made, or agreed to declare or make, any payment of
dividends or distributions of any Assets of any kind whatsoever to shareholders,
or purchased or redeemed, or agreed to purchase or redeem,
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directly or indirectly, or otherwise acquire, any of its outstanding securities,
except that in the event that the Closing does not occur prior to October 30,
1998, Acquired Corporation may declare and pay a cash dividend equal to the
dividend that BancGroup declares at its October 21, 1998 board of directors
meeting multiplied by the Exchange Ratio. The record and payment dates for such
Acquired Corporation dividend shall be the same as for the BancGroup's dividend.
Such dates are expected to be October 30, 1998 and November 13, 1998,
respectively. In no event shall the shareholders of Acquired Corporation be
entitled to both an Acquired Corporation dividend and to BancGroup's regular
dividend during the quarter in which the Effective Date occurs. For purposes of
this Section 5.5(d) only, the "Exchange Ratio" shall be determined as if the
Effective Date were October 30, 1998.
(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 as set forth in Schedule 5.5(i) and in accordance with normal
and usual practice, made any accrual or arrangement for or payment of bonuses or
special compensation of any kind or any severance or termination pay to any
present or former officer or employee;
(j) except in accordance with normal and usual practice, increased the rate
of compensation payable to or to become payable to any of its officers or
employees or made any material increase in any profit sharing, bonus, deferred
compensation, savings, insurance, pension, retirement or other employee benefit
plan, payment or arrangement made to, for or with any of its officers or
employees;
(k) received notice or had Knowledge or reason to believe that any of its
substantial customers has terminated or intends to terminate its relationship,
which termination would have a Material Adverse Effect on its financial
condition, results of operations, business, Assets or properties;
(l) failed to operate its business in the ordinary course so as to preserve
its business intact and to preserve the goodwill of its customers and others
with whom it has business relations;
(m) entered into any other material transaction other than in the ordinary
course of business; or
(n) agreed in writing, or otherwise, to take any action described in
clauses (a) through (m) above.
Between the date hereof and the Effective Date, no Acquired Corporation
Company, without the express written approval of BancGroup, will do any of the
things listed in clauses (a) through (n) of this section 5.5 except as permitted
therein or as contemplated in this Agreement, and no Acquired Corporation
Company will enter into or amend any material Contract, other than Loans or
renewals thereof entered into in the ordinary course of business, without the
express written consent of BancGroup.
5.6 Title and Related Matters. (a) Title. Each Acquired Corporation
Company has good and marketable title to all the properties, interest in
properties and Assets, real and personal, that are material to the business of
such Acquired Corporation Company, reflected in the most recent balance sheet
referred to in section 5.4(a)(i), or acquired after the date of such balance
sheet (except properties, interests and Assets sold or otherwise disposed of
since such date, in the ordinary course of business), free and clear of all
mortgages, Liens, pledges, charges or encumbrances except (i) mortgages and
other encumbrances referred to in the notes to such balance sheet, (ii) Liens
for current Taxes not yet due and payable and (iii) such imperfections of title
and easements as do not materially detract from or interfere with the present
use of the properties subject thereto or affected thereby, or otherwise
materially impair present business operations at such
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properties. To the Knowledge of Acquired Corporation, the material structures
and equipment of each Acquired Corporation Company comply in all material
respects with the requirements of all applicable Laws.
(b) Leases. Schedule 5.6(b) sets forth a list and description of all real
and personal property owned or leased by any Acquired Corporation Company,
either as lessor or lessee. Complete and accurate copies of all such leases are
attached to Schedule 5.6(b).
(c) Personal Property. Schedule 5.6(c) sets forth a depreciation schedule
of each Acquired Corporation Company's fixed Assets as of the latest practicable
date.
(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 Corporation
Company. Acquired Corporation is not aware of any defects, irregularities or
problems with any of its computer hardware or software which renders such
hardware or software unable to satisfactorily perform the tasks and functions to
be performed by them in the business of any Acquired Corporation Company.
Complete and accurate copies of all Contracts, plans and other items so listed
have been attached to Schedule 5.6(d).
(ii) Year 2000 Compliance. Acquired Corporation has formulated and begun
execution of a plan that complies with FFIEC Year 2000 compliance guidelines as
promulgated by the principal regulatory agencies of Acquired Corporation and the
Bank. Acquired Corporation and the Bank have met all deadlines and are in full
compliance with this plan.
5.7 Commitments. Except as set forth in Schedule 5.7, no Acquired
Corporation Company is a party to any oral or written (i) Contracts for the
employment of any officer or employee which is not terminable on 30 days' (or
less) notice, (ii) profit sharing, bonus, deferred compensation, savings, stock
option, severance pay, pension or retirement plan, agreement or arrangement,
(iii) loan agreement, indenture or similar agreement relating to the borrowing
of money by such party, (iv) guaranty of any obligation for the borrowing of
money or otherwise, excluding endorsements made for collection, and guaranties
made in the ordinary course of business, (v) consulting or other similar
material Contracts, (vi) collective bargaining agreement, (vii) agreement with
any present or former officer, director or shareholder of such party, or (viii)
other Contract, agreement or other commitment which is material to the business,
operations, property, prospects or Assets or to the condition, financial or
otherwise, of any Acquired Corporation Company. Complete and accurate copies of
all Contracts, plans and other items so listed have been made available to
BancGroup for inspection.
5.8 Charter and Bylaws. Schedule 5.8 contains true and correct copies of
the articles of incorporation and bylaws of each Acquired Corporation Company,
including all amendments thereto, as currently in effect. There will be no
changes in such articles of incorporation or bylaws prior to the Effective Date,
without the prior written consent of BancGroup.
5.9 Litigation. Except as set out in Schedule 5.9, there is no Litigation
(whether or not purportedly on behalf of Acquired Corporation) pending or, to
the Knowledge of Acquired Corporation, threatened against or affecting any
Acquired Corporation Company (nor does Acquired Corporation have Knowledge of
any facts which are likely to give rise to any such Litigation) at law or in
equity, or before or by any governmental department, commission, board, bureau,
agency or instrumentality, domestic or foreign, or before any arbitrator of any
kind, which involves the possibility of any judgment or Liability not fully
covered by insurance in excess of a reasonable deductible amount or which may
have a Material Adverse Effect on Acquired Corporation, and no Acquired
Corporation Company is in Default with respect to any judgment, order, writ,
injunction, decree, award, rule or regulation of any court, arbitrator or
governmental department, commission, board, bureau, agency or instrumentality,
which Default would have a Material Adverse Effect on Acquired Corporation. To
the Knowledge of Acquired Corporation, each Acquired Corporation Company has
complied in all material respects with all material applicable Laws and
Regulations including those imposing Taxes, of any applicable jurisdiction and
of all states, municipalities, other political subdivisions and Agencies, in
respect of the ownership of its properties and the conduct of its business,
which, if not complied with, would have a Material Adverse Effect on Acquired
Corporation.
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5.10 Material Contract Defaults. Except as disclosed on Schedule 5.10, no
Acquired Corporation Company is in Default in any material respect under the
terms of any material Contract, agreement, lease or other commitment which is or
may be material to the business, operations, properties or Assets, or the
condition, financial or otherwise, of such company and, to the Knowledge of
Acquired Corporation, there is no event which, with notice or lapse of time, or
both, may be or become an event of Default under any such material Contract,
agreement, lease or other commitment in respect of which adequate steps have not
been taken to prevent such a Default from occurring.
5.11 No Conflict with Other Instrument. The consummation of the
transactions contemplated by this Agreement will not result in the breach of any
term or provision of or constitute a Default under any material Contract,
indenture, mortgage, deed of trust or other material agreement or instrument to
which any Acquired Corporation Company is a party and will not conflict with any
provision of the charter or bylaws of any Acquired Corporation Company.
5.12 Governmental Authorization. Each Acquired Corporation Company has all
Permits that, to the Knowledge of Acquired Corporation, are or will be legally
required to enable any Acquired Corporation Company to conduct its business in
all material respects as now conducted by each Acquired Corporation Company.
5.13 Absence of Regulatory Communications. Except as provided in Schedule
5.13, no Acquired Corporation Company is subject to, nor has any Acquired
Corporation Company received during the past three years, any written
communication directed specifically to it from any Agency to which it is subject
or pursuant to which such Agency has imposed or has indicated it may impose any
material restrictions on the operations of it or the business conducted by it or
in which such Agency has raised any material question concerning the condition,
financial or otherwise, of such company.
5.14 Absence of Material Adverse Change. To the Knowledge of Acquired
Corporation, since the date of the most recent balance sheet provided under
section 5.4(a)(i), there have been no events, changes or occurrences which have
had, or are reasonably likely to have, individually or in the aggregate, a
Material Adverse Effect on any Acquired Corporation Company.
5.15 Insurance. Each Acquired Corporation Company has in effect insurance
coverage and bonds with reputable insurers which, in respect to amounts, types
and risks insured, management of Acquired Corporation reasonably believes to be
adequate for the type of business conducted by such company. No Acquired
Corporation Company is liable for any material retroactive premium adjustment.
All insurance policies and bonds are valid, enforceable and in full force and
effect, and no Acquired Corporation Company has received any notice of any
material premium increase or cancellation with respect to any of its insurance
policies or bonds. Within the last three years, no Acquired Corporation Company
has been refused any insurance coverage which it has sought or applied for, and
it has no reason to believe that existing insurance coverage cannot be renewed
as and when the same shall expire, upon terms and conditions as favorable as
those presently in effect, other than possible increases in premiums that do not
result from any extraordinary loss experience. All policies of insurance
presently held or policies containing substantially equivalent coverage will be
outstanding and in full force with respect to each Acquired Corporation Company
at all times from the date hereof to the Effective Date.
5.16 Pension and Employee Benefit Plans. (a) To the Knowledge of Acquired
Corporation, all employee benefit plans of each Acquired Corporation Company
have been established in compliance with, and such plans have been operated in
material compliance with, all applicable Laws. Except as set forth in Schedule
5.16, no Acquired Corporation Company sponsors or otherwise maintains a "pension
plan" within the meaning of section 3(2) of ERISA or any other retirement plan
that is intended to qualify under section 401 of the Code, nor do any unfunded
Liabilities exist with respect to any employee benefit plan, past or present. To
the Knowledge of Acquired Corporation, no employee benefit plan, any trust
created thereunder or any trustee or administrator thereof has engaged in a
"prohibited transaction," as defined in section 4975 of the Code, which may have
a Material Adverse Effect on the condition, financial or otherwise, of any
Acquired Corporation Company. Acquired Corporation has advised BancGroup that
its medical plan may be over
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funded and that there may be limitations prescribed by applicable tax laws as to
the use of any excess funds in such plan.
(b) To the Knowledge of Acquired Corporation, no amounts payable to any
employee of any Acquired Corporation Company will fail to be deductible for
federal income tax purposes by virtue of Section 280G of the Code and
regulations thereunder.
5.17 Buy-Sell Agreements. To the Knowledge of Acquired Corporation, there
are no agreements among any shareholder of any Acquired Corporation Company
granting to any person or persons a right of first refusal in respect of the
sale, transfer, or other disposition of shares of outstanding securities by any
shareholder of Acquired Corporation Company, any similar agreement or any voting
agreement or voting trust in respect of any such shares.
5.18 Brokers. Except as set forth in Schedule 5.18, all negotiations
relative to this Agreement and the transactions contemplated by this Agreement
have been carried on by Acquired Corporation directly with BancGroup and without
the intervention of any other person, either as a result of any act of Acquired
Corporation, or otherwise, in such manner as to give rise to any valid claim
against Acquired Corporation for a finder's fee, brokerage commission or other
like payment.
5.19 Approval of Agreements. The board of directors of Acquired
Corporation has approved this Agreement and the transactions contemplated by
this Agreement and has authorized the execution and delivery by Acquired
Corporation of this Agreement. Subject to the matters referred to in section
8.2, Acquired Corporation has full power, authority and legal right to enter
into this Agreement, and, upon appropriate vote of the shareholders of Acquired
Corporation in accordance with this Agreement, Acquired Corporation shall have
full power, authority and legal right to consummate the transactions
contemplated by this Agreement.
5.20 Disclosure. No representation or warranty, nor any statement or
certificate furnished or to be furnished to BancGroup by Acquired Corporation,
contains or will contain any untrue statement of a material fact, or omits or
will omit to state a material fact necessary to make the statements contained in
this Agreement or in any such statement or certificate not misleading.
5.21 Registration Statement. At the time the Registration Statement
becomes effective and at the time of the Stockholders Meeting, the Registration
Statement, including the Proxy Statement which shall constitute part thereof,
will not contain an untrue statement of a material fact or omit to state a
material fact necessary in order to make the statements therein, in the light of
the circumstances under which they were made, not misleading; provided, however,
that the representations and warranties in this section shall only apply to
statements in or omissions from the Proxy Statement relating to descriptions of
the business of Acquired Corporation, its Assets, properties, operations, and
capital stock or to information furnished in writing by Acquired Corporation or
its representatives expressly for inclusion in the Proxy Statement.
5.22 Loans; Adequacy of Allowance for Loan Losses. All reserves for loan
losses shown on the most recent financial statements furnished by Acquired
Corporation have been calculated in accordance with prudent and customary
banking practices and are adequate in all material respects to reflect the risk
inherent in the loans of Acquired Corporation. Acquired Corporation has no
Knowledge of any fact which is likely to require a future material increase in
the provision for loan losses or a material decrease in the loan loss reserve
reflected in such financial statements. Each loan reflected as an Asset on the
financial statements of Acquired Corporation is the legal, valid and binding
obligation of the obligor of each loan, enforceable in accordance with its terms
subject to the effect of bankruptcy, insolvency, reorganization, moratorium, or
other similar laws relating to creditors' rights generally and to general
equitable principles and complies with all Laws to which it is subject. Acquired
Corporation does not have in its portfolio any loan exceeding its legal lending
limit, and except as disclosed on Schedule 5.22, Acquired Corporation has no
known significant delinquent, substandard, doubtful, loss, nonperforming or
problem loans.
5.23 Environmental Matters. Except as provided in Schedule 5.23, to the
Knowledge of Acquired Corporation, each Acquired Corporation Company is in
material compliance with all Laws and other governmental requirements relating
to the generation, management, handling, transportation, treatment,
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disposal, storage, delivery, discharge, release or emission of any waste,
pollution, or toxic, hazardous or other substance (the "Environmental Laws"),
and Acquired Corporation has no Knowledge that any Acquired Corporation Company
has not complied with all regulations and requirements promulgated by the
Occupational Safety and Health Administration that are applicable to any
Acquired Corporation Company. To the Knowledge of Acquired Corporation, there is
no Litigation pending or threatened with respect to any violation or alleged
violation of the Environmental Laws. To the Knowledge of Acquired Corporation,
with respect to Assets of any Acquired Corporation Company, including any Loan
Property, (i) there has been no spillage, leakage, contamination or release of
any substances for which the appropriate remedial action has not been completed;
(ii) no owned or leased property is contaminated with or contains any hazardous
substance or waste; and (iii) there are no underground storage tanks on any
premises owned or leased by any Acquired Corporation Company. Acquired
Corporation has no Knowledge of any facts which might suggest that any Acquired
Corporation Company has engaged in any management practice with respect to any
of its past or existing borrowers which could reasonably be expected to subject
any Acquired Corporation Company to any Liability, either directly or
indirectly, under the principles of law as set forth in United States v. Fleet
Factors Corp., 901 F.2d 1550 (11th Cir. 1990) or any similar principles.
Moreover, to the Knowledge of Acquired Corporation, no Acquired Corporation
Company has extended credit, either on a secured or unsecured basis, to any
person or other entity engaged in any activities which would require or requires
such person or entity to obtain any Permits which are required under any
Environmental Law which has not been obtained.
5.24 Transfer of Shares. Acquired Corporation has no Knowledge of any plan
or intention on the part of any affiliate of Acquired Corporation to sell or
otherwise dispose of any of Acquired Corporation Common Stock, or the BancGroup
Common Stock to be received by them in the Merger, that could cause the Merger
to fail to qualify for the pooling of interests method of accounting under
generally accepted accounting principles.
5.25 Collective Bargaining. There are no labor contracts, collective
bargaining agreements, letters of undertakings or other arrangements, formal or
informal, between any Acquired Corporation Company and any union or labor
organization covering any Acquired Corporation Company's employees and none of
said employees are represented by any union or labor organization.
5.26 Labor Disputes. To the Knowledge of Acquired Corporation, each
Acquired Corporation Company is in material compliance with all federal and
state laws respecting employment and employment practices, terms and conditions
of employment, wages and hours. No Acquired Corporation Company is or has been
engaged in any unfair labor practice, and, to the Knowledge of Acquired
Corporation, no unfair labor practice complaint against any Acquired Corporation
Company is pending before the National Labor Relations Board. Relations between
management of each Acquired Corporation Company and the employees are amicable
and there have not been, nor to the Knowledge of Acquired Corporation, are there
presently, any attempts to organize employees, nor to the Knowledge of Acquired
Corporation, are there plans for any such attempts.
5.27 Derivative Contracts. Except for the Stock Option Agreements, no
Acquired Corporation Company is a party to or has agreed to enter into a swap,
forward, future, option, cap, floor or collar financial contract, or any other
interest rate or foreign currency protection contract or derivative security not
included in Acquired Corporation's financial statements delivered under section
5.4 hereof which is a financial derivative contract (including various
combinations thereof).
5.28 Non-Terminable Contracts or Severance Agreements. Except as listed in
Schedule 5.28, no Acquired Corporation Company is a party to or has agreed to
enter into an employment or vendor 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
Corporation Company is a party to or has agreed to enter into any employment
agreement, non-competition agreement, salary continuation plan or severance
agreement or similar arrangement with any Acquired Corporation Company employee.
Complete and accurate copies to all contracts or agreements listed in Schedule
5.28 are attached thereto.
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ARTICLE 6
ADDITIONAL COVENANTS
6.1 Additional Covenants of BancGroup. BancGroup covenants to and with
Acquired Corporation as follows:
(a) Registration Statement and Other Filings. As soon as reasonably
practicable after the execution of this Agreement, BancGroup shall prepare
and file with the SEC the Registration Statement on Form S-4 (or such other
form as may be appropriate) and all amendments and supplements thereto, in
form reasonably satisfactory to Acquired Corporation and its counsel, with
respect to the Common Stock to be issued pursuant to this Agreement.
BancGroup shall use reasonable good faith efforts to prepare all necessary
filings with any Agencies which may be necessary for approval to consummate
the transactions contemplated by this Agreement and shall use its
reasonable efforts to cause the Registration Statement to become effective
under the 1933 Act as soon as reasonably practicable after the filing
thereof and take any action required to be taken under other applicable
securities Laws in connection with the issuance of the shares of BancGroup
Common Stock upon consummation of the Merger. As soon as reasonably
practicable after the execution of this Agreement. Copies of all such
filings shall be furnished in advance to Acquired Corporation and its
counsel.
(b) Blue Sky Permits. BancGroup shall use its best efforts to obtain,
prior to the effective date of the Registration Statement, all necessary
state securities Law or "blue sky" Permits and approvals required to carry
out the transactions contemplated by this Agreement.
(c) Financial Statements. BancGroup shall furnish to Acquired
Corporation:
(i) As soon as practicable and in any event within forty-five (45)
days after the end of each quarterly period (other than the last
quarterly period) in each fiscal year, consolidated statements of
operations of BancGroup for such period and for the period beginning at
the commencement of the fiscal year and ending at the end of such
quarterly period, and a consolidated statement of financial condition of
BancGroup as of the end of such quarterly period, setting forth in each
case in comparative form figures for the corresponding periods ending in
the preceding fiscal year, subject to changes resulting from year-end
adjustments;
(ii) Promptly upon receipt thereof, copies of all audit reports
submitted to BancGroup by independent auditors in connection with each
annual, interim or special audit of the books of BancGroup made by such
accountants;
(iii) As soon as practicable, copies of all such financial
statements and reports as it shall send to its stockholders and of such
regular and periodic reports as BancGroup may file with the SEC or any
other Agency; and
(iv) With reasonable promptness, such additional financial data as
Acquired Corporation may reasonably request.
(d) No Control of Acquired Corporation by BancGroup. Notwithstanding
any other provision hereof, until the Effective Date, the authority to
establish and implement the business policies of Acquired Corporation shall
continue to reside solely in Acquired Corporation's officers and board of
directors.
(e) Listing. Prior to the Effective Date, BancGroup shall use its
reasonable efforts to list the shares of BancGroup Common Stock to be
issued in the Merger on the NYSE or other quotations system on which such
shares are primarily traded.
(f) Employee Benefit Matters. On the Effective Date, all employees of
any Acquired Corporation Company shall, at BancGroup's option, either
become employees of the Resulting Corporation or its Subsidiaries or be
entitled to severance benefits in accordance with Colonial Bank's severance
policy as of the date of this Agreement. All employees of any Acquired
Corporation Company who become employees of the Resulting Corporation or
its Subsidiaries on the Effective Date shall be entitled, to the
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extent permitted by applicable Law, to participate in all benefit plans of
Colonial Bank to the same extent as Colonial Bank employees, except as
stated otherwise in this section. Employees of any Acquired Corporation
Company who become employees of the Resulting Corporation or its
Subsidiaries on the Effective Date shall be allowed to participate as of
the Effective Date in the medical and dental benefits plan of Colonial Bank
as employees of Colonial Bank, and the time of employment of such employees
who are employed at least 30 hours per week with any Acquired Corporation
Company as of the Effective Date shall be counted as employment under such
dental and medical plans of Colonial Bank for purposes of calculating any
30 day waiting period and pre-existing condition limitations. To the extent
permitted by applicable Law, the period of service with the appropriate
Acquired Corporation Company of all employees who become employees of the
Resulting Corporation or its Subsidiaries on the Effective Date shall be
recognized only for vesting and eligibility purposes under Colonial Bank's
benefit plans. In addition, if the Effective Date falls within an annual
period of coverage under the medical plan of the Resulting Corporation and
its Subsidiaries, each such Acquired Corporation Company employee shall be
given credit for covered expenses paid by that employee under comparable
employee benefit plans of the Acquired Corporation Company during the
applicable coverage period through the Effective Date towards satisfaction
of any annual deductible limitation and out-of-pocket maximum that may
apply under that group health plan of the Resulting Corporation and its
Subsidiaries.
(g) Richard Martucci, Carol Martucci, John Donovan and Tom Springer
may buy their current company cars at the greater of accounting basis or
wholesale "Blue Book" value.
6.2 Additional Covenants of Acquired Corporation. Acquired Corporation
covenants to and with BancGroup as follows:
(a) Operations. (i) Acquired Corporation will conduct its business
and the business of each Acquired Corporation Company in a proper and
prudent manner and will use its best efforts to maintain its relationships
with its depositors, customers and employees. No Acquired Corporation
Company will engage in any material transaction outside the ordinary course
of business or make any material change in its accounting policies or
methods of operation, nor will Acquired Corporation permit the occurrence
of any change or event which would render any of the representations and
warranties in Article 5 hereof untrue in any material respect at and as of
the Effective Date with the same effect as though such representations and
warranties had been made at and as of such Effective Date. Acquired
Corporation shall contact any person who may be required to execute an
undertaking under Section 10.5 hereof to request such undertaking and shall
take all such reasonable steps as are necessary to obtain such undertaking.
Acquired Corporation will take no action that would prevent or impede the
Merger from qualifying (i) for pooling of interests accounting treatment or
(ii) as a tax-free reorganization within the meaning of Section 368 of the
Code.
(ii) If requested by BancGroup, Acquired Corporation shall use its
best efforts to cause all officers and directors that own any stock of
Acquired Corporation and all other shareholders of Acquired Corporation who
own more than five percent (5%) of Acquired Corporation Stock, to execute
an acknowledgment that such person has no plan, intention, or binding
commitment to sell or otherwise dispose Acquired Corporation Common Stock
or of the BancGroup Common Stock to be received in the Merger from the date
of this Agreement to financial results concerning at least 30 days of
Post-Merger combined operations have been published by BancGroup within the
meaning of Section 201.01 of the SEC's codification of Financial Reporting
Policies.
(b) Stockholders Meeting; Best Efforts. Acquired Corporation will
cooperate with BancGroup in the preparation of the Registration Statement
and any regulatory filings and will cause the Stockholders Meeting to be
held for the purpose of approving the Merger as soon as practicable after
the effective date of the Registration Statement, and will use its best
efforts to bring about the transactions contemplated by this Agreement,
including stockholder approval of this Agreement, as soon as practicable
unless this Agreement is terminated as provided herein.
(c) Prohibited Negotiations. (i) Except with respect to this
Agreement and the transactions contemplated hereby, no Acquired Corporation
Company nor any affiliate thereof nor any investment
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banker, attorney, accountant, or other representative (collectively,
"Representatives") retained by an Acquired Corporation Company shall
directly or indirectly solicit any Acquisition Proposal by any Person.
Except to the extent necessary to comply with the fiduciary duties of
Acquired Corporation's Board of Directors as advised in writing by counsel
to such Board of Directors, no Acquired Corporation Company or any
Representative thereof shall furnish any non-public information that it is
not legally obligated to furnish, negotiate with respect to, or enter into
any Contract with respect to, any Acquisition Proposal, and each Acquired
Corporation Company shall direct and use its reasonable efforts to cause
all of its Representatives not to engage in any of the foregoing, but
Acquired Corporation may communicate information about such an Acquisition
Proposal to its shareholders if and to the extent that it is required to do
so in order to comply with its legal obligations as advised in writing by
counsel to such Board of Directors. Acquired Corporation shall promptly
notify BancGroup orally and in writing in the event that any Acquired
Corporation Company receives any inquiry or proposal relating to any such
Acquisition Proposal. Acquired Corporation shall immediately cease and
cause to be terminated any existing activities, discussions, or
negotiations with any Persons other than BancGroup conducted heretofore
with respect to any of the foregoing. Acquired Corporation shall enter into
the Stock Option Agreement with BancGroup dated as of the date of this
Agreement.
(d) Director Recommendation. The members of the Board of Directors of
Acquired Corporation agree to support publicly the Merger.
(e) Shareholder Voting. Acquired Corporation shall on the date of
execution of this Agreement obtain and submit to BancGroup an agreement
from certain of its directors, executive officers and affiliates
substantially in the form set forth in Exhibit A.
(f) Financial Statements and Monthly Status Reports. Acquired
Corporation shall furnish to BancGroup:
(i) As soon as practicable and in any event within 45 days after
the end of each quarterly period (other than the last quarterly period)
in each fiscal year, consolidated statements of operations of Acquired
Corporation for such period and for the period beginning at the
commencement of the fiscal year and ending at the end of such quarterly
period, and a consolidated statement of financial condition of Acquired
Corporation as of the end of such quarterly period, setting forth in
each case in comparative form figures for the corresponding periods
ending in the preceding fiscal year, subject to changes resulting from
year-end adjustments;
(ii) Promptly upon receipt thereof, copies of all audit reports
submitted to Acquired Corporation by independent auditors in connection
with each annual, interim or special audit of the books of Acquired
Corporation made by such accountants;
(iii) As soon 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 Corporation may file with the
SEC or any other Agency;
(iv) With reasonable promptness, such additional financial data as
BancGroup may reasonably request; and
(v) Within 10 calendar days after the end of each month (or, if the
financial statements referred to in clause (d) are not then available,
as soon as possible thereafter) commencing with the next calendar month
following the date of this Agreement and ending at the Effective Date, a
written description of (a) any non-compliance with the terms of this
Agreement, together with its then current estimate of the out-of-pocket
costs and expenses incurred or reasonably accruable in connection with
the transactions contemplated by this Agreement; (b) the status, as of
the date of the report, of all existing or threatened litigation against
any Acquired Corporation Company; (c) copies of minutes of any meeting
of the board of directors of any Acquired Corporation Company and any
committee thereof occurring in the month for which such report is made,
including all documents presented to the directors at such meetings; and
(d) monthly financial statements, including a balance sheet and income
statement. In the case of Mortgage Company such
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financial statements will be provided within 25 calendar days after the
end of each month and a written estimate of Colonial Mortgage's profit
and loss shall be provided within ten (10) days after the end of each
month.
(g) Fiduciary Duties. Prior to the Effective Date, (i) no director or
officer (each an "Executive") of any Acquired Corporation Company shall,
directly or indirectly, own, manage, operate, join, control, be employed by
or participate in the ownership, proposed ownership, management, operation
or control of or be connected in any manner with, any business, corporation
or partnership which is competitive to the business of any Acquired
Corporation Company, (ii) all Executives, at all times, shall satisfy their
fiduciary duties to Acquired Corporation and its Subsidiaries, and (iii)
such Executives shall not (except as required in the course of his or her
employment with any Acquired Corporation Company) communicate or divulge
to, or use for the benefit of himself or herself or any other person, firm,
association or corporation, without the express written consent of Acquired
Corporation, any confidential information which is possessed, owned or used
by or licensed by or to any Acquired Corporation Company or confidential
information belonging to third parties which any Acquired Corporation
Company shall be under obligation to keep secret or which may be
communicated to, acquired by or learned of by the Executive in the course
of or as a result of his or her employment with any Acquired Corporation
Company. However, it is agreed by BancGroup that John Donovan may continue
to serve as a Director of Nevada State Development Corporation as more
particularly described in Schedule 6.2 (g).
(h)(i) Certain Practices. At the request of BancGroup, (i) Acquired
Corporation shall consult with BancGroup and advise BancGroup of all of the
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 Corporation will consult with BancGroup to
coordinate various business issues on a basis mutually satisfactory to
Acquired Corporation and BancGroup. Acquired Corporation and the Bank shall
not be required to undertake any of such activities, however, except as
such activities may be in compliance with existing Law and Regulations.
(ii) Mortgage Company's past practice has been to lock-in the interest
and points related to mortgage loans at the time of loan application.
Mortgage Company has then hedged these loans by selling them to other
lenders (shortly after the date of commitment to borrower) on terms that
provide for a profit to Mortgage Company. Mortgage Company agrees both to
continue this practice from the date of this Agreement to the Effective
Date and to provide monthly written reports to BancGroup in a form
agreeable to BancGroup through the Effective Date. Further, Mortgage
Company shall from the date of this Agreement to the Effective Date make
only loans of a type and nature consistent with its past practice.
ARTICLE 7
MUTUAL COVENANTS AND AGREEMENTS
7.1 Best Efforts; Cooperation. Subject to the terms and conditions herein
provided, BancGroup and Acquired Corporation each agrees to use its best efforts
promptly to take, or cause to be taken, all actions and do, or cause to be done,
all things necessary, proper or advisable under applicable Laws or otherwise,
including, without limitation, promptly making required deliveries of
stockholder lists and stock transfer reports and attempting to obtain all
necessary Consents and waivers and regulatory approvals, including the holding
of any regular or special board meetings, to consummate and make effective, as
soon as practicable, the transactions contemplated by this Agreement. The
officers of each Party to this Agreement shall fully cooperate with officers and
employees, accountants, counsel and other representatives of the other Parties
not only in fulfilling the duties hereunder of the Party of which they are
officers but also in assisting, directly or through direction of employees and
other persons under their supervision or control, such as stock transfer agents
for the Party, the other Parties requiring information which is reasonably
available from such Party.
7.2 Press Release. Each Party hereto agrees that, unless approved by the
other Parties in advance, such Party will not make any public announcement,
issue any press release or other publicity or confirm any
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statements by any person not a party to this Agreement concerning the
transactions contemplated hereby. Notwithstanding the foregoing, each Party
hereto reserves the right to make any disclosure if such Party, in its
reasonable discretion, deems such disclosure required by Law. In that event,
such Party shall provide to the other Party the text of such disclosure
sufficiently in advance to enable the other Party to have a reasonable
opportunity to comment thereon.
7.3 Mutual Disclosure. Each Party hereto agrees to promptly furnish to
each other Party hereto its public disclosures and filings not precluded from
disclosure by Law including but not limited to call reports, Form 8-K, Form 10-Q
and Form 10-K filings, Y-3 applications, reports on Form Y-6, quarterly or
special reports to shareholders, Tax returns, Form S-8 registration statements
and similar documents.
7.4 Access to Properties and Records. Each Party hereto shall afford the
officers and authorized representatives of the other Party full access to the
Assets, books and records of such Party in order that such other Parties may
have full opportunity to make such investigation as they shall desire of the
affairs of such Party and shall furnish to such Parties such additional
financial and operating data and other information as to its businesses and
Assets as shall be from time to time reasonably requested. All such information
that may be obtained by any such Party will be held in confidence by such party,
will not be disclosed by such Party or any of its representatives except in
accordance with this Agreement, and will not be used by such Party for any
purpose other than the accomplishment of the Merger as provided herein.
7.5 Notice of Adverse Changes. Each Party agrees to give written notice
promptly to the other Party upon becoming aware of the occurrence or impending
occurrence of any event or circumstance relating to it or any of its
Subsidiaries which (i) is reasonably likely to have, individually or in the
aggregate, a Material Adverse Effect on it or (ii) would cause or constitute a
material breach of any of its representations, warranties, or covenants
contained herein, and to use its reasonable efforts to prevent or promptly to
remedy the same.
ARTICLE 8
CONDITIONS TO OBLIGATIONS OF ALL PARTIES
The obligations of BancGroup and Acquired Corporation to cause the
transactions contemplated by this Agreement to be consummated shall be subject
to the satisfaction, in the sole discretion of the Party relying upon such
conditions, on or before the Effective Date of all the following conditions,
except as such Parties may waive such conditions in writing:
8.1 Approval by Shareholders. At the Stockholders Meeting, this Agreement
and the matters contemplated by this Agreement shall have been duly approved by
the vote of the holders of not less than the requisite number of the issued and
outstanding voting securities of Acquired Corporation as is required by
applicable Law and Acquired Corporation's articles of incorporation and bylaws.
8.2 Regulatory Authority Approval. (a) Orders, Consents and approvals, in
form and substance reasonably satisfactory to BancGroup and Acquired
Corporation, shall have been entered by the Board of Governors of the Federal
Reserve System and other appropriate bank regulatory Agencies (i) granting the
authority necessary for the consummation of the transactions contemplated by
this Agreement, including the merger of the Bank with Colonial Bank as
structured pursuant to section 2.8 hereof and (ii) satisfying all other
requirements prescribed by Law. No Order, Consent or approval so obtained which
is necessary to consummate the transactions as contemplated hereby shall be
conditioned or restricted in a manner which in the reasonable good faith
judgment of the Board of Directors of BancGroup would so materially adversely
impact the economic benefits of the transaction as contemplated by this
Agreement so as to render inadvisable the consummation of the Merger.
(b) Each Party shall have obtained any and all other Consents required for
consummation of the Merger (other than those referred to in Section 8.2(a) of
this Agreement) for the preventing of any Default under any Contract or Permit
of such Party which, if not obtained or made, is reasonably likely to have,
individually or in the aggregate, a Material Adverse Effect on such Party. No
Consent obtained which is necessary to
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consummate the transactions contemplated hereby shall be conditioned or
restricted in a manner which in the reasonable judgment of the Board of
Directors of BancGroup would so materially adversely impact the economic or
business benefits of the transactions contemplated by this Agreement so as to
render inadvisable the consummation of the Merger.
8.3 Litigation. There shall be no pending or threatened Litigation in any
court or any pending or threatened proceeding by any governmental commission,
board or Agency, with a view to seeking or in which it is sought to restrain or
prohibit consummation of the transactions contemplated by this Agreement or in
which it is sought to obtain divestiture, rescission or damages in connection
with the transactions contemplated by this Agreement and no investigation by any
Agency shall be pending or threatened which might result in any such suit,
action or other proceeding.
8.4 Registration Statement. The Registration Statement shall be effective
under the 1933 Act and no stop order suspending the effectiveness of the
Registration Statement shall be in effect; no proceedings for such purpose, or
under the proxy rules of the SEC or any bank regulatory authority pursuant to
the 1934 Act, with respect to the transactions contemplated hereby, shall be
pending before or threatened by the SEC or any bank regulatory authority; and
all approvals or authorizations for the offer of BancGroup Common Stock shall
have been received or obtained pursuant to any applicable state securities Laws,
and no stop order or proceeding with respect to the transactions contemplated
hereby shall be pending or threatened under any such state Law.
8.5 Tax Opinion. An opinion of Coopers & Lybrand L.L.P., shall have been
received in form and substance reasonably satisfactory to the Acquired
Corporation and BancGroup to the effect that (i) the Merger will constitute a
"reorganization" within the meaning of section 368 of the Code; (ii) no gain or
loss will be recognized by BancGroup or Acquired Corporation; (iii) no gain or
loss will be recognized by the shareholders of Acquired Corporation who receive
shares of BancGroup Common Stock except to the extent of any taxable "boot"
received by such persons from BancGroup, and except to the extent of any
dividends received from Acquired Corporation prior to the Effective Date; (iv)
the basis of the BancGroup Common Stock received in the Merger will be equal to
the sum of the basis of the shares of Acquired Corporation common stock
exchanged in the Merger and the amount of gain, if any, which was recognized by
the exchanging Acquired Corporation shareholder, including any portion treated
as a dividend, less the value of taxable boot, if any, received by such
shareholder in the Merger; (v) the holding period of the BancGroup Common Stock
will include the holding period of the shares of Acquired Corporation common
stock exchanged therefor if such shares of Acquired Corporation common stock
were capital assets in the hands of the exchanging Acquired Corporation
shareholder; and (vi) cash received by an Acquired Corporation shareholder in
lieu of a fractional share interest of BancGroup Common Stock will be treated as
having been received as a distribution in full payment in exchange for the
fractional share interest of BancGroup Common Stock which he or she would
otherwise be entitled to receive and will qualify as capital gain or loss
(assuming the Acquired Corporation common stock was a capital asset in his or
her hands as of the Effective Date). BancGroup shall pay the fees of Coopers &
Lybrand, L.L.P. incurred in preparing and issuing the above mentioned opinion.
ARTICLE 9
CONDITIONS TO OBLIGATIONS OF ACQUIRED CORPORATION
The obligations of Acquired Corporation to cause the transactions
contemplated by this Agreement to be consummated shall be subject to the
satisfaction on or before the Effective Date of all the following conditions
except as Acquired Corporation may waive such conditions in writing:
9.1 Representations, Warranties and Covenants. Notwithstanding any
investigation made by or on behalf of Acquired Corporation, all representations
and warranties of BancGroup contained in this Agreement shall be true in all
material respects on and as of the Effective Date as if such representations and
warranties were made on and as of such Effective Date, and BancGroup shall have
performed in all material respects all agreements and covenants required by this
Agreement to be performed by it on or prior to the Effective Date.
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9.2 Adverse Changes. There shall have been no changes after the date of
the most recent balance sheet provided under section 4.3(a)(i) hereof in the
results of operations (as compared with the corresponding period of the prior
fiscal year), Assets, Liabilities, financial condition or affairs of BancGroup
which in their total effect constitute a Material Adverse Effect, nor shall
there have been any material changes in the Laws governing the business of
BancGroup which would impair the rights of Acquired Corporation or its
shareholders pursuant to this Agreement.
9.3 Closing Certificate. In addition to any other deliveries required to
be delivered hereunder, Acquired Corporation shall have received a certificate
from the President or a Vice President and from the Secretary or Assistant
Secretary of BancGroup dated as of the Closing certifying that:
(a) the Board of Directors of BancGroup has duly adopted resolutions
approving the substantive terms of this Agreement and authorizing the
consummation of the transactions contemplated by this Agreement and such
resolutions have not been amended or modified and remain in full force and
effect;
(b) each person executing this Agreement on behalf of BancGroup is an
officer of BancGroup holding the office or offices specified therein and
the signature of each person set forth on such certificate is his or her
genuine signature;
(c) the certificate of incorporation and bylaws of BancGroup
referenced in section 4.4 hereof remain in full force and effect;
(d) such persons have no knowledge of a basis for any material claim,
in any court or before any Agency or arbitration or otherwise against, by
or affecting BancGroup or the business, prospects, condition (financial or
otherwise), or Assets of BancGroup which would prevent the performance of
this Agreement or the transactions contemplated by this Agreement or
declare the same unlawful or cause the rescission thereof;
(e) to such persons' knowledge, the Proxy Statement delivered to
Acquired Corporation's shareholders, or any amendments or revisions thereto
so delivered, as of the date thereof, did not contain or incorporate by
reference any untrue statement of a material fact or omit to state any
material fact required to be stated therein or necessary to make the
statements therein not misleading in light of the circumstances under which
they were made (it being understood that such persons need not express a
statement as to information concerning or provided by Acquired Corporation
for inclusion in such Proxy Statement); and
(f) the conditions set forth in this Article 9 insofar as they relate
to BancGroup have been satisfied.
9.4 Opinion of Counsel. Acquired Corporation shall have received an
opinion of Miller, Hamilton, Snider & Odom, L.L.C., counsel to BancGroup, dated
as of the Closing, substantially in the form set forth in Exhibit B hereto.
9.5 NYSE Listing. The shares of BancGroup Common Stock to be issued under
this Agreement shall have been approved for listing on the NYSE.
9.6 Other Matters. There shall have been furnished to such counsel for
Acquired Corporation certified copies of such corporate records of BancGroup and
copies of such other documents as such counsel may reasonably have requested for
such purpose.
9.7 Material Events. There shall have been no determination by the board
of directors of Acquired Corporation that the transactions contemplated by this
Agreement have become impractical because of any state of war, declaration of a
banking moratorium in the United States or a general suspension of trading on
the NYSE or any other exchange on which BancGroup Common Stock may be traded.
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ARTICLE 10
CONDITIONS TO OBLIGATIONS OF BANCGROUP
The obligations of BancGroup to cause the transactions contemplated by this
Agreement to be consummated shall be subject to the satisfaction on or before
the Effective Date of all of the following conditions except as BancGroup may
waive such conditions in writing:
10.1 Representations, Warranties and Covenants. Notwithstanding any
investigation made by or on behalf of BancGroup, all representations and
warranties of Acquired Corporation contained in this Agreement shall be true in
all material respects on and as of the Effective Date as if such representations
and warranties were made on and as of the Effective Date, and Acquired
Corporation shall have performed in all material respects all agreements and
covenants required by this Agreement to be performed by it on or prior to the
Effective Date.
10.2 Adverse Changes. There shall have been no changes after the date of
the most recent balance sheet provided under section 5.4(a)(i) hereof in the
results of operations (as compared with the corresponding period of the prior
fiscal year), Assets, Liabilities, financial condition, or affairs of Acquired
Corporation which constitute a Material Adverse Effect, nor shall there have
been any material changes in the Laws governing the business of Acquired
Corporation which would impair BancGroup's rights pursuant to this Agreement.
10.3 Closing Certificate. In addition to any other deliveries required to
be delivered hereunder, BancGroup shall have received a certificate from
Acquired Corporation executed by the President or Vice President and from the
Secretary or Assistant Secretary of Acquired Corporation dated as of the Closing
certifying that:
(a) the Board of Directors of Acquired Corporation has duly adopted
resolutions approving the substantive terms of this Agreement and
authorizing the consummation of the transactions contemplated by this
Agreement and such resolutions have not been amended or modified and remain
in full force and effect;
(b) the shareholders of Acquired Corporation have duly adopted
resolutions approving the substantive terms of the Merger and the
transactions contemplated thereby and such resolutions have not been
amended or modified and remain in full force and effect;
(c) each person executing this Agreement on behalf of Acquired
Corporation is an officer of Acquired Corporation holding the office or
offices specified therein and the signature of each person set forth on
such certificate is his or her genuine signature;
(d) the articles of incorporation and bylaws of Acquired Corporation
and the Bank referenced in section 5.8 hereof remain in full force and
effect and have not been amended or modified since the date hereof;
(e) to such persons' knowledge, the Proxy Statement delivered to
Acquired Corporation's shareholders, or any amendments or revisions thereto
so delivered, as of the date thereof, did not contain or incorporate by
reference any untrue statement of a material fact or omit to state any
material fact required to be stated therein or necessary to make the
statements therein not misleading in light of the circumstances under which
they were made (it being understood that such persons need only express a
statement as to information concerning or provided by Acquired Corporation
for inclusion in such Proxy Statement); and
(f) the conditions set forth in this Article 10 insofar as they relate
to Acquired Corporation have been satisfied.
10.4 Opinion of Counsel. BancGroup shall have received an opinion of Lyle
& Murphy, L.L.P., counsel to Acquired Corporation, dated as of the Closing,
substantially as set forth in Exhibit C hereto.
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10.5 Controlling Shareholders. Each shareholder of Acquired Corporation
who may be an "affiliate" of Acquired Corporation, within the meaning of Rule
145 of the general rules and regulations under the 1933 Act shall have executed
and delivered an agreement satisfactory to BancGroup to the effect that such
person shall not make a "distribution" (within the meaning of Rule 145) of the
Common Stock which he receives upon the Effective Date and that such Common
Stock will be held subject to all applicable provisions of the 1933 Act and the
rules and regulations of the SEC thereunder, and that such person will not sell
or otherwise reduce risk relative to any shares of BancGroup Common Stock
received in the Merger until financial results concerning at least 30 days of
post-Merger combined operations have been published by BancGroup within the
meaning of Section 201.01 of the SEC's Codification of Financial Reporting
Policies. Acquired Corporation recognizes and acknowledges that BancGroup Common
Stock issued to such persons may bear a legend evidencing the agreement
described above.
10.6 Other Matters. There shall have been furnished to counsel for
BancGroup certified copies of such corporate records of Acquired Corporation and
copies of such other documents as such counsel may reasonably have requested for
such purpose.
10.7 Dissenters. The number of shares as to which shareholders of Acquired
Corporation have exercised dissenters rights of appraisal under section 3.6 does
not exceed 10% of the outstanding shares of common stock of Acquired
Corporation.
10.8 Material Events. There shall have been no determination by the board
of directors of BancGroup that the transactions contemplated by this Agreement
have become impractical because of any state of war, declaration of a banking
moratorium in the United States or general suspension of trading on the NYSE or
any exchange on which BancGroup Common Stock may be traded.
10.9 Pooling of Interest. BancGroup shall have received the written
opinion of Coopers & Lybrand L.L.P., that the Merger will qualify for the
pooling of interests method of accounting under generally accepted accounting
principles.
10.10 Employment Agreements. Employment Agreements, substantially in the
form of the employment agreement attached hereto as Exhibit D, shall have been
executed by each of Richard Martucci and Carol Martucci. The aggregate
compensation to be paid under such agreements, shall be apportioned between
Richard Martucci and Carol Martucci as agreed by Richard Martucci, Carol
Martucci and BancGroup. As consideration for entering into his employment
agreement, Mr. Martucci shall also receive a bonus in the amount of $250,000
payable by BancGroup on the Effective Date. Such payment shall serve as partial
consideration for the noncompete provisions contained in Article 3 of his
employment agreement. An employment agreement with a one-year term in form and
substance reasonably satisfactory to BancGroup shall have been executed by John
Donovan.
10.11 Minority Shares. Acquired Corporation shall have (at a price
acceptable to BancGroup) either acquired the Minority Shares, entered into
enforceable agreements for their acquisition or otherwise assured BancGroup that
as of the Effective Date Acquired Corporation owns 100% of the issued and
outstanding common stock of Bank as set forth in Section 2.9.
ARTICLE 11
TERMINATION OF REPRESENTATIONS AND WARRANTIES
All representations and warranties provided in Articles 4 and 5 of this
Agreement or in any closing certificate pursuant to Articles 9 and 10 shall
terminate and be extinguished at and shall not survive the Effective Date. All
covenants, agreements and undertakings required by this Agreement to be
performed by any Party hereto following the Effective Date shall survive such
Effective Date and be binding upon such Party. If the Merger is not consummated,
all representations, warranties, obligations, covenants, or agreements hereunder
or in any certificate delivered hereunder relating to the transaction which is
not consummated shall be deemed to be terminated or extinguished, except that
the last sentences of Section 7.4 and 6.2(c), and Sections 7.2, 13.3, Article
11, Article 12, Article 15, any applicable definitions of Article 14 shall
survive. Items disclosed in the Exhibits and Schedules attached hereto are
incorporated into this Agreement and form a part of the representations,
warranties, covenants or agreements to which they relate.
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ARTICLE 12
NOTICES
All notices or other communications which are required or permitted
hereunder shall be in writing and sufficient if delivered by hand, by facsimile
transmission, by registered or certified mail, postage pre-paid, or by courier
or overnight carrier, to the persons at the addresses set forth below (or at
such other address as may be provided hereunder), and shall be deemed to have
been delivered as of the date so received:
(a) If to Acquired Corporation, to Richard Martucci, InterWest
Bancorp, 2330 South Virginia Street, Reno, Nevada 89502, with a copy to
Marvin W. Murphy, Esquire, Lyle & Murphy, L.L.P., 245 East Liberty Street,
Third Floor, Reno, Nevada 89501, or as may otherwise be specified by
Acquired Corporation in writing to BancGroup.
(b) If to BancGroup, to W. Flake Oakley, IV, One Commerce Street,
Suite 803, Montgomery, Alabama, 36104, facsimile (334) 240-5069, with
copies to William A. McCrary, Esquire, One Commerce Street, Suite 303,
Montgomery, Alabama 36104, facsimile (334) 240-5069, and Willard H. Henson,
Miller, Hamilton, Snider & Odom, L.L.C., One Commerce Street, Suite 305,
Montgomery, Alabama 36104, facsimile (334) 265-4533, or as may otherwise be
specified in writing by BancGroup to Acquired Corporation.
ARTICLE 13
AMENDMENT OR TERMINATION
13.1 Amendment. This Agreement may be amended by the mutual consent of
BancGroup and Acquired Corporation before or after approval of the transactions
contemplated herein by the shareholders of Acquired Corporation.
13.2 Termination. This Agreement may be terminated at any time prior to or
on the Effective Date whether before or after action thereon by the shareholders
of Acquired Corporation, as follows:
(a) by the mutual consent of the respective boards of directors of
Acquired Corporation and BancGroup;
(b) by the board of directors of either Party (provided that the
terminating Party is not then in material breach of any representation,
warranty, covenant, or other agreement contained in this Agreement) in the
event of a material breach by the other Party of any representation or
warranty contained in this Agreement which cannot be or has not been cured
within thirty (30) days after the giving of written notice to the breaching
Party of such breach and which breach would provide the non-breaching Party
the ability to refuse to consummate the Merger under the standard set forth
in section 10.1 of this Agreement in the case of BancGroup and section 9.1
of this Agreement in the case of Acquired Corporation;
(c) by the board of directors of either Party (provided that the
terminating Party is not then in material breach of any representation,
warranty, covenant, or other agreement contained in this Agreement) in the
event of a material breach by the other Party of any covenant or agreement
contained in this Agreement which cannot be or has not been cured within
thirty (30) days after the giving of written notice to the breaching Party
of such breach, or if any of the conditions to the obligations of such
Party contained in this Agreement in Article 9 as to Acquired Corporation
or Article 10 as to BancGroup shall not have been satisfied in full; or
(d) by the board of directors of either BancGroup or Acquired
Corporation if all transactions contemplated by this Agreement shall not
have been consummated on or prior to January 15, 1999, 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).
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(e) without further action by either Party, upon the execution by
Acquired Corporation of an agreement which is legally binding on Acquired
Corporation with any third party (other than BancGroup or its Subsidiaries)
with respect to an Acquisition Proposal if, in connection therewith,
BancGroup will have the right to demand Acquired Corporations' performance
under the Stock Option Agreement.
13.3 Damages. In the event of termination pursuant to section 13.2, this
Agreement shall become void and have no effect except as provided in Article 11,
and except that Acquired Corporation and BancGroup shall be liable for damages
for any wilful breach of warranty, representation, covenant or other agreement
contained in this Agreement.
ARTICLE 14
DEFINITIONS
(a) The following terms, which are capitalized in this Agreement, shall
have the meanings set forth below for the purpose of this Agreement:
Acquired Corporation....... Interwest Bancorp
Acquired Corporation
Company................ Shall mean Acquired Corporation, the Bank, the
Mortgage Company, any Subsidiary of Acquired
Corporation or the Bank, or any person or entity
acquired as a Subsidiary of Acquired Corporation,
the Bank or the Mortgage Company in the future and
owned by Acquired Corporation, the Bank or the
Mortgage Company at the Effective Date.
Acquired Corporation
Options................ Options respecting the issuance of a maximum of
178,112 shares of Acquired Corporation common stock
pursuant to Acquired Corporation's stock option
plans.
Acquired Corporation
Stock.................. Shares of common stock, without par value, of
Acquired Corporation.
Acquisition Proposal....... Shall mean, with respect to a Party, any tender
offer or exchange offer or any proposal for a
merger, acquisition of all of the stock or assets
of, or other business combination involving such
Party or any of its Subsidiaries or the acquisition
of a substantial equity interest in, or a
substantial portion of the assets of, such Party or
any of its Subsidiaries.
Agencies................... Shall mean, collectively, the Federal Trade
Commission, the United States Department of
Justice, the Board of the Governors of the Federal
Reserve System, the Federal Deposit Insurance
Corporation, the Office of Thrift Supervision, all
state regulatory agencies having jurisdiction over
the Parties and their respective Subsidiaries, HUD,
the VA, the FHA, the GNMA, the FNMA, the FHLMC, the
NYSE, and the SEC.
Agreement.................. Shall mean this Agreement and Plan of Merger and
the Exhibits and Schedules delivered pursuant
hereto and incorporated herein by reference.
Assets..................... Of a Person shall mean all of the assets,
properties, businesses and rights of such Person of
every kind, nature, character and description,
whether real, personal or mixed, tangible or
intangible, accrued or contingent, or otherwise
relating to or utilized in such Person's business,
directly or indirectly, in whole or in part,
whether or not carried on the books and records of
such Person, and whether or not owned in the name
of such Person or any Affiliate of such Person and
wherever located.
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BancGroup.................. The Colonial BancGroup, Inc., a Delaware
corporation with its principal offices in
Montgomery, Alabama.
Bank....................... InterWest Bank.
Closing.................... The submission of the certificates of officers,
legal opinions and other actions required to be
taken in order to consummate the Merger in
accordance with this Agreement.
Code....................... The Internal Revenue Code of 1986, as amended.
Common Stock............... BancGroup's Common Stock authorized and defined in
the restated certificate of incorporation of
BancGroup, as amended.
Confidentiality
Agreement.............. Confidentiality Agreement executed by BancGroup and
Acquired Corporation on or around March 9, 1998.
Consent.................... Any consent, approval, authorization, clearance,
exemption, waiver, or similar affirmation by any
Person pursuant to any Contract, Law, Order, or
Permit.
Contract................... Any written or oral agreement, arrangement,
authorization, commitment, contract, indenture,
instrument, lease, obligation, plan, practice,
restriction, understanding or undertaking of any
kind or character, or other document to which any
Person is a party or that is binding on any Person
or its capital stock, Assets or business.
Default.................... Shall mean (i) any breach or violation of or
default under any Contract, Order or Permit, (ii)
any occurrence of any event that with the passage
of time or the giving of notice or both would
constitute a breach or violation of or default
under any Contract, Order or Permit, or (iii) any
occurrence of any event that with or without the
passage of time or the giving of notice would give
rise to a right to terminate or revoke, change the
current terms of, or renegotiate, or to accelerate,
increase, or impose any Liability under, any
Contract, Order or Permit.
DGCL....................... The Delaware General Corporation Law.
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 used to calculate the Merger
Consideration as set forth in section 3.1(a).
Exhibits................... A through D, 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.
FFIEC...................... The Federal Financial Institutions Examination
Council.
GAAP....................... Means generally accepted accounting principles
applicable to banks and bank holding companies
consistently applied during the periods involved.
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Knowledge.................. Means the actual knowledge (or the knowledge which
should have been obtained) after due investigation
and inquiry of the Chairman, President, Chief
Financial Officer, or any Senior or Executive Vice
President of BancGroup, in the case of knowledge of
BancGroup. In the case of Acquired Corporation it
means the actual knowledge (or the knowledge which
should have been obtained) after due investigation
and inquiry by the Chairman, President, Chief
Financial Officer, or any other Executive Officer
of Acquired Corporation, in the case of knowledge
of Acquired Corporation.
Law........................ Any code, law, ordinance, regulation, reporting or
licensing requirement, rule, or statute applicable
to a Person or its Assets, Liabilities or business,
including, without limitation, those promulgated,
interpreted or enforced by any Agency.
Liability.................. Any direct or indirect, primary or secondary,
liability, indebtedness, obligation, penalty, cost
or expense (including, without limitation, costs of
investigation, collection and defense), deficiency,
guaranty or endorsement of or by any Person (other
than endorsements of notes, bills, checks, and
drafts presented for collection or deposit in the
ordinary course of business) of any type, whether
accrued, absolute or contingent, liquidated or
unliquidated, matured or unmatured, or otherwise.
Lien....................... Any conditional sale agreement, default of title,
easement, encroachment, encumbrance, hypothecation,
infringement, lien, mortgage, pledge, reservation,
restriction, security interest, title retention or
other security arrangement, or any adverse right or
interest, charge, or claim of any nature whatsoever
of, on, or with respect to any property or property
interest, other than (i) Liens for current property
Taxes not yet due and payable, (ii) for depository
institution Subsidiaries of a Party, pledges to
secure deposits and other Liens incurred in the
ordinary course of the banking business, (iii)
Liens in the form of easements and restrictive
covenants on real property which do not materially
adversely affect the use of such property by the
current owner thereof, and (iv) Liens which are not
reasonably likely to have, individually or in the
aggregate, a Material Adverse Effect on a Party.
Litigation................. Any action, arbitration, complaint, criminal
prosecution, governmental or other examination or
investigation, hearing, inquiry, administrative or
other proceeding but shall not include regular,
periodic examinations of depository institutions
and their Affiliates by Regulatory Authorities,
relating to or affecting a Party, its business, its
Assets (including Contracts related to it), or the
transactions con templated by this Agreement.
relating to or affecting a Party, its business, its
Assets (including Contracts related to it), or the
transactions contemplated by this Agreement.
Loan Property.............. Any property owned by the Party in question or by
any of its Subsidiaries or in which such Party or
Subsidiary holds a security interest, and, where
required by the context, includes the owner or
operator of such property, but only with respect to
such property.
Loss....................... Any and all direct or indirect payments,
obligations, recoveries, deficiencies, fines,
penalties, interest, assessments, losses,
diminution in the value of Assets, damages,
punitive, exemplary or consequential damages
(including, but not limited to, lost income and
profits and interruptions of
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business), liabilities, costs, expenses (including
without limitation, reasonable attorneys' fees and
expenses, and consultant's fees and other costs of
defense or investigation), and interest on any
amount payable to a third party as a result of the
foregoing.
market value............... Shall represent the per share market value of the
BancGroup Common Stock at the Effective Date and
shall be determined by calculating the average of
the closing prices of the Common Stock of BancGroup
as reported by the NYSE on each of the ten (10)
consecutive trading days ending on the trading day
five trading days preceding the Effective Date.
material................... For purposes of this Agreement shall be determined
in light of the facts and circumstances of the
matter in question; provided that any specific
monetary amount stated in this Agreement shall
determine materiality in that instance.
Material Adverse Effect.... On a Party shall mean an event, change or
occurrence which has a material adverse impact on
(i) the financial position, Assets, business, or
results of operations of such Party and its
Subsidiaries, taken as a whole, or (ii) the ability
of such Party to perform its obligations under this
Agreement or to consummate the Merger or the other
transactions contemplated by this Agreement,
provided that "material adverse effect" shall not
be deemed to include the impact of (w) changes in
banking and similar laws of general applicability
or interpretations thereof by courts or
governmental authorities, (x) changes in generally
accepted accounting principles or regulatory
accounting principles generally applicable to banks
and their holding companies, (y) actions and
omissions of a Party (or any of its Subsidiaries)
taken with the prior informed consent of the other
Party in contemplation of the transactions
contemplated hereby, and (z) the Merger and
compliance with the provisions of this Agreement on
the operating performance of the Parties.
Merger..................... The merger of Acquired Corporation with BancGroup
as contemplated in this Agreement.
Merger Consideration....... The distribution of BancGroup Common Stock for each
share of Acquired Corporation Stock (and cash for
fractional shares) as provided in section 3.1(a)
hereof.
Mortgage Company........... InterWest Mortgage.
Net Income................. Net income in accordance with GAAP.
NRS........................ Nevada Revised Statutes.
NYSE....................... The New York Stock Exchange.
Order...................... Any administrative decision or award, decree,
injunction, judgment, order, quasi-judicial
decision or award, ruling, or writ of any federal,
state, local or foreign or other court, arbitrator,
mediator, tribunal, administrative agency or
Agency.
Party...................... Shall mean Acquired Corporation or BancGroup, and
"Parties" shall mean both Acquired Corporation and
BancGroup.
Permit..................... Any federal, state, local, and foreign governmental
approval, authorization, certificate, easement,
filing, franchise, license, notice, permit, or
right to which any Person is a party or that is or
may be binding upon or inure to the benefit of any
Person or its securities, Assets or business.
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Person..................... A natural person or any legal, commercial or
governmental entity, such as, but not limited to, a
corporation, general partnership, joint venture,
limited partnership, limited liability company,
trust, business association, group acting in
concert, or any person acting in a representative
capacity.
Proxy Statement............ The proxy statement used by Acquired Corporation to
solicit the approval of its stockholders of the
transactions contemplated by this Agreement, which
shall include the prospectus of BancGroup relating
to the issuance of the BancGroup Common Stock to
the shareholders of Acquired Corporation.
Registration Statement..... The registration statement on Form S-4, or such
other appropriate form, to be filed with the SEC by
BancGroup, and which has been agreed to by Acquired
Corporation, to register the shares of BancGroup
Common Stock offered to stockholders of the Bank
pursuant to this Agreement, including the Proxy
Statement.
Resulting Corporation...... BancGroup, as the surviving corporation resulting
from the Merger.
SEC........................ United States Securities and Exchange Commission.
Shareholders Meeting....... The special meeting of shareholders of Acquired
Corporation called to approve the transactions
contemplated by this Agreement.
Stock Option Agreement..... The agreement dated as of the date hereof between
BancGroup and Acquired Corporation granting to
BancGroup the right to acquire up to 19.9% of
Acquired Corporation common stock.
Subsidiaries............... Shall mean all those corporations, banks,
associations, or other entities of which the entity
in question owns or controls 5% or more of the
outstanding equity securities either directly or
through an unbroken chain of entities as to each of
which 5% or more of the outstanding equity
securities is owned directly or indirectly by its
parent; provided, however, there shall not be
included any such entity acquired through
foreclosure or any such entity the equity
securities of which are owned or controlled in a
fiduciary capacity.
Tax or Taxes............... Means any federal, state, county, local, foreign,
and other taxes, assessments, charges, fares, and
impositions, including interest and penalties
thereon or with respect thereto.
1933 Act................... The Securities Act of 1933, as amended.
1934 Act................... The Securities Exchange Act of 1934, as amended.
ARTICLE 15
MISCELLANEOUS
15.1 Expenses. (a) Except as otherwise provided in this Section 15.1, each
of the Parties shall bear and pay all direct costs and expenses incurred by it
or on its behalf in connection with the transactions contemplated hereunder,
including filing, registration and application fees, printing fees, and fees and
expenses of its own financial or other consultants, investment bankers,
accountants, and counsel, except that BancGroup shall bear and pay the filing
fees payable in connection with the Registration Statement and printing costs
incurred in connection with the printing of the Registration Statement.
(b) Nothing contained in this Section 15.1 shall constitute or shall be
deemed to constitute liquidated damages for the willful breach by a Party of the
terms of this Agreement or otherwise limit the rights of the nonbreaching Party.
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15.2 Benefit and Assignment. Except as expressly contemplated hereby,
neither this Agreement nor any of the rights, interests, or obligations
hereunder shall be assigned by any Party hereto (whether by operation of Law or
otherwise) without the prior written consent of the other Party. Subject to the
preceding sentence, this Agreement will be binding upon, inure to the benefit
of, and be enforceable by, the Parties and their respective successors and
assigns.
15.3 Governing Law. Except to the extent the Laws of the State of Delaware
and the State of Nevada apply to the Merger, this Agreement shall be governed
by, and construed in accordance with the Laws of the State of Alabama without
regard to any conflict of Laws.
15.4 Counterparts. This Agreement may be executed in counterparts, each of
which shall be deemed to constitute an original. Each such counterpart shall
become effective when one counterpart has been signed by each Party thereto.
15.5 Headings. The headings of the various articles and sections of this
Agreement are for convenience of reference only and shall not be deemed a part
of this Agreement or considered in construing the provisions thereof.
15.6 Severability. Any term or provision of this Agreement that is
prohibited or unenforceable in any jurisdiction shall, as to such jurisdiction,
be ineffective to the extent of such prohibition or unenforceability without
invalidating the remaining terms and provisions thereof or affecting the
validity or enforceability of such provision in any other jurisdiction, and if
any term or provision of this Agreement is held by any court of competent
jurisdiction to be void, voidable, invalid or unenforceable in any given
circumstance or situation, then all other terms and provisions, being severable,
shall remain in full force and effect in such circumstance or situation and the
term or provision shall remain valid and in effect in any other circumstances or
situation.
15.7 Construction. Use of the masculine pronoun herein shall be deemed to
refer to the feminine and neuter genders and the use of singular references
shall be deemed to include the plural and vice versa, as appropriate. No
inference in favor of or against any Party shall be drawn from the fact that
such Party or such Party's counsel has drafted any portion of this Agreement.
15.8 Return of Information. In the event of termination of this Agreement
prior to the Effective Date, each Party shall return to the other, without
retaining copies thereof, all confidential or non-public documents, work papers
and other materials obtained from the other Party in connection with the
transactions contemplated in this Agreement and shall keep such information
confidential, not disclose such information to any other person or entity, and
not use such information in connection with its business.
15.9 Equitable Remedies. The parties hereto agree that, in the event of a
breach of this Agreement by either Party, the other Party may be without an
adequate remedy at law owing to the unique nature of the contemplated
transactions. In recognition thereof, in addition to (and not in lieu of) any
remedies at law that may be available to the non-breaching Party, the
non-breaching Party shall be entitled to obtain equitable relief, including the
remedies of specific performance and injunction, in the event of a breach of
this Agreement by the other Party, and no attempt on the part of the
non-breaching Party to obtain such equitable 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,
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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.
IN WITNESS WHEREOF, Acquired Corporation and BancGroup have caused this
Agreement to be signed by their respective duly authorized officers as of the
date first above written.
INTERWEST BANCORP
BY: /s/ RICHARD MARTUCCI
-----------------------------------
Richard Martucci
ITS: President and CEO
(CORPORATE SEAL)
<TABLE>
<C> <S>
ATTEST: THE COLONIAL BANCGROUP, INC.
BY: /s/ GLENDA ALLRED BY: /s/ W. FLAKE OAKLEY IV
------------------------------------ -------------------------------------------------
Glenda Allred W. Flake Oakley, IV
ITS: Assistant Secretary ITS: Executive Vice President,
Chief Financial Officer and Secretary
</TABLE>
(CORPORATE SEAL)
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APPENDIX B
NEVADA REVISED STATUTES, SECTIONS 92A.300 THROUGH 92A.500
MERGERS AND EXCHANGES OF INTEREST -- RIGHTS OF DISSENTING OWNERS
NRS 92A.300. Definitions.
As used in NRS 92A.300 to 92A.500, inclusive, unless the context otherwise
requires, the words and terms defined in NRS 92A.305 to 92A.335, inclusive, have
the meanings ascribed to them in those sections. (Added to NRS by 1995, 2086).
NRS 92A.305. "Beneficial stockholder" defined.
"Beneficial stockholder" means a person who is a beneficial owner of shares
held in a voting trust or by a nominee as the stockholder of record. (Added to
NRS by 1995, 2087)
NRS 92A.310 "Corporate action" defined.
"Corporate action" means the action of a domestic corporation. (Added to
NRS by 1995, 2087).
NRS 92A.315. "Dissenter" defined.
"Dissenter" means a stockholder who is entitled to dissent from a domestic
corporation's action under NRS 92A.380 and who exercises that right when and in
the manner required by NRS 92A.410 to 92A.480,inclusive. (Added to NRS by 1995,
2087).
NRS 92A.320. "Fair value" defined.
"Fair value," with respect to a dissenter's shares, means the value of the
shares immediately before the effectuation of the corporate action to which he
objects, excluding any appreciation or depreciation in anticipation of the
corporate action unless exclusion would be inequitable. (Added to NRS by 1995,
2087).
NRS 92A.325. "Stockholder" defined.
"Stockholder" means a stockholder of record or a beneficial stockholder of
a domestic corporation. (Added to NRS by 1995, 2087).
NRS 92A.330. "Stockholder of record" defined.
"Stockholder of record" means the person in whose name shares are
registered in the records of a domestic corporation or the beneficial owner of
shares to the extent of the rights granted by a nominee's certificate on file
with the domestic corporation. (Added to NRS by 1995, 2087).
NRS 92A.335. "Subject corporation" defined.
"Subject corporation" means the domestic corporation which is the issuer of
the shares held by a dissenter before the corporate action creating the
dissenter's rights becomes effective or the surviving or acquiring entity of
that issuer after the corporate action becomes effective. (Added to NRS by 1995,
2087).
NRS 92A.340. Computation of interest.
Interest payable pursuant to NRS 92A.300 to 92A.500, inclusive, must be
computed from the effective date of the action until the date of payment, at the
average rate currently paid by the entity on its principal bank loans or, if it
has no bank loans, at a rate that is fair and equitable under all of the
circumstances. (Added to NRS by 1995, 2087).
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NRS 92A.350. Rights of dissenting partner of domestic limited partnership.
A partnership agreement of a domestic limited partnership or, unless
otherwise provided in the partnership agreement, an agreement of merger or
exchange, may provide that contractual rights with respect to the partnership
interest of a dissenting general or limited partner of a domestic limited
partnership are available for any class or group of partnership interests in
connection with any merger or exchange in which the domestic limited partnership
is a constituent entity. (Added to NRS by 1995, 2088).
NRS 92A.360. Rights of dissenting member of domestic limited-liability company.
The articles of organization or operating agreement of a domestic
limited-liability company or, unless otherwise provided in the articles of
organization or operating agreement, an agreement of merger or exchange, may
provide that contractual rights with respect to the interest of a dissenting
member are available in connection with any merger or exchange in which the
domestic limited-liability company is a constituent entity. (Added to NRS by
1995, 2088).
NRS 92A.370. Rights of dissenting member of domestic nonprofit corporation.
1. Except as otherwise provided in subsection 2, and unless otherwise
provided in the articles or bylaws, any member of any constituent domestic
nonprofit corporation who voted against the merger may, without prior notice,
but within 30 days after the effective date of the merger, resign from
membership and is thereby excused from all contractual obligations to the
constituent or surviving corporations which did not occur before his resignation
and is thereby entitled to those rights, if any, which would have existed if
there had been no merger and the membership had been terminated or the member
had been expelled.
2. Unless otherwise provided in its articles of incorporation or bylaws, no
member of a domestic nonprofit corporation, including, but not limited to, a
cooperative corporation, which supplies services described in chapter 704 of NRS
to its members only, and no person who is a member of a domestic nonprofit
corporation as a condition of or by reason of the ownership of an interest in
real property, may resign and dissent pursuant to subsection 1.(Added to NRS by
1995, 2088).
NRS 92A.380. Right of stockholder to dissent from certain corporate actions and
to obtain payment for shares.
1. Except as otherwise provided in NRS 92A.370 and 92A.390, a stockholder
is entitled to dissent from, and obtain payment of the fair value of his shares
in the event of any of the following corporate actions:
(a) Consummation of a plan of merger to which the domestic corporation
is a party:
(1) If approval by the stockholders is required for the merger by
NRS 92A.120 to 92A.160, inclusive, or the articles of incorporation and
he is entitled to vote on the merger; or
(2) If the domestic corporation is a subsidiary and is merged with
its parent under NRS 92A.180).
(b) Consummation of a plan of exchange to which the domestic
corporation is a party as the corporation whose subject owner's interests
will be acquired, if he is entitled to vote on the plan.
(c) Any corporate action taken pursuant to a vote of the stockholders
to the event that the articles of incorporation, bylaws or a resolution of
the board of directors provides that voting or nonvoting stockholders are
entitled to dissent and obtain payment for their shares.
2. A stockholder who is entitled to dissent and obtain payment under NRS
92A.300 to 92A.500, inclusive, may not challenge the corporate action creating
his entitlement unless the action is unlawful or fraudulent with respect to him
or the domestic corporation. (Added to NRS by 1995, 2087).
NRS 92A.390. Limitations on right of dissent: Stockholders of certain classes or
series; action of stockholders not required for plan of merger.
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1. There is no right of dissent with respect to a plan of merger or
exchange in favor of stockholders of any class or series which, at the record
date fixed to determine the stockholders entitled to receive notice of and to
vote at the meeting at which the plan of merger or exchange is to be acted on,
were either listed on a national securities exchange, included in the national
market system by the National Association of Securities Dealers, Inc., or held
by at least 2,000 stockholders of record, unless:
(a) The articles of incorporation of the corporation issuing the
shares provide otherwise; or
(b) The holders of the class or series are required under the plan of
merger or exchange to accept for the shares anything except:
(1) Cash, owner's interests or owner's interests and cash in lieu
of fractional owner's interests of:
(I) The surviving or acquiring entity; or
(II) Any other entity which, at the effective date of the plan
of merger or exchange, were either listed on a national securities
exchange, included in the national market system by the National
Association of Securities Dealers, Inc., or held of record by a least
2,000 holders of owner's interests of record; or
(2) A combination of cash and owner's interests of the kind
described in sub-subparagraphs (I) and (II) of subparagraph (1) of
paragraph (b).
2. There is no right of dissent for any holders of stock of the surviving
domestic corporation if the plan of merger does not require action of the
stockholders of the surviving domestic corporation under NRS 92A.130. (Added to
NRS by 1995, 2088).
NRS 92A.400. Limitations on right of dissent: Assertion as to portions only to
shares registered to stockholder; assertion by beneficial stockholder.
1. A stockholder of record may assert dissenter's rights as to fewer than
all of the shares registered in his name only if he dissents with respect to all
shares beneficially owned by any one person and notifies the subject corporation
in writing of the name and address of each person on whose behalf he asserts
dissenter's rights. The rights of a partial dissenter under this subsection are
determined as if the shares as to which he dissents and his other shares were
registered in the names of different stockholders.
2. A beneficial stockholder may assert dissenter's rights as to shares held
on his behalf only if:
(a) He submits to the subject corporation the written consent of the
stockholder of record to the dissent not later than the time the beneficial
stockholder asserts dissenter's rights; and
(b) He does so with respect to all shares of which he is the
beneficial stockholder or over which he has power to direct the vote.
(Added to NRS by 1995, 2089).
NRS 92A.410. Notification of stockholders regarding right of dissent.
1. If a proposed corporate action creating dissenters' rights is submitted
to a vote at a stockholders' meeting, the notice of the meeting must state that
stockholders are or may be entitled to assert dissenters' rights under NRS
92A.300 to 92A.500, inclusive, and be accompanied by a copy of those sections.
2. If the corporate action creating dissenters' rights is taken by written
consent of the stockholders or without a vote of the stockholders, the domestic
corporation shall notify in writing all stockholders entitled to assert
dissenters' rights that the action was taken and send them the dissenter's
notice described in NRS 92A.430. (Added to NRS by 1995, 2089; A 1997, 730).
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NRS 92A.420. Prerequisites to demand for payment for shares.
1. If a proposed corporate action creating dissenters' rights is submitted
to a vote at a stockholders' meeting, a stockholder who wishes to assert
dissenter's rights:
(a) Must deliver to the subject corporation, before the vote is taken,
written notice of his intent to demand payment for his shares if the
proposed action is effectuated; and
(b) Must not vote his shares in favor of the proposed action. 2. A
stockholder who does not satisfy the requirements of subsection 1 is not
entitled to payment for his shares under this chapter. (Added to NRS by
1995, 2089).
NRS 92A.430. Dissenter's notice: Delivery to stockholders entitled to assert
rights; contents.
1. If a proposed corporate action creating dissenters' rights is authorized
at a stockholders' meeting, the subject corporation shall deliver a written
dissenter's notice to all stockholders who satisfied the requirements to assert
those rights.
2. The dissenter's notice must be sent no later than 10 days after the
effectuation of the corporate action, and must:
(a) State where the demand for payment must be sent and where and when
certificates, if any, for shares must be deposited;
(b) Inform the holders of shares not represented by certificates to
what extent the transfer of the shares will be restricted after the demand
for payment is received;
(c) Supply a form for demanding payment that includes the date of the
first announcement to the news media or to the stockholders of the terms of
the proposed action and requires that the person asserting dissenter's
rights certify whether or not he acquired beneficial ownership of the
shares before that date;
(d) Set a date by which the subject corporation must receive the
demand for payment, which may not be less than 30 nor more than 60 days
after the date the notice is delivered; and
(e) Be accompanied by a copy of NRS 92A.300 to 92A.500,
inclusive.(Added to NRS by 1995, 2089).
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NRS 92A.440. Demand for payment and deposit of certificates; retention of rights
of stockholder.
1. A stockholder to whom a dissenter's notice is sent must:
(a) Demand payment;
(b) Certify whether he acquired beneficial ownership of the shares
before the date required to be set forth in the dissenter's notice for this
certification; and
(c) Deposit his certificates, if any, in accordance with the terms of
the notice.
2. The stockholder who demands payment and deposits his certificates, if
any, before the proposed corporate action is taken retains all other rights of a
stockholder until those rights are canceled or modified by the taking of the
proposed corporate action.
3. The stockholder who does not demand payment or deposit his certificates
where required, each by the date set forth in the dissenter's notice, is not
entitled to payment for his shares under this chapter.(Added to NRS by 1995,
2090; A 1997, 730).
NRS 92A.450. Uncertificated shares: Authority to restrict transfer after demand
for payment; retention of rights of stockholder.
1. The subject corporation may restrict the transfer of shares not
represented by a certificate from the date the demand for their payment is
received.
2. The person for whom dissenter's rights are asserted as to shares not
represented by a certificate retains all other rights of a stockholder until
those rights are canceled or modified by the taking of the proposed corporate
action. (Added to NRS by 1995, 2090).
NRS 92A.460. Payment for shares: General requirements.
1. Except as otherwise provided in NRS 92A.470, within 30 days after
receipt of a demand for payment, the subject corporation shall pay each
dissenter who complied with NRS 92A.440 the amount the subject corporation
estimates to be the fair value of his shares, plus accrued interest. The
obligation of the subject corporation under this subsection may be enforced by
the district court:
(a) Of the county where the corporation's registered office is
located; or
(b) At the election of any dissenter residing or having its registered
office in this state, of the county where the dissenter resides or has its
registered office. The court shall dispose of the complaint promptly.
2. The payment must be accompanied by:
(a) The subject corporation's balance sheet as of the end of a fiscal
year ending not more than 16 months before the date of payment, a statement
of income for that year, a statement of changes in the stockholders' equity
for that year and the latest available interim financial statements, if
any;
(b) A statement of the subject corporation's estimate of the fair
value of the shares;
(c) An explanation of how the interest was calculated;
(d) A statement of the dissenter's rights to demand payment under NRS
92A.480; and
(e) A copy of NRS 92A.300 to 92A.500, inclusive. (Added to NRS by
1995, 2090).
NRS 92A.470 Payment for shares: Shares acquired on or after date of dissenter's
notice.
1. A subject corporation may elect to withhold payment from a dissenter
unless he was the beneficial owner of the shares before the date set forth in
the dissenter's notice as the date of the first announcement to the news media
or to the stockholders of the terms of the proposed action.
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2. To the extent the subject corporation elects to withhold payment, after
taking the proposed action, it shall estimate the fair value of the shares, plus
accrued interest, and shall offer to pay this amount to each dissenter who
agrees to accept it in full satisfaction of his demand. The subject corporation
shall send with its offer a statement of its estimate of the fair value of the
shares, an explanation of how the interest was calculated, and a statement of
the dissenters' right to demand payment pursuant to NRS 92A.480. (Added to NRS
by 1995, 2091).
NRS 92A.480. Dissenter's estimate of fair value: Notification of subject
corporation; demand for payment of estimate.
1. A dissenter may notify the subject corporation in writing of his own
estimate of the fair value of his shares and the amount of interest due, and
demand payment of his estimate, less any payment pursuant to NRS 92A.460, or
reject the offer pursuant to NRS 92A.470 and demand payment of the fair value of
his shares and interest due, if he believes that the amount paid pursuant to NRS
92A.460 or offered pursuant to NRS 92A.470 is less than the fair value of his
shares or that the interest due is incorrectly calculated.
2. A dissenter waives his right to demand payment pursuant to this section
unless he notifies the subject corporation of his demand in writing within 30
days after the subject corporation made or offered payment for his shares.
(Added to NRS by 1995, 2091).
NRS 92A.490. Legal proceeding to determine fair value: Duties of subject
corporation; powers of court; rights of dissenter.
1. If a demand for payment remains unsettled, the subject corporation shall
commence a proceeding within 60 days after receiving the demand and petition the
court to determine the fair value of the shares and accrued interest. If the
subject corporation does not commence the proceeding within the 60-day period,
it shall pay each dissenter whose demand remains unsettled the amount demanded.
2. A subject corporation shall commence the proceeding in the district
court of the county where its registered office is located. If the subject
corporation is a foreign entity without a resident agent in the state, it shall
commence the proceeding in the county where the registered office of the
domestic corporation merged with or whose shares were acquired by the foreign
entity was located.
3. The subject corporation shall make all dissenters, whether or not
residents of Nevada, whose demands remain unsettled, parties to the proceeding
as in an action against their shares. All parties must be served with a copy of
the petition. Nonresidents may be served by registered or certified mail or by
publication as provided by law.
4. The jurisdiction of the court in which the proceeding is commenced under
subsection 2 is plenary and exclusive. The court may appoint one or more persons
as appraisers to receive evidence and recommend a decision on the question of
fair value. The appraisers have the powers described in the order appointing
them, or any amendment thereto. The dissenters are entitled to the same
discovery rights as parties in other civil proceedings.
5. Each dissenter who is made a party to the proceeding is entitled to a
judgment:
(a) For the amount, if any, by which the court finds the fair value of
his shares, plus interest, exceeds the amount paid by the subject
corporation; or
(b) For the fair value, plus accrued interest, of his after-acquired
shares for which the subject corporation elected to withhold payment
pursuant to NRS 92A.470. (Added to NRS by 1995, 2091).
NRS 92A.500. Legal proceeding to determine fair value: Assessment of costs and
fees.
1. The court in a proceeding to determine fair value shall determine all of
the costs of the proceeding, including the reasonable compensation and expenses
of any appraisers appointed by the court. The court shall assess the costs
against the subject corporation, except that the court may assess costs against
all or some of
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the dissenters, in amounts the court finds equitable, to the extent the court
finds the dissenters acted arbitrarily, vexatiously or not in good faith in
demanding payment.
2. The court may also assess the fees and expenses of the counsel and
experts for the respective parties, in amounts the court finds equitable:
(a) Against the subject corporation and in favor of all dissenters if
the court finds the subject corporation did not substantially comply with
the requirements of NRS 92A.300 to 92A.500, inclusive; or
(b) Against either the subject corporation or a dissenter in favor of
any other party, if the court finds that the party against whom the fees
and expenses are assessed acted arbitrarily, vexatiously or not in good
faith with respect to the rights provided by NRS 92A.300 to 92A.500,
inclusive.
3. If the court finds that the services of counsel for any dissenter were
of substantial benefit to other dissenters similarly situated, and that the fees
for those services should not be assessed against the subject corporation, the
court may award to those counsel reasonable fees to be paid out of the amounts
awarded to the dissenters who were benefitted.
4. In a proceeding commenced pursuant to NRS 92A.460, the court may assess
the costs against the subject corporation, except that the court may assess
costs against all or some of the dissenters who are parties to the proceeding,
in amounts the court finds equitable, to the extent the court finds that such
parties did not act in good faith in instituting the proceeding.
5. This section does not preclude any party in a proceeding commenced
pursuant to NRS 92A.460 or 92A.490 from applying the provisions of N.R.C.P. 68
or NRS 17.115. (Added to NRS by 1995, 2092).
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APPENDIX C
STOCK OPTION AGREEMENT
STOCK OPTION AGREEMENT, dated as of June 16, 1998 (the "Agreement"), by and
between InterWest Bancorp, a Nevada corporation ("Issuer"), and The Colonial
BancGroup, Inc., a Delaware corporation ("Grantee").
WHEREAS, Grantee and Issuer have entered into an Agreement and Plan of
Merger dated as of June 16, 1998 (the "Merger Agreement"), providing for, among
other things, the merger of Issuer with and into Grantee, with Grantee as the
surviving corporation; and
WHEREAS, as a condition and inducement to Grantee's execution of the Merger
Agreement, Grantee has required that Issuer agree, and Issuer has agreed, to
grant Grantee the Option (as defined below);
NOW THEREFORE, in consideration of the foregoing and the respective
representations, warranties, covenants, and agreements set forth herein and in
the Merger Agreement, and intending to be legally bound hereby, Issuer and
Grantee agree as follows:
1. Defined Terms. Capitalized terms which are used but not defined
herein shall have the meanings ascribed to such terms in the Merger
Agreement.
2. Grant of Option. Subject to the terms and conditions set forth
herein, Issuer hereby grants to Grantee an irrevocable option (the
"Option") to purchase from time to time up to 605,709 shares (as adjusted
as set forth herein) (the "Option Shares"), of Common Stock, without par
value ("Issuer Common Stock"), of Issuer at a purchase price per Option
Share (the "Purchase Price") equal to $8.25; provided, however, that in no
event shall the number of shares for which this option is exercisable
exceed 19.9% of the outstanding shares of Issuer Common Stock.
3. Exercise of Option. (a) Provided that (i) Grantee shall not be in
material breach of the agreements or covenants contained in this Agreement
or the Merger Agreement, and (ii) no preliminary or permanent injunction or
other order against the delivery of shares covered by the Option issued by
any court of competent jurisdiction in the United States shall be in
effect, Grantee may exercise the Option, in whole or in part, at any time
and from time to time following the occurrence of a Purchase Event (as
defined below); provided that the Option shall terminate and be of no
further force or effect upon the earliest to occur of (A) the Effective
Date, or (B) termination of the Merger Agreement in accordance with the
terms thereof prior to the occurrence of a Purchase Event or a Preliminary
Purchase Event, (C) termination of the Merger Agreement in accordance with
the terms thereof after the occurrence of a Purchase Event or a Preliminary
Purchase Event (other than a termination of the Merger Agreement by Grantee
due to a material breach by Issuer in accordance with Section 13.2(b) of
the Merger Agreement or a termination due to the failure to fulfill
conditions set forth in Sections 8.1, 10.1, 10.3, 10.4, 10.6, 10.7, 10.9 or
10.11 of the Merger Agreement), or (D) eighteen months after termination of
the Merger Agreement following the occurrence of a Purchase Event or a
Preliminary Purchase Event, provided that the termination of the Merger
Agreement was due to one of the reasons listed in the parenthetical of
Clause (C) above; and provided further, that any purchase of shares upon
exercise of the Option shall be subject to compliance with applicable law
including, without limitation, the Bank Holding Company Act of 1956, as
amended (the "BHC Act"). The rights set forth in Section 8 shall terminate
when the right to exercise the Option terminates (other than as a result of
a complete exercise of the Option) as set forth herein.
(b) As used herein, a "Purchase Event" means any of the following events:
(i) Without Grantee's prior written consent, Issuer shall have
authorized, recommended, publicly proposed, or publicly announced an
intention to authorize, recommend, or propose, or shall have entered into
any agreement with any person (other than Grantee or any subsidiary of
Grantee) to effect an Acquisition Transaction (as defined below). As used
herein, the term Acquisition Transaction shall mean (A) a merger,
consolidation, or other business combination involving Issuer, (B) the
disposition, by sale,
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lease, exchange, or otherwise, of assets of Issuer or any of its
subsidiaries representing in either case all or substantially all of the
consolidated assets of Issuer, or (C) the issuance, sale, or other
disposition of (including by way of merger, consolidation, share exchange,
or any similar transaction) securities representing 25% or more of the
voting power of Issuer; or
(ii) any person (other than Grantee or any subsidiary of Grantee)
shall have acquired beneficial ownership (as such term is defined in Rule
13d-3 promulgated under the Securities Exchange Act of 1934 (the "1934
Act")) of or the right to acquire beneficial ownership of, or any "group"
(as such term is defined under the 1934 Act) shall have been formed which
beneficially owns or has the right to acquire beneficial ownership of, 25%
or more of the then outstanding shares of Issuer Common Stock.
(c) As used herein, a "Preliminary Purchase Event" means any of the
following events:
(i) any person (other than Grantee or any subsidiary of Grantee) shall
have commenced (as such term is defined in Rule 14d-2 under the 1934 Act),
or shall have filed a registration statement under the 1933 Act with
respect to, a tender offer or exchange offer to purchase any shares of
Issuer Common Stock such that, upon consummation of such offer, such person
would own or control 25% or more of the then outstanding shares of Issuer
Common Stock (such an offer being referred to herein as a "Tender Offer" or
an "Exchange Offer," respectively); or
(ii) (1) the holders of Issuer Common Stock shall not have approved
the Merger Agreement at the meeting of such stockholders held for the
purpose of voting on the Merger Agreement, (2) such meeting shall not have
been held or shall have been canceled prior to termination of the Merger
Agreement, (3) the Issuer's Board of Directors or any person representing
such Board shall have commenced negotiations with any person other than
Grantee regarding an Acquisition Transaction, or (4) Issuer's Board of
Directors shall have withdrawn or modified in a manner adverse to Grantee
the recommendation of Issuer's Board of Directors with respect to the
Merger Agreement, in each case after it shall have been publicly announced
(or otherwise disclosed to the Issuer prior to such public announcement)
that any person (other than Grantee or any subsidiary of Grantee) shall
have (A) made, or disclosed to Issuer an intention to make, a proposal to
engage in an Acquisition Transaction, (B) commenced a Tender Offer or filed
a registration statement under the 1933 Act with respect to an Exchange
Offer, or (C) filed an application (or given a notice), whether in draft or
final form, under the BHC Act, the Bank Merger Act, or the Change in Bank
Control Act of 1978, or other appropriate banking agency, for approval to
engage in an Acquisition Transaction.
As used in this Agreement, "person" shall have the meaning specified in Sections
3(a)(9) and 13(d)(3) of the 1934 Act.
(d) In the event Grantee wishes to exercise the Option, it shall send to
Issuer a written notice (the date of which being herein referred to as the
"Notice Date") specifying (i) the total number of Option Shares it intends to
purchase pursuant to such exercise and (ii) a place and date not earlier than
three business days nor later than 15 business days from the Notice Date for the
closing (the "Closing") of such purchase (the "Closing Date"). If prior
notification to or approval of the Board of Governors of the Federal Reserve
System (the "Federal Reserve Board") or any other regulatory authority is
required in connection with such purchase, Issuer shall cooperate with Grantee
in the filing of the required notice or application for approval and the
obtaining of such approval and the Closing shall occur immediately following
such regulatory approvals (and any mandatory waiting periods).
4. Payment and Delivery of Certificates. (a) On each Closing Date, Grantee
shall (i) pay to Issuer, in immediately available funds by wire transfer to a
bank account designated by Issuer, an amount equal to the Purchase Price
multiplied by the number of Option Shares to be purchased on such Closing Date,
and (ii) present and surrender this Agreement to the Issuer at the address of
the Issuer specified in Section 11(f) hereof.
(b) At each Closing, simultaneously with the delivery of immediately
available funds and surrender of this Agreement as provided in Section 4(a), (i)
Issuer shall deliver to Grantee (A) a certificate or certificates representing
the Option Shares to be purchased at such Closing, which Option Shares shall be
free and clear
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of all liens, claims, charges, and encumbrances of any kind whatsoever and
subject to no pre-emptive rights, and (B) if the Option is exercised in part
only, an executed new agreement with the same terms as this Agreement evidencing
the right to purchase the balance of the shares of Issuer Common Stock
purchasable hereunder, and (ii) Grantee shall deliver to Issuer a letter
agreeing that Grantee shall not offer to sell or otherwise dispose of such
Option Shares in violation of applicable federal and state law or of the
provisions of this Agreement.
(c) In addition to any other legend that is required by applicable law,
certificates for the Option Shares delivered at each Closing shall be endorsed
with a restrictive legend which shall read substantially as follows:
THE STOCK REPRESENTED BY THIS CERTIFICATE HAS NOT BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933 OR ANY STATE LAW AND THE TRANSFER OF THE STOCK
REPRESENTED BY THIS CERTIFICATE IS SUBJECT TO RESTRICTIONS ARISING UNDER
THE SECURITIES ACT OF 1933, AS AMENDED, AND PURSUANT TO THE TERMS OF A
STOCK OPTION AGREEMENT DATED AS OF JUNE 16, 1998. A COPY OF SUCH AGREEMENT
WILL BE PROVIDED TO THE HOLDER HEREOF WITHOUT CHARGE UPON RECEIPT BY THE
ISSUER OF A WRITTEN REQUEST THEREFOR.
It is understood and agreed that: (i) the reference to restrictions arising
under the 1933 Act in the above legend shall be removed by delivery of
substitute certificate(s) without such reference if Grantee shall have delivered
to Issuer a copy of a letter from the staff of the United States Securities and
Exchange Commission ("SEC"), or an opinion of counsel in form and substance
reasonably satisfactory to Issuer and its counsel, to the effect that such
legend is not required for purposes of the 1933 Act; and (ii) the reference to
restrictions pursuant to this Agreement in the above legend shall be removed by
delivery of a substitute certificate without such reference if the Option Shares
evidenced by such certificate containing such reference have been sold or
transferred in compliance with the provisions of this Agreement under
circumstances that do not require the retention of such reference.
5. Representations and Warranties of Issuer. Issuer hereby represents and
warrants to Grantee as follows:
(a) Issuer has all requisite corporate power and authority to enter
into this Agreement and, subject to any approvals referred to herein, to
consummate the transactions contemplated hereby. The execution and delivery
of this Agreement and the consummation of the transactions contemplated
hereby have been duly authorized by all necessary corporate action on the
part of Issuer. This Agreement has been duly executed and delivered by
Issuer.
(b) Issuer has taken all necessary corporate and other action to
authorize and reserve and to permit it to issue (and at all times from the
date hereof until the obligation to deliver Issuer Common Stock upon the
exercise of the Option terminates, will have reserved for issuance), upon
exercise of the Option, the number of shares of Issuer Common Stock
necessary for Grantee to exercise the Option, and Issuer will take all
necessary corporate action to authorize and reserve for issuance all
additional shares of Issuer Common Stock or other securities which may be
issued pursuant to Section 7 upon exercise of the Option. The shares of
Issuer Common Stock to be issued upon due exercise of the Option, including
all additional shares of Issuer Common Stock or other securities which may
be issuable pursuant to Section 7, upon issuance pursuant hereto, shall be
duly and validly issued, fully paid and nonassessable, and shall be
delivered free and clear of all liens, claims, charges, and encumbrances of
any kind or nature whatsoever, including any statutory preemptive rights of
any stockholder of Issuer.
6. Representations and Warranties of Grantee. Grantee hereby represents
and warrants to Issuer that:
(a) Grantee has all requisite corporate power and authority to enter
into this Agreement and, subject to any approvals or consents referred to
herein, to consummate the transactions contemplated hereby. The execution
and delivery of this Agreement and the consummation of the transactions
contemplated hereby have been duly authorized by all necessary corporate
action on the part of Grantee. This Agreement has been duly executed and
delivered by Grantee.
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(b) This Option is not being, and any Option Shares or other
securities acquired by Grantee upon exercise of the Option will not be,
acquired with a view to the public distribution thereof and will not be
transferred or otherwise disposed of except in a transaction registered or
exempt from registration under the 1933 Act.
7. Adjustment upon Changes in Capitalization, etc. (a) In the event of a
change in Issuer Common Stock by reason of a stock dividend, stock split,
split-up, recapitalization, combination, exchange of shares, or similar
transaction, the type and number of shares or securities subject to the Option,
and the Purchase Price therefor, shall be adjusted appropriately, subject to the
limitation set forth in Section 2 hereof, and proper provision shall be made in
the agreements governing such transaction so that Grantee shall receive, upon
exercise of the Option, the number and class of shares or other securities or
property that Grantee would have received in respect of Issuer Common stock if
the Option had been exercised immediately prior to such event, or the record
date therefor, as applicable. If any additional shares of Issuer Common Stock
are issued after the date of this Agreement (other than pursuant to an event
described in the first sentence of this Section 7(a) or a sale of the Issuer
Common Stock for cash at its fair market value), the number of shares of Issuer
Common Stock subject to the Option shall be adjusted so that, after such
issuance, the shares of Issuer Common Stock subject to the Option, together with
any shares of Issuer Common Stock previously issued pursuant hereto, equal 19.9%
of the number of shares of Issuer Common Stock then issued and outstanding.
(b) In the event that Issuer shall enter into an agreement: (i) to
consolidate with or merge into any person, other than Grantee or one of its
subsidiaries, and shall not be the continuing or surviving corporation of such
consolidation or merger; (ii) to permit any person, other than Grantee or one of
its subsidiaries, to merge into Issuer and Issuer shall be the continuing or
surviving corporation, but, in connection with such merger, the then-outstanding
shares of Issuer Common Stock shall be changed into or exchanged for stock or
other securities of the Issuer or any other person or cash or any other property
or the outstanding shares of Issuer Common Stock immediately prior to such
merger shall after such merger represent less than 50% of the outstanding shares
and share equivalents of the merged company; or (iii) to sell or otherwise
transfer all or substantially all of its assets to any person, other than
Grantee or one of its subsidiaries, then, and in each such case, the agreement
governing such transaction shall make proper provisions so that the Option
shall, upon the consummation of any such transaction and upon the terms and
conditions set forth herein, be converted into, or exchanged for, an option (the
"Substitute Option"), at the election of Grantee, of either (x) the Acquiring
Corporation (as defined below), (y) any person that controls the Acquiring
Corporation, or (z) in the case of a merger described in clause (ii), the Issuer
(in each case, such person being referred to as the "Substitute Option Issuer").
(c) The Substitute Option shall have the same terms as the Option, provided
that, if the terms of the Substitute Option cannot, for legal reasons, be the
same as the Option, such terms shall be as similar as possible and in no event
less advantageous to Grantee. The Substitute Option Issuer shall also enter into
an agreement with the then-holder or holders of the Substitute Option in
substantially the same form as this Agreement, which shall be applicable to the
Substitute Option.
(d) The Substitute Option shall be exercisable for such number of shares of
the Substitute Common Stock (as hereinafter defined) as is equal to the Assigned
Value (as hereinafter defined) multiplied by the number of shares of the Issuer
Common Stock for which the Option was theretofore exercisable, divided by the
Average Price (as hereinafter defined). The exercise price of the Substitute
Option per share of the Substitute Common Stock (the "Substitute Purchase
Price") shall then be equal to the Purchase Price multiplied by a fraction in
which the numerator is the number of shares of the Issuer Common Stock for which
the Option was theretofore exercisable and the denominator is the number of
shares for which the Substitute Option is exercisable.
(e) The following terms have the meanings indicated:
(i) "Acquiring Corporation" shall mean (x) the continuing or surviving
corporation of a consolidation or merger with the Issuer (if other than the
Issuer), (y) the Issuer in a merger in which the Issuer is the continuing
or surviving person, and (z) the transferee of all or substantially all of
the Issuer's assets.
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(ii) "Substitute Common Stock" shall mean the common stock issued by
the Substitute Option Issuer upon exercise of the Substitute Option.
(iii) "Assigned Value" shall mean the highest of (x) the price per
share of the Issuer Common Stock at which a Tender Offer or Exchange Offer
therefor has been made by any person after the date hereof (other than
Grantee), (y) the price per share of the Issuer Common Stock to be paid by
any person (other than the Grantee) pursuant to an agreement with the
Issuer, or (z) the highest closing sales price per share of Issuer Common
Stock quoted on the National Association of Securities Dealers Automated
Quotation National Market System ("NASDAQ/NMS") (or if Issuer Common Stock
is not quoted on the NASDAQ/NMS, the highest bid price per share on any day
as quoted on the principal trading market or securities exchange on which
such shares are traded as reported by a recognized source chosen by Grantee
or, if there is no such information available, the value of such shares as
determined by a nationally recognized investment banking firm compensated
and selected by Grantee) within the six-month period immediately preceding
the Agreement; provided, however, that in the event of a sale of all or
substantially all of the Issuers' assets, the Assigned Value shall be the
sum of the price paid in such sale for such assets and the current market
value of the remaining assets of the Issuer as determined by a nationally
recognized investment banking firm selected by Grantee (or by a majority in
interest of the Grantees if there shall be more than one Grantee (a
"Grantee Majority")), divided by the number of shares of the Issuer Common
Stock outstanding at the time of such sale.
(iv) "Average Price" shall mean the average closing price of a share
of the Substitute Common Stock for the one year immediately preceding the
consolidation, merger or sale in question, but in no event-higher than the
closing price of the shares of the Substitute Common Stock on the day
preceding such consolidation, merger, or sale, provided that if Issuer is
the issuer of the Substitute Option, the Average Price shall be computed
with respect to a share of common stock issued by the Issuer, the person
merging into the Issuer or by any company which controls or is controlled
by such merger person, as Grantee may elect, and provided further that if
there is no such trading information available, the price of such shares
shall be determined by a nationally recognized investment banking firm
selected by Grantee.
(f) In no event pursuant to any of the foregoing paragraphs shall the
Substitute Option be exercisable for more than 19.9% of the aggregate of the
shares of the Substitute Common Stock outstanding prior to exercise of the
Substitute Option. In the event that the Substitute Option would be exercisable
for more than 19.9% of the aggregate of the shares of Substitute Common Stock
but for this clause (f), the Substitute Option Issuer shall make a cash payment
to Grantee equal to the excess of (i) the value of the Substitute Option without
giving effect to the limitation in this clause (f) over (ii) the value of the
Substitute Option after giving effect to the limitation in this clause (f). This
difference in value shall be determined by a nationally recognized investment
banking firm selected by Grantee (or a Grantee Majority).
(g) Issuer shall not enter into any transaction described in subsection (b)
of this Section 7 unless the Acquiring Corporation and any person that controls
the Acquiring Corporation assumes in writing all the obligations of Issuer
hereunder and takes all other actions that may be necessary so that the
provisions of this Section 7 are given full force and effect (including, without
limitation, any action that may be necessary so that the shares of Substitute
Common Stock are in no way distinguishable from or have lesser economic value
than other shares of common stock issued by the Substitute Option Issuer) (other
than any diminution in value resulting from the fact that the shares of
Substitute Common Stock are restricted securities as defined in Rule 144 under
the 1933 Act or any successor provision).
(h) The provisions of Sections 8, 9, and 10 shall apply, with appropriate
adjustments, to any securities for which the Option becomes exercisable pursuant
to this Section 7 and, as applicable, references in such sections to "Issuer,"
"Option," "Purchase Price," and "Issuer Common Stock" shall be deemed to be
references to "Substitute Option Issuer," "Substitute Option," "Substitute
Purchase Price," and "Substitute Common Stock," respectively.
8. Repurchase at the Option of Grantee. (a) Subject to the last sentence
of Section 3(a), at the request of Grantee at any time commencing upon the first
occurrence of a Repurchase Event (as defined in Section 8(d)) and ending 30 days
immediately thereafter, Issuer shall, to the extent permitted by applicable
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law, repurchase from Grantee the Option and all shares of Issuer Common Stock
purchased by Grantee pursuant hereto with respect to which Grantee then has
beneficial ownership. The date on which Grantee exercises its right under this
Section 8 is referred to as the "Request Date". Such repurchase shall be at an
aggregate price (the "Section 8 Repurchase Consideration") equal to the sum of:
(i) the aggregate Purchase Price paid by Grantee for any shares of
Issuer Common Stock acquired pursuant to the Option with respect to which
Grantee then has beneficial ownership;
(ii) The excess, if any, of (x) the Applicable Price (as defined
below) for each share of Issuer Common Stock over (y) the Purchase Price
(subject to adjustment pursuant to Section 7), multiplied by the number of
shares of Issuer Common Stock with respect to which the Option has not been
exercised; and
(iii) the excess, if any, of the Applicable Price over the Purchase
Price (subject to adjustment pursuant to Section 7) paid (or, in the case
of Option Shares with respect to which the Option has been exercised but
the Closing Date has not occurred, payable) by Grantee for each share of
Issuer Common Stock with respect to which the Option has been exercised and
with respect to which Grantee then has beneficial ownership, multiplied by
the number of such shares.
(b) If Grantee exercises its right under this Section 8, Issuer shall, to
the extent permitted by applicable law, within 10 business days after the
Request Date, pay the Section 8 Repurchase Consideration to Grantee in
immediately available funds, and contemporaneously with such payment Grantee
shall surrender to Issuer the Option and the certificates evidencing the shares
of Issuer Common Stock purchased thereunder with respect to which Grantee then
has beneficial ownership, and Grantee shall warrant that it has sole record and
beneficial ownership of such shares and that the same are then free and clear of
all liens, claims, charges, and encumbrances of any kind whatsoever.
Notwithstanding the foregoing, to the extent that prior notification to or
approval of the Board of Governors of the Federal Reserve System or other
regulatory authority is required in connection with the payment of all or any
portion of the Section 8 Repurchase Consideration, Grantee shall have the
ongoing option to revoke its request for repurchase pursuant to this Section 8,
in whole or in part, or to require that Issuer deliver from time to time that
portion of the Section 8 Repurchase Consideration that it is not then so
prohibited from paying and promptly file the required notice or application for
approval and expeditiously process the same (and each party shall cooperate with
the other in the filing of any such notice or application and the obtaining of
any such approval). If the Board of Governors of the Federal Reserve System or
any other regulatory authority disapproves of any part of Issuer's proposed
repurchase pursuant to this Section 8, Issuer shall promptly give notice of such
fact to Grantee. If the Board of Governors of the Federal Reserve System or
other agency prohibits the repurchase in part but not in whole, then Grantee
shall have the right (i) to revoke the repurchase request, or (ii) to the extent
permitted by the Board of Governors of the Federal Reserve System or other
agency, determine whether the repurchase should apply to the Option and/or
Option Shares and to what extent to each, and Grantee shall thereupon have the
right to exercise the Option as to the number of Options Shares for which the
Option was exercisable at the Request Date less the sum of the number of shares
covered by the Option in respect of which payment has been made pursuant to
Section 8(a)(ii) and the number of shares covered by the portion of the Option
(if any) that has been repurchased. Grantee shall notify Issuer of its
determination under the preceding sentence within five (5) days of receipt of
notice of disapproval of the repurchase.
Notwithstanding anything herein to the contrary, all of the Grantee's
rights under this Section 8 shall terminate on the date of termination of this
Option pursuant to Section 3(a).
(c) For purposes of this Agreement, the "Applicable Price" means the
highest of (i) the highest price per share of Issuer Common Stock paid for any
such share by the person or groups described in Section 8(d)(i); (ii) the price
per share of Issuer Common Stock received by holders of Issuer Common Stock in
connection with any merger or other business combination transaction described
in Section 7(b)(i), 7(b)(ii) or 7(b)(iii); or (iii) the highest closing sales
per share of Issuer Common Stock quoted on the NASDAQ/NMS (or if Issuer Common
Stock is not quoted on the market or securities exchange on which such shares
are traded as reported by a recognized source chosen by Grantee and reasonably
acceptable to Issuer) during the 60 business days preceding the Request Date;
provided, however, that in the event of a sale of less than all of Issuer's
assets, the Applicable Price shall be the sum of the price paid in such sale for
such
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assets and the current market value of the remaining assets of Issuer as
determined by a nationally recognized investment banking firm selected by
Grantee, divided by the number of shares of the Issuer Common Stock outstanding
at the time of such sale. If the consideration to be offered, paid or received
pursuant to either of the foregoing clauses (i) or (ii) shall be other than in
cash, the value of such consideration shall be determined in good faith by an
independent nationally recognized investment banking firm selected by Grantee
and reasonably acceptable to Issuer, which determination shall be conclusive for
all purposes of the Agreement.
(d) As used herein, "Repurchase Event" shall occur if (i) any person (other
than Grantee or any subsidiary of Grantee) shall have acquired beneficial
ownership of (as such term is defined in Rule 13d-3 promulgated under the 1934
Act), or the right to acquire beneficial ownership of, or any "group" (as such
term is defined under the 1934 Act) shall have been formed which beneficially
owns or has the right the acquire beneficial ownership of, 50% or more of the
then outstanding shares of Issuer Common Stock, or (ii) any of the transactions
described in Section 7(b)(i), 7(b)(ii), or 7(b)(iii) shall be consummated.
(e) In connection with the application of the provisions of this Section 8,
Grantee acknowledges that Issuer's ability to fund the Section 8 Repurchase
Consideration in accordance with the provisions of this Section 8 may be
dependant upon the ability of Issuer to obtain the prior approval of the Board
of Governors of the Federal Reserve System and applicable provisions of Nevada
law and that, unless there has been an agreement of the type described in
Section 7(b), Issuer's obligations under this Section 8 do not impose on the
Issuer an obligation to otherwise finance the payment of the Section 8
Repurchase Consideration through the incurrence of indebtedness or the issuance
of capital instruments or securities by Issuer in either case sufficient in
amount to satisfy the payment of the Section 8 Repurchase Consideration.
Accordingly, Issuer shall not be deemed to be in breach of this Section 8 if,
after making its best efforts to obtain regulatory authorization for a capital
distribution required to pay the Section 8 Repurchase Consideration, it is
unable to do so.
9. Quotation: Listing. If the Issuer Common Stock or any other securities
to be acquired upon exercise of the Option are then authorized for quotation or
trading or listing on the NASDAQ/NMS or any securities exchange, Issuer, upon
the request of Grantee, will promptly file an application, if required, to
authorize for quotation or trading or listing shares of Issuer Common Stock or
other securities to be acquired upon exercise of the Option on the NASDAQ/NMS or
such other securities exchange and will use its best efforts to obtain approval,
if required, of such quotation or listing as soon as practicable.
10. Division of Option. This Agreement (and the Option granted hereby) are
exchangeable, without expense, at the Option of the Grantee, upon presentation
and surrender of this Agreement at the principal office of Issuer for other
Agreements providing for Options of different denominations entitling the holder
thereof to purchase in the aggregate the same number of shares of Issuer Common
Stock purchasable hereunder. The terms "Agreement" and "Option" as used herein
include any other Agreements and related Options for which this Agreement (and
the Option granted hereby) may be exchanged. Upon receipt by Issuer of evidence
reasonably satisfactory to it of the loss, theft, destruction, or mutilation of
this Agreement, and (in the case of loss, theft, or destruction) of reasonably
satisfactory indemnification, and upon surrender and cancellation of this
Agreement, if mutilated, Issuer will execute and deliver a new Agreement of like
tenor and date. Any such new Agreement executed and delivered shall constitute
an additional contractual obligation on the part of the Issuer, whether or not
the Agreement so lost, stolen, destroyed or mutilated shall at any time be
enforceable by anyone.
11. Miscellaneous. (a) Expenses. Each of the parties hereto shall bear
and pay all costs and expenses incurred by it or on its behalf in connection
with the transactions contemplated hereunder, including fees and expenses of its
own financial consultants, investment bankers, accountants and counsel.
(b) Waiver and Amendments. Any provision of this Agreement may be waived
at any time in writing by the party that is entitled to the benefits of such
provision. This Agreement may not be modified, amended, altered, or supplemented
except upon the execution and delivery of a written agreement executed by the
parties hereto.
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<PAGE> 160
(c) Entire Agreement: No Third-Party Beneficiary: Severability. This
Agreement, together with the Merger Agreement and the other documents and
instruments referred to herein and therein, between Grantee and Issuer (a)
constitutes the entire agreement and supersedes all prior agreements and
understandings, both written and oral, between the parties with respect to the
subject matter hereof and (b) is not intended to confer upon any person other
than the parties hereto (other than any transferee of the Option Shares or any
permitted transferee of this Agreement pursuant to Section 11(h)) any rights or
remedies hereunder. If any terms, provision, covenant, or restriction of this
Agreement is held by a court of competent jurisdiction or a federal or state
regulatory agency to be invalid, void or unenforceable, the remainder of the
terms, provisions, covenants, and restrictions of this Agreement shall remain in
full force and effect and shall in no way be affected, impaired, or invalidated.
If for any reason such court or regulatory agency determines that the Option
does not permit Grantee to Acquire, or does not require Issuer to repurchase,
the full number of shares of Issuer Common Stock as provided in Sections 3 and 8
(as adjusted pursuant to Section 7), it is the express intention of Issuer to
allow Grantee to Acquire or to require Issuer to repurchase such lesser number
of shares as may be permissible without any amendment or modification hereof.
(d) Governing Law. This Agreement shall be governed and construed in
accordance with the laws of the State of Alabama without regard to any
applicable conflicts of law rules.
(e) Descriptive Headings. The description headings contained herein are
for convenience of reference only and shall not affect in any way the meaning or
interpretation of this Agreement.
(f) Notices. All notices and other communications hereunder shall be in
writing and shall be deemed given if delivered personally, telecopied (with
confirmation), or mailed by registered or certified mail (return receipt
requested) to the parties at the following addresses (or at such other address
for a party as shall be specified by like notice):
If to Issuer to: InterWest Bancorp
2330 South Virginia Street
Reno, Nevada 89502
Telecopy Number: (702) 827-7267
Attention: Richard Martucci
President and CEO
with a copy to: Lyle & Murphy, L.L.P.
245 East Liberty Street, 3rd Floor
Reno, Nevada 89515
Telecopy Number: (702) 348-5000
Attention: Marvin W. Murphy
If to Grantee to: The Colonial BancGroup, Inc.
P.O. Box 1108
Montgomery, Alabama 36101
Telecopy Number: (334) 240-5069
Attention: W. Flake Oakley, IV
Chief Financial Officer
with a copy to: William A. McCrary
Vice President & Legal Counsel
One Commerce Street
Montgomery, Alabama 36104
Telecopy Number: (334) 240-5315
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<PAGE> 161
(g) Counterparts. This Agreement and all amendments hereto may be executed
in two counterparts, each of which shall be considered one and the same
agreement and shall become effective when both counterparts have been signed, it
being understood that both parties need not sign the same counterpart.
(h) Assignment. Neither this Agreement nor any of the rights, interests,
or obligations hereunder or under the Option shall be assigned by any of the
parties hereto (whether by operation of law or otherwise) without the prior
written consent of the other party, except that Grantee may assign this
Agreement to a wholly owned subsidiary of Grantee. Subject to the preceding
sentence, this Agreement shall be binding upon, inure to the benefit of and be
enforceable by the parties and their respective successors and assigns.
(i) Further Assurances. In the event of any exercise of the Option by
Grantee, Issuer and Grantee shall execute and deliver all other documents and
instruments and take all other action that may be reasonably necessary in order
to consummate the transactions provided for by such exercise.
(j) Specific Performance. The parties hereto agree that this Agreement may
be enforced by either party through specific performance, injunctive relief, and
other equitable relief. Both parties further agree to waive any requirement for
the securing or posting of any bond in connection with the obtaining of any such
equitable relief and that this provision is without prejudice to any other
rights that the parties hereto may have for any failure to perform this
Agreement.
IN WITNESS WHEREOF, Issuer and Grantee have caused this agreement to be
signed by their respective officers thereunto duly authorized, all as of the day
and year first written above.
<TABLE>
<S> <C>
INTERWEST BANCORP
By: /s/ RICHARD MARTUCCI
-----------------------------------------------
Richard Martucci
President and CEO
[CORPORATE SEAL]
ATTEST: THE COLONIAL BANCGROUP, INC.
By: /s/ GLENDA ALLRED By: /s/ W. FLAKE OAKLEY, IV
---------------------------------------------- -----------------------------------------------
Assistant Secretary W. Flake Oakley, IV
Chief Financial Officer
[CORPORATE SEAL]
</TABLE>
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<PAGE> 162
PROXY FOR SPECIAL SHAREHOLDERS MEETING OF INTERWEST BANCORP
KNOW ALL MEN BY THESE PRESENTS, that I, the undersigned shareholder of
InterWest Bancorp ("InterWest"), do hereby nominate, constitute, and appoint,
Richard L. Martucci, Sr. and Alan L. Horner, or any one of them (with full power
and substitution for me and in my name, place and stead) to vote all the common
stock of InterWest standing in my name on its books at the close of business on
August 26, 1998 at the Special Meeting of its shareholders to be held at 2330
South Virginia Street, Reno, Nevada, on October 2, 1998 at 9:00 a.m., local
time, or any adjournments thereof with all the powers the undersigned would
possess if personally present as follows:
1. To ratify, confirm, approve and adopt an Agreement and Plan of Merger dated
as of June 16, 1998 (the "Agreement"), by and between InterWest and The
Colonial BancGroup, Inc. ("BancGroup"), with such agreement providing for,
among other things, the merger of InterWest with and into BancGroup, with
BancGroup to be the surviving corporation. Each outstanding share of
InterWest common stock will be converted into common shares of BancGroup in
accordance with the terms of the Agreement.
[ ] FOR [ ] AGAINST [ ] ABSTAIN
2. To transact such other business as may properly come before the meeting or
any adjournment thereof.
This proxy confers authority to vote "FOR" the propositions listed above
unless "AGAINST" or "ABSTAIN" is indicated. If any business is presented at said
meeting, this proxy shall be voted in accordance with the recommendations of
management. All shares represented by properly-executed proxies will be voted as
directed.
The Board of Directors recommends a vote "FOR" the propositions. THIS PROXY
IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS and may be revoked prior to its
exercise by either written notice or personally at the meeting or by a
subsequently-dated proxy.
Date: , 1998
----------------------
------------------------------
------------------------------
(Signature of Shareholder(s))
(WHEN SIGNING AS ATTORNEY,
EXECUTOR, ADMINISTRATOR,
TRUSTEE OR GUARDIAN, PLEASE
GIVE FULL TITLE. IF MORE THAN
ONE TRUSTEE, ALL SHOULD SIGN.
ALL JOINT OWNERS MUST SIGN.)
